just starting

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justgrind
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Joined: Sun May 26, 2019 6:49 am

just starting

Post by justgrind » Sun May 26, 2019 7:09 am

Hello,
I'm 24 years old working full-time and also doing part-time side jobs. My annual income is around 60k and I live in Maine. My father introduced me to Bogleheads.
The company I work for doesn't offer any retirement plan as of yet. So I started a Roth a couple of years ago
and have been putting in the max since then (100% in Vanguard Total US stock index fund). I'm single, and I don't have any other debt. My goal is to currently keep saving and to purchase a home within 5 years. So I'm saving for the down payment now. I have about 15k in savings right now.
My questions are:
What is the most efficient place to have my savings rather than just sitting in a savings account with my local bank?
Should I put the 15k somewhere else now while I continue to save?
And, going forward, as I reach 5k-10k increments of future savings should I invest those somewhere too? Again, keeping in mind my hope is to use that money for a home down-payment within 5 years.
And finally, at my age (24) should my asset allocation with Vanguard include International and Bonds?
Thank you very much for your help!

JoeRetire
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Re: just starting

Post by JoeRetire » Sun May 26, 2019 7:23 am

justgrind wrote:
Sun May 26, 2019 7:09 am
The company I work for doesn't offer any retirement plan as of yet. So I started a Roth a couple of years ago
and have been putting in the max since then
Terrific!
What is the most efficient place to have my savings rather than just sitting in a savings account with my local bank?
CDs or online banks shold return more. I use Ally.

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dwickenh
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Re: just starting

Post by dwickenh » Sun May 26, 2019 7:34 am

You could use the Vanguard Money Market for your house savings as it pays 2.35% or so right now.

I think your one fund is fine in your Roth for now. Once the amount becomes more substantial,

you might consider some International and 10% bonds.

You're already ahead of most people your age!!
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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ruralavalon
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Re: just starting

Post by ruralavalon » Sun May 26, 2019 8:02 am

Welcome to the forum :) .

It's great to see you at starting young, using a tax-advantaged account, and investing in a very diversified, very low expense stock index fund.

justgrind wrote:
Sun May 26, 2019 7:09 am
Hello,
I'm 24 years old working full-time and also doing part-time side jobs. My annual income is around 60k and I live in Maine. My father introduced me to Bogleheads.
The company I work for doesn't offer any retirement plan as of yet. So I started a Roth a couple of years ago
and have been putting in the max since then (100% in Vanguard Total US stock index fund). I'm single, and I don't have any other debt.
I don't understand, do you have any debt? If so what types, amounts and interest rates?


justgrind wrote:
Sun May 26, 2019 7:09 am
My goal is to currently keep saving and to purchase a home within 5 years. So I'm saving for the down payment now. I have about 15k in savings right now.
My questions are:
What is the most efficient place to have my savings rather than just sitting in a savings account with my local bank?
Should I put the 15k somewhere else now while I continue to save?
And, going forward, as I reach 5k-10k increments of future savings should I invest those somewhere too? Again, keeping in mind my hope is to use that money for a home down-payment within 5 years.
You can get a higher return, for the $15k you now have and any further additions to your savings for a home down payment in 5 years you could consider:
1) a high yield federally insured savings account or short-term CDs, for rates see www.bankrate.com;
2) Vanguard Prime Money Market Fund VMMXX) current SEC Yield = 2.41%; or
3) Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.62%.


justgrind wrote:
Sun May 26, 2019 7:09 am
And finally, at my age (24) should my asset allocation with Vanguard include International and Bonds?
Thank you very much for your help!
How much do you have in your Roth IRA? It's probably okay to just use Vanguard Total Stock Market Index Fund (VTSAX) by itself until you have a significant amount, then you can add international and bonds.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
justgrind
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Re: just starting

Post by justgrind » Sun May 26, 2019 9:43 am

Sorry...here's more information...
I have no debt.
And the balance in my Vanguard Roth is $7k

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willthrill81
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Re: just starting

Post by willthrill81 » Sun May 26, 2019 9:47 am

You've got an excellent start OP, and you should be proud of that.

If at all possible, at your age, I would recommend that you try to max out your Roth IRA every year, and retain any additional savings beyond that for your house downpayment in a savings account with Ally, which currently pays 2.2%. Down the road, you'll want to make contributions to some kind of tax-deferred account, like a 401k or a traditional IRA, but considering that your income is probably the lowest now that it will ever be, at least until you reach retirement, making full use of your Roth IRA and relatively low tax rates is probably your best move.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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ruralavalon
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Re: just starting

Post by ruralavalon » Sun May 26, 2019 9:51 am

Congratulations on being debt free :) . That's a great way to start.

justgrind wrote:
Sun May 26, 2019 9:43 am
Sorry...here's more information...
I have no debt.
And the balance in my Vanguard Roth is $7k
At that balance investing it all in Vanguard Total Stock Market Index Fund (VTSAX) is fine, don't worry about adding bonds or international stocks yet.

Try to contribute the maximum $6k every year, with $60k annual earnings that should be practical for you. Your contribution rate is much more important than any other investing decision you can make at this point.
Last edited by ruralavalon on Sun May 26, 2019 9:53 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

retiredjg
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Re: just starting

Post by retiredjg » Sun May 26, 2019 9:52 am

Money needed at a certain time should not be invested in stocks or even most bonds. Maybe some (not all) in a short term bond fund. CDs and high yield savings or money market are appropriate choices.

If you want to invest the money and are willing to wait (maybe several years) for your house if the market goes down, that works too.

I think every portfolio needs some bonds, probably 20% to start. However, it is hard for people who have never seen an extended bear market to get that.

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willthrill81
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Re: just starting

Post by willthrill81 » Sun May 26, 2019 9:55 am

retiredjg wrote:
Sun May 26, 2019 9:52 am
Money needed at a certain time should not be invested in stocks or even most bonds. Maybe some (not all) in a short term bond fund.
Outside of the the 1970s, when inflation was high and T-bills outperformed all bonds, when would putting all of one's 'needed money' into short-term Treasuries have been a bad move?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

retiredjg
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Re: just starting

Post by retiredjg » Sun May 26, 2019 11:52 am

willthrill81 wrote:
Sun May 26, 2019 9:55 am
retiredjg wrote:
Sun May 26, 2019 9:52 am
Money needed at a certain time should not be invested in stocks or even most bonds. Maybe some (not all) in a short term bond fund.
Outside of the the 1970s, when inflation was high and T-bills outperformed all bonds, when would putting all of one's 'needed money' into short-term Treasuries have been a bad move?
I don't know. Why do you ask?

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willthrill81
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Re: just starting

Post by willthrill81 » Sun May 26, 2019 2:38 pm

retiredjg wrote:
Sun May 26, 2019 11:52 am
willthrill81 wrote:
Sun May 26, 2019 9:55 am
retiredjg wrote:
Sun May 26, 2019 9:52 am
Money needed at a certain time should not be invested in stocks or even most bonds. Maybe some (not all) in a short term bond fund.
Outside of the the 1970s, when inflation was high and T-bills outperformed all bonds, when would putting all of one's 'needed money' into short-term Treasuries have been a bad move?
I don't know. Why do you ask?
I'm trying to figure out why you said that money needed at a certain time should not be invested in most bonds. Are there bonds that you view as acceptable for this purpose?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

retiredjg
Posts: 36805
Joined: Thu Jan 10, 2008 12:56 pm

Re: just starting

Post by retiredjg » Sun May 26, 2019 2:51 pm

willthrill81 wrote:
Sun May 26, 2019 2:38 pm
retiredjg wrote:
Sun May 26, 2019 11:52 am
willthrill81 wrote:
Sun May 26, 2019 9:55 am
retiredjg wrote:
Sun May 26, 2019 9:52 am
Money needed at a certain time should not be invested in stocks or even most bonds. Maybe some (not all) in a short term bond fund.
Outside of the the 1970s, when inflation was high and T-bills outperformed all bonds, when would putting all of one's 'needed money' into short-term Treasuries have been a bad move?
I don't know. Why do you ask?
I'm trying to figure out why you said that money needed at a certain time should not be invested in most bonds. Are there bonds that you view as acceptable for this purpose?
For this, I don't think in terms of what type of bond fund. Instead, I look at the term of the bond fund. For example, I used a short term bond for my house money when it was sitting for a year about 6 years ago.

However, even short term bonds can lose some value when interest rates rise. It was worth the risk for me and I was fortunate that no losses occurred.

In a sense, I "got away with it", but had decided I would be OK with the small losses that might have occurred.

In retrospect, I think putting some in high yield savings and some in a short term bond fund (as recommended above) might have been smarter, but I was not willing to deal with opening the high yield savings account.

Caduceus
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Re: just starting

Post by Caduceus » Sun May 26, 2019 2:58 pm

I think what will have the biggest long-term impact to your financial freedom is maxing out your tax-protected space. So, once you have 6-8 months of savings in cash or cash-equivalents (very short term bond funds or fixed deposits), I would prioritize shoving as many dollars as possible into the 401k account (that is after maxing your Roth). If your company offers a Roth 401k, even better at your tax rate.

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willthrill81
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Re: just starting

Post by willthrill81 » Sun May 26, 2019 3:00 pm

retiredjg wrote:
Sun May 26, 2019 2:51 pm
willthrill81 wrote:
Sun May 26, 2019 2:38 pm
retiredjg wrote:
Sun May 26, 2019 11:52 am
willthrill81 wrote:
Sun May 26, 2019 9:55 am
retiredjg wrote:
Sun May 26, 2019 9:52 am
Money needed at a certain time should not be invested in stocks or even most bonds. Maybe some (not all) in a short term bond fund.
Outside of the the 1970s, when inflation was high and T-bills outperformed all bonds, when would putting all of one's 'needed money' into short-term Treasuries have been a bad move?
I don't know. Why do you ask?
I'm trying to figure out why you said that money needed at a certain time should not be invested in most bonds. Are there bonds that you view as acceptable for this purpose?
For this, I don't think in terms of what type of bond fund. Instead, I look at the term of the bond fund. For example, I used a short term bond for my house money when it was sitting for a year about 6 years ago.

However, even short term bonds can lose some value when interest rates rise. It was worth the risk for me and I was fortunate that no losses occurred.

In a sense, I "got away with it", but had decided I would be OK with the small losses that might have occurred.

In retrospect, I think putting some in high yield savings and some in a short term bond fund (as recommended above) might have been smarter, but I was not willing to deal with opening the high yield savings account.
Thanks for the clarification.

Even during periods of rising rates, short-term Treasuries have held up well. Despite the Fed funds rate having risen 2.25% since 2008, Vanguard's STT fund, Admiral Shares, VSBSX hasn't posted a nominal loss since then. Although at current rates, I would find a high-yield savings account preferable if only for simplicity.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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