Author Topic: Investing Critique?  (Read 2887 times)

zippy

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Investing Critique?
« on: July 16, 2014, 11:49:47 AM »
Here is a little background:
My husband (35), me (29), toddler (2), and one on the way. We have roughly:
401k - $230,000
Roth IRA - $17,000
IRA (401k rolled over from my previous employer) - $53,000
Managed ETF account (trying to figure out if we should switch this to Vanguard) - $65,000
Managed Brokerage account (also possibly switching this to Vanguard) - $110,000
Cash in Savings/Checking - $405,000
529 Account - $34,000

we spend roughly 47k a year because our rent is 24k, and we can't seem to get around that unless we move very far away from my husband's work.

We've been back and forth about our future and possibly buying a house in the last few years, so we were afraid to do anything with our cash. We still aren't sure what we want to do, but have decided we need to at least move most of our money out of our savings account. We also would like to move to Vanguard, and have with our IRA, but haven't done the same with our Roth or other two accounts (can't move the 401k).

In the last few months, we have tried to learn as much as we can about investing, since neither of us had much knowledge at all about it. I feel way more aware than I did before, which is great! BUT, I still feel like I have a lot to fully understand, which is where I get nervous about actually investing the cash we have. I don't want to make a mistake because I wasn't educated enough to understand everything about the choices I was making. I was going off of the jlcollinsnh stock series because simpler is better for us in terms of our knowledge level of investing.

SO! A few questions... here is our target AA:
50k in savings for emergencies (lost job, etc)
75% stocks (possibly VTSAX?)
25% bonds (I was going to do VBLTX, but after doing more research, am wondering if VFIDX would be better because of the length of the bonds? Or maybe a mix of the two?)

From what I've read (please, correct me if I'm wrong!), it's best to put bonds in tax-advantaged accounts... but does anyone else feel weird about having an IRA be 100% bonds? I keep trying to look at our money as one big pile, just divided up, but should traditional retirement funds be separate from taxable accounts?

Another question... if we invested our money now, and in 2 years wanted to buy a house, would taking out 80-100k from our investments be awful because of capital gains? If we knew for sure we were going to do that, I would probably keep it cash, or in a CD, but we don't know if we will need it in 2, 4, 6 years, etc. Or would it be better to invest it all now, and instead of adding to our investments monthly, save that money for our downpayment? (we save roughly 30k/year, excluding possible bonuses)

GGNoob

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Re: Investing Critique?
« Reply #1 on: July 16, 2014, 12:20:42 PM »
Another question... if we invested our money now, and in 2 years wanted to buy a house, would taking out 80-100k from our investments be awful because of capital gains?

Not investing because you are afraid of paying capital gains tax is like saying you don't want to make $100 on your investment because you'll incur a $15 tax when you cash it out.

Are you also comfortable with the risk that you may lose some of that money that is needed for the down payment? Maybe you'd want your emergency savings to keep enough in it now to cover the minimum down payment on your house. Then if the market has dipped, you can just use your cash and not take out any investments. But if its gone up, just withdraw what you need (and maybe a little extra to set aside for the tax).

GGNoob

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Re: Investing Critique?
« Reply #2 on: July 16, 2014, 12:29:55 PM »
From what I've read (please, correct me if I'm wrong!), it's best to put bonds in tax-advantaged accounts... but does anyone else feel weird about having an IRA be 100% bonds? I keep trying to look at our money as one big pile, just divided up, but should traditional retirement funds be separate from taxable accounts?

I think it depends on what your taxable account is for.

If you are saving up for something big or you have your emergency fund invested (mine is), then doing a balanced stock/bond portfolio makes sense in a taxable account. Having muni bonds would be good so you aren't paying taxes on the dividends. I use Betterment for mine and most of my bond portfolio is the MUB ETF.

But if you are only investing in a taxable account because the rest of your retirement accounts are maxed out and this taxable account will just be used for retirement, then it should be counted in the same pool as your retirement accounts. I think its been suggested that foreign stocks are good in a taxable accounts so you get a foreign tax credit with US stocks and bonds in a tax-advantaged account.

With that said, I see no problem if you wanted to have a balanced portfolio in your taxable account that can be used for a house or some other purchase/expense down the road.

hodedofome

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Re: Investing Critique?
« Reply #3 on: July 16, 2014, 02:29:00 PM »

 I don't want to make a mistake because I wasn't educated enough to understand everything about the choices I was making.


Making mistakes is part of the game. We gain knowledge and wisdom from experience. We gain experience through making mistakes. Our culture tries to tell us that making mistakes is bad, don't pay any attention to that.

http://www.goodreads.com/quotes/tag/mistakes

milesdividendmd

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Investing Critique?
« Reply #4 on: July 17, 2014, 08:39:49 PM »
As Logan mentioned Capital gains taxes only effect the profits on your investments so you will only be taxed to the extent that you outperform your current low yielding savings accounts.

I would also absolutely divest from your actively managed accounts. That's an easy call.

Your proposed investing strategy looks very reasonable. Vanguard is the best brokerage bar none.

One nice strategy to consider if you are feeling unsure of yourself, and want to take some time to develop your investment strategy through reading , would be to roll your accounts (especially your taxable accounts) over to Betterment.

They have an evidence based portfolio that is well diversified, and with their tax loss harvesting algorithm on accounts greater than $50,000, you should more than make back their 0.25% management fee (plus the fees On the underlying ETFs themselves.)

I recently rolled over some of my brokerage accounts from Motif investing to take advantage of the tax loss harvesting feature (and I have a well defined investment philosophy with an investment policy statement. )

Have fun. And keep it simple. (Which is hard.)
« Last Edit: July 17, 2014, 08:48:54 PM by milesdividendmd »

Dodge

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Investing Critique?
« Reply #5 on: July 17, 2014, 11:04:45 PM »
[Post Deleted]
« Last Edit: July 17, 2014, 11:07:18 PM by Dodge »