Portfolio Help

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Epochalypse
Posts: 16
Joined: Tue Jan 16, 2018 9:56 am

Portfolio Help

Post by Epochalypse » Tue Jan 16, 2018 4:36 pm

Hopefully this is enough information to get some help going forward. Appreciate any and all replies.

Emergency funds:
Non-existent at this time. I am relying on Roth IRA as a emergency fund as I am still working my way out of some debt so additional cash tends to go there.

Debt (ugh):
Down to last credit card with $3000 left still has 0% interest until June so I've just maintained that balance for now
Wife's school loans ~$12000 @ 3.25%
1 remaining car loan ~$14000 left @ 3.45%
mortgage on a property I'm renting out until I sell it in a year and a half when lease runs out...split between a 4.125% ARM w/ $163k left and a HELOC w/ ~48k left @ 6.875% :annoyed

Tax Filing Status: MFJ
Tax Rate: Remains to be seen as this is my first year off Active Duty military, 6% Virginia state tax I think for NOVA...likely moving to MD this year though
State of Residence: VA but likely MD later this year
Age: 44 (wife 38)
Desired Asset allocation: 80/20 due to playing catch up and pension/disability mitigating risk somewhat
Desired International allocation: 20% of stocks seems to be a popular recommendation on here

Breakdown of current portfolio:
Total about ~$97k

My Roth IRA
Vanguard 500 Index Admiral (0.04 ER) - VFIAX - ~$34.8k
Vanguard Small-cap Index Admiral (0.06 ER) - VSMAX - ~$19.5k
Vanguard Target Retirement 2035 (0.15 ER)- VTTHX - ~$4.7k
Vanguard Total Bond Market Index (0.05 ER)- VBTLX - ~$15.8k
Vanguard Total International Stock Index (0.11 ER) - VTIAX - ~$15.7k

My wife's IRA
Vanguard Target Retirement 2035 (0.15 ER) - VTTHX - ~$2k

My Roth 401k w/ 3% match (currently, another thread may be pushing me to move this to an S&P 500 Lending Series index (0.70 ER))
MFS International Value Fund (1.26 ER) - MINFX - ~$240
Victory Sycamore Established Value Fund (1.18 ER) - GETGX - ~$4k

I have a military retirement of approx. ~$41,600/yr (taxable) and VA disability of ~$23,355/yr (not taxable), both of which I believe adjust for COL. My current salary is $142,800/yr. My wife is just now inching back into the workforce (stay at home mom for many years and is currently bringing in ~$10k/year as an assistant teacher). She may need to go back to school to go full time (previously she was a social worker).

Contribution priorities
First Roth 401k to 3% match
Next max both Roth IRAs
Then it gets tricky...do I...

(Questions begin here)
1) max out Roth 401k (currently doing 9% with room to go higher if this is the direction)?
2) choose a different vehicle (529 perhaps for kids...8 and 6 yr old)?
3) pay down debt (I'm looking at you HELOC...)?
4) should I even be doing a Roth IRA/401k (again right now it is filling the role of emergency fund but I am currently more than capable of handling surprise expenses so far, knock on wood)?

We had a lot of money problems but I am now working to correct that with my new job. Of course another factor is that our lease is up and we need to move closer to my new job, so we are currently debating purchasing a home or renting (I'm firmly in the camp of no more than a 15 yr fixed VA loan and no more than $450k home; if nothing catches our eye, we rent).

Appreciate all taking the time to help. Thanks. :sharebeer

bloom2708
Posts: 3359
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Portfolio Help

Post by bloom2708 » Tue Jan 16, 2018 4:55 pm

Welcome!

First off, where is all your money going each month? Are you tracking spending and living on a budget?

With no Emergency Fund, I'd probably make that a priority.

You (both) might consider reading "The Total Money Makeover" by Dave Ramsey. I think you are in a debt emergency. If you keep treading water, all the debt is going to be with you for a long time. Dave's plan would have you save $1,000 for an Emergency Fund, stop 401k contributions and then attack the debt (smallest to largest).

Can you sell the property before the lease is up?

With your income, you should probably be doing Pre-tax 401k. Save the tax now. You need every extra dollar. If you don't want to fully follow Dave Ramsey's baby steps, then you could switch to pre-tax and do 3% or something so you feel like you are still contributing for retirement.

529s will have to wait until you get some debt cleaned up and a bigger Emergency Fund.

I would figure out a way to hit this hard and follow a plan. Tight budget, credit cards in a plastic envelope and then frozen in a block of ice in the freezer. :wink:

If you both read the book, you would at least have one perspective/plan in mind when figuring out to do. The good news is you have a great income. You should be able to clean this up. Dave would tell you to get "gazelle intense".

Thanks for your service and good luck. Hopefully others can add their perspectives to assist.
Last edited by bloom2708 on Wed Jan 17, 2018 1:04 pm, edited 1 time in total.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Epochalypse
Posts: 16
Joined: Tue Jan 16, 2018 9:56 am

Re: Portfolio Help

Post by Epochalypse » Tue Jan 16, 2018 5:16 pm

bloom2708 wrote:
Tue Jan 16, 2018 4:55 pm
Welcome!

First off, where is all your money going each month? Are you tracking spending and living on a budget?

With no Emergency Fund, I'd probably make that a priority.

You (both) might consider reading "The Total Money Makeover" by Dave Ramsey. I think you are in a debt emergency. If you keep treading water, all the debt is going to be with you for a long time. Dave's plan would have you save $1,000 for an Emergency Fund, stop 401k contributions and then attach the debt (smallest to largest).

Can you sell the property before the lease is up?

With your income, you should probably be doing Pre-tax 401k. Save the tax now. You need every extra dollar. If you don't want to fully follow Dave Ramsey's baby steps, then you could switch to pre-tax and do 3% or something so you feel like you are still contributing for retirement.

529s will have to wait until you get some debt cleaned up and a bigger Emergency Fund.

I would figure out a way to hit this hard and follow a plan. Tight budget, credit cards in a plastic envelope and then frozen in a block of ice in the freezer. :wink:

If you both read the book, you would at least have one perspective/plan in mind when figuring out to do. The good news is you have a great income. You should be able to clean this up. Dave would tell you to get "gazelle intense".

Thanks for your service and good luck. Hopefully others can add their perspectives to assist.
I know exactly where my money goes...wife and kids 8-)

On a more serious note, yes I track our expenses but we don't have a strict planned out budget. I pay all bills and then with the additional money that's left over I roll to investments, with the understanding that I need to get money into the market.

I have read Dave Ramsey's book and that has what has got me to my current situation; believe me it was much worse than it currently is (like about $25k in credit card debt beginning of last year and no investment contributions for years; stopped when we got married because of life situations requiring those resources). My wife says she read it but...she doesn't quite grasp the concept of saving money tbh. Let's call her a work in progress shall we?

The property has a tenant on a 2 year lease that will expire in 1 1/2 years so I am reticent to sell it before then. Not sure if that's possible or what the ramifications are.

My decision to do Roth vs pre-tax is to have that act as a pseudo-emergency fund since I can withdraw if necessary without penalty to a point, as far as I understand. Again, I have yet to see any emerging expense come up that I haven't been able to handle just through my income (would just mean less goes to invest/pay down debt that period). So the Roth is buying me liquidity, at least as I see it. I could be completely wrong about that. Allows that money to work for me yet be available in dire circumstances.

With the exception of the HELOC, the rest of my current debt rates are pretty low and I expect in a year and a half both the HELOC and current mortgage come off the table when I sell that place for what is expected to be some profit. I've read through most of the threads devoted to comparing paying down the mortgage vs investing and it seems in today's environment I'm leaning towards investing due largely to the positive near-term outlook, the relatively short term sale of my rental, and those other debt rates being rather low.

Epochalypse
Posts: 16
Joined: Tue Jan 16, 2018 9:56 am

Re: Portfolio Help

Post by Epochalypse » Wed Jan 17, 2018 8:11 am

Maybe a follow up question will help me.

I will have another $1000 or so to "put" somewhere Friday. Based on my situation, where should that next available money go? Wife's Roth IRA, Wife's Traditional IRA, HELOC, somewhere else?

Thanks.

ICMoney
Posts: 149
Joined: Fri Oct 28, 2016 2:38 pm

Re: Portfolio Help

Post by ICMoney » Wed Jan 17, 2018 12:21 pm

Epochalypse wrote:
Wed Jan 17, 2018 8:11 am
Maybe a follow up question will help me.

I will have another $1000 or so to "put" somewhere Friday. Based on my situation, where should that next available money go? Wife's Roth IRA, Wife's Traditional IRA, HELOC, somewhere else?

Thanks.
Have you run across this page on the wiki yet - it may help you think through where to direct the money: https://www.bogleheads.org/wiki/Paying_ ... _investing

The wiki logic would say to pay the HELOC. Or you could start small emergency fund. I agree with everything bloom2708 said though - you are grossing $200K-ish per year and I'd think you should be able to get out of debt relatively soon? I'm sure selling the rental will help a lot with this situation in the future, possibly paired with a look your at spending. Sometimes people post rough monthly/annual expenses on here to get feedback on where they could trim back to help with debt payoff - feel free to do that if you think it would help your family to formulate a plan. For reference, we have almost double your family's size and have expenses (not including retirement savings or health insurance) around $60K per year (though are in a lower cost of living area).

Best,
ICM

Epochalypse
Posts: 16
Joined: Tue Jan 16, 2018 9:56 am

Re: Portfolio Help

Post by Epochalypse » Wed Jan 17, 2018 12:56 pm

ICMoney wrote:
Wed Jan 17, 2018 12:21 pm
Have you run across this page on the wiki yet - it may help you think through where to direct the money: https://www.bogleheads.org/wiki/Paying_ ... _investing

The wiki logic would say to pay the HELOC. I agree with everything bloom2708 said though - you are grossing $200K-ish per year and I'd think you should be able to get out of debt relatively soon? I'm sure selling the rental will help a lot with this situation in the future, possibly paired with a look your at spending. Sometimes people post rough monthly/annual expenses on here to get feedback on where they could trim back to help with debt payoff - feel free to do that if you think it would help your family to formulate a plan. For reference, we have almost double your family's size and have expenses (not including retirement savings or health insurance) around $60K per year (though are in a lower cost of living area).

Best,
ICM
Thanks for that link and it happens to coincide with what I also read in another thread. Both said relatively the same thing as far as prioritization:

Invest in 401(k) to get maximum employer match (rate may be over 100% in the first year) - Agree and complying
Pay down credit cards (rate 10-30+%) - Agree. Only reason I haven't paid off remaining $3000 is because I have 5 more months of no interest; once that period runs out I immediately pay that off and it disappears never to return...God and wife willing
Pay down non-deductible auto or student loans, or other medium-rate loans (rate 5-8%) So here is where I am looking. We have an auto and student loan debt remaining, but both are under 4%. Based on what the other thread said you compare this to current 10 yr treasury yield + ~5%. Leads me to believe based on that I should pass on these for now. My highest loan rate is the HELOC at 6.85%, but I believe that is deductible and I expect to only have that for a year and a half more. I guess it boils down to whether any of that is wrong and the HELOC becomes for sure the next target until I sell in a year and a half at the expense of compounding interest.
Invest in Roth IRA, deductible IRA or decent 401(k) (rate 5% on Treasury bonds) So this is where I have been recently putting my money, maxxing out first my own then my wife's 2017 Roth IRAs, based on my rationale above. Which means here is where I would look at changing if my logic is flawed or incomplete above
Pay down deductible mortgage or student loans (rate 4% after tax) This would then be the remainder of my debt, which I am paying down at normal schedule until AFTER I max out Roth IRAs then I will jump back in, likely the HELOC then the auto I assume
Invest in taxable account (rate 4% on municipal bonds) Down the road
Do not pay down subsidized loans as long as subsidy lasts (rate 0-3%)

Yes I desperately want to be out of debt but I also recognize the power of compounding interest (too late for my liking but I'm there now lol). Paying down the debt is an instant reward but there does seem to be some wiggle that compares what you gain with what you lose with liquidity and compound interest.

So that is kind of the conversation I hope to have to get smarter about my choices.

But thanks again for the link and response.

Self edit: after re-reading I just had the epiphany :oops: that my debt is also experiencing compound interest...HELOC it is! lol :sharebeer

Epochalypse
Posts: 16
Joined: Tue Jan 16, 2018 9:56 am

Re: Portfolio Help

Post by Epochalypse » Fri Jan 19, 2018 8:44 am

So after a bit more poking around and my incessant need to keep tweaking until I find something I'm comfortable with here is my updated portfolio:

Total about ~$98k

Asset allocation is about 83/17 give or take (the VTTHX makes it a bit hard to pin down the exact split)
International is about 21% of equities

My Roth IRA
Vanguard Total Stock Market Index Admiral (0.04 ER) - VTSAX - ~$35k
Vanguard Total International Stock Index (0.11 ER) - VTIAX - ~$15.8k
Vanguard Small-cap Index Admiral (0.06 ER) - VSMAX - ~$10.5k
Vanguard Small-cap Value Index Admiral (0.07 ER) - VSIAX - ~$10.5k
Vanguard Total Bond Market Index (0.05 ER)- VBTLX - ~$15.8k
Vanguard Target Retirement 2035 (0.15 ER)- VTTHX - ~$3.25k

My wife's Roth IRA
Vanguard Target Retirement 2035 (0.15 ER) - VTTHX - ~$3k

My 401k (the Roth part) - holding these for now, would consider exchanging these
MFS International Value Fund (1.26 ER) - MINFX - ~$240
Victory Sycamore Established Value Fund (1.18 ER) - GETGX - ~$4k

My 401k Traditional going forward 3% match
State Street S&P 500 Index Securities Lending Series Fund - Class IX (0.70 ER) - 100% of future 401k contributions

I'm currently heavy small cap because of the desire to hit Admiral status in those two groups, as I contribute to my 401k the S&P 500 portion will increase large cap to help rebalance. My issue comes with bonds. Based on what I'm seeing I only stand to lose rebalancing into bonds in the current market but I want to start whittling down my equity share.

So question, does anyone know if Vanguard allows me to purchase CDs using my Roth IRA funds with no penalties (i.e. is it an exchange that doesn't trigger a tax event?). Is that a sound decision?

Epochalypse
Posts: 16
Joined: Tue Jan 16, 2018 9:56 am

Re: Portfolio Help

Post by Epochalypse » Sat Jan 27, 2018 10:30 am

Latest update and hopefully the one I plan on taking forward for a while.

my 401k (Roth to this point but going forward I am going traditional; 3% employer match, 13% contribution rate should get me to 18,500 this year)
SSgA S&P 500 Index Lending Series - Class IX - (0.70 ER) - ~$5.1k (currently 5% of portfolio but expected to grow due to maxing out contribution)

my Roth IRA (will likely have to switch to traditional going forward, will max out $5.5k for 2018)
Vanguard Total Stock Market Index Admiral VTSAX (0.04 ER) - ~$46.7k
Vanguard Total International Stock Index VTIAX (0.11 ER) - ~$16.2k
Vanguard Emerging Markets Admiral VEMAX (0.14 ER) - ~$10.8k
Vanguard Total Bond Market Index VBTLX (0.05 ER) - ~$19.1k

Wife's Roth IRA (will likely have to switch to traditional going forward, still $2k to max out 2017, then $5.5k for 2018)
Vanguard Target Retirement 2035 VTTHX (0.15 ER) - ~$3.6k

Looking for roughly an 80/20 AA, with 60/40 domestic/foreign equity split, 10% EM so new monies will work towards balancing with this goal in mind.

Any thoughts/critiques appreciated.

jeroly
Posts: 6
Joined: Wed Jan 24, 2018 2:07 pm

Re: Portfolio Help

Post by jeroly » Sat Jan 27, 2018 11:32 am

Even if the HELOC is tax deductible, paying it off gives you an after tax risk free rate of return of ~4.5% assuming 33% bracket, which is great in the current rate environment.

Epochalypse
Posts: 16
Joined: Tue Jan 16, 2018 9:56 am

Re: Portfolio Help

Post by Epochalypse » Sat Jan 27, 2018 1:08 pm

jeroly wrote:
Sat Jan 27, 2018 11:32 am
Even if the HELOC is tax deductible, paying it off gives you an after tax risk free rate of return of ~4.5% assuming 33% bracket, which is great in the current rate environment.
Thank you.

Yes my current rationale has me paying down the HELOC once I hit that last $2k for my wife's Roth IRA for 2017 since there is a distinct time constraint on that occurring. I've set up the automatic withdrawals for the traditional 401k but extra money will go to the HELOC until I reach the point where I have to get that $11,000 into the 2 IRAs again.

At least that is the current plan.

Post Reply