(originally posted here∞)

"Staying the course" part 0 - the course

I've read a ton on the subject of financial plans over the last month, but I've never actually written one, so here are my thoughts for review.

Age: 23

Goal: financial independence in 30 years. I won't say "retired" because I plan to be doing something productive (hopefully profitable) from now until I drop dead, but I want complete freedom to start a company, write music, travel the world, run for public office, or whatever else comes my way.

Tax bracket: 28%

Lifestyle: I live with my college roommate and drive a 10-yr-old car, so my mandatory expenses (rent, utilities, food, health, transportation) are only around $1k/mo total. My MS Money file looks kind of erratic as I've gone to school, changed jobs, etc., but preliminary budgeting indicates I can be very content with discretionary expenses under $500/mo (long-term average).

I am single, legally; my girlfriend lives here, but her income goes mostly toward her debts, so let's leave her out for simplicity. I plan to buy a house in the next 3-12 months + a few toys, which will obviously make my lifestyle more expensive, but I value my naturally frugal outlook: overall goal is to save $2k/mo in one form or another.

Current assets: around $4k in cash savings (3% @ ING Direct), and another $4k in individual stocks I'm in the process of selling asap. I'm enrolled in the company 401(k) (see below) but have contributed less than $1k so far since just started. So basically I'm starting from scratch.

Investment target: 90% equities / 10% bonds. I don't forsee any problems psychologically handling volatility -- I'm a longtime statistics geek and a semi-professional poker player, so variance isn't exactly a foreign concept. Plus, I'm way too lazy to watch the evening news (much less log into my brokerage account) often enough to make rash market-timing decisions. Studies seem to show there's not much benefit going above 90% stocks, so that sounds like a decent number, especially since many of my equities won't be stocks at all (house purchase, REITs, oil).

Everything above seems pretty straightforward. What I don't know is exactly which securities I'm going to buy. Here's a rough sketch:

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Large-cap value fund = A%
Large-cap growth fund = B%
Small-cap value fund = C%
Small-cap growth fund = D%
International stock fund(s) = 15%
Real estate & all other = 10%
Subtotal EQUITIES = 90%

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Bond(s) & bond fund(s) = M + N + ... ?? ... = 10%

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TOTAL PORTFOLIO = 100%

So, A + B + C + D needs to be 75% of my total portfolio. I want A-D to be represent the same proportions you'd find in Vanguard TSM, but in separate funds for annual rebalancing (or, e.g., in case I decide to follow the small/value tilt advocated here as a way to slightly increase risk & reward...personally I think I've got enough risk as is). Where do I look up those proportions?

For International, is one VG fund like Total Int'l enough or should I split it as well? Diversity is an obvious enough goal, but perhaps there are tax advantages or other factors I'm missing...

For real estate, I think my future house + the high-priced climate + the fact my total portfolio is very small means I don't need to buy a REIT fund at this point. Thoughts? FWIW, I'm shopping for houses in the $150-175k range, shooting for a 15yr 80/20 fixed mortgage somewhere under 5% APR for the main loan. (Only talked to one lender so far, they quoted me 4.875% with $0 down, figure that's not bad.) I hate paying interest, so I may even try a 10yr depending on how it impacts my ability to save & invest discretionary income.

As far as bonds, I know very little. I've read the FAQ on I-bonds and absorbed some of the other key points (e.g. which funds to hold in a tax-deferred account), but for now consider me a newbie. Given the details I've provided so far, how would you recommend I create the last 10% of my portfolio? Considering the tax implications, are any of the bond funds in my 401k worth considering? Here's the whole list just for completeness.

Fund name (SYMBOL) - expense ratio - relevant index
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Fidelity Magellan (FMAGX) - 0.63% - S&P 500
Fidelity Growth Company (FDGRX) - 0.84% - Russell 3000 Growth
Fidelity Contrafund (FCNTX) - 0.94% - S&P 500
Vanguard Institutional Index Plus (VIIIX) - 0.03% - S&P 500
Vanguard Value Index Institutional (VIVIX) - 0.08% - MSCI US Prime Market Value
Vanguard Growth Index Institutional (VIGIX) - 0.08% - MSCI U.S. Prime Market Growth
Artisan Mid Cap Inv CL (ARTMX) - 1.19% - Russell Midcap Growth
Managers Fremont Institutional U.S. Micro-Cap Institutional (MIMFX) - 1.30% - Russell 2000 Growth
Royce Low-Priced Stock Inv CL (RYLPX) - 1.49% - Russell 2000
ING International Value CL I (NIIVX) - 1.21% - MS EAFE
Fidelity Overseas Fund (FOSFX) - 1.05% - MS EAFE
Fidelity Intermediate Bond Fund (FTHRX) - 0.61% - LB Int Govt/Credit Bond
PIMCO Total Return Inst CL (PTTRX) - 0.43% - LB Aggregate Bond

Company matches half up to 6% pretax; my allocation is thus at 6% until further notice. Currently I'm directing 50% to VIIIX, 25% to VIVIX, and 25% to VIGIX; total so far is a bit under $1k. Kind of redundant, I know, but it sounded like a decent plan that would let me roll into my final asset allocation with the fewest transactions & fees en route.

Continuing with the subject of implementation, I don't have any IRAs. I have a feeling maxing out a Roth is in my future, but am waiting until I have a solid plan on paper. Not sure if I need to open a taxable brokerage account yet (still in the process of selling off & closing old crappy ones).

I assume VG is the place of choice to transact all of the above? What sort of fees should I expect considering my balances will be low initially? Given those answers I think I can draft a plan to distribute things between 401k, Roth, and (maybe) taxable, though if anyone wants to do it for me they're welcome to :)

For liquid assets, I'm happy with ING + USAA for savings and checking. Between buying a house, accumulating an emergency fund, and everything else, I don't think it makes sense to look into more complicated ways (CDs, bond ladders, ??) to store what little cash I have, at least not yet. I do plan to use my ESPP as short-term high-yield savings (see discussion #41699), but that's rolled immediately into ING so it doesn't really affect anything else.

Insurance: enrolled in awesome healthcare, life insurance @ 2x salary, and disability insurance @ 60% salary via my company. Don't plan on leaving them anytime soon. I've upped the liability on my car insurance to 100k/300k per person/incident, 50k property, ditto both for un/underinsured motorist. $25k of renter's insurace @ replacement cost. I don't think I need higher $$'s or an umbrella policy or anything, considering I have neither major assets nor dependents, but I'm no expert. (I'll shop for really good homeowner's insurance on my house, obviously.)

Anything else I'm forgetting?

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