Starting Out Status Check

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Topic Author
Noobvester
Posts: 2
Joined: Wed Oct 13, 2021 10:59 am

Starting Out Status Check

Post by Noobvester »

Hello all,
I am very new at investing and I have been trying to figure things out on my own and with google. I am 32 years old and I want to retire at or before 60. I am currently in a lower tax bracket then I will be in 25-30 years (assuming I don’t lose my job lol). I want to maximize growth in my retirement savings and I figure I have a long time to do so; however I am starting with a small initial balance. The good news is I don’t have any short term debt and the only long term debt I have is my mortgage, and already have a comfortable emergency fund.

I currently have 22k in a Target date (2055) fund with my employers 401k that I have matched the max employer contributions with.

I rolled over 6k from this 401k account into a Roth IRA just this year. I put nearly all of the money in the Roth IRA into REITs in order to take advantage of the taxes, and put the rest into traditional stocks that pay high dividends (and Tesla). I chose the REITs and stocks mostly based on their dividend %. I did this all before reading through the getting started page here that talks about the 3 part portfolio. The current REITs I have are IRM, MPW, PEAK, the stocks are INTU, T, MMM and TSLA.

I also have an HSA through the company I work with that I make contributions to that meet the company match, then I stop contributing to it every year. The non-cash balance in my HSA is entirely invested into FHSNX, Fidelity’s HSA index fund.
I don’t think I will be in a place financially where I will be able to max out all of these different accounts to the maximum level allowed by the government, for some time.

After this background my questions are:

401k:
Should I continue with contributing to the target date fund in the 401k and take 6k from it yearly in order to rollover to my Roth IRA? I don’t think I can reasonably make 6k worth of contributions to the IRA without the company match in the 401k (they won’t match in a Roth IRA). Will this set me up for a nasty surprise at tax time? From what I could gather I would only pay taxes on my income + the 6k I rolled over, and so long as this doesn’t put me into a higher tax bracket I should be fine. Is this correct?
Are Fidelity target date funds okay or should I be actively finding different individual index funds/ bond holdings to put my 401k into?

Roth IRA:
Should I sell all the holdings and find index funds that pay out a similar %? Is there such a thing?
I wanted to use the Roth to try and get the most growth out of it, as this will serve me better in 30 years, is this assumption true?

HSA:
Should I keep contributing to the maximum limit for the year instead of stopping when I meet the company match?
I wanted to keep a cash balance of my OOP max, is this just wasted opportunity for growth?
Is there a difference in investing in a HSA index fund vs a traditional index fund?

Thanks for taking the time to read this, I hope I am doing everything correctly and I am on the path to early retirement. Do you (the collected wisdom of the forums) think there is anything else that I should be doing? Or even anything I should be doing instead?
Reading other posts about dividends on here makes me see I probably made a super common mistake in my Roth with respect to dividends, but in my defense I knew no better am willing to learn.
pkcrafter
Posts: 15080
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
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Re: Starting Out Status Check

Post by pkcrafter »


It would be very helpful if you posted according to this link - Asking portfolio questions.


https://www.bogleheads.org/wiki/Asking_ ... _questions
Noobvester wrote: Wed Oct 13, 2021 11:37 am Hello all,
I am very new at investing and I have been trying to figure things out on my own and with google. I am 32 years old and I want to retire at or before 60. I am currently in a lower tax bracket then I will be in 25-30 years (assuming I don’t lose my job lol). I want to maximize growth in my retirement savings and I figure I have a long time to do so; however I am starting with a small initial balance. The good news is I don’t have any short term debt and the only long term debt I have is my mortgage, and already have a comfortable emergency fund.

I currently have 22k in a Target date (2055) fund with my employers 401k that I have matched the max employer contributions with.

Name and ticker of the target fund (if there is one). Expense ratio.


I rolled over 6k from this 401k account into a Roth IRA just this year. I put nearly all of the money in the Roth IRA into REITs in order to take advantage of the taxes, and put the rest into traditional stocks that pay high dividends (and Tesla). I chose the REITs and stocks mostly based on their dividend %. I did this all before reading through the getting started page here that talks about the 3 part portfolio. The current REITs I have are IRM, MPW, PEAK, the stocks are INTU, T, MMM and TSLA.

Not many here will agree with your current choices.

I also have an HSA through the company I work with that I make contributions to that meet the company match, then I stop contributing to it every year. The non-cash balance in my HSA is entirely invested into FHSNX, Fidelity’s HSA index fund.
I don’t think I will be in a place financially where I will be able to max out all of these different accounts to the maximum level allowed by the government, for some time.

Info on FHSNX. Check the performance, risk, and portfolio.

https://www.morningstar.com/funds/xnas/fhsnx/quote

After this background my questions are:

401k:
Should I continue with contributing to the target date fund in the 401k and take 6k from it yearly in order to rollover to my Roth IRA? I don’t think I can reasonably make 6k worth of contributions to the IRA without the company match in the 401k (they won’t match in a Roth IRA). Will this set me up for a nasty surprise at tax time? From what I could gather I would only pay taxes on my income + the 6k I rolled over, and so long as this doesn’t put me into a higher tax bracket I should be fine. Is this correct?

I doubt many readers will support this strategy. It may be better to contribute first to the Roth and then fund the 401k with what's left.

Are Fidelity target date funds okay or should I be actively finding different individual index funds/ bond holdings to put my 401k into?

Fidelity Freedom Index Funds are OK. Please list the funds available in your 401k.

Roth IRA:
Should I sell all the holdings and find index funds that pay out a similar %? Is there such a thing?
I wanted to use the Roth to try and get the most growth out of it, as this will serve me better in 30 years, is this assumption true?

Yes, it's correct because Roth withdrawals aren't taxed.

HSA:
Should I keep contributing to the maximum limit for the year instead of stopping when I meet the company match?
I wanted to keep a cash balance of my OOP max, is this just wasted opportunity for growth?
Is there a difference in investing in a HSA index fund vs a traditional index fund?

HSA information.

https://www.healthcare.gov/glossary/hea ... count-HSA/

Thanks for taking the time to read this, I hope I am doing everything correctly and I am on the path to early retirement. Do you (the collected wisdom of the forums) think there is anything else that I should be doing? Or even anything I should be doing instead?
Reading other posts about dividends on here makes me see I probably made a super common mistake in my Roth with respect to dividends, but in my defense I knew no better am willing to learn.
Getting Started

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


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
MattB
Posts: 249
Joined: Fri May 28, 2021 12:27 am

Re: Starting Out Status Check

Post by MattB »

Noobvester wrote: Wed Oct 13, 2021 11:37 am The good news is I don’t have any short term debt and the only long term debt I have is my mortgage, and already have a comfortable emergency fund.
The good news is that you are already caring about this. Many don't until later in life.

Paul has already provided you with some good advice.

I'll add that you might consider mentally starting over. Throw out what you believe is or is not important right now. Take a few minutes. And restart the learning process. You might even post here asking "what is and is not important?" Some will point you to the getting started link, as Paul has. But others may give you direct advice on what you should and shouldn't care about.

I'll start so you have an example:

You wrote: "I chose the REITs and stocks mostly based on their dividend %."

As it turns out, dividends mean very little in the scheme of things. You'll ultimately be concerned with total returns: how much your money makes for you over time. The stocks you bought may return dividends. But dividends are return neutral in the best situations and cause unneeded taxes in the worst. The share price of a stock drops by the amount of the dividend on the date the dividend is distributed.

This link highlights the fact that dividends are relatively meaningless. It shows the total return of Vanguard's total stock market index fund (VTSMX) compared to the total return of Global X SuperDividend ETF since 2006. The dividend yield on VTSMX is between 1 and 2 percent most years. The dividend yield on SDIV is four times that much, at something like 8 percent. Yet VTSMX has crushed SDIV over the last 15 years.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

You'll want to be concerned with your savings rate, savings vehicles (IRA/401k/etc.), asset allocation, and expense ratios in that order. Once you've taken care of those things you've have little to do but keep working and let time in the market work for you.

Again, good on you for asking questions. You've come to a great place for that.
Topic Author
Noobvester
Posts: 2
Joined: Wed Oct 13, 2021 10:59 am

Re: Starting Out Status Check

Post by Noobvester »

Thanks for the replies and links. I have a lot more reading and learning to do.
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