Soul searching my investment plan

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Topic Author
MJLyco
Posts: 4
Joined: Fri Nov 20, 2020 8:39 pm

Soul searching my investment plan

Post by MJLyco »

Hello,

I’ve been learning about investing for the past 3 years and have been yo-yo’ing my portfolio from 90/10, 60/40, USA only, 20%international, 40%international, some individual stocks, etc..
I also tried Vanguard, Fidelity, Betterment, Robinhood, Wealthfront, and M1 Finance.
I think I finally have a forever plan I can stick to. Any opinions would be helpful.

FYI: I’m 37

401k at work: 100% VASGX (vanguard life strategy 80/20) (There are not very many funds in the 401k. Will shift as I age)

IRA at Vanguard: 100% VFIFX (vanguard target retirement 2050)

Taxable at Vanguard: 70% VTWAX (vanguard world stock) and 30% VTEAX (vanguard tax exempt bond) Held in this 70/30 weight “forever”.
MarkVH0518
Posts: 96
Joined: Tue Dec 13, 2016 2:14 pm

Re: Soul searching my investment plan

Post by MarkVH0518 »

This is a pretty good portfolio. There may be nits (well one) to pick, but it depends on your situation.
The nit is: unless you are in the highest marginal tax bracket tax exempt bond funds generally don't make sense.
We're unable to judge your asset allocation because you've not indicated the percent of your portfolio in each investment account.
But the average 80/20, 70/30 and 90/10, regardless of the relative sizes, is going to be near 80/20.
This is somewhat aggressive portfolio, and completely appropriate for someone intending to work for 25 or 30 years.

To repeat, the only nit I can pick with your portfolio is to reconsider if tax exempt bonds are appropriate
for your tax bracket. But this is only a nit.

Regards,
Mark
IowaFarmBoy
Posts: 854
Joined: Fri Jan 22, 2010 8:19 am

Re: Soul searching my investment plan

Post by IowaFarmBoy »

I think it looks very reasonable and simple. Personally, I might shoot for a 75/25 asset allocation but 80/20 is also very reasonable- in the end that 5% difference won't really matter. I also really like the simplicity- not much to have to manage or rebalance here. The taxable account is the only one where you might have to rebalance.

Mark has raised a good question about the tax-exempt bond fund.
Topic Author
MJLyco
Posts: 4
Joined: Fri Nov 20, 2020 8:39 pm

Re: Soul searching my investment plan

Post by MJLyco »

Thank you.
My rationale for tax exempt bonds is not to try to get a higher return, but of simplicity. For one, I can’t accidentally trigger a wash sale with the 401k or IRA. For two, if my income creeps into a higher tax bracket, I’m already in the “right” bond fund.
I hope I’m not giving up a very large return by doing this. I was thinking of using a mix corporate and other bond funds, but I don’t want to have to mess with it constantly. Also, I figure that the bonds are mainly there to smooth things out, not make me tons of money.
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Soul searching my investment plan

Post by retiredjg »

Right now, the intermediate term tax-exempt fund has a higher SEC yield than total bond even without taking out the taxes for total bond. It's not really "supposed" to be that way, but it is and that could last awhile. So it seems reasonable to me for pretty much anyone to use it in taxable at the present time.

There may come a time when that changes, and if you are in a low tax bracket like 12% or 22% you might want to keep an eye on it once a year or so and make a switch if needed.

I think your plan is fine. Seems like you've tried just about everything and have decided to just go simple and quit tinkering. A very good decision. :happy
pkcrafter
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Re: Soul searching my investment plan

Post by pkcrafter »

MJL, your portfolio looks pretty aggressive, but we can't tell for sure because you didn't provide percentage of each fund. Are you OK with high risk? If so, then the portfolio is reasonable.

What is total assets in all accounts?


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
SimplicityNow
Posts: 540
Joined: Fri Aug 05, 2016 10:31 am

Re: Soul searching my investment plan

Post by SimplicityNow »

Without knowing the amount in each account it is impossible to determine your asset allocation. The AA is each type of account is meaningless. It should be looked at as a whole.

At your age I feel that any AA between 70% stocks and 90% stocks is reasonable. It all depends on your risk tolerance.
Topic Author
MJLyco
Posts: 4
Joined: Fri Nov 20, 2020 8:39 pm

Re: Soul searching my investment plan

Post by MJLyco »

Because the asset allocations are different in each fund and future taxes are unknown, it's hard to calculate the true asset allocation across all funds. I wish the vanguard 2050 fund was available in my 401k. The target date fund available to me is poor.

Based on pre-tax assets in each account I am 80.37% stocks & 19.63% bonds combined.
If you follow Mr. Bogle's advice of adding in Social Security as a bond then it's a lot more balanced. I don't know how to calculate SS's present value though.
I also have a 6-12 month emergency fund in cash. 6 months if I don't change my spending habits at all. 12 months if I cut back on luxuries.
The only debt is a mortgage at 3.125%.

I know 80/20 is pretty aggressive. If you believe in mean reversion (as Mr. Bogle did) then it's probably VERY aggressive right now.
I've tried so many brokers and every single resource I plug numbers into says I should be 90% stocks or higher. Vanguard's Digital Advisor said I should be about 95% stocks.
I keep changing and tinkering so I thought following the experts and trusting the process may work out best in the end.
Topic Author
MJLyco
Posts: 4
Joined: Fri Nov 20, 2020 8:39 pm

Re: Soul searching my investment plan

Post by MJLyco »

I'm not sure how safe it is to post how much money I have and where it is on the internet. :P
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Soul searching my investment plan

Post by retiredjg »

MJLyco wrote: Sat Nov 21, 2020 11:04 am I'm not sure how safe it is to post how much money I have and where it is on the internet. :P
Well, if your user name resembles your real name, it probably isn't safe. :happy.
SimplicityNow
Posts: 540
Joined: Fri Aug 05, 2016 10:31 am

Re: Soul searching my investment plan

Post by SimplicityNow »

80/20 with a fairly secure job and an adequate emergency fund is "reasonable" as long as:

You are comfortable with that number and it allows you to sleep well at night.

Remember that "the enemy of a good plan is the dream of a perfect plan ".
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dratkinson
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Location: Centennial CO

Re: Soul searching my investment plan

Post by dratkinson »

MJLyco wrote: Sat Nov 21, 2020 11:04 am I'm not sure how safe it is to post how much money I have and where it is on the internet. :P
Post it as percentages. We'd use $s to compute %s anyway.


Disclosure. Muni funds. Been there, done that.

Bought my first muni while in 15% fed tax bracket. Why? To stay in 15% longer and continue to benefit from 0% QDI+LTCG.

First look: TEY. But with a low tax bracket and lower-than-taxable SEC yield, I needed longer duration munis to make the TEY math work to produce more after-tax than TBM.

Second look: sample tax returns. But the first look misses all of the MAGI issues embedded in the tax code, so the only way to see if munis produce more after-tax than TBM is to produce multiple simulated tax returns. I did: ST/IT/LT/HY, treasury/muni/TBM/corporate, before/after SS.

I used excel1040.com ...because it's quick, easy to make changes.
--Enter last tax return to create a known baseline.
--Enter bond data for each simulation. Assume total bond dividends = SEC yield × total bond principal.
--Compute after-tax income for each bond fund candidate.

Of course, just looking at the after-tax income produced... completely ignores risk.

My experience with muni reward/risk.
--Rewards (dividends) are typically stable.
--Risk (NAV decline) is typically infrequent, and can be TLHed. I did in 2018; it wasn't terrible.
--Current muni share prices are higher than a year ago, so expecting another TLH opportunity after pandemic passes.
--Longer duration bonds seem to be less affected by lower- and inverted-yield environments.

I reran this exercise when the tax code changed (2015?) ... and got the same answer, so stayed with munis. Expecting tax code sunset to be a non-event.



You could do same to get a second look.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
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