Portfolio Review Request: Newly Married

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Portfolio Review Request: Newly Married

Postby UT_AN » Wed Dec 19, 2012 2:00 am

I would really appreciate a few extra pairs of eyes on my portfolio to see if I am optimally hitting my investment objectives. This is the first time really looking at the big picture of our households portfolio. I know a few items clearly stick out (HIINX in his 401k and FFFFX in her ROTH) as needing correcting. I also feel like a lot of what I am currently holding is overlapping.

Emergency Fund: >6 months
Filing Status: Married (no kids)
Age: (both 27)
Tax Rate: 25% (no state income)
Mortgage: $257k @ 3.5% w/ $68k in Equity
Desired Asset Allocation: 85/15

After Tax Account: 17%
1.73% iShares MSCI Emerging Markets Indx EEM
13.48% iShares S&P 500 Index IVV
1.72% Cash

His 401k: 17%
7.76% Harbor International Inv HIINX (1.15%) ** As of 12/24 This is now Spartan International - Fidelity Advantage Class FSIVX (0.17%)
8.88% Vanguard 500 Index VIFSX (.05%)
.10% Vanguard Interm-Term Bond Index VIBSX (.11%)

His TIRA (fidelity): 8.64%
8.64% Fidelity Spartan Total Market Index FSTMX

His ROTH (fidelity): 13%
6.71% Fidelity Spartan International Index FSIIX
1.38% iShares MSCI Emerging Markets Indx EEM
4.51% iShares S&P SmallCap 600 Value IJS

His HSA: 3.4%
3.4% Cash ($6150)

Her 401k: 21.93%
21.93% Schwab S&P 500 Index SWPPX (.09%)

Her ROTH (fidelity): 16.79%
16.79% Fidelity Freedom 2040 FFFFX

Her HSA: 2.99%
2.99% Cash ($5,400)


HIS 401k Options:
Vanguard Large Cap Index Fund Signal Shares VLCSX (.1%)
Vanguard 500 Index Fund VIFSX (.05%)
Vanguard Mid-Cap Index Fund VMISX (.1%)
Vanguard Small Cap Index Fund Signal Shares VSISX (.16%)
Harbor International Fund Investor Class HIINX (1.16%)
Spartan® International Index Fund - Fidelity Advantage Class FSIVX (.17%)
Fidelity® Total Bond Fund FTBFX (.45%)
Vanguard Intermediate-Term Bond Index Fund VIBSX (.11%)
Full list:
Sort by: Investment Name ExpenseRatio
American Cent Govt Bond Inv CL 0.48%
Columbia Dividend Income CL A 1.08%
Fidelity Balanced Fund 0.60%
Fidelity High Income Fund 0.76%
Fidelity Low-Priced Stock Fund 0.88%
Fidelity Small Cap Discovery Fund 1.07%
Fidelity Small Cap Value Fund 1.13%
Fidelity Total Bond Fund 0.45%
Harbor Cap Appreciation Inv CL 1.05%
Harbor International Inv CL 1.16%
Invesco International Growth R5 CL 0.98%
JP Morgan Mid Cap Value CL A 1.42%
Janus Triton Fund Class I 0.76%
Oakmark International CL I 1.06%
PIMCO Real Return Fund Administrative Class 0.72%
Prudential Jennison Mid Cap Growth CL A 1.06%
Sentinel Common Stock CL A 1.07%
Spartan International Index Fund - Fidelity Advantage Class 0.17%
Vanguard 500 Index Fund Signal Class 0.05%
Vanguard Intermediate-Term Bond Index Fund Signal Shares 0.11%
Vanguard Large Cap Index Fund Signal Shares 0.10%
Vanguard Mid-Cap Index Fund Signal Shares 0.10%
Vanguard Short Term Federal Inv CL 0.20%
Vanguard Small Cap Index Fund Signal Shares 0.16%
Virtus Real Estate Securities CL I 1.21%
Wells Fargo Adv Emerg Mkts Eq Admin 1.54%


HER 401k Options:
Allianz NFJ Large Cap Value D PNBDX (1.11)
Ariel Appreciation CAAPX (1.17)
Ariel ARGFX (1.06)
Artisan Intl ARTIX (1.19)
Baron Small Cap BSCFX (1.31)
Calamos Growth A CVGRX (1.26)
Schwab Inv Money Market SWRXX (.25)
Schwab MktTrk All Eq SWEGX (.65)
Schwab MktTrk Bal SWBGX (.69)
Schwab MktTrk Cons SWCGX (.72)
Schwab MktTrk Gr SWHGX (.66)
Schwab S&P 500 Index SWPPX (.09) This is what I have all this accounts holdings in
Excelsior Val & Res UMBIX (.94)
Eaton Vnc Inc Boston (1.02)
Hennessy Crnrstne Gr HFCGX (1.33)
Heritage Cap Appr A HRCSZ
ING GNMA Income A LEXNX (.93)
Invesco Van Kampen Value Opp A VVOAX (1.4)
Jensen JENSX (.91)
JP Morgan Core Bond Fund WOBDX (.58)
JPMorgan Mid Cap Growth Sel HLGEX (.93)
Oakmark Intl I OAKIX (1.06)
Oppenheimer Cap Ap A OPTFX (1.13)
PIMCO Total Return PTTDX (.75)
Wells Fargo Advantage Government Sec Inv (.89)
Third Ave Rl Est Val TAREX (1.15)
Victory Dvrsfd Stk A SRVEX (1.06)
William Blair Intl Grth N WBIGX (1.45)
Sentinel International Equity A SWRLX (1.43)

2013 Inflows:
Max Both Roths
Max out Both 401ks + Match (~$40k total)
Max out Both HSAs
Add at least 20k to Post Tax Account

Questions:

1. Can I count the cash in my HSA towards my BOND holdings? Ideally I would have these in low cost investments, I just don't like the fees and options currently available.

2. Am I missing a certain sector in my portfolio? Originally I only had access to limited funds in my 401k and used ETFs like EEM, IJS, IVV to fill in the gaps. Is this still needed, or should I look to perhaps some FIdelity investor class shares that can accomplish the same thing at a lower cost?

Thanks again for your help! Let me know if you need any additional information.
Last edited by UT_AN on Mon Dec 24, 2012 2:04 pm, edited 6 times in total.
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Wed Dec 19, 2012 11:35 pm

Posting this at 2am probably wasn't the best idea. I cleaned it up my post a bit as well as added a few questions to the end.

TYIA
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Re: Portfolio Review Request: Newly Married

Postby keq1381 » Thu Dec 20, 2012 10:27 am

Check out the Lazy Portfolios: http://www.bogleheads.org/wiki/Lazy_portfolio

They will help you capture all sectors and reduce overlap; I like the Core Four Portfolio proposed by Rick Ferri.
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Fri Dec 21, 2012 2:21 am

keq1381 wrote:Check out the Lazy Portfolios: http://www.bogleheads.org/wiki/Lazy_portfolio

They will help you capture all sectors and reduce overlap; I like the Core Four Portfolio proposed by Rick Ferri.


I with it were that easy though. With restricted options in the 401ks I am left with having to patch holes.

Current portfolio allocation:
Bonds 11.15%
International 21.34%
US 67.50%

I am thinking of selling HIINX in his 401k and putting that money into FSIVX which is the same as what I am I hold in my ROTH but with lower expenses. In the ROTH I replace FSIIX and EEM w/ FPMAX (Spartan Total Market Index Fund - Investor Class .10%) to give me my emerging markets. Then I sell FFFFX and replace it with a bond fund (any suggestions?) to get me to my 15% allocation (counting HSA cash as bonds), and the rest in a spartan total market fund.

Any thoughts?
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Re: Portfolio Review Request: Newly Married

Postby pingo » Fri Dec 21, 2012 3:05 am

1. It would still be helpful to get the rest of the expense ratios. Tickers are very helpful, but they don't give us the right idea about employer plan expense ratios. Often a plan (say, her 401k) negotiates a different expense ratio than we would see when looking up the fund by ticker.

2. Do have an idea of how much of your equities you'd like in international markets? 20-40% is a good place to start.

3. Is yours intent to hold Emerging Markets differently than market weight, or to use them to complete your other international holdings?

4. Do you have any capital losses in the taxable account where you could tax loss harvest the assets and move the money to another fund without incurring taxes?
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Re: Portfolio Review Request: Newly Married

Postby tainted-meat » Fri Dec 21, 2012 3:11 am

Is the after-tax account an after-tax 401k, or a taxable brokerage account? If it is an after-tax 401k, you should roll that to a TIRA and convert to a Roth.
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Fri Dec 21, 2012 12:15 pm

pingo wrote:1. It would still be helpful to get the rest of the expense ratios. Tickers are very helpful, but they don't give us the right idea about employer plan expense ratios. Often a plan (say, her 401k) negotiates a different expense ratio than we would see when looking up the fund by ticker.

2. Do have an idea of how much of your equities you'd like in international markets? 20-40% is a good place to start.

3. Is yours intent to hold Emerging Markets differently than market weight, or to use them to complete your other international holdings?

4. Do you have any capital losses in the taxable account where you could tax loss harvest the assets and move the money to another fund without incurring taxes?


1. Added the expense ratios to the OP. I also went ahead and added ALL the options available to HIS 401k, since I couldn't figure out how to get all their expense ratios easily before. They are lacking fund symbols though as that required clicking on all of them. I would be happy to get it though, if it would help.

2. I would like to get my international exposure up to at least 40% of my equity holdings.

3. I would like my international funds to have at least 40% exposure to emerging markets. The FSIVX I am holding is all developed international markets. I was originally using EEM to give me my emerging but I think FPMAX would be better suited in my ROTH given the low expenses and similar coverage.

4. All holdings in the after tax account would be subject to short term capital gains if sold (only in the $1k range at this point, but it would be taxed at my ordinary rates).
Last edited by UT_AN on Fri Dec 21, 2012 12:34 pm, edited 1 time in total.
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Fri Dec 21, 2012 12:17 pm

TAINTED-MEAT wrote:Is the after-tax account an after-tax 401k, or a taxable brokerage account? If it is an after-tax 401k, you should roll that to a TIRA and convert to a Roth.


The after-tax account is a normal brokerage account w/ Fidelity. As mentioned in the above post, all holding currently have short term capital gains.
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Re: Portfolio Review Request: Newly Married

Postby pingo » Fri Dec 21, 2012 7:02 pm

Sorry, I forgot to ask earlier:

5. Do you and/or your wife receive an employer match in those 401ks? If so, I recommend you edit your "2013 Inflows" part with the roughly the dollar amounts. That is: $17,500 + $x,xxx (match) = $xx,xxx. The final number is what we need for each of you.

6. Also, how much in contributions to HSA (dollar amounts)?

7. You have some Small Value (IJS). What are you intentions as far as using/investing in Small Value?
Last edited by pingo on Fri Dec 21, 2012 7:23 pm, edited 1 time in total.
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Fri Dec 21, 2012 7:19 pm

pingo wrote:Sorry, I forgot to ask earlier:

Do you and/or your wife receive an employer match in those 401ks? If so, I recommend you edit your "2013 Inflows" part with the roughly the dollar amounts. That is: $17,500 + $x,xxx (match) = $xx,xxx. The final number is what we need for each of you.

Also, how much in contributions to HSA (dollar amounts)?


Updated to add the requested info.

~$20k per 401k, $40k total. $6150 in his hsa and $5,400 in her hsa.
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Re: Portfolio Review Request: Newly Married

Postby pingo » Fri Dec 21, 2012 7:25 pm

Shoot! I thought I edited my last post fast enough that you'd have read what I added. :oops:

Thanks for the updates.

What are your thoughts on using Small Value, as I see that you have some IJS?
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Re: Portfolio Review Request: Newly Married

Postby pingo » Fri Dec 21, 2012 7:35 pm

And...I'm sorry to be asking this question as it can be a bit sensitive, but would you mind giving us a rough idea of the size of the portfolio? The reason being is that It helps to know how much of an impact new contributions will have on the portfolio.

For example, $82,550 in new savings has a bigger impact on how the asset allocation will shift in a $100k portfolio versus a $100 million portfolio, which can effect fund placement, among other things.

If you are uncomfortable sharing that information, I understand and will do my best, regardless.
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Sat Dec 22, 2012 2:18 am

@Pingo

No worries at all. I am happy to be getting advice from those more knowledgable than I. My current portfolio balance is ~180k.
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Re: Portfolio Review Request: Newly Married

Postby Rainier » Sat Dec 22, 2012 7:09 am

I use my HSA to pay medical expenses, I can't afford not to. If you plan on using your HSA then it should not be part of your retirement money. Unless it gets very large.
- Bill
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Sat Dec 22, 2012 12:30 pm

Rainier wrote:I use my HSA to pay medical expenses, I can't afford not to. If you plan on using your HSA then it should not be part of your retirement money. Unless it gets very large.


I am currently paying out of pocket for all medical expenses. The plan is to only use the HSA funds in retirement.
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Re: Portfolio Review Request: Newly Married

Postby keq1381 » Sun Dec 23, 2012 11:03 am

UT_AN wrote:
keq1381 wrote:Check out the Lazy Portfolios: http://www.bogleheads.org/wiki/Lazy_portfolio

They will help you capture all sectors and reduce overlap; I like the Core Four Portfolio proposed by Rick Ferri.


I with it were that easy though. With restricted options in the 401ks I am left with having to patch holes.

Current portfolio allocation:
Bonds 11.15%
International 21.34%
US 67.50%

I am thinking of selling HIINX in his 401k and putting that money into FSIVX which is the same as what I am I hold in my ROTH but with lower expenses. In the ROTH I replace FSIIX and EEM w/ FPMAX (Spartan Total Market Index Fund - Investor Class .10%) to give me my emerging markets. Then I sell FFFFX and replace it with a bond fund (any suggestions?) to get me to my 15% allocation (counting HSA cash as bonds), and the rest in a spartan total market fund.

Any thoughts?


You can definitely set up a lazy portfolio easily in all accounts except for Her 401k, where it seems like you have made the best choice possible.
Definitely replace HIINX with FSIVX!
I am not sure about counting your HSA in your bond allocation. It seems to be more like an emergency fund to me, but I don't have any experience with HSAs.
You should get a short term bond fund or a total bond market fund and supplement with TIPS or I Bonds.
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Mon Dec 24, 2012 2:09 pm

keq1381 wrote:
UT_AN wrote:
keq1381 wrote:Check out the Lazy Portfolios: http://www.bogleheads.org/wiki/Lazy_portfolio

They will help you capture all sectors and reduce overlap; I like the Core Four Portfolio proposed by Rick Ferri.


I with it were that easy though. With restricted options in the 401ks I am left with having to patch holes.

Current portfolio allocation:
Bonds 11.15%
International 21.34%
US 67.50%

I am thinking of selling HIINX in his 401k and putting that money into FSIVX which is the same as what I am I hold in my ROTH but with lower expenses. In the ROTH I replace FSIIX and EEM w/ FPMAX (Spartan Total Market Index Fund - Investor Class .10%) to give me my emerging markets. Then I sell FFFFX and replace it with a bond fund (any suggestions?) to get me to my 15% allocation (counting HSA cash as bonds), and the rest in a spartan total market fund.

Any thoughts?


You can definitely set up a lazy portfolio easily in all accounts except for Her 401k, where it seems like you have made the best choice possible.
Definitely replace HIINX with FSIVX!
I am not sure about counting your HSA in your bond allocation. It seems to be more like an emergency fund to me, but I don't have any experience with HSAs.
You should get a short term bond fund or a total bond market fund and supplement with TIPS or I Bonds.


I updated the OP to reflect that I replaced HIINX with FSIVX, since that was the easiest most clear decision so far. Regarding the HSA's, it might make some sense not to include this in the portfolio, and instead view it as an emergency fund (since I should have access to this if I need it, based on keeping past medical receipts). I do have nearly half the amount that I currently have in the HSA's in EE Bonds that are earning 4% that expire in the next 3 years. I could consider this money as part of my portfolio to assist with the bond allocation as well.
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Re: Portfolio Review Request: Newly Married

Postby reallyconfused » Mon Dec 24, 2012 2:34 pm

UT_AN wrote:
pingo wrote:Sorry, I forgot to ask earlier:

Do you and/or your wife receive an employer match in those 401ks? If so, I recommend you edit your "2013 Inflows" part with the roughly the dollar amounts. That is: $17,500 + $x,xxx (match) = $xx,xxx. The final number is what we need for each of you.

Also, how much in contributions to HSA (dollar amounts)?


Updated to add the requested info.

~$20k per 401k, $40k total. $6150 in his hsa and $5,400 in her hsa.


Just to be clear, your new contributions to your HSA is capped at 3250 per person or 6500 total for the both of you for 2013.
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Re: Portfolio Review Request: Newly Married

Postby pingo » Mon Dec 24, 2012 3:40 pm

UT_AN wrote:I am happy to be getting advice from those more knowledgable than I.


And I certainly hope you do get that kind of advice! :D

I am about to post a couple ideas, but I want to caution you that I am no expert and I may not even be more knowledgeable than yourself. I'm just internalizing stuff from my own experience and from the wiki and experience of others on this forum. I doubt that what I post will be 100% correct. My hope is by having my errors public, you or others can pick them apart and we all eventually arrive at the right destination.

There is a certain tediousness about figuring out what you are looking for with your particular circumstances (a lazy portfolio would have been sooooo much easier), and that may have discouraged others from taking the time. I spent the time, not because I think I have the answer for you, rather I wanted to take on the challenge for my own development. So, while I doubt my ideas will be "just right", perhaps my own errors will help the discussion move forward or garner the attention of those who do have better suggestions.
Last edited by pingo on Mon Dec 24, 2012 5:55 pm, edited 3 times in total.
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Re: If no tax consequences

Postby pingo » Mon Dec 24, 2012 3:47 pm

First, I looked at what seemed would be the simplest scenario: what would I do if there was no tax consequence to change funds? This is what I came up with. (Your ideas may differ significantly.)

Desired Asset Allocation: 85/15
Desired International Allocation: 40% of equities = 34% of assets
Desired Emerging Markets Allocation: 40% of Int'l. Maintaining a 4:1 relationship between "Total Int'l" (FSGDX) and Emerging Markets (FPMAX), gives you roughly 40% EM (but see comments at the end).

Portfolio size: $180k

After Tax Account (17%)
17% Fidelity Spartan Global Ex-U.S. Index Fund (FSGDX) <--$20,000/yr. Tax efficient, "Total Int'l" fund.

Her Fidelity ROTH (17%) <--$5,500/yr. Use this acct to keep 4:1 ratio between all FSGDX and FPMAX.
10% Fidelity Spartan Global Ex-U.S. Index Fund (FSGDX)
07% Fidelity Spartan Emerging Mkts Idx - Advtg (FPMAX)

Her 401k (22%)
22% Schwab S&P 500 Index SWPPX (.09%)<--$20,000/yr.

His 401k (17%)
17% Vanguard 500 Index Fund VIFSX (.05%) <--$7,250/yr.
00% Vanguard Md Cap Idx (VMISX) (.1%) and/or Sm Cap Idx (VSISX) (.16%) <--$7,250/yr.
00% Vanguard Intermediate-Term Bond Index Fund (VIBSX) (.11%) <--$5500/yr or enough for 15% bonds (combined).


His Fidelity ROTH (13%)
13% iShares S&P SmallCap 600 Value (IJS) <--$5,500/yr.

His Fidelity TIRA (9%)
09% Fidelity Spartan TIPS, U.S. Bond Index or Intermediate Treasury bond fund (Advantage Class).

His HSA (3%)
03% Cash <--$3,250

Her HSA (3%)
03% Cash <--$3,250

Something else to consider: I look at FSGDX like Vanguard does its Total Int'l: as holding roughly 25% Emerging Markets. Morningstar.com considers EM to makeup roughly 15% of the Int'l markets, which would require a 2.4:1 ratio between FSGDX and FPMAX. Decide what makes sense and adjust accordingly.
Last edited by pingo on Tue Dec 25, 2012 12:46 pm, edited 4 times in total.
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Re: Tax Consequences

Postby pingo » Mon Dec 24, 2012 3:52 pm

Next, I felt I could come up with something that keeps certain tax consequences in mind.

Desired Asset Allocation: 85/15
Desired International Allocation: 40% of equities = 34% of assets
Desired Emerging Markets Allocation: 40% of Int'l.

Portfolio size: $180k

After Tax Account (17%)
02% iShares MSCI Emerging Markets Indx (EEM) <--Tax-loss harvest out of this fund into (FSGDX) below.
13% iShares S&P 500 Index (IVV) <--Tax-loss harvest out of this fund into (FSGDX) below.
02% Fidelity Spartan Global Ex-U.S. Index Fund - Advtg (FSGDX) <--$20k/yr. Tax efficient.

His Fidelity ROTH (13%)
13% Fidelity Spartan Emerging Mkts Idx - Advtg (FPMAX) <--$5,500/yr.

His 401k (17%)
17% Fidelity Spartan® International Index Fund (FSIVX) (.17%)
00% Vanguard 500 Index Fund VIFSX (.05%) <--$10,000/yr.
00% Vanguard Small Cap Index (VSISX) (.16%) and/or Mid-Cap Idx (VMISX) (.1%) <--$4500/yr.
00% Vanguard Intermediate-Term Bond Index Fund (VIBSX) (.11%) <--$5500/yr or enough for 15% bonds (combined).


Her 401k (22%)
22% Schwab S&P 500 Index SWPPX (.09%) <--$20,000/yr.

Her Fidelity ROTH (17%)
17% iShares S&P 600 Small Cap 600 Value Idx (IJS) <--$5,500/yr.

His Fidelity TIRA (9%)
09% Fidelity Spartan U.S. Bond Idx, Intermediate Treasury Bond Fund or TIPS - Advtg

His HSA (3%)
03% Cash <--$3,250/yr.

Her HSA (3%)
03% Cash <--$3,250/yr.

If you tax loss harvest out of EEM and IVV into FSGDX (or perhaps with such small gains currently, you could wait to sell once long-term capital gains taxes apply), you can simplify Int'l holdings by eliminating His 401k Spartan Int'l and maintaining a 4:1 (or 2.4:1, depending) relationship between all FSGDX and FPMAX to have roughly 40% of all int'l stock being in EM.

In fact, you could then re-arrange funds like my first idea above ("if no tax consequences"). I don't think any differences between my second set of portfolio ideas above (even after having followed it for quite some time) and the first set of portfolio ideas, would amount to anything significant enough for concern, as in my mind they are substantially the same.
Last edited by pingo on Tue Dec 25, 2012 12:52 pm, edited 4 times in total.
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Re: Portfolio Review Request: Newly Married

Postby pingo » Mon Dec 24, 2012 6:17 pm

Oh! And happy holidays! :D
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Wed Dec 26, 2012 2:38 pm

pingo wrote:Oh! And happy holidays! :D


Happy Holidays! Thank you very much for the extremely detailed recommendations. I am going to go through everything tonight will post an update with what I think my next steps will be. I imagine it will be along the lines of your second recommended post, selling off in the taxable account and consolidating (just about at break even, so minimal tax consequences). I'll also factor in my 2013 Roth contributions since those will be made in the next two months. So I should have a good idea of my portfolio allocation for the beginning of 2013, and then what contributions will do to change my asset allocation (other than market movements :wink: ).
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Re: Portfolio Review Request: Newly Married

Postby pingo » Wed Dec 26, 2012 7:40 pm

Remember, it doesn't have to be perfect, just effective. In my suggestions, I was willing to compromise on some allocations (for example, I am not too careful about whether you end up with this percent or that percent of SCV, or whether it can be directly rebalanced with any other funds, rather I favor the ability to have a meaningful amount of a single fund in a single account whenever possible and because at some point it really isn't worth the complexity).

Also, I'm sorry to tag this on as an afterthought, but the following occurred to me:

Since you are maxing your 401k, I would look into whether you can make 401k "after-tax contributions" (not the same as 401k Roth contributions which are also after-tax). With 401k after-tax contributions, you pay taxes upfront (like a Roth) without it affecting the total allowable personal contributions between your tax-deferred and Roth 401k options. After-tax contribution earnings are tax-deferred, but not tax-free. If your plan allows regular in-service rollovers of after-tax contributions (at least annually), they can be moved into your Roth IRA (your earnings get taxed when rolled over, which is why you must be perform regular rollovers). This way you'd dramatically expand your tax-free/RMD-free Roth space beyond your the Roth IRA contributions, because the rollover is thereafter treated as Roth assets.

Your 401k Tax-Deferred Savings Plan Document would probably have this information. I assume it would have sections that are labeled, for example, "Pre-Tax Contributions", then "Roth 401k Contributions", then "Catchup Contributions" and then "After-Tax Contributions". It might say something similar to this:

401k After-Tax Contributions perhaps wrote:In addition to your pre-tax and/or Roth 401(k) contributions, the Plan accepts after-tax contributions...After-tax contributions will be held in a separate after-tax contribution account established on your behalf and will be invested in accordance with your investment directives...


You might have to look deeper for another section concerning "In-Service Withdrawls" or something of the sort. You'll look for text stating something like:

In-Service Withdrawls perhaps wrote:...You may withdraw all or a portion of your after-tax contribution and rollover contributions plus earnings at any time. In-service withdrawals can be requested by accessing the Plan's website...or through the Plan Information Line at...


Please note that I am quoting a random 401k document I found on the web, as I do not personally have this option.

Regular rollovers of 401k after-tax contribution are preferable to putting those contributions in a taxable account. If you cannot make regular rollovers into your Roth IRA, I wouldn't bother with 401k after-tax contributions.

If regular rollovers of 401k after-tax contribution exist in your plan, there is a $50,000 limit of combined contributions:

$50,000/yr > Match + Personal Tax-Deferred/Roth 401k Contributions + 401k After-Tax Contributions

Once you max out a 401k after-tax option, a taxable account is fine for investing additional savings.

If you can do regular rollovers of 401k after-tax contributions, you could put $20,000/yr there instead of placing it into your taxable account. Doing so means you pay a negligible amount of taxes on earnings when rolling the money out and that money can be rolled into a Roth IRA directly (not to a TIRA) which dramatically expands your Roth space and improves tax efficiency and portfolio flexibility.
Last edited by pingo on Mon Dec 31, 2012 3:09 pm, edited 1 time in total.
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Re: Portfolio Review Request: Newly Married

Postby UT_AN » Thu Dec 27, 2012 11:22 pm

@pingo
I really really liked how your second recommendation came together. The only change I made was swapping out the IJS in her ROTH for Spartan Small Cap Index Fund - Fidelity Advantage Class FSSVX (.3%), which is essentially the same. Regarding the after-tax contributions to the 401k, I will definitely be looking into this. I don't see anything in the documentation I have, I'll follow up with someone in my benefits department to see if that is an option.

This will give me the following asset allocation after my ROTH contributions for 2013:
Domestic Equities: 47.8500728761085%
International Equities : 37.9687334512794%
Bonds: 14.181193672612%

After Tax Fidelity
FSGDX International Equities 15.80%

Her 401k
SWPPX Domestic Equities 20.75%

Her HSA
Cash Bonds 2.83%

Her Roth
FSSVX Domestic Equities 18.60%

His 401k
FSIVX International Equities 7.35%
VIBSX Bonds 0.09%
VIFSX Domestic Equities 8.50%

His HSA
Cash Bonds 3.22%

HIS Roth
FPMAX International Equities 14.82%

His TIRA
FSITX Bonds 8.04%
UT_AN
 
Posts: 19
Joined: 28 Dec 2010

Re: Portfolio Review Request: Newly Married

Postby pingo » Sat Dec 29, 2012 11:40 pm

UT_AN wrote:This will give me the following asset allocation after my ROTH contributions for 2013:
Domestic Equities: 47.8500728761085%
International Equities : 37.9687334512794%
Bonds: 14.181193672612%


How do you expect to be precise with only 13 decimal places? :D

Also...

If your 401k does not allow after-tax contributions: keep in mind that from my point of view, suggestion 2 becomes less relevant once your taxable account is down to a single International holding (which is it's goal). Having just the one fund in taxable necessitates a shift to suggestion 1 (or something like it).

If your 401k does allow after-tax contributions, that changes things quite a bit, so perhaps it's best not to place any taxable money into FSGDX until you firmly establish what where your after-tax money will go. For example, if it I had the 401k after-tax option, I would avoid saving new money in the taxable account and I'd max all 401k contributions, and thus the Roth rollovers. (Match + Traditional Pre-Tax Contributions = $20,000/yr; 401k After-Tax = $30,000/yr. Total = $50,000/yr.) I'd then compensate for the reduced paycheck by spending down the taxable account. But that's just me...
pingo
 
Posts: 1939
Joined: 19 Sep 2009

Re: Portfolio Review Request: Newly Married

Postby UT_AN » Mon Dec 31, 2012 6:50 pm

I also just receieved information on my new HSA custodian regarding their investment options. It looks like I can invest for a $2 a month fee.

If I went this route I would put the $6150 as the $3100 contribution into:
Fidelity Spartan US Bond Index Fund (Inv) FBIDX (.22%)

I still need to find out all the information here, some plans have liquidity requirements. That could make it not worth the $2 a month fee for the investing options.

Assuming there are no liquidity requirements, are bonds the best investment to hold in a HSA (assuming I only use it as another saving vehicle and not for current out of pocket expenses).

Other funds in the HSA:
Schwab S&P 500 Fund (Sel) SWPPX .09%
Vanguard Dividend Growth Fund (Inv) VDIGX 0.31%
American Funds Growth Fund of America (F1) GFAFX 0.67%
Fidelity Contrafund FCNTX 0.81%
Vanguard Mid-Cap Index Fund (Inv) VIMSX 0.24%
Vanguard Small-Cap Index Fund (Inv) NAESX 0.30%
Vanguard Total Intl. Stock Index Fund (Inv) VGTSX 0.22%
DFA Emerging Markets Value Fund (I) DFEVX 0.61%
JPMorgan High Yield Fund (A) OHYAX 1.11%
Oppenheimer International Bond Fund (Y) OIBYX 0.73%
UT_AN
 
Posts: 19
Joined: 28 Dec 2010

Re: Portfolio Review Request: Newly Married

Postby pingo » Wed Jan 02, 2013 6:51 pm

UT_AN wrote:I also just receieved information on my new HSA custodian regarding their investment options. It looks like I can invest for a $2 a month fee.


Is this only for your HSA? Not hers?

The fee does not seem unreasonable, albeit undesireable. Your options are to invest the money for a higher expected return (paying the fee), or to leave it in cash with zero expected return.

UT_AN wrote:If I went this route I would put the $6150 as the $3100 contribution into:
Fidelity Spartan US Bond Index Fund (Inv) FBIDX (.22%)


a. Another reasonable choice, and probably the one I'd choose. What I like is that now your "bond" allocation doesn't end up being mostly cash.

b. Another idea would be to use a single Mid and/or Small cap fund in the HSA in order to not have to use one in your 401k (possibly reducing the number of funds in the portfolio). You'd increase the cost of your Mid/Small caps, but reduce the costs of your bonds by almost as much. Like I said before, I think I'd just use FBIDX, but I thought I'd mention it.

c. Another idea would be to use the lowest cost fund (S&P 500 ER 0.09%) and reduce it's prominence in other accounts. This would an improvement on costs and expected returns over the first two ideas, but I feel that there is a certain simplicity to using FBIDX bonds in the HSA, and that I might prefer putting all the money in FBIDX. And since you'd still go from zero expected return to some expected return by using FBIDX (despite it's ER), it's still a net gain. Others would argue that putting the money in FBIDX is nonsense if you have no need to use the money until retirement, and that using the S&P 500 fund doesn't complicate anything. Come to think of it, I really might do this one.

UT_AN wrote:Other funds in the HSA:
Schwab S&P 500 Fund (Sel) SWPPX .09%
Vanguard Dividend Growth Fund (Inv) VDIGX 0.31%
American Funds Growth Fund of America (F1) GFAFX 0.67%
Fidelity Contrafund FCNTX 0.81%

Vanguard Mid-Cap Index Fund (Inv) VIMSX 0.24%
Vanguard Small-Cap Index Fund (Inv) NAESX 0.30%
Vanguard Total Intl. Stock Index Fund (Inv) VGTSX 0.22%
DFA Emerging Markets Value Fund (I) DFEVX 0.61%
JPMorgan High Yield Fund (A) OHYAX 1.11%
Oppenheimer International Bond Fund (Y) OIBYX 0.73%


Hmmmm. Given your penchant for Emerging Markets, and Larry Swedroes advocating EM Value, you could always incorporate DFEVX into your International investment scheme via the HSA...It's a rare opportunity to access DFA without paying fees to a DFA advisor, but it is still much higher in costs than your other choices...

Analysis...paralysis...setting...in...

Thoughts?
pingo
 
Posts: 1939
Joined: 19 Sep 2009


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