Request for Comments on Portfolio Asset Allocations

[Meta4]

Greetings Bogleheads,
So nice to find this site; it's a really great resource, as are the two Boglehead books.

I'm in the process of putting together an asset allocation for a taxable investment account which will be used as part of our retirement plan. The taxable account will be funded from a windfall and so would not likely be further added to; my partner has a federal Thrift Savings Plan (2030 Targeted Fund), and we both have Roth IRAs (hers: Vanguard 500 ; mine: currently an over-priced Janus Contrarian fund). Our "retirement" date - we actually don't plan to completely stop working, just not full-time - is 2022. Currently we contribute the maximums possible to the TSP and IRAs, roughly 32k/yr.

Anyway, here's our profile, balances and current plan:

Debt: none
Tax Filing Status: married, joint filing
Emergency funds: 6 months; cash
Tax Rate: 25% fed; 9% State (will retire in cheaper state)
State of Residence: Oregon
Ages: 51 & 45

Assets:
TSP: 325k
IRA-1: 65k
IRA-2: 64k
Windfall: 357k

Proposed Investment plan:
- TSP acct: leave it as-is; keep contributing
- IRA-1: (VFINX) - leave as-is; keep contributing
- IRA-2: (JSVAX) - rollover into Vanguard Roth IRA; convert to VFSTX; keep contributing
- Taxable acct:
initial allocation: 65% Stocks - [85% VTSAX , 15% VTMGX] ; 35% tax-exempt Bonds [100% VMLUX]
2022-? allocation: 30% Stocks - [85% VTSAX , 15% VTMGX] ; 70% tax-exempt Bonds [60% VMLUX , 40% VAIPX]

re-balancing would occur every 3 years in a step-wise fashion, 5 times from 2012-2022.

fund list:
VFINX - Vanguard 500 Index Fund Investor Shares
VFSTX - Vanguard Short-Term Investment-Grade Fund Investor Shares
VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares
VAIPX - Vanguard Inflation-Protected Securities Fund Admiral Shares
VTMGX - Vanguard Tax-Managed International Fund Admiral Shares
VMLUX - Vanguard Limited-Term Tax-Exempt Fund Admiral Shares

At 2022 we will have a traditional pension paying around 15k in current value that will get COLA adjusted over time, plus we plan to extract 3-4% dividend income. We are currently in the 25% tax bracket but expect to be in the 15% bracket after 2022.

Questions:
- Is this a middle-of-the-road risk portfolio? What would be a less risky plan if we could do with 1,500k by 2022? We figure $40k/yr in current dollars would be adequate.

- Several of the funds in the taxable account are available as ETFs; should I go that route if I'm only selling/buying for re-balancing? Would Vanguard Brokerage Services be better than Scottrade? I calculated at most 15 trades up to 2022, then 3 trades every 5 years after.

Regards,
Jeff
Portland, OR

[Meta4]

OP here,
Noticed there haven't been any comments. Perhaps it was too long-winded. Basically I'm just looking for some sense as to how risky it may be given the somewhat short time horizon, and whether I'd be better off with taxable bonds in the taxable account. Since posting my thought is that I could pare down the stock portion to no more than 50%, tapering it down to 30% 10 years out. My only reservation is that bonds seem over-priced right now. My hope is to get this money invested within the next 6 months.

Would appreciate any thoughtful comments/suggestions.

Jeff

[jbran99]

Welcome to the forum! I'm commenting mostly to give you a bump. I'm more of a lurker, not a poster, but I'll try and weigh in...

TSP: 325k (100% Lifecycle 2030?)
IRA-1: 65k (100% VFINX)
IRA-2: 64k (100% VFSTX after conversion)
Initial Taxable acct: 357k in 65% Stocks - [85% VTSAX , 15% VTMGX] ; 35% tax-exempt Bonds [100% VMLUX]

Questions:
- Where are the IRAs held? (Vanguard? Fidelity? Somewhere else?)
- Why not use Vanguard Total Stock Market (VTSAX) instead of VFINX in her Roth IRA? At the very least, with $65k you should be in Admiral shares (VFIAX) to reduce expenses.
- Why not use Vanguard Total Bond Market (VBTLX) instead of VFSTX in his Roth IRA? VFSTX may be reasonable, but you didn't provide any reasoning, so I'm curious.
- Why not use Vanguard Total Int'l (VTIAX) instead of VTMGX? I realize it's slightly more expensive, but it is much better diversified (6331 stocks vs 883). I'm not familiar enough with the details of differences between the two, but VTIAX is often recommended for taxable accounts.

Is this a middle-of-the-road risk portfolio?

From follow-up post:
Since posting my thought is that I could pare down the stock portion to no more than 50%, tapering it down to 30% 10 years out.

I didn't see an overall target Asset Allocation for your entire retirement plan. If your TSP is indeed the Lifecycle 2030, that appears to breakdown (very roughly) as 50% US Stock, 20% Int'l stock, 30% Bond. Therefore, your overall AA after the Roth IRA conversion and the initial windfall would be 65/35 (~50 US Stock / ~15 Int'l stock / 35 Bonds). If "middle-of-the road" means 50/50 AA, then you are slightly more aggressive than middle-of-the-road. What does "middle-of-the-road" mean to you? Given your ages, 65/35 is slightly aggressive, but appears to be reasonable given the future pension. In your follow-up post, you also seem to be thinking 65/35 is too aggressive. You may want to re-evaluate your AA as this windfall likely changes your need and ability to take on risk (this wiki link may help).

Based on the Principles of Tax Efficient Fund Placement Wiki page, you might want to consider using VBTLX (or some other bond fund) in the IRAs and/or increasing the bond holdings in your TSP in order to achieve that portion of your AA. That would allow you to use only VTSAX and VTIAX (or VTMGX) in taxable.

Taxable acct:
2022-? allocation: 30% Stocks - [85% VTSAX , 15% VTMGX] ; 70% tax-exempt Bonds [60% VMLUX , 40% VAIPX]

re-balancing would occur every 3 years in a step-wise fashion, 5 times from 2012-2022.

Did you mean every 2 years? Because every 3 years doesn't match with 5 times in the next 10 years. I do think transitioning to a more conservative portfolio as you near retirement is a good thing. As the phrase goes, "my crystal ball is cloudy" so I'm not comfortable analyzing if your 2022 Target Portfolio will be able to provide the add'l $25k in income you need. In your follow-up post, you mention that bonds seem over-priced. That sounds like market timing to me. Ignore the noise and stick to your plan.

What would be a less risky plan if we could do with 1,500k by 2022?

I'm not sure what you are asking here.

Several of the funds in the taxable account are available as ETFs; should I go that route if I'm only selling/buying for re-balancing? Would Vanguard Brokerage Services be better than Scottrade? I calculated at most 15 trades up to 2022, then 3 trades every 5 years after.

If you're planning to use Vanguard mutual funds, why not just create the taxable account at Vanguard? If you are using the funds, you wouldn't need Vanguard Brokerage Services. You indicated at least 1 of the Roth IRAs will be held at Vanguard, so having the taxable account there would increase simplicity. In addition, you may have Tax Loss Harvesting opportunities which would require add'l transactions. I don't see any reason to pay for any of the transactions you want to make.

Finally, there is a Wiki page on Managing a windfall that would be good to read (if you haven't already). You mentioned wanting to invest the money within 6 months. That gives you plenty of time to make a careful, well-thought-out plan that will allow you to tune out the noise of the market and stay the course. Good luck!

[livesoft]

I would advocate not using Tax-Managed Int'l and using Total Int'l Index instead. The former follows the EAFE index of large-cap developed countries while the latter has that and emerging markets and Canada and small-caps. I think these "extras" are well worth it.

By the same token, why not exchange VFINX into VTSAX in the IRA since there are no tax-consequences to do so?

[pkcrafter]

Welcome Jeff,

I think your original post is a little hard to follow, but I'll get you started.

TSP L 2030, 325k, 70% stock
IRA 65k, 100% stock
IRA 64k, bnd
taxable, 357k, 65% stock

A rough calculation shows a portfolio AA of about 65%/35%

Greetings Bogleheads,
So nice to find this site; it's a really great resource, as are the two Boglehead books.

I'm in the process of putting together an asset allocation for a taxable investment account which will be used as part of our retirement plan. The taxable account will be funded from a windfall and so would not likely be further added to; my partner has a federal Thrift Savings Plan (2030 Targeted Fund), and we both have Roth IRAs (hers: Vanguard 500 ; mine: currently an over-priced Janus Contrarian fund). Our "retirement" date - we actually don't plan to completely stop working, just not full-time - is 2022. Currently we contribute the maximums possible to the TSP and IRAs, roughly 32k/yr.

Anyway, here's our profile, balances and current plan:

Debt: none
Tax Filing Status: married, joint filing
Emergency funds: 6 months; cash
Tax Rate: 25% fed; 9% State (will retire in cheaper state)
State of Residence: Oregon
Ages: 51 & 45

Assets:
TSP: 325k
IRA-1: 65k
IRA-2: 64k
Windfall: 357k

Proposed Investment plan:
- TSP acct: leave it as-is; keep contributing
- IRA-1: (VFINX) - leave as-is; keep contributing
- IRA-2: (JSVAX) - rollover into Vanguard Roth IRA; convert to VFSTX; keep contributing
- Taxable acct:
initial allocation: 65% Stocks - [85% VTSAX , 15% VTMGX] ; 35% tax-exempt Bonds [100% VMLUX]
2022-? allocation: 30% Stocks - [85% VTSAX , 15% VTMGX] ; 70% tax-exempt Bonds [60% VMLUX , 40% VAIPX]

re-balancing would occur every 3 years in a step-wise fashion, 5 times from 2012-2022.

fund list:
VFINX - Vanguard 500 Index Fund Investor Shares
VFSTX - Vanguard Short-Term Investment-Grade Fund Investor Shares
VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares
VAIPX - Vanguard Inflation-Protected Securities Fund Admiral Shares
VTMGX - Vanguard Tax-Managed International Fund Admiral Shares
VMLUX - Vanguard Limited-Term Tax-Exempt Fund Admiral Shares

At 2022 we will have a traditional pension paying around 15k in current value that will get COLA adjusted over time, plus we plan to extract 3-4% dividend income. We are currently in the 25% tax bracket but expect to be in the 15% bracket after 2022.

Consider reinvesting divys and take withdrawals from total return, choosing optimum assets that would help rebalance.

Questions:
- Is this a middle-of-the-road risk portfolio? What would be a less risky plan if we could do with 1,500k by 2022? We figure $40k/yr in current dollars would be adequate.

Considering your ages, retirement target date, and proposed withdrawal rate, I would say your risk level is a little high. I'm basing that on the idea that you'll need 1MM to get the 4% (40k) withdrawal, and you should be able to attain that easily with a moderate return considering the amount you are contributing. On the other hand, a large loss could significantly effect your plans.

- Several of the funds in the taxable account are available as ETFs; should I go that route if I'm only selling/buying for re-balancing? Would Vanguard Brokerage Services be better than Scottrade? I calculated at most 15 trades up to 2022, then 3 trades every 5 years after.

I don't have any problem with funds, and you should do all rebalancing in tax-deferred accounts. I think it's much more efficient to rebalance once a year rather than waiting, and if you do it in tax-deferred, there is no tax consequence. I don't know what Scottrade charges, but Vanguard would be zero.

You don't want taxable bonds in taxable account in your bracket. If you're worried about bond performance, use G fund (an excellent fund) in combination with other bond funds. Also, if you are concerned about too much equity in taxable, you could add tax-exempt bond later if you ever need to, or you could use Tax-managed balanced (50/50) in taxable and again do all adjustments/rebalancing in tax deferred.

Looks like you are on target.


Paul




Regards,
Jeff
Portland, OR

[ofckrupke]

Jeff,

in the TSP, unload the target 2030 for a mix (your choice) of G and F funds.
Shift both IRAs to total US stock market (possibly shifting vendors for both, if can't get Admiral class in the one now in VFINX). Check that - take a minimum initial Admiral-class holding in TBM in one of them.
Buy a mix of VTSAX and VTIAX in the taxable account, weighted to satisfy your US/Int'l preference when combined with the equity funds in the IRA.

By directing the nozzles in future TSP and IRA contributions, chiefly in G,F and Total Bond Market, you should be able to follow with very little effort an age-typical ten-year glide path toward more fixed income. Depending on the width of your deadband you may never even need to sell anything in an IRA to rebalance, nor add to the fund count in the TSP (but any rebalancing should be taking place in these tax-advantaged accounts, except perhaps opportunistic TLH against ordinary income). You can adjust the mix of G and F funds to suit temporal sense of need for stable-value vs desire for higher yield.

[Meta4]

Jeff,

in the TSP, unload the target 2030 for a mix (your choice) of G and F funds.
Shift both IRAs to total US stock market (possibly shifting vendors for both, if can't get Admiral class in the one now in VFINX). Check that - take a minimum initial Admiral-class holding in TBM in one of them.
Buy a mix of VTSAX and VTIAX in the taxable account, weighted to satisfy your US/Int'l preference when combined with the equity funds in the IRA.

By directing the nozzles in future TSP and IRA contributions, chiefly in G,F and Total Bond Market, you should be able to follow with very little effort an age-typical ten-year glide path toward more fixed income. Depending on the width of your deadband you may never even need to sell anything in an IRA to rebalance, nor add to the fund count in the TSP (but any rebalancing should be taking place in these tax-advantaged accounts, except perhaps opportunistic TLH against ordinary income). You can adjust the mix of G and F funds to suit temporal sense of need for stable-value vs desire for higher yield.

Thanks for all the replies; lot's to take in.

For some reason I was thinking it would be a PITA to fiddle with the TSP account; it's not so I think the above approach would be doable WRT re-balancing over the accumulation phase, growing the bond portion. In addition to the TSP account, at least one whole IRA and part of the other would need to go to bonds to start with a 50/50 stock:bond ratio. Should work though.

I forgot to mention in the original post that moving everything over to Vanguard was my preference, and since we should be able to use admiral shares there shouldn't be much need to mess with ETFs.

While waiting for replies I called Vanguard and was told we could talk with a concierge advisor service; will be doing a phone consultation Monday and will ask for recommendations as to G/F fund ratios.

I somehow missed that "Managing a Windfall" wiki page; thanks!

Great forum BTW; will be checking in often!

Cheers,
Jeff

[ofckrupke]

In addition to the TSP account, at least one whole IRA and part of the other would need to go to bonds to start with a 50/50 stock:bond ratio.

Yeah. Somehow I'd missed the reformulation to a 50/50->->->70/30 trajectory in your bump/followup post.

Also, I should have noted that my suggestion anticipated retention of some favorable tax preference for qualified dividends.

[jbran99]

In addition to the TSP account, at least one whole IRA and part of the other would need to go to bonds to start with a 50/50 stock:bond ratio.

It sounds like you've stablized around a current/initial AA of 50/50. I don't think you've expressed a specific target for US / Int'l stock. Your current Lifecycle 2030 fund has 50% US and 15% Int'l; therefore, Int'l makes up just under 25% of the stock portion. Your preferred US / Int'l ratio may be different. Here's one possible portfolio using a 38/12/50 US stock/ Int'l stock / Bond ratio:

TSP: 325k (100% Bonds)
- A combination of G & F funds based on your preference for risk.

IRA-1: 65k (100% Bonds)
- Vanguard Total Bond Market Admiral Shares VBTLX

IRA-2: 64k (mix of all 3)
- $15k Vanguard Total Bond Mkt Admiral Shares VBTLX (This gets you to 50% Bonds for the entire portfolio)
- $15k Vanguard Total Int'l Stock Mkt Admiral Shares VTIAX <-- Make new contributions here and/or
- $34k Vanguard Total Stock Mkt Admiral Shares VTSAX <-- here in order to maintain 38/12/50 (or whatever your glide path calls for)

Windfall: 357k (US / Int'l mix)
- $275k Vanguard Total Stock Mkt Admiral Shares VTSAX
- $82k Vanguard Total Int'l Stock Mkt Admiral Shares VTIAX

By including all 3 Total indexes within IRA-2, you should be able to rebalance almost completely within this one Account. This comes at a very slight cost of losing a small amount of foreign tax credit by holding VTIAX in a tax-advantaged account. With the TSP as 100% bonds, new contributions to the TSP will mostly take care the glide path from 50/50 to 30/70 that you desired over the next 10 years (depending on the relative performance of the funds and using IRS-2 for rebalancing as necessary). Transactions in the taxable account should only be needed if Tax Loss Harvesting opportunities arise.

NOTE - An AA of 30/70 in ten years would be fairly conservative, especially given your ages (at that time) and your $15k annual pension. Just wanted to point that out.

[Bob's not my name]

Tax Filing Status: married, joint filing
Tax Rate: 25% fed; 9% State (will retire in cheaper state)
expect to be in the 15% bracket after 2022.

If your marginal rate is currently about 35% (25% bracket becomes 28% next year, state tax is deductible against federal hence effectively about 7%) but will be 15% in the future and you plan to retire 9 and 15 years before today's SS/RMD age (which will probably change), I suggest you consider a deductible spousal TIRA instead of a Roth IRA for the spouse not covered by an employer retirement plan (if that's the case). Your income is definitely low enough.

[Bob's not my name]

Currently we contribute the maximums possible to the TSP and IRAs, roughly 32k/yr.

How do you arrive at this number?

51-year-old TSP $23,000/year
51-year-old IRA $6,500/year
45-year-old IRA $5,500/year
----------------------------------
$35,000/year

Those are 2013 numbers. For 2012 the total would be $33,500 -- maybe that's what you meant by "roughly 32k"? Not trying to nitpick, just wondering if maybe you aren't actually maxing. Or maybe it's the 45-year-old with the TSP, so the 2012 total would be $28,500 but you're including an employer contribution?

[retiredjg]

51-year-old TSP $23,000/year <---I think the TSP probably belongs to the 45 year old

[retiredjg]

Meta4, welcome to the forum!

If the windfall is intended to be maintained separately, your idea is probably ok. Since a windfall is often an inheritance and since inheritances might want to be passed on to children of a first marriage (or whatever) I thought I'd mention this.

If all of this is "our" money, I think you can do something a bit better. Here's sort of an ideal way, in my opinion, to mingle the TSP and Vanguard funds :

Taxable
Vanguard Total Stock Market
Vanguard Total International

TSP
C Fund and
S Fund combined to give you total stock market or a tilt to small if preferred

F Fund (same as total bond market index)
G Fund

Roth IRAs
Total Stock Market, Total Bond Market, or anything else you want such as REIT or small cap value

The reasoning is this:

-The I Fund in the TSP is only large and mid cap stocks from developed foreign markets. As such, it is missing Canada, the emerging markets, and the small cap international stocks. But the Vanguard Total International has everything, so why not use that one for all your international holdings?

-The 2 funds suggested for the taxable account are both tax-efficient.

-The international fund is eligible for the foreign tax credit (if held in a taxable account)

-The G Fund in the TSP is considered to be a particularly good choice to have; I know that a lot of government employees don't see it that way, but the G Fund pays similarly to an intermediate term bond fund but it carries essentially no risk (unlike a regular bond fund); when/if interest rates go up, other bond funds will lose some value (although part of this will be made up by increases in interest paid) but the G Fund will not go down in value and will also have its returns go up as interest rates go up.

So I think this general plan takes advantage of the best of the TSP and the best of Vanguard at the same time.

You'll notice that jbran99's idea looks a lot like this ideal model. The one significant difference is holding a slice of international in an IRA. This is an excellent idea since no more will be added to the international in the taxable account. You can simply add new international in that IRA, although I'm not sure it will be enough - you might need to hold some international in both IRAs.

Your thoughts on whether you two want the windfall to be separate or just part of the soup are needed before other ideas can be considered.

[Meta4]

Tax Filing Status: married, joint filing
Tax Rate: 25% fed; 9% State (will retire in cheaper state)
expect to be in the 15% bracket after 2022.

If your marginal rate is currently about 35% (25% bracket becomes 28% next year, state tax is deductible against federal hence effectively about 7%) but will be 15% in the future and you plan to retire 9 and 15 years before today's SS/RMD age (which will probably change), I suggest you consider a deductible spousal TIRA instead of a Roth IRA for the spouse not covered by an employer retirement plan (if that's the case). Your income is definitely low enough.

I hadn't considered this but it's a great idea. Somewhere I had gotten the impression that you can only have one IRA, either A Traditional or Roth. But there's no limit in IRA accounts, just on the annual amount you can contribute. We actually took some of the windfall and paid off our house, losing that deductible mortgage interest; having a deductible T-IRA contribution would likely keep us in the lower tax bracket.

[Meta4]

In addition to the TSP account, at least one whole IRA and part of the other would need to go to bonds to start with a 50/50 stock:bond ratio.

It sounds like you've stablized around a current/initial AA of 50/50. I don't think you've expressed a specific target for US / Int'l stock. Your current Lifecycle 2030 fund has 50% US and 15% Int'l; therefore, Int'l makes up just under 25% of the stock portion. Your preferred US / Int'l ratio may be different. Here's one possible portfolio using a 38/12/50 US stock/ Int'l stock / Bond ratio:

TSP: 325k (100% Bonds)
- A combination of G & F funds based on your preference for risk.

IRA-1: 65k (100% Bonds)
- Vanguard Total Bond Market Admiral Shares VBTLX

IRA-2: 64k (mix of all 3)
- $15k Vanguard Total Bond Mkt Admiral Shares VBTLX (This gets you to 50% Bonds for the entire portfolio)
- $15k Vanguard Total Int'l Stock Mkt Admiral Shares VTIAX <-- Make new contributions here and/or
- $34k Vanguard Total Stock Mkt Admiral Shares VTSAX <-- here in order to maintain 38/12/50 (or whatever your glide path calls for)

Windfall: 357k (US / Int'l mix)
- $275k Vanguard Total Stock Mkt Admiral Shares VTSAX
- $82k Vanguard Total Int'l Stock Mkt Admiral Shares VTIAX

By including all 3 Total indexes within IRA-2, you should be able to rebalance almost completely within this one Account. This comes at a very slight cost of losing a small amount of foreign tax credit by holding VTIAX in a tax-advantaged account. With the TSP as 100% bonds, new contributions to the TSP will mostly take care the glide path from 50/50 to 30/70 that you desired over the next 10 years (depending on the relative performance of the funds and using IRS-2 for rebalancing as necessary). Transactions in the taxable account should only be needed if Tax Loss Harvesting opportunities arise.

NOTE - An AA of 30/70 in ten years would be fairly conservative, especially given your ages (at that time) and your $15k annual pension. Just wanted to point that out.

This scheme looks pretty good. It is kind of conservative but we don't have that far to go to get to a reasonable target balance. I didn't see enough extra added by having higher stock amounts over 10 years to make me want to chance the added volatility/risk. As to avoiding re-balancing in the taxable (windfall) account, I think it may be hard to completely avoid. I may be able to add a tax-exempt bond fund which I could then add to to avoid generating capital gains. Or, we could try to select a targeted fund for the taxable account. I don't really like that option but at least the ratios would be predicable.

As for the TSP account, I was just looking at the breakdown of the "L" targeted funds and, to me, they look pretty attractive as they are fairly conservative but have a nice blend of the various funds. I'm not sure how the costs compare to a DIY approach. Would probably swap the L 2030 with the L 2020 given our plans.

[Bob's not my name]

Tax Filing Status: married, joint filing
Tax Rate: 25% fed; 9% State (will retire in cheaper state)
expect to be in the 15% bracket after 2022.

If your marginal rate is currently about 35% (25% bracket becomes 28% next year, state tax is deductible against federal hence effectively about 7%) but will be 15% in the future and you plan to retire 9 and 15 years before today's SS/RMD age (which will probably change), I suggest you consider a deductible spousal TIRA instead of a Roth IRA for the spouse not covered by an employer retirement plan (if that's the case). Your income is definitely low enough.

I hadn't considered this but it's a great idea. Somewhere I had gotten the impression that you can only have one IRA, either A Traditional or Roth. But there's no limit in IRA accounts, just on the annual amount you can contribute. We actually took some of the windfall and paid off our house, losing that deductible mortgage interest; having a deductible T-IRA contribution would likely keep us in the lower tax bracket.

I don't understand your reply.

• An individual can have both types of IRA.
• An individual can contribute to both types of IRA in one tax year, but the total contribution cannot exceed the annual limit ($5,000 for 2012, $5,500 for 2013).
• A couple can contribute $5,000 to a Roth for one spouse and $5,000 to a TIRA for the other spouse, or any other combination.
• Your bracket is one factor that determines your marginal rate. The marginal income in question here is the $5,000 you could shelter in a deductible TIRA. If you are in the 25% bracket and have a 9% state tax and you do not itemize, then your marginal rate is 34%. This means you can make a $5,000 deductible spousal TIRA contribution or you can pay $1,700 of state and federal taxes on that $5,000 of gross income and make a $3,300 Roth IRA contribution. You can of course make a larger Roth IRA contribution: a $5,000 contribution will require $6,579 of gross income and $1,579 of taxes. If you are actually in the 15% federal bracket, adjust the math accordingly. If you move to a cheaper state and retire early, your tax on converting the TIRA to Roth should be lower, e.g., if you are currently in the 25% bracket and don't itemize and you retire early to a no-tax state, your tax rate difference is 34% now vs. probably 15% later.

[retiredjg]

Or, we could try to select a targeted fund for the taxable account. I don't really like that option but at least the ratios would be predicable.

An ordinary target fund would be a poor choice for your taxable account because the taxable bonds in the target fund are not tax-efficient. This would cause you to pay extra taxes. You could use Vanguard's Tax Managed Balanced Fund but since it does not contain international stocks, it does not really solve all of your rebalance issue.

However, I don't really see why you think you would have to rebalance in the taxable account, even if you have to put some bonds there some day. The rebalancing could still be done in the TSP and IRAs.

As for the TSP account, I was just looking at the breakdown of the "L" targeted funds and, to me, they look pretty attractive as they are fairly conservative but have a nice blend of the various funds. I'm not sure how the costs compare to a DIY approach.

For the TSP and at Vanguard, the costs of the target funds and DYI are the same. I'm not sure that is the case at other places.

[Dr_McGarvey]

I have been tracking some theoretical TSP portfolio allocations since June, 1993. A set of summary tables and charts may be found at:

http://www.flickr.com/photos/ghost_of_a ... 479558116/

(I realize this is the same URL I used in my previous messages -- as before, I've replaced the slides there with the most current data.)

My rough impressions of the several intervals and results here go something like the following:

(1) for equities (C-, S- and I-Funds) it was, bluntly, a good month, and a heck of a good quarter, sizzling six-, 9-, and 12-month returns.

(2) on the bond side, we continue to putter along weakly in the G-Fund with a less-than-scintillating one-year return of 1.47% improvement. And while weak recently, the F-Fund had a weak, if respectable 4.29% return for the year.

(3) at last, some of the L-Funds have begun to display some "relative worth" -- especially the longer-term L 2040 Fund with its 14.27% one-year improvement, likely thanks to the relative weight of equities here.

Please let me know of any comments or interest.