Author Topic: Low Starting Amount - Start to save for Home and Early Retirement  (Read 3524 times)

LearnAsIGo

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Hello everyone!

I am hoping for some opinions and options, I am attempting to put some money in the market that I do not plan to touch for at minimum 5+ years however I do want access to it in case of emergencies, it is for a possible home down payment or just more money towards retirement.. I currently have a Roth IRA that starting next year will be maxed out every year, as well as a Roth 401k that I am currently putting very little into. The fund options for the 401k are terrible and since I plan to move jobs within the year I plan to put the money into this new account I am talking about.

I am looking to start with the minimum investment of 1k-3k and then just make contributions as I go. I have about 6k available cash that I would like to work with, So I could not afford to buy 2-3+ funds at the 3k a piece price. This lends me to thinking I just have to pick a solid fund and work with that. I am looking at the Vanguard Moderate Growth Life Strategy Fund, or the Growth Strategy Life Fund as options. From my basic knowledge these appear to be decent options besides picking one of the total stock index funds and just holding onto it. In the future when I have 10-20k to work with I would like to diversify into 3-4 of the funds that require 3k minimums but I do not have the money to do that now. So I am also interested in minimizing the tax implications of that eventual move.

Sorry for the long winded (hopefully that made sense) post, and thank you for your help.

SilentC

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #1 on: November 14, 2015, 11:28:49 PM »
I think your life would be easier if you just invested in the Vanguard S&P 500 fund, it's super diversified and hard to beat over time.  If you want to have more stability for house/emergency then don't invest 100% of your cash and the rest S&P.  It's not "sexy" to own S&P which is why it works.  I don't mean to sound discouraging if you are excited about the growth funds by all means pick one and go with it and things should work out over time, but mind the fees especially when you are just getting started.  Congrats on getting started!

MDM

  • Walrus Stache
  • *******
  • Posts: 9715
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #2 on: November 15, 2015, 12:17:24 AM »
...a Roth 401k that I am currently putting very little into. The fund options for the 401k are terrible and since I plan to move jobs within the year...
LearnAsIGo, welcome to the forum.

If you are going to move that soon, don't worry about poor fund options - other than avoiding any with ~5% front or back loads.  You can tolerate a 1% fund fee in return for the ability to access the tax-advantaged space.  See  http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/.  If you can handle the cash flow, fill up your 2015 space with the current job.  Then roll it over into an IRA when you change jobs, and use the new job for your 2016 contributions.

Quote
I am looking to start with the minimum investment of 1k-3k and then just make contributions as I go. I have about 6k available cash that I would like to work with, So I could not afford to buy 2-3+ funds at the 3k a piece price.
Target date funds, e.g. VTTSX, have a $1K minimum

LearnAsIGo

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #3 on: November 15, 2015, 08:28:21 AM »
I'm just gonna go down the line haha.
1. Not discouraging at all! I am perfectly fine with an S&P 500 fund. The growth funds are attractive as a one stop shop but divesting down the road might lead to a tax headache. I'm looking for something I can just sit on and if I need to diversify I can just buy more of something else.

2. I will be able to fill up my ira but simply not enough income to fill up the 401k. I know there are a few different ways to get the money out before retirement if needed, I'm just considering more liquid investments (even though I intend to hold them for years) to be safe for an emergency.

3. While those funds have a low minimum,  my concern was dealing with taxes down the road if I didn't like their ratio. Because I'd be in a taxable account and I'd have to sell than re buy.

Thsnk you both very much for your responses!

MDM

  • Walrus Stache
  • *******
  • Posts: 9715
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #4 on: November 15, 2015, 09:25:29 AM »
2. I will be able to fill up my ira but simply not enough income to fill up the 401k. I know there are a few different ways to get the money out before retirement if needed, I'm just considering more liquid investments (even though I intend to hold them for years) to be safe for an emergency.
Contributions made directly to a Roth IRA may be withdrawn without tax at any time, as may contributions to a Roth 401k that has been rolled over to a Roth IRA.  See https://www.bogleheads.org/forum/viewtopic.php?f=2&t=175645&p=2655180 for similar discussion.

Quote
3. While those funds have a low minimum,  my concern was dealing with taxes down the road if I didn't like their ratio. Because I'd be in a taxable account and I'd have to sell than re buy.
Discussion above is about Roth accounts, so no tax implications involved with changing funds.

LearnAsIGo

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #5 on: November 15, 2015, 10:19:18 AM »
 even though those contributions may be removed tax free wouldn't that hurt me in the long run because I can only contribute up to the maximum still each year. I feel like that would put me behind or at least over the lifetime of the IRA that would greatly lessen its growth.

MDM

  • Walrus Stache
  • *******
  • Posts: 9715
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #6 on: November 15, 2015, 10:27:59 AM »
even though those contributions may be removed tax free wouldn't that hurt me in the long run because I can only contribute up to the maximum still each year. I feel like that would put me behind or at least over the lifetime of the IRA that would greatly lessen its growth.

Not sure what "that" you refer to.

If you don't contribute to the Roth now you lose the choice later of withdrawing from it or not.

LearnAsIGo

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #7 on: November 15, 2015, 12:12:15 PM »
By "that" I meant the early withdrawal, if I was to withdraw for a home down payment I'm looking at taking 60-100k out. My thought process is that would be too much to recover from considering the cap on contributions. I am currently contributing to the IRA and it will be maxed starting 2016, I believe our brainwaves got crossed.

I have x to invest. Instead of locking it into the 401k I want to invest in something other than a money market fund because I would require much more money than I have to use to reach the next level of dividend return.

  If we were to make the assumption that all tax-advantaged contributions were made what would be the best way to start a taxable account with low starting funds?

MDM

  • Walrus Stache
  • *******
  • Posts: 9715
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #8 on: November 15, 2015, 12:54:36 PM »
If we were to make the assumption that all tax-advantaged contributions were made what would be the best way to start a taxable account with low starting funds?
For home down payment savings (i.e., money needed in ~3 years), see http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001/ or similar.

For a beginning investor, one defensible strategy is to put everything - whether in taxable or tax-advantaged - into VTTSX ($1K minimum).   

LearnAsIGo

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #9 on: November 15, 2015, 01:00:44 PM »
 thank you very much! This is an 8 to 12 year time line at the minimum, so on that note is there any particular reason that you chose that fun over the total stock index or the S&P 500 index?

MDM

  • Walrus Stache
  • *******
  • Posts: 9715
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #10 on: November 15, 2015, 01:21:32 PM »
...over the total stock index or the S&P 500 index?
Those are also defensible choices, as are ones found at https://www.bogleheads.org/wiki/Three-fund_portfolio.

A defense of VTTSX is not that it is the best possible strategy (really, nobody knows that answer), but it is a simple strategy (“buy this one fund and leave it alone while Vanguard does all the rebalancing, etc. for you”) that is likely to have good results.

See http://forum.mrmoneymustache.com/investor-alley/wealthmentbetterfront-nail-in-the-coffin-article/ for other discussion.

LearnAsIGo

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Low Starting Amount - Start to save for Home and Early Retirement
« Reply #11 on: November 15, 2015, 03:49:00 PM »
Thank you very much for all your help