Portfolio Review - 25 Year Old Male seeking check on asset allocation

[bh74]

Hi there,

Happy holidays! I am very fortunate to have savings and a stable income, and for years I have been following the "just invest in index funds" motif. However, for just as many years, I have been wondering if I have the "right" asset allocation. Lurked for a bit and have been meaning to request a portfolio review for a while now. As such, following the template:

Emergency funds: six months of expenses - $29k in Fidelity Treasury Only Money Market Fund (FDLXX). My thinking was that, if I'm going to have my emergency savings fund in all cash, instead of putting it in a HYSA, maybe put it in a Treasury Only Money Market fund for a slightly higher effectuve interest rate.

Debt: No school, car, or mortgage loans. Have about ~$2-3k in credit card debt each month that I pay off in full each month.

Tax Filing Status: Single

Tax Rate: Currently 32%, soon to be 35% Federal, 7% State, also have local tax of 4%

State of Residence: New York

Age: 25

Desired Asset allocation: More on this below in the Questions section, but this is my approximate asset allocation for both my taxable brokerage account and my Roth IRA account.

• Equities - total 92%, of which:
  US Large Cap - 62% (VOO)
  US Small Cap - 7% (VB)
  Non-US Equity - 10% (VXUS)
  Individual Stocks as part of a legacy portfolio before I became a boglehead - 14% (no longer investing in single name securities)
  
  Bonds - total 6%, of which:
  US Total Bond Market - 5% (BND)
  Vanguard Total Corporate Bond Market - 1% (VTC)
  
  Real Estate - total 2%, of which:
  US REITs - 1.5% (VNQ)
  International REITS - 0.5% (VNQI)

I also have two Roth 401(k)s, one of which is fully invested in a 2060 Target Date Fund and one of which is investing in an S&P 500 index fund.

Portfolio size: In total, about $300k

• 1. Taxable brokerage = $125k (excluding my emergency savings account I have here)
  2. Roth IRA = $50k
  3. First Roth 401(k) = $80k
  4. Second Roth 401(k) = $45k

Current retirement assets
Given the inclusion of my Roth IRA and my two 401(k)s, that means my "total" portfolio is effectively the following:

• 95% Equity
  4% Bonds
  1% Real Estate

Breaking it down by fund:

• VOO - 36% + State Street Equity 500 - 15% = 51% S&P 500 exposure ----> 51% S&P 500 exposure
  VB - 4%
  VXUS - 6%
  Individual Stocks - 8%
  Blackrock 2060 Target Date Fund - 27%
  
  BND - 3%
  VTC - 0.5%
  
  VNQ - 1%
  VNQI - 0.5%

Contributions

New annual Contributions
$2,000 taxable per month
Max contributions in Roth IRA at beginning of year, using backdoor Roth
Max contributions to Roth 401k ($0.50 match for every dollar up to first 15%, which I believe translates to an effective 7% match)

Questions:
1. When I first subscribed to the Boglehead-style, I had only read A Random Walk Down Wall Street and used one of the example asset allocations provided for a young, aggressive investor. At the time, I was not aware of the three fund portfolio (VTSAX, VTIAX, VBTLX) that I oft see recommended. I am aware that my allocation to VOO (US large-cap) and VB (US small-cap) is not entirely comprehensive of the US market, noticeably missing mid-caps and some other parts of the small-cap universe. That being said, I am happy with this allocation and so I'm seeking a sanity check if these "blind spots" are bigger issues than I originally thought.

2. Not to be blasphemous, but since I am fortunate enough to have savings and a stable income, do I even need a bond allocation? And if I did, is BND and VTC a reasonable combo?

3. I know this goes against standard portfolio theory, but I confess I do kind of consider my taxable brokerage + my Roth IRA separate from my Roth 401(k)s in the sense that I have more agency in configuring the asset allocation of the former pair and less so for the latter pair. What are some downsides to this way of thinking?

4. I know there's a lot of "angst" about international allocations these days, given their recent underperformance. I don't mind investing in them for potential return/diversification purposes, but I'm wondering if my effective S&P 500 exposure of 51% is too low for my age and risk tolerance.

Thank you so much for your time/consideration! Will reply and update this post if questions come through.

[trek34]

I clicked to see a $25,000,000.00 portfolio.

[gavinsiu]

1. You appear to be doing some sort of factor tilting. Portfolio of this type typically have a small and large cap. However, your small cap is rather tiny is not really that significant. Your bond portion is rather low too and you are essentially 100% equity.
2. No, at your age, I held 100% equity. The question is if you have the will to maintain that if the market falls 50%, or have 3 years of down market, and have a return of -1% after inflation? All three thrings happen in 2000-2010. Would you be able to contribute same as you did before if something like this happened?
3. It's not against standard portfolio theory, but at your high tax bracket, you should consider shifting the most tax efficient asset into your taxable, which would be your large cap. Most of a bond fund's return comes from dividends, which would get slapped with a 35% fed tax and then your hefty state tax.
4. Basically, international have been terrible for a long time. Part of the reason is due to US out performance in the past couple of decades. No one knows if this out performance will persist in the future or we end up in a Japanese style several decade of loss. Personally I have tilted internatinal for the past couple of decade and paid for it in lower return, but I rather not bet against the world. You have to make your own decision if you want to bet on your own country.

You are doing fine due to your high saving rate.

[cosmos]

I clicked to see a $25,000,000.00 portfolio.

As did I lol totally misread the title.

[sc9182]

May be OP came here with good experience posting on CL (craig’s list, anyone !?)

Having said that - if he/she continue to contribute/max to 401k for 50* years — it might possibly break financial $25M (i think some folks refer to it as 25MM !?). Then, he/she be very sorry he/she chose tIRA/pre-tax Vs. Roth paying 35-40% some taxes (Roth proponents Galore !! - then those proponents can whip-up their Roth-conversion Calculators - and promptly guide this dude
by not falling trap to IRMAAs, RMD torpedos and/or estate-tax issues !!)

[Sprucebark]

I came to see the $25 million.

[Raymond]

OP, could you please change "25M" to "25-year-old male" in your title?

I thought you'd come into a $25 million windfall...

[Mel Lindauer]

OP, could you please change "25M" to "25-year-old male"?

I thought you came into a $25 million windfall.

[I changed the title to clarify. Mod Mel Lindauer.]

[dogagility]

Welcome to the forum.

Tax Rate: Currently 32%, soon to be 35% Federal, 7% State, also have local tax of 4%

New annual Contributions
Max contributions to Roth 401k ($0.50 match for every dollar up to first 15%, which I believe translates to an effective 7% match)

I suggest investing your 401k in the traditional version rather than the Roth version due to your high income tax rate. You may be in a lower tax bracket during retirement.

Do you have access to a Health Savings Account. If so, I'd prioritize investing in this. https://www.bogleheads.org/wiki/Priorit ... nvestments

Individual Stocks as part of a legacy portfolio before I became a boglehead - 14% (no longer investing in single name securities)

Do you have dividend reinvestment turned off for these invididual stocks?

Current retirement assets
1% Real Estate

Breaking it down by fund:
VB - 4%
VXUS - 6%
BND - 3%
VTC - 0.5%
VNQ - 1%
VNQI - 0.5%

The percentages in these investments are low and won't make much difference. I suggest you invest at least 10% in a class if you want an exposure that has any impact.

I recommend investing in a total market index funds when available rather than slicing and dicing like this.

2. Not to be blasphemous, but since I am fortunate enough to have savings and a stable income, do I even need a bond allocation? And if I did, is BND and VTC a reasonable combo?

No you don't need to invest in a bond fund decades prior to retirement. This assumes you can psychologically handle the volatility without panic selling. If you do invest in fixed income, I would keep it simple and invest in BND.

3. I know this goes against standard portfolio theory, but I confess I do kind of consider my taxable brokerage + my Roth IRA separate from my Roth 401(k)s in the sense that I have more agency in configuring the asset allocation of the former pair and less so for the latter pair. What are some downsides to this way of thinking?

If all of these accounts are for retirement spending, then you should consider these as a whole for asset allocation purposes. However, stock index funds are more tax efficient and should be put in your taxable account, if possible. https://www.bogleheads.org/wiki/Tax-eff ... _placement

4. I know there's a lot of "angst" about international allocations these days, given their recent underperformance. I don't mind investing in them for potential return/diversification purposes, but I'm wondering if my effective S&P 500 exposure of 51% is too low for my age and risk tolerance.

What matters most is your total stock exposure, diversifying your portfolio, and doing this with simplicity. When you have a choice, the simplest way to invest is to use a total stock market index fund.

If you want to invest in international for diversification purposes, then invest at least 10% of your portfolio in this. Some people invest 40% in international. There is no right or wrong answer here since nobody knows the future.

[Saintor]

Not sure if now is the right time to do it, but I were a 25yo version of self, I would go 100% equities, not that much broken down. Many would say that <5% of a portfolio is just noise, especially when you go the indexes route.

[bh74]

Thank you to everyone for the thoughts, thank you to Mel for updating the title, and apologies to those hoping to have seen a $25M portfolio (haha)!

Edited in original post and responding generally to a few of the other questions:
1. Re: will to maintain if the market has a significant downturn - I'd like to believe I am able to continue contributing the same. Though I acknowledge it's easier said than done, at least for the eight years I've been invested, I have yet to sell any of my index funds during corrections/bear markets... (but also granted, my portfolio size was a lot smaller)
2.Re: International and small cap allocations - I appreciate everyone's thoughts here, especially on sizing my exposure so it's not just "noise." I will do some more consideration here on asset allocation.
3. Re: dogagility's comments. Thank you for the thoughts on tax efficiency - I have just been on autopilot with building up Roth contributions, but I will give more thought into pivoting to Traditional contributions. I do not have access to an HSA. I have dividend reinvestment turned off for all individual stocks (and for full clarity, I have dividend reinvestment turned on for my index funds).
4. Re: bond allocation - thanks again to everyone for their thoughts on a bond allocation at 25 years-old. I will consider eliminating additional contributions to 0; that, or simplifying the exposure to be just BND.

Thank you again to everybody!

[learning30]

No need to hold bonds. Your age plus your mention of stable income.

Shouldn’t care if the market goes up, sideways, backwards, etc.

[Raymond]

Agree with bonds not being necessary at your age.

About the individual stocks - what are the potential capital gains or losses on them?

You may consider selling those with losses and roll the proceeds into your ETFs, especially if each stock position is <5% of the total portfolio.

Consider doing the same with the itty-bitty ETF positions, they're too small to make any meaningful difference, even if they increase in value.

[TRC]

I would greatly try to simplify your portfolio. You're in way too many funds IMO. I don't seen a desired asset allocation, but someone your age could be 90/10 stocks to bonds, or even 95/5. I would suggest a 2 fund portfolio - total stock market index and total bond market index. Stick your bond funds in a tax efficiency spot, like your 401K or Roth. If you haven't read JL Collins Simple Path to Wealth, I would suggest checking it out. Simplify!

[J295]

It’s OK if you don’t have bonds, especially given your emergency fund.

It will help you to have the mindset that the equity markets will go down in all likelihood by 50% plus or minus at some point and your investing career, maybe more than once. And in all likelihood during that time there will be dialogue suggesting “it’s different this time” —- and it might be, but you will have to make a decision whether you have to resolve to hang in there or sell. Be prepared to buckle up is what I’m saying.

[Olemiss540]

I would not pay 47% tax rate to stick money in a Roth account (excepting your backdoor IRA).

Put all your 401k contributions in pretax and stock any excess savings into a taxable account IMO. Simplify into a 2 or 3 funds investment mix, let it ride for 20 or 25 years and enjoy an early retirement.

Pay attention to where you put any income producing investments, hold bonds/cash in a tax advantaged account, treat your entire portfolio as one big bucket and do whatever you can to lower tax drag.