Author Topic: Reader Case Study - How to allocate my money?  (Read 1687 times)

Catmandew

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Reader Case Study - How to allocate my money?
« on: February 07, 2016, 11:15:19 AM »
Hi,

I am a 25 year old man, single. I reside in Syracuse, NY.

Salary: $59,500/yr

Salary Bi-Weekly Gross: $2,288
401 (k) contribution: $709 (maxed)
401 (k) match: $91
HSA Contribution: $128 (maxed)

Taxes: $160
Pre-Tax Deductions/Insurance: $33

Net Income Bi-Weekly: ~$1,030


Assets:

Cash: $17,960 (in 3% interest checking account...but only gives 3% up to $10,000.)

IRA Vanguard VTSAX: $16,500

Taxable Vanguard VTSAX: $9,500

401(K): $14,000
             ($4,500 in VTIP (bonds) and $9,500 in Vanguard Mid-Cap index fund...these are the only Vanguard funds my 401(k) offers.)

HSA: $2,500

Liabilities/Debts:

Car Loan: ~$4,000 @ 1.99%

Net worth: ~$56,460

My expenses per month are roughly ~$1,500 - I aim for below $1,885/mo because that is the limit for having a 55% SR which is my goal.

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With the above financial information, I am looking to optimize my money and allocations.

Some questions:

- I have not made my $5,500 IRA contribution for the year yet, should I place it in VTSAX or another Vanguard fund?

- Am I holding too much cash? If so, where should I park it?

- Should I just pay off my car loan out-right?

- Can I/should I roll my taxable Vanguard account into my IRA account? Or should I use it to invest in a different mutual fund other than VTSAX?


These are just some of the questions I have. I am hoping to retire (or at least begin to work part-time at 40.) If anyone has any suggestions or critiques to my allocation and/or financial picture. Please feel free to speak up, I am welcome to any advice.

Thank you!

Gin1984

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Re: Reader Case Study - How to allocate my money?
« Reply #1 on: February 07, 2016, 11:28:58 AM »
Welcome!  I am actually in Rochester and there are a few other folks nearby as well.  Great job starting so young.
Your questions make me think you have not looked at your overall picture and decided what funds work for you, is that correct?  If so, then the best idea is to do so.  I personally want a lot of international exposure, and the only bonds I have are in my HSA (because I might actually need the cash), otherwise I stick to almost 100% stock.
Th cash question and the car question are personal questions on your comfort.  How likely are you to be laid off would answer the cash question for me.  I only have one month's cash and two months in taxable but both my husband and I work and our saving's rate is high enough that we'd be ok if one job was lost.  If nothing else I'd move the cash above $10,000 into a high yield savings.

DebtFreeBy25

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Re: Reader Case Study - How to allocate my money?
« Reply #2 on: February 07, 2016, 11:39:35 AM »
Some questions:

- I have not made my $5,500 IRA contribution for the year yet, should I place it in VTSAX or another Vanguard fund?

- Am I holding too much cash? If so, where should I park it?

- Should I just pay off my car loan out-right?

- Can I/should I roll my taxable Vanguard account into my IRA account? Or should I use it to invest in a different mutual fund other than VTSAX?

1. What are your retirement funds currently returning? What do you anticipate your tax situation to be in retirement? If you believe that your tax rate is lower now than it will be then, invest in post-tax accounts like a Roth IRA. If you feel you are paying more now than you will be then (definitely a gamble) invest in pre-tax accounts like 401k. Since you're planning to access some of your funds before retirement age, some of your assets should definitely be in taxable mutual funds and stocks. The market is low now, so it's a great time to buy as long as you're investing for the long-term.

2. Yes, you are likely holding too much cash. How much do you need for your emergency fund? Based on the numbers you provided, 9k would give you six months of living expenses. I'd advise you to stash the other ~9k in whichever fund makes the most sense tax-wise and is providing the highest annual rate of return.

3. No, in your case you don't need to pay off the car loan ASAP. Even your checking account is generating more interest than you're paying on the car loan. As much as I loathe debt, the financially smart thing to do is to keep the car loan and invest your funds in the market.

4. Consider my previous comments about Roth IRAs and the down market. There's no way to predict the future with 100% certainty, so make the best choice you can with the available information.