Just starting out - what to invest in?

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john2020
Posts: 6
Joined: Sun Jan 12, 2020 6:34 pm

Just starting out - what to invest in?

Post by john2020 » Sun Jan 12, 2020 6:59 pm

I'm not sure if this should go under personal Investments or Investment strats?

So I'm 30 years old, just got married. Up until now I never thought about retirement. I have been spending money and having a good old time. My wife on the other hand has other ideas!

I make decent money, my wife makes so so money but we have both plenty. I have no bills really other then basic like food and electric. We both own our vehicles out right. No student loans. No mortgage - we are in a house I inherited from family. Taxes are pretty cheap around $6k a year.

I have about $40k emergency fund just sitting in my bank account.

I have have lots of credit cards but no balances. They get paid off each month. My wife sat down with me this month and we saw what we will probably make and what's offered. She wants us to max out an IRA for her and one for me. My healthcare is HSA able hers is not so max mine out. And I can max out my 401k at work and looks like we will get around a $6k match from the company.

Sounds like a lot to me but she says it's what we are gonna do!

If my math is right $6k for each of our IRA's. $19,500 for my 401k with another 6k match and $3,550 for my HSA

Sound right?

My company is very flexible and I think I can almost invest in anything that's available on the market.

But I am not too sure about wall street and investing. I only have on friend that has any type of retirement accounts. He chases dividend stocks and that seems to be working for him. I read up on it a little bit here and I see most of you guys say that isn't the right way to go. He doesn't get value added to the stocks when they give monthly dividends. And in the long run he isn't gaining value compared to regular stocks? But he seems to think it's the way to go. Everyone seems to be saying different things so it's confusing.

I asked what some of his investments are and he has a mix

His main is O Realty Income Which he showed me over the past 5 years has gained in value and also gives like a 21-22 cents a month dividend.
He is also heavy with WHIAX Ivy High income and showed me not much gain over the years in the price but the monthly dividends of 4 cents+ that he plans to use when retired.

He also has a mix of

GLAD
GOOD
APLE
PSEC

I was looking at all of them but I have no clue who all these companies are. Or the Whiax is some type of bonds I guess?

I see the 3 thing portfolio from you guys.
VTSMX VGTSX VBTLX

I like simple but don't want to make mistakes. Not sure if I should hire some accountant or investment guy or follow my friend of do this three thing portfolio. If I followed your guys 3 investment thing. Do I just split up all of this years month into the three funds equally?

Olemiss540
Posts: 1169
Joined: Fri Aug 18, 2017 8:46 pm

Re: Just starting out - what to invest in?

Post by Olemiss540 » Sun Jan 12, 2020 7:33 pm

Just be patient!! Do not rush to hand someone your money so they can steal your future wealth to fund their current cost of living....

Stick around here and READ! If you want your retirement funds to get to work right away, just stash it into an all in one fund for the time being. Target retirement index funds with moderately low expense ratios (.1 - .5) are a great way to take out the guessing work and diversify you into a broad market of stocks and bonds to ensure you do not take on any uncompensated risk.

The only free lunch in investing is diversity.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

lakpr
Posts: 3411
Joined: Fri Mar 18, 2011 9:59 am

Re: Just starting out - what to invest in?

Post by lakpr » Sun Jan 12, 2020 7:52 pm

Man, you lucked out in the marriage department! That's one-in-a-million wife you have there, don't ever be crazy enough to let her go!!

Yes, thou SHALL max all 401k, all IRA, all HSA!!!

[ To make myself clear: I love my wife dearly and to death, but for the life of me I cannot get her interested in financial matters at all! ]

To start out your investing:

1. First, find out your asset allocation ratio. There a quiz page on Vanguard's web site that will assess your risk tolerance using a series of questions. You might find value in taking that questionnaire. I generally advocate an allocation to bonds of: "Age-10" = conservative, "Age-15" = moderate and "Age-20" = aggressive. Based on this thumb rule, I suggest you have at least 15% in bonds.

2. Next is allocation to international stocks. There is a Vanguard paper that said that, if you allocate 20% of your stocks allocation to international stocks, you get 84% of the diversification benefit, and if you allocate 30% of your stocks allocation to international stocks, you get 99% of diversification benefit. Allocating more than 30% to international stocks does not buy you any diversification benefit, except expose you to the risk (and reward) of what international stocks do relative to domestic stocks. If international stocks lag, your returns suffer; and if international stocks return more than domestic stocks, your returns go up.

So assuming you go with a 20% of stocks allocation to international, that is 20% of 85% = 17%. So your allocation would be 68:17:15, or if you go with 30% of stocks allocation to international, your final allocation would be 60:25:15 (round to the nearest whole percentages).

3. Lastly, you need to consider your whole portfolio. If you ARE maxing out your 401k, IRA and HSA, then:

Total portfolio = $19500 + $6000 + $3550 = $29,050. Let's call it $29k for simplicity.
68% of $29k = $19,700 to domestic stocks
17% of $29k = $5k to international stocks
Rest = $4,300 to bonds

4. Tax-efficient placement of asset classes says that:
- Bonds belong in tax-deferred accounts
- International stocks belong in either tax-deferred or Roth, the reason is they throw off a lot of non-qualified dividends
- Domestic stocks, especially index funds, belong anywhere.

Follow these thumb rules, and defer $4300 in bonds in your 401k, $5k in international stocks in your 401k, and $10.2 k in domestic stocks in your 401k
Then contribute the entire $6k in Roth IRA or $3.5k in your HSA to domestic stocks.

[ That's just one way to split the pie, you can do it in multiple other ways also ]
Last edited by lakpr on Sun Jan 12, 2020 8:11 pm, edited 1 time in total.

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Watty
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Re: Just starting out - what to invest in?

Post by Watty » Sun Jan 12, 2020 8:04 pm

A few things to look at.

There is a getting started wiki.

https://www.bogleheads.org/wiki/Getting_started

The book "The Bogelheads Guide to Investing" is also very readable even for someone with no background in investing.

https://www.amazon.com/s?k=Bogleheads&t ... ads.org-20

You need to be very careful with any financial advisors since 99% of them are really just sales people looking to make money off of you and will people people in terrible investments just to make a commission.

You really do not need a financial advisor in your situation. You can post your details in this suggested format and you will get a lot better suggestions about how you should invest your money.

viewtopic.php?f=1&t=6212
john2020 wrote:
Sun Jan 12, 2020 6:59 pm
My wife sat down with me this month and we saw what we will probably make and what's offered. She wants us to max out an IRA for her and one for me. My healthcare is HSA able hers is not so max mine out. And I can max out my 401k at work and looks like we will get around a $6k match from the company.

Sounds like a lot to me but she says it's what we are gonna do!
Your wife sounds like she has an interest in investing and some motivation to figure out how to make things work. That is often 90% of what is needed. You might consider if it would make sense to let her take the lead in your household investment planning. She could post here and you would of course would want to work together to agree on what you are going to do but it might be worthwhile to give her a chance to see what sort of plan she can come up with.

You mentioned that she " makes so so money" and if she does not have the educational background that you do then that does not really matter since even with a high school education that is plenty if she is motivated to learn. Sometimes people with lots of education, like doctors, can have a hard time being good investors since they may try to make things too complicated when a simple plan would be better.

HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: Just starting out - what to invest in?

Post by HomeStretch » Sun Jan 12, 2020 8:15 pm

You and your wife make a great team! Her suggestion to maximize all savings vehicles is the right next step for a secure financial future in addition to all the other things you are doing right (paid off house/car, no debt, emergency fund).

Do the reading suggested by other posters. A 3-fund portfolio like the one you posted is a simple low-cost DIY way to invest.

_james
Posts: 23
Joined: Tue Sep 13, 2011 5:13 am

Re: Just starting out - what to invest in?

Post by _james » Sun Jan 12, 2020 8:48 pm

Welcome to bogleheads!
john2020 wrote:
Sun Jan 12, 2020 6:59 pm
If my math is right $6k for each of our IRA's. $19,500 for my 401k with another 6k match and $3,550 for my HSA

Sound right?
Yes, sounds right. Read up on the differences between a Traditional IRA and a Roth IRA. For most people a Roth IRA is the most appropriate.

Link for more info: https://www.bogleheads.org/wiki/Traditional_IRA
My company is very flexible and I think I can almost invest in anything that's available on the market.
What company manages the 401k? This will determine which funds are available to you and at what costs (if any) are associated with purchasing different investments products.
But I am not too sure about wall street and investing. I only have on friend that has any type of retirement accounts. He chases dividend stocks and that seems to be working for him. I read up on it a little bit here and I see most of you guys say that isn't the right way to go. He doesn't get value added to the stocks when they give monthly dividends. And in the long run he isn't gaining value compared to regular stocks? But he seems to think it's the way to go. Everyone seems to be saying different things so it's confusing.

I asked what some of his investments are and he has a mix

His main is O Realty Income Which he showed me over the past 5 years has gained in value and also gives like a 21-22 cents a month dividend.
He is also heavy with WHIAX Ivy High income and showed me not much gain over the years in the price but the monthly dividends of 4 cents+ that he plans to use when retired.

He also has a mix of

GLAD
GOOD
APLE
PSEC
Anything anyone tells you should be taken with a grain of salt. Before following anyone's advice (even people on this site) do your own research first. :sharebeer
I was looking at all of them but I have no clue who all these companies are. Or the Whiax is some type of bonds I guess?
WHIAX is a mutual fund intended to pay dividends to provide income for someone with a large amount of money. By design the asset will not appreciate much. I checked the fund on the Ivy Investments website and it has a 0.95% Expense Ratio. An expense ratio of 0.95% is quite high. The expense ratio is the cost charged for management and administration of the investment. A simplified example would be:

$100,000 invested in mutual fund X with a 1.0% expense ratio. Assume the fund gained 5%, how much would your investment be worth?
100,000 x (1.05) - (100,000 x 0.01) = $103,950 ... $1050 in fees

$100,000 investment in mutual fund Z with a 0.09% expense ratio. Assume the fund gained 5% how much would your investment be worth?
100,000 x (1.05) - (100,000 x 0.0009) = $104,910 ... $90 in fees

The tricky part is the fees are never explicitly given to you in a statement or on a chart, they are just stated as the expense ratio.

Here is a visual depiction of how the expense ratio can affect an investments return:

Image
I see the 3 thing portfolio from you guys.
VTSMX VGTSX VBTLX
I like simple but don't want to make mistakes. Not sure if I should hire some accountant or investment guy or follow my friend of do this three thing portfolio. If I followed your guys 3 investment thing. Do I just split up all of this years month into the three funds equally?
This would depend on your asset allocation, i.e. how you divide up your investments into stocks, bonds, etc. The 3 fund portfolio is a simple low-cost way to invest for retirement. Many target retirement date funds are setup with simple 3 or 4 fund strategies. A target retirement date fund is a low-cost (usually) mutual fund that auto automatically adjusts the asset allocation from riskier (more stocks than bonds) to less risky (more bonds and dividend paying funds) as the fund approaches the target retirement date.

Have you checked out the wiki? Particularly:

https://www.bogleheads.org/wiki/Getting_started

https://www.bogleheads.org/wiki/Boglehe ... art-up_kit

Topic Author
john2020
Posts: 6
Joined: Sun Jan 12, 2020 6:34 pm

Re: Just starting out - what to invest in?

Post by john2020 » Tue Jan 14, 2020 12:11 am

Olemiss540 wrote:
Sun Jan 12, 2020 7:33 pm
Just be patient!! Do not rush to hand someone your money so they can steal your future wealth to fund their current cost of living....

Stick around here and READ! If you want your retirement funds to get to work right away, just stash it into an all in one fund for the time being. Target retirement index funds with moderately low expense ratios (.1 - .5) are a great way to take out the guessing work and diversify you into a broad market of stocks and bonds to ensure you do not take on any uncompensated risk.

The only free lunch in investing is diversity.
Thanks! It all seems pretty confusing at the moment.

Topic Author
john2020
Posts: 6
Joined: Sun Jan 12, 2020 6:34 pm

Re: Just starting out - what to invest in?

Post by john2020 » Tue Jan 14, 2020 12:29 am

lakpr wrote:
Sun Jan 12, 2020 7:52 pm
Man, you lucked out in the marriage department! That's one-in-a-million wife you have there, don't ever be crazy enough to let her go!!

Yes, thou SHALL max all 401k, all IRA, all HSA!!!

[ To make myself clear: I love my wife dearly and to death, but for the life of me I cannot get her interested in financial matters at all! ]


3. Lastly, you need to consider your whole portfolio. If you ARE maxing out your 401k, IRA and HSA, then:

Total portfolio = $19500 + $6000 + $3550 = $29,050. Let's call it $29k for simplicity.
68% of $29k = $19,700 to domestic stocks
17% of $29k = $5k to international stocks
Rest = $4,300 to bonds

4. Tax-efficient placement of asset classes says that:
- Bonds belong in tax-deferred accounts
- International stocks belong in either tax-deferred or Roth, the reason is they throw off a lot of non-qualified dividends
- Domestic stocks, especially index funds, belong anywhere.

[ That's just one way to split the pie, you can do it in multiple other ways also ]
Yeah I'm not 100% agreeing :D She want to curb my spending on my hobbies saying I spend too much and should be saving more. Just because I have money now doesn't mean I will always have it. There has been talk about an allowance! She calls it a budget where I can spend only X this year on my stuff but sure sounds like an allowance!

Thanks for the post. I will be researching everything for the next month or two it seems before I make any choices.

So in your above example - $29k, but it's gonna be a little over $41k. Both of us will do an IRA or roth ira I guess. $6k each. the hsa for the $3550. The 401k should be $25,500 after company match.

So stocks, international stocks and then bonds. That sound like the three fund portfolio thing VTSMX VGTSX VBTLX.
so for example
68% in VTSMX
17% in VGTSX
15% in VBTLX

Not saying that's what I will do but it sounds easy compared to picking different stocks. Now the international you say should go in Tax differed or Roths? Aren't all my retirement plans tax differed? Meaning I don't pay any tax on them until after retirement? I now the regular IRA and 401k I can take off my taxes now. and the roth 401k and Roth IRA I don't get to deduct now and I pay no taxes ever on them even in retirement. Not sure how the HSA works. So when you say non-qualified dividends, that doesn't mean anything until i actually retire, is that right?


Is it bad to have some of the money in monthly Dividend stocks like my friend does like O Realty and The ivy high income bonds? If I was retired it seems pretty nice to just take the dividends and not sell off the original stock to pay bills with and such?

Do something like

60% in VTSMX
10% in VGTSX
10% in VBTLX
10% O
10% WHIAX

Topic Author
john2020
Posts: 6
Joined: Sun Jan 12, 2020 6:34 pm

Re: Just starting out - what to invest in?

Post by john2020 » Tue Jan 14, 2020 12:36 am

Watty wrote:
Sun Jan 12, 2020 8:04 pm
A few things to look at.

There is a getting started wiki.

You need to be very careful with any financial advisors since 99% of them are really just sales people looking to make money off of you and will people people in terrible investments just to make a commission.

You really do not need a financial advisor in your situation. You can post your details in this suggested format and you will get a lot better suggestions about how you should invest your money.

Your wife sounds like she has an interest in investing and some motivation to figure out how to make things work. That is often 90% of what is needed. You might consider if it would make sense to let her take the lead in your household investment planning. She could post here and you would of course would want to work together to agree on what you are going to do but it might be worthwhile to give her a chance to see what sort of plan she can come up with.

You mentioned that she " makes so so money" and if she does not have the educational background that you do then that does not really matter since even with a high school education that is plenty if she is motivated to learn. Sometimes people with lots of education, like doctors, can have a hard time being good investors since they may try to make things too complicated when a simple plan would be better.
I have been reading some of the WIKI and some of the forums here. Still confusing but it is helping a bit.

My wife has a great interest in saving money. She grew up pretty poor. But she doesn't have the patience I do to learn about new stuff and how to do it. She wants all the the retirement accounts maxed out but she doesn't realize it just isn't as easy as putting the money in there and that's it. i told her well we have to put the money INTO something. It's not just like a bank account. She is a smart girl in her own way, just not a lot of patience to research stuff. that's my department. She is like a manager that needs to get something done and I am the worker to make it happen! She works at a bank. Started out as a teller and then moved up to various manager positions. She understands money and banking very well but not wall street. Neither do I for that matter.

Topic Author
john2020
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Joined: Sun Jan 12, 2020 6:34 pm

Re: Just starting out - what to invest in?

Post by john2020 » Tue Jan 14, 2020 12:40 am

HomeStretch wrote:
Sun Jan 12, 2020 8:15 pm
You and your wife make a great team! Her suggestion to maximize all savings vehicles is the right next step for a secure financial future in addition to all the other things you are doing right (paid off house/car, no debt, emergency fund).

Do the reading suggested by other posters. A 3-fund portfolio like the one you posted is a simple low-cost DIY way to invest.
Thanks for replying. I feel my hobbies this year are gonna suffer a bit with all this savings! :D

I have been researching a lot so I don't make too many mistakes.

I figure if it's too complicated I could just somehow split the money this year into the three fund portfolio and then, adjust down the road when I understand more. Once I start the three fund portfolio, I can change it up from year to year, i don't always have to just have the three funds for it to consistently gain some money? Or is it if you do the three fund portfolio, do you HAVE to keep adding to those three funds each year to see it gown like it is shown?

As I asked another poster - Is it bad to have some of the money in monthly Dividend stocks like my friend does like O Realty and The ivy high income bonds? If I was retired it seems pretty nice to just take the dividends and not sell off the original stock to pay bills with and such?

Topic Author
john2020
Posts: 6
Joined: Sun Jan 12, 2020 6:34 pm

Re: Just starting out - what to invest in?

Post by john2020 » Tue Jan 14, 2020 12:53 am

_james wrote:
Sun Jan 12, 2020 8:48 pm
Yes, sounds right. Read up on the differences between a Traditional IRA and a Roth IRA. For most people a Roth IRA is the most appropriate.

What company manages the 401k? This will determine which funds are available to you and at what costs (if any) are associated with purchasing different investments products.

I checked the fund on the Ivy Investments website and it has a 0.95% Expense Ratio. An expense ratio of 0.95% is quite high. The expense ratio is the cost charged for management and administration of the investment. A simplified example would be:
Image

I can open up an IRA anywhere is that correct? Roth or regular IRA are mine and the 401k is from the company and I think HSA is also? I have to ask but I'm pretty sure the HSA is from Fidelity? And the 401k is also either from Fidelty or Etrade I think Somebody told me. Not sure yet.

I know there is an option for a roth 401k and not the regular. Although I think the company match goes into a regular 401k and not the roth? Again not sure. So Roth ira's and then regular 401k to get some tax savings on my yearly income taxes maybe the way to go. I have to read up more on Roths and non Roths.

Expense Ratio, that seems like a lot of money to pay over 20-30 years looking at that chart. how does that work? If I bought the IVY fund, do they take out the .95% every month? Every Year? Only when I sell it? Do all funds have an expense ratio and take money? Do the vanguard funds also do this like the three fund portfolio? Like VTSMX index fund? Companies like O Realty aren't funds though. There are no expense ratio to owning that correct? Or if I bought tesla stock or amazon stock? It's just I buy at the price and one day down the road I sell at whatever the price is on the market? I don't get charged an ER % for stock, but I do with funds? Because it's a melting pot of so many types of stocks and there is a manager managing it?

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Stef
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Re: Just starting out - what to invest in?

Post by Stef » Tue Jan 14, 2020 1:12 am

john2020 wrote:
Tue Jan 14, 2020 12:53 am
Expense Ratio, that seems like a lot of money to pay over 20-30 years looking at that chart. how does that work? If I bought the IVY fund, do they take out the .95% every month? Every Year? Only when I sell it? Do all funds have an expense ratio and take money? Do the vanguard funds also do this like the three fund portfolio? Like VTSMX index fund? Companies like O Realty aren't funds though. There are no expense ratio to owning that correct? Or if I bought tesla stock or amazon stock? It's just I buy at the price and one day down the road I sell at whatever the price is on the market? I don't get charged an ER % for stock, but I do with funds? Because it's a melting pot of so many types of stocks and there is a manager managing it?
Every year on the whole amount. An ER of 1% basically means that you'll get 74% of the performance after 30 years (0.99^30). Or in numbers as an example: 370k instead of 500k.

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dogagility
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Re: Just starting out - what to invest in?

Post by dogagility » Tue Jan 14, 2020 6:00 am

john2020 wrote:
Tue Jan 14, 2020 12:40 am
As I asked another poster - Is it bad to have some of the money in monthly Dividend stocks like my friend does like O Realty and The ivy high income bonds? If I was retired it seems pretty nice to just take the dividends and not sell off the original stock to pay bills with and such?
Investing in individual stocks is too risky. You might strike it big but you are also as likely to see your money whither away. It's gambling; not investing. Pick total market index funds instead to diversify as others are recommending.

There is nothing special about receiving a dividend. If a company gives a dividend, you can either spend it or reinvest it by purchasing more shares of the companies stock. Advice for people accumulating money for retirement is to reinvest dividends.

I suggest you read the book How to Think About Money by Clements. https://www.amazon.com/Think-About-Mone ... 1523770813. Lots of superb thoughts specifically designed for people in your situation.

:beer
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

HomeStretch
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Re: Just starting out - what to invest in?

Post by HomeStretch » Tue Jan 14, 2020 7:51 am

john2020 wrote:
Tue Jan 14, 2020 12:40 am
I figure if it's too complicated I could just somehow split the money this year into the three fund portfolio and then, adjust down the road when I understand more. Once I start the three fund portfolio, I can change it up from year to year, i don't always have to just have the three funds for it to consistently gain some money? Or is it if you do the three fund portfolio, do you HAVE to keep adding to those three funds each year to see it gown like it is shown?
It’s your money, so there is nothing you “have” to do.

It’s better to understand the basics before investing in anything. Once you invest, there is no need to “change it up from year to year”. Making changes to one’s portfolio just for the sake of doing something is more of a behavioral issue that can affect your portfolio returns negatively. Any change in a Taxable account likely has tax consequences. There are no tax consequences for changes in a 401k or IRA.

lakpr
Posts: 3411
Joined: Fri Mar 18, 2011 9:59 am

Re: Just starting out - what to invest in?

Post by lakpr » Tue Jan 14, 2020 9:13 am

john2020 wrote:
Tue Jan 14, 2020 12:29 am
Yeah I'm not 100% agreeing :D She want to curb my spending on my hobbies saying I spend too much and should be saving more. Just because I have money now doesn't mean I will always have it. There has been talk about an allowance! She calls it a budget where I can spend only X this year on my stuff but sure sounds like an allowance!
No sympathies, man :D Bogleheads are fully on your wife's side. Budgeting, low cost investing, maxing out tax-advantaged space first, all are Boglehead Mantras :)

john2020 wrote:
Tue Jan 14, 2020 12:29 am
So in your above example - $29k, but it's gonna be a little over $41k. Both of us will do an IRA or roth ira I guess. $6k each. the hsa for the $3550. The 401k should be $25,500 after company match.

So stocks, international stocks and then bonds. That sound like the three fund portfolio thing VTSMX VGTSX VBTLX.
so for example
68% in VTSMX
17% in VGTSX
15% in VBTLX
That's correct. Is VGTSX still offered in your 401k plan? I believe that fund is closed and rolled into VTIAX at least on the retail side.
john2020 wrote:
Tue Jan 14, 2020 12:29 am
Not saying that's what I will do but it sounds easy compared to picking different stocks. Now the international you say should go in Tax differed or Roths? Aren't all my retirement plans tax differed? Meaning I don't pay any tax on them until after retirement? I now the regular IRA and 401k I can take off my taxes now. and the roth 401k and Roth IRA I don't get to deduct now and I pay no taxes ever on them even in retirement. Not sure how the HSA works. So when you say non-qualified dividends, that doesn't mean anything until i actually retire, is that right?
Yes it is indeed that easy. With this 3-fund portfolio, you buy the entire universe of domestic stocks, international stocks and bonds. Buy the entire market at once. You know that hot-shot small-cap stock that's projected to zoom 250% in 1 year? You own it. You know that dividend aristocrat stock that steadily pays 4% dividend every year? You own it. You know that company in Germany that's creating a cure for cancer? You own it!

"Non-qualified dividends" are dividends thrown by the stocks held in the fund that have been held by the fund less than one year. You as a fund shareholder does not have a say in when those international stocks throw off dividends; the stocks declare the dividends, the fund has to accept it, and then it has to distribute it to all existing shareholders. Such dividends are taxed as ordinary income.

Compared to this, the Vanguard total stock market index generates dividends that are 95% qualified (meaning those dividends came from stocks that the fund held more than one year).

If you hold the international stocks in TAXABLE account, then you will have to pay ordinary income tax on them. If you hold them in 401k / HSA / IRA, then right, until you retire it does not mean a thing for you.

To be fair, international stocks also provide foreign tax credit if you hold them in taxable account. Funds held by VTIAX (old VGTSX) pay taxes to the foreign governments, and collect those taxes from the fund shareholders proportional to the investment. You can, on your own tax return, take a credit for those taxes when filling out your return. But analysis had shown that this tax credit is advantageous only if you are in 32% tax bracket or higher, at best neutral in 22% and 24% brackets, and definitely doesn't mean a thing in 12% and lower brackets. Assuming you are in the middle two brackets (22% and 24%), would you rather have your tax return complicated or easy?
john2020 wrote:
Tue Jan 14, 2020 12:29 am
Is it bad to have some of the money in monthly Dividend stocks like my friend does like O Realty and The ivy high income bonds? If I was retired it seems pretty nice to just take the dividends and not sell off the original stock to pay bills with and such?

Do something like

60% in VTSMX
10% in VGTSX
10% in VBTLX
10% O
10% WHIAX
Firstly, O and WHIAX have high expense ratios, so I would not recommend it. Secondly, if you are buying the whole market, why do you want to buy again a much smaller slice of it, and over-pay on top of it? You will be de-diversifying that diversification benefit buying the whole market gives you (in other words, increasing the risk).

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bertilak
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Re: Just starting out - what to invest in?

Post by bertilak » Tue Jan 14, 2020 10:14 am

The three fund portfolio is mentioned a number of times above. I say that's the answer to what to invest in.

The next questions are:
  • Exactly which funds are available to you to represent those three asset classes? Don't try stock picking. That's a full-time job with limited expectation of success.
  • What accounts are available to you (e.g. 401k) that get a matching contribution? Don't pass up free money.
  • What allocations (percentages) for each asset class? At your age (i.e. number of earning years ahead of you) something on the aggressive side is appropriate, that means heavier in equities than bonds.
  • Taxable, tax deferred and/or tax free accounts (IRA, Roth)? This is worth looking into but picking the right mix is a bit arbitrary and dependent on a future you can't predict -- I say mix it up!
But the most important thing is HOW MUCH you save and invest. The makeup (stocks/bonds/domestic/international) is secondary, and a somewhat distant second at that.

When starting out it doesn't hurt much if you get a few things wrong because there is less at stake and you have time to iron things out. So, pick a course (with some care) and dive in!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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