Portfolio Advice Needed for 25 y/o

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Topic Author
The_G_Fund
Posts: 11
Joined: Mon Nov 02, 2009 2:48 pm

Portfolio Advice Needed for 25 y/o

Post by The_G_Fund »

Hello,

I am looking for some advice regarding my portfolio with Vanguard. Right now I have a Roth and a Taxable account open.

Age: 25 years old

Current Allocation
100% Stocks

ROTH:
Total Stock Market - 39.5%
Total Int'l Stock Index - 39.5%
TAXABLE:
Total Stock Market - 21%

Overall, my current domestic/international allocation is about 60/40.

I currently have about $25k in my emergency fund, and I am thinking about investing $15k of that into my Taxable, and just keeping $10k in my emergency fund. If I needed more than that, I could sell off some VTSMX in my taxable and buy it back in my Roth using the method I have read about in past threads.

What do you guys think about this proposed allocation?


Proposed Allocation
90% Stock / 10% Bond

ROTH:
Total Int'l Stock Index - 35%
Total Stock Market Index - 7%
Total Bond Market Index - 10%
TAXABLE:
Total Stock Market Index - 48%

My domestic / international equity split would still be about the same: 61 / 39.

What do you guys think of Total Bond Market Index vs TIPS vs other bond options (assuming that I can only pick one to have in my Roth right now... unless I go with a 80/20 stocks/bond split)

And is it worth splitting up my equities further to get the Emerging Markets or Small Cap Index fund?

I'd appreciate any comments you guys might have.

Thanks.
Last edited by The_G_Fund on Mon Nov 02, 2009 4:57 pm, edited 1 time in total.
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 7:40 pm

Options

Post by Laura »

techsetter,

Do you have a retirement plan of some sort available through your employer? If yes, you should seriously look at that option rather than investing in a taxable account.

You are smart to be adding some bonds and total bond market is a fine choice for someone in the early part of their investing lifecycle. At this stage in the game your savings rate is far more important than your asset allocation.

Could you please edit your post so that your entire portfolio totals 100%? right now you have a roth totaling 100% and your taxable at another 100% for a total of 200%.

xx% taxable
xx% roth
total of both together is 100%

I wouldn't worry about splitting out emerging markets (you already have them in Total intl) or about adding a separate small cap fund (you already have those in total stock market).

I also think a large emergency fund is a good idea for young people. You may need to buy a car or a home in the next few years so having cash available is a good idea. I wouldn't worry about investing more of that into your taxable accounts right now. If you can stay out of debt you will be way ahead of your friends and relatives.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
The_G_Fund
Posts: 11
Joined: Mon Nov 02, 2009 2:48 pm

Post by The_G_Fund »

Thanks Laura for the reply. I edited the %s so they add up for the entire portfolio, not just each individual account.

At this point, I should be starting a full-time job in Dec/Jan with benefits like a 403(b) or 401(k). When that happens, I'll just siphon off those contributions from my income stream.

For now, I've maxed my Roth IRA contributions but I plan on adding $5k after Jan 1, 2010.

I just recently purchased a new car, and I don't plan on buying a house anytime soon. So I think $10k should suffice as my emergency fund, with the option to draw into the taxable acct if I really do need it.

Do you think I should lump sump the $15k VTSMX purchase or would it be better to dollar cost average?
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 7:40 pm

Plan

Post by Laura »

techsetter,

Since you are just about to start a new job I would hold off of the decision to invest part of the emergency fund. Another month or two won't make a difference. Wait to see what kind of fund options you have available in your new plan. Then, use $5k to lump sum into the roth and you can put the other $5k into the taxable account. You should also start saving now for that next car. Did you pay cash or do you have a loan? You want to avoid borrowing money to buy a car in the future so having cash on hand works best.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
bdpb
Posts: 1617
Joined: Wed Jun 06, 2007 3:14 pm

Post by bdpb »

You should consider putting Intl in your taxable account to capture the
foreign tax credit.

Another thought is to split your taxable account between Intl and US to
double your chances for tax loss harvesting.
Topic Author
The_G_Fund
Posts: 11
Joined: Mon Nov 02, 2009 2:48 pm

Post by The_G_Fund »

I paid cash for my recent car purchase. I hope it lasts for ten years! Do you guys generally have a separate car fund along with an emergency fund? I would really like to maximize the amount of cash not languishing in a 1-2% savings account, and put it to work in my investment portfolio.

Regarding putting some of my int'l allocation in my taxable acct, that is a very interesting idea. Would it be better to use Total International Stock Market or FTSE All World ex-US?
haban01
Posts: 671
Joined: Thu Mar 01, 2007 9:55 pm
Location: Wisconsin

Post by haban01 »

Good Afternoon,

You don't get the Tax Credit with the TTL International Fund. I would recommend looking at the FTSE Fund. Do you a large enough portfolio to avoid the pesky low balance fees? I would recommend that you "Cover" yourself as Laura suggested with cash reserves in your taxable account.

The markets have come back quite a bite and the way I see it is that we could easily go down 10%+ more than up in the short term. The last thing you want to do is have to sell equities when the market is down.

I would hold off until you get your 403B fund options and then look at everything overall as one portfolio.

I would try to achor the bonds in the 403B, depending on your fund options!
Eric | | "Stay the Course" | "Press on Regardless"
retiredjg
Posts: 42258
Joined: Thu Jan 10, 2008 12:56 pm

Post by retiredjg »

Do you guys generally have a separate car fund along with an emergency fund?
This is a good idea. I did this before retirement. (Now, I don't have a separate emergency/car fund.)
You don't get the Tax Credit with the TTL International Fund.
If you mean VGTSX, that has changed. It is now eligible for the foreign tax credit.

If you are going to have a 403 or 401 soon, I think you should wait and plan your entire portfolio around that. No need to change things around right now as it may not be a good idea anymore when you start the new job.
haban01
Posts: 671
Joined: Thu Mar 01, 2007 9:55 pm
Location: Wisconsin

Post by haban01 »

That's right! Thanks for the correction since they've gone away to a 50/50 approach with individual securities.
Eric | | "Stay the Course" | "Press on Regardless"
flyfisher_work
Posts: 69
Joined: Tue Feb 05, 2008 1:23 pm

Post by flyfisher_work »

develop a monthly budget that will allow you to pay current expenses, save for future expenses, and invest for the long term...then live within budget.

I also agree with Laura's advice; wait until you see what your employer plan is all about before doing too much. Adding bonds to meet your desired AA seems to make sense.
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