90% VTSAX?

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Topic Author
zeldak
Posts: 4
Joined: Tue May 26, 2020 10:30 am

90% VTSAX?

Post by zeldak » Tue May 26, 2020 12:35 pm

First time poster having recently found Bogelheads. We started investing 20 years ago into a group of what I thought were "diversified" Vanguard funds, before we understood the simplicity and efficiency and benefits of a 2 or 3 fund portfolio. Due to the coronavirus pandemic my employment has changed for the foreseeable future from full time W2 employee @ $400k/yr to part time W2 employee @$150k/yr, still with health insurance benefits. DW is a part time W2 employee making $8k/yr most of which is directed into her 401k. We have 2 children ages 17 and 13. We spend approx $120k/year. Health insurance is covered by my employer for now. My job feels unstable.


Emergency funds: 80K

Debt: 0

Home worth 650k, mortgage paid in full

Tax Filing Status: Married Filing Jointly

Tax Rate: not sure

State of Residence: PA

Age: Him 52, her 52

Desired Asset allocation: 90% stocks / 5% bonds / 5% cash
Desired International allocation: 0

Current total portfolio 7MM (retirement and taxable)

Show us your current portfolio

His tIRA
VFIAX 500 Index 157k
VTSAX Tot stk mkt 500k

His Roth IRA
VSMAX Sm Cap Index 21k
VTSAX Tot stk mkt 32k

His 401k
John Hancock aggressive growth 165k


Her tIRA
VTSAX tot stk mkt 108k

Her SEP IRA
VFIAX 500 index 34k

Her Roth IRA
VFIAX 500 index 27k

Her 401k
J Hancock Aggressive growth 444k


His/Her Taxable
VEXAX extended mkt index 318k
VFIAX 500 index 490k
VGHAX health care fund 740k
VHGEX global equity fund 113k
VSMAX sm cap index 680k
VTCLX tax man cap apprec 470k
VTIVX target ret 2045 250k
VTMFX tax managed balanced 302k
VTSAX tot stk mkt index 2.1MM


Education Vanguard 529s
child 1, 17yo, VTSAX tot stk mkt 135k
child 2, 13yo, VTSAX tot stk mkt 135k

HSA
VIGIX Vanguard Growth Index 33k


Questions:

1. Please advise. We are NOT financially savvy. I think ideally we would like to have our portfolio 90% VTSAX total stk mkt index, 5% bonds (?total bond index), and 5% cash. As we have no debt I think I'm comfortable holding 10% (about $700k) in short term liquid assets as this represents 4 or 5 years of spending for us (but not healthcare), and keeping the rest in VTSAX. We did not get emotional when the markets tanked. Is this allocation reasonable? Is a different allocation more reasonable? How do we get from our current AA to an improved one? Or should we just leave our current AA alone? Additionally I am concerned about the real possibility of needing to purchase healthcare for my family as I am not confident about my current employment stability or the ability to attain other employment in my field.

2. We have significant capital gains each year due to the health care fund. I would like to minimize current and future taxes, especially investment taxes (what is NIIT?), as much as possible. I did not understand enough to tax loss harvest in March when the markets fell sharply. What should we do, if anything, with this fund?

3. Is there anything else about our allocation that can be improved/simplified?

Thank you for helping,
Zeldak

bloom2708
Posts: 7879
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: 90% VTSAX?

Post by bloom2708 » Tue May 26, 2020 1:26 pm

Well done saving up $7 million.

3.5% of $7 million is $245k.

One one hand you have the ability to be 90/10. On the other hand, you have no reason to be 90/10. These are often the decisions when you are ahead of the game.

I wouldn't pay a lot of tax in a high income year to get to all Total US. You have a number of funds in taxable, but I don't dislike any of them. Just some overlap and complexity. Which isn't all bad.

You could easily buy health insurance and stay under a 3% withdrawal rate.

90/10 says you are OK with a 40-50% drop but are swinging for the grand slam, not just a bases clearing double. I both get it and don't at the same time.

One easy thing to do is tax loss harvest shares in taxable with a loss. Pair with gains and move that "net zero" batch to VTSAX.

Great job. You have many options including retiring. Hopefully others have some pointers to add.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

MrJedi
Posts: 117
Joined: Wed May 06, 2020 11:42 am

Re: 90% VTSAX?

Post by MrJedi » Tue May 26, 2020 1:35 pm

Unless you're planning on a very large uptick in spending, then you can easily move to a more conservative allocation and retire today.

One important question I don't think you answered is what you plan to do with this money. Retirement at current spending/lifestyle is already easily covered. Are you still investing aggressively for heirs?

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arcticpineapplecorp.
Posts: 5273
Joined: Tue Mar 06, 2012 9:22 pm

Re: 90% VTSAX?

Post by arcticpineapplecorp. » Tue May 26, 2020 1:45 pm

zeldak wrote:
Tue May 26, 2020 12:35 pm
We have significant capital gains each year due to the health care fund. I would like to minimize current and future taxes, especially investment taxes (what is NIIT?), as much as possible. I did not understand enough to tax loss harvest in March when the markets fell sharply. What should we do, if anything, with this fund?
NIIT:
https://www.bogleheads.org/wiki/ACA_net ... income_tax
https://www.investopedia.com/terms/n/ne ... income.asp
https://smartasset.com/investing/net-in ... income-tax

learn more about tax loss harvesting:
https://www.bogleheads.org/wiki/Tax_loss_harvesting
viewtopic.php?t=179414
viewtopic.php?f=10&t=172568
viewtopic.php?t=164601
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

asif408
Posts: 2012
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: 90% VTSAX?

Post by asif408 » Tue May 26, 2020 2:01 pm

2 main things I see that could be improved, in order of importance:

1) Add some international holdings. This is obviously a contentious topic for whatever reason around here (probably because of international's underperformance over the last decade), but IMO having a decent portion (at least 30-50%) in international could potentially protect you from a decade of poor US performance. We saw this in the 2000s. If US returns are poor and international returns are ok to good around the time you need to start withdrawing money you might drain down your portfolio faster than expected.

2) Eliminate sector fund (healthcare) and small funds in taxable. Depending on your gains/losses, you might want to do it gradually to lessen the tax burden

If you want to know the advantages/disadvantages to international investing there are plenty of other posts you can find that topic being discussed, I don't want to drag your post into becoming another US vs international thread.

Topic Author
zeldak
Posts: 4
Joined: Tue May 26, 2020 10:30 am

Re: 90% VTSAX?

Post by zeldak » Tue May 26, 2020 2:45 pm

We are not investing for anything in particular, just trying to have a cushion to protect against life's potential future unknowns such as possible tax law changes, reduced or means testing social security, increased Medicare cost, Roth IRA reversion, struggling child, parent needs help, etc...

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BolderBoy
Posts: 4791
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: 90% VTSAX?

Post by BolderBoy » Tue May 26, 2020 4:46 pm

zeldak wrote:
Tue May 26, 2020 12:35 pm
Desired Asset allocation: 90% stocks / 5% bonds / 5% cash
Based on the info you've provided, you don't need to take on the risk of a 90% equity asset allocation.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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galeno
Posts: 1953
Joined: Fri Dec 21, 2007 12:06 pm

Re: 90% VTSAX?

Post by galeno » Tue May 26, 2020 4:55 pm

Why are you still working?
USA-NRA. TER = 0.28%. Expected real CAGR = 2.00%. AWR = 4.00%.: Port: 50% World Stocks + 15% TIPS + 15% Corps + 15% US Treas + 5% CASH.

LeftCoastIV
Posts: 162
Joined: Wed May 01, 2019 7:19 pm

Re: 90% VTSAX?

Post by LeftCoastIV » Tue May 26, 2020 5:30 pm

Your emergency fund seems too low at $80K, for a high-earner spending $120K/year. I say this because [1] your emergency fund will only last ~8 months, [2] high-earner job searches can take a long time and you need to be realistic about age discrimination. I looked at your taxable portfolio and didn't seen any bond funds (excluding balanced funds) that could be liquidated in a down market if you needed to raise more cash.

Regarding your broader portfolio:

The sector bet on health care is probably unnecessary, but since it's in taxable, I wouldn't pay capital gains tax just to move it into a broad index fund. You could "turn off" reinvesting dividends back into the fund, and instead direct them into a broad index fund. If your income goes way down next year, that could be a good time to take advantage of a low capital gains tax rate to sell a portion.

I also don't know the J. Hancock aggressive growth fund, but if the expense ratio is around 0.20%, you could save yourself some $ by switching to a lower-cost index fund, if available in your retirement account. That would be an easy change.

Another thing to consider, if your income drops substantially next year, is if making Roth conversions makes sense, to take advantage of a lower tax rate. This will require more research on your part.

rkhusky
Posts: 9496
Joined: Thu Aug 18, 2011 8:09 pm

Re: 90% VTSAX?

Post by rkhusky » Tue May 26, 2020 5:46 pm

You could move a lot of your IRA's to 100% VTSAX.

You could sell all the shares in taxable that have a loss (except for VTSAX shares) and buy VTSAX with the proceeds. Need to have specific ID for cost basis method and haven't sold anything via average cost basis yet.

I would advise at least 20% in international stocks.

Streptococcus
Posts: 377
Joined: Thu Jan 03, 2013 12:17 am

Re: 90% VTSAX?

Post by Streptococcus » Tue May 26, 2020 7:29 pm

LeftCoastIV wrote:
Tue May 26, 2020 5:30 pm
Your emergency fund seems too low at $80K, for a high-earner spending $120K/year. I say this because [1] your emergency fund will only last ~8 months, [2] high-earner job searches can take a long time and you need to be realistic about age discrimination. I looked at your taxable portfolio and didn't seen any bond funds (excluding balanced funds) that could be liquidated in a down market if you needed to raise more cash.
Totally disagree on emergency fund.
If you have a 7M portfolio and you spend 120K a year, you do not need an emergency fund.
But I would definitely mitigate the risk with a healthy amount of fixed allocation
Remember Bernstein when he says “when you’ve won the game, stop playing”

If I’m you, I’m choosing a 50/50 asset allocation.

Savermom
Posts: 16
Joined: Wed May 20, 2020 12:32 pm

Re: 90% VTSAX?

Post by Savermom » Tue May 26, 2020 8:05 pm

If you don’t want international, you should know that John Hancock aggressive growth has 37 percent international. My husband has a John Hancock 401k,
and I hate their fees. I have him in vanguard growth index and vanguard value index. They don’t have VTSAX.

Topic Author
zeldak
Posts: 4
Joined: Tue May 26, 2020 10:30 am

Re: 90% VTSAX?

Post by zeldak » Tue May 26, 2020 8:22 pm

bloom2708 wrote:
Tue May 26, 2020 1:26 pm
Well done saving up $7 million.

3.5% of $7 million is $245k.

One one hand you have the ability to be 90/10. On the other hand, you have no reason to be 90/10. These are often the decisions when you are ahead of the game.

I wouldn't pay a lot of tax in a high income year to get to all Total US. You have a number of funds in taxable, but I don't dislike any of them. Just some overlap and complexity. Which isn't all bad.

You could easily buy health insurance and stay under a 3% withdrawal rate.

90/10 says you are OK with a 40-50% drop but are swinging for the grand slam, not just a bases clearing double. I both get it and don't at the same time.

One easy thing to do is tax loss harvest shares in taxable with a loss. Pair with gains and move that "net zero" batch to VTSAX.

Great job. You have many options including retiring. Hopefully others have some pointers to add.
Thank you for your kind words. The potential for continued dramatic healthcare cost increases causes me concern.

Topic Author
zeldak
Posts: 4
Joined: Tue May 26, 2020 10:30 am

Re: 90% VTSAX?

Post by zeldak » Tue May 26, 2020 8:30 pm

Savermom wrote:
Tue May 26, 2020 8:05 pm
If you don’t want international, you should know that John Hancock aggressive growth has 37 percent international. My husband has a John Hancock 401k,
and I hate their fees. I have him in vanguard growth index and vanguard value index. They don’t have VTSAX.

I don't feel strongly either way re. international funds. John Hancock offered only 5 or 6 fund options, all with expense ratios about 1% or so if I remember correctly. I didn't like any of the options but chose a stock rather than bond heavy fund, partially to try to offset the big expense ratio.

User avatar
Stef
Posts: 960
Joined: Thu Oct 10, 2019 10:13 am

Re: 90% VTSAX?

Post by Stef » Wed May 27, 2020 12:38 am

Dividends alone would be enough to cover all your costs.

You won the game, you could always stop playing.

fourwheelcycle
Posts: 873
Joined: Sun May 25, 2014 5:55 pm

Re: 90% VTSAX?

Post by fourwheelcycle » Wed May 27, 2020 7:36 am

Responses to OP's question include two major themes: (1) you are doing fine in terms of total savings and you don't have to worry about covering your retirement expenses, and (2) why are you taking on the unnecessary risk of a 90/10 portfolio when you can easily afford to move to a less risky portfolio with a higher fixed income and cash percentage?

For a comparison, I looked at the portfolio of a large educational institution that supports more than 25% of its operating expenses with a 5% average annual distribution from endowment. Clearly, this institution relies critically on income from its endowment. I am sure the trustees do not consider the endowment to be invested in a risky portfolio, yet the overall AA is about 90/10.

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