The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: JD2001svt on March 17, 2014, 03:01:16 PM
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AGE 33
Single. No Kids, and don’t plan on having them.
Annual Income : 47,064 Low cost of living area. Recently certified as personal trainer and expect to be making some extra cash with that on the side.
Monthly Bills
Rent with utilities included 580.00
Car payment @ 3.6% interest 261.00. Owe 13,900 (Honda CRZ Hybrid)
Student loan 1200.00 left at 2.6% interest
Car insurance 52.00 full coverage
Internet 38.00
Cell 7.00
Gym 35.00 (huge part of my life) Consider it my entertainment in many ways.
Gas 60.00 at the absolute most.
Total= 1115.00
Very frugal grocery shopper. Lots of rice, beans, eggs, whey protein. Use a good cash rewards card for groceries and obviously pay it off every month. Go out for a drink or two maybe a few times a month. Total entertainment bill probably around 40 bucks a month.
Assets
5500.00 in bank for emergencies.
401k with vanguard funds. Currently contributing 15% with 4% match. 28,600
American Century Inflat-Adj Bond Instl 30.00%
Vanguard 500 Index Signal 35.00%
Vanguard Developed Markets 20.00%
Vanguard Mid Capitalization Index Signal 10.00%
Vanguard Small Cap Growth Index 5.00%
Vangard Roth IRA 14,000. Target Retirment 2045. 90% equities / 10% bonds. Have been contributing max for past 2 years.
Vangard taxable
Total stock market VTSMX 4000.00 Just opened a couple weeks ago.
Vanguard taxable Total international stock. VGTSX 3050.00 Opened last week.
Total Assets 55,150
I have no delusions about retiring super early…but I’d like to “semi retire” relatively young in my 40’s to early 50's I wish I would have started this journey earlier in life, but I’m not in terrible shape as it is. My gut is telling me to max out the 401k, and contribute minimally to the taxable accounts. What do you all think? With the rates I have on the debt, I’m not too concerned with paying them off early, but don't plan on EVER taking out debt again. :)
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I'd combine the taxable accounts into one as there is no reason I know of to have a bunch of different ones. You can put in whatever amount of money you want in a taxable and invest it in whatever you want, so not sure why you opened a new one just to add in a different fund?
You don't say what your 401K and Roth are invested in, but from the taxable, it looks like you're going 100% stock. If you are also investing in 100% stocks in both of those, that means your total asset allocation (AA) is pretty much full-on aggressive. Can't really comment on your AA as a whole since we're missing information.
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Sorry about that, I just edited and added the info for the 401k and Roth.
As far as the taxable accounts go, I have been under the impression that it is a good idea to be pretty evenly split between total domestic stocks and international stocks. I intend on buying a taxable bond fund as well soon. Am I totally off base here?
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I think I just read the taxable account as you opening up two different accounts - sounds like you mean you funded two different funds within your taxable account, so I was reading it wrong. ;)
http://www.bogleheads.org/wiki/Asset_allocation
Basically your asset allocation is your overall plan of what holdings you want based off of your risk profile. I see international and domestic stocks as a generic "stock" allocation - so if you're doing a 50/50 split of that within the stock allocation you've decided, then that's fine as far as I can tell. For instance, my asset allocation is roughly 80% stocks, 12% bonds, 12% REITs and 1% cash. Within those categories, I've got index funds that satisfy AA, but my overall holdings are spread out over about 5 accounts (IRAs, 401k, rollover and a taxable). But I also am only holding about 5 funds total out of all of those accounts.
As far as the need to have international stocks in some form or fashion... that's up to the individual. I personally don't see a need as the total stock market index contains US companies that mostly do have international exposure, but I know many folks do recommend having a bit in there to balance. There isn't a hard and fast rule on it as far as I can tell.
For your actual selections you are currently holding across all of your accounts, it looks like you're total investment portfolio is around $50K, with it pieced out into several different funds in your 401k. You've got anywhere from .10 to .25 percent in expense ratios (Vanguard is the best for low cost, but some are better than others).
If I broke the numbers out correctly, you've currently got bonds at right under 10K, and stocks covering the rest of the amount (40K), so you have an 80% stock, 20% bond asset allocation currently overall, with funds of small/mid caps, specialized concentrations within that 80% stock bucket... I do think that you've got too many different funds that are over-complicating what you could be holding. Simple is better - you could hit the Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) for 50% of your US stocks, Vanguard Total International Stock Index Fund Investor Shares (VGTSX) for the international stock portion (this is the 3K level, they have a 10K minimum with a slightly cheaper expense ratio for these as well) and then add in a bond portion using Vanguard Total Bond Market Index Fund Investor Shares (VBMFX). This is I believe one of the recommended Boglehead "lazy portfolio" setups (Bill Schultheis' Three-fund portfolio).
http://www.bogleheads.org/wiki/Lazy_portfolios
Three funds (which you hopefully can access from your 401k as well) that will be the cheapest expense ratios, provide you the same investment portfolio and asset allocation and simplify your holdings.
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Thank you for the response! I was at work earlier and confused my terminology. You have me thinking about the 401k asset allocation now.... I actually got help building it here in this forum, but you are right about the idea of keeping it simple and spread across fewer funds. My company 401k was initially comprised of only a target retirement fund..... with a comparatively high expense ratio. That is why I changed it to vanguard elections with the help of this forum.
As far as my taxable acct goes, yes, I got the idea from bogleheads and fully intend on purchasing a bond fund next to throw into that mix; keeping it a true 3 fund portfolio. I think a 50 domestic 20 foreign, 30 bond sounds good for that.
My main concern is how aggressively I should be funding my taxable acct vs my 401k. My Roth is maxed annually, so that's not a concern. However, since I am currently only funding my 401k with 15% of my salary, I have a lot of of room to play. I am financially able to max my 401k out without a problem. However, doing so would hinder my ability to fund my taxable accounts. From what I have learned, I should be taking advantage of the tax free growth of the 401k, therefor I should fund it as much as I am able to. I hope this makes sense. I am somewhat new to this and have a ton to learn.
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My main concern is how aggressively I should be funding my taxable acct vs my 401k. My Roth is maxed annually, so that's not a concern. However, since I am currently only funding my 401k with 15% of my salary, I have a lot of of room to play. I am financially able to max my 401k out without a problem. However, doing so would hinder my ability to fund my taxable accounts. From what I have learned, I should be taking advantage of the tax free growth of the 401k, therefor I should fund it as much as I am able to. I hope this makes sense. I am somewhat new to this and have a ton to learn.
It's not tax free growth, but it is tax deferred, so it can grow a lot higher before being taxed. In your case it looks like an excellent idea to increase your 401k contribution.