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Help me understand my situation and where to start with my first investments!
Old 02-08-2013, 08:47 AM   #1
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Join Date: Feb 2013
Location: Morgantown, WV
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Help me understand my situation and where to start with my first investments!

I stumbled across this board, and it seems to be exactly the information I've been looking for. My wife and I consider ourselves financial savvy, and we're looking to get started with some investments. We've just finished paying off all college-related debt. Here is our situation:

Age: 25/24
Income: ~95-120k
401k balance: 25k (contributing 10% including match in the target-date 2050 accounts)
Debt: 130k Mortgage (4.5% APR) ~45k Cars (~3% APR)
Emergency Savings: 10k

So thats my situation. I feel very comfortable. Part of me wants to add more to the Emergency Savings, but truthfully we're in very good health and both of our jobs are pretty guaranteed for 5+ years.

So, that leaves me with about $6k on hand by the end of this month, and another 10-15k throughout the year that I don't want to keep in the bank for fear of spending it. I want to begin investing but I don't know where to start. I'm not really interested in retirement funds, since I'm fairly certain that I'd like to retire early, and i don't want to have to wait until I'm a minimum age to take out the money (if I want it). I'll let the 401k handle that part.

Does anyone have a recommendation for an investment company? Any specific types of funds? Low fee index funds? I understand the terminology, but I really have no experience on how investing really beings. I would really appropriate a direction.

Thanks
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Old 02-08-2013, 08:59 AM   #2
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Hey welcome! Looks like you have good start, low mortgage to income ratio (almost 1:1), you are contributing to your 401ks, and you have an emergency fund. Usual recomendation for E-fund is about 6-12 months of expenses. With both of you working, assuming you could live on one income, I would keep that no bigger than 6 months expenses.
Now, for your question about what and where to invest, that's more complicated. If you need the money in the next 5 or so years, only safe or reasonably safe places should be used, ie, CDs, Short term bond funds, high interest checking acct, etc. If you really want to start investing for the long term, you should figure out what you (the both of you) want for an asset allocation (stock/bonds/real estate, etc). This has to be something both of you can tolerate, as the stock market is a very bumpy ride. You should also learn about asset allocations to minimize taxes. If I were you and I had a 5+ year time frame before I would need the money, I would immediately start putting money in vanguard VTSAX for your first taxable investment. Lots of reasons why, but obviously do your research before taking advice from a faceless dude in cyberspace, lol!
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Old 02-08-2013, 09:09 AM   #3
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Welcome BCarpenter,

First off congratulations for starting out so early (relatively) and for that nice income. You should reconsider your view of retirement accounts. Starting a Roth IRA now will pay big, big dividends when you get to 50 years old. As for future needs, if you really decide the present needs/want trump the future retirement capability, you can always tap the contributions in a Roth penalty free since it is after-tax money to begin with. I did that many years ago when I decided paying off my mortgage trumped being in the market.

As for an investment plan, I'd recommend lost cost Vanguard index funds. No need to get to complicated. 3 Funds should do nicely for you. If you can resist the temptation to overthink investing, you will be so far ahead of the normal participant in the market.

I'll recommend the following "Lazy" index portfolio at Vanguard (Full disclosure: this is where my funds are)

VTSAX (Total Stock Market Index) (40%)
VBTLX (Total Bond Market Index) (40%)
VGTSX (Total International Stock Index) (20%)

Vanguard has the lowest cost in the industry and it makes a big difference over 30 years. Check out their website for more information.

https://personal.vanguard.com/us/ins...nvestingtruths

Good luck.
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Old 02-08-2013, 09:17 AM   #4
Confused about dryer sheets
 
Join Date: Feb 2013
Location: Morgantown, WV
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Thanks, that is exactly the kind of information I'm looking for. It can be stressful signing up for these accounts going solely off the information provided to you by the company (who is by the way out to get as large of a chunk of your money as possible without you getting upset).
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Old 02-08-2013, 09:18 AM   #5
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Consider reading a couple of the following books to further your personal finance education:

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

Bogle on Mutual Funds: New Perspectives for the Intelligent Investor: John Bogle

Asset Allocation: Balancing Financial Risk

Rich Dad Poor Dad

The Millionaire Next Door

(other's may want to suggest additional books...)

THEN slowly start putting your money to work for you as you gain knowledge, experience, and confidence.
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Old 02-08-2013, 09:21 AM   #6
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And if you really want to drink the Koolaid:

Bogleheads Investing Advice and Info

The Bogleheads' Guide to Investing: Taylor Larimore, Mel Lindauer, Michael LeBoeuf, John C. Bogle: 9780470067369: Amazon.com: Books
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Old 02-08-2013, 09:29 AM   #7
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I agree with posts #5 & #6 and would only add one of these three:

Basic - The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between: William J. Bernstein, Jonathan Clements

Intermediate (my personal favorite, make sure it's the updated 2nd edition) - The Four Pillars of Investing: Lessons for Building a Winning Portfolio: William Bernstein

Advanced (I slogged through it, but it was tough) - The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk: William Bernstein

And I'd also recommend Vanguard, Fidelity and/or Charles Schwab based on personal experience with all three. They all offer a full range of products & services, though Vanguard's forte is low expense index funds. Fidelity & Charles Schwab have an edge with actively managed mutual funds & individual stocks, etc. But again, they all have everything, you won't go far wrong with any of them.

Best of luck...
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Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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Old 02-08-2013, 09:44 AM   #8
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Welcome to the forum...


WOW, some expense in the cars if you still owe $45K.... I guess you wanted new ones... but I probably would have kept the old one for a bit.... well, thinking back, probably not when I was your age....


Get an automatic investment plan going right now... IOW, have whatever MF company take out the money from your checking account each month.. no exception... if you ever are short, you will know about it since you will have to move it back in order to spend it... it might not seem like much, but it brings it home that too much was spent...
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Old 02-08-2013, 09:49 AM   #9
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BC, you are getting some good advice. The reading recommendations and suggestion that you look at Vanguard funds is spot on.

You might want to start with this short online book: Investing Essentials – A Primer

I've found it to be sound advice and a great introduction to investing.
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Old 02-08-2013, 10:11 AM   #10
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You don't mention anything about a ROTH IRA, which would probably be a good thing to look into. You can still contribute for 2012 up until April 15th. You can always take out your contributions to a roth without penalty, and your money grows tax free. Depending on your income growth, you may hit a point where you can't contribute to a ROTH, so it's better to do early. After that, then get a taxable account, we went with Fidelity since we had 401k's there.
You can always use your Roth and other conservative investments as a back up emergency fund.
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Old 02-08-2013, 11:12 AM   #11
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Max out the Roth IRA contributions, as mentioned above. Since you can withdraw contributions any time, it can also hold your E-fund.

You want to save something like 15%+ of your gross, wherever it ends up. I think 99% of the posters here save more than that.

Check out the Vanguard Target Retirement funds for something very simple to start. They look a lot like post #3, and even simpler. Either one is a good start. Then you can get more complex if you want to after reading all those books.
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Old 02-08-2013, 11:40 AM   #12
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Once you've decided on an asset allocation, don't forget to include the type of investments you have in your 401k. You didn't mention what investments you have there.
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Old 02-08-2013, 12:20 PM   #13
Confused about dryer sheets
 
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Thanks for all the advice.

We both use the target date 2050 accounts. I realize they have very high fees, but at the time I didn't want to risk it myself. We've been very happy as well getting double digit returns for 2 years.

And yes, we may have splurged on 2 new vehicles in 2 years, but we drive quiet a bit so its nice to travel in style and good gas mileage!

So something I'm learning here is that you can pull from the Roth IRAs without penalty? Hmm maybe I shouldn't have already filed my taxes, because if so that's an option!
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Old 02-08-2013, 12:24 PM   #14
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Quote:
Originally Posted by BCarpenter87 View Post
We both use the target date 2050 accounts. I realize they have very high fees, but at the time I didn't want to risk it myself. We've been very happy as well getting double digit returns for 2 years.
I didn't catch what "brand" of Target 2050 fund you're invested in, but the expense ratio for Vanguard Target Retirement 2050 is a very low 0.18%. https://personal.vanguard.com/us/fun...FundIntExt=INT

And expense ratios aside, you could do far worse than using target date funds, they serve several good purposes. And it's a good place to park your money while you're learning more about investing, or for the long term for many people.
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No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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Old 02-08-2013, 12:58 PM   #15
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Quote:
Originally Posted by BCarpenter87 View Post
Thanks for all the advice.

We both use the target date 2050 accounts. I realize they have very high fees, but at the time I didn't want to risk it myself. We've been very happy as well getting double digit returns for 2 years.

And yes, we may have splurged on 2 new vehicles in 2 years, but we drive quiet a bit so its nice to travel in style and good gas mileage!

So something I'm learning here is that you can pull from the Roth IRAs without penalty? Hmm maybe I shouldn't have already filed my taxes, because if so that's an option!

A ROTH does not affect your tax return... go for it now....


Also, you can fund last year and this year NOW...
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Old 02-10-2013, 10:13 AM   #16
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Quote:
Originally Posted by NanoSour View Post
Welcome BCarpenter,

First off congratulations for starting out so early (relatively) and for that nice income. You should reconsider your view of retirement accounts. Starting a Roth IRA now will pay big, big dividends when you get to 50 years old. As for future needs, if you really decide the present needs/want trump the future retirement capability, you can always tap the contributions in a Roth penalty free since it is after-tax money to begin with. I did that many years ago when I decided paying off my mortgage trumped being in the market.

As for an investment plan, I'd recommend lost cost Vanguard index funds. No need to get to complicated. 3 Funds should do nicely for you. If you can resist the temptation to overthink investing, you will be so far ahead of the normal participant in the market.

I'll recommend the following "Lazy" index portfolio at Vanguard (Full disclosure: this is where my funds are)

VTSAX (Total Stock Market Index) (40%)
VBTLX (Total Bond Market Index) (40%)
VGTSX (Total International Stock Index) (20%)

Vanguard has the lowest cost in the industry and it makes a big difference over 30 years. Check out their website for more information.

https://personal.vanguard.com/us/ins...nvestingtruths

Good luck.
+1

Though at your age I'd probably not have 40% in bond funds. And ditto what others have said about fully funding a Roth IRA.
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