33 year old, New to investing, advice for portfolio diversification!

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NewYork234
Posts: 1
Joined: Wed Jul 11, 2018 12:12 am

33 year old, New to investing, advice for portfolio diversification!

Post by NewYork234 » Wed Jul 11, 2018 12:27 am

Hi all,

Long time reader, first time writer.
I would love some advice

I haven’t always had employee sponsored 401ks and have worked as an entrepreneur so that’s why I am cash heavy in a brokerage account. However, I have a new job now and plan on contributing to the 457b.

Debt
$25,000 student loan

Savings
$10,000

Vanguard Brokerage Account
$40,000————> VFIAX (Vanguard 500 admiral account)
$40,000————> VTSAX (Vanguard Total Stock Market Admiral)
$15,000————-> Vanguard Small Cap Growth Admiral
$8,000 ————>Brk-b Berkshire Hathaway

Vanguard Roth IRA
$11,000 ————> VTSAX (Vanguard Total Stock Market Admiral)

457b
$9,000 ————> VTSAX (Vanguard Total Stock Market Index)

I know about the three fund portfolio strategy and the two fund portfolio strategy and I had that at one time but somehow ended up changing it to this. I know VFIAX and VTSAX overlap as does the small cap growth admiral account.

I’m looking for advice on how to redistribute - I want to keep it simple but efficient.

Moving forward, I plan on contributing the max of $18,500 to my 457b annually, $5000 to the Roth IRA and I’ll still have $2,000
a month that I can save and I plan on putting $1000 in the bank and $1000 into the brokerage account. Or should I put it all in the brokerage account?

Any advice on any of this would be greatly appreciated.

Edited to include additional information:

-33 years old, no dependents
-Yes, I have an emergency fund to cover 6 months of living expenses
- Tax filing status: single
- Tax bracket: 25% federal, 8% state
- I work for the government
- student loans are at 4.5%

I agree that I should be using the $2,000 I can save a month t lay down student debt. Excellent advice.

In terms of risk tolerance, think I am pretty high risk tolerant. I will be investing for a long time and know that there will be ups and downs as long as the general trend is up over the years ...
Last edited by NewYork234 on Wed Jul 11, 2018 11:33 am, edited 1 time in total.

bloom2708
Posts: 4773
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: 33 year old, New to investing, advice for portfolio diversification!

Post by bloom2708 » Wed Jul 11, 2018 9:57 am

Welcome.

What are the gains (long/short) in taxable?

At 33, you should find space for ~20% bonds. The best place would be in your 457b. Do you have any lower cost, broad based bond funds?

I would try to get 20% Total International. That could be swapping Total International (VTIAX) in your Roth from Total US. International adds another 6,000+ stocks and is good diversification. 20% gets you at least participating in the full market. some do 30 to 50% international.

If your gains aren't too bad, just sell S&P 500 for more Total US. You have a heavy "tilt" for small cap growth. Small cap value seems more of a common tilt. I would keep that to 5% of your portfolio.

Berkshire acts like a total market type fund. I wouldn't keep it (more Total US), but you can certainly keep that for "portfolio seasoning".

What is the rate on your student loan? I would put the $2,000 on the student loans and get rid of those before adding more to taxable. Your plan to max pre-tax 457 and Roth are good.

Perhaps build Emergency Fund a bit as you pay off the student loan. Looks good to me with a few tweaks.
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vineviz
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Re: 33 year old, New to investing, advice for portfolio diversification!

Post by vineviz » Wed Jul 11, 2018 10:10 am

bloom2708 wrote:
Wed Jul 11, 2018 9:57 am
At 33, you should find space for ~20% bonds.
FWIW, I don't share this opinion. Unless you have an unusually low tolerance for volatility, bonds are completely unnecessary in a retirement portfolio if you are under the age of 45. This is especially true you have have credit card, student loan, or automotive debt.
bloom2708 wrote:
Wed Jul 11, 2018 9:57 am
I would try to get 20% Total International. That could be swapping Total International (VTIAX) in your Roth from Total US. International adds another 6,000+ stocks and is good diversification. 20% gets you at least participating in the full market. some do 30 to 50% international.
This I totally agree with. Between 20% and 50% of the equities should be in international stock funds, IMHO.
bloom2708 wrote:
Wed Jul 11, 2018 9:57 am
What is the rate on your student loan? I would put the $2,000 on the student loans and get rid of those before adding more to taxable.
I also agree that paying down debt should probably precede building more taxable brokerage savings.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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ruralavalon
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Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: 33 year old, New to investing, advice for portfolio diversification!

Post by ruralavalon » Wed Jul 11, 2018 10:26 am

Welcome to the forum :) .

Some additional information would be very helpful.

What is your age? Do you have any dependents? How would you describe your risk tolerance?

Do you have an emergency fund to cover 3-6 months of basic living expenses?

What is the interest rate on your student debt?

What is your tax bracket, both federal and state? What is your tax filing status?

Is your current employer a governmental body or a non-profit?

What funds are offered in your 457b plan? Please give fund names, tickers and expense ratios.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post) it helps a lot if all of your information is in one place.

NewYork234 wrote:
Wed Jul 11, 2018 12:27 am
Hi all,

Long time reader, first time writer.
I would love some advice

I haven’t always had employee sponsored 401ks and have worked as an entrepreneur so that’s why I am cash heavy in a brokerage account. However, I have a new job now and plan on contributing to the 457b.

Debt
$25,000 student loan

Savings
$10,000

Vanguard Brokerage Account
$40,000————> VFIAX (Vanguard 500 admiral account)
$40,000————> VTSAX (Vanguard Total Stock Market Admiral)
$15,000————-> Vanguard Small Cap Growth Admiral
$8,000 ————>Brk-b Berkshire Hathaway

Vanguard Roth IRA
$11,000 ————> VTSAX (Vanguard Total Stock Market Admiral)

457b
$9,000 ————> VTSAX (Vanguard Total Stock Market Index)

I know about the three fund portfolio strategy and the two fund portfolio strategy and I had that at one time but somehow ended up changing it to this. I know VFIAX and VTSAX overlap as does the small cap growth admiral account.

I’m looking for advice on how to redistribute - I want to keep it simple but efficient.

Moving forward, I plan on contributing the max of $18,500 to my 457b annually, $5000 to the Roth IRA and I’ll still have $2,000
a month that I can save and I plan on putting $1000 in the bank and $1000 into the brokerage account. Or should I put it all in the brokerage account?

Any advice on any of this would be greatly appreciated.
In general I suggest the following.

Contribute the maximum $5,500 per year to the IRA, the maximum is $6,500 per year if age 50 or more.

Consider adding a bond fund, in your 457b account, for better diversification. An example would be Vanguard Total Bond Market Index Fund, if offered in the 457b plan.

Consider adding an international stock fund, for better diversification. An example would be Vanguard Total Stock Market Index Fund Admiral Shares (VTIAX).

Don't worry a lot about the overlap between Vanguard S&P 500 Index Fund and Vanguard Total Stock Market Index Fund, both are very tax-efficient. Don't try to consolidate them if any significant tax liability would be created by selling Vanguard 500 Index Fund.
Last edited by ruralavalon on Wed Jul 11, 2018 10:49 am, edited 2 times in total.
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bloom2708
Posts: 4773
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: 33 year old, New to investing, advice for portfolio diversification!

Post by bloom2708 » Wed Jul 11, 2018 10:30 am

vineviz wrote:
Wed Jul 11, 2018 10:10 am
bloom2708 wrote:
Wed Jul 11, 2018 9:57 am
At 33, you should find space for ~20% bonds.
FWIW, I don't share this opinion. Unless you have an unusually low tolerance for volatility, bonds are completely unnecessary in a retirement portfolio if you are under the age of 45. This is especially true you have have credit card, student loan, or automotive debt.
I'm fine with saying you don't need bonds. Many opinions on that topic. One of the best things I've taken from this site is "future proofing" your portfolio. We don't know what is coming. What if the next 5 year stock returns are -5%, -10%, -5%, 2% and -20%? Having 20% of bonds (at any age) gives you something to stabilize your portfolio with.

The same for adding International. Getting to 20% at least gets you participating. If International outperforms for 3 of the next 5, you don't want to not have any international. At least that is my thought.

It is easy to just say 100% stocks until 40 or 45 or some age.20% doesn't take that much off the return and provides some stability. At least consider it as an option to consider.
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

deltaneutral83
Posts: 840
Joined: Tue Mar 07, 2017 4:25 pm

Re: 33 year old, New to investing, advice for portfolio diversification!

Post by deltaneutral83 » Wed Jul 11, 2018 1:47 pm

bloom2708 wrote:
Wed Jul 11, 2018 10:30 am
vineviz wrote:
Wed Jul 11, 2018 10:10 am
bloom2708 wrote:
Wed Jul 11, 2018 9:57 am
At 33, you should find space for ~20% bonds.
FWIW, I don't share this opinion. Unless you have an unusually low tolerance for volatility, bonds are completely unnecessary in a retirement portfolio if you are under the age of 45. This is especially true you have have credit card, student loan, or automotive debt.
I'm fine with saying you don't need bonds. Many opinions on that topic. One of the best things I've taken from this site is "future proofing" your portfolio. We don't know what is coming. What if the next 5 year stock returns are -5%, -10%, -5%, 2% and -20%? Having 20% of bonds (at any age) gives you something to stabilize your portfolio with.

The same for adding International. Getting to 20% at least gets you participating. If International outperforms for 3 of the next 5, you don't want to not have any international. At least that is my thought.

It is easy to just say 100% stocks until 40 or 45 or some age.20% doesn't take that much off the return and provides some stability. At least consider it as an option to consider.
I think bonds at an early age have to have a special purpose fora unique circumstance. For typical people under 40, I just can't see too many cases where this is present unless you just subscribe to the "must have 20% or more in bonds at all times" theory. Volatility on smaller portfolios when you are young just isn't as big of a deal as it is when retirement is in site lines. There is where an IPS helps. No one can predict life, but having an IPS can at least point you in the right direction. If you have issues with behavioral tinkering at 100/0 vs 80/20 at a young age with a smaller portfolio, I think more knowledge of the investment process is in order. The OP in this case has a guaranteed 4.5% bond in paying down student loans. 4.5% guaranteed isn't the worst thing in the world.

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