New to this board! Portfolio review?

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Topic Author
SpaniardInCalifornia
Posts: 3
Joined: Mon Nov 25, 2019 9:00 pm

New to this board! Portfolio review?

Post by SpaniardInCalifornia » Mon Nov 25, 2019 10:01 pm

Hey all,

I have been a lurker on this forum for several months, and finally decided to take the plunge and join.
I will admit that for years, I never paid much attention to my portfolios, which looking back, I made some bad investment decisions in my youth.
With a recent divorce, and an inheritance, I have decided to go ahead and take control of my portfolio and clean things up...

Here's my current situation:
Age: 43
State of Residence: CA
Current Salary: 175k Salary + ~20k in bonus a year + ~50k RSUs vesting each year
Tax Filing status: alternating between Single and Head of Household every other year as per divorce agreement, claiming my son as a dependent every other year

Debt:
338k left out of a 350k mortgage (28 years left), 3.875% rate (1645 monthly payment)

Spousal Support:
1150 a month for 3.5 more years (June 2023) then finally goes to 0

Investments (IRAs from different employers over the years):
Ameriprise: 72k
- FAFEX (Fidelity Advisor Freedom 2030): 62.5K
- HSFNX (Hennessy Small Cap): 9.5k

Schwab: 4k
- AIFRX

Empower Retirement: 85k (current employment)
- Lifepath Index 2040 42k
- Vanguard Institutional 500 Index 19k
- Fidelity Contrafung Commingled Pool 21.5k
- Vanguard Extended Market Index 2.5k
Contributions: 1040 every 2 weeks (690 salary + 345 employee match), which I plan to increase by 400 every 2 weeks in 2023 when Spousal Support is done with

Taxable Accounts:
Merrill Edge: 5.135M
- ITOT 1.418M
- VOO 1.439M
- VTI 1.277M
- VCAIX: 1M

E-Trade:
- AAPL: 40K
- Unvested RSUs: 608 shares of AAPL to vest over the next 4 years (164k at today's valuation), every 6 months

My current plan is to transfer my Ameriprise and Schwab accounts into my current Empower Retirement account and manage my IRAs all in one place. Once there, I was thinking of putting it all in the "Vanguard Institutional 500 Index Trust", although I might do an 80/20 allocation and put 20% of it in "Vanguard Total Bond Market Index Trust"


Questions:
1. I am in the process of purchasing a new home at 900k (welcome Northern California real estate) that will be walking distance from my son's middle school and high school, hopefully as our long term house. The plan is to use my VCAIX money for that to avoid capital gains from the other investments, which have large capital gains given the recent market. I wanted to avoid any mortgage payments.

2. My current home is worth around 800k with 338k left in the mortgage... Trying to decide between renting it out (around 3.3k a month in income after management company) or selling it and using the money to replenish my allocation to bonds... I have enjoyed VCAIX due to its non-taxable status for federal and california, and would probably invest in that again. Having the rental income sounds appealing, but obviously it comes with headaches, but I think the returns would overall be better than selling it... Thoughts?

3. Would ideally like to retire at 50 (2025), which gives me 5 years... This makes me wonder if it's time to start increasing my AA to 60/40 or even 50/50, but I am also comfortable keeping my current AA, and having to work a few more years if there's a serious market correction and my Merrill investments equities take a plunge...

4. Am I being too redundant by holding VOO, VTI, and ITOT? Should I simplify to just 1?

5. A lot of folks talk about investing internationally... I am personally not a big fan, and I am more of a believer overall in just a 2 fund portfolio in principal (index fund + bond)... Any thoughts?


Thank you all for your feedback, and I look forward to joining this community! My apologies ahead of time if I said something stupid or missed any important details!

User avatar
Bruce
Posts: 355
Joined: Fri Mar 02, 2007 8:02 am
Location: Alaska

Re: New to this board! Portfolio review?

Post by Bruce » Mon Nov 25, 2019 11:04 pm

Welcome to posting on the forum,

You should give serious thought to Dr Bill Bernstein’s comment “when you have won the game stop playing with the money you really need”.

Do you really need to keep taking the amount of market risk you currently are exposed to?

To your questions:

1 Mortgage free home purchase sounds fine as stated.

2 if you are determined to be a landlord, good for you, but recognize your wealth makes you a target for lawsuits and your tenant is a risk for that as well. Make sure you have adequate insurance protecting you from any potential claims. Or just sell the home and be done with it.

3 yes, add some bond funds and decrease your market risk exposure to a level you are comfortable with. Think about marginal utility of wealth, what do you gain from this level, versus what do you stand to lose if there is a significant market drop.

4 did not look up your fund abbreviations so no comment on fund choices.

5 there are many roads to Dublin, Scott Burns likes to write about a two fund portfolio, Taylor Larimore has written a great book on the three fund portfolio, pick the portfolio you will stay the course with, either is a great choice.

Strongly agree with your desire to consolidate your IRAs at one place and simplify your record keeping and tracking burden.

Good luck, you are far better off then the vast majority of people on this planet, Take time to be thankful this week!
Bruce | | Winner of the 2017 Bogleheads Contest | | "Simplicity is the master key to financial success."

HomeStretch
Posts: 3515
Joined: Thu Dec 27, 2018 3:06 pm

Re: New to this board! Portfolio review?

Post by HomeStretch » Mon Nov 25, 2019 11:37 pm

Do you have three IRAs (like SIMPLE IRAs) from current/former employers or are they really 401k plans?

Moving your Ameriprise and Schwab accounts is a good idea as your current holdings have high ERs and (for at least FAFEX) a 5.75% load.

Assuming your Empower plan is a good one, consider contributing the max each year ($19,000 in 2019) rather than the $17,940 you are currently contributing even if, due to the lower net pay, you have to withdraw money from your Taxable account for living expenses.

If you do have 401ks rather than IRAs, consider doing annual backdoor Roths (where earnings are tax free) even if you have to use money from your Taxable account (where income is generally taxed each year). Here is a link to the BH wiki page about Backdoor Roth:
https://www.bogleheads.org/wiki/Backdoor_Roth

Agree with using one US equity ETF (either VTI or ITOT) going forward. Turn off reinvestment of dividends/capital gains in the two ETFs you don’t want so you don’t buy any more.

User avatar
CyclingDuo
Posts: 2832
Joined: Fri Jan 06, 2017 9:07 am

Re: New to this board! Portfolio review?

Post by CyclingDuo » Mon Nov 25, 2019 11:44 pm

SpaniardInCalifornia wrote:
Mon Nov 25, 2019 10:01 pm
I have been a lurker on this forum for several months, and finally decided to take the plunge and join.
I will admit that for years, I never paid much attention to my portfolios, which looking back, I made some bad investment decisions in my youth.
The good news is that you are doing great!!! What you have saved to date has left you in excellent financial shape. Rest assured, you are not alone with regard to past bad investment decisions. Suffice it to say there are demons, cobwebs, and ghosts in most everyone's closet of past bad investment decisions. 8-)
SpaniardInCalifornia wrote:
Mon Nov 25, 2019 10:01 pm
Here's my current situation:
Age: 43
State of Residence: CA
Current Salary: 175k Salary + ~20k in bonus a year + ~50k RSUs vesting each year
Tax Filing status: alternating between Single and Head of Household every other year as per divorce agreement, claiming my son as a dependent every other year

Debt:
338k left out of a 350k mortgage (28 years left), 3.875% rate (1645 monthly payment)

Spousal Support:
1150 a month for 3.5 more years (June 2023) then finally goes to 0

Investments (IRAs from different employers over the years):
Ameriprise: 72k
- FAFEX (Fidelity Advisor Freedom 2030): 62.5K (That's a high ER fee! This one is worth letting go....)
- HSFNX (Hennessy Small Cap): 9.5k (That's a nasty ER fee! This one is worth letting go....)

Schwab: 4k
- AIFRX (That's a nasty ER fee! This one is worth letting go....)

Good time to sell all of those within those plans, then roll them all from the previous employer plans over to Empowerment.

Empower Retirement: 85k (current employment)
- Lifepath Index 2040 42k
- Vanguard Institutional 500 Index 19k
- Fidelity Contrafung Commingled Pool 21.5k
- Vanguard Extended Market Index 2.5k
Contributions: 1040 every 2 weeks (690 salary + 345 employee match), which I plan to increase by 400 every 2 weeks in 2023 when Spousal Support is done with
Too much overlap and needs cleaning up. Why not shoot for the Three Fund Portfolio at Empowerment? You have access to Vanguard's S&P 500, Extended Market Fund, Total International Fund, and Total Bond Fund to accomplish that. I would roll over the old plans, sell the LIfepath and Fidelity Fund to streamline things to the Three Fund Portfolio. Approximating the Total Stock Market for the US Portion instructions are here:

https://www.bogleheads.org/wiki/Approxi ... ock_market

We would clean it all up and place the Ameriprise and the current Empowerment funds in the following four...

Vanguard Institutional (S&P 500) Fund
Vanguard Extended Market Fund
Vanguard Total International Stock Index Fund
Vanguard Total Bond Index Fund

SpaniardInCalifornia wrote:
Mon Nov 25, 2019 10:01 pm
Taxable Accounts:
Merrill Edge: 5.135M
- ITOT 1.418M
- VOO 1.439M
- VTI 1.277M
- VCAIX: 1M
ITOT, VOO, NS VTI all track each other closely. Personally, we would want some international exposure (VXUS or IXUS). That's a heck of a nice balance for age 43. Kudos! :beer
SpaniardInCalifornia wrote:
Mon Nov 25, 2019 10:01 pm
E-Trade:
- AAPL: 40K
- Unvested RSUs: 608 shares of AAPL to vest over the next 4 years (164k at today's valuation), every 6 months
Obviously, Apple is a great company to work for and your ESPP and RSU's represent a small portion of your overall portfolio - so there is no harm being done as of yet regarding having too many eggs in one basket. Even if you didn't work for Apple, your IPS should probably have some sort of a guideline/rule that you don't allow a single stock investment to surpass X% of your portfolio. Be it one of the standard guidelines/rules that many people use: 3%, 5%, 8%, or 10%.

Do you have any "rule" in your IPS set like that so as you gather more Apple shares in your ESPP and RSU shares in your ETrade account you would diversify those when a certain percentage is breached? The "eggs in one basket" syndrome is due to your salary coming from the same company that the ESPP and RSU's come from. If you add all of that together, it is easy to make the case that you would diversify. However, since you have the bulk of your assets in the index funds, it is not yet worth worrying too much about. It could start to require some trimming back depending on what your IPS rule would be, but certainly if the Apple shares grow to 8-10% of your overall invested assets over the next 5 years when coupled with your salary, you would want to consider some trimming.
SpaniardInCalifornia wrote:
Mon Nov 25, 2019 10:01 pm
My current plan is to transfer my Ameriprise and Schwab accounts into my current Empower Retirement account and manage my IRAs all in one place. Once there, I was thinking of putting it all in the "Vanguard Institutional 500 Index Trust", although I might do an 80/20 allocation and put 20% of it in "Vanguard Total Bond Market Index Trust"
We would vote for rolling the old plans over into the Empowerment account and using the low cost Three Fund Portfolio with the Vanguard Funds.

SpaniardInCalifornia wrote:
Mon Nov 25, 2019 10:01 pm
Questions:
1. I am in the process of purchasing a new home at 900k (welcome Northern California real estate) that will be walking distance from my son's middle school and high school, hopefully as our long term house. The plan is to use my VCAIX money for that to avoid capital gains from the other investments, which have large capital gains given the recent market. I wanted to avoid any mortgage payments.

2. My current home is worth around 800k with 338k left in the mortgage... Trying to decide between renting it out (around 3.3k a month in income after management company) or selling it and using the money to replenish my allocation to bonds... I have enjoyed VCAIX due to its non-taxable status for federal and california, and would probably invest in that again. Having the rental income sounds appealing, but obviously it comes with headaches, but I think the returns would overall be better than selling it... Thoughts?
We'd vote for using the bond fund to buy the new house outright. We'd also avoid the headaches of being a landlord while you are working full time and raising a child. We would lean toward selling the home and put the proceeds back into your tax exempt bond fund that you would have used for the other home purchase. If you want some real estate, why not put it in REITs to capture a broad diversification of real estate in a passive manner. You could add that fund to your Empowerment account.
SpaniardInCalifornia wrote:
Mon Nov 25, 2019 10:01 pm
3. Would ideally like to retire at 50 (2025), which gives me 5 years... This makes me wonder if it's time to start increasing my AA to 60/40 or even 50/50, but I am also comfortable keeping my current AA, and having to work a few more years if there's a serious market correction and my Merrill investments equities take a plunge...

4. Am I being too redundant by holding VOO, VTI, and ITOT? Should I simplify to just 1?

5. A lot of folks talk about investing internationally... I am personally not a big fan, and I am more of a believer overall in just a 2 fund portfolio in principal (index fund + bond)... Any thoughts?
You have time to use the glide path to get to an AA over the next 5 years that you feel comfortable with and one that will meet your goals. Even with your current AA in taxable, you would be able to utilize a SWR of 3% - 3.5% to maintain your current lifestyle at today's juncture, and you will probably be even better off 5 years from now after 5 more years of contributions, RSU's, bonuses, etc...

As to your #4 question, you are more or less stuck at this point since they are all in taxable. At this point, I would just leave them. However, as said above, we would recommend increasing your exposure to international investments. Why not use the dividends from your taxable ITOT/VOO/VTI to establish some positions in either IXUS or VXUS to get some international exposure? 5 years of dividend proceeds directed at international (and tax exempt CA bonds) would help diversify your taxable account. Having the international index funds in taxable is a tax efficient place to hold them.

You're doing great, but a little cleaning up (especially the high ER funds and getting everything under one roof at Empowerment for now) seems to make sense. We would do a backdoor Roth IRA (good place to stuff the REITS if you want some passive real estate exposure beyond your primary residence).
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Topic Author
SpaniardInCalifornia
Posts: 3
Joined: Mon Nov 25, 2019 9:00 pm

Re: New to this board! Portfolio review?

Post by SpaniardInCalifornia » Wed Nov 27, 2019 12:37 pm

Thank you Bruce, HomeStretch and CyclingDuo...

I have started the transfer from Schwab and Ameriprise into my Merrill Edge account.

Once there, my goal is to invest that money into bonds to refill my bond allocation due to the house purchase.

Given that those accounts would be in an IRA, I suspect I should probably invest in VBTLX, since it doesn't seem as important to invest in tax exempt bonds like VCAIX the way I did before...

The rest of the plan would be to sell my other home, and invest that into VCAIX (since it's taxable account)... That would net hopefully around 450k...

That still wouldn't get me to the 80/20 I currently have, so the idea would be for now, to use dividends from VTI/VOO/ITOT to purchase more VCAIX or VBTLX bonds until I achieve the 80/20 desired AA...

That seems to be the most straightforward way to get me to a simplified, straightforward portfolio... Any thoughts?

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