Saving $100K/year .... Portfolio Review

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Saving $100K/year .... Portfolio Review

Post by Demisaba » Mon May 13, 2019 7:35 pm

I was hoping to solicit some portfolio advice.

- Emergency Fund: $0 (I plan to tap in to my 457 or taxable account if I have to)
- Debt: $0
- Tax Filing: Single (This may change in 2 years.)
- Tax Rate: 32% / 7.3%
- State of Residence: OH
- Age: 37
- Desired Asset Allocation: Not sure. See below.

Current Portfolio: $750k (have been earning $ for 6 years)
Taxable Vanguard Account:
- 15%: Total Market Index (VTI)

- 15%: Vanguard Small Cap Index
- 55%: CREF Equity Index (tracks the Russell 300)

- 15%: Vanguard Small Cap Index

Annual Contributions
- $19K into 457 (Vanguard Small Cap Index)
- $6K into Roth via backdoor (Vanguard Total Market Index)
- $55K into 401k (CREF Equity Index -- no SS contribution, hence the larger 401k limit)
- 19K into 403b (CREF Equity Index)
- 3.5k HSA

- I am underdiversified (all equity) and I have too much exposure to small cap stocks. This has been in the back of my mind for a year or so. I am okey with the market fluctuation but I wonder if I can achieve the same level of EXPECTED return with a lower risk (through the magic of diversification).

- All my investment is in pretax and I expect to work for another 15 to 20 years and contribute/save about $100k per year pretax. My income and contribution is expected to grow with inflation. Will I be in a higher tax bracket in retirement?

Thank you very much in advance!

Changed the title to catch your attention. Thanks!
Last edited by Demisaba on Mon May 13, 2019 8:06 pm, edited 1 time in total.

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Re: Portfolio Advice/Review

Post by LadyGeek » Mon May 13, 2019 7:50 pm

This thread is now in the Personal Investments forum (portfolio review).

Demisaba, Welcome!
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Re: Saving $100K/year .... Portfolio Review

Post by lakpr » Mon May 13, 2019 9:45 pm

A very crude, back of the envelope calculation shows that $100k per year, for 20 years, a 4% real growth rate (after inflation, I mean) will result in $3.1 million. A 4% withdrawal rate on this corpus of fund would give you about $120k in today's dollars If you assume the tax rates remain the same, this will put you in barely 22% tax bracket if you are Married Filing Jointly

So, no, there is no great danger of you being in a higher tax bracket in retirement, than now.

What could happen though is that once you reach age 75 or so, your RMD will be around 6.5%, and then your income would be $180k or higher. For a Married couple, this is still ok. But if one spouse deceases, this income will kick the surviving spouse into 32% bracket.

Edited to add that all figures in this post are in today's dollars. The contribution amounts, the tax bracket limits, etc. are all indexed for inflation by law. So I took a shortcut to just assume a real growth rate, 4% real, which could be 6% nominal and 2% inflation, or 7% nominal with 3% inflation, etc.

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Re: Saving $100K/year .... Portfolio Review

Post by MotoTrojan » Mon May 13, 2019 10:40 pm

Specific to your question about getting the same expected return with less risk, that is unlikely. Adding long-term bonds would increase portfolio efficiency via risk-adjusted reward, but will reduce expected return. You are currently ~1/3 small-caps which is an aggressive tilt but not crazy. More glaring to me is your lack of International equities. What is your rationale there? Adding some Total Bond or treasuries would make sense sooner than later but you aren't at a major risk just yet.

How are you getting $55K into the 401k on top of $19K into the 403b? Impressive if legal.

What is your total income (curious your current expenses really)?

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Re: Saving $100K/year .... Portfolio Review

Post by dratkinson » Mon May 13, 2019 10:54 pm

BH Saving $100K/year .... Portfolio Review

Emergency fund.

Don't plan to use your retirement accounts for your EF (emergency fund). Why? It's planning to steal eggs from the golden goose sitting on your retirement nest egg. Ask your retired self if stealing these eggs is a good idea.


I recall reading that an 80/20 AA (asset allocation: stock/bond ratio) produces similar return vs. a 100/0 AA, but with less risk.
See Vanguard portfolio allocation models: ... llocations

Since you are worried about being undiversified, you have the opportunity to kill two birds with one stone. How?

Since bonds can provide a diversification advantage, put them in your taxable account and use them as the next tier (after CC/checking/savings/mmkt) of your EFs. Your bonds are now performing multiple duties: EF if needed, retirement bonds if not needed, and protecting your tax-advantaged accounts for the benefit of your retired self.

In your tax bracket, a municipal bond fund would be appropriate and would provide a fed tax advantage. VWITX/VWIUX (Vanguard's intermediate-term national muni fund) is typically recommended.

Option. But since you are taking more risk (as am I), then can consider VWLTX/VWLUX (Vanguard's long-term national muni fund).

Option. Vanguard also has a long-term OH single-state muni fund: VOHIX. The typical recommendation is to pair 50/50, the long-term single-state muni fund with Vanguard limited-term national muni fund (VMLTX) to give a combination that is intermediate-term in duration, but the majority of its dividends being exempt from both fed/state tax.

Option. Vanguard also has an OH money-market fund: VOHXX.

Bottom line. It's better to extend your investments to include bonds in taxable (diversity + comparable return), and assign the bonds multiple duties, than to plan to steal eggs from a tax-advantaged retirement account.

Equity allocation. Assuming you meant Russell 3000, then your total investments are 70% TSM (total stock market) and 30% SC (small cap stocks). Most would recommend 100% TSM, or adding some TISM (total international stock market) as your first level of equity diversification. Be aware that your SC investments are a sector (sector of the total market) bet.

Disclosure. I've learned that I need to try to limit my sector bets. Why? Sector bets are great when they over-perform. But it's hard to hold steady when sector bets under-perform... for many years. (Selling when low is a losing bet.) Instead, investments in total markets are easier to live with. Why? Because my return is the market's return. So even when I'm down, it matches the market, so I know I'm on track. One less thing to second guess.

Retirement tax bracket. This will be determined by your taxable income at the time.

The short answer. Since you will not be working, then you should be in a lower tax bracket in retirement.

The long answer.

Cost of living. If you have a high cost of living in retirement (lots of travel,...), then you might need to sell investments, which would increase your taxable income. So minimizing your cost of living will help to keep your tax bracket lower.

Taxable interest. Minimizing taxable interest will minimize your taxable income. Example: Instead of using a taxable mmkt account, use a tax-exempt mmkt fund.

RMDs. Start at age 70.5. You’ll need to wag your RMDs.
See RMD worksheet:

Growth of tax-deferred retirement accounts. You’ll need to wag their growth until RMDs are due. You can do this using a financial calculator and assume the growth rates published by Vanguard (above).

Many use the time between retirement and taking SS to convert tax-deferred accounts to tax-free accounts (Roth IRA) to turn off unneeded/unwanted RMDs and so minimize their taxable income.

Retirement income. You'll need to wag your retirement income:
+ taxable interest, checking/savings/mmkt/CDs (Try to minimize items reported on Sch B part 1.)
+ pension (you'll need to wag this.)
+ SS (you'll need to wag this.)
+ RMDs (you'll need to wag this.)
+ capital gain, selling taxable investment to fund high cost of living in retirement.
- standard deduction, 1040 line 8
Taxable income, 1040 line 10

For 2018, look up your taxable income (1040 line 10), and tax bracket in Tax Rate Schedules, 1040 Instructions, page 113. Now, using above information, wag this 20yrs forward. For married, and for single.

You can assume the tax code 20yrs forward will be similar to today’s. You just need to wag how your life will change then: income, cost of living, married/single.

Rerun this exercise every few years to see if you are on track.

Bottom line. Plan for the worst. Hope for the best.

Recommended books.
--The Bogleheads’ Guide to Investing.
--The Only Guide to a Winning Bond Strategy You’ll Ever Need, Swedroe.

d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Re: Saving $100K/year .... Portfolio Review

Post by Demisaba » Tue May 14, 2019 7:14 pm


All very helpful comments. Thank you for your input!!!

MotoTrojan - state employees at in some states don't contribute to SS, hence a larger 401k limit plus 403b and 457 options.

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