Checking In After Seven Years

[ef11]

Hello all,

It has been almost seven years since my first post on this forum and since I started my career fresh out of college. I have taken a lot of advice from members on this forum, read several books on Asset Allocation and Wealth Management, and have been able to convince several of my friends to join the Boglehead strategy and for that I am thankful.

I wanted to post my current status as well as links to my six (and five and four) year status so you can see a comparison, and then get any thoughts on how I'm doing and where I can improve. I find this exercise really helps me focus and remain disciplined year after year.

See this link for my "Checking In After Six Years" thread, which also includes a link to "Checking In After Five/Four Years"
viewtopic.php?f=1&t=236535

Emergency funds: $4,000 in checking account (At six year mark was $10,000, will increase to this shortly)
Debt: None
Tax Filing Status: Single
Tax Rate: 24% Federal, 0% State
State of Residence: Texas
Age: 30
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 25% of assets
Desired Detailed Asset Allocation: 45% Large-Cap, 10% Small/Mid-Cap, 25% International, 10% bonds, 10% REIT
Current Asset Allocation:

45% Vang Inst 500 IDX ER 0.01%
10% Vang Inst Ext Mkt ER 0.04%
25% ACWI EX-US ER 0.104%
10% Vang Inst Tot Bd Mkt ER 0.03%
10% Fidelity MSCI Real Estate ER 0.084%

Current retirement assets - Total $553,000 (Four year was $60,000, Five year was $159,000, Six year was $264,000)

Taxable - $79,000 (Four year - $0, Five year - $43,000, Six year - $76,000) 2018 Return -10.6% + Contribution $14,500
New Taxable for Current and Future Inherited Dollars - $236,000 2018 Return -4%
401k - $156,000 (Four year - $60,000, Five year - $98,000, Six year - $142,000) 2017 Return -8.3% + Employee/er Cont $18k/$11k = $29,000
New Company Restricted Stock Plan - $11,000
Roth IRA - $71,000 (Four year - $0, Five year - $18,000, Six year - $46,000) 2017 Return -6% + Contribution $6,000 + Mega Backdoor $23,000

Total Worth Comparison: Four year - $90,000 Five year - $172,000 Six year - $274,000 Seven year - $557,000

This represents a total gain in my accounts of $283,000 over a one year period including inherited assets, or $47,000 excluding inherited assets.

Contributions

New annual Contributions - 401K, SE 401K, & Roth IRA - $61,000

W2 Employer matches 4% on a 6% contribution, I currently contribute 6% Traditional and 34% After-tax for Mega Backdoor Roth (Big Change)
Assuming W2 income only for the first 6 months of the year, then switching to 1099 income.

Employer 401K contribution - $111,000 * 0.5 * 0.04 = $2,200 (employer typically gives additional lump sum money too, in 2018 I got $11,000)
Traditional 401K contribution at 6% - $111,000 * 0.5 * 0.06 = $3,300 + $2,200 = $5,500 minimum
After-Tax 401K contribution at 34% - $111,000 * 0.5 * 0.34 = $18,900 all for Mega Backdoor Roth
Traditional SE 401K contribution at $19,000 - $3,300 = $15,700 to max out employEE 401K space
Employer SE 401K contribution at approximately $113,000 * 0.9235 * 20% = $21,000
Already contributed my 2019 $6,000 to Backdoor Roth so that is in "Current Retirement Assets" section

Biggest Changes Since Six Year Mark

1. Created a new taxable account only for inherited assets. I'm not sure what the community will think of this, but down the road I want to be able to clearly see what I have accumulated myself vs. what my loved ones left me in inheritance. Every time I see that account I am reminded of the ones that left me that money, which I like versus just lumping it in with my money. Any future Trust distributions or proceeds from asset sales will be contributed to this account.
2. For the first time received a stock grant at work worth $14,000 at the time of issue. This has a three year vesting period.
3. Took on a new role at the same employer, has been a great opportunity.
4. Now fairly certain that I will be making my side job 1099 income my full time job around mid-2019 which will effectively double my income and allow for much quicker income growth going into the future.
5. Due to the likely change in employment, I have adjusted my W2 401K contribution to maximize employer match (6%/4%) with remaining going to after-tax. Then when I switch to 1099 Income only, I can fulfill the full $19,000 limit and contribute around another $21,000 as an employER.
5. Traveled for business to Japan for two weeks, first trip to Asia and it was excellent!
6. Was able to attend The Masters with Berkmans Place tickets which was an amazing experience.

Thank you all for reading and any advice or feedback is appreciated. I know some people will say I need an HSA, but as discussed in my Five Year update I like having a low deductible so I will go to the doctor and not put it off due to costs. I've had several injuries and surgeries in my life so I like the low deductible option and peace of mind best. I pay a fairly low $830 a month for rent including all bills and am just saving instead of purchasing a home at this time.

[livesoft]

1. Created a new taxable account only for inherited assets. I'm not sure what the community will think of this, but down the road I want to be able to clearly see what I have accumulated myself vs. what my loved ones left me in inheritance. Every time I see that account I am reminded of the ones that left me that money, which I like versus just lumping it in with my money. Any future Trust distributions or proceeds from asset sales will be contributed to this account.

I don't see any real problem with this AS LONG AS:

1. The inherited assets are tax-efficient index funds that you would have invested in anyways.
2. The inherited assets are not individual stocks, actively-managed funds, and the like that you have not clear out by selling them and buying low-expense ratio, passively-managed, tax-efficient index funds.

[ef11]

1. Created a new taxable account only for inherited assets. I'm not sure what the community will think of this, but down the road I want to be able to clearly see what I have accumulated myself vs. what my loved ones left me in inheritance. Every time I see that account I am reminded of the ones that left me that money, which I like versus just lumping it in with my money. Any future Trust distributions or proceeds from asset sales will be contributed to this account.

I don't see any real problem with this AS LONG AS:

1. The inherited assets are tax-efficient index funds that you would have invested in anyways.
2. The inherited assets are not individual stocks, actively-managed funds, and the like that you have not clear out by selling them and buying low-expense ratio, passively-managed, tax-efficient index funds.

Hello Livesoft, thanks for the comments. Yes I am treating it the same as the other taxable account, most inflows to the account are in cash and then I invest it.

[ef11]

I wanted to bump this now that the new year rush is over, I think it originally only spent five minutes on the first page.

Mainly interested in getting thoughts around:
- The changes I made to my 401K / SE 401K / Roth contributions to take full advantage of my change from W2 & 1099 to strictly 1099 pay.
- Having two taxable accounts, one dedicated strictly to inherited assets. I can't think of any downside but wanted to make sure.

Thanks!

[staythecourse]

Biggest is realize you have been very lucky last 7 years. Being heavy in equities at the right time AND having a big inheritance is really about as lucky as a 30 year old investor can get. The pendulum ALWAYS swings the other way so would be ready for it. I would up my EF to 1 year of expenses. I would mentally get ready to start seeing your values (for the first time) start going downhill and prepare NOT to freak out. Easy to say when you have not seen it and harder when you are going through it the first time.

Kudos to taking your investing life so seriously at a young age. Your old self in 20+ years will appreciate it.

Good luck.

[ef11]

Biggest is realize you have been very lucky last 7 years. Being heavy in equities at the right time AND having a big inheritance is really about as lucky as a 30 year old investor can get. The pendulum ALWAYS swings the other way so would be ready for it. I would up my EF to 1 year of expenses. I would mentally get ready to start seeing your values (for the first time) start going downhill and prepare NOT to freak out. Easy to say when you have not seen it and harder when you are going through it the first time.

Kudos to taking your investing life so seriously at a young age. Your old self in 20+ years will appreciate it.

Good luck.

Thank you for your comments, and I definitely agree. In 2018 we did see moderate declines in equities which affected my values quite a bit, but it did not phase me at all, I just wanted to get more cash to buy on the way down. Now obviously this wasn't a 30, 50, 70% correction/crash that we could see at some point, but I would like to think I would react the same way. This really stems from being a die hard Boglehead since I was 23, I completely trust the system so I never second guess the process. At some point this will be tested though, and the more I prepare now with higher EF, etc the more peace of mind I will have.

[lakpr]

I am incredibly jealous. I am 20 years older than you, yet my final figures are only $200k more than yours. You might really want to stick to the Age-10 allocation for bonds, that is, double your current allocation to bonds. Everything else is quite spot on!

[staythecourse]

At some point this will be tested though, and the more I prepare now with higher EF, etc the more peace of mind I will have.

Agreed. Having a large EF is (for me) the biggest piece of mind. Volatility of the stock market for money I have earmarked for 20+ years away does not bother me. Not having easy access to money if my roof has a hole in it or my wife or I lose a job. A large EF helps there so that is the lowest hanging fruit I see for you. Otherwise, great job and again kudos for being so disciplined so early in life. Planning really is the easiest way to get ahead in life and you have proven that.

Good luck.

[staythecourse]

At some point this will be tested though, and the more I prepare now with higher EF, etc the more peace of mind I will have.

Agreed. Having a large EF is (for me) the biggest piece of mind. Volatility of the stock market for money I have earmarked for 20+ years away does not bother me. Not having easy access to money if my roof has a hole in it or my wife or I lose a job. A large EF helps there so that is the lowest hanging fruit I see for you. Otherwise, great job and again kudos for being so disciplined so early in life. Planning really is the easiest way to get ahead in life and you have proven that.

Good luck.

[Rob1]

Great progress, and great job getting an early start. One thing I'll add. When you switch be being self employed, look into an Individual 401(k). On top of your contributions, that will allow your business entity to contribute as much as 25% of your compensation (up to $55k). And if you use a payroll service to pay yourself (something to consider), do not use their - typically high fee - 401(k) service.

[ef11]

Great progress, and great job getting an early start. One thing I'll add. When you switch be being self employed, look into an Individual 401(k). On top of your contributions, that will allow your business entity to contribute as much as 25% of your compensation (up to $55k). And if you use a payroll service to pay yourself (something to consider), do not use their - typically high fee - 401(k) service.

Thank you! And yes, as you'll see in my "New Contributions" section I plan to open a SE 401K and I think the way I have structured the contributions between it and my W2 401K will maximize my 2019 total deductible and Mega Backdoor Roth contributions.

I am incredibly jealous. I am 20 years older than you, yet my final figures are only $200k more than yours. You might really want to stick to the Age-10 allocation for bonds, that is, double your current allocation to bonds. Everything else is quite spot on!

Thanks for the feedback, we just have to do the best we can with what we are given! I really like having a separate inherited account so 30 years from now I can see what I was given vs. what I earned myself. I have contemplated the bond move, but am thinking I stick with what I have for the next five years or so.