I’m allocating my assets like this as someone just starting out: could you give me some advice?
I started working last year, and I’ve saved about 12 million won so far. At first I just left it in a bank account, but I don’t think that’s going to work, so starting this month I’m planning to split it up.
My current plan is:
- Emergency fund: 3 million won (parking account)
- Housing subscription/lump sum: 400,000 won per month (installment savings)
- ETF contributions: 500,000 won per month (half S&P 500 + half domestic dividend stocks)
- Personal pension: 200,000 won per month
- Rest: living expenses and discretionary funds
Two things I’m unsure about:
1. In a time like now when interest rates are ambiguous, is it right to reduce the installment savings portion and increase ETFs?
2. Is maxing out the tax credit limit for a personal pension always a win?
I don’t have anyone around to ask, so I’m posting here. I’d appreciate realistic advice.
3 answers
Why include domestic dividend stocks? If you're adding them for the dividend yield, have you ever run the numbers to see whether they're still worth it even after accounting for the 15.4% tax on dividend income? My take is that if you're just starting out in your career, you're better off just going with the S&P 500 alone.
#2 is not automatically a win. First check whether your tax credit rate is 13.2% or 16.5% depending on your income bracket. Also, pension accounts have early withdrawal restrictions, so if you need a lump sum before age 55, they can actually hold you back. I only fill up the pension savings to 3 million won and don't contribute to an IRP. If there's a chance you'll need money soon for a jeonse deposit or a wedding, you should only put in money you can truly lock away. And I agree with cutting back on installment savings. But the phrase 'a time when interest rates are ambiguous' itself means trying to time the market, whereas for an early-career worker, the answer is just to keep making regular contributions and hold out while buying time. Once just three years pass and you look at the account, your judgment will change.
An emergency fund of 300 depends entirely on how much your fixed monthly expenses are. If you're spending 150 a month, that's only two months' worth, which is a bit worrying, so it's better to reset it based on three months of take-home pay. You also didn't mention how much of the 1200 is actually spare cash.