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Asset allocation discussion/Rate my Portfolio, Mini Crypto discussion

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  • Asset allocation discussion/Rate my Portfolio, Mini Crypto discussion

    Hi all,

    I'm crafting a portfolio with asset allocation.

    It used to be simple - we were the Jim Collin's Everything in S&P500 or TSM. Then we got a little more savvy and now we want to do some more diversification. Right now virtually all of our liquid investible cash is a S&P500 or TSM-equivalent. After reading a few more books on things like Allan Roth's 2nd grader, Tyler Larimore's Boglehead 3-fund,Rich Dad/Poor Dad, How to think about Money, WCI Boot Camp, 4 pillars of investing, little book of common sense, and alot of WCI/PMID on real estate, I'm planning on diversifying into more asset allocations for a better risk-adjusted return, along with tax-considerations:

    1. I'm young-mid 30s, with spouse same age.
    2. We have a W2 around 600k.
    3. We have an emergency cash fund of 3 months.
    4. We have a savings rate of around 40-50% depending on pre-post tax calculations or pre-post AGI
    5. 401k/IRA accounts of 0.8MM.
    6. 20k brokerage/aftertax account after using current stash on house and partnership buy-in.
    7. Other assets include house (which I count as a liability), partnership-buy-in at TPMG (which I count as cost of practicing or private equity that can't be touched anyway), single-stock RSU at spouse's tech/FAANG job (100k)
    8. 529 and DAF (100k) which are wholly invested in TSM, and we dont consider our money.

    Current Asset Allocation:
    40% S&P-500 equivalant
    50% Total Stock Market Equivalant
    10% single-stock FAANG RSU

    Overall Asset Allocation Plan for the next 10 years:
    -65% Total Stock Market-We are quite comfortable with volatility as this is all our retirement account. We dont plan on touching this until 60-65 years old. I think it is reasonable to expect long-term returns here, pessimistically around 5% real.
    -10% International Total stock market. We like the idea that winners rotate. I dont buy into Jack Bogle's idea of international isnt necessary, but I do have a huge home-country bias. I'm thinking about increasing this, but TSM just seems so good.
    -10% US Small Cap Value Index Fund - Based on William Bernstein writings/analysis and Fama/French factor that while more volatile, this asset class has actually outperformed TSM over the last 100 years.
    -0% Bonds - We're still very young with a horizon of 20 years of work (or earnings). We have comfortable jobs and aren't really burnt out. We both work just about 40hrs/week or a bit less. After 10 years, I plan to start putting 10-20% into an intermediate TIPS bond fund in place of TSM.
    -10% Real Estate-We hope to get into some sort of real estate. I'm thinking about a syndication or fund in a taxable account (brokerage) for the tax savings, though may just opt for a REIT in the end.
    -1-5% Cryptocurrency/cash- Admittedly one may also call this play money. I would plan on buying 3% of allocation in a crypto ETF index fund like BITW or GDLC (assuming trading price is near NAV and there isn't a significant premium), and then selling whenever it became >4% of my portfolio ,and buying if it dropped below 2%. If done in one of our IRAs, there would be no taxes or fees (just the bid-ask spread). Given the extreme volatility of crypto I hope this may work. If not, it would just be a fun thing to do.

    Our Current Investment Options:
    My 401k (Kaiser-TPMG): 220k
    -BTC US Equity Index (Looks like blackrock US TSM tracking the Dow Total stock market index) - ER 0.0173
    -BTC ACWI EX US IMI F (BlackRock tracking MSCI ACWI ex USA IMI) - ER 0.02
    -BTC RUSSEL 2500 Index Fund F (Looks like small/mid cap blend)- ER 0.02

    My spouse's 401k-340k
    -Only has Institutional Vanguard 500 (VOO) at 0.02 ratio
    -Others are available but all the ER are 0.1 or more.

    Small Cap Value Index is not available in either of our 401ks

    IRAs-Both at Fidelity -220k all in TSM

    Goal Investments
    1. Spouse 401k-340k in S&P500. Since TSM is about 85% S&P500, I could replicate TSM via buying about 60k of small/mid cap blend in Russel 2500 in my 401k.
    2. This would make this weird S&P500+Russel 2500 mix about 45% of 880k investible NW
    3. Transition remaining of my 401 account 72k into TSM, and 88k into total international market
    4. This would put our 401ks together at 54% TSM, 10% international TSM
    5. We both contribute max 58k/year into our 401s. Given contributions, I would have to change my ongoing contributions to 18% Russell (to match spouses 100% S&P500), 20% international, and 62% TSM
    6. With the 220 left in IRA, we would leave 96k in TSM (11%+54% in 401k would make 65%), and then buy 88k in FISVX, and then 36k left to invest in BITW/BITQ
    7. In Brokerage keep money in TSM/BITW/BITQ. Would use IRA and Brokerage account to rebalance for tax needs (tax loss harvesting vs realizing gains).
    8. Brokerage money increases to 25 or 50k, or even 100k, consider investing in a Real Estate Fund like DLP or Origin (hopefully NW will be >1MM so it would only be 10% or less)

    I would love comments about a few things -
    1. Is this reasonable overall plan?

    2. Does doing this S&P 500 + Russell 500 index in a 85/15 split a reasonable replication of Total stock market?

    3. Do I need more international exposure?

    4. What are your thoughts about Real estate? Word has it that private equity is non-correlated to stocks/bonds, though has higher risk given non-public track records. I am drawn here being in a very high tax bracket (600k W2) and having depreciation sheltered returns in my taxable investments really improves returns. I also live in california, so even qualified dividends/cap gains will get taxed at 31%.

    5. Do you have any thoughts about my cryptocurrency allocation? I really thought cryptocurrency was stupid for the longest time (as I did gold). This is mainly because it has no real tangible asset (like shares in a company, or being a fiat currency, or even having tracking data to beat inflation. I understand that it is a risky investment with mostly speculative value (ie no real value underlying) given that no country has really accepted it as legal tender. However, I do think there is a big upside to it (gaining traction, with multiple big banks such as Chase and WF now having Bitcoin trusts). This however is not my reason for investing in it. I read Allan Roth's How a 2nd Grader beat wall street. In this book, he discusses an advanced 2nd grader's portfolio may have a small percentage in gold (~3%). NOT for the intrinsic value of gold, or the idea that gold keeps up with inflation. But for the volatility. Keeping a highly volatile asset in a very small percentage of your portfolio and constantly rebalancing forces you to buy low and sell high. I know crypto isnt gold as there is no tangible value to it, but it is even more volatile than gold, and as a class it seems to be here to stay (though there is no fiat or legal tender yet). This got me into thinking that buying a tiny percentage of my portfolio as cypto and rebalancing may take advantage of this volatility "allan roth gold style". I would invest in something like BITW or GDLC - a index fund of cryptocurrencies weighted by crypto market cap not to be locked into any one currency that is in danger of being lost or just dead. I dont think all crypto would just die overnight (though 1 currency may). I would plan to rebalance weekly to take advantage of this.

  • #2
    welcome to the forum. Big shovel.

    1 Good plan.
    2 that's fine AA if it meets your risk
    3 up to you also depends on what 'international' China vs Inda vs Argentina vs europe-- very different markets
    4 if you have TIME and ENERGY - sure. tread carefully being dual income it's hard to depreciate losses current year

    5 think of this as OUTSIDE your retirement gig IMHO. I would actually play with this pot within you DAF so not to mix play money with retirement monies and scratch that crypto itch.


    • #3
      Be careful on GDLC and BITW, sometimes they trade at a very high premium to NAV and definitely aren’t as liquid as GBTC so you might see a high bid ask spread


      • #4
        5. As long you consider your 1-3% as play money, this is fine entertainment. I’ve done this recently during the pandemic induce boredom. I set aside 1% of my total portfolio from my Roth IRA and bought some GBTC and ETHE. GBTC been in relative stable phase so I planned to channel it, sell at preset level and buyback 5% more shares at a lower share price. This worked twice so I have 10% more shares now. Volatility has had the total value vary from 80-150% now sitting on around 120%. Definitely entertaining. If this is your play money use Roth account. If You want to play without risk, use the DAF but I’m guessing the rules of most won’t allow this type of trading as suggested by StarTrekDoc.


        • #5
          1. Yes
          2. I think you mean Russell 2000 and close enough
          3. Up to you. On the low end (or below) what most of your books say, but I would not fret over it.
          4. Mixed feelings. There are lots of threads on this topic. It has been heavily promoted in recent years and not essential to your financial success.
          5. Too much chatter over 1-5% of your portfolio. If you do it, at that percentage, it won’t make that much of a difference.


          • #6
            Hi. Another TPMG physician here.
            1. Yes.
            2. Yes. Also the BTC Russel 2500 in the Fidelity account has expense ratio of zero.
            3. You can activate Brokeragelink and buy iShares or other funds of various international markets and individual stocks in the salary deferral plan.
            4. I dabbled in real estate. Although we made money, it was easier to just work a shift or buy VNQ. However for long term cash flow and inflation, real estate may be the way to go.
            5. Sounds reasonable. We used our 401k account for index, and taxable account as play money. After several years, the play money account was twice as large as the 401k's. In the play money account we picked individual stocks and municipal bond funds.

            Because the Permanente Contribution plan (Plan 2) will be taxed on distribution, it may be beneficial to contribute to the after-tax salary deferral plan (Plan 3), depending on how one feels about future tax situation. With pension (Plan 1) and additional taxable account, it may be advantageous to contribute with after tax dollars to Plan 3.
            Last edited by CalMD; 08-30-2021, 08:44 AM.