Portfolio analysis request

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ThisJustIn
Posts: 158
Joined: Sun Mar 11, 2018 10:53 pm

Portfolio analysis request

Post by ThisJustIn » Sun May 13, 2018 4:13 pm

Hi,

I have already learned a lot from some of you in this forum. I would appreciate if you could give me suggestions on my portfolio detailed below.

Overall
Debt: none
Tax Filing Status: Single, no dependents
Marginal Tax Rate: 35% Federal, 9.3% State
State of Residence: CA
Age: 34
Desired Asset allocation: 90% stocks / 10% bonds
Goals: Mostly long-term investments. I had a plan to buy a house (in Bay area), but changed my mind and not going for it for now.
Net worth: $517.2K

Retirement Accounts: 401K => 78.4K
60%: FXAIX (US stock institutional) 47K, (ER: 0.015%)
30%: VTSNX (International stock) 23.5K, (ER: 0.09%)
10%: VBTIX (Total Bond) 7.8K, (ER: 0.04%)

Taxable account 1: Vanguard => 106.6K
62%: VTSAX (US stock) 66K (ER: 0.04%)
27.5%: VTIAX (International stock) 29.5K (ER: 0.11%)
3.2%: VMLTX (Limited-term tax-exempt bond fund) 3.4K (ER: 0.19%)
4%: VWITX (Intermediate-term tax-exempt bond fund) 4.3K (ER: 0.19%)
3.2%: VWLTX (Long-term tax-exempt bond fund) 3.4K (ER: 0.19%)

Taxable account 2: M1Finance => 19.8K
56.6%: VTI (Total Stock market ETF), 11.2K (ER: 0.04%)
33.8%: VXUS (Total International Stock market ETF), 6.7K (ER: 0.11%)
9.5%: VTEB (Tax-exempt bond ETF), 1.9K (ER: 0.09%)

Individual Stocks => 114.3K
15K: MSFT
67K: AMZN
14.1K: Stock portfolio in Robinhood (NVDA, BA, MSFT, AMZN, SPYG, BABA)
18.2K: ESPP stock with MSFT. (vests quarterly, 10% discount on stock price on the vesting date)

CDs, Online Savings Accounts => 118.6K
25K: Ally-Bank 11-Month no-penalty CD (1.6% interest) (matures on December 2018, but I can withdraw)
20K: Ally Bank 12-month CD (2% interest) (matures on January 2019)
20K: Synchrony Bank 12-month CD (2% interest) (matures on January 2019)
53.6K: Synchrony Bank online savings account (1.55% interest)

Treasury Bills => 40K
20K: 26-weeks Treasury note at 1.99% (Matures on September 2018)
20K: 52-weeks Treasury note at 2.13% (Matures on March 2019)

Cash => 37.5K
22K: Bofa Checking account (as emergency fund, but it is a little more than I need for even 6 months)
15.5K: Chase (This is just to get the $200 + $300 = $500 bonus (returned in 6 months). Once the requirements are done in July 2018, I will withdraw it and invest)

Crypto (I know, not an investment, risky, but I use play money) =>2K
2K: ETH, LTC, altcoins (I may cash them any time)

Contributions
27.75K (18.5K + 9.25K) per year to 401K
2K biweekly contributions to taxable accounts
Note: I will start maxing out Mega Backdoor Roth IRA starting this year (~27K)

Questions:
1) I have some amount of cash sitting, also in the form of CDs, online savings accounts, and treasury bills. I can invest them in stock market as a lump-sum, but I would prefer dollar-cost-averaging. However, even if I increase my 2K biweekly contributions to taxable accounts to 3K biweekly, that will take years for the cash to be invested. Any suggestions on what strategy to use to invest cash and sub-par investments (CDs, online savings accounts, treasury bills) into stock market?
2) Individual stocks are my bets on my current and previous companies. I like them, they have treated me well so far, with roughly 40% / year return on average. Most of them have more than 1 year after vesting, which means they are qualified for LTCG already. Keeping them is double-sided sword: they can return 40% / year in bull market, and they can crash into half in stock market downturn. I’m trying to find a strategy to slowly cash them in and then invest them into index funds (while being as much tax-savy as possible).
3) Is there anything else that catches your eye in this portfolio? I’m 34, and although my target asset allocation is 90/10, I’m nowhere near it. Even if I was there, do you think 90/10 asset allocation for a 34-year old would be too aggressive?
4) I started work life late, after too much school, in late twenties. This of course led to starting investment late. Therefore, not much money is accumulated in 401K, because I only started maxing it out two years ago. I will start maxing out Mega Backdoor Roth IRA this year onwards (~27K / year), in order to catch up on retirement investments. Any other hints you can give me for catching up with retirement investments?
5) Any suggestions on other saving methods, given that I’m in a high tax bracket? (Moving out of CA is not an option yet). But how about rental property investing outside CA?

Thanks.

drk
Posts: 746
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: Portfolio analysis request

Post by drk » Sun May 13, 2018 4:59 pm

We're in pretty similar situations, although you're a few years further into it than I am.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
Questions:
1) I have some amount of cash sitting, also in the form of CDs, online savings accounts, and treasury bills. I can invest them in stock market as a lump-sum, but I would prefer dollar-cost-averaging. However, even if I increase my 2K biweekly contributions to taxable accounts to 3K biweekly, that will take years for the cash to be invested. Any suggestions on what strategy to use to invest cash and sub-par investments (CDs, online savings accounts, treasury bills) into stock market?
You have a lot of cash on hand. It sounds like you understand the research on lump-sum vs. dollar-cost averaging. Even if you prefer to DCA the transition from cash to equities, why not bump up the rate at which you do it?
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
2) Individual stocks are my bets on my current and previous companies. I like them, they have treated me well so far, with roughly 40% / year return on average. Most of them have more than 1 year after vesting, which means they are qualified for LTCG already. Keeping them is double-sided sword: they can return 40% / year in bull market, and they can crash into half in stock market downturn. I’m trying to find a strategy to slowly cash them in and then invest them into index funds (while being as much tax-savy as possible).
I don't really have any advice here other than to say that, eventually, you'll have to take the hit. Do you itemize your deductions? If so, these shares would be logical candidates for donating to a donor-advised fund. You could donate some in order to balance out the gains from your sale of the rest.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
3) Is there anything else that catches your eye in this portfolio? I’m 34, and although my target asset allocation is 90/10, I’m nowhere near it. Even if I was there, do you think 90/10 asset allocation for a 34-year old would be too aggressive?
As mentioned above, we're in similar situations. I'm at 90/10 and feel very comfortable there. A high salary and savings rate make it far less existentially risky to maintain a risky allocation.

That being said, it could be a shock to go from your cash-heavy position to one more exposed to the market's whims. Something closer to 70/30 may make sense until you're certain that you want to take on more risk. Again, a high salary and savings rate make almost anything a reasonable option.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
4) I started work life late, after too much school, in late twenties. This of course led to starting investment late. Therefore, not much money is accumulated in 401K, because I only started maxing it out two years ago. I will start maxing out Mega Backdoor Roth IRA this year onwards (~27K / year), in order to catch up on retirement investments. Any other hints you can give me for catching up with retirement investments?
Unfortunately, you've hit on them. Consider a high-deductible health plan so that you can start contributing to an HSA and secure an additional match.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
5) Any suggestions on other saving methods, given that I’m in a high tax bracket? (Moving out of CA is not an option yet). But how about rental property investing outside CA?
Consider Series I savings bonds to replace some of your cash/CD savings. They're state-tax-exempt and federal-tax-deferred.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
Cash => 37.5K
22K: Bofa Checking account (as emergency fund, but it is a little more than I need for even 6 months)
15.5K: Chase (This is just to get the $200 + $300 = $500 bonus (returned in 6 months). Once the requirements are done in July 2018, I will withdraw it and invest)
This seems like way too much in cash accounts earning nothing. Besides, with your savings and salary, you may not need a dedicated emergency fund. That's a subject of some debate on these forums, though.

ThisJustIn
Posts: 158
Joined: Sun Mar 11, 2018 10:53 pm

Re: Portfolio analysis request

Post by ThisJustIn » Sun May 13, 2018 6:53 pm

Thank you for your suggestions.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
Questions:
1) I have some amount of cash sitting, also in the form of CDs, online savings accounts, and treasury bills. I can invest them in stock market as a lump-sum, but I would prefer dollar-cost-averaging. However, even if I increase my 2K biweekly contributions to taxable accounts to 3K biweekly, that will take years for the cash to be invested. Any suggestions on what strategy to use to invest cash and sub-par investments (CDs, online savings accounts, treasury bills) into stock market?
You have a lot of cash on hand. It sounds like you understand the research on lump-sum vs. dollar-cost averaging. Even if you prefer to DCA the transition from cash to equities, why not bump up the rate at which you do it?
I'm currently DCAing into index funds with an extra 1K biweekly investment, which will take more than 4 years to invest that cash + CDs + online savings accounts. I can indeed increase the rate, e.g. 2K biweekly investment into index funds.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
2) Individual stocks are my bets on my current and previous companies. I like them, they have treated me well so far, with roughly 40% / year return on average. Most of them have more than 1 year after vesting, which means they are qualified for LTCG already. Keeping them is double-sided sword: they can return 40% / year in bull market, and they can crash into half in stock market downturn. I’m trying to find a strategy to slowly cash them in and then invest them into index funds (while being as much tax-savy as possible).
I don't really have any advice here other than to say that, eventually, you'll have to take the hit. Do you itemize your deductions? If so, these shares would be logical candidates for donating to a donor-advised fund. You could donate some in order to balance out the gains from your sale of the rest.
I don't itemize my deductions. Until this year, I was doing preparing my taxes either via Turbotax or H&R block. Starting this year, I will prepare my taxes myself using FreeTaxUSA.com. Regarding donor-advised funds, I have never understood how donating some of my stocks will reduce my taxes. I understand that those donations are deducted, but I also lose the stocks. So, the math doesn't add up for me. Could you clarify?
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
3) Is there anything else that catches your eye in this portfolio? I’m 34, and although my target asset allocation is 90/10, I’m nowhere near it. Even if I was there, do you think 90/10 asset allocation for a 34-year old would be too aggressive?
As mentioned above, we're in similar situations. I'm at 90/10 and feel very comfortable there. A high salary and savings rate make it far less existentially risky to maintain a risky allocation.

That being said, it could be a shock to go from your cash-heavy position to one more exposed to the market's whims. Something closer to 70/30 may make sense until you're certain that you want to take on more risk. Again, a high salary and savings rate make almost anything a reasonable option.
Yes, that's why I hesitate to invest the whole cash as a lump-sum into stock market. But the reduction of risk in case of high salary and savings rate makes sense.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
4) I started work life late, after too much school, in late twenties. This of course led to starting investment late. Therefore, not much money is accumulated in 401K, because I only started maxing it out two years ago. I will start maxing out Mega Backdoor Roth IRA this year onwards (~27K / year), in order to catch up on retirement investments. Any other hints you can give me for catching up with retirement investments?
Unfortunately, you've hit on them. Consider a high-deductible health plan so that you can start contributing to an HSA and secure an additional match.
My current company doesn't provide HSA benefits. Can I still open an HSA account, contribute to the account every year, and then transfer the HSA money to 401K or Roth IRA?
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
5) Any suggestions on other saving methods, given that I’m in a high tax bracket? (Moving out of CA is not an option yet). But how about rental property investing outside CA?
Consider Series I savings bonds to replace some of your cash/CD savings. They're state-tax-exempt and federal-tax-deferred.
I thought about I-savings bonds, but the idea of having to keep them for at least 5 years, for around 2.5% return (which is dependent on inflation rate) was not interesting to me at first. But, tax deferral within a taxable account is an advantage, obviously.
ThisJustIn wrote:
Sun May 13, 2018 4:13 pm
Cash => 37.5K
22K: Bofa Checking account (as emergency fund, but it is a little more than I need for even 6 months)
15.5K: Chase (This is just to get the $200 + $300 = $500 bonus (returned in 6 months). Once the requirements are done in July 2018, I will withdraw it and invest)
This seems like way too much in cash accounts earning nothing. Besides, with your savings and salary, you may not need a dedicated emergency fund. That's a subject of some debate on these forums, though.
Yes, this cash amount is also something I need to DCA into index funds. Chase account is there because of card bonus until July, but then I will withdraw and start DCAing them into the market.
Last edited by ThisJustIn on Sun May 13, 2018 6:57 pm, edited 1 time in total.

ThisJustIn
Posts: 158
Joined: Sun Mar 11, 2018 10:53 pm

Re: Portfolio analysis request

Post by ThisJustIn » Sun May 13, 2018 11:41 pm

Does anyone have any other suggestions about:

1) The sitting cash / CDs / online savings accounts / Treasury bonds with total worth of 196K (around 40% of my net worth)?
2) Individual stocks worth of 114.6K (around 23% of my net worth)?

Particularly, is there a better way to make use of these, instead of DCAing them into index funds at a higher rate, say with 4K biweekly contributions, which will still take around 3 years to complete get them into stock market? Any other suggestions, e.g. is having a rental property as an investment good idea? Or are there any other suggestions?

ThisJustIn
Posts: 158
Joined: Sun Mar 11, 2018 10:53 pm

Re: Portfolio analysis request

Post by ThisJustIn » Tue May 15, 2018 11:40 am

ThisJustIn wrote:
Sun May 13, 2018 11:41 pm
Does anyone have any other suggestions about:

1) The sitting cash / CDs / online savings accounts / Treasury bonds with total worth of 196K (around 40% of my net worth)?
2) Individual stocks worth of 114.6K (around 23% of my net worth)?

Particularly, is there a better way to make use of these, instead of DCAing them into index funds at a higher rate, say with 4K biweekly contributions, which will still take around 3 years to complete get them into stock market? Any other suggestions, e.g. is having a rental property as an investment good idea? Or are there any other suggestions?
Does anyone have any suggestions on the two items above, based on the portfolio I detailed in the initial post?

Also, two more questions:
3) What do you think about having two 3-fund portfolios: one as an index-fund portfolio in Vanguard, and one as an ETF-fund portfolio in M1Finance? Particularly are both needed, or should I merge? Also, when the money in M1Finance grows, can I transfer it to Vanguard without tax implications?
4) Treasury bill rates increases today again, and 30-year bills have a rate of >3% now. I'm thinking of putting some more money in 26-week and 52-week treasury bonds, which will have better returns than online savings account. Do you think this is a good idea to lock some of the cash in treasury bills?

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Portfolio analysis request

Post by Pajamas » Tue May 15, 2018 11:57 am

If the cash is to be invested, invest it. Seems contradictory for you to insist on dollar cost averaging in such relatively small amounts over such a long time yet be willing to hold individual stocks and cryptocurrencies concurrently.

Take a step back at what you are trying to accomplish. What do you want your portfolio to look like and how can you best achieve that? If you are so hesitant to move from your current portfolio towards your ideal portfolio, is the ideal portfolio really suitable for you? Maybe you should hold a lot of cash or increase your allocation to bonds.

dbdavidson
Posts: 13
Joined: Tue Apr 09, 2013 9:11 am

Re: Portfolio analysis request

Post by dbdavidson » Wed May 16, 2018 1:20 pm

I don't have much to add to the advice so far as it seems pretty solid.

I own and like WealthTrace and also like OnTrajectory. That said, I am a software engineer and DIYer and have been creating custom tools to do forecasting, like many of the spreadsheets people here use. Unfortunately, I've only got much of the server side done - so I don't have an easy way yet to enter user data. But, I was given permission by OP to create a forecast for discussion that includes OP's data. Note - I had to guess a income and expense, which are just guesses.

I would love feedback on any aspects of the forecast. I realize forecasting is tricky and almost everything hinges on the assumptions. But for the purpose of discussion I would most like input on the approach, the calculations and the technicals given the assumptions.

The forecast is here: https://patefacio.github.io/plusauri.gi ... true.html

The monte carlo results are here: https://patefacio.github.io/plusauri.gi ... monte.html

A broad description of the layout and some columns is here: https://patefacio.github.io/plusauri.gi ... ction.pdf

Some observations:
  • I've not yet added support for state taxes
  • I have added federal taxes and do the "complete" calculation assuming standard deduction, incorporating ltcg and dividends. Would be great if any accountants could give feedback. The standard deduction is shown and grows with inflation. That may be unrealistic since gov is slow to update. But again that can be parameterized.
  • I arbitrarily chose ending work at age 60. If numbers are believable OP could go earlier.
  • I arbitrarily added an item for healthcare
  • There is a stint of very low income taxes from 2045 to 2053. Is this possible/reasonable? The reason this is happening is his earned income has ceased and OP is living off of capital gains. Without any other ordinary income his AGI + LTCG is assessed at above the much higher first threshold for paying anything on ltcg. The first entry in tax schedule is shown as "With LTCG Hurdle".
  • Normally growing cash flows like cost of living and earned income are subject to monte carlo randomization, just like non-financial and financial assets. The forecaster can run in two modes - one that used the normal spec (i.e. mu, sigma) and another mode that uses any associated curve with the flows. In the case of "Earned Income" and "Cost of Living" I have added a shape to the curve because I don't like the standard growth at (mu, sigma) approach. In this case the growths are both tapered - with reductions in year 2035. Again this is arbitrary, but the approach allows any shape to incomes/labor, actually all curves, rather than just single rates of returns.
  • The forecaster auto-invests surplus and draws down when needed to cover costs. Obviously there is huge variance in results based on holding selection to invest vs sell. Currently it is relatively simple, but I'd like to add different modes/strategies for that over time.

    For the job: (values represent percent growth, so year 2035 represents 10% decrease in earnings and 15% decrease in cost of living)

    Code: Select all

      - id: Primary Job
        growing_flow_spec:
          growth:
            growth_item: earned_income
            growth_assumption:
              normal_spec:
                mean: 0.03
                std_dev: 0.01
              pinned_growth:
                - year: 1900
                  value: 0.03
                - year: 2035
                  value: -0.1
                - year: 2037
                  value: 0.01
                - year: 2052
                  value: -0.07
                - year: 2053
                  value: 0.01
          year_range:
            start: 2000
            end: 2045
          initial_value:
            year: 2017
            value: 210000
    
    For cost of living:

    Code: Select all

      - id: Cost of Living
        growing_flow_spec:
          growth:
            growth_item: living_expense
            growth_assumption:
              normal_spec:
                mean: 0.025
                std_dev: 0.01
              pinned_growth:
                - year: 1900
                  value: 0.0375
                - year: 2035
                  value: -0.15
                - year: 2037
                  value: 0.03
                - year: 2040
                  value: 0.01
                - year: 2055
                  value: -0.2
                - year: 2056
                  value: 0.01
          initial_value:
            year: 2018
            value: 130000
    
Thanks!

ThisJustIn
Posts: 158
Joined: Sun Mar 11, 2018 10:53 pm

Re: Portfolio analysis request

Post by ThisJustIn » Wed May 16, 2018 9:48 pm

dbdavidson wrote:
Wed May 16, 2018 1:20 pm
I don't have much to add to the advice so far as it seems pretty solid.

I own and like WealthTrace and also like OnTrajectory. That said, I am a software engineer and DIYer and have been creating custom tools to do forecasting, like many of the spreadsheets people here use. Unfortunately, I've only got much of the server side done - so I don't have an easy way yet to enter user data. But, I was given permission by OP to create a forecast for discussion that includes OP's data. Note - I had to guess a income and expense, which are just guesses.

I would love feedback on any aspects of the forecast. I realize forecasting is tricky and almost everything hinges on the assumptions. But for the purpose of discussion I would most like input on the approach, the calculations and the technicals given the assumptions.

The forecast is here: https://patefacio.github.io/plusauri.gi ... true.html

The monte carlo results are here: https://patefacio.github.io/plusauri.gi ... monte.html

A broad description of the layout and some columns is here: https://patefacio.github.io/plusauri.gi ... ction.pdf

Some observations:
  • I've not yet added support for state taxes
  • I have added federal taxes and do the "complete" calculation assuming standard deduction, incorporating ltcg and dividends. Would be great if any accountants could give feedback. The standard deduction is shown and grows with inflation. That may be unrealistic since gov is slow to update. But again that can be parameterized.
  • I arbitrarily chose ending work at age 60. If numbers are believable OP could go earlier.
  • I arbitrarily added an item for healthcare
  • There is a stint of very low income taxes from 2045 to 2053. Is this possible/reasonable? The reason this is happening is his earned income has ceased and OP is living off of capital gains. Without any other ordinary income his AGI + LTCG is assessed at above the much higher first threshold for paying anything on ltcg. The first entry in tax schedule is shown as "With LTCG Hurdle".
  • Normally growing cash flows like cost of living and earned income are subject to monte carlo randomization, just like non-financial and financial assets. The forecaster can run in two modes - one that used the normal spec (i.e. mu, sigma) and another mode that uses any associated curve with the flows. In the case of "Earned Income" and "Cost of Living" I have added a shape to the curve because I don't like the standard growth at (mu, sigma) approach. In this case the growths are both tapered - with reductions in year 2035. Again this is arbitrary, but the approach allows any shape to incomes/labor, actually all curves, rather than just single rates of returns.
  • The forecaster auto-invests surplus and draws down when needed to cover costs. Obviously there is huge variance in results based on holding selection to invest vs sell. Currently it is relatively simple, but I'd like to add different modes/strategies for that over time.

    For the job: (values represent percent growth, so year 2035 represents 10% decrease in earnings and 15% decrease in cost of living)

    Code: Select all

      - id: Primary Job
        growing_flow_spec:
          growth:
            growth_item: earned_income
            growth_assumption:
              normal_spec:
                mean: 0.03
                std_dev: 0.01
              pinned_growth:
                - year: 1900
                  value: 0.03
                - year: 2035
                  value: -0.1
                - year: 2037
                  value: 0.01
                - year: 2052
                  value: -0.07
                - year: 2053
                  value: 0.01
          year_range:
            start: 2000
            end: 2045
          initial_value:
            year: 2017
            value: 210000
    
    For cost of living:

    Code: Select all

      - id: Cost of Living
        growing_flow_spec:
          growth:
            growth_item: living_expense
            growth_assumption:
              normal_spec:
                mean: 0.025
                std_dev: 0.01
              pinned_growth:
                - year: 1900
                  value: 0.0375
                - year: 2035
                  value: -0.15
                - year: 2037
                  value: 0.03
                - year: 2040
                  value: 0.01
                - year: 2055
                  value: -0.2
                - year: 2056
                  value: 0.01
          initial_value:
            year: 2018
            value: 130000
    
Thanks!
Thank you for the analysis, this is great work. It was interesting to see low taxes between 2045-2053, but it totally makes sense. To add plans to the analysis, I'm 34 right now, I plan to own my own business between age of 40-45, and retire between the ages of 50-55 (again, fingers crossed, who knows if I will be alive tomorrow).

Regarding literature, there is a whole lot of models / methods out there, and as long as the predictions are for the long-term, forecasting can be made accurate. Two tools, Wealthfront (which I don't put money in anymore) and Personal Capital, does a good job of portfolio analysis, but they miss two things: 1) Explanation of how the estimations were made, and adding customization which will replace their assumptions by user input, 2) Suggestions as to where to invest (e.g. PersonalCapital detects this and says "You have extra cash", but then they suggest you call the personal advisor, which is a no-no.). If this tool can be made available online, with sufficient customization support by the user and investment suggestions, that will be golden.

As for me, I'm still looking for my 4 questions I listed above:
1) Does anyone have any other suggestions about what to do with the sitting cash / CDs / online savings accounts / Treasury bonds with total worth of 196K (around 40% of my net worth)?
2) Does anyone have any other suggestions about what to do with individual stocks worth of 114.6K (around 23% of my net worth)?
3) What do you think about having two 3-fund portfolios: one as an index-fund portfolio in Vanguard, and one as an ETF-fund portfolio in M1Finance? Particularly are both needed, or should I merge? Also, when the money in M1Finance grows, can I transfer it to Vanguard without tax implications?
4) Treasury bill rates increases today again, and 30-year bills have a rate of >3% now. I'm thinking of putting some more money in 26-week and 52-week treasury bonds, which will have better returns than online savings account. Do you think this is a good idea to lock some of the cash in treasury bills?

Thanks.

User avatar
vineviz
Posts: 1704
Joined: Tue May 15, 2018 1:55 pm

Re: Portfolio analysis request

Post by vineviz » Wed May 16, 2018 10:25 pm

ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
1) Does anyone have any other suggestions about what to do with the sitting cash / CDs / online savings accounts / Treasury bonds with total worth of 196K (around 40% of my net worth)?
Above and beyond any emergency cash or cash being saved for house/business startup/etc, make it simple: as each CD or bond matures, move the cash to Vanguard. Invest in a 50/50 mix of a broad stock fund (e.g. VTIAX) and a growth-oriented balanced fund (VASGX). That mix gives you a 90/10 stock/bond allocation.
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
2) Does anyone have any other suggestions about what to do with individual stocks worth of 114.6K (around 23% of my net worth)?
AMZN and MSFT alone are over 20% of your portfolio: if you can stomach paying any capital gains, I'd sell most of them & do the above again.

ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
3) What do you think about having two 3-fund portfolios: one as an index-fund portfolio in Vanguard, and one as an ETF-fund portfolio in M1Finance? Particularly are both needed, or should I merge? Also, when the money in M1Finance grows, can I transfer it to Vanguard without tax implications?
Is your Vanguard account a brokerage account or a mutual fund account? If the former, I can't imagine a need to keep M1.
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
4) Treasury bill rates increases today again, and 30-year bills have a rate of >3% now. I'm thinking of putting some more money in 26-week and 52-week treasury bonds, which will have better returns than online savings account. Do you think this is a good idea to lock some of the cash in treasury bills?
What happened today is irrelevant to your plans. Emergency cash (IMHO) should stay in cash or a money market. Everything else should be in stocks or intermediate/long-term bonds. In my opinion your portfolio is already complicated: make it simple and move on with your other priorities.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

ThisJustIn
Posts: 158
Joined: Sun Mar 11, 2018 10:53 pm

Re: Portfolio analysis request

Post by ThisJustIn » Wed May 16, 2018 10:47 pm

vineviz wrote:
Wed May 16, 2018 10:25 pm
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
1) Does anyone have any other suggestions about what to do with the sitting cash / CDs / online savings accounts / Treasury bonds with total worth of 196K (around 40% of my net worth)?
Above and beyond any emergency cash or cash being saved for house/business startup/etc, make it simple: as each CD or bond matures, move the cash to Vanguard. Invest in a 50/50 mix of a broad stock fund (e.g. VTIAX) and a growth-oriented balanced fund (VASGX). That mix gives you a 90/10 stock/bond allocation.
Well, I have too much cash to invest into stock market at once, I wouldn't take that risk. But, investing every maturing asset in the future makes sense. Regarding your portfolio suggestion, I thought about VASGX before, but never used it. Instead, I go with a 3-fund portfolio: VTSAX, VTIAX, tax-exempt bond funds (VWITX, VWLTX, VMLTX). Still, I probably won't invest all this cash (or CDs or treasury bonds) into stock market at once.
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
2) Does anyone have any other suggestions about what to do with individual stocks worth of 114.6K (around 23% of my net worth)?
AMZN and MSFT alone are over 20% of your portfolio: if you can stomach paying any capital gains, I'd sell most of them & do the above again.
I will sell them gradually, and after I sell them, I will only keep stocks for 1 year only, and then sell.
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
3) What do you think about having two 3-fund portfolios: one as an index-fund portfolio in Vanguard, and one as an ETF-fund portfolio in M1Finance? Particularly are both needed, or should I merge? Also, when the money in M1Finance grows, can I transfer it to Vanguard without tax implications?
Is your Vanguard account a brokerage account or a mutual fund account? If the former, I can't imagine a need to keep M1.
Vanguard account is a brokerage account. I'm keeping M1Finance, because I can create a lower-cost 3-fund ETF portfolio (using all Vanguard funds), compared to my Vanguard account 3-fund index-fund portfolio (this is because M1Finance supports ETF, and they support automatic investments to ETF in cash amounts, allowing fractional shares of ETFs). But yes, I think I may have to move M1Finance funds to Vanguard funds at some point, but lower ER and being able to invest into fractional ETF shares keeps me there.
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
4) Treasury bill rates increases today again, and 30-year bills have a rate of >3% now. I'm thinking of putting some more money in 26-week and 52-week treasury bonds, which will have better returns than online savings account. Do you think this is a good idea to lock some of the cash in treasury bills?
What happened today is irrelevant to your plans. Emergency cash (IMHO) should stay in cash or a money market. Everything else should be in stocks or intermediate/long-term bonds. In my opinion your portfolio is already complicated: make it simple and move on with your other priorities.
This makes sense. I already have around 40K in treasury notes, and I don't really want to invest in an asset that will return 3%, just because I want to DCA into stock market. I will just increase my contributions to index funds for a while, to invest this cash / CDs / treasury notes into stock market sooner.

dbdavidson
Posts: 13
Joined: Tue Apr 09, 2013 9:11 am

Re: Portfolio analysis request

Post by dbdavidson » Thu May 17, 2018 12:19 pm

ThisJustIn wrote:
Wed May 16, 2018 9:48 pm

Thank you for the analysis, this is great work. It was interesting to see low taxes between 2045-2053, but it totally makes sense. To add plans to the analysis, I'm 34 right now, I plan to own my own business between age of 40-45, and retire between the ages of 50-55 (again, fingers crossed, who knows if I will be alive tomorrow).
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm

Regarding literature, there is a whole lot of models / methods out there, and as long as the predictions are for the long-term, forecasting can be made accurate. Two tools, Wealthfront (which I don't put money in anymore) and Personal Capital, does a good job of portfolio analysis, but they miss two things: 1) Explanation of how the estimations were made, and adding customization which will replace their assumptions by user input, 2) Suggestions as to where to invest (e.g. PersonalCapital detects this and says "You have extra cash", but then they suggest you call the personal advisor, which is a no-no.). If this tool can be made available online, with sufficient customization support by the user and investment suggestions, that will be golden.

As for me, I'm still looking for my 4 questions I listed above:
1) Does anyone have any other suggestions about what to do with the sitting cash / CDs / online savings accounts / Treasury bonds with total worth of 196K (around 40% of my net worth)?
40% is high at your age. You've expressed reservation about jumping in right away, preferring to DCA in.
It is hard to get much different a suggestion than either enjoy your peace of mind or average in more quickly.
The difference between cash and any indexed risky asset is so stark that you should overcome the fear or leave alone and not fret.
BTW, I'm in similar position of having what many consider way too much cash and I struggle with it. But I'm closer to retirement.
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
2) Does anyone have any other suggestions about what to do with individual stocks worth of 114.6K (around 23% of my net worth)?
Something to consider might be when you start your business you might not have initially the earnings you will ultimately have. That is not too far off and might be a good time to reduce this risk if your taxable income drops.

For fun I went ahead and made some updates to your model:
  • Stopped your work when you suggest
  • Added the business and just picked an income and added to ordinary income
  • Have you retire at 52
  • Added cost basis to MSFT and AMZN of 50% of current value since you said they've done really well
If you just look at the geometric mean it does not look great. But of course it really all depends on how much your business will generate and your cost of living plans. On the plus side, when run through simulation the monte carlo has you still making it about 75% of the time.

Updated geometric mean forecast: https://patefacio.github.io/plusauri.gi ... _true.html

Updated monte:
https://patefacio.github.io/plusauri.gi ... monte.html

Hope it helps and good luck.

manedark
Posts: 242
Joined: Sun Apr 22, 2018 2:05 pm

Re: Portfolio analysis request

Post by manedark » Sat May 19, 2018 1:24 am

ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
1) Does anyone have any other suggestions about what to do with the sitting cash / CDs / online savings accounts / Treasury bonds with total worth of 196K (around 40% of my net worth)?
You yourself mentioned you want 90:10 allocation and then you are asking what to do with the 40% cash. If you stick to your original plan then you should be looking to invest this into low cost stock index funds as well.
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
2) Does anyone have any other suggestions about what to do with individual stocks worth of 114.6K (around 23% of my net worth)?
I was in a similar maybe worse situation - single stock being 50% of my assets. I made extensive research here and the answer was resounding - I was taking too much uncompensated risk. I think you should avoid the uncompensated risk as well - even if it is well known companies there is still risk that you are not being compensated for. I would advise to liquidate them without hitting the 200K (as you are single) AGI and invest in VTSAX and VTIAX (that is what I did).
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
3) What do you think about having two 3-fund portfolios: one as an index-fund portfolio in Vanguard, and one as an ETF-fund portfolio in M1Finance? Particularly are both needed, or should I merge? Also, when the money in M1Finance grows, can I transfer it to Vanguard without tax implications?
It is good to simplify into fewer accounts. Regarding moving account into Vanguard - I think it is possible - look at the page https://investor.vanguard.com/account-t ... -questions
Its call "in kind" transfer.

ThisJustIn
Posts: 158
Joined: Sun Mar 11, 2018 10:53 pm

Re: Portfolio analysis request

Post by ThisJustIn » Sun May 20, 2018 2:04 pm

manedark wrote:
Sat May 19, 2018 1:24 am
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
1) Does anyone have any other suggestions about what to do with the sitting cash / CDs / online savings accounts / Treasury bonds with total worth of 196K (around 40% of my net worth)?
You yourself mentioned you want 90:10 allocation and then you are asking what to do with the 40% cash. If you stick to your original plan then you should be looking to invest this into low cost stock index funds as well.
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
2) Does anyone have any other suggestions about what to do with individual stocks worth of 114.6K (around 23% of my net worth)?
I was in a similar maybe worse situation - single stock being 50% of my assets. I made extensive research here and the answer was resounding - I was taking too much uncompensated risk. I think you should avoid the uncompensated risk as well - even if it is well known companies there is still risk that you are not being compensated for. I would advise to liquidate them without hitting the 200K (as you are single) AGI and invest in VTSAX and VTIAX (that is what I did).
ThisJustIn wrote:
Wed May 16, 2018 9:48 pm
3) What do you think about having two 3-fund portfolios: one as an index-fund portfolio in Vanguard, and one as an ETF-fund portfolio in M1Finance? Particularly are both needed, or should I merge? Also, when the money in M1Finance grows, can I transfer it to Vanguard without tax implications?
It is good to simplify into fewer accounts. Regarding moving account into Vanguard - I think it is possible - look at the page https://investor.vanguard.com/account-t ... -questions
Its call "in kind" transfer.
Thank you for clarification.
I will still DCA my cash / treasury bonds / individual stocks into index funds, I won't do it all at once. But I will increase the amount of contribution for a while, so that these funds are invested into index funds fast.
Regarding M1Finance, the good thing about them is that you can buy ETFs with fractional shares. I can see myself migrating those ETFs from M1Finance to Vanguard in the future, a.k.a in-kind transfer.

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