I do not understand investing, like at all

[sophiaaihpos]

Growing up we were ‘working class’. Our bills were paid, we took one family road trip every summer. We were comfortable in our LCOL area.

I’ve worked hard and make about $60K + free housing in a HCOL area of California.

My parents are the ‘put your money in the bank’ type. I know for my generation that’s not going to pan out.

These are my investments:

1. 403b $41000
2. 403b $10000
3. Money markets $7000
4. CDs $13000

I’m contributing 25% of my salary. But when I look at all the options I have to allocate my money to I…. Don’t understand. At all. Right now I have most of it (~90%) in a targeted fund for my estimated retirement year. I’m keeping with inflation but barely.

I’m worried about my future. I’m disabled and I do not know if I will be able to work until I’m 67. My work is a non profit with disabled seniors (mostly) and I REFUSE to scrape by on the crumbs of only social security. I don’t want to have to count every single penny in my later years.

Advice on how to proceed??

 

[sharone]

@sophiaaihpos

I have most of it (~90%) in a targeted fund for my estimated retirement year. I’m keeping with inflation but barely.

Honestly this is fine if the expense ratio is low. Go to /r/bogleheads or /r/personalfinance or /r/fire for better investing info. In general buy Index funds of either total market, SP500, or spice it up with some international and forget. There is a saying of VTSAX and relax for a reason. Just need to work on your composure to not sell in a downturn like so many do and lose all their gains for it.

Now the next part is WHERE to save. You mention a nonprofit do they have an employer sponsored retirement account? (Edit: you are already using your 403b great!) If they have a match contribute to that account to meet the match as thats a free gain on your money. After that contribute to an IRA (roth or traditional but at your income I'd lean Roth). Then buy your target date fund or low expense (like lower than .2% yes .2 not 2) index fund and move on. Set dividends to reimburse and you are good to go.

 

[sophiaaihpos]

@sharone They have a sponsored program with Transamerica. That’s what I’ve been using. I’m not sure of the expense ratio, I’ll leave to check.

 

[sharone]

@sophiaaihpos If you have the funds ticker symbol we can probably find it for you.

 

[sophiaaihpos]

@sharone It is the Vanguard Target Retirement 2055 VFFVX. If I’m reading this correctly it looks like the fees are .08%

 

[phil4508]

@sophiaaihpos This is a great fund to put your retirement savings in. Vanguard is the gold standard for target date funds. If you want to keep it simple, you could go 100% in that fund and it will serve you well. Just don’t leave retirement savings in cash/money markets which is a common mistake.

 

[sophiaaihpos]

@phil4508 That’s really helpful. I’m using my MM and CDs more as a mid term savings like my car sinking fund and saving up for travel + my emergency fund. I’m not looking for them as long term retirement savings

 

[phil4508]

@sophiaaihpos It’s good to have both. You don’t want your emergency fund or car/house savings in the stock market.

VFFVX is essentially a single fund that invests in stocks and bonds from all over the world. Because we are still over 30 years from 2055, it is heavily weighted towards stocks which will have the greatest potential for growth but also the greatest volatility. Over the long term it will likely grow about 8-10% per year, but looking at individual years it could be down 20% one year and up 40% the next. Over the last 3 years it has only averaged +5% (roughly equal to inflation as you said) because 2022 was a terrible year for the stock market, but years like that are not the norm.

 

[brittbrat]

@phil4508 Disagree. Target funds are horrible and consistently underperform. Look into SPY, QQQ, and a Russell 2000 ETF. I’d split it across all three of those evenly, dollar cost averaging any new money.

 

[phil4508]

@brittbrat While more expensive target date funds do tend to underperform, Vanguard is not one of them.

Your portfolio is very high-risk/ high-reward. It might serve some people well, especially when tech stocks are doing well like they did in 2021 and 2023, but it’s not what I would recommend for someone new to investing who doesn’t understand the ins and outs of the market yet and won’t have the stomach to ride the next 2000-01 meltdown.

 

[sophiaaihpos]

@phil4508 I am quite risk adverse. It’s taken a lot for me to not just cram it in a coffee can buried in the back yard lol.

 

[alwayscurious]

@sophiaaihpos Not even 5 minutes ago I was reading a thread where someone found out their parents kept $20k cash in a safe deposit box since the 70s. Had that money been invested in an index fund it would be worth over a million today without adding a single penny and reinvesting the dividends. Just a perspective about the whole coffee can thing.

 

[sophiaaihpos]

@alwayscurious I saw that post too! I can’t believe it

 

[differentdemocrat]

@sophiaaihpos The best way to mitigate risk and still capture the expected returns of the market is to be broadly diversified with your portfolio. Broad diversification means owning a little bit of everything that's out there, with the correct asset allocation for your age, timeline, and goals. The Vanguard target date funds are a good and simple strategy to accomplish this without accidentally messing it up, including built in rebalancing of asset allocation based on age, etc.

The slightly higher expense ratio for your target date fund vs something else like ETFs or index funds is not going to make an appreciable difference in the end. You're better off having the correct asset allocation using the target date fund. Avoid the trap of overcomplicating your strategy to the point that you don't understand it.

You're on the right track. Good luck!

 

[brittbrat]

@phil4508 Over time (30+ years) my aggressive style has been extremely rewarding. I don't even do ETFs. I do individual stocks and the very occasional options trade. Suggesting the ETFs was my way of making what's worked well for me less daunting for a newbie. Yes, it does take a some desensitization to ride out the troughs and even more to be a contrarian buyer in the teeth of one (as well as trimming/raising cash during euphoria), but it's definitely the way to consistently outperform the S&P by a lot. The market is euphorically overbought right now, which is why I'd be a dollar coast average-er right here.

 

[theredraven]

@brittbrat Russell man. I don't know. They are not a fund I would ever suggest to a novice or someone who is not very well diversified.

I am in a couple Russell tax advantaged funds now and seriously considering getting out. I like that they continually rebalance but something about them nags at me. They also are not performing as well as I wanted them to.

 

[shines1946]

@sophiaaihpos That is a great investment option. It is diversified across a worldwide portfolio of stocks and bonds. Its expense ratio is 0.08%, or $8 per year per $10,000 invested, which is so low as to basically be 0%.

Set 100% of your contributions into that fund and then just leave your investment selection alone.

 

[madea1962]

@sophiaaihpos That’s an excellent expense ratio.