Help simplify my portfolio

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scutu
Posts: 8
Joined: Sun Oct 14, 2018 10:41 pm

Help simplify my portfolio

Post by scutu » Mon Oct 15, 2018 9:28 am

Hi Bogleheads. Thanks for any and all advice you may have. I'm a high income earner in a LCOL state with 4 kids who doesn't want to work forever. We give 10% of our gross so our tax burden is lessened quite a bit in that regard. I feel like my allocations could be simplified a bit but don't have the knowhow to do it.

Emergency funds: Yes
Debt: Mortgage - $374k @ 2.75%
Tax Filing Status: Married Filing Jointly
Tax Rate: 37% Federal, 2.9% State
State of Residence: ND
Age: 38
AA: 85/15 - reasonable?

Current Retirement Assets:
401K
Employer X Target Retirement 2045 fund - $181k

457b - $80k
Fixed income - 9%
Large US Equity - 52%
Small/Mid US Equity - 22%
International Equity - 17%

Backdoor Roth
His - VTSAX - $16k
Hers - VTIAX - $14k

HSA
$7k
Vanguard 500 Index Adml - 25%
Vanguard Emg Mrts Stk Idx Adml - 10%
Vanguard Mid Cap Index Adml - 15%
Vanguard Small Cap Index Adml - 10%
Vanguard Ttl Bnd Markt Index Adml - 15%
Vanguard Ttl Intl Stk Index Adml - 25%

Brokerage
VTIVX - Vanguard Target Retirement 2045 Fund - $70k
VTIAX - Vanguard Total Int'l Adml - $21k
VTSAX - Vanguard Total Stock Adml - $24k
PSCH - $30k
ETNHX - $32k

Cash
VMSXX - Tax-exempt Municipal Money Market - $51k
Check/Sav - $30k

Crowdfunding
$254k

Contributions (yearly):
401k - $18.5k + 11k employer match
457b - $18.5k
VTIVX - $12k
VTIAX - $9k
VTSAX - $9k
HSA - $6.9k
His and Hers Backdoor Roth - $11k
PSCH - $3k
ETNHX - $3k
429s - $10k

Living Free
Posts: 119
Joined: Thu Jul 19, 2018 7:31 pm

Re: Help simplify my portfolio

Post by Living Free » Tue Oct 16, 2018 7:57 am

scutu wrote:
Mon Oct 15, 2018 9:28 am
Hi Bogleheads. Thanks for any and all advice you may have. I'm a high income earner in a LCOL state with 4 kids who doesn't want to work forever. We give 10% of our gross so our tax burden is lessened quite a bit in that regard. I feel like my allocations could be simplified a bit but don't have the knowhow to do it.

Emergency funds: Yes
Debt: Mortgage - $374k @ 2.75%
Tax Filing Status: Married Filing Jointly
Tax Rate: 37% Federal, 2.9% State
State of Residence: ND
Age: 38
AA: 85/15 - reasonable?

Current Retirement Assets:
401K
Employer X Target Retirement 2045 fund - $181k

457b - $80k
Fixed income - 9%
Large US Equity - 52%
Small/Mid US Equity - 22%
International Equity - 17%

Backdoor Roth
His - VTSAX - $16k
Hers - VTIAX - $14k

HSA
$7k
Vanguard 500 Index Adml - 25%
Vanguard Emg Mrts Stk Idx Adml - 10%
Vanguard Mid Cap Index Adml - 15%
Vanguard Small Cap Index Adml - 10%
Vanguard Ttl Bnd Markt Index Adml - 15%
Vanguard Ttl Intl Stk Index Adml - 25%

Brokerage
VTIVX - Vanguard Target Retirement 2045 Fund - $70k
VTIAX - Vanguard Total Int'l Adml - $21k
VTSAX - Vanguard Total Stock Adml - $24k
PSCH - $30k
ETNHX - $32k

Cash
VMSXX - Tax-exempt Municipal Money Market - $51k
Check/Sav - $30k

Crowdfunding
$254k

Contributions (yearly):
401k - $18.5k + 11k employer match
457b - $18.5k
VTIVX - $12k
VTIAX - $9k
VTSAX - $9k
HSA - $6.9k
His and Hers Backdoor Roth - $11k
PSCH - $3k
ETNHX - $3k
429s - $10k
Welcome scutu!

1. You could focus on reducing the number of holdings in each account. You do not need to create a diverse portfolio in each account. You could hold for instance just total US stock market in one account and then in another hold just a total US bond market fund; or just two funds in each account. that would help simplify things.

2. It's less ideal to have a target date fund in your taxable account. They do have to rebalance into their desired allocation which might incur some capital gains (or losses). Also the bonds there are not tax exempt bonds.

3. related to #1 above: The HSA. that's a lot of funds to use for just 7k.

4. ETNHX has an expense ration of 1.54% :shock: I'd consider selling or at least not contributing more to that fund. PSCH is better at 0.29%. I'm not personally a fan of small cap sector investing but if you like it then it seems like a small part of your portfolio.

retiredjg
Posts: 34165
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help simplify my portfolio

Post by retiredjg » Tue Oct 16, 2018 8:34 am

You have about 1/3rd of your assets in "crowdfunding". We don't talk about that a lot around here. How does it work? Do you expect to make money on that or is this your way of being generous?

A target fund is not a good choice for a brokerage account - the bonds in it are not tax-efficient (cause you to pay unnecessary tax).

Having the same exact fund in taxable account and Roth IRA may eventually lead to a wash sale. You can avoid that by exchanging funds now or by being very careful about reinvestment of dividends in the IRAs.

The HSA could be put into a target account.

scutu
Posts: 8
Joined: Sun Oct 14, 2018 10:41 pm

Re: Help simplify my portfolio

Post by scutu » Tue Oct 16, 2018 2:16 pm

Welcome scutu!

1. You could focus on reducing the number of holdings in each account. You do not need to create a diverse portfolio in each account. You could hold for instance just total US stock market in one account and then in another hold just a total US bond market fund; or just two funds in each account. that would help simplify things.

2. It's less ideal to have a target date fund in your taxable account. They do have to rebalance into their desired allocation which might incur some capital gains (or losses). Also the bonds there are not tax exempt bonds.

3. related to #1 above: The HSA. that's a lot of funds to use for just 7k.

4. ETNHX has an expense ration of 1.54% :shock: I'd consider selling or at least not contributing more to that fund. PSCH is better at 0.29%. I'm not personally a fan of small cap sector investing but if you like it then it seems like a small part of your portfolio.
Thanks! Seems like a great community with a lot of smart people contributing.

1. Seems great in theory. It's what I'd like to move towards.

2. You and the post below said the same thing. Sounds like good advice :D I may split the Target Date fund in my taxable between total int'l and total stock.

3. The HSA is so small because our company just opened it up to us this year :)

4. I did know that ETNHX had a rather high expense ratio. I do appreciate that the fund is comprised of morally sound healthcare companies. In my mind with them averaging 17% over the past 5 years, it made sense to keep kicking into the fund even though I was losing 1.45%. Is this logic faulty?

megabad
Posts: 663
Joined: Fri Jun 01, 2018 4:00 pm

Re: Help simplify my portfolio

Post by megabad » Tue Oct 16, 2018 5:27 pm

scutu wrote:
Mon Oct 15, 2018 9:28 am
Hi Bogleheads. Thanks for any and all advice you may have. I'm a high income earner in a LCOL state with 4 kids who doesn't want to work forever. We give 10% of our gross so our tax burden is lessened quite a bit in that regard. I feel like my allocations could be simplified a bit but don't have the knowhow to do it.
I don't feel like your portfolio is that complicated personally, but I think it could be easily simplified if you desire. For example if you want 85%/15% equity bond with 30% equity international:

401k: Target 2025 181k (assumed 60% equity/40% bond, not sure of your other options)
457b: Large US Equity 80k (assumed lowest cost option, not sure of your other options)
Roth1: Vanguard Total Stock Index Admiral 16k
Roth2: Vanguard Total Stock Index Admiral 14k
HSA: Vanguard Total Stock Index Admiral 7k
Brokerage: Vanguard Total International Index Admiral 120k
Brokerage: Vanguard Total Stock Index Admiral 57k

I don't necessarily recommend Target Retirement Funds in your case since it will make rebalancing complicated, but if that is the best option in your 401k, than you may be stuck with it. If you really want a fund like ETNHX, you probably want to hold that in tax advantaged since those types of funds typically throw off capital gains each year.

Living Free
Posts: 119
Joined: Thu Jul 19, 2018 7:31 pm

Re: Help simplify my portfolio

Post by Living Free » Wed Oct 17, 2018 8:52 am

scutu wrote:
Tue Oct 16, 2018 2:16 pm

4. I did know that ETNHX had a rather high expense ratio. I do appreciate that the fund is comprised of morally sound healthcare companies. In my mind with them averaging 17% over the past 5 years, it made sense to keep kicking into the fund even though I was losing 1.45%. Is this logic faulty?
I think that if you want to keep a small portion of your invested portfolio in something more adventuresome than index funds that is fine. Often people will suggest up to 10% of the invested portfolio to sort of "play with" and invest in more interesting/exciting things. Those returns sound pretty nice for the past 5 years. But the real question is if that fund can outperform the total US stock market (or VTSAX) over the next 20 years by more than 1.41% annually average (ER of ETNHX minus ER of VTSAX); also actively managed funds are typically less tax efficient compared to broad market index funds, as they often do buying and selling which might trigger some capital gains. So might need to outperform VTSAX by even more than 1.41% when taking taxes into consideration.

scutu
Posts: 8
Joined: Sun Oct 14, 2018 10:41 pm

Re: Help simplify my portfolio

Post by scutu » Wed Oct 17, 2018 9:42 am

retiredjg wrote:
Tue Oct 16, 2018 8:34 am
You have about 1/3rd of your assets in "crowdfunding". We don't talk about that a lot around here. How does it work? Do you expect to make money on that or is this your way of being generous?

A target fund is not a good choice for a brokerage account - the bonds in it are not tax-efficient (cause you to pay unnecessary tax).

Having the same exact fund in taxable account and Roth IRA may eventually lead to a wash sale. You can avoid that by exchanging funds now or by being very careful about reinvestment of dividends in the IRAs.

The HSA could be put into a target account.
I've gone through many of the more established crowdfunding sites and have averaged about 10% return. I've tried to get into more equity deals as of late to reap depreciation tax advantages. In my mind it's something different to get into with how long this bull run has been going. Obviously no one knows when or if it's going to correct.

Can you explain a "wash sale"?

retiredjg
Posts: 34165
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help simplify my portfolio

Post by retiredjg » Wed Oct 17, 2018 10:33 am

scutu wrote:
Wed Oct 17, 2018 9:42 am
Can you explain a "wash sale"?
See the Wiki for a better response. Here's the short version.

If you hold XXX in taxable and sell it at a loss, you expect to take that loss off your taxes. If you also hold XXX in an IRA or another taxable account you cannot buy any of it within 30 days (or is it 31?) before or after selling it at a loss in the taxable account and still take your tax loss.

You do not lose your entire tax loss, only as much as you bought in the other account.

The problem is that most people don't know when there is a dividend reinvestment in an IRA and they end up with unintentional wash sales.

A wash sale is not illegal, just something you have to keep up with and report on your taxes. Many people would rather just avoid it.

retiredjg
Posts: 34165
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help simplify my portfolio

Post by retiredjg » Thu Oct 18, 2018 6:33 am

scutu, in another thread, you are struggling with your bond selection. It would be helpful if you would list the funds available in your 401k and your 457. We need the name, ticker if any exists, and the expense ratio that is specific to your plan. You can add this information to the original post using the little pencil button.

About the 457...my guess is that this is a non-governmental 457b plan. Are you aware that such a plan can have some serious drawbacks?

scutu
Posts: 8
Joined: Sun Oct 14, 2018 10:41 pm

Re: Help simplify my portfolio

Post by scutu » Thu Oct 18, 2018 11:00 pm

retiredjg wrote:
Thu Oct 18, 2018 6:33 am
scutu, in another thread, you are struggling with your bond selection. It would be helpful if you would list the funds available in your 401k and your 457. We need the name, ticker if any exists, and the expense ratio that is specific to your plan. You can add this information to the original post using the little pencil button.

About the 457...my guess is that this is a non-governmental 457b plan. Are you aware that such a plan can have some serious drawbacks?
I have no bond options in my 401k. This is the only one available in the 457b - MFS Investment Management
MFS Corporate Bond A Fund

Can you tell me more about the drawbacks of a non-governmental 457b?

Living Free
Posts: 119
Joined: Thu Jul 19, 2018 7:31 pm

Re: Help simplify my portfolio

Post by Living Free » Fri Oct 19, 2018 6:52 am

scutu wrote:
Thu Oct 18, 2018 11:00 pm


Can you tell me more about the drawbacks of a non-governmental 457b?
if your employer goes bankrupt the creditors can take your money from the non governmental 457. I have a non government 457 and don't use it for that reason. which is a bummer because I'd love to have additional tax advantaged space for retirement funds...

retiredjg
Posts: 34165
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help simplify my portfolio

Post by retiredjg » Fri Oct 19, 2018 8:57 am

scutu wrote:
Thu Oct 18, 2018 11:00 pm
retiredjg wrote:
Thu Oct 18, 2018 6:33 am
scutu, in another thread, you are struggling with your bond selection. It would be helpful if you would list the funds available in your 401k and your 457. We need the name, ticker if any exists, and the expense ratio that is specific to your plan. You can add this information to the original post using the little pencil button.

About the 457...my guess is that this is a non-governmental 457b plan. Are you aware that such a plan can have some serious drawbacks?
I have no bond options in my 401k. This is the only one available in the 457b - MFS Investment Management
MFS Corporate Bond A Fund
This is very unlikely. If you want help with that, post the information.

Can you tell me more about the drawbacks of a non-governmental 457b?
Your money is subject to the creditors of your employer not only while you work there but until you withdraw all your money which may be decades from now. You cannot ever roll this into IRA or a 401k type plan. It can be rolled into another non-governmental 457b. The withdrawal requirements may be awful - requiring you to take money when you don't want it (at the worst possible time for tax).

Many people do use these plans and horror stories are not rampant. We've heard of maybe a couple of issues. I'm not suggesting you skip using it, but you really must know what the downsides could be.

Know also that some people choose not to use these plans because of the above potential issues.

Living Free
Posts: 119
Joined: Thu Jul 19, 2018 7:31 pm

Re: Help simplify my portfolio

Post by Living Free » Fri Oct 19, 2018 10:49 am

I do plan to use my 457 once I'm within a few years of retirement, so that the window of risk (being exposed to the creditors if my employer goes bankrupt) will be smaller. I have some withdrawal limitations in mine too - either all at once or divided equally per year over 10 years. I'd prefer the former so that it would not be exposed to the creditor risk for so long, but that would presumably entail a higher tax bill as a higher proportion of it would be in the higher marginal tax brackets. Oh, and we're only allowed to change the withdrawal decision once. So anyway, for now I'm just putting my extra money into a taxable account.
One advantage of the 457 is that you can access the money without penalty before age 59.5 (though there are mechanisms to access other retirement account funds prior to age 59.5 as well), so it might be a reasonable choice for early retirement money as long as you're ok with the drawbacks. usually can access once you leave the employer.

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