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portfolio help esp in relationship to bonds

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  • portfolio help esp in relationship to bonds

    I did this bogel-style post, so forgive if it's too much info

    Followed the posting guidelines as best as I could, questions are at bottom for where new money should go. I did this in excel, so some of the formatting was lost!!

    Emergency funds: yes
    House – 550K @3.875
    Rental property 71k @ 4% (currently rented covers costs +)
    Student loans – 9K @ 1.85%
    Car 1- [email protected] 2.86%
    Car 2 – 50K @ 1.98
    Tax Filing Status: Married Filing Jointly
    Tax Rate: 39.5% Federal, 0% State
    State of Residence: Florida
    Age: 36 F, 39 Husband  no kids and officially no plans on having kids.
    Desired Asset allocation: 100%stocks / 0% bonds (until reach goal)
    Desired International allocation: 30% of stocks

    desired        current           large      mid               small cap

    domestic 45 69% 48% 29% 21%
    foreign 25 16%
    emerging 10 5%
    dividends 10 4%
    reits 10 9%


    Her 401K 20.1% C Fund Common Stock Index (VA TSP) (0.038)
     second job 6.1% Vanguard Mid Capitalization Index Fund (VIMAX) (0.08)
    19.3% S Fund Small Cap Stock Index (VA TSP 0.38)
    Her Roth 0.9% VANGUARD REIT INDEX ETF (VNQ) (0.14)
    Her H.S.A 5.6% Vanguard Small-Cap Index Fund Admiral Shares (VSMAX) (0.06)
    His Florida Retirement 4.2% Florida retirement target date fund (FRS45) (0.07)
    His 457b 13.0% VANGUARD TOT STK INST (VITSX) (0.04)
    His Roth 3.2% Vanguard REIT Index Fund Admiral Shares (VGSLX) (0.14)
    Their taxable 3.9% VANGUARD DIVIDEND APPRECIATION ETF (VIG) (0.08)



    New annual Contributions
    $18500 her 401k (employer matches about 5K/year)
    $18500 His 457b (also has a separate account for florida retirement system that contributes 7% of salary, 3 from his, 4% from employer automatically)
    $5500 Her Roth IRA
    $5500 His Roth IRA
    $6000 her HSA

    $variable depending upon excess income, over two years contributed approx. 70K/year in taxable

    Available funds

    Funds available in her 401(k)
    Vanguard Mid Capitalization Index Fund (VIMAX) (0.08)
    Vanguard Small-Cap Index Fund Admiral Shares (VSMAX) (0.06)
    Vanguard 500 index (0.05)

    Funds available in her HSA ACCOUNT
    Vanguard 500 Index (0.05)
    Vanguard Emerging Markets Stock Index Fund(VEMAX) (0.12)
    Vanguard Small Cap Index Fund(VSMAX) (0.06)


    1a) should i be invested in bonds? my jobs are solid, and i am not planning on using this money for >10 years.
    1. I am leaving the veterans administration, and have about 25K that I can roll over into my current 401K (see above) for the “best” options available in that fund, there are others including target date etc, but the others have higher expense ratios.

    2. Going to contribute to my Health savings account see above for the fund options.. what should I choose?
    3) for my roth contribution, should I do more reits, or something else (i already did reits for my husband)
    4) I read somewhere that it is best to keep foreign in taxable (if all other things being equal) that’s what I’m trying to do, and contributing new money to taxable.
    5) should I sell off VIG, dividends, I go back and forth on this one, since I read somewhere it is good to have dividends in a long-term growth portfolio…
    6) any other basic critiques, am I doing something wrong

    Thank you in Advance for any help.

  • #2
    1).  Arguments for buying bonds are that it helps you get through a bear market, and that there's a low likelihood that bonds could outperform stocks for decades on end.  Since I haven't been through a bear market, that's enough to invest a small amount in bonds.  You also have a ton of debt, and it would be even harder to stomach a big downturn while your debt balances remain constant.  Some people look at debt as a "negative bond," and reduce their bond exposure concomitantly as their debt is paid off.  Municipal bonds in taxable are a great option for someone in a no-tax state at the highest income bracket.

    2).  I don't think it makes too much difference, but I'd pick one of the stock funds (500 index would be my preference).  Emerging markets are nice to have in taxable, and I'd go with the domestic fund with the lower projected return (so your ultimate balance is less likely to exceed your lifetime healthcare costs).

    3).  Roths are the perfect place for REITs, if you want to buy more of them.

    4).  There's an advantage to keeping foreign stocks in taxable to get the foreign tax credit if everything else is the same as domestic stocks.  But unfortunately it's not that simple - many foreign ETF's/mutual funds have higher dividend yields and lower percentages of qualified dividends.  So it's kind of a wash.  Emerging markets present more volatility and tax loss harvesting opportunities so they're better for taxable compared to other international options.

    5).  I'd sell it only if the price drops below the cost basis.  Otherwise you'll have to pay a capital gain.  Since stock prices have been rising steadily, you should probably keep it for now, but not add anything else to it or reinvest dividends into it.  You're already getting regular dividends from your other holdings.  An ETF with a higher dividend yield just increases tax drag.

    6).  Overall sounds like you have a good plan, but if you don't already have one, make a written IPS (with an asset allocation) before changing anything.  It's good to max retirement accounts, but after that I'd focus on killing the debt (at least the car and student loans) before putting more in the taxable account.  Are you going to be taking the standard deduction or itemizing starting in 2018?  That matters a lot in deciding how fast you want to pay off the mortgages.