Portfolio Review

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Topic Author
tkleo
Posts: 5
Joined: Sun Jul 08, 2018 3:41 pm

Portfolio Review

Post by tkleo »

Hello! Like many who start the journey within this forum – long time reader (seriously, more frequently than I would like to admit) and first-time poster. We are both retired (Federal), however, working full-time (making hay while the sun shines). Plan: Retire full-time in 2020/21.

Emergency Fund. See below. Current pension covers existing debt/lifestyle and then some. We are frugal (not cheap) by nature and feel confident in this strategy. Inflation and projected lifestyle will be covered by accumulated assets and access to said assets at the appropriate time (read, once we figure it out).

Debt: Credit cards: Nadda. Use them and pay them off monthly for points/rewards.
Mortgage: Year 21 of 30. Balance 315K (4.375%). $1,900 monthly ($2,700 total w/Tax). We will relocate to a lower cost of living area within the next 3-6 years. House valuation/swag 670k not included in current percentages below. Proceeds at time of sale will role into next house.

Tax filing status: Married filing jointly

Tax Rate: 32%

State of residence: VA

Age: 53/52
Desired Asset Allocation: At this moment the desired is 70/30 (not what we have presently – which is why I am here) with plans to start drifting more conservative @ age 59. AA @ 62 will be closer to 50/50.

Desired International allocation: Not sure if “desired” is the appropriate descriptor for me. I have executed a portion to international, but my current self is hesitant to go over 6% of current overall balance.

Taxable (Vanguard) % In Acct % Overall
VFIAX 19.9% 1.2%
VEXAX 22.2% 1.3%
VBTLX 24.9% 1.5%
VTSAX 21.7% 1.3%
VMFXX (Cash) 11.3% 0.7%
Total 100.0% 6%

Roth IRA Etrade His % In Acct % Overall
UPRO 28% 0.1%
CASH 72% 0.3%
Total 100% 0.4%

401K His TSP % In Acct % Overall
C 43% 21%
S 11% 6%
I 46% 23%
Total 100% 50%

His Current 401k Fidelity % In Acct % Overall
Company Stock 14% 0.4%
TDLJ 19% 0.6%
TDLK 46% 1.4%
TDLL 21% 0.6%
Total 100% 3.0%

403B His % In Acct % Overall
Vanguard 100.0% 6.3%

Roth IRA Etrade Hers % In Acct % Overall
C (CityGroup) 30% 0.2%
INTC 58% 0.4%
CASH 11% 0.1%

Total 100% 0.6%

401K Hers TSP % In Acct % Overall
C 48% 15%
S 32% 10%
G 20% 6%
Total 100% 31%

Hers Current 401k Vanguard % In Acct % Overall
Vanguard Inst 500 Trust 40% 0.5%
VPMAX 30% 0.3%
VWILX 29% 0.3%
Total 100% 1.1%

403B Hers % In Acct % Overall
Vanguard 100.0% 0.9%

% In Acct % Overall
CD Ladder 2022 @ 3.1% 100.0% 2%

Contributions:

$24.5K to his 401k (100% of current contributions going to TDLJ S&P 500 equity index presently) per year

$24.5K to her 401k per year. Contributions basically split evenly to current selected funds

1k to Taxable (Starting Sep will increase to 3K) each month. With current cash balance in Vanguard (plus the 1k deposit) I have auto purchase each month 1k per fund (VTSAX, VFIAX, VEXAX, VBTLX). I like automation. Yes, there is a bit of dollar cost averaging occurring here but I am a very linear person and this works for me.

6k extra to mortgage per month (no judging – options welcome). I have followed almost every thread on this topic in the last year. Semi-committed to the “final” house being either paid in full or possibly carry a smaller than current (<$150k) mortgage. We have considered staying at current residence longer and potentially getting a vacation home.

I have other accounts that are cash only position’s and are dedicated to current plans, vacations, projects and the like. One could consider these emergency funds, I don't because I am actively spending this money. Balance held firm at 30K, above triggers project, vacation or renovation. Balance near or below means we hold tight. We are eliminating every negotiable point with current house - first house and we were dumb. We are slowly shifting away from multiple accounts to primary bank, primary brokerage and TSP. I intend to do this in phases with the last being current employer 401K to TSP once we call it a day (2020/21). I started in the last couple of years by selling almost all of our stocks and converted to the index fund way forward. I should have done this a decade ago. Early in my life I used a "family friend" as a CFP and probably the biggest and costliest mistake to date. To ease the adjustment of reduced income once we retire I have started a CD ladder to be the “bridge” until we consider tapping our investments.

Question:
1. I am going to simplify taxable account by reducing number of funds. Not that I am performance chasing - but I am somewhat and I do find it very interesting to follow the performance of the funds and the differences with market movement. Education not complete. I would like to sell VFIAX (held for 2 years) and rebalance. Additionally, I would like to add a Prime Money Market to my taxable account as a holding area for the longer-term Emergency Fund as we consolidate banks/accounts and start our glide path towards the non-working years.
2. Rebalance. TSP frequency vs Taxable. Does it make sense to have a different schedule for rebalancing these accounts?
4. My spouse wanted to know if we can retire now. The answer is of course yes and she knows this, however, it very much depends on certain "dreams" we have discussed and our commitment to them. I have learned that planning and learning are simultaneous events. Does it make sense keep current balance in TSP (Part or whole) considering E.R rates and simplification with account consolidation?
3. May I reserve the right to continue to ask questions once feedback starts? I have several but after rereading I don’t want to overstay my welcome with my first post.

Thank you all for your responses in advance. We feel extremely blessed and think we have made good (enough) decisions and we do not want to fumble at the goal line. Our threshold for market swings is extremely high as we honestly can live within our fixed income for the foreseeable future. Since we have conditioned ourselves to a specific budget, I honestly see that we potentially could have a problem becoming a spender.

Thank you.
Chip
Posts: 3994
Joined: Wed Feb 21, 2007 3:57 am

Re: Portfolio Review

Post by Chip »

Hi, and welcome to the public side!

Just a few quick comments as I don't have time right now to do a thorough review. Maybe later. Please excuse any curtness.

Your overall allocation goals seem fine, both now and in the future. Though you may want to go ahead and move to at least 60/40 now since it appears that you've "won the game". Why take the risk?

I would pay off the mortgage rather than invest in taxable. You'll get a guaranteed 4.375% return. This is higher than any reasonable risk bond fund you can buy.

You should not have VBLTX in taxable as it is tax inefficient, especially in your bracket. Buy your bonds in your 401k/TSP. See tax efficient fund placement in the wiki. VEXAX is also a problem: only 67% of dividends were qualified last year. Most here recommend having only total market funds (US or international) in taxable accounts. Though there are some other specific funds that are tax efficient. Remember, think of your portfolio as a whole, across all accounts.

I assume TDLJ, TDLK, etc. are target date funds. What are the expense ratios for those funds and why do you have multiple TD funds, rather than just one that fits your desired allocation? Do you use a spreadsheet to calculate your actual overall stock/bond ratio, taking into account the varying allocations within those TD funds?

My personal goal is to NEVER rebalance in taxable to avoid the tax hit. You should be able to do the same. Another good reason to only buy total market funds in that account. Do all of your rebalancing in TSP/401k/Roth.

Do not give up access to the TSP and the G fund. It's essentially a risk-free bond fund with an interest rate commensurate with an intermediate term bond fund. Consider putting a significant portion of your bond allocation into the G fund.

Consider that you really don't need an emergency fund if you're retired. Your whole portfolio is your E-fund.

Consider simplifying. Get rid of the individual stocks, TD funds, etc. and move towards a 3 or 4 fund portfolio. It will be easier to track, manage and rebalance.

Again, welcome!
megabad
Posts: 3638
Joined: Fri Jun 01, 2018 4:00 pm

Re: Portfolio Review

Post by megabad »

tkleo wrote: Mon Jul 09, 2018 5:32 am
1. I am going to simplify taxable account by reducing number of funds. Not that I am performance chasing - but I am somewhat and I do find it very interesting to follow the performance of the funds and the differences with market movement. Education not complete. I would like to sell VFIAX (held for 2 years) and rebalance. Additionally, I would like to add a Prime Money Market to my taxable account as a holding area for the longer-term Emergency Fund as we consolidate banks/accounts and start our glide path towards the non-working years.
You are very close to crossing over into 20% cap gains tax. I would probably not sell portions of my portfolio with large taxable gains until I was retired (and my earned income dropped substantially).
2. Rebalance. TSP frequency vs Taxable. Does it make sense to have a different schedule for rebalancing these accounts?
There have been discussions and studies on the impact of rebalance frequency, but I can't locate them at the moment. I use bands but I am not of the opinion that frequent rebalances (say greater than a few times per year) will change your results significantly over the long term.
It is likely that the only way I would "rebalance" in your taxable account is by new purchases, but of course I would examine AA across the portfolio as a whole.

4. My spouse wanted to know if we can retire now. The answer is of course yes and she knows this, however, it very much depends on certain "dreams" we have discussed and our commitment to them. I have learned that planning and learning are simultaneous events. Does it make sense keep current balance in TSP (Part or whole) considering E.R rates and simplification with account consolidation?
TSP is one of, if not the greatest QRP in existence in my opinion. I would likely keep at least some there (ie. G-Fund).
3. May I reserve the right to continue to ask questions once feedback starts? I have several but after rereading I don’t want to overstay my welcome with my first post.
Haha this is unnecessarily polite I think. Aren't we all here to ask questions and learn together? You might get a TLDR or two though.


I agree with your notion to start winding down your equity position a little. The relative size of your TSPs indicate that you may be two long term Federal employees. Your FERs compensation (and maybe some SS) will likely lead to you having a very sizable income floor. This might lead you to two very different conclusions:1) You have won the game and should take very little risk, or 2) You have secure pension income so should take outsized risk with the remainder of your retirement assets. Both thoughts have some merit.

I would also comment that you may be in a good position to benefit from favorable tax treatment of NUA in your 401k. I would look into this option for your 401k with Company Stock in it.
Topic Author
tkleo
Posts: 5
Joined: Sun Jul 08, 2018 3:41 pm

Re: Portfolio Review

Post by tkleo »

Chip: Thank you for the response. I will address funds available in my current 401K tomorrow.

You should not have VBLTX in taxable as it is tax inefficient, especially in your bracket. Buy your bonds in your 401k/TSP. See tax efficient fund placement in the wiki. VEXAX is also a problem: only 67% of dividends were qualified last year. Most here recommend having only total market funds (US or international) in taxable accounts. Though there are some other specific funds that are tax efficient. Remember, think of your portfolio as a whole, across all accounts. I had not considered excluding VBTLX in taxable. In theory, I understand thinking of the portfolio as a whole - in practice it is a little more challenging. I am not fully understanding the comment on VEXAX and need to research further.

I would pay off the mortgage rather than invest in taxable. This gives me more to consider as we are aggressively paying down at this time.

My personal goal is to NEVER rebalance in taxable to avoid the tax hit. I like Megabad's response, rebalancing will occur naturally by adding new positions - according to AA.

Megabad: Appreciate the response. I have considered not making any serious moves until we move to a lower tax bracket. Agree with your statement on the TSP as a QRP, I suppose account consolidation has its merit and reducing to 3 accounts will be better than current situation. I am committed to keeping the TSP open.

1) You have won the game and should take very little risk, or 2) You have secure pension income so should take outsized risk with the remainder of your retirement assets. Both thoughts have some merit. I have been in the option 2 camp for a considerable time. I am glad my thought process is not far off from what what has been discussed, whether I stick to it is another story.


//tkleo
User avatar
Sandtrap
Posts: 19591
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Portfolio Review

Post by Sandtrap »

Can you please edit your original post (pencil icon) to include the "fund names" beside the "tickers".
You will get more suggestions this way.

That said. In general.
1. Eliminate overlap and redundancy.
2. Consolidate funds where there are any with less than 5% of total.
3. Do #1, #2 while eliminating funds with higher expense ratios.
4. Position funds to best tax efficiency.

mahalo
j
Wiki Bogleheads Wiki: Everything You Need to Know
Chip
Posts: 3994
Joined: Wed Feb 21, 2007 3:57 am

Re: Portfolio Review

Post by Chip »

tkleo wrote: Mon Jul 09, 2018 9:42 pm I had not considered excluding VBTLX in taxable. In theory, I understand thinking of the portfolio as a whole - in practice it is a little more challenging. I am not fully understanding the comment on VEXAX and need to research further.
Assuming your VA tax rate is 5.75%, your total marginal tax rate on ordinary income is nearly 38%. That's the rate you pay on non-qualified dividends. But qualified dividends would be taxed at 21% (15% Federal plus ~6% state). All of VBTLX dividends are non-qualified, as well as 33% of VEXAX. The ideal fund to hold in taxable has a low dividend rate with a very high percentage of qualified dividends, never has capital gain distributions, and never needs to be sold. Total market funds fit that definition very well.
I like Megabad's response, rebalancing will occur naturally by adding new positions - according to AA.

That works, but isn't optimal if you are adding to tax-inefficient positions in your taxable account. If you look at your portfolio as a whole everything can be done outside of the taxable account.
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