short term goal, please help planning my portfolio.

[ren20]

Hi,

Up until this point, I only invested in 401k, vanguard roth, I am 29yr old, single. I hope I can learn more about investment from the community here.

here's my break down.
Have emerg. fund 6 months.
credit card Debt: $2000( will pay off very soon)
student loan: $6134@2.3%
tax filing status: single
tax rate: fed 28% State 6.37%
state of residence: nj
age: 29

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: not sure.

Current retirement assets
low 6 figures.

Taxable:
Cash - 39% (down payment)

401k
42% JP Morgan LifePath Index 2050 NL-G 0.12%
company match 50%

Roth Ira at Vanguard
11% Target Retirement 2050 VFIFX 0.19%

[b]Rollover Ira at Vanguard [b] (updated 1/30/2012)
5% Total stock market index adminral shares vtsax
3% total international stock index vgtsx
2% total bond market index vbmfx

New annual Contributions
$17500 + 7500(company) 401k
$5500 IRA
$30000 (short term goal, down payment)
$5500 - 7500 taxable

Questions:
1. roll the old high cost 401k over to current employer plan. Yes? I wish i knew better. I just found their expense ratio as im typing today. (already rolled over)
2. Any more tax-advantaged account I can add to my portfolio?
3. My short term goal is to buy a house, So I am actively putting money in my savings account. after maxing out my 401k and ira. Is there a better way to do this to reach my goal sooner? such as opening up a general account with vanguard mutual fund hoping to grow my down payment quicker. bad idea? good idea?
4. I will be making more this year. I am not a big spender. I suppose my annual expense won't increase much from 2012. any way i can utilize the extra income? I do plan to put more money into my down payment savings.

update:
Rolled my old 401k to vanguard IRA. Fund updated. Also added fund list of my current 401k. please scroll down.

Thank you

[mlewis]

1. I would definitely roll over the 401(k) but you could either roll it over to your current employer (if they allow it) or into an IRA. I'm not exactly sure what fund company offers that lifepath fund you have in your 401(k), but with a low expense ratio I assume it's an index fund and maybe that's a good option. Also maybe best just to keep things simple. Otherwise you could roll it into an IRA at Vanguard for instance and have your pick of funds as you like it.

2. No, I don't really think so. Not anything that's worth it.

3. Don't reach for yield. Keep this money in something very safe, which at this point means a very low return. Something like a money market account or a CD could be a good idea just to give you a little interest on it, as opposed to straight cash.

4. If it were me, I'd just save more for the house. Put down a big down payment then be happy you have a cheap mortgage.

malcolm

[grok87]

Hi,

Up until this point, I only invested in 401k, vanguard roth, I am 29yr old, single. I hope I can learn more about investment from the community here.

here's my break down.
Have emerg. fund 6 months.
credit card Debt: $2800 ( will pay off very soon)
student loan: $6134@2.3%
tax filing status: single
tax rate: fed 28% State 6.37%
state of residence: nj
age: 29

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: not sure.

Current retirement assets
low 6 figures.

Taxable:
Cash - 39% (down payment)

401k (previous employer)
2.5% SSgA Cash Series U.S. Government Fund - Class L (0.75%)
4.5% Janus Balanced Fund - Class s (JABRX) (1.09%)
2.6% Janus Forty Fund - Class S (JARTX) (1.18%)
1.9% Goldman Sachs Structured International Equity Fund - Class A (GCIAX) (1.25 %)
1.3% Franklin Mutual Global Discovery Fund - Class R (TEDRX) (1.51%)

401k (current employer)
42% JP Morgan LifePath Index 2050 NL-G 0.12%
company match 50%

Roth Ria at Vanguard
11% Target Retirement 2050 VFIFX 0.19%

New annual Contributions
$17500 401k (50% company match)
$5000 IRA
$30000 (short term goal, down payment)
$5000 - 7500 taxable

Questions:
1. roll the old high cost 401k over to current employer plan. Yes? I wish i knew better. I just found their expense ratio as im typing today.
2. Any more tax-advantaged account I can add to my portfolio?
3. My short term goal is to buy a house, So I am actively putting money in my savings account. after maxing out my 401k and ira. Is there a better way to do this to reach my goal sooner? such as opening up a general account with vanguard mutual fund hoping to grow my down payment quicker. bad idea? good idea?
4. I will be making more this year. I am not a big spender. I suppose my annual expense won't increase much from 2012. any way i can utilize the extra income? I do plan to put more money into my down payment savings.

update:
Do funds always have a ticker? I can't find two the tickers for two of my funds.

Thank you

Hello ren and welcome to the forum.
1. I would roll the old 401k into an IRA at Vanguard. More options and cheaper probably.
2. You might consider ibonds. You can buy 10k per year. But you can't withdraw for a year. That could be a disadvantage if you find a house you want to buy within 12 months.
3. Re saving for short term goals, David Swensen says (in Unconventional Success) Money you need within 2 years should be 100% in cash or cash equivalents. Money you don't need for 10 years can be 100% invested in a long term portfolio (in your case you have targeted 85% stocks, 15% bonds). for years in between you interpolate. You might consider credit union CDs to get a bit more yield. Just make sure the fine print says you have the absolute right to withdraw early at a slight penalty- i.e. they can't refuse your early withdrawal request. Pen Fed's 7 year CD yields 2%. FDIC insured savings accounts are yielding 0.8%.
4. I'd put any extra savings you have toward your house account.

re your question on tickers, what are the funds?
cheers,

[ren20]

Thank you for the input.

I am also wondering if it's really a good time to buy a house? i understand the interest rate is low. This is gonna be the biggest purchase of my life. It's exciting also intimidating. At this rate, I will probably be able to save up enough by the end of the year.

I can't find tickers for these two funds
P Morgan LifePath Index 2050 NL-G
SSgA Cash Series U.S. Government Fund - Class L

SSgA is in my old 401k plan. I will roll them into IRA. Rolling them into traditional IRA wont require me to pay tax, correct?

[Grt2bOutdoors]

"More money has been lost reaching for yield than at the point of a gun" - Warren Buffett

Put your house savings in a tax-free money market or an FDIC insured savings account. The lower the mortgage the better. How secure is your employment? If unsecure and you buy a home - 12 months expenses in e-fund, if secure - 6 months expenses in e-fund. The e-fund is above and beyond your house downpayment. Avoid credit card debt, use it at your financial peril.

[grok87]

Thank you for the input.

I am also wondering if it's really a good time to buy a house? i understand the interest rate is low. This is gonna be the biggest purchase of my life. It's exciting also intimidating. At this rate, I will probably be able to save up enough by the end of the year.

I can't find tickers for these two funds
P Morgan LifePath Index 2050 NL-G
SSgA Cash Series U.S. Government Fund - Class L

SSgA is in my old 401k plan. I will roll them into IRA. Rolling them into traditional IRA wont require me to pay tax, correct?

correct.
re buying a house, nobody knows. one index that tracks house prices, the case-shiller index, has started trending upward again. will it last? beats me...
i couldn't find those funds either. the lifepath index series is a blackrock product- try their website. Jp morgan is probably licensing it and rebranding it.
cheers,

[ren20]

Just rolled the old 401k over to vanguard. Their Rep was very helpful, guided me thru every step.

That will simplify things up a bit for me.

I have total bond index 20%, total stock market 50%, and total international index 30% in the rollover IRA. Does this conflict my roth ira? I have a target retirement 2050 fund in the roth.

[grok87]

Just rolled the old 401k over to vanguard. Their Rep was very helpful, guided me thru every step.

That will simplify things up a bit for me.

I have total bond index 20%, total stock market 50%, and total international index 30% in the rollover IRA. Does this conflict my roth ira? I have a target retirement 2050 fun in the roth.

Well Target 2050 is 90/10 stocks/bonds so I think you're fine.

[ren20]

I've also updated my fund list for my current 401k. Could you guys also give me suggestion on how I am doing there? I simply picked the life path 2050 fund when I started. Also updated original post.

Vanguard Prime Money Market-Inst ___VMRXX____________0.09
Galliard Stable Value Managed Income Fund_______________________0.54
PIMCO Total Return-Inst ___PTTRX____________0.46
Vanguard Total Bond Market Index-Inst ___VBTIX_____________0.07
Dodge & Cox Balanced ___ DODBX____________0.53
Dodge & Cox Stock ___ DODGX____________0.52
Vanguard Institutional Index ___ VINIX_____________0.04
Harbor Capital Appreciation-Inst ___ HACAX___________0.68
Fidelity Contrafund ___ FCNTX___________0.81
Vanguard Mid-Cap Index-Inst ___ VMCIX___________0.08
Royce Total Return-Inst ___ RTRIX___________1.03
Vanguard Small Cap Index-Inst ___ VSCIX___________0.14
Vanguard Explorer-Admiral ___ VEXRX___________0.34
Harbor International-Inst ___ HAINX___________0.79
Vanguard Developed Markets Index-Inst ___ VIDMX___________0.08
Aberdeen Emerging Markets-Inst ___ ABEMX__________1.03

all life path index has 0.12 expensive ratio.

LifePath Index Retirement NL-G
LifePath Index 2015 NL-G
LifePath Index 2020 NL-G
LifePath Index 2025 NL-G
LifePath Index 2030 NL-G
LifePath Index 2035 NL-G
LifePath Index 2040 NL-G
Lifepath Index 2045 NL-G
LifePath Index 2050 NL-G
LifePath Index 2055 NL-G

[Grt2bOutdoors]

You have some very nice choices especially with those Vanguard funds.
If you aren't the type to monitor the portfolio and just want to set it and forget it then any of the Lifepath funds calibrated to your risk tolerance levels would be fine. If the balance of your 401k plan becomes substantial enough that you want to save 2 or 3 bps, then I'd say slice n dice. For pennies now, I'd just go with the Lifepath fund - keep it simple, Blackrock probably does a fine job.

[ren20]

Thank you. They aren't nice if the owner couldn't unitize them.

I've began actively monitoring my portfolio not long ago. I felt like I made a big mistake with my old 401k. I left them as they were for too long, 3 years.

[pingo]

You have some very nice choices especially with those Vanguard funds.
If you aren't the type to monitor the portfolio and just want to set it and forget it then any of the Lifepath funds calibrated to your risk tolerance levels would be fine. If the balance of your 401k plan becomes substantial enough that you want to save 2 or 3 bps, then I'd say slice n dice. For pennies now, I'd just go with the Lifepath fund - keep it simple, Blackrock probably does a fine job.

+1

Do you think you could provide a link to the fund data sheets for those Lifepath Index funds? (Doing so might reveal who your employer is, so don't if it that would make you uncomfortable.)

Many employers versions with the BTC or BlackRock label in front of them are actually using the same index funds that TSP uses, with the exception being that the international assets cover everywhere including Emerging Markets and International Small caps. The glide path is one of my favorites, too, because it's pretty straightforward and simple.

From what I've seen they are every bit as good a Vanguard's target funds.

[b]Rollover Ria at Vanguard [b] (updated 1/30/2012)
5% Total stock market index adminral shares vtsax
3% total international stock index vgtsx
2% total bond market index vbmfx

I'm a little late to the scene and somewhat confused by this. If this is at Vanguard and you're using target/lifecycle funds elsewhere, you should do the same in this account. Vanguards target funds use Total Stock, Total Int'l and Total Bond. The only difference is simplicity and lack of Admiral expense ratios.

I'd probably be in favor of moving this to your employer to take advantage of those juicy LifePath expense ratios, but I'd first want to be sure they include Emerging and Small Caps in their International holdings.

[ren20]

Pingo,

Are you suggesting I should keep all in target date retirement fund? That's one of the area that's also confusing me. I have target date in my Roth, Then 3 funds in my rollover ira. Do I treat them as two separate accounts? I guess my question is, since I have 3 accounts for retirement fund. How should I look at them? and manage them? I read and read again the boglehead guide. but I am actually doing this, I am still feeling clueless.

[pingo]

I read and read again the boglehead guide. but I am actually doing this, I am still feeling clueless.

It'll come with time. I read a few books including The Boglehead's Guide and it simply didn't click until I found this website and saw posters in action.

Are you suggesting I should keep all in target date retirement fund?

You are in the enviable situation of being able to use a single target fund in each account. As long as you select target funds that work with your willingness, need and tolerance for risk, you can forget about them. Target funds do the tough work for you, so your portfolio could look as simple as...



401k
LifePath Index Fund 0.12%

Vanguard Roth
Target Retirement Fund 0.18%

Vanguard Rollover IRA
Target Retirement Fund 0.18%

Taxable:
Cash - 39% (down payment) <--Separate goal. Not investible.

That's one of the area that's also confusing me. I have target date in my Roth, Then 3 funds in my rollover ira. Do I treat them as two separate accounts? I guess my question is, since I have 3 accounts for retirement fund. How should I look at them? and manage them?

It is usually easier to manage a portfolio of only target funds or only asset class funds, rather than a portfolio with asset classes funds mixed with target funds. You don't appear to be an exception. Besides, what would be the point of a Target Fund in one account (composed of Total Stock, Total International and Total Bond) while holding Total Stock, Total International and Total Bond individually in another account?

Even with the other great options in your 401k, you'd be hard-pressed to organize a portfolio of asset class funds with a lower weighted expense ratio than using all target funds, since 2/3 of investible assets are in your 401k and 2/3 or more of contributions land in that account as well. The LifePath Index funds can be unbeatably low cost.

If your 401k target funds weren't so good, I'd probably tell you to use the best options in the 401k and complete your portfolio elsewhere (treating all accounts as if it were one portfolio, instead of duplicating funds/assets in each account).

Now, I asked if you could do something. You haven't responded, so you might have missed it. I'll repeat the question and add a few more:

1. Could you provide a link to at least one fund data sheet for those Lifepath Index funds? (More than one is good, too. Doing so might reveal who your employer is, so don't if it that would make you uncomfortable.)

2. Who is your plan provider? Fidelity? Schwab? Other? Is it possible that the plan provider is JPMorgan and that's why you called the funds JPMorgan LifePath Index Funds? (I suppose BlackRock could have licensed them out to JPM for your plan.)

3. After you buy a house, you'll have a lot of after-tax money to invest. Can you find out if your 401k allows after-tax employee contributions as well as the ability to regularly roll those amounts out of the plan (and, thus, into your Roth account) ? (Please read the link.)

4. Given your tax bracket and new increase in income, do you expect to phase out of Roth IRA eligibilty anytime in the future? (Having a Rollover IRA will affect your ability to make Backdoor Roth contributions if you can't make them directly. It doesn't mean you should move it to the new 401k right now, but you want to be sure you can do so, in case you need to in the future.)

5. Please edit the new contributions portion of your inital post to include the dollar amount of your employer match with the dollar amount of your personal contribution (e.g. $17,500 + $x,xxx = annual 401k contribution).

[ren20]

answers to your questions

1. The link reveals my employer. But I can host the pdf else where. Will update when it's done.
2. Provider is JPmorgan. tho the data sheet says blackrock in the header.
3. I couldn't find the related information on the provider's website. will call to find out. it would be nice to have the option, isn't it?
4. I believe I've already hit the threshold for 2012. Probably right on the edge . will find out when the w2 comes in. tho wasn't so clear on what happen after if I reach the threshold, I still contributed $5000 to the roth in 2012.
5. done.

Now, I have another questions,

I am about 25k from my goal for the down payment. With my current rate of saving, I should reach my goal by the end of the year safely. I will receive my bonus this month. about 10K. Initially, I elected to contribute all of it to my 2013 401k to avoid the heavy tax. I can still change the election of my bonus money. If I am not mistaken, bonus is taxed at 45%. What would you do with the bonus money? If I contribute all of it. Starting from May/June, I will have extra 1400 before tax each month.

Please excuse my lack of knowledge on the subject. Thanks again for the help.

Please excuse my lack of knowledge on the subject. Thanks again for the help.

[pingo]

Please excuse my lack of knowledge on the subject. Thanks again for the help.

You're more than welcome. We've all been there...well I'm still there in more ways than one, but the forum gives us all the chance to share what we're learning.

After you buy a house, you'll have a lot of after-tax money to invest. Can you find out if your 401k allows after-tax employee contributions as well as the ability to regularly roll those amounts out of the plan (and, thus, into your Roth account) ? (Please read the link.)

I couldn't find the related information on the provider's website. will call to find out. it would be nice to have the option, isn't it?

Search the site for your 401k Plan Document, which would probably be available for download as a PDF file. You can also call the provider to have them provide it or show you where to obtain it. You can ask about making after-tax contibutions, but I think I'd want to see about it in writing regardless, in case there is a discrepancy in what they say versus what you have in the document, e.g. they say you can't when the doc says you can.

Not everyone has the option of after-tax contribution and in-service withdrawals of those contributions (which is what makes the option worthwhile), but we want to be sure since it might allow you to house all retirement savings in tax-advantaged accounts while dramatically expanding the size of your Roth space. Doing so may also have the advantage of allowing you to continue with the simplicity of using target funds because you could save in the 401k instead of taxable (for the most part, and there may be a little workaround), whereas placing future investments in a taxable account will necessitate the use (later) of individual asset class funds instead of target funds.

Given your tax bracket and new increase in income, do you expect to phase out of Roth IRA eligibilty anytime in the future? (Having a Rollover IRA will affect your ability to make Backdoor Roth contributions if you can't make them directly. It doesn't mean you should move it to the new 401k right now, but you want to be sure you can do so, in case you need to in the future.)

I believe I've already hit the threshold for 2012. Probably right on the edge . will find out when the w2 comes in. tho wasn't so clear on what happen after if I reach the threshold, I still contributed $5000 to the roth in 2012.

I'm not exactly sure of what you'd do, but it sounds like you may need to rollover the old 401k to the new one. You would then "recharacterize" the 2012 contributions (or a portion thereof) to be considered Traditional IRA contributions, but they would be non-deductible. Anyone, regardless of income, can make non-deductible IRA contributions. A short time thereafter, you ask Vanguard to convert your non-deductible Traditional IRA assets into Roth assets. The ability to do this exists because the gov't wants additional revenue so badly it has allowed everybody to convert deductible IRAs into Roth IRAs. The difference is that you wouldn't have a lot of taxes to pay on something like that, so long as you don't have other Traditional/Rollover IRA assets that would be subject to the pro-rata rule, which brings us back to the need to rollover the Rollover IRA to your employer plan.

As I said, this is where is gets iffy for me due to lack of experience. I don't know what (if any) forms you have to prepare or claims you have to make with the IRS. (Maybe none.) I hear that's it's not complicated at all. You may need to speak with a tax professional. Another idea would be to start a new topic asking for advice from those who've had to undo a Roth contribution or portion thereof.

I am about 25k from my goal for the down payment. With my current rate of saving, I should reach my goal by the end of the year safely. I will receive my bonus this month. about 10K. Initially, I elected to contribute all of it to my 2013 401k to avoid the heavy tax. I can still change the election of my bonus money. If I am not mistaken, bonus is taxed at 45%. What would you do with the bonus money? If I contribute all of it. Starting from May/June, I will have extra 1400 before tax each month.

Just shootin' from the hip here: I suppose I'd contribute the bonus to the 401k and expect to add even more to your house and emergency savings for the moment. What I mean is that by May/June your taxes will be squared away; you'll know if the extra savings will have to go into a regular taxable investment account or if it can be temporarily housed in a 401k after-tax account so it can be moved into your Roth within a year's time; you'll be versed in what to do to make Backdoor Roth contributions, etc. At that point, i-Bonds might be the answer. Or, maybe you get to purchase the house sooner. Perhaps even another portfolio planning thread will be in order since enough will have changed since you started this one.

[pingo]

Provider is JPmorgan. tho the data sheet says blackrock in the header.

BTW this is a very good sign. It confirms that your 401k provider is JPMorgan and the fund is a BlackRock LifePath Index fund. I'd still like to see the data sheet, if you're able to provide it.

Also, here is a current thread where thoughts are being bounced around about correcting a Roth contributions issue. It may offer further insight for your situation. The OP there has a different situation, but I link to the first post that addresses correcting a problem with Roth contributions.

[pingo]

I am about 25k from my goal for the down payment. With my current rate of saving, I should reach my goal by the end of the year safely. I will receive my bonus this month. about 10K. Initially, I elected to contribute all of it to my 2013 401k to avoid the heavy tax. I can still change the election of my bonus money. If I am not mistaken, bonus is taxed at 45%. What would you do with the bonus money? If I contribute all of it. Starting from May/June, I will have extra 1400 before tax each month.

Just shootin' from the hip here: I suppose I'd contribute the bonus to the 401k and expect to add even more to your house and emergency savings for the moment. [...]

I haven't heard from you in a while and it suddenly occured to me that "shootin' from the hip" may have missed an important target: your employer match.

It's possible that receiving your bonus in the 401k could reduce the amount of employer match you receive, that is if you reach the max $17,500 personal contribution prior to year-end. In such a situation, the employer match becomes $0 per pay period thereafter because you can't contribute any more until the next year. Apparently, there are some plans that have a "true up" provision" to avoid the problem. Unfortunately, no one else piped up with suggestions, so my error went unchecked.

I suppose the choice between receiving an inadequate match or a high taxation of the bonus might make it difficult to figure out which is worse, but I thought I should say something ASAP.