Investing Portfolio Mix

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
cmauss
Posts: 5
Joined: Thu Sep 13, 2018 11:19 am

Investing Portfolio Mix

Post by cmauss » Thu Sep 13, 2018 11:41 am

I wanted to get some advise for setting up my portfolio. Some background I am 29, in the military and my wife also works. Our pretax combined income is approx 150k and we have a 2.5 year old child. I have been maxing out my Roth for the last 6 years and my wife has for the last 4 years. I have also opted into the military blended retirement system, and with the match am contributing 10% to my Roth TSP. We also have a vanguard 529 plan for my daughter.We recently purchased a house with a 2k mortgage payment. The only debt that either of us have is the mortgage. We have atleast $1000 a month that we can continue to invest. The goal of our investing would be to have the option to basically retire by the time were 50 and have enough money to bring us out to retirement age.

This said I think we are on track for our post 60 years. My concers are more in the 30-50 year old range. I was stationed overseas for 2 years and was able to save a lot. Now we have about 70k just sitting in a bank and need to invest it. I have read bogleheads guide to investing and common sense investing, as well as several other books and want to make the leap. These books pitch index funds very heavily against standard mutual funds, ispecially actively managed ones. should I be looking at putting the majority of my money into an index fund like the Vanguard 500 and not worry about diversifying the portfolio. Or should I be looking into ETFs, bonds, mutual funds etc? We also want to keep around 15k in emergency funds. should we be keeping this money in a standard bank account or should we put that in a Money Market?

Thankyou for the help!
Craig

bloom2708
Posts: 4792
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Investing Portfolio Mix

Post by bloom2708 » Thu Sep 13, 2018 12:20 pm

Welcome and thank you for your service!

Your next step is to max out your pre-tax TSP + 2 x Roth IRA each year.

I would use some of your cash savings to live off and bump up your pre-tax TSP as much as you can to get toward the $18,500 pre-tax match for the year.

That means a smaller paycheck, but less tax (Fed and State) paid. Lowering your AGI. Use the savings to supplement your income.

Say that is $15k. Keep $20k for an Emergency Fund. The rest, start a taxable investment account. If you have an HSA, fill that up as well.

It adds up pretty fast if you get to $18,500 pre-tax + $11k Roth each year. HSA and taxable. Think about starting a 529 with a drip for the kid.

Read a lot of threads here. Ask follow up questions. Understand the 3 fund portfolio and the 10 Boglehead principles. Good luck!
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

ExitStageLeft
Posts: 899
Joined: Sat Jan 20, 2018 4:02 pm

Re: Investing Portfolio Mix

Post by ExitStageLeft » Thu Sep 13, 2018 3:57 pm

Welcome to the forum! I agree with bloom that you're best choice right now is tax-deferred savings in the TSP. You'll want a mix of pre-tax and Roth savings each year, and you're probably best served with $18.5k pre-tax and $11k in Roth.

Shooting for an early retirement means accessing money in retirement accounts is a little more challenging than if you are age 59.5. TSP allows for access whenever you take a full retirement, at least for civilians. If you'll have access to the TSP then there's no harm in putting in tax-deferred now.

cmauss
Posts: 5
Joined: Thu Sep 13, 2018 11:19 am

Re: Investing Portfolio Mix

Post by cmauss » Fri Sep 14, 2018 4:54 pm

Thank you for the feedback. I will look into maxing out the TSP. What is the reason for doing the tax differed option as opposed to the Roth? With the remaining money that we have, we would like it to be invested in something that we can can take out whenever we want when we hit that 50 mark not a retirement fund. Is an index fund, eft, mutual fund or some combo of those things the best way to go about that?

Thank you

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Investing Portfolio Mix

Post by Grt2bOutdoors » Fri Sep 14, 2018 4:59 pm

An index fund by its very nature is diversified. The S&P 500 holds over 450 issues, that’s diversified. Total Stock Market Index holds over 3600 individual issues, also diversified. It’s best to develop an asset allocation plan and then follow it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

CRTR
Posts: 119
Joined: Sat Apr 11, 2015 1:15 pm

Re: Investing Portfolio Mix

Post by CRTR » Fri Sep 14, 2018 6:18 pm

cmauss wrote:
Fri Sep 14, 2018 4:54 pm
Thank you for the feedback. I will look into maxing out the TSP. What is the reason for doing the tax differed option as opposed to the Roth? With the remaining money that we have, we would like it to be invested in something that we can can take out whenever we want when we hit that 50 mark not a retirement fund. Is an index fund, eft, mutual fund or some combo of those things the best way to go about that?

Thank you
Not sure I necessarily agree with the others about maxing out your tax-deferred savings as opposed to Roth. I think this question is far from settled . . . . There are two basic rationals for using tax-deferred accounts as opposed to a Roth: you think your future tax bracket will lower than your current and it provides tax diversification/options when you tap the accounts in retirement. I doubt very much that your future federal tax bracket will be less than your current 22% bracket. On the other hand, tax diversification can provide real benefits. In my personal situation, I am making ~$70k/year in Roth conversions at a tax rate of ~11% by living off my brokerage account for now. So, as you can see, there is no way to know the correct answer without a crystal ball. So, what to do?? Speaking as someone who's always had issues with commitment, I would aim for an equal split between tax-deferred and Roth savings. You'll be ready for anything then!

As for the $70k, I like the plan to place ~$20k in an emergency fund. An option you could consider is a Home Equity LOC for an emergency fund.
You can open one free and there is no charge unless you tap it. You can invest all $70k that way. A more conservative choice would be to keep $20k in a 3 year CD ladder. Current 3 year CD rates are running as high as 3.25% with small early withdrawal penalties. If you need the money, you can cash in a CD and not take a big interest hit. As for the remaining $50k, index funds are the way to go. You can go with a one-stop shopping option like a Vanguard Target Date fund or you can purchase US and international funds and create your own. Again, there is no right answer here. It depends on how much control/effort you and your wife want to put into managing your investments.

Post Reply