portfolio balance questions

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Topic Author
carloslando
Posts: 20
Joined: Sun Aug 23, 2020 3:28 am

portfolio balance questions

Post by carloslando »

This forum has been a huge help to me, with insightful advice and awesome discussions. My only regret is learning about Vanguard and the Bogle way of investing so late in my life. I started aggressively index investing only in the last 5 years or so, having blown a bunch of savings in misguided investments earlier.

Looking for some guidance from the wise folks here as I look to save and invest aggressively from now until retirement.

Emergency Funds/Cash: $200K in online bank CDs, $20K in gold.

Debt: 200K mortgage remaining (on a 1.2M value home). 2.75% 15 year loan.

Tax Filing Status: Married Filing Jointly

Tax Rate : Federal 35% State: 10%

State of Residence: CA

Age: him-42yrs, her-41yrs.

Desired Asset Allocation: 80-90% stock, but see question below.

Total portfolio value (Non-retirement + retirement + 529) = between $1M-$1.5M

Non-Retirement Portfolio:
7% VTSAX Vanguard Total Stock Market
4% VBTLX Vanguard Total Bond Market
1% VGHCX Vanguard Health Care Fund
4% Online broker ~5-10K each in misc individual stocks, carryover from before I got Vanguard and Index fund investing.

Retirement Portfolio:
30% His 401k VFORX Vanguard 2040 target retirement
5% His Roth IRA VTSAX Vanguard Total Stock Market
22% Her 401K VBTLX Vanguard Total Bond Market
3% Her Roth-IRA VBTLX Vanguard Total Bond Market

529:
15% Vanguard Age-based option (30% stock, 70% bond) for child needing this in 2-3 years
9% VTSAX Vanguard Total Stock Market for child needing this in 7-9 years

Annual contributions:
His 401K: 29K (19.5 + employer match)
Her 401K: 29K (19.5 + employer match)
His backdoor-Roth: 6K
Her backdoor-Roth: 6K
His Mega Backdoor Roth: 27.7K (started this year)
Non-retirement Portfolio: 12K (80% VTSAX, 20% VBTLX, 1K a month auto-transfer to Vanguard)
HSA: 7K

Questions I am hoping to get some help with:

1. Are we holding too much in cash? Our monthly expenses are ~$10k (mortgage and private school for 2 kids are a little over $6K of that) so are way over a 6-9 month EF. If so and we reduce this, should we pay off some of the remaining mortgage, VBTLX it, VTSAX it, or something else?

2. Other than the VFORX in his 401k, we are not diversified outside the US. Should we look to add VTIAX to our non-retirement portfolio too?

3. We are maxing out our retirement options and have started an HSA account. The 529 we were thinking of adding ~25K more, then stopping (worry about withdrawal penalty risk if we don’t end up using it all). Is there any other investment vehicle that we should consider?

4. Spouse and I have different risk appetites: she wants to keep the option to retire any day and does not trust the stock market due to past investment losses. She holds just gold, CDs and VBTLX. I haven’t had much success showing blogs/calculators etc to try to change her mind on this. We are in a community property state, so although we leave investment decisions to whoever earns the money, at the end of the day it is all really one single portfolio we co-own. Instead of applying my desired allocation of 80-90% stock to just my investments, any downsides if I flip mine completely to stocks? So would move the non-retirement 4% VBTLX to VTSAX, and spilt the His-401K VFORX into 70:30 VTSAX:VTIAX (VFORX is 20% bonds). I would have effectively moved 10% from bonds to stocks now, and for the next 10 years will continue investing only in stocks (VTSAX+VTIAX), then in the mid 50s start to switch over to bonds. Thoughts?

5. Is there anything we can do to reduce our tax liability? Someone suggested buying a property to rent out (& get deductions on the mortgage interest, depreciation, property tax etc), but reading some of the experiences on this forum I don’t think I am ready to be a landlord and am not sure I’ll find a good property manager.

Thanks!
Comparison is the killer of all joy.
User avatar
David Jay
Posts: 10021
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: portfolio balance questions

Post by David Jay »

Welcome to the forum!

1. If you consider this cash to be “emergency fund” then yes, you are holding too much cash. CDs are currently a valid option to bonds in one’s investment portfolio. Paying down the mortgage is also a valid use of cash.

2. This is widely debated, one can go either way. I would want some exposure to international but that is just me.

3. I think you are doing about all you can as you are doing backdoor Roth contributions (many people overlook this).

4. If you have decided - as a couple - that the one who earns the money decides how to invest it, then yes, I would compensate for a spouse’s conservative investing style by being aggressive. Select a reasonable AA (say, 60/40 or similar) and make your share of income aggressive to compensate for “no equities” in spousal investments to reach that AA.

5. Unless you want to be a landlord, I would not go into rental property simply for tax reasons. Minimize taxes but do not let tax reduction lead you into complex strategies. Don’t let the tax “tail” wag the “portfolio” dog.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
catlady
Posts: 144
Joined: Sat Mar 26, 2016 8:31 pm

Re: portfolio balance questions

Post by catlady »

carloslando wrote: Sun Aug 23, 2020 3:32 am
Non-Retirement Portfolio:
4% VBTLX Vanguard Total Bond Market

Retirement Portfolio:
3% Her Roth-IRA VBTLX Vanguard Total Bond Market

Annual contributions:
Non-retirement Portfolio: 12K (80% VTSAX, 20% VBTLX, 1K a month auto-transfer to Vanguard)
I would suggest moving your bond holdings to your 401k. See tax efficient fund placement. Selling your bonds in taxable might not be feasible currently because of capital gains, but at a minimum I’d stop purchasing more.
Topic Author
carloslando
Posts: 20
Joined: Sun Aug 23, 2020 3:28 am

Re: portfolio balance questions

Post by carloslando »

Thank you very much for the responses.
So looks like I'll:
1. Pay off some of my mortgage, using the CDs as they mature.
2. Build up some (1-2%) VTIAX in the non-retirement for international exposure.
3. Stop new VBTLX in non-retirement now and look to move them to 401k.
Thanks for the link to Tax Efficient Fund placements, that is a fantastic read and is a perspective I was completely missing till now.
Comparison is the killer of all joy.
Topic Author
carloslando
Posts: 20
Joined: Sun Aug 23, 2020 3:28 am

Re: portfolio balance questions

Post by carloslando »

carloslando wrote: Sun Aug 23, 2020 1:43 pm Thank you very much for the responses.
So looks like I'll:
1. Pay off some of my mortgage, using the CDs as they mature.
2. Build up some (1-2%) VTIAX in the non-retirement for international exposure.
3. Stop new VBTLX in non-retirement now and look to move them to 401k.
Thanks for the link to Tax Efficient Fund placements, that is a fantastic read and is a perspective I was completely missing till now.
Just following up from my older post, I did #1 and #2, however on #3 while I stopped adding to the VBTLX in the non-retirement account, what is the best way to move it to my 401k?
Should I just exchange the funds in the two accounts independently? ie:
a. swap out VBTLX to VTSAX in my non-retirement
b. switch some of the VTSAX I have in my 401K to VBTLX

Is there any tax timing consideration I need to know about when doing step 'a'? ie. does waiting for a particular date (when VBTLX pays out taxable returns?) matter?
Comparison is the killer of all joy.
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