Author Topic: What should I do?  (Read 1989 times)

jordan.

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What should I do?
« on: April 23, 2016, 08:56:21 PM »
Hello all,

I am going to start the real world here soon and have a few questions for you so I can get on the right financial track! Here is a bit of my background information.

I am graduating college here in a few short weeks and have a  job lined up already. I currently have about 7,000 in my bank account, no school debt, 43,000 in a Roth/single account, and a 27,000 tacoma that is paid off. I have worked very hard over the past few years to accumulate this kind of wealth and I am entertaining the idea of early retirement.

I currently have my investments in an edward jones account and want to move them to something that will benefit me more - also my financial advisor is a total dud. I have been looking at Betterment and Vanguard, which one would you recommend I do? I am going to be living with my parents for a year or so, this way i can save up a good amount of cash in a relatively short amount of time.

If you have any other questions I would be happy to answer them so you can give me a more detailed answer!

thanks,
Jordan

MDM

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Re: What should I do?
« Reply #1 on: April 23, 2016, 09:13:11 PM »
jordan., welcome to the forum.

You could probably do just fine at Vanguard.  See https://www.bogleheads.org/wiki/Three-fund_portfolio.  Also https://www.bogleheads.org/forum/viewtopic.php?f=1&t=6211.
Other "getting started" reading material (note that these may not give identical advice, but if you follow any of it you will likely do well):
www.etf.com/docs/IfYouCan.pdf
http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Category:Getting_started

For longer works, http://www.mrmoneymustache.com/the-mmm-reading-list/ - Haven't read them all, but A Random Walk Down Wall Street by Burton Malkiel and The Four Pillars of Investing by William Bernstein were good.

Here is the "usual advice", current as of the posting date.  See the 'Investment Order' tab in the case study spreadsheet for the latest version.   
"Max..." means "contribute up to the maximum allowed for..., subject to your ability to pay day-to-day expenses."   
   
It is up to you whether to consider "saving for a house down payment" as a "day to day expense", vs. lumping the down payment savings in with "taxable investments" at the end.   
If you are renting, you may not be throwing away as much on rent as you might think.  See   
   http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/ for some thoughts.
   
In the lists below, thinking "first your 457 (if you have one), then your 401k and/or 403b" wherever "401k" appears is likely correct -   
   unless your 457 fund options are significantly worse than those in the 401k/403b -
   due to penalty-free access to 457 funds at retirement, even if younger than 59 1/2.
   
Differences of a few tenths of a percent are not important when applicable for only a few years (in other words, these are guidelines not rules).   
   
Current 10-year Treasury note yield is ~2%.  See   
   http://quotes.wsj.com/bond/BX/TMUBMUSD10Y
   
WHAT   
0. Establish an emergency fund to your satisfaction   
1. Contribute to 401k up to any company match   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.   
3. Max HSA    
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)   
6. Fund mega backdoor Roth if applicable   
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.   
8. Invest in a taxable account with any extra.   
   
WHY   
0. Give yourself at least enough buffer to avoid worries about bouncing checks   
1. Company match rates are likely the highest percent return you can get on your money   
2. When the guaranteed return is this high, take it.   
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.   
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see   
   http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/
   if you want even more details on that topic).  See also
   https://www.bogleheads.org/forum/viewtopic.php?f=2&t=182081,
   http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-would-you-get-started/msg868845/#msg868845
   and other posts in that thread about exceptions to the rule.
5. See #4 for choice of traditional or Roth for 401k   
6. Applicability depends on the rules for the specific 401k   
7. Again, take the risk-free return if high enough   
8. Because earnings, even if taxed, are beneficial   
   
The emergency fund is your "no risk" money.  You might consider one of these online banks:   
   http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001
      
If your 401k options are poor (i.e., high fund fees) you can check   
   http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/
for some thoughts on "how high is too high?"   

jordan.

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Re: What should I do?
« Reply #2 on: April 24, 2016, 01:30:35 PM »
MDM,

Thank you for putting the time into your post! I will look into everything you mentioned as I bet it will open up a ton of doors!

thanks again,
Jordan