Market timing and taking RMDs

[samclem]

For example, 215 shares divided by 9 = 23 shares. Each month I will sell 23 shares of HC from my IRA. I repeat the process on the same day each month with the other 2 accounts. Is this correct?

Yes, that's the right math for the first month. After that, don't do any more division, just sell the same number of shares (e.g. 23 in the case of your IRA, 204 from your husband's IRA, and 13 from your husband's solo 401K) each month. There will be a slightly different number of shares left in the account on the 9th month, just sell them all.

What are your thoughts regarding dollar cost averaging vs. lump sum investing our daughter's money into her balanced account?

I wouldn't DCA, I'd just buy it all at once. See post #22 for the reasons.

 

[Goldenmom]

Logged onto our daughter's Vanguard account to look up Target Date 2035 fund and found this alert. What does this mean? Still too early to call them.

American Funds 2035 Target Date Retirement Fund® Class R-6 (RFFTX)

This fund is not available for purchase or transfer
This fund is not available for purchase and cannot be transferred to your Vanguard Brokerage Services® account from another financial institution. Contact Vanguard Brokerage Services at 800-992-8327 for more information.

 

[ziggy29]

Logged onto our daughter's Vanguard account to look up Target Date 2035 fund and found this alert. What does this mean? Still too early to call them.

American Funds 2035 Target Date Retirement Fund® Class R-6 (RFFTX)
This fund is not available for purchase or transfer
This fund is not available for purchase and cannot be transferred to your Vanguard Brokerage Services® account from another financial institution. Contact Vanguard Brokerage Services at 800-992-8327 for more information.

Is she trying to transfer current holdings into Vanguard from another custodian? Sounds like Vanguard is saying these can't be transferred into a Vanguard account. If that's the case then she might need to sell the fund in the original account, THEN transfer the cash to Vanguard and use the proceeds to buy the Vanguard Target 2035 fund (VTTHX) when the cash is available for investing.

 

[Goldenmom]

She has about 67K in cash at Vanguard in Prime MM. These funds arrived about a week ago and are from the liquidation of her Ameriprise variable annuity. It is completely liquid and ready to invest.

Interestingly, I logged into my own account and also got this same alert. What's up with this fund? Do they ever close a target date fund?

I will call Vanguard after they open.

 

[samclem]

Goldenmom,
I think you are trying to buy the wrong fund.

You do NOT want to buy American Funds 2035 Target Date Retirement Fund (RFFTX) for your daughter. The American Funds RFFTX is not a Vanguard fund, is a fund from an entirely different company. Vanguard allows their customers to buy funds from other companies in their Vanguard accounts, but there can be fees. Regardless, it's NOT the fund you want to buy. The prospectus lists an expense ratio of .47% .

You want to buy the Vanguard Target Date 2035 fund (VTTHX). Its prospectus lists an expense ratio of .15%. If both funds charge the fees in their prospectus, the Vanguard fund (VTTHX) will cost your daughter about $200 less in fees every year than the American Funds product (RFFTX). And, the Vanguard Fund has other advantages over the American Funds 2035 Target Date Fund (RFFTX)

Use the ticker symbol VTTHX to look up the right fund.

It's a good thing that you got that error message.


Edited to correct VGD ticker symbol to VTTHX
​

 

[Goldenmom]

Gotcha! Thanks, samclem.

I put Vanguard Target Date 2035 fund (VTTHX) into the VG search window this time and didn't get the error message. I printed the page just in case. Our daughter may be ready to make this purchase today, but she is also driving down Sat. morning to complete the agent authorization, so we may do it tomorrow. I will text her and see if she wants to put in the buy today. I think we are all set now and I don't need to call Vanguard after all thanks to you. Thanks so much!

 

[samclem]

She really dislikes dealing with her investments and finds it both frustrating and very uninteresting. Unfortunately, she will have a reality check at some point when it sinks in that she will have no pension from her physical therapy job, and that her paychecks will eventually stop, and she will have to live on SS and her investments. I'm encouraging her to work longer, defer SS until she's 70, invest in low-cost Vanguard funds, and save, save, save.

Our daughter may be ready to make this purchase today, but she is also driving down Sat. morning to complete the agent authorization, so we may do it tomorrow. I will text her and see if she wants to put in the buy today.

If you want her to thank you a LOT in 20 years, convince her to set up an automatic monthly transfer into this account. If she doesn't have to think about it and she never gets a chance to spend the money, it can be a relatively painless for her and require no further action. It can really add up.

 

[Goldenmom]

Our daughter's order has been submitted. She put all of her funds in a lump sum into Vanguard Target Retirement 2035 Fund (VTTHX). Thanks for your guidance with her investment and thanks for preventing me from buying the wrong fund! I texted her that she is now a Vanguard indexer.

 

[ziggy29]

Do they ever close a target date fund?

Yes and no.

In reality, most fund families have an "income" target date fund, which basically means "target NOW". They have conservative asset allocations, perhaps 25-35% equities, with mostly bonds and some cash equivalents.

When the target date is reached, fund families usually liquidate the specific target date fund and transfer the proceeds into the target "income" fund. For example, in 2020 Vanguard would likely close the "Target 2020" fund, since by that time its allocation would be basically the same as the Income fund anyway, and move the proceeds to the target Income fund.

In the case of a 2035 target date fund, there may be something like a 70-75% equity position, gradually reducing over time to maybe 25-30% equities, at which time it would be 2035 -- and the "target" becomes current income with just enough equity exposure to (hopefully) manage inflation and withdrawals.

 

[hnzw_rui]

When the target date is reached, fund families usually liquidate the specific target date fund and transfer the proceeds into the target "income" fund. For example, in 2020 Vanguard would likely close the "Target 2020" fund, since by that time its allocation would be basically the same as the Income fund anyway, and move the proceeds to the target Income fund.

In the case of a 2035 target date fund, there may be something like a 70-75% equity position, gradually reducing over time to maybe 25-30% equities, at which time it would be 2035 -- and the "target" becomes current income with just enough equity exposure to (hopefully) manage inflation and withdrawals.

Not quite. From observation, most fund families' target date funds don't reach its most conservative level until a few years after the target date. For example, Vanguard's TR 2015 fund is roughly 50/50 at the moment and likely won't be merged into TR Income until 2021-2022. There are some cases where it takes up to 15 years after the target date before the fund merges with the income fund. It's important to at least be aware of the glidepath of the chosen target date fund else you might be in a riskier allocation than you're comfortable with. Mind, this may not be such a big issue for someone who never checks their balances as Vanguard's glidepath is pretty ideal for moderate allocation and imho, balances risk, return and investing horizon quite well).

Iirc, Vanguard TR 2035 should be around 80/20 right now.

Right now, I have everything in Vanguard TR 2040 but depending on when I reach critical portfolio mass, I might de-risk sooner. I'm planning on starting with 30/70 at start of retirement and following a rising equity glidepath.

 

[Goldenmom]

While I have you wonderful early retirement members assembled here, I'd like to ask another question about our daughter's investments.

She works as a physical therapist and her 401(k) at work is with Principal Financial Group. Her portfolio at Principal is confusing, but even I can tell that the fund expenses are high. They do offer an S&P 500 index fund but it only had a Morningstar rating of 3 stars. She'd like me to manage this account for her, but after looking at her portfolio and doing a little online research, I'm afraid this task is beyond my skill set. I am only familiar with Vanguard funds and am afraid she may need a fee-only fiduciary to help her find the best fund options. Do any of you know a forum or site that discusses how to design a low-cost index portfolio using Principal Group funds? I'm willing to educate myself if I can find some helpful resources. Vanguard says she cannot transfer her 401(k) while she is still contributing to it. Can any of you offer some advice for how I can help her? What would you do if she were your daughter? She has about 350K in her 401K. Has anyone seen a thread on Principal Group at any of the other forums? Thanks in advance.

 

[Goldenmom]

Principal Group offers these 3 index funds:

• Large Cap S&P 500 Index - 0.31%
• Mid-Cap S&P 400 Index - 0.31%
• Small Cap S&P 600 Index - 0.31%

I tried to attach a pdf version of our daughter's current 401(k) holdings at Principal Group (see below). First attachment failed. See next post.



My husband and I wonder if she can rollover some of her Principal Group 401(k) to her Vanguard IRA while continuing to contribute to her Principal Group 401(k) at work.




I will also try to attach the funds available under her plan.


Thanks for comments and suggestions.

 

[Goldenmom]

Here's the attachment of our daughter's current holdings. I was able to open this one.

 

[target2019]

Look closer at principal.com low cost funds. When you go in that direction you are in a deferred annuity, I think.

I'll have to log in later this weekend so I can find the exact language they use.

 

[Goldenmom]

Principal Group

Principal Group Funds Available Under Daughter's Plan

See attached pdf

 

[target2019]

Found my full color printout of the investment options. The options you list are all in the separate account. That is a group annuity contract with Principal Life Insurance Company. There are limits which are explained in a footnote A, which you should be able to find on the site somewhere

My company's agreement has the fund choices you selected, and some additional ones, like American Funds Balanced R3 Fund (0.94% expense ratio!).

I would streamline the number of investments to eliminate overlap. But you first need to decide on an AA.

My opinion is, the Stable Value fund is something to avoid in this case. There is really nothing bond-like worth having, so you're stuck with that Core Plus Bond if you want fixed income.

I would consolidate the other equity classes to just S&P500, Mid Cap, and Small Cap 600.

You have one international equity offering. Take it or leave it.

Put stable value into Core Plus Bond.
Put Lifetime 2030 into S&P600.
etc.
See the before and after below.
I put the 2030 into S&P600, but you could find a better split for that.

Then you can tune future contributions to achieve a glide path. Or not.

If there is a Roth, also take that into account when figuring the Asset Allocation.

What is her age?

 

[pb4uski]

While I have you wonderful early retirement members assembled here, I'd like to ask another question about our daughter's investments.

She works as a physical therapist and her 401(k) at work is with Principal Financial Group. Her portfolio at Principal is confusing, but even I can tell that the fund expenses are high. They do offer an S&P 500 index fund but it only had a Morningstar rating of 3 stars. She'd like me to manage this account for her, but after looking at her portfolio and doing a little online research, I'm afraid this task is beyond my skill set. I am only familiar with Vanguard funds and am afraid she may need a fee-only fiduciary to help her find the best fund options. Do any of you know a forum or site that discusses how to design a low-cost index portfolio using Principal Group funds? I'm willing to educate myself if I can find some helpful resources. Vanguard says she cannot transfer her 401(k) while she is still contributing to it. Can any of you offer some advice for how I can help her? What would you do if she were your daughter? She has about 350K in her 401K. Has anyone seen a thread on Principal Group at any of the other forums? Thanks in advance.

Well, that is quite a nice nestegg that she has saved. I think the first thing that you/she needs to do is to determine what her overall AA target is for, first, all her funds and second, for the 401k.

Assuming that the 401k is the bulk of her savings, I would focus on the S&P index funds since they have the lowest ERs.

Also, does her 401k have a match? And how much is she saving towards retirement? In the 401k she should at least maximize the match, but if what she is saving in total less what she would need to save in the 401k is less than $5,500 and she qualifies for a deductible IRA then I would shift to splitting the savings between the 401k (up to the match) and put the excess in a deductible IRA where she'll have better investment options.

 

[target2019]

Based on that complete list, be sure to use the S&P 500, S&P 400, S&P 600.

 

[Goldenmom]

Target2019, I don't really understand about the separate account except that you are saying it is an annuity. Does this mean that she can exchange funds (sub accounts), but may not be able to rollover some of funds to Vanguard? In other words, is her money locked in an annuity for a period of years and subject to surrender charge?

My daughter and I were both suckered into variable annuities at Ameriprise. She has liquidated hers without penalty, but I will have to withdraw mine over the next 5 years to move the balance of my VA to Vanguard without penalty. Thanks for all of your help with her 401(K). I would like to greatly simplify her portfolio and lower expenses as much as possible. What would you do with her target date fund? I will make a chart tomorrow for her to show her how to exchange each of the funds. I think she has a transfer limit of some kind so we will need to see what restrictions apply. I'd appreciate knowing how you would exchange or eliminate each one. I had the same idea about the stable value fund and using the 3 index funds and was glad I was on the right track about those. Still need ideas on AA for a 48 yr old.

Thanks again,
Goldenmom

 

[target2019]

Target2019, I don't really understand about the separate account except that you are saying it is an annuity. Does this mean that she can exchange funds (sub accounts), but may not be able to rollover some of funds to Vanguard? In other words, is her money locked in an annuity for a period of years and subject to surrender charge?

My daughter and I were both suckered into variable annuities at Ameriprise. She has liquidated hers without penalty, but I will have to withdraw mine over the next 5 years to move the balance of my VA to Vanguard without penalty. Thanks for all of your help with her 401(K). I would like to greatly simplify her portfolio and lower expenses as much as possible. What would you do with her target date fund? I will make a chart tomorrow for her to show her how to exchange each of the funds. I think she has a transfer limit of some kind so we will need to see what restrictions apply. I'd appreciate knowing how you would exchange or eliminate each one. I had the same idea about the stable value fund and using the 3 index funds and was glad I was on the right track about those. Still need ideas on AA for a 48 yr old.

Thanks again,
Goldenmom

1) Principal's language is "group annuity contract." I see the footnote A in your PDF. When you login, and click that footnote, you'll see this language and a long explanation.
2) In my case, I just came into a job where principal is available. Since my timeline is very short, and I don't need the diversification, I picked one fund outside of the separate account, and will go forward. Your daughter has a different horizon at 48 years young. She needs the diversification you are seeking.
3) Stable value is a loser. ,9 expense ratio and returned .5% performance?
4) Look at the chart I posted. It shows you what I would do.
5) First thing is decide an asset allocation for 48 year old. You can go to Vanguard, Fidelity, etc. and find an allocation. Maybe:
https://personal.vanguard.com/us/funds/tools/recommendation

 

[pb4uski]

Goldenmom,

Many insurers who administer 401ks do so under a group annuity contract since they are not mutual fund companies. The insurer has separate accounts that issue these group annuity contracts to the 401ks and each separate account has "subaccounts" which is functionally equivalent to a mutual fund. That is what you are seeing on the list. This group annuity contract is not anything bad or anything like the VA you and your DD had or other bad individual annuities we are all too familiar with, but is simply a form that insurers commonly use to sell 401ks to employers.

Most retirement plans are held either at a mutual fund company or within a group variable annuity contract at a life insurance company. Retirement plan assets are held in a group variable annuity contract because the program administrator is a life insurance company that sells annuities, as opposed to a mutual fund company. The differences between plans held at a mutual fund or a life insurance/annuity company may be virtually indistinguishable.

The investment options available for employees to invest in are held in the group annuity contract. The distinctions between investment options in an annuity contract and a mutual fund arrangement are slight. Mutual fund arrangements allow for employees to make contributions directly to the mutual fund, while investments in these same mutual funds or similar investments are made through a group annuity contract in separate accounts. Participants then hold units in that separate account. The separate account is “separate” from the general assets of the insurance company, so there is no credit risk in the event that the insurer becomes insolvent.

 

[target2019]

There is usually a period during which you can't get all of your money out. For example, spouse's annuity contract with Equitable had a 7 or 8-year term. After the term, and you sever from company, you can rollover.

To know the limitations, read the contract, and call the company to clarify anything not understood.

My experience with a couple of support calls to Principal has not been very good. You need to read and understand the contract.

 

[pb4uski]

NO!!!!!

This is a totally different thing. It operates identically to a conventional 401k.... it is just that the form is a bit different because the issuer is an insurance company rather than a mutual fund.

I'll bet that the spouse contract that you are referring to was not a group annuity in a 401k but was some kind of individual annuity contract.

 

[target2019]

NO!!!!!

This is a totally different thing. It operates identically to a conventional 401k.... it is just that the form is a bit different because the issuer is an insurance company rather than a mutual fund.

I'll bet that the spouse contract that you are referring to was not a group annuity in a 401k but was some kind of individual annuity contract.

Spouse has a TSA - 403(b). Deferred Annuity Contract. Thanks for the explanation.

I came across an article that explains why Prinicpal e/r's are lower than you'd expect.

https://mutualfundreform.com/princi...shing-proprietary-funds-agrees-to-lower-fees/

 

[Goldenmom]

Cheryl's Principal Group Holdings Chart

I made a chart so our daughter, Cheryl, would have a "cheat sheet" when she calls Principal Group to change her sub-accounts. I'd like advice on which sub-accounts she should hold or exchange into another sub-account. PG offers 3 index funds in her plan: LargeCap S&P 500 Index, MidCap S&P 400 Index, SmallCap S&P 600 Index. She's terribly busy with patients & paperwork & it's hard for her to make calls during the business day. It has literally taken 2 months for her to liquidate her variable annuity at Ameriprise & transfer the funds to Vanguard. At least those funds were out from under penalty & were invested yesterday in the Vanguard Target Date 2035 fund. She has no investment education or interest in investing & wants me to manage all her accounts. Please look at my attached chart & make suggestions similar to those made by target2019. I'd like to know what do with each of the funds she holds. She'll drive down today to notarize a Vanguard agent authorization & we can go over it then. Do you know if she can rollover any of her Principal Group 401(k) funds to her Vanguard IRA (which contains only her target date fund) while keeping her Principal Group account active at work? She will need to keep contributing to it each month from employment income. Thanks so much for any and all help! I will use your responses to fill in the rest of her chart.