Percent of income to investments?

Benac

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What percent of my income should be out to mutual funds? I'm currently using American Funds and would like to take advantage of their automatic investments.

Little background: married 9 years, 6 month old son, salaried management position, practice a mix between a traditional and modern lifestyle (fiscal conservative but willing to spend occasionally on confront or travel).
 

JoseCuervo

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How old are you?

Based on the young kid I assume fairly young. You probably would be better off with 100% in equities Mutual funds.

The amount you put in is as much as you can.

Some other questions probably need to be answered.

How much debt do you have, other than your mortgage?

Do you have a retirement plan at your work?

How stable is your employment?

Where are your mutual funds purchased right now?

Little bit more information will help.
 

dukes_daddy

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I would look for an outfit with lower expense ratios and no sales charge. And take advantage of a Roth IRA to the max.
Great advise. Only thing I would add is perhaps consider a CFP. My Edwards Jones guy is awesome; annual review and talked me off a ledge a few times during the recession.

Wise to keep comfort and travel in the mix. Time with loved ones and travel experiences is most important.
 

Benac

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How old are you?

Based on the young kid I assume fairly young. You probably would be better off with 100% in equities Mutual funds.

The amount you put in is as much as you can.

Some other questions probably need to be answered.

How much debt do you have, other than your mortgage?

Do you have a retirement plan at your work?

How stable is your employment?

Where are your mutual funds purchased right now?

Little bit more information will help.
28 years old with zero debt. I do not own a house. My work is stable and offers 5% match 401k which I max out. All mutual funds are purchased through American Funds. I'm currently diversified across 5 different ones.
 

npaden

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10% is a good start. 15% is better. 20% will more than likely get you there a little early.

Use the ROTH if it is available. (Unless you are in the top income tax bracket).

At your age how you are investing those funds is almost more important than how much you are investing.

Unless you are seriously risk adverse you should be invested in 100% equities, no fixed income. Also should have a mix of foreign equity in the mix. Maybe some small holdings in Real Estate and Natural Resources funds. (Maybe 5% each).

The target date funds are nice and if you don't feel like you can take on making individual fund choices a lot of folks use them but they are pretty conservative from a risk perspective and have a % in fixed income even for the younger folks. They also tend to have a high expense ratio.

One tip would be to never borrow against your 401k even to buy a house.
 

Steiny

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10% is a good start. 15% is better. 20% will more than likely get you there a little early.

Use the ROTH if it is available. (Unless you are in the top income tax bracket).

At your age how you are investing those funds is almost more important than how much you are investing.

Unless you are seriously risk adverse you should be invested in 100% equities, no fixed income. Also should have a mix of foreign equity in the mix. Maybe some small holdings in Real Estate and Natural Resources funds. (Maybe 5% each).

The target date funds are nice and if you don't feel like you can take on making individual fund choices a lot of folks use them but they are pretty conservative from a risk perspective and have a % in fixed income even for the younger folks. They also tend to have a high expense ratio.

One tip would be to never borrow against your 401k even to buy a house.
This is very good advice.
 

JoseCuervo

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28 years old with zero debt. I do not own a house. My work is stable and offers 5% match 401k which I max out. All mutual funds are purchased through American Funds. I'm currently diversified across 5 different ones.

What is your first goal?

Fund college education for the kid (and future kids)?

Buy your first home?

Retire comfortably and live on the French Riviera?


The mix, the location of the assets, the specific fund family all are just tools to get you where you want to be.

Obviously, saving the most amount of money makes the financial goals easier to achieve.

Examples would be, money you don't need for 35 years (when you retire) should be invested as aggressively as you can tolerate, in equity funds (S&P 500 Index fund at any fund family). And should be in one of several different styles of tax-deferred investment accounts (IRA, Roth, 401k, etc).

Money you need in 18 years to pay for college would be invested aggressively at first, with it tapering as you get toward needing to withdraw it. And it could be in a regular account, a Custodian account, or a 529 type of account.

Money for the down payment of the home would be yet another time horizon, with a different mix.


None of these answers are telling you the answer you posed in the OP, but these questions and the answers will start you toward the path of thinking about your financial goal, and then how you proceed to that goal.
 

Flatrock

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Some good stuff so far. I think the biggest consideration is how much risk are you willing to take? If you can't stomach a 30-40% plunge in a bear market, then you shouldn't be in 100% equities. One of the absolute worst things that can happen is for you to be 100% in stocks and then sell at the bottom of a bear market. (Which is what happens to tons of people.) Everybody says they'll "ride out" a bear market but then they don't have the stomach for it when the market has gone down for 2 years, the news about everything is awful and it feels like the world is about to end.
 

Poke 'Em

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I'm 33. For every $1 I live on, $1.28 gets invested toward retirement. I have 16.5 more years that I HAVE to work, based on conservative ROR estimates. Figure out what your goals are. Do the math. Plan accordingly.
 

RobG

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28 years old with zero debt. I do not own a house. My work is stable and offers 5% match 401k which I max out. All mutual funds are purchased through American Funds. I'm currently diversified across 5 different ones.
Five funds, or five asset classes?

Everyone should know how to do the lion's share of investing themselves, what the asset classes are, how to really diversify, manage taxes, and what investments are rip offs. Hang around with the Boglehead nuts for a while and read some of their books. It may not make sense at first, but keep reading and you'll finally figure out that there isn't that much to know. If you still use an advisor you will at least know if he is trying to rip you off.
 

Benac

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It sure sounds like I'm a bit behind or caused confusion. I invest in various funds via American Funds. As of now, I've decided to invest 50% of my wife's income since we've be able to get by on my income alone for the past few years.
 

JoseCuervo

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Short answer. Invest as much as you can, every month, in mutual funds that are based on equities.

Middle Answer. Go open an account at Charles Schwab, move all your accounts into your Schwab account and buy their index ETFs that track the SP500 and, Schwab1000. 1 statement, low cost fees, performance that tracks the "market" for the next 35 years.


Long Answer: How much time do you have....
 

TXinTN

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Take advantage of any and all matching offered by both you and your wife's employers, then work on maxing out a Roth IRA for both of you, then work on maxing out both 401k's, then open a 529 college fund for your kiddo. You can borrow for college, you can't borrow for retirement. Buy low cost etfs in the roths. Avoid the pricy mutual funds in you 401k as best you can. Index funds are great. Time is your best friend. Save early and often.
 

idnative1948

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Wow! I am glad that we are not where you young folks are and truly feel for you. We both worked like dogs, daughters worked for and during their college educations and made it without loans with a little help now and then from us. I don't think I would have the marbles to do it again knowing what I know now. We saved and saved, trying to max our 401s, only bought toys (all used) with extra we saved from the household budget. We have a good financial person who we started with 6 months before the bust, but didn't get beat up too hard during that time. We have been well schooled in emerging markets, REITs, yada yada. If you have the time to research on your own, by all means do it. If not, find a professional to guide/advise you on your work 401s on what mixes and how agressive to be or not to be. Wife's 401 was double size of mine so we went conservative on investments with hers, and a tad more agressive on mine.

Jose has some great advise.
 

mtmiller

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I went 15% about 19 years ago after my supervisor said "just do it". I got used to it not being in my take-home. Not as many toys, but should be in a good place when I am eligible in 10 years and 2 months. Glad I took the advise.
 

Flatrock

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Short answer. Invest as much as you can, every month, in mutual funds that are based on equities.

Middle Answer. Go open an account at Charles Schwab, move all your accounts into your Schwab account and buy their index ETFs that track the SP500 and, Schwab1000. 1 statement, low cost fees, performance that tracks the "market" for the next 35 years.


Long Answer: How much time do you have....
Very well said. Index funds or ETF's are the way to go. Actively managed mutual funds and their managers have a terrible record beating the market after fees over the long run.
 

1_pointer

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I went 15% about 19 years ago after my supervisor said "just do it". I got used to it not being in my take-home. Not as many toys, but should be in a good place when I am eligible in 10 years and 2 months. Glad I took the advise.
Yeah, I messed up. Wish I would have went max allocation out of the gate.
 

grizzly_

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I'm heavy in VOO and VBR. One is basically the S&P, the other is a small cap - value ETF.

Built-in diversification and almost non-existent management fees are hard to beat.
 

Frenchy

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Invest 15% of your Gross not including any match and then save for a house if you think ownership is in your future.
 
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