Hello, I am new to the forums as of last week where a burning question about back door Roth and pro rata led me to bogleheads. Over the last few years, I have been moving my investments out of individual stocks and into index investing to simplify my retirement/ investing strategy and mitigate risk. I also got burned a few too many times trying to stock pick in my 20's, so it seems the Boglehead community is a perfect fit for me. Without further ado, here are my current finances.
Emergency funds: 3 Months cash plus an additional 12+ months in a CD ladder. The CD's are actually for a potential house down payment, but if I were to lose my job today, I have enough savings to get me to the maturity of my next CD comfortably.
Debt: None
Tax Filing Status: Single
Tax Rate: 24% Federal, 9.3% State
State of Residence: CA
Age: 32
Income: Variable depending on overtime/ bonuses. Approximately 150k-160k+
Expenses: Total 2023: $31,580 or $2,631.66 per month
Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 5% of stocks
*This is less of a desired AA and more of what I was shooting for before I found this forum. Part of the reason why I am making this post, is because I think I am probably being too aggressive despite still being relatively young. I think there is probably an argument to be made that my CD's could count towards bonds, but if/when I buy a house, that will be sunk into a down payment. At that point, I will need to re-evaluate how much bonds/CD's I hold and what my risk tolerance is since I will no longer have that cushion of stability.
Approximate size of total portfolio: 500k
Current retirement assets
Taxable 36.02%
0.28% cash (for investing – do not include emergency funds)
8.83% CD Ladder
4.00% Fidelity 500 Index Fund (FXAIX) (0.015)
4.54% INVESCO NASDAQ 100 ETF (QQQM) (0.15)
9.14% VANGUARD 500 INDEX FUND CL ETF (VOO) (0.03)
9.22% ESPP
His 401k at Fidelity 34.52% (47.53% Roth, 32.41% rollover, 14.84% match, 5.21% deferral)
5.02% FID EXTD MKT IDX (FSMAX) (0.035)
26.15% Fidelity 500 Index Fund (FXAIX) (0.015)
3.16% Fidelity International Index Fund (FSPSX) (0.035)
Company match: 4%
His Roth IRA at Fidelity 26.33%
2.14% FIDELITY MSCI INFORMATION TECHNOLOGY INDEX ETF (FTEC) (0.084)
1.01% Fidelity ZERO International Index Fund(FZILX) (0.00)
0.01% FIDELITY ZERO TOTAL MARKET INDEX(FZROX) (0.00)
3.74% INVESCO NASDAQ 100 ETF (QQQM) (0.15)
18.37% VANGUARD 500 INDEX FUND CL ETF (VOO) (0.03)
1.04% SCHWAB US DIVIDEND EQUITY ETF (SCHD) (0.06)
His HSA 3.33%
3.13% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04)
0.20% Cash
_______________________________________________________________
Contributions
New annual Contributions
$23,000 his 401k Roth (~$6400 employer matching contributions)
$7,000 his Roth IRA (backdoor)
$3,450 His HSA ($700 employer contribution)
$24,000 taxable (2k per month auto invest to FXAIX)
$15,000-16,500 ESPP (10% max)
Available funds
Funds available in his 401(k)
FID 500 INDEX (FXAIX) (0.015)
FID EXTD MKT IDX (FSMAX) (0.035)
FID INTL INDEX (FSPSX) (0.035%)
FID CONTRAFUND K6 (FLCNX) (0.45)
JPM EQUITY INCOME R6 (OIEJX) (0.45)
TRP DIV GROWTH I (PDGIX) (0.5)
AM CENT MD CP VAL R6 (AMDVX) (0.63)
FID LOW-PRICED ST K6 (FLKSX) (0.5)
MFS MID CAP GRTH R6 (OTCKX) (0.67)
FID SMALL CAP VALUE (FCPVX) (1.04)
J H TRITON N (JGMNX) (0.66)
AF EUROPAC GROWTH R6 (RERGX) (0.47)
INVS DEVELOP MKT R6 (ODVIX) (0.84)
NUVEEN REALESTATE R6 (FREGX) (0.93)
CALVERT BALANCED R6 (CBARX) 0.61)
FID FDM IDX 2055 IPR (FFLDX) (0.08) *also every 5 years from 2005-2065 which I excluded for brevity
FID FDM IDX INC IPR (FFGZX) (0.08)
GALLIARD STBLE RTN C (0.37)
FID US BOND IDX (FXNAX) (0.025) Probably the only other fund I will use in the future
METWEST TOT RTN BD P (MWTSX) (0.37)
PIMCO INCOME INST (PIMIX) (0.62)
Funds available in his HSA(b)
Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04)
+29 more - I will update if it becomes relevant to the conversation
Questions:
1. Am I being to risky? I always thought that bonds were something I would start looking into around 35-40 since I am likely at least 23 years from retirement and have time to recover. If I include my CD's, I have over 8% in bond like investments - is 5-10% a good range for someone in their early 30's. Buying a house is probably at lease 2-3 years out, so I have time to adjust my portfolio.
2. Should I move away from SP500 and nasdaq100 investing in favor of total stock market to mitigate risk? I know they are about 80% the same thing, so it might not be worth changing, especially in the taxable account.
3. I am aware that I have multiple SP500 funds in my taxable account. I used to lumpsum invest into VOO and QQQ, but last year I switched to auto investing into FXAIX for dollar cost averaging benefits (auto investing is not available for ETF's at fidelity). I think I will likely hold onto these positions given I don't need the money right now and I want to avoid switching funds due to taxes. I am considering changing my future auto investments to a total market index fund, but that may just complicate things for little to no benefit. I was thinking of targeting 90% stocks (90% US 10% international), 10% bonds/CD's. Let me know if there is a better alternative.
4. After reading several article on this forum, I now know that it is common practice to sell ESPP right away. A few months ago, I sold all of my shares over 2 years old for the most favorable tax situation. My plan was to continue doing this; however, I now see that having almost 10% of assets in company stock is an unnecessary risk. Once I leave the current blackout period, I plan to sell most/all of my current position. How should I allocate these funds to fix my AA? Some of it will likely go to the house fund.
5. Almost 43% of my total assets and 70% of retirement assets are in Roth. I have been maxing Roth 401k and IRA since 2018. I chose Roth over traditional due to being able to tax shelter more effective assets than traditional while maxing. This article does a good job or outlining my thought process https://thefinancebuff.com/roth-401k-fo ... e-max.html. Since 2020, my income has more than doubled and now that I am in a pretty high tax bracket plus high state taxes it may be time to switch to traditional. My current plan has been to wait until the tax rates go back to normal in 2026 to switch. My other reason for choosing Roth is to avoid RMD's forcing my hand in terms of controlling taxes in retirement. With my current savings rate, early retirement is a possibility, so my thought process has started to shift to maxing traditional 401k + Roth IRA, and then converting some traditional assets to Roth in early retirement if I think my projected RMDs will be too high. For example: If I retire at 55, I would live off of my investments in my taxable account until at least 59.5, so I would have a window of low income years to do Roth conversions if I need to. This companion article covers most of the other reasons for switching to traditional for my 401k https://thefinancebuff.com/case-against-roth-401k.html. Ultimately, I do want a mix of Roth, traditional and taxable assets going into retirement so that I have tax diversification and can control taxes better. Any advice on this topic?
6. I currently auto invest dividends, but have seen advice against this do to potential for wash sales. This is especially true since I hold some of the same funds across multiple accounts. What is the best way to handle dividend re-investment?
7. Buying a house is contingent on getting engaged/married to my current long term girlfriend. She has similar saving and investing habits as I do, so I will add her information in the future if/when we get married. In CA, houses in my area are 1M+, so I would need to double my current house money nest egg for my half of the 20% down payment. I currently have 45k/100k savings goal for the house. I have about $400 a month after current investment plans and expenses that will likely end up in the house fund. I also plan to siphon about half of my current ESPP position to the house fund (currently CD ladders) and most of future ESPP sales until I meet this savings goal. After that, ESPP and excess income will go to building a bigger emergency fund since my expenses will increase and my house fund nest egg will no longer be liquid after buying a house. Getting married will also change the overall financial landscape since we will be combining our assets. This one is more for context than an actual question, but advice is welcome.
Emergency funds: 3 Months cash plus an additional 12+ months in a CD ladder. The CD's are actually for a potential house down payment, but if I were to lose my job today, I have enough savings to get me to the maturity of my next CD comfortably.
Debt: None
Tax Filing Status: Single
Tax Rate: 24% Federal, 9.3% State
State of Residence: CA
Age: 32
Income: Variable depending on overtime/ bonuses. Approximately 150k-160k+
Expenses: Total 2023: $31,580 or $2,631.66 per month
Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 5% of stocks
*This is less of a desired AA and more of what I was shooting for before I found this forum. Part of the reason why I am making this post, is because I think I am probably being too aggressive despite still being relatively young. I think there is probably an argument to be made that my CD's could count towards bonds, but if/when I buy a house, that will be sunk into a down payment. At that point, I will need to re-evaluate how much bonds/CD's I hold and what my risk tolerance is since I will no longer have that cushion of stability.
Approximate size of total portfolio: 500k
Current retirement assets
Taxable 36.02%
0.28% cash (for investing – do not include emergency funds)
8.83% CD Ladder
4.00% Fidelity 500 Index Fund (FXAIX) (0.015)
4.54% INVESCO NASDAQ 100 ETF (QQQM) (0.15)
9.14% VANGUARD 500 INDEX FUND CL ETF (VOO) (0.03)
9.22% ESPP
His 401k at Fidelity 34.52% (47.53% Roth, 32.41% rollover, 14.84% match, 5.21% deferral)
5.02% FID EXTD MKT IDX (FSMAX) (0.035)
26.15% Fidelity 500 Index Fund (FXAIX) (0.015)
3.16% Fidelity International Index Fund (FSPSX) (0.035)
Company match: 4%
His Roth IRA at Fidelity 26.33%
2.14% FIDELITY MSCI INFORMATION TECHNOLOGY INDEX ETF (FTEC) (0.084)
1.01% Fidelity ZERO International Index Fund(FZILX) (0.00)
0.01% FIDELITY ZERO TOTAL MARKET INDEX(FZROX) (0.00)
3.74% INVESCO NASDAQ 100 ETF (QQQM) (0.15)
18.37% VANGUARD 500 INDEX FUND CL ETF (VOO) (0.03)
1.04% SCHWAB US DIVIDEND EQUITY ETF (SCHD) (0.06)
His HSA 3.33%
3.13% Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04)
0.20% Cash
_______________________________________________________________
Contributions
New annual Contributions
$23,000 his 401k Roth (~$6400 employer matching contributions)
$7,000 his Roth IRA (backdoor)
$3,450 His HSA ($700 employer contribution)
$24,000 taxable (2k per month auto invest to FXAIX)
$15,000-16,500 ESPP (10% max)
Available funds
Funds available in his 401(k)
FID 500 INDEX (FXAIX) (0.015)
FID EXTD MKT IDX (FSMAX) (0.035)
FID INTL INDEX (FSPSX) (0.035%)
FID CONTRAFUND K6 (FLCNX) (0.45)
JPM EQUITY INCOME R6 (OIEJX) (0.45)
TRP DIV GROWTH I (PDGIX) (0.5)
AM CENT MD CP VAL R6 (AMDVX) (0.63)
FID LOW-PRICED ST K6 (FLKSX) (0.5)
MFS MID CAP GRTH R6 (OTCKX) (0.67)
FID SMALL CAP VALUE (FCPVX) (1.04)
J H TRITON N (JGMNX) (0.66)
AF EUROPAC GROWTH R6 (RERGX) (0.47)
INVS DEVELOP MKT R6 (ODVIX) (0.84)
NUVEEN REALESTATE R6 (FREGX) (0.93)
CALVERT BALANCED R6 (CBARX) 0.61)
FID FDM IDX 2055 IPR (FFLDX) (0.08) *also every 5 years from 2005-2065 which I excluded for brevity
FID FDM IDX INC IPR (FFGZX) (0.08)
GALLIARD STBLE RTN C (0.37)
FID US BOND IDX (FXNAX) (0.025) Probably the only other fund I will use in the future
METWEST TOT RTN BD P (MWTSX) (0.37)
PIMCO INCOME INST (PIMIX) (0.62)
Funds available in his HSA(b)
Vanguard 500 Index Fund Admiral Shares (VFIAX) (0.04)
+29 more - I will update if it becomes relevant to the conversation
Questions:
1. Am I being to risky? I always thought that bonds were something I would start looking into around 35-40 since I am likely at least 23 years from retirement and have time to recover. If I include my CD's, I have over 8% in bond like investments - is 5-10% a good range for someone in their early 30's. Buying a house is probably at lease 2-3 years out, so I have time to adjust my portfolio.
2. Should I move away from SP500 and nasdaq100 investing in favor of total stock market to mitigate risk? I know they are about 80% the same thing, so it might not be worth changing, especially in the taxable account.
3. I am aware that I have multiple SP500 funds in my taxable account. I used to lumpsum invest into VOO and QQQ, but last year I switched to auto investing into FXAIX for dollar cost averaging benefits (auto investing is not available for ETF's at fidelity). I think I will likely hold onto these positions given I don't need the money right now and I want to avoid switching funds due to taxes. I am considering changing my future auto investments to a total market index fund, but that may just complicate things for little to no benefit. I was thinking of targeting 90% stocks (90% US 10% international), 10% bonds/CD's. Let me know if there is a better alternative.
4. After reading several article on this forum, I now know that it is common practice to sell ESPP right away. A few months ago, I sold all of my shares over 2 years old for the most favorable tax situation. My plan was to continue doing this; however, I now see that having almost 10% of assets in company stock is an unnecessary risk. Once I leave the current blackout period, I plan to sell most/all of my current position. How should I allocate these funds to fix my AA? Some of it will likely go to the house fund.
5. Almost 43% of my total assets and 70% of retirement assets are in Roth. I have been maxing Roth 401k and IRA since 2018. I chose Roth over traditional due to being able to tax shelter more effective assets than traditional while maxing. This article does a good job or outlining my thought process https://thefinancebuff.com/roth-401k-fo ... e-max.html. Since 2020, my income has more than doubled and now that I am in a pretty high tax bracket plus high state taxes it may be time to switch to traditional. My current plan has been to wait until the tax rates go back to normal in 2026 to switch. My other reason for choosing Roth is to avoid RMD's forcing my hand in terms of controlling taxes in retirement. With my current savings rate, early retirement is a possibility, so my thought process has started to shift to maxing traditional 401k + Roth IRA, and then converting some traditional assets to Roth in early retirement if I think my projected RMDs will be too high. For example: If I retire at 55, I would live off of my investments in my taxable account until at least 59.5, so I would have a window of low income years to do Roth conversions if I need to. This companion article covers most of the other reasons for switching to traditional for my 401k https://thefinancebuff.com/case-against-roth-401k.html. Ultimately, I do want a mix of Roth, traditional and taxable assets going into retirement so that I have tax diversification and can control taxes better. Any advice on this topic?
6. I currently auto invest dividends, but have seen advice against this do to potential for wash sales. This is especially true since I hold some of the same funds across multiple accounts. What is the best way to handle dividend re-investment?
7. Buying a house is contingent on getting engaged/married to my current long term girlfriend. She has similar saving and investing habits as I do, so I will add her information in the future if/when we get married. In CA, houses in my area are 1M+, so I would need to double my current house money nest egg for my half of the 20% down payment. I currently have 45k/100k savings goal for the house. I have about $400 a month after current investment plans and expenses that will likely end up in the house fund. I also plan to siphon about half of my current ESPP position to the house fund (currently CD ladders) and most of future ESPP sales until I meet this savings goal. After that, ESPP and excess income will go to building a bigger emergency fund since my expenses will increase and my house fund nest egg will no longer be liquid after buying a house. Getting married will also change the overall financial landscape since we will be combining our assets. This one is more for context than an actual question, but advice is welcome.
Statistics: Posted by rajac — Thu Jan 25, 2024 7:08 pm — Replies 2 — Views 192