If I include some individual stocks and Exchange Traded Funds (ETFs) in my Roth IRA, will I get charged a commission fee every time I take a distribution from them when I retire?
For example, let's say I retire tomorrow. I have my Roth IRA linked to my checking account. I start making withdrawals from my Roth IRA, and have the money electronically deposited into my checking account every 2 weeks for living expenses. Would this trigger a fee of any kind? If it does, I will most definitely not purchase any individual stocks or ETFs. I will only stick to index mutual funds, as these don't charge anything to take regular distributions from.
I know that TD Ameritrade charges $9.99 every time an individual stock or EFT is bought or sold. I can't imagine how it could possibly be worth it to get hit over the head with this fee every 2 weeks just to withdraw your own money.
By the way, the stocks or funds I will buy will be for the long haul. I have no intention of ever selling them. I will only withdraw about 3% annually from them to live off of, but I want to take this withdrawal a little at a time, say, every 2-4 weeks. This way the rest of my principal can remain in the investment to compound away.
To get a better idea of the big picture, this is what I do:
I max out my 401k and 457b every year (34k/yr) in the following:
10% stable value fund
30% Total bond index fund
25% large-cap index fund
9% mid-cap index fund
8% small-cap index fund
18% international index fund
I just opened a Roth IRA, which I will also max out every year (5k). I will be investing in other asset classes here (that my employer does not offer) to round out my portfolio. Here is what I ultimately want to invest in (assuming I don't get charged commission fees for withdrawals):
- REIT index fund (currently have some money in VGSIX)
- Micro-cap fund
- Junk bond ETF (considering JNK or HYG)
- TIPS or short-term bond EFT
- a few individual value and dividend stocks
There you have it.
Remember that I am trying to create a "permanent" portfolio from which I will be withdrawing about 3% a year for life once I retire. I will not be selling any fund or asset in its entirety.
Are individual stocks and EFTs practical for an early retiree?
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George the original one
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What do you mean by a "cash buffer", Jacob?
My goal is to have a net worth of at least 500k before I retire and start drawing about 3% from all my assets in all my accounts.
Since my largest holdings are likely going to be in stock funds (which only pay a dividend of about 2%), I will be forced to sell shares for my living expenses, no matter what.
My only holdings that have an income, per se, is my individual corporate bonds, which average about 6.6% interest a year.
Note: sorry I forgot to mention that I also have 5 corporate bonds as part of my current assets (totaling 84k face value).
My goal is to have a net worth of at least 500k before I retire and start drawing about 3% from all my assets in all my accounts.
Since my largest holdings are likely going to be in stock funds (which only pay a dividend of about 2%), I will be forced to sell shares for my living expenses, no matter what.
My only holdings that have an income, per se, is my individual corporate bonds, which average about 6.6% interest a year.
Note: sorry I forgot to mention that I also have 5 corporate bonds as part of my current assets (totaling 84k face value).
I applaud your savings efforts! You're on the right track.
However, I highly recommend that you start studying dividend growth investing strategies...and recognize dividends can increase annually to the tune of 10-25% over long periods of time. Companies like MCD, KO, PEP, COP, WMT, PG, JNJ, TGT, LOW, AFL, etc....
a few great sites:
www.dividendgrowthinvestor.com
http://www.dripinvesting.org/Tools/Tools.asp
http://www.joshuakennon.com/
the dividend champions list can be downloaded from the second site above. These companies are the ones that have increased their dividend every year for over 25 years in a row.
I personally am a skeptic of the 4% SWR...a true 'permanant' portfolio never has to be sold because your dividends are paying your annual expenses and they are increasing year after year 3-5 times faster than inflation so your purchasing power is ever increasing. In the end...you could create a holding company or trust for your familiy and pat yourself on the back for conquering the money mystery and changing your family's tree forever:-)
good luck
Jason
However, I highly recommend that you start studying dividend growth investing strategies...and recognize dividends can increase annually to the tune of 10-25% over long periods of time. Companies like MCD, KO, PEP, COP, WMT, PG, JNJ, TGT, LOW, AFL, etc....
a few great sites:
www.dividendgrowthinvestor.com
http://www.dripinvesting.org/Tools/Tools.asp
http://www.joshuakennon.com/
the dividend champions list can be downloaded from the second site above. These companies are the ones that have increased their dividend every year for over 25 years in a row.
I personally am a skeptic of the 4% SWR...a true 'permanant' portfolio never has to be sold because your dividends are paying your annual expenses and they are increasing year after year 3-5 times faster than inflation so your purchasing power is ever increasing. In the end...you could create a holding company or trust for your familiy and pat yourself on the back for conquering the money mystery and changing your family's tree forever:-)
good luck
Jason
Oh...I forgot to add...
While you are in the accumulation stage, obviously the dividends are being reinvested automatically. As your portfolio grows, I like to think of these dividends as the company match...similar to your companies 401k. Where as your company's match only increases with your income (3-5% of 4-6%), the dividend match increases with profits...like I said 8, 10, 15, 20, 24, or if you're lucky 35% per year. These little trickles of dividends can become rivers of income with time and portfolios can increase 10's of thousands and 100's thousands annually on the dividend match alone....even in down markets.
Like I said...do your homework, build forecast models in excel, see how the increasing dividends are the hidden gems of investing that the mainstreet media, wall street, and financial advisors have been hiding from the average middle class person trying the save for retirement.
Be careful chasing yield...some of the extremely high yielders, like REITS, MLPs, and what have you cannot sustain these payouts and often cut their dividends and price plummets...take time to study before your jump all in.
Cheers,
Jason
While you are in the accumulation stage, obviously the dividends are being reinvested automatically. As your portfolio grows, I like to think of these dividends as the company match...similar to your companies 401k. Where as your company's match only increases with your income (3-5% of 4-6%), the dividend match increases with profits...like I said 8, 10, 15, 20, 24, or if you're lucky 35% per year. These little trickles of dividends can become rivers of income with time and portfolios can increase 10's of thousands and 100's thousands annually on the dividend match alone....even in down markets.
Like I said...do your homework, build forecast models in excel, see how the increasing dividends are the hidden gems of investing that the mainstreet media, wall street, and financial advisors have been hiding from the average middle class person trying the save for retirement.
Be careful chasing yield...some of the extremely high yielders, like REITS, MLPs, and what have you cannot sustain these payouts and often cut their dividends and price plummets...take time to study before your jump all in.
Cheers,
Jason
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jacob
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You'd be holding cash in a broker or savings account. This would be used both for cost of living and to invest when the time is right. People who time the business cycle would have enough cash to avoid having to liquidate at market bottoms, that is, enough cash to last years. People who trade frequently might only have enough cash for a couple of months. In any case, the cash would be replenished from capital gains as stocks are bought and sold.
For example, in the permanent portfolio, the cost of living comes out of the cash position. Occasionally, the cash is rebalanced into/from gold, bonds, and stock.
Alternatively, if there's no trading whatsoever, one could liquidate annually and move the money into a savings account for the rest of the year.
From what you've said on these boards, it sounds like this approach would be too active for your preferences.
For example, in the permanent portfolio, the cost of living comes out of the cash position. Occasionally, the cash is rebalanced into/from gold, bonds, and stock.
Alternatively, if there's no trading whatsoever, one could liquidate annually and move the money into a savings account for the rest of the year.
From what you've said on these boards, it sounds like this approach would be too active for your preferences.