Longtime reader, first portfolio review. Questions at the bottom.
Emergency funds: Currently not a separate account, but would leave at least 6 months' expenses in savings ($25k)
Debt: $140k mortgage at 3.0% (Home worth $330k)
Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal, 1.95% State
State of Residence: North Dakota but considering move to Minnesota
Age: DH 30, DW 25, one kid on the way and more planned
DH - $115k income
DW - $65k income
Combined ~$20k bonuses
Desired Asset allocation: 88% stocks / 12% bonds
Desired International allocation: Not sure
Total Portfolio: $338k, not including home equity
Cash: $111k - HYSA at 3.75%. Piling cash for new home purchase. We had been rotating various short term CDs for the last year, but stopped that since we hope to purchase this spring/summer and the new CDs are not much better than 3.75%.
401k: $203k
HSA: $24k
Current retirement assets
Taxable
32.8% cash
DH 401k 1/3 is Roth 401k
51.8% Vanguard Target Retirement 2060 (VTTSX) (0.075%)
DW 401k 1/3 is Roth 401k
8.3% Vanguard Target 2065 (VLXVX) (0.075%)
DH HSA
1.0% cash
5.3% Fidelity Freedom 2060 Fund (FDKVX) (0.075%)
DW HSA
0.8% cash
Contributions
New annual Contributions
$23,500 DH 401k (+6% ER match, ~$7,500)
$10,000 DW 401k (+6% ER match, ~$4,000)
$8,550 DW HSA
Questions:
1. Thoughts on the portfolio? Cash will drop if we buy a new home. If we decide not to move, then the cash will be invested (some combination of CDs or low expense ratio index fund, depending on our plan for the money).
2. Life will change with the kid. Our after tax expenses are $3k per month now, but they will increase to $4k+ once daycare starts. We are considering purchasing a new home in the $700k range. This would entail a $270k downpayment and $430k mortgage at roughly 6.5% (~$2,100 increase to monthly housing expense). Can we afford this? We would have approximately $2k/month left after taxes, contributions, and expenses.
3. Long-term, we want the option for DW to stay home. Timeline is still 3+ years out (when we plan for kid #2). Using the same math above, if we remove daycare expenses and DW income/contributions, our take home pay and expenses are too close to feel good. How much would DH's income need to increase to feel comfortable? The number we have played around with is 5% annually (a couple 3% raises and one 10% promotion). Any overall feedback on the stay at home parent route? We have some worry that a $700k home might make SAHP impossible.
Portfolio Review - Potential New Home & SAHP
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Re: Portfolio Review - Potential New Home & SAHP
Using a Target Date Fund (TDF) is the ultimate in simplicity, so that's great (auto-rebalancing is really a set-and-forget setup). I do wonder why there's three separate target dates and not all the exact same target date (the one that mostly closely matches your "joint" desired AA, which is oddly specific at 88/12 rather than the nearest multiple of 10). Also holding a TDF in a Roth (or Taxable) account is sub-optimal from the perspective of Tax-Efficient Fund Placement because ideally you have zero bonds in Roth & Taxable, yet a TDF always has some bonds. I noticed you didn't list any Roth IRAs... you really should be putting some of your retirement savings into Roth Tax-Free accounts as well as Trad Tax-Deferred accounts.
As @KlangFool would likely say... "something doesn't add up": Expenses = Gross Income - Taxes (1040, Line 24) - SavingsMr.Chlorine wrote: Tue Feb 04, 2025 8:49 am 2. Life will change with the kid. Our after tax expenses are $3k per month now, but they will increase to $4k+ once daycare starts. We are considering purchasing a new home in the $700k range. This would entail a $270k downpayment and $430k mortgage at roughly 6.5% (~$2,100 increase to monthly housing expense). Can we afford this? We would have approximately $2k/month left after taxes, contributions, and expenses.
Gross Income = $200K ($115K + $65K + $20K)
Taxes = $31.1K (est. from Engaging Data's Tax Visualization plus a flat 1.95% for State (no brackets))
Savings = $42.1K ($23.5K + $10K + $8.55K)
Gross - Taxes - Savings = $126.85K annual expenses = $10.6K/month expenses
$10.6K/mo (from Klang's method) - $3K/mo (from your assertion) is a discrepancy of $7.6K/mo. Are you saving $7.6K/mo towards the new house or do you spend way more than you think you spend?
Once we clear up the discrepancy, then we can try and calculate how much surplus (or deficit) you'll have if you buy the new house and increase spending to cover daycare.
The difference in principal & interest (PI) payments is probably something like $1,400/mo now vs $2,720/mo if you buy a more expensive home. So an increase in expenses of about $1K/mo. If she stops working your gross income drops by $65K or -$5.4K/mo, but so does your tax bill and her retirement savings. If you were really only spending $3K/mo and saving $7.6K/mo towards the new house, then you will certainly have the bandwidth to absorb the loss of $5.4K monthly income plus the $1K/mo increase for increased PI. However, the property taxes and insurance (TI) on a home worth twice the value of your current home will also likely be higher. If that TI increase is more than $1.2K, you probably have a cash flow problem (and you're likely eating a lot of Ramen noodles in any event without a big raise in your salary).Mr.Chlorine wrote: Tue Feb 04, 2025 8:49 am 3. Long-term, we want the option for DW to stay home. Timeline is still 3+ years out (when we plan for kid #2). Using the same math above, if we remove daycare expenses and DW income/contributions, our take home pay and expenses are too close to feel good. How much would DH's income need to increase to feel comfortable? The number we have played around with is 5% annually (a couple 3% raises and one 10% promotion). Any overall feedback on the stay at home parent route? We have some worry that a $700k home might make SAHP impossible.
That all assumes your discrepancy noted in question #2 is answered fully because you're saving $7.6K/mo towards the house. If not, then the discrepancy needs to be resolved before any budget estimates are useful/valid.
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
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Re: Portfolio Review - Potential New Home & SAHP
A few things going on here. For starters, yes, we are saving a lot of cash right now for the new home. Since last February, we have saved a tish over $56k ($4.6k/month). Second, we just paid off our last car ($700/month), so our expenses are going from $3.7k to $3k starting now. The other biggest thing that I left off the expenses are some one-time, larger purchases we had in 2024 ($10k wedding, $5k honeymoon, $3k travel, and $5k medical). Even with those, I am still about $1k off your $7.6k number. DW and I will have to sit down and re-evaluate 2024's expenses to be more realistic.bonesly wrote: Tue Feb 04, 2025 3:42 pm As @KlangFool would likely say... "something doesn't add up": Expenses = Gross Income - Taxes (1040, Line 24) - Savings
Gross Income = $200K ($115K + $65K + $20K)
Taxes = $31.1K (est. from Engaging Data's Tax Visualization plus a flat 1.95% for State (no brackets))
Savings = $42.1K ($23.5K + $10K + $8.55K)
Gross - Taxes - Savings = $126.85K annual expenses = $10.6K/month expenses
$10.6K/mo (from Klang's method) - $3K/mo (from your assertion) is a discrepancy of $7.6K/mo. Are you saving $7.6K/mo towards the new house or do you spend way more than you think you spend?
Once we clear up the discrepancy, then we can try and calculate how much surplus (or deficit) you'll have if you buy the new house and increase spending to cover daycare.
At the least, the expenses will have to be reevaluated to add in recurring medical spending. We are largely healthy, but the kid will cost something.
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Re: Portfolio Review - Potential New Home & SAHP
Portfolio seems fine, although as other user said, it may not be ideal to put target date funds in Roth accounts. But it's not wrong to do it and optimal is not always the best path.
I personally wouldn't feel comfortable carrying a $700k house on a single <$135k income or even your joint $200k income. But different folks have different risk appetites and priorities and there's nothing wrong with that.
Do your numbers include taxes and insurance?
If you want a $700k house, I think both of you need to keep working or DH needs to get a substantial raise before DW becomes a SAHP.
But you and your spouse need to sit down and go through the numbers. Figure out what expenses will realistically look like after 1 or 2 children. As you said, there will be additional medical costs and other things associated with childrearing. You will probably still want to travel and take vacations after the children are born. All are things you have to factor into your annual expenses number.
Sounds like you aren't planning to reduce to a single income in the immediate future so you have time to figure it out.
Good luck with the new baby!
I personally wouldn't feel comfortable carrying a $700k house on a single <$135k income or even your joint $200k income. But different folks have different risk appetites and priorities and there's nothing wrong with that.
Do your numbers include taxes and insurance?
If you want a $700k house, I think both of you need to keep working or DH needs to get a substantial raise before DW becomes a SAHP.
But you and your spouse need to sit down and go through the numbers. Figure out what expenses will realistically look like after 1 or 2 children. As you said, there will be additional medical costs and other things associated with childrearing. You will probably still want to travel and take vacations after the children are born. All are things you have to factor into your annual expenses number.
Sounds like you aren't planning to reduce to a single income in the immediate future so you have time to figure it out.
Good luck with the new baby!