Author Topic: Is this good for now?  (Read 3219 times)

Bookworm

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Is this good for now?
« on: January 26, 2016, 10:28:45 AM »
I am just starting out with handling investments on my own (newly divorced) and really don't know what I am doing. I know that I need to study jlcollinsnh and Bogleheads, but it is going to take some time for me to wrap my mind around the concepts and it would be really helpful if I could just get a heads up from MMM people if there's something glaringly obvious that I need to do right now.

My portion of our retirement savings arrived at Vanguard this morning, so this is how things look:

Checking: $1,273
Savings: $29,645 (this is at least 12 months of expenses)
Savings: $598
Vanguard Traditional IRA: $28,334 (VTSAX)
Vanguard Roth-IRA: 0 (opened but never funded)

A large portion of my income is precarious (child and spousal support) and my earned income is very low; this will probably be true for the next year or two. So I really feel like I need the large emergency fund. Still, it seems like it might be a good idea to slide some of my savings into the empty Roth-IRA because my tax liability right now is so low (??). I have no idea which fund (bonds, mutual funds, target date funds) to put it into.

I am also not sure what to do with any additional money that I manage to save beyond what I already have.

I am 43 years old, if that makes a difference. I will be entitled to a portion of my ex-husband's pension when he retires (I will be 53 when it begins), and it will continue for the rest of his life. There will be nothing else until I become eligible for Social Security (half of what he receives), so I am probably looking at traditional retirement age as my horizon.
« Last Edit: January 27, 2016, 07:21:22 AM by Bookworm »

MustacheAndaHalf

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Re: Is this good for now?
« Reply #1 on: January 26, 2016, 10:59:44 AM »
If your income is temporarily low, look into Roth IRA vs Traditional IRA.  Some time this year, it might be good to convert some/all of your Traditional IRA into a Roth IRA.  You will owe tax on it - this year - but after that it's free of tax.

arebelspy

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Re: Is this good for now?
« Reply #2 on: January 27, 2016, 06:21:10 AM »
Roth while your income is low seems like a good idea.  I like the VTSAX holding.  Your timeframe is on the order of decade(s) it sounds like, so I'd go with fairly aggressive for now, while in your accumulation phase, and as you learn more later you can tailor your AA.

Will you be able to stick with it if the market drops (or just not check the balances)?
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capitalninja

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Re: Is this good for now?
« Reply #3 on: January 27, 2016, 07:42:24 AM »
How much is your earned income (sans child support and spousal support)?  If it's not enough to pay your current expenses, I would NOT take money out of your savings to fund the ROTH IRA. The only thing worse than not investing in the ROTH is putting money into it only to have to pull it back out if "life" happens.

If your earned income (again sans what comes from the ex) is enough to meet your obligations, then I would fund the ROTH (out of it) as well as throw any additional money that you can spare towards your investments. Your 12 month emergency fund is just that; an emergency fund. Unless you have multiple streams of income that you have a degree of control over (i.e. second job, freelance work, etc), I would not deplete your savings to invest because you would have no way of replenishing it in a reasonable amount of time (< 3 months).

Edit: Your holding in VTSAX is great. I'd leave it as is.

Hope this helps.

Woody Viet

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Re: Is this good for now?
« Reply #4 on: January 27, 2016, 07:58:03 AM »
You have a lot of cash right now and the amount you need probably depends on your levels of income and spending. If you don't mind sharing:
  • What is your current level of income? How much of it would you say is stable and how much is unstable?
  • What are your current expenses? What proportion could you cut back on if you really had to?
  • What do you reckon your income will be in a few years time and how long do you think it will take to get there?
  • Do you have any emergency sources of cash/credit/goodwill you can tap in an emergency? This can include stuff like family support, government support, credit cards, lines of credit etc.
How much you hold depends on all on the above but deep down is a matter of personal choice. If your life is stressful right now you might want to keep a bit more cash so you don't need to worry about running out. However if your financial situation is more stable than you thought then you might want to fill the Roth.

As far as holding VTSAX, you're doing about the best an uninformed investor can! I would leave that alone until you have at the very least read the investment guides you listed. Better to lose out on making a bit of money than to make an unforced error and lose a lot

Bookworm

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Re: Is this good for now?
« Reply #5 on: January 27, 2016, 08:38:19 PM »
Will you be able to stick with it if the market drops (or just not check the balances)?

Yep. I can check the balances as much as I want and not feel like I need to move or touch it.

Bookworm

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Re: Is this good for now?
« Reply #6 on: January 27, 2016, 08:49:43 PM »
How much is your earned income (sans child support and spousal support)?  If it's not enough to pay your current expenses, I would NOT take money out of your savings to fund the ROTH IRA. The only thing worse than not investing in the ROTH is putting money into it only to have to pull it back out if "life" happens.

My earned income is currently between $500 and $700 per month, and that's fairly stable. The support income is $2,084 per month. So, my income is very unlikely to drop all the way to zero, but if support stops, my income will fall dramatically.

Bookworm

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Re: Is this good for now?
« Reply #7 on: January 27, 2016, 09:20:13 PM »
You have a lot of cash right now and the amount you need probably depends on your levels of income and spending. If you don't mind sharing:
  • What is your current level of income? How much of it would you say is stable and how much is unstable?
  • What are your current expenses? What proportion could you cut back on if you really had to?
  • What do you reckon your income will be in a few years time and how long do you think it will take to get there?
  • Do you have any emergency sources of cash/credit/goodwill you can tap in an emergency? This can include stuff like family support, government support, credit cards, lines of credit etc.
How much you hold depends on all on the above but deep down is a matter of personal choice. If your life is stressful right now you might want to keep a bit more cash so you don't need to worry about running out. However if your financial situation is more stable than you thought then you might want to fill the Roth.

As far as holding VTSAX, you're doing about the best an uninformed investor can! I would leave that alone until you have at the very least read the investment guides you listed. Better to lose out on making a bit of money than to make an unforced error and lose a lot

i. My earned income is about $500 to $700 per month. It is being held down right now because of several factors that will gradually become non-issues over the course of the next year. One of those is child transportation, and that issue will be resolved in June, at the latest.

ii. My current expenses are (well, will be by next week when I move...) just slightly less than my earned income and support income combined. In a dire emergency, I could cut about another $200 to $300 per month in expenses, but it would mean eliminating important things that I consider worth the money for now, like counseling.

iii. I don't have a real feel for where my income will go, but it will only be restricted by parenting and other circumstances for about a year.

iv. I have about $10,000 in available credit, and a great family. My kids and I have been living with my parents rent-free for sixteen months, and will always be welcome.

It seems that there are a lot of votes to keep everything in VTSAX, so I think I will leave what's there alone, and if I do add anything, it will be more VTSAX for now. I can always add a bond fund later, when I figure them out.

Woody Viet

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Re: Is this good for now?
« Reply #8 on: January 28, 2016, 01:59:17 AM »
In that case I would fill the ROTH. You're sitting on four years of expenses (plus another year and a half in a desperate situation) which is quite a lot IMO. A loving and supportive family are an enormous source of strength including financial.

Filling the ROTH would still leave you with three years of living expenses in reserve that would only need to be tapped IF your ex-partner were to default on their responsibilities. Once it is in the ROTH I'd stick it in VTSAX again and not tinker until your investment knowledge is built up (feel free to PM me if you want to run any books/guides by someone to see if they're good)

Geekenstein

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Re: Is this good for now?
« Reply #9 on: January 29, 2016, 05:02:14 PM »
Not much to add to the above, except to keep in mind that your accumulated investment (less growth) in your Roth is always available to you without penalty if you need it.  You already paid tax on that money.  Sure, you don't want to do that unless you have to, but it's good to know it;s there if you need it.