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401K Portfolio Double Check

The Beast 687 218 July 2, 2016 at 07:57 PM
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Hi all,

I just know the basics of investing, so I am posting in hopes that I can get a second opinion about my 401K portfolio.
  • Background
  • Age - 22
  • Income - $60,000
  • Marital Status - Single
  • Employer matches 1:1, up to 5% of salary No debt, no rent expenses, very little monthly expenses
  • Roth IRA Account - $5500 invested in Vanguard Total Stock Market

I have opted to contribute to my employer's Roth 401K account. Any matches will go into the traditional account. I may allocate some contributions to the traditional account just so I have a little bit more of a tax hedge. As of now, I have 10% of my monthly paycheck set to my 401K. I may increase that amount to 15% since I don't foresee making any large purchases in the near future. I also plan to contribute the $5,500 to my Roth IRA.

Here are my investment choices

http://i.imgur.com/9RoWjCA.png

Right now I have -
  • 64% in the S&P 500 Fund
  • 16% in the Small Cap Fund
  • 20% in the International Index Fund

Would adding a small percentage to the Value Index Fund be beneficially for a slight value tilt? I'm considering decreasing the S&P 500 by 7% and allocating that 7% to the Value fund.

I plan to add one of the bond funds when I get older. When this time comes, should I choose the Long Term Bond Index or the Intermediate Term Fund? The Intermediate Fund has a much higher expense ratio, but based on my understanding, it has a lower duration.

Does this seem like a reasonable portfolio? Also does 15% to 401K and $5500 to the Roth IRA look good for someone my age, or if you were in my shoes, would you increase contributions?

Thanks!

7 Comments

1

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#2
First off, you are going to be a very happy individual down the road! You have the right attitude and are being proactive about your future which is awesome.

Time value of money is key. Every dollar you put away now is exponentially more powerful that waiting to invest down the road.

A couple questions you may want to answer for yourself....

Do you have an emergency fund? (6+ months worth of expenses)
Do you have a home purchase in your future?
Will you move in the future?
Do you need additional schooling to further your career?
(You may need to save separately for that expense)

You may want to consider allocating funding in this order...
  • #1 Stay out of debt at all cost
  • Create a rainy day fund - at least 6+ months worth of expenses
  • Set aside cash for any schooling or licensing
  • Take advantage of your 401k match
  • Maximize your Roth
  • Max out your 401k contributions
  • After tax accounts in tax efficient equity mutual funds.
  • Live well below your means

Retire well before the herd of sheep and enjoy life to it's fullest!!

***These my own personal views and do not represent the guidance or views of my employer***
Reply Helpful Comment? 0 0
Last edited by hedliniv July 2, 2016 at 08:15 PM
#3
I think your plan is great.

IMHO, just all the noise out there in EU and China.. I may contribute 10-20% to REITS instead of international index funds.(and fed wont be able to raise the rate..just yet). You can use your Roth IRA for tax benefit.. get some quality REITS.. (but not overpriced)

I am mid 30 and long STAG, OHI, SNR for REITS (in roth ira)
T, SBUX, AWK, JNJ, and HD
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#4
I would suggest contributing to your 401k up to the match. Everything after that goes into the Roth IRA. If you max that out then maybe go back to the 401k if you still have more retirement money. This will probably give you access to more funds and more control of your money. Just something to consider.
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#5
I second being cautious on the international for now. I transferred most of mine to S&P500 due to Brexit. Expecting a roller coaster for the next year or two.

I use my non-401k roth for emergency as hedliniv mentioned (as you can take out your contributions without penalty from a roth). I'm not saying that is best approach, but it's a challenge early on to try and get everything saved up and I feel savings/CD rates are terrible for that 'emergency' that may never happen.
My 2 cents.
1 - Get your max 401k match
2 - Maximize your roth.
3 - Save up a decent emergency fund (I have about 2 months and lean on my roth if needed). I keep it in savings, but CD's are acceptable.
4 - If other targets, save for those (house, college, etc).
5 - Revisit 401k and maximize it if you can (annual limit around 18500).
6 - Play...or rental props or whatever...

You are on the right track though asking these questions at 22. 95% of your peers will be spending it at the bar for the next 3-5 years and then on toys they probably shouldn't get (expensive boat, camper, car, truck, etc...)
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#6
Quote from JayC3270 View Post :
I think your plan is great.

IMHO, just all the noise out there in EU and China.. I may contribute 10-20% to REITS instead of international index funds.(and fed wont be able to raise the rate..just yet). You can use your Roth IRA for tax benefit.. get some quality REITS.. (but not overpriced)

I am mid 30 and long STAG, OHI, SNR for REITS (in roth ira)
T, SBUX, AWK, JNJ, and HD
I am wondering if REITS is still a good investment at this time. Any reasons?
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#7
Quote from doesnotmatter View Post :
I am wondering if REITS is still a good investment at this time. Any reasons?
I'd say lots of things are overpriced now like O..
There are some sweet REITS still fairly/undervalued. I like STAG and SNR more than 20% up since Jan and both > 5% yields.
like other stocks just pay attention to the rate.change or recession. As far as the rate stays at this level, you will be fine.
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#8
You have plenty in international. If anything I would bump that down to 10% and up the S&P. When you hit 35-40 years old then start introducing a bond fund.

Im sure you have at least a 6-12 month emergency fund. If anything I would encourage you to start maxing your 401k since you already max your roth. $18,000/year (this is the max for someone your age) should be going into your 401k. If anything you can dial that back in a couple years if you need to. Time is something you cant get back. The longer you have your money working for you the better.

If you stay the course and max your 401k along with your roth you'll be able to retire by 50 with ease. More than likely 45. Just make sure when you find your life long partner they view money the same way you do. Besides having the midset like you to save/invest the 2nd most important financial decision you will ever make is finding a partner who shares the same financial values/goals that you do. Ask anyone who has ever been divorced and most will say they had $$ issues. Its like clockwork.

Let me also give some advice. When the market is in a free fall and people are panic selling like we saw 2 weeks ago with the brexit...make sure you have disposable money so you can invest. That is the time to do it. When my coworkers were saying how scared they were about their investments during that time I was buying more shares in my low cost index funds through vanguard. Only around $3k worth but ive already seen a 4% increase in those shares alone. Never panic sell. Did I time the market...yes. Generally its a bad idea. I do always invest on the 1st of each month so I always stay the course but when there is a situation like we saw recently its hard to pass up discounted shares.
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Last edited by FHRITP July 13, 2016 at 07:09 AM
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