Strategy and Portfolio Checkup

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
wannabeinvestor
Posts: 19
Joined: Mon Aug 15, 2022 10:20 am

Strategy and Portfolio Checkup

Post by wannabeinvestor »

Hi Bogleheads,

Age: 38; Spouse's age: 40
Target Asset Allocation: 90% Equities, 10% Bonds
- Desired Equities allocation: 80% US, 20% ex-US
- That maps out to 72% US, 18% ex-US, 10% Bonds

Salary: Variable but On-Target Earnings are $186,000
Spouse's Income: < $5,000 (Schedule C)
Tax Bracket: 24% (Married filing Jointly)

401k: $383,000
- Current composition 33% Roth Contributions, 67% Tax-deferred between employee match and previous contributions
- 100% LIFEPATH Index 2050
-- 57.76% US Total Stock market
-- 38.70% ex-CAP total stock market
-- 3% US bonds, foreign bonds, cash

Roth IRA: $28,000
- 80% VTI ($22,500)
- 20% VXUS ($5,500)

Company ESPP:
- $50,000 (Probably too high, but I usually keep for the 2 year window to take advantage of LTCG rate)

HSA: $10,000
- $1,000 Cash (minimum allowed, we use for medical expenses throughout the year so this varies)
- $9,000 invested
-- $5,000 VIIIX S&P 500 (55%)
-- $1,000 VEMPX Extended Market completion index (13%)
-- $2,000 VTPSX International (22%)
-- $500 VBMPX Total Bond (5%)
-- $500 VIPIX TIPS (5%)

Taxable Brokerage: $32,000
- 80% VTI ($26,000)
- 20% VXUS ($6,000)

I-Bonds: $20,652.00

Not considered part of asset allocation:
529 (Kid 1 age 10): $26,000 (Invested in Target Enrollment 2036/2037)
529 (Kid 2 age 7): $21,000 (Invested in Target Enrollment 2038/2039)
Emergency Fund: $20,000
- $10,000 in Money Market (TSTXX, Currently 1.78% 30-day SEC Yield)
- $10,000 in Megabank Savings (0.04% Interest, I know)

Overall percentages in accounts I consider part of asset allocation (401k, Roth IRA, ESPP, HSA, Taxable, I-Bonds):
- 53% US Total Stock market
- 31% ex-US Total Stock market
- 9.5% employer megacorp stock
- 6.5% bonds
-- 2.4% Total Bond market
-- 0.1% TIPS
-- 4% I-Bonds

Current balances of Roth/HSA vs Taxable vs tax-deferred:
- 49% Tax-Deferred
- 31% Roth
- 20% Taxable

Recurring major Expenses:
- $1900 monthly mortgage at 3.325% (I pay $2000 a month to pay down slightly without going overboard - total remaining balance $290,000)
- $600 College Loans ($50,000)
- Currently no car payments on either vehicle, but expectation is to purchase an electric vehicle for myself in next couple years and then shortly after that for spouse, so could have payments in future.

I usually also keep a fair amount of cash in my checking account readily accessible (about the same amount as our EF), I like to have this for planned larger purchases in the next year (solar for house, vacations, etc.), but I understand that it may be better to deploy this into the market.

I really didn't have an investment strategy until recently when I found this forum. I tried to save a decent amount but I didn't think about AA or percentages or types, etc until the past year or so. This exercise opened my eyes a bit to the allocation of the Target Date fund (has more ex-US than I thought), so I may need to evaluate reducing my exposure to ex-US in my other accounts.

Recently I sold BND out of my Roth IRA because I wanted to move my Bond allocation outside of Roth and leave that for more growth oriented items. I plan on adding BND in my taxable account to get that Bond allocation closer to 10%.

I'm fairly aggressive with my investing, for instance in the 529s I have intentionally chosen target enrollment funds *later* than when I would expect my kids to start college. I like the idea of a glide path but I didn't like that the "real" target date fund for my first child already had 35% Fixed Income/Cash allocations. I would expect my children to start college with Kid 1 in 2031, and Kid 2 in 2034).

Investing plan each year:
- I started maxing out my 401k a couple years ago. I'm 100% Roth contributions at this point, however some earlier contributions were tax-deferred. Company match of 4.5% which is tax-deferred.
- Max Backdoor Roth IRA with $6,000 every year. I have used the backdoor because sometimes our combined income has been in the phase out zone and I figure its just easier this way even if it ends up not needed in a specific year.
- Contribute about $300 in each 529 account every month ($3,600 each account per year)
- Purchase $10,000 in I-bonds each year, co-owner with Spouse
- Random investing into Taxable (don't really have a total strategy for this, but when I get a decent commission month I'll transfer into Brokerage account)

We have not yet looked into opening investment accounts directly in my spouses name (ie: Spousal IRA, Additional I-Bonds, etc.) but I think this is an area of possible improvement. Haven't done the Spousal IRA yet because I would like to retire "early" (between 55-60) and thought it might be better to have more taxable in brokerage for that timeframe.

Other than rebalancing to meet my desired asset allocation, what recommendations would you have for some next steps? I do have access to an After-Tax 401K/Mega Backdoor Roth at my employer - would that be a better option than continuing to contribute more to the taxable brokerage? I've also thought about splitting my regular 401k Contributions to be part tax-deferred instead of all Roth, however I personally like the idea of Roth 401k because I'd rather the knowledge that taxes area already paid on that even if its not the "optimal" way for my situation.
Last edited by wannabeinvestor on Mon Aug 15, 2022 4:46 pm, edited 1 time in total.
User avatar
David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Strategy and Portfolio Checkup

Post by David Jay »

You are doing well and are making good moves as you learn.

I believe you still qualify for a spousal Roth. I would fully fund that every year before putting money into taxable. Remember, all contributions to a Roth can be distributed without tax consequence (earnings are taxed before 59.5 and 5 years of account aging). So everything you put in can be taken out.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
wannabeinvestor
Posts: 19
Joined: Mon Aug 15, 2022 10:20 am

Re: Strategy and Portfolio Checkup

Post by wannabeinvestor »

David Jay wrote: Mon Aug 15, 2022 11:10 am You are doing well and are making good moves as you learn.

I believe you still qualify for a spousal Roth. I would fully fund that every year before putting money into taxable. Remember, all contributions to a Roth can be distributed without tax consequence (earnings are taxed before 59.5 and 5 years of account aging). So everything you put in can be taken out.
Thanks David. One of my concerns for the Spousal Roth IRA is the verbiage around them. My understanding is that you can only contribute to an IRA if you have over $6000 in earned income. My spouse has some earned income but it is generally under $6000 so I have wondered if we could only contribute a max contribution of that spouses earned income throughout the year, or if that is irrelevant as long as the total income between both spouses meets that requirement.
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: Strategy and Portfolio Checkup

Post by tashnewbie »

wannabeinvestor wrote: Mon Aug 15, 2022 11:57 am
David Jay wrote: Mon Aug 15, 2022 11:10 am You are doing well and are making good moves as you learn.

I believe you still qualify for a spousal Roth. I would fully fund that every year before putting money into taxable. Remember, all contributions to a Roth can be distributed without tax consequence (earnings are taxed before 59.5 and 5 years of account aging). So everything you put in can be taken out.
Thanks David. One of my concerns for the Spousal Roth IRA is the verbiage around them. My understanding is that you can only contribute to an IRA if you have over $6000 in earned income. My spouse has some earned income but it is generally under $6000 so I have wondered if we could only contribute a max contribution of that spouses earned income throughout the year, or if that is irrelevant as long as the total income between both spouses meets that requirement.
The bolded language above is correct. Doesn't matter what your spouse's individual income is, as long as your combined household income meets or exceeds the amount you'll contribute to IRAs between the 2 of you.
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: Strategy and Portfolio Checkup

Post by tashnewbie »

Welcome to the forum! I agree that you've done well so far, using low cost index funds and maxing your 401k and Roth IRA.

A few thoughts off the top of my head:
wannabeinvestor wrote: Mon Aug 15, 2022 10:32 am 401k: $383,000
- 100% LIFEPATH Index 2050
What's the expense ratio of this fund? I presume it's fairly low because of the word "index". Do you have individual index funds available in this account? If so, you may want to use those to have more control over your asset allocation.
Roth IRA: $28,000
- 80% VTI ($22,500)
- 20% VXUS ($5,500)
I recommend holding different funds from what you have in taxable in this Roth IRA (and the one you should open for your spouse). If you ever wanted to tax loss harvest (TLH) in taxable, using different funds in these IRAs would make that easier. You can check out the wash sale discussion in the wiki article about TLH for more information.
Company ESPP:
- $50,000 (Probably too high, but I usually keep for the 2 year window to take advantage of LTCG rate)
What's the earliest possible time you could sell the company stock? What would be the tax treatment if you sold at that time? If it would just be STCG on any gains, I recommend selling immediately if you can sell when they vest, because the gains would be zero/minimal if you can sell shortly after they vest. It may even be worth paying STCG on something more than just the gains, to minimize the concentration of employer stock in your portfolio. I recommend figuring out the max amount of employer stock you want to hold and sticking to that (within a reasonable band such as +/-5%).
HSA: $10,000
- $1,000 Cash (minimum allowed, we use for medical expenses throughout the year so this varies)
- $9,000 invested
-- $5,000 VIIIX S&P 500 (55%)
-- $1,000 VEMPX Extended Market completion index (13%)
-- $2,000 VTPSX International (22%)
-- $500 VBMPX Total Bond (5%)
-- $500 VIPIX TIPS (5%)
I think you're using way too many funds in this account given it's relatively small size in your portfolio. I would probably just use VIIIX. I definitely wouldn't want to have bonds, unless you need $2k to pay expenses throughout the year.
Emergency Fund: $20,000
- $10,000 in Money Market (TSTXX, Currently 1.78% 30-day SEC Yield)
- $10,000 in Megabank Savings (0.04% Interest, I know)
Any reason that isn't in the money market fund? Couldn't you buy I bonds in your spouse's name with this? At least $10k of your current I bonds holdings are or are close to being "seasoned" and could be cashed in a true emergency, so I see the risk of locking up this money as very low.
Recurring major Expenses:
- $600 College Loans
What's the interest rate? Are they federal or private?
I usually also keep a fair amount of cash in my checking account readily accessible (about the same amount as our EF), I like to have this for planned larger purchases in the next year (solar for house, vacations, etc.), but I understand that it may be better to deploy this into the market.
Any reason this money couldn't be kept in the money market fund, too? In general, money you plan to spend within the year, shouldn't be invested. I keep this kind of cash in a checking/savings account.
Investing plan each year:
- I started maxing out my 401k a couple years ago. I'm 100% Roth contributions at this point, however some earlier contributions were tax-deferred. Company match of 4.5% which is tax-deferred.
Any reason in particular you're using 100% Roth? Check out the Traditional v. Roth wiki for guidance about making the decision.

If you're really in the 24% bracket (with your stated income, it looks like you'd be in 22%, but it would depend on the variable income), I think it makes sense to do all traditional, unless you'll have a big pension.
We have not yet looked into opening investment accounts directly in my spouses name (ie: Spousal IRA, Additional I-Bonds, etc.) but I think this is an area of possible improvement. Haven't done the Spousal IRA yet because I would like to retire "early" (between 55-60) and thought it might be better to have more taxable in brokerage for that timeframe.
I'd do Roth IRA contribution for your spouse before doing any taxable investing. You have access to the contributions (but not earnings) at anytime.
Other than rebalancing to meet my desired asset allocation, what recommendations would you have for some next steps? I do have access to an After-Tax 401K/Mega Backdoor Roth at my employer - would that be a better option than continuing to contribute more to the taxable brokerage? I've also thought about splitting my regular 401k Contributions to be part tax-deferred instead of all Roth, however I personally like the idea of Roth 401k because I'd rather the knowledge that taxes area already paid on that even if its not the "optimal" way for my situation.
Spousal IRA contributions. Think about buying I bonds in spouse's name.

What version of the MBDR do you have in your 401k? In-plan conversion to Roth 401k or withdrawal to Roth IRA? The fact that you have MBDR is another reason I would use traditional 401k for your regular employee deferrals...you'd still be able to get quite a bit of money into Roth accounts. Even without MBDR, if you and your spouse max Roth IRAs, you'd be making $12k Roth contributions (38%) and ~$20k traditional, a good mix in my opinion.
Topic Author
wannabeinvestor
Posts: 19
Joined: Mon Aug 15, 2022 10:20 am

Re: Strategy and Portfolio Checkup

Post by wannabeinvestor »

Thanks for the response tashnewbie!
tashnewbie wrote: Mon Aug 15, 2022 1:08 pm
401k: $383,000
- 100% LIFEPATH Index 2050

What's the expense ratio of this fund? I presume it's fairly low because of the word "index". Do you have individual index funds available in this account? If so, you may want to use those to have more control over your asset allocation.
Yes, it is pretty low at 0.0715% so I've never felt like I *had* to change it. I picked this glide fund earlier in my career when I didn't really understand funds and diversification on my own, and this made it easy.

Other than those they allow some Blackrock funds (Large Cap, International) but thats it. However its at Fidelity and they do have something called Brokerage Link where it looks like I could technically pick any investment the offer, so I assume I could do Fidelity ETFs or Funds in there if I wanted to.
Roth IRA: $28,000
- 80% VTI ($22,500)
- 20% VXUS ($5,500)

I recommend holding different funds from what you have in taxable in this Roth IRA (and the one you should open for your spouse). If you ever wanted to tax loss harvest (TLH) in taxable, using different funds in these IRAs would make that easier. You can check out the wash sale discussion in the wiki article about TLH for more information.
Good call - I've started to look into TLH recently but knew I couldn't really do it right now, but thats definitely an area I could improve on.
Company ESPP:
- $50,000 (Probably too high, but I usually keep for the 2 year window to take advantage of LTCG rate)

What's the earliest possible time you could sell the company stock? What would be the tax treatment if you sold at that time? If it would just be STCG on any gains, I recommend selling immediately if you can sell when they vest, because the gains would be zero/minimal if you can sell shortly after they vest. It may even be worth paying STCG on something more than just the gains, to minimize the concentration of employer stock in your portfolio. I recommend figuring out the max amount of employer stock you want to hold and sticking to that (within a reasonable band such as +/-5%).
Every 6 months we get the shares deposited in our account, and I can sell immediately at that time. It also has a lookback period where it buys at a 15% discount from the lowest price its been over the past 2 years (well at least the lowest price on the buy dates which are every 6 months). My understanding of the tax treatment is that the 15% discount is included as income on W2 and taxed as ordinary income. Then, if it purchased at a lower price because of the lookback period, the gains between that price and the current share price would be considered STCG unless held for over two years.
HSA: $10,000
- $1,000 Cash (minimum allowed, we use for medical expenses throughout the year so this varies)
- $9,000 invested
-- $5,000 VIIIX S&P 500 (55%)
-- $1,000 VEMPX Extended Market completion index (13%)
-- $2,000 VTPSX International (22%)
-- $500 VBMPX Total Bond (5%)
-- $500 VIPIX TIPS (5%)

I think you're using way too many funds in this account given it's relatively small size in your portfolio. I would probably just use VIIIX. I definitely wouldn't want to have bonds, unless you need $2k to pay expenses throughout the year.
Agreed - originally I was using an Auto-advisor for this (and then I stopped that because of fees and simplified it because that had even more funds) but when I set that piece up I was kind of treating each account as having the same asset allocation and so I wasn't looking at my portfolio as a whole. Now that I am I should move this to just have one or two funds.
Emergency Fund: $20,000
- $10,000 in Money Market (TSTXX, Currently 1.78% 30-day SEC Yield)
- $10,000 in Megabank Savings (0.04% Interest, I know)

Any reason that isn't in the money market fund? Couldn't you buy I bonds in your spouse's name with this? At least $10k of your current I bonds holdings are or are close to being "seasoned" and could be cashed in a true emergency, so I see the risk of locking up this money as very low.
Honestly, I literally just started the Money Market fund like this month. I wasn't really aware of the possibility until I saw it on the forum. I've never really wanted to move money into an online HYSA because I didnt want to have accounts in too many places, but because I use Bank of America I wanted to leave stuff there for the Preferred Rewards. However because the Money Market is in Merrill Edge, that counts towards that balance anyways so I could definitely do that. I'm going to give it a month so I can see how the money market actually works at Merrill.
Recurring major Expenses:
- $600 College Loans

What's the interest rate? Are they federal or private?
Federal - 4.5% although they are at 0% right now because of the freeze. I have been mainly still making payments just so I can get the balance down (current balance is around $50,000) but I also didn't want to pay too much in with no interest and with possible loan forgiveness happening. When interest resumes I plan to start paying a larger chunk of this with the intent to be done with it in a few years.
I usually also keep a fair amount of cash in my checking account readily accessible (about the same amount as our EF), I like to have this for planned larger purchases in the next year (solar for house, vacations, etc.), but I understand that it may be better to deploy this into the market.

Any reason this money couldn't be kept in the money market fund, too? In general, money you plan to spend within the year, shouldn't be invested. I keep this kind of cash in a checking/savings account.
Basically same answer as above re: Money Market, but now that I know how easy that is I will probably move more into it.
Investing plan each year:
- I started maxing out my 401k a couple years ago. I'm 100% Roth contributions at this point, however some earlier contributions were tax-deferred. Company match of 4.5% which is tax-deferred.

Any reason in particular you're using 100% Roth? Check out the Traditional v. Roth wiki for guidance about making the decision.

If you're really in the 24% bracket (with your stated income, it looks like you'd be in 22%, but it would depend on the variable income), I think it makes sense to do all traditional, unless you'll have a big pension.
I think for me its more of a personal comfort thing. I like knowing that the money I have in Roth will be all ours without worrying about future taxes. Plus tax rates are pretty low right now historically. Could I potentially be leaving some money on the table? Yes, but I also haven't seen anything that really made me think this is a terrible decision. I figured with the employer match being tax-deferred and the balance I have from before I switched to Roth contributions, as well as my taxable account I'd still have a good mix to work with for tax purposes in retirement.
We have not yet looked into opening investment accounts directly in my spouses name (ie: Spousal IRA, Additional I-Bonds, etc.) but I think this is an area of possible improvement. Haven't done the Spousal IRA yet because I would like to retire "early" (between 55-60) and thought it might be better to have more taxable in brokerage for that timeframe.

I'd do Roth IRA contribution for your spouse before doing any taxable investing. You have access to the contributions (but not earnings) at anytime.
Other than rebalancing to meet my desired asset allocation, what recommendations would you have for some next steps? I do have access to an After-Tax 401K/Mega Backdoor Roth at my employer - would that be a better option than continuing to contribute more to the taxable brokerage? I've also thought about splitting my regular 401k Contributions to be part tax-deferred instead of all Roth, however I personally like the idea of Roth 401k because I'd rather the knowledge that taxes area already paid on that even if its not the "optimal" way for my situation.

Spousal IRA contributions. Think about buying I bonds in spouse's name.
Thanks - I've already been considering that so I'll start to look into it more seriously.
What version of the MBDR do you have in your 401k? In-plan conversion to Roth 401k or withdrawal to Roth IRA? The fact that you have MBDR is another reason I would use traditional 401k for your regular employee deferrals...you'd still be able to get quite a bit of money into Roth accounts. Even without MBDR, if you and your spouse max Roth IRAs, you'd be making $12k Roth contributions (38%) and ~$20k traditional, a good mix in my opinion.
It looks like we have both an in-plan conversion to the Roth 401K or an in-service distribution and rollover to IRA. I haven't felt like this was an option that made sense for me in the past because I wasn't maxing out other options, but the last two years I finally made some progress on debt to where I did max out 401k/IRA and thats when I opened the Taxable (to do my "extra" investing).
User avatar
David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Strategy and Portfolio Checkup

Post by David Jay »

wannabeinvestor wrote: Mon Aug 15, 2022 11:57 amThanks David. One of my concerns for the Spousal Roth IRA is the verbiage around them. My understanding is that you can only contribute to an IRA if you have over $6000 in earned income. My spouse has some earned income but it is generally under $6000 so I have wondered if we could only contribute a max contribution of that spouses earned income throughout the year, or if that is irrelevant as long as the total income between both spouses meets that requirement.
It is household income. If between the two of you there is $12,000 of taxable compensation then each of you can contribute $6000 to their respective Roth accounts (household income must be less than $206K).

If, in the future, your income is approaching $206K, look into the backdoor Roth procedure here: https://www.bogleheads.org/wiki/Backdoor_Roth
Last edited by David Jay on Tue Aug 16, 2022 7:57 am, edited 1 time in total.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: Strategy and Portfolio Checkup

Post by tashnewbie »

wannabeinvestor wrote: Mon Aug 15, 2022 3:17 pm
tashnewbie wrote: Mon Aug 15, 2022 1:08 pm 401k: $383,000
- 100% LIFEPATH Index 2050

What's the expense ratio of this fund? I presume it's fairly low because of the word "index". Do you have individual index funds available in this account? If so, you may want to use those to have more control over your asset allocation.
Yes, it is pretty low at 0.0715% so I've never felt like I *had* to change it. I picked this glide fund earlier in my career when I didn't really understand funds and diversification on my own, and this made it easy.

Other than those they allow some Blackrock funds (Large Cap, International) but thats it. However its at Fidelity and they do have something called Brokerage Link where it looks like I could technically pick any investment the offer, so I assume I could do Fidelity ETFs or Funds in there if I wanted to.
That's a great expense ratio for a target date fund (TDF). I'd have no problem using it. However, if you want to be able to dial in on your asset allocation more closely, you may need to shift to using individual funds in this account. I personally think using TDF along with individual funds (which you have in other accounts) can make managing an asset allocation harder than using only one or the other.

If the Blackrock funds are low cost, then I'd have no problem using them. Blackrock is the largest fund manager and very reputable. What are the Blackrock options in this plan? If you post them, we can give you some suggestions about how to use them instead of the TDF.

If you want to continue using the TDF, you could probably add some of the Blackrock large cap fund to try to "dilute" some of the international stock allocation in the TDF to get to your desired int'l stock target.

Company ESPP:
- $50,000 (Probably too high, but I usually keep for the 2 year window to take advantage of LTCG rate)

What's the earliest possible time you could sell the company stock? What would be the tax treatment if you sold at that time? If it would just be STCG on any gains, I recommend selling immediately if you can sell when they vest, because the gains would be zero/minimal if you can sell shortly after they vest. It may even be worth paying STCG on something more than just the gains, to minimize the concentration of employer stock in your portfolio. I recommend figuring out the max amount of employer stock you want to hold and sticking to that (within a reasonable band such as +/-5%).
Every 6 months we get the shares deposited in our account, and I can sell immediately at that time. It also has a lookback period where it buys at a 15% discount from the lowest price its been over the past 2 years (well at least the lowest price on the buy dates which are every 6 months). My understanding of the tax treatment is that the 15% discount is included as income on W2 and taxed as ordinary income. Then, if it purchased at a lower price because of the lookback period, the gains between that price and the current share price would be considered STCG unless held for over two years.
I'm no expert on ESPP, so you'll want to get feedback from others who've used them and are more familiar. I'd sell the shares when they're deposited in your account. I'd rather pay STCG on what amounts to maybe 6 months of growth (and there may not be any STCG, depending on the purchase price) than have to hold the stock for 2 years with the hope of getting LTCG on some greater growth (there's also the possibility that the stock has losses at the end of the 2 years).

To me, it seems riskier to hold the stock for 2 years. Anything could happen in that time. You may have different feelings about your employer stock, but there is some risk with holding the stock longer than you need. I definitely wouldn't want to be too concentrated (>10%) in the employer stock, so I would sell any amounts that comprise >10% of your portfolio immediately, regardless of tax treatment.
Topic Author
wannabeinvestor
Posts: 19
Joined: Mon Aug 15, 2022 10:20 am

Re: Strategy and Portfolio Checkup

Post by wannabeinvestor »

tashnewbie wrote: Tue Aug 16, 2022 7:53 am That's a great expense ratio for a target date fund (TDF). I'd have no problem using it. However, if you want to be able to dial in on your asset allocation more closely, you may need to shift to using individual funds in this account. I personally think using TDF along with individual funds (which you have in other accounts) can make managing an asset allocation harder than using only one or the other.

If the Blackrock funds are low cost, then I'd have no problem using them. Blackrock is the largest fund manager and very reputable. What are the Blackrock options in this plan? If you post them, we can give you some suggestions about how to use them instead of the TDF.

If you want to continue using the TDF, you could probably add some of the Blackrock large cap fund to try to "dilute" some of the international stock allocation in the TDF to get to your desired int'l stock target.
Sure - the other funds in the 401k are:

Equities:
BlackRock US Equity Market Index-F (Dow Jones U.S. Total Stock Market Index) [Expense Ratio 0.0176%]
BlackRock International Equity Index Fund F (MSCI ACWI ex US Index) [Expense Ratio 0.0504%]

Bonds:
BlackRock US Debt-F (Bloomberg U.S. Aggregate Bond Index) [Expense Ratio 0.0224%]

The rest are actively managed with higher expense ratios that I'd rather not use.
I'm no expert on ESPP, so you'll want to get feedback from others who've used them and are more familiar. I'd sell the shares when they're deposited in your account. I'd rather pay STCG on what amounts to maybe 6 months of growth (and there may not be any STCG, depending on the purchase price) than have to hold the stock for 2 years with the hope of getting LTCG on some greater growth (there's also the possibility that the stock has losses at the end of the 2 years).

To me, it seems riskier to hold the stock for 2 years. Anything could happen in that time. You may have different feelings about your employer stock, but there is some risk with holding the stock longer than you need. I definitely wouldn't want to be too concentrated (>10%) in the employer stock, so I would sell any amounts that comprise >10% of your portfolio immediately, regardless of tax treatment.
Yes, I have definitely been concerned about that risk and I've been better about selling quicker recently. In addition to the STCG/LTCG math I think theres also another consideration too - my understanding of the qualifying/non-qualifying aspect of an ESPP is that if you sell during the non-qualifying period the amount that gets treated as ordinary income also increases. In a qualifying sale that 15% discount is what gets treated as ordinary income, and the rest of the gains are capital gains. In a non-qualifying sale the ordinary income is calculated as the difference between the actual purchase price and the FMV on the date of purchase so if the stock increased between the lookback period and the date of purchase that ordinary income could come out to a much higher value. https://zajacgrp.com/insights/how-a-qua ... your-espp/

On the flip side if I'm reading everything correctly that means that with an ESPP if the purchase price/low water mark is actually on the date of purchase and not one of the lookback dates then there is no tax benefit on the discount from holding because the calculation for the "bargain element" would be the same for a qualifying or non-qualifying distribution.
HSA: $10,000
- $1,000 Cash (minimum allowed, we use for medical expenses throughout the year so this varies)
- $9,000 invested
-- $5,000 VIIIX S&P 500 (55%)
-- $1,000 VEMPX Extended Market completion index (13%)
-- $2,000 VTPSX International (22%)
-- $500 VBMPX Total Bond (5%)
-- $500 VIPIX TIPS (5%)
I think you're using way too many funds in this account given it's relatively small size in your portfolio. I would probably just use VIIIX. I definitely wouldn't want to have bonds, unless you need $2k to pay expenses throughout the year.
Thinking about this with respect to Tax Loss Harvesting. https://www.bogleheads.org/wiki/Tax_loss_harvesting At the moment since my 401k is a Target Date I don't think that comes into play. So that leaves the Roth IRA, Taxable, and HSA as potentially problematic. If I move all of the HSA to VIIIX which is an S&P500 (and gets auto-invested with every paycheck) my understanding based on the wiki is that I could not use another S&P500 index fund like VOO in another account because if I had to sell VOO in taxable for instance it would likely violate the Wash Sale Rules. In my Roth IRA I re-invest dividends automatically currently so that means with VTI in there it also hurts my ability to sell VTI in my taxable if I need to.

So it seems like another strategy might have to be to change the Roth to match the HSA (S&P500 index instead of TSM) and that would free up my taxable to have VTI (total stock market) and then have the ability to harvest with the pairs in that wiki, right? Theres not really a good way to have "substantially similar" investments in a taxable and in a Roth IRA with dividend reinvestments or an HSA with regular paycheck contributions from what I can see.
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: Strategy and Portfolio Checkup

Post by tashnewbie »

wannabeinvestor wrote: Wed Aug 17, 2022 8:13 am Sure - the other funds in the 401k are:

Equities:
BlackRock US Equity Market Index-F (Dow Jones U.S. Total Stock Market Index) [Expense Ratio 0.0176%]
BlackRock International Equity Index Fund F (MSCI ACWI ex US Index) [Expense Ratio 0.0504%]

Bonds:
BlackRock US Debt-F (Bloomberg U.S. Aggregate Bond Index) [Expense Ratio 0.0224%]
These funds are perfect, in my opinion, for your needs. I would have no problem using them instead of the TDF, if you want more control over your AA.
Thinking about this with respect to Tax Loss Harvesting. https://www.bogleheads.org/wiki/Tax_loss_harvesting At the moment since my 401k is a Target Date I don't think that comes into play. So that leaves the Roth IRA, Taxable, and HSA as potentially problematic. If I move all of the HSA to VIIIX which is an S&P500 (and gets auto-invested with every paycheck) my understanding based on the wiki is that I could not use another S&P500 index fund like VOO in another account because if I had to sell VOO in taxable for instance it would likely violate the Wash Sale Rules. In my Roth IRA I re-invest dividends automatically currently so that means with VTI in there it also hurts my ability to sell VTI in my taxable if I need to.

So it seems like another strategy might have to be to change the Roth to match the HSA (S&P500 index instead of TSM) and that would free up my taxable to have VTI (total stock market) and then have the ability to harvest with the pairs in that wiki, right? Theres not really a good way to have "substantially similar" investments in a taxable and in a Roth IRA with dividend reinvestments or an HSA with regular paycheck contributions from what I can see.
If you're going to consider the HSA as part of the wash sale rule (there's open debate about whether they are included, and I won't get into that), then yes, you shouldn't use "substantially identical" funds in it as you do in taxable. It's okay if the funds are "substantially similar" (not the same as "substantially identical").

I think it would be easy to use S&P 500 funds in the 401k, Roth IRA, and HSA. Then you can use total market and large cap funds like VTI, ITOT, SCHB, and VV in taxable, without any concern about wash sales. It doesn't appear that the Blackrock US equity fund tracks the same benchmark index as VTI, ITOT, SCHB, or VV, so I wouldn't consider it to be substantially identical (I didn't check the Blackrock international fund against VTIAX). Be aware that there aren't really any clear rules from the IRS on what constitutes "substantially identical" so individual taxpayers have to figure out what they're comfortable with; a lot of forum members would agree that if it tracks a different index, it's not substantially identical.
Post Reply