Sanity check on my overall investment strategy

[dan101]

I’m starting to pay more attention to my investments and I realized I should get some advice from people who know what they’re talking about. I’m 24 years old, single, 60k income. My goal is to save aggressively and have the option for early retirement or part time work fairly early in my working career. Thank you for your help!

Accounts/Info:

No debt

401k: $9000 in Vanguard Target Retirement 2055 . ( I have been contributing 6%, but I just upped it to 25% because I will temporarily have very low expenses for the next 6 months as my work will be paying for my rent and utilities)

Roth IRA: $4,000 in Vanguard Life Strategy Moderate Growth Fund

Online Savings Act: $5,600

HSA: $800 cash, $1000 Vanguard S&P 500 fund

Brokerage Account: $1700 ( 60% vanguard total stock market index ETF, 40% vanguard total bond market ETF)

Questions:

1.   I bought the ETF’s as a way to put some of my money to work, while still being able to access the money if I need it. But after doing more research I realize it may be unwise to hold total bond market ETF’s in a taxable account. I'm not sure how to have tax efficient investments while still maintaining some stability. Should I swap out the total bond market ETF’s for something more tax efficient? Maybe municipal bond ETF’s?

2.   I plan to use the Roth IRA for mid-term savings, possibly to buy a house in 5+ years. I also planned on using this as a portion of my emergency fund, although now I realize I will need to wait 5 years before I can access my contributions penalty free. I understand the fund I chose may be too aggressive if I have a firm timeline for buying a house, but since I have no immediate plans to buy a house and do not have a firm deadline, I figured a 60% stock, 40% bond allocation that the fund holds would be conservative enough. Does my fund choice  and strategy make sense here?

3.   Finally, what should be my priority going forward? I see the next 6 months as an opportunity to save a lot, given my low expenses. I thought about contributing the max to my Roth IRA, and then increasing my 401k contributions to as high as 50% which would take me close to the maximum $17500 contribution limit. Then again, maybe this is crazy considering I won’t be accessing the 401k money for a long time (although I’ve read about Roth Ladders and SEPP). Also, maybe I should focus more on building my emergency fund and saving more for a house downpayment.

[Eric]

1.   I bought the ETF’s as a way to put some of my money to work, while still being able to access the money if I need it. But after doing more research I realize it may be unwise to hold total bond market ETF’s in a taxable account. I'm not sure how to have tax efficient investments while still maintaining some stability. Should I swap out the total bond market ETF’s for something more tax efficient? Maybe municipal bond ETF’s?

You don't have enough money in this account to make a difference, so I would just leave it.  If you want to add more bonds on top of what's in your 401k target retirement fund, adjust your 401k contribution to add bond fund there, and only add stock EFTs here.  Remember that all of your accounts combined make up your asset allocation, so you don't need to try to keep the same allocation in every account.  If you want to read more about tax efficient placement, this is a pretty thorough guide.
http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

2.   I plan to use the Roth IRA for mid-term savings, possibly to buy a house in 5+ years. I also planned on using this as a portion of my emergency fund, although now I realize I will need to wait 5 years before I can access my contributions penalty free. I understand the fund I chose may be too aggressive if I have a firm timeline for buying a house, but since I have no immediate plans to buy a house and do not have a firm deadline, I figured a 60% stock, 40% bond allocation that the fund holds would be conservative enough. Does my fund choice  and strategy make sense here?

I don't believe the bolded part is true.  You should be able to access your contributions penalty free at anytime, no waiting period is necessary.  The 5 year waiting period applies to rollover contributions, but not regular contributions.  That said, Roth IRA space is very valuable.  I personally would not use this as a short term savings vehicle, as once the funds are withdrawn, they cannot be replaced.  At $60k, with minimal living expenses, you should be able to max your 401k, your Roth IRA, and save for a down payment in your savings account.

3.   Finally, what should be my priority going forward? I see the next 6 months as an opportunity to save a lot, given my low expenses. I thought about contributing the max to my Roth IRA, and then increasing my 401k contributions to as high as 50% which would take me close to the maximum $17500 contribution limit. Then again, maybe this is crazy considering I won’t be accessing the 401k money for a long time (although I’ve read about Roth Ladders and SEPP). Also, maybe I should focus more on building my emergency fund and saving more for a house downpayment.

It depends on your goals, but the bolded part would be my choice.  Maxing the 401k reduces your taxes now, and since you'll be in a lower tax bracket at retirement (you will, right?) you'll pay less tax on the money overall, making your money work harder for you with no extra risk.  Check this out if you haven't already:

http://www.madfientist.com/retire-even-earlier/