Mid/Long-term savings

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Mid/Long-term savings

Postby Snook777 » Fri Jan 25, 2013 7:40 pm

I was hoping the forum could provide some collective wisdom for savings and asset allocations.

I'm 27 and just out of graduate school, make 80k+ (before bonuses and some student loans). Salary growth in the field is pretty fast, and it is typical to make six figures in about 4-5 years from now. I save enough to contribute 15% to a 401(k) and to max out a Roth IRA every year. I've paid down any higher-interest federal loans and am left with the lower ones. Currently I have:

5-6 months expenses in cash/cd
4 months in Vanguard Short-Term Bond Index Fund Admiral Shares
just started Vanguard Intermediate-Term Bond Index Fund Investor Shares in a Roth IRA
+ my 401(k)

Aside from retirement, I would like to meet two goals:
1. Save for a house down payment for sometime around age 33-34. Preferably I'd like to be outside of the boonies
2. Have enough for almost 2 years' worth of expenses saved up (say 1.8 is fine) in case the market tanks or I get hit with some unexpected liability

I'm looking for a strategy to save to meet these goals and where I should put all these assets. I had a few general questions. The Roth IRA has some tax-advantaged space in it. Would it be reasonable to use that Roth IRA to hold intermediate-term bonds for the purposes of an emergency fund/house down payment (if it turns out I come up short in 5-7 years). Otherwise what kind of asset allocation might be adviseable?
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Re: Mid/Long-term savings

Postby Call_Me_Op » Sat Jan 26, 2013 10:49 am

Snook777 wrote:I'm looking for a strategy to save to meet these goals and where I should put all these assets.


Max-out tax-deferred plans, open a Roth, save as much as possible above those, and invest in a balanced, diversified, rebalanced portfolio of stocks and bonds. I would hold money for a house down payment in CDs.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Mid/Long-term savings

Postby pkcrafter » Sat Jan 26, 2013 11:40 am

Snook777 wrote:I was hoping the forum could provide some collective wisdom for savings and asset allocations.

I'm 27 and just out of graduate school, make 80k+ (before bonuses and some student loans). Salary growth in the field is pretty fast, and it is typical to make six figures in about 4-5 years from now. I save enough to contribute 15% to a 401(k) and to max out a Roth IRA every year. I've paid down any higher-interest federal loans and am left with the lower ones.

You've done very well, paying down the high rate debt was the right thing to do.



Currently I have:

5-6 months expenses in cash/cd
4 months in Vanguard Short-Term Bond Index Fund Admiral Shares
just started Vanguard Intermediate-Term Bond Index Fund Investor Shares in a Roth IRA
+ my 401(k)

I'm not sure that the above is for, but you need a different asset allocation for shorter term goals like a home and retirement investing. I don't see any stock allocation so what about retirement funding?


Aside from retirement, I would like to meet two goals:
1. Save for a house down payment for sometime around age 33-34. Preferably I'd like to be outside of the boonies
2. Have enough for almost 2 years' worth of expenses saved up (say 1.8 is fine) in case the market tanks or I get hit with some unexpected liability

You need an emergency fund mainly to replace income and cover unexpected cash output. We normally recommend something between 6-12 months of income for this. The purpose is to prevent having to dip into retirement money. The money would be in low risk, no stock assets. If you think you need more than 12 months expenses, then use whatever you think you need. If (when) the market tanks will have no bearing on your retirement savings. If you are employed you will just continue to fund retirement.

For a home purchase in 5-7 years you need mostly low risk savings. I probably would not even use intermediate term bonds for this time frame.

To sum up, you need
1. Emergency savings
2. Home savings separate from emergency savings, at least separate in your mental accounting. In practice, these can be co-mingled to minimize the number of accounts needed.
3. Long term retirement savings/investing. Use the 401k and Roth.

You have not provided information on retirement. What are you using in your 401k and Roth?


I'm looking for a strategy to save to meet these goals and where I should put all these assets. I had a few general questions. The Roth IRA has some tax-advantaged space in it. Would it be reasonable to use that Roth IRA to hold intermediate-term bonds for the purposes of an emergency fund/house down payment (if it turns out I come up short in 5-7 years). Otherwise what kind of asset allocation might be adviseable?

I would not use intermediate term bonds for any short term needs.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Mid/Long-term savings

Postby Snook777 » Sat Jan 26, 2013 1:54 pm

Thanks!

Let me try to clarify:

5-6 months expenses in cash/cd
4 months in Vanguard Short-Term Bond Index Fund Admiral Shares -> I was intending this as the top end of an emergency fund. is that a terrible idea? (I'm not a fan of having financial assets like CDs held in numerous different locations)
just started Vanguard Intermediate-Term Bond Index Fund Investor Shares in a Roth IRA -> I was hoping for this to be months 11-16+ worth of expenses. I thought that since it's pretty unlikely that I would use these funds
+ my 401(k) -> 60% US stocks 30% international 10% bond index, all around .11% - .22% expense ratio

Should, instead of saving up now for a house downpayment, should I try to increase contributions to my roth / 401(k) now, and save a larger percentage of my income to the house when I'm closer to the time when I'm thinking of buying?
Snook777
 
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Joined: Fri Jan 25, 2013 7:09 pm


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