Author Topic: Thank you MMM community: I'm starting my first 401k and IRA - Advice needed!  (Read 3814 times)

Chupi555

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I'm not sure how early I will retire. I'm self employed, but my salary is quite volatile.

I'm 29 and have not yet invested anything :( better late than never though.

My plan this year is to start a solo 401(k) and probably put $17,500 in there and and then $5,500 into an IRA, from what I've been reading on these forums traditional is the way to go. Is this still the case if I'm not sure I'll retire early? I read this, but does this only apply to someone that is for certain going to retire early? http://www.madfientist.com/traditional-ira-vs-roth-ira/


I'm opening my 401(k) and IRA through Vanguard.

So where to put the money?

Since I'm young and have what I'd assume 15-20 years until retirement. (hopefully sooner, but we're working on that!) Then from my research I want a portfolio that has mostly domestic stock, then some international stock, and a little bit of bonds. I played with the vanguard 'portfolio recommendation' thing and it recommended to put my money into VASGX, which is:


57%   Stock
24%   International stock
16%   Bond
3%   International bond


Does this make sense to just drop all of my money into this one fund? This is also not one I see mentioned a lot, I see people mention VTSMX and VFINX.

Is it ok to just put everything, for now, into VASGX or should I diversify some more and put 1/3 into each of these.

I'm very new to all of this and appreciate any advice.

Thank you!

MDM

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You could shave several hundredths of a percent from your overall expense ratio if you bought the underlying funds separately, but the simplicity of VASGX has benefits for a new investor. 

I'd say, for your situation, the answer to "Does this make sense to just drop all of my money into this one fund?" is yes.  Especially if it helps you stop procrastinating and just do it. :)

Need more details from you to make reasoned suggestions on your other questions.  See the posts in this thread, http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/, for some things you could consider.

Good luck!
« Last Edit: November 25, 2014, 10:44:38 PM by MDM »

Chupi555

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Quote
You could shave a several hundredths of a percent from your overall expense ratio if you bought the underlying funds separately, but the simplicity of VASGX has benefits for a new investor. 

But I pay a $20 fee every year for each fund. So wouldn't saving the $60/yr on getting this all together as one be better than buying them all separate?


MDM

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From https://personal.vanguard.com/us/content/Funds/FundsVanguardFundsLowBalanceDisclaimerJSP.jsp:

Vanguard charges a $20 annual account service fee for all brokerage accounts and for each Vanguard mutual fund with a balance of less than $10,000.

As the primary account owner, you can eliminate this fee by signing up for our e-service package.

The choice is yours....

Chupi555

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Quote
From https://personal.vanguard.com/us/content/Funds/FundsVanguardFundsLowBalanceDisclaimerJSP.jsp:

Vanguard charges a $20 annual account service fee for all brokerage accounts and for each Vanguard mutual fund with a balance of less than $10,000.

As the primary account owner, you can eliminate this fee by signing up for our e-service package.

The choice is yours....

Thank you!

sol

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Even if you really want paper statements (not sure why you would, maybe you need firestarter) you can still eliminate the $20 per fund annual fee once your total Vanguard assets exceed $50k, which at your rate should be after two years.

Note that for 2015, the 401k limit has been raised from 17.5k to 18k.  And since you're self-employed, you can put in up to 25% salary match into a solo 401k as the employer in addition to the 18k as the employee, up to a total of $54k for the year.  If you make enough money.

29 is not too late, I didn't start until I was 31 and I'll be retired at 40.

No, the madfientist's advice is not only for people who want to retire early.  In fact, he wrote that article to convince people of just the opposite.  This advice is the standard for people who want to retire late, and some people don't like it if they want to retire early, and he was showing that works for early retirees too.

I think VASGX is a fine choice, if it matches your risk tolerance.  It's 80/20 stocks bonds and about 1/3 international, about the typical recommendation for a person your age.  I personally favor being slightly more diversified into non-US markets but owning just this one fund will make you more diversified than 90% of US investors.

Chupi555

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Thanks for the post, Sol! Great info :)

GGNoob

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VAGSX sounds like a great option for you. It's a one fund option that gives a new investor all they need. You can always sell and buy the individual funds down the road if you choose, but there's no rush.

skyrefuge

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No, the madfientist's advice is not only for people who want to retire early.  In fact, he wrote that article to convince people of just the opposite.  This advice is the standard for people who want to retire late, and some people don't like it if they want to retire early, and he was showing that works for early retirees too.

Hmm, what? The OP was asking (and MadFientist was answering) about the choice between a Traditional and Roth IRA, not about whether to contribute to an IRA at all. The linked article explains that the Traditional IRA is the obvious choice for an early retiree. It says nothing about the best choice for a late retiree. The optimal choice shifts from Traditional to Roth the later one retires, the more that retirement income is expected to exceed current income, and the more that tax rates are expected to rise. It's probably still fairly difficult for Roth to beat Traditional for most people posting on this forum, but it's certainly not impossible.

mai72

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I work overseas and 60-70% of $40k salary goes into my retirement. I don't have to pay US taxes. So when everyone else is paying 22-30% of their income to taxes I'm paying zero. Love it! Plan to work here for a long while.

Also, rent is free. I don't need a car because transportation is awesome and cheap. Cost of living is so much cheaper as well.

I'm hooked up with an IRA. I'm looking to purchase a condo in Thailand and South Korea.

You seem to have a good plan.  Keep it up.
« Last Edit: November 27, 2014, 09:14:07 AM by mai72 »

Druid

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I work overseas and 60-70% of $40k salary goes into my retirement. I don't have to pay US taxes. So when everyone else is paying 22-30% of their income to taxes I'm paying zero. Love it! Plan to work here for a long while.

Also, rent is free. I don't need a car because transportation is awesome and cheap. Cost of living is so much cheaper as well.

I'm hooked up with an IRA. I'm looking to purchase a condo in Thailand and South Korea.

You seem to have a good plan.  Keep it up.

I am glad you are loving life, but someone making 40k in the US and contributing over 1/2 of their income to IRA/401k would not be paying 22% in taxes even with payroll taxes. That being said I wish I was living in Thailand and the cost of living argument is solid!

Grateful Stache

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VAGSX sounds like a great option for you. It's a one fund option that gives a new investor all they need. You can always sell and buy the individual funds down the road if you choose, but there's no rush.

Couldn't have said it better.

Target date/Life strategy funds are great for folks starting out. After you get your feet wet, you can branch out all you like.

Cheers,

- Grateful