New college grad seeking for investment advices

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New college grad seeking for investment advices

Postby kevinwangjk » Thu May 09, 2013 3:55 am

Hi everyone. I just started my first job this week, and need to make some decisions on my contributions to investment accounts. I do not really have anyone to go for advices, and I need to make the decision by early next week for my first paycheck, so my apologies first for not doing enough studies myself before making a post to ask. Anyways, below is my info:

Status: 22 years old, single, no loan
Income, 100k base with some possible bonuses
Company match: 50 cents to a dollar for up to 6%, so 3% free money

Main questions that I can come up with:
1) How much should I invest in each type of account (401k, roth, IRA, etc.)? I don't actually know much about each of these and I might have even got the names wrong :(.

2) How should I mix my investments?

3) Any advice is appreciated.

Thanks a lot! And please let me know if you need additional info.
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Re: New college grad seeking for investment advices

Postby Faith20879 » Thu May 09, 2013 11:03 am

Hi kevin,

Welcome to the forum. Great to see you at this young age wanting to start out the right way. With your income, you should have no problem hitting your numbers early.

Here is what I'd do if I were starting:
1. Read, read, and read to education yourself. Here is a link to the wiki/books:
http://www.bogleheads.org/wiki/Category:Books_and_Authors. Select a few and start reading. I'd start with the "Bogleheads' Guide To Investing" first.
2. Learn about the various types of accounts here: http://www.bogleheads.org/wiki/Category:IRAs
3. Once you have a good grip of the concepts, you can ask for help to set up an investment plan.

If you are in a rush to make a decision about your 401k contribution because the HR wants to know, contribute to the max and put in a Money market fund until you decide your asset allocation.

Regards,
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Re: New college grad seeking for investment advices

Postby sunvalley » Thu May 09, 2013 11:14 am

kevinwangjk wrote:Hi everyone. I just started my first job this week, and need to make some decisions on my contributions to investment accounts. I do not really have anyone to go for advices, and I need to make the decision by early next week for my first paycheck, so my apologies first for not doing enough studies myself before making a post to ask. Anyways, below is my info:

Status: 22 years old, single, no loan
Income, 100k base with some possible bonuses
Company match: 50 cents to a dollar for up to 6%, so 3% free money

Main questions that I can come up with:
1) How much should I invest in each type of account (401k, roth, IRA, etc.)? I don't actually know much about each of these and I might have even got the names wrong :(.

2) How should I mix my investments?

3) Any advice is appreciated.

Thanks a lot! And please let me know if you need additional info.


Hi, welcome. I was just in the same boat... here's what I was advised.

1) 401(k) until full match is met -> Roth IRA until yearly max is met -> 401(k) until yearly max is met -> traditional IRA
2) Allocation should match risk level. Generally equities = risk, bonds = safe(r). 110-age in bonds... so a ~90/10 split is about average for being 22 (nice starting salary btw). Make sure you re-adjust as you get older
3) Set up automatic, periodic deposits into your account. Re-allocate once a year. Forget about it for the rest.

Good luck.
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Re: New college grad seeking for investment advices

Postby BL » Thu May 09, 2013 11:38 am

It looks like your immediate decisions are about what to choose for 401k from your pay. We need to see what is available before being able to give advice on it. Generally look for lowest ERs (expense ratio) which more likely are index funds. Target funds are some combination of US stocks, international stocks, and bonds and would work if not too expensive. There is often some form of S&P 500 available and some kind of fixed income might be available. These can be changed later if necessary.

You have until April 2014 to do this year's Roth IRA (or traditional IRA) on your own. Save $1000 to start one at Vanguard and add to it.

Be sure to build an emergency fund so you don't get stuck or overdo Credit Cards when something unexpected comes up.

I like Bogleheads' Guide to Investing book to get an overview.
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Re: New college grad seeking for investment advices

Postby kevinwangjk » Thu May 09, 2013 12:37 pm

Thanks for the quick responses guys!

- Faith, thanks for the resources. I will definitely read them once I get time!

- sunvalley, those tips sound pretty good. I came across similar ones as well when I was doing my brief research.

- BL, yes you are correct. I'm trying to max my employer's match for my first paycheck. The 3% match I assume is for per pay period. So if I don't contribute to 401k this pay period I will lose it but won't be able to make it up from next pay period by contributing 12%? Correct me if I'm wrong.

My company uses Fidelity. It has 3 options for contribution, EMPLOYEE PRE-TAX, EMPLOYEE ROTH and REGULAR AFTER-TAX. I assume the roth here is not the IRA Roth and thus I should just choose EMPLOYEE PRE-TAX and leave the other two 0%?

Then I can choose between "Target Date Fund" and "Choose your own investments".

(Sorry about the format and messiness of my post. I need to go to work soon so the below list I just copy and pasted. I will definitely do a lot of research myself tonight. Thanks in advance for any further advices!)

In "Target Date Fund" there are 5 options:

Name/Inception Date Asset Class Category 1 Year 3 Year 5 Year 10 Year/LOF* Returns As Of Bench- mark
BTC LIFEPATH 2020 L
08/26/2011
Blended Fund Investments* N/A 9.98% 8.49% 4.41% 5.63% 04/30/2013 Show
BTC LIFEPATH 2030 L
08/26/2011
Blended Fund Investments* N/A 12.18% 9.31% 4.14% 5.61% 04/30/2013 Show
BTC LIFEPATH 2040 L
08/26/2011
Blended Fund Investments* N/A 13.91% 9.92% 3.81% 5.48% 04/30/2013 Show
BTC LIFEPATH 2050 L
08/26/2011
Blended Fund Investments* N/A 15.38% 10.41% 3.86% 2.16% 04/30/2013 Show
BTC LIFEPATH RET L
08/26/2011
Blended Fund Investments* N/A 8.06% 7.73% 5.34% 5.85% 04/30/2013 Show


In "Choose your own investments" there are 21 options:

Name/Inception Date Asset Class Category 1 Year 3 Year 5 Year 10 Year/LOF* Returns As Of Bench- mark
TIER 1 - show details.- hide details.
BTC LIFEPATH 2020 L
08/26/2011
Blended Fund Investments* N/A 9.98% 8.49% 4.41% 5.63% 04/30/2013 Show
BTC LIFEPATH 2030 L
08/26/2011
Blended Fund Investments* N/A 12.18% 9.31% 4.14% 5.61% 04/30/2013 Show
BTC LIFEPATH 2040 L
08/26/2011
Blended Fund Investments* N/A 13.91% 9.92% 3.81% 5.48% 04/30/2013 Show
BTC LIFEPATH 2050 L
08/26/2011
Blended Fund Investments* N/A 15.38% 10.41% 3.86% 2.16% 04/30/2013 Show
BTC LIFEPATH RET L
08/26/2011
Blended Fund Investments* N/A 8.06% 7.73% 5.34% 5.85% 04/30/2013 Show
TIER 2 - show details.- hide details.
FID CONTRAFUND UNITS
01/03/2013
Stock Investments Large Cap N/A N/A N/A N/A 04/30/2013 Show
FID GROWTH CO UNITS
01/03/2013
Stock Investments Large Cap N/A N/A N/A N/A 04/30/2013 Show
VANG GRTH INDEX INST (VIGIX)
05/14/1998
Stock Investments Large Cap 13.03% 13.32% 6.55% 8.04% 04/30/2013 Show
VANG INST INDEX PLUS (VIIIX)
07/07/1997
Stock Investments Large Cap 16.90% 12.80% 5.27% 7.92% 04/30/2013 Show
VANG VAL INDEX INST (VIVIX)
07/02/1998
Stock Investments Large Cap 20.55% 12.27% 4.40% 8.56% 04/30/2013 Show
ARTISAN MID CAP
01/16/2008
Stock Investments Mid-Cap 10.61% 16.97% 9.93% 10.03% 04/30/2013 Show
RUSSELL SM-MID CAP
09/25/2009
Stock Investments Small Cap 16.67% 7.72% N/A 12.47% 04/30/2013 Show
VANG SM GR IDX INST (VSGIX)
05/24/2000
Stock Investments Small Cap 16.72% 14.05% 9.04% 12.09% 04/30/2013 Show
RUSSELL INTL GROWTH
10/31/2007
Stock Investments International 11.73% 5.50% -1.70% -3.35% 04/30/2013 Show
RUSSELL INTL VALUE
10/10/2008
Stock Investments International 18.38% 5.74% N/A 13.37% 04/30/2013 Show
PIM INFL RESP MA IS (PIRMX)
08/31/2011
Blended Fund Investments* N/A 4.98% N/A N/A 3.83% 04/30/2013 Show
PIMCO TOTAL RETURN
01/16/2008
Bond Investments Income 6.82% 6.55% 7.27% 6.94% 04/30/2013 Show
VANG ST BD IDX IS PL (VBIPX)
09/29/2011
Bond Investments Income 1.72% N/A N/A 1.95% 04/30/2013 Show
FIMM MONEY MKT INST (FNSXX)
07/05/1985
7 day yield as of
04/30/2013 0.14%
Short Term Investments N/A 0.19% 0.22% 0.67% 1.99% 04/30/2013 Show
TIER 3 - show details.- hide details.
MSFT COMMON STOCK (MSFT)
03/13/1986
Stock Investments Company Stock -8.63% 1.85% 2.61% 4.56% 04/30/2013 Show
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Re: New college grad seeking for investment advices

Postby Watty » Thu May 09, 2013 12:54 pm

Here is a link to the "getting started" Wiki.

http://www.bogleheads.org/wiki/Getting_Started

There is a lot of great information in the books and links but you have plenty of time to learn. Since you will be starting out with a relatively small amount making all the best choices right now isn't nearly as important as avoiding really bad choices.

Here are some fairly safe generic recommendations that will be good enough to get you started but you will likely want to revise these some when you learn more.

1) The maximum 401k contribution for 2013 for someone your age is $17,500 a year and you will want to save that in the 401K. Since you are starting out near the middle of the year you will need to figure out what contribution per paycheck it will take to come close to that total by the last paycheck in December. You don't want to reach the maximum too early in the year since some employers calculate the match each paycheck so if you reach the maximum in November you might not be able to make any contributions in December so you could miss out on getting a match that month.

There will likely be a target date fund in the 401K that is based on your probable retirement age, like a 2050 fund. Put all your 401K money into that for now. These are not perfect but they are a fine choice while you learn more and not a bad choice even when you do know more.

Next January you will need to reduce the 401K contribution amount so that you reach the maximum in December of next year too.

2) Save up $5,500 to make a Roth IRA or Traditional IRA contribution by next April 15. You may be on the borderline of being able to make a deductible IRA contribution for 2013 but you can figure all the details on this out next spring before you do your taxes since you will be able to make 2013 contributions up until April 15th of 2014.

3) Save up some out of each paycheck to build up an emergency fund for unexpected expenses. You will want to get it up to three months expenses pretty quickly and eventually build it up to 6 month expenses.

4) Save up some out of each paycheck so that you will have enough to pay cash for your next car.

It would be good to open up separate accounts for these funds and have the money automatically deposited from each paycheck.

5) Commit to saving half of any bonus or pay raise. This will make saving a large percentage of your income easy and you will never miss the money. This is what I did (mostly anyway :happy ) and this one thing made a huge difference in how well I was able to do financially.

6) This may seem counter intuitive but you might also want to have a modest amount( maybe 3% or so) of each paycheck deposited into a separate account for your "fun" money for things like travel. By having a separate account this will help keep you from blowing too much on splurges but it will also help you balance the "now vs. later" question.
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Re: New college grad seeking for investment advices

Postby BL » Thu May 09, 2013 2:58 pm

I would just choose one of the target funds or else the VIIIX (probably the S&P 500 index) and add some kind of bond soon such as Pimco Total Return if ER isn't too bad.
It looks like you have good choices and hopefully have low cost (ER) funds. You can adjust when you get your AA figured out later. The important thing is to get started and save as much as you reasonably can and still have a life. With such potentially good choices, I would try to aim for the max, 17,500, as that will subtract from your taxable income. Try to find out the ERs and get back to us later.
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Re: New college grad seeking for investment advices

Postby Bob's not my name » Thu May 09, 2013 7:41 pm

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Re: New college grad seeking for investment advices

Postby nimo956 » Thu May 09, 2013 8:09 pm

1. Put $17.5k in your pre-tax 401k
2. Put $5.5k in a Roth IRA (don't do traditional if my point below applies to you). If your income gets too high, you can always do a "backdoor" Roth
3. It sounds like you can make after-tax contributions to your 401k. See if you can withdraw this amount during the year. The max is $51k less employer match less the $17.5k pre-tax. You can roll this into an IRA and convert to a Roth. This allows you to contribute more than $5.5k per year

Total tax-advantaged savings available is $51k + $5.5k = $56.5k per year. Look to max this out before taxable investing.
50% VTI / 50% VXUS
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Re: New college grad seeking for investment advices

Postby kevinwangjk » Thu May 09, 2013 11:51 pm

Back from work now. Another busy day! Thanks everyone for the new round of advices!

- Watty, your advices sound great! One question about the 2050, as you can see the 2050 I am offered has only 2.16% for 10 years, which is a lot lower than the others. I don't know how much does this matter though.

- BL, the ERs for all target funds are 0.1%, I assume it's low? What's important for a fund? 1, 3, 5, or 10 years?

- Bob, this does not really apply to me because I am international. I am still non-resident alien for tax purposes so I won't be able to get those credits :(.

- nimo956, isn't 56.5k a little too much for me right now? I still need to purchase a vehicle and maybe a house some time in the future.


Is it generally the right idea to put as much money as possible into 401k and Roth IRA, rather than into some saving account? Because even if I withdraw those money before retirement, as long as it's been more than 5 years, even with 10% penalty I will still end up with more money?

Also, seems like my 401k options include EMPLOYEE PRE-TAX and Employee-Roth. I believe this roth is not Roth IRA. Should I just do employee pre-tax on this one?
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Re: New college grad seeking for investment advices

Postby wadesh » Fri May 10, 2013 12:23 am

Funny, I just saw your 401k fund options you listed and realized we work at the same company :)

I agree with the advice to contribute the max for matching or what you can afford. Start with the Money Market fund then spend some time thinking about goals and researching the fund options...we have some pretty good ones. You can easily make changes though our Fidelity site. I do it myself with a rebalance once a year.

Warning: a few of our fund options are Separate Managed Accounts. Basically they are funds set up specifically for our company and managed by the fund company. They are not traded publically like a typical fund. We get a lower expense ratio but the history and data on them is a bit skimpy. Not that they're bad but you won't be able to track performance on them as real-time as some of the standard funds.

Also, I know we get some investment advice services through our company...Might be worth looking into that as well. hit me up on email or IM at work if you want to chat more. my alias is wadesh. And welcome to the company!
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Re: New college grad seeking for investment advices

Postby BL » Fri May 10, 2013 12:45 am

kevinwangjk wrote:Back from work now. Another busy day! Thanks everyone for the new round of advices!

- Watty, your advices sound great! One question about the 2050, as you can see the 2050 I am offered has only 2.16% for 10 years, which is a lot lower than the others. I don't know how much does this matter though.

- BL, the ERs for all target funds are 0.1%, I assume it's low? What's important for a fund? 1, 3, 5, or 10 years?
They probably are a mix of the same funds but just with varying amounts of stocks, international, and bonds. The furthest out years would have the most stocks and be the highest risk as well. So maybe we have been going toward this backward in that choosing an AA (asset allocation) is the most important and should have from your age to age - 20 in bonds, and not worry about the date in a target fund. I only know Vanguard so would probably choose VIIIX, a S&P 500 type fund, and later add bonds and international.

- Bob, this does not really apply to me because I am international. I am still non-resident alien for tx purposes so I won't be able to get those credits :(.

- nimo956, isn't 56.5k a little too much for me right now? I still need to purchase a vehicle and maybe a house some time in the future.


Is it generally the right idea to put as much money as possible into 401k and Roth IRA, rather than into some saving account? Because even if I withdraw those money before retirement, as long as it's been more than 5 years, even with 10% penalty I will still end up with more money?

Maybe with Roth where only increase would be taxed and penalty applied, but you really should build up some available funds for emergencies to carry you at least 3 months. There is no guarantee that it will have increased at the moment you want to withdraw it, even though it is likely.


Also, seems like my 401k options include EMPLOYEE PRE-TAX and Employee-Roth. I believe this roth is not Roth IRA. Should I just do employee pre-tax on this one?

Yes, but I don't know specifics of returning to your native country and how that would be impacted.

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Re: New college grad seeking for investment advices

Postby kevinwangjk » Fri May 10, 2013 2:03 am

Just did 20% on 401k, and 15% on ESPP (maxed out, for 10% discount). The 401k is all on 2050 for now. Might do my own AA as I learn more later on.

I do have over 20k in savings right now so I think I am good in terms of emergency funds.

Will max out Roth IRA by end of year. Does it matter where do I open my IRA account?

- BL, I don't plan to return to my native country as of now :).
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Re: New college grad seeking for investment advices

Postby BL » Fri May 10, 2013 8:27 am

There is a link to setting up a Roth here:
https://investor.vanguard.com/what-we-offer/iras/traditional-iras-and-roth-iras

Fidelity or T Rowe Price would have something similar and would be suitable for a Roth IRA with no loads or extra layers of management costs and reasonable expense ratios (ER).
I prefer Vanguard because they are lower-cost (except for a few Fidelity Spartan funds). There are local businesses that would happily take your money and invest for you, but then you are supporting their retirement as well as your own, and it is difficult/impossible to find someone who has your interests foremost rather than selecting the ones most profitable to them. Searching the Wiki and threads on this site, as well as reading a few recommended books, will help you make good decisions. Many of us here have tried almost anything you might think of or be talked into, so reading and asking might save you from making those same mistakes, and get you a head start in saving and keeping/growing what you save.

After doing some studying and deciding on your Asset Allocation (AA), I suggest you take a look at the ERs of your 401k funds and select lower cost individual funds such as Vanguard, Fidelity, Pimco. I am guessing that the ER of those target funds is fairly high, which won't matter much in the short term, but could count up after you have more saved. There may also be an add-on cost by the 401k administrators.

If you haven't already, I suggest you watch this Public Broadcasting program on investing for retirement and how costs matter (there is a thread here about it):
http://www.pbs.org/wgbh/pages/frontline ... nt-gamble/

Contributing to 401k will help lower your AGI so you remain eligible to contribute directly to Roth IRA. You might want to wait to contribute until nearer April 15 of the following year when you have had time to calculate your AGI if you are close to the max. After you reach the maximum, search Wiki for Backdoor Roth.
For singles: The phase-out has gone up $2,000. The new phase-out range for 2013 is $112,000 to $127,000, up from $110,000 to $125,000 in 2012.
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