Young, Engaged Couple Looking for Advice

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

Young, Engaged Couple Looking for Advice

Postby Samoan Bulldozer » Thu May 09, 2013 11:26 am

Hello All,

I would appreciate any advice that could be given. Please don't beat me up too bad. :happy

My fiance and I are 28 and 25. We are terribly afraid to lose money in the stock market but realize the importance of investing.

I currently earn roughly 45k from my employer, my fiance earns 40k, and I earn another 20k in non-taxable disability benefits. So ~105k/yearly. We currently rent and do not envision us buying a home for a long while.

Our incoming cash flow is good. We plan to max our Roth's yearly, increase the 401k contribution from my employer as raises come in.

Currently, we save about $1,000-$1500 per month after 401k for savings/Roth and another $1,000 per month for travel.

I'm afraid I will be laughed at for my ultra conservative attitude at such a young age for us. Age minus Bonds would be 72/28 split right now, which absolutely terrifies me.

Emergency funds = 6 Months of Expenses
Debt: 20k at 3.1% Auto Loan

Tax Filing Status: We each file single, uncertain on what to do when we marry
Tax Rate: Not sure where I will fall this year Federally, 0% State (FL)

Age: 28/25
[Note, my fiance's employer does not offer a 401k, she only has her Roth IRA which we just started last week]

Portfolio
HIS ROTH IRA - $5550 in WVINX - Wellesley Income (Maxed for 2013)
HER ROTH IRA - $1023 in VFIFX - Vanguard Target 2050 (Will Max for 2013)
401k See below

Desired Asset allocation: Age minus Bonds may be too aggressive for us. Open to suggestions.

His 401k
Recently became available. I put in 9%, Company matches 5%
~$2700 in Fixed Fund @ 3.63%

Funds available in his 401(k)
Fixed Income Fund - Total Fee = 0.254%
Bond Index Fund - Total Fee = 0.104%
Large Cap Equity Index Fund - Total Fee = 0.062%
Large Cap Value Index Fund - Total Fee = 0.089%
Large Cap Growth Index Fund - Total Fee = 0.062%
Mid Cap Equity Fund - Total Fee = 0.066%
Small Cap Equity Fund - Total Fee = 0.336%
International Equity Fund - Total Fee = 0.528%
Samoan Bulldozer
 
Posts: 6
Joined: 9 May 2013

Re: Young, Engaged Couple Looking for Advice

Postby BolderBoy » Thu May 09, 2013 3:00 pm

Samoan Bulldozer wrote:We are terribly afraid to lose money in the stock market but realize the importance of investing.

I'm afraid I will be laughed at for my ultra conservative attitude at such a young age for us. Age minus Bonds would be 72/28 split right now, which absolutely terrifies me.

Tax Filing Status: We each file single, uncertain on what to do when we marry

Desired Asset allocation: Age minus Bonds may be too aggressive for us. Open to suggestions.


You need to visit the Bogleheads' wiki and read the section on "Getting Started".

Your fear is an expression of what kind of asset allocation you can live with. It sounds like you better not exceed a 50/50 stock/bond split. You'll still get growth with that. You MUST understand that any holdings you have in stock OR bond funds will fluctuate (bonds less than stocks). Even a 100% bond asset allocation will fluctuate some. If the thought of that fluctuation terrifies you, then you are probably NOT a candidate for market investing.

When you get married, your filling status becomes "married" and you get to decide whether to file jointly or separately.

But reading is the first step - the wiki and here in this forum - lots of learning comes from the form discussions.

Good luck!
BolderBoy
 
Posts: 760
Joined: 7 Apr 2010
Location: Colorado

Re: Young, Engaged Couple Looking for Advice

Postby awval999 » Thu May 09, 2013 3:39 pm

One thing that risk adverse people overlook is the risk of inadequate returns---- the risk that does not allow one to enjoy the fruits of retirement.
awval999
 
Posts: 585
Joined: 8 Apr 2011

Re: Young, Engaged Couple Looking for Advice

Postby lucky3 » Thu May 09, 2013 3:55 pm

After you establish an emergency fund, begin investing small amounts in your core holdings based on your asset allocation. Educate yourself by reading the wiki and websites of Vanguard & Fidelity. Sometimes being "terribly afraid" and not investing at all may, in fact, be the worst thing you can do for the long term. Smile, you have a long time horizon....the market may flucuate many times before you reach retirement age...don't worry...if your a conservative investor you'll be able to sleep at night.

Lucky3
lucky3
 
Posts: 128
Joined: 12 Apr 2012

Re: Young, Engaged Couple Looking for Advice

Postby JupiterJones » Thu May 09, 2013 4:24 pm

It might help to think about what it means to "lose money" in the stock market.

Let's say you buy $100 worth of stock. The next day, the market drops and your stock is only worth $80.

What have you "lost"? You still have exactly the same number of shares. No one took anything away from you. Sure, those shares might not get you back what you paid for them if you sold them. But you're not selling them until you retire 40 years from now, so why should you care? You haven't actually "lost" anything.

By the same token, if the market went up the next few days and your stock is now worth $120, how much have you gained? Again, no one gave you any more shares--you have the same amount you started with. The fact that those shares are currently worth more only matters if you sell them actually realize the gain.

Point being, it doesn't really matter what the market does from day-to-day. It doesn't even matter what the market does from year-to-year. You're buying something that you don't intend to sell for four decades! There has never been a 40-year period where the market lost money.
Stay on target...
User avatar
JupiterJones
 
Posts: 1735
Joined: 24 Aug 2010
Location: Nashville, TN

Re: Young, Engaged Couple Looking for Advice

Postby Meg77 » Thu May 09, 2013 4:45 pm

Congrats on your engagement and also on wanting to start off on the right financial footing!

My advice would be to build up such a good cash cushion - like $50,000 at least to start - so that you maybe feel more comfortable with some investing risk with the money you don't need for decades. You are young and will want to do many things over the next few years - buy a house, buy furniture, travel, have children. All those things take cash. So dont' focus too hard on maxing out all retirement accounts just yet; it's important to find a balance and you're already putting 20% of your gross income in retirement. That's great, but accumulate some cash too so you can reach shorter term goals and not ever feel tempted to need/want to tap retirement funds. Then start to increase the 401k contributions.

It IS important and inevitable to take risks when it comes to your money. If you keep it in cash your biggest risk is inflation eating away at the value of your money. If you keep it in bonds the biggest risk currently is a long term loss of value as interest rates rise off historic lows (bond prices drop as interest rates rise). If you keep it in stocks the risk is extreme swings in price, or volatility. Of course any of those options is better than just frittering it all away! And real estate can be a good long term conservative investment as well. You fix your "rent" payment and build equity over time. Many people who just cannot get comfortable with stock market risk end up investing in real estate holdings instead and doing quite well. Sometimes being able to see and feel your assets is comforting.

Read more, learn more, study the charts, and get comfortable with whatever asset allocation you can. But don't let fear stop you from doing the right thing with your money. Markets will go up and down, recessions and crashes will happen. Just keep holding, keep buying, year in and year out. In four decades you are almost certain to have more than you started with!
"An investment in knowledge pays the best interest." - Benjamin Franklin
User avatar
Meg77
 
Posts: 508
Joined: 22 May 2009

Re: Young, Engaged Couple Looking for Advice

Postby momar » Thu May 09, 2013 4:48 pm

Let your future spouse handle the investments.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
User avatar
momar
 
Posts: 1359
Joined: 13 Nov 2011

Re: Young, Engaged Couple Looking for Advice

Postby Bogle101 » Thu May 09, 2013 5:21 pm

For someone terrified of risk and a huge aversion to risking capital, what is with the 20k car loan?

Also, you have nice 401(k), try to max out traditional.

And remember what other posters have said, you are not touching the money for decades. If index investing has lost you money over a 30 year time horizon, we will all have bigger problems than money to worry about in that dystopian future.
Taxable: 25% VTSAX | 25% VEXAX | 10% VDMAX | 10% VEMAX | 10% VFSVX | 7.5% VGENX | 7.5% VGHCX | 5% VWEHX
User avatar
Bogle101
 
Posts: 273
Joined: 1 Oct 2012

Re: Young, Engaged Couple Looking for Advice

Postby Grt2bOutdoors » Thu May 09, 2013 6:17 pm

Surprised no one has picked up on your $1K per month traveling budget - where are you going that costs $12K annually?
"Luck is not a strategy" Asking Portfolio Questions
Grt2bOutdoors
 
Posts: 9118
Joined: 5 Apr 2007
Location: New York

Re: Young, Engaged Couple Looking for Advice

Postby awval999 » Thu May 09, 2013 6:18 pm

Grt2bOutdoors wrote:Surprised no one has picked up on your $1K per month traveling budget - where are you going that costs $12K annually?


Not sure if serious.
awval999
 
Posts: 585
Joined: 8 Apr 2011

Re: Young, Engaged Couple Looking for Advice

Postby mike143 » Thu May 09, 2013 6:28 pm

Samoan Bulldozer wrote:I currently earn roughly 45k from my employer, my fiance earns 40k, and I earn another 20k in non-taxable disability benefits.

How does that work? My wife can live on disability (CP) but works. Our understanding and her compensation reflects the same. What am I missing?
Nothing is free, someone pays.
User avatar
mike143
 
Posts: 1155
Joined: 2 Feb 2012

Re: Young, Engaged Couple Looking for Advice

Postby momar » Thu May 09, 2013 6:44 pm

Grt2bOutdoors wrote:Surprised no one has picked up on your $1K per month traveling budget - where are you going that costs $12K annually?

He didn't ask how to save more, he asked how to deal with his aversion to risk.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
User avatar
momar
 
Posts: 1359
Joined: 13 Nov 2011

Re: Young, Engaged Couple Looking for Advice

Postby Samoan Bulldozer » Thu May 09, 2013 11:10 pm

mike143 wrote:
Samoan Bulldozer wrote:I currently earn roughly 45k from my employer, my fiance earns 40k, and I earn another 20k in non-taxable disability benefits.

How does that work? My wife can live on disability (CP) but works. Our understanding and her compensation reflects the same. What am I missing?


VA Benefits.
Samoan Bulldozer
 
Posts: 6
Joined: 9 May 2013

Re: Young, Engaged Couple Looking for Advice

Postby Samoan Bulldozer » Thu May 09, 2013 11:11 pm

awval999 wrote:
Grt2bOutdoors wrote:Surprised no one has picked up on your $1K per month traveling budget - where are you going that costs $12K annually?


Not sure if serious.


New Zealand
Samoan Bulldozer
 
Posts: 6
Joined: 9 May 2013

Re: Young, Engaged Couple Looking for Advice

Postby Samoan Bulldozer » Thu May 09, 2013 11:17 pm

Bogle101 wrote:For someone terrified of risk and a huge aversion to risking capital, what is with the 20k car loan?

Also, you have nice 401(k), try to max out traditional.

And remember what other posters have said, you are not touching the money for decades. If index investing has lost you money over a 30 year time horizon, we will all have bigger problems than money to worry about in that dystopian future.


Hi. I'm fine with the car note. We have two nice cars and only owe 20k between the two. Doesn't bother me a wink.

Can you elaborate on the 401k? Would you suggest just continue putting into the fixed while the rate is good and then reallocate it into equities depending on market performance? For example, accumulate XX,XXX into fixed fund until a 2008 type situation occurs to load up on equities?
Samoan Bulldozer
 
Posts: 6
Joined: 9 May 2013

Re: Young, Engaged Couple Looking for Advice

Postby Samoan Bulldozer » Thu May 09, 2013 11:24 pm

awval999 wrote:One thing that risk adverse people overlook is the risk of inadequate returns---- the risk that does not allow one to enjoy the fruits of retirement.


Hi awval,

One thing that I am having a difficult time calculating is how much I will actually need in retirement.

As of now, I receive $1689/month from the VA. This will be adjusted yearly, for example, last year's increase was 1.6% IIRC.

We are able to easily max our two Roths/yr until retirement plus the 401k contribution.

My fear is that I will not be investing enough. If I will, I would like to try and find out the avg yearly return I will need to try and achieve.
Samoan Bulldozer
 
Posts: 6
Joined: 9 May 2013

Re: Young, Engaged Couple Looking for Advice

Postby mike143 » Fri May 10, 2013 3:53 am

Seems like you have enough money left over to max your 401k, that is what I am doing for 2012 after a significant raise at work.
Samoan Bulldozer wrote:We each file single, uncertain on what to do when we marry

To continue doing Roth IRAs you will need to file "married filing jointly". 2011 was our first married tax year, we didn't do Roth IRAs and my wife had two years of social security over payment mucking up her taxes so we filed separately that year. 2012 tax year we both maxed Roths so we filed jointly.
Samoan Bulldozer wrote:Debt: 20k at 3.1% Auto Loan

Check out PenFed at 1.74%. We refinanced from Honda at 1.99% to PenFed when it was 1.49%.
Samoan Bulldozer wrote:I'm afraid I will be laughed at for my ultra conservative attitude at such a young age for us. Age minus Bonds would be 72/28 split right now, which absolutely terrifies me.

Even though I don't follow the Boglehead asset allocation due to various reasons I can say that listening to "The Common Sense of Mutual Funds" was a pretty strong motivator to due so. If you try out Audible you can get a free audio book, that is the one I chose.
Nothing is free, someone pays.
User avatar
mike143
 
Posts: 1155
Joined: 2 Feb 2012

Re: Young, Engaged Couple Looking for Advice

Postby rickmerrill » Fri May 10, 2013 9:15 am

Can you elaborate on the 401k? Would you suggest just continue putting into the fixed while the rate is good and then reallocate it into equities depending on market performance? For example, accumulate XX,XXX into fixed fund until a 2008 type situation occurs to load up on equities?


That would be market timing and it doesn't usually work out well for the investor. The Boglehead philosophy would have you choosing an asset allocation that you can live with through thick and thin. The only reason you change your asset allocation is because your circumstances have changed; for example as you age you might decide to have a little less in stocks so you would slowly adjust your percentages over time. You should also make adjustments to keep your AA in balance - rebalancing. So if the stock market is dropping you would rebalance by buying more on the stock side. You can do this by changing your contributions or by moving some from the bond side to the stock side. This way you are effectively buying stocks low according to your plan and not your emotions are guesses about the market. Purists might dispute the historical gains actually achieved but the real goal here is to maintain a level of volatility in your portfolio that you have planned for.

So study up. The getting started wiki has some good book recommendations and a lot of other useful topics. More knowledge will help with that fear of investing but ultimately you'll need to decide what asset allocation works for you . It's an important decision and not an easy one to make given our imperfect knowledge of the future.

As far as saving enough for retirement I think you are doing ok if you are saving 20% now.

As far as how much you will need in retirement, at your age you have a long timeframe and life is going to make that hard to know. As you get closer to retirement you will have a much clearer picture of what your expenses will be and what assets are available so I wouldn't spend too much time on it, especially right now, you have a wedding to plan! Good luck.
If I am stupid I will pay.
rickmerrill
 
Posts: 313
Joined: 16 Jul 2010

Re: Young, Engaged Couple Looking for Advice

Postby rickmerrill » Fri May 10, 2013 9:25 am

One last thing. For the vast majority of people filing joint is going to be cheaper for you. If you want to know for sure just run the numbers for both scenarios. You can use taxcaster to do this (turbotax.intuit.com/taxcaster).
If I am stupid I will pay.
rickmerrill
 
Posts: 313
Joined: 16 Jul 2010


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: 2cents2, Bing [Bot], icedtea, jimday1982, nakedbird226, ogd, rsbv, Twins Fan, Waterboy, Willhelm and 59 guests