Portfolio Review and Personal Financial planning - Suggestions needed

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coolwave1515
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Portfolio Review and Personal Financial planning - Suggestions needed

Post by coolwave1515 »

Hi,

I am a newbie investor. I have been conservative so far in life. Keeping money mostly in bank savings account in fear of losing money. Have been reading a lot about personal finance lately. I write this post in hopes of getting some advice so I can start investing systematically.

Emergency funds: Yes. 6months.
Debt: Car loan - $8,000 balance @4%interest
Tax Filing Status: Married. Wife is homemaker and 1yr old daughter.
Tax Rate: 28% Federal, 9.3% State
State of Residence: California
Age: 35
Desired Asset allocation: Unsure. Suggestions welcome.
Desired International allocation: Unsure. Suggestions welcome.



Current total portfolio: 125,000 ( 55k in 401k, 5k in IRA, 65k in company stocks)



Current assets:

A) Taxable
Total - 95k
80k - Kept in savings account for home purchase down payment. Intend to purchase house 2-3 yrs from now. It is in Chase and BoA. No interest being earned. Want to keep this money safe. I would prefer to invest amount I earn from salary going forward.
15k - invested in 8-10 individual stocks since year using Robinhood. As of now this portfolio is in balance. No profit, no loss. Keeps dancing between +- 2%.

B) My 401k
Total - 55k
46% - VANG LG CP STOCK IDX - ER - 0.04%
42% - DODGE & COX BALANCED (DODBX) - ER - 0.53%
12% - FID EXT MKT IDX PR (FSEVX) -ER - 0.07%

Company match? Yes


C) Wife`s Traditional IRA at Scottrade
Total: $5k
1k - iShares Gold Trust (IAU) (ER - 0.25%)
4k - Cash (uninvested)

D) Company stocks:
$65k

------------------------------------

Contributions going forward
$18,000 - 401k (my contribution)
$4,500 - 401k - Employer contribution
$5,500 - Wife`s IRA account
$20,000 taxable - want to invest it for retirement / kid education.
$4,000 - company stocks ( i would want to sell them and invest elsewhere going forward)

---------------------------------------

Questions:
1. Help me build a portfolio. Open to suggestions. Point out my mistakes. I don`t know my risk tolerance honestly. I have never been in stock market before and never experienced a down phase in life money-wise or jobwise yet.

2. As of now, below is what I am thinking. Suggestions welcome. I would love to know reasons as well if you can provide. If I go with this plan, I don`t know how to stick to my allocation since these funds are not available in my 401k options.


30% - Domestic Equity . Vanguard Total Stock Market ETF (VTI) - (ER - 0.04%)
10% - Tech fund . PowerShares QQQ Trust (QQQ) - (ER-0.20%)
20% - International Equity . Vanguard Total International Stock ETF (VXUS) - (ER - 0.11%)
20% - REITS - Vanguard REIT ETF (VNQ) - (ER-0.12%)
10% - Gold - iShares Gold Trust (IAU) . (ER - 0.25%)
10% - Bond - Vanguard Total Bond Market ETF (BND) - (ER - 0.05%)


3. Also seeking Suggestions on:
Medi insurance - Have it with current company. Should I take any from outside?
Life insurance - Have 200k Life insurance provided by employer. Should I take any from outside?
Disability Insurance - Have 200k Disability insurance provided by employer. Should I take any from outside?
Liability insurance - is it recommended?
Identity Theft protection - is it recommended?
PFInterest
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Joined: Sun Jan 08, 2017 12:25 pm

Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by PFInterest »

Pay off the car loan.
Are you phased out of doing a tIRA for you and your wife vs. rIRA?
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Taylor Larimore
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Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by Taylor Larimore »

coolwave1515:

Welcome to the Bogleheads Forum! I will attempt to answer "Suggestions welcome."
Desired Asset allocation: Unsure.
This is a very important decision because, more than anything else, it determines your expected return and your expected risk. Use this link to help you decide:

Vanguard Investor Questionnaire

Desired International allocation: Unsure.
The best international allocation is a controversial subject. This link may help:

How Much International--a Suggestion

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Meg77
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Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by Meg77 »

Congrats on a great start! Here are my initial thoughts.

1. Pay off the car loan. No sense having $80K in cash earning nothing while paying 4% on a car loan. You can rebuild cash quickly with the monthly payment savings.

2. Bump up your life insurance. If you were to die, I'm assuming $200K would not be enough for your wife and child to live on for very long. Get life insurance outside your employer because that way when/if you leave your employer you don't have to get new coverage (which may be more expensive by then or even unobtainable if you have a medical event prior to that). I'd go with $500K on a 20 year level term at minimum, but many recommend 8-10 times your income. You may also want some life insurance on your wife. If she dies you'll need full time child care or to quit your job to take care of your child. Around $200K on her would be appropriate.

3. Medical insurance is usually cheapest and best through your employer. You're probably fine here. Consider a high deductible health plan and contributing to a Health Savings Account at your next open enrollment if you haven't already. You probably have adequate disability coverage through work as well, but if not by all means research that topic and get yourself covered at a basic level. Do NOT get sold whole life insurance or any life insurance on your child. Don't fall for gimmick "cancer insurance" or other ancillary medical insurance policies. You don't need extra liability insurance or an umbrella policy at your asset level, nor is identity theft protection worth much. Banks and credit card companies cover you if your identity is stolen; they only thing the insurance provides is a case worker to help you make the phone calls and fill out the paperwork.

4. Sell the DODBX in your 401k and split the difference between the other two (very good, very cheap) funds you've selected. Those are two great funds and are really all you need. Then use your wife's IRA (and yours) for international and/or bond funds if you want to add those.

5. Sell your company stock(s). That's WAY too much money to have in 1-2 companies. If this is an ESPP plan then start rolling out shares as soon as you're able each quarter/year.

6. I don't know how much you guys make or what your actual goal for retirement contributions vs home down payment savings is. But in general here is what the order of importance should be for new retirement contributions: Get your 401k match, max out Roth IRAs for both of you, then max out a Health Savings Acct (if applicable), then max out your 401k. You can roll funds in and out of an ESPP plan if you like as well, but all other cash flow I would just direct to the home down payment fund until you've met that goal. No need to be investing in individual stocks or in a brokerage account at this point.

7. Home Savings I would just keep in cash. You need it in 3 years or less, so don't put it at risk in the markets. Honestly you may want to move your timeline up unless there is a reason you're waiting 3 years. Sell the company stocks and put that with the $72K you already have saved (after paying off your car loan), and go house hunting. Once you've established in your new place, if you're maxing out retirement and have a 529 underway, then use extra cash flow to build taxable/brokerage assets.

8. Risk tolerance is a weird concept that I honestly think is overrated. Just because a person is scared or paranoid doesn't mean that he or she should invest only in bonds. There is still a rational allocation that makes sense based on a person's goals and timeline that should be aspired to. At your age, assuming retirement is the goal and that it's 20+ years off, I'd invest in 90% stocks and 10% bonds. I'd put 25% of the stock allocation in international. I'd avoid gold and sector funds and stick with The Three Fund Portfolio which you can google here. Good news is that your 401k offers great choices for keeping with that.
"An investment in knowledge pays the best interest." - Benjamin Franklin
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Taylor Larimore
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Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

The Three-Fund Portfolio

Post by Taylor Larimore »

coolwave1515:

Meg77 gave you an excellent reply. This link lists the benefits of The Three-Fund portfolio she recommends:

viewtopic.php?t=88005

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Jack FFR1846
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Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by Jack FFR1846 »

The cash should at least be in a high yield savings account. Redneck pays 1.25% up to $35k. Ally pays 1.05%. I agree to pay off the car. I'd also get out of company stock and anything related to gold. Both are super high risk (gold has lost its shirt over the last few years).
Bogle: Smart Beta is stupid
Topic Author
coolwave1515
Posts: 5
Joined: Wed Jun 28, 2017 2:48 am

Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by coolwave1515 »

Thanks Taylor for your quick response.
Desired Asset allocation: Unsure.

This is a very important decision because, more than anything else, it determines your expected return and your expected risk. Use this link to help you decide:

Vanguard Investor Questionnaire
This link suggests me 70% stocks, 30% bonds. I agree with the result. Even though theoretically I know that I need to stay invested in an event when stocks fall 20-30%, but, I may panic, think tactically, or act on suggestions from friends, etc and may end up taking wrong decisions.
With 70% in stocks or related risky assets, 30% in Bonds; if stock market goes 30% down and assuming bonds remain as is, i will end up with 21% loss in total portfolio value which I think I may be able to mentally absorb. This is what I am thinking. In all honesty, I am completely newbie to stocks and haven`t experience a down market first hand yet. So, I don`t know my actual behavior.

The best international allocation is a controversial subject. This link may help:

How Much International--a Suggestion
This link helped. 20% international allocation is what I would also prefer to choose.
Last edited by coolwave1515 on Thu Jun 29, 2017 2:13 am, edited 1 time in total.
Topic Author
coolwave1515
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Joined: Wed Jun 28, 2017 2:48 am

Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by coolwave1515 »

"Meg77" - Thanks for your detailed thoughtful response.
Meg77 wrote: 1. Pay off the car loan. No sense having $80K in cash earning nothing while paying 4% on a car loan. You can rebuild cash quickly with the monthly payment savings.
Reason is that people around me suggest that if you want to buy home in future, you need to have a good credit history. To build a credit history you need some loan for which your are regularly paying payments! Hence, I am roaming around with this car loan.
2. Bump up your life insurance. If you were to die, I'm assuming $200K would not be enough for your wife and child to live on for very long. Get life insurance outside your employer because that way when/if you leave your employer you don't have to get new coverage (which may be more expensive by then or even unobtainable if you have a medical event prior to that). I'd go with $500K on a 20 year level term at minimum, but many recommend 8-10 times your income. You may also want some life insurance on your wife. If she dies you'll need full time child care or to quit your job to take care of your child. Around $200K on her would be appropriate.
I agree. I may later Google on how to buy life insurance, which life insurance is best value, etc.
3. Medical insurance is usually cheapest and best through your employer. You're probably fine here. Consider a high deductible health plan and contributing to a Health Savings Account at your next open enrollment if you haven't already. You probably have adequate disability coverage through work as well, but if not by all means research that topic and get yourself covered at a basic level. Do NOT get sold whole life insurance or any life insurance on your child. Don't fall for gimmick "cancer insurance" or other ancillary medical insurance policies. You don't need extra liability insurance or an umbrella policy at your asset level, nor is identity theft protection worth much. Banks and credit card companies cover you if your identity is stolen; they only thing the insurance provides is a case worker to help you make the phone calls and fill out the paperwork.
Medical - i agree.
Cancer insurance, umbrella policy etc - I kinda get attracted to such policies as i am more of a "capital protection" type of a person and am worried always about unforeseen medical expenses.
Liability insurance - I am worried about hitting someone by car and person suing me for a million dollars! I was mentioning that type of liability insurance.
4. Sell the DODBX in your 401k and split the difference between the other two (very good, very cheap) funds you've selected. Those are two great funds and are really all you need. Then use your wife's IRA (and yours) for international and/or bond funds if you want to add those.
Reason i took DODBX was because it had 65% stocks and 35% bonds. By adding this to my 401k portfolio i was trying to maintain 80:20 stock-bond ratio to overall portfolio.
I am not eligible for IRA. I may take your suggestion to use my wife`s IRA for international and/or bond funds.
5. Sell your company stock(s). That's WAY too much money to have in 1-2 companies. If this is an ESPP plan then start rolling out shares as soon as you're able each quarter/year.
I so so so agree with this point. My sane mind knows I need to sell company stocks and put it in VTI or similar ETFs to spread my risk, but, this is where human emotion of "greed" and "regret" play hide and seek with me almost daily! I have been gaining personal finance knowledge since last few months by reading blogs. Since then i have been trying to sell my company stocks. But, i work for a tech company. Since last few months my company`s stock has been super fun. It goes up by 2% and i become greedy to hold it, next day it goes down by 1.5% and then i "regret" why din`t i sell it yesterday and next day cycle repeats! uff!!! I haven`t been able to hit the "sell" button!
6. I don't know how much you guys make or what your actual goal for retirement contributions vs home down payment savings is. But in general here is what the order of importance should be for new retirement contributions: Get your 401k match, max out Roth IRAs for both of you, then max out a Health Savings Acct (if applicable), then max out your 401k. You can roll funds in and out of an ESPP plan if you like as well, but all other cash flow I would just direct to the home down payment fund until you've met that goal. No need to be investing in individual stocks or in a brokerage account at this point.
I don`t know much about Roth IRA at this moment. I only know that I get tax benefit on Traditional IRA. Hence, I have put money in it. In ROTH IRA i can put money after tax and money will get locked till i attain 59yrs of age. I can withdraw it tax free later. I do not know why i will lock my money like that, I don`t know upper limit on investment in ROTH IRA, etc. Honestly, I haven`t read much on it yet. I have no investment in it as of now.
All other points above - 401k company match, 401k max out, HSA, Traditional IRA ... i max them all out.
7. Home Savings I would just keep in cash. You need it in 3 years or less, so don't put it at risk in the markets.
I was thinking of putting half of this money in online banks which give high interest rates. Barclays is right now giving 1.15%. I don`t know the risks and hence reluctant to put whole amount in it. Would you know why no big domestic banks (Chase, BofA, Wells) give 0.1% and some non-neighborhood banks give 1% to 1.15%. This is a huge difference. These banks say they are FDIC insured. What kind of risks are involved?
Honestly you may want to move your timeline up unless there is a reason you're waiting 3 years. Sell the company stocks and put that with the $72K you already have saved (after paying off your car loan), and go house hunting. Once you've established in your new place, if you're maxing out retirement and have a 529 underway, then use extra cash flow to build taxable/brokerage assets.
Reason is that I work in tech sector. Technology is moving faster than the pace at which I am learning new skills. I worry job loss in near future. Don`t want to make a big purchase like home at this point. Why 3 yrs? That`s the longest my wife is willing to wait...lol.
529 - I did not know about it till now. I just read couple of links in few mins. My understanding is that since I live in California i won`t get any tax benefits for kid`s college plan..neither state nor federal. Kindly correct me if I am wrong.
8. Risk tolerance is a weird concept that I honestly think is overrated. Just because a person is scared or paranoid doesn't mean that he or she should invest only in bonds. There is still a rational allocation that makes sense based on a person's goals and timeline that should be aspired to. At your age, assuming retirement is the goal and that it's 20+ years off, I'd invest in 90% stocks and 10% bonds. I'd put 25% of the stock allocation in international. I'd avoid gold and sector funds and stick with The Three Fund Portfolio which you can google here. Good news is that your 401k offers great choices for keeping with that.
This is where i would like some more clarity. My understanding (only theoretical) is that when one designs a portfolio one should have assets with less correlation between them. Hence, I chose Equity (Domestic and International), REITs, Gold and Bonds.
i) Equity - If I put 80-90% in equity - Domestic and International - there are like 80% correlated! How will i get diversification benefit?
ii) Can you or anyone help me understand why I should not have REITs? They have moderate growth plus huge dividends.
iii) Can you or anyone help me understand why I should not have Gold in my portfolio? - hedge against inflation and safe haven when markets tumble.
iv) QQQ is a tech ETF...I think that tech is where the world is moving and lot of future growth is going to come from. That`s one way of looking at it and second...it has been the best performer in last 10yrs!

One reason could be that it will be difficult to maintain 6 funds over three-fund-portfolio. I agree with this point. I would also prefer a more hands-off simple portfolio which i review once a year and re-balance if needed. But, i don`t see asset allocation happening in a three-fund-portfolio. I am just putting my points forward. I am open to suggestions / corrections. I want to stick to a portfolio plan once i finalize it for a long time. Hence, humbly seeking reasons for which asset goes into the plan and which don`t. Thanks for your time.
Last edited by coolwave1515 on Thu Jun 29, 2017 3:10 am, edited 2 times in total.
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coolwave1515
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Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by coolwave1515 »

Jack FFR1846 wrote:The cash should at least be in a high yield savings account. Redneck pays 1.25% up to $35k. Ally pays 1.05%. I agree to pay off the car. I'd also get out of company stock and anything related to gold. Both are super high risk (gold has lost its shirt over the last few years).
Thanks for your reply. I have put forward my reasoning / comments on high-yield savings account, car loan, company stock and Gold in my reply to Meg77. Would love to hear your thoughts as well.
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Meg77
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Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by Meg77 »

coolwave1515 wrote:"Meg77" - Thanks for your detailed thoughtful response.
Meg77 wrote: 1. Pay off the car loan. No sense having $80K in cash earning nothing while paying 4% on a car loan. You can rebuild cash quickly with the monthly payment savings.
Reason is that people around me suggest that if you want to buy home in future, you need to have a good credit history. To build a credit history you need some loan for which your are regularly paying payments! Hence, I am roaming around with this car loan.

Lots of people think they need to keep a loan in order to maintain a credit score, but it's not true! I am a banker who has originated many mortgage loans, so I'm very familiar with this topic. You do need to maintain credit accounts of some kind, or else your score will eventually drop and ultimately disappear (this takes several years typically after you close the last account). But all you need to do is keep a credit card or two open to maintain a good score. It's true that to have the highest credit scores that you need to have a mix of credit types on your report - credit cards, mortgages, term notes like auto loans or student loans. However the difference is minimal - like 775 versus 802 or something like that, something that will make no difference at all as to what your mortgage options will be. I've seen lots of perfectly good credit reports come in for folks who have nothing more than a few active credit cards.
2. Bump up your life insurance. If you were to die, I'm assuming $200K would not be enough for your wife and child to live on for very long. Get life insurance outside your employer because that way when/if you leave your employer you don't have to get new coverage (which may be more expensive by then or even unobtainable if you have a medical event prior to that). I'd go with $500K on a 20 year level term at minimum, but many recommend 8-10 times your income. You may also want some life insurance on your wife. If she dies you'll need full time child care or to quit your job to take care of your child. Around $200K on her would be appropriate.
I agree. I may later Google on how to buy life insurance, which life insurance is best value, etc.
Find a broker online who can shop around at various companies, not just a "captive agent" at one company like a State Farm. I've heard that zander insurance has very competitive options.
3. Medical insurance is usually cheapest and best through your employer. You're probably fine here. Consider a high deductible health plan and contributing to a Health Savings Account at your next open enrollment if you haven't already. You probably have adequate disability coverage through work as well, but if not by all means research that topic and get yourself covered at a basic level. Do NOT get sold whole life insurance or any life insurance on your child. Don't fall for gimmick "cancer insurance" or other ancillary medical insurance policies. You don't need extra liability insurance or an umbrella policy at your asset level, nor is identity theft protection worth much. Banks and credit card companies cover you if your identity is stolen; they only thing the insurance provides is a case worker to help you make the phone calls and fill out the paperwork.
Medical - i agree.
Cancer insurance, umbrella policy etc - I kinda get attracted to such policies as i am more of a "capital protection" type of a person and am worried always about unforeseen medical expenses.
Liability insurance - I am worried about hitting someone by car and person suing me for a million dollars! I was mentioning that type of liability insurance.
It generally doesn't make sense to insure something you don't have. If you HAD a million dollars than you would certainly want to get a $1,000,000 umbrella liability insurance policy. But nobody is likely to sue you for $1M and win when you don't have anything close to that. However if it makes you feel better you can certainly get an umbrella policy; it's an add on to your car insurance typically. They are pretty cheap. I'd stick with $250K or $500K though in your case. You can always raise it as your asset levels rise. But cancer policies and medical add ons are a gimmick plain and simple. Regular medical insurance already covers cancer and other illnesses. Unfortunately the only way to "insure" against healthcare costs is to save a lot.
4. Sell the DODBX in your 401k and split the difference between the other two (very good, very cheap) funds you've selected. Those are two great funds and are really all you need. Then use your wife's IRA (and yours) for international and/or bond funds if you want to add those.
Reason i took DODBX was because it had 65% stocks and 35% bonds. By adding this to my 401k portfolio i was trying to maintain 80:20 stock-bond ratio to overall portfolio.
I am not eligible for IRA. I may take your suggestion to use my wife`s IRA for international and/or bond funds.
That makes sense, and if you really want to stick to a desired AA then it is ok to use funds you may not otherwise use to do so. However, make sure you consider your whole portfolio when calculating your AA - not just your 401k. Each account doesn't have to be balanced on its own. Technically if you look at all your assets you are actually very cash heavy (which can be a proxy for bonds).
5. Sell your company stock(s). That's WAY too much money to have in 1-2 companies. If this is an ESPP plan then start rolling out shares as soon as you're able each quarter/year.
I so so so agree with this point. My sane mind knows I need to sell company stocks and put it in VTI or similar ETFs to spread my risk, but, this is where human emotion of "greed" and "regret" play hide and seek with me almost daily! I have been gaining personal finance knowledge since last few months by reading blogs. Since then i have been trying to sell my company stocks. But, i work for a tech company. Since last few months my company`s stock has been super fun. It goes up by 2% and i become greedy to hold it, next day it goes down by 1.5% and then i "regret" why din`t i sell it yesterday and next day cycle repeats! uff!!! I haven`t been able to hit the "sell" button!
Just sell half of it to start and do it over time if it makes you feel better. Or set a cap and stick to it - like I'll keep 5% of my assets in my company stock MAX. But seriously, think about why it's silly to keep lots of your company stock rather than lots of any other company stock. Employees at EVERY publicly traded company justify owning that company's stock for the SAME reasons you want to own yours. You feel more comfortable with it because you're familiar with it, but there are people familiar with every company. Plus your entire income depends on that company. If they do well, your raises will be better, it will grow, you'll have more opportunity to move up. If they don't do well those things won't happen - AND your biggest investment will tumble. Just diversify.
6. I don't know how much you guys make or what your actual goal for retirement contributions vs home down payment savings is. But in general here is what the order of importance should be for new retirement contributions: Get your 401k match, max out Roth IRAs for both of you, then max out a Health Savings Acct (if applicable), then max out your 401k. You can roll funds in and out of an ESPP plan if you like as well, but all other cash flow I would just direct to the home down payment fund until you've met that goal. No need to be investing in individual stocks or in a brokerage account at this point.
I don`t know much about Roth IRA at this moment. I only know that I get tax benefit on Traditional IRA. Hence, I have put money in it. In ROTH IRA i can put money after tax and money will get locked till i attain 59yrs of age. I can withdraw it tax free later. I do not know why i will lock my money like that, I don`t know upper limit on investment in ROTH IRA, etc. Honestly, I haven`t read much on it yet. I have no investment in it as of now.
All other points above - 401k company match, 401k max out, HSA, Traditional IRA ... i max them all out.
Roth IRAs are better than Traditional IRAs in many ways. You don't get a tax deduction for contributing, but distributions (the contribution plus all earnings compounded over decades) can be taken out tax free. Plus you can take your contributions back out (not the earnings on them though) any time without penalty, so the Roth can act as a savings account for anything you might need prior to retirement age. And there are benefits as far as estate planning and so on. Do some research, but it's a clear choice especially the younger you are and the lower your tax bracket is. Besides, you can contribute at any income level versus being locked out of the T-IRA at a fairly low income level (once you make too much to contribute directly to the Roth you can do a "backdoor Roth contribution" which you can look up more info about on this forum.)
7. Home Savings I would just keep in cash. You need it in 3 years or less, so don't put it at risk in the markets.
I was thinking of putting half of this money in online banks which give high interest rates. Barclays is right now giving 1.15%. I don`t know the risks and hence reluctant to put whole amount in it. Would you know why no big domestic banks (Chase, BofA, Wells) give 0.1% and some non-neighborhood banks give 1% to 1.15%. This is a huge difference. These banks say they are FDIC insured. What kind of risks are involved?
Banks that need more deposits pay higher rates. Deposits are a liability for banks; they make money on them only by making loans against their deposit base. But they don't make money on deposits directly; in fact deposits cost banks money because they have to pay for FDIC insurance, pay to store a certain percentage of their deposits in cash in vaults, pay people to manage all the transactions and debit cards and check orders, pay for transactions even when there is fraud, etc. Most of the big banks are well capitalized enough that they don't "need" more deposits to be able to make loans, so they don't pay much for them. But as long as your deposit is FDIC insured, there are miniscule risks with putting your money at that bank. Go with the best rate you can find.
Honestly you may want to move your timeline up unless there is a reason you're waiting 3 years. Sell the company stocks and put that with the $72K you already have saved (after paying off your car loan), and go house hunting. Once you've established in your new place, if you're maxing out retirement and have a 529 underway, then use extra cash flow to build taxable/brokerage assets.
Reason is that I work in tech sector. Technology is moving faster than the pace at which I am learning new skills. I worry job loss in near future. Don`t want to make a big purchase like home at this point. Why 3 yrs? That`s the longest my wife is willing to wait...lol.
529 - I did not know about it till now. I just read couple of links in few mins. My understanding is that since I live in California i won`t get any tax benefits for kid`s college plan..neither state nor federal. Kindly correct me if I am wrong.
I understand about the house! There's no hurry generally. Home ownership is expensive and a big time suck too haha. As for 529 plans, they are a good savings vehicle for college because the earnings on the investments made grow tax free. I don't know the particulars of California plans, but I do know that you can invest in any state's plan. It usually makes sense to stick to your state's plan if you get that state's taxes waived too, but maybe CA doesn't do that. Federal income tax would be waived though.
8. Risk tolerance is a weird concept that I honestly think is overrated. Just because a person is scared or paranoid doesn't mean that he or she should invest only in bonds. There is still a rational allocation that makes sense based on a person's goals and timeline that should be aspired to. At your age, assuming retirement is the goal and that it's 20+ years off, I'd invest in 90% stocks and 10% bonds. I'd put 25% of the stock allocation in international. I'd avoid gold and sector funds and stick with The Three Fund Portfolio which you can google here. Good news is that your 401k offers great choices for keeping with that.
This is where i would like some more clarity. My understanding (only theoretical) is that when one designs a portfolio one should have assets with less correlation between them. Hence, I chose Equity (Domestic and International), REITs, Gold and Bonds.
i) Equity - If I put 80-90% in equity - Domestic and International - there are like 80% correlated! How will i get diversification benefit?
ii) Can you or anyone help me understand why I should not have REITs? They have moderate growth plus huge dividends.
iii) Can you or anyone help me understand why I should not have Gold in my portfolio? - hedge against inflation and safe haven when markets tumble.
iv) QQQ is a tech ETF...I think that tech is where the world is moving and lot of future growth is going to come from. That`s one way of looking at it and second...it has been the best performer in last 10yrs!

One reason could be that it will be difficult to maintain 6 funds over three-fund-portfolio. I agree with this point. I would also prefer a more hands-off simple portfolio which i review once a year and re-balance if needed. But, i don`t see asset allocation happening in a three-fund-portfolio. I am just putting my points forward. I am open to suggestions / corrections. I want to stick to a portfolio plan once i finalize it for a long time. Hence, humbly seeking reasons for which asset goes into the plan and which don`t. Thanks for your time.

I'm not the expert on this, but there are LOTS of threads on here about the optimal asset allocation and why sector funds and REITs do not really add anything as far as true diversification. A large portion of the stock market is already based on technology companies and most companies of all types also benefit from or invest in real estate to some degree. By buying a total stock market index you are buying ALL the sectors, so adding sector funds just means you're betting *extra* on that type of asset, or "tilting" your portfolio that way. In other words, market timing. That means you're assuming that YOU know something that nobody else does and that isn't already priced into the market. Might be true, but usually it isn't. :beer
"An investment in knowledge pays the best interest." - Benjamin Franklin
Topic Author
coolwave1515
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Joined: Wed Jun 28, 2017 2:48 am

Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by coolwave1515 »

Thanks Meg77 for sharing your valuable insights. I really appreciate it. Now it is time for execution at my end. :happy
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WoodSpinner
Posts: 1899
Joined: Mon Feb 27, 2017 1:15 pm

Re: Portfolio Review and Personal Financial planning - Suggestions needed

Post by WoodSpinner »

You might find the backtest feature of the Portfolio Visulizer helpful for understanding the effects of various assets in your portfolio.

Publication 590B is a good resource for understanding the nuances of a Roth account and tax consequences (if any) from distributions.

Best of luck...
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