Portfolio Checkup - Major Life Event

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2Birds1Stone
Posts: 343
Joined: Wed Nov 19, 2014 10:33 pm
Location: New York

Portfolio Checkup - Major Life Event

Post by 2Birds1Stone » Thu Aug 10, 2017 10:47 am

Good Morning Fellow BH's

Until this point in my life, I have always viewed my finances as my own. We are now committed to marriage within the next few years and as a result I want to start thinking about our investments as one portfolio moving forward.

Emergency fund: 2.5 years (earning 1-1.5% interest)
Her Debt: $4.5k student loan @ 6%, $1.5k car loan @ 0%
His Debt: None
Tax Filing Status: Single (for now)
Her Tax Rate: 25% Federal, 6.45% State
His Tax Rate: 28% Federal, 6.65% State
State of Residence: NY
Age: 30/26
Desired Asset allocation: 70% Stocks/ 20% Bonds/ 5% Precious Metals/ 5% Cash
Desired International allocation: 30% of stocks
Portfolio Size: $262k

His Taxable (19.7%)
10.0% Total Stock
6.9% Total Int Stock
2.8% Fed Money Market

His 401k (29.2%)

17.5% Total Stock
3.1% Total Int Stock
6.6% Total Bond
2.0% Fed Money Market

Her 401k (9.1%)
9.1% Total Stock

His Roth IRA (17.5%)
6.6% Total Bond
3.8% Total Stock
7.1% Total Int Stock

Her Roth IRA (9.4%)
1.0% Total Bond
7.5% Total Stock
.9% Total Int Stock

His Precious Metals (10.6%)
6.5% Physical Silver
4.1% Physical Gold

His HSA (4.5%)
4.5% Fed Money Market

Total Fees across portfolio .11% according to Personal Capital. All Total Stock/ Total Bond / Total Int Stock are Vanguard Admiral or Institutional shares were available. Investor class elsewhere.

Current Combined AA - 47.9% Total Stock, 18% Total International Stock, 14.2% Bond, 10.6% Precious Metals, 9.3% Cash

New annual Contributions
$18,000 - His 401k
$18,000 - Her 401k
$5,500 - His Roth IRA
$5,500 - Her Roth IRA
$6,650 - His HSA
$6,000/yr Taxable
~$60,000/yr in new contributions

Background
The elephant in the room for many BH's will be the heavy emergency fund. Our incomes are very unstable due to our field (commissioned sales). With low base salaries, low job security, and no degrees, we are much more comfortable with the rest of our investments thanks to a large EF. The EF is sitting in 1.2% APY account and a 2.2% 60 month CD.

Our combined W-2 income in any year can vary from as little as $100k to over $200k. We may not be able to contribute $60k to our investments if we have a slow year.

Questions:
1. I guess what I would really appreciate is a once over to make sure I am getting on the right track. I made some stupid investment mistakes over my first 4 years of investing and I am still recovering from them. I consolidated a lot of my old funds/stocks/etf's into primarily vanguard ones.

2.I plan on getting to my goal allocation through new contributions. It will take at least 2-3 years to add enough bonds/equities to offset the heavy cash and precious metals position.

3. In terms of marriage, other than tax planning MFJ vs. Single, are there any other implications/considerations from an investment standpoint?

3. Any and all suggestions/feedback are welcome.

:sharebeer

asif408
Posts: 1013
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Portfolio Checkup - Major Life Event

Post by asif408 » Thu Aug 10, 2017 11:06 am

I think you have a pretty good plan. It's looks like you could potentially hold fewer funds across each account by consolidating. For example, your Roth could be all bonds, then you could remove the other small bond holdings elsewhere. Here is some more info on doing that: https://www.bogleheads.org/wiki/Asset_a ... e_accounts

I'm also not a big fan of holding precious metals, and would suggest if you want some exposure to use a precious metals equity fund instead, but it's not the end of the world. I just don't think actual precious metals holdings bring much more than some emotional comfort to a portfolio. At least with equities you can rebalance in and out and potentially get a boost in your return.

Here is an example to simplify:

His Taxable (19.7%)
19.7% Total Stock

His 401k (29.2%)
29.2% Total Stock

Her 401k (9.1%)
9.1% Total Int Stock

His Roth IRA (17.5%)
17.5% Total Bond

Her Roth IRA (9.4%)
9.4% Total Int Stock

His Precious Metals (10.6%)
10.6% Precious Metals fund

His HSA (4.5%)
4.5% Fed Money Market


Just a suggestion.

retiredjg
Posts: 29719
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Checkup - Major Life Event

Post by retiredjg » Thu Aug 10, 2017 1:31 pm

This is not what you want to hear, but I believe you should each run separate and equal (if desired) portfolios until the marriage actually happens. Putting a greater stock or bond percentage in one of the other could make things unfair in the case of a breakup or death of one committed but unmarried partner.

And you may have done that - but since the percentages all add up to 100, it is not obvious.

2Birds1Stone
Posts: 343
Joined: Wed Nov 19, 2014 10:33 pm
Location: New York

Re: Portfolio Checkup - Major Life Event

Post by 2Birds1Stone » Thu Aug 10, 2017 8:50 pm

Thank you Asif, that makes sense from a simplification standpoint, but I can see retiredjg's point as well.

In terms of fund placement, I believe I am as tax efficient as possible. I am also not missing out on Admiral shares due to too many slices within an account.

I have a follow up question of sorts.

What do you folks recommend in terms of prenup?

I am bringing in ~4-5X NW and most likely around 1.5-2X earnings. While I understand that post marital assets are joint, premarital should be protected. That being said, how does one protect a retirement account when any 401k contributions after marriage are going to be commingled with premarital funds?

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Watty
Posts: 10914
Joined: Wed Oct 10, 2007 3:55 pm

Re: Portfolio Checkup - Major Life Event

Post by Watty » Thu Aug 10, 2017 10:19 pm

2Birds1Stone wrote:2.I plan on getting to my goal allocation through new contributions. It will take at least 2-3 years to add enough bonds/equities to offset the heavy cash and precious metals position.
There are not any tax issues with rebalancing within the retirement accounts so you should set it to your desired asset allocation ASAP.

When looking at your asset allocation I would consider your emergency money as being seperate
2Birds1Stone wrote:Her Debt: $4.5k student loan @ 6%,
At 6% I would go on and pay it off right away.
2Birds1Stone wrote:3. In terms of marriage, other than tax planning MFJ vs. Single, are there any other implications/considerations from an investment standpoint?
Once you are married with two incomes there may be less need for the large emergency fund since even if one person has a bad year or gets laid off the other person would still have income. Either by design or a dire emergency you can also use the Roths as emergency funds.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

Once you are married you should be sure to update the beneficiary on your retirement accounts. An updated will would be good to have but along with the will there are usually a half dozen different related forms like medical directives and that may be even more important for you.

You should also update your car and home/renters insurance with your spouses information.

WoodSpinner
Posts: 217
Joined: Mon Feb 27, 2017 1:15 pm

Re: Portfolio Checkup - Major Life Event

Post by WoodSpinner » Thu Aug 10, 2017 10:38 pm

asif408 wrote:I think you have a pretty good plan. It's looks like you could potentially hold fewer funds across each account by consolidating. For example, your Roth could be all bonds, then you could remove the other small bond holdings elsewhere. Here is some more info on doing that: https://www.bogleheads.org/wiki/Asset_a ... e_accounts

I'm also not a big fan of holding precious metals, and would suggest if you want some exposure to use a precious metals equity fund instead, but it's not the end of the world. I just don't think actual precious metals holdings bring much more than some emotional comfort to a portfolio. At least with equities you can rebalance in and out and potentially get a boost in your return.

Here is an example to simplify:

His Taxable (19.7%)
19.7% Total Stock

His 401k (29.2%)
29.2% Total Stock

Her 401k (9.1%)
9.1% Total Int Stock

His Roth IRA (17.5%)
17.5% Total Bond
Small quibble--probably best to hold the bonds in the 401k and stock in the Roth]

Her Roth IRA (9.4%)
9.4% Total Int Stock

His Precious Metals (10.6%)
10.6% Precious Metals fund

His HSA (4.5%)
4.5% Fed Money Market


Just a suggestion.

aristotelian
Posts: 2334
Joined: Wed Jan 11, 2017 8:05 pm

Re: Portfolio Checkup - Major Life Event

Post by aristotelian » Thu Aug 10, 2017 11:02 pm

I would not bother with a pre-nup. No offense, we are not talking about millions of dollars here, and she is bringing her own pre-martial assets. Just doesn't seem worth it to bring lawyers into it.

One thing you should think about as the breadwinner is getting good term life insurance.

I would go ahead and pay off her student loan immediately.

LeeMKE
Posts: 1538
Joined: Mon Oct 14, 2013 9:40 pm

Re: Portfolio Checkup - Major Life Event

Post by LeeMKE » Thu Aug 10, 2017 11:53 pm

+1 aristotelian

A pre-nup isn't needed IMHO at this point. You have more assets, but with your current plan, that difference will fade fast in the early years of your marriage, and the two of you are well matched for future earnings at the moment. If you are discussing having children, she might need a prenup to cover her if she takes time off to have and raise your children.
The mightiest Oak is just a nut who stayed the course.

Imbros
Posts: 178
Joined: Mon Jan 23, 2012 11:41 pm
Location: Wisconsin

Re: Portfolio Checkup - Major Life Event

Post by Imbros » Fri Aug 11, 2017 8:34 am

Questions:
1. I guess what I would really appreciate is a once over to make sure I am getting on the right track. I made some stupid investment mistakes over my first 4 years of investing and I am still recovering from them. I consolidated a lot of my old funds/stocks/etf's into primarily vanguard ones.

2.I plan on getting to my goal allocation through new contributions. It will take at least 2-3 years to add enough bonds/equities to offset the heavy cash and precious metals position.

3. In terms of marriage, other than tax planning MFJ vs. Single, are there any other implications/considerations from an investment standpoint?

3. Any and all suggestions/feedback are welcome.
It is funny.We are about 4-5 years older than you guys and we recently got married.

1- Past is past. Stick to a reasonable allocation and low cost funds and you will be fine. You are still young.

2- I wouldn't bother with precious metals.

3- a) Do not combine anything until you actually get married. In fact, we are keeping things mostly separate for now. We have been together only for 1.5 years and it is not enough time to justify combining everything.

b) Do a pre-nup. Even just discussing this subject with your future wife might be an interesting experience.
While it is advantageous to hire lawyers since it makes the agreement more enforceable, that is NOT a must. You can mediate the pre-nup (write and review it together without any lawyers), attach a statement that says you both opted-out of hiring lawyers, attach all your financial statements etc, and then notarize it. It is an agreement and it is enforceable.
There is no greatness where there is no simplicity, goodness and truth. -L. Tolstoy

LeeMKE
Posts: 1538
Joined: Mon Oct 14, 2013 9:40 pm

Re: Portfolio Checkup - Major Life Event

Post by LeeMKE » Fri Aug 11, 2017 8:44 am

The Nolo Press book on Pre-Nups is an excellent exercise for a couple. It prompts you to talk over issues that might not have come up so far. It was a very good exercise for us, in a second marriage when a pre-nup was necessary. You may not decide to execute the contract, but knowing each other's thoughts and perspective will be valuable.
The mightiest Oak is just a nut who stayed the course.

2Birds1Stone
Posts: 343
Joined: Wed Nov 19, 2014 10:33 pm
Location: New York

Re: Portfolio Checkup - Major Life Event

Post by 2Birds1Stone » Fri Aug 11, 2017 9:01 am

Watty wrote:
2Birds1Stone wrote:2.I plan on getting to my goal allocation through new contributions. It will take at least 2-3 years to add enough bonds/equities to offset the heavy cash and precious metals position.
There are not any tax issues with rebalancing within the retirement accounts so you should set it to your desired asset allocation ASAP.

When looking at your asset allocation I would consider your emergency money as being seperate
2Birds1Stone wrote:Her Debt: $4.5k student loan @ 6%,
At 6% I would go on and pay it off right away.
2Birds1Stone wrote:3. In terms of marriage, other than tax planning MFJ vs. Single, are there any other implications/considerations from an investment standpoint?
Once you are married with two incomes there may be less need for the large emergency fund since even if one person has a bad year or gets laid off the other person would still have income. Either by design or a dire emergency you can also use the Roths as emergency funds.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

Once you are married you should be sure to update the beneficiary on your retirement accounts. An updated will would be good to have but along with the will there are usually a half dozen different related forms like medical directives and that may be even more important for you.

You should also update your car and home/renters insurance with your spouses information.
Thank you Watty, we have been each others beneficiaries for ~5 years now. I do some housekeeping with my financial accounts once a year where I check beneficiary info, update any address/email/contact info to keep things as up to date as possible.

We will pay off the loan as soon as we tie the knot. Unless she wants to pay it down more aggressively beforehand.

WoodSpinner wrote:
asif408 wrote:I think you have a pretty good plan. It's looks like you could potentially hold fewer funds across each account by consolidating. For example, your Roth could be all bonds, then you could remove the other small bond holdings elsewhere. Here is some more info on doing that: https://www.bogleheads.org/wiki/Asset_a ... e_accounts

I'm also not a big fan of holding precious metals, and would suggest if you want some exposure to use a precious metals equity fund instead, but it's not the end of the world. I just don't think actual precious metals holdings bring much more than some emotional comfort to a portfolio. At least with equities you can rebalance in and out and potentially get a boost in your return.

Here is an example to simplify:

His Taxable (19.7%)
19.7% Total Stock

His 401k (29.2%)
29.2% Total Stock

Her 401k (9.1%)
9.1% Total Int Stock

His Roth IRA (17.5%)
17.5% Total Bond
Small quibble--probably best to hold the bonds in the 401k and stock in the Roth]

Her Roth IRA (9.4%)
9.4% Total Int Stock

His Precious Metals (10.6%)
10.6% Precious Metals fund

His HSA (4.5%)
4.5% Fed Money Market


Just a suggestion.
Hello, is there a reason that 401k is better for Bonds VS a Roth?

I am happy to move all of bond holdings to 401k and go 100% stocks in Roth if that's the case.

Thank you.
LeeMKE wrote:+1 aristotelian

A pre-nup isn't needed IMHO at this point. You have more assets, but with your current plan, that difference will fade fast in the early years of your marriage, and the two of you are well matched for future earnings at the moment. If you are discussing having children, she might need a prenup to cover her if she takes time off to have and raise your children.
I understand, and not to sound unromantic but, I was thinking of a prenup more along the lines of protecting ourselves in the event the marriage dissolved early on. I'm bringing ~80-85% of the total assets at the start, and if things were to go south in the first 5 years, I would want to protect my retirement accounts and EF. Definitely something to think about.
Imbros wrote:
Questions:
1. I guess what I would really appreciate is a once over to make sure I am getting on the right track. I made some stupid investment mistakes over my first 4 years of investing and I am still recovering from them. I consolidated a lot of my old funds/stocks/etf's into primarily vanguard ones.

2.I plan on getting to my goal allocation through new contributions. It will take at least 2-3 years to add enough bonds/equities to offset the heavy cash and precious metals position.

3. In terms of marriage, other than tax planning MFJ vs. Single, are there any other implications/considerations from an investment standpoint?

3. Any and all suggestions/feedback are welcome.
It is funny.We are about 4-5 years older than you guys and we recently got married.

1- Past is past. Stick to a reasonable allocation and low cost funds and you will be fine. You are still young.

2- I wouldn't bother with precious metals.

3- a) Do not combine anything until you actually get married. In fact, we are keeping things mostly separate for now. We have been together only for 1.5 years and it is not enough time to justify combining everything.

b) Do a pre-nup. Even just discussing this subject with your future wife might be an interesting experience.
While it is advantageous to hire lawyers since it makes the agreement more enforceable, that is NOT a must. You can mediate the pre-nup (write and review it together without any lawyers), attach a statement that says you both opted-out of hiring lawyers, attach all your financial statements etc, and then notarize it. It is an agreement and it is enforceable.
Great feedback, I like that idea for the prenup.

I've been with SO for 6 1/2 years, having lived together for 6 of those. I don't expect any turbulence that would end our relationship, but as someone who is a planner, I like having a plan B lol.

asif408
Posts: 1013
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Portfolio Checkup - Major Life Event

Post by asif408 » Fri Aug 11, 2017 9:32 am

2Birds1Stone wrote:
asif408 wrote:I think you have a pretty good plan. It's looks like you could potentially hold fewer funds across each account by consolidating. For example, your Roth could be all bonds, then you could remove the other small bond holdings elsewhere. Here is some more info on doing that: https://www.bogleheads.org/wiki/Asset_a ... e_accounts

I'm also not a big fan of holding precious metals, and would suggest if you want some exposure to use a precious metals equity fund instead, but it's not the end of the world. I just don't think actual precious metals holdings bring much more than some emotional comfort to a portfolio. At least with equities you can rebalance in and out and potentially get a boost in your return.

Here is an example to simplify:

His Taxable (19.7%)
19.7% Total Stock

His 401k (29.2%)
29.2% Total Stock

Her 401k (9.1%)
9.1% Total Int Stock

His Roth IRA (17.5%)
17.5% Total Bond
Small quibble--probably best to hold the bonds in the 401k and stock in the Roth]

Her Roth IRA (9.4%)
9.4% Total Int Stock

His Precious Metals (10.6%)
10.6% Precious Metals fund

His HSA (4.5%)
4.5% Fed Money Market


Just a suggestion.
Hello, is there a reason that 401k is better for Bonds VS a Roth?

I am happy to move all of bond holdings to 401k and go 100% stocks in Roth if that's the case.

Thank you.
Not a compelling reason. Though in theory you would put the assets with the highest expected return in the Roth because you could pull from that money after a 401k or traditional IRA, since RMDs aren't required in a Roth. That means your money could grow for longer in the Roth. Of course, no one knows what actual returns in the future will be, so all we can do is make educated guesses. But typically over long time frames stocks have returned more than bonds. If you were closer to retirement then I would say this would matter much less, since over short time frames returns are very unpredictable.

But I'm sure there may be some arguments on the other side as well.

User avatar
Duckie
Posts: 4900
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio Checkup - Major Life Event

Post by Duckie » Fri Aug 11, 2017 6:15 pm

2Birds1Stone wrote:Hello, is there a reason that 401k is better for Bonds VS a Roth?
It's not that a 401k is better for bonds than an IRA. It's that in general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already the paid the taxes in the Roth accounts so future growth is tax-free. Your 401k plans are pre-tax, your IRAs are Roths. Depending on the expense ratios of the bond options in the 401k plans, all your bond AA would probably be better in the 401k plans.

2Birds1Stone
Posts: 343
Joined: Wed Nov 19, 2014 10:33 pm
Location: New York

Re: Portfolio Checkup - Major Life Event

Post by 2Birds1Stone » Fri Aug 11, 2017 9:00 pm

Duckie wrote:
2Birds1Stone wrote:Hello, is there a reason that 401k is better for Bonds VS a Roth?
It's not that a 401k is better for bonds than an IRA. It's that in general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already the paid the taxes in the Roth accounts so future growth is tax-free. Your 401k plans are pre-tax, your IRAs are Roths. Depending on the expense ratios of the bond options in the 401k plans, all your bond AA would probably be better in the 401k plans.

Awesome, that makes a lot of sense.

401k has Vanguard Total Bond Index Institutional shares @ something like a .06% ER.

retiredjg
Posts: 29719
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Checkup - Major Life Event

Post by retiredjg » Sat Aug 12, 2017 7:38 am

2Birds1Stone wrote:401k has Vanguard Total Bond Index Institutional shares @ something like a .06% ER.
I'd probably be using that one.

I'm not opposed to putting bonds into Roth IRA, but all things equal....I'd rather have stocks in Roth IRA than all bonds in Roth IRA.

2Birds1Stone
Posts: 343
Joined: Wed Nov 19, 2014 10:33 pm
Location: New York

Re: Portfolio Checkup - Major Life Event

Post by 2Birds1Stone » Tue Aug 15, 2017 12:08 pm

retiredjg wrote:
Sat Aug 12, 2017 7:38 am
2Birds1Stone wrote:401k has Vanguard Total Bond Index Institutional shares @ something like a .06% ER.
I'd probably be using that one.

I'm not opposed to putting bonds into Roth IRA, but all things equal....I'd rather have stocks in Roth IRA than all bonds in Roth IRA.
Makes sense. Thanks again!

:sharebeer

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