Author Topic: Help a Beginner with an Investment Strategy  (Read 850 times)

Sherbi5

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Help a Beginner with an Investment Strategy
« on: May 07, 2018, 09:32:05 PM »
Help needed!

Background
I'm a 32 year old male that is starting to get wise about investing less than a year ago. Slowly, but surely I'll get there. I have read the millionaire teacher (this opened up my eyes) and a small amount of JL Collins.

Salary: I Completed Nurse Practitioner last year school and live in Florida. This is my second year in the profession and will be making approximately $130,000 this year. My potential salary may increase, but to be conservative it will remain around $100,000 to $130,000 a year for the forseeable future. Currently, I am making take home about $9,000 a month.



The Nuts and Bolts
-I have a fixed $400 dollar loan for 10 years that my father loaned me at a 3% interest rate to pay my student loans.

-My car is payed for.

-Expenses including having fun and rent and utilities come to about $2000 a month

I live with my girlfriend and have no kids. We plan to have kids in 4-5 years.


Where my money is right now:
-In my current position I've just become eligible for there John Hancock 401k plan that has no match. Instead, they have a 3% safe harbor that comes to you automatically if you participate in the plan or not. I have put no money in this yet. I am planning on leaving this position in one year and moving to a job with more opportunity (a different nurse practitioner job) that is currently my sidegig.

- I have 2, 401k plans that combine to about $5000 at previous positions. I have not rolled anything over. I am not sure where to roll this over to or how to (A traditional IRA I create???)

- $4,500 in a Vanguard Roth IRA that I plan to max out.

- $30,000 with a 45%,45%,10% allotment to Low cost Vanguard Admiral index funds/short term bonds......US and International. I started this 4 months ago and am putting about $4000-$5000 a month into Vanguard in these allotments.

-I have $5,000 in a Bank of America checking account.


Questions:
I'm new at this and looking for general advice and options so....
Would you max out the John Hancock 401k?
Should I start a Traditional IRA in addition tot he Roth IRA I have?
Should I continue investing heavily in the Index funds before adding to my 401k?
Am I missing something?
Should I change something?


MDM

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Re: Help a Beginner with an Investment Strategy
« Reply #1 on: May 07, 2018, 11:57:49 PM »
Sherbi5, welcome to the forum.

In a quasi-perfect world, your new employer's 401k plan will have great investment options.  You will roll all your old 401k money (including the maxed contributions to the probably-terrible Hancock options) into that new plan, thus keeping your traditional IRA balance at $0 and allowing you to do a backdoor Roth each year.

How close to a quasi-perfect world do you inhabit, and do all the buzzwords in the preceding paragraph make sense?

See also Investment Order for generic suggestions.

Counting_Down

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Re: Help a Beginner with an Investment Strategy
« Reply #2 on: May 08, 2018, 04:07:10 PM »
Hi Sherbi5,
First thing that came into my head is "why can't you pay off your dad early?" You can calculate the total lump sum for payoff including the 3% interest and clear that off your plate.  Your dad would probably like to have the money back sooner as well.  Why draw it out over 10 years when you could probably crush it pretty fast.

So a couple things you may look into given your income level:
*Your taxes will be high, so any opportunity to shelter cash tax efficiently (18.5K in a 401k, anyone) is a good thing to consider.  Even if they have the worst investment options in the world, all the better that you're leaving in a year and can take it with you.

*Best case scenario your new job will have a good 401k and you can roll over your previous 401ks (and potentially any tIRA money - reasons why below) directly.  Rolling over is easy, I've done it with mine, most annoying part as with all investment firms is the snail mailing in signed forms and waiting.

* You're relatively high income, without the offset of being married to someone who makes significantly different $$ than you.
1) You may hit income limits that eliminate your ability to contribute directly to a Roth IRA, and may need to consider a backdoor roth conversion. Super easy, just look it up.  It does require that you DO NOT HAVE ANY TIRA funds to be the most tax efficient though, so rolling old 401ks over prematurely into a tIRA may make you have to take some extra steps.  My partner did that, but found out he was able to roll his tIRA into his employer 401k, opening him back up for tax free backdoor roths.
2) google the "Marriage Penalty".

Your Specific Questions:
Would you max out the John Hancock 401k? Yes
Should I start a Traditional IRA in addition to the Roth IRA I have? You can't deduct anything on a tIRA if you technically have access to a employer 401k, so no.  Look up backdoor roth as needed to keep doing that EVERY YEAR.
Should I continue investing heavily in the Index funds before adding to my 401k?  Tax advantaged accounts first.  401k and roth every year, any additional $ can be invested in taxable accounts after.
Am I missing something? Maybe, if 401k expenses are wild, then the advice above does not necessarily hold.  See what you can find out in advance regarding the offerings at the job you hope to have next year.  For this year, a single year of shitty fees & expense ratios will not change the advice, you're certainly better off shielding 18.5k from the tax man NOW.  For the next job, you're probably better off in the long run shielding the money from the tax man, the question is - how long do you want to keep it in an account with bad investment options or high service fees and expense ratios (you can sometimes roll out of a 401k without having to terminate employment)...but then you balance that with your ability to continue doing a backdoor roth if it has to go into a tIRA.

Sherbi5

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Re: Help a Beginner with an Investment Strategy
« Reply #3 on: May 08, 2018, 06:56:07 PM »
Thank you so much. You really helped and gave me quite a bit to think about. I may reply in time with questions, but let me think about your reply for a bit.

Thanks again!!!

Counting_Down

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Re: Help a Beginner with an Investment Strategy
« Reply #4 on: May 11, 2018, 12:11:04 PM »
Yeah, no problem.  Do your own research - its the only way it sticks.  If you want useful links or have more questions, just reply.  Good luck.