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Author: PlanningMoose Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Please Help me Optimize! Date: 12/11/2001 9:03 PM
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Hello all,

I'm a regular on the fool boards, but established a new profile because I'm not comfortable posting such sensitive information on my recognizable account. I'm happy with my current direction in retirement planning, but also wanted some objective advice, so I thought I would post this synopsis and let people provide feedback. Any thoughts are, of course, appreciated and recognized with a rec!!! (whoopee!).

Background:

1) I am 24 years old

2) I work in the financial services industry in a large city with a reasonable cost of living. It's not Houston, but very similar to Houston (i.e., big, but not expensive to live).

3) My gross pay is $66,235 per year. State taxes average, all other taxation average.

4) Cash bonus can range from $5,000 to $50,000. Was $20,000 this year in a weak environment.

5) Have been proactive in my savings and now looking to diversify, but still maintain an active, high-risk, high-reward philosophy.

6) Extensive knowledge of equity markets. Confident in stock-picking ability.

Goals:

1) Retirement at a reasonable age (58-62) with ability to travel frequently, live very comfortably, but not lavishly, and ability to leave substantial assets to heirs at death.

2) Plan to buy engagement ring at approx. cost of $8,000 near end of 2002. Will finance if rate is sub-9%, pay cash otherwise.

3) Plan to return to top-notch MBA program in 2004-2006. Company will fund education, but will have a two year gap in income.

4) Girlfriend and I plan to have a large family and want to start sometime in the next 5 years.

Fixed Expenses:

1) Not a homeowner. Rent a house with two friends - rent share is $433 per month, utilities an extra $100 - nothing exorbitant.

2) Owe about $5,000 on a 1996 Honda Accord. Interest rate of loan is 13%.

3) Minimal credit card debt ($500 or so). Typically pay off at the end of each month.

4) Other expenses about $600 - $700 per month.

Luxuries:

1) Avid wine collector. Average expenditure about $50-$100 per month.

2) Eat out at least once a week. Nothing super fancy, but for girlfriend and I, will probably spend $40 - $50.

3) One nice ski trip per year: Average cost prob. about $2,000.

4) $1,000 - $2,000 in charitable giving per year. I plan to increase this over time, but want to give something now.

Current Assets:

Pension Plan (defined contribution): $3,700 in diversified mutual funds.

401K and Rollover IRA: $11,900 in aggressive mutual funds.

Roth IRA: $6,200 in aggressive equities (MCHP, SUNW, COSN).

Taxable Brokerage Account: $11,000. $4,500 in cash, $6,500 in growthy, diversified equities (IR, CCU, CYMI, COSN).

Company Stock Purchase Program: $1,000 in cash. Will be converted to company equity sometime in future. Currently 40% in the money.

Other Stock Options: 10,000 options in company stock, at the money. Company is not Goldman Sachs, but equity trades in very similar fashion to GS.

Wine collection: Worth $3,000 - $5,000. Difficult to monetize for true value (no plans to do so anytime soon).

Current Plan of Action:

1) Roth IRA contribution of $3,000 to be made on Jan 1st. Will purchase another aggressive equity with the proceeds, thinking of LAMR, IPG or VIA.

2) 401K contributions at 15% of salary in 2002. Allocated into aggressive, yet diversified mutual funds. Focus on small-cap and sector funds (Leisure, Health Care and Technology).

3) Pension contributions (from company) continue at 10% of base salary (not including bonus). Invested in diversified mutual funds.

4) $800 - $1,000 per month savings in taxable brokerage account. Focus on diversification through long-term, low-yield individual equities. Thinking about PFE, MRK, more IR or PLL for my next purchase.

5) Plan to pay off $5,000 car loan by June 2003. Want to continue driving this Honda Accord for another 4-5 years.

6) Manage personal expenses with more discipline. Cut back on eating out and other variable expenses.

Questions and Thoughts:

1) Is is possible to place additional income in tax-deferred vehicles? Can I put money into an educational IRA, even though I have no children (I hope to have at least a dozen in the future ;-) )

2) Should I actively look for a house for the tax benefits? My girlfriend is a home owner and I will likely be living there 18-24 months from now. Premarital cohabitation is not an option (her father is good with a gun).

3) Should I pay off my car loan at 13% instead of making an incremental equity investment in my taxable brokerage account?

4) One big expense is insurance. I pay about $200 a month, despite a clean driving record (more a function of age). I'm very happy with the quality of service of my insurance provider and would rather not switch, but for a $500 annual savings, I might. Any thoughts on how I can get this rate down?

5) Should I hold my more aggressive investments in a different account? I currently have my most aggressive and most volitile investments in my Roth IRA. I figure I can sell these stocks for a quick gain if they rapidly appreciate and avoid the tax liability..... My most conservative investments, over time, will be in my taxable account, where I want to minimize turnover, thus capital gains.

6) Am I getting the diversity I need through multiple mutual fund holdings?

7) At what age should I start looking for yield in the stocks I select? When should I start allocating funds to fixed income holdings?

Any other thoughts or advice are GREATLY appreciated! I'm very happy with my progress so far, but I am always looking for ways to improve my savings plans and ways to avoid paying Uncle Sam that extra dollar.

Thanks again for reading this!

My best,

PlanningMoose



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