Portfolio, Investments, Spending Feedback - What would you tweak?

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deleteereto
Posts: 4
Joined: Mon Oct 15, 2018 4:45 pm

Portfolio, Investments, Spending Feedback - What would you tweak?

Post by deleteereto » Mon Oct 15, 2018 8:44 pm

Temp account (long-time BHer).
Appreciate some insights and feedback on my allocations and questions below. Thanks BHs!

Emergency funds: 5 months in FICA high-yield (1.9%)
Debt: Mortgage - $700k at 3.375% (10/1 ARM, 3 years in), $62k car loan at 0.99%
Tax Filing Status: Married, Filing Jointly
Tax Rate: 37% Federal, 0% State
Age: 40 / Spouse: 40
Annual income: ~$400k
Desired Asset allocation: 65% stocks / 35% bonds
Desired International allocation: 15% of stocks

Monthly budget: $16k
Monthly budget at retirement: $11k - $15k
Desired "retirement" age: 50-53

Total portfolio value excluding emergency & mortgage: $1.4M
- Tax-advantaged portion: $320k
- Taxable portion: $1.06M


CURRENT ASSETS:

Code: Select all

ACCT			EST AMT		TICKER	CATEGORY	DESCRIPTION					ER	SEC Yield
Vanguard 401k		$240,000	VBIRX	Bond		Vanguard Short Term Bond Admiral		0.07%	3.0772
Vanguard 401k		$55,000		VGSLX	REIT		Vanguard REIT Index Fund Admirals		0.12%	3.33
JPMC Brokerage		$70,000		VBIRX	Bond		Vanguard Short Term Bond Admiral		0.07%	3.0772
Etrade Brokerage	$775,000	VTI	US Equities	Vanguard Total Stock Market ETF			0.04%	1.8
Etrade Brokerage	$125,000	VEU	Int'l Equities	Vanguard FTSE All-World ex-US ETF		0.11%	2.9
Etrade Brokerage	$105,000	SJNK	Bond		SPDR Bloomberg Barclays ST HY Bond ETF		0.40%	5.42
Etrade Personal		$50,000			US Equities	Equities; Fun Money				0	
Bank	A		$75,000			Cash		FICA						0	1.95
State 529		$5,000		VTI	US Equities	Vanguard Total Stock Market ETF			0.04%	1.83
Her Roth		$12,000		VBIRX	Bond		Vanguard Short Term Bond Admiral		0.07%	3.0772
Vanguard 529		$9,000		VIIIX	US Equities	Vanguard 500 Index Portfolio			0.18%	1.8
Vanguard 529		$6,000		VWEAX	Bond		Vanguard High Yield Bond Portfolio		0.31%	3.0772
Vanguard 529		$2,000		VTPSX	Int'l Equities	Vanguard Total Int'l Stock Index Portfolio	0.07%	2.89
His Roth		$12,000		VBIRX	Bond		Vanguard Short Term Bond Admiral		0.07%	3.0772
						
			Amt		Allocation					Weighted Ave ER: 0.08%	
Bond			$445,000	30%				
US Equities		$839,000	56%				
Int'l Equities		$127,000	9%		
Cash			$75,000		5%				
						
Total			$1,486,000

CONTRIBUTIONS
New annual Contributions (ongoing):
- $35,375 his 401k (includes 4.5% employer match)
- $5,500 his backdoor Roth IRA {fixed typo}
- $5,500 her backdoor Roth IRA {same}

- 2018: Additional $225k (from equity payouts) after-tax
- 2019: Additional $750k (from equity payouts) after-tax
- 2020: Additional $250k (from equity/other payouts) after-tax

Funds available in his 401(k) (Fidelity)
- Pretty much any fund - Fidelity brokeragelink account; will use same VG funds or a fidelity index funds if better ER

Funds available in deferred comp plan (will put about $300k into this annually from the above "Additional" amounts)

- Fidelity Money Market
35% IShares Core Total U.S. Bond Market (0.06%)
- SPDR S&P 500 (0.095%)
- SPDR S&P MidCap 400 (0.24%)
50% iShares Russell 2000 Index (0.19%)
15% iShares MSCI EAFE Index (0.08%)

- BlackRock LifePath Index 2020 (0.21%)
- BlackRock LifePath Index 2030 (0.23%)
- BlackRock LifePath Index 2040 (0.23%)
- BlackRock LifePath Index 2050 (0.23%)


HSA/Dependent Care: max each year

Life insurance: $1.2M via employer; separate $500k 20 year term life (2 years in)

NOTES:
a. I want to stay in Etrade where possible to allow for tax loss harvesting, diversity of funds, and for their execution speed v. Vanguard.
b. Above excludes emergency cash in general
c. Have some longer term care issues related to a child that may require some level of ongoing care for rest of life (currently 12 years old) that medicare will help cover some portion of
d. Have long runway with current company at same salary however the additional equity will likely go down to $100k/year by 2021 … but likely I will make a jump after taking some time off in late 202 to a startup or pre-IPO tech or biotech company

QUESTIONS:

1. Given the company is a long-standing, well capitalized, no debt F100 company, I plan on deferring the maximum amount possible (~85% of income) and setting the distribution start to 10 years from now. Any advice on this or on managing deferred comp selections?

2. Thoughts on optimizing holdings for tax reduction purposes more than I already have?

3. What life insurance coverage would you recommend? Should I drop the 20 year term life policy which costs $730 per year

4. We are seriously considering adding on to our house (new master) and some minor remodeling (kitchen) for an estimated 150k-200k max. Concerns or thoughts about this?

5. Other things that stick out to you? Other considerations?
Last edited by deleteereto on Mon Oct 15, 2018 9:53 pm, edited 1 time in total.

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LadyGeek
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Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by LadyGeek » Mon Oct 15, 2018 9:23 pm

deleteereto wrote:
Mon Oct 15, 2018 8:44 pm
Temp account (long-time BHer).
Welcome! The OP has received permission to have a temporary account. See: Usernames (accounts), second paragraph.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

MotoTrojan
Posts: 2484
Joined: Wed Feb 01, 2017 8:39 pm

Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by MotoTrojan » Mon Oct 15, 2018 9:33 pm

Hopefully a typo on Roth contribution amount (double limit).

deleteereto
Posts: 4
Joined: Mon Oct 15, 2018 4:45 pm

Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by deleteereto » Tue Oct 16, 2018 7:11 am

MotoTrojan wrote:
Mon Oct 15, 2018 9:33 pm
Hopefully a typo on Roth contribution amount (double limit).
Yep. Fixed now - thanks for pointing that out.

stan1
Posts: 6008
Joined: Mon Oct 08, 2007 4:35 pm

Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by stan1 » Tue Oct 16, 2018 7:36 am

2) Taxes: You say you make $400K/year but then you say you are in the 37% tax bracket which is over $600K for MFJ. I'd reconsider the high yield bonds in a taxable account. Is all of the mortgage interest deductible in 2018?

3) Life Insurance: How old are your kids? How much does your wife make? I think its too early to ratchet down, especially if you are thinking about switching jobs, the debt you are carrying in order to invest more, and with a child who may need lifelong support.

4) No issue, your income can support a remodel. Some will say save up cash to pay for it but based on the mortgage and car loans it looks like you are more comfortable with debt than many who post here so my guess is you'll choose a HELOC. I would only do the remodel if you are planning to stay in the house for many years. It's usually more of a lifestyle choice not an investment despite what realtors and builders would have you believe (even if you are adding an extra bedroom and a kitchen remodel). If you are doing the work yourself or have access to low cost labor there's more of a chance of making money.

5) If you have a special needs child (or if you don't like that term one who may have expensive ongoing medical bills) go see an attorney who specializes in that ASAP.
Last edited by stan1 on Tue Oct 16, 2018 7:44 am, edited 1 time in total.

Living Free
Posts: 120
Joined: Thu Jul 19, 2018 7:31 pm

Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by Living Free » Tue Oct 16, 2018 7:40 am

deleteereto wrote:
Mon Oct 15, 2018 8:44 pm
Temp account (long-time BHer).
Appreciate some insights and feedback on my allocations and questions below. Thanks BHs!

Emergency funds: 5 months in FICA high-yield (1.9%)
Debt: Mortgage - $700k at 3.375% (10/1 ARM, 3 years in), $62k car loan at 0.99%
Tax Filing Status: Married, Filing Jointly
Tax Rate: 37% Federal, 0% State
Age: 40 / Spouse: 40
Annual income: ~$400k
Desired Asset allocation: 65% stocks / 35% bonds
Desired International allocation: 15% of stocks

Monthly budget: $16k
Monthly budget at retirement: $11k - $15k
Desired "retirement" age: 50-53

Total portfolio value excluding emergency & mortgage: $1.4M
- Tax-advantaged portion: $320k
- Taxable portion: $1.06M


CURRENT ASSETS:

Code: Select all

ACCT			EST AMT		TICKER	CATEGORY	DESCRIPTION					ER	SEC Yield
Vanguard 401k		$240,000	VBIRX	Bond		Vanguard Short Term Bond Admiral		0.07%	3.0772
Vanguard 401k		$55,000		VGSLX	REIT		Vanguard REIT Index Fund Admirals		0.12%	3.33
JPMC Brokerage		$70,000		VBIRX	Bond		Vanguard Short Term Bond Admiral		0.07%	3.0772
Etrade Brokerage	$775,000	VTI	US Equities	Vanguard Total Stock Market ETF			0.04%	1.8
Etrade Brokerage	$125,000	VEU	Int'l Equities	Vanguard FTSE All-World ex-US ETF		0.11%	2.9
Etrade Brokerage	$105,000	SJNK	Bond		SPDR Bloomberg Barclays ST HY Bond ETF		0.40%	5.42
Etrade Personal		$50,000			US Equities	Equities; Fun Money				0	
Bank	A		$75,000			Cash		FICA						0	1.95
State 529		$5,000		VTI	US Equities	Vanguard Total Stock Market ETF			0.04%	1.83
Her Roth		$12,000		VBIRX	Bond		Vanguard Short Term Bond Admiral		0.07%	3.0772
Vanguard 529		$9,000		VIIIX	US Equities	Vanguard 500 Index Portfolio			0.18%	1.8
Vanguard 529		$6,000		VWEAX	Bond		Vanguard High Yield Bond Portfolio		0.31%	3.0772
Vanguard 529		$2,000		VTPSX	Int'l Equities	Vanguard Total Int'l Stock Index Portfolio	0.07%	2.89
His Roth		$12,000		VBIRX	Bond		Vanguard Short Term Bond Admiral		0.07%	3.0772
						
			Amt		Allocation					Weighted Ave ER: 0.08%	
Bond			$445,000	30%				
US Equities		$839,000	56%				
Int'l Equities		$127,000	9%		
Cash			$75,000		5%				
						
Total			$1,486,000

CONTRIBUTIONS
New annual Contributions (ongoing):
- $35,375 his 401k (includes 4.5% employer match)
- $5,500 his backdoor Roth IRA {fixed typo}
- $5,500 her backdoor Roth IRA {same}

- 2018: Additional $225k (from equity payouts) after-tax
- 2019: Additional $750k (from equity payouts) after-tax
- 2020: Additional $250k (from equity/other payouts) after-tax

Funds available in his 401(k) (Fidelity)
- Pretty much any fund - Fidelity brokeragelink account; will use same VG funds or a fidelity index funds if better ER

Funds available in deferred comp plan (will put about $300k into this annually from the above "Additional" amounts)

- Fidelity Money Market
35% IShares Core Total U.S. Bond Market (0.06%)
- SPDR S&P 500 (0.095%)
- SPDR S&P MidCap 400 (0.24%)
50% iShares Russell 2000 Index (0.19%)
15% iShares MSCI EAFE Index (0.08%)

- BlackRock LifePath Index 2020 (0.21%)
- BlackRock LifePath Index 2030 (0.23%)
- BlackRock LifePath Index 2040 (0.23%)
- BlackRock LifePath Index 2050 (0.23%)


HSA/Dependent Care: max each year

Life insurance: $1.2M via employer; separate $500k 20 year term life (2 years in)

NOTES:
a. I want to stay in Etrade where possible to allow for tax loss harvesting, diversity of funds, and for their execution speed v. Vanguard.
b. Above excludes emergency cash in general
c. Have some longer term care issues related to a child that may require some level of ongoing care for rest of life (currently 12 years old) that medicare will help cover some portion of
d. Have long runway with current company at same salary however the additional equity will likely go down to $100k/year by 2021 … but likely I will make a jump after taking some time off in late 202 to a startup or pre-IPO tech or biotech company

QUESTIONS:

1. Given the company is a long-standing, well capitalized, no debt F100 company, I plan on deferring the maximum amount possible (~85% of income) and setting the distribution start to 10 years from now. Any advice on this or on managing deferred comp selections?

2. Thoughts on optimizing holdings for tax reduction purposes more than I already have?

3. What life insurance coverage would you recommend? Should I drop the 20 year term life policy which costs $730 per year

4. We are seriously considering adding on to our house (new master) and some minor remodeling (kitchen) for an estimated 150k-200k max. Concerns or thoughts about this?

5. Other things that stick out to you? Other considerations?
1. Life insurance: you have currently 1.7 million in life insurance, most of which is non portable (if you leave job or get fired or whatever) and your current portfolio is 1.4 million. That would give just over 3 million (plus home equity and e fund). You have at least one dependent who might need longer term care, so I'd err on side of having more insurance.
With your (edit: your family's not yours if you're passed away) retirement spending of $15k per month, you (edit, they) would need a portfolio of 4.5 million to sustain that at a 4% withdrawal rate (I'd be more conservative than 4% if was going to be at a younger age too). So unless your spouse has a high income also, I'd really consider more life insurance rather than less.

2. regarding tax optimization, one thing that I note is you have a high yield (ie, junk) bond fund in your brokerage account. Junk bonds are one of the least tax efficient types of investments, due to expected high yield/interest payment and it being taxed at regular income rate. So I'd look into changing that. See https://www.bogleheads.org/wiki/Tax-eff ... _placement

goblue100
Posts: 700
Joined: Sun Dec 01, 2013 10:31 am

Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by goblue100 » Tue Oct 16, 2018 7:54 am

What size portfolio are you expecting to have at 50 to 53? It looks to me like you will want 3 to 4 million to sustain your life style. With you current portfolio at 1.5M it seems like you are on track to get there. It looks to me like the house and remodel debt equal the bonuses you will be getting, so should be ok there.
Can't take it with you when you're gone | But I want enough to get there on - Rollin with the flow - Jerry Hayes

deleteereto
Posts: 4
Joined: Mon Oct 15, 2018 4:45 pm

Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by deleteereto » Tue Oct 16, 2018 8:48 am

Thanks for the reply. Answers below:

2) Taxes: You say you make $400K/year but then you say you are in the 37% tax bracket which is over $600K for MFJ. I'd reconsider the high yield bonds in a taxable account. Is all of the mortgage interest deductible in 2018?
- Yes on tax bracket due to equity payouts listed separately (and a larger one earlier this year).
- My concern on the HY bonds is ability to liquidate quickly. HY bonds have liquidity issues already and I've had poor experience with other brokerages in terms of liquidation speed. Etrade execution has been best for me. But I definitely appreciate the thoughts and have considered it.


3) Life Insurance: How old are your kids? How much does your wife make? I think its too early to ratchet down, especially if you are thinking about switching jobs, the debt you are carrying in order to invest more, and with a child who may need lifelong support.
- 12, 10 years old.
- Wife has own business but it is not profitable (so 0)
- Thanks for the thoughts here.

4) No issue, your income can support a remodel. Some will say save up cash to pay for it but based on the mortgage and car loans it looks like you are more comfortable with debt than many who post here so my guess is you'll choose a HELOC. I would only do the remodel if you are planning to stay in the house for many years. It's usually more of a lifestyle choice not an investment despite what realtors and builders would have you believe (even if you are adding an extra bedroom and a kitchen remodel). If you are doing the work yourself or have access to low cost labor there's more of a chance of making money.
- I'll likely just pay cash with a portion of the equity payouts.
- Not hoping ot make money on it really ... just improve certain aspects of our day-to-day and hopefully not lose too much money if/when we sell

5) If you have a special needs child (or if you don't like that term one who may have expensive ongoing medical bills) go see an attorney who specializes in that ASAP.
- Already have regarding the estate planning
- Special needs is the correct term and I use it
- Other than estate planning (SN trust, step-up basis, don't interfere with gov't benefits) and ensuring access to ongoing medicare benefits for the child, anything else here you had in mind?


deleteereto
Posts: 4
Joined: Mon Oct 15, 2018 4:45 pm

Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by deleteereto » Tue Oct 16, 2018 8:50 am

goblue100 wrote:
Tue Oct 16, 2018 7:54 am
What size portfolio are you expecting to have at 50 to 53? It looks to me like you will want 3 to 4 million to sustain your life style. With you current portfolio at 1.5M it seems like you are on track to get there. It looks to me like the house and remodel debt equal the bonuses you will be getting, so should be ok there.
Yeah - that's about right. I'm hoping to get to $6M as my "final, final" number. Retiring in the 50-53 range has a few hard to measure variables: Income and savings from 2021 to 2030, market return (using 6.5%), SWR (using 3.5% due to earlier retirement), planning some sort of work (hopefully consulting/advising with pre-IPO firms or VC/PE type work), healthcare coverage.

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

Re: Portfolio, Investments, Spending Feedback - What would you tweak?

Post by megabad » Tue Oct 16, 2018 4:30 pm

deleteereto wrote:
Mon Oct 15, 2018 8:44 pm
1. Given the company is a long-standing, well capitalized, no debt F100 company, I plan on deferring the maximum amount possible (~85% of income) and setting the distribution start to 10 years from now. Any advice on this or on managing deferred comp selections?
You probably have the best idea as to the medium term viability of your company so no advice there.

2. Thoughts on optimizing holdings for tax reduction purposes more than I already have?
Without state income tax, you are probably on the border between where munis start making sense in taxable. With state income tax, it would be for sure. I would run the numbers as interest rates rise, this could become a significant drag with a quickly growing taxable bond holding . Likewise, eventually you may want to look into muni money market instead of the taxable FDIC insured accounts for emergency funds, short term savings. Also, I consider I-bonds a slam dunk for someone in your situation if you really want to maximize potential tax savings, but ultimately this will be a small portion of your portfolio.

3. What life insurance coverage would you recommend? Should I drop the 20 year term life policy which costs $730 per year
You have what I would consider the bare minimum right now. Personally, I would keep everything you have and pick up an additional policy 30 yr at 1 million (not thru work). But that is me and I would not want my spouse and family to have to make big lifestyle changes in my absence.

4. We are seriously considering adding on to our house (new master) and some minor remodeling (kitchen) for an estimated 150k-200k max. Concerns or thoughts about this?
No concern really since I assume you see yourselves staying there long term. I would just urge you to look at other homes that fit your needs as well when the time comes and compare the two options since this is a rather large reno budget. But if you love the house, might as well stay and make it more comfortable.

5. Other things that stick out to you? Other considerations?
Just one. You spoke of jumping to a startup in the near future. I do not know your industry, but most of the folks in my industry that jump to startups take a massive cut in non-equity compensation. In return, if company has a liquidity event or successful IPO, you make a bundle. If not, however, you may find yourself working a little longer in order to meet your early retirement goals. My old college roommate went thru 6 startups before he hit the gold mine. I am not sure if he would have done better if he had taken the big corporate job or not. He certainly worked his rear end off for many years though.

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