Criticism of my portfolio, please?

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Mattzees
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Joined: Thu Jan 25, 2018 10:37 pm

Criticism of my portfolio, please?

Post by Mattzees » Wed May 15, 2019 8:19 pm

I had posted in a different thread asking for advice, but didn't know the proper format to post in, so here it goes:

Emergency funds: Have cash, would last between 2-3 years if all other income disappeared
Debt: Zero, nothing.
Tax filing status: currently single, but may get married in the next couple of years
Tax rate: 12% Fed. 5% State, I think.
State of residence: VA
Age: 49
Desired AA: 50/50, because it's conservative and I'm trying to preserve money in case my father needs care
Desired Intl AA: 0%

Current retirement assets are all taxable, so no IRA, etc.
0% cash for investing
50% VFIAX S&P 500 Admiral
50% VBILX Intermediate Bond Index
All dividends are set to reinvest.
Portfolio is in the low 7-figures.

Other assets:
$250K rental property that I'm willing to sell and invest the proceeds.
$180K rental property that I can't sell right now, occupied by my father.
$380K property that I occupy myself.

Income:
$24K gross rentals
$22K dividends

Goals:
I'd like to sell the rental properties, and begin drawing from portfolio when I'm 55.
I would also downsize my own residence to something under $300K and invest the remainder.
I could live enjoyably on $50K-$60K per year.

Questions:
I'd like criticism of my portfolio. How would you optimize it?
Would a tax-exempt bond fund be better instead of VBILX?
Should I repurpose some of my emergency cash into the bond side of my portfolio?

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LadyGeek
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Re: Criticism of my portfolio, please?

Post by LadyGeek » Wed May 15, 2019 8:31 pm

This thread is now in the Personal Investments forum (portfolio help).

The other thread: I accidentally retired, and need tax advice
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.

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WoodSpinner
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Re: Criticism of my portfolio, please?

Post by WoodSpinner » Wed May 15, 2019 8:45 pm

Mattzees wrote:
Wed May 15, 2019 8:19 pm



Income:
$24K gross rentals
$22K dividends

Goals:
I'd like to sell the rental properties, and begin drawing from portfolio when I'm 55.
I would also downsize my own residence to something under $300K and invest the remainder.
I could live enjoyably on $50K-$60K per year.

Questions:
I'd like criticism of my portfolio. How would you optimize it?
It’s pretty clean and simple. Might consider moving some of the cash into a Short Term Bond Fund.

You also should consider doing some Tax Gain Harvesting — sell lot’s that have greatly appreciated and either rebuy at a new basis or invest in a Total Stock Market Fund. Do this till you fill up your 0% Capitol Gains bucket.

Not quite sure how you are managing your cashflow.
Are you pulling money out to supplement your income?
Accumulating more savings?
How are you managing healthcare?
How much in reserves do you need for your Dad?



Would a tax-exempt bond fund be better instead of VBILX?

Given your income I don’t see much of an advantage


Should I repurpose some of my emergency cash into the bond side of my portfolio?
Good luck

WoodSpinner

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Re: Criticism of my portfolio, please?

Post by 272 Sheep » Wed May 15, 2019 9:17 pm

All I might add is I would change VBLIX to Tax-exempt intermediate-term bond fund.
Even though you do not have RMDs to be concerned about, you might think of adding a Roth IRA.
Why? For the sole purpose of having some tax-diversification. You, otherwise, are paying taxes everything else.
In the future, nice to know that you'll have a tax "refuge" you can call upon that is tax-free.
Good having no debt!
Carl W.

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celia
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Re: Criticism of my portfolio, please?

Post by celia » Wed May 15, 2019 10:17 pm

Mattzees wrote:
Wed May 15, 2019 8:19 pm
Current retirement assets are all taxable, so no IRA, etc.
0% cash for investing
50% VFIAX S&P 500 Admiral
50% VBILX Intermediate Bond Index
All dividends are set to reinvest.

Other assets:
$250K rental property that I'm willing to sell and invest the proceeds.
$180K rental property that I can't sell right now, occupied by my father.
$380K property that I occupy myself.
My suggestions:
* Turn off re-investment of dividends. Have them sent to your checking instead where you can spend them for living expenses.
* Either move in with your father or the $250K house and sell the $380K one if you want to free up some cash (and maintenance time).
* If you have earned income of at least $6,000 this year, contribute $6,000 to a Roth IRA, invested in a stock fund, where it can grow tax-free (until you are over 59.5 and the account has been open 5 years). This will help you start to get some tax diversity within your assets.

Questions:
What are you doing for health insurance?
Do you plan to get another job?

xavierr
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Re: Criticism of my portfolio, please?

Post by xavierr » Thu May 16, 2019 5:19 am

celia wrote:
Wed May 15, 2019 10:17 pm
* If you have earned income of at least $6,000 this year, contribute $6,000 to a Roth IRA, invested in a stock fund, where it can grow tax-free
+1
sounds like you are earning income, so you should make use of tax advantaged accounts to lower the tax burden of your investments.

Topic Author
Mattzees
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Re: Criticism of my portfolio, please?

Post by Mattzees » Thu May 16, 2019 11:56 am

To answer some of your questions:

What am I doing about healthcare?
I get healthcare thru the Marketplace, and I pay full price for it every month. Depending on my income (which is variable) at the end of the year, I may or may not get some of that back.

How am I managing cashflow?
I'm currently spending more than I make, so I'm dipping into my emergency fund to pay for health insurance, real estate taxes (about $9K/year) and Fed & State taxes.

Am I pulling money out of reserves?
Yes, I pull about $10K- $15K per year out of my emergency fund. Assuming worst-case scenario, and I never get any paying work ever again, I can sustain this rate of withdrawal for the next 5-8 years. If my rental income stopped flowing in, I could only live for 2-3 years on my emergency fund.

How much reserves do I need for my Dad?
That's the wildcard here. Technically, I don't need any. His health is failing, and the question is will I want or be able to help him out with the things that Medicare doesn't cover? I probably won't have to do anything for him, but I want to retain the ability to do so. That's why I'm 50/50 instead of something more aggressive.

Point of info: I'm going to marry someone significantly younger than myself, so my portfolio needs to survive me by twenty years.


My questions for you:
1) Everyone is suggesting I turn off auto-reinvestment. Why on earth would I not want to keep growing my portfolio in this way?

2) Given that I'm using dividend reinvestment to grow the portfolio, I don't mind dipping into my savings to pay the taxes due on it. But would it make more sense to invest my savings as well, and then just sell off some of those assets every year instead of having a pile of cash sitting around not earning anything. I've always kept a large reserve around because I've always been freelance, and my employment has always been sporadic. Psychologically, I'm afraid of not having a large reserve. Financially, it might not make sense anymore.

3) I'm using PortfolioVisualizer.com to run monte carlo simulaitons on my portfolio to see how it holds up. How do you do this? Any other tools or recommendations for this sort of thing?

4) I'm not understanding a Roth IRA. I'm almost fifty. At this stage does it make sense to put money into an account where restrictions are placed on its use? Can I only contribute $7K per year?

megabad
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Re: Criticism of my portfolio, please?

Post by megabad » Thu May 16, 2019 1:32 pm

Mattzees wrote:
Thu May 16, 2019 11:56 am
My questions for you:
1) Everyone is suggesting I turn off auto-reinvestment. Why on earth would I not want to keep growing my portfolio in this way?
This was intended to be a suggestion to allow you to spend this money. There was some ambiguity in your initial post about how you were drawing funds to pay for living expenses. If you need funds from your portfolio, you would definitely want to turn off dividend reinvestments and this was a great suggestion. If you do not and can live off your "emergency fund" than this is not as applicable until later.

2) Given that I'm using dividend reinvestment to grow the portfolio, I don't mind dipping into my savings to pay the taxes due on it. But would it make more sense to invest my savings as well, and then just sell off some of those assets every year instead of having a pile of cash sitting around not earning anything. I've always kept a large reserve around because I've always been freelance, and my employment has always been sporadic. Psychologically, I'm afraid of not having a large reserve. Financially, it might not make sense anymore.
Well to me, it's all one portfolio and so I would consider the savings account part of your fixed income allocation. I would "invest" it in a manner that makes your feel comfortable and consider it all together. A savings account is perfectly fine for expenses that will be hitting in the next couple of years. I wouldn't go much more conservative than 50/50 at your age (you likely more conservative when you factor in the savings).
3) I'm using PortfolioVisualizer.com to run monte carlo simulaitons on my portfolio to see how it holds up. How do you do this? Any other tools or recommendations for this sort of thing?
PV is pretty simple. You just click monte carlo, choose your asset classes and parameters and go. I use PV all the time.

4) I'm not understanding a Roth IRA. I'm almost fifty. At this stage does it make sense to put money into an account where restrictions are placed on its use? Can I only contribute $7K per year?
Can't tell what your LTCG rate is so I can't answer this. If your LTCG/QDI tax rate is zero and will continue to be forever, than retirement accounts are not important for you.

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celia
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Re: Criticism of my portfolio, please?

Post by celia » Thu May 16, 2019 1:38 pm

Mattzees wrote:
Thu May 16, 2019 11:56 am
What am I doing about healthcare?
I get healthcare thru the Marketplace, and I pay full price for it every month. Depending on my income (which is variable) at the end of the year, I may or may not get some of that back.

Point of info: I'm going to marry someone significantly younger than myself, so my portfolio needs to survive me by twenty years.
Have you compared this to buying your own private insurance policy as an individual? Will your future spouse have health insurance that can cover you?"
1) Everyone is suggesting I turn off auto-reinvestment. Why on earth would I not want to keep growing my portfolio in this way?

2) Given that I'm using dividend reinvestment to grow the portfolio, I don't mind dipping into my savings to pay the taxes due on it. But would it make more sense to invest my savings as well, and then just sell off some of those assets every year instead of having a pile of cash sitting around not earning anything. I've always kept a large reserve around because I've always been freelance, and my employment has always been sporadic. Psychologically, I'm afraid of not having a large reserve. Financially, it might not make sense anymore.
By taking your dividend in cash, you will improve your cash flow and not have to raid your emergency fund so much. What you are basically doing now is spending cash while creating more investments. (At this point, it sounds like you need more financial stability.) You are gradually changing your Asset Allocation from:
x% stocks / y% bonds and cash to
x++% stocks / y% bonds and less cash
which is making you more heavily invested in stocks, while shrinking your emergency fund, which might be needed in the future.
4) I'm not understanding a Roth IRA. I'm almost fifty. At this stage does it make sense to put money into an account where restrictions are placed on its use? Can I only contribute $7K per year?
What restrictions are you referring to? You can invest it in almost anything you want but it is recommended that your stock funds go in there, to maximize as much of your future growth to be tax-free (as long as the account is at least 5 years old and you are over 59.5 when withdrawing). In an emergency, your contributions can be withdrawn tax-free, but not the growth.

The point of having a Roth or tax-deferred account is to give you tax diversity. In a Roth, all taxes are paid before the contribution goes in. On a tax-deferred account, all the taxes are paid as withdrawals are made. Since this happens over a long period (your working career), your tax rates will most likely change in some years, and you can take advantage of that. Right now, everything for you is taxed as ordinary income, except for LTC gains and Qualified Dividends. (You will still benefit from that in taxable, even if you also have Roth and/or tax-deferred accounts.)

For 2019, you can contribute $6,000 unless you will turn 50 this year, when you can contribute $7,000 per year. In any case, you need "earned income" (wages, compensation) in order to make the contribution. So if you had a job sometime this year that earns you $6,000/$7,000, you would be eligible.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

ralph124cf
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Re: Criticism of my portfolio, please?

Post by ralph124cf » Thu May 16, 2019 4:21 pm

One reason to turn off dividend reinvestment in a taxable account is that it creates many different tax lots for when you do a partial sale. Each of those lots will have to be accounted for at tax time.

Ralph

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