Would you critique my portfolio please? Thanks!

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FOGU
Posts: 133
Joined: Tue Apr 24, 2018 9:41 pm

Would you critique my portfolio please? Thanks!

Post by FOGU » Wed Apr 25, 2018 11:07 pm

Dear Bogleheads:

Looking for you smart folks to critique my portfolio, if you would please. Observations, criticisms and recommendations are welcome and encouraged. What do you think? How am I doing? Where am I not optimizing? Am I taking unnecessary risk without concomitant potential for gain? Is there a way to allocate for better tax efficiency? Any other drag on this portfolio? What questions am I not asking myself about how to allocate assets? Where and how could I improve this portfolio?

Emergency fund and one year of living expenses are in place and separate from investable assets.

No Debts.

Live outside the USA.

Tax Filing Status: Head of Household in 2017 but could very well change to married filing separately in 2018 (foreign national spouse with no obligation yet to file US tax return). Would this make a difference in my case?

Income Tax Rates: 0% federal, 0% state on 1099 earned income – All earned income is excluded from taxation by the Foreign Earned Income Exclusion.

Self-employment tax for 2018: 15.3%

Age: Turn 51 in 2018. Two healthy children ages 3 and 2, so the road ahead stretches out beyond the horizon. I am thinking of returning to the USA within the next 2 years, maybe a little longer, and would prefer to not rejoin the rat race at full tilt. But I could surely earn some money so as to keep pressure off the investment accounts.

Desired Asset Allocation: For a long time I was around 90/10. I recently scaled to 85/15, which feels about right to me. But this is one of my questions: what asset allocation would you Bogleheads suggest? What are the main factors in setting that allocation for myself.

Desired International allocation: This is also where I am looking for input. Currently international stock funds are 8.9% of all holdings. Some have suggested a portfolio should contain 30-50% international, which strikes me as high, but I can’t articulate why that feels high to me so I am soliciting helpful opinions on that too. What about the idea that holding large US stock funds provides international exposure?

Assets currently invested total $1.073 million split about 54% taxable account and 46% traditional IRA.

Assets across all accounts are held as:
86.1% - Index Funds
10.65% - Actively Managed Funds
3.25% - Amazon Stock

Current asset allocation across all accounts is:
.7% cash
15% US taxable bond funds
56.2% large U.S. stock
19.2% mid/small US stock
8.9% international stock

100% of assets held across all accounts look like this:
  • 49.37% Vanguard Total Stock Market Index Fund Admiral Shares
    11.4% Vanguard 500 Index Fund Admiral Shares
    3.25% AMAZON.COM INC
    3.6% Vanguard Star Fund Investor Shares
    4% Vanguard International Growth Fund Investor Shares
    3.76% Vanguard Real Estate Index Fund Admiral Shares
    2.23% Vanguard International Value Fund Investor Shares
    1.9% Vanguard Long-Term Corporate Bond Index Fund Admiral Shares
    .8% Vanguard Prime Money Market Fund

    3.1% ISHARES CORE MSCI EAFE ETF
    2.33% Vanguard High Dividend Yield Index Fund Investor Shares
    2.23% Vanguard Short-Term Bond Index Fund Admiral Shares
    .4% Vanguard Total Bond Market Index Fund Investor Shares
    1.4% Vanguard Long-Term Bond Index Fund Investor Shares
    .8% Vanguard High-Yield Corporate Fund Investor Shares
    2.33% Vanguard Long-Term Treasury Index Fund Admiral Shares
    1.3% Vanguard Short-Term Corporate Bond Index Fund Admiral Shares
    .8% VANGUARD MORTGAGE BACKED SECURITIES ETF
    2.5% VANGUARD INTERMEDIATE TERM CORP BOND ETF
    2.5% Vanguard Large-Cap Index Fund Admiral Shares
Overall composite expense ratio for all funds combined is .09%.

It has been suggested my bond holdings may be moderately over-weighted toward long-term bonds.

Average amount available to invest is currently about $3,500 per month while living abroad. I don’t expect to be able to maintain that level if and when I return to the USA. So I am looking for suggestions on how I should invest those monthly amounts so as to put this total portfolio in shape for maximum efficiency and maximum benefit within the bounds of reasonable risk and adequate diversification.

Right now I can only contribute to the taxable account, so I am considering an individual Roth 401(k) for future monthly investments. Good idea? Also I wonder if I can fund an individual Roth 401(k) with existing assets (say, index funds from my taxable account), or if the individual 401(k) must be done only with “new” cash money.

If you've slogged through to this point you are a trooper and I thank you.
Last edited by FOGU on Sun Apr 29, 2018 10:40 am, edited 3 times in total.
~ Don't just do something. Sit there. ~

bloom2708
Posts: 4903
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Would you critique my portfolio please? Thanks!

Post by bloom2708 » Thu Apr 26, 2018 9:54 am

Welcome.

Lots to digest.

85/15 seems quite aggressive for 51. You have a shorter window to recover from big drops. Saving more with a reasonable allocation (70/30?) will be a smoother ride. But, risk varies from person to person.

Your mix of US to International/Global should be in the 20-40% range. If you get into that range, then I think you are fine.

In general, I think you have way too many funds. Lots and lots of overlap and owning the same thing in different forms. Bonds should be a mix of limited and intermediate in this rising interest rate environment.

Check to see if you are eligible for i401k being overseas. I am not up on those rules. I would guess you cannot do a Roth or regular 401k without US income.

I like to tell people to understand the 3 fund portfolio as a baseline. Total US + Total International + Bonds (Total US, Treasuries). Even if you choose to complicated, it is nice to know what the 3 fund is "buying the haystack" and covers everything. Buying more of sectors is tilting (buying more) of those specific things in hope that that add (not detract) from your performance. It may or may not work.

Others can add better ideas. Welcome again!
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

billfromct
Posts: 778
Joined: Tue Dec 03, 2013 9:05 am

Re: Would you critique my portfolio please? Thanks!

Post by billfromct » Thu Apr 26, 2018 10:13 am

I don't think you can fund an individual 401k unless you have self employment income while living the U.S.

Maybe someone who has tried this before can comment.

bill

FOGU
Posts: 133
Joined: Tue Apr 24, 2018 9:41 pm

Re: Would you critique my portfolio please? Thanks!

Post by FOGU » Thu Apr 26, 2018 3:51 pm

Thanks for the responses. I tried to space the text of the post so it would be easier to read and not so dense, but the system here wouldn't let me, at least I was unable in the way I was attempting to do it.

"I don't think you can fund an individual 401k unless you have self employment income while living the U.S."

I have done the research and confirmed with a CPA that an individual Roth 401(k) is allowed with foreign earned income. IRA contributions are not allowed without US based income. So the question is one not of "may I" but "should I" do the 401(k). I can't think of a reason why not but if someone has any caution against I would like to hear it.

Tax free going in and tax free coming out is as good as it gets. I should have been doing this for years. I asked my accountant many times over the last 10 years or so about how to make IRA contributions with my foreign income and all he ever told me was that I couldn't. He never once suggested an individual 401(k). Had he done so probably 80% of what is now in my taxable account would be in a Roth 401(k) and totally tax free. That guy is no longer my accountant.

Anybody know if I can fund an individual 401(k) with fund assets already owned, or if I must use "new" cash money?

@bloom2708 I have been lurking around here for some time so I think I understand the philosophy of simplicity behind the 3 fund portfolio, and I do appreciate the idea. I am looking to simplify some, but you are right, I am tilting with a few funds, e.g., the high dividend yield fund. I would probably simplify in the taxable account if I could, like dumping the STAR fund for example and buying an international index fund, but I have owned that fund for so long I don't want to realize the gain.

Vanguard's portfolio analysis has also suggested that I am slightly over-weighted toward long-term bonds so I plan to adjust that proportion inside the IRA.

As for asset allocation, I plan to be in accumulation for the next 8 to 10 years or so and will likely start scaling back on the aggressiveness over that time.

With new investment I plan to increase my international exposure.

Thank you for the warm welcome and thanks again for reviewing my post and for your suggestions.
Last edited by FOGU on Thu Apr 26, 2018 10:52 pm, edited 1 time in total.
~ Don't just do something. Sit there. ~

FOGU
Posts: 133
Joined: Tue Apr 24, 2018 9:41 pm

Re: Would you critique my portfolio please? Thanks!

Post by FOGU » Thu Apr 26, 2018 4:07 pm

"Saving more with a reasonable allocation (70/30?) will be a smoother ride."


Curious what you mean by "saving more."

Thank you.
~ Don't just do something. Sit there. ~

Doroghazi
Posts: 33
Joined: Thu Apr 26, 2018 9:56 am
Location: Columbia, MO

Re: Would you critique my portfolio please? Thanks!

Post by Doroghazi » Thu Apr 26, 2018 4:12 pm

Rather than an in-depth analysis, I would ask you "what are you concerned about"?,

FOGU
Posts: 133
Joined: Tue Apr 24, 2018 9:41 pm

Re: Would you critique my portfolio please? Thanks!

Post by FOGU » Thu Apr 26, 2018 8:23 pm

Doroghazi wrote:
Thu Apr 26, 2018 4:12 pm
Rather than an in-depth analysis, I would ask you "what are you concerned about"?,
That I have some hole or tax inefficiency in this portfolio.

I think I am short on international, and I think my bonds are weighted slightly too much to the long term.

Perhaps it is overly complicated with too many funds.

How should I invest new money based on what is here?

Can I fund my individual Roth 401(k) with mutual funds, or must I invest cash?

Other than that this is pretty much a DIY portfolio that I am just trying to get some feedback on.

Thank you.
~ Don't just do something. Sit there. ~

billfromct
Posts: 778
Joined: Tue Dec 03, 2013 9:05 am

Re: Would you critique my portfolio please? Thanks!

Post by billfromct » Thu Apr 26, 2018 9:47 pm

I didn't realize that you could open an individual 401k (traditional or Roth) with only foreign self employment income but not an IRA. Seems inconsistent why the IRS wouldn't allow foreign employed (not self employed) U.S. citizens to save for retirement (IRA) while working overseas.

Have you taken into account the Foreign Earned Income Exclusion ($104.1k for 2018) which, I believe, would reduce your taxable income for U.S. tax filing?

Just a question, if you are self employed in a foreign country, do you have to pay U.S. self employment (SS & Medicare) tax?

bill

FOGU
Posts: 133
Joined: Tue Apr 24, 2018 9:41 pm

Re: Would you critique my portfolio please? Thanks!

Post by FOGU » Thu Apr 26, 2018 10:45 pm

billfromct wrote:
Thu Apr 26, 2018 9:47 pm
I didn't realize that you could open an individual 401k (traditional or Roth) with only foreign self employment income but not an IRA. Seems inconsistent why the IRS wouldn't allow foreign employed (not self employed) U.S. citizens to save for retirement (IRA) while working overseas.

Have you taken into account the Foreign Earned Income Exclusion ($104.1k for 2018) which, I believe, would reduce your taxable income for U.S. tax filing?

Just a question, if you are self employed in a foreign country, do you have to pay U.S. self employment (SS & Medicare) tax?

bill
I didn't realize it either, and neither did my former accountant, and that ignorance will probably cost me a fortune in taxes.

Why the rules allow for 401(k) and not IRA I cannot explain. But I did the research after being tipped by an ex-pat finance blogger with the handle Go Curry Cracker. I had my research confirmed by a CPA. It is not an IRS rule, it is in the tax code itself.

Yes, I take full advantage of the FEIE which excludes earnings from income tax up to the limit you cite.

Self-employment tax applies to the self-employed, at home or abroad. I would rather not pay the self-employment tax if I could avoid it but I console myself with the fact that at least with that I am paying into the system which, in theory, is designed to give me something back in the form of a retirement benefit. Who knows if the system will deliver as promised, but the promise is there. With income tax the money vanishes and is gone forever.

Here are the main code provisions relating to 401(k) accounts and foreign earned income:

26 USC § 415(c)(3)(A) & (B)

https://www.law.cornell.edu/uscode/text/26/415

(3)Participant’s compensation

For purposes of paragraph (1)—
(A)In general
The term “participant’s compensation” means the compensation of the participant from the employer for the year.

(B)Special rule for self-employed individuals
In the case of an employee within the meaning of section 401(c)(1), subparagraph (A) shall be applied by substituting “the participant’s earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911)” for “compensation of the participant from the employer”

That highlighted portion refers to 26 USC § 911, the section of the internal revenue code that relates to the FEIE. Here is a link to section 911: https://www.law.cornell.edu/uscode/text/26/911
Last edited by FOGU on Fri Apr 27, 2018 11:23 pm, edited 1 time in total.
~ Don't just do something. Sit there. ~

Doroghazi
Posts: 33
Joined: Thu Apr 26, 2018 9:56 am
Location: Columbia, MO

Re: Would you critique my portfolio please? Thanks!

Post by Doroghazi » Fri Apr 27, 2018 9:15 am

Tough to be dogmatic, as you have done a great job. My only suggestion is that you might consider decreasing the number of positions. "The Myth of Diversification" is that it forces you outside of your area(s) of expertise, and do you really want to put money in your 80th or 90th favorite choice? Put money in your top 10 favorites. Go with your strengths.

bloom2708
Posts: 4903
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Would you critique my portfolio please? Thanks!

Post by bloom2708 » Fri Apr 27, 2018 10:19 am

FOGU wrote:
Thu Apr 26, 2018 4:07 pm
"Saving more with a reasonable allocation (70/30?) will be a smoother ride."


Curious what you mean by "saving more."

Thank you.
Well. People try to "catch up" by going 90/10 or 100/0. They hope for more return by taking a lot more risk.

Putting more money in at a "reasonable" allocation works better with lower risk. Corrections happen, recessions happen.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

FOGU
Posts: 133
Joined: Tue Apr 24, 2018 9:41 pm

Re: Would you critique my portfolio please? Thanks!

Post by FOGU » Fri Apr 27, 2018 4:16 pm

bloom2708 wrote:
Fri Apr 27, 2018 10:19 am
FOGU wrote:
Thu Apr 26, 2018 4:07 pm
"Saving more with a reasonable allocation (70/30?) will be a smoother ride."


Curious what you mean by "saving more."

Thank you.
Well. People try to "catch up" by going 90/10 or 100/0. They hope for more return by taking a lot more risk.

Putting more money in at a "reasonable" allocation works better with lower risk. Corrections happen, recessions happen.
Got it. Thanks.
~ Don't just do something. Sit there. ~

FOGU
Posts: 133
Joined: Tue Apr 24, 2018 9:41 pm

Re: Would you critique my portfolio please? Thanks!

Post by FOGU » Fri Apr 27, 2018 10:13 pm

Doroghazi wrote:
Fri Apr 27, 2018 9:15 am
Tough to be dogmatic, as you have done a great job. My only suggestion is that you might consider decreasing the number of positions. "The Myth of Diversification" is that it forces you outside of your area(s) of expertise, and do you really want to put money in your 80th or 90th favorite choice? Put money in your top 10 favorites. Go with your strengths.
Thank you for this. Composing this post has made me look critically at the fact that I own 18 different mutual funds. I will be looking to simplify but the ones I would like to sell off and consolidate into a simpler index position are mostly in the taxable account with significant gain I do not wish to realize.

This has been a sort of patchwork effort over a long time of saving and investing and allocating and adjusting and learning. At least everything is in one place so it is not that difficult to keep track.
~ Don't just do something. Sit there. ~

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sergeant
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Re: Would you critique my portfolio please? Thanks!

Post by sergeant » Fri Apr 27, 2018 10:37 pm

I would look here at the 3 fund portfolio and start moving towards it. I'm not a big fan of so many funds.

Your AA seems aggressive but I'm four years older and have "won the game" so feel comfortable at 50% equities/ 50% stable value, MM, and Cd's. About half of our equities are international. Many wise people say international isn't needed, many wise people say it is.
Lincoln 3 EOW!

FOGU
Posts: 133
Joined: Tue Apr 24, 2018 9:41 pm

Re: Would you critique my portfolio please? Thanks!

Post by FOGU » Mon May 21, 2018 10:52 pm

sergeant wrote:
Fri Apr 27, 2018 10:37 pm
I would look here at the 3 fund portfolio and start moving towards it. I'm not a big fan of so many funds.

Your AA seems aggressive but I'm four years older and have "won the game" so feel comfortable at 50% equities/ 50% stable value, MM, and Cd's. About half of our equities are international. Many wise people say international isn't needed, many wise people say it is.
Yes, maybe I am playing a bit of catch up. With a two and three year old now in the fold to provide for, maybe I am trying to make up ground. But I do plan to scale back the aggressiveness in the coming years with new investment.

As for international, I was just wondering about the concept that VTSAX and VFIAX provide the international exposure that some recommend. With about 9% international stock funds, plus VTSAX and VFIAX comprising some 60% of overall positions, does this give me enough international? Or is that a fallacious idea?

Thank you.
~ Don't just do something. Sit there. ~

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