Portfolio review & high-level questions

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SpiritDitch
Posts: 6
Joined: Sat Sep 21, 2013 10:34 pm

Portfolio review & high-level questions

Post by SpiritDitch » Sat Jun 09, 2018 10:36 pm

Hi all. I've been building my portfolio following the Bogleheads philosophy for the most part.
However, my situation is not straightforward for a few reasons (mostly of the "good problems to have" type):
- I have what I consider a large net worth and income for my age
- I'm an expat currently on a green card, and might decide to move back to my home country some day
- I'd like the option to scale back work early (e.g. stop working full-time, do contract work for part of the year, take breaks), but I'm not sure when I'll pull the trigger
- I live in a very expensive housing market, so while I could afford a house, I'm not sure if it's the right decision (I might not end up staying - and keeping my high-paying job - for decades)

I have some specific questions at the bottom, and I realize some of this is subjective, but any feedback and ideas are appreciated.
Thanks in advance!

Here's my information:

Age: 30
Tax Filing Status: Single
State of Residence: CA
Debt: 0
Yearly expenses: 35k

Assets

Checking:
50k (most of it in my home country; I plan to infrequently transfer cash to the US and invest here for simplicity)

401(k):
200k Vanguard Target Retirement 2050 (VFIFX)

Roth IRA:
50k Vanguard Target Retirement 2055 (VFFVX)

Taxable:
100k Vanguard Prime Money Market (VMMXX) (for potential short term purchases, e.g. a down payment)
1.1M Vanguard LifeStrategy Growth (VASGX)

Rental properties in home country:
260k (estimated market value)

Income

Wages:
400k

Rental income:
18k


Questions:

1. Given I already have a significant nest egg, and I'd like to perhaps semi-retire early, am I overexposed to stocks at this point?

2. Should I sell some of my taxable funds and buy rental properties in the US, as a way to diversify and start building passive income?

3. Should I instead focus on buying a home to live in? A 1-bedroom in San Francisco would cost me around 700-800k.
My reasoning for being cautious is that buying property in SF right now is seen as an investment. In my case, I would be tying a large part of my net worth to a single investment. My current place has rent control and is alright (I can imagine living here for another few years).

4. Given I'm not sure where I will retire, should my portfolio skew more international?

FOGU
Posts: 132
Joined: Tue Apr 24, 2018 9:41 pm

Re: Portfolio review & high-level questions

Post by FOGU » Sun Jun 10, 2018 4:59 pm

SpiritDitch wrote:
Sat Jun 09, 2018 10:36 pm
Hi all. I've been building my portfolio following the Bogleheads philosophy for the most part.
However, my situation is not straightforward for a few reasons (mostly of the "good problems to have" type):
- I have what I consider a large net worth and income for my age

Yes, you do.

- I'm an expat currently on a green card, and might decide to move back to my home country some day

Green card holders are much more restricted than citizens in terms of travel and return to the US. Have you considered citizenship? This has its drawbacks, too, of course (e.g. worldwide income tax), but knowing that you are free to come and go as you please, for as long as you please, has value. And the US is a fine place to build and store and grow wealth relative to most other places in the world, as you yourself have discovered.

- I'd like the option to scale back work early (e.g. stop working full-time, do contract work for part of the year, take breaks), but I'm not sure when I'll pull the trigger

Given your assets and lifestyle expense, you already have the option. It is up to you at this point.

- I live in a very expensive housing market, so while I could afford a house, I'm not sure if it's the right decision (I might not end up staying - and keeping my high-paying job - for decades)

Just because you live there now doesn't mean you must live there forever, or buy property there. If you are unsure if you plan to stay, then don't invest in a peak housing market. Ownership of primary residence is overrated in the view of many, especially where it is so highly expensive.

I have some specific questions at the bottom, and I realize some of this is subjective, but any feedback and ideas are appreciated.
Thanks in advance!

Here's my information:

Age: 30
Tax Filing Status: Single
State of Residence: CA
Debt: 0
Yearly expenses: 35k

Assets

Checking:
50k (most of it in my home country; I plan to infrequently transfer cash to the US and invest here for simplicity)

401(k):
200k Vanguard Target Retirement 2050 (VFIFX)

Roth IRA:
50k Vanguard Target Retirement 2055 (VFFVX)

Taxable:
100k Vanguard Prime Money Market (VMMXX) (for potential short term purchases, e.g. a down payment)
1.1M Vanguard LifeStrategy Growth (VASGX)

Rental properties in home country:
260k (estimated market value)

Income

Wages:
400k

Rental income:
18k


Questions:

1. Given I already have a significant nest egg, and I'd like to perhaps semi-retire early, am I overexposed to stocks at this point?

At your age and ability to earn, I say no.

2. Should I sell some of my taxable funds and buy rental properties in the US, as a way to diversify and start building passive income?

Do you want to be a landlord? Are you handy with plumbing and electrical and carpentry? What are the numbers on the properties that are available for consideration?

3. Should I instead focus on buying a home to live in? A 1-bedroom in San Francisco would cost me around 700-800k.
My reasoning for being cautious is that buying property in SF right now is seen as an investment. In my case, I would be tying a large part of my net worth to a single investment. My current place has rent control and is alright (I can imagine living here for another few years). Then stay there for another few years or until you need to give it up. The money you can bank off of that current rent control place is worth much more than buying a one-bedroom for almost a million dollars. Ownership is overrated. Think about it, you are living for $35k a year in the manner and place where many fools spend a million dollars to acquire what you already have. i.e., a modest place in a desirable city (desirable for some anyway). Don't join the fools. Keep the money instead.

4. Given I'm not sure where I will retire, should my portfolio skew more international?

If you are not sure then don't make moves on that basis. In any case, whether you lay your head in San Francisco or Berlin or Buenos Aires or Kiev seems irrelevant to what your asset allocation should be.
Sure, I'll jump in.

So, about $1.75 million in assets at age 30. Nicely done. Your annual earnings and annual living expenses are awesome both in the relative and in the absolute.

Seems to me the $400k a year job is a tremendous asset. How much invested would you need to generate that every year, $10 million or so? Unless you absolutely hate it, why retire from it so soon? That is a huge wave that you could ride until, well, you can't. By that time, with your lifestyle expense, there would be very little to worry about. Not saying this is you, but I would avoid falling in with the FIRE group who seem to try to impress each other with how soon they can quit useful, productive and lucrative jobs. ("I retired at 30." "Well, I retired and 29 and 8 months.") Just another form of keeping up with the Joneses. You already have the option to walk. I suggest you consider carefully your reasons for even entertaining it.

See comments interlineated above.
~ Don't just do something. Sit there. ~

SpiritDitch
Posts: 6
Joined: Sat Sep 21, 2013 10:34 pm

Re: Portfolio review & high-level questions

Post by SpiritDitch » Mon Jun 11, 2018 8:33 pm

Thanks for the detailed response. Lots of food for thought here.

I plan to apply for citizenship once I'm eligible. Agree that the added freedom is worth the additional tax (and accounting) burden.

You are right that my job is a huge asset right now, and probably matters more than any allocation decision.
The idea isn't to quit as soon as possible, but I also don't see myself doing it for another 30 years. This is the main source of my doubts regarding both housing (say I'd like a slightly nicer place in a few years, at what point does it make sense to go ahead and buy here?) and allocation (should I start investing for income generation earlier?).

Regarding rental properties, I haven't done any serious research yet, but I would most likely prefer to pay for property management rather than become a full-time landlord.

The point about international allocation was about reducing currency risk. Admittedly I don't know much about this, but some advise against having all investments in one country while living in another (which will happen whenever I decide to leave the US).

I guess some possible considerations are:
- If my future plans are not that clear, and the current situation is working out alright, there is no rush to make changes
- Given my plans are somewhat flexible, I can always adapt them to future circumstances (e.g. ride out a downturn by sticking with full-time work)

User avatar
Sandtrap
Posts: 5209
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Portfolio review & high-level questions

Post by Sandtrap » Mon Jun 11, 2018 9:13 pm

Welcome.
1. No
2. Only if you are passionate about being a businessman and landlord, and learning everything about it.
3. Not as long as everything is subject to change and your plans are unknown.
4. What you have is already invested in international.
j

FOGU
Posts: 132
Joined: Tue Apr 24, 2018 9:41 pm

Re: Portfolio review & high-level questions

Post by FOGU » Tue Jun 12, 2018 5:45 am

SpiritDitch wrote:
Mon Jun 11, 2018 8:33 pm
Thanks for the detailed response. Lots of food for thought here.

I plan to apply for citizenship once I'm eligible. Agree that the added freedom is worth the additional tax (and accounting) burden.

Good luck with it. About 10 years ago I gave a speech to the candidates at a naturalization ceremony in federal court. About 75 people took the oath of citizenship at the ceremony that day. It was a moving experience.

You are right that my job is a huge asset right now, and probably matters more than any allocation decision.
The idea isn't to quit as soon as possible, but I also don't see myself doing it for another 30 years. This is the main source of my doubts regarding both housing (say I'd like a slightly nicer place in a few years, at what point does it make sense to go ahead and buy here?) and allocation (should I start investing for income generation earlier?).

I wouldn't worry so much about 30 years down the road. Get the foundation laid now, good and solid, as you are now doing, and you will be free to choose from many fine options.

Regarding rental properties, I haven't done any serious research yet, but I would most likely prefer to pay for property management rather than become a full-time landlord.

Rental property is not exactly passive income, even with the help of a management company. Physical, financial and legal are all complicated elements. Definitely not for everyone, though it looks like you already have some experience. But local details can really bite you. Have you seen the movie "Pacific Heights?"

The point about international allocation was about reducing currency risk. Admittedly I don't know much about this, but some advise against having all investments in one country while living in another (which will happen whenever I decide to leave the US).

There are ways to learn what you don't know. But I don't know where you could more safely, securely and lucratively store your wealth, at least most of it, besides the USA.

I guess some possible considerations are:
- If my future plans are not that clear, and the current situation is working out alright, there is no rush to make changes
- Given my plans are somewhat flexible, I can always adapt them to future circumstances (e.g. ride out a downturn by sticking with full-time work)
Relax. Don't feel like you need to "do something." Seems that what you are doing financially is working pretty well so far. Good luck.
~ Don't just do something. Sit there. ~

User avatar
galeno
Posts: 1266
Joined: Fri Dec 21, 2007 12:06 pm

Re: Portfolio review & high-level questions

Post by galeno » Wed Jun 13, 2018 12:21 am

1. Given I already have a significant nest egg, and I'd like to perhaps semi-retire early, am I overexposed to stocks at this point?

No. A conservative investor keeps his age in bonds. You should have at least 70% equity. I suggest keeping 80%. The 2 most important things you can do right now is to put the maximum into whatever tax deductible tax and or deferred accounts available to you. Put the max (18.5K) into your 401K and the max (5.5K) into a non-tax deductible IRA. With the new tax law you are not allowed to tax deduct an IRA if you have a 401K.

2. Should I sell some of my taxable funds and buy rental properties in the US, as a way to diversify and start building passive income?

No. You should sell your all your real estate and put the procedes into your taxable account.

3. Should I instead focus on buying a home to live in? A 1-bedroom in San Francisco would cost me around 700-800k.
My reasoning for being cautious is that buying property in SF right now is seen as an investment. In my case, I would be tying a large part of my net worth to a single investment. My current place has rent control and is alright (I can imagine living here for another few years).

Yes. In the USA you can deduct mortgage interest up to $750K under the new tax law. At your marginal income tax rate you should let the government subsidize most of your living expenses. Take advantage of it.

4. Given I'm not sure where I will retire, should my portfolio skew more international?

No. Keep and add to your existing accounts. They're great one fund investments. Worry about this insignificant stuff when you're older and have tons of time on your hands.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.13%. Term = 34 yr. FI Duration = 6.2 yr. Portfolio survival probability = 95%.

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