Where do I go from here?

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Topic Author
sharma's
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Joined: Thu Mar 01, 2018 9:54 pm

Where do I go from here?

Post by sharma's »

Hi everyone,
I have been a avid follower of bogleheads and have applied several of the principles in my investment planning. I have been on a several year long mission to optimize, streamline and automate the finances but now that I am almost there, I sort of feel lost now. I don't know where to go from here. I would love to have the community input into the overall financial health and strategy and the path forward. So here's where I am and what I have done:

Family of 3: 42 (M), 40 (F) and a 9 yr old son. Here are the details on my finances:

Home
Current home price- 1M- 1.2M (1M would be pretty conservative in our market)
Mortgage- 680k
Mortgage rate- 3.25% (Recently refinanced at 0 cost)

Total Combined Salary- ~350k. Approximate savings ~100-125K/year (pre and post tax lumped together)

1. My 401k- Automated bi-weekly investment. Maximum contribution. I am up to 128k as of today (Company started matching 4% this year)

Schwab S&P 500 Index 0.03% -- Large cap.............................................................52%
Vanguard Mid-Cap Index Fund Admiral 0.05%- Mid-cap .............................................16%
Janus Henderson Triton Fund Class I 0.76% -- Small-cap ...........................................16%
Vanguard International Explorer Fund 0.39% -- International stocks..............................16%

2. My wife's 401k- Automated bi-weekly investment. Maximum contribution. She is up to 146k (company matches 4%)

Fidelity target dated fund (0.05% expense)..........................................................100%

Asset Allocation
Domestic Stock.............................................................................................56%
Foreign Stock...............................................................................................35%
Bonds.........................................................................................................7%
Short-Term...................................................................................................3%

3. 529- Automated bi-weekly investment. Started in 2019- ~16k
1k per month is invested in target dated State fund
Asset Allocation
Domestic Stock.............................................................................................40%
Foreign Stock...............................................................................................16%
Bonds.........................................................................................................40%
Short-Term...................................................................................................3%

4. Taxable Vanguard account- Automated daily investment. 50k (2000/month). With the emergency fund completed, we will be saving money into this investment account faster now.
VSTAX(Whole US market).................................................................................70%
VTIAX(Whole Intl market)................................................................................30%

5. Emergency fund- ~150k (1.5 years expenses). I have kept it constant at 150k for close to 8 months now. The goal of this is to slowly creep upto a 2 year expense fund to assuage my job-loss paranoia scenario.

100k of emergency fund is locked in CD's at 2.8-3% for 2 to 5 yr.
Rest is in liquid high-yield savings account.

6. Roth IRA (Backdoor)- Automated weekly investment. maximizing each year- 40k for both me and my wife combined (20k in each)
FSKAX(Whole US market)..................................................................................70%
FTIH(Whole Intl market)...................................................................................30%

7. HSA- Maximum contribution. Just started and have 2k contributed. Company matches 30%.

Everything is automated so that I do not have to make any investment decisions that get impacted by my emotions. However, now I am sort of lost on what the next steps are. Please critique and let me know.

Below is my updated 401k fund choices.

Funds .............................................................Net Expense ratio ..........................Current Allocation

Bond
American Funds Europacific Growth R6.................................0.49 %
Pgim High Yield Z...........................................................0.54 %
Schwab Treasury Inflation Protected Securities Index................0.05 %
Vanguard Mortgage Backed Securities Index Adml....................0.07 %
Metropolitan West Total Return Bond I..................................0.44 %
Vanguard Mortgage Backed Securities Index Adml.....................0.07 %
Vanguard Short Term Federal Admn......................................0.10 %

Equity
American Funds Europacific Growth R6..................................0.49 %
Dfa Emerging Markets Core Equity I......................................0.48 %
Dfa International Core Equity I............................................0.28 %
Dfa Us Small Cap I...........................................................0.35 %
Goldman Sachs Large Cap Growth Insights Inst.........................0.53 %
Janus Henderson Triton I...................................................0.76 %...........................................16.00 %
Principal Mid Cap R5........................................................0.85 %
Schwab S&P 500 Index......................................................0.02 %...........................................52.00 %
Vanguard Equity Income Adml.............................................0.18 %
Vanguard Growth And Income Adml.......................................0.23 %
Vanguard International Explorer Inv.......................................0.39 %...........................................16.00 %
Vanguard Mid Cap Index Fund Adml.......................................0.05 %...........................................16.00 %

Blended
Tiaa-Cref Lifecycle Index 2010 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2015 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2020 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2025 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2030 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2035 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2040 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2045 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2050 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2055 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index 2060 Inst........................................0.10 %
Tiaa-Cref Lifecycle Index Retirement Income Inst......................0.10 %

Money Market
Federated Us Treasury Cash Reserves Inst.................................0.20 %

My wife's 401k choices are below:

Funds ...............................................................Net Expense ratio ..........................Current Allocation

Stocks
Columbia Contrarian   Large Cap....................0.36%
NT S&P 500 IDX NL 4   Large Cap....................0.01%
Atlanta Capital High Quality SMID   Mid-Cap......................0.77%
NT EXT Equity Market Index Fund Mid-Cap......................0.04%
NT MSCI ACWI ex-US IMI Index Fund International................0.07%
MFS International Equity Fund N/A .........................0.55%

Blended
FIAM INX TD 2005 R07/02/2007   ................................0.05%
FIAM INX TD 2010 R07/02/2007   ................................0.05%
FIAM INX TD 2015 R07/02/2007   ................................0.05%
FIAM INX TD 2020 R07/02/2007   ................................0.05%
FIAM INX TD 2025 R07/02/2007   ................................0.05%
FIAM INX TD 2030 R07/02/2007   ................................0.05%
FIAM INX TD 2035 R07/02/2007   ................................0.05%
FIAM INX TD 2040 R07/02/2007   ................................0.05%
FIAM INX TD 2045 R07/02/2007   ................................0.05%.............................................100%
FIAM INX TD 2050 R07/02/2007   ................................0.05%
FIAM INX TD 2055 R06/03/2011   ................................0.05%
FIAM INX TD 2060 R03/09/2015   ................................0.05%
FIAM INX TD 2065 R07/10/2019   ................................0.05%
FIAM INX TD INCOME R07/02/2007   ................................0.05%

Bonds
INVESCO STBL VAL B102/11/2014   Stable Value.................0.30%
NT AGGR BD IDX NL 410/19/2009   Income.......................0.03%
PRU CORE PL BD CL 512/02/2014   Income.......................0.12%
Last edited by sharma's on Sun Jun 07, 2020 11:53 pm, edited 6 times in total.
sailaway
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Re: Where do I go from here?

Post by sailaway »

What are your goals?

Does either 401k offer after tax?

Do you have any other workplace savings options?

Are you sure the next step isn't to just let it run its course? After all, that's the nice bit about automating everything!
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ruralavalon
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Re: Where do I go from here?

Post by ruralavalon »

That's a very good plan in my opinion. I especially like that it is automated.

I would drop Janus Henderson Triton I (JSMGX) ER 0.76% the 401k because of the higher expense ratio and active management.

Does either 401k plan permit Roth contributions?

Does either permit after-tax non-Roth contributions?

Does either permit in-plan Roth conversions of theafter-tax non-Roth contributions?

Does either permit in-service distributions of the after-tax non-Roth contributions?

TFB blog post "The Elusive Mega Backdoor Roth".
Last edited by ruralavalon on Wed Jun 03, 2020 11:57 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
sharma's
Posts: 29
Joined: Thu Mar 01, 2018 9:54 pm

Re: Where do I go from here?

Post by sharma's »

Goal- I would like to achieve financial independence sooner rather than later. That is not to retire but to have peace of mind. I do not have a timeline, but if there is anything I am doing that can be done better from the investment front, I am open to it.

After-tax 401k- I have not explored after tax with 401k. I just read about it and do not yet know how that is different from a taxable account. However, I would like to explore it.

Other options- No other workplace saving options that I can think of.

I sort of think it is time to sit back and relax a little. However, it is surprisingly hard to let go suddenly :shock: and therefore seeking opinion/support, if I can take my foot off the pedal and lets things run its course and focus on other things
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Stinky
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Re: Where do I go from here?

Post by Stinky »

Awesome savings rate! Keep it up.

Each individual account looks reasonable stand-alone. I’d suggest that you develop a consolidated view of your investments so you can track your overall asset allocation.
It's a GREAT day to be alive - Travis Tritt
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

JSMGX- I do not have any small-cap exposure. Rather than cutting it out altogether, I have been thinking about reducing exposure to 10% for both small-cap and mid-cap and increase international to 28%.

What do you think about that?
lakpr
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Re: Where do I go from here?

Post by lakpr »

Some thoughts as I skimmed through your post.

1. High expense funds, immediately exchange them into S&P 500 index fund.
Janus Henderson Triton Fund Class I 0.76% -- Small-cap ...........................................16%
Vanguard International Explorer Fund 0.39% -- International stocks..............................16%


That would change the 401k composition to 84% S&P 500 index fund.
Next, exchange the following fund to the Small Cap Index Fund, if one is available within your plan for 0.1% ER or less.
Vanguard Mid-Cap Index Fund Admiral 0.05%- Mid-cap .............................................16%

According to the Wiki, Approximating Total Stock Market, a 84:16 blend between S&P 500 index fund and Small Cap Index fund would approximate the total stock market.

2. You have VTIAX in taxable account. Having international stock index fund in taxable account provides you with foreign tax credits that you can use to offset your domestic taxes; this is an advantage. But it is also counteracted by international stock index fund distributing more non-qualified dividends, which are taxed like ordinary income; this is a disadvantage.

I suggest, if you can do so without too much of tax bite, sell VTIAX in your taxable account and keep your taxable account purely US stocks. Seek your international stocks either in your Roth IRA (buy more of FTIHX, an equivalent of what you sold in taxable). It lets you keep your sanity during tax time.

3. You mention only one Roth IRA, why not both ??
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ruralavalon
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Re: Where do I go from here?

Post by ruralavalon »

sharma's wrote: Wed Jun 03, 2020 11:57 am JSMGX- I do not have any small-cap exposure. Rather than cutting it out altogether, I have been thinking about reducing exposure to 10% for both small-cap and mid-cap and increase international to 28%.

What do you think about that?
In my opinion a S&P 500 index fund is good enough by itself for investing in U.S. stocks. A S&P 500 index fund covers over 80% 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 two types of funds have had almost identical performance. Portfolio Visualizer, 1993-2020.

In my opinion it's is not necessary to add a small-cap fund, especially at the much higher expense ratio.
Last edited by ruralavalon on Wed Jun 03, 2020 12:10 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

Thanks!
I am always amazed at how much energy goes into managing the saving rate and expenses.
When I see other people splurging, I often wonder, how can they do it!! We make so much and still, feel are always struggling to up our discretionary spending. We feel there is always a better way to spend/save that money. But to each his own I guess.
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ruralavalon
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Re: Where do I go from here?

Post by ruralavalon »

What funds are offered in your employer's 401k plan?

What funds are offered in her employer's 401k plan?

Please give fund names, tickers and expense ratios.

This will help in suggesting any improvements, we can't really say what you could improve without knowing what the choices are.

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
sailaway
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Re: Where do I go from here?

Post by sailaway »

sharma's wrote: Wed Jun 03, 2020 11:52 am Goal- I would like to achieve financial independence sooner rather than later. That is not to retire but to have peace of mind. I do not have a timeline, but if there is anything I am doing that can be done better from the investment front, I am open to it.

After-tax 401k- I have not explored after tax with 401k. I just read about it and do not yet know how that is different from a taxable account. However, I would like to explore it.

Other options- No other workplace saving options that I can think of.

I sort of think it is time to sit back and relax a little. However, it is surprisingly hard to let go suddenly :shock: and therefore seeking opinion/support, if I can take my foot off the pedal and lets things run its course and focus on other things
For understanding after tax, look for mega backdoor Roth. The after tax itself is only helpful as a means to add to Roth.

I wasn't referring to taking the foot off the pedal, just setting the cruise control. It looks like you got a late start on saving and if my quick math was correct, your net worth is still negative (you owe more on the house than you have saved, but then, you didn't mention equity). So you are doing everything right, but have a bit of a hole to climb out of to reach financial independence. The path you are on should lead there, the real question is will you feel better spending time optimizing the last 1%, or would you be happier just letting it run its course while you focus your energy on other things.
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

1. High expense funds, immediately exchange them into S&P 500 index fund:

Janus Henderson Triton Fund Class I 0.76% -- Small-cap ...........................................16%
Thanks. Seems like everyone has picked up on this one. I do not have good selection of small-cap in my account. The consensus however, is that I can let it go altogether.

Vanguard International Explorer Fund 0.39% -- International stocks..............................16%
I do have other international exposure through VTIAX. So this can go is the suggestion?

Vanguard Mid-Cap Index Fund Admiral 0.05%- Mid-cap .............................................16%
This is low cost, but is more volatile. Is the suggestion to cut this out as well?

2. VTIAX- I did not know the tax liability issue. I do have some profits over the last year that will be taxed as ordinary income. Let me think about it. Thanks for pointing it out.

3. Both 401k offer roth options.

4. I need to check for after tax 401k options.

5. I need to check the following:
Does either permit in-plan Roth conversions of theafter-tax non-Roth contributions?

Does either permit in-service distributions of the after-tax non-Roth contributions?

6. The backdoor-roth is combined for both. Equal amount of money in both accounts. So clubbed them together for simplicity.

7. Letting foot-off the pedal vs Cruise-Thank you. I meant cruise. Good point on optimizing 1% vs let it cruise.

8. Overall net-worth- Good points. We got a very late start in our careers with long education paths to follow. Looking to climb out of hole steadily.
lakpr
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Re: Where do I go from here?

Post by lakpr »

sharma's wrote: Wed Jun 03, 2020 12:27 pm 1. High expense funds, immediately exchange them into S&P 500 index fund:

Janus Henderson Triton Fund Class I 0.76% -- Small-cap ...........................................16%
Thanks. Seems like everyone has picked up on this one. I do not have good selection of small-cap in my account. The consensus however, is that I can let it go altogether. Correct.

Vanguard International Explorer Fund 0.39% -- International stocks..............................16%
I do have other international exposure through VTIAX. So this can go is the suggestion?
Partially correct. VTIAX you have it in taxable account. You have FTIHX in your Roth IRA too. Speaking only for myself, I suggest you hold all your international allocation in your Roth IRA so you are not bothered with foreign tax credits and non-qualified dividends.

Vanguard Mid-Cap Index Fund Admiral 0.05%- Mid-cap .............................................16%
This is low cost, but is more volatile. Is the suggestion to cut this out as well?
Yes, as a lot of companies held by the Mid-cap index fund are held by the S&P500 index fund too. It's really almost a duplicate of S&P500, with only a few small-caps in the mix

2. VTIAX- I did not know the tax liability issue. I do have some profits over the last year that will be taxed as ordinary income. Let me think about it. Thanks for pointing it out.

3. Both 401k offer roth options.
I think the question is about after-tax 401k, not Roth 401k. You contribute money to the after-tax 401k, but before there is any significant growth, convert it in-plan to Roth 401k. Also known as Mega Backdoor Roth. Pickup your respective plan's SPD -- Summary Plan Description -- and scan for the words 'after tax' or 'after-tax' with a hyphen.

4. I need to check for after tax 401k options.

5. I need to check the following:
Does either permit in-plan Roth conversions of theafter-tax non-Roth contributions?

Does either permit in-service distributions of the after-tax non-Roth contributions?

6. The backdoor-roth is combined for both. Equal amount of money in both accounts. So clubbed them together for simplicity.
understood. Would be much more clear if you can edit your first post and indicate as such

7. Letting foot-off the pedal vs Cruise-Thank you. I meant cruise. Good point on optimizing 1% vs let it cruise.

8. Overall net-worth- Good points. We got a very late start in our careers with long education paths to follow. Looking to climb out of hole steadily.
Edited to add: why "automated weekly deposits" to the backdoor Roth IRA?? Why not do it at one lumpsum for both of you, convert and be done with it?
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

why "automated weekly deposits" to the backdoor Roth IRA?? Why not do it at one lumpsum for both of you, convert and be done with it?

I do one lumpsum backdoor roth conversion at the begining of the year. This money is held as cash in the core account. Then I do DCA throughout the year to spread my investments.
lakpr
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Re: Where do I go from here?

Post by lakpr »

sharma's wrote: Wed Jun 03, 2020 12:57 pm why "automated weekly deposits" to the backdoor Roth IRA?? Why not do it at one lumpsum for both of you, convert and be done with it?

I do one lumpsum backdoor roth conversion at the begining of the year. This money is held as cash in the core account. Then I do DCA throughout the year to spread my investments.
But why? Why not invest it at once?
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ruralavalon
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Re: Where do I go from here?

Post by ruralavalon »

sharma's wrote: Wed Jun 03, 2020 12:27 pmJanus Henderson Triton Fund Class I 0.76% -- Small-cap ...........................................16%
Thanks. Seems like everyone has picked up on this one. I do not have good selection of small-cap in my account. The consensus however, is that I can let it go altogether.

Vanguard International Explorer Fund 0.39% -- International stocks..............................16%
I do have other international exposure through VTIAX. So this can go is the suggestion?

Vanguard Mid-Cap Index Fund Admiral 0.05%- Mid-cap .............................................16%
This is low cost, but is more volatile. Is the suggestion to cut this out as well?
I would like to know what funds are offered in the 401k plans before commenting further.

It's often better to coordinate investments among all accounts treating all accounts together as a single unified portfolio, rather than treat each account separately.

It's often better to start fund selection in the work-based where there are limited choices, then complete the asset allocation using the nearly unlimited choices available in the IRAs of taxable account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

Done.
Thanks for all the comments and suggestions.
Quick Update:
My 401k does NOT offer after-tax contribution. I am waiting to hear back for my wife's 401k. Will update soon.
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

lakpr wrote: Wed Jun 03, 2020 1:09 pm
sharma's wrote: Wed Jun 03, 2020 12:57 pm why "automated weekly deposits" to the backdoor Roth IRA?? Why not do it at one lumpsum for both of you, convert and be done with it?

I do one lumpsum backdoor roth conversion at the begining of the year. This money is held as cash in the core account. Then I do DCA throughout the year to spread my investments.
But why? Why not invest it at once?
I realize that history suggests I will be better off with a lumpsum investment vs more spread out investment (60 to 40). However, I personally find it very draining to make that decision and have found that I sleep better with this approach.
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

sailaway wrote: Wed Jun 03, 2020 12:13 pm
sharma's wrote: Wed Jun 03, 2020 11:52 am Goal- I would like to achieve financial independence sooner rather than later. That is not to retire but to have peace of mind. I do not have a timeline, but if there is anything I am doing that can be done better from the investment front, I am open to it.

After-tax 401k- I have not explored after tax with 401k. I just read about it and do not yet know how that is different from a taxable account. However, I would like to explore it.

Other options- No other workplace saving options that I can think of.

I sort of think it is time to sit back and relax a little. However, it is surprisingly hard to let go suddenly :shock: and therefore seeking opinion/support, if I can take my foot off the pedal and lets things run its course and focus on other things
For understanding after tax, look for mega backdoor Roth. The after tax itself is only helpful as a means to add to Roth.

I wasn't referring to taking the foot off the pedal, just setting the cruise control. It looks like you got a late start on saving and if my quick math was correct, your net worth is still negative (you owe more on the house than you have saved, but then, you didn't mention equity). So you are doing everything right, but have a bit of a hole to climb out of to reach financial independence. The path you are on should lead there, the real question is will you feel better spending time optimizing the last 1%, or would you be happier just letting it run its course while you focus your energy on other things.
We indeed got a late start to saving 5 years ago. The training part was far too long. But we are where we are.
We are indeed negative if we do not count the equity in the house. We are on track to be positive in about 2 years if things continue the way they have for the last 5 years with no major upheavals. Fingers crossed.
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sharma's
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Re: Where do I go from here?

Post by sharma's »

Stinky wrote: Wed Jun 03, 2020 11:55 am Awesome savings rate! Keep it up.

Each individual account looks reasonable stand-alone. I’d suggest that you develop a consolidated view of your investments so you can track your overall asset allocation.
Thanks
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

ruralavalon wrote: Wed Jun 03, 2020 1:12 pm
sharma's wrote: Wed Jun 03, 2020 12:27 pmJanus Henderson Triton Fund Class I 0.76% -- Small-cap ...........................................16%
Thanks. Seems like everyone has picked up on this one. I do not have good selection of small-cap in my account. The consensus however, is that I can let it go altogether.

Vanguard International Explorer Fund 0.39% -- International stocks..............................16%
I do have other international exposure through VTIAX. So this can go is the suggestion?

Vanguard Mid-Cap Index Fund Admiral 0.05%- Mid-cap .............................................16%
This is low cost, but is more volatile. Is the suggestion to cut this out as well?
I would like to know what funds are offered in the 401k plans before commenting further.

It's often better to coordinate investments among all accounts treating all accounts together as a single unified portfolio, rather than treat each account separately.

It's often better to start fund selection in the work-based where there are limited choices, then complete the asset allocation using the nearly unlimited choices available in the IRAs of taxable account.
Just completed for my 401k.
Shael_AT
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Re: Where do I go from here?

Post by Shael_AT »

We have familiar situations, and I understand the need for a tangible goal / deliverable as well.

May I suggest creating success and celebration milestones? For example:

-Net worth plus mortgage outstanding balance = 0
-Net worth excluding mortgage balance = 1million
-Mortgage pay off at certain %'s which are meaningful to you

Etc

I feel that having goals and ambitions around achieving those milestones has been very helpful in keeping sight as to the "Why" of what we are doing here. Its easy to get too auto-pilot , and also easy to forget what kind of significant familial, personal, professional and social impact having such a great financial position is.
lakpr
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Re: Where do I go from here?

Post by lakpr »

sharma's wrote: Thu Jun 04, 2020 2:47 pm
lakpr wrote: Wed Jun 03, 2020 1:09 pm But why? Why not invest it at once?
I realize that history suggests I will be better off with a lumpsum investment vs more spread out investment (60 to 40). However, I personally find it very draining to make that decision and have found that I sleep better with this approach.
We are talking about $6k, or may be $12k for both of you, out of $100k to $120k you said would be available to invest yearly, given your salary...
toomuchRE
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Re: Where do I go from here?

Post by toomuchRE »

350K salary and total networth of ~550K??

Edit- I see the reason.. Better late than never.. I was so disorganized until I found this forum.. After some focus for the past 7 -8 years, I feel comfortable and almost at a 1M USD portfolio. I bet I would have been at 2M if I had started focusing 15 years ago..
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

toomuchRE wrote: Thu Jun 04, 2020 7:28 pm 350K salary and total networth of ~550K??

Edit- I see the reason.. Better late than never.. I was so disorganized until I found this forum.. After some focus for the past 7 -8 years, I feel comfortable and almost at a 1M USD portfolio. I bet I would have been at 2M if I had started focusing 15 years ago..
Thanks. I too was floundering with no real financial plan early on until I found this forum.
In hindsight, we did the best we could. As immigrants we came to US for higher education with practically nothing. We did not grow up with a lot of money. Our education/training was quite extensive and was completed about 5 years ago after which we got our first "real jobs". We could be in a better situation but have a lot to be thankful for.
Last edited by sharma's on Thu Jun 04, 2020 10:50 pm, edited 1 time in total.
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

lakpr wrote: Thu Jun 04, 2020 2:59 pm
sharma's wrote: Thu Jun 04, 2020 2:47 pm
lakpr wrote: Wed Jun 03, 2020 1:09 pm But why? Why not invest it at once?
I realize that history suggests I will be better off with a lumpsum investment vs more spread out investment (60 to 40). However, I personally find it very draining to make that decision and have found that I sleep better with this approach.
We are talking about $6k, or may be $12k for both of you, out of $100k to $120k you said would be available to invest yearly, given your salary...
Good point. I guess my excuse is that this is new money :D. I am not used to it yet.
Topic Author
sharma's
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Joined: Thu Mar 01, 2018 9:54 pm

Re: Where do I go from here?

Post by sharma's »

Shael_AT wrote: Thu Jun 04, 2020 2:56 pm We have familiar situations, and I understand the need for a tangible goal / deliverable as well.

May I suggest creating success and celebration milestones? For example:

-Net worth plus mortgage outstanding balance = 0
-Net worth excluding mortgage balance = 1million
-Mortgage pay off at certain %'s which are meaningful to you

Etc

I feel that having goals and ambitions around achieving those milestones has been very helpful in keeping sight as to the "Why" of what we are doing here. Its easy to get too auto-pilot , and also easy to forget what kind of significant familial, personal, professional and social impact having such a great financial position is.
Great point and ideas. I agree with you on the need to celebrate milestones to remind us how lucky we are compared to so many others.
neverpanic
Posts: 480
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Re: Where do I go from here?

Post by neverpanic »

sharma's wrote: Wed Jun 03, 2020 11:31 am Total Combined Salary- ~350k. Approximate savings ~100-125K/year (pre and post tax lumped together)
For 42, I'd say you're in amazing shape. Even if you only make 3% on your money over the next 20 years, you should be able to enjoy your golden years. That's a good problem to have! :happy

ps - I'm trying to get like you :wink:
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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sharma's
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Re: Where do I go from here?

Post by sharma's »

neverpanic wrote: Thu Jun 04, 2020 11:03 pm
sharma's wrote: Wed Jun 03, 2020 11:31 am Total Combined Salary- ~350k. Approximate savings ~100-125K/year (pre and post tax lumped together)
For 42, I'd say you're in amazing shape. Even if you only make 3% on your money over the next 20 years, you should be able to enjoy your golden years. That's a good problem to have! :happy

ps - I'm trying to get like you :wink:
Thank you for the kind words.
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sharma's
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Re: Where do I go from here?

Post by sharma's »

sailaway wrote: Wed Jun 03, 2020 12:13 pm
sharma's wrote: Wed Jun 03, 2020 11:52 am Goal- I would like to achieve financial independence sooner rather than later. That is not to retire but to have peace of mind. I do not have a timeline, but if there is anything I am doing that can be done better from the investment front, I am open to it.

After-tax 401k- I have not explored after tax with 401k. I just read about it and do not yet know how that is different from a taxable account. However, I would like to explore it.

Other options- No other workplace saving options that I can think of.

I sort of think it is time to sit back and relax a little. However, it is surprisingly hard to let go suddenly :shock: and therefore seeking opinion/support, if I can take my foot off the pedal and lets things run its course and focus on other things
For understanding after tax, look for mega backdoor Roth. The after tax itself is only helpful as a means to add to Roth.

I wasn't referring to taking the foot off the pedal, just setting the cruise control. It looks like you got a late start on saving and if my quick math was correct, your net worth is still negative (you owe more on the house than you have saved, but then, you didn't mention equity). So you are doing everything right, but have a bit of a hole to climb out of to reach financial independence. The path you are on should lead there, the real question is will you feel better spending time optimizing the last 1%, or would you be happier just letting it run its course while you focus your energy on other things.
Thanks. Just added house equity to the first post.
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sharma's
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Re: Where do I go from here?

Post by sharma's »

ruralavalon wrote: Wed Jun 03, 2020 1:12 pm
sharma's wrote: Wed Jun 03, 2020 12:27 pmJanus Henderson Triton Fund Class I 0.76% -- Small-cap ...........................................16%
Thanks. Seems like everyone has picked up on this one. I do not have good selection of small-cap in my account. The consensus however, is that I can let it go altogether.

Vanguard International Explorer Fund 0.39% -- International stocks..............................16%
I do have other international exposure through VTIAX. So this can go is the suggestion?

Vanguard Mid-Cap Index Fund Admiral 0.05%- Mid-cap .............................................16%
This is low cost, but is more volatile. Is the suggestion to cut this out as well?
I would like to know what funds are offered in the 401k plans before commenting further.

It's often better to coordinate investments among all accounts treating all accounts together as a single unified portfolio, rather than treat each account separately.

It's often better to start fund selection in the work-based where there are limited choices, then complete the asset allocation using the nearly unlimited choices available in the IRAs of taxable account.
Those are great points. Thanks. I am beginning to lean towards 100% S&P 500. Just need courage to change allocation :) .
HomeStretch
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Re: Where do I go from here?

Post by HomeStretch »

You are on the right track with your portfolio. +1 to the tweaks suggested by other posters.

It took time during your several year mission to get your portfolio adjusted. But once it is, it really won’t take a lot of effort to maintain it. If you enjoy spending time on your finances or if you feel the need to do ‘something’ with your finances, you could always turn your attention to other areas such as:
1) is your estate planning up to date
2) aside from refinancing your mortgage, have you reviewed all other expenses for cost savings like requoting insurance recently
3) use a portion of your emergency fund cash to earn a fee bank bonuses
4) earn credit card bonuses
toomuchRE
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Re: Where do I go from here?

Post by toomuchRE »

sharma's wrote: Thu Jun 04, 2020 10:47 pm
toomuchRE wrote: Thu Jun 04, 2020 7:28 pm 350K salary and total networth of ~550K??

Edit- I see the reason.. Better late than never.. I was so disorganized until I found this forum.. After some focus for the past 7 -8 years, I feel comfortable and almost at a 1M USD portfolio. I bet I would have been at 2M if I had started focusing 15 years ago..
Thanks. I too was floundering with no real financial plan early on until I found this forum.
In hindsight, we did the best we could. As immigrants we came to US for higher education with practically nothing. We did not grow up with a lot of money. Our education/training was quite extensive and was completed about 5 years ago after which we got our first "real jobs". We could be in a better situation but have a lot to be thankful for.
I know what you are talking about... One thing to remember, if you plan to live here for ever, do not push money to India to buy RE and stuff.. Keep the money where you live.. Keep minimum outside the country you live. I'm an example of pushing too much and stuck with a portfolio of 1.5 ~ 2M in india and that gave me a lot of headache.. Ofcourse my timing was good and big RE appreciation. But, the portfolio split was like 10% US and 90% india as of 2013. After bogleheads and some planning I'm now at 33% US and 67% India.. My goal is to get it 70:30 in favor of country you live.

Also Do not buy an expensive car like (a model X like I did) until you have more than enough lying around... (That was the only mistake I did after I found bogleheads LOL). After years in US and bad financial planning my net US worth was like 40K USD in 2010.. Aggressive saving without useless spending put me in a OK position.
Last edited by toomuchRE on Fri Jun 05, 2020 9:56 am, edited 2 times in total.
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ruralavalon
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Re: Where do I go from here?

Post by ruralavalon »

In my opinion in your employer's 401k plan the better funds to consider using include:
1) Schwab S&P 500 Index Fund (SWPPX) ER 0.03%;
2) DFA International Core Equity (DFIEX) ER 0.30%; and
3) Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44%.

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

What is your desired asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?

Again please simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.

It's usually better to coordinate investments among all accounts treating all accounts together as a single unified portfolio. It is not necessary to put all elements of the desired asset allocation in each account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
lakpr
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Re: Where do I go from here?

Post by lakpr »

toomuchRE wrote: Fri Jun 05, 2020 9:49 am
sharma's wrote: Thu Jun 04, 2020 10:47 pm
toomuchRE wrote: Thu Jun 04, 2020 7:28 pm 350K salary and total networth of ~550K??

Edit- I see the reason.. Better late than never.. I was so disorganized until I found this forum.. After some focus for the past 7 -8 years, I feel comfortable and almost at a 1M USD portfolio. I bet I would have been at 2M if I had started focusing 15 years ago..
Thanks. I too was floundering with no real financial plan early on until I found this forum.
In hindsight, we did the best we could. As immigrants we came to US for higher education with practically nothing. We did not grow up with a lot of money. Our education/training was quite extensive and was completed about 5 years ago after which we got our first "real jobs". We could be in a better situation but have a lot to be thankful for.
I know what you are talking about... One thing to remember, if you plan to live here for ever, do not push money to India to buy RE and stuff.. Keep the money where you live.. Keep minimum outside the country you live. I'm an example of pushing too much and stuck with a portfolio of 1.5 ~ 2M in india and that gave me a lot of headache.. Ofcourse my timing was good and big RE appreciation. But, the portfolio split was like 10% US and 90% india as of 2013. After bogleheads and some planning I'm now at 33% US and 67% India.. My goal is to get it 70:30 in favor of country you live.

Also Do not buy an expensive car like (a model X like I did) until you have more than enough lying around... (That was the only mistake I did after I found bogleheads LOL). After years in US and bad financial planning my net US worth was like 40K USD in 2010.. Aggressive saving without useless spending put me in a OK position.
I will add to this ... if you are not able to protect your real-estate investment in India, do not buy. I made the mistake of sinking $100k into buying a plot of land, and it was promptly kabzaa-ed (for non-Hindi speakers, that means forcible occupation)
toomuchRE
Posts: 124
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Re: Where do I go from here?

Post by toomuchRE »

Fully agreed. Plots yielded highest yield but worst risk. I'm on a mission to unwind it and sold off 2 in past 2 years. Your point is exactly why I don't count them in my overall networth. Realized it late but I did..
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sharma's
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Re: Where do I go from here?

Post by sharma's »

ruralavalon wrote: Fri Jun 05, 2020 9:51 am In my opinion in your employer's 401k plan the better funds to consider using include:
1) Schwab S&P 500 Index Fund (SWPPX) ER 0.03%;
2) DFA International Core Equity (DFIEX) ER 0.30%; and
3) Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44%.

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

What is your desired asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?

Again please simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.

It's usually better to coordinate investments among all accounts treating all accounts together as a single unified portfolio. It is not necessary to put all elements of the desired asset allocation in each account.
1, Thanks. Luckily this Friday my fund options got revised and looks like the new ones are cheaper. Probably this is a result of my small company moving up in the total employee headcount and thus able to negotiate better rates. These are now updated above. Would you revise your suggestion based on this new list of fund options?
2. Wife's options are now also uploaded
3. Approximate desired AA allocation:
90- 100% stocks, 0-10% bonds
60-70% US, 30-40% international
4. Based on the recommendations of this board I have already made the following changes:
a. All new investments in the taxable Vanguard account is VTSAX ($100/day. $500/week)
b. All new investments in my and wife's Roth IRA is FTIHX ($200/week)
Last edited by sharma's on Mon Jun 08, 2020 9:44 am, edited 1 time in total.
Topic Author
sharma's
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Re: Where do I go from here?

Post by sharma's »

lakpr wrote: Fri Jun 05, 2020 10:02 am
toomuchRE wrote: Fri Jun 05, 2020 9:49 am
sharma's wrote: Thu Jun 04, 2020 10:47 pm
toomuchRE wrote: Thu Jun 04, 2020 7:28 pm 350K salary and total networth of ~550K??

Edit- I see the reason.. Better late than never.. I was so disorganized until I found this forum.. After some focus for the past 7 -8 years, I feel comfortable and almost at a 1M USD portfolio. I bet I would have been at 2M if I had started focusing 15 years ago..
Thanks. I too was floundering with no real financial plan early on until I found this forum.
In hindsight, we did the best we could. As immigrants we came to US for higher education with practically nothing. We did not grow up with a lot of money. Our education/training was quite extensive and was completed about 5 years ago after which we got our first "real jobs". We could be in a better situation but have a lot to be thankful for.
I know what you are talking about... One thing to remember, if you plan to live here for ever, do not push money to India to buy RE and stuff.. Keep the money where you live.. Keep minimum outside the country you live. I'm an example of pushing too much and stuck with a portfolio of 1.5 ~ 2M in india and that gave me a lot of headache.. Ofcourse my timing was good and big RE appreciation. But, the portfolio split was like 10% US and 90% india as of 2013. After bogleheads and some planning I'm now at 33% US and 67% India.. My goal is to get it 70:30 in favor of country you live.

Also Do not buy an expensive car like (a model X like I did) until you have more than enough lying around... (That was the only mistake I did after I found bogleheads LOL). After years in US and bad financial planning my net US worth was like 40K USD in 2010.. Aggressive saving without useless spending put me in a OK position.
I will add to this ... if you are not able to protect your real-estate investment in India, do not buy. I made the mistake of sinking $100k into buying a plot of land, and it was promptly kabzaa-ed (for non-Hindi speakers, that means forcible occupation)
Thanks for the warning. I am sorry to hear that. I agree with you that India is an exciting option for RE investment but is tricky and management is not easy. Fortunately, I have no RE investments in India. I do have ~ 40k cash in CD and ~20K in Stocks. The plan is to start moving the cash to US as soon as I can visit India post Covid-19.
Since this money is not here, it is not included above.
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sharma's
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Re: Where do I go from here?

Post by sharma's »

toomuchRE wrote: Fri Jun 05, 2020 9:49 am
sharma's wrote: Thu Jun 04, 2020 10:47 pm
toomuchRE wrote: Thu Jun 04, 2020 7:28 pm 350K salary and total networth of ~550K??

Edit- I see the reason.. Better late than never.. I was so disorganized until I found this forum.. After some focus for the past 7 -8 years, I feel comfortable and almost at a 1M USD portfolio. I bet I would have been at 2M if I had started focusing 15 years ago..
Thanks. I too was floundering with no real financial plan early on until I found this forum.
In hindsight, we did the best we could. As immigrants we came to US for higher education with practically nothing. We did not grow up with a lot of money. Our education/training was quite extensive and was completed about 5 years ago after which we got our first "real jobs". We could be in a better situation but have a lot to be thankful for.
I know what you are talking about... One thing to remember, if you plan to live here for ever, do not push money to India to buy RE and stuff.. Keep the money where you live.. Keep minimum outside the country you live. I'm an example of pushing too much and stuck with a portfolio of 1.5 ~ 2M in india and that gave me a lot of headache.. Ofcourse my timing was good and big RE appreciation. But, the portfolio split was like 10% US and 90% india as of 2013. After bogleheads and some planning I'm now at 33% US and 67% India.. My goal is to get it 70:30 in favor of country you live.

Also Do not buy an expensive car like (a model X like I did) until you have more than enough lying around... (That was the only mistake I did after I found bogleheads LOL). After years in US and bad financial planning my net US worth was like 40K USD in 2010.. Aggressive saving without useless spending put me in a OK position.
Great points!! I too made this mistake early on. I sent too much money and lost some on FOREX upheavals and some because I cannot reliably monitor stock investments in India. Lessons were learnt but a little too late. Total money sent/stocked in India~ 60k in a mix of Cash and Stocks. 30k of this is my money, 30k of this is familial money. I plan to use 30k towards my retirement planning and 30k towards my sons 529k.
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sharma's
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Re: Where do I go from here?

Post by sharma's »

HomeStretch wrote: Fri Jun 05, 2020 6:58 am You are on the right track with your portfolio. +1 to the tweaks suggested by other posters.

It took time during your several year mission to get your portfolio adjusted. But once it is, it really won’t take a lot of effort to maintain it. If you enjoy spending time on your finances or if you feel the need to do ‘something’ with your finances, you could always turn your attention to other areas such as:
1) is your estate planning up to date
2) aside from refinancing your mortgage, have you reviewed all other expenses for cost savings like requoting insurance recently
3) use a portion of your emergency fund cash to earn a fee bank bonuses
4) earn credit card bonuses
Thanks. Good points. I am not itching to take on more work, but will do if required:

1. Estate planning- Making our will is a top priority. Only 1 kid, so decisions are easy there.
2. Yes- Almost everything is mostly optimized. I have started favoring life quality improvement over cost, but overall, I am quite frugal. Most work around the house is DIY.
3. Used to do this. I am not sure I can do this now or have the time or energy for this now.
4. Used to do this. I am not sure I can do this now or have the time or energy for this now.
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ruralavalon
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Re: Where do I go from here?

Post by ruralavalon »

sharma's wrote: Mon Jun 08, 2020 12:02 am
ruralavalon wrote: Fri Jun 05, 2020 9:51 am In my opinion in your employer's 401k plan the better funds to consider using include:
1) Schwab S&P 500 Index Fund (SWPPX) ER 0.03%;
2) DFA International Core Equity (DFIEX) ER 0.30%; and
3) Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44%.



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

What is your desired asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?

Again please simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.

It's usually better to coordinate investments among all accounts treating all accounts together as a single unified portfolio. It is not necessary to put all elements of the desired asset allocation in each account.
1, Thanks. Luckily this Friday my fund options got revised and looks like the new ones are cheaper. Probably this is a result of my small company moving up in the total employee headcount and thus able to negotiate better rates. These are now updated above. Would you revise your suggestion based on this new list of fund options?
2. Wife's options are now also uploaded
3. Approximate desired AA allocation:
90- 100% stocks, 0-10% bonds
60-70% US, 30-40% international
4. Based on the recommendations of this board I have already made the following changes:
a. All new investments in the taxable Vanguard account is VTSAX ($100/day. $500/week)
b. All new investments in my and wife's Roth IRA is FTIHX ($200/week)
Asset allocation.
Approximate desired AA allocation:
90- 100% stocks, 0-10% bonds
60-70% US, 30-40% international
At ages 40 and 42 I normally suggest a little higher bond allocation, about 20-25% 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 (8/20/2019), "The Best Diversifiers for Your Equity Portfolio".


In my opinion around 30% of stocks in international stocks is within the range of what is reasonable. 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 10% bonds, 25% international stocks and 65% 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 and placement.
In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".

It is often better to coordinate investments among all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, SIMPLE IRA, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in a taxable account or any IRAs. It is not necessary to put all elements of the desired asset allocation in each account.

This approach lets you avoid having to use sub-par, sub-optimal or high expense funds often found in work-based plans. Do not try to put all components of the asset allocation in every account.

This approach also allows for better tax-efficiency if you use taxable account too. Wiki article, "Tax-efficient Fund Placement".


I would make the same suggestion for funds to consider using in your 401k,
1) Schwab S&P 500 Index Fund (SWPPX) ER 0.03%;
2) DFA International Core Equity (DFIEX) ER 0.30%; and
3) Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44%.
But for a bond fund you could substitute Vanguard Mortgage Backed Securities Index (VMBSX) ER 0.07% for Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44%.

There are excellent funds offered in her employer's 401k plan, she is fortunate. In my opinion in her employer's 401k plan the better funds to consider using are:
1) Northern Trust S&P 500 Index CIT ER 0.01%;
2) Northern Trust MSCI ACWI ex-US IMI Index CIT ER 0.07%; and
3) Northern Trust Aggregate Bond Index CIT ER 0.03%.


Domestic stocks.
For domestic stocks I suggest using a total stock market index fund where available. "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 over 80% 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 of the two types of funds has been almost identical. portfolio visualizer, 1993-2020. 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?".


International stocks.
In her 401k Northern Trust MSCI ACWI ex-US IMI Index CIT ER 0.07% is a total international stock fund investing stocks of companies of all sizes in both developed and emerging markets (MSCI pdf fact sheet), with a very low expense ratio.

In his 401k DFA International Core Equity (DFIEX) ER 0.30% although not an index fund is a good international stock fund, investing in stocks of companies of all sizes, primarily in developed markets, with a value tilt, and a moderate expense ratio. You could use that fund if necessary.


Bonds.
In her 401k Northern Trust Aggregate Bond Index CIT ER 0.03% is a total bond market index fund, with a very low expense ratio.

In his 401k Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44, although actively managed is a decent intermediate-term, investment grade bond fund, with good diversification and a modest expense ratio. You could use that if necessary.


In a taxable account use very tax-efficient stock index funds. Wiki article "Tax-efficient fund placement". At Vanguard I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Stock index funds are also well suited to any type of account.

Bond funds are not very tax-efficient. Ordinarily a bond fund should be placed in a tax-advantaged account, preferably a tax-deferred account like a traditional 401k. Wiki article "Tax-efficient fund placement".

To make portfolio management and rebalancing easy it is often better to have at least one large tax-advantaged account which contains all three basic asset types (bonds, international stocks, and domestic stocks). Don’t try to put all components of the asset allocation in every account.


Contributions.
Approximate savings ~100-125K/year (pre and post tax lumped together)
You indicate that you are currently making maximum annual contributions to the Roth IRAs.

How much (in dollars) is the maximum employer match in each 401k?

I assume you are currently making the maximum employee contribution of $19.5k annually to both 401ks. Correct?

Please let us know what you find out about after-tax non-Roth contributions in her employer's 401k plan, and the ability to do a mega backdoor Roth.




Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Current portfolio size = $364k. New annual contributions = about $120k. The asset allocation is: 10% bonds; 25% international stocks; and 65% domestic stocks.

The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Vanguard (14% of total; $50k
10%, Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%
04%, Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%

His 401k (35% of total; $128k
35%, Schwab S&P 500 Index Fund (SWPPX) ER 0.03%
00%, DFA International Core Equity (DFIEX) ER 0.30%
00%, Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44

Her 401k (40% of total; $146k
15%, Northern Trust S&P 500 Index CIT ER 0.01%;
15%, Northern Trust MSCI ACWI ex-US IMI Index CIT ER 0.07%
10%, Northern Trust Aggregate Bond Index CIT ER 0.03%

His Roth IRA @Fidelity (06% of total; $20k; adds $6k annually)
06%, Fidelity® Total Market Index Fund (FSKAX) ER 0.015%

Roth IRA @ Fidelity (06% of total; $20k; adds $6k annually)
06%, Fidelity® Total International Index Fund (FTIHX) ER 0.06%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the asset allocation by exchanging between funds inside hrrb401k account.

Avoid exchanging between funds in the taxable account, which can create income tax liability.


Education.
A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

To go beyond the most basic I suggest that you also read one or two books on investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom".

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
sharma's
Posts: 29
Joined: Thu Mar 01, 2018 9:54 pm

Re: Where do I go from here?

Post by sharma's »

ruralavalon wrote: Mon Jun 08, 2020 11:42 am
sharma's wrote: Mon Jun 08, 2020 12:02 am
ruralavalon wrote: Fri Jun 05, 2020 9:51 am In my opinion in your employer's 401k plan the better funds to consider using include:
1) Schwab S&P 500 Index Fund (SWPPX) ER 0.03%;
2) DFA International Core Equity (DFIEX) ER 0.30%; and
3) Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44%.



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

What is your desired asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?

Again please simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.

It's usually better to coordinate investments among all accounts treating all accounts together as a single unified portfolio. It is not necessary to put all elements of the desired asset allocation in each account.
1, Thanks. Luckily this Friday my fund options got revised and looks like the new ones are cheaper. Probably this is a result of my small company moving up in the total employee headcount and thus able to negotiate better rates. These are now updated above. Would you revise your suggestion based on this new list of fund options?
2. Wife's options are now also uploaded
3. Approximate desired AA allocation:
90- 100% stocks, 0-10% bonds
60-70% US, 30-40% international
4. Based on the recommendations of this board I have already made the following changes:
a. All new investments in the taxable Vanguard account is VTSAX ($100/day. $500/week)
b. All new investments in my and wife's Roth IRA is FTIHX ($200/week)
Asset allocation.
Approximate desired AA allocation:
90- 100% stocks, 0-10% bonds
60-70% US, 30-40% international
At ages 40 and 42 I normally suggest a little higher bond allocation, about 20-25% 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 (8/20/2019), "The Best Diversifiers for Your Equity Portfolio".


In my opinion around 30% of stocks in international stocks is within the range of what is reasonable. 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 10% bonds, 25% international stocks and 65% 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 and placement.
In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".

It is often better to coordinate investments among all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, SIMPLE IRA, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited choices available in a taxable account or any IRAs. It is not necessary to put all elements of the desired asset allocation in each account.

This approach lets you avoid having to use sub-par, sub-optimal or high expense funds often found in work-based plans. Do not try to put all components of the asset allocation in every account.

This approach also allows for better tax-efficiency if you use taxable account too. Wiki article, "Tax-efficient Fund Placement".


I would make the same suggestion for funds to consider using in your 401k,
1) Schwab S&P 500 Index Fund (SWPPX) ER 0.03%;
2) DFA International Core Equity (DFIEX) ER 0.30%; and
3) Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44%.
But for a bond fund you could substitute Vanguard Mortgage Backed Securities Index (VMBSX) ER 0.07% for Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44%.

There are excellent funds offered in her employer's 401k plan, she is fortunate. In my opinion in her employer's 401k plan the better funds to consider using are:
1) Northern Trust S&P 500 Index CIT ER 0.01%;
2) Northern Trust MSCI ACWI ex-US IMI Index CIT ER 0.07%; and
3) Northern Trust Aggregate Bond Index CIT ER 0.03%.


Domestic stocks.
For domestic stocks I suggest using a total stock market index fund where available. "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 over 80% 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 of the two types of funds has been almost identical. portfolio visualizer, 1993-2020. 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?".


International stocks.
In her 401k Northern Trust MSCI ACWI ex-US IMI Index CIT ER 0.07% is a total international stock fund investing stocks of companies of all sizes in both developed and emerging markets (MSCI pdf fact sheet), with a very low expense ratio.

In his 401k DFA International Core Equity (DFIEX) ER 0.30% although not an index fund is a good international stock fund, investing in stocks of companies of all sizes, primarily in developed markets, with a value tilt, and a moderate expense ratio. You could use that fund if necessary.


Bonds.
In her 401k Northern Trust Aggregate Bond Index CIT ER 0.03% is a total bond market index fund, with a very low expense ratio.

In his 401k Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44, although actively managed is a decent intermediate-term, investment grade bond fund, with good diversification and a modest expense ratio. You could use that if necessary.


In a taxable account use very tax-efficient stock index funds. Wiki article "Tax-efficient fund placement". At Vanguard I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Stock index funds are also well suited to any type of account.

Bond funds are not very tax-efficient. Ordinarily a bond fund should be placed in a tax-advantaged account, preferably a tax-deferred account like a traditional 401k. Wiki article "Tax-efficient fund placement".

To make portfolio management and rebalancing easy it is often better to have at least one large tax-advantaged account which contains all three basic asset types (bonds, international stocks, and domestic stocks). Don’t try to put all components of the asset allocation in every account.


Contributions.
Approximate savings ~100-125K/year (pre and post tax lumped together)
You indicate that you are currently making maximum annual contributions to the Roth IRAs.

How much (in dollars) is the maximum employer match in each 401k?

I assume you are currently making the maximum employee contribution of $19.5k annually to both 401ks. Correct?

Please let us know what you find out about after-tax non-Roth contributions in her employer's 401k plan, and the ability to do a mega backdoor Roth.




Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Current portfolio size = $364k. New annual contributions = about $120k. The asset allocation is: 10% bonds; 25% international stocks; and 65% domestic stocks.

The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Vanguard (14% of total; $50k
10%, Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%
04%, Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%

His 401k (35% of total; $128k
35%, Schwab S&P 500 Index Fund (SWPPX) ER 0.03%
00%, DFA International Core Equity (DFIEX) ER 0.30%
00%, Metropolitan West Total Return Bond Fund Institutional (MWTIX) ER 0.44

Her 401k (40% of total; $146k
15%, Northern Trust S&P 500 Index CIT ER 0.01%;
15%, Northern Trust MSCI ACWI ex-US IMI Index CIT ER 0.07%
10%, Northern Trust Aggregate Bond Index CIT ER 0.03%

His Roth IRA @Fidelity (06% of total; $20k; adds $6k annually)
06%, Fidelity® Total Market Index Fund (FSKAX) ER 0.015%

Roth IRA @ Fidelity (06% of total; $20k; adds $6k annually)
06%, Fidelity® Total International Index Fund (FTIHX) ER 0.06%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the asset allocation by exchanging between funds inside hrrb401k account.

Avoid exchanging between funds in the taxable account, which can create income tax liability.


Education.
A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

To go beyond the most basic I suggest that you also read one or two books on investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom".

If you have any questions just ask.

I hope that this helps.
Thanks for the comprehensive response. Looks like I have some reading and planning and rebalancing to do.
Also, finally heard back from my wife's 401k. After-tax non-Roth contribution are NOT allowed.
User avatar
ruralavalon
Posts: 19711
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Where do I go from here?

Post by ruralavalon »

Thanks for the comprehensive response. Looks like I have some reading and planning and rebalancing to do.
Also, finally heard back from my wife's 401k. After-tax non-Roth contribution are NOT allowed.
Sorry that mega backdoor Roth won't work, but availability of that is fairly rare.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
sharma's
Posts: 29
Joined: Thu Mar 01, 2018 9:54 pm

Re: Where do I go from here?

Post by sharma's »

ruralavalon wrote: Tue Jun 09, 2020 9:31 am
Thanks for the comprehensive response. Looks like I have some reading and planning and rebalancing to do.
Also, finally heard back from my wife's 401k. After-tax non-Roth contribution are NOT allowed.
Sorry that mega backdoor Roth won't work, but availability of that is fairly rare.
Thanks for the information and advice. I have much to read and learn.
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