Asset allocation and rebalancing for a graduating medical resident

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Asset allocation and rebalancing for a graduating medical resident

Post by darknocturnaldream » Fri Feb 08, 2019 7:22 pm

Hi! Need some help in making decisions w/r/t fixing my asset allocation and rebalancing.

Background: I graduated medical school, paid off my loans (not too much), have lived frugally in a high COL area, have some 1099 income from moonlighting and am about to graduate residency in June. I’m anticipating some the shiny higher paycheck! I’ve been doing what my father says for the past couple years (basically, all in on index funds) but feel like I need more perspective/opinions based on everything I’ve read.

Emergency funds: Done
Debt: None (at some point would like to buy a house, car, etc.)
Tax Filing Status: Single
Tax Rate: 22% Federal, 9.30% State
State of Residence: CA
Age: 30
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks
Size of current portfolio: mid five-figures

Taxable brokerage at Fidelity
45% FXAIX Fidelity 500 Index Fund (ER 0.015)
Roth IRA at Fidelity
18% FXAIX Fidelity 500 Index Fund (ER 0.015)
2% PFE Pfizer (ER n/a, but does pay some nice dividends!)
457b (government) with 3% match from employer
21% Must stay in a stable asset fund until June 2019, then I'll do a rollover
Solo 401K
0% - need help with this!
10% 1099 income that I intend to fund the Solo 401K

New Annual Contributions
$6K Backdoor Roth IRA (after I fund the Solo 401K)
? Solo 401K contribution - dependent on 1099 income, will be less compared to last year
? Taxable - dependent on income this year, will be same or less than last year for many reasons
No 401K/403b/457b available at new employer – It’s on a W2 without benefits (long story), but I'm hoping to get on W2 with pension and benefits in 1-2 year’s time

My plan of attack for the year
1. Fund Solo 401K with cash and figure what to buy that gels with the rest of my portfolio - ASAP
2. Fund Backdoor Roth IRA for 2019 - April/May (need to save to make the contribution all at once)
3. Figure out what to do with the rolled over 457b into my Solo 401K - July
4. Make my emergency fund bigger (to 6 months’ expenses as an attending), get an HSA, grow into my wealth but buy some new toys - Dec

1. I opened a Solo 401K (traditional and Roth) at eTrade at the end of December 2018 and would like to fund it. What percentage of the 10% cash I have would you consider putting in traditional solo 401K (with the remainder in the Roth)? Hoping to retire in my mid-50s with more money than I’m making now as a resident.

2. Since 100% (minus cash and 457b) of my current portfolio is in US stocks, I’d like to do some better asset allocation by upping bonds and international stocks. How should I rebalance with the new funds in the Solo 401K for tax efficiency purposes? [Yes, I know this is dependent on the proportion of Roth vs traditional, and yes I read many articles and watched a couple videos on it and am still a little confused]

3. Essentially same question as #2, but in July, I’ll rollover the 457b into the traditional Solo 401K at eTrade. Any considerations for taxes when rebalancing/re-allocating to get to the desired portfolio?

4. Roth IRA is at Fidelity and I will do a backdoor this year. Having read about the new Fidelity zero fee funds on websites and this forum, I’m not sure if any of the downsides would apply to me. Thoughts? I know we’re all about low expense ratios here, but this seems like I'm looking giving up loose change (compared to a 0.015 ER) unless I’m missing something here.

5. Sometimes I’m just so sick of reading everything that I just want to do target retirement funds and call it a day. Vanguard beats Fidelity in the expense ratio category. Would it cost me anything to transfer my Fidelity assets to Vanguard? It looks like I’d have access to Vanguard target retirement funds for free through my eTrade Solo 401K account (that would then have 1099 income+457b rollover).

Thank you so, so much for your help! I’ve basically been teaching myself over the past 8-10 months (while working 60-80hrs/wk) so please be gentle…the learning curve is steep and they really don’t teach you any of this in medical school. My questions probably sound simple but I've been paralyzed thinking about bad financial/tax implications if I make the wrong choice.

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Joined: Tue Nov 20, 2007 6:02 am

Re: Asset allocation and rebalancing for a graduating medical resident

Post by mhalley » Sat Feb 09, 2019 12:40 pm

457 has some special tax advantages if retiring early, so you might want to keep that money there. Jumping through hoops for a few basis points is not worth the hassle. Fidelity freedom index tr funds are just as cheap as Vanguards I believe. There is nothing wrong with just using a tr fund. In a few years you can always change to 3 fund if you want.
.Money saved in a 457 plan is designed for retirement, but unlike 401(k) and 403(b) plans, you can take a withdrawal from the 457 without penalty before you are 59 and a half years old. This is a very important rule that often times goes overlooked with the 457 plan. ... etirement/
If the money is all in retirement accounts, you don’t need to worry about tax efficiency. Look into creating an ips and sticking to it. Max out the Roth while in low tax bracket. Max out 491k then do backdoor Roth. Pick asset allocation and rebalance with contributions to get to it, or do it all at once.
Sign up for wci email and read his newsletter to subscribers.

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Re: Asset allocation and rebalancing for a graduating medical resident

Post by BL » Sat Feb 09, 2019 1:10 pm

Time to do just a bit of reading. Also sounds like you have a source for good advice from your father.
Target (INDEX) funds are fine, especially until you start taxable investing.

Here is a summary of what you need:
by Dr William Bernstein, recommended author, written for new investors. Especially read Hurdle # 5, since you have a target on your back for folks who want to "help" you with your money (relieve you of your money).

Boglehead's Guide to Investing also has the basics. Go to Amazon from link here.

White coat investor has web page, above-mentioned newsletter, book at Amazon.

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Re: Asset allocation and rebalancing for a graduating medical resident

Post by darknocturnaldream » Sun Feb 10, 2019 3:42 pm

Thanks all -- I guess I just need to take the leap. It sounds like I should just start by throwing everything into the Roth Solo 401K and moving on from there with my plan.

I've read the WCI book twice and subscribed to his newsletter a couple weeks ago. Bought the Bogleheads book a couple months ago; it was a doozie reading it the first time but rereading it now makes so much more sense. Appreciate the link for If You Can! I actually try to avoid telling people I'm a physician. Avoids the "rich doctor" target and more importantly for my sanity, avoids questions about some random rash they've had for 3 years. ::haha::

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