Portfolio Review

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Topic Author
ChiefIllini
Posts: 68
Joined: Sun Mar 02, 2014 1:25 pm

Portfolio Review

Post by ChiefIllini » Sun Nov 17, 2019 2:16 pm

Hi all - Looking for a portfolio review with some guidance on what to do cash deployment and mortgage.

Emergency funds:
9-12 months worth of expenses

Debt:
Mortgage: $360K @ 3.75% (17 years left)
Car Loan: $11K @0.9% (2.5 years left)
CC: Paid monthly so no debt

Tax Filing Status
Married filing jointly
For 2019, I think we will file married but file separately (???)...I recently move to CA for a job and the wife is still working back at the home state for the next few months

Tax Rate:
24% Federal, 5% State (previous state), 9.3% (new state)

State of Residence:
CA (me), IL (wife)
Me: 10 months working in IL and 2 months working in CA
Wife: 12 months working in IL and possibly a few more months in 2020 before coming to CA

Age: 31/31

Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 30% of stocks

Total portfolio size (taxable, 401ks, IRAs: Mid-to-high six-figures

I'm pretty okay determining my allocations within my portfolio. We max out the 401k, do backdoor Roths, max out the HSAs and also contribute excess cash to a taxable account (mostly VTSMAX). The below does not include company stock

His
401k: 33%
Roth IRA: 17%

Hers
401k:17%
Roth IRA: 7%

Combined
Taxable: 30%

Company stock contributions
Wife: ??? @ 10% discount (vests after 1 year). Currently @ mid four-figures so small in the grand scheme of things
Me: ??? @ 15% discount (vests immediately upon company buying it at the end of the offer period). I also receive RSUs. RSUs currently @ low six figures and has a 25% vesting schedule over 4 years.


Investable cash: $50K

Questions:
1. Do we file separately since she still works at the lower income tax state? More of a question in a few months when I do taxes. I've usually done them myself but may decide to get a tax accountant now.

2. We will still own our home back in IL and will rent it out. Currently in the process of refinancing to a 30 year loan @ 3.75%. The reason is to lower my monthly payment. Not really necessary to lower the payment as I can afford it but it would essentially mean I would lose $600/month. Refinancing would help me just be even. It's more of a mental reason. Plus, I can take that "extra" $600 and invest it and hopefully beat the 3.75%. Anyway, with the investable cash I have and the markets at an all-time high, does it make sense to use some of that money to add equity in the house?

3. I also have the opportunity to do an after-tax 401k contribution and then roll it to my Roth IRA account. I did do this previously with my prior company. Shall I continue to do this or grow my taxable account?

4. Any opinion on what to do with company stock contributions and RSUs?

User avatar
nedsaid
Posts: 12757
Joined: Fri Nov 23, 2012 12:33 pm

Re: Portfolio Review

Post by nedsaid » Sun Nov 17, 2019 3:14 pm

ChiefIllini wrote:
Sun Nov 17, 2019 2:16 pm
Hi all - Looking for a portfolio review with some guidance on what to do cash deployment and mortgage.

Nedsaid: Welcome to the Bogleheads forum. I always enjoy talking to new folks on the forum.

Emergency funds:
9-12 months worth of expenses

Nedsaid: Very good job. I am an advocate for emergency funds. Guess I am old fashioned, I still like good old fashioned money in the bank. My standard advice is 6 months of expenses in emergency funds and working up to a year's worth of expenses by age 50. Cool that you are almost there now.

Debt:
Mortgage: $360K @ 3.75% (17 years left)
Car Loan: $11K @0.9% (2.5 years left)
CC: Paid monthly so no debt

Tax Filing Status
Married filing jointly
For 2019, I think we will file married but file separately (???)...I recently move to CA for a job and the wife is still working back at the home state for the next few months

Nedsaid: You can buy tax software and run some scenarios to see if you come out ahead filing separately. Most often it is better to file jointly particularly if there are children.

Tax Rate:
24% Federal, 5% State (previous state), 9.3% (new state)

Nedsaid: Ouch! You are pretty close to the scenario of one for me, one for the gubmit when looking at how each additional dollar is taxed. You are looking at a marginal rate in total of about 40% for each additional dollar earned, at least until you get beyond the Social Security contribution limits. So you need to do good tax planning, particularly with your workplace savings plans for retirement.

State of Residence:
CA (me), IL (wife)
Me: 10 months working in IL and 2 months working in CA
Wife: 12 months working in IL and possibly a few more months in 2020 before coming to CA

Age: 31/31

Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 30% of stocks

Nedsaid: This is a very good asset allocation, pretty close to what I would recommend. Don't forget to start de-risking as you approach age 40. My retirement was 94% stocks at age 40 and for various reasons took it down to 80% stocks/20% bonds and cash. I was at approximately 70% stocks for many years and at age 60 have worked my way down to 62%. You are in the ballpark.


Total portfolio size (taxable, 401ks, IRAs: Mid-to-high six-figures

Nedsaid: Pretty hard for me to relate to, this is quite the accomplishment at such a young age. Congratulations. Keep doing what you are doing.

I'm pretty okay determining my allocations within my portfolio. We max out the 401k, do backdoor Roths, max out the HSAs and also contribute excess cash to a taxable account (mostly VTSMAX). The below does not include company stock

His
401k: 33%
Roth IRA: 17%

Hers
401k:17%
Roth IRA: 7%

Combined
Taxable: 30%

Company stock contributions
Wife: ??? @ 10% discount (vests after 1 year). Currently @ mid four-figures so small in the grand scheme of things
Me: ??? @ 15% discount (vests immediately upon company buying it at the end of the offer period). I also receive RSUs. RSUs currently @ low six figures and has a 25% vesting schedule over 4 years.

Nedsaid: The rule of thumb is that you don't want more than 10% of your net worth in company stock. The thing is, hard to talk people out of the opportunity to become a multi-millionaire. This would have been disastrous advice to employees of Microsoft about the time they became public. What I would say is to take into consideration the prospects of future growth, I would be more inclined to load up on company stock if it was an up and coming company with bright prospects and less likely if the company was mature. You have to look at this case by case. I don't want to be that anonymous avatar on the internet that talked someone out of a fortune.


Investable cash: $50K

Questions:
1. Do we file separately since she still works at the lower income tax state? More of a question in a few months when I do taxes. I've usually done them myself but may decide to get a tax accountant now.

Nedsaid: Buy tax software and run the scenarios for yourself. H&R Block and TurboTax are among the industry leaders. If you paid someone to do your taxes, their software should be able to run Married Filing Joint vs. Married Filing Separate. It sounds like you are thinking about this to safe on State Income Taxes. In your case, if you have no kids, might get some State Tax Savings by filing Separate. You have to run the numbers. Another thing to check are residency requirements, you are probably thinking of Filing Married Filing Separate and you filing as a California resident and spouse filing as an Illinois resident.

2. We will still own our home back in IL and will rent it out. Currently in the process of refinancing to a 30 year loan @ 3.75%. The reason is to lower my monthly payment. Not really necessary to lower the payment as I can afford it but it would essentially mean I would lose $600/month. Refinancing would help me just be even. It's more of a mental reason. Plus, I can take that "extra" $600 and invest it and hopefully beat the 3.75%. Anyway, with the investable cash I have and the markets at an all-time high, does it make sense to use some of that money to add equity in the house?

Nedsaid: I would not be too aggressive about paying off a low interest mortgage, what has changed is that the Standard Deduction went up a lot for 2018, lots of folks who were itemizing are now doing Standard Deduction. If you are under the Standard Deduction limits, I would feel better about pre-paying. Conversely, if you are over the $24,000 limit for itemizing deductions, a would be less enthusiastic about pre-paying the mortgage. This is another thing where you have to work the numbers. Another factor is that it is not as easy as it once was to pull equity out of a house, lending requirements are a lot more strict now. Don't take it for granted that you can always get a home equity loan if you are in a crunch.

3. I also have the opportunity to do an after-tax 401k contribution and then roll it to my Roth IRA account. I did do this previously with my prior company. Shall I continue to do this or grow my taxable account?

Nedsaid: The future is unknown, I would probably split my 401(k) contributions between tax deferred Traditional 401(k) and an after tax ROTH 401(k). Pretty much, you are hedging against higher tax rates in the future, particularly for retirees. For most people, putting the money into a Traditional 401(k) is best, the most likely scenario is that you will be in the same or lower tax bracket in retirement. The ROTH works if Tax Rates are higher in Retirement than during career, a possible but not likely scenario. Still hedging your bets is not a bad idea.

4. Any opinion on what to do with company stock contributions and RSUs?

Nedsaid: I don't want to be the idiot Avatar that talked you out of a fortune. Again, look at the future prospects for the company. Letting the company stock get more than 10% of net worth is risky but depending upon the company, the risk might be worth it. In the great majority of cases, best to keep it at 10% of net worth or less. Do careful analysis here, you probably will want to book some profits here. But again, don't want to be a swear word if I talk you out of a fortune.
A fool and his money are good for business.

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