Me: 34, employed
Wife: 33, SAHM
2 kids (4 and 2)
- Current Portfolio: ~$247k
- Excess Cash Total: $85k ($45k earning 3% in several Penfed CDs until EOY)
- Debt: Mortgage only, ~8-9 years left on a 15 year @ 3.25%, ~$108k remaining; home value ~$240k not including realtor fees
- Annual Investments: Maxing out Roth IRA for me, Traditional IRA for her, ~$2k into my 401k/year
- Emergency fund: 10-12 months if we didn't make drastic lifestyle changes (which we would if I lost my income); not included in excess cash amount above; earning 1-1.5% in reward checking/savings accounts
- Life Insurance: Wife and I each have a 30 year term policy, 26 years remaining, each insured at $1.2M (~10-11x my annual income)
- $1,365 in VTI (Total Stock Market ETF)
- $4,135 in Vanguard brokerage account waiting to be invested
- remainder (~$241k) in VFORX
I am okay with risk, but not as much as when we were a dual income family. We had a 6 month old when we locked up the money in the Penfed CDs in 2013. I've held excess cash in a mix of reward checking and online savings accounts average 1-2% over the last several years as extra buffer to our emergency fund. Part of that cash buffer is going to be used to remodel our master bath; let's estimate $10-15k for that. But I know holding the cash in very low interest rate accounts is dumb... we were just a little gun shy with a 6 month old and planning to go to single income. Now we're single income with 2 young kids I'm not looking to invest it in high risk investments, but I'd like to keep pace with inflation at minimum and earn excess return if possible with access to funds within say, 6 months (after burning through part of emergency fund).
We have separate saving categories in our budgets for major purchases: replacing cars at 10-15 years, major home repairs like roof and HVAC, etc. So those items don't factor into the use of the extra cash. It's just... extra. Good problem to have. (Those categories are also held in reward checking/savings accounts.)
Up until this year I had our investments in Target Retirement 2050. I would be 66. With the market having had such a rally without a major correction, my risk averseness kicked in and I switched us down to Target Retirement 2040 (VFORX) as it matched target bond allocation better than TR 2045. I've been comfortable with our bond percentage being 120 minus age and that seemed to fit better as well (currently about 14.3% in bonds).
With VFORX at 0.15% expense ratio and knowing low expenses and low taxes being the levers I can use to reasonably impact index fund performance, I wanted to see if moving to a mix of either Admiral-class mutual funds or Vanguard ETFs could reduce my costs further.
The math I've done to replicate VFORX in Admiral/ETFs:
- VTSAX/VTI: 51.8% and 0.04% ER: $127,915
- VTIAX/VXUS: 33.9% and 0.11% ER: $83,713
- VBTLX/BND: 10% and 0.05% ER: $24,694
- VTABX/BNDX: 4.3% and 0.11% ER: $10,618
Note: all funds held in a Vanguard Brokerage Account (since they just forced everyone to move over to that platform).
- Can I achieve greater return on our excess cash? If so, where?
- Are there any downsides going from VFORX to a mix of Admiral-class funds and/or Vanguard ETFs? (Aside from having to manually adjust portfolio each year.)
- Is there any upside or downside to going 100% of either Admiral-class funds or Vanguard ETFs? (Aside from only being able to buy full shares in ETFs versus partial shares with mutual funds -- at least that is my understanding)
- Overall, how are we doing?