Dear MFOers ,
I need some advice on deploying a chunk of change from a deferred comp rollover (RO) to an IRA at Vanguard. Just recently retired @ 65 and don’t plan on returning to either a full-time or part-time gig for a while other than some volunteer work here and there. Retired on some after-tax savings and will wait at least another year to draw SS. No wifey or kids at this point and house is almost paid for. RO just took place and is parked in MM account. No plans on drawing from the IRA right away and know RMDs may become an issue. But more immediate problem is deploying the RO.
I kind of feel the market may have topped or near a top and the only direction for it to go from here is either sideways or down. Reading the papers, it appears economies have slowed down (US/Globally). Big banks and FANGs are starting to report slowdown too. News on oil glut is not encouraging especially if there’s no agreement on controlling production among main petrol suppliers. Am also noticing a strong correlation between price of petrol and stock markets. Been reading too about current flight from equities into safer (credit) instruments. - And here I am sitting on a powder keg of 25+ years of hard earned savings. - I’ve never dabbled with individual stocks (too busy @ work) so I played it safe (especially after dot-com and 2007/2008 meltdowns) and just squirreled away what I could into mutual funds (MFs) in a deferred comp plan at work.
Basically have been a set-and-forget, buy-and-hope indexer all this time.
Been thinking I could just go with VBIAX (set-and-forget) and be done with it but am worried about TIMING if the RO gets deployed in one fell swoop. With valuations being what I consider high (topped out), what happens if the market tanks dramatically right after I deploy into VBIAX ? I’m no longer working and there’s no way of knowing when the market will bounce back. So am thinking I continue to index and dollar cost average back into the market over several weeks/months buying the dips when and if the market drops. Feel like a deer caught in the headlights. Should I pay for an advisor at this point ?
The ideal plan (perfect world too) was to deploy RO as follows:
VTSAX - .55
VFIAX - .05
VBTLS - .20
VFIDX - .12
VFSUX - .08
Thank you and I welcome all suggestions.
Comments
Some will say that you should average into the market - this avoids buying in at the top. Others will point out that more times than not, buying all at once works out better. If it doesn't, can you afford to ride out a multi-year drop? That depends on how much cash you will need, whether your bonds drop along with stocks, etc.
Think about how much you expect to draw from investments once SS kicks in. The less you need, the more chance you can take by investing now, or at least more quickly than you might otherwise.
Given your assets, you might consider deferring SS until age 70. That will give you more flexibility now (and greater tolerance for risk). There are two reasons for that:
- you won't need to rely as much on investments once you turn 70 (higher SS payments)
- you'll be less concerned about the possibility of an unexpectedly long life (since SS won't run out, and you'll be getting a bigger amount by waiting to start).
Of course, if your family has a history of short lifetimes, or you're in poor health, that changes the strategy.
A couple of small suggestions on funds:
- Instead of VBIAX, you might use VTMFX in the taxable account. Since that's got a lower fraction in equities (50% vs. 60% for VBIAX), you might supplement by doing 80% VTMFX and 20% a pure equity fund. Something like VMNVX that would give you some foreign exposure and still a fairly smooth ride (currency-hedged).
- More generally, your five fund list suggests conservatism - tilting even more toward large cap (with VFIAX) than the large-cap weighted total market (VTSAX) already is, tilting toward even shorter term bonds than the market, and avoiding all foreign investment. As above, I'd suggest at least a little foreign exposure, and also a touch of lower grade bonds. VWEAX is one of the most conservative high yield funds around.
This assumes that you're investing for decades, not just for the next few years.
- Consider something like VMLUX as your holding place until you do something. At worst, I would expect it dip 1/2% to 1% if interest rates spike. On the plus side, it yields better than MMFs, and is tax free.
Vanguard used to provide a free financial plan for Voyager Select ($500K) customers, but I don't see that anymore. Nevertheless, you could ask them about it. If you want investing advice, you could also try their semi-robo service (0.30%/year). That's likely all you'd use, since you're focused primarily on investing.
I know w/o a crystal ball for some insight as to when/how to get back into the market it gets to be a bit of a dilemma, which is why I’ve reached out to MFO.
The recent increase in volatility overseas doesn’t help. Which is why I’m shying away from international/foreign funds although some look attractively priced. But no better time to buy than when their in trouble .
I like your idea on waiting until 70 to draw SS and considered it in the past. May work out that way if Mr. Market takes me and my $$ for a ride this time around.
As to VTMFX, I may incorporate it as part of my portfolio to dial back my exposure to equities which at my age I probably should reconsider (no longer a kid with lots of time to spare).
I’ll look into VMLUX as a holding account also as I mull over how to reenter the market. At the time I made arrangements for a receipting account at Vanguard I asked if they had a “settlement” (escrow) account and that’s how the RO ended up in the MM account. Am new client at Vanguard and will inquire about their Voyager service.
Thank you much, I appreciate your helpful suggestions.
Regards,
Ted
Just looked up both VWELX (Wellington) and VWINX (Wellesly) Vanguard Funds on M* and both had better returns and ranked higher than VBIAX. One feature I like about VBIAX is the auto rebalancing that takes place (self-proprietary algo) within the fund’s makeup on a daily basis. Kind of fits my “set-and-forget” MF investing style. When younger I used an 80/20 (stock/bond) portfolio AA but have decided to dial back the equities portion . The auto rebalancing feature ensures a 60/40 AA, at least for this one fund. Too, I remember reading that returns increase when you make rebalancing a regular routine (debate on going). Do like the better returns and track records for VWELX and VWINX though.
Thank you Ted
It has turned out to be a good idea. I get information on retirement, social security, risk and reward and what ever I want to ask at no cost. The robo-portfolio, called Intelligent Portfolio, YTD is blowing the doors off my own concoction. The 60/40 mix my robo-portfolio has me in is up 5.5% this year. My own blend is up around 3.9% as of Friday. You will be hard pressed to find a balanced, tactical or world allocation fund doing better this year. Ok, short history, but so far so good.
VWELX 4.0%
VBINX 3.0%
FBALX 1.8%
VWINX 4.6%
PRWCX 3.9%
DODBX 34%
TRRBX 3.0%
Let's not get carried away here. DODBX is only up 3.4% - not 34% YTD.
Sounds like the RO went really well for you. You’re the second person who’s brought up a robo advisor, which appears to be a cheaper and efficient alternative to a full service advisor. MSF brought up a robo advisor service at Vanguard too. I’ll contact the rep I’m working with and have the robo portfolio run some possible scenarios/simulations for my circumstances. As I’m finding out, getting out of the market was the easy part, it’s the re-entry that’s challenging (wasn’t a timer/trader before - didn’t run for the exits during the prior meltdowns either). RO was no option. Heard many war/horror stories about others loosing track of 401ks and then having to claw it back from custodians. Nice portfolio and pretty good returns considering the recent volatility (Europe/China/Oil). I’m trying to stay positive throughout this whole thing and your results provide me with some consolation.
Thank you Mike.
Their fees do sound reasonable ($300/yr. for managing $100,000) if I end up having to pay for their advisory services. At least just to get me set up with a portfolio during the first year. Good to hear their thresholds for minimums keep decreasing too.
Thank you Sven.
The robo advisor's (60/40 mix) portfolio being up about 5.5% is pretty darn good ... infact great. I've got one hybrid fund (60/40 mix) that is giving those results a run and that is HWIAX which is up about 6.1% ytd. What kind if yield is robo advisors generating for you?
Old_Skeet
Thank you for pointing that out... that did come to mind. I appreciate the "heads-up" and will be on the look out for any other fees that may cause cost creep.
I’m just now looking at VBIAX as one of the funds I plan to use in my yet to be established portfolio at Vanguard. Prior to my very recent move to Vanguard, I used three proprietary index funds, a Large Cap, Mid Cap and Bond fund with an AA of .45, .35, and .20, respectively, for each of the funds. What I mean by “ proprietary” is that they were generic clones of the S&P 500, S&P400 and a total Bond fund. These were all blends, pretty much U.S. total stock and U.S. total bond funds. The deferred comp plan (DCP) set up by the employer consisted of other fund mixes such as, target date funds, intl funds, balanced funds, and also had a self-directed trading account set up through Schwab which you could use to trade stocks, funds, EFTs, and ALTs that were not available w/in the DCP. Myself, I just made use of the portfolio listed above. Again, I’m just getting started at Vanguard and thought I’d ask for advice on deploying the rollover. VBIAX may end up in my yet to be established portfolio ( ER of .09, & self-balancing &an index admiral class fund). Fits my set-and-forget style. Being a complete amateur “investor”, it may keep me out of trouble. I value your and everyone else’s feedback.
Thanks Old Skeet.
Thank you for your question.
A short answer. I am one that likes to help folks find their own answers to their question over giving answers. However, in my review of VBIAX I found that it is a gold rated five star fund by Morningstar. This, to me, speaks volumes about this fund. In addition, it has placed in the top ten percent for moderate allocation funds for the past 1, 3, 5 & 10 year periods. That's quite a feat. One thing, it strives to maintain a static allocation of 60% stocks and 40% bonds and rebalances fequently to maintain this allocation. While some might question this to be effective it does goes to go show rebalancing works along with its diversfied style allocation of about 75% large caps and 25% small/mid caps.
In closing, I think it is a fine fund. One could indeed do a lot worse in selecting a fund; and, they would be changelled to do better.
Skeet
I'll definitely keep VBIAX in mind. Thank you !
From Summary Prospectus.
I agree with Ted that it is a fine 60/40 fund. I wouldn't worry about "auto rebalancing", the fund hews fairly closely to that ratio. Its turnover is somewhat less than VBIAX's, at 39% vs. 61% for VBIAX, though that seems to be more than enough to keep it "in balance".
For me this is a hands off investment portfolio that I don't feel the need to play with. And like I said before, since 4/2/15, so far so good. Quite honestly, I think most of us here are our own worst enemies in trying to find the "best funds" and the new "hot" fund and the "perfect" portfolio of funds and the "hot" sector. We end up buying and selling way to often and holding way to many funds that only add perceived value. It's just a changing game no one can win.
Ended up having to break away from the computer yesterday (remodeling the old place too and had to prepare for contractor showing up today.
"If you are going to invest in Vanguard's index funds, I wouldn't bother to hire them to allocated your IRA rollover money. Even at the 'low" expense, you are just as likely to do as well or better by doing it yourself. “
I agree, whatever the annual advisor’s fee turns out to be, they’re return will have to meet and beat their costs to come out ahead (additional increase likely to be incremental) and if the market tanks altogether, the fee will just add insult to injury. Besides, advisor’s fee on top of fund’s regular fees seems to defeat the purpose of moving over to a “lower cost” shop.
"If volatility is going to affect your mental and physical health, then you might consider CD's or shorter term bonds.”
Volatility, I’ve learned to adapt a “this too shall pass” attitude with earlier downturns (2000, 2007-2008) just have to keep reminding myself (thanks).
”As to timing, I believe msf has it right. We don't have crystal balls, so we don't know where the markets are going…”
“if you aren't comfortable at putting all the rollover money into securities in one shot, you certainly could dollar cost average your investments over the next year to two. In the meantime if you go this route, invest in short term bonds or you could ladder into CD's.
Ditto on reminder for “timing” issue. Not having traded/timed within my DCP before, RO upheaval has been a bit of challenge for this 65 year old. Long term the markets will trend up and have no plans on dipping into the IRA for a while. Agree too with suggestion on juicing up the portfolio AA slightly with shorter term bonds since rates are more likely to go up in near future, regardless of DCA option.
“Don't become preoccupied with all the financial news…tune out the financial news. It will drive you crazy and probably into paralysis.”
Spot on !
Thank you for your thoughts and suggestions.