Need some help with investing

[Goldy]

We were thinking of buying a house this year since we qualified as first time home buyers but decided to keep renting since its so affordable and none of the houses really excited us. Anyway, I had been saving for a downpayment and have 30k in cash but since we just signed another 1yr lease I want to do something else with some of it.

Here is our info.
26/26
140,000 combined income

45k in Roth
60k in 401k (6% match plus additional 6% of salary for profit sharing)
10k in scottrade
20k in company stock
30k cash
30k in other investments

Debt:

15k on 0.00% car loan
15k on 2% student loan
1.2k on 6.5% student loan (just paid off 13.8k on that and should have it paid off by end of week)

Bills
650 rent
150 utilities
400 food
500 vacation
500 misc

Right now we max out our roths and contribute 10% to our 401k. Is that enough?

All the money left over each month goes into a saving account and just sits there. Should I set up a reoccuring investment transfer to one of my vanguard accounts or am I saving enough?

Thanks for your help.

[disneysteve]

140,000 combined income

Right now we max out our roths and contribute 10% to our 401k. Is that enough?

All the money left over each month goes into a saving account and just sits there. Should I set up a reoccuring investment transfer to one of my vanguard accounts or am I saving enough?

Let me address this part of your post for now. I think your goal should be a minimum of 15% to retirement and 5% to other savings needs. With a 140K gross, that means 20% or 28K to savings. You are putting 10K in the Roths and 14K to the 401k for a total of 24K. If that "left over" money amounts to at least another 4K/year, then you are hitting that 20% target.

There is certainly nothing wrong with saving more than 20% if you are able. Personally, we earn close to what you earn and we save in the 24-25% range. Once you get rid of your remaining debt, you can funnel some of that money into your savings and bump up your percentage without changing your lifestyle any so it will be seamless.

[jpg7n16]

If those are all of your monthly expenses, you should probably keep $15-20k of the cash in cash, and invest the rest. I'd probably just check in periodically on my account and if it's over 20k, just transfer the excess to my brokerage (I have fidelity).

Normally, I'm all for paying down debt, but I can't make myself tell someone to accelerate payments on a 2% or 0% debt. Just pay the minimums until they're gone. But I like the paying off of the 6.5% student loan. Good work!

You could probably increase the 401k to 12% or 15%, but as a percentage of your overall income, you're doing just fine right now. (You're at just over 17%) Is that enough?? Really hard to say. Best to save a little too much, than a little too little.

Other topics:
Are you planning on saving for house later? Or another large purchase?
Any kids you're trying to put through school?
Do you guys have a will?
Do you have proper life/home/car/disability insurance?
What are you investing your ROTH/Scottrade/"other investments" in? And how soon are you needing that money?
What are you saving money towards??

edited to add: the reason for saving can help determine whether you should keep the extra in a retirement account or accessible in a brokerage account...

[jIM_Ohio]

We were thinking of buying a house this year since we qualified as first time home buyers but decided to keep renting since its so affordable and none of the houses really excited us. Anyway, I had been saving for a downpayment and have 30k in cash but since we just signed another 1yr lease I want to do something else with some of it.

Here is our info.
26/26
140,000 combined income

45k in Roth
60k in 401k (6% match plus additional 6% of salary for profit sharing)
10k in scottrade
20k in company stock
30k cash
30k in other investments

Debt:

15k on 0.00% car loan
15k on 2% student loan
1.2k on 6.5% student loan (just paid off 13.8k on that and should have it paid off by end of week)

Bills
650 rent
150 utilities
400 food
500 vacation
500 misc

Right now we max out our roths and contribute 10% to our 401k. Is that enough?

All the money left over each month goes into a saving account and just sits there. Should I set up a reoccuring investment transfer to one of my vanguard accounts or am I saving enough?

Thanks for your help.

The advice given by other 2 responses is decent.

I agree with Steve that putting 17% to retirement accounts now looks solid.
I consider paying down debt savings, so you hit the 20% guideline in my book.

I would really strongly think against moving money to a brokerage unless you are SURE with 100% certainty you do not want a house for 10 years. If you think sometime in next 10 years you want a house, then keep the savings liquid and make some minor portfolio changes while saving for the house.

Here is what I would do...

establish a timeline for house purchase, debt payoff, and savings growth (and retirement growth if you want to project out 20-30 years further).

Put some numbers on them and carry them thru...
like if debt is paid off in X years and then those payments are added to savings for Y years, you can get a house in Z years.
Then reverse that- add money to savings, then get house, then payoff debt
and see what happens soonest and what happens latest... with debt of those interest rates, it probably won't make a big difference (maybe 1-2 years) to reach a specific point where getting a house makes sense.

If that timeline is more than 10 years, consider moving money to a brokerage.
If the timeline is between 5-10 years, a brokerage might be in picture for you, but it would not be if it was me (5 years can see market crash and not recover, so that is my logic here).
If timeline is less than 5 years, clearly keeping it all in CDs, savings, and possibly I-bonds makes sense. If you buy bonds, there are maturity issues (holding bonds to maturity) or transaction cost issues (buying on secondary market). You would have to decide if the additional return warranted those extra issues (if it gets you 1-2% more than savings account, over 5 years its not that much money and you lose some liquidity for that cost too).

If money has a specific purpose with a specific timeline, avoid using equities.
If cash position is higher while saving for house (or waiting for house), consider lowering bond allocation inside 401ks and Roths while the savings sits there.

[Goldy]

First off, thanks for the great answers!

Disneysteve, is it fair to add the employee match and profit sharing money into the retirement percentage? If thats the case then we are saving 40800 for retirement which would be 29%.

As for the future, I think a house is a goal in the next 2-5 years and we will probably have kids within that same timeframe. Whats the best way to prepare for those types of events?

[disneysteve]

Disneysteve, is it fair to add the employee match and profit sharing money into the retirement percentage? If thats the case then we are saving 40800 for retirement which would be 29%.

No, and here's why. Part of the point of saving 20% is to get used to living on 80%. If you count the employer match, you could be living on more than 80%. In your particular case, it sounds like you wouldn't be, but as a general rule, you shouldn't count the match for that reason.

In some cases, though, the employer match is so generous that saving 15% beyond that would actually be too much going to retirement, so there are times when you need to take it into account. Still, you don't want to elevate your spending and lifestyle as a result because I think no matter what, living on 80% or less of income should be everyone's goal.

[jpg7n16]

I agree with Steve that putting 17% to retirement accounts now looks solid...

Thanks, but I'm not Steve

...you're doing just fine right now. (You're at just over 17%)

First off, thanks for the great answers!

Disneysteve, is it fair to add the employee match and profit sharing money into the retirement percentage? If thats the case then we are saving 40800 for retirement which would be 29%.

As for the future, I think a house is a goal in the next 2-5 years and we will probably have kids within that same timeframe. Whats the best way to prepare for those types of events?

I personally think the %-age figure is more about what you do with what you have control over. And yes you're getting a match, but you don't really control that. If your employer chooses to lower the match... there's nothing you can do. So I don't include emp match when I consider how much I'm saving.

Given the 2-5yr timeframe, you'll want to keep your 401k at 10%. Then increase your savings outside of retirement accounts. I'd probably put 25% in a money market account and 75% in a short-term bond mutual fund. (By short term I mean a fund with a duration of less than 5 years)

Something like:
WEFIX Weitz Short-Intermediate Income, mutual funds, quote, price - Morningstar Avg Eff Duration 2.1 Yrs... or
DFIGX DFA Intermediate Govt Fixed-Income I, mutual funds, quote, price - Morningstar Avg Eff Duration 4.7 Yrs
Or go 50/50 for somewhere inbetween.

If you don't like these, try using the bond screener at morningstar (here: Morningstar: Mutual Fund Screener)

With only changing criteria:
Cost and Purchase: Minimum purchase less than or equal to: $10,000 (or $3000)
Ratings and Risk: 5 star
Duration: Less than 5 years (the last option)

When the results come back, sort by lowest expense ratio. Then start lookin for a fund that suits you


For a children's college fund, if you decide to have children, there are some options for college savings to avoid taxes (Coverdell and 529 plans). You'd qualify for both. I know there's no income limit on the 529, and the Coverdell limit (I think) is around 200k. Invest a higher percentage of this fund in stocks, because the time need would be around 18-20 years. Anything over 5 years and it's best to use stocks.

[jIM_Ohio]

No, and here's why. Part of the point of saving 20% is to get used to living on 80%. If you count the employer match, you could be living on more than 80%. In your particular case, it sounds like you wouldn't be, but as a general rule, you shouldn't count the match for that reason.

In some cases, though, the employer match is so generous that saving 15% beyond that would actually be too much going to retirement, so there are times when you need to take it into account. Still, you don't want to elevate your spending and lifestyle as a result because I think no matter what, living on 80% or less of income should be everyone's goal.

Great response

[jIM_Ohio]

If you are looking for moderate risk places to put money for 1-10 year periods, here are my suggestions

RPSIX T Rowe Spectrum Income owns about 20% stocks and 80% cash/bonds
I own this fund as my only bond fund.

If you are thinking of house purchase in 4 years or less, this might be only type of investment I would consider other than cash.

PRPFX Permanent Portfolio
I own this fund in a taxable account as a place to put money I want to keep, but not sure why.

If you have a 4-8 year timeframe on the house, this is a decent fund to put money. Might be OK in short term (and might not) and unless gold drops in price, the likelihood of losing 10% in this fund is really low IMO. It owns about 35% stocks and 25% gold/silver and 40% bonds. It is as moderate as you get IMO.

If you have an 8+ year timeframe for house purchase, consider Wellesley (Vanguard fund). it has a 40-60 allocation (of stocks-bonds) and might also be appropriate for the 4-7 year timeframe as well- depends on your stomach for gold and silver I think.


Understand risk is determined many different ways. Most of my advice is based on time and liquidity for a situation like this.

If you have to wait 1-2 years to buy a house because the place you put money tanked (even a 10% loss is a bad thing) then that is really bad. You might miss a tax credit, price of house could change, the exact house you want might not be available 1-2 years later.

Because 1-2 years is a risk, and stocks do not always recover within 1-2 years, anything with more than 40% stocks is too risky IMO.

75% of the time a 40-60 portfolio is profitable (positive returns year over year). and that is where I draw the line...

First off, thanks for the great answers!

Disneysteve, is it fair to add the employee match and profit sharing money into the retirement percentage? If thats the case then we are saving 40800 for retirement which would be 29%.

As for the future, I think a house is a goal in the next 2-5 years and we will probably have kids within that same timeframe. Whats the best way to prepare for those types of events?

Prepare and kids in same sentence is an oxymoron

best thing to do is take a vacation or two you always wanted before kids arrive, and do some things which might be tough to do with kids.

I have twin 2 year olds and one is clearly going doing the terrible two's thing. He can tolerate about 90 minutes out in public before a meltdown could be predicted. His brother OTOH is a good kid (right now) but with twins, we need 2 parents anytime we do anything in a mall or similar, or its just too difficult (you should have seen me with 2 kids/1 parent at picture studio for mother's day present- it was funny to watch I am sure...)

So do what you want to do now
we said before kids were here that we would not change schedule because of kids
and we change our schedules all the time because kids are here- I do less of what I used to, wife does too- kids just compress schedules because of naps, feedings and their tolerance for being fussy.

Get the house before the kids
then build the nursery when you are in house...
choose based on a decent school district- even if private schools are in your cards, if you have to use public schools, make sure its a decent option.

[disneysteve]

And yes you're getting a match, but you don't really control that. If your employer chooses to lower the match... there's nothing you can do.

Good point. 401k matches are not guaranteed, as many people found out during the market turmoil the past couple of years. Many programs reduced or eliminated their matches. If you were counting on the match as part of your 15%, you would have suddenly found yourself contributing a lot less.

Do 15% on your own not counting the match. If, as I mentioned above, the match is so generous that adding 15% of your own money sends too much to retirement, divert some of that 15% to non-retirement investments. Just don't go out and spend it instead of saving it. Keep saving 20% total no matter what.