Author Topic: The light, I sees it. Now what?  (Read 4473 times)

KulshanGirl

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The light, I sees it. Now what?
« on: February 08, 2013, 12:36:52 PM »
Due to life's glorious and chaotic ways, my goal of paying off the mortgage by a certain date is pretty much blown.  *descending slide whistle sound here*  And so, I shall invest, in alignment with the repeated facepunches I got from championing my mortgage payoff plan.  LOL!

Here is what I will be able to do:

Open a Roth at Vanguard, $5000 for 2012.
Invest monthly to achieve the maximum of $5500 for 2013
Open a taxable account with $3300 that could be money for my child's future education, but I want to keep that flexible.
Invest $2000 over the course of 2013 into that account monthly. (<edited to add, that $2000 is the total for the year, but contributed in smaller monthly chunks)

My default idea as someone without much experience yet would be to stick with the tried and true-ish VTSMX for both of these, and turn both into VTSAX as soon as I am able.  I do have some bonds in my 401k portfolio.  Now that I don't have the mortgage payoff goal front and center, I am much less risk averse. 

Do you think that having VTSMX in both a Roth and a taxable at the same time is good?  Since it's an index fund, the eggs are already spread out into many baskets, right?

I have a sort-of pension at work where they put 11% of my yearly pay each year into my 401K, no match necessary. (LUCKY me, I know!)  I have stopped contributing on  my own to this in order to do the Roth outside of the work plan.  I'm solidly in the 15% bracket.  Someday I want to start contributing more pre-tax dollars again, hopefully up to the max some day.  I also want to get my feet wet in the taxable world and this little chunk of my savings seems like a good go. 

Any thoughts?
« Last Edit: February 08, 2013, 12:42:15 PM by KulshanGirl »

Kriegsspiel

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Re: The light, I sees it. Now what?
« Reply #1 on: February 08, 2013, 04:35:59 PM »
Open a Roth at Vanguard, $5000 for 2012.
Invest monthly to achieve the maximum of $5500 for 2013
Open a taxable account with $3300 that could be money for my child's future education, but I want to keep that flexible.
Invest $2000 over the course of 2013 into that account monthly. (<edited to add, that $2000 is the total for the year, but contributed in smaller monthly chunks)

My default idea as someone without much experience yet would be to stick with the tried and true-ish VTSMX for both of these, and turn both into VTSAX as soon as I am able.  I do have some bonds in my 401k portfolio.  Now that I don't have the mortgage payoff goal front and center, I am much less risk averse. 

Do you think that having VTSMX in both a Roth and a taxable at the same time is good?  Since it's an index fund, the eggs are already spread out into many baskets, right?

Not in my opinion.  VTSAX diversifies your STOCK holdings, it doesn't diversify your portfolio.  I think you'd be smart to at least include bonds and hold some reserve cash.

KulshanGirl

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Re: The light, I sees it. Now what?
« Reply #2 on: February 08, 2013, 05:38:58 PM »
I do have some bonds in the 401k through work, not a whole lot though.  I could move more of that into bonds maybe to help balance things out a bit? The 401k is just under $60K.   I also have 6 months living expenses in cash (just savings) that isn't part of this at all. 

Kriegsspiel

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Re: The light, I sees it. Now what?
« Reply #3 on: February 08, 2013, 07:31:08 PM »
Sorry, I meant more like having a reserve of cash to jump on opportunities, not your emergency fund. 

arebelspy

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Re: The light, I sees it. Now what?
« Reply #4 on: February 08, 2013, 07:47:22 PM »
Okay, I'm usually a big advocate of investing over paying down a mortgage, but I'm also wary of a radical shift in investing philosophy.

You say "Due to life's glorious and chaotic ways, my goal of paying off the mortgage by a certain date is pretty much blown."

Okay... So you can't hit your ideal dream date of having it paid off.  Why not work hard at it anyways, and pay it off a few months later, or a year, or whatever?

To me it seems (and I could be wrong, just due to lack of information, but this is how it seems) that you had decided a course of action best for you (given your own inclinations towards debt, risk, etc.), then hit one speed bump, then radically changed your plan due to this.

By all means, consider investing the money, but don't do so without rhyme or reason - explore why you wanted to pay off the mortgage, how you can still accomplish that goal, then compare it to investing.

And - at that point - I'll be on the side arguing for you to invest it.  ;)
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KulshanGirl

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Re: The light, I sees it. Now what?
« Reply #5 on: February 08, 2013, 09:56:03 PM »
In a while I'll update on the goodness and badness of what is going on with me, and there will be a bigger picture to see.  But really, I've had to change course and begin to think of other ways to reach the goal of a part time lifestyle.  Because doing so by paying off the mortgage like I planned to isn't going to happen, that's not lack of optimism, that's just how it is.  I didn't say my end goal has changed, just that paying off the mortgage is off the table as a means to get there, so I need to find and/or combine other ways. 

I wil have less money to work with.  Noticibly less, but not crushingly so.  I think the best thing I can do with that is put it to work while I keep planning.  I am going to spend the time between now and goal time socking it away as best I can while I plan another route.  And maybe the market will perform a wonder and I will get there on time, or sooner, but certainly eventually. 

But what I want to know is, VTSMX for the Roth as well as the taxable account?  I am going to drop $5000 and $3300 into Vanguard soonish and keep contributing.  But which?     

arebelspy

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Re: The light, I sees it. Now what?
« Reply #6 on: February 08, 2013, 10:23:10 PM »
I'm not sold.  You have other options.

One very simple (but maybe not obvious?) one would be paying down the mortgage as much as possible, even if not paying it off, and then refinancing it to the new low amount. This will significantly lower your payments and let you go part time to hit your end goal.

But if you've already convinced yourself switching to investing the way to go, okay.  By all means, proceed. :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

KulshanGirl

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Re: The light, I sees it. Now what?
« Reply #7 on: February 08, 2013, 10:59:47 PM »
:D  Was it not you who kindly facepunched me a while back because I wouldn't entertain the option of letting that money grow, staying liquid that way, and then paying off the mortgage in a big chunk, thus reaching the same goal at the same time or sooner, thanks to the mighty market?  Hehe.  I do like very much that you keep me thinking. 

If I had followed my own plan and these changes had occurred halfway through my plan, I would have not met my goal AND not had the dollars I might need access to in the days ahead.  Lucky for me, I didn't get very far down that path.  I got facepunched, in exactly the sort of way people were concerned about.  :)   I am not, NOT going to pay down the mortgage with my employees.  Not right now anyway.

I suppose I will have to wait until I can show AAAALLLL the numbers to get some input on VTSMX for my two investments.  :)   

arebelspy

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Re: The light, I sees it. Now what?
« Reply #8 on: February 09, 2013, 08:24:31 AM »
Okay, Kulshan PM'd me and convinced me, she knows what she's doing.  :D

:D  Was it not you who kindly facepunched me a while back because I wouldn't entertain the option of letting that money grow, staying liquid that way, and then paying off the mortgage in a big chunk, thus reaching the same goal at the same time or sooner, thanks to the mighty market?  Hehe.  I do like very much that you keep me thinking. 

Indeed!  That's the thing about the advice we give around here: it's quite specific to each individual (their situation, risk tolerance, etc.).  So my only goal is to get people thinking critically about their options, so they can make the best decision for them.  Thus my earlier thoughts were to make you think critically about your (then current) plan, and thoughts in this thread to think critically about if you had to radically change it, or merely alter the old plan a little - simply because you have a new situation, that means the advice (specific to the situation) may change, and is worth rethinking over.  Like I mentioned in the PM, sounds like investing is most likely the right play going forward, but you'll probably want to dig a little deeper once the situation finalizes a little more.

In any case, contributing to a 2012 Roth right now is a great idea (you have two months left to do so) because you can always withdraw the principal penalty free if your plan does change again.

Do you think that having VTSMX in both a Roth and a taxable at the same time is good? 

Perfectly fine.  Sometimes you want to hold different assets in different accounts based on their tax advantages, but only if it's in first alignment with your AA.  If you're going for a more aggressive AA at this point (which you probably should, if you're relatively young and relatively far off from FIRE), holding just VTSMX is fine. I assume you've read through JLCollins' stuff?  (If you haven't go read it right now!  If you have, go read it again.  ;)  It's my favorite investing advice out there.)

Since it's an index fund, the eggs are already spread out into many baskets, right?

Absolutely.  As Krieg mentioned, you may want to diversify into other assets at some point (say, international markets, precious metals, real estate, bonds, whatever -- you'll want to figure out an appropriate asset allocation for yourself and your goals), but I don't think there's anything wrong with going 100% stocks via a diversified index fund for right now during the accumulation phase.  Just don't check your balance daily, and when the stock market does go down be HAPPY because you can buy more companies cheap.  :)

Best of luck!
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

KulshanGirl

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Re: The light, I sees it. Now what?
« Reply #9 on: February 09, 2013, 09:47:24 AM »
My 401k that I have at work (currently at $60k, adding 11% of income per year in one chunk in January of each year) is pretty well diversified, it has bonds, international. real estate, etc.  I took the canned fund for my age group and had our retirement  benefits guy sit with me and build something close, but a little more ambitious.  I need to revisit it, and keep seeking advice on what it should look like if I start going for the stock market with these other two.

My risk aversion was totally only tied to that goal.  I went through the 2008 crash with a little cringe, but I know that during those times I was buying at a lower cost.  I can stick it out.  And really, the free 11% bestowed on me at work protects potential losses of my own money, sort of.   And I am getting into the mindset of being financially secure, it is liberating.  :)  THe market can go up and down and I'll be fine.  Irritated, maybe, but fine. 

Thank you!  :)

KulshanGirl

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Re: The light, I sees it. Now what?
« Reply #10 on: February 12, 2013, 09:57:23 AM »
Okay, the final decision has been made!

The Roth will be VTTHX - the target retirement fund for my age. ($5000 to open for 2012, plus $5500 in monthly contributions in 2013)
The Taxable account will be VTSMX. ($3300 to open, plus $2000+ total in monthly contributions in 2013)
I will take the next opportunity to meet with the work 401k advisor and adjust my 401k to updated AA for my age.

Thank you for your help!  These feel just right.  :)  I'm a goll-durn investor! 

KulshanGirl

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Re: The light, I sees it. Now what?
« Reply #11 on: February 14, 2013, 09:28:17 AM »
I just logged into Mint and greeted my 12 new employees that I have gained since yesterday in my two new investments.  =D  No, I'm not typically a stock watcher.  I check into mint daily, but don't fret over the numbers.

But what the heck - my beautiful green bars of progress now have a giant red doombar for February, as I "purchased" these investments.  Why you gotta do me like that, Mint?  I almost want to go and exclude them so my graph looks all pretty again.  :/