feedback on future plan/investing

[rigz]

hello - ive posted here before but have been doing some research trying to figure out the best plan for my wife and I going forward.

a little background: we are in our mid 30s, no kids (but are planning on having some). we both have stable jobs. she maxes out her TSP at work, we both max out our ROTH IRAs and I also have a SEP IRA that I started recently.

we are looking to make our money work for us - currently a lot of it is sitting in a bank account making like 0.2% (gross!). this money will not be needed for at least 10 years (we already bought a house, we have cars, no debt except for her student loan at about 3%, etc). we also have at least one years emergency fund and none of this money will touch that.

what I was thinking was putting in $500/month into a good vangaurd mutual fund. is this considered "dollar cost averaging?" (i think i got the term correct)

is this a good idea for our plan? is it too little/too much? i like vanguard so far as we have our ROTHs with them and they have good customer service, low fees, good selection, etc...

I havent quite figured out which mutual fund to go with yet however. still reading up on that.

any feedback or advice on this would be much appreciated and i can answer any other questions and give any other details that you may need. thanks!

[mcfroggin]

Hard to tell you if $500 is too much or too little. What is your combined income? How much do you have left over each month? Is your Roth already diversified?

[rigz]

Hard to tell you if $500 is too much or too little. What is your combined income? How much do you have left over each month? Is your Roth already diversified?

combined income = ~10k/month

left over each month = ~2k/month

our ROTHs are both fully invested in the vanguard target retirement funds so they should be diversified.

[jpg7n16]

Yes it is dollar cost averaging. DCA is investing the same amount of money at regular intervals. Which is what you're looking to do: $500 every month.


If she is maxing a TSP and you're contributing to a SEP, $500/month may be good. You want to strive over time to save between 15-20% of your combined income. Her $16,500 (max TSP contribution) plus another $500/month, or $6000/year = $22,500/year. (plus whatever you're doing to the SEP)

22,500 / 120,000 = 18.75%

So you guys are doing just fine. Keep up the good work!


On another note, you have too much in cash. What is your plan for all that cash?

[rigz]

Yes it is dollar cost averaging. DCA is investing the same amount of money at regular intervals. Which is what you're looking to do: $500 every month.

ok so it has nothing to do with how you invest...it just means investing a little each month instead of a lot at once?

If she is maxing a TSP and you're contributing to a SEP, $500/month may be good. You want to strive over time to save between 15-20% of your combined income. Her $16,500 (max TSP contribution) plus another $500/month, or $6000/year = $22,500/year. (plus whatever you're doing to the SEP)

22,500 / 120,000 = 18.75%

So you guys are doing just fine. Keep up the good work!

thanks. we also have $5000 each per year in our ROTH IRAs.

On another note, you have too much in cash. What is your plan for all that cash?

agreed - thats my main concern. we have waaaay too much sitting in cash making basically nothing. so would it be smart to put $500/month into a vanguard mutual fund? (again my goals are long term savings + minimal maintenance). we could probably go $1000/month and still be ok (our emergency fund is well funded and wont be touched).

is there any disadvantages i should be aware of in terms of putting $6000-$12000 per year into a mutual fund? i know i can lose money in it (always some risk) but for 5-10 years down the road, is it a smart move?

[rigz]

If she is maxing a TSP and you're contributing to a SEP, $500/month may be good. You want to strive over time to save between 15-20% of your combined income. Her $16,500 (max TSP contribution) plus another $500/month, or $6000/year = $22,500/year. (plus whatever you're doing to the SEP)

22,500 / 120,000 = 18.75%

forgot to ask, is that saving 15-20% for pre or post tax income?

[ez1]

agreed - thats my main concern. we have waaaay too much sitting in cash making basically nothing. so would it be smart to put $500/month into a vanguard mutual fund? (again my goals are long term savings + minimal maintenance). we could probably go $1000/month and still be ok (our emergency fund is well funded and wont be touched).

is there any disadvantages i should be aware of in terms of putting $6000-$12000 per year into a mutual fund? i know i can lose money in it (always some risk) but for 5-10 years down the road, is it a smart move?

If your money won't be needed for 10 years, it's pretty much a consensus that you should be investing it, not putting it in cash. Unfortunately, from everything I've read, there is a chance that your real return (return minus inflation) over the next 10-15 years in the stock market could be near zero or just a few percent annually. But stocks/equities are still the best game in town over the long term, and you do want to maximize your money.

In your case, you may want to decide what percent of the money should be in stocks (this would include US and worldwide combined), how much in bonds, how much in real estate (REIT) and how much in commodities. Can you buy ETFs outside of the Vanguard family? If so, just buy positions in the following funds that match accordingly (VT, BND, VNQ, DBC) - all are Vanguard except the last one.

[Petunia 100]

I would just like to add, you may want to consider buying something very tax efficient in your taxable account (such as total stock market), then buy tax inefficient things such as bonds and reits inside your Roths. Down the road, if you sell all or part of your taxable account, you may need to sell bonds and reits to buy more stocks inside your Roths. In other words, look at your Roths and taxable as one pot of money for now. Keep the tax inefficient assets inside the tax shelter of the Roths.

[rigz]

If your money won't be needed for 10 years, it's pretty much a consensus that you should be investing it, not putting it in cash. Unfortunately, from everything I've read, there is a chance that your real return (return minus inflation) over the next 10-15 years in the stock market could be near zero or just a few percent annually. But stocks/equities are still the best game in town over the long term, and you do want to maximize your money.

In your case, you may want to decide what percent of the money should be in stocks (this would include US and worldwide combined), how much in bonds, how much in real estate (REIT) and how much in commodities. Can you buy ETFs outside of the Vanguard family? If so, just buy positions in the following funds that match accordingly (VT, BND, VNQ, DBC) - all are Vanguard except the last one.

i really dont want to buy individual stocks (mostly because i have no idea what to get and dont want to manage my portfolio on a daily basis).

i dont even know what an ETF is nor a REIT. big time investing rookie here.

[jpg7n16]

ok so it has nothing to do with how you invest...it just means investing a little each month instead of a lot at once?

A little each month, a lot each month - the amount doesn't matter as long as it's the same amount into the same security. Investing $10k/month would still be dollar cost averaging.

Usually, the advice is to invest as much as you can as soon as you can. If you have a lump sum that you are trying to invest - and you already know what you want to invest in, it's better to invest all at once (less commissions, can't time the market, etc.)

thanks. we also have $5000 each per year in our ROTH IRAs.

If you are already doing $5k/year each to your Roth, you are maxed out and cannot do an additional $500/month to your Roth. You only get $5k/year each. Sorry. You'll have to invest that extra in a brokerage account.

agreed - thats my main concern. we have waaaay too much sitting in cash making basically nothing. so would it be smart to put $500/month into a vanguard mutual fund? (again my goals are long term savings + minimal maintenance). we could probably go $1000/month and still be ok (our emergency fund is well funded and wont be touched).

is there any disadvantages i should be aware of in terms of putting $6000-$12000 per year into a mutual fund? i know i can lose money in it (always some risk) but for 5-10 years down the road, is it a smart move?

Since this money may end up being held outside a retirement account, you may need to consult a financial planner, or tax advisor on how to invest it in a tax-efficient way.

Or if you've already decided that the target date funds work well for your situation, then yeah keep investing monthly as you get the extra money.

I think 12 months EF is overkill, and would prob move 1/2 of it into my investments. Are you a Suze Orman follower?

forgot to ask, is that saving 15-20% for pre or post tax income?

I go by pre tax amount. 15-20% of your pre tax income. With you already at 18+% before even considering the SEP contributions, your figure was high enough to not be a weakness in your plan - whether the income you gave us was pre or post tax. You're doing fine either way.

With 16,550 TSP + 10,000 Roths you'll be over 15% unless you make over $176k pretax. I'm not too worried about the amount you're saving each year

[rigz]

A little each month, a lot each month - the amount doesn't matter as long as it's the same amount into the same security. Investing $10k/month would still be dollar cost averaging.

thanks

If you are already doing $5k/year each to your Roth, you are maxed out and cannot do an additional $500/month to your Roth. You only get $5k/year each. Sorry. You'll have to invest that extra in a brokerage account.

sorry didnt mean to imply that i wanted to put the $500/month into the ROTH. i knew it was maxed out - i was trying to figure out where to put the $500/month. im not really sure where i should invest it in. i was thinking maybe a vanguard mutual fund?

Since this money may end up being held outside a retirement account, you may need to consult a financial planner, or tax advisor on how to invest it in a tax-efficient way.

Or if you've already decided that the target date funds work well for your situation, then yeah keep investing monthly as you get the extra money.

I think 12 months EF is overkill, and would prob move 1/2 of it into my investments. Are you a Suze Orman follower?

not really. just trying to be safe.

I go by pre tax amount. 15-20% of your pre tax income. With you already at 18+% before even considering the SEP contributions, your figure was high enough to not be a weakness in your plan - whether the income you gave us was pre or post tax. You're doing fine either way.

With 16,550 TSP + 10,000 Roths you'll be over 15% unless you make over $176k pretax. I'm not too worried about the amount you're saving each year

cool, thanks.