Author Topic: 25 yr old looking for advice  (Read 1983 times)

rbnsf12

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25 yr old looking for advice
« on: April 20, 2018, 02:46:15 PM »
Hello All,

I'm 25 currently maxing out 3% matched contribution to employer's Simple IRA (try to avoid this for much more than that though, as the fees are atrocious). Also have Roth IRA with Vanguard which I plan to max out at $5.5k/yr. in VFFVX (may re-allocate manually into Admiral shares when I can). All combined, this is 15% of my pretax income now going into retirement accounts. So in total, ~$5,800 in Roth (VFFVX), ~$5,900 in Rollover IRA (VFFVX), ~$1,900 in Simple IRA (AAMTX), and $20k in emergency savings.

Have a condo with a 30 yr mtg $205k @ 3.875%. I've been making additional principal payments (~$600) monthly, but thinking there's better ways to put that money to work.

With my current setup, would it make more sense to invest that extra monthly amount into a taxable account with e.g., VTSMX (then VTSAX when possible) and then making a lump sum mortgage payment later on with those proceeds? There's a fair amount of upside in my earning potential, so I would scale this investment up as I earn more in the coming years instead of upgrading my lifestyle like most people tend to do.

I plan on staying in the condo for at least ~5 years, depending on unpredictable life factors. The ultimate goal is to own it free and clear as my first rental property as quickly as possible. Open to any other suggestions too.

Thanks!
« Last Edit: April 20, 2018, 03:02:49 PM by rbnsf12 »

RWD

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Re: 25 yr old looking for advice
« Reply #1 on: April 20, 2018, 03:10:24 PM »
With my current setup, would it make more sense to invest that extra monthly amount into a taxable account with e.g., VTSMX (then VTSAX when possible) and then making a lump sum mortgage payment later on with those proceeds?

Yes. Join the club: https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

Bill_

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Re: 25 yr old looking for advice
« Reply #2 on: April 20, 2018, 04:39:37 PM »
How big is the company (since SIMPLE IRA I assume it is smaller)?  Are you able to influence or suggest where the SIMPLE is held?

Schwab will run a SIMPLE plan for no cost to the employer and employee and you can invest in anything Schwab offers, including dozens of very low cost index funds.

Obviously it depends on the relationship, but I was able to steer my company to using Schwab for out SIMPLE plan.  I actually influenced my wife's company to offer a low cost fund in her 401k that otherwise had insane fees. I almost shared an article about companies being sued for only offering high expense funds.

rbnsf12

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Re: 25 yr old looking for advice
« Reply #3 on: April 21, 2018, 11:27:50 AM »
How big is the company (since SIMPLE IRA I assume it is smaller)?  Are you able to influence or suggest where the SIMPLE is held?

Schwab will run a SIMPLE plan for no cost to the employer and employee and you can invest in anything Schwab offers, including dozens of very low cost index funds.

Obviously it depends on the relationship, but I was able to steer my company to using Schwab for out SIMPLE plan.  I actually influenced my wife's company to offer a low cost fund in her 401k that otherwise had insane fees. I almost shared an article about companies being sued for only offering high expense funds.

Great to know, thanks!

Yes, it's a very small (<20 employees) software company. I'm not sure if they'd consider switching but I'll definitely raise it with them.

MDM

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Re: 25 yr old looking for advice
« Reply #4 on: April 21, 2018, 03:22:07 PM »
Yes, it's a very small (<20 employees) software company. I'm not sure if they'd consider switching but I'll definitely raise it with them.
After you have been in the SIMPLE plan for two years, you may transfer money from the SIMPLE IRA to another retirement account.  See that link and links therein for details.

Beach_Stache

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Re: 25 yr old looking for advice
« Reply #5 on: April 22, 2018, 06:49:13 AM »
Yeah, if you don't plan on staying in the condo for more than 5 years then I wouldn't be making extra payments to it.  When we were in our condo we made extra payments to our 2nd mortgage just to get it off the plate and b/c at the time I was going to hang onto the condo and we were already maxing everything out (401k, Roth, post-tax investments as well), but I believe if you have more money from your condo sale than your new place would cost then you'll pay capital gains if the sale of the condo is more than the house purchase (I won't claim to know much about real estate), but I would do post tax rather than pay down your mortgage.  We have a 30 year fixed at 3.75% and I'm paying down faster, however this is our forever home, I hate debt (trying to turn it into a 15 year by paying early) and we've been maxing our 401k's and Roth's for a while as well as post tax savings and investments, so paying extra to our mortgage is just like us diversifying our investments.  That is the last place I would pay early though, just for our situation.

Financial.Velociraptor

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Re: 25 yr old looking for advice
« Reply #6 on: April 22, 2018, 05:00:59 PM »
You might consider setting the 600/mo aside in municipal bonds.  You'd be accumulating the essence of equity but retaining the tax benefits of your loan.  Most good munis are paying around 4% right now so you'd actually be getting ahead slightly faster than paying the mortgage.  Lots of Closed End Funds in the muni space are trading at a discount (most of the time) and yield around 6% fed tax free.  See: NVG, MUS, BBF, MYF. At some point before you were pay of mtg, you'd have a tax free income stream that covered the note.

Bicycle_B

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Re: 25 yr old looking for advice
« Reply #7 on: April 22, 2018, 07:22:52 PM »
There's a lot of volatility in the market, but on average, returns are higher than 4%.  So the probability is that you would get ahead investing in that instead of early mortgage payments, assuming you continue to invest when the market drops.

rbnsf12

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Re: 25 yr old looking for advice
« Reply #8 on: April 30, 2018, 04:23:42 PM »
Sorry for the late response, haven't gotten a chance to check on this until now...

Considering all of my investments are currently in retirement accounts, what would be the recommended approach for starting up a taxable brokerage account to invest in index funds? I already have one through Vanguard (no funds) but VTSMX, VGTSX, etc. have $3k min starting investments. Would there be a better way (or any other threads, blogs, etc. to point me in the right direction) to get started as quickly as possible and ease my way up to those in similar funds with lower minimums rather than having to wait to pile up that much cash?

Have been intrigued by robo-advisors for a taxable account, e.g. WiseBanyan, considering the low barrier to entry, but know there are mixed opinions on those.
« Last Edit: April 30, 2018, 04:38:24 PM by rbnsf12 »