32-year-old female, portfolio help

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Topic Author
scommander7
Posts: 12
Joined: Thu Jan 30, 2020 1:02 pm

32-year-old female, portfolio help

Post by scommander7 » Thu Jan 30, 2020 4:49 pm

Hello all. Thank you for this incredibly helpful community. My husband and I just celebrated our first anniversary, and I’m trying to get a handle on our finances. I still have a long way to go, but I finally feel educated enough to not make a complete fool out of myself with this post. But we'll see! Please let me know if I’m on the right track and how to make smarter choices.

Emergency funds: Yes, 6 months.
Debt: $50,675 student loan; 6.550% interest. I know we should re-finance, but we’re waiting to see what happens in November. Paying at least the $2500 for the tax deduction. Otherwise we’ll pay off more aggressively on a 5-year fixed at 3.33%.
Tax Filing Status: (Married Filing Jointly)
State of Residence: Living abroad for the next 2-5 years.
Age: Both 32
Tax Rate: Federal: These next few years, projected 12%. After ~2025, back at 24% dual income. State: N/A
Desired Asset Allocation: 60% stocks / 40% bonds
Desired International Allocation: 20%

Portfolio size: mid 200k

Current Situation:

Her Roth IRA:
(9.3%) Fidelity Freedom Index 2055 Fund - FDEWX 0.12%

His 401k:
(18%) Vanguard Target Retirement 2050 Trust Fund - 0.06%

Her 401k:
(0.5%) FID Contrafund Pool - 0.58%
(0.33%) FID 500 INDEX FXAIX - 0.85%
(0.17%) WM Blair SMMIDCP GR - 0.02%
(0.17%) FID DIVSFD INTL POOL - 0.58%
(0.47%) Omnicom Stock Fund OMC - 0.00%

Her HSA:
(0.75%) FDIC-INSURED DEPOSIT SWEEP - CORE

His HSA:
(2.42%) Cash

Taxable:
(0.39%) COP
(0.21%) OXY
(0.16%) XOM
(11.85%) Publicly Traded Company Stock
(2.61%) Husband FUN Stock Fund

—————————————————————————————

We have around 90k outside of our emergency fund to invest. Based off all the insightful Wikis and previous threads, here’s my proposed plan of action for a revised portfolio...

New Contributions:
  • $12,000 in his+her Roth for 2019 and 2020 while we’re under the income limit (a portion of which we’ll use the sale of her small COP/OXY/XOM 2k taxable account).
  • Convert his+her 401k to Roth IRA while we have access to the FEIC to cover the minimal tax burden on the additional income.
  • Open up two 529s for future children. Don’t count this as part of retirement portfolio, but use a more aggressive AA (90/10/30?) and gradually adjust the allocations as they get closer to college age.
  • Contribute $2000 to a Coverdell for K-12 school supplies/books/equipment.
  • Put 50k in a CD for future house down payment/student loan payoff.
  • We have a side LLC Partnership, so open a Solo 401k (?) to house the majority of bond investments (via any side income) to make room for the higher-yield potential within the Roths.
  • Continue contributing $12k/year via backdoor Roth once our income limit surpasses the cap.
  • Reassess company stock. Should we be aiming for only 5-10% of our portfolio?
  • Re-balance portfolio annually based off desired asset allocation (via this link:https://www.bogleheads.org/wiki/Rebalancing).
  • When we get the opportunity to contribute again to an HSA/401k/etc, follow the funding priority here:https://www.bogleheads.org/wiki/Priorit ... nvestments
  • And if we get to the bottom of the list and still have additional money to invest (ha), use tax-efficient funds like Hi-Yield Bonds, Taxable Bonds, TIPS, REIT Stocks, etc. in taxable accounts. All of which I do not yet understand, but I'll keep reading.
Here’s my attempt at the new portfolio (minus any company stock changes)

Her Roth IRA:
(10.6%) Fidelity Total Market Index Fund FSKAX - 0.015%
(10.6%) Fidelity Total International Index Fund FTIHX - 0.060%
(20.8%) Fidelity U.S. Bond Index FXNAX - 0.025%

His [new] Roth IRA:
(7.5%) Vanguard Total Stock Market Index Fund - (VTSAX) - 0.04%
(9.5%) Vanguard Total International Stock Index Fund - (VTIAX) - 0.11% 
(16.3%) Vanguard Total Bond Market Fund - (VBTLX) - 0.05% 

Her HSAs:
(1.06%) Keep cash to cover any medical expenses.

His HSA:
(3.43%) Vanguard Inflation-Protected Sec I I VIPIX - 0.07%

Taxable:
(16.7%) Publicly Traded Company Stock (Domestic)
(3.69%) Husband Fun Stock Fund (Domestic)
(1.06%) Cash

Other funds available in his HSA:
VIIIX VANG INST INDEX INSTL PLUS LARGE BLEND 0.02%
VBMPX VANG TOTAL BOND MARKET IDX INSTLPLS 0.03%
VIGIX VANG GROWTH INDEX INSTITUTIONAL 0.04%
VEMPX VANG EXTENDED MARKET INDEX INSTLPLUS 0.05%
VSMAX VANG SMALL CAP INDEX ADM 0.05%
VVIAX VANG VALUE INDEX ADM 0.05%
VTAPX VANG SHRT-TERM INFL-PROT SEC IDX ADM 0.06%
VSIAX VANG SMALL CAP VALUE INDEX ADMIRAL 0.07%
VTPSX VANG TOTAL INTL STOCK IDX INSTLPLS 0.07%
VBIRX VANG SHORT-TERM BOND INDEX ADM 0.07%
VMVAX VANG MID-CAP VALUE INDEX ADMIRAL 0.07%
VIPIX VANG INFLATION-PROTECTED SECS 0.07%
VEMIX VANG EMERGING MKTS STOCK IDX INSTL 0.10%
VMIAX VANG MATERIALS INDEX ADMIRAL 0.10%
VGSNX VANG REAL ESTATE INDEX INSTITUTIONAL 0.10%
VTABX VANG TOTAL INTL BD IDX ADMIRAL 0.11%
VTINX VANG TARGET RETIREMENT INCOME INV 0.12%
VTWNX VANG TARGET RETIREMENT 2020 INV 0.13%
VFORX VANG TARGET RETIREMENT 2040 INV 0.14%
VTHRX VANG TARGET RETIREMENT 2030 INV 0.14%
VTTSX VANG TARGET RETIREMENT 2060 INV 0.15%
VFIFX VANG TARGET RETIREMENT 2050 INV 0.15%
VWIAX VANG WELLESLEY INCOME ADMIRAL 0.16%



How did I do? And many thanks!

123
Posts: 5655
Joined: Fri Oct 12, 2012 3:55 pm

Re: 32-year-old female, portfolio help

Post by 123 » Thu Jan 30, 2020 5:09 pm

Living abroad can significantly impact your tax situation. https://www.irs.gov/pub/irs-pdf/p54.pdf

Normally you cannot contribute to a 529 plan for an unborn child since a social security number for a beneficiary is needed. You can get around this by opening a 529 in the name of one of the parents (any age) and then changing the account to the child beneficiary later. Changes of beneficiary must be within the same family.

A Coverdell account cannot be opened unless there is a beneficiary under the age of 30. If you can change the beneficiary on a Coverdell the new beneficiary must be a qualifying family member.

Foreign residency can be a major complication in determining how you may contribute to (USA) retirement accounts.

Foreign residency can limit your ability to hold some kinds of US securities. US brokerage firms are often unwilling to accommodate account holders who are not US residents due to the regulatory complications.
Last edited by 123 on Thu Jan 30, 2020 5:27 pm, edited 1 time in total.
The closest helping hand is at the end of your own arm.

ivk5
Posts: 1092
Joined: Thu Sep 22, 2016 9:05 am

Re: 32-year-old female, portfolio help

Post by ivk5 » Thu Jan 30, 2020 5:16 pm

Congrats- sounds like you're off to a great start, getting a good handle on things, and I'm sure others will be along to offer encouragement and advice. Couple things that jumped out at me:
scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
State of Residence: Living abroad for the next 2-5 years.
...
Tax Rate: Federal: These next few years, projected 12%. After ~2025, back at 24% dual income. State: N/A
...
  • Convert his+her 401k to Roth IRA while we have access to the FEIC to cover the minimal tax burden on the additional income.
Are you sure Foreign Earned Income Exclusion is better for your situation than claiming the Foreign Tax Credit? You haven't indicated what country you are a tax resident of or what you expect your tax burden to be there, so impossible for me to say, but it's not an uncommon mistake to suboptimize this.

If you claim the FEIE, make sure you understand how it works. As I understand it, the form calculates tax liability on two amounts: your taxable income without considering the exclusion, and tax on just the excluded income; you pay the difference. In effect, your excluded income is still counted for purposes of calculating tax on your un-excluded (US source) income such as Roth conversions - ie you have the same marginal rate for US-source income as if you were not taking the FEIE. This may make the conversion less advantageous.
scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
  • And if we get to the bottom of the list and still have additional money to invest (ha), use tax-efficient funds like Hi-Yield Bonds, Taxable Bonds, TIPS, REIT Stocks, etc. in taxable accounts. All of which I do not yet understand, but I'll keep reading.
You have this backwards. The asset classes you listed are tax-inefficient and generally not ideal for taxable accounts. In any case most would say you do not need High Yield (aka junk) Bonds, TIPS, or REIT Stocks, certainly not at this stage. Most would recommend you have at least a 20% allocation to intermediate term bonds, ideally in a tax-deferred account. Most would also generally NOT put bonds in Roth - can you see why?

Wiki: Tax-efficient fund placement

User avatar
Watty
Posts: 18731
Joined: Wed Oct 10, 2007 3:55 pm

Re: 32-year-old female, portfolio help

Post by Watty » Thu Jan 30, 2020 5:33 pm

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Reassess company stock. Should we be aiming for only 5-10% of our portfolio?
I would assume that is the company you work for.

That stock is likely also in your index funds so you likely have even more exposure to it. Your jobs and possibly stock options are also ties to that company's future if that is the company you work for.

It would be good to go try to go to 0% company stocks and stick with index funds unless there is some big tax issue with selling them now.

User avatar
Wiggums
Posts: 2857
Joined: Thu Jan 31, 2019 8:02 am

Re: 32-year-old female, portfolio help

Post by Wiggums » Thu Jan 30, 2020 5:39 pm

I’d pay off the student loan before starting 529, for future children. Same for coverdell.

For three fund portfolio, you don’t need all three in the Roth’s. You want funds that will growth in Roth. The defining feature of Roth accounts is that all growth in the account is tax free. Bonds can go in pre tax accounts.

Agree with Watty regarding company stock. I would not hold much. I held zero.

I don’t personally hold individual stocks any more.

Silence Dogood
Posts: 1312
Joined: Tue Feb 01, 2011 9:22 pm

Re: 32-year-old female, portfolio help

Post by Silence Dogood » Thu Jan 30, 2020 6:53 pm

I agree with both Watty and Wiggums regarding company stock.

Too risky, in my opinion.

offthetop
Posts: 93
Joined: Fri Feb 23, 2018 8:46 am

Re: 32-year-old female, portfolio help

Post by offthetop » Fri Jan 31, 2020 9:55 am

I feel company stock should be much less than what you currently hold as your job is also in that field. This makes you heavily weighted in the sector and if your company does poorly your stocks and income might also reflect that so it is a double whammy.

I am curious why at such a young age you want such a high bond allocation? If it is to feel safe thats one thing but long term that bond allocation I feel will hold you back quite a bit. Over the long run the market will do what it does and only as you age should you start increasing your bond holdings. I hold 95/5 stocks/bonds but at our age I wouldn't think twice about having more than 15% bonds.

I would hold off on a 529 until you have your debt under control. Be aware you will need to open it in your name until you have a SSN for your child in which at a later date you can change over to them. Unless you have unspecified children you cannot open a Coverdale plan according to the info I have read..

With the extra money I would max the Roth accounts and pay down the debt with high interest.

I would also reconsider the heavy bond allocation. Do some research in to the allocation and if you still feel you want to be that heavy in bonds for security than do so but I think that is way too heavy for such a young couple. Your international allocation is within range but get that company stock down as your jobs are already heavily weighted in that sector and should be considered as an investment.

Topic Author
scommander7
Posts: 12
Joined: Thu Jan 30, 2020 1:02 pm

Re: 32-year-old female, portfolio help

Post by scommander7 » Mon Feb 03, 2020 2:21 am

123 wrote:
Thu Jan 30, 2020 5:09 pm
Living abroad can significantly impact your tax situation. https://www.irs.gov/pub/irs-pdf/p54.pdf
Thanks for the link!
A Coverdell account cannot be opened unless there is a beneficiary under the age of 30. If you can change the beneficiary on a Coverdell the new beneficiary must be a qualifying family member.
Similarly, I think we'll be able to use a qualifying young nephew (under 18) whose parents aren't currently contributing and then change the social security number once we have a baby.
Foreign residency can be a major complication in determining how you may contribute to (USA) retirement accounts.

Foreign residency can limit your ability to hold some kinds of US securities. US brokerage firms are often unwilling to accommodate account holders who are not US residents due to the regulatory complications.

Yes it definitely seems that way. My understanding is we have to be sure not to exclude all our foreign earned income in order to contribute. In terms of securities, it seems as if we won't have any trouble as long as we continue keeping a U.S. residential address (non mail service). Though we'll definitely confirm with an international tax person to be sure. Thank you!

I'll be sure to update after we do our taxes this year in case anyone else is reading.

ivk5
Posts: 1092
Joined: Thu Sep 22, 2016 9:05 am

Re: 32-year-old female, portfolio help

Post by ivk5 » Mon Feb 03, 2020 3:06 am

scommander7 wrote:
Mon Feb 03, 2020 2:21 am
My understanding is we have to be sure not to exclude all our foreign earned income in order to contribute.
It doesn’t work that way unfortunately. The FEIE is all or nothing- you don’t get to choose how much to exclude.

This is a potential advantage of FTC over FEIE, depending on your effective tax rate in your country of residence. (Obviously if you are in a very low tax jurisdiction like some offshore island countries or some gulf countries, the FEIE may be superior since you may have little or no foreign tax eligible for the FTC.)

lexor
Posts: 789
Joined: Thu Feb 27, 2014 10:32 am

Re: 32-year-old female, portfolio help

Post by lexor » Mon Feb 03, 2020 4:44 am

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Hello all. Thank you for this incredibly helpful community. My husband and I just celebrated our first anniversary, and I’m trying to get a handle on our finances. I still have a long way to go, but I finally feel educated enough to not make a complete fool out of myself with this post. But we'll see! Please let me know if I’m on the right track and how to make smarter choices.

Emergency funds: Yes, 6 months.
Debt: $50,675 student loan; 6.550% interest. I know we should re-finance, but we’re waiting to see what happens in November. Paying at least the $2500 for the tax deduction. Otherwise we’ll pay off more aggressively on a 5-year fixed at 3.33%.
Tax Filing Status: (Married Filing Jointly)
State of Residence: Living abroad for the next 2-5 years.
Age: Both 32
Tax Rate: Federal: These next few years, projected 12%. After ~2025, back at 24% dual income. State: N/A
Desired Asset Allocation: 60% stocks / 40% bonds
Desired International Allocation: 20%

Portfolio size: mid 200k

Current Situation:

Her Roth IRA:
(9.3%) Fidelity Freedom Index 2055 Fund - FDEWX 0.12%

His 401k:
(18%) Vanguard Target Retirement 2050 Trust Fund - 0.06%

Her 401k:
(0.5%) FID Contrafund Pool - 0.58%
(0.33%) FID 500 INDEX FXAIX - 0.85%
(0.17%) WM Blair SMMIDCP GR - 0.02%
(0.17%) FID DIVSFD INTL POOL - 0.58%
(0.47%) Omnicom Stock Fund OMC - 0.00%

Her HSA:
(0.75%) FDIC-INSURED DEPOSIT SWEEP - CORE

His HSA:
(2.42%) Cash

Taxable:
(0.39%) COP
(0.21%) OXY
(0.16%) XOM
(11.85%) Publicly Traded Company Stock
(2.61%) Husband FUN Stock Fund

—————————————————————————————

We have around 90k outside of our emergency fund to invest. Based off all the insightful Wikis and previous threads, here’s my proposed plan of action for a revised portfolio...

New Contributions:
  • $12,000 in his+her Roth for 2019 and 2020 while we’re under the income limit (a portion of which we’ll use the sale of her small COP/OXY/XOM 2k taxable account).
  • Convert his+her 401k to Roth IRA while we have access to the FEIC to cover the minimal tax burden on the additional income.
  • Open up two 529s for future children. Don’t count this as part of retirement portfolio, but use a more aggressive AA (90/10/30?) and gradually adjust the allocations as they get closer to college age.
  • Contribute $2000 to a Coverdell for K-12 school supplies/books/equipment.
  • Put 50k in a CD for future house down payment/student loan payoff.
  • We have a side LLC Partnership, so open a Solo 401k (?) to house the majority of bond investments (via any side income) to make room for the higher-yield potential within the Roths.
  • Continue contributing $12k/year via backdoor Roth once our income limit surpasses the cap.
  • Reassess company stock. Should we be aiming for only 5-10% of our portfolio?
  • Re-balance portfolio annually based off desired asset allocation (via this link:https://www.bogleheads.org/wiki/Rebalancing).
  • When we get the opportunity to contribute again to an HSA/401k/etc, follow the funding priority here:https://www.bogleheads.org/wiki/Priorit ... nvestments
  • And if we get to the bottom of the list and still have additional money to invest (ha), use tax-efficient funds like Hi-Yield Bonds, Taxable Bonds, TIPS, REIT Stocks, etc. in taxable accounts. All of which I do not yet understand, but I'll keep reading.
Here’s my attempt at the new portfolio (minus any company stock changes)

Her Roth IRA:
(10.6%) Fidelity Total Market Index Fund FSKAX - 0.015%
(10.6%) Fidelity Total International Index Fund FTIHX - 0.060%
(20.8%) Fidelity U.S. Bond Index FXNAX - 0.025%

His [new] Roth IRA:
(7.5%) Vanguard Total Stock Market Index Fund - (VTSAX) - 0.04%
(9.5%) Vanguard Total International Stock Index Fund - (VTIAX) - 0.11% 
(16.3%) Vanguard Total Bond Market Fund - (VBTLX) - 0.05% 

Her HSAs:
(1.06%) Keep cash to cover any medical expenses.

His HSA:
(3.43%) Vanguard Inflation-Protected Sec I I VIPIX - 0.07%

Taxable:
(16.7%) Publicly Traded Company Stock (Domestic)
(3.69%) Husband Fun Stock Fund (Domestic)
(1.06%) Cash

Other funds available in his HSA:
VIIIX VANG INST INDEX INSTL PLUS LARGE BLEND 0.02%
VBMPX VANG TOTAL BOND MARKET IDX INSTLPLS 0.03%
VIGIX VANG GROWTH INDEX INSTITUTIONAL 0.04%
VEMPX VANG EXTENDED MARKET INDEX INSTLPLUS 0.05%
VSMAX VANG SMALL CAP INDEX ADM 0.05%
VVIAX VANG VALUE INDEX ADM 0.05%
VTAPX VANG SHRT-TERM INFL-PROT SEC IDX ADM 0.06%
VSIAX VANG SMALL CAP VALUE INDEX ADMIRAL 0.07%
VTPSX VANG TOTAL INTL STOCK IDX INSTLPLS 0.07%
VBIRX VANG SHORT-TERM BOND INDEX ADM 0.07%
VMVAX VANG MID-CAP VALUE INDEX ADMIRAL 0.07%
VIPIX VANG INFLATION-PROTECTED SECS 0.07%
VEMIX VANG EMERGING MKTS STOCK IDX INSTL 0.10%
VMIAX VANG MATERIALS INDEX ADMIRAL 0.10%
VGSNX VANG REAL ESTATE INDEX INSTITUTIONAL 0.10%
VTABX VANG TOTAL INTL BD IDX ADMIRAL 0.11%
VTINX VANG TARGET RETIREMENT INCOME INV 0.12%
VTWNX VANG TARGET RETIREMENT 2020 INV 0.13%
VFORX VANG TARGET RETIREMENT 2040 INV 0.14%
VTHRX VANG TARGET RETIREMENT 2030 INV 0.14%
VTTSX VANG TARGET RETIREMENT 2060 INV 0.15%
VFIFX VANG TARGET RETIREMENT 2050 INV 0.15%
VWIAX VANG WELLESLEY INCOME ADMIRAL 0.16%



How did I do? And many thanks!
I think you did well overall but I'd definitely lower the company stock and maybe lower the fun money. I'd let them total 5% together.

I wouldn't keep his HSA in such conservative investments. HSAs can be great growth tools due to their triple tax efficiency. I use a Fidelity HSA and pay absolutely no fees for a two fund stock portfolio and I use my HSA for growth rather than medical expenses now (you can keep records and take the money out at any time).

Why a Vanguard Roth when you already use Fidelity yourself and Fidelity is lower cost for essentially identical products?

For your taxable I'd ditch the individual stocks and use VTI or VUG. See my analysis here viewtopic.php?f=10&t=302611&p=4995352#p4995292
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -Mr. John C. Bogle

Topic Author
scommander7
Posts: 12
Joined: Thu Jan 30, 2020 1:02 pm

Re: 32-year-old female, portfolio help

Post by scommander7 » Mon Feb 03, 2020 8:18 am

ivk5 wrote:
Thu Jan 30, 2020 5:16 pm
Congrats- sounds like you're off to a great start, getting a good handle on things, and I'm sure others will be along to offer encouragement and advice.
It was like Christmas morning seeing all these thoughtful responses. Thank you for encouragement—especially because I started off as one of those idiots who didn't know I had to make actual investment elections after contributing to my Roth IRA for **years**. (Face, meet palm).
Are you sure Foreign Earned Income Exclusion is better for your situation than claiming the Foreign Tax Credit? You haven't indicated what country you are a tax resident of or what you expect your tax burden to be there, so impossible for me to say, but it's not an uncommon mistake to suboptimize this.

If you claim the FEIE, make sure you understand how it works. As I understand it, the form calculates tax liability on two amounts: your taxable income without considering the exclusion, and tax on just the excluded income; you pay the difference. In effect, your excluded income is still counted for purposes of calculating tax on your un-excluded (US source) income such as Roth conversions - ie you have the same marginal rate for US-source income as if you were not taking the FEIE. This may make the conversion less advantageous.
You're absolutely right. After reading more, I also learned that the FEIE is 105,900k per person (something you think I wouldn't have missed), but regardless, I think the FTC will be more advantageous for us, like you said. Fortunately we have an international tax team that is going to help us file this year. It's still important I have an understanding of how these things work because their main priority will be my husband's company and not us. Fingers crossed they can help with analysis re: the conversion, too. I'll be sure to get the U.S. accountant we trust to look things over before we file.
You have this backwards. The asset classes you listed are tax-inefficient and generally not ideal for taxable accounts. In any case most would say you do not need High Yield (aka junk) Bonds, TIPS, or REIT Stocks, certainly not at this stage. Most would recommend you have at least a 20% allocation to intermediate term bonds, ideally in a tax-deferred account. Most would also generally NOT put bonds in Roth - can you see why?

Wiki: Tax-efficient fund placement
Ah! Thank you. Yes, I think so. High-efficiency funds go in Roth because they grow more, and you won't have to pay taxes on that money. The intermediate bonds would go in the tax-deferred account (like his 401k), because although they're going to grow less, and even though we'll pay taxes on that money later, we'll end up with more money in the end.

So if we have the opportunity to convert all of his 401k to a Roth IRA for now... is it smarter to do the entire conversion and hold bonds within the Roths for now, waiting until we can contribute again to his 401k (later) or Solo 401k (now-ish) and allocating only bonds. Or should we keep some money in his 401k to hold the percentage of bonds, and only convert the difference?

Am I even using the right words?
Last edited by scommander7 on Mon Feb 03, 2020 9:33 am, edited 1 time in total.

Topic Author
scommander7
Posts: 12
Joined: Thu Jan 30, 2020 1:02 pm

Re: 32-year-old female, portfolio help

Post by scommander7 » Mon Feb 03, 2020 8:21 am

Watty wrote:
Thu Jan 30, 2020 5:33 pm
I would assume that is the company you work for.

That stock is likely also in your index funds so you likely have even more exposure to it. Your jobs and possibly stock options are also ties to that company's future if that is the company you work for.

It would be good to go try to go to 0% company stocks and stick with index funds unless there is some big tax issue with selling them now.
Yep, it's the company he works for. Thanks Watty! We're on board with the 0% goal.

Topic Author
scommander7
Posts: 12
Joined: Thu Jan 30, 2020 1:02 pm

Re: 32-year-old female, portfolio help

Post by scommander7 » Mon Feb 03, 2020 8:22 am

Wiggums wrote:
Thu Jan 30, 2020 5:39 pm
I’d pay off the student loan before starting 529, for future children. Same for coverdell.

For three fund portfolio, you don’t need all three in the Roth’s. You want funds that will growth in Roth. The defining feature of Roth accounts is that all growth in the account is tax free. Bonds can go in pre tax accounts.

Agree with Watty regarding company stock. I would not hold much. I held zero.

I don’t personally hold individual stocks any more.
Thanks, Wiggums. <3 Learning lots.

livesoft
Posts: 70117
Joined: Thu Mar 01, 2007 8:00 pm

Re: 32-year-old female, portfolio help

Post by livesoft » Mon Feb 03, 2020 8:27 am

Wiggums wrote:
Thu Jan 30, 2020 5:39 pm
....You want funds that will growth in Roth. The defining feature of Roth accounts is that all growth in the account is tax free. ....
But one can also write that one doesn't want funds that will lose money in Roth or HSA. :twisted:

The reality is that some things are more nuanced than they appear to be.
Wiki This signature message sponsored by sscritic: Learn to fish.

Topic Author
scommander7
Posts: 12
Joined: Thu Jan 30, 2020 1:02 pm

Re: 32-year-old female, portfolio help

Post by scommander7 » Mon Feb 03, 2020 8:46 am

lexor wrote:
Mon Feb 03, 2020 4:44 am
I think you did well overall but I'd definitely lower the company stock and maybe lower the fun money. I'd let them total 5% together.
Thank you! Roger that.

I wouldn't keep his HSA in such conservative investments. HSAs can be great growth tools due to their triple tax efficiency. I use a Fidelity HSA and pay absolutely no fees for a two fund stock portfolio and I use my HSA for growth rather than medical expenses now (you can keep records and take the money out at any time).
What do we for bonds if all we have are Roth IRAs, HSAs, and the taxable account for his 5% fun money?
Why a Vanguard Roth when you already use Fidelity yourself and Fidelity is lower cost for essentially identical products?
Because his money is already in Vanguard and they still use our U.S. residence, I thought it might be smarter to not change institutions with all the worry about investment issues for people living abroad. He'll probably be at the same company for at least a year when we move back, and his 401k will be offered through them, too. But you're totally right, we don't want to overpay, especially given I haven't had any bad experiences at Fidelity.

Thanks very much for your thoughts.

lexor
Posts: 789
Joined: Thu Feb 27, 2014 10:32 am

Re: 32-year-old female, portfolio help

Post by lexor » Mon Feb 03, 2020 9:57 am

scommander7 wrote:
Mon Feb 03, 2020 8:46 am
lexor wrote:
Mon Feb 03, 2020 4:44 am
I think you did well overall but I'd definitely lower the company stock and maybe lower the fun money. I'd let them total 5% together.
Thank you! Roger that.

I wouldn't keep his HSA in such conservative investments. HSAs can be great growth tools due to their triple tax efficiency. I use a Fidelity HSA and pay absolutely no fees for a two fund stock portfolio and I use my HSA for growth rather than medical expenses now (you can keep records and take the money out at any time).
What do we for bonds if all we have are Roth IRAs, HSAs, and the taxable account for his 5% fun money?
Sorry can you rephrase? Not sure I follow.

Edit: is this what you meant? The HSA could go in something like Fidelity US Bond Index Fund (FXNAX). Tho you should try to keep stocks in Roth accounts over traditional accounts. And HSA acts like a Roth, but that's not always possible. Proper asset allocation comes first.
scommander7 wrote:
Mon Feb 03, 2020 8:46 am
Why a Vanguard Roth when you already use Fidelity yourself and Fidelity is lower cost for essentially identical products?
Because his money is already in Vanguard and they still use our U.S. residence, I thought it might be smarter to not change institutions with all the worry about investment issues for people living abroad. He'll probably be at the same company for at least a year when we move back, and his 401k will be offered through them, too. But you're totally right, we don't want to overpay, especially given I haven't had any bad experiences at Fidelity.

Thanks very much for your thoughts.
You should call or message Fidelity support I'm not familiar with foreign rules, other than I know IB is one of the only brokers that many expats can use.
Last edited by lexor on Fri Feb 07, 2020 1:23 pm, edited 1 time in total.
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -Mr. John C. Bogle

jt4
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Re: 32-year-old female, portfolio help

Post by jt4 » Mon Feb 03, 2020 10:41 am

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm

Debt: $50,675 student loan; 6.550% interest. I know we should re-finance, but we’re waiting to see what happens in November. Paying at least the $2500 for the tax deduction. Otherwise we’ll pay off more aggressively on a 5-year fixed at 3.33%.
scommander7 —

Looks like you've taken a thoughtful approach to your investing. I agree with the comments about lowering your exposure to company stock...

BUT, the most obvious thing I would do is pay down your student loan, given that you have 90K to invest in excess of your emergency fund. You should view paying down you loan as investing in an asset with a guaranteed 6.55% return. I would gladly invest in such an asset!

[For those who want to nitpick: the effective return will be slightly lower than 6.55% (at 5.76% = 6.55%*(1-0.12 fed tax rate)) since you can deduct educational loan interest income from your federal taxes.]

Since you're planning to invest in bond funds, view it from this perspective: it doesn't make sense to take out a loan at a high rate (6.55% for your student loan) and then make a loan to a company (bond) or bank (CD) at a lower rate (~2.3% or less as of 2/2020).

I suggest paying off your student loan as quickly as you can (while maintaining any employer-matched contributions in your tax-advantaged accounts). This has the added psychological benefit of finally being out of debt.

lexor
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Re: 32-year-old female, portfolio help

Post by lexor » Mon Feb 03, 2020 10:44 am

jt4 wrote:
Mon Feb 03, 2020 10:41 am
scommander7 wrote:
Thu Jan 30, 2020 4:49 pm

Debt: $50,675 student loan; 6.550% interest. I know we should re-finance, but we’re waiting to see what happens in November. Paying at least the $2500 for the tax deduction. Otherwise we’ll pay off more aggressively on a 5-year fixed at 3.33%.
scommander7 —

Looks like you've taken a thoughtful approach to your investing. I agree with the comments about lowering your exposure to company stock...

BUT, the most obvious thing I would do is pay down your student loan, given that you have 90K to invest in excess of your emergency fund. You should view paying down you loan as investing in an asset with a guaranteed 6.55% return. I would gladly invest in such an asset!

[For those who want to nitpick: the effective return will be slightly lower than 6.55% (at 5.76% = 6.55%*(1-0.12 fed tax rate)) since you can deduct educational loan interest income from your federal taxes.]

Since you're planning to invest in bond funds, view it from this perspective: it doesn't make sense to take out a loan at a high rate (6.55% for your student loan) and then make a loan to a company (bond) or bank (CD) at a lower rate (~2.3% or less as of 2/2020).

I suggest paying off your student loan as quickly as you can (while maintaining any employer-matched contributions in your tax-advantaged accounts). This has the added psychological benefit of finally being out of debt.
This is good advice. Sorry I missed that
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -Mr. John C. Bogle

Stormbringer
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Re: 32-year-old female, portfolio help

Post by Stormbringer » Mon Feb 03, 2020 10:52 am

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Desired Asset Allocation: 60% stocks / 40% bonds
That is a very conservative asset allocation for your age, similar to what a couple in their 50's and approaching retirement might have. Some keep that AA throughout retirement. If you use John Bogles "age in bonds" rule of thumb (which is already fairly conservative) you would be closer to 70/30.

The problem with that AA at your age is that it is probable, due to the equity risk premium, that you will have less money in retirement than you would with a more aggressive allocation. A conservative allocation will give you less volatility along the way, but at a cost of lower expected returns over time.
"Compound interest is the most powerful force in the universe." - Albert Einstein

jt4
Posts: 49
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Re: 32-year-old female, portfolio help

Post by jt4 » Mon Feb 03, 2020 10:53 am

Stormbringer wrote:
Mon Feb 03, 2020 10:52 am
scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Desired Asset Allocation: 60% stocks / 40% bonds
That is a very conservative asset allocation for your age, similar to what a couple in their 50's and approaching retirement might have. Some keep that AA throughout retirement. If you use John Bogles "age in bonds" rule of thumb (which is already fairly conservative) you would be at about 70/30.

The problem with that AA at your age is that it is probable, due to the equity risk premium, that you will have less money in retirement than you would with a more aggressive allocation. A conservative allocation will give you less volatility along the way, but at a cost of lower expected returns over time.
^^^Yes, and given your conservative outlook, it makes sense to pay off debt first! :D

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ruralavalon
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Re: 32-year-old female, portfolio help

Post by ruralavalon » Mon Feb 03, 2020 12:11 pm

Welcome to the forum :) .

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Age: Both 32
. . . . .
Desired Asset Allocation: 60% stocks / 40% bonds
Desired International Allocation: 20%
This is a very conservative asset allocation for your age in my opinion.

At age 32 I suggest about 20% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification".

In my opinion 20% of stocks in international stocks is within the range of what is reasonable. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit. (p. 6)


scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Debt: $50,675 student loan; 6.550% interest. I know we should re-finance, but we’re waiting to see what happens in November. Paying at least the $2500 for the tax deduction. Otherwise we’ll pay off more aggressively on a 5-year fixed at 3.33%.
. . . . .
We have around 90k outside of our emergency fund to invest.
I suggest that you pay off your $51k student debt at 6.55% interest as your first priority for that extra $90k.

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Her HSAs:
(1.06%) Keep cash to cover any medical expenses.

His HSA:
(3.43%) Vanguard Inflation-Protected Sec I I VIPIX - 0.07%
I would not hold TIPS in his HSA. At age 32 I see no real benefit to TIPS, especially inside a HSA.

Instead use a very diversified stock index fund. The better choice in my opinion is Vanguard Institutional Index Fund Institutional Plus Shares (S&P 500 index fund, covers 82% of U.S. stock market) (VIIIX) ER 0.02%.

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Taxable:
(16.7%) Publicly Traded Company Stock (Domestic)
(3.69%) Husband Fun Stock Fund (Domestic)
(1.06%) Cash
I suggest eliminating or very significantly reducing the company stock. 17% of portfolio in company stock is very risky in my opinion.

Instead use a broadly diversified stock index fund such as Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) or the ETF version Vanguard Total Stock Market ETF (VTI).


scommander7 wrote:
Mon Feb 03, 2020 8:46 am
What do we for bonds if all we have are Roth IRAs, HSAs, and the taxable account for his 5% fun money?
Put the bond allocation in the Roth IRAs. Bonds should be in a tax-advantaged account.

Even though a tax-deferred account would be preferred, it's still better to use a Roth IRA rather than any other account you will have.

scommander7 wrote:
Mon Feb 03, 2020 8:46 am
Because his money is already in Vanguard and they still use our U.S. residence, I thought it might be smarter to not change institutions with all the worry about investment issues for people living abroad. He'll probably be at the same company for at least a year when we move back, and his 401k will be offered through them, too. But you're totally right, we don't want to overpay, especially given I haven't had any bad experiences at Fidelity.
I agree that it's better to have his Roth IRA at Vanguard at least while you are overseas, if not permanently.

The expense difference between Vanguard and Fidelity total market funds is tiny, and the funds use different but very similar indexes. Even over the over the long-term the tiny difference in expense ratio may (or may not) be outweighed by the small differences in: (1) the indexes used; (2) performance; (3) turnover rate; (4) tracking error, etc. compare VTSAX, FSKAX.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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scommander7
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Re: 32-year-old female, portfolio help

Post by scommander7 » Fri Feb 07, 2020 12:35 pm

jt4 wrote:
Mon Feb 03, 2020 10:41 am
BUT, the most obvious thing I would do is pay down your student loan, given that you have 90K to invest in excess of your emergency fund. You should view paying down you loan as investing in an asset with a guaranteed 6.55% return. I would gladly invest in such an asset!
Thanks very much for your thoughtful reply. Do you think it instead makes more sense to pay off a portion of the loan (given that there's a small, but slight chance the country might be headed toward partial debt forgiveness?)

Maybe get the other portion refinanced at 3.3% and pay it off more slowly (knowing we'll still be able to include the interest deduction), but earning slightly more longterm by investing instead?

Topic Author
scommander7
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Re: 32-year-old female, portfolio help

Post by scommander7 » Fri Feb 07, 2020 12:41 pm

Stormbringer wrote:
Mon Feb 03, 2020 10:52 am
scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Desired Asset Allocation: 60% stocks / 40% bonds
That is a very conservative asset allocation for your age, similar to what a couple in their 50's and approaching retirement might have. Some keep that AA throughout retirement. If you use John Bogles "age in bonds" rule of thumb (which is already fairly conservative) you would be closer to 70/30.

The problem with that AA at your age is that it is probable, due to the equity risk premium, that you will have less money in retirement than you would with a more aggressive allocation. A conservative allocation will give you less volatility along the way, but at a cost of lower expected returns over time.
Thanks for chiming in! I originally wanted to allocate 90/10 based off the majority of people around our age in the forum, but my very risk-averse husband needed the links, graphs, and research you all have thoughtfully included to change his mind.

We're going to 80/20 it now, I think.

Topic Author
scommander7
Posts: 12
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Re: 32-year-old female, portfolio help

Post by scommander7 » Fri Feb 07, 2020 12:47 pm

ruralavalon wrote:
Mon Feb 03, 2020 12:11 pm
Welcome to the forum :) .

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Age: Both 32
. . . . .
Desired Asset Allocation: 60% stocks / 40% bonds
Desired International Allocation: 20%
This is a very conservative asset allocation for your age in my opinion.

At age 32 I suggest about 20% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification".

In my opinion 20% of stocks in international stocks is within the range of what is reasonable. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit. (p. 6)


scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Debt: $50,675 student loan; 6.550% interest. I know we should re-finance, but we’re waiting to see what happens in November. Paying at least the $2500 for the tax deduction. Otherwise we’ll pay off more aggressively on a 5-year fixed at 3.33%.
. . . . .
We have around 90k outside of our emergency fund to invest.
I suggest that you pay off your $51k student debt at 6.55% interest as your first priority for that extra $90k.

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Her HSAs:
(1.06%) Keep cash to cover any medical expenses.

His HSA:
(3.43%) Vanguard Inflation-Protected Sec I I VIPIX - 0.07%
I would not hold TIPS in his HSA. At age 32 I see no real benefit to TIPS, especially inside a HSA.

Instead use a very diversified stock index fund. The better choice in my opinion is Vanguard Institutional Index Fund Institutional Plus Shares (S&P 500 index fund, covers 82% of U.S. stock market) (VIIIX) ER 0.02%.

scommander7 wrote:
Thu Jan 30, 2020 4:49 pm
Taxable:
(16.7%) Publicly Traded Company Stock (Domestic)
(3.69%) Husband Fun Stock Fund (Domestic)
(1.06%) Cash
I suggest eliminating or very significantly reducing the company stock. 17% of portfolio in company stock is very risky in my opinion.

Instead use a broadly diversified stock index fund such as Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) or the ETF version Vanguard Total Stock Market ETF (VTI).


scommander7 wrote:
Mon Feb 03, 2020 8:46 am
What do we for bonds if all we have are Roth IRAs, HSAs, and the taxable account for his 5% fun money?
Put the bond allocation in the Roth IRAs. Bonds should be in a tax-advantaged account.

Even though a tax-deferred account would be preferred, it's still better to use a Roth IRA rather than any other account you will have.

scommander7 wrote:
Mon Feb 03, 2020 8:46 am
Because his money is already in Vanguard and they still use our U.S. residence, I thought it might be smarter to not change institutions with all the worry about investment issues for people living abroad. He'll probably be at the same company for at least a year when we move back, and his 401k will be offered through them, too. But you're totally right, we don't want to overpay, especially given I haven't had any bad experiences at Fidelity.
I agree that it's better to have his Roth IRA at Vanguard at least while you are overseas, if not permanently.

The expense difference between Vanguard and Fidelity total market funds is tiny, and the funds use different but very similar indexes. Even over the over the long-term the tiny difference in expense ratio may (or may not) be outweighed by the small differences in: (1) the indexes used; (2) performance; (3) turnover rate; (4) tracking error, etc. compare VTSAX, FSKAX.
Ruralavalon—I know it's not a competition, but your reply was my favorite.

Thanks for the very clear, helpful, and justified responses. This forum blows my mind.

jt4
Posts: 49
Joined: Wed Feb 06, 2019 5:13 pm

Re: 32-year-old female, portfolio help

Post by jt4 » Fri Feb 07, 2020 1:27 pm

scommander7 wrote:
Fri Feb 07, 2020 12:47 pm
Ruralavalon—I know it's not a competition, but your reply was my favorite.

Thanks for the very clear, helpful, and justified responses. This forum blows my mind.
Sad that I lost the competition. :(
scommander7 wrote:
Fri Feb 07, 2020 12:35 pm
jt4 wrote:
Mon Feb 03, 2020 10:41 am
BUT, the most obvious thing I would do is pay down your student loan, given that you have 90K to invest in excess of your emergency fund. You should view paying down you loan as investing in an asset with a guaranteed 6.55% return. I would gladly invest in such an asset!
Thanks very much for your thoughtful reply. Do you think it instead makes more sense to pay off a portion of the loan (given that there's a small, but slight chance the country might be headed toward partial debt forgiveness?)

Maybe get the other portion refinanced at 3.3% and pay it off more slowly (knowing we'll still be able to include the interest deduction), but earning slightly more longterm by investing instead?
With all of these things, we can't predict the future. Debt forgiveness seems a long way off if it ever happens. The student loan interest deduction is minor — it only saves you 12% (given your tax bracket) of the loan interest that you paid (not the principal!).

Regarding refinancing your student loan — you'd still be in a position where you're borrowing student loan money at a refinanced rate of ~3.3% and then lending money through bonds at ~2.14% (current SEC yield for BND, Vanguard Total Bond Market). To me, that makes no sense given that you have money available and you're contributing to your retirement accounts. --> And wouldn't it feel good to be done with that debt?! <--

Topic Author
scommander7
Posts: 12
Joined: Thu Jan 30, 2020 1:02 pm

Re: 32-year-old female, portfolio help

Post by scommander7 » Thu Feb 13, 2020 10:19 am

Sad that I lost the competition. :(
Favorites are dumb anyway. Everyone's time is valuable and very much appreciated.
Regarding refinancing your student loan — you'd still be in a position where you're borrowing student loan money at a refinanced rate of ~3.3% and then lending money through bonds at ~2.14% (current SEC yield for BND, Vanguard Total Bond Market). To me, that makes no sense given that you have money available and you're contributing to your retirement accounts. --> And wouldn't it feel good to be done with that debt?! <--
Thank you for helping me shift my mindset.

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