Roast this profile

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BeautifulDisaster
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Joined: Thu Jan 11, 2018 12:56 pm

Roast this profile

Post by BeautifulDisaster » Thu May 31, 2018 4:33 pm

Well, don't roast it...just give it your honest feedback


Emergency funds: 6 - 12 Month Savings
Debt: No Debt
Tax Filing Status: Single
Tax Rate: 22% Federal, 6.27% State
State of Residence: WI
Age: 27

Current retirement assets

Taxable
5% Cash
1% Vanguard S&P Index 500 ETF (VOO, ER: .04)
4% Vanguard Total Stock Market ETF (VTI, ER:.04)
4% Vanguard Large Cap ETF (VV, ER: .05)
5% ESPP

401k
48% Vanguard Target Retirement 2055 Fund (VFFVX) (Standard Traditional 401k) Company match: 3.5%

Roth IRA
30% Vanguard Target Retirement 2055 Fund (VFFVX) (Expense Ratio: .15)

H.S.A
3% Not invested

New annual Contributions
  • Max 401k (excludes 6% employer match)
  • Max Roth IRA
  • Max H.S.A and when I have enough saved up to lower the $2.90 monthly fee invest in
    • 50% Vanguard Total Stock Market Instl (VITSX)
    • 50% Vanguard Total Bond Market Index Admiral (VBTLX)
  • Max company ESPP discount (10% discount) and then sell after 1 year
  • Lump sum any extra cash into VTI and VV
If more info is needed, please let me know and I'll edit.

Questions:

1. How am I doing?

2. Am I better off not investing in the company’s ESPP program and just investing in VTI and VV instead?

2.1 Any strategies you’d recommend when it comes to ESPPs?

3. Any other recommendations?
Last edited by BeautifulDisaster on Thu May 31, 2018 4:45 pm, edited 1 time in total.

livesoft
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Re: Roast this profile

Post by livesoft » Thu May 31, 2018 4:38 pm

1. You are doing great.

2. No one can predict the future. I see no reason not to experiment with this. Your are only 27-28 once in your life.

3. I'm confused because you state (I think) that money will go into Total Bond, (nevermind that's your HSA) but you are using Target Retirement in 401(k). I think it is OK to use Target Retirement at your age in tax-advantaged accounts and have taxable account all equities. But I also realize that many folks want less risky than 100% equities in taxable because they may be saving for cars, marriage, appliances, vacations, ransoms, and whatever.
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ExitStageLeft
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Re: Roast this profile

Post by ExitStageLeft » Thu May 31, 2018 5:26 pm

A 10% discount on the company stock makes the ESPP pretty appealing. But it is a single stock, and you are already invested in the company with your job. I suggest sticking to no more than a 5% position for the ESPP, and selling after a year. Other than it looks pretty clean. You have some substantial overlap with your large cap tilt between VV and VOO. I'd simplify and just pick one.

You can get pretty close to the same allocation as the 2055 fund by selecting the funds yourself and saving about 0.1% in fees. I'd skip the international bonds and go with 54% VTSAX, 36% VTIAX, and 10% VBTLX. That would have an expense ratio of about 0.065%

Of course the best and easiest way to manage the allocation is to look at all the assets as a single lump, then place each allocation in accordance with its tax efficiency. Suppose you roll your own in the IRA accounts instead of using the target date fund. In that case, your overall assets would be:

8% Cash
5% ESPP
1% Vanguard S&P Index 500 ETF (VOO, ER: .04)
4% Vanguard Total Stock Market ETF (VTI, ER:.04)
4% Vanguard Large Cap ETF (VV, ER: .05)
42% VTSAX
28% VTIAX
8% VBTLX

If you ditch the VOO, and treating the VTI and VTSAX interchangeably, your overall allocation would be:

8% Cash
5% ESPP
5% Vanguard Large Cap ETF (VV, ER: .05)
46% VTSAX/VTI
28% VTIAX
8% VBTLX

Then figure out where you want each of those to be. Having an international stock fund in taxable is beneficial in that you can claim the foreign tax credit. You might end up with something like:

Taxable
14% VTIAX
5% ESPP

401k
26% VTSAX/VTI
14% VTIAX
8% VBTLX

Roth IRA
5% Vanguard Large Cap ETF (VV, ER: .05)
25% VTSAX/VTI

H.S.A
3% VBTLX

When it comes time to re-balance you would only have to make a couple adjustments in your 401k.

Edit to add: I made a correction in the 401k so that there is an overall 11% bonds holding. These are both in pre-tax accounts so that any income they generate doesn't have any immediate effect.

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bottlecap
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Re: Roast this profile

Post by bottlecap » Thu May 31, 2018 5:34 pm

You are doing great. Impressive.

I wouldn't use the ESPP unless you could unload the stock fairly quickly.

I don't know much about ESPP's and imagine that they vary from employer to employer, so I can't offer anything there.

Nice job!

JT

Grt2bOutdoors
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Re: Roast this profile

Post by Grt2bOutdoors » Thu May 31, 2018 5:47 pm

The taxable account is structured towards large cap equities, I would keep VTI and add a sliver of either VBR or VIOV.

We can now take the steak off the grill.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Watty
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Re: Roast this profile

Post by Watty » Thu May 31, 2018 5:59 pm

BeautifulDisaster wrote:
Thu May 31, 2018 4:33 pm
3. Any other recommendations?
You are doing great, a few things to add if you are not already doing them.

1) Build up an emergency fund.

2) Save some money each month into a seperate car fund to pay cash for your next car.

3) Start saving up a house downpayment fund. There is no hurry to buy a house and lots of good reasons to wait but by the time you are in your mid 30's buying a house might make sense so having a house fund saved up can give you more options then.

4) Make sure that you have a good balance on "now vs later". There are lots of things that you can do while you are young, single, and presumably in good health and without kids that may be much harder to do later in life. You are saving a lot but there would be nothing wrong with spending some money to so something like take a budget backpack and hostel trip to Europe.

BeautifulDisaster
Posts: 47
Joined: Thu Jan 11, 2018 12:56 pm

Re: Roast this profile

Post by BeautifulDisaster » Fri Jun 01, 2018 11:21 am

Thanks for all the great and insightful feedback!
Grt2bOutdoors wrote:
Thu May 31, 2018 5:47 pm
The taxable account is structured towards large cap equities, I would keep VTI and add a sliver of either VBR or VIOV.
I'll definitely start doing that on the next lump sum investment, thanks!
Watty wrote:
Thu May 31, 2018 5:59 pm
4) Make sure that you have a good balance on "now vs later". There are lots of things that you can do while you are young, single, and presumably in good health and without kids that may be much harder to do later in life. You are saving a lot but there would be nothing wrong with spending some money to so something like take a budget backpack and hostel trip to Europe.
Great advice, I love traveling and have been zeroing on types of travel. More recently, hiking up mountains have been more of my thing. But nonetheless, yes too all your advice. Thanks!
ExitStageLeft wrote:
Thu May 31, 2018 5:26 pm
A 10% discount on the company stock makes the ESPP pretty appealing. But it is a single stock, and you are already invested in the company with your job. I suggest sticking to no more than a 5% position for the ESPP, and selling after a year. Other than it looks pretty clean. You have some substantial overlap with your large cap tilt between VV and VOO. I'd simplify and just pick one.
We're capped at purchasing 15% of our income of it and last month I made the call to just max it out. My thought process was, it's free money, why not?

The 52-wk low has been $140.60 and the 52-wk high was $194.10 and my exit strategy is when it hits $175 or $130.
ExitStageLeft wrote:
Thu May 31, 2018 5:26 pm
ou can get pretty close to the same allocation as the 2055 fund by selecting the funds yourself and saving about 0.1% in fees. I'd skip the international bonds and go with 54% VTSAX, 36% VTIAX, and 10% VBTLX. That would have an expense ratio of about 0.065%
I'm slowly gaining the confidence to manage the funds myself and you've really helped laying it out that's easy to understand. Many thanks!
ExitStageLeft wrote:
Thu May 31, 2018 5:26 pm
You have some substantial overlap with your large cap tilt between VV and VOO. I'd simplify and just pick one.
I should note that I don't contribute to VOO anymore, I figure I'd leave it there for the time being and use it in the future for Tax Loss Harvesting....when I understand it more
Grt2bOutdoors wrote:
Thu May 31, 2018 5:47 pm
We can now take the steak off the grill.
Bon Appétit

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David Jay
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Location: Michigan

Re: Roast this profile

Post by David Jay » Fri Jun 01, 2018 11:29 am

BeautifulDisaster wrote:
Fri Jun 01, 2018 11:21 am
ExitStageLeft wrote:
Thu May 31, 2018 5:26 pm
A 10% discount on the company stock makes the ESPP pretty appealing. But it is a single stock, and you are already invested in the company with your job. I suggest sticking to no more than a 5% position for the ESPP, and selling after a year. Other than it looks pretty clean. You have some substantial overlap with your large cap tilt between VV and VOO. I'd simplify and just pick one.
We're capped at purchasing 15% of our income of it and last month I made the call to just max it out. My thought process was, it's free money, why not?

The 52-wk low has been $140.60 and the 52-wk high was $194.10 and my exit strategy is when it hits $175 or $130.
Purchasing stock through an ESPP is fine, but your exit strategy should be to sell each purchase as soon as it clears the holding period. Again: 1. Having a substantial holding in one stock is risk that need not be taken, diversification is the only true "free lunch" in the investment world.
2. Your job and your company stock are both dependent on a the performance of a single corporation. Way too much economic concentration.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

rbaldini
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Re: Roast this profile

Post by rbaldini » Fri Jun 01, 2018 12:05 pm

ESPP can be a great thing. Depends how it works.

At my company, we can elect to have up to 10% of our income held back for 6 months. At the end of the 6 months, that held-back money is used to purchase company stock at a 15% discount *below the lowest price in that 6-month period!*. We can sell immediately (since we have already been foregoing payment for a while).

I take full advantage of this: I contribute the full 10% (In addition to fully funding my 401k!) and sell as soon as I get the shares. Think about it: it's a *guaranteed* return of 17.6% (that is, 1/(1-.15)) *in less than 6 months* (for later paychecks in the period, it's even better), with a chance of substantially higher return. There is no better investment opportunity than that in the world, for me.

But your plan might be entirely different. I'd say read the details and maybe post them here if you want help. But it sounds like you are provided the stocks upfront and can only sell 1 year later. Much more risk if that's the case, though you might look at your company's history.

BeautifulDisaster
Posts: 47
Joined: Thu Jan 11, 2018 12:56 pm

Re: Roast this profile

Post by BeautifulDisaster » Fri Jun 01, 2018 1:42 pm

David Jay wrote:
Fri Jun 01, 2018 11:29 am
Purchasing stock through an ESPP is fine, but your exit strategy should be to sell each purchase as soon as it clears the holding period. Again: 1. Having a substantial holding in one stock is risk that need not be taken, diversification is the only true "free lunch" in the investment world.
2. Your job and your company stock are both dependent on a the performance of a single corporation. Way too much economic concentration.
I agree that the risk a greater and not necessarily needs to be taken. I also believe with a 99 year old company is a fairly stable company that holding for 1 year shouldn't put me at risk, especially since it's 5% of my total portfolio and the rest of my portfolio is fairly diversified. Thoughts?
rbaldini wrote:
Fri Jun 01, 2018 12:05 pm
I'd say read the details and maybe post them here if you want help.
Plan Details
  • There are no brokerage fees and pays any administrative fees
  • 10% discount off the market value.
  • You can elect to have 1-15% of your base pay withheld each pay period to use toward the purchase of stock. Once your enrollment is processed, payroll deductions in the amount specified will begin on the next available payroll cycle.
  • All deductions are withheld post-tax.
  • Accumulated monthly deductions and imputed income will be used to purchase partial/full shares of stock on the 5th of the following month for US purchases and the 10th of the following month for Int’l purchases.
  • The share purchase price will be determined by the open market price at the time of the purchase.
  • Shares can be sold or transferred at any time.
  • You will be charged a commission fee by Morgan Stanley when you sell your shares.
Last edited by BeautifulDisaster on Sat Jun 02, 2018 8:53 am, edited 1 time in total.

ExitStageLeft
Posts: 485
Joined: Sat Jan 20, 2018 4:02 pm

Re: Roast this profile

Post by ExitStageLeft » Fri Jun 01, 2018 2:23 pm

I'm talking myself through this to ensure I understand the implications of your ESPP.

If you sell immediately on the 5th of the month, you earn 10% less the commission. This gets taxed at your marginal rate. ~10% free money.

If you hold for a year and a day then sell, you get long term capital gains (or loss) that might be in that same 10% range. Assuming no other LTCG, these are in the 0% LTCG bracket. ~10% tax-free free money. :sharebeer

emlowe
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Re: Roast this profile

Post by emlowe » Fri Jun 01, 2018 3:08 pm

My 2cents:

Please understand that the LTGC calculation for ESPP shares is not as simple as 1 year from purchase. Rather it is:

hold your shares for more than a year after the purchase date AND more than two years after the beginning of the offering period

You need to understand the offering period in order to decide how long to hold the shares.

Assuming you put in the max 15% of your base pay, and you can sell nearly immediately, then selling immediately is pretty equivalent to getting a 1.5% pay raise (W2 income) (10% of 15% of your pay)

Now, if I just gave you a 1.5% pay raise, would you use that money to buy your company stock? If not, then sell immediately, take your pay raise and invest bogelishly.

Holding the shares for LTCG gains is an easy way to lose money on ESPP shares, in what otherwise is guaranteed money.

-Earle

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Sandtrap
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Re: Roast this profile

Post by Sandtrap » Fri Jun 01, 2018 4:13 pm

Very nice.
Congratulations. :moneybag

ExitStageLeft
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Re: Roast this profile

Post by ExitStageLeft » Fri Jun 01, 2018 4:30 pm

emlowe wrote:
Fri Jun 01, 2018 3:08 pm
My 2cents:

Please understand that the LTGC calculation for ESPP shares is not as simple as 1 year from purchase. Rather it is:

hold your shares for more than a year after the purchase date AND more than two years after the beginning of the offering period

You need to understand the offering period in order to decide how long to hold the shares.

Assuming you put in the max 15% of your base pay, and you can sell nearly immediately, then selling immediately is pretty equivalent to getting a 1.5% pay raise (W2 income) (10% of 15% of your pay)

Now, if I just gave you a 1.5% pay raise, would you use that money to buy your company stock? If not, then sell immediately, take your pay raise and invest bogelishly.

Holding the shares for LTCG gains is an easy way to lose money on ESPP shares, in what otherwise is guaranteed money.

-Earle
emlowe,

Thanks for the explanation, and welcome to the forum!

Signed, another Earle

rbaldini
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Re: Roast this profile

Post by rbaldini » Fri Jun 01, 2018 5:34 pm

BeautifulDisaster wrote:
Fri Jun 01, 2018 1:42 pm
Plan Details
  • There are no brokerage fees and pays any administrative fees
  • 10% discount off the market value.
  • You can elect to have 1-15% of your base pay withheld each pay period to use toward the purchase of Cummins stock. Once your enrollment is processed, payroll deductions in the amount specified will begin on the next available payroll cycle.
  • All deductions are withheld post-tax.
  • Accumulated monthly deductions and imputed income will be used to purchase partial/full shares of stock on the 5th of the following month for US purchases and the 10th of the following month for Int’l purchases.
  • The share purchase price will be determined by the open market price at the time of the purchase.
  • Shares can be sold or transferred at any time.
  • You will be charged a commission fee by Morgan Stanley when you sell your shares.
So if I understand correctly, money is withheld from your paycheck. On the 5th of the following month, it is used to buy stock at a 10% discount. You can sell immediately, and pay a commission fee.

*Without the commission*, that would be a "guaranteed" 11% return (1 / 0.9) *in less than a month*, which is way better than any other investment opportunity you will get elsewhere (of course price swings within the day might not give you exactly 11%, hence "guaranteed" in quotes). But you really don't know the actual return without know the commission.

I'd say try to figure out the commission first. But, it sounds like a really good deal.

I personally wouldn't hold onto it, by the way. Sell immediately and put the money into whatever your usual investment strategy is.

BeautifulDisaster
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Re: Roast this profile

Post by BeautifulDisaster » Sat Jun 02, 2018 8:52 am

rbaldini wrote:
Fri Jun 01, 2018 5:34 pm
I'd say try to figure out the commission first. But, it sounds like a really good deal.
I played around with selling one share or all the shares and it appears that it’s a $20 commission fee and $5proxessing fee. I think the best route to take would be hold for 6 months, sell, and repeat.

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David Jay
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Re: Roast this profile

Post by David Jay » Sat Jun 02, 2018 2:37 pm

BeautifulDisaster wrote:
Sat Jun 02, 2018 8:52 am
rbaldini wrote:
Fri Jun 01, 2018 5:34 pm
I'd say try to figure out the commission first. But, it sounds like a really good deal.
I played around with selling one share or all the shares and it appears that it’s a $20 commission fee and $5proxessing fee. I think the best route to take would be hold for 6 months, sell, and repeat.
Pick a schedule and stick to it.

Just don’t try to hold for a price point on the stock. As you say, sell and repeat
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

dharrythomas
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Re: Roast this profile

Post by dharrythomas » Sat Jun 02, 2018 3:14 pm

You are doing very well, the only comment I have is that you gain next to no diversification benefit from the 3 ETFs. All three are concentrated in the same stocks with almost the same weights. Pick one for all future purchases, I personally prefer TSM as you at least get the midcap and small cap stocks at market weight.

Good luck

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