28yr/200k Net Worth - Will I reach my short term goals?

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Topic Author
MrProcess
Posts: 6
Joined: Sun Jul 07, 2019 4:05 pm

28yr/200k Net Worth - Will I reach my short term goals?

Post by MrProcess » Sun Jul 07, 2019 9:18 pm

It’s been more than a year since my father showed me this site. Since then I have been able to take the advice of the Bogles, and him, to reach another financial milestone. So I’d like to thank you all in advance for taking a peak at my current setup and hopefully you can help me with a few questions that have been on my mind (especially around the milestone expenses).

About me:
Age: 28
Location: California - HCOLA
Education: California University. Bachelors in Economics.
Income: 115k + 10% bonus.
Job: Tech Consultant w/Big 4.
Debt: None. Renting, no mortgage, no car payments.
Tax Filing: Single.
Total NW: ~$200k
Target Asset Allocation: US: 80%, International: 20%, Bonds: $20k (acts as Emergency Fund), Cash: $10k

Investments w/Monthly Contributions:
Rollover IRA: $98k
New 401k: $9k + $1500/month (corp match)
Roth IRA: $28k + $500/month
New HSA: $1.5k + $250/month (corp match)
Old HSA: $6k
Taxable Account: $58k + $500/month
Cash/Spending: $9k
Total: ~$210k

Current Asset Allocation:
Note: I am treating bonds as my Emergency Fund.
N/A - Fid Inter Treasury Bond Index Fund (FUAMX)(0.03%): $6k
N/A - Fidelity Short Term Treasury Bond Index (FUMBX)(0.03%): $15k
20% - Fidelity Total Intl Index Fund (FTIHX)(0.06%): $36k
75% - Fidelity Total Market Index Fund (FSKAX)(0.015%): $130k
05% - Vanguard Institutional Total Stock Market Index Trust (VITNX)(0.03%): $9k
Total: ~$200k

Estimated Expenses: (YTD)
Note: Rent is not added to the below expenses. Rent: $900/month.
Jan: $2,800
Feb: $1,600
Mar: $2,500
Apr: $600
May: $1,200
June: $1,200
YTD Total: ~$15,500

Goals:
Increase Salary (asap) - I’ll make a separate post later since I have a few specific questions on this topic.
Decrease Expenses (asap) - Reduce to $1400/month not including rent. Currently overspending by ~$200 of that goal.
Own rental property or other investment (tbd) - not done due to high RE prices in my area.
Save for next milestones - wedding (2-3 yrs), car (2-3 years), kids (3-4 years), bigger apartment or house (3-4 years).
Retirement (tbd) - The plan is to transition from salary to maintaining investments (including potential real estate or future business).

Questions:
How am I doing?
Are my expenses too high for the goals I am setting?
How would you approach saving for the milestones I laid out?
Is it worth taking on more risk than I already have at my age?

-MrProcess

rascott
Posts: 682
Joined: Wed Apr 15, 2015 10:53 am

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by rascott » Mon Jul 08, 2019 7:47 am

Your savings rate is roughly 21%. No idea if you on track for your 'goals' or not....as you didn't include any numbers of what you are trying to hit.

I'd try to get the savings rate to 25%. A simple rule of thumb I used when your age was 25% taxes, 25% savings, 50% life expenses. Auto-deduct all of the 25%....and then set budget out of what actually hits my checking account.

As I got salary increases each year I bumped the savings rate 1%. Now at about 31%. Savings included things like cars, down payments on houses, etc....so adjust your taxable/retirement accounts as needed (not dropping below 15% into retirement).

TallBoy29er
Posts: 665
Joined: Thu Jul 18, 2013 9:06 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by TallBoy29er » Mon Jul 08, 2019 8:53 am

You're in a HCOL, and if I annualize based on your numbers, you're living on about $42k per year. Could you squeeze a few more bucks out of expenses every month? Sure you could. But I am guessing your human capital/earning potential will continue to rise as well. I look back on life, and I don't remember the opportunities I had to save more. I do remember the opportunities lost due to trying to save every last penny. You are not in a financial situation where that is necessary, so make sure you have fun. You don't get your younger years back.

You are doing quite well, I might add. I had nowhere near what you do, adjusted for inflation, at your age. You should be proud.

Topic Author
MrProcess
Posts: 6
Joined: Sun Jul 07, 2019 4:05 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by MrProcess » Fri Jul 12, 2019 8:45 am

rascott wrote:
Mon Jul 08, 2019 7:47 am
Your savings rate is roughly 21%. No idea if you on track for your 'goals' or not....as you didn't include any numbers of what you are trying to hit.

I'd try to get the savings rate to 25%. A simple rule of thumb I used when your age was 25% taxes, 25% savings, 50% life expenses. Auto-deduct all of the 25%....and then set budget out of what actually hits my checking account.

As I got salary increases each year I bumped the savings rate 1%. Now at about 31%. Savings included things like cars, down payments on houses, etc....so adjust your taxable/retirement accounts as needed (not dropping below 15% into retirement).
Rascott - I like your 25/25/50 rule. If I hit my savings goal I'll hopefully be over 25%. In regards to the goals I listed, I've heard some of the following numbers. But I may be off: Wedding $25-$35k, Car $25k (buying a used car outright), Kids (not sure), House $200k (20%-25% down payment). What are your thoughts on these estimates? Should I have a different approach for preparing for these goals?

Topic Author
MrProcess
Posts: 6
Joined: Sun Jul 07, 2019 4:05 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by MrProcess » Fri Jul 12, 2019 8:54 am

TallBoy29er wrote:
Mon Jul 08, 2019 8:53 am
You're in a HCOL, and if I annualize based on your numbers, you're living on about $42k per year. Could you squeeze a few more bucks out of expenses every month? Sure you could. But I am guessing your human capital/earning potential will continue to rise as well. I look back on life, and I don't remember the opportunities I had to save more. I do remember the opportunities lost due to trying to save every last penny. You are not in a financial situation where that is necessary, so make sure you have fun. You don't get your younger years back.

You are doing quite well, I might add. I had nowhere near what you do, adjusted for inflation, at your age. You should be proud.
Tallboy29er - Thanks for the boost in confidence and perspective Tallboy29er. I feel like I've been having a good balance, just making sure I'm creating the best foundation I can in these younger years too.

rascott
Posts: 682
Joined: Wed Apr 15, 2015 10:53 am

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by rascott » Fri Jul 12, 2019 1:59 pm

MrProcess wrote:
Fri Jul 12, 2019 8:45 am
rascott wrote:
Mon Jul 08, 2019 7:47 am
Your savings rate is roughly 21%. No idea if you on track for your 'goals' or not....as you didn't include any numbers of what you are trying to hit.

I'd try to get the savings rate to 25%. A simple rule of thumb I used when your age was 25% taxes, 25% savings, 50% life expenses. Auto-deduct all of the 25%....and then set budget out of what actually hits my checking account.

As I got salary increases each year I bumped the savings rate 1%. Now at about 31%. Savings included things like cars, down payments on houses, etc....so adjust your taxable/retirement accounts as needed (not dropping below 15% into retirement).
Rascott - I like your 25/25/50 rule. If I hit my savings goal I'll hopefully be over 25%. In regards to the goals I listed, I've heard some of the following numbers. But I may be off: Wedding $25-$35k, Car $25k (buying a used car outright), Kids (not sure), House $200k (20%-25% down payment). What are your thoughts on these estimates? Should I have a different approach for preparing for these goals?
You're planning to buy a $1m house? Maybe you are in an extreme HCOL area. I'm not.

I'm on my 4th (and hopefully forever) home. I put next to nothing down on my first home. Moved up over time and just rolled the equity...never added to it... my current home was $450k, and I had 20% down after sale of house #3.

Obviously you need a rising market to make that work...but this included the time frame of the housing slump. So even that worked. I usually hunted for good deals. You may not desire to go this route.

Medium term savings like this is tricky. I usually just split the difference between high yield savings and stock index funds (kind of a 50/50 allocation). But something like a VG Wellington or Wellesley fund might work too.

ohai
Posts: 989
Joined: Wed Dec 27, 2017 2:10 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by ohai » Fri Jul 12, 2019 2:11 pm

Well, I think you should definitely take more risk... close to 100% equities. One of my regrets is that I did not fully use my capital to leverage into investments when I was young(er). I did not have the knowledge that I have today. Currently, I am 170% leveraged.

I don't know how to say if you are saving enough or not enough. That depends on your quality of life, but $35k or whatever savings from $130k income is probably better than most people.

For young people who make below $200k, I'd say increasing income is a great #1 goal. Even if you have to invest a lot in education now, it is probably worthwhile.

Topic Author
MrProcess
Posts: 6
Joined: Sun Jul 07, 2019 4:05 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by MrProcess » Fri Jul 12, 2019 7:19 pm

rascott wrote:
Fri Jul 12, 2019 1:59 pm
You're planning to buy a $1m house? Maybe you are in an extreme HCOL area. I'm not.

I'm on my 4th (and hopefully forever) home. I put next to nothing down on my first home. Moved up over time and just rolled the equity...never added to it... my current home was $450k, and I had 20% down after sale of house #3.

Obviously you need a rising market to make that work...but this included the time frame of the housing slump. So even that worked. I usually hunted for good deals. You may not desire to go this route.

Medium term savings like this is tricky. I usually just split the difference between high yield savings and stock index funds (kind of a 50/50 allocation). But something like a VG Wellington or Wellesley fund might work too.
Yes $1m is the target for a house. But I'm also considering just to rent and use the down payment on an investment property. Depending on how the real estate market is in the coming years.

With the VG Wellington fund would this be in place of how I am currently allocated between my entire portfolio of cash, bonds, and stocks? Or for a portion? What's the main difference since the fund seems the same or slightly more conservative than my current positions?

rascott
Posts: 682
Joined: Wed Apr 15, 2015 10:53 am

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by rascott » Fri Jul 12, 2019 7:24 pm

MrProcess wrote:
Fri Jul 12, 2019 7:19 pm
rascott wrote:
Fri Jul 12, 2019 1:59 pm
You're planning to buy a $1m house? Maybe you are in an extreme HCOL area. I'm not.

I'm on my 4th (and hopefully forever) home. I put next to nothing down on my first home. Moved up over time and just rolled the equity...never added to it... my current home was $450k, and I had 20% down after sale of house #3.

Obviously you need a rising market to make that work...but this included the time frame of the housing slump. So even that worked. I usually hunted for good deals. You may not desire to go this route.

Medium term savings like this is tricky. I usually just split the difference between high yield savings and stock index funds (kind of a 50/50 allocation). But something like a VG Wellington or Wellesley fund might work too.
Yes $1m is the target for a house. But I'm also considering just to rent and use the down payment on an investment property. Depending on how the real estate market is in the coming years.

With the VG Wellington fund would this be in place of how I am currently allocated between my entire portfolio of cash, bonds, and stocks? Or for a portion? What's the main difference since the fund seems the same or slightly more conservative than my current positions?


No....only the portion you need to access in the medium term. And you'd have to be ok with the risk. If you MUST have the money in 5 years or less.... you might be better off in high yield savings. Longer than that.... I'd likely just invest it as you do your whole portfolio.

Wellington is I believe 60/40 stocks/bonds. Wellesley is 40/60. Or you could just make your own allocation for this taxable medium term money.,

Topic Author
MrProcess
Posts: 6
Joined: Sun Jul 07, 2019 4:05 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by MrProcess » Fri Jul 12, 2019 8:51 pm

ohai wrote:
Fri Jul 12, 2019 2:11 pm
Well, I think you should definitely take more risk... close to 100% equities. One of my regrets is that I did not fully use my capital to leverage into investments when I was young(er). I did not have the knowledge that I have today. Currently, I am 170% leveraged.

I don't know how to say if you are saving enough or not enough. That depends on your quality of life, but $35k or whatever savings from $130k income is probably better than most people.

For young people who make below $200k, I'd say increasing income is a great #1 goal. Even if you have to invest a lot in education now, it is probably worthwhile.
Ohai, how are you currently leveraging 170%? Margins/Options/other methods? If I were to add leverage to my portfolio, how would you do it within the current setup I have?

Topic Author
MrProcess
Posts: 6
Joined: Sun Jul 07, 2019 4:05 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by MrProcess » Fri Jul 12, 2019 8:57 pm

rascott wrote:
Fri Jul 12, 2019 7:24 pm
No....only the portion you need to access in the medium term. And you'd have to be ok with the risk. If you MUST have the money in 5 years or less.... you might be better off in high yield savings. Longer than that.... I'd likely just invest it as you do your whole portfolio.

Wellington is I believe 60/40 stocks/bonds. Wellesley is 40/60. Or you could just make your own allocation for this taxable medium term money.,
Gotcha, thanks for the clarification rascott. I'll look more into the difference between Wellington and Wellesley and see if either one may be good for the taxable part of my portfolio.

ohai
Posts: 989
Joined: Wed Dec 27, 2017 2:10 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by ohai » Fri Jul 12, 2019 10:57 pm

MrProcess wrote:
Fri Jul 12, 2019 8:51 pm
ohai wrote:
Fri Jul 12, 2019 2:11 pm
Well, I think you should definitely take more risk... close to 100% equities. One of my regrets is that I did not fully use my capital to leverage into investments when I was young(er). I did not have the knowledge that I have today. Currently, I am 170% leveraged.

I don't know how to say if you are saving enough or not enough. That depends on your quality of life, but $35k or whatever savings from $130k income is probably better than most people.

For young people who make below $200k, I'd say increasing income is a great #1 goal. Even if you have to invest a lot in education now, it is probably worthwhile.
Ohai, how are you currently leveraging 170%? Margins/Options/other methods? If I were to add leverage to my portfolio, how would you do it within the current setup I have?
I can think of four ways to systematically leverage equity exposure:

1) Leveraged ETFs (SSO, UPRO, and so on): This is probably the best way for most retail investors, i.e. you and me, despite the expense ratio. First, it has the least daily maintenance. Second, the leveraged ETFs sell exposure when they lose money. While this locks in some losses, it also reduces your delta when markets trend down, therefore reducing your chance of catastrophic loss. There is a good thread on this website about this actually - hedgefundie or something.

Anyway, the setup for my new capital contributions is 66% 3x Leverage and 33% Bonds, which gives a 2x leverage and makes capital available for rebalancing in a down market. Always use the highest possible leveraged ETF and keep any additional capital on hand for rebalancing. For example, if your goal is to have 2x leverage, then the setup above is more efficient than 100% 2x leverage ETF.

2) Futures: This is the second best method, and you can achieve higher leverage (5x to 10x) easily through margin. It's also potentially the cheapest method; you post the least capital and borrow at market equity funding (about Libor + 20bp at the moment). You also don't pay management fees (about 95bp usually) like for leveraged ETFs.

However, a futures position will require you to trade actively to maintain your position (leverage ETF managers do this for you). Also, since futures are marked to market, you will need to pay capital gains tax every year, assuming a gain. If I had no job and managed my portfolio all the time, I'd probably use futures. However, since I have a lot of things to do and can't track this portfolio every minute, I prefer leveraged ETFs, despite the higher cost.

3) Options (buy calls, sell puts). This has potential to be the best vehicle, actually, since there are limitless combinations of option strategies that you could employ, and I am sure one of them is somehow better than non-option strategies. At the very least, futures or other derivatives strategies can be replicated with options. So, option strategies, ignoring trading cost, are a super set of other leveraged strategies mentioned here.

However, this requires the highest knowledge, time investment, and has the highest explicit cost. For what it is worth, I have not seen anything on this website (and in most websites) who has presented any kind of intelligent option discussion. It might be best to only think about options after you have tried something else.

If you are interested, I am a professional derivatives trader and trade options for a living.

4) Margin through your brokerage: Too expensive. You will not beat the implicit funding in futures, or the presumed Libor + ~20bp + let's call it 95bp/3 expense ratio per unit of leverage on UPRO.

5) Others?? Synthetic Delta through Short VIX ETF?

Count of Notre Dame
Posts: 49
Joined: Fri Oct 11, 2013 1:08 pm

Re: 28yr/200k Net Worth - Will I reach my short term goals?

Post by Count of Notre Dame » Tue Sep 10, 2019 12:50 pm

Don't completely ignore your personal relationships while you are so focused on your career and money.

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