My Wealth distribution

[aim-high]

I am 44 years old working in a tech company. Planning to work until 60 years. My wife is 42 years old and plans to work until she is 55 years old. We both work in a public company. We own a home (mortgage pending is around 300K). We have 2 kids (12 and 7).
I would like to get advise regarding my current wealth distribution (just taking into account cash , stock investments, RSU and Retirement funds)

Cash	3%
Non Retirement Stock investments (Mostly in Stocks, less bonds)	29%
Company RSU, ESPP (does NOT include potential value)	34%
Retirement investments (401k, Roth IRA, Traditional IRA)	32%
Kids College 529K	2%

Questions that I have are:
1. Should I sell some portion of RSU/ESPP and put in Non Retirement stocks to diversify
2. Since almost all of the above money is in Stocks and Cash, should I get some money out and diversify in some real estate like buy another house

--Sunray

[kork13]

To #1: Yes. General rule of thumb is to keep any single stock to no more than 10% of your total investments. This becomes even more important when that stock is your employer's stock. That effectively doubles your risk, because this company is both your source of income & a large portion of your portfolio. So if your company somehow hit a downturn, you could be at risk of losing both your job and your investment.

To #2: Depends on what you want to do. Investing in real estate is certainly a good option to consider, but there are costs & work & aggravation involved that you need to understand and be prepared for ahead of actually jumping in. Do some research, then make your decision.

[aim-high]

THanks kork13 for the inputs. Company RSU is 2 stocks (mine and my wife's company). So even in this case, keeping it 10% of the total investments is rule of thumb OR can it be 20% ?

Also, other than real estate, what other diversification can I do ?

[srblanco7]

THanks kork13 for the inputs. Company RSU is 2 stocks (mine and my wife's company). So even in this case, keeping it 10% of the total investments is rule of thumb OR can it be 20% ?

Also, other than real estate, what other diversification can I do ?

To reframe Kork's point - rule of thumb (as I understand it) is no more than 10% of your portfolio in single stocks (aka riskier bets).

As for diversification - I think you'll find most on this site keep their core investment portfolio in some mix of stocks, bonds, and/or real estate (could be individual properties or REITs). The noted 10% rule is the portion where folks may elect to pursue riskier bets/alternative investing strategies.

I'd also consider making sure you have a plan to pay off the current mortgage prior to retirement (if not sooner) and ensure kids 529s are fully funded.

[Fishindude77]

Tough for strangers to accurately answer the questions.
Nothing wrong with hanging on to company stock if you understand the business and are confident in the management. In fact you could come out way ahead, but that's for you to decide.
Only reason to buy a house is if you really want a house and are prepared to maintain it. Renting is typically cheaper when you consider ownership costs; upkeep, taxes, payments, etc. If it's a second home you are considering, paying off the first could be a better decision.

The fact that you are thinking about this stuff and know where you stand puts you way ahead of most. My guess is you'll do fine, whatever you decide.

[bjl584]

Real estate can be lucrative but expect to do some work, at least initially.
It isn't for everyone, but a lot of people make a lot of money doing it.

Company stock might be a little heavy, but if you are confident in it, then you will have to decide if you want to keep it or sell some off.

[disneysteve]

What's your current asset allocation?

I agree with not keeping more than 10% in any single stock, and possibly less when it is your employer's stock because of the added risk as kork mentioned.

Whether or not you should buy investment property is a very personal question. I have zero interest in ever being a landlord. It's just not in my skill set and I'm okay with that. If it's something that you think you'd be good at and would enjoy doing, it can certainly be a good way to make money.

What percentage of total gross income are you currently saving and how much of that is going into retirement accounts?

[kork13]

THanks kork13 for the inputs. Company RSU is 2 stocks (mine and my wife's company). So even in this case, keeping it 10% of the total investments is rule of thumb OR can it be 20% ?

Also, other than real estate, what other diversification can I do ?

I stated the ROT poorly ... As srblanco clarified, the idea is to have no more than 10% of your total assets in single stocks, regardless of how many "single stocks" you own. So even between you & your wife's 2 companies' RSUs, I'd try to reduce that total down to 10%.

If you like real estate but don't want to deal with being a landlord, REITs can be a good option for a non-stock/bond income stream. You can own shares of a REIT either as a mutual fund or as individual REITs. However, individual REITs again have similar risks as single stocks .... though personally, I'd put a separate 10% cap on those assets although a comparable risk profile, the mechanism of that risk is dramatically different from marketable stocks, and a broad drop in stocks will not necessarily correlate with a drop in REIT values/income (in fact, it may go the other way to some extent).

Primarily, you can just create diversity within your marketable investments to insulate against volatility. Mutual funds or ETFs make this easy. A total portfolio can incorporate stocks, bonds, cash/cash-like instruments, REITs, precious metals, ... probably some others that escape me.

Other diversification/income streams outside of marketable stocks/bonds and real estate? Opportunities are numerous, but the broad strokes of a few viable options would be:
(1) Build a business or create side hustle to generate extra income ... though this obviously tends to demand a time investment.
(2) Earn Royalties ... write a book or other creative content that pays you regular royalty checks. Alternatively, purchase rights to such royalties ... I know there is a secondary market for this, where you pay someone a lump sum & you get rights to all future royalty income -- I just don't know how to get into it. Also, purchasing royalty rights will require alot of research into the potential for future royalty earnings.
(3) Similar to purchasing royalty rights, you can do the same for other peoples' pensions and insurance payouts -- you pay a lump sum, and their future payments become yours.
(4) Creating your own pension via an SPIA (single premium immediate annuity) insurance policy. Hand the insurance company a lump sum, they pay you a monthly amount according to the established terms.
(5) Business investing ... You can invest in other companies more directly, and in return take on ownership rights to the company (comparable to what they do on the TV show "Shark Tank"). For us common folk, generally you do that by getting involved with a group of other investors who pool money then invest a collective stake into a business.
(6) Purchase land/resource/mineral rights. This is alot like being a landlord, except you're "renting" the rights for use/build on/draw from a plot of land to a company (or the government). This takes many forms... Water rights, mineral rights (mining, oil/gas, etc.), forestry/logging rights, etc. On the contrary, you can even get paid for "wilderness preservation", where you own the land/forest/prairie/whatever and ensure that NOTHING is done to/on it -- these ones are government programs).

These are just some more common options. This is a DEEP rabbit hole.

[Bozzdivine]

I second the advice of others about maintaining a diversified portfolio. It's a good idea to avoid having more than 10% in any single company's stock, even if it's split across two companies, to lower risk.

As for diversification beyond stocks, real estate could be an option. However, it requires a significant time and energy investment and isn't for everyone. Other options could be investing in bonds or mutual funds, or even considering something like a REIT if you're interested in real estate but don't want the hassle of being a landlord.

I'd also suggest looking at your financial goals holistically. For example, do you have a plan to pay off your mortgage before you retire? And are you on track with your kids' college funds? These factors should all be part of your overall financial strategy.

[disneysteve]

I stated the ROT poorly ... As srblanco clarified, the idea is to have no more than 10% of your total assets in single stocks, regardless of how many "single stocks" you own.

I respectfully disagree. The rule of thumb is to not have more than 10% in any ONE stock because of the lack of diversification and higher risk that comes with it. If that one stock does poorly it drags down your whole portfolio.

There's nothing at all wrong with having a lot more than 10% in stocks as long as you are adequately diversified. Plenty of people have 60, 70, even 90+% in stocks. Most of us here probably use mutual funds and ETFs but lots of people own individual stocks. If you have the funds to diversify, you can build your own portfolio just fine. Years ago, that was cost prohibitive for most average people because commissions were very high, but now many brokerages are zero commission so it's easy to spread your money around over a few dozen stocks (or more). There are even ways to buy fractional shares of high priced stocks to include those in your holdings.

[kork13]

I respectfully disagree. The rule of thumb is to not have more than 10% in any ONE stock because of the lack of diversification and higher risk that comes with it. If that one stock does poorly it drags down your whole portfolio.

There's nothing at all wrong with having a lot more than 10% in stocks as long as you are adequately diversified.

That's probably fair. Perhaps I've got it twisted in my own head then. Lol

[aim-high]

I second the advice of others about maintaining a diversified portfolio. It's a good idea to avoid having more than 10% in any single company's stock, even if it's split across two companies, to lower risk.

As for diversification beyond stocks, real estate could be an option. However, it requires a significant time and energy investment and isn't for everyone. Other options could be investing in bonds or mutual funds, or even considering something like a REIT if you're interested in real estate but don't want the hassle of being a landlord.

I'd also suggest looking at your financial goals holistically. For example, do you have a plan to pay off your mortgage before you retire? And are you on track with your kids' college funds? These factors should all be part of your overall financial strategy.

Yes i plan to payoff my current college before my 1st son finishes 12th
In 529, for each of my kid, i plan to have close to $250K before their college starts (this includes my contribution + assuming 10% return in the 520 portfolio)

[aim-high]

What's your current asset allocation?

I agree with not keeping more than 10% in any single stock, and possibly less when it is your employer's stock because of the added risk as kork mentioned.

Whether or not you should buy investment property is a very personal question. I have zero interest in ever being a landlord. It's just not in my skill set and I'm okay with that. If it's something that you think you'd be good at and would enjoy doing, it can certainly be a good way to make money.

What percentage of total gross income are you currently saving and how much of that is going into retirement accounts?

disneysteve
About 20% of gross income (both mine and my wife) we are saving.
We max out on 401k every year + we max out on after tax 401k each year (66K this year)

As far as asset allocation, 90% of the non retirement and 90% of retirement portfolio are in stocks.. Have remaining 10% in bonds

[AllyStreelman]

You could also diversify by investing in REITS with Fundrise/Diversyfund, which are crowdfunding multi-family homes, or consider fine art, which has seen huge upside in recent years. I also echo paying off your mortgage before you retire.

[LivingAlmostLarge]

Sounds like you are fine no matter what. You save a ton and live well below your means. Everything else is gravy