Hi. Shooting for 2040.

[ThisIsMe]

Hi. I'm new here and like everyone here we (DW & I) want to retire early. My goal on the site is to get simple advice to move us in the right direction. I've always dreamed of not being that guy who works until their 60s. This is not my idea of living. My idea of early retirement is working when I want, 20 hours a week and doing volunteer work to fill the gaps.

My DW and I are both in our late 20's and work as engineers with a steady income. Currently we live off of my income, I'd like to down grade to DW's income. We want 2 kids (soon) and plan to upgrade to a larger house and SUV when the time comes.

I fear that we have too much cash, but at the same time I'm not comfertable throwing it into an investment account. We are looking for a financial advisor. We are not paying down more on our mortgage.

We have been using YNAB for over a year and track everything religiously. Last year we spent $58k.

Monies
Cash: $153k
Roth IRA: $6k ($400/month)
401k (me): $33k (not contributing)
401k (DW): $30k (15% of salary)
Simple IRA (DW): $7k (3% of salary)
Mortgage: -$170k

Anyways, this is me just saying hi. I'll be lurking around quite often and you may hear from me time and again.

[tulak]

2040? And you have 153k in cash?

You should figure out your asset allocation and either fully fund or dollar cost average into your AA. I'd probably choose the later, even though studies show it's best to lump sum invest your money.

Also, you don't have to invest all your cash. Keep some of it for emergencies. But it sounds like you have expenses under control and since you're both engineers, your employment prospects should be good. At your age, you should take as much risk as you're comfortable with, especially with a target date out 26 years from now.

[Aerides]

Many here will say do research for yourself vs. for an FA. FA's are expensive and do not outperform good cheap index funds. (many articles on this).

You are not adding to 401k? Change that when you can.

$150k in cash is 3x expenses - way more than you should have while both are earning. Spend the time to look around for ways to invest that meet your comfort level - which should be very high given your timeline. Being very conservative with risk in your 20's is actually going to work against you.

Good luck and grats on a good start!

[rodi]

First off - congratulations on figuring out your long term goals. I had no clue in my 20's.

My husband and I were dual income and lived on one... that gave us so much freedom.
Save as much as you can, but also enjoy life as it comes. (Enjoying life doesn't have to be expensive or involve expensive stuff.)

As far as a financial adviser - that's your choice - but if you go with one, I'd recommend one of the lower percentage robo advisers that Vanguard/Schwab/Fidelity offer. In the meantime read some books to understand how easy it is to do it yourself... Literally, a few hours (or less) a year to rebalance a couch potato portfolio.

Suggested reading: The Millionaire Teacher.

[RobbieB]

I'd say you look pretty good. Have your kids now and you should be good to go early 50's.

Yeah, you have too much cash, so start investing more. The sooner the better. Why are you not funding your 401? No employer match?

[ThisIsMe]

Thanks all for the great feedback. I'm looking at the vanguard robo investor that costs 0.3%/yr to get us started. My 401k is from my previous employer. I haven't rolled it into a Traditional IRA because it's been outperforming my Roth IRA.

Am I good sticking with a Roth IRA over a traditional investment account? I've had the Roth for 2 years, so I can take out what I put in 3 years from now if an emergency comes.

[RobbieB]

Ah, that makes sense.

If your present Co offers a 401 and they match a portion of your contribution I would start with that first with enough to get their "full" match at least. Get all the "free money" you can!

[ThisIsMe]

I contribute to my current employers Simple IRA account, they match 3% (gov regulated).

I'm a Vanguard user and I came across this screenshot from a few months ago. This is what the calculator said I should invest in. Thought, comments, suggestions?

[tulak]

Quote:

Originally Posted by ThisIsMe I contribute to my current employers Simple IRA account, they match 3% (gov regulated). I'm a Vanguard user and I came across this screenshot from a few months ago. This is what the calculator said I should invest in. Thought, comments, suggestions?

You should visit the bogleheads forum and read about their recommended three fund portfolio. What you showed is almost the same, except they don't have an international bond fund. Personally I think that's fine.

I'd recommend that you read a few books about investing and asset allocation. Millionaire Teacher is a great book. The bogleheads book is also worthwhile to give you an idea about different types of investment accounts and their advantages (401k, IRA, Roth IRA, after tax).

You really would benefit from figuring out your overall asset allocation. The Vanguard image you posted is 80/20, but if you're risk tolerant, you could go 90/10. Put the 10% in Vanguard Total Bond. Then for equities, figure out what percentage you want invested in US vs International. Vanguard goes with a 60/40 US/International split. That would mean 54% US and 36% International. Add 10% Total Bond to that and you're at 100%. Then rebalance once a year or using bands and call it good.

Keep in mind you need to do maintain your asset allocation across all of your accounts. That's the trickier part, depending on what investments are available in your 401k, etc. But usually you can find at least a good US Total Market or S&P 500 index fund in most plans.

You're in a good spot right now and if you define and stick with an asset allocation you're comfortable with, you're going to be in a good situation when 2040 comes around.

[ThisIsMe]

Quote:

Originally Posted by tulak ...if you're risk tolerant, you could go 90/10. Put the 10% in Vanguard Total Bond. Then for equities, figure out what percentage you want invested in US vs International. Vanguard goes with a 60/40 US/International split. That would mean 54% US and 36% International. Add 10% Total Bond to that and you're at 100%. Then rebalance once a year or using bands and call it good.

Thanks for the rock solid response. I may be going overboard in this post for ER.org. After doing a little research at Vanguard, I found these ETFs they recommended. It turns out my current Vanguard portfolio is invested in the 4 funds that are recommended by another Vanguard calculator (go figure).

Current Vanguard
-100% Vanguard Target Retirement 2055 Fund (VFFVX) (90% stock, 10% bonds)

Vanguard Total Stock Market Index Fund Investor Shares 53.9%
Vanguard Total International Stock Index Fund Investor Shares 36.0%
Vanguard Total Bond Market II Index Fund Investor Shares* 7.0%
Vanguard Total International Bond Index Fund Investor Shares 3.1%

Assessing this Portfolio for the Future
For non 401k Accounts in Vanguard
-54% - Vanguard Total Stock Market ETF (VTI)
-36% - Vanguard Total International Stock ETF (VXUS)
-10% - Vanguard Total Bond Market ETF (BND)

Just as an FYI: 401k Portfolios (Aggressive Model in their system)
49% - BLACKROCK EAFE EQUITY INDEX GM
15% - BLACKROCK RUSSELL 2000 INDX GM
2% - NT AGG BOND INDEX DC NL TIER 3
34% - VANGUARD INSTITUTIONAL INDX GM


PS: I learned that if I preview my response too many times, I'm marked as a spam bot. Thanks for clearing this up Dirk!

[tulak]

Glad I can help out. The Vanguard Target Fund is a great way to go if you want to keep it simple. But the problem with this approach is that you lose the ability to manage for taxes. By buying the individual funds, you have more opportunity to for tax loss harvesting, rebalancing and such.

The Blackrock example is basically a 100% equities with a 50/50 split between domestic and international. And they use two separate funds for tracking US equities. I personally like some bonds for rebalancing and lowering portfolio volatility. If you look at the research that's been done, there isn't much difference in return on a 100% equity portfolio vs a 90/10 portfolio, but the latter has less volatility.

Also, the 50/50 split between US and International can be considered more aggressive. For the last 5 (10?) years it's also been lagging, since US has done better than International. Some believe this may change going forward, but who knows?

As I mentioned before, if you're thinking about sticking with index funds, then you should check out the bogleheads site. They have a sticky post for the 3 fund portfolio with a lot more information about various approaches. It's a bit dogmatic over there (they are true believers), but they have a lot of good practical info. Also, posts over there will generate a lot more responses than this forum.

Good luck!