Portfolio Review / Questions

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Topic Author
SuperTrooper87
Posts: 241
Joined: Tue Jan 26, 2021 5:42 am

Portfolio Review / Questions

Post by SuperTrooper87 »

Emergency funds: 10k I Bond (just purchased in March), 10K Cash – will use to purchase 10k more Jan 2022

Debt: 15 year fixed mortgage at 2.25%, 149k remaining on 270k value home. (14 years remaining).

Tax Filing Status: MFJ
Tax Rate: 12% Federal, 6% State
Income: 120k from my job, wife currently at home fulltime with 2 kids. Hopeful to reenter workforce in 2 years. Previously earned 50-70k in marketing positions.

State of Residence: VT

Age: me 34, wife 38

Desired Asset allocation: seeking feedback - Potential for sizeable pension in retirement, open to equity heavy investments
Desired International allocation: seeking feedback

Portfolio Size: mid 6 figures

Current retirement assets

Taxable
16.5% cash (MM / Checking / Savings) – inflated as we had planned for window replacements but now waiting on prices to come down.
0.2% Fidelity Total Market Index Fund (FSKAX) (0.015%)
3.2% Vanguard Total Stock Market ETF (VTI) (0.03%)

His 457 (All Roth Contributions)
7.8% Vanguard Value Index Fund Institutional (VIVIX) (0.04%)
7.8% Vanguard US Growth Fund Admiral Shares (VWUAX) (0.28%)
5.3% Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (0.04%)
5.3% T. Rowe Price Small-Cap Stock Fund I Class (OTIIX) (0.75%)
14.6% Vanguard Developed Markets Index Fund Institutional Shares (VTMNX) (0.05%)

His Roth IRA at Fidelity
0.2% Fidelity Total Market Index Fund (FSKAX) (0.015%)
4.8% Vanguard Total Stock Market ETF (VTI) (0.03%)

Her Traditional IRA at Vanguard
24.3% Vanguard Target Retirement 2055 Fund (VFFVX) (0.15%)
Her Roth IRA at Vanguard
9.7% Vanguard Target Retirement 2055 Fund (VFFVX) (0.15%)

Contributions
New annual Contributions
$12,000 his 457b (10% post tax income)
$6,000 his IRA/Roth IRA
$9,000 his state employee pension (mandatory 8.5% pretax) (50% pay at 20 years, collect at age 50) projected payout of $80-90k a year, current fund value is 85k. Unsure what future holds for pension fund so I did not include in my net worth / portfolio %’s.
$6,000 her Roth IRA (2021 goal, has been lower in years past).
$6,000 Taxable – TSM Fidelity Fund - hoping to grow fund for 10 year+ goals, but significantly prior to 59.5.

Available funds

Funds available in his 457b
State of Vermont Stable Value Fund (0.41%)
FPA New Income Fund (FPNIX) (0.57%)
Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (0.04%)
Calvert Bond Fund Class (CBDIX) (0.56%)
Pimco Total Return ESG Fund Institutional Class (PTSAX) (0.96%)
T. Rowe Price Retirement 2010 Fund I Class (TRPAX) (0.37%)
T. Rowe Price Retirement 2020 Fund I Class (TRBRX) (0.42%)
T. Rowe Price Retirement 2030 Fund I Class (TRPCX) (0.49%)
T. Rowe Price Retirement 2040 Fund I Class (TRPDX) (0.51%)
T. Rowe Price Retirement 2050 Fund I class (TRPMX) (0.52%)
T. Rowe Price Retirement Balanced Fund I Class (TRPTX) (0.35%)
Dodge & Cox Balanced Fund (DODBX) (0.53%)
Pax Sustainable Allocation Fund Investor Class (PAXWX) (0.87%)
Vanguard Value Index Fund Institutional Shares (VIVIX) (0.04%)
Vanguard FTSE Social Index Fund Institutional Shares (VFTNX) (0.12%)
Vanguard Institutional Index Fund Institutional Shares (VINIX) (0.04%)
Vanguard U.S. Growth Fund Admiral Shares (VWUAX) (0.28%)
Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (0.04%)
T. Rowe Price Small-Cap Stock Fund I Class (OTIIX) (0.75%)
Pax Global Environmental Markets Fund Institutional Class (PGINX) (0.95%)
Dodge & Cox International Stock Fund (DODFX) (0.63%)
Vanguard Developed Markets Index Fund Institutional Shares (VTMNX) (0.05%)
Lazard Emerging Markets Equity Portfolio Institutional Shares (LZEMX) (1.11%)

Questions:
1. Currently my 457 is through Prudential and I have utilized the “goal maker” aggressive portfolio option which allocates the funds into 19% Large Cap Value, 19% Large Cap Growth, 13% Mid Cap Blend, 13% Small Cap Growth, 36% International Large Blend. Is this, coupled with my Roth IRA TSM purchases a good option for an aggressive AA? Should I look to adjust any of these positions or remove / replace any funds in the 457? I am looking to remain 100% equity in the 457, Roth and Taxable. 8.5% pension is much heavier in bonds and I have no control over its investments.

2. We had Vermont 529’s for both kids, similar to a TDF, ages 1 & 4. We try to contribute 3-5k per kid yearly, as well as 1-2k in gifts from family. Is this the right investment to make, or should I look to max out the 457? more to 529s?

3. We were looking to do window replacements for the house (15-20k). Due to price increases we held off and the money has been sitting in a MM fund. Likely to do this next year instead. Should I park this cash somewhere else? Currently earns 0.4% (losing money to inflation I know). Additionally, money currently serves as a second tier ER as we convert cash from EF to I-Bonds. (10k in March-May, 10K more Jan 2022).

4. I own a paid off truck, bought it for 25k 5 years ago, barely drive it due to a take home work vehicle, covid closing everything, and having a large home and property that accommodates a lot of what we enjoy. Would I be silly for selling it? Currently is valued at 25,600. Thought process was to put that money in either I bonds or MM for 2 years or more and purchase a newer vehicle if prices come down. If they don’t, I wouldn’t feel pressured to purchase as wife has a reliable 2020 lease vehicle that is good until Nov 2022. (she did lease with her dad, I suggested buying but I digress).
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: Portfolio Review / Questions

Post by lakpr »

Random thoughts as I read your post:

1. With $120k salary, and 8.5% of it mandatory pension contribution, you are contributing $10k every year to pension fund, to what you describe to be a bond heavy allocation. Generally pension funds invest in a 60:40 ratio, or $4k per year of your money is being invested in bonds. Given that you are contributing $12k to 457 plan, if invested fully in equities, comes out to $18k equities and $4k bonds, or 82:18 overall stocks to bonds, which is quite appropriate for a 34 year old. I am a believer in Age-20 allocation to bonds, or you should have 15% bonds, so your asset allocation seems almost on target. In other words, I entirely agree that you should remain 100% equities in your 457 and Roth IRA, at least for the next 10 years. Anything less is actually being overly conservative.

2. Instead of investing in taxable account, I would look to increasing the 457 plan contributions. After you have a good sized emergency fund set up, of course. Start to max out the 457 plan contributions before you lose the opportunity. Draw your living expenses out of the taxable account to make up for the shortfall in your paycheck. You will have transferred the taxable account indirectly to tax sheltered accounts.

3. Good that you bought $10k I bonds in March, but why not buy another $10k in I bonds in your wife's name now, rather than waiting until Jan 2022?

4. I would absolutely sell that paid off truck. Not only you are getting $600 more than what you paid for it, removing a vehicle will also lower your insurance rates. If the truck is being barely used, I view it absolutely as a money making opportunity. The current chip crisis may or may not last long, and you may not get top dollar if you wait too long.

5. You have almost the same investments in your taxable and Roth IRA. This is a problem for taking advantage of tax loss harvesting opportunities. You should not have any overlap of funds or ETFs between taxable and Roth IRA. In the Roth IRA I would move everything to FSKAX, selling VTI. In the taxable account (see my point 3 above though, so this applies only for surplus funds after you max out Roth 457), do the opposite; sell FSKAX and buy only VTI. For tax efficiency reasons, you should prefer ETFs than mutual funds for your taxable, hence the recommendation to do it this way than the opposite (of selling VTI and buying FSKAX in taxable).

6. In your 457, I would buy total market funds or ETFs among the available choices. To me, your current allocations sound like a jumble of growth and value funds. I would like to simplify that, but to be able to provide suggestions, need to know full list of available choices.

7. How much room do you have in your 12% tax bracket? I would look to slowly convert part of Her Traditional IRA to Her Roth IRA, up to the top of 12% bracket. I do not believe we will ever see a lower tax bracket than 12% in our lifetimes again. As such, this bracket is set to sunset by December 2025, and will increase to 15% in 2026. Your wife will also return to work earlier than 2026, pushing you solidly into the 22% bracket. A pension to look forward to in retirement, paying at least $60k annually, potentially more. All strong indications that you should consider Roth conversions and Roth contributions, to the extent that you can remain within the 12% tax bracket, which is $80k taxable income.

Bring out your 2020 tax return, and look at the taxable income field. Say that is $70k, you have $10k room to convert, assuming of course 2020 and 2021 incomes are/will be similar. Convert $10k of her Trad. IRA to Roth IRA before December 31st.
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio Review / Questions

Post by tashnewbie »

A few thoughts:

1. Are you sure you're in the 12% bracket? For 2021 MFJ, top of 12% bracket is ~$81k. You have $120k gross income - $9k mandatory pre-tax pension contribution - ~$25k standard deduction = $86k. If you have health insurance premiums of at least $5k, then you'd be at the tippy top of the 12% bracket. I recommend reviewing your 2020 tax return to see what your taxable income was to confirm you're in the 12% bracket. If you're not, then I would suggest doing just enough traditional 457 to get into the 12% bracket.

2. Definitely use different funds in the taxable account than you use in the IRAs, to avoid inadvertent wash sales if you ever decide to tax loss harvest in the taxable account. Like user above said, at Fidelity, ETFs are going to be more tax efficient in a taxable account. So it'd make sense to use VTI in the taxable account at Fidelity and use FSKAX or FZROX in the Fidelity Roth IRAs. In her Roth IRA at Vanguard, I would use just VFIAX (the S&P 500 index fund), not a target date fund. Although the TDF has a small bond allocation now, it will becoming increasingly conservative, and you want highest expected growth assets (equities) in the Roth IRA because qualified withdrawals are penalty- and tax-free.

3. I would prioritize maxing her Roth IRA before doing any taxable investing. Roth IRA contributions, but not earnings, are withdrawable at any time penalty- and tax-free, and Roth IRA contributions grow tax-free (may not be as much of an issue for you because you're probably in the 0% LTCG bracket).

4. If you don't think you'll need the excess cash before next August, I agree with user above that it'd make sense to use $10k to buy I bonds in her name. You just may have to wait on the windows replacement until next August.

5. In his 457, these are the only 2 funds I think you need:

Vanguard Institutional Index Fund Institutional Shares (VINIX) (0.04%) - this is a S&P 500 index fund. It represents like 80% of the US stock market.
Vanguard Developed Markets Index Fund Institutional Shares (VTMNX) (0.05%) - I think developed markets is like 75-80% of the int'l stock market.

What you have now is an unnecessary mix of funds that adds complexity and clutter (and fees!) without any guaranteed higher return.
Topic Author
SuperTrooper87
Posts: 241
Joined: Tue Jan 26, 2021 5:42 am

Re: Portfolio Review / Questions

Post by SuperTrooper87 »

lakpr wrote: Thu Jul 29, 2021 4:57 am
1. With $120k salary, and 8.5% of it mandatory pension contribution, you are contributing $10k every year to pension fund, to what you describe to be a bond heavy allocation. Generally pension funds invest in a 60:40 ratio, or $4k per year of your money is being invested in bonds. Given that you are contributing $12k to 457 plan, if invested fully in equities, comes out to $18k equities and $4k bonds, or 82:18 overall stocks to bonds, which is quite appropriate for a 34 year old. I am a believer in Age-20 allocation to bonds, or you should have 15% bonds, so your asset allocation seems almost on target. In other words, I entirely agree that you should remain 100% equities in your 457 and Roth IRA, at least for the next 10 years. Anything less is actually being overly conservative.
Appreciate the feedback and that suggestion is reassuring.

2. Instead of investing in taxable account, I would look to increasing the 457 plan contributions. After you have a good sized emergency fund set up, of course. Start to max out the 457 plan contributions before you lose the opportunity. Draw your living expenses out of the taxable account to make up for the shortfall in your paycheck. You will have transferred the taxable account indirectly to tax sheltered accounts.


I will look to have some discussions with the wife on this. I had been on the fence of retiring from work fully at 50 and looked at the taxable savings to provide some added income from 50-59.5 before I had access to the Roth funds. Additional conversations were had about using the funds for a second home, repairs years down the road etc. I believe we need to talk more about this to get our goals and expectations in line - that being said, for those purposes is using a taxable to grow money 10+ years a bad idea, given my hopes of what to do with it between 45-50 years old? (10-15 years from now). If I remove all from taxable, when would I look to go back and grow those cash funds? After she returns to work and income shoots up as it'll coincide with kids being out of expensive pre-k schools?
3. Good that you bought $10k I bonds in March, but why not buy another $10k in I bonds in your wife's name now, rather than waiting until Jan 2022?
Was going to deal with the hassle of having her set up an account. It's been like pulling teeth to get her to talk any finances. Two young kids, she's focused on a 24 hour window, not a 24 year window. I suppose it was about picking my battles and talking finances is one that didn't seem worth it for a year or two.
4. I would absolutely sell that paid off truck. Not only you are getting $600 more than what you paid for it, removing a vehicle will also lower your insurance rates. If the truck is being barely used, I view it absolutely as a money making opportunity. The current chip crisis may or may not last long, and you may not get top dollar if you wait too long.
Sounds good. We are leaning heavily towards this and will likely pull the trigger after our mid August vaca - do you see a reduction in vehicle prices happening that fast?
5. You have almost the same investments in your taxable and Roth IRA. This is a problem for taking advantage of tax loss harvesting opportunities. You should not have any overlap of funds or ETFs between taxable and Roth IRA. In the Roth IRA I would move everything to FSKAX, selling VTI. In the taxable account (see my point 3 above though, so this applies only for surplus funds after you max out Roth 457), do the opposite; sell FSKAX and buy only VTI. For tax efficiency reasons, you should prefer ETFs than mutual funds for your taxable, hence the recommendation to do it this way than the opposite (of selling VTI and buying FSKAX in taxable).
Will do - when it comes to purchasing in taxable, should I monthly DCA and purchase VTI or save a few months and purchase blocks of it? I'd imagine the taxes when withdrawing can become a headache correct?
6. In your 457, I would buy total market funds or ETFs among the available choices. To me, your current allocations sound like a jumble of growth and value funds. I would like to simplify that, but to be able to provide suggestions, need to know full list of available choices.
I listed the full amount of funds available in the "funds available" section of the review (above the questions)
7. How much room do you have in your 12% tax bracket? I would look to slowly convert part of Her Traditional IRA to Her Roth IRA, up to the top of 12% bracket. I do not believe we will ever see a lower tax bracket than 12% in our lifetimes again. As such, this bracket is set to sunset by December 2025, and will increase to 15% in 2026. Your wife will also return to work earlier than 2026, pushing you solidly into the 22% bracket. A pension to look forward to in retirement, paying at least $60k annually, potentially more. All strong indications that you should consider Roth conversions and Roth contributions, to the extent that you can remain within the 12% tax bracket, which is $80k taxable income.
We fill it, sometimes over by a few hundred dollars.

Bring out your 2020 tax return, and look at the taxable income field. Say that is $70k, you have $10k room to convert, assuming of course 2020 and 2021 incomes are/will be similar. Convert $10k of her Trad. IRA to Roth IRA before December 31st.
Topic Author
SuperTrooper87
Posts: 241
Joined: Tue Jan 26, 2021 5:42 am

Re: Portfolio Review / Questions

Post by SuperTrooper87 »

tashnewbie wrote: Thu Jul 29, 2021 7:49 am
A few thoughts:
1. Are you sure you're in the 12% bracket? For 2021 MFJ, top of 12% bracket is ~$81k. You have $120k gross income - $9k mandatory pre-tax pension contribution - ~$25k standard deduction = $86k. If you have health insurance premiums of at least $5k, then you'd be at the tippy top of the 12% bracket. I recommend reviewing your 2020 tax return to see what your taxable income was to confirm you're in the 12% bracket. If you're not, then I would suggest doing just enough traditional 457 to get into the 12% bracket.
We were right at it, perhaps 1k over at most. (Health INS is $480 / mos, approx 5-6k
2. Definitely use different funds in the taxable account than you use in the IRAs, to avoid inadvertent wash sales if you ever decide to tax loss harvest in the taxable account. Like user above said, at Fidelity, ETFs are going to be more tax efficient in a taxable account. So it'd make sense to use VTI in the taxable account at Fidelity and use FSKAX or FZROX in the Fidelity Roth IRAs. In her Roth IRA at Vanguard, I would use just VFIAX (the S&P 500 index fund), not a target date fund. Although the TDF has a small bond allocation now, it will becoming increasingly conservative, and you want highest expected growth assets (equities) in the Roth IRA because qualified withdrawals are penalty- and tax-free.
makes sense, thanks
3. I would prioritize maxing her Roth IRA before doing any taxable investing. Roth IRA contributions, but not earnings, are withdrawable at any time penalty- and tax-free, and Roth IRA contributions grow tax-free (may not be as much of an issue for you because you're probably in the 0% LTCG bracket).
will do - is this what some folks do instead of an EF, or for purchases down the road rather than using a taxable? How much of a headache is it to withdraw funds?
4. If you don't think you'll need the excess cash before next August, I agree with user above that it'd make sense to use $10k to buy I bonds in her name. You just may have to wait on the windows replacement until next August.
I will crunch the numbers. If we sell the truck it will be an easy sell to do that, otherwise it could be tighter. While my career is in high demand, if i were to experience job loss the hiring process can take up to 1 year - hence why we kept more cash / ef for closer to 6 mos + of exp
5. In his 457, these are the only 2 funds I think you need:

Vanguard Institutional Index Fund Institutional Shares (VINIX) (0.04%) - this is a S&P 500 index fund. It represents like 80% of the US stock market.
Vanguard Developed Markets Index Fund Institutional Shares (VTMNX) (0.05%) - I think developed markets is like 75-80% of the int'l stock market.

What you have now is an unnecessary mix of funds that adds complexity and clutter (and fees!) without any guaranteed higher return.
What would be a good asset allocation range for this? we have no exposure to international elsewhere and I know opinions on this vary. I'm not against some exposure, but wasn't looking to have more than 25% in the whole portfolio, which I think we are in the range of when factoring my Roth / Taxable and definitely with her Roth / IRA. thoughts? thank you!
tashnewbie
Posts: 4284
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio Review / Questions

Post by tashnewbie »

SuperTrooper87 wrote: Thu Jul 29, 2021 1:02 pm
3. I would prioritize maxing her Roth IRA before doing any taxable investing. Roth IRA contributions, but not earnings, are withdrawable at any time penalty- and tax-free, and Roth IRA contributions grow tax-free (may not be as much of an issue for you because you're probably in the 0% LTCG bracket).
will do - is this what some folks do instead of an EF, or for purchases down the road rather than using a taxable? How much of a headache is it to withdraw funds?
I've never withdrawn money from a Roth IRA. I advise keeping good records. Keep the 5498s that your IRA custodian sends you. It should be easy enough to make withdrawals of the contributions.

I think a lot of people (most?) use a Roth IRA as another vehicle for retirement/long-term investing, not short to medium term saving/investing. There is a wiki article about using a Roth IRA as an emergency fund, but that only makes sense when you're starting out and don't have sufficient cash flow to save an EF and max a Roth IRA. You already have an EF and have enough to max both Roth IRAs. I would do that before taxable investing. The Roth IRA space is use it or lose it. Looks like you'd still have some money you could invest in taxable, even after maxing both Roth IRAs. As you get closer to making whatever short- to mid-term purchases you want, you can reassess and figure out a payment plan/strategy.
SuperTrooper87 wrote: Thu Jul 29, 2021 1:02 pm
4. If you don't think you'll need the excess cash before next August, I agree with user above that it'd make sense to use $10k to buy I bonds in her name. You just may have to wait on the windows replacement until next August.
I will crunch the numbers. If we sell the truck it will be an easy sell to do that, otherwise it could be tighter. While my career is in high demand, if i were to experience job loss the hiring process can take up to 1 year - hence why we kept more cash / ef for closer to 6 mos + of exp
I'm confused. I thought the cash listed in a MM fund in taxable was in addition to the EF ($10k in I bonds and $10k in checking/savings account). You said the extra cash was money you planned to use to replace windows. That's the money I would invest in I bonds now. You'll just have to wait until at least next August to replace the windows. If you think you'll replace them beforehand, then don't purchase I bonds with that money.
SuperTrooper87 wrote: Thu Jul 29, 2021 1:02 pm
5. In his 457, these are the only 2 funds I think you need:

Vanguard Institutional Index Fund Institutional Shares (VINIX) (0.04%) - this is a S&P 500 index fund. It represents like 80% of the US stock market.
Vanguard Developed Markets Index Fund Institutional Shares (VTMNX) (0.05%) - I think developed markets is like 75-80% of the int'l stock market.

What you have now is an unnecessary mix of funds that adds complexity and clutter (and fees!) without any guaranteed higher return.
What would be a good asset allocation range for this? we have no exposure to international elsewhere and I know opinions on this vary. I'm not against some exposure, but wasn't looking to have more than 25% in the whole portfolio, which I think we are in the range of when factoring my Roth / Taxable and definitely with her Roth / IRA. thoughts? thank you!
You need to figure out what you want your overall portfolio's asset allocation to be. Consider all of your accounts as one big portfolio, not each separate account as its own portfolio. Set your AA across all of the accounts, being mindful of tax efficiency. Vanguard has an investor questionnaire (just Google it) that you can take to assess your risk tolerance.

Do you want bonds? If so what %? Do you want international stocks? There's a perennial debate on the forum about int'l stock exposure. Anything from 0-50% of stocks seems common. I've landed on 20% of my stock exposure will be int'l. I think there's an old Vanguard study showing 20% international exposure provided about 80% of the diversification benefit, and that was good enough for me. This is a very personal decision, and you'll have to figure out what you want to do.
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