In case you missed it this started with the closing out of my Waddell account and transferring to Vanguard which i discussed in t a previous post Rolling the IRA: Step 1. Now the money has arrived! It really was a quite painless process. Vanguard did all the work, I just signed some paperwork that they emailed to me. The whole process took about 3 weeks till I saw the funds in my account. Still had to wait a few days after that for the check to clear, but they allow you to start allocating the money to the stocks/funds you wish.
That is the big dilemma once its all moved, where to put it? The easiest thing to do would be to park it in one of Vanguards target Retirement Funds. These are funds based on when you plan on retiring and you let them do the asset allocation for you. Over time as retirement approaches they will automatically reallocate your assets best suited for you. Adjusting the percent held in bonds and stocks to give you less risk as you get closer. All you have to do is keep investing. For the most part it looks like you are just invested in two index funds, all stocks and all bonds. This is great for those that really don’t want to take to much of an active role and like it all to be handled for you.
Me, I like to have a little more active role, just a little. Along with a little more diversification and a little more risk (not to much). In that case you can invest in several different index funds and then once a year rebalance yourself. Every couple years change your asset ratios to reflect your risk factor as you get closer to that retirement date. This is the approach I’m taking based on what I read in Ramit Sethi’s book where he suggested to follow a formula based on Swenson Model of Asset Allocation. His formula is this
- 30% Domestic Stocks
- 15% International
- 5% Emerging markets
- 20% Real estate
- 15% Goverment Bonds
- 15% Treasuries
The problem I had with doing this with index funds was Vanguard requires an initial $3k buy in to any fund and I didn’t have enough money to start this out right so my ratio and funds are as follows
- 40% Vanguard Total Stock Market Index Fund
- 20% Vanguard Total International Stock Market Fund
- 25% Vanguard REIT Index Fund
- 15% Vanguard Inflation-Protected Securities Fund
As time goes by of course the balance will get out of whack so each December I will move money around to rebalance everything out. In a couple years I can syphon off $3k from a fund or two and start up the bonds.
Next step Im doing this week (just keep forgetting to add my bank to my account) is to set up automatic investments. Now with an IRA I can only contribute a max of $5k a year, which equates to about $96 a week. Im actually going to do $80 a week and have it automatically split to the above funds in those percentages. Each December I can then look at my finances and hopefully be able to put in the remaining $840. I can then also put it where it needs to go to help balance the assets.
So where is your retirement investments parked? Auto pilot or do you take an active role?