Portfolio Help: 26 and Pregnant

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Topic Author
NBluth
Posts: 6
Joined: Wed Dec 18, 2013 8:51 am

Portfolio Help: 26 and Pregnant

Post by NBluth »

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Last edited by NBluth on Tue Apr 11, 2017 1:41 pm, edited 3 times in total.
ieee488
Posts: 1989
Joined: Thu Dec 10, 2009 7:57 am

Re: Portfolio Help: 26 and Pregnant

Post by ieee488 »

NBluth wrote: Current retirement assets

Taxable $50,000
15% Vanguard 500 Index Admiral (VFIAX) (.05)  Vanguard Total Stock Market
14% Vanguard Total International Stock Index Admiral (VTIAX) (.16)

His 401k $25,000
14% Fidelity Spartan 500 Index (FUSEX) (.10)  <--- what other choices?
Company matches 2.5%

His Roth IRA at Vanguard $23,000
2% Vanguard European Index (VEURX) (.26) 
2% Vanguard Pacific Index (VPACX) (.26) 
2% Vanguard Emerging Markets Index (VEIEX) (.33) 
4% Vanguard International Value (VTRIX) (.41) 
1% Vanguard Precious Metals (VGPMX) (.29)


Her 401k $60,000
15% Fidelity Large Cap Value Index (N/A) (.10)  <--- what other choices?
13% Fidelity Bond Index Fund (N/A) (.07)
3% Fidelity Sm-Mid Cap Core Index (N/A) (.12)
Company matches 5%

Her Roth IRA at Vanguard $25,000
2% Vanguard REIT Index Investor (VGSIX) (.24) 
2% Vanguard Small Value Index Admiral (VSIAX) (.21) 
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dickenjb
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Joined: Tue Jan 05, 2010 12:11 pm
Location: Philadelphia PA

Re: Portfolio Help: 26 and Pregnant

Post by dickenjb »

I would definitely consider a 3 fund (or 4 fund) approach.

For starters, no need to own all those separate foreign funds.

Consider the following 4:

S&P 500 (in 401(k) where presumably only good option)
Total International (I like this in taxable for the Foreign Tax Credit)
Total Bond
"Completer Fund" for S&P - own at 25% of what you hold in S&P
Topic Author
NBluth
Posts: 6
Joined: Wed Dec 18, 2013 8:51 am

Re: Portfolio Help: 26 and Pregnant

Post by NBluth »

Thanks for the replies so far!

I added the available funds in both mine and my husband's 401k plans.
Grt2bOutdoors
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Location: New York

Re: Portfolio Help: 26 and Pregnant

Post by Grt2bOutdoors »

I like and use the Utah plan, choose an age-based option. Some choose to use the DFA options since they were added back in June 2013, but you'd have to design your own allocation then.
Get a will.
Get your sleep now, good luck!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Chadnudj
Posts: 1269
Joined: Tue Oct 29, 2013 11:22 am

Re: Portfolio Help: 26 and Pregnant

Post by Chadnudj »

24 months of expenses in online account at .7%.

$50,000 extra cash to invest that we have accidentally hoarded, on top of the existing 24 months e-fund
Wow, that's a lot of extra cash sitting around. I'm impressed by your ability to save!

Also, I'm a little wary - that's arguably TOO much in cash saved, losing purchasing value to inflation.

Obviously, with a child on the way, you SHOULD have a large emergency fund, particularly if one of you might stop working for some time, or with medical expenses (although you've also maxed out the FSA, which will help with the latter). But wouldn't 12 months be enough? That would give you $50k PLUS 12 months expenses to invest, which could really lead to some big growth at an 80/20 AA over time the longer you have it invested...even if you invested the 12 months expenses in iBonds or TIPS (inflation-matching investments with low risks), I think you'd be much better off. Heck, you could take that 12 months of expenses and make a ginormous principle only payment on your mortgage that would reduce your monthly expenses (smaller mortgage would mean less principal + interest), thereby making the 12 months of expenses you didn't touch stretch FURTHER (maybe to 15 or 18 months? Hard to do the math without knowing the precise expense numbers and mortgage payments), with a guaranteed 3.5% return.

Honestly, you're doing a phenomenal job (both maxing out 401ks and getting matches over that? Both maxing out Roths? AT TWENTY SIX! AWESOME work....) so feel free to ignore everything I wrote if 24 months expenses makes you feel comfortable and/or sleep at night.....I just think you might be trading some significant returns for an extra year of emergency savings, or that other avenues (paying down the mortgage, iBonds, TIPS) might still provide that security at a better return than .7%.
sls239
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Re: Portfolio Help: 26 and Pregnant

Post by sls239 »

If you plan to continue working, then you should take advantage of dependent care flexible spending accounts as well as health flexible spending accounts.

I wouldn't do too much with the extra money you have until after baby is home and gaining weight. .

I don't know if you are or will be within the income guidelines for using I-bonds tax-free for higher education. But gradually putting your EF into I-bonds could be an option then you can choose if / when to cash them in. I wouldn't do plain taxable bonds in your taxable account. If you want to up your bond percentage, they'd be better off in one of your pre-tax accounts assuming you have a good option. International index funds do well in taxable accounts because they have limited distributions and get the foreign tax credit.

In general, don't confuse "lots of funds" with "diversified." Sometimes it is really just adding more of something you already have, and may or may not be an efficient way of doing it.

Also, you have a math or typographical error on your asset listing, your Roth IRA at $25K should be more than 4% total of your portfolio. IMO that is reason enough to want to simplify.


ETA - Oh and if you are within the income guidelines and see private school in the little one's future, definitely do a coverdell. I like coverdells in general - they are good if your child has special needs or any disability or needs tutoring.
Elbowman
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Re: Portfolio Help: 26 and Pregnant

Post by Elbowman »

Congratulations!

1) Utah does seem to be one of the favorites on this board. And if you choose the age based plan you can just put everything in that, and don't have to worry about I Bonds, etc.
2) If you have a proper IPS you should never really be confused as to what to do with extra cash. Just invest it in the funds specified in your IPS, rebalancing towards the ratios mentioned in your IPS. The only thing that puts a wrinkle in that statement is the mortgage prepay option, and as for that... well, it probably doesn't make a big difference either way. Whatever makes you happier. Stocks will have a higher expected value, and you are young, but 3.5% is a good return for a no risk investment right now. One of the most important things I've learned from this forum is decisions like CDs vs. prepay mortgage will be dwarfed by the effects of how much you save, use of tax advantaged space, and staying the course.
3) As long as you choose a plan and stick with it, either option will be fine. Refer to the dwarfing comment above.
4) A 24 month EF is on the high side, but I wouldn't worry about it if it makes you comfortable. Plus you may find that 24 months of pre-child expenses becomes 18 months of post-child expenses :)

You're doing a great job, so don't worry!
Topic Author
NBluth
Posts: 6
Joined: Wed Dec 18, 2013 8:51 am

Re: Portfolio Help: 26 and Pregnant

Post by NBluth »

Trying to respond to all the great feedback so far. This has been immensely helpful.
ieee488 wrote:
NBluth wrote: Current retirement assets

Taxable $50,000
15% Vanguard 500 Index Admiral (VFIAX) (.05) Vanguard Total Stock Market

His Roth IRA at Vanguard $23,000
2% Vanguard European Index (VEURX) (.26)
2% Vanguard Pacific Index (VPACX) (.26)
2% Vanguard Emerging Markets Index (VEIEX) (.33)
4% Vanguard International Value (VTRIX) (.41)
1% Vanguard Precious Metals (VGPMX) (.29)

If you have any suggestions regarding how to re-purpose his Roth IRA space if we lose all the individual International funds, I would love to hear it!
Also, if we move taxable money from 500 index to Total Stock Market, won't that incur pesky capital gains? Alternative would be to just add cash to the new fund. You'd still guide to make the switch?
dickenjb wrote: Consider the following 4:

S&P 500 (in 401(k) where presumably only good option)
Total International (I like this in taxable for the Foreign Tax Credit)
Total Bond
"Completer Fund" for S&P - own at 25% of what you hold in S&P
I'm gravitating toward this plan. Could you give an example of a good "Completer Fund" for S&P?
Grt2bOutdoors wrote:I like and use the Utah plan, choose an age-based option. Some choose to use the DFA options since they were added back in June 2013, but you'd have to design your own allocation then.
Get a will.
Get your sleep now, good luck!
I see 2 votes for Utah, and guidance toward target date fund. So easy, I like it! I've just started working with an attorney on a basic will. Nothing like bringing forth a new life to make you think more about your untimely death!
Chadnudj wrote: Wow, that's a lot of extra cash sitting around. I'm impressed by your ability to save!

Also, I'm a little wary - that's arguably TOO much in cash saved, losing purchasing value to inflation.

Obviously, with a child on the way, you SHOULD have a large emergency fund, particularly if one of you might stop working for some time, or with medical expenses (although you've also maxed out the FSA, which will help with the latter). But wouldn't 12 months be enough? That would give you $50k PLUS 12 months expenses to invest, which could really lead to some big growth at an 80/20 AA over time the longer you have it invested...even if you invested the 12 months expenses in iBonds or TIPS (inflation-matching investments with low risks), I think you'd be much better off. Heck, you could take that 12 months of expenses and make a ginormous principle only payment on your mortgage that would reduce your monthly expenses...
Graduating college in 2009 may have given us a bit of a depression era super-saver mentality. I like the bigger cash cushion for now because a) we both drive 10 year-old cars and b) I would like the option to potentially work less if it turns out a stay at home parent makes emotional sense for us. But it's still a lot of cash. After the kid gets here and we get a handle on the new budget, I think you're right that deploying more of that cash makes a lot of sense. I'm surprised to see several mentions of mortgage pre-pay. I don't think I'd lose sleep either way, but it just feels like the right thing to do. Something I will continue to consider.
sls239 wrote:If you plan to continue working, then you should take advantage of dependent care flexible spending accounts as well as health flexible spending accounts.
I will check into dependent care FSA, probably for 2015.
sls239 wrote: I don't know if you are or will be within the income guidelines for using I-bonds tax-free for higher education. But gradually putting your EF into I-bonds could be an option then you can choose if / when to cash them in. I wouldn't do plain taxable bonds in your taxable account. If you want to up your bond percentage, they'd be better off in one of your pre-tax accounts assuming you have a good option. International index funds do well in taxable accounts because they have limited distributions and get the foreign tax credit.
You're the second to suggest iBonds, and specifically I get the appeal as additional education savings due to potential tax benefits. However, the 5-year PenFed CD at 3% seems it would have a higher yield in the short term even with tax implications, which is why I was headed in that direction. Perhaps the answer is do some of both.
sls239 wrote: Also, you have a math or typographical error on your asset listing, your Roth IRA at $25K should be more than 4% total of your portfolio. IMO that is reason enough to want to simplify.
Touche. Fixed the error.
Elbowman wrote: 2) If you have a proper IPS you should never really be confused as to what to do with extra cash. Just invest it in the funds specified in your IPS, rebalancing towards the ratios mentioned in your IPS. The only thing that puts a wrinkle in that statement is the mortgage prepay option, and as for that... well, it probably doesn't make a big difference either way. Whatever makes you happier. Stocks will have a higher expected value, and you are young, but 3.5% is a good return for a no risk investment right now. One of the most important things I've learned from this forum is decisions like CDs vs. prepay mortgage will be dwarfed by the effects of how much you save, use of tax advantaged space, and staying the course.
Great point, I needed to hear that. So, not to derail on investment philosophy, but what happens when you're not sure if you're IPS is right for you any longer? New goals like saving for kid's future and desire to reduce needless complexity have me rethinking our plan. One is encouraged to rebalance at regular intervals, but what about re-examination of the IPS? Do you like a PP's suggestion of fewer funds? Our AA would stay the same at the high level… I'm starting to think it would make staying the course easiest for us if I consolidate some of the funds.
TroutMD
Posts: 87
Joined: Tue Dec 25, 2012 9:58 am

Re: Portfolio Help: 26 and Pregnant

Post by TroutMD »

Texas resident, a two year old and 3 month old. We utilize Utahs 529 plan with three funds. Total stock 60%, total international 30%, and total bond 10%.

Like you we did a lump sum at birth for each and contribute at each birthday that we will adjust as we determine our final number of kids.

Good luck!
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thedayisbrave
Posts: 122
Joined: Sun May 05, 2013 8:56 pm
Location: NC

Re: Portfolio Help: 26 and Pregnant

Post by thedayisbrave »

Chadnudj wrote:Heck, you could take that 12 months of expenses and make a ginormous principle only payment on your mortgage that would reduce your monthly expenses (smaller mortgage would mean less principal + interest)
Just wanted to clarify this point, cause it can be interpreted multiple ways. Putting extra money toward your principal will reduce your total mortgage, which means yes when your mortgage is paid off (early) your expenses would be reduced. Paying down the principal would reduce the term (length) of your loan. But it would not reduce the amount you pay monthly - that stays the same for the life of the loan.

Of course, that's assuming your mortgage is the standard fixed rate mortgage.

Don't mean to be too nitpicky, but didn't want the OP to read it a certain way and act on a misinterpretation.
Chadnudj
Posts: 1269
Joined: Tue Oct 29, 2013 11:22 am

Re: Portfolio Help: 26 and Pregnant

Post by Chadnudj »

Graduating college in 2009 may have given us a bit of a depression era super-saver mentality. I like the bigger cash cushion for now because a) we both drive 10 year-old cars and b) I would like the option to potentially work less if it turns out a stay at home parent makes emotional sense for us. But it's still a lot of cash. After the kid gets here and we get a handle on the new budget, I think you're right that deploying more of that cash makes a lot of sense. I'm surprised to see several mentions of mortgage pre-pay. I don't think I'd lose sleep either way, but it just feels like the right thing to do. Something I will continue to consider.
In that case, it sounds like you're on the right path, and making a smart decision.
Just wanted to clarify this point, cause it can be interpreted multiple ways. Putting extra money toward your principal will reduce your total mortgage, which means yes when your mortgage is paid off (early) your expenses would be reduced. Paying down the principal would reduce the term (length) of your loan. But it would not reduce the amount you pay monthly - that stays the same for the life of the loan.
Actually, what I meant here was she contact the mortgage lender, ask about making a large one-time, principal only payment on the mortgage, and then have them "recharacterize" it, with the newer, lower base amount of principal owed, and thus lower interest owed each month, but with the same term. (Not gonna do the math, but basically if you were paying $1000 a month for 25 years, after the big principal payoff the bank would let you pay $500 a month for 25 years) I'm pretty sure you can do that, right Bogleheads? Or is this only at the discretion of the lender?

EDIT: One other option would be to take the 12 months of expenses, and pay it towards principal and re-financing your mortgage into a 15 year mortgage (if, that is, you had a 30 year term....which looking at your rate you may not have).
Grt2bOutdoors
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Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Portfolio Help: 26 and Pregnant

Post by Grt2bOutdoors »

NBluth wrote:Trying to respond to all the great feedback so far. This has been immensely helpful.
ieee488 wrote:
NBluth wrote: Current retirement assets

Taxable $50,000
15% Vanguard 500 Index Admiral (VFIAX) (.05) Vanguard Total Stock Market

His Roth IRA at Vanguard $23,000
2% Vanguard European Index (VEURX) (.26)
2% Vanguard Pacific Index (VPACX) (.26)
2% Vanguard Emerging Markets Index (VEIEX) (.33)
4% Vanguard International Value (VTRIX) (.41)
1% Vanguard Precious Metals (VGPMX) (.29)

If you have any suggestions regarding how to re-purpose his Roth IRA space if we lose all the individual International funds, I would love to hear it!
Also, if we move taxable money from 500 index to Total Stock Market, won't that incur pesky capital gains? Alternative would be to just add cash to the new fund. You'd still guide to make the switch?
dickenjb wrote: Consider the following 4:

S&P 500 (in 401(k) where presumably only good option)
Total International (I like this in taxable for the Foreign Tax Credit)
Total Bond
"Completer Fund" for S&P - own at 25% of what you hold in S&P
I'm gravitating toward this plan. Could you give an example of a good "Completer Fund" for S&P?

Completer fund - Extended Market Index, covers all companies excluding S&P 500.
Grt2bOutdoors wrote:I like and use the Utah plan, choose an age-based option. Some choose to use the DFA options since they were added back in June 2013, but you'd have to design your own allocation then.
Get a will.
Get your sleep now, good luck!
I see 2 votes for Utah, and guidance toward target date fund. So easy, I like it! I've just started working with an attorney on a basic will. Nothing like bringing forth a new life to make you think more about your untimely death!
It's not the death part that concerns me, but who will be the ultimate guardian of your child? I'd think the parents would like to determine that, unless you like the idea of the surrogates court making that decision for you.
Chadnudj wrote: Wow, that's a lot of extra cash sitting around. I'm impressed by your ability to save!

Also, I'm a little wary - that's arguably TOO much in cash saved, losing purchasing value to inflation.

Graduating college in 2009 may have given us a bit of a depression era super-saver mentality. I like the bigger cash cushion for now because a) we both drive 10 year-old cars and b) I would like the option to potentially work less if it turns out a stay at home parent makes emotional sense for us. But it's still a lot of cash. After the kid gets here and we get a handle on the new budget, I think you're right that deploying more of that cash makes a lot of sense. I'm surprised to see several mentions of mortgage pre-pay. I don't think I'd lose sleep either way, but it just feels like the right thing to do. Something I will continue to consider.
Keep the cash for now, enjoy your 9 months, enjoy the next 3 months after that, then make your decision, a year more or less is not going to hurt you, ten years might, but not 1.
sls239 wrote:If you plan to continue working, then you should take advantage of dependent care flexible spending accounts as well as health flexible spending accounts.
I will check into dependent care FSA, probably for 2015.
sls239 wrote: I don't know if you are or will be within the income guidelines for using I-bonds tax-free for higher education. But gradually putting your EF into I-bonds could be an option then you can choose if / when to cash them in. I wouldn't do plain taxable bonds in your taxable account. If you want to up your bond percentage, they'd be better off in one of your pre-tax accounts assuming you have a good option. International index funds do well in taxable accounts because they have limited distributions and get the foreign tax credit.
You're the second to suggest iBonds, and specifically I get the appeal as additional education savings due to potential tax benefits. However, the 5-year PenFed CD at 3% seems it would have a higher yield in the short term even with tax implications, which is why I was headed in that direction. Perhaps the answer is do some of both.The I bonds will adjust faster should their be a sudden spike in CPI-U, you won't see the same reaction in the PenFed repricing, and you will be locked in until end of term or face an interest penalty to liquidate.
Elbowman wrote: 2) If you have a proper IPS you should never really be confused as to what to do with extra cash. Just invest it in the funds specified in your IPS, rebalancing towards the ratios mentioned in your IPS. The only thing that puts a wrinkle in that statement is the mortgage prepay option, and as for that... well, it probably doesn't make a big difference either way. Whatever makes you happier. Stocks will have a higher expected value, and you are young, but 3.5% is a good return for a no risk investment right now. One of the most important things I've learned from this forum is decisions like CDs vs. prepay mortgage will be dwarfed by the effects of how much you save, use of tax advantaged space, and staying the course.
Great point, I needed to hear that. So, not to derail on investment philosophy, but what happens when you're not sure if you're IPS is right for you any longer? New goals like saving for kid's future and desire to reduce needless complexity have me rethinking our plan. One is encouraged to rebalance at regular intervals, but what about re-examination of the IPS? Do you like a PP's suggestion of fewer funds? Our AA would stay the same at the high level… I'm starting to think it would make staying the course easiest for us if I consolidate some of the funds.
By all means, consolidate - I like Dickensjb's suggestion of the 4 fund portfolio.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
dickenjb
Posts: 2941
Joined: Tue Jan 05, 2010 12:11 pm
Location: Philadelphia PA

Re: Portfolio Help: 26 and Pregnant

Post by dickenjb »

NBluth wrote:
dickenjb wrote: Consider the following 4:

S&P 500 (in 401(k) where presumably only good option)
Total International (I like this in taxable for the Foreign Tax Credit)
Total Bond
"Completer Fund" for S&P - own at 25% of what you hold in S&P
I'm gravitating toward this plan. Could you give an example of a good "Completer Fund" for S&P?
VEXAX at Vanguard or equivalent at FIDO. One part VEXAX to 4 parts S&P500 = VTSAX (TSM).

See:

http://www.bogleheads.org/wiki/Three-fu ... iderations
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Tortoise Banker
Posts: 173
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Re: Portfolio Help: 26 and Pregnant

Post by Tortoise Banker »

[quote="Chadnudj"]Actually, what I meant here was she contact the mortgage lender, ask about making a large one-time, principal only payment on the mortgage, and then have them "recharacterize" it, with the newer, lower base amount of principal owed, and thus lower interest owed each month, but with the same term. (Not gonna do the math, but basically if you were paying $1000 a month for 25 years, after the big principal payoff the bank would let you pay $500 a month for 25 years) I'm pretty sure you can do that, right Bogleheads? Or is this only at the discretion of the lender?[/quote]

Yes, you can. Usually for a nominal fee ($100) or so, depending on the bank. The bank I work at allows this and I'd highly recommend it.
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