Starting over, please give me your thoughts?

[cagirl15]

This is my first time posting. I have been reading the boglehead forum, off and on, for a few months, as time had allowed. I'm 51 years old and my retirement portfolio is a mess. Long story short, i pulled most of my money out of the stock market with the housing crash in 2008, along with selling my home, and finalizing my divorce. I was in a situation and a bad place mentally and just got scared. I also read the book, "Contagion" by John Talbott and whew, that was enough to do me in. Since that time, I've put most of my money in either bond funds or cd's or cash. I know from reading posts on this forum that I have "analysis paralysis", but i am intent on overcoming this. My situation has improved: I went back to school while working and caring for 3 kids on my own. I'm in a new career now that i like and my job has great medical benefits and a 403b match. I don't make a lot of money but i live frugally and save as much as i can. I'm optimistic and although i've made a mess of things, i am happy to be on the road to a new financial plan.

My plan is continue to do more research on this site ( i love it) and reading books and slowly get back into the market. I've read a lot of posts about DCA vs lump sum investing as well as market timing (which i know is not the boglehead way). I recently read the post, "Struggling with when to get in", that finally convinced me that even though i have completely made a mess of things (my investments ), there is no crystal ball out there that is going to tell me when i can make that lost money back. I just have to establish a logical plan and move on.

Here is my info:

emergency funds: 6 months
debt: none, no mortgage, no loans, no cc debt, no car or student loans
tax filing status: head of household
tax rate: last few years i paid no state and federal taxes. I have 3 children i claim as exemptions and qualify for a bunch of credits
state of residence: California
age: 51
desired asset allocation: 50% stocks, 50% bonds/cd's
desired international: 25% of stocks

Current Retirement Assets:
Taxable:
41% Credit Union CD expires 3-11-13 earns 1% (money from sale of home)

Her 403B at Fidelity:
14% VMMXX Vanguard MMF
(3% of salary contributed by employer plus 5% employer match pre-tax)

Her Roth IRA at Vanguard:
2% VFIIX Vanguard GNMA Fund, 0.21 expense ratio
2% VMMXX Vanguard MMF, 0.16% expense ratio

Her Rollover IRA at Vanguard:
13% VIPSX Vanguard Inflation Protected Securities, 0.20% expense ratio
5% VMMXX Vanguard MMF, 0.16% expense ratio
2% VTTVX Vanguard Target Ret 2025, 0.17% expense ratio
7% GE Capital CD, expires 12-29-14, earns 1.55%
5% Goldman Sachs CD, expires 7-1-13, earns 0.85%

Her Traditional IRA's at Bank of America:
5% B of A CD expires 7-14-14, earns 0.35%
3% B of A CD expires 1-3-14, earns 0.55%

Her Traditional IRA at Credit Union:
2% CD expires 4-10-13, earns 0.85%

Total of all accounts: 100%

Additionally,

Education Savings accts and 529's for kids (not included in retirement total):

Vanguard Ed Sav account:
VBINX Vanguard Balanced Index Fund, value: $2400., expense ratio 0.29%
VASGX Vanguard Lifestrategy Growth, value: $2900, expense ratio 0.17%

Vanguard 529:
1/3, 1/3, 1/3, mix of Vanguard Agressive, Moderate and Conservative Growth funds, value: $7500, expense ratio ?

Contribution:
$22,500 403b
$6000 Roth IRA
could possibly contribute another 5K a year in taxable contributions, depends on kids expenses.

403b investments choices from employer (through Fidelity):
VTENX Vanguard Target Retirement 2010, 0.16% ER
VTWNX Van Tar Ret 2020, 0.16% ER
VTHRX Van Tar Ret 2030, 0.17% ER
VFORX Van Tar Ret 2040, 0.18% ER
VFIFX Van Tar Ret 2050, 0.18% ER
VTXVX Van Tar Ret 2015, 0.16% ER
VTTVX Van Tar Ret 2025, 0.17% ER
VTTHX Van Tar Ret 2035, 0.18% ER
VTIVX Van Tar Ret 2045, 0.18% ER
VFFVX Van Tar Ret 2055, 0.18% ER
VTTSX Van Tar Ret 2060, 0.18% ER
VTINX Vanguard Ret Inc, 0.16% ER
VFWSX Vanguard FTSE AAW IDX IS, 0.13% ER
VIEIX Vanguard EXT MKT IDX INS, 0.12% ER
VIIIX Vanguard INST INDEX PWS, 0.02% ER
VBMPX Vanguard TOT BD MK IS PL, 0.05% ER


Additionally, my employer offers tuition assistance for my children when I become an employee for 5 years. I have been employed for 3.5 years so far. They will pay tuition of up to 20K per year per child. I need to look into this benefit more thoroughly and hopefully remain employed!

I know I am supposed to ask questions now but at this point I am so proud of myself for getting all this information down on paper that i'm not sure what exactly to ask other than what do you all think I should do to rebalance or "help" my troubled portfolio. If it helps to understand my situation, i only make around $50k a year. I am able contribute such a large percentage of my income to retirement because I also manage the apartment building that i live in to keep my rent low and like I've already said, I try to live frugally. I have approx. a total of 300K in all my assets listed above. I own no property or other assets. I live in a wealthy part of California so buying a home starts out at about $800k. I don't see myself ever getting there.

thank you all so much for any and all advise you can give me. I am very excited to post this since I have been in denial for several years about how poorly I have managed things. It feels good to look straight into the face of my problem and decide to let the self punishment go and start working on a new plan.

Thanks again!

[JW Nearly Retired]

thank you all so much for any and all advise you can give me. I am very excited to post this since I have been in denial for several years about how poorly I have managed things. It feels good to look straight into the face of my problem and decide to let the self punishment go and start working on a new plan.

Good news is you survived the divorce, you have a job, you and kids have a roof over your heads you can afford, you can save quite a lot of your income, you have $300k in savings, the employer gives tuition assistance, you are here asking for advice........ that's a heck of a lot! The only negative news is your portfolio management in 2008 and since has been more or less optimally bad. You cashed out your equities near the bottom and only now that the stock market has fully recovered are you contemplating getting back in.

But.... I count 7 good things to only 2 bad ones. Really that's not bad at all any way you look at it.

I'm not going to offer any specific advice about investments except to say keep up the saving while going slow on stocks. Other folks will surely offer some. Maybe I'll just say be careful getting as high as the 50% stocks you mentioned. Age-in-bonds is usually for folks who don't have a panic-out in their history. Saving a lot of what you earn is the main thing.

Welcome to Bogleheads.
JW

[livesoft]

I have no specific advice at this time, but wanted to say, "Great job!" I always like to read about success stories after severe hardship. You are going to make it. You have made it.

[damjam]

Welcome to the forum.

You've done a great job getting the information needed with your post. For me I found just getting the information together was huge a learning experience.

Just a little more information, what are your investment choices in the 403B? You can edit your first post to keep everything together.

I agree with JW Nearly Retired that you may need to reevaluate your target equity exposure. What percentage of your money was tied up in stock when the crash began?

[pkcrafter]

I agree that it would be helpful if we knew what your AA was in 2008. It would also be helpful if we had an idea of how much you are spending annually now for living expenses, and how much you are contributing to the educational accounts. Any pensions or other potential income?


Paul

[rickmerrill]

Congratulations! You have done a great job of putting the pieces of your lifeback together. A celebration is in order!

Taking your time to learn how you should be invested is a very good idea. It helps to bounce your ideas off of the forum members before you pull the trigger.

A good place to start might be what to do when the cd in taxable matures on 3-11-13, this is not that far away and it is 41% of the puzzle.

As mentioned above, a 50/50 asset allocation may not be right for you. This is a very personal decision. Better to listen to your heart than your head when deciding on this one (one of the few times to do this). You can think you need to be more aggressive but if your gut tells you to run it is very hard to ignore. If you find yourself rebalancing into a falling market you know you've got it close - you might even start to feel you should be increasing your risk after a few drops in the market

Rick

[pingo]

I'll join in the warm welcomes and accolades for getting this far. Indeed, welcome to the forum!

Here's an idea, but it's not spectacular and I'd love to hear what others think:

Cagirl15 could do an asset allocation "trial run" by filling all of her non-CD percents (38% of the portfolio) with a target fund like VG Target 2015, which is 55% Stocks / 45% Bonds, and which is quickly shrinking it's equities down to 30% Stocks / 70% Bonds over the next 10 years. With the remaining cash it actually results in weighted portfolio of only 34% stocks. As she waits for the CD's to expire, she can get a sense for what 50/50 is like by watching her target fund(s).

When the taxable CD matures, and if 50/50 is still considered appropriate, I would strongly suggest she consider the Vanguard Tax-Managed Balanced Fund (VTMFX). It throws off her international exposure, but this way she can house all assets within balanced funds to "hide" much of the volatility of equities.

[cagirl15]

The only negative news is your portfolio management in 2008 and since has been more or less optimally bad.

I'm not going to offer any specific advice about investments except to say keep up the saving while going slow on stocks.
JW

Thanks JW, yes the is an accurate sentiment. i've always been a big saver and I do feel slightly nervous about stocks but what choice do I have? I'm already loaded up in cash and tips. I could buy some I bonds but I think I have to wait a few months to do that now. Would you recommend that? thanks for the welcome!

I have no specific advice at this time, but wanted to say, "Great job!" I always like to read about success stories after severe hardship. You are going to make it. You have made it.

Thanks livesoft, but i know you. you're one of my favorites on this site. i appreciate the pat on the back but what i really need is your opinion. i've got a cd expiring in a month that is 41% of my portfolio and i don't know what to do with it. another CD would yield me 1%? plus it is in a taxable account. isn't cap gains rate at 50%? what are your thoughts?

Welcome to the forum.

You've done a great job getting the information needed with your post. For me I found just getting the information together was huge a learning experience.

You can say that again! thanks damjam, i've added my investment choices to my original post, i had forgotten to do that. "reevaluate my equity position"? yes, from everything that i've read, it is a big mistake for me to have such a large cash position. I have barely any equities at all. wouldn't it be best for me to use the CD that is expiring to increase this? I do have a history of bailing when the market dives but i've put this money (the cd) in two cd's so far waiting to figure out what to do. In that time the market has only increased. Should i continue to wait for a slump and get in then? Advise from this forum indicates the answer is just dive in now. However, I only have a 15 year horizon until I will need the money for retirement. Is that enough time to weather the hills and valleys? oh, and i had about 70k in stocks that i sold off in 2009.

I agree that it would be helpful if we knew what your AA was in 2008. It would also be helpful if we had an idea of how much you are spending annually now for living expenses, and how much you are contributing to the educational accounts. Any pensions or other potential income?


Paul

Cagirl15 could do an asset allocation "trial run" by filling all of her non-CD percents (38% of the portfolio) with a target fund like VG Target 2015, which is 55% Stocks / 45% Bonds, and which is quickly shrinking it's equities down to 30% Stocks / 70% Bonds over the next 10 years. With the remaining cash it actually results in weighted portfolio of only 34% stocks. As she waits for the CD's to expire, she can get a sense for what 50/50 is like by watching her target fund(s).

When the taxable CD matures, and if 50/50 is still considered appropriate, I would strongly suggest she consider the Vanguard Tax-Managed Balanced Fund (VTMFX). It throws off her international exposure, but this way she can house all assets within balanced funds to "hide" much of the volatility of equities.[/quote]

Hi Paul, thank you for the welcome, i like VTMFX. a tax managed fund would be appropriate for the taxable cd expiring next month. my original plan was to use the money in the cd as a down payment for a home for my kids and I, but this was in 2010 when the housing market was plunging. In my area of California, we didn't see very much of a housing price decrease and I never got the opportunity to consider this. living in Silicon Valley has it's costs. i was vearing away from the target funds because I already have such a large position in cash and didn't think adding bonds to my portfolio was indicated with a short term target fund. but with the advise i am seeing so far, perhaps I should rethink this and concentrate more on keeping my portfolio safe instead of growth. the market seems high to me but from what i've read on this forum, high is relative.

It would also be helpful if we had an idea of how much you are spending annually now for living expenses, and how much you are contributing to the educational accounts. Any pensions or other potential income?

My living expenses are approx. 50-60% of my income. I pay very little for rent because I work a second job managing the apartment building that i live in,, like i mentioned above. I try to put away 40% of my income. I am only contributing to my 403b and another 6k per year in IRA. Have not contributed to education accounts in many years. No pension, other income is only the rent discount i already mentioned.

A celebration is in order! i like that idea!

Taking your time to learn how you should be invested is a very good idea. It helps to bounce your ideas off of the forum members before you pull the trigger.

A good place to start might be what to do when the cd in taxable matures on 3-11-13, this is not that far away and it is 41% of the puzzle.

Better to listen to your heart than your head when deciding on this one (one of the few times to do this). You can think you need to be more aggressive but if your gut tells you to run it is very hard to ignore. If you find yourself rebalancing into a falling market you know you've got it close - you might even start to feel you should be increasing your risk after a few drops in the market

Rick

Thanks Rick, first time on this forum that i've read listen to my heart. that comes naturally to me and thought this was the problem. my brain and my heart are conflicted and not sure what to do. I will continue to research and learn before I "pull the trigger", thank you. I have been waiting for a falling market but now it seems like I am just losing out on the "ride" that everyone else seems to be enjoying. I know the 41% of the puzzle is the cd and it is foremost on my mind. I am trying to tackle this problem first. What to do with that cd....the tax advantaged account sounds promising above doesn't it?

forgive me for the messy reply, i'm still getting the hang of this..

[scone]

You've done extraordinarily well in an extremely difficult situation. You're certainly not the only one who pulled their money out of the market during the crash-- I did! And now you're looking at a decent future, due to your savings rate and lack of debt. I think you should give yourself a pat on the back. Your investments aren't horrible, at least you aren't getting gouged with 2% "egg management fees." IIWY I might want to consolidate the IRAs if possible, and put everything into a simple mix of Total Bond, Total Stock, and International. I understand it can be scary, but you don't have to have a huge allocation to stocks.

However, since the cash allocation is costing you money (not even remotely keeping up with inflation), I would focus on getting that money into bonds first. Baby steps are just fine-- that's what I've been doing-- and there's no reason to rush into anything. You might want to talk to a Vanguard rep for suggestions, and then discuss the suggestions here. I think you are going to be just fine.

[damjam]

"reevaluate my equity position"? yes, from everything that i've read, it is a big mistake for me to have such a large cash position. I have barely any equities at all. wouldn't it be best for me to use the CD that is expiring to increase this?

Yes, I think you should use some of the CD that is expiring to increase your equity holdings. However, I don't know if 50% of your portfolio should be equity.

I do have a history of bailing when the market dives but i've put this money (the cd) in two cd's so far waiting to figure out what to do.

This is very important. If you are going to bail then you are just buying high and selling low. This only leads to losses and you would have been better off in bonds, or CDs or even a savings account.

In that time the market has only increased. Should i continue to wait for a slump and get in then? Advise from this forum indicates the answer is just dive in now.

The fact that the market has increased only means that it is more expensive. It does not mean it will continue to rise.

The important thing to know is that no one knows the future. When we advise people to invest in the market and ride the wave, it is because in the past the market has always recovered. That in no way says that we know that will happen in the future. We're taking an educated guess.

Based on historical records we know that the market can fall by as much as 50% in one year. It its also possible for the market to stay down for several years in a row, maybe more years than a person has to wait.

So are you ready, willing, and able to endure a decline in your portfolio from say 300K to 225K? Then have your portfolio stay that low or go even lower? Think about this very carefully. If you are freaking out, listen to your gut, and do not put 50% of your portfolio in equities.


Having said all of that, I think you should have at least 20% of your portfolio in the market. Why? Because studies have shown that portfolios that have 20% invested in equities and 80% in fixed income (bonds, CDs, etc.) get a higher return and have less risk than a 100% fixed income portfolio.
If your portfolio of 300K were invested 20%equities/80% fixed income then your portfolio might decline to 270K in a very bad year. But you need to remember that these would be paper losses, you would only realize the loss when you sell.

So now that I've laid all that on you, we need to hear back from you about how much you want to put into equities so we can assist in building your portfolio.

[Easy Rhino]

Maybe I missed the detail, but how invested were you in stocks before the financial crisis?

I agree that you should have some of your investment portfolio invested in stocks. However, since you got nervous and sold during the crisis, and only just now as are thinking of buying more stocks right as the market is approaching new highs... that makes me think you haven't quite found your comfort level for stock ownership. You need to find a percentage that's lower than it was in 2008, and presumably higher than it is now, otherwise you may continue to be whipsawed by alternating urges to buy or sell.

In other words, find a number that will let you set it and forget it, and stop fiddling with your allocation.

You should investigate the penalties for breaking Goldman Sachs, GECap, and BofA CDs. The penalty may not be very large, and it would help you simplify the portfolio.

I recommend transferring or rolling over teh funds from the IRAs at the CU and BofA into your Rollover IRA at Vanguard. Just to simplify.

With the 28.5k you're able to put towards savings, is any of that "spending down" the proceeds from the home sale, or is it all from income? i'm trying to figure out if there's going to be a taxable portfolio you're going to have to manage. Are there any other tax-advantaged savings options at your work, like a 457?

When you say you paid no tax, do you mean that you got a tax refund, or that, literally, 100% of your tax withholding was returned to you? Just want to make sure i'm clear.

If you can get the accounts cleaned up, I think you'll end up with this:

41% taxable
42% Traditional IRA at Vanguard
14% 403b (and growing)
4% Roth (and growing)

Since right now you only have 2% in bonds and 2% in stocks, I think you should gradually DCA to your ultimate desired asset allocation. Over the course of a year or so.

And finally, does the Fidelity 403b have any non-Vanguard choices? I would expect them, ironically, to offer more Fidelity funds.

[pingo]

tax rate: last few years i paid no state and federal taxes. I have 3 children i claim as exemptions and qualify for a bunch of credits

I'm sorry. Could you clarify? You are in the 0% tax bracket? You pay zero taxes, or you don't pay anything (else) come tax time?

[cagirl15]

tax rate: last few years i paid no state and federal taxes. I have 3 children i claim as exemptions and qualify for a bunch of credits

I'm sorry. Could you clarify? You are in the 0% tax bracket? You pay zero taxes, or you don't pay anything (else) come tax time?

last year i got most of my fed taxes back as a refund. i qualified for EIC and child tax credits, i also itemized and used business expenses and business use of home. somehow i got a ton of money back. this year won't be as good though. the earned interest on my taxable investments disqualifies me for the EIC and i've lost one of my deductions, one of my daughters. i should be in the 13-15 % tax bracket this year. sorry about the misinformation.

Maybe I missed the detail, but how invested were you in stocks before the financial crisis?

probably about 50%

...since you got nervous and sold during the crisis, and only just now as are thinking of buying more stocks right as the market is approaching new highs... that makes me think you haven't quite found your comfort level for stock ownership.

you've got a good point there....

You should investigate the penalties for breaking Goldman Sachs, GECap, and BofA CDs. The penalty may not be very large, and it would help you simplify the portfolio.I recommend transferring or rolling over teh funds from the IRAs at the CU and BofA into your Rollover IRA at Vanguard. Just to simplify.

although i really would like to simplify things, can't i just deal with the 125k cd that is expiring now and wait for the cd's to expire later on then move them over to Vanguard? it is really too confusing to have all these different accounts and takes too much time to track of them.

The 28.5k you're about to put towards savings, is any of that "spending down" the proceeds from the home sale, or is it all from income? i'm trying to figure out if there's going to be a taxable portfolio you're going to have to manage. Are there any other tax-advantaged savings options at your work, like a 457?

no, i won't be spending down the 125k cd, the 28,5k will be from my income. No there are not other tax savings options at my work.

If you can get the accounts cleaned up, I think you'll end up with this:

41% taxable
42% Traditional IRA at Vanguard
14% 403b (and growing)
4% Roth (and growing)

Since right now you only have 2% in bonds and 2% in stocks, I think you should gradually DCA to your ultimate desired asset allocation. Over the course of a year or so.

And finally, does the Fidelity 403b have any non-Vanguard choices? I would expect them, ironically, to offer more Fidelity funds.

I'm thinking about your simplifying things. i think one of the reasons it's taken me so long to do this is that is just so darned complicated. i'll check out what the chances are of my combining things like you mentioned above. i like the dca'ing idea. i'm getting a better feel of what "feels'" right by talking about it so Thank you! i know it's funny that Fidelity offers only vanguard funds. i'll reread my retirement guide but i took the investments right from the list of choices. they do offer a brokerage link but that's it.

[rickmerrill]

I saw a few remarks I wanted to reply to:

isn't cap gains rate at 50%?

CD's (compound interest) is taxed at your normal tax rate, there is no capital gain. At the 15% marginal tax rate capital gains are taxed at 0.

I do have a history of bailing when the market dives but i've put this money (the cd) in two cd's so far waiting to figure out what to do. In that time the market has only increased. Should i continue to wait for a slump and get in then? Advise from this forum indicates the answer is just dive in now. However, I only have a 15 year horizon until I will need the money for retirement. Is that enough time to weather the hills and valleys? oh, and i had about 70k in stocks that i sold off in 2009.

You should think of your investment horizon as around 40 years - over 10 years is considered long term investment territory.
You've been waiting too long to get in but you also want to wait for a slump to get in but you know you should just dive in? You can just wade in too.
What was your AA when you bailed? Was that 70/300 or 23%?

but with the advise i am seeing so far, perhaps I should rethink this and concentrate more on keeping my portfolio safe instead of growth. the market seems high to me but from what i've read on this forum, high is relative.I have been waiting for a falling market but now it seems like I am just losing out on the "ride" that everyone else seems to be enjoying.

I think the advice was to get into the market but everyone wanted to be sure you didn't take on more risk than you can stand; and we wanted you to contemplate your reaction to some some ugly markets and possibly some really, really ugly markets.

safe instead of growth...

Well, after what I said about your heart helping to set your asset allocation, I wasn't thinking about no asset allocation at all but it is your decision. Cash is safe or it feels like it but... I don't think anyone would call zero stock exposure "safe" over the long term (unless you know you'll sell on most drops and then get back in after each subsequent recovery or you have a whole bunch of cash). We don't know the future but historically it's been a pretty good idea to invest in some percentage of stocks and a bad idea to invest entirely in cash. That is inflation risk. Will equity exposure pay off in the long term? Every investory thinks so but we don't get a guarantee. Will cash? With almost certainty a significant amount of your spending power will be lost to inflation in the next 20-30-40 years. Bottom line is that cash is not that safe in the long term and we do get a guarantee. So, the head should be telling you that all cash is a loosers game and your heart should decide how much risk you can take and still sleep at night.

The market seems high to me...

Historically you'd be right about 1/3 of the time.

I have been waiting for a falling market ...

And if it rises for the next 5 years?
Dollar cost averaging can help.
That is analysis parallisis!

damjam...
Having said all of that, I think you should have at least 20% of your portfolio in the market. Why? Because studies have shown that portfolios that have 20% invested in equities and 80% in fixed income (bonds, CDs, etc.) get a higher return and have less risk than a 100% fixed income portfolio.

I agree - this would be a very good place to start. If you're wrong then we're all wrong and we'll be looking at plan B but at least you'll be in good company!

[pingo]

Her 403B at Fidelity:
14% VMMXX Vanguard MMF
(3% of salary contributed by employer plus 5% employer match pre-tax) <--

This is also confusing. Doesn't this amount to an 8% match?

Vanguard Ed Sav account:
VBINX Vanguard Balanced Index Fund, value: $2400., expense ratio 0.29% <--60% stocks (U.S. only).
VASGX Vanguard Lifestrategy Growth, value: $2900, expense ratio 0.17% <--<--80% stocks!

Honestly, I'd probably pick one balanced fund for the entire VG Ed Savings acct: either VBINX (60% U.S. only stocks), or LifeStrategy Moderate Growth (60% stocks with International, too) or even Conservative Growth (40% equities with International, too). I don't think I'd be so aggressive. Even if my child were 0 years old and will attend college in 20 years I might prefer 50-60% stocks max with 0-30% stocks by the time s/he attends, in which case a Target fund that coincides with that path might be the answer (if available). That's just me, though, so take it with a grain of salt.

Vanguard 529:
1/3, 1/3, 1/3, mix of Vanguard Agressive, Moderate and Conservative Growth funds, value: $7500, expense ratio ? <--

The VG Aggressive one is 100% equities! Moderate is 50/50 and "Conservative" is 25% stocks. (There is also a Moderate Growth Fund for educational savings which is 75% stocks as well as an Income Fund which is 100% bonds and cash.) Perhaps someone can comment on whether this is an appropriate strategy?

It is ironic that you have invested so aggressively for your children's education when your investments have a much longer time horizon than the educational savings accounts. How soon will your children/you need the money?

Contribution:
$23,000 403b <--We need to know the entire amount in dollars, i.e. your personal plus catchup plus employer contributions. Is that reflected here?
$6500 Roth IRA <--New Roth and 403b limits for 2013, as reflected.
could possibly contribute another 5K a year in taxable contributions, depends on kids expenses. <--Does your 403b allow after-tax employee contributions plus regular in-service withdrawls?

Check whether your 403b allows after-tax contributions. Here are 4 links talking about after-tax contributions: here, here, here and here. Note that a 403b is the equivalent of a 401k for some organizations.

If you are allowed to make regular in-service withdrawals of after-tax contributions to your employer plan, you can have them directly rolled over to your VG Roth account and they will be tax-free forever after. They do not affect your Roth IRA contribution limits.


And: Is there a chance you also have another employer-sponsored tax-deferred option, such as a 457b? (You've answered a lot of questions, so I'll ask again what someone else wanted to know.) If Social Security taxes are being taken out of your paychecks, then I think a 457b is unlikely. If SS is not taken out, you probably have a 457b plan, too. If such a plan is a governmental 457b, it would be a great place for more contributions instead of a taxable account. If it is a non-governmental 457b, it's usually not a good idea.

[pingo]

I think we're a bit reticent to offer fund suggestions because there are still a few mysteries with the information presented and the big question remains: what is a practical asset allocation for you? (Only you can decide.) Earlier I had offered the idea of investing expiring CDs into Target Funds, but I missed the fact that your Taxable CD matures in a month, which means more of your portfolio is available sooner.

Another reason to be reticent is that we don't really know what your tax bracket is nor what it can be expected to be now that your claims aren't the same as before. I'll steal a thought from retiredjg, who often advises the following:

To figure out your tax bracket, compare the taxable income (not total income) from your last tax return to this chart. I think it is line 43 on your tax return. You can also find a chart for your state on the internet and look up your state tax.

My personal preference for you would be to house all your money (if practical) in a target or balance/asset allocation fund in order to hide equity volatility from your eyes. Vanguard's versions of these funds are complete and they are completely diversified. With a low enough tax bracket (and assuming it continues through retirement), such a fund in your taxable account might be no big deal. All else failing, you could place the VG Tax-Managed Balanced Fund in your taxable account (later) and adjust the remaining accounts to lower your equity exposure (if necessary).

The customary advice is to hold equities (especially International) in a taxable account. I ignore this and assume your tax bracket would be 15% or preferably lower. At 15% federal, it doesn't matter quite as much, and your peace of mind may be more important that "ultimate tax-efficiency" or "portfolio optimization", or whatever we'd call it, but also keep in mind that CA state taxes are on the high-side and they count, too. I doubt tax-efficency will comfort you when (not if) International equites get another chance to terrorize markets with another 50-60% fall. So, instead of holding individual asset class funds, my preference is with all-in-one funds.

If you still want to get some money working for you and to test the waters, I offer the following food for thought (not exactly a recommendation I suppose):



Taxable
41% Cash or VG municipal bond fund

Her 403B at Fidelity <--I rolled over all Rollover and Traditional IRAs to the 403b.
56% VG Target 2015 (VTXVX)

Her Roth IRA at Vanguard
04% VG Target 2015 (VTXVX)



*The above results in a 34% Stock / 64% Bond portfolio that is transitioning to 18% Stocks / 82% Bonds over the next 10 years (if portfolio remains).

*If instead you use cash or bonds in taxable with remaining accounts in VG Retirement Income Fund (VTINX), the portfolio would already be 18% Stocks / 82% Bonds.

*If instead you use VG Tax-Managed Balance Index Fund in taxable with remaining accounts in VG Retirement Income Fund (VTINX), the portfolio is 38% Stocks / 62% Bonds.

*If instead you use VG Tax-Managed Balance Index Fund in taxable with remaining accounts in VG 2015, the portfolio is 53% Stocks / 47% Bonds, which transitions to 38% Stocks / 62% Bonds over 10 years.

*If you're tax bracket is low enough, it might make just as much sense to use a more diversified non-tax managed fund in the taxable account. In that case you could use the same fund in all accounts: Target 2015 (55/45, transitioning to 30/70 over 10 years), LifeStrategy Conservative Growth (40/60), Retirement Income Fund (30/70) or LifeStrategy Income Fund (20/80).

*If you hold all Rollover and Traditional IRAs at Vanguard (instead of 403b), you can taylor your AA a little more by mixing the balanced funds for specific allocations, but your 403b has great options and I can't tell if you really need greater flexibility more than you need a simple plan you can stick with. Choose accordingly.

[cagirl15]

First of all, I LOVE YOU GUYS!, thank you to Pingo, Rick Merrill, Scone, Easy Rhino, pkcrafter and Damjam. you've given me advise and opinions that i value very much. i'm grateful for your time and consideration. Unfortunately, i am so ridiculously busy that i only have about 30 minutes - 1 hour a day to spend on this. I have a bit of time in the morning before work but the chaos really begins after work with three kids. I'm going to read over all your posts and consider each one carefully and then respond. i'm also a bit slow on how to reply to each post and not make a mess of my reply. Just wanted to tell you all that i'm here and listening and that i really appreciate your input. I'm just a little slow. i'll post back when i get a chance. i love this forum!
thanks again!

[Sbashore]

Welcome to the forum. I agree with the above posts that you did more things right than wrong. That selling out in 2008, was a mistake, but not at all uncommon. I have some friends who did the same and will never invest in an equity ever again. So, you deserve credit for even considering it. What struck me was that maybe you should go slow in getting to that 50% equity position. Think of it in terms of how much of your portfolio you expect to lose going forward. The classic behavioral pattern is to overestimate your risk tolerance and then have it fail when it's exceeded, as in 2008. Having said that, you had more going on than just a down market, so those may be mitigating factors. If I were you, I'd put a lot of thought into determining what your true risk tolerance and need to take risk is. It will be ultimately come into focus when you have a plan that you can believe in, that enables you to stay the course no matter what. Good luck to you.

[Easy Rhino]

I think there's two differen tracks that you can take, and they can go simultaneously:

1) account consolidation
2) determing your desired risk level.

As others have said, determining risk tolerance is very person. You need to take some risk, because staying in supersafe investments will lead your portfolio to be decimated in 30 years due to inflation.

BTW the wiki has some different commonly mentioned ideas on assessing risk tolerance, (it's a bit theoretical)
http://www.bogleheads.org/wiki/Risk_and ... _tolerance

Here's data points that I can tease out from earlier posts:
- 50% stocks in 2008 was "too much"
- you're curently about 2% stocks
- The 529 plans, which have a shorter time horizon than retirement, are ironically invested in about 50% stocks.

I think the idea of using balanced funds and TR funds is worth considering, so it "hides" the volatility from you.

Another option would be a bit more tax efficient by placing stocks in taxable. your effective tax rate is pretty low, but I really hate taxes, so wanted to mention it:

Taxable - 41% - both domestic and international stocks
IRA - 42% - bonds
403b - 14% - bonds
Roth - 4% - bonds

This would set you up with 41% stock allocation, which might accidentally be an okay stock allocation, and since new contributions would be going into tax-deferred accounts, it would be even more conservative in a year or two (eventually you'd probably need to buy some stock in the tax-deferred shares as well)

Let us know what your heart tells you about risk, and we can get more specific.

[protagonist]

Hi, Cagirl. I agree with those many above who say you are doing fine.

One thing to consider...your CDs, etc. are all getting very low yields, and thus you are losing money to inflation. This may be, to an extent, inevitable these days. But if you have enough to live on, and don't need to tap into cash reserves for awhile, when purchasing CDs in the future, you might consider going with long-term CDs with generous early withdrawal penalties. Another thought is i-bonds (for non-retirement accounts), which keep up with inflation but are limited in the amount you can invest. There are many posts in this forum related to these topics and many people who can help you.

It might also simplify your life if you limited the number of funds in which you invest.

Being out of debt is wonderful.

Good luck.

[cagirl15]

Thank you for all of your comments. i have been trying to educate myself in tax efficient fund placement and asset allocation. I'm finding this very fun so that is a good thing. I am also finding that i know a lot less than i thought i did. I agree with Pingo that my first two priorities would be to establish an AA and to consolidate funds. My lifestyle is too busy to have money all over the place. I am placing that as priority #2. Priority #1 is to establish my personal AA and decide what to do with the CD that is expiring in a month.

The AA is tricky. At first i thought i would be comfortable with a 50/50 AA decided mostly because I needed growth and thought i could "stomach" the risk. However, I'm changing my mind about that. I followed the link provided and read the article about AA describing the different theories. In my take, AA is based 1) on age, 2) on risk tolerance (can i sleep at night or can i "stomach" a 50% drop in the market), and 3) my personal financial situation (my personal wealth). #3 has me perplexed. As i read the article what stood out in my mind (and i realize i am a complete novice) is that the more money (or resources) you have, the more risk you can take. The less money (or resources) you have, the less risk.

However, in my mind the opposite is true. If you have resources, why do you need risk? if you have little resources, you can bear less risk. So this is where i am at. I have few resources, no home equity, no large inheritance coming, no real job security (i'm in a new career at 51 years old), and no large nestegg. I have been so frugal with my money and have put my investments into safe investments because of this. If i lose the money, I don't have any recourse.
So the question becomes, "how much can i live with losing?" Well, the answer is zero. However, I have to take some risk because if i don't, i actually lose money from my investments from inflation. I am struggling with this and i know this is the problem with AA. i think it is just complicated for me because i have been through a large market crash and because i have a little issue with trust (see: my divorce).

i'm feeling better and better because i am reading whenever i get the chance and knowledge gives me more confidence that i have the ability to make the right choice. but i am still working on what AA i can make and still sleep at night .

I am trying to not get back into the "analysis paralysis" that is like a maze you can't find your way out of but it's difficult. I hope to post some progress soon. Thanks to everyone! for the help. it means a great deal to me.

[Easy Rhino]

Larry Swedroe's "ability, need, and willingness" to take risk dictum always seems like a good idea to me, although the need and ability seem to get wrapped together and conflict.

If you have more funds, or other sources of financial security (a pension, annuity, etc.) you have the ability to take more risk.

If you have limited funds relative to the amount you're going to spend, you have the need to take more risk.

However, at the most extreme level ($3 to your name), you may have the need to take a lot of risk, but no ability.

Fortunately, your situation is not so dire. However, if there's a secret pension or trust fund in your life, now would be a good time to take that into consideration.

[pingo]

I've been thinking about your thread and it occurred to me to post some visual comparisons for you to consider as you determine an appropriate AA. Be warned that I will be painting with a very broad brush to maintain simplicity. For example, I use specific funds from this thread to give you an idea of how those funds might behave based on the last apocalypse, and also as a suggestion of how an entire portfolio might behave if that portfolio were weighted roughly the same. If you hold different balanced funds to create certain weighted portfolio, you have a way to observe extreme behavior in each fund and you can look at whichever fund is closest to the overall portfolio AA to gauge how the portfolio as a whole might might behave in stressful times. It's far from perfect, but maybe it'll help?

Here's the U.S Stock Market during the last crash:
Vanguard Total Stock Index Fund (VTSMX) <--100% Stocks.


Below I compare it to 50% U.S. Stocks:
Vanguard Total Stock Index Fund (VTSMX) <-- 100% Stocks.
Vanguard Tax-Managed Balanced Index Fund (VTMFX) <--50% Stocks.

*Big difference!

Here I'll add a 40% Stock portfolio:
Vanguard Total Stock Index Fund (VTSMX) <--100% Stocks.
Vanguard Tax-Managed Balanced Index Fund (VTMFX) <--50% Stocks.
Vanguard LifeStrategy Conservative Growth Fund (VSCGX) <--40% Stocks (some International).

*Not much difference between 40-50%.

Let's replace the 40% with a 20% Equity portfolio:
Vanguard Total Stock Index Fund (VTSMX) <--100% Stocks.
Vanguard Tax-Managed Balanced Index Fund (VTMFX) <--50% Stocks.
Vanguard LifeStrategy Income Fund (VASIX) <--20% Stocks (some International).

*Big difference!

And below we see that there was little difference between 20 and 30% (although 30% fairs a little better):
Vanguard Total Stock Index Fund (VTSMX) <--100% Stocks.
Vanguard LifeStrategy Income Fund (VASIX) <--20% Stocks (some International).
Vanguard Target Retirement Income Fund (VTINX) <--30% Stocks (some International); TIPS, too!

[pingo]

Oh! And here's a closeup of what happened had one invested at the beginning of the crash, which allows me to put them all in one chart without it looking like a bunch of messy colors:

Vanguard Total Stock Index Fund (VTSMX) <--100% Stocks.
Vanguard Tax-Managed Balanced Index Fund (VTMFX) <--50% Stocks.
Vanguard LifeStrategy Conservative Growth Fund (VSCGX) <--40% Stocks (some International).
Vanguard Target Retirement Income Fund (VTINX) <--30% Stocks (some International); TIPS, too!
Vanguard LifeStrategy Income Fund (VASIX) <--20% Stocks (some International).


Let us know how things turn out!

[Easy Rhino]

note that pingo's graphs are on different scales. the first post starts around 2003 (capturing the bull market, the crash, and the recovery), and the second post starts in 2008 (starting with the crash and then the recovery), that's why the more conservative strategy "wins" on the second but not the first.

[protagonist]

#3 has me perplexed. As i read the article what stood out in my mind (and i realize i am a complete novice) is that the more money (or resources) you have, the more risk you can take. The less money (or resources) you have, the less risk.

However, in my mind the opposite is true. If you have resources, why do you need risk? if you have little resources, you can bear less risk. So this is where i am at.

Hi again, cagirl.

You get it. This is, unfortunately, a catch-22. ("You mean there's a catch?"
"Sure there's a catch", Doc Daneeka replied. "Catch-22. Anyone who wants to get out of combat duty isn't really crazy.")

If you have ample resources, you have the ABILITY to take more risk and you can afford to lose, but you have little NEED to take risk. If you have enough to live on, why take the risk of losing it?

If you have very little...too little to live on....you may NEED to take major risks (possibly explaining the success of state lotteries). But your ABILITY to do so safely is severely limited, and doing so will more likely deepen your troubles.

[pingo]

note that pingo's graphs are on different scales. the first post starts around 2003 (capturing the bull market, the crash, and the recovery), and the second post starts in 2008 (starting with the crash and then the recovery), that's why the more conservative strategy "wins" on the second but not the first.

Easy Rhino is right.

Which one wins will be period dependent. Don't look for the winning fund/portfolio of the past, rather the one whose general behavior you think you can stomach. Their behaviors are mostly linked to the stock-bond relationship.

[cagirl15]

thank you so much for the graphs. they are very, very helpful!! i have actually been on this site every day rereading the replies to my post and educating myself as much as possible trying to come to a decision about AA and what to buy, sell, transfer and trade. I also actually wrote a post this morning asking some questions that i was not able to find answers to and asking for some opinions. unfortunately, i erased the entire post right before i posted it. i work all day on a computer at work creating spreadsheets, pivot tables, using macros and tables and graphs but i'm an idiot when it comes to posting an entry on this site. must be because i have so many distractions here at home and when i'm at work i don't. i will try to rewrite my post because if i can get some feedback it might help me get started in my portfolio re-route.

first a disclaimer...i've spent the last two days at a cheerleading competition for my daughter. 2000 adolescent and pre-adolescent girls in an auditorium screaming at the top of their lungs and music similiar to nails on a chalkboard at volumes enough to deafen a deaf person for a total of 14 hours over two days and i'm proud to announce..... with a smile on my face almost the entire time. i feel like i've been run over by a freight train. nontheless, i'll try to reestablish enough brain activity to rewrite my post.

i am wondering if after tax 403b contributions would be beneficial to me. at this time i believe i am in the 13-15 % tax bracket. after-tax contributions are already taxed at my current tax bracket and at withdrawal the gain will be taxed as ordinary income at whatever my tax bracket is at that time. i will hopefully remain with my current employer but i will not receive a larger salary. i will probably continue to receive the 2% inflation increase every year. i will not have the 3 deductions (my children) at retirement ( i thought i would lose my oldest daughter as a deduction but she is a full time student and i've learned, can remain a deduction). i am not sure what tax bracket i will be in then. however, it's hard to believe that it would be less than the 15% i'm in now. my thought is that i could put an additional amount in after tax contributions in addition to my pre-tax and roth IRA for a total of 50k a year. this would be just about all of my salary so i would live on the cash from the expiring CD for expenses. one of the benefits would be that i would be automatically DCA'ing into the market (which i like much better than lump sum) and another would be that i would be paying taxes on this with my current low tax bracket. i've read that any tax loss harvesting would be lost if not holding stocks in taxable. i'm not sure if this is a big issue or not.

i wouldn't use all of the expiring CD for living expense. I might be comfortable lump summing about 40% into either the tax managed account in Pingo's chart or the Target 2015 or the Retirement income fund from Vanguard (also in Pingo's chart).this option gives me the flexibility to jump into a buying opportunity if it arises.

As far as AA, i have decided, with the help of this forum (and thank you!) that 50% stock is way too risky for me. i couldn't sleep at night and i probably couldn't leave it alone in a really bad event. I've decided a 30-40 % stocks. Like i said before, i'm much more comfortable DCA'ing than lump sum (except i could probably deal with the 40% cd mentioned above).

As for the traditional IRA's at B of A and credit union, i haven't yet found out what the withdrawal penalty is so i don't know if withdrawing them is a good idea. These amount to 10% of my portfolio so it is a good chunk. if i do withdraw them, can i roll them over to the 403b and what would be the benefit of this?

I also have a Roth IRA (money market fund 2%) and a Rollover IRA (MMF 5%) at Vanguard that needs to be decided on. I think this would be an easy one, i'd just pick one of the funds listed above. I like a little more diversification than the one fund only and even though advise on this forum has reiterated that a fund is already diversified, i know that it makes me feel a little more comfortable to have more than one diversified fund. i would like to break it up into perhaps a little of all three of the funds i've listed above. also, same question as above, if i can rollover to 403b, what is the benefit of this?

As far as the pre-tax 403b and the roth IRA that i contribute to every year, i think that would be simple as well. it would already be DCA'ing into the market from my salary every month and the funds are all from Vanguard. i would just pick one of the funds i mentioned above.

Pingo's reply stating the different scenarios with diff't funds and their prospective AA's was also very helpful. what makes me hesitate with this approach is that they are so simple. they are based on only a couple of funds. am i wrong to think that it is more risky to only be invested in one fund vs serveral funds. (of course i am repeating myself from the paragraph above, i am aware of this now.)

So, in a nutshell, my questions are:
-better to use after-tax 403b to increase IRA contributions to allowable 50K while living off some of the cash in my CD?
-is it better to withdraw money from current CD's to consolidate accounts (of course i don't have information you need as to what penalty would be) or wait for them to expire
-what is the benefit of rolling over Trad and Rollover IRA's to 403b?
-less risk if invest in several vanguard funds rather than only one fund?
-how about holding some cash for prospective buying opportunities later and use the cash for expenses while i wait (maybe it will never happen) for the market to dive again. if it does and i buy funds at that point, i can adjust my after-tax withdrawals to use more of my salary for expenses.


hope you can make sense of this. i'm still a little dizzy from the 2000 screaming girls. thanks again so much for all the help.

[cagirl15]

also, the charts helped me very much, i'll say again. because i can visualize how they are less risky then the Total Stock Market Index (coincidentilly, the fund i withdrew all my money from in 2008/09).

[cagirl15]

....a couple more things. i really like I bonds and would like to include the 10k purchase of one in my plan.

also, Pingo's suggestion of:

Taxable
41% Cash or VG municipal bond fund

Her 403B at Fidelity <--I rolled over all Rollover and Traditional IRAs to the 403b.

56% VG Target 2015 (VTXVX)

Her Roth IRA at Vanguard
04% VG Target 2015 (VTXVX)

*The above results in a 34% Stock / 64% Bond portfolio that is transitioning to 18% Stocks / 82% Bonds over the next 10 years (if portfolio remains).

I liked this scenario very much because it comforts me to know i have cash on hand in case a buying opportunity arises. i still have the mentality that i want to try to recover some of my loses from pulling out at the crash. However, i would have to trade in my TIPS and GNMA fund. what happened to inflations? that's why i bought the TIPS. thoughts about this?

thanks again

[Easy Rhino]

I'm not overly excited about after-tax contributions to the 403b. You still pay tax on the income up front. After you make the contribution, the "after-tax-portion" has a cost basis. Then, when you eventually withdrawal, the gains over that tax basis are taxed as income. So no obvious tax savings, and more complicated accounting. The pre-tax contributions, and the Roth IRA, are much better first choices.

There is a loophole where your plan may allow you to make an after-tax contribution, and then convert that over (and just the after tax part) to a Roth IRA, which is a back-door way to make bigger roth conversions. But your plan has to allow it, it's pretty complicated to get your head around at first.

And I wouldn't worry to much about holding just a couple of funds. Look at the holdings here:
https://personal.vanguard.com/us/funds/ ... IntExt=INT

That's over 3000 stocks!

[pingo]

also, the charts helped me very much, i'll say again. because i can visualize how they are less risky then the Total Stock Market Index (coincidentilly, the fund i withdrew all my money from in 2008/09).

What the above tells us is that you were focused on the behavior of a single fund within the portfolio (Total Stock) without accepting that diversification is working even if we don't like how it is working. Your prior 50/50 portfolio was behaving roughly as VG Tax-Managed did below, which isn't so terrible. Diversification was working. Take a look at the chart I re-posted below and think about it in that context. Total Stock was only one fund in the portfolio, while the Balanced Fund shows us roughly what your entire portfolio (including Total Stock) was doing at the time:

Vanguard Total Stock Index Fund (VTSMX) <-- 100% Stocks.
Vanguard Tax-Managed Balanced Index Fund (VTMFX) <--50% Stocks.


And note that the Balanced Fund behaved exactly like Total Stock, except that the bonds mute the extremes while "buying low" in order to profit when stocks recover. There's no magic to it. When stocks go down/up, both lines go down/up. We merely decide the extremes we are willing to tolerate.

As to mixing balanced funds and/or asset class funds: using different funds with the same assets doesn't necessarily increase diversification, although they may be used to achieve certain weighted allocations depending on one's circumstances.

Besides, if I have a 40/60 balanced fund and then add a bond fund that brings the weighted AA to 30/70, the portfolio behaves the same as the 30/70 balanced fund (just like your old portfolio behaved the same as a 50/50 balanced fund), but I'd experience unnecessary fluctuation anxiety because with the 40/60 fund when I could use an equally diversified 30/70 balanced fund for the whole shabang. With 30.70 I've merely purchased a box will all bonds wrapped inside of it (further dampening the trauma of stock exposure) rather than holding some of those bonds outside the box.

More later!

[pingo]

...it comforts me to know i have cash on hand in case a buying opportunity arises.

You may have repented from selling when you should have been buying, but are you sure you'll recognize new opportunities if indeed that is what they turn out to be? And what if stocks do awesome for the next 20 years? The buying opportunity will have been now.

One thing is for sure: if you hold what you can in those balanced funds, the funds will buy, hold and rebalance all along the way. That is probably the best any of us can hope for.

Also, consider the fact that you've...

...spent the last two days at a cheerleading competition for my daughter. [...] i feel like i've been run over by a freight train...

...you clearly have more important things to do than to watch markets.

....a couple more things. i really like I bonds and would like to include the 10k purchase of one in my plan.

That's probably okay.

However, i would have to trade in my TIPS...fund. what happened to inflations? that's why i bought the TIPS.

Your current lineup holds 13% TIPS. VG Target Retirement Income Fund allocates 20% to the same TIPS fund. Vanguard 2010 already holds that same TIPS fund at 14%. 2015 already holds that same TIPS fund at 4% and growing.(*) Purchasing i-Bonds is equivalent to replacing a portion of the TIPS fund. Whatever the configuration, you'll probably wind up with enough, if not an equivalent amount of TIPS without having to manage the extra fund.

However, i would have to trade in my...GNMA fund.

Your GNMA fund is only 2% of the current portfolio, and the purpose of the GNMA fund is to focus on one particular slice of the overall bond market. Just eyeballing things, at least 5% of the new portfolio will be GNMAs. Is that enough for you to sell the GNMA fund and still feel diversified?

And seriously, your bonds/bond funds will be immensely more diverse in the new portfolio, whatever you choose.


(*In a few months, Vanguard is shifting to a short-term TIPS fund in it's Target Funds, but I wouldn't get too wrapped up in whether that's good or bad for you since it's not a good vs. bad situation. It's all good, as they say.)

[pingo]

i am wondering if after tax 403b contributions would be beneficial to me. ... however, it's hard to believe that [in retirement the tax bracket] would be less than the 15% i'm in now.

If your plan allows you to make regular in-service withdrawls of those after-tax contributions (at least one withdrawal per year) in order to send them directly into your Vanguard Roth account, then I'd say yes it would be beneficial.

If you are considering after-tax contributions alone, then I might not bother.

this would be just about all of my salary so i would live on the cash from the expiring CD for expenses.

Great idea. This is exactly why we've been asking about whether or not your employer plan allows after-tax contributions. You effectually convert your taxable account into tax-free RMD-free Roth assets.

i've read that any tax loss harvesting would be lost if not holding stocks in taxable.

In a choice between tax loss harvesting stocks in a taxable account (complexity, volatility and earnings and long-term growth will eventually be taxed) versus indirectly moving a large amount of cash (no tax issue) into a VG Roth (never taxed again) where I can wrap more assets inside of a simple balanced/target fund... I'd take door number two.

my thought is that i could put an additional amount in after tax contributions in addition to my pre-tax and roth IRA for a total of 50k a year.

Be sure you are adjusting for the new 2013 limits, which are different than your first post:

$17,500 max Traditional 401k contributions
$5,500 max 401k Catchup contributions (ages 50+)
(*Combined 401k Trad/Catchup/Employer Match/After-Tax contributions have a $51k limit)

And don't forget the changes for IRAs, too:

$5,500 VG Roth IRA Annual Contributions
$1,000 IRA Catchup contributions (ages 50+)

As for the traditional IRA's at B of A and credit union, i haven't yet found out what the withdrawal penalty is so i don't know if withdrawing them is a good idea. These amount to 10% of my portfolio so it is a good chunk. if i do withdraw them, can i roll them over to the 403b and what would be the benefit of this?

Simplicity, pure and simple. You have the opportunity to reduce the number of funds and accounts, while increasing your diversification and expected returns. But, don't worry about it. If it takes you a while to put this money to work in a different vehicle, so be it. It's just one more way that you avoid lump summing, which is what you prefer. Win-win.

I also have a Roth IRA (money market fund 2%) and a Rollover IRA (MMF 5%) at Vanguard that needs to be decided on. ... if i can rollover to 403b, what is the benefit of this?

That Vanguard Rollover IRA can be merged with your 403b for one less account and one less fund. If you decide to wait for the CDs to mature, put everything but the CDs in a target fund and rollover the entire IRA to the 403b once the CDs mature.

[cagirl15]

hello again, i hope i can once again get some advice. I've been struggling with what to do with my accounts. I have taken the 41% of my portfolio out of the CD that expired and it is sitting in a savings acct. Here are the choices I have come up with. If there is anyone who can give me there .02 i'd really appreciate it!

41% expired CD at Credit Union: Vanguard tax managed balanced index fund VTMFX
20% rollover IRA at VG: sell and buy Wellington Admiral Fund
14% 403b at Fidelity: buy VG Total bond market fund.
4% Roth IRA at VG, and combine credit union roth ira to this and buy VG Total bond market fund.
12% Rollover IRA CD's at VG: wait for them to expire and buy VG total bond fund
8% Taxable CD's at Bank: wait for them to expire and transfer to VG and buy tax managed balanced fund
2% GNMA fund at Vanguard: just keep it there

or

41% taxable: VTMFX
and the rest VG Target 2015

or

41% taxable: VG Total Stock mkt Index fund VTSAX and VG Total international index fund VTIAX (70/30)
and the rest VG Total bond fund VBTLX

I don't plan on pulling out if the going gets rough. I'm just tired of trying to figure out what to do. I've done my fair share of studying this, i just don't have very much extra time. I do plan on purchasing max i bonds on a yearly basis.

Any thoughts would be appreciated!

[protagonist]

:happy hello again,

Hi again, ca.

i hope i can once again get some advice.

"Tell me, great hero, but please make it brief". -Bob Dylan, "Tombstone Blues".

I've been struggling with what to do with my accounts. I have taken the 41% of my portfolio out of the CD that expired and it is sitting in a savings acct. Here are the choices I have come up with. If there is anyone who can give me there .02 i'd really appreciate it!

41% expired CD at Credit Union: Vanguard tax managed balanced index fund VTMFX
20% rollover IRA at VG: sell and buy Wellington Admiral Fund
14% 403b at Fidelity: buy VG Total bond market fund.
4% Roth IRA at VG, and combine credit union roth ira to this and buy VG Total bond market fund.
12% Rollover IRA CD's at VG: wait for them to expire and buy VG total bond fund
8% Taxable CD's at Bank: wait for them to expire and transfer to VG and buy tax managed balanced fund
2% GNMA fund at Vanguard: just keep it there

or

41% taxable: VTMFX
and the rest VG Target 2015

or

41% taxable: VG Total Stock mkt Index fund VTSAX and VG Total international index fund VTIAX (70/30)
and the rest VG Total bond fund VBTLX

I don't plan on pulling out if the going gets rough. I'm just tired of trying to figure out what to do. I've done my fair share of studying this, i just don't have very much extra time. I do plan on purchasing max i bonds on a yearly basis.

Any thoughts would be appreciated!

Personally, I would do option b or c, or some variant thereof. The reason is embodied in your statement above, and transcends the financial: " I've done my fair share of studying this, i just don't have very much extra time". You sound a bit like me, in that you have a tendency to obsess over such things, which has an up and a down side (as do most things I suppose). Options b and c were two lines each- option a was seven. That sounds flippant but hear me out. I think keeping your financial life simple, especially for one with a tendency to obsess, will ultimately make your life happier, and in the long run your financial prospects are probably no worse off . Especially post-divorce...I've been there, and the last thing I needed were financial complexities to , as the Spanish expression goes, "rizar la riza". b and c are simple. As for what to do about your bond allocation, you should rely on the advice of others, since I am one of those who believe we are in the midst of a bond bubble which has to pop, so my fixed income investments are almost all in CD's. Many here (including, I assume, you) disagree, and for all I know, they may be right. I don't know anything about target funds- I don't use them.

[kitteh]

I haven't waded through all of the responses, and you have so many investments that they're beyond my ability to grasp. But I did note two things:

1. You really have done well. A lot of people are in financial ruin after a divorce.

2. About your CDs. If you want to keep money in CDs, you can do better with the interest rates. Any decent credit union is paying at least 1.5% or more on five year CDs, which you can always take early withdrawals from with a minimal penalty. I would end the abysmal ones early and do a trustee to trustee transfer of those, not a direct transfer, to a credit union after looking around for the highest rates in your area. No sense taking an early close on the ones just about to expire, though, just let them expire and then transfer.

The destination credit union(s) can do paperwork for you now to transfer CDs on maturity or before maturity.

[rickmerrill]

:happy hello again, i hope i can once again get some advice. I've been struggling with what to do with my accounts. I have taken the 41% of my portfolio out of the CD that expired and it is sitting in a savings acct. Here are the choices I have come up with. If there is anyone who can give me there .02 i'd really appreciate it!

41% expired CD at Credit Union: Vanguard tax managed balanced index fund VTMFX
20% rollover IRA at VG: sell and buy Wellington Admiral Fund
14% 403b at Fidelity: buy VG Total bond market fund.
4% Roth IRA at VG, and combine credit union roth ira to this and buy VG Total bond market fund.
12% Rollover IRA CD's at VG: wait for them to expire and buy VG total bond fund
8% Taxable CD's at Bank: wait for them to expire and transfer to VG and buy tax managed balanced fund
2% GNMA fund at Vanguard: just keep it there

or

41% taxable: VTMFX
and the rest VG Target 2015

or

41% taxable: VG Total Stock mkt Index fund VTSAX and VG Total international index fund VTIAX (70/30)
and the rest VG Total bond fund VBTLX

I don't plan on pulling out if the going gets rough. I'm just tired of trying to figure out what to do. I've done my fair share of studying this, i just don't have very much extra time. I do plan on purchasing max i bonds on a yearly basis.

Any thoughts would be appreciated!

When I am feeling overwhelmed I make a list of the steps necessary to reach my goal. I am thinking that you don't have to fix everything in one fell swoop. Deciding what to do with the 41% would be a big step in the right direction. I can't determine how tax effecient this would be but I am thinking you won't pay much in taxes no matter what you do. Hopefully others will correct me if I am wrong. That said, you won't be far off if you invest in the target income, 2010 or 2015 or conservative or moderate life strategy or the tax managed fund. Perhaps the target retirement income fund is good enough for now and you can start working on simplifying the rest once that step has been taken? I think the total bond fund is a good place to move most of the rest of the money. You can spend time later perfecting you portfolio, just take it one step at a time for now.

The thought occurred to me that you might want to look into some of the many single mom web sites, blogs and books. I can't imagine raising three daughters by myself but others have done similar feats and they may have some ideas to help you free up some of your time.

[g$$]

:happy hello again, i hope i can once again get some advice. I've been struggling with what to do with my accounts. I have taken the 41% of my portfolio out of the CD that expired and it is sitting in a savings acct. Here are the choices I have come up with. If there is anyone who can give me there .02 i'd really appreciate it!

41% expired CD at Credit Union: Vanguard tax managed balanced index fund VTMFX
20% rollover IRA at VG: sell and buy Wellington Admiral Fund
14% 403b at Fidelity: buy VG Total bond market fund.
4% Roth IRA at VG, and combine credit union roth ira to this and buy VG Total bond market fund.
12% Rollover IRA CD's at VG: wait for them to expire and buy VG total bond fund
8% Taxable CD's at Bank: wait for them to expire and transfer to VG and buy tax managed balanced fund
2% GNMA fund at Vanguard: just keep it there

or

41% taxable: VTMFX
and the rest VG Target 2015

or

41% taxable: VG Total Stock mkt Index fund VTSAX and VG Total international index fund VTIAX (70/30)
and the rest VG Total bond fund VBTLX

I don't plan on pulling out if the going gets rough. I'm just tired of trying to figure out what to do. I've done my fair share of studying this, i just don't have very much extra time. I do plan on purchasing max i bonds on a yearly basis.

Any thoughts would be appreciated!

I like choice B. Seems the simplest and will shield you from much of the volatility.

Maybe even consider putting 100% into the target retirement fund. I know you said you feel more diversified owning more than one fund but you also said you want to spend as little time checking this stuff as possible. That target fund is well diversified and will put you on auto-pilot towards a more conservative allocation as you near retirement.

I'll probably get crucified for saying this on the boglehead board, but once you do retire, you may want to consider purchasing an annuity. doing so will
A: transfer 100% of the market risk to a third party (the insurance company). you'll never need to worry about another market crash again.
B: eliminate 100% of the time you spend thinking about investments. You wont spend another minute tinkering with your portfolio cause they can do it for you.
C: give you some protection against longevity (the risk of outliving your assets).

Most bogleheads don't like annuities because:
A: they can be too complicated.
B: they can have high fees.
C: the owner might miss out on market gains.

That said, not all of them are complicated. Single Life Annuities are pretty straight forward. And if you're having trouble stomaching the ups and downs now, imagine how you will fair as a retiree. Consider letting someone else do it for you. The added cost might be worth it.

-g$$

[pingo]

My comments...

41% expired CD at Credit Union: Vanguard tax managed balanced index fund VTMFX
20% rollover IRA at VG: sell and buy Wellington Admiral Fund
14% 403b at Fidelity: buy VG Total bond market fund.
4% Roth IRA at VG, and combine credit union roth ira to this and buy VG Total bond market fund.
12% Rollover IRA CD's at VG: wait for them to expire and buy VG total bond fund
8% Taxable CD's at Bank: wait for them to expire and transfer to VG and buy tax managed balanced fund
2% GNMA fund at Vanguard: just keep it there

Asset Allocation: 37% Stocks / 63 Bonds
International: 5% of equities

• A fine portfolio; slightly less diversified than the others.
• GNMA fund is okay, but unnecessary; Total Bond increases your GNMAs well above the 2% of the old portfolio.
• It still makes sense to roll your Traditional & Rollover IRAs into the 403b
• Simplicity (no rebalancing)

41% taxable: VTMFX
and the rest VG Target 2015

Asset Allocation: 50/50 quickly whittling down to less than 38/62
International: 19% of equities

• Simplest
• No rebalancing necessary
• It still makes sense to roll your Traditional & Rollover IRAs into the 403b
• If you substitute VG Retirement Income (VTINX) for VG 2015, AA is roughly 38/62 and slowly shrinking

41% taxable: VG Total Stock mkt Index fund VTSAX and VG Total international index fund VTIAX (70/30)
and the rest VG Total bond fund VBTLX

• You must rebalance
• Equity volatility is completely exposed.

[pingo]

However you never confirmed the following...

If your 403b allows regular "in-service withdrawals" of after-tax contributions, my vote is for you to save $23k/yr in the Traditional tax-deferred 403b and as much as your paycheck will allow to your after-tax 403b option. Spend money from your taxable account to cover living expenses. Every year (or quarter), initiate in-service withdrawls of the after-tax money and have it sent directly to your Vanguard Roth. (If the plan doesn't allow regular in-service withdrawals, don't bother with after-tax contributions.)

If in-service withdrawals are allowed, the following would be probably the best scenario:

Taxable
41% Vanguard Tax Managed Balanced Fund *or* Ltd Term Tax Exempt <--Spend from here to save more in 403b.
xx% TreasuryDirect.gov Series i-Bonds <--$10-15k/yr.

Pre-Tax Traditional 403b <--Roll all Traditional & Rollover IRAs to the 403b.
56% Vanguard Target Retirement 2015 <--$23k/yr.

After-Tax Traditional 403b <--Use regular "in-service withdrawals" to roll directly into VG Roth.
xx% Vanguard Target Retirement 2015 <--Up to $28k/yr (subject to income limitations).

Vanguard Roth
04% Vanguard Target Retirement 2015 <--$6k/yr + 403b in-service rollovers.

• Enter retirement with a huge tax-free, RMD-free Roth IRA.
• Large Roth is helpful since you expect to have equal or higher taxes in retirement.
• Desired tax benefit dictates the funds: tax-managed fund is spent while 403b buys VG 2015 which is 54-48/46-52 for up to 4 years (close enough to maintain consistent AA); also, 403b VG 2015 (after-tax) gets rolled over to Roth VG 2015 to maintain consistent AA.
• If Tax-Managed Balanced fund is used, portfolio begins at ~50/50, but quickly whittles down to under 30/70.
• If Tax-Exempt bonds are used, portfolio begins at 32/68, and whittles down to under 30/70.
• Eventually holds all assets in tax-advantaged accounts.
• No rebalancing necessary.

[cagirl15]

"Tell me, great hero, but please make it brief". -Bob Dylan, "Tombstone Blues".

I liked that, here's one someone told me last week, "if you want to kiss the sky you got to learn how to kneel..." U2 lyrics

Personally, I would do option b or c, or some variant thereof. The reason is embodied in your statement above, and transcends the financial: " I've done my fair share of studying this, i just don't have very much extra time". You sound a bit like me, in that you have a tendency to obsess over such things, which has an up and a down side (as do most things I suppose). Options b and c were two lines each- option a was seven. That sounds flippant but hear me out. I think keeping your financial life simple, especially for one with a tendency to obsess, will ultimately make your life happier, and in the long run your financial prospects are probably no worse off . Especially post-divorce...I've been there, and the last thing I needed were financial complexities to , as the Spanish expression goes, "rizar la riza". b and c are simple. As for what to do about your bond allocation, you should rely on the advice of others, since I am one of those who believe we are in the midst of a bond bubble which has to pop, so my fixed income investments are almost all in CD's. Many here (including, I assume, you) disagree, and for all I know, they may be right. I don't know anything about target funds- I don't use them.

Thank you for your post. i do obsess over a lot of things! working on that. i like option b too and will probably go that route. I am still hesitating, i don't know what's wrong with me. it just doesn't seem like i should jump in with both barrels right now. stocks at all time high, bonds at all time low. and now i'm getting back in. I'm reading and learning and hope this will help me take the plunge.

I haven't waded through all of the responses, and you have so many investments that they're beyond my ability to grasp. But I did note two things:

1. You really have done well. A lot of people are in financial ruin after a divorce.

thank you kitteh, not often i hear that....

2. About your CDs. If you want to keep money in CDs, you can do better with the interest rates. Any decent credit union is paying at least 1.5% or more on five year CDs, which you can always take early withdrawals from with a minimal penalty. I would end the abysmal ones early and do a trustee to trustee transfer of those, not a direct transfer, to a credit union after looking around for the highest rates in your area. No sense taking an early close on the ones just about to expire, though, just let them expire and then transfer.

yes my interest rates are terrible. thanks for the advice.

When I am feeling overwhelmed I make a list of the steps necessary to reach my goal. I am thinking that you don't have to fix everything in one fell swoop. Deciding what to do with the 41% would be a big step in the right direction. I can't determine how tax effecient this would be but I am thinking you won't pay much in taxes no matter what you do. Hopefully others will correct me if I am wrong. That said, you won't be far off if you invest in the target income, 2010 or 2015 or conservative or moderate life strategy or the tax managed fund. Perhaps the target retirement income fund is good enough for now and you can start working on simplifying the rest once that step has been taken? I think the total bond fund is a good place to move most of the rest of the money. You can spend time later perfecting you portfolio, just take it one step at a time for now.

The thought occurred to me that you might want to look into some of the many single mom web sites, blogs and books. I can't imagine raising three daughters by myself but others have done similar feats and they may have some ideas to help you free up some of your time.

Thanks Rick, i appreciate your advice in telling me to take my time. that's like telling me i CAN eat all of the chocolates in the box all at one time (that doesn't really make sense but i've been working on my will power for Easter tomorrow and that's the first thought that came to my mind). Procrastination is my enemy and i fight it constantly. i appreciate, however, your advice to just work on the taxable account for now and that is what i am working on. i just can't seem to get myself to put money into a stock market that is at an all time high. i have a gut feeling that it's not the right time. i know, paralysis. i'm working on it. About the single parent blogs, i've done that and it's helped at times. just doesn't seem to be a cure for not enough hours in the day...

I like choice B. Seems the simplest and will shield you from much of the volatility.

Maybe even consider putting 100% into the target retirement fund. I know you said you feel more diversified owning more than one fund but you also said you want to spend as little time checking this stuff as possible. That target fund is well diversified and will put you on auto-pilot towards a more conservative allocation as you near retirement.

thanks g$$, simplicity is key! i'm reading a Jack Bogle book now called "Enough" and he states that he hasn't gotten so successful by being a genius or by his ingenuity but because he uses common sense and simplicity. Words I will try to live by! I know nothing about annuities and i'm confused as it is. thanks for the advice, i really appreciate it!

However you never confirmed the following...

If your 403b allows regular "in-service withdrawals" of after-tax contributions,

sorry to say that, no, my plan does not allow in-service withdrawals at this time. it was a beautiful plan you laid out for me though. i wish i could take advantage of it.

My comments...

41% expired CD at Credit Union: Vanguard tax managed balanced index fund VTMFX
20% rollover IRA at VG: sell and buy Wellington Admiral Fund
14% 403b at Fidelity: buy VG Total bond market fund.
4% Roth IRA at VG, and combine credit union roth ira to this and buy VG Total bond market fund.
12% Rollover IRA CD's at VG: wait for them to expire and buy VG total bond fund
8% Taxable CD's at Bank: wait for them to expire and transfer to VG and buy tax managed balanced fund
2% GNMA fund at Vanguard: just keep it there

[b]Asset Allocation: 37% Stocks / 63 Bonds
International: 5% of equities

• A fine portfolio; slightly less diversified than the others.
• GNMA fund is okay, but unnecessary; Total Bond increases your GNMAs well above the 2% of the old portfolio.
• It still makes sense to roll your Traditional & Rollover IRAs into the 403b
• Simplicity (no rebalancing)

41% taxable: VTMFX
and the rest VG Target 2015

Asset Allocation: 50/50 quickly whittling down to less than 38/62
International: 19% of equities

• Simplest
• No rebalancing necessary
• It still makes sense to roll your Traditional & Rollover IRAs into the 403b
• If you substitute VG Retirement Income (VTINX) for VG 2015, AA is roughly 38/62 and slowly shrinking

41% taxable: VG Total Stock mkt Index fund VTSAX and VG Total international index fund VTIAX (70/30)
and the rest VG Total bond fund VBTLX

• You must rebalance
• Equity volatility is completely exposed.

I've read over you posts many times, studying them and i agree with what you are suggesting that i do. why is it that i can't seem to make a move? i am continuing to study in my "spare" time but can't get past the fact that i've lost so much money by pulling out just before stocks came back even higher. if i buy in now i will be buying in at the highest the market has ever been and the lowest of bond markets. isn't this a mistake? if it isn't, then my gut is wrong. i agree that a target, life strategy, or 3 fund portfolio are the right way for me to go. i like the tax managed for taxable and the target 2015 for tax advantaged. i just am paralyzed. well not exactly paralyzed.... i am reading. i am trying to tackle my procrastination by educating myself so that i feel more comfortable taking the plunge. i'm reading the books on the recommended reading list but it's taking time. i love Jack Bogle and have tremendous trust and faith in him as a financial guru and as a human being. the books are enlightening if not down right frightening. the financial market is even more screwed up than i thought. anyway, i was hoping that at some point, soon, i would understand how to gauge how overvalued or not overvalued the stock market is today. i'm just not there yet. thank you so much for all your advice and the time you spent helping me. it is greatly appreciated! happy, happy Easter!

[pingo]

Happy Easter, cagirl15!

I respond below in bits and pieces. Questions are rhetorical.

sorry to say that, no, my plan does not allow in-service withdrawals at this time.

I just had to keep pushing 'til I got an answer. I guess it's safe to say you're not the only one who obsesses around here.

stocks at all time high, bonds at all time low.

Some might argue that bonds are at also at all time highs, and with yields at all time lows. When everything is bad, the only thing to invest in is still everything.

About your CDs. If you want to keep money in CDs, you can do better with the interest rates.

And some do consider CDs a decent alternative to bonds at the current time. Nothing wrong or unreasonable with that.

i am continuing to study in my "spare" time but can't get past the fact that i've lost so much money by pulling out just before stocks came back even higher.

Yes. So, if stocks crash again, shall we to pull out or keep going?

if i buy in now i will be buying in at the highest the market has ever been

Yesterday's all time highs are eventually tomorrow's lows...hopefully. Looking at US Stocks (below), how many all time highs can be viewed from 1976 to the present? Is there only one, several, or is it simply the course of markets to press forward?

Proxy for US Stock Market (VFINX)

if it isn't [a mistake], then my gut is wrong.

Your gut is correctly telling you about your risk tolerance, which must then be reflected in how you allocate your assets. However, when it comes to timing markets, guts are wrong far more often that they are right.

Recently, another poster referenced one of the Nobel Prize-winning fathers of Modern Portfolio Theory, which might apply here:

When asked how he invests his own money, here is Harry Markowitz's rather understated response: I should have computed co-variances of the asset classes and drawn an efficient frontier; instead , I split my contributions 50/50 between bonds and equities [to] minimize my future regret.

You also stated:

i was hoping that at some point, soon, i would understand how to gauge how overvalued or not overvalued the stock market is today.

You might not be able to tell unless it becomes really obvious. For example:
• Stocks reach 50-100 times earnings
• Everyone at work has turned day trader
• Leaders, the press, the man on the street, taxi drivers, hobos and even Bogleheads rave non-stop about past performance, unstoppable markets and that there has never been a better time to invest.

FWIW the US Stock Market is currently 13 times earnings, the future of markets is very uncertain (which is no different than always ), and no one has any idea if it's a good time to invest. Regardless, rebalancing according to one's asset allocation uses market highs and lows for the good of the portfolio.

I'm reading and learning and hope this will help me take the plunge. [...] why is it that i can't seem to make a move?

Because you're not ready. Take your time. You are doing great financially.

It dawned on me that the following thread might also be helpful:

Starting out with Asset Allocation and desperately need help <--90% cash & DCA vs Lump Sum discussed.

That said, keep reading. Review this thread every so often because some of it may take on new meaning with time.