Author Topic: Help me understand where I stand and how to best proceed  (Read 2210 times)

verbs

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Help me understand where I stand and how to best proceed
« on: April 14, 2018, 03:47:08 PM »
My sincere apologies if this is not the correct sub forum.

This year (2018) marks the beginning of me planning towards retirement and is the first year I've made contributions to an IRA.  Since March I've been reading a lot on investing, retirement, and money in general.  I'd love if I could get some opinions on where I'm at with regards to retirement and how I can better my position in life...  I'm 37 working in a low cost of living area of central Florida.  Up until February, 2018 I was super immature with my money... My goal is to retire in 10 years when my mortgage is fully paid but this may be really ambitious.

Here is my bills and take home pay
  • I net $2660 USD biweekly (monthly $5320)
  • Right now my bills total ~$2,253 per Month including my mortgage, gasoline, and food
  • My mortgage is around $1,228

Here are my financials
  • I contribute 6% to get my employers 2% match
  • I have $59,833 in 100% foreign investments through a previous employer's investment plan
  • I have $9,155 in a 403b (94% in VEIRX)(6% in VINIX)
  • I have $1,405 in a 401a
  • I owe $118,500 on a $215,000 mortgage at 30yr/4% on a home valued at $201,000.  The loan matures in 2042 but I am paid in full on 11/2029
  • $3,822 cash
  • A home furniture loan of $7,200 at 0% with a maturity date of 2021
  • I owe $3,700 at 10.10% on my credit card
  • $487.77 in UCEQX Roth IRA (USAA CORNERSTONE EQUITY FD RETAIL)
  • $499.63 in UFSGX Traditional IRA (USAA FIRST START GROWTH FUND RETAIL)
  • $500.83 in USCCX Traditional IRA (USAA CORNERSTONE CONSERVATIVE RETAIL )

Please let me know if I'm mistaken but the order of my short term priorities are as I see them...
  • Increase my contribution from 6% to 8%
  • Stash away another $1,500 in cash
  • Pay off my $3,700 credit card
  • Max my IRA for the year
  • Increase my contribution to max my 403b


In March of 2018 I had a knee jerk reaction and spread 1,000 across two traditional IRA's through USAA.  After some more research I think this was a mistake because I'm pretty sure I won't get the tax benefits from a traditional IRA due to income levels.  I then took 500 and opened a Roth IRA through USAA.

Questions set #1
  • Can I convert my traditional IRAs into the roth?
  • Should I convert or leave the traditional IRA's alone and focus on the Roth for the rest of this year and subsequent years?
  • The Roth seems to be struggling these last few months, could I have made a better choice?

I recently moved my 403b from 100% of monthly contributions into VEIRX to 15% of monthly contributions into VEIRX and 85% of monthly contributions to VINIX.  I did this because VINIX includes Apple, Facebook, and Amazon while VEIRX does not.

Questions set #2
  • Should I continue to split my contributions between these two large cap stocks?
  • At what point should I start placing a percentage into small cap and mid cap stocks?
  • Are there better options?  These are the only large caps funds available to me through fidelity / my employer's 403b
  • When I begin placing funds into small and mid-size caps, should I continue to place funds into the large caps?

Is all of this pretty solid?  Please help set me on the right path. 

Thank you!


COEE

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Re: Help me understand where I stand and how to best proceed
« Reply #1 on: April 14, 2018, 06:03:34 PM »
Great questions here are my thoughts.
My sincere apologies if this is not the correct sub forum.

This year (2018) marks the beginning of me planning towards retirement and is the first year I've made contributions to an IRA.  Since March I've been reading a lot on investing, retirement, and money in general.  I'd love if I could get some opinions on where I'm at with regards to retirement and how I can better my position in life...  I'm 37 working in a low cost of living area of central Florida.  Up until February, 2018 I was super immature with my money... My goal is to retire in 10 years when my mortgage is fully paid but this may be really ambitious.

Here is my bills and take home pay
  • I net $2660 USD biweekly (monthly $5320)
  • Right now my bills total ~$2,253 per Month including my mortgage, gasoline, and food
  • My mortgage is around $1,228

Here are my financials
  • I contribute 6% to get my employers 2% match
  • I have $59,833 in 100% foreign investments through a previous employer's investment plan
  • I have $9,155 in a 403b (94% in VEIRX)(6% in VINIX)
  • I have $1,405 in a 401a
  • I owe $118,500 on a $215,000 mortgage at 30yr/4% on a home valued at $201,000.  The loan matures in 2042 but I am paid in full on 11/2029
  • $3,822 cash
  • A home furniture loan of $7,200 at 0% with a maturity date of 2021
  • I owe $3,700 at 10.10% on my credit card
  • $487.77 in UCEQX Roth IRA (USAA CORNERSTONE EQUITY FD RETAIL)
  • $499.63 in UFSGX Traditional IRA (USAA FIRST START GROWTH FUND RETAIL)
  • $500.83 in USCCX Traditional IRA (USAA CORNERSTONE CONSERVATIVE RETAIL )

Please let me know if I'm mistaken but the order of my short term priorities are as I see them...
  • Increase my contribution from 6% to 8%
  • Stash away another $1,500 in cash
  • Pay off my $3,700 credit card
  • Pay off furniture loan
  • Max my IRA for the year
  • Increase my contribution to max my 403b
Unless you get an additional company match, I would not do the first item right away - you just don't gain a lot.  You also forgot about your furniture loan - I put it back in where I'd pay it.  Whether or not I'd increase contributions to the IRA or the 403b first varies based on investment options.

Depending on your foreign investments I'd be looking to rediversify that based on your desired asset allocation.  Having your money all tied up in a developing country (that's how I read it at first) is quite risky.  Greece filed for bankruptcy not long ago.

In March of 2018 I had a knee jerk reaction and spread 1,000 across two traditional IRA's through USAA.  After some more research I think this was a mistake because I'm pretty sure I won't get the tax benefits from a traditional IRA due to income levels.  I then took 500 and opened a Roth IRA through USAA.

Questions set #1
  • Can I convert my traditional IRAs into the roth?
  • Should I convert or leave the traditional IRA's alone and focus on the Roth for the rest of this year and subsequent years?
  • The Roth seems to be struggling these last few months, could I have made a better choice?

I recently moved my 403b from 100% of monthly contributions into VEIRX to 15% of monthly contributions into VEIRX and 85% of monthly contributions to VINIX.  I did this because VINIX includes Apple, Facebook, and Amazon while VEIRX does not.

Questions set #2
  • Should I continue to split my contributions between these two large cap stocks?
  • At what point should I start placing a percentage into small cap and mid cap stocks?
  • Are there better options?  These are the only large caps funds available to me through fidelity / my employer's 403b
  • When I begin placing funds into small and mid-size caps, should I continue to place funds into the large caps?

Is all of this pretty solid?  Please help set me on the right path. 

Thank you!

You should be able to convert your tIRA to rIRA for this tax year before the end of the 2018 tax season (April 15th 2019).

Both of these funds are good funds offered by Vanguard.  Whether they are the best funds for you to invest in is ultimately up to you and if they meet your investment goals.  I suggest filling out an IPS so you get a better idea of your risk tolerance and goals.  https://www.bogleheads.org/wiki/Investment_policy_statement

If you post your goals and investment options then we can help you choose good funds that will meet your goals.
« Last Edit: April 14, 2018, 06:06:35 PM by COEE »

marty998

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Re: Help me understand where I stand and how to best proceed
« Reply #2 on: April 14, 2018, 06:10:49 PM »
Nope - first thing to do is to take your $3822 cash and pay off the $3700 credit card (so long as you have enough to meet the next mortgage repayment).

And then stop accumulating more debt on that card.

Missy B

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Re: Help me understand where I stand and how to best proceed
« Reply #3 on: April 14, 2018, 06:31:10 PM »
Bad advice, Marty. That is Verb's cash buffer, and s/he would be best keeping their cash buffer for an actual emergency. 10% interest on $3700 isn't exactly hair on fire, though I agree with COEE that it should be the priority, not new contributions to plans. For the furniture loan, I would work out what $$ value monthly I'd need to save and put it by - if you've got a high interest account - to pay down when the time comes, or better till, pay that $$ down monthly. That gets you on track to pay down your debt without compromising your regular plan contributions.

leighb

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Re: Help me understand where I stand and how to best proceed
« Reply #4 on: April 14, 2018, 06:33:19 PM »
Regarding your order:
  • Pay off credit card first, not paying 10% is like making 10%
  • Consider an emergency fund equal to 3-6 months of your living expenses

As for your questions, here's what I think
Set 1:
1. Don't know, never tried
2. I like the Roth. I can pull the money out tax free when I retire. Which I think is pretty cool. Granted I have to pay taxes on that money before I invest it. But really both are good so don't stress worry about it.
3. The type of account doesn't really cause it to struggle. It's about what you've invested in. Most folk here will say to invest it and then not look at it again. Don't pull your money out. If your fearful of the market be more conservative in your investments (more bonds and CDs)
Set 2:
1. That's up to you and your investment strategy
2. You might want to look at vanguard's other funds. I bet there are a few that are well balanced between large, mid and small. I know there are a few folks who only invest in the Total Stock Market and Bonds. If you search this sub-forum more there's a bunch of discussions on which vanguard funds are favorites.
3. If that's what's available then I don't see what your other options are
4. You should come up with your ideal portfolio allocation and stick to that, rebalancing as needed. Boogleheads are another group that has a lot to say about getting to that ideal allocation.

Your heading in the right direction. Is the plan solid? Hard to say, what's your target number if you are going to retire in 10 years? My napkin math has you at about $400,000 in ten years. My assumptions: you invest 20K each year, your investments grow by 6%, you currently have 70,000 invested. I'm not including your house because you will continue to live in it.

70000(1.06)^10 + (20,000(1.06)^10) + (20,000(1.06)^9) ..... (20,000(1.06)^1) = $404,000


seattlecyclone

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Re: Help me understand where I stand and how to best proceed
« Reply #5 on: April 14, 2018, 07:02:02 PM »
Bad advice, Marty. That is Verb's cash buffer, and s/he would be best keeping their cash buffer for an actual emergency. 10% interest on $3700 isn't exactly hair on fire, though I agree with COEE that it should be the priority, not new contributions to plans. For the furniture loan, I would work out what $$ value monthly I'd need to save and put it by - if you've got a high interest account - to pay down when the time comes, or better till, pay that $$ down monthly. That gets you on track to pay down your debt without compromising your regular plan contributions.

I agree with paying off the credit card immediately.

If you use the cash buffer to annihilate the credit card debt, one of two things happen.

1) An "emergency" happens. You have no cash, so you charge it to the credit card. If that happens, you're no worse off than if you had kept your original credit card debt and used cash to pay for the "emergency."
2) No "emergency" happens. You save a bunch of interest on the credit card by not keeping the cash around.

What do you have to lose by paying it off tomorrow?

verbs

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Re: Help me understand where I stand and how to best proceed
« Reply #6 on: April 14, 2018, 07:42:56 PM »
Thanks everyone, It sounds like retiring 10 years from now may not be feasible and I'm fine with that.  I've rearranged my priorities based on the feedback and will pay the $3700 CC off this week as my paycheck is hitting my account.  This will ensure I have some cash in my account. 

Here are the numbers for my current Investment Plan (FRS Foreign Stock Fund (220)) with $60,000 in 100% foreign and a total ER of .5.  Could you let me know if it's junk and if so, is it possible to move something like this?  I recognize a few names in here such as TSM, Samsung, and Alibaba though I'm not sure how comfortable I feel having such a large percentage of my retirement in foreign.  The returns for 2017 were 31%.

FRS Foreign Stock Fund (220)

Name% of Fund
Samsung Electronics Co Ltd3.25
AIA Group Ltd2.62
British American Tobacco PLC2.54
Taiwan Semiconductor Manufacturing Co Ltd2.04
Alibaba Group Holding Ltd2.03
Reliance Industries Ltd2.02
Airbus SE2.00
HDFC Bank Ltd1.96
Tencent Holdings Ltd1.87
SoftBank Group Corp1.80


Geographic Breakdown% of Fund
Europe (ex-UK)27.69
Emerging Markets Asia26.75
Japan13.06
United Kingdom9.81
Asia Pacific Ex Japan7.00
United States6.40
North America Ex US3.91
Latin America3.17
Africa ex-N.Africa1.16
Emerging Markets Europe0.69
MENA0.32
Not Provided0.07

Here are my options and current contributions with total percentage in my 403b.

Current 403b

Fund Name% of contribution / Overall total %
VANG EQUITY INC ADM (VEIRX)15% / 94%
VANGUARD INST INDEX (VINIX)85% / 6%
VANG MIDCAP IDX ADM (VIMAX)0
DFA US SM CAP VALUE (DFSVX)0
VANG SM CAP IDX INST (VSCIX)0
FID INTL INDEX INS (FSPNX)0
VAN REAL EST IDX ADM (VGSLX)0
VANG INST TR 2015 (VITVX)0
VANG INST TR 2020 (VITWX)0
VANG INST TR 2025 (VRIVX)0
VANG INST TR 2030 (VTTWX)0
VANG INST TR 2035 (VITFX)0
VANG INST TR 2040 (VIRSX)0
VANG INST TR 2045 (VITLX)0
VANG INST TR 2050 (VTRLX)0
VANG INST TR 2055 (VIVLX)0
VANG INST TR 2060 (VILVX)0
VANG INST TR 2065 (VSXFX)0
VANG INST TR INCOME (VITRX)0
VANG WELLINGTON ADM (VWENX)0
VOYA STABILIZER0
FID TOTAL BOND (FTBFX)0
VANG ST FEDERAL ADM (VSGDX)0
VANG TOT BD MKT INST (VBTIX)0
FID GOVT MMKT (SPAXX)0

Questions
  • Is it possible to redistribute my 100% foreign investment Plan (is this called rolling over?)
  • Should I redistribute (roll over?) my 100% investment plan
  • How could I better distribute my current 403b contributions?


COEE

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Re: Help me understand where I stand and how to best proceed
« Reply #7 on: April 14, 2018, 08:02:04 PM »
Bad advice, Marty. That is Verb's cash buffer, and s/he would be best keeping their cash buffer for an actual emergency. 10% interest on $3700 isn't exactly hair on fire, though I agree with COEE that it should be the priority, not new contributions to plans. For the furniture loan, I would work out what $$ value monthly I'd need to save and put it by - if you've got a high interest account - to pay down when the time comes, or better till, pay that $$ down monthly. That gets you on track to pay down your debt without compromising your regular plan contributions.

I agree with paying off the credit card immediately.

If you use the cash buffer to annihilate the credit card debt, one of two things happen.

1) An "emergency" happens. You have no cash, so you charge it to the credit card. If that happens, you're no worse off than if you had kept your original credit card debt and used cash to pay for the "emergency."
2) No "emergency" happens. You save a bunch of interest on the credit card by not keeping the cash around.

What do you have to lose by paying it off tomorrow?

This is an interesting strategy - one I hadn't thought of.  Might make sense for the OP.  I'll have to chew on it a bit before starting to recommend it though.  There may be other circumstances to consider that I haven't thought of yet.

COEE

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Re: Help me understand where I stand and how to best proceed
« Reply #8 on: April 14, 2018, 08:21:10 PM »
Is the FRS held in a retirement account 401k/403b?  I'm confused with it.  Are there no other options to select within the account?

Is this it?  If so, it's actually well diversified over the world.  Not a big deal to hold if you have to.  It's just a large portion of your current AA.  If that's what you desire, that's fine.  I was just concerned that it was held with a single company that employed you in the past.
https://www.myfrs.com/pdf/investmentfunds/American%20Funds%20EuroPacific%20Growth%20Fund%20(220).pdf

Upon closer inspection holding VEIRX and VINIX is silly.  They both hold the same stocks (for the most part) but VEIRX is more expensive to own.   VINIX is a S&P500 index fund with an expense ratio of 0.035%... it's a great fund.  Your expense ratio may be slightly different since you hold it through your employer.

Doing much more is hard until we have an understanding of what your desired asset allocation is.  Hence the link to figure out IPS.

MustacheAndaHalf

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Re: Help me understand where I stand and how to best proceed
« Reply #9 on: April 14, 2018, 09:12:54 PM »
I'd pay off the credit card.  The point of an emergency fund is to avoid paying interest on a credit card, so it's too late for that.  Most credit cards will use the excuse of one late payment to push your interest rate up to 25%, so I'd suggest paying that off first.  Then, when you are not running a balance on a credit card, you can build up a cash reserve / emergency fund.  It may be helpful to spend with cash for awhile.  Ignoring a number when you swipe a card is easy, but having to count out cash and hand it over makes the cost much more vivid.

Would you be willing to pay $300/year to keep your account with FRS?  Well, you already are.  Their 0.50% expense ratio on $60k comes out to $300/year.  If you instead had that money at Vanguard in a target date fund, you'd pay 0.15%/year, which comes to $90/year.  Same goes for your Roth IRA and Traditional IRA.  The expense ratios range from 0.70% to 1.45%.  As you add more to those funds, it will cost you more.

Just in case you think you're paying to get performance, "a fund's past performance does not necessarily predict future results" according to the Securities and Exchange Commission.
https://www.sec.gov/fast-answers/answersmperfhtm.html

I'd suggest paying off the credit card and then avoiding use of a credit card for awhile.  It will probably help you develop better habits as the cost of things becomes more vivid.  And look at "expense ratios" before you invest in a fund, and try to seek lower expense ratios in your retirement accounts.  Vanguard funds are a great way to do that, since unlike most companies they aim to have lower expense ratios in all their funds.  (You can also find low expense ratio funds at Schwab and Fidelity, but you have to watch out for high expense ratio funds at those companies).

Bill_

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Re: Help me understand where I stand and how to best proceed
« Reply #10 on: April 15, 2018, 05:20:41 AM »
I'm guessing you can roll your former employer plan into a traditional IRA, no tax consequences and then invest in anything you want.

Are you paying down the balance on the furniture loan or is the $7k due all at once at the end?  If it is the latter hope you are prepared to pay that off.

You need to be careful about contributing to employer retirement plans and IRAs at the same time.  At some point your income will prevent this or the IRA contribution will be non-deductible.

If you convert your traditional IRA to a Roth you will have to pay income tax on that (assuming you took a tax deduction when you originally contributed).

marty998

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Re: Help me understand where I stand and how to best proceed
« Reply #11 on: April 15, 2018, 06:06:29 AM »
Bad advice, Marty. That is Verb's cash buffer, and s/he would be best keeping their cash buffer for an actual emergency. 10% interest on $3700 isn't exactly hair on fire, though I agree with COEE that it should be the priority, not new contributions to plans. For the furniture loan, I would work out what $$ value monthly I'd need to save and put it by - if you've got a high interest account - to pay down when the time comes, or better till, pay that $$ down monthly. That gets you on track to pay down your debt without compromising your regular plan contributions.

I agree with paying off the credit card immediately.

If you use the cash buffer to annihilate the credit card debt, one of two things happen.

1) An "emergency" happens. You have no cash, so you charge it to the credit card. If that happens, you're no worse off than if you had kept your original credit card debt and used cash to pay for the "emergency."
2) No "emergency" happens. You save a bunch of interest on the credit card by not keeping the cash around.

What do you have to lose by paying it off tomorrow?

This is an interesting strategy - one I hadn't thought of.  Might make sense for the OP.  I'll have to chew on it a bit before starting to recommend it though.  There may be other circumstances to consider that I haven't thought of yet.

"Emergencies" requiring you access to a lot of cash immediately don't just happen @Missy B. Challenge I lay down here is to name one likely emergency which would require you access to cash in a briefcase, or something that cannot be paid on credit, or with 30 day payment terms (etc)?

Our OP earns enough that his cash buffer could be replenished soon enough in the next 6-8 weeks depending on the timing of his bills.

Oh, and 10% interest is hair on fire, and he is being stung by killer bees. This is the MMM forum. No CC interest is acceptable ;)

Radagast

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Re: Help me understand where I stand and how to best proceed
« Reply #12 on: April 16, 2018, 07:46:11 PM »
Bad advice, Marty. That is Verb's cash buffer, and s/he would be best keeping their cash buffer for an actual emergency. 10% interest on $3700 isn't exactly hair on fire, though I agree with COEE that it should be the priority, not new contributions to plans. For the furniture loan, I would work out what $$ value monthly I'd need to save and put it by - if you've got a high interest account - to pay down when the time comes, or better till, pay that $$ down monthly. That gets you on track to pay down your debt without compromising your regular plan contributions.

I agree with paying off the credit card immediately.

If you use the cash buffer to annihilate the credit card debt, one of two things happen.

1) An "emergency" happens. You have no cash, so you charge it to the credit card. If that happens, you're no worse off than if you had kept your original credit card debt and used cash to pay for the "emergency."
2) No "emergency" happens. You save a bunch of interest on the credit card by not keeping the cash around.

What do you have to lose by paying it off tomorrow?
I agree. I thought this was already well established procedure on this forum.