Help with retirement asset allocation for a newbie!

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rabit1111
Posts: 1
Joined: Wed Nov 08, 2017 7:50 pm

Help with retirement asset allocation for a newbie!

Post by rabit1111 » Fri Aug 10, 2018 12:49 pm

Current Situation:

Emergency funds: ~4-6 months of expenses in cash (checking and saving) + $25K in CD account.
Debt: Mortgage $350k at 4.625%, just bought it and on a 30-year plan. The home is currently worth $485K according to Zillow
Tax Filing Status: Married Filing Jointly
State of Residence: MS
Age: Me 36, her 35. We have 2 children
Total Gross Income ~ $150K

Current Retirement Assets:
My 401K: $62,800
Her Simple/Traditional IRAs (2 different employers): $6,000
My Roth IRA: $7,600
Her Roth IRA: $7,200
HSA: $5,800
Total Retirement Assets: $89,400

Current Taxable Investment for children is $12,700 (this is meant to be used as tuition or other expenses such as car, rent, etc. which is the reason I do not want to put it in 529 Plan).

Contributions Yearly:
My 401K: $9650 + Employer Match of $4051 = $13,701
Her Simple IRA: $3060 + Employer Match of $1530 = $4,590
My Roth IRA: $4,800
Her Roth IRA: $4,800
HSA: $5000 but only $4,000 (80%) to investment and the rest is in cash for medical expenses during the year
Total Retirement Saving/ Year = $31,891

I am currently putting $2400/ year into my Taxable Investment for children.

Also, I contribute $5,000 from my gross income to Dependent Child Care to help reduce tax. This amount is reimbursed at the end of the year, so it can be used for anything (such as invest, vacation, pay down mortgage principle). This is why I do not count the amount as saving since I do not always put it into saving/investment.

All of this is invested in the following funds with the exception of Dependent Child Care:

Tax-Advantage Accounts:
My 401K: T3T – TRP Blue Chip Growth Trust T4 - $62,000
Her Simple IRA – TRBCX – T Rowe Price Blue Chip Growth - $18,00
Her Traditional IRA – Target Retirement Fund - $4,200
My Roth IRA – VTSMX – Vanguard Total Stock Market Index - $7,600
Her Roth IRA – VIGRX – Vanguard Growth Index Investor - $7,200
HSA – VFIAX – Vanguard 500 Index Admiral – $5,800

Taxable Investment Account:
VFIAX – Vanguard 500 Index Admiral - $12,700


Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 20% of stocks


We just began on this journey of really taking charge of our retirement investing in December of last year so I figured a sanity check would not hurt. Before that, we didn’t bother with our investment/saving and just let them ride. How I am doing as far as our retirement investing and saving plan and what should be done to balance to my desired asset allocation (this is my real concern since I’m clueless about rebalance/asset allocation)?

I would like for us to become Financially Independent / be able to retire much earlier than the typical 65-70 years old (somewhere between 55-60). Am I on the right track to do so? If not, then am I on track to retire at 65?

Are there any changes that would be recommended at this point or should I ride out the last year or so of this bull market?

Thank you for any comments or thoughts

Doctor Rhythm
Posts: 166
Joined: Mon Jan 22, 2018 3:55 am

Re: Help with retirement asset allocation for a newbie!

Post by Doctor Rhythm » Fri Aug 10, 2018 3:11 pm

Welcome to the forum...

You've got time on your side, and you are saving at an above average rate (20% of gross salary per year) - plus you have a relatively high income. That's all great. Whether your current retirement assets of $89000 is on track or not is more difficult to judge, especially at your young age, and given you likely put a fair amount of cash down for your home, and may have a lot of growth to your income in the future. Fidelity has been touting a 10 x income rule-of-thumb, meaning they recommend having 10 x your highest salary saved by the time you retire. It gives a milestone target of 2 x salary saved at age 35 if you're planning to retire early-mid 60s, then 3x by age 40, 4x by age 45, etc. It's not a perfect or one-size-fits-all rule, and it was hotly debated here (viewtopic.php?t=232094) last year. In any case, if you believe the rule, you're a little behind. On the other hand, you're saving 1x your salary every 5 years, so you're growing at the recommended rate.

As for your asset allocation, you say you want 10% in bonds and 20% of your stock to be international - which is not unreasonable at your age. It's also similar to what a lot of target date funds would allocate for someone in their 30s. Now, I don't see much international stock or bonds in your portfolio (other than in the TD fund in the spouse's IRA). For bonds, a total bond index fund (e.g. Vanguard's VBMFX) in a tax-advantaged account would work. For international, again a total international index fund would be fine.

Your domestic stocks are very tilted (represented out of proportion to market capitalization) towards large companies and growth (as opposed to value) companies. In fact, well over half of your portfolio is in a fund of big growth companies. It's done well recently, but past performance does not etc, etc. The strategy advocated on this forum is for more diversification and an allocation that reflects the broader market, like what you get with your Roth's total stock market fund. No way to know whether your returns will be better or worse if you follow this strategy, but that you will reduce your risk. Since you're new to this, I'd read up on a simple 3 fund portfolio: https://www.bogleheads.org/forum/viewt ... 10&t=88005 as well as start browsing the wiki.

megabad
Posts: 574
Joined: Fri Jun 01, 2018 4:00 pm

Re: Help with retirement asset allocation for a newbie!

Post by megabad » Fri Aug 10, 2018 4:51 pm

rabit1111 wrote:
Fri Aug 10, 2018 12:49 pm
We just began on this journey of really taking charge of our retirement investing in December of last year so I figured a sanity check would not hurt. Before that, we didn’t bother with our investment/saving and just let them ride. How I am doing as far as our retirement investing and saving plan and what should be done to balance to my desired asset allocation (this is my real concern since I’m clueless about rebalance/asset allocation)?
I think you are doing well and you have utilized many of the great tax advantaged accounts available to you. Agree with above poster that you have a heavy growth tilt. You are likely 99.5% equities as well with an almost negligible amount of international equities and almost no bonds. This is not consistent with your desired allocation. I would review your 401k options and Simple IRA options and rebalance accordingly. Since we do not know these options or their expense, it is tough suggest anything specifically.

I would like for us to become Financially Independent / be able to retire much earlier than the typical 65-70 years old (somewhere between 55-60). Am I on the right track to do so? If not, then am I on track to retire at 65?
At expenses of $80-90k per year, I would say you are closer to being on track for a 65 retirement than a 55, but you have so many years ahead that it is impossible to predict accurately. For an early retirement I might try to inch closer to 30% retirement savings or more.

Are there any changes that would be recommended at this point or should I ride out the last year or so of this bull market?
Personally, I would not be comfortable with the heavy growth tilt you have but you have to determine if this fits into your investment plan. I would also probably not spend down the HSA if you have the cashflow. I would invest as much of it as you can to capture the "double tax benefit".
I would personally much prefer you use a tax advantaged account instead of a taxable for college savings. Remember that you can access your Roth IRA contributions tax free and penalty free. Also, you are likely forgoing the state tax deduction for 529 contributions, so I would at least prepare to funnel money thru the 529 as kids enter college (I don't know their ages so this may be a long time off).


Thank you for any comments or thoughts

Chip
Posts: 2202
Joined: Wed Feb 21, 2007 4:57 am

Re: Help with retirement asset allocation for a newbie!

Post by Chip » Sat Aug 11, 2018 5:14 am

Welcome!

I agree with the other posters that you're doing well, but some tuning is in order.

Your 401k is your largest account. All of your bonds should go there unless you don't have a good low cost option. What bond funds do you have available and what are their expense ratios?

What are the expense ratios of the non-Vanguard funds that you own? Are there lower cost options in those accounts?

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