I haven't actually funded my Roth this year. The money is sitting in a savings account, waiting for me to figure out what to invest it in. Back in 2008 when I started saving for retirement, I spent a long time obsessing about what to invest in before finally settling on Vanguard Balanced Index (VBINX), which is about 60% total U.S. stock market and 40% total U.S. bond market. It wasn't a perfect choice; I could definitely use exposure to international markets, but I figured I should dive in with a not completely unreasonable choice and reassess later on.
I never quite got to the reassess part of the plan. Then the stock market tanked, and I got a lot more skittish about investing. I'd been telling myself that I believe in investing for the long term, buying and holding, and indexing, but I'm pretty risk adverse to begin with. (A 60% /40% portfolio isn't exactly what the blanket advice for people in their early twenties suggests, after all.) It was easiest to just quit thinking about it entirely. I have no idea how much I have in my Roth right now, and I'm going to keep telling myself it doesn't matter.
That doesn't really encourage thorough research into the options available. I really want to stick my head in the sand, throw $5,000 in a c.d. and be done with it, but that isn't a rational choice if I ever want to have enough to retire. What do you think, is sticking with VBINX for another year a reasonable default option, or should I try to find the time to do some more research?
Showing posts with label investment. Show all posts
Showing posts with label investment. Show all posts
Monday, November 16, 2009
Wednesday, July 1, 2009
It's nice to get paid.
Last week the second of my June paychecks arrived. On the same day, a $250 stipend also showed up in the mailbox. The first of the June paychecks is still AWOL, but it still felt pretty darn good to have some money flowing in to counterbalance the steady gush of money out. Even though I had plenty to get me through the entire summer if need be, I was inching toward the point where I would have had to "borrow" money from my designated long term savings account at FNBO to pay my bills, and I found that somewhat disquieting.
Today an envelope containing my pay for all of July and August arrived. I have this secret worry that that means they've decided to fire me, but that's probably just my irrational fears taking over. In any case it meant I now have enough to live on until September (barring any big unexpected expenses, of course) and transfer another $3K into savings. I feel rich. Those of you who make much more than I do may now commence laughing at me.
Once this deposit posts, I'll have over $20,000 in my savings account, a new milestone. Throw in my savings bonds, my Roth from 2008, the contents of two other checking accounts and another much smaller savings account, and my stash of emergency cash in case I ever need to go on the lam, and I think I'm doing ok, not great, way too much frivolous spending in the past year to be anywhere close to great, but ok. However, note that that list does not include contributing to a Roth in 2009.
I've been setting the money aside; it's all there in that nice big savings account. I'm just being indecisive about what to do with it. It might make sense to keep contributing to the same index fund I used last year, but I'm finding the current losses a bit harder to stomach than I'd imagined.
FNBO has been promoting the option to set up multiple accounts, probably in an effort to compete with ING, and I've been toying with the idea of setting up one account for eventual Roth contributions, one for my car fund, one for graduate school application costs once I get my next stipend check to use as seed money, and perhaps later one for the costs of transitioning to graduate school. It might help me focus more on specific goals and keep me from coasting on the idea that I've got this big chunk of money so I can quit worrying so much. On the other hand, I'd still have the bulk of the money sitting there with no particular purpose at the moment, maybe a house fund for ten years from now, but nothing tangible so it might not help with that as much as it might otherwise.
Today an envelope containing my pay for all of July and August arrived. I have this secret worry that that means they've decided to fire me, but that's probably just my irrational fears taking over. In any case it meant I now have enough to live on until September (barring any big unexpected expenses, of course) and transfer another $3K into savings. I feel rich. Those of you who make much more than I do may now commence laughing at me.
Once this deposit posts, I'll have over $20,000 in my savings account, a new milestone. Throw in my savings bonds, my Roth from 2008, the contents of two other checking accounts and another much smaller savings account, and my stash of emergency cash in case I ever need to go on the lam, and I think I'm doing ok, not great, way too much frivolous spending in the past year to be anywhere close to great, but ok. However, note that that list does not include contributing to a Roth in 2009.
I've been setting the money aside; it's all there in that nice big savings account. I'm just being indecisive about what to do with it. It might make sense to keep contributing to the same index fund I used last year, but I'm finding the current losses a bit harder to stomach than I'd imagined.
FNBO has been promoting the option to set up multiple accounts, probably in an effort to compete with ING, and I've been toying with the idea of setting up one account for eventual Roth contributions, one for my car fund, one for graduate school application costs once I get my next stipend check to use as seed money, and perhaps later one for the costs of transitioning to graduate school. It might help me focus more on specific goals and keep me from coasting on the idea that I've got this big chunk of money so I can quit worrying so much. On the other hand, I'd still have the bulk of the money sitting there with no particular purpose at the moment, maybe a house fund for ten years from now, but nothing tangible so it might not help with that as much as it might otherwise.
Wednesday, May 14, 2008
I've got to quit listening to the naysayer.
I will open a Roth IRA today. It's going to happen, and then I'll stop worrying about it. Not discussing this sort of thing with my mother ever again is going to be key to managing to actually quit fretting.
I have good parents, but they have dramatically different parenting philosophies. My father, who was in favor of a much more authoritarian approach when we were younger, has actually become more laid back now that my brother and I are in college. He has concluded that we're adults who get to make our own decisions, even if they aren't always the choices he would have made. He's willing to offer guidance if asked, but he doesn't force his views on anyone.
My mother is only too willing to offer unsolicited advice, and her knee-jerk reaction to any situation is almost always pessimistic. I've inherited that trait, but over the past few years I've learned to figure out what the worst case scenario is, do what I can to prepare for it, and then try to move on. Mom, on the other hand, tends to let fear of making a bad decision keep her from making any changes whatsoever.
She's a worrier. When we talked about I Bonds, she didn't think they were safe because the U.S. government might default on its debts. Her faith in the FDIC is nonexistent so she assumes she and my dad could lose their life savings in a bank failure. Theoretically, I guess she's right, but if the government falls apart to that degree, we've got bigger problems than just money.
Naturally, she has concerns about my plan to open a Roth IRA. She suggested that Teach for America might kick me out and then I wouldn't have earned income. (I worry about that too, but I'm doing my prep work and will go to institute determined to learn as much as I can about teaching so that I can best help my students. What more should I do?) It doesn't seem likely that I'll be unemployed for months and months. I'm pretty sure that I can find a job doing something, even if it's tutoring part time and waiting tables part time.
My mother is also convinced that the U.S. stock market is going to crash so she thinks I'm insane for putting money into a fund that includes stocks. There are going to be recessions, but this is money I'm investing for use forty years from now. That gives me a lot of time to ride out downturns and makes inflation that much more of a concern. I know a well-diversified portfolio of both stocks and bonds is the sensible choice, but my mother does a great job of making me second-guess my decisions.
I have good parents, but they have dramatically different parenting philosophies. My father, who was in favor of a much more authoritarian approach when we were younger, has actually become more laid back now that my brother and I are in college. He has concluded that we're adults who get to make our own decisions, even if they aren't always the choices he would have made. He's willing to offer guidance if asked, but he doesn't force his views on anyone.
My mother is only too willing to offer unsolicited advice, and her knee-jerk reaction to any situation is almost always pessimistic. I've inherited that trait, but over the past few years I've learned to figure out what the worst case scenario is, do what I can to prepare for it, and then try to move on. Mom, on the other hand, tends to let fear of making a bad decision keep her from making any changes whatsoever.
She's a worrier. When we talked about I Bonds, she didn't think they were safe because the U.S. government might default on its debts. Her faith in the FDIC is nonexistent so she assumes she and my dad could lose their life savings in a bank failure. Theoretically, I guess she's right, but if the government falls apart to that degree, we've got bigger problems than just money.
Naturally, she has concerns about my plan to open a Roth IRA. She suggested that Teach for America might kick me out and then I wouldn't have earned income. (I worry about that too, but I'm doing my prep work and will go to institute determined to learn as much as I can about teaching so that I can best help my students. What more should I do?) It doesn't seem likely that I'll be unemployed for months and months. I'm pretty sure that I can find a job doing something, even if it's tutoring part time and waiting tables part time.
My mother is also convinced that the U.S. stock market is going to crash so she thinks I'm insane for putting money into a fund that includes stocks. There are going to be recessions, but this is money I'm investing for use forty years from now. That gives me a lot of time to ride out downturns and makes inflation that much more of a concern. I know a well-diversified portfolio of both stocks and bonds is the sensible choice, but my mother does a great job of making me second-guess my decisions.
Monday, May 5, 2008
There are way too many options.
Today I'll be heading to the bank to deal with my newly mature cd. I'll be awash in liquidity again, but not for long. The time has come to open a Roth IRA. It's clearly the right move since I place a high priority on not starving on the streets in my old age, but figuring out what investments will best help me attain that goal is proving tricky.
Individual stocks are out, at least for now. Having led my fourth grade stock market game team to stellar returns doesn't mean I know a thing about investing for the long run in the real world. Owning the market seems like a much more reasonable approach than betting on my ability to pick winners.
So I want indexing, diversification, and low expense ratios. I'm also willing to admit that at this point in my life I'm both lazy and ignorant and probably couldn't be trusted to periodically rebalance in any sensible manner. The Vanguard Target 2045 or Target 2050 funds sound like exactly what I need, right?
Except, for one teensy little problem: that level of aggressiveness makes me nervous. I'm not sure I can stomach the risk. Much as I like to tell myself that I won't touch the money for decades, I have a suspicion that substantial losses might cause me to bail and move to something insanely conservative instead, much as my parents did with my father's 401(k) in the wake of the bursting tech bubble. Investing would be easier if I were a robot, but human frailty may have to play a role in my decision-making process.
So I'm considering a couple of other options as well. The Vanguard Balanced Index Fund is probably way too conservative for someone my age and lacks international exposure, with 60% in a total U.S. stock market index and 40% in a U.S. bond market index, but the 0.19% expense ratio seems reasonable. The Vanguard LifeStrategy Moderate Growth Fund is a fund of funds with a higher expense ratio, 0.23%, probably because is contains one actively managed fund as well as index funds. Points in its favor include keeping just 30% of its holdings in bond funds and putting about 10% into a total international stock index.
Where should I go to research things further? Do I need to talk myself out of my timidity and try the target date fund, or is it ok, as a recent New York Times article suggested, just to pick an asset allocation I can live with? Is it ok to make a decision without worrying overmuch about whether it is the optimal choice and trust as long as I don't do anything truly stupid the outcome will probably be alright?
Individual stocks are out, at least for now. Having led my fourth grade stock market game team to stellar returns doesn't mean I know a thing about investing for the long run in the real world. Owning the market seems like a much more reasonable approach than betting on my ability to pick winners.
So I want indexing, diversification, and low expense ratios. I'm also willing to admit that at this point in my life I'm both lazy and ignorant and probably couldn't be trusted to periodically rebalance in any sensible manner. The Vanguard Target 2045 or Target 2050 funds sound like exactly what I need, right?
Except, for one teensy little problem: that level of aggressiveness makes me nervous. I'm not sure I can stomach the risk. Much as I like to tell myself that I won't touch the money for decades, I have a suspicion that substantial losses might cause me to bail and move to something insanely conservative instead, much as my parents did with my father's 401(k) in the wake of the bursting tech bubble. Investing would be easier if I were a robot, but human frailty may have to play a role in my decision-making process.
So I'm considering a couple of other options as well. The Vanguard Balanced Index Fund is probably way too conservative for someone my age and lacks international exposure, with 60% in a total U.S. stock market index and 40% in a U.S. bond market index, but the 0.19% expense ratio seems reasonable. The Vanguard LifeStrategy Moderate Growth Fund is a fund of funds with a higher expense ratio, 0.23%, probably because is contains one actively managed fund as well as index funds. Points in its favor include keeping just 30% of its holdings in bond funds and putting about 10% into a total international stock index.
Where should I go to research things further? Do I need to talk myself out of my timidity and try the target date fund, or is it ok, as a recent New York Times article suggested, just to pick an asset allocation I can live with? Is it ok to make a decision without worrying overmuch about whether it is the optimal choice and trust as long as I don't do anything truly stupid the outcome will probably be alright?
Tuesday, April 8, 2008
How big an emergency fund do I really need?
I've been contemplating changes to my asset allocation. Right now, I have $10,000 in a c.d. that will mature in a month, $8,041 in online savings, enough money in checking to get me through the end of the semester but not a lot extra, one $50 I Bond I bought a couple of years ago, $8 in my wallet, and a bank full of miscellaneous coins. I'll get a $2,000 signing bonus as part of a fellowship in June as well and will start a teaching job making around $27,000 to $35,000 a year this fall.
I know moving, paying deposits, and buying supplies for my classroom will take a bite out of my savings. I'm also planning to put $5,000 in a Roth asap since this will be the first year I'll have earned income instead of fellowship income. Even after doing that, I'll be left with a substantial amount of money.
There's the dismaying possibility that my astonishingly reliable 1999 Ford Taurus with 111,000 miles on it will need big repairs or even replacement in the next couple of years. In addition, I won't feel comfortable without some reserves for emergencies. The big question is: how big should these reserves be?
My mother told me that she and my father always felt that $10,000 was the minimum they needed, and I've had that in mind as a goal. They arrived at that figure many years ago so inflation is an issue, but they also had a mortgage and two small kids back then. Lately, I've started wondering whether I really need that much on top of the car fund as I'd previously assumed.
Let's say the worst happens and my car requires repairs that cost far, far more than its value and I end up deciding that replacing it is the better option. If I have a grand total of $10,000 in savings, I can get a good newer used car for $6,000 and still have more than three months living expenses in reserve while I begin to build the account back up. That doesn't sound like the height of recklessness, does it?
It isn't as though I'd be forgoing the larger emergency fund in favor of lavish meals, shiny baubles, and a great dvd collection. The whole reason for keeping less in an e-fund is to be able to put more toward big, more distant goals like a house and retirement where it makes sense to take a bit more risk and/or sacrifice some liquidity to pursue higher returns. It all makes good sense, but I'm still reluctant to leave behind the security of a huge emergency fund.
I know moving, paying deposits, and buying supplies for my classroom will take a bite out of my savings. I'm also planning to put $5,000 in a Roth asap since this will be the first year I'll have earned income instead of fellowship income. Even after doing that, I'll be left with a substantial amount of money.
There's the dismaying possibility that my astonishingly reliable 1999 Ford Taurus with 111,000 miles on it will need big repairs or even replacement in the next couple of years. In addition, I won't feel comfortable without some reserves for emergencies. The big question is: how big should these reserves be?
My mother told me that she and my father always felt that $10,000 was the minimum they needed, and I've had that in mind as a goal. They arrived at that figure many years ago so inflation is an issue, but they also had a mortgage and two small kids back then. Lately, I've started wondering whether I really need that much on top of the car fund as I'd previously assumed.
Let's say the worst happens and my car requires repairs that cost far, far more than its value and I end up deciding that replacing it is the better option. If I have a grand total of $10,000 in savings, I can get a good newer used car for $6,000 and still have more than three months living expenses in reserve while I begin to build the account back up. That doesn't sound like the height of recklessness, does it?
It isn't as though I'd be forgoing the larger emergency fund in favor of lavish meals, shiny baubles, and a great dvd collection. The whole reason for keeping less in an e-fund is to be able to put more toward big, more distant goals like a house and retirement where it makes sense to take a bit more risk and/or sacrifice some liquidity to pursue higher returns. It all makes good sense, but I'm still reluctant to leave behind the security of a huge emergency fund.
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