Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

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L31
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Joined: Fri May 10, 2024 3:58 pm

Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by L31 »

Hi all, I wanted to start off by saying thank you for any advice or comments that you send. I have read every page in the wiki and relevant forum posts and think I am making the right decisions. I just wanted to make sure that I am doing the right thing and not making any mistakes.

Emergency Fund: 6 months
Debt: None
Tax Filing Status: Single
Tax Rate: 24% Federal, 5% State - expecting to be in a higher tax bracket by the time I retire. Income is below $146k so regular Roth IRA is okay
State of Residence: MA
Age: 23


Desired Asset Allocation: 100% stock; as I get older I plan to incorporate bonds

Taxable:
- 100% IVV (iShares Core S&P 500 ETF) (0.03% ER) (bought before learning the Bogle head way and that I should be prioritizing Roth IRA & 401k)

Traditional 401k: I am contributing up to my employer's match of 4% but will soon increase this.
- Voya Index Solution 2060 Portfolio - Class Z (0.24% ER)

Roth IRA: I intend to max out every year
- 80% VTI (Vanguard Total Stock Market Index Fund ETF) (0.03% ER)
- 20% VXUS (Vanguard Total International Stock Index Fund ETF) (0.08% ER)
- Adding bonds as I get older


Quick note:
I was planning on keeping my taxable account as is since I have the savings to already max out my Roth IRA, which I will dollar-cost average over the remainder of the year. I will also continue to contribute at minimum up to the match in the 401k.

Questions:
1. Is my plan sound? Are there any problems I might not be aware of?

2. My taxable and Roth IRA accounts are through Fidelity. Fidelity's total international fund (FTIHX) has an ER of 0.06%. Would this be a better option due to the 0.08% with VXUS? The same goes for Fidelity's (FSKAX) which has an ER of 0.01%, compared to VTI which has an ER of 0.03%. My impression is that many people have Fidelity accounts but go with Vanguard ETFs, but with all things equal, the lower—albeit small—difference in ER makes Fidelity seem like the better option to me. Am I missing something?

3. The Voya 2060 fund has an ER of 0.24%, but it also mentions Gross Prosp Exp Ratio - 0.40% of fund assets, Net Prosp Exp Ratio - 0.16% of fund assets, management fee - 0.21%, other fees - 0.01%, Miscellaneous Fees - 0.18%. Does this mean the total amount of fees I'm paying is 1.2% or 0.24%? I think I am stuck with this fund as they all have very similar costs, and this is the closest option to what others have recommended in other forum posts, but I would appreciate any clarity.

4. I have read a lot of people discussing tax loss harvesting saying it is not good to have VTI in both the Roth IRA and Taxable accounts, so I was thinking to continue to buy IVV in my taxable, is that a good idea?


Thank you all for your assistance with this big moment!
Last edited by L31 on Wed May 15, 2024 2:30 pm, edited 1 time in total.
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retired@50
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by retired@50 »

L31 wrote: Tue May 14, 2024 12:19 pm Traditional 401k: I am contributing up to my employer's match of 4% but will soon increase this.
- Voya Index Solution 2060 Portfolio - Class Z (0.24% ER)

3. The Voya 2060 fund has an ER of 0.24%, but it also mentions Gross Prosp Exp Ratio - 0.40% of fund assets, Net Prosp Exp Ratio - 0.16% of fund assets, management fee - 0.21%, other fees - 0.01%, Miscellaneous Fees - 0.18%. Does this mean the total amount of fees I'm paying is 1.2% or 0.24%? I think I am stuck with this fund as they all have very similar costs, and this is the closest option to what others have recommended in other forum posts, but I would appreciate any clarity.
Welcome to the forum.

You should probably request a copy of the summary plan description for the 401k plan. This document should help you clear up any confusion about the fees you're paying to be in the plan. A copy may be available online, or from someone in payroll or human resources at your company.

Unfortunately, 401k plans aren't free. There are record keeping duties and other administrative burdens that must be paid for. Some companies pay these costs for the employees, so the plan is free to the employee, but not to the company. In other cases, the employer passes these 401k plan costs along to the plan participants.

If you list the other fund choices in the plan, along with the fund names and expense ratios the forum members may be able to help.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
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gatorking
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by gatorking »

Welcome to the forum.

The Voya 2060 already has some bonds in it (~5-6%) so you aren't really 100% stock. You can see it's asset allocation here: https://www.morningstar.com/funds/xnas/vszix/portfolio

Do you know how you want to break up your stock allocation between US and International?

Do not add bonds to your Roth IRA add it your 401k. Monitor changes in the Voya 2060 fund or pick an earlier year.

FSKAX/FTIHX vs. VTI/VXUS - splitting hairs.

No comment on Voya expense ratio see here for what Morningstar has to say: https://www.morningstar.com/funds/xnas/vszix/price

I think it's okay to continue with IVV in taxable. Just decide what you will buy when tax loss harvesting (e.g. VV)
Harmanic
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by Harmanic »

Your plan is sound. You might want to consider using a Roth 401k instead of a traditional if you think your income will rise substantially as you get older. You might be in the lowest tax bracket that you'll ever be in right now. Of course, if your employer does not offer a Roth 401k, then just keep doing what you are doing.
The question isn't at what age I want to retire, it's at what income. | - George Foreman
billfromct
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by billfromct »

You don’t mention if you contribute to your Roth IRA via “the backdoor Roth IRA” method, but being single & in the 24% Federal income tax bracket, you may earn too much to make a regular Roth IRA contribution.

The ability to contribute to a Roth IRA starts to phase out when your modified adjusted gross income (MAGI) hits $146k, if single for 2024.

Your MAGI is basically your gross income minus any tax deductible 401k contributions plus interest, dividend, & capital gains. MAGI is before any income tax deductions, like the standard or itemized deductions. You may want to google “modified adjusted gross income” for the exact details.

Also you can also look at your 2023 Federal income tax return & check line 11, “adjusted gross income” to give you a good idea what your MAGI was for 2023. There are some things you have to add back in to your “adjusted gross income” to get your MAGI, but those “add backs” don’t impact most people”.

You may want to google “maximum income to contribute to a Roth IRA”.

bill
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my2p
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by my2p »

Many good answers already. I can heartily recommend "The simple path to wealth" by JL Collins so you develop a sound financial framework.

You can also find JL on Youtube and read his blog jlcollinsnh.com. He also did a podcast with Bogleheads which is on Youtube (Bogleheads on Investing Podcast 053: JL Collins on the simple path to wealth, host Rick Ferri -> https://www.youtube.com/watch?v=gcDpzQMKud4).
“The simple path to wealth” — JL Collins.
momopi
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by momopi »

If you don’t like the 401k selection at work, petition HR or benefits board to add index funds. You’ll have to make a convincing case to leadership.
Topic Author
L31
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by L31 »

retired@50 wrote: Tue May 14, 2024 1:32 pm
L31 wrote: Tue May 14, 2024 12:19 pm Traditional 401k: I am contributing up to my employer's match of 4% but will soon increase this.
- Voya Index Solution 2060 Portfolio - Class Z (0.24% ER)

3. The Voya 2060 fund has an ER of 0.24%, but it also mentions Gross Prosp Exp Ratio - 0.40% of fund assets, Net Prosp Exp Ratio - 0.16% of fund assets, management fee - 0.21%, other fees - 0.01%, Miscellaneous Fees - 0.18%. Does this mean the total amount of fees I'm paying is 1.2% or 0.24%? I think I am stuck with this fund as they all have very similar costs, and this is the closest option to what others have recommended in other forum posts, but I would appreciate any clarity.
Welcome to the forum.

You should probably request a copy of the summary plan description for the 401k plan. This document should help you clear up any confusion about the fees you're paying to be in the plan. A copy may be available online, or from someone in payroll or human resources at your company.

Unfortunately, 401k plans aren't free. There are record keeping duties and other administrative burdens that must be paid for. Some companies pay these costs for the employees, so the plan is free to the employee, but not to the company. In other cases, the employer passes these 401k plan costs along to the plan participants.

If you list the other fund choices in the plan, along with the fund names and expense ratios the forum members may be able to help.

Regards,
Thank you for your response. I had not thought about the 401k plan costs working in that way, but it makes complete sense. As for fund alternatives, there are basically only retirement date funds offered, and this is the longest range one other than the 2065 fund, which has an ER of 0.30 and a sum of other expenses totaling 1.41% I will have to contact HR to get a better understanding of the fees and decide which one to go with from there. I like the idea of the later date fund as it is likely more aggressive and has bonds, but I was originally thinking of staying away from it due to the slightly higher ER.
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retired@50
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by retired@50 »

L31 wrote: Wed May 15, 2024 11:47 am
Thank you for your response. I had not thought about the 401k plan costs working in that way, but it makes complete sense. As for fund alternatives, there are basically only retirement date funds offered, and this is the longest range one other than the 2065 fund, which has an ER of 0.30 and a sum of other expenses totaling 1.41% I will have to contact HR to get a better understanding of the fees and decide which one to go with from there. I like the idea of the later date fund as it is likely more aggressive and has bonds, but I was originally thinking of staying away from it due to the slightly higher ER.
If you're being charged additional fees or costs beyond the expense ratio, then I presume those fees would show up in your transaction history of the 401k plan. You might be able to verify some of this by studying the past 12 months of your transaction history.

Look for:
1. periodic contributions in dollars, that should match what is being shown on your pay-stub.

2. periodic dividend and/or interest payments for the fund(s) you're invested in.

3. negative amounts or deductions taken from your balance, either monthly, quarterly, or annually.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Topic Author
L31
Posts: 8
Joined: Fri May 10, 2024 3:58 pm

Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by L31 »

gatorking wrote: Tue May 14, 2024 1:33 pm Welcome to the forum.

The Voya 2060 already has some bonds in it (~5-6%) so you aren't really 100% stock. You can see it's asset allocation here: https://www.morningstar.com/funds/xnas/vszix/portfolio

Do you know how you want to break up your stock allocation between US and International?
I was planning to do 80/20, following the bogle heads three-fund portfolio. However, based on your comment about adding bonds to 401k and not Roth IRA, I will keep an eye on adding bonds there based on how much the Voya target date fund adjusts.

gatorking wrote: Tue May 14, 2024 1:33 pm FSKAX/FTIHX vs. VTI/VXUS - splitting hairs.
Okay, I thought that might be the case. Thank you for clarifying that. I will stick to the Vanguard options for simplicity as I continue to read the bogle heads forums.

gatorking wrote: Tue May 14, 2024 1:33 pm I think it's okay to continue with IVV in taxable. Just decide what you will buy when tax loss harvesting (e.g. VV)
Will do, thank you for all your help!
Topic Author
L31
Posts: 8
Joined: Fri May 10, 2024 3:58 pm

Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by L31 »

Harmanic wrote: Tue May 14, 2024 2:30 pm Your plan is sound. You might want to consider using a Roth 401k instead of a traditional if you think your income will rise substantially as you get older. You might be in the lowest tax bracket that you'll ever be in right now. Of course, if your employer does not offer a Roth 401k, then just keep doing what you are doing.
Unfortunately, they don't offer a Roth 401k, but I will keep that in mind and in my notes as I continue through my career. Thank you for the feedback!
Topic Author
L31
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Joined: Fri May 10, 2024 3:58 pm

Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by L31 »

billfromct wrote: Tue May 14, 2024 3:06 pm You don’t mention if you contribute to your Roth IRA via “the backdoor Roth IRA” method, but being single & in the 24% Federal income tax bracket, you may earn too much to make a regular Roth IRA contribution.

The ability to contribute to a Roth IRA starts to phase out when your modified adjusted gross income (MAGI) hits $146k, if single for 2024.

Your MAGI is basically your gross income minus any tax deductible 401k contributions plus interest, dividend, & capital gains. MAGI is before any income tax deductions, like the standard or itemized deductions. You may want to google “modified adjusted gross income” for the exact details.

Also you can also look at your 2023 Federal income tax return & check line 11, “adjusted gross income” to give you a good idea what your MAGI was for 2023. There are some things you have to add back in to your “adjusted gross income” to get your MAGI, but those “add backs” don’t impact most people”.

You may want to google “maximum income to contribute to a Roth IRA”.

bill
Thank you for the backdoor Roth IRA point; I am not at $146k, so I don't need to worry about the backdoor method at the moment, but I will certainly keep it in mind as I continue in my career. Thanks again!
Topic Author
L31
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by L31 »

my2p wrote: Tue May 14, 2024 10:42 pm Many good answers already. I can heartily recommend "The simple path to wealth" by JL Collins so you develop a sound financial framework.

You can also find JL on Youtube and read his blog jlcollinsnh.com. He also did a podcast with Bogleheads which is on Youtube (Bogleheads on Investing Podcast 053: JL Collins on the simple path to wealth, host Rick Ferri -> https://www.youtube.com/watch?v=gcDpzQMKud4).
Thank you for sharing the link! I have been searching for the podcast on Apple Podcasts and Spotify and was so confused why I couldn't find it! I will make sure to check out the book and his episode.
Topic Author
L31
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by L31 »

momopi wrote: Tue May 14, 2024 11:19 pm If you don’t like the 401k selection at work, petition HR or benefits board to add index funds. You’ll have to make a convincing case to leadership.
Thank you for your response. I don't think the selection is bad; I just wanted to check if it was a good option. I was concerned by the potentially high cost of buying it, but I will be sending an email to confirm if it is 0.24% or 1.2%.
Topic Author
L31
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by L31 »

retired@50 wrote: Wed May 15, 2024 11:53 am
If you're being charged additional fees or costs beyond the expense ratio, then I presume those fees would show up in your transaction history of the 401k plan. You might be able to verify some of this by studying the past 12 months of your transaction history.

Look for:
1. periodic contributions in dollars, that should match what is being shown on your pay-stub.

2. periodic dividend and/or interest payments for the fund(s) you're invested in.

3. negative amounts or deductions taken from your balance, either monthly, quarterly, or annually.

Regards,
Will do, thank you for your input!
Harmanic
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by Harmanic »

L31 wrote: Wed May 15, 2024 2:25 pm
momopi wrote: Tue May 14, 2024 11:19 pm If you don’t like the 401k selection at work, petition HR or benefits board to add index funds. You’ll have to make a convincing case to leadership.
Thank you for your response. I don't think the selection is bad; I just wanted to check if it was a good option. I was concerned by the potentially high cost of buying it, but I will be sending an email to confirm if it is 0.24% or 1.2%.
You are paying 0.16. Everything is included. You do not add them together. The gross expense is 0.40 but some of the fees are waived, which is why you pay 0.16 after the waivers. A target date fund is what is known as a fund of funds. That means it contains multiple mutual funds embedded in the target date fund. To avoid double charging for the fees in the fund and then the fund itself, they waive the fees of the embedded funds, or something like that.

There may be some additional 401k administrative fees, but they should be minimal, although I have seen them go as high as 0.36. Usually they are under 0.10. And those fees are applied to the account, not the funds. So you would pay them regardless of what you invest in.
The question isn't at what age I want to retire, it's at what income. | - George Foreman
protagonist
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by protagonist »

HI, and welcome.

One thing...are you planning to save to buy a home in the foreseeable future (or have any other predictable major expenses)?
And if so, do you have a time frame in mind?

If so, you might want to put a certain amount away on a regular basis in a safe investment (TIPS are one idea, if you know when you would need the money....if not, even money markets yield over 5% these days. T-bills are also an idea, since they, like TIPS, are state tax deferred).

In case of a stock market crash that does not recover by your target date, you would still have necessary available funds.

re:Voya: I am not a fan of composite "funds of funds", from personal experience. I bought one many years ago that I still own, and it was a mistake.

If the fund experiences significant gains over the years, and if you hold it in taxable, you become a slave to it, since selling will have large tax implications.
If management changes, your strategy changes, or the manager decides to change the composition of the fund in a way you disagree, your only option would be to sell and take the big tax hit. You could not sell individual components.
If, on the other hand, you invest in the underlying individual index funds, you could sell only what you want to sell, and if a component takes a loss one year, you could harvest the loss.

Are you confident that your strategy will not change between now and 2060?

Plus, by buying the individual components, you may save on management fees.
bonesly
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by bonesly »

protagonist wrote: Wed May 15, 2024 9:20 pm re:Voya: I am not a fan of composite "funds of funds", from personal experience. I bought one many years ago that I still own, and it was a mistake.

If the fund experiences significant gains over the years, and if you hold it in taxable, you become a slave to it, since selling will have large tax implications.
L31 wrote: Tue May 14, 2024 12:19 pm Traditional 401k: I am contributing up to my employer's match of 4% but will soon increase this.
- Voya Index Solution 2060 Portfolio - Class Z (0.24% ER)
...
As for fund alternatives [in the 401k], there are basically only retirement date funds offered
OP is holding it in a tax-deferred 401k, not taxable. Plus it seems that TDFs are the only choices in the 401k, which seem pretty bad, but maybe it's a very small company and this was the best deal they could broker with any of the financial giants willing to play ball with a small fry.

Still worth petitioning the plan admin to at least offer three basic index funds for Total US Stock (or S&P-500), Total Int'l Stock, and Total US Bond. Not offering these choices almost seems negligent, but it seems small companies have little bargaining power to offer a reasonable variety of affordable choices. If it's a large company the OP works for, there's no excuse for offering "only" TDFs.
momopi
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Re: Quick Questions 23 Year Old Learning To Invest the Bogle Head Way

Post by momopi »

L31 wrote: Wed May 15, 2024 2:25 pm
momopi wrote: Tue May 14, 2024 11:19 pm If you don’t like the 401k selection at work, petition HR or benefits board to add index funds. You’ll have to make a convincing case to leadership.
Thank you for your response. I don't think the selection is bad; I just wanted to check if it was a good option. I was concerned by the potentially high cost of buying it, but I will be sending an email to confirm if it is 0.24% or 1.2%.
Unfortunately 401k plans come with fees and expenses, but the 401k matching should more than make up for it.
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