IRA advice?

[Wisconsin Beth]

Ok folks. I need to deal with my IRA in August. It's in a CD at our local bank and it matures in August. I parked it there because I just wasn't in a place to deal with it mentally or financially. Now I am. Total in there is about $9K.

Goal: move it into a fund where I can add during the year instead of rounding up when renewing it. I know, I know. I have no excuses...

I was reading someone else's thread on rolling over a dying 401K into an IRA so I know the usual suggestions are Schwab, Vanguard and 2 others that I'm blanking on the name of right now. I've asked my siblings and a couple of coworkers where they have their IRAs parked (that was depressing as h#ll as 1 sister doesn't even know where their IRAs are and the 2 coworkers don't have anything in IRAs, admittedly we're local gov't w/ pensions and 457s but still...) 1 sister uses Vanguard and my SIL avoided the question for her and my brother but passed on the name of the person her dad is happily using.

What I'm looking for is more of the following:
1. How did you decide where to place your IRA? I know to look for low fees and history of the fund. And customer service and ease of use are important too.

2. How did you decide what kind of fund to use? DH and I are 40/41 with 2 toddlers. Debt is about $81K, income around $100K. We have over $250K in 401K/457b accounts, which I believe is all in the stock market. DH has a Roth with about 7K in it but I don't know what it's in. I'm not averse to a reasonable amount of risk but I'm thinking we're too heavy on stocks and a bond index is probably the way to go.

3. Do you have taxable accounts with the same place as your IRA? One of my goals is to get taxable accounts started and I think I'd prefer to have them in the same place. Is this a logical or emotional decision?

4. DH used to recordkeep 401Ks and he's got some lousy opinions of the main companies out there. So he's going though his company for his IRA (his parents switched their stuff over there too.) I don't think I want to go that route. It's my IRA so DH is pretty much letting me decide where I want it.

If you need more info to provide an answer, I'll try to answer.
Thanks,
Beth

[yogiii]

1 We have a rollover IRA in fidelity, because the 401k (that we rolled over) was there so it was easy and I could just do it online (also they have low fees). We have Roths at Vanguard (low fees).
2 Vanguard assigns a risk rating 1-5 to each fund. If you go on the website it is easy to look at all their funds and see what you might like.
3 I'm looking to start a taxable at vanguard, just so we limit the number of places we have stuff in

[CarolinaKat]

I have my 401k though Vanguard and I really like them. Very easy and low-fee. I like the target date funds for myself. I am thinking of rolling over my roth to them, but haven't decided if i want to yet

[spartan7886]

1. I was 19, so I was only debating between Vanguard and Fidelity, the two companies my parents were familiar with. I wound up deciding to go with the Target Date fund with the lowest fees.

2. I started in a Target Date fund because I needed one fund that could cover my entire asset allocation. I also figured it would rebalance for me and keep me where I should be on my asset allocation. I later switched into FFNOX (Fidelity Four-in-One), because I felt that the Target Date fund was underperforming, particularly given the expense ratio. FFNOX is a little conservative for my age (24) but it incorporates a broad mix of stock and bond indices with a low expense ratio.

3. I have a taxable account in the same place as my IRA, and my DH has a taxable accound in the same place as his IRA. We get some variety on our options that way, although I probably wouldn't set it up like that if we hadn't come into the marriage both happy with IRAs at two different companies. I think having them together is a logical decision. The vast majority of your considerations on where to put your funds will be the same for an IRA and a taxable account, so if you think one company is best for the IRA, you would likely make the same decision for the taxable account even ignoring the convenience.

[Wisconsin Beth]

May 19, 2011 13:24:33 GMT -5 spartan7886 said:

snip

3. I have a taxable account in the same place as my IRA, and my DH has a taxable accound in the same place as his IRA. We get some variety on our options that way, although I probably wouldn't set it up like that if we hadn't come into the marriage both happy with IRAs at two different companies. I think having them together is a logical decision. The vast majority of your considerations on where to put your funds will be the same for an IRA and a taxable account, so if you think one company is best for the IRA, you would likely make the same decision for the taxable account even ignoring the convenience.

We came into marriage with both of us unhappy about our IRAs. Mine was in my CU in what was basically a savings account. I think DH's was with AIM? in extremely risky options and they tanked. We both were horrible at investing in our IRAs and we're trying to improve that.

[giramomma]

Well, I used Morningstar, in conjunction with my risk tolerance to decide on IRAs. Because of my risk tolerance, I like blue chip sorts of funds and use that for my 403b. I also have an international fund and target retirement funds for my IRAs.

We do not have a taxable account at the same place as our IRAs. Mostly, because our taxable account is made up of stocks, so we work with a local financial person. This person likes to push American Funds, which are pricey compared to Vanguard and the like.

Actually, what I'd suggest to you is this: Look at your portfolio in all total and decide what needs beefing up and what you feel comfortable with risk wise. If you are investing in nonsexy funds, maybe you want to look at spicing up your allocation with your IRA?

[Wisconsin Beth]

May 19, 2011 13:42:00 GMT -5 giramomma said:

Well, I used Morningstar, in conjunction with my risk tolerance to decide on IRAs. Because of my risk tolerance, I like blue chip sorts of funds and use that for my 403b. I also have an international fund and target retirement funds for my IRAs.

We do not have a taxable account at the same place as our IRAs. Mostly, because our taxable account is made up of stocks, so we work with a local financial person. This person likes to push American Funds, which are pricey compared to Vanguard and the like.

Actually, what I'd suggest to you is this: Look at your portfolio in all total and decide what needs beefing up and what you feel comfortable with risk wise. If you are investing in nonsexy funds, maybe you want to look at spicing up your allocation with your IRA?

My 457 is all in stocks, in institutional funds with Nationwide. I had/have 6 funds to pick from, in total. I'm in the 3 with the highest rates of return, at roughly 33% each. I think DH's 401K is with Morningstar, now that I think about it (I'm sure he's said something about free access to Morningstar something.) I'm pretty sure his is in institutional stock funds as well.

[illinicheme]

I've got 401(k)s with Fidelity and IRAs with Vanguard. I've been happy with both companies.

DH and I use the Vanguard Target Retirement Funds for our Roth IRAs. For my 401(k)s, I picked funds by looking at the Morningstar rating and expense ratio of each of the available options and tried to get a mix of large cap, small cap, and international. I probably need to try and simplify it at some point.

[Plain Old Petunia]

<< I'm in the 3 with the highest rates of return, at roughly 33% each. >>

I used to pick funds this way too. Then I discovered something: they had the highest returns (of my choices) because they were all investing in the same area of the market. They were all large growth funds and large growth had been hot. When large growth began to falter, all of my funds did too. I was not diversified at all, even though I had split my money into 4 different funds. I had no value funds, no mid or small caps, no international. In short, I had four flavors of vanilla.

What sort of funds do you own? Do they invest in different areas of the market?

[Plain Old Petunia]

<< I think DH's 401K is with Morningstar, now that I think about it (I'm sure he's said something about free access to Morningstar something.) >>

Everyone has free access to Morningstar. Morningstar isn't an investment house.

[Wisconsin Beth]

May 19, 2011 15:34:49 GMT -5 Plain Old Petunia said:

<< I think DH's 401K is with Morningstar, now that I think about it (I'm sure he's said something about free access to Morningstar something.) >>

Everyone has free access to Morningstar. Morningstar isn't an investment house.

Well scratch that then. ;D

I'm checking on the funds breakdown.

[Wisconsin Beth]

Actively Managed Equity Account:
T. Rowe Price New Era Fund 2%
Vanguard Energy; Adm. 1%
T. Rowe Price Growth Stock Fund 9%
FMI Large Cap 3%
Buffalo Mid-Cap Fund 2%
Brandywine Fund 5%
Vanguard Capital Opportunity Fund; Admiral 7%
Vanguard PRIMECAP Core Fund 10%
Hearland Select Value Fund Inv 1%
American Funds Growth R5%
Dodge & Cox Stock Fund 10%
Longleaf Partners Fund 12%
Century Small-Cap Select Fund; Instl 2%
Wasatch Small-Cap Value Fund 1%
Oakmark International 4%
Thornburg Intl Val; I 4%
Dodge & Cox Intl Stock 6%
WM Blair; Intl Growth; I 2 %
Mutual Discovery Z 10%

Passively Managed International Equity Account:
Vanguard Pacific Stock Index Fund; Institutional 25%
Vanguard Emerging Market Stock Index Fund; Institutional 21%
Vanguard European Stock Index Fund; Institutional 54%

Passively Managed US Equity Account:
Vanguard Tot Stk Mkt Idx Trust 100%

Ok, that last one is a surprise. Didn't realize it was 100% anything. The Account Fact Sheet says it's designed to track the broad domestic stock market.

For those interested, my other 3 options in my 457 are the following:
Actively Managed Income Account; Socially Balanced Account and Stable Value Fund.

[Plain Old Petunia]

You are nicely diversified. Personally, I'd do 2/3 Passively Managed US Equity Account and 1/3 Passively Managed International Equity Fund, because I prefer index to active. However, there are some fine actively managed funds in the Actively Managed Equity Account. VG Primecap, Dodge & Cox, and Wasatch all have excellent pedigrees.

The VG Total Stock Market Index holds approximately 5,000 stocks. So even though it is only 1 fund, it is sliced up nicely.

You don't have any bonds, that is on purpose, correct?

[phil5185]

Actively Managed Equity Account:

You selected small bits from 19 different funds - couldn't you just pick 2 or 3 to meet your desired allocation?

I like your 3rd category the best, the 100% Total Stock Index. That is diversified across all 7000 US listed stocks so you get the entire US stock market plus lots of international exposure (such as GE, Deere - most major corps have some int'l plants). If it was mine, I would get out of the actively managed funds altogether and allocate about 20% to Passive Int'l and 80% to Passive Domestics.

my other 3 options in my 457 are the following:
Actively Managed Income Account; Socially Balanced Account and Stable Value Fund.

Yes, good avoidances - you are too young for the bond fund - the socially balanced funds are notoriously poor performers, apparently big oil, & beer, cigarettes are money makers - and the stable value fund is too stable, too many bonds.

[Wisconsin Beth]

May 19, 2011 18:26:20 GMT -5 phil5185 said:

Actively Managed Equity Account:

You selected small bits from 19 different funds - couldn't you just pick 2 or 3 to meet your desired allocation?

Nope. It's an all or nothing. There are 6 Accounts to pick from in my 457. I got a statement in the mail yesterday that said MY gains in the last year for the 3 accounts I'm in is/was 15+% (I don't remember the fraction, sorry.)

I like your 3rd category the best, the 100% Total Stock Index. That is diversified across all 7000 US listed stocks so you get the entire US stock market plus lots of international exposure (such as GE, Deere - most major corps have some int'l plants). If it was mine, I would get out of the actively managed funds altogether and allocate about 20% to Passive Int'l and 80% to Passive Domestics.

Why? Is that a personal preference or am I missing something?

my other 3 options in my 457 are the following:
Actively Managed Income Account; Socially Balanced Account and Stable Value Fund.

Yes, good avoidances - you are too young for the bond fund - the socially balanced funds are notoriously poor performers, apparently big oil, & beer, cigarettes are money makers - and the stable value fund is too stable, too many bonds.

Yes but if I put my $9K IRA into bonds, would that be considered good diversification? It's currently in a CD and I'd like to get a better return on it.

[SVT]

You need to come up with a total asset allocation. Cash, bonds, stocks then further into how you want each broken up. This asset allocation will be based on your risk tolerance, goals, and your needs. Don't just try to patch up a portfolio. If your asset allocation tells you to buy more bonds, then do it. Your bonds should be in the tax advantaged accounts whenever possible, instead of a taxable account, so it would be fine in your IRA.

[gsbrq]

I believe Morningstar has something called a fund x-ray where you can input your mutual fund holdings and see if your asset allocation is where you want it to be. Good thing to do, since you might think you're "diversified" by holding several different funds, but they may overlap more than you think.

To answer your original questions

1 - I chose Vanguard because I liked their customer service and their website, and it was easy to start investing with a low balance.
2 - I took a few "risk-tolerance" quizzes to help me set an asset allocation. I also changed my holdings somewhat as I began to educate myself on the different kinds of funds. My boyfriend has zero interest/knowledge in investments, so he is just in a target date fund.
3 - No taxable accounts yet, but when I open them I plan to go with Vanguard. Easier to keep stuff streamlined, IMO.
4 - I'm not sure what you mean by "going through your company"...if you're talking about a Roth 401k, I'd just point out that the fees are always higher when you're not investing directly. And many employer retirement plans have hidden expenses. I would always go on my own unless the company offered an investment that you couldn't easily get elsewhere.