Help with asset allocation of bonds

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Topic Author
yosemite_mountain
Posts: 72
Joined: Tue Oct 02, 2018 8:44 pm

Help with asset allocation of bonds

Post by yosemite_mountain » Fri Jan 11, 2019 1:06 pm

Vanguard Total Bond versus Vanguard California Intermediate-Term Tax Exempt?

I need help with the bond portion of my portfolio. I have integrated my two goals below into a single asset allocation of 80% stocks / 20% bonds.

Goals:
-Goal 1: Have 30x annual expenses in 15 years time.
-Goal 2: Maybe buy a house in the Bay Area in 6 -7 years? I’m not certain that I’ll ever have enough money for a downpayment for a house in the Bay Area as the house prices are crazy. I might just move to a LCOL area in 7 years time instead, in which case I won’t need a large sum of money for a downpayment.

Questions
1) Should I go with all of my bond allocation in Vanguard Total Bond Market?
2) Or should I place some bonds in Vanguard California Intermediate-Term Tax Exempt for the taxable account? This way if I end up choosing to buy in the Bay Area, I can sell the tax exempt bonds in the taxable account in case the market is down and I cant sell stocks.
3)I’m worried that Vanguard California Intermediate-Term Tax Exempt is too risky and has low returns. On the other hand, Vanguard Total Bond Market is not as risky as its more diversified, which is why I just wanted to stick with all of my bonds in Vanguard Total Bond.

Stats
Emergency funds: yes (5k cash)
Debt: 0
Tax Filing Status: Single, no kids
Tax Rate: 32% Federal, 9.2% State
State of Residence: California
Age: 30
Income: 200k a year before taxes. This includes RSUs and bonuses.
Desired Asset allocation: 80% stocks / 20% bonds

Current retirement assets
: $280k

Taxable at Vanguard
74% Vanguard Total Stock Market Index Fund Admiral Shares (ER =0.04%)
Roth IRA at Vanguard
6% Vanguard Total Stock Market Index Fund Admiral Shares (ER =0.04%)
401k with employer
20% Vanguard Total Bond Market Index Trust (ER = 0.029%)
Company match? YES

Annual Contributions
maxing out 401k to annual limit: 19k
maxing out back door Roth to annual limit: 6k
maxing out mega back door Roth to annual limit: 13k
maxing ESPP and re-investing in index funds: 13k
Paycheck contribution: 15k
Annual bonus: 70k
Employer 401k match: 7.6k
Total annual contributions: 141k

Questions
1) Should I go with all of my bond allocation in Vanguard Total Bond Market?
2) Or should I place some bonds in Vanguard California Intermediate-Term Tax Exempt for the taxable account? This way if I end up choosing to buy in the Bay Area, I can sell the tax exempt bonds in the taxable account in case the market is down and I cant sell stocks.
3)I’m worried that Vanguard California Intermediate-Term Tax Exempt is too risky and has low returns. On the other hand, Vanguard Total Bond Market is not as risky as its more diversified, which is why I just wanted to stick with all of my bonds in Vanguard Total Bond.

bloom2708
Posts: 6569
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Help with asset allocation of bonds

Post by bloom2708 » Fri Jan 11, 2019 2:33 pm

I like your current plan: Total US Bond in 401k.

If you didn't have room for the 20% in the 401k, then adding CA Tax-Exempt in taxable is where you want to add it.

For most, the 401k grows the fastest. It looks like your taxable is growing the fastest. If this continues, then you will have to add bonds in Roth or Taxable.

I would consider adding a slice of Total International (20% of stock allocation) and if you need to (taxable or Roth), the Int-Term Tax-Exempt CA in taxable.

Some recommend doing 1/2 in CA tax-Exempt and 1/2 in non state Int-Term Tax-Exempt. You can also mix Limited-Term with Int-Term or Limited and Long-Term to set the duration.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

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