23 y/o starting out

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23 y/o starting out

Post by ubiquitous » Thu Feb 14, 2013 2:20 am

Just joined Bogleheads after being a longtime reader, and would appreciate any advice on how to allocate my funds and build my portfolio.

Current info/investments
Age: 23
Location: NY
Current Income-> $34000/year (began job in March of 2012)
Student Loans->$14100 (3 loans,all fixed IR, highest at 5.75%) and have just been making monthly payments of $167
Available Savings/EF-> $21000
T.Rowe Growth Stock PRGFX(http://quotes.morningstar.com/fund/PRGFX/f?t=PRGFX) (ER of 0.70)-> $8100
Employer managed 401k managed by Guardian: 6% (company matches 50% up to first 6%)-> currently $2000

Currently researching a bit for a Roth with Vanguard, as well as looking into the 2055 target retirement fund they have. I'm considering paying more into the loans as I'm currently living at home and have very little living costs for now. Also unsure if the money in T. Rowe should remain there or is better allocated elsewhere. Thanks in advance for any help as I have a lot to learn! Let me know if there is anything I forgot to include or not enough information and I will try to provide it. :happy

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Re: 23 y/o starting out

Post by icefr » Thu Feb 14, 2013 5:37 pm

What are the expense ratios on these funds? What are the balances and interest rates on your student loans?

Take a look at this: http://www.bogleheads.org/forum/viewtop ... f=1&t=6212

How many months of expenses does your emergency fund represent?

PRGFX is an actively managed mutual fund and the expense ratio is a bit high at 0.70%. Does T.Rowe Price also have index funds? I'm not familiar with them. If it was me, I would sell that and take $6k from my emergency fund and wipe out the student loans so they're gone. I wouldn't be investing in taxable with an interest rate of 5.75% on my student loans. Plus, that wipes out a $167 monthly expense.

Or I would sell the PRGFX and use the first $5k to open a Roth IRA against the 2012 contribution limit at Vanguard in the target date fund you mentioned and use the rest to pay off the student loans, as well as monthly cash flow until they're gone, then work on the 2013 Roth IRA.

At your current income, you are firmly in the 15% federal income tax bracket, so I wouldn't put any more into the 401(k) than you need to to get the match. The Roth IRA is a great tool for now.

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Re: 23 y/o starting out

Post by NYBoglehead » Thu Feb 14, 2013 5:48 pm

-I'd sell the T. Rowe Price fund and use some of your emergency fund to get rid of the student loans...5.75% is very high in the current environment and you'll free up $167/mo

-I'd contribute 401k up to the match, then max out a Roth IRA since you are in the lower tax brackets. If you have a monthly surplus after that contribute more to the 401k

-Maintain an emergency fund of 6 months of expenses. I think's it ok to dip below this in order to knock out the student loans, but use the $167/mo that this will free up in part to rebuild the emergency fund

It looks like you're off to a good start, do your best to steer clear of any debt and be sure to increase your contributions to retirement accounts when you get raises going forward.

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Re: 23 y/o starting out

Post by BrandonBogle » Thu Feb 14, 2013 5:50 pm

I have the same SSgA options you list in my 401k. Through my discussions here (http://www.bogleheads.org/forum/viewtop ... 1&t=110026), another member led me to the Wiki entry about approximating Total Stock Market available here (http://www.bogleheads.org/wiki/Approxim ... ock_Market). Basically, the SSgA S&P 500 Index and Russell Small Cap Index can be used to approximate that by investing 86% and 14%, respectively, of what you would otherwise put into TSM.

That said, others will soon be chiming in to help you discuss reaching an appropriate asset allocation and likely recommend taking the approach of setting up the Three Fund Portfolio (http://www.bogleheads.org/wiki/Three-fund_portfolio). I'll let those other more experienced members help you with that.

I just you'd want to know that your 401k can approximate TSM and that SSgA US Bond Index tracks the same index as Total Bond Market (TBM). SSgA International Index follows a different index than Total International Stock Market, but can do until you get situated into investing for TISM/Tint in your IRA or Taxable.

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Re: 23 y/o starting out

Post by moneytobless » Thu Feb 14, 2013 11:20 pm

Hi ubiquitous,

A few questions: Is the PRGFX fund in a taxable account? As icefr mentioned, can you provide the expense ratios for your 401k funds?

I'll piggyback on BrandonBogle's post. If you're going to open up a Roth, it's helpful to consider all your accounts (Roth, 401k, taxable investments, etc) as one total portfolio.

The three fund portfolio is a good model for allocating your assets. Here’s a breakdown using 20% bonds, and 20% of your stock allocation in international bonds.


20% SSgA U.S. Bond Index
55% SSgA S&P 500 Index
9% SSgA Russell Small Cap Index

Roth (If you’re not investing in taxable accounts)

16% Vanguard Total International Stock Index Fund (VGTSX)

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Re: 23 y/o starting out

Post by ubiquitous » Tue Feb 19, 2013 12:58 pm

~4.1k @5.75%
~5k @4.25%
~5k @5.35%

Mutual Fund:
taxable account with an ER of 0.7
3year return: 15.04%
5year return: 5.89%
I've held this fund for a while and am definitely coming out ahead, it is also at its 10 year high and seems like a good time to sell (buy low, sell high, etc)

I appreciate all the replies and advice, it has been very helpful! I can tell I still have a lot to learn. I've been busy with work and not had the time to dwell on this as much as I would have liked, but it seems my best course of action would be to cash out the mutual fund (which IS in a taxable account and with an ER of 0.7) and put it toward the loans. I could wipe them out using the mutual fund and some of my savings as some of you have mentioned. I approximate my EF would only need to be about 5k to be more than adequate for 6 months as I currently live with my parents and do not pay rent (hope to change this soon once I handle loans). This would leave me more than enough savings to fill my Roth and continue paying my 401k up to the match. The lack of debt/monthly payments should allow me to start rebuilding my EF again more quickly. I do not have the ERs on hand for my 401k funds, but at least for the moment I think I'm alright allowing the company to continue managing this.

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