Author Topic: First time investor working towards FI  (Read 641 times)

Silverback761

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First time investor working towards FI
« on: July 07, 2018, 02:34:45 PM »
My wife and I recently opened our 401k's, IRA's and Taxable Account.  Currently we have our 401k's invested in Columbia Small, Mid and Large Cap Index A (All 3 are 100% Bonds) which is the closest to the S&P 500 that our company's plan offers.  Is spreading it out a good idea between the 3 variations of the Index Funds?

Next question is what are we looking for when we invest in our IRA's?  We are setup with Vanguard.

Lastly, the VTSMX is the primary Index Fund we want to invest in with our Taxable Account correct? Or, should we spread it out some to help diversify?

I only just started reading and learning about investing this past week so I apologize as I'm playing catch up.  Have a great day everyone!!!

terran

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Re: First time investor working towards FI
« Reply #1 on: July 07, 2018, 04:15:57 PM »
Are these the funds you're using in your 401(k)?

https://www.morningstar.com/funds/xnas/neiax/quote.html
https://www.morningstar.com/funds/XNAS/NTIAX/quote.html
https://www.morningstar.com/funds/XNAS/NMSAX/quote.html

It looks like the first of those is an S&P 500 fund. None of them is a bond fund. In the right proportions (see https://www.bogleheads.org/wiki/Approximating_total_stock_market) those three could be used to approximate a total market fund like VTSMX/VTSAX. If you wanted to post all the funds you have available people could let you know if those seem to be your best options.

VTSMX/VTSAX (different classes of the same fund with VTSAX being cheaper, but requiring $10k investment) would be a good domestic stock choice.

VGTSX/VTIAX would be a good choice for international exposure.

Either of these would be a good option in either an IRA or taxable. In lower tax brackets (10% and 12%) international is a little more tax efficient (meaning better to hold in taxable) and in higher brackets if you live in a state that taxes dividends then it's less tax efficient.

VBFMX/VBTLX would be a good bond fund. Bonds should ideally be held in an IRA or 401(k).

Silverback761

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Re: First time investor working towards FI
« Reply #2 on: July 07, 2018, 05:21:24 PM »
Are these the funds you're using in your 401(k)?

https://www.morningstar.com/funds/xnas/neiax/quote.html
https://www.morningstar.com/funds/XNAS/NTIAX/quote.html
https://www.morningstar.com/funds/XNAS/NMSAX/quote.html

It looks like the first of those is an S&P 500 fund. None of them is a bond fund. In the right proportions (see https://www.bogleheads.org/wiki/Approximating_total_stock_market) those three could be used to approximate a total market fund like VTSMX/VTSAX. If you wanted to post all the funds you have available people could let you know if those seem to be your best options.

VTSMX/VTSAX (different classes of the same fund with VTSAX being cheaper, but requiring $10k investment) would be a good domestic stock choice.

VGTSX/VTIAX would be a good choice for international exposure.

Either of these would be a good option in either an IRA or taxable. In lower tax brackets (10% and 12%) international is a little more tax efficient (meaning better to hold in taxable) and in higher brackets if you live in a state that taxes dividends then it's less tax efficient.

VBFMX/VBTLX would be a good bond fund. Bonds should ideally be held in an IRA or 401(k).

We actually have nothing in our 401k as we literally just opened them this week and it won't go into effect until August 1st when  enrollment closes according to our boss. We are both investing the max of $18500 for 401k and $5500 for our IRA's. We have it set up so that at the end of each year we will reach the max for both. Holding off on front loading til we get a better grasp on things.

To answer your question, yes those are the funds we are using in our accounts. Here's a list of the lowest cost options we have:

1. Great West Conserv Profile II Fund Inv
 a. Gross - 0.88%
 b. Net - 0.80%

2. Great West Mod Cons Profile Fund Inv
 a. Gross - 0.93%
 b. Net - 0.85%

3. Great West Moderate Profile Fund Inv
 a. Gross - 1.00%
 b. Net - 0.94%

4. Great West International Index Fund Inv
 a. Gross - 0.71%
 b. Net - 0.70%

5. Great West Real Estate Index Fund Inv
 a. Gross - 0.75%
 b. Net - 0.70%

6. Columbia Small Cap Index A
 a. Gross - 0.45%
 b. Net - 0.45%

7. Columbia Mid Cap Index A
 a. Gross - 0.56%
 b. Net - 0.45%

8. American Funds Fundamental Invs R3
 a. Gross - 0.96%
 b. Net - 0.96%

9. American Funds Growth Fund of Amer R3
 a. Gross - 0.98%
 b. Net - 0.98%

10. Columbia Large Cap Index A
 a. Gross - 0.45%
 b. Net - 0.45%

11. T. Rowe Price Blue Chip Growth Adv
 a. Gross - 0.98%
 b. Net - 0.98%

12. Great West Bond Index Fund Inv
 a. Gross - 0.50%
 b. Net - 0.50%

13. Great West Short Duration Bond Fund Inv
 a. Gross - 0.68%
 b. Net - 0.60%

14. Great West US Govt Securities Fund Inv
 a. Gross - 0.64%
 b. Net - 0.60%

15. PIMCO Real Return Admin
 a. Gross - 0.83%
 b. Net 0.70%

16. PIMCO Total Return Admin
 a. Gross - 0.72%
 b. Net - 0.71%

17. Pioneer Bond A
 a. Gross - 0.98%
 b. Net - 0.85%

18. Guaranteed Interest Fund
 a. 0.00%
 b. 0.00%

We live in NY so I'll have to research and see if they tax dividends or not. We're just starting and wanted to keep it simple stupid while we read and learn how this all works.

So for starting VBFMX/VBTLX would be good for us both with our IRA's and the VTSMX for our taxable until we have $10,000 invested each and can switch over to VTSAX?

Thank you for your help. We greatly appreciate yours and everyone's help in these forums. It has been a life changing experience for us. It truly is appreciated.
« Last Edit: July 07, 2018, 05:28:59 PM by Silverback761 »

terran

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Re: First time investor working towards FI
« Reply #3 on: July 07, 2018, 06:42:52 PM »
I used to live in NY. They do tax dividends. If you're above the 12% bracket (or more precisely above the 0% long term capital gains bracket) then from what I've seen it would be best to have your international in an IRA/401(K) (along with bonds, but that's always the case) and your domestic stock fund in taxable (once all tax advantaged space is filled).

Seems like you've made the right choices for your 401(k).

If you want bonds you'll likely need to use much of your IRA for that to be able to balance that with your larger 401(k) balance. Lots of people hold little if any bonds (myself included), but you need to realize that if you choose to do that you're in for a more volatile ride -- meaning the highs will (likely) be higher, and more importantly the lows will be lower. If you're not certain you can stay invested even as the "world" is crashing down around you, then it would be wise to have something in bonds to help even things out.

Vanguard should automatically switch VBFMX to VBTLX and VTSMX to VTSAX once your investment in each fund reaches $10k. This is per account, so you might consider concentrating each investment by account so you hit the minimum faster. I wouldn't worry about it too much


Silverback761

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Re: First time investor working towards FI
« Reply #4 on: July 07, 2018, 07:10:46 PM »
I used to live in NY. They do tax dividends. If you're above the 12% bracket (or more precisely above the 0% long term capital gains bracket) then from what I've seen it would be best to have your international in an IRA/401(K) (along with bonds, but that's always the case) and your domestic stock fund in taxable (once all tax advantaged space is filled).

Seems like you've made the right choices for your 401(k).

If you want bonds you'll likely need to use much of your IRA for that to be able to balance that with your larger 401(k) balance. Lots of people hold little if any bonds (myself included), but you need to realize that if you choose to do that you're in for a more volatile ride -- meaning the highs will (likely) be higher, and more importantly the lows will be lower. If you're not certain you can stay invested even as the "world" is crashing down around you, then it would be wise to have something in bonds to help even things out.

Vanguard should automatically switch VBFMX to VBTLX and VTSMX to VTSAX once your investment in each fund reaches $10k. This is per account, so you might consider concentrating each investment by account so you hit the minimum faster. I wouldn't worry about it too much

I'm still learning what stocks and bonds are...lol. I only mentioned them as that's what I saw my investments listed as when I adjusted the investment percentage.  Are these brackets you're referring to different than federal income tax brackets? If so, would you happen to have a link that explains it?  Currently reading "The Simple Path to Wealth" and I'm only on the second chapter.

Also, is splitting our 401k investments at 33% for each of them good for now or should we lean towards one or the other a little more?

To keep it simple we should invest in VSTMX for our taxable (I love NY 😂) and VBFMX for our IRA? Sorry if there's repetition, helps me keep it clear and focused.

Thanks again!  Off to bed, have a great night!!!

Silverback761

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Re: First time investor working towards FI
« Reply #5 on: July 07, 2018, 07:33:24 PM »
One other thing, would we invest in mutual funds or ETF's?

Thanks!

Pipboy

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Re: First time investor working towards FI
« Reply #6 on: July 07, 2018, 11:17:51 PM »
Please spend some more time reading before you rush into a haphazard investment plan. I don't mean this to offend, but it's really concerning that you don't even know what stocks and bonds are. It's a bit irresponsible to be firing your and your wife's savings into products that you don't understand.

Silverback761

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Re: First time investor working towards FI
« Reply #7 on: July 08, 2018, 04:00:02 AM »
Please spend some more time reading before you rush into a haphazard investment plan. I don't mean this to offend, but it's really concerning that you don't even know what stocks and bonds are. It's a bit irresponsible to be firing your and your wife's savings into products that you don't understand.

No offense taken at all just trying to learn 😁

Honestly, we haven't done anything yet other than to open our IRA accounts at Vanguard and that's it.  I can't setup a taxable one until the funds clear for our IRA's. I don't plan on opening it either at this time.  My wife is transferring her old 401k over and I'm just looking for advice as to where to put it.  We are focusing on paying off our debt first before we go crazy investing but we atleast want to get a small amount invested to get the ball rolling and learn how this all works so it's there when we're ready to go all in.  Thank you again for your help and honesty.
« Last Edit: July 08, 2018, 06:03:27 AM by Silverback761 »

terran

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Re: First time investor working towards FI
« Reply #8 on: July 08, 2018, 06:03:14 AM »
Agreed. Make sure you understand what you're doing before you start investing. The advice of stranger's on the internet is worth what you paid for it.

Here's info on stocks (https://www.bogleheads.org/wiki/Stock_basics) and bonds (https://www.bogleheads.org/wiki/Bond_basics).

The brackets I'm talking about are both federal income tax brackets and capital gains tax brackets. See the table at https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/. Remember to select the tab for your filing status (joint I think). You should also consider your state tax brackets (https://www.tax-brackets.org/newyorktaxtable). Like most states (at least those that tax income at all), New York taxes capitals gains, dividends and interest the same as any other income. If you live in NYC I think there's another city tax too. BTW, I wasn't implying that you should move or that we moved for tax reasons. We moved for my wife's job and our tax picture probably won't be that different now.

If you invested in 1/3 in each small, mid and large cap you would be highly tilted towards small and mid cap compared to the overall market (meaning much more small and mid cap companies than if you invested in the oft recommended VTSMX/VTSAX). Without taking too deep a dive into it, based on the link I posted earlier (https://www.bogleheads.org/wiki/Approximating_total_stock_market) I would be looking at doing more like 80% large, 5% mid, 15% small. If you look at the link you'll see that there's a suggestion (5th one down in the table) very much like that using Vanguard funds. Honestly, if you want to keep it simple I wouldn't be overly concerned if you just wanted to put your whole 401(k) in the large cap fund.

If you decide to invest in bonds (read this: https://www.bogleheads.org/wiki/Asset_allocation) then yes, VBFMX/VBTLX should go in your IRA. Bonds are terribly tax inefficient (because the income they produce is taxed at the same higher rate as regular earned income), so that's always the right choice.

I know JL Collins (Simple Path to Wealth author) isn't big on recommending international investing, but you should make an informed decision on that yourself. I would encourage you to consider making it 20-40% of your stock holdings. That would mean investing in VGTSX/VTIAX. Here's a good place to start: https://www.bogleheads.org/wiki/Domestic/International. If you decide to invest in international, it might be better to put that in your IRA, but you might not have room if you invest in bonds. Putting international in taxable would also be totally fine, and if you're in a low tax bracket could even be preferable.

For the simple answer (still requiring research for the "as much as you want" part), first fill your IRA with as much VBFMX/VBTLX as you want, fill the rest with as much VGTSX/VTIAX as you want, if there's any room left in your IRA invest it in VTSMX/VTSAX. Next put and remaining VGTSX/VTIAX you want in taxable, and invest any remaining taxable in VTSMX/VTSAX. Invest your 401(k) either 80/5/15 in large/mid/small cap, or 100% in large cap and consider this entire balance the same as VTSMX/VTSAX when calculating your other percentages.

In case you haven't noticed, almost all the links I'm posting are to the Bogleheads wiki. It's an excellent source for just about any finance related topic you can think of.

Silverback761

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Re: First time investor working towards FI
« Reply #9 on: July 08, 2018, 06:26:38 AM »
Agreed. Make sure you understand what you're doing before you start investing. The advice of stranger's on the internet is worth what you paid for it.

Here's info on stocks (https://www.bogleheads.org/wiki/Stock_basics) and bonds (https://www.bogleheads.org/wiki/Bond_basics).

The brackets I'm talking about are both federal income tax brackets and capital gains tax brackets. See the table at https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/. Remember to select the tab for your filing status (joint I think). You should also consider your state tax brackets (https://www.tax-brackets.org/newyorktaxtable). Like most states (at least those that tax income at all), New York taxes capitals gains, dividends and interest the same as any other income. If you live in NYC I think there's another city tax too. BTW, I wasn't implying that you should move or that we moved for tax reasons. We moved for my wife's job and our tax picture probably won't be that different now.

If you invested in 1/3 in each small, mid and large cap you would be highly tilted towards small and mid cap compared to the overall market (meaning much more small and mid cap companies than if you invested in the oft recommended VTSMX/VTSAX). Without taking too deep a dive into it, based on the link I posted earlier (https://www.bogleheads.org/wiki/Approximating_total_stock_market) I would be looking at doing more like 80% large, 5% mid, 15% small. If you look at the link you'll see that there's a suggestion (5th one down in the table) very much like that using Vanguard funds. Honestly, if you want to keep it simple I wouldn't be overly concerned if you just wanted to put your whole 401(k) in the large cap fund.

If you decide to invest in bonds (read this: https://www.bogleheads.org/wiki/Asset_allocation) then yes, VBFMX/VBTLX should go in your IRA. Bonds are terribly tax inefficient (because the income they produce is taxed at the same higher rate as regular earned income), so that's always the right choice.

I know JL Collins (Simple Path to Wealth author) isn't big on recommending international investing, but you should make an informed decision on that yourself. I would encourage you to consider making it 20-40% of your stock holdings. That would mean investing in VGTSX/VTIAX. Here's a good place to start: https://www.bogleheads.org/wiki/Domestic/International. If you decide to invest in international, it might be better to put that in your IRA, but you might not have room if you invest in bonds. Putting international in taxable would also be totally fine, and if you're in a low tax bracket could even be preferable.

For the simple answer (still requiring research for the "as much as you want" part), first fill your IRA with as much VBFMX/VBTLX as you want, fill the rest with as much VGTSX/VTIAX as you want, if there's any room left in your IRA invest it in VTSMX/VTSAX. Next put and remaining VGTSX/VTIAX you want in taxable, and invest any remaining taxable in VTSMX/VTSAX. Invest your 401(k) either 80/5/15 in large/mid/small cap, or 100% in large cap and consider this entire balance the same as VTSMX/VTSAX when calculating your other percentages.

In case you haven't noticed, almost all the links I'm posting are to the Bogleheads wiki. It's an excellent source for just about any finance related topic you can think of.

Thanks for all the help and advice.  I actually have the Bogleheads wiki bookmarked already so that makes me feel better I'm on the right track with that.  We also purchased "The Bogleheads Guide to Investing" which my wife is reading right now. 

Looking forward to talking about this subject more in the future as we learn.  Have a great day!!!

chasesfish

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Re: First time investor working towards FI
« Reply #10 on: July 08, 2018, 06:33:29 AM »
Your first post contained a great place to start.

I have those same Columbia options in my HSA.  I choose to own the mid-cap and small-cap index.  The expense ratios are higher than I'd like, but at least you're getting something different for the added cost (mid/small cap index funds are 0.08% or so through Vanguard/Fidelity/iShares).  This also gives a little balance to the Total Stock Market Fund (VTSMX/VTSAX) outside of your 401k plan.