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Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 11:09 am
by invest8104
Hi Everyone,

Looking to start a 3 Fund Portfolio and would like to get your opinions:

Traditional IRA - $28,000 (currently not invested)

Roth IRA (Wife) - $6,000 (VTSAX)

Employer 401k (Wife) - $1,000 *Just started job

Taxable Account
VFIAX (S&P500) - $29,000
VBTLX (Bonds Mkt) - $3,000
VGSLX(REIT) - $4,500
VHYAX (High Div) - $5,000
Money Mkt - $310,000

Chase Checking Account - $60,000


My wife and I plan on putting away $10,000 a month. I also plan on started a Solo401k next year, since I won my own businesses. We are currently in the 24% tax bracket. It seems simplicity is best when it comes to investing and we would like to start a portfolio that we can keep the same for 20 years. Just reallocate once a year and keep tax liability as low as possible. Any recommendations are appreciated.

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 11:12 am
by MotoTrojan
If the bonds, REITs, or high-dividend in taxable are at a loss, sell right away. At a minimum turn-off dividend reinvestment on them.

I would just use the basic 3-fund portfolio, and put all bonds in tax-advantaged (look up tax-efficient fund placement). Lump-sum the equity in taxable, and have a plan for tax-loss harvest.

Nothing fancy needed.

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 11:18 am
by invest8104
MotoTrojan wrote: Thu Dec 26, 2019 11:12 am If the bonds, REITs, or high-dividend in taxable are at a loss, sell right away. At a minimum turn-off dividend reinvestment on them.

I would just use the basic 3-fund portfolio, and put all bonds in tax-advantaged (look up tax-efficient fund placement). Lump-sum the equity in taxable, and have a plan for tax-loss harvest.

Nothing fancy needed.
What percentage in each fund would you use at my age? My other concern is that my Wife's 401K plan has funds with high expense ratios (between .7% - 2%)

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 11:25 am
by big bang
Here is the link for the Tax Efficient Fund Placement wiki page
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 2:01 pm
by MotoTrojan
invest8104 wrote: Thu Dec 26, 2019 11:18 am
MotoTrojan wrote: Thu Dec 26, 2019 11:12 am If the bonds, REITs, or high-dividend in taxable are at a loss, sell right away. At a minimum turn-off dividend reinvestment on them.

I would just use the basic 3-fund portfolio, and put all bonds in tax-advantaged (look up tax-efficient fund placement). Lump-sum the equity in taxable, and have a plan for tax-loss harvest.

Nothing fancy needed.
What percentage in each fund would you use at my age? My other concern is that my Wife's 401K plan has funds with high expense ratios (between .7% - 2%)
Depends more on you than your age. I’m 28 and take more risk than a 100% total world equity portfolio. Maybe 80/20?

Often a 401k will have 1-2 cheap funds you can use and then cover other asset classes elsewhere. Remember to view your portfolio as one entity, not isolated accounts with the same allocation.

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 2:02 pm
by ExitStageLeft
invest8104 wrote: Thu Dec 26, 2019 11:18 am ...
What percentage in each fund would you use at my age? My other concern is that my Wife's 401K plan has funds with high expense ratios (between .7% - 2%)
A good allocation model to use is one that mimics a target date retirement fund. Those start with a high proportion of stocks and they gradually shift to more and more bonds as the target date approaches. Most seem to have a minimum of 10% bonds, but you could select the allocation that works best for you both. If that means 20% bonds that's perfectly reasonable too. I think the "age in bonds" rule of thumb is very conservative, but it is the right allocation right for many folks.

Once you get the i40k up and running you should roll the traditional IRA into it, assuming it is yours and not hers. That will free up the backdoor Roth option for you. Contribute as much to the i401k tax-deferred as you can, spending down the taxable account as needed to cover living expenses.

if you list all the funds available in her 401k we may be able to help you figure out a good plan.

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 2:07 pm
by mcraepat9
Sell the REIT fund even if it’s at a gain - you will get killed on taxes on this fund if you keep it in taxable.

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 2:27 pm
by 1789
Please get rid of REIT and Bonds in your taxable account. These are very bad there. Put only VTSAX and/or VTIAX there. Put your bonds (VBTLX) in your traditional 401k/IRAs. Why do you have so much money in money market? Any goals for that money? Are you planning to buy a house or something? If not I would put all of it in VTSAX today. You already have some cash for emergencies, 60k. Right?

To summarize:

Taxable:VTSAX and VTIAX
401k/Traditional IRA: US total stock market/SP500 and Total bonds according to your AA
Roth IRA: VTSAX all the way
Cash/Emergency: 60k - bank accoung/money market accounts (can be put in taxable brokerage)

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 3:31 pm
by invest8104
1789 wrote: Thu Dec 26, 2019 2:27 pm Please get rid of REIT and Bonds in your taxable account. These are very bad there. Put only VTSAX and/or VTIAX there. Put your bonds (VBTLX) in your traditional 401k/IRAs. Why do you have so much money in money market? Any goals for that money? Are you planning to buy a house or something? If not I would put all of it in VTSAX today. You already have some cash for emergencies, 60k. Right?

To summarize:

Taxable:VTSAX and VTIAX
401k/Traditional IRA: US total stock market/SP500 and Total bonds according to your AA
Roth IRA: VTSAX all the way
Cash/Emergency: 60k - bank accoung/money market accounts (can be put in taxable brokerage)
I appreciate the advice. It seems that I should be focused first on tax savings before capital appreciation.

The reason for the REIT, Bonds & High Dividend Fund was to provide monthly income that will help me ride through fluctuations in my business income and market corrections.

My wife and I do plan on purchasing a bigger house, but the main reason for the large money market position is that I am looking for a long term investment strategy that I can stick with. I wasn't investing in 2008 or previous crashes, so I do not know how I would react. I personally think I would need a nice cash pile to continue to invest through it.

Furthermore, I would like to start investing in physical assets, such as real estate, and businesses. I currently own a real estate brokerage, property mgmt company and general contracting company so investing in real estate seems like a natural fit for me. This is another reason for keeping a large cash pile on hand.

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 3:40 pm
by MotoTrojan
invest8104 wrote: Thu Dec 26, 2019 3:31 pm
1789 wrote: Thu Dec 26, 2019 2:27 pm Please get rid of REIT and Bonds in your taxable account. These are very bad there. Put only VTSAX and/or VTIAX there. Put your bonds (VBTLX) in your traditional 401k/IRAs. Why do you have so much money in money market? Any goals for that money? Are you planning to buy a house or something? If not I would put all of it in VTSAX today. You already have some cash for emergencies, 60k. Right?

To summarize:

Taxable:VTSAX and VTIAX
401k/Traditional IRA: US total stock market/SP500 and Total bonds according to your AA
Roth IRA: VTSAX all the way
Cash/Emergency: 60k - bank accoung/money market accounts (can be put in taxable brokerage)
I appreciate the advice. It seems that I should be focused first on tax savings before capital appreciation.

The reason for the REIT, Bonds & High Dividend Fund was to provide monthly income that will help me ride through fluctuations in my business income and market corrections.

My wife and I do plan on purchasing a bigger house, but the main reason for the large money market position is that I am looking for a long term investment strategy that I can stick with. I wasn't investing in 2008 or previous crashes, so I do not know how I would react. I personally think I would need a nice cash pile to continue to invest through it.

Furthermore, I would like to start investing in physical assets, such as real estate, and businesses. I currently own a real estate brokerage, property mgmt company and general contracting company so investing in real estate seems like a natural fit for me. This is another reason for keeping a large cash pile on hand.
You need to think in terms of Total Return. “Income” is a fallacy. High dividend stocks and REITs are not automatically safer in a downtown, or going to provide more income in a work related lull. You can always sell shares; dividends are just forced sales.

Re: Investment Planning - 29 y/o

Posted: Thu Dec 26, 2019 8:03 pm
by ruralavalon
Please put all of your information in one location. Please simply add to your original post using the edit the (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place. Please see this for information needed and format: "Asking Portfolio Questions".
invest8104 wrote: Thu Dec 26, 2019 11:09 am Hi Everyone,

Looking to start a 3 Fund Portfolio and would like to get your opinions:

Traditional IRA - $28,000 (currently not invested)

Roth IRA (Wife) - $6,000 (VTSAX)

Employer 401k (Wife) - $1,000 *Just started job

Taxable Account
VFIAX (S&P500) - $29,000
VBTLX (Bonds Mkt) - $3,000
VGSLX(REIT) - $4,500
VHYAX (High Div) - $5,000
Money Mkt - $310,000

Chase Checking Account - $60,000


My wife and I plan on putting away $10,000 a month. I also plan on started a Solo401k next year, since I won my own businesses. We are currently in the 24% tax bracket. It seems simplicity is best when it comes to investing and we would like to start a portfolio that we can keep the same for 20 years. Just reallocate once a year and keep tax liability as low as possible. Any recommendations are appreciated.
invest8104 wrote: Thu Dec 26, 2019 11:18 am
MotoTrojan wrote: Thu Dec 26, 2019 11:12 am If the bonds, REITs, or high-dividend in taxable are at a loss, sell right away. At a minimum turn-off dividend reinvestment on them.

I would just use the basic 3-fund portfolio, and put all bonds in tax-advantaged (look up tax-efficient fund placement). Lump-sum the equity in taxable, and have a plan for tax-loss harvest.

Nothing fancy needed.
What percentage in each fund would you use at my age? My other concern is that my Wife's 401K plan has funds with high expense ratios (between .7% - 2%)
Asset allocation.
At age 27 I suggest about 20% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/10/2019), "The Best Diversifiers for Your Equity Portfolio".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.



Fund selection, her 401k plan.
What funds are offered in her 401k plan? Please give fund names, tickers and expense ratios.

You say you are in the 24% tax bracket, its important to make best use of all tax-advantaged accounts.

Does her 401k plan offer an employer match? If so how much (in dollars) is the employer match, and how much (in dollars) does she have to contribute annually to get the full employer match?

Please simply add this to your original post using the edit the (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place. Please see this for information needed and format: "Asking Portfolio Questions".


Investing priotity.
Here is a general account funding priority that usually works well for many people (when there is no HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, SIMPLE IRA, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Pay off high interest debt (a guaranteed high return, the next best thing to free money);
3) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
4) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
5) Contribute to a taxable investing account.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments".

In your other thread you stated
invest8104 wrote: Tue Dec 24, 2019 10:14 pmMy wife is maxing out her 401K. She is currently not eligible for a Traditional IRA and contributes to a Roth.
invest8104 wrote: Thu Dec 26, 2019 3:31 pmMy wife and I do plan on purchasing a bigger house, but the main reason for the large money market position is that I am looking for a long term investment strategy that I can stick with. I wasn't investing in 2008 or previous crashes, so I do not know how I would react. I personally think I would need a nice cash pile to continue to invest through it.

Furthermore, I would like to start investing in physical assets, such as real estate, and businesses. I currently own a real estate brokerage, property mgmt company and general contracting company so investing in real estate seems like a natural fit for me. This is another reason for keeping a large cash pile on hand.
As discussed in your other thread, you need to deal with her $250k in student debt at 6.50% interest. link.