First Post/Request for Portfolio Review

['93PA]

Hello Bogleheads!

I am a long time lurker and finally decided to take the time on this rainy Sunday to put together my first post. This is the standard “how is my retirement plan going” post. Thank you for all the wit and wisdom that you have shared on this forum over the years. It has helped me and the wife tremendously.

Emergency funds: Four months but this is slowly increasing with the intention to get to 6 months.

Salary: Gross income will be about $140k for both of us this year. We've both been fortunate to earn merit raises most years (and at least COLA).

Debt: Mortgage on house, $229,358 @ 7.5%, 30 year conventional

Tax Filing Status: Married Filing Jointly

Tax Rate: 22% Federal, 3.07% State

State of Residence: PA

Age: 31 (him) and 30 (her)

Desired Asset allocation: 100% stocks / 00% bonds
Desired International allocation: 00% of stocks

(Open to discussion on the point of AA, see below)

Approximate size of total portfolio: $177k

Taxable
14.33% Thrivent Large Cap Growth Fund - S (THLCX) (0.76%)

His 401k Roth IRA at Fulton Financial
37.15% Vanguard 500 Index Admiral (VFIAX) (0.04%)
Company match? Yes, 3% if he contributes 6%, which is the limit. He does currently match to the limit.

His Roth IRA at Vanguard
33.55% Vanguard 500 Index Admiral (VFIAX) (0.04%)

Her 401k Traditional IRA at American Century
11.42% One Choice 2060 Portfolio (ARGVX) (0.96%)
Company match? Yes, 3% if she contributes 3%. I need to get clarification if this is the limit of the match, but she does currently contribute 3%.

Her Roth IRA at Vanguard
3.55% Vanguard Total Stock Market ETF (VTI) (0.03%)
_______________________________________________________________

Contributions

New annual Contributions
$8,180 his 401k ($5,453 him, $2,727 employer match)
$3,072 her 401k ($1,536 her, $1,536 employer match)(This might fluctuate slightly as she is an hourly employee and each paycheck can vary by some small amount.)
$7,000 his Vanguard Roth IRA
$6,240 her Vanguard Roth IRA (I’m thinking this will actually increase to $6,740 by year end, trying to get to a place where we are maxing out both Roth IRAs.)
$0 taxable

Available funds

Funds available in his 401(k)
American Funds New World Fund (RNWGX) (0.57%)
Cohen and Steers Realty Fund (CSRSX) (0.88%)
Federated Capital Preservation Fund (CAPPR) (0.69%)
Federated Hermes MDT Small Cap Core Fund (QLSCX) (0.88%)
Fidelity Select Materials Portfolio (FSDPX) (0.71%)
FMI International Fund (FMIJX) (0.94%)
Invesco Gold & Special Minerals Fund (OGMIX) (0.66%)
Jensen Quality Growth Fund (JENSX) (0.82%)
JPMorgan Large Cap Growth Fund (JLGMX) (0.44%)
JPMorgan Mid Cap Growth Fund (JMGMX) (0.70%)
Manning & Napier Real Estate Fund (MNREX) (1.10%)
MFS Value Fund (MEIHX) (0.79%)
T. Rowe Price Capital Appreciation Fund (PRWCX) (0.71%)
T. Rowe Price Intl Discovery Fund (PRIDX) (1.24%)
T. Rowe Price Retirement 2050 Fund (approximate retirement decade) (TRRMX) (0.63%)
Vanguard 500 Index Fund (VFIAX) (0.04%)
Vanguard LifeStrategy Growth Fund (VASGX) (0.14%)
Vanguard Mid-Cap Index Fund (VIMAX) (0.05%)
Vanguard Mid-Cap Value Index Fund (VMVAX) (0.07%)
Vanguard Short-Term Bond Index Fund (VBIRX) (0.07%)
Vanguard Small-Cap Growth Index Fund (VSGAX) (0.07%)
Vanguard Small-Cap Index Fund (VSMAX) (0.05%)
Vanguard Total Bond Market Index Fund (VBTLX) (0.05%)
Vanguard Total Intl. Stock Index Fund (VTIAX) (0.12%)
Vanguard Wellesley Income Fund (VWIAX) (0.16%)

Funds available in her 401(k)
The American Century website is not good, but from what I can tell, we can invest in any American Century fund. It seemed silly to try and list them all here.

Questions:

Our current goal is to retire at age 60 (29 years from now) with about $3 million. I’m taking my best guess that $3 million will fund the retirement that we want to have. Using an annual rate of return of 7%, a monthly contribution rate of $2,041 (the total annual contributions divided by 12), and the current portfolio balance of $177k, we will hit that goal. Are my assumptions reasonable?

We currently pay an additional $500 per month on our mortgage. This effectively takes our 30 year mortgage to a 15 year mortgage. While we could invest that $500 every month, the 7.5% interest rate on the loan is greater than my assumed 7% annual return on retirement accounts. This leads me to believe that paying down the mortgage is the right move at this time. We both really like the idea of being mortgage free and have no plans to move from this house. Does paying down the mortgage seem like the best use of that “extra” $500 per month?

Her 401(k) target date fund at American Century with the 0.96% expense ratio seems very expensive to me. Can anyone point me towards a fund (or tool to find a fund) at American Century that has a more reasonable expense ratio? She was automatically enrolled in this fund when she started employment, and this is the first time I ever looked at the expense ratio…

I’ve had a 100% domestic stock AA since I began saving for retirement at the age of 25. I understand that I’ll need to begin to add bonds at some point, but I’m not sure when to begin that. I don’t currently have any trouble sleeping at night, but I’ve enjoyed good returns for the last several years (and understand that won’t last forever). When is it an appropriate time to begin adding bonds?

The intention is for any additional increases in salaries to go towards 401(k) contributions. We are trying to avoid lifestyle creep. I drive a 2000 Honda Civic and she drives a 2013 Subaru Forester. Both of which were paid for with cash and we intend to drive until it's no longer reasonable to do so. However, we are thinking of starting a family so the situation may change quite a bit over the next year.

Noah

[retired@50]

Hello Bogleheads!
...

Noah

Welcome to the forum.

After reading your post a couple thoughts come to mind...

1. The contribution rate to your 401k is not at maximum level, but you're holding a taxable investment account with a high expense ratio mutual fund inside. I'd suggest you raise your 401k contribution level, and if that leaves your paycheck too small to make your monthly bills, then sell some of the Thrivent fund with the 0.76% expense ratio to make up the difference. That way, you're basically transferring money from the taxable account with a high cost fund into your 401k plan with a low expense ratio.

2. You may want to review the Traditional versus Roth wiki page to determine if you should be using a Roth 401k or a Traditional tax-deferred 401k.
https://www.bogleheads.org/wiki/Traditional_versus_Roth

3. As far as "Her 401k" goes, I don't see any inexpensive mutual funds or ETFs at American Century. Perhaps the wiki page on how to campaign for a better 401k plan could help. If she manages to get company management to include some index funds it will help all the 401k plan participants.
Link: https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

Regards,

[Duckie]

Taxable
14.33% Thrivent Large Cap Growth Fund - S (THLCX) (0.76%)

Consider selling this expensive fund. At the least turn OFF all automatic dividend reinvestment. And if you're actually holding this at Thrivent consider moving to a different brokerage.

His 401k Roth IRA at Fulton Financial

This is a Roth 401k. It has nothing to do with an IRA.

Her 401k Traditional IRA at American Century

Again, this is just a 401k.

Funds available in his 401(k)

The best options are:

• Vanguard 500 Index Fund (VFIAX) (0.04%) -- US large caps, 85% of US stocks
• Vanguard Total Intl. Stock Index Fund (VTIAX) (0.12%) -- Complete international stocks
• Vanguard Total Bond Market Index Fund (VBTLX) (0.05%) -- US bonds

Funds available in her 401(k)
The American Century website is not good, but from what I can tell, we can invest in any American Century fund.

If her only 401k options are American Century funds and your AA is 100% US stocks then (BEQGX) American Century Equity Growth Fund Investor Class (0.66%) is not an unreasonable choice. It's not great, but nothing is.

If her 401k has ETF options she could consider (QGRO) US. Quality Growth ETF (0.29%).

Her 401(k) target date fund at American Century with the 0.96% expense ratio seems very expensive to me. Can anyone point me towards a fund (or tool to find a fund) at American Century that has a more reasonable expense ratio?

On the American Century website choose the appropriate "Share Class", then under "Filters" choose "Mutual Fund" (or "ETF") / "Stock" and click "Apply". On the list under "Expense Ratio" click on "Gross". Put the lowest expense ratios at the top. Lowest in this case was 0.66%.

[z06ray]

not smart enough to weigh in on all the questions but want to chime in to say you are in the right place.

One thing that I do to anticipate future value is to just think of everything in real terms. Instead of trying to figure out future savings/ spend numbers 30 years from now just try and think in real terms. Of course I would try and caution against any substantial planning on a 30 year horizon. A lot will change. Will you both be seeing future raises ? Will children be in the picture ? Etc.

But assuming all things just steadily move along (highly unlikely) I would model in real terms. So would look at is as a 4% growth year over year and you won't have to think about future value or future inflation. 3M is your number the I assume you plan to spend around $120k per year in todays dollar (The end numbers will be much higher by then)

['93PA]

Thanks all for the replies.

I'll certainly read through the "Campaigning for a Better 401(k) Plan" and the "Traditional vs Roth" pages. I've always assumed (based on what I was told) that the Roth was a superior option for my situation. But I've not done the work to really figure it out.

Thanks for the tips on navigating the American Century site. I don't know why, but I really struggle to find my way around it.

The taxable account was set up for me when I was a child. I do not regularly contribute to it. It is held at Thrivent. I've thought about transferring it to a taxable account at Vanguard (where my tax advantaged accounts are), but haven't taken any action. If I were to sell off this fund to contribute toward tax advantaged accounts, I'd pay a penalty in capital gains tax, right?. So I've always assumed it would be better to avoid the capital gains tax and just leave it in a taxable account. Is this flawed thinking?

It does feel a bit baffling to be trying to plan for a situation 30 years from now with only the information available today. I guess things will become more clear the closer I get to 60...

[retired@50]

The taxable account was set up for me when I was a child. I do not regularly contribute to it. It is held at Thrivent. I've thought about transferring it to a taxable account at Vanguard (where my tax advantaged accounts are), but haven't taken any action. If I were to sell off this fund to contribute toward tax advantaged accounts, I'd pay a penalty in capital gains tax, right?. So I've always assumed it would be better to avoid the capital gains tax and just leave it in a taxable account. Is this flawed thinking?

Penalty isn't really the right word here... You'd pay a capital gains tax, true, but that was always going to be the case whenever a taxable investment account is set up. The capital gains tax rate, or your personal situation may change along the way, but it's not really a penalty.

For more on the consequences of selling a fund with a capital gain in a taxable account you can review the wiki page below.
https://www.bogleheads.org/wiki/Paying_ ... itch_funds

You may or may not have noticed but the fund in question, THLCX, has declared annual long term capital gains annually since 2015, so there is a tax cost you're paying to hold onto this fund.

Holding onto a fund with a 0.76% expense ratio for another 30 years is probably not the right path if you intend to spend this money on yourself. You can consider selling over several tax years to help minimize the impact of the capital gains tax in any single year.

On the other hand, if you happen to itemize your deductions, and are charitably inclined, you could gift the shares to your favorite charity and then you wouldn't have to pay the capital gains tax, and neither would the charity.

Regards,

[sailaway]

You seem to have chosen a number for retirement, but have you thought about what it is you want to do once you leave your career? That will determine your expenses, which will help you find tune your retirement number.

As you note, age 60 is a long time from now for you. It is good enough to optimize your savings for now and watch your goals change over time.

You mention starting a family. You will likely get a lot of pressure to update your cars. Even without that, you will likely need a new car sooner rather than later. What is your plan for working that into your goals?

[ruralavalon]

Welcome to the forum

Hello Bogleheads! Our current goal is to retire at age 60 (29 years from now) with about $3 million. I’m taking my best guess that $3 million will fund the retirement that we want to have. Using an annual rate of return of 7%, a monthly contribution rate of $2,041 (the total annual contributions divided by 12), and the current portfolio balance of $177k, we will hit that goal. Are my assumptions reasonable?

Here is a calculator you can use to assess the range of possible outcomes at different levels of contributions:
FIREcalc.

Establishing a high rate of contributions is one of the most important investing decisions you can make.

Hello Bogleheads! We currently pay an additional $500 per month on our mortgage. This effectively takes our 30 year mortgage to a 15 year mortgage. While we could invest that $500 every month, the 7.5% interest rate on the loan is greater than my assumed 7% annual return on retirement accounts. This leads me to believe that paying down the mortgage is the right move at this time. We both really like the idea of being mortgage free and have no plans to move from this house. Does paying down the mortgage seem like the best use of that “extra” $500 per month?

In my opinion it's reasonable to make accellerated payments on the mortgage.

[Beachey]

If her only 401k options are American Century funds and your AA is 100% US stocks then (BEQGX) American Century Equity Growth Fund Investor Class (0.66%) is not an unreasonable choice. It's not great, but nothing is.

If her 401k has ETF options she could consider (QGRO) US. Quality Growth ETF (0.29%)

Looking through the American Century Funds I agree that BEQGX seems a reasonable choice, it uses the S&P 500 as a benchmark and while it will lag slightly to an S&P 500 Index Fund mostly due to the Fund fee it has tracked the S&P 500 reasonably closely


The other thing that should at least be on your radar is refinancing your mortgage.

Quick Calculations show your mortgage payment is around $1603.70. A 6.5% mortgage would be $1449.70 and a 5.5% would be $1302.27.

That represents a first-year saving of $1848.07 and $3617.22 respectively. That is the benchmark I would use in closing costs on the refi whether it makes sense. I am seeing rates around 6% right now. You have to decide where you think they will go in the near future but I would at least have a rate in mind where you think it makes sense.

[Outer Marker]

I'll certainly read through the "Campaigning for a Better 401(k) Plan" . . .

The taxable account was set up for me when I was a child. I do not regularly contribute to it. It is held at Thrivent. I've thought about transferring it to a taxable account at Vanguard (where my tax advantaged accounts are), but haven't taken any action. If I were to sell off this fund to contribute toward tax advantaged accounts, I'd pay a penalty in capital gains tax, right?. So I've always assumed it would be better to avoid the capital gains tax and just leave it in a taxable account. Is this flawed thinking?

You have three excellent funds in your 401K as identifed by Duckie. No need for campaigning. Just use the S&P 500 and Total International and get out of that high cost stinker.

Likewise, I'd bite the bullet and pay your taxes on the high cost large cap fund. You'll owe the taxes sooner or later, and that ER is a huge long term drag on performance. Google "Vanguard why fees matter" if you need more convincing.

Fidelity and Schwab generally have higher marks than Vanguard for customer service these days if you're considering moving your taxable brokerage.

I agree with paying down the mortgage. Consider a true, zero-cost refi. If you can afford the 15 year payments, as you're currently doing on a 30 year term, consider making your refi to a 15 year term and take the additional rate savings. Shop current rates at Loan Depot, Better and Amerisave.

[ruralavalon]

I agree, in his 401k account change to a combination of the excellent, diversified, low cost index funds offered:
Vanguard 500 Index Fund (VFIAX) (0.04%) -- US large caps, 85% of US stocks
Vanguard Total Intl. Stock Index Fund (VTIAX) (0.12%) -- Complete international stocks
Vanguard Total Bond Market Index Fund (VBTLX) (0.05%) -- US bonds

Consider increasing contributions to his 401k if that's practical for you.

[retired@50]

You have three excellent funds in your 401K as identifed by Duckie. No need for campaigning.

The campaigning was for "Her 401k"

Her 401k Traditional IRA at American Century
11.42% One Choice 2060 Portfolio (ARGVX) (0.96%)

Regards,

[Outer Marker]

You have three excellent funds in your 401K as identifed by Duckie. No need for campaigning.

The campaigning was for "Her 401k"

Her 401k Traditional IRA at American Century
11.42% One Choice 2060 Portfolio (ARGVX) (0.96%)

Regards,

My bad. If she has access to the full American Century suite, BEQGX which benchmarks against the S&P500 has a 0.66% ER. Not great, but an improvement.

['93PA]

Thanks everyone!

Knowing about BEQGX is good. If that is the only option, then that's what we'll do.

The current plan is to continue increasing 401(k) contributions as pay raises come. We are fortunate that raises for COLA and merit are common and our cost of living doesn't need to increase (at least at this time, a kid will change things, but that's a problem for future us).

I have questions about moving the large cap taxable fund after running through the spreadsheet found on the "Paying a Tax Cost to Switch Funds Page". I put in the current fund value ($25,466.75), the cost basis ($5,466.89), the estimated return of the current fund (13.7%), and the estimated return of the future fund (12.28%). The sheet recommends that I do NOT switch funds.

Questions: The rates of return that I used were the ten year trailing returns of THLCX and VTI minus their expense ratios as seen on Yahoo! finance. So 14.46% - 0.76% = 13.7% and 12.31% - 0.03% = 12.28% respectively. Is this the correct way to calculate a rate of return (rate of return minus expense ratio)? And, perhaps a more complicated question to answer, is it correct to use the trailing rate of return? I could see an argument that over 30 years the rates of return will converge to being similar (because it's rare that someone actually beats the market) and that I should move to the fund with the lower expense ratio. But even if I enter the same rate of return for both funds, the sheet is still telling me to NOT switch the fund. What am I missing?

Thanks for the tip on refinancing the mortgage. It's been in the back of my mind but I should crunch some more numbers to see when it makes sense to pull the trigger. The end of October will mark one year in the house (our first). To make a long story short, we got kicked out of the house we were renting last year because the landlord decided to sell it to his son. We had to find a place to move quickly, and now we have the same stories as everyone else about trying to find a home in the crazy market.