Almost 3 years since last checkup - 2018 portfolio review!

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Topic Author
NeophyteCA
Posts: 10
Joined: Sat Jan 09, 2016 7:29 pm

Almost 3 years since last checkup - 2018 portfolio review!

Post by NeophyteCA »

Hi All – many thanks to the forum for helping me sort out what to do with our accounts since my last portfolio review in 2016! I’ve made a number of changes in the name of simplification and feel pretty good about where we’re at. Any comments/questions/critiques appreciated! Thanks in advance for your insight.
:sharebeer

Emergency Funds: Yes, in CD ladder
Debt: Mortgage $93k remaining at 3.25% - will be paid off Q1 2019. Cheap but I want it gone... 2014 appraisal value $900k; current Zillow/Redfin $1.2M.
Tax Filing Status: Married Filing Jointly, no dependents
Tax Rate: 2018 will be 32% Federal, 9.3% State
State of Residence: CA
Age: 36/40
Desired Asset Allocation: Match Vanguard Target Retirement 2045 (his FRA) glide path (minus international bonds until ~10% of AA). 90% stocks (55% US, 35% Intl)/10% bonds in tax deferred. ?? including taxable (see question 1).

Current Retirement + Taxable Assets - ~$760k

Taxable
7% Vanguard Muni Bond Tax Exempt Bond Index ETF (VTEB) (0.09%)
7% Vanguard Total Stock Market ETF (VTI) (0.04%)

His Current 401k at Vanguard

13% Vanguard Institutional Index Fund (VINIX) (0.04%)
9% Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) (0.05)

His Old 401k at Empower Retirement
25% Vanguard Institutional Index Fund (VINIX) (0.04%)

His Roth IRA at Vanguard
4% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04%)

Her 401k at Fidelity
29% Fidelity Total International Index Fund (FTIHX) (0.06%)
1% International Equity Index CIT (0.078%)

Her Roth IRA at Vanguard
5% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04%)

Contributions

New annual contributions
$19k his 401k (+ $1500 employer contribution)
$19k her 401k (+ $7k employer contribution)
$6k his backdoor Roth IRA
$6k her backdoor Roth IRA
$7k Fidelity HSA (new for 2019)
$100k+ taxable

Available funds – both have brokerage options as well

Relevant funds available in his 401(k)
Vanguard Intermediate-Term Treasury Fund Admiral Shares (VFIUX) (0.10%)
Vanguard Institutional Target Retirement 2015-2065 (all 0.09%)
Vanguard Extended Market Index Institutional Shares (VIEIX) (0.06%)
Vanguard Total International Stock Index Fund Institutional Shares (VTSNX) (0.09%)
Vanguard Real Estate Index Fund Admiral Shares (VGSLX) (0.12%)

Relevant funds available in her 401(k)
Large Cap Equity Index CIT (0.015%)
Small/Mid Cap Equity Index CIT (0.041%)
Bond Index Fund CIT (0.039%)
BlackRock LifePath Index 2020-2060 (all 0.085%)

Questions:

1. What should I be doing with the taxable account in terms of asset allocation? It’s sort of grey zone for retirement – we don’t have any other current plans for it, so it’s retirement-by-default? Started it as a hopefully higher-yielding place for future car savings/secondary emergency funds at 50% US stocks/50% US bonds, but we should be able to time the next car purchase (probably 2020, likely ~$30k) and any house projects (none on the horizon) for bonus season. After the house is paid off next year, it’ll receive significant inputs – 2020 could be around $200k if current RSU grants/bonuses/stock prices continue. Any move would be to a lower COL using the equity from our current house. I have liked that this account is a bit more conservative since it feels more “real money” than the tax-deferred accounts.

2. Total US and Tax-Exempt Munis in taxable vs S&P500 and Total Bond in tax-deferred will keep me clear of any wash sales between the two groups, right? I've done zero tax-loss harvesting ever but this is an area of focus for 2019.

3. Term life insurance? We don’t have any beyond work-provided insurance, and I go back and forth with whether we need it. If I die, he can maintain his standard of living without my salary. If he dies, I’d sell the house and move to a lower COL area.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: Almost 3 years since last checkup - 2018 portfolio review!

Post by PFInterest »

Yup. Add to taxable.
retiredjg
Posts: 41932
Joined: Thu Jan 10, 2008 12:56 pm

Re: Almost 3 years since last checkup - 2018 portfolio review!

Post by retiredjg »

NeophyteCA wrote: Sat Nov 24, 2018 2:56 pm 1. What should I be doing with the taxable account in terms of asset allocation? It’s sort of grey zone for retirement – we don’t have any other current plans for it, so it’s retirement-by-default? Started it as a hopefully higher-yielding place for future car savings/secondary emergency funds at 50% US stocks/50% US bonds, but we should be able to time the next car purchase (probably 2020, likely ~$30k) and any house projects (none on the horizon) for bonus season. After the house is paid off next year, it’ll receive significant inputs – 2020 could be around $200k if current RSU grants/bonuses/stock prices continue. Any move would be to a lower COL using the equity from our current house. I have liked that this account is a bit more conservative since it feels more “real money” than the tax-deferred accounts.
Your portfolio looks fine to me. As you add more bonds to taxable, consider putting some money into a CA tax exempt fund so you can save some on state taxes as well. Grabiner recommends a combination of long term CA muni and short term federal muni. This gives an overall intermediate term and puts more of the income tax free for high CA taxes. It seems like a good idea to me.

2. Total US and Tax-Exempt Munis in taxable vs S&P500 and Total Bond in tax-deferred will keep me clear of any wash sales between the two groups, right? I've done zero tax-loss harvesting ever but this is an area of focus for 2019.
You should have no tax loss harvest problems if you have some partners in mind for the total stock.

3. Term life insurance? We don’t have any beyond work-provided insurance, and I go back and forth with whether we need it. If I die, he can maintain his standard of living without my salary. If he dies, I’d sell the house and move to a lower COL area.
With no dependents, if the survivor will have a livable salary if one dies, neither of you really need a lot of life insurance. From your comment, it appears he makes the most money. If you want to maintain your current standard of living if he dies, it might be reasonable to get some more insurance on him.

I guess something else to consider is if he dies and you become disabled. Or vice versa.

I think your asset allocation of 90% stock is pretty aggressive (yes, I think the target funds are too aggressive). Have either of you been through a good bear market?
ahnathan
Posts: 59
Joined: Wed Oct 17, 2018 2:10 pm

Re: Almost 3 years since last checkup - 2018 portfolio review!

Post by ahnathan »

See to me they are the perfect example of people who can be aggressive ie 90% stock. They are maxing all tax advantages space and able to sock away 100k in taxable with an average age of 38 and probably even better cash flow once that mortgage is gone. Assuming they are not going FIRE, they have another 25+ year horizon and they are going to do great almost no matter what the market does. The extra exposure just means if the market does well they’re going to be swimming in it.

Seem like the exact people to take the extra risk knowing they can live with a bad outcome. But that is personal preference and I agree they have to be able realistically to live through the downturn.
retiredjg
Posts: 41932
Joined: Thu Jan 10, 2008 12:56 pm

Re: Almost 3 years since last checkup - 2018 portfolio review!

Post by retiredjg »

I think the risk is fine for people who actually know their risk tolerance through prior experience.

At their ages, it is possible they don't actually know their risk tolerance. Or they think they know it but don't.

Smarter to be on the conservative side until the real risk tolerance is known, in my opinion.
Topic Author
NeophyteCA
Posts: 10
Joined: Sat Jan 09, 2016 7:29 pm

Re: Almost 3 years since last checkup - 2018 portfolio review!

Post by NeophyteCA »

Thanks for the responses so far!

The bear market question is a fair one - we did not have as much invested in 2008/2009 but I stayed the course with no changes and kept investing. We were saving for the house down payment and had a messy portfolio that I mostly ignored. My response to the last month has been open accounts, make this face :? while I'm entering numbers into my spreadsheet, then acknowledge how the losses in October are more than balanced out by the monthly gains since I started tracking in 2015. If we can make it to the house payoff without a big crash, we'll have ~2 years of expenses in cash/CDs/taxable bonds + 50% taxable stocks, so I'm about as comfortable as I can be without living a big crash with a large account? We're both STEM in Silicon Valley, stable full-time employment, shouldn't be first on the list for layoffs.

retiredjg wrote: Sat Nov 24, 2018 4:15 pm
NeophyteCA wrote: Sat Nov 24, 2018 2:56 pm 1. What should I be doing with the taxable account in terms of asset allocation? It’s sort of grey zone for retirement – we don’t have any other current plans for it, so it’s retirement-by-default? Started it as a hopefully higher-yielding place for future car savings/secondary emergency funds at 50% US stocks/50% US bonds, but we should be able to time the next car purchase (probably 2020, likely ~$30k) and any house projects (none on the horizon) for bonus season. After the house is paid off next year, it’ll receive significant inputs – 2020 could be around $200k if current RSU grants/bonuses/stock prices continue. Any move would be to a lower COL using the equity from our current house. I have liked that this account is a bit more conservative since it feels more “real money” than the tax-deferred accounts.
Your portfolio looks fine to me. As you add more bonds to taxable, consider putting some money into a CA tax exempt fund so you can save some on state taxes as well. Grabiner recommends a combination of long term CA muni and short term federal muni. This gives an overall intermediate term and puts more of the income tax free for high CA taxes. It seems like a good idea to me.

Hadn't thought of splitting the bonds/adding to CA Munis. Is there a benefit to the LT CA/ST Fed over 100% Intermediate CA? ER for Intermed CA Tax Exempt Investor Shares (VCAIX) is higher at 0.19% until $50k min for Admiral shares at 0.09%. Our bond cost basis is mostly small losses. Worth switching from ETF to mutual fund?

What are your thoughts on final overall AA? I can't keep taxable at 50/50 for much longer without throwing the overall AA way out of whack, since taxable should be catching up to tax-deferred within a few years. I was thinking of setting up taxable such that the final overall AA is 80/20 - my age minus 15ish in bonds.

2. Total US and Tax-Exempt Munis in taxable vs S&P500 and Total Bond in tax-deferred will keep me clear of any wash sales between the two groups, right? I've done zero tax-loss harvesting ever but this is an area of focus for 2019.
You should have no tax loss harvest problems if you have some partners in mind for the total stock.

No TLH partners in mind - suggestions welcome!
3. Term life insurance? We don’t have any beyond work-provided insurance, and I go back and forth with whether we need it. If I die, he can maintain his standard of living without my salary. If he dies, I’d sell the house and move to a lower COL area.
With no dependents, if the survivor will have a livable salary if one dies, neither of you really need a lot of life insurance. From your comment, it appears he makes the most money. If you want to maintain your current standard of living if he dies, it might be reasonable to get some more insurance on him.

I guess something else to consider is if he dies and you become disabled. Or vice versa.

I think your asset allocation of 90% stock is pretty aggressive (yes, I think the target funds are too aggressive). Have either of you been through a good bear market?

Disability insurance is another good thing for me to look into.
retiredjg
Posts: 41932
Joined: Thu Jan 10, 2008 12:56 pm

Re: Almost 3 years since last checkup - 2018 portfolio review!

Post by retiredjg »

NeophyteCA wrote: Sat Nov 24, 2018 10:01 pm Hadn't thought of splitting the bonds/adding to CA Munis. Is there a benefit to the LT CA/ST Fed over 100% Intermediate CA? ER for Intermed CA Tax Exempt Investor Shares (VCAIX) is higher at 0.19% until $50k min for Admiral shares at 0.09%. Our bond cost basis is mostly small losses. Worth switching from ETF to mutual fund?
I'm not sure what you are asking. The point of combining a long term state fund and a short term national fund is to have an overall intermediate term combined holding with more of the income tax free on the state level.
What are your thoughts on final overall AA? I can't keep taxable at 50/50 for much longer without throwing the overall AA way out of whack, since taxable should be catching up to tax-deferred within a few years. I was thinking of setting up taxable such that the final overall AA is 80/20 - my age minus 15ish in bonds.
Seems OK.

No TLH partners in mind - suggestions welcome!
I don't TLH, but I would probably use the Vanguard large cap index combined with extended market index.
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