new to the forum and eager for your advice

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letitgo
Posts: 2
Joined: Fri Feb 09, 2018 10:53 am

new to the forum and eager for your advice

Post by letitgo » Fri Feb 09, 2018 12:13 pm

Hello everyone. I am new to this forum and would appreciate your collective wisdom.

Here's my situation:

42 married with wife (also 42 stay-at-home mom) and 5 y.o. son
State of residence: NJ but work in NYC
Annual income: approx $725K/year (w-2)
Debt: none
Tax Rate: 37% Fed, 8.97% State

Retirement Funds:

1. TIAA-CREF Lifecycle 2040 (from my first job- I am no longer contributing to it): $183K
2. Vanguard Target Retirement 2040 Fund (SEP IRA that I set up while I was an independent 1199 several years ago- no longer contributing to it): $75K
3. A 403b plan I am currently contributing 8% into to max employer contribution at Fidelity (also target retirement fund): $226K

Between my checking and savings accounts, I have around $750K in cash.

I'm embarrassed to admit, but am wasting $5K/month on rent. We've been searching to buy but are still intimidated by the tri-state market and hope that the home prices go down with the recent changes in the home mortgage and interest tax laws. We are on the active lookout to purchase in the $1.3-1.5M range.

So assuming $300K is allotted for a future down payment, I'd greatly appreciate your collective advice on how to invest the $400K.

I felt like an idiot sitting on cash the past year with the bull market and all the hysteria over cryptocurrency the past few months. But with both quieting down, it seems like a good time to take the cash and invest. If it's not obvious, I'm pretty conservative and an index fund fan. Any favorites? Advice?

Also, as much as it hurts to waste money on rent, I don't know if we are going to be able to find a house in 6 months or even a year. What should I do with the $300K down payment money? Money market? CDs?

Looking forward to your suggestions.

Thanks in advance!

mhalley
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Joined: Tue Nov 20, 2007 6:02 am

Re: new to the forum and eager for your advice

Post by mhalley » Fri Feb 09, 2018 12:55 pm

Money needed within 5 years should be saved, not invested (note stock market in the last week). For a taxable account, the three fund portfolio with the substitution of a muni fund instead of the total stock market fund is good. You need to come up with an investing policy statement, listing your asset allocation and a dca plan to get there.
https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Investm ... _statement
https://www.bogleheads.org/wiki/Three-fund_portfolio

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Watty
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Re: new to the forum and eager for your advice

Post by Watty » Fri Feb 09, 2018 11:18 pm

letitgo wrote:
Fri Feb 09, 2018 12:13 pm
3. A 403b plan I am currently contributing 8% into to max employer contribution at Fidelity (also target retirement fund): $226K
Are you maxing out that, and any other retirment accounts? If not is there a reason why?
letitgo wrote:
Fri Feb 09, 2018 12:13 pm
I'm pretty conservative
There is nothing wrong with using the money for a larger down payment then quickly paying off the house when you buy it. With your income you could easily have a paid off house by the time you are 50. If you can get a good mortgage rate you could even buy it with a 5 or 7 year ARM and have it paid off by the time it unlocks.

You are 42 now so if you got a 30 year mortgage it would not be paid off until you are 72. There are all sorts of opinions about paying off a mortgage or not or if having a mortgage in retirement is a good idea. Since you are a conservative investor it is unlikely that if you had a paid off house that you would get a new mortgage just to invest the money.

Once your house is paid off you could then invest your "mortage payment".
letitgo wrote:
Fri Feb 09, 2018 12:13 pm
I don't know if we are going to be able to find a house in 6 months or even a year.
Huh?

We once had to do a corporate relocation and flew into a city we did not know to house hunt and we were able to find a house in two weekend house hunting trips. We had a kid in middle school and the relocation package was only good for a few months so renting was not an option. We basically picked out an area where the commute would work, narrowed it down to the best schools, then picked a house. It is not rocket science.

Houses are more of a commodity than many people admit and other than the location and neighborhood there is a lot that you can update later if you need to.

I don't know your local housing market but I would suggest that you step up you house hunting so that you are ready to buy when more houses come on the market in the earely spring which will be real soon. One of the things you are running into is that if you procrastinate longer then you could be putting your son in the situation where he will need to change schools later on and that can be hard on some kids.
letitgo wrote:
Fri Feb 09, 2018 12:13 pm
...with wife (also 42 stay-at-home mom)...
Every couple is different but one option would be to talk over your wants with your wife and then let her go out with the real estate agent alone to pick out a house since she has more time. Once she has narrowed it down at most two or three choices then you can see them together and make a final decision.

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luminous
Posts: 80
Joined: Sat Dec 30, 2017 10:28 pm

Re: new to the forum and eager for your advice

Post by luminous » Fri Feb 09, 2018 11:48 pm

Hello and welcome!

The target date retirement funds are a great choice. I'm your age but am using the Vanguard 2030 fund because they are closer to my target asset allocation of 70:30 stock:bond.
3. A 403b plan I am currently contributing 8% into to max employer contribution at Fidelity (also target retirement fund): $226K
In 2018 the maximum contribution from all sources for a 403(b) is $55,000, so I assume that's how much you are contributing. 8% of $750,000 is $60,000.

Consider a Backdoor Roth IRA for both you and our spouse. You can save an extra $11,000/year for retirement that way: https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
I'm embarrassed to admit, but am wasting $5K/month on rent.
Please do not be embarrassed. Many of us on the board are lifelong renters, including myself, and it is not a waste. Buying a home is a huge commitment in many ways, and there is no need to rush it because you feel like rent is a waste of money.
So assuming $300K is allotted for a future down payment, I'd greatly appreciate your collective advice on how to invest the $400K.
Is there a reason you don't want to put it all into a downpayment?

If you definitely do not want to use it all for a downpayment, what are your financial goals? Retiring at 65 or younger, paying for your son's education, anything else? I concur with mhalley that reading the wiki about creating an investing policy statement is a good idea. I find mine to be really helpful. We are saving for an early retirement and have put our taxable investments into Vanguard Total Stock Market Index Fund and Vanguard Total International Stock Market Index Fund.
What should I do with the $300K down payment money? Money market? CDs?
A high yield savings account or CD would be great options. Be sure to pay attention to the insurance limit, which is "$250,000 per depositor, per FDIC-insured bank, per ownership category." You might consider splitting the money between multiple banks to feel safe.
45/25/30 US stock/international stock/bonds. Target date funds. Hope to semi-retire in 2026.

TwstdSista
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Re: new to the forum and eager for your advice

Post by TwstdSista » Sat Feb 10, 2018 5:58 am

That TIAA-CREF Lifecycle 2040 fund has a pretty high expense ratio -- are there any better options available?

Your SEP IRA triggers the pro-rata rule for a Backdoor Roth, but if your spouse doesn't have any traditional-type IRAs she can do a Backdoor Roth (for 2017 + 2018).

House down payment money should be in high yield savings or CDs (nice and safe!)

If the $400k is long-term investment money, consider investing in:
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
Vanguard Total International Market Index Fund Admiral Shares (VTIAX) ER 0.11%

Other taxable options:
Vanguard Tax Managed Balanced Fund Admiral Shares (VTMFX) ER 0.09%
Vanguard Tax Exempt Bond Index Fund Admiral Shares (VTEAX) ER 0.09%

Rebalance your overall portfolio considering taxable investments.

chipperd
Posts: 312
Joined: Sat Sep 24, 2011 5:58 am

Re: new to the forum and eager for your advice

Post by chipperd » Sat Feb 10, 2018 6:14 am

This is an interesting take with solid math to back up the case for renting over buying:
https://www.gocurrycracker.com/renters-for-life/

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imbogled
Posts: 134
Joined: Wed Feb 28, 2007 4:31 pm
Location: Buckeye State

Re: new to the forum and eager for your advice

Post by imbogled » Sat Feb 10, 2018 6:58 am

letitgo wrote:
Fri Feb 09, 2018 12:13 pm


I felt like an idiot sitting on cash the past year with the bull market and all the hysteria over cryptocurrency the past few months. But with both quieting down, it seems like a good time to take the cash and invest. If it's not obvious, I'm pretty conservative and an index fund fan. Any favorites? Advice?
Welcome letitgo. You sound like you are in a "rush" all of a sudden to get in to the market because the "timing" is right and that you are missing trendy(bitcoin) opportunities. Coming to this forum will help you find your way but you need to do a little research on you own. Start off very slow and steadily by reading: The Bogleheads' Guide to Investing - Taylor Larimore, Michael LeBeouf, Mel Lindauer. These fine authors might even post a response to this thread. You will hear over and over again in this forum that to be a successful investor that it is <TIME IN THE MARKET, NOT TIMING THE MARKET>
This link to the Wiki of this forum will also be a fantastic resource
https://www.bogleheads.org/wiki/Main_Page
Take care, imbogled.
Someone is sitting in the shade today because someone planted a tree a long time ago. | Warren Buffett

letitgo
Posts: 2
Joined: Fri Feb 09, 2018 10:53 am

Re: new to the forum and eager for your advice

Post by letitgo » Sat Feb 10, 2018 11:37 am

Thank you for your advice everyone!

Please indulge me in some more newbie questions.

1. Is it possible/a good idea to consolidate my retirement funds (TIAA 2040 target fund, Vanguard SEP IRA, Fidelity 2040 target fund)? If so, which would you consolidate into? I am like you luminous- thinking 70:30 asset allocation. Can I/should I consolidate all three into Vanguard 2030?

2. Luminous and twstdsista, backdoor Roth sounds good. I checked out your link to wiki explanation of it. Pardon my ignorance, but my head just started spinning and I don't get it. But if my wife and I can both contribute $11K a year and it's somehow tax advantageous, I'm all for it. Can someone dummy down the explanation for me?

3. watty, I'm definitely going to step up my game and try to pull the trigger on a home purchase this spring. I agree with you and am considering a 5 or 7 year ARM to pay it off as soon as possible. So I'll set $300K for the down payment instead of CDs or MM

4. I am all for index funds with lowest ER.
For the $400K investment, I am considering splitting $100K in CD or money market: which ones would you recommend?

5. And for the $300K long-term investment, how would you decide between
- VTSAX
- VTIAX
- VTMFX
- VTEAX

5. Another random question I have is, are you folks trying to contribute/time your 529 contribution so that there will be "enough" for private college. Is there a max to 529 contribution? I just At $60K/year currently at the most expensive ones. I want to prepare for the worse case scenario

In terms of investment philosophy, I am all about trying to get to FIRE.

thanks in advance for all your input!

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luminous
Posts: 80
Joined: Sat Dec 30, 2017 10:28 pm

Re: new to the forum and eager for your advice

Post by luminous » Sat Feb 10, 2018 6:50 pm

letitgo wrote:
Sat Feb 10, 2018 11:37 am
1. Is it possible/a good idea to consolidate my retirement funds (TIAA 2040 target fund, Vanguard SEP IRA, Fidelity 2040 target fund)? If so, which would you consolidate into? I am like you luminous- thinking 70:30 asset allocation. Can I/should I consolidate all three into Vanguard 2030?
It looks like your current 403b is a good choice for consolidating to, since as TwstdSista said your old 401k TIAA-CREF fund has high fees. Since you want to do a backdoor Roth IRA you should at least consolidate your old SEP IRA. This is to avoid the pro-rata rule, as TwstdSista pointed out. Backdoor Roth IRAs are confusing, and it took me a while to figure them out. This explanation might help you make more sense of it: https://www.physicianonfire.com/backdoor/
5. Another random question I have is, are you folks trying to contribute/time your 529 contribution so that there will be "enough" for private college. Is there a max to 529 contribution? I just At $60K/year currently at the most expensive ones. I want to prepare for the worse case scenario
Saving for college is it's whole own line of research, for sure: https://www.bogleheads.org/wiki/529_plan

I'm trying to save enough to pay for half the cost of private college for two kids. We don't want to over-save, in case college costs don't go up as quickly as predicted or one or both attend a state college.
In terms of investment philosophy, I am all about trying to get to FIRE.
With that kind of income it shouldn't take long.
45/25/30 US stock/international stock/bonds. Target date funds. Hope to semi-retire in 2026.

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