Update: New Professionals Jumped in Full Force, Suggestions?

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Update: New Professionals Jumped in Full Force, Suggestions?

Postby TroutMD » Sun Feb 10, 2013 3:09 pm

For reference, here is our prior post. http://www.bogleheads.org/forum/viewtopic.php?f=1&t=109349

Emergency Funds: Covered
Debt: 326K primary mortgage - 15 year note @ 4.375%; 2 years into it - Plan to refinance. Appraisal when bought was 500K; paid 455K.
UPDATE: Debt 326K primary mortgage - Refinancing pending, Closing end of March. 10 year @ 2.75%; done by local Wells Fargo, closing costs about 3K
Tax Filing Status: Married filing jointly
Tax Rate: 35% federal, 0% State
State: Texas
Age: Me - 32, Her 31
Portfolio Size: Mid Six Figures
Desired Assest Allocation: 68% Stocks / 32% Bonds (We used the Age idea)
Desired International Allocation: 20% (We like the 'core 4' model which has a slight tilt)
Desired Allocation Overall: Bonds: 32%, US Stock: 40%, Int Stock: 20, Tilt: 8%
Current Actual Allocation: Bonds: 32.33%, US Stock: 36.33%, Int Stock: 19.88%, Tilt: 7.81%, Cash 3.6%


HER TAXABLE:
3.6% CASH - Her Company Stock we sold, and being sent to us and intend to send this to Vanguard and put in US Total Index. This more will place are allocations above on target.
9.32% Vanguard Total International Stock Index Fund Admiral Shares
7.39% Vanguard Total Stock Market Index Fund Admiral Shares

HIS TAXABLE:
7.91% Vanguard Total International Stock Index Fund Admiral Shares
7.91% Vanguard Total Stock Market Index Fund Admiral Shares
0.96% Vanguard Money Market - Intend to use this as 'play' with random stocks

HIS Roth 401K - Original Company no longer worked for, currently held with 'Northwestern Bank'. I probably should roll this to my actual Vanguard account.
2.67% Vanguard Total International Stock Index Fund

HIS Roth IRA - No longer qualify to contribute to this.
2.18% Vanguard Mid-Cap Index Fund Admiral Shares

HIS Traditional IRA - I cannot do a backdoor because I fully fund a Sep IRA.
5.97% Vanguard Total Stock Market Index Fund Admiral Shares
2.90% Vanguard Small-Cap Index Fund Admiral Shares

HIS SEP IRA - This is my primary retirement vehicle at this point and time
13.24% Vanguard Total Stock Market Index Fund Admiral Shares
3.51% Vanguard Total Bond Market Index Fund Admiral Shares
1.77% Vanguard REIT Index Fund Admiral Shares

HER Traditional IRA - We are discussing with our accountant about rolling this over to a Roth.
1.82% Vanguard Total Stock Market Index Fund Admiral Shares

HER 401K - Primary Investment vehicle by her current company; there is a match and we fund this fully.
20.17% Fidelity US Fixed Income 0.05%
8.64% Fidelity US TIPS Bond Index 0.07%


Other options for HER 401K:
Fidelity Target Dates 2015, +5 years up to 2055. Net Exp Ratio is 0.09%
Equity Index Growth 0.04%
Equity Index Value 0.04%
Intl Equity Index 0.09%
Russell 2000 Index 0.04%
S&P 500 Index 0.02%
Emergency Markets Index 0.18%
Income 0.40%
US Fixed Income 0.05%
US Fixinc Short Dur 0.05%
US TIPS Bond Index0.07%
World Government Bond Index 0.07%
HER Company Stock 0.02%


Thoughts/Questions:

First of all a big Thank You as we have learned much and have dumped a lot of money into the markets over the past couple weeks. We hope we can stay the course and follow all the bogleheads advice we have read about. I dont think we will have any issue.

So we made MANY changes if you look at our prior post and are just about where I think we need to be and just wanted to get another good once over by the experts on here. A few partciular questions we have...

1.) On HER 401K, is splitting up part of our Bonds Allocation into those TIPS a good idea? Or is it better to be in all US Fixed Income?

2.) We wanted an 8% Tilt, originally our idea was all REIT. I talked to my CPA who also gives independent financial advice; he liked our plans here but said we really needed some mid and small cap funds. Were we appropiate to buy the Vanguard Small Cap and Mid Cap Index funds and include those in our 'Tilt' calculations? I see there are also Small/Mid Growth and Value Funds. Are we in the right one, or should we be elsewhere..such as the Growth or Value Fund?

3.) Did we allocate correctly for tax purposes? I think we did, but I could have missed something. I am happy to move things around if needed.


UPDATE:

As far as rebalancing in her 401K, I am not certain if this is such a great idea as this is NOT with Vanguard and we prefer to stick with Vanguard. I posted her avalible funds above; its with Fidelity. We went with ALL Bond allocation in that one account because those two funds seemed to be the best for her account? Let me know if somehow my thinking is flawed.

On rebalancing, I will continue to fully fund my SepIRA and her the 401K. Going forward, I think we can always use her 401K to buy those bond funds, and my SepIRA has the more flexiblity for rebalancing and such?

Points taken on not tinkering too much. Call me hard headed, but I really do want to keep a tilt for a while anyways. I am going to look at ditching the small and mid cap index into one small value index.
Last edited by TroutMD on Tue Feb 26, 2013 5:48 pm, edited 3 times in total.
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Re: Update: New Professionals Jumped in Full Force, Suggesti

Postby livesoft » Sun Feb 10, 2013 3:37 pm

Instead of those separate small and mid cap index funds, I might suggest that you simply use an Extended Market Index fund or if you want a tilt a small-cap value index fund. Despite their names, they both contain small and mid cap equities.

Also it appears that "her 401(k)" has outstanding funds for each of the asset classes. As such, I would suggest that her 401(k) be used for any rebalancing going forward. That means it might end up with 4 or 5 funds in it. The other accounts can have mostly one fund in them or perhaps 2 funds, but otherwise they would be in "set-and-forget" mode.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Answer to questions

Postby Taylor Larimore » Sun Feb 10, 2013 4:23 pm

TroutMD:

You have done an excellent job of posting your portfolio and your questions in an understandable manner!

In my opinion, you and your wife have a superior portfolio. Your biggest problem may be to ignore tempting suggestions for additional securities and clutter.

I will try to answer your questions:
1.) On HER 401K, is splitting up part of our Bonds Allocation into those TIPS a good idea? Or is it better to be in all US Fixed Income?

I think a partial bond allocation to either of Vanguard TIPS funds is a good idea. Vanguard experts recently changed to the new and shorter TIPS fund for their fund-of-funds so I would probably select that one.

2.) We wanted an 8% Tilt, originally our idea was all REIT. I talked to my CPA who also gives independent financial advice; he liked our plans here but said we really needed some mid and small cap funds. Were we appropiate to buy the Vanguard Small Cap and Mid Cap Index funds and include those in our 'Tilt' calculations? I see there are also Small/Mid Growth and Value Funds. Are we in the right one, or should we be elsewhere..such as the Growth or Value Fund?


Your Total Market Index Funds are superior by themselves. You can play (and agonize) forever with "tilts" which can hurt as much as help (http://www.vanguard.com/bogle_site/sp20020626.html). Consider adding Vanguard's small-cap value fund in a tax-advantaged account and forget about it.

3.) Did we allocate correctly for tax purposes? I think we did, but I could have missed something. I am happy to move things around if needed.

Your portfolio is VERY tax efficient. This is very important and something you can control. Consider using the Tax-Exempt money market fund to simplify at tax time and maybe get a little better after-tax return.

Other:

* Your most important decision is your stock/bond allocation. It seems reasonable to me.

* Try to avoid any fund less than 5% of your portfolio. Such an allocation adds complexity and is nearly meaningless.

* Consider making your taxable accounts joint for simplicity and to possibly improve creditor protection.

* Move that small Northwestern account to Vanguard. It is a great convenience to have your entire portfolio with one good company.

* Converting her small TIRA to her Roth is probably a good idea. Continually strive for simplicity.

The enemy of a good plan is the dream of a perfect plan.--John Bogle

You have a very good plan.

Congratulations and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Update: New Professionals Jumped in Full Force, Suggesti

Postby retiredjg » Sun Feb 10, 2013 6:04 pm

With the choices you have, there are probably a dozen ways to set up your portfolio. I think your idea is as good as any. Nicely done! If you decide to do any changes, you should give consideration to livesoft's idea of holding 4 funds in Her 401k and use that one account as a rebalancing location.

Ordinarily, converting tIRA to Roth IRA in your tax bracket is not recommended. However, it's less than 2% of your portfolio and doing that will set Her up for back door Roth IRA contributions. An even better idea might be to roll Her tIRA into Her 401k. That way, you would avoid the taxes of the conversion and still She would be a good candidate for back door Roth IRA contributions in the future. Considering the tax law changes that happened last month, I'm willing to bet the back door will be available for at least several years.

Rolling His Roth 401k into His Roth IRA would get rid of one unnecessary account. If you do this, find out about the 5 year clock that goes with that money (I don't know when that clock starts - on contribution or at rollover?) and make a note of it in case you have to raid His Roth IRA.

But....if there is a possibility of changing away from the SEP IRA, you might want to keep that His Old Roth 401k for now and later roll His tIRA and His SEP IRA into His Old 401k (roll into traditional, not Roth). That would set Him up for back door Roth IRA contributions. Of course, if He ends up with another 401k, you could roll everything into there instead.

What you've got going is very good. I'm just throwing out ideas for consideration.
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Re: Update: New Professionals Jumped in Full Force, Suggesti

Postby TroutMD » Tue Feb 12, 2013 5:09 pm

I started the request to get that Roth 401K sent over the my Vanguard account.

I ditched the Small Cap Index and Mid Cap Index, and instead bought the Small Cap Value Index Admiral. That sounds to be a more appropiate 'tilt'. I've read the back and forths on Tilt vs not; for now at least, we want to keep a Tilt so we went with that.

I also read about Voyager accounts and called Vanguard and got mine changed to the appropiate status. I am not sure it makes that big of a difference.

Still to do: Work on the home refinanance, and will look at combining our taxable accounts. I was able to get it setup at least where I can view the wifes on my Vanguard.

Thanks for the encouragements and such. Feel free to post any more feedback!
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