3F Portfolio Beginner with Low Income

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dn160
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Joined: Thu Aug 10, 2017 1:29 pm

3F Portfolio Beginner with Low Income

Post by dn160 » Thu Aug 10, 2017 2:27 pm

[Moved into a stand-alone post from: The Three-Fund Portfolio --admin LadyGeek]

Hi I am new to the forum and after reading Boglehead's Guide to Investing and this thread I would like to begin my investment using the Three Fund Portfolio. I am in my mid-20s, with investments in 401k, both Roth and traditional. I would like to (and will) sign up for a Vanguard investment account. I have a question about using which funds to invest in what.

Is it correct that to create a tax-efficient portfolio, I should invest 1) my 401k (Roth and traditional) in bonds, and 2) my Vanguard investment account in US and international stocks?

So essentially to meet the 75% stock/25% bond I will use
- Vanguard account for Total Stock Market and Total International Stock
- 401k for Total Bond Market Index Fund

Thank you.

PS. Can I contribute to Roth instead of traditional due to my early age?

DN
Last edited by dn160 on Fri Aug 11, 2017 1:48 am, edited 2 times in total.

cdrwok
Posts: 19
Joined: Thu Mar 12, 2009 6:29 pm

Re: The Three-Fund Portfolio [Portfolio help]

Post by cdrwok » Thu Aug 10, 2017 4:20 pm

Hello, just a quick suggestion

Traditional 401k should hold bond
Roth should hold stock index fund
Taxable Investment: stock index fund

squeat
Posts: 24
Joined: Sun Apr 28, 2013 12:41 pm
Location: Denver, CO

Re: The Three-Fund Portfolio [Portfolio help]

Post by squeat » Thu Aug 10, 2017 4:29 pm

I just want to mention that you should make sure you get any company match in your 401k before you contribute outside of the 401k. If that means you have to invest a little in bonds in your 401k bonds, that's ok because getting the match (free money) should trump optimal allocation.

And yes, you can contribute to Roth over Traditional but it has nothing to do with age. It's more about what tax bracket (income level) you are in now. If you think you'll be in higher tax brackets as you age, it might be a good idea to use Roth options now. It boils down to paying the taxes now (Roth) versus paying the taxes later (Traditional).

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ruralavalon
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Location: Illinois

Re: The Three-Fund Portfolio [Portfolio help]

Post by ruralavalon » Thu Aug 10, 2017 7:15 pm

Welcome to the forum :) .

It's always great to see someone starting young, and wanting to use low expense ratio index funds. That was a good choice in reading material.
dn160 wrote:[Moved into a stand-alone post from: The Three-Fund Portfolio --admin LadyGeek]

Hi I am new to the forum and after reading Boglehead's Guide to Investing and this thread I would like to begin my investment using the Three Fund Portfolio. I am in my mid-20s, with investments in 401k, both Roth and traditional. I would like to (and will) sign up for a Vanguard investment account. I have a question about using which funds to invest in what.

Is it correct that to create a tax-efficient portfolio, I should invest 1) my 401k (Roth and traditional) in bonds, and 2) my Vanguard investment account in US and international stocks?

So essentially to meet the 75% stock/25% bond I will use
- Vanguard account for Total Stock Market and Total International Stock
- 401k for Total Bond Market Index Fund

Thank you.

PS. Can I contribute to Roth instead of traditional due to my early age?

DN
Before considering a taxable account, please consider 1) contributing the maximum $5.5k per year to an IRA, Roth or traditional, depending on eligibility and personal circumstances, 2) paying off any high interest debt, and 3) making the maximum annual employee contributions of $18k to your 401k.

What is your tax bracket, both federal and state? Will you be eligible for a significant pension? (This helps determine whether Roth or traditional contributions might be better for you.)

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

How much are you contributing annually to your 401k? Is there an employer match offered in your 401k? If so what is it?

What funds are offered in your 401k? Please give fund names, tickers and expense ratios. (I can't suggest what fund type might be better in your 401k without knowing what the choices are.)

Do you have an IRA, and what are you contributing to it?

You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

dn160
Posts: 2
Joined: Thu Aug 10, 2017 1:29 pm

Re: The Three-Fund Portfolio [Portfolio help]

Post by dn160 » Fri Aug 11, 2017 1:44 am

ruralavalon wrote:Welcome to the forum :) .

It's always great to see someone starting young, and wanting to use low expense ratio index funds. That was a good choice in reading material.

Before considering a taxable account, please consider 1) contributing the maximum $5.5k per year to an IRA, Roth or traditional, depending on eligibility and personal circumstances, 2) paying off any high interest debt, and 3) making the maximum annual employee contributions of $18k to your 401k.

What is your tax bracket, both federal and state? Will you be eligible for a significant pension? (This helps determine whether Roth or traditional contributions might be better for you.)

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

How much are you contributing annually to your 401k? Is there an employer match offered in your 401k? If so what is it?

What funds are offered in your 401k? Please give fund names, tickers and expense ratios. (I can't suggest what fund type might be better in your 401k without knowing what the choices are.)

Do you have an IRA, and what are you contributing to it?

You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.
It's my first job fresh out of college, so I don't make much. I make 37.5k so I fall in the 15% bracket. I contribute 15% trad./15% Roth into Vanguard 2055 Target Retirement fund. $0 Debt. $0 rent.

As you can see I am financially unburdened, and free to invest. However the biggest problem is I don't make much. How can I invest smartly for a low income?

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ruralavalon
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Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: The Three-Fund Portfolio [Portfolio help]

Post by ruralavalon » Fri Aug 11, 2017 8:05 am

dn160 wrote:
ruralavalon wrote:Welcome to the forum :) .

It's always great to see someone starting young, and wanting to use low expense ratio index funds. That was a good choice in reading material.

Before considering a taxable account, please consider 1) contributing the maximum $5.5k per year to an IRA, Roth or traditional, depending on eligibility and personal circumstances, 2) paying off any high interest debt, and 3) making the maximum annual employee contributions of $18k to your 401k.

What is your tax bracket, both federal and state? Will you be eligible for a significant pension? (This helps determine whether Roth or traditional contributions might be better for you.)

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

How much are you contributing annually to your 401k? Is there an employer match offered in your 401k? If so what is it?

What funds are offered in your 401k? Please give fund names, tickers and expense ratios. (I can't suggest what fund type might be better in your 401k without knowing what the choices are.)

Do you have an IRA, and what are you contributing to it?

You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.
It's my first job fresh out of college, so I don't make much. I make 37.5k so I fall in the 15% bracket. I contribute 15% trad./15% Roth into Vanguard 2055 Target Retirement fund. $0 Debt. $0 rent.

As you can see I am financially unburdened, and free to invest. However the biggest problem is I don't make much. How can I invest smartly for a low income?
You already may be doing just the right things. The four most important factors for you now are 1) maintain a high savings rate, 2) keep investing expenses low, 3) use very diversified funds, and 4) use tax-advantaged accounts (like a 401k).

That is an excellent savings rate. Keeping a high savings rate is the most important thing you can do for portfolio growth when young.

What is the expense ratio on the Vanguard Target Retirement Fund 2055 you are using in your 401k? (That is a very diversified fund.)

Are there any other fees or expenses which you have to pay in your 401k?

Is there an employer match offered in your 401k? if so what is it, and how much do you need to contribute to get the full employer match each year?

What are the other funds offered in your 401k? Please give fund names, tickers and expense ratios.

You can simply add this to your original post using the edit button. It helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

dh
Posts: 214
Joined: Sun Mar 13, 2011 8:01 pm

Re: The Three-Fund Portfolio [Portfolio help]

Post by dh » Sat Aug 19, 2017 5:49 pm

dn160 wrote:
Fri Aug 11, 2017 1:44 am


It's my first job fresh out of college, so I don't make much. I make 37.5k so I fall in the 15% bracket. I contribute 15% trad./15% Roth into Vanguard 2055 Target Retirement fund. $0 Debt. $0 rent.

As you can see I am financially unburdened, and free to invest. However the biggest problem is I don't make much. How can I invest smartly for a low income?
Others have given you some excellent advice, I just want to say excellent start! I would rather be in your salary with no debt, rather than 10K more with a big student loan debt. Depending on your 401 contribution (and being able to stay in a low tax bracket) may suggest you would be better off putting your IRA contributions in a Roth IRA rather than Traditional IRA. As your income increases and your tax bracket rises, a Traditional IRA may be preferable. Play with the numbers. Regardless: $0 Debt - well done!!!!! :sharebeer

Cruncher
Posts: 159
Joined: Mon Feb 01, 2010 12:56 am

Re: 3F Portfolio Beginner with Low Income

Post by Cruncher » Wed Sep 13, 2017 11:49 pm

The first 10 years you invest, may eclipse the last 50.

Great start young "DN"!

You will be head and shoulders above your peers.

As you get raises, pay yourself first.

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