Soon to be resident- critique my roth plan

[hopdoc12]

Hello,

I am a fourth year medical student soon to be orthopedic resident and luckily stumbled upon the WCI book and forum. I have been a lurker some time and have learned a ton so thanks for all the info. I am beginning to create an individualized investment plan for when I start residency in July of 2018 and wanted to run it by everyone here at WCI.  More about me I have little to no savings currently and will be graduating with 140K in student loans at about 6 percent. I plan to fully fund a Roth IRA each year using vanguard index funds and want to see what you think about my four index diversified portfolio. Current idea is:

Vanguard TSI: 45%

Vanguard: Small cap value: 15%

Vanguard Total International: 25%

Vanguard Intermediate Term Bond Index: 15%

I would likely fund solely TSI as a PGY1 and 2, begin to fund Total International as a 3 and finally fund bonds/ small cap as a 4/5 and try to attain some diversification. These funds all have a $3,000 minimum so I will need to fund them individually over time and hopefully be well on my way to a diversified portfolio by completion of residency.  Any additional money saved will be used to pay down loans until graduation. As I have many years until retirement I have no problem having an aggressive portfolio at this time. Looking forward to your input, thanks.

[MrsIMDoc]

I will leave the discussion of your portfolio to the experts on the forum.  I would encourage you to also look into the 401k/403B plans of your future residency.  Mine had a significant match and I made sure I maxed out my matching of my 403B before funding the ROTH to be sure not to leave any money on the table.

[Craigy]

If you can stick to it, that would be a smart move.

Do you know yet what your living expenses will be?  Where you'll be living?  How strong or weak your program's stipend is?  Don't beat yourself up if you find that you don't have as much money left over as you thought you might.  But if you go into it with the right attitude of saving money, maxing out a Roth is very possible.

Personally unless you're one of those later-in-life med students, I would avoid the bond index, and put more into the small cap value.

Also I believe you can maintain very close to your desired portfolio mix if you buy Vanguard ETFs instead of the funds.

[Lithium]

If you are confident in your portfolio, I would just get the ETFs rather than wait 4 years for it to evolve.  The spreads for those particular ones are not that high.  You can always exchange them back to the corresponding mutual funds when you get enough assets to meet the minimum thresholds.

[mitochondria]

I like it if your looking at a long term horizon and maximizing your Roth IRA first. I'm partial to having more active management in international mutual funds in order to strategize against currency fluctuations and predictable foreign conflicts/disruption. The Vanguard Total International Index fund has close to 20% of its portfolio in emerging markets. I would not be comfortable relying on an index strategy with regards to emerging markets, especially in the short term. On the plus side, a 0.19% expense ratio is pretty nice, especially for an international fund.

More importantly, you are experiencing and learning prudent investment activity very early in your career which will bode very well for you down the road. Reportedly, only a little over 60% of employees at my academic institution even bother contributing to their 403b which denies them a match up to 10%;(I don't know how many are faculty, but my gut tells me from personal discussions that many are faculty). I find this to be absolutely crazy, but I guess life gets in the way.

[hopdoc12]

Wow thanks for all the great responses feels good to be working towards my financial goals. A little more info for those that asked... I am 27 Y.O. and am actually still in the match process so I do not know where I will end up. Once I do find out that info I will have to look into what kind of retirement options my residency offers. Currently a couple of top choices would be New Orleans, Texas and Florida area. I think I could live relatively cheap (plan to rent) in most places I will interview at. Looks like ETF may be a better option until I can build up my funds some. I was concerned about them being difficult to exchange but it looks like it may not be too difficult.

If I were to do away with bonds in my first few years do you think it would be more prudent to instead have a position in a REIT index or just stick with simplicity and increase small cap value?

New to the game but I've picked up some info off bogleheads and lots here as well so thanks a lot. Obviously this will be a learning process but it's already been fun trying to come up with a plan.

[Hatton]

I commend you for thinking and planning at such a young age. I agree that bonds can come later. Definitely check out if your program matches. You are going to do just fine

[Winkleweizen]

Props to you at learning about this.  I think I was the only one in my whole residency who had any clue about anything personal finance related.  It's sad how clueless we are as a profession when it comes to finances.

 

personally, when you have such a low amount of money invested, I would keep it simple.  Something like 70/30 total us indies and world index.  Tilting and bonds can come later as you build capital.