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Author: cdavies9954 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75833  
Subject: Great opportunity...need advice Date: 10/27/2000 11:12 AM
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My wife and I are 29 and 30 years old, and are putting our plans for retirement, a house, kids, coffee makers, and soccer game snacks, together now. If anyone has the time and interest to help a fellow fool, I will reveal the opportunity that as a couple we face over the next few years. I need help to understand if I am Foolish, or a fool.

Between us both, our pretax income is $174,000. We have minimal debt, and want a house in two years. Sounds like a trip down Pleasantville Road, huh? Not quite yet.... The only savings we have to speak of is 30,000 in a discount broker account from a 401K rollover from my last employer(which I am proud of doing before I ever found this website).

Here is what I am proposing to my wife for the short term investing "game" (She thinks I am a rookie and have no financial savy) that's making our financial discussions edgy.

Our Income 174,000
401K (maxed) + 2 Roths 14,000
Taxable Income 160,000
Taxes (State & Federal) 55,200
Other Expenses (rent/bills/debt 58,800
Net Investible Income 46,000

This is us in a nutshell. Except that second year Net investible income goes up due to the elimination of (credit card/ school loan/car) debt to $55,000.

My problem is I need to decide how to invest about 50K after-tax money per year to ensure a healthy start on our retirement and get a house in a couple years. My wife wants to put our money into the freezer to ensure I don't lose it! I really do resent that, because it would leave almost no room for the Ben and Jerry's.

I figured long-term stocks and the Vanguard fund for our retirement, and to save some money in cash towards a house.

Here's how I broke it down:

1. I have 50% slated for an ameritrade stock account (which will contain 6-8 rulebreaker stocks and the foolish four)

2. I have 10% allocated for an index fund (Vangaurd)

3. I have 40% slated for cash that can be applied to the purchase of a home (Cds/Bonds)in two-three years.

Tell me the truth, SHOULD I BE HAPPY WITH THIS SOLUTION???? I have spent many, many hours reviewing our situation (and plugging the problem into a countless sea of useless, mind-warping, spreadsheets) but would love to hear criticisms.

Thanks to any fool who made it this far in the post, massive kudos to anyone with advice for a nervous fool.

CD

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25775 of 75833
Subject: Re: Great opportunity...need advice Date: 10/27/2000 11:24 AM
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cdavies9954 asks,

Between us both, our pretax income is $174,000. We have minimal debt, and want a house in two years. Sounds like a trip down Pleasantville Road, huh? Not quite yet.... The only savings we have to speak of is 30,000 in a discount broker account from a 401K rollover from my last employer(which I am proud of doing before I ever found this website).

Here is what I am proposing to my wife for the short term investing "game" (She thinks I am a rookie and have no financial savy) that's making our financial discussions edgy.

Our Income 174,000
401K (maxed) + 2 Roths 14,000
Taxable Income 160,000
Taxes (State & Federal) 55,200
Other Expenses (rent/bills/debt 58,800
Net Investible Income 46,000



That's an excellent plan! Saving more than 25% of your income at such a young age should put you well on the path to retiring before age 50.

There's a spreadsheet on the Retire Early Home Page, the Millennium Edition -- Generation-X Retirement Calculator, that can show you the effect of various levels of savings and spending on your retirement date, it's worth a look:

www.retireearlyhomepage.com

intercst

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Author: Hillie75 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25778 of 75833
Subject: Re: Great opportunity...need advice Date: 10/27/2000 11:45 AM
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As a 10-year non-professional investor, IMHO your plan looks pretty good overall. You might want to be a little more cautious with your stock investment plan....given you're just starting, you've only lived through the bull market, and your wife's concerns. Maybe a 50/50 or higher split between indexes and your self-directed account, assuming these are funds you won't be touching too much until retirement. When the balance reaches a certain level, find a private investment manager (charging no more than 1% of assets with low turnover) to take over decisions on say $100k, so that you are allocated in part to index funds, self-directed and managed. Put all the money in stocks, although manager should have some latitude to use bonds and convertibles. Good luck!

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Author: Foolishoamy Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25787 of 75833
Subject: Re: Great opportunity...need advice Date: 10/27/2000 5:02 PM
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Here is what I am proposing to my wife for the short term investing "game" (She thinks I am a rookie and have no financial savy) that's making our financial discussions edgy.

Our Income 174,000
401K (maxed) + 2 Roths 14,000
Taxable Income 160,000
Taxes (State & Federal) 55,200
Other Expenses (rent/bills/debt 58,800
Net Investible Income 46,000


Hello Cdavies,
I have a couple of ques/comments. What is your adjusted gross income? If it exceeds 160,000 your ability to contribute to a Roth IRA is limited. I forget if contribution limits phase out between 150k- 160k or 160k-170k for couples, but I know its one of the two. I think its between 160-170.
Does your wife have the opportunity to contribute to a 401k?
It looks as though you are planning on deducting your Roth IRA contributions (10k 401k + 4k Roth IRA = 14k) reguardless of income this is not allowed. Roth IRA contributions are not deductable.
These are relatively minor points and therefore things you should already know, so you either forgot while posting your message or maybe just maybe your wife is right. 8^)
Otherwise your plan looks sound to me. A couple of suggestions. Look into 401k for your self/wife whichever is not contributing in the plan. Visit the fool school and read the 13 steps. Check out Intercst's Early Retirement Home Page board and web site because you and your wife are defintely on the right track to ER if thats what you want to do.
Hope this helps and good luck,
Brian

The ER home page site

http://boards.fool.com/messages.asp?mid=13574776&bid=112992

The Fool School

http://www.fool.com/school/13steps/13steps.htm?ref=STH13st

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Author: WeeBeastie Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25794 of 75833
Subject: Re: Great opportunity...need advice Date: 10/27/2000 7:52 PM
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I would recommend a couple of changes to your plan given your ages and the fact that you want a house in the next couple of years. If you are already funding 401(k)s and Roth IRAs (although see previous poster's comments about being eligible for Roths), I would not mark any of your $50k investment money for retirement. Given your ages, you have plenty of time to allow retirement savings to accumulate (as long as you continue to contribute to 401(k)s, IRAs etc)

If you keep your $50k in liquid investment products then you'll have the cash on hand for the very expensive process of purchasing a house. Keeping your money accessible will just give you more choices when it comes to purchase time. If you have cash left over after the purchase, then I'd put it into retirement savings. If you have State tax-free bonds funds available in your State then I'd consider them as a relatively safe place to park your house purchase money. The way the market is, I'd be nervous doing anything else if I was going to need the cash in a couple of years.

Good luck with your decision.

Beastie

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25798 of 75833
Subject: Re: Great opportunity...need advice Date: 10/27/2000 9:03 PM
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Here goes my 2 cents.

The 14k per year in retirement sounds great. As far as your wifes fears, maybe put her share in an index fund and put yours into some of the workshop MI screens. Only invest in things that you understand and don't pick a screen just because it has a high return, the week to week volatility can be stomach churning. The only other thing about retirement saving, I always felt that 10% of gross income was a good place to start. Enough to save in the long haul without living like a "bag lady" in the present.

House money should be in money market mutual funds (MMF) or CDs only. Even bonds could loose money just as fast as stocks. The idea that they're safer is a myth. Just watch what happens to a bond's value when the interest rate gets hiked. After paying off the debt, I'd sock all that "investment" money into a MMF. In two years you'd have close to 100k to put down on a house if you chose to. Maybe even by one outright. Also, don't become "house poor". Don't buy more than you need or for conspicuous consumption. Your house will then become your life, not fun.

On owning a house. Nothing like owing it outright. I personally chose to pay off the mortgage as soon as possible. I now use what would be my monthly mortgage note for "extra" investments. Some would argue not to do that, to invest that extra cash, and it's a valid point. However, for me, I just have to relive this year knowing that I own my house and that "Mr. Market" didn't take over a third of it during this year's down turn. I sleep a whole lot better.

Hope this helps.

JLC



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Author: gmfun Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25805 of 75833
Subject: Re: Great opportunity...need advice Date: 10/28/2000 12:24 AM
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CD,

I would recommend that you read the book "You have more than you think" by David & Tom Gardner(1998).
If I had read a book like that 30 years ago, when I was 30 years old, I would have retired long time ago.


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