25 y/o Re-evaluating investment positions

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Posts: 26
Joined: Wed Feb 13, 2013 10:51 pm

25 y/o Re-evaluating investment positions

Post by dissonance » Thu Feb 14, 2013 1:13 pm

Emergency funds: Yes
Debt: Aside from 2 mortgages (2.875% ARM on $150,000 and 4.125% 30 year fixed on $205000 - looking to refinance this to around 3%), I have no debts.
Tax Filing Status: Single
Tax Rate: 28% Federal, 5 or 5.25% MD
State of Residence: MD
Age: 25
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 25% of stocks

What I've done so far:

I can comfortably max out my 401k contributions for 2013 at $17500 and the max ($5,500) for my tIRA's and will continue to do so.

I've already contributed $5,000 for 2012 and $5,500 for 2013 into tIRA's, both of which I will be converting to ROTHs (via backdoor). I am rolling my rollover IRA (from previous employers) into my current employer's 401k to avoid pro-rating my taxes owed on the conversion of non-deductible tIRA contributions. I plan on merging the two ROTHs so I can acquire admiral shares with Vanguard.

I have about $45000 in my 401k/tIRA accounts that will be consolidated.

I have $65,000 in taxable investment accounts and $45000 in emergency funds (I plan on gifting to a family member in a lower tax bracket for them to invest in bonds/CDs).

I'm only making the minimum monthly payments for my mortgages because my opportunity costs of paying off the mortgage exceeds investing it in other vehicles (plus the nice tax deduction on the interest).

My 401k will be with Prudential (.19% net expense ratio on their indexed 500 fund) and the rest of my assets with Vanguard. I plan on putting all my ROTH money into Vanguard's Total Bond and my 401k/tIRA into stock. I have half of my taxable in Vanguard International and Domestic stock.

Liquid assets in summary:

Code: Select all

VBMFX - $10,500 - ROTH IRA [bond]
PDSIX - $45,000 - PRUDENTIAL 401K [fortune 500 stock]
VGTSX - $32,500 - TAXABLE INVESTMENT [intl stock]
VTSMX - $32,500 - TAXABLE INVESTMENT [total market stock]
Bank  - $45,000 - Super low interest rate..Could be put into CD or Bonds
HSA   - $3,000  - Expenses too high to invest...unless I'm missing something (HSABank)

I have a fairly large risk appetite since I am in a robust industry with decent job security and I'm relatively young. I realize that I have not maximized my retirement savings during the first 5 years of my career but the money has gone towards two down payments so I don't feel so bad. I foresee going back to school in my near future, but anticipate good benefits from my employer to assist with funding that.

1) I'm inviting any critique on my current investments and my financial position. Any areas for improvement?

2) I would like to pay off the 2.875% ARM mortgage before my rates jump (I have until 2015) although I'm not sure if this is a good idea. Thoughts?

Posts: 1588
Joined: Fri May 25, 2012 9:38 am

Re: 25 y/o Re-evaluating investment positions

Post by NYBoglehead » Thu Feb 14, 2013 1:52 pm

I'd say for 25 years old you're doing awesome and to keep up the good work. As to your questions...

1. Looking at your portfolio and your situation, there isn't anything that jumps out as needing improving. You're maxing out your 401k and IRA and appear to have a decent emergency fund. I don't want to get involved in your personal matters, but I'm not sure gifting the money to a family member is such a good idea (especially if the gift is given for them to invest - I might think differently if it was to help them pay off a debt of some kind). But, that is your business, I just wanted to offer my opinion on the matter. While you appear to be doing well I wouldn't say that you're doing well enough to give away $45,000 when you've got 2 mortgages.

2. What are the terms in the ARM? If its like most I'm guessing your rate will at most jump to 4.875% and be stuck there for another 5 years. That will still only be 3.51% effective after the 28% deduction. It may make sense, it may not(the interest rate may go up less than that, or may not go up at all). That's why I cautioned against giving away the $45,000, this may come in handy come 2015 and you find you want to pay it off.

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