Personal Finance 101 for Young Lawyers Forum

[ponderingmeerkat]

As a newbie risk averse investor, people on here would yell at me for how much I have in savings in comparison to investing. Where are non-expert investor people investing this money? Just index funds or is there something I'm really missing?

https://www.bogleheads.org/wiki/Lazy_portfolios

Read that webpage. It'll give you a good idea how to maximally diversify your investments using index funds/ETFs. Should help with the risk exposure. Good luck.

[Dr. Nefario]

As a newbie risk averse investor, people on here would yell at me for how much I have in savings in comparison to investing. Where are non-expert investor people investing this money? Just index funds or is there something I'm really missing?

https://www.bogleheads.org/wiki/Lazy_portfolios

Read that webpage. It'll give you a good idea how to maximally diversify your investments using index funds/ETFs. Should help with the risk exposure. Good luck.

Is there consensus on getting ETFs through Vanguard over Charles Schwab? Schwab seems to have better user reviews but Vanguard appears to be one of the most consistently good ETFs.

[ponderingmeerkat]

As a newbie risk averse investor, people on here would yell at me for how much I have in savings in comparison to investing. Where are non-expert investor people investing this money? Just index funds or is there something I'm really missing?

https://www.bogleheads.org/wiki/Lazy_portfolios

Read that webpage. It'll give you a good idea how to maximally diversify your investments using index funds/ETFs. Should help with the risk exposure. Good luck.

Is there consensus on getting ETFs through Vanguard over Charles Schwab? Schwab seems to have better user reviews but Vanguard appears to be one of the most consistently good ETFs.

The only consensus is there isn't much difference between Vanguard/Fidelity/Schwab. They all offer generally similar products, services and vehicles and they will all get you where you want to go.

Just know Vanguard was pretty much the first in this space so a lot of Boglehead posters will use Vanguard ETFs and Mutual Funds to refer to different types of investments (kind of like using Xerox or Kleenex colloquially) but there's virtually no difference.

[Joscellin]

Question if anyone is able to help out -

So I'm pretty investment ignorant, but understand the basics of traditional IRAs vs Roths, etc. My situation is this:

I have about 10k in an old employer 403b that I need to rollover - but am trying to figure out whether to roll into a traditional IRA or a Roth. My only income for this year has been the 35k for my SA, and I plan on starting biglaw after graduation, so I'm leaning toward Roth due to the difference in tax rates near term. Is that the right call? Notably, I have no existing investments beyond this account.

Assuming it is, where should I be looking at opening the account? It seems like most folks lean toward Vanguard or Fidelity? Can you open an account directly from a rollover without other minimum opening requirements?

Would really appreciate any advice or thoughts from those who are more money savvy. Thanks a bunch!

[foundingfather]

tag

[waldorf]

I know 0L's aren't supposed to post on this board, but I was wondering if there were other finance threads where one could discuss taking out student loans vs. investing/saving/whatever. Thanks in advance!

[GreenEggs]

I know 0L's aren't supposed to post on this board, but I was wondering if there were other finance threads where one could discuss taking out student loans vs. investing/saving/whatever. Thanks in advance!

Keep enough savings to have an emergency fund of 3-6 months of all expenses (whatever you feel comfortable with), and then use the rest of your savings to pay for school/living. No investment vehicle will get you guaranteed returns higher (or even near) the interest + origination of stafford unsub and grad plus loans

[Johann]

I know 0L's aren't supposed to post on this board, but I was wondering if there were other finance threads where one could discuss taking out student loans vs. investing/saving/whatever. Thanks in advance!

Keep enough savings to have an emergency fund of 3-6 months of all expenses (whatever you feel comfortable with), and then use the rest of your savings to pay for school/living. No investment vehicle will get you guaranteed returns higher (or even near) the interest + origination of stafford unsub and grad plus loans

with the caveat that if there is a chance you are going govt/public interest, max all loans.

[Necho2]

I know 0L's aren't supposed to post on this board, but I was wondering if there were other finance threads where one could discuss taking out student loans vs. investing/saving/whatever. Thanks in advance!

Keep enough savings to have an emergency fund of 3-6 months of all expenses (whatever you feel comfortable with), and then use the rest of your savings to pay for school/living. No investment vehicle will get you guaranteed returns higher (or even near) the interest + origination of stafford unsub and grad plus loans

with the caveat that if there is a chance you are going govt/public interest, max all loans.

Dude- even if only a chance? The size of that "chance" should have a strong impact on whether it makes any sense to max loans.

Blair- If you have enough funds to do the emergency fund and still keep something in investments, I'd consider taking out some Stafford loans. It's not remotely guaranteed, but at 6% this year with a 1% origination fee (so effective interest on what you receive of 6.06% I think?), there's a decent chance you'll break even or come out positive by leaving investments where they are, particularly if that "chance" Johann mentioned is decent-sized, and you might not pay any of them. Additionally- even if you hit BigLaw, between your SA money and first year in practice, you'll have two years where the student loan interest deduction will let you cut the effective interest rate on those loans for a while (and then you'll be making 180k and probably be able to refi a smaller loan burden without sweating it).

To try to explain that- I lucked out scholarship-wise and will hopefully make a bit over 50k next year. So I'll pay off all my accrued loan interest at year end, and get to deduct that from my income at the top bracket, which for me I think will be 25%. So that interest accruing at ~6% will really be more like 4.5% (or I guess 5.1% if you're in the 15% bracket?), which makes me a lot more comfortable letting investments ride and taking loans.

But I guess if II'm making a huge mistake in thinking about tax and loan interest this way, please let me know guys...

[Anonymous User]

Am I doing this right? I need to diversify for risk a bit. I'm at 93% stock and 7% bonds right now. Once I start working in September I plan on adding at least another 15k this year. Will probably sell BND from my taxable account and repurchase bonds in my roth IRA next year (to take advantage of efficient tax allocation) and so that I'm at 90-10 asset allocation.

Within stocks,I'm at 70-30 domestic-international right now. I want to buy enough international so I can get the admiral shares with the lower expense ratio, so will probably look at a 60-40 allocation by the time I do that.

Have about 6k in cash as an emergency fund. I maxed out my roth IRA this year and last. Will need to backdoor next year because of that sweet big law salary.

Any suggestions and advice welcome. I only started investing this April. Beating my self up for not having started a 401k when I was 21. The market's been so hot in the last 5+ years.

[Danger Zone]

Do you have access to a 401k? If not, open a deductible IRA account. You need to start copping dem sweet pre-tax benefits.

[Anonymous User]

4th year lit associate in biglaw. I make NY market in a satellite market with decent cost of living.

Left law school with roughly $215,000 in loans. I clerked in a high cost area, which affected repayment. As of today, I've got roughly $135,000 in loans, refinanced at 2.75% with FRB. No debt otherwise. I also have a significant other who makes way less than me, around $40,000, but has no debt. (And his/her own emergency

I currently max my 401(k) -- about 40k there -- and have the following:
$20,000 in a high-interest savings account as my emergency fund
$15,000 in a Vanguard account
$25,000 in a regular checking account.

I'm currently throwing money at my loans with the goal of leaving biglaw for government in 18 months or so, where I'd likely be making around $100,000. At my current rate of payments, provided I get my bonus this year, I can pay off the entire $135k in the next 18 months. So two questions:

1. Should I just put that $25,000 from my checking account toward loans? Into my Vanguard? Do something else with it?
2. Should I slow down my repayment and just stockpile money in other accounts, making lower loan payments given my super low interest rate?

[bk1]

1. Should I just put that $25,000 from my checking account toward loans? Into my Vanguard? Do something else with it?
2. Should I slow down my repayment and just stockpile money in other accounts, making lower loan payments given my super low interest rate?

It depends on what you want. The highest return would generally be to (1) pay minimum on the loan, (2) max retirement accounts, then (3) dump everything else into a taxable brokerage account. The only obvious thing you're missing from your post (maybe you do it, maybe you don't) is maxing out your backdoor Roth. Depending on how you split things with your SO, consider maxing his/her 401k/IRA too (or not, if you're not there yet).

But if you really psychologically value being debt-free, then it may be worth trading a lower return for that benefit. That's your call and nobody here can answer that for you. Personally I lean towards getting the higher return, in which case I would invest everything beyond what you need for your efund/401k/IRA in a brokerage account. Higher return in the long run and you can always put that money into the loan down the road if you really want to (even though the risk is that you've lost money in the interim). No matter what you do, I would not leave the 25k sitting in a checking account (either put it in a brokerage to invest long term, put in savings to invest short term, or put it into loans to save on interest).

If you do decide to pay it off early, don't forget you're likely coming close to the 48 month window for the FRB rebate. It's probably only a few grand (2% of original balance), but it does help cover at least some the cost of foregoing the higher return.

[foundingfather]

I haven't started making payments on my school loans yet since I just graduated, but when/how should I refinance to get a lower interest rate?

[bk1]

I haven't started making payments on my school loans yet since I just graduated, but when/how should I refinance to get a lower interest rate?

If refinancing is your best bet, no reason not to do it as soon as possible (likely once you start earning a paycheck). Shop around for the best rate (e.g., FRB, DRB, SoFi, Common Bond, etc). You can always refi again down the road if you can get better rates.

[RaceJudicata]

I haven't started making payments on my school loans yet since I just graduated, but when/how should I refinance to get a lower interest rate?

If refinancing is your best bet, no reason not to do it as soon as possible (likely once you start earning a paycheck). Shop around for the best rate (e.g., FRB, DRB, SoFi, Common Bond, etc). You can always refi again down the road if you can get better rates.

But make sure you understand that you will be foregoing any government protection on your loans/government repayment programs (e.g., REPAYE).

[Anonymous User]

Do you have access to a 401k? If not, open a deductible IRA account. You need to start copping dem sweet pre-tax benefits.

Thanks. Anon here who posted the screen shot of the spread sheet. No 401k yet, but will sign up for it as soon as I finally start working. Planning on putting in max amount.

[Anonymous User]

Is there anything special that you can do with your clerkship bonus (like Mega-backdoor Roth or after-tax 401k contribution)? In other words, what's the best tax-shelter strategy for your clerkship bonus?

[foundingfather]

I haven't started making payments on my school loans yet since I just graduated, but when/how should I refinance to get a lower interest rate?

If refinancing is your best bet, no reason not to do it as soon as possible (likely once you start earning a paycheck). Shop around for the best rate (e.g., FRB, DRB, SoFi, Common Bond, etc). You can always refi again down the road if you can get better rates.

But make sure you understand that you will be foregoing any government protection on your loans/government repayment programs (e.g., REPAYE).

Solid. Thanks!

[Anonymous User]

Is there anything special that you can do with your clerkship bonus (like Mega-backdoor Roth or after-tax 401k contribution)? In other words, what's the best tax-shelter strategy for your clerkship bonus?

Also interested in this. I imagine it heavily depends on when your firm actually pays the bonus (as I understand it, not all firms give the entire bonus upfront). So, if you get the whole bonus in your stub year, you'll already be in a lower tax bracket and less likely to have maxed your 401k & IRA for that year. I'm curious if a firm would let you directly max a 401k with your clerkship bonus.

--current a3 clerk

[Tiago Splitter]

Is there anything special that you can do with your clerkship bonus (like Mega-backdoor Roth or after-tax 401k contribution)? In other words, what's the best tax-shelter strategy for your clerkship bonus?

Also interested in this. I imagine it heavily depends on when your firm actually pays the bonus (as I understand it, not all firms give the entire bonus upfront). So, if you get the whole bonus in your stub year, you'll already be in a lower tax bracket and less likely to have maxed your 401k & IRA for that year. I'm curious if a firm would let you directly max a 401k with your clerkship bonus.

--current a3 clerk

Probably not. But worth asking before you start. Best move is likely to use the bonus for spending needs while putting the max from paychecks into your 401k ASAP.

[bk1]

Is there anything special that you can do with your clerkship bonus (like Mega-backdoor Roth or after-tax 401k contribution)? In other words, what's the best tax-shelter strategy for your clerkship bonus?

Also interested in this. I imagine it heavily depends on when your firm actually pays the bonus (as I understand it, not all firms give the entire bonus upfront). So, if you get the whole bonus in your stub year, you'll already be in a lower tax bracket and less likely to have maxed your 401k & IRA for that year. I'm curious if a firm would let you directly max a 401k with your clerkship bonus.

--current a3 clerk

Many firms won't let you contribute to the 401k immediately (which would also be required to do a mega backdoor roth, though I suspect after-tax contributions aren't an option at many firms). I'm not sure if you could get it into an HSA if you chose an HDHP (maybe?). Otherwise all you've got is standard stuff you'd do yourself (e.g., IRA, 529).

[kalvano]

Do you have access to a 401k? If not, open a deductible IRA account. You need to start copping dem sweet pre-tax benefits.

Once you hit a certain income level, you don't get full credit for the $5,500 IRA contribution. At that point, I'd rather stick it in a Roth and take the future benefits.

[kalvano]

Am I doing this right? I need to diversify for risk a bit. I'm at 93% stock and 7% bonds right now. Once I start working in September I plan on adding at least another 15k this year. Will probably sell BND from my taxable account and repurchase bonds in my roth IRA next year (to take advantage of efficient tax allocation) and so that I'm at 90-10 asset allocation.

Within stocks,I'm at 70-30 domestic-international right now. I want to buy enough international so I can get the admiral shares with the lower expense ratio, so will probably look at a 60-40 allocation by the time I do that.

Have about 6k in cash as an emergency fund. I maxed out my roth IRA this year and last. Will need to backdoor next year because of that sweet big law salary.

Any suggestions and advice welcome. I only started investing this April. Beating my self up for not having started a 401k when I was 21. The market's been so hot in the last 5+ years.

The target retirement funds are designed so you don't need other investments. You could probably dump that money into the Vanguard total stock market fund, or, if you're feeling rascally, QQQ.

[Tiago Splitter]

Do you have access to a 401k? If not, open a deductible IRA account. You need to start copping dem sweet pre-tax benefits.

Once you hit a certain income level, you don't get full credit for the $5,500 IRA contribution. At that point, I'd rather stick it in a Roth and take the future benefits.

If you don't have an employer plan (and your spouse doesn't either) you can always get the full IRA deduction.