Where Do I Go From Here - Asset Location [2022 Update]

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AnnetteLouisan
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Re: Where Do I Go From Here - Asset Location & Catch Up Contribution

Post by AnnetteLouisan »

Aw shucks! Thank you. ☺️☺️☺️
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Re: Where Do I Go From Here - Asset Location

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Does it ever make sense NOT to max out your traditional 401k catch up contribution? I’m in the 35 percent fedl, 14 percent state and local brackets and can easily afford to max out my catch up again this coming, as well as the Roth IRA catch up, plus max out my Series I bond opportunity.

This coming year (or maybe even before year end) I want to start a taxable brokerage account of about $20k. I can easily afford to do all of these.

Question:
I assume given my tax bracket, age, limited time left in the workforce and late start investing, it makes sense to continue to max out the catch up even though it is not matched and even though I need more bonds now like I need a bad headache, and even though I have a greater need for qualified dividends, other cap gains taxed investments and tax free equities in my Roth?
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

For my two cents, those who are able, benefit from maxing out their tax-advantaged accounts. And personally, I'll continue to do that before I contribute to taxable.

A separate question would be if it makes sense to continue doing pre-tax or switch to Roth contributions.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

Well, with no dependents and a single filer status (10 percent higher than MFJ), switching to a Roth 401k option, which is open to us, would put my total taxes back up around 93k a year (where they were before I started investing ten years ago).

But I’m open to other approaches, as I want to do the most advantageous thing.
Last edited by AnnetteLouisan on Tue Nov 30, 2021 11:40 pm, edited 1 time in total.
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Re: Where Do I Go From Here - Asset LO-cation

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AnnetteLouisan wrote: Sat Nov 06, 2021 10:31 am My thought is, since most of my 401k funds are in bonds anyway - which was unbeknownst to me the smart place to put them - why don’t I just keep them there (rather than trying to achieve a 25 percent equity allocation in the 401k) and put some of my bank cash and future paychecks into equities in my Roth IRA and (yet to be opened) taxable brokerage?
When I put together my asset allocation in 2007 I went with all the fixed income in the 401k and as the market has gone up that account has become more and more concentrated to fixed to the point where it's now 85% in bonds/stable value.
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Re: Where Do I Go From Here - Asset Location

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AnnetteLouisan wrote: Sat Nov 06, 2021 10:40 pm Does it ever make sense NOT to max out your traditional 401k catch up contribution? I’m in the 35 percent fedl, 14 percent state and local brackets and can easily afford to max out my catch up again this coming, as well as the Roth IRA catch up, plus max out my Series I bond opportunity.
As long as you don't need the money before you can withdraw it penalty-free, it's better to put it in some tax-advantaged account so that it grows tax-free.

The 401(k) is particularly good for you because you will probably retire in a lower tax bracket. Getting a 49% tax deduction on contributions and paying, say, 32% on withdrawals means that a $10,000 investment costs you $5100 out of pocket and becomes $6800 when you withdraw it, a 33% return in addition to anything the market returns.

And in that high a tax bracket, your taxable account should be in New York munis. You have the same tax cost on NY munis as everyone else (the difference between the yields on taxable and muni bonds of comparable risk), but a much higher tax on anything else in your taxable account, so the NY munis are particularly attractive for you.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

Thanks.

I expect to be in a much lower bracket in retirement, with my 290k gross income dropping to around 25-60k depending on when I start collecting pension and social security, IF those things come true for me.

Do you recommend just buying a muni and holding it to maturity or buying a NY muni bond fund? Also, if I move - and I sure as heaven am planning to - do I have to sell the muni or is it just taxed differently? also, I’ve been here since before the Felix Rohatyn days so do I have to have confidence in the municipality’s creditworthiness or responsibility to buy one?

I don’t have a taxable account yet- any sense in putting it in my Roth IRA?
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Re: Where Do I Go From Here - Asset Location

Post by retire2022 »

AnnetteLouisan wrote: Sun Nov 07, 2021 8:32 pm
I don’t have a taxable account yet- any sense in putting it in my Roth IRA?
If you have a Roth account, I would it is usually drawn last and it is my risky holding VGT 32% of portfolio, the rest in pretax 58% with 10% in cash.
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Re: Where Do I Go From Here - Asset Location

Post by grabiner »

AnnetteLouisan wrote: Sun Nov 07, 2021 8:32 pm Thanks.

I expect to be in a much lower bracket in retirement, with my 290k gross income dropping to around 25-60k depending on when I start collecting pension and social security, IF those things come true for me.

Do you recommend just buying a muni and holding it to maturity or buying a NY muni bond fund? Also, if I move - and I sure as heaven am planning to - do I have to sell the muni or is it just taxed differently? also, I’ve been here since before the Felix Rohatyn days so do I have to have confidence in the municipality’s creditworthiness or responsibility to buy one?
I would recommend a NY muni fund, say Vanguard NY Long-Term Tax-Exempt.

There is no point in keeping a NY muni fund when you leave NY. It loses its state tax advantage, and is less diversified than a national muni fund. Thus, when you leave NY, you can sell this fund (likely for little or no capital gain), and buy a fund for your new state, or a national fund, or a taxable bond fund if you drop to a low enough tax bracket that munis no longer make sense.
I don’t have a taxable account yet- any sense in putting it in my Roth IRA?
It doesn't make sense to hold munis in an IRA; you waste the tax benefit. If you want to hold a bond fund in your 401(k) or IRA, use something like Total Bond Market.

But when you do have to open a taxable account (because your investible money exceeds the contribution limits for the 401(k) and IRA), you should buy a NY muni fund if you still live in NY and are in a high tax bracket.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

“But when I do have to open a taxable account”

- my investible money currently exceeds my 401k, catch up, IRA, catch up, HSA, I bond etc amounts by 83k per year plus I have over 600k in banks earning almost nothing.

Do I therefore “have to” open a taxable account?

I’m leaning to yes anyway, just want to hear more and get over my fears of doing this. I understand the cap gains and qualified dividends advantages.
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

"Should you", yes.

"Have to" is up to you, as it requires you to address long held fears. With your expense control, strong pensions + SS Income, you'll likely be fine either way.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

My only real concern about opening a taxable account (besides risk of loss, fees etc) is how easily it is to mindlessly make large transactions on impulse without feeling the gravity of these large numbers.

When I opened my Fidelity IRA and funded it, and also when I bought series I bonds, I was amazed how quickly it all occurred, with no real checks $10k here, $7k there. What if I’d had dementia, was drunk or I’d been pressured? No one called me to ask if I was sure etc.

Of course, I understand that this is part of the miracle of modern finance, and it is super convenient, but I don’t see any guardrails for people who know their own worst enemy is likely to be themselves, either now or in the future.
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Re: Where Do I Go From Here - Asset Location

Post by clip651 »

AnnetteLouisan wrote: Mon Nov 08, 2021 7:31 am My only real concern about opening a taxable account (besides risk of loss, fees etc) is how easily it is to mindlessly make large transactions on impulse without feeling the gravity of these large numbers.

When I opened my Fidelity IRA and funded it, and also when I bought series I bonds, I was amazed how quickly it all occurred, with no real checks $10k here, $7k there. What if I’d had dementia, was drunk or I’d been pressured? No one called me to ask if I was sure etc.

Of course, I understand that this is part of the miracle of modern finance, and it is super convenient, but I don’t see any guardrails for people who know their own worst enemy is likely to be themselves, either now or in the future.
Your bank accounts are the same way, and you have lots of money in some of those. You could buy a boat you don't need, or give tons of money away to a scammer by writing a check. Make your password long and complicated so you would have difficulty typing it while drunk or demented. Not foolproof, but a small guardrail for online accounts.

If you think you will need or want supervision for financial transactions in the future, talk to a lawyer about your options.

Or you could use a financial advisor for your investing. But that will cost money and hurt your portfolio returns. And there is no guarantee the advisor won't encourage you to do something inappropriate (variable annuity, inappropriate fund choices, etc). Nor is there a guarantee the advisor will act as a safeguard for you. In 2008 my dad had trouble getting a hold of his advisor because she was swamped with panic selling clients. I think she was panic selling her own stuff, too. He was eventually able to get through and panic sell a bit, though. :(
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

Good points! I sure don’t do that with my bank accounts, 401ks or credit cards. So maybe it will be ok.

I hope when I buy something on Fidelity it doesn’t bring up five other funds I might like to try (like Amazon does). Or show a confetti visual like Robinhood. 🙄

I rarely drink. And I don’t watch Jim Kramer. I’d love to be able to put some daily maximum trade limit on my account though, like 10k.

No to financial advisors. Maybe I’ll just post here and ask more questions like, VTI, ITOT, or FSKAX? Dumb question in retrospect but the answers were very helpful.
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

AnnetteLouisan wrote: Mon Nov 08, 2021 4:20 pm Maybe I’ll just post here and ask more questions like, VTI, ITOT, or FSKAX?
It honestly doesn't matter... I think I posted this up thread, but the differences in low cost broadly diversified index funds are minimal.

That said, I do recommend picking a different fund (in reality, funds) that tracks a different index for your taxable account. This is to avoid a potential wash sale if/when you get around to completely optional Tax Loss Harvesting. If you don't plan to TLH, it won't matter.

Personally, I hold FZROX in my Fidelity 401k & Roth. Then in my taxable account I'd use one or more of: FSKAX, VTI (or VTSAX same thing), ITOT, SCHB, etc. With TLH, you might even end up holding more than one at the same time.
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Re: Where Do I Go From Here - Asset Location

Post by retire2022 »

AnnetteLouisan wrote: Mon Nov 08, 2021 4:20 pm
I would advise you to objectively go through Vanguard's Asset Allocation questionnaire to see what it thinks your AA should be:

https://investor.vanguard.com/calculato ... tionnaire/
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Re: Where Do I Go From Here - TRowe Price 401k mutual fund window at Schwab

Post by AnnetteLouisan »

Thanks- just did. They suggest 40 percent in stocks for me, 60 percent in bonds and 0 percent short term.
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Re: Where Do I Go From Here - TRowe 401k “window” at Schwab?

Post by AnnetteLouisan »

So my TRowe Price 401k has a mutual fund “window” using Charles Schwab. You can choose from more funds than only those offered by TRowe price in this specific 401k plan. I’m not satisfied with my options in the plan (a lot of high fee options).

I generally have avoided utilizing this window because my perception is that:

A. It’s intended for experienced investors, which I am not and

B. two sets of fees would be charged by the two brokerages. Is this true?

Is it worth utilizing this window given what my TRowe options are - the best of which being state street funds (listed above in my IPS)?

If I need to get the list of the Schwab fund options to be able to answer this question, I can do that.
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Re: Where Do I Go From Here - Schwab Fund Window in TRowe 401k?

Post by AnnetteLouisan »

AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm Updated as of 11-9 to include discussion of Schwab mutual fund window in TRowe price 401k

-asset location issues
-proposed 401k reallocation and IRA investments
- draft IPS - feedback welcome on my IPS or anything - see last page of this thread
- did backdoor Roth IRA conversion;
- considering Schwab for taxable brokerage;
- educating myself w the wiki etc - TLH, etc.
- estimated pension (32k)
- estimated ss (39k)
- got rid of extra life insurance
- considering changing 401k future allocations to:
10 percent ex US,
25 percent S&P and
15 percent of a much lower ER bond index
50 percent stable value

Current AA 10/90, goal is 25/75.

—————
Original post:


I’m new to this forum, so please bear with me if I inadvertently break any rules. First of all, these are the best emojis I’ve ever seen, so clearly I’m in the presence of greatness here, no surprise.

Here’s the situation: Grew up (relatively) poor, risk averse (parents divorced and one of my first jobs was for a major brokerage that failed spectacularly), put nose to grindstone, made mistakes, just coming up for air now and realize I need to learn more asap. Total NW $1.8, age 54, no debt, employed FT at $230k (290k if you count bonuses, matching, interest and 401k earnings). Spend 45k a year (38k during covid), plus 76K in all annual taxes. Just opened an IRA; no taxable brokerage (planning to open one this year with Fidelity or Schwab). Max out my 401k and catch-up contribution. Have an emergency fund. NYC resident, 35 percent fedl bracket, plus 14 percent state and local income tax, filing status: single, no dependents.

Expect to postpone collecting my small COLA’d defined benefit pension (around $32kyr if I retire at 57, $39k at 59) until age 62 to avoid the haircut. Well insured: LTCi, 70 percent LTD, medical, dental, vision and term life. Expect to take SS at 67. Per ssa estimator, if I started to collect ss at 62 I would receive approx $26,748, 67: $39,444, at 70, $49,044.

Expect a moderate sized inheritance but have always heeded the warning not to rely on it (all the more so lately). I expect retirement expenses to be between 45k-75k over time, plus taxes. Will not impulsively sell in a downturn.

TSP:
$215,000 G Fund (treasuries) ER 0.049 percent
$63,000 C Fund (S&p index) ER 0.049
$5,000 S Fund (small to mid cap US index) ER 0.049
$6.5k I Fund (high quality international index) ER 0.049

401k:
$45,000 State Street S&P 500 Index ER 0.01 percent
$110,000 Baird Core Plus Bond Institutional Fund ER 0.30
$85,000 TRowe Stable Value Common Trust Fund ER 0.15

Banks: $643,000
Series I Bond: $10,000
backdoor Roth 401k with Fidelity: $7,000 - new!

Total investable assets: $1,213,000 as of 8/31/21

Co-op: $600,000 no mortgage, but $1200 monthly maintenance, considering selling.

Goals:
$2.2 mil net worth at age 57 (in 3 years)
increase AA equity percentage to approx 25 percent
a tax efficient withdrawal plan for retirement
sufficient retirement income with acceptable volatility

Questions:
1. Does a muni bond fund make sense for me and if so which one?
(consensus answer:no)
2. Baird Fund has an ER of 0.30 - should I get out for that reason or another reason? (consensus answer: yes, the ER is too high and I’m too bond heavy)
3. Since my 401k is with TRowe do I open a taxable brokerage with them for the sake of simplicity or go with Schwab/Fidelity or Vanguard? (consensus answer: Fidelity or Schwab)
4. Planning to buy another $10k in I bonds in January: smart? stupid? (smart)
5. One of my bank accounts is a federal savings bank in another state, with no NY branches. In the event I pass, will heirs have to go through an ancillary estate proceeding in that other state to access the funds (they are on the account as a beneficiary). BSteiner says no, case closed.
6. I know my AA is not going to work long term. How do I diversify and best protect myself from market losses, self dealing, fund consolidation, fraud? (increase equity percentage in line with risk tolerance for at least some long term growth) Concretely, besides the Baird, should I sell the Stable Value and go with State Street ExUS at ER 0.02 and increase the S&P allocation?
7. Is my next step doing a backdoor Roth (no megabackdoor at my employer), an HSA or a taxable brokerage? Assuming its a taxable brokerage, which firm and which account type, and which investments- VTI? Other? (consensus: do all three)
8. How to deal with inheriting residential real estate possibly.
9. Should my plan just be to work as long as possible given my income - it’s a bit rich to toss $290/year just to have endless free time at an age where I wouldn’t really enjoy it anyway.
10. Any other comments that occur to you. All welcome. I know that my AA is too conservative. I’m very afraid of losses. But I also see that inflation is going to destroy my nest egg.

Bonus question:

My future allocation in my 401k is all stable value right now and my AA is 10/90. Pursuing my new AA of 25/75, I may change my future allocation to: 50 percent stable value, 10 percent State Street Gl All Cp Ex US Ind, 25 percent State Street S & P Index and 15 percent State Street US Bond Index (ERs all under 0.03). I realize this is not enough - but it seems like a start for the timid.
How should I move $ in my TSP?

I don’t have anyone to ask except forums, unfortunately. Reddit says invest in VTI and VTSAX...

—Annette
(a Pseudonym: the real Annett Louisan is basically the German version of the singer Enya, none of which has a thing to do with me except I like her music)
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Re: Where Do I Go From Here - Schwab Window in TRowe 401k

Post by AnnetteLouisan »

AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm

Updated as of 11-9 to include discussion of a Schwab mutual fund window in a TRowe 401k plan

-asset location issues.
-proposed 401k reallocation and IRA investments
- draft IPS - feedback welcome on my IPS or anything - see last page of this thread
- did backdoor Roth IRA conversion;
- considering Schwab for taxable brokerage;
- educating myself w the wiki etc - TLH, etc.
- estimated pension (32k)
- estimated ss (39k)
- got rid of extra life insurance
- considering changing 401k future allocations to:
10 percent ex US,
25 percent S&P and
15 percent of a much lower ER bond index
50 percent stable value

Current AA 10/90, goal is 25/75.

—————
Original post:


I’m new to this forum, so please bear with me if I inadvertently break any rules. First of all, these are the best emojis I’ve ever seen, so clearly I’m in the presence of greatness here, no surprise.

Here’s the situation: Grew up (relatively) poor, risk averse (parents divorced and one of my first jobs was for a major brokerage that failed spectacularly), put nose to grindstone, made mistakes, just coming up for air now and realize I need to learn more asap. Total NW $1.8, age 54, no debt, employed FT at $230k (290k if you count bonuses, matching, interest and 401k earnings). Spend 45k a year (38k during covid), plus 76K in all annual taxes. Just opened an IRA; no taxable brokerage (planning to open one this year with Fidelity or Schwab). Max out my 401k and catch-up contribution. Have an emergency fund. NYC resident, 35 percent fedl bracket, plus 14 percent state and local income tax, filing status: single, no dependents.

Expect to postpone collecting my small COLA’d defined benefit pension (around $32kyr if I retire at 57, $39k at 59) until age 62 to avoid the haircut. Well insured: LTCi, 70 percent LTD, medical, dental, vision and term life. Expect to take SS at 67. Per ssa estimator, if I started to collect ss at 62 I would receive approx $26,748, 67: $39,444, at 70, $49,044.

Expect a moderate sized inheritance but have always heeded the warning not to rely on it (all the more so lately). I expect retirement expenses to be between 45k-75k over time, plus taxes. Will not impulsively sell in a downturn.

TSP:
$215,000 G Fund (treasuries) ER 0.049 percent
$63,000 C Fund (S&p index) ER 0.049
$5,000 S Fund (small to mid cap US index) ER 0.049
$6.5k I Fund (high quality international index) ER 0.049

401k:
$45,000 State Street S&P 500 Index ER 0.01 percent
$110,000 Baird Core Plus Bond Institutional Fund ER 0.30
$85,000 TRowe Stable Value Common Trust Fund ER 0.15

Banks: $643,000
Series I Bond: $10,000
backdoor Roth 401k with Fidelity: $7,000 - new!

Total investable assets: $1,213,000 as of 8/31/21

Co-op: $600,000 no mortgage, but $1200 monthly maintenance, considering selling.

Goals:
$2.2 mil net worth at age 57 (in 3 years)
increase AA equity percentage to approx 25 percent
a tax efficient withdrawal plan for retirement
sufficient retirement income with acceptable volatility

Questions:
1. Does a muni bond fund make sense for me and if so which one?
(consensus answer:no)
2. Baird Fund has an ER of 0.30 - should I get out for that reason or another reason? (consensus answer: yes, the ER is too high and I’m too bond heavy)
3. Since my 401k is with TRowe do I open a taxable brokerage with them for the sake of simplicity or go with Schwab/Fidelity or Vanguard? (consensus answer: Fidelity or Schwab)
4. Planning to buy another $10k in I bonds in January: smart? stupid? (smart)
5. One of my bank accounts is a federal savings bank in another state, with no NY branches. In the event I pass, will heirs have to go through an ancillary estate proceeding in that other state to access the funds (they are on the account as a beneficiary). BSteiner says no, case closed.
6. I know my AA is not going to work long term. How do I diversify and best protect myself from market losses, self dealing, fund consolidation, fraud? (increase equity percentage in line with risk tolerance for at least some long term growth) Concretely, besides the Baird, should I sell the Stable Value and go with State Street ExUS at ER 0.02 and increase the S&P allocation?
7. Is my next step doing a backdoor Roth (no megabackdoor at my employer), an HSA or a taxable brokerage? Assuming its a taxable brokerage, which firm and which account type, and which investments- VTI? Other? (consensus: do all three)
8. How to deal with inheriting residential real estate possibly.
9. Should my plan just be to work as long as possible given my income - it’s a bit rich to toss $290/year just to have endless free time at an age where I wouldn’t really enjoy it anyway.
10. Any other comments that occur to you. All welcome. I know that my AA is too conservative. I’m very afraid of losses. But I also see that inflation is going to destroy my nest egg.

Bonus question:

My future allocation in my 401k is all stable value right now and my AA is 10/90. Pursuing my new AA of 25/75, I may change my future allocation to: 50 percent stable value, 10 percent State Street Gl All Cp Ex US Ind, 25 percent State Street S & P Index and 15 percent State Street US Bond Index (ERs all under 0.03). I realize this is not enough - but it seems like a start for the timid.
How should I move $ in my TSP?

I don’t have anyone to ask except forums, unfortunately. Reddit says invest in VTI and VTSAX...

—Annette
(a Pseudonym: the real Annett Louisan is basically the German version of the singer Enya, none of which has a thing to do with me except I like her music)
SnowBog
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Re: Where Do I Go From Here - TRowe 401k “window” at Schwab?

Post by SnowBog »

AnnetteLouisan wrote: Tue Nov 09, 2021 5:50 pm So my TRowe Price 401k has a mutual fund “window” using Charles Schwab. You can choose from more funds than only those offered by TRowe price in this specific 401k plan. I’m not satisfied with my options in the plan (a lot of high fee options).

I generally have avoided utilizing this window because my perception is that:

A. It’s intended for experienced investors, which I am not and

B. two sets of fees would be charged by the two brokerages. Is this true?

Is it worth utilizing this window given what my TRowe options are - the best of which being state street funds (listed above in my IPS)?

If I need to get the list of the Schwab fund options to be able to answer this question, I can do that.
I wouldn't worry about "A"... I personally think most people are "experienced investors" are probably actively trading - and likely losing out long term to us boring "index investors"...

As for B - you'd need to review your plan details - no way we'd know (unless someone else is in your exact plan). As an example, at my employer 401k at Fidelity I have access to their BrokerageLink account (which is maybe similar to your "window"), which allows me to buy any fund I want (more or less) within my 401k. My cost is $0 - and if I pick a fund with $0 transaction fees no cost there either - so I only pay the ER of the fund itself. However, others may have to pay a fee in their plan to access BrokerageLink - even though both of us have our plans at Fidelity. Similarly, apparently some BrokerageLink setups allow 2 accounts - one for Roth and one for pre-tax, where mine only allows 1 (with funds mixed and no way to invest them separately, which is why I roll out Roth into an IRA). Again 2 plans at same brokerage but the plan details might be significantly different...

As to is it worth looking into - I guess I'd ask why? What do you feel your current plan doesn't offer that you need?

Would a low cost "total stock market" fund like SCHB be "better" than an S&P 500? You tell me... https://www.portfoliovisualizer.com/bac ... ion2_2=100 Since Jan. 2010 an initial $10k with annual contributions of $10k ended up having a difference of about $100 dollars after nearly 12 years... (With the State Street S&P 500 being the higher amount.)

Obviously we don't know what the future holds - and given the choice I'd rather have the more diversified holding, but this sure feels like a rounding error in the grand scheme of things... The "big" things to get right include setting your AA correctly and ensuring you are saving enough to meet your needs - those will have significant impacts on your plan. (And I'd give you an A on your savings and a D on your original AA, but you are working to improve that.) Things like picking between multiple very similar low cost index funds aren't going to make a difference in the end...

So I'll repeat, is there a specific "gap" you feel you have in your available funds that you think this "window" might help you address? (I didn't re-read the whole thread - but I don't recall any major gaps... As I recall, you had decent low-cost options for US Stocks, International Stocks, and bonds - so to my view - you've got the essentials covered.)
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

-update: just saw your chart after I wrote the below - that is compelling!

Yes, the only bond options are-

the Baird Core Plus Institutional fund (a little known managed fund in Wisconsin operating with an ER of 0.30, a larger percentage of below investment grade bonds than I am comfortable with and a manager who just left not only his job but “resigned from the industry”). We were converted into this fund from a TRowe bond trust a few years ago with no meaningful choice.

a State Street total bond fund index (admittedly low ER) and

A State Street stable value fund

And the only decent equity indexes with a low ER are state street.

According to the disclosure, state street has made a lot of changes recently to cut costs, including relocating some operations to Eastern Europe- a place for which I happen to have some affection, having visited as a tourist, but it’s hard to understand why they’d have a role in my retirement monies.
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Re: Where Do I Go From Here - Asset Location

Post by placeholder »

My 401k from megacorp had lots of very low cost state street index funds in the form of cits so I would not hesitate to use them and as far as fixed income I have been 50/50 bond index and stable value since 2007.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

I guess I could just start a taxable account just to test it out and go from there.

Pros: get the experience w a taxable account by starting out small, more investment options, lower taxes on gains, wider selection, can improve my AA and my asset location without selling in my 401k, can learn to tax loss harvest, can say “I have my VTI in taxable” at cocktail parties (a joke sorry), less money earning effectively zero at banks.

Cons: more complicated taxes, risk of doing something stupid, could impact being caught in the AMT, too much new activity in a single year: first I bonds, then the Fidelity Roth IRA and now this. Locks me in to Fidelity when I may want to do Schwab ultimately.
Last edited by AnnetteLouisan on Tue Nov 23, 2021 6:54 pm, edited 1 time in total.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

We have various HDHP/HSA provider options.

Deductibles range from $1800-3000 per year for a single individual depending on in or out of network.

Employer contributes $800 year.

Fee structures vary, some are no fee as long as you keep money in it. Doesn’t seem like you can choose your HSA provider but I’m just scratching the surface on the options.

The hdhp covers 85 percent in network, 60 percent out of network.

It costs 135 per biweekly pay period vs $75 with a PPO w FSA.

So….. $4650 goes in in 2022, of which $800 is paid by employer. This is never taxed ever (!!!?) and carries over year to year. So it’s better than the FSA because it’s more money, the employer matches up to $800, it potentially earns money invested?? - can it be lost though? - which is also never taxed (right?)- and you use it on health expenses, semi-incentivizing you to see doctors because of the tax break, plus you can’t use it for anything other than medical.

Is this accurate? Can you use it to pay premiums and copays?

I can’t believe the complexity of all this! But it seems Iike maybe a boondoggle. And there is no income phase out. And it’s paid pre tax so it doesn’t limit your deductions??
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

AnnetteLouisan wrote: Wed Nov 10, 2021 12:36 pm more complicated taxes
It's probably a lot simpler than you think. If you use something like TurboTax, it can pull in all the information needed from your brokerage. If doing them by hand, you'll just need to add a few more lines pulled from the 1099 sent to you (similar to what you are getting from banks, but with some additional details such as "short" vs. "long" term gains).
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

AnnetteLouisan wrote: Wed Nov 10, 2021 1:24 pm We have various HDHP/HSA provider options.

Deductibles range from $1800-3000 per year for a single individual depending on in or out of network.

Employer contributes $800 year.

Fee structures vary, some are no fee as long as you keep money in it. Doesn’t seem like you can choose your HSA provider but I’m just scratching the surface on the options.

The hdhp covers 85 percent in network, 60 percent out of network.

It costs 135 per biweekly pay period vs $75 with a PPO w FSA.

So….. $4650 goes in in 2022, of which $800 is paid by employer. This is never taxed ever (!!!?) and carries over year to year. So it’s better than the FSA because it’s more money, the employer matches up to $800, it potentially earns money invested?? - can it be lost though? - which is also never taxed (right?)- and you use it on health expenses, semi-incentivizing you to see doctors because of the tax break, plus you can’t use it for anything other than medical.

Is this accurate? Can you use it to pay premiums and copays?

I can’t believe the complexity of all this! But it seems Iike maybe a boondoggle. And there is no income phase out. And it’s paid pre tax so it doesn’t limit your deductions??
If you haven't yet, read through https://www.bogleheads.org/wiki/Health_savings_account.

But yes, HSA is a phenomenal option for many people.

That said, that's start were its not a good fit... An HSA requires you to have a "high deductible" health plan to qualify. If you can't afford the deductible, bad fit... Likewise, to get the real benefits of an HSA, ideally you do not use it for annual medical expenses, and instead cover those out of pocket (letting the HSA balance grow). So if you have a lot of medical expenses, you might be better off with a traditional medical plan that doesn't qualify for HSA.

But if an HSA works for you, it's the "best" tax-advantaged account by far. Money going in isn't taxed (like pre-tax). Money grows tax-free and if used for medical expenses remains tax-free (like Roth). Any unused money can be withdrawn without penalty (I think at 65+), although you would be taxes if not used for medical.

As to your questions, an HSA cannot be lost, it does not expire, no "use it or lose it" involved. It can (and should) be invested, personally I treat mine like my Roth @ 100% stocks as this is a longer term account (I cover annual expenses from my "cash" not my HSA).

I don't think (but am not entirely sure) you can use it for premiums... But I think you can fit most other expenses. (Although again, I don't currently - I'm letting it grow. But keep your receipts, so you can reimburse yourself later when you want the money - such as when you are retired.)

You do need to be mindful of impact to any FSA. I believe if you have both an HSA and an FSA, the FSA becomes limited to only Dental and Vision (so can still use pre-tax dollars to cover glasses, dental procedures, etc. - but no longer "medical" items like co-pays, etc.).

As for "boondoggle"... HDHP/HSAs were arguably created to lower the cost of healthcare by promoting more personal choice and investment into health decisions. As an example, under a traditional healthcare plan let's say a given treatment has a $50 co-pay, but insurance is maybe paying provider A $500 while provider B charged $1000, but "you" don't care, you aren't going to shop around for a better price, and you probably aren't going to debate (much) if it's worth doing the procedure when your cost is only $50. With a HDHP/HSA the idea is this is "your money", you don't get a $50 co-pay option, you'll pay 1st dollar cost for any procedures until you've hit your "high" deductible. So you would be more inclined to decide if provider B was worth paying 2X as much, and arguably act more responsible spending "your" money (vs. the insurance companies money). I can attest it has achieved its stated mission - at least in my family (and in years we haven't hit the deductible) as we are more aware and mindful of the costs.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

I have a confession to make. Some time in the mid 1990s I read a WSJ opinion piece by either Jack Bogle or one of his acolytes advocating the three fund portfolio. I was really impressed by it and thought if I ever invested I’d do it that way.

So what did I do? I cut the article out with a scissors and put it in my “financial” folder, where it remains.

Now reading more about the 3 and 2 fund portfolios, I feel my bond portfolio is way too busy and could be simplified:

G Fund, I bonds, stable value fund, Baird core plus institutional bond fund, cash, pension and SS. Is there overlap here that could be simplified? As always, the Baird fund sticks out as the least appealing so I’m thinking of getting rid of 1/3 to 1/2 of it at some point (I don’t currently contribute to it), and stop adding to the stable value.
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Re: Where Do I Go From Here - Asset Location

Post by clip651 »

AnnetteLouisan wrote: Fri Nov 12, 2021 4:35 pm I have a confession to make. Some time in the mid 1990s I read a WSJ opinion piece by either Jack Bogle or one of his acolytes advocating the three fund portfolio. I was really impressed by it and thought if I ever invested I’d do it that way.

So what did I do? I cut the article out with a scissors and put it in my “financial” folder, where it remains.

Now reading more about the 3 and 2 fund portfolios, I feel my bond portfolio is way too busy and could be simplified:

G Fund, I bonds, stable value fund, Baird core plus institutional bond fund, cash, pension and SS. Is there overlap here that could be simplified? As always, the Baird fund sticks out as the least appealing so I’m thinking of getting rid of 1/3 to 1/2 of it at some point (I don’t currently contribute to it), and stop adding to the stable value.
There is no problem holding multiple types of fixed income, if you are comfortable with the purpose and location of each one. There often isn't a need for more than one type of fixed income in a single account (e.g. an IRA or a 401k), but that can vary too depending on your goals for your fixed income. (e.g. maybe you are targeting a certain duration, and need a mix of two funds to approximate it)

If you have access to the G fund, it is a good one to use, and a lot of people don't have access. You can look at your stable value fund details - they really vary from custodian to custodian - and see if it is better to keep using the stable value (I'm guessing that's in a 401k) or go with one of the bond fund options there.

If you want to simplify anything, hold less cash - put some of that cash into CDs, or high yield savings, or a good bond fund. Keep what makes sense as an emergency fund, of course.

As an example, I have total bond in an IRA, a different bond fund in my 401k (the best one of the available options there), plus CDs, and my emergency fund is in a high yield savings account. I won't have a pension, but I'll get SS when I hit that age.

The trick is to know your target allocation for the overall portfolio, and figure out what options you have available in each account, and from there figure out how much of what to keep where. If you need more fixed income in your 401k, then you need to choose among the available options there. If you need to sell some fixed income to buy stocks to get to your allocation, figure out where you want to hold your stocks, and how to get there, etc. The difference between various sorts of safe fixed income such as the options you have listed are very small compared to the bigger picture of allocation and being able to continue to invest new money into the appropriate places.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

I like the G Fund exposure, I like having some corporate bond exposure and stable value is… what it is.

I need more equities under my IPS. Since these fixed income products are mostly in the traditional 401k, and therefore properly located for tax efficiency, I’m adding equities in the Roth IRA and a to be opened shortly taxable brokerage (if I chicken out on that I’ll add equities to the 401k) - trying to get to 30/70 from 10/90 (or 20/80, depending on the denominator).

I agree the cash is ridiculous, especially now, but in my family we sometimes buy real estate for cash when opportunities arise.
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Re: Where Do I Go From Here - Asset Location

Post by placeholder »

AnnetteLouisan wrote: Fri Nov 12, 2021 4:35 pm Now reading more about the 3 and 2 fund portfolios, I feel my bond portfolio is way too busy and could be simplified:

G Fund, I bonds, stable value fund, Baird core plus institutional bond fund, cash, pension and SS. Is there overlap here that could be simplified? As always, the Baird fund sticks out as the least appealing so I’m thinking of getting rid of 1/3 to 1/2 of it at some point (I don’t currently contribute to it), and stop adding to the stable value.
I can simplify that for you as neither pension nor social security belong in your bond allocation.
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

clip651 wrote: Fri Nov 12, 2021 5:00 pm
AnnetteLouisan wrote: Fri Nov 12, 2021 4:35 pm ...
Now reading more about the 3 and 2 fund portfolios, I feel my bond portfolio is way too busy and could be simplified:

G Fund, I bonds, stable value fund, Baird core plus institutional bond fund, cash, pension and SS. Is there overlap here that could be simplified? ...
There is no problem holding multiple types of fixed income, if you are comfortable with the purpose and location of each one. There often isn't a need for more than one type of fixed income in a single account (e.g. an IRA or a 401k), but that can vary too depending on your goals for your fixed income. (e.g. maybe you are targeting a certain duration, and need a mix of two funds to approximate it)
...
There isn't necessarily a "right" or "wrong" answer here...

The 3-fund portfolio calls for just a "total bond fund" - and luminaries such as Taylor Larimore - have the view that is all that's needed. This is especially true if you prefer simplicity as Taylor often recommends.

But I've found it quite common for people to often hold more fixed income funds than they do stock funds (where a total stock and/or total international are really all you need). The common reasons where people do this include:
  • Having access to a "stable value" fund (which many people don't)
  • Wanting some measure of inflation protection (via TIPS and/or I Bonds)
  • Wanting some measure of "ultra-safe" non-marketable funds (such as I Bonds and/or EE Bonds)
  • Needing to free-up room from tax-deferred accounts, so holding [often Muni] bonds in a taxable account
  • Seeking better alignment with bond duration matching (arguably, bonds matched to your time horizon are better protected by inflation/deflation as they'll naturally stabilize by their duration)
  • Might have multiple "durations" - such as a near-term duration for an upcoming expense and a long-term duration such as retirement
  • Wanting to keep some "cash" (or cash equivalent like CD's, some would argue I Bonds, etc.) on hand [for whatever reason]
  • Wanting to "tilt" to a particular fixed-income asset - such as treasuries, etc.
Again - do you "need" to do this - no! Do you "benefit" from doing this - probably less than we think we might. But is their "harm" in doing this - unlikely, so long as they are still well diversified, high quality, low cost funds.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

Just curious - why are stable value funds only available inside a 401k and not marketed to retail investors? And does this exclusivity make them a good product for some reason? We know some broke the buck in the 90s and some had trouble in 2008.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

I’m going to open a taxable account and put $20k in total market (or maybe 80 percent total market, 10 percent NY muni fund and 10 percent ex U.S.)

The Fidelity IRA has been pretty painless (it’s half in total market) and I can afford to experiment with taxable. If it goes well, great. If it declines I’ll practice my intestinal fortitude. Will be good practice.

Can I get an amen?
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Re: Where Do I Go From Here - Asset Location

Post by HomeStretch »

Sounds good.

If you haven’t already used it, there is a promo code to receive a $100 bonus when depositing $50+ in a new Fidelity account that is available to new and existing customers. This DoctorofCredit post has a link and the offer code:
https://www.doctorofcredit.com/fidelity ... 0-deposit/
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

HomeStretch wrote: Sun Nov 14, 2021 5:29 pm Sounds good.

If you haven’t already used it, there is a promo code to receive a $100 bonus when depositing $50+ in a new Fidelity account that is available to new and existing customers. This DoctorofCredit post has a link and the offer code:
https://www.doctorofcredit.com/fidelity ... 0-deposit/
Thanks! Didn’t know existing customers were eligible, but you are right. Now just have to decide between The Fidelity Account and the cash management account. Inclined to do the former.
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

I currently have 36x of my estimated future annual spend saved, or 60x of residual expenses, most of which has been taxed already, plus cola’d pension and SS that supposedly will cover 80 percent of my expected retirement expenses, based on my current VHCOL spend. With no dependents, an AA of 25/75 and a free and clear appreciating apartment that I could rent out for $3-4,000/month if I move to a MCOLA and assuming I work and continue to save and invest $120,000/yr or more of my $290k comp for 3-5 more years, it’s looking pretty decent if I only consider my own situation (not that of my parents and sibling) and if I can keep my health, protect my income and assets and remain well insured/tax efficient. Even with a significant market downturn my conservative AA limits the downside risk. Even my asset location is in good shape since most of my bonds are in tax deferred accounts.

A lot of assumptions in there, but now that I have adjusted course based on the excellent suggestions here, maybe I should worry less, while still trying to be prudent financially. Does anything jump out that I am missing? There is longevity in my family but they were a lot healthier and less stressed than I have been. I think health and medical are my biggest risks but I have really good insurance.
Last edited by AnnetteLouisan on Thu Nov 18, 2021 3:35 pm, edited 4 times in total.
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Re: Where Do I Go From Here - Asset Location

Post by LadyGeek »

For the finishing touch, are you protected in case Something Bad happens? I'm referring to estate planning documents - Will, Power of Attorney (POA - standby and durable), Advanced Health Care directive.

Do all of your Transfer on Death (TOD) accounts - checkings, savings, CDs, IRAs, taxable - have assigned beneficiaries and contingency beneficiaries?

(If you have a Will, your attorney will guide you if those TOD accounts should list beneficiaries.)
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

Thank you, Lady Geek!

Yes, all my accounts have current up to date designated beneficiaries, but no contingent beneficiaries (and even the beneficiary is on very thin ice). I have a draft will that a large law firm prepared for me but I don’t have an executor or trustee and l’m still not final on the beneficiaries. Right now it’s a mix of relatives, universities and charities. I don’t have a durable power of attorney for health care etc for the same reason.
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

AnnetteLouisan wrote: Thu Nov 18, 2021 3:04 pm Thank you, Lady Geek!

Yes, all my accounts have current up to date designated beneficiaries, but no contingent beneficiaries (and even the beneficiary is on very thin ice). I have a draft will that a large law firm prepared for me but I don’t have an executor or trustee and l’m still not final on the beneficiaries. Right now it’s a mix of relatives, universities and charities. I don’t have a durable power of attorney for health care etc for the same reason.
IANAL but if it's only a draft will, I don't think it means anything...

My understanding is if you were to die tonight, your beneficiary "on thin ice" would get anything designated to them. Anything left would flow through your states probate, which I would think means you're family (parents and brother I believe) would likely split the rest.

Obviously, that's not what you want (and for more than just the not dying tonight part), as anyone else (such as charities, etc.) wouldn't get anything.

Again IANAL, but I don't think you "need" to designate an executor or trustee. Anything not distributed directly (as a beneficiary) would be handled according to your will, and presumably once the estate was settled, there is no ongoing role for an executor or trustee. In which case, presumably the state will assign someone as your executor. But without a valid will, you won't be able to specify x% to your favorite charity, y% to your favorite university, etc.

So that's a great next step, is making sure those documents are valid and effective!

For what it's worth, when we did our wills, we had a surreal moment thinking about unintended ramifications of decisions. For example, the bulk of our assets would pass to our only [minor] child. Those we named as guardians could get unexpectedly wealthy if our child was to die when we did, as the money would instead flow to the extended family (including the guardians). For obvious reasons, we aren't sharing that information with them... While we'd have no reason to be concerned, people do stupid things when their greed kicks in...
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

You’re right that a draft will has no legal effect. But to complete the will, poa and health care proxy I believe I need to name executor, trustee, designate a proxy, etc.

since I’m not sure whom to put in my will or who could be a trustee executor etc it’s hard to finish up these docs. My parents are mid to late 80s. I have a sibling and some distant cousins. I have friends and organizations I’m a part of.

I’m ok with my assets being distributed according to my beneficiary designations and rules of intestate succession as you describe, but I’d rather finish up these docs.

I’m sure I’m not alone in having this issue. So many folks are single, divorced or widowed today, are distanced from their families or are emigrés where any inheritance they leave to relatives in another country will be hugely taxed.

Btw I’m pretty sure you can’t leave money directly to a minor child except through a trust.
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

AnnetteLouisan wrote: Thu Nov 18, 2021 6:28 pm You’re right that a draft will has no legal effect. But to complete the will... I believe I need to name executor, trustee, designate a proxy, etc.
IANAL but I don't think that's true for a will... I think you can just designate the distribution of assets, and the court - if needed - will assign someone.

It is true for POA, Heath Care Proxy, etc. But I wouldn't hold up your will just for that. They can be independent documents.
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Re: Where Do I Go From Here - Asset Location

Post by SnowBog »

AnnetteLouisan wrote: Thu Nov 18, 2021 6:28 pm Btw I’m pretty sure you can’t leave money directly to a minor child except through a trust.
Yep, that's what we did. Money held in a trust with the trustee being someone other than guardians.
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Re: Where Do I Go From Here - Asset Location

Post by lazynovice »

AnnetteLouisan wrote: Thu Nov 18, 2021 2:44 pm I currently have 36x of my estimated future annual spend saved, or 60x of residual expenses, most of which has been taxed already, plus cola’d pension and SS that supposedly will cover 80 percent of my expected retirement expenses, based on my current VHCOL spend. With no dependents, an AA of 25/75 and a free and clear appreciating apartment that I could rent out for $3-4,000/month if I move to a MCOLA and assuming I work and continue to save and invest $120,000/yr or more of my $290k comp for 3-5 more years, it’s looking pretty decent if I only consider my own situation (not that of my parents and sibling) and if I can keep my health, protect my income and assets and remain well insured/tax efficient. Even with a significant market downturn my conservative AA limits the downside risk. Even my asset location is in good shape since most of my bonds are in tax deferred accounts.

A lot of assumptions in there, but now that I have adjusted course based on the excellent suggestions here, maybe I should worry less, while still trying to be prudent financially. Does anything jump out that I am missing? There is longevity in my family but they were a lot healthier and less stressed than I have been. I think health and medical are my biggest risks but I have really good insurance.
Nice summary! I think many would call that “winning the game.” And using the “ability, need and willingness” to take risk rule, you can afford to be more conservative than most on this board and certainly more conservative than those on the Reddit sub which you refer to.

You and I had an exchange in another thread about having the “courage” to open a taxable account. Seeing more details here, I want to be more specific. I wouldn’t advocate for you to put the 600k in savings into VTI. I think your 20k idea is a good start. I would suggest something like- new money goes to the brokerage in some combo of VTI and municipal bonds. The cash pile is large enough. Eventually you can decide if you want to take more risk with it.

You’ve done pretty well. Your other thread wondering how you’d have done in 100% S&P sent me here. I’d venture a guess that you would have panic sold a few times at 100% S&P. You think you erred a bit too conservative but it seems to have worked out fine. I sometimes refer to it as “out-earning and under spending my stupidity.” A high savings rate compensates for conservatism.
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Re: Where Do I Go From Here - Taxable Brokerage Opened

Post by AnnetteLouisan »

Mark this day, 11/23/21.

Annette just opened a taxable brokerage for the first time ever and funded it with a tiny bit of her cash, just to dip the toe in before year end. Once the funds are deposited, I plan to put them in total market.

Gold Brothers Investments is a good brokerage firm, right?

Just kidding- Fidelity all the way.

Thanks everyone!
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Re: Where Do I Go From Here - Asset Location

Post by LadyGeek »

You can read about my first ever taxable account transaction at Fidelity here: Fidelity Total Market in taxable - FZROX (ZERO) vs. FSKAX (Total Market) SmackDown

The experience is very different - especially since you have to trade when the market is open. I ended up going with VTI.
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Re: Where Do I Go From Here - Taxable Brokerage Opened

Post by retire2022 »

AnnetteLouisan wrote: Tue Nov 23, 2021 3:13 pm Mark this day, 11/23/21.

Annette just opened a taxable brokerage for the first time ever and funded it with a tiny bit of her cash, just to dip the toe in before year end. Once the funds are deposited, I plan to put them in total market.

Gold Brothers Investments is a good brokerage firm, right?

Just kidding- Fidelity all the way.

Thanks everyone!
Congrats!🎈🎉🍾
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

Thanks Lady Geek! Thanks retire2022!!

Don’t worry, I didn’t put much in yet, and with my bulletproof IPS and nerves of steel I won’t be blaming anyone if it declines in value.

This is my account for when I’m reclining by the shores of some exotic retirement locale far in the future.

I’m prepared to stay the course and tune out the noise.

This has been a big year for me: my first ibond purchase ever and my first Treasury Direct Account, my first Roth IRA (w Fidelity) and now my first taxable brokerage account (with Fidelity). And my first account opening rebate promotion 🤣
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Re: Where Do I Go From Here - Taxable Brokerage Opened

Post by lazynovice »

AnnetteLouisan wrote: Tue Nov 23, 2021 3:13 pm Mark this day, 11/23/21.

Annette just opened a taxable brokerage for the first time ever and funded it with a tiny bit of her cash, just to dip the toe in before year end. Once the funds are deposited, I plan to put them in total market.

Gold Brothers Investments is a good brokerage firm, right?

Just kidding- Fidelity all the way.

Thanks everyone!
Congrats!
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AnnetteLouisan
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Re: Where Do I Go From Here - Asset Location

Post by AnnetteLouisan »

HomeStretch wrote: Sun Nov 14, 2021 5:29 pm Sounds good.

If you haven’t already used it, there is a promo code to receive a $100 bonus when depositing $50+ in a new Fidelity account that is available to new and existing customers. This DoctorofCredit post has a link and the offer code:
https://www.doctorofcredit.com/fidelity ... 0-deposit/
Did this today. Thanks again.
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