im 25 years old and want to start investing

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marmh10
Posts: 4
Joined: Wed Jan 17, 2018 9:47 am

im 25 years old and want to start investing

Post by marmh10 » Wed Jan 17, 2018 11:09 am

Been reading and lurking for over a year now, ready to jump in and ask some questions. I am a 25 year old engineer. Im trying to figure out where to get started. I have money in a savings account (around 15k) earning pretty much nothing, no other investments. My company offers a 401(k) matching 50% of 8%.

Basic Info
Debt: none
Tax Filing Status: single
Tax Rate: 22% Federal in 2018
State of Residence: Indiana
Age: 25
Desired Asset allocation: 75/25

Available funds in 401k
Lifestyle/Pre-mix
Vanguard Target Retirement xxxx (0.06%)
Stable Value
JPMorgan Stable Value Fund (0.15%)
Bond
Northern Trust Bond Index Fund (NOBOX)(0.05%)
PIMCO Total Return Fund (PTTRX 0.51%)
Balanced
Vanguard Wellington Balanced Fund (VWENX 0.16%)
Large Cap
NTGI S&P 500 Index Fund (NOSIX 0.04%)
American Funds Growth Fund (RGAGX 0.33%)
Longleaf Partners Fund (LLPFX 0.95%)
Mid/Small Cap
Vanguard Extended Market Index Fund (VEMPX 0.05%)
Royce Total Return Institutional Fund (RTRIX 0.87%)
International
NT ACWI ex-US Index Fund (0.14%)
Vanguard International Value Fund (VTRIX 0.43%)
Dreyfus International Stock Fund (DISRX 0.94%)

What funds would make more sense for the 401(k) and should I open Taxable account with something else?

Thanks for any input.
Last edited by marmh10 on Wed Jan 17, 2018 4:10 pm, edited 2 times in total.

mhalley
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Re: im 25 years old and want to start investing

Post by mhalley » Wed Jan 17, 2018 11:59 am

Welcome to the forum. Starting at such a young age will ensure a bright future. At .06, I think the target retirement fund is the best way to go for the beginning investor. Look at the year and pick the one with the aa closest to what you want. If you have cash sitting in a savings account, fund your 2017 Roth and then your 2018 Roth ( $5500 for each)
If you don’t want to do the tr fund, then use the s&p and extended market index at 80/20 ratio, if you want international use the ex us index, and the bond index for your bonds.

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BolderBoy
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Re: im 25 years old and want to start investing

Post by BolderBoy » Wed Jan 17, 2018 2:28 pm

mhalley wrote:
Wed Jan 17, 2018 11:59 am
Welcome to the forum. Starting at such a young age will ensure a bright future. At .06, I think the target retirement fund is the best way to go for the beginning investor. Look at the year and pick the one with the aa closest to what you want. If you have cash sitting in a savings account, fund your 2017 Roth and then your 2018 Roth ( $5500 for each)
If you don’t want to do the tr fund, then use the s&p and extended market index at 80/20 ratio, if you want international use the ex us index, and the bond index for your bonds.
Completely agree with mhalley. Just starting out I'd use the target retirement fund. Try to ultimately max out your contributions to the 401k in addition to the Roths for 2017 & 2018 if you can.

The tax brackets changed for 2018. Are you in the 24% or 22% bracket?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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roymeo
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Location: Oakland, CA
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Re: im 25 years old and want to start investing

Post by roymeo » Wed Jan 17, 2018 2:33 pm

Another vote for the Vanguard Target Retirement fund and taking advantage of the 401(k) at least to the match, ideally to the max.
Read and learn about more (simple) complexity, but I sure wish I'd kept it simple instead of spreading $300 here, $1000 there, $5000 there on now split that between 3 other funds. Worry about 3-fund or adding some spice once you have 25 or 50k to work with.
The sewer system is a form of welfare state. | -- "Libra", Don DeLillo

marmh10
Posts: 4
Joined: Wed Jan 17, 2018 9:47 am

Re: im 25 years old and want to start investing

Post by marmh10 » Wed Jan 17, 2018 4:07 pm

BolderBoy wrote:
Wed Jan 17, 2018 2:28 pm
mhalley wrote:
Wed Jan 17, 2018 11:59 am
Welcome to the forum. Starting at such a young age will ensure a bright future. At .06, I think the target retirement fund is the best way to go for the beginning investor. Look at the year and pick the one with the aa closest to what you want. If you have cash sitting in a savings account, fund your 2017 Roth and then your 2018 Roth ( $5500 for each)
If you don’t want to do the tr fund, then use the s&p and extended market index at 80/20 ratio, if you want international use the ex us index, and the bond index for your bonds.
Completely agree with mhalley. Just starting out I'd use the target retirement fund. Try to ultimately max out your contributions to the 401k in addition to the Roths for 2017 & 2018 if you can.

The tax brackets changed for 2018. Are you in the 24% or 22% bracket?
Thanks for your advice. Im in the 22% for 2018.

InvestoGuy
Posts: 177
Joined: Thu Feb 11, 2010 1:34 pm

Re: im 25 years old and want to start investing

Post by InvestoGuy » Wed Jan 17, 2018 4:57 pm

Just the fact that you are starting to invest at 25 is wonderful. Create a Cash Accumulation Spreadsheet to create some goals / targets on an annual basis, so you can see how you will accumulate wealth by the time you are in your 30's, 40's, 50's etc. Good exercise to.

youngpleb
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Location: VA, USA

Re: im 25 years old and want to start investing

Post by youngpleb » Wed Jan 17, 2018 7:40 pm

Yeah, the target fund option would be a good idea, especially considering your 401k's international fund offerings, but if you really want a 75/25 asset allocation, you're going to have to pick a fund with a closer target date, just so you know. I believe the 2055-2060 ones are like 5-7% bonds at this point, IIRC.
27. Always learning.

TallBoy29er
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Re: im 25 years old and want to start investing

Post by TallBoy29er » Wed Jan 17, 2018 8:00 pm

You are so far ahead of the game with your thinking, I am envious.

For your $15k, I am assuming that is your emergency fund? Regardless, if you want to keep it in cash, you could open up an account at an online bank and earn (somewhat) better returns. Many on this board, including myself, use Ally Bank. You could open a no penalty 11 month cd (meaning, if you cash it out early before 11 months, there is no financial penalty), and earn 1.35%. Heck, just a savings account with them earns 1.25%!. This is a no brainer to earn a few extra bucks.

Clearly you want to save up to the 8% in your 401k. Could also think of funding a Roth IRA after that up to the max, and any extra goes to max out your 401k.

As a side note, and I wish I had known about this earlier, do some research on the mega-backdoor Roth. If your 401k has certain options (feel free to ask for more), you can fund via after tax contributions, and then roll it into a roth IRA (or into your Roth 401k, if that is an option for you).

Good on you for thinking about this now!!

marmh10
Posts: 4
Joined: Wed Jan 17, 2018 9:47 am

Re: im 25 years old and want to start investing

Post by marmh10 » Thu Jan 18, 2018 1:08 pm

youngpleb wrote:
Wed Jan 17, 2018 7:40 pm
Yeah, the target fund option would be a good idea, especially considering your 401k's international fund offerings, but if you really want a 75/25 asset allocation, you're going to have to pick a fund with a closer target date, just so you know. I believe the 2055-2060 ones are like 5-7% bonds at this point, IIRC.
Thanks for the input!

Crisium
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Joined: Thu Dec 22, 2016 9:52 am

Re: im 25 years old and want to start investing

Post by Crisium » Thu Jan 18, 2018 1:36 pm

Target Retirement is easy and often recommended, but it will not jive with your desire for 75/25. 2035 is closest to that right now, but will be around 40/60 20 years from now when you are in prime earning years. It'd be far more complicated to shuffle retirement funds, or to a pick a retirement fund here and then balance it out with IRA or taxable accounts.

Just pick what you want here, you have very cheap funds.

Do you want international? If no:

60% NOSIX (SP500)
15% VEMPX (Extended US)
25% NOBOX (Bond)

4:1 SP500:Extended is essentially the total US market.

If you do want international, put some "NT ACWI ex-US Index Fund" in there. MSCI ACWI ex-US estimates they cover 85% of the investable world outside the US (Large caps of the biggest countries in Developed and Emerging) so it's very good. Vanguard Retirements funds have 40% of their stocks (so in your case, 40% of 75% for 30%) so you can do that if you are comfortable with international.

36% NOSIX
30% NT ACWI ex-US
9% VEMPX
25% NOBOX

Or a lesser international allocation. Most BHs recommend 20-50% of stocks in international, some do 0% however.

It could be worth considering some of the bond allocation within the stable value fund. What is its current yield? What is the historical yield, and does it seem stable? Does it has a minimum guaranteed? It could be worth a minority of the bond portion depending on how good it is.

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