Portfolio Review Request

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dkb140
Posts: 61
Joined: Mon May 21, 2018 3:30 pm

Portfolio Review Request

Post by dkb140 » Tue May 22, 2018 4:00 pm

Age: 42.5 (Nov 1975)
Debt: $19,500 auto loan @ 2.39%, $1000 student loan @ 6%
Tax Filing Status: Single
Tax Rate: 22% Federal, 0% State
State of Residence: TX
Desired Asset allocation: 90-100% Stocks 0-10% Bonds
Desired International allocation: 10-20%

As of today I have:

FIDELITY 401(K) $61,563
31.15% SS S&P 500 Index K (0.013%)
30.47% JPMCB SR PB 2040 CFC (0.23%)
19.30% International Equity (.2808%)
15.99% Small Cap Blend (0.71%)
03.09% Charter Stock Fund (0.0492%)

FIDELITY 401(A) $5,311
49.88% SS S&P 500 INDEX K (0.013%)
25.65% Small Cap Blend (0.7144%)
14.70% International Equity (0.2808%)
09.77% JPMCB SR PB 2045 CFC (0.23%)

Other Fidelity Options:
SS RSL SMMDCP IDX K (0.04%)
SS GACEQ EX-US IDX K (0.104%)
SS US BOND INDEX K (0.04%)

AMERIPRISE Roth IRA $118,469 *** Moving to Vanguard ASAP
I'm thinking: 80% VFIAX or VSTAX and 20% VTIAX and/or VTMGX

About $42,000 Cash in: Checking, Savings (Emergency), and HYS (House) Funds

I expect to earn about $87-88k in W2 income this year, and expect that to increase about 2-3% for the next few years. I also earned an additional $24,500 in 1099 revenue. I expect to gross around $36k this year and $24k next year. So far I've been able to cover almost all of this revenue with mileage, home office, and other business expenses. Current fixed monthly expenses are around $3000/mo with another $500-1000 variable. The rest had been going to the student loans and is now going into short-term savings towards the house and retirement funds.

I've been contributing 6% pre-tax to my 401k to get my full 6% match and $5500 to my Roth IRA for the last several years. I also receive an additional 3% in an employer-funded 401a plan. I increased my 401k contributions at the end of 2017 and I plan to max out my 401k starting this year. I have Roth 401k contribution and conversion options. I made about $6500 in Roth contributions so far this year, but upon further research I think I'm better off shifting back to all traditional pre-tax contributions, yes? So total I expect to have about: $12000 pre-tax 401k, $6500 Roth 401k, $5500 Roth IRA, and $7900 in employer match this year. $18500 pre-tax 401k, $5500 Roth IRA, and $8000+ match from next year on to 50. Then whatever the limits are after that until retirement or semi-retirement.

My current Social Security estimates are $2385/mo @ age 67 or $3019/mo @ age 70. My thoughts after reading the forums are to postpone Social Security to age 70 (as a hedge against inflation and longevity), plan to draw primarily on my taxable funds & 401k from retirement to 70, and save my Roth IRA to Supplement Social Security later. I had previously planned to work up until age 67-70 but due to health concerns I'd like to try to push my target retirement age up towards 59.5. Realistically I may continue working until 65 for healthcare benefits but I'd like to explore earlier retirement options, hence me ramping up my retirement savings.

So I anticipate a 17-23 year horizion on my 401k and a 28+ year horizon on my Roth IRA. I'm very aggressive and risk-tolerant so I'm inclined to go 100% Stocks for now before shifting to a more moderately aggressive Stock/Bond allocation in my 401k and maintain a very aggressive all-equity portfolio in my Roth until I start drawing down my 401k.

Am I on the right track with this overall strategy?
What Fidelity 401k and Vanguard Roth IRA portfolios do you recommend?
I was hoping to add a SEP or Simple IRA, but I don't think I can do that without increasing my tax liability, can I? My Self-Employment income may only last another year or two, is it worth setting anything up anyway? Any suggestions here?
If I can't add a SEP/SIMPLE/solo plan, what taxable investments should I add to the mix next year?

TYVM

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Alexa9
Posts: 1571
Joined: Tue Aug 30, 2016 9:41 am

Re: Portfolio Review Request

Post by Alexa9 » Tue May 22, 2018 4:03 pm

Asset allocation should be very simple:
https://www.bogleheads.org/wiki/Three-fund_portfolio
With a small value tilt if you want to get fancy.

ExitStageLeft
Posts: 899
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Review Request

Post by ExitStageLeft » Tue May 22, 2018 5:04 pm

You are definitely on track for a successful retirement within 20 years. I did a quick analysis at http://www.cfiresim.com/ using your current balance, 20 years of $32k contributions, and a 60/40 asset allocation. Comparing those inputs against historical market returns, you could spend $80k per year in a 35 year retirement.

When looking at your portfolio, it's best to report each asset as a percent of the total portfolio. When doing asset allocation or rebalancing, you also want to view the entire portfolio as a single lump. If you want to do a three-fund porfolio with 25% bonds, this is one option:

FIDELITY 401(K) $61,563
25% SS US BOND INDEX K (0.04%)
8% SS S&P 500 Index K (0.013%)

FIDELITY 401(A) $5,311
3% SS S&P 500 INDEX K (0.013%)

Vanguard Roth IRA $118,469
45% Vanguard Total Stock VTSAX (0.04%)
19% Vanguard Total World Index VTIAX (0.11%)

Note that percentages add up to 100. That would give you a diverse, low cost set of indexed funds with 75% in equities and 25% in bonds, with 25% of equities in international. If you get to where you are building a large taxable portfolio you could move your international fund into that to take advantage of the foreign tax credit.

dkb140
Posts: 61
Joined: Mon May 21, 2018 3:30 pm

Re: Portfolio Review Request

Post by dkb140 » Tue May 22, 2018 5:16 pm

So in building a 3-fund portfolio,

In my Fidelity 401k I have available:
SSSYX State Street S&P 500 Index Non-Lending Series Fund Class K (0.013%)
SSGLX State Street Global All Cap Equity Ex-U.S. Index Non-Lending Series Fund Class K (0.104%)
SSFEX State Street U.S. Bond Index Non-Lending Series Fund Class K (0.04%)

In the Vanguard Roth IRA I'm thinking:
VFIAX Vanguard 500 Index Fund Admiral Shares (0.04%)
VTIAX Vanguard Total International Stock Index Fund Admiral Shares (0.11%)
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

Do those make sense for my 3 funds in each account?

EnjoyIt
Posts: 1581
Joined: Sun Dec 29, 2013 8:06 pm

Re: Portfolio Review Request

Post by EnjoyIt » Tue May 22, 2018 5:27 pm

Why do you have all this cash but still owe $1000 in student loans at 6%. Pay it off and be done with it.

The studies show having a small bond percentage up to about 20% won't lower your returns but may actually increase them. Therefore I would recommend being closer to 10% bonds instead of 0%

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Duckie
Posts: 5954
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio Review Request

Post by Duckie » Tue May 22, 2018 6:13 pm

dkb140 wrote:Age: 42.5
<snip>
Desired Asset allocation: 90-100% Stocks 0-10% Bonds
At your age I'd be 30% bonds.
Desired International allocation: 10-20%
Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks. 20% is reasonable.
Other Fidelity Options:
The best options are:
  • SS S&P 500 Index K (0.013%) -- Large caps, 80% of US stocks
  • SS RSL SMMDCP IDX K (0.04%) -- Mid/small caps, 20% of US stocks
  • SS GACEQ EX-US IDX K (0.104%) -- Almost complete international stocks
  • SS US BOND INDEX K (0.04%) -- US bonds
Right now you're paying 0.71% for small cap when you could be paying 0.04%. You're paying 0.28% for international when you could be paying 0.10%. You've got a target-date fund mixed in with individual funds.
AMERIPRISE Roth IRA $118,469 *** Moving to Vanguard ASAP
I'm thinking: 80% VFIAX or VSTAX and 20% VTIAX and/or VTMGX
VTSAX and VTIAX are perfect in a Roth IRA. Make sure you consider the Roth IRA and 401k/401a together when figuring your AA for your portfolio.
About $42,000 Cash in: Checking, Savings (Emergency), and HYS (House) Funds
Take $1K and pay off that student loan.
I was hoping to add a SEP or Simple IRA, but I don't think I can do that without increasing my tax liability, can I?
Contributions to a pre-tax plan will lower your income and reduce your taxes.
My Self-Employment income may only last another year or two, is it worth setting anything up anyway? Any suggestions here?
If you have no employees you can open a solo 401k. Even if your business doesn't last you can keep the account open and it might be useful in the future if you want to roll other pre-tax assets into it.
If I can't add a SEP/SIMPLE/solo plan, what taxable investments should I add to the mix next year?
Total Stock and/or Total International Stock.
Do those make sense for my 3 funds in each account?
The three funds are across the entire portfolio, not in each account. In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already the paid the taxes in the Roth accounts so future growth is tax-free. So put bonds in your pre-tax 401k, not your Roth IRA.

dkb140
Posts: 61
Joined: Mon May 21, 2018 3:30 pm

Re: Portfolio Review Request

Post by dkb140 » Tue May 22, 2018 6:47 pm

Perfect, thank you for your guidance!

To clarify: I intentionally left a small balance on the student loan as it's the oldest open account I have. I may trim it down a little more but I'll gladly pay a few more bucks in interest over the next decade to keep it on my credit report as long as possible.

So far I've been able to expense most of my 1099 revenue leaving very little net income. I had $24,500 in cash flow last year, but only about $500 left in net income after mileage, home office, meals, and other expenses. If I can only invest 20 or 25% of that $500 in a SEP/SIMPLE, is it worth the paperwork to put away another $100 or $125? Can I contribute to a solo-401k if I am maxing out my employer's 401k? Would it make sense to reduce my contributions at work to open a solo-401k? Is there any way to tuck away more self-employment cash without having to increase my self-employment income or cut my current 401k contributions?

dkb140
Posts: 61
Joined: Mon May 21, 2018 3:30 pm

Re: Portfolio Review Request

Post by dkb140 » Wed May 23, 2018 1:50 pm

I want to move the $118,500 in my Roth IRA out of Ameriprise ASAP. I had planned to move it to Vanguard, but I see arguments for Fidelity or Schwab. I'm also a USAA member but I don't see any savings moving it there.

I Intend to hold these funds primarily in a Total Market Index and an International Index, like VTSAX & VTIAX, for a very long time. I will keep my Bond allocation in my Fidelity 401K/401A. I may also look to add a taxable brokerage account in a year or two, but I'm not there yet.

I was expecting Vanguard to have the lowest costs and I do like the idea of it being member-owned, but it looks like Fidelity and Schwab both have equivalent funds with lower expenses.

Would you suggest Schwab or Fidelity over Vanguard? Any significant risks or benefits of having ALL my accounts with Fidelity? I live near Dallas so there are both Fidelity and Schwab offices here, although I cant needing them anytime soon.

Thank You Again.

ExitStageLeft
Posts: 899
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Review Request

Post by ExitStageLeft » Wed May 23, 2018 2:20 pm

All three brokerages are used by Bogleheads as they all offer low cost indexed funds. Schwab and Fidelity are reported to have a better online user experience, and may offer an incentive to switch an account.

There may be some good arguments to not having everything at one brokerage. Particularly when you get to the decumulation stage, it may be beneficial to having ready funds at more than one brokeage in the event of a systemic crises in either the market or a single business. That doesn't worry me today, as I am still working. I may weight that concern much higher when I'm retired and needing to get money out of Vanguard and their system is locked down.

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Duckie
Posts: 5954
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio Review Request

Post by Duckie » Wed May 23, 2018 3:13 pm

dkb140 wrote:If I can only invest 20 or 25% of that $500 in a SEP/SIMPLE, is it worth the paperwork to put away another $100 or $125?
You can only contribute ~20% of that $500 to the SEP IRA as the employER, but you can contribute most of the $500 to the SIMPLE IRA as the employEE plus 3% as the employER. I'm not sure how the actual dollars break down. Whether that's worth it is up to you.
Can I contribute to a solo-401k if I am maxing out my employer's 401k?
If you are maxing your W-2 401k then you can't contribute to the solo 401k as the employEE, but you can contribute ~20% as the employER.
Would it make sense to reduce my contributions at work to open a solo-401k?
It would make sense if the solo 401k options are better/cheaper than the W-2 401k options (as long as you don't forgo any matching). But I doubt your solo 401k can beat your W-2 401k options.

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