Portfolio Review

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aszend
Posts: 40
Joined: Tue Jan 28, 2014 11:49 pm

Portfolio Review

Post by aszend » Sun Feb 11, 2018 10:17 pm

Emergency Funds: 2-3 months of expenses
Cash: $25,000 @ 1.45%
Debt:
Mortgage: $314,311.15 @ 3.25% (30-year fixed VA loan)
Credit Card #1: $16,165.26 @ 0% (Until 6/15/2018)
Credit Card #2: $689.92 @ 0% (Until 8/1/2018)
Credit Card #3: $4,872.38 @ 0% (Until 10/28/2018)
Credit Card #4: $5,916 @ 0% (Until January 2024)
NOTE: Credit Cards #1, #2 and #3 will be paid in full prior to their promotional APR's expiring.
Tax Filing Status: Married Filing Jointly
Tax Rate: 12% Federal, 0% State
State of Residence: WA
Age: 30 (Him), 29 (Her)
Desired Asset Allocation: 80-85% stocks / 15-20% bonds
Desired International Allocation: 35-40% of stocks

Current Retirement Assets - $318,240.90

Taxable - Vanguard ($167,257.64)
31.10% - Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), 0.04%
21.46% - Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), 0.11%

His 401(k) - Merrill Lynch ($103,382.58)
32.49% - BlackRock iShares S&P 500 Index Fund Class I Shares (BSPIX), 0.11%
3% Employer Match

His Roth IRA - Vanguard ($29,164.26)
9.16% - Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX), 0.05%

His HSA - Bank of America ($8,436.41)
2.34% - BlackRock iShares S&P 500 Index Fund Class K Shares (WFSPX), 0.04%
0.31% - Cash Account (Mandatory)

U.S. Savings Bonds ($10,000)
3.14% - Series I Savings Bonds (I-Bonds)

Contributions

New Annual Contributions
$18,500 His 401k (+3% Employer Match)
$6,900 His HSA (Including $600 Employer Contribution)
$5,500 His Roth IRA
$5,500 Her Roth IRA
$10,000 I-Bonds
$4,200 Taxable

Available Funds

401(k) Fund Options
https://imgur.com/a/g3jzw

HSA Fund Options
https://imgur.com/a/g3jzw

Questions:

1. I'm underweight my desired International equity allocation (35-40%) by at least 10.44%-15.44%.

I've held international equities in taxable due to the Foreign Tax Credit and, until the last year, a complete lack of availability in other accounts for good international equity funds. In 2017 I got married, opened an HSA (first year employer had offered one) and opted to invest those funds into the BlackRock S&P 500 Index Fund (WFSPX) over the BlackRock iShares MSCI Total International Index Fund (BDOKX) because I believed VTIAX to be a superior fund and I figured I could just add more international equity exposure through taxable investments. However, I have not been able to contribute nearly as much to taxable investments within the past 15 months or so as I had hoped and my domestic equity holdings have greatly increased due to annual contributions and market performance.

Should I sell all of my WFSPX in this account and buy BDOKX (or another fund), or wait to purchase more VTIAX via taxable as our income grows (spouse is not currently working, but will be in the coming months)?

2. I'd like to open a Roth IRA for my spouse and contribute the maximum ($5,500) for the 2017 tax year. I've narrowed it down to three fund options:

Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
To help increase bond/fixed income holdings (currently 12.6%) to desired allocation (15%-20%).

I sold $23,000 (2016, 2015 and partial 2014 contributions) of I-Bonds in January to help pay down debts, including Credit Cards #1, #2 and #3 (which I will do in the coming months). I chose to do this because I view I-Bonds both as bonds and as an inflation-protected tier within my cash reserve/emergency fund system, and they have the lowest projected investment growth of all my taxable holdings. Perhaps it would've been wiser to sell some VTSAX instead to help with re-balancing, but I didn't want to lose out on any future growth potential there.

Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
To help increase international equity holdings (see Question 1).

Vanguard Real Estate Index Fund Investor Shares (VGSIX) / Vanguard Global ex-U.S. Real Estate Index Fund Investor Shares (VGXRX)
I've pondered the idea of adding a separate REIT index fund in the past when considering the argument that REITs are fundamentally different from other asset classes, not totally correlated with stocks, and possibly underweight in total market funds due to privately held real estate/REITs. I've floated the idea of adopting Rick Ferri's "Core Four" portfolio. Has the Bogleheads general consensus changed on REITs? Does anyone recommend them here today?

I appreciate any recommendations or feedback.
Last edited by aszend on Sun Feb 11, 2018 11:29 pm, edited 5 times in total.

PFInterest
Posts: 2528
Joined: Sun Jan 08, 2017 12:25 pm

Re: Portfolio Review

Post by PFInterest » Sun Feb 11, 2018 10:36 pm

The CC debt, assets, planned savings, and tax rate confuse me.
Are you finishing residency or something?

aszend
Posts: 40
Joined: Tue Jan 28, 2014 11:49 pm

Re: Portfolio Review

Post by aszend » Sun Feb 11, 2018 10:57 pm

PFInterest wrote:
Sun Feb 11, 2018 10:36 pm
The CC debt, assets, planned savings, and tax rate confuse me.
Are you finishing residency or something?
Over $23,000 of my annual earnings is non-taxable income (VA service-connected disabilities related to years of military service). Annual 401(k) and HSA contributions reduce my taxable income by $25,400, and my health insurance premiums (around $4,779 annually) are payroll deducted on a pre-tax basis. The 12% tax bracket for Married Filing Jointly filers in 2018 goes up to $77,400. My total taxable income falls below that when considering non-taxable income and tax-deductible income.

I have cash in checking and savings accounts available to pay Credit Cards #1, #2 and #3 right now. All of these debts were the result of paying for a fianceé (K1) visa (my wife is a foreign national) and associated medical examinations/document translation services, her permanent residency application, getting married, buying a house in what happens to be the hottest real estate market in the country (despite being born and living here most of my life) featuring multiple offers and bidding wars, furnishing said house, major unexpected home repairs, moving, major unexpected vehicle repairs and major unexpected medical issues all in the span of about 15 months. None of those things were cheap, but most of them were one-time expenses (visa/residency applications, marriage, home purchase/closing costs/down payment, etc.) that I'll never need to pay again--hopefully.

My planned savings are doable considering I've saved and invested at least $50,000 every year (including dividends reinvested) for the past 5 years and I've done all of this as the sole earner with no support from anyone, ever. My wife will be starting full-time work in the coming weeks/months which will only help. I also plan to go back to college under the Post 9/11 G.I. Bill within the year which will pay me a monthly housing allowance (non-taxable) of at least $1,500 per month while I'm still working. I have other sources of variable income throughout the year as well, and I've also started looking at other jobs with even better pay. I work in Information Technology near Seattle, and there's a lot of job opportunities here, particularly in this industry.

Assets are just the result of years of hard work, financial diligence and sacrifice (maintained a 75-95% savings rate for around 7 years). I've been working since I was 18 and investing since 25 with multiple income sources.

I hope that helps solve the confusion.
Last edited by aszend on Sun Feb 11, 2018 11:41 pm, edited 5 times in total.

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Tyler Aspect
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Location: California
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Re: Portfolio Review

Post by Tyler Aspect » Sun Feb 11, 2018 11:05 pm

You have $20k credit card debt. That should be the first priority right now. I would even sell stock in the taxable account to pay them off.

Real-estate investment recommendation might have come from looking at their historical returns. The US market has discounted real-estate's future prospects. The popularity of online shopping has been offered as one reason. I bought some REIT in early 2017 but sold them off in summer after seeing their performance diverge from the total stock market.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

aszend
Posts: 40
Joined: Tue Jan 28, 2014 11:49 pm

Re: Portfolio Review

Post by aszend » Sun Feb 11, 2018 11:11 pm

Tyler Aspect wrote:
Sun Feb 11, 2018 11:05 pm
You have $20k credit card debt. That should be the first priority right now. I would even sell stock in the taxable account to pay them off.

Real-estate investment recommendation might have come from looking at their historical returns. The US market has discounted real-estate's future prospects for some reason. The popularity of online shopping has been offered as one reason. I bought some REIT in early 2017 but sold them off in summer after seeing their performance diverge from the total stock market.
I have nearly $25k cash in savings right now and I make $2K passive non-taxable income every month on top of my salary. My spouse will also be working soon which will bring additional income. I'm building my savings back up a bit before paying off all of the credit cards just to give ourselves a slightly bigger cash buffer in case any other sudden, large expenses come up again.

These credit cards are all 0% interest and they will be fully paid before their promotional APR's expire. I've never paid a cent in credit card interest in my life and I'm not going to anytime soon.
Last edited by aszend on Sun Feb 11, 2018 11:31 pm, edited 1 time in total.

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badbreath
Posts: 915
Joined: Mon Jul 18, 2016 7:50 pm

Re: Portfolio Review

Post by badbreath » Sun Feb 11, 2018 11:18 pm

Tyler Aspect

You have $20k credit card debt. That should be the first priority right now. I would even sell stock in the taxable account to pay them off.
I have to agree with this. Pull the bandaid and get rid of it
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

aszend
Posts: 40
Joined: Tue Jan 28, 2014 11:49 pm

Re: Portfolio Review

Post by aszend » Sun Feb 11, 2018 11:24 pm

badbreath wrote:
Sun Feb 11, 2018 11:18 pm
Tyler Aspect

You have $20k credit card debt. That should be the first priority right now. I would even sell stock in the taxable account to pay them off.
I have to agree with this. Pull the bandaid and get rid of it
I'm going to amend my post and put "$25K" next to Emergency Funds as it seems like people are overlooking this and just seeing the 0% credit card balances that this money is already earmarked for. I've simply chosen to build up my total cash holdings a bit more again before paying the balances in full prior to the expiration of their promotional APR's. I don't need any help with managing this debt, but I would appreciate some investment advice related to Questions 1 and 2.

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Tyler Aspect
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Location: California
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Re: Portfolio Review

Post by Tyler Aspect » Mon Feb 12, 2018 12:15 am

401k bond options are poor, which is a common problem. You just have to continue to buy IBonds. Fill HSA and Roth IRA accounts with bond index funds.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

mnvalue
Posts: 1086
Joined: Sun May 05, 2013 2:22 pm

Re: Portfolio Review

Post by mnvalue » Mon Feb 12, 2018 12:36 am

1. I'd probably just wait. A reasonable international percentage is 20-40% of stocks. You're still within that range. But if you want to change, that's fine too.

2. Fix the stocks/bond split before fixing the U.S./international split, as the former matters more. I don't see the point in REITs. If you want them, I'd still prioritize that after fixing the stocks/bonds split.

aszend
Posts: 40
Joined: Tue Jan 28, 2014 11:49 pm

Re: Portfolio Review

Post by aszend » Tue Feb 13, 2018 8:16 pm

Tyler Aspect wrote:
Mon Feb 12, 2018 12:15 am
401k bond options are poor, which is a common problem. You just have to continue to buy IBonds. Fill HSA and Roth IRA accounts with bond index funds.
Indeed. All of the equity options in my 401(k) are poor too with the exception of the BlackRock S&P 500 Index Fund (BSPIX). My plan is to continue purchasing I-Bonds every year up to the maximum ($10,000) and maximize my Roth IRA space ($5,500) with Vanguard Total Bond Market Admiral Shares (VBTLX).

The question I'm still undecided on is what to put in my wife's new Roth IRA. I think it makes sense for me to first figure out what to put in my HSA since my fund options are more limited there.
mnvalue wrote:
Mon Feb 12, 2018 12:36 am
1. I'd probably just wait. A reasonable international percentage is 20-40% of stocks. You're still within that range. But if you want to change, that's fine too.

2. Fix the stocks/bond split before fixing the U.S./international split, as the former matters more. I don't see the point in REITs. If you want them, I'd still prioritize that after fixing the stocks/bonds split.
Thanks for the feedback.

I know I'm still within that range, but 30% international is the minimum for me and I'm at just below 25%. Ideally I'd like to be at least 35%.

The stock/bond split will be helped by the annual VBTLX contributions I'll make into my Roth IRA ($5,500) and I-Bonds ($10,000) for 2018 which I have yet to do. That should hopefully bring it up to at least 15% or so.

The problem is that there are no good bond fund options in my 401(k) and the only affordable bond fund in my HSA is the Columbia U.S. Treasury Index Fund (IUTIX) with an expense ratio of 0.40%. I filtered out all of the funds in my HSA with ER's above 0.50% on principle as that's my upper limit for expenses. I'd obviously much rather invest in VBTLX than IUTIX given the choice.

The only other decent fund options in my HSA are:

Columbia Mid Cap Index Fund (NMPAX) - 0.31%
Columbia Small Cap Index Fund (NMSCX) - 0.2%
BlackRock iShares S&P 500 Index Fund (WFSPX) - 0.04%
BlackRock iShares MSCI Total International Index Fund (BDOKX) - 0.14%

I'm much more concerned about my U.S./International equity split than I am Large/Mid/Small Cap split.

So the real choices for me here I think comes down to the S&P 500 Index Fund—which I'm already heavily invested in via my 401(k) and VTSAX in Taxable—or the Total International Fund. While it's not as great as VTIAX, it's still a very good option I believe and it would help get me closer to my desired international equity allocation. My preference is to hold international in taxable due to the benefit of the Foreign Tax Credit, but it may be a wash for me in this case given how underweight in it I am.

aszend
Posts: 40
Joined: Tue Jan 28, 2014 11:49 pm

Re: Portfolio Review

Post by aszend » Sun Feb 18, 2018 1:55 pm

I've decided to change my HSA allocation to 100% BlackRock iShares MSCI Total International Index Fund (BDOKX). Per my Investment Policy Statement, I will not invest in any fund with an expense ratio of 0.50% or higher (if possible). This helped me to narrow down my HSA's options to the following funds:

Columbia U.S. Treasury Index Fund (IUTIX) - 0.40%
Columbia Mid Cap Index Fund (NMPAX) - 0.31%
Columbia Small Cap Index Fund (NMSCX) - 0.20%
BlackRock iShares MSCI Total International Index Fund (BDOKX) - 0.14%
BlackRock iShares S&P 500 Index Fund (WFSPX) - 0.04%

1 domestic bond fund, 3 domestic equity funds, and 1 international equity fund.

Columbia Treasury fund is not a suitable bond substitute for Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) with its 0.36% higher expense ratio, 91% higher turnover, active management strategy and significant performance disadvantage (relative to VBTLX) over the past 5 years. I also have no desire to continue over weighting large-cap domestic equity funds given my current U.S./international equity imbalance, projected annual 401(k) contributions to an S&P 500 fund and goals of achieving greater diversification.

That left BDOKX as the only valid option for me. Readjusting this position from WFSPX to BDOKX has brought my asset allocation from 24.5% international to nearly 27%. This also ensures that at least 37.30% of my annual equity investments are in international, in line with my 35-40% desired allocation. Additionally, this will help to automatically keep my portfolio more balanced each year and in better equilibrium. Obviously I will still need to purchase more international equity to help increase my holdings further, either through taxable (ideally) or my wife's Roth IRA.

Which has led me to narrow the options down again to these funds for her Roth IRA:

Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) - 0.05%
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) - 0.11%
Vanguard Real Estate Index Fund Admiral Shares (VGSLX) - 0.12% / Vanguard Global ex-U.S. Real Estate Index Fund Admiral Shares (VGRLX) - 0.15%
Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX) - 0.07%

Any suggestions for which of these funds I should consider for my spouse's new Roth?

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