31yo Looking for Review + Questions

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Topic Author
acejacksingh
Posts: 379
Joined: Thu Dec 04, 2014 10:15 am

31yo Looking for Review + Questions

Post by acejacksingh »

Hi BHs -

Looking to get a review of my portfolio. The COVID stuff has me a bit worried about job security/finances so I figured this would help me stay the course, etc. Questions below, any help/advice is always appreciated!

Age: 31
New Salary: $137,000 + 5-10% bonus annually
Marital Status: Single
Fed Tax: 24%
CA State Tax: 9.5%

Saving/Primary EF: $28,000 (~9 months of expenses)
Debt: None, pay CC in full, no loans
Retirement Allocation: 90/10
NW: ~$250,000 (down ~$40,000 :( )

Investments (mostly at Vanguard)
Roth IRA:
$60,000, VTTSX, Vanguard Target Date 2060 Fund (ER: 0.15%)

Old Trad 401k:
$73,000, Vanguard Target Retirement 2055 Trust Select (ER: 0.05%)

Old Roth 401k:
$8,700, Vanguard Target Retirement 2055 Trust Select (ER: 0.05%)

Current Trad 401k:
$18,000, Vanguard Target Retirement 2060 Trust Select (ER: 0.05%)

Taxable (future downpayment, secondary emergency fund):
$4,400, VWAHX, Vanguard High-Yield Tax-Exempt Fund (ER: 0.19%)
$7,500, VWITX, Vanguard Intermediate-Term Tax-Exempt Fund (ER: 0.19%)

Payflex HSA:
$1,000 Cash
$19,000, VFIAX, Vanguard 500 Index Fund Admiral Shares (ER: 0.04%)

Individual Stocks:
$20,000 in various individual companies (JNJ, GIS, MCD, KO, MMM, other blue chips)

Questions:
1a) Normally I would max out my Roth IRA every year, but with my current salary I don't believe I will be able to. What are some other options here? Should I just consider a Traditional IRA for 2020?
1b) Right now contributing 15% pretax to my 401k. If I can't contribute to my Roth IRA, should I adjust this to include a Roth 401k contribution now? If so, what would be an appropriate split between Pretax/Roth?
2) I currently max out my HSA contributions and invest in a low cost S&P500 fund. With the recent market volatility, I'm wondering if this account's allocation should match my retirement allocation (90/10). What are you thoughts on this? I don't plan to use these funds until later in life.
3) Individual Stocks: These were gifted to me in my early 20s to help me understanding investing (dad is awesome!). Most of these companies pay a 2-3% dividend and are enrolled in a DRIP program. Not planning to touch these just letting them sit and grow for now. Any thoughts on this plan?
4) I have a secondary emergency fund in bonds (VWAHX & VWITX). In the recent downtown I noticed these dropped a bit too. Is that expected with this kind of market volatility? I was always told as stocks go down, bonds go up/maintain principal, especially with interest rates lower.
5) I work in the management consulting world (BIG4) and have some concerns with job security (just rolled off a project...trouble finding a new one due to COVID). Wondering if it makes sense to reduce contributions and hold more cash? I have about 9 months of expenses covered but is that truly enough? This is my first big market downturn so any advice from the more experienced folks would be great!
6) Anything else I should start to consider? Other changes, opinions, etc?

Thanks again for any advice BHs!

Best,
AceJack
Sgal8713
Posts: 73
Joined: Thu Apr 02, 2020 8:07 am

Re: 31yo Looking for Review + Questions

Post by Sgal8713 »

Great setup. I am in a similar position in age and breakdown.

1a) Very simple to do Backdoor Roth IRA if you are phasing out due to high income, I have down this the last 3 years without any challenges. White Coat Investor has a great step-by-step guide to do so. Certainly think there is a benefit to having both traditional and Roth for retirement, hedging for tax rates to go up or down.
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retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: 31yo Looking for Review + Questions

Post by retired@50 »

acejacksingh wrote: Sat Apr 04, 2020 11:43 am
Questions:
1a) Normally I would max out my Roth IRA every year, but with my current salary I don't believe I will be able to. What are some other options here? Should I just consider a Traditional IRA for 2020?
1b) Right now contributing 15% pretax to my 401k. If I can't contribute to my Roth IRA, should I adjust this to include a Roth 401k contribution now? If so, what would be an appropriate split between Pretax/Roth?
2) I currently max out my HSA contributions and invest in a low cost S&P500 fund. With the recent market volatility, I'm wondering if this account's allocation should match my retirement allocation (90/10). What are you thoughts on this? I don't plan to use these funds until later in life.
3) Individual Stocks: These were gifted to me in my early 20s to help me understanding investing (dad is awesome!). Most of these companies pay a 2-3% dividend and are enrolled in a DRIP program. Not planning to touch these just letting them sit and grow for now. Any thoughts on this plan?
4) I have a secondary emergency fund in bonds (VWAHX & VWITX). In the recent downtown I noticed these dropped a bit too. Is that expected with this kind of market volatility? I was always told as stocks go down, bonds go up/maintain principal, especially with interest rates lower.
5) I work in the management consulting world (BIG4) and have some concerns with job security (just rolled off a project...trouble finding a new one due to COVID). Wondering if it makes sense to reduce contributions and hold more cash? I have about 9 months of expenses covered but is that truly enough? This is my first big market downturn so any advice from the more experienced folks would be great!

Thanks again for any advice BHs!

Best,
AceJack
Answers to questions.
1a & 1b.
See link that describes the backdoor Roth IRA strategy, which allows high earners to still use a Roth IRA.
https://www.bogleheads.org/wiki/Backdoor_Roth

Given your high tax bracket (currently) it's likely that using a traditional 401k is better than a Roth 401k. To read further, see link.
https://www.bogleheads.org/wiki/Traditional_versus_Roth

2. If you really plan to hold the HSA into retirement instead of using it for medical expenses now, then having a stock fund is fine. Although, since you live in California, you'll be taxed annually on the dividends and capital gains distributions the fund generates. If you want to dodge CA taxes on the HSA, you can invest it in 100% treasuries. There are threads on this topic.

3. If the individual stocks are a small part of your overall picture, you can keep them as is. However, many people let holdings like this get in the way of their overall portfolio construction. Don't let the sentimental aspect force you into something you don't want to do.

4. You were told wrong. Bonds don't always go up. They just tend to have less volatility than stocks, not zero volatility.

5. Yes. Holding more cash makes sense to me if you have ANY doubts about your future income stream. In my opinion, better to hold more cash and accept a lower overall return on your portfolio, than to have to do an emergency withdrawal from your 401k.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
acejacksingh
Posts: 379
Joined: Thu Dec 04, 2014 10:15 am

Re: 31yo Looking for Review + Questions

Post by acejacksingh »

Thank you for the information!
retired@50 wrote: Sat Apr 04, 2020 11:56 am
4. You were told wrong. Bonds don't always go up. They just tend to have less volatility than stocks, not zero volatility.

5. Yes. Holding more cash makes sense to me if you have ANY doubts about your future income stream. In my opinion, better to hold more cash and accept a lower overall return on your portfolio, than to have to do an emergency withdrawal from your 401k.

Regards,
Ok so maybe it would make sense to sell out of the bond funds (not getting much interest anyways) and hold that as cash to help bolster cash holdings? That way I don't need to reduce my 401k contributions and continue buying in this downturn? I think they would sell at a minor loss (~$300).

Other ideas/inputs welcome!
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: 31yo Looking for Review + Questions

Post by retired@50 »

acejacksingh wrote: Sat Apr 04, 2020 3:05 pm Thank you for the information!
retired@50 wrote: Sat Apr 04, 2020 11:56 am
4. You were told wrong. Bonds don't always go up. They just tend to have less volatility than stocks, not zero volatility.

5. Yes. Holding more cash makes sense to me if you have ANY doubts about your future income stream. In my opinion, better to hold more cash and accept a lower overall return on your portfolio, than to have to do an emergency withdrawal from your 401k.

Regards,
Ok so maybe it would make sense to sell out of the bond funds (not getting much interest anyways) and hold that as cash to help bolster cash holdings? That way I don't need to reduce my 401k contributions and continue buying in this downturn? I think they would sell at a minor loss (~$300).

Other ideas/inputs welcome!
If it were me,
I'd just hold back on the contributions instead of selling anything. Use the money held back from contributions (larger paycheck) to add to your cash savings account.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
acejacksingh
Posts: 379
Joined: Thu Dec 04, 2014 10:15 am

Re: 31yo Looking for Review + Questions

Post by acejacksingh »

retired@50 wrote: Sat Apr 04, 2020 4:28 pm
acejacksingh wrote: Sat Apr 04, 2020 3:05 pm Thank you for the information!
retired@50 wrote: Sat Apr 04, 2020 11:56 am
4. You were told wrong. Bonds don't always go up. They just tend to have less volatility than stocks, not zero volatility.

5. Yes. Holding more cash makes sense to me if you have ANY doubts about your future income stream. In my opinion, better to hold more cash and accept a lower overall return on your portfolio, than to have to do an emergency withdrawal from your 401k.

Regards,
Ok so maybe it would make sense to sell out of the bond funds (not getting much interest anyways) and hold that as cash to help bolster cash holdings? That way I don't need to reduce my 401k contributions and continue buying in this downturn? I think they would sell at a minor loss (~$300).

Other ideas/inputs welcome!
If it were me,
I'd just hold back on the contributions instead of selling anything. Use the money held back from contributions (larger paycheck) to add to your cash savings account.

Regards,
I guess my concern with that approach would be not taking advantage of buying stocks at a lower price point...
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