Advice for mid-20s daughter just starting out

[WestwardBound]

My daughter is 24. She has accumulated a fairly sizable savings account and we are discussing her opening an investment account to put some money to work for the long term.

She currently has a Roth IRA with about $8k and set up a monthly investment. (85% stock/15% FI) I have pointed her to a couple of websites to help understand fundamental investment principles. She is planning on opening a taxable account and using a 80/20 asset allocation. She is a saver and pretty conservative in her risk tolerance but understands the need for long term growth. Does this allocation make sense?

I've suggested the typical low-cost, broad stock and bond index funds but would be interested in thoughts on which ones might fit best. She will use Fidelity where my accounts and her Roth are now.

Open to any recommendations for educational resources to point her towards for continuing education.

Thank you.

 

[Montecfo]

In my opinion her allocation should be 100 percent equities. No reason to buy bonds in your 20s for retirement investing.

Has she accumulated some emergency cash?

 

[WestwardBound]

Yes. She has an ample cash reserve though we haven't discussed exactly how many months. Knowing her lifestyle and rent, she likely will keep at least a year at this point. She's just getting her feet wet with investing.

100% makes sense at this point. Not sure I'll get her comfortable with that allocation.

 

[brett]

IF she had no debt, no major purchases on the horizon, and a secure job I would go 100 percent equities.

 

[steelyman]

Not a direct response to your question but a suggestion. Starting out is a great time to set up some financial tracking software. I’m one of them there Quicken users but you can find plenty of alternatives in many posts here.

 

[target2019]

She currently has a Roth IRA with about $8k and set up a monthly investment. (85% stock/15% FI) I have pointed her to a couple of websites to help understand fundamental investment principles. She is planning on opening a taxable account and using a 80/20 asset allocation. She is a saver and pretty conservative in her risk tolerance but understands the need for long term growth. Does this allocation make sense?

Yes. She has an ample cash reserve though we haven't discussed exactly how many months. Knowing her lifestyle and rent, she likely will keep at least a year at this point. She's just getting her feet wet with investing.

100% makes sense at this point. Not sure I'll get her comfortable with that allocation.

Just a suggestion, but maybe her Roth allocation is right for her. In taxable, though, some of the benefit could be reduced by taxes due to FI dividends.

When my oldest was starting his first 401K I gave him an allocation of 10% to fixed income. Call it classroom learning, where the young investor gets to see the results in real time, and learn what type of investor they may be.

 

[Montecfo]

Not a direct response to your question but a suggestion. Starting out is a great time to set up some financial tracking software. I’m one of them there Quicken users but you can find plenty of alternatives in many posts here.

This is so true. The kids need to know what they are spending and on what.

 

[OldShooter]

Agree on the 100% equities. William Bernstein has a slightly different approach and a paper specifically targeted at her:

"If You Can" https://www.etf.com/docs/IfYouCan.pdf (free 16 page download)

In the paper, Bernstein recommends a number of books so she can dive as deep as she likes.

And, really, LBYM is far more important than the portfolio details. It sounds like she is already on that road, so she just needs to stay the course.

 

[WestwardBound]

Thank you all. To be more specific, assume a 90/10 allocation and Fidelity index funds or ETFs for simplicity and low cost.

Thoughts on this recommendation?

70% FZROX US Total Stock
20% FZILX International Total Stock
10% FXNAX US Bond Index

 

[FlaGator]

Thank you all. To be more specific, assume a 90/10 allocation and Fidelity index funds or ETFs for simplicity and low cost.

Thoughts on this recommendation?

70% FZROX US Total Stock
20% FZILX International Total Stock
10% FXNAX US Bond Index

That's what I would do at Fidelity for a 90/10, FWIW.

 

[target2019]

Thank you all. To be more specific, assume a 90/10 allocation and Fidelity index funds or ETFs for simplicity and low cost.

Thoughts on this recommendation?

70% FZROX US Total Stock
20% FZILX International Total Stock
10% FXNAX US Bond Index

Is this overall (Roth + Brokerage)? Need a complete picture.

 

[WestwardBound]

Is this overall (Roth + Brokerage)? Need a complete picture.

Her Roth is 85/15 S&P index and US bonds. Currently about 8k. I assume that's easy to adjust.

Any reason to have different allocations? Taxes on dividends in taxable vs none in Roth?

 

[target2019]

Her Roth is 85/15 S&P index and US bonds. Currently about 8k. I assume that's easy to adjust.

Any reason to have different allocations? Taxes on dividends in taxable vs none in Roth?

Placement of funds is described in depth at this link:
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

Allocation should be calculated for the total portfolio, some say. So I wouldn't stress the idea that each space has a different allocation.

For now, with 8K invested, we're talking minor impact from inefficient placement. But I wouldn't suggest a bond fund in taxable account.

Also consider how quickly contributions will change the allocation. And of course reinforce the idea of keeping cash safe and ready.

 

[WestwardBound]

Thanks again everyone. Useful ideas and resources that will help her financial education.
I'll pass on the links and talk her through the thinking.

She's doing the right thing getting started and we'll try to not over analyze it.

 

[Freedom56]

There are some good resources at FINRA.

Personal Finance:

https://www.finra.org/investors/personal-finance

Learning to Invest:

https://www.finra.org/investors/learn-to-invest

Tools and Calculators:

https://www.finra.org/investors/tools-and-calculators

The most important advice you can give her is to avoid boyfriends that can't manage money.

 

[OldShooter]

Also, a bewildering array of financial calculators here: https://www.dinkytown.net/

Almost too many, really.

 

[kgtest]

I am almost 40 with 3 kids and I am 100% equities. Its the only way I'll get to retire early.

25% VBK
25% VOT
50% VUG

Or just go 100% VTI. Sorry my answer couldnt be more confusing or complex. Cats outta the bag.