Author Topic: New Mustachian - Betterment & Lending Club Investment Plan Validation  (Read 3897 times)

mustache

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I have been greatly inspired by MMM posts. They helped me start retirement planning.

Some background
  • Age: 35
  • Dependents: Wife(not working) & Baby
  • Income: 120k
  • Retirement Savings: 20K(12K- Roth IRA:Vanguard Target , 8K - Roth 401K) - started last year.
  • Post-tax savings:
     1. Emergency - 18K
     2. Home Down Payment - 35K (Renting seems cheaper, so no plan to buy for now)
     3. Savings - 40K
My employer matches 401K - 5% to my 5%. I switched to traditional 401K recently, Thanks to your suggestion -take the  deduction now and put the money in a traditional 401k http://forum.mrmoneymustache.com/investor-alley/new-mustachian-looking-for-validation-of-investment-strategy-for-great-success/

My Post-tax savings barely give a 1% return. I am thinking of investing some/all of it. I read MMM recommendations - Betterment & Lending Club. Here is my plan. Let me know what you think?
  • Put 10k in Betterment & 5k in Lending Club
  • Invest savings money systematically into Betterment - say 3K monthly. If market is going down will put more. Eventually will invest all savings money, except for Emergency fund
  • Once done will invest monthly - $500 in Betterment or lendingClub or both  after 1 year experiment

« Last Edit: April 03, 2016, 05:58:24 PM by mustache »

arebelspy

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #1 on: April 04, 2016, 06:06:27 AM »
Why?

What makes you choose Betterment?  What makes you choose LendingClub?

I'm not a fan of either, personally, but if you are going to invest in them, make sure you have solid reasons as to why, versus, say, Vanguard admiral shares.

I see this line:
I read MMM recommendations - Betterment & Lending Club.

Keep in mind that Pete gets paid (well) to recommend those.

That doesn't make them bad, per se, but there are specific reasons why you would and wouldn't use them, and I think for most people, they shouldn't.

Check out Jim Collins' stock series, it's a great place for beginners to start to learn about investing:
http://jlcollinsnh.com/stock-series
« Last Edit: April 04, 2016, 06:08:34 AM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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forummm

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #2 on: April 04, 2016, 06:40:06 AM »
I personally will never use Betterment or Lending Club. Betterment doesn't fit my desire to have the lowest expenses (Vanguard is cheaper for the same underlying stocks) and Lending Club is too risky for the rewards IMO. If I were to have a fixed income portion of my portfolio, it would be something very stable and anticorrelated with stocks (like Treasuries). If we have another big recession, both your stocks and your Lending Club funds are going down. What's the point in that? That's not great diversification of risk.

For someone with a relatively small amount of money, just sticking with index funds is an easy choice. Learn more about it and then you can do something different later.

mustache

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #3 on: April 04, 2016, 10:59:27 AM »
@arebelspy and @forummm - Thank you for your suggestions. Looks like I need to put a bit more research :)

As for Betterment they seem to putting most money in Vanguard ETFs and the rest in Bonds. But I get the point of investing directly in Vanguard underlying ETFs. My Roth IRA is with Vangaurd Target retirement fund. My worry with investing directly in another Vanguard fund is I was not sure how diversified my investments are(retirements & taxable), so was thinking "robo advisor".

« Last Edit: April 04, 2016, 11:14:55 AM by mustache »

arebelspy

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #4 on: April 04, 2016, 11:37:28 AM »
@arebelspy and @forummm - Thank you for your suggestions. Looks like I need to put a bit more research :)

As for Betterment they seem to putting most money in Vanguard ETFs and the rest in Bonds. But I get the point of investing directly in Vanguard underlying ETFs. My Roth IRA is with Vangaurd Target retirement fund. My worry with investing directly in another Vanguard fund is I was not sure how diversified my investments are(retirements & taxable), so was thinking "robo advisor".

Read the JLCollins link, then come back.  You'll have some good questions at that point, and we'll have some good answers.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mustache

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #5 on: April 04, 2016, 04:18:21 PM »
Sure. Point noted :) . Thank you!!

arebelspy

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #6 on: April 06, 2016, 12:02:49 AM »
Here's a GCC article on Betterment that may help explain why we don't like it:
http://www.gocurrycracker.com/why-betterment-has-zero-of-our-dollars/
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mustache

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #7 on: April 10, 2016, 05:47:24 PM »
@arebelspy and @forummm - Thank you for your suggestions. Looks like I need to put a bit more research :)

As for Betterment they seem to putting most money in Vanguard ETFs and the rest in Bonds. But I get the point of investing directly in Vanguard underlying ETFs. My Roth IRA is with Vangaurd Target retirement fund. My worry with investing directly in another Vanguard fund is I was not sure how diversified my investments are(retirements & taxable), so was thinking "robo advisor".

Read the JLCollins link, then come back.  You'll have some good questions at that point, and we'll have some good answers.  :)


I read frantically -  Jcollins stock series and other blogs he pointed out, including yours(Never pay taxes & Betterment) - for the past 3 days. My head aches but I am happy. Thanks again. Hopefully these are better questions than the Betterment one :)

  • I have been putting 5% in 401K(employer matches till 5%) , Roth IRA(5500) and HSA (6650). Since I am in 25% tax bracket I am thinking of these to save taxes. Let me know.
    • Funding a Traditional IRA(not Roth for now) - Vanguard Target Retirement
    • Max out my 401K - single fund Vanguard - VIIIX
    • Invest HSA in Vanguard - VIIIX
    • 529 - $200/month in Vangaurd- VTSMX
    • Invest tax saved with above in VTSAX.
    • Future: Roll over my 401K to Roth If I change my job. Will roll over IRA to Roth IRA when I choose to retire(not sure when).
     
     
  • I am planning to put the rest(monthly saving + 80% of current savings) in VTSAX. I liked you article and madfientist's about Tax- Loss and Tax-Gain harvesting (http://www.madfientist.com/tax-gain-harvesting/). For tax gain harvesting in 25 % tax bracket I will be paying tax on those gains each year. Is it still worth or should I stick to just Tax-Loss harvesting?
« Last Edit: April 10, 2016, 05:50:46 PM by mustache »

arebelspy

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #8 on: April 10, 2016, 11:22:24 PM »
Based on your tax bracket:
I would be making your traditional and 401k now, yes.
I would be doing TLH, but not gain harvesting.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

chasesfish

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #9 on: April 11, 2016, 05:07:59 AM »
I'm a 5 year user of lending club - 7.2% return and its a bit of a pain if you need to access more than 1/30th or so of your money in a month.  Its really up to you on if you like it or not.  Its better but less liquid than a savings account provided you can put at least $10,000 in it. 

I do think you need a regular investment account, be it Bettermint, going to Vanguard directly, or using another discount brokerage house (I personally use Fidelity).  Keep studying and there's a number of good options.  Arguing between them is just splitting hairs compared to what the average investor does.


arebelspy

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #10 on: April 11, 2016, 02:10:03 PM »
I'm a 5 year user of lending club - 7.2% return and its a bit of a pain if you need to access more than 1/30th or so of your money in a month. 

The last 5 years have been in a booming market and good economy. What happens to your return when the economy tanks again?

Good article by MilesDMD about LC here:
http://www.milesdividendmd.com/sacred-cows/
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mustache

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #11 on: April 12, 2016, 11:22:35 AM »
Based on your tax bracket:
I would be making your traditional and 401k now, yes.
Looks like I can only take a partial deduction(meagre $340 -> $80 return) for maxing my Traditional IRA if employer contributes to 401K. if I get a raise I don't even qualify for this. That sucks. so not sure which is better in my case - Roth IRA or Traditional IRA. Should I max out on my 401K and not even put money in IRA, instead invest in taxable account?

Based on your tax bracket:
I would be doing TLH
Can you point me to any further write up about portfolio rebalancing?

I do think you need a regular investment account
Thanks for your inputs. I am looking a taxable investment account instead of IRA as mentioned above.
« Last Edit: April 12, 2016, 12:21:07 PM by mustache »

arebelspy

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New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #12 on: April 12, 2016, 10:03:18 PM »
Should I max out on my 401K and not even put money in IRA, instead invest in taxable account?

If you're paying the taxes now anyways, why not have the money in a Roth, to grow tax free, rather than taxable, if you're eligible?

Also have you looked into an HSA?

www.madfientist.com/ultimate-retirement-account/

www.madfientist.com/hsa/

Based on your tax bracket:
I would be doing TLH
Can you point me to any further write up about portfolio rebalancing?

Not sure what exactly you need.

Here's one on tax loss harvesting:
www.madfientist.com/tax-loss-harvesting/
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mustache

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #13 on: April 13, 2016, 12:08:34 AM »
Quote
Also have you looked into an HSA?
Thanks for the links. I am already hacking my HSA and also putting in 529 for child education.

Quote
If you're paying the taxes now anyways, why not have the money in a Roth, to grow tax free, rather than taxable, if you're eligible?
I am eligible for Roth IRA (< $183,000) and nothing wrong with maxing it. I am following your 7 step thumb rule (from Roth sucks). Step 5 & 6 is where the question is

1. 401k up to company match [Done]
2. HSA [On Target to Max out 2016]
3. 401k up to maximum [On Target to Max out 2016]
4. Traditional IRA if tax deductible (subject to MAGI thresholds) [N/A -meagre partial deduction ]
5. Brokerage account [ My Question]
6. Maybe $5k in a Roth (subject to MAGI thresholds) [Already have one, thinking of #5]
7. Maybe after-tax contributions to a 401k for Backdoor Roth (pros/cons) [N/A]

You mentioned in the Roth sucks post - Post retirement the brokerage account has similar tax treatment(as Roth IRA), with an effective 0% tax on Long Term Capital Gains and Qualified Dividends. The brokerage account also has the advantage of being able to harvest losses when they happen, and also allowing access to earnings (dividends) prior to Age 59.5.

so I began to think about flexibility of Brokerage account compared to Roth. When would you choose one over the other?
 
Quote
« Last Edit: April 13, 2016, 12:21:23 AM by mustache »

arebelspy

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #14 on: April 13, 2016, 12:15:01 AM »
I'd rather have free gains than being able to harvest losses, based on how the market tends to go up.  Being able to access dividends isn't important if you're doing a laddering strategy anyways, and the bulk (principal) will be available anyways.

It's also hard to predict future tax rates, so I like the hedge against that, rather than assuming your future LTCG and qualified dividends will be 0, personally.

But it's obviously a debatable decision.  That you invest is more important than how you invest.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mustache

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #15 on: April 13, 2016, 12:25:50 AM »
Yeah, makes sense. Appreciate your prompt response. I learnt more about personal finance in last week than all my life. Thanks to you :)

arebelspy

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Re: New Mustachian - Betterment & Lending Club Investment Plan Validation
« Reply #16 on: April 13, 2016, 12:34:20 AM »
Thanks go to Jim Collins, Brandon @ MadFIentist, and Jeremy @ GoCurryCracker.  I just point to their wisdom.  :)

I'm glad you're taking charge, it'll be well worth it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.