Comments on: The No Debt Plan: Step Six: Investing for Retirement

By: Carnival of Personal Finance, Cyber Monday 2008 Edition | Mighty Bargain Hunter

Mon, 01 Dec 2008 06:06:51 +0000

[...] Debt Plan continues the “No Debt Plan” series with a post on investing for retirement. (Very nice [...]

By: Russell

Russell — Thu, 20 Nov 2008 13:40:57 +0000

Kevin, that was all pretty good, except there are limitations on the traditional IRA if you’re participating in a 401(k). This year I’m stuck in that situation, even though I was only employed 6 months before becoming self-employed. Because I was enrolled in the 401(k) in 2008 my IRA would not be deductible. (Although I have read conflicting opinion on this rule.)

The Roth IRA does not have this restriction, so I’ve chosen that this year, and for those still employed and participating in a 401(k) the Roth IRA would be the next choice for surplus investment funds.

By: Kevin

Kevin — Tue, 18 Nov 2008 19:43:13 +0000

@Scott: This is the one product of ING Direct that I can’t support. It’s a great idea to get people to continually do it, but $4 per trade is a hefty cost unless you are investing a ton of money up front. For example, if you’re only investing $50 per month, that $4 cost is an 8% cost. That’s a lot.

I prefer an IRA with Vanguard mutual funds (or ETFs). With the mutual fund your expense ratio is slightly higher than with ETFs, but there are no transaction costs.

If you’re just getting started investing, I would recommend sending the money to a savings account and save up the money to invest it regularly either in an ETF or a mutual fund.

@Start-up: You are right, I was going to mention that but was trying to keep the length of the article down.

By: Start-Up

Start-Up — Tue, 18 Nov 2008 17:09:42 +0000

quick note as to the order of investing vehicles. I agree 401k’s should go first if you get a company match. I do not have a company match, and some companies are beginning to drop the match with the poor economic outlook. If you company doesnt match, and you don’t like the funds in the 401k, then invest in an IRA first and be able to select your funds.

By: Scott

Scott — Tue, 18 Nov 2008 16:55:40 +0000

Kevin,

Great blog full of worthwhile information.

For automatic investing, have you looked into ING Direct’s ShareBuilder brokerage? What are your thoughts?

By: Kevin

Kevin — Mon, 17 Nov 2008 20:37:18 +0000

@PGW: Thanks for asking the question. Have you looked at the fund?

Yes, it has been around less than 3 years. However, it is a fund of funds that have been around longer. Plus the funds are tracking indexes rather than being actively managed. So I’m not guaranteeing the funds will earn 7%, I’m counting more on the fact that the markets as a whole will earn at least 7%. I could have picked Vanguard’s S&P 500 index, or Fidelity’s, or T Rowe Price’s. I didn’t say just the return of the index because I need something to take expense ratios out of, so I picked the fund I know.

I am invested in the Vanguard fund mentioned, but they don’t pay affiliate commissions or anything like that. I’m not trying to convince you to start using Vanguard. Again, I’m using the fund as a proxy for my estimated market returns (and I know it’s expense ratio).

Hope that clears up any confusion.

By: PGW

PGW — Mon, 17 Nov 2008 20:11:32 +0000

I wonder why you illustrate with the example of Vanguardâ€™s Target Retirement Fund 2050 (VFIFX)…and illustrate with 7% return? This fund has been around less than three years! I know the point you re trying to make is to invest at an early age…but to me it seems like your secondary point is one of promoting the fund. If this is way off base, I apologize…but a better example would have cited a fund that has some historical data behind it.