Portfolio Review

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Topic Author
Havoner
Posts: 40
Joined: Mon Sep 14, 2020 8:44 pm

Portfolio Review

Post by Havoner »

Income: $230,000

Expenses:$108,000
Including
17k in childcare (2 little ones)
25k in house payments

Emergency funds: 1 year expenses

Debt:
$54,000 Student Loan (Will pay of once moratorium on this ends)
$228,000 15 year Mortgage @ 2.87%

Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal 5% State

Age: 32 years/ 31 years

Desired Asset allocation: 100% Stocks

Current retirement assets
$324,000

Taxable
Her ESSOP Stock
$8,000

His Roth 401k
$103,000 Vanguard Total Stock Market Admiral (.04)
$11,000 Employer Stock

His Trad 401k
$10,000 Vanguard Total Stock Market Admiral (.04)

His Roth IRA at Vanguard
$32,000 Vanguard Total Stock Market Index (.04)
$20,000 Intel Stock (Bet on the semiconductor industry)

His HSA at Vanguard
4,000 Vanguard Total Stock Market Index (.04)

Her 401k at Fidelity
$122,000 U.S. Large Company Stock Index Fund (0.01)

Her traditional 401k
$14,000 U.S. Large Company Stock Index Fund (0.01)

Contributions

New annual Contributions
$19,500 his 401k (Employer match 4k)
$19,500 her 401k (Employer match 6k)
$7,000 his HSA
$6,000 his Roth IRA
$6,000 her Roth IRA
$17,000 into Taxable

Available funds

Funds available in his 401(k) & HSA
Vanguard Mix

Funds available in her 401K
standard target date retirement accounts
Fidelity US Small/Mid Company Stock Index Fund(.045)
Fidelity LRG COMP STK INDEX (.01)
BOND INDEX (.02)
Multiple actively managed options

Questions
1. Any other tips or tricks on getting ahead? Right now I think after saving the 65k for 15 years that when the kids go to school in 15 years we will have a paid for house and no daycare which drops expenses down to an inflation adjusted $50,000 at this point we would like to be close to financial independence at around 47/46. Would like to keep working at least until the kids get through college and then maybe slow down a bit and maybe do some travel or something.

2. I don't think we will retire fully when we hit FI but will likely cut back on work. With this in mind any suggestions on whether I should look more traditional or more Roth for the contributions.

3. Any suggestions on whether it would be worth it to put some of the taxable money into a rental over the next few years? I am pretty handy and don't mind doing the work.

4. Is our savings rate okay with my income level or should I be trying to trim more? Sometimes seems wasteful spending so much money and while I am very frugal just from the principles of not wanting much my spouse really isn't and I don't want to feel like she has to be just because I am.
Last edited by Havoner on Thu Jun 10, 2021 9:35 pm, edited 1 time in total.
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retired@50
Posts: 5798
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio Review

Post by retired@50 »

Havoner wrote: Wed Jun 09, 2021 10:37 pm Desired Asset allocation: 100% Stocks
...
His Roth IRA at Vanguard
$32,000 Vanguard Total Bond Market Index (.04)
$20,000 Intel Stock (Bet on the semiconductor industry)
Is the above a typo, or are you holding a bond index fund in your Roth IRA?

If so, you should probably re-locate it to a tax-deferred account, or sell it and buy a stock index fund to fit with your desire to be 100% stocks.

See this wiki link on tax-efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
This is one person's opinion. Nothing more.
LeeMKE
Posts: 2081
Joined: Mon Oct 14, 2013 9:40 pm

Re: Portfolio Review

Post by LeeMKE »

+1 Retiredat50

There is a gap between the expenses and income that is greater than the $65k you are adding to your savings. Could you help us understand what is going on with that? Are you also saving for college expenses?

At the moment, you are probably in the highest tax bracket you will be in for awhile. Stashing as much as able in the tax deferred accounts, and then filling the Roth space is the right thing for you to do. Once you cut back on work income, you'll want to look at tweaking the holdings and maybe do some Roth conversions. But right now, what you are doing is all the right things.

Rental property -- The building maintenance is just one burden of owning rental property, the management of tenants another. Do you have time and energy for this right now, with a young family and two careers? Real estate can be a viable enterprise. But for most people, it is a great opportunity to lose money, lose time and lose confidence in your fellow man. It works best in an inflationary period, which ain't the case right now. The rapid rise in residential real estate prices may quickly fade if new construction ramps up homebuilding and the pandemic surge is satisfied over the next year.

In this market, buying a home or condo, fixing it up and selling it might make sense. And it would give you a way to tippytoe into real estate before you take on tenants.

And finally, another way to use some taxable savings and increase your percent of real estate holdings is to pay off the mortgage.

It is a tricky balance to save enough, but not so much that opportunities to enjoy life are missed. Let us know about the gap between your income and expenses, if it isn't already being put to work outside retirement savings.
The mightiest Oak is just a nut who stayed the course.
Topic Author
Havoner
Posts: 40
Joined: Mon Sep 14, 2020 8:44 pm

Re: Portfolio Review

Post by Havoner »

Thank you both for the suggestions. That was a typo on the bond fund. Good call out on the gap between income and expenses. I reran the numbers some since this is our first year at this income level and figured out that I had missed the $8,000 pretax health insurance in my expenses and also didn't account for what my taxable accounts contributions will more likely be moving forward since I loaded up with last year and part of this year's Roth IRA up front. Went ahead and updated my original post to show this more accurately. Right now I could start saving college expenses but was thinking of waiting until I pay off those student loans we have later this year and then as each of the kids enter school maybe putting their daycare money into a college fund for 5-10 years. This might be better financially to just start funding these earlier though just to tax shelter some of the money and then just save more in traditional later. Appreciate the thoughts.

-Thanks
lakpr
Posts: 7659
Joined: Fri Mar 18, 2011 9:59 am

Re: Portfolio Review

Post by lakpr »

I would say that you should attack the student loans first. Why are you waiting for the moratorium to end? That is only 3 months away. Are you gambling that you will earn a tiny bit of interest in 3 months? Isn't that taking the risk that the stock market would drop in the next 3 months?

I would view the moratorium as an opportunity to significantly pay down the principal (as a 0% loan offer valid for only 3 months). If you were to be debt free and a credit card gives you a balance transfer offer of 0% for 3 months, 6.5% rate thereafter until paid off, would you borrow $54k from that card and invest it in the stock market?

[ Student loans on moratorium means these are Federal student loans, so that is where my assumption of 6.5% comes from ]

I wouldn't bother; the rewards are too tiny to make it worth my while.

Next, you should attack the mortgage. With a household income of $230k, you are in the 24% marginal tax bracket. But the mortgage interest of $6500 per year ($228k * 2.87%) is unlikely to let you itemize unless you also make charitable contributions of $9000 per year.

Restated, you are paying an AFTER TAX interest rate of 2.87% on your mortgage. Just to break even on this rate, you need to earn 3.8% on your taxable investments.

If you ARE itemizing your deductions, which implies you are donating more than $9k to charity annually -- firstly I would take issue with why you would be donating that much while you have a $54k student loan. That is like trying to help a neighbor put off the fire on their home, while your own home is on fire. Take care of yourself first. The airline mask guidance comes to mind; secure your own mask first before attending to others. Secondly, I suggest you look into Donor Advised Funds where you would bunch a few years worth of charitable contributions at once, take the itemized deduction that year, standard deduction the few following years, rinse and repeat. Higher tax benefit this way than essentially having zero benefit every year.
HomeStretch
Posts: 6352
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio Review

Post by HomeStretch »

Does your state allow a state income tax deduction for 529 contributions?

If yes, are you/spouse contributing enough to 529 accounts (where you each are the beneficiaries) to pay your student loans up to the lesser of the state tax deduction or $10,000 each per lifetime? If the 2021 contribution to pay $20,000 in 2021 loan payments > your 2021 maximum state tax deduction, check to see if your state has a 529 contribution tax deduction carryforward.
Topic Author
Havoner
Posts: 40
Joined: Mon Sep 14, 2020 8:44 pm

Re: Portfolio Review

Post by Havoner »

lakpr wrote: Fri Jun 11, 2021 4:40 am I would say that you should attack the student loans first. Why are you waiting for the moratorium to end? That is only 3 months away. Are you gambling that you will earn a tiny bit of interest in 3 months? Isn't that taking the risk that the stock market would drop in the next 3 months?

I would view the moratorium as an opportunity to significantly pay down the principal (as a 0% loan offer valid for only 3 months). If you were to be debt free and a credit card gives you a balance transfer offer of 0% for 3 months, 6.5% rate thereafter until paid off, would you borrow $54k from that card and invest it in the stock market?

[ Student loans on moratorium means these are Federal student loans, so that is where my assumption of 6.5% comes from ]

I wouldn't bother; the rewards are too tiny to make it worth my while.

Next, you should attack the mortgage. With a household income of $230k, you are in the 24% marginal tax bracket. But the mortgage interest of $6500 per year ($228k * 2.87%) is unlikely to let you itemize unless you also make charitable contributions of $9000 per year.

Restated, you are paying an AFTER TAX interest rate of 2.87% on your mortgage. Just to break even on this rate, you need to earn 3.8% on your taxable investments.

If you ARE itemizing your deductions, which implies you are donating more than $9k to charity annually -- firstly I would take issue with why you would be donating that much while you have a $54k student loan. That is like trying to help a neighbor put off the fire on their home, while your own home is on fire. Take care of yourself first. The airline mask guidance comes to mind; secure your own mask first before attending to others. Secondly, I suggest you look into Donor Advised Funds where you would bunch a few years worth of charitable contributions at once, take the itemized deduction that year, standard deduction the few following years, rinse and repeat. Higher tax benefit this way than essentially having zero benefit every year.
Thanks seems like a reasonable perspective to pay it off sooner. Honestly this is why I have the $100,000 emergency fund. I plan on paying for it out of pocket once we get to that point. I hadn't thought about the last trick for the donor advised funds. We typically donate about 8k-10k a year to charity and it would be nice to be able to itemize it some.
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