Help me invest

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

Help me invest

Postby cignamic » Wed Jun 19, 2013 8:11 pm

Hi everyone. First time poster here. I’m listing my “facts” below and asking for advice on what I should I do. My goals are not very clear, I know. But I’ve just been plugging away the last few years, saving what I can, putting it where I think it is a decent but safe investment. Any constructive criticism is welcome, but please be nice! I don’t really know what I’m doing…..

Emergency funds: $40k in INGDirect savings (This is an emergency fund/potential house buying fund)
Debt: None
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.75% State
Salary: ~70k per year + ~4000 after-tax bonus. Receive 2.5% raises every year
State of Residence: VA
Age: 28
Desired Asset allocation: ??% stocks / ??% bonds
Desired International allocation: ??% of stocks

Current retirement assets

Taxable
0%

My 401k at Vanguard (at current job)
50% Target Retirement 2050 (VFIFX) (.18%)

My Roth IRA at T. Rowe Price
38% Target Retirement 2050 (TRRMX) (.78%)

My 401k at T Rowe Price (from old job)
12% Target Retirement 2050 (TRRMX) (.78%)

Total: 100%. This retirement portfolio totals to around $90-100k.

Contributions

New annual Contributions
~$11,000.00 into 401k (~$5000.00 in personal contributions + ~$6000.00 in company match)
$5500.00 in my Roth IRA
Any remaining salary goes into the INGDirect savings mentioned above

Available funds

Funds available in my 401(k)
Most Vanguard funds

Funds available in my Roth IRA
Most T Rowe Price funds

Other facts:
Currently rent in very high cost of living area: $750 a month (utilities included)= $9000 a year.
My rent is relatively low for the area, but I’m living in a semi-sh*thole with a roommate to save money. I know people who pay $1,300 a month for a one bedroom apartment....plus utilities.

Questions:

1. In the next 3-5 years, I would like to buy a house, get married, have kids, live the “American Dream” etc. Would it make sense to buy something (small) now while interest rates are low just so that I’m not throwing money away renting? Or should I hold out for a few more years, save money, and then (hopefully) buy something (larger) I actually want to keep long term with potential wife?

2. How does my retirement portfolio look? Any changes?

3. For the 401k, I put in roughly 7% of my own income + the company match (9%). So effectively 16% of my salary. Is that enough?

4. Based on my stats, should I continue to do the Roth IRA or Traditional IRA instead?
cignamic
 
Posts: 3
Joined: Wed Jun 19, 2013 7:53 pm

Re: Help me invest

Postby BolderBoy » Wed Jun 19, 2013 8:47 pm

Look at the Bogleheads wiki for some books to read - your local library probably has them. I particularly found the "Bogleheads Guides to..." books to be easy reads which are directly on point.

Personally, I'd bump up your retirement savings (particularly the 401k) to the max allowed every year. You can control that. Getting married, buying house and having kids have a ton of variables associated with them.

Welcome to the forum!
BolderBoy
 
Posts: 1000
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Help me invest

Postby ssquared87 » Wed Jun 19, 2013 9:10 pm

High cost of living at $1,300 for a 1 bedroom..haha a 1 bedroom in NYC which is probably a quarter of the size of a 1bd in VA starts at 2200 for a crappy part of the city. A decent one is at least $2,600 and can go as high as $3,500 for a nice one in a good area
ssquared87
 
Posts: 164
Joined: Tue Apr 02, 2013 9:54 am

Re: Help me invest

Postby Twins Fan » Wed Jun 19, 2013 9:12 pm

I like it... nice and simple. Let's make it more simple. :D

The T. Rowe ER of .78 isn't the worst in the world, but for a target date index type fund it's pretty high, in my opinion. The very low ER in the .18 range for the Vanguard target date funds is tough to beat. You can't control the market, but you can control the fees you pay. So, keep them as low as you can to keep more of your money. I'd say transfer your Roth over to Vanguard and pick the target date fund you like. Does your current 401k allow you to roll that old 401k into it? Look into that, and if so roll the old 401k into the current one to get it all in that Vanguard fund.

In case you picked the 2050 fund this way,... You don't have to pick the fund with the date (number) closest to when you think you will retire. You can pick whichever one you think has the best AA for you personal investing goals/plan. Sounds like you haven't quite decided on an AA yet though.

Do you get the 9% employer contribution whether you contribute or not? It sounds that way since you say you don't even contribute to the match, and still get more employer contributions than even you put in there. That's a pretty good deal.

I would have to look up all the Traditional/Roth cut offs again, but I think you're better off, or just fine contributing to the Roth. I don't think you could get your income low enough to ge any deduction from the Traditional, and you're already in the 25% bracket with your salary likely only going up from here on, or hovering in the 25% bracket. So, I think the Roth is just fine, or even the better choice for you there. But, check for yourself there... don't just take my word for it.

Wife, kids, house?? Have you even met the possible wife/mother yet? :D I'd say stay single, but I've been burned a couple times by marriage. So, my view and advice is slightly tilted there. :D But, I wouldn't start necessarily saving for things that you don't know if they will even happen or not. The house savings is fine... that's a good goal to have. I wouldn't buy something now just to get into something because of interest rates. You may end up hating the little place. Wait until you're ready to buy. Sure, interest rates are good now and have been for a couple years... but, people have had 6,7,8%, and even higher interest rates in the past. If you buy something little now and then a bigger and better home later on, you're still going to end up with whatever the interest rates are at teh time you buy bigger and better. Interest rates going up is not the end of the world.
Twins Fan
 
Posts: 1532
Joined: Fri Mar 08, 2013 1:02 pm

Re: Help me invest

Postby Watty » Wed Jun 19, 2013 9:43 pm

4. Based on my stats, should I continue to do the Roth IRA or Traditional IRA instead?



Single people get into the higher tax brackets real quick. Since you are likely to get married, have some kids, and mortgage interest to deduct then you can have a surprising amount of income and still be in the 15% federal tax bracket. Try playing with some numbers in taxcaster.

http://turbotax.intuit.com/tax-tools/ca ... taxcaster/

Unless you are in some unusually high paying career path I would mad out all the deductible retirement accounts first while you are in the federal tax brackets above 15%
User avatar
Watty
 
Posts: 4825
Joined: Wed Oct 10, 2007 3:55 pm

Re: Help me invest

Postby cignamic » Thu Jun 20, 2013 9:58 pm

BolderBoy wrote:Look at the Bogleheads wiki for some books to read - your local library probably has them. I particularly found the "Bogleheads Guides to..." books to be easy reads which are directly on point.

Personally, I'd bump up your retirement savings (particularly the 401k) to the max allowed every year. You can control that. Getting married, buying house and having kids have a ton of variables associated with them.

Welcome to the forum!


Yeah I'd like to bump it up more too, but then that's less money to save for the house.

Twins Fan wrote:I like it... nice and simple. Let's make it more simple. :D

The T. Rowe ER of .78 isn't the worst in the world, but for a target date index type fund it's pretty high, in my opinion. The very low ER in the .18 range for the Vanguard target date funds is tough to beat. You can't control the market, but you can control the fees you pay. So, keep them as low as you can to keep more of your money. I'd say transfer your Roth over to Vanguard and pick the target date fund you like. Does your current 401k allow you to roll that old 401k into it? Look into that, and if so roll the old 401k into the current one to get it all in that Vanguard fund.

In case you picked the 2050 fund this way,... You don't have to pick the fund with the date (number) closest to when you think you will retire. You can pick whichever one you think has the best AA for you personal investing goals/plan. Sounds like you haven't quite decided on an AA yet though.

Do you get the 9% employer contribution whether you contribute or not? It sounds that way since you say you don't even contribute to the match, and still get more employer contributions than even you put in there. That's a pretty good deal.

I would have to look up all the Traditional/Roth cut offs again, but I think you're better off, or just fine contributing to the Roth. I don't think you could get your income low enough to ge any deduction from the Traditional, and you're already in the 25% bracket with your salary likely only going up from here on, or hovering in the 25% bracket. So, I think the Roth is just fine, or even the better choice for you there. But, check for yourself there... don't just take my word for it.

Wife, kids, house?? Have you even met the possible wife/mother yet? :D I'd say stay single, but I've been burned a couple times by marriage. So, my view and advice is slightly tilted there. :D But, I wouldn't start necessarily saving for things that you don't know if they will even happen or not. The house savings is fine... that's a good goal to have. I wouldn't buy something now just to get into something because of interest rates. You may end up hating the little place. Wait until you're ready to buy. Sure, interest rates are good now and have been for a couple years... but, people have had 6,7,8%, and even higher interest rates in the past. If you buy something little now and then a bigger and better home later on, you're still going to end up with whatever the interest rates are at teh time you buy bigger and better. Interest rates going up is not the end of the world.


Yes I can roll the old 401k over. That's no problem. But is Vanguard really the better option? Looking at the past 5 years, when I compare those funds:

YTD: VFIFX = +7.01% TRRMX = +6.57%
1 year: VFIFX = +15.14% TRRMX = +15.92
5 year: VFIFX = +11.96 TRRMX= +14.51

So it appears T Rowe Price would outperform Vanguard and make up for those fees? Or not really?

And yes I picked 2050 because I will be around 65 then, which I figure is a reasonable retirement date. What does AA mean?

The company 401k match is kind of weird. I get 4% match which i am 100% vested in immediately, then I get an additional 5% match which I am vested in after 2 years of service (which I've met). So, in the end, I get a 9% total match, but I only have to put in 5% to get both. Does that make sense?

And no I haven't met the potential wife yet haha. I know it's weird planning for that but it is one of my goals, so I really do want to prepare. You know, just to be ready when/if it happens.

And yes, I've been anti-house-buying for a while now. Two of my friends bought near the peak of the bubble. Both lost around 100k each, and it just hasn't rebounded to anywhere near that. Another friend bought more recently and is doing fine, but had help from his parents and now has a fiance who is chipping in. I'm kind of scared buying myself. What if something happens to me? It just seems too risky. And honestly, if it is too risky for me, I think it's too risky for a lot of people, which really makes you think when the housing bubble was at it's peak, and the government (and lenders) were trying to induce more and more low income people into home ownership. I mean, look at my stats: if I'm not house-ready, how were these people who had much lower incomes/stability than me?

Watty wrote:
4. Based on my stats, should I continue to do the Roth IRA or Traditional IRA instead?



Single people get into the higher tax brackets real quick. Since you are likely to get married, have some kids, and mortgage interest to deduct then you can have a surprising amount of income and still be in the 15% federal tax bracket. Try playing with some numbers in taxcaster.

http://turbotax.intuit.com/tax-tools/ca ... taxcaster/

Unless you are in some unusually high paying career path I would mad out all the deductible retirement accounts first while you are in the federal tax brackets above 15%


Well the 25% bracket starts at $36,251 and above. So, I could use the Traditional IRA (or more 401k) to get taxable income down closer to that. But this would really only make sense if I plan on withdrawing that money in retirement at a lower than 25% rate, correct?

Thank you all for your answers!!
cignamic
 
Posts: 3
Joined: Wed Jun 19, 2013 7:53 pm

Re: Help me invest

Postby Twins Fan » Fri Jun 21, 2013 3:22 pm

cignamic wrote:Yes I can roll the old 401k over. That's no problem. But is Vanguard really the better option? Looking at the past 5 years, when I compare those funds:

YTD: VFIFX = +7.01% TRRMX = +6.57%
1 year: VFIFX = +15.14% TRRMX = +15.92
5 year: VFIFX = +11.96 TRRMX= +14.51

So it appears T Rowe Price would outperform Vanguard and make up for those fees? Or not really?

And yes I picked 2050 because I will be around 65 then, which I figure is a reasonable retirement date. What does AA mean?


Or, it could appear the T. Rowe fund really tanked in 2008-2009, so the bounce back makes it look better over the past 5 years. I don't know what the T. Rowe fund even holds, so I'm not sure there. Like I said earlier, the only part you have control over is choosing a fund, or funds with low fees. The T. Rowe fund is about 4 times more than the Vanguard fund. If you're comfortable with the hope the T. Rowe fund will outperform by that much over the next 40 years or so, then stick with it. Five years is really not long enough to compare the two.

AA means "Asset Allocation"... like what stock/bond split you want... 90/10, 70/30, 50/50, etc... or any other combo out there. You didn't list one in the original post, so I figured you hadn't decided on that yet.
Twins Fan
 
Posts: 1532
Joined: Fri Mar 08, 2013 1:02 pm

Re: Help me invest

Postby cignamic » Sat Jul 27, 2013 3:11 pm

Thanks for the input.

Yeah when I checked various years of trailing returns with those funds, it's really all over the place. Some years, TRP did better. Some years, Vanguard did better.

I think I will move my old 401k over to Vanguard. That way I have more in the less expensive fund.
cignamic
 
Posts: 3
Joined: Wed Jun 19, 2013 7:53 pm

Re: Help me invest

Postby JoMoney » Sat Jul 27, 2013 3:43 pm

Twins Fan wrote:...
Wife, kids, house?? Have you even met the possible wife/mother yet? :D I'd say stay single, but I've been burned a couple times by marriage. So, my view and advice is slightly tilted there. :D But, I wouldn't start necessarily saving for things that you don't know if they will even happen or not. The house savings is fine... that's a good goal to have. I wouldn't buy something now just to get into something because of interest rates. You may end up hating the little place. Wait until you're ready to buy. Sure, interest rates are good now and have been for a couple years... but, people have had 6,7,8%, and even higher interest rates in the past. If you buy something little now and then a bigger and better home later on, you're still going to end up with whatever the interest rates are at teh time you buy bigger and better. Interest rates going up is not the end of the world.


...what he said...

There is nothing wrong with renting. Unless you're certain you're not going to move for 5+ years, I wouldn't even consider buying. With all the fluctuations in housing prices, broker commissions, mortgage origination fees etc.. All your buying is a headache and an anchor keeping you stuck where you are. As a single male, even more of a reason to stay out of it. Women generally have more of a "nesting" instinct. She may not like the place you bought ("happy wife, happy life"). It's possible you might meet someone who already bought a house and then you'd have two mortgages/houses causing entanglements. I would seriously advise waiting until you've already been married for over a year before deciding where you're going to "settle down".
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
JoMoney
 
Posts: 1670
Joined: Tue Jul 23, 2013 5:31 am

Re: Help me invest

Postby z3r0c00l » Sat Jul 27, 2013 3:47 pm

ssquared87 wrote:High cost of living at $1,300 for a 1 bedroom..haha a 1 bedroom in NYC which is probably a quarter of the size of a 1bd in VA starts at 2200 for a crappy part of the city. A decent one is at least $2,600 and can go as high as $3,500 for a nice one in a good area


I have a nice 1 br in a nice part of Brooklyn for $1200 a month. 1 br prices go from 600 to 10,000+ in the city - hard to generalize when you are talking about the largest metro area north of Mexico. I also chuckled at the high cost of living comment. :moneybag

Since the OP and I are in similar financial situations, I would suggest that there is nothing wrong with paying $1300 a month for rent if you earn $75,000 a year. There is a reason why rents are high in these areas, and if you want to pay more for that quality of life (if it appeals to you) then go for it.
z3r0c00l
 
Posts: 621
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Help me invest

Postby LAlearning » Sat Jul 27, 2013 4:03 pm

cignamic wrote:Emergency funds: $40k in INGDirect savings (This is an emergency fund/potential house buying fund)
--Just make sure you mentally know which is which.
Debt: None
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.75% State
Salary: ~70k per year + ~4000 after-tax bonus. Receive 2.5% raises every year
State of Residence: VA
Age: 28
Desired Asset allocation: ??% stocks / ??% bonds
--What about 70-80% stocks/20-30% bonds? This is roughly age=bonds or slightly more aggressive depending on how you feel.
Desired International allocation: ??% of stocks
--Vanguard did a paper that showed 20-40% was a good idea, so they picked 30% for their funds. What do you think?

My 401k at Vanguard (at current job)
50% Target Retirement 2050 (VFIFX) (.18%)

My Roth IRA at T. Rowe Price
38% Target Retirement 2050 (TRRMX) (.78%)
--Would move to Vanguard and re-invest in an appropriate TDF or 3 fund portifolio.

My 401k at T Rowe Price (from old job)
12% Target Retirement 2050 (TRRMX) (.78%)
--Does your new 401k accept roll-overs? Would move to your new employer if possible. Helps keep things simple and you have good choices.

Contributions
New annual Contributions
~$11,000.00 into 401k (~$5000.00 in personal contributions + ~$6000.00 in company match)
$5500.00 in my Roth IRA
Any remaining salary goes into the INGDirect savings mentioned above

Other facts:
Currently rent in very high cost of living area: $750 a month (utilities included)= $9000 a year.
.....This is cheap....
My rent is relatively low for the area, but I’m living in a semi-sh*thole with a roommate to save money. I know people who pay $1,300 a month for a one bedroom apartment....plus utilities.
--Maybe time to find a nicer apt with the same/new roomate?

Questions:
1. In the next 3-5 years, I would like to buy a house, get married, have kids, live the “American Dream” etc.
--3 years? How does she feel about that.....
Would it make sense to buy something (small) now while interest rates are low just so that I’m not throwing money away renting? Or should I hold out for a few more years, save money, and then (hopefully) buy something (larger) I actually want to keep long term with potential wife?
--No it does not make sense. You are not throwing money away. You are paying for shelter, don't underestimate that. Plus you don't have enough money to buy anything yet.

2. How does my retirement portfolio look? Any changes?
--Move 401k to new job. Move rIRA to Vanguard. Then choose either: TR 2025 which is roughly 70/30 in each account. Viola, your AA is now set and every year you can look and see if the fund % still matches what you want.

3. For the 401k, I put in roughly 7% of my own income + the company match (9%). So effectively 16% of my salary. Is that enough?
--Don't know...how much do you want at retirement? You also need to save some money outside of retirement accounts for rent/home/cars/vacations....
4. Based on my stats, should I continue to do the Roth IRA or Traditional IRA instead?

--I would keep up the rIRA for now. You can run the numbers and see if the tax benefit is worth it now. Depends if you plan to make more money later as well, always nice to not have tIRA so you can forever contribute to roths....
I know nothing!
User avatar
LAlearning
 
Posts: 624
Joined: Wed May 09, 2012 12:26 pm
Location: Los Angeles


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: barnaclebob, coachz, dade, Google [Bot], lululu, Not Law, stlutz, supernova, Tamales, TradingPlaces, trueblueky and 78 guests