Math help with IRA returns please

[happygirl]

Hi again everyone. As I've mentioned previously, I'm in the process of divorcing at the age of 59. I'm trying to figure out my finances and I have a question about my Ira returns. I'm hoping this will be easy for some of you because I have not been able to get a straight answer from our financial advisor. My contributions are as listed:

Traditional IRA
11-14. 6500
11-13. 5500
10-12. 1250
06-12. 2500
03-12. 1250

Roth IRA
05-10. 9000 (a rollover from previous employment, rounded to an even number to make it easier to figure here)
05-10. 5000

My current account balance is approximately 45000. Can someone tell me if my return has been good. I'm currently invested in John Hancock funds, but I wonder if I'd do better to roll this over to Betterment or Vanguard.

As always, thank you so much for any help you can give. I'm really trying to educate myself and this forum has been very helpful.

[jIM_Ohio]

Hi again everyone. As I've mentioned previously, I'm in the process of divorcing at the age of 59. I'm trying to figure out my finances and I have a question about my Ira returns. I'm hoping this will be easy for some of you because I have not been able to get a straight answer from our financial advisor. My contributions are as listed:

Traditional IRA
11-14. 6500
11-13. 5500
10-12. 1250
06-12. 2500
03-12. 1250

Roth IRA
05-10. 9000 (a rollover from previous employment, rounded to an even number to make it easier to figure here)
05-10. 5000

My current account balance is approximately 45000. Can someone tell me if my return has been good. I'm currently invested in John Hancock funds, but I wonder if I'd do better to roll this over to Betterment or Vanguard.

As always, thank you so much for any help you can give. I'm really trying to educate myself and this forum has been very helpful.

First, most advisors would not know how to calculate a rate of return.

There is more than one way to do it, best way is to keep a running total year over year. You haven't done that, so all you can do is look at money in vs current value.

http://www.rothira.com/blog/how-to-calculate-your-roth-iras-return

Calculate your total contribution (investment) - in this case, $6500 + $5500 + $1250 +$2500+$1250+$9000+$5000 = $31,000
Calculate the total current value - in this case, $45,000
Subtract the current value from the original investment - $45000 minus $31000 = $14000 (this is your return in dollars)
Divide your investment return ($14000) by the original investment ($31000) = 45%

This is NOT an annualized return, just what your return was over a time period. Over 5 years that looks close to good (8-10% per year).

[disneysteve]

I'm currently invested in John Hancock funds, but I wonder if I'd do better to roll this over to Betterment or Vanguard.

Jim answered the return question so let me address this part of your post.

John Hancock Funds are a load fund family. That means every time you invest in the fund, 5% of your investment comes off the top to pay the broker. So if you put in $1,000, only $950 actually gets invested and the broker keeps the other $50. If you fully fund your IRA this year for $6,500, that means $325 goes to the broker and only $6,175 actually gets invested. That's a HUGE problem.

Add to that the high expenses that you are paying on an ongoing basis. I don't know which funds you have but I looked at their Large Cap Equity fund just as an example. It has an expense ratio of 1.09%. Compare that to a Vanguard index fund at 0.05%. So you are losing 5% up front and paying 22 times more each year to maintain the account.

I'd get out of there as fast as I could.

[happygirl]

Thank you both for your help. Is it reasonable to think that I might make 8% average yearly on my retirement? My goal is to make the IRA transfer by the end of February and begin making monthly deposits into my new account. I plan to put 6500 (unless the maximum deposit amount goes up) into it each year.

Also, since I don't have access to a 401k, when we do the QDRO, I can transfer the agreed upon amount from his 401k directly into my IRA, right?

[jIM_Ohio]

Thank you both for your help. Is it reasonable to think that I might make 8% average yearly on my retirement? My goal is to make the IRA transfer by the end of February and begin making monthly deposits into my new account. I plan to put 6500 (unless the maximum deposit amount goes up) into it each year.

Also, since I don't have access to a 401k, when we do the QDRO, I can transfer the agreed upon amount from his 401k directly into my IRA, right?

Correct, a QDRO from a 401k gets put into a rollover IRA
When tracking returns, 8% per year is good enough. The best way to measure this is to track balance Dec 31 of each year, then add in half of deposits for that year (so a $6500 deposit, divide it by 2) and then compare this to year end balance of prior year, and you will have an approximate yearly rate of return.

Realize with an 8% return, likely about 80% of investment is stocks. The deviation on that is about 22- meaning -14% and +30% are equally likely to happen, with a long term average of 8%.

[disneysteve]

Also, since I don't have access to a 401k, when we do the QDRO, I can transfer the agreed upon amount from his 401k directly into my IRA, right?

Not positive about how the QDRO transfers happen but if the companies involved are willing, it would be fine. As long as you have the earned income to justify the IRA contributions, of course.

[disneysteve]

Correct, a QDRO from a 401k gets put into a rollover IRA

Sorry, I posted before I saw Jim's response.

So if it goes into a rollover IRA, does that mean it doesn't count as her annual contribution and she can still put in $6,500 of her own money?

[kv968]

So if it goes into a rollover IRA, does that mean it doesn't count as her annual contribution and she can still put in $6,500 of her own money?

The rollover won't count as a contribution and she'd be able to still put in the $6500.

[happygirl]

If my rate of return has been roughly 8-10%, which per Jim is good, but that is even with the fees charged by John Hancock, is it reasonable to think that an index fund at Vanguard would do better than 8-10%? And is an index fund what I'd most likely want to do for retirement, knowing that I'm fairly conservative with risk?

From what I saw on their website, Vanguard has a customer service person that can talk me through the process of moving my IRA over to them if I run into questions/problems. Is that correct?

Thanks again for your continued help.

[disneysteve]

If my rate of return has been roughly 8-10%, which per Jim is good, but that is even with the fees charged by John Hancock, is it reasonable to think that an index fund at Vanguard would do better than 8-10%?

Can you post exactly which Hancock funds you hold? If you do that, we can try to compare to similar Vanguard funds and show you any difference in performance and expenses.

And is an index fund what I'd most likely want to do for retirement, knowing that I'm fairly conservative with risk?

"Index" is just a type of fund structure. It doesn't automatically mean it is risky or conservative. There are very aggressive index funds and very conservative index funds and everything in between. So yes, index funds are extremely appropriate for retirement accounts.

From what I saw on their website, Vanguard has a customer service person that can talk me through the process of moving my IRA over to them if I run into questions/problems. Is that correct?

Absolutely. Vanguard has excellent customer service.

[feh]

If my rate of return has been roughly 8-10%, which per Jim is good, but that is even with the fees charged by John Hancock, is it reasonable to think that an index fund at Vanguard would do better than 8-10%? And is an index fund what I'd most likely want to do for retirement, knowing that I'm fairly conservative with risk?

From what I saw on their website, Vanguard has a customer service person that can talk me through the process of moving my IRA over to them if I run into questions/problems. Is that correct?

Thanks again for your continued help.

I suggest you educate yourself on the basics of investing before doing anything. It will only take a few hours, and then you won't need to depend on the advice of strangers.

There's no way to say if 8% over the last 5 years is good/bad without knowing what your asset allocation was during that time.

Start here: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit

[disneysteve]

I suggest you educate yourself on the basics of investing before doing anything. It will only take a few hours, and then you won't need to depend on the advice of strangers.

Start here: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit

I agree with people educating themselves, but I also think the this site, as well as Bogleheads, is a good place to do that. Ask lots of questions. There are many knowledgeable people here who can help teach you what you need to do to manage your finances yourself. There's nothing wrong with learning from strangers.

[feh]

I agree with people educating themselves, but I also think the this site, as well as Bogleheads, is a good place to do that. Ask lots of questions. There are many knowledgeable people here who can help teach you what you need to do to manage your finances yourself. There's nothing wrong with learning from strangers.

Yup, I understand. It's just that one question leads to another, then another...

I'm trying to teach people to fish, instead of giving them fishes.

[happygirl]

Feh, I have been reading books and websites (SA, MMM, Bogleheads, YNAB) for years and more recently with a specific focus on investing. I am an intelligent, educated woman, but for some reason I'm struggling to grasp concepts on this issue, thus I'm asking questions as part of an ongoing effort to educate myself. Because I struggle to understand investing, I trusted my husband in this area. Believe me, I feel very foolish that I trusted my retirement to him. For what it's worth, I was solely in charge of day to day finances, which may be why we both have no debt including my home, excellent credit, a 401k that we will be splitting and a generous EF.

DS, it appears I have a Lifestyle Growth Portfolio with allocations of (rounded numbers) 33% aggressive growth, 30% growth, 24% growth and income and 13% income growth. I have a Lifestyle Balanced Portfolio with allocations of 26% aggressive growth, 20% growth, 21% growth and income and 32% income. I cannot find anything listing individual stocks/bonds etc.

I'm thinking that a target fund for retirement with Vanguard is what I should do. I seem to remember that they have a tool in which you can input your age and target retirement age. I'll have to research that more though. I also think I will put a few months worth of my EF into Betterment because they appear to be a good place for small and new investors to start. From what I've read, they are very user friendly and make it easy for a new investor to monitor your money, which I think will help me to understand investing better. I've always been more of a hands on learner. If/when I finally grasp this concept better, I can switch over to Vanguard with more confidence.

Thank you for your patience with my questions.

[jIM_Ohio]

If my rate of return has been roughly 8-10%, which per Jim is good, but that is even with the fees charged by John Hancock, is it reasonable to think that an index fund at Vanguard would do better than 8-10%? And is an index fund what I'd most likely want to do for retirement, knowing that I'm fairly conservative with risk?

From what I saw on their website, Vanguard has a customer service person that can talk me through the process of moving my IRA over to them if I run into questions/problems. Is that correct?

Thanks again for your continued help.

Don't make the decision based on performance
Make the decision based on whether you want to manage the money yourself, or have an advisor which can help with information and execution.

Of course performance should be better with lower costs- it should, but that is not a guarantee.
I can guarantee if you go to Vanguard you will have to educate yourself