Advice on my situation

[Lithium]

You need to make your own asset allocation.  No one here knows exactly what your long-term investing goals or risk tolerance are, and you're best equipped to design something you stick with for the long haul.  Once you know what allocation you want, maybe then others can help you select the best mutual funds or ETFs to implement it.

You can read the WCI series if you aren't sure where to start:

https://www.whitecoatinvestor.com/designing-your-portfolio-part-1-goal-setting/

[SiR99]

Thanks, I'll definitely look into that book, but I won't be able to get through it fast enough since I have my board exam coming up in a couple months.

 

I'm currently ready to max out my roth IRA for 2016 and 2017, does anyone have any recommendation on what low-cost stock index funds (total stock market, S&P 500 funds, etc) I should buy and how much of each I should buy?

Thanks

[jfoxcpacfp]

Read Simple Wealth, Inevitable Wealth (latest version, not available on Amazon).

[SiR99]

Hi everyone, sorry for the late response I had a lot going on with my rotations and service exam so everything was put on hold.

My employer sponsored retirement account won't really serve me that well. I'll have to look into it further, but from what I understood, it is institution or state specific and once I finish and move I'll have to cash it out or transfer it to another IRA.

As of right now, I'll be transferring my rollover IRA money to a roth IRA, then I will max out both 2016 and 2017 contributions.

DMFA, I know you said my primary assets should be low-cost stock index funds, like total stock market and S&P 500 funds. Can anyone be more specific on what I should buy, should I do 100% of one, or 50/50? I'm not too sure what I should put this money into.

I also think I will just be leaving this money for retirement instead of using it as a down payment on a house as the return seems to be better long term. Is this the better option?

Is there any other investment options you guys can recommend for the rest of my money I currently have just sitting in my savings account? (This money is to be used as a down payment for a house or possibly a new practice in the future).

 

Thanks for everyone's help, you guys have been really great.

[DMFA]

Fidelity is fine. All the standard fund choices and they just reduced their expense ratios to compete with Vanguard.

What is your employer-sponsored retirement account like? 403b? 401k? How does the matching work? What fund options do they have?

[Sneezy]

Johanna is tough so don't feel bad   .  I agree with her and others that you don't need to be in too much of a hurry to buy a house, but saving for that is evidence of a lot better priorities than spending it on, say, a luxury car.

I use both Vanguard and Fidelity and both are fine.  Fidelity index funds are very similar to Vanguard and their customer service is generally better

[jfoxcpacfp]

Sure. You're a 2nd year resident and weighing the contribution to a Roth against the goal of buying a nice house in an expensive area. I simply think you should get a better plan in place first and concentrate on long-term goals, such as growing wealth over your career, before planning for a house you probably won't live in forever. That's just me RBTL, though.

As for the custodian, contrary to the opinion of the majority here, choice of custodian has far less impact on long term growth of wealth than does your investing behavior. Choose the custodian that you are most comfortable with (I like Fidelity and TDA, don't care for Vanguard, for example) and put together a properly diversified equity fund portfolio, dictated by the goals in your plan. Rebalance annually.

[SiR99]

DMFA wrote:

What are you doing with so much cash sitting around? How did all that get there? Why hasn’t it been earning you money?

Every dollar you don’t contribute to your employer retirement account, if it would be matched, is leaving even more money on the table. You should contribute 20-25% of gross income to retirement.

Buying a house fresh out of residency is fraught with risks, not least among which is leaving your first job within a couple years. Massive closing costs would erode any equity you might have built up in that short time. Don’t let realtors and HGTV sell you on the idea; it’s a complex decision.

Convert any traditional IRAs to Roth now, while you’re in a low bracket. That minimizes the taxes due. Take some of that cash sitting around and max a Roth IRA this year. This early on, your primary assets should be low-cost stock index funds, like total stock market and S&P 500 funds.

You’re at a very good starting point with no debt and cash on hand. However, there are a lot of vitally important concepts that you don’t seem to know. Read the resources mentioned above and consider sitting down with a financial planner.

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Thanks for the advice.

I will definitely max a Roth IRA out within the next couple weeks (any suggestions on if I should stay with Fidelity or use another company? Anything to look out for with Roth IRAs?)

As for the rest of my money, I was just saving it in hopes of investing or buying a house. I would love for that money to be earning me more money, but I just wasn't sure what to do with it (and I was worried I might lose it if I invested it poorly). Besides the Roth IRA, what other options do I have to invest in that will be safe and give me a little bit of earning potential?

[SiR99]

hightower wrote:

Wow, first of all you are very fortunate to have no debt at this point in your career.  However you managed to pull that off is great for you.  You’ve got a much better start then most.

If I were you, I would not jump right into investing with a risky real estate purchase.  You need to do the basics first.  Start contributing the max amounts to tax deferred accounts each year and develop a long term investment plan involving stocks and bonds.  There are better ways to get exposure to real estate investments without actually purchasing property.  Real estate is risky and even though it can be potentially rewarding, I would not contribute my entire nest egg to just that (and no successful investor would).  Later on down the road when you’re already building wealth in tax advantaged accounts and you still have money left over to invest elsewhere, you can then look into buying property if that’s still something you want to do.

Low cost index funds should be the bulk of your investments in my opinion.

Check out the many articles on this website that outline asset allocation and portfolio options and take the advice to heart.  Read the whitecoatinvestor book and really learn what he outlines in there.  Have you read the getting started information on bogleheads.org yet?  If not, now is the time for sure.  Consider picking up a couple of the recommended books from this site too.  There’s an especially good article in the blog section about investment mistakes that people have made over the years.  Read them and see how easy it can be to lose a lot of money if you don’t know what you’re doing.

Again, you have a very fortunate situation and you want to make sure you do wise things with your money from this point forward. In summary, my advice would be to spend the next couple of years of your residency reading and learning about investing and personal finance.  Continue to contribute as much as you can afford into your tax advantaged accounts including the 401k and Roth IRA.  Spend a lot of time reading things on this site and others.  Once you start working, you’ll be miles ahead of most 1st year attending.

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Thank you for the great info! I will definitely start looking into those resources you pointed out.

[SiR99]

jfoxcpacfp wrote:

1. Convert to a Roth IRA


2. Yes. If you can’t afford the downpayment on a nice house in a HCOL area when you’re ready to buy and you are determined to go ahead with it, you can take your original contributions out of your Roth with no tax or penalty.

You didn’t ask, but imho, I think your priorities may be out of whack.

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Thanks for the reply,

Can you give me any insight on why you think my priorities may be out of whack? I am open to changing my priorities.

 

Do you guys think I should stay with Fidelity for the Roth IRA or go with Vanguard or another company? Also, is there a specific type of Roth IRA I should be looking for?

 

[YSH]

Yes, HGTV doesn't help.  Some of the home buyers sound downright whiny and unrealistic, to be honest.  But, you know, the right path is seldom glamorous or interesting.

Social pressure is no joke.  For the average 30-35 year old person who have been living life based on criteria and milestones created by someone else (XX on MCAT, >3.5 gpa on transcript, do this, do that), it is not easy to steer away from following the crowd, especially when buying bigger and newer gives one a nice ego boost.  Have you not notice that by 3rd or 4th year in med school, all the couples suddenly get engaged or married?  Medical training is a total pressure cooker environment, both academically, socially and developmentally.

Also, most older generations (especially immigrants) have the mindset that becoming a landlord is THE way to build wealth and they will beat that idea into their well educated/ high income earning offspring. If you look at life from their POV, there are truth to that.  Most immigrant parents work blue collar jobs and don't have access to a lot of retirement planning vehicles or tax saving options.  And for whatever savings they do have they are still very much pressured by "financial advisers" from their local banks to buy this or that stock, essentially taking money out of their hands.  To these hard working older immigrants, home-ownership is a tangible wealth builder, something that IS in "THEIR" control and can serve as their retirement account.  So for the average resident who has managed to crawl his way out of the blue collar family up bringing, trying to come up with another financial game plan isn't easy.

This is just another variation of how being privilege gives one such an upper hand.  Privilege can be better education, better endowment, better (career, parental) guidance or better connection.

Didn't WCI himself credit his mom for jump starting his financial savviness?

[Zaphod]

hightower wrote:

notadoc wrote:

conniebird wrote:

Why is everyone in such a hurry to buy a house?

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Brainwashing from real estate industry, social pressure (what you’re blank years old and you haven’t bought a house?!) and HGTV.

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Absolutely.  Speaking of HGTV, I was watching it at work last night during some downtime (we don’t pay for cable at home so I never watch it unless my wife is watching it on Netflix), but their shows are RIDICULOUS!
There was an older couple with no kids on there ready to spend over 500k on a house in Louisville KY, but they weren’t sure if they were okay with the house because it was 10 years old and had a few light scratches in the floors and they thought it would need 50k in upgrades right away. The house looked brand new still.

Maybe they are super rich and planning on paying cash, I don’t know, but it seems crazy to me to spend over half a million dollars on a very large house when you’re 55 years old and its only 2 people living in there.  To each their own I guess.

Made me realize that I’m a lot more frugal than I thought.  If my wife and I end up not having kids, I’m going to downsize us to something tiny, super energy efficient, and cheap enough to pay off really quickly and use the money I would have spent on housing to instead travel a lot more.

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We hired an older CRNA at our practice and they immediately bought a house, single person and since I'd also just put down an offer (sltly smaller but 50% cheaper) and wrapped up my looking I had seen the place before. It was huge, and gorgeous of course, but too big for our small family and way more than needed. I could not believe it, one person in a just over 3k sq ft house, less than 3 months on the job. You may not like it or we may not like you, now the practice basically owns them, no leverage.

Maybe they have the cash and dont care, but also made me realize im not too crazy.

[Craigy]

conniebird wrote:

Why is everyone in such a hurry to buy a house?

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Renting is expensive.

[hightower]

notadoc wrote:

conniebird wrote:

Why is everyone in such a hurry to buy a house?

Click to expand…

Brainwashing from real estate industry, social pressure (what you’re blank years old and you haven’t bought a house?!) and HGTV.

Click to expand...

Absolutely.  Speaking of HGTV, I was watching it at work last night during some downtime (we don't pay for cable at home so I never watch it unless my wife is watching it on Netflix), but their shows are RIDICULOUS!
There was an older couple with no kids on there ready to spend over 500k on a house in Louisville KY, but they weren't sure if they were okay with the house because it was 10 years old and had a few light scratches in the floors and they thought it would need 50k in upgrades right away. The house looked brand new still.

Maybe they are super rich and planning on paying cash, I don't know, but it seems crazy to me to spend over half a million dollars on a very large house when you're 55 years old and its only 2 people living in there.  To each their own I guess.

Made me realize that I'm a lot more frugal than I thought.  If my wife and I end up not having kids, I'm going to downsize us to something tiny, super energy efficient, and cheap enough to pay off really quickly and use the money I would have spent on housing to instead travel a lot more.

[notadoc]

conniebird wrote:

Why is everyone in such a hurry to buy a house?

Click to expand...

Brainwashing from real estate industry, social pressure (what you're blank years old and you haven't bought a house?!) and HGTV.