Would you mind reviewing my IPS please

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JB33
Posts: 5
Joined: Wed May 23, 2018 8:47 am

Would you mind reviewing my IPS please

Post by JB33 » Thu May 31, 2018 8:28 pm

44 years old
25% tax bracket
21 year time horizon
Debt to Income ratio 9.6%
Risk tolerance high (Vanguard recommended VFORX Target 2040 fund based on risk assessment.)
Current goal for retirement savings ~3m

Goals
  • Spend 25 years in retirement
  • Retire as early as possible
  • Continue to maintain our standard of living
  • Leave meaningful inheritance to our child
  • Save enough money to fund tuition for our child
Home Ownership
  • Purchase new home that will be our forever home utilizing equity from current home and some of savings for downpayment
  • Payoff home prior to retirement to reduce our debt to income ratio as low as possible
Investments
  • Strive for the highest rate of return while our time horizon is still over 15 years
  • Reduce risk once time horizon is 15 years
  • Favor passively managed investments until knowledge, experience and free time allow for a more actively managed investments
  • Avoid HSA as an investment because of medical expenses associated with chronic illnesses
  • Minimize cost of investments
Savings
  • Save at least 20% of gross income
  • Maximize tax sheltered investments
  • Maintain 6 months emergency fund based on net income in a money market or other low risk investment
  • Max contributions to 401K to legal limit
Expenses
  • Limit automobile expenses to 10% of net income
  • Limit mortgage expenses to 20% of net income
  • Maintain a Debt to Income ratio below 25%
  • Continuously monitor household expense to try to allocate additional money to retirement
Asset Allocation
Mine
~250k in 401K - My employer matches 3.5% and I contribute 18%
  • 19% - Large Cap Value / LSV Asset Management (ER .62)
  • 19% - Large Cap Growth / Jennison Fund (ER .61)
  • 13% - Small Cap Value / Ceredex Fund (ER .95)
  • 13% - Small Cap Growth / Timesquare Fund (ER .90)
  • 36% - Dodge & Cox International Stock (ER .64)
~50k in Work Pension

Hers
~80k in 401a
~10k in 457

~100k in Money Market utilized for savings to supplement equity in current home for down payment of new house and 6 month emergency fund.
Healthy checking account utilized for auto deposit and bill pay.

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Watty
Posts: 14360
Joined: Wed Oct 10, 2007 3:55 pm

Re: Would you mind reviewing my IPS please

Post by Watty » Thu May 31, 2018 9:30 pm

A couple of suggestions/edits
JB33 wrote:
Thu May 31, 2018 8:28 pm
Spend 25 years in retirement
Replace this with an age like 90 or 95 since this is a lot different if you retire at 50 instead of 65.
JB33 wrote:
Thu May 31, 2018 8:28 pm
Leave meaningful inheritance to our child
Unless there is something going on like a special needs kid my personal preference would be to take that off as a goal. I expect to be financially independent even if I live to be over 100, but our life expectancy is a lot shorter than that. If we only make it to 85 then our kid will have a significant inheritance, if we only make it until our 70's then it would be a lot. To me planning our retirement until we are 100+ and also leave a large inheritance seems to be overkill to me.
JB33 wrote:
Thu May 31, 2018 8:28 pm
Current goal for retirement savings ~3m
$3m (in today's dollars) and a paid off house may be more than you need. I have seen relatives that naturally slowed down by their mid-70's even though they were still in relatively good health. At that point they didn't want to spend much on things like travel or buying "stuff" so their spending went way down and there were often months when they did not even spend their entire Social Security check since they lived in a paid off house. There are people that will spend a lot in retirement but if that does not sound like you then you might want to reconsider what your income needs will be at different ages.
JB33 wrote:
Thu May 31, 2018 8:28 pm
Strive for the highest rate of return while our time horizon is still over 15 years
Reduce risk once time horizon is 15 years
You need to be careful about being too aggressive since you might have to retire earlier than you plan. When I was going through my 50's I saw more people than I would have expected run into problems with things like developing major health problems, getting laid off in their 50's, job burnout, or the death of a spouse.
JB33 wrote:
Thu May 31, 2018 8:28 pm
Save enough money to fund tuition for our child
Things like books, fees, and room and board can cost as much as tuition. It would be good to quantify what his means since the tuition at a private school could be much more than at a state university.

There is no one answer as to how much a parent should pay for college but my goal was to be able to pay for all the costs for my kid to go to a state university. Part of the reason I did this was that my parents paid for me to go to a state university and graduate without any debt do I felt that I was just passing it on. When he was in college I told my son that part of me paying for his college was that if he had kids that he should help pay for college as much as he could.

JB33 wrote:
Thu May 31, 2018 8:28 pm
Favor passively managed investments until knowledge, experience and free time allow for a more actively managed investments
Actively managed investments rarely work out better than passive, I would drop that part.
JB33 wrote:
Thu May 31, 2018 8:28 pm
Limit automobile expenses to 10% of net income
I don't see how that works. If you buy a new car the expenses will be very high that year but very low for at least the next five years.

It would be good to commit to paying cash for future cars.
JB33 wrote:
Thu May 31, 2018 8:28 pm
....with chronic illnesses
With a chronic illness budgeting for doing things like travel or other "bucket list" types of things while you are younger might be worth considering.

JB33
Posts: 5
Joined: Wed May 23, 2018 8:47 am

Re: Would you mind reviewing my IPS please

Post by JB33 » Fri Jun 01, 2018 10:05 am

Thank you Watty for your thoughtful reply. I will certainly consider the revisions you mentioned.

ExitStageLeft
Posts: 977
Joined: Sat Jan 20, 2018 4:02 pm

Re: Would you mind reviewing my IPS please

Post by ExitStageLeft » Fri Jun 01, 2018 1:52 pm

It may be helpful to run your numbers through FIRECalc, CFIRESim, or i-ORP. That should help you pin down exactly how much of a nest egg you'll need at retirement. Right now it looks like your plan has you pulling in several different directions. Depending on how much you are saving each year, you may have to prioritize retirement over college, etc.

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