$100K+ increase in salary- Need help with investments

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Idesire2FIRE
Posts: 5
Joined: Sun Jul 16, 2017 10:19 am

$100K+ increase in salary- Need help with investments

Post by Idesire2FIRE » Sun Jul 16, 2017 10:56 am

Our combined salary has increased by over $100K in the last 18 months. We started saving most of the extra income but need help streamlining the investments options in our accounts.
Emergency funds: 6+ months of expenses
Debt: mortgage-$210K - 15 YR @ 3.00%. $400K equity. Currently paying at 10YR rate by adding 2 extra payments ($4,300) per year split over 12 payments.
Tax Filing Status: Married Filing Jointly
Tax Rate: 33% Federal, 5.7% State
State of Residence: NC
Age: 39/38- 2 kids under 10
Desired Asset allocation: 70-85% stocks / 30-15% bonds
Desired International allocation: 20%
current total portfolio –800K- not including equity

Current retirement assets -Taxable -87% / Nontaxable-13%

HIS –ROTH IRA -13% (% of total portfolio)
4.0% -Fidelity Freedom Fun 2040 (0.78) – FFFFX
1.5% -Ishares Core S&P total US stock MKT (0.03) - ITOT
0.3%--Ishare Core S&P 500 (0.07) – IVV
1.0% -Ishare S&P mid-cap 400 value (0.12) –IJJ
0.6%-Ishare S&P mid-cap 400 growth (0.25)-IJK
0.6%-Ishare S&P small-cap 600 value (0.25)-IJS
0.8%-Vanguard FTSE emerging markets(0.27)-VWO
0.6%-Ishares Core –Foreign large blend (0.12)-IEFA
0.4%-Ishares Core MSCI–total international foreign (0.16)- IXUS
0.7%-Ishares Core High Dividend (0.12) - HDV

IRA-4%
0.4% -Fidelity Freedom Fun 2040 (0.78) – FFFFX
0.6%-Fidelity Export and Multinational (0.8) – FEXPX
0.5%--Ishares Core S&P 500 (0.07) – IVV
0.4% -Ishares Core S&P total US stock MKT (0.03) - ITOT
0.7%-Ishares Core High Dividend (0.12) - HDV
0.2%-Ishares Core MSCI Emerging Markets (0.18)- IEMG
0.3%-Ishares Core –Foreign large blend (0.12)-IEFA
0.2%-Ishares Core MSCI–total international foreign (0.16)- IXUS

401K-12%
4.0% -Schwab S&P 500 (0.03) – SWPPX
2.0% -Schwab Small Cap (0.05)- SWSSX
2.0% -Vanguard Mid Cap (0.06) – VIMAX
1.0% -Artisan Inernational Value (1.23) - ARTKX
0.7% Schwab International Index (0.06)- SWISX

HERS:
ROTH-10%
1.7%--Ishare Core S&P 500 (0.07) – IVV
0.5% -Ishare S&P mid-cap 400 value (0.12) –IJJ
0.6%-Ishare S&P small-cap 600 value (0.25)-IJS
1.3%-Is4ares Core S&P mid cap (0.12)-IJH
2.0%-Ishares Core –Foreign large blend (0.12)-IEFA
1.4%-Ishares Core MSCI–total international foreign (0.16)- IXUS

IRA-11%
1.6%-Vanguard total stock market – (0.05)-VTI
1.7%--Ishare Core S&P 500 (0.07) – IVV
0.9% -Ishare S&P mid-cap 400 value (0.12) –IJJ
0.8% -Ishare S&P mid-cap 400 growth (0.12) –IJK
0.1 -Ishare S&P mid-cap 400 blend (0.12) –IJH
0.1% -Ishare S&P small-cap 600 small (0.12) –IJR
1.2% -Ishare S&P small-cap 600 value (0.25) –IJS
0.7%-Vanguard FTSE emerging markets(0.27)-VWO
0.4%-Ishares Core MSCI Emerging Markets (0.18)- IEMG
0.5%-Ishares Core MSCI–total international foreign (0.16)- IXUS

401K-29%
14.5%-Principal Large Cap S&P 500 Index Separate Account (0.05%)
1.6%-Vanguard Equity-Income Adm Fund -VEIRX (0.17%)
4.9%-Principal Mid Cap S&P 400 Index Separate Account - Z (0.05%)
3.8%-Principal Small Cap S&P 600 Index Separate Account - Z(0.05%)
4.8%-American Funds EuroPacific Growth R6 Fund -RERGX (0.50%)

HSA Account-3%
0.3%-International
1.2%-Dividend -VDAIX
1.0%-mod growth- VSMGX
0.2%-Small Cap -VSMAX

Vanguard Brokerage- 10%
6.3% -Money Market - VMMXX (0.16)
1.4% -Vanguard High Dividend yield -VYM (0.08)
0.5% -Vanguard Total international Stock - VXUS (0.11)
1.2% -Vanguard Total Stock Market - VTI (0.04)


14% CASH held in investment accounts

New annual contributions
$18K -his 401k (50% of 1st 6%)
$18K -her 401k (50% of the 1st 4%)
$0K -Roth IRA – not eligible to contribute
$6,750 HSA
529-$12K
$70K-90K Vanguard brokerage account -based on commissions

Questions:
-Annual household budget= $60,000 / Goal FI in 8 years. $12K/YR in child care for 3 more years.
-Should we stop overpaying mortgage and direct it to the Vanguard brokerage account?
-We may want to consolidate into the 3 fund mix in all accounts, however not sure best way to do that. Sell all funds at one time and then buy the 3 funds the next day?
-Set up Solo 401K from small consulting business that we are considering creating, roll over both IRA into this and then do backdoor ROTH. Is it worth the extra paperwork? Fees on wife’s 401K are too high to consolidate but fees on husband’s 401K are lower at schwab.
-Shift cash into bond funds?

Appreciate all comments and suggestions.
Idesire2FIRE

UPDATED info:
Her-401K options (annual plan admin expense is 0.42%)
-Morley Capital Management-Principal Stable Value Z Fund (0.42%)
-DoubleLine Capital-Double Line Total Return Bond Institutional Fund - (0.47%)
-Franklin Templeton-Templeton Global Bond R6 Fund (0.58%)
-PIMCO Income Institutional Fund (0.45%)
-American funds American Balanced R6 Fund (0.29%)
-Vanguard Wellesley Income Admiral Fund (VWIAX) - (0.15%)
-Principal LifeTime Hybrid Income CIT Z (0.35%)
-Principal SAM Strategic Growth Separate Account (0.64%)
-Dodge and Cox Stock Fund - DODGX (0.52%)
-Principal Large Cap S&P 500 Index Separate Account (0.05%)
-T rowe price blue chip growth I fund - TBCIX (0.58%)
-Vanguard Equity-Income Adm Fund -VEIRX (0.17%)
-Principal Mid Cap S&P 400 Index Separate Account - Z (0.05%)
-Principal Small Cap S&P 600 Index Separate Account - Z(0.05%)
-Vanguard Explorer Admiral Fund -VEXRX (0.34%)
-American Funds EuroPacific Growth R6 Fund -RERGX (0.50%)
-American Funds New Perspective R6 Fund -RNPGX (0.45%)
-American Funds New World R6 Fund - RNWGX (0.65%)
-American Funds Small Cap World R6 Fund - RLLGX - (0.71%)

HIS 401K (annual plan admin expense is 0.0%)
Manning & Napier Pro-Blend Conservative Term Series Class S - EXDAX (0.90%)
Manning & Napier Pro-Blend Maximum Term Series Class S - EXHAX (1.09%)
Harbor Capital Appreciation Fund Administrative Class - HRCAX (0.95%)
Schwab S&P 500 Index Fund - SWPPX (0.03%)
T Rowe Price Equity Income Fund Adviser Class (PAFDX) -(0.694%)
Vanguard Mid Cap Index Fund Admiral Shares -VIMAX (0.06%)
Schwab Small Cap Index Fund - SWSSX (0.05%)
American Funds Europacific growth R5 - RERFX (0.54%)
Artisan International Value Fund Investor Class - ARTKX (1.23%)
Franklin Mutual Global Discovery Fund Class Z - MDISX (0.99%)
Oppenheimer Developing Markets Fund Class Y - ODVYX (1.07%)
Schwab International Index Fund - SWISX (0.06%)
Oakmark Equity and Income Fund Investor Class - OAKBX (0.89%)
T Rowe Price retirement balanced fund- TRRIX (0.57%)
PIMCO total return fund institutional class - PTTRX (0.47%)
Galliard Retirement Income Fund Fee Class F35- WGI35 (0.65%)
Last edited by Idesire2FIRE on Tue Jul 18, 2017 12:28 pm, edited 3 times in total.

b42
Posts: 184
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Re: $100K+ increase in salary- Need help with investments

Post by b42 » Sun Jul 16, 2017 11:59 am

Welcome to the forums!

I'm betting you have already seen this, but there is a great wiki article on the 3-fund portfolio here:
https://www.bogleheads.org/wiki/Three-fund_portfolio

To get more responses, you may want to reformat your fund holdings since there are many, and most do not know fund names by the ticker (it would take quite some time to google every single one). Something like the below would be helpful:

13% - Roth IRA
30% Fidelity Freedom 2040 Fund (0.78%) - FFFFX
etc.

Also, you may wan to change the percentage for each fund within the accounts to a percentage of the overall portfolio. It's better to think all all the funds and accounts as part of one portfolio . You can then overweight certain funds in tax-advantaged accounts without losing diversification.

The most helpful step will be to slowly consolidate some of the smaller holdings. I would start with the tax-advantaged accounts first since they would not trigger a taxable event.

As long as you have an adequate emergency fund, I would start converting the cash holdings into bond or stock funds according to your asset allocation.

Idesire2FIRE
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Joined: Sun Jul 16, 2017 10:19 am

Re: $100K+ increase in salary- Need help with investments

Post by Idesire2FIRE » Sun Jul 16, 2017 12:08 pm

b42- I will update the post with your suggestions. Thank you!

Afty
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Re: $100K+ increase in salary- Need help with investments

Post by Afty » Sun Jul 16, 2017 4:23 pm

One thing I noticed: you're not contributing to your Roth IRAs because of the income limit. Consider using the backdoor Roth technique to get around this. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

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Tyler Aspect
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Re: $100K+ increase in salary- Need help with investments

Post by Tyler Aspect » Sun Jul 16, 2017 7:32 pm

Can you add the two 401k accounts' bond fund options and expense ratios? Thanks.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

Idesire2FIRE
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Joined: Sun Jul 16, 2017 10:19 am

Re: $100K+ increase in salary- Need help with investments

Post by Idesire2FIRE » Tue Jul 18, 2017 6:09 am

Post updated- Thank you for your help!

lazydavid
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Re: $100K+ increase in salary- Need help with investments

Post by lazydavid » Tue Jul 18, 2017 8:26 am

Afty wrote:One thing I noticed: you're not contributing to your Roth IRAs because of the income limit. Consider using the backdoor Roth technique to get around this. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
They have two tIRAs, with current balances of approximately $32k and $88k respectively. Doing a backdoor Roth will result in most of the conversion having taxes paid twice due to the pro rata rule. Better to just put it into taxable, unless they can/want to roll their tIRAs into their employer's 401k programs.

GMT-8
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Re: $100K+ increase in salary- Need help with investments

Post by GMT-8 » Tue Jul 18, 2017 8:36 am

Congratulations on your raises and new prosperity.

One of the good things about the format for displaying your portfolio and asking for help is that we can all see when our distribution of funds has slightly / greatly / ridiculously gone overboard. Only you can choose the correct term for your portfolio, but I would suggest there is more complexity in your accounts than necessary or desirable.

As suggested before, you may want to thin out the IRAs first (with no tax consequences) so no holding is less than 5% of your total investment portfolio. Using 5% as a convenient size, that implies you could eventually have as many as 20 different investments (spread across your various accounts) which is still a bit too much (in my opinion).

How do you start?

I'm in favor of an arbitrary trimming strategy combined with self-education. What do I mean? In my estimation, few of us have the brain cells required to track all those funds and evaluate rationally which ones to save or keep. So for example, say you arbitrarily sell everything with a expense ratio higher than .15. That means you will get rid of these 8 funds, most of which are held in more than one place in your portfolio, and no one is more than 5%:

FFFFK
IJK
IJS
VWO
ARTKX
IXUS
IEMG
Vanguard Equity

By my calculations those 8 when combined equal about 15% or $120,000. Put the money into other existing holdings in proportion to your desired allocation. Take a deep breath, wait a month, see how you are doing and make another pass at it. Keep working on it until you are down under a dozen funds. Then you can decide how (or if) you go to three.

There is an aversion to paying taxes on this site, and a reluctance to pay fees, but don't let that stop you if you want to move ahead. You will save on the decreased expense ratios, and you will thank yourself later.

Best of luck.

GMT-8

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ruralavalon
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Re: $100K+ increase in salary- Need help with investments

Post by ruralavalon » Tue Jul 18, 2017 9:51 am

Duplicate post deleted.
Last edited by ruralavalon on Tue Jul 18, 2017 10:36 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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ruralavalon
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Re: $100K+ increase in salary- Need help with investments

Post by ruralavalon » Tue Jul 18, 2017 9:56 am

Welcome to the forum :) .

Congratulations on your salary increases, that is awesome.

In my opinion an assent allocation around 70/30 or 75/25 stocks/bonds is within the range of what is reasonable at ages 38 and 39. In my opinion 20% of stocks in international stocks is within the range of what is reasonable.

In the 401ks either PIMCO Total Return Institutional ER 0.45-0.47% or DoubleLine Total Return Institutional ER 0.47% would be a good bond fund to use.

Do the 401ks offer any total stock market index fund? What is the "Vanguard Equity" fund being used in her 401k? What is the "International" fund being used in her 401k? Does her 401k offer any total international stock index fund? What are the international stock funds offered in her 401k with the lowest expense ratios? Please always give the fund names, tickers and expense ratios.

I don't understand why you say that her 401k has high expenses, the funds she is now using have expense ratios of 0.05-0.17%%. Are there additional fees of some kind charged?

In the taxable account what is the unrealized capital gain/loss status in the S&P 500 fund and the High Dividend Yield (VYM) fund?

You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.
Last edited by ruralavalon on Tue Jul 18, 2017 11:37 am, edited 1 time in total.
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123
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Re: $100K+ increase in salary- Need help with investments

Post by 123 » Tue Jul 18, 2017 11:28 am

How much time do you plan to set aside to re-balance your current account portfolios? Looks very tedious to me. I would consider all your accounts as one portfolio and have the small accounts include a single holding and then use the larger account(s) for re-balancing. The 3 fund portfolio is a winner, take a look at it. They way you have sliced and diced each account with multiple funds looks like you're trying to make it look like it was done by a financial adviser who had nothing better to do.
The closest helping hand is at the end of your own arm.

Afty
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Re: $100K+ increase in salary- Need help with investments

Post by Afty » Tue Jul 18, 2017 11:32 am

lazydavid wrote:
Afty wrote:One thing I noticed: you're not contributing to your Roth IRAs because of the income limit. Consider using the backdoor Roth technique to get around this. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
They have two tIRAs, with current balances of approximately $32k and $88k respectively. Doing a backdoor Roth will result in most of the conversion having taxes paid twice due to the pro rata rule. Better to just put it into taxable, unless they can/want to roll their tIRAs into their employer's 401k programs.
Good point. They could roll their TIRAs into their 401ks, then they could avoid the tax issue.

Idesire2FIRE
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Re: $100K+ increase in salary- Need help with investments

Post by Idesire2FIRE » Tue Jul 18, 2017 12:41 pm

123 wrote:How much time do you plan to set aside to re-balance your current account portfolios? Looks very tedious to me. I would consider all your accounts as one portfolio and have the small accounts include a single holding and then use the larger account(s) for re-balancing. The 3 fund portfolio is a winner, take a look at it. They way you have sliced and diced each account with multiple funds looks like you're trying to make it look like it was done by a financial adviser who had nothing better to do.
-So true! Got burned by a financial adviser in my early 20s. Tried to figure it out as I went after that experience. I went way overboard. I discovered Bogleheads and you all are throwing me the rope so I can pull us up on the 3 fund boat!

Idesire2FIRE
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Re: $100K+ increase in salary- Need help with investments

Post by Idesire2FIRE » Tue Jul 18, 2017 12:42 pm

Afty wrote:
lazydavid wrote:
Afty wrote:One thing I noticed: you're not contributing to your Roth IRAs because of the income limit. Consider using the backdoor Roth technique to get around this. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
They have two tIRAs, with current balances of approximately $32k and $88k respectively. Doing a backdoor Roth will result in most of the conversion having taxes paid twice due to the pro rata rule. Better to just put it into taxable, unless they can/want to roll their tIRAs into their employer's 401k programs.
Good point. They could roll their TIRAs into their 401ks, then they could avoid the tax issue.
Yes- this is an issue. Since there is no plan fee on husband's 401K- will look into rolling tIRA into his 401K. My 401K has a plan admin fee of 0.42% - thoughts on rolling my t401k into 401K with the fee to be able to do the backdoor ROTH?

EddyB
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Re: $100K+ increase in salary- Need help with investments

Post by EddyB » Tue Jul 18, 2017 1:08 pm

Afty wrote:
lazydavid wrote:
Afty wrote:One thing I noticed: you're not contributing to your Roth IRAs because of the income limit. Consider using the backdoor Roth technique to get around this. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA
They have two tIRAs, with current balances of approximately $32k and $88k respectively. Doing a backdoor Roth will result in most of the conversion having taxes paid twice due to the pro rata rule. Better to just put it into taxable, unless they can/want to roll their tIRAs into their employer's 401k programs.
Good point. They could roll their TIRAs into their 401ks, then they could avoid the tax issue.
Even if they can't do that why would they be paying taxes twice? Either the initial tIRA contributions were deductible, and the conversion would be the first taxable event, or they were non-deductible, and the conversion of the portion of the iIRA representing the contributions wouldn't be taxed, right?

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Tyler Aspect
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Re: $100K+ increase in salary- Need help with investments

Post by Tyler Aspect » Sun Jul 23, 2017 11:20 pm

Idesire2FIRE wrote:Our combined salary has increased by over $100K in the last 18 months. We started saving most of the extra income but need help streamlining the investments options in our accounts.
Emergency funds: 6+ months of expenses
Debt: mortgage-$210K - 15 YR @ 3.00%. $400K equity. Currently paying at 10YR rate by adding 2 extra payments ($4,300) per year split over 12 payments.
Tax Filing Status: Married Filing Jointly
Tax Rate: 33% Federal, 5.7% State
State of Residence: NC
Age: 39/38- 2 kids under 10
Desired Asset allocation: 70-85% stocks / 30-15% bonds
Desired International allocation: 20%
current total portfolio –800K- not including equity

Current retirement assets -Taxable -87% / Nontaxable-13%

HIS –ROTH IRA -13% (% of total portfolio)
4% IEFA
9% AGG


IRA-4%
4% AGG

401K-12%
12% Schwab S&P 500


HERS:
ROTH-10%
10% IEFA

IRA-11%
11% AGG

401K-29%
10% Wellesley Income
19% Principal Large Cap S&P 500 Index


HSA Account-3%
0.3%-International
1.2%-Dividend -VDAIX
1.0%-mod growth- VSMGX
0.2%-Small Cap -VSMAX

Vanguard Brokerage- 10%
6.3% -Money Market - VMMXX (0.16)
1.4% -Vanguard High Dividend yield -VYM (0.08)
0.5% -Vanguard Total international Stock - VXUS (0.11)
1.2% -Vanguard Total Stock Market - VTI (0.04)


14% CASH held in investment accounts
14% cash to VTI

Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

masteraleph
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Re: $100K+ increase in salary- Need help with investments

Post by masteraleph » Mon Jul 24, 2017 12:21 am

EddyB wrote: Even if they can't do that why would they be paying taxes twice? Either the initial tIRA contributions were deductible, and the conversion would be the first taxable event, or they were non-deductible, and the conversion of the portion of the iIRA representing the contributions wouldn't be taxed, right?
It's more being taxed twice up front and then not again later. That is, presuming the initial contributions were deductible, and they're putting in $5500 tomorrow to do a backdoor Roth:

1) They're paying taxes on the new contribution's money, because it's non-deductible income.
2) Then they do a conversion, and pay nearly the same tax again because 90%+ of the money in their tIRA is deductible.
3) A small portion of their tIRA will now be nondeductible, but the gains will be taxable.

Whereas if they can roll the money into a 401k, they pay:

1) Taxes on the new contribution's money, which is then rolled into a Roth IRA tax free.
2) Tax on the money they rolled into the 401k 25 or 30 years down the road.

In theory, if they're in the same tax bracket at retirement as they will be in now, it doesn't make a real difference (this sort of presumes instantaneous conversion of all the money- in practice, big gains soon could mean higher taxes, because the nondeductible pro-rata portion still suffers taxes on the gains). But in practice, you're likely to be in a lower bracket at retirement, and you won't convert all the IRA money immediately, so you'd potentially be overpaying taxes now to save on lower taxes later.

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