Please critique my starting portfolio & plan

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Topic Author
rosebranch
Posts: 4
Joined: Fri Jan 20, 2017 2:53 pm

Please critique my starting portfolio & plan

Post by rosebranch »

Background
Emergency funds: Three months, considering growing to 6.
Debt: $16500 (Student loan abroad, interest is a nice 0.34% in 2017 so not intending to pay off more than minimum).
Tax Filing Status: Married Filing Jointly,
Income: ~$150k Gross pre-deductions (2016)
Tax Rate: 25% Federal, 6.45% State, 3.65% Local
State of Residence: NY
Age: 32
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 30% of stocks

I am employed, but also earn income from a partnership LLC (roughly 50% of paycheck) and recently started my own consultant business (sole proprietor LLC) as well. Employer does not provide 401k plan. My plan is to use my own LLC as a way to kick start savings (I am not looking to take any salary from solo-LLC unless needed), whether via a SEP IRA or a 401k.

This is essentially the first year I’ll be investing my money for the future. I am in large part oblivious to financial matters, but I have read up and feel ready to start. Part of what makes forming a strategy difficult is that I am a foreigner working in the US, planning to move back (Northern Europe) at some point. I’ve opted for a tIRA over a Roth partly for this reason (the likelihood of me ending up spending retirement somewhere where the government doesn’t recognize the tax-free status of a Roth account).

The plan is to set aside $300 a week, automatically transferred to a savings account when my paychecks come in, as well as any amount “left over” end of month and invest with Vanguard in chunks that make sense. Starting portfolio is just above $50,000, with $5500 of that in a tIRA (just made my first contribution for 2016).

My planned investment allocation
Based on Rick Ferri’s Core Four, with the caveat that I don’t have a lot of tax-deferred space, so I’ve added a tax-exempt bond fund in my taxable for now, to be reallocated later. I want to keep it simple and automated going forward, and will do my very best to keep my eyes off eventual gains/losses and stay the course.

• Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 50% - in Taxable
• Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 30% - Taxable
• Vanguard Intermediate-Term Tax Exempt (VWITX) 9% Taxable (Phase to Vanguard REIT Index Fund Investor Shares (VGSIX) in tIRA)
• Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) 11% - tIRA

Questions:
1. Does this look like a reasonable diversified portfolio? Any tweaks that could be made (none of this is invested at the moment. Everything can be changed)?

2. Does this look like a tax efficient placement?

3. Does my reasoning of Roth vs. tIRA given that I’m likely to spend retirement outside of the US seem sound? I’m assuming the same logic will apply to Roth or not for eventual 401k (probably solo-).

4. Bonus question (that perhaps warrants its own thread): My CPA advised that a SEP IRA was an easier option than a solo-401k for my solo-LLC, saying that the latter was a hassle, I’d need to set up payroll etc. For those that have gone through it, is this true? I was not planning on taking a steady salary, but rather take distribution end of year. I view this solo venture as my way to kick start my retirement savings, so I want to maximize here. Likely won’t take in a massive amount of money through this entity, probably in the realm of $30k first year.

Thank you, I appreciate any advice you may have!
kenner
Posts: 3129
Joined: Sat Mar 01, 2008 8:45 am

Re: Please critique my starting portfolio & plan

Post by kenner »

Rosebranch,

Welcome to the forum. The presentation of your investment plan is very impressive. Of course, I'm biased because my own introduction to the Boglehead's investment methodology was also largely inspired by the writings of Rick Ferri, including the compelling logic behind the Core Four portfolio.

Your choices of mutual funds are identical to mine, so obviously I applaud your thinking. Your allocations to various accounts looks fine, but others on this forum have far superior knowledge than I possess regarding maximizing the benefits of the various account options.

All best.
Topic Author
rosebranch
Posts: 4
Joined: Fri Jan 20, 2017 2:53 pm

Re: Please critique my starting portfolio & plan

Post by rosebranch »

kenner wrote:Rosebranch,
Your choices of mutual funds are identical to mine, so obviously I applaud your thinking. Your allocations to various accounts looks fine, but others on this forum have far superior knowledge than I possess regarding maximizing the benefits of the various account options.

All best.
Thank you Kenner! Nice to hear I'm not completely off the mark at least.
lazylarry
Posts: 498
Joined: Sat Apr 04, 2015 10:35 pm
Contact:

Re: Please critique my starting portfolio & plan

Post by lazylarry »

rosebranch wrote:
Questions:
1. Does this look like a reasonable diversified portfolio? Any tweaks that could be made (none of this is invested at the moment. Everything can be changed)?
Some thoughts:
-Wow that is a fantastic interest rate! Fixed, I assume. Yes do not pay more than the minimum, you are doing some great leveraging here.
-Keep vanguard stock funds, they allow free switch to ETFS. Your bond funds you will pay capital gains when you sell, I believe.
-You can make another contribution for 2017 for tIRA. Would do.
-REITs are neither stocks nor bonds. I wouldn't do that in your situation perse given 20% bonds seems more reasonable.



2. Does this look like a tax efficient placement?
-Yes

3. Does my reasoning of Roth vs. tIRA given that I’m likely to spend retirement outside of the US seem sound? I’m assuming the same logic will apply to Roth or not for eventual 401k (probably solo-).
-Yes, I would ask in the boglehead UK and Canadian forum though. I'm honestly not sure how tIRAs are transferred between countries or what exactly happens. I think it depends on the country.I

4. Bonus question (that perhaps warrants its own thread): My CPA advised that a SEP IRA was an easier option than a solo-401k for my solo-LLC, saying that the latter was a hassle, I’d need to set up payroll etc. For those that have gone through it, is this true? I was not planning on taking a steady salary, but rather take distribution end of year. I view this solo venture as my way to kick start my retirement savings, so I want to maximize here. Likely won’t take in a massive amount of money through this entity, probably in the realm of $30k first year.
-Haven't done it. SEP is easier though. But if you're only taking in 30k, then you won't be contributing much to SEP - 25% of that essentially. Not sure if that's what you want.

https://investorjunkie.com/13066/sep-ira-solo-401k/


Thank you, I appreciate any advice you may have!
My profile: https://www.bogleheads.org/forum/memberlist.php?mode=viewprofile&u=86026 | Virtua lBogleheads® Blog: https://virtualbogleheads.wordpress.com/
Topic Author
rosebranch
Posts: 4
Joined: Fri Jan 20, 2017 2:53 pm

Re: Please critique my starting portfolio & plan

Post by rosebranch »

lazylarry wrote:-Wow that is a fantastic interest rate! Fixed, I assume. Yes do not pay more than the minimum, you are doing some great leveraging here.
Not fixed, but government subsidized (another reason to move back home when i have kids!) has never been higher than 1.1% and it can easily be paid off if ever needed.
lazylarry wrote:-Keep vanguard stock funds, they allow free switch to ETFS. Your bond funds you will pay capital gains when you sell, I believe.

I've struggled on the mutual funds vs ETF question. Is there anything in my situation that would make ETFs better?
lazylarry wrote:-You can make another contribution for 2017 for tIRA. Would do.

Definitely. Will wait and see what my decision on solo-401k/SEP end up being though.
lazylarry wrote:-Yes, I would ask in the boglehead UK and Canadian forum though. I'm honestly not sure how tIRAs are transferred between countries or what exactly happens. I think it depends on the country.I

Will do. Thanks, I didn't consider this.
lazylarry wrote:-Haven't done it. SEP is easier though. But if you're only taking in 30k, then you won't be contributing much to SEP - 25% of that essentially. Not sure if that's what you want.

Exacty. It seems like the solo-401k is the best option in that regard, but my business is likely to take in it's revenue in chunks towards the end of the year and I wasn't planning on taking a steady pay check. I might just open up another thread for this...

Thank you!
lazylarry
Posts: 498
Joined: Sat Apr 04, 2015 10:35 pm
Contact:

Re: Please critique my starting portfolio & plan

Post by lazylarry »

In terms of ETF vs MFs, I would mostly just stick to mutual funds that can be converted to ETFs and also buy bond fund ETFs given that you will be able to manage these while abroad.

https://global.vanguard.com/portal/site/home

And also consider using brokerages like TD Ameritrade or Schwab as these are often international friendly.
My profile: https://www.bogleheads.org/forum/memberlist.php?mode=viewprofile&u=86026 | Virtua lBogleheads® Blog: https://virtualbogleheads.wordpress.com/
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