Author Topic: My Investment Policy Statement  (Read 324 times)

Offline Joel

My Investment Policy Statement
« on: October 24, 2016, 02:43:01 PM »
Investment Policy Statement:

Allocations:
- Bonds = Age minus 20. Maximum = 70%. Consider TIPS near retirement age.
- Stocks = Remaining is split 60% U.S. and 40% International.

Example holdings:
- Bonds = VBTLX Total Bond Market Index (and Cash Balance Pension guaranteed 5% returns)
- U.S. Stocks = VTSAX Total Stock Market Index
- Int. Stocks = VTIAX Total International Stock Market Index

Holding considerations:
- Hold only low cost index funds with expense ratios of less than 0.50%. (or the lowest available)
- If 401k does not offer Vanguard funds, use equivalent investments or target retirement funds.
- Hold International Stocks in Taxable Accounts (as foreign tax credit can be claimed) after all tax-advantaged accounts are full.
- Hold Bonds in Non-Taxable Accounts (as interest and dividends are taxed at ordinary income tax rates).
- Hold U.S. Treasury Bonds in California Health Savings Account (as HSA earnings are subject to taxation in California, and U.S. Treasury Bond interest is tax-free).
- Utilize new contributions to rebalance the allocations.
- Rebalance monthly by adjusting the tax-deferred holdings or taxable holdings (if losses or long-term gains are available) when the differences exceed 10%.
- It is not necessary to hold TIPS as our earnings potential and stocks both serve as a hedge against inflation.

Tax considerations:
- Make traditional contributions when marginal tax rate is 25% or above.
- Make roth contributions when marginal tax rate is below 25%.
- Convert traditional holdings to Roth when marginal tax rate is below 25%.

Make contributions in the following priority:
- Maximum to get company match in 401k.
- Maximum to HSA.
- Maximum to 401k or Roth 401k.
- Maximum to IRA or Roth IRA.
- Excess into Taxable Account.

Day-to-day considerations:
- Stay the course. Keep investing. Don't worry about the day-to-day fluctuations of the market.
- With each raise, increase retirement contributions. Maximize tax-deferred savings before increasing cost of living.
- Do not pay down debt that holds interest rates below the 30-year treasury rate. Aggressively pay down debts exceeding 5% interest rates.
- Avoid company stocks, individual stocks, annuities, derivatives, and get rich quick seminars.

House purchasing considerations:
- Do not purchase unless you plan to live in that area for 5-10 years.
- Try to afford the payment on a 15-year mortgage with 20% down, but instead take the 30-year mortgage for flexibility.
- Try to afford life on only one salary.

Future considerations:
- Hold term life insurance when you have dependents and are not financially independent.
- Utilize California 529 for college investments for dependents.
- In 50s, purchase long-term care insurance.

Retirement considerations:
- Make sure house is paid off prior to retirement.
- Retire when investments are equal to at least 25-30x expected annual spending in retirement.
- Make sure to factor in increased healthcare costs into expected annual spending in retirement.
- Withdraw approximately 4% of the portfolio each year for spending. Adjust for inflation each year.

Books read as inspiration:
- A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton Malkiel
- The Bogleheads Guide to Investing by Taylor Larimore
- The Four Pillars of Investing by William Bernstein
- The Intelligent Asset Allocator by William Bernstein
Biking and budgeting my way to early retirement!

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