Portfolio review - started here years ago, now back with 2 kids!

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Topic Author
jbrams
Posts: 22
Joined: Sun Dec 07, 2008 11:48 am
Location: California

Portfolio review - started here years ago, now back with 2 kids!

Post by jbrams »

Emergency funds: 6 months of expenses are saved up currently for our family of 4.

Debt:
Student loans: $17,000 at 2.85%.
Home mortgage: $480k at 2.5% (about 50% LTV)

Tax Filing Status: Married Filing Jointly

Tax Rate: 22% Federal, 9.3% State marginal rates.

State of Residence: California

Ages: 40 and 38

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 15-25% of stocks (but open to suggestions on more or less international allocation – I’ve read Bogle recommended all US but bogleheads seem to vary on their recommendations here and some diversity makes sense to me)

Approximate size of total portfolio: $200k

Pensions:
His pension: 2.5% at 55 - after 30 years of service he will annually receive 75% of the average of his 3 highest earning years or about $115,000/year in today's dollars. Current value: $175k (125k in contributions and $50k in interest earned).
Her pension: 2% at 60 - She will receive about 25% of her 3 highest earning years, or about $20,000/year in today's dollars - will increase after she returns to work (currently at home with two kiddos). Anticipate 56% by retirement = $45,000/year in today’s dollars)

Current retirement assets
Taxable None
His 457 by Empower Retirement (was MassMutual)
4% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)
16% Vanguard Small Cap Index Fund (VSMAX) (0.05%)
23% Vanguard Mid Capitalization Index Fund (VIMAX) (0.05%)
22% Vanguard Institutional Index Fund (VINIX) (0.035%)
No company match

His Roth IRA at Vanguard
29% Vanguard Target Retirement 2045 Fund (VTIVX) (0.15% expense ratio)

Her Rollover IRA at Vanguard was rolled over from a 403b:
6% Vanguard Target Retirement 2045 Fund (VTIVX) (0.15% expense ratio)
_______________________________________________________________
Contributions

New annual Contributions
$10,800 ($900/month) his 457 (no matching)
$0 to her IRA
$5,000 his Roth IRA

Available funds

Funds available in his 457 – limited to Vanguard funds though there are another 25+ alternatives all of which have higher fees.
Vanguard Total Bond Market Index Fund (VBTIX) (0.035%)
Vanguard Total International Stock Index Fund (VTIAX) (0.11%)
Vanguard International Value Fund (VTRIX) (0.35%)
Vanguard Small-Cap Growth Index Fund (VSGAX) (0.07%)
Vanguard Small-Cap Index Fund (VSMAX) (0.05%)
Vanguard Mid-Cap Index Fund Admiral (VIMAX) (0.05%)
Vanguard FTSE Social Index Fund (VFTAX) (0.14%)
Vanguard Growth Index Fund (VIGIX) (0.04%)
Vanguard Institutional Index Fund (VINIX) (0.04%)
Vanguard Equity-Income Fund (VEIRX) (0.19%)

Funds available in her rollover IRA -
All Vanguard funds – this is was rolled over to Vanguard.
Funds available in his ROTH IRA -
All Vanguard funds – this is was started directly through Vanguard.

* Generous family members created 529 plan for each of our children, $50k each.

Questions:
1. How ought we allocate to meet about 25% of stocks in international – I’m assuming VTIAX? And is this an appropriate allocation?
2. How ought we allocate to get 20% total in bonds (and is that an appropriate percentage given our ages and planned retirement around 58 years old)?
3. I have the Vanguard direct ROTH and her rollover IRA entirely in VTIVX (Target Date 2045) – other than a slightly higher ER, is this appropriate or should I reallocate those to something closer to a 3 fund portfolio?
4. I’ve read it’s preferred to put the allocations likely to grow the most in the ROTH and leave more of the bonds in the 457/IRA accounts (something to do with Capital Gains or taxes or something else) – is this accurate and how does that impact the allocation for my circumstances?
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Eagle33
Posts: 2391
Joined: Wed Aug 30, 2017 3:20 pm

Re: Portfolio review - started here years ago, now back with 2 kids!

Post by Eagle33 »

jbrams wrote: Mon Jul 26, 2021 2:22 pm Questions:
1. How ought we allocate to meet about 25% of stocks in international – I’m assuming VTIAX? And is this an appropriate allocation?
2. How ought we allocate to get 20% total in bonds (and is that an appropriate percentage given our ages and planned retirement around 58 years old)?
3. I have the Vanguard direct ROTH and her rollover IRA entirely in VTIVX (Target Date 2045) – other than a slightly higher ER, is this appropriate or should I reallocate those to something closer to a 3 fund portfolio?
4. I’ve read it’s preferred to put the allocations likely to grow the most in the ROTH and leave more of the bonds in the 457/IRA accounts (something to do with Capital Gains or taxes or something else) – is this accurate and how does that impact the allocation for my circumstances?
1. Acceptable allocation of stock in international is in the 0% to 50% range based on personal risk capacity and risk tolerance. VTIAX is appropriate when held at Vanguard.
2. For your ages 20% bonds falls within the 0%-40% acceptable range. From a tax efficiency standpoint all your bonds should be in tax deferred account(s). Tax-efficient fund placement
3. Roths should hold your highest growth potential investments. Increase your VBTLX holding in your 457 account and lower your ER by changing VTIVX to VBTLX in Her IRA. Why does she not have a Roth IRA and you are not contributing to it annually?
4. Asset allocation in multiple accounts
Topic Author
jbrams
Posts: 22
Joined: Sun Dec 07, 2008 11:48 am
Location: California

Re: Portfolio review - started here years ago, now back with 2 kids!

Post by jbrams »

Eagle33 wrote: Tue Jul 27, 2021 12:51 pm 1. Acceptable allocation of stock in international is in the 0% to 50% range based on personal risk capacity and risk tolerance. VTIAX is appropriate when held at Vanguard.
2. For your ages 20% bonds falls within the 0%-40% acceptable range.
Thanks for confirming these parts, good to know I didn't wander from the recommendations.
From a tax efficiency standpoint all your bonds should be in tax deferred account(s). Tax-efficient fund placement
I'll read the article further, but is my initial impression correct: Bonds should be in the 457 or Her Rollover IRA (rather than in the Roth)? Per the Tax-efficient fund placement article, "If your investments are all in tax-advantaged accounts, fund placement will not have a large impact on your returns. Tax-advantaged accounts include tax-deferred accounts, such as traditional 401(k), 403(b), and Traditional IRA, and the tax-free Roth versions of those accounts such as Roth IRA."
3. Roths should hold your highest growth potential investments. Increase your VBTLX holding in your 457 account and lower your ER by changing VTIVX to VBTLX in Her IRA.
So allocate all bonds in His 457 (or Her Rollover IRA?), allocate more (while maintaining the overall asset allocation) stocks in His Roth, correct? For a quick example:
His 457b
14% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)
41% Vanguard Institutional Index Fund (VINIX) (0.035%)
20% Vanguard Total International Stock Index Fund (VTIAX) (0.11%)

His Roth IRA
19% Vanguard Institutional Index Fund (VINIX) (0.035%)

Her Rollover IRA
6% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)

The result is 20% bonds, 80% stocks (of which 25% is international) across all accounts. Still leaves me wondering how to allocate the domestic stocks (more small cap or mid, VINIX or something else), but am I getting closer to your suggestions with this example?
Why does she not have a Roth IRA and you are not contributing to it annually?
Recent adoption costs (our second!) plus one parent switching to "stay at home" with the kids has limited our current ability to contribute more than about $15,000 total this year and likely for the next 3 years until she returns to part time work.
Should we normally contribute a full $10,000 ($5k each) to Roth accounts and the difference to His 457? This is complicated by our taxable income level starting to exceed the child tax credit / payment, the result is that it seems we will benefit more from keeping out taxable income a bit lower by contributing more to the tax deferred accounts for the moment.
Thanks, this article is helpful - my plan is to follow what they list as "Portfolio 3" - "Spread asset allocation" between multiple accounts which, taken together, result in the desired asset allocation (20% bonds, 80% stocks [25% of the stocks being international]). Did I get close with the above example - and how would you all suggest modifying it?
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Eagle33
Posts: 2391
Joined: Wed Aug 30, 2017 3:20 pm

Re: Portfolio review - started here years ago, now back with 2 kids!

Post by Eagle33 »

jbrams wrote: Tue Jul 27, 2021 1:33 pm I'll read the article further, but is my initial impression correct: Bonds should be in the 457 or Her Rollover IRA (rather than in the Roth)?
Yes
So allocate all bonds in His 457 (or Her Rollover IRA?), allocate more (while maintaining the overall asset allocation) stocks in His Roth, correct?
Yes. Assuming the 457 is the largest account and has the largest annual contribution I adjust that account to maintain the total portfolio target AA and just have 1 fund in the other accounts as you have used in your example.
I don't think you can purchase Vanguard Institutional Index Fund (VINIX) in your Roth IRA unless you have a minimum of $5,000,000. Instead, purchase Vanguard Total Stock Index (VTSAX).
Should we normally contribute a full $10,000 ($5k each) to Roth accounts and the difference to His 457? This is complicated by our taxable income level starting to exceed the child tax credit / payment, the result is that it seems we will benefit more from keeping out taxable income a bit lower by contributing more to the tax deferred accounts for the moment.
You can split the planned $5k contribution for this year between Roth accounts or $5k in one this year and $5k next year. I was recommending that each of you should have a Roth IRA. Read Traditional versus Roth and Prioritizing investments for further guidance.
Thanks, this article is helpful - my plan is to follow what they list as "Portfolio 3" - "Spread asset allocation" between multiple accounts which, taken together, result in the desired asset allocation (20% bonds, 80% stocks [25% of the stocks being international]). Did I get close with the above example - and how would you all suggest modifying it?
VTSAX in Roth and maybe some small cap in 457 account. I forget the recommended % small cap vs S&P500 % to approximate VTSAX. Maybe others can add this % in a response.
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