Where should I put my money?

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Kdots
Posts: 6
Joined: Fri Aug 07, 2015 8:46 am

Where should I put my money?

Post by Kdots » Fri Oct 06, 2017 12:43 am

Emergency funds: not in separate fund
Money Market: $52,000 at 1.2%, contributing $1300/mo.
Debt: $107,000 mortgage at 3.625 (co-owned/co-borrower, not interested in paying down)
Tax Filing Status: Single
Tax Rate: 15% Federal, 6% State
Income: $42,800
State of Residence: MO
Age: 36
Roth IRA : $10,000 VTSAX, maxed out this year, plan on maxing out next year as well - from monthly savings above, not on top.
No workplace retirement.

Desired Asset allocation: not sure - Vanguard quiz suggested 30% Bonds 70% Stock
Desired International allocation: not sure

Hi!
I would appreciate any advice on how best to proceed. I know I need to do something more with some of the funds in my Money Market. I am just not sure where to put them. Is it reasonable to forgo the Bonds and keep more in the Money Market? Perhaps just VTSAX and VGTSX? A Target fund?
Only planned upcoming expenses are $5,000-8,000 for a car when needed and $2,000 for vacation.
I don't have a grasp on what is best for tax purposes either.
I am considering an HSA with a high deductible plan next year. Just starting to consider this as an option, I know nothing so far.

What would you recommend I do?

Thank you for your advice and time!
I apologize for any missing info or poor formatting.
Last edited by Kdots on Fri Oct 06, 2017 9:15 pm, edited 1 time in total.

ThrustVectoring
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Re: Where should I put my money?

Post by ThrustVectoring » Fri Oct 06, 2017 1:14 am

Are you a W-2 employee or a 1099 contractor? If you're a contractor, you are your employer, so you can set up your own retirement plan and contribute up to the legal limits of the plan you choose. If it means draining savings to do so, well, the money is better off tax-protected.

Otherwise, it's a little weird to grab interest at 1.2% and pay debt at 3.625%. You can't sell mortgage prepayments so your position is more flexible, sure, but that's not really worth that spread. OTOH, the mortgage is at an attractive interest rate, so it probably doesn't make sense to pay it off rather than invest. Plus, having the split responsibility for the house complicates things.

As far as funds go, VTSAX and VGTSX are great choices. 70/30 is a fine ratio. A safe bond fund will rarely lose much money and will have a higher yield than your money market account. VBTLX - Vanguard Total Bond Market Index Fund, essentially VTSAX for bonds - currently has a yield to maturity of 2.4%. For things that aren't earmarked for known short-term expenses, a bond fund is significantly better to be invested in.

As far as the money market fund goes, I'm not a huge fan. A high-yield savings account has FDIC insurance and rates just as good. Unless you're frequently making withdrawals and outgoing transfers, the savings account is just better. That said, it's a very minor difference, not really worth worrying about IMO.

What I'd do is tally up known expenses (including next year's Roth IRA contribution), set aside that amount + your emergency fund in cash, and put the rest in a three-fund portfolio like in the wiki.

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Toons
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Location: Hills of Tennessee

Re: Where should I put my money?

Post by Toons » Fri Oct 06, 2017 6:10 am

"Money Market: $52,000 at 1.2%, contributing $1300/mo.
Debt: $107,000 mortgage at 3.625 "

Mortgage :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Grt2bOutdoors
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Location: New York

Re: Where should I put my money?

Post by Grt2bOutdoors » Fri Oct 06, 2017 6:31 am

Toons wrote:
Fri Oct 06, 2017 6:10 am
"Money Market: $52,000 at 1.2%, contributing $1300/mo.
Debt: $107,000 mortgage at 3.625 "

Mortgage :happy
That money is his emergency fund for when proverbial dung hits the fan. Placing the money in an illiquid investment will not benefit him if he loses his job .....
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Kdots
Posts: 6
Joined: Fri Aug 07, 2015 8:46 am

Re: Where should I put my money?

Post by Kdots » Fri Oct 06, 2017 8:28 am

ThrustVectoring wrote:
Fri Oct 06, 2017 1:14 am
Are you a W-2 employee or a 1099 contractor? If you're a contractor, you are your employer, so you can set up your own retirement plan and contribute up to the legal limits of the plan you choose. If it means draining savings to do so, well, the money is better off tax-protected.

Otherwise, it's a little weird to grab interest at 1.2% and pay debt at 3.625%. You can't sell mortgage prepayments so your position is more flexible, sure, but that's not really worth that spread. OTOH, the mortgage is at an attractive interest rate, so it probably doesn't make sense to pay it off rather than invest. Plus, having the split responsibility for the house complicates things.

As far as funds go, VTSAX and VGTSX are great choices. 70/30 is a fine ratio. A safe bond fund will rarely lose much money and will have a higher yield than your money market account. VBTLX - Vanguard Total Bond Market Index Fund, essentially VTSAX for bonds - currently has a yield to maturity of 2.4%. For things that aren't earmarked for known short-term expenses, a bond fund is significantly better to be invested in.

As far as the money market fund goes, I'm not a huge fan. A high-yield savings account has FDIC insurance and rates just as good. Unless you're frequently making withdrawals and outgoing transfers, the savings account is just better. That said, it's a very minor difference, not really worth worrying about IMO.

What I'd do is tally up known expenses (including next year's Roth IRA contribution), set aside that amount + your emergency fund in cash, and put the rest in a three-fund portfolio like in the wiki.
Thank you for your response.
W-2 Employee. No option though work at the moment.

Paying down the mortgage is not really an option. My partner is not a similar financial position and cannot contribute more. House is definitely not a forever house and possibly partner is not either.

Money Market is at CapitalOne, so has FDIC Insurance, not a fund.

What split would you recommend between VTSAX & VGTSX?
Thank you!

Kdots
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Joined: Fri Aug 07, 2015 8:46 am

Re: Where should I put my money?

Post by Kdots » Fri Oct 06, 2017 8:36 am

Toons wrote:
Fri Oct 06, 2017 6:10 am
"Money Market: $52,000 at 1.2%, contributing $1300/mo.
Debt: $107,000 mortgage at 3.625 "

Mortgage :happy
Thank you for your response!
Mortgage is shared with someone who cannot contribute more and I would prefer to keep things as equal as possible. House is not a forever home and will probably be sold in a few years. Most likely at a time when I also change jobs and move out of town.
With that said, any other suggestions?
Thank you.

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KlingKlang
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Re: Where should I put my money?

Post by KlingKlang » Fri Oct 06, 2017 8:50 am

You are at a good age to begin purchasing Series I Savings Bonds, but you are limited to $10K/year in purchases from Treasury Direct plus $5000 from your Federal income tax refund. They are liquid after one year, never lose principle, state and local tax free, and you can defer federal taxes for up to 30 years. You can check around to see if any banks are offering deals on CDs. You can count these investments as part of your bond allocation.

It is unlikely that you will meet your retirement goals if your only stock investments are in a Roth IRA due to the low contribution limit. Consider opening an after tax Total Stock Market account, it is very tax efficient.

Kdots
Posts: 6
Joined: Fri Aug 07, 2015 8:46 am

Re: Where should I put my money?

Post by Kdots » Fri Oct 06, 2017 9:07 am

KlingKlang wrote:
Fri Oct 06, 2017 8:50 am
You are at a good age to begin purchasing Series I Savings Bonds, but you are limited to $10K/year in purchases from Treasury Direct plus $5000 from your Federal income tax refund. They are liquid after one year, never lose principle, state and local tax free, and you can defer federal taxes for up to 30 years. You can check around to see if any banks are offering deals on CDs. You can count these investments as part of your bond allocation.

It is unlikely that you will meet your retirement goals if your only stock investments are in a Roth IRA due to the low contribution limit. Consider opening an after tax Total Stock Market account, it is very tax efficient.
Thanks! I will look into those options.

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ruralavalon
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Location: Illinois

Re: Where should I put my money?

Post by ruralavalon » Fri Oct 06, 2017 11:08 am

Kdots wrote:
Fri Oct 06, 2017 12:43 am
Emergency funds: not in separate fund
Money Market: $52,000 at 1.2%, contributing $1300/mo.
Debt: $107,000 mortgage at 3.625 (shared with partner)
You are saving another $15.6k per year.
Unmarried I don't think it's prudent to pay extra,on the mortgage note.
Tax Filing Status: Single
Tax Rate: 15% Federal, 6% State
Income: $42,800
State of Residence: MO
Age: 36
Roth IRA : $10,000 VTSAX, maxed out this year, plan on maxing out next year as well.
No workplace retirement.

Desired Asset allocation: not sure - Vanguard quiz suggested 30% Bonds 70% Stock
Desired International allocation: not sure
In my opinion an asset allocation of 70/30 stocks/bonds is within the range of what is reasonable at age 36.

I suggest around 20-30% of stocks in international stocks.


Hi!
I would appreciate any advice on how best to proceed. I know I need to do something more with some of the funds in my Money Market. I am just not sure where to put them. Is it reasonable to forgo the Bonds and keep more in the Money Market? Perhaps just VTSAX and VGTSX? A Target fund?
Only planned upcoming expenses are $5,000-8,000 for a car when needed and $2,000 for vacation.
I don't have a grasp on what is best for tax purposes either.
I am considering an HSA with a high deductible plan next year. Just starting to consider this as an option, I know nothing so far.

What would you recommend I do?

Thank you for your advice and time!
I apologize for any missing info or poor formatting.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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ruralavalon
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Location: Illinois

Re: Where should I put my money?

Post by ruralavalon » Fri Oct 06, 2017 11:37 am

Kdots wrote:
Fri Oct 06, 2017 12:43 am
Emergency funds: not in separate fund
Money Market: $52,000 at 1.2%, contributing $1300/mo.
Debt: $107,000 mortgage at 3.625 (shared with partner)
Tax Filing Status: Single
How much in an emergency fund would be required to cover 3-6 months of basic living expenses?

You are saving $15.6k per year ($1.3k/month x 12 = $15.6k/year), is that in addition to the $5.5k which you plan to contribute annually to your Roth IRA?

Are both you and your partner joint owners of the property? Are both you and your partner both liable on the mortgage note?

You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.

Kdots wrote:Tax Rate: 15% Federal, 6% State
Income: $42,800
State of Residence: MO
Age: 36
Roth IRA : $10,000 VTSAX, maxed out this year, plan on maxing out next year as well.
No workplace retirement.

Desired Asset allocation: not sure - Vanguard quiz suggested 30% Bonds 70% Stock
Desired International allocation: not sure
In my opinion an asset allocation of 70/30 stocks/bonds is within the range of what is reasonable at age 36.

I suggest around 20-30% of stocks in international stocks. Historically that would have captured around 84-99% of the maximum diversification benefit.

That works out to about 30% bonds, 15-20% international stocks, and 50-55% domestic stocks.


Kdots wrote:Hi!
I would appreciate any advice on how best to proceed. I know I need to do something more with some of the funds in my Money Market. I am just not sure where to put them. Is it reasonable to forgo the Bonds and keep more in the Money Market? Perhaps just VTSAX and VGTSX? A Target fund?
Only planned upcoming expenses are $5,000-8,000 for a car when needed and $2,000 for vacation.
I don't have a grasp on what is best for tax purposes either.
I am considering an HSA with a high deductible plan next year. Just starting to consider this as an option, I know nothing so far.

What would you recommend I do?

Thank you for your advice and time!
I apologize for any missing info or poor formatting.
You are single. If the property is jointly owned and if you are both liable on the mortgage note, then I would hesitate to suggest taking your savings to pay off the mortgage note.

Here is what I would suggest:

1) of the $52k in the money market fund, keep out enough to cover 3-6 months of basic living expenses as an emergency fund;

2) of the $52k in the money market fund keep out $4-8k for a car and $2k for a vacation;

3) consider investing the remainder in an individual taxable account at a low cost provider like Vanguard, in very broadly diversified index funds such as Vanguard Total International Stock Index Fund, Vanguard Total Stock Market Index Fund and Vanguard Total Bond Market Index Fund; and

4) continue contributing the maximum every year to your Roth IRA.
Last edited by ruralavalon on Fri Oct 06, 2017 1:42 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Rob Bertram
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Joined: Mon May 05, 2014 12:15 pm

Re: Where should I put my money?

Post by Rob Bertram » Fri Oct 06, 2017 11:54 am

Kdots wrote:
Fri Oct 06, 2017 8:36 am
Toons wrote:
Fri Oct 06, 2017 6:10 am
"Money Market: $52,000 at 1.2%, contributing $1300/mo.
Debt: $107,000 mortgage at 3.625 "

Mortgage :happy
Thank you for your response!
Mortgage is shared with someone who cannot contribute more and I would prefer to keep things as equal as possible. House is not a forever home and will probably be sold in a few years. Most likely at a time when I also change jobs and move out of town.
With that said, any other suggestions?
Thank you.
You might be getting things confused. The name on the mortgage can be different from people paying the mortgage. Is it your name on the mortgage or both you and your partner? If it's just your name on the mortgage, you can still pay it off. Your partner will continue to make the same monthly payment to you instead of to the bank.

ThrustVectoring
Posts: 205
Joined: Wed Jul 12, 2017 2:51 pm

Re: Where should I put my money?

Post by ThrustVectoring » Fri Oct 06, 2017 3:58 pm

Kdots wrote:
Fri Oct 06, 2017 8:28 am
Paying down the mortgage is not really an option. My partner is not a similar financial position and cannot contribute more. House is definitely not a forever house and possibly partner is not either.

What split would you recommend between VTSAX & VGTSX?
Paying down the mortgage early is an option, it just takes precise bookkeeping to make it work properly. Being able to do this is only worth a few hundred dollars a year, though, so it might not be worth the professional consultation to get paperwork and planning set up properly.

As far as domestic vs international holdings, opinions vary. By market-cap it's 50/50, but there's good reasons to be over-weighted with domestic stocks (IIRC, something like better correlation with the cost of your expenses?). Vanguard recommends somewhere between 20 and 40% of your equity holdings to be international. International stock - especially emerging markets - is riskier, has better expected gain, and has diversification benefits.

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Strayshot
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Location: New Mexico

Re: Where should I put my money?

Post by Strayshot » Fri Oct 06, 2017 4:39 pm

Ruralavalon hit the nail on the head. Follow the steps at the end of his/her post and you are set. :sharebeer

retiredjg
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Re: Where should I put my money?

Post by retiredjg » Fri Oct 06, 2017 5:13 pm

If I understand correctly....you are single, with a partner, but not for taxes. You gross $42,800 a year and you are saving $5,500 in Roth IRA and $15,600 in a taxable account. I guess you are very frugal or just don't eat much. :happy

I think you should check out putting money into traditional IRA, not Roth IRA, because you could lower your income and qualify for the "saver's credit" on your taxes. You might come out ahead.

You might also qualify for the earned income credit, but I don't know anything about it or how it works. You should look it up.

Roth IRA is a great and wonderful thing, but your taxable income is also after tax money so you would not be giving up already taxed money totally. Using traditional IRA and reducing your income might have an up side you have not considered.

I would NOT put extra money to the mortgage in this situation. I think you need to maintain as much liquidity and flexibility as possible.

https://www.bogleheads.org/wiki/Saver%27s_credit

retiredjg
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Re: Where should I put my money?

Post by retiredjg » Fri Oct 06, 2017 5:14 pm

And I too agree with what ruralavalon suggested....other than using tIRA instead of Roth IRA if that gets you a credit on your taxes.
Last edited by retiredjg on Fri Oct 06, 2017 5:15 pm, edited 1 time in total.

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KlingKlang
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Re: Where should I put my money?

Post by KlingKlang » Fri Oct 06, 2017 5:15 pm

Strayshot wrote:
Fri Oct 06, 2017 4:39 pm
Ruralavalon hit the nail on the head. Follow the steps at the end of his/her post and you are set. :sharebeer
It was very good but maybe a bit too complex for someone who is starting out from a 100% MM after tax base.

My suggestion would be to:

Switch the Roth IRA from Total Stock Market to Target 2050.

Open an after tax Total Stock Market account with $10K.

Open a Treasury Direct account with a $5K I-Bond.

Contribute $5.5K/year to the Target 2050 Roth IRA. Contribute $500/month to I-Bonds. Contribute $800/month to after tax Total Stock Market.

Instant totally diversified tax efficient portfolio. One IRA transfer and two new after tax accounts. Evaluate after a couple of years.

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