Advice on Expanding Portfolio For Guy Who Used to Live in Car

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PotatoesRule
Posts: 1
Joined: Tue Jul 20, 2021 9:24 pm

Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by PotatoesRule »

Hey Bogleheads,

I used to live out of my car 2.5 years ago having moved across the country twice to follow a girl (guess how that turned out). I landed an excellent job, that allowed me to build up my savings during lockdown and covid. My friends either live with their folks to make ends meet or are incredibly blessed from their parents fortunes. Neither knows investing so I'm figuring it out myself. I want to expand my portfolio from ETFs. Of my taxable capital I wish to invest, I have only put about 55% and I would like your advice on expanding it.


Emergency funds: 20.5k. 7 months expenses. Little too much but still have that car trauma
Debt: 0

Tax Filing Status: Single

Tax Rate: 24% Federal, 5% State

State of Residence:MA

Age: 26

Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 30-45% of stocks

Total Capital: 106k

Gross Income: 7.2k After tax and insurance
Net Income: 4k/month from salary. Lease is expensive but cheapest I could find in this area.

Taxable
7.1% (7.5k) Vanguard Total International Stock Index Fund ETF VXUS 0.09
7.1%(7.5k) Vanguard Total Stock Market Index Fund ETF VTI 0.03
4.7%(5k)IGBH iShares Interest Rate Hedged Long-Term Corp Bd 0.03
2.5%(2.7k)Technology Select Sector SPDR Fund XLK 0.12
2.5%(2.5k) Vanguard Small-Cap Value Index Fund ETF VBR 0.07
Stock
0.5%(600)BABA <-Purchased yesterday, first stock purchase
=23.4% invested


His 401k
30% (31k) In Vanguard Targeted date fund. Work controlled, cannot do anything. Contributed about 14k each year. Waiting for this year's company match
-5% (6.7k) Company match of salary to fund.

Nothing in Roth's. If I get a bonus or not at work will depend on if I can put any in this year.

Waiting To Invest
46.6% ~40k

Questions:
1. How much would you advise further investing into ETFs vs investing in stocks? I want to target value stocks and hold them. I.e. BABA fits the criteria and 3 shares wouldn't be signifant in my portfolio like 1 share of Amazon

2. Should I focus on growth or dividends while I'm young and with a healthy income? REITs I'm looking into would have a 10% dividend yield while growing themselves. However, stocks offer the best growth overall potential and I already have a healthy income. Should I just have some REITs for diversification's sake?

3. How much should I keep in reserve to pounce on opportunities? I want to keep some liquidity so if a ticker has a big drop, I can get it.

4. Should individual stocks be diversified like ETFs, or can I focus on my professional field of Tech. I"m highly educated in semiconductors and computers. They offer the greatest field of growth, but they also are prone to falls.

5. Is there any advice on owning stocks where governments have a controlling interest?
billfromct
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Joined: Tue Dec 03, 2013 9:05 am

Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by billfromct »

You need to open a Roth IRA ($6k if under 50 years old) & start to build some tax diversity in your retirement accounts, especially while you are young & have 40 years for those Roth retirement accounts to grow tax free & taken out state & Federal tax free after age 59.5. You already have the money.

The ability to contribute to a Roth IRA starts to phase out when your modified adjusted gross income (MAGI) hits about $125k for a single person.

Roth IRAs weren’t available until I was about 50 years old & I maxed out each year. I also maxed out my tax deductible 401k each year.

When I retired, my retirement accounts were 94% tax deductible/6% Roth. When I started SS & IRA required minimum distributions (RMDs) at age 70 & single, I was bumped up a tax bracket in retirement. Not a bad problem to have, but if Roth retirement accounts were available when I was younger, I could manage my retirement taxes & potential estate more tax efficiently.

bill
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galawdawg
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Location: Georgia

Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by galawdawg »

Welcome to Bogleheads....Investing Advice Inspired by Jack Bogle!

In that light, I'd recommend you stay away from individual stocks and simplify your portfolio. Taylor Larimore's often-recommended three-fund portfolio is often-recommended for a reason! Total US Stock Index, Total International Stock Index and Total US Bond Index. Invest in just those three (3) funds according to your desired asset allocation (which in this case would be about 65/25/10), reinvest dividends, life well below your means, invest the rest and hold these funds forever. Stay the course. Those are some keys to investing success!

I'd suggest reading many of the great Wiki articles, starting here: https://www.bogleheads.org/wiki/Getting_started

While there are posters here who may encourage you to continue investing in individual stocks (or not discourage you), this is Bogleheads and one of our philosophies is to use index funds whenever possible. As a new investor, it is particularly important to stick with the basics and keep it simple and low-cost. Index funds are the way to go.

Again, welcome! Hope you stick around and discover why Jack Bogle has been heralded as a genius when it comes to helping ordinary folks realize investing success, often beyond their wildest dreams.

:beer
backpacker61
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Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by backpacker61 »

PotatoesRule wrote: Tue Jul 20, 2021 10:46 pm His 401k
30% (31k) In Vanguard Targeted date fund. Work controlled, cannot do anything. Contributed about 14k each year. Waiting for this year's company match
-5% (6.7k) Company match of salary to fund.
You can nudge this up to 19.5k. I would do that as a first order of business.

Do you participate in a High Deductible Health Plan for health insurance at work? Open and fund a Health Savings Account (HSA), if so (3.6k limit this year). You can invest any unspent balance in that.

I would avoid individual stocks for now; stick with ETF's or mutual funds and the excellent Target Date fund in your 401k.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by retiredjg »

Individual stocks are a risky way to invest. Keep this part of your portfolio at or below 5% of the total portfolio. Put the rest of the portfolio into broad market based index funds/ETFs.

It is more important to put retirement money into Roth IRA than into a taxable account.
aristotelian
Posts: 9372
Joined: Wed Jan 11, 2017 8:05 pm

Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by aristotelian »

The expected return from individual stocks is the market return because you are always paying the market price based on the same information as the market. However, the risk of individual stocks is much higher. Generally you want to take on greater risk only if you have a reason to expect higher returns. Check out "If You Can" free pdf by William Bernstein.
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CyclingDuo
Posts: 4371
Joined: Fri Jan 06, 2017 9:07 am

Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by CyclingDuo »

PotatoesRule wrote: Tue Jul 20, 2021 10:46 pmI used to live out of my car 2.5 years ago having moved across the country twice to follow a girl (guess how that turned out). I landed an excellent job, that allowed me to build up my savings during lockdown and covid.

Emergency funds: 20.5k. 7 months expenses. Little too much but still have that car trauma
Debt: 0

Tax Filing Status: Single

Tax Rate: 24% Federal, 5% State

State of Residence:MA

Age: 26

Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 30-45% of stocks

Total Capital: 106k

Gross Income: 7.2k After tax and insurance
Net Income: 4k/month from salary. Lease is expensive but cheapest I could find in this area.

Taxable
7.1% (7.5k) Vanguard Total International Stock Index Fund ETF VXUS 0.09
7.1%(7.5k) Vanguard Total Stock Market Index Fund ETF VTI 0.03
4.7%(5k)IGBH iShares Interest Rate Hedged Long-Term Corp Bd 0.03
2.5%(2.7k)Technology Select Sector SPDR Fund XLK 0.12
2.5%(2.5k) Vanguard Small-Cap Value Index Fund ETF VBR 0.07
Stock
0.5%(600)BABA <-Purchased yesterday, first stock purchase
=23.4% invested


His 401k
30% (31k) In Vanguard Targeted date fund. Work controlled, cannot do anything. Contributed about 14k each year. Waiting for this year's company match
-5% (6.7k) Company match of salary to fund.

Nothing in Roth's. If I get a bonus or not at work will depend on if I can put any in this year.

Waiting To Invest
46.6% ~40k

Questions:
1. How much would you advise further investing into ETFs vs investing in stocks? I want to target value stocks and hold them. I.e. BABA fits the criteria and 3 shares wouldn't be signifant in my portfolio like 1 share of Amazon

2. Should I focus on growth or dividends while I'm young and with a healthy income? REITs I'm looking into would have a 10% dividend yield while growing themselves. However, stocks offer the best growth overall potential and I already have a healthy income. Should I just have some REITs for diversification's sake?

3. How much should I keep in reserve to pounce on opportunities? I want to keep some liquidity so if a ticker has a big drop, I can get it.

4. Should individual stocks be diversified like ETFs, or can I focus on my professional field of Tech. I"m highly educated in semiconductors and computers. They offer the greatest field of growth, but they also are prone to falls.

5. Is there any advice on owning stocks where governments have a controlling interest?
Glad to read that you are out of the car and gainfully employed!

After reading your questions, I would highly recommend reading the primer "If You Can" available here: https://www.etf.com/docs/IfYouCan.pdf

It will address and answer all of your questions in a wise fashion as the well known author is a longtime member of the Boglehead.org family.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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ruralavalon
Posts: 21754
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by ruralavalon »

Welcome to the forum :happy .

His 401k
30% (31k) In Vanguard Targeted date fund. Work controlled, cannot do anything. Contributed about 14k each year. Waiting for this year's company match
-5% (6.7k) Company match of salary to fund.

Nothing in Roth's. If I get a bonus or not at work will depend on if I can put any in this year.

Waiting To Invest
46.6% ~40k
Open a Roth IRA at a low cost provider like Vanguard, contribute $6k of the $40k now, invest in the same Vanguard target date fund (for the time being).

Increase contributions to the 401k to make the maximum annual employee contribution of $19.5k this year. If necessary draw from the $40k to pay living expenses you would ordinarily have covered from your paycheck.

The remainder can be invested in your taxable account in more shares of Vanguard Total Stock Market ETF (VTI) or Vanguard Total International Stock ETF (VXUS). Both are very tax-efficient. Wiki article, "Tax-efficient Fund Placement", link.

It is important to use available tax-advantaged accounts as a priority ahead of investing in a taxable brokerage account. Wiki article, "Prioritizing Investments", link

What funds are offered in your employer's 401k plan? Please give fund names, tickers and expense ratios.

Please 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.

It may be wise to shift your 401k account to other funds.

Don't invest in individual stocks. Invest in broadly diversified index funds (to decrease risk) with low expense ratios (to increase your net returns). Index mutual funds or index exchange traded funds (ETFs) are usually the best choices
Last edited by ruralavalon on Wed Jul 21, 2021 8:47 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Impatience
Posts: 403
Joined: Thu Jul 23, 2020 3:15 pm

Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by Impatience »

Congrats on your progress. You’re in the right place.

1.I would advise 100% in ETFs, but if you’re dead set on buying some individual stocks then those should make up NO MORE than 5% of your total portfolio. Particularly if you’re going to be investing in companies like BABA which are laden with all kinds of risks.

2. Growth, dividend, and “REIT” - none of these things matter. Just buy the S&P 500 or another broad market index and you’ll own all of them in one package. Pursuing REITs and dividends will probably lower your overall return and also increase your tax bill if done outside of retirement accounts. Growth is also taken care of in there.

3. You should keep nothing in reserve except your emergency fund. You can’t time the market. Always be fully invested.

4. Your education in tech is surely very valuable in your career but it will not give you even a 0.1% advantage in investing. Sorry. There’s a million tech literate PhDs trying to predict and time the movements of the market to extract excess value most of them working for hedge funds, banks, you name it. And most of them are failing at any given time. Keep your domain expertise housed neatly at your job.

There you go. The biggest thing for you, I think, will be to tune out the noise and the urge to “do” more. You’re obviously smart and capable and in a few years will be rolling in dough. You’re going to feel the need to do more and tweak and get more. But the more you try to do the less effective the outcome will be.
mffl
Posts: 205
Joined: Wed Dec 06, 2017 7:25 pm

Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by mffl »

Impatience wrote: Wed Jul 21, 2021 8:45 am There’s a million tech literate PhDs trying to predict and time the movements of the market to extract excess value most of them working for hedge funds, banks, you name it. And most of them are failing at any given time. Keep your domain expertise housed neatly at your job.

There you go. The biggest thing for you, I think, will be to tune out the noise and the urge to “do” more. You’re obviously smart and capable and in a few years will be rolling in dough. You’re going to feel the need to do more and tweak and get more. But the more you try to do the less effective the outcome will be.
I cannot reiterate the above enough. There's a good chance you come out of reading these replies thinking "what's wrong with these bozos, I came asking for advice and they told me to put it all in 3 index funds, that's it"? It's too simple to be the answer, but it is. If you need to it to be complicated with some secret ingredient for your brain to believe it, let that be the secret ingredient -- that it's too simple for smart people to believe it could be the right strategy, and yet it is.

Where there is at least a little complexity and nuanced strategy is in being tax efficient. You'll want to listen closely to the suggestions of the other posters about that. Look into whether your employer offers an HSA, max your 401k, max your ROTH with the money you have sitting waiting to invest. There's a reason that the response to your question "which stocks do I invest in" got answered with "max your ROTH", even though that's not what you asked.

Welcome to the forum!
Last edited by mffl on Wed Jul 21, 2021 9:31 am, edited 1 time in total.
Broken Man 1999
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Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by Broken Man 1999 »

OP, first, congrats for your amazing turnaround! Sorry about your love life, but you have your whole life ahead of you.

Many years ago I was in tech. I was involved in designing networks using bleeding-edge products. The type that would have vendors flying new versions of cards to us every few days as issues were resolved, or thought to be resolved.

One such vendor was Cisco. I managed to lose money twice on Cisco stock. I thought my connection/knowledge of Cisco gave me insight, and felt there was no limit to Cisco's rise. Seems I was wrong, twice!

Your job is in tech. The last thing you need is more of your financials tied to tech.

My advice would be to eschew individual stocks, but if that is just impossible for you, limit total exposure to 5% or less of your portfolio. I dabble in individual stocks and despite Cisco I have done quite well. I have trimmed my individual stocks to a very few and I probably won't buy news ones any longer. And, my individual stocks are way less than 5% of my total portfolio.

One more thing, given the fact that companies in China can run afoul of the Party, which can (and does) act with total impunity, I wouldn't willingly put a nickel of capital in that country. I even swapped my Total Intl. Stock Market Index for FTSE Developed Markets Index. I fully expect my new holdings to have lower performance due to lack of China investments, but that is OK by me. Now I don't have to pinch my nose when I buy international equity funds.

I would also drop tilts to the tech sector, and SC Value Index. If you just can't drop both, I would keep the SC Value Index, less overlap than the tech sector with your job.

Again, congratulations for your turnaround! What an inspirational story, thanks for sharing it with us!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
retiredjg
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Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by retiredjg »

Broken Man 1999 wrote: Wed Jul 21, 2021 9:30 am Your job is in tech. The last thing you need is more of your financials tied to tech.
This is a key piece of advice.

People think they can pick stocks related to their education and experience... because they know more. It does not always work out that way (as demonstrated above).

It is a bit counter-intuitive, but loading up on assets in the same space as your income is risky! If that space goes south, it affects both your income and your nest egg. Avoid doing this.
rts58
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Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by rts58 »

I had always liked to dabble with a few stocks. BABA was the last I have purchased and I have decided it will be the last. I bought some shares in March 2018 feeling that it was a good rest of the world play against AMZN. I bought some ITOT (an S&P 500 index etf) around the same time. BABA has made a whopping 10% increase since then while ITOT is up over 65%. Stick with the index etf's.
Jablean
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Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by Jablean »

What do you mean you are waiting for a bonus before putting money into a Roth? You have $46,000 in cash just sitting there waiting to invest. Well get $6000 of it invested in a Roth today. Did you already file your taxes? If you put in for an October extension you could have put in another $6000 for last year today too.

I agree with other posters who have said to up your 401k to the max. Target date fund is fine as part of your goal is to get money out of taxable and let it grow in tax advantaged. If you think putting it in the 401k takes it from the amount you need monthly, that's what your current taxable can be used for. Sounds like you've got a great job so your taxable is likely to grow like it or not but do everything you can to catch up on the retirement for a few years and then maybe think about a house downpayment if that's why you want money in taxable.
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ruralavalon
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Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by ruralavalon »

rts58 wrote: Wed Jul 21, 2021 11:33 am I had always liked to dabble with a few stocks. BABA was the last I have purchased and I have decided it will be the last. I bought some shares in March 2018 feeling that it was a good rest of the world play against AMZN. I bought some ITOT (an S&P 500 index etf) around the same time. BABA has made a whopping 10% increase since then while ITOT is up over 65%. Stick with the index etf's.
iShares Core S&P Total U.S. Stock Market ETF (ITOT) tracks the S&P Total Market Index (TMI).

I agree with the main point, that it is better to be fully invested rather than hoard cash trying to time the market (waiting for a better time to invest).

If you wait to invest you will never know if waiting another day, another week, another month or even another year might be better. And you miss whatever gains you could have had while waiting
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Wiggums
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Re: Advice on Expanding Portfolio For Guy Who Used to Live in Car

Post by Wiggums »

retiredjg wrote: Wed Jul 21, 2021 10:31 am
Broken Man 1999 wrote: Wed Jul 21, 2021 9:30 am Your job is in tech. The last thing you need is more of your financials tied to tech.
This is a key piece of advice.

People think they can pick stocks related to their education and experience... because they know more. It does not always work out that way (as demonstrated above).

It is a bit counter-intuitive, but loading up on assets in the same space as your income is risky! If that space goes south, it affects both your income and your nest egg. Avoid doing this.
+1
I was in tech my entire career. I don’t have any individual stock. I just buy and hold the three fund portfolio
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