Advice for a young boglehead?

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Young Boglehead
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Advice for a young boglehead?

Post by Young Boglehead » Thu Jan 03, 2019 10:50 am

Hi guys,

This is my first post here, looking to see if my plans seem reasonable.

I am 23 years old, and recently read the Common Sense Guide to Investing, and the whole philosophy really resonated with me. As such, I realized that I should start saving now to best prepare myself for retirement.

Since I am young, I figured that I would go 100% VTSAX until I was maybe 40, at which point I would reconsider my asset allocation to account for my shorter time horizon until retirement. As of now, I am maxing out my Roth IRA and investing $1400/mo, half my income (self-employed so no 401k), while I am living at home. I am currently in the medical school application process and will possibly be attending come this August, or I might have to reapply and delay another year.

At 24, at the beginning of medical school (hoping), I will have approximately 28k all in VTSAX... from that point on I will invest 5500 to max my Roth IRA during medical school, continuing into residency and hoping to match 401k then too. Then, as a physician, I'd ramp up my investing, obviously...

So, does that plan seem reasonable? Am I missing anything huge? I will probably have to take out loans for all of med school, so I was originally wondering if I should save up money to reduce my loan burden, but then I realized that I'd probably get a better return in the stock market over the long run, and I'd rather have a lot of money and owe more loans than have less money and owe less loans when I eventually kick the bucket...

Thanks a lot for any advice you have!

bloom2708
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Re: Advice for a young boglehead?

Post by bloom2708 » Thu Jan 03, 2019 2:19 pm

23 to 40 is too far out to plan much.

100% Total US stock index is within the reasonable zone for your Roth IRA.

You are leaving out broad chunks of the market. A Target Date 2060 fund would have US, International stocks and US and International bonds. Only about 5% bonds but gradually adding bonds.

I can't tell if you are an undergrad and will be going to medical school. For now, if you have earned income of >$6,000 in 2019, then try to get to the $6k Roth IRA limit. If you want to stay 100% stocks and not use a Target Date fund, then add Total International (VTIAX) to your Total US position. 70/30 or 80/20 ratio.

You have many winding paths ahead, school, marriage, kids, houses, cars, student loans. As your investments grow, you no longer have to be 100% stocks, so making a plan to 40 is too far out.

Spend time here learning about the Boglehead principles. Read interesting threads. Go slow. Plans will form as you get a 401k/403b, HSA, start a taxable account. Med school is a long/tough journey, so focus on getting good grades and learning the skills.

Welcome and good luck!
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
Young Boglehead
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Re: Advice for a young boglehead?

Post by Young Boglehead » Thu Jan 03, 2019 5:19 pm

Thanks a lot! Definitely appreciate your advice. To clarify, I am out of undergrad and fortunately have no loans.

I hear you about the diversification, but I thought that only total stock market had enough international diversification by the nature of international businesses in it? Or is that wrong?

KlangFool
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Re: Advice for a young boglehead?

Post by KlangFool » Thu Jan 03, 2019 6:09 pm

Young Boglehead wrote:
Thu Jan 03, 2019 10:50 am

(self-employed so no 401k),
Young Boglehead,

It is even better. You can have your own 401K. And, you can contribute more and save more.

https://www.bogleheads.org/wiki/Solo_401(k)_plan

KlangFool

Topic Author
Young Boglehead
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Re: Advice for a young boglehead?

Post by Young Boglehead » Wed Jan 09, 2019 12:35 am

Thanks a lot! I didn't even realize that... after maxing out my Roth, I just made a new taxable account. Thats silly right? I should move my holdings their into a Roth 401k, even if I have to sell and re-buy in the 401k?

tibbitts
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Re: Advice for a young boglehead?

Post by tibbitts » Wed Jan 09, 2019 12:43 am

KlangFool wrote:
Thu Jan 03, 2019 6:09 pm
Young Boglehead wrote:
Thu Jan 03, 2019 10:50 am

(self-employed so no 401k),
Young Boglehead,

It is even better. You can have your own 401K. And, you can contribute more and save more.

https://www.bogleheads.org/wiki/Solo_401(k)_plan

KlangFool
Well, except for not having a match.

Ndop
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Re: Advice for a young boglehead?

Post by Ndop » Wed Jan 09, 2019 2:44 am

I recommend reading some of the many threads here about medical careers. It's not for everyone, and can be a poor financial investment depending on education costs and specialty chosen.

There are also many threads on how much international exposure to have. No clear right answer.

I agree with Klangfool; a Solo 401k makes sense for you. Seems like you are in a low tax bracket, so liquidating your taxable account will probably not cost much tax-wise.

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BoglePaul
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Re: Advice for a young boglehead?

Post by BoglePaul » Wed Jan 09, 2019 6:21 am

See an accountant / tax person about this strategy. My friend went to medical school in his 20's and this is the strategy he wish he did:

Unsure about your current salary, but if it is in the 25% tax bracket, the sock away as much as u can in a Traditional IRA / 401k. Then wait a year and take the funds out or roll them into a Roth IRA during your second year at medical school. Your income should be $0 that year so you will pay 10% tax penalty on the withdrawal / rollover there by saving 15% in taxes on your income.

Maybe have friends / family contribute to a 529 plan at their high tax rate, then withdraw the money for school use two years later. If your parents are in the 25% bracket, the funds will come out of the 529 plan with 0%, big savings.

chw
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Re: Advice for a young boglehead?

Post by chw » Wed Jan 09, 2019 6:39 am

YB, I would suggest reading the book "If You Can" by William Bernstein. It is an excellent book geared to the young investor, and in true Boglehead style, is offered free is a Kindle download. It's an easy and quick read, and covers most if not all of the questions you would have regarding investing at this stage of your life. Dr. Bernstein is also a Boglehead, who has attendend many of the BH conferences in the past. Dr. Bernstein is a retired neurologist, and founded an investment management firm in retirement. He is an author of several excellent books on investing, but the book suggested would be a good starting point for you at this time.

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Watty
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Re: Advice for a young boglehead?

Post by Watty » Wed Jan 09, 2019 6:58 am

Young Boglehead wrote:
Thu Jan 03, 2019 10:50 am
Am I missing anything huge?
If you get into medical school you will have a long grueling time before you can resurface and get on with your life.

Keeping a good "work/life" balance is important so you might budget some of the money to do things like traveling before you start medical school since it will be a long time until you have a chance to do things like that again.

Saving the money now is really the most important in case you don't get to medical school. If that happens then having the money in a taxable account could real handy for things like a home down payment when you you are 30. (There is not hurry to buy a house!)

The problem with lots of retirement savings now is that if you do become a doctor with a high income then your current savings might not make a lot of difference by the time you are 65 since you should be really financially secure by then anyway. Having more money in a Roth might save you some taxes then but the net effect would likely just be that you leave a larger estate some day.

I would just keep maxing out the Roth and saving in the taxable account. You might need that money to do something like buy a car or pay the rent when you are in med school.

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climber2020
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Re: Advice for a young boglehead?

Post by climber2020 » Wed Jan 09, 2019 7:09 am

Young Boglehead wrote:
Thu Jan 03, 2019 10:50 am
Hi guys,

This is my first post here, looking to see if my plans seem reasonable.

I am 23 years old, and recently read the Common Sense Guide to Investing, and the whole philosophy really resonated with me. As such, I realized that I should start saving now to best prepare myself for retirement.

Since I am young, I figured that I would go 100% VTSAX until I was maybe 40, at which point I would reconsider my asset allocation to account for my shorter time horizon until retirement. As of now, I am maxing out my Roth IRA and investing $1400/mo, half my income (self-employed so no 401k), while I am living at home. I am currently in the medical school application process and will possibly be attending come this August, or I might have to reapply and delay another year.

At 24, at the beginning of medical school (hoping), I will have approximately 28k all in VTSAX... from that point on I will invest 5500 to max my Roth IRA during medical school, continuing into residency and hoping to match 401k then too. Then, as a physician, I'd ramp up my investing, obviously...

So, does that plan seem reasonable? Am I missing anything huge? I will probably have to take out loans for all of med school, so I was originally wondering if I should save up money to reduce my loan burden, but then I realized that I'd probably get a better return in the stock market over the long run, and I'd rather have a lot of money and owe more loans than have less money and owe less loans when I eventually kick the bucket...

Thanks a lot for any advice you have!
If the whole med school thing does work out, don't stress out about saving too much while you're in school. Once you get out and make your real income, the amount you'll be able to save & invest will dwarf anything you're able to do now. This doesn't mean you should spend all your money frivolously, but if you have the choice between backpacking across Peru with a buddy after your board exams vs maxing out your Roth, take the trip because opportunities like that may never come up again.

2015
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Re: Advice for a young boglehead?

Post by 2015 » Wed Jan 09, 2019 10:04 pm

If my career had anything to do with investing I would read The White Coat Investor's site and blog. I've never had anything to do with medicine as a career and TWCI's blog is one of the very few I still subscribe to.

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StormShadow
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Re: Advice for a young boglehead?

Post by StormShadow » Wed Jan 09, 2019 10:29 pm

My 2 cents as a practicing doc.
Young Boglehead wrote:
Thu Jan 03, 2019 10:50 am
Since I am young, I figured that I would go 100% VTSAX
Perfectly fine. A lot of bogleheads are proponents of keeping your portfolio simple.
Young Boglehead wrote:
Thu Jan 03, 2019 10:50 am
I am currently in the medical school application process and will possibly be attending come this August
Good luck! :beer
Young Boglehead wrote:
Thu Jan 03, 2019 10:50 am
At 24, at the beginning of medical school (hoping), I will have approximately 28k all in VTSAX... from that point on I will invest 5500 to max my Roth IRA during medical school, continuing into residency and hoping to match 401k then too. Then, as a physician, I'd ramp up my investing, obviously...
This is basically what I did... except I was a late bloomer for med school.
Young Boglehead wrote:
Thu Jan 03, 2019 10:50 am
So, does that plan seem reasonable? Am I missing anything huge? I will probably have to take out loans for all of med school, so I was originally wondering if I should save up money to reduce my loan burden, but then I realized that I'd probably get a better return in the stock market over the long run, and I'd rather have a lot of money and owe more loans than have less money and owe less loans when I eventually kick the bucket...
Would you be interested in being a military physician? If so, look into HPSP which I think is an amazing opportunity. I wish I did it. Medical school loans will be paid for by the government plus you'll receive a small stipend. You serve as a military physician, basically a year per year of student tuition that was covered. You would start your medical career as an O3 (i.e. Captain in Air Force/Army, Lieutenant in Navy). Potential negatives... well, you're in the military so you may not get your first choice of deployment/assignment. Some subspecialties may be more difficult to get into.

If you decide to stay the civilian route... I would borrow as few student loans as possible. Live like a resident until your loans are paid off.

Topic Author
Young Boglehead
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Re: Advice for a young boglehead?

Post by Young Boglehead » Thu Jan 10, 2019 1:32 pm

Thanks a lot for all the responses! They are truly appreciated.
Ndop wrote:
Wed Jan 09, 2019 2:44 am
I recommend reading some of the many threads here about medical careers. It's not for everyone, and can be a poor financial investment depending on education costs and specialty chosen.

I agree with Klangfool; a Solo 401k makes sense for you. Seems like you are in a low tax bracket, so liquidating your taxable account will probably not cost much tax-wise.
I've been out of school for about 1.5 years now, and really had a lot of time to think about this decision. I was somewhat hesitant at the time I applied, but now feel that I've gotten a lot of clarity and know what I want to do with my life.

And yes, I am in a ridiculously low tax bracket (probably under the 12k deduction), so I will face extremely little tax consequences. In addition, I've lost some money since I invested. Capital losses!
chw wrote:
Wed Jan 09, 2019 6:39 am
YB, I would suggest reading the book "If You Can" by William Bernstein.
Definitely going to take al look at it, thanks! Actually, I am particularly interested in neurology, so maybe Bernstein will be my new inspiration... I know that Mr. Bogle quotes him, so he must be good. Thanks for the recommendation!
Watty wrote:
Wed Jan 09, 2019 6:58 am
The problem with lots of retirement savings now is that if you do become a doctor with a high income then your current savings might not make a lot of difference by the time you are 65 since you should be really financially secure by then anyway. Having more money in a Roth might save you some taxes then but the net effect would likely just be that you leave a larger estate some day.

I would just keep maxing out the Roth and saving in the taxable account. You might need that money to do something like buy a car or pay the rent when you are in med school.
climber2020 wrote:
Wed Jan 09, 2019 7:09 am
If the whole med school thing does work out, don't stress out about saving too much while you're in school. Once you get out and make your real income, the amount you'll be able to save & invest will dwarf anything you're able to do now. This doesn't mean you should spend all your money frivolously, but if you have the choice between backpacking across Peru with a buddy after your board exams vs maxing out your Roth, take the trip because opportunities like that may never come up again.
I recently made this realization too. If I can follow through with my plan as a physician the saving I can do now will result in a relative pittance by retirement. I calculated that I've invested about 75% of the income I've made in the past year, and I'm realizing that it might be unnecessary. Definitely something to consider, but probably better I invest it than spend it too frivolously regardless...

In addition, fortunately, I recently got into the little hobby of "churning" and will have about 3k in flight bonuses from CCs soon. With scottscheapflights (highly recommend you guys take a look) ill be able to go on a nice number of vacations. Currently planning on like a month in Europe this June actually.
StormShadow wrote:
Wed Jan 09, 2019 10:29 pm
Would you be interested in being a military physician? If so, look into HPSP which I think is an amazing opportunity. I wish I did it. Medical school loans will be paid for by the government plus you'll receive a small stipend. You serve as a military physician, basically a year per year of student tuition that was covered. You would start your medical career as an O3 (i.e. Captain in Air Force/Army, Lieutenant in Navy). Potential negatives... well, you're in the military so you may not get your first choice of deployment/assignment. Some subspecialties may be more difficult to get into.

If you decide to stay the civilian route... I would borrow as few student loans as possible. Live like a resident until your loans are paid off.
I very briefly considered this, but what I read seemed to indicate that, if you wouldn't have considered the military otherwise, don't do it just as a physician... and I can say that I am literally the last person who would have ever been in the military otherwise.

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