Bogleheads.org

Hello everyone,

I just joined the forum after reading through some of the threads on here, and am eager to get some advice!

I've been contributing to my 401k for about 3 years (ever since I got my first job after college). Since I know very little about investing I opted for the 2055 Target in Vanguard. I now have a small chunk of money ($2k) that I want to throw into some index funds rather than have them sit idly in a savings. I signed up for a SCHWAB account and would like to implement the three fund portfolio strategy. Based off what I've read here it sounds like the ideal portfolio would include the following indexes:

VTSMX Vanguard total stock
VGTSX Vanguard total international
VBMFX Vanguard total bonds

However, these funds each require a $3k initial investment, meaning that I would need $9k to get the portfolio I want. I'm wondering if it would be wise to invest my $2k into the SCHWAB equivalents (SWTSX, SWISX, SWLBX) for the time being, since they are low cost and free to trade? I plan to add funds monthly (anywhere from $200-$500 a month). Then when I have enough I can convert over to the Vanguard funds.

The other thing I'm curious about is if any of you out there have suggestions /strategies for short term investments (3-5 years) to save for large down payments? i look forward to any advice! Thanks a bunch!

are you maxing out your 401k?
any of the large brokerages are fine.
you also dont need to nitpick a portfolio that small in terms of getting the exact ratios from the get go.

Do you have an emergency fund? Maxing out 401k? Maxing out a Roth IRA?

Nate79 wrote:Do you have an emergency fund? Maxing out 401k? Maxing out a Roth IRA?

What he said. Are you putting enough in your 401k to get employer match(if applicable), if not, use that money to do that. If you are putting in enough to get the match, then I would suggest opening a Roth IRA before you place money in a taxable account as you have suggested. Based on the monthly funds you want to add, sounds like opening a Roth would be ideal and would allow you to max out each year.

Consider an emergency fund in there as well. Large down payments should be kept pretty liquid. For that time frame you could look at a CD.

From the 'Investment Planning' post...
Investing Priority

The general rule of thumb for investing priority is:
1. 401k/403b up to the company match
2. Max out Roth
3. Max out 401k/403b
4. Taxable Investing

Welcome to the forum .

It's always good to see someone starting young, and interested in using very diversified low expense ratio index funds.

How much (in dollars) are you contributing to your 401k annually? What funds are offered in your 401k? Please give fund names, tickers and expense ratios. It may be best to contribute more to your 401k rather than start a new account. Is there an employer match offered in your 401k? Are you contributing enough to get the full employer match each year, or more than that?

What sort of Schwab account did you sign up for? Traditional IRA, Roth IRA, taxable brokerage account? If using an account at Schwab it's probably better to use Schwab funds rather than Vanguard funds (this solves your problem about required initial minimum investments. At Schwab the bond fund to use for a three-fund portfolio would be Schwab U.S. Aggregate Bond Index Fund (SWAGX) ER 0.04%).

What is your marginal tax bracket, both federal and state? What is your tax filing status? This helps determine whether a traditional or Roth IRA may be better for you.

For many people it's better to consider all accounts together as a single unified portfolio, rather than look at each account individually.

Do you have any debt? If so what types, amounts and interest rates?

You can simply add this to your original post using the edit button, so that all of your information is in one place. Please see the post "asking portfolio questions" for format.

In general the investing priority that often works better for most people (unless a Health Savings Account is available and practical) is:
1) contribute enough to the 401k to get the full employer match each year;
2) pay off any high interest debt;
3) contribute to an IRA, traditional or Roth depending on eligibility and personal circumstances;
4) contribute the rest of the maximum employee contribution to the 401k;
5) contribute to a taxable brokerage account.

I'm a little unclear if you are talking about pretax retirement money or taxable investment. I think the three fund Schwab is great and the Vanguard Target. Until you save up more money, I'd put the retirement money in Schwab all in the Total Stock Market since you are young. As for saving for 3-5, I wouldn't go any more risky than short-term bond fund.