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Hello from Ohio-looking for some investment help....
Old 01-14-2012, 12:16 PM   #1
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Hello from Ohio-looking for some investment help....

Hello all-Like most I've been lurking on these forums for many months, but have never posted until now.

A few years ago my DW and I decided to become serious about savings and retirement; at that time we put a plan together that fit our needs at that time and really started to try and LBYM. Now we're at a point were we need to 'tweak' our plans a little.

Currently, I'm 35 and DW is 30, we both contribute 15% of our earnings into our employeer's 401(k) and we both receive a 5% match totaling 40% each pay period (bi-weekly). Also, over the last few years, we've been steadily building up our liquid savings and now we're about to reach our predetermined goal of $50,000.

With our goal soon to be met, for savings, we'll soon have ~%1,500 per pay period to invest (or save).

My question to the community is what avenues would you suggest investing in if you were in our position? We'd like to FIRE when I'm around 59 years old (~24 years). Please keep in mind we are fairly conservative with our money are are apprenhensive about some high risk investments due to the fact that we've heard many horror stories about what can go wrong.

Thank you for your time.
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Old 01-14-2012, 12:21 PM   #2
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Welcome to the forum.
A low cost index fund might be right up your alley.
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Old 01-14-2012, 01:39 PM   #3
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My question to the community is what avenues would you suggest investing in if you were in our position?
In a few words: I'd recommend you read a couple of books on investing so you understand the rationale behind any investment approach you end up adopting. The recommendation below is as good as any other, but you won't stick to it (or any other) unless you've got a good foundation. Instead, you may follow one "good idea" after another and lose a lot of money in the process.

See the FAQ pages (and especially the reading lists) if you haven't been there yet.

I'd recommend that you read William Bernstein's "Four Pillars of Investing" and Bob Clyatt's "Work Less Live More" for some background info and some responsible recommendations for model portfolios that you can build with low-cost funds.

For now, what you invest in outside of your company 401K depends on your investments within that 401K. You want all your different types of accounts (401Ks, Traditional IRAs, Roth IRAs, and non-tax favored investments) to be parts of a coherent whole, but for tax reasons it's best to put some kinds of assets in one type of account or another.

For now, while you figure out how you're going to invest, I'd recommend you just keep adding to those monthly savings in a money market account. If you know which family of funds or brokerage you want to go with (Vanguard and Fidelity are popular choices) you could set up such an account with them. The money will be safe from any market swings until you can properly diversify it. Once you get a few thousand dollars in there (a few months from now) you may want to simply move the money to a 2035 Target Retirement Fund: the funds will be invested in a wide variety of stocks and bonds and you won't need to think about it much. You could leave it right there and keep adding to it for 24 years and you'd do much better than most investors (if history is any guide). But I'll bet that you'll have studied some more and in a year or two you'll want to pick some funds/ETFs from which to build a more customized portfolio. By that time you'll have enough $$ in the Target Fund to meet any minimum balance requirements of the funds and you'll have thought about it enough that you won't be tempted to change course every time you are exposed to new info.

Best of luck, Buckeye!
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Old 01-14-2012, 02:21 PM   #4
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Quote:
Originally Posted by Illbuck2006

Currently, I'm 35 and DW is 30, we both contribute 15% of our earnings into our employeer's 401(k) and we both receive a 5% match totaling 40% each pay period (bi-weekly).
Huh?

Doesn't 15% + 5% = 20%?

Yes, I realize both of you are doing it. That still equals 20%... What am I missing? Are each of you contributing 15% of your total gross for both of you, not 15% of your individual salary?
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Old 01-14-2012, 02:45 PM   #5
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Welcome Illbuck.

I would look into funding a Roth for both you and your wife.

-GoBlue!
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Old 01-14-2012, 03:03 PM   #6
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Thank you all for the warm welcomes and quick replies.

Sorry about the confusion, I contribute 15%+5% match and my wife also contributes 15% + 5% match from her gross as well.
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Old 01-14-2012, 03:04 PM   #7
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+1 for SamClem sage advice

Understanding the basics about investing and constructing a portfolio is fundamental to not getting spooked when a particular asset class (i.e. stocks) goes into the toilet.

If you are able to live on one person salary than you saving 40%, but I think realistically you are saving 20%. This is a fine saving rate, better than the vast majority of American, but realistically it means you'll be able to retire in your 60s with an after tax/savings income about what you are experiencing now. You'll need to do some additional saving outside your 401K to push your retirement age into the 50s.
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Old 01-14-2012, 03:16 PM   #8
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I've also been told, by friends, that we've saved too much in our savings account and that most of the money would be better off invested elsewhere.

Is it true that you could have too much money within a savings account? Our saving account interest rate is currently 2.22%
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Old 01-14-2012, 03:18 PM   #9
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Thank you all for the warm welcomes and quick replies.

Sorry about the confusion, I contribute 15%+5% match and my wife also contributes 15% + 5% match from her gross as well.
That would be 20% overall, which is very good, but not 40%...

Maybe check out The Coffeehouse Investor, or one of Scott Burns 'couch potato' or other portfolios. There are quite a few solid approaches using low expense, indexed mutual funds. Do a search on 'lazy portfolios' (Google or here), and take a look to start. They're good, conservative, effective approaches for someone who doesn't want to live and breathe investing (most people).
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Old 01-14-2012, 03:47 PM   #10
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I've also been told, by friends, that we've saved too much in our savings account and that most of the money would be better off invested elsewhere.

Is it true that you could have too much money within a savings account? Our saving account interest rate is currently 2.22%
What are you investment options in the 401K? I think at your age having all of your money in saving account/stable dollar fund at 2.22% is too conservative.

If you provides us some details of the 401K The forum will be happy to provide some generally investment advice.

But I'll reiterate SamClems advice to invest in your financial education. I am not exaggerating when I say that you'll be making/saving several hundred dollars an hour, reading some of the books suggested in the FAQs.
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Old 01-14-2012, 03:50 PM   #11
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I've also been told, by friends, that we've saved too much in our savings account and that most of the money would be better off invested elsewhere.

Is it true that you could have too much money within a savings account? Our saving account interest rate is currently 2.22%
Considering most studies show most people have inadequate savings, your friends might not be right. What percentage of your total financial assets are in a savings account?

By edit: also, how many months of gross salary is in savings?
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Old 01-14-2012, 03:55 PM   #12
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Thanks all- I guess I should've picked a different user name. As I don't want to stir the pot with any Michigan fans (j/k). For the purposes of full disclosure I also went to UIUC for grad school, but I guess Michigan wasn't very well liked there either. You guys did do the BIG proud this year though.

I look forward to being a member of this community and learning as much as possible about FIRE.
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Old 01-14-2012, 04:37 PM   #13
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Clifp and MichaelB here's our info:

For our 401(K) investment breakdown (we both use the same breakdown in each account):
-~40% common stock index
-~20% small cap stock index
-~20% International stock index (sans Asia markets)
-~20% Government Securities

Currently we have $126,000 401(k) accounts (combined). Like everyone else, I'm sure, we took a big hit in 2008, but in the last year or so we've finally recovered.

We also have $48,200 in savings account, which would be ~.28% of our total savings. This would cover ~11 months if used as an emergency fund. I guess the question again is this too much money in a savings account; should we invest some of this money?

Our monthly net income is ~$6,551, with expenses of ~$3,700 (includes our 401(k) contributions). Leaving us with ~$2,851 monthly to invest, hopefully, invest wisely.
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Old 01-14-2012, 05:32 PM   #14
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That is a excellent 401k investment allocation, although personally if you have a bond choice other than government securities, and I take that especially if there is a stable value fund. Of course I have been badly wrong about my dislike of government securities for several years, and ignoring my advice would have been smart.

If you are both working for the same firm, or to a lesser extent government agency than having a large saving account is probably prudent. However, if it is more likely than only one of you could lose your job, you pretty much are able to live on one person's salary. 6 months expenses is ~20K and much longer if only one person loses their job. I'd be inclined to invest the excess in something like the Vanguard total stock market and/or international stock market.

This is entirely dependent on how comfortable you feel with investing.
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Old 01-14-2012, 05:45 PM   #15
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Can't add much to Clifp's advice. An emergency fund covering 6 months expenses, in your case around $24k, is plenty. You can stay conservative by moving the difference out of savings into fixed income in a taxable account. Munis, corporate, EM would diversify and benefit. Regarding equities, I like to see some EM in a diversified portfolio. Looks to me like you are in great shape and doing the right things.
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Old 01-14-2012, 07:20 PM   #16
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One other thing we've thought about, after talking with some friends they suggested we look into buying rental properties. I'm somewhat handy and could take care of most repairs; while my DW could handle the paperwork end. We just aren't sure if we want to deal with late night phone calls and any other issues that may arise from owning rental properties. Does anyone here have personal experience with rental properties and if so, what can you tell me about your experience(s)?

Anyhow, I've gotten some really good advice and I'm going to start calling around this week and set up some appts. with places such as Vanguard and the like, based upon everyone's recommendations.

In the coming weeks I'll let everyone know what avenues the DW and I decide to take. For sure it will be on a more solid ground now that I've been able to get some good unbiased advice, which seems hard to get these days.
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Old 01-14-2012, 07:24 PM   #17
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In the coming weeks I'll let everyone know what avenues the DW and I decide to take. For sure it will be on a more solid ground now that I've been able to get some unbiased advice, which seems hard to get these days.
I wouldn't necessarily call our advice unbiased. More accurate might be 'no conflict of interest'.
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Old 01-14-2012, 09:00 PM   #18
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So you're saving about 60% (20% in 401ks and that extra 2800/mo amounts to another 40ish%).

There's no reason you shouldn't be able to ER in 15 years or so, maybe 20, depending if you think your expenses will rise, if you have pensions or Social Security lined up, etc.

You said 24 years from now, but of you keep saving at the rate you are, you'll be way ahead of the game, even if you get low returns.

(FWIW the math on saving 60%, living on 40% with a SWR of 3% and assumption of 5% returns is 15 years.)
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Old 01-15-2012, 09:09 AM   #19
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Speaking of rising expenses; we're thinking about have a child/children. From all aspects this is great, but from a purely financial aspect I'm wondering how will having kids impacts FIRE dreams? Is it possible to have children and still FIRE?
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Old 01-15-2012, 09:13 AM   #20
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I would second the recommendation to read books before you decide on your lifetime financial plan.
In addition to those books already mentioned I would suggest you read Zvi Bodie's book, "Risk Less and Prosper" for a different, but well thought out approach to managing risk and returns over a lifetime.
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