Where to invest $10,000 for Retirement - Please Advise

[G-Man]

Hello All,

I am about 7 to 10 years from retiring. Currrently all of my retirement assets is in a company sponsored deferred profit sharing plan (like a 401K) which consist of all company stock.

I have an extra $10K to invest. Should I invest in a ROTH IRA. Please advise.

 

[ER Eddie]

I'm more concerned about all your retirement assets being in company stock. Is there some reason why that needs to be? It's a very vulnerable position, to have everything tied up in one company's stock.

As for the 10K, it's hard to say because you didn't give many details about your financial situation. Where are the rest of your assets? Debt? Emergency fund? etc.

 

[LOL!]

I'd invest some of the money in a few books on investing to read. Here are some book suggestions: Investment Books

 

[Ready]

I'd have to agree with ER Eddie. Having all of your savings invested in company stock is extremely risky. Just having all of your money in the stock market is risky, but then narrowing it down to the stock of just one company is beyond any level of risk that anyone should be taking.

Take a look at your 401K plan and review what options are available to diversify into other funds. If you want to post the fund choices here we can help you to evaluate them better. If you are within 10 years of retiring, you want to have at least some portion of your money in fixed income (likely at least 30%, maybe more).

 

[G-Man]

I'd have to agree with ER Eddie. Having all of your savings invested in company stock is extremely risky. Just having all of your money in the stock market is risky, but then narrowing it down to the stock of just one company is beyond any level of risk that anyone should be taking.

Take a look at your 401K plan and review what options are available to diversify into other funds. If you want to post the fund choices here we can help you to evaluate them better. If you are within 10 years of retiring, you want to have at least some portion of your money in fixed income (likely at least 30%, maybe more).

I will post more information tonight... Wow.. This is a great forum.. Looking forward to help I will receive...

 

[G-Man]

I'm more concerned about all your retirement assets being in company stock. Is there some reason why that needs to be? It's a very vulnerable position, to have everything tied up in one company's stock.

As for the 10K, it's hard to say because you didn't give many details about your financial situation. Where are the rest of your assets? Debt? Emergency fund? etc.

The company stock has done extremely well for me.. That is the only reason I have not changed my asset allocation.. I will post some of the other fund choices later tonight...

Current debt is around $35,000. Emergency funds around $20,000. Still paying mortgage on my home which is valued at around $500,000 with about $380,000 left on the mortgage.

 

[Animorph]

If all your retirement assets are in company stock, your other investments should all be in anti-company stock. Something like bonds or cash, but probably not any equities. Diversify out of the company stock as soon as you are allowed.

 

[Meadbh]

A mortgage is a debt, too. Let me fix that for you:

Current debt is around [-]$35,000[/-] $415,000.

OK, so you have a large house. We don't know your assets, but I hope they are greater than $415K, otherwise you have a negative Net Worth. Assuming that is not the case, I am amazed that you should have to ask where to invest a relatively small sum such as $10K.

I agree with all other posters that having all your investments in one company is unwise. While your company may have done very well to date, the overwhelming likelihood is that the current trajectory will not be maintained. (Reversion to the mean, business cycles, etc). You are already investing your human capital in this company. If it were to fail, not only would you lose your job, but your retirement plans would be up in smoke. I second the advice to diversify your investments as soon as possible.

 

[ER Eddie]

The company stock has done extremely well for me.. That is the only reason I have not changed my asset allocation..

You are 100% invested in a single company stock. That is about the riskiest profile I can imagine. At the risk of beating a dead horse: diversify, diversify, diversify.

You've got all your eggs in one basket. If your company runs into trouble, you are going to get kicked in the eggs, hard.

Current debt is around $35,000. Emergency funds around $20,000. Still paying mortgage on my home which is valued at around $500,000 with about $380,000 left on the mortgage.

Well in that case, I'd use the 10K to pay off debt.

 

[Bestwifeever]

G-Man, not to pile on, but ASAP do whatever you need to do to move most of your money out of company stock into whatever options are available in the plan, even if it's just into a money market fund while you figure out an asset allocation. DD did that as soon as his company offered other options and it made all the difference to us vs his coworkers. You just don't know when your company's management is going to make a risky acquisition, have some liability issue, scandal in the front office, etc. Your service to your firm is enough of an investment into it.

Put the uninvested $10,000 into a total stock fund--market's been down lately so you'll be buying low.

 

[travelover]

The company stock has done extremely well for me.. That is the only reason I have not changed my asset allocation.........

Same was true of Enron and to a lesser extent, General Motors.

 

[Bestwifeever]

Same was true of Enron and to a lesser extent, General Motors.

And Lucent.

 

[G-Man]

Here are some more details...

Below is my Asset Allocation based on $500K today.. The stock has appreciated greatly over the years. My cost basis is very low. That's why I have continued to leave my allocation in company stock. Additionally I wanted to take advantage of the NUA (Net unrealized appreciation) when the time comes to take a distribution upon retirement.

Company Stock A - 4% Allocation - Shares received as a result of spinoff. Dividends reinvested in Stock D.
Company Stock B - 7% Allocation - Shares received as a result of spinoff. Dividends reinvested in Stock D.
Company Stock C - 34% Allocation - Shares received as a result of spinoff. Dividends reinvested in Stock D.
Company Stock D - 55% Allocation - Company stock. 15% of my salary is contributed by the company each year toward my retirement account. Dividends are reinvested to buy more of Stock D.

Here are my investment choices:
Stock Investments -- US LARGE EQTY INDEX
Stock Investments -- INTL EQUITY FUND
Stock Investments -- US MID/SM EQTY INDEX
Stock Investments -- VANG PRIMECAP ADM
Stock Investments -- VANGUARD CAP OPP ADM
Blended Fund Investments -- BALANCED FUND
Bond Investments -- INTEREST INCOME FUND
Bond Investments -- US GOVT OBLIGATIONS
Bond Investments -- VANG TOT BD MK IS PL

Please continue to provide advice on how I should diversify.

 

[G-Man]

More feedback please...

 

[REWahoo]

Please continue to provide advice on how I should diversify.

More feedback please...

My feedback is not to base your future financial well-being on the advice of anonymous internet inhabitants.

Read a few of the investment books found here and educate yourself on the basics. Then post what you think you need to do to diversify and ask for feedback from the forum on your proposed investment plan.

 

[ER Eddie]

Yeah, I wouldn't feel comfortable telling someone how to allocate half a million dollars. I have only recently gotten to "minimal competence" in this area myself. A little knowledge is a dangerous thing...

Here's a Vanguard questionnaire that may give you a general overview of an asset allocation to aim for (e.g., 60% stock, 40% bond):

https://personal.vanguard.com/us/Fu...=https://personal.vanguard.com/us/funds/tools

Here is a recent thread on the subject, where I was asking for input on my AA and tuning it, based on feedback. I'm not suggesting this is right for you, just throwing it out there as additional info about the process:
http://www.early-retirement.org/forums/f28/looking-for-input-on-asset-allocation-67781.html

Here's info on a nice, simple 3-fund portfolio (US stock, international stock, and total bond):
Three-fund portfolio - Bogleheads

You could probably do that with the funds you've got there (funds 1-3 plus the last one). You'd have to combine the first and third to get coverage of large/med/small cap US stock.

This might also be a situation where paying a fee-for-service financial advisor might make sense. People here generally hate that idea and will insist you do it yourself, but I found it useful, at a time when I didn't know what to do and didn't have time to figure it all out myself. You could hire him/her as a temporary consultant, to help you pick funds. Just make sure the fee is per hour, not some percentage of your investment or return.

 

[Dawg52]

As others have said, read a few books as referenced above. Below is a website that will give you some additional info on what many consider a balanced portfolio.

Coffeehouse Portfolios | The Coffeehouse Investor

 

[growing_older]

My cost basis is very low. That's why I have continued to leave my allocation in company stock.

How is this plan "like a 401k" if you have to track cost basis and account for gain if you sell? Also, older shares may have a low cost basis, but any new money you put into the plan has a current cost basis.

Oh, and all your eggs in one basket (employment and investment in the same single company) is a hugely risky move. Sometimes people do very very well taking a huge risk. Sometimes they end up with nearly nothing. It doesn't seem like you need to take this risk.

 

[pb4uski]

.....Please continue to provide advice on how I should diversify.

I agree with others in that I see the risk of the lack of diversification to be much greater than the benefit of utilizing NUA to use capital gain tax rates rather than ordinary tax rates. Think Enron, GM, Lucent and other one-time high flyers who subsequently crashed, burned and ruined their stockholder employees' lives.

I would exchange stocks A through C and 45% of the 55% of stock D for a combination of the first three mutual funds for your equity allocation and the interest income fund if the interest rate is attractive. The proportions should be based on your risk tolerance after reviewing EREddie's post.

The would leave you ~10% company stock that could be used for NUA but this will climb some with future grants so you may need to occasionally pare it back to 10% and redeploy the proceeds into other funds.

If you had a lot of retirement assets other than this company stock investment then NUA might be a play, but the detriments of lack of diversification outweigh the NUA benefit IMO.

 

[Animorph]

Give us the expense ratios of the 401k funds, and the management company of each if available. All Vanguard?

If you were able to NUA within a year or so it would be tempting. 7 to 10 years from now is tempting fate. If you have no need/desire to gamble with your retirement, diversify out of the company stock.

I had to do the same thing, although in a taxable brokerage account. One thing you can do is look for days when your stock is historically high against your other options, sell some of the stock and buy the fund. I did that to buy other stocks, selling high and buying low. It gave me a relatively quick 15% gain over sticking with my company stock. I doubt it will be as fun transferring into generic funds, but there will still be times when, hopefully, your stock is riding high.

I'd take it down to the 30% to 10% level, depending on how excited you are about the stock, how lucrative the NUA looks, and how critical the funds are to your successful retirement. 10% is normally recommended, but then I like 100% equities in retirement and you've made it this far with much more.

 

[G-Man]

Give us the expense ratios of the 401k funds, and the management company of each if available. All Vanguard?

If you were able to NUA within a year or so it would be tempting. 7 to 10 years from now is tempting fate. If you have no need/desire to gamble with your retirement, diversify out of the company stock.

I had to do the same thing, although in a taxable brokerage account. One thing you can do is look for days when your stock is historically high against your other options, sell some of the stock and buy the fund. I did that to buy other stocks, selling high and buying low. It gave me a relatively quick 15% gain over sticking with my company stock. I doubt it will be as fun transferring into generic funds, but there will still be times when, hopefully, your stock is riding high.

I'd take it down to the 30% to 10% level, depending on how excited you are about the stock, how lucrative the NUA looks, and how critical the funds are to your successful retirement. 10% is normally recommended, but then I like 100% equities in retirement and you've made it this far with much more.

I will post the expense ratios and management company of the investment options once I gather all the information. It should be tomorrow....

 

[G-Man]

Also I wanted to mention that I will be drawing a pension from the company as well. The earliest I can start is age 60th.

 

[G-Man]

Give us the expense ratios of the 401k funds, and the management company of each if available. All Vanguard?

If you were able to NUA within a year or so it would be tempting. 7 to 10 years from now is tempting fate. If you have no need/desire to gamble with your retirement, diversify out of the company stock.

I had to do the same thing, although in a taxable brokerage account. One thing you can do is look for days when your stock is historically high against your other options, sell some of the stock and buy the fund. I did that to buy other stocks, selling high and buying low. It gave me a relatively quick 15% gain over sticking with my company stock. I doubt it will be as fun transferring into generic funds, but there will still be times when, hopefully, your stock is riding high.

I'd take it down to the 30% to 10% level, depending on how excited you are about the stock, how lucrative the NUA looks, and how critical the funds are to your successful retirement. 10% is normally recommended, but then I like 100% equities in retirement and you've made it this far with much more.

Please see attachment for information requested....

 

[Animorph]

Please see attachment for information requested....

Without looking them up, those funds look like some reasonable choices with mostly low expense ratios and a little bit of diversity. You should compare the index funds' performance with the comparable Vanguard fund or index to see if they're hitting the index fairly closely. Pick some percentages of US, international, and maybe small cap (30%, 20%, 20% and 30% company stock, or 30/30/30/10?) and start moving out of company stock. Add some bonds if you want to go a bit more conservative.

 

[G-Man]

Anymore feedback?