Seeking advice on my portfolio

[maggi26]

Hi everyone,
I am doing my annual portfolio review. I am 29 years old. I have been trying to diversify as much as possible. I am aware that currently I am too heavily invested in Microsoft. I would like some advice on whether I should sell that stock and buy QQQ or let it grow to avoid tax until I buy a house. I would also like some input on whether it is smart to be so heavily invested in tech. I am a long term investor, I am wondering if I should buy more individual stocks like COST to offset my investment in tech. I am still learning to invest, so any advice is helpful!

Here is the breakdown-
I pay off my credit cards in full every month, no other debt
Tax filing status: Single
State: WA
Tax Rate: 32% Federal
Approximate size of portfolio 400K
Emergency fund (HYSA): 55k
Employer stock (MSFT) 24%
Age: 29
HSA = 9k
401k
VFFSX 19%
International growth 4%
International Value 4%
Rollover IRA
FSGGX 2%
FXAIX 2.4%
FXNAX 1.7%
Taxable
VFIAX 11.2%
VTI 9.07%
COST 0.86%

Thanks

[retired@50]

Hi everyone,
I am doing my annual portfolio review.

You should consider reading (or re-reading) the instructions in the Asking Portfolio Questions sticky thread at the top of the Personal Investments forum.

Nobody likes to look up ticker symbols, and the entire portfolio should total to 100%, not each account. You can edit your post by using the pencil icon in the upper right corner.

Regards,

[lakpr]

Couple of thoughts:
1) The IRA you mention in your portfolio, is presumably a Roth IRA since you are also contributing to a workplace 401k plan. The entire deal with the Roth is that, in exchange for upfront taxes, all future growth is tax free. Why do you want to choke off that growth with carrying FXNAX (Fidelity US Debt Index fund) in your Roth IRA?
Sell everything in your Roth IRA and buy FXAIX (Fidelity S&P 500 index fund).

2) For someone 29 years old, and who has 35 years of investing horizon in front of them, I really advise against carrying bonds. When you are 45 to 50 years old, you can add bonds.
Through that lifecycle fund, you are carrying 10% bonds in your portfolio.
I get it that it is a lazy, set-it-and-forget-it approach, but I do think that spending about 10 to 15 minutes once each year and doing the rebalancing yourself is worth it. I would suggest 70% S&P 500 index fund and 30% International Index fund in your 401(k). You haven't given us the full list of funds available in your 401(k), but surely you will have an S&P 500 Index fund and either a Developed Markets index fund or a Total International index fund in it ...

You are working for Microsoft company, SURELY you have enough skills to do the rebalancing yourself?

3) Keep in mind the wash sales rules, which dictate that if you sell something in a taxable account for a loss, and you buy a "substantially identical" fund in one of your tax deferred accounts, you cannot claim the loss on your tax return. The way to sidestep these rules is to completely avoid any overlap between taxable & 401k, taxable and Roth IRA. The Roth IRA and 401(k) [ and also HSA ] can have identical funds in them, it is the overlap with taxable that is the problem.

Since most 401(k) plans offer an S&P 500 index fund but usually not the Total Stock Market Index fund, I advise to fill up the Roth IRA and 401(k) with the S&P 500 index fund, and invest in the Total Stock Market Index fund in the taxable account. Never invest in an S&P 500 index fund in taxable.

TL;DR: Sell that VFIAX in your taxable, plow those proceeds into VTI, never buy VOO or VFIAX again in taxable.

4) QQQ is very technology heavy. You want to diversify your investment as much as possible, not concentrate in a single sector (tech, here). Why do you want to jeopardize both your retirement and your employment investing in a single sector? Tech also does have downturns (you may be too young to remember then, but look up "tech" performance between 1999 to 2002).

5) Sell that Costco and Microsoft stock. While these are huge well known companies and the risk of going out of business is low, it is still taking a non-trivial uncompensated risk.

[maggi26]

Hi everyone,
I am doing my annual portfolio review.

You should consider reading (or re-reading) the instructions in the Asking Portfolio Questions sticky thread at the top of the Personal Investments forum.

Nobody likes to look up ticker symbols, and the entire portfolio should total to 100%, not each account. You can edit your post by using the pencil icon in the upper right corner.

Regards,

Thank you, I have edited my original post!

[maggi26]

Couple of thoughts:
1) The IRA you mention in your portfolio, is presumably a Roth IRA since you are also contributing to a workplace 401k plan. The entire deal with the Roth is that, in exchange for upfront taxes, all future growth is tax free. Why do you want to choke off that growth with carrying FXNAX (Fidelity US Debt Index fund) in your Roth IRA?
Sell everything in your Roth IRA and buy FXAIX (Fidelity S&P 500 index fund).

Thank you this gives me a lot to think about. The IRA is a rollover from a pervious employer. I will be making changes to it

[lakpr]

Couple of thoughts:
1) The IRA you mention in your portfolio, is presumably a Roth IRA since you are also contributing to a workplace 401k plan. The entire deal with the Roth is that, in exchange for upfront taxes, all future growth is tax free. Why do you want to choke off that growth with carrying FXNAX (Fidelity US Debt Index fund) in your Roth IRA?
Sell everything in your Roth IRA and buy FXAIX (Fidelity S&P 500 index fund).

Thank you this gives me a lot to think about. The IRA is a rollover from a pervious employer. I will be making changes to it

If it is a Traditional IRA, you need the Backdoor Roth badly, being in the 32% tax bracket. Surely a 401k plan offered by Microsoft will allow rollover of Traditional IRAs into the plan? After "getting rid of" the Rollover IRA thus, you just make a contribution to Traditional IRA (which is now non-deductible), and once the contribution settles, convert to Roth IRA.

THE SINGLE BIGGEST PRE-REQUISITE, for this "Backdoor Roth", is that the balance in the Traditional IRA must be $0. Across ALL traditional IRA (the term includes Rollover IRAs), at any broker. You can "get rid of" the existing Traditional IRA either through the above described "roll into 401k plan", or if you are able o absorb the tax hit, convert it all to Roth IRA.

For your reading pleasure: https://www.bogleheads.org/wiki/Backdoor_Roth

PS: I see that you edited the first post to correctly identify the percentages of each account type, but please also consider expanding the stock tickers (MSFT and COST) as well as the individual fund/etf tickers (such as: Vanguard total stock market index etf (VTI)).

PS2: Also check for the ability to do Mega Backdoor Roth in your 401k plan. You make after-tax non-deductible contributions to your 401k, then do an In-Plan Roth Rollover (IRRR) of those after-tax contributions to Roth 401(k). I am 99% sure Microsoft offers it ...

[tarantula13]

Couple of thoughts:
1) The IRA you mention in your portfolio, is presumably a Roth IRA since you are also contributing to a workplace 401k plan. The entire deal with the Roth is that, in exchange for upfront taxes, all future growth is tax free. Why do you want to choke off that growth with carrying FXNAX (Fidelity US Debt Index fund) in your Roth IRA?
Sell everything in your Roth IRA and buy FXAIX (Fidelity S&P 500 index fund).

2) For someone 29 years old, and who has 35 years of investing horizon in front of them, I really advise against carrying bonds. When you are 45 to 50 years old, you can add bonds.
Through that lifecycle fund, you are carrying 10% bonds in your portfolio.
I get it that it is a lazy, set-it-and-forget-it approach, but I do think that spending about 10 to 15 minutes once each year and doing the rebalancing yourself is worth it. I would suggest 70% S&P 500 index fund and 30% International Index fund in your 401(k). You haven't given us the full list of funds available in your 401(k), but surely you will have an S&P 500 Index fund and either a Developed Markets index fund or a Total International index fund in it ...

You are working for Microsoft company, SURELY you have enough skills to do the rebalancing yourself?

3) Keep in mind the wash sales rules, which dictate that if you sell something in a taxable account for a loss, and you buy a "substantially identical" fund in one of your tax deferred accounts, you cannot claim the loss on your tax return. The way to sidestep these rules is to completely avoid any overlap between taxable & 401k, taxable and Roth IRA. The Roth IRA and 401(k) [ and also HSA ] can have identical funds in them, it is the overlap with taxable that is the problem.

Since most 401(k) plans offer an S&P 500 index fund but usually not the Total Stock Market Index fund, I advise to fill up the Roth IRA and 401(k) with the S&P 500 index fund, and invest in the Total Stock Market Index fund in the taxable account. Never invest in an S&P 500 index fund in taxable.

TL;DR: Sell that VFIAX in your taxable, plow those proceeds into VTI, never buy VOO or VFIAX again in taxable.

4) QQQ is very technology heavy. You want to diversify your investment as much as possible, not concentrate in a single sector (tech, here). Why do you want to jeopardize both your retirement and your employment investing in a single sector? Tech also does have downturns (you may be too young to remember then, but look up "tech" performance between 1999 to 2002).

5) Sell that Costco and Microsoft stock. While these are huge well known companies and the risk of going out of business is low, it is still taking a non-trivial uncompensated risk.

The MSFT 401k actually does not offer international index funds and the target date retirement funds they use have almost no bonds for the far out options and are very cheap (4-5 bps) which usually makes the TDF the best option. They do offer brokeragelink though so can always do that.

[lakpr]

The MSFT 401k actually does not offer international index funds and the target date retirement funds they use have almost no bonds for the far out options and are very cheap (4-5 bps) which usually makes the TDF the best option. They do offer brokeragelink though so can always do that.

That's good to know, thank you! Even so, I do think most target date funds carry 30% to 40% of the stocks portion in international equiies, and *TO ME* that's a bit too high. I don't want the international equities to exceed 20% of my stocks allocation. My allocation is 55:15:30, just because I like round numbers and mutliples of 5, otherwise I prefer 56:14:30.

Of course, if the OP is comfortable with a 30% to 40% allocation to international equities, I agree TDF can be a one-shot, set-it-and-forget-it approach.