New member portfolio help

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Dragon Slayer
Posts: 15
Joined: Sun Sep 23, 2012 3:57 pm

New member portfolio help

Post by Dragon Slayer »

Emergency funds: I have emergency funds covered
Debt: I have zero debt
Tax Filing Status:Single
Tax Rate: 25% Federal, 6% State
State of Residence: GA
Age: 35
Desired Asset allocation: %100 stocks
Desired International allocation: 25% of stocks
Filing Single

Other useful info
My income is very stable
Plan is to max out Roth IRA first every year (maxed out for 2012 already)
Portfolio size is right around 75k
I would consider my risk tolerance high
I have recently read "The only guide to a winning investment strategy you will ever need" and "coffee house investor"
Looking to increase my % of international stock to 25-30%
I can probably save between 9k-12k annually
I am not able to participate in a 401k through my employer




Current retirement assets
Cash-4.92%

Taxable
Fidelity Advisor Stock Selector Mid Cp A FMCDX -7.35%

MFS New Discovery C MNDCX -7.94%

MFS Value C MEICX -7.57%

Oppenheimer Capital Appreciation A OPTFX-12.51%

Putnam International Equity A POVSX-4.35%

RidgeWorth Small Cap Value Equity C STCEX-9.89%

Roth IRA
Vanguard 500 Index Admiral VFIAX-45.48%

Cash-4.92%

Breakdown
Large Blend 44.97%
Large Growth 13.81%
Small Blend 11.24%
Small Growth 8.69%
Large Value 8.36%
Mid-Cap Growth 8.20%
Foreign Large Blend 4.73%


Questions
1.I have 7-10k to invest. I would like to increase my percentage of international stock. Looking for suggestions on a small cap international index fund? Or options for increasing international exposure.
2.Should I sell some of my higher expense accounts (New Discovery MNDCX 2.05%) for cheaper index funds such as Vanguard etc?
3.Should I use this money I have to invest to side aside for this purpose? It seems like I should invest earlier and if I have a larger car payment in the future lower the amount I can save monthly?? If I do set car money aside what is the best place to put it? EDIT- its hard to know an exact amount needed for a new truck. I am assuming I will need one. Mine is 10 years old. I will prob need something in the 20k range.
Thanks in advance!!
Last edited by Dragon Slayer on Mon Sep 24, 2012 8:28 pm, edited 1 time in total.
ShowMeTheER
Posts: 511
Joined: Mon May 24, 2010 9:12 am

Re: New member portfolio help

Post by ShowMeTheER »

Are all of those retirement assets in the Roth?
Do you have a 401(k) or other tax-deferred options available?
Just buy the Vanguard total int'l index fund for your Int'l needs. I'd suggest simplifying your entire portfolio to 3 or 4 funds unless you're really in love with some of them and can't part ways.
Yes, absolutely sell anything that has a 2% expense ratio!! In fact, sell anything that is at least 1%.
What is your car situation, exactly? Planning to buy a new one soon? If it's near term, you can just stash that money in something safe and use it at purchase.

Oh, and congrats on no debt. Focus on saving now...
Johm221122
Posts: 6395
Joined: Fri May 13, 2011 6:27 pm

Re: New member portfolio help

Post by Johm221122 »

As mentioned no 401?
Try 3 fund portfolio
http://www.bogleheads.org/wiki/Three-fund_portfolio
If your saving more than Roth, which funds in taxable?
John
User avatar
ruralavalon
Posts: 26353
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: New member portfolio help

Post by ruralavalon »

Welcome to the forum :) .

Congratulations on being debt free, and on starting your investing education with some excellent choices in books to read.
Dragon Slayer wrote:Age: 35
Desired Asset allocation: %100 stocks
Desired International allocation: 25% of stocks
I would suggest that you re-think your overall asset allocation, and include at least 25% in bonds, please see --
Wiki article link: Asset Allocation ; and http://www.bogleheads.org/forum/viewtop ... 3#p1217243 .
In my opinion international equities anywhere in the range of 20 - 40% of total equities is reasonable, so your desired 25 - 30% in int'l is fine. Please see -- https://personal.vanguard.com/pdf/icriecr.pdf , and http://www.bogleheads.org/forum/viewtopic.php?p=98922 .

For best advice you need to tell us what type of account (i.e. Roth IRA, 401k, taxable) each of your investments is in, your marital status and tax filing status, when you might want to have money available for a newer car and what amount etc. please see -- http://www.bogleheads.org/forum/viewtopic.php?t=6212 .

For reasons of tax efficiency, the information on account type and fund location can be very important.

You can add this data to your original post using the "edit" button; it helps a lot to have all of your information in one place.

In general --

1. For increasing int'l exposure and int'l small caps, you could look at --
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), er = 0.18%, <= includes int'l small cap
Vanguard FTSE All-World ex-US Small-Cap Index Fund Investor Shares (VFSVX), er = 0.50%
Vanguard International Explorer Fund (VINEX), er = 0.41%, <= a managed small cap int'l fund

2. Yes, you could move to Vanguard funds with lower expense ratios, like --
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), er = 0.18%
Vanguard Small-Cap Value Index Fund Admiral (VSIAX), er = 0.21%
Vanguard Value Index Fund Investor Shares (VIVAX), er = 0.24%
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), er = 0.06%

As indicated above, if you provide additional information more specific suggestions could be offered.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Austintatious
Posts: 878
Joined: Thu Sep 13, 2012 7:01 pm

Re: New member portfolio help

Post by Austintatious »

Dragon Slayer,

I've looked at your 6 non-Vanguard funds on the Morningstar web site and note the following:

all have high ER's, the lowest at .91%, and two over 2%
all are load funds, with three at 5.75, and three at 1.00
two have notably high turnovers (198% and 205%)

First, I need to disclose that I'm probably one of the least experienced investors posting here. That said, though I did not look at the performance data of these funds, it seems to me that you're paying remarkably and unnecessarily high fees with these funds, which can add up to huge sums over the course of your investing career, much of which could be going into your investments instead of into the pockets of others. The high turnovers could result in unnecessarily high tax costs. Give prompt and serious consideration to the funds recommended by others posting here. And promptly review the study materials on this Boglehead web site, to learn the value of no load, low ER index funding. Read as much as you can about market indexing. Latch onto and read as many books by indexing advocates as you can find - Jack Bogle, Paul Merriman, Rick Ferri, Dan Solin, for example. Read what they say about what fund loads and high expense ratios can do to your savings, over time. Don't delay your study. Good luck.
Bob's not my name
Posts: 7417
Joined: Sun Nov 15, 2009 8:24 am

Re: New member portfolio help

Post by Bob's not my name »

Dragon Slayer wrote:Tax Rate: 25% Federal, 6% State
State of Residence: GA
Plan is to max out Roth IRA first every year (maxed out for 2012 already)
Why? Your marginal rate is 31% and your state exempts $35,000 of retirement income. These factors argue for tax-deferred saving over tax-advanced.
scone
Posts: 1457
Joined: Wed Jul 11, 2012 4:46 pm

Re: New member portfolio help

Post by scone »

Hi there! One thought, why the 4.92% cash position? If you put that in a bond index, maybe even the long treasury bond, you'd earn more money than cash, and bring in some money on days that are bad for stocks. Your total return might well be higher than all stock, even in the short run.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

Welcome to the forum!

Your approach is pretty much backwards compared to how most people invest here. Give us a chance to show you a different way - a way that we think is better.

In the 25% tax bracket, you should probably be using a 401k/403b or deductible contributions to traditional IRA instead of Roth IRA. If you can do both, filling a 401k and a Roth IRA might be optimal.

You want 100% stocks, but that is unlikely to be your best approach, even considering that you are relatively young and believe you have a high risk tolerance. I'd suggest a minimum of 25% bonds for your retirement portfolio. See this link for the role of bonds in a retirement portfolio.

Your choice of funds appears to be costly and, to the extent any are in a taxable account, not tax-efficient.

This is a good place to start. If you decide you are interested in this investing philosophy, people here can help you get that set up. Wiki article link: Bogleheads® investment philosophy
Topic Author
Dragon Slayer
Posts: 15
Joined: Sun Sep 23, 2012 3:57 pm

Re: New member portfolio help

Post by Dragon Slayer »

Thank you every one for the replies. So many posts to quote! :D
I think I edited all the original info in my OP
ShowMeTheER-I think your right about selling the expensive cost funds. I didn't know if it worked out to my advantage with capital gains tax etc? They were through Suntrust bank when I was younger and talked to a financial adviser. About the car I'm just thinking way ahead like I might need a new one in about 12 months.

Johm221122, ruralavlon- No option for a 401k. My father owns the company, I will be part owner some day and it becomes to "top heavy" is what I was told. I will read all the mentioned links. I have looked at those Vanguard funds you listed, they look good.

Bob's not my name- What you said here is a little over my head, maybe explain a bit more please :)

scone-the cash option is just copy and pasted from my info on Moringstar. I keep some cash on hand for work sometimes.

retiredjg- I cannot be involved in my employers 401k. I believe this is the only way to be involved with a 401k/403b??

I'm a bit surprised at the amount of you guys that say put %25 into bonds from what I have read. I will look more into it.

Again thank you.
Johm221122
Posts: 6395
Joined: Fri May 13, 2011 6:27 pm

Re: New member portfolio help

Post by Johm221122 »

The funds in your taxable should be index funds,index funds are more tax efficient, cheaper and no manager risk
John
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

Dragon Slayer wrote:retiredjg- I cannot be involved in my employers 401k. I believe this is the only way to be involved with a 401k/403b??
This sounds like there is a 401k, but they won't let you participate. Is that what you mean?
Topic Author
Dragon Slayer
Posts: 15
Joined: Sun Sep 23, 2012 3:57 pm

Re: New member portfolio help

Post by Dragon Slayer »

retiredjg wrote:
Dragon Slayer wrote:retiredjg- I cannot be involved in my employers 401k. I believe this is the only way to be involved with a 401k/403b??
This sounds like there is a 401k, but they won't let you participate. Is that what you mean?
This is correct
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

Dragon Slayer wrote:
retiredjg wrote:
Dragon Slayer wrote:retiredjg- I cannot be involved in my employers 401k. I believe this is the only way to be involved with a 401k/403b??
This sounds like there is a 401k, but they won't let you participate. Is that what you mean?
This is correct
Your first priority is to get this resolved. What you invest in is secondary.

Having the ability to put money away in a tax-deferred account like a 401k is an important factor in preparing for your retirement. We don't know enough to comment, but generally, a person cannot legally be prevented from participation in a company's retirement plan. However, family pressure (even when not legal) can be strong.

If you believe you will be working in this business a long time (and apparently you will since you will be part owner), you should get the problem fixed. It is possible the type of plan needs to be modified. Or employees need to be motivated to participate to avoid the top heavy problem. I'm not familiar with all the issues involved, but there is no reason a son/daughter should be prohibited from fully participating in the retirement benefits. It would be different if you only planned to work there a year until you move on to your own pursuits.

Perhaps your parent(s) just don't know how to fix the problem. Perhaps they believe "that's the way it is". Maybe you should take that on - a lot of info is available on this forum. You might improve the plan for everyone. On the other hand, if you "go along to get along", you may find that you pay extra in taxes every year and that your own retirement plan is not as good as it could be.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

Deleted by mistake. :oops:
Last edited by retiredjg on Fri Sep 28, 2012 4:22 pm, edited 2 times in total.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

double post
Last edited by retiredjg on Fri Sep 28, 2012 3:59 pm, edited 1 time in total.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

This is a place to get started on your education about employer retirement plans. Be sure to follow the links. You will soon be the company expert.

Wiki article link: Employer Retirement Plans Overview

Here's one more. There are dozens of pages in the Wiki that can be helpful.

Wiki article link: Setting up a 401(k) plan
Topic Author
Dragon Slayer
Posts: 15
Joined: Sun Sep 23, 2012 3:57 pm

Re: New member portfolio help

Post by Dragon Slayer »

I'll do some reading on the links guys. Like I said the 401k form work. It is my fathers company, since I am related it counts as an owner contributing. I was told that if I contribute it will become to top heavy. Literally none of our employees contribute to the 401k program (small company).
Topic Author
Dragon Slayer
Posts: 15
Joined: Sun Sep 23, 2012 3:57 pm

Re: New member portfolio help

Post by Dragon Slayer »

Is this the same as the 4.92% cash in your taxable account?
No it is not the same as the cash.


You need to get rid of everything in your taxable account for two reasons. First, they are not tax-efficient (meaning you are paying taxes each year that you don't need to pay). Second, they have high expense ratios.
But...you may not want to just liquidate everything wholesale - at least not until you know the tax consequences of doing so. You may decide it is better to keep some things until you can get rid of them without over-paying taxes.

To do this, you need to find out (and post) the gains or losses in each fund. And whether the gain or loss is long term or short term.

What is the easiest way to get this information about the capital gains?
Whatever money that may be needed in the next year or 5 needs to be kept safe (unless your target spending date is flexible enough to put it off 5 years or so). If you plan to use the money to buy a truck, don't invest i
t.
So just a regular savings account to have access to the money?
Until you get the 401k mess worked out at work, you should probably switch to using a deductible traditional IRA for your primary investment vehicle. There is no reason to pay 25% now to get money into a Roth IRA when you would likely pay less than 25% in retirement to get the money out of tIRA. Most people do not pay 25% effective tax in retirement.
[/quote]


Just found out the company actually stopped doing the 401k all together.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

Dragon Slayer wrote:What is the easiest way to get this information about the capital gains?
You should be able to look it up online in your account. But since you asked, you might not know how. Call the custodian and get the info on the phone.

So just a regular savings account to have access to the money?
Savings, high yield savings, CDs, maybe some short term bonds.

Just found out the company actually stopped doing the 401k all together.
Educate yourself on this issue. Figure out the best approach for the company. Present it to your parent(s). Use the links above and the small business link on the Vanguard website.
User avatar
halpain17
Posts: 85
Joined: Fri Jun 10, 2011 10:34 pm
Location: Lubbock, TX

Re: New member portfolio help

Post by halpain17 »

I think any allocation you are comfortable with from 60% stocks/40% bonds to 99%/1% is fine as long as that is what you are comfortable with.

That being said...
a 100% stock allocation is probably not a good idea.

The whole point of asset allocation is to reduce as much risk as possible while increasing return as much as possible. Even 1% bonds in your allocation doesn't affect your return rate as much as it reduces a very substantial amount of risk. Actually, I believe in the book, "The Four Pillars of Investing", there is fact that 100% stocks is actually both higher risk and less possible reward than a 99/1 allocation. This is due to a curve of risk/reward as you increase your bonds and decrease your stocks. I'm not sure what the "magic number" would be if of course you have no "fear" of investment, but I wouldn't ever recommend reducing your bond holdings to 0% giving yourself added risk with no hope for additional reward. May as well bet on "glue boy" at the horse track.
“ The only way to “beat an index” is to invest in something other than the index. Why would you, when the only source of long-term risk and return data is the index ?” -Hebner, Mark
Topic Author
Dragon Slayer
Posts: 15
Joined: Sun Sep 23, 2012 3:57 pm

Re: New member portfolio help

Post by Dragon Slayer »

I looked under tax documents (1099) for those funds. There was a section "Capital Gain Distributions
Subject to 15% Rate Gain" and a dollar amount. Would this be all I need?

Never mind I think it was only for one year.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

I don't know if what you saw was for one year or not.

Each fund might have a loss or a gain. For both loss and gain, it could be long term (you've held those shares more than a year) or short term (you've held those shares for less than a year). These things are taxed differently, so you want to know ahead of time what you have.

When you find the numbers, we can go through the steps and try to figure out the lowest tax way to get this done.
Topic Author
Dragon Slayer
Posts: 15
Joined: Sun Sep 23, 2012 3:57 pm

Re: New member portfolio help

Post by Dragon Slayer »

retiredjg wrote:I don't know if what you saw was for one year or not.

Each fund might have a loss or a gain. For both loss and gain, it could be long term (you've held those shares more than a year) or short term (you've held those shares for less than a year). These things are taxed differently, so you want to know ahead of time what you have.

When you find the numbers, we can go through the steps and try to figure out the lowest tax way to get this done.
FIDELITY ADVISOR STK SELECTOR -$182.74 (loss)
MFS NEW DISCOVERY CLASS C $576.49
MFS VALUE CLASS C $880.40
OPPENHEIMER CAPITAL APPRECIATION $1699.40
PUTNAM INTERNATIONAL EQUITY CL A -$725.52 (loss)
RIDGEWORTH SMAL CAP VALUE EQUITY -$1294.46 (loss)

So total $953.57

These have all been held long term
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

Dragon Slayer wrote: FIDELITY ADVISOR STK SELECTOR -$182.74 (loss)
MFS NEW DISCOVERY CLASS C $576.49
MFS VALUE CLASS C $880.40
OPPENHEIMER CAPITAL APPRECIATION $1699.40
PUTNAM INTERNATIONAL EQUITY CL A -$725.52 (loss)
RIDGEWORTH SMAL CAP VALUE EQUITY -$1294.46 (loss)

So total $953.57

These have all been held long term
Just to be clear, even if you have held the fund for more than a year, any shares bought in the last year may have short term gains . An example could be shares that represent dividends reinvested in the last year. Short term gains are taxed at your ordinary tax rate instead of the capital gains tax rate.

But if all the shares are long term and if the gain from the whole lot is $953.57, your tax will be 15% of that. So that is $143 to clean up the mess. Cleaning up the mess will reduce your expense ratios and your taxes in the long run (since it is highly unlikely any of these are very tax-efficient) so it won't be long before you will regain that $143.

I'd sell the whole lot and reinvest in some funds that are tax-efficient and low cost. The best examples of what to buy would be Vanguard's Total International Index or a Total stock Market Index. Or set that money aside for your truck.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: New member portfolio help

Post by retiredjg »

I'm going to assume that you will keep the 7 to 10k for the truck and put the rest of the money aside for retirement. If you decide to use some of this money in taxable for the truck, the calculations can just be done over with new numbers. You can set things up this way:


Taxable 54.53%
30.53% Vanguard Total Stock Index
24% Vanguard Total International Index

Roth IRA
25.48% Vanguard Total Stock Index Fund
20% Total Bond Market Index

This is a basic 3 fund portfolio that is 80% stock, 20% bonds with 30% of the stock (24% of the portfolio) in international stocks. This suggestion is low cost and tax efficient.

If you wish to have a Core Four portfolio, you would just add a 5% slice (or up to 10% if you want) of REIT in your Roth IRA.

For your new contributions, I would suggest that you use traditional IRA instead of Roth IRA. This would allow you to reduce your taxable income by $5k (saving $1,250 in federal taxes each year). There is no reason to pay 25% in tax on that money now when you could pay less in retirement. Any money over $5k that you save for retirement would go into your taxable account. In this way, you would have both pre-tax and post-tax money saved for retirement.

I know you don't see the importance of this right now, but getting a reasonable 401k or SIMPLE IRA or SEP IRA set up at work would be a benefit for you and everybody else. The tax-deferred savings would mean more money in the long run. The SIMPLE IRA and the SEP IRA plans avoid the "top heavy" problem.
Post Reply