cancel
Showing results for 
Search instead for 
Did you mean: 
     
Highlighted
Follower ○○

Portfolio Review for 28 Year Old

Hello everyone, I just wanted to make this quick post to get any comments/critiques of my current portfolio.

Background:

I'm a single 28 year old with a stable job living in a relatively low cost of living area (Indiana).  I am currently renting for my housing and have $0 debt.  My current income tax rates are 24% federal and 3.23% state. A general goal of mine would be to retire early, say in the 50-55 range...although I'd gladly go earlier if things worked out well. I don't have an exact number, but I'd put my current yearly expenses around $23-25,000. I generally consider myself a "Buy-And-Hold" investor, with my only recent sells having been a few funds in this recent downturn. -- Note that this selling was for TLH purposes, and not due to market anxiety, overall I increased my exposure during the whole downturn

Portfolio:

  • Traditional 401k (Principal)
    • $156,000
    • 34% Principal LargeCap S&P 500 Index Sep Account (0.53% Gross Expense ratio)
    • 33% Principal MidCap S&P 400 Index Sep Account (0.41% Gross Expense ratio)
    • 33% Principal SmallCap S&P 600 Index Sep Account (0.41% Gross Expense ratio)
  • Traditional IRA
    • $58,000
    • 100% Vanguard Total Bond Index (BND, 0.035% Expense)
  • Roth IRA
    • $14,000
    • 100% T
  • Taxable Investment Account
    • $128,000
    • 45% Vanguard 2050 Target Fund (VFIFX, 0.15% Expense)
    • 19% Northern Stock Index (NOSIX, 0.13% Expense)
    • 24% Vanguard Total US Stock Index (VTI, 0.03% Expense)
    • 12% Vanguard Mid Cap Value Index (VOE, 0.07% Expense)
  • HSA (Benefit Wallet)
    • $19,000 Cash
  • Savings Account
    • $45,000 Cash

I believe the above puts me at about a 65/5/15/15 asset allocation (US Stock, Int Stock, Bonds, Cash)

New Contributions:

  • Maxing out 401k/HSA/IRA every year.
  • Haven't been tracking, but probably roughly $25-30,000 into taxable investment account each year.

Questions/Thoughts:

Below I will post a topic and my current thinking.  I'd appreciate it if you all could give your opinions on the below topics, as well as any other critiques that you may have on other topics.

  • Current Asset Allocation
    • Too heavy on cash, I should pull the trigger and invest around $30,000 or so into my taxable account.  I'm generally satisfied with a roughly 15% bond rate, thinking I may add an international stock index fund and bring my Int exposure to around 15%.
    • I recognize that I have a lot of overlap in the funds in my taxable account.  Will likely mostly add to VTI going forward, just haven't pulled the trigger to consolidate VOE/NOSIX into VTI, as I don't want to take the capital gains hit.
    • I am not particularly satisfied that I am holding an individual stock in "T", I just haven't changed it. I originally just bought it as it looked like it has had long term stability, with not much overall movement in share price for 30 years, and it paid a good dividend, so I kind of figured that if I held long term that it would be like a high paying bond.
    • Thinking it may make sense to adjust my 401k AA to more of a 60/20/20 Large/Mid/Small, although I can't give much of a strong reasoning rather than to just closer match the overall market cap.
  • Traditional vs Roth
    • As you can see I am currently heavily in a traditional investment style (Roth is only 6% of my IRA/401k holdings).  Do you agree that it is wise to add to the Roth account for the next few years to give myself a greater roth exposure?  My thinking is that nobody really knows what tax rates will be like in 30 or so years when I retire, so it is hard to say for Roth v Trad at the current time, but having both styles of accounts would allow me to optimize the tax efficiency of my withdrawals come retirement time.
  • Tax Efficient Investing
    • Am I correct in putting my bond holdings into my traditional IRA rather than my taxable account?
    • If I was to add greater international stock exposure, would it make more sense to add it into my Taxable or Roth account?
      • How would foreign taxes on fund distributions be handled if I put it into my Roth account?  Would I still be able to claim a tax credit come tax time each year even though if it is in a Roth account?
  • HSA
    • I am currently in 100% cash in my HSA, although it does appear to have some nice low cost options available for investment.  Thoughts on investing 100% of my HSA and leaving an extra yearly deductible in my savings account versus investing only a portion of my HSA and leaving a deductibles worth of cash in there?  I am thinking that it makes more sense to invest 100% of the HSA, as if I use it for health reasons, then the growth is tax free, and if I end up not needing it then I can withdraw and just treat it as a traditional IRA? Where as if I save more cash in my HSA and invest more of my savings account, I will end up paying taxes on the investment growth no matter what.

I'm sure I have a few more questions, but these are the only ones popping up into my head at the moment...may edit this later to add a few more.

Looking forward to hearing any comments/concerns/recommendations you all may have!

0 Kudos
11 Replies
Highlighted
Frequent Contributor

Re: Portfolio Review for 28 Year Old


@rzebiak wrote:

Hello everyone, I just wanted to make this quick post to get any comments/critiques of my current portfolio.

R48 reply in blue, bold....Hi rzebiak.

Background:

I'm a single 28 year old with a stable job living in a relatively low cost of living area (Indiana).  I am currently renting for my housing and have $0 debt.  My current income tax rates are 24% federal and 3.23% state. A general goal of mine would be to retire early, say in the 50-55 range...although I'd gladly go earlier if things worked out well.

Given your savings rate, salary and low cost of living now, retiring early, or even very early, is doable, IMO.

I don't have an exact number, but I'd put my current yearly expenses around $23-25,000.

Great.

I generally consider myself a "Buy-And-Hold" investor, with my only recent sells having been a few funds in this recent downturn. -- Note that this selling was for TLH purposes, and not due to market anxiety, overall I increased my exposure during the whole downturn

Increasing exposure during downturn...very good.  

Portfolio:

  • Traditional 401k (Principal)
    • $156,000
    • 34% Principal LargeCap S&P 500 Index Sep Account (0.53% Gross Expense ratio)
    • 33% Principal MidCap S&P 400 Index Sep Account (0.41% Gross Expense ratio)
    • 33% Principal SmallCap S&P 600 Index Sep Account (0.41% Gross Expense ratio)
    • Comments below.
  • Traditional IRA
    • $58,000
    • 100% Vanguard Total Bond Index (BND, 0.035% Expense
  • Terrible choice to hold bonds, especially in IRAs.  And your BND bond fund selection is terrible as well...too many treasury bonds.  The SEC yield is 1.28%.  Per rule of 72, this means your money will double in 56 years.  My living costs increased 10 times in 56 years.  I suspect inflation will be more for you.  You will have negative real returns with BND, in my outlook.  You should probably forego owning any bonds/bond funds except short term ones to temp hold money.
  •  
  • Roth IRA
    • $14,000
    • 100% T
  • Recommend you elim individual stocks from your portfolio...focus on strategic funds.  OK to perhaps own one or two, but they should be AGGRESSIVE STOCKS, if any, not T.   For last ten years, for those with an itch, I have been recommending owning Amazon.
  • Taxable Investment Account
    • $128,000
    • 45% Vanguard 2050 Target Fund (VFIFX, 0.15% Expense)
    • 19% Northern Stock Index (NOSIX, 0.13% Expense)
    • 24% Vanguard Total US Stock Index (VTI, 0.03% Expense)
  • I dislike this Total Stock index fund greatly...especially in bifurcated market time we may have going forward.  Total mkt holds companies we know will struggle after COVID.   Want to retire age 67+, hold these total mkt funds; want to retire earlier, hold something else.
  •  
    • 12% Vanguard Mid Cap Value Index (VOE, 0.07% Expense)
  • HSA (Benefit Wallet)
    • $19,000 Cash
  • Savings Account
    • $45,000 Cash
  • Use this market period to get more of this cash invested.  There will be sell-offs coming--add to stock funds.  

I believe the above puts me at about a 65/5/15/15 asset allocation (US Stock, Int Stock, Bonds, Cash)

Not enough in stock funds.  

New Contributions:

  • Maxing out 401k/HSA/IRA every year...Great!
  • Haven't been tracking, but probably roughly $25-30,000 into taxable investment account each year.
  • Great also.

Questions/Thoughts:

Below I will post a topic and my current thinking.  I'd appreciate it if you all could give your opinions on the below topics, as well as any other critiques that you may have on other topics.

  • Current Asset Allocation
    • Too heavy on cash, I should pull the trigger and invest around $30,000 or so into my taxable account.  I'm generally satisfied with a roughly 15% bond rate, thinking I may add an international stock index fund and bring my Int exposure to around 15%.  Agree.
    • I recognize that I have a lot of overlap in the funds in my taxable account.  Will likely mostly add to VTI going forward, just haven't pulled the trigger to consolidate VOE/NOSIX into VTI, as I don't want to take the capital gains hit.
  • Don't worry about overlap for now.  Get a strategy and types of funds to own, and whether or not you should be more aggressive in investing.(others will disagree and urge bond safety for instance). 
    • I am not particularly satisfied that I am holding an individual stock in "T"
    • I agree.
    •  
    • , I just haven't changed it. I originally just bought it as it looked like it has had long term stability, with not much overall movement in share price for 30 years, and it paid a good dividend, so I kind of figured that if I held long term that it would be like a high paying bond.
    • Thinking it may make sense to adjust my 401k AA to more of a 60/20/20 Large/Mid/Small, although I can't give much of a strong reasoning rather than to just closer match the overall market cap.
  • I agree...I see large caps as the place to be next 3-4 years, with Covid.  You are "tilted" away from large caps.
  • Traditional vs Roth
    • As you can see I am currently heavily in a traditional investment style (Roth is only 6% of my IRA/401k holdings).  Do you agree that it is wise to add to the Roth account for the next few years to give myself a greater roth exposure? 
    • Strongly a NO!  No Roth for now.  You are in 24% tax bracket.  If you are permitted to use Trad IRA at your salary level, do it.  Take the tax money saved, and reinvest it.  That money will enable you to retire even earlier.  You appear to not be a lavish spender; thus you can retire early and likely not have huge tax brackets staring at you. Take the 24% now and invest it!  When you are retired, you will have several years to convert from Trad to ROTHs.  Also, I suspect "progressives" tax rules will be bad for Roths in the future, just like recent elim of stretches in IRAs.
    •  
    • My thinking is that nobody really knows what tax rates will be like in 30 or so years when I retire, so it is hard to say for Roth v Trad at the current time, but having both styles of accounts would allow me to optimize the tax efficiency of my withdrawals come retirement time.
  • You are right re future.  What you are missing is that you will have from the age you retire, to age 72, to work out roths (recharactrerize trads)and other details.  it is what seniors do--minimize taxes.
  • Tax Efficient Investing
    • Am I correct in putting my bond holdings into my traditional IRA rather than my taxable account?
  • You should not have plain vanilla, standard issue bond fund holdings ...nor should they be kept in IRAs--you're wasting your repeated tax-free cap gains allowed with IRAs.  Consider such things as leveraged CEFs from PIMCO for instance (PDI and PCI) for these types of bond fund holdings, if any.  OK to have in IRAs.
  •  
    • If I was to add greater international stock exposure, would it make more sense to add it into my Taxable or Roth account?
    • Add to tax advantaged accounts, such as 401.Ks or IRAs.  This is the type of holding for IRAs.  Use current momentum (performance) to select some int'l, asia, and emerg mkt funds.
    •  
    •  
      • How would foreign taxes on fund distributions be handled if I put it into my Roth account?  Would I still be able to claim a tax credit come tax time each year even though if it is in a Roth account?  I haven't had much experience here with this being a major issue. 96% of my assets are in IRAs.
  • HSA
    • I am currently in 100% cash in my HSA, although it does appear to have some nice low cost options available for investment.  Thoughts on investing 100% of my HSA and leaving an extra yearly deductible in my savings account versus investing only a portion of my HSA and leaving a deductibles worth of cash in there?  I am thinking that it makes more sense to invest 100% of the HSA, as if I use it for health reasons, then the growth is tax free, and if I end up not needing it then I can withdraw and just treat it as a traditional IRA? Where as if I save more cash in my HSA and invest more of my savings account, I will end up paying taxes on the investment growth no matter what.

I'm sure I have a few more questions, but these are the only ones popping up into my head at the moment...may edit this later to add a few more.

Looking forward to hearing any comments/concerns/recommendations you all may have!

My comments were brief...and apologize for directness.  But I can say I retired really early, and the things I learned I passed to you in comments.

You are clearly on the track to retire very early.  Your main risk will be a socialistic society which will take most of your wealth/holdings...by nationalizing companies, tax laws etc.  Spend some time developing alternatives to this wealth grab.

Best wishes rzebiak.

R48 in bold/blue.


 

0 Kudos
Highlighted
Follower ○○

Re: Portfolio Review for 28 Year Old

Thank you for your comments R48, I'll take your views on BND/VTI/ROTHs into consideration. I hadn't even thought of the ability to characterize an IRA later on in life.

I am a little confused though on why you are against holding bonds in IRAs, as I thought that a large portion of bond returns were taxed at income levels rather than capital gains levels, which made me think that a Trad IRA would be the appropriate vehicle, as to avoid increasing my tax burden each year. Am I wrong in this thought process, or is this correct, but you're just stating that you believe that the Cap gains taxes from buying/selling stocks in my taxable account over the years will result in a larger tax burden than the additional taxes resulting from bond income?

0 Kudos
Highlighted
Frequent Contributor

Re: Portfolio Review for 28 Year Old

Some very good points made by R48, be sure to spend time chewing/pondering about them:)

You should consider your overall portfolio as a single integrated one for both simplicity and effectiveness.  Determine your asset allocation (maybe at least 80% equity/20% fixed income) and fund diversification first.  Then match your selected funds to each bucket you have with such allocation and mutual funds.  

Your equity percentage is too low for your time horizon; and your funds seem dispersed without overall design.

Great start and continue with the excellent effort.

Good luck.

0 Kudos
Highlighted
Follower ○○○

Re: Portfolio Review for 28 Year Old

Hi Retire48,

I own a lot of S and P 500, extended market, and total market index in my TSP and roth. After reading your comments what large cap funds do you prefer instead? VTV? VDIGX? VIG? VYM? I have also been looking at the vanguard international growth fund but its high right now. Thanks. 

0 Kudos
Highlighted
Participant ○○○

Re: Portfolio Review for 28 Year Old

"Recommend you elim individual stocks from your portfolio...focus on strategic funds.  OK to perhaps own one or two, but they should be AGGRESSIVE STOCKS, if any, not T." - R48

Personally I am going towards increasing individual stocks in my portfolio but no stock  will be more than 5% of portfolio. I am curious why you recommend not owning individual stocks.

 

0 Kudos
Highlighted
Frequent Contributor

Re: Portfolio Review for 28 Year Old


@rzebiak wrote:

Thank you for your comments R48, I'll take your views on BND/VTI/ROTHs into consideration. I hadn't even thought of the ability to characterize an IRA later on in life.

R48 reply in bold:  Yes, an ahha moment for you.  I have several potential ahha's embedded in my post...themes developed over five decades of investing.

I am a little confused though on why you are against holding bonds in IRAs, as I thought that a large portion of bond returns were taxed at income levels rather than capital gains levels, which made me think that a Trad IRA would be the appropriate vehicle, as to avoid increasing my tax burden each year. Am I wrong in this thought process, or is this correct,

IMO you're incorrect.  Here's the deal...from a math, and experience point.  Your BND fund now yields 1.53% currently.  30 year Treasury bond 1.3%.  At your tax bracket of approx 25%, this means you are paying 0.38% effective asset tax on the dividend, annually, if held in taxable accounts.  This is not a big hit.

Now, by putting your high growth funds in IRAs and 401.Ks, not only are any dividends not taxed, but the capital gains are not taxable.  Yes, current tax law excludes some cap gains now from taxes, if in taxable.  With a Biden win this is gone...already announced.  I expect cap gains to be taxed more, by either party.

So in an IRA, two big cap gain tax advantages exist.  In open ended funds, they must by rule pay out 90%+ in cap gains realized each year. If in taxable account, You pay tax on them, then reinvest remainder.  This is a drag on growth.  Second, in tax deferred, you can sell/move assets around without any cap gains...OVER AND OVER AGAIN...THE BREAK IS ALWAYS THERE.  For example, you invest in international...emerging market fund.  But lo and behold it goes up 500% in next decade.  You decide it is prudent to take some off the table--move it to another asset space in stock funds.  So you sell 25% of EM holding...moving it to USA REIT Fund.  NO TAX.  Rinse and repeat every decade....or every year if you like...no tax.  This was a tremendous benefit to me in early retirement and on for last 27 years.  The ability to change portfolio make up tax free.

Lastly, if you keep bonds in taxable, you can buy muny bonds...tax free, at almost same divy rate as taxable bonds.  I don't need to own any, but a little caution is that, due COVID,  states/cities may default on some muny bonds, so funds may have some small hits.  If concerned, wait for two years until COVID passed in impact...then buy muny's.

Need an ahha moment from you on this...:-)

Remember also, my first point was for you to not own any bonds!!  Wait until you retire, then run the numbers and determine any bonds/dividend paying assets you want to own, to fund your living then.  Then switch.

 

but you're just stating that you believe that the Cap gains taxes from buying/selling stocks in my taxable account over the years will result in a larger tax burden than the additional taxes resulting from bond income?

Explained above.  The tax hit on bonds is small; and avoidable if needed thru muny's.  The cap gains savings is huge.

R48


 

0 Kudos
Highlighted
Follower ○○

Re: Portfolio Review for 28 Year Old

Ahha!  Thanks for the insight, makes sense.

0 Kudos
Highlighted
Frequent Contributor

Re: Portfolio Review for 28 Year Old


@treesdale wrote:

Hi Retire48,

I own a lot of S and P 500, extended market, and total market index in my TSP and roth. After reading your comments what large cap funds do you prefer instead? VTV? VDIGX? VIG? VYM?

R48 reply in bold:  Hi treesdale...Fund selection here depends on both the age and style of investors, and I do not know your situation.  I don't own any S&P500 fund directly, but clearly support those who do.  But it is getting top-heavy as just a few companies makeup about 33% of the index.  An index fund is fine for the S&P500.  

I am NOT a fan of total stock market funds.  Value such as VTV need to prove itself; I own a goodly amount of VDIGX and VIG...dividend growers, as I am retired and the income fits my strategy.  VYM provides a good dividend, but lags on growth.

I have owned sector funds to supplement my broader holdings.  The longest holds being in Tech, and Healthcare, each owned with Fidelity since fund inceptions (first made avail to public).  I own Vanguard Capital Opportunities class of funds. There are other large cap funds that perhaps have more overall momentum, that you could get reading the forums, and running compare charts.

A specific Vanguard fund for very large cap is: MGK, Mega-cap growth fund.  These companies seem best for surviving COVID, and going forward with good growth.  NAV Performance is zooming...not for the faint of heart.  I plan to add on any pullback.

BTW Academic studies show that fund selection is not that crucial...being invested in the right space is.  Like, asset allocation is up to 90/10...that is performance is up to 90% determined by asset allocation; only 10% due to stock fund selection.

I'll comment on international in next post.

Good luck...

R48

 

 


 



 

0 Kudos
Highlighted
Frequent Contributor

Re: Portfolio Review for 28 Year Old


@treesdale wrote:

Hi Retire48,

I have also been looking at the vanguard international growth fund but its high right now. Thanks. 


A poster on a different thread asked me the same.  Here is my reply:

So briefly,  for the past year I have been withdrawing from Int'l exposure...especially when COVID hit...I started in late January selling some things.  Int'l did relatively poorly last decade; that's not to say they might be the right place  going forward.  Since I'm retired I tilt to yield as a consideration.

For broad int'l exposure, there are Vanguard and ishare ETFs, or funds such as VWIGX Vangd Intl Growth (that I own).  For emerging markets, Vanguards VEIEX...or similar EEM.  Note these tend to hold a lot of China exposure.

For some holdings that are STRATEGICALLY still in my portfolio, consider:

--VSS, Vanguard Int'l Small Cap (ex USA) Fund...broad based small cap holdings, may provide good growth, with yield of about 3%.while you wait.

--ECON, Columbia EM Consumer Fund...relies more on internal generic growth of EM, versus shipping oil/commodities abroad.

--MAPIX, Matthews Asia Div.Growth Fund...niche focus on China/Asea with yield of 2.2%

--TIBIX, Thornberg Income Builder Fund...tries to grow dividend each year...heavy European Tilt.  Yield: 4.7%--acts as a bond fund substitute for me.

--ARTYX Artisan Developing World Investor Fund...an eclectic fund that tries to pick the best stocks, from the world.  For a momentum player, look at chart...zooming upward.  Good set of stock holdings for COVID.  Perhaps riskiest.  For more aggressive types of investors.

And a fund I own that I forgot to list:

--FSEAX , Fidelity Southeast Asia...owned for decades.  This fund gives broad Asia, incl China, exposure.  Currently zooming upward.

While some of these funds are moving to new highs, strongly, note Int'l has lagged for a decade.  It may be their turn to shine.  If I add to international, it will be in Funds/ETFs that are moving upward the best...showing best strength.  I do not average down...I only buy things at higher and higher prices.  Each buy must be successful.

Good day treesdale and others...hope this helps.

R48

 

0 Kudos
Highlighted
Frequent Contributor

Re: Portfolio Review for 28 Year Old

bump...for treesdale review.

 

 

0 Kudos
Highlighted
Participant ○

Re: Portfolio Review for 28 Year Old

Hi.

You have recieved some very good advice based on your apparent risk tolerence and there is not much I can add. I would like to emphasize; no bonds in IRA's. Mine is a MUNI in a taxable account and very low risk where it is in lieu of a bank account. Beware of the government's promises about the future concerning how investmets will be taxed. They will be taxed "for the greater good" when over 50% of the vote has no savings plans what so ever. Every promise they have made so far has been broken some way or another. The latest being how I may transfer wealth to my heirs. I doubt the "progressives" are going allow all that ROTH money tax free down the road when the RMD revenue from traditional IRA's has shifted to ROTH's. I am in my 80's, so this may reflect some of my thinking. 

0 Kudos
Announcements