Author Topic: Please critique our portfolio and plans!  (Read 3878 times)

pigpen

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Please critique our portfolio and plans!
« on: December 29, 2016, 10:52:47 AM »
Fellow Mustachians,

It's that time of year when I like to review our finances and reallocate investments. I'm also starting to think about FIRE spending and how to begin planning for it, and I'm hoping that some of you will provide me with your insight/critique on our investments.

Our situation:

Me: 46 Yrs old

Wife: 42 Yrs old

Home: Owned, no mortgage, value of approx. $275,000, property taxes around $2,300/year

Jobs: State government (me), local education (wife) -- both fairly stable

Current Spending: $35,000/year, with the goal of reducing to $30,000 -- possibly much lower if we move overseas (see below)

Combined yearly income: went to $135,000 combined after a recent raise -- between us, we're currently maxing out a 457 and two 401(k) plans, two Trad. IRAs, and the rest into taxable account
Risk Tolerance: On a scale of 1-10, 10 being the most risk averse, I'm probably a 3? I didn't sell or worry a whole lot during the dot.com burst or the recession, but I didn't have nearly as much invested then either, so who knows how I'd feel now.

Current Investments:
457 Plan: $39,499 in Vanguard target retirement 2035 (0.34% net expense)
401(k): $108,118 in Vanguard target retirement 2035 (0.34% net expense)

ROTH: $51,209 in VFTSX (Vanguard socially responsible -- basically large cap) (0.22% expense), $29,822 in VSMAX (Vanguard small cap index), $34,165 in PXINX (socially responsible, Intl. index -- MSCI EAFE) (0.80% expense), VBTLX $25,765 (Vanguard total bond index)

TRAD IRA: $4,910 in VTTHX (Vanguard target retirement 2035) and $5,064 in VTHRX (target retirement 2030) -- these balances are smaller because we just started contributing to traditional IRAs instead of ROTHs. We will continue to max out the traditional IRA yearly.
Taxable: $24,122 in FSTVX (Fidelity total market index)
Cash; $32,203

The allocation %s for the invested (non-cash) portion is: U.S Stocks 52.55% (Large 34.72%, Mid 11.05%, Small 6.78%), International 26% (Developed 13%, Emerging 2.4%), U.S. Bonds 13%, Intl Bonds, 4%, "Alternatives" 3.5% (as defined by personal capital -- mostly real estate)

Current target allocation (and I'm open for suggestions on this): 80/20 stocks and bonds. 35% U.S. large, 30% international, 15% U.S. Small, 20% bonds

TOTAL Invested and Cash: $355,000

Equity in Home: $275,000

Pensions: I am eligible to draw a pension at 60 (14 years from now) that will pay approximately $12,000/year in current dollars. My wife is eligible to draw a pension at 60 (approx. 18 years from now) that will pay approx. $15,000 in current dollars. Both of our pensions are adjusted for cost of living each year if the previous year's CPI goes up at least 0.5%, with a maximum yearly increase of 3%. When one of us dies, the living spouse will continue to receive the same benefit from the dead spouse's pension. Our state's pension fund is one of the top 5 best-funded state pension funds in the country.

Social Security: Something hopefully. I haven't estimated it lately.

Our Current Plan: Leave our jobs in approximately 3-5 years and move overseas to a lower cost of living country, where we would get teaching jobs or online work for the next 3 years or so that's enough to pay the bills. Therefore, we wouldn't be using much, if any, of our investments until 6-8 years from now. We would probably rent out our house during the first year or so to make sure we like living abroad, and if we like this lifestyle, we would consider selling our house and investing the money. If the overseas plan falls through due to sick/aging parents or other circumstances, we'd probably keep our house and get jobs just to pay the bills for a few years.

Given all this, how might you change our allocation or where we're putting certain asset classes? I know a lot of people don't like socially responsible funds, and if you feel the need to say that you don't like them, that's fine. But know that I'm well aware of the arguments against them, including the fact that the expense ratios are higher.

Cash? I'm guessing the suggestion will be to invest a lot of this.

Pension? For those of you who have one, when you do a cFIREsim (or similar tool) calculation, do you use the full amount of your pension payment as a future income stream? Reduce it by a certain amount to account for risk of the pension possibly going away before you draw it? Obviously it makes a big difference whether I use this or not, since it would eventually pay for a large percentage of our expenses on its own.

Any thoughts would be welcome and appreciated. Thanks for your help.

Pigpen


Mother Fussbudget

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Re: Please critique our portfolio and plans!
« Reply #1 on: December 29, 2016, 12:20:38 PM »
Very conservative estimates here - not including your pension (since it won't come into play for another 12-to-14 years).

Even without the pension, if you continue saving ~$100K/year, and get more than a 6.6% ROI, your investments will be @ 25x your $30K annual expenses (i.e. $750K) in 3 more years.  Once that happens, you won't have to 'work' overseas, unless you absolutely want to.  *Travel* overseas, and experience life, and use geographic arbitrage to keep your expenses down in the first few years of FIRE... sure.  Go for it!  And if & when your pensions kick in, you'll have more to spend/save. 

Read "Get What's Yours" by Larry Kotlikoff (library) to learn more about Social Security, and *if you can* why you should wait until you turn 70 to apply (no one does this, but the math works best if you do).  Things you can do TODAY include signing up at socialsecurity.gov/myaccount  to check/very your work history, and see your estimated future benefit. 

You're doing well.  Remember:  Don't get so hung up in the scrimping and saving piece that you lose sight of the FREEDOM aspect of FIRE.  And to get free, you have to pull the trigger, and start that 'long-sabbatical' / gap-year(s).   Three years from now, you'll probably have one-more-year syndrome.  Be aware of it, and prepare accordingly.  All the best!

pigpen

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Re: Please critique our portfolio and plans!
« Reply #2 on: December 29, 2016, 02:47:38 PM »
Thanks, MFB. I'll take a look at the book you recommended and check out the SS website. Yes, I can definitely see myself getting a case of one-more-year syndrome. That's kind of why I'm imagining continuing to work a year or two after we move -- it makes a good psychological crutch for now. Luckily, the places that interest us are cheaper for the most part -- Costa Rica, Panama, Ecuador, Bhutan, Africa.


MustacheAndaHalf

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Re: Please critique our portfolio and plans!
« Reply #3 on: December 29, 2016, 06:43:57 PM »
Social investing may not be the most effective way to get your message across to the companies you wish to target.  In their daily price fluctuations many things factor in, but the rare absence of certain buy and hold investors is unlikely to be on a company's radar.  So I hope picking these social funds did not replace other activities, as any other effort you make is likely to have more impact than selecting a socially driven index fund.

pigpen

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Re: Please critique our portfolio and plans!
« Reply #4 on: December 29, 2016, 07:16:00 PM »
Thanks for your comment. No -- choosing these funds isn't meant to replace other activities. I'll leave at it that because I don't want the thread to become a debate on social funds. I really only mentioned that two of them were social funds because I wanted to name the mutual funds in accordance with the custom here and to give as much information as possible, not because I wanted specific advice on that aspect of our portfolio.

If we decide we're no longer interested in SRI funds, we would just get a large-cap index fund to replace the Vanguard SRI fund, and an international fund with low expenses to replace the SRI international fund we currently have.

LAGuy

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Re: Please critique our portfolio and plans!
« Reply #5 on: December 29, 2016, 08:03:55 PM »
As somebody who is now traveling, I return home to work part time contract work. Don't teach abroad...that's a shit job. If you still need/want to work try to plan to do it in your home country until you just don't need to work anymore. If you do plan to teach abroad, do it on a volunteer basis or plan to look at it from that perspective.

pigpen

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Re: Please critique our portfolio and plans!
« Reply #6 on: December 30, 2016, 06:56:43 AM »
Thanks, LA. Makes sense. It may just be what MFB got me thinking about with her comment -- that I'm using the teaching thing to make leaving our jobs feel safer.

jjcamembert

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Re: Please critique our portfolio and plans!
« Reply #7 on: December 30, 2016, 12:33:01 PM »
I also think it looks like you could completely quit your jobs in 4 years. Assuming you can save $60-70k not including retirement accounts you should have enough taxable reserves (~$350k) to cover expenses for 10 years until you get your pension. Meanwhile, your retirement accounts are just compounding for those 10 years and you will still have $800k+ in retirement money not including pension. If you wanted to push up your date you could probably also start drawing down the Roth money, since you won't need it anyway once your pensions kick in. Are the pensions inflation-adjusted?

There is probably a more intelligent / tax friendly way to handle accounts w/ conversion ladders and such, but a quick calculation tells me you're easily FIRE in 3-5 years, so after that get a job if you want but you won't need to.

pigpen

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Re: Please critique our portfolio and plans!
« Reply #8 on: December 30, 2016, 12:43:38 PM »
Thanks. The pensions are inflation adjusted, but not until we actually start drawing them. So, if I quit my job tomorrow having earned a benefit of $1,000/month, I would receive monthly checks for $1,000 in 2030 for the first year after I file for retirement with the state. For year 2 and thereafter, I'd get cost-of-living adjustments. Which obviously isn't as good as getting yearly adjustments from the year I quit, but I figured I'd just discount the $1,000 for inflation during the years from 2030 back to my quit date and use that figure in cFIREsim. Unless there's a better tool for that already worked into the application. I haven't been in there in a while to remember.

justchecking

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Re: Please critique our portfolio and plans!
« Reply #9 on: December 30, 2016, 02:34:39 PM »
I dont have much to say about the investment portfolio thing, but I did teach abroad and had an excellent time, made a lot of money, and saw lots of the world.  If you are interested in advice or more detail let me know.

pigpen

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Re: Please critique our portfolio and plans!
« Reply #10 on: December 31, 2016, 07:44:22 AM »
I'll do that sometime this weekend. Thanks. I'd appreciate the advice.

soccerluvof4

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Re: Please critique our portfolio and plans!
« Reply #11 on: January 02, 2017, 03:23:33 PM »
I agree you look to be in really good shape. Nice to have a pension , better that you both will. Thats awesome!

pigpen

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Re: Please critique our portfolio and plans!
« Reply #12 on: January 03, 2017, 11:45:39 AM »
Yes. It's definitely nice. Makes up somewhat for making a lower salary in a government job. I'm just crossing my fingers that the state keeps managing the fund well.

Mother Fussbudget

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Re: Please critique our portfolio and plans!
« Reply #13 on: January 10, 2017, 08:47:12 PM »
...Luckily, the places that interest us are cheaper for the most part -- Costa Rica, Panama, Ecuador, Bhutan, Africa.

LOL... I'm reading "Living Abroad in Costa Rica" by Moon press.  I picked it up on a whim at a thriftstore for $1 because it's a country I'm interested in as a geographic arbitrage locale. 

One of the things that caught my eye was there are more women U.S. ex-pats who've FIRE'd there than men ex-pats.  Interesting for a single guy like me...  ;-)

 

Wow, a phone plan for fifteen bucks!