| runner343 |
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As a disclaimer: this thread is not intended to be me bragging, I simply am looking for financial advice as a young adult who is relatively new to investing. I am a 24 year old Ph.D. student and will be a student for at least a few more years. I get tuition paid for and make about $26,000 after taxes in stipend each year. I have worked every summer since middle school and saved a huge percentage of that money. As a result, I have ~$40,000 in a Roth IRA and ~$60,000 in a normal investment account as well as ~$3000 in my checking account. I have maxed out my IRA contribution every year for the last six years. The IRA and normal investment account are split about 60% Vanguard Total US Stock Fund, and 40% Total World Stock Fund. What should I be doing with the normal investment account? Is there another type of tax-advantaged account I should be contributing to instead? Does this stock split seem reasonable? Any other advice in general about where my money should be going? I generally live well within my means and find that on my current stipend I am able to save about $6000-8000 per year. Thanks for your advice/feedback. |
| voiceofreason |
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Financial advice on a running forum? The only way this seems relevant or appropriate is if you are asking which collegiate track and field team that is about to lose their program you want to donate some of that money to. |
| Kurt5 |
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Since Roth IRA dollars are all post-tax and you pay little income tax given your current income level, it does make sense to max out your Roth IRA every year. At your young age, you might consider taking on more risk. For example, instead of putting 40% into the Total World Stock Fund, you might consider putting maybe 25% in the Vanguard Developed Markets Index Fund (tracks the foreign benchmark MSCI EAFE Index) and 15% into the Vanguard Emerging markets Index Fund (tracks the MSCI Emerging Markets Index). Regarding US stocks, the Vanguard Total US Stock Fund is primarily a large cap fund. Instead of putting 60% into this fund, you might consider increasing an allocation to midcaps and smallcaps. Maybe put 30% in the Vanguard S&P 500 Index fund, 20% in the Vanguard Midcap Index fund, and 10% in the Vanguard Smallcap Index fund. There is a chart of historical returns here: http://financeandinvestments.blogspot.com/2012/02/1980-2011-stock-market-returns-for.html |
| yagtash |
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hmm, i cant really offer any advice, im just curious as to how you collected $100,000 in savings between summer jobs and a $26k/year stipend by age 24. |
| agip |
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sounds like you are doing well - carry on. I would say that at 24 you should be careful about putting too much of your money into tax advantaged accounts - at some point in the next decade you may get married or buy a house, or need money for a large purchase. If it is in a Roth, after 5 years you can get some out, but it gets complicated. So be sure you are saving for the next 10 yrs as well as the next 60. As for the stock allocation...100% stocks is very aggressive. You have to be sure that you would not sell anything if the market fell 80% - would you? Because if you did sell at the bottom, you would wreck the whole point of a buy and hold. For me, esp with the world all living on the edge and all...I would put at least 25% in bonds - that would stabilize the portfolio, should a disaster happen. Something like a total bond market index would work. If you wanted to get more sophisticated, I would take a look at David Swensen's uncommon success and replicate his strategy for yourself. Probbaly safer and certainly more diversified. |
| runner343 |
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I'm an engineer and was able to find jobs that payed ~$20-25/hr in college. 12weeks x 40hrs/week adds up quickly. Add on summer jobs from high school, a couple of years of Ph.D. stipend, and about 25% of that which is investment income, and you can get up there reasonably quickly if you save a lot. Are there any other sort of tax-advantaged accounts I can take advantage of besides the Roth? Maybe a normal IRA or some sort of college savings account for my yet unborn children...? |
| agip |
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If you have earned income you can contribute to an IRA. You can start a 529 now, put yourself as beneficiary and change it to your child when they arrive on the scene. |
| agip |
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but the alternate way to think about it is this: If you put money into an IRA, you will not pay taxes as it grows. HOWEVER, you will pay tax at high personal income tax rates when you take it out. Those rates could be 30-40%. If you buy a tax efficient fund like a vanguard stock fund, you will pay a small amount of tax on the dividends and cap gains, but only a very small amount. Very small. tens of dollars probably on a $5000 IRA contribution. BUT when you sell, you will pay tax at capital gains rates, which are usually less than half that of income tax. Plus you have total liquidity. |
| Flagpole |
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Mainly my comment to you is just "good going brother!" My advice (which you don't need to take at all as you've obviously done well): 1) You should have some money that is an "emergency fund" that is not in any of those investment accounts. It's OK for it to be your checking account as long as you don't ever dip below the proper amount. The amount should be 3-6 months of expenses. I suppose that $3,000 could actually be about right (3 months), but since you don't seem to have trouble saving money, you might want to bump that up a bit. The whole idea is to keep from going into any debt. If you had $8-10,000 in liquid funds that isn't in an investment account, that wouldn't be horrible. 2) Keep doing the saving and investing that you have been doing, BUT... 3) DO take some time and money to do fun things too brother! MOST people have trouble with the investing part of their lives and thus need guidance there; you seem to be ok there, so it is good for you to examine the FUN in your life. Are you having any? Is there something you'd like to do? Quite honestly with $100,000 invested at age 24, if you wanted to go take some expensive trips or something and really live it up a bit so that you're investing less, you have earned the right to do that (don't touch any of that investment money to do so of course). You're only in your 20s once. YOU have earned the right to go have some fun in your 20s; do that out of income only...keep those investments going. You're going to retire very wealthy some day.
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| Pass the Skittles |
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I like owning some gold, not just stock funds. You can buy the etf GLD for some diversity. In todays unstable world I think gold is a good long term buy. |
| Flagpole |
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OP, RUN away from this advice! |
| Pass the Skittles |
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OP, RUN away from this advice![/quote] For your taxable account, read this. http://www.dailyfinance.com/2012/04/16/buy-gold-the-tax-smart-way/ |
| smart person |
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You should buy some real estate, rural farmhouses, small lot farms etc. cheapest its ever been. Remember they can print money but you can't print land. |
| MonkeyMan |
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Here's a link to a forum frequented by people who actually know about investing. I suggest posting your question here: http://www.bogleheads.org/forum/index.php Best of luck. |
| gc |
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You are doing great! If you came in to see me as a client before I retired from financial planning, I'd say just keep on doing what you are doing. Consider flagpole's admonition to have some fun. You are only young once. What about taking a month off this summer to backpack through Europe? Hike the Grand Canyon... whatever. Consider something you might not be able to do once you're married with kids and tied to a full-time job. It doesn't have to cost a lot of money. Don't be a spectator of life in your youth. |
| Undecended Testicle |
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OP: Well done with the savings. I was like you at your age, although, I only had about half what you have saved at 24. Then about 27 I got an itch to start having some fun, so I did. My savings as a % of gross income decreased, but my dollar amount of savings went up because my pay check increased. After about three years of doing more traveling and eating quite well (dinner for two at $100 a dinner adds up) I have scaled back. Not because I needed to financially, but because I've kinda indulged myself enough to not desire either as much. Long story short, save while you can, because eventually you'll veer off course for a bit. However, your early start will make it pretty easy to indulge yourself for a while. BTW - I have a 401k question for the board. Does anyone know if your company match counts towards the $17k IRS contribution limit for 401k's? I've never had 401k matching from an employer before but just started a new job that will match 4% if I put in 8% of my salary. My 8% alone won't quite bring me to the $17K limit, however, the match would push me over the $17k limit. Anyone have some insight? |