40s and been neglecting my portfolio - please help!

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Topic Author
jiabgwh363
Posts: 15
Joined: Wed Apr 15, 2009 10:11 pm

40s and been neglecting my portfolio - please help!

Post by jiabgwh363 »

Hello everyone,

Though I am not new to the forum, it has been years since I took a good look at my portfolio. This forum has been invaluable for my financial education and helped me set me on a good path when I was in my 20s. I can't help but feel now as though I've missed the earnings I should have accrued or that i'm not setup well to get to my retirement goals. Given some recent inherited money and an increasing income due to a new job, it's time for me to make some decisions to ensure I can stay on the course for retirement between 55 and 58.

Emergency Funds: Yes 6mo worth in HYSA @ 4.3%

Debt: Mortgage $292k @ 2.99%

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, 5.49% GA (looking at 2024 and beyond)

State of Residence: GA

Ages: me 43, wife 41

Desired Asset Allocation: 55% US stocks, 25% Int'l stocks, 20% bonds

Portfolio: ~$1.7M

Current Retirement Assets:

Taxable
15.7% Vanguard Total Stock Market Index Fund Admiral (VTSAX) (0.04%)
1.7% Vanguard Total International Stock Market Index Fund Admiral (VTIAX) (0.11%)

His 401k
34.6% Vanguard Mid-Cap Index Fund Admiral (VIMAX) (0.05%)
10.2% Vanguard Total International Stock Market Index Fund Admiral (VTIAX) (0.11%)

Her 401k
17.3% Vanguard Institutional Index Fund Institutional Shares Plus (VIIIX) (0.02%)

His Roth IRA
4.2% Inflation-Protected Securities Admiral (VAIPX) (0.10%)
1.7% Total Bond Market Index Admiral (VBTLX) (0.05%)

His inherited IRA (MerrillEdge)
4.7% Cash for investing
3.3% Blackrock Dividend Fund (MDDVX) (0.93%)

Her Rollover tIRA
1.9% Vanguard Total International Stock Market Index Fund Admiral (VTIAX) (0.11%)

Her Roth IRA
2.3% Total Bond Market Index Admiral (VBTLX) (0.05%)

Our HSA investment acct (Fidelity)
1.1% Wisdomtree US MidCap Dividend ETF (DON) (0.38%)
1.5% Cash for investing

Contributions
$33,200 his 401k (including matching)
$7,000 his IRA (to backdoor to Roth each year)
$31,200 our taxable
$8,300 our HSA

Available Funds

Funds available in his 401k
American Funds EuroPacific Gr R6 (RERGX)(0.47%)
Invesco Developing Markets R6 (ODVIX)(0.84%)
Vanguard Total Intl Stock Index Admiral (VTIAX)(0.11%)
MFS New Discovery Value R6 (NDVVX)(0.84%)
T. Rowe Price New Horizons I (PRJIX)(0.66%)
Vanguard Small Cap Index Adm (VSMAX)(0.05%)
Carillon Eagle Mid Cap Growth R6 (HRAUX)(0.64%)
Vanguard Mid Cap Index Fund Admiral (VIMAX)(0.05%)
Allspring Special Mid Cap Value R6 (WFPRX)(0.70%)
American Funds Growth Fund of Amer R6 (RGAGX)(0.30%)
Fidelity U.S. Sustainability Index Instl (FITLX)(0.11%)
MFS Value R6 (MEIKX)(0.44%)
Vanguard Institutional Index Instl (VINIX)(0.035%)
PGIM Total Return Bond R6 (PTRQX)(0.39%)
Vanguard Total Bond Market Index Admiral (VBTLX)(0.05%)
I left out the VG target funds


Questions

1. What's the best way to update my holdings to be simpler and most tax efficient while tracking the market?

2. How should I incorporate inherited assets in keeping with my AA and desire to be tax efficient? What needs a home: a - $130k cash, inherited IRA (listed above) that is mostly cash and a dividend fund. I also have backdoored $13.5k into my Roth IRA last month that will need to be invested. How/where should I make the changes in the best practical way without negatively impacting my portfolio?

3. Help me simplify and be as tax efficient as I can. I realize I'm underweighted in bonds, but I also feel as though my portfolio value hasn't moved much in the last 5 or so years, so I'm left feeling like I'm behind for some reason. Am I crazy to think this? Have i invested poorly or is this representative of the market during this period?

4. Once I get my AA in place, how should I best contribute my regular earnings to keep this AA in place?
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retired@50
Posts: 12500
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: 40s and been neglecting my portfolio - please help!

Post by retired@50 »

If it were me...

Consider putting the desired bond allocation (20%) into "His 401k" since the total bond market fund (VBTLX) is available as a choice.

Use the Roth account space for stock index funds instead of bond funds. In other words, sell the bond funds and use the proceeds to buy stock index funds in the Roth accounts.

Sell off the high expense ratio fund in the inherited IRA and buy a low-expense ratio stock or bond index fund or ETF.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Topic Author
jiabgwh363
Posts: 15
Joined: Wed Apr 15, 2009 10:11 pm

Re: 40s and been neglecting my portfolio - please help!

Post by jiabgwh363 »

retired@50 wrote: Sun Feb 11, 2024 1:07 pm If it were me...

Consider putting the desired bond allocation (20%) into "His 401k" since the total bond market fund (VBTLX) is available as a choice.

Use the Roth account space for stock index funds instead of bond funds. In other words, sell the bond funds and use the proceeds to buy stock index funds in the Roth accounts.

Sell off the high expense ratio fund in the inherited IRA and buy a low-expense ratio stock or bond index fund or ETF.

Regards,
Thanks retired@50! So this would defer the dividends that i'm paying taxes on every year? What about further simplification? That answer is a helpful start, but i feel like there's much more I could do with the other holdings.
tashnewbie
Posts: 4118
Joined: Thu Apr 23, 2020 12:44 pm

Re: 40s and been neglecting my portfolio - please help!

Post by tashnewbie »

I don't think one needs to tinker with a portfolio all that often. Perhaps peek at it once or twice a year to rebalance if desired (or more frequently for tax loss harvesting opportunities if the market is fluctuating a lot like it did in 2022, but that is more of a fringe technique that is not necessary).
jiabgwh363 wrote: Sun Feb 11, 2024 12:56 pm His 401k
34.6% Vanguard Mid-Cap Index Fund Admiral (VIMAX) (0.05%)
10.2% Vanguard Total International Stock Market Index Fund Admiral (VTIAX) (0.11%)
Any particular reason you're using a mid cap fund in this account? I would use the S&P 500 fund instead (VINIX - Institutional Index).
His Roth IRA
4.2% Inflation-Protected Securities Admiral (VAIPX) (0.10%)
1.7% Total Bond Market Index Admiral (VBTLX) (0.05%)
I would get all bonds out of his Roth IRA and use stock funds/ETFs instead. One of the perks of a Roth IRA is that qualified withdrawals are tax and penalty free. So probably makes more sense to put things with higher expected returns in these types of accounts.
His inherited IRA (MerrillEdge)
4.7% Cash for investing
3.3% Blackrock Dividend Fund (MDDVX) (0.93%)
I would sell MDDVX and invest all of the money in this account in low-cost stock or bond index funds/ETFs.
Her 401k
17.3% Vanguard Institutional Index Fund Institutional Shares Plus (VIIIX) (0.02%)

Her Rollover tIRA
1.9% Vanguard Total International Stock Market Index Fund Admiral (VTIAX) (0.11%)

Her Roth IRA
2.3% Total Bond Market Index Admiral (VBTLX) (0.05%)
You don't list any contributions to her accounts. Is she currently working with access to a workplace retirement plan?

If not, you could consider converting her TIRA to Roth IRA to free up the way for easy backdoor Roth maneuvers for her. If she has a current 401k, you could roll the TIRA into that, if the plan will accept it (most do). I would probably just convert it because it is a relatively small amount. You'd owe tax on the conversion.
1. What's the best way to update my holdings to be simpler and most tax efficient while tracking the market?
I think it's already fairly tax-efficient. For tax-efficiency, the taxable account investments are most relevant. The funds you're using there are tax-efficient (VTIAX is less so). If you wanted, you could stop adding new money to VTIAX in taxable and put international equity in other accounts. There's a wiki page about tax-efficient fund placement so check it out for more ideas.
4. Once I get my AA in place, how should I best contribute my regular earnings to keep this AA in place?
I would probably use the 401ks for bonds and think about buying I bonds each year. I would keep all desired asset classes in his 401k and then you can rebalance just in that account to dial in your desired asset allocation, with no immediate tax consequences.

I would keep investments on autopilot and make adjustments in the 401k as needed.
User avatar
retired@50
Posts: 12500
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: 40s and been neglecting my portfolio - please help!

Post by retired@50 »

jiabgwh363 wrote: Sun Feb 11, 2024 6:09 pm
retired@50 wrote: Sun Feb 11, 2024 1:07 pm If it were me...

Consider putting the desired bond allocation (20%) into "His 401k" since the total bond market fund (VBTLX) is available as a choice.

Use the Roth account space for stock index funds instead of bond funds. In other words, sell the bond funds and use the proceeds to buy stock index funds in the Roth accounts.

Sell off the high expense ratio fund in the inherited IRA and buy a low-expense ratio stock or bond index fund or ETF.

Regards,
Thanks retired@50! So this would defer the dividends that i'm paying taxes on every year? What about further simplification? That answer is a helpful start, but i feel like there's much more I could do with the other holdings.
Short answer "No" you can't defer dividends in a taxable account.

Your taxable account (shown below) will always pay dividends, and you'll have to deal with that on your income taxes every year. But, since you're using tax-efficient index funds, this is only creates a minor tax-drag. If you have filled all other retirement accounts with the maximum contribution(s) each year, then using a taxable account is the only place left.
Taxable
15.7% Vanguard Total Stock Market Index Fund Admiral (VTSAX) (0.04%)
1.7% Vanguard Total International Stock Market Index Fund Admiral (VTIAX) (0.11%)
For more on prioritizing investments see the wiki page.
https://www.bogleheads.org/wiki/Priorit ... nvestments

For the reasoning why forum members suggest holding bond funds in your tax-deferred accounts see the wiki page.
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
the_wiki
Posts: 2733
Joined: Thu Jul 28, 2022 11:14 am

Re: 40s and been neglecting my portfolio - please help!

Post by the_wiki »

So you are basically:

16% Total Stock market
36% Mid Cap
31% International
17% Cash and bonds.


Your international allocation is inline with market cap at 37% of your stocks.
Bond allocation is fine for your age
Your US stock holdings are very Mid-Cap heavy. That's not necessarily a bad thing. Mid caps have done very well historically.

I don't think you need to change anything if you don't want to. It's fine. You definitely could simplify if you would like, but you don't need to.
JakeyLee
Posts: 419
Joined: Sun Dec 31, 2017 10:34 am
Location: From sea to shining sea. But mostly the south west.

Re: 40s and been neglecting my portfolio - please help!

Post by JakeyLee »

the_wiki wrote: Mon Feb 12, 2024 10:39 am So you are basically:

16% Total Stock market
36% Mid Cap
31% International
17% Cash and bonds.


Your international allocation is inline with market cap at 37% of your stocks.
Bond allocation is fine for your age
Your US stock holdings are very Mid-Cap heavy. That's not necessarily a bad thing. Mid caps have done very well historically.

I don't think you need to change anything if you don't want to. It's fine. You definitely could simplify if you would like, but you don't need to.
I agree. If it were ME, I’d simply make this a 3 fund portfolio. Combine that mid cap allocation with the total stock market index. When all else fails, simplifying equals less tinkering. People will quibble about international exposure. Seems like there’s a thousand threads going back many years. As for me, I’m agnostic on holding international equities. If international underperforms… OR over-performs in the next 20-30 years, I’m not sure it will make or break my success in retirement. But your allocations seem fine.
“On balance, the financial system subtracts value from society” | -John Bogle
Topic Author
jiabgwh363
Posts: 15
Joined: Wed Apr 15, 2009 10:11 pm

Re: 40s and been neglecting my portfolio - please help!

Post by jiabgwh363 »

retired@50 wrote: Mon Feb 12, 2024 9:59 am
jiabgwh363 wrote: Sun Feb 11, 2024 6:09 pm
retired@50 wrote: Sun Feb 11, 2024 1:07 pm If it were me...

Consider putting the desired bond allocation (20%) into "His 401k" since the total bond market fund (VBTLX) is available as a choice.

Use the Roth account space for stock index funds instead of bond funds. In other words, sell the bond funds and use the proceeds to buy stock index funds in the Roth accounts.

Sell off the high expense ratio fund in the inherited IRA and buy a low-expense ratio stock or bond index fund or ETF.

Regards,
Thanks retired@50! So this would defer the dividends that i'm paying taxes on every year? What about further simplification? That answer is a helpful start, but i feel like there's much more I could do with the other holdings.
Short answer "No" you can't defer dividends in a taxable account.

Your taxable account (shown below) will always pay dividends, and you'll have to deal with that on your income taxes every year. But, since you're using tax-efficient index funds, this is only creates a minor tax-drag. If you have filled all other retirement accounts with the maximum contribution(s) each year, then using a taxable account is the only place left.
Taxable
15.7% Vanguard Total Stock Market Index Fund Admiral (VTSAX) (0.04%)
1.7% Vanguard Total International Stock Market Index Fund Admiral (VTIAX) (0.11%)

For more on prioritizing investments see the wiki page.
https://www.bogleheads.org/wiki/Priorit ... nvestments

For the reasoning why forum members suggest holding bond funds in your tax-deferred accounts see the wiki page.
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
retired@50, sorry I wasn't clear about my question. What I meant was, if I move my bond allocation from my Roth to my 401k, will the impact be that I'll stop paying taxes on all of those dividends in the Roth because they'll be in my 401k?
User avatar
retired@50
Posts: 12500
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: 40s and been neglecting my portfolio - please help!

Post by retired@50 »

jiabgwh363 wrote: Mon Feb 12, 2024 5:14 pm
retired@50 wrote: Mon Feb 12, 2024 9:59 am
jiabgwh363 wrote: Sun Feb 11, 2024 6:09 pm
retired@50 wrote: Sun Feb 11, 2024 1:07 pm If it were me...

Consider putting the desired bond allocation (20%) into "His 401k" since the total bond market fund (VBTLX) is available as a choice.

Use the Roth account space for stock index funds instead of bond funds. In other words, sell the bond funds and use the proceeds to buy stock index funds in the Roth accounts.

Sell off the high expense ratio fund in the inherited IRA and buy a low-expense ratio stock or bond index fund or ETF.

Regards,
Thanks retired@50! So this would defer the dividends that i'm paying taxes on every year? What about further simplification? That answer is a helpful start, but i feel like there's much more I could do with the other holdings.
Short answer "No" you can't defer dividends in a taxable account.

Your taxable account (shown below) will always pay dividends, and you'll have to deal with that on your income taxes every year. But, since you're using tax-efficient index funds, this is only creates a minor tax-drag. If you have filled all other retirement accounts with the maximum contribution(s) each year, then using a taxable account is the only place left.
Taxable
15.7% Vanguard Total Stock Market Index Fund Admiral (VTSAX) (0.04%)
1.7% Vanguard Total International Stock Market Index Fund Admiral (VTIAX) (0.11%)

For more on prioritizing investments see the wiki page.
https://www.bogleheads.org/wiki/Priorit ... nvestments

For the reasoning why forum members suggest holding bond funds in your tax-deferred accounts see the wiki page.
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
retired@50, sorry I wasn't clear about my question. What I meant was, if I move my bond allocation from my Roth to my 401k, will the impact be that I'll stop paying taxes on all of those dividends in the Roth because they'll be in my 401k?
No investment in stocks, bonds, money market, etc. held in a Roth account should be subject to annual income taxes. If you happen to take an early withdrawal from a Roth IRA, then taxes or penalties are possible - depending on the circumstances.

The reasoning for holding bonds in your 401k account has to do with how the monthly interest payments from a bond fund are treated by the income tax code. Monthly interest payments that come from a bond fund, (also called dividends) are taxed like ordinary income (like wages) which isn't particularly friendly when compared to how stock index fund investments are taxed. So, since every dollar withdrawn from a 401k (presumably after you retire) will be treated as ordinary income anyway, these tax-deferred accounts represent a good place for bond funds.

Additionally, since Roth accounts are expected to provide tax free withdrawals in the future, wouldn't you want your fastest growing assets in there? Putting stock index funds, with their higher expected return, in a Roth makes sense.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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