Advice For New Investor

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Topic Author
Jeff84
Posts: 4
Joined: Wed Feb 23, 2011 10:21 pm
Location: Middle GA

Advice For New Investor

Post by Jeff84 »

Hello, I am new to investing and looking for some advice on a couple of things from people who are financially wiser / more experienced than I am. I would love to be able to retire by age 60 but don't know if that is realistic? Here is my current situation:

Age: 26

Income (Before Taxes/Deductions):
~$53,000/yr (Full Time + Part Time Job)
~$5,700/yr (Roommates Renting From Me)

Emergency Funds: None specifically but I have about $36,000 in checking account (6 months expenses would be about $17,000)

Debt:
- 30yr Mortgage: $135,500 Loan w/ 5% Int. Rate (Currently paying $140/month additional principal)
- Car Loan: $20,500 w/ 3.9% Int. Rate (36 months left on 60 month loan, haven't been paying any additional principal)

Tax Filing Status: Single

Fed Tax: 25%
State Tax: 6%
State of Residence: GA

Desired Asset Allocation: Unsure

Currently Contributing 4% to 403b with Employer Match of 2% (Not sure if they will match more with a higher contribution but I don't think so)

Here is the 403b distribution (I can break them down individually if needed):

Short Bonds/Stable/MMkt - 2%
Interm./Long-Term Bonds - 19%

Large-Cap Stocks - 35%
Small/Mid-Cap Stocks - 26%
International Stocks - 18%


I currently do not have a Roth IRA but want to start one.




1. Where should I go to open a Roth IRA?
2. What should I do with the $36,000 in checking account?
3. What should my asset allocation be?
4. Suggestions / questions on anything else?
DTSC
Posts: 1187
Joined: Mon Oct 20, 2008 9:47 am
Location: Illinois

Post by DTSC »

Use the part of the $36000 to establish an emergency fund. Fund a Roth IRA. Use the rest to pay off your car loan.
noobie
Posts: 109
Joined: Mon Jan 31, 2011 2:07 pm

Post by noobie »

1. Vanguard, Fidelity, TDameritrade, etc
2. Keep 17k in bank, use 5k for the roth ira. use the remaining 14k to pay the car loan.
3. Your AA looks fine for your age, 79/21.
4. Assuming you are itemizing deductions, stop paying extra on your house, and put it to the car until its paid off. The mortgage would have an effective rate of 3.75%. This would pay off the car loan faster(especially after you paid the 14k from step 2), and then would increase your cash flow after its paid off.
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Random Musings
Posts: 5791
Joined: Thu Feb 22, 2007 4:24 pm
Location: Pennsylvania

Post by Random Musings »

I would utilize the $36 K in this manner:

- Fund a Roth for 2010 ($5K)
- Fund a Roth for 2011 ($5K)
- Keep 6 months in an emergency fund ($17K)

The other $9K - lot of options
- you could ramp up your car payments
- keep $5K for next years Roth contribution
- ramp up your 403b contributions to "move" that money from taxable to tax-deferred (if the plan has a good cost structure). Is the 4% you put in due to poor choices/high costs or for other reasons?
- invest in taxable accounts utilizing tax-efficient equity funds/ETF's
- keep the money mostly liquid for other potential short/intermediate term expenditures you foresee.
- the last two items in essense, do provide additional emergency fund buffers without tapping into your tax-deferred accounts.

RM
jpark1982
Posts: 194
Joined: Fri Dec 31, 2010 9:43 am

Post by jpark1982 »

1. Where is your current bank account? If you have a Wells Fargo in your area, can't really beat the PMA account with 100 free trades.
2. I would put aside 10k for your 2010 and 2011 Roth contributions. Start paying off some additional to your car loan.
3. At your age, 80/20 seems fine, I'm 28 and have mine setup 85/15.

What are the expense ratios on your 403b funds?
grberry
Posts: 234
Joined: Fri Jul 20, 2007 1:16 pm
Location: Boston, MA

Post by grberry »

On the emergency fund, I would recommend moving it out of the checking account. I keep mine in a savings account at the same bank as my checking account, some keep theirs in savings accounts elsewhere, money market funds, or CD ladders. Using anything but a checking account you will earn more interest on these funds. Right now, only a little bit more, but little bits help.

To meet the goal of retiring early, saving heavily and continually is critical. The 403(b) at 4% plus a 2% match is 6% of salary. $5K to Roth or traditional IRA would be another 9.4%, getting you to 15.4%. If you can keep it at 15.4% that would probably be enough to let you retire at 60 if you plan on dying exactly at age 90. A current discussion on safe savings rates is over here.

Other posters have assumed that you are itemizing your taxes and thus can deduct the mortgage interest. If you have at least $5,800 in other itemized deductions this is true. That is roughly 10% of your income, so if you are tithing it would be true, but most people don't. If you don't have that much in other itemized deductions your real effective rate on the mortgage could in fact be 5%, in which case the mortgage is the debt to pay off early.
Topic Author
Jeff84
Posts: 4
Joined: Wed Feb 23, 2011 10:21 pm
Location: Middle GA

Post by Jeff84 »

Thanks for all the replies so far, keep em coming.

So after I contribute $5K to a Roth for 2010, would it be better to put a lump sum of $5K into the Roth every year at the beginning of the year or should I just have $192.30 taken out of my bi-weekly paychecks or does it really matter? Probably a dumb question but I'm still very new to retirement planning.
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