Taylor recently graduated. She wants to reach financial independence as soon as possible. What should she do first: invest or repay low-interest debt?
Carter doesn’t want to pay too much for his investments. He’s worried about the tax drag. He wants to know how to improve cost efficiency in his portfolio. How should he manage decisions about basis points, dividends and capital gains?
Our first anonymous caller has been working and investing for a decade. Today her portfolio is large enough that she and her husband can finally take a mini-retirement.
They’d like to rebalance their portfolio. They want it to reflect the fact that they won’t be working for a while. They’d also like to calculate how much money they need to travel with their children. How should they handle this?
Our second anonymous caller is worried that their portfolio is out-of-whack. Their money is in a target date retirement fund. They’d like to move some of it to a three-fund portfolio. But this is a scary time to sell. Stocks are low. What should they do?
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
P.S. Got a question? Leave it here.
Here are the details:
Taylor asks (at 03:13 minutes): I’m 24 and recently graduated with a masters in engineering.
I’m starting my first job in a few weeks and I would love to get your guidance on how to start building financial independence.
I’ll make $135,000 per year and I pay about $900 per month in rent.
Last February, my partner and I moved in together. At the time, I had a part-time job and $10,000 saved. I took out a credit card with a zero percent interest offer for 15 months, which helped me cover moving expenses.
This credit card has a balance of $7,000. I have $3,000 in savings, which is not a comfortable position, but I also have zero interest until May.
My other debts include $25,000 of student loans and an auto loan with a remaining $20,000 balance. I have $15,000 in my investment portfolio, and I haven’t yet maxed out my Roth IRA for the year.
My goal is to reach financial independence as quickly as possible.
How should I approach paying off my debts?
I’m familiar with the debt snowball method, but with the zero percent interest on my credit card and the pause on student loan payments, I’m not sure what should be a higher priority: repaying debt or investing?
Anonymous asks (at 21:35 minutes): My husband and I have been working for the last decade. We’ve saved enough to enjoy a mini retirement. We’re 36 years old, married, and have a two-year-old and a five-year-old.
I quit corporate life three years ago. My husband may leave his job in the next 6-12 months. Then we want to spend at least three years traveling and enjoying time with our children.
We intend to make a little bit of income along the way.
Our portfolio is made up of Vanguard index funds, dimensional funds, and other funds.
The total value of this portfolio is around $3 million, 90 percent of which are stocks, 6 percent bonds, 2.5 percent real estate, and 1.5 percent cash.
We also have about $700,000 in tax-sheltered accounts like 401(k) and Roth IRA accounts and about $800,000 equity in our home. Our current household income is close to $750,000.
I’ve switched off dividend reinvestments and we’re not investing any extra income. This will give us $100,000 to fund the first year of our mini-retirement. Then we’ll access additional cash by selling the assets.
Here are my questions:
When we take our sabbaticals, and our incomes will be close to zero, how should we pay ourselves?
When someone says: “take out 4 percent from your portfolio,” how does that work? Do you take out 4 percent of each fund or choose a subset of funds based on different factors?
Do you sell assets once a year? Or every quarter? Or is it possible to automate this process?
How do you suggest I balance our portfolio?
Another Anonymous caller asks (at 36:37 minutes):
I’m 49 and I have $750,000 saved for retirement. The money is divided among a Traditional IRA, Roth IRA, taxable brokerage, and a Simple IRA.
I’m aiming to retire at 59, but would love to retire sooner if I cross the $1.2 million mark.
I recently moved in with my partner. Our shared living costs are low. I own a condo in another town, which I rent to a fantastic tenant. It’s cash-flow positive.
I have $150,000 equity in the condo, as well as an emergency fund in cash and I-bonds. I’m debt-free aside from a mortgage.
My Simple IRA is in target date funds. The balance is now over $100,000. I want to transition to a three-fund portfolio with an 80/20 asset allocation.
My question is about transitioning from the target date funds to this allocation.
I’m a buy-and-hold investor. I’ve never sold during a down market before. I’m hesitant to sell the target date funds in my account at a loss, even though that’s required in order to transition to a three-fund portfolio.
I’m supposed to buy low and sell high … right?
Carter asks (at 53:51 minutes):
I’m in the 24 percent income bracket, and I’m trying to make my portfolio more tax-efficient.
What’s more cost-effective in a taxable brokerage account:
- A mutual fund like Fidelity ZERO Total Market, which creates taxable distributions?
- B) A lower-cost ETF with a moderate expense ratio?
The same question applies for a foreign fund with a low expense ratio vs. a domestic fund with a higher expense ratio.
Can you quantify the additional value of dividends that compound quarterly vs. annually?
I’m trying to minimize both taxes and fees, and I’m not sure which trade-offs are worthwhile. How can I make sense of this?
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