Portfolio Review - too conservative?

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Portfolio Review - too conservative?

Post by Joyfully » Sun Jan 12, 2020 10:20 pm

I've been grateful to read all of the helpful insight in the forums over the years and would love opinions on if I am on track and what could be done better. Income was lower until last year. Expenses are around 55k a year. Thank you!

Emergency funds: Have 3 months of expenses in a savings account

Debt: zero

Tax Filing Status: Head of Household

Tax Rate: 24% Federal, 5.5% State (recent pay increase and newer 1099 work - @70k w2, & 40-60k 1099 expected)

State of Residence:CT (HCOL)


Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 0% of stocks

Current total portfolio @100k

Current retirement assets

Taxable at Vanguard (6% of all retirement accounts)
0% cash
<1% Ford (F)
<1% General Electric (GE)
3% ExxonMobil (XOM)
1.1% Pepsi (PEP)
<1% Paychex (PAYX)
<1% Pfizer (PFE)
1.1% Johnson & Johnson (JNJ)
<1% Charles Schwab (SCHW)

Roth IRA at Vanguard 68% of all retirment accounts
53% VFIAX - Vanguard 500 Index Fund Admiral (0.04%)
41% VMMXX - Vanguard Prime Money Market Fund (0.16%) *% = across all accounts with this fund

SIMPLE IRA at Vanguard 11% of all retirement accounts
41% VMMXX - Vanguard Prime Money Market Fund (0.16%)
3% company match - I contribute enough to get the match

Traditional IRA at Vanguard16% of all ret. accounts
41% VMMXX - Vanguard Prime Money Market Fund (0.16%)

Other non- retirement Accounts (not included in above %s or $ amounts)

Health Savings Account at Fidelity @12k
100% Fidelity Money Market (SPRXX) (0.42%)

529 at CHET @15k
100% Moderate Managed Allocation 11-12 (Don’t think there is a ticker symbol) (0.33%)

Savings Account Interest Rate 1.7, 138k Total
36.2% house downpayment (looking to purchase a @$250k house w/20% down, in 2021)
7.2% future house closing costs (and maybe furniture, in 2021)
15% general (not allocated)
11.6% E fund (maybe need higher)
11% Car fund (lease coming due shortly, maybe buy it out)
6.5% For sep-ira 2019 contribution(tried to do solo was too late to open)
5% HSA contribution for 2021 (next yr would be 1st family contribution, current & previous are individual)
3.6% family vacation
3.6% taxes



New annual Contributions
$19,000 Solo 401k employee deferral - ideal
$10,000 Solo 401k employer portion - guesstimate
$0 SEP IRA (only planning on doing 2019 contributions, opened only because missed solo 401k opening window)
$0 IRA/Roth IRA (can’t deduct traditional IRA this past year and likely won’t again, under roth income limit, but feel like maybe 401k is enough?)
$0 taxable (for retirement, not short term goals)
$3550 Health Savings Account (already did max for 2020, likely 2021 7k since likely need family not individual hsa next yr)
$2,400 529 (for child’s college)

Available funds

Funds available in Solo 401(k)& Simple IRA & Traditional IRA & ROTH & HSA
It seems there are 100+ options at Vanguard and many at Fidelity for HSA.


1. Suggested reading for how to know what is the best asset allocation? Bonds don’t seem to give much more than a savings account and have risk, so keeping as cash equivalents currently. But think stocks % should be higher to increase the likelihood of returns. I think I'm holding too much cash, with the exception of specifical earmarked e-fund which I think may actually be too small for a head of household. Should individual stocks be sold in taxable and buy an index fund instead?

2. Are there disadvantages of 2nd 1099 work at this income level? Taxes take a big bite, but if I can put a majority in tax-deferred it seems like a wise choice, but perhaps I'm losing out on health insurance APTC's.

3. Are there issues having the sep-ira could cause in the future? I opened a SEP-IRA at Vanguard, will be able to contribute @10k for 2019- so about 9% addition to retirement portfolio - I am thinking VFIAX as this appears to help get closer to desired stock allocation.

4. Is it more advantageous to fund solo 401k than simple IRA after w2 match? I believe it is since I am thinking that the w2 job pays into the taxes more if I do it through the solo plan.

5. HSA - after oop in cash set up (it is), should further contributions be invested or should I invest more and not leave cash to fully annual cover max out of pocket?

6. 529 - There is a guarantee principal option, about 2% currently - at what age does that make sense to consider? I believe scholarship / financial aid planning is started in 9th grade, is that right?

7. Car lease buy out is coming shortly. Does it make sense to buy it?

8. Can I afford to buy a @250k house in about one year?

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Re: Portfolio Review - too conservative?

Post by DanFrancis » Mon Jan 13, 2020 1:57 am

I will just offer a few suggestions. Overall, there is too much over complexity for me. I would simplify and get rid of the individual stocks and consolidate in total market index with that money. You have too much in money market for being so young...you actually end up losing money due to inflation. You have an emergency fund...your investments should be in the 60/40 that you stated you wanted.

Topic Author
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Joined: Thu Jul 12, 2018 7:18 pm

Re: Portfolio Review - too conservative?

Post by Joyfully » Mon Jan 13, 2020 4:02 pm

Thank you so much for your insight, DanFrancis. I really appreciate it. Simplifying makes a lot of sense. Great point on the emergency fund is in place so the allocation should be the desired 60/40. That made me realize that I was doing some mental accounting by keeping things in the money market in the investment accounts, and if I feel uncomfortable with the e-fund size I should simply up that directly. It makes sense to me now that they are losing to inflation so it isn't a good choice. For allocation, I always hear it as stocks/bonds but not a cash - which confused me since I keep thinking it would get say the up to 2% currently and didn't realize a different source would offer a larger return to offset inflation. I will investigate the bond fund options. Thank you for all of your help! :beer

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Re: Portfolio Review - too conservative?

Post by sco » Mon Jan 13, 2020 4:13 pm

I wouldn't keep any cash or money markets in any tax advantage spaced. (Roth or traditional)

At your age, it really isn't accessible anyway (maybe some of the Roth is), and you seem to have a more than adaquate handle on emergency expenses anyway.

If 60/40 lets you sleep well at night and you don't think you can do more equity than that. It is perfectly reasonable.

But you can simplify your portfolio greatly. It is often said here that 5% of your portfolio in an asset really isn't going to change anything. I would certainly get rid of anything less than that.

But before you do anything, map out a plan, write it down and think about it for a while.

I only have 1 account that uses more than 1 fund in it, I do all of my re-balancing there.
Every other account has exactly 1 fund in it. Simple.

Church Lady
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Re: Portfolio Review - too conservative?

Post by Church Lady » Mon Jan 13, 2020 10:58 pm

Taxable account ...
- Your portfolio looks like a retiree income portfolio. Are you a retiree? Do you need current income?
- If you sold your stocks to buy an ETF, would you have to pay a lot of taxes on the gain? I'd hold (most of) them if so. Bogleheads will tell you to sell all your stocks and buy mutual funds, even if you have perfectly replicated the fund they recommend. :D You can direct new contributions to an ETF or fund if that's what you decide to hold.
- I'd probably cash out of GE, F, and maybe XOM, and get a growth stock ETF. But that's me. :happy
- You have better control of taxes with stocks than with funds or ETFs, but you take on more work and more risk managing stocks.
- If you must have a fund in your taxable account, get an ETF or a 'tax efficient' fund. Don't buy any old mutual fund, or you'll get nuked with taxes on the distributions! :!:

Retirement accounts: Can you substitute some TIPS for the money market? For inflation protection? Are these accounts not invested? Why not? It looks like you are well below your target of 60% stocks.

Health savings account: Supposing this is a low fee account, the real beauty of an HSA is investing the account and letting it grow tax free for years. Are you in a position to do this? Can you put it into a low fee target date or conservative allocation fund?

Savings account:
It's not crazy since most of these funds are designated. Maybe you could buy some bank CDs, or Treasury or Agency bonds to get a little more yield free of state taxes.

https://www.mymoneyblog.com/tax-equival ... funds.html

2. The disadvantage is you work yourself into an early grave. If you're working two jobs, you probably don't have time to keep up with a house. Just saying!
3. pass
4. pass
5. pass
6.I suggest a separate post on this topic
7.I suggest a separate post on this topic
8. The old rule of thumb is 3x salary = house. 3x70K = 210K.
- That falls short, but you could make up the difference with a larger down payment.
- If you finance a house, your emergency fund needs to increase.
- You also need to budget for increased utilities and home maintenance.
- If you believe in future inflation, get a 30 year mortgage, not a short mortgage.
- If you believe in future deflation, don't buy a house. 'Japan'.
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.

Topic Author
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Re: Portfolio Review - too conservative?

Post by Joyfully » Mon Jan 20, 2020 3:36 pm

Thank you for the great insight, sco! It makes sense to not use money markets in tax advantage space especially when considering it isn't readily accessible for many years and the emergency fund outside of investing should be the driver of managing emergencies that come up before retirement. I also had not heard about thinking in terms of percentages and how much it can move the needle versus simplifying. It makes a lot of sense that it adds to the noise when there is some very small percentage of individual stocks in a portfolio. I really appreciate all the helpful suggestions and will draw up a map and think about it as you suggest!

Topic Author
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Joined: Thu Jul 12, 2018 7:18 pm

Re: Portfolio Review - too conservative?

Post by Joyfully » Mon Jan 20, 2020 3:48 pm

Wow, Church Lady thank you so much for taking the time to share all of these great insights on so many items! I really appreciate it!

Great point on the allocation looks like a retiree - that really helps put it into perspective for me since I know that isn't the stage I am at. Excellent point on thinking through the tax implications if seeling existing stock and directing new funds into a better fit. That is a big help as I had the reinvest dividends turned on so a good next step is turning those off. I will look into tax-efficient funds, thank you for the suggestion. I definitely could substitute money market funds for TIPS to add inflation protection. I think the reason they remain uninvested is my fear of taking on risk.

The HSA could be put into a target fund, since I know have over the maximum out of pocket needed if I maxed my insurance. With how high out of pocket could be it seemed risky to not have that part in something very safe.

Thank you for the suggestions on the treasury or agency bonds to help with the state tax, that is a great point.

re: second job - very good point!

re: house - ah I had heard of the 3x rule, but had thought incorrectly it means 3x income plus your downpayment to get the house price. Thank you for pointing out the need to increase emergency fund if purchasing a house, is there a rule of thumb for how much more is needed?

Thank you again so much for all of your valuable advice! I'm very grateful :beer

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Re: Portfolio Review - too conservative?

Post by mhadden1 » Mon Jan 20, 2020 3:54 pm

One way to evaluate your desired 60/40 AA is to compare it to an appropriate Target Date fund. I did not notice whether you posted a desired retirement date, but a fairly conservative TD year choice at age 39 might be 2040. The Vanguard 2040 right now appears to be 83/17 stocks/bonds so your AA goal is indeed quite a bit more conservative than what the Vanguard professionals choose for the TD fund. Of course, only you can decide what is appropriate for you.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

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