First time "rate my portfolio" please

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
investment guy
Posts: 77
Joined: Sat Mar 27, 2021 2:00 pm

First time "rate my portfolio" please

Post by investment guy »

Hi everyone. First time “rate my portfolio”. Thank you very much advance for your time and input. I am 62, wife is 60. We would like to retire in 3 years, I earn approximately $150K annually. Wife is now working part time, $20K annually. Quiet lifestyle though living in CA is expensive. Trying to gain confidence that were on a good path as we get closer to retirement. I welcome your help.

(I edited my original post so include Social Security info): His $3,336. per month, planning on starting draw at age 67. Her $1,235. per month, planning on starting draw at age 62.

Emergency funds: Six months of expenses

Debt: Mortgage (30 year fixed, 28 years left on the mortgage, 2.71%, owe $365,000.) No other debt.

Tax Filing Status: (Married Filing Jointly)

Tax Rate: Federal (22%), State – CA (9.3%).

His income: $150,000. Annual

Her income: $20.000. Annual

State of Residence: CA

Age: Him (62), Her (60).

Desired Asset allocation: approximately 60% stocks / 40% bonds
Desired International allocation: 10-15% of stocks

Approximate size of our total portfolio ($1.250M), does not include equity in our home. Equity in our home is approximately $350,000.

Current retirement assets

Taxable
4% INTC

His 401k
34% Dodge & Cox Income Fund; Class I (DODIX) .42%
18% Vanguard Institutional Index Fund Institutional Shares (VINIX) .05%
15% Vanguard Value Index Fund Admiral Shares (VVIAX) .05%
11% MFS Growth Fund; Class R6 (MFEKX) .53%
6%Vanguard Total International Stock Index Fund Institutional Shares (VTSNX) .08%

Her 401k
7% Vanguard 500 Index Fund Admiral Shares (VFIAX) .05%
4% Vanguard Short-Term Investment-Grade Fund Admiral Shares (VFSUX) 0.10%
1% Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) .07%

Contributions
New annual Contributions
$26,000 his 401k (50% of the first 6% contribution)
$0 her 401k (from her previous employer, have not converted it to IRA yet). No 401K at her current employer.

Available funds
Remaining Funds available in his 401k (I have not listed the funds above that we have)
Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) .035%
Vanguard Growth Index Fund Institutional Shares (VIGIX) .04%
Vanguard Extended Market Index Fund Institutional Shares (VIEIX) .05%
JPMorgan Equity Income Fund Class R6 (OIEJX) .46%
American Funds EuroPacific Growth Fund® Class R-6 (RERGX) .46%
T. Rowe Price Mid-Cap Growth Fund I Class (RPTIX) .61%
JPMorgan Small Cap Growth Fund Class R6 (JGSMX) .74%
Goldman Sachs Small Cap Value Fund Institutional Class (GSSIX) .99%
John Hancock Funds Disciplined Value Mid Cap Fund Class R6 (JVMRX) .76%

Funds available in her 401k
Not listing any as we will set up an IRA sometime relatively soon,
likely to have very similar funds as she has currently

Questions:
How does it look. Recommendations?

Thanks! I appreciate your help!
Last edited by investment guy on Fri Aug 05, 2022 7:05 pm, edited 2 times in total.
lakpr
Posts: 8253
Joined: Fri Mar 18, 2011 9:59 am

Re: First time "rate my portfolio" please

Post by lakpr »

Comments in no particular order.

1. $170k annual income (for now), puts you in a 22% tax bracket Federal, and 9.3% tax bracket State (for MFJ status)

2. Your combined portfolio between taxable / His 401(k) / Her 401(k) is like 95% stocks and 5% bonds. Completely at odds with your stated 60:40 preference .... Read on the next point for my suggestion.

3. The mortgage interest you are paying, 2.71%, on a balance of $365,000 will cost you annually $9891.50 (it's a bit less since as you pay the mortgage the principal balance goes down a little too, but let's use $9900 as an approximate figure). This isn't enough to vault you over the standard deduction amount ($10k SALT deduction + $9.9k mortgage interest is $19.9k, less than $26k standard deduction, so you will choose standard deduction). In other words, just to break even, you need to earn a guaranteed return of 2.71% / (1 -22%) = 3.5% per year on the fixed income portion of your portfolio.

Now, 3.5% return year-in and year-out is *possible*, but not guaranteed. You may want to consider paying down the mortgage by an amount you are comfortable with, then ask the lender for a "recast".

1.25 Million portfolio with a 40% allocation to bonds comes out to be $500k approximately. Which is greater than your mortgage balance ... if you will liquidate $365k out of your $1.25 million portfolio exclusively from the bonds, you will be left with $750k stocks and $135k bonds, for an approximate 85:15 portfolio. Pretty close to your existing 95:5 allocation ...

Given that you will NOT have any more mortgage payment, would you feel more comfortable with a 85:15 portfolio? Heading into retirement mortgage-free gives you a LOT of options ...

4. Given that you are living in (and presumably retiring in) California, I strongly suggest that you do NOT rollover the 401(k) funds to an IRA. IRAs are not protected from creditors in California, it is one state that notoriously lacks it, unlike a lot of other states. I make it a point to urge all Californians to shield their retirement assets within the 401(k) plans where possible, to benefit from the Federal protections.

Of course, you will also have to balance this against any fees that the 401(k) plans would charge you. If your 401(k) plans only have 1%+ ER funds, it's a no-brainer to roll over the 401(k) funds to an IRA and take advantage of the low costs there. But if your 401(k) plan only charges 0.05% average ER (based on what I see in your post), there is no real advantage to be had by rolling over to an IRA, and from my point of view only disadvantages.

5. Your taxable account is entirely in Intel Corp, and a hefty sum at that: $125k (10% of 1.25 million). You may want to slowly sell that away (if you turn on the Specific ID basis, you can find the lots that have losses or minimal gains) and invest the proceeds into paying down the mortgage. That way you will diversify away the single-stock risk, and also earn guaranteed 3.5% rate, also lets you slowly drift towards your target 60:40 allocation. Win-Win, I think ...

While you are employed, only sell enough Intel stock that would cover gains with losses. Once retired, since presumably you will be in the 12% bracket, you can take advantage of Tax Gain Harvesting ...

6. You have enough assets that you need not rely on taking your Social Security at age 67. I strongly suggest that you delay it until you reach the age 70.5, to maximize the amount you will receive. The intervening years are an excellent time to take advantage of low-cost Roth conversions of your pre-tax assets.
Topic Author
investment guy
Posts: 77
Joined: Sat Mar 27, 2021 2:00 pm

Re: First time "rate my portfolio" please

Post by investment guy »

Thanks. I EDITED original my post to correct INTC (Intel) holdings, I should have stated 4%, not 10%.

I do hold approximately 35% plus in bonds via DODIX and VFSUX.

Thanks
RetiredCSProf
Posts: 978
Joined: Tue Feb 28, 2017 4:59 pm

Re: First time "rate my portfolio" please

Post by RetiredCSProf »

lakpr wrote: Fri Aug 05, 2022 6:20 pm ...
4. Given that you are living in (and presumably retiring in) California, I strongly suggest that you do NOT rollover the 401(k) funds to an IRA. IRAs are not protected from creditors in California, it is one state that notoriously lacks it, unlike a lot of other states. I make it a point to urge all Californians to shield their retirement assets within the 401(k) plans where possible, to benefit from the Federal protections.

Of course, you will also have to balance this against any fees that the 401(k) plans would charge you. If your 401(k) plans only have 1%+ ER funds, it's a no-brainer to roll over the 401(k) funds to an IRA and take advantage of the low costs there. But if your 401(k) plan only charges 0.05% average ER (based on what I see in your post), there is no real advantage to be had by rolling over to an IRA, and from my point of view only disadvantages.

...
I am in CA and rolled over my 403(b) accounts to IRAs when I retired -- the response above surprised me, so I looked for more info on BH and found this thread: viewtopic.php?t=246334, which suggests that the protection from creditors continues into the IRAs that are rolled over from a 401(k) or 403(b).

One advantage of an IRA over a 401(k) is that QCDs can be used to reduce the tax impact of RMDs. Also, an IRA may give you more investment options than your 401(k).
User avatar
Duckie
Posts: 8884
Joined: Thu Mar 08, 2007 2:55 pm

Re: First time "rate my portfolio" please

Post by Duckie »

investment guy wrote: Fri Aug 05, 2022 5:39 pm Desired Asset allocation: approximately 60% stocks / 40% bonds
Desired International allocation: 10-15% of stocks
<snip>
Taxable
4% INTC
I would sell this over time keeping taxes in consideration.
His 401k
34% Dodge & Cox Income Fund; Class I (DODIX) .42%
18% Vanguard Institutional Index Fund Institutional Shares (VINIX) .05%
15% Vanguard Value Index Fund Admiral Shares (VVIAX) .05%
11% MFS Growth Fund; Class R6 (MFEKX) .53%
6%Vanguard Total International Stock Index Fund Institutional Shares (VTSNX) .08%
This account should hold all the bonds. Use Vanguard Total Bond Market (VBTIX) .035% which is one-tenth the cost of DODIX. Drop MFEKX at 0.53%. I'd also drop VVIAX for simplicity but holding it wouldn't hurt you.
Her 401k
7% Vanguard 500 Index Fund Admiral Shares (VFIAX) .05%
4% Vanguard Short-Term Investment-Grade Fund Admiral Shares (VFSUX) 0.10%
1% Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) .07%
This account is small. If she keeps this for a while use just one fund here. I would pick VFIAX.
____________________________________

The following example has an AA of 60% stocks, 40% bonds, with 15% of stocks in international. That breaks down to roughly 50% US stocks, 10% international stocks, and 40% bonds. You could have:

Taxable -- 4%
4% (INTC) Intel Corp -- (slowing shifting to VTSAX)

His 401k -- 84%
34% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.035%)
10% (VTSNX) Vanguard Total International Stock Index Fund Institutional Shares (0.08%)
40% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.035%)

Her 401k -- 12%
12% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.05%)

Just some possibilities.
lakpr
Posts: 8253
Joined: Fri Mar 18, 2011 9:59 am

Re: First time "rate my portfolio" please

Post by lakpr »

investment guy wrote: Fri Aug 05, 2022 6:58 pm Thanks. I EDITED original my post to correct INTC (Intel) holdings, I should have stated 4%, not 10%.

I do hold approximately 35% plus in bonds via DODIX and VFSUX.
Thanks for the edits, but they still do not take away from my points. DODIX is yielding 1.9% now while you are bleeding 3.5% on your mortgage. VFSUX is yielding better at 3.8%, better than your mortgage rate so perhaps you can keep it.

Even at $50k in Intel, that is still single company idiosyncratic risk, that can be either diversified away if you will invest that in a broad market index, or sell it gradually to pay down the mortgage (sell first lots that just enough balance out the gains and losses while working, sell entirely when you retire).
lakpr
Posts: 8253
Joined: Fri Mar 18, 2011 9:59 am

Re: First time "rate my portfolio" please

Post by lakpr »

RetiredCSProf wrote: Fri Aug 05, 2022 7:10 pm
lakpr wrote: Fri Aug 05, 2022 6:20 pm ...
4. Given that you are living in (and presumably retiring in) California, I strongly suggest that you do NOT rollover the 401(k) funds to an IRA. IRAs are not protected from creditors in California, it is one state that notoriously lacks it, unlike a lot of other states. I make it a point to urge all Californians to shield their retirement assets within the 401(k) plans where possible, to benefit from the Federal protections.

Of course, you will also have to balance this against any fees that the 401(k) plans would charge you. If your 401(k) plans only have 1%+ ER funds, it's a no-brainer to roll over the 401(k) funds to an IRA and take advantage of the low costs there. But if your 401(k) plan only charges 0.05% average ER (based on what I see in your post), there is no real advantage to be had by rolling over to an IRA, and from my point of view only disadvantages.

...
I am in CA and rolled over my 403(b) accounts to IRAs when I retired -- the response above surprised me, so I looked for more info on BH and found this thread: viewtopic.php?t=246334, which suggests that the protection from creditors continues into the IRAs that are rolled over from a 401(k) or 403(b).

One advantage of an IRA over a 401(k) is that QCDs can be used to reduce the tax impact of RMDs. Also, an IRA may give you more investment options than your 401(k).
If you read that thread, you will also notice that the requirement is to have the IRA not commingled with contributory IRA if you have any, and keep it completely separate. If separating funds from 401(k) is a requirement, what exactly are you gaining by rolling over??

QCD is a point I will concede.

On the point of investment options, isn’t the Boglehead philosophy sticking to a three fund approach, and can’t it be done within the 401(k) plan? OP’s plan certainly has all the ingredients necessary.
RetiredCSProf
Posts: 978
Joined: Tue Feb 28, 2017 4:59 pm

Re: First time "rate my portfolio" please

Post by RetiredCSProf »

Do ERISA protections survive Roth conversions? For example, suppose that I rollover $300K from a 403(b) or 401(k) account into a rollover IRA, and then convert $100K from the rollover IRA into a Roth IRA. Does the Roth IRA have the same protections as the rollover IRA?
Topic Author
investment guy
Posts: 77
Joined: Sat Mar 27, 2021 2:00 pm

Re: First time "rate my portfolio" please

Post by investment guy »

Thanks everyone. Seeking more input on our portfolio please. How does it look? Suggestions?
lakpr
Posts: 8253
Joined: Fri Mar 18, 2011 9:59 am

Re: First time "rate my portfolio" please

Post by lakpr »

RetiredCSProf wrote: Fri Aug 05, 2022 9:48 pm Do ERISA protections survive Roth conversions? For example, suppose that I rollover $300K from a 403(b) or 401(k) account into a rollover IRA, and then convert $100K from the rollover IRA into a Roth IRA. Does the Roth IRA have the same protections as the rollover IRA?
I am not a lawyer, can't answer this question. Just thought I owe you this reply, instead of just being silent.
Topic Author
investment guy
Posts: 77
Joined: Sat Mar 27, 2021 2:00 pm

Re: First time "rate my portfolio" please

Post by investment guy »

Thanks. I am not focused on the question generated from the thread pertaining to IRAs that are rolled over from a 401(k). I am seeking thoughts on our portfolio and long term view entering into retirement years please.

Thanks again.
Outer Marker
Posts: 2653
Joined: Sun Mar 08, 2009 8:01 am

Re: First time "rate my portfolio" please

Post by Outer Marker »

investment guy wrote: Sat Aug 06, 2022 12:27 pm Thanks. I am not focused on the question generated from the thread pertaining to IRAs that are rolled over from a 401(k). I am seeking thoughts on our portfolio and long term view entering into retirement years please.
Duckie has given you an excellent, thoughtfully simplified and lower cost portfolio.

What he said . . .
randybobandy
Posts: 219
Joined: Fri Oct 05, 2018 10:51 am

Re: First time "rate my portfolio" please

Post by randybobandy »

What are your expected expenses per year in retirement?

-RbB
Grammar and spelling matter. | Quoting the OP isn't a necessity.
RetiredCSProf
Posts: 978
Joined: Tue Feb 28, 2017 4:59 pm

Re: First time "rate my portfolio" please

Post by RetiredCSProf »

I am unfamiliar with the funds in which you are invested, but sounds like Duckie gave some sound advice on fund selection.

Since your wife is currently not contributing to retirement funds but continues to earn income, she may be able to contribute up to $7K in a Roth IRA this year and next year, before she retires, depending on whether this income is needed for current expenses.
User avatar
dogagility
Posts: 2263
Joined: Fri Feb 24, 2017 6:41 am

Re: First time "rate my portfolio" please

Post by dogagility »

investment guy wrote: Sat Aug 06, 2022 12:27 pm Thanks. I am not focused on the question generated from the thread pertaining to IRAs that are rolled over from a 401(k). I am seeking thoughts on our portfolio and long term view entering into retirement years please.
Duckie has given you an excellent, thoughtfully simplified and lower cost portfolio.

What he said . . .
+1

Another suggestion would be for him to start social security at age 70 while she claims at an earlier age. Here's a tool to help you make that decision. https://opensocialsecurity.com/
The more flexibility you have the less you need to know what happens next. -- Morgan Housel. A penny saved in a storage headache. -- Conor Friedersdorf
Topic Author
investment guy
Posts: 77
Joined: Sat Mar 27, 2021 2:00 pm

Re: First time "rate my portfolio" please

Post by investment guy »

Good input, Thanks. Follow up question on Bonds please:

The suggestion is to exchange my Dodge and Cox Income 1 (DODIX) with Vanguard Total Bond Index 1 (VBTIX) because of the far superior expense ratio. I get that however, does the benefit of the expense ratio outweigh the following performance advantages displayed by DODIX compared to VBTIX)?

DODIX has outperformed the Vanguard fund at every mark: 10 year, 5 year, 3 year. 1 year and from inception and has outperformed the benchmark over the same durations every time. Does the expense ratio outweigh performance? Thanks!
Post Reply