Next Logical Step For My Portfolio (24 years old)

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Mandrale
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Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Wed Sep 05, 2012 12:05 pm

EDIT: Since this thread was started, I have now accepted a new position. I am updating the below numbers to accurately reflect my current situation.

Emergency funds: ~10 months of income ~5 Months of income
Debt: Student Loans – Approximately $16,000 @ 4.5% $7,000 @ 3.5% $0
Tax Filing Status: Single
Tax Rate: 25% Federal, 7.05% State
State of Residence: Minnesota
Age: 24
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: ??

Please provide a hint as to the size of your current total portfolio: Low 5 figures

Current retirement assets

His Roth IRA at Vanguard
100% Vanguard Target Retirement 2040 Fund (VFORX) – ER: .19%

His 401(k) through Fidelity
Fund choices:
EB DIVERSIFIED STOCK 09/30/2009 0.50%
VANG INST INDEX PLUS (VIIIX) 07/07/1997 0.02%
VANG MD CP IDX IS PL (VMCPX) 12/15/2010 0.06%
WT MID CAP OPPS 07/31/2002 0.53%
PYR SMALL COMPANY FD 07/15/1985 0.86%
VANG SM CP IDX IS PL (VSCPX) 12/17/2010 0.06%
ABDN EMERG MKTS INST (ABEMX) 05/11/2007 1.10%
AF EUROPAC GROWTH R6 (RERGX) 05/01/2009 0.50%
SSGA GLB EQ EX-US C 05/01/2007 0.19%
PIM ALL ASSET INST (PAAIX) 07/31/2002 0.96%
WF DJ TARGET 2010 N 09/01/2010 0.30%
WF DJ TARGET 2015 N 09/01/2010 0.30%
WF DJ TARGET 2020 N 09/01/2010 0.30%
WF DJ TARGET 2025 N 09/01/2010 0.30%
WF DJ TARGET 2030 N 09/01/2010 0.30%
WF DJ TARGET 2035 N 09/01/2010 0.30%
WF DJ TARGET 2040 N 09/01/2010 0.30%
WF DJ TARGET 2045 N 09/01/2010 0.30%
WF DJ TARGET 2050 N 09/01/2010 0.30%
WF DJ TARGET TODAY N 09/01/2010 0.30%
UHG STABLE VALUE FD 08/31/2010 0.26%
DODGE & COX INCOME 09/01/2010 0.16%
NT DAILY TIPS INDEX 07/29/2011 0.07%
SSGA BOND INDEX C 11/03/1997 0.06%


Contributions
New annual Contributions
$5,500 his Roth IRA

Questions:
1. What is my next logical step to take in my investing approach? Currently, I have it budgeted that I will be saving $416/mo.$460/mo. for my Roth IRA, $400/mo. $700/mo. for my student loans, and then the rest of my income is for me to use towards whatever saving/investing would be best for my situation.

2. What would your recommendations be as far as how to allocate my contributions to my 401(k) using my preferred risk level?

3. There is no company match for the first year on the 401(k), but I still plan to contribute to it since I have excess $$ each month. What would be a wise level to start at contributing to this plan?

4. Are there any improvements you can see right off the bat? Is there anything I am currently doing that I should not be doing?

5. What are some major advantages I should use in my situation (if any)?

Thanks for the help and advice people, I really appreciate it!
Last edited by Mandrale on Tue Jul 30, 2013 10:02 pm, edited 4 times in total.

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Aptenodytes
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Re: Next Logical Step For My Portfolio

Post by Aptenodytes » Wed Sep 05, 2012 12:10 pm

I would max out the 403-b and put your extra $3,600 into the Roth.

[edit: assuming you are allowed to max out both the pension and the 403-b; I have no experience with pensions, but I do max out my own 403-b and contribute to a Roth]

NYBoglehead
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Re: Next Logical Step For My Portfolio

Post by NYBoglehead » Wed Sep 05, 2012 12:30 pm

I'd knock out those student loans. If you've got $300/mo that needs a place to go applying that to your student loan payments will make those disappear in short order.

mlipps
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Re: Next Logical Step For My Portfolio

Post by mlipps » Wed Sep 05, 2012 12:35 pm

NYBoglehead wrote:I'd knock out those student loans. If you've got $300/mo that needs a place to go applying that to your student loan payments will make those disappear in short order.
+1. And for 2013, I'd pay off your student loans first, then contribute to your Roth. You might be able to finish them next year and then you'd have until April 2014 to make the contribution and you'd save some interest doing things in that order.

Mandrale
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Re: Next Logical Step For My Portfolio

Post by Mandrale » Wed Sep 05, 2012 1:07 pm

mlipps wrote:
NYBoglehead wrote:I'd knock out those student loans. If you've got $300/mo that needs a place to go applying that to your student loan payments will make those disappear in short order.
+1. And for 2013, I'd pay off your student loans first, then contribute to your Roth. You might be able to finish them next year and then you'd have until April 2014 to make the contribution and you'd save some interest doing things in that order.
So you guys wouldn't worry about contributing to the 403(b), or worry about investing that $300 in some sort of other way? Rather, just throw $700/mo. towards those student loans?

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Aptenodytes
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Re: Next Logical Step For My Portfolio

Post by Aptenodytes » Wed Sep 05, 2012 1:15 pm

Mandrale wrote:
mlipps wrote:
NYBoglehead wrote:I'd knock out those student loans. If you've got $300/mo that needs a place to go applying that to your student loan payments will make those disappear in short order.
+1. And for 2013, I'd pay off your student loans first, then contribute to your Roth. You might be able to finish them next year and then you'd have until April 2014 to make the contribution and you'd save some interest doing things in that order.
So you guys wouldn't worry about contributing to the 403(b), or worry about investing that $300 in some sort of other way? Rather, just throw $700/mo. towards those student loans?
To clarify, I think you want to shift what you are currently putting in the Roth into the 403-B, to get the superior tax advantage. Then the question is whether to put the extra money into a Roth or accelerated student loan payments.

I think there's some benefit to entraining habits, and therefore I would put some monthly amount into a Roth, even if you do speed up the student loan payments too. What split you choose doesn't really matter.

NYBoglehead
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Re: Next Logical Step For My Portfolio

Post by NYBoglehead » Wed Sep 05, 2012 1:41 pm

I'd max out the Roth. If you want to contribute to the 403 too, you've got the money to do it. Maybe put 1/3 of 1/2 of your extra $300/mo into it and use the remainder to pay down the loan. I think you've got a lot of good options here, but would definately be putting more to those student loans to knock them out as quickly as possible.

Mandrale
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Re: Next Logical Step For My Portfolio

Post by Mandrale » Wed Sep 05, 2012 2:39 pm

Edit due to this being old information.
Last edited by Mandrale on Mon Jul 29, 2013 11:11 am, edited 1 time in total.

NYBoglehead
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Re: Next Logical Step For My Portfolio

Post by NYBoglehead » Wed Sep 05, 2012 2:44 pm

Mandrale wrote:The reason I haven't been contributing to the employer program is because of the lack of employer match, which I felt the money would be better used toward an investment or student loans for the mean time. Turns out, rather than a 403(b) though, it is a 457 plan. Don't know if that really makes much of a difference in philosophy, but here is the information that i have for the 3 options I have in that 457:

Fidelity:
- No annual account fee
- No daily asset-based charges
- Expense: .07% - 1.60%
- Some investment funds charge short-term trading fees on shares held less than a certain number of days
- No surrender charge

ING:
- No annual account fee
- Daily Asset Charges apply only to the variable options as follows: 0.45% on all funds
- Expense: .35% - 1.05%
- No surrender charge

MNDCP (State):
- No annual account fee
- Annual Administrative fee of 0.05% on account balance is capped on balances in excess of $100,000 for a maximum annual fee of $50. 0.05% on all funds except funds formerly invested in the SIF Funds prior to 7-1-1992.
- Expense: .01% - .94%
- Transaction fee: None on core investment options, except the Fidelity Diversified International Fund charges a 1% short-term trading fee on shares held less than 30 days
- No surrender charge
Sounds like there are some good funds in those plans. In regards to my recommendation on paying down that debt just keep in mind that is a guaranteed savings on the interest. No such thing as a guarantee elsewhere. I also just checked your original post and think your emergency fund might not need to be as big. You have it listed as 10 months worth of income, not EXPENSES, which is what you need to cover in the event of an emergency, particularly because you are able to save so much of your income. Nothing wrong with having a very large emergency fund, just keep in mind that 10 months worth of income in your case is a lot more than 10 months worth of expenses.

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Aptenodytes
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Re: Next Logical Step For My Portfolio

Post by Aptenodytes » Wed Sep 05, 2012 2:51 pm

Mandrale wrote:The reason I haven't been contributing to the employer program is because of the lack of employer match, which I felt the money would be better used toward an investment or student loans for the mean time. Turns out, rather than a 403(b) though, it is a 457 plan.
The match is a red herring in this case. You don't get a match in the Roth either, so it isn't relevant in that comparison. The difference between the 457 and the Roth is that the 457 contributions are pre-tax, so they cost you less than what you put in the Roth. Therefore you ought to stay away from the Roth until you max out the 457.

This is all based on the assumption that your pension contributions don't constrain your 457 contributions. As I said initially, I have no experience with that situation.

Whether to put discretionary money into student loan payments or to retirement savings is a different matter.

Most likely you have some decent choices in the Fidelity offerings.

NYBoglehead
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Re: Next Logical Step For My Portfolio

Post by NYBoglehead » Wed Sep 05, 2012 2:56 pm

Aptenodytes wrote:
Mandrale wrote:The reason I haven't been contributing to the employer program is because of the lack of employer match, which I felt the money would be better used toward an investment or student loans for the mean time. Turns out, rather than a 403(b) though, it is a 457 plan.
The match is a red herring in this case. You don't get a match in the Roth either, so it isn't relevant in that comparison. The difference between the 457 and the Roth is that the 457 contributions are pre-tax, so they cost you less than what you put in the Roth. Therefore you ought to stay away from the Roth until you max out the 457.

This is all based on the assumption that your pension contributions don't constrain your 457 contributions. As I said initially, I have no experience with that situation.

Whether to put discretionary money into student loan payments or to retirement savings is a different matter.

Most likely you have some decent choices in the Fidelity offerings.
Want to make sure you get all the perspectives here. One of the reasons posters advocate the pre-tax plans over the Roth is that it is expected that you will be in a lower bracket during retirement. The rationale is "why pay taxes at the 25% rate when you will be in the 15% bracket when you retire?" Which makes a lot of sense for a lot of people...HOWEVER, seeing as how you have a pension plan those pension dollars will occupy the lower brackets of your tax return. Not sure how much your expected annual income from the pension will be but you need to look at how much room that leaves (or you expect it to leave, seeing as how we can't predict future tax code) in the lower brackets.

Mandrale
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Re: Next Logical Step For My Portfolio

Post by Mandrale » Thu Sep 06, 2012 10:05 am

Edit due to old information.
Last edited by Mandrale on Mon Jul 29, 2013 11:15 am, edited 1 time in total.

NYBoglehead
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Re: Next Logical Step For My Portfolio

Post by NYBoglehead » Thu Sep 06, 2012 10:22 am

Mandrale wrote:My only concern with that philosophy is that with my pension plan, I have to be employed here for 5 years to become vested in it. At this moment in time I do not see myself employed here for 5 years. Does that alter order of investing at all?
First of all, I applaud you for not staying at a job just to get a pension. While financial security and money are important they should not drive our lives. I admire your recognition of this. That said, it really is a matter of preference.

I personally like the Roth because I do not know what the tax rates will be and I do not like being told I need to take RMDs. That's just my preference. Many take the opposite view on Roth v. Traditional.

What I will say is that if you're not sure you'll be there in 5 years it makes even more sense to knock out those student loans with your extra $300/month.

Mandrale
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Re: Next Logical Step For My Portfolio

Post by Mandrale » Fri May 31, 2013 8:36 am

I have updated my current situation due to a new job, so any helpful advice on my now current situation would be much appreciated.

Thanks!

Twins Fan
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Twins Fan » Fri May 31, 2013 10:50 am

Nice looking 401k there.

It sounds like you are not quite sure how much you will be putting in the 401k for the first year, and that paying down/off the student loan debt is a priority for the year? I'm fine with that and like that strategy. Others would say max the 401k. Personal preference deal and depends how debt averse you are.

For the first year then, I would say pick one of the target date funds similar to the one you have in your Roth and contribute however much to that for the first year. I don't know anything about those target funds in the 401k, or what they hold for funds, but the .30 ER is pretty decent. Then you could either continue simply holding the target funds in both accounts, or start a do it yourself portfolio taking advantage of the LOW cost funds in your 401k. The Vanguard index funds and that bond index fund are very low cost. You could hold those in the 401k and total international and total stock in the Roth, or some similar combo. That somewhat depends on the $$ value of the Roth and when the 401k would take over as the higher $$ account.

But, you have some options and good choices there. Personally, I would just use the two target date funds for now until the student loan is paid off, you get the match from the company, and things are more stable... simply for simplicity. :D Then later on you can decide if you want to be a do it yourselfer.

Mandrale
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Mon Jun 03, 2013 2:44 pm

Thanks Twins Fan,

Would there be any problem with choosing some combination between the following? Or am I not hitting each bucket with this combination?

VANG INST INDEX PLUS (VIIIX) 07/07/1997 0.02%
VANG MD CP IDX IS PL (VMCPX) 12/15/2010 0.06%
VANG SM CP IDX IS PL (VSCPX) 12/17/2010 0.06%

Twins Fan
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Twins Fan » Mon Jun 03, 2013 3:18 pm

Yes, you could do that. You can basically make Vanguards Total Stock Market index with those three funds. Although, I forget the breakdown of how much large, mid, and small cap makes that up.

For rebalancing you may want to hold some of the low cost bond index you have in your 401k also. Then you could hold total international and total bond in your Roth. Of course that depends on dollar amounts in each account and how much international you want.

Or, you could just hold a target date fund in each account and keep life simple. :D

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Re: Next Logical Step For My Portfolio (24 years old)

Post by Duckie » Mon Jun 03, 2013 9:50 pm

Twins Fan wrote:You can basically make Vanguards Total Stock Market index with those three funds. Although, I forget the breakdown of how much large, mid, and small cap makes that up.
If you follow Approximating Total Stock Market exactly it would be:
  • 81% Institutional Index
    6% Mid Cap
    13% Small Cap
But you wouldn't have to be that precise.

Mandrale
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Tue Jun 04, 2013 7:49 am

Thanks guys I really appreciate it! Any helpful tips as far as what to do for a split between making loan payments and contributing to the 401(k) without a match?

Would it be worth it to just use the emergency fund that I have to completely pay off the student loans? That is a possibility at this point in time.

mnvalue
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Re: Next Logical Step For My Portfolio (24 years old)

Post by mnvalue » Tue Jun 04, 2013 9:36 am

Completely pay off the student loans before contributing anything to the 401k that doesn't get matched. You have 700/month (presumably after-tax). So even when the loan are gone, you're not going to hit the annual 401k contribution limit. So that eliminates concerns about "losing the tax advantaged space" by not contributing this year. It'll be like 11 months at most. Just get it done.

As for the emergency fund, you should quote that in months of (required) expenses. If it's more than 6 and you feel your employment is stable, I'd put the excess amount towards the loans. But don't spend the whole thing. Make sure your emergency fund is in a high-yield savings/checking account. I like Ally Bank, but there are others; I like bankrate.com for comparing rates. Assuming your student loans are deductible, the spread between savings and the loans is only like 1.5% after-tax. I think you'll be better off keeping the full 6 months of emergency fund liquidity when you're at most 11 months from paying these off.

I'm +1 to approximating the total stock market in your 401k. As that balance grows, it'll shift you out of balance, so you'll swap from the target fund in your Roth IRA to the 3-funds separately (and obviously, less of Total Stock Market over time as the 401k provides that). Also, what is the stable value yielding right now?

Mandrale
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Tue Jun 04, 2013 9:41 am

mnvalue wrote:Also, what is the stable value yielding right now?
If you're referring to the UHG STABLE VALUE FD? The return on that YTD is a measly 1.70% with an ER of .26%.

Thanks for the help mnvalue, that makes complete sense. I appreciate your insight!

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Re: Next Logical Step For My Portfolio (24 years old)

Post by Default User BR » Tue Jun 04, 2013 10:17 am

Mandrale wrote:
mnvalue wrote:Also, what is the stable value yielding right now?
If you're referring to the UHG STABLE VALUE FD? The return on that YTD is a measly 1.70% with an ER of .26%.
Generally, posted returns for StV funds are net of fees.


Brian

Mandrale
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Tue Jun 18, 2013 9:18 am

Just an update -- I have decided to contribute 6% to my 401(k) as I will still be able to fully fund my Roth IRA and also put $700/mo. towards my student loans.

I decided to break out my 401(k) contributions to the following, to be replicate the 3 fund portfolio (I believe):
VANG INST INDEX PLUS ---- 81%
VANG MD CP IDX IS PL ---- 6%
VANG SM CP IDX IS PL ---- 13%

Are there any other important things I should be taking into account? Anything you guys would improve/alter at this point in my life?

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Duckie
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Duckie » Tue Jun 18, 2013 4:42 pm

Mandrale wrote:I decided to break out my 401(k) contributions to the following, to be replicate the 3 fund portfolio (I believe):
VANG INST INDEX PLUS ---- 81%
VANG MD CP IDX IS PL ---- 6%
VANG SM CP IDX IS PL ---- 13%
Just so you're aware that the above three funds make up just the US stock portion of the "3 Fund Portfolio". You're missing international stocks and US bonds. If you want an AA of 80% stocks, 20% bonds, with perhaps 30% of stocks in international, that breaks down to 56% US stocks, 24% international stocks, and 20% bonds. To get that in your employer's plan you could have:

45% (VIIIX) Vanguard Institutional Index Fund Institutional Plus Shares (0.02%)
4% (VMCPX) Vanguard Mid-Cap Index Fund Institutional Plus Shares (0.06%)
7% (VSCPX) Vanguard Small-Cap Index Fund Institutional Plus Shares (0.06%)
24% (N/A) SSgA Global Equity ex U.S. Index Fund - Class C (0.19%)
20% (N/A) SSgA U.S. Bond Index Fund - Class C (0.06%)

Mandrale
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Wed Jun 19, 2013 8:03 am

Duckie wrote:
Mandrale wrote:I decided to break out my 401(k) contributions to the following, to be replicate the 3 fund portfolio (I believe):
VANG INST INDEX PLUS ---- 81%
VANG MD CP IDX IS PL ---- 6%
VANG SM CP IDX IS PL ---- 13%
Just so you're aware that the above three funds make up just the US stock portion of the "3 Fund Portfolio". You're missing international stocks and US bonds. If you want an AA of 80% stocks, 20% bonds, with perhaps 30% of stocks in international, that breaks down to 56% US stocks, 24% international stocks, and 20% bonds. To get that in your employer's plan you could have:

45% (VIIIX) Vanguard Institutional Index Fund Institutional Plus Shares (0.02%)
4% (VMCPX) Vanguard Mid-Cap Index Fund Institutional Plus Shares (0.06%)
7% (VSCPX) Vanguard Small-Cap Index Fund Institutional Plus Shares (0.06%)
24% (N/A) SSgA Global Equity ex U.S. Index Fund - Class C (0.19%)
20% (N/A) SSgA U.S. Bond Index Fund - Class C (0.06%)
Thank you very much Duckie -- I really appreciate that. I will go ahead and make those changes.

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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Mon Jul 29, 2013 10:23 am

Just another update on this topic: Since my last edit near the end of May, I have actually paid off my student loans entirely. The question now, being debt free, is more to the tune of what to do with the excess cash I have now + the $700/mo. I was putting toward student loans.

I think that if I watch my purchases carefully, I should be able to get extremely close to maxing out my contributions to my 401(k), but I'm not sure if that would be the most sound choice. Just to reiterate again, currently I am receiving no match on my 401(k) contributions, but after my first year (in 9 months) I will receive a small match. I am currently contributing 10% to my 401(k).

What, in your minds, would be the most sound decision at this point? The investing to my Roth is still a no-brainer and that is already baked into my budget.

Thanks everyone!

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Re: Next Logical Step For My Portfolio (24 years old)

Post by HurdyGurdy » Mon Jul 29, 2013 10:52 am

I see that you have access to MNDCP. Are you under a MAPE contract? If so, if you put money into the MNDCP, MAPE will match up to $100 per year.

Can't you contribute to the MNDCP with after-tax money?

Mandrale
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Mon Jul 29, 2013 11:12 am

JuanZ wrote:I see that you have access to MNDCP. Are you under a MAPE contract? If so, if you put money into the MNDCP, MAPE will match up to $100 per year.

Can't you contribute to the MNDCP with after-tax money?
Sorry Juan, I forgot that was in a post -- I have since switched jobs to a new company where I have been for 3 months. That information is no longer valid.

MoonOrb
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Re: Next Logical Step For My Portfolio (24 years old)

Post by MoonOrb » Mon Jul 29, 2013 11:57 am

If you're not going to max out your 401k, what else were you going to do with the excess money you have earmarked each month for investing? Maxing out your tax-advantaged space seems like a no-brainer in the absence of some other compelling priority.

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Duckie
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Duckie » Mon Jul 29, 2013 8:12 pm

Mandrale, congratulations on being debt free and investing in your Roth IRA (I assume to the $5.5K max).

For the extra $700 a month:
  • Contribute more to the 401k. This will also reduce your taxable income and therefore your taxes.
  • Make sure your emergency fund is up to about six months expenses.
  • Set up a short-term-needs fund for planned future expenses (new car, house down-payment, fancy vacation, etc.
What is your Roth IRA invested in?

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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Tue Jul 30, 2013 8:01 am

Duckie wrote:Mandrale, congratulations on being debt free and investing in your Roth IRA (I assume to the $5.5K max).

For the extra $700 a month:
  • Contribute more to the 401k. This will also reduce your taxable income and therefore your taxes.
  • Make sure your emergency fund is up to about six months expenses.
  • Set up a short-term-needs fund for planned future expenses (new car, house down-payment, fancy vacation, etc.
What is your Roth IRA invested in?
First off, thank you very much! Currently I am maxing out the Roth IRA, yes that is correct. This is being invested into the Target Retirement 2040 fund just for easy, passive investing.

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Duckie
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Re: Next Logical Step For My Portfolio (24 years old)

Post by Duckie » Tue Jul 30, 2013 6:16 pm

Mandrale wrote:Currently I am maxing out the Roth IRA, yes that is correct. This is being invested into the Target Retirement 2040 fund just for easy, passive investing.
Are you aware that the 2040 fund is only 10% bonds? Earlier you posted you wanted 20% bonds. If that is still the case you would be better off in the 2030 fund which is about 22% bonds.

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Re: Next Logical Step For My Portfolio (24 years old)

Post by Mandrale » Tue Jul 30, 2013 9:58 pm

Duckie wrote:
Mandrale wrote:Currently I am maxing out the Roth IRA, yes that is correct. This is being invested into the Target Retirement 2040 fund just for easy, passive investing.
Are you aware that the 2040 fund is only 10% bonds? Earlier you posted you wanted 20% bonds. If that is still the case you would be better off in the 2030 fund which is about 22% bonds.
Oh that's a good catch! I have a typo in my information up top. I will go ahead and change that. My AA preference is closer to that of ~90/10. Thanks Duckie.

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