Be gentle [Help with portfolio]

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NapaDrew
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Be gentle [Help with portfolio]

Post by NapaDrew »

Having frittered away my 20s and 30s I’m now playing catch-up. I have a pension starting at 60 that will pay 80-100k annually, I have a 457 I’ve started maxing, both of those are set up to be hands off. My questions are about two other things:

1) what’s the current thought on portfolio composition of a Roth IRA? I can tolerate risk and it is far less substantial than my 457?

2) I started door dashing on the side and think it’s a good side hustle to make money to bridge age 55 (I’m 44 now but would like to retire at 55) and 60 (when pension kicks in and my other stuff is accessible). No kids or wife just me and the dog. For now making about 750 a week. One CFA friend says 50/50 split between a 2035 target fund and an aggressive vanguard growth fund. Another suggests a 10 year cash value life insurance plan.

Any thoughts are appreciated, I’m in awe of this site and am a touch overwhelmed.

Thanks
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David Jay
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Re: Be gentle [Help with portfolio]

Post by David Jay »

NapaDrew wrote: Tue Jun 23, 2020 9:10 amAnother suggests a 10 year cash value life insurance plan.
No, No, No!

And never talk to that so-called advisor ever again. They call themselves an advisor but are nothing but a life-insurance salesperson.

[oops, not so gentle :( ]
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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David Jay
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Re: Be gentle [Help with portfolio]

Post by David Jay »

Okay, after that outburst, Welcome to the Forum!

At BH we teach that the primary control knob for risk versus reward in Asset Allocation (AA), the ratio of stocks to bonds. Maximum anticipated (not guaranteed) return would be 100% stocks. But this can be a wild ride, as the last 4 months have shown with a 30% drop in the stock market.

I like to say that one's asset allocation is a negotiation between the head and the gut. The most expensive thing one can do is to sell at the bottom of a big stock drop. That is the "gut" part - it is painful to watch the value of your portfolio drop. The head says that the best gain is from stocks.

So you need to pick an AA that you can live with through thick and thin. If you don't know then start with 60/40 (stocks to bonds). Then start with a Total Stock Market fund and a Total Bond fund. Those are the only two funds you need in your Roth until you have, say, $50,000. Then go back and learn about international investing and decide if you want to add a 3rd fund.

It really is that simple. Investing is simple, but not easy.

Your "Investing 101" is on the Wiki here: https://www.bogleheads.org/wiki/Boglehe ... art-up_kit
Last edited by David Jay on Tue Jun 23, 2020 9:46 am, edited 2 times in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
retired@50
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Re: Be gentle [Help with portfolio]

Post by retired@50 »

NapaDrew wrote: Tue Jun 23, 2020 9:10 am
Any thoughts are appreciated, I’m in awe of this site and am a touch overwhelmed.

Thanks
For a Roth IRA, I'd suggest using a stock index fund. Either a Total Stock Market Index fund like VTSAX or an S&P 500 Index fund like VFIAX.
Depending on how much you want to hold in bonds, those bonds / bond index funds could be held in the workplace account (457).

I'd avoid the life insurance. Single people generally don't need life insurance. One of the main ideas behind life insurance is that you provide the death benefit to your wife and children (in the event of your untimely death) because these are the people that depend on your income. In other words, losing your remaining lifetime income would create a financial hardship for someone. It sounds like your dog is the only living being that depends on your income. Find a no-kill animal shelter in your area and mention the organization by name in your will and you're covered.

Regards,
This is one person's opinion. Nothing more.
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BL
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Re: Be gentle [Help with portfolio]

Post by BL »

I would scratch the insurance idea.
02nz
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Re: Be gentle [Help with portfolio]

Post by 02nz »

OP, welcome to the forum.

Are you already maxing all tax-advantaged accounts? You mention a 457 but do you also have a 403b? Are you making traditional (tax-deferred) or Roth contributions? Are you funding a Roth IRA? Generally, you should not put money into taxable accounts until you've maxed out all available tax-advantaged space. As for bridging the years between 55 and 60 (actually the year in which you turn 59.5): read this blog post on the ways of accessing retirement funds early https://www.madfientist.com/how-to-acce ... nds-early/.

And you may not even need a bridge between 55 and 60: If you retire from an employer in the year in which you turn 55, or later, you can withdraw from that plan without the 10% early distribution penalty. You need to make sure your plan allows that kind of withdrawal, though, and you cannot retire at 53 and wait until 55, you have to retire no earlier than the year in which you turn 55.

I agree about the 10-year cash value life plan being bad. Insurance is insurance - buy term life if needed (sounds like you may not). Don't mix it up with investments.

You'll get better and more answers if you use this format: https://www.bogleheads.org/wiki/Asking_ ... _questions. It's a lot of info, but that's because these things interact in pretty complex ways.
jand87
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Re: Be gentle [Help with portfolio]

Post by jand87 »

When you say making $750 a week, is that your entire income, your Doordash $$, or your full time job? I assume if you're pension is going to be in the range of $80-$100K that you must have a pretty high salary job?
wilked
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Re: Be gentle [Help with portfolio]

Post by wilked »

NapaDrew wrote: Tue Jun 23, 2020 9:10 am Having frittered away my 20s and 30s I’m now playing catch-up. I have a pension starting at 60 that will pay 80-100k annually
I'd say you're well ahead of the game, no catch up necessary with a pension like that. I made some basic assumptions and that pension is worth something like $1.5-2MM
NapaDrew wrote: Tue Jun 23, 2020 9:10 am , I have a 457 I’ve started maxing, both of those are set up to be hands off. My questions are about two other things:

1) what’s the current thought on portfolio composition of a Roth IRA? I can tolerate risk and it is far less substantial than my 457?
I do focus on tax efficiency, check the wiki for that. Otherwise I treat Roth same as 457 / 401K
[/quote]
NapaDrew wrote: Tue Jun 23, 2020 9:10 am 2) I started door dashing on the side and think it’s a good side hustle to make money to bridge age 55 (I’m 44 now but would like to retire at 55) and 60 (when pension kicks in and my other stuff is accessible). No kids or wife just me and the dog. For now making about 750 a week. One CFA friend says 50/50 split between a 2035 target fund and an aggressive vanguard growth fund. Another suggests a 10 year cash value life insurance plan.

Any thoughts are appreciated, I’m in awe of this site and am a touch overwhelmed.

Thanks
I'm never a fan of "target fund and this fund". Just pick the right target fund and go for that.

DO NOT do the life insurance, and be wary of any further advice from that person.
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David Jay
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Re: Be gentle [Help with portfolio]

Post by David Jay »

retired@50 wrote: Tue Jun 23, 2020 9:44 amDepending on how much you want to hold in bonds, those bonds / bond index funds could be held in the workplace account (457).
I like this suggestion better than mine. Start with just a Total Stock Market fund in Roth, but learn about Asset Allocation and hold a bond fund in your 457 as needed.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
jand87
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Re: Be gentle [Help with portfolio]

Post by jand87 »

As posted above, if you have the 457 you should be able to begin withdrawing at 55, which could bridge your gap to 60. I would immediately begin maxing that out. When you turn 50 you can contribute an additional $6,000, so you could be saving $25,500 a year in that. You should also talk to your plan representative about the special catch-up provision where you could contribute $39,000 a year for your final 3 years.

If you take this seriously and max out all your accounts for the next 11 years I think you'll be in great shape, especially with the pension coming and whatever other little jobs you do to keep ya busy. :sharebeer
retiredjg
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Re: Be gentle [Help with portfolio]

Post by retiredjg »

NapaDrew wrote: Tue Jun 23, 2020 9:10 am Having frittered away my 20s and 30s I’m now playing catch-up. I have a pension starting at 60 that will pay 80-100k annually, I have a 457 I’ve started maxing, both of those are set up to be hands off. My questions are about two other things:

1) what’s the current thought on portfolio composition of a Roth IRA? I can tolerate risk and it is far less substantial than my 457?
Don't think of the composition of each account. Think of the overall portfolio. For help with that, you need to provide more information. See the link at the bottom of this message for how to do that.

2) I started door dashing on the side and think it’s a good side hustle to make money to bridge age 55 (I’m 44 now but would like to retire at 55) and 60 (when pension kicks in and my other stuff is accessible). No kids or wife just me and the dog. For now making about 750 a week. One CFA friend says 50/50 split between a 2035 target fund and an aggressive vanguard growth fund. Another suggests a 10 year cash value life insurance plan.
You do not need life insurance if you have enough money to bury yourself.

About what to invest in....see #1 above.
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ruralavalon
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Re: Be gentle [Help with portfolio]

Post by ruralavalon »

Welcome to the forum :) .

NapaDrew wrote: Tue Jun 23, 2020 9:10 am Having frittered away my 20s and 30s I’m now playing catch-up. I have a pension starting at 60 that will pay 80-100k annually, I have a 457 I’ve started maxing, both of those are set up to be hands off. My questions are about two other things:

1) what’s the current thought on portfolio composition of a Roth IRA? I can tolerate risk and it is far less substantial than my 457?

2) I started door dashing on the side and think it’s a good side hustle to make money to bridge age 55 (I’m 44 now but would like to retire at 55) and 60 (when pension kicks in and my other stuff is accessible). No kids or wife just me and the dog. For now making about 750 a week. One CFA friend says 50/50 split between a 2035 target fund and an aggressive vanguard growth fund. Another suggests a 10 year cash value life insurance plan.

Any thoughts are appreciated, I’m in awe of this site and am a touch overwhelmed.

Thanks
Absolutely DO NOT buy a cash value life insurance policy. That is a horrible investing idea. Don't even talk to an insurance salesman about investing. Since you are single with no dependents you do not need any life insurance.

Open your IRA at a low cost provider like Vanguard. In your Roth IRA use a very diversified stock index fund like Vanguard Total Stock Market Index Fund (VTSAX).

What funds do you currently use in your 457 account. What funds are offered in your employer's 457 plan? Please give fund names, tickers and expense ratios.

Is your employer a government or government ahency? Or is your employer a charity or non-profit. It makes a difference for a 457 plan.

How much is currently in each account? how much do you contribute annually to each account?

It is important to coordinate investments among all accounts, treating all accounts together as a single unified portfolio, rather than look at the Roth IRA by itself.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
DeskJumper
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Re: Be gentle [Help with portfolio]

Post by DeskJumper »

Another poster above mentioned the face value of your pension alone. You said you expect between 80-100k/yr in pension payouts. To elaborate, that is akin to retiring with a $2.5M retirement portfolio and using the 4% rule to withdraw $100,000, so you're in great shape based on that alone. Will you also qualify for social security? With your pension you could delay SS until 70 and get your max benefit and consider that like an annuity to hedge against inflation. In reality, as you get into your 70s, 80s, and beyond your lifestyle costs will wind down as you become less active. What is your goal once you exit the workforce? Maintain current standard of living? Comfortable retirement with dignity? Give generously and leave a legacy to your heirs? When answered, these questions will help you get a better picture of what you need, but I believe you're closer than you think.
nanameg
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Re: Be gentle [Help with portfolio]

Post by nanameg »

David Jay wrote: Tue Jun 23, 2020 9:35 am
NapaDrew wrote: Tue Jun 23, 2020 9:10 amAnother suggests a 10 year cash value life insurance plan.
No, No, No!

And never talk to that so-called advisor ever again. They call themselves an advisor but are nothing but a life-insurance salesperson.

[oops, not so gentle :( ]
Very very VERY important to listen to this advice and keep away from this insurance person.

I got burned in my late 30’s from such a person. Not only did I lose college fund money, we paid for whole life insurance FOREVER and just got out of it...and because of this person and the bad experience I’ve been afraid to get advice from anyone and made a big error on my own this March.

RUN, don’t walk, away. Now.
Topic Author
NapaDrew
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Complete beginner

Post by NapaDrew »

[Thread merged into here, see below. --admin LadyGeek]

I posted the other day, but after diving into the forum I realized I was far too light on the detail. As always, you guys are awesome, and any advice you can give would be awesome!

Emergency fund – 25k in savings

Debt – approx. 100k student loans at 3%, 400 a month (while I am paying, at 400 a month, I am comfortable with this expenditure into perpetuity), currently in deferment for 2 more years)

Filing status – single

Tax rate – federal 24%, state 9%

State – California

Age – 44

Desired allocation – I am straight guessing her, but 90% stocks/10% bonds (less my emergency cash), I am not risk averse

Assets:

Taxable –

Brokerage account - Just started working door dash on the side, depositing all of the money into an etrade individual brokerage account. I intend to put 3k a month from door dash, and 2k per month extra savings into this account. I have 5k saved, have it available to invest. My initial thinking was a 50-50 split between a vanguard 2030 target fund and a vanguard aggressive growth fund).

Pension – I am to receive 2% of my retirement salary per year of service, eligible at 60. If I retire at 55, this would be roughly 40% of 200k, if I retire at 60, 50% of 200k. I am trying to retire at 55.

Non-taxable-

457 – at 15k now, depositing 1500 a month, allocated as follows:
DFA Real Estate Securities Portfolio Fund – 6.4%
Putman Stable Value Fund – 3%
Vanguard Growth Index Fund – 11.3%
Vanguard Institutional Index Fund – 20.4%
Vanguard International Value Fund – 13.2%
Vanguard MidCap Index Fund – 14.8%
Vanguard Small Cap Growth Index – 2.1%
Vanguard Small Cap Index Fund – 3.9%
Vanguard total Bond Market Index Fund – 10.2%
Vanguard Total International Stock index fund – 14.7%


This is a government 457, I have no other employer sponsored options.


Roth IRA – at 27500, depositing the max annually
AOA – 70%
VTI – 30%

When structuring my 457, I followed the advice of two friends, the Roth I have no rational logic.
Doing some basic reading, I would love to re-allocate what I am doing to be better balanced, also considering the benefits of having certain types of investments in varying vehicles.
Last edited by NapaDrew on Thu Jun 25, 2020 2:20 pm, edited 4 times in total.
bryanm
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Re: Complete beginner

Post by bryanm »

Welcome to the forum! Others will come along with better insight than me, but here's what I see:

You have significant student loan debt. What is the interest rate, and are you incurring interest during deferment? (Also, can you explain how this is $400 a month in deferment, when deferment typically stops payments?) Almost regardless of these answers, I would suggest paying this down before investing in a taxable account.

You mention a 457 plan. Typically, those you have a 457 available also have another tax-advantaged account available, like a 401k or a 403b. Is that available to you? If so, consider investing in that before investing in a taxable account. (Side note: there are two-types of 457: governmental and non-governmental. If you have a non-governmental 457, there is extra risk to that and you should let the forum know.)

Asset allocations:

Your 457 investments are a bit all over the place. You're invested in Vanguards Int'l value fund, and Vanguard's Total Int'l fund. Is that intentional? Similarly, with all the growth/value midcap/smalcap funds, you're allocation differs significantly from total stock market. Nothing inherently wrong with that, but I'm not sure it's what you want. I would consider simplifying, perhaps with Vanguard Institutional Index Fund, Vanguard total Bond Market Index Fund, and Vanguard Total International Stock index fund. That covers 90% of your bases, and can then be tuned to your liking. You could add in Small Cap Index to get some US small caps, for example (which are a minority of the total US stock indicies). I don't see any reason to play with growth/value funds unless you know what you're doing. Similar advice for real estate, and to a lesser extent mid-caps (with apologies to Mel).

Your Roth is more streamlined, but do you really understand what AOA does? Personally, I don't. I would probably invest solely in VTI (and maybe some bonds, to meet my target AA) rather than invest in something I don't really understand.
02nz
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Re: Complete beginner

Post by 02nz »

OP, it would be better to edit your earlier thread with the information you provided here. Use the pencil icon to do that. (I'm going to report this so this moderators can merge if that's the right way to handle.)

Also, you did not respond to any of the posts in the other thread. You're obviously not required to, but you'll get better and more responses to follow-ups if we can get some sense of how you're absorbing the information already provided so far - e.g., you agree/disagree, don't understand, whatever.

I agree that the student debt is a much bigger deal than tweaking your existing holdings. You have too many funds but that's an easy fix in a tax-advantaged account.
Last edited by 02nz on Thu Jun 25, 2020 1:54 pm, edited 2 times in total.
bryanm
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Re: Complete beginner

Post by bryanm »

NapaDrew wrote: Thu Jun 25, 2020 12:56 pm Doing some basic reading, I would love to re-allocate what I am doing to be better balanced, also considering the benefits of having certain types of investments in varying vehicles.
Regarding this point, the basics (with exceptions to each rule) are:
  • Taxable is generally much less desirable than tax-advantaged.
    {*}The differences between Traditional and Roth are often overblown. They're basically equal in that they're both much better than taxable. Any significant differences are going to be based on the state of an unknown future.
  • You can tax-adjust between Trad/Roth to meet your true desired AA.
I think the rest is just noise at your current position. For example, I could tell you that from a tax standpoint, you generally want your bonds in a tax-advantaged account (Roth or Trad), since they generate income each year that would otherwise be taxed (whereas stock indexes don't typically generate that much). But I think that's going to be a very minor gain to you until you have more significant taxable holdings.
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Re: Be gentle [Help with portfolio]

Post by LadyGeek »

NapaDrew - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.
02nz wrote: Thu Jun 25, 2020 1:49 pm OP, it would be better to edit your earlier thread with the information you provided here. Use the pencil icon to do that. (I'm going to report this so this moderators can merge if that's the right way to handle.)
Got it, thanks!
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Topic Author
NapaDrew
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Re: Be gentle [Help with portfolio]

Post by NapaDrew »

Thanks for the input on both threads, now merged. I appreciate the input from all, truly.
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Re: Complete beginner

Post by retired@50 »

NapaDrew wrote: Thu Jun 25, 2020 12:56 pm
Filing status – single

Tax rate – federal 24%, state 2%

State – California
This is puzzling. I'm not aware of how someone could be in the 24% Federal and only 2% state?

I would have guessed CA rate of 9.3% based on this table.
https://www.tax-brackets.org/californiataxtable

Regards,
This is one person's opinion. Nothing more.
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ruralavalon
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Re: Complete beginner

Post by ruralavalon »

NapaDrew wrote: Thu Jun 25, 2020 12:56 pm [Thread merged into here, see below. --admin LadyGeek]

I posted the other day, but after diving into the forum I realized I was far too light on the detail. As always, you guys are awesome, and any advice you can give would be awesome!

Emergency fund – 25k in savings

Debt – approx. 100k student loans at 3%, 400 a month (while I am paying, at 400 a month, I am comfortable with this expenditure into perpetuity), currently in deferment for 2 more years)

Filing status – single

Tax rate – federal 24%, state 2%

State – California

Age – 44

Desired allocation – I am straight guessing her, but 90% stocks/10% bonds (less my emergency cash), I am not risk averse
At age 44 even with pension eligibility I suggest a larger bond allocation, around 20-30% of total portfolio.

I suggest around 20-30% of stocks in international stocks.



NapaDrew wrote: Thu Jun 25, 2020 12:56 pm Assets:

Taxable –

Brokerage account - Just started working door dash on the side, depositing all of the money into an etrade individual brokerage account. I intend to put 3k a month from door dash, and 2k per month extra savings into this account. I have 5k saved, have it available to invest. My initial thinking was a 50-50 split between a vanguard 2030 target fund and a vanguard aggressive growth fund).
In a taxable brokerage account use very tax-efficient stock index funds. I usually suggest a combination of
1) Vanguard Total Stock Market Index Fund (VTSAX) or the ETF (VTI); and
2) Vanguard Total International Stock Index Fund (VTIAX) or the ETF (VXUS).

With your large student debt please consider redirecting your contributions to taxable investing to accelerated pay off the of the debt.


NapaDrew wrote: Thu Jun 25, 2020 12:56 pmPension – I am to receive 2% of my retirement salary per year of service, eligible at 60. If I retire at 55, this would be roughly 40% of 200k, if I retire at 60, 50% of 200k. I am trying to retire at 55.

Non-taxable-

457 – at 15k now, depositing 1500 a month, allocated as follows:
DFA Real Estate Securities Portfolio Fund – 6.4%
Putman Stable Value Fund – 3%
Vanguard Growth Index Fund – 11.3%
Vanguard Institutional Index Fund – 20.4%
Vanguard International Value Fund – 13.2%
Vanguard MidCap Index Fund – 14.8%
Vanguard Small Cap Growth Index – 2.1%
Vanguard Small Cap Index Fund – 3.9%
Vanguard total Bond Market Index Fund – 10.2%
Vanguard Total International Stock index fund – 14.7%


This is a government 457, I have no other employer sponsored options.
Will your employer's 457 plan permit Roth contributions?

Will your pension be in addition to Social Security? What is your profession or occupation? How much do you currently have in traditional tax-deferred accounts (just $15k)?

In my opinion the better funds to consider using would include:
1) Vanguard Institutional Index Fund;
2) Vanguard Total International Stock index fund; and
3) Vanguard total Bond Market Index Fund.





NapaDrew wrote: Thu Jun 25, 2020 12:56 pm Roth IRA – at 27500, depositing the max annually
AOA – 70%
VTI – 30%

When structuring my 457, I followed the advice of two friends, the Roth I have no rational logic.
Doing some basic reading, I would love to re-allocate what I am doing to be better balanced, also considering the benefits of having certain types of investments in varying vehicles.
In a Roth IRA I generally suggest stock index funds such as:
1) Vanguard Total Stock Market Index Fund (VTSAX) or the ETF (VTI); and
2) Vanguard Total International Stock Index Fund (VTIAX) or the ETF (VXUS).
Last edited by ruralavalon on Thu Jun 25, 2020 2:28 pm, edited 5 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
NapaDrew
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Re: Be gentle [Help with portfolio]

Post by NapaDrew »

I am a government attorney (public defender). My social security will be negligible.
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ruralavalon
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Re: Be gentle [Help with portfolio]

Post by ruralavalon »

NapaDrew wrote: Thu Jun 25, 2020 2:22 pm I am a government attorney (public defender). My social security will be negligible.
Do you contribute to the Social Security system?

Does your employer's 457 plan permit Roth contributions?
Last edited by ruralavalon on Thu Jun 25, 2020 2:31 pm, edited 1 time in total.
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NapaDrew
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Re: Be gentle [Help with portfolio]

Post by NapaDrew »

I do not. Just have a few years of contributions from my early years.
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Re: Be gentle [Help with portfolio]

Post by ruralavalon »

NapaDrew wrote: Thu Jun 25, 2020 2:30 pm I do not. Just have a few years of contributions from my early years.
So I think traditional tax-deferred contributions to the 457 plan will likely be better than Roth contributions even if the plan permits Roth contributions.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: Be gentle [Help with portfolio]

Post by sergeant »

I think you would be better served by picking a Target Date Fund (2050?) that has your desired asset allocation and hold it in all parts of your portfolio. It might not be totally optimal but the simplification and professional management will likely leave you way ahead of anything you construct and then start to tinker with.

I have started this transition with our portfolio so DW doesn't have to bother with it when the time comes.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
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NapaDrew
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Re: Be gentle [Help with portfolio]

Post by NapaDrew »

Re 457 v Roth, I am fully funding both to their annual contribution limits.
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Re: Be gentle [Help with portfolio]

Post by ruralavalon »

NapaDrew wrote: Thu Jun 25, 2020 4:22 pm Re 457 v Roth, I am fully funding both to their annual contribution limits.
.
So $19.5k annually to the 457, and $6k annually to the Roth IRA?

How much are you currently contributing annually to the taxable brokerage account?
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NapaDrew
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Re: Be gentle [Help with portfolio]

Post by NapaDrew »

Yes 19.5 to the 457, and 6 to the Roth. I just started the brokerage. I plan on two funding sources:

Better lifestyle management - 2k per month
Door dash - 2/3k per month (after taxes)
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Re: Be gentle [Help with portfolio]

Post by LadyGeek »

For new investors - Tracking your asset allocations to the nearest 5% is fine. There's no need for anything more precise, such as 1% or even 0.1%. It's a LOT more work for little added benefit.

For example, Fund A has 12.1% of your portfolio and Fund B has 1.3%. Adjust Fund A to 10% and remove Fund B (0%) which will simplify your portfolio. (Adjust the other funds in your portfolio to get a total of 100%.)

^^^ This is a numerical example, not what the OP should do. Follow the advice in this thread, then use the above rule-of-thumb when you're ready to do something with your fund allocations.
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ruralavalon
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Re: Be gentle [Help with portfolio]

Post by ruralavalon »

New annual contributions.
NapaDrew wrote: Fri Jun 26, 2020 8:20 am Yes 19.5 to the 457, and 6 to the Roth. I just started the brokerage. I plan on two funding sources:

Better lifestyle management - 2k per month
Door dash - 2/3k per month (after taxes)
You savings rate seems excellent, that's a very good way to start.

You have $48-60k annually going to a taxable brokerage account. I suggest diverting some of that to accelerated pay off of the "approx. 100k student loans at 3%".

I realize that the interest rate of is low and the monthly payment is modest. But pay off gives you at guaranteed return of 3%, you can't get a guaranteed 3% return in any other investment.

Consider using around half of that, about $25k annually, to pay off student debt.


Asset allocation.
At age 44 even with a pension (little Social Security) I suggest about 20-30% 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";
3) Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio". and
4) White Coat Investor (9/23/2016), "In Defense of Bonds".

I suggest around 20 - 30% of stocks in international stocks. 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 30% bonds, 20% international stocks, and 50% 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".

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 (like Vanguard Institutional Index Fund in your 457) 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?".

If you want to add the small cap index fund, then an 82/18 mix of the S&P 500 and extended market funds will mimic the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.

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. (In the example portfolio I used the ETF share classes of those funds, since you had ben considering ETFs.)

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".

Withdrawals from a Roth IRA are tax free, so its better to use only stock index funds with high expected returns in a Roth IRA. A balanced fund like iShares Core Aggressive Allocation ETF (AOA) holds some bonds, should not be held in a Roth account in my opinion.

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.


Example portfolio.
Here is an example portfolio you could consider. This is a three fund type portfolio, modified to accommodate what is offered in your employer's 457 plan. Total current portfolio= $47.5k. New annual contributions = 50k??? The target asset allocation is 30% bonds, 20% international stocks and 50% domestic stocks.

The suggestion is to switch the existing balance and new contributions to the funds indicated. All percentages are rounded off,so do not add up exactly. Sometimes I state 00% to indicate funds you might want to add later.

Brokerage account (11% of current total; $5k; adds $25k ??? annually = 50% of new annual contributions)
00%, Vanguard Total Stock Market ETF (VTI) ER 0.03%
11%, Vanguard Total International Stock ETF (VXUS) ER 0.08%

Governmental 457 (32% of current total; $15k; adds $19.5k annually = 39% of new annual contributions)
00%, Vanguard Institutional Index Fund (S&P 500 index fund, > 80% of U.S. stock market)
02%, Vanguard Total International Stock Index Fund
30%, Vanguard Total Bond Market Index Fund

Roth IRA (59% of current total; $27.5k; adds $6k annually = 12% of new annual contributions)
52%, Vanguard Total Stock Market ETF (VTI) ER 0.03%
07%, Vanguard Total International Stock ETF (VXUS) ER 0.08%


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 the 457 account or the Roth IRA.

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
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