Post Divorce: Questions about financial goals and adding equity exposure

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Topic Author
Gardener
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Post Divorce: Questions about financial goals and adding equity exposure

Post by Gardener » Wed Feb 12, 2020 8:32 am

Quick Bio:
37 years old
3 year old daughter
Income ~$120k - $150k per year (varies depending on how much side consultant work I do)

Current portfolio is as follows:

401k Rollover from prior employer: S and P 500 Index (.04% ER): ~125k
401k: Thrift Savings Plan: L2040 Target Date Fund (.04%ER) (70% stock): ~110k
Roth: Vanguard Target Retirement 2040 fund VFORX (.14%ER) (85% stock): ~60k
Cash: ~110k (will soon put his in a CD for a condo/town home down payment)
Also projected ~$35k pension with federal government
No home equity, live in an apartment

Goals:
1. Have a down payment of $150,000 for town home and then pay off in 15 years
2. Invest $20k in a taxable fund for daughters college (I am forgoing 529 for several reasons)
3. Invest approximately $1k month in retirement- $6k in Roth, $6k in TSP401k until goals #1 and #2 are complete and then up that to maximizing Roth and TSP401k.

Contemplating Changes to Portfolio:
1. Make it a little more aggressive: Change TSP to L2050 and Roth Vanguard to 2050 (from 2040) fund or later as well. I really like the target funds where I can set it and forget it, but the glide paths seem to drop equities quicker than I'd like. I'd feel better about getting a little more equity exposure with a 2050 target retirement fund.

Questions:
1. Are the priorities of my goals sensible?
2. Would the contemplated change to portfolio- adding equity exposure make sense?


Thank you for reading and would be grateful for any feedback.

Dottie57
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by Dottie57 » Wed Feb 12, 2020 9:04 am

How soon will you be able to complete 1 and 2? I do hate to see you move retirement savings down so much. These are really good investment years.

retired@50
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by retired@50 » Wed Feb 12, 2020 10:58 am

Gardener wrote:
Wed Feb 12, 2020 8:32 am

Questions:
1. Are the priorities of my goals sensible?
2. Would the contemplated change to portfolio- adding equity exposure make sense?


Thank you for reading and would be grateful for any feedback.
1. Yes. Having somewhere to live is important, plus owning your own piece of real estate provides consistency for your child, and may add a bit of diversification to your overall asset picture. I'm not certain about why you're not using a 529, many states offer tax advantages. Leaving that alone, if you want to help your child with college, setting some money aside is a kind and helpful idea. Many children don't get this advantage in life, the danger that some parents encounter is that they sacrifice their own retirement for the sake of the children(s) college fund.

2. If you are a slightly more aggressive investor (want more stock and less bonds) then using the target date fund that strikes the proper balance is smart. Your contribution rate will likely play a larger role than which target date you select. If you want to be on "Easy St." someday, then keep on contributing, through good markets and bad.

Regards,
This is one person's opinion. Nothing more.

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Wiggums
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by Wiggums » Wed Feb 12, 2020 11:29 am

My kids have a custodial UGMA type account and invest in a balanced fund. Obviously a 529 is better tax wise, but you were looking for other ideas.

capjak
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by capjak » Wed Feb 12, 2020 11:32 am

I would
Goal Priority:
1. Contribute to Roth IRA-Really think this is something to take advantage of now while it is still an option.
2. Contribute to IRA-tax deferred is still a good option
3. Townhome: This is personal decision living in TH vs Rent so I would due the minimum downpayment as payments get cheaper with inflation and hopefully the value is maintained. Financialty it depends on the cost to rent vs purchase
4. College Fund: I would make sure there is no impact to scholarship $$, so research that. Otherwise if you want to set aside "mentally" a certain amount to gift to your daughter for college in 14 Years than do that.

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djpeteski
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by djpeteski » Wed Feb 12, 2020 11:38 am

Gardener wrote:
Wed Feb 12, 2020 8:32 am
Goals:
2. Invest $20k in a taxable fund for daughters college (I am forgoing 529 for several reasons)
I would move this way down on the list. Your goals of #1 and #2 are far more important. Provided you meet goal #1, you can dedicate your mortgage payment toward schooling for your daughter. Also I anticipate things will get better for you, among those raises and such. What may be really difficult now, like setting aside 20K, might be much easier to set aside double or triple that amount in a few years.

Failing that, if your finances are in good order, you can cash flow college. The only thing you need to send your child to college, debt free, is the first semester of cost. You have 15 years to get there, plenty of time.

perikleez
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by perikleez » Wed Feb 12, 2020 3:35 pm

--do your homework on IRA qualified education withdrawals, it may meet your needs just to establish a separate IRA with your daughter in mind/beneficiary.

--I've own two very nice brand new homes as a single guy, before marriage (2story, 3br) and after divorce (2br condo). I don't know what your custody situation is but I will tell you that one of the best parts about post-divorce life is the amount of money you can save/invest, especially if you go minimalist. (Amazing to discover how much married life was eating your lunch too). And nothing beats post-divorce blues like a ton of cash in your retirement/investment accounts. Anyway, as to homeownership, I recognize that it's just one of those bugs you have to get out of your system but I'll never do it again while I maintain my divorce bachelor status (cuz I luv the autonomy and no home maintenance aspects). And I'm also now a believer that it's a poor investment option (emotional factors aside, of course). Read J.L. Collins for more:

info:https://jlcollinsnh.com/2013/05/29/why- ... nvestment/

Topic Author
Gardener
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by Gardener » Wed Feb 12, 2020 4:08 pm

Thanks everyone.

I have 50/50 custody.

The $20,000 invested for college will be made with the intention of just letting it grow 14-15 years until she reaches college.

Topic Author
Gardener
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by Gardener » Wed Feb 12, 2020 4:09 pm

I also hate home maintenance, which is why I thought a smaller townhome might make sense. Or maybe even less space with a condo. My time is limited and am remarkably unhandy.

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Meg77
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by Meg77 » Wed Feb 12, 2020 4:30 pm

I agree with your three main goals, but the order should be tweaked. Number 1 in my book - and if you ask most financial advisors - should be to contribute $12K toward retirement. That is only 10% of income assuming the low end of your income estimate. Other than a layoff or other income disruption, there's really no good reason to EVER falter on this goal now that you have a stable 6 figure income, good savings, and presumably no high rate consumer debt.

Next up I'd buy that house sooner rather than later. Rates are crazy low, and inventory is less tight than it has been in many markets. No need to mentally segregate college savings now, especially since you're planning to just use taxable brokerage as your savings vehicle. You have 15 years to figure out how to cash flow college, and if you buy a home now and pay it off in 15 years as you plan, your mortgage payment alone can just shift toward college if you want. But of course helping with your daughter's education is an admirable goal.

As for your portfolio, if you want to really optimize it then I would abandon the TR funds entirely and just pick a mix of index funds you like and stick to them. You don't really need to change your AA for at least 10-15 years (and given your government pension I'd be tempted to go 90-100% stocks personally). So the glide paths will always be getting in the way. And those funds are more expensive.

:beer
"An investment in knowledge pays the best interest." - Benjamin Franklin

Topic Author
Gardener
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Re: Post Divorce: Questions about financial goals and adding equity exposure

Post by Gardener » Wed Feb 12, 2020 7:39 pm

Thanks Meg.

Regarding target date funds:

Wonder if I should just invest in an s and p 500 index fund instead of target date and then 5 to 10 years from retirement convert it to a conservative target date fund?

Or could that cause me a problem if equities are down when I exchange it for a target date that has a mix of equities and fixed income?

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