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55 years old and need to put money back into market
Old 12-27-2008, 11:09 AM   #1
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55 years old and need to put money back into market

Hi
I am 55 years old, or will be in a few months. I took early retirment from corporate America in 2003. I have my 401K in a IRA now. I pulled it out of the market last year (still in the IRA) and put it in CDs and bonds for safe keeping. (after I lost about $60,000).

I am ready to get back into the market but am absolutely clueless as to where or what kind of funds to use in the IRA. I will need some of this money in six or more years from now. I am currently with T Rowe Price funds. I am willing to take some risk, but not great risk.

Anyone have any suggestions? Or tell me how to go about deciding this task.

Thanks
TAnne
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Old 12-27-2008, 11:23 AM   #2
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Hopefully somebody will give you good advice.....sift carefully and don't be turned off too much if somebody has a bad attitude and is grouchy...typical of a lot of these forums. There is some good info around in here.....
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Old 12-27-2008, 12:17 PM   #3
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I'd suggest that you should invest a little time and read up on investing. It is not really that complex and even if you end up hiring a financial adviser, you want to be an informed consumer.

An excellent resource can be found here:

Investment Books

My personal favorite is the Boglehead's Guide to Investing, which is supported by an excellent forum.

Bogleheads Investing Advice and Info
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Old 12-27-2008, 12:26 PM   #4
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First you should decide if you want to move the funds or not. I don't know what your options are, but I'd suggest moving the funds to Vanguard. You could wind up paying 10 times less in fees. Over time, this becomes extremely important.

Perhaps the most important question you need to answer concerns the amount of risk you will take. Since you are retired, I presume you have a greatly reduced ability to take risk. A common and reasonable benchmark is "your age in bonds." So, if you are 55, you would have 55% of your savings in bonds and 45 in equities ("45/55").

However, you did pull your money out of equities earlier, which to me indicates that you were unable to handle the level of risk you had placed yourself in (of course, you may have timed things well, but still...). You may want to be more conservative than age-in-bonds, perhaps 40/60 or even 30/70.

Let's say you want to do 40/60. Studies show that by even 20-40% of stocks, you have already captured the best part of portfolio longevity anyway, so there may be less need to take more risk than that.

If you want to keep things unbelievably easy, just pick one of the balanced funds (e.g., "Target Retirement", or Wellesley) that has the approximate equity/bonds split that you prefer.

If you want to engage a bit more control, Vanguard has a one-stop-shopping equities fund that covers the entire world:

100% (of your stock portion) VTWSX - Vanguard Total World stock index.

It's new and the expenses are a bit high, and the U.S. is only about 40% of the whole world. If you live in the U.S., you might want to weight the U.S. more strongly, hence, say:

60-80% VTSMX - Vanguard Total Stock Market (the U.S.).
20-40% VFWIX - Vanguard FTSI All-World ex-US (the rest of the world).

If you have over $100k in the Total Stock Market fund, the expenses are only 0.07% per year. After something simple like this, people might add a portion of Small Cap Value and perhaps a REIT fund. Vanguard has these too, of course.

Then, in your bond portion, you want a reasonable mix of relatively short term taxable (in your IRA) bonds. One stop shopping options include:

100% VBMFX - Total Bond Market.

You may want to tune it yourself, so perhaps equal proportions of something like:

VFIIX - GNMA bond fund.
VIPSX - Inflation protected bonds.
VFSTX - Short term investment grade corporate bonds.

There are other options too.

Another important question is whether or not you have significant after tax (unsheltered) savings. For the sake of flexibility and tax efficiency, it's often better to have a decent mix. This way, you can put your unsheltered money in tax-efficient broad-based mutual funds, such as Vanguards Total Stock Market fund, and your sheltered money in income-producing bonds.

I suggest that you go ahead and do it now, at least for the stock portion. Valuations are good.

Read a few books. I recommend "The Four Pillars of Investing" by Bernstein.

Best of luck.
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Old 12-27-2008, 11:16 PM   #5
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Hi! check out this site on cnn.com; it should help! Take care and let me know if u find anything else out as I am also with T Rowe Price!
AJ

Ask the Mole: Inside a financial planner's portfolio - Dec. 26, 2008
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Old 12-28-2008, 09:16 AM   #6
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Grep has good advice, but I wouldn't be surprised if it went over your head, at this point. Read a little and it will make sense.
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Old 12-28-2008, 01:01 PM   #7
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Quote:
I pulled it out of the market last year (still in the IRA) and put it in CDs and bonds for safe keeping.
Congrats, you sorta' beat the market's race to the bottom by market timing, which proves that luck has a lot to do with market timing success. You now wish to beat it again by timing the market as it goes back up? I suggest that you arrive on an asset allocation that fits your needs, invest your stash that way and live a long happy life from here on.
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Market timing just stupid dumb luck
Old 12-28-2008, 04:36 PM   #8
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Market timing just stupid dumb luck

Hi All
For some additional information/clarification...
We did not try to time the market, getting into or out of, that is non-productive! LOL

We just had dumb luck in the timing (for this time) because we had an unexpected opportunity to go overseas for an extended period of time. The market was kind of nutso and we were uncomfortable enough we just decided to move our monies into safekeeping while we were gone. By the time I moved it we had already lost quite a piece of change anyway.

We are home now and it is time to put the money back into the market.

My husband is 10 years older than me, we might leave most of his in a safer investment for access. Mine - we won't be touching for probably a long time or it may end up going to the kids and grandkids.

TAnne
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Vanguard Funds
Old 12-28-2008, 05:03 PM   #9
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Vanguard Funds

Hi
Thank you so much for all the information, Grep. I have some research to do now! LOL

You prefer Vanguard funds because?? I moved our funds into T Rowe after I retired but haven't been particularly impressed with them and Vanguard was one I was researching. Can you give me your opinion and info/differences between them?

I find the Vanguard total stock market as well as the international funds (except U.S.) of particular interest.

Again, thanks
TAnne
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Old 12-29-2008, 02:56 AM   #10
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The biggest reason Vanguard is superior is that their expenses are almost always the lowest in the industry, often by a huge amount. This is because their corporate structure is set up something like a co-op: Vanguard's investors "own" Vanguard.

I have no experience with T. Rowe, but the average investment house exists for one thing only: to pick your pockets.

If you are investing a million dollars, which would you rather pay: 1%, or $10,000 per year, or 0.07%, or $700 per year? But that's just one year! Due to compounding, over decades, lower expenses have a staggering effect on investment results.

Vanguard is also huge, and they have efficient funds in all major sectors.

The Total Stock Market index fund, with 0.07% expenses, is probably the most cost-efficient way to own essentially the entire spectrum of U.S. stocks.

Couple that with the All-world ex-US fund, and you can cover essentially the entire world with only two funds, and in any proportion you like. This is a great way to go.

Vanguard has very efficient phone service. Just call them up and say you want to move your money over to them, and they will take care of you.

I loaded a lot of information in my post. Please feel free to ask any questions.
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Old 12-29-2008, 03:15 AM   #11
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P.S., there's a book called "A Random Walk Down Wall Street" that is a classic and a really fun read. The Bernstein book I recommended is a bit tougher. Both share the same messages:

Your broker is not your friend!
Invest in broadly diversified funds with the lowest expenses.
Pay attention to taxes, understand risk and invest for the long term only.

But it's not that hard. By owning the entire U.S., and even the whole world, you will not just keep up with your neighbors, you will almost certainly do better, since you will be paying less.
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Old 12-29-2008, 09:39 AM   #12
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TAnne, Grep is right re the percentage paid in fees.

Our retirement is based on taking out 4% each year of our savings. If an investment firm is taking 1% each year, that is one-fourth of the amount we will be taking out.

We have simple investments (with Vanguard) that are based on indexes. They do not require active management, so we do not need to pay for a manager's expertise.
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Old 12-29-2008, 11:00 AM   #13
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TAnne, if you are 55 aren't you thinking about retirement soon? I have kept my money in Municipal Bonds which are bonds issued by municipalities (or cities). Municipal Bonds are issued by cities to build things like sewage treatment plants, etc. They are backed by the City's general obligation funds (GOF). This is the general pot of money that a city uses to operate - like pay employees, etc. The Municipal bonds have the first claim to the GOF, so a city must stop all operations before they default on the bonds. Moody's AAA Municipal Bonds have had 0% default rate!

They pay a pretty high rate of around 5.5% for a 20-yr, AAA bond(the last time I checked), plus the are income tax free (both state and federal). That will give you a nice, tax free income for the next 20 years.

Now, before you get into any mutual fund, you might check out ETF, or exchange traded funds. These are just like mutual funds in that they include a basket of companies all in the same general category, such as technology, mining, construction, etc. You get the same broad basket of stocks as a mutual fund, but it has no annual load, and they trade just like stocks - a few dollars per trade. They are traded like any other stock, so you can take your money out in an instant - rather than waiting for a mutal fund to get the closing day price. Plus they are NOT a private (like Vanguard), but are listed on the exchange.

This is a way to get into the stock market if you want to re-enter now. The time honored strategy is to get in by "dollar cost averaging", meaning put the same amount of money into the market every month over a period of 12 months.

Good luck
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