Thursday, January 31, 2008

Ing IRA follow-up

Recently, I wrote about my frustration with my Ing IRA, and how it’s simply not performing. As a very novice investor, I looked to some other personal finance bloggers for advice. I sent emails briefly outlining my predicament (do I keep the Ing IRA and wait for it to increase value before cashing it out? Do I take the loss and just move it out now?). Of the seven people I emailed, I received responses from four (which, honestly, is better than I expected).

The general advice was to wait and see what happens, as the funds may turn around next year, and Ciaran from Chance Favors recommended to create “a solid diversified portfolio” to balance out the funds that underperform in a given year. Though, Moolanomy did point out that the Ing fund fees are a bit high, so if my desire was to move the money to a lower-fee IRA, that was valid. One blogger said my idea of waiting until the fund was above my initial contribution amounts (and then moving it elsewhere) sounded like “market timing” – though I don’t really agree (the idea was based simply on recouping my initial investment – it wasn’t about planning to change IRAs on a particular day or if I could achieve $x return, and it wasn’t based on any kind of a timeline).

Something that wasn’t clear to some of the respondents was that my Vanguard account is not an IRA – it is simply a previous 401k I’ve held on to and not rolled over. When I left the hi-tech company, I had the option to leave the money where it was (because the account was over a certain dollar amount), and so I did. I admit I did that more out of not knowing where else to put it, and not wanting to take the time to research rollover IRAs. Too, the Vanguard fund management team has done a particularly good job at what they do, so I’m happy to leave it there (if I had $3000 on hand right now, I’d open my Roth with them).

While the general consensus was to use the “wait and see” approach to the Ing IRA, I’m still not convinced. The Dow Jones Index finished 2007 with a 6.4% gain, and the NASDAQ finished with a 9.8% gain. I know the performance my 401k is not indicative of the rest of the market. Too, it’s just scary seeing your mutual funds not perform in any way similar to the two major US stock indices.

I’m not entirely convinced that I just had bad luck-of-the-draw in the funds I chose for my Ing IRA, though I’ve pretty much decided to hold on to the Ing, and take the “wait and see” approach. I do admit to having a certain laziness with investing (I just want to choose some funds and be done with it for a while, and just do a major check-in once a year, because honestly, if my investment earns just 8%, I’m happy), and this works well with a long-term approach. I’m also still in the early research stages of choosing where to start a Roth IRA. Though, one additional question I have is this: do I continue to contribute to the Ing IRA while I search for a new Roth? Or do I continue to stockpile my money set aside for my IRA until and have decided on which Roth I want?

None of the people I asked for advice mentioned the lack of correlation between the major stock indices and the performance of my Ing IRA. This is an interesting point to me and it was something I expected people would comment on. A couple the people who responded said it could [sic] “just have been a bad year for those particular funds,” but there wasn’t any surprise that the IRA finished negatively, when the major indices finished positively. Though maybe I’m just personally missing something here (which is entirely possible, since this is my first foray into paying attention to my retirement investments, and also because the money was only across a few funds, as opposed to the old 401k which has money in about a dozen funds).

Many thanks to the writers (Ciaran at Chance Favors, Boston Gal at Boston Gal's Open Wallet, Trent at The Simple Dollar, and Pinyo at Moolanomy) who answered my questions, and especially to Pinyo, who asked further questions of me and provided the most in-depth answers and thoughts that I received. I’ll post more about my search for the perfect Roth IRA as the search continues.

p.s. In case you’re wondering, here are the stats: in 2007, I put $2250 into the Ing IRA; at the end of 2007, the balance was about $2025 (+/- $10); today, the balance is $2065.


Pinyo said...

Whatever you decide to do, think with overarching strategy. For me, it's build a globally diversified portfolio with low cost funds and ETFs. I am also a big fan of regular contribution and rebalancing.

As far as Roth versus traditional goes, I believe you should seriously consider Roth.

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