Portfolio Advice: Getting on track then sticking to it

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Portfolio Advice: Getting on track then sticking to it

Postby Tiger850 » Sat Feb 02, 2013 3:35 pm

Hi everyone, I've been lurking on this forum for a while ever since reading the Bogleheads' Guide to Investing, and I've been blown away at the amount of knowledge and willingness to share advice. I want to put what I've read into practice, but my current portfolio is all over the place and I need some guidance of the best way to reach my desired allocations... I believe I'm currently too heavy on stocks, especially large cap stocks, and the funds I'm in have way too high expense ratios. I also don't have high enough bonds and my international allocation is probably too low.

Emergency funds: Four Months
Debt:
    $12,000 car loan @ 1%
    $130,000 @ 3%, 14 years left.
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal, 6% State
State of Residence: GA
Age: 28
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 25% of stocks

Portfolio Size: Mid Five Figures

Current retirement assets

Taxable - 15% Total Portfolio
9% Cash
4% stock AT&T (ATT)
2%stock Northeast Utilities (NU)
I inherited these stocks 20 years ago, plan to give to charity this year instead of cash which I can use for investing, so you may consider this 15% cash.

His 401k - 34% Roth / 66% Pre-tax | 57% of total portfolio
18% Spartan 500 Index (FXSIX) 0.05%
14% MSIF MID CAP GRTH I (MPEGX ) 0.7%
14%  MSIF GROWTH I (MSEQX) 0.71%
8%  FID REAL ESTATE INVS (FRESX ) 0.84% (I'd like to keep RE as a small portion of my portfolio)
3%  FID FREEDOM K 2050 (FFKBX) 0.64%

Company match: 100% of 4%, 1.5% Direct contribution, fully vested (All Pre-Tax)

His Roth IRA at Fidelity - 11% of total portfolio
5% Royce Value Plus Svc (RYVPX) 1.45%
7% American Funds EuroPacific Gr A (AEPGX) 0.84%

Her Traditional 401k at Hewitt Associates - 16% of total portfolio,
No tickers, but these funds are managed by BlackRock as a lifecycle 2050 fund

7% Large Cap Core Stock Index Fund - tracks s&p 500 0.08%
2% Mid Cap Core Stock Index Fund - tracks s&p midcap 400 0.09%
1% Small Cap Core Stock Index Fund - Tracks russell 2000 0.09%
5% International Stock Index Fund - Tracks Morgan Stanley Capital International (MSCI) All Country World 0.16%
1% Core Bond Index Fund - tracks: Barclays Capital Aggregate Bond Index 0.11%

Company match: 100% of 10%, 20% vesting per year (5 years to vest 100%). Realistically will stay for 3-4 years.

Total portfolio Tax Status:
15% Taxable
54% Pre-tax
31% Roth

------------------------------------------------
Contributions

New annual Contributions
$9,000 his 401k ($5,000 direct (Roth) / $4,000 employer (Pretax) ,vested 100%) 
$6,400 her 401k ( $3,200 direct, $3,200 employer, vested 40%)
$?? his Roth IRA / Traditional IRA
$?? her Roth IRA / Traditional IRA
$?? taxable
$2,600 HSA(Treating this like health IRA, don't plan to withdrawal)

Sum of ?? = $5,000 or more, see my questions below

Available funds 

Funds available in his 401(k)
Large-Cap
FID EQUITY INCOME K (FEIKX) 0.53%
MSIF GROWTH I (MSEQX) 0.71%
SPTN 500 INDEX INST (FXSIX) 0.05%
Mid-Cap
FID LOW PRICED STK K (FLPKX) 0.76%
JPM MIDCAP VALUE IS (FLMVX) 1.02%
MSIF MID CAP GRTH I (MPEGX) 0.70%
Small Cap
RS PARTNERS Y (RSPYX) 1.21%
International
ABF INTL EQUITY INST (AAIEX) 0.71%
FID DIVERSIFD INTL K (FDIKX) 0.84%
MSIF EMERGING MKTS I (MGEMX) 1.49%
Specialty
FID REAL ESTATE INVS (FRESX) 0.84%
VE GLB HARD ASSETS A (GHAAX) 1.37%
Blended Fund Investments 
FID FREEDOM K 2050 (FFKBX) 0.39%
FID FREEDOM K INCOME (FFKAX) 0.39%
Bond Investments
FID MGD INC PORT n/a 0.71%
PIM TOTAL RT INST (PTTRX) 0.46%
SPTN US BOND IDX IS (FXSTX) 0.07%
FID RET GOVT MM (FGMXX) 0.42%

Funds available in her 401k (no tickers)
Large Cap Core Stock Index Fund - tracks s&p 500 0.08%
Mid Cap Core Stock Index Fund - tracks s&p midcap 400 0.09%
Small Cap Core Stock Index Fund - Tracks russell 2000 0.09%
International Stock Index Fund - Tracks Morgan Stanley Capital International (MSCI) All Country World 0.16%
Core Bond Index Fund - tracks: Barclays Capital Aggregate Bond Index 0.11%

Questions:
1.  How should I move around my funds to achieve my desired portfolio structure? I believe step one is to get out of the high expense funds in my Roth IRA, and use those funds to buy ETFs (through fidelity I have access to the iShares ETFs). I'm not near my current desired bond or international allocation, so is this the avenue I should take to get closer?

2. I've heard that having a Roth 401k is a great thing, so I haven't contributed to my Roth IRA since I got it. Unfortunately, my 401k doesn't have many low expense ratio options. I'm debating to keep accumulating cash savings and manually investing in my Fidelity Roth (or open up a Vanguard Roth); or since my wife has better options, should we increase her contribution?

3. We're saving around $1,800 a month right now (my wife's entire paycheck) and putting it into a savings accounts or towards yearly goals (last year was paying off loans, refinance, new car, vacation, and this year its HVAC & adding to the emergency fund in preparation for having a family in the next 3 years). Should we be saving less in cash and shoving more into Roth IRA type vehicles in case we never need to touch it? The impact of a child's expenses and the remote possibility of my wife deciding to be a stay at home mom make me feel like we should be stockpiling cash for the next 5 years rather than increasing retirement contributions.

Thanks for taking the time to read, and if possible reply! I enjoyed going through this exercise as I'd never looked at our portfolio as a whole like this. Hopefully once I get rebalanced to my plan, I'll always know exactly where my allocation is.

Andrew :sharebeer
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Re: Portfolio Advice: Getting on track then sticking to it

Postby linuxuser » Sat Feb 02, 2013 4:01 pm

For someone of your age 20% bonds is about right. 30% if you are more conservative.

For your 401K, I would keep the FXSIX and add SPTN US BOND IDX IS (FXSTX) and jettison everything else.
Your wife's 401K sounds okay.
Use your Roth IRA for funds you are missing.

Use Excel to get the percentages right.

Many Bogleheads use http://www.bogleheads.org/wiki/Lazy_Portfolios
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Re: Portfolio Advice: Getting on track then sticking to it

Postby steve roy » Sat Feb 02, 2013 5:18 pm

My 3.5 cents:

The Mrs. seems to have the most low-cost funds, so any fine tuning in your joint portfolio could be done on her side. You seem to have some expensive funds happening in the 401(k) and Roth. Me, I would hammer costs down using Spartan funds, switching out of the high-priced Fidelity funds in the Roth and use either the Spartan Fund selections or switch to Vanguard.

My opinion: Get to the asset allocation you want via the lowest cost funds. That could mean weighting your investments to the Spartan Fund(s) in your 401(k) and using different funds (maybe a different mutual fund family) in your Roth.

Questions: Have you checked your costs? Have you done a close analysis of your asset allocation?

'Twere me at age 28, I would have 30% bonds (half intermediate, have short-term) 70% stocks divided 40% international, 60% domestic. With the stock allocation, I would have 50% of it in small cap and small cap value.

The main point to remember: There is no ideal allocation, only good and (perhaps) worse allocations. You can only know the "ideal" in retrospect, and looking at returns in the rear-view mirror may or many not help you for the future. If you diversify and mitigate risk AND keep your costs down, any number of allocations will be fine. I believe that for most people, 60% stocks/40% bonds to age 45 is good; 50% stocks/50% bonds to age 65 is good; 60% bonds/40% stocks after age 65 is good.

Is some different allocation "better?" Maybe. But we'll only know it after the fact.
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Re: Portfolio Advice: Getting on track then sticking to it

Postby Duckie » Sun Feb 03, 2013 12:31 am

Tiger850, you want an AA of 90% stocks, 10% bonds (that's low, I'm going to up it to 20%), with 25% of stocks in international. That breaks down to 60% US stocks, 20% international stocks, and 20% bonds. Here is a possible retirement portfolio:

Taxable at Vanguard -- 15%
15
% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%)

His Roth/Traditional 401k -- 57%
37% (FXSIX) Spartan 500 Index Institutional Class (0.05%)
20% (FXSTX) Spartan U.S. Bond Index Institutional Class (0.07%)

Her Traditional 401k at Hewitt Associates -- 16%
5% Mid Cap Core Stock Index Fund (0.09%)
6% Small Cap Core Stock Index Fund (0.09%) <-- Roughly 80% large caps plus 20% mid/small caps makes up the total US stock market.
5% International Stock Index Fund (0.16%) <-- This has everything except small-caps.

His Roth IRA at Vanguard -- 12%
12% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.18%)

Her Roth IRA at Vanguard -- 0%
0
% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.24%)

My comments:
-- This has TISM in taxable to take advantage of the 
Foreign tax credit and at Vanguard because it's the most complete international fund on the market.
-- You wrote:
"Her Traditional 401k at Hewitt Associates - 16% of total portfolio
No tickers, but these funds are managed by BlackRock as a lifecycle 2050 fund"
Does this mean it is an actual 2050 Fund or are they separate funds which you can mix and match? The above assumes they are separate.
-- If you want REITs, use the Vanguard fund instead of the 401k fund. 0.24% is a lot better than 0.84%.

Your questions:
1. How should I move around my funds to achieve my desired portfolio structure? I believe step one is to get out of the high expense funds in my Roth IRA, and use those funds to buy ETFs (through fidelity I have access to the iShares ETFs). I'm not near my current desired bond or international allocation, so is this the avenue I should take to get closer?
-- Since assets in the tax-sheltered plans can be exchanged without tax consequences, just figure out what you want where and shift things. There's no reason to wait.

2. I've heard that having a Roth 401k is a great thing, so I haven't contributed to my Roth IRA since I got it. Unfortunately, my 401k doesn't have many low expense ratio options. I'm debating to keep accumulating cash savings and manually investing in my Fidelity Roth (or open up a Vanguard Roth); or since my wife has better options, should we increase her contribution?
-- I think you should move your Roth IRA to Vanguard and have your wife open one there also. With Fidelity you have to have at least $10K to get the decent Spartan index funds. With Vanguard it's only $3K.

-- As for Roth 401k versus Traditional 401k, tfb who posts here has two articles that may be useful:
The Case Against Roth 401(k) and Roth 401(k) for People Who Contribute the Max.

-- Your wife's plan has great options. She should contribute more to it. If that causes a financial pinch, contribute less to yours.


3. We're saving around $1,800 a month right now (my wife's entire paycheck) and putting it into a savings accounts or towards yearly goals (last year was paying off loans, refinance, new car, vacation, and this year its HVAC & adding to the emergency fund in preparation for having a family in the next 3 years). Should we be saving less in cash and shoving more into Roth IRA type vehicles in case we never need to touch it? The impact of a child's expenses and the remote possibility of my wife deciding to be a stay at home mom make me feel like we should be stockpiling cash for the next 5 years rather than increasing retirement contributions.
-- Once your emergency fund gets to 9 to 12 months' expenses and you have a decent short-term needs fund, the rest should go for retirement. And Roth IRA contributions can be withdrawn if needed without penalties, so I would fund the Roths before extra in taxable.

Something to think about.
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Re: Portfolio Advice: Getting on track then sticking to it

Postby Bob's not my name » Sun Feb 03, 2013 4:26 am

Duckie wrote:-- As for Roth 401k versus Traditional 401k, tfb who posts here has two articles that may be useful: [/color]
The Case Against Roth 401(k) and Roth 401(k) for People Who Contribute the Max.
Besides these general arguments, you might also consider that Georgia's tax code favors traditional over Roth because up to $70,000 of retirement income is exempt for a couple both 62 or over, so you are paying state tax on your Roth contributions now, whereas you might not have to pay state tax on your traditional withdrawals later.
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Re: Portfolio Advice: Getting on track then sticking to it

Postby Tiger850 » Sun Feb 03, 2013 11:50 am

Thanks everyone for taking the time to respond, you've given me a lot to think about!! I'll have a longer post that I'm compiling of my action plan later on.

@linuxuser -> It seems that needing at least 20% of bonds is the right idea for me after reading more on this forum. I only have 1% of bonds now, and making the jump to 20% with interest rates so low has been hard for me to pull the trigger although it may be the boglehead wisdom. Rather than a re-balance of my current accounts, I'm thinking of rebalancing my 401k to 90% FXSIX and 10% FXSTX, then changing my new contributions to 80% FXSTX vs 20% FXSIX to ease me in over a longer period of time in case interest rates rise. I appreciate your advice to use excel to get the percentages right. I see:
Domestic Stock: 78%
International Stock: 12%
Bonds: 1%
Cash: 9%

@Steve roy -> I'm doing some research on selling my Roth mutual funds and moving from Fidelity Roth to Vanguard; I don't think I could ever become a true boglehead without a Vanguard account. Then I'll compare what is available there for me to reach the right allocation, in addition to using my wife's options. (This may be a bit of a psychological hurdle as she thinks he paycheck is too little as it is :o ) . My costs are too high in the 401k and roth; Your comment also drove me to do the above calculation in excel to see exactly what my asset allocation is; in my action plan I'll figure out at a deeper level what type of bonds and stocks to look at.

@Duckie -> You're right, I'm upping it to 20% and looking to move my Roth to Vanguard. I'm not as young as I keep thinking I am. I really appreciate your suggestions of a portfolio and I'm going to do more research into that. Per your question, its not an actual fund, but separate funds that can mix and match (though the user interface is horrid). She put in her desired retirement date, and it automatically allocates. I appreciate the REIT suggestion as well. I'll need to do more research on the Roth 401k; thanks for those articles.

@Bob's not my name -> I had no idea about this; adding it to the list of things I need to research.

:sharebeer to all!
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Re: Portfolio Advice: Getting on track then sticking to it

Postby Tiger850 » Sat Mar 16, 2013 10:26 am

Update:
I transferred my Roth to Vanguard, rebalanced my 401k to only use the 2 spartan funds, and changed my contributions to my 401k to be 50% into bonds to slowly raise my allocation. I also moved more of my previously taxable cash to my roth for 2012.

I still need to decide which funds to buy with my Vanguard Roth, and how to re-balance my wife's 401k. Here is my thought:

Target retirement assets

His 401k - 34% Roth / 66% Pre-tax | 60% of total portfolio
56% Spartan 500 Index (FXSIX) 0.05%
4% SPTN US BOND IDX IS (FXSTX) 0.07% (50% of new contributions are going here)

His Roth IRA at Vanguard - 18% of total portfolio
10% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%)
8% in CDs

Her Traditional 401k at Hewitt Associates - 16% of total portfolio,
4% Mid Cap Core Stock Index Fund - tracks s&p midcap 400 0.09%
4% Small Cap Core Stock Index Fund - Tracks russell 2000 0.09%
8% International Stock Index Fund - Tracks Morgan Stanley Capital International (MSCI) All Country World 0.16%

Allocation of Target
88% Stocks (68% domestic and 20% international)
12% Bonds / CDs (4% and 8% respectively)

I also have 6% of stocks in taxable accounts I'm planning to use in place of planned charitable contributions this year. I will use the other cash set aside for that to look into VGSIX (REIT) as 2013 roth contributions.

Any thoughts?
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