Bogleheads :: View topic - New guy here. Could you all take a look?

View previous topic :: View next topic ? Author Message TheQuotidianInvestor

Joined: 28 Sep 2011
Posts: 4

Posted: Wed Sep 28, 2011 12:53 pm?? ?Post subject: New guy here. Could you all take a look?
Emergency funds = Probably around 4 months. Still working on building this up. Debt: ~$36,000 over ten student loans. Interest rates range from 4.5% to 6.8% Tax Filing Status: Single Tax Rate: 15% Federal 6.8% State Iowa Age: 22 Desired Asset allocation: 90/10 Currently a 4-figure portfolio, since I am just starting out. Roth at Vanguard 100% Vanguard Target Retirement 2055 VFFVX 0.19% Getting ready to start my Roth 401(k) with my company. They provide a 100% match up to 3%. Funds available in his 401(k), including Prospectus Gross Expense Ratio Ready Assets Prime Money Fund (MRAXX) BlackRock US Government Bond R (BGBRX) (1.38%) Calvert Income R (CICRX) (1.45%) JPMorgan High Yield R2 (JHYZX) (1.59%) AllianceBern 2040 Retirement Strat R (LTSRX) (1.65%) AllianceBern 2050 Retirement Strat R (LTQRX) (3.55%) BlackRock Global Allocation R (MRLOX) (1.51%) Franklin Income R (FISRX) (1.00%) Eaton Vance Large-Cap Value R (ERSTX) (1.23%) BlackRock S&P 500 Index A (MDSRX) (0.57%) BlackRock Capital Appreciation R (MRFGX) (1.44%) Goldman Sachs Mid Cap Value Service (GSMSX) (1.26%) Goldman Sachs Growth Opportunities Svc (GGOSX) (1.54%) Franklin Small Cap Value R (FVFRX) (1.52%) BlackRock Small Cap Growth II R (MRUSX) (1.96%) American Funds EuroPacific Gr R2 (RERBX) (1.61%) MFS Research International R2 (MRSRX) (1.49%) Oppenheimer Developing Markets N (ODVNX) (1.71%) Prudential Jennison Natural Resources R (JNRRX) (1.65%) Invesco Real Estate R (IARRX) (1.56%) Questions: 1. Should I throw all my money at my student loans or pay minimum payments and focus on investing? 2. What sort of allocations would you recommend for my 401(k), given the options? 3. Any other recommendations? Thanks so much for your help. Let me know if more info is needed!

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Wagnerjb

Joined: 19 Feb 2007
Posts: 4788
Location: Houston, Texas

Posted: Wed Sep 28, 2011 1:08 pm?? ?Post subject:
If you invest in the Roth 401k plan, can you also invest in a Roth IRA at Vanguard? If so, then I would recommend saving 3% of your salary (up the employer match) in the Blackrock S&P500 fund. Second, I would invset in a Roth at Vanguard (if possible). Third, I would pay off student loans. Your 401k plan is expensive (but fairly typical), so I wouldn't be in a hurry to invest non-matched money in there. Since your 401k funds are in the S&P500, I would use your Vanguard Roth to balance with international funds and fixed income. As your balances get larger, you may want to further diversify into small cap stocks as well. Best wishes. _________________ Andy

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mamster

Joined: 11 Jan 2011
Posts: 356

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TheQuotidianInvestor

Joined: 28 Sep 2011
Posts: 4

Posted: Wed Sep 28, 2011 1:28 pm?? ?Post subject:
mamster wrote: Once they're paid off, you'll have plenty of cash flow to direct to the 401(k) and Roth IRA. Some of the information out there says the number one thing you can do to build wealth is start early. I could probably pay off my loans in about 3-4 years, but is that really better than putting money aside for the same time frame? Sorry if that's an ignorant question. Still pretty green when it comes to this stuff.

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btenny

Joined: 07 Oct 2007
Posts: 1266

Posted: Wed Sep 28, 2011 1:56 pm?? ?Post subject:
Call your student loan providers and see if you can consolidate or roll over your loans into one single amount at a reasonable long term amount. Many of these lenders offer great rates of 3-4% if you are done borrowing. That way you may find you want to keep the loans long term and just make payments as they are good leverage to allow you to put your new money into the stock market instead of payng off the loans fast. As far as your 401K obviously only buy the index fund up to matching amounts as that is the only fund that has OK fees and then go outside your company for any additional investing.. My 2 cents. Bill

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tyrion

Joined: 08 Feb 2008
Posts: 248

Posted: Wed Sep 28, 2011 1:57 pm?? ?Post subject:
There is a 'math answer' to this, and a behavioral answer. First things first, you should absolutely invest enough in the 401k to get the match. That's free money. Beyond that, you are probably better off paying off the loans before investing more. IF you plan to have so much income that you will exhaust tax deferred savings options in the near future and be forced to invest in taxable at a high tax rate, it might make sense to invest now to utilize the tax deferred space each year. It doesn't sound like this is the case for you. Now, on the behavioral side it's beneficial to see some progress being made for your (financial) sacrifices. This can be seen as both a decreasing balance on the debt side and an increasing balance on the assets side. So if seeing the Roth/401k balance increase is helpful to you as a motivation to keep saving, then by all means split it up in some reasonable way. 401k to the match, then split what you have left each month between paying down the debt and investing in the Roth IRA. And when that debt gets knocked out, think of how much more you can put in the Roth IRA.

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TheQuotidianInvestor

Joined: 28 Sep 2011
Posts: 4

Posted: Wed Sep 28, 2011 4:01 pm?? ?Post subject: UPDATE
Thanks to all of you for advice. Here's my plan moving forward. It was a no-brainer to get the 3% match. That's all taken care of - for the time being, I've opted for the S&P 500 option due to it's lower costs. I've already tossed a bunch of money into my Roth IRA for this year. I definitely won't be maxing out all my tax deferred accounts for a while, but it was important for me to take that first step. The target fund will keep things safe and sound while I acquire more knowledge. I plan on giving my loan companies a call to look into consolidation options. If they do get my rates down into the 3-4% range, I'll continue my investing. If not, then I plan on aggressively paying those loans down. Yes, I'll miss out on a couple years of investing, but it will allow me to throw a bunch more into those accounts to make up for lost time!

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bdpb

Joined: 06 Jun 2007
Posts: 617

Posted: Wed Sep 28, 2011 10:01 pm?? ?Post subject: Re: New guy here. Could you all take a look?
TheQuotidianInvestor wrote: Emergency funds = Probably around 4 months. Still working on building this up. Tax Rate: 15% Federal 6.8% State Iowa Getting ready to start my Roth 401(k) with my company. They provide a 100% match up to 3%. You don't need to hold your EF in a taxable account. You could contribute your EF to a Roth. Contributions can be withdrawn from a Roth at any time, no federal penalty, no federal tax (you would have to take state taxes into account here). You might consider a deductible IRA/401k instead of a Roth. A Roth is usually suggested for folks in the 15% federal bracket without considering state taxes. Since you won't be maxing out tax advantage accounts, it's likely you won't be in a higher federal bracket when you retire. If a TIRA/401k is deductible on your Iowa taxes it might make sense to do a deductible TIRA/401k. It's very possible that you could move to a state with little or no taxes on IRA/401k distributions.

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pkcrafter

Joined: 04 Mar 2007
Posts: 4490
Location: CA

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Joined: 19 Sep 2009
Posts: 73

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TheQuotidianInvestor

Joined: 28 Sep 2011
Posts: 4

Posted: Thu Sep 29, 2011 5:49 pm?? ?Post subject:
pingo wrote: No expert here, but I have a hunch that the employer may only provide a 3% match in the Traditional 401k. I checked, and they do match on the Roth 401(k), though I'm guessing their contribution will be taxed first. It was an oversight on my part with regards to my AA being above 90/10 with TR 2055 and S&P500, but I'm curious as to why 90/10 would be considered high for someone my age. Shouldn't I be very aggressive due to my youth? Again, thanks to all for answering my questions.

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woof755

Joined: 05 Aug 2007
Posts: 2816
Location: North Carolina

Posted: Thu Sep 29, 2011 9:21 pm?? ?Post subject:
Use the Blackrock SP500 index fund and a fund at Vanguard in your Roth that makes the math equal your desired AA. 90/10 is fine for someone your age. 80/20 might be a smoother ride and provide a pretty similar expected return, but you won't make a mistake at your age, in those funds, with those savings habits. I'd say you're on the right track! Keep reading!!! _________________ "By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Default User BR

Joined: 17 Dec 2007
Posts: 2384

Posted: Fri Sep 30, 2011 1:28 pm?? ?Post subject:
TheQuotidianInvestor wrote: I checked, and they do match on the Roth 401(k), though I'm guessing their contribution will be taxed first. No. Employer contributions go into tax-deferred even when matching designated Roth contributions. From the IRS: Quote: Can my employer match my designated Roth contributions? Must my employer allocate the matching contributions to a designated Roth account? Yes, your employer can make matching contributions on your designated Roth contributions. However, your employer can only allocate your designated Roth contributions to your designated Roth account. Your employer must allocate any contributions to match designated Roth contributions into a pre-tax account, just like matching contributions on traditional, pre-tax elective contributions. http://www.irs.gov/retirement/....00.html#10 Brian

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Source: http://www.bogleheads.org/forum/viewtopic.php?t=83244&start=0&mrr=1317403687

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