First Portfolio Review

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Topic Author
diversifire
Posts: 3
Joined: Mon Apr 01, 2024 9:32 am

First Portfolio Review

Post by diversifire »

Background / Questions:
Hi everyone, long time reader first time poster! I was just hoping to get a review of my portfolio and goals to make sure we are on the right track. Thanks so much in advance!

I got interested in investing when I first started working, but quickly realized it was too stressful for me. I backed out of the market for a year or two before taking a second try. I consider myself to be pretty smart so if anyone could figure investing out I figured I could. That is when I learned about index investing and the Boglehead philosophy. So far I have been happy with my decision to get back into the market and since I am just following a logical plan I sleep well at night. After about 10 years of investing on my own I figured it would be good to get some feedback on how we are doing to make sure that I am not missing something that would help us meet our goals more easily.

I decided to put most of our bond allocation in tax advantaged accounts and international in taxable accounts as my understanding is this will be more tax efficient. So far my ROTH has been mostly US stocks since I figured they would be the fastest growing. Going forward I was planning on only investing in S&P500 and Aggregate bond funds in retirement accounts and Total Stock Market, Total International, and Treasury funds in taxable accounts to not have cross over in the case of tax loss harvesting (no idea if this is necessary).

I know that stock/bond allocation and us/international allocation have been discussed to death, but I think it will make me feel better to just get my thoughts out. Any criticism of my logic here is more than welcome.

I think that our bond allocation is more conservative than would be recommended, but with our savings rate and desire to retire early I think it makes sense. I am worried that I am being biased on this and a more aggressive portfolio would be better in the long run. Moving into a more aggressive allocation at the current time makes me uneasy.

As for international, I have a hard time seeing a good reason why I shouldn't just own in proportion to the global market. In spite of that I am still 30% international. The recommendation seems to be 20%-40%. If international outperforms over the next 10-20 years I don't think I would regret not being 40% and I have been okay with 30% international as it has lagged the US market so I am thinking I should just stay where I am.

Goals:
1. Buy a new house in the next 1-5 years in a better school district, most likely in the $500k-$600k price range
2. Pay for our children's education (currently one child possibly a second, but unsure yet)
3. Retire or scale back on work in our early to mid 40's

Info
Income: Total: ~$425,000 (His $200,000 + $125,000 bonus Hers $125,000)

Emergency funds: $60,000

Debt: $120,000 home loan at 3.125%

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, 0% State

State of Residence: Texas

Age: both mid 30's

Desired Asset allocation: 75% stocks / 25% bonds

Desired International allocation: 30% of stocks

Net Worth
Total $1,850,000
Cash: $60,000
Investments: $1,450,000
Home Equity: $200,000
NPV of Her Pension: $100,000 ($70,000 could be withdrawn)
Vehicles: $40,000

Current retirement assets
Summary
53.6% US / 22.5% International / 23.9% Bonds

29.9% Total US Stock Market
21% S&P 500
2.7% Extended US Stock Market
15.8% Total International
6.7% Developed International
23.9% Total US Bond

His Taxable
7.7% Vanguard S&P 500 ETF (VOO) (0.03%)
14.6% Vanguard Total Stock Market ETF (VTI) (0.03%)
15.5% Vanguard Total International Stock ETF (VXUS) (0.08%)

His/Hers Taxable
10.8% Schwab Total Stock Market Index Fund (SWTSX) (0.03%)
6.7% Schwab International Index Fund (SWISX) (0.06%)
6.7% Schwab U.S. Aggregate Bond Index Fund (SWAGX) (0.04%)
After learning about lower tax efficiency and the default average cost basis method (I was able to get our funds switched to Schwab's TLO method) we are not going to be purchasing any more mutual funds in taxable. Instead I am planning on using the following:
Schwab US Broad Market ETF (SCHB) (0.03%)
Schwab International Equity ETF (SCHF) (0.06%)
Schwab Intermediate-Term U.S. Treasury ETF (SCHR) (0.03%)

His 401k
10.1% Fidelity 500 Index Fund (FXAIX) (0.015%)
17.2% Fidelity U.S. Bond Index Fund (FXNAX) (0.025%)
8% match + 5% company stock (I sell the stock 2-3 times a year to buy the index funds)

His Roth IRA at Vanguard
2.1% Vanguard S&P 500 ETF (VOO) (0.03%)
4.5% Vanguard Total Stock Market ETF (VTI) (0.03%)
2.7% Vanguard Extended Market Index Fund ETF (VXF) (0.06%)
0.3% Vanguard Total International Stock ETF (VXUS) (0.08%)

Her Roth 403b
1.1% Fidelity 500 Index Fund (FXAIX) (0.015%)

Her 403b
Nothing yet

Her 457b
Nothing yet
________________

Contributions

New annual Contributions
$23,000 + $25,000 match his 401k
$23,000 her 403b
$23,000 her 457b
$7,000 his IRA/Roth IRA
$100,000 taxable

Available funds

This is not an exhaustive list, but I can't think of a good reason why we would invest in anything other than these funds.

Funds available in his 401(k)
Fidelity 500 Index Fund (FXAIX) (0.015%)
Fidelity U.S. Bond Index Fund (FXNAX) (0.025%)
Fidelity International Index Fund (FSPSX) (0.035%)

Funds available in her 403(b)/457(b)
Fidelity 500 Index Fund (FXAIX) (0.015%)
Vanguard Total Bond Market Index Fund (VBTIX) (0.035%)
Fidelity International Index Fund (FSPSX) (0.035%)
tashnewbie
Posts: 4332
Joined: Thu Apr 23, 2020 12:44 pm

Re: First Portfolio Review

Post by tashnewbie »

diversifire wrote: Mon Apr 01, 2024 10:38 am I decided to put most of our bond allocation in tax advantaged accounts and international in taxable accounts as my understanding is this will be more tax efficient. So far my ROTH has been mostly US stocks since I figured they would be the fastest growing. Going forward I was planning on only investing in S&P500 and Aggregate bond funds in retirement accounts and Total Stock Market, Total International, and Treasury funds in taxable accounts to not have cross over in the case of tax loss harvesting (no idea if this is necessary).

I think that our bond allocation is more conservative than would be recommended, but with our savings rate and desire to retire early I think it makes sense. I am worried that I am being biased on this and a more aggressive portfolio would be better in the long run. Moving into a more aggressive allocation at the current time makes me uneasy.

As for international, I have a hard time seeing a good reason why I shouldn't just own in proportion to the global market. In spite of that I am still 30% international. The recommendation seems to be 20%-40%. If international outperforms over the next 10-20 years I don't think I would regret not being 40% and I have been okay with 30% international as it has lagged the US market so I am thinking I should just stay where I am.
All of this makes sense. If it helps you sleep well at night, then it is the right approach for you. No need to change anything as far as the above goes.

Watch out for wash sales with S&P500 if you ever want to tax loss harvest that.
His Roth IRA at Vanguard
2.1% Vanguard S&P 500 ETF (VOO) (0.03%)
4.5% Vanguard Total Stock Market ETF (VTI) (0.03%)
2.7% Vanguard Extended Market Index Fund ETF (VXF) (0.06%)
0.3% Vanguard Total International Stock ETF (VXUS) (0.08%)
I would not use VTI here due to potential wash sales.
New annual Contributions
$23,000 + $25,000 match his 401k
$23,000 her 403b
$23,000 her 457b
$7,000 his IRA/Roth IRA
$100,000 taxable
I presume you will be making tax-deferred/traditional contributions to her 403b and 457. Given your current tax rate and desire to retire very early, I would be using 100% traditional for the workplace plans.

Any reason you're not doing the backdoor Roth for her? She doesn't appear to have any traditional IRAs that would complicate that process.

Double check that holding international equity in taxable is more tax efficient for you. Physician on Fire has a blog post about tax efficiency of those funds that you can read to check your math.

What's the plan for the down payment on the next house? Do you plan to use current home equity? If you plan to buy within the next year and want to use some of your liquid assets, I would be shifting that money from stocks to cash equivalents like money market funds and Treasury bills. There are options that involve using your current equity such as bridge loans, HELOC, purchasing with a sale contingency, or something else I'm not aware of. The latter may make your offers less competitive, but it really depends on your area.
Topic Author
diversifire
Posts: 3
Joined: Mon Apr 01, 2024 9:32 am

Re: First Portfolio Review

Post by diversifire »

Thanks for all of the feedback, you have definitely given me a few things to consider, I knew I was likely missing something.
tashnewbie wrote: Mon Apr 01, 2024 2:48 pm Watch out for wash sales with S&P500 if you ever want to tax loss harvest that.
I am being careful of wash sales and don't plan to buy additional VTI in the IRA or VOO in the taxable account for that reason. All of the investments in the vanguard brokerage have large unrealized capital gains so I don't think it will be an issue.
tashnewbie wrote: Mon Apr 01, 2024 2:48 pm I presume you will be making tax-deferred/traditional contributions to her 403b and 457. Given your current tax rate and desire to retire very early, I would be using 100% traditional for the workplace plans.

Any reason you're not doing the backdoor Roth for her? She doesn't appear to have any traditional IRAs that would complicate that process.
We are doing tax deferred contributions and I am going to try and get a backdoor Roth going for her this year.
tashnewbie wrote: Mon Apr 01, 2024 2:48 pm Double check that holding international equity in taxable is more tax efficient for you. Physician on Fire has a blog post about tax efficiency of those funds that you can read to check your math.
I never really ran the numbers on this, I had thought I read that it was better to have international in taxable several years ago. I guess it depends on a lot of factors, yield, tax rate, etc. I think in my situation it is costing me around 0.2% per year. This isn't a huge deal, but I think we will find a way to shift future international contributions to tax deferred.
tashnewbie wrote: Mon Apr 01, 2024 2:48 pm What's the plan for the down payment on the next house? Do you plan to use current home equity? If you plan to buy within the next year and want to use some of your liquid assets, I would be shifting that money from stocks to cash equivalents like money market funds and Treasury bills. There are options that involve using your current equity such as bridge loans, HELOC, purchasing with a sale contingency, or something else I'm not aware of. The latter may make your offers less competitive, but it really depends on your area.
We are in our first house and I had not really thought about the mechanics of buying/selling at the same time. We are more likely to be moving closer to 5 years from now than 1 year. We would probably use my bonus + a few months savings as a down payment.
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dogagility
Posts: 3267
Joined: Fri Feb 24, 2017 5:41 am
Location: Del Boca Vista - Phase 3

Re: First Portfolio Review

Post by dogagility »

diversifire wrote: Mon Apr 01, 2024 10:38 am I think that our bond allocation is more conservative than would be recommended, but with our savings rate and desire to retire early I think it makes sense. I am worried that I am being biased on this and a more aggressive portfolio would be better in the long run. Moving into a more aggressive allocation at the current time makes me uneasy.
Nobody knows what is best going forward with certainty. It's all probabilities and psychology.

I recommend using a tool like TPAWPlanner to model your retirement timeline, asset allocation, and spending support from your portfolio. https://tpawplanner.com/

A Monte Carlo tool like this can also be useful. https://www.portfoliovisualizer.com/mon ... simulation
As for international, I have a hard time seeing a good reason why I shouldn't just own in proportion to the global market.
I suggest listening to Ben Felix discuss home country bias. https://www.youtube.com/watch?v=cZtfSoOKC3U&t=1837s

I'm also investing at 30% international. Is this optimal? Nobody knows. I believe in diversifying though.
New annual Contributions
I suggest investing in I bonds up to the limit each year (or more using the gift box strategy). Stable value; tax deferral; inflation-linked return fixed income investment. Use this for your Emergency Fund and/or part of your fixed income retirement allocation. Be aware of the nuances of I bonds. https://tipswatch.com/i-bond-manifesto/

I'd also suggest considering investing in an HSA. https://www.bogleheads.org/wiki/Health_savings_account
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
lakpr
Posts: 11723
Joined: Fri Mar 18, 2011 9:59 am

Re: First Portfolio Review

Post by lakpr »

1) To avoid wash sales, I think you can sell everything that you have in the Roth IRA and buy a different Total US Market ETF (SCHB or ITOT, for example; or if your brokerage firm is Fidelity, FSKAX or FZROX). Edit: Never mind, you have SCHB in His/Her taxable also. May be you can split the Roth investment as 50% S&P 500 Growth + 50% S&P 500 Value instead, and replicate the same Total US Market

2) Second the recommendation to buy up the maximum annual complement of I-bonds every year. Also use the gift-box strategy to buy up for future years (no telling how long the current 1.3% real rate will last). It might be as early as next month.

3) With a $425k income you are in the 32% Federal tax bracket. You have 6.7% of $1.85 million, or $124k in SWAGX in His/Her taxable account. The current SEC yield of Total Bond Market Fund is 4.49%. (I took BND as reference, didn't get the corresponding yield for AGG / SWAGX as readily, but expect little difference).

Given that your mortgage rate is 3.125%, and with a low balance of $120k odd the mortgage interest is not itemizeable, the effective after-tax yield of that SWAGX is 3.125% / (1 - 32%) = 4.56%.

I am 100% sure that there are losses in SWAGX from His/Her taxable. Meaning, there should be no tax cost to selling it off. I recommend that you sell off SWAGX in His/Her taxable, and pay off the mortgage. You are exchanging "bonds" for "bonds", as a mortgage is a negative bond. Your net worth won't change, your asset allocation does not change, but you are exchanging an asset whose future return is UNKNOWN (the SEC yield is only predictive), to something that has a KNOWN return (definite after-tax return of 3.125%), and both returns are about equal at the present instant in time.

4) I do not see any IRA in Her name in the original post. You have only until April 15th, barely two weeks, to make the backdoor Roth contribution for 2023 ($6,500) in her name. Don't miss that window. [ I am assuming you were married as of December 31, 2023 ]
Last edited by lakpr on Tue Apr 02, 2024 7:40 am, edited 1 time in total.
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HMSVictory
Posts: 1738
Joined: Sun Nov 01, 2020 6:02 am
Location: Lower Gun Deck

Re: First Portfolio Review

Post by HMSVictory »

With a net worth closing in on $2M in your mid-thirties' you guys are killing it! Bravo.

I find your overall allocation of 75/25 to be reasonable for sure.

I think you may be mentally shorting your actual investing time horizon:
  • - retire in ten years (+10)
  • - retirement (+40-60 years)
So, your true time horizon is 50-70 years dependent on your longevity. In other words - you have decades to ride out volatility!

Lastly, I highly recommend an AI based retirement planning tool that is dramatically more adaptable than a spreadsheet: newretirement (dot) com.
Stay the course!
tashnewbie
Posts: 4332
Joined: Thu Apr 23, 2020 12:44 pm

Re: First Portfolio Review

Post by tashnewbie »

diversifire wrote: Tue Apr 02, 2024 4:29 am Thanks for all of the feedback, you have definitely given me a few things to consider, I knew I was likely missing something.
tashnewbie wrote: Mon Apr 01, 2024 2:48 pm Watch out for wash sales with S&P500 if you ever want to tax loss harvest that.
I am being careful of wash sales and don't plan to buy additional VTI in the IRA or VOO in the taxable account for that reason. All of the investments in the vanguard brokerage have large unrealized capital gains so I don't think it will be an issue.
I would go ahead and sell VTI in the IRA and buy more VOO there.
We are doing tax deferred contributions and I am going to try and get a backdoor Roth going for her this year.
I would at least get her TIRA set up and 2023 contribution ($6500) made before April 15 (or whatever is your 2023 tax filing deadline). Because the contribution is for a different year than the conversion year, the Form 8606 will look a bit different than what you may be used to. Check out White Coat Investor's tutorial for details about how to complete the form.
Topic Author
diversifire
Posts: 3
Joined: Mon Apr 01, 2024 9:32 am

Re: First Portfolio Review

Post by diversifire »

Thank you all for your comments, to summarize some of the points you are making we should:

Start adding ibonds
We do have most of our emergency fund in ibonds at the moment at the 0% fixed rate ($40,000). We were planning on selling them soon and putting the proceeds in a money market at Vanguard. Since they are risk free I was having a hard time understanding where they fit in the portfolio. I was thinking they were more like a savings account. Should I expect ibonds to always outperform a money market fund?

Start a backdoor Roth for my wife
I want to open a backdoor Roth for my wife, but we already filed taxes for this year. I assume we would have to amend our return if we make a TIRA contribution? If we don't do the 2023 contribution how much money are we leaving on the table? Finance can be a bit stressful for her and I am glad we were able to get the 403b/457b started, but this may have to wait for 2024's contribution.

Model my retirement using some online tools
I have used portfolio visualizers monte carlo tool quite a bit, but I will look into the other suggestions.

Consider selling our bonds in our taxable account to pay off house (SWAGX)
I would like to reduce/eliminate the bond holdings in our taxable account. I do have a loss on SWAGX at the moment. I did have a concern that it would cause a wash sale with the FXNAX in my 401k as they follow the same index. We were also planning on using vanguards total bond fund in her retirement accounts which follows the float adjusted version of the index. I was debating stopping contributions for a period to avoid the wash sale, but dividends are automatically reinvested so I have no idea how to get around this.

I know Bogleheads are split on whether I need to worry about this at all. The only way around it would be to sell all of the 401k fund and buy it back later, that seems excessive. Along this same topic we receive company stock in our 401k twice a month and also receive restricted stock once a year. If I sell that at a loss I don't see how I could avoid a wash sale in my 401k.

Simplify some of our investments to avoid wash sales
If I understand the wash sale rule correctly I should be able to avoid them buy just never buying more VTI in my IRA. I shouldn't have to sell the VTI that I currently have right? I do not have dividend reinvestment turned on. I also do not plan to buy anymore S&P500 funds in our taxable and the VOO that I currently have in taxable I doubt will ever have a loss to be harvested.

Consider an HSA
We currently have some healthcare issues to deal with and I am not 100% sure how to determine the breakeven, but I think we are better off with a low deductible plan.
lakpr
Posts: 11723
Joined: Fri Mar 18, 2011 9:59 am

Re: First Portfolio Review

Post by lakpr »

diversifire wrote: Tue Apr 02, 2024 3:46 pm Thank you all for your comments, to summarize some of the points you are making we should:

Start adding ibonds
We do have most of our emergency fund in ibonds at the moment at the 0% fixed rate ($40,000). We were planning on selling them soon and putting the proceeds in a money market at Vanguard. Since they are risk free I was having a hard time understanding where they fit in the portfolio. I was thinking they were more like a savings account. Should I expect ibonds to always outperform a money market fund?

No, you can't depend on I-bonds always outperforming money market fund. But the interest from I-bonds is tax-deferred until you actually redeem the bond (either fully or partially), whereas the money market fund is always taxable in the calendar year in which the interest is credited.

Start a backdoor Roth for my wife
I want to open a backdoor Roth for my wife, but we already filed taxes for this year. I assume we would have to amend our return if we make a TIRA contribution? If we don't do the 2023 contribution how much money are we leaving on the table? Finance can be a bit stressful for her and I am glad we were able to get the 403b/457b started, but this may have to wait for 2024's contribution.

All you need to do is fill out a Form 8606 for 2023 for your wife. Since it is a non-deductible contribution, it neither increases your tax liability for 2023 nor decrease it. IRS has been known to accept Form 8606, anecdotally, as a stand-alone form. No need to amend the already-filed tax return for 2023.

Model my retirement using some online tools
I have used portfolio visualizers monte carlo tool quite a bit, but I will look into the other suggestions.

Consider selling our bonds in our taxable account to pay off house (SWAGX)
I would like to reduce/eliminate the bond holdings in our taxable account. I do have a loss on SWAGX at the moment. I did have a concern that it would cause a wash sale with the FXNAX in my 401k as they follow the same index. We were also planning on using vanguards total bond fund in her retirement accounts which follows the float adjusted version of the index. I was debating stopping contributions for a period to avoid the wash sale, but dividends are automatically reinvested so I have no idea how to get around this.

I know Bogleheads are split on whether I need to worry about this at all. The only way around it would be to sell all of the 401k fund and buy it back later, that seems excessive. Along this same topic we receive company stock in our 401k twice a month and also receive restricted stock once a year. If I sell that at a loss I don't see how I could avoid a wash sale in my 401k.

I am of the firm opinion that retirement accounts do not matter for wash sales. I would, in your shoes, without hesitation sell the SWAGX and pay off the mortgage. As another poster remarked -- (edited for clarity: in a different thread, not this one) -- , if IRS really did audit you and hold you responsible for wash sales on your SWAGX sale (even though you hold a completely different mutual fund in your 401k, FXNAX), you will be a mini-celebrity on these Boglehead forums. The odds of which I would put one in a million, perhaps even less ...

Simplify some of our investments to avoid wash sales
If I understand the wash sale rule correctly I should be able to avoid them buy just never buying more VTI in my IRA. I shouldn't have to sell the VTI that I currently have right? I do not have dividend reinvestment turned on. I also do not plan to buy anymore S&P500 funds in our taxable and the VOO that I currently have in taxable I doubt will ever have a loss to be harvested.
This part is definitely correct. But why not consider selling VTI in your IRA? No tax cost in selling and buying within the retirement account, and simplification does have its merits

Consider an HSA
We currently have some healthcare issues to deal with and I am not 100% sure how to determine the breakeven, but I think we are better off with a low deductible plan.
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