Longtime Lurker Needs Advice

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FutureReturns
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Joined: Tue Feb 05, 2013 3:40 pm

Longtime Lurker Needs Advice

Post by FutureReturns » Fri Nov 29, 2019 10:46 pm

Background: So I became a member of this site in 2013, but this is my first post. Throughout the past 6 and a half years, I would occasionally visit this site and I have gained a lot of knowledge about personal finance as a result. I think the main reason I never became a frequent visitor (and never posted) was due to me allowing myself to become too easily discouraged after reading about how far behind I was compared to others my age on this site. In 2013, I was a recent college graduate with over $40k in student loan debt (with an average interest rate of ~7%), and my starting annual salary was only $39k. I would see posts from others my age asking for advice on how to invest inheritances or other windfalls, or which accounts to max out first on their high salaries with zero debt. I spent a lot of time playing sports growing up, and was always fiercely competitive as a result, so it was tough to compare myself to others financially and come up well short. As I’ve matured over the years and gained perspective, it's sunk in for me just how personal personal finance truly is, and I am now solely focused on how I can best maximize my wealth given my circumstances.

I recently finished paying off my student loan debt after making accelerated payments throughout the past few years. I’ve also been lucky enough to increase that $39k annual salary to $115k through promotions and new opportunities, and now I can finally max out my retirement funds and contribute to a taxable account. I am also recently engaged and we’re hoping to be married at some point in late 2020. So now feels like a good time to ask the wise folks at Bogleheads for advice on how best to tackle my/our new short- and long-term goals.

His Current Income: $115k per year

His Current Expenses: ~$35k per year

His Emergency Fund: $14k ($10.5k savings; $3.5k checking)

His Debt: $6.4k in credit card debt with a 0% interest rate (0% interest rate period ends 1/7/2020)

Tax Filing Status: Single

Tax Rate: 24% Federal, 9.3% State

Residence: Los Angeles, California

His Age: 30

Current Retirement Assets: $52.5k

His Traditional 401k:
Total U.S. Stock Market Index Fund (VITSX) - 32% (0.03% ER)
Total International (ex-U.S.) Stock Market Index Fund (VTSNX) - 13% (0.08% ER)

His Roth IRA:
Total U.S. Stock Market Index Fund (VTSAX) - 35% (0.04% ER)
Total International (ex-U.S.) Stock Market Index Fund (VTIAX) - 14% (0.11% ER)

His HSA:
Large Blend U.S. Stock Market Index Fund (VIIIX) - 5% (0.02% ER)

His Taxable:
None, but planning to create a new Vanguard brokerage account to invest in VTSAX in January 2020.

His New Annual 2020 Contributions:
401k - $19.5k (employer matches 3% of salary)
Roth IRA - $6k
HSA - $2.8k (employer contributes remaining $750)
Taxable - $15k to VTSAX is the current plan. Not sure yet if that will be realistic in practice.


Her Current Income: Varies between $100k - $140k per year

Her Current Expenses: ~$55k per year

Her Emergency Fund: $7.3k ($1.9k savings; $5.4k checking)

Her Debt:
$31.9k in car loans at 1.9%
$15.4k in student loan debt at a weighted average of 3.8%
$1k in credit card debt at 0%

Her Tax Filing Status: Single

Tax Rate: 24% Federal, 9.3% State

Residence: Los Angeles, California

Her Age: 30

Her Current Retirement Assets: $19.9k

Her Traditional 401k:
Great-West S&P 500 Index Fund Inv (MXVIX) - 21% (0.51% ER)
Great-West International Index Fund Inv (MXINX) - 12% (0.65% ER)
Great-West S&P MidCap 400 Index Fund Inv (MXMDX) - 5% (0.55% ER)
Great-West S&P SmCap 600 Index Fund Inv (MXISX) - 2% (0.56% ER)

Unfortunately, these are the lowest expense ratios by far in her investment line-up for the asset classes she's looking to invest in.

Her Roth IRA:
Total U.S. Stock Market Index Fund (VTSAX) - 43% (0.04% ER)
Total International (ex-U.S.) Stock Market Index Fund (VTIAX) - 18% (0.11% ER)

Her Taxable:
None, but she's also planning to create a new Vanguard brokerage account to invest in VTSAX in January 2020.

Her New Annual 2020 Contributions:
401k - 4% of salary (employer matches 2% of salary) - the employer considers her a "highly compensated employee", so she has a cap on how much she contribute annually. As of now, it's 4%. It kills me that this is actually legal for them to do, but we just have to make the best of it for now.
Roth IRA - $6k
Taxable - $18k to VTSAX is the current plan. Not sure yet if that will be realistic in practice.

Goals (from long-term to short-term):
  • 1. Financial independence (not necessarily early retirement) as soon as possible, which will likely be in our early 50’s, unless that is unrealistic after having kids and/or buying a house.

    2. We’re planning to have at least one kid in 2-3 years. Unfortunately, we won’t have any relatives that live close by, as my mom is planning to move to the East Coast soon to be closer to her sister and my brother, so we’re probably going to have to do daycare, which is about $2k per month around here. That might change if we move to the Bay Area to be closer to my fiancée’s family, which is a definite possibility depending on future job opportunities.

    3. We’re not sure if we want to buy a house or not in the near future. I know it is a lifestyle choice, not an investment, so we’re more interested in focusing on investing for our retirement at the moment. Also, right now, based on where we live and using the NY Times buy vs rent calculator, it makes more sense to rent. However, that could change, so our goal is to have enough saved for the opportunity to put a down payment on a $1mm home within the next 5-7 years. I know we shouldn’t buy unless we can get a home for less than 3 times our annual salary, but we’re willing to stretch a bit if we find something we really like.

    4. We’re planning to get married this year, but won’t be having a wedding. We’ll likely get married in a courthouse and have a small party with only close friends and family after (~50 ppl or so). We’re not willing to spend more than $3k each, and are hoping to spend much less.

    5. Honeymoon. Though we haven’t decided where we’ll go yet, we want it to be affordable, and my family has given us hints that they’ll pay a large chunk of the Honeymoon expense wherever we decide to go.

    6. Pay off remaining debt on credit card before the 0% interest rate period expires.

    7. Fiancée wants to build her EF up to $15k and then contribute $1.5k per month to her taxable brokerage account. Any left-over money after that would go to paying off her student loans that have a 4% or higher interest rate. Anything after that would go to the brokerage account.
Questions:
  • 1. After I use the money in my savings account to pay off my credit card debt before 1/7/2020, should I hold off on my contributions to my retirement accounts and focus completely on building the savings account back up for the EF and the marriage/honeymoon before putting anymore money in my other accounts (pre-tax, post-tax and taxable)? Or should I contribute to my pre- and post-tax retirement accounts as I normally would, and just hold off on contributing to taxable before I build my EF and marriage/honeymoon funds up?

    2. I want to be 70% US Equity and 30% Non-U.S. Equity on a total portfolio basis. Asset location question: where do you think I should keep the Non-U.S. allocation based on my circumstances? I’m currently planning to move it all to my 401k.

    3. Should we automatically reinvest dividends in the taxable accounts?

    4. As we’re still undecided regarding the decision to buy a house once we build up the savings for it, should we diversify our contributions by putting some in VTSAX taxable and some in a savings accounts or just put everything in VTSAX taxable since we don’t actually know if we’ll want the house or not within the next 5-7 years?

    5. My fiancée and I want to open up a shared credit card immediately for shared expenses. Should we go for one with great travel rewards (to help pay for the honeymoon) or great cash back?

    6. Does Goal #7 make sense or is it too complicated? Should she just pay off her student loans first or contribute everything extra to her taxable brokerage account, keeping in mind she can't contribute more than 4% to her 401k.

    7. Should she move all of her international allocation to her Roth IRA and just keep U.S. Equity in her 401k due to the extremely high expense ratio for the International fund? It would be a pain to keep the allocations all balanced to 70/30 U.S. vs Intl, but I guess it'd be worth it? Should she even contribute to the 401k given the high expense ratios? I'm guessing the answer is yes for the tax-deferred benefit, but it doesn't hurt to ask.
Thanks in advance for your help. We both really appreciate it!

HEDGEFUNDIE
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Re: Longtime Lurker Needs Advice

Post by HEDGEFUNDIE » Fri Nov 29, 2019 11:40 pm

Welcome to the forum.

Since you are a long time lurker, you probably know that I tend give iconoclastic advice. I will offer some now.

You and your new wife are young and successful, pulling down over $200k at age 30. You two clearly have high human capital, and you are Bogleheads at heart, and so over the course of your lifetimes, the two of you will amass millions and millions of dollars, likely no matter what you do or how the markets behave.

So you can give yourselves permission to live a little (or even a lot). I look back at my $70k wedding and month-long honeymoon across Europe with fondness. Now that I have two young children, it is unlikely I will have those kinds of experiences alone with my wife for at least the next 20 years. And you know what? In the grand scheme of things, that money spent is a drop in the bucket.

Saving is important. Living is too.

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Cubicle
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Re: Longtime Lurker Needs Advice

Post by Cubicle » Sat Nov 30, 2019 12:24 am

I’m goona try to help with some of the questions.

G1. Go for it. A goal is something to aim for. At least it gives you focus.

G3. Since it is still possible you may move, I would recommend renting. Sure you can gather the funds, but I’d exercise an extra layer of hesitation before buying.

Q1 I think you should continue to contribute to your pre & post tax retirement accounts. Since they go by calendar year, with limits, I would not want to miss any opportunity. If you had such a massive need for funds in an emergency, you can pay the penalties & get the money anyways.

Q3. I do. Because I’m lazy I think. It takes a step away from me to think about. Or else the money would sit in my settlement account.

Q4. Why savings? Because you are afraid of a market drop of your house down payment money? I’d dump it into VTSAX. If you gain more than a savings, account, then count your blessings & pay the taxes. If you lose more than a savings account, then don’t beat yourself up. If the world is not ending (& then don’t buy a house), you can keep looking for another house. There is always “another” “perfect house”. The only exception (& it’s a weak one) would be if you were a real estate “professional” & were awaiting a housing price crash. Then the nature of your income in as uncertain as to when prices will crash, so ehh…

Q5. Calculate what the travel rewards are worth in dollar amounts. I find travel rewards confusing & don’t travel much, so I just have cash back cards. But yes, open a shared account with some type of rewards.

Q6. I don’t advocate paying off low interest rate loans. Personally I have not yet paid off my 5% perkins loan because, “based on past performance” I’m earning more than 5% having that money invested. So high rate loans you should pay off. Unless it is a psychological thing, or a high fear of market declines, I’d not rush to pay off low interest loans.

Q7. Even with the high expenses, I’d still contribute to the 401K. She is in the 24% federal tax bracket. Worth it to me. As for allocation… I’d move the international. I don’t think it would be too hard to 70/30 split it. Buy/sell USA equities in your Roth if needed to balance it out. And you don’t need to rebalance that often, 1-2 times per year. And since she is only putting $4,000-$5,600 into her 401K per year (4% * $100,000-$140,000), Roth contributions can easily be bought/sold to maintain whatever 70/30 split she wants.

Oh yeah, welcome. You both are young. You have time to make lots of mistakes & it really won’t matter in the long run.

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Stinky
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Re: Longtime Lurker Needs Advice

Post by Stinky » Sat Nov 30, 2019 11:14 am

Welcome to the Forum! Glad that you posted your question.

You sound like a really thoughtful person, and you're laying out a sound plan for yourself and soon-to-be-spouse. Several comments in no particular order:
1. I'd certainly prioritize paying off debt - credit cards, cars, student loans, etc. And then stay out of debt, except for mortgage.
2. California real estate is crazy expensive. Especially in the Bay Area (but you already knew that).
3. On credit cards, get some kind of rewards back. Many years ago, when I was traveling a lot and we flew our kids around on vacations, I focused my business travel on one airline to earn maximum rewards toward vacation travel. These days, it's just the good old Citi Double Cash card (2% on everything), plus Costco (3% on travel and restaurants, 4% on gas) and Amazon (5% on Amazon purchases).
4. Your wedding and honeymoon plans sound very reasonable. I'm not one to spend a boatload of money on a one-day event - I'd rather use that money to pay down debt and save toward that first house.

Please post back here with more questions.
It's a GREAT day to be alive - Travis Tritt

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ruralavalon
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Re: Longtime Lurker Needs Advice

Post by ruralavalon » Sat Nov 30, 2019 1:45 pm

Welcome to the forum :) .

Congratulations on your imminent wedding. Don't skip having a honeymoon, but keep it less expensive. Since you are from Los Angeles (air fare much lower than for the rest of of us) renting a modest condo on West Maui would be my idea. This is the view --->
It's good to see that you have already paid off your student debt.

Here are my ideas, in rough order of priority.

1) pay off his credit card debt ASAP before the rate changes.

2) pay off her student debt.

3) both of you continue contributions to tax-advantaged accounts. The annual contribution limits are on a use-it-or-lose-it basis, don't skip annual maximum contributions.

4) establish a reasonable emergency fund.

5) then consider a joint taxable brokerage account.

Wiki article, "Prioritizing Investments" .

. . . . .

It's good to see that you are planning on frugal living and not spending a lot on the wedding.

In my opinion your decision to rent rather than buy is wise for now.

I suggest a reasonable allocation to fixed income investments (e.g. bond funds, federally insured CDs, federally insured high yield saving accounts, money market funds). At age 30 I suggest about 20% in bonds or other fixed income investments. This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/10/2019), "The Best Diversifiers for Your Equity Portfolio".

In my opinion your desired 30% of stocks in international stocks is within the range of what is reasonable.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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onthecusp
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Re: Longtime Lurker Needs Advice

Post by onthecusp » Sat Nov 30, 2019 4:50 pm

What a great first post.

Going from -40k to +53k is really good. As a couple you can work on the remaining debt, at those interest rates it is hardly a big problem but you are both making enough to commit to paying cash for future cars. The best way to do that is get rid of those debt payments and start saving the money. I'd suggest paying double or more on the higher interest rate, then when it is gone, put that whole amount on top of the regular payments of the next higher.

JDDS
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Re: Longtime Lurker Needs Advice

Post by JDDS » Sat Nov 30, 2019 6:24 pm

Welcome.

Some thoughts
FutureReturns wrote:
Fri Nov 29, 2019 10:46 pm

1. After I use the money in my savings account to pay off my credit card debt before 1/7/2020, should I hold off on my contributions to my retirement accounts and focus completely on building the savings account back up for the EF and the marriage/honeymoon before putting anymore money in my other accounts (pre-tax, post-tax and taxable)? Or should I contribute to my pre- and post-tax retirement accounts as I normally would, and just hold off on contributing to taxable before I build my EF and marriage/honeymoon funds up?
I would keep making retirement contributions. Start the taxable after the emergency fund is back where it should be. For what it is worth, I would not buy things on a 0% card that I plan to pay back with my emergency fund dollars, the emergency fund is there for real emergencies.
FutureReturns wrote:
Fri Nov 29, 2019 10:46 pm
3. Should we automatically reinvest dividends in the taxable accounts?
Personally I do not because I would rather not sort through many small lots if I'm selling with spec-id cost basis, and it keeps tax loss harvesting opportunities cleaner. However, if you prefer and do better with set-it/forget-it styles then it's probably better to turn it on.
FutureReturns wrote:
Fri Nov 29, 2019 10:46 pm
4. As we’re still undecided regarding the decision to buy a house once we build up the savings for it, should we diversify our contributions by putting some in VTSAX taxable and some in a savings accounts or just put everything in VTSAX taxable since we don’t actually know if we’ll want the house or not within the next 5-7 years?
You may wish to add some bonds either way, since a 100% stock portfolio is very aggressive.
FutureReturns wrote:
Fri Nov 29, 2019 10:46 pm
5. My fiancée and I want to open up a shared credit card immediately for shared expenses. Should we go for one with great travel rewards (to help pay for the honeymoon) or great cash back?
So long as you pay it off every month you'll get benefits from either. It is easier to understand the value of cash rewards. If you have time/energy to understand how to maximize travel rewards then you can likely get more value. Personally I don't have the time or interest to learn all the ins-outs so I stick to cash rewards. I just got anew card, I chose it by googling best cards then reading some post on popular sights like nerd wallet, doctor of credit, etc.
FutureReturns wrote:
Fri Nov 29, 2019 10:46 pm
6. Does Goal #7 make sense or is it too complicated? Should she just pay off her student loans first or contribute everything extra to her taxable brokerage account, keeping in mind she can't contribute more than 4% to her 401k.
FutureReturns wrote:
Fri Nov 29, 2019 10:46 pm
7. Should she move all of her international allocation to her Roth IRA and just keep U.S. Equity in her 401k due to the extremely high expense ratio for the International fund? It would be a pain to keep the allocations all balanced to 70/30 U.S. vs Intl, but I guess it'd be worth it?
I would. It likely won't be that hard since the account isn't getting a ton of new contributions.
FutureReturns wrote:
Fri Nov 29, 2019 10:46 pm
Should she even contribute to the 401k given the high expense ratios? I'm guessing the answer is yes for the tax-deferred benefit, but it doesn't hurt to ask.
More so for the 2% match, otherwise that is left untaken.

retire57
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Re: Longtime Lurker Needs Advice

Post by retire57 » Sat Nov 30, 2019 8:42 pm

Congratulations! You have made admirable progress!

As for the home purchase, I wouldn't take on any new debt until the old debt is eliminated. (But that's based purely on my personal comfort level and yours might be very different.)

BTW, as a couple who married at the courthouse on a weekday afternoon, I can attest that 36 years later, the license works just fine. 😊

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Wiggums
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Re: Longtime Lurker Needs Advice

Post by Wiggums » Sat Nov 30, 2019 9:04 pm

retire57 wrote:
Sat Nov 30, 2019 8:42 pm
Congratulations! You have made admirable progress!

As for the home purchase, I wouldn't take on any new debt until the old debt is eliminated. (But that's based purely on my personal comfort level and yours might be very different.)

BTW, as a couple who married at the courthouse on a weekday afternoon, I can attest that 36 years later, the license works just fine. 😊
I agree.

Our marriage is the only one that lasted in the family. DWs siblings and aunts are all working on their third marriage.

Low cost index funds and one marriage is the way to go.
:sharebeer

TallBoy29er
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Re: Longtime Lurker Needs Advice

Post by TallBoy29er » Sat Nov 30, 2019 9:09 pm

HEDGEFUNDIE wrote:
Fri Nov 29, 2019 11:40 pm
Welcome to the forum.

Since you are a long time lurker, you probably know that I tend give iconoclastic advice. I will offer some now.

You and your new wife are young and successful, pulling down over $200k at age 30. You two clearly have high human capital, and you are Bogleheads at heart, and so over the course of your lifetimes, the two of you will amass millions and millions of dollars, likely no matter what you do or how the markets behave.

So you can give yourselves permission to live a little (or even a lot). I look back at my $70k wedding and month-long honeymoon across Europe with fondness. Now that I have two young children, it is unlikely I will have those kinds of experiences alone with my wife for at least the next 20 years. And you know what? In the grand scheme of things, that money spent is a drop in the bucket.

Saving is important. Living is too.
I appreciate this advice. Married going on 15 yrs. We are heavy savers. Sometimes, to our detriment (my fault...).

We have done some wonderful things together, and created beautiful memories. I cherish them. There are a few times that I let my long term goals get in the way of experiences b/c of $$. If I could go back, I would splurge on those few occasions. Hindsight is 20/20.

Topic Author
FutureReturns
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Joined: Tue Feb 05, 2013 3:40 pm

Re: Longtime Lurker Needs Advice

Post by FutureReturns » Sun Dec 01, 2019 12:48 pm

Wow, thanks for all the responses! I finally have a few minutes away from the family to reply.
HEDGEFUNDIE wrote:
Fri Nov 29, 2019 11:40 pm
Welcome to the forum.

Since you are a long time lurker, you probably know that I tend give iconoclastic advice. I will offer some now.

You and your new wife are young and successful, pulling down over $200k at age 30. You two clearly have high human capital, and you are Bogleheads at heart, and so over the course of your lifetimes, the two of you will amass millions and millions of dollars, likely no matter what you do or how the markets behave.

So you can give yourselves permission to live a little (or even a lot). I look back at my $70k wedding and month-long honeymoon across Europe with fondness. Now that I have two young children, it is unlikely I will have those kinds of experiences alone with my wife for at least the next 20 years. And you know what? In the grand scheme of things, that money spent is a drop in the bucket.

Saving is important. Living is too.
Sage advice. I'm overly cautious by nature, so I tend to worry a bit too much about the future and often lose sight of the present when it comes to finances. Luckily for me, neither one of us has ever particularly desired a big wedding, so we'll save there, but I think we're both willing to splurge a bit on the honeymoon. It really depends on what help we'll be receiving from family, which is tough to know in advance.

I get your overall point though, and I will keep working on finding that balance between delayed gratification and enjoying the present moment :D . Thanks for the welcome!
Cubicle wrote:
Sat Nov 30, 2019 12:24 am
I’m goona try to help with some of the questions.

G1. Go for it. A goal is something to aim for. At least it gives you focus.

G3. Since it is still possible you may move, I would recommend renting. Sure you can gather the funds, but I’d exercise an extra layer of hesitation before buying.

Q1 I think you should continue to contribute to your pre & post tax retirement accounts. Since they go by calendar year, with limits, I would not want to miss any opportunity. If you had such a massive need for funds in an emergency, you can pay the penalties & get the money anyways.

Q3. I do. Because I’m lazy I think. It takes a step away from me to think about. Or else the money would sit in my settlement account.

Q4. Why savings? Because you are afraid of a market drop of your house down payment money? I’d dump it into VTSAX. If you gain more than a savings, account, then count your blessings & pay the taxes. If you lose more than a savings account, then don’t beat yourself up. If the world is not ending (& then don’t buy a house), you can keep looking for another house. There is always “another” “perfect house”. The only exception (& it’s a weak one) would be if you were a real estate “professional” & were awaiting a housing price crash. Then the nature of your income in as uncertain as to when prices will crash, so ehh…

Q5. Calculate what the travel rewards are worth in dollar amounts. I find travel rewards confusing & don’t travel much, so I just have cash back cards. But yes, open a shared account with some type of rewards.

Q6. I don’t advocate paying off low interest rate loans. Personally I have not yet paid off my 5% perkins loan because, “based on past performance” I’m earning more than 5% having that money invested. So high rate loans you should pay off. Unless it is a psychological thing, or a high fear of market declines, I’d not rush to pay off low interest loans.

Q7. Even with the high expenses, I’d still contribute to the 401K. She is in the 24% federal tax bracket. Worth it to me. As for allocation… I’d move the international. I don’t think it would be too hard to 70/30 split it. Buy/sell USA equities in your Roth if needed to balance it out. And you don’t need to rebalance that often, 1-2 times per year. And since she is only putting $4,000-$5,600 into her 401K per year (4% * $100,000-$140,000), Roth contributions can easily be bought/sold to maintain whatever 70/30 split she wants.

Oh yeah, welcome. You both are young. You have time to make lots of mistakes & it really won’t matter in the long run.
Thanks for the welcome, and I appreciate the long response!

For every question you answered, I was leaning that way myself, so that's a good sign :sharebeer . In regards to credit cards, we are leaning towards a cash back card because we don't have any major purchases upcoming to make the high bonus you get with certain travel cards worth it. For example, the Chase Sapphire Preferred card requires you to spend $4,000 in the first 3 months for 60,000 bonus points and the Capital One Venture Rewards card requires you to spend $3,000 in the first 3 months for 50,000 bonus points. It's very doubtful we could spend that much in 3 months on shared purchases. Maybe if we had a major purchase in our sights, we'd go for the travel cards, but I think the cash back card better suits our purposes.

Which cash back card would you recommend? We each already have the Citi Double-Cash Back card. We're thinking about going with the Alliant Credit Card for our joint card, which gives 3% cash back the first year with no annual fee, then 2.5% cash back thereafter with a $99 annual fee. I just hesitate a bit with that decision because I'm not sure we actually spend enough in a year (especially after that first year) to make using the Alliant card worth it over using our individual Citi cards.
Stinky wrote:
Sat Nov 30, 2019 11:14 am
Welcome to the Forum! Glad that you posted your question.

You sound like a really thoughtful person, and you're laying out a sound plan for yourself and soon-to-be-spouse. Several comments in no particular order:
1. I'd certainly prioritize paying off debt - credit cards, cars, student loans, etc. And then stay out of debt, except for mortgage.
2. California real estate is crazy expensive. Especially in the Bay Area (but you already knew that).
3. On credit cards, get some kind of rewards back. Many years ago, when I was traveling a lot and we flew our kids around on vacations, I focused my business travel on one airline to earn maximum rewards toward vacation travel. These days, it's just the good old Citi Double Cash card (2% on everything), plus Costco (3% on travel and restaurants, 4% on gas) and Amazon (5% on Amazon purchases).
4. Your wedding and honeymoon plans sound very reasonable. I'm not one to spend a boatload of money on a one-day event - I'd rather use that money to pay down debt and save toward that first house.

Please post back here with more questions.
Thanks for the welcome!

We are definitely planning to pay off the credit card debt ASAP, but would you then pay off the car and student loan debt, even given the relatively low interest rates? I just worry about the opportunity cost of not putting that extra money in the markets. For my loans, I think it made sense to pay off ASAP, since they carried a 7% interest rate, but I had planned to just have my fiancée make the minimum payments on her loans while investing her savings. Is that not a strategy you agree with?

Which cash back card would you recommend outside of the Citi Double Cash Back card? As I mentioned above, we each already have that cash back card. I think we would want a flat rate card because we don't really spend much on any one specific category and don't want the hassle of rotating cards for every purchase.

Thanks again!
ruralavalon wrote:
Sat Nov 30, 2019 1:45 pm
Welcome to the forum :) .

Congratulations on your imminent wedding. Don't skip having a honeymoon, but keep it less expensive. Since you are from Los Angeles (air fare much lower than for the rest of of us) renting a modest condo on West Maui would be my idea. This is the view --->
It's good to see that you have already paid off your student debt.

Here are my ideas, in rough order of priority.

1) pay off his credit card debt ASAP before the rate changes.

2) pay off her student debt.

3) both of you continue contributions to tax-advantaged accounts. The annual contribution limits are on a use-it-or-lose-it basis, don't skip annual maximum contributions.

4) establish a reasonable emergency fund.

5) then consider a joint taxable brokerage account.

Wiki article, "Prioritizing Investments" .

. . . . .

It's good to see that you are planning on frugal living and not spending a lot on the wedding.

In my opinion your decision to rent rather than buy is wise for now.

I suggest a reasonable allocation to fixed income investments (e.g. bond funds, federally insured CDs, federally insured high yield saving accounts, money market funds). At age 30 I suggest about 20% in bonds or other fixed income investments. This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/10/2019), "The Best Diversifiers for Your Equity Portfolio".

In my opinion your desired 30% of stocks in international stocks is within the range of what is reasonable.
Thanks for the long response! West Maui looks incredibly tempting. I will definitely have to look into that.

As I mentioned above, I'm hesitant to pay off her student debt before putting the funds in the market. She does have a loan with 5% and a couple at 4%, but the loans with the highest balances are at 3.5%. At what rate do you think it makes more sense to pay off the loans than invest? It seems like your advice would be to pay off the loans no matter the interest rate, which I understand from a psychological perspective. I'm just generally more of a "the numbers need to make sense" guy when making major decisions like this.

In regards to the lack of a fixed income allocation, I know it carries more risk (volatility), but I'm almost 100% positive I'd be able to weather a steep decline in the equity market. Easy to say, I know, and I don't have any actual real world experience other than to see my idiotic cryptocurrency investments (not my best moment :oops: ) lose pretty much all their value (a few thousand). I didn't sell when those went down, and still haven't sold, but I know it'll be a much much tougher test when a recession happens and I'm at risk of losing a job as well as my life savings. I still think I'd have the willingness to invest in equities, even if I might not have the ability. I am willing to risk that for the extra return the 100% stock portfolio offers. When I am 10 years away from retirement, I plan to start a gradual shift into a 40% fixed income allocation.
onthecusp wrote:
Sat Nov 30, 2019 4:50 pm
What a great first post.

Going from -40k to +53k is really good. As a couple you can work on the remaining debt, at those interest rates it is hardly a big problem but you are both making enough to commit to paying cash for future cars. The best way to do that is get rid of those debt payments and start saving the money. I'd suggest paying double or more on the higher interest rate, then when it is gone, put that whole amount on top of the regular payments of the next higher.
I appreciate the compliment! It's definitely been a grind at times, but it's all been worth it.

So you would also advocate getting rid of the debt before investing in the market? Does that go for the 1.9% rate car loan too or just the credit cards and student loans? At what rate would you say it makes more sense to invest rather than pay off debt?
JDDS wrote:
Sat Nov 30, 2019 6:24 pm
Welcome.

Some thoughts
Thanks for the welcome and the long response :beer

I pretty much agree with everything you said (except for the 100% stock allocation, which I responded to above) and have no further points to clarify. I appreciate you taking the time.
retire57 wrote:
Sat Nov 30, 2019 8:42 pm
Congratulations! You have made admirable progress!

As for the home purchase, I wouldn't take on any new debt until the old debt is eliminated. (But that's based purely on my personal comfort level and yours might be very different.)

BTW, as a couple who married at the courthouse on a weekday afternoon, I can attest that 36 years later, the license works just fine. 😊
Thanks! I'm very hesitant to take on any new debt as well. I think we'll continue renting unless we see a deal that is just too good to pass up and we're able to make a sizable downpayment on the home.

Congrats on 36 years! Very admirable in today's world.
Wiggums wrote:
Sat Nov 30, 2019 9:04 pm
retire57 wrote:
Sat Nov 30, 2019 8:42 pm
Congratulations! You have made admirable progress!

As for the home purchase, I wouldn't take on any new debt until the old debt is eliminated. (But that's based purely on my personal comfort level and yours might be very different.)

BTW, as a couple who married at the courthouse on a weekday afternoon, I can attest that 36 years later, the license works just fine. 😊
I agree.

Our marriage is the only one that lasted in the family. DWs siblings and aunts are all working on their third marriage.

Low cost index funds and one marriage is the way to go.
:share-beer
I think there was actually a study done on this, though I can't remember where. It said that the money spent on a wedding and divorce rates were highly correlated. I guess you found the secret to marital success early :sharebeer

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ruralavalon
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Re: Longtime Lurker Needs Advice

Post by ruralavalon » Sun Dec 01, 2019 1:18 pm

FutureReturns wrote:
Fri Nov 29, 2019 10:46 pm
Her Debt:
$31.9k in car loans at 1.9%
$15.4k in student loan debt at a weighted average of 3.8%
$1k in credit card debt at 0%
FutureReturns wrote:
Sun Dec 01, 2019 12:48 pm
As I mentioned above, I'm hesitant to pay off her student debt before putting the funds in the market. She does have a loan with 5% and a couple at 4%, but the loans with the highest balances are at 3.5%. At what rate do you think it makes more sense to pay off the loans than invest? It seems like your advice would be to pay off the loans no matter the interest rate, which I understand from a psychological perspective. I'm just generally more of a "the numbers need to make sense" guy when making major decisions like this.
I suggest accelerated pay off of 3.5% or higher debt. I don't suggest accelerated pay off of her substantial auto loans, the interest rate is just 1.9%.

Paying off a 3.5% interest debt gives a guaranteed return of 3.5%. You cannot get an equal or higher guaranteed return on any other investment. The very safe Vanguard Intmdt-Term Trs Idx Admiral (VSIGX) currently has an SEC Yield of just 1.63%.

A bond fund return is not a guaranteed return. Many people predicting returns predict lower than 3.5% returns for bonds. Morningstar (01/10/2019), "Experts Forecast Long-Term Stock and Bond Returns: 2019 Edition".

FutureReturns wrote:
Sun Dec 01, 2019 12:48 pm
In regards to the lack of a fixed income allocation, I know it carries more risk (volatility), but I'm almost 100% positive I'd be able to weather a steep decline in the equity market. Easy to say, I know, and I don't have any actual real world experience other than to see my idiotic cryptocurrency investments (not my best moment :oops: ) lose pretty much all their value (a few thousand). I didn't sell when those went down, and still haven't sold, but I know it'll be a much much tougher test when a recession happens and I'm at risk of losing a job as well as my life savings. I still think I'd have the willingness to invest in equities, even if I might not have the ability. I am willing to risk that for the extra return the 100% stock portfolio offers. When I am 10 years away from retirement, I plan to start a gradual shift into a 40% fixed income allocation.
At age 28, not having been through a market collapse with significant investments at risk, you cannot know for certain how you will react.

That is why even for young investors, who feel that they will weather the storms, I suggest a modest fixed income allocation.

You might reexamine your assumptions about stocks substantially outperforming bonds. The author of the linked Morningstar article stated "starting yields on intermediate-term bonds, historically a good predictor of future returns from bonds, suggest that bonds will give U.S. equities a run for their money over the next decade."
Last edited by ruralavalon on Sun Dec 01, 2019 3:37 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Stinky
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Re: Longtime Lurker Needs Advice

Post by Stinky » Sun Dec 01, 2019 3:33 pm

FutureReturns wrote:
Sun Dec 01, 2019 12:48 pm
Wow, thanks for all the responses! I finally have a few minutes away from the family to reply.
Stinky wrote:
Sat Nov 30, 2019 11:14 am
Welcome to the Forum! Glad that you posted your question.

You sound like a really thoughtful person, and you're laying out a sound plan for yourself and soon-to-be-spouse. Several comments in no particular order:
1. I'd certainly prioritize paying off debt - credit cards, cars, student loans, etc. And then stay out of debt, except for mortgage.
2. California real estate is crazy expensive. Especially in the Bay Area (but you already knew that).
3. On credit cards, get some kind of rewards back. Many years ago, when I was traveling a lot and we flew our kids around on vacations, I focused my business travel on one airline to earn maximum rewards toward vacation travel. These days, it's just the good old Citi Double Cash card (2% on everything), plus Costco (3% on travel and restaurants, 4% on gas) and Amazon (5% on Amazon purchases).
4. Your wedding and honeymoon plans sound very reasonable. I'm not one to spend a boatload of money on a one-day event - I'd rather use that money to pay down debt and save toward that first house.

Please post back here with more questions.
Thanks for the welcome!

We are definitely planning to pay off the credit card debt ASAP, but would you then pay off the car and student loan debt, even given the relatively low interest rates? I just worry about the opportunity cost of not putting that extra money in the markets. For my loans, I think it made sense to pay off ASAP, since they carried a 7% interest rate, but I had planned to just have my fiancée make the minimum payments on her loans while investing her savings. Is that not a strategy you agree with?

Which cash back card would you recommend outside of the Citi Double Cash Back card? As I mentioned above, we each already have that cash back card. I think we would want a flat rate card because we don't really spend much on any one specific category and don't want the hassle of rotating cards for every purchase.

Thanks again!
On the debt - i’m at a point in my life where I am allergic to having consumer debt. However, I see your point (and that of other posters) of paying off the highest interest-rate debt soon, and paying the lower interest rate debt over time. That would be fine with me. I would encourage you to not go into further debt, if possible, except for a home purchase

On the credit cards - you’ll find a number of threads on this Forum concerning “best rewards credit card”. If you want cash back, the Citi card always ranks near the top. You might find a card with rotating categories, or one from a small bank or credit union, that will yield a bit more, but Citi DC is good for me and many others on the Forum.
It's a GREAT day to be alive - Travis Tritt

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jabberwockOG
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Re: Longtime Lurker Needs Advice

Post by jabberwockOG » Sun Dec 01, 2019 4:05 pm

Contribute to 401k funds to at least get employer match but use remaining funds to retire debt. Priority above all else should be to pay off high interest rate debt, then immediately pay off low interest rate debt. The ONLY debt that make any sense is mortgage debt used to finance an appreciating asset like a home. Note that this requires you to be be a smart buyer - buy a great home without getting ripped off, and avoid buying one that isn't stupidly overvalued.

Once consumer and student debt max out 401k and Roth.

Start using 1-2 reward credit cards to pay for every single possible transaction, and then pay the balance on each off 100% each month. Get into the mindset that credit cards are to be used ONLY as a way to lower costs on transactions via cash back rewards, and absolutely not to purchase items you cannot afford to pay for at present.

Gradually build a 12 month cost of living emergency fund of savings and CDs.

Live below your means going forward and you will do great.

good luck.

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onthecusp
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Re: Longtime Lurker Needs Advice

Post by onthecusp » Sun Dec 01, 2019 5:58 pm

FutureReturns wrote:
Sun Dec 01, 2019 12:48 pm
onthecusp wrote:
Sat Nov 30, 2019 4:50 pm
What a great first post.

Going from -40k to +53k is really good. As a couple you can work on the remaining debt, at those interest rates it is hardly a big problem but you are both making enough to commit to paying cash for future cars. The best way to do that is get rid of those debt payments and start saving the money. I'd suggest paying double or more on the higher interest rate, then when it is gone, put that whole amount on top of the regular payments of the next higher.
I appreciate the compliment! It's definitely been a grind at times, but it's all been worth it.

So you would also advocate getting rid of the debt before investing in the market? Does that go for the 1.9% rate car loan too or just the credit cards and student loans? At what rate would you say it makes more sense to invest rather than pay off debt?
The 1.9% debt is a toss up even some that is a little higher. For example I could pay off my mortgage at 3% from taxable investments but I've compromised by paying aggressively (1.5 or 2x payments) instead. Your rates are low enough that I would certainly max out tax advantaged accounts before paying extra on any of them. I would say a fully funded emergency fund is also a priority above paying off such low interest rates.

Once you are down to the low cost debt I think it is more important to take the personal commitment to not getting any more such debt. Frequently such low rates are, in reality, compensated by higher prices for the product (car) than you might have been able to get for a cash deal. Paying cash also helps to make clear what you really can (or should) afford. Once you have such a loan there may be no sensible argument for paying it off, but taking another when you don't need to is rarely as good a deal as it looks.

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Cubicle
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Re: Longtime Lurker Needs Advice

Post by Cubicle » Sun Dec 01, 2019 8:25 pm

FutureReturns wrote:
Sun Dec 01, 2019 12:48 pm
Which cash back card would you recommend? We each already have the Citi Double-Cash Back card. We're thinking about going with the Alliant Credit Card for our joint card, which gives 3% cash back the first year with no annual fee, then 2.5% cash back thereafter with a $99 annual fee. I just hesitate a bit with that decision because I'm not sure we actually spend enough in a year (especially after that first year) to make using the Alliant card worth it over using our individual Citi cards.
I don't have any shared cards (being single myself), so I don't know if any of the cards are ineligible to be a joint account. That said, the $99 fee works out to spending an extra $10,000 at 3%, & an extra $20,000 at 2.5%. So I do not think it would be worth it over a 2% card.

If you only want 1 card, the double cash is popular in this board. But supposedly it's falling out of favor because some of its perks are going away. I do not have a double cash card.

My cards are: 1. Chase Freedom, rotating 5% categories; Capital One Quicksilver 1.5% on everything; & PayPal Extras MasterCard, goes by points (I use for eBay & gas & food). PM if you want more details.

I do want the Chase AARP card. I think it's a very good rewards card for food & gas. You do not have to be a senior to get the card as per customer service.

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jabberwockOG
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Re: Longtime Lurker Needs Advice

Post by jabberwockOG » Mon Dec 02, 2019 6:54 pm

In terms of credit cards you should pick what works for you in term sof spending habits and desired rewards.

We keep it simple with only two primary cards that we try to use for every possible purchase - 1) Fidelity Visa that pays 2% cash back. 2) Costco Visa that pays 2% on Costco purchases, 4% on gas, and 3% on restaurants.

We also acquire a couple of misc cards each year for a quick churn on the spend required to get the bonus statement credit or miles/points, and then cancel within a few months. This is getting harder to do as companies are wising up to folks that do this.

goblue100
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Re: Longtime Lurker Needs Advice

Post by goblue100 » Tue Dec 03, 2019 11:15 am

HEDGEFUNDIE wrote:
Fri Nov 29, 2019 11:40 pm

Saving is important. Living is too.
I totally agree with this. I wouldn't say I never lived, but I do feel like I could have done a little more while younger and healthier. I'm not even that old, but I'm really feeling those cold rainy days in my joints. Maybe I need some of Granny's rheumatism medicine. :)
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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