28 starting from scratch, 35k windfall, need help!

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Fireguy08
Posts: 3
Joined: Wed Jul 11, 2018 10:02 am

28 starting from scratch, 35k windfall, need help!

Post by Fireguy08 » Wed Jul 11, 2018 10:28 am

Hello Everyone,

I am seeking advice from all of you, I have been making calls and interviewing CFP's to get my started on my voyage of being FIRE. I came under a windfall of money and looking to make the correct initial steps for my FIRE future. I am single, 28 years old, no kids and my expenses are around 1200 monthly. I have taken on a new job working from home where I am a 1099 contractor working as my own entity where I'll be making lump sums of payments ranging from 7k-30k with no cap. Goal is to be part-time retired, this new job is what I have been looking for to minimize time and effort while increasing pay. I am starting from scratch, I have no 401k no other IRA, I do have 1900 in my RobinHood account that I have been toying around with the market, up 40% since starting in December. I have been doing research, listening to podcasts, reading books for the past few months since I've come into the 35k on where I should take it. I want to create a plan and work it backwards and make sure I am taking the initial steps towards that plan correctly. I have a high risk tolerance so I had it made up I would put the majority into index funds. I want to see what would be the best investment vehicle for myself and any other information to help me. I keep seeing/hearing Vanguard Target Retirement Funds is the best bet starting out. Also I wanted to get with a CFP so I could build that plan and obtain it, I know my goals and plan but I wanted the professional assistance--do you think this is a waste of time? I am starting to overwhelm myself, but I am thinking I may just be overthinking things. Any guidance for someone who is young, single, with very little expenses looking to be FIRE with travel in mind would be greatly appreciated.


Emergency funds: Three months
Debt: Student loans --- I am going to call and pay down a majority, targeting the higher interest rates
Tax Filing Status: Single
Tax Rate: I am in a low tax bracket, previously made $50k, I shouldn't make below $60k moving forward--targeting $100k
State of Residence: FL
Age: 28
Desired Asset allocation: xx% stocks / xx% bonds --- I feel 100% stocks at the moment.
Desired International allocation: xx% of stocks 15%-25%?

Storamin
Posts: 10
Joined: Sun Jan 15, 2017 6:25 am
Location: Düsseldorf, Germany

Re: 28 starting from scratch, 35k windfall, need help!

Post by Storamin » Wed Jul 11, 2018 12:07 pm

A CFP is fine to get if you want to. Make sure you do your research and ask how they make money. A fee only CFP is fine. But honestly speaking, you can build a simple portfolio yourself without their help if you read the forums here.

Do you want to play the market or do you want to be a long term investor for retirement? If you want to play the market, you can get better advice elsewhere. Most people here would suggest not to try timing the market or if playing the market, in a very small % of your total portfolio.

What you can use as a very simple plan is a Vanguard Target Retirement 2050 or 2055 (depending on when you plan on retirement). However, this is just a holding of 4 separate funds behind it (US Stock Market, International Stock Market, US Bonds, International Bonds). Most people here just purchase the individual funds themselves. A good basics for setting up a simple portfolio is here:
https://www.bogleheads.org/wiki/Three-fund_portfolio

With a 1099 job and the uncertainty that comes along with it - are you comfortable with a 3 month Emergency Fund? Others would suggest 6 months.

I am 31 and have a 90% stock / 10% bond allocation. Others would recommend anywhere from 100% stock maybe down to 80% stock.

US Stocks have made anywhere from 30% of total stocks up to 55% of total world stock indexes in the last few years. The question is - why do you want international stocks? If it's solely for diversification, you may see recommendations anywhere from 0% to 50%. Your range of 15% to 25% international is fine.

Where do you want to save the money? Will it be in a taxable account, or have you looked into an IRA or a ROTH IRA? My suggestion would be to set up a IRA first and fund that, then put the rest into your taxable account.

EnthusiasticLearner
Posts: 78
Joined: Fri Dec 18, 2015 9:18 am
Location: North

Re: 28 starting from scratch, 35k windfall, need help!

Post by EnthusiasticLearner » Wed Jul 11, 2018 12:26 pm

I'd put $5500 into a Roth in Vanguard Total Stock Mkt Idx Inv VTSMX tomorrow (lump sum investing questions? read this: https://personal.vanguard.com/pdf/s315.pdf) then pay off your student loans the day after that. Pay off other debts like an emergency and save every dollar you can in tax advantaged retirement space. Good luck.

Fireguy08
Posts: 3
Joined: Wed Jul 11, 2018 10:02 am

Re: 28 starting from scratch, 35k windfall, need help!

Post by Fireguy08 » Wed Jul 11, 2018 12:30 pm

I will do it myself, I've realized I'll be paying for the same advice I can get from my own research.

I am looking to invest for long term retirement purpose.

Currently at 3 month EF but I've been reading 6-12, so I will put more towards that.

Yes, I figured International for diversification but it seems that the three-fund portfolio has been very generous to most folks here.

This is where I am a bit confused, so open up the Roth IRA and use that to invest in the Vanguard Target Retirement?

And when you say taxable account do you mean my bank account? ( I would save money/self-employment taxes in an Ally account)

My target is to contribute $1200 to my investment.

inverter
Posts: 84
Joined: Mon Jul 27, 2015 1:40 pm

Re: 28 starting from scratch, 35k windfall, need help!

Post by inverter » Wed Jul 11, 2018 12:51 pm

First of all, I would highly recommend you sit on your finances (at least investment-wise) for a month and do nothing. Relax, research, read these forums, and develop an investment strategy/thesis. I wish I had done that before making many impulsive decisions on my finances.

Several observations:

1) As a 1099, your cash flow will ebb and flow and overall be a critical element to you "staying the course" with the investment thesis you make above. I would suggest increasing your emergency fund to 6 - 12 months (perhaps with the windfall) and use something like YNAB (youneedabudget.com) to help you track your expenses and save properly for self employment taxes.

2) You do not need a CFP with your (relatively) unsophisticated finances and low net worth. I would understand a CFP for high net worth individuals or complex trust issues. You have neither. Slow down and you should be able to get the answers on this forum.

3) With your windfall, I would suggest paying off your student loans (depending on the interest rate -- you didn't mention the amount or interest rates) and then contribute $5,500 to a Roth IRA for 2017.

4) Your Robinhood may or may not fit into the asset allocation you decide with your investment thesis. I would consider transferring the account to Vanguard and moving that money into a three fund portfolio.

Let us know if there is anything else we can help you with.

inverter
Posts: 84
Joined: Mon Jul 27, 2015 1:40 pm

Re: 28 starting from scratch, 35k windfall, need help!

Post by inverter » Wed Jul 11, 2018 12:54 pm

Fireguy08 wrote:
Wed Jul 11, 2018 12:30 pm
This is where I am a bit confused, so open up the Roth IRA and use that to invest in the Vanguard Target Retirement?

And when you say taxable account do you mean my bank account? ( I would save money/self-employment taxes in an Ally account)

My target is to contribute $1200 to my investment.
Per my previous post, I would first recommend slowing down, learning more, and creating an investment thesis.

In your Roth IRA, I would recommend a two or three fund portfolio, as opposed to target date, consisting of Vanguard Total Stock Market (VTSMX) and Vanguard Total International Stock Market (VGTSX) with the allocation you decide on. If you decide you want bonds, then add Vanguard Total Bond Market.

Taxable means an account which is subject to capital gains taxes (a tax on an increase in an asset's value). HSA, 401k, IRAs, etc. are considered tax deferred or tax free accounts, as they are not subject to income tax, capital gains taxes, etc. depending on the specific account's nature. Your Robinhood account, for example, is considered taxable, since if you sell the stocks in the account, it may be subject to capital gains.
Last edited by inverter on Wed Jul 11, 2018 11:32 pm, edited 2 times in total.

Fireguy08
Posts: 3
Joined: Wed Jul 11, 2018 10:02 am

Re: 28 starting from scratch, 35k windfall, need help!

Post by Fireguy08 » Wed Jul 11, 2018 1:32 pm

After my emergency fund and student loan pay off, upon having a investment thesis written out--I should only have a Roth IRA Two Fund or Three Fund Portfolio consisting of VTSMX and VGTSX? If I max the Roth out with the $5,500 for 2017 where should I put the rest of the money?

Robinhood account was just a way for me to learn, I will be looking to transfer that into my long term portfolio.

Thank you for answering basic questions, it's easier for me to understand while I also continue to do research. Thank you for understanding.

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