Another new investor!

[fidgiegirl]

I spend most of my time in the Journals area of the forums, where there is much sunshine and rainbows, so I am dipping my toe into Investor Alley with a little trepidation, but wonderful scrubbyfish encouraged me to start a thread with my investment questions and I am going to trust her that it will be a fantastic experience.  ;)

(Actually, a few weeks ago I did post this thread but as I got deeper into learning, realized it wasn't enough information to get good feedback and/or make good decisions.  http://forum.mrmoneymustache.com/investor-alley/need-to-prep-for-investing-large-amount/  Summary if you don't want to click over:  We are going to sell a rental house and expect to net $80-$100K to be available for investing when all is said and done.  Not interested in staying in the rental business, so not going to do the 1031 exchange.  Unsure if income is too high to max Roths.  Stated I was planning to "put it in Vanguard" but having done some reading I now see this is not specific enough.)

I have been reading The Millionaire Teacher and the Couch Potato Portfolio approach sounds most awesome to me as mom of a 2 y/o and due with #2 in Sept.

So, here's our current investment picture.

DH (45 y/o) and I (38 y/o) are both teachers, both working full time, but this year I will be on 20 weeks of maternity leave (unpaid).  He earns about $70K, I earn about $76K.

We have room to max out our 457s (Minnesota Deferred Compensation Plan).  Despite our best intentions we have not managed to do so in the past, though we have gotten the match from our employers, around $1000-$1500 a year.  We've put in over $10000 most years.  I have about $100K, he has about $80K.

We each have Roth IRAs with TIAA and contribute $100/month, obviously not maxing those.

DS has a 529 plan through Utah Educational Savings Plan.  Has less than $1K.  Kid is 2 y/o.

I have a state Health Care Savings Plan with about $10K that was funded purely by my employer for about 10 years and is sitting there in whatever their highest return fund has been.

DH has a rainbow of old 403(b)s that his now previous employer asked that they open as they made changes to authorized vendors.  So now that he's switched employers we want to consolidate all those.  I think some of it might be money markets as well.  He probably has approximately 80-100K in all of those.

I have about $10K worth of Medtronic stock (a gift I wish I'd liquidated a long time ago because it's being a tax pain in the ass with the reformulation of the company into an Irish one).

Debts are our mortgage (approx $210K owed at 3.125%) and a HELOC (approx $10K owed at 4.99%).

So, on to the questions.  I am loving the Couch Potato Portfolio idea and went on Vanguard's site to see some of the funds we might select, and was immediately confused that for personal investors there are none called index funds - only mutual funds and ETFs.  What am I missing?

Millionaire Teacher author Hallam recommends a certain allocation based on not expecting a pension.  We both will have some degree of pension when we retire.  How does that factor into how we should allocate our money?

When we invest in Vanguard indexes, are they individually owned or joint?  Or is that just the taxable stuff?

I'd like to roll some of DH's 403(b)s into Vanguard IRAs so it's all in one place.  Then we invest in an index within that structure?

Feels very overwhelming.  My understanding is still clearly shaky.  Happy to carry on researching but also can't get too deep into it as baby is on her way soon, and want to get this mostly resolved before she arrives and before the house [hopefully] closes.

I also wonder if with the unpaid maternity leave we will not have the cash flow to max out DH's 457, but that might put our income low enough for this year to max our Roths with home sale proceeds, so it might be worth it to try for it.

Can I just add that my payroll department utterly stinks, and does not offer up any information that is not specifically requested?  Like, when I set my contributions to my 457 to max it out, they didn't tell me that for six checks a year (summer pay) they don't pull those kinds of deductions (can't even explain how they do it, they are only pulled during the school year and basically our summer checks are a forced savings account).  So for two years I didn't max out, because I didn't notice.  Argh.  If I don't ask, they won't offer.  So if there is something payroll related, I have to anticipate and ask.

Lord this got long.  Doing my best.  Be gentle.  And thank you.  :)

[letired]

Welcome to the Investors Area!

Here is one part I can answer:

So, on to the questions.  I am loving the Couch Potato Portfolio idea and went on Vanguard's site to see some of the funds we might select, and was immediately confused that for personal investors there are none called index funds - only mutual funds and ETFs.  What am I missing?

Index funds are a 'type' of mutual fund or ETF. A mutual fund is a general name for a collection of stocks that gets bundled together and sold as a unit. A mutual fund can be actively managed (typically higher expense ratio, poorer performance, boooooo) or passively follow an index (the magical index fund!). And a mutual fund can get bundled again into an ETF which acts like a stock (someone else please feel free to jump in here about the real difference between a mutual fund and an etf). Vanguard sells both types of funds, so you'll need to read the descriptions of the different funds to see which is which. Most of the index ones will have the word Index somewhere in the fund name.  This page might be able to help you out: https://investor.vanguard.com/mutual-funds/stock

When we invest in Vanguard indexes, are they individually owned or joint?  Or is that just the taxable stuff?

I think this depends on how you set up the account that holds the index fund. An account is the bucket, the index/mutual fund is the water. The bucket can have your name on it, DH's name, both names, etc etc. The bucket can also be different colors: an IRA (blue), a Roth IRA (red), or a taxable account (green), if that makes sense. I cannot speak to any tax implications of your bucket design because despite being a Certified Adult, taxes are still mostly a scary black box to me.

I'd like to roll some of DH's 403(b)s into Vanguard IRAs so it's all in one place.  Then we invest in an index within that structure?

Ding ding ding! Correct! Caveat: read about Roth IRA ladders? They are a way to get pre-tax/retirement money out without/minimizing the tax penalties? (again, a thing I know exists, but there are people with a much better understanding of how all that works).

I also wonder if with the unpaid maternity leave we will not have the cash flow to max out DH's 457, but that might put our income low enough for this year to max our Roths with home sale proceeds, so it might be worth it to try for it.

An option might be to keep some back from the house sale to cover living expenses during maternity leave and make up for a reduced/non-existent paycheck from maxing out the 457.  I don't know how many hoops you'd have to jump through to get that set up, but it might be worth it to reduce this years tax liability? (again, my tax knowledge is ... low).

And I will have to let other people answer other questions, because that is about the extent of my knowledge!

[fidgiegirl]

Thank you!! Looking forward to hearing from others!

[Choices]

+1 to the above.
1. I hear that A Simple Path to Wealth by Collins is great for beginners (I'm still on the library wait list though so can't tell you for sure).

2. Index funds mirror the stock market in whatever section you choose. For example, there are US total market index funds, international index funds, Real Estate index funds, Bond index funds, etc. The big benefits are that 1) they are very diversified because they have some of everything in the whole specified market, and 2) they should have very low fees (expense ratios) because there's no one actively 'managing' them, or choosing what to buy, because they buy the whole market.

You can buy an index fund in a mutual fund or in an ETF.

You typically buy/sell mutual funds at the end of the day at whatever the closing price is. You buy/sell ETFs at whatever price you specify, but you might have to wait for the market to fluctuate enough for it to reach that price (if it ever does). You can also specify "market price" and the transaction will process immediately.

There are pros and cons to each of these but it seems not to matter too much, especially if you buy and hold as recommended. But if you do that, there's no benefit to having the flexibility of the ETF.

3. Retirement accounts are always individual accounts, but non-retirement accounts can be in one or both names.

4. You can roll your DH's 403(b)s into a Vanguard IRA and then invest in index funds within the IRA. This is an excellent idea EXCEPT if you plan to do a backdoor Roth, as you would not want to have any pretax money in your IRA. There are other good posts on an IRA conversion ladder, which is different. However, if your income is not in the proper bracket for a backdoor Roth, it will simplify your accounts a lot to roll over all of your DH's old retirement accounts into one IRA. Make sure to actually do a Roll Over, not withdraw them. The folks at Vanguard or wherever you open the IRA should be able to help you with the paperwork.

5. None of the options you mentioned is bad, though there will be lots of opinions on what to do first (457/529/pay mortgage, etc.). As long as you pay off debt and invest rather than spend the money, you're doing great!

[LuckyOwl]

Have you established an emergency fund yet? If not, I would suggest that be the first thing you do. There will be different opinions on how large an emergency fund needs to be. You will need to decide for your family what makes sense. This money should be completely liquid and available if something unexpected arises. That probably means keeping it in cash in a savings account. Personally, we keep 1 year's worth of living expenses in an Ally savings account as our emergency fund.