Portfolio review - Tax efficient? Optimal asset allocation?

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Topic Author
comfortably_numb
Posts: 5
Joined: Mon Oct 21, 2019 7:18 pm

Portfolio review - Tax efficient? Optimal asset allocation?

Post by comfortably_numb » Mon Oct 21, 2019 8:08 pm

Emergency funds: 12 months

Debt: @ $1,200 credit card debt paid in full at end of each month

Tax Filing Status: Married Filing Jointly

Tax Rate: 14% Federal, 3.16% State

State of Residence: NJ

Age: Mid 40's (His & Her)

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of total stocks holding

Current total portfolio - low six-figures

Current Allocation

His Taxable Account @ Vanguard

Total % Ticker Fund Name (Expense Ratio)
39.0% Cash Cash + CD (0)
3.5% VXUS Vanguard Total International Stock ETF (0.09)
0.2% BND Vanguard Total Bond Market Index Fund ETF (0.04)
4.6% VYM Vanguard High Dividend Yield ETF (0.06)
0.6% VHT Vanguard Health Care ETF (0.10)
0.4% VEA Vanguard FTSE Developed Markets ETF (0.05)
5.1% VTI Vanguard Total Stock Market ETF (0.03)
0.7% VNQ Vanguard Real Estate ETF (0.12)
0.5% VMFXX Vanguard Federal Money Market Fund (0.11)

His Tax-Deferred Account
(401K Rollover from old job + Trad IRA contribution)

5.3% VFORX Vanguard Target Retirement 2040 Fund (0.14)
4.5% VHYAX Vanguard High Dividend Yield Index Fund (0.08)
3.1% VBTLX Vanguard Total Bond Market Index Fund Admiral Shares (0.05)
11.3% VTSAX Vanguard Total Stock Market Index Fund (0.04)
3.9% VTTHX Vanguard Target Retirement 2035 Fund (0.14)

His 401K

2.3% JFVIX John Hancock Fundamental Large Cap Value Fund (0.04) - 100% invested in this fund

Low ER Options available:
TIAA-CREF Small-Cap Blend Index Fund (TISBX) Expense Ratio 0.06%
Mid Cap Index Fund (JECIX) Expense Ratio 0.07%
500 Index Fund (JFIVX) Expense Ratio 0.04%
Total Bond Market Fund (JTBMX) Expense Ratio 0.08%
Money Market Fund (JHOXX) Expense Ratio 0.07%
Vanguard Target Retirement 2035 (VTTHX) Expense Ratio 0.14%


His Roth Account

0.2% VBTLX Vanguard Total Bond Market Index Fund Admiral (0.05)
0.8% VTSAX Vanguard Total Stock Market Index Fund (0.04)

Her Tax-Deferred Account (Trad IRA contribution)

1.86% FSKAX Fidelity Total Market Index Fund (0.02)
1.50% FSPTX Fidelity Select Technology Portfolio (0.72)
0.17% SPAXX Fidelity Government Money Market Fund (0.42)

Her 401K
6.7% MIEAX MM S&P 500 Index Fund Class R4 (0.62)

Goals:
a. Saving for 2 kids college expense (within 4 years)
b. retirement saving for his & her
c. buy life insurance for his & her

Questions:
1. Please critique my asset allocation. Is it tax efficient? Any rebalancing advice?

2. Please advice on how to invest high cash holding. The high cash holding because wanted to buy a house, but it seems we will have to defer it for two more years because of family issues.

3. Can you buy mutual funds in taxable account? If yes, Will help to automate investment in taxable account; will help develop investment discipline.

4. Should we invest in 529 plan for additional tax shelter?

Additional info.
• Started seriously investing since last 5 years; when accidentally stumbled on Bogleheads.org - Thanks to everyone
• 2019 will be first year when his / her will contribute fully to 401K
• Drafted IPS

Thanks to everyone for patiently reviewing this post and for all your recommendations.
Last edited by comfortably_numb on Sun Nov 17, 2019 11:53 am, edited 3 times in total.

snailderby
Posts: 453
Joined: Thu Jul 26, 2018 11:30 am

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by snailderby » Tue Oct 22, 2019 10:22 am

Welcome to the forum!
comfortably_numb wrote:
Mon Oct 21, 2019 8:08 pm
1. Please critique my asset allocation. Is it tax efficient? Any rebalancing advice?
Two suggestions on the tax front: (a) Fill the Roth IRA with stock funds first to maximize the tax advantages of tax-exempt growth. (b) Put tax-inefficient holdings (like bond funds) in a tax-deferred account (like a traditional 401(k)).

Taxes aside, have you considered simplifying your asset allocation? See viewtopic.php?t=156505.
comfortably_numb wrote:
Mon Oct 21, 2019 8:08 pm
2. Please advice on how to invest high cash holding. The high cash holding because wanted to buy a house, but it seems we will have to defer it for two more years because of family issues.
A few options for short-term savings are a high-yield savings account, a money market fund, CDs, or a target-maturity bond fund, like iShares iBonds ETFs (https://www.ishares.com/us/strategies/b ... nd-ladders).
comfortably_numb wrote:
Mon Oct 21, 2019 8:08 pm
3. Can you buy mutual funds in taxable account? If yes, Will help to automate investment in taxable account; will help develop investment discipline.
Generally, yes, but your options will depend on your brokerage. Where do you hold your taxable account?
comfortably_numb wrote:
Mon Oct 21, 2019 8:08 pm
4. Should we invest in 529 plan for additional tax shelter?
Perhaps. I would generally invest in a 529 plan before investing in a taxable account, but there are obviously restrictions on what 529 funds can be used for. Do you also have access to an HSA? That's another option for tax-sheltered investing.

ExitStageLeft
Posts: 1631
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by ExitStageLeft » Tue Oct 22, 2019 12:49 pm

Welcome to the forum and congrats on maxing out the 401k accounts!

I agree with snailderby that you would be better suited with your bond allocation in tax-deferred accounts. What are the options in both 401ks for bond funds or stable value funds?

Two strategies frequently cited on the forum are to a) keep it simple, and b) focus on tax-efficiency in taxable. Your taxable assets are neither.

Any one asset that is less than 5% of your portfolio isn't large enough to affect your returns so you should consider selling all the small holdings in taxable.

In the breakdown of assets, please edit the titles to explain what type of Tax Deferred Account account each is. For example, if His Tax Deferred Account is in an IRA rolled over from an old job then edit it to say His Rollover IRA. It's a small but important distinction as to which type of account each one is.

Actually if you edit your original post to include the available fund options in the 401ks that will be a big help. It isn't necessary to list all of them, just the ones that are index funds or have expense ratios less than 1%.

Topic Author
comfortably_numb
Posts: 5
Joined: Mon Oct 21, 2019 7:18 pm

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by comfortably_numb » Tue Oct 22, 2019 6:53 pm

snailderby wrote:
Tue Oct 22, 2019 10:22 am
Welcome to the forum!

Thank you.
comfortably_numb wrote:
Mon Oct 21, 2019 8:08 pm
3. Can you buy mutual funds in taxable account? If yes, Will help to automate investment in taxable account; will help develop investment discipline.
Generally, yes, but your options will depend on your brokerage. Where do you hold your taxable account?

Vanguard
comfortably_numb wrote:
Mon Oct 21, 2019 8:08 pm
4. Should we invest in 529 plan for additional tax shelter?
Perhaps. I would generally invest in a 529 plan before investing in a taxable account, but there are obviously restrictions on what 529 funds can be used for. Do you also have access to an HSA? That's another option for tax-sheltered investing.
I have company sponsored HSA from work. Its is use it or lose it. Will check if I can contribute on my own. Is it possible?

Thank you.

Topic Author
comfortably_numb
Posts: 5
Joined: Mon Oct 21, 2019 7:18 pm

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by comfortably_numb » Tue Oct 22, 2019 7:02 pm

snailderby wrote:
Tue Oct 22, 2019 10:22 am
Welcome to the forum!
comfortably_numb wrote:
Mon Oct 21, 2019 8:08 pm
1. Please critique my asset allocation. Is it tax efficient? Any rebalancing advice?
Two suggestions on the tax front: (a) Fill the Roth IRA with stock funds first to maximize the tax advantages of tax-exempt growth. (b) Put tax-inefficient holdings (like bond funds) in a tax-deferred account (like a traditional 401(k)).

Will update my automatic IRA contribution accordingly.

Is it possible to sell all BND in roth IRA and convert to VTI in Roth without triggering any tax incindent?

Thx.

HomeStretch
Posts: 2882
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by HomeStretch » Tue Oct 22, 2019 7:08 pm

comfortably_numb wrote:
Tue Oct 22, 2019 6:53 pm
I have company sponsored HSA from work. Its is use it or lose it. Will check if I can contribute on my own. Is it possible?
An HSA is not a “use it or lose it” plan.

Do you perhaps mean your employer offers an FSA or HRA?

snailderby
Posts: 453
Joined: Thu Jul 26, 2018 11:30 am

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by snailderby » Tue Oct 22, 2019 8:55 pm

comfortably_numb wrote:
Tue Oct 22, 2019 7:02 pm

Is it possible to sell all BND in roth IRA and convert to VTI in Roth without triggering any tax incindent?
If all you're doing is buying and selling in tax advantaged accounts, you should be completely fine.

If you sell a fund in your taxable account for a loss and them buy the same fund in your Roth IRA within 30 days, you could trigger a wash sale. See https://www.schwab.com/resource-center/ ... wash-sales.

Best wishes!

Topic Author
comfortably_numb
Posts: 5
Joined: Mon Oct 21, 2019 7:18 pm

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by comfortably_numb » Sun Nov 17, 2019 11:54 am

ExitStageLeft wrote:
Tue Oct 22, 2019 12:49 pm
Welcome to the forum and congrats on maxing out the 401k accounts!

Actually if you edit your original post to include the available fund options in the 401ks that will be a big help. It isn't necessary to list all of them, just the ones that are index funds or have expense ratios less than 1%.
Thanks. Added low ER 401K available in OP.

TIAA-CREF Small-Cap Blend Index Fund (TISBX) Expense Ratio 0.06%
Mid Cap Index Fund (JECIX) Expense Ratio 0.07%
500 Index Fund (JFIVX) Expense Ratio 0.04%
Total Bond Market Fund (JTBMX) Expense Ratio 0.08%
Money Market Fund (JHOXX) Expense Ratio 0.07%
Vanguard Target Retirement 2035 (VTTHX) Expense Ratio 0.14%

Thanks for your advise.

Topic Author
comfortably_numb
Posts: 5
Joined: Mon Oct 21, 2019 7:18 pm

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by comfortably_numb » Sun Nov 17, 2019 11:57 am

HomeStretch wrote:
Tue Oct 22, 2019 7:08 pm
comfortably_numb wrote:
Tue Oct 22, 2019 6:53 pm
I have company sponsored HSA from work. Its is use it or lose it. Will check if I can contribute on my own. Is it possible?
An HSA is not a “use it or lose it” plan.

Do you perhaps mean your employer offers an FSA or HRA?
You are right! It's HRA.
The company doe not offer HSA.

Thanks.

HomeStretch
Posts: 2882
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio review - Tax efficient? Optimal asset allocation?

Post by HomeStretch » Sun Nov 17, 2019 4:35 pm

comfortably_numb wrote:
Sun Nov 17, 2019 11:57 am
HomeStretch wrote:
Tue Oct 22, 2019 7:08 pm
comfortably_numb wrote:
Tue Oct 22, 2019 6:53 pm
I have company sponsored HSA from work. Its is use it or lose it. Will check if I can contribute on my own. Is it possible?
An HSA is not a “use it or lose it” plan.

Do you perhaps mean your employer offers an FSA or HRA?
You are right! It's HRA.
The company doe not offer HSA.

Only your employer can contribute to your HRA.

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