Haven Financial Advisors
Louis (Lou) Kokernak has been serving the investment community for nearly 30 years, after obtaining an MBA from The University of Texas. He founded Haven Financial Advisors as a fee only advisor in 2002. His goal was to deliver unbiased advice to clients. He has been quoted in the Wall Street Journal, Barrons, Bloomberg News among many other media outlets. Lou has taught courses to CFP candidates at The University of Texas, St. Edwards Univerisity, and the University of Texas at San Antonio.
Haven Financial Advisors is committed to their clients' future. They have been a fee only financial advisor since 2002. The first step in the relationship is getting to know clients and what their goals are. It's a two way communications process that requires the engagement of both parties. Lou and his team develop a financial plan that includes a diversified asset allocation tailored to every clients personal situation. Experience tells them that the key value proposition of the plan is the comfort level it delivers to the client - that clients are taking concrete steps to achieve realistic financial goals.
Lou has lived in Austin since 1990. He is a Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) and is a member of the National Association of Personal Financail Advisors (NAPFA). His charitable interests include public health and secondary education.
MBA, The University of Texas
BSCS, Rensselaer Polytechnic Institute
Assets Under Management:
Mission Statement of Haven Financial Advisors
Haven Financial Advisors explains the evolution of the HSA
Your daughter has a very long investment horizon and should be able to bear some risk. I'll assume this is her first investment and there are no other assets. $3,000 is a starter portfolio so you should be cognizant of costs like commissions. I would recommend one position, a stock index fund, for now. Vanguard's target date fund for 2060 is 90% stocks anyway and the target date structure adds a bit of cost. Additionally, as she starts saving her own money outside the Roth IRA, it get cumbersome coordinating target date holdings with the rest of her portfolio.
Given the amount invested, it makes sense to keep commissions low or zero. You can invest in Vanguard's Total Stock Market index (VTSMX) in a Vanguard account. Schwab has a commission free stock index fund (SWTSX) that you can trade in a Schwab account. Both of these funds give you broad exposure to the US stock market. Fidelity has its own stock index fund on its platform.
Reinvest the dividends and capital gains distributions so idle cash does not accumulate. As time goes on and money is added to account, you can look to other asset classes like foreign stocks or bonds.
Not sure how your portfolio is invested. For the purposes of discussion, we'll assume that it is comprised of a balanced mix of stocks and bonds. Of the major stock indices you cited, the S&P 500 correlates best with movements in US stocks, primarily because its 500 members comprise the most of the market cap weighting of that market. You might also consider the somewhat lesser known Russell 3000 to gage equity performance. The Russell measure basically subsumes all relevant US stocks.
The bond piece is a little more complex because there is no outstanding index well known to the public. I will suggest the US Aggregate Bond index. It is generally considered to be one of the best recognized benchmarks in the American fixed income space. According to eVestment, about $663 billion of institutional assets is invested in 270 U.S. core fixed-income portfolios, 75% of which are benchmarked against the Barclays aggregate bond index. For more details on bond indexing, take a look at my recent article on the topic.
These benchmarks are good, but they have their shortfalls. The equity indices discussed here do NOT include foreign stocks. To the extent your portfolio has them, there will be some divergence. In the last seven years, US stocks have substantially outperformed overseas markets. Similarly, the Aggregate Bond Index does not include Treasury Inflation-Protected Securities (TIPs) nor Municipal Bonds.
You can use ETFs like SPY (S&P 500) and AGG (Aggregate Bond Index) to compare actual investment results of indexed portfolios to the calculated performance of your own investment accounts. If you have a 60/40 mix of stocks and bonds, you should be performing somewhere between SPY and AGG. If not, you need to understand why not. Is it because your asset allocation lies outside the bounds of the index or are your fund managers making bets within those bounds?
The other responders have offered fine advice on tax-deferred and tax-free savings options. I just want to suggest a possible supplement. Your employer may offer an HSA-compliant major medical policy. If not, you may be eligible for one in the future. This is very fast growing segment in group health coverage. Essentially, these are high deductible health policies that allow you to fund a health savings account to cover expenses not addressed by your insurance. Contributions are tax deductible and qualified distributions for medical expenses are tax-free. The HSA thus combines the best tax avoidance features of a 401(k) and a Roth IRA.
You can carry over the balance in your HSA after year's end. Funds can also be invested in the stock market. The contribution limit for family coverage in 2017 is $6,750,an additional amount is allowed for those 55 and older. Contribution limits are NOT offset by 401(k) or IRA contributions. There is a high probability that HSA accounts will be expanded in the new republican administration. I recommend that you continue to accumulate HSA funds for as long as possible. Pay your uncovered expenses out of pocket while you are still working. Let the powerful tax shelter properties of the HSA work for you.
You can use your 410(k) assets to pay back taxes if your plan sponsor has made a provision for hardship withdrawals. The plan sponsor has some leeway in terms of establishing hardship criteria. You may have to jump through some documentation hoops to meet that criteria. However, it is likely that your 410(k) plan has also made a provision for taking a loan against your 410(k) balance. In fact, they may REQUIRE that you take a loan out before attempting to do a hardship withdrawal. While neither option is attractive, the loan is likely the better option for a couple of reasons. A loan will not trigger a 10% penalty, while your early withdrawal may do just that. Also, the documentation requirements for a 410(k) plan loan should be lighter than a hardship withdrawal.
There are about 50 S&P 500 index funds available to investors. Index funds benefit from scale and 85% of the invested assets belong to just five of the funds. These larger funds can spread their fixed operating costs over a larger asset base. The Vanguard Group is synonymous with indexing and, of course, they have fine mutual fund and ETF options. VFIAX is their admiral class mutual fund offering with an expense ratio of 0.05% and an investment minimum of $10,000. If you open a Vanguard account, you can trade this commission free. Fidelity has an index fund (FUSVX) with a similar expense ratio and account minimum.
There are ETF options with no minimum investments required. ETFs trade throughout the day like stocks and have features that make them quite tax efficient. Ishares' IVV trades throughout the day and has an expense ratio of just 0.04% (just reduced this year). Vanguard has an ETF, ticker VOO, that is merely another share class of its mutual fund offering. The most heavily traded security around is State Street's S&P 500 ETF, SPY. All these ETFs have narrow bid/ask spreads and can support larger order sizes.
There is some subtle variation in total returns among these securities based on things like tax efficiency and securities lending. However, for a retail investor like yourself, all these funds provide broad exposure to the S&P 500 with very little tracking error. For more details, Morningstar has a fine article on the topic.