Portfolio Review Please

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Topic Author
masrepus
Posts: 61
Joined: Fri Apr 24, 2015 12:14 pm

Portfolio Review Please

Post by masrepus »

Hi all,

I have been a lurker for a few years trying to pick up some knowledge. I appreciate any critique of my portfolio and questions below. Currently 48, spouse is 41 and I have no real idea when I will retire. I feel like I want to retire early but I have another 15 years before the last kid would be done with college so I doubt I would retire before then. Please share thoughts on if the assets below look like they could support early retirement.

Thanks, Mas

Emergency funds: 6 months, cash, not included in retirement portfolio described below

Debt:
Mortgage: 3.00% 250k left on 500k, 30 year paying at 15 year schedule.
Auto: 17k 3 years left
Kids: ...

Tax Filing Status: Married Filing Jointly

Tax Rate: Federal: 24%-32%, I sit right in the middle depending on bonus and RSUs the company provides. Likely 32%. State: 5.25%

State of Residence: NC

Age: 48, Spouse 41

Desired Asset allocation: 90/10 stocks/bonds
Desired International allocation: 10% of stocks

Retirement portfolio about 1.1M. RSUs provide another 700k as of today, on 4 year vest. Likely to get 100-200k additional each year if Covid goes away. I prefer to not count on the RSU's, though they do provide opportunities when they pay off.

Ratio is 89/11 stocks/bonds, international is 9% of stocks. I am fine with more US stock and lower international.

Current retirement assets

Taxable at Fidelity
0.06% cash
2.61% Vanguard S&P 500 ETF (VOO) (0.03%)
1.42% MegaCorp from ESPP, required 6 month hold before sell, will purchase more VOO after hold

His 401k at Fidelity
1.63% Vanguard Institutional 500 Index Trust (no symbol) (0.012%)
6% match

His Roth 401k at Fidelity
2.73% Vanguard Institutional 500 Index Trust (no symbol) (0.012%)

His Roth IRA at Fidelity
8.91% Fidelity Total Market Index Fund (FSKAX) (0.015%)

His HSA at Fidelity
3.04% Fidelity Total Market Index Fund (FSKAX) (0.015%)
I include this as part of my retirement portfolio

His Rollover IRA at Fidelity
12.86% Fidelity Total Market Index Fund (FSKAX) (0.015%)

His Rollover IRA at Fidelity
44.38% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)
9.04% Vanguard Total International Stock Index Fund (VTIAX) (0.11%)
10.93% Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)

Her Roth 401k at Vanguard
2.39% Vanguard Total Stock Market Index Fund (VTSAX) (0.04%)
_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions
$19,500.00 his 401k
$12,300.00 his 401k company match
$25,200.00 his Roth 401k after-tax, after-tax dollars are automatically converted to Roth as soon as contributed
$6000.00 her Roth IRA - via backdoor Roth
$xx taxable, variable depending on RSUs, but possible 20,000.00-30,000.00

Available funds

Funds available in his 401(k)
Dodge & Cox Stock Fund (DODGX) (0.52%)
Fidelity Contrafund Commingled Pool Class 2 (0.38%)
Fidelity Growth Company Commingled Pool (0.43%)
Vanguard Institutional 500 Index Trust (no symbol) (0.012%)
John Hancock Funds Disciplined Value Mid Cap Fund Class R6 (JVMRX) (0.77%)
MassMutual Select Mid Cap Growth Fund Class I (MEFZX) (0.71%)
Vanguard Mid-Cap Index Fund Institutional Plus Shares (VMCPX) (0.03%)
Vanguard Small-Cap Index Fund Institutional Plus Shares (VSCPX) (0.03%)
American Funds EuroPacific Growth Fund® Class R-6 (RERGX) (0.46%)
Vanguard Total International Stock Index Fund Institutional Shares (VTSNX) (0.08%)
Vanguard Total World Stock Index Fund Institutional Shares (VTWIX) (0.08%)
Spartan Real Estate Index Pool Class C (0.07%)
Vanguard Target Retirement 2015-2065 Trust Select (0.05%)
PIMCO High Yield Fund Institutional Class (PHIYX) (0.59%)
MetWest Total Return Bond Fund - Class C (0.3%)
Vanguard Short-Term Bond Index Fund Institutional Plus Shares (VBIPX) (0.04%)
Vanguard Institutional Total Bond Market Index Trust (0.03%)
Fidelity Investments Money Market Treasury Only - Institutional Class (FRSXX) (0.19%)
BrokerageLink

Questions:
1. Does the 90/10 ratio look too aggressive considering the large number of RSU's? I don't really count on the RSU's in my retirement, but I do use them for the retirement. My expenses are high and I fully max my 401k pre-tax and my wife's Roth. I don't typically have much left over. My bonus and RSU's are paying off more in the past couple years and I fully fund the post-tax of 25,200.00 in my Roth 401k.

2. Do the current investments look good? I like the 3-fund portfolio. I was at a 70/30 originally but over the last few years wanted to get to a 90/10 so you can see I have been going pretty much Total Stock for all new contributions over the last years. Is there any additional diversification I could add or is it needed?

3. Do you see any cons to moving my Rollover IRA from Vanguard into my MegaCorp 401k. My plan here is I want to free up my IRAs so that I can contribute to a backdoor Roth. I use the basic 3-fund portfolio and have the same funds essentially in the 401k, but at lower ER's. The Total Stock would be SP500 in the 401k, though I could add the mid cap and small cap funds, but I am good with the SP500. I also wanted to simplifyy and have everything at Fidelity.

4. Are there better options to using the extra RSU and bonus money? As of today, I would be vesting about 100,000.00 per year. Of that I fund my 401k Roth at 25,200.00 and my wife's backdoor Roth at 6000.00. In a couple years I hit 50 and can add more. I can add 6000.00 to my Roth if I roll the IRA into the 401k. That leaves a good chunk leftover. My plan there was to put it into the taxable into more VOO (SP500) or VTI (Total Stock). I debated some MUB/VTEB (municipal bonds) being in the 24-32% brackets and ICSH/VCSH (utra-short, short bonds) to grab some yield but I think I am find with VOO/VTI yield. This taxable is not part of my emergency fund so I can be aggressive with it or not freak out if it dropped in half.

5. Would I-bonds be a good choice to put some extra cash away? It could be a second tier of EF if needed. I don't see a need for it in the first year. It isn't a lot I would put away but maybe it could add some diversity to the portfolio. I also can pull from the ROTH IRA's and can move money from the Roth 401k to the Roth IRA if I needed more from an emergency fund.

6. Any value in contributing more to 529's or is the taxable better? I have four kids - hence why my expenses are higher than I would like. Each has a 529 in the NY 529 plan invested in Vanguard aggressive target date funds at 0.13% ER. Aggregate value is 100,000.00. That is likely well-below what four years of college for each kid would cost so I need more. I am sure the 100k would be used up by the kids that do go to college so I am not worried about using what is there today. I don't necessarily care for the 529 and saw it just as a way to ensure I had something for the kids - I had a batch of RSUs vest so I dumped directly into the four 529's. I am pretty sure we wouldn't get any aid so having money in the taxable shouldn't hurt. but it seems I have better options with the money in the taxable.

7. Related to 1 in regards to retirement if I wanted to retire early or should I do more for my spouse. I really have no idea how long I will work. I work all the time now. We have been lucky my spouse hasn't to work and stays home with the kids doing the real work. But that means she doesn't have any Social Security so everything is based on our portfolio above. And I still have the four kids to get through school. Mortgage would be paid off about the time the last kid would be done with school - 15 years, so I don't think I would retire before then. Am I banking too heavily on the RSUs to augment my accumulation? Is there something more I should be doing for my wife or is there any advantaged space I can use beyond the backdoor Roth?
02nz
Posts: 5723
Joined: Wed Feb 21, 2018 3:17 pm

Re: Portfolio Review Please

Post by 02nz »

1. There's no right/wrong answer, but I personally find 90/10 too aggressive at age 48. I think 25-35% bonds is a more reasonable range. For comparison, Vanguard's Target Retirement 2035 fund (which is closest to you if you plan to retire at 65) is 75/25.

2. Nothing wrong with the portfolio. Some people slice and dice but it's fine to keep it simple. I would be at a minimum of 30% international (as percentage of stock allocation, not total), but as you know there are differing opinions on that.

3. Since you have good options in the 401k, it makes sense to roll the tIRA into the 401k so you can do the backdoor Roth. Note that the pro-rata rule only applies to the conversion step, not to contribution. So nothing is preventing you from making a nondeductible tIRA contribution of $6K for 2019 by July 15! Once you have the tax-deferred tIRA out of the way, you can convert and pay income tax only on gains in the meantime.

4. I stick to Treasury bond funds myself. Corporate bonds are too correlated with the stock market, and municipal bonds have risks as well. I prefer to take my risks on the equities side.

5. Don't really have an opinion, maybe others more familiar with I-bonds can chime in on whether they make sense in your situation.

6. Yes contribute more to 529s if you only have $100K and 4 kids! "Better options with the money in the taxable" isn't going to overcome the tax drag.

7. Well if she's not working outside the home then you can only fund the IRA for her. She'll get up to 1/2 of your Social Security benefit and your full benefit if you pre-decease her.

RSUs are not my area of expertise, perhaps others will have advice there.
Topic Author
masrepus
Posts: 61
Joined: Fri Apr 24, 2015 12:14 pm

Re: Portfolio Review Please

Post by masrepus »

O2nz, thank you for the response.
02nz wrote: Sat Jul 11, 2020 3:50 pm 3. Since you have good options in the 401k, it makes sense to roll the tIRA into the 401k so you can do the backdoor Roth. Note that the pro-rata rule only applies to the conversion step, not to contribution. So nothing is preventing you from making a nondeductible tIRA contribution of $6K for 2019 by July 15! Once you have the tax-deferred tIRA out of the way, you can convert and pay income tax only on gains in the meantime.
Does this work since the IRA still existed for the 2019 year? I thought that by the end of the year the IRA had to be rolled into the 401k such that there were no IRAs at the end of the year for the year that the backdoor was done? Meaning if I contribute the 6k now to a tIRA and backdoor it for 2019, I still had the rollover IRA for 2019.

I assume you are saying go ahead and contribute to a tIRA at 6k. Start the rollover of the rollover IRA to the 401k. The 6k could get some gains until the rollover completes. Then do the backdoor and pay taxes on the small gains. But I still am unsure if I can do this for 2019 since I still had the rolloverIRA in 2019.
02nz
Posts: 5723
Joined: Wed Feb 21, 2018 3:17 pm

Re: Portfolio Review Please

Post by 02nz »

masrepus wrote: Sat Jul 11, 2020 6:20 pm O2nz, thank you for the response.
02nz wrote: Sat Jul 11, 2020 3:50 pm 3. Since you have good options in the 401k, it makes sense to roll the tIRA into the 401k so you can do the backdoor Roth. Note that the pro-rata rule only applies to the conversion step, not to contribution. So nothing is preventing you from making a nondeductible tIRA contribution of $6K for 2019 by July 15! Once you have the tax-deferred tIRA out of the way, you can convert and pay income tax only on gains in the meantime.
Does this work since the IRA still existed for the 2019 year? I thought that by the end of the year the IRA had to be rolled into the 401k such that there were no IRAs at the end of the year for the year that the backdoor was done? Meaning if I contribute the 6k now to a tIRA and backdoor it for 2019, I still had the rollover IRA for 2019.

I assume you are saying go ahead and contribute to a tIRA at 6k. Start the rollover of the rollover IRA to the 401k. The 6k could get some gains until the rollover completes. Then do the backdoor and pay taxes on the small gains. But I still am unsure if I can do this for 2019 since I still had the rolloverIRA in 2019.
The key is that to avoid the pro-rata rule you cannot have a tax-deferred IRA balance on Dec 31 of the year in which you do the conversion step. Per the wiki (https://www.bogleheads.org/wiki/Backdoor_Roth): In any case, you have until December 31st of the tax year in which you make the Backdoor Roth IRA conversion to dispose of the Traditional IRA. If you still have a Traditional IRA balance on December 31st, then the pro-rata rule will apply to the conversion.

So yes, you can contribute now for 2019 (and 2020), as long as you get the tax-deferred rollover IRA transferred into the 401k before Dec 31, you'll be able to do the conversion step this year and only have to pay taxes on gains in the time between contribution and conversion. The presence of a rollover IRA on December 31, 2019, is irrelevant, it only meant that you could not have performed the conversion in calendar year 2019 without the pro-rata rule applying.

If for some reason you didn't manage to roll the tIRA into the 401k this year, just wait to convert next year. Contributions are not affected.
Topic Author
masrepus
Posts: 61
Joined: Fri Apr 24, 2015 12:14 pm

Re: Portfolio Review Please

Post by masrepus »

Ah, OK, that makes sense now. I thought the conversion had to be reported along with the year of the contribution and same amount. But that is wrong - the conversion is an independent event and can be for any amount you want to convert.

That is very helpful. Thank you for the advice.
Topic Author
masrepus
Posts: 61
Joined: Fri Apr 24, 2015 12:14 pm

Re: Portfolio Review Please

Post by masrepus »

02nz wrote: Sat Jul 11, 2020 3:50 pm 6. Yes contribute more to 529s if you only have $100K and 4 kids! "Better options with the money in the taxable" isn't going to overcome the tax drag.
other thought on the 529 vs the taxable - if you did not want to do the 529, and just keep the money in a high yield savings account, that would have the same tax drag as the taxable account, right, since in both accounts the interest and dividends are both counted as income and taxed the same? Or maybe less since the yields on savings is currently lower that what you would get in a Total Stock Market. So if you did have to choose between HYS or taxable, it would be better to choose taxable - assuming you didn't need this money in the short-term and were fine with the extra risk. It's a good problem to have to make more money.
02nz
Posts: 5723
Joined: Wed Feb 21, 2018 3:17 pm

Re: Portfolio Review Please

Post by 02nz »

masrepus wrote: Sun Jul 12, 2020 12:53 pm
02nz wrote: Sat Jul 11, 2020 3:50 pm 6. Yes contribute more to 529s if you only have $100K and 4 kids! "Better options with the money in the taxable" isn't going to overcome the tax drag.
other thought on the 529 vs the taxable - if you did not want to do the 529, and just keep the money in a high yield savings account, that would have the same tax drag as the taxable account, right, since in both accounts the interest and dividends are both counted as income and taxed the same? Or maybe less since the yields on savings is currently lower that what you would get in a Total Stock Market. So if you did have to choose between HYS or taxable, it would be better to choose taxable - assuming you didn't need this money in the short-term and were fine with the extra risk. It's a good problem to have to make more money.
Interest from a savings account and dividends from bonds/bond funds are taxed like ordinary income (although there are variations, e.g. treasuries are exempt from state/local tax). If you hold a tax-efficient stock fund (index ETF or Vanguard index mutual fund) in taxable, you'll generally only have dividends to deal with, and no capital gains until you sell. Those dividends will be almost all qualified (at least for broad U.S. index stock funds), so taxed at the more favorable LTCG rate.
BernardShakey
Posts: 162
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Portfolio Review Please

Post by BernardShakey »

With four kids, some of whom it seems are quite a ways from college age, I would significantly ramp up the 529 contributions. The tax free growth would really pay off for you. You could easily spend a half million putting all four through undergraduate if they live away.
An important key to investing is having a well-calibrated sense of your future regret.
Topic Author
masrepus
Posts: 61
Joined: Fri Apr 24, 2015 12:14 pm

Re: Portfolio Review Please

Post by masrepus »

BernardShakey wrote: Sun Jul 12, 2020 3:31 pm With four kids, some of whom it seems are quite a ways from college age, I would significantly ramp up the 529 contributions. The tax free growth would really pay off for you. You could easily spend a half million putting all four through undergraduate if they live away.
Agreed, this is likely the place I need to invest. I have the bulk of my assets tied up in retirement accounts so they are not that liquid. The first good return on RSUs a couple years back is what I used to seed the 529s. From there most of what I had left over I pushed into the mega-backdoor Roth. Now it is looking like I might have some more income to so something with.

With the latest RSUs looking a bit better I think that is where I am getting the itch to build up the taxable rather than the 529s. RSUs are letting me do the mega-backdoor Roth. I figure I can pull out contributions if needed to cover college expenses just as well as using a 529 - but I have more control. I think I was hedging with a little in 529's and a little in the Roth. I know the oldest will go to college and the next also likely. The other two are younger and it remains to be seen what they will do. And kids are costly. I am amazed at how much costs keep increasing. You think they would level off as they get older but they just get more expensive. That is another reason I was itching for the taxable to have more options if needed. Having cash in an EF doesn't appeal to me so the taxable seemed reasonable if I could build it up enough to sustain a loss if it happened. I also had the thought maybe this year would be beefing up the taxable and then next would be back to the 529s. Maybe I will split the two this year. The RSUs could also end up worthless which bugs me as if I did move everything to the 529s I couldn't touch it if needed.

Another BH said they believe paying for college is better than leaving money to your kids. I agree. I grew up poor as dirt but my parents made sure I got my grades and into college. Didn't have any money to pay for college so I had loans and it has paid off for me. It has me in the position I am in now to be able to help my kids get a good start.
BernardShakey
Posts: 162
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Portfolio Review Please

Post by BernardShakey »

OP - you certainly have options. The Roth via Mega Back Door does give you more flexibility. One risk is that the Roth money (principal) could get spent on things other than college --- I too started with Roth for college but then home improvements and other stuff came calling. The 529 kind of locks it in.

I too have seem some years of generous bonuses (not RSUs) and then, just when you start expecting them to continue, they disappear.

And you are right regarding the cost of kids. It's doesn't ever seem to stop. These later years for mine (high school and college) have been substantially more expensive. But often our salaries keep up with it and more --- that's key...keeping yourself relevant and employable for the long haul.
An important key to investing is having a well-calibrated sense of your future regret.
Topic Author
masrepus
Posts: 61
Joined: Fri Apr 24, 2015 12:14 pm

Re: Portfolio Review Please

Post by masrepus »

Does anyone know if the Vanguard Institutional Trust funds are essentially the same as the admiral versions of the funds?

I am wondering if the funds are the same and just different classes with lower ERs and if that would make the IRA rollover into the 401k quicker or better and not be out of the market or require selling before moving.

One difference, in my IRA I have VTSAX, total stock, but I have the SP500 in the 401k. I could convert from VTSAX to VFIAX (SP500) in the IRA before rolling over.

IRA has VTSAX, VTIAX and VTBLX for total stock, international and total bond admiral shares respectively. The 401k has the trust versions of VTIAX and VTBLX at lower ERs.
02nz
Posts: 5723
Joined: Wed Feb 21, 2018 3:17 pm

Re: Portfolio Review Please

Post by 02nz »

masrepus wrote: Mon Jul 13, 2020 9:05 am Does anyone know if the Vanguard Institutional Trust funds are essentially the same as the admiral versions of the funds?

I am wondering if the funds are the same and just different classes with lower ERs and if that would make the IRA rollover into the 401k quicker or better and not be out of the market or require selling before moving.

One difference, in my IRA I have VTSAX, total stock, but I have the SP500 in the 401k. I could convert from VTSAX to VFIAX (SP500) in the IRA before rolling over.

IRA has VTSAX, VTIAX and VTBLX for total stock, international and total bond admiral shares respectively. The 401k has the trust versions of VTIAX and VTBLX at lower ERs.
Institutional shares have even lower expense ratios than Admiral. I think the "trust" part means it's a Collective Investment Trust (CIT). CITs are structured differently from mutual funds, with no dividend/capital gains distributions (which wouldn't be a tax issue in a 401k anyway).

You'll likely need to liquidate the IRA before rolling into 401k, I'm almost certain you cannot transfer in kind and cannot "convert" from VFIAX to the institutional trust.
Topic Author
masrepus
Posts: 61
Joined: Fri Apr 24, 2015 12:14 pm

Re: Portfolio Review Please

Post by masrepus »

Thank you to everyone that replied in this thread with advice. I wanted to post a followup to my Rollover IRA to 401k to free up the backdoor Roth option.

In my case I wanted to end up at Fidelity because most of my accounts are there already. I had a large Rollover IRA at Vanguard invested in the basic three-fund, VTSAX, VTIAX and VBTLX. I had a smaller Rollover IRA at Fidelity. The 401k plan would only take a check for the roll in, so the IRAs would need to be liquidated. I wanted to decrease the amount of time out of the market. Here is what I did and worked well:

1. Initiated transfer of Rollover IRA from Vanguard to Fidelity. All online on a Friday afternoon. Very easy to do online, and uploaded a recent statement from Vanguard. This transfer was done in-kind, so all the Vanguard Admiral shares would transfer.

2. By Thursday of following week all the shares were at Fidelity. I transferred the VG Rollover IRA into my existing Fidelity Rollover IRA. In both Rollover IRAs they were from previous 401k's of all pre-tax money. That is very important, that this is all pre-tax money and nothing co-mingled. So I was able to combine the Rollover IRAs into one and not worry about any tax issues. Also easier to have a single Rollover IRA to then move into the 401k.

3. By Monday the residual dividends from the Vanguard Rollover IRA showed up in the Fidelity Rollover IRA. Really nice all this happens automatically.

4. Waited another week to let things settle. No idea why really. More likely nervous about the next move.

5. During this time, it was just before July 15th so I moved 6000.00 into an IRA so I could get started on the 2019 backdoor Roth - good advice from another poster that I could still do this. Not an issue with pro-rata since that is figured at year of conversion. With a couple weeks I would be empty of any IRAs and could avoid the pro-rata. Converted to my Roth IRA. Amazing that I still got .02 interest in the IRA. I will wrap that in with the 2020 6000.00 backdoor Roth.

6. On Friday initiated the Fidelity Rollover IRA to the Fidelity 401k. I did this after calling Fidelity to get the fastest steps in place. They said initiate it via the netbenefits rollover link on the website. Enter some info, and eventually hit a block that you have to have a check for the rollin. The very helpful Fidelity rep said call us at that point and we will start the wire transfer of the money. A little after the Friday close I could see the status that all the funds were liquidated. I also set the desired allocation percentages in my 401k for the incoming funds.

7. Sometime late Monday the funds were in my 401k and allocated as desired. Amazed this happened so quickly.

8. Week or so later Vanguard automatically closed the account. I then also moved my wife's Roth IRA to Fidelity to further simplify everything.

All-in-all, this was pretty painless. This money is the bulk of my retirement savings so it was nerve-wracking to play with. Looks like it was only out of the market for a day. I was very impressed with the help I got from Fidelity. The last rep even called me back when I first called about the wire transfer to the 401k, to let me know that I had BrokerageLink on my 401k and it might have been possible to transfer the funds in kind. I didn't want to keep the funds sine there were cheaper institutional shares in the 401k. I also hadn't used the BrokerageLink yet, so didn't know all the mechanics. But that was really nice for her to call me back and let me know.
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