Author Topic: Well nobody answered in the investor section so maybe I can get a thought here..  (Read 619 times)

samj

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Hey everyone,

I posted this in the investor section over the weekend and havenít received any response. Would sure appreciate some I put. Thanks.


Let me start by saying I have read JL Collins' "Simple Path To Wealth", been on MMM blogs, listen to financial podcasts, etc.. These are all amazing tools and resources that we're fortunate to have. That being said, I know I have several options for my situation and have come here to see what your opinions are.

I am currently 29 years old. I am a government employee. I currently make around 44-45k/year pre-tax. My expenses vary but typically are around $1700/month. This does include a car payment on a loan of 3 years and $6000 at 2% Interest. My credit is very good. I have no other debt. I currently rent a 1/1 with my girlfriend and we split the cost down the middle. I am fairly minimalistic and enjoy living that way.

I believe that I have cut my expenses a good amount, and at this point I am seeking to invest and work on earning more income. I have around $25k in liquid savings, as well as about 10k in an old 401k from a former employer. I do contribute to a 403B in my current position with the government. This job also gives me a pension, so the 403B is in addition to that. I should mention that I have a side hustle starting an Amazon business.

My goals are to:
1.Move my 401k from my former employer, either into an IRA (Roth/deductible) or add it into my current 403B
2.Invest a portion of my $25k savings (around $20k)
3.Save a smaller portion of my $25k savings (around $5k) to invest into my startup
4:My five year goal is to achieve financial independence, leave my government job, and do my Amazon business as well as invest in residential real estate full time.


My questions are:
1: In your opinion, where should I invest my 401k from my former employer?
2: What should I do with the around $20k in liquid savings?
3:Any other advice on reaching my five year goal?

If you've made it this far through my writing, I have to say I am appreciative! Thanks!

Sam

jamesbond007

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Create a case study post. You are saying that you want to be FI in 5 years. Without knowing your detailed expenses and lifestyle, it would be hard to provide constructive feedback. You also mention aspirations of being an entrepreneur, so did you calculate the risks?
« Last Edit: April 09, 2019, 03:31:44 PM by jamesbond007 »

frugaldrummer

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I'd put money in a Roth IRA first - the prospect of that money growing tax free and being available tax free when you're older is huge.

Also, you are young and have low expenses but should make sure you have available to you 6 months of emergency living expenses. Stuff happens.

Since the market is overheated at present, you might want to put the rest into mutual funds by parceling out a bit every month, instead of dropping the whole amount on one day. (cost averaging).

Slow&Steady

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My questions are:
1: In your opinion, where should I invest my 401k from my former employer?
2: What should I do with the around $20k in liquid savings?
3:Any other advice on reaching my five year goal?

1 - What is the cost to leaving your old 401k exactly where it is?  You should put it in the location that has the lowest expenses and the investment options that meet our asset allocation plan
2 - Open an IRA yesterday and contribute $5.5k for 2018 (must be done before the 15th) and contribute another $5.5k for 2019 (check and see if the 2019 limit increased first). Save the rest to live off of while you increase your contribution to your 403B or open a taxable account and invest it there.
3 - Your living expenses are $20.4k, to be FI (based on the 4% rule) you need $510k and you currently have $30k so you need to increase your stash by $480k in the next 5 years.  My advice is to come up with a solid plan, that includes actual numbers on how you are going to meet that goal.  For example, if you continue at your current job you have ~$24k per year to pay taxes and invest (in side hustle or the market).  If that all goes into investing in the market, what kind of return do you need to see to meet your goal?  What income do you need to make from your side hustle to meet this goal?  ETC?

jps

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My questions are:
1: In your opinion, where should I invest my 401k from my former employer?
2: What should I do with the around $20k in liquid savings?
3:Any other advice on reaching my five year goal?

1 - What is the cost to leaving your old 401k exactly where it is?  You should put it in the location that has the lowest expenses and the investment options that meet our asset allocation plan
2 - Open an IRA yesterday and contribute $5.5k for 2018 (must be done before the 15th) and contribute another $5.5k for 2019 (check and see if the 2019 limit increased first). Save the rest to live off of while you increase your contribution to your 403B or open a taxable account and invest it there.
3 - Your living expenses are $20.4k, to be FI (based on the 4% rule) you need $510k and you currently have $30k so you need to increase your stash by $480k in the next 5 years.  My advice is to come up with a solid plan, that includes actual numbers on how you are going to meet that goal.  For example, if you continue at your current job you have ~$24k per year to pay taxes and invest (in side hustle or the market).  If that all goes into investing in the market, what kind of return do you need to see to meet your goal?  What income do you need to make from your side hustle to meet this goal?  ETC?
Good news. 2019 limit is $6K.

omachi

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First, look at the investment order post stickied in investor alley, which is probably why you're not getting responses there.

https://forum.mrmoneymustache.com/investor-alley/investment-order/

To answer your questions:
1 - Invest your 401k where you have the least fees for the investments of your choice. That's probably in your 403b, as governments tend to be able to invest a sufficient amount of money to get the lowest fees. But don't take my word for it, go check.

2 - See investment order and keep some as an emergency fund. Invest the rest according to the order. If you aren't already maxing your 403b, you could do so and treat this as a replacement for the income you'd otherwise need in order to get it in a tax advantaged account.

3 - Figure out how you think you're going to get to your goal in five years. You're spending about $20k per year of $45k before taxes, so presumably you're saving under $25k. You'll be paying FICA at least. Let's say you're both saving and spending $20k, and thus at a 50% savings rate, which shouldn't be too far off if you're maxing your tax advantaged accounts. The shockingly simple math suggests you'll be financially independent in 17 years.

There are confounds. If you have a pension, you should be able to get your contributions to it back when you quit, though you'll be taxed on that lump sum. Still, that's money that adds to your FI balance. Your spending will go down once your debts are paid. Though if you're going off spending, you're probably missing long term items, like replacing your vehicle at some point, that will bring that number up.

If you want to be FI in 5 years, you need above an 80% savings rate (if you start from $0). So you either need to spend way less (not likely easy), make more money (about $102k after taxes for current spending), adjust your timeline, or do some combination of these. Or you may choose to make the leap to your side gig and real estate before you're FI.

BicycleB

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Like @omachi, I suggest calculating your numbers using the MMM-standard techniques that he suggested.

My observation re side hustles like Amazon is that rarely do they add 300k in five years, which is the super-rough number I am guessing you need from the side hustle to reach FI with your current expense level. You could be an exception, but in your shoes I'd make two plans: the plan of how the hustle will grow to meet your goals, and the plan of what you'll do if it fails. By "plan," I mean a plan of action, and a financial projection that corresponds to the expected result. Hopefully the "if I fail in the side hustle" plan will motivate you enough to succeed!

I used to make plans but then not do them. I can attest that if you don't pursue your goals actively, you won't achieve them any time soon. Congrats on moving forward. Keep after it, and good luck.