Max 401k vs opening taxable account

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ronteller11
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Joined: Thu Apr 05, 2018 8:57 am

Max 401k vs opening taxable account

Post by ronteller11 » Wed May 16, 2018 6:43 pm

Im looking for some guidance in prioritizing my investments. My prioritization so far is:

1. Have about 2 months expenses for emergency fund in savings.

2. Contribute up to 401k match.

3. Max IRA contribution for the year.

4. Contribute at least 15% of income to 401k.

Some background on me: I am 25. I am uncertain about what big financial goals I have for the future. But some things I know for certain is I’d like to buy a house within 5-10 years and a car within 5 years. I have yet to determine what net worth I would like to achieve by a certain age, so that would be another goal that is pending.

Assuming the above priorities are met, should I open a taxable account? If so, what sort of allocation is common for mid term investing? Other option is should I contribute the rest to max my 401k contribution? I’m uncertain of the above goals require anything outside of a high yield savings account. But surely there are some benefits to having a taxabale account with money you are willing to risk? I wouldn’t want to be reckless about more mid term investing, so it may be easier for me just to max 401k contribution. Thoughts?

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Clever_Username
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Location: Southern California

Re: Max 401k vs opening taxable account

Post by Clever_Username » Wed May 16, 2018 6:50 pm

Why 15%? That seems oddly specific.

In any case, if you're saving for retirement, continue to put into your 401(k). If you're saving for another goal that you'll need the money before then, put the money in taxable, in a horizon-appropriate investment.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

ronteller11
Posts: 11
Joined: Thu Apr 05, 2018 8:57 am

Re: Max 401k vs opening taxable account

Post by ronteller11 » Wed May 16, 2018 7:04 pm

Clever_Username wrote:
Wed May 16, 2018 6:50 pm
Why 15%? That seems oddly specific.

In any case, if you're saving for retirement, continue to put into your 401(k). If you're saving for another goal that you'll need the money before then, put the money in taxable, in a horizon-appropriate investment.
Good point. 15% is somewhat arbitrary. It makes me feel ahead I guess since that is what’s recommended for retirement and I also have IRA contribution on top of it.

I need some more insight on the “horizon-approriate” part. I feel like I have short term down and long term down. But the in between part is where I get stuck. Thoughts?

mortfree
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Re: Max 401k vs opening taxable account

Post by mortfree » Wed May 16, 2018 7:10 pm

After your retirement contributions, Hoard as much cash as you can in an online savings account (1.x%) or maybe a CD ladder.

Needing a car and house will require money that you can’t afford to lose in investments.

That could work but might be considered the “hard way”

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FiveK
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Re: Max 401k vs opening taxable account

Post by FiveK » Thu May 17, 2018 12:41 pm

You may find Investment Order of interest.

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