Musician Asking for Advice

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Marketgarden
Posts: 12
Joined: Fri Jan 12, 2018 1:46 am

Musician Asking for Advice

Post by Marketgarden » Fri Jan 12, 2018 2:36 am

Hi guys,
I'm a freelance musician and a year removed from graduating with my doctorate in music education. I've been working on building my performance and education resume by doing gigs and adjunct teaching. My current income(40-50k) is solid for my low day to day overhead but I will hopefully be making close to six figures by teaching fulltime at a college and playing higher end gigs in the next few years. I've been doing a lot of research on investing and I wanted to start building my long-term wealth. I recently read "The Intelligent Investor" and opened a Vanguard account. My goal is to save at least 20 to 25% of my income and I just wanted your advice on my portfolio. Thanks!

Emergency funds: about 6 Months(10k in a 1.25% Ally Account)
Debt: 150k Student Loan (paying to parents, 0% interest)
Tax Filing Status: Single
Tax Rate: 12% Federal, Will probably go up to 22% by next year
State of Residence: CA
Age:33
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25%

Taxable
52.3% Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) (0.09%)
5.2% VANGUARD TOTAL INTL STOCK INDEX FUND ETF (VXUS) (0.11%)
14.6% VANGUARD TOTAL STOCK MARKET ETF (VTI) (0.04%)

Roth IRA at Vanguard
27.5% Vanguard LifeStrategy Growth Fund (VASGX) (0.15%)

$20,282.00 Total assets

Contributions (Hopefully more as my income goes up)
$5,500 for my Roth IRA
$4,000 taxable


Questions:
1. Obviously, my current allocation isn't great but I made it before reading the book(to be fair, I've made decent returns so far). Anyways, I was thinking of taking the Tax managed account and going to a Total Stock, Adm fund. I'm also thinking of selling my etfs and using that money for the total international stock investor fund. To compensate, I would use my Roth to switch to a more bond heavy life strategy fund. Does that sound about right?

2. Besides retirement, I'd also like to put money toward a house downpayment. I wouldn't be able to do actually use it for the next 4-6 years so I would at least like to use the market to jump-start that fund. Would either a bond or bond/etf mix work? Any recommendations would be awesome!

Key Points

* I realize that I would get a probably get some sort of 401k with any full time teaching job but sort of thing is never certain I would like to invest now to compensate for that.
Thanks again for your help!

Marketgarden
Posts: 12
Joined: Fri Jan 12, 2018 1:46 am

Re: Musician Asking for Advice

Post by Marketgarden » Fri Jan 12, 2018 8:57 am

Bump.

pkcrafter
Posts: 13065
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Musician Asking for Advice

Post by pkcrafter » Fri Jan 12, 2018 10:51 am

Welcome to the forum.
Marketgarden wrote:
Fri Jan 12, 2018 2:36 am
Hi guys,
I'm a freelance musician and a year removed from graduating with my doctorate in music education. I've been working on building my performance and education resume by doing gigs and adjunct teaching. My current income(40-50k) is solid for my low day to day overhead but I will hopefully be making close to six figures by teaching fulltime at a college and playing higher end gigs in the next few years. I've been doing a lot of research on investing and I wanted to start building my long-term wealth. I recently read "The Intelligent Investor" and opened a Vanguard account. My goal is to save at least 20 to 25% of my income and I just wanted your advice on my portfolio. Thanks!
Looks like your off to a good start. Your saving rate is very high, and you have a simple, effective portfolio.
Emergency funds: about 6 Months(10k in a 1.25% Ally Account)
Debt: 150k Student Loan (paying to parents, 0% interest)
Tax Filing Status: Single
Tax Rate: 12% Federal, Will probably go up to 22% by next year
State of Residence: CA
Age:33
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25%

80% equity is a little high, but still in range for your age. 25% international is within the generally recommended range of 20-40%.
Taxable
52.3% Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) (0.09%)
5.2% VANGUARD TOTAL INTL STOCK INDEX FUND ETF (VXUS) (0.11%)
14.6% VANGUARD TOTAL STOCK MARKET ETF (VTI) (0.04%)

Roth IRA at Vanguard
27.5% Vanguard LifeStrategy Growth Fund (VASGX) (0.15%)

$20,282.00 Total assets

Contributions (Hopefully more as my income goes up)
$5,500 for my Roth IRA
$4,000 taxable
Your plan appears to be very efficient for your current situation.

Questions:
1. Obviously, my current allocation isn't great but I made it before reading the book(to be fair, I've made decent returns so far). Anyways, I was thinking of taking the Tax managed account and going to a Total Stock, Adm fund. I'm also thinking of selling my etfs and using that money for the total international stock investor fund. To compensate, I would use my Roth to switch to a more bond heavy life strategy fund. Does that sound about right?
Yes, that's OK. Normally we would recommend a Roth be used for stock funds because of the tax-advantaged space and higher earnings, but for now, and since you only have the Roth for tax-advantaged investing, it's fine. Later, when you get more tax-advantaged space you can shift the bonds to an IRA, 401k, etc.
2. Besides retirement, I'd also like to put money toward a house downpayment. I wouldn't be able to do actually use it for the next 4-6 years so I would at least like to use the market to jump-start that fund. Would either a bond or bond/etf mix work? Any recommendations would be awesome!
Saving for a down payment should be done in a taxable account, but we would not recommend using stocks for savings as they can be too volatile and the money may not be there when you need it. Additionally, the market seems overdue for a correction. In addition to the home savings, you should also have an emergency fund for unexpected costs and income in case you are temporarily out of work.
Key Points

* I realize that I would get a probably get some sort of 401k with any full time teaching job but sort of thing is never certain I would like to invest now to compensate for that.
Thanks again for your help!
You are getting a start now and that early savings will pay off well as that money will have maximum time for growth.

I don't know your situation, but maybe you could be eligible for a small business tax-advantaged account. Look into that. Here's some information.

https://www.goodfinancialcents.com/open ... and-rules/

Vanguard options

https://investor.vanguard.com/what-we-o ... pare-plans


Paul
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.

feehater
Posts: 96
Joined: Fri Jul 14, 2017 10:14 am

Re: Musician Asking for Advice

Post by feehater » Fri Jan 12, 2018 11:09 am

Hi Marketgarden,
Welcome to the forum and congrats on your career success so far. Assuming that at least some of your students and gigs are 1099 and not w2, you should already be eligible to contribute to "small business" plans like a SEP IRA or a solo 401k. That should allow you to save more than you currently are in retirement accounts.

I have a lot of acquaintances who are freelance musicians and I think a big thing not to overlook is understand all of the differences and permutations about which money is 1099 vs w2, and which deductions/expenses are allowed for each one. It might definitely behoove you to pay a tax guy for at least a few years, as well as hanging out on websites like financeformusicians.com. Asset allocation and all that stuff is important, but you might be leaving hundreds or thousands of dollars on the table each year if you don't do the schedule C right.

Best of luck!

User avatar
Sandtrap
Posts: 5324
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Musician Asking for Advice

Post by Sandtrap » Fri Jan 12, 2018 11:48 am

Marketgarden wrote:
Fri Jan 12, 2018 2:36 am
Hi guys,
I'm a freelance musician and a year removed from graduating with my doctorate in music education. I've been working on building my performance and education resume by doing gigs and adjunct teaching. My current income(40-50k) is solid for my low day to day overhead but I will hopefully be making close to six figures by teaching fulltime at a college and playing higher end gigs in the next few years. I've been doing a lot of research on investing and I wanted to start building my long-term wealth. I recently read "The Intelligent Investor" and opened a Vanguard account. My goal is to save at least 20 to 25% of my income and I just wanted your advice on my portfolio. Thanks!

Emergency funds: about 6 Months(10k in a 1.25% Ally Account)Excellent
Debt: 150k Student Loan (paying to parents, 0% interest)Monthly commitment?
Tax Filing Status: Single
Tax Rate: 12% Federal, Will probably go up to 22% by next yearWhy?
State of Residence: CA
Age:33
Desired Asset allocation: 80% stocks / 20% bondsWhy did you choose 80/20? Why not 70/30 or 60/40?
Desired International allocation: 25%

Taxable
52.3% Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) (0.09%)Or alternatively Total Bond VBTLX at .05 ER, or ETF (BND) at .05 ER. Why did you mix the balanced fund in the mix?
5.2% VANGUARD TOTAL INTL STOCK INDEX FUND ETF (VXUS) (0.11%)
14.6% VANGUARD TOTAL STOCK MARKET ETF (VTI) (0.04%)

Roth IRA at Vanguard
27.5% Vanguard LifeStrategy Growth Fund (VASGX) (0.15%)Yes. But why not continue the 3 fund in taxable? Or use a target date fund? Just options to consider.

$20,282.00 Total assets

Contributions (Hopefully more as my income goes up)
$5,500 for my Roth IRAconfirming. . is this the IRA stated above?
$4,000 taxable confirming, is this the Taxable fund makeup stated above?


Questions:
1. Obviously, my current allocation isn't great but I made it before reading the book(to be fair, I've made decent returns so far). Anyways, I was thinking of taking the Tax managed account and going to a Total Stock, Adm fund. Yes. This is a good idea. Simplify. I'm also thinking of selling my etfs and using that money for the total international stock investor fund. why not just contribute to international as free income is available?To compensate, I would use my Roth to switch to a more bond heavy life strategy fund. Does that sound about right?keep it simple IMHO

2. Besides retirement, I'd also like to put money toward a house downpayment. I wouldn't be able to do actually use it for the next 4-6 years so I would at least like to use the market to jump-start that fund. Would either a bond or bond/etf mix work? Just continue to build within the portfolio you have. You can concurrently build up a larger EF with CD/ladders toward this end to protect some of the principal for this downpayment and negate some risk from a market downturn. 4-5 years is a short time horizon. Jump starting that would be a good idea with security of principal and quick access to funds as the horizon nears.Any recommendations would be awesome!

Key Points

* I realize that I would get a probably get some sort of 401k with any full time teaching job but sort of thing is never certain I would like to invest now to compensate for that.The full time teaching job may not be far off. Patience.
Thanks again for your help!
Welcome :D
Congratulations on your successes and hard work.
This toolbox may help if you haven't read up already.
j :D

Some helpful links:

Bogle Philosophy
https://www.bogleheads.org/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Bogleh ... rt-up_kit
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement
Outline of Investing
https://www.bogleheads.org/wiki/Outline_of_investing
Outline of Financial Planning (with links)
https://www.bogleheads.org/wiki/Outlin ... _planning
Funding Priority (what do I do first?)
https://www.bogleheads.org/wiki/Priori ... vestments
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement
Asset allocation in multiple accounts
https://www.bogleheads.org/wiki/Asset ... accounts
Risk Tolerance (what is your "sleep factor"?)
https://www.bogleheads.org/wiki/Risk_tolerance
Asset Allocation (what is right for you?)
https://www.bogleheads.org/wiki/Asset_allocation

Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
Forum Library of Investing Advice with links
https://www.bogleheads.org/wiki/Main_Page

Free Reading: "If You Can" by Bernstein
https://www.google.com/url?sa=t&rct=j& ... -SB3S580I5

ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
https://members.morningstar.com/Registe ... L100&vUrl=

jalbert
Posts: 3683
Joined: Fri Apr 10, 2015 12:29 am

Re: Musician Asking for Advice

Post by jalbert » Fri Jan 12, 2018 5:05 pm

Welcome to the forum and congrats on your career success so far. Assuming that at least some of your students and gigs are 1099 and not w2, you should already be eligible to contribute to "small business" plans like a SEP IRA or a solo 401k. That should allow you to save more than you currently are in retirement accounts.
+1
If you have a significant fraction of income that is schedule C income, a SEP-IRA is an easy thimg to set up and use. It should be fully funded each year before you fund a taxable account. A solo 401K allows a larger contribution but also requires more administrative overhead. With deferral of incone to a tax-deferred retirement account you can just hold bonds there and VTI and VXUS in your taxable account.
Risk is not a guarantor of return.

Marketgarden
Posts: 12
Joined: Fri Jan 12, 2018 1:46 am

Re: Musician Asking for Advice

Post by Marketgarden » Mon Jan 15, 2018 8:37 pm

Thanks for the help guys! It really is great. Had one more question. In an effort to move my AA to about a 25% bond ratio. I was thinking of two options:

#1: Taxable(14.8k): convert to total stock/total int. stock, Roth(5.6k): convert to a life strategy income fund(80% bonds) to balance the overall portfolio.

#2: Taxable: Set up a 75/25 AA ratio by using Total Stock/Total Int. Stock/ CA Interm. Tax Exempt Bond(I'm a CA resident). Roth: Keep my Current life strategy growth fund

They both seem fine to me. Does one seem better or easier to rebalance to you guys? are there possibly better options?

Thanks again!

jalbert
Posts: 3683
Joined: Fri Apr 10, 2015 12:29 am

Re: Musician Asking for Advice

Post by jalbert » Tue Jan 16, 2018 2:54 am

Are you eligible for SEP-IRA contributions?
Risk is not a guarantor of return.

User avatar
CyclingDuo
Posts: 1729
Joined: Fri Jan 06, 2017 9:07 am

Re: Musician Asking for Advice

Post by CyclingDuo » Tue Jan 16, 2018 9:00 am

Marketgarden wrote:
Fri Jan 12, 2018 2:36 am
Hi guys,
I'm a freelance musician and a year removed from graduating with my doctorate in music education. I've been working on building my performance and education resume by doing gigs and adjunct teaching. My current income(40-50k) is solid for my low day to day overhead but I will hopefully be making close to six figures by teaching fulltime at a college and playing higher end gigs in the next few years. I've been doing a lot of research on investing and I wanted to start building my long-term wealth. I recently read "The Intelligent Investor" and opened a Vanguard account. My goal is to save at least 20 to 25% of my income and I just wanted your advice on my portfolio. Thanks!

Emergency funds: about 6 Months(10k in a 1.25% Ally Account)
Debt: 150k Student Loan (paying to parents, 0% interest) How long will this take to pay off?
Tax Filing Status: Single
Tax Rate: 12% Federal, Will probably go up to 22% by next year
State of Residence: CA
Age:33
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25%

Taxable
52.3% Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) (0.09%)
5.2% VANGUARD TOTAL INTL STOCK INDEX FUND ETF (VXUS) (0.11%)
14.6% VANGUARD TOTAL STOCK MARKET ETF (VTI) (0.04%)

Roth IRA at Vanguard
27.5% Vanguard LifeStrategy Growth Fund (VASGX) (0.15%) You could get the Three Fund Portfolio for a bit cheaper in ER fees, and be able to use this fund to balance with the VXUS and VTI in taxable, along with BND.

$20,282.00 Total assets

Contributions (Hopefully more as my income goes up)
$5,500 for my Roth IRA
$4,000 taxable


Questions:
1. Obviously, my current allocation isn't great but I made it before reading the book(to be fair, I've made decent returns so far). Anyways, I was thinking of taking the Tax managed account and going to a Total Stock, Adm fund. I'm also thinking of selling my etfs and using that money for the total international stock investor fund. To compensate, I would use my Roth to switch to a more bond heavy life strategy fund. Does that sound about right?

It's not too bad at all, especially for starting out. The main thing is to continue to contribute based on your income and ability (after expenses/needs/loan payments).

2. Besides retirement, I'd also like to put money toward a house downpayment. I wouldn't be able to do actually use it for the next 4-6 years so I would at least like to use the market to jump-start that fund. Would either a bond or bond/etf mix work? Any recommendations would be awesome!

As you well know, housing in California is :dollar :dollar :dollar ! What part of CA do you live in, and what are the current average prices of homes you would be considering? Time frames of 5 years or less require complete protection of capital, so equities would be off the table as common advice. Moving out to the 7-10 year period, and that changes. So using the market to "jump start" such a fund for a housing downpayment depends on your time frame. 4-6 years is rather risky - in spite of how bullish things appear at the moment. Best to use short term savings, CD's and investments that are non-fluctuating for your principal.

Key Points

* I realize that I would get a probably get some sort of 401k with any full time teaching job but sort of thing is never certain I would like to invest now to compensate for that.

It's called a 403b in the teaching field, and is what public/private schools as well as colleges/universities offer. Many also have a defined benefit plan, as well as options for an additional 457b plan. Full time professional musician here myself for the first 23 years of my career, now in my 15th year of teaching music at the collegiate level. So the prior 23 years, it was all 1099 income. The last 15 years has been a mix of 1099 and W-2 income (W-2 through the college/1099 for gigs and private lessons).
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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