Portfolio advice for 26 year old

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josephfrancis
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Portfolio advice for 26 year old

Post by josephfrancis » Mon Jul 09, 2018 9:29 am

Looking for advice for daughter. Employed by successful tech company that recently went public. $200k in stock options, more than adequate rainy day fund, $16k in Vanguard spread among Amazon, Salesforce, and VTSMX. Currently 8% into 401k with plans to increase % after recent raise. Will have @$1200 a month to invest. What are your recommendations?

bh7785
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Re: Portfolio advice for 26 year old

Post by bh7785 » Mon Jul 09, 2018 9:38 am

Without more information, how about Vanguard Target Retirement (2055?). You could save a little bit by choosing the funds yourself, but for 0.14% ER it's a heck of a deal. Set and forget, just keep contributing.

b42
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Re: Portfolio advice for 26 year old

Post by b42 » Mon Jul 09, 2018 9:39 am

Since it seems for the near future that your daughter will be investing an increasingly large amount of money, I would take a step back and come up with an investment policy statement (IPS):

https://www.bogleheads.org/wiki/Investm ... _statement

Even a short one-page summary would be useful to prevent the situation where after a few years you have multiple accounts with a variety of investments and securities, but no real plan.

That being said, since your daughter is most likely in a high tax bracket, she could continue to add funds into her 401k (assuming that it's a traditional account and not a Roth 401k).

As for funds, what options are available in her 401k? Vanguard's Total Stock Market Index is a good choice, but as the assets grow you may want to look into adding Vanguard's Total US Bond Index and Vanguard's Total International Stock Index.

Also, does your daughter have any interest in investing and/or managing various accounts? You may want to make her portfolio simpler. In the case of my sister, she has no interest in retirement planning, so I set up her Roth IRA to be 100% of one of Vanguard's Target Retirement funds. It isn't the 100% best or 100% most tax-efficient choice, but she could do a lot worse and she prefer's to just make one deposit a year to max it out.

megabad
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Re: Portfolio advice for 26 year old

Post by megabad » Mon Jul 09, 2018 4:26 pm

josephfrancis wrote:
Mon Jul 09, 2018 9:29 am
Looking for advice for daughter. Employed by successful tech company that recently went public. $200k in stock options, more than adequate rainy day fund, $16k in Vanguard spread among Amazon, Salesforce, and VTSMX. Currently 8% into 401k with plans to increase % after recent raise. Will have @$1200 a month to invest. What are your recommendations?
Congrats to your daughter for her enviable financial position at 26. Some of the background info listed above would be great for her to review. In her specific case, I would likely exercise options as soon as possible after IPO and sell off, but I might split up if I was going to go over 24% bracket if the bargain component was significant. I am personally not of the buy and hold mentality with respect to IPOs; I would rather diversify into a broad index fund unless the tax consequences are severe. In my experience, startup 401ks are either very generous and beneficial or absolutely horrendous. If hers is the latter, I would go HSA, Roth IRA, then 401k, then megabackdoor Roth, then taxable. If not, then this order still works but I might switch the 401k a little earlier in the pecking order.

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Sandtrap
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Re: Portfolio advice for 26 year old

Post by Sandtrap » Mon Jul 09, 2018 4:38 pm

josephfrancis wrote:
Mon Jul 09, 2018 9:29 am
Looking for advice for daughter. Employed by successful tech company that recently went public. $200k in stock options, more than adequate rainy day fund, $16k in Vanguard spread among Amazon, Salesforce, and VTSMX. Currently 8% into 401k with plans to increase % after recent raise. Will have @$1200 a month to invest. What are your recommendations?
What funds are available to her?
To get more comprehensive suggestions, you can edit your original post in this format for her.
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

josephfrancis
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Re: Portfolio advice for 26 year old

Post by josephfrancis » Wed Jul 11, 2018 9:18 am

Thank you everyone for the advice. I will get a more detailed breakdown of her 401k investments when she visits in August. She lives in the UK and is an excellent saver but has had very little time to spend on analyzing her finances. She is now interested in getting a handle on it.

A few additional pieces of info, her company matches the first 5% in the 401k. Her income will most likely be over the limit for a Roth. She is also participating in a new employee stock purchase plan that comes with a 15% discount. She has a goal of buying a condo in the US city she hopes to return to and rent it out in the meantime. So, a hefty down payment will be required. Right now she pools her rainy day fund and additional cash in an online savings account garnering 2% interest. Does anyone have a better idea for her cash/condo down payment fund?

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ofcmetz
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Re: Portfolio advice for 26 year old

Post by ofcmetz » Wed Jul 11, 2018 9:39 am

josephfrancis wrote:
Wed Jul 11, 2018 9:18 am
Thank you everyone for the advice. I will get a more detailed breakdown of her 401k investments when she visits in August. She lives in the UK and is an excellent saver but has had very little time to spend on analyzing her finances. She is now interested in getting a handle on it.

A few additional pieces of info, her company matches the first 5% in the 401k. Her income will most likely be over the limit for a Roth. She is also participating in a new employee stock purchase plan that comes with a 15% discount. She has a goal of buying a condo in the US city she hopes to return to and rent it out in the meantime. So, a hefty down payment will be required. Right now she pools her rainy day fund and additional cash in an online savings account garnering 2% interest. Does anyone have a better idea for her cash/condo down payment fund?
I think an online savings account paying 2% interest is a perfect place for money that she is saving up for the down payment.

It really sounds like your daughter is doing well and off to a great start financially. If I were her father, I'd warn against lifestyle inflation. That means increasing your spending and standard of living with income increases. If she slowly increases her savings rate to a nice range like 20% or more with raises and puts the difference in a target retirement fund or a three fund portfolio then she will be in an excellent place.
Never underestimate the power of the force of low cost index funds.

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