Seeking portfolio advice!

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pkay
Posts: 76
Joined: Wed Jan 17, 2018 11:04 am

Seeking portfolio advice!

Post by pkay » Mon Mar 05, 2018 12:37 pm

Hi Bogleheads, I have been following the forum more closely in the past few months as my husband and I make financial decisions for our growing family. We recently decided to continue renting since 1) the housing price is high where we live; 2) we would like contribute to the kids’ college funds; and 3) we financially support our parents on a monthly basis. Last November, we re-directed the money for a house down payment toward a taxable account in Vanguard. Being new investors, we would like to ask your guidance and advice on our portfolio (i.e. asset allocation, tax efficiency, or anything else you notice). Please review the below information followed by our questions. Thank you in advance.

Emergency funds: $20,000 in savings account (goal is $35,000 to cover 7 months); and $50,000 in a 5-year CD (3 months into it)
School loan: $82,300 at 2% interest rate; paying $300/month (minimum payment $219 with payoff date August 2036)
No mortgage or car loan
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 5.75% State
State of Residence: Virginia
Age: 40 and 35
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 20% of stocks

Desired allocation:
30% large cap
15% mid cap
20% small cap
15% international
5% REIT
5% natural resources
10% bond

Portfolio size is just under mid-six figures.

Current retirement assets

Taxable (Vanguard)
0% cash (for investing) – not putting in because saving for emergency fund first
7.3% International Developed Markets (VTMGX) (0.07%)
9.5% Mid Cap Index Fund (VIMAX) (0.06%)
9.5% Tax Managed Small Cap Fund (VTMSX) (0.09%)
2.3% Intermediate Tax Exempt (VWITX) (0.19%)
17.7% Total Stock Market Index Fund (VTSAX) (0.04%)
2.2% REIT Index Fund (VGSLX) (0.12%)
1.5% Materials ETF (VAW) (0.10%)

His 401k (Fidelity)
5.2% FID 500 Index (FUSVX) (0.035%)
2.2% FID Mid Cap Index (FSCKX) (0.05%)
2.6% DFA US Target Value (DFFVX) (0.37%)
2.2% FID International Index (FSIVX) (0.06%)
0.8% VG Intermediate Bond Index (VBILX) (0.07%)
Company matches 50% of first 3% of salary contribution

His Roth IRA (Vanguard)
0.5% Total Stock Market ETF (VTI) (0.04%)
0.1% Total Bond Market ETF (BND) (0.05%)
0.1% Total International Stock Index ETF (VXUS) (0.11%)
2.3% Materials ETF (VAW) (0.10%)

Her 457 Deferred Comp Plan (T Rowe Price)
1.5% American Funds Europac Grw (RERGX) (0.50%)
4.0% Harbor International Fund (HAINX) (0.79%)
4.6% Vanguard Institutional Index (VINIX) (0.04%)
4.2% Vanguard Mid Cap Index (VMCIX) (0.05%)
6.8% Vanguard Small Cap Index (VSCIX) (0.05%)
6.7% Pimco Total Return Institutional (PTTRX) (0.51%)
No Company match

Her Roth IRA (Vanguard)
2.9% Total Stock Market Admiral (VTSAX) (0.04%)
0.4% Total Stock Market ETF (VTI) (0.04%)
0.7% Small Cap Value ETF (VBR) (0.07%)
0.6% Materials ETF (VAW) (0.10%)
0.7% Total International Stock Index ETF (VXUS) (0.11%)
0.2% FTSE Emerging Markets ETF (VWO) (0.14%)
0.6% Total Bond Market ETF (BND) (0.05%)


New annual Contributions
$18,5000 his 401k (post-tax contribution; employer matches 50% of first 3% from salary contribution)
$18,5000 her 457 (post-tax contribution; no employer match)
$3,731 her pension plan (pre-tax from salary, not included in portfolio size since no control over it)
$5,500 his Roth IRA (for 2019; already contributed for 2018 via Backdoor Roth IRA)
$5,500 her Roth IRA (for 2019; already contributed for 2018 via Backdoor Roth IRA)
$0 taxable (will be able to contribute $1,000-$2,000 per month in 2019)


Available funds

Funds available in his 401k (Fidelity)
AF New Economy R6 (RNGGX) (0.46%)
FID 500 INDEX PR (FUSVX) (0.035%)
VANG WINDSOR II ADM (VWNAX) (0.25%)
FID MID CAP IDX PR (FSCKX) (0.05%)
PRMCP ODY AGGR GRTH (POAGX) (0.64%)
VICTORY S ESTB VAL I (VEVIX) (0.69%)
DFA US TARGET VALUE (DFFVX) (0.37%)
EAGLE SM CAP GRTH I (HSIIX) (0.81%)
VANG SM CAP IDX ADM (VSMAX) (0.06%)
AF EUROPAC GROWTH R6 (RERGX) (0.5%)
FID INTL INDEX PR (FSIVX) (0.06%)
FKLN MTL GLB DISC Z (MDISX) (0.99%)
VANG EM STK IDX ADM (VEMAX) (0.14%)
PIM RE REAL RET INST (PRRSX) (1.01%)
TRP HEALTH SCIENCES (PRHSX) (0.77%)
BR TACTICAL OPPS IS (PBAIX) (0.9%)
VANG TARGET RET 2015 (VTXVX) (0.13%)
VANG TARGET RET 2020 (VTWNX) (0.13%)
VANG TARGET RET 2025 (VTTVX) (0.14%)
VANG TARGET RET 2030 (VTHRX) (0.14%)
VANG TARGET RET 2035 (VTTHX) (0.14%)
VANG TARGET RET 2040 (VFORX) (0.15%)
VANG TARGET RET 2045 (VTIVX) (0.15%)
VANG TARGET RET 2050 (VFIFX) (0.15%)
VANG TARGET RET 2055 (VFFVX) (0.15%)
VANG TARGET RET 2060 (VTTSX) (0.15%)
VANG TARGET RET INC (VTINX) (0.13%)
BLKRK HIGH YLD BD K (BRHYX) (0.53%)
PIM REAL RETURN INST (PRRIX) (0.45%)
VANG INTM BD IDX ADM (VBILX) (0.07%)
FID GOVT MMKT (SPAXX) (0.42%)


Funds available in her 457 (T Rowe Price)
AMER BEAC SMALL CAP VAL INST (AVFIX) (0.84%)
AMERICAN FUNDS EUROPAC GRW R6 (RERGX) (0.50%)
CAPITAL APPRECIATION FUND (PRWCX) (0.70%)
COHEN & STEERS INSTL REALTY (CSRIX) (0.75%)
EQUITY INCOME FUND (PRFDX) 0.66%)
FIDELITY CONTRAFUND (FCNTX) (0.68%)
FIDELITY DIVERSIFIED INTERN'L (FDIVX) (1.05%)
FIDELITY LOW PRICED STOCK FUND (FLPSX) (0.68%)
GROWTH STOCK FUND (PRGFX) (0.68%)
HARBOR INTERNATIONAL FUND (HAINX) (0.79%)
JP MORGAN MID CAP VALUE L (FLMVX) (0.75%)
MID-CAP GROWTH FUND (RPMGX) (0.77%)
OPPENHEIMER DEVELOP MARKETS, Y (ODVYX) (1.07%)
PERSONAL STRATEGY BALANCED (TRPBX) (0.74%)
PRIMECAP ODYSSEY STOCK (POSKX) (0.69%)
RANGER SMALL CAP INST (RFISX) (1.10%)
VANGUARD INST INDEX (VINIX) (0.03%)
VANGUARD MID-CAP INDEX, INST (VMCIX) (0.05%)
VANGUARD SMALL CAP INDEX INSTL (VSCIX) (0.05%)
PIMCO FOREIGN BOND UNHDGD INST (PFUIX) (0.60%)
PIMCO REAL RETURN (PRRIX) (0.64%)
PIMCO TOTAL RETURN INSTL (PTTRX) (0.51%)
TRP STABLE VALUE FUND SCH A (SVFA) (0.30%)
RETIREMENT 2005 FUND (TRRFX) (0.58%)
RETIREMENT 2010 FUND (TRRAX) (0.57%)
RETIREMENT 2015 FUND (TRRGX) (0.59%)
RETIREMENT 2020 FUND (TRRBX) (0.63%)
RETIREMENT 2025 FUND (TRRHX) (0.67%)
RETIREMENT 2030 FUND (TRRCX) (0.69%)
RETIREMENT 2035 FUND (TRRJX) (0.72%)
RETIREMENT 2040 FUND (TRRDX) (0.74%)
RETIREMENT 2045 FUND (TRRKX) (0.74%)
RETIREMENT 2050 FUND (TRRMX) (0.74%)
RETIREMENT 2055 FUND (TRRNX) (0.74%)
T ROWE PRICE RETIRE BAL INV (TRRIX) (0.56%)

Questions:
1. Since our previous house money is now in a Vanguard taxable account, we plan to leave it there for at least 4-5 years. If the market does well in 4-5 years and we find a well-suited house to buy, then we may withdraw from it for down payment. If no opportunity comes up or the account lose too much value, we would treat this account for retirement purpose. Is it a bad idea to have split objective for our taxable account? Do you recommend any strategy for a (separate?) house fund? We will probably need a new (used) minivan in 1-2 years; should we just start a different car fund?

2. We used HSA to pay for medical costs of birth/delivery of our first kid and plan to do so again for our second because we have so many monthly expenses (rent, childcare, parents, etc). I have read that many BH on the forum simply pay out of pocket for all medical costs to let HSA fund grow. Are we not seeing the big picture and should pay out of pocket and reimburse ourselves later?

3. This year, we are contributing just enough to our HSA to cover birth of our second child and currently have no plans to contribute to taxable account so we could replenish our short-term emergency fund (in savings account) to $35K, save $11,000 for 2019 Backdoor Roth, and contribute about $8K for VA529 college fund for the second child. Is this a good plan? Is $8K too much to jumpstart a 529 plan? How much do BHs with kids put in (total or annually) for their children’s 529 funds? We were thinking to put more money in our taxable account next year. Am I missing out on some big picture?

4. What are your thoughts on our stock/bond and domestic/international stock allocation? (Context: We started our working life and retirement investing later than most financially savvy folks, so we were previously advised to have a more aggressive 90% stock portfolio. We have at least 20-25 years until we could retire.)

5. Do you recommend investment changes in any of our retirement accounts?

6. Being new investors, we made a not-so-great tax decision of putting bond and REIT in taxable. We also have VAW in taxable too. We’re not attached to VAW or REIT. We bought them to diversify our portfolio. Selling them now would probably result in loss of $1,700. Is it worth the time/effort to do tax loss harvesting (we’ve never done it before)? Should I leave them in the taxable since they make up so little of our portfolio (REIT at 2.2% and VAW at 1.5%)?

7. His 401k at Fidelity includes blended retirement options for decent ER. Should we just pick the one for Target Retirement 2045 or 2050 (ER=0.15%)?

8. We got hit hard with federal taxes in 2017 despite advance giving for 2018 due to new tax law. Any advice on how to reduce taxes in our taxable account or emergency savings fund?

9. About half of the money in our 401k and 457 plans are pre-tax contribution. With our current federal income tax rate at 24%, should we gradually convert the pre-tax portion to Roth before the new tax law expires? If so, how much per year do you recommend?

10. We give regularly to our church and other charities. We gave most of our 2018 donations before December 2017. Any advice on tax savings in terms of charitable giving starting in 2019?

11. In our VA529 account, we have domestic stock, international stock, bond, and (regrettably) REIT. The REIT value keeps dropping. What allocation do you recommend? Our first is almost 2 years-old.
Last edited by pkay on Mon Mar 05, 2018 3:29 pm, edited 2 times in total.

User avatar
randomizer
Posts: 1329
Joined: Sun Jul 06, 2014 3:46 pm

Re: New BH asking portfolio advice

Post by randomizer » Mon Mar 05, 2018 12:43 pm

pkay wrote:
Mon Mar 05, 2018 12:37 pm
Debt: $82,300 at 2% interest rate; paying $300/month (minimum payment $219 with payoff date August 2036)
Awesome rate on that debt. I certainly wouldn't bother paying above the minimum with a rate like that.
88:12 — HODL the course!

pkay
Posts: 76
Joined: Wed Jan 17, 2018 11:04 am

Re: New BH asking portfolio advice

Post by pkay » Mon Mar 05, 2018 1:47 pm

Thanks, randomizer. We are hoping to pay a little less on interest over the long run, previously reduced monthly pmt from $500 to $300. Sounds like we should consider making the minimum monthly pmt. Suppose the extra $80 we would save per month could get higher rate of return elsewhere (definitely not in our savings account).

pkay
Posts: 76
Joined: Wed Jan 17, 2018 11:04 am

Re: Seeking portfolio advice!

Post by pkay » Mon Mar 05, 2018 4:00 pm

Bumping my post up, hoping for some more feedback. Thank you all!

makemoneymoney
Posts: 19
Joined: Tue Feb 27, 2018 8:02 pm

Re: Seeking portfolio advice!

Post by makemoneymoney » Mon Mar 05, 2018 4:05 pm

Also a newbie to the forum, as I am trying to get more serious about planning my family's financial future. I put $8k in a Virginia 529 last week to jumpstart the plan for my 2YO. We used the inVest plan and put it all in the Vanguard total stock market index fund (ER .12%). Literally took 15 minutes to set up. Virginia will allow you to carry forward tax breaks on each 4k you invest in a 529. So you can claim 4k for TY 2018 and 4k for TY 2019 if you contribute 8k today. Your tax break will be about $250 per year on each 4k contribution.

pkay
Posts: 76
Joined: Wed Jan 17, 2018 11:04 am

Re: Seeking portfolio advice!

Post by pkay » Mon Mar 05, 2018 4:42 pm

makemoneymoney wrote:
Mon Mar 05, 2018 4:05 pm
We used the inVest plan and put it all in the Vanguard total stock market index fund (ER .12%).
Thanks for your response. I picked the inVest plan, too. At what point/age of child will you consider putting money in a bond fund (or another fund?) in the inVest plan? Is there a reason that you don't plan on claiming the entire $8k for 2018? This is a tax return question, how do you claim $4K deduction in 2018 and another $4k in 2019 when it was all invested in 2018?

3funder
Posts: 646
Joined: Sun Oct 15, 2017 9:35 pm

Re: Seeking portfolio advice!

Post by 3funder » Mon Mar 05, 2018 5:19 pm

pkay wrote:
Mon Mar 05, 2018 12:37 pm
Hi Bogleheads, I have been following the forum more closely in the past few months as my husband and I make financial decisions for our growing family. We recently decided to continue renting since 1) the housing price is high where we live; 2) we would like contribute to the kids’ college funds; and 3) we financially support our parents on a monthly basis. Last November, we re-directed the money for a house down payment toward a taxable account in Vanguard. Being new investors, we would like to ask your guidance and advice on our portfolio (i.e. asset allocation, tax efficiency, or anything else you notice). Please review the below information followed by our questions. Thank you in advance.

Emergency funds: $20,000 in savings account (goal is $35,000 to cover 7 months); and $50,000 in a 5-year CD (3 months into it)
School loan: $82,300 at 2% interest rate; paying $300/month (minimum payment $219 with payoff date August 2036)
No mortgage or car loan
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 5.75% State
State of Residence: Virginia
Age: 40 and 35
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 20% of stocks

Desired allocation:
30% large cap
15% mid cap
20% small cap
15% international
5% REIT
5% natural resources
10% bond

Portfolio size is just under mid-six figures.

Current retirement assets

Taxable (Vanguard)
0% cash (for investing) – not putting in because saving for emergency fund first
7.3% International Developed Markets (VTMGX) (0.07%)
9.5% Mid Cap Index Fund (VIMAX) (0.06%)
9.5% Tax Managed Small Cap Fund (VTMSX) (0.09%)
2.3% Intermediate Tax Exempt (VWITX) (0.19%)
17.7% Total Stock Market Index Fund (VTSAX) (0.04%)
2.2% REIT Index Fund (VGSLX) (0.12%)
1.5% Materials ETF (VAW) (0.10%)

His 401k (Fidelity)
5.2% FID 500 Index (FUSVX) (0.035%)
2.2% FID Mid Cap Index (FSCKX) (0.05%)
2.6% DFA US Target Value (DFFVX) (0.37%)
2.2% FID International Index (FSIVX) (0.06%)
0.8% VG Intermediate Bond Index (VBILX) (0.07%)
Company matches 50% of first 3% of salary contribution

His Roth IRA (Vanguard)
0.5% Total Stock Market ETF (VTI) (0.04%)
0.1% Total Bond Market ETF (BND) (0.05%)
0.1% Total International Stock Index ETF (VXUS) (0.11%)
2.3% Materials ETF (VAW) (0.10%)

Her 457 Deferred Comp Plan (T Rowe Price)
1.5% American Funds Europac Grw (RERGX) (0.50%)
4.0% Harbor International Fund (HAINX) (0.79%)
4.6% Vanguard Institutional Index (VINIX) (0.04%)
4.2% Vanguard Mid Cap Index (VMCIX) (0.05%)
6.8% Vanguard Small Cap Index (VSCIX) (0.05%)
6.7% Pimco Total Return Institutional (PTTRX) (0.51%)
No Company match

Her Roth IRA (Vanguard)
2.9% Total Stock Market Admiral (VTSAX) (0.04%)
0.4% Total Stock Market ETF (VTI) (0.04%)
0.7% Small Cap Value ETF (VBR) (0.07%)
0.6% Materials ETF (VAW) (0.10%)
0.7% Total International Stock Index ETF (VXUS) (0.11%)
0.2% FTSE Emerging Markets ETF (VWO) (0.14%)
0.6% Total Bond Market ETF (BND) (0.05%)


New annual Contributions
$18,5000 his 401k (post-tax contribution; employer matches 50% of first 3% from salary contribution)
$18,5000 her 457 (post-tax contribution; no employer match)
$3,731 her pension plan (pre-tax from salary, not included in portfolio size since no control over it)
$5,500 his Roth IRA (for 2019; already contributed for 2018 via Backdoor Roth IRA)
$5,500 her Roth IRA (for 2019; already contributed for 2018 via Backdoor Roth IRA)
$0 taxable (will be able to contribute $1,000-$2,000 per month in 2019)


Available funds

Funds available in his 401k (Fidelity)
AF New Economy R6 (RNGGX) (0.46%)
FID 500 INDEX PR (FUSVX) (0.035%)
VANG WINDSOR II ADM (VWNAX) (0.25%)
FID MID CAP IDX PR (FSCKX) (0.05%)
PRMCP ODY AGGR GRTH (POAGX) (0.64%)
VICTORY S ESTB VAL I (VEVIX) (0.69%)
DFA US TARGET VALUE (DFFVX) (0.37%)
EAGLE SM CAP GRTH I (HSIIX) (0.81%)
VANG SM CAP IDX ADM (VSMAX) (0.06%)
AF EUROPAC GROWTH R6 (RERGX) (0.5%)
FID INTL INDEX PR (FSIVX) (0.06%)
FKLN MTL GLB DISC Z (MDISX) (0.99%)
VANG EM STK IDX ADM (VEMAX) (0.14%)
PIM RE REAL RET INST (PRRSX) (1.01%)
TRP HEALTH SCIENCES (PRHSX) (0.77%)
BR TACTICAL OPPS IS (PBAIX) (0.9%)
VANG TARGET RET 2015 (VTXVX) (0.13%)
VANG TARGET RET 2020 (VTWNX) (0.13%)
VANG TARGET RET 2025 (VTTVX) (0.14%)
VANG TARGET RET 2030 (VTHRX) (0.14%)
VANG TARGET RET 2035 (VTTHX) (0.14%)
VANG TARGET RET 2040 (VFORX) (0.15%)
VANG TARGET RET 2045 (VTIVX) (0.15%)
VANG TARGET RET 2050 (VFIFX) (0.15%)
VANG TARGET RET 2055 (VFFVX) (0.15%)
VANG TARGET RET 2060 (VTTSX) (0.15%)
VANG TARGET RET INC (VTINX) (0.13%)
BLKRK HIGH YLD BD K (BRHYX) (0.53%)
PIM REAL RETURN INST (PRRIX) (0.45%)
VANG INTM BD IDX ADM (VBILX) (0.07%)
FID GOVT MMKT (SPAXX) (0.42%)


Funds available in her 457 (T Rowe Price)
AMER BEAC SMALL CAP VAL INST (AVFIX) (0.84%)
AMERICAN FUNDS EUROPAC GRW R6 (RERGX) (0.50%)
CAPITAL APPRECIATION FUND (PRWCX) (0.70%)
COHEN & STEERS INSTL REALTY (CSRIX) (0.75%)
EQUITY INCOME FUND (PRFDX) 0.66%)
FIDELITY CONTRAFUND (FCNTX) (0.68%)
FIDELITY DIVERSIFIED INTERN'L (FDIVX) (1.05%)
FIDELITY LOW PRICED STOCK FUND (FLPSX) (0.68%)
GROWTH STOCK FUND (PRGFX) (0.68%)
HARBOR INTERNATIONAL FUND (HAINX) (0.79%)
JP MORGAN MID CAP VALUE L (FLMVX) (0.75%)
MID-CAP GROWTH FUND (RPMGX) (0.77%)
OPPENHEIMER DEVELOP MARKETS, Y (ODVYX) (1.07%)
PERSONAL STRATEGY BALANCED (TRPBX) (0.74%)
PRIMECAP ODYSSEY STOCK (POSKX) (0.69%)
RANGER SMALL CAP INST (RFISX) (1.10%)
VANGUARD INST INDEX (VINIX) (0.03%)
VANGUARD MID-CAP INDEX, INST (VMCIX) (0.05%)
VANGUARD SMALL CAP INDEX INSTL (VSCIX) (0.05%)
PIMCO FOREIGN BOND UNHDGD INST (PFUIX) (0.60%)
PIMCO REAL RETURN (PRRIX) (0.64%)
PIMCO TOTAL RETURN INSTL (PTTRX) (0.51%)
TRP STABLE VALUE FUND SCH A (SVFA) (0.30%)
RETIREMENT 2005 FUND (TRRFX) (0.58%)
RETIREMENT 2010 FUND (TRRAX) (0.57%)
RETIREMENT 2015 FUND (TRRGX) (0.59%)
RETIREMENT 2020 FUND (TRRBX) (0.63%)
RETIREMENT 2025 FUND (TRRHX) (0.67%)
RETIREMENT 2030 FUND (TRRCX) (0.69%)
RETIREMENT 2035 FUND (TRRJX) (0.72%)
RETIREMENT 2040 FUND (TRRDX) (0.74%)
RETIREMENT 2045 FUND (TRRKX) (0.74%)
RETIREMENT 2050 FUND (TRRMX) (0.74%)
RETIREMENT 2055 FUND (TRRNX) (0.74%)
T ROWE PRICE RETIRE BAL INV (TRRIX) (0.56%)

Questions:
1. Since our previous house money is now in a Vanguard taxable account, we plan to leave it there for at least 4-5 years. If the market does well in 4-5 years and we find a well-suited house to buy, then we may withdraw from it for down payment. If no opportunity comes up or the account lose too much value, we would treat this account for retirement purpose. Is it a bad idea to have split objective for our taxable account? Do you recommend any strategy for a (separate?) house fund? We will probably need a new (used) minivan in 1-2 years; should we just start a different car fund?

2. We used HSA to pay for medical costs of birth/delivery of our first kid and plan to do so again for our second because we have so many monthly expenses (rent, childcare, parents, etc). I have read that many BH on the forum simply pay out of pocket for all medical costs to let HSA fund grow. Are we not seeing the big picture and should pay out of pocket and reimburse ourselves later?

3. This year, we are contributing just enough to our HSA to cover birth of our second child and currently have no plans to contribute to taxable account so we could replenish our short-term emergency fund (in savings account) to $35K, save $11,000 for 2019 Backdoor Roth, and contribute about $8K for VA529 college fund for the second child. Is this a good plan? Is $8K too much to jumpstart a 529 plan? How much do BHs with kids put in (total or annually) for their children’s 529 funds? We were thinking to put more money in our taxable account next year. Am I missing out on some big picture?

4. What are your thoughts on our stock/bond and domestic/international stock allocation? (Context: We started our working life and retirement investing later than most financially savvy folks, so we were previously advised to have a more aggressive 90% stock portfolio. We have at least 20-25 years until we could retire.)

5. Do you recommend investment changes in any of our retirement accounts?

6. Being new investors, we made a not-so-great tax decision of putting bond and REIT in taxable. We also have VAW in taxable too. We’re not attached to VAW or REIT. We bought them to diversify our portfolio. Selling them now would probably result in loss of $1,700. Is it worth the time/effort to do tax loss harvesting (we’ve never done it before)? Should I leave them in the taxable since they make up so little of our portfolio (REIT at 2.2% and VAW at 1.5%)?

7. His 401k at Fidelity includes blended retirement options for decent ER. Should we just pick the one for Target Retirement 2045 or 2050 (ER=0.15%)?

8. We got hit hard with federal taxes in 2017 despite advance giving for 2018 due to new tax law. Any advice on how to reduce taxes in our taxable account or emergency savings fund?

9. About half of the money in our 401k and 457 plans are pre-tax contribution. With our current federal income tax rate at 24%, should we gradually convert the pre-tax portion to Roth before the new tax law expires? If so, how much per year do you recommend?

10. We give regularly to our church and other charities. We gave most of our 2018 donations before December 2017. Any advice on tax savings in terms of charitable giving starting in 2019?

11. In our VA529 account, we have domestic stock, international stock, bond, and (regrettably) REIT. The REIT value keeps dropping. What allocation do you recommend? Our first is almost 2 years-old.
Get rid of REIT and Natural Resources; add to bond allocation as follows:

40% US Large Cap
10% US Mid Cap
5% US Small Cap
25% International
20% US Bond

3funder

makemoneymoney
Posts: 19
Joined: Tue Feb 27, 2018 8:02 pm

Re: Seeking portfolio advice!

Post by makemoneymoney » Mon Mar 05, 2018 5:36 pm

pkay wrote:
Mon Mar 05, 2018 4:42 pm
makemoneymoney wrote:
Mon Mar 05, 2018 4:05 pm
We used the inVest plan and put it all in the Vanguard total stock market index fund (ER .12%).
Thanks for your response. I picked the inVest plan, too. At what point/age of child will you consider putting money in a bond fund (or another fund?) in the inVest plan? Is there a reason that you don't plan on claiming the entire $8k for 2018? This is a tax return question, how do you claim $4K deduction in 2018 and another $4k in 2019 when it was all invested in 2018?
My kids are 2 and 4, so I plan to be aggressive for at least the next 10 years. Will consider other options when the kids get to high school.

You are able to deduct $4k from state taxes for each account owner, per child, per year. See example 1 https://www.virginia529.com/new-savers/tax-advantaged/. So you could claim an 8k contribution as 4k for this year, 4k for next year. Honestly, your spouse could also contribute to a seperate 529 account for the same child and also claim the deduction for the same tax year.

azurekep
Posts: 1179
Joined: Tue Jun 16, 2015 7:16 pm

Re: Seeking portfolio advice!

Post by azurekep » Mon Mar 05, 2018 11:01 pm

I agree with the other poster on eliminating the sector funds (or holding and not adding but with the eventual aim of selling) and increasing the bond allocation.

Another consideration is that you're dealing with a fairly large number of funds. That makes it harder to monitor one's portfolio, especially when it comes to rebalancing. There's even something to be said for not breaking out small, mid and large caps into separate entities but rather just using a total stock market fund like VTSMX for US stocks, and adding a separate fund for international stocks. It makes life simpler and there isn't the constant worry of whether "tilts" are working or not.

As for the sector funds, they don't always provide the kind of diversification hoped for. REITS can have long periods of lagging performance, and materials/natural resources can be very volatile during down markets.

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luminous
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Re: Seeking portfolio advice!

Post by luminous » Tue Mar 06, 2018 12:12 am

1. Since our previous house money is now in a Vanguard taxable account, we plan to leave it there for at least 4-5 years. If the market does well in 4-5 years and we find a well-suited house to buy, then we may withdraw from it for down payment. If no opportunity comes up or the account lose too much value, we would treat this account for retirement purpose. Is it a bad idea to have split objective for our taxable account? Do you recommend any strategy for a (separate?) house fund? We will probably need a new (used) minivan in 1-2 years; should we just start a different car fund?
House money: my family did the same thing, put our "house downpayment money" into the stock market when it seemed clear that we wouldn't be able to afford a house anytime soon. We also figured we might withdraw someday to eventually buy. 10 years later and a house is still very out of reach, and the brokerage account is retirement money. So no, it isn't necessarily a bad idea but you should of course be prepared for the market to go into a downturn and your downpayment money to shrink.

I would definitely start a car fund, in a savings account. Consider using the emergency fund for this depending on your circumstances.
2. We used HSA to pay for medical costs of birth/delivery of our first kid and plan to do so again for our second because we have so many monthly expenses (rent, childcare, parents, etc). I have read that many BH on the forum simply pay out of pocket for all medical costs to let HSA fund grow. Are we not seeing the big picture and should pay out of pocket and reimburse ourselves later?
The folks who say that have either more money or less medical expenses than you do, I'm guessing. There is of course nothing wrong with using the HSA as it is intended and not as a sneaky retirement account. It looks like with all of your monthly expenses using the HSA would be wise.
3. This year, we are contributing just enough to our HSA to cover birth of our second child and currently have no plans to contribute to taxable account so we could replenish our short-term emergency fund (in savings account) to $35K, save $11,000 for 2019 Backdoor Roth, and contribute about $8K for VA529 college fund for the second child. Is this a good plan? Is $8K too much to jumpstart a 529 plan? How much do BHs with kids put in (total or annually) for their children’s 529 funds? We were thinking to put more money in our taxable account next year. Am I missing out on some big picture?
$8k is a lot to jumpstart a 529, especially when you don't know if the birth will have expensive complications. You might consider contributing more to the HSA. My family has always prioritized retirement savings, and only recently have we greatly increased our 529 savings as income has increased and retirement savings feel very secure. We currently save $8600 per kid per year, both are in elementary school.
4. What are your thoughts on our stock/bond and domestic/international stock allocation? (Context: We started our working life and retirement investing later than most financially savvy folks, so we were previously advised to have a more aggressive 90% stock portfolio. We have at least 20-25 years until we could retire.)
I agree with others that I'd drop REIT and natural resources and increase your bonds. Personal choice of course, but your situation seems quite complex and risky right now. I'd go with 20% bonds at least.
6. Being new investors, we made a not-so-great tax decision of putting bond and REIT in taxable. We also have VAW in taxable too. We’re not attached to VAW or REIT. We bought them to diversify our portfolio. Selling them now would probably result in loss of $1,700. Is it worth the time/effort to do tax loss harvesting (we’ve never done it before)? Should I leave them in the taxable since they make up so little of our portfolio (REIT at 2.2% and VAW at 1.5%)?
I'd just leave them and deal with it many years from now, but not contribute more to them either.
7. His 401k at Fidelity includes blended retirement options for decent ER. Should we just pick the one for Target Retirement 2045 or 2050 (ER=0.15%)?
Personally I say yes. I use target retirement funds everywhere I can (meaning in the tax advantaged accounts).
9. About half of the money in our 401k and 457 plans are pre-tax contribution. With our current federal income tax rate at 24%, should we gradually convert the pre-tax portion to Roth before the new tax law expires? If so, how much per year do you recommend?
Nope nope nope. The tax savings right now is worth a lot to your family. Leave it as pre-tax and you'll have more flexibility in retirement to combine 401k and Roth withdrawals to dial in your taxable income each year.
11. In our VA529 account, we have domestic stock, international stock, bond, and (regrettably) REIT. The REIT value keeps dropping. What allocation do you recommend? Our first is almost 2 years-old.
My 529 offers passive index age based funds, looks like yours does to. Consider using those.
45/25/30 US stock/international stock/bonds. Target date funds. Hope to semi-retire in 2026.

ClaycordJCA
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Re: Seeking portfolio advice!

Post by ClaycordJCA » Tue Mar 06, 2018 2:20 am

If you have not done so already, read the Three Fund Portfolio thread in the Investing News, Theory & General forum. As you will see, two very wise people - Jack Bogle and Taylor Larimore - make a very compelling case for keeping your investments simple. By my count your investments are divided into approximately 30 different funds. How do you keep track of everything and how much time does it take? Also, what is the practical effect of funds that hold less than 5% of your assets? Very little, I’m afraid. And are you really holding them for the long-haul? I wonder because you seem very concerned about your REIT losses. Holding all sectors in broad based index funds helps remove those doubts - you stay fully invested in all sectors.

I believe the better approach is to look at your Porfolio as a whole and limit each account to 1 or 2 funds. For example, if your goal is for taxable account to hold all stock, including all international because that is tax efficient. So, hold Total Stock Market and International New Markets in that account. Maybe you don’t sell holdings with gains to avoid the tax hit, but sell the losers and invest those proceeds and all new monies in just those funds. Avoid the high expense ratio funds in your 457 and if you can meet your allocation objectives invest everything in hold the Vanguard Institutional Fund. Do the same analysis for the other two accounts and see if you can’t come up with a much better portfolio.

At a minimum, I’d look to combine similar funds. You have Total Stock Market in mutual fund and ETF shares in your Roth IRA. Why? It is the exact same investment. You hold VAW in two accounts, can’t you hold it in just one? (Although I would just sell it and invest in the total market index unless you have a good explanation of why you believe that sector will out perform the total market.)

gotester2000
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Re: Seeking portfolio advice!

Post by gotester2000 » Tue Mar 06, 2018 6:55 am

I would -
1. Buy a smaller house instead of waiting for many years to buy a dream house and putting that money in equity - you need the house now rather than a big house in retirement.
2. Pay the student loans.

pkay
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Re: Seeking portfolio advice!

Post by pkay » Tue Mar 06, 2018 1:17 pm

3funder wrote:
Mon Mar 05, 2018 5:19 pm

Get rid of REIT and Natural Resources; add to bond allocation as follows:

40% US Large Cap
10% US Mid Cap
5% US Small Cap
25% International
20% US Bond

3funder
Thank you, 3funder. Would you sell the REIT and Natural Resources in the taxable? If I don't plan on holding similar or the same funds again, is there a point of doing tax loss harvesting? Looks like you are not a big believer of small cap value or small cap in general; any reason in particular? Which US bond do you suggest and I assume in tax-advantaged account?

pkay
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Re: Seeking portfolio advice!

Post by pkay » Tue Mar 06, 2018 1:24 pm

makemoneymoney wrote:
Mon Mar 05, 2018 5:36 pm

My kids are 2 and 4, so I plan to be aggressive for at least the next 10 years. Will consider other options when the kids get to high school.

You are able to deduct $4k from state taxes for each account owner, per child, per year. See example 1 https://www.virginia529.com/new-savers/tax-advantaged/. So you could claim an 8k contribution as 4k for this year, 4k for next year. Honestly, your spouse could also contribute to a seperate 529 account for the same child and also claim the deduction for the same tax year.
Thank you. We'll keep it simple for child #2 and rebalance #1's funds later because we just rebalanced them to lower the REIT investments. Should have posted questions on this forum before we rebalanced. Account holders can only move funds in the account twice a year.

pkay
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Re: Seeking portfolio advice!

Post by pkay » Tue Mar 06, 2018 1:40 pm

azurekep wrote:
Mon Mar 05, 2018 11:01 pm
I agree with the other poster on eliminating the sector funds (or holding and not adding but with the eventual aim of selling) and increasing the bond allocation.

Another consideration is that you're dealing with a fairly large number of funds. That makes it harder to monitor one's portfolio, especially when it comes to rebalancing. There's even something to be said for not breaking out small, mid and large caps into separate entities but rather just using a total stock market fund like VTSMX for US stocks, and adding a separate fund for international stocks. It makes life simpler and there isn't the constant worry of whether "tilts" are working or not.

As for the sector funds, they don't always provide the kind of diversification hoped for. REITS can have long periods of lagging performance, and materials/natural resources can be very volatile during down markets.
Thank you, azurekep. REITS has not gone up since we bought them. VAW has been more volatile in the last 3 months. We stopped the auto reinvesting for dividends and interest on those two funds. Just not sure how/when to get rid of them. If we don't have plans to hold these two or similar funds again, should we still do tax loss harvesting?

It has been a bit of a hassle keeping track of so many funds. We will pare down based on several people's recommendation in tax-advantaged accounts. Any advice on how to do that in our taxable account? Tax loss harvest all the redundant funds?

pkay
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Re: Seeking portfolio advice!

Post by pkay » Tue Mar 06, 2018 2:06 pm

luminous wrote:
Tue Mar 06, 2018 12:12 am

House money: my family did the same thing, put our "house downpayment money" into the stock market when it seemed clear that we wouldn't be able to afford a house anytime soon. We also figured we might withdraw someday to eventually buy. 10 years later and a house is still very out of reach, and the brokerage account is retirement money. So no, it isn't necessarily a bad idea but you should of course be prepared for the market to go into a downturn and your downpayment money to shrink.

I would definitely start a car fund, in a savings account. Consider using the emergency fund for this depending on your circumstances.
Thank you for answering all my questions, luminous! If you have children or if they were young at the time when you decided to put money for house down payment into the stock market, how has it been in your personal experience, practically and financially speaking? Have you thought about restarting a house fund again?
luminous wrote:
Tue Mar 06, 2018 12:12 am
$8k is a lot to jumpstart a 529, especially when you don't know if the birth will have expensive complications. You might consider contributing more to the HSA. My family has always prioritized retirement savings, and only recently have we greatly increased our 529 savings as income has increased and retirement savings feel very secure. We currently save $8600 per kid per year, both are in elementary school.
What you said makes sense. We sort of picked $8 because we could take advantage of state income tax deduction with 529 contribution. Will consider lowering 529 contribution.
luminous wrote:
Tue Mar 06, 2018 12:12 am
7. His 401k at Fidelity includes blended retirement options for decent ER. Should we just pick the one for Target Retirement 2045 or 2050 (ER=0.15%)?
Personally I say yes. I use target retirement funds everywhere I can (meaning in the tax advantaged accounts).
Is there a reason that you don't use something similar to target retirement funds in taxable account? Do you use target retirement funds when their ER is lower than individual mutual funds you would have picked to mimic the mix of funds in a target retirement fund?

pkay
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Re: Seeking portfolio advice!

Post by pkay » Tue Mar 06, 2018 2:23 pm

ClaycordJCA wrote:
Tue Mar 06, 2018 2:20 am
If you have not done so already, read the Three Fund Portfolio thread in the Investing News, Theory & General forum. As you will see, two very wise people - Jack Bogle and Taylor Larimore - make a very compelling case for keeping your investments simple. By my count your investments are divided into approximately 30 different funds. How do you keep track of everything and how much time does it take? Also, what is the practical effect of funds that hold less than 5% of your assets? Very little, I’m afraid. And are you really holding them for the long-haul? I wonder because you seem very concerned about your REIT losses. Holding all sectors in broad based index funds helps remove those doubts - you stay fully invested in all sectors.

I believe the better approach is to look at your Porfolio as a whole and limit each account to 1 or 2 funds. For example, if your goal is for taxable account to hold all stock, including all international because that is tax efficient. So, hold Total Stock Market and International New Markets in that account. Maybe you don’t sell holdings with gains to avoid the tax hit, but sell the losers and invest those proceeds and all new monies in just those funds. Avoid the high expense ratio funds in your 457 and if you can meet your allocation objectives invest everything in hold the Vanguard Institutional Fund. Do the same analysis for the other two accounts and see if you can’t come up with a much better portfolio.

At a minimum, I’d look to combine similar funds. You have Total Stock Market in mutual fund and ETF shares in your Roth IRA. Why? It is the exact same investment. You hold VAW in two accounts, can’t you hold it in just one? (Although I would just sell it and invest in the total market index unless you have a good explanation of why you believe that sector will out perform the total market.)
Thank you, ClaycordJCA. I read the Three Fund Portfolio but have not executed it. It is mostly due to the "attractiveness" of all the options out there and wanting to root out certain risks whether or not it makes sense. For example, we wanted only developed international markets in our taxable because we might need to take out the money for whatever needs that may come up before retirement (our taxable account was money for a house down payment).

I agree that 5% of REIT/VAW doesn't make a substantial difference. Regarding the REIT and VAW funds in taxable account, should I hold them and (not reinvest interest/div) or sell them and claim the loss for in TY 2018? Is tax loss harvesting the way to do this?

You mentioned hold TSM and International New Markets in the taxable. Why International New Markets and not total international index?

pkay
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Re: Seeking portfolio advice!

Post by pkay » Tue Mar 06, 2018 2:31 pm

gotester2000 wrote:
Tue Mar 06, 2018 6:55 am
I would -
1. Buy a smaller house instead of waiting for many years to buy a dream house and putting that money in equity - you need the house now rather than a big house in retirement.
2. Pay the student loans.
Hi gotester2000, thanks for your straightforwardness. While we would very much like to have our own place and put that money in equity, what we can afford is very little house and the location would not be ideal for our commute. With so little time non-work and commute time we have left, we wanted to spend it with our young children.

What is your reason for paying the student loans? We were aggressively paying until we had kids because we don't like having debts at all, especially debts that we can't deduct from our income because the student loan isn't greater than 20% of AGI or whatever. Also, saw a financial advisor and were told that if we divert the extra money (above minimum payment) to investment, we would likely get more than 2% return on it. So we pulled back....

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Re: Seeking portfolio advice!

Post by bloom2708 » Tue Mar 06, 2018 3:06 pm

90/10 is very aggressive for 40/35.

You have way too many funds in every account.

You have some "higher than need be" expense ratios.

Understand the 3 fund portfolio and know you don't have to own all 3 in each account. Season with REIT or small cap value if you need some spice beyond the 3 fund.

No fatal flaws, but if you spend time here, then you should begin to be able to put together a better diversified, lower cost, less overlap, streamlined portfolio.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

azurekep
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Re: Seeking portfolio advice!

Post by azurekep » Tue Mar 06, 2018 10:41 pm

pkay wrote:
Tue Mar 06, 2018 1:40 pm

Thank you, azurekep. REITS has not gone up since we bought them. VAW has been more volatile in the last 3 months. We stopped the auto reinvesting for dividends and interest on those two funds. Just not sure how/when to get rid of them. If we don't have plans to hold these two or similar funds again, should we still do tax loss harvesting?

It has been a bit of a hassle keeping track of so many funds. We will pare down based on several people's recommendation in tax-advantaged accounts. Any advice on how to do that in our taxable account? Tax loss harvest all the redundant funds?
I'd first clarify which approach you want:
  • Slice and dice? (what you're currently doing)
  • Three-fund portfolio? (a Boglehead fave)
  • Two-fund portfolio? (just U.S. stocks and bonds -- not all BHs agree on the need for international)
  • One-fund portfolio? (life strategy, target-date or balanced)
Then sell when the opportunity arises. Use TLH wherever possible. It's okay to take it slow. It's more important to simply invest. As mentioned by another poster, your reaction at seeing a loss in REITS suggests you aren't entirely clear on your risk tolerance. That would be another thing to work on... reading the behavioral posts on the board and seeing how others deal with market fluctuations and turbulance. It's probably comforting to know that the fluctuations you're seeing in REITs are happening "under the hood" of the total stock market. For example, on any give day:
  • REITs may be down 1%
  • Materials may be up 1%
  • Energy may be down .5%
  • Consumer Discretionary may be up .75%
  • Technology may be down .80%
  • Healthcare may be unchanged at 0%
  • etc. etc.
  • And yet... Total Stock Market is up .18% for the day. ;)
That's how it works. When you separate out the sectors, you see their volatility. When they're under the cover of TSM, you only see the net result, which is generally much milder and easier to deal with as a new/newish investor.

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luminous
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Re: Seeking portfolio advice!

Post by luminous » Wed Mar 07, 2018 12:58 am

Thank you for answering all my questions, luminous! If you have children or if they were young at the time when you decided to put money for house down payment into the stock market, how has it been in your personal experience, practically and financially speaking? Have you thought about restarting a house fund again?
The kids were planned but not born when we gave up on buying a house and put that money in the stock market. It has turned out great for us, because the cost of real estate where we live continues to skyrocket faster than our family income and the stock market has done phenomenally well in those years. We live in a very high cost of living area, and will not be able to buy real estate here until the kids leave home, probably. Instead we rent a very nice 4 bedroom apartment that is very affordable to us. Win win.
Is there a reason that you don't use something similar to target retirement funds in taxable account? Do you use target retirement funds when their ER is lower than individual mutual funds you would have picked to mimic the mix of funds in a target retirement fund?
Target date retirement funds aren't very good for taxable accounts because they aren't tax efficient: https://www.bogleheads.org/wiki/Tax-eff ... _placement

I'm lucky enough to Vanguard target date funds in my 401k and the ER is .15%. That's not lower than picking funds to mimic the mix of funds in a target date fund, but it is low enough for me. I enjoy the simplicity of the target funds.
45/25/30 US stock/international stock/bonds. Target date funds. Hope to semi-retire in 2026.

ClaycordJCA
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Re: Seeking portfolio advice!

Post by ClaycordJCA » Wed Mar 07, 2018 1:12 am

pkay wrote:
Tue Mar 06, 2018 2:23 pm
ClaycordJCA wrote:
Tue Mar 06, 2018 2:20 am
If you have not done so already, read the Three Fund Portfolio thread in the Investing News, Theory & General forum. As you will see, two very wise people - Jack Bogle and Taylor Larimore - make a very compelling case for keeping your investments simple. By my count your investments are divided into approximately 30 different funds. How do you keep track of everything and how much time does it take? Also, what is the practical effect of funds that hold less than 5% of your assets? Very little, I’m afraid. And are you really holding them for the long-haul? I wonder because you seem very concerned about your REIT losses. Holding all sectors in broad based index funds helps remove those doubts - you stay fully invested in all sectors.

I believe the better approach is to look at your Porfolio as a whole and limit each account to 1 or 2 funds. For example, if your goal is for taxable account to hold all stock, including all international because that is tax efficient. So, hold Total Stock Market and International New Markets in that account. Maybe you don’t sell holdings with gains to avoid the tax hit, but sell the losers and invest those proceeds and all new monies in just those funds. Avoid the high expense ratio funds in your 457 and if you can meet your allocation objectives invest everything in hold the Vanguard Institutional Fund. Do the same analysis for the other two accounts and see if you can’t come up with a much better portfolio.

At a minimum, I’d look to combine similar funds. You have Total Stock Market in mutual fund and ETF shares in your Roth IRA. Why? It is the exact same investment. You hold VAW in two accounts, can’t you hold it in just one? (Although I would just sell it and invest in the total market index unless you have a good explanation of why you believe that sector will out perform the total market.)
Thank you, ClaycordJCA. I read the Three Fund Portfolio but have not executed it. It is mostly due to the "attractiveness" of all the options out there and wanting to root out certain risks whether or not it makes sense. For example, we wanted only developed international markets in our taxable because we might need to take out the money for whatever needs that may come up before retirement (our taxable account was money for a house down payment).

I agree that 5% of REIT/VAW doesn't make a substantial difference. Regarding the REIT and VAW funds in taxable account, should I hold them and (not reinvest interest/div) or sell them and claim the loss for in TY 2018? Is tax loss harvesting the way to do this?

You mentioned hold TSM and International New Markets in the taxable. Why International New Markets and not total international index?
Oops. I meant International Developed Markets since you already own it and I am presuming that you have capitals gains which you want to avoid triggering by selling. If the gains are not significant, I concur that a Total International Index Fund is your best option.

Personally, I would sell the REIT and VAW now and claim the tax loss on your 2018 income tax returns. Reinvest the proceeds in Total Stock Market and/or whatever you decide to hold as your international funds.

Money that you may want to withdraw in the short-term (say withinin the next 5-7 years) shouldn’t be invested in stocks. Too much volatility. How would you feel if you lost 50% of your down payment? Look at what happened in 2008-2009. Instead, I would preserve the principal by holding it in money market funds, CDs, or on-line savings accounts. Some might also consider short-term bond funds.

azurekep
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Re: Seeking portfolio advice!

Post by azurekep » Wed Mar 07, 2018 1:29 am

luminous wrote:
Wed Mar 07, 2018 12:58 am
Target date retirement funds aren't very good for taxable accounts because they aren't tax efficient: https://www.bogleheads.org/wiki/Tax-eff ... _placement
I seem to recall hearing about a Vanguard balanced fund that uses tax-exempt bonds for the bond side. It would be interesting if that approach was tried for life strategy or target date retirement funds. I could see there being a demand, though I don't think tax-exempt bonds give the same downside protection as regular bonds.

Edit: Btw, to the OP: the suggestion about determining the number of funds first was intended for your entire portfolio, not just taxable. Once you decide that, everything else kind of falls into place.

gotester2000
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Re: Seeking portfolio advice!

Post by gotester2000 » Wed Mar 07, 2018 5:51 am

pkay wrote:
Tue Mar 06, 2018 2:31 pm
gotester2000 wrote:
Tue Mar 06, 2018 6:55 am
I would -
1. Buy a smaller house instead of waiting for many years to buy a dream house and putting that money in equity - you need the house now rather than a big house in retirement.
2. Pay the student loans.
Hi gotester2000, thanks for your straightforwardness. While we would very much like to have our own place and put that money in equity, what we can afford is very little house and the location would not be ideal for our commute. With so little time non-work and commute time we have left, we wanted to spend it with our young children.

What is your reason for paying the student loans? We were aggressively paying until we had kids because we don't like having debts at all, especially debts that we can't deduct from our income because the student loan isn't greater than 20% of AGI or whatever. Also, saw a financial advisor and were told that if we divert the extra money (above minimum payment) to investment, we would likely get more than 2% return on it. So we pulled back....
I agree on the commute time and time to spend on family aspect. Dont wait for perfect house - it hardly exists.
On the student loan, more than financial it is the mental peace that you will have paying it - you dont want it to tail you till retirement.

ivk5
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Re: Seeking portfolio advice!

Post by ivk5 » Wed Mar 07, 2018 7:01 am

You've gotten good advice already and I don't have much to add. I'll second the encouragement to maximize pre-tax rather than post-tax contributions where available (more people think they benefit from Roth than actually do- see wiki), and to simplify by reducing # of funds and looking at allocation overall across all accounts relative to your target AA. Personally I have kept house fund primarily in CDs and high-yield savings for multiple years, though I can see the case for having part of it in equities under some circumstances if you have the risk tolerance and flexibility to adapt to losses (eg by deferring acquisition and/or reducing budget).

I did want to chime in to disagree with luminous's comment on the HSA:
luminous wrote:
Tue Mar 06, 2018 12:12 am
2. We used HSA to pay for medical costs of birth/delivery of our first kid and plan to do so again for our second because we have so many monthly expenses (rent, childcare, parents, etc). I have read that many BH on the forum simply pay out of pocket for all medical costs to let HSA fund grow. Are we not seeing the big picture and should pay out of pocket and reimburse ourselves later?
The folks who say that have either more money or less medical expenses than you do, I'm guessing. There is of course nothing wrong with using the HSA as it is intended and not as a sneaky retirement account. It looks like with all of your monthly expenses using the HSA would be wise.
I disagree. The uniquely favorable tax treatment of the HSA as a long-term investment vehicle makes it more advantageous than almost all of OP's other contributions, apart from contributing enough to the 401k to maximize employer match. The HSA contribution and subsequent growth will never be taxed, as long as the amount does not exceed qualified medical expenses. That is better than tax-free growth (Roth), tax deferral (traditional), or tax drag (taxable). It does require some recordkeeping; personally I only track big expenses and don't bother with smaller ones, figuring there will be plenty of future medical expenses to cover any needed withdrawals.

I would prioritize investing the HSA by reducing other savings as needed to cover medical expenses out of pocket (but still make sure you get full employer match on the 401k). I.e. I would reduce other contributions by $6,850 post-tax or ~$9,800 pre-tax (grossed up @ ~30% fed + state, more if you are below SS max for FICA).

3funder
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Re: Seeking portfolio advice!

Post by 3funder » Wed Mar 07, 2018 2:12 pm

pkay wrote:
Tue Mar 06, 2018 1:17 pm
3funder wrote:
Mon Mar 05, 2018 5:19 pm

Get rid of REIT and Natural Resources; add to bond allocation as follows:

40% US Large Cap
10% US Mid Cap
5% US Small Cap
25% International
20% US Bond

3funder
Thank you, 3funder. Would you sell the REIT and Natural Resources in the taxable? If I don't plan on holding similar or the same funds again, is there a point of doing tax loss harvesting? Looks like you are not a big believer of small cap value or small cap in general; any reason in particular? Which US bond do you suggest and I assume in tax-advantaged account?
Yes, I would sell the REIT and Natural Resources in the taxable, and here's why. Vanguard's Total Stock Market Index Fund already gives investors exposure to REIT's, so, investing in a separate REIT fund would result in you being overexposed. As far as Natural Resources goes, I don't really believe in that stuff; at best, it makes the portfolio more complicated. To me, it would feel like a sector fund. Regarding small cap value/small cap, I believe the premium exists. I simply don't like tilting. I'd rather own the entire haystack as it is. The only tilting I do is a very small tilt to US stocks over International stocks (60% US/40% International, whereas the market is something closer to 50/50). Even so, I'm probably closer to 55/45 at this point. Finally, with respect to bonds, any low-fee intermediate-term Total US Bond Index Fund should do the trick (Vanguard, Fidelity, Schwab). Or, you could do a relatively even split of intermediate-term treasury and corporate issues.

pkay
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Re: Seeking portfolio advice!

Post by pkay » Wed Mar 07, 2018 4:10 pm

ClaycordJCA wrote:
Wed Mar 07, 2018 1:12 am
Personally, I would sell the REIT and VAW now and claim the tax loss on your 2018 income tax returns. Reinvest the proceeds in Total Stock Market and/or whatever you decide to hold as your international funds.
Thank you. I've been looking into tax loss harvesting today. It sounds like TLH is more for folks who want to buy back the same fund or a similar fund. There are these 30-day rule to avoid a wash sale, etc. I've already turned off auto reinvest for all dividends and capital gains in my taxable account (don't remember when but at least 2 weeks ago). In my situation, is it as simple as just selling the REIT and VAW for a loss and claim the loss against my income in our 2018 tax returns when we receive 1099B next year?

pkay
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Re: Seeking portfolio advice!

Post by pkay » Wed Mar 07, 2018 4:21 pm

ivk5 wrote:
Wed Mar 07, 2018 7:01 am
I disagree. The uniquely favorable tax treatment of the HSA as a long-term investment vehicle makes it more advantageous than almost all of OP's other contributions, apart from contributing enough to the 401k to maximize employer match. The HSA contribution and subsequent growth will never be taxed, as long as the amount does not exceed qualified medical expenses. That is better than tax-free growth (Roth), tax deferral (traditional), or tax drag (taxable). It does require some recordkeeping; personally I only track big expenses and don't bother with smaller ones, figuring there will be plenty of future medical expenses to cover any needed withdrawals.

I would prioritize investing the HSA by reducing other savings as needed to cover medical expenses out of pocket (but still make sure you get full employer match on the 401k). I.e. I would reduce other contributions by $6,850 post-tax or ~$9,800 pre-tax (grossed up @ ~30% fed + state, more if you are below SS max for FICA).
Thanks, ivk5. what do you mean by " The HSA contribution and subsequent growth will never be taxed, as long as the amount does not exceed qualified medical expenses"? --> Do you mean the total HSA amount in the end when I try to reimburse myself for qualified medical expenses 20 years down the road? Or do you mean my annual HSA contribution does not exceed qualified medical expenses each year?

ClaycordJCA
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Location: SF Bay Area

Re: Seeking portfolio advice!

Post by ClaycordJCA » Wed Mar 07, 2018 10:59 pm

pkay wrote:
Wed Mar 07, 2018 4:10 pm
ClaycordJCA wrote:
Wed Mar 07, 2018 1:12 am
Personally, I would sell the REIT and VAW now and claim the tax loss on your 2018 income tax returns. Reinvest the proceeds in Total Stock Market and/or whatever you decide to hold as your international funds.
Thank you. I've been looking into tax loss harvesting today. It sounds like TLH is more for folks who want to buy back the same fund or a similar fund. There are these 30-day rule to avoid a wash sale, etc. I've already turned off auto reinvest for all dividends and capital gains in my taxable account (don't remember when but at least 2 weeks ago). In my situation, is it as simple as just selling the REIT and VAW for a loss and claim the loss against my income in our 2018 tax returns when we receive 1099B next year?
Yes, so long as you don’t invest in the same or a a substantially similar fund within 30 days. Buy TSM and/or international and you are good to go.

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luminous
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Re: Seeking portfolio advice!

Post by luminous » Thu Mar 08, 2018 12:12 am

ivk5 wrote:
Wed Mar 07, 2018 7:01 am

I did want to chime in to disagree with luminous's comment on the HSA:
luminous wrote:
Tue Mar 06, 2018 12:12 am
2. We used HSA to pay for medical costs of birth/delivery of our first kid and plan to do so again for our second because we have so many monthly expenses (rent, childcare, parents, etc). I have read that many BH on the forum simply pay out of pocket for all medical costs to let HSA fund grow. Are we not seeing the big picture and should pay out of pocket and reimburse ourselves later?
The folks who say that have either more money or less medical expenses than you do, I'm guessing. There is of course nothing wrong with using the HSA as it is intended and not as a sneaky retirement account. It looks like with all of your monthly expenses using the HSA would be wise.
I disagree. The uniquely favorable tax treatment of the HSA as a long-term investment vehicle makes it more advantageous than almost all of OP's other contributions, apart from contributing enough to the 401k to maximize employer match. The HSA contribution and subsequent growth will never be taxed, as long as the amount does not exceed qualified medical expenses. That is better than tax-free growth (Roth), tax deferral (traditional), or tax drag (taxable). It does require some recordkeeping; personally I only track big expenses and don't bother with smaller ones, figuring there will be plenty of future medical expenses to cover any needed withdrawals.

I would prioritize investing the HSA by reducing other savings as needed to cover medical expenses out of pocket (but still make sure you get full employer match on the 401k). I.e. I would reduce other contributions by $6,850 post-tax or ~$9,800 pre-tax (grossed up @ ~30% fed + state, more if you are below SS max for FICA).
The tax treatment of HSAs is amazing indeed! My family never could have afforded the total out of pocket expenses of our medical care over the years if we had been insured with a high deductible plan, even if we had spent down a (hypothetical) HSA for medical expenses. We have used HMO and EPO type plans and it has saved us tens of thousands of dollars at least.

It is a very personal risk v reward choice. I’m clearly risk averse to medical expenses.
45/25/30 US stock/international stock/bonds. Target date funds. Hope to semi-retire in 2026.

ivk5
Posts: 329
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Re: Seeking portfolio advice!

Post by ivk5 » Thu Mar 08, 2018 1:38 am

pkay wrote:
Wed Mar 07, 2018 4:21 pm
Thanks, ivk5. what do you mean by " The HSA contribution and subsequent growth will never be taxed, as long as the amount does not exceed qualified medical expenses"? --> Do you mean the total HSA amount in the end when I try to reimburse myself for qualified medical expenses 20 years down the road? Or do you mean my annual HSA contribution does not exceed qualified medical expenses each year?
The first. It's not a year-by-year issue. If you have to withdraw funds from HSA during retirement in excess of your aggregate past/present reimbursable medical expenses, you could find yourself paying income tax on the withdrawals. No worse than traditional IRA (you still got to defer tax for a long time) but it's a caveat to the oft-cited "triple tax free" treatment (ie no tax on contributions, growth, withdrawals). Many people, myself included, expect that our future medical expenses will be easily enough to drain the account with low tax risk.

As Epsilon Delta helpfully pointed out yesterday in another thread, I've probably overstated the case a bit and should not prioritize HSA ahead of Roth. Reason is that HSA contributions are effectively subject to current year tax to the extent that you are covering current medical expenses from taxable funds, making it Roth-like but with some strings attached to preserve tax-free-ness of withdrawals. Still potentially better than traditional or taxable though.

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