Author Topic: How much should I invest to market based on my situation?  (Read 1142 times)

Happyfatherof2

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How much should I invest to market based on my situation?
« on: April 21, 2019, 08:21:11 AM »
Hi!
I知 completely debt free finally :)
I maximize Roth IRA and invest about $300/week into a taxable account.
I also have an emergency savings fund.
Question 1: let痴 say our  monthly expenses is about $3k and we have $5k leftover. Should I just invest all $5k into stock market (taxable account)?

Let me know what your thoughts are please!!!!

I'm a red panda

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Re: How much should I invest to market based on my situation?
« Reply #1 on: April 21, 2019, 09:03:03 AM »
Do you have access to a 401k/403b/HSA or any other tax deferred savings? What is your tax rate?

Happyfatherof2

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Re: How much should I invest to market based on my situation?
« Reply #2 on: April 21, 2019, 11:40:12 AM »
No other tax deferred savings plans
Tax rate is 24%

I'm a red panda

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Re: How much should I invest to market based on my situation?
« Reply #3 on: April 21, 2019, 11:56:17 AM »
My personal risk tolerance would be a split between stocks, bonds, and cash (high yield accounts, short term CDs). I hold a lot more cash than many on this forum.

bacchi

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Re: How much should I invest to market based on my situation?
« Reply #4 on: April 21, 2019, 12:18:03 PM »
Hell yeah -- maximum throttle, pedal to the metal, volume at 11. Put $5k/month on VTI and let it ride.

Seriously, you need a plan. What's your timeline and will 90% stocks keep you up all night when the market inevitably takes a beating and you "lose" $50k+ ($100k, $300k) in a week?

It's tough to know how you'll feel unless you live through it. How did you feel at the end of December when the market took a tumble? Did you stick to CNBC and watch the market at work? Did you bemoan working much longer than expected? Or was it, Meh, it'll recover."?

BicycleB

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Re: How much should I invest to market based on my situation?
« Reply #5 on: April 21, 2019, 02:03:28 PM »
If you invested in traditional IRA instead of Roth, you'd save 24% up front. Will your retirement income be in the 24% tax bracket, or lower?  If lower, you'd come out ahead using traditional IRA instead of Roth IRA, supposing you accumulate enough taxable $ to carry you through the first five years of a Roth ladder.

Plan ahead, like the other poster said. Make a year by year plan of what you're going to save and how you're going draw your income when you FIRE. That way you can ensure enough taxable savings, traditional retirement accounts and Roth to cover all your needs. You'll have to guess at return rates, but if you're like most of us, the exercise will cause you notice important things.

Remember that in some states you need to show a certain amount of income to qualify for ACA health care (I do this) and that conversions from traditional accounts to Roth can provide such income. The right answer for you depends on more information than has been provided in your posts.
« Last Edit: April 21, 2019, 09:41:59 PM by BicycleB »

Happyfatherof2

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Re: How much should I invest to market based on my situation?
« Reply #6 on: April 21, 2019, 02:18:26 PM »
I wish I had a plan. Hence asking this board hahaha
Timeline is pretty flexible. I知 40. But I want to be FI within 5-7 years.
Actually I will probably keep working, I own my own business. But by becoming FI, I won稚 ever have to worry about my business failing.  But right now it seems ok.

So I have no issue with volatility. As long as I知 working.
I was planning on using betterment.

So it seems that I should invest all income leftover after expenses? Yes?
And a good allocation would be 90:10? What allocation if I wanted to retire in 7 years? Then 70:30?

BicycleB

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Re: How much should I invest to market based on my situation?
« Reply #7 on: April 21, 2019, 04:46:27 PM »
I'm not convinced Betterment provides a value over time. I kind of like VASGX, which automates 80/20 for you and also provides international diversification. Just me.

https://investor.vanguard.com/mutual-funds/profile/VASGX

Happyfatherof2

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Re: How much should I invest to market based on my situation?
« Reply #8 on: April 21, 2019, 05:25:41 PM »
I thought betterment would be good for the tax loss harvesting.
Would the vanguard fund you recommended do tax loss harvesting?
Also what are your thoughts on assets allocation if I am shooting for retirement in 5-7 years?
And what do Mustachians asset allocation when in retirement?

Thanks a whole bunch! Still learning :)

Candace

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Re: How much should I invest to market based on my situation?
« Reply #9 on: April 21, 2019, 05:30:45 PM »
If you have your own business, can you start a Solo 401(k)? You can shelter over $40k a year in one of those and they're easy to set up. You have to qualify though. If your business employs only you, or only you and a spouse, then I encourage you to check into this. Fidelity is one place that makes this easy. I used to have one there before I closed my business.

Telecaster

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Re: How much should I invest to market based on my situation?
« Reply #10 on: April 21, 2019, 06:34:10 PM »
I thought betterment would be good for the tax loss harvesting.
Would the vanguard fund you recommended do tax loss harvesting?

Lots of threads on Betterment and such, but basically Betterment is a lot of karate for not much benefit.  There's nothing wrong with tax loss harvesting if that is what you want to do, but by doing that you are also lowering your basis which means you pay higher taxes in the future.  Also you can only deduct $3000 in losses per year (with some exceptions, and it should be noted you can carry losses forward) so for big portfolios it doesn't make much sense because you'll pay more than that in fees.   And for big portfolios it is dead easy to come up with $3000 in losses.   So again, you don't need them to do that for you.  Maybe for small portfolios it is okay, but your returns will be lower due to fees and your future taxes will be higher.   

Happyfatherof2

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Re: How much should I invest to market based on my situation?
« Reply #11 on: April 21, 2019, 07:53:37 PM »
I also contribute to my sep Ira if that was Candace wrote about.
But I知 trying to figure out what is a good plan for my taxable investing account because I want to be able to retire in 5-7 years if I choose to, or just FI. Hope that make sense.
So instead of betterment for my general taxable account, what is preferable?
A vanguard fund like vasgx or a vanguard target date fund?
I have no interest in rebalancing portfolio. I知 a set it, then forget investor. I don稚 really look at stock prices on a well or monthly basis, or really any finance news. I just want to set up automatic withdrawals and live my life and not think about it.

Telecaster

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Re: How much should I invest to market based on my situation?
« Reply #12 on: April 21, 2019, 08:58:40 PM »
A vanguard fund like vasgx or a vanguard target date fund?
I have no interest in rebalancing portfolio. I知 a set it, then forget investor. I don稚 really look at stock prices on a well or monthly basis, or really any finance news. I just want to set up automatic withdrawals and live my life and not think about it.

That's the path to success. 

BicycleB

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Re: How much should I invest to market based on my situation?
« Reply #13 on: April 21, 2019, 09:08:15 PM »

So instead of betterment for my general taxable account, what is preferable?
A vanguard fund like vasgx or a vanguard target date fund?
I have no interest in rebalancing portfolio. I知 a set it, then forget investor. I don稚 really look at stock prices on a well or monthly basis, or really any finance news. I just want to set up automatic withdrawals and live my life and not think about it.

I think this sounds like a good situation for Vasgx because:
-It rebalances for you, therefore "set it and forget it" works really well
-Its 80% stock focus is good for the very long term (30 to 50 year retirement periods)

The target date fund is also good, but changes its focus over time. However target date assumes you only have roughly 20-30 years of spending after the target. If you're youngish (30s-40s), you'll probably live longer and might benefit from the longer-lasting high stock % of Vasgx.

The tax issues depend on your tax bracket. Under 38k retirement income for single or 77k retirement income for couple, your tax after retirement from any stock-heavy fund would be low anyway. You might gain a small amount from betterment during the accumulation phase and then switching to vasgx in retirement, but if you're going to use one single choice, my guess is vasgx.

Open to other comments, just offering my opinion.

PS. VASGX is the biggest holding in my own financial portfolio. 50something retiree myself.
« Last Edit: April 21, 2019, 09:10:24 PM by BicycleB »

Happyfatherof2

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Re: How much should I invest to market based on my situation?
« Reply #14 on: April 21, 2019, 09:13:00 PM »
I知 trying to retire in 5-7 years.
So will vasgx still work?
I just got debt free.
And I知 planning on investing $5k per month.
So this is all in a taxable account. Which will be much greater than my Roth in 5-7 years

BicycleB

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Re: How much should I invest to market based on my situation?
« Reply #15 on: April 21, 2019, 09:40:17 PM »
Nothing is sure to work except knowledge of the future. It's likely to provide a pattern of returns, tax liability, and "set it and forget it" characteristics that appears reasonable based on the limited info provided. A more detailed case would include more details; see Case Study section for examples.

Fwiw, an early retiree is often best served by having financial investments in a mixture of taxable accounts, traditional retirement accounts (401k, traditional IRA, SEP IRA, etc), and Roth. Each type of account has different charactistics that can be used to valuable effect in different situations. The exact mix depends on your expenses, tax filing status (single/married/MFJ), age, and other factors.

Since you are asking what sound like early-stage questions, please bear in mind that results will at some point depend very heavily on not selling when the market goes down. I make the stock-heavy VASGX suggestion on the assumption that you will, as you stated, ignore the investment during down markets. The ability to do that makes a bigger difference than most of the decisions about which stock-driven investment you choose.
« Last Edit: April 21, 2019, 09:44:15 PM by BicycleB »

Laura33

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Re: How much should I invest to market based on my situation?
« Reply #16 on: April 22, 2019, 08:32:29 AM »
I am a little concerned by your repeated responses that you want to be FI in 5-7 years and are wondering if a particular proposed fun will get you there.  What that sounds like is "will the fund get me high enough returns to get me to my goal in that short a timeframe?"  That is exactly the wrong way to look at investing.  The reality is, the shorter the timeframe you are working with, the less your rate of return matters, because the power of compounding does not have much time to work.  What does matter?  The amount you save, compared to the amount you spend.  See https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/.  It sounds like you're saving somewhere between 60-65% of your net income.  That puts you on about a 10-12 year timeframe.  Which is still pretty awesome! But if you want to get to 5-7 years, you need to get your savings rate up to 75-80% of your net income. 

So don't chase gains.  Sure, it might get you there faster -- but it also has a much higher risk of crashing and burning and keeping you at work for another 20 years.  Figure out what asset allocation you are comfortable with for the long-term, figure out what combination of lifestyle and savings rate you are comfortable with for the long-term, and then set it and forget it. 

Added bonus: if you have an asset allocation that is appropriate for your risk tolerance, you don't need to change it, ever.  IIRC, the 4% rule is based on a long-term asset allocation of 80/20 -- much more aggressive than some folks suggest for retirees, but (a) a 40-50 year retirement requires greater returns over the long-term, and (b) even at that so-called "aggressive" asset allocation, the studies show the long-term results are pretty damn "safe" (i.e., it takes some really, really bad and unusual circumstances to make people run out of money). 

One idea that might feel more comfortable to you is to do the ladder idea.  What that means is that you keep most of your money in investments, but anywhere from 1-7 years living expenses (depending on your risk tolerance) in CDs or individual bonds.  The way you do this:  for the first however many years you are working, build up your 'stache of investments in the stock market (VTSAX, or whatever other broad market fund/ETF you choose).  Then, when you are a few years out from FIRE, you start funding your ladder.  Say you want 3 years' expenses covered: when you are 3 years out from your target FIRE date, you buy enough CDs to cover your expected annual expenses, with a maturity date of 3 years.  Then you do the same thing the next year, and the next.  When you FIRE, your first set of CDs is maturing, so you cash that in, and you have your living expenses right there in cash.  You then sell enough of your investments to buy more CDs that mature in another 3 years to replenish your ladder, so the ladder keeps rolling. 

Why is this any different than just making annual withdrawals?  Because if the market has crashed, you don't have to sell -- you have three whole years' expenses saved, so you don't need to worry about it!  You just continue to live of of your CDs for up to three years -- without worrying, without feeling like you need to sell in a panic when the market is low, because you have more than enough cash to ride out anything short of the next Great Depression.  Then when the market does come back around, you start replenishing the ladder again.  Maybe that means now you have to sell more investments to buy two or even three years' worth of CDs -- but that's ok, because now you're selling at a good price again. 

I think this approach can be very helpful for people who are nervous about keeping so much in the market and want to feel "safe."  For me personally, I like it, because it means I don't have to worry about asset allocation at all -- since I will have several years' of expenses safely covered, I can just put all the rest of my money in VTSAX and let it ride.

matchewed

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Re: How much should I invest to market based on my situation?
« Reply #17 on: April 22, 2019, 08:51:57 AM »
The back of the napkin math says you need about 900k to FIRE. You are on track to save about half of that in your 5-7 year window window with 5k/month of savings.

Unless you have other assets you haven't mentioned you will not succeed.

Maybe you could go into greater detail as to your financial situation beyond "debt free and saving 5k/month"...

You'll have to go into greater detail with yourself in order to achieve your goals.

Happyfatherof2

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Re: How much should I invest to market based on my situation?
« Reply #18 on: April 22, 2019, 10:28:41 PM »
Tha l you guys so much for the great info!
Realizing I know so little
With investing, I guess my goals were not 田orrect

In My 途etirement I plan on stillness earning but probably significantly less.
Like part time work at local tennis club. I知 guessing I can make $20k part time in tennis.