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What's your age and the value of your 401k?

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Also, going along with the idea of insurance for your wife, your kids are only this young for a short period of time. Once in school, the need for full time care is gone. You don't need a stay at home parent for school age kids.

Edited by gianmarco
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13 minutes ago, Otis said:

Giving me a lot to think about based on all the reactions here. 

I have a good sized term policy on my stay at home wife.  If she wasn’t here it would effect my career. Having her at home managing the kids and household has allowed me to advance in my career faster than if I was a single parent with sole responsibility raising the kids, even if I had a daily nanny.

Term life is so cheap, couple of thousand bucks a year gives us piece of mind if anything happened to either one of us.  Would be hard dealing with a loss and having those term polices means at least I don’t have to worry about the financial issues.

stay away from whole life

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4 hours ago, Otis said:

Yes he mentioned "tax loss harvesting" I think.  Maybe that's what he had in mind.  I'm a high income earner and max out all the 401k stuff, so he seems to be saying I need to look to other things to do to get tax advantages, which is why he's talking about these insurance vehicles etc. as another "asset."

TLH basics are super easy.  If there is a downdraft in your taxable account you can sell for a loss and buy something analogous.  Works best for ETFs.  Just buy something that tags to a different index.  Sell SPY, buy DIA.  Sell EEM, buy EEMV.  Etc.  Try to keep about 12-15k of losses on the books - the most valuable slice of money is the 3k allowable per year that comes straight off of income.  Just make sure you don't rebuy the sold stock for 30 days and you're golden.

4 hours ago, Otis said:

In the meantime, can I turn the keys to the Otis accounts over to you guys, for say a quarter percent?

There are some licensure issues there, so that's probably not a great idea.  If you wanted some advice, though, how about $96 worth?  (It actually looks pretty good).

 

3 hours ago, Otis said:

If I were to dump a quarter mil into crypto, how much money we think I could make here?  

Not much.

3 hours ago, Otis said:

Conversely, likelihood of losing it all?

Pretty low. 

Lot of volatility in the middle, though. :P

Edited by Sand
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Otis - I'm not going to lie - I always thought you were a bit of a clown.  But I have a LOT of respect of for how much you've turned your life around.   You've inspired me!

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Lost tens of thousands yesterday. Eff you coronavirus

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11 hours ago, Otis said:

Screw it. Just gonna do this in my own. How hard can it be. 

You could also use a financial coach.  PM me if interested.

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12 hours ago, Otis said:

Screw it. Just gonna do this in my own. How hard can it be. 

Good luck. I’m in the same boat albeit with probably 10% of your income and net worth. With respect to life insurance for the old ball and chain, if it would give you peace of mind and if you would need those funds if she would pass, then buy term life. Let it expire if or when circumstances change. I considered it for my wife (it is cheap, under $50 per month) but we don’t need it.

As for whole life, ditto what you’ve heard here. But I would not hold that against your prospective FA. Every single one of them will try to sell you whole life. Just say no and move on to another topic.

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I have a small whole life policy (50k) that I got at a training seminar for my job 21 years ago. Current cash value is like 8k. Should I cash it out? I was a dumb 20 year old at the time and kinda got pressured into it. I pay $15 per pay period for it every two weeks. 

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@Otis

what was the guys reasoning on scaling back the 529 contributions?  Have been debating that same question for myself recently.  
Using the online calculators, we have a good portion of the kids future college expenses saved in 529 plans but still a ways to go.  I started thinking about it similar to the paying off the mortgage early question:  if I could set aside assets that would eventually cash flow enough in the future each year to pay for those yearly college expenses, after college was done I would still have an asset.  

i do like the tax benefits and I think there are some protections with the 529 plans though.

Going forward I’m still going to contribute to the 529 plans, but scaled back a little and try this new plan.

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23 minutes ago, Taxguy said:

@Otis

what was the guys reasoning on scaling back the 529 contributions?  Have been debating that same question for myself recently.  
Using the online calculators, we have a good portion of the kids future college expenses saved in 529 plans but still a ways to go.  I started thinking about it similar to the paying off the mortgage early question:  if I could set aside assets that would eventually cash flow enough in the future each year to pay for those yearly college expenses, after college was done I would still have an asset.  

i do like the tax benefits and I think there are some protections with the 529 plans though.

Going forward I’m still going to contribute to the 529 plans, but scaled back a little and try this new plan.

The big issue is the penalties if you decide to pull the funds out. Maybe a kid gets a scholarship or goes to a state school or no college at all. So you’re better off being underfunded in these and making up the difference with future income or other investments, as opposed to having too much in here and being forced with no option than to pass it along to a grandkid or take a big hit. 

Edited by Otis
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6 minutes ago, Otis said:

The big issue is the penalties if you decide to pull the funds out. Maybe a kid gets a scholarship or goes to a state school or no college at all. So you’re better off being underfunded in these and making up the difference with future income or other investments, as opposed to having too much in here and being forced with no option than to pass it along to a grandkid or take a big hit. 

Um FYI.    If they get a scholarship you only have to pay taxes no penalty

 

You can withdraw up to the amount of the scholarship without having to pay the 10% penalty, but you will have to pay taxes on the earnings.

Edited by belljr
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5 minutes ago, belljr said:

Um FYI.    If they get a scholarship you only have to pay taxes no penalty

 

You can withdraw up to the amount of the scholarship without having to pay the 10% penalty, but you will have to pay taxes on the earnings.

Good to know. Thx. 

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1 minute ago, Otis said:

Good to know. Thx. 

Unless the rules changed last year but I was never too concerned. Although I will only have about 2 years saved anyway....

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8 minutes ago, Otis said:

The big issue is the penalties if you decide to pull the funds out. Maybe a kid gets a scholarship or goes to a state school or no college at all. So you’re better off being underfunded in these and making up the difference with future income or other investments, as opposed to having too much in here and being forced with no option than to pass it along to a grandkid or take a big hit. 

Let me tell you my story.  In 2009 my job was eliminated and I was given the boot.  I had put about $60K into a deferred comp over the prior few years and it had grown to over $80K.  Upon termination it was paid to me in a lump sum and I chose to superfund my son's 529's and deposited the entire amount.

Looking back, I did that at the absolute bottom of the market.  Over the next decade the 529's took off and ballooned to almost $240K.  My older son chose to go to college out-of-state at a cost of $45k/year and the younger one will stay in-state at a cost of $15k/year.  I'll still have some $$ left over and I plan to ear-mark it for future grandkids.  

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15 hours ago, -OZ- said:

Fwiw, when I was offered a job as a "FA", the manager was clear with me that most of my compensation at least as I'd build my business, would be by selling whole life. 

I didn't take the job because I don't want my kids food to depend on selling something I don't believe in. 

Yeah, I'm hoping that's not what it will be like at my firm. Will just have to wait and see and adjust as needed, like any job really. 

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15 hours ago, Otis said:

Because she stays at home and takes care of the kids. And that’s a cost that would need to be addressed. That’s the logic anyway. This isn’t the first time I’ve heard someone suggest the concept. 

Right. It's not a crazy idea or anything but you'd have to worry about that risk to want to do it and then would need to make sure you just had something covering her for a short time the kids need it. No reason  to be paying for that if the kids are in college or whatever. 

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1 hour ago, Otis said:

The big issue is the penalties if you decide to pull the funds out. Maybe a kid gets a scholarship or goes to a state school or no college at all. So you’re better off being underfunded in these and making up the difference with future income or other investments, as opposed to having too much in here and being forced with no option than to pass it along to a grandkid or take a big hit. 

This is why I do a mixture of 529 and Roth IRA for college expenses.   I'll tap the 529 first obviously and use the Roth IRA contributions as a fallback if needed.   Depending on income during those college years, you might not even need the Roth so that can be diverted to retirement.

Edited by NutterButter

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19 hours ago, Otis said:

Yes he mentioned "tax loss harvesting" I think.  Maybe that's what he had in mind.  I'm a high income earner and max out all the 401k stuff, so he seems to be saying I need to look to other things to do to get tax advantages, which is why he's talking about these insurance vehicles etc. as another "asset."

Just my two cents, alarm bells go off in my mind every time an FA refers to insurance as an "asset" or an investment vehicle of some kind.  Insurance should be just that - insurance.

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18 hours ago, Otis said:

Because she stays at home and takes care of the kids. And that’s a cost that would need to be addressed. That’s the logic anyway. This isn’t the first time I’ve heard someone suggest the concept. 

I agree with others that you dont need whole life, I have term, but I do think you should have insurance on your wife who stays at home with the kids.  I am in a similar situation as you, good job and a wife that stays home.  Sure, if she passed away I could afford child care, but, if my wife passes away, Ill collect that insurance and get a job that I am not working the hours/traveling as much (so will pay much less) so I can spend a lot more time at home with the kids.  If my wife is gone and can’t be with the kids, I sure as heck will be for many reasons.

Edited by ditka...mike ditka
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The more I look at this and hear from you guys, the more I think I should just do this in my own. That three fund portfolio sounds perfect for me. And it sounds like there’s no right answer as to whether to do mortgage first or savings first, but thinking a mix is the right way to go. Put a nice big principal payment at the mortgage from year end comp, but more into savings/funds than to the mortgage. Cut back some on the 529 investments, and get some term life for Mrs O. Meet with an estate planning attorney on wills and trusts. If I can keep on my trajectory and just do these basics, we should be in really nice shape in 5 and 10 years. 
 

thanks all for the helpful insight 

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8 minutes ago, Otis said:

The more I look at this and hear from you guys, the more I think I should just do this in my own. That three fund portfolio sounds perfect for me. And it sounds like there’s no right answer as to whether to do mortgage first or savings first, but thinking a mix is the right way to go. Put a nice big principal payment at the mortgage from year end comp, but more into savings/funds than to the mortgage. Cut back some on the 529 investments, and get some term life for Mrs O. Meet with an estate planning attorney on wills and trusts. If I can keep on my trajectory and just do these basics, we should be in really nice shape in 5 and 10 years. 
 

thanks all for the helpful insight 

Boom. Done.

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5 hours ago, ConstruxBoy said:

Yeah, I'm hoping that's not what it will be like at my firm. Will just have to wait and see and adjust as needed, like any job really. 

That's the one good thing here, he was at least upfront with me.  It might have helped that I used the firm a while back so I knew what they were about. Not a horrible company overall but just not right for me. Many others I know have done well with it. 

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1 hour ago, Otis said:

The more I look at this and hear from you guys, the more I think I should just do this in my own. That three fund portfolio sounds perfect for me. And it sounds like there’s no right answer as to whether to do mortgage first or savings first, but thinking a mix is the right way to go. Put a nice big principal payment at the mortgage from year end comp, but more into savings/funds than to the mortgage. Cut back some on the 529 investments, and get some term life for Mrs O. Meet with an estate planning attorney on wills and trusts. If I can keep on my trajectory and just do these basics, we should be in really nice shape in 5 and 10 years. 
 

thanks all for the helpful insight 

Re the bolded, I'm certain that there is someone at your firm that can handle this for you gratis (unless you're doing some complicated trust structure).

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Did 1/3 of our Roth contribution for 2020.  Moving some more money from bank to vanguard brokerage account so i can buy if stock market takes another nose dive.

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On 1/24/2020 at 3:40 PM, matttyl said:

No, the child isn't paying any additional premiums.  He/she is still a dependent of their parent and on their parent's policy.

Example - mom and dad and a 24 year old kid are all covered by dad's employer policy (which is an HDHP, high deductible health plan).  Everyone is covered by the same health insurance policy, and since more than one person is on it, it's considered "family coverage."  Dad's employer offers an HSA option - dad can put in $7,100 into it for 2020 (plus an extra $1k "catch up contribution if age 55+).  The kicker is that the child (or even EACH child) who isn't a tax dependent (as this 24 year old likely wouldn't be), but who's still on the plan (as they can remain up until age 26) can also go and open up their own HSA account, and put up to $7,100 in it. 

How do you open a HSA without being part of a HDHP?  There must be rules about the dependency aspects of this.

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13 hours ago, culdeus said:

How do you open a HSA without being part of a HDHP?  There must be rules about the dependency aspects of this.

Who’s opening an HSA without being part of an HDHP?  Everyone is on the same health plan, which is an hdhp.  But since the “dependent child” is no longer on their parents tax return, they can open their own HSA and get the deduction.

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16 minutes ago, matttyl said:

Who’s opening an HSA without being part of an HDHP?  Everyone is on the same health plan, which is an hdhp.  But since the “dependent child” is no longer on their parents tax return, they can open their own HSA and get the deduction.

This seems extremely far fetched.  I can't see any tax attorney signing off on this.   And I can't see an HSA plan taking the money either.  Seems very risky.

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2 hours ago, culdeus said:

This seems extremely far fetched.  I can't see any tax attorney signing off on this.   And I can't see an HSA plan taking the money either.  Seems very risky.

I’m not sure why there is so much confusion over this concept.  

Suppose I’m 50 let’s say with a wife and 25 year old child - and I’m on my company’s HSA eligible plan with my wife and child as my dependents.  My wife and I can put $7100 into our HSA.  Clear so far?  

But since our child is a health insurance dependent (on my plan), but not a tax dependent - they can open their own HSA and deposit up to $7,100 as well (and get a deduction for doing so).  In fact each child that is a health policy dependent but not a tax dependent can do so.  So we’re all on one policy with one deductible, but all combined we can put away 14,200 into HSAs.  My wife and I can deduct 7100 and our child gets to deduct their 7,100.

https://benefitssupport.tn.gov/hc/en-us/articles/217293007-Can-I-use-the-HSA-to-cover-my-children-?mobile_site=true

Edited by matttyl

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39 minutes ago, matttyl said:

I’m not sure why there is so much confusion over this concept.  

Suppose I’m 50 let’s say with a wife and 25 year old child - and I’m on my company’s HSA eligible plan with my wife and child as my dependents.  My wife and I can put $7100 into our HSA.  Clear so far?  

But since our child is a health insurance dependent (on my plan), but not a tax dependent - they can open their own HSA and deposit up to $7,100 as well (and get a deduction for doing so).  In fact each child that is a health policy dependent but not a tax dependent can do so.  So we’re all on one policy with one deductible, but all combined we can put away 14,200 into HSAs.  My wife and I can deduct 7100 and our child gets to deduct their 7,100.

https://benefitssupport.tn.gov/hc/en-us/articles/217293007-Can-I-use-the-HSA-to-cover-my-children-?mobile_site=true

Surely there is a clause about the hsa going for the primary account holder.  I would be very reluctant to go forward with this.   It's probably one of those loopholes that is so small they wouldn't figure it out but it's still a loophole.   

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48 minutes ago, matttyl said:

I’m not sure why there is so much confusion over this concept.  

Suppose I’m 50 let’s say with a wife and 25 year old child - and I’m on my company’s HSA eligible plan with my wife and child as my dependents.  My wife and I can put $7100 into our HSA.  Clear so far?  

But since our child is a health insurance dependent (on my plan), but not a tax dependent - they can open their own HSA and deposit up to $7,100 as well (and get a deduction for doing so).  In fact each child that is a health policy dependent but not a tax dependent can do so.  So we’re all on one policy with one deductible, but all combined we can put away 14,200 into HSAs.  My wife and I can deduct 7100 and our child gets to deduct their 7,100.

https://benefitssupport.tn.gov/hc/en-us/articles/217293007-Can-I-use-the-HSA-to-cover-my-children-?mobile_site=true

Following that logic, if my wife and I file separate returns, we can each put $7100 in the HSA? 

eta - someone is clearly misunderstanding this situation.

Edited by Random

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3 minutes ago, culdeus said:

Surely there is a clause about the hsa going for the primary account holder.  I would be very reluctant to go forward with this.   It's probably one of those loopholes that is so small they wouldn't figure it out but it's still a loophole.   

What do you mean by that first sentence?  There are two (Hsa) primary account holders, as there are two different HSAs.  They might be with totally different banks. Remember, each hsa is tied to a completely different tax return. You’re right that this is a small loophole that would likely only apply to a small amount of people, but I have clients that this would make a lot of sense for.  

One is a situation where the 25 year old daughter is on a very expensive drug (enbrel - the one Phil michelson advertises for). It’s like $3k a month.  as the daughter is 25, and no longer a tax dependent - the parents CAN NOT use their hsa funds for her expensive drug (though really no one would catch it if they did).  But she’s still on their health insurance (and hits a huge chunk of the family deductible already for them).  So the daughter can go open her own HSA and fund up to 7,100 this year in it and now get much of her drugs with pre tax dollars, up until she hits her deductible.  

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6 minutes ago, matttyl said:

What do you mean by that first sentence?  There are two (Hsa) primary account holders, as there are two different HSAs.

But only one HDHP.

Quote

You can contribute to an HSA only if you have a high-deductible health plan (HDHP) and aren't enrolled in Medicare.

https://www.investopedia.com/articles/personal-finance/082914/rules-having-health-savings-account-hsa.asp

Edited by Random
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1 minute ago, Random said:

But only one HDHP.

 

Exactly.  Entire family is on one health plan, and thus one deductible.  

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10 minutes ago, Random said:

Following that logic, if my wife and I file separate returns, we can each put $7100 in the HSA? 

eta - someone is clearly misunderstanding this situation.

My understanding is no.  You could each have your own HSAs, but the maximum contribution and thus deduction between you would still be 7,100.

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Just now, matttyl said:

My understanding is no.  You could each have your own HSAs, but the maximum contribution and thus deduction between you would still be 7,100.

How is that different than the situation you are describing?

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4 minutes ago, Random said:

How is that different than the situation you are describing?

To me, it’s not.  But from what I’ve read the irs will still consider husband/wife filing separately as one unit.  

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1 minute ago, Random said:

How is that different than the situation you are describing?

The "child" is required to file a separate tax return.  This strategy would not work with a spouse or child eligible to be claimed as a dependent. 

Conceptually @matttyl seems to be correct.  The requirement is that the taxpayer be covered by a HDHP to contribute to an HSA, not that they pay for it or be the primary insured.

 

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52 minutes ago, Tom Hagen said:

The "child" is required to file a separate tax return.  This strategy would not work with a spouse or child eligible to be claimed as a dependent. 

Conceptually @matttyl seems to be correct.  The requirement is that the taxpayer be covered by a HDHP to contribute to an HSA, not that they pay for it or be the primary insured.

 

Makes sense. 

But it does seem like there should be one max HSA for each hdhp. 

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The more I think about Matttyl’s scenario the more sense it makes.  In his example, the parents would not be allowed to use their HSA to pay for the adult child’s medical expenses because the child is not a tax dependent.

If the child was not allowed to establish their own HSA, they would be stuck with a High deductible plan and no ability to use pre tax money to pay for out of pocket costs. 

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4 hours ago, -OZ- said:

Makes sense. 

But it does seem like there should be one max HSA for each hdhp. 

One HSA per tax return.  Unless married filing jointly apparently.  

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On 2/1/2020 at 8:54 PM, rascal said:

Did 1/3 of our Roth contribution for 2020.  Moving some more money from bank to vanguard brokerage account so i can buy if stock market takes another nose dive.

Don't try to time the market, IMO.

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Just went through a 401K rollover to an IRA, investing some HSA funds, and doing some rebalancing so have been catching up on this thread for the past few weeks and it's been great.

I'm 47 and hope to retire in 10 years or so, and have about 12% of my retirement funds in bonds, all in index funds.  I feel like I understand the equities side of the equation pretty well, but not bonds.  A couple of things I'm not clear on:

  • Are bonds negatively correlated (not sure that's the correct math term) to equities?  If stocks go down, to bonds go up?  Is that the thinking?  Or is investing in bonds just another level of diversification that protects against downside in a bear market?
  • I think I saw in here up thread somewhere the notion that since bond prices go down as interest rates rise and with interest rates at all time lows, bonds would only have downside at this point.  Any truth to that?  Or are there other factors here that would impact either bond fund or individual bond values? 
  • I also think I saw in here somewhere that bond funds aren't the way to go, rather we should be investing in individual bonds.  Any truth to this?

TIA, I've really learned a lot in here and appreciate the experience and insights y'all bring.  I'm sure there's a bogleheads thread or something that one of you will just link to that answers all my questions.

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1 hour ago, Steve Tasker said:

Don't try to time the market, IMO.

Good article on the math of "buying the dips".  TLDR- it's mathematically not optimal.

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5 hours ago, SFBayDuck said:

Just went through a 401K rollover to an IRA, investing some HSA funds, and doing some rebalancing so have been catching up on this thread for the past few weeks and it's been great.

I'm 47 and hope to retire in 10 years or so, and have about 12% of my retirement funds in bonds, all in index funds.  I feel like I understand the equities side of the equation pretty well, but not bonds.  A couple of things I'm not clear on:

  • Are bonds negatively correlated (not sure that's the correct math term) to equities?  If stocks go down, to bonds go up?  Is that the thinking?  Or is investing in bonds just another level of diversification that protects against downside in a bear market?
  • I think I saw in here up thread somewhere the notion that since bond prices go down as interest rates rise and with interest rates at all time lows, bonds would only have downside at this point.  Any truth to that?  Or are there other factors here that would impact either bond fund or individual bond values? 
  • I also think I saw in here somewhere that bond funds aren't the way to go, rather we should be investing in individual bonds.  Any truth to this?

TIA, I've really learned a lot in here and appreciate the experience and insights y'all bring.  I'm sure there's a bogleheads thread or something that one of you will just link to that answers all my questions.

 

I'll take a shot at quick responses to these. Others may want to elaborate:

  •  Bonds not negatively correlated, but very little correlation. Bonds and stocks can go up together at times but can move opposite directions at times. But having little correlation still provides good diversification benefits over the long-term
  • There's more risk now that rates are low, but rates were low last year and bonds were up hugely, and have been low for years for that matter. Bond prices not just driven by Interest rates. Credit risk one of other key drivers, I.e. is economy doing well enough so that companies are able to make money to pay back their debt. If not this can lead to problems. High yield companies much more at risk if things go south
  •  Individual bonds potentially better to invest if rates spike since if you own bond to maturity and doesn't default you'll get back your principal and interest. Whereas bond funds will get hurt by rates spiking. In the event your individual bond defaults though you're screwed.  Also diversification in bonds pretty valuable for this reason, if a few bonds default in a fund you'll barely notice. You do a pay a fee on a bond fund but the fees are lower maybe about 1/2 of equity funds as rough ballpark #.  If you invest in super safe bonds probably won't encounter defaults but not really worth the time and even small amount of risk for most people. If you follow things pretty closely then can make sense.

 

 

 

Edited by Tool
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2 hours ago, Tool said:
  • Bonds not negatively correlated, but very little correlation. Bonds and stocks can go up together at times but can move opposite directions at times. But having little correlation still provides good diversification benefits over the long-term
  • There's more risk now that rates are low, but rates were low last year and bonds were up hugely, and have been low for years for that matter. Bond prices not just driven by Interest rates. Credit risk one of other key drivers, I.e. is economy doing well enough so that companies are able to make money to pay back their debt. If not this can lead to problems. High yield companies much more at risk if things go south
  •  Individual Bonds funds potentially better to invest if rates spike since if you own bond to maturity and doesn't default you'll get back your principal and interest. Whereas bond funds will get hurt by rates spiking. In the event your individual bond defaults though you're screwed.  Also diversification in bonds pretty valuable for this reason, if a few bonds default in a fund you'll barely notice. You do a pay a fee on a bond fund but the fees are lower maybe about 1/2 of equity funds as rough ballpark #.  If you invest in super safe bonds probably won't encounter defaults but not really worth the time and even small amount of risk for most people. If you follow things pretty closely then can make sense.

All this looked good except for the bolded, which looks to be a typo. 

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Basic question:

My son (20) is in the working world and I talked him into contributing 10% to his company 401k. 

Should he be doing a Roth instead?

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2 minutes ago, Spike said:

Basic question:

My son (20) is in the working world and I talked him into contributing 10% to his company 401k. 

Should he be doing a Roth instead?

General rule of thumb is contribute enough to the 401K to maximize company match. Then max a Roth IRA. Then contribute more to 401K.

Every situation is different, but this will work for most people.

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16 minutes ago, Murph said:

General rule of thumb is contribute enough to the 401K to maximize company match. Then max a Roth IRA. Then contribute more to 401K.

Every situation is different, but this will work for most people.

IRA. Whether it should be Roth or not entirely depends on age of retirement and future tax brackets.

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5 minutes ago, Warrior said:

IRA. Whether it should be Roth or not entirely depends on age of retirement and future tax brackets.

True. But he was referring to his young son, so a Roth obviously is the way to go there.

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