First Time Portfolio Review!!!

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Topic Author
Grateful4321
Posts: 4
Joined: Sun Nov 17, 2019 12:38 pm

First Time Portfolio Review!!!

Post by Grateful4321 » Sun Nov 17, 2019 2:38 pm

After a few years of reading but not posting, I wanted to take the plunge and obtain input on my portfolio. Due to a windfall (sale of a company) 10 years ago, and my lack of knowledge at the time, I used a financial advisor for a few years to guide my thinking. At the time I found value in the firm providing guidance in establishing my IPS, reviewing all insurance policies, evaluating all debt, and setting up a desired asset allocation. Although I negotiated a rate well below 1%, I quickly realized that paying $25,000+ annually for their oversight was crazy and I have been on my own since. The “slice and dice” portfolio the firm created has about 1.2M in capital gains, so reducing complexity by reducing the number of funds is a long journey. I donate 50k+ a year to charity, all with appreciated stock.

I hope to work full-time for three more years full-time in a job I enjoy and then reduce to part-time for another 5 to 7 years. My financial goal is to have at least 6M+ (in 2019 real dollars) by 60 with an expected withdraw of $175,000 to $200,000 per year. We live in a HCOL area and enjoy international travel plus giving to various charitable causes (the spend includes giving). If needed, we could obviously live on much less. We do not have any pensions, but plan on claiming social security when I turn 70 (depending on health and policy changes). As I run the numbers, I should be able to retire with a 3% to 3.25% withdraw rate until claiming SS and then we should be under 3.0%.

Thank you in advance for the guidance and wisdom of this community!

Emergency funds: Two months. I have reduced this amount over time as my assets have grown and I have 8 to 10 years of expenses in bonds.

Debt: None. Home equity of approximately $825,000.

Tax Filing Status: Married Filing Jointly

Tax Rate: 35% Federal, 5.75% State

State of Residence: Georgia

Age: Early 50s, spouse late 40s. Two teens with intent of going to college.

Desired Asset allocation: 65% stocks / 35% bonds. Will transition to 50/50 over next 6 to 8 years.

Desired International allocation: 30% of stocks

Portfolio Size: 4.75 million not including $265,000 in 529 for two kids (both probably going to good in-state schools)

Taxable Accounts
14.6% SCHB US Broad Market Index (.03)
10.1% SCHF Schwab International (.06)
9.4% IVV IShares Core S&P 500 (.04)
9.0% VWITX Vanguard Inter Term Tax Exempt (.19)
7.0% VMLTX Vanguard Short Term Tax Exempt (.17)
6.6% EFA IShares MSCI (.31)
6.4% VNQ Vanguard REIT (.12)
5.7% SCHA US Small Cap (.05)
3.1% SCHM US Mid-Cap (.05)
3.0% SCHE Emerging Markets (.13)
2.1% SCHV Large Cap Value (.04)
1.5% VTI Vanguard Total Stock (.04)
1.3% VO Vanguard Mid-Cap (.05)

His 401k
4.6% MWTRX Metropolitan West Total Return (.45)
3.4% VAIPX Vanguard Inflation Projected (.10)
Company matches 3% plus 12% in profit share

His Roth IRA at Schwab
.30 VNQI Vanguard Global Real Estate (.15)

Her Roth IRA at Schwab
.60% VNQ Vanguard REIT (.12)

His Rollover IRA at Schwab
4.0% PRHYX T Rowe Price High Yield Bond (.07)
3.1 SWRSX Schwab Inflation Protected (.05)
1.1% SCHZ Schwab Intermediate Bond Fund (.04)

HSA
1.2% VITST Vanguard Total Stock (.05)

Contributions
$62,000 401k (including company match; company funded at their expected amount for 20+ years.
$150,000 annually in taxable; less as I transition to part-time in a few years

Questions:
1. I do not have sufficient room in after tax accounts to get to my desired FI asset allocation. I have bought Vanguard tax-exempt munis, but as a percent of my bond portfolio they are getting to almost 50%. Should I worry about this fact, and what should I do? All new 401k money is going to bonds, but given the amount of savings each year it doesn’t address the issue. So, should I keep buying munis in my taxable, buy a bond fund in my taxable, or something else?

2. My VNQ in the taxable account has 100k in capital appreciation. Due to the large distributions, I wouldn’t keep this in my taxable account if I had it to do all over again, but it’s there now with these gains. I do like a small real estate tilt in my portfolio. Thoughts?

3. I am thinking I want to glide path my asset allocation to 60/40 by 55 and maybe 50/50 by 60 as I head into retirement. If I have 12 to 15 years in FI by 60 I may just let the balance be in stocks regardless of the percentages. Once we get through the biggest sequence of return risk in my 60s, I am comfortable with increasing my stock percentage – we intend to leave an inheritance to our kids. All this thinking depends on the market performance, our health, and our kids ability to wisely handle money. Any thoughts on this plan?

4. I have 6.5% of my total portfolio in inflation projected bond funds – this represents 20% of my FI. I have been buying short/intermediate bonds in my 401k and taxable consistent with my AA, but I don’t feel confident in my overall FI strategy. Any thoughts?

User avatar
ChowYunPhat
Posts: 224
Joined: Mon Jun 02, 2014 7:49 pm
Location: Texas

Re: First Time Portfolio Review!!!

Post by ChowYunPhat » Sun Nov 17, 2019 4:51 pm

Grateful4321, congratulations on your success thus far. You've done very well and for someone who relied on advice for a while, you seem to be doing fine in terms of selecting funds with low expense ratios which are reasonably diversified. Other posters will suggest you have more variety of funds than necessary but what you have should function just fine.

Some small suggestions below...no major overhaul needed.
Grateful4321 wrote:
Sun Nov 17, 2019 2:38 pm
Taxable Accounts
14.6% SCHB US Broad Market Index (.03)
10.1% SCHF Schwab International (.06)
9.4% IVV IShares Core S&P 500 (.04)
9.0% VWITX Vanguard Inter Term Tax Exempt (.19)
7.0% VMLTX Vanguard Short Term Tax Exempt (.17)
6.6% EFA IShares MSCI (.31)
6.4% VNQ Vanguard REIT (.12)
5.7% SCHA US Small Cap (.05)
3.1% SCHM US Mid-Cap (.05)
3.0% SCHE Emerging Markets (.13)
2.1% SCHV Large Cap Value (.04)
1.5% VTI Vanguard Total Stock (.04)
1.3% VO Vanguard Mid-Cap (.05)

His 401k
4.6% MWTRX Metropolitan West Total Return (.45)
3.4% VAIPX Vanguard Inflation Projected (.10)
Company matches 3% plus 12% in profit share

His Roth IRA at Schwab
.30 VNQI Vanguard Global Real Estate (.15)

Her Roth IRA at Schwab
.60% VNQ Vanguard REIT (.12)

His Rollover IRA at Schwab
4.0% PRHYX T Rowe Price High Yield Bond (.07)
3.1 SWRSX Schwab Inflation Protected (.05)
1.1% SCHZ Schwab Intermediate Bond Fund (.04)

HSA
1.2% VITST Vanguard Total Stock (.05)
Max out the HSA each year point forward so long as you have a HDHP.
Grateful4321 wrote:
Sun Nov 17, 2019 2:38 pm
Contributions
$62,000 401k (including company match; company funded at their expected amount for 20+ years.
$150,000 annually in taxable; less as I transition to part-time in a few years
This is great. You're maxing out 401K with catchup contributions. If you are inclined, I would also recommend rolling in your previous Rollover IRA back into your company 401K and doing a backdoor Roth IRA. More information on that here => https://www.physicianonfire.com/backdoor/
Grateful4321 wrote:
Sun Nov 17, 2019 2:38 pm
Questions:
1. I do not have sufficient room in after tax accounts to get to my desired FI asset allocation. I have bought Vanguard tax-exempt munis, but as a percent of my bond portfolio they are getting to almost 50%. Should I worry about this fact, and what should I do? All new 401k money is going to bonds, but given the amount of savings each year it doesn’t address the issue. So, should I keep buying munis in my taxable, buy a bond fund in my taxable, or something else?
Would not worry about this. If you have a bend towards 50/50, continue using your 401K for bonds and taxable space for more muni purchases which should help the portfolio course correct over the coming years. You have some tax exempt space that could use bond funds...HSA for starters.
Grateful4321 wrote:
Sun Nov 17, 2019 2:38 pm
2. My VNQ in the taxable account has 100k in capital appreciation. Due to the large distributions, I wouldn’t keep this in my taxable account if I had it to do all over again, but it’s there now with these gains. I do like a small real estate tilt in my portfolio. Thoughts?
First world problems. As you are charitably inclined, recommend opening a donor advised fund with Fidelity or Vanguard to give in a more tax efficient manner if you aren't already. You're donating stock so may already be using a DAF.
Grateful4321 wrote:
Sun Nov 17, 2019 2:38 pm
3. I am thinking I want to glide path my asset allocation to 60/40 by 55 and maybe 50/50 by 60 as I head into retirement. If I have 12 to 15 years in FI by 60 I may just let the balance be in stocks regardless of the percentages. Once we get through the biggest sequence of return risk in my 60s, I am comfortable with increasing my stock percentage – we intend to leave an inheritance to our kids. All this thinking depends on the market performance, our health, and our kids ability to wisely handle money. Any thoughts on this plan?
You are close to $5MM in investable assets with the benefit of 5-7 years more of work in your prime earning years. This should support your desired retirement spending levels no problem at a 3% SWR or even less (assuming low to moderate growth over this time). Letting the stock funds ride should be OK in light of your estate planning goals. OK to hold a little more cash (6-18 months) as you near full retirement which can help weather periods of time where sequence of returns risk is higher especially if you intend to hold a higher amount of stock funds.
Grateful4321 wrote:
Sun Nov 17, 2019 2:38 pm
4. I have 6.5% of my total portfolio in inflation projected bond funds – this represents 20% of my FI. I have been buying short/intermediate bonds in my 401k and taxable consistent with my AA, but I don’t feel confident in my overall FI strategy. Any thoughts?
As you get closer to full retirement, recommend speaking with a CPA or tax planner on Roth conversion. Your concern is not "do you have enough" but how rather "how do I optimize the $ for tax planning, decumulation, and estate planning purposes". You're doing great and have a sound plan otherwise. Based on your questions, you know quite a bit already :sharebeer

Best of luck to you.
A wise man and his money are friends forever...

Topic Author
Grateful4321
Posts: 4
Joined: Sun Nov 17, 2019 12:38 pm

Re: First Time Portfolio Review!!!

Post by Grateful4321 » Mon Nov 18, 2019 8:57 am

I was pretty lucky to pick an investment firm that used a passive strategy . Regarding your comments, my current employer doesn't offer an HSA - while it would be nice to have this option, my current insurance is fantastic. I just checked and my HSA has significantly improved the investment options and I may shift this money to VBTLX (Vanguard Total Bond).

I'll check into the IRA rollover issue. It's been awhile since I talked to my CPA about a Roth and Roth conversions - years ago this wasn't a good option for me based on his review.

Yes, I realize some of my issues and questions are first world problems. I appreciate your thoughts.

lakpr
Posts: 3076
Joined: Fri Mar 18, 2011 9:59 am

Re: First Time Portfolio Review!!!

Post by lakpr » Mon Nov 18, 2019 9:05 am

Grateful4321 wrote:
Mon Nov 18, 2019 8:57 am
I'll check into the IRA rollover issue. It's been awhile since I talked to my CPA about a Roth and Roth conversions - years ago this wasn't a good option for me based on his review.
Your CPA is right, at 35% bracket it really does not make sense for doing the Roth conversions. I would not recommend it either.
You should ask your 401k plan if you can roll an external IRA in. Most plans now accept such incoming rollovers.

Once you have accomplished the rollover, your traditional IRA balance is $0. Then you can re-contribute $6000 for traditional IRA (remember that at your tax bracket this is non-deductible!!), then 2 days later, after the funds settle, convert it to Roth IRA. Presto, you have $6000 in Roth IRA.

The first step -- of rolling over the IRA into your 401k, is *CRITICAL*. You cannot go to contribute tIRA + convert to rIRA unless you completed this step. Don't even contribute to the tIRA, lest your 401k plan considers it polluted with non-deductible contributions and reject the roll-in. By ERISA law, 401k plans cannot have funds that have a "basis" (non-deductible contributions). The plan itself can get disqualified, so employers and plan administrators have a very vested interest in rejecting roll-ins that even have a WHIFF of non-deductible contributions.

If you can accomplish the rollover to 401k plan, and the contribute to tIRA + convert to rIRA within the same calendar year, it would be so much cleaner when filing the tax forms for the IRS. Since there's precious few days left before December 31, 2019 -- please hurry!

Topic Author
Grateful4321
Posts: 4
Joined: Sun Nov 17, 2019 12:38 pm

Re: First Time Portfolio Review!!!

Post by Grateful4321 » Mon Nov 18, 2019 9:16 pm

Will do and thank you for the direction.

JBTX
Posts: 5539
Joined: Wed Jul 26, 2017 12:46 pm

Re: First Time Portfolio Review!!!

Post by JBTX » Mon Nov 18, 2019 9:42 pm

I'll give a different take. Given your net worth, you may choose not to bother with moving IRAS around just to get a backdoor Roth. With a backdoor Roth there is some nominal tracking efforts, and if a $6000 Roth gains 10%, that is $600 gain, which would be $100 to $150 in annual taxes when realized. Having said that, if you did it for you and spouse religiously for multiple years the tax savings gets into low 4 figures.

In our case, I've decided not to fool with it, because we have substantial amounts in rollover IRAS, and for me the incremental gain is not worth the hassle involved.

As to the overall asset allocation and fund selection, while it is possibly more complicated than it needs to be overall I think it is a good allocation and inexpensive funds and some modest tilts that I like. I probably wouldn't change it much at all.

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