Portfolio Review

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Topic Author
b9g46n
Posts: 6
Joined: Sun Feb 11, 2024 10:28 am

Portfolio Review

Post by b9g46n »

Hi all, I’m looking for help with our portfolio. I consider myself completely new to investing although I annually invest into my 401k and IRA. I know my numbers are small potatoes, but I feel I’m at a point I need to have a good allocation plan for going forward. I know I'm way behind and have a lot of catching up to do, so I plan to do my best. All comments are appreciated.

Emergency funds: 4-5 months of expenses in a HYSA at 4.6%

Debt: Mortgage only – 2.75%

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, 6.5% State

State of Residence: South Carolina

Age: both her and him - 55

Desired Asset allocation: 80% stocks / 20% bonds – I think? See questions below

Desired International allocation: 20% of stocks – I think? See questions below

Approximate size of total portfolio: $200,000

Taxable: Joint Brokerage
< 1% Vanguard Federal Money Market Fund (VMFXX) (0.11%) – holding to invest (just started)

Her 401k
48% Fidelity 500 Index Fund (FXAIX) (.02%)

Restricted contributions due to HCE status, therefore also restricts the company match, which is 50% match up to 6% of salary. I max out my catch up contributions first since they are not affected by the HCE restrictions, then I contribute set amount bi-monthly contributions up to the max for the current year, which the past several years has only been around $10,000.

Her Roth IRA (annual backdoor Roths)
13% Vanguard Target Retirement 2040 Fund (VFORX) (.08%)
4% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (.11%)
4% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.04%)

His Roth IRA (annual backdoor Roths)
12% Vanguard Target Retirement 2040 Fund (VFORX) (.08%)
4% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (.11%)
4% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.04%)

Her HSA
10% Schwab Target 2040 Index (SWYGX) (.08%) – planning/hoping to use for retirement

Total Portfolio Allocation: 92% stocks; 7% bonds (after considering the allocation of the target date funds)

Annual Contributions:
Max out both his and hers IRA’s each year (already completed for 2024)
Max out her 401k (although limited in amount – see above under Her 401k)
Plan to invest at least $1500 per month into Brokerage.
HSA no longer available to me.

Available funds in Her 401k:
Standard Stable Asset D (XSAFD) (0.10)
Fidelity Infl-Prot Bd Index (FIPDX) (0.05)
Fidelity US Bond Index (FXNAX) (0.03)
PGIM Total Return Bond Z (PDBZX) (0.49)
JPMorgan Equity Income R6 (OIEJX) (0.45)
AB Global Bond I (ANAIX) (0.57)
Fidelity 500 Index (FXAIX) (0.02)
Principal Blue Chip R-6 (PGBHX) (0.57)
Avantis US SmallCap Val Inst (AVUVX) (0.25)
Fidelity Extended Mkt Index (FSMAX) (0.04)
American Funds EuroPac Grow R6 (RERGX) (0.47)
BlackRock High Yield Bd Inst (BHYIX) (0.58)
Vanguard Explorer Adm (VEXRX) (0.34)
Vanguard Intl Value Inv (VTRIX) (0.38)
Principal Glbl RE Sec Instl (POSIX) (0.94)
Fidelity Emerging Mkts Index (FPADX) (0.08)
State Street OnTracRet Incm II (SSRRI) (0.17)
State Street OnTrac 2020Tgt II (SSR20) (0.17)
State Street OnTrac 2025Tgt II (SSR25) (0.17)
State Street OnTrac 2030Tgt II (SSR30) (0.17)
State Street OnTrac 2035Tgt II (SSR35) (0.17)
State Street OnTrac 2040Tgt II (SSR40) (0.17)
State Street OnTrac 2045Tgt II (SSR45) (0.17)
State Street OnTrac 2050Tgt II (SSR50) (0.17)
State Street OnTrac 2055Tgt II (SSR55) (0.17)
State Street OnTrac 2060Tgt II (SSR60) (0.17)
State Street OnTrac 2065Tgt II (SSR65) (0.14)

Questions:
1. I think I should be closer to 80/20 allocation? This is where I keep second guessing myself. I am the primary breadwinner and I have decided to make our investing decisions based on my retirement at 70, which will be 2038. I’m ok with a little more risk for now since I need to catch up a lot. At first I just went with the target date fund because it was easiest, but then I thought maybe I should be a bit more aggressive with the US and International stock funds. With a 15 year investing window, I wonder if I should be at 80/20 or should I be more conservative?
2. Should I add ETFs or just keep the index funds? Should I just stick with the target date fund?
3. Do you see any other issues that I should be aware of? Such as whether it’s better to have stocks in the brokerage account and bonds in the tax advantaged accounts, or vice versa? Are there other types of accounts I should be aware of?
4. Need help deciding where to invest the brokerage account going forward.
5. Should I keep some money in our traditional IRA's next year?

Again, all comments appreciated. Thank you.
bonesly
Posts: 882
Joined: Mon Dec 18, 2017 9:28 pm
Location: WA

Re: Portfolio Review

Post by bonesly »

This looks like your first post so welcome! Also, I think it's unlikely most would care about the size of your potatoes, we're here to help and learn from each other! :D
b9g46n wrote: Sun Feb 11, 2024 10:47 am 1. I think I should be closer to 80/20 allocation? This is where I keep second guessing myself. I am the primary breadwinner and I have decided to make our investing decisions based on my retirement at 70, which will be 2038. I’m ok with a little more risk for now since I need to catch up a lot. At first I just went with the target date fund because it was easiest, but then I thought maybe I should be a bit more aggressive with the US and International stock funds. With a 15 year investing window, I wonder if I should be at 80/20 or should I be more conservative?
Since asset allocation is in part determined by your personal risk-tolerance, nobody but you can say if 80/20 is appropriate. Read the Wiki topic on Assessing Risk Tolerance and take the Vanguard Investor Questionnaire to see what AA it recommends (and if you agree with that, because all recommendations should be tailored by you for your comfort level).

Generally you should ask how much of a portfolio drop can you not panic over and pick an operating point on the efficient frontier of the curve below. Multiply the standard deviation by 2 and it's likely 95% of portfolio drops will be less than this amount, so for 80/20 that's about 16% x 2 = 32% portfolio drop at the 5th percentile (only 5% chance of a bigger drop).
Image

It's also typical to reduce the amount of stocks as you get closer to the start of portfolio withdrawals. Bogle had a nice chart showing how AAs shift with age and accumulation vs withdrawal, but it's generic and should be tailored for your risk-tolerance.
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b9g46n wrote: Sun Feb 11, 2024 10:47 am 2. Should I add ETFs or just keep the index funds? Should I just stick with the target date fund?
ETFs are more portable in a taxable account, if you ever need/want to switch brokers. In tax-advantaged accounts, there's not much advantage of ETFs over funds. I like funds because they work on dollar amounts rather than whole shares. Most ETFs I think can be transacted in fractional shares, and if that's the case for a particular ETF and brokerage, then there's not much difference other than I would never place a market order (ETF) unless the market was open. For a fund, I never worry about placing an order over-night or whenever the market's closed. There's a Wiki topic on ETFs vs Mutual Funds that could likely provide more insights.
b9g46n wrote: Sun Feb 11, 2024 10:47 am 3. Do you see any other issues that I should be aware of? Such as whether it’s better to have stocks in the brokerage account and bonds in the tax advantaged accounts, or vice versa? Are there other types of accounts I should be aware of?
The Roth IRAs have duplication in that they hold a Target Date Fund (TDF) and individual funds for Total US Stock and Total Int'l Stock, which the TDF already holds. You could simplify by just holding the TDF or the fund pair.

Using a TDF in a Roth means all your bonds are in tax-free, when they ideally should be in tax-deferred to adhere to Tax-Efficient Fund Placement. Using a TDF means less control over the percentage of stocks to Int'l (TDF uses 40% vs your likely target of 20%) as well as the overall AA of stocks/bonds (TDF is on a constant glide, so if you want step changes that's not easy with just a TDF). If you want 80/20, with 20% Int'l, you'd likely do better to exchange the TDF into individual funds for US Stock, Int'l Stock, and US Bonds.

Her 401K has Fidelity US Bond Index (FXNAX) (0.03) which seems like a good choice for the 20% bond allocation. You're just starting the taxable account but eventually the 16% Int'l Stocks should be there and the 64% US stocks should be in the Roth, then 401k, then taxable.
b9g46n wrote: Sun Feb 11, 2024 10:47 am 4. Need help deciding where to invest the brokerage account going forward.
The taxable account should hold stocks rather than bonds. If the international stock can go here, you can claim the foreign-tax credit on your tax return (small but perhaps worth the effort).
b9g46n wrote: Sun Feb 11, 2024 10:47 am 5. Should I keep some money in our traditional IRA's next year?
Probably not as it will incur pro-rata rules when you want to do backdoor Roth conversions.
Topic Author
b9g46n
Posts: 6
Joined: Sun Feb 11, 2024 10:28 am

Re: Portfolio Review

Post by b9g46n »

Thank you so much for all this information. I'm going to read thoroughly!
User avatar
ruralavalon
Posts: 26188
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Portfolio Review

Post by ruralavalon »

Welcome to the forum :D .

It's great to see that you are debt free other than the mortgage note. Her employer's 401k plan offers some excellent very diversified index funds with low expense ratios,. You are fortunate. You are not as far behind as you may believe, link.

b9g46n wrote: Sun Feb 11, 2024 10:47 amAge: both her and him - 55

Desired Asset allocation: 80% stocks / 20% bonds – I think? See questions below

Desired International allocation: 20% of stocks – I think? See questions below
. . . . .
I have decided to make our investing decisions based on my retirement at 70, which will be 2038
In my opinion your desired asset allocation is within the range of what is reasonable.

Does his employer offer a retirement plan like a 401k, 403b, 457b, SEP IRA, SIMPLE IRA or TSP? If so is an employer match available? What funds are offered in the plan? Please give fund names, tickers and expense ratios.

Is he self-employed? If so there are tax-advantaged plans which a self-employed person may use.

In my opinion in her employer's 401k plan the better funds to consider using are:
1) Fidelity 500 Index (80% of the U.S. stock market) (FXAIX) (0.02);
2) American Funds EuroPacific Growth Fund R6 (both developed and emerging markets) (RERGX) (0.47),
OR Vanguard Intl Value Inv (both developed and emerging markets) (VTRIX) (0.38); and
3) Fidelity US Bond Index (FXNAX) (0.03).

It's not necessary or even desirable to to hold all asset classes in each account.

I suggest placing the bond allocation in a traditional tax-deferred account, like her 401k account. Bond funds are not very tax-efficient.

Since 48% of the current portfolio is in her 401k account, that 48% could be split into:
28%, Fidelity 500 Index (80% of the U.S. stock market) (FXAIX) (0.02);
20%, Fidelity US Bond Index (FXNAX) (0.03).

You could use some total international stock index funds in one or both Roth IRAs, for better diversification and lower expense ratios than the funds offered in her employer's plan.

I suggest using only stock funds, not target date funds, in the Roth IRAs.

Stock index funds are very tax-efficient, so stick with stock index funds in your taxable brokerage account.

Wiki article, Tax-efficient fund placement.

I suggest staying with regular mutual funds, as opposed to exchange traded funds (ETFs). Using regular mutual funds it is easier to set up automatic investment of new contributions, easier to set up automatic reinvestment of dividends, and trading mechanics are simpler.

Don't keep anything in the traditional IRAs.
Last edited by ruralavalon on Sun Feb 11, 2024 2:36 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
User avatar
mhadden1
Posts: 877
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: Portfolio Review

Post by mhadden1 »

Along with refining your portfolio, make sure to evaluate your current expenses, likely retirement expenses, and your likely retirement income sources e.g. Social Security. I found tools like FireCalc to be helpful with planning.
Retired 12/31/2015
Topic Author
b9g46n
Posts: 6
Joined: Sun Feb 11, 2024 10:28 am

Re: Portfolio Review

Post by b9g46n »

Thank you so much for responding. I'm going to take a stab at reallocating after reading all the links suggested.
User avatar
ruralavalon
Posts: 26188
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Portfolio Review

Post by ruralavalon »

What funds are offered offered in her HSA? Please give fund names, tickers and expense ratios.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
b9g46n
Posts: 6
Joined: Sun Feb 11, 2024 10:28 am

Re: Portfolio Review

Post by b9g46n »

Also, I forgot to add that He only works part time outside the home because he stayed home with the children and now that they are teenagers, he really loves his job working with disabled adults. He is planning to go full time soon. It's more of a calling than an income producer and I make enough to support us and it's worked for our family. I just didn't plan well and didn't become debt free until our 50's, mostly due to student loans, which is why I am just now working on retirement.
Topic Author
b9g46n
Posts: 6
Joined: Sun Feb 11, 2024 10:28 am

Re: Portfolio Review

Post by b9g46n »

ruralavalon wrote: Sun Feb 11, 2024 2:37 pm What funds are offered offered in her HSA? Please give fund names, tickers and expense ratios.
Her HSA is at Schwab and I can't find all the funds available. I chatted with customer service and was told I would have to call and speak to someone in the Health Savings Brokerage Account (HSBA) Contact Center Team. Is that normal? I wonder why I can't just see a list in my account.
HomeStretch
Posts: 11179
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review

Post by HomeStretch »

Welcome to the forum! Good feedback from other posters.

As your income is subject to state income tax, in your Vanguard Taxable account consider using VUSXX, Vanguard Treasury money market fund (MMF), rather than VMFXX, the settlement MMF. A high % of VUSXX dividend income is not subject to state income taxes so the tax-equivalent yield is usually higher.

Consider also moving your emergency fund in the HYSA yielding 4.6% which is subject to state tax do the yield is lower than VUSXX. Depending on how much cash you hold, it should give you several hundred $ more in annual income.

You can link your Vanguard account to your bank checking account so you can transfer $ easily between the two (you initiate the process at Vanguard). If you use VUSXX, it’s a 2-business-day process (1 day to sell, 1 to transfer). If you use VMFXX, it’s 1 day to transfer.
Topic Author
b9g46n
Posts: 6
Joined: Sun Feb 11, 2024 10:28 am

Re: Portfolio Review

Post by b9g46n »

HomeStretch wrote: Sun Feb 11, 2024 3:03 pm
Consider also moving your emergency fund in the HYSA yielding 4.6% which is subject to state tax do the yield is lower than VUSXX. Depending on how much cash you hold, it should give you several hundred $ more in annual income.
Thank you! I will do this. I wondered if there was a better place to put my cash that was also easily available if needed.
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