Newbie with no idea where to invest

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eatpraylive
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Joined: Thu Sep 20, 2018 8:55 am

Newbie with no idea where to invest

Post by eatpraylive » Thu Sep 20, 2018 9:45 am

Hello all,

I'm 31 and am newbie to investing. I wish they had offered a course for this in college because it's one of the most difficult things I've had/am trying to learn.

I've been following the Mr. Money Mustache forum, Dave Ramseys shows, Tony Robins, and now this forum to learn more about investing. I would like to "retire" in 2 to 3 years once I'm able to live off the interest of my investments (using the 4% rule). I say "retire" because what that really means is my husband and I would continue working and having atleast some passive income but we would have the flexibility of choosing what job we take (be able to work remotely or work part time, etc.) I'm really confused about how to divide up my savings. I'm okay putting retirement funds in more aggressive funds since I'm not planning to retire for atleast another 35 to 40 years but would probably like something more moderate for funds that I might need for "early retirement".

I thought about hiring a financial advisor but would like to avoid it if possible. Any advice any of you can give me would be so helpful. Please don't judge me but right now I've kind of just randomly split money between different funds that I knew of through my research.

Here's our breakdown:

$25,000 emergency fund in a no penalty CD at 2%/year
$10,000 emergency fund in Vanguard Prime Money Market

Above is 7 months worth of emergency fund (Is that enough?)

$15,000 Vanguard Life Strategy Growth Fund
$24,000 Vanguard Mid Cap Growth Index Fund Admiral
$100,000 Vanguard Vanguard Total Stock Market Index Admiral

$250,000 in real estate investments

We have a home that is work about $290,000k with a 15 year mortgage at 3.5% of about $80k left on it (We thought about paying this off but figured we'd make more investing it somewhere else at a higher return. Do you agree?)

Retirement Savings:

$90,000 In traditional IRA (including 401k rollovers from previous employers)

$45,000 Vanguard Total Stock Market Index Fund Admiral Shares
$45,000 Vanguard Target Retirement 2060 Fund

$70,000 in Roth IRA
$15,000 Vanguard Emerging Market Stock
$20,000 Vanguard Mid Cap Growth Index Fund
$35,000 Vanguard Target Retirement 2060
Last edited by eatpraylive on Thu Sep 20, 2018 12:00 pm, edited 1 time in total.

PFInterest
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Re: Early Retirement Where to Invest

Post by PFInterest » Thu Sep 20, 2018 11:10 am

What is your annual savings and what is your projected portfolio size?

eatpraylive
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Re: Early Retirement Where to Invest

Post by eatpraylive » Thu Sep 20, 2018 11:38 am

After taxes this year we will save about 140k. Before this year over the last couple of years we were making quite a lot less and were saving about 40k to 70k a year. As a general rule of thumb we try to save at least 50% of our combined salary and adjust our living expenses accordingly. Using the 4% rule I've calculated that we will need about $1,250,000 a year with living expenses at about $50,000 a year.

Jordan4FI
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Re: Early Retirement Where to Invest

Post by Jordan4FI » Thu Sep 20, 2018 11:53 am

If you plan to work in some kind of way, then you do not really need 25x your expenses. That would be a good fail-safe safety net, but you would not need the full 25x to walk away from your current employment if you do not enjoy it. Also the 4% rule does not state that you use just the interest, but simply you take 4% of your full portfolio at start and then continue to take that amount with added inflation and it "should" last for 30 years.

Go look into the ChooseFI community www.choosefi.com great podcast and life optimization strategies. There maybe more education there for you to help your plan.

Jordan4FI
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Re: Early Retirement Where to Invest

Post by Jordan4FI » Thu Sep 20, 2018 11:57 am

How much "some" passive income do you want while you work? 20K? Then you only need 500K at 4%..

delamer
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Re: Early Retirement Where to Invest

Post by delamer » Thu Sep 20, 2018 12:05 pm

The 4% rule applies to portfolio survival for those in their 60’s.

In your early 30’s, a 2% to 2.5% withdrawal rate is needed to provide assurances of portfolio survival.

As pointed out earlier, the withdrawal rate is the percent of assets you can take from the portfolio. It is only somewhat related to the dividends/interest/capital gains thrown off by the portfolio. If your portfolio throws off 1.5% in income, than you’d have to sell 1.0% of your assets to get a 2.5% withdrawal rate, for example.

rkhusky
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Re: Early Retirement Where to Invest

Post by rkhusky » Thu Sep 20, 2018 12:08 pm

To begin with, put all IRA's into TR 2060 (or something earlier if you want to be more conservative). If you expect to not tap the taxable account for 10+ years, then move the LS and MidCap funds to Total Stock Market, if the cap gain taxes aren't too large (0% if you remain in the 12% bracket). That will simplify things considerably.

You need a more detailed analysis of your expected income and expenses in "retirement".

There are penalties for taking money out of a Traditional IRA and for taking earnings out of a Roth IRA before 59.5.

The "4%" rule is just a rule of thumb and may not be applicable for a significant early retirement.

What are the real estate investments (e.g. rental properties that will provide income or property that you expect to sell)?
Last edited by rkhusky on Thu Sep 20, 2018 12:12 pm, edited 2 times in total.

eatpraylive
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Re: Newbie with no idea where to invest

Post by eatpraylive » Thu Sep 20, 2018 12:10 pm

Thank you all for your feedback. I did not realize I was calculating the 4% rule incorrectly. Already learning a lot.

Jordan4FI
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Re: Newbie with no idea where to invest

Post by Jordan4FI » Thu Sep 20, 2018 12:15 pm

I would not call you a newbie, look at the amount you have in Vanguard and Real Estate, that did not just happen by accident, you know what you are doing. Also pay off the house, no payment and waking away from a steady income is the best scenario.

I would lose the Mid Cap and put that into Small Cap or right into the VTSAX, the Mid's are doing much a equity shift. Then find out what Asset Allocation you are comfy with, you may want to add a bond level to ease the turbulence while you are not working full time, but you will sacrifice the bigger gains. Target Dates are good, I am in 2 myself. the LifeStrategy Funds are solid, if you feel good on a the sets they offer.

If not, go with the standard the Bogleheads teach, Total Stock, Total Bond and Total International (if you want).. and then allocate a % of each and re-balance that annually or at the time you feel it is right.

rgs92
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Re: Newbie with no idea where to invest

Post by rgs92 » Thu Sep 20, 2018 12:24 pm

Actually, even though it is kind of a randomly distributed portfolio you have, it is pretty well OK.
You could easily let it ride and do well. Maybe put all future contributions into Vang. balanced index and leave the rest alone.
Good luck.

eatpraylive
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Re: Newbie with no idea where to invest

Post by eatpraylive » Thu Sep 20, 2018 12:44 pm

Thank you Jordan. I thought I was doing okay but when I started listening to Dave Ramsey and how you can make an average of 12%/yr and I realized I had a ton of cash just sitting in a bank and did not even know the logins to my IRA or 401k accounts that my dad insisted I contribute to when I started working and was no where close to earning interest like that I started to get overwhelmed and hit a low. I'd like to think I pick up and learn stuff pretty quickly but with investments the more I'm learning the more confused I'm getting since there never is a straight answer. I like the idea of adding in a bond level. I'll look into that. Thank you for your help! Much appreciated.

Jack FFR1846
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Re: Newbie with no idea where to invest

Post by Jack FFR1846 » Thu Sep 20, 2018 1:01 pm

So I can't help but first comment on Dave Ramsey. Although he is absolutely the right guy to get you out of debt when you don't understand how you could be overdrafted because you still have checks in your checkbook. But he is dead wrong on investing. He has a huge conflict of interest, getting money from the high cost financial advisor network he recommends selling high cost funds. He pulls 12% out of the air and since that was the first number he ever pulled out of the air, he refuses to change it. Sorry.....you're past Dave's usefulness. Time to discard him completely.

There are 3 things in "FIRE". The important thing, in my mind is the FI, or financially independent. This is the big thing with MMM. Pete has never retired, nor have a lot of his followers. He's become financially able to not work the big pay tech job he had. He can instead take a year and pretend to be a home builder, while ending up with $0 for that year of work. Also be aware that the 4% rule works for a 30 year period using a 60/40 asset allocation. Many MMM followers seem to think that their 26 year old self can live off that 4% until they hit 100 years old. No. Sorry.

The RE or retire early part is in my opinion unimportant. It's also a misused term on MMM. Most members there aren't completely not working......although a few are. They're more backpedaling. Working jobs they either like better, always wanted to try or where if they decide tomorrow that that awesome job driving a dump truck actually does suck...they can just not show up for work anymore.

Jack Bogle is pretty famous for saying "you get for what you don't pay for", which means costs matter. This is where your buddy Dave Ramsey hasn't got a clue. Look at the ER. Don't pay some clown to "manage your money" (aka...manage to take some of your money for himself).
Bogle: Smart Beta is stupid

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ruralavalon
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Re: Newbie with no idea where to invest

Post by ruralavalon » Thu Sep 20, 2018 1:37 pm

Welcome to the forum :) .

Some additional information will be useful. Please see this for format: "Asking Portfolio Questions". You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.


eatpraylive wrote:
Thu Sep 20, 2018 9:45 am
'm 31 and am newbie to investing. I wish they had offered a course for this in college because it's one of the most difficult things I've had/am trying to learn.

I've been following the Mr. Money Mustache forum, Dave Ramseys shows, Tony Robins, and now this forum to learn more about investing.
I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give at the end.


eatpraylive wrote:
Thu Sep 20, 2018 9:45 am
I would like to "retire" in 2 to 3 years once I'm able to live off the interest of my investments (using the 4% rule). I say "retire" because what that really means is my husband and I would continue working and having atleast some passive income but we would have the flexibility of choosing what job we take (be able to work remotely or work part time, etc.) I'm really confused about how to divide up my savings. I'm okay putting retirement funds in more aggressive funds since I'm not planning to retire for atleast another 35 to 40 years but would probably like something more moderate for funds that I might need for "early retirement".
Dou you have desired asset allocation for long-term/retirement investing?


eatpraylive wrote:
Thu Sep 20, 2018 9:45 am
I thought about hiring a financial advisor but would like to avoid it if possible. Any advice any of you can give me would be so helpful. Please don't judge me but right now I've kind of just randomly split money between different funds that I knew of through my research.

Here's our breakdown:

$25,000 emergency fund in a no penalty CD at 2%/year
$10,000 emergency fund in Vanguard Prime Money Market

Above is 7 months worth of emergency fund (Is that enough?)
That's likely enough.

Do you have any debt? If so what types, amounts and interest rates?

Do you have any dependents? Do you have a my large financial needs, other than for retirement spending?

How secure is your job, your employer and the industry that you work in?


eatpraylive wrote:
Thu Sep 20, 2018 9:45 am
$15,000 Vanguard Life Strategy Growth Fund
$24,000 Vanguard Mid Cap Growth Index Fund Admiral
$100,000 Vanguard Vanguard Total Stock Market Index Admiral
Are these investments in a tax-advantaged or taxable account? Is this a joint account?

What is the unrealized capital gain or loss status in each fund?

What is your tax bracket, both federal and state?

What is your tax filing status?

In a taxable account I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Both are very tax-efficient. Wiki article "Tax-efficient fund placement". Those funds are also well suited to any type of account. Both are very diversified with very low expense ratios


eatpraylive wrote:
Thu Sep 20, 2018 9:45 am
We have a home that is work about $290,000k with a 15 year mortgage at 3.5% of about $80k left on it (We thought about paying this off but figured we'd make more investing it somewhere else at a higher return. Do you agree?)
In my opinion it's reasonable to pay off your mortgage note at the regular rate, rather than pay it off entirely now.


eatpraylive wrote:
Thu Sep 20, 2018 9:45 am
Retirement Savings:

$90,000 In traditional IRA (including 401k rollovers from previous employers)

$45,000 Vanguard Total Stock Market Index Fund Admiral Shares
$45,000 Vanguard Target Retirement 2060 Fund

$70,000 in Roth IRA
$15,000 Vanguard Emerging Market Stock
$20,000 Vanguard Mid Cap Growth Index Fund
$35,000 Vanguard Target Retirement 2060
Who is the owner of each IRA? Are both IRAs at Vanguard?

Do you also have work-based accounts like 401ks, 403bs, 457s, SIMPLE IRAs or TSPs? If so what investments do you currently have in each? And what other funds are offered in each, giving fund names, tickers and expense ratios? Please see this for format: "Asking Portfolio Questions". You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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bigROI
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Re: Newbie with no idea where to invest

Post by bigROI » Thu Sep 20, 2018 2:17 pm

eatpraylive wrote:
Thu Sep 20, 2018 12:44 pm
Thank you Jordan. I thought I was doing okay but when I started listening to Dave Ramsey and how you can make an average of 12%/yr and I realized I had a ton of cash just sitting in a bank and did not even know the logins to my IRA or 401k accounts that my dad insisted I contribute to when I started working and was no where close to earning interest like that I started to get overwhelmed and hit a low. I'd like to think I pick up and learn stuff pretty quickly but with investments the more I'm learning the more confused I'm getting since there never is a straight answer. I like the idea of adding in a bond level. I'll look into that. Thank you for your help! Much appreciated.
Its good Ramsey got you motivated but 12% per year is pie in the sky and it does happen but so do corrections. What will you do when things drop 40-50%, if nothing/keep the course then you have the right mentality but if you would react make sure to balance and back stop your holdings with some bonds or more securities of some sort so you can buy in on a correction phase when stocks go on sale.
A penny saved is much more then a penny earned when you consider the tax/SS/medicare cut.

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ruralavalon
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Re: Newbie with no idea where to invest

Post by ruralavalon » Thu Sep 20, 2018 3:37 pm

bigROI wrote:
Thu Sep 20, 2018 2:17 pm
eatpraylive wrote:
Thu Sep 20, 2018 12:44 pm
Thank you Jordan. I thought I was doing okay but when I started listening to Dave Ramsey and how you can make an average of 12%/yr and I realized I had a ton of cash just sitting in a bank and did not even know the logins to my IRA or 401k accounts that my dad insisted I contribute to when I started working and was no where close to earning interest like that I started to get overwhelmed and hit a low. I'd like to think I pick up and learn stuff pretty quickly but with investments the more I'm learning the more confused I'm getting since there never is a straight answer. I like the idea of adding in a bond level. I'll look into that. Thank you for your help! Much appreciated.
Its good Ramsey got you motivated but 12% per year is pie in the sky and it does happen but so do corrections. What will you do when things drop 40-50%, if nothing/keep the course then you have the right mentality but if you would react make sure to balance and back stop your holdings with some bonds or more securities of some sort so you can buy in on a correction phase when stocks go on sale.
I agree.

Ramsey's 12% return is not realistic at all for an annual average portfolio return.

He is good for guidance on budgeting and getting out of debt, but not (in my opinion) a good resource on investing issues.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Jordan4FI
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Re: Newbie with no idea where to invest

Post by Jordan4FI » Thu Sep 20, 2018 4:07 pm

Vanguard Index 500 is average of 11.05% since 1976, VTSMX 9.72% since 1992, Wellington 8.26% since 1929 although I am not totally on Ramsey's side, he just states the averages (of his funds usually). Average is average if a fund has an average of 12% or 9% or 3% that is what you should expect until you see it drop or rise given it has been on a longer recorded timeline. A fund that has averaged 10% for more than 50 years seems like a pretty good chance it stays close, so why not use 8-9-10% with your calculations. Investing is a game of averages.. and you can adjust as the averages go up and as they go down..

delamer
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Re: Newbie with no idea where to invest

Post by delamer » Thu Sep 20, 2018 4:23 pm

Jordan4FI wrote:
Thu Sep 20, 2018 4:07 pm
Vanguard Index 500 is average of 11.05% since 1976, VTSMX 9.72% since 1992, Wellington 8.26% since 1929 although I am not totally on Ramsey's side, he just states the averages (of his funds usually). Average is average if a fund has an average of 12% or 9% or 3% that is what you should expect until you see it drop or rise given it has been on a longer recorded timeline. A fund that has averaged 10% for more than 50 years seems like a pretty good chance it stays close, so why not use 8-9-10% with your calculations. Investing is a game of averages.. and you can adjust as the averages go up and as they go down..
But to use even a number like 10% return — much less 12% — you are assuming 100% in stocks.

Jordan4FI
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Re: Newbie with no idea where to invest

Post by Jordan4FI » Thu Sep 20, 2018 4:26 pm

delamer wrote:
Thu Sep 20, 2018 4:23 pm
Jordan4FI wrote:
Thu Sep 20, 2018 4:07 pm
Vanguard Index 500 is average of 11.05% since 1976, VTSMX 9.72% since 1992, Wellington 8.26% since 1929 although I am not totally on Ramsey's side, he just states the averages (of his funds usually). Average is average if a fund has an average of 12% or 9% or 3% that is what you should expect until you see it drop or rise given it has been on a longer recorded timeline. A fund that has averaged 10% for more than 50 years seems like a pretty good chance it stays close, so why not use 8-9-10% with your calculations. Investing is a game of averages.. and you can adjust as the averages go up and as they go down..
But to use even a number like 10% return — much less 12% — you are assuming 100% in stocks.
To which he does, and he only recommends 100% stock 95% of the time

Living Free
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Re: Newbie with no idea where to invest

Post by Living Free » Thu Sep 20, 2018 7:42 pm

I would agree with what's been said above:

1) For your taxable/brokerage account, focus on tax efficient funds. This in general would include the total US or total international stock market funds. You already have the former but you also have the life-strategy and the mid cap growth funds; I'd think about re-locating those funds to within your tax advantaged/retirement accounts if you decide to keep them (the life-strategy has bonds and I presume it also needs to re-balance periodically, which might include selling some investments and thus triggering some capital gains)

2) Come up with an asset allocation plan that you're comfortable with and then construct it based upon tax efficient fund placement and what funds are available in your retirement accounts. As a personal example, I don't have an international stock index fund in my 403b at work, so I invest more in my total international stock index fund in my taxable/brokerage account (or alternatively if needed I could do that in my roth IRA).

3) You have some balanced funds/funds of funds such as the target date and life-strategy funds. I think these are good funds from vanguard and I hold some of the target date funds myself. However it does sort of complicate my overall asset allocation (particularly when you need to invest in a taxable account and focus on tax efficiency, and you don't have optimal investment options in each account (such as my example above with the lack of international index stock fund in my work retirement plan)). So I might eventually get out of the target date fund and try to simplify with a 3-4 fund portfolio of broad market index funds, only keeping a target date fund in accounts that have relatively low balances.

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