New Boglehead - Portfolio Questions

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blackfish
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Joined: Wed Jul 11, 2018 3:58 pm
Location: K'rul's Bar

New Boglehead - Portfolio Questions

Post by blackfish » Thu Jul 12, 2018 3:55 pm

Hi - I've been reading Boglehead material for a few months now and have started taking a more active stance on my financial planning.

General Information
Emergency Fund - 1 Month Expenses (Wife and I both have very stable jobs, however I know we need to grow this)
Debt - $10k Car Loan, $230k Mortgage
Tax Rate - 22% Federal, 5% State (joint annual income around $100k annually)
State of Residence - Alabama
Age - 29
Desired Asset Allocation - 85% Stock 15% Bond
Desired International Allocation - 16%?

Current Retirement Assets
His ROTH 401k (~50k)
69% VG Institutional Total Stock Market IF (VITPX) (0.02%)
10% VG Total International Stock IF Institutional Plus Shares (VTPSX) (0.07%)
6% VG Total World Stock IF (VTWIX) (0.09%)
15% VG Total Bond Market IF Institutional Plus Shares (VBMPX) (0.03%)

His Roth IRA (Just opened it last month, have under 1k in there)
100% ISHARES Core S&P 500 ETF (IVV) (0.04%)

Her
nada

Questions
1. I contribute 7% to my company match (100% up to 6%, plus service contribution) 401k, and am planning on maxing out the ROTH IRA annually. Is this the correct plan of action (assuming I continue to increase my contribution to my 401k as I am able to)? Also am I right to be making ROTH contributions as opposed to pre-tax?

2. Is it okay that all of our retirement savings are in my name? There is no reason that I should decrease what we are currently able to contribute to my accounts just to have something in her name is there?

3. We also contribute $370/month to a whole life insurance policy in her name, and have been for about 5 or 6 years now. Is there anything worthwhile in this or should I switch it all to term and pay the penalty and reinvest in something else? I know this is a pretty loaded question, so maybe just a point in the direction of some reading material?

4. My Roth IRA is through Fidelity (who also manages my company 401k), it seems that the minimum investment for any index funds they offer is $2500 so my plan is to continue buying the IVV ETF shares until I reach $2500 (contributing 500 per month) and then set up automatic contributions into an S&P 500 Index Fund. Thoughts?

5. Any other general thoughts, questions or concerns?

Anyway I'm happy to be a part of the site and appreciate any and all help.

soccerrules
Posts: 688
Joined: Mon Nov 14, 2016 4:01 pm

Re: New Boglehead - Portfolio Questions

Post by soccerrules » Thu Jul 12, 2018 4:58 pm

Welcome to BH-- I wish I was your age when I found this community.
Some general replies, GREAT for starting to save early in your career. The habit of saving will be your biggest asset and then investing in low cost, passive index funds.
1) Try and save more. Get on a budget and SAVE. Your future 50+ year old self will thank you one day. Be in the market with a solid AA over the long haul is one of the best ways to ensure a comfy retirement
2) What is your household income ? and monthly expenses ?
3) If you are in the lowest tax brackets Roth is typically preferred. Try and fill up all your tax-deferred buckets each year. Once the year is up -- you lose that opportunity.
4) If your wife has 401/403 and has a match --push to contribute enough to get the match (FREE money)
5) I would cash out the whole life (most BH's are not fans of WL , fyi). Buy term only if needed. You probably should have term since you have the mortgage, but you might be OK without it now. If/when you have kids -- MUST have term life insurance. At $370/mo for WL -- you can get term for less than $100/mo and have $250+/mo to increase 401K, add to IRA's or increase EF
5) READ READ and educate yourself. The wiki's here, several of the recommended Financial Guides and browsing the forum will help you with general personal finance info.
6) No CC debt and if your Car loan is over 3% --strive to pay it off.
Best of luck
Don't let your outflow exceed your income or your upkeep will be your downfall.

nwffdiver
Posts: 77
Joined: Mon Oct 01, 2012 9:26 pm

Re: New Boglehead - Portfolio Questions

Post by nwffdiver » Thu Jul 12, 2018 5:07 pm

You have great funds in your 401k all institutional shares( very low cost). Super jealous, you should definitely max out your 401k. Those fees are lower than Vanguard admiral shares.


I do see that VTWIX is a total world large cap fund,so you have some overlap. You may have done that intentionally.

:sharebeer

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Sandtrap
Posts: 4931
Joined: Sat Nov 26, 2016 6:32 pm
Location: 10/90 Allocation - Hawaii😀 Northern AZ.😳

Re: New Boglehead - Portfolio Questions

Post by Sandtrap » Thu Jul 12, 2018 5:12 pm

Wow!
You have a great plan and have made great progress at this stage of the game.
Congratulations.

re: #2
You could both create a "revocable trust", then open accounts under the trust name.
Or, convert what existing accounts you have to joint.
Or, be sure to add the POD (payable on death) statement to all accounts.
As for the home, joint or beneficiary deed.

As you progress, minimize the number of funds, avoid overlap and redundancy, eliminate funds with high cost or funds with less than 5% of total. It will keep things from becoming messy. Simple is better.

Some tools to help you stay organized and also to do projections as needed.
ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
http://www.morningstar.com/portfolio.ht ... Entry.aspx
Optimal Retirement Planner (I-ORP)
https://www.i-orp.com/paper/index.html
http://www.calculator.net/investment-calculator.html

Reading:
TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505

j

Flyer24
Posts: 72
Joined: Sun Apr 08, 2018 4:21 pm

Re: New Boglehead - Portfolio Questions

Post by Flyer24 » Thu Jul 12, 2018 5:27 pm

I would open up Roth IRA in your wife’s name too.

02nz
Posts: 442
Joined: Wed Feb 21, 2018 3:17 pm

Re: New Boglehead - Portfolio Questions

Post by 02nz » Thu Jul 12, 2018 5:51 pm

At 22% federal + 5% state marginal income tax, I would NOT be doing all Roth. You're likely to have a lower tax rate in retirement, so defer the taxes now. I recommend going all traditional with the 401k - if you're putting in 7% Roth contributions now, you should be able to contribute 10% traditional instead, while taking home about the same amount of money. Contribute more if you can (you should be able to as you're making six figures in a LCOL area). Meanwhile, keep funding the Roth IRA.

Your wife has a job, so why does she have no retirement savings at all? Does she have a retirement plan at work? She should at least contribute enough to get the match, if any. And she should have a Roth IRA in her own name. (Actually you can contribute to her Roth IRA even if she doesn't earn income, as long as you do).

The whole-life policy is almost certainly a bad investment, and you'd be better off putting that money in the 401k. As a general rule, get insurance when you need insurance, but don't mix it with investments. Insurance companies love to sell complex products customers don't understand, because complexity is where they hide huge profit margins. Others here with more knowledge of whole-life can better advise you on how best to unwind this.

blackfish
Posts: 10
Joined: Wed Jul 11, 2018 3:58 pm
Location: K'rul's Bar

Re: New Boglehead - Portfolio Questions

Post by blackfish » Thu Jul 12, 2018 6:13 pm

02nz wrote:
Thu Jul 12, 2018 5:51 pm
At 22% federal + 5% state marginal income tax, I would NOT be doing all Roth. You're likely to have a lower tax rate in retirement, so defer the taxes now. I recommend going all traditional with the 401k - if you're putting in 7% Roth contributions now, you should be able to contribute 10% traditional instead, while taking home about the same amount of money. Contribute more if you can (you should be able to as you're making six figures in a LCOL area). Meanwhile, keep funding the Roth IRA.

Your wife has a job, so why does she have no retirement savings at all? Does she have a retirement plan at work? She should at least contribute enough to get the match, if any. And she should have a Roth IRA in her own name. (Actually you can contribute to her Roth IRA even if she doesn't earn income, as long as you do).

The whole-life policy is almost certainly a bad investment, and you'd be better off putting that money in the 401k. As a general rule, get insurance when you need insurance, but don't mix it with investments. Insurance companies love to sell complex products customers don't understand, because complexity is where they hide huge profit margins. Others here with more knowledge of whole-life can better advise you on how best to unwind this.
Thanks for the advice everyone.

A few points - I make about 80% of our total household income, my wife's job does not come with a retirement plan. We also have one child, and are planning on having a 2nd soon, so we are also saving up for a new car (SUV since we both currently drive sedans).

I am meeting with my insurance guy soon and will likely change the policy from partial term/whole to fully term and then increase my 401k contribution.

blackfish
Posts: 10
Joined: Wed Jul 11, 2018 3:58 pm
Location: K'rul's Bar

Re: New Boglehead - Portfolio Questions

Post by blackfish » Fri Jul 13, 2018 10:10 am

Regarding my question #4 and my fledgling ROTH IRA. I am planning on continuing to buy shares of IVV (ishares S&P index etf (0.04%)) until I have $2.5k in my account which is the minimum to invest in a s&p 500 index fund (so I can set up automatic investments.)

Is that a good plan or should I just continue to buy shares of the ETF for the long run?

02nz
Posts: 442
Joined: Wed Feb 21, 2018 3:17 pm

Re: New Boglehead - Portfolio Questions

Post by 02nz » Fri Jul 13, 2018 10:17 am

blackfish wrote:
Fri Jul 13, 2018 10:10 am
Regarding my question #4 and my fledgling ROTH IRA. I am planning on continuing to buy shares of IVV (ishares S&P index etf (0.04%)) until I have $2.5k in my account which is the minimum to invest in a s&p 500 index fund (so I can set up automatic investments.)

Is that a good plan or should I just continue to buy shares of the ETF for the long run?
If you're not paying a per-transaction cost to buy the ETF, then either way is fine, as the expense ratios are similar.

blackfish
Posts: 10
Joined: Wed Jul 11, 2018 3:58 pm
Location: K'rul's Bar

Re: New Boglehead - Portfolio Questions

Post by blackfish » Fri Jul 13, 2018 10:21 am

02nz wrote:
Fri Jul 13, 2018 10:17 am
blackfish wrote:
Fri Jul 13, 2018 10:10 am
Regarding my question #4 and my fledgling ROTH IRA. I am planning on continuing to buy shares of IVV (ishares S&P index etf (0.04%)) until I have $2.5k in my account which is the minimum to invest in a s&p 500 index fund (so I can set up automatic investments.)

Is that a good plan or should I just continue to buy shares of the ETF for the long run?
If you're not paying a per-transaction cost to buy the ETF, then either way is fine, as the expense ratios are similar.
Thanks! there is no transaction fee on the ishares ETF through Fidelity.

The reason I am thinking about changing to the fund once I have the $$ in my ROTH is so that my automatic contributions can be invested into the fund without me having to make sure that what I am investing is enough to buy each share of the ETF at whatever it is trading at that day. For example if I invest $500 one month into the ROTH but IVV is at $281/share then I can only buy 1 share and I have $219 sitting in SPAXX. If I have a fund then I can just put all $500 into that.

sjt
Posts: 52
Joined: Fri May 26, 2017 3:03 pm

Re: New Boglehead - Portfolio Questions

Post by sjt » Fri Jul 13, 2018 1:08 pm

blackfish wrote:
Thu Jul 12, 2018 6:13 pm
A few points - I make about 80% of our total household income, my wife's job does not come with a retirement plan. We also have one child, and are planning on having a 2nd soon, so we are also saving up for a new car (SUV since we both currently drive sedans).

I am meeting with my insurance guy soon and will likely change the policy from partial term/whole to fully term and then increase my 401k contribution.
I'm also perplexed as to why you have life insurance for the wife. Life insurance is usually taken for the higher earner in the event that the breadwinner dies, the family can use the life insurance money for some income replacement.

Are you sure you're in the 22% tax bracket? If your current combined gross income is around $100k, the standard MFJ deduction is $24k bringing your taxable income to around $76k. You are also putting money into 401k which will reduce taxable income, and also have a child which should reduce taxable income even more.

For MFJ families, the 22% tax bracket doesn't start until $77,400 of taxable earnings.
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

blackfish
Posts: 10
Joined: Wed Jul 11, 2018 3:58 pm
Location: K'rul's Bar

Re: New Boglehead - Portfolio Questions

Post by blackfish » Fri Jul 13, 2018 1:26 pm

sjt wrote:
Fri Jul 13, 2018 1:08 pm
blackfish wrote:
Thu Jul 12, 2018 6:13 pm
A few points - I make about 80% of our total household income, my wife's job does not come with a retirement plan. We also have one child, and are planning on having a 2nd soon, so we are also saving up for a new car (SUV since we both currently drive sedans).

I am meeting with my insurance guy soon and will likely change the policy from partial term/whole to fully term and then increase my 401k contribution.
I'm also perplexed as to why you have life insurance for the wife. Life insurance is usually taken for the higher earner in the event that the breadwinner dies, the family can use the life insurance money for some income replacement.

Are you sure you're in the 22% tax bracket? If your current combined gross income is around $100k, the standard MFJ deduction is $24k bringing your taxable income to around $76k. You are also putting money into 401k which will reduce taxable income, and also have a child which should reduce taxable income even more.

For MFJ families, the 22% tax bracket doesn't start until $77,400 of taxable earnings.
Thanks for the reply. I'm new to this so I googled federal tax rates and went off of our combined gross income, which I'm now assuming was wrong.

Also w.r.t the life insurance, we gave into a friend who worked for NWM who asked to sit down with us and discuss insurance when we were just out of college. We were enticed by the returns of whole life insurance and ignorant of other options. Taking out a policy in her name was more affordable for us due to her better driving record, and I already had a life insurance policy through my employer, which she did not.

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