My Grand Financial Plan...Help Please!

[ChromePony]

Hi all, I've posted here off and on with random questions but now I think its time to put it all together so I'm going to start from scratch.

I'm 22, just out of college and 3 weeks into a new job in the fun filled field of consulting. Financially speaking I tend to be relatively frugal and my salary leaves me with a good amount of disposible income...just how much I haven't quite figured out yet. My employer has a 401k that matches 25% of my contribution up to 6% (so I would have to contribute 24% to get the full match)

I also have some savings that I'm looking to invest...about 60k total to be exact, which comes from a combination of poker, family stuff and some money I have put aside to eventually pay off a no-interest college loan that Im not going to deal with till they make me. I plan on investing that principle and paying the loan off monthly out of my bank account to serve basically as a form of monthly investment.

I currently have holdings in some Vanguard index funds, and the 401k is there too so that is convenient. What I am looking for is a good, tax-efficient allocation for my money and maybe some specific funds to choose from. I know there have been tons of posts like this around here but it always varies a little situation to situation and well...this is my situation.

I was just playing around in excel with a few scenarios, feel free to comment and add your own opinions. Copying in the image file seemed like the best bet...




Final thoughts:
-Which bond funds are "the best", I know very little about these
-Im not sure how much I like the US right now, how international is too international or are there other ways to hedge here
-Any major sectors Im missing or should consider
-Vanguard has 3k fund minumums and fees for those under 10k, so I was trying to eliminate those by picking only a few funds to use.

I know theres lots here, I'd appreciate comments on any small part of it and I'd love to get a discussion going if people are into it. Thanks a bunch,

[Big TR]

Just a 401(k) note. If the company is truly matching up to 6% of your salary, you should plow the max 401k contribution every year. I'm guessing that you have the wrong information from your friendly HR rep, and they actually match 25% of 6%, which amounts to 1.5%. I have audited dozens of 401k plans and have never seen a company match 6% of the overall salary.

Personally, I don't want money in tax-free bonds when I'm young (I'm 29). For the long run, you are missing out on significant returns by having any money in bonds. Move that $5k to Emerging and Small Cap. I'm a value hound, and most of my money not in the S&P 500 index fund is plowed into the Vanguard Value Fund. You may want to replace the Emerging Market with Value.

You're young and want the magic of compounding to work for you. Tax-free bonds typically isn't the way to go. Although I understand you are looking for tax efficiency, the return you are giving up is usually more than you are saving in taxes. Choosing the index funds is tax efficient to start with, as there is little turnover. Go down that route.

[ChromePony]

Thanks for that advice, I'm positive that is what my HR rep told me cause I clarified it with her, but I'll check in with someone else...if its true I will contribute as much as possible but 24% is probably pushing it.

[celiboy]

http://www.early-retirement.org/forums/index.php

[Big TR]

Here's the thing, the maximum you can contribute is $15k. I don't know your salary, but take this max into account when considering what you can sock away.

[ChromePony]

Yeah I dont think I can afford more than that much anyway so I'm not too worried about the max. I'll probably start with around 10-15% contribution and see how that works for a few months before deciding if I can pump it up a bit more.

So after reading around a bit more I'm thinking something more like this:

Total Market: 20k
Small Cap: 10k
Intl Growth or Value: 21k
Emerging: 5k
IRA Taxed Bonds: 4k

401k TR 2045 Fund: ~5-8k/year

This look too aggro at all? I switched the Intl fund so I wouldnt have those redundancies with the emerging allocation, other than that its pretty straight forward. I keep hearing that Im young so I can afford to be aggressive, but others always preach bonds and savings...guess it just depends who you listen to. I'll keep adding the taxed bonds to my IRA every year though so maybe that will help with that.

[mattnxtc]

This is my take and trust me I am not knowledgable on this at all but have just talked to people at the company I am interning at.

i would max out ur 401k for as many years as u can profitablly afford to do it b/c lets be honest by the time we are set to retire we arent going to have any sort of social security plan.

Since you are relatively young now and hopefully have little to no expenses it allows you to get a lot into a retirement fund now before you start to incur real expenses like a family
just my take on it

[danny31415]

Actually, I think you should put the maximum in no matter what, as long as my scheme works at least.

The penalty for taking money out of you 401k early is 10% I believe, so as long as the money you put in is fully vested immediatly, then you can put the money in your 401k, get a 25% match, then take out the extra money that you didn't want to put in, and you have an instant 15% profit on that money.

I'm not sure how easy it is to just take out money though, anyone else know?

[ChromePony]

[ QUOTE ]
Actually, I think you should put the maximum in no matter what, as long as my scheme works at least.

The penalty for taking money out of you 401k early is 10% I believe, so as long as the money you put in is fully vested immediatly, then you can put the money in your 401k, get a 25% match, then take out the extra money that you didn't want to put in, and you have an instant 15% profit on that money.

I'm not sure how easy it is to just take out money though, anyone else know?

[/ QUOTE ]

Interesting, I hadn't thought of that angle before, it seems like thats a little too easy though. I am immediately vested and I'm basically certain that it is a full 6% match, but a 24% contribution is enough to put a pretty good dent in my disposable income. Does anyone know more about the early withdrawl penalties? I can dig around on Vanguard and see what they say.

By the way I chose an allocation for my 401k, its adjustable but for now I have it set to:

50% 2045 Target Retirement
30% Total International
10% Small Cap
10% REIT

Seems somewhat standard to me, slightly heavy on the int'l but my domestic confidence is low. I also have my other liquid savings that I can still use to diversify a bit more. The one nice thing is that the 401k funds arent subject to the fees and minimums, I actually considered getting some of the energy fund which usually has a 25k min, but Im not convinced that growth in that sector can continue on its torrid pace.

[Thremp]

Just buy a house. Skip the REIT.