Requesting Portfolio review

[investwithin]

Edit (Jan 9th) : Updated portfolio info below.

Hi everyone,

Would love to get a portfolio review and thoughts on how I can further optimize this given some of the constraints.

Context:

• Family: Family of 4 - husband and wife in early 40s, 2 kids in elementary school
• Location: HCOL/MCOL in US ; no state tax - we plan to live in US
• I work at FAANG ; wife retired few years ago to focus on kids/life
• Overall portfolio size: ~$15M
• I still enjoy my job and I’m not mentally ready to quit, but have reduced hours and we have been pretty interested in FIRE and I know our portfolio size can support it (more below) - I might retire/further reduce hours/take a pay cut to focus on volunteering/passions in 3-4 years.
• Take home yearly income from the job is ~$250k post tax ; current yearly expenses are ~$170-$200k.
• Although this post isn’t about how I can retire and more around portfolio optimizations, all feedback/thoughts welcome (I know I can retire safely with a 2% withdrawal rate) !
• Besides keeping the company stock for a long time (where we got lucky!), we've mostly been passive investors – have tried to simplify the portfolio over the last 1-2 years (but still have a few random funds) ; have been slowly trying to unload the company stock (tax implications).
• I have used fee-based advisors in the past but as I have tried to simplify the portfolio and learned more about bogleheads, I have been managing it myself (with advice from a friend)
• We know we have been very lucky (all our wealth came from our job) and are mostly interested in wealth preservation/some growth vs high risk
• High-level allocation goals have been:
• 70% stock (out of which 70% US, 30% Intl [out of which developed: 70%, emerging: 30%])
• 20% bond (out of which 75% US, 25% Intl)
• 10% REIT
• I have not further simplified the portfolio to minimize paying capital tax gains in the brokerage account when the allocation is mostly ok – more on this later after you see the allocation breakdown as this is where my questions are.
• Been working towards keeping bonds and REITs in tax advantaged accounts (401k, Roth) and index funds in taxable/brokerage accounts – this split isn’t fully clean, but that’s the general idea.
• My previous advisor really preferred Dimension funds so that's why I have a lot of them and back in the day I also invested in target funds
• More recently I’ve been investing in FSKAX (Fidelity Total Market Index Fund)
• I invested in REITs starting last year and so far it hasn’t been a good idea, but I guess I should keep it for broad diversification (I should have realized that commercial real estate is still going to have some trouble with all the remote work but I did not want to speculate too much)
• Vanguard is where our company 401K and some of the roth accounts are; rest of the stuff is in Fidelity
• NOTE: Ignore the fact that we have a mix of Vanguard and Fidelity funds - to simplify this post, I’ve combined the types of retirement accounts we have across the 2 firms – I’m not paying any extra expenses.
• We have a revocable trust set up and our main taxable accounts are under it
• Our kids are still young and we plan to support them as needed (college, etc) while not spoiling them with money and making sure they work hard. Generally we live below our means.
• We do plan to increase our spending/travel more while kids are still young/live with us (we’ve been slowly doing this over the last year)
• Health wise we all are ok and focus on healthy eating and fitness (but not extreme) - I have some minor chronic health issues that are mostly due to working on a computer so they are getting better as I'm reducing my work hours
• Major debts: house we live in is about ~$1M and we have remaining ~$600k mortgage on it at 3% interest rate, so we’ll keep the mortgage going ; we don't have any other debts. Insurance is accounted for in expenses (home, auto, umbrella) ; health insurance is via work (rough estimate is on the lower/average side, it’ll be ~$30-40k/yr if I quit and self fund)
• We don't have any other investments/properties/rentals or other sources of income
• I understand the true value of portfolio really depends on the tax situation, but pretty much all the gains in taxable accounts are long term gains.

Portfolio:

• Detailed list is below, but here are some quick image overviews in case if helpful
• Overall allocation split - https://imgur.com/uSeUqC0
• Detailed allocation (click the photo to see zoomed in view) - https://imgur.com/P3qTB71

Taxable
1.13% DFA Dimensional International High Profitability ETF (DIHP) (0.29)
1.21% DFA Dimensional International Small Cap Value ETF (DISV) (0.42)
31.33% Fidelity Total Market Index Fund (FSKAX) (0.02)
8.82% Fidelity Total International Index Fund (FTIHX) (0.06)
0.40% Fidelity Emerging Markets Discovery Fund (FEDDX) (0.97)
2.50% Vanguard Small Cap Value ETF (VBR) (0.02)
13.28% Vanguard Tax-Exempt Bond Index Fund ETF (VTEB) (0.05)
3.34% Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) (0.07)
4.98% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04)
2.88% Vanguard Value Index Fund ETF (VTV) (0.04)
8.97% FAANG_Company stock (Undisclosed)
1% MISC

His 401k at Vanguard
2.17% Vanguard Emerging Markets Stock Index Fund Institutional Plus Shares (VEMRX) (0.09)
2.65% Vanguard Real Estate Index Fund Institutional Shares (VGSNX) (0.10)
1.41% Vanguard Total International Bond Index Fund Institutional Shares (VTIFX) (0.01)

His Roth IRA at Vanguard+Fidelity
0.06% Fidelity Total Market Index Fund (FSKAX) (0.02)
1.25% Fidelity Real Estate Index Fund (FSRNX) (0.01)
2.13% Vanguard Target Retirement 2050 Fund (VFIFX) (0.15)
0.78% Vanguard Target Retirement 2030 Fund (VTHRX) (0.14)
0.70% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04)

Her 401k at Vanguard
0.28% Vanguard Emerging Markets Stock Index Fund Institutional Plus Shares (VEMRX) (0.09)
4.11% Vanguard Real Estate Index Fund Institutional Shares (VGSNX) (0.10)
2.54% Vanguard Total International Bond Index Fund Institutional Shares (VTIFX) (0.01)

Her Roth IRA at Vanguard+Fidelity
0.05% Fidelity Total Market Index Fund (FSKAX) (0.02)
0.83% Fidelity Real Estate Index Fund (FSRNX) (0.01)
0.64% Vanguard Target Retirement 2050 Fund (VFIFX) (0.15)
0.57% Vanguard Target Retirement 2030 Fund (VTHRX) (0.14)


Besides this:

• We also have $150k for each kid in 529s (with 80/20 allocation) and plan to contribute more.
• We both have HSA accounts and we keep the money there and let it grow - it’s ~$100k total
• Keep ~$60k in cash - mostly in HYSA (wealthfront) emergency funds

Usual upkeep/maintenance:

• I sell newly vested company stock as it vests to minimize any tax gains; slowly getting rid of old vested stock that has large tax implications - we are under 10% in the company stock so it's not too bad right now - I know it's better to sell all but I've been slowly reducing every year and if I leave my job in 3-4 years, then I can sell more (low income) ; also thinking about donor-advised fund few years down the road.
• I do some reallocation every year and use a spreadsheet to keep track of everything

Questions:

• As you can see we're still spread across a bunch of index funds and can simplify things but I have been avoiding it to minimize paying capital gain taxes – are there any glaring issues across the funds that you see ?
• Last 2 years as we were simplifying the portfolio and I was selling a lot of my company stock, I decided to allocate up to 10% in REITs – just thinking that it would still follow the boglehead philosophy and it is good to be invested in real estate – hasn't really panned out and I'm not sure how many years it'll take before commercial real estate picks up but I feel I should stick to this plan - thoughts welcome
• Company stock selloff – already listed above
• General feedback welcome!
• Please let me know if I can share more info.

[invest4]

Welcome!

You provided a reasonable amount of information. Unfortunately, the links you provided didn't work for me.

You may also consider utilizing the following template which is typically used for Portfolio reviews...especially is some items may be missing: https://www.bogleheads.org/wiki/Asking_ ... _questions


Nonetheless, some initial comments:

Kudos on our decision to manage your portfolio yourself. No one cares about your money more than you do, and for most people you can readily manage it yourself...along with help / support from this community.


Asset Allocation:

* 70/30 is perfectly fine. Current guidance on Intl is no less than 20% and not more than 40%. You are good there.


* Can you elaborate more on the rationale for how you are handling tax advantaged accounts vs taxable / brokerage?


* REIT: I am personally not interested in tilts to this or that. I used to do this and eventually decided that it is simply "guessing and hoping" that you will receive better returns.


Mortgage: Generally agree with the sentiment of paying as agreed with the low interest rate. However, it would also be fine if you simply wanted to pay it off and not think about it anymore as the balance is not significant relative to your overall portfolio. Completely up to you.


529s: I think the important thing is that you know what kind of education that you are attempting to provide for your children. People have different ideas about what is acceptable to them. Public vs Private, on-campus vs off campus. Only undergrad...or as far as they are willing to take it. There is no wrong answer, just what makes sense for you and your children.


Your Questions

1. Simplifying and any issues: tbd after imagur fix.


2. REIT: as mentioned, I don't think it's needed if you otherwise have something like (fixed income part can vary):

Total US Stock (VTI)

Total Intl Stock (VXUS)

Total US Bond (BND)

Total Intl Bond (BNDX) - optional (I like to have both for example)

Since joining this forum, I really embraced the value of simplicity in my portfolio and steered away from my past investments which included tilts. YMMV.


3. Company stock selloff: well on your way.


4. General feedback: You have done well and congratulations on your financial independence. You appear to be on a good path to simplify and make everything more manageable.


Best wishes.

[BitTooAggressive]

I don’t like REITs, it’s certainly not something to overweight as we de-urbanize. Whatever you get in total market is what you need.

Be sure to diversify with US small cap value AVUV, International developed small cap value AVDV or similar multi factor funds.

Get an umbrella insurance policy if you don’t have one, as you have significant assets.

[retired@50]

[*] Overall allocation split - https://i.imgur.com/lr9phAp.png
[*] Detailed allocation (zoom in) - https://i.imgur.com/QWYyOow.png


[*] Last 2 years as we were simplifying the portfolio and I was selling a lot of my company stock, I decided to allocate up to 10% in REITs – just thinking that it would still follow the boglehead philosophy and it is good to be invested in real estate – hasn't really panned out and I'm not sure how many years it'll take before commercial real estate picks up but I feel I should stick to this plan - thoughts welcome

Welcome to the forum.

The links above don't really do anything useful. They just take me to a page with advertisements on it. Consider using the standard "Asking Portfolio Questions" format to list your holdings.

As for the REITs, I'm thinking 2 years isn't really a long enough time frame to draw any meaningful conclusions.

Regards,

[investwithin]

Hi everyone,

Thanks for the comments so far. I'll read them in more details/reply (saw other suggested format as well), but just a quick note that I've fixed the image links above for the portfolio (sorry about that --- they worked for me as i'm logged in imgur, but it didn't work in incognito!). Here they are again:

* Overall allocation split - https://imgur.com/uSeUqC0
* Detailed allocation (click the photo to see zoomed in view) - https://imgur.com/P3qTB71

[phiMD]

Thanks for posting, I'm clicking on your new links, and just get a hour glass spinning, I would stick with standard format in post. Best wishes.

[investwithin]

Sorry for the delay everyone ! I've updated the original post w/ portfolio in the expected format (i left the image links as well).

Thanks again for taking a pass and helping me!

[mike_in_ny]

Congratulations on your success, and ability to move to a part time position while your kids are young.
That will really be a fun time for you.

I have moved all my international to my tax-deferred accounts (401k, etc.) because they generally
spin off a higher percentage of dividend and less of them are qualified. I see that you've sort of done
that (but also have the REIT), but you should look into if you can minimize tax drag even further. I
really don't like the International in taxable, now that I've done the math.

On 529s, you will likely have too much in them, although I understand the desire to overfund them.
You may want to start putting money into a brokerage account for each kid to be used for college and/or
a fund for their launching. There is also a strategy where you open a 2nd 529 for the kids in a different
state so that you can have a different cost basis for your next tranche of funding. This would help in
the event you are overfunded.

I was invested in REITs about a decade ago for some good years, and some bad ones. I didn't think
they did much for me and ultimately got rid of them. I similarly don't feel the need to subdivide
into emerging, etc....but that's really just a personal decision.

Lastly, I'm a huge fan of DAFs. You want to fund this with appreciated securities (and can really clean up your
portfolio if done intentionally) and more importantly, you want to do it while you are in the highest tax
brackets. So, I wouldn't wait too long if your plan is to cut back. There are some limits for tax deduction
in a year (roughly 30% of AGI, I believe) and you could potentially take action on your vested stock
while also funding a DAF without getting killed on taxes.

Overall, doing well not just in the total amount, but also in the way you've constructed the portfolio.

[investwithin]

Thanks everyone for the comments so far. Replying to some of the questions asked above:

Can you elaborate more on the rationale for how you are handling tax advantaged accounts vs taxable / brokerage?

My understanding is REITs and bonds generate more gains/taxes so it's better to keep them in tax advantaged accounts. Total market index funds generate less taxes, so they should be kept in the taxable accounts. My portfolio isn't fully following this, but it has leaned in this direction.

Someone else also mentioned international funds generate more taxes, so they recommend putting them in tax-advantaged accounts - I have not done this.

Get an umbrella insurance policy if you don’t have one, as you have significant assets.

Good callout -- we do have umbrella insurance.

On 529s, you will likely have too much in them, although I understand the desire to overfund them.

Hmm - ya we are ok w/ this for now since assets can benefit someone else in case we overfunded. Interesting idea about using another state! Right now we have it in Utah as it's one of the best (not the state of our residence) -- will have to look into the option you mentioned if/when we fund it again.

[phiMD]

You're obviously set from a retirement perspective, congrats. You just need to work on simplification particularly in the taxable accounts and particularly the higher ER funds (while keeping in mind taxes from buying/selling), perhaps there will be a market event to where you can TLH, so no rush on this. Yes, generally bonds in tax-deferred, total us and international markets in taxable (the international fund is tax-efficient and ok to keep in taxable, but there is debate on the merits, I keep mine there), and total us/international in Roth. Also REITS (particularly at your 10% AA) is unnecessary. Keep it up!

[retired@50]

Edit (Jan 9th) : Updated portfolio info below.

[*] High-level allocation goals have been:
[*] 70% stock (out of which 70% US, 30% Intl [out of which developed: 70%, emerging: 30%])
[*] 20% bond (out of which 75% US, 25% Intl)
[*] 10% REIT

Taxable
1.13% DFA Dimensional International High Profitability ETF (DIHP) (0.29)
1.21% DFA Dimensional International Small Cap Value ETF (DISV) (0.42)
31.33% Fidelity Total Market Index Fund (FSKAX) (0.02)
8.82% Fidelity Total International Index Fund (FTIHX) (0.06)
0.40% Fidelity Emerging Markets Discovery Fund (FEDDX) (0.97)
2.50% Vanguard Small Cap Value ETF (VBR) (0.02)
13.28% Vanguard Tax-Exempt Bond Index Fund ETF (VTEB) (0.05)
3.34% Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) (0.07)
4.98% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04)
2.88% Vanguard Value Index Fund ETF (VTV) (0.04)
8.97% FAANG_Company stock (Undisclosed)
1% MISC

Since the taxable account is about 80% of the whole portfolio with roughly 13% in tax-deferred and 7% in Roth you've got a built in conflict you'll have to contend with. Your asset allocation goals are 20% in bonds and 10% in REIT, but since these are tax inefficient asset classes you really don't have the room for them in the tax-deferred and Roth accounts. In other words, you're trying to put 30% of your assets in 20% of your accounts.

The bond asset location problem is easier to solve because you can put part of your bond allocation in VTEB, which you're already doing. The desire for Emerging Markets at 30% of your international allocation is also a challenge. I think the "total international" funds have around 25% EM so holding a higher percentage of another tax inefficient asset creates more trouble.

I'd get rid of the high ER funds highlighted above in red. These are so small that they're not doing anything important for you anyway. Keep in mind that you don't have to hold every single asset class in every single account.

For more details on "tax efficient fund placement" look at the wiki page.
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,