Personal Investments • Portfolio Questions... please advice on allocations

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Tax Rate: 12% Federal, 0% State
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New annual Contributions
$23,000 his Roth401(K) (employer matching contributions: $5,330 in Traditional 401(K))
$26,000 taxable (I can save $1000 from each pay-check)
$7,000 taxable (I will put it for Roth IRA for 2024)
$7,000 taxable (My wife will put it for Roth IRA for 2024)
$x,xxx I will try to put some amount of max $8300 in HSA for 2024.


Questions:
1. Based on earlier suggestion, I will stop my contribution in Traditional 401(K) and start contributing in Roth401(K). I have not shown it in above table, because it is not started yet. I changed in Fidelity today only. Is this fine?

You may want to validate your tax brackets. To be in the 12% bracket, your joint gross income would need to be below something like $120k with standard deductions.

Your contributions above put you at $63k+, making your savings rate above 50%.

If true, very impressive!

Seems you might be familiar with https://www.mrmoneymustache.com/2012/01 ... etirement/ as you note potential retirement in 15 - 16 years (per the link, 17 years at 50% savings rate of starting with zero).

Which comes back to your question... If your current tax bracket (12%) is the same as your future (when withdrawing money) tax bracket, it doesn't matter if you go Roth or Traditional.

Going Roth is better when you expect your future tax rates to be higher. That seems a reasonable expectation - especially since the tax brackets are scheduled to go up and you are targeting retirement in your mid-60's.

If your tax-bracket increases or you expect to "retire early", you might want to reconsider your options.

2. Son's future education - Our son is currently 8.5 years old and almost 10 years away from starting college. Until now, I haven't focused on dedicated funds for his education. He can take out loans for his education, or we can help him partially. At this stage, would you recommend starting a 529 plan or continue with regular saving?

Though to say.

Arguably, your #1 priority is securing your retirement. You don't want to be a financial burden to your child in the future. And while they can take out loans, get financial aid, etc. - you don't have that option for retirement.

But some people feel very passionately about, and are willing to make sacrifices for, ensuring they can help their kids will college costs.

The recent changes adds an additional consideration. Unused 529 money can be used to fund Roth contributions, provided the 529 was 15+ years old and up to no more than $35k. So it might be a consideration to put something into an account - as it could help with college and/or help kick start your child's retirement savings. And given your impressive savings rate, I don't think your retirement plans would be meaningfully impacted by putting "some" into a 529.

3. My cash portion is bigger than other components, as I didn't invest earlier and kept everything in checking account. Later each month I started move as SIP in VT, This includes 6 months of emergency funds too. How would you suggest to keep this ?

Opinions differ on how much cash to keep, ranging from $0 to "emergency fund" to some $X or X% of ones portfolio. Personally, I probably keep more cash than I should - but we sleep well at night with what we have...

For the amount you don't want in cash, your investment into VT seems reasonable.

4. Overall will you suggest to change allocation and diversification based on our age, market and total accumulation? I am still 15-16 years far from my retirement.

If your desired AA is 60/40, you are currently a long way from there...

My quick estimate is you have about 9% bonds, as your target date funds hold about 17% bonds and makeup about 52% of your portfolio.

But it's unclear if your desired AA is 60/40 "today", or at retirement. If at retirement, your target date funds will help you get there as they'll steadily increase their % of bonds as they get closer to the "target date" (in your case 2040). I'm not sure with your particular funds, but generally those get near a 60/40 AA - so that part would be spot on.

However, given you have a sizable taxable account - which will grow significant each year if you keep up your savings rate, you'll never reach a target AA of 60/40 with your current funds. For simple math, assuming your taxable account remains 48% of your portfolio (let's say 5% in cash for this example), you'd need about 67% of your tax-advantaged accounts to be in bonds to hit an overall AA of 60/40.

To get closer, you'd probably be better off shifting your pre-tax (Traditional) accounts to hold more bonds directly - something like FXNAX if available to you (or something similar). And given your switch to Roth contributions, you will likely run out of room for more bonds in pre-tax accounts, and will be forced to hold some (more) in taxable and/or Roth accounts. Food for thought on moving to 100% Roth contributions...

I read few blogs and forums and some impressions I got is, I have large portion in international and tech. But I am not good in understanding finance and investing, so I would like to hear your suggestions and opinions.

On this part, best to learn to "tune out the noise".

Ultimately, what you hold is what the market is. No more, no less.

In particular, yes you hold a lot of Tech stocks, because Tech stocks like Apple, Nvidia, etc. are some of the largest companies right now. That doesn't mean they'll always be the biggest and best. And when they change (and they will - just don't know when), guess what - you already own whatever replaces them. You aren't "picking winners" you "own everything". That's the slow and simple, but highly reliable way to wealth.

Likewise, your target date funds and VT hold "market weight" in international stock (which is about 40% of the global stock market). Again you aren't "picking winners", you don't know if US will continue to exceed expectations or if international will end up being better. Whatever happens, you are covered.

Collectively, you have the most broadly diversified low cost set of investments. Other than adjusting to align to your target asset allocation and reducing your cash, I wouldn't recommend changing anything else. You are setup well - don't let people more interested in "selling you things" tell you otherwise.

Statistics: Posted by dips — Thu Oct 17, 2024 12:13 am — Replies 2 — Views 187