Initial investing advice

[ZB60]

I am an MS1, and have been reading the site for quite some time, and have already finished the book. My wife is an RN. We have been blessed thus far financially. We both went to the same in-state undergrad and have no undergrad debt. I attend my cheap in state medical school. (Sadly WCI recently spoke at my school, but I don't check my email often enough so I missed it.). Our expenses are pretty low, major expense is her car which is ~300 a month at 3%. (Her fully paid for car was rear ended and totaled. She wanted a nicer car so I gave in because she works so hard and has basically supported us for the first 3 years of our marriage and will for 3 more. I'm 22 and she will be 25 soon) We are on track to pay it off next year, 4 years early. I expect a loan burden of 100k +/- 10k upon graduation.

Sorry for the long intro, but I wanted to explain how a student was even in this position. We have decided to start a Roth IRA and I wanted to pick some very trusted minds for advice. Should we start two Roths and fund them equally even if we don't max them, or open one and max it for sure. Even though we don't have major "bills" we do have a 10 month old son who tends to be our biggest expense. Also we pay for anything for school above and beyond tuition and fees, and already have around 6 months of expenses saved on top of a 1000$ Dave Ramsey emergency fund. Thanks, and go easy on me. My parents are probably the world's worst at managing money, and I vowed I would be different.

[jfoxcpacfp]

It sounds to me as if you're in a very good position, only issue being the car payment but you seem to be managing that well. imo, you should set up separate Roth IRAs and try to go beyond 1/2 in each. You only have so many low income years to really take advantage of the 15% tax bracket. Downside is that you may be shut out of funds with higher minimum purchase requirements, but you'll have more flexibility with 2 accounts. It's really a close call, though, and I hope to read other's thoughts on your "dilemma". If your wife has a Roth option in her 401k, then I would say max out 1 Roth for you and go as far as possible into the Roth-k for her.

I doubt your parents are the world's worst at managing money. I've seen some doozies.

[ZB60]

Thanks for the response. As far as where to open the accounts, any suggestions? I have looked at Vanguard thus far, and it seems that they have a very simple setup. They also seem to be the most common name I see pop up on this site which bodes well for them. I know for sure I don't want to actively manage anything, and I also think that we are both young enough to take a fair amount of risk. I don't think that her 401k has a Roth option, but that is something I will check because that would simplify things. We set up her 401k before I even knew what a Roth was.

[jfoxcpacfp]

I am fairly indifferent as to where to set up your account. You're correct that Vanguard is a favorite on this site. It's not mine because it favors Vanguard funds with higher minimums but you could do a lot worse. Just find an online interface that you are comfortable using - you can always change later if you want.

Before you choose your portfolio, do a little studying (even though you probably don't have much time for it right now!) I always recommend Simple Wealth, Inevitable Wealth, which will help you understand what true risk in the market is and why you should shut out the noise of the financial media. I will alert you that it is heavily biased toward using a financial advisor, but that is not why I recommend it. The logic and advice about portfolio construction and management are the best I've read, plus it is a quick and easy read.

Until you are ready to invest, just put your money in a money market account inside the Roth. As long as it is funded by 4/18/16, it can count for 2015. You should go ahead and set up an automatic draft for 2016's Roth(s) so that you won't have to be scrambling for funds at this time next year!

[scbunker]

Sounds like you're in great shape. IMHO, the car is not unreasonable. If you've decided you shouldn't have done it, just don't do it again and don't beat yourself up.

I agree with Johanna re: fund your Roths. I disagree with Johanna re: Vanguard has high minimums. Yes, their mutual funds have high minimums. Their equivalent ETFs, however, have no minimums. And Vanguard's mutual and brokerage accounts are one-and-the-same now, so no extra hoops to jump through. Some may advise against ETFs because of transaction fees; that's normally a concern, however, Vanguard does not charge transaction fees for trading Vanguard ETFs within Vanguard accounts. So, no minimums + lower expense ratios + no transaction fees = Vanguard ETFs in your Vanguard account is the way to go.

If either of you have an HDHP, I consider an HSA to be superior to a Roth (use it as a Stealth IRA), so recommend do that first.

At least begin to consider college/education plan for your kid. I believe retirement funding should come before kids college funding, but with your expected income and discipline you've already shown, you're unlikely to have a problem with either. You may consider beginning to put a little in a 529 (especially if you get a tax break from your state). Think also about whether you're going to send your kid to private school and, if so, look in to how you may begin putting a little money aside for that (Coverdell ESA may be used for this).

That's several things, likely too much for your wife's income to accomplish for now, but next year after the car is paid, you'll have an extra $300/month to do something with, and in three years, you'll have an extra $50K+ income. The above are just some thoughts.

Great job, though!! I'm excited when I hear of reasonable people getting married at reasonable ages and working hard to have a great life. I hope you find value in this forum/blog!

[ZB60]

Thanks for the advice.  Sadly, I don't think we will be able to do the HSA.  She has fairly low deductible insurance plan through her employer, and I get to stay on my parent's insurance until I am 26. If that were to change I would likely just be added to her plan.  I don't feel bad about the car.  As I mentioned, she has been a trooper thus far.  She works a full time job at one hospital and a PRN job at another.  Plus, we will have it paid off fairly soon.  We opened a "high yield" savings account with a whopping 1.05% return to at least have a separate account designated for him.  I can't fully commit to sending him to a private school because public school served me and my wife so well. Although, it never hurts to prepare to send him to private school, and if we find a quality public school the money is simply extra for college.  Either way, true education saving is not really possible right now, but starting the habit is our main focus.

This site has proved to be very helpful thus far.  I feel much better about opening the Roth accounts now.  I guess if all of the work WCI has put in, along with the help of his other readers, helps one person it has to be worth it.  Side note, I am not skipping out on studying, we are finishing up spring break tomorrow.

Thanks again.

[jfoxcpacfp]

NotADoc wrote:

I agree with Johanna re: fund your Roths. I disagree with Johanna re: Vanguard has high minimums. Yes, their mutual funds have high minimums. Their equivalent ETFs, however, have no minimums. And Vanguard’s mutual and brokerage accounts are one-and-the-same now, so no extra hoops to jump through. Some may advise against ETFs because of transaction fees; that’s normally a concern, however, Vanguard does not charge transaction fees for trading Vanguard ETFs within Vanguard accounts. So, no minimums + lower expense ratios + no transaction fees = Vanguard ETFs in your Vanguard account is the way to go.

 

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Correct, I was talking about mutual funds. However, I have a problem with Vanguard's proprietariness (is that a word?) for non-Vanguard funds and etf's. Not everyone is a Boglehead.