Update Portfolio Review!!!!

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Topic Author
rockthisworld
Posts: 57
Joined: Wed Oct 17, 2018 9:37 am

Update Portfolio Review!!!!

Post by rockthisworld » Sat Nov 16, 2019 11:20 pm

Age 28
Balance: Vanguard Total Stock Market Index (155,000)

I also have a 401k that I put 3% into that has about 4K in it.

I was wondering if truly left it alone and didn’t touch this money until I was 70 how much would it grow to it today’s dollars? I may end up moving it to Vanguard Tax Managed Balanced Fund as I believe 50/50 would be a better defensive strategy. In doing so I expect my return on investment to be around 4.5% annually and using 3.3% inflation for a real return of 1.2%. Is this too conservative even with a possible 30-40% bear market drop? My goal in this account is to get to 300k in today’s dollars and between that, and maybe 75-80% of future social security benefits ( just in case we do see a cut for future retirees.



The reason behind this is I want to give more with extra money and donate more. I don’t want to stress anymore that I’m not saving enough if I know that my calculations are conservative enough to be safe. Am I going to be okay? I need boglehead guidance because my anxiety isn’t letting me enjoy the most in life. I tend to overthink a lot and truly never had enough financial guidance.

I also assume in this calculation that at age 70 when I start withdrawals that I would be withdrawing 4.3% annually over about 20-25 years. And that capital gain taxes would eventually be taxed at ordinary income. I assume this so that taxes won’t surprise me in the future. If I end up with more money in retirement it will be more money for me to be more generous.

Thank you again in advance. I know this is lengthy but I will never truly begin to relax mentally unless I know financially that I will be okay. The sooner I can transition from saving more to donating more will make me feel like I can do some good in the world.

sd323232
Posts: 169
Joined: Thu Jun 21, 2018 4:45 pm

Re: Update Portfolio Review!!!!

Post by sd323232 » Sat Nov 16, 2019 11:28 pm

if your main goal is to donate, you dont really need much money since you can donate your time instead. So your 50/50 is great choice.

Topic Author
rockthisworld
Posts: 57
Joined: Wed Oct 17, 2018 9:37 am

Re: Update Portfolio Review!!!!

Post by rockthisworld » Sat Nov 16, 2019 11:32 pm

I wanted to eventually phase my monthly savings and eventually donate more and use some to put into a future college savings account for my future children too. I just hope that being as conservative as possible (worst probable outcome) I would still have 300k by age 70 in today’s dollars. Have I saved up enough to realistically assume I will reach that target?

anon_investor
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Re: Update Portfolio Review!!!!

Post by anon_investor » Sat Nov 16, 2019 11:39 pm

Unfortunately no one knows whether 100% Vanguard Total Stock Market Index or 100% Vanguard Tax Managed Balanced Fund will do better by the time you are 70.

Personally, I would bet on 100% Vanguard Total Stock Market Index. Most people cannot handle the volatility that comes with this. The historical data shows that over long periods of time 100% Total U.S. Stock Market has beaten just about any other portfolio, but past performance is no guarantee of future performance.

But why only 2 options? Your asset allocation doesn't only have to be between 100% stock and 50/50 stock/bonds.

Topic Author
rockthisworld
Posts: 57
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Re: Update Portfolio Review!!!!

Post by rockthisworld » Sat Nov 16, 2019 11:44 pm

Ideally thinking about leaving it 100% stocks until I’m about 60 then phase into 50% once I am 70. But if the markets will be gaining less seeing high valuations and low yields I’m just praying for a 1.2% real return on investments until I reach 70.

retired@50
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Re: Update Portfolio Review!!!!

Post by retired@50 » Sun Nov 17, 2019 12:41 am

Have you heard of the rule of 72?

https://www.investopedia.com/terms/r/ruleof72.asp

Given your time horizon of 42 years (70 - 28 = 42)
I believe your money ($155,000) could potentially double 3 or 4 times, especially if you leave it in the Vanguard Total Stock Market Index Fund.
So,
doubled once = 310,000
doubled twice = 620,000
doubled thrice = 1,240,000
doubled four times = 2,480,000

Best of luck,

Topic Author
rockthisworld
Posts: 57
Joined: Wed Oct 17, 2018 9:37 am

Re: Update Portfolio Review!!!!

Post by rockthisworld » Sun Nov 17, 2019 12:46 am

If I bank on that rule I should be okay if it stays on that path but there is no safe bet that returns like that will continue.

lakpr
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Re: Update Portfolio Review!!!!

Post by lakpr » Sun Nov 17, 2019 7:41 am

Question I have is why is your taxable account so much, but 401k plan amount so little? Why aren't you maxing out your 401k plan and Roth annually?

Topic Author
rockthisworld
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Re: Update Portfolio Review!!!!

Post by rockthisworld » Sun Nov 17, 2019 8:22 am

I have been a diligent saver. Just recently had a job with a 401k and decided to start one up.

HomeStretch
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Re: Update Portfolio Review!!!!

Post by HomeStretch » Sun Nov 17, 2019 8:35 am

You had a similar post a couple months ago. You wanted to know how much your current savings would grow as you were considering reducing your annual savings from ~$11k (=$420 bi-weekly) to $480 (=$40/month) in order to give more.

With an annual salary of $25-$30k and savings of $11k per year, your living expenses are low. However, your plan to live on social security and withdrawals from a portfolio with low future contributions of $480 per year seems very risky.

You are in your 20s. Suggest you save at least 25% of your annual salary and reassess your portfolio adequacy for retirement in your 40s.

lakpr
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Re: Update Portfolio Review!!!!

Post by lakpr » Sun Nov 17, 2019 9:38 am

rockthisworld wrote:
Sun Nov 17, 2019 8:22 am
I have been a diligent saver. Just recently had a job with a 401k and decided to start one up.
That is good. But now that you do have access to 401k, max it out, draw your living expenses from the taxable account. I saw HomeStretch’s note that you are earning only $25k to $30k per year. Contribute to Roth 401k in this bracket, sell taxable investments for living. This way you will have gradually converted your salary from taxable to tax sheltered. You can contribute $6k to a Roth IRA on top of it. Basically can get $25k per year into Roth accounts at zero cost, since you are in 12% tax bracket so $0 cap gains tax.

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abuss368
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Re: Update Portfolio Review!!!!

Post by abuss368 » Sun Nov 17, 2019 10:40 am

An excellent strategy and one that reminds me of Jack Bogle’s Two Fund Portfolio of Total Stock and Total Bond. Why not simply invest in those two funds and place in each account? Add to them during your career and you will be fine over time.

Keep investing (and life) simple.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

Topic Author
rockthisworld
Posts: 57
Joined: Wed Oct 17, 2018 9:37 am

Re: Update Portfolio Review!!!!

Post by rockthisworld » Sun Nov 17, 2019 2:42 pm

Well what do you think the real rate of return on a 50/50 balanced fund.

lakpr
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Re: Update Portfolio Review!!!!

Post by lakpr » Sun Nov 17, 2019 2:49 pm

rockthisworld wrote:
Sun Nov 17, 2019 2:42 pm
Well what do you think the real rate of return on a 50/50 balanced fund.
Thats quite conservative. Why do you need to be at 50/50? That is essentially the portfolio of a 70 year old, who cannot bear a significant drop in the portfolio and does not have any more time to recover from the drop.

Historically, stocks averaged a return of about 5% and bonds averaged a return of 1% above inflation. A 50/50 portfolio would therefore give you a 3% above inflation rate. It would double, in real return terms, every 24 years, so over your 42 year horizon your $1 million will become $4 million or a little less.

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