Hey everyone, it’s Finance Fridays again. Today is going to be a post about “Just tell me what to do”.
Just tell me what to do?
So I have some friends and colleagues. They kind of know that I’m somewhat knowledge about finance. I talk to them about maximizing their 401k, Backdoor Roth IRAs, pensions, and the 20 Year Career. I also mention the importance of life insurance, disability insurance, and umbrella insurance.
However, after I talk to them about one subject or another, they either forget or don’t want to do anything about it. This would be fine if they just didn’t want to take my advice – to each their own. However, what usually happens is that they talk to me months later asking about the same subject. I usually try to re-explain things and direct them to my blog. Then if they want more in depth information, I send them to White Coat Investor and/or Physician on Fire, because I’d prefer they learn and understand. However, after all is said and done, usually they answer they come up with is:
“Just tell me what to do.”
I am very against just telling people what to do. Everyone has a different situation and nothing is perfect. However, after a lot of thought, I think it is probably ok to come up with a “default template” for people to get started with at least. So let’s review the Checklist again:
Make your Credit Card Debt zero. No excuses.
Do not continue down this list until it is zero.
Pay as much of your student loan debt down as possible. Prioritize any loans over 6% interest. Loans between 4-6% interest are dependent on you. Loans at less than 4% interest are personal preference, if you want the monkey off your back, go ahead and pay them, but only after maximizing your 401k and Backdoor Roth IRA.
401k/403b and 457 (if available)
Maximize your 401k/403b and (if possible) your 457 contributions. Make sure you stay aware of any changes to the contribution limits.
Do your Backdoor Roth IRA ever year. Some prefer to do it the 1st day or week of the year, whereas others may prefer to do it mid year or end of year.
Whatever extra money you have can go here into a standard brokerage account. Just remember if you pull out any money from here before 1 year, you will have to pay short term capital gains on it. I would not consider this a liquid account.
If you like real estate or dividend stocks, I consider them here. Others may disagree, but I think this should only be a small part of your portfolio.
Of course, Crypto is only for real gamblers. Stay away unless you have some play money to bet on some long shots.
Ok, now where do I put it?
Since this a default portfolio, I’m going to recommend sticking with a 3 fund portfolio with the “age minus 10 in bonds”.
For example, let’s say John Smith is 30 years old and just finished his residency/fellowship. Unfortunately, he didn’t know about or couldn’t contribute to his Roth 401k/403b in residency. So, now after signing his first job contract, he needs to figure out where to put this 401k money.
First things first, he should try to maximize his 401k/403b contribution in that half year from July-December. Try not to make The Biggest Mistake of Your Life.
At age 30, using the age minus 10 in bonds mentality (30-10), he should plan to put 20% in bonds. So then, he should opt for a stock/bond split of 80/20, so his portfolio should ideally look like this:
VTSAX – Vanguard Total Stock Market Admiral Shares
VTIAX – Vanguard Total International Stock Market Admiral Shares
VBTLX – Vanguard Total Bond Market Admiral Shares
VTSAX + VTIAX = 80%
VBTLX = 20%
How you split up the VTSAX and VTIAX is up to you. Some prefer to do mostly domestic (64/16), while some prefer a slightly more international tilt (55/25 or 53/27 or whatever). Honestly, this just po-tay-to versus po-tah-to. Just choose what you like. For reference, you can see my 2018 portfolios here. I’ll probably do another update post for 2019 soon, although not much has changed.
However, if your 401k doesn’t have the above funds, then you’ll need to approximate a portfolio.
Wait, what about my Backdoor Roth IRA and Taxable Accounts?
You can use the same three fund portfolio for all your other accounts to start off with. Or, if you prefer, you can be a little more aggressive with your Backdoor Roth IRA and Taxable Accounts and just go with VTSAX and VTIAX in whatever split you want. Just remember you need to rebalance at least yearly with age – 10 in bonds as your guide, for your entire portfolio.
Is that it?
Yea, pretty much. I would consider all of the above to be the “Simple Doctor Plan”. Just do all the things above and you are off to a great start financially. In fact, if you only did the above, you’d probably be fine as long as you rebalanced every year and didn’t overspend.
I hope after all this, you start asking questions. Like “Why Index Funds” “Why Age Minus 10 in Bonds”, etc. You can start with Talking the Talk and The Philosophy.
Then you can start combing though the rest of my Finance Friday posts. And then maybe you’ll want to do a little reading:
However, I must also remind everyone to please buy life insurance, disability insurance, and umbrella insurance. I’ve tried to convince my friends to buy policies, and while some of them have, others are resistant. The usual excuse that they have no spouse and no kids and thus no need for insurance. I reiterate the possibility of their own disability, but it seems to fall on deaf ears. The chances of using these policies are low, but if you are one of the unlucky few to need it, you’ll be glad you have it.
529s are something I would recommend personally, but are ultimately a personal decision.
Just the Simple Doctor Plan for the “Just tell me what to do” people.
Although I don’t like just telling people what to do, I’m pretty comfortable with this “standard” advice.
That said, I would hope after doing the above, people will start asking questions and want to learn more.
Then you can move on to my other posts and read some books.
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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