Portfolio Review and Advice

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Topic Author
Kow
Posts: 24
Joined: Fri May 27, 2016 5:04 pm

Portfolio Review and Advice

Post by Kow » Thu Jan 19, 2017 8:33 am

I've been reading the site for a few years now and have done all the basics that are recommended but am looking for some additional guidance on whether I'm in the right investments and how to be as tax efficient as I can. I feel like I'm making great progress with large thanks to this forum and am hopeful with some additional tweaks I can leave my portfolio alone and know it's efficiently invested so I can focus my time elsewhere.

Emergency funds: Six months of expenses
Debt: $620K 30 year mortgage at 3.25%. Currently in first couple months of mortgage
Tax Filing Status: Married Filing Jointly
Tax Rate: 33% Federal, 6.37% State
State of Residence: NJ
Age: Me - 34, Wife - 30 (currently not working with our first child
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: ?% of stocks

Overall investments:
64% in equities
21% in Bonds
15% in cash (excluding emergency)

Taxable through TD Ameritrade (~60% of portfolio)
22% in VTI
10% in VEU
13% in BND
15% in cash - just bought a house so this is partially set aside for furnishing but will be looking to invest most of this

For my 401K (~40% of portfolio) - I've listed out only the low cost funds, there are additional including target dates at higher Expense Ratios:
0 in VEMIX (.12%) Vanguard Emerging Mkts Stock Idx I
10% in VTSNX (.10%) Vanguard Total Intl Stock Index Instl
10% in VSCIX (.07%) Vanguard Small Cap Index Instl
10% in VMCIX (.07%) Vanguard Mid Cap Index Ins
0 in VINIX (.04%) Vanguard Institutional Index Instl
0 in VBIRX (.09%) Vanguard Short-Term Bond Index Adm
10% VBTIX (.05%) Vanguard Total Bond Market Index Inst

I have not itemized my wife's 403B, our HSA or my Lending Club account which make up roughly 5% of our portfolio.

New annual Contributions
$36K in my his 401k (which is 1/2 made of my company match)
$5.5K into backdoor Roth (in 1st year of contributing)
$5.5k into her backdoor Roth (in 1st year of contributing)
$6.75K into family HSA


Questions:
1. How do I maximize my retirement savings beyond my current approach? I am planning on looking into a 529 in the near future. Any other thoughts on areas to invest in?
2. Am I properly invested in the right products/proportion?
3. How do I maximize tax advantages across the accounts? Do I need to re-balance or should I just focus future investments towards more equity in taxable and more bonds in 401K? (Updated question as had these reversed)

Thanks again and I look forward to further discussions!
Last edited by Kow on Mon Dec 10, 2018 8:51 pm, edited 2 times in total.

Stinkbug
Posts: 1
Joined: Thu Jan 19, 2017 8:43 am

Re: Portfolio Review and Advice

Post by Stinkbug » Thu Jan 19, 2017 8:47 am

Wouldn't it be more tax efficient to keep the bond funds in your 401k and equities in the taxable accounts?

livesoft
Posts: 68591
Joined: Thu Mar 01, 2007 8:00 pm

Re: Portfolio Review and Advice

Post by livesoft » Thu Jan 19, 2017 9:37 am

When I try to improve tax efficiency, I look at my Form 1040 Schedule B. I try to have less than $10 in interest in the top half. In the bottom half, I try to only have qualified dividend income and no non-qualified dividend income. QDI gets a favorable federal tax rate, while NQDI gets taxed effectively at your marginal income tax rate which for you is about 40%.

Your BND shares provide only NQDI and you should not have them at all in a taxable account. Thus, that holding should be sold and replaced with a tax-efficient broad market stock index fund such at VTI or VEA. One could hold a NJ tax-exempt muni bond fund in taxable, but since you have room in a tax-deferred account for your bond allocation, I suggest you hold all your bond funds in your 401(k).

Your Roth IRAs might be a good place to own small-cap foreign such as VSS. Your VEU does not have small caps and VEA does not have small caps, so VSS would be a good addition to your portfolio.

You can do all total portfolio rebalancing in your 401(k) without friction, transaction costs, and no tax consequences.

Your taxable just needs some tax-loss harvesting every once in a while. Take dividends in cash and manually re-invest them.

Your smaller accounts like those Roths can be a single holding and be in "set-and-forget" mode for a while until they are much larger.
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Topic Author
Kow
Posts: 24
Joined: Fri May 27, 2016 5:04 pm

Re: Portfolio Review and Advice

Post by Kow » Thu Jan 19, 2017 10:05 am

Stinkbug wrote:Wouldn't it be more tax efficient to keep the bond funds in your 401k and equities in the taxable accounts?
Agreed, had that turned around. Have updated my question

Topic Author
Kow
Posts: 24
Joined: Fri May 27, 2016 5:04 pm

Re: Portfolio Review and Advice

Post by Kow » Thu Jan 19, 2017 10:11 am

livesoft wrote:When I try to improve tax efficiency, I look at my Form 1040 Schedule B. I try to have less than $10 in interest in the top half. In the bottom half, I try to only have qualified dividend income and no non-qualified dividend income. QDI gets a favorable federal tax rate, while NQDI gets taxed effectively at your marginal income tax rate which for you is about 40%.

Your BND shares provide only NQDI and you should not have them at all in a taxable account. Thus, that holding should be sold and replaced with a tax-efficient broad market stock index fund such at VTI or VEA. One could hold a NJ tax-exempt muni bond fund in taxable, but since you have room in a tax-deferred account for your bond allocation, I suggest you hold all your bond funds in your 401(k).

Your Roth IRAs might be a good place to own small-cap foreign such as VSS. Your VEU does not have small caps and VEA does not have small caps, so VSS would be a good addition to your portfolio.

You can do all total portfolio rebalancing in your 401(k) without friction, transaction costs, and no tax consequences.

Your taxable just needs some tax-loss harvesting every once in a while. Take dividends in cash and manually re-invest them.

Your smaller accounts like those Roths can be a single holding and be in "set-and-forget" mode for a while until they are much larger.
Great, appreciate the input. I'll dig a bit more to better understand the 1040 B but will look at reallocating as you suggest. Is there a standard approach you follow around tax-loss harvesting? Also is manually reinvesting dividends better than setting that to automatically reinvest?

livesoft
Posts: 68591
Joined: Thu Mar 01, 2007 8:00 pm

Re: Portfolio Review and Advice

Post by livesoft » Thu Jan 19, 2017 10:17 am

Kow wrote:Is there a standard approach you follow around tax-loss harvesting? Also is manually reinvesting dividends better than setting that to automatically reinvest?
I do not use a standard approach, but I outlined an algorithm in this post for those that wanted something:
viewtopic.php?p=2610557#p2610557

For some people manually reinvesting is better than automatic reinvesting. For others, automatic reinvesting is better. See this wiki page: https://www.bogleheads.org/wiki/Reinves ... le_account

Oh, VEA does have some small caps, but not enough of them in my opinion.
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Topic Author
Kow
Posts: 24
Joined: Fri May 27, 2016 5:04 pm

Re: Portfolio Review and Advice

Post by Kow » Tue Apr 11, 2017 4:42 pm

Livesoft,

As I'm revisiting this topic post tax time and looking at my 2016 1040, how do you minimize your interest to under $10? Are you not keeping any assets in cash / no emergency savings that are interest bearing?
When I try to improve tax efficiency, I look at my Form 1040 Schedule B. I try to have less than $10 in interest in the top half. In the bottom half, I try to only have qualified dividend income and no non-qualified dividend income. QDI gets a favorable federal tax rate, while NQDI gets taxed effectively at your marginal income tax rate which for you is about 40%
Thanks!

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