Newbie needs a start.... Hope it's not too late....

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Topic Author
Rader
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Joined: Fri Mar 04, 2016 12:29 am

Newbie needs a start.... Hope it's not too late....

Post by Rader » Sat Mar 12, 2016 11:23 pm

Hi All,

I am a late starter. I have never thought of investments until recently after attending a retirement seminar. Since then I have read some information online and from some intro investment books. Luckily came across this site, hoping to get some advice. Thanks in advance!

Background:
29 year-old. Physician in residency. Expected graduation year: June 2020.
Current salary after 403b contribution and tax is about $3000/mo.

Emergency funds: zero...
Debt: Medical school debt: $240,000 total. Federal student loan, some at 7.6%, some at 6.5%. No other mortgage or credit card debt.
Tax Filing Status: Single
Tax Rate: 25% Federal. 0% State
State of Residence: TX
Age: 29
Desired Asset allocation: 70% stocks / 30% bonds, is that ok for my age? or too conservative/aggressive?
Desired International allocation: 0% of stocks, don't know how to manage these actually.

Currently, my only investment is in 403b provided by my employer (state sponsored institution).
6.65% of my monthly salary is deducted and the state matches 8.5%.
I now have approximately $5100 in the 403b account (under Fidelity), of those, 44% are in the Fidelity Freedom K 2055 fund and 56% in Fidelity Government Cash Reserves. I have wanted to change after reading about the 3 fund portfolio, but not exactly sure what to do... as most of the discussions are based on Vanguard fund. Do I need to switch to Vanguard at this point?

After paying rent, food, other living expenses and supporting my parents, I don't really have much money left to invest to IRA.
I have the option of postponing my loan payments, but I don't want to keep pushing them off as the interest is accumulating fast and capitalizing. So I have started my repayment under the income-based repayment plan, only approximately $100 a month.

Short Term Goals:

1. Save enough down payment so I can buy a house (maybe $300k) after I graduate (2020).


Long Term Goals:

1. Pay off my student loans ASAP

2. Retired in 20-25 years.


My main question right now is how do i optimize my 403b. I have heard that the target date retirement fund is not really good, but really not sure what to invest in based on my age. I don't mind taking a little risk or using the 3-fund portfolio. Is there something similar to that in Fidelity, or is that a Vanguard thing?

Thank you for all the help!

mhalley
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Re: Newbie needs a start.... Hope it's not too late....

Post by mhalley » Sun Mar 13, 2016 2:23 am

Welcome to the forum! If you are a resident, you are just getting started, not late at all. You can use the 3 fund portfolio at Fido using their Spartan funds. They also have a target date fund called the freedom index funds, but they generally use the more expensive ones in their retirement plans. Target date funds are not bad overall, you can just generally get a lower er if you do it yourself. Also, you need to look at the td fund allocation, not just the date. If you post exactly which funds are available we can help you choose the best ones.
https://www.bogleheads.org/wiki/Fidelity
Also, if you are not familiar with the great blog by [bogleheads member White Coat Investor - edit by moderator prudent] who runs the white coat investor blog, be sure to check it out.
http://whitecoatinvestor.com/
70/30 is not unreasonable at your age. The general rule of thumb is age in bonds, some use age minus 10. International is not requred, multiple discussions on this lately due to intl underperformance.

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Toons
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Re: Newbie needs a start.... Hope it's not too late....

Post by Toons » Sun Mar 13, 2016 4:31 am

1. Pay off my student loans ASAP


Agree,
That should be at the very top of both lists.


:thumbsup
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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warowits
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Re: Newbie needs a start.... Hope it's not too late....

Post by warowits » Sun Mar 13, 2016 5:31 am

Those student loan interest rates are high enough I would pay them down before investing. Always put in enough to max out your employer match though. Your retirement time line seems overly optimistic, what expected rate of return are you using in your calculations?

It is more fun to put money into retirement than pay off debt, but you don't want to still be paying on your loans and a house when you retire.

Unless there is some kind of loan forgiveness program you will qualify for at some point paying $100 a month on a $240k debt seems crazy.

Compound
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Re: Newbie needs a start.... Hope it's not too late....

Post by Compound » Sun Mar 13, 2016 10:39 am

You may want to consider public student loan forgiveness as a strategy for dealing with your loans:

http://whitecoatinvestor.com/refinance- ... -for-pslf/

Strayshot
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Re: Newbie needs a start.... Hope it's not too late....

Post by Strayshot » Sun Mar 13, 2016 11:33 am

Hi Rader,
First off, you are fine. The fact you are in a 4+ year residency means you are probably in a higher-earning specialty (than peds or GP) and you will have no problems reaching a very comfortable retirement in your chosen timeframe.

First issue you have is the loans as they are the #1 thing you need to manage in your current financial situation. You don't mention what payment plan you are on, but you need to make sure you're optimizing the payment plan first based on your future employment situation. As usual, WCI has great posts on this including this one:
http://whitecoatinvestor.com/repaye-vs- ... -resident/
You primary decision revolves around if you can make the call now about whether you'll stay at a 501c3 for 6 years post-residency or if you know you'll be entering private practice and want to look at refinancing as a resident.

You are spot-on to be utilizing your 403b with the 8.5% match (guaranteed return). Fidelity is a great company. There are various AA models to choose from, the most common being "age in bonds" which you included in your post. In my opinion, at your age and given your future path I'd be 100% stocks. Likewise, determining international exposure is a personal choice, some think you get enough exposure in domestic equities with multinational presence, others think you should specifically go ex-us and/or international. My opinion here for you would be to err on simplicity and decide to hold only a total-market fund and forget worrying about international exposure. The ticker at fidelity is FSTMX, you would need to list for us your 403b choices for us to be sure what your correct choice is. It may be possible that you only have an S&P index offering, in which case I'd go with that instead.

If you have any additional funds from the $3K left over each month, those should go to building an emergency fund first until you have at least a couple grand stashed away (2-3 months salary). After that, paying down the loans is the next priority with anything you have left.

Saving for a house downpayment is off the table right now for you. Get emergency funds saved up, then pay extra on the loans as you are able. Once you sign a contract for your first job, many companies have started offering "doctor mortgages" including SoFi which require no or low downpayment and no PMI. At your attending salary, living like a resident and saving $30K for 10% down will be simple and it is not worth clouding your current financial situation worrying about a house downpayment 4+ years in the future.

Topic Author
Rader
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Joined: Fri Mar 04, 2016 12:29 am

Re: Newbie needs a start.... Hope it's not too late....

Post by Rader » Sun Mar 13, 2016 12:01 pm

Thank you all for the responses.

Answers to the above questions:

1. The projected retirement timeline is just a rough estimate. Will definitely work more if the portfolio has not reached enough return by the age of retirement. I was told this is the average among other practicing physicians.
2. Unfortunately, due to the nature and financial structure of my specialty under current healthcare model, most of the graduates from fellowship go into private practice and academics. I am not aware of anyone doing the PSLF. I will look into that though.
3. Am definitely following whitecoatinvestor!!
4. Currently in Income-based repayment plan for my student loans.

Funds Allocation and Options:

My current Freedom 2055 has 65% Domestic equity / 29% International / 6% Bond.

Also looked into the current available Spartan funds.
Right now for domestic they have:
Spartan 500 Index Fund
Total Market Index Fund
Extended Market Index Fund
Small Cap Index Fund
Mid Cap Index Fund
Real Estate Index Fund

For Bond they have:
US Bond Index Fund
Inflation-Protected Bond Index Fund
Short-term, Intermediate, and Long-term Treasury Bond Index Fund

Looks like the Spartan 500 and the Long-term Bond have better return... what do y'all think.

Thanks!

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Sheepdog
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Re: Newbie needs a start.... Hope it's not too late....

Post by Sheepdog » Sun Mar 13, 2016 12:05 pm

Rader,
Are you late? Heavens NO. You have made a great start with your education.
First do have an adequate emergency fund.
Then, if someone told you how to earn a guaranteed 6.5% to 7.6%, guaranteed, especially in today's investment and savings climate, would you Invest in that?
My humble opinion: Pay off those student loans early. Then follow with your other financial investments and l goals.
Just because it isn't your fault doesn't mean it isn't your responsibility....Josh Reid Jones

Topic Author
Rader
Posts: 8
Joined: Fri Mar 04, 2016 12:29 am

Re: Newbie needs a start.... Hope it's not too late....

Post by Rader » Sun Mar 13, 2016 12:20 pm

Hi Strayshot,

Sorry I am kinda lost at the "403b choices". What do you mean by that, and where would I look for that kind of information?

Thanks

radiowave
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Re: Newbie needs a start.... Hope it's not too late....

Post by radiowave » Sun Mar 13, 2016 12:27 pm

Rader,
My current Freedom 2055 has 65% Domestic equity / 29% International / 6% Bond.
The retail Freedom 2055 expense ratio is 0.75% https://fundresearch.fidelity.com/mutua ... =sq-NavBar

and the expense ratio of the Spartan total market index fund (FSTMX) is 0.10% https://fundresearch.fidelity.com/mutua ... =sq-NavBar so you'll get a break on fund expenses in the long run by going with the total Spartan US equity market fund plus total bond and perhaps some international.

+1 on Strayshot's comments about starting an emergency fund. Consider high yield savings accounts like Ally, American Express, Discover, etc. Even a couple thousand will help. Yesterday my wife went downstairs and yelled there was a flood and it was the hot water heater, had to call in emergency repairs on a Saturday = glad I have an emergency fund to cover life's eventualities.

Good luck in your residency!

Note: FSTMX is the investor class (URL above) and ER = 0.10% the Advantage class Spartan fund (FSTVX) ER = 0.05%
Last edited by radiowave on Sun Mar 13, 2016 12:39 pm, edited 1 time in total.
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radiowave
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Re: Newbie needs a start.... Hope it's not too late....

Post by radiowave » Sun Mar 13, 2016 12:34 pm

Just saw your reply to Strayshot

for the 403b, the total market index fund is composed of large, mid and small cap funds by market proportion, so easier to manage if you just get the total market (FSTVX) and add US Bond Index Fund (FSITX) https://fundresearch.fidelity.com/mutua ... e=o-NavBar. Just contribute proportionally based on your asset allocation, e.g. 70% FSTVX and 30% FSITX. Others may have different opinions but this may be the easiest portfolio to manage and one with the lowest expenses.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

Topic Author
Rader
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Joined: Fri Mar 04, 2016 12:29 am

Re: Newbie needs a start.... Hope it's not too late....

Post by Rader » Sun Mar 13, 2016 1:40 pm

I think I just found out what Strayshot was referring to regarding the "choices".

When I went in to my Fidelity account and tried to Rebalance my allocation, I don't have the option of choosing the Total Market Index or US bond index. I have the Spartan 500 index, and Vanguard total bond market index, and other fund choices that I haven't heard of.... So I guess I will choose those two at 80/20?

Thanks

bayview
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Re: Newbie needs a start.... Hope it's not too late....

Post by bayview » Sun Mar 13, 2016 2:32 pm

mhalley wrote:...Also, if you are not familiar with the great blog by emergdoc who runs the white coat investor blog, be sure to check it out.
http://whitecoatinvestor.com/...
^^^ This.

Also, his book is worth buying and reading continually: http://www.amazon.com/White-Coat-Invest ... t+investor It was my daughter's only request for Christmas.

As mhalley noted, the author posts here as White Coat Investor [edit by moderator prudent].
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

pkcrafter
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Re: Newbie needs a start.... Hope it's not too late....

Post by pkcrafter » Sun Mar 13, 2016 3:36 pm

I have the Spartan 500 index, and Vanguard total bond market index, and other fund choices that I haven't heard of.... So I guess I will choose those two at 80/20?
This is why we ask that you post them. :D At least post those options with lower expense ratios.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Strayshot
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Re: Newbie needs a start.... Hope it's not too late....

Post by Strayshot » Mon Mar 14, 2016 7:37 am

Rader wrote:I think I just found out what Strayshot was referring to regarding the "choices".

When I went in to my Fidelity account and tried to Rebalance my allocation, I don't have the option of choosing the Total Market Index or US bond index. I have the Spartan 500 index, and Vanguard total bond market index, and other fund choices that I haven't heard of.... So I guess I will choose those two at 80/20?

Thanks
This is correct, you will have a limited set of options in the 403b to choose from. You are also right that in the current mix the total market should represent your equity mix and the us bond will be your bond component, so if you want to target an 80/20 stock/bond AA you go 80/20 total market/us bond.

I would revisit the PSLF as many academic positions and associated teaching hospitals qualify. Unless you know now you will be heading to private practice, make sure to fill out and submit your paperwork every year.

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