Just Fired Advisor - Self-Managed Portfolio Review

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Topic Author
BenVestor
Posts: 18
Joined: Sun Sep 26, 2021 3:53 pm

Just Fired Advisor - Self-Managed Portfolio Review

Post by BenVestor »

Emergency funds: Three to six months of expenses
Debt: Mortgage, $50k @ 3.125%
Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal, 0% State
State of Residence: Texas
Age: 32
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 25% of stocks
Total Portfolio: ~$300k

Current retirement assets (All at Fidelity)
Taxable
0.6% FSKAX - Fidelity Total Market Index Fund (.02)
0.2% FTIHX - Fidelity Total International Index Fund (.06)

His 401k – Pre-Tax
30.9% Index Equity Fun(.01)
11.4% Global EX-US Index (.06)
14.9% Bond Index Fund (.02)

His Roth 401k
2.6% Index Equity Fun(.01)
0.9% Global EX-US Index (.06)

His Roth IRA
19.6% FSKAX - Fidelity Total Market Index Fund (.02)
6.5% FTIHX - Fidelity Total International Index Fund (.06)

His tIRA
9.0% FSKAX - Fidelity Total Market Index Fund (.02)
3.0% FTIHX - Fidelity Total International Index Fund (.06)

Her Roth IRA
0.2% FSKAX - Fidelity Total Market Index Fund (.02)
0.1% FTIHX - Fidelity Total International Index Fund (.06)
_______________________________________________________________

Contributions
New annual Contributions
$19,500 his 401k (6% match)
$6,000 his Roth IRA
$6,000 her Roth IRA
$1,200 taxable

Questions:
1. I am looking for a portfolio review and any advice/recommendations for changes OR a thumbs up to stay the course as is?
This is my first posting after firing my financial advisor and rebalancing all of my accounts. I received a ton of helpful advice on my initial posting that ultimately gave me the encouragement to take control of my own investments. After absorbing all of the advice from this forum, I want to check-in and get that final confirmation that my current setup is Boglehead approved.

2. Any issue with holding all my bonds in my 401k?

3. I feel like 25% international too light. I might start trending towards 30-35%. Is this all personal preference or what can I research to ease my sense of uncertainty in this area?

4. Is the Pre-Tax to Roth ratio something I should even be concerned about?
My advisor had me splitting my contributions 50/50 Roth/Pre-Tax to my 401k—as many others, I am currently invested more into Pre-Tax than Roth (70/30). I am thinking about taking full advantage of the Pre-Tax savings and re-directing all future contributions there, I’m hesitant because that would further lopside my Pre-Tax to Roth ratio…

5. Where should I direct any additional contributions? Taxable or Roth?
My 401k account is also setup for a Mega-Backdoor Roth, so I might be able to satisfy some additional Roth contributions this way but I would only afford ~$5k/year starting out.
Brandon4454
Posts: 31
Joined: Tue Aug 07, 2018 8:43 am

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by Brandon4454 »

I think everything looks fine. I put 15% into international but I might be a little low for some people on this forum. I also carry a lower bond percentage even though I am a couple of years older.

If you are planning to retire early then maxing a traditional 401k is recommended. If you are going to retire at a more traditional age then I would put more in the Roth 401k.
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by dbr »

At first brush that looks pretty good. There is no definitive analysis concerning international allocation though there is a white paper at Vanguard about it. 25% vs 30%-35% is so far down in the weeds I would be worried about hay fever rather than money.
student
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Joined: Fri Apr 03, 2015 6:58 am

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by student »

This looks very good.
mikejuss
Posts: 2833
Joined: Tue Jun 23, 2020 1:36 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by mikejuss »

Not sure why you have balances in a Roth 401(k) account and a traditional IRA account. In my opinion, you can liquidate them. Move your Roth 401(k) money into your Roth IRA, and make only traditional (pretax) contributions to your 401(k) from now on. This will save you on taxes immediately. You also don't want to have any basis (ie, balance) in a traditional IRA account if you're making a $6,000 backdoor contribution to your Roth IRA each year. I would convert your traditional IRA money to your Roth IRA, pay the taxes on that amount (assuming it's not too high), and maintain your traditional IRA balance at $0. This will allow for clean backdoor Roth contributions into the future.
Last edited by mikejuss on Mon Nov 22, 2021 9:30 am, edited 1 time in total.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Bigt3142
Posts: 179
Joined: Thu Jul 11, 2019 9:09 am

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by Bigt3142 »

To have a better idea of if you should be putting your 401k in traditional or ROTH we would need to know what your taxable income is. Common guidance is if you are in the 12% tax bracket, you should do ROTH. If you are in the 22% bracket, contribute enough in traditional to get you down to the 12% bracket. Anything over that you should do all traditional.

This is all subjective because it's up to you to determine how much taxes you'll be paying in the future. If you're in the 22% bracket and you think you'll be around the same in retirement, splitting it might be a good plan. If you think you'll be paying less taxes than go traditional. If you think taxes will be higher, go ROTH.

For me, I'm in the 12% bracket so I put it all in ROTH. My company match and company bonus both go in to traditional, so it ends up being about 50/50 anyway. Having multiple buckets to choose from in retirement is a good thing.
mikejuss
Posts: 2833
Joined: Tue Jun 23, 2020 1:36 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by mikejuss »

Bigt3142 wrote: Mon Nov 22, 2021 9:26 am To have a better idea of if you should be putting your 401k in traditional or ROTH we would need to know what your taxable income is. Common guidance is if you are in the 12% tax bracket, you should do ROTH. If you are in the 22% bracket, contribute enough in traditional to get you down to the 12% bracket. Anything over that you should do all traditional.

This is all subjective because it's up to you to determine how much taxes you'll be paying in the future. If you're in the 22% bracket and you think you'll be around the same in retirement, splitting it might be a good plan. If you think you'll be paying less taxes than go traditional. If you think taxes will be higher, go ROTH.

For me, I'm in the 12% bracket so I put it all in ROTH. My company match and company bonus both go in to traditional, so it ends up being about 50/50 anyway. Having multiple buckets to choose from in retirement is a good thing.
All fair points. But this approach is a little complicated. My own take is that unless you're making very little money (and the OP isn't), always make traditional (pretax) 401(k) contributions.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by tashnewbie »

BenVestor wrote: Mon Nov 22, 2021 8:53 am Questions:
1. I am looking for a portfolio review and any advice/recommendations for changes OR a thumbs up to stay the course as is?
This is my first posting after firing my financial advisor and rebalancing all of my accounts. I received a ton of helpful advice on my initial posting that ultimately gave me the encouragement to take control of my own investments. After absorbing all of the advice from this forum, I want to check-in and get that final confirmation that my current setup is Boglehead approved.
Looks very good overall. You don't need an advisor at this point, at least not based on what you've written here.
2. Any issue with holding all my bonds in my 401k?
Perfect place to hold them.
3. I feel like 25% international too light. I might start trending towards 30-35%. Is this all personal preference or what can I research to ease my sense of uncertainty in this area?
There's no consensus on the forum about this. People land anywhere from 0-50% (the latter is about current market weight). The goldilocks sweet spot per Vanguard's (somewhat old) white paper is 20-30% for capturing the full diversification benefit (but their target date funds are 40% international equity, so go figure).

I don't think it's going to make much difference whether yours is 25% or 30-35%. Just pick a number that you want to stick with. I wouldn't lose sleep over this.
4. Is the Pre-Tax to Roth ratio something I should even be concerned about?
My advisor had me splitting my contributions 50/50 Roth/Pre-Tax to my 401k—as many others, I am currently invested more into Pre-Tax than Roth (70/30). I am thinking about taking full advantage of the Pre-Tax savings and re-directing all future contributions there, I’m hesitant because that would further lopside my Pre-Tax to Roth ratio…
Check out this wiki article for more information about traditional vs. Roth decision: link. It can be difficult for people to think through this issue because a lot of variables are unknown. I think the wiki says in the 22% bracket, it's a toss-up which is better. If I were you, especially if you won't have a pension, I would max traditional 401k now and put tax "savings" into Roth IRAs for each spouse. You can always do Roth conversions when you're retired, if advisable, and if you later learn Roth 401k would've been better in your 30s, you probably have more money than you expected, which is a good problem to have in my opinion.
5. Where should I direct any additional contributions? Taxable or Roth?
My 401k account is also setup for a Mega-Backdoor Roth, so I might be able to satisfy some additional Roth contributions this way but I would only afford ~$5k/year starting out.
First, I would max traditional 401k and both Roth IRAs. If you have extra you want to save, if your 401k allows Mega Backdoor Roth, then I would use it instead of taxable.

General thought: I might consider using FZROX and FZILX (the Fidelity Zero Funds) in the Roth IRAs. You'd have an easier time doing tax loss harvesting in the taxable account, if you ever want to do it, because you wouldn't need to worry about creating wash sales with the holdings in the Roth IRAs.
Topic Author
BenVestor
Posts: 18
Joined: Sun Sep 26, 2021 3:53 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by BenVestor »

Brandon4454 wrote: Mon Nov 22, 2021 9:04 am If you are planning to retire early then maxing a traditional 401k is recommended. If you are going to retire at a more traditional age then I would put more in the Roth 401k.
Thanks for the feedback. I always assumed the opposite for those planning to retire early. Can you elaborate why traditional is preferred for the early retirees? The goal for me is to retire (or be able to retire) at 55.
Topic Author
BenVestor
Posts: 18
Joined: Sun Sep 26, 2021 3:53 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by BenVestor »

dbr wrote: Mon Nov 22, 2021 9:05 am At first brush that looks pretty good. There is no definitive analysis concerning international allocation though there is a white paper at Vanguard about it. 25% vs 30%-35% is so far down in the weeds I would be worried about hay fever rather than money.
Thank you! Good analogy :D and good to know I need not stress over those minor tweaks!
Topic Author
BenVestor
Posts: 18
Joined: Sun Sep 26, 2021 3:53 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by BenVestor »

student wrote: Mon Nov 22, 2021 9:10 am This looks very good.
Thank you! :sharebeer
Topic Author
BenVestor
Posts: 18
Joined: Sun Sep 26, 2021 3:53 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by BenVestor »

Thanks for the feedback!
mikejuss wrote: Mon Nov 22, 2021 9:21 am Not sure why you have balances in a Roth 401(k) account and a traditional IRA account. In my opinion, you can liquidate them. Move your Roth 401(k) money into your Roth IRA, and make only traditional (pretax) contributions to your 401(k) from now on. This will save you on taxes immediately. You also don't want to have any basis (ie, balance) in a traditional IRA account if you're making a $6,000 backdoor contribution to your Roth IRA each year.
The amount in the Roth 401k is from Mega Backdoor Roth contributions. My account freezes for 90 days if I roll those funds to a Roth IRA, so I plan to keep them in the Roth 401k for the longhaul and/or until I leave the company. I agree with making only traditional contributions up to the annual max from here forward. Anything I can afford beyond the max will then flow into the Roth 401k.
mikejuss wrote: Mon Nov 22, 2021 9:21 am I would convert your traditional IRA money to your Roth IRA, pay the taxes on that amount (assuming it's not too high), and maintain your traditional IRA balance at $0. This will allow for clean backdoor Roth contributions into the future.
The amount in the tIRA is from previous employer 401k rollover. I have mulled over moving those funds to my Roth, I just don't feel like taking the tax hit at the current moment (saving for a new house). If/when my salary forces me to use the backdoor Roth, I think this is great advice. I haven't thought about moving the existing amount to a Roth for this reason but it sure would make for a cleaner process.
Topic Author
BenVestor
Posts: 18
Joined: Sun Sep 26, 2021 3:53 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by BenVestor »

Bigt3142 wrote: Mon Nov 22, 2021 9:26 am For me, I'm in the 12% bracket so I put it all in ROTH. My company match and company bonus both go in to traditional, so it ends up being about 50/50 anyway. Having multiple buckets to choose from in retirement is a good thing.
50/50 seems like a great goal to strive for. With my Roth IRA contributions and company match included I am right at 70/30 and for the time being I feel pretty content with that ratio. Anything additional I can contribute will go to Roth and narrow the gap.
mikejuss
Posts: 2833
Joined: Tue Jun 23, 2020 1:36 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by mikejuss »

BenVestor wrote: Mon Nov 22, 2021 1:29 pm Thanks for the feedback!
mikejuss wrote: Mon Nov 22, 2021 9:21 am Not sure why you have balances in a Roth 401(k) account and a traditional IRA account. In my opinion, you can liquidate them. Move your Roth 401(k) money into your Roth IRA, and make only traditional (pretax) contributions to your 401(k) from now on. This will save you on taxes immediately. You also don't want to have any basis (ie, balance) in a traditional IRA account if you're making a $6,000 backdoor contribution to your Roth IRA each year.
The amount in the Roth 401k is from Mega Backdoor Roth contributions. My account freezes for 90 days if I roll those funds to a Roth IRA, so I plan to keep them in the Roth 401k for the longhaul and/or until I leave the company. I agree with making only traditional contributions up to the annual max from here forward. Anything I can afford beyond the max will then flow into the Roth 401k.
mikejuss wrote: Mon Nov 22, 2021 9:21 am I would convert your traditional IRA money to your Roth IRA, pay the taxes on that amount (assuming it's not too high), and maintain your traditional IRA balance at $0. This will allow for clean backdoor Roth contributions into the future.
The amount in the tIRA is from previous employer 401k rollover. I have mulled over moving those funds to my Roth, I just don't feel like taking the tax hit at the current moment (saving for a new house). If/when my salary forces me to use the backdoor Roth, I think this is great advice. I haven't thought about moving the existing amount to a Roth for this reason but it sure would make for a cleaner process.
I see--so the contributions you made to the Roth 401(k) are after-tax contributions allowed by your current employer, and you don't want to roll them over to your Roth IRA until you get a new job? Makes sense. You also don't want to take the tax hit involved in converting your traditional IRA to a Roth IRA? Understandable--but how are you going about contributing to your Roth IRA at present? It seems like that would be a headache with a basis in a traditional IRA.

My general piece of advice is to keep as few accounts as possible. Good luck!
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Topic Author
BenVestor
Posts: 18
Joined: Sun Sep 26, 2021 3:53 pm

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by BenVestor »

General thought: I might consider using FZROX and FZILX (the Fidelity Zero Funds) in the Roth IRAs. You'd have an easier time doing tax loss harvesting in the taxable account, if you ever want to do it, because you wouldn't need to worry about creating wash sales with the holdings in the Roth IRAs.

Thank you for the feedback and reassurance. I feel confident that I am on the right track!

Great thought on maxing traditional 401k and putting the "savings" into Roth--makes perfect sense and fills up the multiple buckets!

I was initially going to invest in both FZROX and FZILX with my Roth IRA's, but when I was rebalancing both of these funds were closed to new purchases so I opted for FSKAX and FTIHX. I was too eager to "get in the game"!! Good reasoning to reconsider, I'll look into moving my Roth IRA's to the Zero funds.
Brandon4454
Posts: 31
Joined: Tue Aug 07, 2018 8:43 am

Re: Just Fired Advisor - Self-Managed Portfolio Review

Post by Brandon4454 »

BenVestor wrote: Mon Nov 22, 2021 1:12 pm
Brandon4454 wrote: Mon Nov 22, 2021 9:04 am If you are planning to retire early then maxing a traditional 401k is recommended. If you are going to retire at a more traditional age then I would put more in the Roth 401k.
Thanks for the feedback. I always assumed the opposite for those planning to retire early. Can you elaborate why traditional is preferred for the early retirees? The goal for me is to retire (or be able to retire) at 55.
Sorry I am late replying. If you are retiring early then you have many more years to be taxed at a lower rate by using a Roth ladder. I think it is close to 80k that you can currently convert from 401k to IRA to Roth IRA and be taxed very little. If you are going to start doing this at 50 then you will need a substantial amount in traditional.
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