Personal investing advice

[bshcujsna]

Emergency funds: ~Six months of expenses in HYSA

Debt: Car Loan, 3.5% interest rate

Tax Filing Status: Single

Tax Rate: 14.1% Federal, 3.7% State Last year

State of Residence: CO

Age: 26

Desired Asset allocation: 80% stocks / 20% bonds

Desired International allocation: 30% of stocks, but not certain about this

Total Portfolio: ~85K + Emergency Fund

Current retirement assets

Taxable
1.0% Vanguard Intermediate Term Invest Grade Investor CL (VFICX) (0.2%)
1.5% Vanguard Growth & Income Investor CL (VQNPX) (0.35%)
1.9% Vanguard Wellesley Income Investor CL (VWINX) (0.23%)
0.8% Vanguard Information Technology ETF (VGT) (0.1%)
2.6% Vanguard Total World Stock ETF (VT) (0.07%)
2.2% Vanguard Total Stock Market ETF (VTI) (0.03%)

Roth 401k
23.4% State Street S&P 500 Index (SVSPS) (0.01%)
23.5% State Street Retirement 2055 (SSDQX) (0.045%)
2.0% State Street US Bond Index (SSFEX) (0.02%)
1.2% State Street Russell Small/Mid Cap Index Securities
0.7% Lending Series Fund Class II (SSMHX?) (0.02%)
9.0% State Street Global All Cap Equity Ex[1]U.S. Index
Company match: 75% of first 8%

Roth IRA at Vanguard
23.9% Vanguard Target Retirement 2060 Investor CL (VTTSX) (0.08%)
4.8% Vanguard Total Stock Market Index Admiral CL (VTSAX) (0.04%)
1.0% Vanguard S&P500 Index ETF (VOO) (0.03%)


HSA at Chard Snyder
0.5% Vanguard 500 Index Admial (VFIAX) (0.04%)

_______________________________________________________________

Contributions

New annual Contributions
$8,000 + $6,000 company match in Roth 401k
Maxxing out Roth IRA
$3700 + $600 Employer match to HSA
$variable taxable investments (but would like to set a recurring contribution)

Available funds

Funds available in 401(k) additional to what I am already invested in:
Invesco Stable Value Trust - Class B1 (Doesn’t show ticker) (0.31%)
Aon Core Plus Bond Class I (Doesn’t show ticker) (0.23%)
Dodge & Cox Stock X (DOXGX) (0.41%)
PRIMECAP Odyssey Growth (POGRX) (0.66%)
Securities Lending Series Fund Class II (SSGVX?) (0.045%)



Questions:
1. Just looking for suggestions. Would like to set investments and forget about it for a while

2. Would also like to improve on intermediate term savings investments and start recurring investments

3. Would like to simplify where possible

[Doctor Rhythm]

Welcome to the forum.

I think you have a lot of opportunities to simplify because there is a lot of overlapping coverage in each of your accounts. For example, take large US company stocks like Apple. You own them three times in your Roth 401k (in the target date fund, the global fund, and the SP 500 fund). Any one of them could suffice as the only fund for US stocks in that account.
-- For maximum simplicity, I would pick the target date fund that is closest to your desired 80/20 allocation and make that the only fund in your Roth 401k and Roth IRA.
-- Set up your Roth 401k to automatically buy that fund with every paycheck.
-- If this results in more international stock allocation than you want, you could add a little bit of an SP500 fund.
-- For taxable, I like either VTI or VT there, but not any of your other holdings due to the large amount of non-qualified (taxed as regular income) dividends.

[bonesly]

1. Just looking for suggestions. Would like to set investments and forget about it for a while
...
3. Would like to simplify where possible

Simplifying is a great goal... the Current layout is 16 holdings (including a relatively high-cost fund highlighted in yellow with ER in red). The Proposed layout is only 6 holdings and all pure asset class funds, which is easier to manage than a TDF with pure asset class funds. A TDF is a fine choice if you don't have a Taxable account and you can pick the same singular TDF in all your tax-advantaged accounts as that's as simple as it gets (single fund choice that is auto-rebalancing). It's not Tax-Efficient Fund Placement if you have to hold a TDF in Taxable or a Roth account type, and if you hold any funds besides the one TDF date, then you end up having to do manual rebalancing anyway (so the auto-rebalancing benefit is eliminated). Rebalancing a 3-Fund Portfolio should only take 10-15 minutes once a year, so while a TDF's auto-rebalancing is attractive, the tax-efficiency constraints make it less practical for an informed DIY investor (and 15 min/yr shouldn't be a deterrent to managing your retirement assets).



A template spreadsheet (not your data) to do this kind of assessment and rebalance planning is linked below.
Asset Allocation Sheet
AA Current and Proposed

2. Would also like to improve on intermediate term savings investments and start recurring investments

Just as generic guidance for whatever "intermediate term" goals you have:

<5y: Cash such as 100% MMF, HYSA, CDs, T-Bills, etc. or if you have particularly high risk tolerance then add some short-term bonds (e.g., 80% cash + 20% ST bonds).
5-10y: Bonds/Stocks or Stocks/Bonds (exact % depends on risk-tolerance)
>10y: Stocks/Bonds ((exact % depends on risk-tolerance)

When adding mutual funds and/or ETFs for "other purpose" portfolios be sure to keep Tax-Efficient Fund Placement in mind and choose funds to avoid issues with Wash Sales between Taxable and tax-advantaged being a "substantially identical" pair (in IRS lingo) As one example of a wash sale issue to avoid, don't hold an S&P-500 fund in Taxable if you also hold a fund tracking that same index in any of the tax-advantaged accounts.

----------
Tax-efficiency may not be your biggest concern if you're just barely into the marginal 22% Fed tax bracket (the brackets around there are 10%, 12%, and 22%, so 14.1% is an effective tax rate, not a marginal tax bracket). Still, I have to wonder if continuing contributions to a Roth 401k is the best choice now that you're in the 22% bracket and presumably with future raises could even push to 24% (Roth was probably ideal at 12% and lower). See the Wiki topic on Trad vs Roth 401k. Note that this decision is about your 401k; you should continue to max out the Roth IRA.

[bshcujsna]

Welcome to the forum.

I think you have a lot of opportunities to simplify because there is a lot of overlapping coverage in each of your accounts. For example, take large US company stocks like Apple. You own them three times in your Roth 401k (in the target date fund, the global fund, and the SP 500 fund). Any one of them could suffice as the only fund for US stocks in that account.
-- For maximum simplicity, I would pick the target date fund that is closest to your desired 80/20 allocation and make that the only fund in your Roth 401k and Roth IRA.
-- Set up your Roth 401k to automatically buy that fund with every paycheck.
-- If this results in more international stock allocation than you want, you could add a little bit of an SP500 fund.
-- For taxable, I like either VTI or VT there, but not any of your other holdings due to the large amount of non-qualified (taxed as regular income) dividends.

Thanks for the help! This is pretty in line with what I expected to hear, but the specific suggestions are very helpful!

[bshcujsna]

1. Just looking for suggestions. Would like to set investments and forget about it for a while
...
3. Would like to simplify where possible

Simplifying is a great goal... the Current layout is 16 holdings (including a relatively high-cost fund highlighted in yellow with ER in red). The Proposed layout is only 6 holdings and all pure asset class funds, which is easier to manage than a TDF with pure asset class funds. A TDF is a fine choice if you don't have a Taxable account and you can pick the same singular TDF in all your tax-advantaged accounts as that's as simple as it gets (single fund choice that is auto-rebalancing). It's not Tax-Efficient Fund Placement if you have to hold a TDF in Taxable or a Roth account type, and if you hold any funds besides the one TDF date, then you end up having to do manual rebalancing anyway (so the auto-rebalancing benefit is eliminated). Rebalancing a 3-Fund Portfolio should only take 10-15 minutes once a year, so while a TDF's auto-rebalancing is attractive, the tax-efficiency constraints make it less practical for an informed DIY investor (and 15 min/yr shouldn't be a deterrent to managing your retirement assets).



A template spreadsheet (not your data) to do this kind of assessment and rebalance planning is linked below.
Asset Allocation Sheet
AA Current and Proposed

2. Would also like to improve on intermediate term savings investments and start recurring investments

Just as generic guidance for whatever "intermediate term" goals you have:

<5y: Cash such as 100% MMF, HYSA, CDs, T-Bills, etc. or if you have particularly high risk tolerance then add some short-term bonds (e.g., 80% cash + 20% ST bonds).
5-10y: Bonds/Stocks or Stocks/Bonds (exact % depends on risk-tolerance)
>10y: Stocks/Bonds ((exact % depends on risk-tolerance)

When adding mutual funds and/or ETFs for "other purpose" portfolios be sure to keep Tax-Efficient Fund Placement in mind and choose funds to avoid issues with Wash Sales between Taxable and tax-advantaged being a "substantially identical" pair (in IRS lingo) As one example of a wash sale issue to avoid, don't hold an S&P-500 fund in Taxable if you also hold a fund tracking that same index in any of the tax-advantaged accounts.

----------
Tax-efficiency may not be your biggest concern if you're just barely into the marginal 22% Fed tax bracket (the brackets around there are 10%, 12%, and 22%, so 14.1% is an effective tax rate, not a marginal tax bracket). Still, I have to wonder if continuing contributions to a Roth 401k is the best choice now that you're in the 22% bracket and presumably with future raises could even push to 24% (Roth was probably ideal at 12% and lower). See the Wiki topic on Trad vs Roth 401k. Note that this decision is about your 401k; you should continue to max out the Roth IRA.

Wow, this info is amazing! Thank you for the advice and explaining all the reasoning behind it. I will definitely look to implement this.

As for your thoughts on 401k contributions… Would you suggest starting to split contributions (say 50/50) or start contributing in a Traditional 401k?

[WeakOldGuy]

I think you have gotten some fantastic advice.

A TDF in your 401K would be a simpler way of getting your bond and international allocation depending on the TDF that you chose. The downside is that you pay for the simplicity with a higher ER%. Otherwise, Bonesly's suggestions are likely optimal.

Definitely keep your bond positions in your 401k. As you noted, the employer match, and its gains, will be tax-deferred so will be the most tax efficient location for the bonds.

[bonesly]

As for your thoughts on 401k contributions… Would you suggest starting to split contributions (say 50/50) or start contributing in a Traditional 401k?

Going 50/50 seems like a reasonable fallback plan, given that no plan involving future tax rates is going to be perfect anyway.

It's good to have money in both types of accounts (Trad Tax-Deferred and Roth Tax-Free), yet the decision about contribution to a Trad 401k vs Roth 401k is simple in concept, but complex in practice.

Simple: If you're pretty sure your tax-bracket will drop in retirement, then contribute to Trad now and do Trad->Roth conversions later as that gives you immediate tax-break now (taxable income is reduced) and you still get to put money into Roth accounts at a lower cost (the tax owed on conversion would be lower than the cost paid during working years at a higher tax rate). If you're pretty sure your tax-bracket will NOT drop in retirement, then max out Trad 401k and Roth IRA (to at least get some dollars in a Roth account type).

Complex: a) In reality, the there's more conditions involved... for example I thought I'd be doing Trad->Roth conversions, but my tax-bracket never went down. Had I known about the idea of building up my Taxable account for retirement and then living of Taxable account at the LTCG rate, with near-zero income at ordinary tax rates, I might have been able to manipulate my tax-rate to drop (maybe even two brackets!) and that then is an ideal time to do conversions.
b) The simple concept only looks at tax-bracket now & then; it ignores the tax-free growth on the Roth earnings (vs only tax-deferred for Trad). If you get dollars into a Roth early, then the magic of compounding over a long time can dwarf the loss of a tax-break in your working years. Putting "too much" into Trad and then not being able to convert Trad->Roth without a huge tax bill can lead to more problems when RMDs hit. Subsequently it's a non-trivial problem to solve.

There are tools and calculators linked in the Trad vs Roth Wiki topic and I'm pretty sure TPAW and Boldin likely try to account for all the complexities of the decision, but I haven't done the math myself, so it's hard to evaluate other tools to know what they got right and what was omitted that was important. Maybe there are others who've played with the Trad vs Roth calculators and can provide a recommendation for one over a another (or cite several that all give consistent results).