Asset Allocation Question; Transferring Roth IRA to Vanguard

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Asset Allocation Question; Transferring Roth IRA to Vanguard

Postby Jetson23 » Wed Feb 06, 2013 9:27 pm

I'm in the process of transferring my Roth IRA from Wells Fargo Advantage to Vanguard. I hope to gain better performance and lower fees, the latter of which seems to be a given. I'm including all the info I think is needed as suggested by the "Asking Portfolio Questions" topic.

Emergency funds: 6 month emergency fund
Debt: Just under 100K on my mortgage, refinanced to a 15 year about 2.5 years ago at 4.75% (was underwater, didn't get prime rate)
Tax Filing Status: for 2012, Single, 2013 will be Married Filing Jointly
Tax Rate: 25% Federal, 7.5% State
State of Residence: MN
Age: 37
Desired Asset allocation: Unsure. At my age I can tolerate some risk, so should I be in 80/20 stocks/bonds?
Desired International allocation: Also unsure. 20%?

Current Portfolio is low 6 figures.

Current retirement assets

Taxable
4% Investment Company of America (AIVSX) (0.61%)
This is a fund that was started for me at a young age, and I have added minimal funds to it over the years. I don't plan on doing anything with this until I max my 401K.

My 401k
Willing to make some adjustments here, if necessary, as well. Available funds posted near the end of the post.
6% Spartan 500 INDEX Func INST class - FXSIX (0.04%)
18% MERIDIAN GROWTH - MERDX (0.85%)
17% Aberdeen Emerging Markets Fund Institutional Class - ABEMX (1.03%)
21% Fidelity FREEDOM K 2040 - FFKFX (0.62%)
13% Fidelity Freedom K® Income Fund - FFKAX (0.39%)
10% PIMCO Total Return Fund Institutional Class - PTTRX (0.46%)
I contribute 11%, company matches up to 6%

My Roth IRA at Vanguard
Is and will be 11% of portfolio after transfer to Vanguard
These are the funds I've tentatively selected, but looking for validation and/or adjustments. The last couple years, I haven't maxed it, I've been a little off in my monthly contributions, but I plan to max it in 2013. I can probably only choose 4 funds, because of the $3000 minimum. At most, I can chose 5 funds with $3000 minimums from Vanguard's portfolio. If I choose 4, each fund will be just under 3% of my portfolio. If I choose 5, each just over 2%. For now I have 4.

Vanguard 500 Index Inv (VFINX) (0.17%)
Vanguard REIT Index Inv (VGSIX) (0.24%)
Vanguard Long-Term Bond Index Inv (VBLTX) (0.22%)
Vanguard Wellington Inv (VWELX) (0.27%)


Available funds

Funds available in my 401(k)
Spartan Extended Market Index Func Fidelity Advantage Class - FSEVX (.07% ER)
Fidelity CONTRAFUND K - FCNKX (.69% ER)
Fidelity MAGELLAN K - FMGKX (.41% ER)
PRIMECAP ODYSSEY STOCK - POSKX (.66% ER)
Wells Fargo Advantage Small/Mid Cap Value Fund Institutional Class - WWMSX
Hartford International Opportunities HLS Fund Class IA - HIAOX (.73% ER)

T. Rowe Price Institutional Global Equity Fund - TRGSX (.75% ER)
Fidelity FREEDOM K 201 0
Fidelity FREEDOM K 2020
Fidelity FREEDOM K 2030 - FFKEX
Neuberger Berman High Income Bond Fund Institutional Class - NHILX (.70 % ER)
Vanguard Inflation-Protected Securities Fund Institutional Shares - VIPIX (.07% ER)
Fidelity® Money Market Trust Retirement Government Money Market Portfolio - FGMX

Questions:
1. Main question is which funds to pick from Vanguard. Balance to be transferred is right around $15K, so 5 funds max.

2. Should anything be rebalanced or changed in my 401K to coordinate with the Vanguard funds?
Last edited by Jetson23 on Mon Feb 11, 2013 9:05 am, edited 1 time in total.
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Re: Asset Allocation Question; Transferring Roth IRA to Vang

Postby Jetson23 » Fri Feb 08, 2013 12:25 am

Just wanted to bump this once in case anyone wants to help out a beginner...
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Re: Asset Allocation Question; Transferring Roth IRA to Vang

Postby Duckie » Fri Feb 08, 2013 1:27 am

Jetson23, you want an AA of 80% stocks, 20% bonds (low for your age), with 20% of stocks in international. That breaks down to 64% US stocks, 16% international stocks, and 20% bonds. Here is a possible retirement portfolio:

Taxable -- 4%
4% (AIVSX) American Funds Investment Company of America Fund (0.61%)

401k -- 85%
48% (FXSIX) Spartan 500 Index Fund Institutional Class (0.04%)
12% (FSEVX) Spartan Extended Market Index Fund Advantage Class (0.10% ??) <-- Roughly 80% large caps (500 Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
5% (HIAOX) Hartford International Opportunities Fund (0.73% ??)
20% (PTTRX) PIMCO Total Return Fund Institutional Class (0.46%)

Roth IRA at Vanguard -- 11%
11% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.18%)

-- I would increase the bonds to 30% of the portfolio and the international to 30% of stocks for an AA of 49/21/30, but that's just me.
-- I would sell the AIVSX fund in taxable and replace it with Vanguard Total International Stock to take advantage of the 
Foreign tax credit. It's worth less than $6K. The taxes wouldn't be much.
-- You are trying to put way too many funds into your Roth IRA.
-- Of course, once you're married you'll have to consider your spouse's assets and options, but for now this'll do.

Something to think about.
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Re: Asset Allocation Question; Transferring Roth IRA to Vang

Postby bertilak » Fri Feb 08, 2013 7:21 am

Looks overly complicated and with some expensive (high ER) funds.

Keep it simple. As close as possible go for:

Total Stock Market (TSM) fund(s)
Total International Stock Narket (TISM) fund(s)
Total Bond Market (TBM) fund(s)
And a dash of REITS is OK, too.

Drop everything over .50 ER.

Keep bonds out of taxable.

That's an odd mix in the IRA. There is a "philosophical" mismatch here.

Wellington is a balanced fund, that is a fund intended to do the stock/bond AA for you, yet you are adding additional stocks and bonds to the mix as if you want to do the job yourself. The overlap is in the 500 and bond funds. Combining those with Wellington adds no significant diversification to your portfolio. The REIT fund is a completely different animal so it does make sense to include that in the mix as it does add diversification.

Wellington is a fine fund (I have ALL of my IRA in it) but I don't see it as a good fit for you. You can simplify the IRA by dropping it. Also, change the S&P500 to TSM and the long-term bond to TBM.
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Re: Asset Allocation Question; Transferring Roth IRA to Vang

Postby livesoft » Fri Feb 08, 2013 7:29 am

I don't see why you don't just use a Target Retirement fund in your IRAs and in your 401(k). So you just need to choose one fund for each. Very simple.

To repeat: IRA 100% in a Target Retirement fund. 401(k) 100% in a Fidelity Freedome K fund.

And I would do something with that taxable account now. If you cannot figure out the cost basis, I would give it away to charity perhaps via a donor-advised fund. If you do not want to sell it, then stop reinvesting the distributions and use them elsewhere.
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Re: Asset Allocation Question; Transferring Roth IRA to Vang

Postby Jetson23 » Sat Feb 09, 2013 11:15 am

First of all, thanks much to everyone for their responses. Sounds like I have a few things to do(some of which I may have already done). I'll summarize, and embed a few follow up questions to make sure I'm understanding.

1. Simplify my Vanguard selections. I've actually already done that. After posting this thread, I talked to a friend who follows these forums pretty closely, and he pointed me to a thread that recommended just putting it into three funds: Vanguard Total Stock Market (VTSMX), Vanguard Total Bond Market (VBMFX), Vanguard Total International Stock Market (VGTSX).

Another option here seemed to be just putting everything into Wellington at Vanguard?

Could also do one of the two above along with the REIT fund in Vanguard for diversification?

Or even more simplified is to go with one fund, a target retirement fund.

2. Simplify and get rid of high expense funds in 401K. I do have some other choices there, so I think I can make some moves to make that happen.

and all the while...

3. Balancing to achieve a 80% stocks, 20% bonds, with 20% of stocks in international? I was more or less asking what ratio I should have, someone said 20% bonds is too low. So I guess I'm asking, what should I be looking to do as far as percentages in each category? Once I know that, I can start balancing the funds as necessary, depending on my choices outlined above.

Thanks again!
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Re: Asset Allocation Question; Transferring Roth IRA to Vang

Postby Duckie » Sat Feb 09, 2013 10:28 pm

Jetson23 wrote:1. Simplify my Vanguard selections. I've actually already done that. After posting this thread, I talked to a friend who follows these forums pretty closely, and he pointed me to a thread that recommended just putting it into three funds: Vanguard Total Stock Market (VTSMX), Vanguard Total Bond Market (VBMFX), Vanguard Total International Stock Market (VGTSX).

That's fine except the bulk of your retirement assets are in your 401k which doesn't have Vanguard. It doesn't have a Total Stock Market fund. You would have to buy both 500 Index and Extended Market to cover it. It doesn't have a Total Bond Market fund. You would have to use PIMCO Total Return, which, while not great, will do. It doesn't have a Total International fund. The best is the Hartford but it's only a developed markets fund. In the real world you can only work with the options you have.

Another option here seemed to be just putting everything into Wellington at Vanguard?

This is a balanced fund. If you're going to have a balanced fund in one account, you really need it in all accounts.

Could also do one of the two above along with the REIT fund in Vanguard for diversification?

REITs are included in a total market fund at the market weight. If you have 500 Index and Extended Market funds you already have REITs.

Or even more simplified is to go with one fund, a target retirement fund.

You could put one of the Fidelity Freedom K funds in your 401k and one of the Vanguard Target Retirement funds in your Roth IRA. Balanced funds aren't suitable for taxable. Just pick the fund by the AA not the date.

2. Simplify and get rid of high expense funds in 401K. I do have some other choices there, so I think I can make some moves to make that happen.

Good.

3. Balancing to achieve a 80% stocks, 20% bonds, with 20% of stocks in international? I was more or less asking what ratio I should have, someone said 20% bonds is too low. So I guess I'm asking, what should I be looking to do as far as percentages in each category? Once I know that, I can start balancing the funds as necessary, depending on my choices outlined above.

This is personal. It's based on your need, ability, and willingness to take risks. Based solely on your age I already recommended 70% stocks, 30% bonds, with 30% of stocks in international. That breaks down to 49% US stocks, 21% international stocks, and 30% bonds.

Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the discussion and the Vanguard paper link. Vanguard splits the difference and uses 30% in their Target Retirement and LifeStrategy funds.

As for 30% bonds, at age 37 this is not too conservative. Try it for a couple of years. You may find you would feel more comfortable with less in bonds or more in bonds. (Although if you end up using the Freedom and TR funds they automatically become more bond heavy over time.) In a tax-sheltered account it doesn't hurt to change your mind.
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Re: Asset Allocation Question; Transferring Roth IRA to Vang

Postby Jetson23 » Sun Feb 10, 2013 6:45 pm

Duckie, and others-

Thanks much for your help. Very informative.
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