Need Help Streamlining / Possible AA Rebalance

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Topic Author
Cooper1386
Posts: 3
Joined: Sat Oct 13, 2018 6:05 am

Need Help Streamlining / Possible AA Rebalance

Post by Cooper1386 » Wed Jul 10, 2019 5:02 pm

Hello fellow Bogleheads,

Before I ask for your help...I'll post my information:


Emergency funds: Easily 6 months ($50,000+), $20k in a CD, $30k in checking acct

Debt: $145,000 mortgage

Tax Filing Status: Married
Tax Rate: 24% - 32%
State of Residence: FL

Age: 33

Desired Asset allocation: 90% stocks / 10% bonds (My bonds are just a liquid alternative to holding cash for my wife's company)
Desired International allocation: 40% of stocks (This is what is recommended by Vanguard when i was using their personal advisory services, but i'm not sure)

Portfolio size - about $379,650

Current retirement assets

His Rollover IRA - $89,902.00
9% - Vanguard 500 Index (VFIAX) - $34,385.00
3% - Vanguard Total International Stock Market (VTIAX) - $11,670
12% - Vanguard Total Stock Market (VTSAX) – 43,846.79

Her Rollover IRA - $7,025
2% - Fidelity Four in One Index (FFNOX) - $7,025.04

His Roth IRA - $35,561
1.5% - Vanguard 500 Index (VFIAX) - $4,294.53

Her Roth IRA - $22,687.66
4% - Vanguard Total International Stock Market (VTIAX) - $16,845
6% - Vanguard Emerging Market Index (VEXAX) - $22,687

Vanguard Total International Stock Market (VTIAX) - $28,845.37
1% - Apple (AAPL) - $2,421.65

Brokerage Account - $116,952.34
<1% - Vanguard Total International Stock Market (VTIAX) - $2,085.52
1.5% - Vanguard Total Stock Market (VTSAX) – $6,306.27
10% - Vanguard Dividend Growth (VDIGX) - $37,126.67
14% - Vanguard Total World Stock Market Index (VTWAX) - $52,607
5% - Fidelity 500 Index (FXAIX) - $18,826.18

Fidelity Account (Bonds) $71,262
18% - Misc AAA- / BBB+ Corporate Bonds yielding about 3.25% - Intended as an alternate to sitting in cash for funds “if needed” for business




Contributions

New annual Contributions
$19,500 his 401k (+$5,600 employer match)
$5,500 his IRA/Roth IRA
$5,500 her IRA/Roth IRA
$25,000 taxable (for retirement, not short term goals)

Questions:
1. I would like to streamline my portfolio. Is there an easy way to do this? I feel overwhelmed to keep up with rebalancing with all of my holdings. I also was told I am holding high turnover funds in my brokerage account.

2. Can someone recommend a different AA that would make more sense based on my age?

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Watty
Posts: 16534
Joined: Wed Oct 10, 2007 3:55 pm

Re: Need Help Streamlining / Possible AA Rebalance

Post by Watty » Wed Jul 10, 2019 5:39 pm

Cooper1386 wrote:
Wed Jul 10, 2019 5:02 pm
1. I would like to streamline my portfolio. Is there an easy way to do this? I feel overwhelmed to keep up with rebalancing with all of my holdings. I also was told I am holding high turnover funds in my brokerage account.
Are you familiar with a three fund portfolio?

https://www.bogleheads.org/wiki/Three-fund_portfolio

One of the keys is that you look at all your retirement accounts combined so you do not need to own the funds in all the accounts.

In the taxable account it would be good to set the dividends and capital gains distributions to not be automatically reinvested so you can just manually reinvest them in whatever asset class is underweighted.

Except for the dividend growth fund in the brokerage accounts the rest of the index funds should have very low turnover since the holdings will only change when a company is added or removed from the index. It would be good to get more information on that.

ExitStageLeft
Posts: 1438
Joined: Sat Jan 20, 2018 4:02 pm

Re: Need Help Streamlining / Possible AA Rebalance

Post by ExitStageLeft » Wed Jul 10, 2019 7:34 pm

Welcome to the forum!

Is your wife self-employed? If so then there are options to increase her retirement savings that could be better than saving that $25k per year all in taxable (see https://www.irs.gov/retirement-plans/pl ... -resources).

Also please note that the annual contribution limit for an IRA is $6,000 this year. The ability to contribute directly to a Roth IRA starts to phase out when your modified AGI exceeeds $193k and is zeroed out at $203k.

Is his 401k new, or is it included in the assets listed? What funds are available in the 401k?

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Peter Foley
Posts: 4901
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Need Help Streamlining / Possible AA Rebalance

Post by Peter Foley » Wed Jul 10, 2019 7:50 pm

An easy simplification would be to hold international only in taxable.

40% of stocks in international is a little high for my taste - there are lots of informed opinions about international and they do not all agree.

I would also be more comfortable with an 80/20 AA.

What criteria do you use for rebalancing? At your age and with both of you employed you should be able to rebalance by redirecting contributions.

By the way - you are doing great in terms of saving and account diversification (taxable, tax deferred and Roth).

Topic Author
Cooper1386
Posts: 3
Joined: Sat Oct 13, 2018 6:05 am

Re: Need Help Streamlining / Possible AA Rebalance

Post by Cooper1386 » Thu Jul 11, 2019 2:41 pm

ExitStageLeft wrote:
Wed Jul 10, 2019 7:34 pm
Welcome to the forum!

Is your wife self-employed? If so then there are options to increase her retirement savings that could be better than saving that $25k per year all in taxable (see https://www.irs.gov/retirement-plans/pl ... -resources).

Also please note that the annual contribution limit for an IRA is $6,000 this year. The ability to contribute directly to a Roth IRA starts to phase out when your modified AGI exceeeds $193k and is zeroed out at $203k.

Is his 401k new, or is it included in the assets listed? What funds are available in the 401k?
My wife has a small company where she is the only employee and takes a minimal salary. Also recently, she is now co-owner of another small business where she is a part owner and taking a small salary.

I think we are going to be pushing the 203k limit for our Roth IRA this year. Are all income forms counted in the 203k joint limit? A lot of my wifes income is from company distributions and not salary. It sounds like it dosent matter... Also are we responsible to stop contributing to our Roth now if we know that our income could possible exceed 203k jointly?

The 401k is included in the assets listed. The 401k is with Vanguard. I just recently started a new job, and am currently not yet eligible for the 401k for another few months.

Topic Author
Cooper1386
Posts: 3
Joined: Sat Oct 13, 2018 6:05 am

Re: Need Help Streamlining / Possible AA Rebalance

Post by Cooper1386 » Thu Jul 11, 2019 2:43 pm

Peter Foley wrote:
Wed Jul 10, 2019 7:50 pm
An easy simplification would be to hold international only in taxable.

40% of stocks in international is a little high for my taste - there are lots of informed opinions about international and they do not all agree.

I would also be more comfortable with an 80/20 AA.

What criteria do you use for rebalancing? At your age and with both of you employed you should be able to rebalance by redirecting contributions.

By the way - you are doing great in terms of saving and account diversification (taxable, tax deferred and Roth).
I dont really have a criteria other than picking a 80/20, 70/30, or 40/60 split and just rebalancing every year or so. I like the idea of redirecting contributions to make this happen.

Thank you for the compliment!

ExitStageLeft
Posts: 1438
Joined: Sat Jan 20, 2018 4:02 pm

Re: Need Help Streamlining / Possible AA Rebalance

Post by ExitStageLeft » Fri Jul 12, 2019 12:59 pm

Cooper1386 wrote:
Thu Jul 11, 2019 2:41 pm
...
My wife has a small company where she is the only employee and takes a minimal salary. Also recently, she is now co-owner of another small business where she is a part owner and taking a small salary.

I think we are going to be pushing the 203k limit for our Roth IRA this year. Are all income forms counted in the 203k joint limit? A lot of my wifes income is from company distributions and not salary. It sounds like it dosent matter... Also are we responsible to stop contributing to our Roth now if we know that our income could possible exceed 203k jointly?

The 401k is included in the assets listed. The 401k is with Vanguard. I just recently started a new job, and am currently not yet eligible for the 401k for another few months.
I'm not well-informed on the best ways for your wife to save for retirement but it seems like it may be worth the effort. I believe your wife could set up a solo 401k and contribute all the salary she takes from the company for which she is the sole owner employee.

Your adjusted gross income (AGI) is the sum of all reportable income. If you defer some income by saving it in a 401k or similar retirement plan then it lowers your AGI by that amount. If you are bumping up against the $203k limit this year then you can reduce that by saving in his and her 401k accounts. If you do not reduce your AGI below $193k then you will be limited in how much you can contribute to the Roth IRAs.
https://www.irs.gov/retirement-plans/am ... e-for-2019

If you foresee increased income in the future such that you are consistently above the Roth IRA AGI limit then it would be worth your while to investigate the feasibility of backdoor Roth IRA contributions. This type of contribution is possible because one can always make a contribution to a traditional IRA even though they may not be able to claim a tax deduction. This method is only practical when there is no tax-deferred balance in the traditional IRA.

For 2019, I would strive to reduce your AGI by contributing to his or her 401k so that the AGI is below $193k. That will allow you both to make direct contributions to the Roth IRAs. For out years, I would look into rolling the rollover/traditional IRA balances into the new 401k accounts. That will clear the decks for subsequent backdoor Roth IRA contributions for those years when your income exceeds the Roth IRA limit.

For your wife's self-employment retirement savings, if she opts for a solo 401k she can contribute all of her salary as an employee contribution. Even if the salary is minimal, it may be enough savings to keep your AGI low enough to where you can both make direct Roth contributions. If the business takes off and her income increases, she can still make contributions to herself as the employer. There are a lot of possibilities that go beyond what i can describe in a single post, and there are also costs and complications that may argue against it. I feel it is in your interests to explore all the retirement savings plans that your wife has available and select one that will allow you to maximize your tax-advantaged savings every year.

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