Late 30s- Portfolio Review

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Topic Author
LillyA
Posts: 7
Joined: Tue Sep 15, 2020 12:53 am

Late 30s- Portfolio Review

Post by LillyA »

Hello all,

I have been lurking and learning on this board for a few months now. I would greatly appreciate your feedback on my current portfolio, specifically on the funds available to me on my company 401k. The ones I've chosen are the lowest ER. I also read I should have 80/20 S&P 500 and Extended Market, so I figured this split works for me.

As background, my career has been going extremely well resulting in my income doubling over the past few years, which now means I actually have extra money to max out retirement accounts, and possibly even think of an early retirement, if I can stay on track.

I also want to thank you all for writing such detailed and informative posts and replies on the Megabackdoor topic. This is the second year I am maxing out my 401k, and I just finished setting up automatic after-tax contributions and Roth in-plan conversion with Fidelity, which will start on my next paycheck. I never would've even considered doing this without all the great info on this board.
I also plan to fund my first ever backdoor Roth this year as well.

Anyway, here are my details in the requested format:

Emergency funds: 4 months expenses - $20K, in my credit union HYSA.

Debt: Mortgage @ 4.125%, 18 years left. Car loan @ 0.9%- $19K balance. No CC debt (But this is recent. I paid down a significant CC and student loan balance over the past few years prior to 2020, hence all the extra money I now have for catching up on retirement accounts)

Tax Filing Status: Single, no kids.

Tax Rate: 35% Federal, 9.3% State (I've been at 32% federal for the past few years, this year will move to 35%)

State of Residence: CA

Age: 39

Desired Asset allocation: 90% stocks / 10% bonds (I think? I'm currently 100% stocks in my 401k and HSA, but I'm aware I should address this, hence my question here)
Desired International allocation: Not sure?

My current portfolio is around $262,000. $11K of that is invested in my Health Equity HSA, the rest in my Fidelity 401k

Current retirement assets

401k
~$251,000
78% VANG INST INDEX PLUS (VIIIX) ER 0.02%
18% FID EXTD MKT IDX (FSMAX) ER 0.036%
Company match: 100% up to $15K

HSA at Health Equity
$11,100
4% Equally divided into VIGIX (0.04), VEMPX (ER 0.04), and VIIIX (ER 0.04)


Contributions

New annual Contributions
$44,500 to 401k (19,500 + 15,000 match + ~10,000 for Megabackdoor Roth)
$6,000 Roth IRA


Available funds

Funds available in Fidelity 401(k)

FID GROWTH CO POOL 0.43%
TRP BLUE CHIP GR T2. 0.45%
VANG INST INDEX PLUS (VIIIX) 0.02%
VANG EQUITY INC ADM (VEIRX) 0.18%
FID EXTD MKT IDX (FSMAX) 0.036%
FID LOW PR STK POOL 0.48%
ABF SM CAP VALUE R6 (AASRX). 0.8%
FID DIVSFD INTL POOL 0.58%
TMPL INST FRGN SM CO (TFSCX) 1.03%
DFA REAL EST SEC I (DFREX). 0.2%
FID TOTAL BOND K6 (FTKFX). 0.3%
VANG INFL PROT INST (VIPIX). 0.07%
VANG TOT BD MKT INST (VBTIX). 0.035%
MIP II CL 4 - Stable Value - 0.32%


Questions:

1. Any recommendations for how to invest my new Vanguard Roth money starting this year? VTSAX and forget it? Bonds? I keep reading so much on this topic, and I'm sure for the size of my portfolio maybe it doesn't make a difference, but I'd like input, please :). The Roth IRA will be at Vanguard.

2. Am I selecting the best 401k funds from those available? I just chose based on lowest ER, but does that make sense? And in terms of allocation, I am basically 100% stocks mostly due to analysis paralysis, and because I haven't really spent the time to make a decision on allocation and which funds to choose. I expect to be at my current Megacorp for a long time to come and with their $15K annual match, my company 401k will be the biggest chunk of my retirement accounts, so I need to get it right, I guess.

And of course, any other feedback or advice in addition to my questions is welcome.

Thank you!
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dogagility
Posts: 1046
Joined: Fri Feb 24, 2017 6:41 am

Re: Late 30s- Portfolio Review

Post by dogagility »

Welcome to the forum, Lilly. You're doing great!
LillyA wrote: Tue Sep 15, 2020 2:29 am 1. Any recommendations for how to invest my new Vanguard Roth money starting this year? VTSAX and forget it? Bonds? I keep reading so much on this topic, and I'm sure for the size of my portfolio maybe it doesn't make a difference, but I'd like input, please :). The Roth IRA will be at Vanguard.
100% stock asset allocation is fine for your age as long as you can withstand panic selling during market downturns. When you are about 10 years out from tapping the money, then you should consider a fixed income allocation.

Yes, VTSAX and forget it. Good plan.
LillyA wrote: Tue Sep 15, 2020 2:29 am 2. Am I selecting the best 401k funds from those available? I just chose based on lowest ER, but does that make sense? And in terms of allocation, I am basically 100% stocks mostly due to analysis paralysis, and because I haven't really spent the time to make a decision on allocation and which funds to choose. I expect to be at my current Megacorp for a long time to come and with their $15K annual match, my company 401k will be the biggest chunk of my retirement accounts, so I need to get it right, I guess.
Yes, you have selected the best 401k funds. The best predictor of returns is a lower ER.

I assume you are not eligible for a tax deduction in your IRA because of your income? If you are eligible, then I would suggest investing in the Traditional version rather than the Roth version.

You didn't ask about this, but you can likely get a lower mortgage rate than your current one. If you plan to stay put for a few years, I suggest looking into mortgage refinancing.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
lakpr
Posts: 5974
Joined: Fri Mar 18, 2011 9:59 am

Re: Late 30s- Portfolio Review

Post by lakpr »

For very high earners, it was shown that it's mathematically better to hold the bonds in taxable (because of low yields), and stocks in tax-advantaged (Roth and 401k plans) accounts. Since you are in California, it may be better if you direct your bond holdings into Vanguard California Tax Exempt municipal bonds in taxable account.

As another poster said, 4.125% rate on a mortgage in this day and age, is almost criminal. With 18 years left on the mortgage, refinance to a 15 year mortgage, and you will be able to get 2.5% or thereabouts if the balance being refinanced is conforming (up to $700k in California in certain counties). If your mortgage balance is higher than this, paying down the mortgage will be an indirect form of bond investment, with higher rate of return than what you can get elsewhere.
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Duckie
Posts: 7533
Joined: Thu Mar 08, 2007 2:55 pm

Re: Late 30s- Portfolio Review

Post by Duckie »

LillyA wrote:Age: 39

Desired Asset allocation: 90% stocks / 10% bonds (I think? I'm currently 100% stocks in my 401k and HSA, but I'm aware I should address this, hence my question here)
10% bonds is a little light at your age but not unreasonable. Put them in your 401k.
Desired International allocation: Not sure?
Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks. Others on the board recommend between 0% and 50% of stocks.
HSA at Health Equity
$11,100
4% Equally divided into VIGIX (0.04), VEMPX (ER 0.04), and VIIIX (ER 0.04)
I see no point in all three. I'd go with just VIIIX.

Are you aware that California taxes HSAs as if they were a standard taxable account? This includes dividends and capital gains from selling. Does your HSA plan offer a treasury fund? Treasury funds are not state taxed and since this is an HSA they are not federally taxed, either.
Funds available in Fidelity 401(k)
The best options are:
  • VANG INST INDEX PLUS (VIIIX) 0.02% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.036% -- Mid/small caps, 20% of US stocks
  • VANG TOT BD MKT INST (VBTIX). 0.035% -- US bonds
Any recommendations for how to invest my new Vanguard Roth money starting this year? VTSAX and forget it? Bonds? I keep reading so much on this topic, and I'm sure for the size of my portfolio maybe it doesn't make a difference, but I'd like input, please :). The Roth IRA will be at Vanguard.
Since your 401k does not offer a good international stock option, if you want international stocks you will need to put them in your Roth IRA. VTIAX is a good choice.
Am I selecting the best 401k funds from those available?
See above.
I just chose based on lowest ER, but does that make sense?
Bogleheads always look at the expense ratio first. Sometimes you may be stuck with something expensive but at least you know it.
Topic Author
LillyA
Posts: 7
Joined: Tue Sep 15, 2020 12:53 am

Re: Late 30s- Portfolio Review

Post by LillyA »

@ Duckie:

Thank you for your comments and suggestions! A few replies:

401K: Understood on the bonds allocation in my 401k. I will consider moving to 10% VBTIX.

Roth IRA: Makes sense to have a % of int. stock in IRA along with VTSAX.

HSA: The funds available are all Vanguard, and are below. I think only VTAPX is a treasury fund.

VBIRX - VANGUARD SHORT-TERM BOND INDEX ADM
VBMPX - VANGUARD TOTAL BOND MARKET IDX INSTLPLS
VEMIX - VANGUARD EMERGING MKTS STOCK IDX INSTL
VEMPX - VANGUARD EXTENDED MARKET INDEX INSTLPLUS
VGSNX - VANGUARD REAL ESTATE INDEX INSTITUTIONAL
VIGIX - VANGUARD GROWTH INDEX INSTITUTIONAL
VIIIX - VANGUARD INST INDEX INSTL PLUS
VIPIX - VANGUARD INFLATION-PROTECTED SECS I
VMIAX - VANGUARD MATERIALS INDEX ADMIRAL
VMVAX - VANGUARD MID-CAP VALUE INDEX ADMIRAL
VSIAX- VANGUARD SMALL CAP VALUE INDEX ADMIRAL
VSMAX - VANGUARD SMALL CAP INDEX ADM
VTABX - VANGUARD TOTAL INTL BD IDX ADMIRAL
VTAPX - VANGUARD SHRT-TERM INFL-PROT SEC IDX ADM
VTPSX- VANGUARD TOTAL INTL STOCK IDX INSTLPLS
VVIAX - VANGUARD VALUE INDEX ADM
VWIAX - VANGUARD WELLESLEY INCOME ADMIRAL
Topic Author
LillyA
Posts: 7
Joined: Tue Sep 15, 2020 12:53 am

Re: Late 30s- Portfolio Review

Post by LillyA »

lakpr wrote: Tue Sep 15, 2020 10:39 am For very high earners, it was shown that it's mathematically better to hold the bonds in taxable (because of low yields), and stocks in tax-advantaged (Roth and 401k plans) accounts. Since you are in California, it may be better if you direct your bond holdings into Vanguard California Tax Exempt municipal bonds in taxable account.

As another poster said, 4.125% rate on a mortgage in this day and age, is almost criminal. With 18 years left on the mortgage, refinance to a 15 year mortgage, and you will be able to get 2.5% or thereabouts if the balance being refinanced is conforming (up to $700k in California in certain counties). If your mortgage balance is higher than this, paying down the mortgage will be an indirect form of bond investment, with higher rate of return than what you can get elsewhere.
Thanks for your reply!

I think once I max out the $22.5K in after-tax contributions I'm allowed (only doing $10K for MBR this year), I'll have to move money into a taxable account, and have been reading about municipal bonds for this. It's definitely on my list.

Mortgage: Yes, my mortgage is under $700K in SD county. I've been holding off on refinancing because I would like to move to a single story home in the next 1-2 years, and keep my current home rented. Just been waiting for the housing market to come down some.
I expect a large bonus/RSUs chunk of money next year, which I could use as downpayment for my forever home.
Topic Author
LillyA
Posts: 7
Joined: Tue Sep 15, 2020 12:53 am

Re: Late 30s- Portfolio Review

Post by LillyA »

dogagility wrote: Tue Sep 15, 2020 5:21 am Welcome to the forum, Lilly. You're doing great!

Thank you!
LillyA wrote: Tue Sep 15, 2020 2:29 am 1. Any recommendations for how to invest my new Vanguard Roth money starting this year? VTSAX and forget it? Bonds? I keep reading so much on this topic, and I'm sure for the size of my portfolio maybe it doesn't make a difference, but I'd like input, please :). The Roth IRA will be at Vanguard.
100% stock asset allocation is fine for your age as long as you can withstand panic selling during market downturns. When you are about 10 years out from tapping the money, then you should consider a fixed income allocation.

Yes, VTSAX and forget it. Good plan.

I really haven't been worried about 100% stocks up until now. I was in my late 20s during the Great Recession and I didn't even look at my 401k once, and this past March when we had the big drop, it also did not occur to me to move money around. But I probably will move a small percentage to bonds in my 401k. Just in case :happy
LillyA wrote: Tue Sep 15, 2020 2:29 am 2. Am I selecting the best 401k funds from those available? I just chose based on lowest ER, but does that make sense? And in terms of allocation, I am basically 100% stocks mostly due to analysis paralysis, and because I haven't really spent the time to make a decision on allocation and which funds to choose. I expect to be at my current Megacorp for a long time to come and with their $15K annual match, my company 401k will be the biggest chunk of my retirement accounts, so I need to get it right, I guess.
Yes, you have selected the best 401k funds. The best predictor of returns is a lower ER.

I assume you are not eligible for a tax deduction in your IRA because of your income? If you are eligible, then I would suggest investing in the Traditional version rather than the Roth version.

Not eligible, unfortunately.

You didn't ask about this, but you can likely get a lower mortgage rate than your current one. If you plan to stay put for a few years, I suggest looking into mortgage refinancing.

Planning to buy a second house in the next couple of years, if the market comes down some. I'd like a single story house to retire in eventually. Planning to keep my current home and rent it, as the mortgage payment is much lower than what it'll rent for in my neighborhood.
lakpr
Posts: 5974
Joined: Fri Mar 18, 2011 9:59 am

Re: Late 30s- Portfolio Review

Post by lakpr »

LillyA wrote: Tue Sep 15, 2020 10:53 pm Mortgage: Yes, my mortgage is under $700K in SD county. I've been holding off on refinancing because I would like to move to a single story home in the next 1-2 years, and keep my current home rented. Just been waiting for the housing market to come down some.
I expect a large bonus/RSUs chunk of money next year, which I could use as downpayment for my forever home.
I am not sure why refinancing the existing mortgage would be a hindrance in you saving the down-payment for the new home. At most you will incur some closing costs, say $3k to $5k. On a $700k home, that's less than 1% of the mortgage balance. You will be able to save for the down payment on your next home faster. There are even true no-cost refinance rates available at slightly higher rates (2.875% to 3% for 15 years). Even those would be a massive improvement on the monthly mortgage outflow.

I'd urge you to really give a serious thought about being a landlord. With Covid-19, you may have seen that many tenants have not been able to pay the rent, and the government decreed that tenants can skip the rent payment up to 3 months and landlords may not evict them. Would you really want to bring on such headaches on yourself, when your primary job is (clearly) much more lucrative?
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Duckie
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Joined: Thu Mar 08, 2007 2:55 pm

Re: Late 30s- Portfolio Review

Post by Duckie »

LillyA wrote:HSA: The funds available are all Vanguard, and are below. I think only VTAPX is a treasury fund.
Both VTAPX and VIPIX qualify.
Topic Author
LillyA
Posts: 7
Joined: Tue Sep 15, 2020 12:53 am

Re: Late 30s- Portfolio Review

Post by LillyA »

lakpr wrote: Wed Sep 16, 2020 3:55 am
LillyA wrote: Tue Sep 15, 2020 10:53 pm Mortgage: Yes, my mortgage is under $700K in SD county. I've been holding off on refinancing because I would like to move to a single story home in the next 1-2 years, and keep my current home rented. Just been waiting for the housing market to come down some.
I expect a large bonus/RSUs chunk of money next year, which I could use as downpayment for my forever home.
I am not sure why refinancing the existing mortgage would be a hindrance in you saving the down-payment for the new home. At most you will incur some closing costs, say $3k to $5k. On a $700k home, that's less than 1% of the mortgage balance. You will be able to save for the down payment on your next home faster. There are even true no-cost refinance rates available at slightly higher rates (2.875% to 3% for 15 years). Even those would be a massive improvement on the monthly mortgage outflow.

I'd urge you to really give a serious thought about being a landlord. With Covid-19, you may have seen that many tenants have not been able to pay the rent, and the government decreed that tenants can skip the rent payment up to 3 months and landlords may not evict them. Would you really want to bring on such headaches on yourself, when your primary job is (clearly) much more lucrative?
On the refinance, I just don't know what the break-even point would be given the closing costs, and if I'm selling in 1-2 years may not be worth it. But, I haven't looked into no-cost refinance. I'll call a few places this week and see what they're offering. I honestly wasn't aware the rates were that low. I just always figured that they advertise super low rates, and then tell you it'll cost you $15K to get the low rate advertised, so it's not worth it unless you're staying in the home a long time.

And yes, I see your point on the landlord idea. I'll really need to think about the pros and cons there, especially as my work responsibilities continue to grow and my mental bandwidth becomes more limited for non-work stress.

Thank you!
Topic Author
LillyA
Posts: 7
Joined: Tue Sep 15, 2020 12:53 am

Re: Late 30s- Portfolio Review

Post by LillyA »

Duckie wrote: Wed Sep 16, 2020 4:32 pm
LillyA wrote:HSA: The funds available are all Vanguard, and are below. I think only VTAPX is a treasury fund.
Both VTAPX and VIPIX qualify.
Thanks! I'll look into moving my invested HSA money to one of those two.
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dogagility
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Re: Late 30s- Portfolio Review

Post by dogagility »

LillyA wrote: Wed Sep 16, 2020 10:33 pm On the refinance, I just don't know what the break-even point would be given the closing costs, and if I'm selling in 1-2 years may not be worth it.
It's not to difficult to calculate the break even point. Use an amortization calculator to determine the amount of interest paid by a given future date for both your current and future loan. Add in the closing costs to the new loan calculation and you're done.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
Topic Author
LillyA
Posts: 7
Joined: Tue Sep 15, 2020 12:53 am

Re: Late 30s- Portfolio Review

Post by LillyA »

Wanted to say thank you to everyone for the advice!

I looked into the refinance yesterday, and my current lender offered me 15 years @ 2.75%, and $2,000 out of pocket cost after credits. And already waived the appraisal requirement. I'll shop around a little and see if I can find another estimate to negotiate with, but will definitely be refinancing ASAP.

Thanks again!
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