Cash from home sale?
Additionally, I have a question regarding excess cash from the proceeds of my home sale.
Any advice would be greatly appreciated!
. . . . .
Condo Mortgage $1140 a month with a $125,000 mortgage balance.
bzappasodi wrote: ↑
Thu Oct 11, 2018 8:46 am
ruralavalon wrote: ↑
Tue Oct 09, 2018 9:25 am
What is the interest rate on the mortgage note (balance $125k) for your condo?
Have you considered simply using the $62k available for investing to pay down the balance on the the mortgage note for the condo?
Yes, I have!
In my opinion it's better to use the $62k from your home sale to pay down the $125k condo mortgage at $4.5%.
That's like getting a guaranteed 4.5% return on investment. Ordinarily paying off higher interest debt is the second highest investing priority after getting the match in a 401k. Please see the wiki article "Prioritizing investments"
Also I think it's desirable to enter retirement debt free if practical, and paying off about 1/2 of the condo mortgage balance gets you closer to that goal.
In my opinion at age 62 your desired asset allocation of 60/40 stocks/bonds is within the range of what is reasonable.
I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities"
. Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).
That works out to about 40% bonds; 15% international stocks; and 45% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.
Fund selection & placement.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Wiki article "Three-fund portfolio"
. Forum discussion, "The Three-Fund Portfolio"
It is often better coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, TSP etc.
), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited or choices available in a taxable account or any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based plans. Do not try to put all components of the asset allocation in every account.
In your 401k I suggest using:
1) BlackRock Equity Index Fund (a S&P 500 index fund, 81% of U.S. stock market) ER 0.12%;
2) BlackRock EAFE Index Fund (international stocks, developed markets only) ER 0.14%; and
3) BlackRock U.S. Debt Index Fund ER 0.06%.
For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund (such as BlackRock Equity Index Fund in your 401k) is good enough by itself for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations"
An S&P 500 index fund covers 81% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies, and in the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX
. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM"
. See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market"
. So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.
If you want to add the extended market fund in one of the IRAs to supplement the S&P 500 fund in your 401k, then an 81/19 mix of S&P 500 and extended market will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market"
. In my opinion this is not necessary, it is optional if you prefer to do this.
BlackRock EAFE index Fund in your 401k covers developed markets only. You can supplement that by using some Vanguard Emerging Markets Index Fund in one of your IRAs.
BlackRock U.S. Debt Index Fund ER 0.06% in your 401k tracks the Bloomberg Barclays U.S. Aggregate Bond Index, similar to Vanguard Total Bond Market.
Bond funds are not very tax-efficient and, ordinarily should not be held in a taxable account. A bond fund should ordinarily be held in a tax-advantaged account, preferably a tax-deferred account like a 401k or a traditional IRA. Wiki article "Tax-efficient fund placement"
In the taxable account I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Both are very tax-efficient. Wiki article "Tax-efficient fund placement"
. Those funds are also well suited to any type of account. Both are very diversified with very low expense ratios.
I would keep the Vanguard Growth Index Admiral (VIGAX) ER 0.05% in the taxable account, rather than incur income tax liability selling it. I would not buy more of the growth fund, or reinvest the dividends in the growth fund. Vanguard Total Stock Market Index Fund is more diversified.
To make portfolio management and rebalancing easy it is often better to have at least one large tax-advantaged account which contains all three basic asset types (bonds, international stocks, and domestic stocks). Don’t try to put all components of the asset allocation in every account.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Current portfolio size = $444.5k. New annual contributions = about $????k/yr. The asset allocation is: 40% bonds; 15% international stocks; and 45% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.
Taxable account @ Vanguard
(18% of total; $79.5k; adds $???k/yr)
04%, $17.5k, Vanguard Growth Index Fund Admiral Shares (VIGAX) ER 0.05%
14%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
00%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%.
(33% of total; $145k; adds $20/yr + employer match $???k/yr)
09%, BlackRock Equity Index Fund (a S&P 500 index fund, 81% of U.S. stock market) ER 0.12%;
10%, BlackRock EAFE Index Fund (international stocks, developed markets only) ER 0.14%; and
14%, BlackRock U.S. Debt Index Fund ER 0.06%
Roth IRA @ Vanguard
(34% of total; $150k; adds $6.5k/yr)
19%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
05%, Vanguard Emerging Mkts Stock Index Admiral Shares (VEMAX) ER 0.14%
10%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%
Traditional IRA @ Vanguard
(16% of total; $70k)
16%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing"
. You can easily adjust the asset allocation by exchanging between funds inside your 401k or Roth IRA.
Avoid exchanging between funds in the taxable account, which can create income tax liability.
. . . . .
I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews"
. When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom"
. Also take a look at the Boglehead’s wiki, the "getting started" link I give below.
If you have any questions just ask.
I hope that this helps.