Newbie Investing help

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Topic Author
Blackrock
Posts: 9
Joined: Fri Dec 15, 2017 1:38 pm

Newbie Investing help

Post by Blackrock » Tue Mar 24, 2020 9:50 am

Hi Everyone-
Just another newbie asking for help. :happy I'm looking to get some help on what I should do to get started investing. Any advice is appreciated.

44 year old with very little invested currently. Filing single with an annual income of about $42K per year -22% tax rate (before coronavirus) My job stability cannot be counted on as I am in the service industry. I was putting away 20% into the Vanguard Target as my employer matched 2%.

401K
$380 in John Hanncock multi-index 2040 Preservation (from old job)
$4775 in Vanguard Target Retirement 2040 Investor Class

Other
$20,732 in a MM account with a 1.5% yield
$2100 in a savings with a .6% yield
$3000 in checking

Emergency Fund for 6 months in savings account with 1.5% yield
Own my car (2007 Honda Model)
No debt
No other Assets

I was going to take money from the money market account and invest it in Roth. I was planning on investing $6K for 2019 tax year and another $6K maxing out the 2020 contribution limit too. I wasn't sure if I should put it in VOO or something else. Or frankly, I'm not even sure what I should do now with the current world instability. If I did contribute $12K to Roth, I'm still left with almost $14K. (total doesn't include my 6 month emergency fund)
Should I put the 12k into something other than VOO? Should I invest the leftover in simple CDs?

Any advice or thoughts are appreciated! Thanks

chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Newbie Investing help

Post by chevca » Tue Mar 24, 2020 10:07 am

You can use a Roth account as part of your EF, as contributions can be taken out anytime without penalty. I'd keep it in something pretty safe or conservative if you do that and consider it part of your EF.

With current times and you not being too confident in your job stability, I'd keep you cash part as safe as possible. You could be needing that soon.

retired@50
Posts: 1731
Joined: Tue Oct 01, 2019 2:36 pm

Re: Newbie Investing help

Post by retired@50 » Tue Mar 24, 2020 10:22 am

Blackrock wrote:
Tue Mar 24, 2020 9:50 am

401K
$380 in John Hanncock multi-index 2040 Preservation (from old job)
$4775 in Vanguard Target Retirement 2040 Investor Class

Any advice or thoughts are appreciated! Thanks
I agree that keeping your cash available during the corona virus is smart. Especially if you don't have the opportunity to work.

I'm curious about the "from old job" funds mentioned above.

John Hancock isn't known for low-expense ratio mutual funds. Perhaps you could transfer that money into your current workplace plan. It would allow you to feel like you're doing something to improve your financial affairs without taking any additional risk. I'd check with your current plan to see if they allow you to roll-over a 401k balance from a prior employer. Many plans allow this.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

sylph
Posts: 21
Joined: Fri Jul 12, 2019 10:02 am

Re: Newbie Investing help

Post by sylph » Tue Mar 24, 2020 4:27 pm

Welcome to the forum!

I will advise to read some books:
1. The Bogleheads' Guide to the Three-Fund Portfolio
2. A random walk down wall street

Determine your asset allocation after reading these books. With your assets allocation, you should feel confident even in this unstable market. In fact stocks are cheaper right now.

Priority wise investment:
1. Emergency fund ( I will leave it as is, 6month savings with 1.5% yield is good )
2. 401K - Keep investing with every paycheck
3. ROTH IRA - Take advantage of this for both 2019 and 2020. You can at least contribute for 2019 now and for 2020 when you feel comfortable

With the remaining 14K you can save for something or invest. Do you have an HSA? If yes then max that out. It has triple tax benefits.

Remember: You are in this for long haul.

Topic Author
Blackrock
Posts: 9
Joined: Fri Dec 15, 2017 1:38 pm

Re: Newbie Investing help

Post by Blackrock » Tue Mar 24, 2020 4:46 pm

chevca wrote:
Tue Mar 24, 2020 10:07 am
You can use a Roth account as part of your EF, as contributions can be taken out anytime without penalty. I'd keep it in something pretty safe or conservative if you do that and consider it part of your EF.

With current times and you not being too confident in your job stability, I'd keep you cash part as safe as possible. You could be needing that soon.
With a cash emergency fund for 6 months, why would I use the Roth as the EF? Wouldn't it be better to max the Roth contributions for 2019 and 2020 in something like VOO while the market is in a downturn? Because even after I max the Roth, I have the extra $14K (cash) as a precaution against losing my job.

Topic Author
Blackrock
Posts: 9
Joined: Fri Dec 15, 2017 1:38 pm

Re: Newbie Investing help

Post by Blackrock » Tue Mar 24, 2020 4:49 pm

retired@50 wrote:
Tue Mar 24, 2020 10:22 am
Blackrock wrote:
Tue Mar 24, 2020 9:50 am

401K
$380 in John Hanncock multi-index 2040 Preservation (from old job)
$4775 in Vanguard Target Retirement 2040 Investor Class
I agree that keeping your cash available during the corona virus is smart. Especially if you don't have the opportunity to work.

I'm curious about the "from old job" funds mentioned above.

John Hancock isn't known for low-expense ratio mutual funds. Perhaps you could transfer that money into your current workplace plan. It would allow you to feel like you're doing something to improve your financial affairs without taking any additional risk. I'd check with your current plan to see if they allow you to roll-over a 401k balance from a prior employer. Many plans allow this.

Regards,
Yes, I definitely planned to roll that old Hancock into my current 401K. Thanks.
Should I still keep it in the Target Retirement fund though?

Monsterflockster
Posts: 182
Joined: Thu Nov 21, 2019 12:03 am

Re: Newbie Investing help

Post by Monsterflockster » Tue Mar 24, 2020 4:57 pm

chevca wrote:
Tue Mar 24, 2020 10:07 am
You can use a Roth account as part of your EF, as contributions can be taken out anytime without penalty. I'd keep it in something pretty safe or conservative if you do that and consider it part of your EF.

With current times and you not being too confident in your job stability, I'd keep you cash part as safe as possible. You could be needing that soon.
This.

I would put this into a Roth right away. If your job is uncertain put in the MM fund. If you are more secure in your job you can invest it and where is really up to your risk tolerance. How would you handle losing 30%, 40% or even 50% in this crazy market? If you can stomach it, never look at it a Total Stock Market or S&P500 is a good choice.

Regardless, get it into a Roth and "reserve" the tax sheltered space for 2019 ASAP.

Topic Author
Blackrock
Posts: 9
Joined: Fri Dec 15, 2017 1:38 pm

Re: Newbie Investing help

Post by Blackrock » Tue Mar 24, 2020 4:59 pm

sylph wrote:
Tue Mar 24, 2020 4:27 pm

I will advise to read some books:
1. The Bogleheads' Guide to the Three-Fund Portfolio
2. A random walk down wall street

Determine your asset allocation after reading these books. With your assets allocation, you should feel confident even in this unstable market. In fact stocks are cheaper right now.

Priority wise investment:
1. Emergency fund ( I will leave it as is, 6month savings with 1.5% yield is good )
2. 401K - Keep investing with every paycheck
3. ROTH IRA - Take advantage of this for both 2019 and 2020. You can at least contribute for 2019 now and for 2020 when you feel comfortable

With the remaining 14K you can save for something or invest. Do you have an HSA? If yes then max that out. It has triple tax benefits.
Thanks the response and for the book recommendations. I will check them out. After reading them I'm sure I will be more versed in allocation.
But I feel like time is of the essence, and I should jump on this market downturn ASAP. My thinking is that I drop the $12K all in the VOO (S&P 500 ETF) while the market is down. Since it's a Roth and tax advantaged, I can get the most bang for my buck right now, as the market will recover much of it's (Covid-19) losses in some time. I am off on this line of thinking? Or should I choose another index fund?

I don't have an HSA unfortunately. I don't know what else I would do with that $14K frankly other than throw it in a CD for the time being in order to have a safety net other than my emergency fund during this Corona episode. Suggestions for was to invest it otherwise are welcome.

retired@50
Posts: 1731
Joined: Tue Oct 01, 2019 2:36 pm

Re: Newbie Investing help

Post by retired@50 » Tue Mar 24, 2020 6:20 pm

Blackrock wrote:
Tue Mar 24, 2020 4:49 pm
retired@50 wrote:
Tue Mar 24, 2020 10:22 am
Blackrock wrote:
Tue Mar 24, 2020 9:50 am

401K
$380 in John Hanncock multi-index 2040 Preservation (from old job)
$4775 in Vanguard Target Retirement 2040 Investor Class
I agree that keeping your cash available during the corona virus is smart. Especially if you don't have the opportunity to work.

I'm curious about the "from old job" funds mentioned above.

John Hancock isn't known for low-expense ratio mutual funds. Perhaps you could transfer that money into your current workplace plan. It would allow you to feel like you're doing something to improve your financial affairs without taking any additional risk. I'd check with your current plan to see if they allow you to roll-over a 401k balance from a prior employer. Many plans allow this.

Regards,
Yes, I definitely planned to roll that old Hancock into my current 401K. Thanks.
Should I still keep it in the Target Retirement fund though?
Sure. I personally like target retirement funds, especially the ones from Vanguard. Low expense ratio, broad diversification, risk adjusted as you age into retirement. These features alone will help you avoid mistakes that MANY other investors make all the time.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

sylph
Posts: 21
Joined: Fri Jul 12, 2019 10:02 am

Re: Newbie Investing help

Post by sylph » Tue Mar 24, 2020 9:04 pm

VOO is good fund. VTI is another one. You can also choose their mutual fund equivalent based on your preference of ETF vs mutual fund.
You can invest some of other 14K in taxable account, only if you to have good safety cushion in emergency fund.
Ideally people diversify in stocks using US and International equity. It's good to have some of international equity. You can look at what tax efficiency is later.

International fund to consider: VOO,VTI
US Fund to consider: VXUS, combo of VWO,VEA

You can consider this approach now:
1. Decide how much total to invest. For ex:16K
2. Decide how much to invest in US vs International. Let's say 70/30 (i.e. 11.2K in US and 4.8K in International)
3. Put all international in Roth IRA and fill rest of roth with US Equities
4. Put remaining US Equities in taxable account

You can also include bonds and adjust your calculations.

Read this: https://www.bogleheads.org/wiki/Three-fund_portfolio

Being in service industry having a good EF is a wise choice. Do read the first book as soon as you get a chance.
Blackrock wrote:
Tue Mar 24, 2020 4:59 pm
sylph wrote:
Tue Mar 24, 2020 4:27 pm

I will advise to read some books:
1. The Bogleheads' Guide to the Three-Fund Portfolio
2. A random walk down wall street

Determine your asset allocation after reading these books. With your assets allocation, you should feel confident even in this unstable market. In fact stocks are cheaper right now.

Priority wise investment:
1. Emergency fund ( I will leave it as is, 6month savings with 1.5% yield is good )
2. 401K - Keep investing with every paycheck
3. ROTH IRA - Take advantage of this for both 2019 and 2020. You can at least contribute for 2019 now and for 2020 when you feel comfortable

With the remaining 14K you can save for something or invest. Do you have an HSA? If yes then max that out. It has triple tax benefits.
Thanks the response and for the book recommendations. I will check them out. After reading them I'm sure I will be more versed in allocation.
But I feel like time is of the essence, and I should jump on this market downturn ASAP. My thinking is that I drop the $12K all in the VOO (S&P 500 ETF) while the market is down. Since it's a Roth and tax advantaged, I can get the most bang for my buck right now, as the market will recover much of it's (Covid-19) losses in some time. I am off on this line of thinking? Or should I choose another index fund?

I don't have an HSA unfortunately. I don't know what else I would do with that $14K frankly other than throw it in a CD for the time being in order to have a safety net other than my emergency fund during this Corona episode. Suggestions for was to invest it otherwise are welcome.

retired@50
Posts: 1731
Joined: Tue Oct 01, 2019 2:36 pm

Re: Newbie Investing help

Post by retired@50 » Wed Mar 25, 2020 12:00 am

sylph wrote:
Tue Mar 24, 2020 9:04 pm


International fund to consider: VOO,VTI
US Fund to consider: VXUS, combo of VWO,VEA

The above labels were written backward. It should have read:

International fund to consider: VXUS, combo of VWO, VEA

US Fund to consider VOO, VTI

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

lakpr
Posts: 4501
Joined: Fri Mar 18, 2011 9:59 am

Re: Newbie Investing help

Post by lakpr » Wed Mar 25, 2020 1:40 am

Just wanted to add that with a $42k income as a single, you are in the 12% bracket, not 22% bracket. You forgot the $12,400 standard deduction that would set your taxable income around $30k.

Since you are in a 12% bracket, and sounds like you do have the cash to pay for it, I suggest you roll the old 401k into a Roth IRA instead of into the current 401k plan. I am assuming, of course, that we will never see a 12% bracket in our lifetimes, once the current personal tax brackets expire at the end of 2025, as they are mandated to by law.

sylph
Posts: 21
Joined: Fri Jul 12, 2019 10:02 am

Re: Newbie Investing help

Post by sylph » Wed Mar 25, 2020 3:19 pm

Thank you for correcting.
retired@50 wrote:
Wed Mar 25, 2020 12:00 am
sylph wrote:
Tue Mar 24, 2020 9:04 pm


International fund to consider: VOO,VTI
US Fund to consider: VXUS, combo of VWO,VEA

The above labels were written backward. It should have read:

International fund to consider: VXUS, combo of VWO, VEA

US Fund to consider VOO, VTI

Regards,

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