Porfolio Check Up and Looking Ahead

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Topic Author
invest4
Posts: 221
Joined: Wed Apr 24, 2019 2:19 am

Porfolio Check Up and Looking Ahead

Post by invest4 »

Dear All,

Assessing my current setup, taking some actions, and have some questions as I continue to plow ahead. Overall, I think it's pretty vanilla. However, always appreciate and benefit from often unexpected insights of the group here.

Ages: Both 47 (4 kids)
Filing status: Married / Joint (single income earner)
Tax Rate: 22% Federal and 5% State

Emergency Funds: 150K earning 1.5% in savings account
Debt: Mortgage only - 370K (500K value) 30 year at 3.25 percent (recent refinance)

Future Pension: $1000/mo. @ age 60 (no adjustments)

Asset Allocation: 60 / 40: VTI/VXUS and BND/BNDX. 80/20 split between US and INTL.

Overall Portfolio: ~1.4M

401K Pre-Tax: ~610K
401K In Plan Roth Conversions: 25K (Mega backdoor)
Roth 401K: ~3K (that one time...)

Rollover IRA: ~380K
Roth: ~150K (roughly 50/50 between us)

Taxable Cash: ~190K (150K emergency + 40K checking)

HSA: ~30K

Contributions:
401K: 19500
Roth IRA: 12K (6K each)
HSA: 6100
Mega Back Door Roth: 10-20K in 2020


Questions and Comments:

* Comfortable with 60/40 AA. Drift to 70/30 could also be fine in case of lower valuations (ex: CAPE <25 vs >30 for example). I fully recognize the value and potential shortcomings of this metric. However, I do utilize it for rough guidance.

* Roth and HSA investments are 100% equities. Remaining is mixed with all bonds in pre-tax.

* Thus far, have never made equity investments in taxable (although I would consider it with significant decline - 40% or more for example). Too conservative?

* Somewhat unsure about bonds vs CDs (or combination of both) given low rates and increased govt. debt offering creating some pressure. Unable to discern whether it is something I should ignore or consider some alternatives or mix as noted above. I currently don't plan to make any specific investments in LTTs and can't wrap my head around gold although I continue to watch / learn from the various discussions. My overall knowledge of bonds, etc. remains relatively weak.

* Recently refinanced mortgage - 30 yr @ 3.25%. I didn't like the reset (about 4 years in), but have put on bi-weekly payment and $300 savings / mo. could be used for additional payments to principal if desired. I definitely lean more toward the borrow as much as possible at current rates and pay it back with inflated dollars. However, I do think it is something I would like to have paid off or nearly so by retirement (15 years? I don't really have a solid idea when that might be).

* Roth as a % of overall portfolio feels too small (~12% or so) to provide flexibility of withdrawals in retirement. Started to utilize mega backdoor Roth last year and continuing in 2020. As of now, my mindset is to be somewhat aggressive here and forego additional payments to mortgage and possibly also reduce emergency fund a bit to see if can get to 20% Roth in the coming years. I have some sense of increased urgency in the event I may lose this gorgeous option due to planned or unplanned change of employer. Thoughts?

* Roth 401k - I honestly don't recall why I made some initial contributions here. I am curious if I could or should recharacterize it somehow? In the end, it's not a significant amount...just an oddball that is slightly annoying. ;)

Many thanks.
manatee2005
Posts: 936
Joined: Wed Dec 18, 2019 9:17 pm

Re: Porfolio Check Up and Looking Ahead

Post by manatee2005 »

Why do you have 200k in cash?
theorist
Posts: 686
Joined: Sat Sep 28, 2019 11:39 am

Re: Porfolio Check Up and Looking Ahead

Post by theorist »

invest4 wrote: Tue May 12, 2020 3:50 am
Questions and Comments:

* Comfortable with 60/40 AA. Drift to 70/30 could also be fine in case of lower valuations (ex: CAPE <25 vs >30 for example). I fully recognize the value and potential shortcomings of this metric. However, I do utilize it for rough guidance.

* Thus far, have never made equity investments in taxable (although I would consider it with significant decline - 40% or more for example). Too conservative?
Some comments/questions:

— I understand what you are saying about using CAPE ratios as a gauge of future returns. Still, with interest rates low, many think relatively high P/E ratios may be justified and with us for a while (“there is no alternative”). If you feel a more aggressive allocation would serve you better, you might have a long wait for lower CAPE. (Or not — may get 20% down this summer!)

— I don’t see why you avoid equity investment in taxable. As long as you use funds with low tax cost ratios and dividends, and bond funds that are municipal (if you’re in a high tax bracket), a taxable account can be quite tax efficient. If you have extra $ to invest, I’d start doing it regularly.

— Depending on their plans, you could think of taking advantage of 529 plans for the kids.

Good luck!
Rudedog
Posts: 265
Joined: Wed Aug 01, 2018 3:15 pm

Re: Porfolio Check Up and Looking Ahead

Post by Rudedog »

Do you have any college savings for children ? Putting my three daughters through college was a huge expense, two have advanced degrees. I'm not complaining as all three have good jobs and currently are still working during this pandemic and paying their own bills.
Topic Author
invest4
Posts: 221
Joined: Wed Apr 24, 2019 2:19 am

Re: Porfolio Check Up and Looking Ahead

Post by invest4 »

manatee2005 wrote: Tue May 12, 2020 4:36 am Why do you have 200k in cash?
Just accumulated over time and when I look at our expenses for a family of 6, I thought 150K as an emergency fund was a reasonable amount to tide us over for a year or more. 40K in checking is just what is easily comfortable for handling the monthly in and outs including extraordinary expenses without thinking about it.
theorist wrote: Tue May 12, 2020 5:26 am
Some comments/questions:

— I understand what you are saying about using CAPE ratios as a gauge of future returns. Still, with interest rates low, many think relatively high P/E ratios may be justified and with us for a while (“there is no alternative”). If you feel a more aggressive allocation would serve you better, you might have a long wait for lower CAPE. (Or not — may get 20% down this summer!)

— I don’t see why you avoid equity investment in taxable. As long as you use funds with low tax cost ratios and dividends, and bond funds that are municipal (if you’re in a high tax bracket), a taxable account can be quite tax efficient. If you have extra $ to invest, I’d start doing it regularly.

— Depending on their plans, you could think of taking advantage of 529 plans for the kids.

Good luck!
In regard to CAPE, I have also seen similar sentiments in regard to justification of high P/E ratios. I attempt to make some mental adjustments with this knowledge in hand and why I provided an example of <25 and >30 vs something a bit lower. I do believe once we get north of 30, I will start to invest new monies in more conservative investments (rightly or wrongly to be seen).

As far as taxable investments:

* I thought the emergency fund should be invested conservatively
* Considered as alternative to draw cash down a bit as part of mega backdoor Roth (more long term advantages)
* Struggle with what is the right balance of risks (equities vs bonds vs cash)?
* Perception of tax hassle

529: I had omitted this from the original post. We do have 529s for each of our 4 kids. Will contribute 20K combined in 2020.
tashnewbie
Posts: 811
Joined: Thu Apr 23, 2020 12:44 pm

Re: Porfolio Check Up and Looking Ahead

Post by tashnewbie »

Couldn't you roll the Roth 401(k) amount into your Roth IRA?
retiredjg
Posts: 41912
Joined: Thu Jan 10, 2008 12:56 pm

Re: Porfolio Check Up and Looking Ahead

Post by retiredjg »

invest4 wrote: Tue May 12, 2020 3:50 am * Roth as a % of overall portfolio feels too small (~12% or so) to provide flexibility of withdrawals in retirement. Started to utilize mega backdoor Roth last year and continuing in 2020. As of now, my mindset is to be somewhat aggressive here and forego additional payments to mortgage and possibly also reduce emergency fund a bit to see if can get to 20% Roth in the coming years. I have some sense of increased urgency in the event I may lose this gorgeous option due to planned or unplanned change of employer. Thoughts?

* Roth 401k - I honestly don't recall why I made some initial contributions here. I am curious if I could or should recharacterize it somehow? In the end, it's not a significant amount...just an oddball that is slightly annoying. ;)
I don't think the ratio of Roth to tax-deferred is a particularly important number. But I do think the amount of tax-deferred money is something to consider.

You already have about $1 million in tax-deferred accounts. You may be nearing "enough" in tax-deferral. You might consider putting some of your 401k contributions into Roth (in addition to Roth IRA and using the mega back door).

With 4 kids and $24,800 in standard deduction, you may not be paying a great deal of federal tax anyway. What I'm saying is that your 4 kids may be making your effective tax rate a lot less than one would expect someone in the 22% tax bracket to have. To a certain extent, that might favor Roth over tax-deferred in your case, at least until tax laws change.

This concept (considering number of kids along with your tax bracket) has been niggling at me for awhile. Having a tax credit for kids instead of exemptions may have changed some things in this decision that we have not paid enough attention to so far. I'm hoping others will consider this and make comments.

I think your emergency fund is reasonable for a family of 6 with only one income. It's more than some would have but not is not unreasonable in my opinion.
ChicagoWolverine
Posts: 18
Joined: Tue Mar 19, 2019 10:33 am

Re: Porfolio Check Up and Looking Ahead

Post by ChicagoWolverine »

I'm sure there are adjustments you can make. But I think it's worth pausing and congratulating yourself on saving, investing and setting yourself and family up well for the future.

I'd take a look at the following:
1. Move some cash that you are comfortable with to retirement or taxable
2. i echo rtiredjg and think Roth IRA is a good place to start looking
3. I do not think you shared how much overall is in each kid's 529 (nor what the goal is - fully fund their education? half? 3/4?) - but this may be another place to look to see if you are on track with your goal.

Cheers.
Go Blue!
Topic Author
invest4
Posts: 221
Joined: Wed Apr 24, 2019 2:19 am

Re: Porfolio Check Up and Looking Ahead

Post by invest4 »

tashnewbie wrote: Tue May 12, 2020 7:53 am Couldn't you roll the Roth 401(k) amount into your Roth IRA?
The Roth 401k is with my current employer. My current impression is that would then not be an option...or am I mistaken?
retiredjg wrote: Tue May 12, 2020 7:56 am
You already have about $1 million in tax-deferred accounts. You may be nearing "enough" in tax-deferral. You might consider putting some of your 401k contributions into Roth (in addition to Roth IRA and using the mega back door).

With 4 kids and $24,800 in standard deduction, you may not be paying a great deal of federal tax anyway. What I'm saying is that your 4 kids may be making your effective tax rate a lot less than one would expect someone in the 22% tax bracket to have. To a certain extent, that might favor Roth over tax-deferred in your case, at least until tax laws change.

This concept (considering number of kids along with your tax bracket) has been niggling at me for awhile. Having a tax credit for kids instead of exemptions may have changed some things in this decision that we have not paid enough attention to so far. I'm hoping others will consider this and make comments.

I think your emergency fund is reasonable for a family of 6 with only one income. It's more than some would have but not is not unreasonable in my opinion.
I have always been so focused on achieving the next saving "milestone" (maxing 401k, then Roth, then HSA, etc.) I had never really considered shifting some of those contributions to increase the Roth. Something to think about and see how it affects taxes.

I was still able to itemize last year, but you may be correct - difficult to know or compare. A bit unsure how to make a solid assessment there? Overall, the net effect of all the changes from the new tax law was only mildly positive from a tax perspective. They giveth and they taketh.

The emergency fund gives me confidence that my family can weather most storms without undue worry.
ChicagoWolverine wrote: Tue May 12, 2020 8:02 am I'm sure there are adjustments you can make. But I think it's worth pausing and congratulating yourself on saving, investing and setting yourself and family up well for the future.

I'd take a look at the following:
1. Move some cash that you are comfortable with to retirement or taxable
2. i echo rtiredjg and think Roth IRA is a good place to start looking
3. I do not think you shared how much overall is in each kid's 529 (nor what the goal is - fully fund their education? half? 3/4?) - but this may be another place to look to see if you are on track with your goal.

Cheers.
Go Blue!


Thanks for the encouragement...it is definitely a journey.

1. Yes.
2. Agreed.
3. I have guaranteed my children their first 2 years of education at a community college while still living at home. Beyond that, we will just have to see how things play out when we see the actual cost of University. I'm blown away by some of the amounts cited by others as far as needed savings for college. Our current college kid will soon make this transition and I will then have a much better idea. While it is my aspiration to get them all through without debt, I can not do so at the risk of our retirement which ultimately helps no one. Of course, i don't dare think even further ahead about things like weddings, etc. :shock:
tashnewbie
Posts: 811
Joined: Thu Apr 23, 2020 12:44 pm

Re: Porfolio Check Up and Looking Ahead

Post by tashnewbie »

invest4 wrote: Tue May 12, 2020 9:01 am
tashnewbie wrote: Tue May 12, 2020 7:53 am Couldn't you roll the Roth 401(k) amount into your Roth IRA?
The Roth 401k is with my current employer. My current impression is that would then not be an option...or am I mistaken?
I'm not sure, but I'd assume if your 401(k) plan allows in-service non-emergency withdrawals, you could do it. Hopefully someone else knows for sure!
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