New to Investing - Trying to find my feet

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bels14
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Joined: Mon Oct 02, 2017 4:52 pm

New to Investing - Trying to find my feet

Post by bels14 » Mon Oct 02, 2017 5:42 pm

I am a recent dental school graduate and I am beginning my investment journey. I am currently attending a one year residency program where my salary is ~57k. Due to my extra schooling, I have a substantial amount of debt. However, I have a repayment strategy set and an amount that I can afford to save for retirement in mind. I have read The White Coat Investor, The Coffee House Investor, and I am part way through The Boglehead’s Guide. I am committed to building a portfolio of low-cost index funds but I am having some troubles with the specifics. Any advice or guidance would be appreciated.

Emergency funds: Have 6mo
Debt: $300,000 student loans at 5.65%
Tax Filing Status: Single
Tax Rate: 17% Federal, 7.5% State
State of Residence: Washington DC
Age: 27
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: ?% of stocks


Current retirement assets

Custodial Investment at PNC
59% AMERICAN CAPITAL WORLD GRTH & INC A (CWGIX) (0.80)
16% AMERICAN GROWTH FUND OF AMERICA CLASS A (AGTHX) (0.66)
16% AMERICAN WASHNTN MUTUAL INVESTRS CL A (AWSHX) (0.58)

Roth IRA at PNC
9% Not invested yet! (YIKES) (-0.00)

Contributions

New annual Contributions
$480/mo to Roth up to $5,500 limit


I have contacted PNC to begin investing my current IRA funds placed there by a generous family member. The nice lady on the phone suggested I purchase more of the American Funds family of mutual funds. When I asked she said they do not offer the Vanguard family of funds, which I would prefer to invest in. Their online investment tool says otherwise. I believe I can select any fund I want. However, I am wary that there may be some downside (eg hidden fees) to keeping my money at PNC rather than moving it to another servicer (ie Vanguard). Additionally I would like to liquidate my custodial investment account to invest in lower ER funds. However, I am generally uncertain how to rebuild my portfolio, I know the allocation I would like between stocks and bonds but I don’t know what percent of my stocks should be in large-cap, large-cap value, small-cap, small-cap value, international, REIT, etc. Does an equal amount of each of the classes listed previously make sense? Given my age and my longer investment horizon I would like to be fairly aggressive but don’t know a reasonable intra-stock allocation to achieve that.


Questions:
1. Does it matter who services my IRA if they have the same funds in them?

2. How do I choose an intra-stock allocation of index

pkcrafter
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Re: New to Investing - Trying to find my feet

Post by pkcrafter » Mon Oct 02, 2017 10:27 pm

bels14 wrote:
Mon Oct 02, 2017 5:42 pm

Emergency funds: Have 6mo
Debt: $300,000 student loans at 5.65%

Student debt is a big load at a pretty high rate, but you can seriously tackle this after residency.
.
Tax Filing Status: Single
Tax Rate: 17% Federal, 7.5% State
State of Residence: Washington DC
Age: 27
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: ?% of stocks

20-40% international is the recommended allocation.

Current retirement assets

Custodial Investment at PNC

Does "custodial account" mean you have a custodian that manages this account? Is it a taxable account or a tax-deferred acct? Can you move it?


59% AMERICAN CAPITAL WORLD GRTH & INC A (CWGIX) (0.80)
16% AMERICAN GROWTH FUND OF AMERICA CLASS A (AGTHX) (0.66)
16% AMERICAN WASHNTN MUTUAL INVESTRS CL A (AWSHX) (0.58)

These funds have a front-end load of 5.75%.


Roth IRA at PNC
9% Not invested yet! (YIKES) (-0.00)

Is this your account, or is it also a custodial account? PNC is not a good place to hold investments (too expensive). I suggest you move this Roth if you can. Might also be best to max the Roth this year and add another $5,500 next year. Once you get out of residency, you probably won't qualify for a Roth.

Contributions

New annual Contributions
$480/mo to Roth up to $5,500 limit


I have contacted PNC to begin investing my current IRA funds placed there by a generous family member.

OK, here you indicate that the PNC custodial account is an IRA. If you are able to move this account, you should do it. You would want to use a custodian to custodian direct transfer initiated by the receiving company.

The nice lady on the phone suggested I purchase more of the American Funds family of mutual funds. When I asked she said they do not offer the Vanguard family of funds, which I would prefer to invest in. Their online investment tool says otherwise. I believe I can select any fund I want. However, I am wary that there may be some downside (eg hidden fees) to keeping my money at PNC rather than moving it to another servicer (ie Vanguard).

No might be about it. Yes, fees would be significantly higher.

Additionally I would like to liquidate my custodial investment account to invest in lower ER funds. However, I am generally uncertain how to rebuild my portfolio, I know the allocation I would like between stocks and bonds but I don’t know what percent of my stocks should be in large-cap, large-cap value, small-cap, small-cap value, international, REIT, etc. Does an equal amount of each of the classes listed previously make sense? Given my age and my longer investment horizon I would like to be fairly aggressive but don’t know a reasonable intra-stock allocation to achieve that.

Here's a break down of total stock market. You can use a total market fund, total international, and total bond to cover everything. Always consider all retirement account as units of a single portfolio.


https://www.bogleheads.org/wiki/Approxi ... ock_market

Three fund portfolio

viewtopic.php?f=10&t=88005

You can also use a Target Retirement fund if you want all-in-one simplicity. See Wiki.

Questions:
1. Does it matter who services my IRA if they have the same funds in them?

Yes, it matters. Banks are one of the most expensive places to invest.

2. How do I choose an intra-stock allocation of index

See links above. REIT, if used, is generally suggested to be up to 15% of equity.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

venkman
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Re: New to Investing - Trying to find my feet

Post by venkman » Mon Oct 02, 2017 10:50 pm

Get in touch with Vanguard; they'll be happy to help you transfer your IRA from PNC. I would definitely do that ASAP. I don't know for sure if PNC has hidden fees they might try to charge you, but I know Vanguard won't. Especially if you plan to invest in Vanguard funds.

A good starting point is just to invest in VTSAX (Vanguard Total Stock Market), so you own everything at its market weight. You can add international stocks (VTIAX) and US bonds (VBTLX) to that in whatever amount you're comfortable with. (https://www.bogleheads.org/wiki/Three-fund_portfolio).

A lot of people here use the 3-fund portfolio exclusively, because it's simple and highly diversified. You could get more aggressive by tilting toward certain asset classes (small cap value, emerging markets, etc.), but you don't NEED to.

I'd also be pretty concerned about that $300k debt at 5.65%. You might consider paying that down before adding to any investments. There's a reasonable chance stocks could have an annual return lower than 5.65% over the next decade.

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BolderBoy
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Re: New to Investing - Trying to find my feet

Post by BolderBoy » Mon Oct 02, 2017 10:50 pm

bels14 wrote:
Mon Oct 02, 2017 5:42 pm
However, I am generally uncertain how to rebuild my portfolio, I know the allocation I would like between stocks and bonds but I don’t know what percent of my stocks should be in large-cap, large-cap value, small-cap, small-cap value, international, REIT, etc.
An easy solution for this question is to choose a total US stock market index fund - it would contain elements of each of those stock categories. The international portion could be accomplished by a total international index fund.

Some folks on the forums recommend just going with a total world stock index fund to cover all bases all over the world.

Vanguard offers all these types of index funds at low cost. Fidelity may as well.

Add to that a total bond market index fund and you've got a smooth asset allocation which you can adjust to meet your AA percentage goal.

You can read more about this "3 Fund Portfolio" in the forum wiki.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

bels14
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Joined: Mon Oct 02, 2017 4:52 pm

Re: New to Investing - Trying to find my feet

Post by bels14 » Wed Oct 04, 2017 8:35 pm

Thanks everyone for your informative responses. My debt situation is an unfortunate reality of educational costs today. I am really unable to attack this debt in residency but my earning potential should increase significantly in just a year. Once I am able to show my ability to pay off the loans I intend on refinancing to a lower rate. Additionally, my investment horizon is far away and I would like to capture as much of the market's returns as possible in the next 30+ years as well as establishing a habit of saving.

To answer a few questions, my custodial account was started by my dad but I am now at an age where I control the funds in it. Additionally, the Eoth IRA money was given to me by my grandfather as a type of gift when I graduated undergrad and got a job. However, the funds were somehow never invested and I shortly went back to school and was unable to contribute due to lack of an income.

I plan on moving my funds to Vanguard. Would it make sense to take from my custodial account and put the maximum contribution of $5,500 into my IRA? What should I do with the rest of my funds? I don't qualify for any plans through my employer. Are there any other retirement vehicles I should be considering or should I just own the funds outside of a plan.

Again, thanks for all the informative references and advice!

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abuss368
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Re: New to Investing - Trying to find my feet

Post by abuss368 » Wed Oct 04, 2017 8:49 pm

I would highly recommend that you consider increasing your investment knowledge by reading a few excellent books. My favorites that I have recommended are:

* The Bogleheads Guide to Investing

* John Bogle - "The Little Book of Common Sense Investing"

* John Brennan - "Straight Talk on Investing"

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

PhDonFire
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Re: New to Investing - Trying to find my feet

Post by PhDonFire » Wed Oct 04, 2017 8:58 pm

You are already in great shape because you are here and you read WCI and a few good books. Keep things simple. Try the 3 fund portfolio. Pay down your debt. Continue to live like a resident even after you residency is over.

bels14
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Re: New to Investing - Trying to find my feet

Post by bels14 » Wed Oct 04, 2017 9:03 pm

abuss368 wrote:
Wed Oct 04, 2017 8:49 pm
I would highly recommend that you consider increasing your investment knowledge by reading a few excellent books. My favorites that I have recommended are:

* The Bogleheads Guide to Investing

* John Bogle - "The Little Book of Common Sense Investing"

* John Brennan - "Straight Talk on Investing"

Best.
Thanks for the recommendations, I'm currently reading The Bogleheads Guide. I'll put the other two on my list!

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abuss368
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Re: New to Investing - Trying to find my feet

Post by abuss368 » Wed Oct 04, 2017 9:06 pm

bels14 wrote:
Wed Oct 04, 2017 9:03 pm
Thanks for the recommendations, I'm currently reading The Bogleheads Guide. I'll put the other two on my list!
Hi bels14 -

I would recommend the "Bogleheads Guide to Retirement" as well. In fact, I have every book by Jack Bogle and Vanguard on my bookshelf. I have read them and reread them. Many times I have reread a concept or looked something up. The knowledge gained has been invaluable.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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