Author Topic: Beginning investor  (Read 3185 times)

TheInsuranceMan

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Beginning investor
« on: May 06, 2015, 03:00:12 PM »
Hey everyone, my wife and I will be looking at starting some investment account(s) in the near future.  I've read on here that a lot recommend Vanguard, and while most of those appear to have a 10k min deposit to open, I see the STAR fund has a 1k min to open.  What is everyone's thoughts on this?

A little about us...mid twenties, a soon-to-be one year old at home (crazy how fast time goes..), we have no "bad" debt - thinking credit cards, car loans, personal loans - quite a bit of debt in my student loans (48k), and a 15 year mortgage that we are 2 years in to (house bought at 82.5k, owe 58k, house valued at 125k as of two weeks ago).  My wife just finished school, and once she passes her boards, we'll be making around 85-90k a year.  Yeah, not a lot compared to most on here, but we live cheap, and in a cheap place (mortgage is $650 a month - 2400 sq ft total living area, 3.5 acres of land around the house).  I make money in the spring and fall helping her parents farm (3-5k extra a year).

We've lived on my income alone the last two years as she was in school and pregnant - I have a 401k, 30k total in it, aggressive strategy - her job is for a county hospital, so she'll have a pension there, IPERS is what it is called, she contributes some (% gets set by the state every year, if I read that right) and the employer puts quite a bit more in than she will be.  Inlaws and my parents both have a 529 set up for our daughter, we have a savings account for her as well.

Just looking for some advice, places to put money, low fees, etc. 

Indexer

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Re: Beginning investor
« Reply #1 on: May 06, 2015, 06:12:20 PM »
Not Star.  Expensive and very conservative.

Easy option:  If you want an easy place to start look at the Vanguard Target Retirement funds or Vanguard Lifestrategy funds.  They are made up of broadly diversified index funds, and they are all pretty low cost.  So you own essentially everything for 0.18% or less.  They also rebalance themselves and the TR funds become more conservative over time(lifestrategy do not).  You can build a more efficient lower cost portfolio if you have the money and work at it, but for zero effort these things are hard to beat.

Harder option:  Build a portfolio using low cost index ETFs and index funds.  To get the lowest cost index funds the minimum per fund is 10k so you probably wouldn't start with those.  So you are probably doing the ETFs to start with.  The easiest way to do this... copy the Vanguard Target Retirement funds.  The TR funds are made up of the big total market index funds.  You can buy all of them as ETFs, and then rebalance on your own.  Your total costs will most likely be in the 0.09-0.13% range(funds are 0.05, 0.07, and up so cost can vary by allocation).  Slightly cheaper than the TR funds, but you have to rebalance yourself and you can't buy fractional shares which means you can't set up automatic investments.  You actually have to put in the buy orders. 

I personally do the harder option for one account, and the easy option for another.  I use VTI and VXUS for retirement in 60/40 split.  For shorter term goals I actually just use the lifestrategy funds.  I pick which fund based on how much risk I want to take.  I use VASIX almost like a cash account(very low risk), and I use VSMGX for mid term goals.  An example of this would be the money in my HSA that exceeds the annual max; I might need the money, but probably not.

Financial.Velociraptor

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Re: Beginning investor
« Reply #2 on: May 06, 2015, 06:27:44 PM »
The 10k hurdle is a good one.  If you have less than that in liquidity, you don't need to be in equities yet.  Build an emergency fund.  pay down some student debt.

Hell, your income is about to (double?).  You should get to 10k soon.  What you don't want to do is put your only 1-2k in the market and then have the air conditioner go out, or a natural disaster that triggers your deductible on your homeowner's insurance and have to incur fees and a tax event to make ends meet. 

Your real concern needs to be on how you are going to ensure you do not start "living higher" on the new income.  It's fine to spend a little more but you need to be saving and investing most of the income after income generating expenses such as new work wardrobe and day care for junior.

A Vanguard Target Date fund is a great place to be if you have no interest in learning to manage  your own portfolio. 

TheInsuranceMan

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Re: Beginning investor
« Reply #3 on: May 07, 2015, 08:00:58 AM »
The 10k hurdle is a good one.  If you have less than that in liquidity, you don't need to be in equities yet.  Build an emergency fund.  pay down some student debt.

Hell, your income is about to (double?).  You should get to 10k soon.  What you don't want to do is put your only 1-2k in the market and then have the air conditioner go out, or a natural disaster that triggers your deductible on your homeowner's insurance and have to incur fees and a tax event to make ends meet. 

Your real concern needs to be on how you are going to ensure you do not start "living higher" on the new income.  It's fine to spend a little more but you need to be saving and investing most of the income after income generating expenses such as new work wardrobe and day care for junior.

A Vanguard Target Date fund is a great place to be if you have no interest in learning to manage  your own portfolio.

We do have a funded emergency fund, that we'll probably let grow to 5k (3k now) before we do anything else.  Living higher is something that I'm aware of, and I'll make sure that we aren't doing more than we do now, which isn't much.  Hard to do a whole lot with an 11-month old!  Very rarely do we go out or do much unless we are eating at a friends, or have friends come to our place.  Pretty frugal in that respect.  We do intend to put a LOT more towards the student loan debt, which my wife is on board with.  I pay $340 a month right now, income based as she wasn't employed when they came due, and that goes to $550 next April.  I'm hoping that we can put at least an additional $500 a month towards them, more would be great.  If everyone goes well, I'd like to be able to put all the farming money and any tax return that we get directly towards them as well.  I'd like to see that loan disappear in 5 years or less, which seems like it'll be a task, but oh well.

We had also thought about a refi, as the equity in our house is greater than my student loans, but it just doesn't make sense at this time.

I appreciate the input!

TheInsuranceMan

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Re: Beginning investor
« Reply #4 on: May 07, 2015, 08:02:17 AM »
Not Star.  Expensive and very conservative.

Easy option:  If you want an easy place to start look at the Vanguard Target Retirement funds or Vanguard Lifestrategy funds.  They are made up of broadly diversified index funds, and they are all pretty low cost.  So you own essentially everything for 0.18% or less.  They also rebalance themselves and the TR funds become more conservative over time(lifestrategy do not).  You can build a more efficient lower cost portfolio if you have the money and work at it, but for zero effort these things are hard to beat.

Harder option:  Build a portfolio using low cost index ETFs and index funds.  To get the lowest cost index funds the minimum per fund is 10k so you probably wouldn't start with those.  So you are probably doing the ETFs to start with.  The easiest way to do this... copy the Vanguard Target Retirement funds.  The TR funds are made up of the big total market index funds.  You can buy all of them as ETFs, and then rebalance on your own.  Your total costs will most likely be in the 0.09-0.13% range(funds are 0.05, 0.07, and up so cost can vary by allocation).  Slightly cheaper than the TR funds, but you have to rebalance yourself and you can't buy fractional shares which means you can't set up automatic investments.  You actually have to put in the buy orders. 

I personally do the harder option for one account, and the easy option for another.  I use VTI and VXUS for retirement in 60/40 split.  For shorter term goals I actually just use the lifestrategy funds.  I pick which fund based on how much risk I want to take.  I use VASIX almost like a cash account(very low risk), and I use VSMGX for mid term goals.  An example of this would be the money in my HSA that exceeds the annual max; I might need the money, but probably not.

Thanks for the info on the STAR fund, I had just read a bit about it and didn't have a ton of info.  We could open IRA's as well, which is a thought that might be a good idea.  Target funds, I'm assuming the target date is just my date for retirement, and it gets invested in strategies/funds that meet the risk tolerance?

Indexer

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Re: Beginning investor
« Reply #5 on: May 07, 2015, 04:54:55 PM »

Thanks for the info on the STAR fund, I had just read a bit about it and didn't have a ton of info.  We could open IRA's as well, which is a thought that might be a good idea.  Target funds, I'm assuming the target date is just my date for retirement, and it gets invested in strategies/funds that meet the risk tolerance?

That would be a safe assumption.  They start off aggressive and become more conservative as you get closer to retirement.

Cwadda

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Re: Beginning investor
« Reply #6 on: May 07, 2015, 05:09:20 PM »
In my opinion the $10k minimum threshold is not very important if we're talking about low-cost indexing. The expense ratio for VTSMX ($3k minimum) is .17%, whereas for admiral shares VTSAX it is .05%. This holds true for many of Vanguard's index funds.

For example, you open a Roth IRA with $5500. The cost would be $9.35 for VTSMX and $2.75 for VTSAX. The difference is $6. Then the following year when you contribute another $5500 you simply convert the shares to VTSAX.
« Last Edit: May 07, 2015, 05:12:49 PM by Cwadda »

Mighty-Dollar

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Re: Beginning investor
« Reply #7 on: May 07, 2015, 05:34:05 PM »
E Trade or AmeriTrade. Both low cost do-it-yourself deep discount brokerages.