Newbie here: Help with my 401k and my Potential Roth IRA.

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Topic Author
ChuChu
Posts: 24
Joined: Mon Jun 27, 2016 1:10 pm

Newbie here: Help with my 401k and my Potential Roth IRA.

Post by ChuChu »

Hello All,

I'm brand new to this forum. I have been reading and following this forum for about a week. I also have a copy of the Bonehead's guide to investing. Currently reading. I'm about pg. 60. I'll try to keep this short, but I know it will be a long post.

Myself:
Age: 29 1/2
Job: Mechanical Engineer.
Salary: 66k per year
Emergency Funds: 90k
Last week I'm maxing my 401k @ around prudential 401k 25% or so. Company match is 4% of salary. I always cash my vacation so I get extra money.

My GF:
Age 29 1/2
Job: PHD Candidate, BioChem
Salary 24k
Emergency Funds: 6k

My GF will mostlikely graduate in two years. When she starts work she'll be in a pharmaceutical company. Starting Salary maybe around 80k or so. Our combined income probably be more than 160k in the next 10 years. Do you guys recommend a traditional IRA or a Roth?

I'm a super saver and I plan to save alot more. After maxing my 401k I can still contribute to a Roth (5,500) or Trad. IRA. I'm thinking of opening one up with Vanguard any recommendations? I can Max my ROTH yearly even with the Max 401k.

My current work from prudential 401k:
This one I just let prudential pick it for me. It's called Goal maker and they have an auto re-balance every quarter.

Guaranteed Income Fund ER[0.00]
MFS Research Bond R5 ER[0.50]
Vanguard Total Bond Index ER[0.07]
Vanguard TtlIntlBd Idx Admiral ER[0.14]
LCG / American Century Fd ER[0.57]
MFS Value R5 ER[0.51]
Vanguard Tot Stk Mkt Idx - Adm ER[0.05]
T Rowe Price Mid Cap Gro Adv ER[1.03]
Vanguard Selected Value ER[0.39]
Goldman Sachs Small Cap Val I ER[0.94]
Pru Jennison Small Company Q ER[0.69]
Oppenheimer Int Growth l ER[0.70]
Templeton Foreign R6 ER[0.72]
Vanguard Ttl Intl Stk Idx Adm ER[0.12]


From all the post and research/reading I've been doing a lot of people recommend: Vanguard Total Bond Index and Vanguard Total Market and maybe Vanguard international stock market. 3 Funds account or 2 fund account?

Let me know what are your thoughts. I apologize for my previous post. Alot of learning I had to do in a short period of time.

Thank You,

Will
Last edited by ChuChu on Tue Jun 28, 2016 6:42 pm, edited 1 time in total.
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Peter Foley
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Location: Lake Wobegon

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by Peter Foley »

From your post it is a little difficult to tell where you are currently invested. If you are just starting out you only need 2-3 very broad based funds. A US total market, an international total market and a total bond fund would be sufficient. If you have low cost Vanguard option for these, that would be the way to go.

You do not list the expense ratios for the funds. Please edit your original post to add that information.

If you really are invested in all the funds at the bottom you have a tremendous amount of overlap among the funds. Consolidating/simplification would be advisable.
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BeBH65
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Joined: Sat Jul 04, 2015 7:28 am

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by BeBH65 »

Dear ChuChu,


Welcome to the forum.

To be able to give you good advise we need a little more info from you: what is your tax rate, what is your desired Asset Allocation (Split equity/bonds), what are the Expense Ratios and current % of your funds (please ensure that total of all accounts combined makes up 100%). Please consider updating your opening post with the info according to this format. Not all of us know the ticker symbols of the all mutual funds by heart - adding the names of the funds will attract more responses.

On this forum many like the Three-fund portfolio and this post. It is not difficult to simplify your investments towards such a portfolio.


Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
Topic Author
ChuChu
Posts: 24
Joined: Mon Jun 27, 2016 1:10 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by ChuChu »

BeBH65 and Peter,

Thank you for your replies. I will update my original post. I guess I'm totally new to this and I'm not sure where to start. I will make a table with the expense ratio.

Thank you guys, I really appreciate it.
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Duckie
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Joined: Thu Mar 08, 2007 1:55 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by Duckie »

ChuChu wrote:I plan to roll this into my current 401k.
Have you checked to see that your current plan allows incoming rollovers?
My current work from prudential 401k:
This one I just let prudential pick it for me. It's called Goal maker and they have an auto re-balance.
Does your 401k offer the following funds on their own (without Goal maker)?
  • Vanguard Total Stock Mkt Idx Adm VTSAX
    Vanguard Total Intl Stock Index Admiral VTIAX
    Vanguard Total Bond Market Index Adm VBTLX
If so, what are the plan expense ratios for them? If not, list all the options in your 401k plan (fund names, ticker symbols, plan expense ratios) so we can better advise you.

What is the Guaranteed Income Fund paying (what is its current interest rate)?
Topic Author
ChuChu
Posts: 24
Joined: Mon Jun 27, 2016 1:10 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by ChuChu »

Duckie wrote:
ChuChu wrote:I plan to roll this into my current 401k.
Have you checked to see that your current plan allows incoming rollovers?
My current work from prudential 401k:
This one I just let prudential pick it for me. It's called Goal maker and they have an auto re-balance.
Does your 401k offer the following funds on their own (without Goal maker)?
  • Vanguard Total Stock Mkt Idx Adm VTSAX
    Vanguard Total Intl Stock Index Admiral VTIAX
    Vanguard Total Bond Market Index Adm VBTLX
If so, what are the plan expense ratios for them? If not, list all the options in your 401k plan (fund names, ticker symbols, plan expense ratios) so we can better advise you.

What is the Guaranteed Income Fund paying (what is its current interest rate)?
Duckie I updated it with the expense ratios. It looks like they do offer it. I initiated the Rollover. They said it shouldn't be a problem. Yeah I can choose without goal maker.

The Guaranteed income fund is: It has a ER of 0.00
Prior Month Prior Quarter YTD* 1 Yr 3 Yr 5 Yr Since Inception
0.20% 0.59% 1.16% 2.42% 2.51% 2.72% 3.11%
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Duckie
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Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by Duckie »

ChuChu wrote:I updated it with the expense ratios.
Since you can buy the three funds separately I would choose them. You didn't specify a desired Asset allocation but at your age I would consider 75% stocks, 25% bonds, with 30% of stocks in international. That breaks down to 53% US stocks, 22% international stocks, and 25% bonds. In your 401k you could have:

401k at Prudential -- 100%
53% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
22% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.12%)
25% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.07%)

Since you're in the 25% federal tax bracket either a deductible TIRA or a Roth IRA would work for you. I personally would pick a Roth IRA, but it's your choice. Your girlfriend is in the 15% bracket and the Roth IRA would suit her better. If you marry and your joint income is $160K your TIRA contributions won't be deductible.
The Guaranteed income fund is: It has a ER of 0.00
Prior Month Prior Quarter YTD* 1 Yr 3 Yr 5 Yr Since Inception
0.20% 0.59% 1.16% 2.42% 2.51% 2.72% 3.11%
2.42% isn't bad but I'd still go with Total Bond Market in the 401k.
Topic Author
ChuChu
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Joined: Mon Jun 27, 2016 1:10 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by ChuChu »

Duckie wrote:
ChuChu wrote:I updated it with the expense ratios.
Since you can buy the three funds separately I would choose them. You didn't specify a desired Asset allocation but at your age I would consider 75% stocks, 25% bonds, with 30% of stocks in international. That breaks down to 53% US stocks, 22% international stocks, and 25% bonds. In your 401k you could have:

401k at Prudential -- 100%
53% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
22% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.12%)
25% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.07%)

Since you're in the 25% federal tax bracket either a deductible TIRA or a Roth IRA would work for you. I personally would pick a Roth IRA, but it's your choice. Your girlfriend is in the 15% bracket and the Roth IRA would suit her better. If you marry and your joint income is $160K your TIRA contributions won't be deductible.
The Guaranteed income fund is: It has a ER of 0.00
Prior Month Prior Quarter YTD* 1 Yr 3 Yr 5 Yr Since Inception
0.20% 0.59% 1.16% 2.42% 2.51% 2.72% 3.11%
2.42% isn't bad but I'd still go with Total Bond Market in the 401k.
Thanks Duckie.

What about this?
401k at Prudential -- 100%
65% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
10% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.12%)
25% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.07%)

or
401k at Prudential -- 100%
75% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
25% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.07%)

I read somewhere that John Bogle and Warren Buffet said that US Stock Market index Fund is good enough. So should i do the 2 fund portfolio?
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Duckie
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Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by Duckie »

ChuChu wrote:What about this?
401k at Prudential -- 100%
65% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
10% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.12%)
25% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.07%)

or
401k at Prudential -- 100%
75% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
25% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.07%)

I read somewhere that John Bogle and Warren Buffet said that US Stock Market index Fund is good enough. So should i do the 2 fund portfolio?
It's your personal choice. Since international is about 50% of the world stock market, by not having any you're leaving a lot on the table.
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BeBH65
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Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by BeBH65 »

Hello ChuChu,


You have already received a lot of good advise. I'll focus on the remaining areas.
ChuChu wrote:Hello All,

I'm brand new to this forum. I have been reading and following this forum for about a week. I also have a copy of the Bonehead's guide to investing. Currently reading. I'm about pg. 60. I'll try to keep this short, but I know it will be a long post.
Another good and short book is "If You Can: How Millennials Can Get Rich Slowly' by William Bernstein (A quick and informative read for those who want to learn the very basics.) Free download

Myself:
Age: 29 1/2
Job: Mechanical Engineer.
Salary: 66k per year
Emergency Funds: 90k looking at your salary, this looks large, generally the advise is between 3 and 12 months of expenses. I assume it is more for you, is some of this money also planned for other goals? Also, where do you hold your emergnecy fund (very liquid), and the money for the other goals (for which you could maybe use safe investments)
Last week I'm maxing my 401k @ around prudential 401k 25% or so. Company match is 4% of salary. I always cash my vacation so I get extra money.

My GF:
Age 29 1/2
Job: PHD Candidate, BioChem
Salary 24k
Emergency Funds: 6k
Your GF already has earned income so theoretically she couy ld alreadfund tax-advantaged accounts. However until marriage it is not a good idea to co-mingle your funds with hers.


Let me know what are your thoughts. I apologize for my previous post. Alot of learning I had to do in a short period of time.
keep the questions comming.
Thank You,

Will
Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
Topic Author
ChuChu
Posts: 24
Joined: Mon Jun 27, 2016 1:10 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by ChuChu »

Thank you, I am around 150 page in Bogle's guide to investment. I will read the other book as well. Thanks alot.

My prudential 401k (just changed the allocation)
Vang Total Market 60%
Vang Total International 20%
Vang Total Bond 20%

I'd figured I can go a little more aggressive since I have 30+ years before retirement.

My plan with the 90k (Actually almost 100k) was to continue to save 10 -15k more per year for about 2-3 more years and buy a multi family house. The money is in the bank account. Some in money market but the returns are terrible that my credit union bank gives me a better return. I don't know what to do with this money. I won't need it til 3 years from now. I live in western Mass now. Plan to move to Boston or near Boston area when GF finishes with school and planning to save for possible marriage.

Yeah I won't mix funds now, but I made her aware that she needs to start a Roth or 401k now rather than wait until she graduates.

My long term investing plan:
401k + ROTH max (both me and future wife/GF)
Multifamily unit 2-3 live on one
Buy more units or create a taxable account

I need to start thinking of my parents retirement as well. My GF's parents are doing well. It's just my parents that I need to worry about. We will also plan to have 2 kids in the future (5 year plan).
Engineer250
Posts: 1082
Joined: Wed Jun 22, 2016 1:41 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by Engineer250 »

ChuChu wrote: My long term investing plan:
401k + ROTH max (both me and future wife/GF)
Multifamily unit 2-3 live on one
Buy more units or create a taxable account

I need to start thinking of my parents retirement as well. My GF's parents are doing well. It's just my parents that I need to worry about. We will also plan to have 2 kids in the future (5 year plan).
I would absolutely max a Roth at your income level. In a few years when your housing expenses go up (and it becomes harder to save post-paycheck) and your income goes up (so you risk making too much to directly contribute) you will be happy you got a good start now.

-Rental property: is this something you have prior experience in? Being a landlord is its own thing. You should do a lot of research into this to figure out if this will fit with your lifestyle. There are other ways of investing in real estate that don't involve becoming a landlord.

-Parents retirement: can you elaborate on this? Do you think you will somehow be financially responsible for your parents or feel obligated to do so? This is a really big thing especially since you are also considering investing in real estate, and will be in a high housing cost area.
Where the tides of fortune take us, no man can know.
Topic Author
ChuChu
Posts: 24
Joined: Mon Jun 27, 2016 1:10 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by ChuChu »

Engineer250 wrote:
ChuChu wrote: My long term investing plan:
401k + ROTH max (both me and future wife/GF)
Multifamily unit 2-3 live on one
Buy more units or create a taxable account

I need to start thinking of my parents retirement as well. My GF's parents are doing well. It's just my parents that I need to worry about. We will also plan to have 2 kids in the future (5 year plan).
I would absolutely max a Roth at your income level. In a few years when your housing expenses go up (and it becomes harder to save post-paycheck) and your income goes up (so you risk making too much to directly contribute) you will be happy you got a good start now.

-Rental property: is this something you have prior experience in? Being a landlord is its own thing. You should do a lot of research into this to figure out if this will fit with your lifestyle. There are other ways of investing in real estate that don't involve becoming a landlord.

-Parents retirement: can you elaborate on this? Do you think you will somehow be financially responsible for your parents or feel obligated to do so? This is a really big thing especially since you are also considering investing in real estate, and will be in a high housing cost area.
Thank you. Very valuable advice. What other ways one can invest in real estate? Would you please elaborate?

My sister's husband's parents own 100+ unit apartment in New Mexico and a restaurant. He also owns a duplex in Boston. So I'd figure I'll follow the same.

I do feel responsible for my parent's retirement since I'm the only Male child. In my culture it means most responsibility will fall on me. Can't really count on my sister because they spend a lot of money and are in debt. I don't know how she got that mentality since we grew up very poor. I don't think they still realize this, but at least when my brother-in law's parents kicks the bucket they'll be financially well off.

Also I reallocated my 401k funds from prudential:
total market vangaurd - 60% [0.05 er]
international total vang - 20% [0.12 er]
total bond market vang - 20%. [0.07 er]
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Peter Foley
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Location: Lake Wobegon

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by Peter Foley »

ChuChu wrote:
My prudential 401k (just changed the allocation)
Vang Total Market 60%
Vang Total International 20%
Vang Total Bond 20%
Good plan.

I would also encourage both of you to Start Roths. Get something going while your income is low and you don't have to use the backdoor option. Roths have a 5 year rule for withdrawals so starting now would get the clock running. Some people use their Roth as a first line or second line emergency fund.
Engineer250
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Joined: Wed Jun 22, 2016 1:41 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by Engineer250 »

ChuChu wrote:What other ways one can invest in real estate? Would you please elaborate?

My sister's husband's parents own 100+ unit apartment in New Mexico and a restaurant. He also owns a duplex in Boston. So I'd figure I'll follow the same.

I do feel responsible for my parent's retirement since I'm the only Male child. In my culture it means most responsibility will fall on me. Can't really count on my sister because they spend a lot of money and are in debt. I don't know how she got that mentality since we grew up very poor. I don't think they still realize this, but at least when my brother-in law's parents kicks the bucket they'll be financially well off.

Also I reallocated my 401k funds from prudential:
total market vangaurd - 60% [0.05 er]
international total vang - 20% [0.12 er]
total bond market vang - 20%. [0.07 er]
Other ways to invest in real estate- an REIT (Real Estate Investment Trust) is probably the easiest. This may not be an option with your 401k, but Vanguard's brokerage/IRA accounts will let you invest in an REIT index fund or an REIT ETF. The index fund is similar to other index funds except it invests exclusively in companies that are purchasing/holding real estate of various types. It's not any less risky than investing in any single commodity would be. It tends to move up/down similarly to the US stock market since both will reflect the economy in general and obviously it's going to take a serious dip if something happens to real estate prices (like 2008). But having a small percentage of your portfolio in REIT could be a lot less risky than having debt and several properties which could likely be equal to or more than your 401k.

Your allocation looks great; If you do decide to open a Roth, most people recommend you don't hold any bonds in Roth accounts. Since you won't pay taxes on withdrawals you tend to want your investments that are expected to grow more in Roth, so plan to keep your bond allocation in tax deferred (like your standard 401k) accounts.

I recognize you might feel a lot of responsibility for your parents, but I hope you can find a way to take care of them without putting your own financial future at risk. Being ready to give your time to them, maybe even taking them into your home, are a lot different than contributing less to your own retirement or giving them money. You wouldn't want this to be an endless cycle where your own children have to take you on as their responsibility because you put your parents' future ahead of your own.
Where the tides of fortune take us, no man can know.
Topic Author
ChuChu
Posts: 24
Joined: Mon Jun 27, 2016 1:10 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by ChuChu »

Engineer250 wrote:
ChuChu wrote:What other ways one can invest in real estate? Would you please elaborate?

My sister's husband's parents own 100+ unit apartment in New Mexico and a restaurant. He also owns a duplex in Boston. So I'd figure I'll follow the same.

I do feel responsible for my parent's retirement since I'm the only Male child. In my culture it means most responsibility will fall on me. Can't really count on my sister because they spend a lot of money and are in debt. I don't know how she got that mentality since we grew up very poor. I don't think they still realize this, but at least when my brother-in law's parents kicks the bucket they'll be financially well off.

Also I reallocated my 401k funds from prudential:
total market vangaurd - 60% [0.05 er]
international total vang - 20% [0.12 er]
total bond market vang - 20%. [0.07 er]
Other ways to invest in real estate- an REIT (Real Estate Investment Trust) is probably the easiest. This may not be an option with your 401k, but Vanguard's brokerage/IRA accounts will let you invest in an REIT index fund or an REIT ETF. The index fund is similar to other index funds except it invests exclusively in companies that are purchasing/holding real estate of various types. It's not any less risky than investing in any single commodity would be. It tends to move up/down similarly to the US stock market since both will reflect the economy in general and obviously it's going to take a serious dip if something happens to real estate prices (like 2008). But having a small percentage of your portfolio in REIT could be a lot less risky than having debt and several properties which could likely be equal to or more than your 401k.

Your allocation looks great; If you do decide to open a Roth, most people recommend you don't hold any bonds in Roth accounts. Since you won't pay taxes on withdrawals you tend to want your investments that are expected to grow more in Roth, so plan to keep your bond allocation in tax deferred (like your standard 401k) accounts.

I recognize you might feel a lot of responsibility for your parents, but I hope you can find a way to take care of them without putting your own financial future at risk. Being ready to give your time to them, maybe even taking them into your home, are a lot different than contributing less to your own retirement or giving them money. You wouldn't want this to be an endless cycle where your own children have to take you on as their responsibility because you put your parents' future ahead of your own.
Thanks Engineer250, all good valuable advice. Is going 100% stocks on roth risky?
Engineer250
Posts: 1082
Joined: Wed Jun 22, 2016 1:41 pm

Re: Newbie here: Help with my 401k and my Potential Roth IRA.

Post by Engineer250 »

ChuChu wrote:
Engineer250 wrote:
ChuChu wrote:What other ways one can invest in real estate? Would you please elaborate?

My sister's husband's parents own 100+ unit apartment in New Mexico and a restaurant. He also owns a duplex in Boston. So I'd figure I'll follow the same.

I do feel responsible for my parent's retirement since I'm the only Male child. In my culture it means most responsibility will fall on me. Can't really count on my sister because they spend a lot of money and are in debt. I don't know how she got that mentality since we grew up very poor. I don't think they still realize this, but at least when my brother-in law's parents kicks the bucket they'll be financially well off.

Also I reallocated my 401k funds from prudential:
total market vangaurd - 60% [0.05 er]
international total vang - 20% [0.12 er]
total bond market vang - 20%. [0.07 er]
Other ways to invest in real estate- an REIT (Real Estate Investment Trust) is probably the easiest. This may not be an option with your 401k, but Vanguard's brokerage/IRA accounts will let you invest in an REIT index fund or an REIT ETF. The index fund is similar to other index funds except it invests exclusively in companies that are purchasing/holding real estate of various types. It's not any less risky than investing in any single commodity would be. It tends to move up/down similarly to the US stock market since both will reflect the economy in general and obviously it's going to take a serious dip if something happens to real estate prices (like 2008). But having a small percentage of your portfolio in REIT could be a lot less risky than having debt and several properties which could likely be equal to or more than your 401k.

Your allocation looks great; If you do decide to open a Roth, most people recommend you don't hold any bonds in Roth accounts. Since you won't pay taxes on withdrawals you tend to want your investments that are expected to grow more in Roth, so plan to keep your bond allocation in tax deferred (like your standard 401k) accounts.

I recognize you might feel a lot of responsibility for your parents, but I hope you can find a way to take care of them without putting your own financial future at risk. Being ready to give your time to them, maybe even taking them into your home, are a lot different than contributing less to your own retirement or giving them money. You wouldn't want this to be an endless cycle where your own children have to take you on as their responsibility because you put your parents' future ahead of your own.
Thanks Engineer250, all good valuable advice. Is going 100% stocks on roth risky?
Investing in stocks is always risky. I am 100% invested in equities in all my retirement accounts, 401k and Roth included, and am a few years older than you. If you intend to use your Roth IRA as a backup emergency fund it could be a risk not worth taking. If you have sufficient cash reserves to fall back on elsewhere. Many people who are invested in bonds don't keep any in their Roth but do keep enough in their tax deferred accounts so that their overall investments fit their asset allocation for risk. You will have to decide whether it fits your personal risk. Either way you decide you will be fine.
Where the tides of fortune take us, no man can know.
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