Review of assert allocation for possible house downpayment

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manedark
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Review of assert allocation for possible house downpayment

Post by manedark » Sat May 12, 2018 8:22 pm

I got some very good advise in this thread: viewtopic.php?f=1&t=248816

Age : 38 M
Tax Status: Resident Alien in 24 Federal nd 9.3% CA tax brackets.
Total Household income : 150K
401K : Right now at 19K (all invested in Vangaurd Index funds with low ER with 80-20 stocks-bonds allocation) - contributing 9K yearly to get company match. (I might consider increasing my share of 401K to full 18.5K).
Her tIRA: $5500 contributed last year and going to do same this year.
Total amount available to be invested : 175K
House Down-payment Fund: 100K - for this one I dont want to take too much risk.
Taxable account investment: 75K (all stocks and I can take risk).
Goals: Might buy a house in the next 5-10 years but might also defer it all the way to retirement i.e. for the next 20 years.
Debt: 0$ (paid off the car which was at 2%)
This gives me a rough 40-60 stocks-bonds asset allocation, but I would keep increasing the stock part over the years, and not touching the bond part till we are ready to buy a house (perhaps in the next 5 years or so).

After going through it all, here is the final investment allocation I am looking at for the 135K I have to invest (I have purposely made it a little bit more aggressive - closer to 50-50 stocks/bond AA).
70K in Muni Bonds - VMLTX 35K and VCITX 35K
65K in Stock Funds - VTSAX 35K and 30K in VTIAX

What do you think about this AA?
Is overexposure to Munis reasonable to for my tax bracket or should I add more Treasury Bonds - if yes, in what form - buy TIPS, I-Bonds?
I am skipping the CD ladder part here, because the said bonds will give me roughly 1% more tax equivalent yield and also the CDs are kind of non-liquid.

That said, my EF of ~30K will in a 1.5% yield saving account with Ally Bank - ready to use any time. (Additionally I have close to 90K in funds available offshore - before I moved to the US that I can bring in after conversion to USD if I am really short on the house down-payment or emergency funds).

Thanks a lot for final list of advise to start executing on this AA.

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Tyler Aspect
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Re: Review of assert allocation for possible house downpayment

Post by Tyler Aspect » Sat May 12, 2018 9:07 pm

I do not recommend buying a house in California. The price is often out of reach. Even to save for it will have you invest the downpayment conservatively for a long time. That is a big opportunity cost versus deciding not to buy a house.

Not purchasing a house will get you a mostly stock taxable account, with your bond situated within a 401k account where it is more tax efficient. You will be able to avoid the house poor syndrome as well.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

manedark
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Re: Review of assert allocation for possible house downpayment

Post by manedark » Sun May 13, 2018 1:49 pm

Tyler Aspect wrote:
Sat May 12, 2018 9:07 pm
I do not recommend buying a house in California. The price is often out of reach. Even to save for it will have you invest the downpayment conservatively for a long time. That is a big opportunity cost versus deciding not to buy a house.

Not purchasing a house will get you a mostly stock taxable account, with your bond situated within a 401k account where it is more tax efficient. You will be able to avoid the house poor syndrome as well.
I kind of agree - it will be out of reach for us in CA - unless we drastically scale down on expectations - which we are OK to do - a 1 bedroom condo kind of thing instead of single family home. Further, I was even thinking out of Bay Area - in a nearby town and renting it out. Do you think that approach of renting out a house will be too much hassle for too less return compared to investing a stock heavy portfolio?

manedark
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Re: Review of assert allocation for possible house downpayment

Post by manedark » Mon May 14, 2018 12:02 am

Bump up.

If we take house down payment as a goal for next 10 years atleast how should the AA change, can it change to the more aggressive 80-20 in favor of stocks.

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Tyler Aspect
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Re: Review of assert allocation for possible house downpayment

Post by Tyler Aspect » Mon May 14, 2018 7:44 pm

manedark wrote:
Sun May 13, 2018 1:49 pm
Tyler Aspect wrote:
Sat May 12, 2018 9:07 pm
I do not recommend buying a house in California. The price is often out of reach. Even to save for it will have you invest the downpayment conservatively for a long time. That is a big opportunity cost versus deciding not to buy a house.

Not purchasing a house will get you a mostly stock taxable account, with your bond situated within a 401k account where it is more tax efficient. You will be able to avoid the house poor syndrome as well.
I kind of agree - it will be out of reach for us in CA - unless we drastically scale down on expectations - which we are OK to do - a 1 bedroom condo kind of thing instead of single family home. Further, I was even thinking out of Bay Area - in a nearby town and renting it out. Do you think that approach of renting out a house will be too much hassle for too less return compared to investing a stock heavy portfolio?
The primary issue is the out of reach housing price. Deciding to rent out rooms of a house assumes you already have a house, which you do not. Suppose you save for a downpayment using stock, then your downpayment fund would be subject to market risks, with potential large setbacks.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

manedark
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Re: Review of assert allocation for possible house downpayment

Post by manedark » Mon May 14, 2018 8:29 pm

Tyler Aspect wrote:
Mon May 14, 2018 7:44 pm

The primary issue is the out of reach housing price. Deciding to rent out rooms of a house assumes you already have a house, which you do not. Suppose you save for a downpayment using stock, then your downpayment fund would be subject to market risks, with potential large setbacks.
I guess I didn't phrase my reponse clearly. What I meant was foregoing the house target for the forseeable future i.e. not till retirement at around 58, in that case, since I have a larger windoe of 20 years, does it make sense to go for stocks, hoping for similar ROI over the years as a house would - or atleast in the same ballpark.

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sergeant
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Re: Review of assert allocation for possible house downpayment

Post by sergeant » Mon May 14, 2018 9:49 pm

Real estate is location specific and who knows what the ROI will be over the next 20 years. In the past a diversified stock portfolio has, with a few exceptions, returned more than a residence in which you occupy.
Lincoln 3 EOW!

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Tyler Aspect
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Re: Review of assert allocation for possible house downpayment

Post by Tyler Aspect » Mon May 14, 2018 10:26 pm

At retirement near age 58 you could move to a low cost living area and purchase a house with stock money all cash down.
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manedark
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Re: Review of assert allocation for possible house downpayment

Post by manedark » Mon May 14, 2018 11:20 pm

sergeant wrote:
Mon May 14, 2018 9:49 pm
Real estate is location specific and who knows what the ROI will be over the next 20 years. In the past a diversified stock portfolio has, with a few exceptions, returned more than a residence in which you occupy.
Thanks. Is there some data or studies that show this - links?

APB
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Re: Review of assert allocation for possible house downpayment

Post by APB » Mon May 14, 2018 11:21 pm

You sound pretty flexible on whether to purchase a house vs. rent, that's wise. Homes have a certain expected return, and that return varies based on rent-to-buy ratios, expenses, and interest rates for mortgages.

I'd agree it makes sense to wait until you have more assets, and maintain the flexible mindset. Bay Area housing is very expensive, and expected returns are low when you look at the cost of buying vs. renting, and the fact that many Bay Area residents are starting to get pushed to their limits on the cost of housing.

In the future, Bay Area housing may become a reasonable purchase again. If I were you, I'd do my AA agnostic to whether I purchased a home, save well, and worry about that purchase decision once you have the assets behind you, and the local housing market is reasonable.

If Bay Area housing remains ridiculous for the next 2-3 decades, you can still have a great life knowing that you got a better deal by renting, and maintained the life flexibility to easily move and live in whatever city or neighborhood you desire at that time. :beer
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

manedark
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Re: Review of assert allocation for possible house downpayment

Post by manedark » Mon May 14, 2018 11:22 pm

Tyler Aspect wrote:
Mon May 14, 2018 10:26 pm
At retirement near age 58 you could move to a low cost living area and purchase a house with stock money all cash down.
Yes that is my thinking leaning on. Also out of CA we would avoid taxes and high COL.

manedark
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Re: Review of assert allocation for possible house downpayment

Post by manedark » Mon May 14, 2018 11:30 pm

APB wrote:
Mon May 14, 2018 11:21 pm
You sound pretty flexible on whether to purchase a house vs. rent, that's wise. Homes have a certain expected return, and that return varies based on rent-to-buy ratios, expenses, and interest rates for mortgages.

I'd agree it makes sense to wait until you have more assets, and maintain the flexible mindset. Bay Area housing is very expensive, and expected returns are low when you look at the cost of buying vs. renting, and the fact that many Bay Area residents are starting to get pushed to their limits on the cost of housing.

In the future, Bay Area housing may become a reasonable purchase again. If I were you, I'd do my AA agnostic to whether I purchased a home, save well, and worry about that purchase decision once you have the assets behind you, and the local housing market is reasonable.

If Bay Area housing remains ridiculous for the next 2-3 decades, you can still have a great life knowing that you got a better deal by renting, and maintained the life flexibility to easily move and live in whatever city or neighborhood you desire at that time. :beer
Thanks @APB. Yes I agree a lot with all that you said. I just needed reaffirmation on this aspect. It is important to hold on to what us important to yourself in the face of incessant media & news telling you to do another thing. The flexibility part is very dear to us. I will go towards making a 60-40 AA in favor of stocks.

APB
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Re: Review of assert allocation for possible house downpayment

Post by APB » Mon May 14, 2018 11:52 pm

Happy to help! :)
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

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