Only use whatever you think is “gravy”
for aggressive investment. My Mr. has a trading IRA that is his “play” money. He does not do options and has not enabled margin trading. He did very well even before the pandemic and more than made up for the pandemic dip, but he recently parked all of that money in stocks of companies that he believes would be eventually acquired. The keyword here is “eventually.” He can still lose most of his principal. He already had one investment that went to $0.
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whatever helps you sleep well at night is the correct answer. But gotta ask, is this play money for fun, or is the goal to build up the estate for heirs, charity…?
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@bluebayou tell the truth, I’m not really sure. Yeah, it would be nice to watch it grow for the kids, charity. I guess I’m more looking at if it’s not going to be drawn from for maybe 15 years, why not keep it growing aggressively? Not really as aggressively Mr. BunsenBurners play money, though, so I don’t think we’ll take up the option route. I sell covered calls here and there, but that’s very conservative.
I should probably look at Bogleheads, keep meaning to do that. I just don’t trust investment advisors too highly, though obviously there are some good ones out there.
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No matter how much you have, none of it is gravy. IMO.
@busdriver11 DH’s 401k has no fees as it is paid by his company, even in retirement. So our Financial Advisor has left that money ‘alone’ - as we have been managing it just fine (2019 annual return 34.41%, 2020 annual return 34.85%).
We don’t have pensions (outside of a small annuity/$100 a month from a former employer payout of some pension type funds) but have purchased several annuities – each of us with retirement funds – both with one insurance company in 2013, and with another insurance company for DH out of his 401k to diversify/reduce our risk – in 2015 and 2018. They are called ‘fixed indexed annuity’ and are long term investments for us. They are all performing quite well. Annuities are a very specific thing that our FA knew a lot about and had done his researching/homework – we bought at an advantageous time on these particular investments.
At our last meeting (as with prior meetings), our risk calculation is right in our comfort zone, and there really are not better options for us to make any changes.
What your investment advisor is advising you to do is to roll over your 401k (which as a retiree do you have free services, and is the 401k plan one where you have all the investment options you like – we do have investment choices we like in DH’s and DH’s former employer pays the fees). What are the advantages FOR YOU with the IRA? I bet you have found some good investment choices in your 401k.
IMHO @busdriver11 with your solid pension and other savings, your outlook on how you have your 401k invested may be where you get the best returns over time…we are in 3 very good fund choices (use to be in four, but the 3 are high marking returns – and very telling for me was in addition to being high annual total returns over the long haul/10 years, they also stayed good when many other funds were in the negative – that is when we cut out the 4th fund altogether). I imagine you have been tracking the 401k. Since DH is now retired, he looks at our performance picture often; I look at volatile times and also keep quarterly and yearly results in a binder (I am old school).
@SOSConcern the advantages are to have more choices over what to do with our money, since our 401K plan doesn’t have a huge selection (but we’ve been fairly happy, they are good Vanguard funds). I think we might just leave them alone.
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@busdriver11 you have so many other investment diversification options too…property, etc… you are a bit different than some of your other co-workers in many regards. Our 401k has grown so big that we had to move some into other things, and it is continuing to do so well. We just had a few great back to back years with stock market fund groups.
Now I am helping DDs with their Roth IRA accounts - started them when we had a little extra cash and they started earning some money – an early year or two when they had earned taxable income and we could put that amount into a Roth IRA in their name. Now DD2 is changing jobs and she can move her pretax money and put $6K of it into her Roth IRA account and move the rest in Jan. Her current job is a state job, so she had a finite place for her pretax retirement funds. I told DH that we are teaching them things now that we learned on our own over the years - of course some things were ‘new’ during our earlier working years.
When we can get the kids on the right path with their finances – earning and knowing how to build up their own financial picture. They have done well with getting degrees that they can earn a good salary, and continuing in their jobs and professional development. “off the mom/dad payroll”
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“Gravy” by my definition is something you would not rely on to live on… and kids and charities are not automatically entitled in the future to what we have… my husband learned the investing lessons during the Dot Com bust and would not touch purely speculative stuff. He is only betting on solid companies that have a good chance of getting acquired based on the history of the field. Of course, they might get acquired at a price lower than he paid, they might continue to fly solo, the stock markets will all tank, etc., so that is a part of the gamble. I told him to buy Pfizer and just enjoy the dividend, but he says there is a good chance of all of his holdings turning into Pfizer or Merck. 
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If he is saying that because health care spending keeps growing as a share of the economy, he should be aware that not all health care spending goes to pharmaceuticals. Also, not all health care spending goes to capital (e.g. stocks), since health care is very labor intensive, and paying labor makes up a large portion of health care spending.
No you did not get the part about biotechs. 
Speaking of 401ks, I am curious what you all think. My daughter has a summer internship at a public company. She has continuously been receiving benefits information. Yesterday, COBRA information came - she is on her father’s insurance but I guess can get insurance through them. Today, information came regarding their 401k that she can join. She handed it to me to look through. I don’t see anything about a match. Would that be on their website or in the documentation? She is 20 years old and already has a Roth IRA, but let’s assume there is no match, although if I recall with a 401k since I have one for my own business, if you have one you must offer the same match and plan(s) to every employee so if there is a match, she would be offered it as well. Where might she look for it? But back to my question, even if there is no match, should she bother with contributing to the 401k, or will it ultimately be too much of a hassle for her since she isn’t planning on working for the company as her main job after college, although she likes it, so not sure why she wants to write them off so quickly.
I would not bother with that 401(k) (although they might enroll her automatically which happened to my kid). The management fees might eat up a lot of her investments (yup, my kid lost all of her 3% mandatory contributions to fees!). And she can just ask the HR directly about any matches.
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This is sort of what I was thinking. She’s making a good amount of money, but she can just contribute to her Roth later anyway and dealing with the two accounts even if she put in her full summer income is still not the entire 401k max so why bother? She also has other income reducing mechanisms because she is not a dependent so, not sure how much of a federal tax reduction it really gives her. Although, her income is lower now than it would likely be much later in her life so there is that.
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It’s at least worth asking if there’s a match which vests immediately. I believe you are automatically entitled to transfer any 401(K) of less than $5000 to your own IRA if you leave, so she could just move it to her Roth IRA provider when she leaves. And if her income is low and she’s not subject to kiddie tax then she can convert to the Roth and pay the taxes now. Having said that, a 3% match on a summer job is only say $200 so I can see why you might consider it to be too much hassle.
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I am helping DD research ETFs (exchange traded funds). She has a few stocks in two (I am under the ‘buy and hold’ strategy) and has some cash in her Roth IRA fund. Plus she will get more money in the Roth IRA once she does the transfer of $6K of her state held retirement funds. Explaining things along the way to her.
We only have two daughters, one SIL, and currently 2 grandchildren with another coming in a few months. By helping DDs understand how to build up their own financial picture - and getting into their first home once they are ‘settled’ in a location where it makes sense to buy. DD1 has educated SIL. Both DDs graduated from college w/o debt (unlike SIL and DD2’s BF who both did complete a UG degree but with debt). Both DDs have had a lot of professional development and advancement opportunities - and are continuing nicely. We have provided some assistance/muscle with smaller moves (in their same area for one and in the same apt complex for the other); DH has hotel points he has given to both of them that we don’t use and they could use for a specific purpose (points from DH’s prior work travel). DDs also have accrued their own travel points too - one got a free airline ticket that was used on their honeymoon; another just used points for free car rental for trip to grandparents’ funeral after air travel. Now in the thinking and planning help with DD and her move to adjoining state.
We know what it is like in some of those very busy years when one has so many important things going on; DH and I were ‘on our own’ in many ways, many states away from immediate family. However did learn from my dad’s own business/decisions; all of their work ethic, saving/investing, owning one’s own home, etc. Marriage stability - which included give and take with both sets of parents, faith and values.
DH and I ‘plan’ ha ha, to live a very long time, but it is not something we ‘decide’. Still have a lot to ‘structure’ our ‘estate’. Have to run through and verify all our accounts with beneficiaries and other decisions.
Heard a fellow talk about age 65 - age 85 is a period of time where one can continue to be very productive if in good health. Some have a longer period of time, some shorter. My parents died at age 64 and 77. DH’s lived to 92 - his mother’s heart disease did in her siblings too with one living the longest to 96. But longevity on his dad’s side of the family that is enviable.
What we do financially for one DD/family, we do for the other. So the amounts we put into a college stock account for grandkids, the other DD gets equal amount of $$. Will ‘match’ the stock account money for GK #3 so same amount going in for #3 that went in for #1 and #2. And so it goes. Not big amounts, but funds that will grow. So the finances are for a specific purpose which we deem appropriate at the time. Gravy. Money we won’t miss.
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A 401k (traditional or Roth) does shield the investment gains from yearly taxes. This can be significant over the long term if the investments tend to produce taxable dividends or capital gains each year (however, favored lower tax rates on dividends or long term capital gains are not gotten, so some situations like buying and holding a non-dividend-paying stock over the long term may come out worse). 401k money can be moved to an IRA by direct rollover after leaving the employer.
Of course, different employers’ 401k plans have different investment options, different matching amounts (which can be zero; match money may be subject to a vesting schedule), and different fees borne by the employee. Larger companies tend to have better 401k plans in these aspects.
An ex-employee can move the 401k money to an IRA. If the amount is small, the employer may require the employee to take it out (either by rollover or by distribution), rather than allow the employee the option of leaving it in the 401k (not usually the most desirable option anyway, unless it allows access to a desirable investment that is inaccessible outside the 401k).
My D contributed to her company Roth 401k during her internships. The contribution limit is higher than just contributing to an IRA. She did the max (her take home paychecks were like $50 lol but she didn’t need the money). It’s done well for her and she’ll be working there full time so has left it there. She did not qualify for the match as an intern but did get all other benefits for those 10 weeks each summer, which was great.
Just a word of caution - If students are getting “stipends” they don’t technically count as income, so it complicates things.
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Interesting. So my son is doing an apprenticeship at a research lab this summer that pays a educational stipend. So, he can’t invest in a Roth IRA from those funds because it isn’t income? He just started and he hasn’t received any funds yet so no idea whether it will be taxed or not.
Do a little research on the stipend/ Roth IRA issue. It sounds like it may have changed recently. I know in 2018 you could not put a stipend into ROTH IRA, but Dr. Google indicates that may have changed recently.
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