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Just turned 30, not sure what to do with my money

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Wino
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Originally posted by SyZ
Everything posted after that was lost on me

Rule number one: If YOU DON'T understand it, keep asking questions until YOU DO understand it.

You have decided to follow oldguy's method (as opposed to the suggestions made by me and littleroc), so I'll let him explain the details. Unless and until you understand EXACTLY what he suggests, do not do it. You don't need to know every detail about every strategy, but you need to know why you do ANY of the steps you actually do, before you do them.

What I mean by the above: If you don't understand about the "save the downpayment then borrow against it" part, but the next step you will do is "convert your 401K plan to 100% the 2050 plan," which you do understand, it's fine to do the conversion before you understand something to be done in 3 or 10 years (or whatever). Just make sure you know exactly why you do each step before you do it.
Post Sun Dec 21, 2014 2:45 pm
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oldguy
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By the way, I've noticed that when I put a huge payment on a loan, my minimum payment the next month is almost non-existent. My one set of loans is usually $140 a month, after my $500 extra last month it's $30 this month.


You'll need to tell them to apply your extra payment to 'principal', otherwise they'll think that you are simply paying ahead (some folks pay 3 or 4 months ahead - and then don't pay for 3 or 4 months - such as school teachers on summer break).

quote:
If I'm not taking money out of the Vanguard, even for a down payment, what does it matter if it goes down 50% in a year? I'm really not understanding what its purpose is


It doesn't matter. But some people (most people?) are not able to tolerate UPs & DOWNs so they sell/buy at inappropriate times. But in reality, you care about what your account is worth 30 yrs from now, the roller-coaster ride that it takes along the way doesn't matter (unless you are a trader). If you have the tolerance/patience to invest incrementally and steadily for 30 years and NEVER sell, just accumulate, the fluctuations are not a factor.

quote:
If I default on the loan, I can't pay it off in a last ditch, remove everything from the IRA to quickly cover the loan type thing. The loan is for 80%, my IRA is the 20%. Why do I need to wait until it's at 20%, what does this do for me?


lol - Oh, oh, I don't even understand your question. If you fall behind on the loans, don't you just pay the catch-up, ie the back payments and this month's payments?

quote:
I'd want to buy when the market is low, which (I believe) is independent of the stock market. Unless the only time the market is low is when it's a bear market and the only time it's high is when it's a bull market, which just seems to counteract itself


IMO, the RE market can't be timed any better than the stock market, just buy incrementally when the house prices are acceptable to you - and then live with your decision, don't whine when the house goes upsidedown and try to get the govt to fix it. My houses go upsidedown, then they jump back up a decade late and are worth double - but the payments are fixed, they don't go up/down.
Normally, when rates are low, house prices go up. And when rates are high (they were 18% in 1985) houses prices crash (cuz no one wants to buy and take an 18% loan). But seldom do you find a point when you can get both low prices and low rates.

But, again, why do you select CA with the $500k houses that are 50 yrs old, tiny, and need work? Why not go where houses are under $150k, near new, 2000 feet, on an acre? lol - a little snow won't hurt, put on a Carhart hooded lined sweatshirt and get a 4WD vehicle - that's what I do when I go North to work for 6 weeks every Fall. Or when we go to the Ski Slopes up in Keystone in January.
Post Sun Dec 21, 2014 4:48 pm
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SyZ
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I haven't committed to anything Wino, and I do think I want to get rid of the loans over 5%, which will occupy me for the next year - during that time I can try to figure out what's going on with my job. Internal resume updated, all my managers know I'm interested in a risk analysis / actuarial / finance / underwriting position, and am mobile enough to go anywhere in the country if necessary

I have a habit of understanding things in my head, but not explaining them, so I'll try again:

The 401k for work I will NEVER touch until retirement, so I'm 100% ok putting 100% of it into the S&P500 and riding the roller coaster

The IRA that oldguy is trying to explain to me is where the confusion comes from: let's flash forward to 2018. If my account has 30k, and then in 2019 the market goes up 50% and I'm at 45k, I believe he's telling me that would be the time to find a house for 225k and buy. BUT THEN, don't actually take out the 45k from the IRA, just take out two loans: one for the 45k down payment, and one for the 180k mortgage. This is where the confusion is coming from; in either event, this is down the road, after I've gotten rid of the higher interest loans. At that point, I should be over 50k income, my car is almost paid off, and I'm left with very little student debt. So I think at that point, I'm not going to be in any risk of being overwhelmed with debt, as most of it is gone

Here are my three options:

What you can do

1) Roll over a traditional 401(k) into a traditional IRA, tax-free.
2) Roll over a Roth 401(k) into a Roth IRA, tax-free.
3) Roll over a traditional 401(k) into a Roth IRA—this would be considered a "Roth conversion," so you'd owe taxes.

I want option 2)? I take my prior 401k (already taxed) and move it into the ROTH IRA, tax-free. This is consistent with me putting in take home pay moving forward, which has also already been taxed

My main concerns when moving out of CA are 1) food. My entire life I've lived in LA or SF, so it's going to go down if I move ... 2) weather - sure, I can put on thick clothes every time I go to the market or mall, but it's more of an emotional thing. I don't like waking up at 9 AM and it's dark, dreary, raining out 1/3 of the year, and 3) the fear of moving somewhere and not liking it and now I'm stuck there and wanting to come back to CA like so many people in the opposite of my situation strive for
Post Sun Dec 21, 2014 9:12 pm
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oldguy
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I don't like waking up at 9 AM and it's dark, dreary, raining out 1/3 of the year,


lol - sounds like Seattle, those northern latitudes only get about 8 1/2 hours of daylight today (the Winter Solstice). Seattle morning today 7:55, dusk 16:21

How about Las Vegas, not much snow there. And no state income tax.
Post Sun Dec 21, 2014 10:50 pm
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SyZ
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Hope everyone had a fun New Year's Eve and day Smile

I've been reading The Total Money Makeover, and while I don't agree with a lot of it, there are some interesting points he brings up - the most interesting to me is that he thinks 15% pre-tax towards retirement is the magic number. More than that is not needed as I could put it towards the mortgage to get the home paid off earlier - not sure I agree with that, but I like the 15% as it's where I'm at now. He states the best idea is to invest in the 401k up to the company match, then do the maximum ($5,500 according to the IRS site for 2015), then do the maximum match for the 401k ($17,500? not happening). Using this plan, and the fact the company matches up to 5%, it would look like this:

$45,000 income --> $6,750 to invest
5% = $2,250
---> $2,250 into my 401k, and $4,500 into a Roth IRA
Resist the urge to put another $1,000 in and do that slowly when I receive income increases

Is this better than just doing 15% into the 401k? In the Roth IRA, should I pick a risky fund? Something like https://personal.vanguard.com/us/funds/ ... IntExt=INT, which only requires $1,000 to get started. (By the way, I have a 401k from a prior job - is it really as simple as just spending 20 minutes online to get it moved into a Roth IRA? I could use it to start mine as I'm almost positive it has more than $1,000 in it)

While saving my emergency fund, would I put the money into a money market fund and out of my checking account with Wells Fargo? Something like https://personal.vanguard.com/us/funds/ ... IntExt=INT

That (and many others) require a $3,000 minimum contribution, which is around a 2.5 month expense cost. The money is easy to access if I need it?

Something else I realized: I should be swapping to a $1,000 auto insurance deductible as I won't be in a position where I can't come up with it if needed and my savings on the premium should outweight the additional $500. Thoughts?

To summarize: lower the 401k, up the Roth, open a money market emergency fund, and work my butt off to become an actuary:

Lowest level rung on the ladder is a $20,000 pay increase: http://swz.salary.com/SalaryWizard/Actu ... tails.aspx
Post Fri Jan 02, 2015 10:05 am
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oldguy
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Something else I realized: I should be swapping to a $1,000 auto insurance deductible as I won't be in a position where I can't come up with it if needed and my savings on the premium should outweight the additional $500. Thoughts?

To summarize: lower the 401k, up the Roth, open a money market emergency fund, and work my butt off to become an actuary:

Lowest level rung on the ladder is a $20,000 pay increase: http://swz.salary.com/SalaryWizard/Actu ... tails.aspx


Insurance - $1000 deductible. That's what I did. Actually, that is true for all insurance, it is always cheaper to self-insure than to pay someone to take your risk. A common eg is extended car warranties, you pay way more for that insurance than the average cost of repairs will be. OTOH, most of us would be financially wounded if our house burned down - so we buy the fire insurance.

You can't roll your old 401k into a Roth (unless you want to prepay about 25% in state/fed income taxes.
I don't see the point of putting your EF in a money market, they pay almost no interest and they have fees and regs about selling - wouldn't it be easier to keep that money in your checking account?

I looked at the Actuary site, $65k is average pay for an Actuary 1 - ie, a $20k increase. But is that what you do? It requires Advanced Statistics, Calculus to perform optimization analyses, code writing skills to generate the software. I've never met an Actuary so I don't have a feel for the required skill set. Confused
Post Fri Jan 02, 2015 3:41 pm
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SyZ
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I thought the suggestion was made a few weeks ago that I should make a money mutual account to have my emergency fund be liquid enough but still actually gaining interest? Or is this what I will be doing when I'm saving for a down payment, and I got the accounts confused?

Do I need to talk to my current employer's HR department to move old 401ks into my current, or can I do this through Vanguard? If I can't move it into a Roth, I don't want to set up a separate IRA when I already have a 401k

Using my #s, if I wanted to put $4,500 a year into the Roth, would I set up automatic transactions to do 4500/12 = $375 a month from my account linked with Vanguard into the Vanguard Roth account?

Entry level actuaries make around that, but once accredited as a fellow I would command a $150k + salary, and it doesn't require any further schooling, only independent studying and exam passing. I took the first exam senior year with minimal studying (most actuaries advise 100-150 man hours of studying per exam hour - the first was 2 hours and I studied maybe 75 casual hours as I didn't have enough time) and got 16/30 - you need 18/30 to pass. Companies want to see at least 1 exam passed to show you actually do want the job, and aren't just somebody who sees a high salary and wants in. If I pass a few exams while working in casualty insurance, I've not only demonstrated I'm interested, I've worked in the field AND shown I can independently study while maintaining a full time job - which is what they want

Interestingly enough, one of our locations with actuaries is in Bothell, near Seattle ...

http://www.homes.com/property/8456-ne-170th-st-kenmore-wa-98028/id-300018353925/

If I was making $150k + a year, that home would be easily attainable with no debt. Smaller homes starting out in the area would be 40% that. I'd easily be able to retire by 50-55
Post Fri Jan 02, 2015 9:05 pm
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oldguy
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Do I need to talk to my current employer's HR department to move old 401ks into my current, or can I do this through Vanguard? If I can't move it into a Roth, I don't want to set up a separate IRA when I already have a 401k

Using my #s, if I wanted to put $4,500 a year into the Roth, would I set up automatic transactions to do 4500/12 = $375 a month from my account linked with Vanguard into the Vanguard Roth account?


Well, you probably need a Trad IRA (rather than using your new 401k). Some day, in 25 or 30 years, your entire retirement money will be in a Trad IRA at a place such as Vanguard. Each time you change jobs, you will roll your 401k into the IRA. And when your retire you'll roll your final 401k into the IRA - that way you won't have multiple accounts with companies that you can't even remember the name of when you are age 85, your wealth will all be in one place.

Yeah, set up an auto-deposit to have $375/m (or $173/per 2-week check) put into your Roth IRA at Vanguard.

Actually - a $150k/yr income wouldn't quite carry a million dollar home. lol - besides, that house has a wooden deck in front, plus a huge wooden deck in the back - you'd need a full-time carpenter on your payroll, Seattle weather is very unkind to wood.
Post Fri Jan 02, 2015 10:17 pm
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SyZ
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I get it - even if I kept one job until I retire, when I do retire I would move the 401k to a traditional IRA and slowly withdraw (ideally, I'd be using less per year than what it's earning - if I were ever in this situation I don't even know what I'd do. Buy an Aston Martin?)

I called my old employer. Turns out, they gave me $200 extra on my last paycheck when they cashed out my 401k as it had under $5,000. At least I know I have a clean slate moving forward

Is Vanguard 500 Index Fund Admiral Shares (VFIAX) the name of the fund I should choose? Others seem to be averaging higher returns over the last 10 years (Energy, Equity Income, Health Care, International Growth, all funds I'm seeing that are doing really well long term)

So I need to save up the minimum investment number and then after I hit that I an start doing 173 every paycheck?
Post Fri Jan 02, 2015 11:20 pm
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oldguy
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Is Vanguard 500 Index Fund Admiral Shares (VFIAX) the name of the fund I should choose? Others seem to be averaging higher returns over the last 10 years (Energy, Equity Income, Health Care, International Growth, all funds I'm seeing that are doing really well long term)


Yeah, VFIAX is good, that's what I use.
As for various sectors doing better - that's always true, every year/decade. The SP500 is the entire market - and all of those sectors are a part of it (Energy, Equity Income, Health Care, International Growth, Autos, Farm machinery, Construction machinery, Breakfast food, yada). Taken together for a jillion years, they average 11%/yr. But to average 11%, half of the pieces must be below 11% and half must be above 11%. So you might see Builders doing 18%/yr for 5 or 8 yrs - followed by a bubble where the Builders crash for 5 or 6 yrs (like 2006 to 2010?). I don't mess with trying to time the performance of the pieces, I just buy the entire Index and wait for my 11%/yr - it turns out that becoming wealthy takes patience and it's boring. Very Happy
Post Sat Jan 03, 2015 4:19 am
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SyZ
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So, again, just so that I understand:

If I have 100% of my 'portfolio' in the S&P500, it's still diversified, as its split across 500 companies. I have some invested in well-established, slow moving sectors, and I have some in very aggressive markets trying to be the next big thing and move from #497 to #49. In essence, I don't need to put 25% in S&P500, 25% in X, 25% in Y, 25% in Z, because 100% in S&P500 is already diversified?

And upon looking at the VFAIX fund again, it requires a $10,000 minimum investment - that's 2 years worth of a Roth IRA that I need up front before I can even get it started = /

And FYI, it almost seems like you know most of what actuaries do Smile

First two exam topics:

http://www.actuarialbookstore.com/product_summary.aspx?id=453064143

http://www.actexmadriver.com/Dr-Krzysztof-Ostaszewskis-SOA-Course-FMCAS-Course-2-Manual-2014-Edition-No-Returns-P989.aspx#.VKexUyvF9pu
Post Sat Jan 03, 2015 7:33 am
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Wino
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quote:
Originally posted by SyZ
If I have 100% of my 'portfolio' in the S&P500, it's still diversified, as its split across 500 companies. I have some invested in well-established, slow moving sectors, and I have some in very aggressive markets trying to be the next big thing and move from #497 to #49. In essence, I don't need to put 25% in S&P500, 25% in X, 25% in Y, 25% in Z, because 100% in S&P500 is already diversified?

And upon looking at the VFAIX fund again, it requires a $10,000 minimum investment - that's 2 years worth of a Roth IRA that I need up front before I can even get it started
VFINX is the same fund, slightly larger fees, but you need only $3K. After you get $10K, you can change funds within the same account to VFIAX for zero money.

Yes, you're diversified in the S&P500. It's the tortoise of the mutual funds. "Slow but steady wins the race" was the moral of that fable.
Post Sat Jan 03, 2015 9:38 am
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oldguy
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In essence, I don't need to put 25% in S&P500, 25% in X, 25% in Y, 25% in Z, because 100% in S&P500 is already diversified?


Yes. The broad US Market averages 11%/yr, in response to all US commerce (and most of the world) all combined.That is a risk. If you go 'sector shopping' you add the risk of that sector having an economic failure (eg, autos, financial, energy) to the US risk, ie, one risk superimposed on top of the other. And then if you further narrow down to an individual company, you adds the risk of the US + the risk of the Sector, + the risk of the company going bk. Ie, 3 risks superimposed.

And you might desire that higher risk level, except for one thing - it is "uncompensated risk" - the sectors ultimately go up/down every decade or so - and average about 11% (it makes sense, they are selected from that same population of 500). So I fight the temptation to 'time' sectors and companies.

The Law of investing - "risk and return are directly proportional." I adjust my risk by changing my top-down mix. Eg, if I'm 50/50 stocks/bonds, my return goal is 11%/5% - ie, 8%/yr. If I want to dial up my risk, I move to 75%/25% - ie, 9.5%/yr - and so on. When I was your age I stayed 100% stocks, no bonds.
Post Sat Jan 03, 2015 2:06 pm
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SyZ
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Would it be better to ignore a Roth for now, keep the 15% pre tax 401k contribution, and just focus on the 6.8%ers, and when those are gone save up the 3000 for the Roth?
Post Sat Jan 03, 2015 6:56 pm
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oldguy
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If I recall, you were considering prepaying an extra $500/m ($6000/yr) to the $13,000 6.8% loans?

If you put $6000/yr into 11%/yr for 30 yrs, that would be $1,325,000 at age 60.
If you waited 3 yrs and put in $6000/yr, that would be $953,000 at age 60.
To hit $1,325,000 in 27 yrs, you would need to invest $8400/yr. Ie, you'd have to pay an extra $47,000 to catch up to the $1,325,000. It might be cheaper to keep the loans and pay the 6.8% interest than tp pay an extra $47,000.

The point is - when you postpone your investing program (wait until the car is paid for, do it after the kid's braces, wait until after the SL, yada) it costs a lot to catch up - if ever.

But you'll have to go thru the math of your actual plan to verify the outcome. Very Happy
Post Sun Jan 04, 2015 2:39 am
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