How To Invest In Addition To TSP? Where To Start?

[Rogue]

Background: Mrs. Rogue is 27 and I'm 34. We'd like to start/continue saving for retirement in a smart way. We owe on our house and a student loan. About to have the 2nd car paid off. Right now she's a student and will be employed full time in the fall. The reason that's important is that our combined income will change. Right now we make <90,000/year and as soon as next year we will likely be fortunate enough to make combined >125,000/year. I'm putting 10% toward TSP now, heavily weighted toward C,S,and I funds with a small %-age going to G, F, and L2030. Current TSP balance around 100k. We may want to start investing in some vehicle like an IRA that will complement/balance TSP.

My assumption is that we have 20-25 years of peak earning to work with here and that the market will, eventually, stabilize and continue to grow slowly over that time.

So, here are my questions for those who are willing to opine:

-If we (or she) qualify for a Roth now, but not in a few years, do we have to move the Roth $$ into a traditional IRA?

-Would it make sense, if we could afford to, to start both a Roth and traditional IRA with $2000 in each this year?

-Might we be better off just putting more into TSP (maxing out each year) instead?

-One rule of thumb I heard years ago was that if your money isn't earning 8% or more, you might as well have it in the bank. Is this a widely believed rule of thumb or crazy-talk? The obvious variable is time. My TSP last year averaged just over 6%, but over several years has done much better.

-What other things should we consider? Mrs. Rogue leans toward more liquid cash available or CDs or something. I'm really new at this stuff as I've never had much $$ let alone money I'm able to invest.

-Any really good funds with performance and balance similar to Fidelity Contra that we should consider? I'd love to have been in contrafund years ago.

-Who to invest with? I like Fidelity's website and apparent flexibility. None of the majors seem to offer the best options with professionally managed portfolios to poor folks like me who are just starting out.

-Finally, and most importantly, am I even asking the right questions?

 

[rokid]

Rogue,

You're asking some great questions. I'll comment on a few.

-Might we be better off just putting more into TSP (maxing out each year) instead?

Unless you want to invest in asset classes not offered by TSP, e.g. REITS or Emerging Markets, I'd max out TSP first. You can't beat TSP's cost structure.

-One rule of thumb I heard years ago was that if your money isn't earning 8% or more, you might as well have it in the bank. Is this a widely believed rule of thumb or crazy-talk?

Crazy talk. Over time stocks have outperform bonds and cash, i.e. 4% cash, 6% bonds, 11% stocks. However, in any particular year, stocks could be well below 8%. It sounds like you did fine last year. Fortunately, you are young enough to take advantage of the cheap stocks available during a bear market.

What other things should we consider? Mrs. Rogue leans toward more liquid cash available or CDs or something. I'm really new at this stuff as I've never had much $$ let alone money I'm able to invest.

Any money you need in the next 5 years should be in something safe like cash, CDs, or short term bonds. Your emergency fund should be in something safe. Conversely, your retirement money should include some risky assets, e.g. stocks, to outperform inflation. You can't get high returns without taking on some risk. How much risk is a personal decision. However, it sounds like Mrs. Rogue is risk adverse.

RE: investments outside of TSP. Vanguard is a very good company. My 25 year old son has a Target Retirement 2045 fund. The Target Retirement funds are passive, balanced investments similar to the TSP L Funds. The Vanguard Wellington Fund is balanced, low cost, actively managed, and highly regarded. I've also heard good things about Vanguard's STAR Fund.

It might also be a good idea to pick up some investment books. I like Burton Malkiel's A Random Walk Down Wall Street. It's considered an investment classic. John Bogle's books are also classics.

In addition, you might want to ask your questions on the Bogleheads forum. Go here:
http://www.diehards.org/ The Bogleheads forum is on the left side of the page.

Good luck.-----Jim

 

[nnuut]

Rogue welcome to the Message Board, Good words from Rokid. All I can say is put in as much as you can and then a little more. You will be much better off at retirement time. Best of luck.
Norman

 

[Rogue]

Thanks y'all.

I read references to bogleheads in other threads on here too, I'll check it out.

One other question to add to my list...if/when we decide to buy something like a Vanguard fund or IRA dealio, what do y'all recommend?

Just go down to the local Edward Jones, Fidelity, UBS, or Merrill Lynch storefront? Buy everything online? Years ago I met with an Edward Jones store person and a few weeks ago went into a Fidelity storefront. I was less than impressed with the people there, but somehow it seems more "professional" than sending some unknown company a bunch of money (like I said, $2000 or so is still a big chunk of money where I come from) online.

 

[Show-me]

IMO, if you qualify get the 5% match in TSP and max out the two Roth IRA's. Anything over that back to TSP.

Ask yourself if you think taxes will be higher or lower when you retire. If you think higher the Roth tax rate is zero and TSP contributions and earnings that you withdrawal will be taxed as ordinary income.

 

[rokid]

Thanks y'all.

One other question to add to my list...if/when we decide to buy something like a Vanguard fund or IRA dealio, what do y'all recommend?

Just go down to the local Edward Jones, Fidelity, UBS, or Merrill Lynch storefront? Buy everything online?

It's probably a matter of personal preference. However, I would check to see how more the personal, store front approach costs.

I can report my son's Vanguard transaction went without a hitch.----Jim

 

[Pill]

Rogue,

We are about the same age. Here is what I do- I give 12% to TSP but am targeting 15-18%. My next goal is to max out my wife and I's Roth IRA's through Vanguard. Currently our money is in a Target 2050 while waiting out the storm. There are plenty of great funds offered. Vanguard and Fidelity are widely known for low low cost and maintenance fees. I set it all up online. No need to go to any store front. If you have any questions at all just call them Vanguard customer service is excellent and willing to walk you through the whole process.

Even with your income going up, you would still be able to contribute to a ROTH. The limitations for 2008 are:

Single filers: Up to $101,000 (to qualify for a full contribution); $101,000-$116,000 (to be eligible for a partial contribution)
Joint filers: Up to $159,000 (to qualify for a full contribution); $159,000-$169,000 (to be eligible for a partial contribution)

Hope this is helpful.

 

[CountryBoy]

IMO, if you qualify get the 5% match in TSP and max out the two Roth IRA's. Anything over that back to TSP.

Ask yourself if you think taxes will be higher or lower when you retire. If you think higher the Roth tax rate is zero and TSP contributions and earnings that you withdrawal will be taxed as ordinary income.

Rogue,

I do what Show-me does (get the 5% match, max out both our Roth's and then back to TSP) and for the reason's he mentioned. Just an FYI, mine and my wife's Roth's thru Sharebuilders online as is my daughters. It can be cheaper depending on how you invest. We've had real good experiences with them, easy set-up and they've always been real responsive with any questions I had. Even called me back at home once on a more complicated IRA question, when the person they wanted me to talk to was outta the office for a meeting. Just another data point.

Good luck,
CB

 

[Birchtree]

Rogue,

With a Roth you can delicately build your own mutual fund over time and possess control of all the flexability in later years when it's most important. An individual stock pays their dividend 4 times/year and will be automatically reinvested for you if you choose that option. I recently opened three accounts for my 27 year old daughter via Wachovia with the purchase of 52 toxic waste issues (natioinal and regional banks and housing related materials) with the idea we would not make any money for at least three years but will collect 208 dividend hits/year and some of those dividends will be increased. One of the companies (ABK) has already reduced their dividend and that's OK - we'll eventually buy more before it returns to $70. For her it's a great way to buy and hold for the long haul. Now I'm trying to squeeze this years $5000 from her to get working ASAP. She says but I've already lost some money and I remind her that's not the issue at hand, accumulating a base is the goal.

 

[Gilligan]

Rogue,
Real estate investing has been around for thousands of years. Sure the bubble is bursting in several areas right now but real estate is local ( prices can be rising in some areas and crashing in other areas). Right now we have a buyers market and a landlords market, home prices are falling and rents are on the rise. With so many people losing their homes to foreclosure its flooding the rental market.

Warren Buffett, bought Clayton Homes, the largest manufacturer, seller, and
financer of mobile homes in the country for $1.7 BILLION and he also acquired Oakwood Homes for $373 Million.

With $125k in income, you could really use some real estate deductions!

Check out this thread from our in-house real estate expert, Pyriel who is currently in the sand box at this time.

http://www.tsptalk.com/mb/showthread.php?t=3021