Building a Portfolio

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Snow
Posts: 3
Joined: Thu Feb 08, 2018 7:04 pm

Building a Portfolio

Post by Snow » Tue Feb 13, 2018 7:26 pm

Hi everyone.
I've been reading as much as I can (and as much as I understand) on the forum before making this post, my situation is a little different than what you see here usually.

Some info on me:
1. Born in the US, grew up in another country up until mid-late 2017, in which I moved to the US.
2. Do not have any type of retirement accounts or investment accounts in the US at the moment, all of my savings are in a different currency/country
3. Currently self-employed
4. I wasn't able to study right after high school due to mandatory military service so I am looking to start studying this year. Tuition will not be extremely high so hopefully l will be able to pay for it from my income and with my parents help.
5. Looking to learn how to build a portfolio and how to manage it myself, with the little money I have available to invest.

Emergency funds: 3-6 months of expenses
Debt: None
Tax filing status: Single
Tax Rate: Florida 25%?
Age: 22
Desired asset allocation: I was hoping you could give me some input on what is recommended for someone my age and in this type of economy? Based on my age and rules of thumb I should be looking at 90/10 stocks/bonds?
Desired international allocation: I’ve read 30-50% is recommended but was also hoping for some input from you guys

Current assets (not in USD so I translated to $ based on current exchange rate)

1. $40k investable cash I’ve saved up working since my teenage years (50%)

2. $40k my parents saved up for me and are invested in 2 funds:
10/90 stock/bonds (25%)
25/75 stocks/bonds. (25%)

Questions:
1. Where do you recommend I open my investment account in the US? I've seen most people here use Vanguard?
2. What asset allocation do you recommend for someone in my position and at this stage in the market?
3. How should I go about constructing my portfolio for short term/long term/retirement in the most tax efficient manner?

Again, I apologize if I am missing any information. I often get overwhelmed from all the different types of accounts and plans that are available and I am still working on learning the terminology and understanding how the system works here.
I would appreciate any help, and the more detail and explanation you can provide, the better. :happy

Thank you!

PFInterest
Posts: 791
Joined: Sun Jan 08, 2017 12:25 pm

Re: Building a Portfolio

Post by PFInterest » Tue Feb 13, 2018 8:02 pm

Your situation isn't that unique. Are you planning on leaving the US in the future?

Snow
Posts: 3
Joined: Thu Feb 08, 2018 7:04 pm

Re: Building a Portfolio

Post by Snow » Tue Feb 13, 2018 8:42 pm

PFInterest wrote:
Tue Feb 13, 2018 8:02 pm
Your situation isn't that unique. Are you planning on leaving the US in the future?
not planning on leaving

krow36
Posts: 1544
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Building a Portfolio

Post by krow36 » Tue Feb 13, 2018 10:09 pm

If I were you I would start your retirement investing by contributing to an IRA. Whether that would be a traditional IRA or a Roth IRA would depend on you self-employment income. Probably a Roth if your current income is low? You can contribute up to 5.5k to an IRA for 2017 up until April 17, and another 5.5k to an IRA for 2018 up until 2019’s tax date. That would use up 11k of your 40k of investable money. If you self-employment income allows, you could set up a SEP or SIMPLE IRA, or an individual (solo) 401k. Which one probably depends on the amount of your income you expect to be able to invest for retirement. I suggest you read about the 3 fund portfolio in the Wiki.

Because you don’t have any investing experience, I suggest you start out with an asset allocation of about 80/20 rather than 90/10. As you pick up investing knowledge and understand you own emotions more clearly, you can raise or lower the risk.

Snow
Posts: 3
Joined: Thu Feb 08, 2018 7:04 pm

Re: Building a Portfolio

Post by Snow » Tue Feb 13, 2018 11:41 pm

krow36 wrote:
Tue Feb 13, 2018 10:09 pm
If I were you I would start your retirement investing by contributing to an IRA. Whether that would be a traditional IRA or a Roth IRA would depend on you self-employment income. Probably a Roth if your current income is low? You can contribute up to 5.5k to an IRA for 2017 up until April 17, and another 5.5k to an IRA for 2018 up until 2019’s tax date. That would use up 11k of your 40k of investable money. If you self-employment income allows, you could set up a SEP or SIMPLE IRA, or an individual (solo) 401k. Which one probably depends on the amount of your income you expect to be able to invest for retirement. I suggest you read about the 3 fund portfolio in the Wiki.

Because you don’t have any investing experience, I suggest you start out with an asset allocation of about 80/20 rather than 90/10. As you pick up investing knowledge and understand you own emotions more clearly, you can raise or lower the risk.
Thanks, income is around 50k at the moment, 3 Vanguard total market indexes at 80/20 seems like a good start for an IRA and a 401k, and keep contributing. Other than those should the rest of the cashbe put in similar fashion in taxable accounts?

krow36
Posts: 1544
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Building a Portfolio

Post by krow36 » Wed Feb 14, 2018 12:44 am

If you can afford your continuing education costs without using the investing money, setting up a solo 401k would allow to contribute up to 18.5k plus 20% of your net business profit - 1/2 your self-employment tax. You might consider holding off on investing the rest of the 40k for a while. Or maybe invest only half in a taxable account, and think about it for a year or so? You want to avoid selling in a downturn, or not being able to sleep well.

It’s best to consider all your accounts together, so keeping your bond funds in the i401k or the Roth IRA is preferable. It’s not tax efficient to have taxable bonds in a taxable account because they generate taxable dividends. There’s a wiki on this: https://www.bogleheads.org/wiki/Tax-eff ... _placement .

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