Portfolio review and advice on next steps

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Aguilar
Posts: 293
Joined: Fri Jan 24, 2020 10:01 pm

Portfolio review and advice on next steps

Post by Aguilar »

I'm looking for guidance on my portfolio, and how I should invest my cash and new monies this year. Specifically, I’m trying to figure out where to invest my cash now that I’ve almost reached the recommended max percentage for munis.

Some bgrd:

- I'm 41, no debt, no property or children, I'm single.
- I have about 40k in cash to invest. I might buy $10k iBonds but was advised to wait till April to decide.
- I will contribute the max to my 401k this year and will also put some of my take home pay into my taxable account.
- I've been buying munis in my brokerage but am now at a point where +45% of my bonds are munis and I read it's best not to have over 50% in munis.
- My portfolio is currently 69/31 which is aligned to my target AA to the T.
- Emergency fund is $30k, currently in Cap One Savings along with the extra cash

Taxable
FTSE All World Ex-US (VFWAX): 161k
Total Intl Index Admiral (VTIAX): 26.5k
Total Stock Index Admiral (VTSAX): 945k
VNYTX: 131k
VMLTX: 125.5k

Roth IRA
Total Stock Index Admiral (VTSAX): 140k
Total Intl Index Admiral (VTIAX): 19k
VFIAX (S&P 500): 67k
IXUS: 37k

401k:
fid us bond index FXNAX: 296k
fid 500 index: 47k

Other:
Cap One 360 savings: 71.5k
BofA: 2k
I-Bonds: 15k
US Series EE Treasury Bonds: 2k

Total: 2,085,500
69.17% stocks, 30.83% bonds/cash
target AA: 69/31
+45% of bonds are munis
tashnewbie
Posts: 3450
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio review and advice on next steps

Post by tashnewbie »

Aguilar wrote: Tue Jan 24, 2023 2:40 pm I'm looking for guidance on my portfolio, and how I should invest my cash and new monies this year. Specifically, I’m trying to figure out where to invest my cash now that I’ve almost reached the recommended max percentage for munis.
You are doing a great job of managing your portfolio. Great portfolio size at your age and good choice of funds.

I don't know about the specific advice about muni percentage, but it would definitely be a risk to have the majority of your bond allocation in a single state's muni fund.

Here are a few small suggestions:
Roth IRA
Total Stock Index Admiral (VTSAX): 140k
Total Intl Index Admiral (VTIAX): 19k
VFIAX (S&P 500): 67k
IXUS: 37k
I would exchange VTSAX for VFIAX and would sell VTIAX and buy IXUS (or some other international stock mutual fund). Not holding the same fund in taxable as you have in an IRA is to make tax loss harvesting easier if you ever want to do it when the opportunity arises.

Watch out for wash sales if you've recently sold VTSAX or VTIAX in taxable at a loss (doesn't appear that way but confirm).
401k:
fid us bond index FXNAX: 296k
fid 500 index: 47k
For now, one easy way to add more bonds is to buy more FXNAX in your 401k. If you need to rebalance at some point during the year, just sell the stock fund and buy more bonds.
Topic Author
Aguilar
Posts: 293
Joined: Fri Jan 24, 2020 10:01 pm

Re: Portfolio review and advice on next steps

Post by Aguilar »

tashnewbie wrote: Tue Jan 24, 2023 3:01 pm Here are a few small suggestions:
Roth IRA
Total Stock Index Admiral (VTSAX): 140k
Total Intl Index Admiral (VTIAX): 19k
VFIAX (S&P 500): 67k
IXUS: 37k
I would exchange VTSAX for VFIAX and would sell VTIAX and buy IXUS (or some other international stock mutual fund). Not holding the same fund in taxable as you have in an IRA is to make tax loss harvesting easier if you ever want to do it when the opportunity arises.

Watch out for wash sales if you've recently sold VTSAX or VTIAX in taxable at a loss (doesn't appear that way but confirm).
401k:
fid us bond index FXNAX: 296k
fid 500 index: 47k
For now, one easy way to add more bonds is to buy more FXNAX in your 401k. If you need to rebalance at some point during the year, just sell the stock fund and buy more bonds.
Thanks. Is it better to have different funds in taxable vs IRAs for TLH because if you have the same fund in both, and you TLH, you run the risk of a wash sale if dividends auto reinvest in the same fund in your IRA?

If I want to maintain my AA and invest my cash in something other than munis, is my best choice to move the cash into VTSAX in taxable, and then exchange the same amount of my equity fund in my 401k to bond index?
tashnewbie
Posts: 3450
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio review and advice on next steps

Post by tashnewbie »

Aguilar wrote: Tue Jan 24, 2023 9:19 pm
tashnewbie wrote: Tue Jan 24, 2023 3:01 pm Here are a few small suggestions:
Roth IRA
Total Stock Index Admiral (VTSAX): 140k
Total Intl Index Admiral (VTIAX): 19k
VFIAX (S&P 500): 67k
IXUS: 37k
I would exchange VTSAX for VFIAX and would sell VTIAX and buy IXUS (or some other international stock mutual fund). Not holding the same fund in taxable as you have in an IRA is to make tax loss harvesting easier if you ever want to do it when the opportunity arises.

Watch out for wash sales if you've recently sold VTSAX or VTIAX in taxable at a loss (doesn't appear that way but confirm).
401k:
fid us bond index FXNAX: 296k
fid 500 index: 47k
For now, one easy way to add more bonds is to buy more FXNAX in your 401k. If you need to rebalance at some point during the year, just sell the stock fund and buy more bonds.
Thanks. Is it better to have different funds in taxable vs IRAs for TLH because if you have the same fund in both, and you TLH, you run the risk of a wash sale if dividends auto reinvest in the same fund in your IRA?
That's the risk if you use the same funds in taxable as tax-advantaged accounts. I don't know if using different funds is better, but I think it's easier to manage TLH if you don't have the same funds in taxable as you have in tax-advantaged accounts. I know it's easy enough to turn off automatic reinvestment of dividends in the Roth IRA, but I find it's easier not to use the same funds. I use S&P 500 funds and VTIAX in my tax-advantaged accounts (that's what's available in my 403b [as an aside, some people don't consider workplace plans in the wash sale rule, but that's another conversation and I don't want to derail this thread]). I use total market/large cap funds and VEA, VEU, and IXUS (all international stock ETFs) in taxable.
If I want to maintain my AA and invest my cash in something other than munis, is my best choice to move the cash into VTSAX in taxable, and then exchange the same amount of my equity fund in my 401k to bond index?
It sounds like you either have $30k or $40k of cash to invest (depends on whether you want to buy I bonds). If you want to invest $40k now, then yes, the easy way to maintain your AA and not increase your muni positions is to sell $40k of S&P 500 in the 401k and buy more of the bond fund and buy VTSAX in taxable.

It's not clear to me that you currently have your desired bond allocation. Your portfolio is ~$1.995 million without the cash and Treasury bonds (not clear if you're counting them as part of your bond allocation). So if you want 31% bonds, you'd need $618.45k. It looks like you're currently ~$65.95k short of that target. But that is less than a 5% variance, so it wouldn't be enough to trigger rebalancing in my portfolio. Do you have a rule around rebalancing triggers? A lot of people seem to use 5% bands or 20%/25% of a single asset class.

If you sell the stock fund in your 401k and buy the bond fund, you'd have $343k of bonds in the 401k. You have $256.5k of munis, so it'd be a total of $599.5k.

I recommend playing around with the numbers to see where you land. Figure out if you want to include the cash and Treasury bonds in your bond allocation.

I don't have an opinion about holding the majority of your bonds in munis. My gut says it seems very undiversified to have more than the majority in one state's muni bonds. But you don't have that. You have a mix of a NY muni fund and a national muni fund. I would ask for more advice from forum members if you feel you need it.

You could buy more of the national muni fund or buy bonds in your Roth IRA. I don't know what's preferable to you.
HomeStretch
Posts: 9223
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio review and advice on next steps

Post by HomeStretch »

Aguilar wrote: Tue Jan 24, 2023 2:40 pm … I will contribute the max to my 401k this year and will also put some of my take home pay into my taxable account. …
For retirement contributions, do you have Roth space available? If yes, prioritize contributing to Roth over a Taxable account as the Roth account grows tax-free. Specifically:
1) do you make Roth IRA contributions either directly or via a Backdoor Roth?
2) is a Mega-backdoor Roth available in your 401k?
Aguilar wrote: Tue Jan 24, 2023 2:40 pm … 401k:
fid us bond index FXNAX: 296k
fid 500 index: 47k …
Consider holding 100% FXNAX in your 401k (offset this with less fixed income in your Taxable account). You haven’t provided marginal tax rate(s) in your post, but it’s probably more tax efficient. Plus it likely slows the growth of your tax deferred balance which, in turn, helps minimize future RMDs.
Topic Author
Aguilar
Posts: 293
Joined: Fri Jan 24, 2020 10:01 pm

Re: Portfolio review and advice on next steps

Post by Aguilar »

tashnewbie wrote: Wed Jan 25, 2023 7:46 am
It sounds like you either have $30k or $40k of cash to invest (depends on whether you want to buy I bonds). If you want to invest $40k now, then yes, the easy way to maintain your AA and not increase your muni positions is to sell $40k of S&P 500 in the 401k and buy more of the bond fund and buy VTSAX in taxable.

It's not clear to me that you currently have your desired bond allocation. Your portfolio is ~$1.995 million without the cash and Treasury bonds (not clear if you're counting them as part of your bond allocation). So if you want 31% bonds, you'd need $618.45k. It looks like you're currently ~$65.95k short of that target. But that is less than a 5% variance, so it wouldn't be enough to trigger rebalancing in my portfolio. Do you have a rule around rebalancing triggers? A lot of people seem to use 5% bands or 20%/25% of a single asset class.

If you sell the stock fund in your 401k and buy the bond fund, you'd have $343k of bonds in the 401k. You have $256.5k of munis, so it'd be a total of $599.5k.

You could buy more of the national muni fund or buy bonds in your Roth IRA. I don't know what's preferable to you.
Took me a while to get back to my post here. I have always counted my cash—including my EF—and Treasury bonds as part of my bond allocation, for simplicity. As a result, my current bond allocation is very close to my desired bond allocation. Are there downsides to this?

I was told to keep no more than 50% of my bonds in munis so I intend not to exceed that rate. That said, I'm heavily limited in my Roth due to contribution limits. I plan to move $30k cash to VTSAX in taxable and exchange S&P in 401k to my bond fund. That doesn't leave me with much in way of equities that I can exchange to bonds. I could change my new 401k contributions to 100% bond fund (right now it's 70% S&P, 30% bond fund to align with AA). If I do that, then depending how the market moves I could find my AA becoming more and more conservative so I could just invest new money from my paychecks into VTSAX in taxable.

Does this make sense?
Topic Author
Aguilar
Posts: 293
Joined: Fri Jan 24, 2020 10:01 pm

Re: Portfolio review and advice on next steps

Post by Aguilar »

HomeStretch wrote: Wed Jan 25, 2023 7:54 am
For retirement contributions, do you have Roth space available? If yes, prioritize contributing to Roth over a Taxable account as the Roth account grows tax-free. Specifically:
1) do you make Roth IRA contributions either directly or via a Backdoor Roth?
2) is a Mega-backdoor Roth available in your 401k?
I always did a Roth contribution until a few years ago when I could no longer due to income level. In 2022 I did my first backdoor Roth. I'll do another one soon. Mega backdoor isn't available in my 401k.
HomeStretch wrote: Wed Jan 25, 2023 7:54 am Consider holding 100% FXNAX in your 401k (offset this with less fixed income in your Taxable account). You haven’t provided marginal tax rate(s) in your post, but it’s probably more tax efficient. Plus it likely slows the growth of your tax deferred balance which, in turn, helps minimize future RMDs.
For the 2021 tax year my brackets were 24% fed and 6.25% NY state plus NYC tax which was $1,813 plus 3.876% of excess over $50,000. Several munis experts on this forum recommended munis considering my tax liability, so I started moving lots of cash I had on the sidelines to the muni funds in late 2022.

For the 2022 tax year I expect to be in the same brackets. Haven't done my taxes yet.

For 2023, assuming things continue to go well with my new job, I'll climb to 32% fed plus NY state and NYC tax.

See my last exchange above. I'm going to move cash into my VTSAX in taxable and shift equities to bonds in my 401k. It'll leave me with just a small chunk of equities in 401k which I can exchange to bonds later when I have more cash to shift into VTSAX in taxable.

If I change 100% of my new 401k contributions to bonds, over time this would mean my muni percentage of my bonds would decrease. Is this the most tax efficient move for me? The whole reason I invested so much in munis was bc of tax efficiency. I suppose I could check my AA monthly and invest new cash from paychecks into stocks if AA is conservative, or munis if AA is too aggressive.
HomeStretch
Posts: 9223
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio review and advice on next steps

Post by HomeStretch »

Aguilar wrote: Sat Feb 04, 2023 9:31 am … If I change 100% of my new 401k contributions to bonds, over time this would mean my muni percentage of my bonds would decrease. Is this the most tax efficient move for me? The whole reason I invested so much in munis was bc of tax efficiency. …
Given your increasing marginal tax rate and high Ny state/local taxes, it probably doesn’t matter too much either way given the small amount of 401k contributions.
Post Reply