Portfolio Review: Large taxable account

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Topic Author
remembernothing
Posts: 5
Joined: Thu Jun 10, 2021 8:27 am

Portfolio Review: Large taxable account

Post by remembernothing »

Hi everyone - I've been lurking on this great forum for years and would love your help with a review of my portfolio.

Stats:
Age: Early 40's
Marital Status: Divorced
Income: 300-600k
Kids: 1
House: Renting
Desired asset allocation: approximately 60/40
Debts: none

Looking to retire in approximately 10 years

Taxable
200k at Alliant Credit Union (emergency fund)
1.7m in Vanguard Tax Managed Balanced Admiral

Roth IRA
200k in Vanguard Lifestrategy Moderate Growth

401k
$150k in Vanguard Lifestrategy Moderate Growth
livesoft
Posts: 76567
Joined: Thu Mar 01, 2007 8:00 pm

Re: Portfolio Review: Large taxable account

Post by livesoft »

Looks great to me! Very simple, but that's all you need.
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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: Large taxable account

Post by retired@50 »

remembernothing wrote: Thu Jun 10, 2021 8:38 am I've been lurking on this great forum for years
Your lurking habit has paid off.

Your portfolio is fine and doesn't need any help, other than an occasional contribution into the 401k. Keep up the good work.

Regards,
This is one person's opinion. Nothing more.
go2run
Posts: 109
Joined: Wed Mar 08, 2017 1:34 pm

Re: Portfolio Review: Large taxable account

Post by go2run »

You have 2.25m and are in good shape. Are there any specific questions or future considerations you would like input to?

In general, if you look at your portfolio as a whole, you are allocated as follows (excluding emergency fund):
US Stock: 46.3%
Intl Stock: 4.1%
Total Bond (equivalent): 47.6%
Intl Bond: 1.9%

Your overall asset allocation is more of a 50/50 split and differs from your desired asset allocation. What are your plans for adjusting to get to your desired allocation? There are other small things such as desired international holdings, bond holdings in Roth IRA, no tIRA so that you can contribute to your Roth IRA via the backdoor conversion method, and fund fee for VG Lifestrategy Moderate Growth (0.13%) vs other available index funds, future contributions to 401k/Roth IRA/Taxable. Quite a few tweaks could be made.
HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio Review: Large taxable account

Post by HomeStretch »

Your portfolio looks simple and easy to manage.

You would need to add complexity to be able to tax loss harvest or to hold some of your cash in a I-Bonds (current 6-month rate on new bonds is 3.54%) in a TreasuryDirect account.
dbr
Posts: 35878
Joined: Sun Mar 04, 2007 9:50 am

Re: Portfolio Review: Large taxable account

Post by dbr »

If you are looking to retire in ten years it is time to start running retirement planning models such as FireCalc and all the others.

The issues are not how you are invested but rather estimating your wanted spending and comparing it to your sources of income. On the investment side is understanding the wide range of uncertainty in investment results and how that affects decision making. Early retirees also have tax and cost considerations different from those at conventional retirement ages.

Note the acronym in FIRECalc is financial independence retire early and originates in this forum: https://www.early-retirement.org/forums/
aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: Portfolio Review: Large taxable account

Post by aristotelian »

I assume you are maxing your 401k. If not, you should be. Only reason I point that out is the 401k balance looks low compared to the rest of the portfolio.

Any chance your company offers HDHP with HSA? I would be looking for any opportunity to save pretax.

If I were to nitpick, I would allocate the Roth IRA to 100% VTSAX or the most aggressive Lifestrategy fund and 401k to a more conservative variant of the Lifestrategy funds.
Topic Author
remembernothing
Posts: 5
Joined: Thu Jun 10, 2021 8:27 am

Re: Portfolio Review: Large taxable account

Post by remembernothing »

aristotelian wrote: Thu Jun 10, 2021 9:38 am I assume you are maxing your 401k. If not, you should be. Only reason I point that out is the 401k balance looks low compared to the rest of the portfolio.

Any chance your company offers HDHP with HSA? I would be looking for any opportunity to save pretax.

If I were to nitpick, I would allocate the Roth IRA to 100% VTSAX or the most aggressive Lifestrategy fund and 401k to a more conservative variant of the Lifestrategy funds.
I am maxing out my 401k now. When I started the company didn't have a 401k match and I just mistakenly never put anything into it.

Why would you be more aggressive in the Roth account and less aggressive in the 401k?

We do have an HSA option which I'm not currently on -- is this something that always works out better than a PPO plan?
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retired@50
Posts: 5798
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Location: Living in the U.S.A.

Re: Portfolio Review: Large taxable account

Post by retired@50 »

remembernothing wrote: Thu Jun 10, 2021 12:15 pm
aristotelian wrote: Thu Jun 10, 2021 9:38 am I assume you are maxing your 401k. If not, you should be. Only reason I point that out is the 401k balance looks low compared to the rest of the portfolio.

Any chance your company offers HDHP with HSA? I would be looking for any opportunity to save pretax.

If I were to nitpick, I would allocate the Roth IRA to 100% VTSAX or the most aggressive Lifestrategy fund and 401k to a more conservative variant of the Lifestrategy funds.
I am maxing out my 401k now. When I started the company didn't have a 401k match and I just mistakenly never put anything into it.

Why would you be more aggressive in the Roth account and less aggressive in the 401k?
I'm not aristotelian, but...
I suspect aristotelian is referring to the concepts discussed in the tax-efficient fund placement wiki page.

Very generally, put tax-inefficient funds (like bond funds) in your tax-deferred space. This allows you to use stock index funds in your taxable account and inside the Roth IRA. Plus, it maximizes the tax free growth potential inside the Roth account.

See link for details: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
This is one person's opinion. Nothing more.
go2run
Posts: 109
Joined: Wed Mar 08, 2017 1:34 pm

Re: Portfolio Review: Large taxable account

Post by go2run »

remembernothing wrote: Thu Jun 10, 2021 12:15 pm
Why would you be more aggressive in the Roth account and less aggressive in the 401k?
For a pre-tax/traditional account, you are taxed at the point of withdrawal. That means any contribution + growth when withdrawn is treated as taxable income. RMD's also apply to these accounts so you just can't let it sit and grow forever.

For a Roth IRA, you are taxed on the contribution amount at the time of contribution. That's it. You are not taxed on growth/capital appreciation. For this reason, you want this account to grow the most.
Topic Author
remembernothing
Posts: 5
Joined: Thu Jun 10, 2021 8:27 am

Re: Portfolio Review: Large taxable account

Post by remembernothing »

go2run wrote: Thu Jun 10, 2021 9:19 am You have 2.25m and are in good shape. Are there any specific questions or future considerations you would like input to?

In general, if you look at your portfolio as a whole, you are allocated as follows (excluding emergency fund):
US Stock: 46.3%
Intl Stock: 4.1%
Total Bond (equivalent): 47.6%
Intl Bond: 1.9%

Your overall asset allocation is more of a 50/50 split and differs from your desired asset allocation. What are your plans for adjusting to get to your desired allocation? There are other small things such as desired international holdings, bond holdings in Roth IRA, no tIRA so that you can contribute to your Roth IRA via the backdoor conversion method, and fund fee for VG Lifestrategy Moderate Growth (0.13%) vs other available index funds, future contributions to 401k/Roth IRA/Taxable. Quite a few tweaks could be made.
I'd prefer to have a more aggressive stock allocation. I've considered moving my tax advantaged accounts from Lifestrategy Moderate Growth to Lifestrategy Growth or just adding VTSAX in taxable.
Topic Author
remembernothing
Posts: 5
Joined: Thu Jun 10, 2021 8:27 am

Re: Portfolio Review: Large taxable account

Post by remembernothing »

dbr wrote: Thu Jun 10, 2021 9:34 am If you are looking to retire in ten years it is time to start running retirement planning models such as FireCalc and all the others.

The issues are not how you are invested but rather estimating your wanted spending and comparing it to your sources of income. On the investment side is understanding the wide range of uncertainty in investment results and how that affects decision making. Early retirees also have tax and cost considerations different from those at conventional retirement ages.

Note the acronym in FIRECalc is financial independence retire early and originates in this forum: https://www.early-retirement.org/forums/
Thanks for the recommendation. My current spending levels are $100k/year. Some of the FIRE calculators are giving me a number of $3m -- does that seem right? I might be a lot closer than I realized.
dbr
Posts: 35878
Joined: Sun Mar 04, 2007 9:50 am

Re: Portfolio Review: Large taxable account

Post by dbr »

remembernothing wrote: Thu Jun 10, 2021 12:28 pm

Thanks for the recommendation. My current spending levels are $100k/year. Some of the FIRE calculators are giving me a number of $3m -- does that seem right? I might be a lot closer than I realized.
The quick and dirty is that all of these programs roughly replicate the 4% estimate that spending after pensions and SS can be 4% of assets or $120,000 for $3M and for a time of 30 years. So, probably that is typical, give or take inflation, further contributions, etc.

Note that the plan changes if fixed income streams start at different times, are not inflation indexed, etc. Also note that taxes and all investment costs have to come out of what it says you can spend. If you are given 4% but your portfolio has 1% in expenses, you can only spend 3% on yourself. That is why investment costs are so important. It is possible income taxes could be a total on gross income of 10% (anywhere from less than 0% to many tens of %).
go2run
Posts: 109
Joined: Wed Mar 08, 2017 1:34 pm

Re: Portfolio Review: Large taxable account

Post by go2run »

remembernothing wrote: Thu Jun 10, 2021 12:24 pm
go2run wrote: Thu Jun 10, 2021 9:19 am You have 2.25m and are in good shape. Are there any specific questions or future considerations you would like input to?

In general, if you look at your portfolio as a whole, you are allocated as follows (excluding emergency fund):
US Stock: 46.3%
Intl Stock: 4.1%
Total Bond (equivalent): 47.6%
Intl Bond: 1.9%

Your overall asset allocation is more of a 50/50 split and differs from your desired asset allocation. What are your plans for adjusting to get to your desired allocation? There are other small things such as desired international holdings, bond holdings in Roth IRA, no tIRA so that you can contribute to your Roth IRA via the backdoor conversion method, and fund fee for VG Lifestrategy Moderate Growth (0.13%) vs other available index funds, future contributions to 401k/Roth IRA/Taxable. Quite a few tweaks could be made.
I'd prefer to have a more aggressive stock allocation. I've considered moving my tax advantaged accounts from Lifestrategy Moderate Growth to Lifestrategy Growth or just adding VTSAX in taxable.
Yes, that is why I pointed out your current portfolio asset allocation vs your desired.

If you move 100% of your Roth into VTSAX, your Stock position goes from 46.3% to 52.4%. Total Stock (incl international) will be 54.2%. You will still need to swap ~$120k of bond allocation to stock to get to your 60/40 desired state.

I would definitely start with your Roth account and remove bond exposure in that account. You can then adjust in your taxable account. Make sure you understand your tax implications when selling and adjusting in your taxable account though.
aristotelian
Posts: 9208
Joined: Wed Jan 11, 2017 8:05 pm

Re: Portfolio Review: Large taxable account

Post by aristotelian »

remembernothing wrote: Thu Jun 10, 2021 12:15 pm
aristotelian wrote: Thu Jun 10, 2021 9:38 am I assume you are maxing your 401k. If not, you should be. Only reason I point that out is the 401k balance looks low compared to the rest of the portfolio.

Any chance your company offers HDHP with HSA? I would be looking for any opportunity to save pretax.

If I were to nitpick, I would allocate the Roth IRA to 100% VTSAX or the most aggressive Lifestrategy fund and 401k to a more conservative variant of the Lifestrategy funds.
I am maxing out my 401k now. When I started the company didn't have a 401k match and I just mistakenly never put anything into it.

Why would you be more aggressive in the Roth account and less aggressive in the 401k?

We do have an HSA option which I'm not currently on -- is this something that always works out better than a PPO plan?
Roth gains are tax free. Gains are taxed as income in the 401k. Better to have the higher returning assets in Roth with the lower returning assets in 401k. You will end up with the same overall allocation and total balance but less tax in retirement due to ending up with a higher Roth balance and lower 401k balance.

Whether HSA works out favorably depends on the individual plan and your circumstances. Usually you will pay more out of pocket due to the higher deductible but that is compensated by the lower premium and tax benefits of the HSA. The HSA is the only account that is both tax deductible on contribution side and tax free on withdrawal side, *plus* it even avoids FICA taxes. Being in a high tax bracket, it would be even more advantageous for you.
Topic Author
remembernothing
Posts: 5
Joined: Thu Jun 10, 2021 8:27 am

Re: Portfolio Review: Large taxable account

Post by remembernothing »

HomeStretch wrote: Thu Jun 10, 2021 9:20 am Your portfolio looks simple and easy to manage.

You would need to add complexity to be able to tax loss harvest or to hold some of your cash in a I-Bonds (current 6-month rate on new bonds is 3.54%) in a TreasuryDirect account.
I'm reading up on I-Bonds now. Is this recommendation about getting more yield out of my emergency fund?
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