Expecting first child portfolio review request

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Topic Author
sneakboxer
Posts: 8
Joined: Tue Feb 14, 2017 7:56 pm
Location: NE Ohio

Expecting first child portfolio review request

Post by sneakboxer »

First, let me thank you for all the great information provided on this site. I have poured through the pages over the years, you have helped me greatly. But due to some major life changes in the near future I’m seeking your detailed guidance and suggestions.

Introduction:
I am a career military officer with intentions to retire after 2019, most likely 2021. Currently renting due to frequent transfers but intend to purchase a home in 2018 with 100K currently saved in CDs (not included below). I have followed an IPS and currently reevaluating my risk tolerance down to 70s/30b from 85/15. This is due to approaching retirement, expecting a child and spouse leaving the workforce. I run a budget and I am confident that we will be fine in the short term.

Emergency funds: 6 months (not included below)
Debt: ZERO
Tax Filing Status: Married Filing Jointly,
Tax Rate: 25% Federal, 5.8% WI for wife, small% from PA on gains
State of Residence: Actual WI, Tax state of record PA
Age:36
Current Asset allocation: 85% stocks / 15% bonds
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 25% of stocks

Total Portfolio: low to mid 6-figures

Current retirement assets

Taxable at TD Ameritrade
3% cash
16% Vanguard Total stock market (VTI) (ER .05)
4% SPRD Industrial Sector ETF (XLI) (ER .14)
7% Vanguard Small Cap ETF (VB) (ER .08)
8% Vanguard Developed markets ETF (VEA) (ER .09)
2% Vanguard REIT ETF (VNQ) (ER .12)
3% USAA Intermediate bond fund (USBIX) (ER .62)
4% Kimberly Clark stock (KMB)
3% Ruger stock (RGR)

His TSP (not Roth)
15% Life Cycle 2040 (ER .038)
Company match? NO

His Roth IRA at TD Ameritrade
6% Vanguard Total stock market (VTI) (ER .05)
2% SPDR S&P ETF (SPY) (ER .09)
3% Vanguard Small Cap ETF (VB) (ER .08)
2% Vanguard Developed markets ETF (VEA) (ER .09)
2% Vanguard REIT ETF (VNQ) (ER .12)
1% iShares MSCI Australia (EWA) (ER .48)
1% Vanguard Intermediate term bond ETF (BIV) (ER .09)
5% Vanguard Total bond market ETF (BND) (ER .06)

Her 403b
4% Principal Lifetime 2050 (PFLJX) (ER 1.12%)
Company match? No

Her Roth IRA at Vanguard
3% Vanguard Total stock market (VTI) (ER .05)
2% Vanguard Small Cap ETF (VB) (ER .08)
1% Vanguard Developed markets ETF (VEA) (ER .09)
1% Vanguard REIT ETF (VNQ) (ER .12)
2% Vanguard Total bond market ETF (BND) (ER .06)

Contributions

New annual Contributions
$18K his TSP (no match)
$1500 her 403b (2% match)
$5,500 His Roth IRA
$5,500 Her Roth IRA
$6,600 taxable

Military pension
$35K per year starting June2021 (if all goes well)

Available funds

Funds available in his TSP (ER .038 for all)
G Fund Government
F Fund Fixed income
C Fund Common Stock
S Fund Small Cap
I Fund International
L Income
L2020
L2030
L2040
L2050

Funds available in her 403(b)
Exiting the workforce for motherhood. Roll to Vanguard IRA?

Questions:
1. I am debating refining my holdings down to a “Core Four” to reduce redundancy, simplify things and balance into more bonds. What would be the best way to do that? Sell the non-core funds and rebalance across my Roth and taxable accounts?

2.
For the “Core Four” 70/30 does this sound reasonable?
30% Vanguard Total stock market (VTI) (ER .05)
25% Vanguard Developed markets ETF (VEA) (ER .09)
10% Vanguard REIT ETF (VNQ) (ER .12)
30% Vanguard Total bond market ETF (BND) (ER .06)

3.
Since the majority of my money is in a taxable account how do I get my bond holding up? It is generally bad to hold bonds in a taxable account right?

4.
Should I also move all my wife’s retirement money in to a Vanguard account and convert it to the same plan as above?

5.
If you have any other tips I am all ears.
lazylarry
Posts: 515
Joined: Sat Apr 04, 2015 10:35 pm
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Re: Expecting first child portfolio review request

Post by lazylarry »

1 - Yes. These guys particularly to sell:
4% Kimberly Clark stock (KMB)
3% Ruger stock (RGR)
You may incur capital gains taxes so obviously would want to make sure you can pay for this in rebalancing process. Also, activate your cash to put in something. The smaller splits are honestly not that terrible, as you have about <10% in small cap and reit which some may consider "tilt." This biggest issue I see is not enough in international (ideally should be 20-40%). Bond is also low as well. You could rebalance to increase that percentage. Additionally, your TSP L2050 does not match your desired AA, which I don't know if you did that intentionally.

2- Yup that's fine.

3- You could switch out your L2050 in the TSP for a sooner date, effectively increasing the bond allocation. Could also sell VEA or the small caps in the Roth to buy bonds there. Lastly, you could get tax exempt muni bonds in the taxable.

4 - Yes
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Topic Author
sneakboxer
Posts: 8
Joined: Tue Feb 14, 2017 7:56 pm
Location: NE Ohio

Re: Expecting first child portfolio review request

Post by sneakboxer »

Thank you for the review and comments LazyLarry.
1. I thought the single stocks would get noticed. I did just sell AZN in January (that is my extra cash came from) so i was working that direction. I'll pick up the pace and place a trailing stop at the very minimum. A few years ago i really liked watching them like a football team but i know better.... I was actually following a 85/25 with some tilt plan since 2014 but did not know if the extra complexity was worth it. It sounded like a great idea at the time but now i have more things to worry about.
3. I did not think about that, thanks for the idea. Shifting the TSP to more bond would jiggle the whole allocation over. I'll run it through my spread sheet.
4. Now if i could only get the misses to initiate the swap to VG since i can't personally. It is on the list.

Now i guess i'll crunch the numbers and then sit on my hands while i wait two weeks for my IPS "Great Ideas" timer to run down. This timer has saved me from doing dumb stuff in the past and i fully credit it to this site.

Thanks again!
veindoc
Posts: 834
Joined: Sun Aug 14, 2016 9:04 pm

Re: Expecting first child portfolio review request

Post by veindoc »

When is the baby due? If I were your wife and if you had the money I would try to contribute the full 18k from the 403b over the next few working months and maternity leave.
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Nords
Posts: 293
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Location: Oahu
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Re: Expecting first child portfolio review request

Post by Nords »

sneakboxer wrote:3.
Since the majority of my money is in a taxable account how do I get my bond holding up? It is generally bad to hold bonds in a taxable account right?
One option to boost your asset allocation to bonds would be to move your TSP assets to the F or G funds.

However you have a military paycheck, and you're probably going to have it until you retire for a military pension. You only have to include bonds in your asset allocation if you want them to reduce the portfolio's volatility. The paycheck is one of the world's most reliable stipends and the pension will be the rough equivalent of the income thrown off by a huge portfolio of I bonds.
sneakboxer wrote:5.
If you have any other tips I am all ears.
About two years before you retire, you and your spouse should attend the military's transition program (TAP or GPS or ACAP or whatever acronym is coming up). That's a good opportunity for you two to listen to all the financial presentations and decide how you want to handle your post-military finances.

You look like you might intend to buy a home before you retire. There are good reasons to do that, but many military servicmembers lock into the "forever home" myth. If you're seeking a bridge career after military retirement, it's easier to move to wherever the job hires you. (You'd also rent for a while as you search for a discounted home bargain from a distressed seller.) Survey data indicates that over half of military veterans switch to a second job within two years of starting that bridge career, so it might be wise to rent for 12-18 months after leaving the military.

And finally, if you plan on buying a home with a VA loan, you may be able to waive the funding fee if you have a VA disability rating.
http://www.benefits.va.gov/homeloans/purchaseco_loan_fee.asp
It's a lot easier to waive that fee after you've obtained your VA disability rating.

If the lender is aware that you're retiring from the military soon, then the mortgage underwriting gets a lot more difficult. The lender only cares about your income, not your assets. If you're leaving a military paycheck but you don't yet have a military pension or a bridge career, then as far as the lender can tell you have no income. I hear about this issue from so. many. readers. when they've already put an offer on their forever home (so now it's emotional) and started seeking a mortgage-- and that's way too late.

If you have more niche questions about military personal finance then post them here or feel free to send me a PM.
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