Starting my investment

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Topic Author
Vlvthamr
Posts: 5
Joined: Tue Jul 17, 2018 10:38 am

Starting my investment

Post by Vlvthamr »

Bear with me this might get long. I’ll try my best to be detailed but brief.

A few years ago I was injured on the job and recently had to retire because of the injury, luckily I’m a union member with close to 15 years seniority and I was vested in my pension. I was able to retire with a disability pension of $1776 per month, which isn’t much but my wife has a well paying job as a director of benefits for her company and her salary plus the pension payment is enough to live on. Even better the first pension payment was a retro payment for just over a year that allowed us to pay off all of our credit card debt saving us almost $900 a month in high interest payments that we had been struggling to pay off, the debt was so high because we had to use the credit cards to cover bills when I had experienced an involuntary separation from employment about 15 years ago before starting my most recent job right after we’d purchased our house.

Now here comes my question. I’ve also settled with the insurance company on my workers compensation claim. The payment was for $215,000 with $30,000 going to my lawyer leaving me with $185,000. I used $35,000 to do things around the house that needed to be done leaving me with $150,000 to invest for the future. I’ve opened an individual investment account with vanguard and right now the money is in the money market account waiting for me to invest it.

Let me preface this by saying I have almost no clue about investing. I’ve read quite a bit on here and on the bogleheads website about bogleheads three fund portfolio plan and I’d like to use that as my investment strategy. The plan calls for investing in bonds as one of the funds to balance the risk of the more risky stock funds. It says to use my age, 44, as the percentage of bond funds to buy but to me that seems to be too safe. I’m thinking of going maybe 80%-20%, or 70%-30% split since I’d like to be more aggressive because I’m not looking to touch this money for 20-25 years. Is this wise? Should I stick with the age as the guideline? Is this even the right way to invest this money?

I’ve also looked at the different funds and the ones I’m kicking around are:

Domestic stock:
Total stock market index admiral shares
500 index admiral shares

International stock:
Total international stock index admiral shares
Pacific stock index admiral shares

Bonds:
Inflation protected securities
Long term treasury

I wouldn’t think I’d have to buy into both of each category because there’s more than likely some overlap in what stocks the funds are buying, again if I’m wrong I’d like to know.

Thank you all in advance for your anticipated cooperation.
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Duckie
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Joined: Thu Mar 08, 2007 1:55 pm

Re: Starting my investment

Post by Duckie »

Vlvthamr, welcome to the forum.
Vlvthamr wrote:I’ve also settled with the insurance company on my workers compensation claim. The payment was for $215,000 with $30,000 going to my lawyer leaving me with $185,000.
Is any of the settlement taxable?
It says to use my age, 44, as the percentage of bond funds to buy but to me that seems to be too safe. I’m thinking of going maybe 80%-20%, or 70%-30% split since I’d like to be more aggressive because I’m not looking to touch this money for 20-25 years. Is this wise? Should I stick with the age as the guideline?
44% bonds/cash is fine. So is 30%. In your situation I wouldn't go any lower than 30%.
Is this even the right way to invest this money?
Yes.
I’ve also looked at the different funds and the ones I’m kicking around are:
The best options at Vanguard are:
  • (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
  • (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)
  • And either (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)
  • Or (VWIUX) Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (0.09%)
The choice of taxable or tax-exempt bonds will depend on your personal tax bracket.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Starting my investment

Post by delamer »

If your wife has a 401(k) plan through her job that she is not contributing the maximum allowed to, you might want to use that for at least part of your savings. Meaning that you’d offset the reduction in her paycheck with some of your funds.

The advantage of the 401(k) is the immediate tax reduction and the ability to have interest/dividends/capital gains go untaxed during the accumulation phase.

And/or you could set up a spousal Roth IRA for yourself, which means no immediate deduction but no taxes on withdrawal.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Doctor Rhythm
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Re: Starting my investment

Post by Doctor Rhythm »

In general, you should aim to diversify and simplify. Diversify means (with regards to stocks) that you own stock in as many companies as possible, proportional to the financial size (capitalization) of the company. Thus, a total stock market fund (which tries to capture or sample the entire universe of investable U.S. companies) is more diverse than the S & P 500 fund (which only looks at the ~500 biggest companies). You don't need to own both, and generally shouldn't because that would over-represent large companies in your portfolio. Same idea goes for a total international stock fund, which does the same thing for non-US companies: you shouldn't buy the Pacific stock market fund on top of it unless you deliberately want to own companies in that region out of proportion to their capitalization.
Topic Author
Vlvthamr
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Joined: Tue Jul 17, 2018 10:38 am

Re: Starting my investment

Post by Vlvthamr »

Duckies none of the settlement was taxable. It was an injury settlement so it was tax free.
Topic Author
Vlvthamr
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Joined: Tue Jul 17, 2018 10:38 am

Re: Starting my investment

Post by Vlvthamr »

Delamer
My wife has a 401k at work and she is at her max contribution with a partial company match.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Starting my investment

Post by delamer »

Vlvthamr wrote: Tue Jul 17, 2018 5:14 pm Delamer
My wife has a 401k at work and she is at her max contribution with a partial company match.
That’s great!

You still have the option of a spousal IRA.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
Vlvthamr
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Joined: Tue Jul 17, 2018 10:38 am

Re: Starting my investment

Post by Vlvthamr »

Doctor rhythm thanks you basically confirmed what I was thinking about not needing to buy into both of the funds in each category.
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Taylor Larimore
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Location: Miami FL

Re: Starting my investment

Post by Taylor Larimore »

Vlvthamr:

You are on the right track. Consider the many benefits of The Three-Fund Portfolio.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
Vlvthamr
Posts: 5
Joined: Tue Jul 17, 2018 10:38 am

Re: Starting my investment

Post by Vlvthamr »

Taylor Larimore wrote: Tue Jul 17, 2018 5:22 pm Vlvthamr:

You are on the right track. Consider the many benefits of The Three-Fund Portfolio.

Best wishes.
Taylor
Taylor that’s what I’m asking about in the post. It’s how I’m leaning.
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