The daughter is asking for investment guidance.

[redduck]

My 35 year old married daughter has asked me for some investment guidance (ok, ok, her judgment may be a bit suspect). At the moment, she's not so interested in early retirement (although she thinks that would be nice), but just some relatively sane investing ideas (That's where I exit and you folks enter).

She has a working husband. They have no debt or children. There is a mortgage, but it's manageable. They don't live below their means, they seem to live at their means (much like I do). My daughter should start bringing in money this year after graduating from college a second time.

Anyhow, here's what she has:

401K: $10,000 in American Funds 2035 (from a former job). I suggested she go to Vanguard and exchange her current mutual fund for Vanguard's 2035 fund (cheaper and better).

Roth IRA: $13,000 now in cash (she did have three ETF's which were not doing all that well. (Hey, look, I thought MOO was my best ever financial suggestion).

So, what do with the cash? I suggested VEIPX (Vanguard Equity Income Fund). But, that's open for discussion (and perhaps a certain amount of taunting. After MOO, I can't seriously be embarrassed anymore). She's not that interested in total stock market funds.

She does plan on fully funding her retirement plan each year and her husband is on board with all of this (and is on board regarding his own retirement plan as well).

The good news is, she will listen.

So, the first step is...?
And, then the second step is...?

 

[growing_older]

Investment advice is good and getting into some low cost funds and knowing more about investments will be helpful. But unless there are some significant pensions in their futures they also need to save quite a bit more. Thinking that they will be okay with what they've been doing, if only they get better investment advice, is a false hope and may prevent them from doing the really important work of figuring out how to live on less and save more.

 

[LOL!]

The first step is to read 2 or 3 good books on investing. One book will not do it because it will just create monovision and maybe be too religious, too.

Also reading at least 2 books demonstrates some commitment to follow a plan.

I would suggest "The Bogleheads' Guide to Investing" as a start book and maybe something by William Bernstein or Larry Swedroe as the second book.

Check out Bogleheads Investing Advice and Info too. The "Getting Started" link how to get started.

 

[easysurfer]

Yeah...who wants to invest in a boring, total stock market fund?

If you want to nudge her in that direction, what you do is refer some investment books and then she will see that investing in a boring, total stock market fund isn't so bad after all

 

[Mulligan]

On the personal finance side of things, I would consider emphasizing to her the importance of avoiding increased lifestyle creep when the second income stream comes on line. A dollar not spent is worth way more than a dollar earned is. This would also allow increased investment/compounding over time to occur. Looking back on my life that was the biggest mistake I made.

 

[Animorph]

They should decide on what they need to save for retirement, just to maintain a constant lifestyle. Then they can decide where to put it and what to invest in. If taxes are 15% or lower, they might max out the Roths before the tax deductible options.

They should treat all their retirement accounts as a single portfolio with one target AA.

If they may come close to exceeding the IRA contribution income limit ($180k+ for a couple now IIRC) for a significant number of years in the future she may not want to convert the 401k to and IRA. That blocks the "backdoor" Roth contribution scheme. She may eventually be able to add to a new employer's 401k, if they allow it.

American funds aren't terrible, they just mainly have front loads, which she's already paid. Think and compare carefully before switching out.

 

[Bestwifeever]

Lay off the high heels and find a signature go-to shade of red lipstick and buy it in bulk.

 

[brewer12345]

Do they have a healthy emergency fund? If not, that is job 1. After that, buy a balanced fund from Vanguard (STAR, Wellington, Vanguard Balanced) and go to sleep for a couple decades.

 

[timo2]

Refer her to Warren Buffet: Picking Warren Buffett’s Brain: Notes from a Novice


“Good afternoon, Mr. Buffett and Mr. Munger…” my voice boomed out through the sound system with a half-second delay, making it almost impossible to remember my lines, memorized word-for-word. I continued:
“If you were 30 years old and had no dependents but a full-time job that precluded full-time investing, how would you invest your first million dollars, assuming that you can cover 18 months of expenses with other savings? Thank you in advance for being as specific as possible with asset classes and allocation percentage.”
Buffett let out a small laugh and began. “I’d put it all in a low-cost index fund that tracks the S&P 500 and get back to work…”

 

[redduck]

Investment advice is good and getting into some low cost funds and knowing more about investments will be helpful. But unless there are some significant pensions in their futures they also need to save quite a bit more. Thinking that they will be okay with what they've been doing, if only they get better investment advice, is a false hope and may prevent them from doing the really important work of figuring out how to live on less and save more.

They are both fairly sensible and don't have extravagant needs (I hope). And, I do believe they will save more when they have more to save (I hope).

 

[redduck]

The first step is to read 2 or 3 good books on investing. One book will not do it because it will just create monovision and maybe be too religious, too.

Also reading at least 2 books demonstrates some commitment to follow a plan.

I would suggest "The Bogleheads' Guide to Investing" as a start book and maybe something by William Bernstein or Larry Swedroe as the second book.

Check out Bogleheads Investing Advice and Info too. The "Getting Started" link how to get started.

Asking them to read 2 or 3 good books won't work. I understand it worked for you and for many others this board. But, there are a bunch of people who don't/won't/can't learn financial strategies by reading about them. And, for me going to the Bogleheads website is like stepping into Hell (or, stepping into something that I really wished I hadn't stepped into.

This board is a much better place than the Boglehead's board to learn about investing--and air conditioning.

 

[redduck]

Yeah...who wants to invest in a boring, total stock market fund?

If you want to nudge her in that direction, what you do is refer some investment books and then she will see that investing in a boring, total stock market fund isn't so bad after all

That's exactly right. It is so boring. However, I think that most of us understand a total stock market fund actually makes a lot of sense.

 

[redduck]

Lay off the high heels and find a signature go-to shade of red lipstick and buy it in bulk.

I've been there, done that.

 

[redduck]

Do they have a healthy emergency fund? If not, that is job 1. After that, buy a balanced fund from Vanguard (STAR, Wellington, Vanguard Balanced) and go to sleep for a couple decades.

They have six months emergency fund. The other backup is my daughter's parents. And, that's really a good backup. End of that story.

I also was thinking Wellington, but is she too young to be in a fund that is 40% bonds? She's 35.

 

[redduck]

Lay off the high heels and find a signature go-to shade of red lipstick and buy it in bulk.

I just discovered that I can't put a moderator on the ignore list.

 

[Bestwifeever]

I just discovered that I can't put a moderator on the ignore list.

.

 

[LOL!]

OK, reading anything seems to be out of the question. Would a video work?
Video: Start with a Sound Financial Lifestyle - Bogleheads

 

[Animorph]

She's in a target retirement fund already. Is that too boring and not in consideration for the Roth IRA? We can't really guarantee that three different ETF's we recommended would do "all that well" either. We could go with say, VWO, VNQ, and VBR. That should at least be interesting and diversifying. Of course they will sometimes trail the Dow or S&P 500, possibly for years. Your biggest problem may just be getting her to leave them alone (or add to them, or rebalance) for at least 10 years.

 

[travelover]

...........
This board is a much better place than the Boglehead's board to learn about investing--and air conditioning.

You have got that right. I posted over there for the first time in a long time and quickly retreated.

Re your daughter, I hope you have better luck than I'm having - leading a horse to water and all that.

 

[Mulligan]

She's in a target retirement fund already. Is that too boring and not in consideration for the Roth IRA? We can't really guarantee that three different ETF's we recommended would do "all that well" either. We could go with say, VWO, VNQ, and VBR. That should at least be interesting and diversifying. Of course they will sometimes trail the Dow or S&P 500, possibly for years. Your biggest problem may just be getting her to leave them alone (or add to them, or rebalance) for at least 10 years.

I was just reading today in the Sunday paper financial sector. The editors column today was discussing people who needed to save for retirement and were not interested in investing. He said the average "Jane and Joe" who know little about investing would probably do well to dump their entire 401k fortune into the target date option. Provided of course it wasn't a sub par one with high fees, poor asset mix, etc. He quoted Josh Charlson senior fund analyst at Morningstar: "from a theoretical perspective you are best off putting your money in a target date fund. Amateurs tend to make 2 errors, hoarding cash in a stable value fund, and panic too easily selling out of a stock fund when market takes a hit."

 

[brewer12345]

They have six months emergency fund. The other backup is my daughter's parents. And, that's really a good backup. End of that story.

I also was thinking Wellington, but is she too young to be in a fund that is 40% bonds? She's 35.

Anywhere from 60/40 to 80/20 is probably suitable for someone her age. The more conservative mix means that they may be more likely to stick with it when things get ugly.

 

[pb4uski]

At that age I was more 100/0 but had a value tilt - was in the Vanguard Value Index fund. It worked well for us.

 

[timo2]

...would probably do well to dump their entire 401k fortune into the target date option. "

I've recently been seeing arguments that the target funds go the wrong direction. The if one counts social security as the 'safe' part of the portfolio, then savers could put more of their allocation in equities- as in more than the typical target fund provides. I'm not endorsing this, but I do know that I was never happy with the performance of target funds available to me. So I would be fertile soil for arguments against them.

 

[Animorph]

I've recently been seeing arguments that the target funds go the wrong direction. The if one counts social security as the 'safe' part of the portfolio, then savers could put more of their allocation in equities- as in more than the typical target fund provides. I'm not endorsing this, but I do know that I was never happy with the performance of target funds available to me. So I would be fertile soil for arguments against them.

Easy enough to buy the later dates and get more equities, though over a long period you might have to switch to maintain the higher equity allocation.

 

[timo2]

Easy enough to buy the later dates and get more equities, though over a long period you might have to switch to maintain the higher equity allocation.

True. I guess what I noticed the last few years in the lifecycle funds available to me is that when everything was down except stocks, the 'everything but stocks' dragged down the positive results of the stocks, especially in early date funds. Then when stocks would go down, the early date fund would really be down, more than the early date funds would ever be up. But the same effect, just smaller, would be felt on the late year funds also. If the next few years in bonds are like the last few years .