Portfolio Review- Medium Complicated

[Rogue Two]

Been lurking for a year soaking up the immense knowledge base of this site. I was previously lost in the woods when it came to investing but feel like I have a pretty well developed long term plan now and it’s time to review it here. Following the forum guidelines;

Emergency Fund:

I have a Testamentary Trust that’s worth around $500k that serves this purpose for me as well as the fixed income portion of my asset allocation. It is managed by a CFA that does charge a 1% fee for active management. But the CFA is effectively market timing and has the money parked in SNSXX waiting for a market downturn to take a more aggressive position. While this money is “parked” the fee is waived so maintaining the status quo costs me nothing for the time being. I have also been unsure about what I wanted to do with this money until recently so the conservative position has been a wise course of action in that regard. I’m not interested in leaving this firm at this time. They have served my mother and grandmother well for over 40 years. I value the relationship because if anything happens to me, my wife will roll everything else over to this firm for advise and guidance. She has no interest in personal finance so having access to such an operation is immensely valuable to me.

Debt:

Primary residence: Owned home, owe ~$122k at 2.125% on a 15 year conventional. ~$150k in equity. Considering opening a Home Equity Line of Credit in the near future for a few different reasons but haven’t done so yet.

Car: Owe ~$36k at 2.2% on family hauler, no interest in paying off early

Credit cards: Owe ~$50k but it is all tied up in promotion programs at 0-5%. I have been churning and capitalizing on promo rates to get to this point and it has been pretty lucrative. But I do recognize the risk exposure of this position because if these card promo’s suddenly dry up, I’m gonna be up a creek. So I have been working on paying these down.

Tax Filing Status: MFJ with two littles

Tax Rate: Knocking on the 24% bracket federal. No state tax.

State: Texas

Age: Me- late 30’s, DW- early 30’s.

Desired Asset Allocation: TBD, leaning aggressive due to age.

Current Assets:

Taxable:

Usually keep ~$5k in cash for various purposes

$20k in 4.6% CD’s that mature in the spring of 2025. Plan on liquidating this balance for a down payment on our next home.

Tax Advantaged;

His 401k: $55k with Fidelity in most aggressive allocation available. Employer matches 2x up to 6%, I have been contributing 8%.

His Rollover/ Trad IRA: $28k at Fidelity. This one was funded by various 401k rollovers from previous employers. The asset allocation was done following a model in Rick Ferri’s All About Asset Allocation

VOO- $600
VGK- $450
TIP- $200
SCHC- $450
MO- $250
IJR- $500
IEMG- $500
HYG- $300
GSSC- $600
FZILX- $300
FSTCX- $3500
FSRFX- $5300
FSCSX- $5400
FREL- $600
FPHAX- $4700
FAGIX- $1200
F- $500
COKE- $2600

Her 457b: $13k

Her TRS: $40k

Post Tax:

His Roth IRA: $7k at Charles Schwab. Opened last year but was unable to fund. Fully funded this year and will continue to do so going forward. Undecided on how to allocate but leaning towards 90% Total Market US fund and 10% foreign total market.

Her Roth IRA: $7k, same allocation uncertainty as above.

529’s- I opened 529’s for each kid when they were born. Kid 1 has ~$25k and kid 2 has ~$10k, both in target date funds. To this point the kid’s accounts have been funded by contributions from very generous relatives and I have matched each contribution out of my pocket and will continue to do so.

Now that the $35k of a 529 can be rolled over into a Roth (following the annual limit rules and such) I went ahead and opened 529’s for DW and myself to get the 5 year rule moving even though they aren’t funded yet. Figure they are good tax shelters that offer an easy path for Roth conversions in the future if our AGI exceeds the Roth limits or we retire early and have some conversion space in favorable tax brackets.

Contributions:

His 401k: ~$15k/ yr

His Roth IRA: $7k/ yr

His HSA: $8300/ yr

Her 457b: ~$6k/ yr right now, max out going forward

Her TRS: ~$12k/ yr

Her Roth IRA: $7k/ yr

I recently ran retirement calculators on all accounts and assuming typical appreciation of each account, maxing out her 457b, both Roth IRA’s and the HSA, we’re looking at around $5.5m retiring at age 60. I want to max the 457b before my 401k due to the penalty free early withdrawal option. We had been paying medical expenses directly out of the HSA because I did not know of the cash flow/ reimbursement option beforehand. But for the last year I have been paying out of pocket on reward-generating credit cards and saving receipts. Luckily our family is very healthy so medical expenses are minimal and the HSA will continue to grow steadily.

This portfolio does deliberately neglect a few things;

First off, social security. I will likely start drawing SS as early as possible since men in my family haven’t lived all that long historically. So I think the most benefit would get derived from early withdrawals. DW is a teacher and has not contributed to SS up to this point so has no benefit expected outside of the surviving spouse distribution from my benefit. The TRS balance mentioned above is meant to replace SS on the state level for teachers.

Second is my employer pension. I’m not entirely clear on the payout of this system yet but it is a fully funded defined benefit type. They just launched a new benefit calculator website but its still pretty clunky. I am certain I can chose between a lump sum payout, annual monthly distributions for the duration of my life only, and monthly distributions for the duration of my life plus spousal benefit distributions that continue after I pass. The way I figured it came out to ~$2k a month if I took straight distributions or a lump sum of ~$300k but some of the guys have told me this is way short so I need to look at it further. Regardless, I get skittish about trusting my retirement to outside sources so whatever this shakes out to will be icing on top of everything else.

Third is another inheritance. Since you should not count on inheritance when retirement planning, I’m leaving this one out but its there. It will be around $2mm. I would plan on buying land with this sum so it would not be crippling if it falls through for any reason.

Lastly is rental property income. We are moving in the spring and planning on keeping the current house largely due to the 2.125% interest rate and renting it out. If this goes well I would consider acquiring a few more properties using the Home Equity Line of Credit off this property or taking out short term loans from my trust. I know this site generally hates rental property but I am pretty confident in this move and have a plan in place with a local realtor for tenant screening and placement.

This whole plan also leaves room to put away more money in my 401k and DW has a 403b available in addition to her 457b but I don’t see the need to further fund those accounts at this time. My career is on a pretty dramatic upswing right now so we are still adjusting to the higher income of the last year or two but trying to be as deliberate and responsible as possible with it and not let lifestyle creep eat away at the opportunity.

Pretty seriously considering punching out early based on this timeline and retiring well before 60. I don’t hate my job and as mentioned above, I’m killin it. So that’s a consideration. In this scenario my current plan would be to draw down the 457b and reimburse out of the HSA for annual cash-flow in early retirement before reaching 59.5 and utilizing conventional retirement accounts. Plus whatever taxable we accumulate. Maybe sit on the tIRA for LTC consideration or start making Roth conversions with available tax space in early retirement as well. I am going to start an LLC for the rental property operation so I would expect to have earned income through this early retirement period thus allowing the Roth conversions.

Think that about covers most of it. Thoughts?

[invest4]

Some initial comments:

Emergency Fund:

* 6 mos of expenses in safe investments is an emergency fund.


* The rest of that 500K is definitely not that. The market timing is simply guessing and hoping you will make receive excess returns. This is simply not a winning position...not to mention the 1% fee. \ You want a simple, diversified portfolio that aligns with your risk tolerance and will endure for the long term. I strongly encourage you to reconsider this approach and keep your money. Managing your own money does not mean you can't have them manage something later...although I would offer you can do so more economically with something like Vanguard PAS.


Debt: All good...except for the 50K credit card if I understand it correctly?


Credit card: Promotions are good. However, this is more typically done with money that you have set aside for the purpose, so you get the bonus, but have risked nothing since you are using money you already have.


Asset Allocation: Age is one aspect. More importantly is that you know what your true tolerance for risk is so you are not susceptible to bad behaviors and sell in a panic during periods of volatility.


Current Assets:

* Do not underestimate the value of simplicity. Small positions in many funds makes no sense. You want your investments to move the needle in your portfolio...the small stuff makes it needlessly complex and is essentially "clutter" in your portfolio.

You can have a solid portfolio with a max of 4 funds.

Typical setup:

* Total US Stock Market (VTI)

* Total Intl Stock Market (VXUS) If you want Intl, the current guidance is no less than 20% and not more than 40%.

* Total Bond Market (BND) or other fixed income.

Of course, you don't always get to pick your choices (employer may not offer exactly what you want, but there is usually something close enough)


529s

* Good start. It is important you think about what kind of education is acceptable for you. The range of cost for an education can be considerable. For example, living on campus versus living at home...it can cost as much as the education itself.

We have 4 children and have offered them the following;

* 2 years community college

* 2 years State University

* All while living at home

There is no wrong answer, just that you think about what you want to do and how much you will need to fund it.


Contributions

Retirement calculators can give you an idea about what might happen given certain assumptions. Not surprisingly, life happens along the way...both good and possibly some not so much. Also, children are very cheap when they are young, and can be very expensive when older (cars, insurance, activities, etc.) More important is that you are always living beneath your means, consistently saving and increasing contributions as your income grows in a simple portfolio as mentioned earlier...and if not $5M, you will most likely still be just fine.


Social Security: There are many threads on the topic of Social Security and when to take, etc. You will simply make the best choice at that time...which may not be the one you have in mind today.


Rental Property Income: Being a landlord is not a passive activity. It is a part time job. Many people think they are making money on such a venture, but have seen others on this forum with more experience show them otherwise. Give it a good think.


Positivity is good and glad you are "killin it". Just keep doing the thing and see what the future brings and make sure you are enjoying life along the way as tomorrow is not guaranteed.


Best wishes.

[Itzapi]

Wow, from your fiances it seems like you have planned your future so meticulously and it is good to know you are so serious with your future. A couple of things that stand out to me:
Emergency Fund and Trust: Having a testamentary trust with CFA management is a good strategy. A theory of why one has to adopt the conservative position while waiting for the market’s conditions to change holds if one is not in a hurry to change. Also, that is well, that you believe the firm’s would keep supporting your family even in the future.
Debt: So all in all, you are doing pretty good managing your debts particularly on credit card promos. But I’d keep an eye on those expiring promo rates so it doesn’t come as a shock to you. For the car loan, low interest as that is perfectly alright to retain as long as you are investing at a higher return elsewhere.

[mhadden1]

But the CFA is effectively market timing and has the money parked in SNSXX waiting for a market downturn to take a more aggressive position.

This kind of verbiage from a CFA == bad.

[Eagle33]

Did you forget to include "Her Roth IRA: $7k/ yr" under contributions?

[Rogue Two]

But the CFA is effectively market timing and has the money parked in SNSXX waiting for a market downturn to take a more aggressive position.

This kind of verbiage from a CFA == bad.

Beyond the general principle of market timing, why is that? I only recently received the trust and was unsure about what I was going to do with it going forward. I have since decided to hold $100k in the SNSXX fund to maintain liquidity to borrow against and go with CFA's recommendations for the rest of it. This money represents the fixed income portion of my portfolio and the CFA's firm is generally pretty safe/ conservative with their strategies. Not to mention, the 1% fee is waived for the time being so I'm not in a hurry to make any moves yet. The CFA's guidance is especially useful in helping me navigate the process of borrowing against the trust since I am married and co-mingling could be an issue. I am also unsure about how my taxes are going to shake out this year and value the CFA's guidance (but I am brushing up on tax strategy, just not there yet).

[Rogue Two]

Did you forget to include "Her Roth IRA: $7k/ yr" under contributions?

Yes, honest mistake. Fixed.