My wife and I recently have had significant salary increases and I’m looking for some help to make sure we set up our portfolio properly.
Emergency fund: 50k (held in Ally savings)
Down Payment Savings: 100k (also currently held in Ally savings)
Debt: 680k mortgage - 3.75% fixed - 28 years left (currently house hacking - will be a full time rental in the future)
Tax Filing Status: MFJ
Tax Rate (using 2019 income): 37% Federal, 12.3% State
State of Residence: California
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 30% of stocks
Current retirement assets
All accounts are Vanguard except her 401k
Taxable-170k - cash
His Rollover IRA-77.5k - vanguard target 2055 (VFFVX) (.15%) [this account will get rolled into his new 401k plan before EOY]
His 401k -0- at Vanguard - job starts next week
His Roth IRA-24k - vanguard target 2055 (VFFVX) (.15%)
His Traditional IRA-11k - vanguard target 2055 (VFFVX) (.15%) [this account will get rolled into his new 401k plan before EOY]
Her 401k at Fidelity
110k - Vanguard Target Retirement 2060 Trust I (.07%)
47k Vanguard Target Retirement 2055 Trust I (.07%)
Her Roth IRA-27k - at Vanguard - vanguard target 2055 (VFFVX) (.15%)
Expected 2019 Contributions
19k his pretax 401k +8.5k company match
19k her pretax 401k +6k company match
28.5k in his Aftertax contributions rolled over in-plan to Roth 401k (megaback door roth)
31k in hers Aftertax contributions rolled over in-plan to Roth 401k (megaback door roth)
6k his Roth IRA (back door)
6k her Roth IRA (back door)
200k-250k extra savings (most of this will likely go to a taxable retirement account though it’s still undecided what portion will go towards down payment savings or other potential investments)
Funds available in his 401(k)
I will have this info next week once I start. Plan is administered through Vanguard
Funds available in her 401(k)
DFA US LG CAP VAL (DFLVX) Stock Investments Large Cap 0.37%
FID CONTRAFUND K (FCNKX) Stock Investments Large Cap 0.65%
VANG INST INDEX PLUS (VIIIX) Stock Investments Large Cap 0.02%
VANG EXT MKT IDX INS (VIEIX) Stock Investments Mid-Cap 0.06%
JPM SM CAP GROWTH R6 (JGSMX) Stock Investments Small Cap 0.83%
VAN EM MKT ST IDX IS (VEMIX) Stock Investments International 0.11%
VANG INTL GROWTH ADM (VWILX) Stock Investments International 0.32%
VANG TOT INTL STK IS (VTSNX) Stock Investments International 0.09%
VAN REAL EST IDX IS (VGSNX) Stock Investments Specialty 0.1%
VANGUARD TARGET 2015 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2020 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2025 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2030 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2035 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2040 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2045 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2050 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2055 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2060 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET 2065 Blended Fund Investments* N/A 0.07%
VANGUARD TARGET RET Blended Fund Investments* N/A 0.07%
PIM TOTAL RT INST (PTTRX) Bond Investments Income 0.55%
VANG TOT BD MKT INST (VBTIX) Bond Investments Income 0.04%
Goals and Other Info:
- Our main goal is to maximize the fortunate situation we are currently in so that we don’t have spend as much time and energy thinking about money in the future. Whether this materializes as early retirement or simply switching to less stressful jobs remains to be seen.
- We have no issues with our tax bill and understand the wisdom of maximizing after tax returns NOT minimizing the tax bill. The goal is simply to optimize as much as possible with tax efficient asset allocation.
- Expenses are pretty low but we plan to have kids in 2-4 years which will likely drive up expenses considerably. Between child care and moving to a less sketchy neighborhood our savings rate will definitely be decreasing in the future.
We plan to purchase another house more suitable for a family around this time (3-5 years) and will be saving for this separately as down payments in our area are considerable.We will keep the existing house as a rental property as it will cash flow nicely
- With all of the above in mind, I want to keep our portfolio strategy as simple as possible while maintaining the right asset allocation and some semblance of tax efficiency.
- Where do our bonds go?
I have spent an inordinate amount of time reading on this topic, but it seems our high tax brackets and significant future ROTH contributions will make the situation somewhat unique.
My current thinking is to increase the bond allocation in our 401ks by switching to vanguard 2025 target funds, put only equities in the ROTH accounts, and then split the taxable account between total stock market funds and muni bonds to get the overall desired allocation. Thoughts on this?
- Timing of contributions
- Should the 150k cash sitting in the taxable account be invested all in one lump sum or should I try to do some dollar cost averaging over some short to medium term duration?
- Future 401k (both pre and after tax) contributions will be done monthly out of our paychecks, but contributions to our taxable account will be done in lump sums corresponding to bonuses and equity vesting. Does this affect the strategy at all? Is there any concern with buying into the market with lump sums of 30-40k a few times a year?
- Maintaining asset allocation as portfolio grows
One of the things I am most leery of is setting up the portfolio in a way that makes it simple to maintain the right AA in future years. With the rapid increase of funds in the ROTH and taxable accounts I’m nervous that the wrong 401k fund choice will make re-balancing in the future difficult, especially when considering tax efficiency.
Sorry for the long post. I really appreciate any help and insight.