Is my strategy missing anything?

Submitted by McCallistersFurnace t3_zyzocm in personalfinance

I’m 28 years old. Income is roughly $88k in a HCOL city. I’m maxing out my Roth IRA with 100% in VTWAX. Putting 14% into 401k with an additional 6% company match. 401k is 100% in FXAIX. That’s it. Am I missing anything? Are these funds okay?

Edit: Thank you all so much for your advice and reassurance. I tend to worry that I chose the wrong funds and this helps. I have a 6 month emergency fund, and will continue to try to work towards maxing my 401k. I messed up and didn’t enroll in an HSA, but will do so next November.

Thank you!

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ChiSquare1963 t1_j28zsc2 wrote

Excellent retirement strategy. With your 14% and 6% match, you are meeting the general guideline of investing at least 15% to retire in your 60s. The Roth IRA adds tax diversification and flexibility to retire a bit earlier or to cut back on contributions temporarily while you pay for daycare or other short-term major expenses. 100% in stock is a good choice at your age and those funds are well-diversified with low fees.

Other items to consider: Emergency fund consisting of 3-6 months expenses in an account that isn’t subject to market swings. Disability insurance. If you have dependents, term life insurance. Paying credit cards in full every month.

Congratulations on making excellent financial choices!

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TinyClayballs t1_j2agvo6 wrote

> The Roth IRA adds [...] and flexibility to retire a bit earlier

Can you expand on this a bit? Is this because you can withdraw contributions without tax consequences?

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xanadu111 t1_j2bn1t6 wrote

I believe the amount you contribute to a Roth IRA can we withdrawn penalty-free at any time. If you plan to retire a few years early, maxing a Roth IRA and funneling any excess into a regular brokerage account is the way to go. You'll want to leave your 401k alone until you reach traditional retirement age.

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ChiSquare1963 t1_j2c2t8z wrote

General guideline is to invest at least 15% of income to retire in your 60s. OP is investing 14% plus 6% max, which meets the guideline. The Roth IRA is exceeding the guideline, so OP should be able to retire before their 60s.

You can withdraw Roth IRA contributions at any age, as xanadu111 commented, but you can also do Substantially Equal Periodic Payments under Rule 72t to withdraw from other retirement accounts without incurring penalties. The critical bit is accumulating enough to be able to retire early, which requires investing more than 15% of income.

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93195 t1_j28p8x8 wrote

That’s fine. At some point as you get older, you’ll want to diversify beyond 100% stocks, but okay at 28.

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anshesaid t1_j29bmsz wrote

I agree but I’d consider adding bonds to trad 401k/IRA or other tax deferred accounts.

I take the same approach and have 100% of my Roth IRA in VTWAX. Figured I want the highest growth potential, all stock allocation for tax-free future withdrawals.

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McCallistersFurnace OP t1_j2b462y wrote

Thank you! I have edited my post. Is the general consensus mid-thirties to start thinking about bonds? Maybe 10% bonds?

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93195 t1_j2bb3l2 wrote

At some point, maybe switch over to a target date fund and let them pick the percentage for you. But yes, if you do that in your mid 30s, expect the bond percentage to initially be around 10%, increasing as you get older.

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CelticsWin7 t1_j28tt3u wrote

  1. Contribute up to employer 401k company match
  2. Max out Roth IRA
  3. Max out HSA
  4. Max out 401k

Make sure to have a 3-6 month emergency fund as well.

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wolf8sheep t1_j29728t wrote

Also look into if your employer offers any after tax contributions with in service distributions to use the mega back door roth to go over cap as well as making use of the new 529 to roth conversion for the tail end of a 20 year plan to fund your roth with up to 35k.

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MalibK t1_j2bld53 wrote

I have a question? Why should I invest/max into HSA. I am 26 but really don’t see the benefit to it. Is there something I’m missing.

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kikk89 t1_j2c1vx7 wrote

HSAs are a trifecta super power account. Contributions are not subjected to tax. You can invest and grow tax free, and if you spend money on qualified expenses, it comes out tax free. The money rolls over and grows each year, unlike an FSA.

In retirement, if you happen to use the money for something other than medical expenses, you just have to pay taxes. With the way things cost today, I cannot imagine I will have a problem spending this appropriately in retirement.

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CelticsWin7 t1_j2c33hc wrote

It's triple tax advantaged. Also there are age no restrictions or penalties on an HSA when you can use the funds on healthcare

The average retired married couple retiring at 65 spends $315,000 in healthcare costs over the course of their retirement according to Fidelity. Everyone will have healthcare costs as they get older. Healthcare costs are only going to increase as time goes on.

I just turned 31, so I know how you feel. Your young, healthy, and feel invincible. I know it doesn't seem important since you have your entire life ahead of you. But nobody lives forever. Our bodies break down, we get sick, we get diseases, we fall off ladders, we fall down the stairs, we get in car crashes, etc.

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Agreeable-Roof-5552 t1_j294p6a wrote

Ok I have to ask you - what do you do for a living? Ive been in the same field for over 20 years with a Masters Degree (required) and I don't make that much. Please advise me.

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anshesaid t1_j29aiva wrote

This. My starting salary as a process engineer (BS in chemical engineering) in 2012 was $70K in Southern California. Now I’m 32 and my salary has doubled to $150K, which is quite low compared to my high tech friends who started at $100K+.

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8andahalfby11 t1_j297mib wrote

Switch fields to something in STEM that makes more.

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jimmyptran95 t1_j29zqmc wrote

I highly agree, my first industry job at a biotech in CA Bay Area as a bench scientist, with a bachelor’s degree, pays out $100k per year as base salary (it’s actually lower than the average salary of similar position at the same company ~110-125k) which comes out to $60k a year after taxes. I was less than half as much in academia smh

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strongchocolate16 t1_j29qm91 wrote

Sales and marketing. I was making close to this with a BS by 25. Got my masters and nearly doubled income in LCOL area.

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BatmanBinBatman t1_j2cnix8 wrote

bruh, sounds like you are underpaid and that masters degree is worthless. I hope you're not paying loans and are forgiven on the debt. Go into any STEM field and you don't need a masters...

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Ok-Strain-9847 t1_j2a1u92 wrote

The only thing I might suggest is to raise your 401k contribution by 1 percentage point for each raise you get going forward, you won't miss it in your paycheck, and it will reward you greatly in the future.

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kczar8 t1_j2av44g wrote

I’ve done this and I’m now maxed out on 401k. Highly recommend!

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mrbrsman t1_j28s78d wrote

Solid foundation. Eventually you will want to consider bonds and check on your equity diversification. Probably mid-30s or $500k whichever is first.

Highly recommend Personal Capital. Their portfolio analyzer is great to see your portfolio’s allocation, sector concentration and fees across all your accounts

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_Nuba_ t1_j28otd0 wrote

Yes those funds are okay. Low fees and well diversified.

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Firm_Bit t1_j29oklr wrote

Dope and beer. Otherwise looks ok. If you want to learn more the 3-fund portfolio is a good and easy start.

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winkman t1_j2ah5og wrote

Do you own a house, or do you rent?

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After-District8811 t1_j29dvkj wrote

You’re ahead of most of your peers. If your goal is to retire early try to work towards maxing out your 401k.

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ynotfoster t1_j2cg8vp wrote

Damn, I wish I had done that at your age. Congratulations, you are doing well financially.

One rule of thumb is to save half of every raise you get.

Another is to marry someone who is on a similar spending/saving path.

Then keep the finances on autopilot and live your life to the fullest.

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Listen-Natural t1_j2ekvf3 wrote

So your putting roughly 20% of gross income away into Roth IRA and 401K combined?

I am 29M and also make 89k in a HCOL area.

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FreddyLynn345_ t1_j28wip6 wrote

Why put all your eggs in only 2 baskets? Personally, I'd diversify the investments further

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93195 t1_j28z4ee wrote

The S&P 500 fund holds the largest 500 companies in the US. The total world fund holds 9,534 stocks from all market capitalizations and all market sectors across the world.

OP isn’t in two baskets. They are in approximately 10,000 baskets worldwide (okay, a bit less if you want to subtract the overlap).

It is literally impossible to diversify further within stocks. If you mean adding things like bonds, treasuries, etc, then okay.

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biffmaniac t1_j298fy3 wrote

To add my two cents to your great explanation, at age 28, I'd be 100% in equities with 0% bonds and treasuries. But to each his own. OP took an aggressive approach and appears comfortable with the risk.

Maybe both of us are reading Freddy's comment wrong, but I agree, this is diverse in what I would consider to be an appropriate way.

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kveggie1 t1_j28q30b wrote

I think that the investments are not very diversified. It is OK to start. Learn more and diversify (small, mid, large, value, growth, some international, some REIT)

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Ruminant t1_j28sk68 wrote

Every asset class you just mentioned is already included in OP's two funds. OP is plenty diversified.

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xXxEcksEcksEcksxXx t1_j29ib0h wrote

> Every asset class you just mentioned is already included in OP's two funds

While that is true, the long term performance of US Total Stock Market and S&P 500 is virtually identical, with a difference in return of 0.01%. (Yes I know VTWAX is total-world, just using US for simplicity's sake). Point being, the small/mid/value for example, are not a large enough percentage of the portfolio to make a meaningful difference.

Having said that, OP is perfectly fine as-is and need not change anything. However, a 10% "tilt" to US Small Cap Value (for example) would have produced an additional $300,000 in returns over the period 1972-2022. Link

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