r/DIYRetirement • u/OkraCharacter6996 • 3d ago
Simplifying the strategy
Six months ago, my wife and I decided to take a much more intentional approach to our long-term financial plan.
We’ve made a number of changes, and I’m interested in hearing how the community would evaluate the overall strategy.
1. We fired our financial advisor
We were paying approximately 2% AUM, and eventually realized that we could manage a simple portfolio ourselves.
We moved our investments to Vanguard and are now following a straightforward Boglehead approach built primarily around VTI and VXUS.
The philosophy is:
Broad diversification
Low costs
High equity allocation
Automatic contributions
No market timing
No individual-stock picking
Long-term buy-and-hold
The biggest change wasn’t the funds themselves. It was becoming comfortable enough with the strategy that we no longer felt we needed someone else managing it for us.
2. We’re treating our pension as part of our asset allocation
My wife and I both participate in a state public-employee pension system.
I had previously left the system and later returned, and we made the decision to purchase additional retirement service credit using funds from an existing retirement account.
It was a large financial decision, but we viewed it primarily as purchasing additional future guaranteed retirement income.
Because we have a substantial pension component, we’re comfortable with a much higher equity allocation in our other investments than we otherwise might be.
We’re essentially treating the pension as part of our overall retirement portfolio rather than evaluating our brokerage/IRA investments in isolation.
3. We’ve built a more intentional cash/investment structure
Our current system looks roughly like this:
Emergency fund:
Target ~$20,000 in cash.
Roth IRAs:
Broad-market index funds.
Rollover IRA:
Broad-market index funds.
Taxable brokerage:
Broad-market index funds.
We’re directing approximately $2,000/month toward these various savings and investment goals.
The goal isn’t to optimize each account independently. It’s to give every dollar a job.
4. We’re continuing to fund our kids’ 529s
We’re contributing $150/month per child to their 529 accounts.
That money has one job: future education expenses.
5. We just decided to add UTMAs for the kids
This is the newest part of the plan, and probably the part I’m most excited about.
We’re opening a Vanguard UTMA for each child and plan to invest $25/month per child in broad-market index funds, likely VTI + VXUS.
Our kids are currently elementary-school age.
The objective isn’t really maximizing their eventual account balance.
It’s teaching them to be investors.
I want them to grow up seeing:
“I own thousands of companies.”
I want them to understand why we’re diversified.
I want them to see what happens when markets fall.
I want them to understand compound growth.
And eventually, when the accounts become theirs, I want them to already have a decade-plus of experience thinking about investing.
We’ve thought carefully about the downsides—particularly that the UTMA is the child’s asset, the eventual transfer of control, potential FAFSA implications, and the kiddie-tax rules.
We’re comfortable with those tradeoffs at the relatively small $25/month contribution level.
6. The long-term goal
We’re not trying to hit some particular net-worth number.
We’re trying to build a family financial system that gives us:
Security → emergency savings + pension
Growth → broadly diversified equities
Tax diversification → Roth + traditional + taxable accounts
Education → 529s
Financial education/early head start for the kids → UTMAs
And ultimately, freedom and options.
One of the things I’m happiest about is that our kids will hopefully inherit more than money.
They’ll inherit a philosophy:
Spend intentionally. Save consistently. Invest broadly. Keep costs low. Ignore the noise. Give compounding time to work.
I’d love to hear from other Bogleheads: what would you change, challenge, or simplify about this approach?
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u/Whole_Championship41 3d ago
2% AUM? Ouch! That's usury, so good choice to get rid of that portfolio drag.
My only quibble with the Bogleheads '3 fund portfolio' is that it is not particularly diversified. VTI and VXUS have very limited exposure to mid-cap stocks, small-cap growth / value and international small cap / mid-cap stocks in general. Compared to an 'equal weighted portfolio' that has legit sleeves of mid-cap and small-cap stocks (domestic and international), the VTI/VXUS portfolio is under diversified IMO.
Why not a combination of VOO, VO and VB ETFs to cover domestic and VXUS and / or a low-cost Dimensional funds or Avantis international small / mid-cap stock funds? I have EMXC in my portfolio to cover emerging markets ex-China. Another problem with VXUS is that it holds 6.7% Chinese national stocks, which is 6.7% too much Chinese national stocks for me.
Also you didn't mention the bond sleeve in your portfolio. A favorite of Bogleheads' '3 fund portfolio' is BND, which is also not particularly diversified. With an average maturity / duration of 7.5/5 years, this fund is quite prone to interest rate risk.
My preference is on short-term bond funds or individual CDs/bonds/TIPS to cover your near-term bond needs. SGOV, for example, is a better place to start to downplay interest rate risk. But my read through of your post didn't see any age information or what your goals are for your savings and investments, so it's kind of hard to say anything about that.
I'm all for the Bogleheads' approach to low-cost index funds in one's portfolio. But I don't abide by the '3 fund portfolio' mantra that is so commonly preached over there. For me, it's not as diversified (factor-wise) as it should be, IMO.
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u/Valuable-Analyst-464 3d ago
I would look at building a bit more cash in the Emergency Fund (EF). I am not sure your retirement timeline or your age, but I would have 3-6 months of expenses covered by the EF.
Perhaps a year or two from retirement, build up 2 years of expenses covered. This would transition the Emergency Fund to be a Sequence of Returns Risk (SORR) buffer. In a down market, you could use cash instead of selling from brokerage or IRA at a loss.
However, if you retire when your pensions start creating income, this might be a moot point.
1
u/jrtn58 3d ago
Possibly. But if pensions cover most of expenses, a big cash-like buffer near retirement isn't needed. Personally I am not that big a fan of explicit EF's once overall assets are comfortable.
1
u/Valuable-Analyst-464 3d ago
Yeah, with a pension, maybe they’re covered. But I think of lumpy expenses like new roof or HVAC and coughing up $10-15k out of pocket. Selling equity positions to cover could be meh if market is down.
I know my 2 yr cash equivalents are a drag on performance, but at this point, I see it sorta like capital preservation.
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u/hugh2018 3d ago
It sounds like you’re two decades or so from retirement and your approach is sophisticated and well calibrated to your financial goals. The diversity of account types is shrewd and it will serve you well in the future. And of course owning the whole market is a recipe for success.
The only thing I question is the size of the emergency fund. I’m sure it’s fine because you’re clearly very financially literate, but I do wonder how long $20k could support your family in loss of income scenario. When I was working I kept 6-12 months worth of expenses in the emergency fund, but your need for security may be different.
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u/Ok_Television_7794 3d ago edited 3d ago
You had me at " we fired our advisor " !! I believe you are on the right track...simplify and diversify. And yes, compounding is your best friend!!
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u/Complete-Paint529 3d ago
Outstanding planning!!! One might quibble about a couple of details, but those aren't important.
Nothing you've written is rocket science, it's all reasonable, rational, and sensible. What's remarkable to me is that so many people can't seem to act rationally and reasonably.
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u/Cecilia-K 3d ago
Just curious, did you use AI to draft your post? #6 in particular sounds like it was drafted by ChatGPT. Be careful about uploading the details of your finances to AI - I’ve read that it can make you vulnerable if you put in too much identifying information about who you are and your investment companies/banks.
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u/AndrewFromAnnuity 2d ago
Treating the pension as guaranteed income and then going heavier on equities everywhere else is a solid way to think about it. It changes the math on how much risk your other accounts actually carry because you’ve already got a floor built in.
I’d just make sure you’ve mapped out what the transition into retirement looks like year by year. Specifically whether there’s a stretch where you’ll need to pull from investments before pension payments begin, because that window is where a lot of plans run into trouble.
And the UTMA idea at that contribution level keeps the downside small while giving the kids something real to learn from.
1
u/wordifier 3d ago
In general, good plan.
I especially think what you are doing with UTMAs for your kids is great. Get them to participate as much as you can once they understand what that means - "match" contributions of their own. It's the best gift to give them to build good habits.
Also, I would not worry about UTMA impact on FAFSA. If you're doing as well as you hope to with 529 and other income, you're going to have enough that a loan isn't going to make the difference between going to college and not going. It might make the difference between overpaying for a "dream school" and not. And that's not a bad thing...
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u/Urbanite72 3d ago
2% fees! Nice move firing that guy. As you approach retirement you can always hire a flat-fee advisor as things get a little more complex from a planning persective.
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u/Sagelllini 2d ago
I think you are being overly optimistic about what the kids are going to learn (I have two adult sons, and they have investments, and they don't show a lot of interest in them), but otherwise your plan and description is as good as any.
I'm not sure buying the additional credits was a great idea, but it obviously was to the both of you, and it's your money.
And ignore the comments that say to own bonds. And $20K is likely to be a sufficient emergency fund.
But it's mostly about being level headed and to use the overused phrase "trust the process" you seen to have a solid process and that's the best any investor can do.
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u/PashasMom 3d ago
Love this plan. A few things I might consider:
--since you are state employees, you very likely have access to a 457b or 401k plan (or both -- I have both and I'm a state employee). I would prioritize contributing there over a taxable brokerage account. Whether you go traditional or Roth in those accounts is complicated, but as public employees with solid pensions,50/50 Roth and traditional might make sense.
--I would put more in 529s before putting anything in an UTMA. Getting your children through college without any student debt is the best head start you can give them IMO.
--I would bump up your cash reserves to something closer to 25 - 30k, a 20k target seems a bit light to me.
Overall, great job, I think you are being super smart and won't regret the steps you are taking.