29 Year old New Investor Needs help- Vanguard Index Funds

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jon1212
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29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Tue Apr 18, 2017 1:07 pm

Hey all,

I am a 29 year old male, and a new investor. I currently just put $200 a month into my betterment account. I am a teacher and I currently make $65,000 per year.

I have started reading Benjamin Graham's Inteligent Investor, and recently I finished The Millionaire Teacher. Long story short, I read that index funds are the best way to go. I was going to invest as Benjamin Graham had suggested into index funds with total us stocks, foreign stocks, and us bonds. However, after realizing that at Vanguard it is a minimum of 3,000 EACH fund I realized I don't want to put that much money in yet.

So, that has lead me to start with $3,000 total. My question is, is my best bet going with the Lifestrategy Growth fund? I am confused because I don't know if I should just start with 3,000 and then put 200 a month into this fund or do something different. My other thought was to buy into divdend stocks. For example AT&T pays a dividend of 4.87% currently. I would be receiving a quarterly check which is cool. Should I go this route instead? Or am I better off just using the Lifestrategy Growth fund? Or, I have been reading about other index funds which pay dividends such as the Wellington fund although there is a higher expense.. can anyone give me advice on what the best thing to do is in my situation?

I am so confused.

Thank you!

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by RadAudit » Tue Apr 18, 2017 10:05 pm

Welcome to the forum.
jon1212 wrote: My question is, is my best bet going with the Lifestrategy Growth fund?
Check out a Target Date Fund. I think their initial investment level is $1,000.
jon1212 wrote: My other thought was to buy into divdend stocks.
Many people think that way; however, opinions differ. I believe that there are folks that believe it doesn't really matter from a total return perspective. That is, if the money isn't paid out in a dividend, it is kept by the company and invested in operations and / or growth prospects. If you are paid a dividend, you have to invest the dividend in something to get comparable growth. Could be wrong on that explanation.
jon1212 wrote:Or am I better off just using the Lifestrategy Growth fund?
Either LifeStrategy or Target Date funds are both acceptable. LifeStrategy funds have a constant AA. Target Date funds' AA change over time the closer you get to retirement. Both are diversified across stock and bonds, and around the world. Until you get a little more experience, I'd avoid single stock purchases primarily because the risk associated with a single stock is significantly greater than a diversified portfolio - even (especially?) if the stock is AT&T.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by pkcrafter » Tue Apr 18, 2017 11:10 pm

Welcome jon,
jon1212 wrote:Hey all,

I am a 29 year old male, and a new investor. I currently just put $200 a month into my betterment account. I am a teacher and I currently make $65,000 per year.

So you have a 403b or 457? Are you adding to it?

I have started reading Benjamin Graham's Inteligent Investor, and recently I finished The Millionaire Teacher. Long story short, I read that index funds are the best way to go. I was going to invest as Benjamin Graham had suggested into index funds with total us stocks, foreign stocks, and us bonds.

Ha, you had us going there. Graham wrote his book in 1949, too early for index funds. You must have read Jason Zweig's updated version. :happy

However, after realizing that at Vanguard it is a minimum of 3,000 EACH fund I realized I don't want to put that much money in yet.

So, that has lead me to start with $3,000 total. My question is, is my best bet going with the Lifestrategy Growth fund? I am confused because I don't know if I should just start with 3,000 and then put 200 a month into this fund or do something different.

LS Growth (80% stock) is a good choice as it gives you the funds you are looking for. The target funds are also good, with a 1k min. Are you going to open an IRA or Roth for these investments? Best thing to do.

My other thought was to buy into divdend stocks. For example AT&T pays a dividend of 4.87% currently. I would be receiving a quarterly check which is cool.

No, that wouldn't be cool. You need to think long term with investments, and dividend-producing stocks or funds will generate lots of taxes if you take those dividends unless they are in a tax-protected account. I know this was Graham's strategy, but today we think in terms of total return.

Should I go this route instead? Or am I better off just using the Lifestrategy Growth fund? Or, I have been reading about other index funds which pay dividends such as the Wellington fund although there is a higher expense.. can anyone give me advice on what the best thing to do is in my situation?

Your better off with the LS fund. Wellington is not tax efficient either, so not good in a taxable account.


I am so confused.

Everybody is confused when they start, but you will get on track faster than you think. Here are some references.

Getting Started:

https://www.bogleheads.org/wiki/Getting_started

Books Taylor Larimore has reviewed. Read Taylor's Gems to get an idea of what's inside:

https://www.bogleheads.org/wiki/Books:_ ... nd_reviews

You can get this 16 pg thriller by Wm Bernstein for free download. Definitely read it. It's the first book listed in the books link and it is a live link to Amazon.

If You Can: How Millennials Can Get Rich Slowly - William Bernstein

You are on your way.

Paul



Thank you!
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.

jon1212
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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 7:34 am

Thank you for the great responses guys.

I will definitely check out those books.

I do add to my betterment account 200$ the 15th of every month- I think its a 403b but i'm not sure- its not for retirement.

As far as the target fund, what exactly is this? Is this a better option for me than the life strategy? This is NOT for a retirement account. I am a NYC school teacher and I have a pension, and 10% of my pay check goes to a Tax Deferred Annunity where I get 7% on my money. I want to make other investments because I don't know how long I will teach for (I kind of want to do something else) so I want to start investing.

So what would you guys say is my best bet?

dbr
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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by dbr » Wed Apr 19, 2017 8:56 am

jon1212 wrote:Thank you for the great responses guys.

I will definitely check out those books.

I do add to my betterment account 200$ the 15th of every month- I think its a 403b but i'm not sure- its not for retirement.

As far as the target fund, what exactly is this? Is this a better option for me than the life strategy? This is NOT for a retirement account. I am a NYC school teacher and I have a pension, and 10% of my pay check goes to a Tax Deferred Annunity where I get 7% on my money. I want to make other investments because I don't know how long I will teach for (I kind of want to do something else) so I want to start investing.

So what would you guys say is my best bet?
You should not think of investing as picking funds but rather as devising an asset allocation and choosing funds to realize that allocation. Without figuring out your plan for what assets to own (meaning stocks and bonds of various kinds) it is pretty much nonsensical to make bets on funds.

To understand what various funds do you can go to the Vanguard web pages and read the prospectus and other descriptions posted there, but more likely by the time you have done some reading most things will be clear enough.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 9:14 am

Okay thanks guys, I checked out the Vanguard Target funds and I have an idea. Please tell me what you guys think:

I will take out my $1500 from betterment, and I will put it towards the Vangaurd Target 2035 fund with is 80% stock 20% bond.. I will do this and keep adding $200 a month to the account. Once I get to $300 I will transfer it to a LifeStrategy Growth fund, how does that sound??

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by onourway » Wed Apr 19, 2017 9:51 am

You still haven't answered the key question asked earlier -

>>So you have a 403b or 457?

This needs to be figured out first. If so, are you adding to it? Does your employer contribute on your behalf. Do they match your contributions?

These retirement plan questions come first. Do you have a pension? Do you have a 403b or 457? Do you have an IRA. All of these are tax-advantaged 'retirement' accounts that you should be contributing to before you consider saving in a taxable account like Betterment.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by mcraepat9 » Wed Apr 19, 2017 11:11 am

onourway wrote:You still haven't answered the key question asked earlier -

>>So you have a 403b or 457?

This needs to be figured out first. If so, are you adding to it? Does your employer contribute on your behalf. Do they match your contributions?

These retirement plan questions come first. Do you have a pension? Do you have a 403b or 457? Do you have an IRA. All of these are tax-advantaged 'retirement' accounts that you should be contributing to before you consider saving in a taxable account like Betterment.
Absolutely need to answer this question before going any further -- if you are not maximizing your tax-advantaged investing options before moving on to taxable accounts, you are basically flushing money down the toilet on taxes.
Amateur investors are not cool-headed logicians.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 11:47 am

I have a NYC Pension,..for the Department of Education- I don't know how that is classified..

Our Tax Deferred Annuity where we can contribute money from our checks and get 7% is a 403b..

I hope this helps..

jon1212
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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 1:41 pm

I hope this helps so I can get some good advice! ..

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by brother7 » Wed Apr 19, 2017 2:21 pm

Don't know what employer-sponsored plan the OP has so I did a Google search and found this article explaining a little bit about the NY teacher pension plan. (Notice: there's a popup ad when you visit the page)

Here's a blurb from the Teachers’ Retirement System of the City of New York website:
As a TRS member, you can take advantage of two retirement plans under one roof: first, the guaranteed plan known as the Qualified Pension Plan (QPP); and second, our popular Tax-Deferred Annuity (TDA) Program.
I don't know much about pensions or annuities so I'll defer to the experts here.

jon1212
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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 3:27 pm

Let me clarify.

I have a NYC pension.

Then, I have a TDA (Tax Deferred Annunity) that I get 7% on my money, but you can only touch it once you retire. (I believe this is considered 403b)My employer aka the NYC Department of Education does NOT contribute anything, but I make 7% with the fixed return. OR, I could allocate to different stock options they have but I just do it all for a fixed return of 7%. I give 10% of each pay check towards this TDA.

Now, I figure that I have 10% going towards that I should have another personal investing account to diversify, AND incase I stop working at this job and do something else. So, should I open up an account with Vanguard, and if so which account? Or should I be contributing as much to this account as I can as 7% is a guarentee return? Although I can't touch that money until I retire which sucks..

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by LadyGeek » Wed Apr 19, 2017 3:30 pm

FYI - New member loriloo2 has a question which I've moved into a new thread. See: [Should I invest in an IPO?]
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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 5:29 pm

So what do you guys think?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by onourway » Wed Apr 19, 2017 5:40 pm

What are the details of your pension? Are you likely to remain at this job long enough to make it pay out as expected?

If you have access to the 7% guaranteed return plan in your TDA, I would put everything you can into that. I presume that is an $18k annual max like a regular TDA.

Together those should more than set you up for a great retirement. Above and beyond that, then invest in taxable. If you have other savings goals in the interim that you cannot meet while contributing the max to the TDA then you may have to scale back. But remember that taxable investments are still for the long term - at least 10 years. 20 is better.

Save for the short and medium terms. Invest for the long-term.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 6:09 pm

Thanks,

So your saying max out my TDA because its a guarentee 7 percent vs index stock which I might make more, I might make less?

And thats fine and good and all the only problem is, Its only for log term and retirement, .. i cant take it out without a penalty. Also, i may end up staying in this job and I may not im really not sure.. so i thought if i had a personal account with vanguard in either target funds or lifestrategy growth fund i would be able to take money from it whenever I wanted AND its diversifying my porfolio AND its good incase I dont stay in this job.. any thoughts?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by onourway » Wed Apr 19, 2017 6:20 pm

You need to separate out what you are saving for. 7% guaranteed return is the best offer you will ever get. That's the average return of the market over very long periods of time with huge amounts of volatility. 7% guaranteed is basically a huge subsidy to NY employees.

If you are saving for retirement, then it doesn't matter that you can't access it until that point. In fact, that's a good thing because it can't be raided.

If you have need or want to save for other interim goals, as I say above, that's fine - we all have this need - but you need to assess whether the market is the appropriate place for those savings. Anything under ~10 years from now probably shouldn't be in the market unless you are willing to risk losing principle. Set specific savings goals and choose the appropriate location for putting the funds for those goals. In general though I would not avoid saving in a 7% guaranteed rate TDA because you might want more flexibility with your money somewhere in the distant future. The TDA gives you great return, plus it reduces your current tax bill by a substantial amount. Put as much in there as you can afford.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 6:37 pm

Great advice and will do. And if i want to make money for now as in increase my total revenue- would you suggest i pick something else other than investing in index funds like vanguard?

My plan was to have my TDA for retirement and invest in index funds now to earn some cash on top of my income..

jon1212
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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 7:34 pm

And would it not be wise to have another account, like a Vanguard Lifestrategy or Target fund as a separate retirement account from my pension assuming I don't stay at my job?>

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by TheJoker » Wed Apr 19, 2017 8:08 pm

Congrats for thinking of investing for the long term at your age. Put the money in Vanguard 500 index for the next 5 years while you educate yourself about investing. Read all of Bogle's books. Cheap on Amazon.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Wed Apr 19, 2017 8:31 pm

Thannks Bham,

I am thinking of long term but also short-mid term.

So based on all of the suggestions what do you guys think if I do the following:

Retirement: My NYC Pension (for as long as I keep the job)
+ my TDA (Tax Defered Annunity making 7%) and allocating 10% of my check to it. (for as long as I keep the job)

PLUS

Opening up a Targent Fund at Vanguard and transfering the money I have from my betterment account ($1,550) into this account, and keep adding $200 a month and when it hits $3000 put it toward LifeStrategy Growth fund..

This way I have my pension, TDA, and a seperate account of my own incase I quit my job and just to diversify and have something else?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by Tamarind » Wed Apr 19, 2017 8:55 pm

jon1212 wrote:Great advice and will do. And if i want to make money for now as in increase my total revenue- would you suggest i pick something else other than investing in index funds like vanguard?

My plan was to have my TDA for retirement and invest in index funds now to earn some cash on top of my income..
Investing is best when you reinvest all your gains and let them compound and grow for a long time. What would you do with the extra "cash on top"? Do you have a specific goal for it, or do you actually need more income each month to pay your bills?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by BL » Thu Apr 20, 2017 1:44 am

If you don't make too much money to qualify for Roth IRA investment, that would be better than a regular account. Your contributions, but not earnings, could be removed at any time with no tax or penalty. The gains can usually be removed after 59 1/2 and then would never be taxed.

You could set it up at Vanguard, add 5500/year into either the Target fund or LS. These two funds are identical, but the Target fund will gradually increase the % of bonds while the LS maintains the same % forever.

I am drooling at your 7% guaranteed gain on your 403b! Try to put the max you can in that! That is almost too good to be true, but I hear it is.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by sweeden22 » Thu Apr 20, 2017 3:43 am

BL wrote:If you don't make too much money to qualify for Roth IRA investment, that would be better than a regular account. Your contributions, but not earnings, could be removed at any time with no tax or penalty. The gains can usually be removed after 59 1/2 and then would never be taxed.

You could set it up at Vanguard, add 5500/year into either the Target fund or LS. These two funds are identical, but the Target fund will gradually increase the % of bonds while the LS maintains the same % forever.

I am drooling at your 7% guaranteed gain on your 403b! Try to put the max you can in that! That is almost too good to be true, but I hear it is.
I agree with Roth IRA idea. If you enjoy investing, you could get ETFs to do a 3 fund portfolio from the start. It's a lot more work to keep managing it, but I enjoy it.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 6:40 am

BL wrote:If you don't make too much money to qualify for Roth IRA investment, that would be better than a regular account. Your contributions, but not earnings, could be removed at any time with no tax or penalty. The gains can usually be removed after 59 1/2 and then would never be taxed.

You could set it up at Vanguard, add 5500/year into either the Target fund or LS. These two funds are identical, but the Target fund will gradually increase the % of bonds while the LS maintains the same % forever.

I am drooling at your 7% guaranteed gain on your 403b! Try to put the max you can in that! That is almost too good to be true, but I hear it is.
Thank you, so let me get this straight.

I'm assuming that if you make over a certain amount you don't qualify for Roth IRA investment? So, if I make less than whatever that amount is, I should open up a Roth IRA account with vangaurd? (I thought it was either an IRA account OR a Roth account)

But, then I would need to add 5500 a year, which sounds like a lot considering I'm already putting in 10% of my paycheck to my TDA. Do I have to put in that amount?

And, I guess what you are saying is opening up the Roth IRA and using Vanguard would be anothe retirement, long term account where I won't be taxed if I take out the money at 59 1/2, VS a personal account where I am taxed on the capital gains but I can take it out when I want it. BUT, my logic is, I already will have my TDA account so why not make my vanguard account my personal investing vehicle than I can take out money from if I want/need? OR, if I ever quit my job then I could transfer it to the Roth IRA.

I don't NEED money right now for anything specific. But, I would like to increase my income, and save my money so I can invest in something like real estate. Being a teacher is not going to make me rich..

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 6:44 am

sweeden22 wrote:
BL wrote:If you don't make too much money to qualify for Roth IRA investment, that would be better than a regular account. Your contributions, but not earnings, could be removed at any time with no tax or penalty. The gains can usually be removed after 59 1/2 and then would never be taxed.

You could set it up at Vanguard, add 5500/year into either the Target fund or LS. These two funds are identical, but the Target fund will gradually increase the % of bonds while the LS maintains the same % forever.

I am drooling at your 7% guaranteed gain on your 403b! Try to put the max you can in that! That is almost too good to be true, but I hear it is.
I agree with Roth IRA idea. If you enjoy investing, you could get ETFs to do a 3 fund portfolio from the start. It's a lot more work to keep managing it, but I enjoy it.
How would I get EFTs and do a 3 fund portfolio from the start? Like 3 funds from Vangaurd? The problem is, its 3,000 each fund.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 7:24 am

Okay, sorry for posting again but I think i've come to a conclusion.. keyword: think.

If I keep investing 10% of my check in my TDA that will be for my retirement money along with my pension.

And, for money for now, instead of putting money in the bank I will set up a personal account with target funds and contribute 200 every month. This way this fund will hopefully grow, i'll get a much better return than the bank and I will be able to use this as my personal investing vehcile to take money from whenever I need. How does this sound?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by onourway » Thu Apr 20, 2017 7:29 am

As stated, a Roth IRA is better than a personal taxable account because it grows tax-free, and withdrawals will eventually be made tax-free. $5500 is the yearly maximum, but you can put any amount in up to that max. A Roth IRA flexible; you can withdraw your contributions at any time with no tax or penalty. You can use it to pay for college expenses, or you can withdraw up to $10k to help buy your first home. Or, if you find you don't need it for anything else, it's there as extra money for retirement.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 7:35 am

GOtcha, thanks, so the only downside is that i'm not earning income right now or in the shorter term from the Roth.. because I can't access the capital gains until I retire..

So, I wanted an investment that I could make money right now or in the shorter run. I understand the advantages to the Roth, but what about if I want to increase my income now? or earlier than 59 and 1/2..

and then again I think again to myself, if I'm making another retirement account, why not just keep adding to my current TDA at 7% now?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by Quick » Thu Apr 20, 2017 7:49 am

I'm assuming that if you make over a certain amount you don't qualify for Roth IRA investment? So, if I make less than whatever that amount is, I should open up a Roth IRA account with vangaurd? (I thought it was either an IRA account OR a Roth account)

But, then I would need to add 5500 a year, which sounds like a lot considering I'm already putting in 10% of my paycheck to my TDA. Do I have to put in that amount?
A Traditional IRA and a Roth IRA are two different types of individual retirement accounts. The main difference is in a traditional IRA (typically contributing pretax money), you pay deferred taxes on all gains. In a Roth IRA, you pay taxes (because you already paid income tax on the money) and any gains your investments make are not taxed upon when you withdraw.

You aren't required to contribute $5,500 to the Roth. You are allowed to contribute up to $5,500 per year. I would also agree with the other posters that a Roth would be beneficial for you. Also, keep in mind that you can withdraw any contributions to the Roth without penalty. This means that your contributions aren't locked away until you are 59 1/2.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 8:47 am

Quick wrote:
I'm assuming that if you make over a certain amount you don't qualify for Roth IRA investment? So, if I make less than whatever that amount is, I should open up a Roth IRA account with vangaurd? (I thought it was either an IRA account OR a Roth account)

But, then I would need to add 5500 a year, which sounds like a lot considering I'm already putting in 10% of my paycheck to my TDA. Do I have to put in that amount?
A Traditional IRA and a Roth IRA are two different types of individual retirement accounts. The main difference is in a traditional IRA (typically contributing pretax money), you pay deferred taxes on all gains. In a Roth IRA, you pay taxes (because you already paid income tax on the money) and any gains your investments make are not taxed upon when you withdraw.

You aren't required to contribute $5,500 to the Roth. You are allowed to contribute up to $5,500 per year. I would also agree with the other posters that a Roth would be beneficial for you. Also, keep in mind that you can withdraw any contributions to the Roth without penalty. This means that your contributions aren't locked away until you are 59 1/2.
Yes, I totally understand now. Roth would be a good addition to my TDA from my job. The only downside is that I don't make the gains. I wanted to make some investments to make money that I could use if/when I wanted. Although I could take out the principle amount, I still can't take out any of my gains till 60 years old and I want something that will add additional revenue to my income.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 11:47 am

So, would a solid plan be to keep using 10% of my check for my TDA from my job

and open up an additional Roth account? But like I said, the only problem is that I wouldn't get to take out my capital gains/earnings on a Roth account which makes me to think maybe its better to do a personal account instead even if im taxed since I already have a retirement plan with my TDA?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by Emily1980 » Thu Apr 20, 2017 1:03 pm

You're looking to create passive income streams with your investments, and asking how you might do so in your daily life in addition to investing for retirement. A passive income stream from some investment (stocks, bonds, or real estate) is dependent upon how much initial capital you invest and the amount of income that investment kicks off after you invest your capital. Pretty straight forward.

If you want to take income from a portfolio of stocks and bonds, there is something called a Safe Withdrawal Rate (SWR). This is the percentage you can withdraw from a portfolio without depleting it over a certain time frame. Presumably you want your investments, and therefore the income stream those investments produce, to grow over time rather than be depleted. The problem is that, even for a retiree, the SWR on a balanced portfolio of stocks and bonds is only 4%. That's the widely accepted academic standard. That's the highest amount you can withdraw per year and be, I hate to use this word but guaranteed, not to deplete the portfolio to zero over the course of 30 years. This doesn't guarantee growth of the portfolio, though you may very well get growth at a 4% withdrawal rate (WR). The academic standard assumes that you increase the withdrawal each year to adjust for inflation, which you don't have to do, and which would increase your likelihood of growth if you didn't. The stock market itself grows more than 4% per year, on average, but the volatility has an effect on the portfolio when combined with withdrawals. At a 4% WR, you need 1 million dollars in capital to produce income of $40k per year. If you want to withdraw from a portfolio starting at an early age and have the portfolio grow rather than deplete, the SWR is lower. More like 2%. Personally, I wouldn't do this unless I was already a millionaire. But to each their own.

In a taxable account, you would pick something like Vanguard's Tax Managed Balanced Index when you have enough to meet the minimum and use that as your base. Or you could use ETFs, which have no minimum investment amounts, and make your own portfolio. If I were going to do what you're proposing, I would personally choose VT (this is the ticker symbol for Vanguard's Total World Stock Index ETF) and VTEB (Vanguard's tax-exempt bond index ETF). There's no $3000 minimum per fund. You buy per share. You could definitely get started with the $1500 you already have. Depending on where you live, real estate can produce a higher income stream per dollar invested than a portfolio of stocks and bonds. I live in the Midwest, and you can yield 10% from rental properties here if you're willing to work at it. I'm not. But some people do it and like it a lot. I don't know about New York though. Due to your property values, I would think real estate would be a lot tougher there.

I think people are telling you to invest in your workplace retirement accounts and Roth IRA because you have to have a very large portfolio before it can be put to use yielding an income stream of any note. For most people, that's just not going to be the case until retirement age. You're not likely to get rich unless you're already rich, or old enough to have had decades of compound portfolio growth. My husband and I are in the process of building our portfolio, and we're still nowhere near having enough to withdraw on an annual basis. It just isn't worth it. When it is worth it, we'll hang it up and retire. We try to save a lot of money, so we may retire early. But we may not. It just depends on what the market returns. Save as much money as you possibly can with the understanding that the SWR is somewhere between 2-4% per year, and plan accordingly.
Last edited by Emily1980 on Fri Apr 21, 2017 8:54 am, edited 2 times in total.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 3:13 pm

Emily1980 wrote:You're looking to create passive income streams with your investments, and asking how you might do so in your daily life in addition to investing for retirement. A passive income stream from some investment (stocks, bonds, or real estate) is dependent upon how much initial capital you invest and the amount of income that investment kicks off after you invest your capital. Pretty straight forward.

If you want to take income from a portfolio of stocks and bonds, there is something called a Safe Withdrawal Rate (SWR). This is the percentage you can withdraw from a portfolio without depleting it over a certain time frame. Presumably you want your investments, and therefore the income stream those investments produce, to grow over time rather than be depleted. The problem is that, even for a retiree, the SWR on a balanced portfolio of stocks and bonds is only 4%. That's the widely accepted academic standard. That's the highest amount you can withdraw per year and be, I hate to use this word but guaranteed, not to deplete the portfolio to zero over the course of 30 years. This doesn't guarantee growth of the portfolio, though you may very well get growth at a 4% withdrawal rate (WR). The academic standard assumes that you increase the withdrawal each year to adjust for inflation, which you don't have to do, and which would increase your likelihood of growth if you didn't. The stock market itself grows more than 4% per year, on average, but the volatility has an effect on the portfolio when combined with withdrawals. At a 4% WR, you need 1 million dollars in capital to produce income of $40k per year. If you want to withdraw from a portfolio starting at an early age and have the portfolio grow rather than deplete, the SWR is lower. More like 2%. Personally, I wouldn't do this unless I was already a millionaire. And even then, I'd just let my portfolio grow until I was a multimillionaire. But to each their own.

In a taxable account, you would pick something like Vanguard's Tax Managed Balanced Index when you have enough to meet the minimum and use that as your base. Or you could use ETFs, which have no minimum investment amounts, and make your own portfolio. If I were going to do what you're proposing, I would personally choose VT (this is the ticker symbol for Vanguard's Total World Stock Index ETF) and VTEB (Vanguard's tax-exempt bond index ETF). There's no $3000 minimum per fund. You buy per share. You could definitely get started with the $1500 you already have. Depending on where you live, real estate can produce a higher income stream per dollar invested than a portfolio of stocks and bonds. I live in the Midwest, and you can yield 10% from rental properties here if you're willing to work at it. I'm not. But some people do it and like it a lot. I don't know about New York though. Due to your property values, I would think real estate would be a lot tougher there.

I think people are telling you to invest in your workplace retirement accounts and Roth IRA because you have to have a very large portfolio before it can be put to use yielding an income stream of any note. For most people, that's just not going to be the case until retirement age. You're not likely to get rich unless you're already rich, or old enough to have had decades of compound portfolio growth. My husband and I are in the process of building our portfolio, and we're still nowhere near having enough to withdraw on an annual basis. It just isn't worth it. When it is worth it, we'll hang it up and retire. We save a lot of money, so we may retire early. But we may not. It just depends on what the market returns. Save as much money as you possibly can with the understanding that the SWR is somewhere between 2-4% per year, and plan accordingly.

Thank you for this detailed response Emily. It is a lot for me to take in, but very great. So, if I am understanding this correctly. It would make more sense for me to use either my current TDA and/or a Roth and think long term (retirement) and if I want short term investments perhaps I should be looking at other areas such as real estate or opening a business.

So, if this is the case, would it even make sense to open a Roth or would I be better off just putting more money into my TDA at a fixed 7%?

My next question, you mention the Vanguard Tax Managed Balaned Index, which is $10,000 to start. You mean that would be one area to put my money in to get more of a shorter term return?

And for the other part of the paragraph where you state that I could buy shares of the VT and the VTEB, are you saying that I would buy them through a stock site such as eTrade.com and just buy individual shares instead of buying anything through Vanguard? My original thoughts came from after I read the updated Inteligent Investor, and THEN the Millionaire Teacher by Andrew Hallam where he suggests to allocate your money as follows: Put your age into bonds (so for me 29-30%) and the rest in stocks. The stocks should be split between international and US stocks 35% each (for a total of 70%) and for the other 30% to be in US bonds. Since it costs minimum 3,000 for each fund at Vanguard for Total Stock, International, and US bonds, if I followed Hallam's advice then would it meaning buying these individually on eTrade with the little money I have?

I am really just to put a solid plan together..

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 3:50 pm

I just realized that the etrade route wouldnt be ideal because every month if i needed to rebalance to get to 70/30 stocs/bonds there would be a fee I would have to pay to buy and sell. So it makes more sense to just get one or more of vanguards funds.

So, wouldnt it make sense then to possible just put as much into my TDA as possible and then make a lifestrategy growth fund at vanguard as a personal account that i could always take out the money even if im taxed and use it for something like a future investment say a house or business? Because if in going to do the roth and just make it a long term investment i already have my Pension and Tax Deferred Annuity

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by Earl Lemongrab » Thu Apr 20, 2017 3:56 pm

jon1212 wrote:I just realized that the etrade route wouldnt be ideal because every month if i needed to rebalance to get to 70/30 stocs/bonds there would be a fee I would have to pay to buy and sell. So it makes more sense to just get one or more of vanguards funds.
You shouldn't need to be rebalancing monthly.
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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 4:43 pm

Earl Lemongrab wrote:
jon1212 wrote:I just realized that the etrade route wouldnt be ideal because every month if i needed to rebalance to get to 70/30 stocs/bonds there would be a fee I would have to pay to buy and sell. So it makes more sense to just get one or more of vanguards funds.
You shouldn't need to be rebalancing monthly.
Hmm okay so now im not really sure what to do..

-max my TDA and find other non market investments for shorter term i.e real estate
-buy usa stocks, international stocks and us bonds from etrade
-buy lifestrategy fund from vangurd
-if i do buy the lifestategy fund from vanguard do i do it from a roth or personal account

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 6:31 pm

Update:

Okay, I'm learning a lot. Now, I understand that Vanguard has EFT's not just mutual funds. I originally wanted to put my money in as a certain allocation but I thought I couldn't do that without a minimum of 3,000 per fund AKA in VTSMX. (I wanted 3 different funds) Now, I know that with the EFT's such as VTI I could put money in with no minimum.

So, according to Andrew Hallam in his book "The Millionaire Teacher" he suggests: US stock market, International Stock, and US Bonds, as does William Bernstein.

What if I bought EFT's in these 3 and rebalanced often and just kept doing that instead of buying into a mutual fund as VTSMX?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by Emily1980 » Thu Apr 20, 2017 6:48 pm

It seems like you might benefit from sitting down and making a goals list. But then I'm a nerd who loves lists. :happy

Your TDA is an excellent place to save for retirement. A Roth IRA is an excellent place to save for retirement. A Roth IRA is also an okay place to save, not for current income, but for a house down payment or college tuition... or anything that doesn't cost more than the initial amount you invested because you can get that money back without paying a tax penalty. A taxable account is a better place than a Roth IRA to save for a house down payment or college tuition or especially a car, in my opinion, because there is no limit on what you can get back without paying a tax penalty. (You'll have to pay taxes on capital gains if you have any, but no penalties.) A taxable account is also a better place to save a house down payment or college tuition or a car, in my opinion, from a purely psychological standpoint because then you're not interrupting the compound growth of what is ideally a retirement account. And a Roth IRA is ideally a retirement account. But it can be used as a double, if need be. Finally, a taxable account is an excellent place to invest for current income. You just have to invest a LOT of money to create an income stream.

If I were you, I would sit down and determine how much money, total, you can afford to save and invest each year. Then I would determine how to split that money up among your various goals: retirement, stuff like a house down payment or car, and a current income stream. A current income stream is generally going to be the last priority on the list, simply because you can't skip retirement and you have to buy stuff like cars at some point. And in order to buy stuff like cars with a current income stream you need a really, really big portfolio. Like a portfolio that can generate a $25k car from it's income stream of 2-4% per year and keep trucking. It's easier to just save money for a car and be done with it.

We have retirement accounts including 401ks (our version of your TDA) and Roth IRAs. We have spillover into a taxable account that is also earmarked for retirement. And we don't use it for stuff like cars or current income. Eventually it will be used for an income stream, at 2-4% per year, in retirement. I just started a second taxable account earmarked for stuff like cars and vacations. Some people split their accounts up even more. But you don't have to. Just keep your long term money separated from your short and midterm money.

The advice you read about having your age in bonds and splitting the remainder between the total US stock market and total International stock market is fine advice. This advice is for long term retirement accounts because the allocation between stocks and bonds changes based on your age. But your TDA is awesome set at the guaranteed 7%. Just use it like it is. You would use the 3-fund portfolio in a Roth IRA. An index mutual fund, like an index ETF fund, does have a per share price. But you don't buy and sell index mutual funds that way. You buy and sell them in dollar amounts, like a $3000 minimum and subsequent minimum investments of $100. And index ETF fund is the same fund, sold at its per share price, on a trading platform like you would trade a stock. No minimum and no set dollar amounts, other than you have to pay the share price. So you might have $200 to invest this month, but if the ETF you want to buy is $49 per share, you'll have $4 leftover after you buy all the shares you can afford. That $4 will sit there in your cash account until you have more money next month and can buy more shares. To create a three fund portfolio in a Roth IRA at Vanguard using ETFs, you would use VTI, VXUS, and BND. There is no fee to trade Vanguard ETFs on Vanguard's brokerage platform in a Vanguard account. It's free. But you could also just buy a target date retirement fund or a life strategy fund and be done with it. The difference between target date funds and life strategy funds is that life strategy funds don't change the percentage of bonds as you age.

In a taxable account, not a Roth IRA, you could wait until you can buy the tax managed balanced fund. But that'll take a while at a $10k minimum. The reason for doing this would be to own tax-free bonds in your taxable account. You could also implement the three fund portfolio in your taxable account using ETFs and use the tax-free bond ETF. (Just sub VTEB for BND.) I would not use a target date retirement fund in a taxable account. But you could reasonably use a life strategy fund in a taxable account. They're not perfect in terms of tax efficiency, but they won't kill you either.

But you have to ask yourself what this taxable account money is for. If it's for an income stream, that's perfectly okay, but you're going to have to invest for many years to create one. If you want to use it as a general account for stuff like cars that also has some growth potential, you can definitely do that too... if you understand that you will have to be flexible with your purchases. You don't want to remove money from the account and buy a car after the stock market has crashed. Then you're just wiping out your wealth unnecessarily. And unless your general account is huge, it will take a hit every time you buy something and need to be replenished with actual money that you invest rather than with it's own investment gains. But, yes, we're investing our second taxable account--the one for cars and vacations--in one of Vanguard's balanced funds. We understand that we will have to be flexible in terms of the timing of purchases.

Any money you know you're going to need soon, and for purchases that can't wait for the market to behave the way you'd like, you should save in cash.
Last edited by Emily1980 on Fri Apr 21, 2017 8:55 am, edited 3 times in total.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 7:02 pm

Thank you again Emily (I actually PM'd you right before I saw this)-- sorry!

So, witth all your information - I will say, yes I do want another income stream and I do want to save to pay off my car, and buy a house (I want to buy a 2-3 family house to rent out 1-2 sides) and money to keep for a possible business so I could eventually get out of teaching.

With that said, I believe I will open up a personal account. My question now is, if you were me, would it make more sense to go with the Lifestrategy fund, or use the 3 EFT's you mentioned and just rebalancing to keep the 35% Us Stock, 35% Foreign, and 30% US Bonds?

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by Emily1980 » Thu Apr 20, 2017 7:45 pm

PM'd you back.

Are you planning to marry and have children? There will be other accounts for college tuition then, like 529s, which you might be able to use for your own continuing education. All stuff I don't know, because it's not part of my world right now. Someone else mentioned that, from a Roth, you can remove your initial investment plus $10k in capital gains for a house down payment. So, depending on the cost of real estate in NY (the state, I'm assuming, not the city), this may or may not be a useful amount of money.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Thu Apr 20, 2017 8:13 pm

Thanks Emily. I sent you another PM!

I am going to mainly contribute to my TDA fire and foremost.

Second, so I know I will use the Lifestrategy growth fund or a target fund. My only other question now is whether to do a Roth or personal account and take money out for when I want things (i.e. to buy a house or pay off my car)

I'm single (although I have a girlfriend), no kids, and I live in my dad's house . I wanted to save up until I could afford a multi family house..

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by Emily1980 » Thu Apr 20, 2017 9:48 pm

My husband and I, after the market crashed in 2008, looked at the low real estate prices all around us and thought, "We could be landlords!" We saved up our money and... nothing. We never pulled the trigger. We're indecisive ninnies like that.

The question of whether you should save for a down payment on a property in a Roth IRA or a taxable account, if this is the goal for the money, is going to be a function of Roth rules for investment properties versus personal residences and how you want to structure the investment for tax purposes. Your situation is even more complicated because you want your investment property to double as your personal residence. You will need to speak to a tax professional about this issue. I know that your Roth IRA itself can invest in rental real estate, but I'm pretty sure you're not allowed to live in it under that set of tax rules. That is, you would not withdraw the money to invest in the property, but rather put the property in your Roth IRA. To withdraw money from the Roth IRA for a personal residence is a different set of tax rules. Rather than not being allowed to live in the property, under those rules you must live in the property, and you must also be a first time home buyer. And I don't know if the property you live in can be an investment multi-plex under these rules. Wowza. Honestly, way over my head. Definitely do speak to a tax professional because they will be able to tell you how to make the most money and pay the least taxes with real estate. And a Roth IRA might end up being your golden goose. There are tricks to this that I couldn't begin to know.

So what I guess I would do right now, if I were you, is put your money in a taxable account in a life strategy fund and go see a real estate tax professional. You have until April 15th of next year to put this year's maximum in a Roth IRA if the real estate tax professional tells you to do so. Other than that, I have no idea. We never got that far when we were looking into real estate because we changed our minds...

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Fri Apr 21, 2017 6:41 am

Thanks again Emily (I also Pm'd you)

So, everyone, for the purpose of possibly investing in either a business or a multi family house where I would live in the house as well, am I better off putting money towards a Roth account, or a personal account?

Either way I figure I will start with a Target fund and then once I hit 3,000 put it towards Lifestrategy.

My feeling is to open a personal account because then I can take out the contribution PLUS interest.. With a roth I can only take out the contribution, so the interest I would have to leave in there until i'm 60. If I am planning to buy an investment property that I will also live in, it seems like this is the way to go..

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by cjcerny » Fri Apr 21, 2017 8:15 am

The Lifestrategy and Target Date funds are good choices, but you do pay a premium to use them rather than just buying total market index funds. I would just save up that $200 a month until you have enough $$ to buy Total Stock Market Index this year and then do the same thing again next year with Total Bond Market index and so on and so forth. Going about it that way that will save you a decent chuck of change over the course of your life.

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by jon1212 » Fri Apr 21, 2017 8:38 pm

Thanks to all.

I called Vanguard earlier today and in regard to the Roth Vs Personal account they said that a Roth can be used to take out the principle amount + the capital gains for a house if you have it for 5+ years. If it's a house I would also rent out it would be considered an investment property (as far as the guy I spoke to knows) and I would not be able to take out the capital gains for it (before 60 years old)

This gets me to the conclusion that with my goals it makes sense to open a personal account, get target funds, put in $200 a month, and use this money when I am ready to buy a house or business. Please let me know if you agree or disagree. Thank you all so much!

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Roth IRA Vs Personal Account

Post by jon1212 » Sat Apr 22, 2017 9:59 am

Hello guys, on my other thread I got tons of great information, and I just need to find one one more thing (at least for now).. The other thread was getting long also, so this is here simplified with one question.

For investing in a business OR a multi family house which I would also live in (which according to Vanguard would be considered an investment property either way) and these invesments would be in the next 3-5 years hopefully, would it make more sense and be a better option to open a Roth IRA or just a personal account?

Do I open a Roth IRA (in addition to my TDA which is a 403b plan where I get a 7% fixed return)
Pro's being:
-I can take out contributions just not capital gains without a penalty
-It's an additional account for retirement AND to be used for money I need right away as long as its just the contribution
Con's Being:
I can't access the capital gains because I know they can be used towards a first time home purchase, but my first time home purchase would be towards a multi family investment property so they would do me no good.

If I open a personal account:
Pro's being:
I can access the capital gains whenever I want and use it towards whatever.
Con's: I would be taxed more..


Please let me know what you guys think!

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Re: 29 Year old New Investor Needs help- Vanguard Index Funds

Post by LadyGeek » Sat Apr 22, 2017 2:58 pm

^^^ I merged your post back into the first thread. In order to give appropriate advice, it's best to keep all the information in one post. To answer your question, we'll need to see what you've posted so far.

If you have more questions, ask them here. No worries, your thread is not long at all.

FYI - You also had a duplicate post for the same question, which I've removed.
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