« Kevin Ngo

Taking Control of Personal Finances and Investment Portfolio

10 Jul 2015

Two years out of university, and my money is rotting in the bank through inflation. Money that could instead be be put to long-term investment to grow. At the beginning of the year, I was merely maxing my traditional 401K. That was easy since I simply had to plug in a percentage of my income through Fidelity. Though I could have stood to diversify and put in more. With /r/personalfinance as a jumping off point, my finances and portfolio have come a long way. Here’s how.

Let’s start off with finances.

Banking

For my checking account, I just use Chase. Simply some money for expenses and some emergency funds. Although it is generally recommended to have three to six months of emergency funds, I am a bit more liberal since I’m well set up against emergencies.

The juicy part is for the savings account. I started using Ally because they offer a whopping 0.99% annual percentage yield (APY) on their savings accounts. For comparison, Chase gives a mere 0.05% APY on theirs. If you have $10K in your savings, that’s a $100 annual yield versus a $5 annual yield. It gets even stronger with compounding.

Discover is a great option as well. They offer 0.95% APY. My SO has a Discover savings account, then we can can take advantage of each of the banks’ unique revolving credit card rewards. Onto credit.

Credit Cards

I recently signed up for the Citi Double Cash, which has become my general purpose credit card. It offers 2% cashback on all purchases. Amazing, though you’ll want a couple of other credit cards to back it up.

The Chase Freedom card is decent with its 1% cashback on all purchases. You may be wondering why I’d need this since 1 is less than 2. Every quarter, the Chase Freedom presents 5% cashback select categories (e.g., gas stations, restaurants, theme parks). So I can take advantage of purchases that fall into those revolving categories, and fall back to the Citi Double Cash for every other purchase.

The Discover card is the same as the Chase Freedom, although it also offers 5% cashback on quarterly select categories. So I can use this card if a purchases is within the layout:, else use the Chase Freedom if a purchases is within its categories, else use the Citi Double Cash. It also has some permanent 5% cashback categories such as Century Cinema theaters and Six Flags, which is nice.

Investment Portfolio

And onto investment. You’ll want to do this when you have enough money for expenses and an emergency fund. Note that even if you have student loans, you should think about investing since long-term gains from investment outpace student loan interests.

There are two good online options for managing investments, Vanguard and Fidelity. I like Vanguard because their fund management fees are substantially cheaper. Though I use Fidelity to manage my 401K since it’s attached to my employer.

Traditional 401K

A traditional 401K is a retirement account where contributions grow tax-free, and tax is applied upon withdrawals. The annual contribution limit is around $17,500.

First things first, if your employer does any sort of contribution matching on 401K, contribute up to the match. It’s free money. Mine does, so I contribute up to the match.

Roth IRA

A Roth IRA is like the opposite of a 401K, contributions are taxed, but withdrawals are tax-free. This is good if you expect your future tax bracket to be higher than your current one. For most people, the annual contribution limit is $5,500. Vanguard is a good place to set up a Roth IRA.

Once you put enough into your 401K get any contribution matching, you’ll really want to put as much as you can into your Roth IRA. Everyone should wish they started theirs as early as possible. Unlike a 401K, you can withdraw your contributions at any time, even before you retire! However, the earnings must stay until retirement. They also offer some breaks on withdrawals for house down payments and such.

If you have maxed out your Roth IRA, then you can go ahead and dump some more into the traditional 401K.

Index Funds

If you still got some liquidity lying around, you can think about investing in index funds. Index funds are managed by investors that put your money to an extremely diversified set of stocks and bonds such that the fund will generally fall and grow with the entire market. One stock crashing will have virtually no effect on the entire fund.

With the money remaining in my bank, I found a good basic portfolio consisting of three funds from the /r/personalfinance Wiki. The most common recommendation is:

First, you want to figure how much to allocate to stocks and how much to bonds. The recommendation was to subtract your age from 100, and that’s the percentage to put into stocks, and the rest into bonds. For instance, my age is 24, so I’d put about 75% into stocks and 25% into bonds. Stocks are more risky, but the lower the age, the more time in market for long-term growth. Bonds are more stable, but don’t offer as much upside, so you want to rebalance to bonds as you grow older.

Second, out of the allocated stock market percentage, put 80% into the US market, and the rest into the international market. For my age, I get a total allocation of:

On Vanguard, if you contribute up to a certain minimum, you can qualify for the Admiral version of the shares, which has a much lower management cost to you.

Recap

Luckily, I ordered my shares recently while the international market shares are low, and after the whole NASDAQ outage. Can’t wait to have my money working for me. In conclusion:

  1. Have an emergency fund to last at least three to six months.
  2. Use Ally for savings accounts.
  3. Use Citi Double Cash as a main credit card, with Chase Freedom and Discover as backups for rewards.
  4. Contribute to traditional 401K up to the employer match, if any.
  5. Contribute to a Roth IRA as much as possible up to the max.
  6. Contribute a bit more to a traditional 401K if money remaining.
  7. Invest in index funds on Vanguard with a stronger focus on stocks the younger you are, weighted towards the total US stock market.
  8. Any remaining money? Play poker, like me!

Because unused money in the bank rots away at 3% inflation, when they could be growing and compounding by 10% in a portfolio.