Hello I am New to this forum

[boots]

Hi boots here
Retired 10/31/2002. Early out at the age of 60. Had a lot to learn in a short time. Managed to get through most of this year. Next step is learn more and be independent of the 1% guy. Although I must say that he did all-right in getting me through with a plus after expenditure's for the end of the year. Still adjusting.

 

[Cut-Throat]

Hi boots,

Welcome to the forum! -- I must ask who is the 1% guy? Did not quite follow you on this one.

 

[boots]

Hi Cut-Throat
Sorry about that. The 1% guy is the manager that is responsible for my retirement fund.

 

[Cut-Throat]

Hi Boots,

Yup, you should cut him out of the deal. This year was easy if you were invested in stocks. Most stock funds were up 20%. The next couple years will probably be rougher.

 

[boots]

Hi Cut-Throat
Yes in every thing I read about they say to get rid of the manager and the high ER mutual funds. Which I have both of.  What I have to do is get the confidence to take controll of the situation and do my own investing. I have been reading alot about index funds only because they are not managed and have a lower ER. Vanguad has some new ones out called Target Retirement Income  Fund http://www.vanguard.com/jumppage/retire/?Entry=spotlighton02  (VTINX) ER 0.22% initial investment general $3000.00 IRA $1000.00 no front no back no redemtion no 12b-1 these are index fund of funds and about 4 others all with different time lines and asset allocations. I did call Vanguard to get some more infomation on the way the time line works but they did not have much to offer at this time with the funds being so new.

 

[Cut-Throat]

Boots,

Yup, those look good! - I have been looking these myself! You're on the right track!

 

[boots]

Cut-Throat
Thanks for your input. The only thing I have to research a little more is the allocation of the Target Retirement Income Funds (VTINX) since I am 60 years old and they have it set for 65 years old the allocation for total stock market in this fund looks a little low. I would like to see it around 35% to 40% for my situation.

Allocation Vanguard (VTINX)
Total Bond Market Index 50.0%
Inflation Protected Securities Fund 24.9%
Total stock Market Index Fund 20.0%
Prime Money Market Fund 5.0%

I will call them Monday and find out if these can be played with at no additional cost of course. I guess it is the general consensus that Vanguard is thought of highly in the retirement world. Another question if you would. I guess when I make my decision to change it is a matter of setting up the account in one place and informing the other place that this is what I decided to do. Am I correct in thinking this.

Thank You

 

[Cut-Throat]

Boots,

Vanguard will supply you transfer forms. All you need to do is fill out these forms and Vanguard will submit them to where your account is today. This usually takes longer than it should. Seems like the firm that is losing the money drags their feet on this process.

 

[wzd]

If the percentage allocation to stocks is all that concerns you, try the target 2005 fund (35%) or even the 2015 fund. And, no you will not be able to 'play with' the allocation of the fund but you can purchase the underlying funds and do it yourself.

Personally I dislike bond funds, and prefer individual bonds and TIPS or I bonds, so while I like the Vanguard equity index funds, I will do my own allocation.

Wayne

 

[boots]

wzd
Thank you for your input. I still have a lot to learn and this is a bit scary for me still since I do not retire every day of the week. The more I read and ask questions the more confidence I will have. Self allocation is great if you understand the market and funds which I do not totally at this time. I have a better then the average bear understanding at this point. My major concern at this time is to make a change from managed funds at a 1% fee and high ER mutual funds. and at the same time since I am retired already and depend on the retirement draw to live on I want to be positive about my selections. I had thought of the same thing as you suggested about moveing to the target fund with a higher allocation of stocks but I did not see a money market account to create a distribution situation. I will find out more when I question Vanguard.

 

[Bob_Smith]

It appears to me that the Target Retirement funds are much better than anything a planner is likely to put someone in. But there are a couple of things that would prevent me from choosing them:

1. I agree with Wayne about bond funds vs. individual bonds. With stocks, you're exposed to market risk whether you buy them in a fund or individually. So funds for stocks make sense to me. But if you buy bonds individually, you have a choice. You can always take advantage of a positive market. But you can also hold to maturity and avoid what the market is dishing out if you choose to do so. With bond funds you're exposed to market risk at all times. Furthermore, I might pay 0.2% for a Vanguard Bond fund, but I'll pay less than half that with individual bonds held in a Vanguard brokerage account (counting the brokerage account fee).

2. I don't like the way the Target funds make automatic adjustments. I would want to have more control so that during a brutal bear market, for example, I could be choosing whether/when to reset my stock allocation. There's no way I would be gradually moving from 35% stocks to 20% stocks during a long, drawn out bear market, just because I'm a few years older. I'd ride it out and continue buying enough (at lower prices) to hold my target allocation.

Could be my INTJ personality at work, but I'd want more control.

 

[Cut-Throat]

Bob_Smith,

I understand what you're saying about bond funds vs. bonds, but I was thinking; aren't you limiting the upside potential by not going into a bond fund also? - Also, there is the diversification factor that a fund gives you too.

So, if you were holding the bond fund long term, I'm thinking that there should be a higher return in theory.

 

[wzd]

The funds are probably better than most advisor managed funds. If the advisor has you invested in index funds, then they may be within that 1%. I think you will get agreement from a lot of people on the board here that it is a good direction to move in, although many would suggest various modifications to "improve" it further. You can read the various boards here to get the flavor of suggested improvements.

If you don't like Vanguards allocation percentages in any of the funds, you can set your own very simply. They tell you how much gets put in each of 3 or 4 funds, and you can simply do that yourself. Just write down your plan and how you arrived at it. Then a year later look at your plan and do the rebalancing needed to follow it.

If you do like the percentages in the 2015 or 2005 fund, and you want them to do the rebalancing for you, simply use it for 95% of your funds, and put the other 5% (or whatever you pick) in a money market account. Actually, I like the 2035 percentages, but I'm only 50.

Also, bond funds are not necessarily bad. I was just expressing a preference for bonds myself, inline with the above "improvements". You would have to read up on bond fund behavior vs. bond behavior and risks and make your own decision. A lot of people on this board like TIPS which are a special inflation protected bond. I like high grade corperate bonds of 5 years and less, but am considering TIPS or I-bonds for the future.

Good luck,
Wayne

 

[Bob_Smith]

Hi Cut-Throat,

The Target Retirement funds use the Total Bond Market Index fund primarily. Over the long term I don't think there is much upside potential in a Total Bond Market Index fund beyond the dividend, at least that's what has occured in the 16 year life of the fund. They also use a TIPS fund to a lesser extent. I plan to buy a large amount of TIPS, and I just don't see any advantage to a TIPS fund vs. individual TIPS, except convenience. I can eliminate most of the market risk, just by holding individual bonds instead of funds. I certainly wouldn't venture into high yield bonds or any but the highest quality corporates outside of a fund, however, and I do plan to use a short term corporate fund as a kind of cash equivalent.

 

[unclemick]

The target retirement funds are in competition with the 'tweak and putz quotient' - I suspect this runs high in ER's - precisely because we ER'd due to our 'minding the store' to get to ER.

The question in my mind after 11 yrs. of practice ER and passing 59 1/2 between a new income strem staying up with inflation can I buy one fund off the shelf that fits 'us'.

Then I can tweak and putz with my hobby stocks or go fishing as the case may be.

? What's the best way to run a shifting asset mix on FIREcalc.?

 

[dex]

There are other financial vehicals that have the whole index but trade like stocks some of them are:
dia - dow
spy - s&p 500
qqq - nasdaq
do a search on exchange traded funds - for example:
XLB is for commodities - doing very well this year
There are many others
What is good about them is that there aren't any fees - except for the commission and you can put in stop losses etc
good luck

 

[boots]

Thank you for all the opinions and advice it is sincerely appreciated. I have the Vanguard transfer package on its way. I will not be able to do anything untill Jan 04 but I will use the time to ponder and study in what direction I wil go. It seems that most are in agreement to go with Vanguard as a company right. And if I did choose the Vanguard Target Retirement Income Fund (VTINX) ER .23% that it would be a start in the right direction.

The other thought I had was to invest in the underlying funds as individual investments this way I could controll the asset allocation because the original fund does not seem to have a high enough percent in the total stock market index. I would like to see about 35%. Also I will have to look into the Bond issue. It seems that you all have different likes and dislikes on this subject.

Underlying Funds
VBMFX ER .22% Total Bond Mkt Index Fund
VIPSX ER .22% Inflation Protected Security Fund
VTSMX ER .20% Total Stock Market Index Fund
VMMXX ER .32% Prime Money Market Fund

One other question only a newbie could ask. The original is one fund with four(4) underlying funds with an ER of .23%. If I invested in the four(4) underlying funds individuly do I pay the ER for each one. (I have a guess on the answer for this one).

Thank you

 

[Bob_Smith]

Hi boots,

Yes, you'd pay the expense ratio with each fund. But the total you'd be paying would be about the same. If you have $10,000 in a Target fund at 0.23%, you'd pay $23 annually. If you invest in four separate funds at $2,500 each, and each fund has an ER of 0.23%, you'd pay the same - $23. If the expense ratios for each separate fund are different, you'd pay whatever each separate fund charges. If you are a Voyager client (which is anyone with $250,000 - 1 million invested at Vanguard) they'll waive other small fees, which is something to keep in mind.

 

[Bob_Smith]

Boots, one more thing. For cash, I'm using ING. They're paying 2% instead of less than half that at Vanguard. Plus there is no expense ratio at all. They link directly to my checking account and there are zero fees and FDIC coverage. So if you plan to hold much cash, ING may be a better option than Vanguard for that piece of the pie, at least in this rate environment. Here's a link:

http://home.ingdirect.com/

 

[wzd]

A little more detail on Bob's comment on expenses from Vanguard:

Although the Fund is not expected to incur any net expenses directly, the Fund's
shareholders indirectly bear the expenses of the underlying Vanguard funds in which
the Fund invests. See The Funds and Vanguard. The Fund's annualized indirect expense
ratio, based on its underlying investments, is estimated at 0.22% for the current fiscal year.
ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Total Annual Fund Operating Expenses: None*

This says the the cost is exactly the cost if you invest directly in the underlying funds. Some funds of funds (the category for things like the target retirement fund) have additional costs in addition to the underlying fund costs, kind of like the 1% guy. Vanguard doesn't charge anything extra.

So cost wise, hold them directly or thru the target retirement funds it's the same.

Wayne