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Investments…part 1

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I forgot to look at my 401K while I was at work today so these numbers are just some random investments I have from rollover accounts from a prior employer.  I’m very comfortable with the growth and management of the amount in mutual funds.  The $8,812.43 is sitting in cash for the moment with an investment group that I have moved my money out of.  I had a good contact there but he left the industry for health reasons I believe and the person my accounts passed to just didn’t impress me.  So I transferred the bulk (the $18K) and then hit some road bumps on the remainder.  I have such limited knowledge on this stuff but I’m doing research and trying to learn.  I’ve got to call and move that money sitting in cash this week!  The other moves were made at the beginning of this year.  I moved my money to USAA which has a great reputation and performance history.

The 529 College Fund is for my two children.  They each have 75 hours of an undergraduate degree paid for due to their father’s military service (a perk of being a Texas veteran that served during wartime) but we aren’t putting all of our eggs in that basket.  My ex and I were on a pretty regular deposit schedule until the divorce.  It isn’t that we agreed to stop investing…we just didn’t cover it like we should have when we divorced.   The oldest (12 years old) knows how to log on and check the balance AND has made a few deposits of birthday money and such.  I want to get on some sort of schedule again.  Oh and their paternal grandparents are very generous (read: too generous) with birthday and holiday dollar amounts and I’ve asked that they consider depositing a portion of that directly into the 529 but…since it was my idea, apparently it was a bad one!  LOL!  So, I’ve recently put my energy into teaching the kids about how to split up that $ and put some away.  That’s better anyway.

Tomorrow I will provide our current 401K balances.  If I am not mistaken…we figured out a few months back that together we have $80,000 total (that is the below AND the 401K accounts).  I am not currently adding to the below accounts but I am putting 8% (4% with a match) in my 401K.

 

$18,818.55 in Mutual Funds

$8,812.43 that I need to move from its current location.

$10,481.22 529 College Fund

$1,000.00 in an IRA


21 Comments

  • Reply Jen from Boston |

    What were the bumps you hit? Paperwork? Picking new funds?

    FWIW, I use Vanguard. They have very low fees and their customer service is very good.

    As far as figuring what to put your money into, you might want to take a look at the target retirement funds. The idea of these is you pick a fund with a year that’s close to when you’re likely to retire, e.g., 2025. The fund will automatically adjust the asset allocation for you as you approach retirement. So, if you’re fresh out of college and you pick a fund for 2050 it will be mostly in stock funds, but as you get older the asset allocation will shift to bonds and cash.

    Vanguard invests their retirement funds into underlying Vanguard index funds, e.g., Total Stock Fund, Total Bond Fund, etc. That helps keep your costs low since all they’re doing is tracking the market, not paying a manager to try to beat the market. I imagine a lot of other mutual fund companies such as Fidelity do the same as Vanguard.

    Three caveats about the target funds:

    1. You defeat the purpose of the fund if you invest in other funds in addition to the target fund. The target fund is already diversified and asset allocated for you, so if you split your retirement funds between a target fund and, say, and S&P 500 fund, then you will be overweight in stocks and large caps.

    2. Different mutual fund companies use different asset allocation weights for the same age group, so you’ll want to take a look at that and decide which asset allocation you’re more comfortable with. For example, Acme Mutal Funds may weight their 2025 fund more heavily on stocks than Fund Mart. If you’re a bigger risk taker you may prefer Acme. If not, you may prefer Fund Mart.

    3. The target funds are based on a generic formula which may or may not work for your situation.

    Finally, one thing to keep in mind is that while I’m sure you want to pay for your children’s education, they can always borrow for their education. You can’t borrow for your retirement. However, you may not have a choice wrt to funding their education since there might be something in your divorce agreement about investing in the 529.

    • Reply Claire |

      The bumps were accounts I had at the old place not making a direct transfer over to USAA. I didn’t understand at the time what they meant by liquidating and moving to the new place…so I think different and additional paperwork was required. Then I just got busy and didn’t make it a priority. I will have to reread and reread again this comment b/c I swear it is like reading a foreign language to me! Frustrating but I’ll get there. I’m off to call USAA now to get help with moving that $8K. USAA is helping me tremendously–to make sense out of all of this. They also have free financial planning which I need to take advantage of soon. I’m thankful for my blogging—it is making me focus and get to-do’s done that should have already been done. Re: the kids’ college. I just want to have each of us (me and my ex) put a very minimal amount in there–maybe $25 a month is what I am talking about. There is not anything in the decree about it as we truly work through everything by agreement…and this is just to make me feel better…which may not be a great motivation.

      • Reply Jen from Boston |

        Sorry! I wasn’t sure how much you knew about investing, so I didn’t know where to start 😉 But, if you have questions about anything, let me know and Ic an answer them. And the free financial planning would help, just be sure the person giving you advice isn’t benefiting from selling you anything. For example, some planners get a commission if they get people to invest in certain funds, so the financial planner may have an incentive to suggest you invest in something you don’t need!

        • Reply Claire |

          Good stuff to keep in mind! Thank you! I think what you describe here is what I was with before but USAA is a different story…no commissions. And what’s the level below rookie and novice in investing? That would be me!

      • Reply Jen from Boston |

        Oh, and I feel your pain about moving retirement funds over :p It took me a long time before I got around to rolling over my 401(k) from a previous employer. Ugh! Because my old company matched us in company stock, I held stock that the new company wouldn’t take, so I had to sell it, etc., etc. Pain in the neck!

        • Reply Claire |

          Why must it be so difficult Jen?! It makes me quit before I start b/c it is so confusing! I did the online process today to move that $8,000+ in cash. but I have about $1500 that doesn’t transfer. Do I just liquidate that and send it to the new place I’m funding with? This makes my head spin.

          • Jen from Boston |

            Heaven only knows!! It’s probably some weird combination of each plan’s policies and SEC regulations 😛 In my case, I was able to convert the stock into cash within my old 401(k), and then I rolled over the old 401(k) into the new one. I still had some weird bit of cash left over – somthing to do with it be an after-tax earning from the stock? Anyway, it was less than $100 so I just took it out and paid the 30% penalty.

            And I was lucky that I had procrastinated long enough that I could do most of it online! If I had tried to roll over the 401(k) in 2001 when I changed jobs I would have been filling out forms and faxing up a storm! Ugh!

            I think in your case you’ll have to call your old plan and find out what they recommend and can do, and call your new plan and do the same. I know my old plan sent the check directly to the new plan, so I didn’t have to actually handle the funds, but each plan is different in how they do this stuff.

            Another thing you could do is create a traditional IRA just for this 401(k) and roll over the 401(k) into the IRA. I think there’s less paperwork, but you will need good documentation to avoid the 30% penalty. If you open the IRA with a company that has good customer service they can walk you through the process.

  • Reply Sandra Hayes |

    I just stumbled upon this blog recently and I felt compelled to leave you a comment and just let you know that I appreciate you writing a financial blog that’s easy-to-understand. I’m not terribly financially savvy myself, but after winning the lottery, I suddenly had to learn the basics!

    Setting up a college fund for your children at an early age is SUCH a great idea. It will make life easier for you (and them) in the long run!

  • Reply Julie |

    Just a question. Have you thought about putting the college savings and any extra retirement (above a match) on hold just as long as you are paying off debt? If you are following Dave Ramsey’s method, it is clear that trying to do too many things at once is not going to get you anywhere. If you think about it, with the debt payments you are paying now, you could cash-flow a college education. By elimination all that interest payment, you are setting your money free for all the other things you need to do later in life. It really should be the number one thing you are squeezing every penny into. How much are your total monthly payments? Get intense about paying off the debt first and then that amount will snowball into the rest of your goals.

    I don’t think it is being a bad parent to not pay for your kids college. It’s a wonderful thing only if you have a stable and broad financial base to work from. Put the mask over yourself first and then put it on your children (and grandchildren)!

    I think you need to read The Total Money Makeover. There is something about having a direct plan of action that makes it thy much more intense. We paid off over $60,000 of consumer debt and are getting ready to buy a house in cash. The first year we put our lifestyle at the very minimum, it took a year to get the momentum going but then it turned into an avalanche instead of a snowball. We paid off the debt in 4 years and saved for the house in 2. When our two kids are college age, we plan on being wealthy, with a broad base of resources ( retirement, paid for house, real estate investments). We will never forget the years of feeling like we might have to declare bankruptcy, the years of struggle to pay it off and live frugally, and now the years ahead look brighter than ever!!

    • Reply Claire |

      Hi Julie–I’m not putting in anything above the match. Upon reread I see that it looks as though I am putting in 8% and my company is putting in 4%. That is not the case. I am putting in 4% and the company matches that 4%. Additionally, because of a recent raise the timing was right to put money that I had not yet seen in a paycheck toward the 401K. I haven’t started investing again in the kids’ college fund and any amount that I do will come from cutting back on my regular spending. I’ve already made major dents in just mindless spending and much of that is going to debt reduction–in just the first 4 months of me paying attention. My husband and I have a plan that sounds a lot like your timeline on debt payoff…although we should be able to knock out the 55K in credit card debt in just over 2 years. The cars will go a year or so after that…barring any unforeseen issues of course. I’m not as obsessed about being debt free right now as I am about creating good habits. That is the only lasting thing that will get me through the long haul. I have a lot of changing to do and I am not willing to forego very minimal retirement savings in the process. It is just a personal decision for us.

  • Reply Debt-free Dan |

    Claire, can you comment on why you continue to fund retirement when you have so much debt? It seems like you should at least cut back to the match. I also agree with stopping college savings. The degree to which you hate that idea is the amount of intensity you should have to get it paid off ASAP.

    Keep up the good work!

    • Reply Claire |

      I think my post suggestd that I am contributing a total of 12% to retirement. I am not. I contribute 4% and the company matches 4%. I continue to fund retirement b/c I have a plan that should have us debt free in approx 3 to 3.5 years…and taking my 4% contribution away from retirement to put it toward debt just does not make enough of an impact on the debt payoff plan to justify taking that long a break from retirement funding. The college funding is simply a “want” and I am talking about $25 that I would take from my regular spending budget by cutting somewhere else. Thanks for the kind words Dan!

  • Reply susan |

    529’s are great. We have them for our child and our paternal grandma set it up. Who is the caretaker of the account (in our case, it’s the grandma since she set it up)? Since that person could always defund the account you may want to make sure you have some checks and balances on it.

    Also, I love that your kids are contributing to their own 529’s but do they have their own savings accounts as well? We have a savings account at the local bank and last time we went on vacation, we took our daughter there and she withdrew her own spending money. I held on to the balance (about $10) and last week she asked for something at the store. I said no, but I had some of her money and she was welcome to buy it if she wanted to. She declined.

    Maybe your kids could suggest to their grandparents that they buy them a savings bond? Not sure what the return on those is these days…

    • Reply Claire |

      I am the holder of the account Susan. The kids have savings accounts that they regularly follow online…not that there is a lot of exciting stuff to follow but it is still fun for them. And with four kids, we’ve been using the “sure you can have that…if you pay for it with your own money!” since we blended. It definitely teaches them to stop and think.

  • Reply Poor to Rich a Day at a Time |

    While the debt may be impressive you still are making nice strides in changing spending habits enough to tackle them it seems. I disagree with those who say pay off debt first prior to investing, you lose out on years of compounding that can cause a nice avalanche in your favor later.

    It is sometimes easier to save than to change spending plans as well so if you are continually investing automatically, no matter how you are spending, you are adding to your net worth and wealth building strategies.

    While paying off debts are important, so is a future retirment plan where social security is less than dependable.

    With college, I do agree it is not a parents obligation to pay, although is nice if financially stable. A child who truly wants to go to college will find a way……

    You are doing a nice job Claire and gaining financial literacy is always an important step!

  • Reply Julie |

    Here’s one other way to think about it. Putting that money towards a debt with a 25% interest rate is like getting 25% guaranteed in return on the “investment”. Whereas putting it into retirement is only making 6-8% back (or who knows in this market). Debt is a cancer. If you put extra money into retirement you are just treading water.

  • Reply Poor to Rich a Day at a Time |

    You can’t consider it an investment if it is “taking Money from you” that is a debt no matter how you look at it, not a return on investment.
    Also again it is not a simple 6 – 8% return when the over time of compounding is taken into consideration.

    She is tackling debt and if they can do both, there is no reason to pay down debt while still building for the future although the high interest debts should definatly be taken care of first.

    truth is everyone has different formulas for their own philosphy of handling money and each family needs to find what works for them whether it makes sense or not to others.

    • Reply Julie |

      I like to look at your wealth as your total net worth. Paying off a debt increases that net worth by that exact amount. So compounding the interest of the debt over a longer period of time is a negative return on investment in your net worth. Working to get rid of the negative drain first makes sense to grow your net worth fastest. It’s going to be nice to see the retirement accounts grow at the same time, but it’s not the progress it could be if you got the debt out of the way first. I guess it jut depends on how aggressive you want to be.

  • Reply Sarah |

    I say because you have a debt reduction plan in place, keep funding your 401k like you are…just enough to get the match. You don’t want to lose out on that free money! You are doing a great job. Keep it up.

  • Reply Cathy C. |

    Claire, we’re doing the same thing with our debt payoff plan. We don’t have any cc debt, but we do have $38,000 in car loans that we’re snowballing and should have paid off in one year. From there we are (hopefully) avalanching into a mortgage on an investment property and then the mortgage on our home. The whole time we are continuing to fully fund a 401K at 10% with an employer 10% mathch , 2 Roth IRAs and a 6 month emergency savings which we have almost reached.

    I like Dave Ramsey’s approach, but it doesn’t work for everyone and it doesn’t give me the peace of mind that I needed for our security in the future. I know plenty of people that use a modified Ramsey plan like ours and they’re doing fine. Our goal is to have all our debt paid off in 9 years including all mortgages. If we were to defer investing while we pay off the cars, we would lose $20,000 building compound interest over the long haul and only shorten our debt payoff by about 4 months. Not worth it.

    Keep chugging along with what you’re doing, especially if it is working and causing you to change bad habits into good ones.

So, what do you think ?