Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[Rain Man]

Originally Posted by myselff77

I always worry I do not save enough to retirement, but whenever I play around with these calculators, it makes it appear I am in good shape. I don't think I've done anything special. I have contributed to the 401k for over 20 years beginning straight out of college. It goes to a handful of funds and I pretty much keep eyes off it. I started at 6% because of a company match to that point and would raise it a percentage or two whenever I received a raise. I now direct 18% of my salary to the 401k and opened a RothIRA two years ago.

So, I hope these calculators are correct, but I guess time will tell. Anyone willing to share percentages they direct towards retirement savings accounts?

I don't trust online calculators very much. There's a lot to take into account with inflation effects and returns and spending and they're too simplistic about spending in my opinion. I eventually took the time to build my own model that accounted for everything that was specific about my household. It's become my guiding document and I update it regularly.

Originally Posted by lewdog

I feel the same. It's just so hard to imagine getting to a certain number and it doesn't make sense until you start running the scenarios. Starting early is key.

It sounds like you're doing great. Starting right out of college is huge and it's part of what I missed. I didn't start my career until I was 26 and then didn't start investing heavily until my early 30's, so I am a bit behind in terms of compounding interest years.

If you plan to live a similar lifestyle in retirement to your current, then 15-20% of your income should accomplish that if you give yourself decades to invest. A ROTH is huge and something I'm always doing too.

I put 15-20% of my income into retirement accounts. I just started a ROTH 401k in addition a standard ROTH IRA. I am trying to build a large tax-free investment vehicle for retirement so my taxable income in retirement can be fairly low.

I still wonder what Social Security will bring for me (or not at all!) in my retirement plan. I plan it at $0 because I don't believe in the system lasting, but if I actually do collect my calculated SS amount, I'd be golden in retirement.

Originally Posted by Peter Gibbons

Early in my career I prioritized retirement and always made a point to do 15%. It became even harder once married and kids started coming but were able to do it. Now, 30+ years later, we don’t have any debt and live frugally. We now are saving well over 60% of our income (test run for retirement). It seems unfair that we have so much surplus now and scraped by so much much when younger but youth is also wasted on the young so I guess it all works out.

Yeah, starting early and being consistent is a big advantage. I put money into my retirement account every single year, even after I lost my job and went back to graduate school. I always figured out a way to scrape together at least the maximum independent IRA contribution at the time. Combining that with the value of time cannot be overestimated.

For a long time I thought retirement was a fruitless endeavor. I'd make some investment returns and then the market would tank, and it seemed like my progress was painfully slow. I remember around 2001 thinking that I could never retire. But then at some point it suddenly hit critical mass and the returns got bigger, which then made the next year better, and it started rolling. It really hit home for me the first year that my investment income was higher than my earned income. By saving consistently, I had essentially created a third wage earner in my household. That was a watershed moment, and I flipped from being despondent to being optimistic over the course of just a few years.

That said, I've got my detailed financial model and I have my magic number, but the thought of switching from saving mode to spending-down-savings mode terrifies me. There are a lot of powerful variables, and if we have a bad decade in the market or if inflation goes up a lot or if I live a really long time, even my magic number won't last. That's a really scary thing to me. So my dilemma is whether I work longer, knowing that the odds are that I have enough to not need to work, or whether I retire, knowing that if something goes wrong in the economy I could be screwed. I think it would be impossible for me to save enough money to never be concerned about running out of it.

[lewdog]

Have a ROTH IRA question.

I've been maxing my ROTH for a few years now but after numerous large house projects needing to be completed in the past few years (new roof, new AC units and this year a pool remodel) all which were paid for in cash, I am going to be a few $k short on maxing my ROTH while I build our emergency savings back.

However, a post about someone contributing to a ROTH for 15 years and not realizing they needed to actually pick funds with their contribution, while it simply say in a money market account got me thinking (Wow, that's bad understanding!!!).

ROTH contributions can be withdrawn at any time right? So why can't I take the few thousand I'm missing to max this year and just put it in the money market account part of the ROTH and treat it like liquid savings? If I end up needing it, can I choose these funds in the money market account to withdraw or is it required I sell an investment to withdraw? Does anyone know how withdrawing funds from a ROTH works as far as choosing where that money comes from in the account?

[Buehler445]

Originally Posted by lewdog

Have a ROTH IRA question.

I've been maxing my ROTH for a few years now but after numerous large house projects needing to be completed in the past few years (new roof, new AC units and this year a pool remodel) all which were paid for in cash, I am going to be a few $k short on maxing my ROTH while I build our emergency savings back.

However, a post about someone contributing to a ROTH for 15 years and not realizing they needed to actually pick funds with their contribution, while it simply say in a money market account got me thinking (Wow, that's bad understanding!!!).

ROTH contributions can be withdrawn at any time right? So why can't I take the few thousand I'm missing to max this year and just put it in the money market account part of the ROTH and treat it like liquid savings? If I end up needing it, can I choose these funds in the money market account to withdraw or is it required I sell an investment to withdraw? Does anyone know how withdrawing funds from a ROTH works as far as choosing where that money comes from in the account?

Preface: I’ve never done it so I might be full of shit.

I think what you have to do is sell a fund so it goes into the money market or whatever idle account, and then ACH it to your checking account.

I wouldn’t do it though.

If you take funds out and it moves up 10% over the year while, you won’t be participating in that portion. Whereas if the run up starts now, you’d miss out on quite a bit. If you’re talking about 6 months, it probably doesn’t matter.

I wouldn’t pull it out until you needed the money that isn’t in your emergency account.

[scho63]

I see a rally for the 1st quarter of 2023.

Pessimism all over and tax selling done. Too much money on sidelines with so many stocks beaten down into oblivion.

[Hog's Gone Fishin]

I read a good random thought the other day:

If you're going to buy a $50,000 car and want to pay cash to avoid interest that's fine

At the end of 5 years you have a car that's worth $20,000 that fully paid for

If you instead put $50,000 into a stock paying a monthly dividend at 8% and use the dividend to make a loan payment on the car then at the end of 5 years you'll have your $20,000 car paid for and $30,000 left in your stock investment for a total of $50,000


Paying cash for shit might not always be the best thing to do

[myselff77]

Originally Posted by Hog's Gone Fishin

If you instead put $50,000 into a stock paying a monthly dividend at 8% and use the dividend to make a loan payment on the car then at the end of 5 years you'll have your $20,000 car paid for and $30,000 left in your stock investment for a total of $50,000

Who is the company paying a monthly dividend at 8%? I'll put some money into that. I need to start building a car fund anyway.

[lewdog]

Originally Posted by Buehler445

Preface: I’ve never done it so I might be full of shit.

I think what you have to do is sell a fund so it goes into the money market or whatever idle account, and then ACH it to your checking account.

I wouldn’t do it though.

If you take funds out and it moves up 10% over the year while, you won’t be participating in that portion. Whereas if the run up starts now, you’d miss out on quite a bit. If you’re talking about 6 months, it probably doesn’t matter.

I wouldn’t pull it out until you needed the money that isn’t in your emergency account.

I'm just trying to avoid the fact that you can't go back and add money later to a ROTH for years you didn't max it. If I put it in, even to sit in a money market account, in case I need access to it this year in a worse case scenario, it also leaves open the fact that I may not need it this year and then can invest it as needed for the next few decades.

So while my emergency fund needs built back a bit to my normal level, I feel like not maxing my ROTH this year is a bad idea just to put my emergency fund where I want it, even though I can withdraw on a ROTH if needed almost like an emergency fund.

I hope I'm making sense.

[lewdog]

Originally Posted by Hog's Gone Fishin

I read a good random thought the other day:

If you're going to buy a $50,000 car and want to pay cash to avoid interest that's fine

At the end of 5 years you have a car that's worth $20,000 that fully paid for

If you instead put $50,000 into a stock paying a monthly dividend at 8% and use the dividend to make a loan payment on the car then at the end of 5 years you'll have your $20,000 car paid for and $30,000 left in your stock investment for a total of $50,000


Paying cash for shit might not always be the best thing to do

Math doesn't add up, although I agree on not paying cash for a depreciating asset like a car when interest rates are low.

Dividends are paid off the stock price. So getting an 8% dividend is not like it's extra cash. After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.

So while you're getting a "dividend," you capital tied up in the share price is dropping too. Couple that with a stock that still changes value like any other stock and that $50k you put in this year, could easily only be worth $30k just from a bear market alone.

Too many people think dividends are free money, and most are not.

[KCUnited]

Originally Posted by lewdog

Have a ROTH IRA question.

I've been maxing my ROTH for a few years now but after numerous large house projects needing to be completed in the past few years (new roof, new AC units and this year a pool remodel) all which were paid for in cash, I am going to be a few $k short on maxing my ROTH while I build our emergency savings back.

However, a post about someone contributing to a ROTH for 15 years and not realizing they needed to actually pick funds with their contribution, while it simply say in a money market account got me thinking (Wow, that's bad understanding!!!).

ROTH contributions can be withdrawn at any time right? So why can't I take the few thousand I'm missing to max this year and just put it in the money market account part of the ROTH and treat it like liquid savings? If I end up needing it, can I choose these funds in the money market account to withdraw or is it required I sell an investment to withdraw? Does anyone know how withdrawing funds from a ROTH works as far as choosing where that money comes from in the account?

Sounds like you should just keep it in the MM part of your ROTH.

The Roth IRA as an Emergency Fund

The advantage of putting emergency savings into a Roth IRA is that you don’t miss the limited opportunity to make that year’s retirement contribution. You can only contribute a few thousand dollars to a Roth IRA each year, and once a year passes without a contribution, you lose the opportunity to make it forever. However, accessing these funds should be your last resort...

The part of your Roth IRA contribution earmarked as your emergency fund doesn't belong in stocks, bonds, or mutual funds like a typical retirement contribution. It belongs in a liquid account (meaning cash or something that can easily be converted to cash and that earns interest) that can be withdrawn from at a moment's notice without losing principal.

[lewdog]

Originally Posted by KCUnited

Sounds like you should just keep in the MM part of your ROTH.

The Roth IRA as an Emergency Fund

The advantage of putting emergency savings into a Roth IRA is that you don’t miss the limited opportunity to make that year’s retirement contribution. You can only contribute a few thousand dollars to a Roth IRA each year, and once a year passes without a contribution, you lose the opportunity to make it forever. However, accessing these funds should be your last resort...

The part of your Roth IRA contribution earmarked as your emergency fund doesn't belong in stocks, bonds, or mutual funds like a typical retirement contribution. It belongs in a liquid account (meaning cash or something that can easily be converted to cash and that earns interest) that can be withdrawn from at a moment's notice without losing principal.

Perfect, that's exactly how I see it. Needed to see it thought out like that though. Thanks for finding!

I'll max my contribution this year but leave the chunk I'm putting in now in a money market fund until my actual emergency savings is back to level. When it gets there, this chunk will get invested.

[Buehler445]

Originally Posted by lewdog

I'm just trying to avoid the fact that you can't go back and add money later to a ROTH for years you didn't max it. If I put it in, even to sit in a money market account, in case I need access to it this year in a worse case scenario, it also leaves open the fact that I may not need it this year and then can invest it as needed for the next few decades.

So while my emergency fund needs built back a bit to my normal level, I feel like not maxing my ROTH this year is a bad idea just to put my emergency fund where I want it, even though I can withdraw on a ROTH if needed almost like an emergency fund.

I hope I'm making sense.

Makes sense. I hadn’t thought of it that way.

[ChiliConCarnage]

Lew,

Yeah, that makes sense. Depending on your broker, you may need to choose a money market fund or they may default free cash into one. Vanguard defaults to a good one, Schwab puts me into a cash account that pays nothing but you can buy SWVXX or one of the others and get 4% interest or so

Schwab Value Advantage Money Fund® – Investor Shares (SWVXX). 7-day yield (with waivers) as of 12/28/20224. 4.26%. Minimum Initial Investment.

Short term tbills are pretty juicy (nominally) so money market returns are alright. Well, based on what was available for years

[Hog's Gone Fishin]

Originally Posted by myselff77

Who is the company paying a monthly dividend at 8%? I'll put some money into that. I need to start building a car fund anyway.

I've got my daughter in "MAIN" It pays monthly at 7.4% right now

Keep in mind it's 7.4% yearly but pays monthly which gives you an advantage in compounding.

[Hog's Gone Fishin]

Originally Posted by lewdog

Math doesn't add up, although I agree on not paying cash for a depreciating asset like a car when interest rates are low.

Dividends are paid off the stock price. So getting an 8% dividend is not like it's extra cash. After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.

So while you're getting a "dividend," you capital tied up in the share price is dropping too. Couple that with a stock that still changes value like any other stock and that $50k you put in this year, could easily only be worth $30k just from a bear market alone.

Too many people think dividends are free money, and most are not.

I was throwing a generality out there . I know the math isn't correct. It's the concept.

I'm interested in what you say about the price action of a dividend stock dropping when a dividend is paid. That's interesting. Seems like there would be no point in owning a dividend stock.

My daughter invested $3200 in MAIN exactly 2 years ago and the value now is $4181. ETRADE says her gain is 12.56%

Thats 30.65% increase by my calculation 3200 to 4181 . What am I missing?

[Rain Man]

Originally Posted by Hog's Gone Fishin

I was throwing a generality out there . I know the math isn't correct. It's the concept.

I'm interested in what you say about the price action of a dividend stock dropping when a dividend is paid. That's interesting. Seems like there would be no point in owning a dividend stock.

My daughter invested $3200 in MAIN exactly 2 years ago and the value now is $4181. ETRADE says her gain is 12.56%

Thats 30.65% increase by my calculation 3200 to 4181 . What am I missing?

Maybe the 12.56 is an annualized result. The numbers don't work out exactly, but maybe there was some dividend reinvestment that muddies it up or it's not exactly two years.