100k milestone. Seeking evaluation

**jteezie** · 02-14-2011, 11:31 PM

I don't know how I ended up making 2 posts when trying to edit the original, but this is the updated thread. Please respond here

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**cschin4** · 02-15-2011, 02:54 AM

You are doing GREAT!

**disneysteve** · 02-15-2011, 05:35 AM

Looks good but I have a couple of questions. What are your monthly expenses? I don't see any cash reserves other than the 1K in the checking account. I'd recommend you create an emergency fund of 3-6 months worth of expenses. You can keep that in a money market account so it earns a little interest but the point of that is to avoid having to liquidate securities to pay bills.

What percentage of your income are you saving for retirement?

**bjl584** · 02-15-2011, 06:19 AM

Originally posted by jteezie View Post

Hello everyone,

Today is an awesome day. I decided to calculate my net work and apparently I passed $100k last month but didn't realize it. After doing tons of research on the ramifications of $100k, I came across this site and thought I'd ask for some feedback on my investments and such. I'm sure there are ways I can optimize future returns. Hopefully this helps to layout my story and provide a road map for others (on how not to fail in investing).

Age: 26
Income: 50k
Started saving age 19.
Independent since age 19
Own car
Rent
Bachelors Degree
Working on Masters

Breakdown:
Roth 401k - $49k
Roth IRA - $31k
TSP - $3k
Brokerage - 22k
Checking - 1k

Credit Cards - always pay in full
Student loans - 10k deferred govt subsidized interest deferred to 2015 (I actually consider this an awesome investment because it is an inflation arbitrage)

Investments breakdown (I am lumping into categories, i.e. SP500 Midcap + SP500 value = SP500. And yes I rounded everything by $1,000's and the sum of the below equals 115k but the above breakdown is only 103k. You can multiply everything by 103/115 if you want to be more precise):

FUNDS:
SP500 - 13
Russell - 13k
Fixed Income - 3k
Emerging markets - 12k
International - 11k
Cash - 1K

Individual stock/ETF:
AAPL - 7k
AAXJ - 2k
DBA - 6k
GOOG - 6k
PEY - 4k
PHO - 4k
QQQQ - 1k
SPY - 2k
UNG - 1k
AMD - 4k
JKS - 8k
OCTI - 1k
RIO - 4k
WXSP - 6k
TTM - 6k

Am I too heavily invested in individual stock? I obviously have a theory/strategy and my portfolio is skewed to reflects my preferences, but I could easily just buy funds instead of stock. What about corporate bonds? I'm not familiar with them, but have access to this investment type, and their high coupon rates seem appealing. Overall, I judge that I have stayed away from them because they feel unfamiliar. What about options/swaps/etc in volatile markets?

My stock are held mainly in the brokerage accounts and I see it as "fun" money, whereas the true retirement funds are more diversified. My brokerage is also very easy to use and I am able to transfer funds freely so I make sure to keep my checking low (as it offers no returns).

The post is a lot longer than I expected. Thank you for taking the time to read through, analyze and offer suggestions.

J1

You need more cash. 1K is way too low. Your investments look fine, but moving forward focus on building up a 6 month Emergency Fund.

**jteezie** · 02-15-2011, 07:50 AM

cash and expenses

My expenses on average are about $1k a month, though it's been trending up with discretionary spending :/, but I can easily just stop spending it.

I actually intentionally leave my cash at $1k because checking accounts yield no returns. My checking works mainly as a form of liquidity for me to deposit paychecks, pay credit cards and occasionally withdraw some cash (I pay for everything on credit but pay in full. Cash feels very archaic).

The benefit of Roth accounts are that they serves dually as a retirement and emergency fund. Any principal contributed can be withdrawn or borrowed against with no penalty. I don't intend to ever withdraw against it... plus I have a $1.2M worth of insurance policies to cover me for worst case scenarios, but it is there if I need.

I have a fairly large margin on my brokerage account, which I use as extra liquidity. So my emergency reserves in order based on liquidity is as follows:
cash (1k),
margin account (10k),
Brokerage (22k),
Roths (80k)

PS. I realize my margin account is why I seem to have more than 105k, but I'm a bit bullish right now.

Thanks again for the feedback thus far.

**bjl584** · 02-15-2011, 08:14 AM

Originally posted by jteezie View Post

My expenses on average are about $1k a month, though it's been trending up with discretionary spending :/, but I can easily just stop spending it.

I actually intentionally leave my cash at $1k because checking accounts yield no returns. My checking works mainly as a form of liquidity for me to deposit paychecks, pay credit cards and occasionally withdraw some cash (I pay for everything on credit but pay in full. Cash feels very archaic).

The benefit of Roth accounts are that they serves dually as a retirement and emergency fund. Any principal contributed can be withdrawn or borrowed against with no penalty. I don't intend to ever withdraw against it... plus I have a $1.2M worth of insurance policies to cover me for worst case scenarios, but it is there if I need.

I have a fairly large margin on my brokerage account, which I use as extra liquidity. So my emergency reserves in order based on liquidity is as follows:
cash (1k),
margin account (10k),
Brokerage (22k),
Roths (80k)

PS. I realize my margin account is why I seem to have more than 105k, but I'm a bit bullish right now.

Thanks again for the feedback thus far.

Don't think of a ROTH as an emergency source of cash. The point of an Emergency Fund is not to earn a high return as an investment will. The point of it is to hae security and a cash cushion should something happen in your life (loss of job, illness, catastrophic event, etc.) You should keep at least 6 months worth of expenses (in your case $6000) in cash in a high yield savings account that you have immediate access to. Cash is not archaic. Cash is King. If you don't believe me, try to go buy a car and negotiate price from a private owner without cash. The individual with cash in hand will always win when competing against someone else that has to finance the purchase.

**jpg7n16** · 02-15-2011, 08:39 AM

Originally posted by bjl584 View Post

Don't think of a ROTH as an emergency source of cash. The point of an Emergency Fund is not to earn a high return as an investment will. The point of it is to hae security and a cash cushion should something happen in your life (loss of job, illness, catastrophic event, etc.)

Agreed.

You should keep at least 6 months worth of expenses (in your case $6000) in cash in a high yield savings account that you have immediate access to. Cash is not archaic. Cash is King. If you don't believe me, try to go buy a car and negotiate price from a private owner without cash. The individual with cash in hand will always win when competing against someone else that has to finance the purchase.

Not agreed. You likely only need 3 months expenses held in cash. You're young and single, and if you ran into the emergency of emergencies, you have $22k available for sale in the brokerage account.

I'd up the cash to $3-4k (3 mos expenses plus working captial for bills and food and whatnot)

I'd really just suggest $3k.

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As far as your portfolio holdings goes, you are more diversified than you give yourself credit for.

You should not lump your ETF holdings in with individual stocks. SPY is a S&P500 index ETF, QQQQ, AAXJ, DBA, etc. several of your 'individual stocks' are actually exchange traded funds.

Though it doesn't really seem like you have a plan for your investing. Looks like you're just buying what sounds cool at the moment with whatever cash you have. And each time it's something different.

Have you considered just consistent disciplined investing into a single fund? Vanguard has really good target date funds that auto allocate for you as you near retirement.

**disneysteve** · 02-15-2011, 08:51 AM

Originally posted by jteezie View Post

The benefit of Roth accounts are that they serves dually as a retirement and emergency fund.

I have a fairly large margin on my brokerage account, which I use as extra liquidity.

Roth is not an emergency fund.
Debt (margin account) is not an emergency fund.

CASH is an emergency fund.

**bjl584** · 02-15-2011, 09:02 AM

Originally posted by jpg7n16 View Post

Agreed.

Not agreed. You likely only need 3 months expenses held in cash. You're young and single, and if you ran into the emergency of emergencies, you have $22k available for sale in the brokerage account.

I'd up the cash to $3-4k (3 mos expenses plus working captial for bills and food and whatnot)

I'd really just suggest $3k.

----------------------------------------------------------------

As far as your portfolio holdings goes, you are more diversified than you give yourself credit for.

You should not lump your ETF holdings in with individual stocks. SPY is a S&P500 index ETF, QQQQ, AAXJ, DBA, etc. several of your 'individual stocks' are actually exchange traded funds.

Though it doesn't really seem like you have a plan for your investing. Looks like you're just buying what sounds cool at the moment with whatever cash you have. And each time it's something different.

Have you considered just consistent disciplined investing into a single fund? Vanguard has really good target date funds that auto allocate for you as you near retirement.

I'd still keep 6 months just for extra security. 3 months goes by pretty fast, and I hate the idea of having to tap my brokerage account for cash. But that's just me.

**MonkeyMama** · 02-15-2011, 09:10 AM

I am not so opposed to the ROTH emergency fund idea. That said, only if you have the discipline to know what a true emergency is, and if the strategy helps you put more to retirement than you would otherwise. It's a strategy for when you are first starting out or when times are tight.

As such, I'd probably keep 3 months' living expenses in cash - high yield savings or something like that.

I would also keep 3 months' living expenses CASH in a ROTH. I consider that a catastrophic emergency fund. But that way you can have a larger cash emergency fund without neglecting your retirement. win-win. (Precisely what I do - honestly expect never to touch it, but feel better knowing it is there).

Why would you need more cash? Job loss? Medical bills? car maintenance or eventual replacement? I would focus on saving more cash, accordingly.

My personal experience has been that having $20k-$30k cash has bought me tremedous financial freedom and flexibility. I always aim to have $30k cash, accordingly. It is the gaping hole I see in your current situation.

**jpg7n16** · 02-15-2011, 09:40 AM

Originally posted by bjl584 View Post

I'd still keep 6 months just for extra security. 3 months goes by pretty fast, and I hate the idea of having to tap my brokerage account for cash. But that's just me.

I hate the idea of having 6 months expenses in cash, when I only need 3

I have no issues selling an investment from my brokerage account if the need arrives. 3 months of my expenses in cash is plenty for me. But that's probably just me too

Originally posted by MonkeyMama View Post

I am not so opposed to the ROTH emergency fund idea. That said, only if you have the discipline to know what a true emergency is, and if the strategy helps you put more to retirement than you would otherwise. It's a strategy for when you are first starting out or when times are tight.

I know this has been discussed before, but the main thing against the Roth EF plan is that if you pull out $10k for an emergency, you cannot replace that $10k and still make your $5k contribution for the year.

Once it's pulled out, you'll forever be a few years behind where you could have been.

But adding extra back to a checking account is super easy, and not restricted.

My personal experience has been that having $20k-$30k cash has bought me tremedous financial freedom and flexibility. I always aim to have $30k cash, accordingly. It is the gaping hole I see in your current situation.

I would go insane if I had that much in cash. I understand a need for some cash on hand, but above my 3 months, I can only think about all the investment earnings I'm missing out on.

Different strokes, I guess.

**disneysteve** · 02-15-2011, 09:56 AM

Originally posted by jteezie View Post

The benefit of Roth accounts are that they serves dually as a retirement and emergency fund. Any principal contributed can be withdrawn or borrowed against

No. You can not borrow against your Roth, which is one reason to stop thinking of the Roth as your EF. Once you withdraw the money, it is gone for good. You can't ever replace it.

Originally posted by MonkeyMama View Post

I would also keep 3 months' living expenses CASH in a ROTH. I consider that a catastrophic emergency fund.

Calling it a catastrophic EF is reasonable, but short of saving a life or avoiding homelessness, I wouldn't touch the Roth. You need a cash EF available for the usual types of emergencies, like a period of unemployment or an unexpected medical bill.

**disneysteve** · 02-15-2011, 10:01 AM

Originally posted by jpg7n16 View Post

I would go insane if I had that much in cash. I understand a need for some cash on hand, but above my 3 months, I can only think about all the investment earnings I'm missing out on.

It all depends on what your expenses are. Our monthly expenses run about $5,000. So a 6-month EF is about 25-30K. Obviously, if your monthly expenses are $2,000, you only need $12,000 and 30K would be way overkill.

**jpg7n16** · 02-15-2011, 10:31 AM

Originally posted by disneysteve View Post

It all depends on what your expenses are. Our monthly expenses run about $5,000. So a 6-month EF is about 25-30K. Obviously, if your monthly expenses are $2,000, you only need $12,000 and 30K would be way overkill.

Yeah that's what I'm sayin though. If my expenses were $5k/month, and I had $30k in cash, I'd go insane.

All I could think is 'well I only need $15k in cash, and this extra 15k could be invested at 8%, so that's around $1200 I'm missing out on. I could use $100/month.'

Right now my checking account is around $10k, and that feels too high. I have another $18k in a brokerage account outside of my retirement accounts. If you asked me to cash out $10k of my investments and transfer it to just sit in cash... yeah that's just not gonna happen

I'm one of those people who struggles to keep even the low end held in cash. My 3 months expenses is around $7500-8000.

100k milestone. Seeking evaluation