Safer ROTH alternative for market downturn?

[michaelc]

Hello,


I just now joined this forum after finding it....


I am a very healthy 57 year old male, single, no kids, living in NJ. With the exception of a small mortgage balance of 38K, I have ZERO debt...no credit card, no car payments, no student loans, NOTHING. I have a 15 month emergency fund to cover all expenses in the event of a job loss.


I have been contributing 33% of my salary towards retirement and my combined asset total in both my 403(b) and my ROTH is $650,000.00.


I feel I am broadly diversified in my 403(b) but not so much with my ROTH, which I have T Rowe Price's Capital Appreciation Fund. I know it has been a
amazing fund over the last 10 years but a financial advisor I recently met with feels this fund will lost a fair amount in the next market crash and feels my ROTH should be just a bit my diversified and a bit more conservative so when the downtown comes, I don't lose that much.


I plan on working at least 10 more years to 67.



So with that said, what might be a better choice as a SINGLE CORE fund to hold in my ROTH?? I would appreciate all recommendations!


Thanks
Michael in NJ

 

[LRDave]

The lowest cost TSM fund you can find? Also dump the FA - that will help your returns over the next 10 years tremendously.

 

[michaelc]

LRDave,


Sorry, I am not familiar with the lingo and abbreviations here..whats TSM and FA??

 

[Montecfo]

Do you plan to draw money from the Roth after a downturn? If not, I am not sure it is an issue. Just continue to hold, investments will recover.

I have traditional IRAs and Roths. The Roths are invested for long-term growth. I will tap these last.

Traditional IRA's and taxable both hold a mixture of cash, debt and stocks, so I have safer alternatives to draw from in a down market.

 

[NgineER]

Welcome to the forum,

Tell us more about yourself.

Income and expenses etc...

How long have you been saving at 33% of your salary?

I hear that people are very happy with vanguard wellesley fund VWIAX

 

[michaelc]

NgineER,


Income is $72K a year, been saving at 33% for at least 5 years now and plan to increase to 37-38% this year. Monthly expenses about $2500.
At 57, the Wellesley Fund seems a bit too conservative at 40% bonds, 60% stock. Seems a bit conservative for 57 year old with 10 more years left till retirement. no?

 

[pb4uski]

....but a financial advisor I recently met with feels this fund will lost a fair amount in the next market crash...

Your FA is an idiot. Reality check, all 55/45 blended funds will lose fair amount in the next market crash... and then they will recover. That looks to be a fine fund to me.... I'd stick with it.

Ditch the FA.

 

[pb4uski]

LRDave,


Sorry, I am not familiar with the lingo and abbreviations here..whats TSM and FA??

TSM = Total Stock Market
FA = Financial advisor

 

[michaelc]

pb4uski,


Thanks, but what's with the name calling?? Is that really necessary? Secondly, he is NOT my advisor, I only did a complementary meeting with him for advice. I DO NOT have a financial advisor.

 

[pb4uski]

NgineER,


Income is $72K a year, been saving at 33% for at least 5 years now and plan to increase to 37-38% this year. Monthly expenses about $2500.
At 57, the Wellesley Fund seems a bit too conservative at 40% bonds, 60% stock. Seems a bit conservative for 57 year old with 10 more years left till retirement. no?

I agree, Wellesley is more appropriate for conservative investors in retirement.

Wellington is Wellesley's less conservative cousin.

However, you should probably also think about tax efficient placement. I would decide what I want my overall asset allocation (AA) to be, then fill the 403b with fixed income up to your fixed income allocation and the fill out the rest with stocks. That will also put higher growth equties in your tax-free Roth and keeping bonds in your 403b since withdrawals will be taxes as ordinary income when withdrawn.

Having stocks in tax-deferred accounts effectively converts growth that would be tax at preferential tax rates to income that will be taxed at ordinary tax rates.

 

[pb4uski]

pb4uski,


Thanks, but what's with the name calling?? Is that really necessary? Secondly, he is NOT my advisor, I only did a complementary meeting with him for advice. I DO NOT have a financial advisor.

I would think that is pretty benign by NJ standards, but perhaps Princeton is different.

My point was that what you are in is a fine fund and there is no reason to change.

 

[njhowie]

Not being diversified in each of your accounts is not necessarily taboo depending on the amounts we're talking about. If the Roth is say 10% of the $650k, then you could be fine. On the other hand, if the Roth is 80% with all of it in the TRP fund, then some diversification is likely warranted.

At 57, the Wellesley Fund seems a bit too conservative at 40% bonds, 60% stock. Seems a bit conservative for 57 year old with 10 more years left till retirement. no?

Absolutely not! Without understanding the investor (you), there is nothing which dictates what is "too conservative". What is your level of risk tolerance? At 57, you are within sight of retirement. If the market were to tank next week, and your $650k all of a sudden turned into $400k, could you handle that? Would you lose any sleep over the situation? One popular investment approach is "your age in equities", would have you roughly at 60/40, so Wellesley would be ideal. I'm not saying it's the right approach for everyone, but it is one that is widely accepted.

 

[michaelc]

Njhowie,

Wee
My Roth is 19% of the 650K. And sorry, I got the Wellesley allocation wrong, its 60% bonds, 40% stocks! Wellington is 60% stocks and 40% bonds.

 

[LRDave]

LRDave,


Sorry, I am not familiar with the lingo and abbreviations here..whats TSM and FA??

My apologies - I did not notice the post count before responding. pb4uski defined the acronyms for you already.

 

[njhowie]

I don't see anything particularly bad with having ~20% in the TRP Capital Appreciation fund. I'm looking at the fact sheet for the fund and it says 50% to 70% equity - so it is inline with what you're leaning towards.

 

[pb4uski]

....On the other hand, if the Roth is 80% with all of it in the TRP fund, then some diversification is likely warranted. ...

Howie, what is your reasoning? The TRP AA is below:

Category	% of Total Net Assets	Market Value (USD)
Convertibles	3.20%	$1,242,300,091.28
Global ex-US Bonds	1.13%	$438,687,219.73
Global ex-US Stock	3.83%	$1,486,877,921.75
Options	-0.24%	($93,172,506.85)
Preferred	1.77%	$687,147,237.99
Reserves	18.11%	$7,030,642,079.06
US Bonds	19.91%	$7,729,435,880.40
US Stock	53.56%	$20,792,997,777.72
Total Allocation		$38,821,877,852.36

And it looks like they have over 200 different stocks. They're making some sector bets for Healthcare, Industrial and Business Services and Utilities and against Consumer Staples, Communication Services and Energy, but that is what managed funds do.

According to Portfolio Visualizer the funds has better risk adjusted returns and less market correlation than a generic 60/40 index fund porfolio.

 

[target2019]

MichaelC, where is the Roth held?

 

[mrfeh]

So with that said, what might be a better choice as a SINGLE CORE fund to hold in my ROTH?? I would appreciate all recommendations!

Hello Michael.

Instead of asking strangers on the 'net which fund to buy, I suggest you educate yourself so you can answer this question yourself.

Start here: https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

 

[UnrealizedPotential]

I would keep PRWCX. I have never found a better conservative fund and I have looked high and low. I have it as part of my Roth Ira . I am not sure what the FA you met with is thinking but go back and look at the yearly returns for Capital Appreciation and then make your own decision. My vote says keep the money in your Roth right where it is.

 

[michaelc]

Again guys, I DO NOT have a FA! I only did a complementary meeting with him for some advise! They are a well known, respected fiduciary firm out of both Philly and NYC. I am NOT paying a FA.

 

[pb4uski]

michael, if you read UP's response, he correctly referred to the FA as one you met with, not as your FA.

No one has inferred that you have an FA since you clarified that you don't have one in post#9 so I'm not sure why you are going postal on this.

 

[target2019]

Again guys, I DO NOT have a FA! I only did a complementary meeting with him for some advise! They are a well known, respected fiduciary firm out of both Philly and NYC. I am NOT paying a FA.

Got it. If we knew where Roth is held, would be simple to recommend something else.
It's ok.

 

[michaelc]

Referring to a FA I just met with for advice as "an idiot" is not necessary, but ok, I understand.


target2019, my ROTH is held directly with T Rowe Price, just the one fund, Capital Appreciation.

 

[pb4uski]

Referring to a FA I just met with for advice as "an idiot" is not necessary, but ok, I understand.

Ok, I'll amend it if it makes your feel better... the FA is not an idiot... but his/her advice was idiotic. Feel better?

 

[michaelc]

pb4uski,


That's fine, I just dont want to get off to a bad start in this forum. We all have different opinions.