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Olerong
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Joined: Sat Apr 06, 2013 3:14 pm

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Post by Olerong » Sat Apr 06, 2013 3:38 pm

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Last edited by Olerong on Mon Jan 18, 2016 2:06 am, edited 3 times in total.

BerkeleyChris
Posts: 62
Joined: Sat Feb 09, 2013 11:23 am

Re: 32 Year Old Needs Some Advice

Post by BerkeleyChris » Sat Apr 06, 2013 7:13 pm

Hi, Olerong. Nice job saving up and staying out of debt.
Olerong wrote:1. I'm not sure what I should do with the $125K; currently getting 0.85% interest. I have no immediate plans to touch most of that money and would like some advice on where to put it to get a higher rate of return, but still relatively little risk
Do you have any specific goals/earmarks for this money, such as for a house downpayment, or maybe you want to go into consulting on your own and will need some cash to do it? Depending on when you think you are going to use it and what it is for, leaving it parked where it is might be just fine.
Olerong wrote:2. I'm not sure if the 401(k) allocation is good. I set it up several years ago and never touched it. I tried to allocate fairly evenly across small-cap, mid-cap, large-cap, etc, but wonder if anyone has better suggestions.
why heavy on your own company's stock? that seems risky. Also, It's hard to tell from the information posted, but some of the funds you have might have high expense ratios, and the number of funds you have seems unnecessarily complicated to maintain/rebalance.

do you have the option in the 401k of going to some basic vanguard funds, either to a 3 fund portfolio or to a target date vanguard fund?
Olerong wrote:3. For the Roth IRA, should I move everything to VTSAX? The volatility of VGENX worries me a bit, but I wonder if there are other funds that I am not considering.
i don't think you should be in a specific sector like VGENX, but what about a basic bond or international fund instead? Or what about selling both and going to a target date fund?
Olerong wrote:4. Any other advice from the group.
Given your income and expected annual increases (sounds like you might also have unpredictable bonuses?), you are nearing the time when you are going to become ineligible for the full Roth IRA contribution, so I would start reading around Bogleheads to learn how to do the backdoor Roth (maybe you have already done this!). Are you in a position financially to start making contributions to a taxable account?
Last edited by BerkeleyChris on Sun Apr 07, 2013 2:25 pm, edited 1 time in total.

Grt2bOutdoors
Posts: 19084
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 32 Year Old Needs Some Advice

Post by Grt2bOutdoors » Sat Apr 06, 2013 7:18 pm

Olerong wrote:I am a 32 year old management consultant earning $120,000 per year with annual increases of roughly 5% - 10%. I am not married and have zero debt (e.g., no school loans, mortgage, etc.). I have $125,000 sitting in Capital One 360 checking and savings accounts, $30,000 in a Roth IRA divided across two Vanguard funds (VGENX: 33%; VTSAX: 66%). I also have $130,000 in a 401(k) through Fidelity that I contribute 15% to right now. Here are the funds and allocations for the 401(k):

22.43% FID GROWTH CO K
16.18% FID CONTRAFUND K
11.46% TIMESSQ MID CP GTH I
11.20% NAVIGANT CONSULTING (Company Stock)
11.15% MSIF SMALL CO GRTH I
10.13% PIM TOTAL RT INST
9.14% FID DIVERSIFD INTL K
8.31% MIP CL 1

I have no other investments at the moment.

I have a few questions that you all may be able to help with:

1. I'm not sure what I should do with the $125K; currently getting 0.85% interest. I have no immediate plans to touch most of that money and would like some advice on where to put it to get a higher rate of return, but still relatively little risk
2. I'm not sure if the 401(k) allocation is good. I set it up several years ago and never touched it. I tried to allocate fairly evenly across small-cap, mid-cap, large-cap, etc, but wonder if anyone has better suggestions.
3. For the Roth IRA, should I move everything to VTSAX? The volatility of VGENX worries me a bit, but I wonder if there are other funds that I am not considering.
4. Any other advice from the group.

Thanks!
Hello and welcome to the forum.

List your federal and state tax rates, if you know them.

Return and risk go hand in hand. Today's enviornment makes it very difficult to find yield - and finding it with very little risk is nearly impossible. You could buy a 5 year CD that would pay about 1.50-1.70%, but in return for that you would have to hold it for 5 years, if you need the money before then, you would pay a penalty. Alternatively, you could open up a TreasuryDirect account and purchase up to $10K (annual maximum) in Series I bonds that currently yield 1.76% on an annual basis (the rate is reset every 6 months based on the CPI-U index) - check out the Wiki on I bonds and http://www.treasurydirect.gov.

For your 401k account, can you provide us with a list of all available investments (spelled out) and their expense ratios? Have you developed an asset allocation you would like to follow, based on the level of risk acceptable to you? Generally speaking most folks either go with an age in bonds approach or age-10 in bonds approach. You have a fairly aggressive plan above, but without knowing what other funds, if any, are available, am not able to make a more precise suggestion.

Generally speaking, we do not suggest making a sector bet as you are with the Energy fund. A broad index such as the Total Stock Market Index currently has a 10.3% weighing in Energy. You are currently holding about 40% of your Roth in Energy - that is way too much of a tilt. If you are that uncomfortable, it indicates you should not be in a sector fund. Either move it to the VTSAX fund or sell it and wait until more precise recommendations are made on the total portfolio including 401k plan.

General advice - read the wiki and rent one or two of the following books from your local library:
The Bogleheads Guide to Investing, The Only Guide to a Winning Investment Strategy - Larry Swedroe, The Four Pillars of Investing - William Bernstein; they will all be very helpful to you in your investment journey.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Occupier
Posts: 284
Joined: Wed Feb 01, 2012 10:21 pm

Re: 32 Year Old Needs Some Advice

Post by Occupier » Sat Apr 06, 2013 7:22 pm

Re: the 125k I would open a taxable account and Vanguard or Fidelity. If the latter you want to use their low cost Spartan funds. Since you did not list the costs of the funds in the 401 I really don't want to comment on your choices , except for this. Most don't recommend more than 5% of your assets in a single stock, especially if it's an employer - think Enron. I cap mine at 10% and I sell a bit of the former employer's stock every time it goes over that.

Lastly if you visualize the Morningstar style box, the lowest performing asset class over long periods of time is the box on the lower right corner. So you don't want to emphasize small growth, because over longer periods it always performs less than small value and everything else. The theoretical reason for this that the class is always overvalued by people trying to get the next Microsoft. I think the same could be said for the Mid Growth also. Dave

Olerong
Posts: 9
Joined: Sat Apr 06, 2013 3:14 pm

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Post by Olerong » Sun Apr 07, 2013 9:44 am

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Last edited by Olerong on Mon Jan 18, 2016 2:06 am, edited 2 times in total.

Bob's not my name
Posts: 7405
Joined: Sun Nov 15, 2009 9:24 am

Re: 32 Year Old Needs Some Advice

Post by Bob's not my name » Sun Apr 07, 2013 11:50 am

$120,000 gross earned income
+ $1,000 investment income (guess)
- $17,500 401k contribution
- $2,500 pre-tax health, dental, and disability insurance premiums withheld from your pay (guess)
------------
$101,000 AGI
- $3,900 personal exemption
- $6,100 standard deduction
------------
$91,000 taxable income --> barely in the 28% bracket, which starts at $87,850

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