Portfolio Question - Newbie

[BriMarie]

Hello! Hoping to get some insight and advice. I am very new to investing and becoming financially literate, but am happy to be finally on a path forward. I started to try and learn more a few years back, got introduced to a financial advisor that convinced me the best way forward was to get full term life insurance for my entire family (including my toddler and baby) as a way to build wealth, and figured I could trust the expert so that is what I did. Once I realized that was an incredibly stupid move, I went back to feeling very unsure of what to do and who to trust, and so I just hoarded my cash so as to not make another stupid mistake I couldn’t get out of.

Earlier this year, I decided I need to just stop being a cash hoarder and so I took 72K and put it in our kids 529 plans this year (18K per parent/per kid)and then I put 50K into a taxable account and did the S&P 500 because I felt that even if it wasn’t the best decision, it wouldn’t be a bad decision.

I own my own business and have started a SEP account a couple of years ago (the only other thing this terrible financial advisor helped me set up – although now I’m so pissed that it will continue to pay her out for forever!)

My husband will have an inheritance of (mostly) real estate, that is worth at this point around 4 million. It is 4 homes in California that are paid off and a portion of a farm, so conservatively speaking that would be netting about 20K+ per month by retirement time. In the back of his mind, this has been his “plan for retirement”. From the calculations I’ve tried to understand, in 20 years if we keep the same spending habits, we will need around 28K per month.

So, while our lack of properly planning for retirement is maybe an issue, it is not so dire. I just want to feel like we are doing what we need to do to “make up the difference”.

Additionally, our next two priorities would be thinking of our kids' college costs, and our dream is to have a vacation home outside of the U.S. if we can make that happen. I had started researching this earlier this year when we thought we would love to get a property in Costa Rica, but since you have to pay cash for a home there, we are kind of thinking this could be a 10 year or so plan (if it makes sense). Then we would use it part time, and rent it out the other time. The kind of house we’d like costs (at present) around 500K.

Currently, we have an additional 35K in a Schwab account (didn’t buy anything with it yet) and about 90K in our HYS.

My thought was maybe we should split that amount between HYS and some sort of fund that makes sense for a 10 year-ish goal?? This decision can come after we are sure we are doing what we need to do for the retirement piece. I guess this is the lump sum decision (unless I’ve already done too much lump suming…)

At present, we have about 20% of our take home ($3000 - $3500) per month to put towards what would be our plan moving forward and the whole dollar cost averaging strategy. I’m not considering my SEP contributions in this, but what would continue to go into any other retirement or taxable accounts.

I’ve given way too much backstory, and I do apologize, but I wanted to paint as accurate a picture as possible of our situation. I did my best to follow the template as well, but there are a few things I think I might not fully understand or have done correctly. Happy to edit and adjust if it is problematic or not clear.

Emergency funds:We have our emergency fund in place

Debt: We have no debt.

Tax Filing Status: Married filing jointly

Tax Rate: 24% Federal

State of Residence: CA

Age: 44/45

Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 20% of stocks
*This just seems to be the rule of thumb. I would say we are “moderately aggressive”


Please provide an approximate size of your total portfolio: 280K


Current retirement assets
* The format below is shown using his/her pronouns. Use whatever pronouns or identifying names you prefer as long as it is clear which assets belong to which person.

Taxable
44% cash (for investing – do not include emergency funds) 125K (currently about 70K in HYS and 35K I transferred to Schwab and didn’t invest yet)
17% Schwab S&P500 (SWPPX)(.02%) $50K


Her SEP IRA
29% (It doesn't seem to have a fund name, but I put the funds available in the section below) $83K


Her Roth IRA at T Rowe Price
8% fund name Retirement 2045 Fund (TRRKX)(.61%) $24K

___
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions
$30,000 - $18,500 her SEP IRA (25% of my salary.)
$12,000 taxable (for retirement, not short term goals)
$7000 his IRA/Roth IRA (currently $0. He needs to start this I think)


Available funds
Funds available in HER SEP IRA
SGI GLOBAL EQUITY I (SGLIX)
SGI SMALL CAP CORE FUND I... (BOGIX)
SGI US LARGE CAP EQUITY I... (SILVX)
SGI DYNAMIC TACTICAL (DYTA)
SGI US LARGE CAP CORE (SGLC)



Questions:
1. I just need a simple, set it it and (mostly) forget it plan that makes sense. I have had this stress of being so late to investing, and then the anxiety of doing something so wrong (life insurance) that it’s kept me a bit paralyzed at first and then acting impulsively to just do something. I’m pausing to simply run my plan by people who know what they’re doing.

2.For retirement: I cannot figure out if it’s necessary or suggested to have both a SEP/IRA for some sort of diversification purposes? Can (and should) I add to my Roth IRA at this time as another way to save for retirement since I started so late? This is if, in fact, we are going to need more for retirement. Additionally, my husband's company doesn’t offer a 401K, so I believe he should have some sort of retirement plan, but as I mentioned above, it seems like we would have to do the backdoor if I understand correctly.

***I included the 529 plans only because they seem like investments??? But I’m not sure they should be included. While this is something we’ve recently poured a bit of cash into, I feel hesitant to add much more when they are so young and who the heck knows if college will be their path. Should we instead do some additional savings on our end that could just be “available” for them at the time college age comes along to help them out? Like a taxable account or something like that?

[retired@50]

Hello! Hoping to get some insight and advice. I am very new to investing and becoming financially literate, but am happy to be finally on a path forward.

Welcome to the forum.

Tax Rate: 17.2% Federal, 6.3% State

This ^^^ seems like an effective rate, but a marginal rate is more helpful. 12%, 22%, 24%, etc.
Check here: https://www.nerdwallet.com/article/taxe ... x-brackets by using your "taxable income" from your most recent tax return.

Her SEP IRA
23% (I cannot tell this information. It’s managed by a financial advisor and doesn’t seem to be one fund name) $83K

Do you have a statement from this account? Perhaps something from the end of 2023 that lists the investments - fund names, expense ratios, etc?

Are you intending to continue to do business with this adviser?

Her 529 Plans (not sure if this should be included)
20% / $73,000 ScholarShare CA 529 Plans (2 young kids age 5 and 2)

These ^^^ shouldn't be included. They're not part of your retirement assets. Separate purpose, separate timeline for being spent.

You can edit your post by using the pencil icon in the upper right corner of your original post at the top of the thread. Once you do that, it will help others respond more accurately.

Regards,

[lakpr]

I own my own business and have started a SEP account a couple of years ago (the only other thing this terrible financial advisor helped me set up – although now I’m so pissed that it will continue to pay her out for forever!)

Let me address just this point. Unless you have employees in your business, you can setup an Individual 401(k) for your business. Do it with Fidelity or Schwab (Vanguard is exiting self-employed individual 401(k), sold it all to Ascensus), and you will have access to low cost funds.

My understanding is that you cannot make contributions to a SEP-IRA and an Individual 401(k) for the same tax year. So if you have made SEP-IRA contributions for 2024 already, just wait until January 2025 to open one (just 4 more months to go). If you have NOT done this yet (usually business owners make the contributions after the year's financials are completed), open the Individual 401(k) tomorrow.

You can later rollover the entire SEP-IRA assets into the Individual 401(k). No need to continue to pay your financial salesman "forever".

[BriMarie]

Let me address just this point. Unless you have employees in your business, you can setup an Individual 401(k) for your business. Do it with Fidelity or Schwab (Vanguard is exiting self-employed individual 401(k), sold it all to Ascensus), and you will have access to low cost funds.

My understanding is that you cannot make contributions to a SEP-IRA and an Individual 401(k) for the same tax year. So if you have made SEP-IRA contributions for 2024 already, just wait until January 2025 to open one (just 4 more months to go). If you have NOT done this yet (usually business owners make the contributions after the year's financials are completed), open the Individual 401(k) tomorrow.

You can later rollover the entire SEP-IRA assets into the Individual 401(k). No need to continue to pay your financial salesman "forever".

Thank God! I contribute monthly but will have that set up to end after 2024!

[ruralavalon]

Age: 44/45

Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 20% of stocks
*This just seems to be the rule of thumb. I would say we are “moderately aggressive”

In my opinion your desi asset allocation is within the range of what is reasonable.

I own my own business and have started a SEP account a couple of years ago (the only other thing this terrible financial advisor helped me set up – although now I’m so pissed that it will continue to pay her out for forever!)
. . . . .
2.For retirement: I cannot figure out if it’s necessary or suggested to have both a SEP/IRA for some sort of diversification purposes? Can (and should) I add to my Roth IRA at this time as another way to save for retirement since I started so late? This is if, in fact, we are going to need more for retirement. Additionally, my husband's company doesn’t offer a 401K, so I believe he should have some sort of retirement plan, but as I mentioned above, it seems like we would have to do the backdoor if I understand correctly.

I also suggest opening an individual (solo) 401k at a low cost provider like Vanguard, Fidelity or Schwab. You can the rollover the SEP IRA into the individual (solo) 401k.

You can contribute to both an individual (solo) 401k and a Roth IRA.

[BriMarie]

You can edit your post by using the pencil icon in the upper right corner of your original post at the top of the thread. Once you do that, it will help others respond more accurately.

Regards,

thank you! I've edited to make most of those updates!

(and I certainly do not want to continue working with that advisor!)

[BriMarie]

I also suggest opening an individual (solo) 401k at a low cost provider like Vanguard, Fidelity or Schwab. You can the rollover the SEP IRA into the individual (solo) 401k.

You can contribute to both an individual (solo) 401k and a Roth IRA.

Great -- I am going to look into this more! Thank you.

[ruralavalon]

I also suggest opening an individual (solo) 401k at a low cost provider like Vanguard, Fidelity or Schwab. You can the rollover the SEP IRA into the individual (solo) 401k.

You can contribute to both an individual (solo) 401k and a Roth IRA.

Great -- I am going to look into this more! Thank you.

IRS, Rollover Chart

There are income limits for contributions to a Roth IRA, link

Taxable
44% cash (for investing – do not include emergency funds) 125K (currently about 70K in HYS and 35K I transferred to Schwab and didn’t invest yet)
17% Schwab S&P500 (SWPPX)(.02%) $50K

I suggest that your uninvested cash in the taxable account be invested in more shares of Schwab S&P500 (SWPPX)(.02%).

Since you already have a taxable account at Schwab, for simplicity I suggest that your other accounts also be at Schwab.

In his Roth IRA, if at Schwab, he could use Schwab Total Market Index Fund (SWSTX) ER 0.03%, and Schwab International Index Fund (SWISX) ER 0.06%

In your individual 401k, if at Schwab, you could use:
1) Schwab Total Market Index Fund (SWSTX) ER 0.03%;
2) Scwab International Index Fund (SWISX) ER 0.06%; and
3) Schwab U.S. Aggregate Bond Index Fund (SWAGX) ER 0.04%.
(In the long-term this will be the largest of your accounts, because receiving ~ 1/2 of the annual contributions.)

In your Roth IRA at T. Rowe Price you could use T. Rowe PriceTotal Equity Market Index (POMIX) ER 0.20%.

There are income limits for contributions to a Roth IRA, link

[BriMarie]

I suggest that your uninvested cash in the taxable account be invested in more shares of Schwab S&P500 (SWPPX)(.02%).

Since you already have a taxable account at Schwab, for simplicity I suggest that your other accounts also be at Schwab.

In his Roth IRA, if at Schwab, he could use Schwab Total Market Index Fund (SWSTX) ER 0.03%, and Schwab International Index Fund (SWISX) ER 0.06%

In your individual 401k, if at Schwab, you could use:
1) Schwab Total Market Index Fund (SWSTX) ER 0.03%;
2) Scwab International Index Fund (SWISX) ER 0.06%; and
3) Schwab U.S. Aggregate Bond Index Fund (SWAGX) ER 0.04%.
(In the long-term this will be the largest of your accounts, because receiving ~ 1/2 of the annual contributions.)

In your Roth IRA at T. Rowe Price you could use T. Rowe PriceTotal Equity Market Index (POMIX) ER 0.20%.

There are income limits for contributions to a Roth IRA, link

thank you! I really appreciate the helpful links and specificity.

[retired@50]

(and I certainly do not want to continue working with that advisor!)

Good for you. Congratulations on taking some meaningful steps toward becoming a do-it-yourself investor.

Don't forget to explore the wiki when you have some time to do some reading.

https://www.bogleheads.org/wiki/Main_Page

Regards,