Portfolio review and next steps

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Topic Author
KFBR392
Posts: 160
Joined: Thu Aug 08, 2019 6:32 pm

Portfolio review and next steps

Post by KFBR392 »

Greetings, Bogleheads. We're a little (a lot?) behind. If you look at where we were two years ago you’ll see we’ve made progress in the right direction though perhaps not as much as we normally could have. (2020 saw a job loss, a pay cut, and the purchase of two vehicles for cash.) As of July 1, we'll both be contributing 15% to 401k’s and don’t plan to max them out until our emergency fund is one year of living expenses (~$100k). Once the EF is where we’d like it, I will start a backdoor Roth as well.

Emergency funds: $67k

Debt: None

HHI: $270k

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, 9% State

State of Residence: CA

Age: Him 38, Her 38

Kids: One: 3.

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20%

Current total portfolio: $294k

Current retirement assets

His 401k
No match.
32% ($94k) Fidelity 500 (FXAIX) (0.015)
11% ($33k) MFS Mid Cap Growth (OTCKX) (0.7)
10% ($29k) MFS International Diversification (MDIZX) (0.77)
9% ($26k) Fidelity US Bond (FXNAX) (0.025)
8% ($23k) Victory Sophus Emerging Markets (RSERX) (1.21)
6% ($18k) JH Triton Fund (JGMNX) (0.66)

Her 401k
(Starts July 1)
0% ($0) Vanguard Total Stock Market (VTI) (0.04)

Her Rollover IRA at Vanguard
24% ($71k) Vanguard Target Retirement 2045 (VTIVX) (0.15)

_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions
$19.5k his 401k (no match)
$19.5k her 401k (50% match up to $6k)
$6k his Backdoor Roth TBD

Available funds

Funds available in his 401(k)
American Funds American Mutual (RMFGX) (0.27)
Fidelity 500 Index (FXAIX) (0.015)
Fidelity Blue Chip Growth (FBCGX) (0.45)
Janus Henderson Growth And Income (JDNNX) (0.63)
Fidelity Mid Cap Index (FSMDX) (0.025)
MFS Mid Cap Growth (OTCKX) (0.7)
Virtus Ceredex Mid-Cap Value Equity Fund (SMVZX) (0.87)
Fidelity Small Cap Index Fund (FSSNX) (0.026)
Janus Henderson Triton Fund (JGMNX) (0.66)
Wells Fargo Special Small Cap Value Fund (ESPRX) (0.85)
Fidelity Global ex U.S. Index Fund (FSGGX) (0.055)
Fidelity International Capital Appreciation (FAPCX) (0.65)
MFS International Diversification Fund (MDIZX) (0.77)
Victory Sophus Emerging Markets Fund (RSERX) (1.21)
Fidelity Freedom Index 2045 Fund (FFOLX) (0.08)
Lincoln Stable Value (0.1)
Fidelity Total Bond (FTKFX) (0.3)
Fidelity U.S. Bond (FXNAX) (0.025)
Goldman Sachs Inflation Protected Securities (GSRUX) (0.4)
Fidelity Government Money Market (FNBXX) (0.28)

Funds available in her 401(k)
American Funds Target Date 2045 (AAHTX) (0.74)
Putnam Dynamic Asset Allocation Growth (PAEAX) (1.05)
American Funds New World (NEWFX) (0.94)
MFS International Intrinsic Value (MGIAX) (0.98)
PGIM Global Total Return (PZTRX) (0.96)
State Street Institutional International Equity (SIEIX) (0.69)
Vanguard International Growth Fund (VWIGX) (0.44)
BlackRock Health Sciences Opportunities (SHSSX) (1.11)
Cohen & Steers Real Estate Securities (CSEIX) (1.13)
MFS Technology (MTCAX) (0.92)
VanEck International Investors Gold (INIVX) (1.05)
Vanguard Energy Fund (VGENX) (0.33)
Columbia Small Cap (NSVAX) (0.20)
Delaware Small Cap (DEVLX) (0.89)
Columbia Mid Cap (NMPAX) (0.27)
MFS Mid Cap Growth (OTCAX) (0.80)
Victory Sycamore Established Value (VETAX) (0.92)
American Funds American Mutual (AMRMX) (0.62)
BNY Mellon Appreciation (DGAGX) (0.66)
Columbia Large Cap (GEGTX) (0.20)
T. Rowe Price Blue Chip Growth (TRBCX) (0.56)
Vanguard Total Stock Market (VTI) (0.04)
BlackRock Floating Rate Income (BFRIX) (0.72)
BlackRock High Yield Bond (BHYIX) (0.94)
MassMutual Inflation-Protected and Income (MIPSX) (0.47)
Wells Fargo Core Plus Bond (STYAX) (0.83)
Key Guaranteed Portfolio (N/A)


Questions:

1. Our preference is a three fund portfolio. For my 401k, it seems the best way to accomplish this would be FXAIX, FSGGX, and FXNAX. I realize I have to ditch the high cost funds I currently hold. Are there other funds I should consider besides the cheap Fidelity ones just mentioned?

2. Her new 401k begins July 1st. The plan was to do 100% VTI until our total is rebalanced closer to the desired AA. Is this the best way of achieving it?

3. Based on our savings rate, I estimate our EF will exceed $100k by November. Is there any reason why I shouldn’t wait to do my backdoor Roth until then?

4. Given how behind we are and the fact that she can’t do a backdoor Roth, when does it make sense to open a taxable account? HSAs are also not an option.

5. I didn’t include it but we opened a 529 this year with $6k in it currently. We’re contributing $500/month. It’s 100% TIAA-CREF Equity Index Fund (0.06).

6. We rent and are unsure if it makes sense (or is even possible!) for us to own a home in Los Angeles. The plan is to save for a down payment in case we decide to, and if we decide against it, we can put some or all of that money in a taxable account. Are there better places for this besides an online savings account?

7. Opinions on our AA given our age and portfolio balance?

8. My 401k offers traditional and Roth. I am now familiar with the thinking of traditional almost always being better, and it seems like our HHI would have to escalate quite a bit for the Roth option to be a slam dunk. But one thing I've never seen discussed is the value of certainty. Since future returns are unknowable, is it advantageous to KNOW some or all your retirement balance will be tax free?

9. Any other tips, things I left out, red flags you see? It’s all welcome! I’ve learned a great deal since my first post here and thank everyone for the continued discussion.
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ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Portfolio review and next steps

Post by ruralavalon »

KFBR392 wrote: Fri Jun 18, 2021 1:46 pm Greetings, Bogleheads. We're a little (a lot?) behind. If you look at where we were two years ago you’ll see we’ve made progress in the right direction though perhaps not as much as we normally could have. (2020 saw a job loss, a pay cut, and the purchase of two vehicles for cash.)
I am sorry of your job loss :( and pay cut :( .

It's good to see that you are debt free, and still have a substantial emergency fund.
.

KFBR392 wrote: Fri Jun 18, 2021 1:46 pmAge: Him 38, Her 38

Kids: One: 3.

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20%
. . . . .
7. Opinions on our AA given our age and portfolio balance?
In my opinion your desired asset allocation is within the range of what is reasonable.



KFBR392 wrote: Fri Jun 18, 2021 1:46 pmQuestions:

1. Our preference is a three fund portfolio. For my 401k, it seems the best way to accomplish this would be FXAIX, FSGGX, and FXNAX. I realize I have to ditch the high cost funds I currently hold. Are there other funds I should consider besides the cheap Fidelity ones just mentioned?
In my opinion those are the best choices:
1) Fidelity 500 Index (covers over 80% of the U.S. stock market) (FXAIX) (0.015);
2) Fidelity Global ex U.S. Index Fund (a total international stock index fund, omitting only small-cap) (FSGGX) (0.055); and
3) Fidelity U.S. Bond (a total bond market index fund) (FXNAX) (0.025).


KFBR392 wrote: Fri Jun 18, 2021 1:46 pm2. Her new 401k begins July 1st. The plan was to do 100% VTI until our total is rebalanced closer to the desired AA. Is this the best way of achieving it?
Vanguard Total Stock Market (VTI) (0.04) is a good way to start.

In my opinion it's also a good way to continue. I do not see an attractive low cost bond fund to add, or a broadly diversified international stock index fund with a very low expense ratio.


KFBR392 wrote: Fri Jun 18, 2021 1:46 pm3. Based on our savings rate, I estimate our EF will exceed $100k by November. Is there any reason why I shouldn’t wait to do my backdoor Roth until then?
That's fine in my opinion.


KFBR392 wrote: Fri Jun 18, 2021 1:46 pm4. Given how behind we are and the fact that she can’t do a backdoor Roth, when does it make sense to open a taxable account? HSAs are also not an option.
As a priority I suggest that you do maximum annual employee contributions to both 401k accounts.

Will her employer's 401k plan accept an incoming of her IRA? If so then doing that could enable backdoor Roth contributions for her.

KFBR392 wrote: Fri Jun 18, 2021 1:46 pm5. I didn’t include it but we opened a 529 this year with $6k in it currently. We’re contributing $500/month. It’s 100% TIAA-CREF Equity Index Fund (0.06).
As a priority I suggest that you do maximum annual employee contributions to both 401k accounts.


KFBR392 wrote: Fri Jun 18, 2021 1:46 pm6. We rent and are unsure if it makes sense (or is even possible!) for us to own a home in Los Angeles. The plan is to save for a down payment in case we decide to, and if we decide against it, we can put some or all of that money in a taxable account. Are there better places for this besides an online savings account?
there currently are no very good choices, perhaps:
1) short-term CDs; or
2) a good credit quality short-term bond fund like Vanguard Short-Term Federal Fund Investor Shares (VSGBX); or
3) Vanguard Ultra-Short-Term Bond Fund Investor Shares (VUBFX) or BlackRock Ultra Short-Term Bond ETF (ICSH); or
4) I savings bonds. "The composite rate for I bonds issued from May 2021 through October 2021 is 3.54 percent. This rate applies for the first six months you own the bond" , link.


KFBR392 wrote: Fri Jun 18, 2021 1:46 pm8. My 401k offers traditional and Roth. I am now familiar with the thinking of traditional almost always being better, and it seems like our HHI would have to escalate quite a bit for the Roth option to be a slam dunk. But one thing I've never seen discussed is the value of certainty. Since future returns are unknowable, is it advantageous to KNOW some or all your retirement balance will be tax free?
For most people without pensions traditional 401k contributions will likely be better.

Will either or both of you be eligible for both a significant pension and Social Security benefits? What are your professions or occupations? I see that you currently have just $249k in traditional tax-deferred accounts.
Last edited by ruralavalon on Fri Jun 18, 2021 4:19 pm, edited 7 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio review and next steps

Post by retired@50 »

KFBR392 wrote: Fri Jun 18, 2021 1:46 pm
Questions:
1. Our preference is a three fund portfolio. For my 401k, it seems the best way to accomplish this would be FXAIX, FSGGX, and FXNAX. I realize I have to ditch the high cost funds I currently hold. Are there other funds I should consider besides the cheap Fidelity ones just mentioned?

2. Her new 401k begins July 1st. The plan was to do 100% VTI until our total is rebalanced closer to the desired AA. Is this the best way of achieving it?
About question #1, the only additional funds I'd consider are the mid cap and small cap index funds shown below. This is ONLY if you are concerned about replicating the total US stock market instead of just the S&P 500.
Fidelity Mid Cap Index (FSMDX) (0.025)
Fidelity Small Cap Index Fund (FSSNX) (0.026)

About question #2, I'd stick with VTI in her 401k, then adjust the international stock holding (FSGGX) and the bond holding (FXNAX) in his 401k to make up for the lack of a decent international index or bond index in her plan.

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
KFBR392
Posts: 160
Joined: Thu Aug 08, 2019 6:32 pm

Re: Portfolio review and next steps

Post by KFBR392 »

For most people without pensions traditional 401k contributions will likely be better.

Will either or both of you be eligible for both a significant pension and Social Security benefits? What are your professions or occupations? I see that you currently have just $249k in traditional tax-deferred accounts.
I will be eligible for two pension components - a monthly benefit as well as a lump sum payment. Assuming I work to 60, the monthly will be $4k and the lump sum around $200k. Social Security between the two of us should be around $4k-6k/month, depending on when we start taking it. I'm a video editor and DW is a PR manager.
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ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Portfolio review and next steps

Post by ruralavalon »

KFBR392 wrote: Fri Jun 18, 2021 1:46 pmTax Rate: 24% Federal, 9% State

State of Residence: CA

Age: Him 38, Her 38
KFBR392 wrote: Fri Jun 18, 2021 4:26 pm
For most people without pensions traditional 401k contributions will likely be better.

Will either or both of you be eligible for both a significant pension and Social Security benefits? What are your professions or occupations? I see that you currently have just $249k in traditional tax-deferred accounts.
I will be eligible for two pension components - a monthly benefit as well as a lump sum payment. Assuming I work to 60, the monthly will be $4k and the lump sum around $200k. Social Security between the two of us should be around $4k-6k/month, depending on when we start taking it. I'm a video editor and DW is a PR manager.
I haven't tried to do a calculation but you could consider making part of your 401k contributions Roth particularly if you plan working longer than age 60.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
KFBR392
Posts: 160
Joined: Thu Aug 08, 2019 6:32 pm

Re: Portfolio review and next steps

Post by KFBR392 »

I haven't tried to do a calculation but you could consider making part of your 401k contributions Roth particularly if you plan working longer than age 60.
Okay. Thanks very much for your feedback.
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