In my 30s with extra 30K - Opinion about portfolio

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Curious_Investor
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In my 30s with extra 30K - Opinion about portfolio

Post by Curious_Investor » Sun Jul 16, 2017 10:16 pm

Hi all,

I've been a silent reader of this forum for the last year and learned a lot. Read "The Bogleheads' Guide to Investing" and plan to re-read it again.
With that, I still feel very insecure when it comes to investing and would like a "second" opinion about my plan.

Some background - My wife and I are in our early 30th. We max out our 401ks and IRAs. We have zero debt (no car, no loan, no kids).
Currently, we have about 80K just laying in our Savings account. We spend about 8-9K a month (the rent is 3.5K - The rest is travel, food... and just fun). We don't plan for kids for at least few years.

So, with the fact that we spend 9K a month, we have about 30K (50K as an emergency fund - too much?) that we can invest.
I like the idea of "lazy investing" and specifically the "Core-Four Portfolio" structure.

After reading and testing that's what I came to -

Vanguard Total Stock Market ETF (VTI) - 50%
Vanguard Total International Stock ETF (VXUS) - 30%
Vanguard REIT ETF (VNQ) - 10%
Vanguard Total Bond Market ETF (BND) - 10%

I'm very tolerant to risk and I feel like 80-90% of stocks is fine while I plan to rebalance it once a year.
The money/investment is for our retirement, and I don't plan to pull this money earlier than our retirement.

What do you think? Are we keeping too much as an emergency fund? What about the portfolio?

Thank you!

mortfree
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by mortfree » Mon Jul 17, 2017 2:05 am

Given the info, I think your plan and EF are good. BND and the real estate fund in a taxable account may not be tax efficient though.

Alternate plan:
One thing to think about. You could also structure your EF in tiers and invest more.

30k savings account (tier 1) and 50k invested (tier 2).

goingup
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by goingup » Mon Jul 17, 2017 8:50 am

Open a taxable account. Use tax-efficient funds such as Total Stock Market and Total International Market. Keep REITs in an IRA. Hold bonds in a 401K . If you're in a high tax bracket and want to hold bonds in this taxable account, use muni bond funds.

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BolderBoy
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by BolderBoy » Mon Jul 17, 2017 9:20 am

Curious_Investor wrote:So, with the fact that we spend 9K a month, we have about 30K (50K as an emergency fund - too much?)
Maybe not enough. Unless there is a LOT of your spending that is superfluous.

Your EF is to cover necessities.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

bloom2708
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by bloom2708 » Mon Jul 17, 2017 10:29 am

You do not want Total Bond or REIT in your taxable account. Interest and Dividend income is 100% ordinary income taxed at your highest marginal rate.

Plan 1 would be to increase your bond holdings in the 401k/Roth and then use Total US + Total International in your taxable account.

Plan 2 (If 25% or higher marginal tax bracket) would be to use Intermediate-Term Tax-Exempt bonds in taxable in place of Total US Bond. If you live in CA, NY, NJ, PA, OH, Vanguard has state specific tax-exempt bond funds that are both Fed and State tax exempt. You could mix Int-Term with your state version of tax-exempt to balance.

REIT should be in your Roth. If you really want it, shift funds in your Roths to accommodate REIT.

Set your overall AA (80/20 or 70/30). Then use tax efficient placement to optimize your overall portfolio.

I think you could do a $50k Emergency Fund and invest (in taxable) your other $30k. Good luck!
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Curious_Investor
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by Curious_Investor » Mon Jul 17, 2017 1:08 pm

goingup wrote:Open a taxable account. Use tax-efficient funds such as Total Stock Market and Total International Market. Keep REITs in an IRA. Hold bonds in a 401K . If you're in a high tax bracket and want to hold bonds in this taxable account, use muni bond funds.
bloom2708 wrote:You do not want Total Bond or REIT in your taxable account. Interest and Dividend income is 100% ordinary income taxed at your highest marginal rate.
...
Plan 2 (If 25% or higher marginal tax bracket) would be to use Intermediate-Term Tax-Exempt bonds in taxable in place of Total US Bond. If you live in CA, NY, NJ, PA, OH, Vanguard has state specific tax-exempt bond funds that are both Fed and State tax exempt. You could mix Int-Term with your state version of tax-exempt to balance.
..
Set your overall AA (80/20 or 70/30). Then use tax efficient placement to optimize your overall portfolio.
Thank you!
So would you advise that for the taxable account I'll invest mostly in VTI and VXUS?
BolderBoy wrote:Maybe not enough. Unless there is a LOT of your spending that is superfluous
Yep, It is.

goingup
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by goingup » Mon Jul 17, 2017 1:24 pm

Curious_Investor wrote:
goingup wrote:Open a taxable account. Use tax-efficient funds such as Total Stock Market and Total International Market. Keep REITs in an IRA. Hold bonds in a 401K . If you're in a high tax bracket and want to hold bonds in this taxable account, use muni bond funds.
bloom2708 wrote:You do not want Total Bond or REIT in your taxable account. Interest and Dividend income is 100% ordinary income taxed at your highest marginal rate.
...
Plan 2 (If 25% or higher marginal tax bracket) would be to use Intermediate-Term Tax-Exempt bonds in taxable in place of Total US Bond. If you live in CA, NY, NJ, PA, OH, Vanguard has state specific tax-exempt bond funds that are both Fed and State tax exempt. You could mix Int-Term with your state version of tax-exempt to balance.
..
Set your overall AA (80/20 or 70/30). Then use tax efficient placement to optimize your overall portfolio.
Thank you!
So would you advise that for the taxable account I'll invest mostly in VTI and VXUS?
BolderBoy wrote:Maybe not enough. Unless there is a LOT of your spending that is superfluous
Yep, It is.
Yes, standard advice is to use those funds in taxable. Here is more info from the forum Wiki: https://www.bogleheads.org/wiki/Tax-eff ... _placement

bloom2708
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by bloom2708 » Mon Jul 17, 2017 1:26 pm

Curious_Investor wrote: Thank you!
So would you advise that for the taxable account I'll invest mostly in VTI and VXUS?
I think that is a fine strategy.

The one issue with only VTI and VXUS in taxable is that is 100% stocks. Taxable might/will be the first money spent, so I like to keep it in a similar AA with my overall AA. Others may not agree with that and say 100% stocks in taxable is just fine. Pick your mix of US to International. 70% US and 30% International is an example.

I use Int-Term Tax-Exempt in taxable. Yes, it is one more fund. But, I can rebalance with new taxable purchases. If stocks are high, I buy bonds in taxable.

Either plan is good.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

mega317
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by mega317 » Mon Jul 17, 2017 2:05 pm

I agree be careful with 100% stock in taxable in a smallish account. Just be sure if there is a major crash you will still have enough taxable dollars available. May not be as much of an issue if you are considering your emergency fund separately.
Curious_Investor wrote:
I'm very tolerant to risk
My opinion is that you don't really know this if you haven't had a lot of money on the line during a crash. Spend some real time, not 5 minutes, imagining how you would feel if you lost half of your entire life savings, and then it dropped a little more, then stayed down for a year... two years.... Imagine the news stories about how this crash is different and the reasons it won't recover. Maybe you have family members or a spouse pushing you to sell. It makes me a little anxious just thinking about thinking about it. I am pretty sure I wouldn't sell and my asset allocation reflects that, but i'm not very sure.

mortfree
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by mortfree » Mon Jul 17, 2017 3:54 pm

to the caution on 100% stocks...

the OP has 80k in cash.

Being advised to invest in VTI/VXUS and has allotted 30k for that investment... then there's still 50k in cash to fall back on.

If stocks drop 50%, OP is temporarily left with 15k invested, 50k in cash.

I think they'll be ok.

Curious_Investor
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Joined: Sun Jul 16, 2017 9:47 pm

Re: In my 30s with extra 30K - Opinion about portfolio

Post by Curious_Investor » Mon Jul 17, 2017 5:23 pm

mortfree wrote:to the caution on 100% stocks...

the OP has 80k in cash.

Being advised to invest in VTI/VXUS and has allotted 30k for that investment... then there's still 50k in cash to fall back on.

If stocks drop 50%, OP is temporarily left with 15k invested, 50k in cash.

I think they'll be ok.
Correct :)

I think I'll just go the very lazy way with
Vanguard Total Stock Market ETF (VTI) - 70%
Vanguard Total International Stock ETF (VXUS) - 30%

DC3509
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Re: In my 30s with extra 30K - Opinion about portfolio

Post by DC3509 » Mon Jul 17, 2017 5:48 pm

I just did something similar to this with my emergency fund.

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