Author Topic: New college grad, trying to start investing  (Read 2340 times)

wevan

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New college grad, trying to start investing
« on: October 14, 2013, 06:02:47 PM »
The good news:  I'm several months out of college, working at a fun, well-paying job, and debt-free.  My spending is pretty low.

The more difficult news:  Beyond maxing out my 401K contributions (up to the full 17% - my company offers a Roth 401K which is simpler than starting an IRA), I've no idea where to start investing.  I don't want to lock up all my money for the long term, in case I get married / buy a house / move to a startup in five years or so.  (None of those look particularly imminent at the moment, but I want to keep my options open.)  But, of course, if none of those happen, I want to be positioned well for financial independence.

So where do I begin?  I was looking into money market mutual funds, but I couldn't find any which've been performing higher than the credit union savings account I'm currently stashing money in.  Are basic mutual funds the place to go, even for the money I want available in ~5 years?  And where would you recommend starting?

brewer12345

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Re: New college grad, trying to start investing
« Reply #1 on: October 14, 2013, 06:43:41 PM »
Do you have a healthy emergency fund?

I would start with the insured savings account of your choice (pick a high paying online one) and pile up a bunch of cash.  After you have enough for a robust emergency fund, house downpayment, etc. pick a balanced fund (Vangard Wellington s a good one).

Joel

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Re: New college grad, trying to start investing
« Reply #2 on: October 14, 2013, 09:30:24 PM »
Account Usage:
1. Invest in tax-deferred accounts (401k & traditional IRA) while my marginal tax rate is 25%.
2. Invest in roth accounts (roth 401k and roth IRA) while my marginal tax rate is less than 25%.
3. Max out 401k contributions to take advantage of employer match.
4. Max out IRA contributions next
5. Max our 401k contributions to the annual amount allowed.
6. Contribute to brokerage account.

*Note: I save up the IRA limit during the year, and make my contribution at the end of the year in the amount necessary to manipulate my marginal tax rate. Since my employer offers the ability to contribute to a traditional 401k and a roth 401k, I manipulate my retirement contributions during the year to make sure that my taxable income is 1k-4k above teh end of the 15% tax bracket (into the marginal 25% tax rate).

Investments:
1. Total Stock Market Index Fund
2. Total International Stock Market Index Fund
3. Total Bond Market Index Fund

Asset Allocation:
1. Bonds = (1/2 my age = %, ie 1/2 * 21 = 10.5%)
2. Stocks = (70% of non-bonds)
3. International Stocks = (30% of non-bonds)

Tax Considerations:
1. Hold Bonds in my tax-deferred accounts (401k, IRA) or the equivalent in Cash
2. Hold International Stocks in my taxable account (Foreign Tax Credits save me money on taxes)
3. Hold Stocks in my roth accounts (Roth 401k, Roth IRA).
 
Everything is held at Vanguard, whenever possible.

aj_yooper

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Re: New college grad, trying to start investing
« Reply #3 on: October 15, 2013, 03:57:59 PM »
Good, general advice from brewer and Joel.  Emergency fund is very useful-2 or 3 months of monthly expenses plus some more in CDs or Ibonds; some people do up to 12 months.  Bogle recommends your age in bonds plus the rest in stocks.  If your employer offers the Roth 401k, I believe they are also obligated to offer the standard tax deferred 401k.  If you are above the 15% marginal tax rate, IMO, the tax deferred 401k gets you more money so I would think about that, at least to the point where your tax deferral money is above the limit ($36,250).  Then doing the Roth 401k, if you can, for the money in the 15% marginal rate.  YMMV