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CTVAteacher56

VA teacher- 403B or IRA?

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1 hour ago, tony said:

CTVA Teacher

 

Henrico county here in Virginia is a "suburb" of Richmond Va. about 1.5 hours from me. Compared to other schools around here Henrico has a fairly decent offering if you chose correctly. I agree with what others are saying and more people concurring should make you feel reassured that we are giving you good advice.

The Vanguard Funds as mentioned are all you need. I would not use the target funds offered in your plan because they are not the best choice and not worth the expense.

Those other funds you show are overkill and not needed.

What are you investing in your IRA?  You do realize you can transfer it over to Vanguard at any time too? you could as an option pick the same funds there that you might use in a 403b/457b now or in the future. Simplification is always a good idea. Take it from me I use to own many moons ago 28-30 funds!! Thanks to so called "advisors"

 

 

Thanks for all of the information guys.  This is super helpful.  I will defintely do my research and make some necessary adjustments.  I have a rollover IRA that I have used to pool all of my previous 403Bs.  Its run at no cost through Morgan Stanley, the "manager" is a colleague of a good friend.  I should say, he isn't taking a commission or charging me a fee to "mange" it.  its about a 50/50 split of Vanguard ETFs and American Balanced C fund.  After doing research  I have concerns about the American Balanced C and its costs.  There is also some cash that needs to be invested. 

Let me know your thoughts.  Thanks for all of the help.  This is incredible..

 

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I would not assume you are getting services for free. I've been told that too. Wasn't True.  I would not listen to friend recommendations trying to help their buddies out .  You must look after yourself and only yourself.Dump the whole portfolio and transfer it directly over to Vanguard.  .When you get Vanguard through other sources, like through intermediaries, you are likely paying more for it.  American funds is expensive. Go 100% vanguard and I suggest you duplicate the funds we all mentioned above.

Trust me. I've been through this. Investing is a  a dirty little business if you don't know what you are doing.

Tony

I've transferred assets over to Vanguard so I can help you the specifics of the transfer. Since its an IRA its a simple matter of filling out paperwork and contacting Vanguard. They will do the rest.

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The American Funds American Balanced fund class C (BALCX) is an expensive fund, as you've noticed. It’s expense ratio is 1.33% and it has a load of 1%. The load and high ER are providing the “advisor” with compensation. If you moved your rollover IRA to Vanguard, you will pay no load on any fund, and ERs will be 0.04% to 0.10%. The big advantage of an IRA is that YOU get to pick the vendor, unlike with employment accounts like a 403b or 457b where your employer restricts your choice of a vendor. There’s no reason you should be paying class C loads and ERs! I don't think that it's a good idea to have cash in your IRA. 

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I deleted my comment about writing checks using a money market account. I agree with Krow not to have cash in an IRA. I mean't to say you could open a money market account outside of the IRA  in a taxable account and use that for extra cash and write checks from it in emergency situations. You could use it as your emergency fund .

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15 hours ago, krow36 said:

administrative charges of 0.15.

This fee means you should prioritize maxing out your IRA and any excess money should then go into the 403b and 457b. 

If you could talk your district into adding Vanguard/Fidelity to their lineup then you could replace this 0.15% fee with a flat yearly fee. This is particularly advantageous if you have a lot of money in your account. 

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9 hours ago, CTVAteacher56 said:

its about a 50/50 split of Vanguard ETFs and American Balanced C fund.  After doing research  I have concerns about the American Balanced C and its costs

As well you should. You could open an IRA at Vanguard, Fidelity, and many other vendors that would give you complete diversification with rock bottom fees.

In fact, Fidelity even has a total market domestic fund and a total market international fund (both stocks, no bonds) that charge 0%!!!

So I’d definitely encourage you to leave this “manager” behind. 

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On 6/23/2020 at 6:59 AM, tony said:

CTVA Teacher

 

Henrico county here in Virginia is a "suburb" of Richmond Va. about 1.5 hours from me. Compared to other schools around here Henrico has a fairly decent offering if you chose correctly. I agree with what others are saying and more people concurring should make you feel reassured that we are giving you good advice.

The Vanguard Funds as mentioned are all you need. I would not use the target funds offered in your plan because they are not the best choice and not worth the expense.

Those other funds you show are overkill and not needed.

What are you investing in your IRA?  You do realize you can transfer it over to Vanguard at any time too? you could as an option pick the same funds there that you might use in a 403b/457b now or in the future. Simplification is always a good idea. Take it from me I use to own many moons ago 28-30 funds!! Thanks to so called "advisors"

 

 

 

So I met with my Valic 403B manager.  I currently contribute 15% of my bi weekly pay check to this account.  We went  through every investment and I learned a great deal.  No surprise all of the Vanguard investments were super cheap from a fee stand point.  But a lot of the the other investments carried higher fees like .86% or .45%.   These tended to be actively managed funds.  Now my manager assured me that his management fee is a negotiated .45% and that the total cost of all of my individual investments averages out to .31%.  so a total of .76% annually.  Very much worth the money he assures me  😕 

I wanted to drop pretty much all of the investments and have  a much leaner, cheaper investment strategy, based off of the suggestions you guys made.  IF I DO THAT..he will no longer be able to mange my account.  They will not allow me to make changes they don't recommend, and still actively manage my account for me.  

So that is annoying...What should I do?  Just open up a Roth IRA and max that out?  Anything else that I can afford to invest at that point I could do through my 403B?  If a Roth is post tax money am I losing a great opportunity to grow my portfolio with pre tax contributions?

Or I could just manage the 403B myself.  How often would I realistically have to make adjustments if I wanted to manage my 403B myself?

 

After I figure this out its on to my rollover IRA and getting the money I have invested out of the super expensive American Balanced C mutual fund and into something cheaper.  Currently my money in this IRA is split 50/50 between that and ETFs.

 

 

 

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28 minutes ago, CTVAteacher56 said:

Or I could just manage the 403B myself.  How often would I realistically have to make adjustments if I wanted to manage my 403B myself?

Maybe once a year you rebalance? Regular contributions keep allocations in line for the most part.

You'd be surprised how little there is to do when you start managing things for yourself. It may feel intense for a month or two, but becomes normal real fast. Think of what kind of decisions your management person asks you about currently... "Do you want to contribute more?" Might be the only thing you hear.

Despite being on 403bwise and reading finance stuff, I don't make any significant investment changes. After the accounts are set up, you focus on the business of living life. 

28 minutes ago, CTVAteacher56 said:

After I figure this out its on to my rollover IRA and getting the money I have invested out of the super expensive American Balanced C mutual fund and into something cheaper.  Currently my money in this IRA is split 50/50 between that and ETFs.

Vanguard will email you the forms to rollover the IRA and help you a little bit with the process. I did that with my old American Funds IRA.

If possible make sure no one sends you a check. Once you touch the money there's a higher likelihood of it becoming a taxable event.

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Get rid of this guy. You can do it yourself. You will learn along the way. Even if you feel unsure of yourself , at least you won't be giving this person a slice of your retirement money for basically doing nothing except maybe occasionally rearranging your funds. Overtime his presence "managing" your accounts will cost you thousands of dollars in  fees. They don't do all that much managing. They are salespeople first and formost.

Does valic allow you to make changes to your accounts yourself online?  I would pick a basic Vanguard portfolio and manage it yourself. We can help you with any questions along the way. 

The Key to success is simplicity, low fees,  diversification, and consistent saving regardless of the ups and downs of the market.Keep your emotions out of it. Stick with your goal.

Your 403b manager does nothing you can't do yourself.  You will outperform his so called "expertise" if you follow our guidelines.

Transferring an IRA is simple and Vanguard can help you.

 

Tony

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On 7/4/2020 at 5:27 PM, CTVAteacher56 said:

  Very much worth the money he assures me  😕

 Pure B.S.!! He just dropped a load of manure on you. It's happened to many of us here at one time or another. Don't fall for it.

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3 hours ago, tony said:

 Pure B.S.!! He just dropped a load of manure on you. It's happened to many of us here at one time or another. Don't fall for it.

Absolutely, run from this pure and unadulterated insurance salesman. You came here and you know too much to ever go back to trusting this guy or anybody else who makes those types of self conflicted pitches. You got great feedback from smart people here that you will never get from any so-called "professional" in the public k12 403b market. 

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On 7/4/2020 at 5:27 PM, CTVAteacher56 said:

a total of .76% annually

Others have responded qualitatively and I agree with their sentiment. Let me respond quantitatively.

Let's assume your balanced portfolio returns an average 6% per year and inflation is an average 3%...I know that likely won't be the case for 2020, but go with it. The annual 0.76% fee consumes 25.33% of your inflation adjusted returns in the first year. If this fee continues for 30 years it compounds to consume 31.21% of your inflation adjusted returns.

Is that an amount you're willing to lose?

This advisor is essentially promising you that he can pick mutual fund managers who can pick stocks that will out perform the market to such a degree that it'll not only make up for the 25.33% - 31.21% of inflation adjusted profits you're giving up, but they'll do even better and put excess money in your pocket. Do you believe that is the case when something like 10% of actively managed mutual funds beat the index over the long term?

On 7/4/2020 at 5:27 PM, CTVAteacher56 said:

They will not allow me to make changes they don't recommend, and still actively manage my account for me.  

I don't know why they'd take such a hard line. If I were running a lawn cutting company, I'd be happy to charge customers who wanted to cut their own lawn.

From their perspective, it is in their best interest to charge you and to pick expensive funds that allow them to make even more money. It is still advantageous for them to keep charging you and allow you to pick the cheaper funds. It is their absolute worse case scenario for you to just walk away.

From your perspective, the inverse is true. Your financial interests are in direct opposition to theirs because every dollar you don't spend on them stays in your pocket. As Saint Bogle liked to say, "you get what you DON'T pay for."

 

On 7/4/2020 at 5:27 PM, CTVAteacher56 said:

What should I do?  Just open up a Roth IRA and max that out?

I wouldn't be so quick to accept the advisor at his word that the advisor is required. I'm too lazy to do the leg work for you, but I highly recommend that you keep digging and pushing. I won't repeat my entire backstory, but countless people told me lies/untrue information for months before they finally folded and allowed me to invest without an advisor. So keep pushing.

This has been a pet peeve for me for the longest. I don't know why everybody defaults to investing in a Traditional 403b/457b/401k, but those same folks default to investing in a Roth IRA. Sometimes I wonder if people don't understand that tax advantaged accounts can be either Traditional or Roth. A 403b doesn't have to be Traditional and an IRA doesn't have to be Roth.

You can read about the Roth vs Traditional discussion we've been having in the 2nd page of this thread: 

 Long story short, I think Traditional is better in the vast majority of cases.

To answer your question though, I'd make sure I'm maxing out the low cost IRA and then putting excess money into the 403b/457b. I mean, you're definitely being ripped off if it turns out you have to accept a 0.76% fee, but I suspect the tax advantaged status of the account makes it worthwhile...especially because you can roll it into an IRA when you leave your employer. You'd have to do the math to be sure.

On 7/4/2020 at 5:27 PM, CTVAteacher56 said:

How often would I realistically have to make adjustments if I wanted to manage my 403B myself?

I spend tens of minutes per year doing this.

You pick an asset allocation (split between domestic stock, international stock, and bonds) for your overall portfolio (notice I said portfolio, not individual account). Then you make sure that as market fluctuations occur, your portfolio stays in line with your goal.

When your portfolio is "small" relative to your regular contributions you don't have to do anything because your new contributions (set according to your asset allocation) will overwhelm the market fluctuations in the small portfolio and get you back in line.

When your portfolio is "medium" relative to your regular contributions you can choose to direct new contributions to the asset type that makes up a smaller percentage of your portfolio than it should (this means you're regularly buying the mutual fund that is underperforming the others...it may feel bad, but this is what successful investing looks like).

When your portfolio is "large" relative to your regular contributions you can do things like choose not to auto-invest dividends from the over-performing assets and instead direct them to the under-performing assets, direct any new contributions to the under-performing assets, and even then you may have to sometimes sell the higher-performing assets to put more money into the under-performing assets.

Realistically most people only check on this once a year or when a big market change happens (like the pandemic crash that started in february or the pandemic recovery that started a month or two later). It is trivial.

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