Author Topic: First-Time Investor Question  (Read 959 times)

anikb1

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First-Time Investor Question
« on: February 20, 2017, 06:13:12 PM »
Hi,

Before I begin, you guys are awesome! I have spent the last few days reading a lot of MMMís posts and the discussions below, it has really been educational and I really feel much more financially educated compared to a week or two ago when I felt clueless.

My question is along the line of phasing in my investment but before that, hereís my background:

Iím 29yo married and my spouse isnít employed.
I earn $85,000/yr
I put in 6% of my salary in  my employerís Empower 401k  ($423.16/mo)
I deposit $100/month in my HSA

Here are my current stats:
Savings Account - $40,000
401k - $11,000 (American Funds 2050 Target Date Fund R4) (ER = .79)
HSA - $3000 (not invested anywhere)

Short Term:

I want to  keep $10,000 in bank as my nest and invest $30,000. At my current situation, I believe I should only stick to Tax-Advantage accounts. Can you review my plan of action below and provide recommendation?

1) Change 401k target funds to Vanguard: 60% (Vanguard 500 Index Fund Ė Admiral),  30% (Vanguard Total Intl Stock Index Admiral), 10% (Vanguard Total Intl Bd Idx Admiral)
2) Create 2 Roth IRA account at Vanguard (me & SO). Fund them with $5,500 each this month.  Buying VFIFX
3) After April 18, fund both Roth IRAs with $5,500. Buying VSMGX
4) This way I have taken care of $22,000. For the rest $8,000, I was thinking of jacking up my 401k contribution to around 25% or 30% for 6 months and then turn down to around 6%.

Long Term:

Analyze my expenses and commit to a higher 401k contribution until Iím hitting maximum. Then try maxing HSA.
I will eventually follow the investment order mentioned in another thread. Just wanted to make sure Iím not making a first timerís mistake with this investment.

Nothlit

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Re: First-Time Investor Question
« Reply #1 on: February 20, 2017, 06:38:22 PM »
I assume you chose the Vanguard 500 Index Fund because VTSAX (Vanguard Total Stock Market Index Fund) is not available in your 401k? If so, that's fine. Just making sure.

Why the international bond index fund? I think a U.S. bond index fund makes more sense.

No need to wait until after April 18 to fund your 2017 IRA. Yes, if you want to contribute for 2016 you need to do that before April 18. But you can fund both today, especially if you already have enough cash on hand.

Why are you planning to have two different funds in your IRAs? VFIFX and VSMGX? That seems needlessly complicated to me.

Are your HSA contributions being made through payroll deduction? Or are you making those contributions with after-tax money? Payroll deduction is better, if available to you, as it allows you to save on FICA (Social Security & Medicare) taxes.

I was going to write more about maxing all of these contributions, but I see you're aware of that and planning to do that in the future, so I won't berate you. :)

Edited to add: Are you sure a Roth IRA makes the most sense? With only one income, I think you might benefit more from a Traditional IRA, though I haven't run the math so please verify yourself.
« Last Edit: February 20, 2017, 06:41:20 PM by Nothlit »

anikb1

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Re: First-Time Investor Question
« Reply #2 on: February 20, 2017, 07:22:04 PM »
Thatís correct, my plan doesnít offer VTSAX.
I picked the international fund just to diversify, it isnít doing well in last 3 years anyways. Iíll consider an 90-10 split approach between the stock and bond fund.

So if I invest $11000 each on both accounts in one go, can I claim them in our tax returns both this year and next one? Will Vanguard generate tax forms in time for 2016?

Iíll consider only VSMGX. I like that better.

My HSA contributions are pre-tax.

I havenít finalized the IRA part. A lot of different sites mentioned going in Roth IRA if you qualify and thatís what I was going against. Iíll double check on this.
Also, do you think my approach to add the remaining 8k in 401k is correct?