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Need some other eyes while life is in flux.

Posted: Fri Oct 16, 2020 4:46 pm
by eyesonthefuture
Hello everyone! It's my first time posting here so I hope I've arranged everything correctly. We're getting ready here to have our first child, buy the first house and we recently noticed we have some sizeable assets that are starting to grow. Since college my main goal has been putting everything in low cost etf's but I recently got out the spread sheet and added everything up and was surprised at how much everything added up. After reading around, I want to start to decrease some of the risk with a 10% allocation toward bonds. But I'm unsure of what what way I should go about this. So I've listed everything to the best of my ability below and would like some extra eyes on the portfolio.


October 2020

Emergency funds: 17k- 3-4 months- will expand this to 6 months after house purchase
Tax Filing Status: Married Filing Jointly
Marginal Tax Rate: 22% Federal, 0% State
Debt: None
State of Residence: Tx
Age: 30,31
Desired Asset allocation: 90% stocks / 10% bonds (??)
Desired International allocation: not against having a percentage but not trying to target anything
Income aprox. 150K

Taxable: 85k cash- saving for house and child
Current retirement assets: $220K

His 401k: 36%
1% VWENX- Vanguard Wellington Admiral -Future contributions 3%
12% VFIAX- Vanguard 500 Index Admiral -Future contributions 35%
14% VPMAX- Vanguard PRIME CAP Adm -Future contributions 40%
5% MLAIX- MainStay Winslow Large Cap Growth I -Future contributions 12%
2% CPXRX- Columbia Mid Cap Index Inst2 -Future contributions 5%
2% MSMAX- Vanguard Small Cap Index Adm -Future contributions 5%

His Roth IRA:15%
14% VTI- Vanguard Total Stock Market
1% VDE- Vanguard Energy Index Fund (just recently bought speculative but also small portion)

His HSA: 2%
VFIFX 2050- Vanguard Target Retirement

Her HSA:5%
1.5%-VOO Vanguard S&P 500
1%- Vanguard Wellington
2.5% Cash

Her Roth 401k: 20%
Don’t have access but I believe its 10% bonds and 90% equities at Fidelity.

Her ESOP: 19%
(since this has been asked about her company gifts stock to employees every year, and from what I know you can't sell it until you leave the company, You can either roll it over at that time or pay taxes. We get a letter every year stating the value of the stock. Decent sized profitable company)

Her Roth IRA: 3%
3% VTI- Vanguard Total Stock Market

Contributions

New Annual Contributions:
$8,000 his 401k
$2,000 employer matching contributions to 401K
$3550 His HSA

$3550 Her HSA company contributes half
$4,600 her Roth 401k- maxed out her match.
$4,600 her employer matching contributions to 401K

$0 his Roth IRA (currently saving for house purchase next year)
$0 her Roth IRA (currently saving for house purchase next year)
(I may max these out next year before taxes are filed depending on how much house we buy)

Available funds

Funds available in his 401(k)
VWENX- Vanguard Wellington Admiral @0.17%
HBFRX- Harbor Bond Retirement @ 1.07 %
VWNAX- Vanguard Windsor II Admiral @0.26%
MEIKX- MFS Value R6 @ 0.47%
VFIAX- Vanguard 500 Index Admiral @0.04%
VPMAX- Vanguard PRIME CAP Adm @ 0.31%
PRUFX- T. Rowe Price Growth Stock I @ 0.52%
MLAIX- MainStay Winslow Large Cap Growth I @ 0.74%
MVCKX- MFS Mid Cap Value R6 @0.68%
WFMIX- Wells Fargo Special Mid Cap Value Inst @0.82%
CPXRX- Columbia Mid Cap Index Inst2 @0.27%
HRAUX- Carillon Eagle Mid Cap Growth R6 @0.65%
RPTIX- T. Rowe Mid-Cap Growth I @0.61%
DFFVX- DFA US Targeted Value I @ 0.36%
MSMAX- Vanguard Small Cap Index Adm @ 0.05%
WSCGX- Wells Fargo Small Company Growth Inst @ 1.00%
PIUIX- Federated Hermes International Equity IS @ 1.06%
HAOYX- Hartford International Opportunities Y @0.81%
JFNIX- Janus Henderson Global Life Sciences I @ 0.77%


Additional Information

1. Currently saving for a house – early next year at max a 30% down payment
2. Wife may change to Stay at Home with children 50% income reduction if company doesn’t allow her to work from home.
3. Child #1 on the way late this year

Questions:
1. I want to keep my Roth focused on growth funds since I’m so far away from retirement but the bond funds in my 401k are not great. I desire to increase my Bond holdings to 10% should I do this through the Wellington Fund? But then 20-30% of my 401k would be in Wellington.

2. Possible opportunity to purchase into my company- not sure about the best way to go to save up for this. Timeline 4-5 years away, is there something I should do to start financially planning for this now?

Re: Need some other eyes while life is in flux.

Posted: Fri Oct 16, 2020 5:42 pm
by 000
Welcome.

Getting bonds via Wellington seems fine to me if bond-only funds are more expensive. What are the bond funds in your plan?

Note that Wellington owns a lot of mega cap tech, so more growth funds (which are somewhat expensive) may be redundant. Also, "growth" and "value" are really just marketing terms -- either "growth" or "value" stocks can have more growth over an investor's timeframe.

Not sure I would make any particular change based on a potential buy-in that is four+ years away.

Re: Need some other eyes while life is in flux.

Posted: Fri Oct 16, 2020 5:53 pm
by eyesonthefuture
000 wrote: Fri Oct 16, 2020 5:42 pm Welcome.

Getting bonds via Wellington seems fine to me if bond-only funds are more expensive. What are the bond funds in your plan?

Note that Wellington owns a lot of mega cap tech, so more growth funds (which are somewhat expensive) may be redundant. Also, "growth" and "value" are really just marketing terms -- either "growth" or "value" stocks can have more growth over an investor's timeframe.

Not sure I would make any particular change based on a potential buy-in that is four+ years away.
The only bond fund in my 401k is the HBFRX- Harbor Bond Retirement @ 1.07 % expense ratio. 10 year return on it is under 1.8% per the 401k documents. The difference work out to almost just having cash in a HYSA.

Re: Need some other eyes while life is in flux.

Posted: Fri Oct 16, 2020 5:56 pm
by 000
eyesonthefuture wrote: Fri Oct 16, 2020 5:53 pm The only bond fund in my 401k is the HBFRX- Harbor Bond Retirement @ 1.07 % expense ratio. 10 year return on it is under 1.8% per the 401k documents. The difference work out to almost just having cash in a HYSA.
I would rather get bonds via Wellington than that fund.

Re: Need some other eyes while life is in flux.

Posted: Fri Oct 16, 2020 6:28 pm
by ivgrivchuck
1) Why is your 401k so complicated? Why not just to put 100% in VFIAX? It's very closely correlated to the total U.S. stock market and a cheap option?

2) If you are planning to buy a house, don't worry about the bonds. Put some cash aside into savings account.

3) Once you have a mortgage, instead of buying bonds, use the "bond money" to pay back your mortgage quicker. At zero interest rate environment, target your money into anything else but bonds.

Re: Need some other eyes while life is in flux.

Posted: Fri Oct 16, 2020 9:09 pm
by tashnewbie
Welcome to the forum. And congrats on your upcoming baby!

I’d simplify the 401k. Probably just the 500 index fund and maybe small cap if you really want to try to replicate the total stock market, but the 500 index has essentially performed the same as TSM over the past 25ish years.

If you really want to hold bonds in his 401k, I’d use Wellington.

Get ahold of her 401k options. She may have a better bond option. View your portfolio as a whole across all accounts including hers.

Re: Need some other eyes while life is in flux.

Posted: Fri Oct 16, 2020 10:54 pm
by Watty
eyesonthefuture wrote: Fri Oct 16, 2020 4:46 pm Her ESOP: 19%
We don't need the company name but what are the details on this and could she sell off the company stock?

You need to consider what the tax consequences would be of selling the company stock but also look at if there is any way that you would actually reduce the taxes if she holds it longer. If she will pay the same taxes later on then it may just be a matter of when you pay the taxes and not if you will pay the taxes.

Holding stock in the company you work for is a real common mistake that has gotten a lot of people in trouble.

If this is a large publicly traded company then the other mutual funds that you own likely also own that companies stock so you may have even more exposure to that companies stock.

It may be best to sell it off soon, but there could be some tax advantages of holding it until January to get it on your 2021 taxes. If it would not make a huge difference then it might be best to go on and sell it now because there is so much weirdness going on in the world with the politics and the pandemic.

Re: Need some other eyes while life is in flux.

Posted: Fri Oct 16, 2020 11:05 pm
by Watty
eyesonthefuture wrote: Fri Oct 16, 2020 4:46 pm 2. Possible opportunity to purchase into my company- not sure about the best way to go to save up for this. Timeline 4-5 years away, is there something I should do to start financially planning for this now?
If it is a publicly traded company where you can buy the stock at a discount then quickly sell it then it may make sense. If you need to hold it for a long time then I would be very cautious about buying it.

Re: Need some other eyes while life is in flux.

Posted: Sat Oct 17, 2020 12:42 am
by RCL
eyesonthefuture,
surprised nobody had any comments about you not funding your Roth accounts.
I know you are saving for house and going to have a baby, but realize Roth space is very precious.

If you don't fund it in any given year, that opportunity is lost forever (you can't do double the contribution the next year
to make up for the year you didn't fund anything.

Just something to think about

Good luck to you and family

Re: Need some other eyes while life is in flux.

Posted: Sat Oct 17, 2020 3:50 am
by mortfree
4600 her Roth 401k
4600 employer match.

Is that the limit in what they will match? If not consider putting as much in hers as you can to get more of the free match money.

Wellington is good for bonds - let them manage that. It’s what I do (Wellington and Wellesley).

Re: Need some other eyes while life is in flux.

Posted: Sat Oct 17, 2020 11:55 am
by eyesonthefuture
RCL wrote: Sat Oct 17, 2020 12:42 am eyesonthefuture,
surprised nobody had any comments about you not funding your Roth accounts.
I know you are saving for house and going to have a baby, but realize Roth space is very precious.

If you don't fund it in any given year, that opportunity is lost forever (you can't do double the contribution the next year
to make up for the year you didn't fund anything.

Just something to think about

Good luck to you and family
It's my understanding you can contribute for the 2020 year up until April of 2021 tax deadline. Or am I misunderstanding the rules?

Re: Need some other eyes while life is in flux.

Posted: Sat Oct 17, 2020 12:59 pm
by RCL
eyesonthefuture wrote: Sat Oct 17, 2020 11:55 am
RCL wrote: Sat Oct 17, 2020 12:42 am eyesonthefuture,
surprised nobody had any comments about you not funding your Roth accounts.
I know you are saving for house and going to have a baby, but realize Roth space is very precious.

If you don't fund it in any given year, that opportunity is lost forever (you can't do double the contribution the next year
to make up for the year you didn't fund anything.

Just something to think about

Good luck to you and family
It's my understanding you can contribute for the 2020 year up until April of 2021 tax deadline. Or am I misunderstanding the rules?
Yes, your understanding is correct.
I didn't see where in your post you said not contributing to Roths' was for this year only; sorry if I miss-understood your intent

Re: Need some other eyes while life is in flux.

Posted: Sat Oct 17, 2020 1:19 pm
by ruralavalon
Welcome to the forum :) .

Congratulations on the imminent baby.
eyesonthefuture wrote: Fri Oct 16, 2020 4:46 pmQuestions:

1. I want to keep my Roth focused on growth funds since I’m so far away from retirement but the bond funds in my 401k are not great. I desire to increase my Bond holdings to 10% should I do this through the Wellington Fund? But then 20-30% of my 401k would be in Wellington.
Consider a bond fund in the Health Savings accounts, which are 7% of the portfolio.

Is there a Stable Value Fund offered in your employer's 401k plan? If so what is the current interest rate paid, and is it guaranteed? A Stable Value Fund can be a good substitute for a bond fund, if the rate is decent.

Otherwise Vanguard Wellington Fund Admiral Shares (VWENX) looks like the best way to buy a bond allocation.

eyesonthefuture wrote: Fri Oct 16, 2020 4:46 pm2. Possible opportunity to purchase into my company- not sure about the best way to go to save up for this. Timeline 4-5 years away, is there something I should do to start financially planning for this now?
How likely is that opportunity?

Re: Need some other eyes while life is in flux.

Posted: Sat Oct 17, 2020 1:31 pm
by Boglemetimbers
eyesonthefuture wrote: Sat Oct 17, 2020 11:55 am
RCL wrote: Sat Oct 17, 2020 12:42 am eyesonthefuture,
surprised nobody had any comments about you not funding your Roth accounts.
I know you are saving for house and going to have a baby, but realize Roth space is very precious.

If you don't fund it in any given year, that opportunity is lost forever (you can't do double the contribution the next year
to make up for the year you didn't fund anything.

Just something to think about

Good luck to you and family
It's my understanding you can contribute for the 2020 year up until April of 2021 tax deadline. Or am I misunderstanding the rules?
You are correct regarding the deadlines.

You should max out your Roth contributions. $6,000 @ 6% return for 35 years (65-30) has a value of $46,117. That’s $92,234 between you and your wife. $12,000 shouldn’t affect you buying a house. If it does then perhaps you should wait a little longer for a house.

My only regret with the Roth IRA is that I didn’t start sooner. I started paying into mine at around 28. I’ll be establishing And contributing to Roth IRAs for my children when they are of age to work. The extra years of growth mean so much later on.

Re: Need some other eyes while life is in flux.

Posted: Sat Oct 17, 2020 1:37 pm
by Watty
There is a wiki and lots of opinions about choosing between a Roth and Traditional account.

https://www.bogleheads.org/wiki/Traditional_versus_Roth

Right now the OP is in the 22% federal tax bracket but if his wife becomes a stay at home parent for a while then they will drop down to the 12% federal tax bracket while they have one income

If they do have a stay at home parent and one income for a while then they could make Roth contributions or do Roth conversions in the 12% federal tax bracket then.

Even though they do not have any state income taxes I would still use the traditional 401k or IRA to get the deduction then use the tax savings to save up for buying a house, or to contribute more to the retirement account.

I am a lot more skeptical than some people about using a Roth in the 12% federal tax bracket. The reason is that under current laws an over 65 married couple can have over $100K in taxable income and still be in the 12% federal tax bracket. Likewise an over 65 couple can have $40K in Social Security and $20K in taxable income and owe zero federal income taxes. At lease where I live, along with a paid off house, that is enough to live a comfortable middle class lifestyle.

You may also be able to do Roth conversions up to the top of the 22% federal tax bracket after you retire so there may be no need to fund the Roths now.

Living in a state with no income tax helps make the Roth look more favorable especially if they do not have strong ties to that state and might retire elsewhere but however you look at it they are a long way from being in a high retirement tax bracket where they would need to worry about taxes in retirement.
eyesonthefuture wrote: Fri Oct 16, 2020 4:46 pm 2. Wife may change to Stay at Home with children 50% income reduction if company doesn’t allow her to work from home.
It may not be realistic to expect to be able to work from home and care for an infant at the same time. If she has to drop out of a meeting to take care of a fussy kid then that will be a big problem. It was before the pandemic but as I recall the company I retired from required people that worked from home to not be doing daycare for their kids at the same time and they had to sign an agreement to that effect.

You should also consider if you will be able to qualify for a mortgage with just one income.