Case Study for a Brand New Mustachian

[nishanth156]

Hi All,

Absolute newbie on this forum and in the world of investing as well , so decided to reach out for any helpful suggestions folks can provide :happy

My profile

33 years old , working as an engineer in Topeka , KS ,29 year old wife working and studying part time , no kids yet, no significant investments yet.Only recently made up my mind to settle in the US of A

Gross Salary (joint)- 93k

No other income sources at present.

Monthly expenses - 2500 to 3000 approx.Only life expenses including medical , no car loans/expensive vacations/manicures. Only indulgences are eat outs couple of times a week and my gym membership costing 480 dollars every month.Biggest expense is rent , montly 839 dollars.

Goals : Retirement  at an age of 60, but no idea of the amount that I would be requiring ( just approximating it as 6000 dollars per month , taking into account inflation).Kids are also wanted in the future :happy

Investment Policy/ Risk profile: Willing to take above average market risk for aggressive portfolio growth. Comfortable with market volatility and long drawn out sideways/bear markets

Insurance: Have health and short term disability insurance for self and spouse , no life insurance policies taken just yet

Credit Card Debt :Zero

Home:Currently rent , and no plans for buying a home in the next 5-7 years

Spouse:Currently working a part-time job , as well as being an MBA student

IRS Filing Status : Joint

Asset Allocation for Retirement: 90% stock/10% bonds for now , with periodical rebalancing. A 70/30 split between US/International Stocks

Liabilities - None

Investment options:

a) 401(k) plan : My employer offers a 401(k) plan with 5% matching.I contribute just enough to get the 5% matching. The investment options are shown below

1)JP Morgan Mid Cap Value (Select Sh)
2)Artisan International Fund (Investor)
3)Dodge & Cox International Stock Fd
4)Vanguard Extended Market Index Inst
5)BlackRock Inflation Protected Bond Inst
6)Harbor Capital Appreciation (Instl)
7)AB Global Bond I
8)AllianzGI NFJ Small Cap Value Fund Inst.
9)Vanguard Equity Income Adm
10)AMG TimesSquare Small Cap Growth Instl
11)Wells Fargo Stable Return Fund N
12)Schwab Managed Retirement Tr Fd Inc IV
13)Schwab Managed Retirement Tr Fd 2010 IV
14)Schwab Managed Retirement Tr Fd 2015 IV
15)Schwab Managed Retirement Tr Fd 2020 IV
16)Schwab Managed Retirement Tr Fd 2025 IV
17)Schwab Managed Retirement Tr Fd 2030 IV
18)Schwab Managed Retirement Tr Fd 2035 IV
19)Schwab Managed Retirement Tr Fd 2040 IV
20)Schwab Managed Retirement Tr Fd 2045 IV
21)Schwab Managed Retirement Tr Fd 2050 IV
22)Schwab Managed Retirement Tr Fd 2055 IV
23)Vanguard Institutional Index I
24)Vanguard Total Bond Market Index Admiral
25)Vanguard Total Intl Stock Index Admiral

Other Investing Accounts

b) Traditional IRA ( in my name) : Opened at Vanguard when I rolled over my old 401(k)
c)Roth IRA (in my name): Also opened at Vanguard
d)Roth IRA ( in my spouse's name): Opened at E-Trade

What I invest in and why

1)Traditional IRA : In the Vanguard Target Retirement 2045 fund , an age appropriate mix of US and International Stocks and Bonds.I prefer a target date fund approach
2)Roth IRA (mine) : Vanguard REIT Index fund , where I can reinvest dividends in a tax-advantaged way and take advantage of compounding in a major asset class
3)Roth IRA(my wife): T Rowe Price Retirement 2050 fund , an age appropriate mix of US and International Stocks and Bonds for her retirement
1) 401(k) : Exclusively in the Dodge and Cox International Stock Fund, inspite of the presence of much cheaper share classes of Vanguard Index Funds. I did so because : a) I did not want overlap with my existing Vanguard Funds b) Dodge & Cox International Fund is one of the few active funds that has impressed me with the fund house philosophy and the fund's risk adjusted performance record. The fact that it is currently closed to new investors also biased me favorably.

All the investment accounts above ,contain amounts in the low thousands of dollars.I also plan to invest in a smallcap value index fund or actively managed microcap fund.Im comfortable with accepting the risk for above average returns over a couple of decades.

I apologise for the length of this post , but wanted to give people a clear overall picture.Let me know if you need any more details.

Eagerly awaiting advice/suggestions/criticism :D

[lbmustache]

Can I ask what gym you are a part of that costs $480 a month?!

Equinox is the pricey gym out here and even that tops out around $250 or so.

[nishanth156]

Sorry , should have made it more clear. That was for a personal trainer ( a package of 15 sessions , each session costing 32$)

[skunkfunk]

Can you get rid of the personal trainer? You might give something like bodbot a try. Is there a good reason you need one?

Aside from that, you seem to be doing pretty damned well. Better than me on all visible fronts, so I can't really say anything helpful. There are some weaknesses in those 401k funds, you might talk to whomever picks those out and give them a quick facepunch.

[Valetta]

For a retirement goal of age 60, you're probably fine. You make a pretty good living and I'm guessing your wife will as well with an MBA. You could retire earlier if you bumped up your savings, which you may want to do for at least a few years while you are young and don't have a lot of financial obligations. Even if you do want to work until 60, saving more now would give you more breathing room later if you have an expected illness in the family, a job loss, etc. Not everyone gets to work as long as they want to for various reasons. My MIL had to retire early due to illness as an example and she is definitely not in the spot financially that she wanted to be in for retirement. I always think maxing out 401k while you are young is good if you can afford it. Plus you keep more of your money that way instead of paying it out in taxes.

If you are making $93,000 per year gross, and your expenses are only $36,000 per year - where is the rest of it going? Obviously a bit to your 401k, a bit to taxes, etc. but it still seems like a pretty significant gap and that you should be able to save more if that was something you were interested in. You could post a full case study if you wanted to get down into the nitty gritty.

On the life insurance front - do you have life insurance through work at least? Since your wife seems to at least be somewhat dependent on you for income, it may be a good idea to have a small life insurance policy. Would she have to drop out of school and find a job right away if something happened to you? I can't imagine either of you think that's ideal.

[Full_Beard]

1. Dump the personal trainer.

2. Get out of the target funds. If you want balanced portfolios, do it yourself; no need to pay fees on fees.

3. Max out 401Ks and IRAs. At $93K per year and no debt, this should be do-able.

[JustGettingStarted1980]

Another vote for maxing out the 401K, and contributing to your spouse's as well as you live on half of your take home income. The Tax benefits to this are very nice, and these tax benefits compound tax free, which is even nicer.

If the $450/month for a personal trainer makes you happy (and fit!), go for it. You seem not to be interested in early retirement, so as far as I can see, you can afford it.

Start up a Spreadsheet calculating your Net Worth (there are some excellent ones here on MMM Forum if you want a template). This is not only fun to track, but will help focus your efforts in the future.

Best of luck!

[nishanth156]

For a retirement goal of age 60, you're probably fine. You make a pretty good living and I'm guessing your wife will as well with an MBA. You could retire earlier if you bumped up your savings, which you may want to do for at least a few years while you are young and don't have a lot of financial obligations. Even if you do want to work until 60, saving more now would give you more breathing room later if you have an expected illness in the family, a job loss, etc. Not everyone gets to work as long as they want to for various reasons. My MIL had to retire early due to illness as an example and she is definitely not in the spot financially that she wanted to be in for retirement. I always think maxing out 401k while you are young is good if you can afford it. Plus you keep more of your money that way instead of paying it out in taxes.

If you are making $93,000 per year gross, and your expenses are only $36,000 per year - where is the rest of it going? Obviously a bit to your 401k, a bit to taxes, etc. but it still seems like a pretty significant gap and that you should be able to save more if that was something you were interested in. You could post a full case study if you wanted to get down into the nitty gritty.

On the life insurance front - do you have life insurance through work at least? Since your wife seems to at least be somewhat dependent on you for income, it may be a good idea to have a small life insurance policy. Would she have to drop out of school and find a job right away if something happened to you? I can't imagine either of you think that's ideal.

I realise there are some details that I (deliberately) left out because I didn't think those would be relevant to the situation. As I mentioned in my original post, I only very recently decided to settle in the US of A. Before that I was in a dilemma whether to return to my home country(India) or pursue a Green Card and eventual citizenship here.I started working at the age of 23 , so that makes it a full decade I have been working. Even though I have been working for 8 years in the USA now ,all my dollar savings were transferred to my home country so that I could invest in stocks ,bonds and property there ( As I was not sure whether I would be able to stay here -- visa related immigration issues and a whole boatload of headaches:) ).

That portfolio in my home country , is now worth (in USD) $300,000, of which approx 170,000 USD is in financial assets and rest is in property and gold. In 2013 ,  a huge scare occurred in India's stock markets , which opened a golden opportunity to me :). I borrowed heavily on my credit cards (0% APR loans) and invested in the stock markets, which proved to be very sound decision in hindsight.

So if I mentioned I have no credit card debt earlier ,that is not entirely accurate.What I meant is that I have no interest bearing credit card deb. I have to finish paying off $30,592 on 0% APR interest by March 2017 or that resets to 22.99% APR:). So if there appears a significant gap between my gross income and expenses , its because Im putting at least 1600 USD a month to pay off the loans.

I have not taken a life insurance policy yet because we have strong family support and a lot of other cultural reasons why we dont need a life insurance policy in case of an unfortunate incident. If ever my wife found herself in an emergency , she can count on both our families helping her out. There are some cultural contexts here which I probably cant communicate very well through an electronic forum:)

As to the personal trainer , I recognise its a significant expense, but I place great priority on keeping myself fit ( I have family history of obseity , diabetes and high BP with cholesterol) and place great emphasis on prevention rather than cure. That , besides occasional travel in the United States and 2 eat outs a week , are the only indulgences I permit myself .I dont drink, smoke or have an expensive car habit or any other expensive hobbies or addictions.

[Full_Beard]

Well you're doing really well. I'd still dump the personal trainer. I work out 5-6 days per week; it's not hard to develop a cardio and weight training routines that you do on your own. A trainer may be good for 2 weeks to help with that, but I cannot imagine working out with a PT regularly.

[nishanth156]

Thank you one and all  , very much for the feedback:)