Beginner please help!

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Chris333
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Joined: Sun Jun 04, 2023 1:39 am

Beginner please help!

Post by Chris333 »

I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
Tom_T
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Re: Beginner please help!

Post by Tom_T »

Why not use a target date fund that has the mix you need? Vanguard Target Date 2040 is 80/20 stocks/bonds. Once you've accumulated enough, then you can use individual funds if you wish.

General rule is to put the highest growth asset (stocks) in a Roth because it can grow without you having to worry about taxes in the future when you withdraw. I don't think the Boglehead Guide advised to put bonds in a Roth. Traditional IRA, yes.
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AnnetteLouisan
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Re: Beginner please help!

Post by AnnetteLouisan »

Welcome, OP. Generally, proper “asset location” for tax efficiency says that bonds go in tax-deferred (a traditional IRA is an example of this) and equities go in taxable and tax free (a Roth IRA is tax free if you are under the income limits).

But the important things are that you started investing, and started young. So I wouldn’t change anything in monies already invested, especially if your tax bracket is low, just keep asset location in mind going forward with your future investments.
HeavyChevy
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Re: Beginner please help!

Post by HeavyChevy »

This detail unimportant when starting out.

3250 of VTSAX
3250 of VSMGX

Will net you 20% bonds while meeting minimums.
"It's not the best move, but it is a move." - GMHikaru
lakpr
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Re: Beginner please help!

Post by lakpr »

If you are on the Vanguard Brokerage platform you can buy ETFs which have no minimum purchase. You can buy VTI for stocks and BND for bonds. The only drawback I see is that Vanguard dies not allow fractional shares, so you may have about $10 or so left uninvested.

The previous poster's idea of splitting your contribution equally between two funds, one a 100% stock fund and the other a 60:40 stocks-to-bonds fund is also another workaround, which could fetch you that last dollar investing.

I recommend VBIAX (Vanguard Balanced Index fund) as an alternative to VSMGX (Vanguard Life Strategy Moderate Growth Fund). The Life Strategy funds have 40% of their stocks in international stocks, whereas Balanced index fund is purely domestic stocks and domestic bonds.
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retiredjg
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Re: Beginner please help!

Post by retiredjg »

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
Welcome to the forum. :happy

Putting bonds into a tax-deferred account is a good choice when you have more than one kind of account. At this point, you only have the one account and it is a Roth IRA. So put your chosen asset allocation into that one account. Use a target fund or Life Strategy fund that contains 80:20.

Do you have some kind of retirement plan at work? Maybe a 401k? 403b? 457b?
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retiredjg
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Re: Beginner please help!

Post by retiredjg »

To add...when first starting out, the whole idea of where to put what just does not work very well and it will not matter anyway. Ignore it for now. The only important thing right now is to keep adding money to a work plan and/or an IRA.

Later on, you can make some adjustments that will make a difference in the long run. But right now, they are irrelevant.
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Watty
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Re: Beginner please help!

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tibbitts
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Re: Beginner please help!

Post by tibbitts »

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
The more important decision when you're starting out is whether a Traditional or Roth is more appropriate for you, not the placement of fixed income or stocks into one or the other. Unfortunately which type of IRA is most appropriate is a complicated question and nobody can answer that without more information - and nobody can answer it definitively without knowing more about the future than any of us do. Unfortunately, sometimes even when you do what seems to be most appropriate according to what has most often worked best in the past, that doesn't work out for you.
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Beensabu
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Re: Beginner please help!

Post by Beensabu »

Chris333 wrote: Sun Jun 04, 2023 1:45 am Am I correct that it recommends holding bonds in a traditional IRA and not ROTH?
Don't worry about that right now.

If the Roth IRA is your only investment account, and you want a 80/20 AA, then go ahead and hold some bonds in your Roth IRA.
right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20.
VASGX (Vanguard LifeStrategy Growth Fund) is 80/20, with 40% of stocks and 30% of bonds international. $3k minimum investment.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
lakpr
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Re: Beginner please help!

Post by lakpr »

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RetiredAL
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Re: Beginner please help!

Post by RetiredAL »

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
HeavyChevy wrote: Sun Jun 04, 2023 6:33 am This detail unimportant when starting out.

3250 of VTSAX
3250 of VSMGX

Will net you 20% bonds while meeting minimums.
+1 to HeavyChevy's concept.

OP -- It not about instantly being 80/20. You work yourself over time to get to 80/20.

Year 1: 3250 Equities & 3250 to Bonds.
Year 2: add 6500 to Equities - you are now 75/25 and getting close.
Year 3: Add 650 to Bonds, rest to Equities - you are now 80/20.

It's really no different than doing an annual re-balance to maintain your desired allocation. Over time, your allocation is likely to change for various reasons anyway.

There is no "perfect" investment plan, but there are lots of "good-enough" plans. It's been said the one's biggest self-inflicted performance issue is likely to be one's chasing around trying to find the perfect plan.
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upekkha
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Re: Beginner please help!

Post by upekkha »

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
Welcome to the forum, OP, and congratulations on starting this journey so early.

Based on your post, I concur with prior recommendations of investing in a target date fund with an 80/20 stocks to bonds AA. This will provide your desired AA while allowing you time to continue saving and further research your options while developing your financial plan.
"The greatest enemy of a good plan is the dream of a perfect plan." - Carl Von Clausewitz
Jeepergeo
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Re: Beginner please help!

Post by Jeepergeo »

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
Do you have access to a 401(k) at work? If so, you might be able to build your bond allocation via payroll deduction. Many 401k investment options don't have the $3K minimum requirement.
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Chris333
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Re: Beginner please help!

Post by Chris333 »

Jeepergeo wrote: Sun Jun 04, 2023 9:42 pm
Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
Do you have access to a 401(k) at work? If so, you might be able to build your bond allocation via payroll deduction. Many 401k investment options don't have the $3K minimum requirement.
I do have a 403b too. I tried to sort through that and take myself out of the high ER funds they automatically put me in. They had me in like 15 different funds. I was able to do 80/20 in that account I think.


Thank you all so much for the replies you guys are super helpful just like the book said!
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ruralavalon
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Re: Beginner please help!

Post by ruralavalon »

Welcome to the forum :D .

It's good to see that you are starting early, using tax-advantaged accounts, understand the importance of low costs, and are reading the Bogleheads' Guide to Investing.

In my opinion an asset allocation of 80/20 is reasonable.

You are certainly starting off on the right foot.

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
In your IRA you could use Vanguard LifeStrategy Growth Fund (VASGX) ER 0.14%, which has 80% stocks and 20% bonds.

Chris333 wrote: Mon Jun 05, 2023 9:33 am
Jeepergeo wrote: Sun Jun 04, 2023 9:42 pm
Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
Do you have access to a 401(k) at work? If so, you might be able to build your bond allocation via payroll deduction. Many 401k investment options don't have the $3K minimum requirement.
I do have a 403b too. I tried to sort through that and take myself out of the high ER funds they automatically put me in. They had me in like 15 different funds. I was able to do 80/20 in that account I think.


Thank you all so much for the replies you guys are super helpful just like the book said!
What funds do you currently use In your 403b account? What other funds are offered in your employer's plan? Please give fund names, tickers and expense ratios.

How much (in dollars) do you contribute annually to your IRA and how much annually to your 403b account. The maximum annual contribution to an IRA is $6.5k, and the maximum annual employee deferral to a 403b is $22.5k.

Establishing a high rate of contributions is the most important investing decision you can make, forum discussion.

For anyone just starting to invest I suggest reading both Dr. Bernstein's short pdf book If You Can, and the wiki article "Bogleheads® investment philosophy" see the link in my signature below.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
Chris333
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Re: Beginner please help!

Post by Chris333 »

ruralavalon wrote: Mon Jun 05, 2023 9:52 am Welcome to the forum :D .

It's good to see that you are starting early, using tax-advantaged accounts, understand the importance of low costs, and are reading the Bogleheads' Guide to Investing.

In my opinion an asset allocation of 80/20 is reasonable.

You are certainly starting off on the right foot.

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
In your IRA you could use Vanguard LifeStrategy Growth Fund (VASGX) ER 0.14%, which has 80% stocks and 20% bonds.

Chris333 wrote: Mon Jun 05, 2023 9:33 am
Jeepergeo wrote: Sun Jun 04, 2023 9:42 pm
Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
Do you have access to a 401(k) at work? If so, you might be able to build your bond allocation via payroll deduction. Many 401k investment options don't have the $3K minimum requirement.
I do have a 403b too. I tried to sort through that and take myself out of the high ER funds they automatically put me in. They had me in like 15 different funds. I was able to do 80/20 in that account I think.


Thank you all so much for the replies you guys are super helpful just like the book said!
What funds do you currently use In your 403b account? What other funds are offered in your employer's plan? Please give fund names, tickers and expense ratios.

How much (in dollars) do you contribute annually to your IRA and how much annually to your 403b account. The maximum annual contribution to an IRA is $6.5k, and the maximum annual employee deferral to a 403b is $22.5k.

Establishing a high rate of contributions is the most important investing decision you can make, forum discussion.

For anyone just starting to invest I suggest reading both Dr. Bernstein's short pdf book If You Can, and the wiki article "Bogleheads® investment philosophy" see the link in my signature below.
Right now I contribute 6% (~ $4200) to my 403b to receive the employee match. I read Simple Path To Wealth before Bogleheads book (which I'm still reading) which suggested to just put enough to get employee match and then open an IRA of your own to invest the rest of your money so you'll have more control over which funds you invest in. So far I have not opened the additional IRA so just have the 403b and roth IRA (which I contributed $6,500 to).

The 403b has really confused me with their funds. Like I said it had me in like 15 different funds. I tried to go through and pick ones at least that had lower expense ratios. I'm sure what I picked probably isn't the best but I wanted to at least get something going with the ability to alter it as I learn more about what to do. here is what I picked:

5% bonds - VBTLX (ER 0.05)
70% Large Cap - VIIIX (ER 0.02)
10% Mid/Small cap - VEMPX (ER 0.04)
15% International - VDIPX (ER 0.04)

is this ok? The VEMPX just has a 2 star overall morningstar rating. Is that something to be concerned about?

Here's the other funds that are available through my work plan:

Image

link if the image doesn't work, hope this does.

https://protect-us.mimecast.com/s/V3fEC ... =imgur.com

Thanks for the help!
lakpr
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Re: Beginner please help!

Post by lakpr »

Whether you intended it or not, the 7:1 split between large cap and extended market actually approximates the total stock market index for the US.

Coupled with 15% allocation to international and 5% to bonds, you really do have close to ideal portfolio.

The only quibble here is that your 403b is 95:5 for stocks to bonds, not the 80:20 you said you prefer in the first post. If 80:20 is really what you are particular about, then I would do 20% to bonds, 15% to international, 55% to large cap and 10% extended market.

Do not worry about Morning Star ratings. They only look short term, recent returns and assign stars based on that
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retiredjg
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Re: Beginner please help!

Post by retiredjg »

Chris333 wrote: Thu Jun 08, 2023 3:52 am Right now I contribute 6% (~ $4200) to my 403b to receive the employee match. I read Simple Path To Wealth before Bogleheads book (which I'm still reading) which suggested to just put enough to get employee match and then open an IRA of your own to invest the rest of your money so you'll have more control over which funds you invest in. So far I have not opened the additional IRA so just have the 403b and roth IRA (which I contributed $6,500 to).
The Roth IRA is the IRA to use to supplement your work plan. And this approach is fine, especially when younger and with lower income.


5% bonds - VBTLX (ER 0.05)
70% Large Cap - VIIIX (ER 0.02)
10% Mid/Small cap - VEMPX (ER 0.04)
15% International - VDIPX (ER 0.04)
This is fine other than it is not the 80:20 you said you wanted.

Eventually, you want to see the 403b and the Roth IRA as one portfolio. Right now, when accounts are small, it can be easier to just "mirror" the same asset allocation in each of the two accounts.

Keep adding money. You are headed in the right direction.
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ruralavalon
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Re: Beginner please help!

Post by ruralavalon »

What is your tax bracket, both federal and state?

Chris333 wrote: Thu Jun 08, 2023 3:52 am
ruralavalon wrote: Mon Jun 05, 2023 9:52 am Welcome to the forum :D .

It's good to see that you are starting early, using tax-advantaged accounts, understand the importance of low costs, and are reading the Bogleheads' Guide to Investing.

In my opinion an asset allocation of 80/20 is reasonable.

You are certainly starting off on the right foot.

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
In your IRA you could use Vanguard LifeStrategy Growth Fund (VASGX) ER 0.14%, which has 80% stocks and 20% bonds.

Chris333 wrote: Mon Jun 05, 2023 9:33 am
Jeepergeo wrote: Sun Jun 04, 2023 9:42 pm
Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
Do you have access to a 401(k) at work? If so, you might be able to build your bond allocation via payroll deduction. Many 401k investment options don't have the $3K minimum requirement.
I do have a 403b too. I tried to sort through that and take myself out of the high ER funds they automatically put me in. They had me in like 15 different funds. I was able to do 80/20 in that account I think.


Thank you all so much for the replies you guys are super helpful just like the book said!
What funds do you currently use In your 403b account? What other funds are offered in your employer's plan? Please give fund names, tickers and expense ratios.

How much (in dollars) do you contribute annually to your IRA and how much annually to your 403b account. The maximum annual contribution to an IRA is $6.5k, and the maximum annual employee deferral to a 403b is $22.5k.

Establishing a high rate of contributions is the most important investing decision you can make, forum discussion.

For anyone just starting to invest I suggest reading both Dr. Bernstein's short pdf book If You Can, and the wiki article "Bogleheads® investment philosophy" see the link in my signature below.
Right now I contribute 6% (~ $4200) to my 403b to receive the employee match. I read Simple Path To Wealth before Bogleheads book (which I'm still reading) which suggested to just put enough to get employee match and then open an IRA of your own to invest the rest of your money so you'll have more control over which funds you invest in. So far I have not opened the additional IRA so just have the 403b and roth IRA (which I contributed $6,500 to).

The 403b has really confused me with their funds. Like I said it had me in like 15 different funds. I tried to go through and pick ones at least that had lower expense ratios. I'm sure what I picked probably isn't the best but I wanted to at least get something going with the ability to alter it as I learn more about what to do. here is what I picked:

5% bonds - VBTLX (ER 0.05)
70% Large Cap - VIIIX (ER 0.02)
10% Mid/Small cap - VEMPX (ER 0.04)
15% International - VDIPX (ER 0.04)

is this ok? The VEMPX just has a 2 star overall morningstar rating. Is that something to be concerned about?

Here's the other funds that are available through my work plan:

Image

link if the image doesn't work, hope this does.

https://protect-us.mimecast.com/s/V3fEC ... =imgur.com

Thanks for the help!
Your employer's 403b plan offers excellent very diversified index funds with very low expense ratios, you are fortunate.

I personally would not bother with using Vanguard Extended Market Index InstlPlus (VEMPX), there is nothing wrong with the fund, I just believe it is unnecessary. I think the other funds you have chosen are excellent choices.

If you have additional money you can invest in addition to funding your Roth IRA, then contribute more to your 403b account. Don't limit yourself to contributing just enough to get the employer match. The maximum annual employee deferral to a 403b is $22.5k. The employer match does not count toward that employee limit, it's extra.

I suggest doing the highest rate of contributions that you can comfortably sustain.

What is your tax bracket, both federal and state? What is your tax filing status? What is your age? What is your profession or occupation?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Beginner please help!

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Chris333 wrote: Thu Jun 08, 2023 3:52 am
Right now I contribute 6% (~ $4200) to my 403b to receive the employee match. I read Simple Path To Wealth before Bogleheads book (which I'm still reading) which suggested to just put enough to get employee match and then open an IRA of your own to invest the rest of your money so you'll have more control over which funds you invest in. So far I have not opened the additional IRA so just have the 403b and roth IRA (which I contributed $6,500 to).
To make sure you understand if you have maxed out the roth ira there is no more space for a traditional ira.
Topic Author
Chris333
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Re: Beginner please help!

Post by Chris333 »

ruralavalon wrote: Thu Jun 08, 2023 10:45 am What is your tax bracket, both federal and state?

Chris333 wrote: Thu Jun 08, 2023 3:52 am
ruralavalon wrote: Mon Jun 05, 2023 9:52 am Welcome to the forum :D .

It's good to see that you are starting early, using tax-advantaged accounts, understand the importance of low costs, and are reading the Bogleheads' Guide to Investing.

In my opinion an asset allocation of 80/20 is reasonable.

You are certainly starting off on the right foot.

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
In your IRA you could use Vanguard LifeStrategy Growth Fund (VASGX) ER 0.14%, which has 80% stocks and 20% bonds.

Chris333 wrote: Mon Jun 05, 2023 9:33 am
Jeepergeo wrote: Sun Jun 04, 2023 9:42 pm

Do you have access to a 401(k) at work? If so, you might be able to build your bond allocation via payroll deduction. Many 401k investment options don't have the $3K minimum requirement.
I do have a 403b too. I tried to sort through that and take myself out of the high ER funds they automatically put me in. They had me in like 15 different funds. I was able to do 80/20 in that account I think.


Thank you all so much for the replies you guys are super helpful just like the book said!
What funds do you currently use In your 403b account? What other funds are offered in your employer's plan? Please give fund names, tickers and expense ratios.

How much (in dollars) do you contribute annually to your IRA and how much annually to your 403b account. The maximum annual contribution to an IRA is $6.5k, and the maximum annual employee deferral to a 403b is $22.5k.

Establishing a high rate of contributions is the most important investing decision you can make, forum discussion.

For anyone just starting to invest I suggest reading both Dr. Bernstein's short pdf book If You Can, and the wiki article "Bogleheads® investment philosophy" see the link in my signature below.
Right now I contribute 6% (~ $4200) to my 403b to receive the employee match. I read Simple Path To Wealth before Bogleheads book (which I'm still reading) which suggested to just put enough to get employee match and then open an IRA of your own to invest the rest of your money so you'll have more control over which funds you invest in. So far I have not opened the additional IRA so just have the 403b and roth IRA (which I contributed $6,500 to).

The 403b has really confused me with their funds. Like I said it had me in like 15 different funds. I tried to go through and pick ones at least that had lower expense ratios. I'm sure what I picked probably isn't the best but I wanted to at least get something going with the ability to alter it as I learn more about what to do. here is what I picked:

5% bonds - VBTLX (ER 0.05)
70% Large Cap - VIIIX (ER 0.02)
10% Mid/Small cap - VEMPX (ER 0.04)
15% International - VDIPX (ER 0.04)

is this ok? The VEMPX just has a 2 star overall morningstar rating. Is that something to be concerned about?

Here's the other funds that are available through my work plan:

Image

link if the image doesn't work, hope this does.

https://protect-us.mimecast.com/s/V3fEC ... =imgur.com

Thanks for the help!
Your employer's 403b plan offers excellent very diversified index funds with very low expense ratios, you are fortunate.

I personally would not bother with using Vanguard Extended Market Index InstlPlus (VEMPX), there is nothing wrong with the fund, I just believe it is unnecessary. I think the other funds you have chosen are excellent choices.

If you have additional money you can invest in addition to funding your Roth IRA, then contribute more to your 403b account. Don't limit yourself to contributing just enough to get the employer match. The maximum annual employee deferral to a 403b is $22.5k. The employer match does not count toward that employee limit, it's extra.

I suggest doing the highest rate of contributions that you can comfortably sustain.

What is your tax bracket, both federal and state? What is your tax filing status? What is your age? What is your profession or occupation?
If I remove VEMPX where would you suggest I reallocate that % to?

I'm going to increase my 403b contributions. I thought I could do traditional IRA too but as placeholder advised I can't contribute to traditional if I've maxed out roth IRA.

I'm normally in 22% federal bracket but think I might (?) be in the 24% this year because of bonuses (unless I increase 403b contributions I suppose). I'll be back to 22% by next year. My state income tax I guess is 5% (?) just googling it. I'm in AL so taxes are low. I'm 32, single filer

thanks so much for the help!
lakpr
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Re: Beginner please help!

Post by lakpr »

If you are going to be in 24% tax bracket, it is almost a no brainer to max out the 401k/403b and Roth IRA. To be in 24% tax bracket as single you should be earning more than $100k and you can certainly allocate $29k ($22,500 + $6,500) to them and have plenty left over for living expenses

Reallocate VEMPX allocation to VIIIX.
hkcj
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Re: Beginner please help!

Post by hkcj »

lakpr wrote: Sun Jun 04, 2023 8:20 am If you are on the Vanguard Brokerage platform you can buy ETFs which have no minimum purchase. You can buy VTI for stocks and BND for bonds. The only drawback I see is that Vanguard dies not allow fractional shares, so you may have about $10 or so left uninvested.
Vanguard now does allow fractional shares in its own ETFs.
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ruralavalon
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Re: Beginner please help!

Post by ruralavalon »

Chris333 wrote: Wed Jun 14, 2023 2:04 amIf I remove VEMPX where would you suggest I reallocate that % to?

I'm going to increase my 403b contributions. I thought I could do traditional IRA too but as placeholder advised I can't contribute to traditional if I've maxed out roth IRA.

I'm normally in 22% federal bracket but think I might (?) be in the 24% this year because of bonuses (unless I increase 403b contributions I suppose). I'll be back to 22% by next year. My state income tax I guess is 5% (?) just googling it. I'm in AL so taxes are low. I'm 32, single filer
Reallocate the extended market fund to Vanguard Institutional Index Instl Pl (a S&P 500 index fund) (VIIIX) ER 0.02%.

Your tax bracket reinforces idea that maximum annual employee deferrals to your 403b account are a good idea. Your employer's plan offers excellent very diversified index funds with very low expense ratios, you are fortunate. Make the maximum possible use of that plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Chris333
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Re: Beginner please help!

Post by Chris333 »

lakpr wrote: Wed Jun 14, 2023 7:43 am If you are going to be in 24% tax bracket, it is almost a no brainer to max out the 401k/403b and Roth IRA. To be in 24% tax bracket as single you should be earning more than $100k and you can certainly allocate $29k ($22,500 + $6,500) to them and have plenty left over for living expenses

Reallocate VEMPX allocation to VIIIX.
I think I will likely be over $95,375 this year which is (according to my google search) the cut off for the 24% bracket. I would be just barely over it and its not a sure thing. Nevertheless I increased my 403b substantially and reallocated VEMPX to VIIIX. Thanks for your help!
Topic Author
Chris333
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Joined: Sun Jun 04, 2023 1:39 am

Re: Beginner please help!

Post by Chris333 »

ruralavalon wrote: Wed Jun 14, 2023 10:15 am
Chris333 wrote: Wed Jun 14, 2023 2:04 amIf I remove VEMPX where would you suggest I reallocate that % to?

I'm going to increase my 403b contributions. I thought I could do traditional IRA too but as placeholder advised I can't contribute to traditional if I've maxed out roth IRA.

I'm normally in 22% federal bracket but think I might (?) be in the 24% this year because of bonuses (unless I increase 403b contributions I suppose). I'll be back to 22% by next year. My state income tax I guess is 5% (?) just googling it. I'm in AL so taxes are low. I'm 32, single filer
Reallocate the extended market fund to Vanguard Institutional Index Instl Pl (a S&P 500 index fund) (VIIIX) ER 0.02%.

Your tax bracket reinforces idea that maximum annual employee deferrals to your 403b account are a good idea. Your employer's plan offers excellent very diversified index funds with very low expense ratios, you are fortunate. Make the maximum possible use of that plan.
Thanks so much! I substantially increased my 403b contribution and reallocated the extended market fund to VIIIX. I'm probably very close to maxing out my 403b as its set now but not sure if I'll hit it exactly because I'm not exactly sure how much I'll end up making. Will it let me over contribute to the 403b above the $22,500 limit? or will it automatically stop it? What happens if it goes above the limit? (hoping it doesn't allow that). If I'm under the limit my plan is to make larger donations the last few months (or month) before the new year to try and hit it exactly. Will that cause any issues? Don't think it would require too significant of an increase with what I have my contributions set at now.

Thank you so much for your help ruralavalon! The Bogleheads Guide book said these forums were nice and helpful but my expectations have been far exceeded!

I could kick myself for not paying this stuff any attention until my 30s. :oops:

again thank you all so much for your help!
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retiredjg
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Re: Beginner please help!

Post by retiredjg »

Chris333 wrote: Thu Jun 15, 2023 2:20 am
lakpr wrote: Wed Jun 14, 2023 7:43 am If you are going to be in 24% tax bracket, it is almost a no brainer to max out the 401k/403b and Roth IRA. To be in 24% tax bracket as single you should be earning more than $100k and you can certainly allocate $29k ($22,500 + $6,500) to them and have plenty left over for living expenses

Reallocate VEMPX allocation to VIIIX.
I think I will likely be over $95,375 this year which is (according to my google search) the cut off for the 24% bracket. I would be just barely over it and its not a sure thing. Nevertheless I increased my 403b substantially and reallocated VEMPX to VIIIX. Thanks for your help!
What number are you looking at?

The tax tables are based on "taxable income", line 15 on your tax return. That is after deducting for employer sponsored health insurance, contributng to the 401k, and deductions.

If you compared your salary to the tax tables, you got the wrong answer.
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ruralavalon
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Location: Illinois

Re: Beginner please help!

Post by ruralavalon »

Chris333 wrote: Thu Jun 15, 2023 2:34 am
ruralavalon wrote: Wed Jun 14, 2023 10:15 am
Chris333 wrote: Wed Jun 14, 2023 2:04 amIf I remove VEMPX where would you suggest I reallocate that % to?

I'm going to increase my 403b contributions. I thought I could do traditional IRA too but as placeholder advised I can't contribute to traditional if I've maxed out roth IRA.

I'm normally in 22% federal bracket but think I might (?) be in the 24% this year because of bonuses (unless I increase 403b contributions I suppose). I'll be back to 22% by next year. My state income tax I guess is 5% (?) just googling it. I'm in AL so taxes are low. I'm 32, single filer
Reallocate the extended market fund to Vanguard Institutional Index Instl Pl (a S&P 500 index fund) (VIIIX) ER 0.02%.

Your tax bracket reinforces idea that maximum annual employee deferrals to your 403b account are a good idea. Your employer's plan offers excellent very diversified index funds with very low expense ratios, you are fortunate. Make the maximum possible use of that plan.
Thanks so much! I substantially increased my 403b contribution and reallocated the extended market fund to VIIIX. I'm probably very close to maxing out my 403b as its set now but not sure if I'll hit it exactly because I'm not exactly sure how much I'll end up making. Will it let me over contribute to the 403b above the $22,500 limit? or will it automatically stop it? What happens if it goes above the limit? (hoping it doesn't allow that). If I'm under the limit my plan is to make larger donations the last few months (or month) before the new year to try and hit it exactly. Will that cause any issues? Don't think it would require too significant of an increase with what I have my contributions set at now.

Thank you so much for your help ruralavalon! The Bogleheads Guide book said these forums were nice and helpful but my expectations have been far exceeded!

I could kick myself for not paying this stuff any attention until my 30s. :oops:

again thank you all so much for your help!
The 30s is not a late start, don't kick yourself too hard.

You have to keep track of contributions, so that late in the year you do not overcontribute. (My income was always highly erratic, and one year I did overshoot.)
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
abc132
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Re: Beginner please help!

Post by abc132 »

Chris333 wrote: Sun Jun 04, 2023 1:45 am I’m 30+ years away from retirement and just starting to invest. I am reading bogleheads guide to investment. Am I correct that it recommends holding bonds in a traditional IRA and not ROTH? right now I just have opened a Roth with vanguard. I wanted to do 80/20 stocks to bonds but their bond mutual fund said $3k minimum investment. Well since I can only invest $6500 it wouldn’t be possible to do 80/20. Should I change the Roth to my 20% bonds and then open a traditional IRA to invest my 80% stocks? Or am I wrong about the book recommending bonds to be held in Roth?

Thanks!
I am very pleased I contributed to a Roth IRA early on. I paid more taxes in my youth but now I can better manage my tax and benefit situation. The longer money is invested in Roth the more it benefits me. I have better access to Roth money such as first time home purchase or getting my contributions (not gains) back without penalty. In short Roth early on gives me flexibility to manage my financial situation.

By mid-career I have switched to mostly traditional contributions to manage my tax bracket. The traditional account is great because I lower my taxes while working, but the down side is that if this grows too much I will pay a lot of extra taxes later in life. By keeping bonds here I limit some of the growth and by waiting until mid career I prevent this account from getting too big.

As to what to do now - keep it simple. You should have an emergency fund along with one thing you invest in for the next 10 years. I think a target date fund with a date 30 years from now is a good choice. They will figure out the appropriate amount of stocks and bonds and this will change as you get closer to retirement. You likely have access to this in your work plan at a reasonable fee. If you can, automate your investment. You should be on cruise control and establish your ability to save and live below your means without complicating your investment choices. If you are truly exceptional you can pick the individual funds for lower fees (0.05% vs 0.20% for target date). Most people that tend to try and pick winning funds end up underperforming by about 1% per year so you should be mimicking something close to what the target date fund is doing for lower fees.

After 10 years of investing without making any changes you can start to think about making changes to your investment choices. You can determine if you want more money in taxable or if you want to start building up your traditional account in addition to or in place of your Roth contributions. You can complicate the process a bit or you can keep it simple. As long as you keep investing over time with low fees you are very likely to succeed.

Some people keep the same stock/bond ratio in all accounts and some people try to keep more bonds in traditional. I am 60/40 stock/bond in traditional and 98/2 stock/bond in Roth. They are close to equal in value so I am at 80/20 stock/bond for the entire portfolio.
Topic Author
Chris333
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Joined: Sun Jun 04, 2023 1:39 am

Re: Beginner please help!

Post by Chris333 »

retiredjg wrote: Thu Jun 15, 2023 6:33 am
Chris333 wrote: Thu Jun 15, 2023 2:20 am
lakpr wrote: Wed Jun 14, 2023 7:43 am If you are going to be in 24% tax bracket, it is almost a no brainer to max out the 401k/403b and Roth IRA. To be in 24% tax bracket as single you should be earning more than $100k and you can certainly allocate $29k ($22,500 + $6,500) to them and have plenty left over for living expenses

Reallocate VEMPX allocation to VIIIX.
I think I will likely be over $95,375 this year which is (according to my google search) the cut off for the 24% bracket. I would be just barely over it and its not a sure thing. Nevertheless I increased my 403b substantially and reallocated VEMPX to VIIIX. Thanks for your help!
What number are you looking at?

The tax tables are based on "taxable income", line 15 on your tax return. That is after deducting for employer sponsored health insurance, contributng to the 401k, and deductions.

If you compared your salary to the tax tables, you got the wrong answer.
Gotcha, you're right I didn't subtract my health insurance or and 403 contributions when determining my bracket. With those accounted for I should be in 22% I think. Thanks
Topic Author
Chris333
Posts: 9
Joined: Sun Jun 04, 2023 1:39 am

Re: Beginner please help!

Post by Chris333 »

ruralavalon wrote: Thu Jun 15, 2023 9:21 am
Chris333 wrote: Thu Jun 15, 2023 2:34 am
ruralavalon wrote: Wed Jun 14, 2023 10:15 am
Chris333 wrote: Wed Jun 14, 2023 2:04 amIf I remove VEMPX where would you suggest I reallocate that % to?

I'm going to increase my 403b contributions. I thought I could do traditional IRA too but as placeholder advised I can't contribute to traditional if I've maxed out roth IRA.

I'm normally in 22% federal bracket but think I might (?) be in the 24% this year because of bonuses (unless I increase 403b contributions I suppose). I'll be back to 22% by next year. My state income tax I guess is 5% (?) just googling it. I'm in AL so taxes are low. I'm 32, single filer
Reallocate the extended market fund to Vanguard Institutional Index Instl Pl (a S&P 500 index fund) (VIIIX) ER 0.02%.

Your tax bracket reinforces idea that maximum annual employee deferrals to your 403b account are a good idea. Your employer's plan offers excellent very diversified index funds with very low expense ratios, you are fortunate. Make the maximum possible use of that plan.
Thanks so much! I substantially increased my 403b contribution and reallocated the extended market fund to VIIIX. I'm probably very close to maxing out my 403b as its set now but not sure if I'll hit it exactly because I'm not exactly sure how much I'll end up making. Will it let me over contribute to the 403b above the $22,500 limit? or will it automatically stop it? What happens if it goes above the limit? (hoping it doesn't allow that). If I'm under the limit my plan is to make larger donations the last few months (or month) before the new year to try and hit it exactly. Will that cause any issues? Don't think it would require too significant of an increase with what I have my contributions set at now.

Thank you so much for your help ruralavalon! The Bogleheads Guide book said these forums were nice and helpful but my expectations have been far exceeded!

I could kick myself for not paying this stuff any attention until my 30s. :oops:

again thank you all so much for your help!
The 30s is not a late start, don't kick yourself too hard.

You have to keep track of contributions, so that late in the year you do not overcontribute. (My income was always highly erratic, and one year I did overshoot.)
good to know, thanks
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