22yr old needs retirement advice!

**Ramose** · 10-21-2012, 01:02 AM

I don't know much about this stuff either, but somewhere on here I read that your bonds percentage should be your age. I'm not sure if that applies to retirement accounts or just normal investing portfolios. Hope someone else can help further.

**J.Apple902** · 10-21-2012, 08:29 AM

Many people would say that someone your age who is investing in a mutual fund should choose something more agressive than what you have now. Sure there are mutual funds which are 100% stocks, but I'm not sure how many people would say with confidence that it would be a good idea for you. I just turned 25 (been at my entry level position for 9 months), and my 401k mutual fund is something like 90% stocks, 5% bonds, 5% other assets; or around that region.

You are doing the right thing though. If the service doesn't offer a 401k with match (I'm surprised if they do not) then the next best step for your retirement money is certainly a ROTH. Vangaurd also seems to be one of the most widely used companies which is a positive thing.

Cheers

**chrisburke21** · 10-21-2012, 03:57 PM

Advice

Start saving as much as possible in tax deferred accounts. Put the power of compounding on your side. Check out (it has some good basics):

Money 101 - Financial Advice & Lessons Made Easy by CNNMoney.com

**jIM_Ohio** · 10-21-2012, 05:47 PM

A 60-40 portfolio will teach you a lot about investing.

You could learn the same things with a 40-60 or 80-20 portfolio too, so you made a good choice, and there are other good choices too. Investing is not a "set it and forget it" type of action.

Investing $100/mo is a good start
ramping up to a higher contribution is the opposite of "forget it", and is a good habit to be in.

Do not let others tell you how much risk to take with your own money.

**Gina23** · 10-22-2012, 08:20 AM

By no means am I telling you how or what to invest in...

But, when I was your age I went with a 60/40 mix and I regret it now. I'm currently allocated at 80/20 and will not start pulling off until I am in my 40's. You have a lot of time to let that risk and reward even itself out. I agree with who said you'll learn a lot at 60/40, but you'll learn even more about how to keep your emotions in check at 80/20.

**Ramose** · 10-23-2012, 12:19 AM

It really depends on how much risk you are willing to take.

**Petunia 100** · 10-23-2012, 09:22 AM

Originally posted by jchapps View Post

Hey there, I am new to this whole investing in the future thing and I need some help. I apologize to begin with for my knowledge on the subject is slim to none so please correct any misconceptions I might have.
I am a 22yr old soldier (currently deployed) and finally have some money saved! With that being said I need to start planning (Even though all of my young adult senses are trying to blow all of my hard earned pay on a nice car and random electronics lol). I have first set up a emergancy savings account with my bank (usaa) and have no debts at all right now except for a credit card that is paid off in full every month. I have been doing some research and found that a Roth IRA is most likely my best option for my age/financial goals. The Army offers a retirment plan that really only benifits you if you are making a carrier out of it (which I'm not, finishing my contract in about 10 months). I went and started an account with vanguard (roth ira) and invested 3,000 (the minimal) into a balanced index fund VBINX (60% stocks 40% bonds) with auto payments of $100 going into it every month. I read that you should max it out as soon as you can but this is what I can work out with my current finances.
Upon further research I feel like this Index fund might have been a bad choice and I should of maybe went for a Traget retirement fund or somthing with more stocks. So what I am basically asking is did I make the right choice? And if not what changes should I make? I am shooting for more of a "set and forget" kinda fund cause I feel the more I mess with and try to tweek the more I will screw it up lol. Please all responses and critiques welcome!

You didn't make a horrible choice. You did a lot of things right (low-cost, broad market index fund). However, VBINX does not hold any international stocks. In my opinion, your portfolio should include some. If you were to exchange from VBINX to a Life Strategy or Target Retirement Fund, you would own all 3 major indexes (Total Stock Market, Total Bond Market, Total Intl Stock Market).

The difference between the LS and TR funds is the TR funds slowly grow more conservative as the years pass, the LS funds do not.

**BuckyBadger** · 10-23-2012, 11:57 AM

Originally posted by jIM_Ohio View Post

A 60-40 portfolio will teach you a lot about investing.

You could learn the same things with a 40-60 or 80-20 portfolio too, so you made a good choice, and there are other good choices too. Investing is not a "set it and forget it" type of action.

Investing $100/mo is a good start
ramping up to a higher contribution is the opposite of "forget it", and is a good habit to be in.

Do not let others tell you how much risk to take with your own money.

Sure it is! The best portfolios for most people are "set it and forget it" portfolios. The enemy of a good plan is a perfect plan. Most people could use a little less tinkering.

The simplest "set it and forget it" portfolio is a Target Date fund. A fund like that will start you at a certain percentage of bonds and gradually slide into a more conservative mix as you approach retirement age. Don't go by the date on the fund, go by the asset allocation it contains.

"Your age in bonds" is a good rule of thumb, and if you don't have any other thoughts on the subject, it's a perfectly fine starting point.

I personally have 30% of my stocks in international stocks. I think that's a good number, but you are free to choose whatever you want.

If you have only one fund, a (low cost) target date fund is a GREAT way to go. I was in target date funds until my husband and I joined our finances and we got 401ks. We didn't have the same sorts of options in our retirement funds, so I made my own "target date" fund using only three (yup, only THREE) funds -- total US stock, total international stock, and total US bond -- in all four of our accounts (two IRAs and two 401ks). We thought a little bit about how to contribute throughout the year so nothing gets too out of whack, and we rebalance once a year. We do our age in bonds rounded to the 5s, so we'll be at 30% bonds from age 30 to 35, then I'll jump up to 35%.

So anyway, if you have one fund, go ahead and make it a target date fund and keep investing a little bit at a time. Pick a fund with a % of stocks that you like (70% is fine). Ignore it. Don't worry about the market. Pretend it's not even there, just keep dollar cost averaging into it.

**jIM_Ohio** · 10-29-2012, 07:06 PM

Originally posted by BuckyBadger View Post

Sure it is! The best portfolios for most people are "set it and forget it" portfolios. The enemy of a good plan is a perfect plan. Most people could use a little less tinkering.

The simplest "set it and forget it" portfolio is a Target Date fund. A fund like that will start you at a certain percentage of bonds and gradually slide into a more conservative mix as you approach retirement age. Don't go by the date on the fund, go by the asset allocation it contains.

"Your age in bonds" is a good rule of thumb, and if you don't have any other thoughts on the subject, it's a perfectly fine starting point.

I personally have 30% of my stocks in international stocks. I think that's a good number, but you are free to choose whatever you want.

If you have only one fund, a (low cost) target date fund is a GREAT way to go. I was in target date funds until my husband and I joined our finances and we got 401ks. We didn't have the same sorts of options in our retirement funds, so I made my own "target date" fund using only three (yup, only THREE) funds -- total US stock, total international stock, and total US bond -- in all four of our accounts (two IRAs and two 401ks). We thought a little bit about how to contribute throughout the year so nothing gets too out of whack, and we rebalance once a year. We do our age in bonds rounded to the 5s, so we'll be at 30% bonds from age 30 to 35, then I'll jump up to 35%.

So anyway, if you have one fund, go ahead and make it a target date fund and keep investing a little bit at a time. Pick a fund with a % of stocks that you like (70% is fine). Ignore it. Don't worry about the market. Pretend it's not even there, just keep dollar cost averaging into it.

The problem with target date funds is they probably use a mathematical model. For example 30% international right now is high, especially if using an index fund which is biased towards large cap European stocks. Anyone with more than 20%in Europe now is way overweighted, which is why "set it and forget it" is not realistic...

just 3-4 years ago many on this board were suggesting 25-50% in foreign stocks, and I don't think that is prudent right now.

**snafu** · 10-29-2012, 07:55 PM

Good on you for being smart enough to get this started. I don't think there is a 'set it and forget it' plan because things change...I still have trouble wrapping my head around the mess in Europe for example. It's a good idea to review and re-balance your holdings once a year or because something has changed.

As your investments grow, add an international component. Just now S. Korea is doing the right thing it seems. I'm looking 10 years out at S. America but whatever you choose you must be able to sleep at night without worrying about your investments. When you're looking at new employment possibilities ask what their retirement plan match is.

We're here to help, so check in and get unbiased viewpoints.

**feh** · 10-30-2012, 08:01 AM

How to invest depends on your risk tolerance.

Personally, at 22 and assuming this is truly retirement money, I'd be at 100% equities index funds.

**Like2Plan** · 10-30-2012, 10:54 AM

Originally posted by jchapps View Post

Hey there, I am new to this whole investing in the future thing and I need some help. I apologize to begin with for my knowledge on the subject is slim to none so please correct any misconceptions I might have.
I am a 22yr old soldier

Another option that you have available to you is a ROTH TSP. One of the advantages to the ROTH TSP is you can put in as much as 17000 each year. Also, the expenses for the TSP are very low (The 2011 expense ratio of .025% is 2.5 basis points. This means that expenses charged to each TSP account in 2011 were approximately 25 cents per $1,000 of investment.)
ROTH TSP info

The L Funds, or "Lifecycle" funds

Vanguard expense ratios are very good, but they are higher than the TSP. For example, the acquired fund fees and expenses as of 01/26/2012 were 0.19% for the VTIVX target 2045 fund.
The lowest expense ratio that I have seen at Vanguard is .05% for Vanguard 500 Index Fund Admiral Shares (VFIAX) (which is advertised as 96% lower than the average expense ratio of funds with similar holdings).

Not all target funds are the same. The asset mixes are different. Which one is better? That depends on your philosophy and your risk tolerance. A case can be made for each asset mix. A case can also be made for making up your own asset mix, but that approach does require more hands on. Target funds are automatically rebalanced so they stay within the defined parameters. If you have your own asset mix, you would periodically have to rebalance your portfolio so that it stays within your defined parameters.

Here is an example:
Vanguard 2045 is comprised of
Vanguard Total Stock Market Index Fund Investor Shares 62.9%
Vanguard Total International Stock Index Fund Investor Shares 27.0%
Vanguard Total Bond Market II Index Fund Investor Shares* 10.1%

10 years before the target date (2035), Vanguard would evolve to something like this:
Vanguard Total Bond Market II Index Fund Investor Shares* 40.3%
Vanguard Total Stock Market Index Fund Investor Shares 38.6%
Vanguard Total International Stock Index Fund Investor Shares 16.7%
Vanguard Inflation-Protected Securities Fund Investor Shares 4.4%
40.3% seems like a lot to have invested in a bond fund 10 years before retirement. I'm wondering what would happen to this retirement nest egg if the interest rates start rising?

TSP 2050 is comprised of
G Fund (Government Securities Investment Fund): 3.83%
F Fund (Fixed Income Index Investment Fund): 7.67%
C Fund (Common Stock Index Investment Fund-to match S&P 500): 43.40%
S Fund (Small Cap Stock Index Investment Fund): 18.70%
I Fund (International Stock Index Investment Fund): 26.40%

By the time the 2050 evolves to about 10 years before the target date (2040):
G Fund: 34.60%
F Fund: 7.53%
C Fund: 30.67%
S Fund: 10.10%
I Fund: 17.10%
34.60% may be a lot to have invested in the G fund 10 years before retirement. According to the web site, the fund has outpaced inflation (on average) since inception. But, last year's rate of return (2011) was 2.45% and the inflation (2011) was 3.02%. You don't lose money in the G fund, but you may lose buying power especially when you consider you may be drawing from the retirement fund for 30+ years. On the other hand, maybe the stock allocation would offset some of the inflation risk?

22yr old needs retirement advice!