New Married Couple Portfolio Advice

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Topic Author
Coolguy8877
Posts: 61
Joined: Thu Oct 03, 2019 8:41 am

New Married Couple Portfolio Advice

Post by Coolguy8877 »

Emergency funds: ~6-7 months expenses

Debt: Student Loans; His $196k @ 4.2% 15y remaining; Hers $96k @ 3.6% 10y remaining
No cc debt, car loans, or mortgage; considering home purchase in next 6 months

Tax Filing Status: Married Filing Jointly; no kids but planning for 1-2 in the next 1-3 years

Tax Rate: Just breaching 37% Federal in 2020, 4.5% State

State of Residence: IL

Age: both 32

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25% of stocks

Portfolio size: Low to mid six figures

Current Portfolio: currently mirroring investments in his/her accounts

Combined 401k (no tickers available); work for same company 5% match
50% Large US stock: Vanguard Institutional 500 Index Trust ER 0.01
15% Small/Mid Cap US stock: Vanguard Extended Market Index Fund ER 0.04
15% International stock: Vanguard Institutional Total International Stock Index Trust ER 0.06

Combined Roth IRA
13% Vanguard Total Bond Market Index Fund Admiral Shares, VBTLX, ER 0.05

Combined HSA
1% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Combined Brokerage
6% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Total=100% ~87% stocks (~18% international) / ~13% bonds

Contributions

New annual Contributions
$19.5k his 401k (+~7.5k [5% match] + 15k after-tax mega backdoor in-plan conversion [after-tax contributions maxed at 10% salary per employer]); 42k total
$19.5k her 401k (+~8.5k [5% match] + 17k after-tax mega backdoor in-plan conversion [after-tax contributions maxed at 10% salary per employer]); 45k total
$6k his Roth IRA via backdoor
$6k her Roth IRA via backdoor
$7.1k combined HSA ($1k employer contribution)
$6k taxable (for retirement, not short term goals)
Total $112.1k; ~26% savings rate which we are aiming to significantly increase; future savings to be directed to taxable accounts due to tax-advantage accounts being maxed

Available funds

Funds available in both 401(k)s
Vanguard; no tickers available
Large US stock: Vanguard Institutional 500 Index Trust ER 0.01
Small/Mid Cap US stock: Vanguard Extended Market Index Fund ER 0.04
International stock: Vanguard Institutional Total International Stock Index Trust ER 0.06
No Vanguard Bonds
Others
Large US stock: American Funds Growth Fund of America (RGAGX) ER 0.31
Large US stock: American Funds Washington Mutual Investors Fund (RWMGX) ER 0.27
Small/Mid Cap US stock: Diamond Hill Small-Mid Cap Fund (DHMYX) ER 0.81
International Stock: American Funds EuroPacific Growth Fund (RERGX) ER 0.49
Balanced: GMO Global Asset Allocation (GATRX) ER 0.61
Balanced: PIMCO All Asset Fund (PAAIX) ER 1.115
Bond: JPMorgan Core Bond Fund (JCBUX) 0.35
Target date: State Street Target Date Funds All ER 0.10

Questions:
1. Got married April 2019 and combined finances (reason for being so “off-balance”). Is an 80% stocks / 20% bonds AA target too conservative at 32? We are fairly risk averse, but do not have issues staying the course for the next 20-25y until we’d like to retire or drop to part-time work at or before 55 depending on how life goes. Would like to finish ironing out our combined long-term plan before re-balancing.

2. Currently renting at $1500/mo in HCOL area. Debating purchasing a place in the next ~6 months (tired of renting) with a target monthly cost (PMI/taxes/HOA/etc.) between $1750-2200/mo. We may move to the suburbs in the mid-term (3-5 years) when kids come into the picture. Pros/Cons for purchasing now vs keeping low-rent and buying when moving to the suburbs? We would aim to ideally keep the city location as a rental property if we buy now (realizing things can change).

3. Home purchase plans aside, as we aim to increase our savings rate after thoroughly reviewing our expenses, where would the bogleheads advise directing those savings? With student loans at weighted 3.9% we're debating paying down debt vs applying to our AA in taxable accounts.

4. Overall portfolio critiques please!
:sharebeer
cochlearboy
Posts: 84
Joined: Sun Jul 07, 2019 12:11 pm

Re: New Married Couple Portfolio Advice

Post by cochlearboy »

Questions:
1. Got married April 2019 and combined finances (reason for being so “off-balance”). Is an 80% stocks / 20% bonds AA target too conservative at 32? We are fairly risk averse, but do not have issues staying the course for the next 20-25y until we’d like to retire or drop to part-time work at or before 55 depending on how life goes. Would like to finish ironing out our combined long-term plan before re-balancing.

Asset allocation is a very personal choice. There is nothing wrong with 80/20 allocation since that is supposed to be the most "efficient' allocation based on a return/risk basis. If having 20% bonds helps you sleep at night, then go for it.

2. Currently renting at $1500/mo in HCOL area. Debating purchasing a place in the next ~6 months (tired of renting) with a target monthly cost (PMI/taxes/HOA/etc.) between $1750-2200/mo. We may move to the suburbs in the mid-term (3-5 years) when kids come into the picture. Pros/Cons for purchasing now vs keeping low-rent and buying when moving to the suburbs? We would aim to ideally keep the city location as a rental property if we buy now (realizing things can change).

If you or your spouse have intentions of going into the landlording business, then your plan makes sense. But there are costs of home-ownership that can dramatically change depending on the location. Your plan would make sense to me if you were in a low cost of living area, but if you are in a high cost of living area with high property taxes, etc then your plan would not look good to me. You haven't given enough information to make an educated decision here.

3. Home purchase plans aside, as we aim to increase our savings rate after thoroughly reviewing our expenses, where would the bogleheads advise directing those savings? With student loans at weighted 3.9% we're debating paying down debt vs applying to our AA in taxable accounts.

First, I would max out your tax-advantaged accounts, then I would accelerate paying down the 4.2% loan first, and then the other loan. This assumes that you and your spouse are a "team" in sharing income and debts.

4. Overall portfolio critiques please!

One HUGE but easily fixed mistake in your portfolio. You have put bonds in your roth IRA, but a roth IRA is absolutely the last place you want to put bonds in. Remember - in roth IRA's - the growth of your investment over time is free. This means you want your highest growing assets in your roth IRA. So, move your bonds to your 401k and keep your roth IRA 100% equities going forward. Use your 401k account to rebalance - does this make sense to you?
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Topic Author
Coolguy8877
Posts: 61
Joined: Thu Oct 03, 2019 8:41 am

Re: New Married Couple Portfolio Advice

Post by Coolguy8877 »

cochlearboy wrote: Sun Feb 09, 2020 9:32 pm Questions:
1. Got married April 2019 and combined finances (reason for being so “off-balance”). Is an 80% stocks / 20% bonds AA target too conservative at 32? We are fairly risk averse, but do not have issues staying the course for the next 20-25y until we’d like to retire or drop to part-time work at or before 55 depending on how life goes. Would like to finish ironing out our combined long-term plan before re-balancing.

Asset allocation is a very personal choice. There is nothing wrong with 80/20 allocation since that is supposed to be the most "efficient' allocation based on a return/risk basis. If having 20% bonds helps you sleep at night, then go for it.
Thank you for taking the time to reply. Understood, just looking for any other thoughts/considerations folks in a similar situation may have.
cochlearboy wrote: Sun Feb 09, 2020 9:32 pm 2. Currently renting at $1500/mo in HCOL area. Debating purchasing a place in the next ~6 months (tired of renting) with a target monthly cost (PMI/taxes/HOA/etc.) between $1750-2200/mo. We may move to the suburbs in the mid-term (3-5 years) when kids come into the picture. Pros/Cons for purchasing now vs keeping low-rent and buying when moving to the suburbs? We would aim to ideally keep the city location as a rental property if we buy now (realizing things can change).

If you or your spouse have intentions of going into the landlording business, then your plan makes sense. But there are costs of home-ownership that can dramatically change depending on the location. Your plan would make sense to me if you were in a low cost of living area, but if you are in a high cost of living area with high property taxes, etc then your plan would not look good to me. You haven't given enough information to make an educated decision here.
We’re open to landlording a nearby property or 2 to open up a small source of side income. We will have to crunch the numbers of the costs of potential properties with future anticipated rental income to make an educated decision. That being said, how would you evaluate if it makes sense to continue renting vs buying now with the intention of moving/buying again in the next 3-5 years (assuming we sell the city location)? If we sell the city location I see the equity built by making mortgage payments as funding for the future home instead of sinking money into our current rent. Sure there are costs/effort associated with home ownership, but do you see learning the ins and outs of these now benefiting us for our next home purchase?
cochlearboy wrote: Sun Feb 09, 2020 9:32 pm 3. Home purchase plans aside, as we aim to increase our savings rate after thoroughly reviewing our expenses, where would the bogleheads advise directing those savings? With student loans at weighted 3.9% we're debating paying down debt vs applying to our AA in taxable accounts.

First, I would max out your tax-advantaged accounts, then I would accelerate paying down the 4.2% loan first, and then the other loan. This assumes that you and your spouse are a "team" in sharing income and debts.
This is the plan. Just trying to determine if saving a portion of what would go towards student loans in a taxable account would make sense since we would ideally like to retire early (50-55). We could likely pay the loans off relatively quickly so we may keep things simple and aim to pay off and then shift to taxable savings according to our AA.
cochlearboy wrote: Sun Feb 09, 2020 9:32 pm 4. Overall portfolio critiques please!

One HUGE but easily fixed mistake in your portfolio. You have put bonds in your roth IRA, but a roth IRA is absolutely the last place you want to put bonds in. Remember - in roth IRA's - the growth of your investment over time is free. This means you want your highest growing assets in your roth IRA. So, move your bonds to your 401k and keep your roth IRA 100% equities going forward. Use your 401k account to rebalance - does this make sense to you?
I’m not clear on this. What difference does it make as long as the bonds are in a tax-advantaged account? Our AA will change as we age and we can shift the bonds to the account with the most ideal low cost option, which right now is the Roth IRA since the bond fund in our 401k has a higher ER. Am I missing something?
Grt2bOutdoors
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Location: New York

Re: New Married Couple Portfolio Advice

Post by Grt2bOutdoors »

A Roth IRA is your most valuable space - $1 contributed today growing at 6% per year for 40 years is worth $10.28 tax free.
A $1 invested at 2% per year for 40 years is worth $2.21

A $1 invested in a tax deferred 401K is worth (1 - tax rate) upon withdrawal in perpetuity.

Which has the most growth potential for tax free gains over your lifetime? Make sense now why you should invest in the investment choice that offers the ability to grow your dollars?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
Coolguy8877
Posts: 61
Joined: Thu Oct 03, 2019 8:41 am

Re: New Married Couple Portfolio Advice

Post by Coolguy8877 »

Grt2bOutdoors wrote: Mon Feb 10, 2020 2:12 am A Roth IRA is your most valuable space - $1 contributed today growing at 6% per year for 40 years is worth $10.28 tax free.
A $1 invested at 2% per year for 40 years is worth $2.21

A $1 invested in a tax deferred 401K is worth (1 - tax rate) upon withdrawal in perpetuity.

Which has the most growth potential for tax free gains over your lifetime? Make sense now why you should invest in the investment choice that offers the ability to grow your dollars?
I understand the benefit of Roth vs tax deferred at withdrawal, and the benefits tax-advantaged retirement accounts offer vs taxable accounts.

Cochlearboy's comment suggests Roth IRAs are less desirable for bonds vs a tax-deferred 401k during the growth period. What I am struggling with is in a tax-advantaged account (roth/tax-deferred), what difference does it make what type of investment (stock/bond) is placed in roth vs tax-deferred during the growth period? The wiki states "If your investments are all in tax-advantaged accounts, fund placement will not have a large impact on your returns." While not all of our investments are in tax-advantaged accounts, the majority are, so specifically for those tax-advantaged investments, what difference does it make if bonds are held in a Roth IRA vs a tax-deferred 401k?
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: New Married Couple Portfolio Advice

Post by lakpr »

Coolguy8877 wrote: Mon Feb 10, 2020 11:58 am Cochlearboy's comment suggests Roth IRAs are less desirable for bonds vs a tax-deferred 401k during the growth period. What I am struggling with is in a tax-advantaged account (roth/tax-deferred), what difference does it make what type of investment (stock/bond) is placed in roth vs tax-deferred during the growth period? The wiki states "If your investments are all in tax-advantaged accounts, fund placement will not have a large impact on your returns." While not all of our investments are in tax-advantaged accounts, the majority are, so specifically for those tax-advantaged investments, what difference does it make if bonds are held in a Roth IRA vs a tax-deferred 401k?
Would you not keep more of the growth to yourself, rather than sharing it with the government?

In a Roth account (Roth 401k or Roth IRA), you invest for yourself. Any profits, and of course losses, are completely yours to bear. By being aggressive in those accounts, and with the hope of markets smiling on you, you get to keep all the growth without having to cut a share to the government. Being aggressive means investing in stocks.

In a tax-deferred account, you are really entering into a partnership with the government. Based on your tax bracket, every dollar you invest in the 401k, 37% of it is the government's share. You get to be the sole director of this joint enterprise, but when it comes to cashing out, Uncle Sam wants his cut. If you want to minimize his cut, you place those asset classes that you reasonably believe will have less growth in the 401k. Bonds.

I am not sure if I can explain any more clearly than that.
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ruralavalon
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Location: Illinois

Re: New Married Couple Portfolio Advice

Post by ruralavalon »

Coolguy8877 wrote: Sun Feb 09, 2020 8:33 pm Questions:
1. Got married April 2019 and combined finances (reason for being so “off-balance”). Is an 80% stocks / 20% bonds AA target too conservative at 32? We are fairly risk averse, but do not have issues staying the course for the next 20-25y until we’d like to retire or drop to part-time work at or before 55 depending on how life goes. Would like to finish ironing out our combined long-term plan before re-balancing.
In my opinion an asset allocation of 80/20 is within the range of what is reasonable at age 32.



Coolguy8877 wrote: Sun Feb 09, 2020 8:33 pm2. Currently renting at $1500/mo in HCOL area. Debating purchasing a place in the next ~6 months (tired of renting) with a target monthly cost (PMI/taxes/HOA/etc.) between $1750-2200/mo. We may move to the suburbs in the mid-term (3-5 years) when kids come into the picture. Pros/Cons for purchasing now vs keeping low-rent and buying when moving to the suburbs? We would aim to ideally keep the city location as a rental property if we buy now (realizing things can change).
With your plan to move to the suburbs in 3-5 years, I suggest continuing to rent until then.

But the issues very fact-dependent, so use a calculator and the facts of your situation. Calculator, "is it better to rent or buy?"


Coolguy8877 wrote: Sun Feb 09, 2020 8:33 pm3. Home purchase plans aside, as we aim to increase our savings rate after thoroughly reviewing our expenses, where would the bogleheads advise directing those savings? With student loans at weighted 3.9% we're debating paying down debt vs applying to our AA in taxable accounts.
I suggest paying off the student debt instead of contributions to the taxable account.


Coolguy8877 wrote: Sun Feb 09, 2020 8:33 pm4. Overall portfolio critiques please!
I suggest holding your bond allocation in the 401ks using JPMorgan Core Bond Fund R6 (JCBUX) 0.35.

Although actively managed the fund is a good, diversifed, intermediate-term, investment-grade bond fund with a fairly low expense ratio. Morningstar, JCBUX portfolio tab.The fund's performance net of expenses has compared well to a total bond market index fund. Portfolio Visualizer, 2006-2020.
Last edited by ruralavalon on Mon Feb 10, 2020 2:33 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Wiggums
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Re: New Married Couple Portfolio Advice

Post by Wiggums »

I’d continue to rent and pay down the student loans. Then you can focus on the suburban home and what to do with the rental.
Topic Author
Coolguy8877
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Re: New Married Couple Portfolio Advice

Post by Coolguy8877 »

ruralavalon wrote: Mon Feb 10, 2020 2:10 pm
Coolguy8877 wrote: Sun Feb 09, 2020 8:33 pm3. Home purchase plans aside, as we aim to increase our savings rate after thoroughly reviewing our expenses, where would the bogleheads advise directing those savings? With student loans at weighted 3.9% we're debating paying down debt vs applying to our AA in taxable accounts.
I suggest paying off the student debt instead of contributions to the taxable account.
Thanks for all the advice. I plan to rebalance to our target AA with with bonds in the 401k as you and others have outlined. In the event we continue to rent until moving to the suburbs, would you advise all excess income go towards student debt? With the weighted interest rate at 3.9% is it best to put 100% towards the loans vs. some combination of loan payments and investing in taxable? If the rate were much lower or higher it would cement the decision to save vs payoff, but with it right around 4% I'm not 100% sure.
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ruralavalon
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Re: New Married Couple Portfolio Advice

Post by ruralavalon »

Coolguy8877 wrote: Mon Feb 10, 2020 6:00 pm
ruralavalon wrote: Mon Feb 10, 2020 2:10 pm
Coolguy8877 wrote: Sun Feb 09, 2020 8:33 pm3. Home purchase plans aside, as we aim to increase our savings rate after thoroughly reviewing our expenses, where would the bogleheads advise directing those savings? With student loans at weighted 3.9% we're debating paying down debt vs applying to our AA in taxable accounts.
I suggest paying off the student debt instead of contributions to the taxable account.
Thanks for all the advice. I plan to rebalance to our target AA with with bonds in the 401k as you and others have outlined. In the event we continue to rent until moving to the suburbs, would you advise all excess income go towards student debt? With the weighted interest rate at 3.9% is it best to put 100% towards the loans vs. some combination of loan payments and investing in taxable? If the rate were much lower or higher it would cement the decision to save vs payoff, but with it right around 4% I'm not 100% sure.
I would favor retiring the student debt over investing in a taxable account.

Are you already saving in some account for the home downpayment in 3-5 years? How much is saved so far?

Ordinarily money intended for use in 3-5years should not be invested in the stock market. Instead it should be saved in very safe savings vehicles.

What amount do you expect that you might need for a home downpayment in 3-5 years?

About how much in total do you expect that you might have available annually to pay debt and save for the downpayment?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Coolguy8877
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Re: New Married Couple Portfolio Advice

Post by Coolguy8877 »

ruralavalon wrote: Mon Feb 10, 2020 6:31 pm I would favor retiring the student debt over investing in a taxable account.
Thanks again
ruralavalon wrote: Mon Feb 10, 2020 6:31 pm Are you already saving in some account for the home downpayment in 3-5 years? How much is saved so far?
We currently have at least 75% (if not 100%) of the down payment saved. Upcoming bonuses will get us to 100% if we decide we want a bit more.
ruralavalon wrote: Mon Feb 10, 2020 6:31 pm Ordinarily money intended for use in 3-5years should not be invested in the stock market. Instead it should be saved in very safe savings vehicles.
Currently using a HYSA for our EF. Would you suggest an alternative for the down payment?
ruralavalon wrote: Mon Feb 10, 2020 6:31 pm About how much in total do you expect that you might have available annually to pay debt and save for the downpayment?
If we focus 100% of our excess income on paying down debt we should be able to knock out the student loans in 3-4 years.
Pacman
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Re: New Married Couple Portfolio Advice

Post by Pacman »

Fellow Chicagoan here.

I would recommend you hold off on buying any homes until you have had your kids. Your income situation and attitude toward working a job might change once the little ones arrives. I have plenty of friends who bought a house assuming X income, which was then cut in half when one spouse decided to scale back or stay home for a few years. Not that there is anything wrong with this decision, but a different housing decision may have been made up front.

My second comment would be to think about your attitude towards debt. Despite your high income, you are basically broke due to student loans and yet you want to go into further debt. At your income level, you really don't need to go into debt...ever.
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ruralavalon
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Re: New Married Couple Portfolio Advice

Post by ruralavalon »

Coolguy8877 wrote: Mon Feb 10, 2020 9:16 pm
ruralavalon wrote: Mon Feb 10, 2020 6:31 pm I would favor retiring the student debt over investing in a taxable account.
Thanks again
ruralavalon wrote: Mon Feb 10, 2020 6:31 pm Are you already saving in some account for the home downpayment in 3-5 years? How much is saved so far?
We currently have at least 75% (if not 100%) of the down payment saved. Upcoming bonuses will get us to 100% if we decide we want a bit more.
ruralavalon wrote: Mon Feb 10, 2020 6:31 pm Ordinarily money intended for use in 3-5years should not be invested in the stock market. Instead it should be saved in very safe savings vehicles.
Currently using a HYSA for our EF. Would you suggest an alternative for the down payment?
ruralavalon wrote: Mon Feb 10, 2020 6:31 pm About how much in total do you expect that you might have available annually to pay debt and save for the downpayment?
If we focus 100% of our excess income on paying down debt we should be able to knock out the student loans in 3-4 years.
Because you are making maximum contributions to the tax-advantaged accounts and the home downpayment taken care of, I suggest that the extra savings be dedicated to paying off the student debt rather than investing inns taxable account.

A high yield savings account is reasonable for the money set aside for the home downpayment.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Coolguy8877
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Re: New Married Couple Portfolio Advice

Post by Coolguy8877 »

Coolguy8877 wrote: Mon Feb 10, 2020 6:00 pm Thanks for all the advice. I plan to rebalance to our target AA with with bonds in the 401k as you and others have outlined.
Odd quoting myself, but based on the advice to hold stocks in my Roth IRA instead of bonds, would a reasonable new portfolio be as follows? Would anyone recommend any changes to how I have divided up the S&P500 Vanguard Index/Mid-Small Cap Vanguard Extended index mix to replicate total market VTSAX as close as I am able to since I do not have access to a total market fund in my 401k? Other suggestions based on my available options?

Updated Portfolio
Combined 401k (no tickers available); work for same company 5% match
25% Large US stock: Vanguard Institutional 500 Index Trust ER 0.01
15% Small/Mid Cap US stock: Vanguard Extended Market Index Fund ER 0.04
20% International stock: Vanguard Institutional Total International Stock Index Trust ER 0.06
20% JPMorgan Core Bond Fund (JCBUX) 0.35

Combined Roth IRA
13% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Combined HSA
1% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Combined Brokerage
6% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Total=100%; 80% stocks (25% international) / 20% bonds
lakpr
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Re: New Married Couple Portfolio Advice

Post by lakpr »

Yes, the placement of funds looks quite correct. International and Bond funds in your 401k, and Roth / HSA / Taxable in VTSAX.
Simple. Elegant.
Topic Author
Coolguy8877
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Re: New Married Couple Portfolio Advice

Post by Coolguy8877 »

lakpr wrote: Tue Feb 11, 2020 10:18 pm Yes, the placement of funds looks quite correct. International and Bond funds in your 401k, and Roth / HSA / Taxable in VTSAX.
Simple. Elegant.
Thank you, so for the 40% of the portfolio that is in domestic stocks within my 401k, does the proposed 25% S&P500/15%Small-Mid cap mimic the total market (VTSAX) fund? Or would different proportions make more sense? Without having VTSAX available I would like to nail down these proportions now so rebalancing is simple and straightforward in the future.
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CyclingDuo
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Re: New Married Couple Portfolio Advice

Post by CyclingDuo »

Coolguy8877 wrote: Sun Feb 09, 2020 8:33 pm Emergency funds: ~6-7 months expenses

Debt: Student Loans; His $196k @ 4.2% 15y remaining; Hers $96k @ 3.6% 10y remaining
No cc debt, car loans, or mortgage; considering home purchase in next 6 months

Tax Filing Status: Married Filing Jointly; no kids but planning for 1-2 in the next 1-3 years

Tax Rate: Just breaching 37% Federal in 2020, 4.5% State

State of Residence: IL

Age: both 32

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25% of stocks

Portfolio size: Low to mid six figures

Current Portfolio: currently mirroring investments in his/her accounts

Combined 401k (no tickers available); work for same company 5% match
50% Large US stock: Vanguard Institutional 500 Index Trust ER 0.01
15% Small/Mid Cap US stock: Vanguard Extended Market Index Fund ER 0.04
15% International stock: Vanguard Institutional Total International Stock Index Trust ER 0.06

Combined Roth IRA
13% Vanguard Total Bond Market Index Fund Admiral Shares, VBTLX, ER 0.05

Combined HSA
1% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Combined Brokerage
6% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Total=100% ~87% stocks (~18% international) / ~13% bonds

Contributions

New annual Contributions
$19.5k his 401k (+~7.5k [5% match] + 15k after-tax mega backdoor in-plan conversion [after-tax contributions maxed at 10% salary per employer]); 42k total
$19.5k her 401k (+~8.5k [5% match] + 17k after-tax mega backdoor in-plan conversion [after-tax contributions maxed at 10% salary per employer]); 45k total
$6k his Roth IRA via backdoor
$6k her Roth IRA via backdoor
$7.1k combined HSA ($1k employer contribution)
$6k taxable (for retirement, not short term goals)
Total $112.1k; ~26% savings rate which we are aiming to significantly increase; future savings to be directed to taxable accounts due to tax-advantage accounts being maxed

Available funds

Funds available in both 401(k)s
Vanguard; no tickers available
Large US stock: Vanguard Institutional 500 Index Trust ER 0.01
Small/Mid Cap US stock: Vanguard Extended Market Index Fund ER 0.04
International stock: Vanguard Institutional Total International Stock Index Trust ER 0.06
No Vanguard Bonds
Others
Large US stock: American Funds Growth Fund of America (RGAGX) ER 0.31
Large US stock: American Funds Washington Mutual Investors Fund (RWMGX) ER 0.27
Small/Mid Cap US stock: Diamond Hill Small-Mid Cap Fund (DHMYX) ER 0.81
International Stock: American Funds EuroPacific Growth Fund (RERGX) ER 0.49
Balanced: GMO Global Asset Allocation (GATRX) ER 0.61
Balanced: PIMCO All Asset Fund (PAAIX) ER 1.115
Bond: JPMorgan Core Bond Fund (JCBUX) 0.35
Target date: State Street Target Date Funds All ER 0.10

Questions:
1. Got married April 2019 and combined finances (reason for being so “off-balance”). Is an 80% stocks / 20% bonds AA target too conservative at 32? We are fairly risk averse, but do not have issues staying the course for the next 20-25y until we’d like to retire or drop to part-time work at or before 55 depending on how life goes. Would like to finish ironing out our combined long-term plan before re-balancing.

2. Currently renting at $1500/mo in HCOL area. Debating purchasing a place in the next ~6 months (tired of renting) with a target monthly cost (PMI/taxes/HOA/etc.) between $1750-2200/mo. We may move to the suburbs in the mid-term (3-5 years) when kids come into the picture. Pros/Cons for purchasing now vs keeping low-rent and buying when moving to the suburbs? We would aim to ideally keep the city location as a rental property if we buy now (realizing things can change).

3. Home purchase plans aside, as we aim to increase our savings rate after thoroughly reviewing our expenses, where would the bogleheads advise directing those savings? With student loans at weighted 3.9% we're debating paying down debt vs applying to our AA in taxable accounts.

4. Overall portfolio critiques please!
:sharebeer
Take care of your debt by throwing everything you can at it.
"Save like a pessimist, invest like an optimist." - Morgan Housel
zeal
Posts: 246
Joined: Tue Dec 11, 2018 4:28 pm

Re: New Married Couple Portfolio Advice

Post by zeal »

Coolguy8877 wrote: Wed Feb 12, 2020 8:30 am
lakpr wrote: Tue Feb 11, 2020 10:18 pm Yes, the placement of funds looks quite correct. International and Bond funds in your 401k, and Roth / HSA / Taxable in VTSAX.
Simple. Elegant.
Thank you, so for the 40% of the portfolio that is in domestic stocks within my 401k, does the proposed 25% S&P500/15%Small-Mid cap mimic the total market (VTSAX) fund? Or would different proportions make more sense? Without having VTSAX available I would like to nail down these proportions now so rebalancing is simple and straightforward in the future.
I think this is what you are looking for: Approximating total stock market

I agree with others on the advice. Bonds and international stocks in 401(k), US stocks everywhere else. Having all three asset classes in the 401(k)s will make rebalancing your portfolio very simple and will help your RMDs/future tax bills to be smaller. Paying off the debt vs investing is probably a more personal decision—4% is kind of in that grey area where either makes sense. Other posters make a decent point, however—your current debt level is kind of a monster so in your shoes I’d feel much more comfortable just getting rid of it. Thankfully you guys have a nice big shovel.
lakpr
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Re: New Married Couple Portfolio Advice

Post by lakpr »

Coolguy8877 wrote: Wed Feb 12, 2020 8:30 am
lakpr wrote: Tue Feb 11, 2020 10:18 pm Yes, the placement of funds looks quite correct. International and Bond funds in your 401k, and Roth / HSA / Taxable in VTSAX.
Simple. Elegant.
Thank you, so for the 40% of the portfolio that is in domestic stocks within my 401k, does the proposed 25% S&P500/15%Small-Mid cap mimic the total market (VTSAX) fund? Or would different proportions make more sense? Without having VTSAX available I would like to nail down these proportions now so rebalancing is simple and straightforward in the future.
The recommended ratio is 4:1, as the wiki link for Approximating Total Stock Market posted above by @zeal shows. That is a 52:13 split, not 50:15, but 2% deviation here and there is hardly going to make any difference. 50:15 makes you think in nice round numbers, so good enough!!
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ruralavalon
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Re: New Married Couple Portfolio Advice

Post by ruralavalon »

Coolguy8877 wrote: Wed Feb 12, 2020 8:30 am
lakpr wrote: Tue Feb 11, 2020 10:18 pm Yes, the placement of funds looks quite correct. International and Bond funds in your 401k, and Roth / HSA / Taxable in VTSAX.
Simple. Elegant.
Thank you, so for the 40% of the portfolio that is in domestic stocks within my 401k, does the proposed 25% S&P500/15%Small-Mid cap mimic the total market (VTSAX) fund? Or would different proportions make more sense? Without having VTSAX available I would like to nail down these proportions now so rebalancing is simple and straightforward in the future.
"In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers 84% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S. companies. In the 28 years since the creation of the first total stock market index fund the performance (total return with dividends reinvested) of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph (1992 – 2020), VTSAX vs VFIAX. So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".

If you want to add the extended market fund, then an 84/16 mix of the S&P 500 and extended market funds will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In your 401k that would be a 34/6 mix of S&P 500 to extended market. In my opinion this is not necessary, it is optional if you prefer to do this.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
zeal
Posts: 246
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Re: New Married Couple Portfolio Advice

Post by zeal »

ruralavalon wrote: Wed Feb 12, 2020 9:42 am
Coolguy8877 wrote: Wed Feb 12, 2020 8:30 am
lakpr wrote: Tue Feb 11, 2020 10:18 pm Yes, the placement of funds looks quite correct. International and Bond funds in your 401k, and Roth / HSA / Taxable in VTSAX.
Simple. Elegant.
Thank you, so for the 40% of the portfolio that is in domestic stocks within my 401k, does the proposed 25% S&P500/15%Small-Mid cap mimic the total market (VTSAX) fund? Or would different proportions make more sense? Without having VTSAX available I would like to nail down these proportions now so rebalancing is simple and straightforward in the future.
"In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers 82% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S. companies. In the 28 years since the creation of the first total stock market index fund the performance (total return with dividends reinvested) of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph (1992 – 2020), VTSAX vs VFIAX. So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".

If you want to add the extended market fund, then an 84/16 mix of the S&P 500 and extended market funds will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In your 401k that would be a 34/6 mix of S&P 500 to extended market. In my opinion this is not necessary, it is optional if you prefer to do this.
Good point—that’s what we do. S&P500 Index Fund in my 401k, then VTSAX/FSKAX in Roths and HSA (and taxable if we ever have enough money :)).
lessismore22
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Re: New Married Couple Portfolio Advice

Post by lessismore22 »

CyclingDuo wrote: Wed Feb 12, 2020 9:22 am
Coolguy8877 wrote: Sun Feb 09, 2020 8:33 pm
Take care of your debt by throwing everything you can at it.
Portfolio suggestions are spot on. I also vote for paying off those student loans before buying a house(I know it's tempting). You have the income to attack it aggressively while still contributing to retirement.
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