I'm Lost Please Help Me :(

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
orhkaf
Posts: 5
Joined: Tue Feb 13, 2018 12:39 am

I'm Lost Please Help Me :(

Post by orhkaf » Tue Feb 13, 2018 12:53 am

Hello Everyone!

I've been an active lurker of the forum for several months, but finally built the courage to make an account to ask for help.

I'm a single 27 y/o living in CA and needed help on investing in my future.

Some info about me:
1. ~300K / year income
2. 130K savings in cash
3. 140K student loan with 2.95% interest for a 15 year term
4. No other debt besides the student loan (currently renting I do not own a home)
5. Currently just contributing to 401K to take advantage of employer match @5%

I save around 12-13K at the end of every month after expenses/bills are paid, and have no idea what to do with the rest of the money.

My original plan was to try to pay off my student loan as quickly as possible and to then save to purchase a home. However, with the house market being so high in CA I'm certain it's not a good time to buy at the moment and was thinking of investing a good portion of my savings.

I guess you can say I'm not very savvy when it comes to money.

Can anyone give me some advice on what I should be doing at this point in my life? Should I keep my assets as liquid as possible to get into a house when I feel comfortable to do so? Or should I look into other types of investing.

Any help is greatly appreciated. Thanks a bunch!!

User avatar
happysteward
Posts: 102
Joined: Tue Jun 16, 2015 11:42 am

Re: I'm Lost Please Help Me :(

Post by happysteward » Tue Feb 13, 2018 7:25 am

Pay off the debt, aggressively!
"How much money is enough?", John Rockefeller responded, "...just a little bit more." | "He who loves money will not be satisfied with money..." Ecclesiastes 5:10

User avatar
happysteward
Posts: 102
Joined: Tue Jun 16, 2015 11:42 am

Re: I'm Lost Please Help Me :(

Post by happysteward » Tue Feb 13, 2018 7:31 am

Before you do anything else investing wise...a couple of questions...

Do you know what you are investing in in your 401(k)? Tell us...

Learn about the three fund portfolio in the wiki...consider this for yourself...

Make sure you get a grasp on the Investment expense impact over time, this will help you make good decisions going forward...
"How much money is enough?", John Rockefeller responded, "...just a little bit more." | "He who loves money will not be satisfied with money..." Ecclesiastes 5:10

User avatar
happysteward
Posts: 102
Joined: Tue Jun 16, 2015 11:42 am

Re: I'm Lost Please Help Me :(

Post by happysteward » Tue Feb 13, 2018 7:32 am

Welcome to the forum, should have said that to start, you are in the right place!,, :happy
"How much money is enough?", John Rockefeller responded, "...just a little bit more." | "He who loves money will not be satisfied with money..." Ecclesiastes 5:10

User avatar
LiveSimple
Posts: 1078
Joined: Thu Jan 03, 2013 7:55 am

Re: I'm Lost Please Help Me :(

Post by LiveSimple » Tue Feb 13, 2018 7:45 am

Just invest as much as possible in an index fund ( Three fund portfolio)

Pay off your debt.

Financially you seems well off, may be look into your life and see what are your desires / like and how to achieve them.

You have to enjoy life.

runner540
Posts: 754
Joined: Sun Feb 26, 2017 5:43 pm

Re: I'm Lost Please Help Me :(

Post by runner540 » Tue Feb 13, 2018 7:45 am

Pay off your debt, and max your 401k/backdoor Roth IRA/HSA accounts. Immediate tax savings on $300k single income in CA.

User avatar
dodecahedron
Posts: 3739
Joined: Tue Nov 12, 2013 12:28 pm

Re: I'm Lost Please Help Me :(

Post by dodecahedron » Tue Feb 13, 2018 8:03 am

Welcome! You have certainly come to the right place.

A great way to get a bird's eye guidance is to read this short free PDF, If You Can, written by a highly respected Bogleheads author, Bill Bernstein.

User avatar
Toons
Posts: 13016
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: I'm Lost Please Help Me :(

Post by Toons » Tue Feb 13, 2018 8:08 am

140K student loan with 2.95%="APPLY" a good portion of my savings
Be done with the loan within the nex 6 months.






8-)
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

User avatar
midareff
Posts: 5798
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: I'm Lost Please Help Me :(

Post by midareff » Tue Feb 13, 2018 8:13 am

#1. Read the Wiki here.

#2. Aggressively get rid of the debt.

#3. Establish the three fund portfolio, or as close as you can get in the 401.

#4. After #2 max your 401 and open a taxable account at Vanguard and establish a three fund there.

#5. Start on the recommended reading list in the Wiki.

RRAAYY3
Posts: 926
Joined: Thu Jan 17, 2013 12:32 pm

Re: I'm Lost Please Help Me :(

Post by RRAAYY3 » Tue Feb 13, 2018 8:21 am

Pay debt

Max 401k

Taxable Account : Total Us + Int’l Index Funds

Keep feeding the taxable account

User avatar
WoodSpinner
Posts: 522
Joined: Mon Feb 27, 2017 1:15 pm

Re: I'm Lost Please Help Me :(

Post by WoodSpinner » Tue Feb 13, 2018 11:28 am

OP,

You might start at the beginning with the Bogleheads Getting Started Wiki.

You have had some very good recommendations, only additional thought is to establish an Emergency Fund as a priority.

Good luck!

WoodSpinner

mortfree
Posts: 1298
Joined: Mon Sep 12, 2016 7:06 pm

Re: I'm Lost Please Help Me :(

Post by mortfree » Tue Feb 13, 2018 12:05 pm

orhkaf wrote:
Tue Feb 13, 2018 12:53 am
Some info about me:
2. 130K savings in cash
3. 140K student loan with 2.95% interest for a 15 year term
5. Currently just contributing to 401K to take advantage of employer match @5%

I save around 12-13K at the end of every month after expenses/bills are paid, and have no idea what to do with the rest of the money.
70k from cash to the student loan (SL). balance is now 70k SL; 60k cash.

from there, using the 12-13k per month:

Option 1: 10k over the next 7-8 months towards the SL.
Option 2: 6k per month over ~12 months.
Option 3: 8k per month for 5 months, then 30k lump sum from cash.

you get the idea on scenarios you can engineer to meet your timelines.

I will own the fact that it is very easy for me to type this and tell you what to do since it is not my money.

User avatar
Christine_NM
Posts: 2635
Joined: Tue Feb 20, 2007 1:13 am
Location: New Mexico

Re: I'm Lost Please Help Me :(

Post by Christine_NM » Tue Feb 13, 2018 12:33 pm

You did not say, but it sounds like you are contributing a minimum to the 401k just to qualify for the match. You might want to up the amount to the max. Your investments in your 20s will have the most time in the market, therefore most likely the best return of your life if you don't blow it all on a house. If you save now, you will not have to save more later and you will be able to afford a house.

I did retirement by paying off mortgage while saving 15% in retirement accounts, but then I had to up the savings rate to 50% in the last few years. I didn't have much choice so that was OK, but your income gives you options. You are not lost, just undecided. :?
17% cash 47% stock 36% bond. Retired, w/d rate 2.85%

aristotelian
Posts: 4781
Joined: Wed Jan 11, 2017 8:05 pm

Re: I'm Lost Please Help Me :(

Post by aristotelian » Tue Feb 13, 2018 12:33 pm

Save a bit more, then pay off the student loan.

Start a Roth IRA and make "backdoor" contributions.

Max your 401k.

With any additional cash flow, save in a brokerage account according to your allocation.

Do not buy a house until you are 100% ready.

AndThen
Posts: 26
Joined: Sun Mar 01, 2015 4:32 pm

Re: I'm Lost Please Help Me :(

Post by AndThen » Tue Feb 13, 2018 12:54 pm

orhkaf wrote:
Tue Feb 13, 2018 12:53 am
Hello Everyone!

I've been an active lurker of the forum for several months, but finally built the courage to make an account to ask for help.

I'm a single 27 y/o living in CA and needed help on investing in my future.

Some info about me:
1. ~300K / year income
2. 130K savings in cash
3. 140K student loan with 2.95% interest for a 15 year term
4. No other debt besides the student loan (currently renting I do not own a home)
5. Currently just contributing to 401K to take advantage of employer match @5%

I save around 12-13K at the end of every month after expenses/bills are paid, and have no idea what to do with the rest of the money.

My original plan was to try to pay off my student loan as quickly as possible and to then save to purchase a home. However, with the house market being so high in CA I'm certain it's not a good time to buy at the moment and was thinking of investing a good portion of my savings.

I guess you can say I'm not very savvy when it comes to money.

Can anyone give me some advice on what I should be doing at this point in my life? Should I keep my assets as liquid as possible to get into a house when I feel comfortable to do so? Or should I look into other types of investing.

Any help is greatly appreciated. Thanks a bunch!!
1. Increase your 401k contribution to 6.5%, that should get you to where you are putting $18500 in the max for 2018.
2. Open a traditional IRA account at schwab or fidelity. deposit $5500 for 2017, and $5500 2018. Backdoor if still possible to a Roth.
3. pay off debt at a high rate.
4. add excess money to a separate taxable account.

User avatar
One Ping
Posts: 499
Joined: Thu Sep 24, 2015 4:53 pm

Re: I'm Lost Please Help Me :(

Post by One Ping » Tue Feb 13, 2018 1:08 pm

All good advice above, but in the meantime don't forget to establish and maintain an emergency fund ... to cover at least 3 to 6 mos (or even 12 mos) of expenses.

One Ping.
"Re-verify our range to target ... one ping only."

Jon H
Posts: 108
Joined: Sun Jan 21, 2018 2:50 pm

Re: I'm Lost Please Help Me :(

Post by Jon H » Tue Feb 13, 2018 1:44 pm

Take your time and self educate. You'll be all the better for it.

From: https://forum.mrmoneymustache.com/inves ... ent-order/

This ordering is appropriate for investors in the US.

It is up to you whether to consider "saving for a house down payment" as a "day to day expense", vs. lumping the down payment savings in with "taxable investments" at the end.

If you are renting, you may not be throwing away as much on rent as you might think. See
http://jlcollinsnh.com/2012/02/23/rent- ... e-numbers/
for some thoughts.

In the lists below, thinking "first your governmental 457 (if you have one), then your 401k and/or 403b" wherever "401k" appears is likely correct -
unless your governmental 457 fund options are significantly worse than those in the 401k/403b -
due to penalty-free access to governmental 457 funds at retirement, even if younger than 59 1/2.
"Max _____" means "contribute up to the maximum allowed for _____, subject to your ability to pay day-to-day expenses."

Non-governmental 457b plans have deficiencies, including the inability to roll the balance into an IRA.

The benefits of employee stock purchase plans (ESPPs) relative to other opportunities is highly dependent on tax rates, because ESPP benefits all occur in taxable accounts.
- For someone paying 12% tax on ordinary income, and 0% on dividends and capital gains, ESPPs can be very favorable, perhaps competing with high interest rate loans in step 2.
- For someone paying 22% tax on ordinary income, and 15% on dividends and capital gains, ESPPs are not as favorable, perhaps coming between steps 6 and 7.

Differences of a few tenths of a percent are not important when applicable for only a few years (in other words, these are guidelines not rules).

Current 10-year Treasury note yield is ~2%. See
http://quotes.wsj.com/bond/BX/TMUBMUSD10Y

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account and/or fund a 529 with any extra.


WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs for that purpose.
At worst, the HSA behaves much the same as a tIRA after age 65.
4. Rule of thumb: traditional if current federal marginal rate is 22% or higher; Roth if 10% or lower, or if MAGI is too high to deduct a traditional IRA; flip a coin otherwise.
For those willing to expend a little more energy than it takes to flip a coin, consider comparing current marginal tax saving rate vs. predicted marginal withdrawal tax rate.
If current > predicted, use traditional. Otherwise use Roth.
See Credits can make Traditional better than Roth for lower incomes and other posts in that thread about some exceptions to the rule.
See Traditional versus Roth - Bogleheads for even more details and exceptions. State tax (or lack thereof) should also be considered.
The 'Calculations' tab in the Case Study Spreadsheet can show marginal rates for savings or withdrawals*.
5. See #4 for choice of traditional or Roth for 401k. In a 401k there are no income-based limits for deductions or contributions.
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough. Note that embedded in "high enough" is the assumption that your alternative is "all stocks" or a "fund of funds"
(e.g., target retirement date) that provides a blend of stock and bond returns. If you wish to consider separate bond funds, compare the yield on a fund
with a duration similar to the time remaining on the loan, and put your money toward the one with the higher interest/yield.
8. Because taxable earnings will still help your FI journey. If your own retirement is in good shape, and you choose to provide significant help for children's college costs,
a 529 plan may be appropriate. Similar to "put on your own oxygen mask before assisting others," do consider funding your own retirement before funding 529 plans for children's college costs.

Speaking of things to do first, see Getting started - Bogleheads if this is all new. Working through that post and the links therein is also a good refresher, even if personal finance isn't completely new to you.

The emergency fund is your "no risk" money. You might consider one of these online banks:
http://www.magnifymoney.com/blog/earnin ... s275921001

If your 401k options are poor (i.e., high fund fees) you can check
http://forum.mrmoneymustache.com/invest ... ion-43459/
for some thoughts on "how high is too high?"

Priorities above apply when income is primarily through W-2 earnings. For those running their own businesses (e.g., rental property owner, small business owner, etc.),
putting money into that business might come somewhere before, in parallel with, or after step 5.

Why it is likely better to invest instead of paying a low interest rate mortgage early, if you have a long time until the mortgage is due:
http://allfinancialmatters.com/wp-conte ... r_year.pdf
http://pages.stern.nyu.edu/~adamodar/Ne ... retSP.html


*Estimating withdrawal tax rates is not an exact science, but here is one approach:
1) Include any guaranteed pension amount that you can't defer in return for higher payments when you do start
2) Take current traditional balance and predict value at retirement (e.g., with Excel's FV function) using a conservative real return, maybe 3% or so. Take 4% of that value as an annual withdrawal.
3) Take current taxable balance and predict value at retirement (e.g., with Excel's FV function) using a conservative real return, maybe 3% or so. Take 2% of that value as qualified dividends.
4a) Decide whether SS income should be considered, or whether you will be able to do enough traditional->Roth conversions before taking SS.
4b) Include SS income projections (using today's dollars) if needed from step 4a.
5) Calculate marginal rate using today's tax law on the numbers from step 1-4.
6) Make your traditional vs. Roth decision for this year's contribution
7) Repeat steps 1-6 every year until retirement

The steps above may look complicated at first, but you don't need great precision. The answer will either be "obvious" or "difficult to choose". If the latter, it likely won't make much difference which you pick anyway.

Note the possibility of self-defeating predictions:
a) predict high taxable retirement income > contribute to Roth > get low taxable retirement income
b) predict low taxable retirement income > contribute to traditional > get high taxable retirement income

Also, if you pick traditional and that ends up being wrong it will be because you have "too much money" - not the worst problem.
If you pick Roth and that ends up being wrong it will be because you have "too little money" - that can be a real problem.
Thus using traditional is a "safer" choice.
Consider gain and loss, but never be greedy and everything will be alright (fortune cookie)

BostonButterfly
Posts: 115
Joined: Tue Jun 06, 2017 11:49 am
Location: Boston

Re: I'm Lost Please Help Me :(

Post by BostonButterfly » Tue Feb 13, 2018 1:52 pm

Orhkaf,
Lucky you, to have found Bogleheads at age 27 with $300k yearly income! You will receive answers to any questions you have, as long as you provide the information needed for the people here to steer you in the right direction.

In my opinion, along with all the financial advice that you will receive, I will say that a significant factor in your financial success is marrying a partner with whom you share the same financial goals. Money, saving habits and spending habits can be a HUGE stress on a marriage if you aren't at least in the same ballpark. If you aren't headed in the same direction as your spouse, it often ends badly, with a lot of headaches along they way. Been there. Done that. Money does not buy happiness, but being financially in sync with your spouse sure provides a much more pleasant journey through life, no matter what your income.

My .02.

echidna
Posts: 45
Joined: Thu Jan 18, 2018 7:01 pm

Re: I'm Lost Please Help Me :(

Post by echidna » Tue Feb 13, 2018 3:05 pm

I'm not sure why there is so much emphasis above on paying off a 3% 15-year loan. By all means pay it off at an accelerated rate, especially if that makes you more comfortable, but I would not seriously deplete my cash to pay it off as fast as possible.

If rather than using a large amount of cash to pay down the loan, you invest that portion of the cash wisely, you should be able to earn 3% or more on that money (after tax) in the long term.

I do think you should be looking hard at your tax situation, possibly consulting with a professional advisor (but find someone who is fee-for-service, not paid a percentage of your portfolio).

I would imagine you are paying a marginal rate of around 45% (Federal + California) on ordinary income. And it looks like your investments will be mostly in taxable accounts. This is a terrible bite to be coming out of things like bank interest, (taxable) bond income, etc. It lowers an annual rate of return of 6% to effectively only 3.3%, which is a massive effect when compounded over many years. The difference is even worse after subtracting the effect of inflation. With 2% inflation, you end up with 4% real return before tax, but only 1.3% real return after tax.

So you will want your taxable investments in things like tax-efficient stock index funds, which generate mostly qualified dividends and long-term capital gains (incurring about a 25% marginal tax rate). I think you should also have a smaller portion in bonds, ideally a California Muni bond fund (no tax at all).

User avatar
Earl Lemongrab
Posts: 5663
Joined: Tue Jun 10, 2014 1:14 am

Re: I'm Lost Please Help Me :(

Post by Earl Lemongrab » Tue Feb 13, 2018 4:44 pm

In opposition to many here, I think you should NOT accelerate that loan. You have a good rate and term in a time when interest rates have been rising. Sinking money into the loan hurts your liquidity at point when you don't have a lot of resources.

You can always decide to pay it off later, you can't decide to unpay. I recommend concentrating on saving and investing at this time. Pay the loan on schedule from cashflow.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

pkcrafter
Posts: 13101
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: I'm Lost Please Help Me :(

Post by pkcrafter » Tue Feb 13, 2018 5:26 pm

Earl Lemongrab wrote:
Tue Feb 13, 2018 4:44 pm
In opposition to many here, I think you should NOT accelerate that loan. You have a good rate and term in a time when interest rates have been rising. Sinking money into the loan hurts your liquidity at point when you don't have a lot of resources.

You can always decide to pay it off later, you can't decide to unpay. I recommend concentrating on saving and investing at this time. Pay the loan on schedule from cashflow.
+1 to Earl's recommendation. Please let up know what lower cost funds are available in your 401k. If good low cost funds, then max your 401k. Following that, do nothing for awhile except for learning, creating an investment strategy and asset allocation.
I save around 12-13K at the end of every month after expenses/bills are paid, and have no idea what to do with the rest of the money.
12-13k after expenses sounds very low. Where is the money going. Are you aggressively paying off the student loan?

What to do. Probably max the 401k. Back-door Roth. Create an emergency fund. Invest using a taxable account. First, study the Wiki and other provided sources. See the link WoodSpinner provided and the one by dodecahedron.

Tax management

https://www.bogleheads.org/wiki/Tax-eff ... _placement


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.

Post Reply