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Our current income, net worth, and portfolio - comments?
Old 03-13-2011, 02:25 PM   #1
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Our current income, net worth, and portfolio - comments?

DW and I are DINKs, about 30 years old, making $270k (both have graduate degrees). We're maxing out our 401ks and using the non-deductible IRA strategy to fund Roths as well since we are over the income limits. The rest of the cash was going into the mortgage, but now that's paid off so may buy more of the dividend-focused mutual fund in our taxable account. Most months we have $10k left over after all expenses are paid. Our only debt is the student loan - interest is not deductible, but the rate is so low that I see no reason to pay it off. We have a fair amount of cash available but we may need to replace one of our cars in the next year, and we may relocate for work so could need funds for a down payment. Fortunately the cost of living in TX is low. We're thinking of starting a family next year, at which point one of us might stop working.

Any suggestions on things to improve? Here's our balance sheet ($K):

6 - Cash
64 - High yield savings (1.2%)
37 - I-series savings bonds (CPI + 3%)
120 - S&P 500 and VEIRX dividend mutual fund (401k and taxable)
54 - TIPS mutual fund (IRA)
93 - Bond index mutual funds (IRA)
220 - House estimated value (no mortgage)
(45) - Student loans (2%)
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Old 03-13-2011, 02:45 PM   #2
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Originally Posted by soupcxan View Post
DW and I are DINKs, about 30 years old, making $270k (both have graduate degrees). We're maxing out our 401ks and using the non-deductible IRA strategy to fund Roths as well since we are over the income limits. The rest of the cash was going into the mortgage, but now that's paid off so may buy more of the dividend-focused mutual fund in our taxable account. Most months we have $10k left over after all expenses are paid. Our only debt is the student loan - interest is not deductible, but the rate is so low that I see no reason to pay it off. We have a fair amount of cash available but we may need to replace one of our cars in the next year, and we may relocate for work so could need funds for a down payment. Fortunately the cost of living in TX is low. We're thinking of starting a family next year, at which point one of us might stop working.

Any suggestions on things to improve? Here's our balance sheet ($K):

6 - Cash
64 - High yield savings (1.2%)
37 - I-series savings bonds (CPI + 3%)
120 - S&P 500 and VEIRX dividend mutual fund (401k and taxable)
54 - TIPS mutual fund (IRA)
93 - Bond index mutual funds (IRA)
220 - House estimated value (no mortgage)
(45) - Student loans (2%)
Everyone has their own idea of the lifestyle that they need and want and they have every right to reach for their dreams. That said, I find it completely incomprehensible that a couple could spend all but $10K out of $270K income while living in low cost of living area like Dallas (even while fully funding 401K's and Roths).

I don't see how you could possibly afford to have one of you quit when you have kids, at that rate of spending. You might want to try living on just one salary to see how it goes.

You do realize that if you cut back to a nice, middle class, $40K/year lifestyle, you could become financially independent in just a few years, while you are still young, right? You might want to check out the median household income in Dallas.


Never mind!! (best Gilda Rathner impression)... youbet set me straight below...
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Old 03-13-2011, 02:50 PM   #3
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Everyone has their own idea of the lifestyle that they need and want and they have every right to reach for their dreams. That said, I find it completely incomprehensible that a couple could spend all but $10K out of $270K income while living in low cost of living area like Dallas (even while fully funding 401K's and Roths).

I don't see how you could possibly afford to have one of you quit when you have kids, at that rate of spending. You might want to try living on just one salary to see how it goes.

You do realize that if you cut back to a nice, middle class, $40K/year lifestyle, you could become financially independent in just a few years, while you are still young, right? You might want to check out the median household income in Dallas.
W2R......

It's $10K saved per month vs. $270K earned per year. You might want to do a quick re-read of the OP.
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Old 03-13-2011, 02:52 PM   #4
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W2R......

It's $10K saved per month vs. $270K earned per year. You might want to to a quick re-read of the OP.
AH!! I missed that and thought it was just $10K/year saved. Thanks. I am much less shocked now.
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Old 03-13-2011, 02:55 PM   #5
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" Most months we have $10k left over after all expenses are paid" After tax they might be scraping by on 60-70k/year, no?


edit. gee I type slowly.
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Old 03-13-2011, 02:59 PM   #6
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Given the amount they are saving, I don't really see anything wrong in the numbers given. They have a good emergency fund with all of that money in high interest savings. They should be careful to leave enough after buying the car, to cover 6-8 months' spending. They have invested the rest reasonably, it seems to me. I like the fact that their house cost less than one year's salaries.

Looks good to me!

Edit: Oh, just one thing - - it may take a while to sell your present house if you should need to move, so if it does then maybe some money needs to be set aside for that. I don't know but it's something to consider.
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Old 03-13-2011, 03:11 PM   #7
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Given the amount they are saving, I don't really see anything wrong in the numbers given........
I don't see anything wrong either. Yeah, there are always alternative investments and tax strategies, but this looks OK to me.

The real issue is planning for going from DINK to parenting status. Very do-able but decisions will need to be made and strategies formulated.
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Old 03-13-2011, 03:20 PM   #8
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I think you are in good shape. You might want to see if there's a more tax efficient equity fund to hold in your taxable account, like total stock or international if you want to diversify that way. At the amounts you hold now, aren't you seeing tax liability for the dividends in your taxable holdings?
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Old 03-13-2011, 03:47 PM   #9
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Everything's looking good right now IMO. Add a kiddo, relocate to a higher COL area, and take away the second income = things could start looking very different. Have you tried to simulate the potential impact of some of those scenarii?
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Old 03-13-2011, 04:27 PM   #10
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If you are asking how to "Pimp my Portfolio", then you might check out the bogleheads' forum. First read about 2 weeks worth of posts, then put your portfolio out there for suggestions in their recommended format.

A quick look at your portfolio shows you have a pretty weird asset allocation. Many folks would recommend you do not concentrate on just large caps, but try to get at a minimum total market weights for both US and foreign equities. If you have at least that, many others would recommend that you add more small caps and value stocks.

A typical equity portfolio could consist of just 4 funds:

1. Total US Stock Market Index fund
2. Total International STock Market Index fund
3. US small-cap value index fund
4. Int'l small-cap index fund.

Be sure the int'l funds really are TOTAL in that they include developing and emerging markets.

For tax-efficiency, have all your bonds (except I bonds) and cash in your 401(k) and Roths. Have your #2, then #1, then #4, then #3 in your taxable. Once you get all this done, then we can talk about other investments.
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Old 03-13-2011, 04:33 PM   #11
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My only suggestion would be to consider some developed international. Otherwise, looks like you are doing great!
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Old 03-13-2011, 05:43 PM   #12
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Yes, there is tax on the dividends since the fund is in a taxable account, but the rate is lower than income (for now) so it doesn't bother me too much. And being able to harvest tax losses has been useful lately.

I agree that the bogleheads would not consider my equity portfolio to be diversified but I like assets that generate cash flow rather than relying totally on capital gains. You are right that I should consider adding some small/mid cap US and international.

The bogleheads might also say that I should have a greater % of my assets in stocks given my age but am not interested in the volatility that comes with a portfolio of 70-80% equities.
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Old 03-13-2011, 06:12 PM   #13
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Actually, bogleheads are rather conservative as a group. I never see anyone encouraging more equities unless you are less than 10% equities.

All the equity classes I listed pay dividends.
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Old 03-15-2011, 09:46 AM   #14
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Looks like you're doing great.

I don't think it's necessarily an "improvement" but one thing you might want to consider is how well you did at re-balancing your portfolio during the past few years of market volatility. I know that I'm OK when it comes to not touching my investments based on fear (i.e. no panic selling here) but I probably wouldn't have had the stomach to re-balance into equities as the market tanked in 2008/2009. Happily, because a good portion of my investments are in Target Retirement funds at Vanguard, the automatic re-balancing took care of that for me.

Also, I am in a similar situation to yours, and although the student loans are "low interest" I decided to pay them off. Not necessarily an "improvement," but with all that cash sitting around in the even lower interest savings accounts, it seemed like a way to just simplify my situation and eek out a slightly higher "return" on that money. Sounds like after paying off the student loans you could quickly build up an emergency fund of 12 months of living expenses again (which is what I would have if I were you).

Do you have life insurance taken care of? If not, make that a priority to take care of this year. Rule of thumb is 10x annual income, but since you guys live off of much less you have a lot of flexibility there. I used USAA.

Do you have long-term disability insurance? If not, get it this year. You're more likely to suffer a disability than to die prior to retirement. You should be able to purchase a reasonable policy, again when you factor in what income you would really NEED to replace.

Otherwise, stay the course and enjoy the changes that will be coming in your life if you guys are planning to have kids. (Oh, and savor sleeping in on the weekends!)
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Old 03-21-2011, 07:59 PM   #15
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With all of that disposable income it would be a great idea to pay off all your debts. (student loan). Then continue to save in a diversified portfolio as outlined above by LOL.
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Old 03-21-2011, 10:50 PM   #16
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You might prefer cd rates of 2.4% at Ally bank 5 year to your money market. The penalty is small for cashing out early. Or as was pointed out, debt @ 2% is more than the MM return.
With real estate at a low, perhaps a REIT for long term deferred funds. It isn't conservative but has a built in inflation hedge and reinvests a cash flow.
Have you checked in to Roth IRAs? You have the income and time to make it work for you.
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Old 03-22-2011, 05:50 PM   #17
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Ditch the debt. At $10K each month left over it will only take you 4.5 months to pay it off, and you won't touch your other investments.

My feeling is: it's no hardship to you to pay off that debt. It will be done relatively quickly. After that, build up that emergency fund or downpayment fund and play on!
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