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The Girl Retirement Rollover Options?

JetOneTV
Valued Member

The Girl Retirement Rollover Options?

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So the girl doesn't know much about the stock market etc...

 

So she switched to a better job recently, and the funding will be changed from "Merrill Lynch" to "Newport Group, Inc."

 

As to take advantage of the "Employer Match," Here are the basics of the program:

-- Her new job will match 100% of an employee's contribution, up to 3% of their salary.  

-- Her new job will match 50% of an employee's contribution, on the next 4-5% of their salary. 

      -- TOTAL MATCH:  4%

-- Her new job matching funds are fully vested.

 

Once that is set up, X% is selected; now, I'm just looking at what to choose for her; she is 30 right now. The old plan I set up under her "Merrill Lynch" is as follows below.

 

(21.61% YTD Rate of return for her)

Screenshot 2021-11-08 191509.png

 

The new account under "Newport Group, Inc" will have these options to pick from.

 

We both choose "Roth." as the option for our retirements. - Or should we be using "target-date retirement funds?"

 

https://imgur.com/A3caO5H - Photo 1 (Page 1)

https://imgur.com/7Qexm7k - Photo 2 (Page 2)

https://imgur.com/oFSzTlS - Photo 3 (Page 3)

 

My retirement is set up with "Voya," and it's set up like this below.

Rate of Return: 14.13% (Year to Date) (her's is 21.61%)

Screenshot 2021-11-08 194232.png

BlackRock U.S. Debt Index Fund

BlackRock Equity Index 

BlackRock Ext Equity Mkt Index

BlackRock Non-US Equity Index

 

Please and Thank You for any advice in this matter.

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Message 1 of 7
6 REPLIES 6
Anonymalous
Regular Contributor

Re: The Girl Retirement Rollover Options?

Not financial advice, of course.

 

With Roths, you're taxed at your current rate instead of your future rate. So they make sense for everyone who plans to be wealthier in the future. Which is most people.

 

The old Merrill Lynch plan you set up for her has no real diversity. They're all domestic stock indices, which are highly correlated. The point of asset allocation is to minimize the up and down swings, and to do that you need to be diversified across asset classes that swing in different directions when the market goes up or down. Those three all swing together.

 

Which is okay, since she's young and has a lot of time in the market before retirement. So just dumping everything into a broad based index is fine, as long as you're not the types to panic when there are big swings, because as long as you have enough time any downward corrections will eventually correct themselves (unless we have another Great Depression, which took 25 years to recover from). The reason your returns are lower is because it looks like you've got about a third in bonds, which is pretty conservative.

 

Alternately, you could try something like a Boglehead three-fund portfolio, where you put most of it in a domestic stock index, some in an international stock index, and some in a bond index. The returns over time probably won't be quite as high as a pure domestic stock index, but the swings will be less severe. Your list has the Vanguard Bond, Total Stock Market, and International Stock Market, which is the inconic mix. The Blackrock funds set up you have is the same idea, just in 4 indices (equity and extended are just different parts of the domestic stock market).

 

I'm not a fan of target date funds. Managed funds don't tend to beat indices, and have higher costs. Plus, target date funds tend to make very strong assumptions about your risk tolerance over time. It's better to decide what your own risk tolerance is, and adjust it as needed as you approach retirement, and not losing the money you have becomes more important than growth.

Message 2 of 7
JetOneTV
Valued Member

Re: The Girl Retirement Rollover Options?

Screenshot 2021-11-14 181529.png

What does anyone think of these picks and percentages for her investments at the new job - Using - Roth (she is born 1991)

 

Please and Thank You

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Message 3 of 7
Anonymalous
Regular Contributor

Re: The Girl Retirement Rollover Options?

That's significantly more conservative, which is fine if you prefer to reduce volatility in exchange for lower long term gains. You still have 75% in equities after all, so it's still biased toward growth. Two things you might want to consider: You have a lot of exposure to international markets, almost as much you do in the US markets. Which does add some variety, but it's worth remembering that foreign markets traditionally do poorer than the domestic market. And that's a decent chunk in real estate. Which isn't inherently bad; like bonds, real estate's not a big grower, but reduces volatility since it often goes the opposite direction of the stock market. But the real estate market seems overly inflated at this precise moment.

Message 4 of 7
JetOneTV
Valued Member

Re: The Girl Retirement Rollover Options?

Screenshot 2021-11-16 131907.png

How is this?

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Message 5 of 7
Anonymalous
Regular Contributor

Re: The Girl Retirement Rollover Options?

I tested your initial mix and the new mix against the Boglehead's 3 fund portfolio (60% US stock, 20% total US bond, and 30% international stock) and Warren Buffet's mix (90% US stock, 10% short term US treasuries). I used the portfolio visualizer website, assumed dollar cost averaging (putting in $500/month) over the longest possible horizon (1994 is the limit of data), and rebalancing annually. The results:

 

Buffet: $946K, 10.25% annualized return, standard deviation 13.8%, worst year -32.7%

Yours 2: $913K, 9.96% annualized return, standard deviation 14.4%, worst year -37.2%

Yours 1: $820K, 9.17% annualized return, standard deviation 14.5%, worst year -38.3%

3-fund:  $724K, 8.43% annualized return, standard deviation 12.1%, worst year -30.7%

 

The dollar totals should be obvious. The annualized return is the average growth over the full time period. The standard deviation is a measure of volatility, with higher numbers meaning prices go up and down more often (the stock market itself is about 15.4%). The worst year is the biggest single yearly drop to the portfolio's net worth.

 

Your new mix is better than the old one, with higher returns and less volatility. But honestly, any of them are fine. You've got enough of a mix, and enough equities to grow.

Message 6 of 7
longtimelurker
Mega Contributor

Re: The Girl Retirement Rollover Options?


@Anonymalous wrote:

 

 

With Roths, you're taxed at your current rate instead of your future rate. So they make sense for everyone who plans to be wealthier in the future. Which is most people.

 

T


While Roths are certainly attractive in many cases, I really wouldn't categorize it that way!   It's more if you think the tax rate when you take money out (which for many will be in or near retirement) will be greater than it is now.   The original selling point of the traditional IRA was that you defer taxes now, let the money grow, and then in retirement "when your rate will be low" you take it out and pay less tax.   That's not necessarily true of course (especially with rates being historically low now) but then neither is "always Roth"

Message 7 of 7
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