38 yo newbie NEED ADVICE TO START

[shawnhersh]

Yes, Vanguard will open the brokerage accounts for you. Easy, but it might take a phone call. BTW, depending on your savings rate, if I were you, I might hold back $6K per spouse ($12K) to fund the ROTH IRAs in January, rather than putting it all in the taxable account this year.

$12k to Roth this year ($6k per spouse)
Cash balance into index funds, let’s say $70k
$12k to Roth in January 2022 ($6k per spouse)

Does this look right?

 

[Time2]

$12k to Roth this year ($6k per spouse)
Cash balance into index funds, let’s say $70k
$12k to Roth in January 2022 ($6k per spouse)

Does this look right?

Yes, when the end of next year rolls around, do not forget you funded next years Roth in January.
So, you are on an every January schedule.

 

[shawnhersh]

Never being IN the market is a much bigger risk than being out of it. You are doing the right thing by addressing any ignorance and fear with knowledge and understanding.

Fear has held you back. Do not let fear control you or your money. Put your money in ASAP!

One big chunk.

VTI. Its better than any bank can offer!

You can afford the risk at your age...and that risk is literally negligible. Your family is totally counting on you to build that nest egg, so stop pondering and start doing. I know that tone sounds a bit harsh, but you can't continue to drag your feet. You have lots of people counting on you and tons of support here. Stick with it!

You nailed this! Absolutely right. I love seeing a huge cash balance in my account. Makes me feel secure. But I realize that's wasted opportunity and need to begin to put that money to work. I also realize I'm late but luckily I have a good chunk to add right away. Thank you for the feedback, and I don't think it's harsh at all, it's reality!

 

[shawnhersh]

With a family of 6, your income puts you in a low tax bracket which is great for Roth IRA's vs 401k. I'd do $6k ea (you & wife) every year in the index fund or maybe something more risk added since it will grow tax-free for many decades.

Always max out your HSA, if available, triple tax-free and most allows investing in mutual funds too. We're pushing $50k in ours and great for future health expenses.

Definitely have an emergency fund for 6 peoples' problems...

Great advice, thank you.

Does the HSA need to be through your employer, or can I set up independently?

 

[shawnhersh]

Yes, when the end of next year rolls around, do not forget you funded next years Roth in January.
So, you are on an every January schedule.

Understood, thanks

 

[shawnhersh]

Any opinion on VTI vs VTSAX? I've read up on them both and they seem very similar, maybe VTI a little cheaper?

 

[Live Free]

Agree with the emergency fund, funding a Roth IRA (you and spouse), and signing up for work 401k. Also agree with investing as one large chunk versus dollar cost averaging. You are only 38 -- you have years to ride the market ups and downs. If the car loan has a high interest rate, consider paying that off.

The only other thing I would add isn't related to investing advice, but to financial security for the family, especially because your wife is a SAHM. Make sure you have life insurance. Get a term policy in place to protect them in the event you die. And make sure all your investment accounts that you set up have specified beneficiaries.

 

[Live Free]

Also should add that your wife needs term life insurance too. If she passed you would need $$$ to pay for childcare, etc.

 

[shawnhersh]

Also should add that your wife needs term life insurance too. If she passed you would need $$$ to pay for childcare, etc.

My wife and I both have term life policies. Great advice!

 

[Time2]

Just a story about fear. My neighbor pulled his savings of $200,000 out of the stock market after 9-11, that was 2001. He put it in cash equivalents and to this day, he never put the money back into stocks. If he had just left it in VTI these 20 years, he would have close to $900k if not more. Instead, he has lost value to 20 years of inflation.

 

[shawnhersh]

Just a story about fear. My neighbor pulled his savings of $200,000 out of the stock market after 9-11, that was 2001. He put it in cash equivalents and to this day, he never put the money back into stocks. If he had just left it in VTI these 20 years, he would have close to $900k if not more. Instead, he has lost value to 20 years of inflation.

Such a great story and analogy! Set it and forget it!

 

[OldShooter]

Such a great story and analogy! Set it and forget it!

Warren Buffet: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."

Buffet again: “The stock market is a device for transferring money from the impatient to the patient.”

 

[shawnhersh]

Buffet again: “The stock market is a device for transferring money from the impatient to the patient.”

Boy this is such a great quote! Thank you!

 

[shawnhersh]

Another quick question, and excuse my ignorance...

I don't understand the investment "buckets". It was suggested to open a Roth IRA this year for my wife and I and contribute again in January 2022. It was also suggested to contribute a large chunk of my cash into VTSAX or VTI. Is there a way these investments could grow together in the same account? Even though the Roth grows tax free, wouldn't it be better to put more cash in the index funds so it grows more?

 

[NgineER]

Another quick question, and excuse my ignorance...

I don't understand the investment "buckets". It was suggested to open a Roth IRA this year for my wife and I and contribute again in January 2022. It was also suggested to contribute a large chunk of my cash into VTSAX or VTI. Is there a way these investments could grow together in the same account? Even though the Roth grows tax free, wouldn't it be better to put more cash in the index funds so it grows more?

Shawn,

What I meant was to contribute to the Roth account $6k to your and your wife's this year, and again next year. As soon as your contribution has arrived in your account go ahead and invest it into whichever fund/ETF you choose. You can invest in VTI in your Roth account.

You and your wife would each have your own Roth accounts and you could have a joint taxable brokerage account. You could invest the same way in each account, or you could choose different investments in the separate accounts in order to meet your overall asset allocation and balance.

 

[shawnhersh]

Shawn,

What I meant was to contribute to the Roth account $6k to your and your wife's this year, and again next year. As soon as your contribution has arrived in your account go ahead and invest it into whichever fund/ETF you choose. You can invest in VTI in your Roth account.

You and your wife would each have your own Roth accounts and you could have a joint taxable brokerage account. You could invest the same way in each account, or you could choose different investments in the separate accounts in order to meet your overall asset allocation and balance.

In January, I have $24k invested in Roth IRA (me + wife, in VTSAX or VTI)
In January, I put $50k in VTSAX or VTI

Would there now be 94k in the same account, VTSAX or VTI? Or would it need to be separate since some money is taxable and tax free?

 

[Love This Community]

In January, I have $24k invested in Roth IRA (me + wife, in VTSAX or VTI)

In January, I put $50k in VTSAX or VTI



Would there now be 94k in the same account, VTSAX or VTI? Or would it need to be separate since some money is taxable and tax free?

Keep them separate though they are the same ticker. It’ll be easy to keep track of you Roth and non Roth IRA’s and for future tax purposes during withdrawal phase. My 2 cents.

 

[shawnhersh]

Keep them separate though they are the same ticker. It’ll be easy to keep track of you Roth and non Roth IRA’s and for future tax purposes during withdrawal phase. My 2 cents.

Ok, so this is where my question comes in...even after tax savings in Roth, wouldn't it be better to have an account of $74k growing instead of an account of $50k and $24k separately. Am I missing something?

 

[pb4uski]

Ok, so this is where my question comes in...even after tax savings in Roth, wouldn't it be better to have an account of $74k growing instead of an account of $50k and $24k separately. Am I missing something?

Yes, you are missing something. Let's say that over x years that investments double.

Your $74k in one account would double to $148k.

Your $50k will double to $100k and your $24k would double to $48k but you still started out with $74k in total and it doubles to $148k.

Commutative property of multiplication.

 

[NgineER]

Ok, so this is where my question comes in...even after tax savings in Roth, wouldn't it be better to have an account of $74k growing instead of an account of $50k and $24k separately. Am I missing something?

Invested in the same assets you'd have the same growth.

10% growth on $74k is $7.4k.
10% growth on $50k+$24k is $5k+$2.4k=$7.4k

The benefit of the Roth is that there are never any taxes to pay on withdrawal.

 

[Time2]

In January, I have $24k invested in Roth IRA (me + wife, in VTSAX or VTI)
In January, I put $50k in VTSAX or VTI

Would there now be 94k in the same account, VTSAX or VTI? Or would it need to be separate since some money is taxable and tax free?

I'm not clear what you are asking. Let's start with what I think is a math error. $50k + $24k is $74 not $94K, have I got that right?


It sounds like you made two deposits but you didn't clearly state what category they are in. So you put $24k in to a Roth, This is taxed money that you put in, but does grow tax free, and can be withdrawn tax free.
Then you have another contribution to a Category unknown of $50k. This $50k, what type of account did you put it in, an IRA a Roth or a regular taxable account?

 

[Time2]

Ok, so this is where my question comes in...even after tax savings in Roth, wouldn't it be better to have an account of $74k growing instead of an account of $50k and $24k separately. Am I missing something?

I;m still not sure of anything because I don't know the account type.
But, I'll explain this >IRA vs Roth IRA. and you are in 22% bracket putting the money in and taking the money out.


$5000 into an IRA grows 10% a year for 10 years. This grows to $12968.71.
Now you withdraw it and owe 22% tax so you get to spend $12,968.71 - $2853.11 (tax) = $10.115.60 That's what left after taxes.


Or the Roth $5000, you pay the tax $5,000 - $1,100 (tax) = $3,900.
$3,900 at 10% for 10 years =$10,115.60


You have the same amount to spend whether you pay the tax now or later. As long as your tax bracket stays the same.

 

[shawnhersh]

Yes, you are missing something. Let's say that over x years that investments double.

Your $74k in one account would double to $148k.

Your $50k will double to $100k and your $24k would double to $48k but you still started out with $74k in total and it doubles to $148k.

Commutative property of multiplication.

I guess I just thought the combined $74k would "double" quicker than the 2 separate accounts

 

[NgineER]

I guess I just thought the combined $74k would "double" quicker than the 2 separate accounts

No, if invested in the same fund or ETF you would double at the same rate. You would end up in a better situation after taxes if you invested in the Roth since there won't be any taxes due upon trades or liquidating your investments. (provided you are over 59.5)

 

[Surewhitey]

Great advice, thank you.

Does the HSA need to be through your employer, or can I set up independently?

Sorry, been busy... A lot of employers have an HSA plan & that's the easy way to go. You have to have a plan that qualifies firstly. I don't remember all the details about high deductible plans, but they are the only ones that qualify.

DW has ours set up through her employer and it's easy peasy. Once you leave your employer, I believe you can roll it into an HSA account with Fidelity (what many people say is the best option).
https://www.fidelity.com/go/hsa/why...d3oND99-wxfawQeRcIlkR8cNTPI1Yd9xoCY_MQAvD_BwE