1 year reading Bogleheads and this is what I have to show for it

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Liberty1100
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1 year reading Bogleheads and this is what I have to show for it

Post by Liberty1100 » Wed Aug 05, 2015 6:35 am

Over the past year, I have been checking in, reading, and responding to posts. I would like to get a checkup and get some awesome advice from you guys.

Emergency funds: Three Months of Expenses in a 1% interest rate savings account.
Debt: ~$23,000 car loan at 2.09% financing (payment of about $621, but I round up to $700). I should have it for another couple years.
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.15% State
State of Residence: MA
Age: 24
Desired Asset allocation: 70% stocks / 20% bonds/ 10% REIT (Up for debate and change)
Desired International allocation: 10% of stocks (Up for debate and change)

Current Portfolio Size: about to hit $10,000 by the end of the year.
Current retirement assets

Taxable ($7/transaction)
0.04% cash
10.25% iShares Cohen & Steers REIT ETF (ICF) (0.35%) (Before Bogleheads)
5.12% Individual Stock (Before Bogleheads)

His 401k
23.76% Vanguard 500 Index Fund Investor Class (VFINX) (0.17%)
Company Match of 15% upto a max of ~2250/year (Is this decent?)

His Roth IRA at Vanguard
0.01% Cash
1.67% Vanguard Total Stock Market ETF (VTI) (0.05%)

His Traditional IRA ($7/transaction)
2.09% Cash
30.10% Vanguard Total Stock Market ETF (VTI) (0.05%)
14.82% Vanguard S&P 500 ETF (VOO) (0.05%)
12.14% Vanguard REIT ETF (VNQ) (0.12%)


Contributions

New annual Contributions
$3000 (~250 each check) his 401k


Funds available in his 401(k)
American Century One Choice In Ret Inv (ARTOX) 0.76%
American Century One Choice 2025 Inv (ARWIX) 0.82%
American Century One Choice 2035 Inv (ARYIX) 0.87%
American Century One Choice 2045 Inv (AROIX) 0.94%
American Century One Choice 2050 Inv (ARFVX) 0.95%
American Fund Capital World G/I R4 (RWIEX) 0.79%
Artisan International Value Investor (ARTKX) 1.20%
Invesco Real Estate R5 (IARIX) 0.87%
Baron Small Cap Retail (BSCFX) 1.30%
Royce Total Return K (RTRKX) 1.53%
Vanguard Small Cap Index Fund (NAESX) 0.23%
Alger SMid Cap Growth A (ALMAX) 1.27%
American Century Mid Cap Value A (ACLAX) 1.26%
Vanguard Mid Cap Index Inv. (VIMSX) 0.23%
American Century Equity Income A (TWEAX) 1.18%
American Funds Fundamental Investors R4 (RFNEX) 0.66%
Vanguard 500 Index Investor (VFINX) 0.17%
Oakmark Equity & Income I (OAKBX) 0.74%
American Century Government Bond A (ABTAX) 0.72%
Franklin High Income A (FHAIX) 0.76%
PIMCO Total Return Admin (PTRAX) 0.71%
Key Guaranteed Portfolio Fund, return of 1.2%

Questions:
1. What should I change about my desired asset allocation?
2. How should I rebalance my IRA?
3. How should I distribute my future 401k contributions?
4. I am starting to put away some money for grad school, a future house, or rental property (Biggerpockets.com Nut here). Are there any ideas on where to keep the funds for access and for investment? I'm already using Ally Bank for my emergency funds.

Thanks for the help in advance.

Grt2bOutdoors
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Grt2bOutdoors » Wed Aug 05, 2015 8:29 am

The obvious first - you bought too much car! Imagine if your car payments were $300 and your 401k contribution was $550 a paycheck instead!

Allocation - you should hold a minimum of 20% International, to get there I suggest liquidating your REIT holding and some of your S&P 500 holdings (you already hold the S&P 500 fund in your 401k, why duplicate it?) in the Traditional IRA and purchasing Total International Stock Index (VXUS) to get to 20%. Continue investing in the S&P 500 fund within the 401k plan, it's your lowest cost option.
Save your money in an FDIC insured savings account. Recommend you read Rick Ferri's book - All About Asset Allocation, 2nd Ed. if you have not read it yet, it will be really helpful to you.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Maverick3320
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Maverick3320 » Wed Aug 05, 2015 8:57 am

+1 on the "too much car"...but then again, OP, we were all 24 once :beer - so I would say enjoy it, and just don't plan on buying more expensive vehicles as your income goes up.

A 15% match is pretty nice, although the limit is somewhat low. Take advantage and choose the low expense Vanguard funds in your 401k.

As for grad school, house, etc - what is your rough timeline? If you are talking grad school in two years, I would just ladder some CDs or money market it. You could also pay for grad school (or a house, I believe) using funds from a Roth IRA, but just be aware of the tax complications.

Last, if you are thinking about doing rental property, I would get rid of the REIT. No need for over-exposure to real estate.

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LiveSimple
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by LiveSimple » Wed Aug 05, 2015 9:05 am

To me you have a decent car at Debt: ~$23,000 car loan.
You are fine, as you may have a reliable car for years to come.
Also seems like you planning to pay within 36 months and not 60 months, hence higher car payment per month.

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celia
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by celia » Wed Aug 05, 2015 9:20 am

Liberty1100 wrote:Debt: ~$23,000 car loan at 2.09% financing (payment of about $621, but I round up to $700). I should have it for another couple years.
This is what struck me, not only the size of your car loan but that your mindset is that you would "have it for another couple years". When the loan is paid off, aren't you planning on owning it indefinitely, ie. until it is no longer driveable? If you should get another car as soon as this paid off, you will be back at the same place you are now, car-wise.

The biggest factor to your long term financial success is not what you invest in when you are starting out, but the amount that you are able to save. So save as much as you can, while you can.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

niceguy7376
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by niceguy7376 » Wed Aug 05, 2015 9:35 am

I dont know where you have your taxable but I would recomend that you move it to VG and invest in international and if you want to buy REIT, do it in IRA account. Also, if you can buy VG REIT, you wont need to pay transaction fees. $7 per transaction can be easily avoided in this day and age.

Liberty1100
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Liberty1100 » Wed Aug 05, 2015 10:47 am

Thanks for the responses. I have been thinking about transferring my Traditional IRA to Vanguard. I looked it up and it made sense, so I started the transfer.

I do plan on keeping my car indefinitely. The way I think of it, this car will be my car until it dies, gets totaled, or my family out grows it (I'm not even married yet). It is nice, large, one of the safest, fuel efficient (about 40MPG, go hybrids!), and is functional for what I do. Despite the "large" numbers, I am keeping it.

I'll have to read more into the Asset Allocation, but is this more acceptable?
50% Stocks (S&P 500 from 401K and Total Stock from IRA), 20% International, 20% Bonds, 10% REIT (or rental).

What about bonds? Should I place some of my allocation from my 401K for them? Being so young, should I wait until I place some extra cash into my IRA's?

Grt2bOutdoors
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Grt2bOutdoors » Wed Aug 05, 2015 11:26 am

Bond funds in your 401k plan are too costly. Utilize your IRA to fill in bond space.
New allocation looks better, I'd seriously re-consider being a rental landlord until you thoroughly investigate the con's and the pro's first. Just read some of the horror stories on this forum, but then go search the web for them - if you aren't handy, don't have sufficient reserves, have the wits to handle problem tenants, leave the rental business to the REITs and just stick with passive investing. It's not all that it's cracked up to be, rental real estate.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ShiftF5
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by ShiftF5 » Wed Aug 05, 2015 11:31 am

Grt2bOutdoors wrote:Bond funds in your 401k plan are too costly. Utilize your IRA to fill in bond space.
New allocation looks better, I'd seriously re-consider being a rental landlord until you thoroughly investigate the con's and the pro's first. Just read some of the horror stories on this forum, but then go search the web for them - if you aren't handy, don't have sufficient reserves, have the wits to handle problem tenants, leave the rental business to the REITs and just stick with passive investing. It's not all that it's cracked up to be, rental real estate.
Wise words on the rental properties.

Rental property. "Been there - done that". Glad to be out of it.

I never got a 3am phone call from the stock market.

Best wishes.

rkhusky
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by rkhusky » Wed Aug 05, 2015 12:13 pm

You can put bonds in your IRA and/or use Tax Exempt funds in taxable.

You could also use the VG Small and Mid Cap funds in your 401K to approximate Total Stock Market (they aren't that much more expensive then 500). See here for the percentages: http://www.bogleheads.org/wiki/Approxim ... ock_market

Liberty1100
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Liberty1100 » Wed Aug 05, 2015 12:35 pm

rkhusky wrote:You could also use the VG Small and Mid Cap funds in your 401K to approximate Total Stock Market (they aren't that much more expensive then 500). See here for the percentages: http://www.bogleheads.org/wiki/Approxim ... ock_market
That's brilliant! I'll change the allocation to 81% Vanguard S&P500, 6% Vanguard Mid Cap, 13% Vanguard Small Cap. Thanks!

Yossarian
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Yossarian » Wed Aug 05, 2015 1:16 pm

Why do you have both S&P500 and Total Stock Market in the Traditional IRA? You don't need the former. Get some international in there.

Overall you're doing great. I wish I was as squared away at your age.

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Peter Foley
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Peter Foley » Wed Aug 05, 2015 2:49 pm

I would take a much simpler approach until I had at least $25,000 invested. Your contributions, not your AA, will be the primary driver of your account balances for years to come. Stick to just 2-3 funds and replicate them in various accounts.

retiredjg
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by retiredjg » Wed Aug 05, 2015 3:27 pm

Liberty1100 wrote:Taxable ($7/transaction)
0.04% cash
10.25% iShares Cohen & Steers REIT ETF (ICF) (0.35%) (Before Bogleheads)
5.12% Individual Stock (Before Bogleheads)
I would not buy more at this custodian because of the transaction fee. Unless that custodian has a no-transaction fee list of ETFs that are reasonable.

I'd go ahead and get rid of the REIT now if the gains are long term (shares held longer than 1 year). It is costing you extra in tax every year because REIT is very tax-inefficient. Yes, it may cost you in taxes to get rid of it but that will put a stop to the annual bleed. Your REIT can go in either the tIRA or the Roth IRA.

I would not worry about the individual stock. It is a small percentage and won't hurt you . Next crash, sell it and buy something you want like total stock or total international.
His 401k
23.76% Vanguard 500 Index Fund Investor Class (VFINX) (0.17%)
Company Match of 15% upto a max of ~2250/year (Is this decent?)
Yes, that is very decent. Free money!

His Traditional IRA ($7/transaction)
2.09% Cash
30.10% Vanguard Total Stock Market ETF (VTI) (0.05%)
14.82% Vanguard S&P 500 ETF (VOO) (0.05%)
12.14% Vanguard REIT ETF (VNQ) (0.12%)
You currently have 23% of your portfolio in REIT. That is too high.

Where is the 20% in bonds that you said you wanted? Put the bonds in the tIRA And move the tIRA to Vanguard.


New annual Contributions
$3000 (~250 each check) his 401k
It seems unlikely that you can get the full match with this small of a contribution. Have you checked lately? And are you only saving $3k or is this $3k in addition to $5,500 in Roth IRA? Only $3k is probably not enough.

4. I am starting to put away some money for grad school, a future house, or rental property (Biggerpockets.com Nut here). Are there any ideas on where to keep the funds for access and for investment? I'm already using Ally Bank for my emergency funds.
Savings account, CDs, very short term bonds for some, money market. Do not try to make a lot of money on money that you are saving for a goal. The money will not be there when you are ready for the goal.

Do not get into real estate unless you have a passion to do it. If you have a passion, save for retirement first, then get into real estate. If you are successful, the real estate can also become part of your retirement savings. If you are not successful, you will have something to fall back on.

Liberty1100
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Liberty1100 » Thu Aug 06, 2015 7:11 am

Thanks for the input. One last question: I plan on purchasing Bonds in my IRA as part of my rebalancing. Which Vanguard bond ETF or combination would be best?

Vanguard Total Bond Market ETF (BND) 0.07%
Vanguard Total International Bond ETF (BNDX) 0.17%

retiredjg
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by retiredjg » Thu Aug 06, 2015 8:22 am

Most people would probably use the Total Bond Market. Some would also use the International bond and Vanguard certainly suggests it. I think they generally use about 1/5th of the bond allocation, but am not sure.

Bacchus01
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Bacchus01 » Thu Aug 06, 2015 8:51 am

Why aren't you putting more in your 401K?

Why don't you have a Roth IRA vs. TIRA?

Do you have access to an HSA?

staybalanced
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by staybalanced » Thu Aug 06, 2015 8:55 am

ShiftF5 wrote:
Grt2bOutdoors wrote:Bond funds in your 401k plan are too costly. Utilize your IRA to fill in bond space.
New allocation looks better, I'd seriously re-consider being a rental landlord until you thoroughly investigate the con's and the pro's first. Just read some of the horror stories on this forum, but then go search the web for them - if you aren't handy, don't have sufficient reserves, have the wits to handle problem tenants, leave the rental business to the REITs and just stick with passive investing. It's not all that it's cracked up to be, rental real estate.
Wise words on the rental properties.

Rental property. "Been there - done that". Glad to be out of it.

I never got a 3am phone call from the stock market.

Best wishes.
Agree completely, former landlord and have no interest in going down that road again. I generally like real estate and have a slight tilt to VNQ reits but that is good for me. Keep in mind the only way to make double digit returns in rental real estate is leverage, or very low end distressed stuff. If you own property in cash I averaged about 5-6% net return after all expenses, not worth it. Real Estate blogs and books tout unrealistic returns and say things like buy a house 20% under market rent it with 100% occupancy and repeat 20 times.....good luck

Liberty1100
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Liberty1100 » Thu Aug 06, 2015 8:57 am

Bacchus01 wrote:Why aren't you putting more in your 401K?

Why don't you have a Roth IRA vs. TIRA?

Do you have access to an HSA?
Every paycheck, I put more towards my 401k automatically. I have had my TIRA the longest, and now I just started my Roth IRA to start the 5 year clock. Right now I am 24 and still under my parents healthcare until I'm 26 in a little more than a year.

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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by abuss368 » Thu Aug 06, 2015 9:08 am

retiredjg wrote:Most people would probably use the Total Bond Market. Some would also use the International bond and Vanguard certainly suggests it. I think they generally use about 1/5th of the bond allocation, but am not sure.
Vanguard is recommending both Total Bond Market (U.S.) Index and also Total International Bond Market Index. The allocation tot Total International Bond Index has recently increased from 20% of fixed income to 30% of fixed income. International Bonds are a huge asset class.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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abuss368
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by abuss368 » Thu Aug 06, 2015 9:10 am

Hi Liberty1100,

Congrats as you are on your way to financial freedom someday. I would also recommend a few excellent investment books such as:

1) John Bogle - "The Little Book of Common Sense Investing".

2) John Brennan (John Bogle Successor at Vanguard) - "Plain Talk on Investing".

3) Bogleheads - "The Bogleheads Guide to Investing" and also "The Bogleheads Guide to Retirement".

These excellent books can be purchase at low cost on Amazon.com. Just click the link on the Bogleheads main page to help support the website.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

MickeyMoustache
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by MickeyMoustache » Thu Aug 06, 2015 9:18 am

I wish I bought an expensive car out of college instead of flipping a house during the housing bubble :)

I agree with most of the other comments, I'm actually doing a similar portfolio of 70% stock (60/40 dom/int), 20% Bonds, 10% REIT. I'd also second the "landlording isn't worth the effort" unless you're going to do something like buy a house, rent out a floor and live in the other floor to pay your house off essentially for free, I'd stick to the REITs and head that route. There is more risk than you might think going into real estate and it can be hard to get out of whereas REITs are easy enough to liquidate without taking a huge markdown loss in the process (also putting mine in a rIRA). I ended up land-lording in that process which worked out OK, but we got very lucky with the tenants. Still, not worth it in my opinion, even having good tenants.

Only other piece of advice: get those contributions up as high as you can as early as you can! Max 401k, max rIRA = higher probability of early retirement.

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Leif
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by Leif » Thu Aug 06, 2015 9:34 am

retiredjg wrote:Most people would probably use the Total Bond Market. Some would also use the International bond and Vanguard certainly suggests it. I think they generally use about 1/5th of the bond allocation, but am not sure.
Vanguard recommends 30% international bond (of bond allocation) and 40% international equity (of equity allocation). This information is based on some Vanguard podcasts I've listen to recently.

dc81584
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Re: 1 year reading Bogleheads and this is what I have to show for it

Post by dc81584 » Thu Aug 06, 2015 9:42 am

Peter Foley wrote:I would take a much simpler approach until I had at least $25,000 invested. Your contributions, not your AA, will be the primary driver of your account balances for years to come. Stick to just 2-3 funds and replicate them in various accounts.
+1, except I would stick to the simpler approach indefinitely.

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