2021 Portfolio Review: Bye Student Loans, Hello First Child

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Topic Author
Coolguy8877
Posts: 106
Joined: Thu Oct 03, 2019 8:41 am

2021 Portfolio Review: Bye Student Loans, Hello First Child

Post by Coolguy8877 »

Emergency funds: Yes, funded
Debt: Student Loans; Recently effectively paid off nearly 500k between DW and I over the past 7 years! ~12k left @ 0.12% interest with 3.5yrs left, paying minimums until payoff or interest rate increases.
No cc debt, car loans, or mortgage
Tax Filing Status: Married Filing Jointly; first child due in Q4 2021
Tax Rate: 35% Federal, 4.95% State
State of Residence: IL
Age: both 33

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25% of stocks

Portfolio size: high six figures

Current Portfolio:
Cash 27% due to annual bonus and DW job change bonus coming in.

His 401k (no tickers available if not listed); 5% salary match
Of note; 401k does not allow for pre-tax and roth contributions to be invested in separate buckets; all funds in the account are invested according to percentages below regardless of contribution type. Currently consists of ~83% pre-tax funds and 17% roth funds

12.5% Large US stock: Vanguard Institutional 500 Index Trust ER 0.01
2.7% Small/Mid Cap US stock: Vanguard Extended Market Index Fund ER 0.04
7.4% International stock: Vanguard Institutional Total International Stock Index Trust ER 0.06
4.6% Bond: JPMorgan Core Bond Fund (JCBUX) ER 0.34

Her Previous Employer 401k
11.1% Large US stock: Vanguard Institutional 500 Index Trust ER 0.01
2.4% Small/Mid Cap US stock: Vanguard Extended Market Index Fund ER 0.04
5.6% International stock: Vanguard Institutional Total International Stock Index Trust ER 0.06
3.4% Bond: JPMorgan Core Bond Fund (JCBUX) ER 0.34

Her Current Employer 401k Account has 0.39% AUM maintenance fee
0.1% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

His Roth IRA
7.5% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Her Roth IRA
12.4% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

His HSA
1.5% Vanguard Total Stock Market Index Fund Institutional Shares, VITSX, ER 0.03

Her HSA
1% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Combined Brokerage
1.3% Vanguard Total Stock Market Index Fund Admiral Shares, VTSAX, ER 0.04

Total=100% 65% stocks (20% international) / 8% bonds / 27% cash

2021 Contributions
$19.5k his 401k (+~7.8k [5% match] + 15.6k after-tax mega backdoor to rIRA [after-tax contributions maxed at 10% salary per employer]); 42.9k total
$19.5k her 401k (+~4k match + ~4k after-tax mega backdoor to rIRA); 27.5k total
$6k his Roth IRA via backdoor
$6k her Roth IRA via backdoor
~4.8k combined HSA ($1k employer contribution included, DW will only have partial contribution since new employer does not offer eligible HDHP)
$180k taxable; this is our goal, but may be reduced a bit with child 1 on the way.
Total for 2021 ~267.2k

Available funds Only listing the problem areas. All other accounts have low ER high quality fund options
His current 401k/Her previous 401k
Only 1 Bond Fund: JPMorgan Core Bond Fund (JCBUX) 0.34
Plan offers self-directed brokerage, but unfortunately no better options for bonds. Comes with $50/yr fee.

Her current 401k: Account has 0.39% AUM maintenance fee :( so we will not roll over any assets and only contribute moving forward. Good investment options though

Context:
Current goal is to retire early or at least shift to a lower stress careers, possibly in mid-late 40s if possible.
We are due to rebalance (mainly by deploying cash), but want to think through tax-efficient fund placement before doing so in order to be able to set my future investments on auto-pilot. We aim to continue maxing tax-deferred/tax-free space, prioritizing equity-only investing in tax-free. We current are renting but will consider buying eventually (no real timeline, possibly in ~2-3 years after first child comes later this year and we adjust into our new parenting normal). I may elect to hold a slightly larger EF that has a carve out for a portion of a down payment, but would likely tap into future cash flow and taxable to fund down payment. With all this in mind and student loans paid off we will start investing more in taxable, which leads to my questions:

Questions:
1. With student loans paid off, how/where should we hold bonds? Bogleheads tend to suggest tax-deferred, but with our income and limitations in tax-deferred (higher ER funds/maintenance fees) I started thinking of alternatives especially after reading WCIs bonds in taxable article. As a result my current thinking is to start buying I-bonds annually, and hold half of the remaining bond allocation in tax-deferred and half in taxable (munis). Any reasons why this strategy does or does not make sense?

2. Are we missing anything? We will consider a 529 for the first child at some point, currently TBD

3. How are we doing overall? Any overarching comments on AA, fund placement, fund choices, or anything else?

:sharebeer
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retired@50
Posts: 5886
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: 2021 Portfolio Review: Bye Student Loans, Hello First Child

Post by retired@50 »

Adding municipal bonds in the taxable account is probably smart, but I'd be careful about using any state-specific fund.
Illinois is seen as a high(er) risk state. Using a nationally focused fund would probably be a solid choice.

Vanguard is pretty much the best-of-breed when it comes to municipal bond funds. They have a wide variety of muni funds and ETFs with low expense ratios.
See link: https://investor.vanguard.com/mutual-fu ... nd-returns

Regards,
This is one person's opinion. Nothing more.
Topic Author
Coolguy8877
Posts: 106
Joined: Thu Oct 03, 2019 8:41 am

Re: 2021 Portfolio Review: Bye Student Loans, Hello First Child

Post by Coolguy8877 »

retired@50 wrote: Sun May 02, 2021 11:12 am Adding municipal bonds in the taxable account is probably smart, but I'd be careful about using any state-specific fund.
Illinois is seen as a high(er) risk state. Using a nationally focused fund would probably be a solid choice.

Vanguard is pretty much the best-of-breed when it comes to municipal bond funds. They have a wide variety of muni funds and ETFs with low expense ratios.
See link: https://investor.vanguard.com/mutual-fu ... nd-returns

Regards,
Thanks for taking the time to respond. I hope that few responses is an indicator that we are on the right track.

For bonds in taxable, I am looking at Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX; ER 0.09, 50k min), but I am not sure why this fund does not show up in the link you shared since it is specific to U.S. Tax-exempt bond funds. Is there a reason why one would choose something like Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX, EF 0.09, 3k min) over VWIUX (barring any minimum investment requirements)?

VWIUX: https://investor.vanguard.com/mutual-fu ... view/vwiux
VTEAX: https://investor.vanguard.com/mutual-fu ... view/vteax
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retired@50
Posts: 5886
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: 2021 Portfolio Review: Bye Student Loans, Hello First Child

Post by retired@50 »

Coolguy8877 wrote: Mon May 03, 2021 11:24 am
retired@50 wrote: Sun May 02, 2021 11:12 am Adding municipal bonds in the taxable account is probably smart, but I'd be careful about using any state-specific fund.
Illinois is seen as a high(er) risk state. Using a nationally focused fund would probably be a solid choice.

Vanguard is pretty much the best-of-breed when it comes to municipal bond funds. They have a wide variety of muni funds and ETFs with low expense ratios.
See link: https://investor.vanguard.com/mutual-fu ... nd-returns

Regards,
Thanks for taking the time to respond. I hope that few responses is an indicator that we are on the right track.

For bonds in taxable, I am looking at Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX; ER 0.09, 50k min), but I am not sure why this fund does not show up in the link you shared since it is specific to U.S. Tax-exempt bond funds. Is there a reason why one would choose something like Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX, EF 0.09, 3k min) over VWIUX (barring any minimum investment requirements)?

VWIUX: https://investor.vanguard.com/mutual-fu ... view/vwiux
VTEAX: https://investor.vanguard.com/mutual-fu ... view/vteax
The fund VWIUX fund doesn't have a distinct spot in the list of municipal bond funds because it's just a different share class of VWITX, which does show up.
In other words, the fund with the $3k minimum (VWITX) shows up, and if you happen to buy over $50k of VWITX, it will be converted to VWIUX by Vanguard at some point afterward anyway.

The difference between VWIUX and VTEAX is what they're aiming for.

VTEAX is trying to represent the whole municipal bond market, which includes long-term bonds as well. This can be seen by studying the "Distribution by stated maturity" on the Portfolio & Management tab of the fund description(s).

If you're strictly interested in intermediate term bonds, then you could stick with the intermediate term index fund.

Regards,
This is one person's opinion. Nothing more.
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