New member - Looking for an investment portfolio tuneup!

[JDP]

Hi everyone,

This is my 1st post here. I'm grateful for having found MMM and the wealth of experience and knowledge within this community, which feels like one big family of so many people with a common goal. I'm 32 and highly motivated to become financially independent. I enjoy my position as a sales manager in the residential mortgage industry at a mid-size community bank for the past 4 years. I was a loan originator for 7 years at the same bank prior to that. I absolutely love talking money and numbers all day. It's a wonderful feeling helping people finance their 1st home or refinance out of high interest rate debt!

Outside of work, my #1 focus is to reduce expenses as much as possible while simultaneously investing the rest. Second to that, I want to ensure my portfolio and investment strategy is solid - which is the purpose of this post. I understand there is no perfect black and white answer to this. I'm simply interested in your thoughts, opinions and suggestions based on my current setup and what changes you might recommend to me going forward. This is what my financial picture currently looks like:

Assets:

• Savings account: $9,000 - No plans to move this money. This is my wife's peace of mind for emergencies.
• Checking account: $0 to $500 - Zero sum budget, but I keep a small floating cushion of up to $500.
• HSA: $1,000 - Just recently started contributing to this account. Currently only $25 per paycheck (biweekly). I will increase it this year, but not sure yet by how much.
• 401k: $140,000 - Administered by Fidelity. 100% invested in VANG TARGET RET 2050 (VFIFX). I contribute 22%, which is enough to max out before year end.
• Roth IRA: $8,400 - Currently invested in LendingClub notes earning 7.5% NAR. Repayments are reinvested by LendingRobot. Not sure what I want to do with this account long-term.
• Taxable LendingClub account: $80,000 - Same setup and return as the Roth IRA. Not sure what I want to do with this account long-term. Return has been declining like everyone else.
• Taxable Betterment account: $500 - This is a taxable build wealth account at 90% stocks / 10% bonds. Just recently started contributing $150/month to it and plan to continue that.
• Taxable Forex account: $16,000 - High risk, high speculation investment account. Letting the balance build and will then start reinvesting profits into safer accounts.
• Total: $255,000

Value of property:

• Home value: $345,000 - No lien other than my mortgage, so about $197,000 worth of equity.
• Car resale value: $31,000 - Wasn't a smart purchase from a FI perspective, but I'm keeping it. No loan.
• Truck resale value: $11,000 - Need it for the winter and comes in handy as a homeowner. No loan.
• Total: $387,000

Liabilities:

• Credit card: $0 to $2,000 - Used for zero sum budget. Paid in full each month.
• Home mortgage: $148,000 - 10/1 ARM with a 2.625% interest rate that won't start adjusting until 2022 (5 years).
• Total: $150,000

That brings my net worth to around $492,000. I did not include my wife as she runs a small Etsy business that earns enough to cover her expenses with minimal tax liability so its basically a wash; no significant positive or negative impact to overall portfolio. Here are my thoughts on how to start the new year strong:

• Continue to max my 401k - keep it invested in VFIFX?
• Make max 2016 contribution to Roth IRA (at LendingClub) before April 15th.
• Setup automatic monthly contributions to Roth IRA so I can max it each year going forward.
• Look for advice about moving Roth IRA out of LendingClub and into something like Vanguard or Betterment. Already invested in Vanguard through my 401k - don't want to hurt my diversification either.
• Look for advice about moving the $80k taxable LendingClub account into a different vehicle such as my new Betterment account. LendingRobot should be able to liquidate this account within a few weeks at or close to par value. It's a large amount of money to move at once though. If I do move this account, consider reinvesting it into the new account in portions throughout the year to dollar cost average rather than moving it as one lump sum. Again, I already have $140k invested in Vanguard through my 401k - don't want to put all my eggs in one basket?
• With 401k and Roth IRA maxed, where to put remaining funds after that? Invest that money in the taxable Betterment account? I don't think my employer offers the backdoor Roth option, but I will double check on that just to be sure. Instead of investing it into a taxable account, open up a Roth IRA in my wife's name and add money there? In 2016 she didn't claim enough income to make a IRA contribution, but maybe she will in 2017.

What does everyone think? Thanks so much in advance for your input!

Edit: Figured it would be important to add I'm about 10 years away from my FI number, at which point I can see myself transitioning into some type of part-time work doing something I enjoy that also involves physical activity (i.e. not cooped up inside an office sitting at a desk all day). A lot of you will be thinking, "Yeah... sure" but no plans on having children at this time.

[ltt]

What is LendingClub?.....sorry, never heard of it.

Taxable LendingClub Account.....what does that account consist of?  Stocks, bonds, cash?

I don't know anything about Betterment either...no help.  You are not necessarily putting all your eggs in one basket by moving to Vanguard.  I believe you simply meant, as I've said before, you'd like a different company other than Vanguard, correct?

[SeattleCPA]

>Continue to max my 401k - keep it invested in VFIFX?

I like your target retirement fund choice. Economical. Smart asset allocation. Two thumbs up on that important element of your balance sheet.

[Heckler]

I would start by figuring out your IPS. In particular, whats your overall asset allocation, and what AA does your risk tolerance guide you to be at.

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit.  ( google it - The link won't work due to the copywrite symbol)


In particular, your 10% bonds showing in one account - do you own any more elsewhere?

[MDM]

In 2016 she didn't claim enough income to make a IRA contribution, but maybe she will in 2017.

If you file MFJ, her income is irrelevant.  It is your combined income that matters.

What does everyone think?

I think you are doing great.

Having said that, the percentage allocated to Lending Club now is high for my tastes, so I'd agree with your plan to move to Vanguard (or Fidelity or Schwab).  Given that your 401k is already at Fidelity, you could put your IRAs and taxable accounts there also.  Just be careful not to let the Fidelity sales folks upsell you to their higher priced funds.

Do you make too much to deduct a tIRA?  In your situation, traditional will likely be better than Roth.  See Investment Order and links therein for more details.

[financiallypossible]

In 2016 she didn't claim enough income to make a IRA contribution, but maybe she will in 2017.

If you file MFJ, her income is irrelevant.  It is your combined income that matters.

What does everyone think?

I think you are doing great.

Having said that, the percentage allocated to Lending Club now is high for my tastes, so I'd agree with your plan to move to Vanguard (or Fidelity or Schwab).  Given that your 401k is already at Fidelity, you could put your IRAs and taxable accounts there also.  Just be careful not to let the Fidelity sales folks upsell you to their higher priced funds.

Do you make too much to deduct a tIRA?  In your situation, traditional will likely be better than Roth.  See Investment Order and links therein for more details.

Agree with these points. If you are filing jointly, then definitely contribute to a tax advantaged account for your wife and max that before putting additional money into taxable accounts -- and you can still do this for the 2016 tax year.

How are you feeling about your finances? Are you comfortable with the number of accounts you're managing or looking to consolidate? If you're wanting to move away from the peer to peer lending from LendingClub, then have you considered real estate investing as an alternative? Not open to that? Then just increase your stocks and bonds if you've soured on the peer to peer thing.

FYI - I think that many here would not consider vehicles when calculating net worth. Not having a loan on them is great. Large loans would make them a liability.

[Cwadda]

I just want to point out that Fidelity offers a series of very similar low cost index fund, comparable to Vanguard. They were used to be called Spartan series, but apparently Fidelity changed the name.

https://fundresearch.fidelity.com/mutual-funds/summary/315911404

[The 585]

Definitely consider maxing out your HSA if it has good investment options available. I just opened mine last year and will be maxing it out from now on (Wish I started sooner!). Another $3400 per year of tax-deduction on your income, and tax-sheltered investing.

[talltexan]

I'm seconding the Health Savings Account. It's basically a super-IRA. Tax-free coming in; tax-free coming out. And (if you're worried about politics) Paul Ryan keeps going around giving speeches about how great they are.

[JDP]

What is LendingClub?.....sorry, never heard of it.

At a high level, it's the largest U.S. peer-to-peer lending website that allows you to gain exposure to consumer credit (an alternative asset class) through investing your money in unsecured personal loans. The majority of borrowers are using these loans to consolidate higher interest rate debt, such as credit cards. Visit their website and check them out for more detail.

[JDP]

>Continue to max my 401k - keep it invested in VFIFX?

I like your target retirement fund choice. Economical. Smart asset allocation. Two thumbs up on that important element of your balance sheet.

Thanks, SeattleCPA. The target retirement date on VFIFX is 2050. I plan to retire well before 2050, but I purposely chose that date because it's further out which means it'll be invested in a higher percentage of equities vs. bonds for a longer period of time. I feel this is inline with my risk tolerance as I'm not bothered by the volatility in equities and I view selloffs as great opportunities to buy. I love when my paycheck hits my 401k the day after the market takes a bath.

[JDP]

I would start by figuring out your IPS. In particular, whats your overall asset allocation, and what AA does your risk tolerance guide you to be at.

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit.  ( google it - The link won't work due to the copywrite symbol)


In particular, your 10% bonds showing in one account - do you own any more elsewhere?

Hi Heckler, thank you for the link to Bogleheads; I've been reading various pages of their website for the past two days. Currently I have the small $500 taxable Betterment account which is 10% bonds and my $140,000 401k in VFIFX which is also 10% bonds at this time. Other than those two accounts, I do not have any other exposure to bonds. Everything else is in equities and LendingClub, aside from the $10,000 in a savings account for emergencies.

[JDP]

If you file MFJ, her income is irrelevant.  It is your combined income that matters.

Yes, MFJ and it was less than $184,000 for 2016. So we can contribute $5,500 to a Roth IRA in her name for 2016 even though her portion of our MFJ income was zero; correct?

Having said that, the percentage allocated to Lending Club now is high for my tastes, so I'd agree with your plan to move to Vanguard (or Fidelity or Schwab).  Given that your 401k is already at Fidelity, you could put your IRAs and taxable accounts there also.  Just be careful not to let the Fidelity sales folks upsell you to their higher priced funds.

I have been sleeping on this for the past few nights and decided to finally start decreasing my exposure with LendingClub. I currently have the $8,400 Roth IRA and $80,000 taxable accounts with them. I want to start with the Roth IRA and move it to either Fidelity or Vanguard, but I have a few questions:

• Yes, my 401k is already with Fidelity. Aside from their investment choices, are there any benefits to selecting Fidelity for my Roth IRA over Vanguard? For example, if Fidelity had special perks for clients who met certain thresholds of assets invested through them, then maybe I would pick them over Vanguard since I already have $140,000 with them and could continue growing the number of assets there to try and meet their thresholds for whatever perks they have.
• I don't want to be bothered with re-balancing my portfolio on my own, even though it probably only takes less than one hour per year. Therefore, I'm going to stick with a target fund for this new Roth IRA. I've compared the Fidelity and Vanguard target funds and they are practically the same as far as expense ratios and investment compositions. If I decided to go with Vanguard, my 401k is already invested in the 2050 VFIFX fund. Is there any reason why I wouldn't want to invest in the same VFIFX fund through my Roth IRA as well? Keeping all my retirement accounts invested in the same fund, even though they are in different accounts, seems to make sense to me, but part of me is thinking can it really be that simple?

[JDP]

Agree with these points. If you are filing jointly, then definitely contribute to a tax advantaged account for your wife and max that before putting additional money into taxable accounts -- and you can still do this for the 2016 tax year.

Thanks, financiallypossible. That is the plan! We are going to open a Roth IRA for her and then deposit $5,500 in both of them (mine and hers) before April 15th.

How are you feeling about your finances? Are you comfortable with the number of accounts you're managing or looking to consolidate? If you're wanting to move away from the peer to peer lending from LendingClub, then have you considered real estate investing as an alternative? Not open to that? Then just increase your stocks and bonds if you've soured on the peer to peer thing.

I'm comfortable with the number of accounts, but sorta wish I didn't open the Betterment taxable account. I plan to stick with LendingClub, but I'll simply reduce the amount of assets with them because I feel I have too much in that bucket currently. So aside from LendingClub, I can see us maintaining all our investable assets between Fidelity and Vanguard. I'll eventually get that Betterment account moved over to Fidelity or Vanguard. In the end, it will probably look something like this: 401k with Fidelity, all IRA's and taxable accounts with Vanguard, one taxable account with LendingClub.

FYI - I think that many here would not consider vehicles when calculating net worth. Not having a loan on them is great. Large loans would make them a liability.

I understand. I like including the vehicles in my net worth calculation because they are still property I own that have value, but every few months I do lookup their current market values and update it in my Personal Capital net worth tracker. So yes, little by little that portion of my net worth is slowly decreasing which is obviously to be expected and realistic.

[JDP]

I just want to point out that Fidelity offers a series of very similar low cost index fund, comparable to Vanguard. They were used to be called Spartan series, but apparently Fidelity changed the name.

Hi Cwadda, many thanks for bringing that to my attention - otherwise I would have never thought to check that on my own. I also checked the target retirement date funds and they are extremely competitive with Vanguard's target funds. Very cool. I like having options. Thanks again for this.

[JDP]

Definitely consider maxing out your HSA if it has good investment options available. I just opened mine last year and will be maxing it out from now on (Wish I started sooner!). Another $3400 per year of tax-deduction on your income, and tax-sheltered investing.

I'm seconding the Health Savings Account. It's basically a super-IRA. Tax-free coming in; tax-free coming out. And (if you're worried about politics) Paul Ryan keeps going around giving speeches about how great they are.

Thank you, The 585 and talltexan. I didn't pay much attention to HSA's until recently, even though I've had one through my employer for several years. My employer will deposit up to $1,500 a year to my HSA on my behalf if I complete certain health related activities. For example, they give me $250 simply for having an annual physical. Need to get back in the routine of going to my doc/dentist/blood work, etc!

[MDM]

Yes, MFJ and it was less than $184,000 for 2016. So we can contribute $5,500 to a Roth IRA in her name for 2016 even though her portion of our MFJ income was zero; correct?

Yes.

Yes, my 401k is already with Fidelity. Aside from their investment choices, are there any benefits to selecting Fidelity for my Roth IRA over Vanguard? For example, if Fidelity had special perks for clients who met certain thresholds of assets invested through them, then maybe I would pick them over Vanguard since I already have $140,000 with them and could continue growing the number of assets there to try and meet their thresholds for whatever perks they have.

At some total investment ($250K?) you can have a free HSA account, with access to any Fidelity fund (you do pay the normal fund feed).

I don't want to be bothered with re-balancing my portfolio on my own, even though it probably only takes less than one hour per year. Therefore, I'm going to stick with a target fund for this new Roth IRA. I've compared the Fidelity and Vanguard target funds and they are practically the same as far as expense ratios and investment compositions. If I decided to go with Vanguard, my 401k is already invested in the 2050 VFIFX fund. Is there any reason why I wouldn't want to invest in the same VFIFX fund through my Roth IRA as well? Keeping all my retirement accounts invested in the same fund, even though they are in different accounts, seems to make sense to me, but part of me is thinking can it really be that simple?

Yes, it can be that simple, particularly for all your tax-advantaged investments.

See Tax-efficient fund placement - Bogleheads if you want to add complexity.

[JDP]

At some total investment ($250K?) you can have a free HSA account, with access to any Fidelity fund (you do pay the normal fund feed).

Good to know. I'll keep with what I have as far as my HSA because I don't want to lose the incentives offered by my employer through their HSA.

Yes, it can be that simple, particularly for all your tax-advantaged investments.

See Tax-efficient fund placement - Bogleheads if you want to add complexity.

Thanks, MDM. Definitely not looking to add complexity, just wanted to make sure I wasn't missing any obvious downsides of investing in the same target fund in both my 401k and IRA's.

[MDM]

At some total investment ($250K?) you can have a free HSA account, with access to any Fidelity fund (you do pay the normal fund feed).

Good to know. I'll keep with what I have as far as my HSA because I don't want to lose the incentives offered by my employer through their HSA.

You can have your cake (employer incentives) and eat it too (access to better HSA investment options) - see How To Rollover an HSA On Your Own and Avoid Trustee Transfer Fee if interested.