Portfolio feedback request

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Topic Author
rusic08
Posts: 2
Joined: Thu Nov 07, 2019 9:18 pm

Portfolio feedback request

Post by rusic08 » Thu Nov 07, 2019 9:27 pm

Hello. I’m posting because we’re about to have our first child and I wanted feedback whether our retirement finances are on track. Our goal is to have my paychecks automatically go to the right places and we rebalance once a year. My wife no longer works.

Emergency funds: 9 months
Debt: $140k @ 4.25% mortgage
Tax Filing Status: Married filing jointly
Tax Rate: 22% Federal, 3.3% State
State of Residence: Indiana
Age: early 30s

Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: Don’t know
Portfolio: 250K

Taxable
2% Cash
5% Cummins ESPP stock (CMI)
16% Vanguard 500 Index Fund Admiral (VFIAX) (0.14)

His 401K
44% Vanguard Target Retirement 2035 (VTTHX) (0.06)
5% Vanguard Target Retirement 2050 (VFIFX) (0.06)
Company match 4%

Her 401K
3% Indiana Public Retirement System 2050 Fund (0.1)

His Roth IRA
26% Vanguard Target Retirement 2035 (VTTHX) (0.06)

Annual Contributions
$15K His 401K
$5K His Roth IRA

Available funds in his 401K
JP Morgan Stable Value (0.35)
Northern Trust US Aggregate Bond Index Fund (0.05)
PIMCO Total Return Fund
Vanguard Wellington Balanced Fund (VWELX and VWENX) (0.20)
NTGI S&P 500 Index Fund (0.04)
American Funds Growth Fund (0.27)
Large Cap Value Equity Fund (0.43)
Vanguard Extended Market Index Fund (VIEIX and VEMPX) (0.06)
Royce Total Return Fund Institutional Class (0.87)
Northern Trust ex US Index Fund (0.14)
Vanguard International Value Fund (VTRIX) (.38)
International Growth Equity Fund (.63)
Vanguard Target Retirement 2020, 2025, 2030 … up to 2060 (0.06)


Questions

1. Should I max out 401K before contributing to Roth IRA?

2. I prefer Target Retirement funds because it is one fund. As long as I keep bonds out of taxable accounts, is this ok?

3. My current portfolio balance is 80% stock. I’d like to change it to 70% stock. Is there a fee if I transfer all my 401K into a target retirement fund with higher bond allocation?

4. If I transfer all my Roth IRA to a different target retirement fund (still with Vanguard), will I be charged a fee?

5. I have 1% of salary going to ESPP because of the 15% discount. Frankly I’m confused whether to stop or continue. Stop sounds easier, and I move the 1% to retirement. I think the company rules are that if you sell immediately, you cannot purchase for a few months. Any recommendations?

HomeStretch
Posts: 2503
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio feedback request

Post by HomeStretch » Thu Nov 07, 2019 10:35 pm

rusic08 wrote:
Thu Nov 07, 2019 9:27 pm
1. Should I max out 401K before contributing to Roth IRA?
IMO contributing enough to your 401k to receive the full employer match then contributing to a Roth IRA is reasonable. Consider making the contribution to a Roth IRA for your spouse (rather than yourself) so that each of you has retirement savings.
2. I prefer Target Retirement funds because it is one fund. As long as I keep bonds out of taxable accounts, is this ok?
Consider using 100% equity in the Roth IRA for higher expected growth, tax free. Use the appropriate TDF in your 401k to achieve your desired overall asset allocation.
3. My current portfolio balance is 80% stock. I’d like to change it to 70% stock. Is there a fee if I transfer all my 401K into a target retirement fund with higher bond allocation?

4. If I transfer all my Roth IRA to a different target retirement fund (still with Vanguard), will I be charged a fee?
There are no tax consequences or Vanguard fees for making changes in your 401k and Roth IRA. Your 401k likely doesn’t charge any fees for changes either.
5. I have 1% of salary going to ESPP because of the 15% discount. Frankly I’m confused whether to stop or continue. Stop sounds easier, and I move the 1% to retirement. I think the company rules are that if you sell immediately, you cannot purchase for a few months. Any recommendations?
I suggest you not hold an employer single stock. Rather buy and immediately sell for additional income as often as the terms of your ESPP allows.

Several additional comments:
1. See if you can refinance your 4.25% mortgage rate as rates have come down.
2. With baby on the way, review the adequacy of your/spouse’s life insurance. Consider non-employer level-premium term life insurance for 20-30 year term. You can easily get quotes from online brokers like selectquote.com (spouse used them and was happy), term4life or Zander.
3. Consider starting a 529 account to save for college. Indiana offers a 20% state tax credit for contributions up to $5,000.

Topic Author
rusic08
Posts: 2
Joined: Thu Nov 07, 2019 9:18 pm

Re: Portfolio feedback request

Post by rusic08 » Fri Nov 08, 2019 10:21 pm

Thank you so much for your feedback. These were things we had not thought of.
We will rebalance this weekend, and put 100% equity in Roth IRA. We'll start contributing to spouses' Roth.

We'll also start looking at term life insurance and 529!

User avatar
1789
Posts: 185
Joined: Fri Aug 16, 2019 3:31 pm
Location: OR

Re: Portfolio feedback request

Post by 1789 » Sat Nov 09, 2019 1:53 am

Agree with HomeStretch and just want to reiterate one important point. Get rid of employer stock and don’t hold it outside the quick sell period. Sell any RSUs immediately once they are vested.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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