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Omar

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

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17 hours ago, Omar said:

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.

Hi Omar,

Here is a ton of ideas especially for math teachers, but for all teachers too. Check out this website: https://www.ngpf.org/ 

All of Tim Ranzetta's resources are free and his next all-day workshop in Southern California is March 20 in Burbank: Register here: https://www.ngpf.org/fincamps/ He still has space! 

 If you cannot make it, he is going to try and have an additional all-day workshop in the Los Angeles area. 

Steve

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5 hours ago, EdLaFave said:

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

Thank you for your guidance and thorough responses. I am definitely sharing some of what I am learning with some colleagues already and directing them to this website so they can do a little reading themselves. I will search and read up what has already been discussed on Roth vs Traditional. Thanks Ed!

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4 hours ago, sschullo said:

Hi Omar,

Here is a ton of ideas especially for math teachers, but for all teachers too. Check out this website: https://www.ngpf.org/ 

All of Tim Ranzetta's resources are free and his next all-day workshop in Southern California is March 20 in Burbank: Register here: https://www.ngpf.org/fincamps/ He still has space! 

 If you cannot make it, he is going to try and have an additional all-day workshop in the Los Angeles area. 

Steve

Thank you Steve! The resources look great. I went ahead and signed up for the March workshop just in case no LA workshop is offered. Looking forward to learning a lot and helping my students be more financially literate!

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19 hours ago, Omar said:

Thank you Steve! The resources look great. I went ahead and signed up for the March workshop just in case no LA workshop is offered. Looking forward to learning a lot and helping my students be more financially literate!

GREAT! 

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On 1/10/2020 at 5:52 AM, EdLaFave said:

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.

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.

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.

Thank you Ed and everyone else. Update: I've opened a Vanguard 403(b) and filled out paperwork to redirect my contributions there (away from Invesco) and to rollover the Invesco funds (I had only been contributing for about 2.5 years). I have an additional question at the moment if you are able to chime in. I have emergency funds (6-months of normal expenses; I decided on 6 months as I'm single with no other income sources) that have just been sitting in a low yield savings account. I have now moved those savings to a higher yield savings account and would like to take some of that money to fully fund a ROTH IRA. I plan to replenish my 6-month emergency fund throughout the year and once replenished, again take some of it and fund the Roth account (and on and on). It makes sense in my head, but how does this sound to you? Related to this, after reading your posts I also understand that since the Roth account will grow and all distributions will be tax-free, the best thing to do to take advantage of rules is to use funds that would normally have the greatest tax liability. So should I allocate the Roth account with Vanguard Total Stock and/or Total International Stock, or would you recommend something else since this is what is part of my 403(b) account (along with Total bonds)? Thank you for any advice you can provide.

PS: I'm in the 403bwise Facebook group but decided to post my question here to "follow up/update" on my earlier posts. Are you all on the FB page and would it be more convenient/helpful to post any future questions on there?

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28 minutes ago, Omar said:

I have emergency funds (6-months of normal expenses; I decided on 6 months as I'm single with no other income sources) that have just been sitting in a low yield savings account. I have now moved those savings to a higher yield savings account and would like to take some of that money to fully fund a ROTH IRA. I plan to replenish my 6-month emergency fund throughout the year and once replenished, again take some of it and fund the Roth account (and on and on). It makes sense in my head, but how does this sound to you?

 

In my view, the purpose of an emergency fund is to guarantee (within reason) that you'll always be able to cover unplanned expenses. Driven by that goal, this is what I did:

  1. When I first started out, I barely had enough money to cover an emergency. Therefore, I kept my money in a high yield savings account.
  2. As I saved more, I definitely had enough money to cover an emergency but if I lost half that money in the market then I'd be in trouble. Therefore, I kept money in a high yield savings account.
  3. Now that I have more than enough money to go through a cataclysmic market crash and still handle an emergency...well, I keep everything invested.

I will never voluntarily put money into an asset class that has a low expected/guaranteed return. I just won't ever do it.

Some people will cling to fear. They'll talk about the pain and suffering of selling stock for an emergency at a market "low". Well how reasonable is this fear? I invested my 10k emergency fund in 2010 and that block of money is now worth 36k. Had I let it grow at 2% for that time (a very generous interest rate that wasn't attainable for each of those years) then I'd only have 12k. As you can see, even in this supposedly doomsday scenario of a 50% market drop, my stock emergency fund is still worth 6k more than the savings account emergency fund.

Aside from fear, this is just another example of how "mental accounting" hurts you. Money is fungible and when people start to mentally put chunks of money into "boxes" for specific purposes, they often make mathematically inferior decisions.

Still, whatever helps somebody sleep at night, good for them.

56 minutes ago, Omar said:

should I allocate the Roth account with Vanguard Total Stock and/or Total International Stock, or would you recommend something else since this is what is part of my 403(b) account (along with Total bonds)? Thank you for any advice you can provide.

As a general rule of thumb, I put my asset class with the highest expected returns in my Roth account. In practice this means I will never hold bonds in my Roth account.

So the question becomes, should I put domestic stock or international stock in the roth? I don't know. I was too lazy to do the research to see if US stocks have a higher expected return or not. I know for sure that International stocks have lagged US stocks for well over a decade now. I also know international stocks have much lower P/E ratio, which would normally indicate higher returns in the coming years. So who knows?

Ultimately, I decided to keep international stock in my taxable account because doing so gives you a tax credit. Unfortunately international funds are also less tax efficient than domestic funds so I'm not even sure if that pays off. But, since I made that decision, I put domestic stock in my Roth.

...I think the main take away for you is, just make sure bonds aren't in your Roth account. If you want your Roth to be all domestic, all international, or a mix...you'll be fine. Just pick something and stick with it.

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