Aspiring Boglehead Seeking Advice

[Crystal Baller]

Hello everyone,

Aspiring Boglehead here reaching out for advice to get me set on the right path. After years of now agonizing blissful ignorance, I’m excited to finally do my future self some favors. Thanks in advance for your time!

I understand some of the information below pertains to personal finance but I felt it was better to provide too much information rather than too little.

Emergency Funds: 5 months of expenses
Debt: Student Loan: $3,961 @ 6.8%
Car Lease: $348/mo thru June ‘19 (I know… be gentle)
Tax Filing Status: Single
Tax Rate: 25% Federal, 4.63% State
State of Residence: CO
Age: 28
Income: $92,000 ($77k base / ~$15k in bonuses)
Desired Asset Allocation: 90% stocks / 10% bonds
Desired International Allocation: 30% of stocks

My Plan/Thoughts for 2017

Considering my limited number of low cost 401k fund options, appears to me that I’m best off contributing the necessary $10k to achieve the full match and then directing my efforts to a Roth IRA. Open to direction as far as Roth/Traditional but considering I’m beyond the deduction limits for Traditional, figured Roth was the way to go. As far as my allocations go, my understanding is that while the .45% on my current LPSGX fund isn’t terrible, the performance history and fee comparison to VFIAX leads me to think making a change is a no-brainer.

My budgeted goal for this year is 30% total savings of my est. $92K gross income; call it $28k for round numbers.

Breakdown of Planned Contributions/Savings Towards $28K Goal:
401k: $10,000
Roth/tIRA: $11,000
HSA: $3,000
Cash Savings: $4,000

With my bonus checks’ timing being variable and trying to keep my budget as simple as possible, these bonus checks will be used to help achieve the following goals:
• Replenish emergency fund to 3 months
• Pay off student loan in full
• Engagement ring fund
• Emergency fund to 6 months
• Save for post-lease car purchase

I currently do not have an IRA account. I have $7k in my savings account (which is my emergency fund) and was planning to immediately go ahead and max out 2016 contributions with $5,500 of that. I have a guaranteed minimum $5k check coming end of Q1, which I’ll use to replenish my emergency fund. Very stable job and am comfortable with a reduced emergency fund for a couple months.

Current Total Portfolio: $29,000

My 401k: 100% of Portfolio
All traditional to date but Roth is now available. Working with benefits team to understand how company match can be directed.
100% BlackRock LifePath Dyn 2050 K (LPSGX) (.45%)
Company matches 25% of contributions up to $2,500

Funds Available in 401(k):
Stable Pooled Fund (.55%)
Metropolitan West Total Return Bond I (MWTIX) (.44%)
Vanguard Total Bond Market Index Admiral (VBTLX) (.06%)

BlackRock High Yield Bond Instl (BHYIX) (.60%)

BlackRock Equity Dividend Instl (MADVX) (.72%)
Davis NY Venture Y (DNVYX) (.63%)
Vanguard 500 Index Admiral (VFIAX) (.05%)
Americans Funds Growth Fund of Amer R6 (RGAGX) (.33%)

AMG Managers Fairpointe Mid Cap I (ABMIX) (.86%)
JPMorgan Mid Cap Value L (FLMVX) (.75%)
Vanguard Mid Cap Index (VIMAX) (.08%)
Boston Partners Small Cap Value II Inv (BPSCX) (1.35%)
Principal Small Cap S&P 600 Index Inst (PSSIX) (.20%)

Dodge & Cox International Stock (DODFX) (.64%)
First Eagle Overseas I (SGOIX) (.88%)
Vanguard Developed Markets Index Admiral (VTMGX) (.09%)
American Funds New World R5 (RNWFX) (.71%)

BlackRock LifePath Dyn 2050 K (LPSGX) (.45%)


401k Reallocation Plan as a Three Fund Portfolio
Vanguard 500 Index Admiral (VFIAX) (.05%) – 63%
Vanguard Developed Markets Index Admiral (VTMGX) (.09%) – 27%
Vanguard Total Bond Market Index Admiral (VBTLX) (.06%) – 10%

Roth/Trad IRA Allocation Plan
Vanguard Total Stock Market Index VTSMX – 63%
Vanguard Total Intl Stock Index VGTSX – 27%
Vanguard Total Bond Market Index VBMFX – 10%

HSA Allocation Plan
Vanguard Total Stock Market Index VTSMX – 63%
Vanguard Total Intl Stock Index VGTSX – 27%
Vanguard Total Bond Market Index VBMFX – 10%


Fortunately/unfortunately, my situation is not overly complicated (yet!). All of my thoughts and plans are fair game but would love your input on my planned reallocation and future allocations. Input on Roth vs traditional for my 401k and IRA would also be helpful.

Thank you!

[Nate79]

You have absolutely wonderful options in your 401k. Why do you think otherwise?

Do you expect to be in higher tax bracket in the future or expect similar income going forward? If you don't expect huge salary jump I would try and max out 401k and contribute to Roth IRA.

Traditional makes sense for most people vs Roth.

[monsterid]

You have absolutely wonderful options in your 401k. Why do you think otherwise?

Do you expect to be in higher tax bracket in the future or expect similar income going forward? If you don't expect huge salary jump I would try and max out 401k and contribute to Roth IRA.

Traditional makes sense for most people vs Roth.

100% agree.

Those Vangaurd funds in your 401k are all you'll need. Use a three fund portfolio, done! You are very lucky.

[PFInterest]

Max the 401k, then the rIRA. Get rid of the car loan.

[Taylor Larimore]

Fortunately/unfortunately, my situation is not overly complicated (yet!). All of my thoughts and plans are fair game but would love your input on my planned reallocation and future allocations. Input on Roth vs traditional for my 401k and IRA would also be helpful.

Crystal Baller:

Welcome to the Bogleheads forum!

You have done an excellent job posting according to Laura's format. It is nice to see you are not "overly complicated (yet!)." Keep it that way (see Simplicity link below).

I think your proposed Three-Fund Portfolio plan is excellent. Use this Bankrate tool to decide whether your IRAs should be traditional or Roth: http://www.bankrate.com/calculators/ret ... ulator.asp

"The enemy of a good plan is the dream of a perfect plan." -- Jack Bogle

Stay-the-course and best wishes.
Taylor

[aristotelian]

There is no need to have all three funds in each account. Stock in the Roth, Total Bond Market in the 401k up to the allocation you want, and then fill in the rest of the space with 500 index and possibly mid-cap index or international. Don't worry about investing the HSA until you have at least one year's deductible saved up.

[Taylor Larimore]

There is no need to have all three funds in each account. Stock in the Roth, Total Bond Market in the 401k up to the allocation you want, and then fill in the rest of the space with 500 index and possibly mid-cap index or international. Don't worry about investing the HSA until you have at least one year's deductible saved up.

Crystal Baller:

I like aristotelian's reply if it does not substantially unbalance your Asset Allocation plan. Not only is it simpler, but fewer and larger funds may allow you to benefit from Admiral shares earlier.

Best wishes.
Taylor

[Crystal Baller]

You have absolutely wonderful options in your 401k. Why do you think otherwise?

Do you expect to be in higher tax bracket in the future or expect similar income going forward? If you don't expect huge salary jump I would try and max out 401k and contribute to Roth IRA.

Traditional makes sense for most people vs Roth.

In reading other posts, it seemed that the common recommendations/choices didn't match up with what I had available from my provider. I'm thankful to now realize my fund options are great!

I do expect to be in a higher tax bracket in the future. 28% in 3-5 years. 33% in ~15 years.

Appreciate your help!

[kiddoc]

Debt: Student Loan: $3,961 @ 6.8%

Knock that out first please. Very few investments (not even a 3-fund portfolio) of $3961 offer a guaranteed 6.8% return

[Crystal Baller]

You have absolutely wonderful options in your 401k. Why do you think otherwise?

Do you expect to be in higher tax bracket in the future or expect similar income going forward? If you don't expect huge salary jump I would try and max out 401k and contribute to Roth IRA.

Traditional makes sense for most people vs Roth.

100% agree.

Those Vangaurd funds in your 401k are all you'll need. Use a three fund portfolio, done! You are very lucky.

Awesome, thank you!

[Crystal Baller]

Max the 401k, then the rIRA. Get rid of the car loan.

Every payment stings. Lesson learned. Thank you!

[Crystal Baller]

Fortunately/unfortunately, my situation is not overly complicated (yet!). All of my thoughts and plans are fair game but would love your input on my planned reallocation and future allocations. Input on Roth vs traditional for my 401k and IRA would also be helpful.

Crystal Baller:

Welcome to the Bogleheads forum!

You have done an excellent job posting according to Laura's format. It is nice to see you are not "overly complicated (yet!)." Keep it that way (see Simplicity link below).

I think your proposed Three-Fund Portfolio plan is excellent. Use this Bankrate tool to decide whether your IRAs should be traditional or Roth: http://www.bankrate.com/calculators/ret ... ulator.asp

"The enemy of a good plan is the dream of a perfect plan." -- Jack Bogle

Stay-the-course and best wishes.
Taylor

Appreciate the warm welcome! Bankrate calculator was very helpful. Thanks for taking a look!

[Crystal Baller]

There is no need to have all three funds in each account. Stock in the Roth, Total Bond Market in the 401k up to the allocation you want, and then fill in the rest of the space with 500 index and possibly mid-cap index or international. Don't worry about investing the HSA until you have at least one year's deductible saved up.

Crystal Baller:

I like aristotelian's reply if it does not substantially unbalance your Asset Allocation plan. Not only is it simpler, but fewer and larger funds may allow you to benefit from Admiral shares earlier.

Best wishes.
Taylor

Taylor and aristotelian,

Great points here and I'm all for keeping things simple. Looks like I should be able to stick to my Asset Allocations using this approach. Thank you both!

[Crystal Baller]

Debt: Student Loan: $3,961 @ 6.8%

Knock that out first please. Very few investments (not even a 3-fund portfolio) of $3961 offer a guaranteed 6.8% return

kiddoc,

I'm with you. Thought process was to make sure I didn't miss out on my 2016 IRA contribution. Was being overly conservative and I'm confident I can pay this off and fund my max 2016 contribution prior to the deadline.

Thanks!