Portfolio Review A Few Years On

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MadDash335
Posts: 54
Joined: Thu Jan 08, 2015 5:55 pm

Portfolio Review A Few Years On

Post by MadDash335 »

Hello! It’s been a while since posting a portfolio review, so I’m very happy to field feedback on the forum a couple years on. We plan to have kids and potentially move to a larger place in the next 4 years or so. Nothing imminent, but certainly something we are keeping in mind. Our goal financially is to lay a great foundation to allow for flexibility should we need it down the road and pave the way to hopefully be less stressed as family grows.

I look at this as another gut check, we don’t have any ground breaking questions, but any additional feedback is hugely appreciated. As Laura mentions in the “Asking portfolio questions post”, much learning comes from the act of composing, and we don’t know what we don’t know so the value garnered from this community is absolutely tremendous. Many thanks for reading and any contributions made, this community is amazing.

Emergency funds: All set
Debt: $10k HELOC @4.75% will be paid off this month. But we have another large home maintenance purchase (around $15k) and we will use this to fund, paying off in a month or two. We have about 2 years left on our car lease ($700/m). Mortgage $500k @ 3.75%. home value around $1.2-$1.3MM
Tax Filing Status: Married filing Jointly
Tax Rate: 24% Federal, will be 32% next year, 5% State
Expenses: We need to track this better. We target a saving rate of 30%-40% of gross income saved and enjoy spending our money as long after this priority is taken care of
State of Residence: MA
Age: 35 him, 33 her
Desired Asset allocation: 80% stocks / 20% bonds, happy for this to drift to the aggressive end, rarely rebalance. During the pandemic sell off, I did not panic at all and bought as much as possible during the drop
Desired International allocation: 10% of stocks

Current retirement assets are just shy of seven figures at the moment

Taxable- 53% of Portfolio
25% S&P Fund – VOO – 0.03% ER
9% Developed Markets – VEA – 0.05% ER
7% Fidelity Mass Muni Fund – FDMMX – 0.45% ER
3% Facebook – FB
3% Amazon – AMZN
3% Starbucks - SBUX
3% Microsoft – MSFT
<1% Johnson and Johnson – JNJ

His 401k 21% of Portfolio
21% Schwab S&P – SWPPX- 0.02% ER 4% company match

His Roth IRA 1% of portfolio
1% Developed Markets – VEA – 0.05% ER

His Rollover IRA 9% of portfolio
9% Total Bond – BND – 0.035% ER

Her 401k 6% of Portfolio
6% Vanguard Institutional Index Fund Institutional Shares– VINIX- 0.035% ER 3% company match

Her OLD 401k 7% of Portfolio
7% State Street S&P– SVSPX - 0.16% ER

Her OLD 401k 1% of Portfolio
1% Fidelity 500– FXAIX - 0.015% ER

Her Rollover IRA 1% of portfolio
1% Total Bond – BND – 0.035% ER

For ease of numbers, my calculations put this at:
82% Stock, 18% Bond, 12% of stock international- So in line with desired AA

____________________________________________________________
New annual Contributions
$19,500 his 401k (+$9,000 Match)
$19,500 her 401k (+$3,900 Match)
$6,000 his IRA
$6,000 her IRA
$60,000+ taxable

Funds available in his 401(k) Listing income-only as the Schwab 500 fund is solid

Federated Hermes U.S. Treasury Cash Reserves – UTIXXU – 0.2% ER
Vanguard Short-Term Federal Fund - Investor Class – VSGBX - 0.2% ER
Goldman Sachs US Mortgages Fund - Institutional Class Shares - GSUIX- 0.45% ER
Vanguard Mortgage Backed Securities Index Fund - Admiral Class - VMBSX - 0.07% ER
Metropolitan West Total Return Bond Fund - Class I – MWTIX – 0.45% ER
PGIM High Yield Fund - Class Z- PHYZX – 0.50% ER
DFA Inflation Protected Securities Portfolio - Institutional Class – DIPSX – 0.11% ER
Vanguard Short Term Inflation Protected Securities Index Fund - Admiral Class – VTAPX - 0.06% ER

Funds available in her 401(k) Listing income-only as VINIX is great. As an aside, they also have all Vanguard target date funds, if that would help us

Vanguard Total Bond Market Index Fund (Admiral Shares) – VBTLX – 0.05% ER
Vanguard Inflation-Protected Securities Fund (Admiral Shares) - VAIPX – 0.10% ER
Thornburg Strategic Income Fund (Class R6) – TSRSX – 0.53% ER
PGIM Global Total Return (Class R6) PGTQX – 0.55% ER
Dodge & Cox Income Fund - DODIX - 0.42% ER

Questions:
1. Are we a good candidate for mega backdoor roth? To date I have felt contributing to our 401(k) and IRA’s have been enough. I’ve had analysis paralysis with trying to figure this process out, but as our income and savings have grown, the proportion of tax-deferred and taxable continues to drift toward taxable. Should we combat that?

2. How can we be more tax efficient? Until now, our IRA with BND has been plenty to house our income portion of our portfolio tax-deferred, but this has since changed. My thoughts are, roll over all DW’s old 401(k)’s to her roll over IRA and allocate entirely to BND, selling our Muni fund in taxable according to our AA?

3. Same vein as above- I dislike my 401(k) options for income, the Schwab 500 fund is far and away the best investment option in my eyes but I would prefer to hold our bond allocation entirely in tax-deferred. Am I wrong about my available funds?

4. I have held our individual stocks for quite some time, taking profits as target asset allocation dictates. I am at a point that I’d be happy to sell for simplicity but am wary of cap gains. What’s a solid strategy to offload? Just sell all in one fell swoop and call it a day? I’m in no rush but wouldn’t hate the added simplicity of not owning single stocks

5. Life Insurance- No kids yet, but this is something I'm 50-50 on purchasing. What are general thoughts on DINKs (for now) and life insurance?
HomeStretch
Posts: 11335
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review A Few Years On

Post by HomeStretch »

Were your and spouse’s 2021 IRA contributions made to a Roth IRA or to your Rollover IRAs? If the latter, will your IRA contributions be tax deductible?

Do your Rollover IRA balances include any non-deductible contributions (i.e., basis)? My comments below assume “no”.

If your marginal tax rate increases to 32% in 2022, traditional IRA contributions, if any, will not be tax deductible. Consider redirecting these savings to a backdoor Roth (if you rollover the pretax IRA accounts into the 401k accounts), 401k mega backdoor Roths and/or I-Bonds.
MadDash335 wrote: Sat Dec 04, 2021 9:30 pmDebt: $10k HELOC @4.75% will be paid off this month. But we have another large home maintenance purchase (around $15k) and we will use this to fund, paying off in a month or two. We have about 2 years left on our car lease ($700/m). Mortgage $500k @ 3.75%. home value around $1.2-$1.3MM …
Have you looked into a refinancing to lower your mortgage rate of 3.75% and to finance your upcoming home project (rather than borrow under the 4.75% HELOC)?
… 1. Are we a good candidate for mega backdoor roth? …
Both 401k plans have good low-cost fund choices. Prioritize making retirement contributions to Roth via 401k mega backdoor Roths/backdoor Roth over contributing to the Taxable account. Roth accounts grow tax free whereas the Taxable account generally does not.
… 2. How can we be more tax efficient? Until now, our IRA with BND has been plenty to house our income portion of our portfolio tax-deferred, but this has since changed. My thoughts are, roll over all DW’s old 401(k)’s to her roll over IRA and allocate entirely to BND, selling our Muni fund in taxable according to our AA? …
Do your and spouse’s 401k plans allow rollovers in?

If yes, for simplicity, lower investment costs and to facilitate backdoor Roth IRAs:
A) rollover spouse’s two old 401k and Rollover IRA pretax balances into spouse’s current 401k plan
B) rollover your Rollover IRA pretax balance into your 401k plan

Hold your desired portfolio 20% bond allocation in the 401k accounts. Her 401k offers VBTLX .05%. As you have included “income-only funds” in your 401k fund choice list I can’t tell if you have listed all available bond funds.
… 3. Same vein as above- I dislike my 401(k) options for income, the Schwab 500 fund is far and away the best investment option in my eyes but I would prefer to hold our bond allocation entirely in tax-deferred. Am I wrong about my available funds?
My preference is to hold less tax efficient fixed income funds solely in tax deferred accounts. I do hold cash and I-Bonds in Taxable. Consider I-Bonds which are Federal tax deferred, state tax free and offer some inflation protection.

Your spouse’s current 401k (including IRA/old 401k accounts if rolled in) will allow you to hold 15% of your portfolio in VBTLX. You would need to hold 5% in your tax deferred account (less if you purchase I-Bonds) to get to your overall portfolio desired bond allocation of 20%. Are the 401k “income fund” choices you listed the only fixed income/bond funds in your 401k?
4. I have held our individual stocks for quite some time, taking profits as target asset allocation dictates. I am at a point that I’d be happy to sell for simplicity but am wary of cap gains. What’s a solid strategy to offload? Just sell all in one fell swoop and call it a day? I’m in no rush but wouldn’t hate the added simplicity of not owning single stocks
To reduce your single stock holdings, don’t reinvest dividends and sell as tax efficiently as possible perhaps over several years. You can donate highly appreciated shares to qualified charitable organizations or to a Donor Advised Fund for charitable giving.
5. Life Insurance- No kids yet, but this is something I'm 50-50 on purchasing. What are general thoughts on DINKs (for now) and life insurance?
If you aren’t financially independent, it’s an excellent idea imo to have life insurance (and disability insurance) for you and for spouse. Look into 20/30-year level-premium term life insurance. Rates depend on your age and health so get insurance in place before starting a family.

I used selectquote.com to obtain term life quotes and was happy with the service.
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