bgreen7887 wrote: ↑
Sat Sep 22, 2018 9:10 am
Hello bogleheads - I'm 31 years old and recently married. I wasn't the most financially conscience in my younger years and now I'm trying to play catch up. Savings wise I have 35k in Northfield bank online savings giving a whopping 2.25% return, I switched from CIT Money Market at 1.85%. From the 35K 20K of it is untouchable for our emergency fund and the rest (so far 15K) is for our home down payment. We budget 1000 a month to go toward savings. We're aggressively paying back student loans, credit cards, and car notes (it should take 15 months) so things are a little tight to say the least.
Now on to investing. My wife is a teacher and has a pension of about 18k no match. I plan on opening her a Vanguard brokerage account at end of year and putting 90% s&p 500 or total index fund and 10% on bonds so she can have some exposure to the market. Myself - I have about 9K in my 401k that I'm getting a 100% match up to 6%. I earn about 135K annually and right now I'm contributing 13%. Now I have the total long term mindset and I'm not worried about the minor blips - corrections - or even crashes. Here's my asset allocation:
Fund Name | % of Portfolio | Expense Ratio
- Principal LargeCap S&P 500 Index Separate Account | 43.65 % | .05%
- Principal SmallCap S&P 600 Index Separate Account | 47.08 % | .05%
- Federated Institutional High Yield Bond R6 Fund | 5.23 % | .52%
- Principal Real Estate Securities Inst Fund | 3.44 % | .87%
- Hartford International Opportunities HLS IA Fund | .60 % | .73%
Generally SmallCap have been doing really well so I was big on it. Obviously I need exposure to LargeCap so I selected the S&P 500 w/ low ER. There are other (actively managed) Small & Large cap choices that are outperforming these but their ER is close to 1%. For instance there's another Small Cap PRJIX that's 25% YTD ER .65% while the S&P 600 (i'm invested in above) is at 15% YTD. In this case is it smarter to go for the much higher returns and accept the higher ER ? 0.05 vs .65 ... I really just wanted to get some stabilization so I recently start picking up some real estate and bonds. Am I being silly here? Should I just contribute to the S&P500 & S&P 600 50% a piece and never check them until i'm 40 lol? Thanks guys sorry for the book.
Welcome to the forum! You both have a good plan to knock out that debt. Stick to it and soon you'll be free to invest even more for your future.
Keep in mind that at this early stage of your investing career, the greatest impact on the growth of your portfolio is your savings rate. Asset allocation will matter in the long term, but right now your focus should be on investing as much as you can. As you pay off the student loans and car loans, you'll be doing your future selves a huge favor by saving those funds instead of allowing your living expenses to go up through lifestyle creep.
Investing in a taxable account is inevitable once you have maxed out your tax-advantaged savings. That means saving in accordance with the wiki page on investment priority
. But you haven't maxed out the tax-advantaged savings yet, as both you and your wife can each save $5,500 per year in individual retirement accounts (IRA). There are are two kinds, the traditional IRA
and the Roth IRA
. I would give some thought as to which is better for your individual situation, but at least one of you should have a Roth IRA.
One of the philosophies adopted by most Bogleheads are that none of us knows nothin', so there's no point in attempting to read the market. Instead, invest in total market indexed funds and you will be guaranteed to receive whatever it is the market is giving. In your case that means having the large cap and small cap funds in a ratio equivalent to their respective capitalization in the overall stock market. That's probably about 75% S&P500 and 25% S&P600.
With the higher fees in the other funds in your 401k I would drop those like a hot potato. Actively managed funds can sometimes outperform the indexed funds but over the long term the indexed funds will do better, and with the lower expenses you end up keeping more of those earnings. I would probably ditch everything in the 401k and just have the large and small cap indexed funds. You should open up IRAs for each of you, and start purchasing the remainder of your assets allocation in the IRAs. With an account at Vanguard, Fidelity, or Schwab you can get total market indexed funds with very low expenses.
Keep doing what you're doing. Read the wiki and the recommended reading. You and your wife should take some time to understand your mutual goals and write up an Investment Policy Statement that outlines how you'll achieve those goals. An IPS is useful to keep you focused on the long game and make it easier to disregard the noise and hype of those that want to separate you from your money.