Author Topic: Advice for Schwab Investments? [newbie]  (Read 729 times)

Derkson84

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Advice for Schwab Investments? [newbie]
« on: November 19, 2019, 08:26:19 PM »
Hello all,

Let me start by saying I am a complete newbie with everything.

Some background:
Late 20's, earn $72,000/year pretax, $15,000 in emergency savings in Ally account, contribute up to employers 401k match (.25 cents on the dollar up to 8% of my salary), have roth IRA through Schwab funded with $6000, but not entirely sure where to invest it (hopefully soon I will :)), and have a few thousand in my individual Schwab account. Someone told me to go back and max my 401k before investing in my individual account and I plan to increase my 401k contribution in the future. However, I am a bit confused on investing for my roth IRA and taxable individual account.

I read that index ETFs are preferred in taxable accounts and mutual funds are better in tax-advantaged accounts (I think this means my IRA?). I want to be a lazy investor and this is why the idea of the '3-fund portfolio' intrigued me. I want to invest and forget it for a while while it compounds.

This is my game plan so far:

Roth IRA: 55% SWTSX, 35% SWISX, and 10% SWAGX (and potentially a REIT: SCHH)

For my individual (taxable) Schwab account I will invest in the ETF versions of the above mutual funds:

SCHB, SCHF, SCHZ

Is this an okay plan? Am I making it too complicated and maybe I should just invest in SWTSX, SWISX, and SWAGX in my roth IRA and individual taxable account? Let me know your thoughts please :)
« Last Edit: November 19, 2019, 08:29:57 PM by Derkson84 »

Car Jack

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Re: Advice for Schwab Investments? [newbie]
« Reply #1 on: November 20, 2019, 11:29:41 AM »
SCHB, SCHZ, SCHF is a fine plan for a 3 fund.

I'm a big proponent of ETFs as they can be moved easily, anywhere without hassle, they're better tax wise and in some cases, identical mutual funds cost more.  I have a taxable account at Schwab and like their home based ETFs.  All these you listed are index based, non-managed funds.  They're all very low cost.

NorCal

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Re: Advice for Schwab Investments? [newbie]
« Reply #2 on: November 20, 2019, 11:58:29 AM »
Those are all good choices, and I hold all three ETF's in my portfolio.  From a tax optimization standpoint, anything with interest or non-US dividends (SCHF & SCHZ) is better in a tax advantaged account (either pre-tax or ROTH), but the differences aren't that material until you start getting big dollars in your account.   

You're comparing the difference between tax rates on maybe ~$50-$100 a year in annual interest/dividend income, so a sub-optimal decision might cost you $10-$20/year.  It makes a bigger difference once you start getting hundreds of thousands of dollars in investments.

The tax difference on ETF vs Mutual fund is non-material (at least in my experience), so I wouldn't get too wrapped up in that.

If I were to do a three-fund portfolio, I would do something very similar.  I've added a few other funds to my portfolio as it got larger (SCHA, SCHC, etc.), but I wouldn't go there until you've been investing a while.




MustacheAndaHalf

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Re: Advice for Schwab Investments? [newbie]
« Reply #3 on: November 21, 2019, 02:39:40 AM »
ETFs are easier to rebalance.  With mutual funds, you sell one day and need to wait for that cash to be available.  With ETFs, you sell, and can immediately use the positive balance to buy another ETF.  I think ensuring your costs are low is more important than that distinction, so don't lose sight of low fees (under 0.50%, ideally under 0.25% / year).

MustacheAndaHalf

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Re: Advice for Schwab Investments? [newbie]
« Reply #4 on: November 21, 2019, 02:47:50 AM »
From a tax optimization standpoint, anything with interest or non-US dividends (SCHF & SCHZ) is better in a tax advantaged account (either pre-tax or ROTH), but the differences aren't that material until you start getting big dollars in your account.   
Although non-US funds have a tax deduction (for taxes paid to foreign governments), they usually have higher dividends.  Overall you pay less tax on US funds owing to their lower dividends.

Dividends are a really small factor, though.  If someone owns $10,000 of SCHB, with a dividend yield of 1.8%, they'd expect to see $180 of dividends each year.  For someone earning $72k/year, it's taxed at 15%.  So on a $10,000 investment, dividends might trigger $27/year in taxes.