Portfolio Tune-Up for the New Year

[BogleDan]

Hi all,
With the new year I have tasked myself with getting a handle on my investing life and trying to align it more with the Boglehead philosophy. I'll include the details here and then a few questions at the bottom. Any advice/guidance you can give is very much appreciated!

Target Retirement: 2045
Emergency Funds: Yes
Debt: Student Loans (30k, public, 2.6%), Mortgage (1.2m, 3.75%)
Tax Status: Married Filing Jointly
Tax Rate: 37% Fed, 11% State
California
Age: 38

Desired Asset allocation = 85% stocks / 15% bonds
Desired International allocation: Undecided

30% effective tax rate last few years (2018 unknown – “blue state tax” SALT and property changes will probably mean a significantly higher rate – yikes!)


Tax-Advantaged Accounts

401k
(Low Six Figures)

Current Allocations

SWPPX – Schwab S&P 500 Index – 7.26%
SCHB – Schwab US Broad Market Index – 43.90%
SCHF – Schwab International Equities – 12.32%
SCHZ – Schwab US Aggregate Bond – 2.30%
SCHH – Schwab US REIT – 7.16%
SCHD – Schwab US Dividend Equities – 7.33%
SCHG – Schwab US large cap growth – 0.76%

VINIX = Vanguard Institutional Index – 11.22%
VFFVX = Vanguard Target Retirement 2055 – 7.75%

Currently maxed going forward all to VFFVX – Target Retirement 2055

Total Tax Deferred Stocks = 96.85%
Total Tax Deferred Bonds = 3.08%
Total Tax Deferred Cash = 0.13%

Roth #1 - Self
(Low Five Figures)

ITOT – iShares S&P Total US Market - 100%

No further contributions to this account

Roth #2 - Self
(Low Five Figures)

VOO - Vanguard S&P 500 ETF - 100%

Max contributions (backdoor) each year going forward

Roth #3 - Spouse
(Low Five Figures)

VOO - Vanguard S&P 500 ETF - 100%

Max contributions (backdoor) each year going forward

HSA
$7000 (just begun in 2019)

FZROX - Fidelity Zero Total Market Index - 100%

Total Tax-Free Stocks = 100%
Total Tax-Free Bonds = 0%
Total Tax-Free Cash = 0%


Taxable Accounts
(Mid Six Figures)

Vanguard = ~50% of total taxable funds
Betterment = ~50% of total taxable funds

Vanguard Allocations

VTI – Total Stock Market – 34.81%
VEA – FTSE Developed Markets – 11.43%
VOOG – S&P 500 Growth – 9.34%
VCAIX – CA Intermediate Bonds – 4.73%
VTEB – Tax Exempt Bonds – 2.46%
VCTXX – Cali Muni Money Market – 33.51%
Cash – 3.72%

Betterment Allocations

VTI, SCHB - US Total Stock Market - 32%
VTV, IVE - US large-cap value - 8.30%
VOE, IWS - US mid-cap value - 6.90%
VBR, IWN - US small-cap value - 5.90%
VEA, SCHF - developed markets - 22.50%
VWO, IEMG - emerging markets - 14.00%
VTIP - US inflation protected bonds - 0.70%
AGG - US High quality bonds - 1.20%
MUB, TFI - Muni bonds - 4.10%
BNDX - International bonds - 3.20%
EMB, VWOB - International emerging market bonds - 1.70%

Total Taxable Stocks = 71.33%
Total Taxable Bonds = 8.96%
Total Taxable Cash or Equiv.= 19.71%

Questions

1) Am I doing anything obviously wrong? Incorrect asset in taxable or tax-sheltered account, etc? My #1 (or 1b) goal at this point is to minimize taxes.

2) Betterment does what it likes in terms of allocations, but do you spot any weaknesses in my Vanguard portfolio? How can I best address those with new funds going forward? One nice thing about Betterment is that it applies funds immediately and automatically (i.e., there's no cash balance). I would like to have a solid plan in place for monthly Vanguard buys so I don't just default to leaving things in the settlement account.

3) More generally, what can I do to be a better boglehead? Most of my investment strategy was put together before I had much exposure to the boglehead philosophy. I have always tried to keep fees low and maintain a long-term outlook, but I think I likely have a lot of overlap in my fund choices, and I'm probably not as efficient as I could be. I'd like to "correct" my allocations to be more bogle-minded without having to sell too much and incur any capital gains in the process.

Thank you in advance for any help you can give!
-Dan

[jpelder]

Your 401(k) has a lot of complexity (like that fraction of a percent in large cap growth). You could simplify it to a three-fund portfolio, plus any tilts. I don't tilt, but I think you need 5-10% of something for it to make much difference.

Why not roll the abandoned Roth IRA into the active one at Vanguard? One less place to fiddle with

For the Vanguard Roth IRAs, you can now move to the Admiral Share version of your chosen funds, which will be less expensive and less complex than ETFs. I also prefer Total Market to S&P 500, but YMMV

You do have some taxable bonds in taxable accounts, which is often not best for tax liability, but growth in Roth accounts is also good, so I'm not sure whether you want to fiddle.

[Wyodoc]

+1
Lot of complexity in all this
1) Too many funds in 401k
-why have an SP500 fund, a Vanguard institutional index and a total market? All similar fund returns
-you have 4 funds under 10% of assets?
-you don’t mention REITs in your allocation but have 7% here

2)Why have a Vanguard and Betterment account? If you switch to only 3-5 funds probably don’t need to pay for Betterment services. Alternatively if you like Betterment and enjoy what they provide you why have a Vanguard taxable account?

3) I would also look into tax efficient fund placement
401k- Bond allocation and a Total market fund/Total international
IRA- Total market + REIT if you want it
Taxable- Total market/international fund

That would be 4 funds and simplify your life

[BogleDan]

You do have some taxable bonds in taxable accounts, which is often not best for tax liability, but growth in Roth accounts is also good, so I'm not sure whether you want to fiddle.

Would you suggest taxable accounts only hold Stocks + Cash? Or would it be okay to hold bonds if they were tax "smart" in some way?

I agree with you about the complexity of the 401k. I will try to get that down to 3 or 4 funds this year.

And thank you for the suggestion on the admiral funds! I didn't realize I qualified.

[BogleDan]

+1
Lot of complexity in all this
1) Too many funds in 401k
-why have an SP500 fund, a Vanguard institutional index and a total market? All similar fund returns
-you have 4 funds under 10% of assets?
-you don’t mention REITs in your allocation but have 7% here

2)Why have a Vanguard and Betterment account? If you switch to only 3-5 funds probably don’t need to pay for Betterment services. Alternatively if you like Betterment and enjoy what they provide you why have a Vanguard taxable account?

3) I would also look into tax efficient fund placement
401k- Bond allocation and a Total market fund/Total international
IRA- Total market + REIT if you want it
Taxable- Total market/international fund

That would be 4 funds and simplify your life

1) Yes, I think you're right. I started buying some of the funds in the Schwab self-directed 401k, then decided to stop using the self-directed brokerage when employer began offering Vanguard funds. Seemed simpler. As a result, some of the Schwab funds never got fully funded as I intended. But I think better now to simplify all that anyway.

And you're right, I threw REITs in with stocks, but it makes sense that that should be considered a different asset class.

2) In regards to Betterment as well as Vanguard: some part of my brain likes "diversifying" by using two different brokerages. I realize that's a fallacy since Betterment uses a lot of the same underlying funds anyway. I originally planned to compare the two brokerages after a few years of returns, though the results are still out on that one. Betterment beat my Vanguard performance the first two years, then lost pretty handily this past year. But as I know, so much of that has more to do with asset allocation (e.g., I have a much larger cash position at Vanguard). I do like the tax loss harvesting offered at Betterment, though I'm unclear on just how much I have benefitted from it.

3) Would you avoid bonds altogether in the taxable account?

Thanks!

[jpelder]

You do have some taxable bonds in taxable accounts, which is often not best for tax liability, but growth in Roth accounts is also good, so I'm not sure whether you want to fiddle.

Would you suggest taxable accounts only hold Stocks + Cash? Or would it be okay to hold bonds if they were tax "smart" in some way?

I agree with you about the complexity of the 401k. I will try to get that down to 3 or 4 funds this year.

And thank you for the suggestion on the admiral funds! I didn't realize I qualified.

The general rule is to avoid taxable bonds in a taxable account, since interest is treated as ordinary income. That said, my taxable account contains only bonds, since I use it as a long-term savings account. Depends on what your needs are

[BogleDan]

Your 401(k) has a lot of complexity (like that fraction of a percent in large cap growth). You could simplify it to a three-fund portfolio, plus any tilts. I don't tilt, but I think you need 5-10% of something for it to make much difference.

If I were to whip my Schwab 401k into shape without adding new money (say into a traditional three-fund portfolio), I don't need to worry about timing too much, right? No capital gains issues from selling/transferring because it's all inside the 401k?

[jpelder]

Your 401(k) has a lot of complexity (like that fraction of a percent in large cap growth). You could simplify it to a three-fund portfolio, plus any tilts. I don't tilt, but I think you need 5-10% of something for it to make much difference.

If I were to whip my Schwab 401k into shape without adding new money (say into a traditional three-fund portfolio), I don't need to worry about timing too much, right? No capital gains issues from selling/transferring because it's all inside the 401k?

Correct. Nothing that happens inside the 401k has tax consequences (unless you create a wash sale with another account)