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Omar

Best Way to Move/Restart 403(b) and Other Investments

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I've been thinking about finances during the break and planning/thinking about how to plan/invest better for future and retirement. I have a fairly new 403(b) plan that was opened through Oppenheimer Funds (now Invesco) about 2 years ago. I was reviewing my statements and wasn't sure I understood all it showed and I haven't seen the guy I signed up with since the time I signed up (this person was not part of THE "official district contacts" for retirement planning). I have seen that neither of these companies (Oppenheimer/Invesco) are mentioned in any of the recommendations in the posts. I am wondering if the best place to start is to talk to someone in the Credit Union that partners with our District for retirement planning to see what they offer, or to meet with a CFP to discuss this and other retirement/investment options. My hesitation in talking to the "partner" CU is that I feel they'll be another "salesperson" that I've been trying to avoid at school. Any thoughts/guidance would be appreciated.

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Omar, welcome to the forum! Oppenheimer/Invesco is not recommended on this forum because of their high fees. Most districts allow a number of vendors to offer 403b plans to their employees. So the first step for you should be to find the district's 403b and 457 vendor list. It sounds like the district is using the Credit Union as their Third Party Administrator (TPA). It's possible that the TPA is also a vendor, or has a financial relationship with Oppenheimer. So you should be wary and be aware of possible conflict of interests. I think you have to deal with the CU if they are the district's TPA. Just let any sales pitch bounce off like bullets off Superman!! You are in information-seeking mode, not buying-mode.

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Krow is right, step 1 is to enumerate all of the vendors your district has approved for 403b and 457b plans.

If Vanguard or Fidelity is on either list then you’re in great shape. If not, we can go from there. 

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Krow and Ed are right on.  Two small additions: 

1.  You may be able to get that list of vendors online, then you can come back here with it, avoiding the sales pitch.  The list should show up if you follow "retirement" links on your credit union's website: maybe there'll be different links for 403b and 457.  

2. You should also check whether your state has a government-sponsored option.  Not all states have these, but where they exist they are often excellent.

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Hello All, I was able to find information for my District (in California) in the CalSTRS 403bCompare website. It has many options and the lowest cost Mutual Fund options are the ones I listed below. I included what I am using now, Invesco, which clearly has a higher yearly cost/expense ratio than the others. All the other products offer Vanguard as an investment option. In the website each product has a direct link to the product webpage for enrollment. Would my next step be to (1) Stop current transfers to Invesco, (2) open account with one of the products below (Vanguard 403b), (3) and transfer Invesco funds to Vanguard (abour 30K)? Or just talk to the product provider or a CFP for guidance with this next part? Which Vanguard products do people here advice for a middle career teacher (20 years completed) with at least 15 more years still to go? I did find an archived list of the old 403(b)wise Fiduciary Advisory Directory and saw a couple of people in Southern California (San Gabriel/LA) area or would be open to other recommendations in the area if that is a must. Thanks in advance for any assistance (I'm also doing some reading to learn more about all of this!).

1722612445_403bCompare.png.1e2af259f53a3f13c9824faafbd0c857.png

 

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19 minutes ago, Omar said:

I was able to find information for my District (in California) in the CalSTRS 403bCompare website

If I were you I'd prefer to get this information from your district or the TPA (Third Party Administrator) that your district is using. You're going to have deal with these people anyways.

403bcompare may or may not be up to date and it definitely doesn't list anything about your 457b options.

19 minutes ago, Omar said:

It has many options

I don't know what the CTA Retirement Savings Plan is, but I don't know of any vendors better than Vanguard and Fidelity (maybe a state run 457b can occasionally compete, but I'm not sure and I don't think California's can).

19 minutes ago, Omar said:

Would my next step be to (1) Stop current transfers to Invesco, (2) open account with one of the products below (Vanguard 403b), (3) and transfer Invesco funds to Vanguard (abour 30K)?

This may be the easiest course of action:

  1. Establish an account with Vanguard.
  2. Redirect new contributions to Vanguard.
  3. Rollover the Invesco account to Vanguard.

If you begin by stopping contributions to Invesco then you'll likely miss out on 403b contributions for a few paychecks. To compensate for that you'll have to artificially inflate your initial Vanguard contributions and then go back and change it to a sustainable level later. It is important that you get as much in your 403b as possible.

You haven't said how much you're contributing. Remember you can put 6k in an IRA, 19,500 in a 403b, and another 19,500 in a 457b. If you're not investing more than 6k then it is probably quite a bit easier to not worry about making new contributions to a 403b or 457b.

19 minutes ago, Omar said:

Or just talk to the product provider or a CFP for guidance with this next part?

It is in your best interest to kill whatever instinct is telling you to pay other people to manage your money. They'll inevitably put your money in their pockets.

19 minutes ago, Omar said:

Which Vanguard products do people here advice for a middle career teacher (20 years completed) with at least 15 more years still to go?

Please read my Investing 101 page. That'll give you the fundamentals in an easy to understand, condensed way.

Then read my Vanguard page. That'll tell you how to apply those fundamentals.

Then come back and ask questions.

19 minutes ago, Omar said:

I did find an archived list of the old 403(b)wise Fiduciary Advisory Directory and saw a couple of people in Southern California (San Gabriel/LA) area or would be open to other recommendations in the area if that is a must.

...again, kill that instinct.

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Vanguard is the lowest cost 403b provider on that list. Vanguard is our favorite 403b vendor! I agree on steps 1, 2 and 3. For fund selection at Vanguard, you can use one of their Target Retirement funds. It's a single fund that includes 4 index funds: US and international stocks and US and international bonds. It rebalances for you as the markets change, and gradually becomes more conservative as you approach retirement age. I would select a TR fund with a stock/bond ratio of about 60/40 rather than by using the TR's date of retirement. 

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Thank you Ed and Krow for your advice. From what I've been reading from your links and other posts I think I am ready to open an account with Vanguard as I did find my school disctrict listed in the Vanguard application website (haven't completed the application yet). Although I really like the idea of a simple, single fund (one with 60/40 stock/bond ratio or a bit higher would be my preference), I'd also like to minimize the fees I pay (part of the reason I got to this website: noticed on a statement several fees that for some reason Invesco was charging for about 3-4 months, and they were high, so I started researching and found 403b). So I'm leaning towards building a 3-funds portfolio with about 70-75% stock and 30-25% bonds. Currently I am contributing $7.5K to my 403b and I'm making some financial changes to try to increase contributions to $10K. Does this seem like a good starting point and/or is there anything else you advise I consider/read before opening the Vanguard account? I will be contacting our TPA to make sure all the paper work is in order.

I also have some savings that I've accumulated for "emergency" but I want to take some of that and invest it: would a Roth IRA be best, or just any funds? Would like to have some liquidity in them although it won't be my emergency fund. (but that's not my priority at the moment - want to focus on the 403b to get that growing!)

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Omar, you're in good shape.  Vanguard is a fine option.  (Calstrs Pension2 is also a decent choice if you want a "stable value" fund option. ) 

I want to second Ed's comments about the fact that you don't need a financial advisor to set this up (you may want to hire somebody down the road who can help with overall financial planning: insurance, wills, etc., but responsibly investing in a 403b is simple and you'll end up with more money by doing it yourself, even though there's a whole industry telling you otherwise).

Vanguard charges a flat annual fee ($60?) to hold your 403b account; otherwise, the fund costs are very low.  That is probably your best option if you expect to build up a 403b account of any size.  Vanguard is also an excellent place to consolidate all of your accounts in retirement, so you'll have a head start on that (assuming Vanguard maintains its character).

Your 70/30 three-fund plan sounds good to me.  Increasing your contribution rate is also very good.  You should aspire to "max out" the 403b.  

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2 hours ago, Omar said:

 So I'm leaning towards building a 3-funds portfolio with about 70-75% stock and 30-25% bonds. Currently I am contributing $7.5K to my 403b and I'm making some financial changes to try to increase contributions to $10K. Does this seem like a good starting point and/or is there anything else you advise I consider/read before opening the Vanguard account? I will be contacting our TPA to make sure all the paper work is in order.

I also have some savings that I've accumulated for "emergency" but I want to take some of that and invest it: would a Roth IRA be best, or just any funds? Would like to have some liquidity in them although it won't be my emergency fund. (but that's not my priority at the moment - want to focus on the 403b to get that growing!)

I don't think you need to hesitate on opening a 403b account at Vanguard. They are an excellent firm and will not take advantage of you. Increasing your 403b contributions is an excellent idea. Maxing it is ideal.

Contributing to a Vanguard Roth IRA is also a very good idea. It will give you some tax diversification in your retirement investments. Hopefully your salary will increase later in your career and your income tax bracket will probably be higher than it is presently. 

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3 hours ago, Omar said:

Hello All, I was able to find information for my District (in California) in the CalSTRS 403bCompare website. It has many options and the lowest cost Mutual Fund options are the ones I listed below. I included what I am using now, Invesco, which clearly has a higher yearly cost/expense ratio than the others. All the other products offer Vanguard as an investment option. In the website each product has a direct link to the product webpage for enrollment. Would my next step be to (1) Stop current transfers to Invesco, (2) open account with one of the products below (Vanguard 403b), (3) and transfer Invesco funds to Vanguard (abour 30K)? Or just talk to the product provider or a CFP for guidance with this next part? Which Vanguard products do people here advice for a middle career teacher (20 years completed) with at least 15 more years still to go? I did find an archived list of the old 403(b)wise Fiduciary Advisory Directory and saw a couple of people in Southern California (San Gabriel/LA) area or would be open to other recommendations in the area if that is a must. Thanks in advance for any assistance (I'm also doing some reading to learn more about all of this!).

1722612445_403bCompare.png.1e2af259f53a3f13c9824faafbd0c857.png

 

vangvcap2.jpg.4da6b06079e36696828bd888db574515.jpg

^ You could get a spreadsheet going to help determine where it's cheaper to keep what you plan to invest. Vanguard and Pension2 are pretty close if you've got 36k chillin', but things get more expensive with Pension2 as your account balance gets higher.

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Thanks for the input everyone! Very helpful and takes away some of the anxiety in making these changes/decisions: I truly appreciate it! Scott, love the worksheet comparison!! I teach high school math and your work immediately brought ideas for finance problems to give to my students when we discuss systems of equations.

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2 hours ago, Omar said:

Thanks for the input everyone! Very helpful and takes away some of the anxiety in making these changes/decisions: I truly appreciate it! Scott, love the worksheet comparison!! I teach high school math and your work immediately brought ideas for finance problems to give to my students when we discuss systems of equations.

Using MS Excel or Google Sheets would be pretty cool if you have access to computer equipment. Compound interest calculators are kind of neat:

compound.thumb.jpg.26925cb11ec5dae38d80e6449d5be520.jpg

D2 = F1*(1+F3/12)^(C2*12)

D3 = (D2+$F$2)*(1+$F$3/12)^12

Age 63, Year 2065 = $812,381.17

I used to joke around that all of our lives were just math problems which were solvable in excel... but then people would call me a nerd 😋 

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18 hours ago, Omar said:

Thank you Ed and Krow

No problem. Please try to educate your coworkers. We need more people willing to speak up on this issue.

18 hours ago, Omar said:

Although I really like the idea of a simple, single fund, I'd also like to minimize the fees I pay

That's exactly why I don't have a single fund-of-funds. However, be psychologically prepared to maintain your asset allocation:

  1. If international is lagging domestic (as it has been doing for a very long time), you'll be pumping new money into that instead of the high performing domestic.
  2. If stocks are crashing, you'll be pumping new money into that instead of your steady bonds.

You need to be able to always buy what seems to be doing poorly, sometimes terribly. That's how this works.

18 hours ago, Omar said:

Currently I am contributing $7.5K to my 403b and I'm making some financial changes to try to increase contributions to $10K. Does this seem like a good starting point and/or is there anything else you advise I consider/read before opening the Vanguard account?

If you read the links I posted earlier then you know enough to get going. You can always learn more, but it won't change the core fundamentals:

  1. Lower your spending as much as possible without impacting actual happiness, which is different than the fleeting happiness you get from a useless purchase.
  2. Invest as much as possible in low cost, total market index funds.
  3. Know that bonds reduce expected returns, but based on your personality, you may need them to keep yourself from making disastrous investing decisions.
  4. Once you pick an asset allocation, stick with it unless your life circumstances change. Market crashing? Do what you were doing before. War started? Do what you were doing before. Read some business news? Do what you were doing before. Friend bragging about the millions they've made in bitcoin? Do what you were doing before.
  5. Max out your tax advantaged accounts (IRA, 403b, 457b, HSA, etc.) before investing through a taxable account.

There's lots of information to learn beyond those 5 points, but this will get you to the promised land. Everything else is either useless or a mere optimization.

18 hours ago, Omar said:

would a Roth IRA be best, or just any funds

There may be some confusion (maybe I need to write a blog post on this):

  1. At the highest level there are two different types of accounts: taxable and tax advantaged. As the names imply, tax advantaged accounts receive tax benefits that a taxable account does not.
  2. Tax advantaged accounts have yearly contribution limits and/or income restrictions. Examples of tax advantaged accounts are IRA, 401k, 403b, 457b, HSA, etc. Tax advantaged accounts often come in two flavors: Roth and Traditional.
  3. Regardless of what type of account we're talking about Taxable, Traditional 401k, Roth IRA, etc. you're allowed to purchase investments (stocks, mutual funds, etc.) within those accounts.

Having said that, we've spoken extensively about Roth vs Traditional on this form. Nobody can definitely say if a Traditional is better than a Roth because it relies on future information we don't have and information specific to each person. However, I feel entirely comfortable predicting that the majority of people, in most cases, will be better off using a Traditional account rather than a Roth. I consider this to be an optimization.

If a teacher has a pension that increases the appeal of using a Roth. If a teacher won't be getting social security that increases the appeal of using a Traditional. If you want to get into Roth vs Traditional discussion just say the word and we can.

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