Updates to our financial situation & a few questions..

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
cbr shadow
Posts: 175
Joined: Wed Jul 10, 2013 2:12 pm

Updates to our financial situation & a few questions..

Post by cbr shadow » Wed May 17, 2017 12:46 pm

My wife and I are both 33 yrs old and work in the SF Bay Area.
Her Salary: $135k base + Bonus (Bonues varies, minimum of $20k)
His Salary: $82k
Current Net Worth: ~$450k

401k Her: Max ($18k)
401k His: Max ($18k)
Roth IRA Her: Max ($5.5k)
Roth IRA His: Max ($5.5k)
Taxable Vanguard Joint: Any extra, (currently ~$60k invested total)

We rent in SF, but have owned an investment property in Chicago that we recently sold (closing this month) based on Bogleheads advice on keeping vs selling it. So we'll have a fair amount of cash to invest in about a month. I'd like to be sure we're doing this in an efficient way.

Assuming I can still hit our desired asset allocation (95/5) based on the amount of bonds in our Roth IRA's, does it make sense to invest the ~$110k in our taxable account (all in VTSAX)?

I assume in general:
1) Taxable account is for tax efficient low-turnover funds like VTSAX. Not Bonds
2) Bonds should be held in Roth IRA (We use Target Retirement Date Fund, adjust target date based on percentage of bonds we'd like)
3) 401k is limited to what is offered in plan. My plan allows me to buy Vanguard S&P 500 Index Admiral

- Are the above assumptions correct?
- Is buying $110k of VTSAX in our taxable account a good idea, assuming I can balance overall % of bonds buy changing Target Date Fund in RothIRA?
- I plan on DCA'ing our Taxable purchases to 20% per month for 5 months. Cool?

Thanks for any advice!

Finance-MD
Posts: 304
Joined: Sun Mar 26, 2017 9:27 am

Re: Updates to our financial situation & a few questions..

Post by Finance-MD » Wed May 17, 2017 1:21 pm

looks good.
if you do DCA, what will you invest the rest of it while waiting? high-yield savings?

you can use a target date account and adjust bond allocation.
but if you are going to have so much VTSAX, why not just buy the components (US TSM, Total Int'l, Total Bond) and adjust the bond allocation directly?
once you get so much VTSAX, you may not be able to get your bond allocation high enough with target date.

cbr shadow
Posts: 175
Joined: Wed Jul 10, 2013 2:12 pm

Re: Updates to our financial situation & a few questions..

Post by cbr shadow » Wed May 17, 2017 1:40 pm

Finance-MD wrote:looks good.
if you do DCA, what will you invest the rest of it while waiting? high-yield savings?

you can use a target date account and adjust bond allocation.
but if you are going to have so much VTSAX, why not just buy the components (US TSM, Total Int'l, Total Bond) and adjust the bond allocation directly?
once you get so much VTSAX, you may not be able to get your bond allocation high enough with target date.


Thanks for the response.
While DCA'ing I was planning on keeping the money in our checking account since it's only there (in decreasing amounts) for 5 months. Think it's worth opening a high-yield savings for this? We keep $20k in our checking account at all times, but only really need $6-7k in there for regular expenses, rent, etc.. the rest is for "emergencies", I guess. Maybe it makes sense to put some of that $20k in the high-yield savings account too?

Our monthly transactions will go down now that we don't have a mortgage or any rental income/expenses, which makes things simpler.

bloom2708
Posts: 2555
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Updates to our financial situation & a few questions..

Post by bloom2708 » Wed May 17, 2017 1:42 pm

Are you doing 95/5 because you do not have room for bonds in other accounts? At 33, 80/20 or 85/15 might be a better place to be.

Since you are a CA resident, Vanguard has an Intermediate-Term California (and Federal) Tax-Exempt bond fund. I assume you are in the 28% or close to 33% federal tax bracket

https://personal.vanguard.com/us/funds/ ... IntExt=INT

This would be a good candidate for a taxable account. With CA being a high tax state, it might make sense to consider this. It could give you tax free interest and be used to keep your overall asset allocation in check.

I'm not in the 100/0 or 95/5 camp, so take my advice with that caveat. When stocks are sailing higher and my asset allocation is stock heavy, I use Int-Term Tax-Exempt bonds to make frequent purchases toward my desired asset allocation.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead | | Want to buy something? Watch this first: https://vimeo.com/41152287

cbr shadow
Posts: 175
Joined: Wed Jul 10, 2013 2:12 pm

Re: Updates to our financial situation & a few questions..

Post by cbr shadow » Wed May 17, 2017 1:55 pm

bloom2708 wrote:Are you doing 95/5 because you do not have room for bonds in other accounts? At 33, 80/20 or 85/15 might be a better place to be.

Since you are a CA resident, Vanguard has an Intermediate-Term California (and Federal) Tax-Exempt bond fund. I assume you are in the 28% or close to 33% federal tax bracket

https://personal.vanguard.com/us/funds/ ... IntExt=INT

This would be a good candidate for a taxable account. With CA being a high tax state, it might make sense to consider this. It could give you tax free interest and be used to keep your overall asset allocation in check.

I'm not in the 100/0 or 95/5 camp, so take my advice with that caveat. When stocks are sailing higher and my asset allocation is stock heavy, I use Int-Term Tax-Exempt bonds to make frequent purchases toward my desired asset allocation.


I appreciate the response - all good points. I wasn't aware of the CA Tax Exempt Bond Fund. How does this work if we move from California in the future? I can't imagine we'll be here more than 5 years, but you never know. At the point of moving out of the state would we want to switch to a different bond fund, or go back to "Plan A" (not having bonds in our taxable)? If that's the case I'd rather avoid it completely.

We're comfortable with the 95/5 and don't plan to sell when there's a recession. I do like your re-balancing strategy though.

User avatar
Meg77
Posts: 2022
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX
Contact:

Re: Updates to our financial situation & a few questions..

Post by Meg77 » Wed May 17, 2017 2:37 pm

Does your stock allocation include any international exposure? If so you may want to consider adding some VTIAX to taxable. Holding international stocks in taxable accounts is beneficial so that you can take advantage of the foreign tax credit (and can allow for tax loss harvesting due to fluctuations in value, similar to VTSAX).
"An investment in knowledge pays the best interest." - Benjamin Franklin

bloom2708
Posts: 2555
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Updates to our financial situation & a few questions..

Post by bloom2708 » Wed May 17, 2017 2:47 pm

cbr shadow wrote:I appreciate the response - all good points. I wasn't aware of the CA Tax Exempt Bond Fund. How does this work if we move from California in the future? I can't imagine we'll be here more than 5 years, but you never know. At the point of moving out of the state would we want to switch to a different bond fund, or go back to "Plan A" (not having bonds in our taxable)? If that's the case I'd rather avoid it completely.

We're comfortable with the 95/5 and don't plan to sell when there's a recession. I do like your re-balancing strategy though.


If you moved from CA, you could switch to the Int-Term Tax-Exempt bond index that is not state tax-exempt. Other states like NY, PA, OH, NJ, MA have versions at Vanguard.

If you are 25%+, Total US Stocks and Total International stocks can go in taxable or tax-deferred. Total US Bond can go in tax-deferred. If needed, tax-exempt funds serve a valuable purpose in taxable (for some).

I think that our taxable money will be the first money spent when retirement comes (after cash), so being 100% stocks there may work when you are 10 or 20 years out, but what if you are 5 years out? That is when adjusting the AA in taxable down and the tax-deferred up to keep your goal asset allocation in place works well.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead | | Want to buy something? Watch this first: https://vimeo.com/41152287

cbr shadow
Posts: 175
Joined: Wed Jul 10, 2013 2:12 pm

Re: Updates to our financial situation & a few questions..

Post by cbr shadow » Wed May 17, 2017 3:10 pm

Meg77 wrote:Does your stock allocation include any international exposure? If so you may want to consider adding some VTIAX to taxable. Holding international stocks in taxable accounts is beneficial so that you can take advantage of the foreign tax credit (and can allow for tax loss harvesting due to fluctuations in value, similar to VTSAX).


No, my taxable doesn't have any international exposure. What percentage international is a good idea, assuming I already have VTSAX? So I have ~$55k in my taxable account right now (all VTSAX), and will be adding $110k more over the next 5-6 months.

bloom2708
Posts: 2555
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Updates to our financial situation & a few questions..

Post by bloom2708 » Wed May 17, 2017 3:16 pm

cbr shadow wrote:
No, my taxable doesn't have any international exposure. What percentage international is a good idea, assuming I already have VTSAX? So I have ~$55k in my taxable account right now (all VTSAX), and will be adding $110k more over the next 5-6 months.


This is one of those variable items. I do 20% International (VTIAX). 20% to 50% are the widely accepted ranges. There is a subset that stays at 0% International. That would bring the "acceptable" range from 0% to 50%. How do you pick? Good question. Read the different threads about this. Split the difference and go with 25% or 30%?

So of the 95% stocks, US would be 71% and International would be 24% of your stocks (using 25% International).
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead | | Want to buy something? Watch this first: https://vimeo.com/41152287

Finance-MD
Posts: 304
Joined: Sun Mar 26, 2017 9:27 am

Re: Updates to our financial situation & a few questions..

Post by Finance-MD » Wed May 17, 2017 4:44 pm

cbr shadow wrote:
Finance-MD wrote:looks good.
if you do DCA, what will you invest the rest of it while waiting? high-yield savings?

you can use a target date account and adjust bond allocation.
but if you are going to have so much VTSAX, why not just buy the components (US TSM, Total Int'l, Total Bond) and adjust the bond allocation directly?
once you get so much VTSAX, you may not be able to get your bond allocation high enough with target date.


Thanks for the response.
While DCA'ing I was planning on keeping the money in our checking account since it's only there (in decreasing amounts) for 5 months. Think it's worth opening a high-yield savings for this? We keep $20k in our checking account at all times, but only really need $6-7k in there for regular expenses, rent, etc.. the rest is for "emergencies", I guess. Maybe it makes sense to put some of that $20k in the high-yield savings account too?

Our monthly transactions will go down now that we don't have a mortgage or any rental income/expenses, which makes things simpler.


Do you have an Emergency Fund? Many BH's put their EF in a High Yield account like Ally, or Cap One 360 or Cap One Money Market.
$100k is a good chunk of cash, even at 1% annual, that's $83/month. Yes, it'll go down per month, but it could still be like $250. You can open a Cap One Money Market account or Ally Savings account in < 10 minutes. You can put this money in with your EF, and just take out the $20k per month. You won't get penalized if you limit your withdrawals from these accounts to 5 or 6 per month. It's not a lot of time to make such an account, but it adds another account to keep track of. I don't know how much you keep in checking, but a 3-6 month EF in a general checking account is a lot to keep there. Even people who try to simplify/minimize accounts have 1 checking and 1 savings. if your savings is super low yield at big bank, you may want to consider switching both accounts to Cap One or just having a savings account outside of your checking account bank.

cbr shadow
Posts: 175
Joined: Wed Jul 10, 2013 2:12 pm

Re: Updates to our financial situation & a few questions..

Post by cbr shadow » Wed May 17, 2017 6:52 pm

Finance-MD wrote:
cbr shadow wrote:
Finance-MD wrote:looks good.
if you do DCA, what will you invest the rest of it while waiting? high-yield savings?

you can use a target date account and adjust bond allocation.
but if you are going to have so much VTSAX, why not just buy the components (US TSM, Total Int'l, Total Bond) and adjust the bond allocation directly?
once you get so much VTSAX, you may not be able to get your bond allocation high enough with target date.


Thanks for the response.
While DCA'ing I was planning on keeping the money in our checking account since it's only there (in decreasing amounts) for 5 months. Think it's worth opening a high-yield savings for this? We keep $20k in our checking account at all times, but only really need $6-7k in there for regular expenses, rent, etc.. the rest is for "emergencies", I guess. Maybe it makes sense to put some of that $20k in the high-yield savings account too?

Our monthly transactions will go down now that we don't have a mortgage or any rental income/expenses, which makes things simpler.


Do you have an Emergency Fund? Many BH's put their EF in a High Yield account like Ally, or Cap One 360 or Cap One Money Market.
$100k is a good chunk of cash, even at 1% annual, that's $83/month. Yes, it'll go down per month, but it could still be like $250. You can open a Cap One Money Market account or Ally Savings account in < 10 minutes. You can put this money in with your EF, and just take out the $20k per month. You won't get penalized if you limit your withdrawals from these accounts to 5 or 6 per month. It's not a lot of time to make such an account, but it adds another account to keep track of. I don't know how much you keep in checking, but a 3-6 month EF in a general checking account is a lot to keep there. Even people who try to simplify/minimize accounts have 1 checking and 1 savings. if your savings is super low yield at big bank, you may want to consider switching both accounts to Cap One or just having a savings account outside of your checking account bank.


Yes our emergency fund is just a short term one, which is kept in the checking account. I dont see any point in keeping a huge emergency fund. We don't own a house, have good insurance, and about $100k in credit card space and both have reasonably stable jobs. If I open a savings account we would have $100k+ in there for a bit, then within 5 months we'd always only have $10-15k in there, and $10k in our checking account. I'm debating if it's worth having the savings at that point.

Finance-MD
Posts: 304
Joined: Sun Mar 26, 2017 9:27 am

Re: Updates to our financial situation & a few questions..

Post by Finance-MD » Wed May 17, 2017 7:08 pm

I think $20k-$25k is a lot to keep in a regular checking account...

this thread discusses what other people do
viewtopic.php?t=109250

it's not hard to open a savings account. it can be done online quickly. The interest adds up. Keeping it in checking with low interest gives banks lots of money to invest with your cash. Even at 1% interest, they are still making money off your money.

User avatar
Meg77
Posts: 2022
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX
Contact:

Re: Updates to our financial situation & a few questions..

Post by Meg77 » Thu May 18, 2017 10:08 am

cbr shadow wrote:
Meg77 wrote:Does your stock allocation include any international exposure? If so you may want to consider adding some VTIAX to taxable. Holding international stocks in taxable accounts is beneficial so that you can take advantage of the foreign tax credit (and can allow for tax loss harvesting due to fluctuations in value, similar to VTSAX).


No, my taxable doesn't have any international exposure. What percentage international is a good idea, assuming I already have VTSAX? So I have ~$55k in my taxable account right now (all VTSAX), and will be adding $110k more over the next 5-6 months.


There are a lot of threads you can search on whether you should have international exposure and how much is appropriate/recommended. Personally I keep about 20% of my stock allocation in international stocks (I'm in my 30s).
"An investment in knowledge pays the best interest." - Benjamin Franklin

Grt2bOutdoors
Posts: 16793
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Updates to our financial situation & a few questions..

Post by Grt2bOutdoors » Thu May 18, 2017 12:20 pm

Meg77 wrote:
cbr shadow wrote:
Meg77 wrote:Does your stock allocation include any international exposure? If so you may want to consider adding some VTIAX to taxable. Holding international stocks in taxable accounts is beneficial so that you can take advantage of the foreign tax credit (and can allow for tax loss harvesting due to fluctuations in value, similar to VTSAX).


No, my taxable doesn't have any international exposure. What percentage international is a good idea, assuming I already have VTSAX? So I have ~$55k in my taxable account right now (all VTSAX), and will be adding $110k more over the next 5-6 months.


There are a lot of threads you can search on whether you should have international exposure and how much is appropriate/recommended. Personally I keep about 20% of my stock allocation in international stocks (I'm in my 30s).


Vanguard advocates holding 40% in International. The suggested amounts are a minimum of 20%, maximum 40%. I hold 35% in international, but 30% is a good middle ground to start with.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

imperio
Posts: 83
Joined: Mon May 08, 2017 4:48 pm

Re: Updates to our financial situation & a few questions..

Post by imperio » Thu May 18, 2017 12:32 pm

cbr shadow wrote:
Finance-MD wrote:looks good.
if you do DCA, what will you invest the rest of it while waiting? high-yield savings?

you can use a target date account and adjust bond allocation.
but if you are going to have so much VTSAX, why not just buy the components (US TSM, Total Int'l, Total Bond) and adjust the bond allocation directly?
once you get so much VTSAX, you may not be able to get your bond allocation high enough with target date.


Thanks for the response.
While DCA'ing I was planning on keeping the money in our checking account since it's only there (in decreasing amounts) for 5 months. Think it's worth opening a high-yield savings for this? We keep $20k in our checking account at all times, but only really need $6-7k in there for regular expenses, rent, etc.. the rest is for "emergencies", I guess. Maybe it makes sense to put some of that $20k in the high-yield savings account too?

Our monthly transactions will go down now that we don't have a mortgage or any rental income/expenses, which makes things simpler.

Discover and Cap One MMA offer 1% interest rates. To transfer out from those accounts would take a few days (usually within 4-5 days). I would try to think of "emergencies" which could not wait 4-5 days and was cash only (unable to use credit card). If none, I would stash the cash in one of those 2 accounts.

cbr shadow
Posts: 175
Joined: Wed Jul 10, 2013 2:12 pm

Re: Updates to our financial situation & a few questions..

Post by cbr shadow » Fri May 19, 2017 12:05 pm

imperio wrote:
cbr shadow wrote:
Finance-MD wrote:looks good.
if you do DCA, what will you invest the rest of it while waiting? high-yield savings?

you can use a target date account and adjust bond allocation.
but if you are going to have so much VTSAX, why not just buy the components (US TSM, Total Int'l, Total Bond) and adjust the bond allocation directly?
once you get so much VTSAX, you may not be able to get your bond allocation high enough with target date.


Thanks for the response.
While DCA'ing I was planning on keeping the money in our checking account since it's only there (in decreasing amounts) for 5 months. Think it's worth opening a high-yield savings for this? We keep $20k in our checking account at all times, but only really need $6-7k in there for regular expenses, rent, etc.. the rest is for "emergencies", I guess. Maybe it makes sense to put some of that $20k in the high-yield savings account too?

Our monthly transactions will go down now that we don't have a mortgage or any rental income/expenses, which makes things simpler.

Discover and Cap One MMA offer 1% interest rates. To transfer out from those accounts would take a few days (usually within 4-5 days). I would try to think of "emergencies" which could not wait 4-5 days and was cash only (unable to use credit card). If none, I would stash the cash in one of those 2 accounts.


All good points everyone, thank you.
$20-25k does seem like a lot to have in a checking account. I think based on points brought up in this thread that we will open an Ally savings account.
I can't think of a single emergency that could possibly come up which would require immediate money (over $5-7k) and only cash (no CC), especially since we'll no longer own a house, have cheaper economy (but reliable) cars, no kids, no expensive drug habits.. haha

Post Reply