Newbie Poster looking for feedback

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Newbie Poster looking for feedback

Postby cmvb08 » Fri Jul 26, 2013 2:48 pm

Double Post
Last edited by cmvb08 on Sat Jul 27, 2013 3:54 am, edited 1 time in total.
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Am I on Track? (Newbie 26 Yr-Old Investor)

Postby cmvb08 » Fri Jul 26, 2013 4:44 pm

Hello All,

I am a recent graduate working on getting on track to retire. I'd appreciate any/all input and advice this forum can give! I have really enjoyed researching and learning from those of you that respond to posts on this forum and that has dragged me out of just lurking on the boards!

My info
Emergency funds: Three months currently, slowly adding till I get to six
Debt: Student Loan - $6,600 (6.55% interest rate)
Tax Filing Status: Single
Tax Rate in 2013: Effective Fed: 11.2% Marginal Fed: 25% Marginal Iowa: 7.92%
State of Residence: Iowa
Age:26
Desired Asset allocation: 90% stocks / 10% bonds (Currently at 87.7/12.3 across my entire portfolio)
Desired International allocation: 25% of stocks

Total portfolio Value: Approx. $15,000

My Roth IRA
V'gard Div. Growth (VDIGX) (.29) - 59.5%
STAR Fund (VGSTX) (.34) - 22%

My 401(K)
Oakmark Int'l (OAKIX) (1.06) - 9.3%
Vanguard Wellington (VWENIX) (.17) - 9.2%

Available Options in my 401(K)

Pimco Total Return (PTTRX) (.46)
Vanguard Total Bond (VBTIC) (.07)
DFA Global Allocation 25/75 (DGTSX) (.28)
DFA Global Allocation 60/40 (DGSIX) (.30)
Dodge & Cox (DODGX) (.52)
Munder-Veracity Small Cap (VSVIX) (1.25)
Vanguard S&P 500 (VINIX) (.04)
Vanguard Small Cap Growth (VSGIX) (.08)
Artisan Int'l (ARTIX) (1.19)
DFA Global Equity (DGEIX) (.33)

Also the other two that I am currently investing in and a MM.



Contributions

New Annual Contributions
$3,500 to 401(K) (This will get me the largest possible match from my employer, 3% on the first 6% contributed and i would contribute a little more)
$5,500 to Roth IRA

Questions:

1. How should I best utilize the options inside of my company 401(K)?

2. My thought process in terms of allocating cash for investment goes: Get company match in 401(K) - Max Roth IRA - Split add'l cash between savings and paying extra on my Student Loan. Does that make the most sense?

3. My girlfriend is about to start working as a grade-school teacher. Any advice or tips on how to help someone gain basic financial knowledge of investing etc. without overloading them?


I look forward to learning from the collective input on this board. Hopefully someday I can provide some advice as well! :D
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Re: Am I on Track? (Newbie 26 Yr-Old Investor)

Postby Bob's not my name » Fri Jul 26, 2013 5:15 pm

Use these:
cmvb08 wrote:Vanguard Total Bond (VBTIC) (.07)
Vanguard S&P 500 (VINIX) (.04)
Vanguard Small Cap Growth (VSGIX) (.08)
I'm not familiar with DFA funds but others here are. Hopefully they'll chime in.
cmvb08 wrote:New Annual Contributions
$3,500 to 401(K) (This will get me the largest possible match from my employer, 3% on the first 6% contributed and i would contribute a little more)
$5,500 to Roth IRA
$3,500/6% = $58,000 gross income

$58,000 gross
- $2,500 pre-tax health, dental, and disability insurance premiums withheld from your pay (guess)
- $3,500 401k contribution
----------
$52,000 AGI
- $3,900 personal exemption
- $6,100 standard deduction
----------
$42,000 taxable income

That puts you about $6,000 into the 25% bracket, i.e., all of your Roth IRA contribution. That means your $5,500 Roth contribution is costing you about $2,700 in avoidable taxes. You have a good 401k. A Roth IRA is nice to have, but giving up a few thousand in taxes is a high price to pay. If you were in the 15% bracket in a low tax state, it would make sense. At your tax rate I think it makes sense to prioritize tax-deferred savings.

Also, your student loan rate is very high. Since it's deductible for you, the rate is effectively under 5%, so it's not as bad as it looks. Still, I would pay this off before adding more to your Roth IRA.
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Re: Newbie Poster looking for feedback

Postby Duckie » Fri Jul 26, 2013 10:25 pm

cmvb08 wrote:I am unsure how I'm doing in terms of choosing the proper investments in my 401(k).

You want an AA of 90% stocks, 10% bonds (low), with 25% of stocks in international. That breaks down to 67% US stocks, 23% international stocks, and 10% bonds. Here is a possible retirement portfolio:

401k -- 19%
9% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.04%)
10% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.07%)

Roth IRA at Vanguard -- 81%
58% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.17%)
0
% (VEXMX) Vanguard Extended Market Index Fund Investor Shares (0.28%) <-- Roughly 80% large caps (Institutional Index) plus 20% mid/small caps (Extended Market) makes up the US stock market. When Institutional Index gets to $12K add Extended Market in the Roth IRA.
23
% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%)

The above options are cheaper than your current portfolio. They are also all individual funds instead of some being balanced funds (STAR, Wellington). This makes allocating and rebalancing much easier.

My general order of how to allocate extra cash beyond maxing out my Roth and getting the employer match on my 401(k) appears to be to toss half of the extra money at my student loan and then save the other half until my emergency fund reaches six month. Then get intense on my student loan until its gone for good. Thoughts?

I like your plan.
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Re: Am I on Track? (Newbie 26 Yr-Old Investor)

Postby LadyGeek » Fri Jul 26, 2013 10:42 pm

Welcome! It looks like you started two nearly identical threads. To keep all the information in one spot, I merged the threads.

Please use the Edit button (top right corner of your posts) to put the right information in Post #1, then delete the content in Post #2. I'd do this for you, but I didn't know which way you wanted to go.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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Re: Am I on Track? (Newbie 26 Yr-Old Investor)

Postby Peter Foley » Fri Jul 26, 2013 10:45 pm

I would second Duckie's approach to your selection of investments. I'm also in agreement regarding your plan to retire your student loan debt. Think of retiring your debt as part of your bond allocation for now.
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Re: Am I on Track? (Newbie 26 Yr-Old Investor)

Postby cmvb08 » Sat Jul 27, 2013 3:57 am

Peter Foley wrote:I would second Duckie's approach to your selection of investments. I'm also in agreement regarding your plan to retire your student loan debt. Think of retiring your debt as part of your bond allocation for now.


I apologize for the double post! Should retiring student loan debt then take precedent over my Roth? I believe a little over a year of piling on what would have been my contribution to what I am already paying on my loans would wipe them out.
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