AmatureInvestor wrote: I don't want to take high risk but also don't want to lose money due to inflation. I've done a little research and TIPS, ETF's and REIT's have catch my interest thus far.
damjam wrote:Welcome to the forum.
You could start here: Getting Started.
rfburns wrote:Put the rest away in a 1 or 2 year CD for now and continue to concentrate on school. In your spare time read here, read books, ask questions and develop a personal plan you can live with for the long run. Just don't get in a hurry.
retiredjg wrote:Neither TIPS nor REIT is a good choice for a taxable account. Those are best held in an IRA/Roth IRA/401k/etc. If you have no income and are therefore in a low tax bracket, it probably does not matter at all right now.
As for ETFs, that is a type of investment - like a mutual fund is a type of investment. Were there any ETFs that particularly caught your interest?
My suggestion is that you invest in a combination of stock funds (or ETFs) and bond funds (or ETFs) such as total stock market index, total international index, and a bond fund appropriate for your tax situation (tax-exempt or not). The amount of risk is controlled by your stock to bond ratio.
Gather some info from the Wiki (the Getting Started link is posted above) and don't rush this. There is plenty of time to get it done right.
AmatureInvestor wrote:I'm in the low tax bracket my income is around 20k a year.
For 2013, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:
$5,500 ($6,500 if you’re age 50 or older), or
your taxable compensation for the year.
AmatureInvestor wrote:I'm in the low tax bracket my income is around 20k a year. Good to know about the TIP and REIT, no particular ETF's stood out to me but I've just started researching. I like your recommendations, If I were to invest hypothetically in VTSMX, VGTSX, VBMFX would that be a diverse enough portfolio?
AmatureInvestor wrote:Thanks for all the suggestions everyonerfburns wrote:Put the rest away in a 1 or 2 year CD for now and continue to concentrate on school. In your spare time read here, read books, ask questions and develop a personal plan you can live with for the long run. Just don't get in a hurry.
CD's seem like a poor investment in the current market unless I'm misinterpreting things?
stan1 wrote:I'd plan on using some (most, or all) of it on education, especially since you are a science major in a field where advanced degrees are a requirement for many jobs. Being able to graduate with an advanced degree and no student loan debt will put you years ahead of your peers, and will set up in a job with a good salary that you hopefully enjoy and will support you and your future family for decades. I'm sure your deceased relative would be very proud of the role the inheritance played in your life.
Also, I would spend 3-12 months travelling in Europe, Asia, and emerging market countries.
sscritic wrote:If this is earned, you could start saving for retirement by putting money into an IRA.
Then keep repeating every year you are eligible. There is an income limit for taking a tax deduction for a contribution to a traditional IRA and an income limit for even making a contribution to a Roth IRA, but you are far below that limit today.
You could use this IRA account for your REIT and TIPS.
retiredjg wrote:That would be perfect. Eventually, when your tax bracket is higher, you won't want the Total Bond Market (VBMFX) in your taxable account because it is not tax-efficient. You can learn about that later - it's not real important now.
If you have some income, you could put $5k in a Roth IRA for 2012 (if you have the money in hand by April 15) and $5.5k in Roth IRA for 2013. This would not change your investments - just the container in which some of your money is located and I'd put the bonds in that container. And for money located in Roth IRA, the earnings are never taxed (under current tax law).
But be sure your income qualifies as "earned income". Occasionally, we hear about a stipend or something that does not qualify.
momar wrote:If he is a STEM major, he should not be paying anything for an advanced degree. He should get paid to do it.
NYBoglehead wrote:I'd look to max out Roth IRAs every single year going forward and to completely max out any 401k once you start working after college. Even if your income isn't that great you should max out the tax-advantaged space and if necessary use some of the cash from this inheritance for expenses. Doing this will gradually shift your inherited dollars into tax-advantaged space and will be more beneficial in the long run.
retiredjg wrote:At Vanguard, they have both mutual funds and ETFs of the same thing - same stuff, different package. Other companies do things a little differently. These links may help you decide if you prefer one over the other. Contributions (not earnings) put into a Roth IRA are available any time for any reason. There is really no downside of putting money into Roth IRA.
I still can't distinguish a fiscal difference between Index funds and ETFs. Their expense rates seem identical, maybe they're taxed differently?
NYBoglehead wrote:You are in a very unique situation. Being so young with that much money means that you do not have to take as much risk as the overwhelming majority of us. Earning just 5% on that 150k over 30 years will give you well over $1,000,000 and that is without contributing a single dime more. Obviously that $1 million won't be worth what it is today 30 years from now but my point is to carefully evaluate what AA you really need.
Watty wrote:Now that you have some assets one thing to do that has not been mentioned is to take a look at your car insurance coverage and increase it to be at least a couple of hundred thousand dollars if it isn't already that high.
AmatureInvestor wrote:I've been doing some research and I think I'm going to set up a simple vanguard three fund portfolio. Would investing all funds into one LifeStrategy fund be more beneficial then three separate(TSM,TBM,TIS) Admiral accounts? The Admiral accounts seem to have a lower expense rates and I want to save money anywhere possible.
Meg77 wrote: So if I were you I'd open up a Vanguard fund taxable account (as opposed to brokerage account) and fund it with the $100K. Then open up a Roth IRA within that account and move in $10,500 to start ($5000 for 2012 and $5500 for 2013). I'd buy an Admiral bond index fund with the $10,500 in the Roth IRA (since it throws off more income which would be tax sheltered), and invest the $89,500 in the taxable account in stock index funds (international and domestic). That would give you a 90/10 AA which is fine for your age (plus buying bonds now isn't the best idea ever; see other threads on this). Then every year simply transfer another $5500 into the Roth from the taxable account so you are sheltering more and more money from income taxes.
miller2640 wrote:First, are you willing to spend a lot of time educating yourself on investing? Like all sources, though, there is a bias here. Not a bad one, mind you, but a bias nonetheless: Bogleheads are passionate about investing and enjoy putting their free time into learning, considering and arguing the merits of different investing methods. They WANT to manage their money. Is that where you want to put a lot your free time? For the next 45 years? If so, great! If not, consider a different course.
miller2640 wrote:Second, do you have the temperament to manage you own money well? What about your gut? Emotions matter. Ask yourself, what would you have done if you invested $100k in the Fall of 2008 and watched your investment decline 40% to 60% by March 2009? Be sure you are emotionally equipped.
miller2640 wrote:Third, can you maintain focus and stick with your plan? For the rest of your life? There will be lots of distractions. Hot stocks, hot money managers, new investing philosophies. You'll need to ignore all those and stick with the low-cost index fund approach championed in this forum for a long time to succeed. Can you do that?
AmatureInvestor wrote:Meg77 wrote: So if I were you I'd open up a Vanguard fund taxable account (as opposed to brokerage account) and fund it with the $100K. Then open up a Roth IRA within that account and move in $10,500 to start ($5000 for 2012 and $5500 for 2013). I'd buy an Admiral bond index fund with the $10,500 in the Roth IRA (since it throws off more income which would be tax sheltered), and invest the $89,500 in the taxable account in stock index funds (international and domestic). That would give you a 90/10 AA which is fine for your age (plus buying bonds now isn't the best idea ever; see other threads on this). Then every year simply transfer another $5500 into the Roth from the taxable account so you are sheltering more and more money from income taxes.
Thanks for the advice Meg. I plan on opening a Roth IRA in the next couple of weeks, I have a savings account that can cover the 10,500 for the bonds. Should I invest the 100k in exclusively stock index funds or should I buy some more bonds? 90/10 seems like quite an aggressive AA although I don't mind taking risks with my time frame. Could you lead me to some threads regarding why buying bonds isn't the best idea right now?
retiredjg wrote:Since some of your money will be in Roth and some in a taxable account, I'd suggest just using the 3 separate funds instead of LifeStrategy. It could look like this:
$56,000 Vanguard Total Stock Index
$24,000 Vanguard Total International Stock Index
$9500 Vanguard Tax-Exempt Intermediate Bond <--sell and use for Roth contributions in 2014 and 2015
Roth IRA (2012 and 2013 contributions)
$10,500 Total Bond Market
This still leaves $50k in savings for the expenses you mentioned. This idea sets you up in a tax-efficient manner (even though that is not particularly important for you right now) and gets you headed in the right direction. Each year, just sell something in your taxable account to fund your contribution in your Roth IRA account. I'd sell the bonds first, and then most of the Total Stock Market Index. Leave the Total International there till last so that you can get the benefit of the foreign tax credit (see the Wiki).
Something to watch for: get familiar with the concept of "wash sale".
Meg77 wrote:First of all if you include your cash in the picture you've got a much more conservative mix than you're giving yourself credit for - a 60/40 mix to be precise with $60K in cash bonds and $90K in stocks. As you spend the cash on edcuation/travel/whatever then you can buy more bonds if you intend to maintain a conservative asset mix, though I would personally shoot for no less aggressvie than a 75/25 target AA. I know Bogleheads are all against market timing, but bonds have been on a tear for 30 years, and no bull market lasts forever. I would start with the $10K in bonds (since that's the most that you can put in your IRA and bonds are best held in IRAs over time so you don't owe taxes on the income distributions). Then dollar cost into bond funds over 5 years or more to get to your target rather than doing so all at once.
Interest rates are at all time lows and are set to begin to rise in the coming years; the Fed has signaled 2015, but some think it could start as early as this year. The relationship between bonds values and interest rates is inverse, so when rates rise the values of bonds will automatically fall. That's a simplistic summary, and I'm not saying there is a bubble like many others are, but I'm just saying that interest rates are likely to rise over the next 5 years so I'd ease into my bond holdings over time, especially since you're going to have plenty of cash on the sidelines. Besides, cash is earning about what bonds are if not more in some places (my local bank is offering 4% on savings accounts up to $25K).
Grt2bOutdoors wrote:Hold your AAA or AA investment grade bonds to maturity and there is very little principal risk.
Instead of the sky is falling, it's "rates will rise" - I've been hearing that now for the last 5 years, anyone who sold out of long bonds then gave up tremendous price appreciation and yield. Now the federal government is looking into issuing floating rate notes.
Is there a 5k limit on the Roth IRA indefinitely or just until I make more income?
What do you think about this bond fund VFLTX? I'm guessing the fund is designed for retirees but since I live in Florida I might as well take advantage if its any good.
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