26 y/o - Annual Portfolio Checkup

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Thrasymachus
Posts: 19
Joined: Sun Jul 28, 2013 10:07 am

26 y/o - Annual Portfolio Checkup

Post by Thrasymachus »

Hello! I'm posting this as my third annual portfolio checkup on Bogleheads. I've found the advice and encouragement from past threads on this forum incredibly valuable. I'm hoping for some feedback and reassurance that I'm not missing anything major. Thanks!


Income: $93k
Tax Filing Status: Single, no children
Debt: None
State: VA

Desired asset allocation: 95% equities, 5% bonds
Actual asset allocation: 94.8% equities, 5.2% bonds

Desired international allocation: Unsure
Actual international allocation: 12%


Current Assets: $121k total

Taxable
$19.4k cash
$2.6k international fund (FSIIX)
$21.2k small cap fund (VSMAX)

401(k)
$6.3k fixed interest fund (at 3.75%)
$53k S&P 500 fund (at .23 ER)

Roth IRA
$11.4k international fund (VTIAX)
$7.1k total stock market fund (VTSMX)


Annual contributions: Max 401(k) and Roth IRA. 2% company match on 401(k). Invest anything additional post-tax, which averages $1.3k/month over the past year.


Questions:

1. Am I missing anything major in terms of investments or diversification? Am I tilting too heavily toward small caps (18%) or not heavily enough toward international (12%)?

2. I haven't attempted to organize my investments into the accounts with the best tax structure to hold them. Long-term, should I try to hold my international or small caps in my 401(k) or Roth IRA? Should I be trying to move certain types of assets into tax-advantaged accounts over time?

3. I'd ideally like to only carry around $5k in my checking account. I don't see a pressing need for a large emergency fund because my job is relatively stable and I could tap into parents, insurance, or taxable savings in the case of an emergency.

How should I invest the extra $15k of cash in my checking account? I'm comfortable with 10%-15% international, though I recognize that some will see that as very low. I don't have any near-term needs for the money, but I'd probably tap into it in the next 3-7 years for standard early life expenses like a wedding, down payment, grad school, etc.

4. I'm strongly considering business school in the next few years. If I decide to commit, would it be viable to open a 529 plan for some short-term tax avoidance? I'd also like to have children in the future, so there's a fallback if I don't use it on myself.
sharpjm
Posts: 657
Joined: Fri Feb 20, 2015 1:41 pm

Re: 26 y/o - Annual Portfolio Checkup

Post by sharpjm »

Thrasymachus wrote:Desired asset allocation: 95% equities, 5% bonds
Actual asset allocation: 94.8% equities, 5.2% bonds

Desired international allocation: Unsure
Actual international allocation: 12%


Current Assets: $121k total

Taxable
$19.4k cash
$2.6k international fund (FSIIX)
$21.2k small cap fund (VSMAX)

401(k)
$6.3k fixed interest fund (at 3.75%)
$53k S&P 500 fund (at .23 ER)

Roth IRA
$11.4k international fund (VTIAX)
$7.1k total stock market fund (VTSMX)


Annual contributions: Max 401(k) and Roth IRA. 2% company match on 401(k). Invest anything additional post-tax, which averages $1.3k/month over the past year.


Questions:

1. Am I missing anything major in terms of investments or diversification? Am I tilting too heavily toward small caps (18%) or not heavily enough toward international (12%)?

2. I haven't attempted to organize my investments into the accounts with the best tax structure to hold them. Long-term, should I try to hold my international or small caps in my 401(k) or Roth IRA? Should I be trying to move certain types of assets into tax-advantaged accounts over time?

3. I'd ideally like to only carry around $5k in my checking account. I don't see a pressing need for a large emergency fund because my job is relatively stable and I could tap into parents, insurance, or taxable savings in the case of an emergency.

How should I invest the extra $15k of cash in my checking account? I'm comfortable with 10%-15% international, though I recognize that some will see that as very low. I don't have any near-term needs for the money, but I'd probably tap into it in the next 3-7 years for standard early life expenses like a wedding, down payment, grad school, etc.

4. I'm strongly considering business school in the next few years. If I decide to commit, would it be viable to open a 529 plan for some short-term tax avoidance? I'd also like to have children in the future, so there's a fallback if I don't use it on myself.
Hello. I haven't seen your previous portfolio checkup posts, but it seems like you've been doing well with them :)

Here is my input:

1. In terms of diversification, I think it is obvious that you are very heavy in stocks. I don't know of any AA plan that recommends an allocation of 90%+ stocks. With that said, the difference between 90/10 and 80/20 is pretty small. But as you age, and you likely already know this very well, you will likely want to reduce risk by increase fixed income exposure. As far as the small cap exposure, again I think because of your age it won't affect your long-term goals much. I would recommend to slowly reduce (eliminate) the small cap tilt over the next 5-10 years.

2. There are 2 ways to look at taxes in retirement accounts. one is to minimize dividends and capital gains in the taxable account. This is pretty intuitive and typically leads to diversion of bonds out of taxable accounts. The other mindset is that investments with higher expected returns should be placed in a Roth account. You can maintain both objectives by keeping bonds in tax deferred and high yield assets in a Roth. Keep the bulk of your assets in tax deferred (401k/403b, traditional IRA) to rebalance .

3. It doesn't seem like a big deal but eventually parents may not be able to support and the longer you go without tapping into taxable savings, the larger the capital gains will be in those accounts. Always recommend to hold decent reserves in e-fund. But many people advise to hold e-funds in tax efficient bond invesments to increase returns. I don't recommend it, but it is an option and something many others are OK with.

4. I don't think you can open a 529 without children. And I don't think it is advisable to use it (assuming you already have children) as a tax haven. Those accounts are for future college. Your #1 focus should be retirement. In 10+ years when you have kids and much bigger reitrement portolios, you can worry about 529s :)

Good luck! You are doing quite well for your age.
amythius
Posts: 27
Joined: Wed Jun 06, 2012 9:31 am

Re: 26 y/o - Annual Portfolio Checkup

Post by amythius »

4. 529
Correcting that a 529 can have any person as the beneficiary. And adults can use them for qualifying education expenses as well. Just look into the rules in detail or search around for more info. Look into state tax credits, that would be the only reason to do so in my mind.

Also, I am the beneficiary of my son's 529 because I started it before he was born. You can change the beneficiary at about any time.
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