What would you do if you were in my situation?(401k & Funds)

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

What would you do if you were in my situation?(401k & Funds)

Postby darthvader747 » Tue Feb 12, 2013 1:52 am

Age 32
Risk appetite: Moderate
Salary: $75-$85k
Money available to invest: $1k per month & 3k initial investment to open an account with vanguard / fidelity

Current Assets:
401k - 60k (Fidelity Target retirement fund 2045)
12 months savings in high interest checking account (rate 1.5%)
401k contribution: 15% of base with 6% company match
No Roth IRA

Investment Window: At least 5 years; May need to liquidate to buy a house (this is a maybe)

Proposed Plan:

Target Asset allocation : 60% stocks & 40% bonds
Funds that I am considering: Vanguard Balanced index (VBINX) & Vangurad Life Strategy Moderate growth fund (VSMGX)

Question:
Now that I have my 12 month savings I would like to start investing and need your help with that.
I would like your thoughts around my plan & general situation. I know I don't have a lot in my 401k. How bad is my situation?

I am ready to take moderate risk. I don't want to keep money in CD's and earn 2%. If my investment does well then I will probably use it to buy a house in 5 years if not I will wait longer.
What would you do? I will need to contribute ~20% of my salary to reach the $17.5k 401k max. Is that the first thing I should do before thinking of investing? I know I can take a loan to buy a house from my 401k, so that doesn't seem like a bad idea (last resort to fill maybe a 20k gap for down payment).

Which funds would you pick and how would you plan this if you were in my situation?
darthvader747
 
Posts: 46
Joined: Thu Feb 19, 2009 10:11 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby Johm221122 » Tue Feb 12, 2013 3:27 am

If the 5 years is negotiable, balanced index is fine.But maybe 100% stocks if you are really flexible on house time horizon and use Roth.Just take original investment from Roth and the rest from 401 loan. But, the Safest way is to use CD or municipal bonds
John
Johm221122
 
Posts: 4841
Joined: Fri May 13, 2011 7:27 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby jimkinny » Tue Feb 12, 2013 9:04 am

I think your situation is very promising. Saving is probably the most important factor in achieving a financial goal and working on a plan. You are doing both.

Keep in mind that 5 years is really a fairly short time frame to be investing in stocks. In 2007/2008 stocks lost 30-50%. Look at the amount of equity in the funds you select and see if losing 30-50% at year 4.5 is okay. We had a rapid recovery and maybe lucky. There are rewards in stocks because the risk is real and there are no guarantees that the next time will be like the last time.

I like the Life Strategy fund and may use it myself in the near future. It is a 3 fund portfolio. See this discussion:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

jim
jimkinny
 
Posts: 1060
Joined: Sun Mar 14, 2010 2:51 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby darthvader747 » Tue Feb 12, 2013 9:34 pm

Thanks Jim and John for taking the time to respond.
I like the 3 fund idea (Vanguard LifeStrategy Moderate Growth Fund)

My 401k is with fidelity. Any benefits of finding a similar fund from fidelity? The one benefit I can think of is simplicity. I see all my investments in one place (login to fidelity). I dont care about this too much. I was just wondering.
Let me know if you know of a similar fidelity fund.

Other questions. Would you recommend I max out my Roth IRA before I max out on my 401k. Ideally I realize I should try to maximize both.
Once I am done maximizing my roth IRA & 401k; would you recommend I continue investing in the vanguard life strategy fund?
darthvader747
 
Posts: 46
Joined: Thu Feb 19, 2009 10:11 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby joe8d » Tue Feb 12, 2013 11:26 pm

I
like the 3 fund idea (Vanguard LifeStrategy Moderate Growth Fund)

My 401k is with fidelity. Any benefits of finding a similar fund from fidelity?


Fidelity has the Four in One Fund. Is that offered in your Plan?
All the Best, | Joe
User avatar
joe8d
 
Posts: 3470
Joined: Tue Feb 20, 2007 9:27 pm
Location: Buffalo,NY

Re: What would you do if you were in my situation?(401k & Fu

Postby darthvader747 » Wed Feb 13, 2013 12:16 am

joe8d wrote:I
like the 3 fund idea (Vanguard LifeStrategy Moderate Growth Fund)

My 401k is with fidelity. Any benefits of finding a similar fund from fidelity?


Fidelity has the Four in One Fund. Is that offered in your Plan?


I am planning to buy into these funds outside of my 401k so I have access to any fund fidelity / vanguard offers to individual investors
darthvader747
 
Posts: 46
Joined: Thu Feb 19, 2009 10:11 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby NorCalDad » Wed Feb 13, 2013 12:49 am

First thing I would do - redirect some of your 12-month e-fund to a Roth IRA and max out 2012 contribution. I think 12 months in cash is more than you need since you're not a homeowner and don't appear to have a family. And you can always access it later if you truly need it.

After that, I would probably try to max out your 401k. Then I would save for a down payment. Rather than save in taxable, why not save in a Roth if you're otherwise going to let that space go unfilled? 60/40 would be too aggressive for short-term savings for me, but if you're willing to accept the downside that your house plans depend on the market, that mix seems fine.
NorCalDad
 
Posts: 585
Joined: Mon Mar 26, 2012 12:14 am
Location: Northern California

Re: What would you do if you were in my situation?(401k & Fu

Postby darthvader747 » Wed Feb 13, 2013 12:42 pm

NorCalDad wrote:First thing I would do - redirect some of your 12-month e-fund to a Roth IRA and max out 2012 contribution. I think 12 months in cash is more than you need since you're not a homeowner and don't appear to have a family. And you can always access it later if you truly need it.

After that, I would probably try to max out your 401k. Then I would save for a down payment. Rather than save in taxable, why not save in a Roth if you're otherwise going to let that space go unfilled? 60/40 would be too aggressive for short-term savings for me, but if you're willing to accept the downside that your house plans depend on the market, that mix seems fine.



Thank you very much for your advice. Using the Roth for a portion of the emergency funds makes a ton of sense.
darthvader747
 
Posts: 46
Joined: Thu Feb 19, 2009 10:11 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby darthvader747 » Wed Feb 13, 2013 6:42 pm

Based on the advice here I intend to do the following:

Max out my 401k contributions - $17.5k (2013) each year
Open a roth IRA account and invest in the vanguard life strategy moderate growth fund (VSMGX) - $6k for 2012 & $6k fo 2013

Question:

For any additional saving say around $1k / month; How do I invest that?
My thought is to open a vanguard savings account and invest in the vanguard life strategy moderate growth fund (basically repeat what I am doing for the roth IRA)

OR

buy single / multiple target retirement funds

Please share your thoughts on how I can invest approx $1k per month after I have maxed out my retirement accounts.
I am willing to take moderate risk. My investment window remains 5-7years. If the funds perform poorly I am willing to wait longer. If they perform well I may pull the money out to pay the down payment on a house.
darthvader747
 
Posts: 46
Joined: Thu Feb 19, 2009 10:11 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby rr2 » Wed Feb 13, 2013 7:12 pm

darthvader747 wrote:Based on the advice here I intend to do the following:

Max out my 401k contributions - $17.5k (2013) each year
Open a roth IRA account and invest in the vanguard life strategy moderate growth fund (VSMGX) - $6k for 2012 & $6k fo 2013


Good decision. But you can only put $5500/year into the Roth IRA.
rr2
 
Posts: 978
Joined: Wed Nov 19, 2008 11:04 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby darthvader747 » Wed Feb 13, 2013 7:36 pm

Any thoughts on this portion of my post:

Question:

For any additional saving say around $1k / month; How do I invest that?
My thought is to open a vanguard savings account and invest in the vanguard life strategy moderate growth fund (basically repeat what I am doing for the roth IRA)

OR

buy single / multiple target retirement funds

Please share your thoughts on how I can invest approx $1k per month after I have maxed out my retirement accounts.
I am willing to take moderate risk. My investment window remains 5-7years. If the funds perform poorly I am willing to wait longer. If they perform well I may pull the money out to pay the down payment on a house.
darthvader747
 
Posts: 46
Joined: Thu Feb 19, 2009 10:11 pm

Re: What would you do if you were in my situation?(401k & Fu

Postby Default User BR » Thu Feb 14, 2013 2:38 pm

rr2 wrote:Good decision. But you can only put $5500/year into the Roth IRA.

Not even that, it's only 5k for 2012. Total of 10.5k at the OP's age.


Brian
Default User BR
 
Posts: 7501
Joined: Mon Dec 17, 2007 8:32 pm


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: Adastra, Alana888, jjbiv, Mordoch and 40 guests