Author Topic: How's my portfolio look?  (Read 2583 times)

retireatbirth

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How's my portfolio look?
« on: March 02, 2018, 05:09:11 PM »
I'm considering attempting a career change and moving into a lower salary job so wanted to ask the forum how my portfolio looks at this time.

Situation: Mid 30s, single, might or might not buy a house in about a year.

I've built this portfolio along the lines of 80% risk (equities, REITs) and 20% safe (pension, bonds, cash)

Taxable (106k):
Fidelity Total Market: 57k
Fidelity Int'l Index: 17k
Fidelity Emerging Mkts Index: 19k
Fidelity Limited Term Muni: 13k (extension of emergency fund)

401k (118k):
Vanguard Total Market: 102k
Fidelity Global Ex-US: 16k

Roth:
Fidelity Total Market: 25k

IRA (36k):
Fidelity REIT Index: 28k
Fidelity Limited Term Bond (FJRLX): 8k

Other:
Cash: 8k
Cash Value Pension: 24k

Any improvements I can make? Anything I'm doing wrong? Thanks!

Travis

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Re: How's my portfolio look?
« Reply #1 on: March 02, 2018, 08:00:53 PM »
How much are you putting in each year? How much goes into each pot? What are your expenses relative to your investing amounts? Your actual goals?  This would probably go better in the "Case Study" section for analysis.

Mighty-Dollar

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Re: How's my portfolio look?
« Reply #2 on: March 03, 2018, 01:11:14 AM »
Only 21K in bonds?

Monkey Uncle

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Re: How's my portfolio look?
« Reply #3 on: March 03, 2018, 05:00:26 AM »
Looks like you only have about 16% exposure to non-US equities vs. approximately 59% in US equities and REITs (I'm assuming the REIT fund is a US fund).  Also, I'm not seeing anything in small caps or mid caps.  The total market index funds include companies of all sizes, but if they are capitalization weighted, they the large companies exert outsized influence on them.  If it were me, I would prefer a more even mix of US and non-US equities, as well as more small cap/mid cap exposure.  Such diversification tends to smooth the volatility a little, and the smaller companies historically have had higher long-term returns.

Tyler's portfolio charts web site lets you play around with various asset allocations to see how they would have performed in the past (https://portfoliocharts.com/).  Not sure how close to FIRE you are, but broadly diversified portfolios have generally supported higher safe withdrawal rates, even though total returns might have been a bit lower.  Of course past performance is no guarantee of future results, and you should be careful in interpreting results.  It's easy to descend into data mining when you get carried away with running asset allocation simulations (see the Golden Butterfly thread).

retireatbirth

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Re: How's my portfolio look?
« Reply #4 on: March 03, 2018, 05:35:17 AM »
Only 21K in bonds?

Yes, I consider my pension a bond. When I roll it over, I will buy bonds.

smallstache

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Re: How's my portfolio look?
« Reply #5 on: March 03, 2018, 05:55:57 AM »
I see several ideas to think about:

1.  Who needs international funds when domestic companies have so much international exposure anyways?

2.  If you decide to keep them, move international funds to Roth IRA and the Fidelity Total Market fund to the taxable account.  That way all of the dividends in the taxable account are qualified and there is no need to mess around with the foreign tax credit.

3.  You have three different international funds that probably have a lot of overlap.  Your two domestic total market funds have a lot of overlap.  I understand your 401k plan may limit your choices, but you have lots of choice in the other accounts.

4.  Fidelity Limited Term Muni pays 1.51% and costs .48%, meaning the fund manager keeps about 25% of the fund's income off the top.  There has to be a better way to preserve your emergency fund.

5.  Fidelity Limited Term Bond is a little better than the muni fund, but why have a short duration bond fund in an IRA account in your mid-30s?

GOFU

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Re: How's my portfolio look?
« Reply #6 on: March 03, 2018, 06:08:19 AM »
Mid-30s, $300k in assets. This is obviously not financial independence absent some unusual circumstance. Going into a lower paying job so you are looking at probably 20 more years of working at least. With that time horizon I would be at least 90% equities right now, and make sure you are minimizing investment expenses. But if you want more informed opinions you'll have to share more information, a la @Travis.

retireatbirth

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Re: How's my portfolio look?
« Reply #7 on: March 03, 2018, 06:31:16 AM »
Mid-30s, $300k in assets. This is obviously not financial independence absent some unusual circumstance. Going into a lower paying job so you are looking at probably 20 more years of working at least. With that time horizon I would be at least 90% equities right now, and make sure you are minimizing investment expenses. But if you want more informed opinions you'll have to share more information, a la @Travis.

Annual expenses are $30k
Take home is currently about $72k with $18k going into the 401k

I was only planning on like 5 more years of work. Can you explain your 20+ years comment? At a reasonable rate of 7%, my existing stash itself would grow to 1.2M in that time.
« Last Edit: March 03, 2018, 06:43:56 AM by retireatbirth »

retireatbirth

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Re: How's my portfolio look?
« Reply #8 on: March 03, 2018, 06:51:38 AM »
I see several ideas to think about:

1.  Who needs international funds when domestic companies have so much international exposure anyways?

2.  If you decide to keep them, move international funds to Roth IRA and the Fidelity Total Market fund to the taxable account.  That way all of the dividends in the taxable account are qualified and there is no need to mess around with the foreign tax credit.

3.  You have three different international funds that probably have a lot of overlap.  Your two domestic total market funds have a lot of overlap.  I understand your 401k plan may limit your choices, but you have lots of choice in the other accounts.

4.  Fidelity Limited Term Muni pays 1.51% and costs .48%, meaning the fund manager keeps about 25% of the fund's income off the top.  There has to be a better way to preserve your emergency fund.

5.  Fidelity Limited Term Bond is a little better than the muni fund, but why have a short duration bond fund in an IRA account in your mid-30s?

1. So one vote for more International and one for less International! So confusing, but I'm inclined to stay put.

2. My understanding was International funds are best placed in the Taxable as the foreign tax credit can reduce your tax burden. (barely, I know).

3. 401k I took the only good option. The other 2 funds in the Taxable I bought years ago and I would like to sell them both for one fund covering all International, but I've hesitated to do that so I don't have to realize the cap gains.

4/5. I recently bought these bonds and I guess I screwed up. Maybe I should just use CDs if I want some small return on my emergency fund? As for the limited term bond fund, I just wanted some bond allocation. Is there another type of bond that makes more sense? My understanding is short term bonds are the safest and should do best in a rising rate environment. For tax reasons, I assumed it was best to place in the IRA, but now I'm wondering if it makes sense to give up IRA space for a low return asset.
« Last Edit: March 03, 2018, 06:54:07 AM by retireatbirth »

GOFU

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Re: How's my portfolio look?
« Reply #9 on: March 03, 2018, 07:41:16 AM »
More information. Thanks.

You are at $300k. Contributing $5k more per month for the next 5 years, at your 7% reasonable rate, gets you to $790k.

That $5k is comprised of the $18k into the 401k, plus savings of $3,500 per month ($42k annual) from your $72k take home.

For long-term planning I prefer to use a more conservative real rate of return of 5%. Using that rate, in 5 years you would be at $731k. In 8 years you would be at $1 million.

So more like 10 years of work and savings to approach FI, if your savings and expenses remain constant.  That's a big "if" because you are talking about going into a lower paying job, and also mention buying a house.
« Last Edit: March 03, 2018, 08:15:29 AM by GOFU »

Monkey Uncle

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Re: How's my portfolio look?
« Reply #10 on: March 03, 2018, 02:39:44 PM »

1.  Who needs international funds when domestic companies have so much international exposure anyways?

Domestic and foreign companies are not completely correlated, and the correlation has been falling in recent years.  Adding uncorrelated assets increases diversification, which can dampen volatility.

http://www.businessinsider.com/global-stock-correlations-falling-2017-7

COEE

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Re: How's my portfolio look?
« Reply #11 on: March 03, 2018, 06:42:45 PM »
This is what I'd do - I'd keep the international in your taxable account.

OVERVIEW:
285k total
US: 184k 64.5%
Int'l: 52k 18.2%
Bonds: 49k 17.2%

Taxable (106k):
Fidelity Total Market: 41k
Fidelity Int'l Index: 52k
Fidelity Emerging Mkts Index: 19k
Fidelity Limited Term Muni: 13k (extension of emergency fund)


401k (118k):
Vanguard Total Market: 118k
Fidelity Global Ex-US: 16k

Roth:
Fidelity Total Market: 25k

IRA (36k):
Fidelity REIT Index: 28k
Fidelity Limited Term Bond (FJRLX): 36k

I-bonds for your extended emergency fund (laddered over 2 years): 13k

These are my suggestions based on foreign tax credit optimization, bonds in retirement funds (as much as possible).  If you want to change your AA or get it closer to 60/20/20 just make adjustments to taxable to up you int'l or add bonds in your 401k or roth (assuming they are decent funds).  Or just buy more Int'l and Bonds as you keep moving forward.  Your total market funds give you exposure to small/mid cap IMHO.

I am your age and have a similar financial picture and have this AA and I like it.

retireatbirth

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Re: How's my portfolio look?
« Reply #12 on: March 03, 2018, 07:14:58 PM »
This is what I'd do - I'd keep the international in your taxable account.

OVERVIEW:
285k total
US: 184k 64.5%
Int'l: 52k 18.2%
Bonds: 49k 17.2%

Taxable (106k):
Fidelity Total Market: 41k
Fidelity Int'l Index: 52k
Fidelity Emerging Mkts Index: 19k
Fidelity Limited Term Muni: 13k (extension of emergency fund)


401k (118k):
Vanguard Total Market: 118k
Fidelity Global Ex-US: 16k

Roth:
Fidelity Total Market: 25k

IRA (36k):
Fidelity REIT Index: 28k
Fidelity Limited Term Bond (FJRLX): 36k

I-bonds for your extended emergency fund (laddered over 2 years): 13k

These are my suggestions based on foreign tax credit optimization, bonds in retirement funds (as much as possible).  If you want to change your AA or get it closer to 60/20/20 just make adjustments to taxable to up you int'l or add bonds in your 401k or roth (assuming they are decent funds).  Or just buy more Int'l and Bonds as you keep moving forward.  Your total market funds give you exposure to small/mid cap IMHO.

I am your age and have a similar financial picture and have this AA and I like it.

I like this. Makes a lot of sense. Is it worth taking a tax hit on selling the Emerging Markets and Total Market funds? Also, why do you not recommend REITs?

Thanks.

COEE

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Re: How's my portfolio look?
« Reply #13 on: March 04, 2018, 04:25:14 AM »
I like this. Makes a lot of sense. Is it worth taking a tax hit on selling the Emerging Markets and Total Market funds? Also, why do you not recommend REITs?

Great questions!  I was trying to make your life easier, and didn't give much thought to your tax situation, but I did assume that you were in the 0% or 15% long term taxable gains brackets, depending on if you're married or not, and assuming you've held all of your investments for over a year.

It may not make sense to sell the emerging markets.  Depends on how much tax you'll pay (if any) and there are several factors that go into this.  You have some overlap between the emerging markets and total int'l funds.  That's not the end of the world.  It may also make sense to sell after you get your lower paying job.  I wouldn't put new money into both funds.  Choose one and keep plugging money into it.  Eventually the one you weren't putting money into will be a small percentage of the other and it won't matter much.

On the bonds, it might not make sense to sell them either.  Again, depends on your tax situation.  I can tell you that moving the bonds from your taxable account to I series savings bonds will probably benefit you in the long run and put you into a safer investment.  Especially if you're in a state with high state income taxes, as I bonds are not state taxable.  Again it might make sense to wait until you have your lower paying job to start actually moving money.

If you want some exposure to the housing market prior to buying your house then I can't fault you much for holding a REIT, and 10% of your portfolio seems to me to be about right.  Traditionally, housing returns are not as good as the stock market.  And you already have non-correlated assets with bonds to smooth out the ride.  Once you buy a house I'd for sure get rid of the REIT because you already have exposure to the housing market.

Read this to decide when and if to sell your taxable assets: https://www.fool.com/taxes/2017/12/22/your-guide-to-capital-gains-taxes-in-2018.aspx
« Last Edit: March 04, 2018, 04:30:41 AM by COEE »

Monkey Uncle

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Re: How's my portfolio look?
« Reply #14 on: March 04, 2018, 04:26:05 AM »
I can't speak for COEE, but one reason for re-assessing your REIT exposure is that REITs have their own sector in the S&P 500.  So you already own some REITs in your total market funds.  Not sure what your target allocation is for real estate, but you should take this source into account when deciding whether to own REIT funds.

retireatbirth

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Re: How's my portfolio look?
« Reply #15 on: March 04, 2018, 06:49:32 AM »
I like this. Makes a lot of sense. Is it worth taking a tax hit on selling the Emerging Markets and Total Market funds? Also, why do you not recommend REITs?

Great questions!  I was trying to make your life easier, and didn't give much thought to your tax situation, but I did assume that you were in the 0% or 15% long term taxable gains brackets, depending on if you're married or not, and assuming you've held all of your investments for over a year.

It may not make sense to sell the emerging markets.  Depends on how much tax you'll pay (if any) and there are several factors that go into this.  You have some overlap between the emerging markets and total int'l funds.  That's not the end of the world.  It may also make sense to sell after you get your lower paying job.  I wouldn't put new money into both funds.  Choose one and keep plugging money into it.  Eventually the one you weren't putting money into will be a small percentage of the other and it won't matter much.

On the bonds, it might not make sense to sell them either.  Again, depends on your tax situation.  I can tell you that moving the bonds from your taxable account to I series savings bonds will probably benefit you in the long run and put you into a safer investment.  Especially if you're in a state with high state income taxes, as I bonds are not state taxable.  Again it might make sense to wait until you have your lower paying job to start actually moving money.

If you want some exposure to the housing market prior to buying your house then I can't fault you much for holding a REIT, and 10% of your portfolio seems to me to be about right.  Traditionally, housing returns are not as good as the stock market.  And you already have non-correlated assets with bonds to smooth out the ride.  Once you buy a house I'd for sure get rid of the REIT because you already have exposure to the housing market.

Read this to decide when and if to sell your taxable assets: https://www.fool.com/taxes/2017/12/22/your-guide-to-capital-gains-taxes-in-2018.aspx

Thanks for the additional insights. I am pretty convinced about dumping the munis as the I Bonds looks perfect for what I am trying to do (I just hadn't realized that was an option). I'm not sure yet what I'll do about the Int'l/Emerge situation. It's been bugging me for a while that I have both of them, but it's small potatoes.

I do have my REIT slated for my house fund. I'm aiming for about $60k down with $30k coming from the REIT, $8k from cash, and $22k from I-Bonds ($13k from the muni sale + $9k cash coming in soon). This is about a year down the road so depends on stable job and I'd make sure to still have 3 months e-fund left over. I do need to check how much of the S&P500 is in REIT, though, because I had not been thinking about that.

COEE

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Re: How's my portfolio look?
« Reply #16 on: March 04, 2018, 09:09:06 AM »
Thanks for the additional insights. I am pretty convinced about dumping the munis as the I Bonds looks perfect for what I am trying to do (I just hadn't realized that was an option). I'm not sure yet what I'll do about the Int'l/Emerge situation. It's been bugging me for a while that I have both of them, but it's small potatoes.
I agree it's small potatoes, but if you find yourself in a situation where you won't pay taxes on the sale, then why not do some simplification?  Do the math or talk to a good tax adviser to determine the best time to sell your bonds.

I do have my REIT slated for my house fund. I'm aiming for about $60k down with $30k coming from the REIT, $8k from cash, and $22k from I-Bonds ($13k from the muni sale + $9k cash coming in soon). This is about a year down the road so depends on stable job and I'd make sure to still have 3 months e-fund left over. I do need to check how much of the S&P500 is in REIT, though, because I had not been thinking about that.
Sounds like you want some exposure to the housing market, that's fine.

It doesn't make sense to me to sell your bonds, buy I-bonds, and then sell your I-bonds 1 year later.  You'll lose access to the money for a year and lose the last 3 months of interest.  Not to mention you can't buy $22k of I-bonds in a year with just one social security number.  With a one year horizon I'd be looking to make the entire $60k cash in that time frame.  Also, how do you expect to withdraw the REIT funds from your IRA?

Classical_Liberal

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Re: How's my portfolio look?
« Reply #17 on: March 04, 2018, 11:00:47 PM »

1.  Who needs international funds when domestic companies have so much international exposure anyways?

Domestic and foreign companies are not completely correlated, and the correlation has been falling in recent years.  Adding uncorrelated assets increases diversification, which can dampen volatility.

http://www.businessinsider.com/global-stock-correlations-falling-2017-7

Plus, check out the CAPE of other major economies vs the US.

smallstache

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Re: How's my portfolio look?
« Reply #18 on: March 06, 2018, 03:33:31 AM »
Here is my take on international funds.  There are essentially two kinds of funds, "developed" and "emerging markets".

In the 25 years I have been investing, no "emerging market" has ever "emerged" into anything.  They are still the same war-torn, dictator-led, poverty-stricken countries they were in 1993.  Governments and companies have extracted natural resources but little has been invested in the lands and people.  I have seen this first hand in my 17 years of military service.

"Developed" markets have proven to have substantially lower returns over the last 10 and 15 year periods than the US.  Take the Thrift Savings Plan funds as an example.  The C Fund (pegged to the S&P 500), S Fund (Dow Completion Index), and I Fund (MSCI EAFE-Europe, Australasia, Far East Index) all were priced at $10/unit in 2003 and have the same expense ratios and dividends reinvested.  15 years later, here are the prices:

C Fund: $38.4041 (284% gain)
S Fund: $49.1028 (391% gain)
I Fund: $30.5371 (205% gain)

Here average annual returns over the last 10 years:

C Fund: 7.00%
S Fund: 8.13%
I Fund: 1.02%

Anyone want to venture a guess as to why?  Here is mine:  despite the talking heads on MSNBC, Fox News and other outlets I don't watch, the US has a stable and mature regulatory environment, a stable and mature judiciary, a stable and mature economy, a stable and mature currency, stable and mature access to natural resources, a stable and mature food source, a stable population trajectory, oceans on either side that provide a formidable environmental buffer from external threats, the longest friendly border in the world, and the strongest military the world has ever seen.  Of course, nothing is perfect, but I would rather do business here than any other place.

Will there be better years outside the US than inside?  Sure, but on the whole the business environment in the US will be far superior to the rest of the world for a long time to come.

Yet, if anyone still wants international exposure, our companies are, in fact, exposed to every nation on earth except for a select few that are subject to politically-imposed sanctions.

Monkey Uncle

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Re: How's my portfolio look?
« Reply #19 on: March 06, 2018, 05:05:50 AM »
Here is my take on international funds.  There are essentially two kinds of funds, "developed" and "emerging markets".

In the 25 years I have been investing, no "emerging market" has ever "emerged" into anything.  They are still the same war-torn, dictator-led, poverty-stricken countries they were in 1993.  Governments and companies have extracted natural resources but little has been invested in the lands and people.  I have seen this first hand in my 17 years of military service.

"Developed" markets have proven to have substantially lower returns over the last 10 and 15 year periods than the US.  Take the Thrift Savings Plan funds as an example.  The C Fund (pegged to the S&P 500), S Fund (Dow Completion Index), and I Fund (MSCI EAFE-Europe, Australasia, Far East Index) all were priced at $10/unit in 2003 and have the same expense ratios and dividends reinvested.  15 years later, here are the prices:

C Fund: $38.4041 (284% gain)
S Fund: $49.1028 (391% gain)
I Fund: $30.5371 (205% gain)

Here average annual returns over the last 10 years:

C Fund: 7.00%
S Fund: 8.13%
I Fund: 1.02%

Anyone want to venture a guess as to why?  Here is mine:  despite the talking heads on MSNBC, Fox News and other outlets I don't watch, the US has a stable and mature regulatory environment, a stable and mature judiciary, a stable and mature economy, a stable and mature currency, stable and mature access to natural resources, a stable and mature food source, a stable population trajectory, oceans on either side that provide a formidable environmental buffer from external threats, the longest friendly border in the world, and the strongest military the world has ever seen.  Of course, nothing is perfect, but I would rather do business here than any other place.

Will there be better years outside the US than inside?  Sure, but on the whole the business environment in the US will be far superior to the rest of the world for a long time to come.

Yet, if anyone still wants international exposure, our companies are, in fact, exposed to every nation on earth except for a select few that are subject to politically-imposed sanctions.

China is in the process of transitioning from an emerging market to a developed market, although I will grant that the process is being hindered by their totalitarian government and lack of transparency.  Going back further than your 25-year period, there are plenty of examples of emerging markets turning into developed markets after WWII (Japan, most of western Europe).  In general, though, I agree with you that allocating any significant portion of your portfolio to emerging markets probably is not worth the risk for most individual investors, because, as you say, too many countries have never gotten it right when it comes to social, political, and economic stability, and it's probably not possible to predict which ones will get it right.

But I disagree with your argument that underperformance over the last 10-15 years is a good reason not to invest internationally.  International stocks have outperformed in other periods in the past.  Basing your allocation decisions on relatively recent performance sounds like a recipe for buying high and selling low.

smallstache

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Re: How's my portfolio look?
« Reply #20 on: March 06, 2018, 05:40:36 AM »
I used the information I have ready access to, but also was a fair comparison of costs and total return.  I am certainly open to considering data over a longer period of time so long as it is a fair comparison.