First time investor: Snapshot after your advice

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Frenetic
Posts: 6
Joined: Wed Sep 20, 2017 7:36 pm

First time investor: Snapshot after your advice

Post by Frenetic » Wed Sep 27, 2017 5:42 pm

Edit:10/12/17 Just thought you all would like an update. Here's what I went up going with based on everyone's advice.

Maxed 457b through CalPers ($18,000)
65% VINIX Vanguard(R) Institutional Index Fund - Institutional Shares 0.04
35% VBTLX Vanguard Total Bond Market Index Fund - Admiral Shares 0.05

Maxed Roth IRA - ($5500)
100% VGTSX Vanguard Total international Stock Fund Index .18

This puts me at a rough AA 73/27 stock/bond allocation.

Now I have $12000 with $6000 from my wife for an emergency fund. Should I just leave it in the Vanguard Money Market fund?
Leftover cash is $70,000. Should I allocate these funds in the same percentages in a taxable account?

Am I overlooking anything else like an HSA, etc.?

Thank you for all your advice, I haven't felt this empowered in a long long time.

--Ryan


Hi everyone, I really wish I had found this forum much earlier and have been reading "The Bogleheads' Guide to Investing" and it has really inspired me and my wife to take the leap and invest. Just maxed out my Roth IRA today and will make the max contribution to my 457b, am a city worker. My wife and I were saving up for a down payment for a home which is why we are so liquid.

My age: 41 Wife's age: 38
My income: $75,000 Her income: $50,000
Emergency Funds: 6 months
Debt: No debt other than 0 interest loan paid to wife's sister since we inherited grandmother's house (650k) Student loans paid, car loans, all paid wife may need a new car soon
Tax Filing Status: Married Filing Jointly
Tax Rate: 28.00% Federal, 9.30% State
State of Residence: California
Age: 41
Wife's Age: 38
Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 20% of stocks

Current retirement assets

Taxable
100% cash (for investing – do not include emergency funds)
His: $90,000
Her: $80,000

His CalPERS
Pension retirement formula 2.7% @ 55 (11 years service)
CalPERS Retirement contributions $74,050.87
His city government 457b (through Nationwide)

His Roth IRA at Vanguard (just maxed at $5500 today and have electronically scheduled will max again on the 1st of every year)

Her pension CalSTRS
Her Roth IRA at Vanguard (will max at $5500 soon)

Contributions

New annual Contributions
$5500 his IRA/Roth IRA
$5500 her IRA/Roth IRA
I will max my 457(b) $18,000 this year and next year once I get my portfolio together.

Available funds

Funds available in his government 457(b) (Had a large selection, but just listed the ones I am interested in here, if you want to look at what I have offered to me https://www.nationaldeferred.com click "Enroll" scroll down to View My Investment Options then click the blue button "View Fund Performance" [ORANGE 457 PLAN & TRUST, CITY OF (ORANGE, CA)]:

Large Cap:
Vanguard 500 Index Fund 0.14
Vanguard(R) Institutional Index Fund - Institutional Shares 0.04
Vanguard(R) Windsor(TM) II Fund - Admiral(TM) Shares 0.25

International
EuroPacific Growth Fund 0.85
Fidelity Overseas Fund 1.03
Oppenheimer Global Fund 1.15
Templeton Foreign Fund 1.22

Bonds
Vanguard Total Bond Market Index Fund - Admiral Shares 0.05

Questions:
1. Which funds should I invest in with my 457? Should I just aim for a 3 fund portfolio with Vanguard 500 Index Fund, 1 international fund, and then Vanguard Total Bond Market for bonds?

2. If my wife doesn't have access to a 401k/457/403b what kind of tax deferral account can she sign up for if it is not offered through her work?

Really appreciate this forum, feels like I've come to something I have been looking for all my life.
Ryan
Last edited by Frenetic on Thu Oct 12, 2017 5:39 pm, edited 2 times in total.

Mudpuppy
Posts: 5468
Joined: Sat Aug 27, 2011 2:26 am
Location: Sunny California

Re: Need Portfolio Help: First time investor

Post by Mudpuppy » Wed Sep 27, 2017 9:50 pm

Frenetic wrote:
Wed Sep 27, 2017 5:42 pm
1. Which funds should I invest in with my 457? Should I just aim for a 3 fund portfolio with Vanguard 500 Index Fund, 1 international fund, and then Vanguard Total Bond Market for bonds?
You actually should use the Vanguard Institutional Index Fund instead of the Vanguard 500 Index Fund. The Vanguard Institutional Index Fund is also an S&P 500 index fund, but has a much lower ER. It's somewhat odd that your plan has both options.

I would also use the Vanguard Total Bond Market Index Fund in your 457(b) plan. However, the international options aren't too great, so you should hold your international allocation in the IRA.
Frenetic wrote:
Wed Sep 27, 2017 5:42 pm
2. If my wife doesn't have access to a 401k/457/403b what kind of tax deferral account can she sign up for if it is not offered through her work?
Are you sure she doesn't have access to a 403(b) or 457(b)? Most districts in California that participate in CalSTRS also have one of these options.

retiredjg
Posts: 30792
Joined: Thu Jan 10, 2008 12:56 pm

Re: Need Portfolio Help: First time investor

Post by retiredjg » Thu Sep 28, 2017 5:43 am

With the income you listed, you are probably in the 25% bracket, not the 28% bracket.

i agree with using the Institutional Index, Total Bond, and holding international in your Roth IRA(s).

Depending on things we don't know, your wife might be able to deduct some or all of her IRA contribution if she uses traditional IRA instead of Roth IRA.

mc_cm
Posts: 6
Joined: Wed Sep 27, 2017 2:33 pm

Re: Need Portfolio Help: First time investor

Post by mc_cm » Thu Sep 28, 2017 8:13 am

I agree with the fund suggestions the others have said. However there are a few other "bigger" questions I think you need to answer before picking the funds. The biggest one being what standard of living do you want in retirement? If you want to maintain the same standard of living you may have to up your stock exposure a bit to something closer to 70/30 if not higher, with more international exposure (US stocks are at all time highs, more value in international presently). The reasoning behind the higher stock exposure would be between your pension, you and your wife's social security you have a pretty decent income in retirement. Also what ages do you and your wife plan on retiring at? (plays a big role in your pension and Social security)

In the meantime the previous responses give good suggestions, don't lose sight of the forest through the trees.

krow36
Posts: 1430
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Need Portfolio Help: First time investor

Post by krow36 » Thu Sep 28, 2017 1:44 pm

Frenetic wrote:
Wed Sep 27, 2017 5:42 pm
2. If my wife doesn't have access to a 401k/457/403b what kind of tax deferral account can she sign up for if it is not offered through her work?
You can find out the 403b providers of your wife's school district by looking it up on the 403bcompare website:
https://www.403bcompare.com/Employers/Browse
If her district is Orange Unified, she has several outstanding choices including Fidelity and Vanguard. Fidelity is probably the lowest cost.

Frenetic
Posts: 6
Joined: Wed Sep 20, 2017 7:36 pm

Re: Need Portfolio Help: First time investor

Post by Frenetic » Thu Sep 28, 2017 2:43 pm

Thank you all so so much for these answers. They really make a lot of sense to me.

The wife works for a charter high school and isn't a proper part of the district. She asked the principal and said that they don't have a 403(b) nor a 457(b). I am kind of surprised, too. What kind of tax deferred account can she take advantage of? Sign up through Vanguard IRA and go through that?
Mudpuppy wrote:
Wed Sep 27, 2017 9:50 pm
Frenetic wrote:
Wed Sep 27, 2017 5:42 pm
2. If my wife doesn't have access to a 401k/457/403b what kind of tax deferral account can she sign up for if it is not offered through her work?
Are you sure she doesn't have access to a 403(b) or 457(b)? Most districts in California that participate in CalSTRS also have one of these options.

retiredjg
Posts: 30792
Joined: Thu Jan 10, 2008 12:56 pm

Re: Need Portfolio Help: First time investor

Post by retiredjg » Thu Sep 28, 2017 3:32 pm

Are you saying she is not a state employee? If she is, it seems like she might be eligible for the 457b. Or maybe she can rattle some cages and get her school added. A teacher at a charter school which is part of the state educational system should not have to give up a retirement benefit in my opinion. Maybe nobody has ever asked for it.

Frenetic
Posts: 6
Joined: Wed Sep 20, 2017 7:36 pm

Re: Need Portfolio Help: First time investor

Post by Frenetic » Thu Sep 28, 2017 4:25 pm

I am planning to retire at 65, due to my high satisfaction with my job. I guess that might change depending on my health, but I really am enjoying work right now even with the occasional frustration. My wife might retire earlier at 60 due to the 2 percent at 60 percent formula of CalSTRS.

--edit--
Just sent in the paperwork today!
I ended up going with:
18k into 457(b)
65% Vanguard(R) Institutional Index Fund - Institutional Shares 0.04
35% Vanguard Total Bond Market Index Fund - Admiral Shares 0.05

5.5k into Roth IRA
100% (some Vanguard International Fund, Vanguard Total International Stock Index (VGTSX) probably or any other suggestions?)

Now I need to find some way for the wife to cap out a deferred comp to max out the 18k...I've convinced her max out her Roth IRA, I think.
mc_cm wrote:
Thu Sep 28, 2017 8:13 am
I agree with the fund suggestions the others have said. However there are a few other "bigger" questions I think you need to answer before picking the funds. The biggest one being what standard of living do you want in retirement? If you want to maintain the same standard of living you may have to up your stock exposure a bit to something closer to 70/30 if not higher, with more international exposure (US stocks are at all time highs, more value in international presently). The reasoning behind the higher stock exposure would be between your pension, you and your wife's social security you have a pretty decent income in retirement. Also what ages do you and your wife plan on retiring at? (plays a big role in your pension and Social security)

In the meantime the previous responses give good suggestions, don't lose sight of the forest through the trees.

Mudpuppy
Posts: 5468
Joined: Sat Aug 27, 2011 2:26 am
Location: Sunny California

Re: Need Portfolio Help: First time investor

Post by Mudpuppy » Thu Sep 28, 2017 10:15 pm

Frenetic wrote:
Thu Sep 28, 2017 2:43 pm
The wife works for a charter high school and isn't a proper part of the district. She asked the principal and said that they don't have a 403(b) nor a 457(b). I am kind of surprised, too. What kind of tax deferred account can she take advantage of? Sign up through Vanguard IRA and go through that?
The principal is probably not the best source of advice on these matters. Is there a Payroll or HR office that she could speak to about benefits? CalSTRS allows charter schools to participate in Pension2 (the CalSTRS 403(b) and 457(b) plans), according to https://www.calstrs.com/charter-schools

mc_cm
Posts: 6
Joined: Wed Sep 27, 2017 2:33 pm

Re: Need Portfolio Help: First time investor

Post by mc_cm » Mon Oct 02, 2017 9:04 am

Frenetic wrote:
Thu Sep 28, 2017 4:25 pm


5.5k into Roth IRA
100% (some Vanguard International Fund, Vanguard Total International Stock Index (VGTSX) probably or any other suggestions?)



[/quote]

VGTSX is a very good choice. Good blend of emerging and developed markets. Also it is accurately named "International", with 94.76% of its holdings being Non-US stocks.

Future tip* Sometimes fund companies will name a fund "international" or "global" and end up being only 50-60% non-US. Just something to look out for in future fund selections, Fund names do not always correlate to their holdings. This can also be true for funds having "small-cap, mid-cap or large blend in the name". In short doing the extra 5 minutes of due diligence to confirm the fund is what it claims to be is worth while.

Frenetic
Posts: 6
Joined: Wed Sep 20, 2017 7:36 pm

Re: First time investor: Snapshot after your advice

Post by Frenetic » Thu Oct 12, 2017 5:29 pm

Hi everyone,

Just wanted to let you all know I took your advice and now have locked in my maxed 457(b) contribution and Roth IRA contributions.

Edit:10/12/17 Just thought you all would like an update. Here's what I went up going with based on everyone's advice.

Maxed 457b through CalPers ($18,000)
65% Vanguard(R) Institutional Index Fund - Institutional Shares 0.04
35% Vanguard Total Bond Market Index Fund - Admiral Shares 0.05

Maxed Roth IRA - ($5500)
100% VGTSX Vanguard Total international Stock Fund Index .18

This puts me at a rough AA 73/27 stock/bond allocation.

Now I have $12000 with $6000 from my wife for an emergency fund. Should I just leave it in the Vanguard Money Market fund?
Leftover cash is $70,000. Should I allocate these funds in the same percentages in a taxable account?

Am I overlooking anything else like an HSA, etc.?

Thank you for all your advice, I haven't felt this empowered in a long long time.

--Ryan

retiredjg
Posts: 30792
Joined: Thu Jan 10, 2008 12:56 pm

Re: First time investor: Snapshot after your advice

Post by retiredjg » Fri Oct 13, 2017 8:12 am

Frenetic wrote:
Thu Oct 12, 2017 5:29 pm
Now I have $12000 with $6000 from my wife for an emergency fund. Should I just leave it in the Vanguard Money Market fund?
Your choice. It could also go into a high yield saving account if you felt that pays more and if it is worth the trouble to move it.
Leftover cash is $70,000. Should I allocate these funds in the same percentages in a taxable account?
Opinions vary on whether you should choose to hold bonds in taxable if you have space to hold them in your 401k. I would say to put broad index stock funds in taxable and increase the bond allocation in the 401k to achieve your desired stock to bond ratios.

Some others might suggest holding some bonds in taxable. In your tax bracket, you would need tax-exempt bonds. Maybe something like Vanguard's Intermediate Term Tax Exempt and/or a tax-exempt bond specific to your state.

Am I overlooking anything else like an HSA, etc.?
An HSA is a good thing if a high deductible health plan is available AND fits into your family's health needs. These plans do not fit everybody.

MotoTrojan
Posts: 858
Joined: Wed Feb 01, 2017 8:39 pm

Re: First time investor: Snapshot after your advice

Post by MotoTrojan » Fri Oct 13, 2017 9:07 am

retiredjg wrote:
Fri Oct 13, 2017 8:12 am
Frenetic wrote:
Thu Oct 12, 2017 5:29 pm
Now I have $12000 with $6000 from my wife for an emergency fund. Should I just leave it in the Vanguard Money Market fund?
Your choice. It could also go into a high yield saving account if you felt that pays more and if it is worth the trouble to move it.
Leftover cash is $70,000. Should I allocate these funds in the same percentages in a taxable account?
Opinions vary on whether you should choose to hold bonds in taxable if you have space to hold them in your 401k. I would say to put broad index stock funds in taxable and increase the bond allocation in the 401k to achieve your desired stock to bond ratios.

Some others might suggest holding some bonds in taxable. In your tax bracket, you would need tax-exempt bonds. Maybe something like Vanguard's Intermediate Term Tax Exempt and/or a tax-exempt bond specific to your state.

Am I overlooking anything else like an HSA, etc.?
An HSA is a good thing if a high deductible health plan is available AND fits into your family's health needs. These plans do not fit everybody.
Agree with above to look at portfolio as one entity, and go all bonds in tax-deferred (401k), Total US & Total Int in taxable, equities in Roth (with bond spillover as-needed) and then rest of 401k filled with equities, as required.

I would go high yield savings account for the emergency fund personally, but I have a tinkerers itch and would be tempted to allocate the MM funds to some sort of "low risk" fund. Also reduces risk you can't get liquidity if Vanguard's site goes down.

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