38 yo newbie NEED ADVICE TO START

[shawnhersh]

Hello all - my name is Shawn, 38, looking to invest really for the first time. I've always been a pretty good saver but have never done much in the way of investing. Below are a few details:

Around $132,000 in cash

$250,000 mortgage
$16,000 car loan

I make around $85,000 a year at my day job.
I am married and have 4 kids and my wife does not work

I guess my questions are centered around how to get started. I have a lump sum of money, what exactly do I do with it? I've done a fair amount of research and I think appears index funds are the way to go. Do I take 80% and put into index funds? Is there a cap to how much I can put in per year?

I realize I'm later in the game than most but I want to get moving in the right direction. If anyone has any suggestions on how to get the train rolling I would greatly appreciate the feedback and direction.

Thank you in advance!

 

[OldShooter]

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


"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ (This is Bills first book; read it before reading his second one.)


"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

 

[SnowballCamper]

Here is what I wrote a while ago https://www.early-retirement.org/forums/f30/what-to-do-in-order-to-retire-hopefully-early-99570.html

The studies I recall say that you’re better off to invest that chunk of cash all at once. On average, having it invested over the longer time frame beats dollar cost averaging into the market. But given the current market highs, that might be a bitter pill to swallow. In either case, start investing NOW.

 

[shawnhersh]

Here is what I wrote a while ago https://www.early-retirement.org/forums/f30/what-to-do-in-order-to-retire-hopefully-early-99570.html

The studies I recall say that you’re better off to invest that chunk of cash all at once. On average, having it invested over the longer time frame beats dollar cost averaging into the market. But given the current market highs, that might be a bitter pill to swallow. In either case, start investing NOW.

Your comment about market highs is well warranted. It makes me more than a little nervous to throw +\- $80,000 into this market. Given you can’t time the market, do I really have a choice?

 

[OldShooter]

... Given you can’t time the market, do I really have a choice?

More importantly, with your time horizon, it doesn't matter. Within the next 20 years +/- its virtually guaranteed that there will be many market kerfuffles which, as a long term investor, you will simply ride out.

 

[Sunset]

More info would be helpful to you to provide, as it will trigger some nuggets of advice:

What is the interest rate of your mortgage ?
If it is high , paying it off will save you a lot of money over the years.

How did you end up with $132K in cash, probably earning .5% interest.

Do you have a 401K at work ?
Have you opened an IRA and Roth account ?

 

[EastWest Gal]

One thing not in previous posts:

Be sure to keep some cash liquid for a rainy day, such as a job loss or major house/auto repair. 3-6 months living expenses is recommended, depending on your circumstances. With 6 mouths to feed and house, I'd aim for 6 months of expenses.

 

[shawnhersh]

More info would be helpful to you to provide, as it will trigger some nuggets of advice:

What is the interest rate of your mortgage ?
If it is high , paying it off will save you a lot of money over the years.

How did you end up with $132K in cash, probably earning .5% interest.

Do you have a 401K at work ?
Have you opened an IRA and Roth account ?

Current interest rate is 3.75%. I am in the process of working with my lender to lower, I believe to 3.25%. No fees. I put a large amount down on my home. Through appreciation over the years it’s worth about $450k.

I ended up with the cash simply from saving. I work in the oil & gas/utility field and some employers had 401k options and others did not when I was a contractor. I do not have an IRA or Roth.

 

[shawnhersh]

One thing not in previous posts:

Be sure to keep some cash liquid for a rainy day, such as a job loss or major house/auto repair. 3-6 months living expenses is recommended, depending on your circumstances. With 6 mouths to feed and house, I'd aim for 6 months of expenses.

Great point. I referenced 80% in an above post for this reason. I agree keeping some back in case of emergency is smart. I think I would keep $20k set aside at any one given time just to be safe.

 

[tominboise]

I do not have an IRA or Roth.

I would start a Roth today and put the max $6k allowed in it.

Do that every year. Invest the $6k in your choice of index funds but I'd pick an S&P500 or Total market fund and throw it all there inside the Roth).

If your employer offers a 401k match, you are missing out on "free" money. I'd sign up as soon as I could and contribute at least to the level to get the max match from your employer.

I'd start an aftertax brokerage account at Vanguard or Fidelity and put your cash there. I'd invest in stock index funds. My choices would be 80% domestic/20% International, and a mix of large, medium and small cap indexes inside that allocation - maybe 60%/20%/20%.

I'd set up an automatic investment activity into the brokerage account, for monthly investments.

I'd pay the car loan off, as well.

 

[shawnhersh]

If your employer offers a 401k match, you are missing out on "free" money. I'd sign up as soon as I could and contribute at least to the level to get the max match from your employer.

When I was a W2 employee over the years, I realize now it was really stupid not to contribute to get the match. I am in the process of switching employers and I believe the new employer has a match, which I will take advantage of. Thank you very much for all of the wisdom!

 

[shawnhersh]

I'd start an aftertax brokerage account at Vanguard or Fidelity and put your cash there. I'd invest in stock index funds. My choices would be 80% domestic/20% International, and a mix of large, medium and small cap indexes inside that allocation - maybe 60%/20%/20%.

Does the current level and activity of the stock market concern anyone? For someone who is entering the market and doesn’t have a solidified portfolio, is entering now a huge risk? Or is the bigger risk not entering NOW?

 

[braumeister]

Does the current level and activity of the stock market concern anyone? For someone who is entering the market and doesn’t have a solidified portfolio, is entering now a huge risk? Or is the bigger risk not entering NOW?

That's like the classic question "When is the best time to plant a tree?"

Answer: 20 years ago, but the next best time is today.

 

[Time2]

Does the current level and activity of the stock market concern anyone? For someone who is entering the market and doesn’t have a solidified portfolio, is entering now a huge risk? Or is the bigger risk not entering NOW?

We are all concerned! But 99% of us still have our money in the stock market. You have 20 years for the market to diminish anything that happens in the next 5 years.

 

[shawnhersh]

That's like the classic question "When is the best time to plant a tree?"

Answer: 20 years ago, but the next best time is today.

I love it. Thank you!

 

[HI Bill]

I agree with the others. Save back 3-6 months emergency fund. Max out a ROTH IRA this year. Open a second ROTH IRA, as a spousal IRA. Max that one out. Take what’s left and open a taxable brokerage account. Buy VTI or equivalent. Let it all ride for 20 years. Ignore the markets, and max out future 401(k) contributions. Enjoy life along the way. Good luck!

 

[shawnhersh]

We are all concerned! But 99% of us still have our money in the stock market. You have 20 years for the market to diminish anything that happens in the next 5 years.

So true! Thank you!

 

[shawnhersh]

I agree with the others. Save back 3-6 months emergency fund. Max out a ROTH IRA this year. Open a second ROTH IRA, as a spousal IRA. Max that one out. Take what’s left and open a taxable brokerage account. Buy VTI or equivalent. Let it all ride for 20 years. Ignore the markets, and max out future 401(k) contributions. Enjoy life along the way. Good luck!

All great guidance, thank you for the input. I will open both IRA’s this year.

Can those IRA’s be opened through Vanguard or will I need to go through an actual broker?

 

[Time2]

All great guidance, thank you for the input. I will open both IRA’s this year.

Can those IRA’s be opened through Vanguard or will I need to go through an actual broker?

We have our IRAs, our Roth IRAs, our SEP/IRAs and our taxable account with Vanguard. Wait times increased during Covid, but I have seen it get better over the last few months. I recommend them, but others like Fidelity, I have never had a Fidelity account, so I can't comment.

 

[HI Bill]

Can those IRA’s be opened through Vanguard or will I need to go through an actual broker?

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.

 

[kgtest]

Does the current level and activity of the stock market concern anyone? For someone who is entering the market and doesn’t have a solidified portfolio, is entering now a huge risk? Or is the bigger risk not entering NOW?

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!

 

[NgineER]

There are no limits for your brokerage account.

Invest $12k for yours and your wife's Roth account and keep another $12k for investment in January for 2022 Roth IRAs.

 

[Sunset]

There are no limits for your brokerage account.

Invest $12k for yours and your wife's Roth account and keep another $12k for investment in January for 2022 Roth IRAs.

And just so OP is clear, it's 6K per Roth IRA, per year.
One for OP and one for spouse. (does not matter if spouse does not work, as long as one of them earns $12K per year).

 

[ImThinkin2019]

Suggest you consider setting up your new accounts at Fidelity instead of Vanguard.

We have used both companies for many years. Vanguard is doing some things lately that look like they might affect the morale of their employees. And their tools (like Retirement Planning) are not as good as Fidelity IMO.

Fidelity's tools are getting better all the time. We like their retirement planner, their analytical tools (like Income Analyzer), and their account views. I find their interfaces much more pleasing and useful.

Vanguard has been a pioneer for years and provides good service to many of us. But having accounts and both, we see the differences.

 

[Surewhitey]

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...