Young family portfolio review

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AW89
Posts: 9
Joined: Tue Mar 31, 2015 9:22 am

Young family portfolio review

Post by AW89 » Thu Apr 20, 2017 3:47 pm

Him: 27
Her: 25
Children: 3 & 1
Household income: $130K gross
Tax Rate: Fed = 25%, State = 0%
State: TX

EF: Yes ($20K in savings account)
Debt: Mortgage 1= $212K @4.125% interest ($1070 monthly payment), Mortgage 2=$39K @ 5.9% interest ($250 monthly payment)
Purchased first home 1.5 yrs ago - Paid $275K. Did a 80-15-5 loan structure to avoid PMI.
Taxes, Insurance, HOA on home = $885/month (I do not escrow, so I pay these annually, but I do account for them each month)
No other debt outside mortgage.

Other notables:
Vehicles: Both vehicles paid for but one is 2005 and will likely be replaced within the next 1-3 yrs. Other is a 2009 Accord plan to keep much longer.
Daycare: $1900/month

His ROTH IRA
$9K, Vanguard Target 2060, VTTSX, 0.16%

His 401K
$31K, Vanguard Institutional Index Fund Institutional Plus Shares, VIIIX, 0.02% (70% of my contribution goes here)
$10.5K, Vanguard Total International Stock Index Fund Institutional Shares, VTSNX, 0.09% (25% of my contribution goes here)
$2K, Vanguard Total Bond Market Index Fund Institutional Plus Shares, VBMPX, 0.04% (5% of my contribution goes here)
$11K, Vanguard Target Retirement 2050 Trust Select, 0.05% (This is my profit sharing account where company makes annual contribution)

Her (old company) 401K
$7K ($6.6K vested), Vanguard 500 Index Fund Admiral Class, VFIAX, 0.05%

Her (current company) 401K
$0, Vanguard Target 2060, VTTSX, 0.16%
She just started working for this company after being a SAHM for 1.5 yrs. Her next paycheck will be first contribution into 401K.

Other
$1.8K Treasury EE Bonds (I converted the paper bonds to online. Majority are collecting 4% so I am just letting them sit for now)

529 Plans
Both daughters set up through the Utah plan (UESP). Both are enrolled in the Age-Based Domestic Aggressive plans. One plan has $10K in it and the other 8K. My wife and I do not contribute regularly to these accounts right now. We have probably put in $3K of our own money only so far, rest has been gifts from family members.

Total amount invested
$72K investments
$18K 529 plans
$20K EF
$110K Total

Contributions
Up until very recently I was only contributing 7% into my 401K, now I am at 12% into 401K, 3% company match, and the once annually 5-9% profit sharing contribution from employer.
She contributes 10% into 401K, 3% company match
The total of these contributions equals to ~$23K annually.
No regular contribution going into ROTH IRA. I usually make a few contributions throughout the year but up until just now wife was staying at home so there really was not much extra left to go into ROTH. Now that she is bringing in the second income I will have to wait a couple months to see how much extra room we have in the budget before figuring out if I can max these out as well (or at least 1).

Questions
1. Would you divert money away from investments (other than minimum to get company match) and focus on getting rid of Mortgage 2 loan balance? We tackled nearly $60K of student loan debt in a little over a year (before kids, mortgage, etc) so I know we can do it. With us both in full-time, stable jobs I also would feel comfortable reducing our EF slightly. The $250 payment doesn't bother me but just knowing I have a loan at 5.9% is killing me.
2. Should we max ROTH IRA's before contributing excess into 401K? So far I have focused more on 401K and almost ignored ROTH IRA.
3. Currently I am just keeping the EF in a savings account earning nothing. If we can only afford to max 1 ROTH would it be wise to at least fill the other ROTH with our EF as a placeholder so we do not lose out on the space. If we never need it for EF and can eventually invest it, great, if we do need it we can pull it back out. Thoughts?
4. Given our age, family status, & the above details - how are we doing in terms of investments? I feel like we are behind where we should be. I often stress we are not saving enough.
5. Currently my mix is set up as 95% stocks (25% international), & 5% bonds. I really am not sure if this is reasonable or not. Thoughts?
6. Currently do not have any supplemental life insurance - I have around $400K on myself and $250K on wife through employers but that is it. I realize this is probably not enough.... Given our age, kids, income, etc... Approximately how much term life insurance should we have? What is a general rule?

Thanks in advance for taking the time to read this and offer any advice/suggestions.

User avatar
flamesabers
Posts: 1064
Joined: Fri Mar 03, 2017 12:05 pm
Location: Rochester, MN

Re: Young family portfolio review

Post by flamesabers » Thu Apr 20, 2017 4:17 pm

1. I would say yes since the interest rate is on the high side. If you can get wipe out $60k of student debt in a year, paying off $39k of mortgage debt shouldn't be an impossible goal for you.

2. Yes, max the Roth IRAs contributions before contributing excess to your 401k accounts. You get a bit more flexibility with withdrawing early from your Roth IRA then you would with your 401k.

3. Is your saving account literally earning 0% interest or just a low rate? You may be able to find online banks that payout interest rates of around 1%. I think Ally Bank is one that a lot of Bogleheads make use of.

4. I think you're on a good path in terms of investments. You don't have any debt outside of a mortgages, you have an emergency fund and you're making an effort to contribute to your retirement accounts. Trying to build up wealth I think becomes evermore difficult when you just paid off $60k of student loans and you're raising two young kids. Once your kids are old enough to go to school, you won't have to pay that $1.9k monthly daycare bill. That daycare bill amounts to $22.8k per year, which is more then enough to fund both of your IRAs and make a decent contribution to your 401k accounts or your 529 accounts.

5. You and your spouse are both young, so I don't think there's anything wrong with a 95/5 portfolio. As you get older you'll probably want to add more bonds to reduce the volatility in your portfolio.

6. I strongly suggest getting time life insurance outside of your employer for both you and your spouse. Worst case scenario is you or your wife gets unemployed and then dies unexpectedly. As far as how much you need, I think Bogleheads who have families would be better suited to answer your question. There is a wikipage on this topic also:

https://www.bogleheads.org/wiki/Life_insurance

As far as how long, I think the rule of thumb is to get a policy that covers the surviving spouse during the child rearing years. A 20 year policy should be adequate unless you're planning on having more kids in the future. Also, since you're both young, you'll probably want to get a policy soon when you can get low rates.

AW89
Posts: 9
Joined: Tue Mar 31, 2015 9:22 am

Re: Young family portfolio review

Post by AW89 » Thu Apr 20, 2017 4:26 pm

flamesabers wrote:1. I would say yes since the interest rate is on the high side. If you can get wipe out $60k of student debt in a year, paying off $39k of mortgage debt shouldn't be an impossible goal for you.

2. Yes, max the Roth IRAs contributions before contributing excess to your 401k accounts. You get a bit more flexibility with withdrawing early from your Roth IRA then you would with your 401k.

3. Is your saving account literally earning 0% interest or just a low rate? You may be able to find online banks that payout interest rates of around 1%. I think Ally Bank is one that a lot of Bogleheads make use of.

4. I think you're on a good path in terms of investments. You don't have any debt outside of a mortgages, you have an emergency fund and you're making an effort to contribute to your retirement accounts. Trying to build up wealth I think becomes evermore difficult when you just paid off $60k of student loans and you're raising two young kids. Once your kids are old enough to go to school, you won't have to pay that $1.9k monthly daycare bill. That daycare bill amounts to $22.8k per year, which is more then enough to fund both of your IRAs and make a decent contribution to your 401k accounts or your 529 accounts.

5. You and your spouse are both young, so I don't think there's anything wrong with a 95/5 portfolio. As you get older you'll probably want to add more bonds to reduce the volatility in your portfolio.

6. I strongly suggest getting time life insurance outside of your employer for both you and your spouse. Worst case scenario is you or your wife gets unemployed and then dies unexpectedly. As far as how much you need, I think Bogleheads who have families would be better suited to answer your question. There is a wikipage on this topic also:

https://www.bogleheads.org/wiki/Life_insurance

As far as how long, I think the rule of thumb is to get a policy that covers the surviving spouse during the child rearing years. A 20 year policy should be adequate unless you're planning on having more kids in the future. Also, since you're both young, you'll probably want to get a policy soon when you can get low rates.


Thank you for your response. The $39K should be doable - but when we paid off the student loans we had very very very minimal expenses at the time. It was probably closer to 1.5 yrs. I agree though - the first year of getting settled in, having another baby, etc.. We hadn't spent much time thinking about where to contribute any extra. Now is what I am trying to do.

Thanks for your other comments. I will definitely review the wiki page and make getting proper term insurance a priority. I'll also look into the online savings account.

Artisan
Posts: 299
Joined: Sat Oct 01, 2016 8:30 am

Re: Young family portfolio review

Post by Artisan » Thu Apr 20, 2017 4:34 pm

Welcome to the forum :) I've answered some questions and I am sure wiser minds will be a long shortly to provide additional information.
AW89 wrote:Him: 27
Her: 25
Children: 3 & 1
Household income: $130K gross
Tax Rate: Fed = 25%, State = 0%
State: TX

EF: Yes ($20K in savings account)
Debt: Mortgage 1= $212K @4.125% interest ($1070 monthly payment), Mortgage 2=$39K @ 5.9% interest ($250 monthly payment)
Purchased first home 1.5 yrs ago - Paid $275K. Did a 80-15-5 loan structure to avoid PMI.
Taxes, Insurance, HOA on home = $885/month (I do not escrow, so I pay these annually, but I do account for them each month)
No other debt outside mortgage.

Other notables:
Vehicles: Both vehicles paid for but one is 2005 and will likely be replaced within the next 1-3 yrs. Other is a 2009 Accord plan to keep much longer.
Daycare: $1900/month

His ROTH IRA
$9K, Vanguard Target 2060, VTTSX, 0.16%

His 401K
$31K, Vanguard Institutional Index Fund Institutional Plus Shares, VIIIX, 0.02% (70% of my contribution goes here)
$10.5K, Vanguard Total International Stock Index Fund Institutional Shares, VTSNX, 0.09% (25% of my contribution goes here)
$2K, Vanguard Total Bond Market Index Fund Institutional Plus Shares, VBMPX, 0.04% (5% of my contribution goes here)
$11K, Vanguard Target Retirement 2050 Trust Select, 0.05% (This is my profit sharing account where company makes annual contribution)

Her (old company) 401K
$7K ($6.6K vested), Vanguard 500 Index Fund Admiral Class, VFIAX, 0.05%

Her (current company) 401K
$0, Vanguard Target 2060, VTTSX, 0.16%
She just started working for this company after being a SAHM for 1.5 yrs. Her next paycheck will be first contribution into 401K.

Other
$1.8K Treasury EE Bonds (I converted the paper bonds to online. Majority are collecting 4% so I am just letting them sit for now)

529 Plans
Both daughters set up through the Utah plan (UESP). Both are enrolled in the Age-Based Domestic Aggressive plans. One plan has $10K in it and the other 8K. My wife and I do not contribute regularly to these accounts right now. We have probably put in $3K of our own money only so far, rest has been gifts from family members.

Total amount invested
$72K investments
$18K 529 plans
$20K EF
$110K Total

Contributions
Up until very recently I was only contributing 7% into my 401K, now I am at 12% into 401K, 3% company match, and the once annually 5-9% profit sharing contribution from employer.
She contributes 10% into 401K, 3% company match
The total of these contributions equals to ~$23K annually.
No regular contribution going into ROTH IRA. I usually make a few contributions throughout the year but up until just now wife was staying at home so there really was not much extra left to go into ROTH. Now that she is bringing in the second income I will have to wait a couple months to see how much extra room we have in the budget before figuring out if I can max these out as well (or at least 1).

Questions
1. Would you divert money away from investments (other than minimum to get company match) and focus on getting rid of Mortgage 2 loan balance? Yes I would. 6% guaranteed return on your money paying that off.We tackled nearly $60K of student loan debt in a little over a year (before kids, mortgage, etc) so I know we can do it. Nice job!With us both in full-time, stable jobs I also would feel comfortable reducing our EF slightly. The $250 payment doesn't bother me but just knowing I have a loan at 5.9% is killing me.
2. Should we max ROTH IRA's before contributing excess into 401K? So far I have focused more on 401K and almost ignored ROTH IRA.
3. Currently I am just keeping the EF in a savings account earning nothing. There are online savings accounts options paying 1 - 1.25%
percent that you could take advantage of if you aren't already.
If we can only afford to max 1 ROTH would it be wise to at least fill the other ROTH with our EF as a placeholder so we do not lose out on the space. If we never need it for EF and can eventually invest it, great, if we do need it we can pull it back out. Thoughts?
4. Given our age, family status, & the above details - how are we doing in terms of investments? I feel like we are behind where we should be. I often stress we are not saving enough. The rule of thumb I have seen is that you should try for 15-20% of your gross income. That said don't kick yourself over it. You are trying to contribute more and you sound like you are living below your means at least as far as your vehicles. Without knowing your expenses it would be hard to say.
5. Currently my mix is set up as 95% stocks (25% international), & 5% bonds. I really am not sure if this is reasonable or not. Thoughts? It is aggressive for my tastes. I would consider 80%/20%. You are young and haven't experienced a severe market drop. A 50% loss in your portfolio is something hard to imagine without living through it. You need an asset allocation that will let you sleep at night. Maybe for you that is 95/5. Only you can tell and I would make the argument that your resolve has not been tested yet.
6. Currently do not have any supplemental life insurance - I have around $400K on myself and $250K on wife through employers but that is it. I realize this is probably not enough.... Given our age, kids, income, etc... Approximately how much term life insurance should we have? What is a general rule?I think that's too low. I have seen 10 -12X earnings kicked around but I think you should wait until more people weigh in. At your age I'd say 20-30 year term

Thanks in advance for taking the time to read this and offer any advice/suggestions.

AW89
Posts: 9
Joined: Tue Mar 31, 2015 9:22 am

Re: Young family portfolio review

Post by AW89 » Fri Apr 21, 2017 8:57 am

Questions
1. Would you divert money away from investments (other than minimum to get company match) and focus on getting rid of Mortgage 2 loan balance? Yes I would. 6% guaranteed return on your money paying that off.We tackled nearly $60K of student loan debt in a little over a year (before kids, mortgage, etc) so I know we can do it. Nice job!With us both in full-time, stable jobs I also would feel comfortable reducing our EF slightly. The $250 payment doesn't bother me but just knowing I have a loan at 5.9% is killing me.
2. Should we max ROTH IRA's before contributing excess into 401K? So far I have focused more on 401K and almost ignored ROTH IRA.
3. Currently I am just keeping the EF in a savings account earning nothing. There are online savings accounts options paying 1 - 1.25%
percent that you could take advantage of if you aren't already.
If we can only afford to max 1 ROTH would it be wise to at least fill the other ROTH with our EF as a placeholder so we do not lose out on the space. If we never need it for EF and can eventually invest it, great, if we do need it we can pull it back out. Thoughts?
4. Given our age, family status, & the above details - how are we doing in terms of investments? I feel like we are behind where we should be. I often stress we are not saving enough. The rule of thumb I have seen is that you should try for 15-20% of your gross income. That said don't kick yourself over it. You are trying to contribute more and you sound like you are living below your means at least as far as your vehicles. Without knowing your expenses it would be hard to say.
5. Currently my mix is set up as 95% stocks (25% international), & 5% bonds. I really am not sure if this is reasonable or not. Thoughts? It is aggressive for my tastes. I would consider 80%/20%. You are young and haven't experienced a severe market drop. A 50% loss in your portfolio is something hard to imagine without living through it. You need an asset allocation that will let you sleep at night. Maybe for you that is 95/5. Only you can tell and I would make the argument that your resolve has not been tested yet.
6. Currently do not have any supplemental life insurance - I have around $400K on myself and $250K on wife through employers but that is it. I realize this is probably not enough.... Given our age, kids, income, etc... Approximately how much term life insurance should we have? What is a general rule?I think that's too low. I have seen 10 -12X earnings kicked around but I think you should wait until more people weigh in. At your age I'd say 20-30 year term

Thanks in advance for taking the time to read this and offer any advice/suggestions.


Thanks for your feedback. I agree, the 6% gaurenteed return does sound nice. I am going to talk to the wife more about this and see what we think would be best to accelerate this loan. With her now working again we should have some extra money left over. Just figuring out where to put it.

If we can pay off the 2nd lien fast enough - or get it down quite a bit - we could possibly be in a good situation to refinance if it makes sense. Given our location, our house has definitely appreciated a little bit, and this summer will be a good indicator of its real market value after the crazy summer buying/selling season. We bought the cheapest house on the block, majority of the homes around us are $350K-400K+. I would love to pay off entire mortgage early, but i often struggle with the fact that in Texas you are still a slave to $1K/month worth of taxes/insurance.... Our property taxes are ~3% & insurance here is also fairly high.

I need to look into a better online savings account!

I guess $23K out of $130K puts us at 17%. Need to continue to increase this each year.

I graduated college summer of 2011 - so yes, have not seen a market drop yet. I will do a little more research into my asset allocation but I do have a fairly high risk tolerance. But as you pointed out, that hasn't been truly tested yet.

Thanks for the info on life insurance! I need to get some quotes.

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