Looking for Advice on the first $50,000

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Topic Author
Mr0988
Posts: 4
Joined: Tue Jun 11, 2019 1:12 pm

Looking for Advice on the first $50,000

Post by Mr0988 » Tue Jun 11, 2019 3:12 pm

Hi first time poster. I am currently starting to accumulate some discretionary income and I want to invest it, but I am not the most knowledgeable when it comes to the markets. I recently Read Bogles Guide to Investing and the Bogleheads Guide to the Three fund Portfolio. This 3 fund approach seems to be my best option and I am just looking for some advice.

Age:34
Married with 2 kids and 1 due in September
Tax: Federal: 24% no state

Income and Expenses
Sales Job- $45,000 (leaving this year)
Self Employment- $130,000 to $200,000
Wife- $80,000 (no retirement plan)
Annual- $255,000 to $325,000

Monthly Expenses- Around $4,500

Home and Cars
$400,000 home Equity
$150,000 Mortgage (4.25%)
Cars- paid off


I have worked sales for 8 years but a couple years ago I started another company. I am going to be leave my current job to run my company full time. The company I started the income can vary largely from year to year, so I have set aside 6 months emergency savings plus my wife will continue to work which could cover most of our monthly expenses. After Emergency savings I Have a little over $52,000 I want to get into the market with the 3 fund approach (this does not include my employer based 401k where I have another $40,000).

My parents always lived by if you want something save up and buy it and living with little debt. I know this is not always the best financial decision but I try to have as little debt as possible. All our cars and college are paid off and the only debt we have is a mortgage of $150,000 at 4.25% and we have $400,000 in equity in the house.

We have 2 kids under 5 and 1 more due in September. We are lucky enough that my parents put $50,000 towards each child’s college and I Have put that into a Vanguard 529 plan.



Assets I’m looking to Invest

Cash- $40,000.00 (for investing)
Vanguard My Roth IRA- $5,535.00 currently in Vanguard Federal Money Market Fund
Vanguard Wife Roth IRA- $5,535.00 currently in Vanguard Federal Money Market Fund
Vanguard Joint Brokerage Account- $10,050 currently in Vanguard Federal Money Market Fund


Other Current Assets

401k Through my company (I will be leaving this job within the year and plan on rolling this 401k over to Vanguard)
I am currently contributing 70% paycheck till I reach the max allowed to contribute this year.
$40,000 in JPMCB Smart Retirement DRE 2050 CF
76% Stocks 34% Bonds
Expense Ratio 0.45%
Company Match 50% on the first 8%

Child 1 529 Account at Vanguard
$56,892.00- Vanguard Aggressive Age-based option: Aggressive Growth Portfolio
100% Stocks
Expense Ratio- 0.15%
Monthly Contribution $100

Child 2 529 Account at Vanguard
$56,892.00- Vanguard Aggressive Age-based option: Aggressive Growth Portfolio
100% Stocks
Expense Ratio- 0.15%
Monthly Contribution $100

I don’t mind risk so I think I want to set up 90% stock (20% of that international) and 10% bonds or 80/20

Questions

1. I know the markets are high right now so should I still go ahead and put the $52,000 into the market right now, wait a bit, or put in a little at a time?
2. The funds I am thinking about is Vanguard total stock market VTI, Vanguard total bond market and Vanguard total international stock market.
3. How would you go about dividing up the three-fund strategy? Bond int Roth IRA and stocks in the join Brokerage account?
4. When I leave my sales job later this year should I roll the 401k over to Vanguard and distribute it the same percentages as I set up this first $52,000?
5. This year I don’t think I can contribute much to our Roth IRA do to income phase out so I am maxing out the employer 401k of around $18,000. Is this a good or bad idea?
6. Any advice, suggestions, critique or ideas would be greatly appreciated.
Last edited by Mr0988 on Tue Jun 11, 2019 5:25 pm, edited 1 time in total.

jacksonm
Posts: 156
Joined: Tue Oct 16, 2018 11:48 am

Re: Looking for Advice on the first $50,000

Post by jacksonm » Tue Jun 11, 2019 4:06 pm

Mr0988 wrote:
Tue Jun 11, 2019 3:12 pm
Questions

1. I know the markets are high right now so should I still go ahead and put the $52,000 into the market right now, wait a bit, or put in a little at a time?

Maybe wait until a sell-off like we've been seeing recently and then go for it? With an election coming up and all the trade war stuff coupled with the fact that we seem overdue for a recession, volatility seems almost like a certainty for a while.

2. The funds I am thinking about is Vanguard total stock market VTI, Vanguard total bond market and Vanguard total international stock market.

Excellent choices, IMO

3. How would you go about dividing up the three-fund strategy? Bond int Roth IRA and stocks in the join Brokerage account?

Not big on the idea of bonds in Roth myself. Prefer those in tax-deferred but if your only choice is Roth or taxable that might make sense. You can always buy stock in Roth with your interest payments.


4. When I leave my sales job later this year should I roll the 401k over to Vanguard and distribute it the same percentages as I set up this first $52,000?

Don't see why not.

5. This year I don’t think I can contribute much to our Roth IRA do to income phase out so I am maxing out the employer 401k of around $18,000. Is this a good or bad idea?

Don't know many people who would advise against maxing out your 401k if you can

6. Any advice, suggestions, critique or ideas would be greatly appreciated.

Didn't offer much but you're welcome

magicrat
Posts: 684
Joined: Sat Nov 29, 2014 7:04 pm

Re: Looking for Advice on the first $50,000

Post by magicrat » Tue Jun 11, 2019 4:14 pm

1. What do you mean by "the markets are high"? The S&P 500 is at about the same level it was in January 2018. You should make your plan, then execute it. Market timing doesn't work and you can search the forum and find hundreds of threads on the topic.
2. Those are great funds.
3. Bonds in pre-tax 401k, stocks in Roth, stocks in taxable. If you run out of room for bonds in pre-tax, put bonds in taxable (either taxable or munis depending on your tax rate)
4. Depends on the options in your 401k and if your new job will have a 401k that you can roll into. If you roll into an IRA at Vanguard, you limit the ability to do Backdoor Roths.
5. You can do Backdoor Roths (see wiki). You should also max your 401k.

Are you sure about your expenses? $54k in annual expenses on $250-$300k+ of income, yet only about $100k saved up. Doesn't make sense at first glance.

MotoTrojan
Posts: 4497
Joined: Wed Feb 01, 2017 8:39 pm

Re: Looking for Advice on the first $50,000

Post by MotoTrojan » Tue Jun 11, 2019 4:26 pm

I did not see any mention of any IRAs other than the 2x Roth, so you are incorrect that you are phased out of contributing. Look up the backdoor Roth, but essentially you contribute to a tIRA (which will not be deductible) and then immediately (next day or so) convert it to Roth. Once there, it will be as if it were a regular Roth contribution. If you have pre-tax IRA assets (like a 401k roll-over) this becomes less desirable due to prorata tax.

https://www.whitecoatinvestor.com/backd ... -tutorial/

I would invest it all as soon as you have your plan ready. There is no difference between $1M in cold hard cash and $1M sitting in equities in a 401k. If it made sense to slowly invest the cash, it would also make sense to move the $1M in the 401k to money market and redeploy it. There are emotional reasons to dollar-cost-average, but no logical ones.

I personally also like to keep the Roth in equities. I would look to hold your full 10% of bonds in your 401k, and then spread the rest across everything. Total US and Total International are both very tax-efficient and can go in taxable. I would try to hold a bit of both in the 401k though for easy tax-free rebalancing.

Do some research on tax-loss harvesting and have a plan ready (what to swap into, what threshold before you do it, etc...). This will save you some $ on taxes and also helps emotionally when stocks go down below your purchase price in taxable.

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Duckie
Posts: 6605
Joined: Thu Mar 08, 2007 2:55 pm

Re: Looking for Advice on the first $50,000

Post by Duckie » Tue Jun 11, 2019 4:53 pm

Mr0988, welcome to the forum.
Mr0988 wrote:I don’t mind risk so I think I want to set up 90% stock (20% of that international) and 10% bonds or 80/20
At your age I would go with at least 20% bonds. So 80% stocks, 20% bonds, with 20% of stocks in international. That breaks down to 64% US stocks, 16% international stocks, and 20% bonds spread across your accounts earmarked for retirement (joint taxable, his 401k, her work plan?, his Roth IRA, her Roth IRA).
I know the markets are high right now so should I still go ahead and put the $52,000 into the market right now, wait a bit, or put in a little at a time?
I'd do it all at once, but you might want to spread it out over the next five or six months.
The funds I am thinking about is Vanguard total stock market VTI, Vanguard total bond market and Vanguard total international stock market.
Total stock market (VTSAX / VTI), Total international stock (VTIAX / VXUS), and total bond market (VBTLX / BND) are excellent options.
How would you go about dividing up the three-fund strategy? Bond int Roth IRA and stocks in the join Brokerage account?
Bonds go in pre-tax if you have room and you have room in your 401k. Taxable and Roth accounts should hold just stocks if possible.
When I leave my sales job later this year should I roll the 401k over to Vanguard and distribute it the same percentages as I set up this first $52,000?
What you do with your current 401k depends on whether or not you have employees at your self-employed job. If you have none you can set up a solo 401k and roll the W-2 401k into it. If you do have employees you would probably be better off leaving the W-2 401k where it is to keep the backdoor Roth method practical for you. What are the options in the current 401k? List the fund names, ticker symbols, and plan expense ratios.

And no matter what you do with the current 401k assets you will not use the same percentages. The 401k has pre-tax tax-sheltered assets as would a solo 401k or rollover IRA. These are perfect for your bonds. The taxable and Roth accounts are perfect for stocks.
This year I don’t think I can contribute much to our Roth IRA due to income phase out so I am maxing out the employer 401k of around $18,000. Is this a good or bad idea?
Maxing the current 401k at $19K is fine. Be aware that since you listed no non-Roth IRAs you can use the Backdoor Roth method.
Any advice, suggestions, critique or ideas would be greatly appreciated.
Does your wife have a workplace retirement plan? If so, list the options.

Topic Author
Mr0988
Posts: 4
Joined: Tue Jun 11, 2019 1:12 pm

Re: Looking for Advice on the first $50,000

Post by Mr0988 » Tue Jun 11, 2019 5:23 pm

Are you sure about your expenses? $54k in annual expenses on $250-$300k+ of income, yet only about $100k saved up. Doesn't make sense at first glance.
[/quote]


Our income just recently doubled in the past 2 years and we spent most of that time paying off debt, Student loans, mortgage, cars.

Income will come back down by $50,000 when i leave my sales job to run our new business.

The only large expense we have is our Home mortgage with $150,000 left

Topic Author
Mr0988
Posts: 4
Joined: Tue Jun 11, 2019 1:12 pm

Re: Looking for Advice on the first $50,000

Post by Mr0988 » Tue Jun 11, 2019 5:26 pm

Also the company we started does not have employees. It is a LLC partnership between my self and my dad, and he is a passive member, I am the only active member in the business.

Topic Author
Mr0988
Posts: 4
Joined: Tue Jun 11, 2019 1:12 pm

Re: Looking for Advice on the first $50,000

Post by Mr0988 » Tue Jun 11, 2019 5:28 pm

Thank you everyone for your responses this is all helpful information. I clearly need to do some research on the backdoor IRA that several of you have mentioned and the info about using the 401k for the bonds is helpful.

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