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Old 06-25-2013, 04:23 PM   #21
Confused about dryer sheets
 
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Originally Posted by Rothman View Post
As my sign on name suggests I'm a fan of the Roth. Especially for someone young you could have many years of tax free growth ahead. Roth IRA invested in low cost market index fund would be an excellent next step for your FI plan. Congrats on a great start.
I have been strongly considering starting out with a ROTH. My question is, what advantage is there in a ROTH over the 401k plan my company provides? Would it be better to max 401k contributions before even starting a ROTH?
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Old 06-26-2013, 07:35 AM   #22
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Originally Posted by MegatronM View Post
I have been strongly considering starting out with a ROTH. My question is, what advantage is there in a ROTH over the 401k plan my company provides? Would it be better to max 401k contributions before even starting a ROTH?
If you search you will find countless threads on this topic. Short version is that if you are young and starting out, Roth IRA may be a good option. Basically you need to compare your current marginal tax rate with what you'd expect it to be when you are withdrawing. For example, my household income is quite high right now, so my marginal rate is high. I expect my expenses in retirement (which is what my retirement income will essentially be) to be much less than my income now, so I try to do a lot of pre-tax saving. I may be "saving" 35%+ on income taxes now, and when I pull it out later hopefully I"ll be in the 15% bracket, or certainly less than my current one. That is a 20% return, and it's guaranteed assuming the income tax laws/brackets don't change a lot.

Roth IRAs do not have RMDs like 401(K), and they typically have more flexible withdrawal options. If you start making low six figures, you cannot directly contribute to a Roth.

Final thing: Roth IRA and Roth 401(K) are similar in that they are both "after tax" contributions and therefore not taxed upon withdrawal. However, there are other critical differences, including RMDs and withdrawal ability/penalty. In short, the Roth IRA is "better".
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Old 06-26-2013, 05:17 PM   #23
Confused about dryer sheets
 
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Thanks for the help everyone. I started a ROTH through a target retirement fund from Vanguard.
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Old 06-26-2013, 06:18 PM   #24
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Originally Posted by MegatronM View Post
Thanks for the help everyone. I started a ROTH through a target retirement fund from Vanguard.
Target retirement fund = nice and easy. You don't even have to worry about your asset allocation. Just put the money in.

Nice job!
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Old 06-27-2013, 12:58 AM   #25
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Wow itís good that you are preparing for your financial freedom at the correct age.
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Old 06-27-2013, 02:45 AM   #26
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Yes, what everybody else says. I was going to answer last night, but my bed was calling. Here's what I was going to say, and it's the same as everyone else -

- You're off to a good start with the 401K. At the very minimum, keep putting enough money in so that you get all of the employer match that is available to you,

- As others have said, open an IRA (Roth probably makes more sense) and put as much in every year as you are allowed (if you have that much to invest),

- If you have anything left over after the above 2, put more into the 401K, up to the max amount you are allowed,

- If you still have money left over (in which case, wow, I'm impressed) open a regular (taxable) account with your broker and put it into that,

- You'll probably want an emergency fund. How much is up to you, and depends on how long-term and stable your employment situation is, as well as your estimate of the likelihood and "gravity" of emergencies happening,

- If you are investing in taxable accounts as well as the tax deferred ones (401K, IRA's), keep the less tax-efficient funds (e.g. bonds) in the tax deferred accounts to minimize your tax liability. Stick to low-cost index funds. Some 401K's offer good low-cost funds, others don't. Look for the lowest-cost funds available to you in your 401K, preferably without front or back loading. With some 401K plans, you have to take the best of a bad bunch but it's still worth doing - if only for that employer match.

- Don't worry about timing the market. If you are putting money in on a regular basis, you are dollar cost averaging into the market anyway. Besides, the market might keep going up for a while. Or it might not. Nobody really knows. You have a long time frame so, as others have said, when you put it in doesn't matter as much as the fact that you are putting it in,

- Your mix of equities to fixed income is up to you, but unless you're extremely conservative, make sure to have a healthy dollop of stock funds. At your age you can go 80/20. You could even go 100% equity funds, but that is up to you. I had about 20% in fixed income when I was working but looking back, I don't really know why because I didn't look at my balances very closely; I just kept working and scooping money into those accounts. Most people feel a bit better with at least something in there to reduce the volatility a bit. It's up to you,

- The most important thing is to put the money away in the first place. You have plenty of time to do some reading, learn a bit more, and adjust your asset allocations later, but you cannot make up for the time lost if you don't put the money away to begin with,

Hope that made some kind of sense. You have time on your side and your older self will be so grateful to your younger self that you started thinking about this, and doing something about it!
+1
I would just add that though the OP didn't mention any "bad" debt, if there is a "bad" debt such as a high credit card balance, that should be addressed fairly high on the priority list. Probably needs to be second priority after getting the match on 401(K). Additionally, the OP cannot neglect the need to build up /maintain a 3-6 month emergency fund for those unforeseen emergencies life has a habit of dishing out.
As a new investor, one can't go wrong with Vanguard Total Stock and Vanguard Total International to dominate the equities part of the portfolio. The prevailing "rule of thumb" espoused by Mr. Bogle is your age in bonds...with your long horizon, however, I think you would be fine with a 80-90% allocation in equities and tweak it later on as you learn more about your own risk tolerance and investing philosophy.
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Old 06-27-2013, 07:08 PM   #27
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Yeah, I get a little sick looking at my savings just sit there. I foresee the market taking a bit of a dip, but it doesn't necessarily matter if I am planning on holding it for a long period of time. Is this correct?
When you are young and the stock market tanks, a rational response is "cool! Stocks are on sale! Let's keep investing."
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Old 07-04-2013, 02:05 PM   #28
Confused about dryer sheets
 
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Another question. Since I will not know my permanent living situation for another 6 months, should I invest left over cash in short term CD's?
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Old 07-04-2013, 03:25 PM   #29
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Another question. Since I will not know my permanent living situation for another 6 months, should I invest left over cash in short term CD's?
That's appropriate for any short-term expenses or possible expenses. You might find an online savings account that would pay comparable interest rates.

I saw an ad in my local newspaper touting a 0.05% interest rate for a money market fund. Seems like a waste of ad money, but it is higher than my brokerage cash makes.
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Old 07-09-2013, 08:29 PM   #30
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So I've read everyone's responses and I've gathered the following:

>Start ROTH IRA through vanguard, possibly a target date fund
>Start Mutual Fund though vanguard, possibly wellington fund or some other fund? Wellington seems too conservative for me. Can you guys suggest something else maybe?
>Dump G and I fund from American Funds and put the money in Vanguard purely because of the fees involved
>Should I put all 30k currently invested in American Funds straight into Vanguard or put a little bit at a time? i.e. year 1: 5k into roth 10k into vanguard Mutual fund, year 2 5k into roth and 10k into vanguard mutual fund
>Keep in mind I do still have 50k on hand (which will soon become 25k) once I close on a home in the next month though

Also no I have no outstanding debt. I have no student loans. I have no high credit cards bills either. I pay mine off every month and reap the cash rewards that they give me back (muahahaha). And also yes my future wife is more than happy to live in the dog of the neighborhood if it means putting more money in our pockets.

tl;dr: dumping 30k from american funds and putting it into vanguard. How should I allocate the money? Put it all in at once into vanguard mutual fund? Or stagger?
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Old 07-09-2013, 09:14 PM   #31
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Originally Posted by jackster1232002 View Post
So I've read everyone's responses and I've gathered the following:

>Start ROTH IRA through vanguard, possibly a target date fund
>Start Mutual Fund though vanguard, possibly wellington fund or some other fund? Wellington seems too conservative for me. Can you guys suggest something else maybe?
>Dump G and I fund from American Funds and put the money in Vanguard purely because of the fees involved
>Should I put all 30k currently invested in American Funds straight into Vanguard or put a little bit at a time? i.e. year 1: 5k into roth 10k into vanguard Mutual fund, year 2 5k into roth and 10k into vanguard mutual fund
>Keep in mind I do still have 50k on hand (which will soon become 25k) once I close on a home in the next month though

Also no I have no outstanding debt. I have no student loans. I have no high credit cards bills either. I pay mine off every month and reap the cash rewards that they give me back (muahahaha). And also yes my future wife is more than happy to live in the dog of the neighborhood if it means putting more money in our pockets.

tl;dr: dumping 30k from american funds and putting it into vanguard. How should I allocate the money? Put it all in at once into vanguard mutual fund? Or stagger?
Roth - great target date or all equities at your age, fund it to maximum
Mutual fund if low exp or ETF of total market, funded by American funds, since already in market do it all at once no need to DCA.
If you already have an emergency fund, you can put the extra 25k into market, if not a 5 year CD this becomes your emergency fund
Again great, great, great start, congrats
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Old 07-09-2013, 09:21 PM   #32
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Roth - great target date or all equities at your age, fund it to maximum
Mutual fund if low exp or ETF of total market, funded by American funds, since already in market do it all at once no need to DCA.
If you already have an emergency fund, you can put the extra 25k into market, if not a 5 year CD this becomes your emergency fund
Again great, great, great start, congrats
Low exp or ETF?
DCA?

Sorry super new here, I don't know these terms.

Thinking about switching to vanguard G and I fund. Thoughts?

When would be the best time to sell the American Funds? I am due for a dividend payout in September. Should I wait until after I get my dividends?
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Old 07-09-2013, 09:25 PM   #33
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Low exp or ETF?
DCA?

Sorry super new here, I don't know these terms.
This should help: * Acronyms and Slang Frequently Used on the Forum *
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