Portfolio Review - Are we on track?

[Bobby987]

Happy New Year! I am kindly asking for a review or our investment strategy and any feedback to improve our investments. Please let me know if I missed anything.

Emergency funds: 8 months of expenses
Debt: 90k mortgage @2.65 - no other debt
Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal, 5.70% State
State of Residence: IA
Age: 47

Desired Asset allocation: 95% stocks / 5% bonds or Dividend Equity ETF like SCHD
Desired International allocation: 0-10% of stocks
Please provide an approximate size of your total portfolio: 2M

Brokage account - 300k
200k cash in money market and CDs
72% VOO 0.03% expense
6% IBIT 0.25% expense
6% SPLG 0.02% expense
7% SCHD 0.06% expense
9% stocks company name (ticker symbol)

His 401k: 1M
Company match? Yes, 6%
18%: Principal LifeTime Hybrid 2045 CIT 0.19% expense
2%: Principal LifeTime Hybrid 2070 CIT 0.19% expense
21%: Fidelity Advisor Equity Growth Z Fund 0.56% expense (FZAFX)
12%: Principal Blue Chip Separate Account 0.41% expense
7%: Principal MidCap Value I Separate Account 0.51% expense
5%: Vanguard Explorer Admiral Fund 0.34% expense (VEXRX)
5%: Principal Diversified International Separate Account 0.43% expense
30% Employer Common Stock 0% expense - I continue to reallocate over time into the funds above, however, this security had a 56% rate of return last year and has performed very well over the last 10 years.

Her 401k: 650K
100% Principal LifeTime Hybrid 2045 CIT 0.19% expense
Company match? Yes, 4%


His HSA: 25k
Max out each year and invest in SPLG

Her HSA: 25k
Max out each year and invest in SPLG

Yearly expenses
Mortgage: 25K
Other Expenses: 55K
Vacations: 10k
Whole Life Insurance: 5K (I know this will likely spark some comments but my parents' purchased policies after birth and passed them along once 18)

Other notes:
Company Restricted Stock Options (1/3 of each contract vest yearly ~40K before taxes)
Have 2-3k to invest monthly
Savings rate is ~20%
Our goal is to save enough and retire as early as possible.
I would like to leave the corporate world and take on a less stressful job when the time is right.
We haven't landed on a set retirement income yet. With that said, we could easily live a happy retirement making much less than we do today.
_______________________________________________________________

Questions:
1. What is the best way for us to DCA the open funds in the brokerage account?
2. Should we pay down the mortgage with the low rate?
3. Any advice on if simplification is needed for his 401k?
4. With our income, we do not qualify for a ROTH and have not done a backdoor ROTH.
5. We are maxing out our 401ks and HSA.
6. Open to any and all critical feedback.

Your comments/help much appreciated.

[invest4]

Welcome!

Some initial comments / questions:

Emergency Funds: Great.


Debt: Excellent.


Asset Allocation:

* As long as you have the tolerance for risk and can avoid bad behaviors like panic selling during volatility, this is fine. I would like to add that I have found bonds more complex than stocks and strongly encourage you to educate yourself so you will be informed and prepared when you decide to have more fixed income in your portfolio.

* The current guidance for international is no less than 20% and not more than 40%. More generally, you want a simple, diversified portfolio that matches your tolerance for risk and will endure for the long term. You also want to make your investments matter and avoid small %s that don't move the needle in your portfolio and thus are essentially "clutter" in your portfolio.

Annual Expenses

* What are your current annual expenses (best guess - total including taxes, etc.)

* What income do you think you want / need when you are no longer working? Similar to now or something different?


Portfolio Composition: Appreciate if you could update your post to tell us what your investments are versus just providing the tickers. What strikes me right away is that you have quite a few investments including ones with very small allocations. Do not underestimate the value of simplicity. While one sometimes has to deal with limited choices from their employer, you simply need only a few funds to create a strong portfolio.


Other potential investment accounts:

* Is Mega backdoor Roth available to you?


Your Questions

1. Others will chime in.


2. With a 90K mortgage...I think it's really whatever your preference is (some people loathe any debt for example). However, if I had to choose, I would just let it ride. More generally, I value the benefits of the mortgage and the leverage it provides for further investments. My current mortgage rate is similar to yours...but 3x the amount. I am just paying as agreed until it is finished.


3. As noted above, too many investments imho and some which are small and not worth the trouble. You can have a solid portfolio with few investments that looks something like this:

* Total US Stock Market (VTI)

* Total Intl Market (VXUS)

* Total Bond Market (BND) or other fixed income.

Easy to understand and manage for the win.


4. I have never done a backdoor Roth either...but some of the others will likely have something to share.


5. What is your savings rate? (% of income)


6. As already shared.


You are doing well...will be interested to hear what your expenses look like and perhaps could also share your financial goals, what age you may wish to no longer be working, etc.

[Bobby987]

Thank you for the reply and feedback.

I updated the original post to include some additional info requested and the tickers for the funds I could find. I was not able to find tickers for the Principal Financial accounts. So, maybe not as helpful but I understand I need to consolidate, and simplicity is best. I will see what options I have available.

We have the tolerance for risk and can avoid bad behaviors like panic selling during volatility.
I will start to learn more about bonds.
Mega backdoor Roth is available; however, we have been a little hesitant to execute.

[bonesly]

Desired Asset allocation: 95% stocks / 5% bonds or Dividend Equity ETF like SCHD
Desired International allocation: 0-10% of stocks
...
3. Any advice on if simplification is needed for his 401k?

First, Dividend Equity is stock not bonds so you should not consider it part of your 5% bond allocation (it goes towards your 95% stock allocation). The allocation among stocks and bonds is important because of the risk-adjusted improvement in total return which happens because they are not correlated. Dividend Equity being a stock fund is close to 100% correlated with other stocks so it provides zero improvement to risk-adjusted return which is the reason you hold bonds.

Second, the typical recommendation here for international exposure as a percentage of stocks is 20-40% or nothing at all, since less than 20% doesn't provide enough diversification outside the US to matter (i.e., won't "move the needle" or make a difference if US crashes but ex-US does not somehow). For the analysis of your 3rd question, I've assumed you actually want to be 100/0 with zero int'l stocks.

Your Current layout includes some pretty high-cost funds (ER > 0.30%) which are highlighted in yellow with the ER in red (Costs Matter), plus you have Wash Sale concerns with holding S&P-500 Index in both tax-advantaged and in Taxable (should you ever sell at a loss in Taxable and inadvertently buy in tax-advantaged, the loss is disallowed on your tax-return and it's on you to file correctly, your broker won't do it for you).

In the Proposed layout, the portfolio is simplified from 17 holdings down to 5, the high cost funds are eliminated, and the wash sale is also eliminated. Cleaning up the Taxable account will likely incur a Tax Cost to Switch Funds, so you may want to do that over several consecutive tax-years to stay under your tax-pain threshold. I've suggested Total US Stock Market (VTI), but any low-cost stock index that is tax-efficient (not throwing a lot of dividends/capital gain distributions) and is NOT S&P-500 will do the job here (e.g., you can pick any total us stock fund or ETF, not just Vanguard's). I couldn't get rid of all the bonds due to using the Principal 2070 TDF (which also doesn't clear the check-sum because it's leveraged; >100% allocation). If you both have a low-cost S&P-500 index in your respective 401ks, I'd use that in place of the 2070 TDF. I've also sold off all your employer stock and rolled that into the 2070 TDF or VTI; holding vested shares of employer stock is a double risk: a) single-company risk vs broad index; b) loss of job due to company hard times also likely means loss of value of stock you continued to hold.



A template spreadsheet (not your data) to do this kind of assessment and rebalance planning is linked below.
Asset Allocation Sheet
AA Current and Proposed

1. What is the best way for us to DCA the open funds in the brokerage account?

Lump-Sum Beats DCA 67% of the time so statistically you're best off just putting the $200K in Taxable cash straight into Total US Stock Index in one shot. If you have concerns that the 33% chance that DCA would win out for your unique sequence of returns, then consider splitting the difference and lump-sum 50% then DCA the other 50% over 6-12 months. If you are really driven by fear and would DCA the entire amount, then I have to ask if 100/0 is really an appropriate AA for you in the first place.

If you think your AA might be too aggressive, try one or both of the exercises below.

Control Your Risk
1) Read the Wiki article for Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the asset allocation (AA) that was recommended by the quiz based on your knowledge of your personal risk tolerance having read the Wiki article.

2) Alternatively (or in addition to), ask "How much of a drop in portfolio value as a % of total value can I handle?" cut that % in half to get standard deviation, then lookup that std. dev. on the X-Axis of the chart below, and finally scan up to see what AA that corresponds to. As an example, if you can only stomach a -24% drop in portfolio value, that's a ±12% std. dev, which corresponds to an AA of 60/40. The return you get is an average and you'll get what you get with your unique sequence of returns (there's a lot of variance in outcomes due to the associated volatility of stocks so it probably will NOT be the average, but something more or less).

a. For a long time-frame (>10 years) AAs below 20% stock are dominated (red dots) by another AA with similar risk but higher reward (blue dots).
b. The dotted line represents a hypothetical linear risk-reward from 100% stocks down to 100% bonds; the historical risk-reward curve has an improvement for risk-adjusted return due to the lack of correlation between stocks & bonds.

2. Should we pay down the mortgage with the low rate?

See Priortizing Investments. Generally low-interest debt (below the risk-free 3m T-Bill interest rate) is pretty low priority. Your mortgage at 2.65% is less than 3m T-Bill at 4.20%, so I wouldn't pay it off early unless you need to free up cash flow by the time the note would be paid off (e.g., using the mortgage payment to cover expenses in early retirement).

4. With our income, we do not qualify for a ROTH and have not done a backdoor ROTH.

Probably worth reading up on how to execute a Backdoor Roth as you have no reason not to sock away $14K ($7K for each of you) into a Tax-Free account.

[KlangFool]

OP,

Please use the following formula to verify your annual expense. Please use all 2023 numbers.

Gross Income = Annual Expense + Annual savings + Taxes

Taxes = Federal + State +FICA + Medicare

20% saving rate? -> 20% of what? Gross income? Take-home pay? After-tax?

KlangFool

[Bobby987]

@bonesly

Many thanks for your feedback and I will likely have more questions as I digest the information. I appreciate the proposed portfolio simplification as this is certainly a goal of mine.

A couple quick questions.

1.Part of my reasoning for investing in the higher expense accounts, correct or not, is the return rates on several of those funds have been 2-3x times higher the 2045/2070 funds. I understand 30-40% is not the norm, but to me it made sense to stay the course given the performance. Thoughts?

2.I’ll be 65 in 2043 (and hopefully retired before then). Is there a reason I should target the Principal LifeTime Hybrid 2070 CIT vs Principal LifeTime Hybrid 2045 CIT?

3.If we decide to change our risk allocation to 40% bonds, do you have any suggestions on proposed portfolio layout in my 401k or brokage accounts? The following are available in my 401k:
a.Principal Global InvestorsCore Plus Bond Separate Account
b.Vanguard Total Bond Market Index Admiral Fund (VBTLX)
c.Vanguard Total International Bond Index Admiral Fund

[tashnewbie]

Questions:
1. What is the best way for us to DCA the open funds in the brokerage account?

How did you end up with so much cash? If it was because you didn't know how to invest or were afraid, address that moving forward because you shouldn't have so much cash unless you have a short term need for it.

I would lump sum the money into the market at my desired asset allocation. But other folks like to DCA and nothing wrong with that. I would set an outer time limit to get it all invested. 12 months seems reasonable. Divide the total by that outer limit and set up automated monthly investments with the ETFs (don't think that's possible in most brokerages) or a calendar reminder to login and buy the ETFs.

2. Should we pay down the mortgage with the low rate?

I wouldn't. Speaking of the mortgage - do you have really high property taxes and/or insurance? There's no way the mortgage portion of your housing equals $25k/year.

Even if you paid off the mortgage, sounds like you'd still have fairly equivalent housing expenses because of taxes and insurance.

You can get better risk-free returns on cash nowadays so I wouldn't bother paying off the mortgage unless and until that's not true.

3. Any advice on if simplification is needed for his 401k?

Way too messy for my tastes.

I would look for the cheapest funds in your desired asset classes. That may be a target date fund.

4. With our income, we do not qualify for a ROTH and have not done a backdoor ROTH.

If you're really in the 22% marginal fed tax bracket, then your MAGI is not too high for direct Roth IRA contributions. Confirm what your MAGI is for 2024. If it's less than $230k, then you're both eligible to make direct Roth IRA contributions by tax filing deadline.

Neither of you has any traditional IRA, so you could do easy backdoor Roth but ensure you're comfortable with the process and paperwork before you attempt to do it. Many people including professional tax preparers are stumped by it. Read the wiki and White Coat Investor blog and tutorial (with completed tax forms). If you don't feel comfortable doing it, that's okay and you can skip it. But at the very least, check each year whether you're eligible for a direct contribution.

In general, you should think about what your retirement expenses might look like including taxes and healthcare expenses. Then you can calculate how many years of expenses you currently have saved. A lot of people target some multiple of those expenses such as 25X or 33X for a retirement trigger (based on theories about perpetual safe withdrawal percentages being 3.3-4%). You can read up on stuff like that on this forum. If you're planning to continue working, then you may not need as much saved to support yourself. I'd caution you to think about whether the grass is greener - sometimes we have this idea that a lower paying job is automatically less stressful. But I don't think that's true and you might end up in a worse situation where you're dealing with as much work-related headache and stress but without the money to show for it.

[bonesly]

1.Part of my reasoning for investing in the higher expense accounts, correct or not, is the return rates on several of those funds have been 2-3x times higher the 2045/2070 funds. I understand 30-40% is not the norm, but to me it made sense to stay the course given the performance. Thoughts?

It's hard to know if a particular fund manager will be the next Warren Buffet (Berkshire Hathaway) or Theo Koltones (Vanguard PRIMECAP). Those are two active managers who've beaten the passive index (both S&P-500 and Total US Stock Market) handily for 20 years running and they still manage their funds. If I had to bet on an active manager it would be one of those two.

The problem with your comparison against the 2045/2075 funds is that they contain bonds (albeit a small amount) as well as int'l stocks. A better comparison (a portfolio back-test in https://testfol.io) is any of the actively managed, high-cost funds you're considering keeping against the oldest share class of the S&P-500 (I'm going to guess that's Vanguard Institutional [500] Index VINIX, inception date 07/31/1990). Van offered the first index fund tracking the S&P-500 back in 1976, but that share class has been merged into the Admiral share class, so getting the history for a back-test is tricky. Even if it turns out your high-cost bets have been outperforming the index, there's no guarantee they'll continue to do so (especially if there are changes on the management team after you bought in).

I would stick with the 2070 TDF (if you want to be closer to 100/0 than 95/5); a low-cost S&P-500 index would be better than the 2070 TDF, but you didn't list what your available fund choices (and ERs) are for your respective 401k plans.

2.I’ll be 65 in 2043 (and hopefully retired before then). Is there a reason I should target the Principal LifeTime Hybrid 2070 CIT vs Principal LifeTime Hybrid 2045 CIT?

If you buy in to the idea of a constantly changing AA that has less stocks over time, then a TDF is a fine choice. You still need a desired AA now and by the time you reach age 65 (or pick a time frame) and then you pick an TDF to match your desired AA. Picking a TDF that's matched to your retirement date gives you the AA that fund company decided and they know nothing about your personal risk tolerance so you should tailor the TDF date you choose so it most closely matches your risk-tolerance based AA (and only use one fund that is a closest match, not two or more as that just complicates rebalancing your non-TDF holdings even further with no benefit). As an example I retired from full-time work in 2018, but the one and only TDF I'm (still) holding is for 2045, because I have a pretty high risk-tolerance (and a pension and I'm still consulting part-time).

If you're unsure that being 100/0 (or 95/5) is right for you, look at the Control Your Risk exercise in my earlier post and do one or both of those self-study exercises to refine an appropriate target AA.

3.If we decide to change our risk allocation to 40% bonds, do you have any suggestions on proposed portfolio layout in my 401k or brokage accounts? The following are available in my 401k:
a.Principal Global InvestorsCore Plus Bond Separate Account
b.Vanguard Total Bond Market Index Admiral Fund (VBTLX)
c.Vanguard Total International Bond Index Admiral Fund

For a bond holding I would use VBTLX as that's one of the bond fund choices suggested for a 3-Fund Portfolio. It represents a broad swath of maturities in both corporate and US Treasury issues. The 3-Fund Portfolio doesn't recommend Int'l bonds (not much gain for the added risk of default), but Vanguard's LifeStrategy and TDFs do (likely because foreign debt is not overlapped with US debt so if the US defaults, it's not guaranteed that ex-US will also default)... adding int'l bonds to a 3-Fund base is a personal choice.

[Bobby987]

Understood and makes sense. I appreciate the detailed responses; I have some reading/learning to do. Simplifying is an immediate need and adding bond exposure into our AA is something we want to do soon. I just don't want to make any mistakes as I look to simplify.

Am I correct in that bond exposure should be in a 401k account before taxable brokerage?

I would stick with the 2070 TDF (if you want to be closer to 100/0 than 95/5); a low-cost S&P-500 index would be better than the 2070 TDF, but you didn't list what your available fund choices (and ERs) are for your respective 401k plans.

Here is what is available in our 401ks:
Short-Term Fixed Income
Vanguard GroupVanguard Cash Reserves Federal Money Market Admiral

Fixed Income Fixed Income
Principal Global InvestorsCore Plus Bond Separate
Vanguard GroupVanguard Total Bond Market Index Admiral Fund
Vanguard GroupVanguard Total International Bond Index Admiral

Balanced/Asset Allocation
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid Income CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2015 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2025
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2030
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2035
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2040
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2045 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2050 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2055
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2060 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2065 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2070 CIT

Large U.S. Equity Large U.S. Equity
Columbia Management AdvisorsColumbia Dividend Opportunity I3 Fund
Fidelity Management & Research Fidelity Advisor Equity Growth Z
Principal Global InvestorsBlue Chip Separate
State Street Global AdvisorsSSgA S&P 500 Index Securities Lending Series II Fund
T. Rowe Price Associates, Inc.T. Rowe Price Equity Income Institutional Fund

Small/Mid U.S. Equity Small/Mid U.S. Equity
American Century Inv. Mgmt.American Century Small Cap Value R6 Fund
Carillon Tower AdvisersCarillon Eagle Mid Cap Growth R6 Fund
LA Capital Mgmt/VictoryMidCap Value I Separate Account
Principal Global InvestorsSmallCap S&P 600 Index Separate Account
State Street Global AdvisorsSSgA S&P Midcap Index Securities Lending Series XIV Fund
Vanguard GroupVanguard Explorer Admiral Fund

Global/International Equity Global/International Equity
Principal Global InvestorsDiversified International Separate Account

[bonesly]

Am I correct in that bond exposure should be in a 401k account before taxable brokerage?

Yes, a Tax-Deferred account (like a Trad 401k or Trad IRA) is the best place to hold bonds & cash per Tax-Efficient Fund Placement.

Here is what is available in our 401ks:
Short-Term Fixed Income
Vanguard GroupVanguard Cash Reserves Federal Money Market Admiral

Fixed Income Fixed Income
Principal Global InvestorsCore Plus Bond Separate
Vanguard GroupVanguard Total Bond Market Index Admiral Fund
Vanguard GroupVanguard Total International Bond Index Admiral

Balanced/Asset Allocation
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid Income CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2015 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2025
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2030
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2035
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2040
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2045 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2050 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2055
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2060 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2065 CIT
Multiple Sub-AdvisorsPrincipal LifeTime Hybrid 2070 CIT

Large U.S. Equity Large U.S. Equity
Columbia Management AdvisorsColumbia Dividend Opportunity I3 Fund
Fidelity Management & Research Fidelity Advisor Equity Growth Z
Principal Global InvestorsBlue Chip Separate
State Street Global AdvisorsSSgA S&P 500 Index Securities Lending Series II Fund
T. Rowe Price Associates, Inc.T. Rowe Price Equity Income Institutional Fund

Small/Mid U.S. Equity Small/Mid U.S. Equity
American Century Inv. Mgmt.American Century Small Cap Value R6 Fund
Carillon Tower AdvisersCarillon Eagle Mid Cap Growth R6 Fund
LA Capital Mgmt/VictoryMidCap Value I Separate Account
Principal Global InvestorsSmallCap S&P 600 Index Separate Account
State Street Global AdvisorsSSgA S&P Midcap Index Securities Lending Series XIV Fund
Vanguard GroupVanguard Explorer Admiral Fund

Global/International Equity Global/International Equity
Principal Global InvestorsDiversified International Separate Account (ER 0.43% > 0.30%)

I colored in blue highlight, the three funds I'd use for components of a 3-Fund portfolio. The int'l choice isn't great since you're paying 0.43% ER, but it could be worse. You could put some of the $200K cash in Taxable into Vanguard Total Int'l (VXUS, 0.08%), but then you could experience tax-efficiency issues as noted in the two threads below (hopefully those were a one-off situation, because 0.08% is a 5x less than 0.43%). That's assuming you even want int'l (you originally said 0-10% of stocks which is too small to make a difference so just go with 0%).

Tax-efficiency of Total Int'l Funds
viewtopic.php?p=7713711#p7713711
viewtopic.php?t=425731

Arguments in favor of 20-40% in int'l (in case you don't want 0%)...

Value of Int'l Diversity from US

There's essentially two camps among Bogleheads: a) Those that are on board with the global market cap weighting, which is about 60% US stock and 40% ex-US stock; and b) those that have a home bias (US will usually outperform), which is about 80% US stock and 20% ex-US stock (some even omit Int'l altogether). I'm in camp a) based on the chart below from WisdomTree, the white paper from Vanguard, and the more recent article from Vanguard.


Vanguard White Paper: International Equity - Considerations and Recommendations
Vanguard Web Article: Making the case for international equity allocations

[Bobby987]

In the Proposed layout, the portfolio is simplified from 17 holdings down to 5, the high cost funds are eliminated, and the wash sale is also eliminated. Cleaning up the Taxable account will likely incur a Tax Cost to Switch Funds, so you may want to do that over several consecutive tax-years to stay under your tax-pain threshold. I've suggested Total US Stock Market (VTI), but any low-cost stock index that is tax-efficient (not throwing a lot of dividends/capital gain distributions) and is NOT S&P-500 will do the job here (e.g., you can pick any total us stock fund or ETF, not just Vanguard's). I couldn't get rid of all the bonds due to using the Principal 2070 TDF (which also doesn't clear the check-sum because it's leveraged; >100% allocation). If you both have a low-cost S&P-500 index in your respective 401ks, I'd use that in place of the 2070 TDF. I've also sold off all your employer stock and rolled that into the 2070 TDF or VTI; holding vested shares of employer stock is a double risk: a) single-company risk vs broad index; b) loss of job due to company hard times also likely means loss of value of stock you continued to hold.

One quick question...
If we decide to move to the proposed layout—or something similar discussed in this thread—to simplify, would it make sense to sell and reallocate the VOO investment in the brokerage account if I plan to focus on leveraging VTI going forward? I understand there’s significant overlap between the two funds, but I do have a preference for VOO. Of course, with the assumption of being aware of a potential wash sale.

---

[bonesly]

If we decide to move to the proposed layout—or something similar discussed in this thread—to simplify, would it make sense to sell and reallocate the VOO investment in the brokerage account if I plan to focus on leveraging VTI going forward? I understand there’s significant overlap between the two funds, but I do have a preference for VOO.

Yes, but the concern isn't overlap/preference; you want US Stock in both your Taxable account and your tax-advantaged accounts to meet your overall AA, but if you hold the exact same fund (or whatever the IRS considers "substantially identical") in both places (e.g., VOO or any S&P-500 index in Trad 401k/Roth IRA/HSA and VOO in your Taxable brokerage account), then you have the potential for Wash Sales, which can complicate tax filing if there's a capital loss for selling VOO in Taxable (likely due to Tax-Loss Harvesting). So it's best to not hold "substantially identical" funds (in IRS lingo) across tax-advantaged and Taxable. If you do it wrong and get an (unlikely) IRS audit you could owe back-taxes with interest plus a penalty, so it' best to just eliminate wash sale concerns whenever possible.

VTI in taxable is theoretically more tax-efficient than VOO, since Total Stock Market is less likely to index composition changes while S&P-500 routinely replaces a few companies periodically and that generates undesirable distributions in a Taxable account that VTI would be much less likely to do.

[sailaway]

Mega backdoor Roth is available; however, we have been a little hesitant to execute.

Why? MBR saved us a lot in taxes during accumulation, when we were occasionally subject to NIIT, and in early retirement means we have plenty of Roth contributions and conversions to pull from to manage taxes for ACA.

[Bobby987]

Mega backdoor Roth is available; however, we have been a little hesitant to execute.

Why? MBR saved us a lot in taxes during accumulation, when we were occasionally subject to NIIT, and in early retirement means we have plenty of Roth contributions and conversions to pull from to manage taxes for ACA.

Mostly just a little nervous as we have been learning how to manage our investments. I've done some reading on this and watched a couple videos, and the process looks fairly easy to follow.

[Moniker]

Why? MBR saved us a lot in taxes during accumulation, when we were occasionally subject to NIIT, and in early retirement means we have plenty of Roth contributions and conversions to pull from to manage taxes for ACA.

Mostly just a little nervous as we have been learning how to manage our investments. I've done some reading on this and watched a couple videos, and the process looks fairly easy to follow.

Max out your mega-backdoor Roth before contributing any to taxable brokerage. https://www.bogleheads.org/wiki/Priorit ... nvestments

[Taylor Larimore]

Bobby987:

Welcome to the Bogleheads Forum!

I suggest you try to simplify your portfolio by using The Three-Fund Portfolio suggested by bonesly. You can read "The Three Fund Portfolios" many benefits here:

The Three-Fund Portfolio

Happy New Year!

Taylor

Jack Bogle's' Words of Wisdom "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy,, make smart investment decisions, and guide the implementation of your plan."