Graduate student looking for financial advice

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young
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Graduate student looking for financial advice

Post by young » Fri Feb 01, 2019 3:49 pm

Hello, I'm a 22 year old, first year graduate student (and first-time Bogleheads user) looking for some help in regards to setting myself up financially. As a graduate student, I will likely be in school for another four years and do not intend on making any significant purchases before graduation.

I have roughly $15k in savings and recently started a Roth IRA. For now, I have about 85% in Fidelity's OTC portfolio (FOCPX), 5% in Fidelity total bond (FTBFX), and 10% in Fidelity 500 index fund (FXAIX) I have a small 401k from a summer job, with all of it being in NT S&P 500 index (66586U718).

It is very important to me to keep an emergency fund that will last me 3-6 months, but I am interested in putting some of it in a very safe and liquid investment. After all, it's currently earning virtually no interest in my savings account right now. I make about $2k/month, so at minimum I would need $6k in this emergency fund.

As for the rest of it, I would like to have some money to start a car or house fund for when I get out of graduate school.

I am very new to the world of investments and am happy to listen and learn from more experienced users. If you were my age, what would you do? I definitely have some tolerance for risk and want to set myself up for the future, even though I don't have much.

Thank you very much for your time.

ai_3_us
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Re: Graduate student looking for financial advice

Post by ai_3_us » Fri Feb 01, 2019 7:37 pm

young wrote:
Fri Feb 01, 2019 3:49 pm
It is very important to me to keep an emergency fund that will last me 3-6 months, but I am interested in putting some of it in a very safe and liquid investment. After all, it's currently earning virtually no interest in my savings account right now.
I would first look for a savings account that will give you at least 2%. I personally use Alliant Credit Union because I like credit unions.
I make about $2k/month, so at minimum I would need $6k in this emergency fund.
If you want your emergency fund to last 3-6 months, you should have 3-6 x your monthly expenses, not your monthly income (unless the two are the same, in which case that's the end of the savings conversation).
I am very new to the world of investments and am happy to listen and learn from more experienced users. If you were my age, what would you do? I definitely have some tolerance for risk and want to set myself up for the future, even though I don't have much.
You should be trying to get as much money as you can into Roth accounts right now, when you are in the lowest possible tax bracket. First, fill up your Roth IRA, which you can hold with Fidelity for simplicity. You can put $6K into that this year. I would then look to see what kind of retirement plans your university offers. At my university (I'm also a graduate student), we have a 403(b) and a 457(b). If either has a Roth option (my 403 does), I would put money into that. Your university also may offer matching contributions to a retirement account (mine doesn't) in which case you want to contribute to that up until they stop matching you.

If you created the 401k in 2018, I would look to see if you can recharacterize it as a Roth 401k before filing taxes this year. If the $2K/month is your only income, you will have plenty of room in the 12% tax bracket.

[Edit:] P.S. If you have any questions about what any of those things mean, ask.

ccieemeritus
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Re: Graduate student looking for financial advice

Post by ccieemeritus » Sat Feb 02, 2019 4:18 am

It’s too late for you but the most important financial choice for graduate school is the course of study.

My wife got a PhD in (research) microbiology. Unfortunately, professors get many microbiology grad students for cheap labor on research projects. As a result there was a surplus of microbiology PhDs and, after graduating, my wife got a $30k/year job as a postdoc (this was 1997). Several years later she retrained as a programmer and made good money. The only good news about her microbiology PhD was that the research grant paid the tuition and stipend, so no debt.

My sister in law, on the other hand, got a PhD in Electrical Engineering and did well in Silicon Valley from graduation day.

ICMoney
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Re: Graduate student looking for financial advice

Post by ICMoney » Sat Feb 02, 2019 6:04 am

ai_3_us wrote:
Fri Feb 01, 2019 7:37 pm

You should be trying to get as much money as you can into Roth accounts right now, when you are in the lowest possible tax bracket. First, fill up your Roth IRA, which you can hold with Fidelity for simplicity. You can put $6K into that this year. I would then look to see what kind of retirement plans your university offers. At my university (I'm also a graduate student), we have a 403(b) and a 457(b). If either has a Roth option (my 403 does), I would put money into that. Your university also may offer matching contributions to a retirement account (mine doesn't) in which case you want to contribute to that up until they stop matching you.

If you created the 401k in 2018, I would look to see if you can recharacterize it as a Roth 401k before filing taxes this year. If the $2K/month is your only income, you will have plenty of room in the 12% tax bracket.
As a graduate student employed part-time by a University, my spouse did not have access to 403b/457b, so this may vary by institution.

For the 401k, did you mean OP should roll their 401k into a traditional IRA and convert this to their Roth IRA? I'm not sure you can "recharacterize" 401k contributions, though they may be able to do an in-plan conversion (not sure if this is allowed if they are not still employed there though?). But I do agree with you that OP should convert any pre-tax dollars in a 401k to Roth, likely through a rollover to an IRA and a Roth conversion (which would affect their 2019 taxes, since conversions have a 12/31 deadline).

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Nate79
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Re: Graduate student looking for financial advice

Post by Nate79 » Sat Feb 02, 2019 10:06 am

Are you debt free?

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F150HD
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Re: Graduate student looking for financial advice

Post by F150HD » Sat Feb 02, 2019 10:40 am

young wrote:
Fri Feb 01, 2019 3:49 pm


I have roughly $15k in savings and recently started a Roth IRA. For now, I have about 85% in Fidelity's OTC portfolio (FOCPX), 5% in Fidelity total bond (FTBFX), and 10% in Fidelity 500 index fund (FXAIX) I have a small 401k from a summer job, with all of it being in NT S&P 500 index (66586U718).
FTBFX has an ER (expense ratio) of 0.45%. Many use FXNAX. At 22 I'm not even sure I'd worry about a bond holding (personally), or much of one.

FOCPX has an ER of 0.88%.

Some may suggest Fidelitys Total Market FSKAX

On the emergency fund, many use Ally Bank savings account.

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F150HD
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Re: Graduate student looking for financial advice

Post by F150HD » Sat Feb 02, 2019 10:57 am

Side note, would be interested to hear others commentary on FOCPX vs FSKAX despite the higher ER (select diff time intervals at the link, I just chose the past 10 years)

http://quotes.morningstar.com/chart/fun ... ture=en-US
-

Image

02nz
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Re: Graduate student looking for financial advice

Post by 02nz » Sat Feb 02, 2019 11:17 am

F150HD wrote:
Sat Feb 02, 2019 10:57 am
Side note, would be interested to hear others commentary on FOCPX vs FSKAX despite the higher ER (select diff time intervals at the link, I just chose the past 10 years)
High expense ratio, very high turnover, high volatility, limited diversification (62% in IT and communications; almost 50% in top 10 holdings), new manager. By most of my measures when looking at active funds (which does not include the Morningstar rating!), I'd take a pass on this one. And I wouldn't put 85% (even of a modest portfolio) in one actively managed fund, even the best ones like PRIMECAP - too much manager risk.

02nz
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Re: Graduate student looking for financial advice

Post by 02nz » Sat Feb 02, 2019 11:37 am

ai_3_us wrote:
Fri Feb 01, 2019 7:37 pm
You should be trying to get as much money as you can into Roth accounts right now, when you are in the lowest possible tax bracket. First, fill up your Roth IRA, which you can hold with Fidelity for simplicity. You can put $6K into that this year.
Don't forget that you can contribute $5500 for 2018, until the April 15 tax deadline. Don't let tax-advantaged space go unused. And at your current income level Roth space is very valuable.

ai_3_us
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Re: Graduate student looking for financial advice

Post by ai_3_us » Sat Feb 02, 2019 11:57 am

ICMoney wrote:
Sat Feb 02, 2019 6:04 am

As a graduate student employed part-time by a University, my spouse did not have access to 403b/457b, so this may vary by institution.
Ouch! Of the three Universities I've been employed by, all 3 had some sort of retirement plan (go pac 12?). 2 had matching.
For the 401k, did you mean OP should roll their 401k into a traditional IRA and convert this to their Roth IRA? I'm not sure you can "recharacterize" 401k contributions, though they may be able to do an in-plan conversion (not sure if this is allowed if they are not still employed there though?). But I do agree with you that OP should convert any pre-tax dollars in a 401k to Roth, likely through a rollover to an IRA and a Roth conversion (which would affect their 2019 taxes, since conversions have a 12/31 deadline).
Yes of course I was struggling to remember what to call it. She/he should try to do an in-plan conversion if possible. No need to rollover since s/he can invest directly in a Roth.

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BL
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Re: Graduate student looking for financial advice

Post by BL » Sat Feb 02, 2019 11:58 am

02nz wrote:
Sat Feb 02, 2019 11:17 am
F150HD wrote:
Sat Feb 02, 2019 10:57 am
Side note, would be interested to hear others commentary on FOCPX vs FSKAX despite the higher ER (select diff time intervals at the link, I just chose the past 10 years)
High expense ratio, very high turnover, high volatility, limited diversification (62% in IT and communications; almost 50% in top 10 holdings), new manager. By most of my measures when looking at active funds (which does not include the Morningstar rating!), I'd take a pass on this one. And I wouldn't put 85% (even of a modest portfolio) in one actively managed fund, even the best ones like PRIMECAP - too much manager risk.
+1
To help you off to a good start, this little PDF says it all:
https://www.etf.com/docs/IfYouCan.pdf
Dr Bernstein is a recommended author here.

ai_3_us
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Re: Graduate student looking for financial advice

Post by ai_3_us » Sat Feb 02, 2019 11:59 am

ccieemeritus wrote:
Sat Feb 02, 2019 4:18 am
It’s too late for you but the most important financial choice for graduate school is the course of study.

My wife got a PhD in (research) microbiology. Unfortunately, professors get many microbiology grad students for cheap labor on research projects. As a result there was a surplus of microbiology PhDs and, after graduating, my wife got a $30k/year job as a postdoc (this was 1997). Several years later she retrained as a programmer and made good money. The only good news about her microbiology PhD was that the research grant paid the tuition and stipend, so no debt.

My sister in law, on the other hand, got a PhD in Electrical Engineering and did well in Silicon Valley from graduation day.

Perhaps OP didn't go to graduate school just to get rich. The vast majority of PhD students actually are chasing their passion, not money. It's an unheard of notion to some on this forum, but it's not such a terrible idea sometimes.

livesoft
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Re: Graduate student looking for financial advice

Post by livesoft » Sat Feb 02, 2019 12:10 pm

ICMoney wrote:
Sat Feb 02, 2019 6:04 am
As a graduate student employed part-time by a University, my spouse did not have access to 403b/457b, so this may vary by institution.
When I was a grad student, I simply contributed to an IRA. I also lived with 4 room mates and didn't own a car, nor a cell phone, nor a TV, didn't go out to eat, and all the other accoutrements of a soft life.

My main financial advice is to get out of school with one's degree as soon as possible and get into working in the so-called real world. Make contacts now and grow them.

And I earned a PhD in biochemistry. It was not a hindrance to earning an excellent living.
Wiki This signature message sponsored by sscritic: Learn to fish.

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F150HD
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Re: Graduate student looking for financial advice

Post by F150HD » Sat Feb 02, 2019 12:17 pm

02nz wrote:
Sat Feb 02, 2019 11:17 am
F150HD wrote:
Sat Feb 02, 2019 10:57 am
Side note, would be interested to hear others commentary on FOCPX vs FSKAX despite the higher ER (select diff time intervals at the link, I just chose the past 10 years)
High expense ratio, very high turnover, high volatility, limited diversification (62% in IT and communications; almost 50% in top 10 holdings), new manager. By most of my measures when looking at active funds (which does not include the Morningstar rating!), I'd take a pass on this one. And I wouldn't put 85% (even of a modest portfolio) in one actively managed fund, even the best ones like PRIMECAP - too much manager risk.
no one seems to have looked at the growth chart I posted. Explain that in the context of your reply :)

Image

(I'm not "suggesting" the actively managed fund, but just sayin'....)

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Nate79
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Re: Graduate student looking for financial advice

Post by Nate79 » Sat Feb 02, 2019 12:24 pm

F150HD wrote:
Sat Feb 02, 2019 12:17 pm
02nz wrote:
Sat Feb 02, 2019 11:17 am
F150HD wrote:
Sat Feb 02, 2019 10:57 am
Side note, would be interested to hear others commentary on FOCPX vs FSKAX despite the higher ER (select diff time intervals at the link, I just chose the past 10 years)
High expense ratio, very high turnover, high volatility, limited diversification (62% in IT and communications; almost 50% in top 10 holdings), new manager. By most of my measures when looking at active funds (which does not include the Morningstar rating!), I'd take a pass on this one. And I wouldn't put 85% (even of a modest portfolio) in one actively managed fund, even the best ones like PRIMECAP - too much manager risk.
no one seems to have looked at the growth chart I posted. Explain that in the context of your reply :)

Image

(I'm not "suggesting" the actively managed fund, but just sayin'....)
FOCPX is a large growth fund. You are comparing apples to oranges.

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FiveK
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Re: Graduate student looking for financial advice

Post by FiveK » Sat Feb 02, 2019 12:26 pm

F150HD wrote:
Sat Feb 02, 2019 12:17 pm
02nz wrote:
Sat Feb 02, 2019 11:17 am
F150HD wrote:
Sat Feb 02, 2019 10:57 am
Side note, would be interested to hear others commentary on FOCPX vs FSKAX despite the higher ER (select diff time intervals at the link, I just chose the past 10 years)
High expense ratio, very high turnover, high volatility, limited diversification (62% in IT and communications; almost 50% in top 10 holdings), new manager. By most of my measures when looking at active funds (which does not include the Morningstar rating!), I'd take a pass on this one. And I wouldn't put 85% (even of a modest portfolio) in one actively managed fund, even the best ones like PRIMECAP - too much manager risk.
no one seems to have looked at the growth chart I posted. Explain that in the context of your reply :)

(I'm not "suggesting" the actively managed fund, but just sayin'....)
It boils down to a fund's past performance does not necessarily predict future results. Particularly when, as 02nz noted, there is a new (since 9/16/2017) fund manager. Will he be as successful as whoever did stock picking before him?

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Ben Mathew
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Re: Graduate student looking for financial advice

Post by Ben Mathew » Sat Feb 02, 2019 12:33 pm

young wrote:
Fri Feb 01, 2019 3:49 pm
Hello, I'm a 22 year old, first year graduate student (and first-time Bogleheads user) looking for some help in regards to setting myself up financially. As a graduate student, I will likely be in school for another four years and do not intend on making any significant purchases before graduation.

I have roughly $15k in savings and recently started a Roth IRA. For now, I have about 85% in Fidelity's OTC portfolio (FOCPX), 5% in Fidelity total bond (FTBFX), and 10% in Fidelity 500 index fund (FXAIX) I have a small 401k from a summer job, with all of it being in NT S&P 500 index (66586U718).

It is very important to me to keep an emergency fund that will last me 3-6 months, but I am interested in putting some of it in a very safe and liquid investment. After all, it's currently earning virtually no interest in my savings account right now. I make about $2k/month, so at minimum I would need $6k in this emergency fund.

As for the rest of it, I would like to have some money to start a car or house fund for when I get out of graduate school.

I am very new to the world of investments and am happy to listen and learn from more experienced users. If you were my age, what would you do? I definitely have some tolerance for risk and want to set myself up for the future, even though I don't have much.

Thank you very much for your time.
Good job thinking about saving and investing early in life. You will do well.

Your emergency fund should be in your Roth IRA. Roth IRAs allow you to withdraw contributions without penalty. So you can take your contributions out in case of emergency. If the emergency does not happen, your money gets to grow tax free for decades. It'a a no-brainer. Put as much as you can into your IRA. Since you are facing low marginal taxes now, this is a great time to contribute to Roth.

The tougher question is whether to invest your emergency fund in bonds or stocks. If you need the safety of bonds to sleep at night, go for it. But I would ask you to give it some thought. You are young, at the start of your career. This is the absolute best time in your life to take the risk. If the market crashes and you lose half your money, it's really not a disaster for you from a lifetime income perspective. Losing half your money is a much bigger deal when you're just about to start retirement. For you, it's an inconvenience. You'll just have to wait a bit longer for the car and the house.

So what I would do in your circumstance is throw every last dollar into the Roth IRA and invest it in 100% stocks. Half in VTSAX and half in VTIAX would be fine. Then read up on small cap and value premiums. If you're convinced, add VSIAX as well.

Good luck!

02nz
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Re: Graduate student looking for financial advice

Post by 02nz » Sat Feb 02, 2019 4:00 pm

F150HD wrote:
Sat Feb 02, 2019 12:17 pm
no one seems to have looked at the growth chart I posted. Explain that in the context of your reply
Here's another chart, covering the period under the current manager, and comparing with Vanguard's Growth Index, S&P 500 Index, and PRIMECAP funds. FOCPX flew high for a time ... and then gave back all of its outperformance. Admittedly this is a very short period, but when looking at active funds, especially one with over 70% (!) annual turnover, the record under the previous manager is essentially meaningless.

Image

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