Help for a newbie

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Colleen
Posts: 2
Joined: Wed Feb 15, 2017 10:58 am

Help for a newbie

Postby Colleen » Thu Feb 16, 2017 9:19 pm

Hello Everyone,
My name is Colleen. I'm 41 (soon to be 42) and am new to this business of investing.

My husband and I have two accounts at Schwab. The account he manages has the following ETF investments:

SCHF (International Fund)
SCHZ (Aggregate Bond Fund)
SCHX (U.S. Large Cap Fund)
SCHA (U.S. Small Cap Fund)

The second account, recently opened, is not invested in anything. I also have a Roth IRA that is currently worth around $71,000. I have no investment experience, but one day I may need to manage not just these accounts, but the rest of the family's accounts as well (E*Trade, MerillEdge and Schwab, plus the 529 accounts. I want to get my feet wet and learn to manage the second Schwab account and my Roth IRA. My husband suggested that I ask for input from the people here, so here I am! Assume that (i) I have $10,000 to invest at the start and $500 a month thereafter (at Schwab), and $5,500 a year for my Roth IRA; (ii) I won't need the money for the foreseeable future and (iii) I don't know for how long the monthly additions will be made (or the yearly contributions to the IRA) but hope to do so for the next 12 years.

I am starting this whole process pretty late in life and realize it is on a small scale. Now that I realize how close retirement is, I want to be as prepared as possible and make as much money as possible in the next 20 years. I don't mind risk as long as I will be able to see the payoff when it is needed.Can you help?

User avatar
David Jay
Posts: 3216
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Help for a newbie

Postby David Jay » Thu Feb 16, 2017 10:11 pm

I would recommend starting with the TargetRetirement family of funds. These are funds-of-funds that hold 10,000 US and International stocks, plus US and international bonds. Based on your age, the default fund would be TR 2040, but you can adjust that as you learn and develop your personal asset allocation. The initial purchase amount is only $1000 so you can use it for the first year of your Roth.

First, read "If you Can", it is a short read but also a roadmap to further learning: https://dl.dropboxusercontent.com/u/290 ... %20Can.pdf

Second, go to the Bogleheads Startup Kit here: https://www.bogleheads.org/wiki/Boglehe ... art-up_kit

As you learn and your balances grow, you can save a tiny bit of fund expense with lower cost individual funds.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

aristotelian
Posts: 1598
Joined: Wed Jan 11, 2017 8:05 pm

Re: Help for a newbie

Postby aristotelian » Thu Feb 16, 2017 10:41 pm

A Target Date fund is definitely a safe option, especially for your IRA. However, the more you can tell us about your situation, the better advice you will get. You might not want a Target Date fund in your taxable account as you get closer to retirement. What is your tax bracket? What is the current amount of your husband's portfolio, and how much is he putting away? Do either of you have an employer plan (401k, etc)? Is your Roth IRA at Schwab or one of the other brokers you mentioned?

I think your husband's fund choices look good. You can just get more of those. The question is how much risk the two of you are comfortable with, and then find an allocation between your accounts that achieves your goals.

You might want to open a Traditional IRA unless you are in a low tax bracket. That will give you a tax deduction this year, meaning more money available to invest. If you don't have any tax-deferred money yet, it is generally a good idea to have both.

Investorjoe
Posts: 8
Joined: Thu Feb 16, 2017 11:04 am

Re: Help for a newbie

Postby Investorjoe » Thu Feb 16, 2017 10:51 pm

The good news is at just 41 your not to old for a retirement plan based on your high contributions now. Infact your just the right age! There really is nothing to managing an account. Simply buy a well established low fee fund such as S&P500 index (VOO vanguard). The funds you have now are fine too. But the only fund you actually need is a low fee S&P500 fund for your stocks. Dollar cost average into them as you said you will contribute every year, and by age 65 you should be all set. Sounds like your doing everything right keep up the good work.
If you start with 10,000 and add $500 monthly in 25 years at 5% you will have: $328,000. If you do remarkably well at 10% you will have $729,000.

David Scubadiver
Posts: 237
Joined: Thu Mar 24, 2016 8:40 am

Re: Help for a newbie

Postby David Scubadiver » Fri Feb 17, 2017 5:33 am

Investorjoe wrote: The funds you have now are fine too. But the only fund you actually need is a low fee S&P500 fund for your stocks.
Why is an S&P 500 index fund (500 largest US companies by market capitalization [market cap = stock price x shares the company has on the market]) needed if she has SCHX (US large capitalization fund?

David Scubadiver
Posts: 237
Joined: Thu Mar 24, 2016 8:40 am

Re: Help for a newbie

Postby David Scubadiver » Fri Feb 17, 2017 9:06 am

aristotelian wrote:A Target Date fund is definitely a safe option, especially for your IRA. However, the more you can tell us about your situation, the better advice you will get. You might not want a Target Date fund in your taxable account as you get closer to retirement. What is your tax bracket? What is the current amount of your husband's portfolio, and how much is he putting away? Do either of you have an employer plan (401k, etc)? Is your Roth IRA at Schwab or one of the other brokers you mentioned?

I think your husband's fund choices look good. You can just get more of those. The question is how much risk the two of you are comfortable with, and then find an allocation between your accounts that achieves your goals.

You might want to open a Traditional IRA unless you are in a low tax bracket. That will give you a tax deduction this year, meaning more money available to invest. If you don't have any tax-deferred money yet, it is generally a good idea to have both.


I see two main themes running from her post.

First, she has no experience investing but wants to learn to do so. At least part of the reason is to be prepared for a time when she may have to manage the family's entire portfolio.

Second, even if she never winds up managing the other accounts, she wants to maximize the value of the Roth IRA and the Schwab account over the next 20 years and claims not to mind risk as long as it pays off in the end.

If this is correct, I think the advice should focus on the two accounts and how to maximize returns with the right level of risk, over the next 20 years.

(Her tax bracket, her husband's investments, her husband's risk tolerance, etc., while important for advice that encompasses all of those accounts, are factors that may be overwhelming and not particularly helpful at this stage where she is focused on learning/experiencing the markets while maximizing her returns in these two accounts over the 20 year period. Integrating her portfolio/risk tolerance with that of her husbands can be done if and when she is comfortable doing so, but looking at that now may be putting the cart before the horse).

Investorjoe
Posts: 8
Joined: Thu Feb 16, 2017 11:04 am

Re: Help for a newbie

Postby Investorjoe » Fri Feb 17, 2017 11:09 am

David Scubadiver wrote:
Investorjoe wrote: The funds you have now are fine too. But the only fund you actually need is a low fee S&P500 fund for your stocks.
Why is an S&P 500 index fund (500 largest US companies by market capitalization [market cap = stock price x shares the company has on the market]) needed if she has SCHX (US large capitalization fund?


To take from Warren Buffett he has stated an investor only needs to buy and hold a low cost S&P500 fund as far as stocks go. A lot of people try to diversify and buy many funds, but really an investor only needs that one fund to do just as well as anyone in the market. It could be the Dow Jones Industrial, it could be the S&P500, it could be the S&P600, or the S&P400, or the wilshire 5000. But at the end of the day you only need 1 good fund.

David Scubadiver
Posts: 237
Joined: Thu Mar 24, 2016 8:40 am

Re: Help for a newbie

Postby David Scubadiver » Sun Feb 19, 2017 4:47 pm

I am going to recommend you invest 20% bonds (SCHZ) and 80% stocks (80% of which are U.S. (SCHB), and 20% of which are foreign (SCHF)).

So, if you have $ to invest (or you have $ invested across all of your accounts), you will want to own:

SCHZ = 20% x $
SCHB = 64% x $
SCHF = 16% x $

If you have $100,000 that would mean:

SCHZ = 20% x $100,00 = $20,000
SCHB = 64% x 100,000 = $64,000
SCHF = 16% x 100,000 = $16,000

And, if you are going to invest in both the Roth IRA and a taxable account, make sure the SCHZ is held in the IRA so you won't have to pay taxes on the income every year. (Although, you also have to pay gains on the stock, and some might argue that if the gains in stock are high enough it may be better to have those in your ROTH IRA than than the bonds so you won't pay tax on the capital gains.

Every year you can rebalance assuming your allocation changes by more than 5% in any category. Every month as you invest your $500, you can either try to figure out how to apply the purchase to bring the account in balance, or more simply, just buy the same amounts every month for a year and rebalance the whole thing as needed.

SCHZ = 20% x $500 = $100
SCHB= 64% x 500 = $320
SCHF = 16% x 500 = $80

(Investing in the IRA complicates things somewhat because you may already have maxed out your annual contribution so can't contribute monthly to it. In that case, I think it would be fine to combine the SCHB and SCHF amounts and buy them in the taxable account and then just reallocate as needed in the IRA after 12 months.


Return to “Investing - Help with Personal Investments”

Who is online

Users browsing this forum: AlohaRN, ionisation, venkman, Zedon and 37 guests