new investor help

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new investor help

Postby jor » Fri Jul 26, 2013 10:11 pm

Hey everyone first time poster looking for some help about investing
I recently graduated from school and will be entering grad school in the fall.
Probably won't have a full time job for another 2-3 years.
I work two part time jobs and save enough for tuition while living at home to cut costs.
I have approximately 12K saved up from graduation money and work to start investing.
Currently do not have any IRA's or investing accounts.

emergency funds: yes - 5 months
Debt: no debt
tax filing status: dependent
tax rate: 10% federal, not sure for state
state: California
age: 22
desired AA: 75%/25%
international allocation: 25%

I plan on creating a three fund portfolio with the hopes of not really worrying about it while I'm in school.
Vanguard Total Stock Market (VTSMX) = 50%
Vanguard Total Bond Market (VBMFX) = 25%
Vanguard Total International Stock (VGSTX) = 25%

How does that look? Should they all be in a taxable account? or would it be better if the stock funds were taxable and the bond funds in a ROTH IRA/IRA?

Thanks
jor
 
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Re: new investor help

Postby pennstater2005 » Fri Jul 26, 2013 10:31 pm

I'm assuming the 12k saved is not part of your emergency fund, correct? No, you would not want the bond fund in a taxable account. They would be need to be placed inside of the Roth. And the Total US and Total International funds would go into the taxable account in their proper amounts respectively to reach your AA of 75/25.

Read this

http://www.bogleheads.org/wiki/Principl ... _Placement
My children love my mother, and I tell my children “That is NOT the same woman I grew up with…that is an old woman trying to get into heaven now.” - Bill Cosby
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Re: new investor help

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

pennstater2005 wrote:I'm assuming the 12k saved is not part of your emergency fund, correct? No, you would not want the bond fund in a taxable account. They would be need to be placed inside of the Roth. And the Total US and Total International funds would go into the taxable account in their proper amounts respectively to reach your AA of 75/25.

Read this

http://www.bogleheads.org/wiki/Principl ... _Placement


yes that is correct its not part of the emergency fund, combination of savings and graduation gifts. Thanks so much.
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Re: new investor help

Postby pennstater2005 » Fri Jul 26, 2013 10:51 pm

That's a pretty nice savings amount for someone your age and you seem to have a pretty good grasp on what you are looking to achieve. Congratulations on that. Remember you do need to have earned income in order to use a Roth IRA. I assume you do since you have listed your federal tax rate. Do you have a 401K available to you? That would open up more tax deferred space.
My children love my mother, and I tell my children “That is NOT the same woman I grew up with…that is an old woman trying to get into heaven now.” - Bill Cosby
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Re: new investor help

Postby Duckie » Fri Jul 26, 2013 11:14 pm

jor, is the $12K for long-term retirement investing or something else?

You can contribute up to $5.5K to a Roth IRA for 2013 if you had enough in job income. You could put it in (VTHRX) Vanguard Target Retirement 2030 Fund (0.17%). It has close to the AA you want. Then save the rest in taxable for grad school and other short-term needs.

Or in taxable you could put $6K in (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.17%) and $3K in (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%). Then in a Roth IRA put $3K in (VBMFX) Vanguard Total Bond Market Index Fund Investor Shares (0.20%). But this is only is it's all for retirement.
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Re: new investor help

Postby jor » Fri Jul 26, 2013 11:36 pm

Duckie wrote:jor, is the $12K for long-term retirement investing or something else?

You can contribute up to $5.5K to a Roth IRA for 2013 if you had enough in job income. You could put it in (VTHRX) Vanguard Target Retirement 2030 Fund (0.17%). It has close to the AA you want. Then save the rest in taxable for grad school and other short-term needs.

Or in taxable you could put $6K in (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.17%) and $3K in (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%). Then in a Roth IRA put $3K in (VBMFX) Vanguard Total Bond Market Index Fund Investor Shares (0.20%). But this is only is it's all for retirement.


retirement investing and intermediate savings (7-10 years)
I will probably do the first option. What are good funds for intermediate needs? I'm trying to keep it as simple as possible without worrying about it.
EDIT: my dad suggests I put the max 5.5K in an Roth IRA for 2013, then the max for next year. He doesn't think a three fund portfolio is necessary and I should just worry about retirement savings.
Last edited by jor on Sat Jul 27, 2013 12:20 am, edited 1 time in total.
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Re: new investor help

Postby jor » Sat Jul 27, 2013 12:17 am

pennstater2005 wrote:That's a pretty nice savings amount for someone your age and you seem to have a pretty good grasp on what you are looking to achieve. Congratulations on that. Remember you do need to have earned income in order to use a Roth IRA. I assume you do since you have listed your federal tax rate. Do you have a 401K available to you? That would open up more tax deferred space.


Thanks. I've been extremely frugal and cost conscious. No I don't have a 401K available, only working part time and going to school.
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Re: new investor help

Postby Duckie » Sat Jul 27, 2013 9:00 pm

jor wrote:What are good funds for intermediate needs? I'm trying to keep it as simple as possible without worrying about it.

For money needed in fewer than five years (including emergency funds) use a mix of savings accounts, money market accounts, CDs, and 
I Savings Bonds through Treasury Direct. For money needed in fewer than 10 years use the above plus possibly a short-term bond fund like (VBISX) Vanguard Short-Term Bond Index Fund Investor Shares (0.20%).

EDIT: my dad suggests I put the max 5.5K in an Roth IRA for 2013, then the max for next year. He doesn't think a three fund portfolio is necessary and I should just worry about retirement savings.

By "retirement savings" I assume you mean tax-sheltered savings like an IRA. If you put the $5.5K Roth IRA contribution into VTHRX, this is basically the three-fund portfolio. (Technically, because they added some international bonds recently, it's four funds, but it's close enough.)
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Re: new investor help

Postby pingo » Sun Jul 28, 2013 11:41 pm

And I'd wager that at your tax bracket it doesn't matter what you put in taxable right now. This is a little unorthodox, so somebody should flame me if it's downright stupid, but you could put money in a target fund/life strategy fund via Roth IRA AND put whatever other taxable retirement investment money in the same fund outside of the IRA (assuming that money would also be for retirement and not short/mid-term savings). On January 1st, sell enough in taxable to fully fund your 2014 Roth IRA. It is unlikly you would pay any capital gains because any growth would have to push you out of the 15% tax bracket before you'd pay capital gains.

IF you were to have any losses when you sell the taxable investment, you can claim a capital loss, but at that point you'd want to read up on the wash sale rule and NOT put the money into the same fund in the Roth until 31 days thereafter.
Last edited by pingo on Tue Jul 30, 2013 12:12 am, edited 2 times in total.
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Re: new investor help

Postby jor » Tue Jul 30, 2013 12:00 am

Duckie wrote:
jor wrote:What are good funds for intermediate needs? I'm trying to keep it as simple as possible without worrying about it.

For money needed in fewer than five years (including emergency funds) use a mix of savings accounts, money market accounts, CDs, and 
I Savings Bonds through Treasury Direct. For money needed in fewer than 10 years use the above plus possibly a short-term bond fund like (VBISX) Vanguard Short-Term Bond Index Fund Investor Shares (0.20%).

EDIT: my dad suggests I put the max 5.5K in an Roth IRA for 2013, then the max for next year. He doesn't think a three fund portfolio is necessary and I should just worry about retirement savings.

By "retirement savings" I assume you mean tax-sheltered savings like an IRA. If you put the $5.5K Roth IRA contribution into VTHRX, this is basically the three-fund portfolio. (Technically, because they added some international bonds recently, it's four funds, but it's close enough.)


Thanks so much. I'm going to use the Target Retirement Fund in a ROTH IRA and max it for this year. The rest I'll put in CDs and savings accounts.
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