Portfolio questions

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professional_artist
Posts: 7
Joined: Sat Jun 03, 2017 11:29 pm

Portfolio questions

Post by professional_artist » Thu Nov 23, 2017 1:16 pm

After doing some streamlining of our retirement assets (closing old accounts, opening accounts with Vanguard, etc) I could use some help reevaluating where I'm at and answering some questions please.

Emergency funds: 6 months
Debt: Mortgage: $660k @ 4.125%, Auto: $18k @ 0.9%
Tax Filing Status: Married Filing Jointly (+2 kids)
Tax Rate: 33% Federal, 9.3% State
State of Residence: CA
Age: 38 / 35 / infant / infant

Current assets:

Taxable:

14.88% savings account cash (does not include emergency funds)
5.6% VTIAX .11
3.77% VTSAX .04
28.59% Individual Stocks

Retirement:

His rollover:
0% VBTLX .05
5.27% Cash

Her 457:
13.53% DODIX 0.43
10.86% GRISX 0.42

His Roth:
23.54% VTSAX .04

Her Roth:
6.77% VTSAX .04

Additional assets not included in percentages above:

Home Equity:
Roughly $300k

Non-liquid collection:
Roughly $135k (with 6-9 month liquidation time)

Her current pension:
Roughly $30k

His/Her term life policies $500k/each


Contributions:

Annual Contributions:
$18k her 457 + $600 matching (Maxed)
$5-40k taxable (variable)


Goals:
- Retirement savings
- College savings
- Saving for a house

I hope to escape my current occupation within 5 years. Preferably, that would involve moving to a less expensive part of the country, but unfortunately, it would also mean a drastic reduction in income.
Ideally, I would like to purchase a new (less expensive) home, but keep my current home as an investment property.


Questions:

1. His rollover.
Currently has 5.27% in cash, earmarked for VBTLX. However, I've been considering transferring this into his Roth (despite the tax hit) to allow for a backdoor Roth. I would like to be able to contribute to a tax-advantaged account regularly other than her 457, but would a backdoor Roth be beneficial even though I expect my tax rate to drop in the future?

2. College Savings.
I would like to save for my infant sons' college, but I'm unsure if a 529 (or two) is the best option for me. Any suggestions?

3. Asset allocation.
I intend to reduce my holdings in individual stocks, and savings account cash, and transfer to my Vanguard funds. Any recommendations for what my allocation goal should be?

mega317
Posts: 1217
Joined: Tue Apr 19, 2016 10:55 am

Re: Portfolio questions

Post by mega317 » Fri Nov 24, 2017 1:00 pm

How about contributing to a non deductible tIRA for a few years in low-growth assets then converting to Roth when income drops?

My opinion on college is to wait on something like a 529 until your retirement is secure. You can always dial back retirement saving later and or cash flow. Especially in your case with anticipating large income drop.

I like age in bonds to age-10. My wife and I are your ages and 75/25. For international stock anything from 0-50% of stocks is probably reasonable.

I don't know much about insurance but are you sure you have enough?

I also don't know much about real estate but if you rent out your house after a few years I believe you lose the capital gains tax break. I have read on this site that it often makes more sense to sell your house and buy the one next door as a rental.

livesoft
Posts: 57189
Joined: Thu Mar 01, 2007 8:00 pm

Re: Portfolio questions

Post by livesoft » Fri Nov 24, 2017 1:05 pm

The Roth conversion doesn't make sense at the present time especially when you indicate that you will be earning less and spending less in the future. Presumably, at that time your tax rates will be much lower and that is when a Roth conversion decision should be revisited.

I will recommend that your asset allocation be at least 25% fixed income which is bonds, stable value, CDs and things like that. Equities could be 75% of your allocation split between US and foreign any which way you like.
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Mudpuppy
Posts: 5468
Joined: Sat Aug 27, 2011 2:26 am
Location: Sunny California

Re: Portfolio questions

Post by Mudpuppy » Fri Nov 24, 2017 5:07 pm

professional_artist wrote:
Thu Nov 23, 2017 1:16 pm
Her 457:
13.53% DODIX 0.43
10.86% GRISX 0.42
professional_artist wrote:
Thu Nov 23, 2017 1:16 pm
Contributions:

Annual Contributions:
$18k her 457 + $600 matching (Maxed)
$5-40k taxable (variable)


Goals:
- Retirement savings
- College savings
- Saving for a house
Since your primary tax-deferred vehicle for retirement savings is her 457 plan, what are the complete set of investment options available in that plan and what are the maintenance/administrative fees associated with that plan?

Do you have any tax-deferred retirement plan options besides an IRA?

professional_artist
Posts: 7
Joined: Sat Jun 03, 2017 11:29 pm

Re: Portfolio questions

Post by professional_artist » Sun Nov 26, 2017 1:09 am

Thanks for the responses!
mega317 wrote:
Fri Nov 24, 2017 1:00 pm
How about contributing to a non deductible tIRA for a few years in low-growth assets then converting to Roth when income drops?
As in contributing to a tIRA with bonds/small cap funds? Would this be more favorable than contributing to a taxable account?
Also, won't contributions to the tIRA cause a bigger tax hit if I convert to a Roth down the line?

I agree on the insurance coverage probably not being enough, looking into getting more on myself.
I'll look into the capital gains issue on the real estate. Thanks!

professional_artist
Posts: 7
Joined: Sat Jun 03, 2017 11:29 pm

Re: Portfolio questions

Post by professional_artist » Sun Nov 26, 2017 1:12 am

livesoft wrote:
Fri Nov 24, 2017 1:05 pm
The Roth conversion doesn't make sense at the present time especially when you indicate that you will be earning less and spending less in the future. Presumably, at that time your tax rates will be much lower and that is when a Roth conversion decision should be revisited.

I will recommend that your asset allocation be at least 25% fixed income which is bonds, stable value, CDs and things like that. Equities could be 75% of your allocation split between US and foreign any which way you like.
75 / 25 sounds like what I should aim for then. If I hold off on trying the Roth conversion, is it best then to continue contributing to the taxable or another option?

professional_artist
Posts: 7
Joined: Sat Jun 03, 2017 11:29 pm

Re: Portfolio questions

Post by professional_artist » Sun Nov 26, 2017 1:14 am

Mudpuppy wrote:
Fri Nov 24, 2017 5:07 pm
professional_artist wrote:
Thu Nov 23, 2017 1:16 pm
Her 457:
13.53% DODIX 0.43
10.86% GRISX 0.42
professional_artist wrote:
Thu Nov 23, 2017 1:16 pm
Contributions:

Annual Contributions:
$18k her 457 + $600 matching (Maxed)
$5-40k taxable (variable)


Goals:
- Retirement savings
- College savings
- Saving for a house
Since your primary tax-deferred vehicle for retirement savings is her 457 plan, what are the complete set of investment options available in that plan and what are the maintenance/administrative fees associated with that plan?

Do you have any tax-deferred retirement plan options besides an IRA?
Here are the options available through her 457. I do not have any other tax-deferred options at present.

Target Date

TRRGX 0.62
TRRBX 0.66
TRRHX 0.69
TRRCX 0.72
TRRJX 0.74
TRRDX 0.76
TRRKX 0.76
TRRMX 0.76
TRRNX 0.76

Asset Allocation

NDASX 0.92
NDCSX 0.87
NSDMX 0.91
NDMSX 0.94
NSDCX 0.88

International

VSIEX 1.07
GIIAX 0.71
OAKIX 1.05
OPPAX 1.15
OIGAX 1.14
TEMFX 1.22

Small Cap

BCSIX 1.27
GMRAX 0.68
NBGEX 1.10
RYSEX 1.15

Mid Cap

JAMCX 1.42
GMXAX 0.69
PEEAX 1.06

Large Cap

TWCGX 0.98
DGAGX 0.92
PEOPX 0.51
FCNTX 0.68
ACSDX 0.61
ACGIX 0.83
GRISX 0.42
NBSRX 0.86
TRSAX 0.92
AGTHX 0.66
AIVSX 0.59

Balanced

PARIX 0.82
AMECX 0.56
VWELX 0.25

Bonds

DODIX 0.43
GBIAX 0.66
PTTAX 0.86
WYHIX 0.76

Mudpuppy
Posts: 5468
Joined: Sat Aug 27, 2011 2:26 am
Location: Sunny California

Re: Portfolio questions

Post by Mudpuppy » Sun Nov 26, 2017 2:16 am

That's a rather mediocre list of 457 investment options for a California government employer. I assume it's a city/county level agency without access to the CalPERS 457 or California Savings Plus Program. Given the available options, your wife might consider putting her 457 investments entirely in the Vanguard Wellington (VWELX) fund. That fund is the cheapest one in her lineup and it is reasonably well-regarded. The fund asset allocation is approximately 65% stock and 35% bond/cash. It does not directly follow market weights like Vanguard's index funds do, but that's to be expected since Wellington is a managed fund, not an index fund.

professional_artist
Posts: 7
Joined: Sat Jun 03, 2017 11:29 pm

Re: Portfolio questions

Post by professional_artist » Tue Nov 28, 2017 1:22 pm

OK, I'll re-evaluate the holdings in her 457, thanks.
I'll aim for an overall 75/25 AA.

Still wondering though, if I hold off on the backdoor Roth (which it sounds like would be recommended), where would be the best place to contribute? continue in the taxable? a non-deductable IRA? another option?

desiderium
Posts: 641
Joined: Sat Jan 04, 2014 11:08 am

Re: Portfolio questions

Post by desiderium » Wed Nov 29, 2017 9:44 am

professional_artist wrote:
Tue Nov 28, 2017 1:22 pm
OK, I'll re-evaluate the holdings in her 457, thanks.
I'll aim for an overall 75/25 AA.

Still wondering though, if I hold off on the backdoor Roth (which it sounds like would be recommended), where would be the best place to contribute? continue in the taxable? a non-deductable IRA? another option?
Taxable retains flexibility when life is uncertain, often the case when you have kids, houses, less than stable jobs etc. It also offers you the opportunity to harvest capital losses. If your income is variable, you can also harvest capital gains in years when your are in a lower tax bracket. I would use retirement accounts for when you can get a tax break. Are you self employed? Can you start a SEP or an individual 401K?

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