Portfolio Review

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Topic Author
GamerDad
Posts: 14
Joined: Thu Mar 09, 2023 3:05 pm

Portfolio Review

Post by GamerDad »

Hello All,
First post here as I only recently found and joined this forum! While I was a good saver for the last decade, I am new to the world of investing and know that I have a lot to learn. I am a bit stuck regarding whether or not I have set my portfolio up correctly or what I can do better. Alongside that, I am simply trying to figure out how to save more since I feel as though I am falling behind with not yet starting a 529 for my 2 year-old child or beginning to build a taxable account on the side.

I hope to gain insight/guidance into how my portfolio currently stands and what potential changes I should consider making in order to balance it better. Thank you all in advance!

Emergency Funds: Approximately 7 months of living expense coverage in a HYSA (3.75% APY).

Debt:
  • Mortgage ($305k; 30 year at 5.25% interest rate)
  • ~$30k remaining on my wife’s student loans; we currently have the money to pay this off in the HYSA (on top of emergency funds) and are waiting on the Supreme Court ruling on student debt relief and for loan repayments to begin again
Tax Filing Status: Married Filing Jointly

Tax Rate: 12% Federal; 6.5% State

State of Residence: South Carolina

Age: 34; Wife: 36

Desired Asset Allocation: 90% Stocks / 10% Bonds
Desired International Allocations: I am thinking around ~20% of stock, but am unsure and open to suggestions

Please provide an approximate size of your total portfolio: ~270k (excluding emergency fund and earmarked student loan funds)

Current Retirement Assets:
Taxable: (3.9%)
Note: I am unsure if I should have listed these as they will likely not be held until I retire. My plan would be to migrate funds from these into retirement accounts if I were to close them out.
  • 3.7% - I-Bond
  • 0.2% - Employee Stock Purchase Plan (5% discount on average price across quarter); Negligible amount due to this program starting in Q1 2023 and only contributing 2% of salary
His 401(k): (57.3%)
Note: I recently moved jobs and opted into my new company’s benefit of having Edelman Financial Engines manage my 401(k) portfolio. The account was rebalanced from a Target Date Fund to the breakdown listed below based on their management and my answering the risk assessment questions.
  • 15.8% - Target Date 2050 Fund (0.28%)
  • 15.5% - International Index Fund (0.04%)
  • 14.3% - S&P 500 Index Fund (0.02%)
  • 5.8% - Bond Market Index Fund (0.02%)
  • 5.9% - Russell 2000 Index Fund (0.03%)
  • Company Match: 100% match on 10% of salary
His Roth IRA at Vanguard: (31.4%)
  • 31.4% - Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)
His Health Savings Account: (7.4%)
Note: From what I can gather, there is a 0.03% monthly investment administration fee on top of the expense ratios listed below for the institution which my company uses for the Health Savings Accounts.
  • 2.3% - Cash
  • 0.7% - Vanguard Extended Market Index Institutional Plus Shares (VEMPX) (0.04%)
  • 3.1% - Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
  • 1.3% - Vanguard Total International Stock Index Fund Institutional Plus Shares (VTPSX) (0.07%)
Contributions:
New annual contributions for 2023
  • $~23,000 to his roth 401(k) (total from my 10% contribution and resultant employer match)
  • $6500 to his roth IRA (dollar cost average across each month from Jan-Dec)
  • $7750 to his Health Savings Account ($1250 from employer; dollar cost average remaining each month from Jan-Dec)
Available Funds:
Funds available in his 401(k)
Note: None of the funds available in my 401(k) portfolio have standard ticker symbols.
  • Target Date 2025 Fund (0.24%)
  • Target Date 2030 Fund (0.26%)
  • Target Date 2035 Fund (0.28%)
  • Target Date 2040 Fund (0.28%)
  • Target Date 2045 Fund (0.28%)
  • Target Date 2050 Fund (0.28%)
  • Target Date 2055 Fund (0.28%)
  • Target Date 2060 Fund (0.28%)
  • Target Date 2065 Fund (0.28%)
  • Target Date RETIRE (0.23%)
  • S&P 500 Index Fund (0.02%)
  • Russell 2000 Index Fund (0.03%)
  • International Index Fund (0.04%)
  • Balanced Index Fund (0.03%)
  • Bond Market Index Fund (0.02%)
  • “My Company’s Name” Stock Fund (0.04%)
  • US Large Companies Fund (0.25%)
  • US Small/Mid Companies Fund (0.62%)
  • Global Equity Fund (0.57%)
  • International Companies Fund (0.53%)
  • Diversified Real Asset Fund (0.58%)
  • Stable Value Fund (0.26%)
  • Global Bond Fund (0.38%)
Funds available in his Health Savings Account
  • Vanguard Target Retirement 2020 Fund (VTWNX) (0.08%)
  • Vanguard Target Retirement 2025 Fund (VTTVX) (0.08%)
  • Vanguard Target Retirement 2030 Fund (VTHRX) (0.08%)
  • Vanguard Target Retirement 2035 Fund (VTTHX) (0.08%)
  • Vanguard Target Retirement 2040 Fund (VFORX) (0.08%)
  • Vanguard Target Retirement 2045 Fund (VTIVX) (0.08%)
  • Vanguard Target Retirement 2050 Fund (VFIFX) (0.08%)
  • Vanguard Target Retirement 2055 Fund (VFFVX) (0.08%)
  • Vanguard Target Retirement 2060 Fund (VTTSX) (0.08%)
  • Vanguard Target Retirement 2065 Fund (VLXVX) (0.08%)
  • Vanguard Target Retirement Income Fund (VTINX) (0.08%)
  • Vanguard Materials Index Fund Admiral Shares (VMIAX) (0.10%)
  • Vanguard Extended Market Index Fund Institutional Plus Shares (VEMPX) (0.04%)
  • Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
  • Vanguard Real Estate Index Fund Institutional Shares (VGSNX) (0.10%)
  • Vanguard Small-Cap Index Fund Admiral Shares (VSMAX) (0.05%)
  • Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX) (0.03%)
  • Vanguard Total International Stock Index Fund Institutional Plus Shares (VTPSX) (0.07%)
  • Vanguard Wellesley Income Fund Admiral Shares (VWIAX) (0.16%)
  • Vanguard Emerging Markets Stock Index Fund Institutional Shares (VEMIX) (0.10%)
  • Vanguard Growth Index Fund Institutional Shares (VIGIX) (0.04%)
  • Vanguard Inflation-Protected Securities Fund Institutional Shares (VIPIX) (0.07%)
  • Vanguard Mid-Cap Value Index Fund Admiral Shares (VMVAX) (0.07%)
  • Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX) (0.07%)
  • Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX) (0.06%)
  • Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX) (0.07%)
  • Vanguard Total International Bond Index Fund Admiral Shares (VTABX) (0.11%)
  • Vanguard Value Index Fund Admiral Shares (VVIAX) (0.05%)
  • Vanguard FTSE Social Index Fund Admiral Shares (VFTAX) (0.14%)
Questions:
  • I am on the fence as to whether or not I should continue using Edelman Financial Services for active management of my 401(k) portfolio. Not that they have done anything bad or had major losses, but I signed up for their services due to the low fees through my company and in hopes to gain insight into how they allocate/manage the investments; vs being 100% in a Target Date Fund as I was for ~9 years prior. What is the general thought of services such as this managing only a portion of my portfolio?
  • I performed a rollover of my old 401(k) into my new 401(k) to have all the funds together. My old 401(k) was traditional/pre-tax. All my new contributions are to a roth 401(k). Should I continue contributing all of my 10% into the roth or is there a reason to split it between roth/traditional?
  • For the Health Savings Account, I feel that my investments are currently too aggressive given that we generally use this account to pay medical bills as they arrive. Should I complement/change the investment mix to include a weighting of bond funds to be more conservative? Given the available funds, which would balance out the portfolio the best?
  • I wish to begin a 529 or UGMA to aid in saving for my child’s college fund and then use any remaining funds to begin a building a taxable brokerage account for retirement. However, I am not yet maxing out the 401(k) contribution and my wife does not have an IRA under her name (stay at home mom). Should we be looking to fully fund my 401(k) and an IRA for her before considering funding 529/UGMA or taxable brokerage accounts?
  • Thoughts on the ESPP? This is the first time I have been involved with such a plan, but I do not know if I should generally hold the stocks or sell immediately after they vest.
  • Is there anything glaring I may have overlooked that needs to be addressed within my portfolio?
Last edited by GamerDad on Wed Mar 22, 2023 9:17 pm, edited 2 times in total.
HomeStretch
Posts: 11335
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review

Post by HomeStretch »

Welcome to the forum!
GamerDad wrote: Tue Mar 21, 2023 11:07 pmTax Rate: 22% Federal (12% after deductions I believe); 6.5% State …
It is helpful to know whether your Federal marginal tax rate is 12% or 22%. What is the $ amount on your 2022 Form 1040 Line 15, taxable income? If it is between $20,550 and $83,550, your 2022 rate was 12%. If it is between $83,550 and $178,150, your rate was 22%. You can edit your original post to show the correct rate.
Contributions:
New annual contributions for 2023
  • $~23,000 to his roth 401(k) (total from my 10% contribution and resultant employer match)
  • $6500 to his Roth IRA…
  • $7750 to his Health Savings Account ($1250 from employer)…
Excluding your employer’s 401k and HSA contributions, are you saving at least 15% of your gross income annually?

- Does your spouse have any retirement accounts? I don’t see any listed.
- Are you making any 2023 contributions to your spouse’s accounts? I don’t see any listed.
- Have you considered having your spouse open a Roth IRA and contributing to it even if it means reducing the contribution to your Roth IRA? It’s also good to contribute to spouse’s Roth IRA to start the 5-year clock on initial Roth IRAs.
Questions:
  • I am on the fence as to whether or not I should continue using Edelman Financial Services for active management of my 401(k) portfolio. …
I personally would eliminate the Edelman service and fee.
  • … I performed a rollover of my old 401(k) into my new 401(k) to have all the funds together. My old 401(k) was traditional/pre-tax. All my new contributions are to a roth 401(k). Should I continue contributing all of my 10% into the roth or is there a reason to split it between roth/traditional?…
For starters, it’s helpful to know whether your Federal marginal tax rate is 12% or 22%. The decision whether to make Traditional or Roth 401k or deductible IRA contributions starts with whether your marginal tax rates at the time of contribution are higher or lower than your projected rates at the time of withdrawal in retirement. If higher now, Traditional makes sense. If lower now, Roth makes sense. Also keep in mind that Federal tax rates are scheduled to revert in 2026 (i.e., 12% goes to 15% and 22% goes to 25%). This BH wiki page on Traditional v Roth may be helpful:
https://www.bogleheads.org/wiki/Traditional_versus_Roth
  • … For the Health Savings Account …
Are you reimbursing yourself for healthcare out-of-pockets costs from the HSA or are you making contributions only and viewing this as a retirement account?

Your HSA has a 0.3% fee. If you can make periodic transfers out of the HSA without fees, look into whether a no-fee Fidelity HSA makes sense to hold the bulk of your HSA $.
  • … I wish to begin a 529 or UGMA to aid in saving for my child’s college fund and then use any remaining funds to begin a building a taxable brokerage account for retirement. However, I am not yet maxing out the 401(k) contribution and my wife does not have an IRA under her name (stay at home mom). Should we be looking to fully fund my 401(k) and an IRA for her before considering funding 529/UGMA or taxable brokerage accounts?…
I personally would max my/spouse’s Roth IRAs before funding a 529 for college expenses. At a minimum, you could contribute any family cash gifts to your child to a 529 account. South Carolina offers a state tax deduction for 529 contributions so look into how much that is worth to you.
  • Thoughts on the ESPP? This is the first time I have been involved with such a plan, but I do not know if I should generally hold the stocks or sell immediately after they vest.
The ESPP stock is risky as an asset as it is an undiversified single stock and it is tied to your employer. Sell as soon as you can and view any profit as an additional income stream. You can use it to increase Roth IRA contributions and invest in a diversified stock fund.
  • Is there anything glaring I may have overlooked that needs to be addressed within my portfolio?
Not glaring. But look into whether it makes sense to open a joint Vanguard Taxable brokerage account to hold the bulk of your emergency fund/$50k student loan repayment fund in order to earn a higher non-FDIC yield than the 3.75% HYSA. You can get checks for the account and link it to your bank checking account in order to access funds. Vanguard money market funds and short term T-Bills are earning 4.55%+. The extra investment income can be used to contribute a spousal Roth IRA.
tashnewbie
Posts: 4230
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio Review

Post by tashnewbie »

Welcome to the forum!
GamerDad wrote: Tue Mar 21, 2023 11:07 pm Tax Rate: 22% Federal (12% after deductions I believe); 6.5% State
I agree with user above that knowing your marginal fed bracket will be very helpful, especially with respect to your question about whether traditional vs. Roth 401k makes more sense for you. For example, if you're in the 12% bracket, I would say you should definitely do Roth 401k. Becomes murkier if you're in the 22% bracket.
Desired International Allocations: I am thinking around ~20% of stock, but am unsure and open to suggestions
There is no consensus about whether and how much international stock to hold. Recommendations range from 0 to 50%. 20% to 30% seems like the moderate recommendation. I think 20% is reasonable.
Questions:
  • I am on the fence as to whether or not I should continue using Edelman Financial Services for active management of my 401(k) portfolio. Not that they have done anything bad or had major losses, but I signed up for their services due to the low fees through my company and in hopes to gain insight into how they allocate/manage the investments; vs being 100% in a Target Date Fund as I was for ~9 years prior. What is the general thought of services such as this managing only a portion of my portfolio?
You didn't indicate how much the management fee is, but I don't think you need to pay it, even if it is relatively low. They aren't doing anything magical for you.

Honestly, a target date fund is a perfectly fine investment choice for many people. It is a set-it-and-forget-it option and it insulates people from a lot of behavioral risks (e.g., less likely to panic sell during a market downturn). The fees of the TDFs in the 401k are not horrible, so you could just select one that gets you to your desired asset allocation and call it a day.

Alternatively, you could use the other funds this manager has you in (the low cost bond, US stock, and int'l stock ones) in a mix that gets you to your desired asset allocation.
  • For the Health Savings Account, I feel that my investments are currently too aggressive given that we generally use this account to pay medical bills as they arrive. Should I complement/change the investment mix to include a weighting of bond funds to be more conservative? Given the available funds, which would balance out the portfolio the best?
If you're using the HSA to pay for current expenses, then it makes sense to invest it more conservatively.

Of the available options, I'd probably choose Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX) (0.07%). In general with bond funds, you should be mindful of the duration and try to match the duration with when you expect to need the money (I don't know much about bonds but I know quality and duration are 2 of the biggest concerns). If you're using the HSA money for current expenses, I think you would want a bond fund with a short duration. VBIRX is the bond fund option with the shortest duration (2.6 years) in your HSA. Even 2.6 years may be too long if you use the money for ongoing expenses, but it seems to be the option that best fits your needs.

I agree with user above that it might be worth exploring doing an annual transfer of your HSA balance to Fidelity to save the 0.36% admin fee. But, if you're using the money for ongoing expenses, I suspect the balance does not have much time to accrue, so the fee may be relatively low in an absolute dollar amount. So it may not be worth the effort of moving to Fidelity.
  • I wish to begin a 529 or UGMA to aid in saving for my child’s college fund and then use any remaining funds to begin a building a taxable brokerage account for retirement. However, I am not yet maxing out the 401(k) contribution and my wife does not have an IRA under her name (stay at home mom). Should we be looking to fully fund my 401(k) and an IRA for her before considering funding 529/UGMA or taxable brokerage accounts?
I definitely would not use a taxable brokerage account before you put money in your spouse's Roth IRA. I probably wouldn't put money in a 529/UGMA before then either (unless it's gifted money from relatives/friends).

I would probably put enough into the 401k to capture the full employer match, then I would split any remaining money you have to invest equally between his/her Roth IRAs. If you have extra money you can save after that, then I would go back to the 401k.

See this for thoughts about how to prioritize investments: https://www.bogleheads.org/wiki/Priorit ... nvestments
User avatar
Wiggums
Posts: 7028
Joined: Thu Jan 31, 2019 7:02 am

Re: Portfolio Review

Post by Wiggums »

1. Cancel Edelman service. Side note; TDF not needed with other funds.

2. Open Roth for your wife

3. I would stop ESPP since the discount is minimal. Redirect money to child (UTMA, 529) or to wife for Roth IRA
"I started with nothing and I still have most of it left."
lakpr
Posts: 11520
Joined: Fri Mar 18, 2011 9:59 am

Re: Portfolio Review

Post by lakpr »

Wiggums wrote: Wed Mar 22, 2023 10:27 am 3. I would stop ESPP since the discount is minimal. Redirect money to child (UTMA, 529) or to wife for Roth IRA
Disagree here. It is 5% discount every quarter, so equivalent to 20% cashback on whatever the amount the OP decides to invest in ESPP. Of course, the standard advice is to sell immediately after the shares are vested, and given that these will be short term sales, taxes are due at ordinary income tax rates. So that 20% cashback is more like 14% cash back, still a GREAT deal.

Something like, let's say the average stock price of the employee stock over the first quarter is $100. @GamerDad gets it for $95, and immediately sells for $100, pocketing the $5. Repeats the cycle every quarter, so $20 in total for the year. The outlay from the OP's pocket is only $100 at any given time. $20 / $100 = 20%
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Portfolio Review

Post by ruralavalon »

Deleted duplicate post.
Last edited by ruralavalon on Wed Mar 22, 2023 1:46 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Portfolio Review

Post by ruralavalon »

Welcome to the forum :) .

Your employer's 401k plan offers diversified index funds with very low expense ratios. You are fortunate. It's great to see that you are a good saver.

For a quick education for the novice investor I suggest reading both Dr Bernstein's short pdf book If You Can, and the wiki article "Bogleheads® investment philosophy", see the link below in my signature.

GamerDad wrote: Tue Mar 21, 2023 11:07 pmDesired International Allocations: I am thinking around ~20% of stock, but am unsure and open to suggestions
In my opinion an allocation of 20% of stocks in international stocks is within the range of what is reasonable.

GamerDad wrote: Tue Mar 21, 2023 11:07 pmQuestions:
I am on the fence as to whether or not I should continue using Edelman Financial Services for active management of my 401(k) portfolio. Not that they have done anything bad or had major losses, but I signed up for their services due to the low fees through my company and in hopes to gain insight into how they allocate/manage the investments; vs being 100% in a Target Date Fund as I was for ~9 years prior. What is the general thought of services such as this managing only a portion of my portfolio?
In my opinion a target date fund or do-it-yourself is superior to paying a fee for professional management of investments.

GamerDad wrote: Tue Mar 21, 2023 11:07 pmI performed a rollover of my old 401(k) into my new 401(k) to have all the funds together. My old 401(k) was traditional/pre-tax. All my new contributions are to a roth 401(k). Should I continue contributing all of my 10% into the roth or is there a reason to split it between roth/traditional?
As others have said suggested, it's very helpful to know your marginal tax bracket for the traditional versus Roth issue.

Also will you be eligible for both a significant pension and Social Security benefits? How much (in dollars) do you currently have in traditional tax-deferred accounts? What are your professionals or occupations?

For most people (without a pension or very large tax-deferred accounts) traditional contributions will likely be better than Roth contributions. Most of people will likely be in a lower tax bracket during retirement.

TFB blog post The Case Against Roth 401(k): Still True After All These Years.

Wiki article Traditional versus Roth examples.

GamerDad wrote: Tue Mar 21, 2023 11:07 pmFor the Health Savings Account, I feel that my investments are currently too aggressive given that we generally use this account to pay medical bills as they arrive. Should I complement/change the investment mix to include a weighting of bond funds to be more conservative? Given the available funds, which would balance out the portfolio the best?
About how much do you spend on medical care from your HSA?

Since you use the Health Savings Account (HSA) to pay ongoing medical expenses use a safer investment like Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX) (0.07%).

GamerDad wrote: Tue Mar 21, 2023 11:07 pmI wish to begin a 529 or UGMA to aid in saving for my child’s college fund and then use any remaining funds to begin a building a taxable brokerage account for retirement. However, I am not yet maxing out the 401(k) contribution and my wife does not have an IRA under her name (stay at home mom). Should we be looking to fully fund my 401(k) and an IRA for her before considering funding 529/UGMA or taxable brokerage accounts?
Thoughts on the ESPP? This is the first time I have been involved with such a plan, but I do not know if I should generally hold the stocks or sell immediately after they vest.
In general its better to make maximum annual contributions to all available tax-advantaged accounts as a priority ahead of contributions to a taxable brokerage account, 529 plan or UGMA.

Wiki article, Prioritizing investments.

Your employer's plan offers very low expense ratio index funds. So I suggest making maximum annual employee contributions ($22.5k, not counting the employer match) to your 401k plan and the annual maximum ($6.5k each) to IRAs for each of the you if practical.

What are the provisions of the Employee Stock Participation Plan (ESPP)? How long must you hold the employer stock before you can sell?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
GamerDad
Posts: 14
Joined: Thu Mar 09, 2023 3:05 pm

Re: Portfolio Review

Post by GamerDad »

Thank you for the response @HomeStretch! I have tried to answer your questions to the best of my ability and came back with a few additional questions I hope that you might have some insight into.
HomeStretch wrote: Wed Mar 22, 2023 6:47 am It is helpful to know whether your Federal marginal tax rate is 12% or 22%. What is the $ amount on your 2022 Form 1040 Line 15, taxable income? If it is between $20,550 and $83,550, your 2022 rate was 12%. If it is between $83,550 and $178,150, your rate was 22%. You can edit your original post to show the correct rate.
I believe that my marginal tax rate is 12%. Unfortunately, my 2022 taxes are a bit of a mess since my new company rolled my relocation into the W2 and grossed up my salary. Overall though, I believe taxable salary is "gross income - personal HSA contribution - standard deduction" which would fall just below the $83,550 limit. I have updated the post to reflect the 12% bracket.
Excluding your employer’s 401k and HSA contributions, are you saving at least 15% of your gross income annually?

- Does your spouse have any retirement accounts? I don’t see any listed.
- Are you making any 2023 contributions to your spouse’s accounts? I don’t see any listed.
- Have you considered having your spouse open a Roth IRA and contributing to it even if it means reducing the contribution to your Roth IRA? It’s also good to contribute to spouse’s Roth IRA to start the 5-year clock on initial Roth IRAs.
I am saving a little over 20% based on my own contributions to the Roth 401(k), Roth IRA, and HSA. Around 32% if I include the employer contributions as well.

Unfortunately, my spouse worked in a field that paid very little. So she was never able to begin saving for retirement before we had our child. She is now a stay-at-home mom for the moment. I have wanted to begin a Roth IRA for her, but we have not had the additional funds to do so. Though I did not think about reducing my own Roth IRA contributions to start one for her. I have not heard of the 5-year clock on Roth IRAs, what is that exactly?

As we want to start a Roth IRA for her in the near future, is there any advice on funds I should consider? I am 100% into Vanguard's Total Stock Market Index Fund for my Roth IRA and assume it would be best to diversify vs putting hers in that fund as well.
... The decision whether to make Traditional or Roth 401k or deductible IRA contributions starts with whether your marginal tax rates at the time of contribution are higher or lower than your projected rates at the time of withdrawal in retirement. If higher now, Traditional makes sense. If lower now, Roth makes sense. Also keep in mind that Federal tax rates are scheduled to revert in 2026 (i.e., 12% goes to 15% and 22% goes to 25%)...
Thank you for that link, I will definitely plan to read thru that Wiki article! I did not know about the reversion back to higher tax brackets in 2026 either, so I will keep a note of that for the future. From everything I have read so far, it sounds like my best course of action is to stay in the 12% bracket for as long as possible. As my salary increases into the 22% bracket and cannot be deduced down by standard deduction/HSA, I feel that I should consider swapping to traditional 401(k)/IRAs in order to keep my taxable income below $83,550 for as long as possible. Correct?
Are you reimbursing yourself for healthcare out-of-pockets costs from the HSA or are you making contributions only and viewing this as a retirement account?
We use the HSA to pay for our medical bills for the most part. We currently have a lot saved as cash in the account to pay off incoming bills from my child's birth. We have been waiting for 2 years for them to arrive at this point... Generally, I plan to only keep a cash amount equal to my yearly deductible and invest the rest. However, since we do use the account to pay for bills. Should I consider adding bond funds into the investments to make it more conservative. Right now I am fully invested in stocks within that account.

In terms of swapping to a different HSA. Is it permissible to have an HSA outside of the one funded by your company? I might have to look into that in order to mitigate the .03% fee they charge for any type of investment within the account. I unfortunately rolled a Fidelity HSA into this one when I started at my new company. Sounds like I shouldn't have done that!
... But look into whether it makes sense to open a joint Vanguard Taxable brokerage account to hold the bulk of your emergency fund/$50k student loan repayment fund in order to earn a higher non-FDIC yield than the 3.75% HYSA. You can get checks for the account and link it to your bank checking account in order to access funds. Vanguard money market funds and short term T-Bills are earning 4.55%+. The extra investment income can be used to contribute a spousal Roth IRA.
I will have to look into this! I have not used a Money Market account before, but have been hearing more about them this year. I was originally planning to look at other HYSA accounts to see if I could obtain a higher interest rate, but most seemed fairly similar to what I currently have.
Last edited by GamerDad on Wed Mar 22, 2023 9:16 pm, edited 1 time in total.
Topic Author
GamerDad
Posts: 14
Joined: Thu Mar 09, 2023 3:05 pm

Re: Portfolio Review

Post by GamerDad »

Thank you for your responses @tashnewbie! I am not exactly positive how to respond directly to a post or quote everyone within one response, but I wanted to write back regardless. In terms of the marginal tax bracket, I do believe I am currently in the 12% bracket as per my response above.
tashnewbie wrote: Wed Mar 22, 2023 8:12 am There is no consensus about whether and how much international stock to hold. Recommendations range from 0 to 50%. 20% to 30% seems like the moderate recommendation. I think 20% is reasonable.
I have seen those large recommendations as well. Given the current world climate I did not want to be heavily invested in international stocks, but I did want to at least "dip a toe" into them. Right now I believe that I am around 15% diversified into international stock funds.
Questions:
You didn't indicate how much the management fee is, but I don't think you need to pay it, even if it is relatively low. They aren't doing anything magical for you.
Apologies! I had forgotten to look up that information. I have outlined it below. Based on everyone's feedback though, it seems that I should definitely consider dropping their account management though. Right now, I would be at around $350/year for their service based on my current amounts and their fees.
  • First $20k: 0%
  • $20k-$100k: 0.3%
  • $100k-$150k: 0.2%
  • $150k+: 0.1%
...Alternatively, you could use the other funds this manager has you in (the low cost bond, US stock, and int'l stock ones) in a mix that gets you to your desired asset allocation.
I plan to do a lot more research into how I should invest the funds when going my own way, but their current spread will at least give me a good place to start off.
... Of the available options, I'd probably choose Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX) (0.07%). In general with bond funds, you should be mindful of the duration and try to match the duration with when you expect to need the money (I don't know much about bonds but I know quality and duration are 2 of the biggest concerns)... VBIRX is the bond fund option with the shortest duration (2.6 years) in your HSA. Even 2.6 years may be too long if you use the money for ongoing expenses, but it seems to be the option that best fits your needs.
We do use the HSA to pay for medical bills, but generally our overall medical payments are fairly low throughout the year (though things do happen!). Generally I would plan to keep enough cash to cover our yearly deductible and invest the rest; with the hope that I never have to actually touch the invested funds and allow them to grow. Right now we have so much cash in the account to cover hospital/NICU bills which we have been waiting on for two years so far. I will have to look into VBIRX more as I do not know much about it. I was also informed the Wellesley fund is a fairly good option?

Definitely worth my looking into the alternate HSA though. I personally do not like the fees they have on top of the expense ratios to invest within the account. Unfortunately, I rolled funds out of Fidelity and merged them with this account just after I started at my new company. Should have looked more into that first!
I definitely would not use a taxable brokerage account before you put money in your spouse's Roth IRA. I probably wouldn't put money in a 529/UGMA before then either (unless it's gifted money from relatives/friends).
Good to know! This is the same other users have also said. I think the correct first step is going to be funding a Roth or Traditional IRA for my wife. Do you have any insight into what funds I might consider to compliment the portfolio? I am currently 100% in Vanguard's Total Stock Market Index Fund within my own Roth IRA and assume hers should be diversified into something different.
I would probably put enough into the 401k to capture the full employer match, then I would split any remaining money you have to invest equally between his/her Roth IRAs...
Interesting! What is the reasoning behind splitting it between accounts vs fully funding one account instead? I am trying to work on our overall budget to hopefully come up with cash to put into hers starting this year, but nothing is set in stone at the moment. Another thought I had was to pull any interest gained in the HYSA funds and use that to at least get her Roth IRA started. For the most part, I have let that HYSA money sit and grow without touching it.
Last edited by GamerDad on Wed Mar 22, 2023 9:16 pm, edited 1 time in total.
Topic Author
GamerDad
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Re: Portfolio Review

Post by GamerDad »

Thanks for the response @ruralavalon! And thank you for linking the pdf book and the Wiki article. I will definitely read through both!
ruralavalon wrote: Wed Mar 22, 2023 10:41 am In my opinion a target date fund or do-it-yourself is superior to paying a fee for professional management of investments.
It definitely seems that I should get rid of the professional management on my 401(k). Their check-ins regarding my retirement are nice, but I believe I can still get those yearly for free while I am employed at my company. In regard to @Wiggums comment, should a Target Date Fund generally not be invested into alongside stock/bond funds within one account?
Also will you be eligible for both a significant pension and Social Security benefits? How much (in dollars) do you currently have in traditional tax-deferred accounts? What are your professionals or occupations?
I am an engineer and my wife is a behavioral therapist for kids with special needs. Unfortunately, neither of us have a pension (they're mostly gone these days it seems!), but will be eligible for Social Security benefits.

In terms of tax-deferred accounts, I rolled my old 401(k) and new Roth 401(k) together when I began at my new company. However, it appears that Fidelity is smart enough to know which funds are earmarked as "Roth" and "Pre-Tax" within the account. My old 401(k) was traditional and I believe all employer contributions into the 401(k) are tax-deferred. That would put "tax-deferred" monies at ~$165k between the 401(k) and HSA accounts. The HSA has another ~$6k which is in cash at the moment. I did not have access to a Roth 401(k) option until this year, else I would have done that earlier on.
Thank you for these! I am definitely curious to see what they have to say between Roth vs Traditional.
Since you use the Health Savings Account (HSA) to pay ongoing medical expenses use a safer investment like Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX) (0.07%).
Should it still be mixed with stocks? Or simply fully into bonds to be super conservative? I have been trying to look more into VBIRX (Vanguard Short-Term Bond Index Fund) and VBMPX (Vanguard Total Bond Market Index Fund) to learn about whether they would be a good way to diversify the HSA into being more conservative. I believe that I have also read the Vanguard Wellesley Income Fund might be another good choice? Any thoughts or ways to look into which might be best or whether which funds I should fully exit from within the HSA investment portfolio (VEMPX or VTPSX probably?).
Your employer's plan offers very low expense ratio index funds. So I suggest making maximum annual employee contributions ($22.5k, not counting the employer match) to your 401k plan and the annual maximum ($6.5k each) to IRAs for each of the you if practical.
Great advice on the 401(k) and IRA prioritization. That lines up with what others have suggested and what I have read online as well. I know it will be years before I am able to max the 401(k) contribution, but look forward to the day I am able to do so... In terms of a Roth IRA for my wife, that is something which I plan to make a priority here soon given all the feedback I have received regarding focusing on that!
What are the provisions of the Employee Stock Participation Plan (ESPP)? How long must you hold the employer stock before you can sell?
This is the excerpt from the program they provided us: "This is a qualified plan under Section 423 of the Internal Revenue Code. As such, you are not subject to any tax upon the purchase of shares and you will qualify for favorable tax treatment on any gains upon sale if you hold your shares for at least 2 years from the start of the offering period." As I read this, I can sell them directly after they deposit, but I will be taxed on them. If I hold them for 2 years, then I can sell them at a more favorable tax position. Is that interpretation correct?

What is the general guidance on selling employer shares from an ESPP? From what I have seen so far, it seems that selling them immediately is generally the best course of action. Should I sell them even at a loss or wait for them to break even if such an event arises where my purchase price ends up being higher than the end-of-quarter stock value (since I purchase at the average price)?

I really appreciate everyone's comments and hope that you can continue to provide additional feedback/insight!
tashnewbie
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Re: Portfolio Review

Post by tashnewbie »

GamerDad wrote: Wed Mar 22, 2023 8:46 pm
tashnewbie wrote: Wed Mar 22, 2023 8:12 am There is no consensus about whether and how much international stock to hold. Recommendations range from 0 to 50%. 20% to 30% seems like the moderate recommendation. I think 20% is reasonable.
I have seen those large recommendations as well. Given the current world climate I did not want to be heavily invested in international stocks, but I did want to at least "dip a toe" into them. Right now I believe that I am around 15% diversified into international stock funds.
I wouldn't be worried about the "current world climate" as it relates to your desired int'l stock allocation. I suggest picking something you feel you can live with long term.
I definitely would not use a taxable brokerage account before you put money in your spouse's Roth IRA. I probably wouldn't put money in a 529/UGMA before then either (unless it's gifted money from relatives/friends).
Good to know! This is the same other users have also said. I think the correct first step is going to be funding a Roth or Traditional IRA for my wife. Do you have any insight into what funds I might consider to compliment the portfolio? I am currently 100% in Vanguard's Total Stock Market Index Fund within my own Roth IRA and assume hers should be diversified into something different.
I see no reason not to invest her Roth IRA in VTSAX too, or you can use her Roth IRA for int'l stock if you need space to hold your desired allocation. VTSAX is incredibly diverse. I can't imagine what you would need to put in the Roth IRAs other than US and/or int'l stock. Keep it simple.
I would probably put enough into the 401k to capture the full employer match, then I would split any remaining money you have to invest equally between his/her Roth IRAs...
Interesting! What is the reasoning behind splitting it between accounts vs fully funding one account instead? I am trying to work on our overall budget to hopefully come up with cash to put into hers starting this year, but nothing is set in stone at the moment. Another thought I had was to pull any interest gained in the HYSA funds and use that to at least get her Roth IRA started. For the most part, I have let that HYSA money sit and grow without touching it.
Equally splitting the amount you can afford to save (after capturing full 401k employer match) seems more equitable to me. You and your wife need to decide what you're comfortable with.
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ruralavalon
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Re: Portfolio Review

Post by ruralavalon »

GamerDad wrote: Wed Mar 22, 2023 9:15 pmI am an engineer and my wife is a behavioral therapist for kids with special needs. Unfortunately, neither of us have a pension (they're mostly gone these days it seems!), but will be eligible for Social Security benefits.

In terms of tax-deferred accounts, I rolled my old 401(k) and new Roth 401(k) together when I began at my new company. However, it appears that Fidelity is smart enough to know which funds are earmarked as "Roth" and "Pre-Tax" within the account. My old 401(k) was traditional and I believe all employer contributions into the 401(k) are tax-deferred. That would put "tax-deferred" monies at ~$165k between the 401(k) and HSA accounts. The HSA has another ~$6k which is in cash at the moment. I did not have access to a Roth 401(k) option until this year, else I would have done that earlier on.
With no pension and just $165k in traditional tax-deferred accounts in the 22% tax bracket, I suggest traditional rather than Roth contributions to your 401k for the benefit of the tax deduction.

In the 401k account I suggest using:
1) S&P 500 Index Fund (80% of the U.S. stock market) (0.02%);
2) International Index Fund (0.04%); and
3) Bond Market Index Fund (0.02%).

A S&P 500 index fund covers 80% of the U.S.stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 30 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Portfolio Visualizer,1993-2923. So the fund offered in your employer's plan is very diversified with a very low expense ratio.

What index is used by the "International Index Fund (0.04%)"? What index is used by the "Bond Market Index Fund (0.02%)"?

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA. . . . " Wiki article, Prioritizing Investments.

About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)?

It may be better to prioritize maximum contributions to your 401k over contributions to IRAs.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
tashnewbie
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Re: Portfolio Review

Post by tashnewbie »

ruralavalon wrote: Thu Mar 23, 2023 1:44 pm With no pension and just $165k in traditional tax-deferred accounts in the 22% tax bracket, I suggest traditional rather than Roth contributions to your 401k for the benefit of the tax deduction.
FYI, OP updated the original post to indicate they're in the 12% fed tax bracket.
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dogagility
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Re: Portfolio Review

Post by dogagility »

Welcome to the Forum!
GamerDad wrote: Tue Mar 21, 2023 11:07 pm
  • I am on the fence as to whether or not I should continue using Edelman Financial Services for active management of my 401(k) portfolio. Not that they have done anything bad or had major losses, but I signed up for their services due to the low fees through my company and in hopes to gain insight into how they allocate/manage the investments; vs being 100% in a Target Date Fund as I was for ~9 years prior. What is the general thought of services such as this managing only a portion of my portfolio?
How much is the "low fee"?

My suggestion is to read and learn about the Boglehead method of investing and implement this instead of paying for services. https://www.bogleheads.org/wiki/Main_Page#mp-gs-h2

In your 401k, you have very good index options. I would not pay the excess fee to invest in a Target Date Fund in your 401k.
  • I performed a rollover of my old 401(k) into my new 401(k) to have all the funds together. My old 401(k) was traditional/pre-tax. All my new contributions are to a roth 401(k). Should I continue contributing all of my 10% into the roth or is there a reason to split it between roth/traditional?
Since you're in the 12% tax bracket, I would continue Roth contributions. This is because you will likely be in a higher tax bracket in retirement.
  • For the Health Savings Account, I feel that my investments are currently too aggressive given that we generally use this account to pay medical bills as they arrive. Should I complement/change the investment mix to include a weighting of bond funds to be more conservative? Given the available funds, which would balance out the portfolio the best?
If you spend the HSA account every year, I'd invest this in a fund that isn't likely to fluctuate in value too much. Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX) would be appropriate.
  • Should we be looking to fully fund my 401(k) and an IRA for her before considering funding 529/UGMA or taxable brokerage accounts?
Probably.
  • Thoughts on the ESPP? This is the first time I have been involved with such a plan, but I do not know if I should generally hold the stocks or sell immediately after they vest.
How long is the ESPP holding period, meaning can you immediately sell the stock after purchase or do you have to wait? If there is no holding period, I would maximize your ESPP contribution and then immediately sell the stock after it is purchased.
  • Is there anything glaring I may have overlooked that needs to be addressed within my portfolio?
Not glaring. I'd suggest you read this wiki on prioritizing investments, though. https://www.bogleheads.org/wiki/Priorit ... nvestments
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
Topic Author
GamerDad
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Re: Portfolio Review

Post by GamerDad »

ruralavalon wrote: Thu Mar 23, 2023 1:44 pm ...With no pension and just $165k in traditional tax-deferred accounts in the 22% tax bracket, I suggest traditional rather than Roth contributions to your 401k for the benefit of the tax deduction...
Tashnewbie was correct in their response, I had corrected the original post to the 12% tax bracket after reading thru the responses. The 22% was based on my gross salary instead of my taxable salary (after standard deduction and HSA contributions are taken into account). Apologies for the confusion there!

I have been reading about the 3 fund portfolio a lot since joining the forum and like its simplicity. Regarding the funds which I currently have in my 401k, if I decide on the 3 fund portfolio in there is it worth rebalancing to remove the Target Date/Russell 2000 funds and reallocate the balances to a split I find desirable? Or would it more practical to change the contributions to only the 3 funds moving forward?

Out of curiosity, I believe I had read to generally avoid Bond funds within Roth IRA accounts. Though I do realize that the financial planners which I use to currently manage the 401(k) have a portion of bonds in the account currently. Does the same apply for Roth 401(k)s? Or is it not as applicable since only my contributions are Roth, whereas my employer contributions are still pre-tax dollars.
What index is used by the "International Index Fund (0.04%)"? What index is used by the "Bond Market Index Fund (0.02%)"?
Unfortunately, I do not actually know the answer to this. These funds offered by my employer within the 401(k) are exactly as I listed. There was not ticker symbol or any other identifier which I could find. I am not sure if it is useful, but this is what I can see for the portfolio builds of each fund in question:
  • International Index Fund: 100% in "NT ACWI ex-US IMI Fd - DC - NL - J"
  • Bond Market Index Fund: 42.11% in Government Bonds, 29.43% in Agency Mortgage Bonds, 24.82% in Corporate Bonds, 2.53% in Government Related Bonds, 0.63% in Municipal Taxable Bonds, 0.47% in Asset-Backed Bonds, and extremely small amounts (<0.1%) in a number of other bond items
"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA. . . . " Wiki article, Prioritizing Investments.
This was a great article, thank you for sharing! There are so many great resources here. I have been enjoying learning more about investing and investment accounts in general; I know I have a long ways to go!
About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)?
Right now, I believe my personal contributions will be limited to around $24,500. Which aligns with my 401(k) match, maxing the HSA, and maxing my Roth IRA. Which I was glad to see my historical savings aligns well with the "Prioritizing Investments" article's guidance! However, we are trying to refine my family's budget and hope to squeeze out another $5500-$6500/year to fund an IRA for my wife. Though we have not yet figured out quite how to get there via the budget alone just yet.
Topic Author
GamerDad
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Re: Portfolio Review

Post by GamerDad »

Thank you for the response! I have only recently found out about the Bogelheads forum and have been trying to learn as much as I can from reading the posts and articles here. I really appreciate that everyone here works together to share their knowledge regarding building funds and various investment vehicles that can be used.
dogagility wrote: Thu Mar 23, 2023 2:53 pm How much is the "low fee"?
Apologies, I had forgotten to look up these fees before my original post. I shared them in a comment, but have copied them here for easy reference. Given my current balance, their fee is ~$350/year for the service at this time.
  • First $20k: 0%
  • $20k-$100k: 0.3%
  • $100k-$150k: 0.2%
  • $150k+: 0.1%
My suggestion is to read and learn about the Boglehead method of investing and implement this instead of paying for services...
Given everyone's responses I feel beginning to feel the same. I need to look into whether or not I have free access to a financial advisor without having the service (I believe that is a perk thru my company). I think that I would still appreciate seeing how their guidance lines up against my own planning/thinking regarding how my various accounts should be allocated, but agree that it is probably best to avoid the fees!
In your 401k, you have very good index options. I would not pay the excess fee to invest in a Target Date Fund in your 401k.
This was actually something which I planned to discuss with the financial planners during my next check-in; as I believe that they are slowly selling off the Target Date Fund and placing it into the other specific funds (rather than selling it all at once). When I originally rolled over the funds into one 401(k) I put it the money into a Target Date Fund while I spent time to figure out the best funds to use; that was just prior to deciding on the use of Edelman Financial Services anyways!

However, if I leave their service and manage the account on my own, is it best to rebalance the account to distribute the funds now or would I simply stop contributing to the Target Date Fund and change my allocation spread moving forward?
If you spend the HSA account every year, I'd invest this in a fund that isn't likely to fluctuate in value too much. Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares (VTAPX) would be appropriate.
I may not have been as clear as desired here. I generally keep a cash allocation up to my deductible (currently up to my max out of pocket) and only spend the cash within the account, but do not dip into the investments. This is something which I would plan to continue moving forward; though obviously accidents do happen and maybe at one point I would need to grab money out of the investment portfolio to cover it. But that would not be the "norm".
How long is the ESPP holding period, meaning can you immediately sell the stock after purchase or do you have to wait? If there is no holding period, I would maximize your ESPP contribution and then immediately sell the stock after it is purchased.
This is the excerpt from the program they provided us: "This is a qualified plan under Section 423 of the Internal Revenue Code. As such, you are not subject to any tax upon the purchase of shares and you will qualify for favorable tax treatment on any gains upon sale if you hold your shares for at least 2 years from the start of the offering period." As I read this, I can sell them directly after they deposit, but I will be taxed on them. If I hold them for 2 years, then I can sell them at a more favorable tax position. Is that interpretation correct?

The program allows for 1%-15% of salary to be entered into the ESPP (with 2000 shares quarterly or $25,000 yearly limits). I am currently saving 2% into the program to see how I feel about it. We are about to have our first purchase at the end of this quarter. If I think it is worthwhile, I plan to increase the contribution after I am able to maximize an spousal IRA for my wife. Once I am in the program for 2 years, I definitely see potential to sell the shares with tax-advantage and use the proceeds to fund the spousal IRA!
invest4
Posts: 1893
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Re: Portfolio Review

Post by invest4 »

Lots of solid advice provided already.

Some comments:

* Edelman: stop using. Typically comes at some cost with more funds / ETFs than you need that also may not match the portfolio you want for yourself. You can invest for yourself and our forum will help you along the way. Generally speaking, the only people who really need this are those who find themselves challenged with behavioral issues as far as investing is concerned. A prime example is someone who gets spooked and sells their investments at the worst time.


* ESPP: The amount you are investing is small and adds an element of complexity to your portfolio which is not needed imho. You have other valuable options available to you which are not fully funded (Roth for example). Put simply, I don't think the juice is worth the squeeze and would not bother with it. If you have extra cash, you could do just as well or better chasing bank promotions.


* New Contributions: If you are really in the 12% tax bracket, I think continuing with Roth is completely fine while your income grows and pre-tax becomes more advantageous.


* HSA:

- You are absolutely allowed to pick an additional HSA provider. Most here will highly recommend Fidelity as I perceive the majority of employer HSAs as simply subpar and expensive.

* If you decide to do so, make sure you understand the process for transfers and any requirements from your employer provided HSA. For example, they may require a minimum balance or they will close the account. Similarly, it is important that you clearly document what you want to happen with your transfers. For example, my company changed HSA providers and when I did my first transfer to Fidelity, they closed the account because they simply were not familiar with the transfer process. Of course, it was fixed, but I now write on each transfer form ***DO NOT CLOSE ACCOUNT - CASH TRANSFER ONLY*** to make sure there is not a repeat.


- Ideally, you would not use this account for current medical expenses if you can avoid it. The HSA is triple-tax advantaged and quite valuable. Due to these advantages, you would invest in securities which you would expect to provide the highest return over the long run. For myself, I invest 100% of my HSA in VTI (US Total Stock Market). Of course, I recognize it is not always possible to invest as much as we want where we want. It took me many years before I made enough income to max out 401k and Roth. Importantly, develop an understanding of the various investment options available to you and make the best choices for your family and adjust them as needed. If you still must pay out of the HSA, I agree with the others who have suggested lower risk investments for this purpose.


* 529: I only started 529s for our 4 children after we were further along in the journey (after we were maxing out tax advantaged accounts). In hindsight, I think I would have started earlier, but small and then increased over time. Most importantly, you should think about what kind of education is acceptable for your child so you may have a better sense how much you are planning to fund.

For our 4 children, we have agreed to fund the following:

* 2 years community college

* 2 years state university

* All while living at home

People have different ideas about what is ok for them. There are lots of threads on this topic. For example, some think it very important for their child to live on campus and have the "college experience" and are willing to pay for that. Others want their children to have "skin in the game" and also make some contribution to their education. There is no right or wrong...you just need to decide what you are willing and able to do.

Items Overlooked:

* Do not underestimate the value of simplicity in your portfolio:


- New investors often consume their time with back testing, etc. to unearth the "ideal portfolio". The desire to "optimize" can have a powerful allure and people attempt to come up with their own "secret sauce" in their pursuit for better returns. The faster you realize the past is not the future and your "optimization" is not much more than an educated guess at best and you are just as likely to have worse returns, the farther ahead you will be.

- You need very few ETFs / funds to make a solid portfolio that will endure over time...3-5 max imho. Easier to stick with and easier to manage for the win.


* Market timing:

GamerDad wrote: Wed Mar 22, 2023 8:46 pm
tashnewbie wrote: Wed Mar 22, 2023 8:12 am There is no consensus about whether and how much international stock to hold. Recommendations range from 0 to 50%. 20% to 30% seems like the moderate recommendation. I think 20% is reasonable.
I have seen those large recommendations as well. Given the current world climate I did not want to be heavily invested in international stocks, but I did want to at least "dip a toe" into them. Right now I believe that I am around 15% diversified into international stock funds.
Taking investment action based upon your sense of things like the "current world climate" will inevitably lead to mistakes and I believe more angst for you and potential for lower returns. If you believe international provides benefits to your portfolio (diversification for example) and want to share in that...then go ahead. You are investing for the long term...not trying to pivot here and there was as you think the wind blows. Similar to my comment further above, I strongly encourage you to acknowledge and accept no one knows the future. There are many threads from those who acted on their "feelings" or "predictions" about what was likely to happen and not only regretted it, but sometimes become paralyzed to get back on course because they don't want to further compound their initial mistake and / or lock in potential losses, etc.

Best wishes.
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ruralavalon
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Re: Portfolio Review

Post by ruralavalon »

GamerDad wrote: Thu Mar 23, 2023 10:22 pm
ruralavalon wrote:What index is used by the "International Index Fund (0.04%)"? What index is used by the "Bond Market Index Fund (0.02%)"?
Unfortunately, I do not actually know the answer to this. These funds offered by my employer within the 401(k) are exactly as I listed. There was not ticker symbol or any other identifier which I could find. I am not sure if it is useful, but this is what I can see for the portfolio builds of each fund in question:
International Index Fund: 100% in "NT ACWI ex-US IMI Fd - DC - NL - J"
Bond Market Index Fund: 42.11% in Government Bonds, 29.43% in Agency Mortgage Bonds, 24.82% in Corporate Bonds, 2.53% in Government Related Bonds, 0.63% in Municipal Taxable Bonds, 0.47% in Asset-Backed Bonds, and extremely small amounts (<0.1%) in a number of other bond items
These funds are probably Collective Investment Trusts (CITs) which will not have ticker symbols.

"ACWI ex-US IMI" is the MSCI All Country World ex-US Investable Markets Index. This is a total international stock index fund, covering both developed markets and emerging markets, including stocks of large-cap, mid-cap and small-cap companies. link to pdf. This is an excellent fund for investing in international stocks, it is very diversified with a very low expense ratio.

As mentioned earlier the "S&P 500 Index Fund (0.02%)" is an excellent very diversified index fund for investing in U.S. stocks, with a very low expense ratio.

In your 401k materials in or the 401k website there will be a short fact sheet for each CIT. The fact sheet will state the index used, and for a bond fund probably give average effective bond duration and average credit quality.

Can you post a link to the fact sheet for the bond index fund? It appears from your description that the Bond Index Fund is diversified, has a very low expense ratio, and is probably a good choice for a fixed income investment.

What interest rate is currently being paid on the "Stable Value Fund (0.26%)", and what rate if any is guaranteed? If a good rate is paid then that could also be a good choice for a fixed income investment.

Since good funds with low expense ratios are offered in the employer plan don't limit yourself to contributing just enough to get the employer match. Wiki article, Prioritizing Investments.

I suggest more contributions to the employer plan as a priority ahead of contributions to any IRAs. It appears that your employer's plan offers excellent very diversified stock index funds with very low expense ratios.

How much do you spend annually from the Health Savings Account (HSA) for medical expenses? It may be wise to make more contributions to the employer plan as a priority over contributions to the HSA.

With no pension and just $165k in traditional tax-deferred accounts it's probably still wise to make some traditional contributions even if currently in the 12% tax bracket. Please read the two articles whose links I gave you earlier on the traditional versus Roth issue.

I suggest that you split your contributions to the employer plan. You could consider 1/2 traditional and 1/2 Roth.

About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)?

At what age do you expect to retire? Do you plan an early retirement?

Will your employer's plan permit you to use different funds in the Roth sub-account than you use in the traditional sub-account?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
GamerDad
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Re: Portfolio Review

Post by GamerDad »

Thank you for the response and insight!
invest4 wrote: Fri Mar 24, 2023 1:15 am * ESPP: The amount you are investing is small and adds an element of complexity to your portfolio which is not needed imho. You have other valuable options available to you which are not fully funded (Roth for example). Put simply, I don't think the juice is worth the squeeze and would not bother with it. If you have extra cash, you could do just as well or better chasing bank promotions.
An interesting piece of advice here. I had originally started contributing that small amount into the ESPP due to the 5% discount on share price during each quarter. As suggested throughout this post, and what I have elsewhere on the forum, my thought was to sell the shares when it is tax-advantageous to do so (I think after 2 years based on the program's description) and then reinvest that money into a retirement account which can take the extra money at the time (401(k), IRA, or even taxable potentially down the road). Is the thought here that it is simply adding more risk to do that than to just immediately invest into the 401(k) or IRA up front?
* HSA:
- You are absolutely allowed to pick an additional HSA provider. Most here will highly recommend Fidelity as I perceive the majority of employer HSAs as simply subpar and expensive.

* If you decide to do so, make sure you understand the process for transfers and any requirements from your employer provided HSA. For example, they may require a minimum balance or they will close the account. Similarly, it is important that you clearly document what you want to happen with your transfers...
I have actually been looking more into this over the last few evenings as people have been commenting on this post! It does seem that Fidelity is a great choice and I plan to discuss how I might be able to do this moving forward. I realize that I would need to keep a certain minimum in my current HSA; most likely the deductible at a minimum or the max out of pocket in a year I expect high medical bills (such as I have set aside for this year). Great to know about clearly documenting the transfers though; I will certainly ask both my current HSA and Fidelity (or whichever I choose) how to manage these transfers before I begin that process.

In terms of dipping into the investments, I hope that the following is more clear. We generally do not spend a large amount on medical expenses. Though we did have our first child recently so I expect those bills will go up, and stay up, over the next decade. However, my main goal is to never touch the investment funds. I continue to max the HSA account and then only use the funds which I have as cash. To this point, I have not had to sell investments in order to pay for medical expenses due to holding that cash balance in reserve each year and hope to maintain that practice for as long as possible!

Overall, everyone has been providing great advice and insight into what I could potentially do better and what I should be focusing on as my next steps of retirement investing!
Topic Author
GamerDad
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Re: Portfolio Review

Post by GamerDad »

ruralavalon wrote: Fri Mar 24, 2023 1:34 pm Can you post a link to the fact sheet for the bond index fund? It appears from your description that the Bond Index Fund is diversified, has a very low expense ratio, and is probably a good choice for a fixed income investment.
I am not sure how I might be able to upload a file at this point, but I did find the following on a fact sheet buried within the fund's summary page. Hopefully this answers your question!
"The Fund seeks to provide returns that approximate the overall performance of the Bloomberg U.S. Aggregate Bond Index. The Fund invests primarily in the units of the Northern Trust Collective Aggregate Bond Index Fund. The Fund is managed using a "passive" or "indexing" investment approach, by which the Fund attempts to match, before expenses, the performance of the Bloomberg U.S. Aggregate Bond Index. The Index measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market in the U.S., including asset-backed, corporate, government, & mortgage-backed bonds. The Fund attempts to invest in the securities comprising the Index in the same proportions as the Index."
What interest rate is currently being paid on the "Stable Value Fund (0.26%)", and what rate if any is guaranteed? If a good rate is paid then that could also be a good choice for a fixed income investment.
I am not sure if this will answer your question. From what I can tell on the fund page, the Average Annual Return is: +0.62% (YTD); +2.38% (1 year); +2.24% (3 years); 2.45% (5 years); 2.31% (10 years). I did not see anything mentioned regarding a guaranteed interest rate within the fund's details.
How much do you spend annually from the Health Savings Account (HSA) for medical expenses? It may be wise to make more contributions to the employer plan as a priority over contributions to the HSA.
Generally, we spend less than our deductible in a normal year. Obviously, there is a risk of things happening so I try to keep between the deductible and max out of pocket limits as cash within the HSA account at all times throughout the year. I then invest any further contributions and try not to touch those invested funds.

However, I will have to give some thought as to whether I should lower HSA contributions and push those savings into the 401(k) as you recommended. Based on my own personal saving habits and what little I knew about retirement investing prior to finding this forum, I have actually been saving in a similar manner to the "Prioritizing Investments" Wiki article which you linked. 1. Funding the emergency fund; 2. Obtaining the employer's 401(k) max match; 3. Maxing the HSA; 4. Maxing the IRA (Roth in my case so far). I am glad I found the forum though, since my originally planned "next steps" differed from that article's general advice!
With no pension and just $165k in traditional tax-deferred accounts it's probably still wise to make some traditional contributions even if currently in the 12% tax bracket. Please read the two articles whose links I gave you earlier on the traditional versus Roth issue.
I actually did read through those articles this evening! They were very informative into the pros of investing into a traditional 401(k)/IRA. And, as one of the articles even spoke to, all of the advice which I have seen up to this point had always pushed me towards investing in a Roth earlier in my career without much mention that the traditional forms had incentives (though I did know about the reduced taxable income incentive in general). However, I did have the idea that I would swap to a traditional 401(k)/IRA once I hit a certain salary range.

Given the other feedback one this forum so far, and my own general thoughts over the last year or so, my intention was to begin splitting between Roth and Traditional 401(k)s/IRAs once my current deductions can no longer keep me in the 12% tax bracket (likely in 2024-2025). The split would be based on whatever is required to keep me in the 12% tax bracket for as long as possible. However, once firmly in the 22% tax bracket I was(/am) a little more unsure of what I should do exactly in the Roth vs Traditional argument. Given my wife's and my current professions, and the salaries which they tend to pay, it is possible we may reach the 24% tax bracket (potentially if I am the sole earner; for sure if she goes back to work). However, it is unlikely we would ever hit the 32% tax bracket.
About how much (in dollars) do you believe that you might be able to contribute annually to investing (total, all accounts)? At what age do you expect to retire? Do you plan an early retirement?
At this time, I believe that my personal contributions into retirement investments will be limited to ~$24,500. I hope to determine a way to save an additional $5500-6500 to potentially fund a spousal IRA (or put more into the 401(k) as you suggested), but I am not sure this additional savings will happen this year.

My original hope was to work until I am 60. But I realize that I am likely to work until I am 65. Unless I have a major life changing event, I do not (currently) think I will be able to retire early.
Will your employer's plan permit you to use different funds in the Roth sub-account than you use in the traditional sub-account?
This is a good question, I honestly do not know and it is something which I have to ask Fidelity for clarity on. Given the structure of the account currently, I would say no though. As all of the pre-tax rollover (from past 401(k)), pre-tax employer contributions, and roth personal contributions are currently all lumped into one account and there is no indication within the funds what allocation is pre-tax/post-tax dollars. I do believe that Fidelity tracks all of those dollars internally, and where they are at, to know what is taxed when sold, but I have not seen information readily available on that within my account.
Topic Author
GamerDad
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Re: Portfolio Review

Post by GamerDad »

Based on all of the insight which has been provided, it sounds like simplifying my portfolio once I exit Edelman's services is something to highly consider (ie. rebalancing the Target Date Fund allocation appropriately into S&P 500 Index (Large Cap)/Russell 2000 Index (Small Cap)/Intl Index/Bond Index).

One question I have is related to taxable events when selling investments as I potentially rebalance accounts. As I understand it, rebalancing or selling funds within a Roth/Traditional 401(k), Roth/Traditional IRA, or the HSA would not trigger a taxable event since they are tax advantage/tax deferred accounts. Ie. there would be nothing to worry about tax-wise if I were to rebalance funds within my 401(k) or sell funds in my HSA in order to move them into a Fidelity HSA.

Is a brokerage acct/taxable acct the only one I would need to worry about if I were rebalancing my portfolio as a whole? Meaning that, in the future, I should always look to rebalance within the 401(k), IRA, or HSA before considering rebalancing in a taxable account?

Also, a question regarding ETFs vs Mutual Funds (such as VTI vs VTSAX; may not be a great example, but I mainly know Vanguard funds). From what I have read, it sounds like ETFs are generally a more tax-efficient fund and are thus more useful within a taxable account vs investing into a similar mutual fund within that account. Is this the general consensus or am I misunderstanding something here? This won't be something for me to consider until I start a taxable retirement account, but I thought I would still ask!
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ruralavalon
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Re: Portfolio Review

Post by ruralavalon »

The index funds in the 401k are excellent funds very diversified funds with very low expense ratios. You are fortunate. Don't pass up the opportunity to use those funds to the maximum extent possible.

GamerDad wrote: Fri Mar 24, 2023 10:28 pm"The Fund seeks to provide returns that approximate the overall performance of the Bloomberg U.S. Aggregate Bond Index. The Fund invests primarily in the units of the Northern Trust Collective Aggregate Bond Index Fund. The Fund is managed using a "passive" or "indexing" investment approach, by which the Fund attempts to match, before expenses, the performance of the Bloomberg U.S. Aggregate Bond Index. The Index measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market in the U.S., including asset-backed, corporate, government, & mortgage-backed bonds. The Fund attempts to invest in the securities comprising the Index in the same proportions as the Index."
That is a total bond market index fund. It is an excellent bond fund, it is very diversified with a very low expense ratio (0.02%).

The expense ratios of the three index funds suggested are lower than you can get in an IRA:
1) S&P 500 Index Fund (80% of the U.S. stock market) (0.02%);
2) Northern Trust International Index Fund (MSCI ACWI ex-US IMI, total international stock index fund) (0.04%); and
3) Northern Trust Bond Market Index Fund (Bloomberg U.S. Aggregate Bond Index, total bond market index fund) (0.02%).

Northern Trust is one of the largest asset managers in the world, they are experienced and capable in managing index funds.

Because the employer plan offers excellent very diversified index funds with very low expense ratios I suggest more contributions to the 401k account as a priority ahead of contributions to any IRA.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA. . . . " Wiki article, Prioritizing Investments.

The primary reason that it's often suggested to fund an IRA (after getting the employer match) is that many employer plans offer actively managed funds with high expense ratios, and better less expensive funds can be purchased in an IRA. That is not your situation, your employer's plan offers excellent very diversified index funds with very low expense ratios, better than you could get in an IRA.

More contributions to your 401k account should also be a priority over contributions to a taxable brokerage account.


GamerDad wrote: Thu Mar 23, 2023 10:22 pmRight now, I believe my personal contributions will be limited to around $24,500. Which aligns with my 401(k) match, maxing the HSA, and maxing my Roth IRA. Which I was glad to see my historical savings aligns well with the "Prioritizing Investments" article's guidance! However, we are trying to refine my family's budget and hope to squeeze out another $5500-$6500/year to fund an IRA for my wife. Though we have not yet figured out quite how to get there via the budget alone just yet.
I suggest maximum annual employee contributions to the 401k, $20.5k. The employer match does not count toward the employee limit, it's extra. Annual contributions beyond that should be to the HSA, and then if more contributions are possible then to IRAs.

I suggest shifting both the existing balance in the 401k and new contributions to those three funds. Making that switch in the 401k account will not create any income tax liability.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
GamerDad
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Re: Portfolio Review

Post by GamerDad »

ruralavalon wrote: Sat Mar 25, 2023 10:18 am The expense ratios of the three index funds suggested are lower than you can get in an IRA:
1) S&P 500 Index Fund (80% of the U.S. stock market) (0.02%);
2) Northern Trust International Index Fund (MSCI ACWI ex-US IMI, total international stock index fund) (0.04%); and
3) Northern Trust Bond Market Index Fund (Bloomberg U.S. Aggregate Bond Index, total bond market index fund) (0.02%).
What is the thought regarding a 90/10 split between the S&P 500 and Russell 2000 funds within the 401(k) in order to replicate a Total Stock Market fund? I found that suggested split here: https://www.bogleheads.org/wiki/Approxi ... ock_market. It seems that the Total Stock Market fund and S&P 500 have followed each other fairly closely over recent years. However, I am wondering if the extra diversification/complexity is worth inclusion of the small cap stocks (something which the Edelman managers were doing currently).
Last edited by GamerDad on Mon Mar 27, 2023 9:29 pm, edited 1 time in total.
Topic Author
GamerDad
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Re: Portfolio Review

Post by GamerDad »

Thank you everyone for all of the inputs and helpful direction! Overall, I am definitely planning to make a few changes based on everything discussed here and further research I have been doing throughout the forum. One of the biggest of which will be parting ways with Edelman's financial services and potentially moving the investment portion of my HSA to Fidelity (need to do some more research!) in order to lower the fees being incurred across my accounts. I also plan to hold off on starting the 529 & taxable accounts until I max the allowable contributions to His 401(k), His HSA, and His/Her IRAs based on everyone's advice.
  • Regarding the 401(k) contribution, I have recently found out that I am be able to electively defer up to 100% of my bonus into the 401(k) as a pre-tax contribution. I am currently planning to do this with next year's potential bonus in order to increase my overall contributions; while setting the percentage to ensure I do not go beyond maximum contribution for the year. Would this be a good alternative to simply increasing my monthly contributions as it also avoids the 22% federal tax against a bonus? Or is it not a very effective strategy since there is potential risk of poor yearly (corporate or personal) result's where company decides against providing a bonus?
  • Regarding the HSA, I fear that I was not very clear in my original post regarding how I use this account. Anything which I place into the investment funds are not used throughout the year and will be allowed to grow until retirement. What I pay out of the account is only from the cash balance, which I have always maintained at either deductible or max-out of pocket levels depending on expected medical expenses that year. Thus, I believe that it would be safe to view the investment side of the account as "for retirement only" and the cash side as "for medical expenses".
  • Regarding the HSA cash balance, could the cash be invested into a Money Market account within the Fidelity HSA and would that be a "safe" place to keep cash for yearly medical expenses? If so, would this a better option than leaving the cash within the current account which provides only 0.01%-0.06% interest on cash balances?
  • Regarding the ESPP, I plan to continue doing this at least for 1 year to get a full view of how this program works. If I am not satisfied with the results or feel that I am locked into holding the stocks for too long of a period, I will exit the program and redirect those earmarked funds into either His 401(k) or Her IRA.
Below is what I have outlined so far for my future portfolio. Please feel free to chime if I have misunderstood anything! I plan to crunch some numbers to determine the correct allocations before I move forward with anything.

Taxable: No change at this time
  • I-Bond (If sold in 2023, will be re-invested into spousal (Roth?) IRA)
  • Employee Stock Purchase Plan (Potentially held for 2 years for tax advantage on sale; whenever sold, the funds will be re-invested into spousal (Roth?) IRA)
His 401(k): Rebalance account from current allocations into the following funds
  • S&P 500 Index Fund (0.02%)
  • Russell 2000 Index Fund (.03%) (potentially to mimic a Total Stock Market Fund?)
  • International Index Fund (0.04%) (Allocation at 20% of total stocks within overall portfolio)
  • Bond Market Index Fund (0.02%) (Allocation at 10% of overall portfolio)
His Roth IRA: No change
  • Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (0.04%)
Her Spousal (Traditional/Roth?) IRA: Open when funds become available from I-Bonds, ESPP, or elsewhere.
  • Total Stock Market Index Fund (likely at Vanguard or Fidelity)
His Health Savings Account: Split between current HSA provider and Fidelity
  • Cash to remain in current HSA provider to ensure account remains open (Amount = deductible limit or max-out of pocket limit depending on expected yearly medical costs)
  • Total Stock Market fund or a split between funds to replicate a Total Stock Market Fund (Based on available funds within a Fidelity HSA)
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ruralavalon
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Re: Portfolio Review

Post by ruralavalon »

GamerDad wrote: Mon Mar 27, 2023 9:19 pm
ruralavalon wrote: Sat Mar 25, 2023 10:18 am The expense ratios of the three index funds suggested are lower than you can get in an IRA:
1) S&P 500 Index Fund (80% of the U.S. stock market) (0.02%);
2) Northern Trust International Index Fund (MSCI ACWI ex-US IMI, total international stock index fund) (0.04%); and
3) Northern Trust Bond Market Index Fund (Bloomberg U.S. Aggregate Bond Index, total bond market index fund) (0.02%).
What is the thought regarding a 90/10 split between the S&P 500 and Russell 2000 funds within the 401(k) in order to replicate a Total Stock Market fund? I found that suggested split here: https://www.bogleheads.org/wiki/Approxi ... ock_market. It seems that the Total Stock Market fund and S&P 500 have followed each other fairly closely over recent years. However, I am wondering if the extra diversification/complexity is worth inclusion of the small cap stocks (something which the Edelman managers were doing currently).
I favor use of a total stock market index fund if available, because a little more diversified than a S&P 500 index fund.

But if a total stock market index fund is not available (as is common in an employer plan like yours), then in my opinion a S&P 500 index fund is good enough by itself for investing in U.S. stocks. "In a 401(k) plan with limited choices you might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio", Wiki article, Three-fund portfolio, Other considerations

As mentioned before a S&P 500 index fund covers 80% of the U.S.stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 30 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Portfolio Visualizer, 1993-2023.

I personally would not bother with adding the Russell 2000 index fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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