Portfolio Review Request

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Portfolio Review Request

Postby gem11 » Mon Mar 04, 2013 3:19 pm

Would like advice/opinions on our portfolio

Emergency fund 3 months plus a 50k home equity credit line
Mtg. 185k at 3.625% just refinanced into 30yr.
I add $3-400/mo to pay down faster.
Appraised value $600k
Tax filing status- Married Filing Jointly
Tax rate- fed 15% state 6%
State of res is CA

Age 57 and spouse 52
2 children
1 in college, have luckily been able to pay expenses out of current income and student works.
1 3 years until college will again pay out of current income and student is expected to work/save.

Asset allocation is roughly 70%stocks 30% bonds and cash. I will receive a pension that will replace about 20% of income. Also health insurance is covered for life for both.

portfolio is currently low six figures.

Taxable
3% Brk.B

His Roth IRA
28% Vanguard Total Stock VTSAX
23% Fidelity Contrafund FCNTX
6% Dodge and Cox International DODFX

Rollover IRA
6% T.Rowe Price Health Science PRHSX

Her Roth IRA
23% Harbor Bond Fund HABDX
6% Vanguard Wellesley VWINX
4% Vanguard Global Equity Fund VHGEX
1% Alpine Cyclical Advantage Property Fund EUEYX

Thinking of adding a Small Cap Index and a REIT index, to diversify, Is this a good idea?
Also would like to buy more BRK.B.
Also concerned about the bond fund when interest rates rise. Should we put some of the bond fund into another fixed income mutual fund?

Thank you
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Re: Portfolio Review Request

Postby mhc » Tue Mar 05, 2013 12:47 am

Welcome to the forum.

You should list the expense ratios for your funds. I think that you will see that you are paying more on expenses than most people around here. I think I average around 0.1% ER.

I would say that you have a nonstandard boglehead mixture of funds. A typical portfolio would be built around 3 funds:
Total Stock Market (TSM)
Total International Stock Market (TISM)
Total Bond Market (TBM)

This is the basis of a well diversified portfolio. It can also be built with very low costs.

If you have not done so, you should spend some time reading the Wiki. Here's a good place to start: http://www.bogleheads.org/wiki/Getting_Started

Since your vast majority of your funds are in tax advantaged accounts, you can easily create a well diversified, low cost portfolio.

Many around here would say you are light on bonds. Bonds are good for diversification and managing risk. If 70/30 AA is what you want, then you need to next decide what percent of equities you want to be international. 20-40% of equities in international is a normal range.

You could build a great portfolio with just three funds if you like.
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Re: Portfolio Review Request

Postby jimkinny » Tue Mar 05, 2013 9:30 am

I think I would worry more about paying down debt and saving more while you can.

I only use index funds because the numbers indicate that index funds will generally on an after tax and expense basis come out ahead of actively managed funds and it is beyond my ability which fund manager is going to do well over the next 25 years. I also no longer think that I know more than the market knows and avoid sector funds. Additionally, I think that taking risk is generally rewarded in the long run. If I see a fund or sector that has done better than a Total Stock Market fund over a long period of 10-15 years, I assume that the fund is simply taking on more risk than a TSM fund.

If you want to add small cap and reits, do so, but understand the risks.

I think a three fund approach is good:
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005
I think you can probably approximate the 3 fund portfolio since you have some access to Fidelity and Vanguard funds (Fidelity has some good low cost Spartan Index funds like the Vanguard funds).

Give some consideration to a target retirement fund or a constant allocation fund.

I am concerned about the downside risk of bond funds. I own some ST funds and CDs as well as a total bond market fund because of that concern. I do not know if I am making the right decision but I know the risks and made my choice. Please read the Wiki concerning the risks of bonds.

jim
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Re: Portfolio Review Request

Postby wilked » Tue Mar 05, 2013 9:51 am

As others have said, determine what your ERs are, then reduce them and consider moving to a simpler 3 fund portfolio.

Can you elaborate on why you chose 30% bonds?
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Re: Portfolio Review Request

Postby gem11 » Tue Mar 05, 2013 1:11 pm

Thank you for the replies.

I am researching the expense ratios. On my bond fund it seems that Harbor bond HABDX with a .57 expense ratio has outperformed Vanguard Total Bond VBTLX with a .10 exp ratio over the last 1,3,5 and 10 year periods. I've always been happy with Harbor, but would like to diversify into another fixed income fund, so that all fixed income isn't in one place. I'm also concerned about interest rates rising and the downside bond risk. We chose 30% bonds/cash, because with the pension, we feel we can tilt higher towards stocks.

We have no debt other than our mortgage and with the 3.625% rate on it, I'm not sure if paying it off is better than investing. We also don't keep a higher emergency fund, because we have a home equity line of credit with a very low interest rate.

I haven't ever liked the allocations of Target funds. I'm happier choosing.

Thank you so much for your time!
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Re: Portfolio Review Request

Postby mhc » Tue Mar 05, 2013 1:49 pm

gem11 wrote:Thank you for the replies.

I am researching the expense ratios. On my bond fund it seems that Harbor bond HABDX with a .57 expense ratio has outperformed Vanguard Total Bond VBTLX with a .10 exp ratio over the last 1,3,5 and 10 year periods. I've always been happy with Harbor, but would like to diversify into another fixed income fund, so that all fixed income isn't in one place. I'm also concerned about interest rates rising and the downside bond risk. We chose 30% bonds/cash, because with the pension, we feel we can tilt higher towards stocks.

We have no debt other than our mortgage and with the 3.625% rate on it, I'm not sure if paying it off is better than investing. We also don't keep a higher emergency fund, because we have a home equity line of credit with a very low interest rate.

I haven't ever liked the allocations of Target funds. I'm happier choosing.

Thank you so much for your time!


When you compare funds, you should compare them on a risk adjusted basis. Expected returns are tied to risk. The higher the risk, the higher the expected returns. How does HABDX compare to a TBM fund based on risk? HABDX does not track the Barclay's Aggregate Index like TBM's do. It is an apples to oranges comparison.

Do you understand what HABDX invests in today, tomorrow, a year from now?
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