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Engine66

Newbie W/nationwide 457/ T. Rowe Account Question

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This is my first visit/post to this forum...read some other threads and thought I'd ask a question for some of you who are more knowledgable than I. I am in the fire service and have Nationwide as the 457 provider. Our provider has changed over the years as well as the investment options. We had PEBSCO, NACO, etc. Anyway, back when the market tanked in the dot.com era, I saw losses that made me shy from riskier investments. I moved my $$$ to a fixed account and it stayed there ever since this month I moved to the T.Rowe Retirement account 2010 (PARAX)...however, I saw so much volatility...down $1200 the first day, up the same the next, then up $400, then up again $800, down $400, etc. I understand the risk vs benefit and the advice not to look at the account, but I looked to educate myself to how the market was behaving.

 

Here's the question...I have 145K so far and moved it back to a "Stable Option" fund which is performing at 1.25% per quarter and bares no risk to principal, however, the T.Rowe (PARAX) is rated 5 stars by Morningstar and performed at 6.65% over the last few years (after a .90 fee), but can affect principal. Should I get back in to the T. Rowe or stay in the "fixed" account? I'm not a big stock guy...just a fireman putting the max aside for a decent retirement fund to augment my pension. I have 6+ years to go before I turn in my badge and play things conservative. I'm fun at Vegas, but not a big gambler. Any advise you can share? Thanks.

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Hi Engine,

You got out of the market since the dot.com debacle and you stayed in a "Stable Option" fund until this month. You asked if you should "get back into the TR Price fund or stay in the fixed account?" TR Price 2010 fund has 60% equities and explains the volatility.

 

I think you already answered this question because you got into the TR Price and jumped out again. I think you know that getting into and out of funds is not a winning strategy. We all need to think long term.

 

Here are some questions to help you focus on where you are going and to help you think about investing for the long term:

 

First question: Why did you decide to move from the Stable option to TR Price now?

 

Second question: What are your goals for the 145K that you have now? In other words, what amount would you need to supplement your pension when you retire?

 

Third question: When you retire in 6 years, will you be able to reach that goal with the stable option? You can calculate the 1.25% performance per quarter, minus the fees, to find out what you will have.

 

Fourth question: What are the fees in the stable option?

 

Fifth question: Do you want to learn more about diversification, asset allocation, Target retirement funds, controlling risk and volatility by ajusting the fixed/equity ratio according to your age and when you need the money for retirement?

 

You have six years until retirement. That is enough time to learn more about investing so that you are more comfortable with equities (stock fund, by the way, none of us here encourage anybody to invest in individual stocks. Most of us on this site are not "big stock guys" or gals either).

 

Hope these questions guide your search and to focus your thinking,

Steve

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Hi Steve,

 

Thanks for the input...

 

To answer your questions:

1) T. Rowe is a new option for our plan...it had not been offered previously by Nationwide to our department and it appealed to me because I did not have to pick from all these previously offered options with all these big cap, small cap, specialty stocks, etc....things that I did not understand. So the T. Rowe seemed appealing in speaking with some of my peers. I tried it and felt uncomfortable with the ups/downs...I simply was not used to that. When I saw my deferrals not adding actual increases in my balance, but increases in shares instead, it just didn't make sense at the time. Now I am understanding more and better appreciate how this plays out over the long run.

 

2) My goals for the 457 were to lower my taxable income which has gone up over the years and that is helping. My target $$$ amount was $300K and I will reach this even in the stable otion fund. The function of this fund is more to cover any unexpected curveballs during retirement and add a cushion to my pension. My pension will be sufficient to cover my expenses as I will be downsizing and paying off certain debt prior to retirement, so the fund does not serve as ###### of income, but just extra available resource.

 

3) Stable option fund has no fees whatsoever and is currently paying 1.25% per quarter...minumum rate is 3.50 per year, but a Nationwide rep told me it is currently paying 4.89 annually at the current moment...adjusted each quarter to the market. No risk to the principal either.

 

The Nationwide offerings changed late last year for our department after much complaining about their offerings, fees, employee confusion to the plans, etc. They revamped their program for us and so I gave the T. Rowe a try. I'm open to learning more about all of this. In the end, no matter what my balance is in the 457, it will be taxable and any kind of substantial withdrawal will change my tax bracket and the Alternative Minimum Tax will bite deeply the more I withdraw. So this account will be used sparingly...help out with medical expenses, etc. I will not live off of it. On the other hand, I don't want to be stupid with the allocation either. So far, I'm ok with approx 4% growth, no fees, no risk and ability to know exactly where I stand. That helps me sleep better...some of my friends can't sleep as they have seen downward slides in their accounts and pray the future brings them back up. Other guys I know don't care at all...they figure any gains they lost was never theirs anyways. I guess there exists a lot of psychology to the market and the more I understand, the better off I may be. Thanks in advance for any education/experience you can share.

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Hi Engine,

Still not sure why you choose TR Price except that it became available and some of your peers liked it. But thats ok, we all make mistakes and then we try to learn from it. It is interesting that you are not paying any fees and getting almost a guarenteed 4.89% with no risk to principal in the stable option, why move?

 

This is whaT I understand and correct me if I am wrong. You goal is $300,000 and you have a little less than half now with 6 years until retirement. Using the rule of 72, in order to double your money at the current rate of 4.89%, divide 72/4.89 is about 14 years, give or take any variancies in performance. Does that work for you since you will not need this for retirement income?

 

Comment on fees: There are fees in every fund, bond, muni, VA, fixed annuity, stable value, etc etc. As you have read on this site, thats why we like Vanguard, TR Price and TIAA CREF for the lowest fees in the industry. Somebody is paying the fees in your plan. If its not you, is it your employer?

 

Take care,

Steve

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Hi steve,

 

I appreciate the info. Is that T.Rowe not a good plan....seems like Morningstar likes it. Anyway, my current plan according to the Nationwide rep is yielding 4.89 %...not guarenteed forever, just this quarter. The guarenteed rate is 3.50% for this stable value fund...it just happens to be performing better this quarter and will most likely go down to about 3.9% yield. So using your rule of 72...looks like I'm going to double closer to 18 years give or take a few depending on performance. One other question yields/performance...the nationwide verbiage is not specific if this is an APY or an interest rate...makes a difference according to the calculators. Do you know? The statements make references like "performance figures below...blah, blah, blah" and then shows the numbers. Are these yields or rates? Thanks for helping out...I wish I started educating myself a long time ago rather than now.

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From Morningstar:

 

"This fund earns 5 stars under Morningstar's rating methodology, meaning that compared with other funds in its category, it has historically generated excellent returns given the amount of risk it has taken on. In this case, that's impressive, because the fund had to turn out extremely strong returns to compensate for its unusually high volatility."

 

 

Morningstar rates funds by comparing them to their peer group (in this case 2000 to 2014 target funds) in terms of return and volatility.

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Good article ss, I haven't seen one that before. The 4.89% was what money markets were paying last year. Heck, mine was pushing 5% and it was nice... cash growing at 5%?!? With the rate cuts over the last two weeks the 7-day yields are now more like 3.5%. I'd love to take 3.9% right now but the key rate isn't loving me. Your verbage of yields vs rates confuses me a bit. ROR= rate of return, but an interest rate is a different can of worms in the dictionary of my head. Most of what you'd be offered through Nationwide will show historical performance yields. An interest rate (again, in my head) is a guaranteed yield, which you won't see much in market investments. I'm sure there is more technicality behind it, but that's how I know it.

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Good article Steve. I guess I'm more conservative than average. My plan has no fees...if they are, they are outside the yield. I initially was unsure about the yield vs interest rate because performance is listed vaguely. I guess the returns are yields, not rates. No fees. My particular fund was created 8/07...it's brand new since Nationwide revamped their offerings to our agency. Should I go back to the T. Rowe? It's lost several percentage points since last post...I imagine it will come up again, but the economy is not in it's best suit right now...rather have a solid than ? mark if you know what I mean. A small bird in the hand means I still eat...but I might miss out on that fat turkey later huh?

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Good article Steve. I guess I'm more conservative than average. My plan has no fees...if they are, they are outside the yield. I initially was unsure about the yield vs interest rate because performance is listed vaguely. I guess the returns are yields, not rates. No fees. My particular fund was created 8/07...it's brand new since Nationwide revamped their offerings to our agency. Should I go back to the T. Rowe? It's lost several percentage points since last post...I imagine it will come up again, but the economy is not in it's best suit right now...rather have a solid than ? mark if you know what I mean. A small bird in the hand means I still eat...but I might miss out on that fat turkey later huh?

 

 

 

Hey engine 66.... I am a NJ FF also.. I also invest in nationwide. No fees? I find that hard to believe. How did you get them to change? There lowest fee in our town is .60 plus the cost of the fund. Nothing is less than 1%. I'm trying to find a company to come in so we can all change. Most guys are ignorant to the fees b/c they are hidden so well by Nationwide.

 

Stay safe...

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Guest Sierra

 

Good article Steve. I guess I'm more conservative than average. My plan has no fees...if they are, they are outside the yield. I initially was unsure about the yield vs interest rate because performance is listed vaguely. I guess the returns are yields, not rates. No fees. My particular fund was created 8/07...it's brand new since Nationwide revamped their offerings to our agency. Should I go back to the T. Rowe? It's lost several percentage points since last post...I imagine it will come up again, but the economy is not in it's best suit right now...rather have a solid than ? mark if you know what I mean. A small bird in the hand means I still eat...but I might miss out on that fat turkey later huh?

 

 

 

Hey engine 66.... I am a NJ FF also.. I also invest in nationwide. No fees? I find that hard to believe. How did you get them to change? There lowest fee in our town is .60 plus the cost of the fund. Nothing is less than 1%. I'm trying to find a company to come in so we can all change. Most guys are ignorant to the fees b/c they are hidden so well by Nationwide.

 

Stay safe...

 

We are not safe so long as those 403b sharks are hanging out in our lunchrooms!! The NJEA must fight for the right to have its teachers contribute to the 457 plan for NJ state employees.

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