Seek newbie advice

[palciparum]

Hi

I am new to this forum. I read the book, WCI and have been trying to read various posts. Its lot of new information.

I want to ask the Forum, being a newbie how should I start investing and how much to start investing?

My spouse and I are employed physicians. No student loans or any other loans.

We have 401K plans for last few years and we max it out.

Started HSA this year instead of regular health insurance plan.

Thanks in advance.

 

[DMFA]

palciparum wrote:

Hi

I am new to this forum. I read the book, WCI and have been trying to read various posts. Its lot of new information.

I want to ask the Forum, being a newbie how should I start investing and how much to start investing?

My spouse and I are employed physicians. No student loans or any other loans.

We have 401K plans for last few years and we max it out.

Started HSA this year instead of regular health insurance plan.

Thanks in advance.

 

Click to expand...

I beg your pardon, but I think that's a bit too vague of a question to give proper direction, but I'll do my best to be broad.  Here's a good starting point: How to Be a DIY Investor

For your 401(k) plans, the general advice given here is to choose low-cost index funds, such as a "500 index," "total stock index," or "total international index" mutual funds.  There are many thoughts of how to divvy that up; consider WCI's post 150 Portfolios Better Than Yours.  Even if your 401(k) has only high-cost options, it is likely still better-placed there than in a taxable brokerage account.  Evidence suggests that high-cost, actively-managed funds don't beat the low-cost index funds over the long-term, which is what retirement investing is for.

I don't know how much of a n00b you are re: HSAs, but actually opening the HSA and choosing your investments in it is a completely different step than starting your high-deductible health plan.  Assuming you're in good health, you would do well to utilize your HSA like another IRA, geared toward the future.  I beg your pardon if that's obvious to you, but I have had people not know that before...

A good rule of thumb is to try to put 20-25% of gross income toward retirement.  If you save 25% of your income for 25 years, then assuming you earn 5% a year and have a "safe" withdrawal rate of 4%, you would have 50% of your pre-retirement income in retirement.  That might not seem like much, but since you should have a paid-off house, fewer expenses, and lower tax bracket at that point, it will likely suffice.  Obv if you save more, work longer, have a higher average return, or withdraw less in retirement, then that number can increase.

Backdoor Roth IRA is another good way to invest additional amounts in a tax-advantaged way.

If you max 401(k)s, IRAs, and HSA and are not yet at 20-25% of gross income, then invest the rest into a taxable brokerage account with tax-efficient (low-turnover, low-dividend) funds.  Stock index funds generally fit this bill fairly well.

If you have no loans, you are ahead of the game.  Well done.

If you've read the book and the Classics section of the WCI Blog, then you should be well equipped to position yourself just fine when it comes to money.

Cheers and welcome :-)

[palciparum]

Thanks. I will read those sections before asking further questions.

Truly appreciated.

[palciparum]

I need advice in regards to 401K plans for my spouse and I.

I changed employer so I am not able to contribute to 401K this year with previous employer and I can start with my current employer next year (after completion of 1 year) and will have 3% match. So no 401K contribution this year.

How do I know what plan to choose in 401K to invest?

I am with John Hancock and Rate of Return is

This period 4.37%

For last 12 months 10.73%

Since your account inception 9.23%

(Annualized)

My option is Growth & Income among Conservative, Income, Growth & Income, Growth, Aggressive Growth, Target Date.

They have various other sub options.

Fees are 1.5%

 

For my spouse, it is Securian Retirement Center - Target Age Portfolio (pre Mixed Portfolio - You have not made any investment elections. Money is being invested based on your plan sponsor’s default election. Other options being - Risk Based Model Portfolio and Invest on my own.

7.72% Growth YTD as of 05/31/2017

I chose randomly thinking I am taking medium risk and I guess medium rate of return. I am wondering if what I am doing is right as I don't have much understanding.

Any advise will be appreciated.

Thanks.

[VagabondMD]

It sounds like your mutual fund choices in the 401k are opaque and expensive. You should probably roll your prior employer's 401k into an IRA, perhaps with Vanguard or Fidelity, and they can help you accomplish this.

This forum cannot advise you, or perhaps even educate you, but we can steer you to where you can educate yourself or where you can find someone to help you manage your investments. If I were you, I would drop everything and read Bill Bernstein's (fellow doc, BTW) The Four Pillars of Investing. Once you have read it, come back and ask whatever questions remain.

[palciparum]

I will read that book.

 

401K plans have so many options and so many plans in each option and I can spread my investment in each one, that I am lost which one to choose. Hence I chose generic one (i guess medium risk) and let them invest on my behalf. I knew fees are high as I read the WCI but was waiting for next year to roll over to my new employer.

 

I started with HSA - and want to invest my HSA - HSA Bank has 2 options - TD Ameritrade Self-Directed Brokerage Option  (Stocks, bonds and thousands of mutual funds (trading fees apply)

and DEVENIR Self-Directed Mutual Fund Program: No trading fees for pre-selected group of mutual funds. An annual fee of $24 is deducted from the investment account balance, prorata.

 

With so many options and then every option has sub option, how do I choose. Even after reading WCI or going through forum, I doubt i will be able to understand well to choose in a very detailed way???

[The White Coat Investor]

palciparum wrote:

Hi

I am new to this forum. I read the book, WCI and have been trying to read various posts. Its lot of new information.

I want to ask the Forum, being a newbie how should I start investing and how much to start investing?

My spouse and I are employed physicians. No student loans or any other loans.

We have 401K plans for last few years and we max it out.

Started HSA this year instead of regular health insurance plan.

Thanks in advance.

 

Click to expand...

Great questions. Here's the easy answers:

Put 20% of your gross toward retirement. Use any tax-advantaged accounts like 401(k)s and Backdoor Roth IRAs. Fill them with low cost broadly diversified index funds.

Remember an HSA is a savings/investment account, not a health insurance plan. The health insurance plan is a HDHP, and you must have one of those to contribute to an HSA.

Keep learning, you'll figure this stuff out. It isn't that complicated. This post may help:

https://www.whitecoatinvestor.com/how-to-be-a-do-it-yourself-investor/

[The White Coat Investor]

palciparum wrote:

I need advice in regards to 401K plans for my spouse and I.

I changed employer so I am not able to contribute to 401K this year with previous employer and I can start with my current employer next year (after completion of 1 year) and will have 3% match. So no 401K contribution this year.

How do I know what plan to choose in 401K to invest?

I am with John Hancock and Rate of Return is

This period 4.37%

For last 12 months 10.73%

Since your account inception 9.23%

(Annualized)

My option is Growth & Income among Conservative, Income, Growth & Income, Growth, Aggressive Growth, Target Date.

They have various other sub options.

Fees are 1.5%

 

For my spouse, it is Securian Retirement Center – Target Age Portfolio (pre Mixed Portfolio – You have not made any investment elections. Money is being invested based on your plan sponsor’s default election. Other options being – Risk Based Model Portfolio and Invest on my own.

7.72% Growth YTD as of 05/31/2017

I chose randomly thinking I am taking medium risk and I guess medium rate of return. I am wondering if what I am doing is right as I don’t have much understanding.

Any advise will be appreciated.

Thanks.

Click to expand...

Need more info at what is available in the accounts, what your desired asset allocation is etc to really help. Sounds like your 401(k) kind of sucks if the expense ratios are all 1.5%. That's really high. Hopefully your spouse's is better.

[The White Coat Investor]

palciparum wrote:

I will read that book.

 

401K plans have so many options and so many plans in each option and I can spread my investment in each one, that I am lost which one to choose. Hence I chose generic one (i guess medium risk) and let them invest on my behalf. I knew fees are high as I read the WCI but was waiting for next year to roll over to my new employer.

 

I started with HSA – and want to invest my HSA – HSA Bank has 2 options – TD Ameritrade Self-Directed Brokerage Option  (Stocks, bonds and thousands of mutual funds (trading fees apply)

and DEVENIR Self-Directed Mutual Fund Program: No trading fees for pre-selected group of mutual funds. An annual fee of $24 is deducted from the investment account balance, prorata.

 

With so many options and then every option has sub option, how do I choose. Even after reading WCI or going through forum, I doubt i will be able to understand well to choose in a very detailed way???

Click to expand...

I use HSA Bank with the TD Ameritrade Self-directed Brokerage Option and invest the whole thing in the Vanguard Total Stock Market ETF. There are lots of other great options there. But you need to look at your entire portfolio as one big portfolio. Keep reading and learning. You'll figure this out. It only seems complicated right now to you. In a few months, you'll look back and wonder how you could possibly have had a need to ask these questions.

[palciparum]

Thanks for the advice.

 

What about directly investing in stocks? I have been recommended by friends and family to buy some stock of Amazon, Apple and keep it for long term?

[Hank]

I'd avoid picking individual stocks. There are a lot of really bright people working full time to identify mispriced stocks. The odds that you can do that better than the full time guys on Wall Street are pretty low.

What are all of the options available through your 401k? That 1.5% for John Hancock is pretty atrocious. If everything is that expensive, I'd go to HR and strongly suggest they provide appropriate lower cost index funds, especially in light of the Consolidated Edison case.

[palciparum]

For my spouse, Securian Retirement Center - Target Age - has various plans in it with various fees. I spoke with them and they calculated it from various sub plans and we are paying average of 0.86.

[palciparum]

Sectarian - 0.86

John Hancock 1.5%

 

What should one ideally be paying? And what are those plans or companies? What if our Employers don't offer those?

[RetiredERdoc]

Ideally, you pay as little as possible. All things being equal, it is generally better to buy the lowest er fund. In general, you want either a target date fund, or a large cap, total stock market or an s&p 500 fund. In addition, an international fund and a bond fund will round out your asset allocation.

a rule of thumb is that a 401k makes more sense than investing in a taxable account until total fees go over 1.7%

in addition, the 401k could improve, or you change jobs and get a better 401k.

 

[DMFA]

palciparum wrote:

Sectarian – 0.86

John Hancock 1.5%

 

What should one ideally be paying? And what are those plans or companies? What if our Employers don’t offer those?

Click to expand...

• Most institutional funds should be < 0.1%, and some even < 0.05%, e.g. the premium inst'l like VIIIX and FXAIX (0.02%)


• Slightly smaller companies may not qualify for the most premium of institutional funds, but those should still be very low like VINIX and FXSIX (0.035%)


• The "admiral" or "premium" shares for private investors still have manageable requirements ($10,000) and should still be very low, like VTSAX and FSTVX (0.04%).

So imagine how ripped-off you are by paying 75x as much in fees as what other people have in their 401(k), and 37.5x more than what most of us here pay on our funds.