Q: I have considered putting money into a Roth IRA recently. I was looking at Vanguard’s VTSMX Total Stock Market Index. I want to invest the $3,000 opening and then about $500 a month. But now our company 401(k) provider, Fidelity, is giving us a Roth option. I am 48 and contribute about $10,000 per year currently to my 401(k). I have changed my 401(k) so that I am now paying 60% Roth and 40% traditional 401(k). Currently, I have the funds listed below and contribute equally to them. Do you think I should boost up my current 401(k) contributions to Fidelity or go with the Vanguard? If I go with Vanguard is VTSMX a good choice or would you suggest another fund? How does the 401k Roth work? Does your company offer retirement reviews?
A: We often recommend that our clients consider taking advantage of maximizing their contribution to a Roth IRA when they are eligible. The way you are currently splitting your contributions between the Roth and Traditional 401(k) makes sense in your situation. It's a great idea to continue to hedge the “tax bet” since you are 48 and are likely at or nearing the highest tax bracket that you will be in during your lifetime. To get it close to a 50/50 split between your Roth and Traditional contributions you could contribute 70% of your 401(k) contribution to the Traditional and the other 30% to the Roth. Then you could max out your Roth IRA ($5,500) with your remaining savings.
Regarding the Vanguard fund, unfortunately, we are not able to give specific investment advice. However, Vanguard funds are typically a good option for investors due to their broad exposure and low costs.
Our fee is based on a percentage of the assets that we manage. However, we do offer complimentary consultations where we break down your entire financial picture. We’re also happy to point you in the right direction if our service isn’t necessarily what you’re looking for.
Q: I am 59 years old. I have just over $100,000 in cash to invest. The market has been very high and I was waiting for a dip to happen, but it seems to be going up further. Because they saying goes "Buy Low, Sell High," I don't know where to begin. Please help me. Where should I begin?
A: Your question is one we are addressing on a daily basis with our existing clients, and with new clients investing new money. At 59 years old, the first thing you need come up with is an appropriate portfolio allocation between fixed income (bonds) and equity (stocks), based on your personal risk tolerance and time horizon. With the market going up each day, the bond market, in general, has been declining, which is a good opportunity to put your bond allocation to work.
As far as the stock portion of your portfolio, I would recommend a strategy called Dollar Cost Averaging, which you may have heard Wes talk about on his show. Simply put, this is a process of investing your stock allocation over a period that you feel comfortable with. For example, invest 25% of your stock allocation on a single day, then invest another 25%, 30 days later, and so on, until you have the entire amount invested in over four months. If there is a significant market decline during this period, you can invest the funds ahead of the next scheduled investment.
Q: For a retirement income portfolio with moderate risk, what are good products to invest in?
A: I will say that generally speaking we often recommend Exchange Traded Funds (ETFs) over Mutual Funds to track favored sectors of the market through a diversified index of securities without paying for active management. ETFs and individual equities and bonds all carry either no fees or very low fees. If you are retired and looking for income, then saving on these fees can really make a difference. On the equity side of the portfolio, you may want to consider large, stable, well-known companies that pay a sizeable dividend (2.5%+).
Here is a link to our income portfolio management approach, which is what you would be looking for, to see all the asset classes we use for income: https://www.yourwealth.com/services/income-portfolio-management/
However, I would not recommend someone without investment experience invest in some of these asset classes, such as closed-end funds and MLP’s just to name a few. At this time, I cannot recommend any individual positions for your specific account. If you would like a free consultation with me or one of our Atlanta advisors I can certainly help with that.
Q: What is a 26f program? Are funds that are stated to be 26f, such as Vanguard Wellington, good investments in an IRA or are they better in a taxable account?
A: We weren't aware of a "26f" program, so we did some research online and found no evidence that there is any official 26f program. It appears to be some type of scam to get people to purchase an annual subscription to their “financial advice” website, where they will then give you the details of the program. One blogger I came across actually subscribed, however, there was no information inside the website. I would be very wary of any type of advertising of these programs. If it seems too good to be true, it probably is, and I would stay clear.
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