So, what feels like forever ago now, I contributed to Maggie’s ROTH IRA Challenge where I dug up some super old W2’s and did some nerdy analysis on how my finances might have turned out differently if I contributed to a Roth IRA going back to my pizza delivery days. I was painfully ill when the post was published and didn’t really do a good job of promoting my guest appearance at the best Alaskan personal finance blog on the internet. I felt horrible.
To complement that post, I was also able to locate all of my my year-end records for my actual Roth IRA contributions from the very beginning until now, and this post is to show you that even though I didn’t start as early as possible, I still have done fine. I messed around and tried different things. You don’t need to be some sort of investing guru nor do you need to hire one. I did so many things that I would tell all of you not to do. It’s okay to make mistakes. It’s all a part of the learning process.
As you’ll see below, I fiddled around with funds. I also fiddled around with strategies. And, while it doesn’t show you the whole picture of my finances, it literally shows you how I started with nothing in an IRA on January 1,2010 and as of December 31, 2016 I’m well over $60k. There were no mega backdoors or 401k conversions or any other sneaky business to juice this number, I just maxed out my IRA every year starting with the first year of my first professional job. Because that’s what all the financial gurus on the internet were telling me I was supposed to do.
I’m not sure how many people are aware of this, but you can actually wait until you file your taxes to do an IRA contribution for the previous tax year. 2010 was exciting because I was able to do a contribution for both 2009 and 2010. I had started my job in July 2009, and considering that I was living at home or in parental-funded dorms for free for my entire life until March 2010, I had enough to max out my IRA for both 2009 and 2010 in the year 2010 pretty easily.
My investing strategy in 2010 was apparently all in on the Permanent Portfolio Fund. Harry Brown was a cool dude who thought you’d hedge every financial eventuality with 25% cash, 25% long term treasuries, 25% US stocks and 25% gold. That’s not exactly what was in the fund, but it was pretty close. Makes perfect sense right? The fund is fairly expensive and the current make up of the fund is quite a bit different than when I was invested in it. It’s nice to see that despite the sub-par investment choice, I still had some positive growth.
It looks like I took some $$$ out of the Permanent Portfolio Fund and moved it into Fidelity’s REIT Index Fund. Looks like the REIT’s did well that year!
At some point in 2012, it appears that I decided it made sense to locate my bonds in my Roth account. I think at the time we had a terrible John Hancock 401(k) plan and the only option that wasn’t terrible was an S&P 500 index fund with like a 70 bps expense ratio. Boo hiss. My portfolio was growing to a level where I felt it was prudent to have some bond exposure. The only place that made sense at the time was in the Roth IRA. Yikes, how about that 1.49% 30-day yield on the Aggregate Bond Index? BTW, I do think most people would be much better off going with bonds in taxable. I do have bonds in taxable today. Intuitively, it makes sense that you would want a long term growth asset in a long term retirement account, and The Finance Buff did a great post with all the math and fancy images. So go check that out.
In 2013, I actually accidentally over-contributed to my IRA! So that’s why you see a tiny contribution and a tiny distribution on the Fidelity screenshot. I had forgotten about my USAA IRA! whoopsie. This was also the first year that I established an IRA at Vanguard. The reason it was only $5,350 is that I had opened a $100 ira account at a credit union for a free $100 bonus. (That $200 has since been rolled over, first to Fidelity, and then to Vanguard). I also did a token $50 IRA at USAA to get a discount on my auto insurance. (Still have it!). I couldn’t tell you the logic of why I chose to trim some of my bond position but not all of it, but considering the stock market was on fire that year, it worked out pretty nicely.
Right here is the perfect example of exactly what not to do. You see all those funds with $0.00 balance ? The result of me and my fiddling around. I’d tell myself I don’t want to manage my allocation so I’ll go with a LifeStrategy fund. LifeStrategy is too conservative, so let’s go with a Target Retirement fund. Then I’d change my mind and ask myself why I’m paying the extra fees when I can manage the allocation myself. I did finally consolidate my IRA into one custodian at Vanguard in 2014. I think Fidelity charged me $50 for the pleasure of doing so.
More of the same with changing strategies and what not. I did ultimately end up with Vanguard Equity Income Fund, which continues to be my largest portfolio holding.
Fun fact about the “total cost” in these Vanguard screenshots: that includes the reinvested dividends. Why VEIRX? It’s a low-cost, well managed dividend strategy fund. Inside of a Roth account, the distributions are irrelevant because they will never be taxed. They just get reinvested and buy me more shares of the fund. It’s important to pick a strategy that you can stick with, and for me, Equity Income seems to have filled that role as evidenced by the fact that I haven’t touched it in over a year. Some years it outperforms, other years it underperforms. The only reason I’d sell VEIRX is if they drastically change the strategy or jack up the fees. Both seem pretty unlikely.
Vanguard Equity Income even has The Conservative Income Investor’s seal of approval.
The Specific Investment Was Not Important.
So…there you have it. One actual human’s ridiculously convoluted investment performance that started at $0 and as of the end of the year 2016 was knocking on $63k’s door. Would I have more $$ in my Roth IRA if I had pursued a different strategy? Certainly. A very real possibility. It’s also very possible that I could have ended up with less money. You want to know what was more important than any of the trades I made over the past six years in my roth account? The high savings rate which allowed me to max it out every year. For me, Vanguard Equity Income makes sense. For you, maybe Betterment makes sense. Maybe 100% VTSAX makes sense. It’s all good. We don’t all have to be invested in the same thing.
In any event, I’ve gone ahead and stripped yet another piece of financial clothing off my body in the interest of encouragement and transparency. Don’t be afraid to bounce around while you’re figuring this shit out. Especially in retirement accounts where there’s no tax consequences. The caveat being you probably shouldn’t be invested in something too exotic or concentrated. I wouldn’t be going all in on a China index fund, for example. Here’s the rub: I would have a lot less $$ in my Roth IRA account today if I just kept everything in a 1% savings account until I finally came to the conclusion that Vanguard Equity Income was a sensible long term retirement investment for me.
When I had a small taxable account, I dabbled in some individual stocks. It was a pretty silly decision. I was paying $8 per trade and I mostly lost $$$. And those $8 fees as a percentage of my investment were uh, pretty high. Better to learn that with a $500 account than a $50,000 account. I have definitely bounced around more than I would suggest any of you do, but hey, I never claimed to be perfect.
I’m not sure how often I will be publishing going forward, because, you know, I have a road trip to start planning.