Author Topic: Thoughts for retirement savings (case study)  (Read 12167 times)

ggnoob1337

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Thoughts for retirement savings (case study)
« on: July 30, 2014, 09:42:02 PM »
Last year was the first year I started investing (other than in a 401k, which was completely automated and I didn't know anything about investing at that time). I'm 27 and my wife is 25. My first investment account was a taxable Lending Club account. The idea of a steady, yet good, return sounded pretty awesome to me. I also started investing a bit in stocks/bonds at Betterment. Since last year I closed my taxable investment account at LC and have been contributing to Lending Club Roth IRA's for my wife and I, along with Roth IRA's at Betterment. We maxed out our Roth IRA's last year and will continue that trend as long as we can.

Instead of having both a Betterment and Lending Club Roth IRA, I'd like to choose one or the other. I've been leaning towards liquidating my LC account (I know you aren't supposed to sell notes in an IRA, but it lets me so I do anyhow) and moving it all to Betterment. Mainly because its easy to make changes, easy to withdraw if I ever needed my contributions in an emergency, and easy to rollover to another investment account (Vanguard?). I've also learned a lot about investing in stocks since I opened my first LC account, so they sound a lot more tempting now. I've learned I shouldn't care whether they go up or down now, as long as they do good near/in retirement (I really would want them to go down now so my money can buy more shares).

But at the same time, if we kept maxing our LC Roth's until retirement and earned 8-10%, that would be a really nice chunk of change. If we continued earning 8+% in retirement, we could live off of our LC Roth's interest alone.

In a few years we'll have paid off a couple of loans and be able to start maxing out our 401k contributions. We are also maxing out an HSA and have some left each year to invest in a taxable investment account. On top of that, I'm contributing to a pension.

So in a few years if we were maxing out Roth IRA contributions with LC (both my wife and I), I figure that would be about 22% of our monthly contributions to all investment/retirement accounts. Then if I assume all of our investment accounts earn 8% until retirement, the LC Roth's would be about 24% of our overall portfolio. I know it's suggested that we don't invest over 10%, but I'm fine with up to 30%.

So I'm looking for help to convince me one way or the other...

Close our LC Roth's and move to Betterment (or Vanguard)
Close our Betterment Roth's and move to LC
Or a mixture of the two and have my wife do Betterment while I do Lending Club (would put us closer to 10% of our overall investments in LC)

Keep in mind that our LC Roth's are not above the $10,000 needed to avoid the annual fee. Lending Club said as long as they are $5,000 on the 1st anniversary and $10,000 on the 2nd anniversary, we won't pay any fees. I'm on track to hit $10,000 by the 2nd anniversary for both accounts and they are both currently over $5,000.

My main concerns with LC are:

It's not liquid should I decide to rollover down the road (easier to sell notes now while my account is smaller)
It's new and we aren't sure where it's headed in the future
If defaults go up during a recession, it won't rebound like stocks would after a recession
The Roth IRA with LC is a pain in the butt to manage if I need to make changes (why can't I just do everything online?)

Any advice on what I should do?

Since our Net Worth is still low, does it make sense to save up in stocks/bonds for a while and eventually stick to the 10% rule with LC?

If I moved the Roth's out of LC, then I would probably open a taxable LC account again eventually, even though I know taxes are horrible. It's just so much easier to use a taxable account because I'm free to sell notes and transfer funds as I choose.


Fred

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Re: Thoughts for retirement savings (case study)
« Reply #1 on: July 30, 2014, 11:05:11 PM »
If I were you (being 27, married, etc.) I'd keep my LC IRA accounts open, stop adding contributions, and just reinvest the payments (i.e., do not close LC IRA accounts).

New retirement money goes to Betterment (or Vanguard) -- so much more to choose from: stocks, bonds, emerging markets, commodities, etc.

There is too much risk if all (most) of you retirement funds are in LC.

PS: I am not a registered investment advisor.

Fred93

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Re: Thoughts for retirement savings (case study)
« Reply #2 on: July 31, 2014, 02:15:57 AM »
Instead of having both a Betterment and Lending Club Roth IRA, I'd like to choose one or the other.

So I'm looking for help to convince me one way or the other...

Diversification is a good thing.  This means don't put all your money in one place.

So I'd say the fact that you have some money here and some there is a good thing.  Maybe you should just keep it that way.

rockinray

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Re: Thoughts for retirement savings (case study)
« Reply #3 on: July 31, 2014, 08:06:55 AM »
Instead of having both a Betterment and Lending Club Roth IRA, I'd like to choose one or the other.

So I'm looking for help to convince me one way or the other...

Diversification is a good thing.  This means don't put all your money in one place.

So I'd say the fact that you have some money here and some there is a good thing.  Maybe you should just keep it that way.

+1 - keep your investments spread out - just in case. I know this is a bit harder to manage, but I would leave things as they are now.

Ray

ggnoob1337

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Re: Thoughts for retirement savings (case study)
« Reply #4 on: July 31, 2014, 08:33:33 AM »
Instead of having both a Betterment and Lending Club Roth IRA, I'd like to choose one or the other.

So I'm looking for help to convince me one way or the other...

Diversification is a good thing.  This means don't put all your money in one place.

So I'd say the fact that you have some money here and some there is a good thing.  Maybe you should just keep it that way.

+1 - keep your investments spread out - just in case. I know this is a bit harder to manage, but I would leave things as they are now.

Ray

That was another option I thought of that I forgot to mention. I could stop making LC contributions, but do a rollover before my 2nd anniversary with the account so that I can hit the $10k minimum. Then I'll still have the account open to let it grow and contribute to as I want to.

rawraw

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Re: Thoughts for retirement savings (case study)
« Reply #5 on: July 31, 2014, 01:59:57 PM »
I've also learned a lot about investing in stocks since I opened my first LC account, so they sound a lot more tempting now.
It's easy to think of that in a bull market lol

Quote
If defaults go up during a recession, it won't rebound like stocks would after a recession
Stocks don't always rebound, either.  Neither do all indexes.  But your principal and interest on non-defaulting notes will be reinvested, which will "rebound" your account over time.

I'd keep both personally.  It's a way to diversify some of the risk by reducing correlations while still keeping pretty high yields.
« Last Edit: July 31, 2014, 02:02:25 PM by rawraw »

ggnoob1337

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Re: Thoughts for retirement savings (case study)
« Reply #6 on: July 31, 2014, 02:52:30 PM »
I've also learned a lot about investing in stocks since I opened my first LC account, so they sound a lot more tempting now.
It's easy to think of that in a bull market lol

I think its more than I understand now that it's fine if stocks go down because that just means my next deposit will buy more shares. Like today...my accounts were down over 1% and I had money deposited today, so I got to buy more shares than I would have yesterday.

rawraw

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Re: Re: Thoughts for retirement savings (case study)
« Reply #7 on: July 31, 2014, 02:57:06 PM »
I've also learned a lot about investing in stocks since I opened my first LC account, so they sound a lot more tempting now.
It's easy to think of that in a bull market lol

I think its more than I understand now that it's fine if stocks go down because that just means my next deposit will buy more shares. Like today...my accounts were down over 1% and I had money deposited today, so I got to buy more shares than I would have yesterday.
You investing in stocks or indexes, mutual funds, etf, or...? At any rate they don't always come back, just because the S&P does

ggnoob1337

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Thoughts for retirement savings (case study)
« Reply #8 on: July 31, 2014, 03:02:13 PM »
Index ETFs.

But I think I'll keep my LC accounts open and actively contribute at least something.

GS

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Re: Thoughts for retirement savings (case study)
« Reply #9 on: July 31, 2014, 04:39:02 PM »
I graduated from college from 1999 and started investing with Datek (remember them?) right out of college.  I basically started investing at the peak of the Dot Com bubble, and road that down, then just when I was getting back into the positive, the "Great Recession" hit, and I rode that down, and now I'm just getting back to the positive.

The #1 thing I've learned is you have to have be able to recognize bull/bear markets, the #2 thing I've learned is that you have to have two different investment strategies based on where you think we are.

It's easy to make money in a bull market.  It really needs no explanation.

The hard part is realizing when it's over and parting with your beloved stocks that have made you a fortune.   

There is a website called bullandbearwise.com that has a bull/bear indicator.  It was pretty accurate about predicting the upturn in 2009. I'm not sure if it existed for the downturn in 2007.  But, I don't intended to time the bull/bear marked to the day, just the quarter.  I also track the moving averages (23-weeks) of the S&P and consider downward movement to be a sign to start selling off the winners.

For a bear market (since IRAs won't allow you to short) I'd probably put a little (25%) in an inverse ETF like SH, or an actively manage inverse fund like HDGE, and put the rest in a broad bond ETF like BND.

I'm pretty conservative about the LC investments because I wanted to diversify into something that could bring a positive return in a bear market, so I'm mostly Bs, and a little As and Cs.  Whether or not that will work remains to be seen. 

Eventually, I'd like to be about 15% in LC, 30% in real estate (rentals), and the rest in stock and bond ETFs.

That's my plan in a nut shell.  I don't recommend anyone follows it, but everyone needs a plan.
« Last Edit: July 31, 2014, 04:42:37 PM by GS »

rawraw

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Re: Thoughts for retirement savings (case study)
« Reply #10 on: July 31, 2014, 07:11:06 PM »
Index ETFs.

But I think I'll keep my LC accounts open and actively contribute at least something.
Yea, you'll make your covariance matrix happy.

AnilG

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Re: Thoughts for retirement savings (case study)
« Reply #11 on: July 31, 2014, 08:35:54 PM »
I will suggest avoiding LC IRA fee at all cost. With long horizon investments such as for retirement, you should focus on minimizing cost. You could achieve this by either liquidating LC IRA and move it somewhere else who doesn't charge annual fee or adding more money to LC IRA to bring and keep it above $10,000.

I believe LC doesn't belong in the saving for retirement category yet for the same reasons as you listed: lack of longevity, liquidity and track record and no track record in down, up and yoyo business cycles. I will suggest starting your retirement planning with finding the asset allocation you are comfortable with, and then figuring out what investment fit into which asset class and how much you should allocate to each one. Asset Allocation between stock and bond -> % of bond allocation in high risk bond (junk, high yield corporate) -> % of junk bond allocation in Lending Club/Prosper/Marketplace Lending.

Personally, I like to keep my IRAs, 401k, and retirement accounts focused on my retirement only so no funny money business or latest schemes of the day or too much trading in those for me. I keep a small portion of my taxable investment accounts as "play" money that get invested in things that catch my fancy at anytime like individual stocks, equity and debt crowdfunding, etc.

I have two taxable accounts at Lending Club and one taxable account at Prosper. I have no issues with tax complexity from LC/Prosper as mine already complex with MLPs, partnerships and businesses.

My suggestion: Move your IRA and invest in traditional investment products. Open a taxable account with LC and deposit some of your play money and have fun.

So I'm looking for help to convince me one way or the other...

Close our LC Roth's and move to Betterment (or Vanguard)
Close our Betterment Roth's and move to LC
Or a mixture of the two and have my wife do Betterment while I do Lending Club (would put us closer to 10% of our overall investments in LC)

Keep in mind that our LC Roth's are not above the $10,000 needed to avoid the annual fee. Lending Club said as long as they are $5,000 on the 1st anniversary and $10,000 on the 2nd anniversary, we won't pay any fees. I'm on track to hit $10,000 by the 2nd anniversary for both accounts and they are both currently over $5,000.

My main concerns with LC are:

It's not liquid should I decide to rollover down the road (easier to sell notes now while my account is smaller)
It's new and we aren't sure where it's headed in the future
If defaults go up during a recession, it won't rebound like stocks would after a recession
The Roth IRA with LC is a pain in the butt to manage if I need to make changes (why can't I just do everything online?)

Any advice on what I should do?

Since our Net Worth is still low, does it make sense to save up in stocks/bonds for a while and eventually stick to the 10% rule with LC?

If I moved the Roth's out of LC, then I would probably open a taxable LC account again eventually, even though I know taxes are horrible. It's just so much easier to use a taxable account because I'm free to sell notes and transfer funds as I choose.
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lascott

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Re: Thoughts for retirement savings (case study)
« Reply #12 on: July 31, 2014, 09:22:30 PM »
This is what I've done and what I'm teaching my early 20s year old kids to do.  I use Vanguard index funds to minimize cost for IRAs.  I use www.financialengines.com to determine what 401K Fidelity investments to put my money in as well as my IRAs. Takes all your investments into account.  I did not use ETFs because I could not do automatic monthly investing (dollar cost averaging).

General rule for investing priority is:
1 Company plan (401k, 403b, etc.) up to the company match
2 Roth IRA or deductible traditional IRA up to maximum contribution limit, depending on personal circumstances and eligibility.
3 Company plan up to maximum contribution limit
4 Taxable investing
** http://www.bogleheads.org/wiki/Prioritizing_investments

I'm planning on retiring before 59 1/2 so I'm going to use 72(t)(2)(A)(iv), https://www.google.com/search?q=72(t) , and LendingClub/Prosper to have spending money and to cover my health insurance.

Title: Retirement Topics - Exceptions to Tax on Early Distributions
http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Tax-on-Early-Distributions
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

Jon

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Re: Thoughts for retirement savings (case study)
« Reply #13 on: July 31, 2014, 10:35:22 PM »
You're never too young to start funding retirement vehicles.   I started at age 22 and honestly, I am concerned I will not have enough money to enjoy my golden years.  My concerns are probably more like naked paranoia to onlookers, but I think it's a healthy vigilance.

I know a number of people that invest in Vanguard's Target Retirement funds. 

The expense ratio for many of the funds is .18%, which sounds pretty competitive to me.

The people I know that use Target Retirement funds do so because it allows them to diversify a bit w/o doing hours of research they'd otherwise be disinclined to start.

Here is an example:

https://personal.vanguard.com/us/funds/snapshot?FundId=1691&FundIntExt=INT

-Jon



lascott

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Re: Thoughts for retirement savings (case study)
« Reply #14 on: July 31, 2014, 11:53:15 PM »
You're never too young to start funding retirement vehicles.   I started at age 22 and honestly, I am concerned I will not have enough money to enjoy my golden years.  My concerns are probably more like naked paranoia to onlookers, but I think it's a healthy vigilance.

I know a number of people that invest in Vanguard's Target Retirement funds. 

The expense ratio for many of the funds is .18%, which sounds pretty competitive to me.

The people I know that use Target Retirement funds do so because it allows them to diversify a bit w/o doing hours of research they'd otherwise be disinclined to start.

Here is an example: https://personal.vanguard.com/us/funds/snapshot?FundId=1691&FundIntExt=INT
-Jon
Love your attitude man.  When many Vanguard index funds get over $10K then the expenses drop. That is a beautiful thing.
Read more here: https://investor.vanguard.com/mutual-funds/admiral-shares

Examples: 
0.05% VFIAX Vanguard 500 Index Fund Admiral Shares    
0.17% VFINX Vanguard 500 Index Fund Investor Shares

0.14% VTIAX Vanguard Total International Stock Index Fund Admiral Shares    
0.22% VGTSX Vanguard Total International Stock Index Fund Investor Shares    

0.05% VTSAX Vanguard Total Stock Market Index Fund Admiral Shares    
0.17% VTSMX Vanguard Total Stock Market Index Fund Investor Shares    
« Last Edit: August 03, 2014, 04:11:23 PM by lascott »
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y