Evaluate me? and appreciated advice taken

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casper16
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Joined: Thu Jun 21, 2018 3:53 am

Evaluate me? and appreciated advice taken

Post by casper16 » Thu Jun 21, 2018 4:02 am

Thanks for taking the time to look at this!

Emergency funds: I do have 55k in cash set aside at 1.65 %
Debt: The only real debt I have is my day to day expenses and monthly rent of ~$1200
Tax Filing Status: Single
Tax Rate: 32% Federal, 9.3% State
State of Residence: California
Age:28
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 0-10% of stocks

My current portfolio is at 74k in a 457 plan. I do not have any other accounts. I do own three rental properties that cash flow approximately $1,500 a month. I will have pension at the end of my career.

I am currently under a managed portfolio with Fidelity and will end that soon. I would like to reallocate my funds into a three fund portfolio, but I am having trouble deciding what to put it into. I do want to continue to purchase rental properties, but would like to start contributing more into my 457 and potentially looking into a roth. Last year, I contributed only 9k into my 457 and this year, I have contributed nothing yet.

I appreciate the feedback, thanks.

Cody
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Joined: Sun Dec 02, 2007 9:19 am
Location: Stillwater, Mn

Re: Evaluate me? and appreciated advice taken

Post by Cody » Thu Jun 21, 2018 8:30 am

You could start with an IPS (Investment Policy Statement.) This statement provides the general investment goals and objectives and describes the strategies that the you will employ to meet these objectives. Specific information on matters such as asset allocation, risk tolerance and liquidity requirements are included in an IPS. (paraphased from Investapedia).

Good Luck,
Cody

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dratkinson
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Location: Centennial CO

Re: Evaluate me? and appreciated advice taken

Post by dratkinson » Thu Jun 21, 2018 9:04 am

What options (symbol, name, expense ratio) do you have in your 457 plan? What are you currently using?


An all-in-one target-date retirement fund would be easy to live with if available in your 457. And in your IRA.

All-in-one funds are not recommended for taxable account due to use of taxable bonds.


If you begin investing in a taxable account, then can use tax-exempt municipal bond fund, combined with TSM (total stock market index) and TISM (total international stock market index) to create a 3-fund portfolio.

One of the senior BHer recommends pairing 50/50 Vanguard's limited term national muni fund (VMLTX) with its CA long-term CA muni fund (VCITX). Why? The bond pair will have an intermediate-term duration (recommended) while exempting the majority of its dividends from CA income tax.

If you use a Fidelity taxable brokerage account, will need to translate this recommendation into Fidelity funds, or use Vanguard's ETF share class of its muni funds to get lowest cost option.



Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

Lafder
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Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Evaluate me? and appreciated advice taken

Post by Lafder » Thu Jun 21, 2018 9:34 am

Casper16,
Welcome here!

I like to maximize retirement account investments since you save the income tax immediately and put a larger amount away to compound over the years. Do you have any match on your 457? At a minimum contribute enough to get the full match. List out your options and we can help you pick the best ones. An all in one fund is a fund made up off other funds that rebalances for you. It is a simple invest and forget strategy and is sometimes the best available option in a retirement account's offerings.

Edit your post to add available options in your 457 :)

You say you want 90/10, and 10% of your stocks international.

This is aggressive towards stocks. I have heard recs of at least 20% of your portfolio in bonds to help buffer drops and give you space to rebalance from. Many of the all in one funds are this aggressive (90/10) many years out from retirement so that may be why you are at 10% ?

10% International is low compared to Vanguard's recs of 30-50%. Buffett and Bogle have said 0% International holdings is fine so you are certainly in that 0-50% range :)

Why are you investing in rentals yet paying someone else's mortgage paying rent? Would you consider buying a primary residence for yourself and paying your own mortgage?

If you have extra cash after maxing retirement account contributions, the nice thing about a Roth is that you never pay taxes on it again. So it is preferable to a taxable account investing in my opinion, especially with adequate emergency funds savings. When you start a Roth the money is locked in for the first 5 years. (penalty to withdrawal in the 1st 5 years) So the sooner you start it the better.

Is your income such that you can do a direct Roth? Or would it need to be a backdoor roth?

lafder

casper16
Posts: 3
Joined: Thu Jun 21, 2018 3:53 am

Re: Evaluate me? and appreciated advice taken

Post by casper16 » Thu Jun 21, 2018 11:43 am

These are what are currently held by me based off the managed accounts from Fidelity:
CISIX CALV US LG CP CRI I
FDIVX FID DIVERSIFD INTL
PTTRX PIM TOTAL RT INST
RERGX AF EUROPAC GROWTH R6
RWIGX AF CAP WORLD G&I R6
TRLGX TRP INST LGCAP GRTH
VFWSX VANG FTSE AW IDX IS
VIEIX ANG EXT MKT IDX INS
VINIX VANGUARD INST INDEX 5
VWNAX ANG WINDSOR II ADM 5

These are what I have available:
VANG INST TR 2015-2065
CALV US LG CP CRI I
FID CONTRAFUND
TRP INST LGCAP GRTH
VANG WINDSOR II ADM
VANGUARD INST INDEX
Mid-Cap
VANG EXT MKT IDX INS

International
AF CAP WORLD G&I R6
AF EUROPAC GROWTH R6
DODGE & COX INTL STK
FID DIVERSIFD INTL
VANG FTSE AW IDX IS
VAN REAL EST IDX IS
VANG WELLINGTON ADM
PIM TOTAL RT INST
VANG TOT BD MKT INST
VANG INFL PROT INST

Stable
VANTAGE PLUS R10

I do not have an employer match.
I live in the Bay Area where a home would be in the millions. I am not prepared to make that type of purchase and would rather invest my money rather than commit myself to a ridiculous mortgage for 30 years.

Lafder
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Location: East of the Rio Grande

Re: Evaluate me? and appreciated advice taken

Post by Lafder » Thu Jun 21, 2018 3:36 pm

So are your rental properties out of state? Do you pay management fees?

Can you add the expense ratios for the available funds, ER's ? They should be in the plan info.

It looks like you will have some good low cost options from what you posted. Costs matter, so the ER can make a difference in choosing one fund over another.

lafder

ExitStageLeft
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Re: Evaluate me? and appreciated advice taken

Post by ExitStageLeft » Thu Jun 21, 2018 5:53 pm

Welcome to the forum! You're at a great point in your life to focus on aggressively building your retirement portfolio. Hopefully we can set you on the right path.

Your Fidelity portfolio has a pretty diverse selection, but considerable overlap. You could get a similar level of diversification through a single target date fund and be done. But as you note there is advantage to establishing a three-fund portfolio in that you get the precise allocation you want and generally shave a little bit off the expense ratio.

If you were starting from scratch with a 401k provider, your optimal portfolio (from a Boglehead perspective) would consist of three funds: a total stock market fund, a broadly diversified international stock market fund, and a total bond fund. I'll stick with Vanguard because that is what you currently have available in your 457b, but you can find equally good-quality indexed funds with Fidelty or Schwab.

That three fiund portfolio would consist of Vanguard Total Market (VTSAX), Vanguard Total International (VTIAX), and Vanguard Total Bond (VBTLX). Your 4457b plan has VBTLX available but does not offer VTSAX nor VTIAX. We'll have to find some reasonable substitutes. This is where knowing the expense ratios comes into play, as some of the seemingly good substitutes may have a high price tag.

Vanguard's Institutional Index fund (VINIX) is a large-cap indexed fund that offers about 80% of the total market fund. Plus it has a really low expense ratio so it makes a reasonable replacement for VTSAX. If you later want to add a smattering of small cap stocks it gets even closer to approximating the total US stock market.

You have a great index fund for international stocks, Vanguard FTSE All-World ex-US Index fund. It holds ~2700 stocks compared to the VTIAX holdings of ~6000 stocks, but it is probably the best option in your plan. For bonds, you have the institutional shares version of total bond, VBTIX.

So if you stick with a 10% bond allocation, with 33% of stocks being international, that gives you a portfolio of the following:

457b account
60% Vanguard's Institutional Index fund (VINIX) (0.035%)
30% Vanguard FTSE All-World ex-US Index (VFWSX) (0.10%)
10% Vanguard Total Bond Index Fund (VBTIX) (0.04%)

Assuming your plan expenses are the same as Vanguard's fund expenses, then your portfolio would have an overall expense ratio of 0.055%. Compared to a target date fund ER of 0.15% that would save you about $70 in fees the first year. You'll save even more as your balance grows.

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dratkinson
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Location: Centennial CO

Re: Evaluate me? and appreciated advice taken

Post by dratkinson » Thu Jun 21, 2018 8:24 pm

This is another option:

457.
--Vanguard TR ~2055 (=2018 + (65-28))

IRA.
--Vanguard TR ~2055

Taxable brokerage account at Vanguard. (Use ETF share class if taxable brokerage at Fidelity.)
--VTSMX
--VGTSX or VFWIX
--VMLTX
--VCITX

Why? Simplicity.
--Vanguard will manage your TA (tax-advantaged) accounts. Many believe the simplicity is worth a few basis points.
--You only need to manage (rebalance) your taxable account.


Your retired self will be pleased if you contribute the maximum to your TA accounts every year. Why? For the tax-advantaged growth.


Recall Vanguard has a CA TE mmkt fund. You can redirect all dividends from your taxable account into a mmkt fund, or into your bank account. Your choice.

Why not allow dividends to reinvest in your taxable account?
--It makes TLHing (tax-loss harvesting) more difficult. (The issue is "replacement shares".)
--It creates many small tax lots to manage/report when you what to sell.
--It makes rebalancing more difficult. (Easier to rebalance if you collect the money elsewhere and rebalance in large chucks.)
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Sandtrap
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Re: Evaluate me? and appreciated advice taken

Post by Sandtrap » Thu Jun 21, 2018 8:28 pm

4500/month per rental property Net?
Mortgage on each?
Price paid and presenr value?

j :D

casper16
Posts: 3
Joined: Thu Jun 21, 2018 3:53 am

Re: Evaluate me? and appreciated advice taken

Post by casper16 » Fri Jun 22, 2018 4:17 am

Thanks for all the feedback folks!

I net just a little under 2k on passive cash flow from the rental properties (after mortgage/ property manager). I then factor in future expense and will put aside additional money for a reserve for issues that arise from rental properties.

The price of the properties were 90-135k. Present value remain relatively the same. The properties were recently purchased.

I am looking to max out on my 457 every year and probably continue to buy one or two rental properties.

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