first-time portfolio review for a long-time lurker

[15202guy]

Hi everyone,

I am looking for any advice or opinions about optimizing my portfolio and/or tweaking my AA. I am reasonably happy with my current situation but I am always looking to improve

Emergency funds: I usually hold an excessive amount of cash (1+ yrs living expenses) because of year-to-year fluctuations in my income and an uneven income stream within the year; this cash is at TIAA Direct (1.25% APY)
Debt: only debt is a mortgage (about 14 years left on a 15 year refi at 3.375%, principal balance ~$260K, house worth ~$380K)
Tax Filing Status: single, no dependents
Tax Rate: 35% Federal, 0% State
Age: 35, would like to be able to retire or scale back work significantly between 50-55
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 35% of stocks

Total taxable portfolio is ~$1M, total tax-advantaged portfolio is ~$750K.

Taxable
-------
At Fidelity:
13% FSTVX Fidelity Spartan Total Stock Market Index Advantage Class (.07%)

At Vanguard:
42% VTSAX Vanguard Total Stock Market Index Admiral (.06%)
29% VTIAX Vanguard Total International Stock Index Admiral (.18%)
8% VWIUX Vanguard Intermediate-Term Tax-Exempt Admiral (.12%)
8% VMLUX Vanguard Limited-Term Tax-Exempt Admiral (.12%)

Tax-Advantaged
--------------
Old 401k at Fidelity:
3% PTRAX Pimco Total Return Administrative (.71%)
3% VBMPX Vanguard Total Bond Market Index Institutional Plus (.05%)
3% VIPIX Vanguard Inflation-Protected Securities Institutional (.07%)
12% VITSX Vanguard Total Stock Market Index Institutional (.05%)
3% VTPSX Vanguard Total International Stock Index Institutional Plus (.10%)

Current 401k at Fidelity:
33% FSTVX Fidelity Spartan Total Stock Market Index Advantage Class (.07%)
26% VXUS Vanguard Total International Stock Index ETF (.18%)

Roth IRA at Fidelity:
11% FSTVX Fidelity Spartan Total Stock Market Index Advantage Class (.07%)
6% FSGDX Fidelity Spartan Global ex U.S. Index Fund Advantage Class (.18%) <-- corrected number, this used to say .28%

I know the tax-advantaged stuff looks ugly...let me explain. I like to maintain the international allocation separately between the 401ks and Roth. I also want all of the bond allocation in the 401ks to maximize the expected ending balance of my Roth. To keep my transaction costs low, I bought one large lot of VXUS in my current 401k, then when I need to add more international, I do so in my old 401k (and sell domestic) since there are no fees. Once the old 401k can't accommodate any more international, I'll buy another large lot of VXUS, switch the old 401k back to 100% domestic, and repeat the process.

Other Assets
------------
~$40K I Bonds
~$130K land (bought to build on, not as an investment)

Each year, I contribute the $50K max to a Solo 401k and the $5K max to a Roth IRA (via backdoor). I also buy the $15K max of I Bonds (just started with the I Bonds recently, but intend to continue). I invest my excess cash in my taxable account according to my AA.

I rebalance the tax advantaged accounts annually when I make my contributions. I rebalance the taxable accounts each time I add more money, typically several times a year.

Questions/Issues:
1. One deviation from the standard Boglehead philosophy is that I have been separately maintaining my AA in my tax advantaged and taxable accounts. I know this is counter to the asset placement "rules" that are often discussed here, but I am interested in hearing opinions about this approach in my specific situation.

2. I may want to build a new house or move into a more expensive house at some point within the next few years. I struggle with deciding how much to keep in more stable/less risky investments in case I want to do this since if I end up not moving then that will be lost opportunity to have been investing the funds more aggresively. My tentative plan is to overweight the muni bonds in my taxable position, so I get some extra return vs cash while maintaining a reasonable level of risk.

3. ER on FSGDX seems high, perhaps I should consider using VXUS ETF? That would actually be cheaper even considering the transaction fee. Or perhaps I should abandon the strategy of maintaining my domestic/international AA separately in the Roth and 401ks?

4. Comments on my current AA?

5. I am considering introducing a SCV tilt into the 401k position. Based on my research here on the site, I would likely do this using iShares Russell 2000 Value ETF (IWN) since it seems to be a good option and will be easy to rebalance with since it trades with no fee at Fidelity. Thoughts on this? I know the decision to tilt or not tilt is freqeuntly discussed on here, but I'm not sure if anyone has thoughts specific to my situation. If I do decide to tilt, what would be an appropriate percentage to allocate?

6. Right now my bonds are about 1/3 actively managed in Pimco Total Return. I have always liked this fund and I can get it at a (relatively) low ER. Obviously this is against the "low cost index fund" mantra, but does this minimal allocation seem reasonable? Does the 50/50 split between TBM and TIPS for the remainder of the position make sense?

7. Anything else you all have suggestions about!

Thanks in advance for your thoughts!

[stan1]

1) One thing I'm working towards myself is a little more account diversity (e.g. some I-Bonds and munis in taxable, some equities in tax deferred). Seems to me like the prudent thing to do given tax rate uncertainty. You'll end up with Total Stock Market and Total International in both taxable and tax advantaged if you want to rebalance, as you'll never want to sell funds in the taxable account (and incur capital gains) simply to rebalance. I would manage the portfolio as one, but you'll end up with some asset classes held in multiple places.
2) Having funds for a "maybe house" in munis seems fine given your income and asset levels. That would not be the right decision if any loss of value in those funds would be intolerable to you. Rebalance if you decide to move (or pay off your current mortgage).
3) I'd consider switching the FSGDX in your Roth IRA to VXUS. The 10 basis point lower expense ratio of VXUS should put you ahead fairly quickly even if you have to pay a one time commission (or move the account to Vanguard).
4) Seems like you have it under control. Have you considered REITs? International Small Cap?
5) As for SCV I think you either press the "I Believe" button, or stay as a total market investor. I don't think 90 TSM/10 SCV tilt is worth the hassle. If you want to do it, I'd go with a 75/25 or 66/33 ratio of TSM to SCV. The decision isn't likely to matter much in the long run. IWN expense ratio is 0.37% so I would pay the commission and go with Vanguard Small Cap Value (VBR).
6) Sounds fine, but I would not use the PIMCO fund.

[Occupier]

See my comments within the quote for some reason I cant edit right today. Dave

Hi everyone,
Lucky you. You have one heck of a lot more money than I had at your age. If you ever get married, I don't care how good the relationship seems, get a lawyer to do a pre-nup. The rest of my comments are below.

I am looking for any advice or opinions about optimizing my portfolio and/or tweaking my AA. I am reasonably happy with my current situation but I am always looking to improve

Emergency funds: I usually hold an excessive amount of cash (1+ yrs living expenses) because of year-to-year fluctuations in my income and an uneven income stream within the year; this cash is at TIAA Direct (1.25% APY)

I don't have a problem with your being this conservative. Also since your self employed you may need to spend money to retain staff while money is not coming in.

Debt: only debt is a mortgage (about 14 years left on a 15 year refi at 3.375%, principal balance ~$260K, house worth ~$380K)
Tax Filing Status: single, no dependents
Tax Rate: 35% Federal, 0% State
Age: 35, would like to be able to retire or scale back work significantly between 50-55
Desired Asset allocation: 90% stocks / 10% bonds

This is a bit aggressive. Granted you have significant assets, but I would go age - 10 in bonds. The slightly higher figure will smooth out the down periods.

Desired International allocation: 35% of stocks

Total taxable portfolio is ~$1M, total tax-advantaged portfolio is ~$750K.

Taxable
-------
At Fidelity:
13% FSTVX Fidelity Spartan Total Stock Market Index Advantage Class (.07%)

At Vanguard:
42% VTSAX Vanguard Total Stock Market Index Admiral (.06%)
29% VTIAX Vanguard Total International Stock Index Admiral (.18%)
8% VWIUX Vanguard Intermediate-Term Tax-Exempt Admiral (.12%)
8% VMLUX Vanguard Limited-Term Tax-Exempt Admiral (.12%)

Tax-Advantaged
--------------
Old 401k at Fidelity:
3% PTRAX Pimco Total Return Administrative (.71%) Why this high cost fund. It's actively managed but it is still a intermediate term bond fu
3% VBMPX Vanguard Total Bond Market Index Institutional Plus (.05%)
3% VIPIX Vanguard Inflation-Protected Securities Institutional (.07%)
12% VITSX Vanguard Total Stock Market Index Institutional (.05%)
3% VTPSX Vanguard Total International Stock Index Institutional Plus (.10%)

Current 401k at Fidelity:
33% FSTVX Fidelity Spartan Total Stock Market Index Advantage Class (.07%)
26% VXUS Vanguard Total International Stock Index ETF (.18%)

Roth IRA at Fidelity:
11% FSTVX Fidelity Spartan Total Stock Market Index Advantage Class (.07%)
6% FSGDX Fidelity Spartan Global ex U.S. Index Fund Advantage Class (.28%)

I know the tax-advantaged stuff looks ugly...let me explain. I like to maintain the international allocation separately between the 401ks and Roth. I also want all of the bond allocation in the 401ks to maximize the expected ending balance of my Roth. To keep my transaction costs low, I bought one large lot of VXUS in my current 401k, then when I need to add more international, I do so in my old 401k (and sell domestic) since there are no fees. Once the old 401k can't accommodate any more international, I'll buy another large lot of VXUS, switch the old 401k back to 100% domestic, and repeat the process.

Other Assets
------------
~$40K I Bonds
~$130K land (bought to build on, not as an investment)

Each year, I contribute the $50K max to a Solo 401k and the $5K max to a Roth IRA (via backdoor). I also buy the $15K max of I Bonds (just started with the I Bonds recently, but intend to continue). I invest my excess cash in my taxable account according to my AA.

I rebalance the tax advantaged accounts annually when I make my contributions. I rebalance the taxable accounts each time I add more money, typically several times a year.

Questions/Issues:
1. One deviation from the standard Boglehead philosophy is that I have been separately maintaining my AA in my tax advantaged and taxable accounts. I know this is counter to the asset placement "rules" that are often discussed here, but I am interested in hearing opinions about this approach in my specific situation.

2. I may want to build a new house or move into a more expensive house at some point within the next few years. I struggle with deciding how much to keep in more stable/less risky investments in case I want to do this since if I end up not moving then that will be lost opportunity to have been investing the funds more aggresively. My tentative plan is to overweight the muni bonds in my taxable position, so I get some extra return vs cash while maintaining a reasonable level of risk.

3. ER on FSGDX seems high, perhaps I should consider using VXUS ETF? That would actually be cheaper even considering the transaction fee. Or perhaps I should abandon the strategy of maintaining my domestic/international AA separately in the Roth and 401ks?

4. Comments on my current AA?

5. I am considering introducing a SCV tilt into the 401k position. Based on my research here on the site, I would likely do this using iShares Russell 2000 Value ETF (IWN) since it seems to be a good option and will be easy to rebalance with since it trades with no fee at Fidelity. Thoughts on this? I know the decision to tilt or not tilt is freqeuntly discussed on here, but I'm not sure if anyone has thoughts specific to my situation. If I do decide to tilt, what would be an appropriate percentage to allocate?

6. Right now my bonds are about 1/3 actively managed in Pimco Total Return. I have always liked this fund and I can get it at a (relatively) low ER. Obviously this is against the "low cost index fund" mantra, but does this minimal allocation seem reasonable? Does the 50/50 split between TBM and TIPS for the remainder of the position make sense?

7. Anything else you all have suggestions about!

Thanks in advance for your thoughts!

[15202guy]

Stan, thanks so much for your comments!

1) One thing I'm working towards myself is a little more account diversity (e.g. some I-Bonds and munis in taxable, some equities in tax deferred). Seems to me like the prudent thing to do given tax rate uncertainty.

Yes, the tax diversity is exactly my logic. Of course there are also downsides, but I am happy with the arrangement.

2) Having funds for a "maybe house" in munis seems fine given your income and asset levels. That would not be the right decision if any loss of value in those funds would be intolerable to you. Rebalance if you decide to move (or pay off your current mortgage).

Yes, I'd certainly rebalance if I move, and would almost certainly sell my current house vs renting it, thus paying off the mortgage. The reason I'm not paying off the mortgage now is so that I have more liquid funds should I decide to move. I know that in theory I could get a home equity loan, but I was quite shocked at how much trouble I had doing my refi because of my self employed status.

3) I'd consider switching the FSGDX in your Roth IRA to VXUS. The 10 basis point lower expense ratio of VXUS should put you ahead fairly quickly even if you have to pay a one time commission (or move the account to Vanguard).

The only reason I might hesitate to do this is that FSGDX tracks a different index than VXUS and has provided somewhat better returns. This is likely a short-lived phenomenon, but I'm not sure, so I would consider keeping FSGDX for added diversity.

4) Seems like you have it under control. Have you considered REITs? International Small Cap?

I have considered both. With the additional land I own, I am a bit overweight in real estate, and with the good run for REITs lately, I'm not sure now is the time to buy into an asset class that I'm not 100% convinced will improve my portfolio anyways. I am interested in international small cap for sure, but haven't been able to find any funds/ETFs that I was happy with from a convenience and cost perspective. If anyone has suggestions, I would be interested to hear them.

5) As for SCV I think you either press the "I Believe" button, or stay as a total market investor. I don't think 90 TSM/10 SCV tilt is worth the hassle. If you want to do it, I'd go with a 75/25 or 66/33 ratio of TSM to SCV. The decision isn't likely to matter much in the long run. IWN expense ratio is 0.37% so I would pay the commission and go with Vanguard Small Cap Value (VBR).

And I'm not sure if I believe! I'm really on the fence. I did a lot of research on this site, and IWN seemed to be preferred over VBR despite the higher expenses b/c of its holdings (more small, more value, less real estate). I'd also be interested to hear opinions on this, or I might start a separate thread on it...it seems like a topic worth revisiting as a group.

6) Sounds fine, but I would not use the PIMCO fund.

Out of curiosity, would you not use the PIMCO fund on principle (of it being actively managed) or do you have a specific dislike of it?

[Watty]

To keep my transaction costs low, I bought one large lot of VXUS in my current 401k, then when I need to add more international, I do so in my old 401k (and sell domestic) since there are no fees.

Even at $25 a trade, making a dozen trades a year only add something like 0.00001% to your overall expense ratio. That should not even be a consideration when you are deciding which the best asset is to hold in the best account.

I also want all of the bond allocation in the 401ks to maximize the expected ending balance of my Roth.

You have international mutual funds in your Roth. It would be good to check to see if you are losing any foreign tax credits from these mutual funds because they are in retirement accounts, it might make sense to hold these in the taxable account along with the rest of your international fund. If there is a significant foreign tax credit then giving that up for the next 40+ years might not be such a good idea.

Desired Asset allocation: 90% stocks / 10% bonds

For someone that is 35 that is way too aggressive for a retirement account. In a lot of ways a mortgage is like a negative bond so having that makes your portfolio even more aggressive. You are essentially using the mortgage to borrow money to invest so in effect your asset allocation is more like 100%+ in stocks.

It is hard to see how your overall asset allocation is since the totals don't add up to 100% but with your size portfolio it would be good to shift 5 to 10 percent of your retirement money into REITS for more diversification.
http://www.bogleheads.org/wiki/Lazy_Portfolios

[15202guy]

Dave, thanks for taking the time to read and comment. A few brief notes in response.

Lucky you. You have one heck of a lot more money than I had at your age. If you ever get married, I don't care how good the relationship seems, get a lawyer to do a pre-nup.

I am very blessed to have been successful early in life. A few good breaks and a lot of hard work made it possible. Now, it is gratifying to be able to give back to those that have helped me along the way. Certainly good advice regarding the pre-nup -- especially since I am in a community property state!

Desired Asset allocation: 90% stocks / 10% bonds

This is a bit aggressive. Granted you have significant assets, but I would go age - 10 in bonds. The slightly higher figure will smooth out the down periods.

Yeah, I've been thinking that it was a bit aggressive. I'm not sure I would want to go age - 10 (which would be 25% for me), but maybe age minus 15 or 20. Thoughts? I've read tons here on the forum about bond allocations, and never come away with a clear answer in my mind.

[15202guy]

Hi Watty, thanks for your comments!

To keep my transaction costs low, I bought one large lot of VXUS in my current 401k, then when I need to add more international, I do so in my old 401k (and sell domestic) since there are no fees.

Even at $25 a trade, making a dozen trades a year only add something like 0.00001% to your overall expense ratio. That should not even be a consideration when you are deciding which the best asset is to hold in the best account.

Yes, you're right, it's my OCD about costs kicking in! With that said, it really doesn't make a difference whether I hold the VXUS (or its fund equivalent) in 401k account A or B, so no harm no foul here. But it's a great point that I need to keep in mind (and applicable to my FSGDX quandry).

I also want all of the bond allocation in the 401ks to maximize the expected ending balance of my Roth.

You have international mutual funds in your Roth. It would be good to check to see if you are losing any foreign tax credits from these mutual funds because they are in retirement accounts, it might make sense to hold these in the taxable account along with the rest of your international fund. If there is a significant foreign tax credit then giving that up for the next 40+ years might not be such a good idea.

You are right, I am losing out on the foreign tax credit not only in the Roth, but also in my 401ks. It looks like this is several hundred dollars a year. Not insignificant money, but I'm not sure if it is enough to give up the tax diversification of having international in both taxable and tax advantaged accounts. Thoughts?

Desired Asset allocation: 90% stocks / 10% bonds

For someone that is 35 that is way too aggressive for a retirement account. In a lot of ways a mortgage is like a negative bond so having that makes your portfolio even more aggressive. You are essentially using the mortgage to borrow money to invest so in effect your asset allocation is more like 100%+ in stocks.

A previous poster suggested age-10 in bonds. I'm not sure I'd want to go that low...what would you think of age minus 15 or 20?

It is hard to see how your overall asset allocation is since the totals don't add up to 100% but with your size portfolio it would be good to shift 5 to 10 percent of your retirement money into REITS for more diversification.
http://www.bogleheads.org/wiki/Lazy_Portfolios

Unless I made a mistake, all of the taxable stuff should add up to 100%, as should the tax advantaged stuff, and my AA should be properly represented in both groupings. Or did you note a mistake? I just reviewed things, and I think everything is correct, but I may be overlooking something.

[Watty]

Desired Asset allocation: 90% stocks / 10% bonds

For someone that is 35 that is way too aggressive for a retirement account. In a lot of ways a mortgage is like a negative bond so having that makes your portfolio even more aggressive. You are essentially using the mortgage to borrow money to invest so in effect your asset allocation is more like 100%+ in stocks.

A previous poster suggested age-10 in bonds. I'm not sure I'd want to go that low...what would you think of age minus 15 or 20?


You have a lot going on with your housing plans that is muddying up your view of your retirment plans. You might consider your home equity, mortage, any mabye $300K(or whatever) to be your housing position as one portfolio and remove that from your retirment calculations. You could then calculate your retirment funds asset alocation as a second seperate portfolio.

In a lot of ways your really have these three portfolios;
1)Emergency funds.
2) Housing funds
3) Retirment funds
and they each should be invested according to their purpose

I'm not sure where the official line is but at 35 you are getting near to being middle age so it would be hard to suggest any less than 20% in bonds. (Disclaimer: I don't really like bonds right now so I am mostly avoiding longer term bonds.)

It is hard to see how your overall asset allocation is since the totals don't add up to 100% but with your size portfolio it would be good to shift 5 to 10 percent of your retirement money into REITS for more diversification.
http://www.bogleheads.org/wiki/Lazy_Portfolios

Unless I made a mistake, all of the taxable stuff should add up to 100%, as should the tax advantaged stuff, and my AA should be properly represented in both groupings. Or did you note a mistake? I just reviewed things, and I think everything is correct, but I may be overlooking something.

The way you have similar assets in both types of accounts makes it had tell just how much you have in something like international stocks. I'm not sure what the best way is to show this at a glance.

[zaboomafoozarg]

If I manage to get to $1.5 million net by the time I'm 35, I know what I'll do - retire!

[15202guy]

I'm not sure where the official line is but at 35 you are getting near to being middle age so it would be hard to suggest any less than 20% in bonds. (Disclaimer: I don't really like bonds right now so I am mostly avoiding longer term bonds.)

Gee, thanks for pointing that out But you are right, I need to shift my bonds to at least 20%. I will do that when I make my early 2013 contributions.

The way you have similar assets in both types of accounts makes it had tell just how much you have in something like international stocks. I'm not sure what the best way is to show this at a glance.

Yes, I can see how it would be confusing for someone not intimate with my portfolio. Executive summary:

Tax-advantaged accounts (Roth, 401ks): 10% bonds, 59% total stock, 31% total international (that's a 65/35 domestic/intl stock split)
Taxable accounts: 16% muni bonds, 55% total stock, 29% total international (that's also a 65/35 domestic/intl stock split)

[Nathan Drake]

How in the world did you manage to make so much money by 35? Get lucky with a start up?

[pingo]

I agree with holding at least 20% in bonds.

Also, you don't say how much you're saving each year in the taxable account(s), if anything.

The only reason I might hesitate to do this is that FSGDX tracks a different index than VXUS and has provided somewhat better returns. This is likely a short-lived phenomenon, but I'm not sure, so I would consider keeping FSGDX for added diversity.

Just eyeballing the charts here I see all Vanguard incarnations of Total International as having an slight edge over FSGDX, except for the VXUS ETF. Otherwise, they track each other pretty well.

Something else to keep in mind over time is that the Vanguard Total International funds include the Int'l Small Cap universe. Fidelity's do not, which could also account from some very small, period-dependent differences, just like we see 10-ish year periods where Total U.S. Stock funds slightly outperform S&P 500 funds, only to see the trend reverse over a later 10-ish year period. Six of one, half a dozen of the other.

I am interested in international small cap for sure, but haven't been able to find any funds/ETFs that I was happy with from a convenience and cost perspective. If anyone has suggestions, I would be interested to hear them.

The only suggestion I have is to see if you can open a Vanguard Individual 401k and have VG accept the Solo 401k rollover from Fido. I've heard they'll do it, but I do not know from personal experience. If so, you might as well rollover the Roth. I suppose you have good reason to keep the Old 401k alive, and the fact that it's at Fidelity is probably the reason you have almost everything else there, too. (That, and I hear that they have a great interface and integrate separate products really well.)That and the VG i401k only allows use of investor class, funds, not that that's so terrible.

[15202guy]

How in the world did you manage to make so much money by 35? Get lucky with a start up?

Not to sound cliched, but lots of hard work and a little luck... (e.g., landing a few key consulting clients). No startup involved

[15202guy]

Hi Pingo, thanks for your comments. I have some comments/questions about your comments below.

Also, you don't say how much you're saving each year in the taxable account(s), if anything.

This is VERY variable, based on significant income fluctuations. But I am hoping low six figures on average.

Just eyeballing the charts here I see all Vanguard incarnations of Total International as having an slight edge over FSGDX, except for the VXUS ETF. Otherwise, they track each other pretty well.

Hmmm...yes, that's interesting. I am surprised at what appears to be significant difference in performance between the ETF and the regular fund shares. Any explanation?

Something else to keep in mind over time is that the Vanguard Total International funds include the Int'l Small Cap universe. Fidelity's do not, which could also account from some very small, period-dependent differences, just like we see 10-ish year periods where Total U.S. Stock funds slightly outperform S&P 500 funds, only to see the trend reverse over a later 10-ish year period. Six of one, half a dozen of the other.

Yes, this is why I am using VXUS for the large intl position in the 401k...with the smaller position in the IRA, I wasn't sure the commission was worth it.

The only suggestion I have is to see if you can open a Vanguard Individual 401k and have VG accept the Solo 401k rollover from Fido. I've heard they'll do it, but I do not know from personal experience. If so, you might as well rollover the Roth.

My understanding is that they WILL accept the rollover. However, I also understand that you can't use Admirals shares in a Vanguard Solo 401k. Even if that is no longer true, I'm not sure I'd want to move it since I "understand" the Fidelity system. I also hesitate because even a small clerical glitch can invalidate the entire plan and generate a massive tax bill. Regarding the Roth IRA, I've thought about moving that independently, but I guess I'm sort of set in my ways, so absent a really compelling reason, I'm planning to leave it alone for now.

I suppose you have good reason to keep the Old 401k alive, and the fact that it's at Fidelity is probably the reason you have almost everything else there, too. (That, and I hear that they have a great interface and integrate separate products really well.)That and the VG i401k only allows use of investor class, funds, not that that's so terrible.

Yes, I'm happy to have the old 401k, with the institutional-type shares of the key Vanguard funds available! It's actually just a coincidence that I went with Fidelity for most of my accounts (but I will point out, NOT for most of my new contributions!)...I made that decision well before the old 401k came along. I do like their interface and do appreciate the integration of products -- a much better situation than at Vanguard, as I understand it (I have only mutual funds at Vanguard, no brokerage stuff). Plus, like I said earlier, I "understand" the rules and idiosyncrasies of Fidelity, and they do seem to value me as a long-term customer.

[pingo]

Also, you don't say how much you're saving each year in the taxable account(s), if anything.

This is VERY variable, based on significant income fluctuations. But I am hoping low six figures on average.

EACH YEAR? Congratulations!

All I can say, is you probably do not need advice from the likes of me, but I'm likely to offer it anyway so take it with a grain of salt!

The variation and size of future contributions is another reason that supports your holding a balance of bonds and equities in taxable, even if it isn't most commonly recommended on this forum.

Just eyeballing the charts here I see all Vanguard incarnations of Total International as having an slight edge over FSGDX, except for the VXUS ETF. Otherwise, they track each other pretty well.

Hmmm...yes, that's interesting. I am surprised at what appears to be significant difference in performance between the ETF and the regular fund shares. Any explanation?

Only one: ETFs ain't all they're cracked up to be. I prefer traditional index funds, myself, but I am begrudgingly going to have to engage ETF culture in the near future as they will offer serious cost and diversification advantages over some of the options in my employer plan. (I suppose that's not really an explanation, is it?)

Something else to keep in mind over time is that the Vanguard Total International funds include the Int'l Small Cap universe. Fidelity's do not, which could also account from some very small, period-dependent differences, just like we see 10-ish year periods where Total U.S. Stock funds slightly outperform S&P 500 funds, only to see the trend reverse over a later 10-ish year period. Six of one, half a dozen of the other.

Yes, this is why I am using VXUS for the large intl position in the 401k...with the smaller position in the IRA, I wasn't sure the commission was worth it.

If the fund could be housed at Vanguard or Fidelity, I'd have a preference for the VG fund over Fido's or even VXUS, but there are other factors at work that are more important. If I were with Fido, as you are, I believe I'd just used the Fido fund over the VG ETF.

The only suggestion I have is to see if you can open a Vanguard Individual 401k and have VG accept the Solo 401k rollover from Fido. I've heard they'll do it, but I do not know from personal experience. If so, you might as well rollover the Roth.

My understanding is that they WILL accept the rollover. However, I also understand that you can't use Admirals shares in a Vanguard Solo 401k. Even if that is no longer true, I'm not sure I'd want to move it since I "understand" the Fidelity system. I also hesitate because even a small clerical glitch can invalidate the entire plan and generate a massive tax bill. Regarding the Roth IRA, I've thought about moving that independently, but I guess I'm sort of set in my ways, so absent a really compelling reason, I'm planning to leave it alone for now.

...

Yes, I'm happy to have the old 401k, with the institutional-type shares of the key Vanguard funds available! It's actually just a coincidence that I went with Fidelity for most of my accounts (but I will point out, NOT for most of my new contributions!)...I made that decision well before the old 401k came along. I do like their interface and do appreciate the integration of products -- a much better situation than at Vanguard, as I understand it (I have only mutual funds at Vanguard, no brokerage stuff). Plus, like I said earlier, I "understand" the rules and idiosyncrasies of Fidelity, and they do seem to value me as a long-term customer.

I think you are right to stay.

More later!

[Nathan Drake]

How in the world did you manage to make so much money by 35? Get lucky with a start up?

Not to sound cliched, but lots of hard work and a little luck... (e.g., landing a few key consulting clients). No startup involved

Did you work with a consulting firm before breaking out on your own? What kind of consulting?

[15202guy]

EACH YEAR? Congratulations!

All I can say, is you probably do not need advice from the likes of me, but I'm likely to offer it anyway so take it with a grain of salt!

That's my hope...we'll see if it materializes! And I very much appreciate all comments!

The variation and size of future contributions is another reason that supports your holding a balance of bonds and equities in taxable, even if it isn't most commonly recommended on this forum.

Good point. I had never explicitly thought of it this way.

Only one: ETFs ain't all they're cracked up to be. I prefer traditional index funds, myself, but I am begrudgingly going to have to engage ETF culture in the near future as they will offer serious cost and diversification advantages over some of the options in my employer plan. (I suppose that's not really an explanation, is it?)

I'm no ETF fanboy either...I much prefer mutual funds. In fact, VXUS is the first and only ETF I have bought and I obsessed about "doing it right"
to buy on a day with the right volume, at a time with the right spread, etc. And I think your reason for moving to some ETFs makes perfect sense. I look at the options some people on here have for 401ks and it makes me sick...not to mention my friends at a very large defense contractor...they have crappy options too!

If the fund could be housed at Vanguard or Fidelity, I'd have a preference for the VG fund over Fido's or even VXUS, but there are other factors at work that are more important. If I were with Fido, as you are, I believe I'd just used the Fido fund over the VG ETF.

I'm hoping someone may weigh in about the difference in performance between the fund and ETF...

[15202guy]

Did you work with a consulting firm before breaking out on your own? What kind of consulting?

I did not. But I will PM you a little bit of info...

[pingo]

1. One deviation from the standard Boglehead philosophy is that I have been separately maintaining my AA in my tax advantaged and taxable accounts. I know this is counter to the asset placement "rules" that are often discussed here, but I am interested in hearing opinions about this approach in my specific situation.

I think it's fine if it's what you're most comfortable with. However, considering the size of your expected, albeit variable taxable contributions (in the 6-figure range), your taxable account(s) should eventually dwarf your tax-advantaged holdings. Upon retirement, it might make the most sense (for simplicity's sake) to only hold bonds in your tax advantaged accounts. Moving all tax advantaged holdings to bonds could very well be the only change you need to have the right AA for retirement, and you'll already be highly accustomed to the balance of stocks/bonds in taxable. Win-win. But alas, that's 15 years away...

2. I may want to build a new house or move into a more expensive house at some point within the next few years. I struggle with deciding how much to keep in more stable/less risky investments in case I want to do this since if I end up not moving then that will be lost opportunity to have been investing the funds more aggresively. My tentative plan is to overweight the muni bonds in my taxable position, so I get some extra return vs cash while maintaining a reasonable level of risk.

Not much to comment here, as I have no position. Sounds okay, but perhaps others have insight to offer.

3. ER on FSGDX seems high, perhaps I should consider using VXUS ETF? That would actually be cheaper even considering the transaction fee. Or perhaps I should abandon the strategy of maintaining my domestic/international AA separately in the Roth and 401ks?

We've discussed this to some extent. I'll just comment that Morningstar.com shows the same ER (0.18%) for FSGDX and VXUS. At first glance, Fidelity shows FSGDX with a 0.28% ER, but on the fees tab it shows "reductions" that bring it down to 0.18%. I'd say that's one more reason to go with FSGDX. I think it'll make your portfolio a tinge easier to manage, too.

4. Comments on my current AA?

Increasing bonds to 20% has already been discussed. As a general rule for the average person: most average persons at your age shouldn't stay at 80% stocks for too much longer, especially if they're retiring in 15 years. Regardless, your rate of savings will dwarf returns. As such, some would argue that you don't need to take inordinate amounts of risk, others would argue that you are in the perfect position to accept higher risk.

6. Right now my bonds are about 1/3 actively managed in Pimco Total Return. I have always liked this fund and I can get it at a (relatively) low ER. Obviously this is against the "low cost index fund" mantra, but does this minimal allocation seem reasonable?

I've heard that one can access Pimco TR in one's Vanguard account (via "FundAccess" feature) at ER 0.46% (as I look at it, it appears to require $25,000 minimum, but you'd have to double check with VG to make sure you really can do it). If/when you're ready to retire and if/when your old 401k is so small relatively that it serves no useful purpose (that is, you no longer need to avoid a Traditional IRA for your Backdoor Roth maneuvers), you might just send it and/or the Current 401k and/or your Roth to Vanguard to get a better deal on that Pimco fund. Or not. I don't consider it critical.

Does the 50/50 split between TBM and TIPS for the remainder of the position make sense?

As for TIPS, the only thing that makes sense here is what makes sense to you, because that helps you stay the course. Sometimes it is the portfolio itself that dictates how much one holds in TIPS. For me, I don't feel I have to hold TIPS, but I do include a portion of TIPS in my employer plan because they're the lowest costing bond option (0.06% vs. up to 0.30% for another bond fund, which still ain't bad). Even Vanguard doesn't have a strict opinion about how much in TIPS to hold in their Retirement Income fund, rather that research demonstrates that it can be beneficial to hold some. For them, a 20% allocation (almost 30% of bonds) made sense. There's nothing quantitative about it.

[pingo]

Other Assets
------------
~$40K I Bonds
~$130K land (bought to build on, not as an investment)

1. You left the above assets separate from your investments. the $130k land for building I get, but why not include the I-Bonds in the Portfolio?

2. Does your Old Fidelity 401k accept rollovers from other accounts? Would you ever be able to rollover asset from the Current Fidelity Solo 401k into the Old 401k?

I know the tax-advantaged stuff looks ugly...let me explain. I like to maintain the international allocation separately between the 401ks and Roth.

3. Is this a matter of preference, or is there a strategy behind it?

I also want all of the bond allocation in the 401ks to maximize the expected ending balance of my Roth.

4. Could you explain?

To keep my transaction costs low, I bought one large lot of VXUS in my current 401k, then when I need to add more international, I do so in my old 401k (and sell domestic) since there are no fees. Once the old 401k can't accommodate any more international, I'll buy another large lot of VXUS, switch the old 401k back to 100% domestic, and repeat the process.

I probably would not go through all those hoops, in fact it hardly seems worth your time, but I could be missing something. Anyway, here's my next question:

5. If you get rid of VXUS and instead use Fido Global Ex-U.S. (FSGDX), would that change the way you contribute/rebalance above? If so, how?

[15202guy]

Pingo, thanks for your comments and questions. Some of your questions forced me to revisit my portfolio strategy, which is exactly the point of threads like this.

We've discussed this to some extent. I'll just comment that Morningstar.com shows the same ER (0.18%) for FSGDX and VXUS. At first glance, Fidelity shows FSGDX with a 0.28% ER, but on the fees tab it shows "reductions" that bring it down to 0.18%. I'd say that's one more reason to go with FSGDX. I think it'll make your portfolio a tinge easier to manage, too.

Yes, you are correct about the expense ratio...my mistake. I've corrected this in my OP. I am happy to see this, as I am now more comfortable using FSGDX

Increasing bonds to 20% has already been discussed. As a general rule for the average person: most average persons at your age shouldn't stay at 80% stocks for too much longer, especially if they're retiring in 15 years. Regardless, your rate of savings will dwarf returns. As such, some would argue that you don't need to take inordinate amounts of risk, others would argue that you are in the perfect position to accept higher risk.

Yes, I've been thinking about the two ways to approach risk a lot lately. Both arguments have significant merit. I'll definitely be adjusting to 15-20% bonds very shortly, and perhaps even higher than that...I will see how my thinking on this issue evolves.

I've heard that one can access Pimco TR in one's Vanguard account (via "FundAccess" feature) at ER 0.46% (as I look at it, it appears to require $25,000 minimum, but you'd have to double check with VG to make sure you really can do it).

Interesting. I'll have to look into this...thanks.

...but why not include the I-Bonds in the Portfolio?

No good reason Partially because they're a relatively small component of the overall portfolio, partially because I was listing things by account, and those are in their own account. But point taken, those are part of my bond portfolio.

2. Does your Old Fidelity 401k accept rollovers from other accounts? Would you ever be able to rollover asset from the Current Fidelity Solo 401k into the Old 401k?

No, but I sure with it did! (for those really interested, it does accept rollovers, but only for current employees)

I know the tax-advantaged stuff looks ugly...let me explain. I like to maintain the international allocation separately between the 401ks and Roth.

3. Is this a matter of preference, or is there a strategy behind it?

I think it is easier to think about and rebalance this way, but there is a strategy behind it (perhaps a flawed one, but still a strategy!). The idea is to not subject my limited and valuable Roth space to only US or international investments...this way, if one tanks or outperforms, I'm guaranteed to not take the entire hit and to be able to participate in the gain with my Roth money.

I also want all of the bond allocation in the 401ks to maximize the expected ending balance of my Roth.

4. Could you explain?

Please see another thread of mine: viewtopic.php?f=10&t=107652&p=1565129

To keep my transaction costs low, I bought one large lot of VXUS in my current 401k, then when I need to add more international, I do so in my old 401k (and sell domestic) since there are no fees. Once the old 401k can't accommodate any more international, I'll buy another large lot of VXUS, switch the old 401k back to 100% domestic, and repeat the process.

I probably would not go through all those hoops, in fact it hardly seems worth your time, but I could be missing something. Anyway, here's my next question:

It's not as cumbersome as it sounds, really, and it's not something I need to do often. In fact, once my old 401k is used exclusively for bonds (which will be very soon if I move to a 20% bond allocation) this won't apply at all.

Thinking about your question, however, made me realize something that is obvious in retrospect -- in that old 401k, with the access to the institutional shares, I should be holding the funds with the greatest ER savings vs the Admiral share classes I can access elsewhere. In other words, if fund X has .12% Admiral and .10% Inst ER, and fund Y has .11% Admiral and .10% Inst ER, I should use the space exclusively for fund X to claim the .02% savings, vs a mix of .02% and .01%.

5. If you get rid of VXUS and instead use Fido Global Ex-U.S. (FSGDX), would that change the way you contribute/rebalance above? If so, how?

If I were to abandon VXUS completely, then yes, I could just hold FSGDX wherever it was convenient, be it all in one account or spread across multiple accounts. However, as I mentioned earlier, the scheme I outlined will be going away soon as I increase my bond holdings.

Are you suggesting moving away from VXUS? I was favoring that for the majority of my intl holdings since it covers the entire market better than any of the Fidelity options.

[pingo]

Yes, I've been thinking about the two ways to approach risk a lot lately. Both arguments have significant merit. I'll definitely be adjusting to 15-20% bonds very shortly, and perhaps even higher than that...I will see how my thinking on this issue evolves.

Okay. In that case I'll look at your situation as keeping the 15% bond allocation, but given your larger future contributions you'll probably begin a transition via new contributions. I say this because if I can workout a suggestion (and that's a big if because you have so many particulars to consider, I'm not sure I can do improve on what you are already doing), I need at least a few firm, easy rules to work with. Of course, I could ignore the particulars and make suggestions based entirely on my own preferences, but that's probably counter-productive since I would merely end up with a portfolio that I'd feel more comfortable with.

I've heard that one can access Pimco TR in one's Vanguard account (via "FundAccess" feature) at ER 0.46% (as I look at it, it appears to require $25,000 minimum, but you'd have to double check with VG to make sure you really can do it).

Interesting. I'll have to look into this...thanks.

And I should have been more clear: I actually looked at Vanguard's FundAccess and I did see many iterations of Pimco TR, incuding a no-load ER 0.46% version with zero transaction fees, but it just seems too good to be true. I believe I may have seen a poster or two who have purchased this fund through Vanguard, so it seems like the chances are pretty good that you can.

I also want all of the bond allocation in the 401ks to maximize the expected ending balance of my Roth.

4. Could you explain?

Please see another thread of mine: viewtopic.php?f=10&t=107652&p=1565129

Aaah. Got it. It was like you said, I just didn't get it. Now, Bob's not my name wasn't steering you wrong (he's one of those Bogleheads where I pay very close attention to anything he says). But if you feel it is important to keep as many equities in your Roth as possible, I doubt it'll bring you to ruin, either.

Thinking about your question, however, made me realize something that is obvious in retrospect -- in that old 401k, with the access to the institutional shares, I should be holding the funds with the greatest ER savings vs the Admiral share classes I can access elsewhere. In other words, if fund X has .12% Admiral and .10% Inst ER, and fund Y has .11% Admiral and .10% Inst ER, I should use the space exclusively for fund X to claim the .02% savings, vs a mix of .02% and .01%.

I've been thinking along the same lines.

Are you suggesting moving away from VXUS? I was favoring that for the majority of my intl holdings since it covers the entire market better than any of the Fidelity options.

Yet, as you can see, it appears to be at a disadvantage to all VG Total Int'l and the Fidelity FSGDX funds. This makes me think that VXUS underperforms for some reason having to do with the nature of ETFs. Mind you, that's speculation on my part. Regardless, VXUS is a better option than many others, but my opinion is that it is not better than FSGDX in your case. However, there's still nothing wrong with using VXUS if that's what you want.

[15202guy]

Yes, I've been thinking about the two ways to approach risk a lot lately. Both arguments have significant merit. I'll definitely be adjusting to 15-20% bonds very shortly, and perhaps even higher than that...I will see how my thinking on this issue evolves.

Okay. In that case I'll look at your situation as keeping the 15% bond allocation, but given your larger future contributions you'll probably begin a transition via new contributions. I say this because if I can workout a suggestion (and that's a big if because you have so many particulars to consider, I'm not sure I can do improve on what you are already doing), I need at least a few firm, easy rules to work with. Of course, I could ignore the particulars and make suggestions based entirely on my own preferences, but that's probably counter-productive since I would merely end up with a portfolio that I'd feel more comfortable with.[/quote]

I'd certainly be interested in hearing what you come up with, because I am open to new ideas and other ways of thinking about things. I'm not sure I have a lot of "rules" per se (although I bet I have more than I realize subconsciously!). I have already started increasing bonds in my taxable (to 20% as of when my purchases occur today) and will follow suit with contributions to my tax-advantages accounts.

And I should have been more clear: I actually looked at Vanguard's FundAccess and I did see many iterations of Pimco TR, incuding a no-load ER 0.46% version with zero transaction fees, but it just seems too good to be true. I believe I may have seen a poster or two who have purchased this fund through Vanguard, so it seems like the chances are pretty good that you can.

That's really intriguing...something I will jump on once I have tax-advantaged space at Vanguard!

Aaah. Got it. It was like you said, I just didn't get it. Now, Bob's not my name wasn't steering you wrong (he's one of those Bogleheads where I pay very close attention to anything he says). But if you feel it is important to keep as many equities in your Roth as possible, I doubt it'll bring you to ruin, either.

I did read and value non-Bob's comments. For those reasons, I may consider keeping my overall bond AA in that account. Time will tell...

Yet, as you can see, it appears to be at a disadvantage to all VG Total Int'l and the Fidelity FSGDX funds. This makes me think that VXUS underperforms for some reason having to do with the nature of ETFs. Mind you, that's speculation on my part. Regardless, VXUS is a better option than many others, but my opinion is that it is not better than FSGDX in your case. However, there's still nothing wrong with using VXUS if that's what you want.

I'd like to understand this better, so I am indeed going to start a new thread on this...

Thank you again for your comments so far!

[pingo]

You are stuck somewhere between looking at all accounts as a whole (typically recommended on this site) and having separate asset allocations for each account, for which you have personal reasons that I wouldn't ignore.

Presently, you feel comfortable holding bonds in taxable and in tax-advantaged (with no bonds in your Roth to maximize). For similar reasons, you hold US and Int'l in each type of account because one fund might be up when the other is down and you can feel better about the account knowing the funds might not always correlate. These preferences lead to the separate management of 2 portfolios.

You're not actually doing anything wrong or stupid, however...

It seems to me that, rather than view the taxable assets as one portfolio (and tax-advantaged as another), you could view your Vanguard funds as one portfolio (and your Fidelity funds as the other). I see this a better way to achieve the same goals with greater flexibility and simplicity, and I think it might enable you to easily incorporate Small Cap Value, if you decide to go that route. As such, you can login to a single fund provider to view each "portfolio" as a whole due to product integration, which helps to eliminate the need to quadruplicate some of your funds. The following is an illustration of the result:


Vanguard Portfolio
Total Stock
Total International
Limited-Term Tax-Exempt
Intermediate-Term Tax-Exempt



Fidelity Portfolio
Taxable
Old 401k
Solo 401k
Roth

[pingo]

Allow me to comment on the Fidelity portfolio:

Fidelity Taxable is a single fund (Total U.S. Stock). Use tax loss harvesting and zero contributions to shrink/eliminate. Transfer liquidated tax-loss amounts to Vanguard Portfolio.

Old Fidelity 401k - Lack of contributions cause shrinkage, relatively-speaking. The TIPS fund has a yummy ER 0.07%, but you are actually building up inflation-protected I-Bonds at $15,000/yr and with zero costs. Keep Total Bond because it has the lowest expenses of all (expenses affect bonds more than equities). Despite other fantastic VG ERs, you've decided that Pimco stays (ER 0.71% !) which means you aren't taking advantage of lower costs, you're increasing them. VG offers Pimco PTTRX for 25 basis points less (ER 0.46%). If you believe you'll be with Pimco to the bitter end, the clear choice is to rollover the Old 401k to VG and use VG Brokerage Svcs to access PTTRX. If you think there's a chance you'll change your mind about Pimco, then you might regret rolling over the Old 401k.

Fidelity Solo 401k - Eventually dwarfs all Fidelity assets. Why worry about holding bonds and/or equities and/or U.S and/or Int'l in each account when all but one will be small and when product integration let's you view all funds in relationship to each other anyway? I think it makes the unnecessary duplication, well, especially unnecessary.

Fidelity Roth IRA - Best place to incorporate Small Cap Value, given Fidelity's zero-commission iShares ETFs, SCV's higher expected returns, and your desire to maximize the end-size of the Roth. SCV is considered tax-inefficient because of higher turnover (index recomposition), possibly higher dividends, etc. and it won't mean anything if you dilute it by also holding Total Stock and Global Ex-U.S. in the Roth, so ditch 'em to avoid holding SCV in taxable.

[pingo]

I think that the above suggestions make your current assets to look like this:




Vanguard Portfolio ($870,000)
48% Vanguard Total Stock Adm (VTSAX) (.06%)
33% Vanguard Total International Adm (VTIAX) (.18%)
09% Vanguard Intermediate-Term Tax-Exempt Adm (VWIUX) (.12%)
09% Vanguard Limited-Term Tax-Exempt Adm (VMLUX) (.12%)






Fidelity Portfolio ($880,000)
Taxable
15% Fidelity Spartan Total Stock Advtg (FSTVX) (.07%) <--$0/yr. TLH assets over to VG.

Solo 401k
28% Fidelity Spartan Total Stock Advtg (FSTVX) (.07%) <--$23,360/yr.
22% Fidelity Spartan Global Ex-U.S. Advtg (FSTVX) (.18%) or VXUS ETF (.18%) <--$15,540/yr.
00% Fidelity Spartan US Bond Advtg (FSITX) (0.12%) <--$11,100/yr.

Roth
14% iShares S&P 600 Sm Value (IJS) (.29%) or Fidelity Spartan Total Stock - Advtg (FSTVX) (.07%) <--$5,500/yr.

Old 401k <--Consider rolling over to VG to access PTTRX (0.46%)
11% Pimco Total Return Administrative (PTRAX) (.71%)
11% Vanguard Total Bond - Inst Plus (VBMPX) (.05%)






U.S. Treasury <--I didn't incorporate this b/c you didn't. No biggie.
$40,000 Series-I Bonds <--$15,000/yr @ ER 0.00%.

[pingo]

The following is to give you an idea of the mid-to-long term end game, but I had to base it on current values. That said, there is obvious flexibility between the above portfolio setup and the one below, depending on how you feel along the way.

Vanguard Portfolio

Taxable
51% Vanguard Total Stock Adm (VTSAX) (.06%)
28% Vanguard Total International Adm (VTIAX) (.18%)
2.5% Vanguard Intermediate-Term Tax-Exempt Adm (VWIUX) (.12%)
2.5% Vanguard Limited-Term Tax-Exempt Adm (VMLUX) (.12%)

Brokerage (Old 401k Rollover)
15% Pimco Total Return Administrative (PTTRX) (.46%)




Fidelity Portfolio

Current 401k
34% Fidelity Spartan Total Stock Advtg (FSTVX) (.07%) <--$23,360/yr.
28% Fidelity Spartan Global Ex-U.S. Advtg (FSTVX) (.18%) or VXUS ETF (.18%) <--$15,540/yr.
20% Fidelity Spartan US Bond Advtg (FSITX) (.12%) <--$11,100/yr.

Roth
18% iShares S&P 600 Sm Value (IJS) (.29%) or Fidelity Spartan Total Stock - Advtg (FSTVX) (.07%) <--$5,500/yr.




U.S. Treasury
$40,000 Series-I Bonds <--$15,000/yr @ ER 0.00%. Replaces the role of VIPIX.

[pingo]

None of it's perfect, they're just ideas and if they don't seem right to you, I won't feel bad if you reject them.

Also, I'm quite happy to continue batting around ideas, if you feel it helps.

[15202guy]

pingo, thank you so much for your detailed and comments, thoughts, and advice. I want to carefully consider all of your suggestions before making any decisions, but in the interim, I wanted to reply with some comments and my current thoughts.

It is funny that you mention the Fidelity Total US Stock position. My original intent was to keep all taxable investments at Vanguard, since I generally prefer their offerings over Fidelity's. However, I use the core account of my Fidelity brokerage account as my checking account, and as "overdraft protection" (not that I have ever needed it) and so deposited checks clear immediately, I like to have some marginable securities in that Fidelity brokerage account. I used to have a bunch of stuff that shouldn't have been in there...short term bond funds, REIT fund (!), state-specific muni fund from before I moved, etc. that served this purpose nicely. When I was finally motivated by a combination of more investing discipline and the impending capital gains tax rate change, I sold all of those positions (with gains) to cleanup. However, that then left me with no marginable securities. So I said to myself, what investment from Fidelity am I happy with that I can buy and just leave in here "forever"? That led me to Total Stock Idx, and I figured I might as well go for the Advantage shares (at the time, $100K minimum with no announcement about the lowered cutoffs), so I put $120K in, figuring I had reasonable cushion against modest market declines so that the balance would stay above $100K so the shares would stay as Advantage class. So here I am today, with this position, which has a ~$6K capital gain. In addition to not wanting to sell for that reason, I do still want to have marginable assets at Fidelity, so I am tentatively planning to leave it. It was never my intent to add to it. If I have an "opportunity" to TLH, I may move some funds to Vanguard, but I am hoping I don't have that "opportunity" So, to put a punchline on this story, my entire taxable portfolio is at Vanguard, with this one exception...so I just have my spreadsheet setup to add the value of the Fidelity Total Stock position to the Vanguard position when I look at AA for rebalancing or new contributions. I think that this is a long-winded way of saying that yes, you're right, this arrangement is not ideal, but there is a method to the madness, and barring an alternative solution, I intend to leave it as is. I should note also that as time goes on and the Vanguard account increases much faster than the Fidelity account due to new contributions, the overall AA picture I see in my Vanguard account, without doing the mental adjustment of accounting for the Fidelity position, becomes more and more accurate.

I have been convinced to drop the Pimco bond fund. I am sure I will regret this emotionally, but it is "the right thing to do". This eliminates the concern about moving the acct to Vanguard to get the better ER, etc.

Your suggestion to keep the Total Bond in the old 401k is interesting. Previously on this thread, we discussed using this space for the fund that has the greatest ER difference from what I can get elsewhere...and that happens to be Total Intl (I save .08% on this fund vs equivalent Admiral shares). Over time, I was actually planning to convert this acct to all Total Intl, and move the bond positions into my Solo 401k, either using Vanguard ETFs or Fidelity index funds. With this info in mind, do you agree with this approach?

I had been planning to add the SCV position in my Solo 401k. Your idea to make the Roth exclusively SCV is interesting, and would increase simplicity. However, I am concerned that by putting all of my eggs in the SCV basket, I am putting my ending Roth balance at risk. Yes, the expected return of the SCV is highest and theoretically would result in the hgihest ending balance, but given the volatility of that asset class, I wanted to take a more diversified approach. I should also point out that if I go all SCV with the Roth, I get about a 20% SCV position, which seems to be about what most tilters would recommend. But over time, I could need to add an SCV position to the SOlo 401k anyways since those assets grow so much faster (with 10x greater annual contributions). Thoughts?

I noted that you suggested IJS for SCV. I started a thread on what fund to use for SCV tilt (see viewtopic.php?f=10&t=107834&newpost=1568178). I read a lot of info on the forum about the options and I had come to the conclusion that IWN was preferred, but when I actually posted about this people seem to prefer IJS and VBR. What specifically led you to recommend IJS?

Your end-game shows no TIPS...is your thought that I don't need them because of the I-Bonds (I assume so considering your note about replacing VIPIX)? I had been going for a 50/50 Total Bond/TIPS split...do you think that is too biased toward TIPS? I have also been reading a lot about Larry et al's concerns about Total Bond. I am not ready to abandon it completely, but was considering moving to a 33/33/33 split of Total Bond, Int Treasury, TIPS, or something similar (punchline being to split the Total Bond position to include a dedicated Treasury fund). Thoughts?

Again, I REALLY appreciate your thoughts...if nothing else, talking through things and having my current approach "challenged" makes me really think about why I'm doing what I'm doing and whether or not it is the best idea.

[pingo]

You've given me a lot more to think about. I thought it was supposed to be the other way around!

I will use your responses to see how they might affect my ideas for portfolio arrangement. For now, some responses and explanations:

So I said to myself, what investment from Fidelity am I happy with that I can buy and just leave in here "forever"? That led me to Total Stock Idx, and I figured I might as well go for the Advantage shares (at the time, $100K minimum with no announcement about the lowered cutoffs), so I put $120K in, figuring I had reasonable cushion against modest market declines so that the balance would stay above $100K so the shares would stay as Advantage class...but there is a method to the madness[.]

It seems you made the right decision. My impression was that there was a method (no madness) which led you to hold that fund at Fido when the rest of taxable is at VG. The goal of my suggestion wasn't to say, "why is this here?", rather it was to see how changing how we view that fund might aid simplification.

So...I just have my spreadsheet setup to add the value of the Fidelity Total Stock position to the Vanguard position when I look at AA for rebalancing or new contributions.

Right. And there is actually nothing wrong what you're doing. It's just that, for me, it seems that for some parts of the portfolio (like the Fido taxable Total Stock fund) you have no problem looking at how a single fund in one account relates to other funds in another account (viewing them as a whole), whereas in other aspects it seems like you feel the need to duplicate holdings within accounts so that the account itself (as opposed to the portfolio) is not subject to the idiosyncrasies of a single fund.

Since we don't have to hold Int'l and/or bonds to your Fidelity taxable account, and the fact that it is actually being viewed in light of a distant VG account, I tried to sell you on the idea of pretending/realizing that it might as well be apart of the other Fidelity group of funds in order to also simplify that group.

I should note also that as time goes on and the Vanguard account increases much faster than the Fidelity account due to new contributions, the overall AA picture I see in my Vanguard account, without doing the mental adjustment of accounting for the Fidelity position, becomes more and more accurate.

The same phenomenon basically occurs if it is grouped with the other Fidelity funds—another reason I made the "change".

I have been convinced to drop the Pimco bond fund. I am sure I will regret this emotionally, but it is "the right thing to do".

Was it something I said?

Some of the emotions of investing we should listen to. The tough part is the "Murphy's Law" of it. If you sell, it will perform tremendously well until you finally decide to get back in. If you keep it, it'll underperform. Random walks aside, that's how it always seems to play out after we make portfolio changes. You don't seem the type that would panic if things look really gloomy for Bill Gross, so I don't think you're attachment is harmful. My statement about Pimco increasing your costs was to try to keep in mind the relative impact of using the other sweet funds in the Old 401k. That doesn't automatically mean "bad" or "inferior".

I suppose you might as well nix Pimco if your plan is to fill that space completely with VG Total Int'l because of your preference for equity returns over bond returns/stability.

Your suggestion to keep the Total Bond in the old 401k is interesting. Previously on this thread, we discussed using this space for the fund that has the greatest ER difference from what I can get elsewhere...and that happens to be Total Intl (I save .08% on this fund vs equivalent Admiral shares). Over time, I was actually planning to convert this acct to all Total Intl, and move the bond positions into my Solo 401k, either using Vanguard ETFs or Fidelity index funds. With this info in mind, do you agree with this approach?

Yes. With Pimco out of the way, that was my next thought. It's the Pimco ER that dictated the how I directed the Old 401k, for the most part. In the debate between filling that entire space with Total Bond or Total Int'l, do what is your preference.

I think some might choose Total Bond on a few principles: 1. It has the absolute lowest ER (.05%), and for some, that is what you do: pick the fund with the lowest ER. 2. Bonds by nature are "income" funds, and a 401k is taxed as income anyway, so there is no disadvantage to holding bonds there. 3. One saves more here by investing in Total Bond (vs VG, anyway), than by investing in TIPS, and your I-Bonds are a good TIPS substitute, anyway. 4. Costs are considered to have a greater impact on bond funds than equity funds.

But you are right that filling the Old 401k with that Total Int'l saves you a wee more. I'm also willing to bet that you'd also rather have more of your equities in VG Total Int'l fund than Fidelities Global Ex-U.S. elsewhere, whereas I didn't give preference to one over the other.

I had been planning to add the SCV position in my Solo 401k. Your idea to make the Roth exclusively SCV is interesting, and would increase simplicity. However, I am concerned that by putting all of my eggs in the SCV basket, I am putting my ending Roth balance at risk. Yes, the expected return of the SCV is highest and theoretically would result in the hgihest ending balance, but given the volatility of that asset class, I wanted to take a more diversified approach. I should also point out that if I go all SCV with the Roth, I get about a 20% SCV position, which seems to be about what most tilters would recommend. But over time, I could need to add an SCV position to the SOlo 401k anyways since those assets grow so much faster (with 10x greater annual contributions). Thoughts?

I did hope that I could entice you to simplify the Roth by holding a single fund there, by using all that "highest expected returns" and "maximizing the end balance" talk. At least now I have a better idea of what you've been thinking! I guess it took my suggestion to get it out of you.

I should also point out that if I go all SCV with the Roth, I get about a 20% SCV position, which seems to be about what most tilters would recommend.

Well...your original asset list shows the Roth as 17% of the $750k portfolio, so less in my $880k version. Even if you now see that it is 20%, it's a 20% position in the smaller of two portfolios. Other tilters would perceive it as being as little as 9% of your equities, or 7% of your entire portfolio (meh). They might wonder what value you hope to achieve, if anything, with such a small tilt.

But over time, I could need to add an SCV position to the SOlo 401k anyways since those assets grow so much faster (with 10x greater annual contributions). Thoughts?

You are correct: $5500/yr to SCV in the Roth would represent 12% of all of that portfolio's contributions to equity. I chose to fill the Roth with SCV and leave it that way (I wasn't sure you were convinced anyway, which is why I also said "or Total Stock"). Either way, you end up rebalancing all Fido funds in the Solo 401k.

I noted that you suggested IJS for SCV. I started a thread on what fund to use for SCV tilt (see viewtopic.php?f=10&t=107834&newpost=1568178). I read a lot of info on the forum about the options and I had come to the conclusion that IWN was preferred, but when I actually posted about this people seem to prefer IJS and VBR. What specifically led you to recommend IJS?

I'm regurgitating what I've been seeing on this board. (I don't SV tilt...yet.) When I've read up on it, it has come down to IJS and IWN, but some do prefer VBR. Different strokes for different folks. What I've been taking away from it all (which may not be accurate), is that some people prefer IJS if it is to be used in taxable (it lacks REITS) or if they prefer to be more specific with their REIT allocation in their portfolio's by using a separate fund. The latter reason is one of the (I'm sure) many reasons Rick Ferri uses IJS. I think I've seen it argued that the S&P has had a superior SV tracking methodology, which IJS tracks. But I've also seen strong support of IWN as perfectly valid. 6 of one half a dozen of the other. Some prefer VBR because of expenses (ER and commissions). I know of one tilter who doesn't care because she likes to use SCV's volatility to harvest losses in a taxable account. She has her preferences, but has at least 3 SCV funds/ETFs because she harvest losses and then the fund(s) she moved into shot up in value. She perceives the tax-loss benefits will be at least as important in her situation as the small and value factors.

Your end-game shows no TIPS...is your thought that I don't need them because of the I-Bonds (I assume so considering your note about replacing VIPIX)? I had been going for a 50/50 Total Bond/TIPS split...do you think that is too biased toward TIPS? I have also been reading a lot about Larry et al's concerns about Total Bond. I am not ready to abandon it completely, but was considering moving to a 33/33/33 split of Total Bond, Int Treasury, TIPS, or something similar (punchline being to split the Total Bond position to include a dedicated Treasury fund). Thoughts?

Yeah. At some point I'm running through so many scenarios and possibilities, that I have to say "let's get here, first". That why I called it a mid-to-long term end game.

Let's say you actually ended up with the second portfolio idea I posited. You don't have TIPS, but you have a nice stash of I-Bonds, which to me are equivalent if not better for the time being. I figured it's enough for now to be building them up at the U.S. Treasury (zero costs, too), whereas I don't know of the decent TIPS option through Fidelity. I expect you don't want to hold them in taxable, regardless.

Once you retire, holding TIPS may make more sense. TIPS have yet to be essential, but they can be potentially beneficial. Once you're retired, you have the option of moving whatever tax-advantaged accounts you want over to Vanguard for their TIPS options, if preferred. Even the Solo 401k can be rolled over into a Rollover TIRA so it can access Admiral funds. Regardless, you can get your TIPS then. For me, that was what the portfolio(s) dictated, given my search for simplicity and for taking care of the (more important) 80% equity part of the portfolio.

[15202guy]

As a meta-comment about our ongoing discussion, one of the themes that keeps coming up is simplicity across accounts, and simplifying holdings by eliminating redundancy. Maybe this explanation will shed some light on how I view things, and hence why I don't see them as particularly complex or cumbersome to manage. Basically, I see money with 3 separate tax treatments: taxable, 401k, and Roth. Because of uncertainty regarding taxes in the future, I basically manage each of those three portfolios in a standalone manner. However, I'd like to "juice" the Roth returns, and it's a relatively small account anyways, so I don't include bonds there but compensate in the other accounts. Then, the taxable and 401k accounts are setup to meet my AA. When I talk about adding a tilt only to the 401k, I say that because I am worried about tax consequences of having a less tax efficient fund in taxable...I could be exaggerating that impact, I need to think about it some more. So hopefully this way that I see "3 accounts" (regardless of how they are split between brokerage houses or individual 401ks) provides context for readers.

Pingo, thanks for your continued thoughts. Replying rather quickly to your latest post...

Regarding dropping PIMCO, it was a combination of what you've said, a recent thread on the fund that I read on here, and my knowledge deep down inside that I am not really getting the free lunch with PIMCO that I sometimes think that I am. You've simply helped push me over the cliff to do the right thing. I may even still change my mind before I actually implement the portfolio change...so don't feel bad!

I am not sure I am following your logic about holding Total Bond in the old 401k. I'm going to hold a Total Bond fund in one of the 401ks, and I consider Fidelity's offering to be equivalent to Vanguard's for my purposes (I am happy to hear counterpoint). Given that , it seems that I should hold the Total Bond in the new 401k, since I will save more on ER by holding the Total Intl in the old 401k. Oh, you then go on to acknowledge this...ok, we are on the same page. And yes you're right, the more I can have in funds and avoid ETFs, the better, and yes I also prefer the Vanguard Total Intl over Fidelity's comparable offering.

Your comments about the magnitude of tilt are reasonable, and certainly in line with much of what I read on here. So maybe I would go with a higher allocation to SCV. But I ask the question, if one subscribes to the SCV tilt point of view, would it hurt to have a smaller than "recommended" allocation? I understand it might not have much of an impact, but it should still have a positive impact, and I view the added hassle of including a single additional fund or ETF to be negligible...although I gather that some are really into the idea of absolutely minimizing the number of positions they have. fwiw, I would be more likely to go all Total Stock in the Roth than all SCV...although again, I see the hassle of maintaining intl there in addition to domestic as near-0.

Your summary of VBR/IJS/IWN basically matches what I've picked up from reading on here and external research. I think I like the additional diversity of IWN, in addition to its lower average market cap and greater "valueyness" so I am leaning in that direction for when I do make the move.

I need to research it more, but iirc the Fidelity TIPS options are on par with Vanguard. But you are right, since I am not planning to sell the I-Bonds early, I should consider those as part of my inflation protected holdings and stop ignoring them. I may still need a TIPS fund, but I need to duly consider the I-Bonds when looking at my portfolio. After all, if I consider that a tax advantaged account, it represents ~15% of my annual contributions to those accounts.

And yes, as soon as I'm done with the Solo 401k, I anticipate rolling it over to Vanguard!

[pingo]

Sorry it took so long for what turned out to be such brief responses, but as it turns out: it's all I've got!

As a meta-comment about our ongoing discussion, one of the themes that keeps coming up is simplicity across accounts, and simplifying holdings by eliminating redundancy. Maybe this explanation will shed some light on how I view things, and hence why I don't see them as particularly complex or cumbersome to manage. Basically, I see money with 3 separate tax treatments: taxable, 401k, and Roth. Because of uncertainty regarding taxes in the future, I basically manage each of those three portfolios in a standalone manner. However, I'd like to "juice" the Roth returns, and it's a relatively small account anyways, so I don't include bonds there but compensate in the other accounts. Then, the taxable and 401k accounts are setup to meet my AA. When I talk about adding a tilt only to the 401k, I say that because I am worried about tax consequences of having a less tax efficient fund in taxable...I could be exaggerating that impact, I need to think about it some more. So hopefully this way that I see "3 accounts" (regardless of how they are split between brokerage houses or individual 401ks) provides context for readers.

I understand. There's nothing wrong with any of it. It becomes a question of preferences whereupon there are many roads, and all are reasonable. (But hey, I wanted a challenge!)

But I ask the question, if one subscribes to the SCV tilt point of view, would it hurt to have a smaller than "recommended" allocation? I understand it might not have much of an impact, but it should still have a positive impact, and I view the added hassle of including a single additional fund or ETF to be negligible...although I gather that some are really into the idea of absolutely minimizing the number of positions they have. fwiw, I would be more likely to go all Total Stock in the Roth than all SCV...although again, I see the hassle of maintaining intl there in addition to domestic as near-0.

I see nothing wrong with doing it that way, then. Shoot. More power to you, my friend!