Newbie Portfolio Help Please

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Newbie Portfolio Help Please

Postby ahinman1 » Thu Mar 14, 2013 3:50 pm

Emergency funds: Yes
Debt: $257,000 Mortgage at 4.25% , $13,745 car loan at 2.99%
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal,6.84% State
State of Residence:Nebraska
Age:Her 33 Him 36
Desired Asset allocation: 85% stocks / 15% bonds (Not sure)
Desired International allocation: 20% of stocks (Not sure)

Current Portfolio Size: $68,500 all tax advantaged (401K and 403b)

Current Retirement Assets:

His 401(k) ($42,000) John Hancock
100% John Hancock Lifestyle Fund Aggressive Portfolio (JILAX) (1.00)
Company matches 50% up to 6%, Currently contribute 8%

Her 403(b) ($26,500)
100% Target Retirement Strategies 2045 Portfolio (N/A)
Company matches 100% up to 3%. Currently contribute 3%

100.0% Total ($68,500)

New annual Contributions:

His 401k $3,700 Company Match $1850
Her 403b $2,800 Company Match $2800 + $3601 (defined contribution amount)



Funds available in his 401(k)

Retirement Living through 2050 JLKOX 1.01
Retirement Living through 2045 JLJOX .91
Retirement Living through 2040 JLIOX .91
Retirement Living through 2035 JLHOX .90
Retirement Living through 2030 JLFOX .90
Retirement Living through 2025 JLEOX .89
Retirement Living through 2020 JLDOX .88
Retirement Living through 2015 JLBOX .87
Retirement Living through 2010 JLAOX .86
Lifestyle Aggressive JILAX 1.00
Lifestyle Growth JILGX .97
Lifestyle Balanced JILBX .90
Lifestyle Moderate JILMX .89
Lifestyle Conservative JILCX .82
Real Est. Securities Fund JIREX .79
DFA Emerging Markets Value DFEVX .61
Oppenheimer Developing Mkt ODVYX 1.03
Energy VGENX .34
SSgA Mid Growth Index Fund JMGOX .65
International Value Fund JIVIX .97
Small Cap Growth Index VISGX .24
Science & Technology Fund JESTX 1.16
Financial Services Fund JEFSX .91
Small Cap Index Fund JESIX .55
EuroPacific Growth Fund RERFX .55
Franklin Small-Mid Growth FRSGX .99
T. Rowe Price Health Sci PRHSX .82
Small Cap Value Fund JESVX 1.33
Blue Chip Growth Fund JIBCX .86
Mid Cap Index Fund JECIX .44
Oppenheimer Global OGLYX .90
JPM MidCap Value Fund FLMVX .76
MFS Utilities MMUHX 1.04
Total Stock Market Index Fund JETSX .57
T. Rowe Price Equity Inc PAFDX .92
Washington Mutual Investors RWMFX .35
High Yield Fund JIHDX .76
PIMCO Global Bond PADMX .80
PIMCO Real Return PARRX .70
T. Rowe Price Spectrum Inc RPSIX .69
PIMCO Total Return PTRAX .71
Short-Term Federal VSGBX .20


Funds available in her 403(b)

American Century Inflation-Adj Bond Inv ACITX 0.48
American Funds EuroPacific AEPGX 0.84
American Funds Income Fd Of America A AMECX 0.59
American Funds Washington Mutual Inv A AWSHX 0.62
Dreyfus Strategic Value Fund A DAGVX 1.20
Dreyfus Small Cap Stock Index Fund DISSX 0.51
Goldman Sachs Fin Square MM Admin FADXX 0.48
Tributary Growth Opportunities Inst FOGRX 1.28
Tributary Small Company Inst FOSCX 1.35
MFS Intl DiversificationR3 MDIHX 1.35
MFS Core Equity Fund R3 MRGHX 1.15
American Funds SMALLCAP World Fund A SMCWX 1.14
T. Rowe Price Mid Cap Value Adv TAMVX 1.04
T. Rowe Price Growth Stock Adv TRSAX 0.93
Vanguard Short-Term Bond Index Inv VBISX 0.22
Vanguard Total Stock Market Index Instl VITSX 0.05
Prudential Global Real Estate A PURAX 1.27
JPMorgan Large Cap Growth Fund A OLGAX 1.16
Tributary Income Instl Plus Diversified Bond FOIPX 0.95
AllianceBern Small Cap Growth Port Adv QUAYX 1.08
TRS Income Portfolio Target Retirement Strategies N/A
TRS 2010 Portfolio Target Retirement Strategies N/A
TRS 2015 Portfolio Target Retirement Strategies N/A
TRS 2025 Portfolio Target Retirement Strategies N/A
TRS 2035 Portfolio Target Retirement Strategies N/A
TRS 2045 Portfolio Target Retirement Strategies N/A
TRS 2055 Portfolio Target Retirement Strategies N/A

Questions:

1) We have inherited $60,000 from a family member and want to use it towards our retirement. We want to open Roth IRA's for myself and my wife in time to be able to max them out for 2012 as well as 2013. Where should we open the accounts and how should we allocate the money? We would like to start a 3 fund approach, but we're not sure how to incorporate our 401k and 403b with the overall strategy. Should we move money in our 401K and 403b to more tax efficient funds? What funds should we be looking at for the roth IRA's?

2) We would be putting $21,000 in the roth IRA's, any ideas on how to invest the rest of the money? Should we open taxable accounts and what kind of funds should we be looking at?

3) Should we be contributing more to our 401K and 403b even though we are maxing out what the companies match?

Thank you so much for any help you can give. We are very new to investing and appreciate all the help we can get.
Last edited by ahinman1 on Thu Mar 14, 2013 10:58 pm, edited 1 time in total.
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Re: Newbie Portfolio Help Please

Postby Occupier » Thu Mar 14, 2013 10:27 pm

We have a bias here toward opening accounts at Vanguard. Their index funds (or actively managed) are very low cost and they have a good reputation for low tracking errors. On the index front you can do as well at Schwab or if you buy Vanguard ETF's, anywhere. Costs are very important. I look at some of the funds in your 401/403 and they are ten times more expensive than at vanguard. That extra 1% a year adds up to a lot of lost appreciation over 20+ years. Also you should look at all your investments as one portfolio, rather than 3 or 4 identically constituted accounts. That means if you have a low cost fund in one account use that and select in another account a different low cost fund there. The first thing I noticed about the 401 is there is a Total US Market fund for .57 ER Why are you paying 2 times that? and the 403 has one for .05 one 20th of what your paying. That index performs about as well as an actively managed stock fund sometimes worse and sometimes better, but the low costs are always there. The small cap fund in the 401 is amongst the lowest. As well as the short term bond fund. The are all much more than Vanguard. In the 403 the only low cost fund is the short term bond index and the total market fund. What is missing from both the 401 and 403 is international and a low cost intermediate bond fund. That suggests what should be in the account you open with the 60K. I would just do a Roth and Vanguard and a taxable account there. Look at Total international in the taxable. It's very tax efficient. The the Vanguard Total Bond for the Roth. Note your not concerned about tax efficiency in tax free accounts. No taxes on them till you retire. Also few things beat tax free compounding. So max out the contributions even if you don't get a company match. So roughly as a percentage you want in the 401 ST bond index 5%, Sm Cap index 10% Total US 40% In the 403 Total US 15%, Am Cent Tips 5% and In the new account International about 15% and Total bond 10%. You can translate those figures. That is somewhat different that ideal but it balances costs with your desired allocation. Dave
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Re: Newbie Portfolio Help Please

Postby pingo » Thu Mar 14, 2013 10:44 pm

ahinman1 wrote:Funds available in her 403(b)
[...]
TRS Income Portfolio Target Retirement Strategies N/A
TRS 2010 Portfolio Target Retirement Strategies N/A
TRS 2015 Portfolio Target Retirement Strategies N/A
TRS 2025 Portfolio Target Retirement Strategies N/A
TRS 2035 Portfolio Target Retirement Strategies N/A
TRS 2045 Portfolio Target Retirement Strategies N/A
TRS 2055 Portfolio Target Retirement Strategies N/A


What are the expense ratios?

ahinman1 wrote:2) We would be putting $20,500 in the roth IRA's [...]


Why not $21,000?

$5000 His 2012 Roth IRA Contribution
$5000 Her 2012 Roth IRA Contribution
$5500 His 2013 Roth IRA Contribution
$5500 Her 2013 Roth IRA Contribution
$21,000
Last edited by pingo on Fri Mar 15, 2013 10:25 am, edited 1 time in total.
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Re: Newbie Portfolio Help Please

Postby ahinman1 » Thu Mar 14, 2013 10:57 pm

Sorry, you are correct. It would be $21,000. I will edit. I was unable to find the expense ratios on the Target Retirement Portfolios. I'm not sure why it isn't shown on the prospectus.
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Re: Newbie Portfolio Help Please

Postby pingo » Fri Mar 15, 2013 2:04 am

Edited.

If you max His & Her Roths for 2012 & 2013 and if you max the 401k and 403b for 2013 (while spending down inheritance to compensate for smaller paychecks), only $11,000 of the inheritance remains by 2013-end. (It could be more since you'd be saving a lot of pre-tax money, while I expect that the inheritance is post-tax or untaxed.) Use whatever's left to max IRAs in January 2014 and/or to keep saving more in the 403b/401k.




Desired Asset allocation: 85% stocks / 15% bonds
Desired International: 28% for account simplicity <--Your JILAX uses 35% Int'l and TRS funds appear to use 27%.

Translation: US 64 / Int'l 24 / 15 Bonds

His 401(k) ($42,000) John Hancock (47%)
15% Vanguard Short-Term Federal (VSGBX) 0.20 <--15% of 401k contributions go here.
32% Vanguard Total Stock (JETSX) 0.57 <--85% of 401k contributions go here.

Her 403(b) ($26,500) (30%)
30% Vanguard Total Stock (VITSX) 0.05 <--100% of 403b contributions go here.

His Vanguard Roth ($10,500)
12% Vanguard Total Int'l Admiral (VTIAX) 0.18 <--100% of His Roth contributions go here.

Her Vanguard Roth ($10,500)
12% Vanguard Total Int'l Admiral (VTIAX) 0.18 <--100% of Her Roth contributions go here.

Weighted ER = 0.26% (Continues to reduce with new contributions.)



2013 Contributions:
$19,350 His 401k ($17,500 + $1850 match)
$23,901 Her 403b ($17,500 + $2800 match + $3601 defined contribution)
$5000 His 2012 Roth IRA <--Already included in portfolio below.
$5000 Her 2012 Roth IRA <--Already included in portfolio below.
$5500 His 2013 Roth IRA <--Already included in portfolio below.
$5500 Her 2013 Roth IRA <--Already included in portfolio below.

2014 Contributions:
$4625 His 401k (6% + $1850 match) <--My math may be imprecise. For now, contribute to get full match.
$10,126 Her 403b ($3725 + $2800 match + 3601 defined contribution) <--Remaining contributions go here.
$5500 His Roth IRA <--Inheritance money.
$5500 Her Roth IRA <-- Inheritance money.

2015 Contributions:
$4625 His 401k (6% + $1850 match)
$10,126 Her 403b ($3725 + $2800 match + 3601 defined contribution)
Last edited by pingo on Sat Mar 16, 2013 5:41 pm, edited 12 times in total.
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Re: Newbie Portfolio Help Please

Postby Jay69 » Fri Mar 15, 2013 10:54 am

^
Great plan above.

I'm all for having differnet tax buckets but with with being in the 25% bracket and a state tax of 6.48% how munch Roth makes sense, 50/50, 25/75 rIRA/tIRA?
"Out of clutter, find simplicity” Albert Einstein
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Re: Newbie Portfolio Help Please

Postby Occupier » Fri Mar 15, 2013 12:29 pm

Pingo and I offer similar advice, but he seems to have forgotten about bonds. One thing I thought about since posting is use Vanguards Intermediate bond index instead of total bond in the new Roth at Vanguard. It has a slightly longer duration which would be OK since your matching it with the short term bonds in the 401. I once was helping a friend set up her portfolio. On a piece of paper I said you need so much a percent in this and so much a percent in that. When we added up all the percents it came out to 154% Dave
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Re: Newbie Portfolio Help Please

Postby pingo » Fri Mar 15, 2013 8:53 pm

Edits.

My thanks to Jay69 and Occupier. I hope you don't mind if I piggy-back onto those comments to work out any kinks.

Jay69 wrote:I'm all for having differnet tax buckets but with with being in the 25% bracket and a state tax of 6.48% how munch Roth makes sense, 50/50, 25/75 rIRA/tIRA?


I calculated OP's combined salaries and reasonable deductions based on my idea (maxing employer plans, standard deduction, 2 personal exemptions). ahinman1 was within $12,000 of the 15% federal bracket. Adding FSA/HSA/medical-dental premiums, mortgage interest and other deductions (kids?) could bring them down to the 15% bracket, or close enough that very little would get taxed at 25%.

I'm not super-confident in my math nor with the subject of taxes. Look with a skeptical eye at whether the assumptions are accurate.

Something about the 403b makes me wonder if She (or He for that matter) expects a pension, which may be another reason to favor the Roth, if my idea is used. A Traditional IRA may win out once employer plan will no longer receive maximum contributions.

Occupier wrote:Pingo and I offer similar advice [...]


...and I don't have any issues with your suggestions. For simplicity, I didn't tilt to small caps. I didn't suggest taxable investing once I realized it would take 9 months to "save" the inheritance in tax-advantaged accounts by maxing employer/IRA contributions and then spending down the inheritance to compensate for smaller paychecks.

Occupier wrote:[...] but he seems to have forgotten about bonds.


I hope it's good enough if bonds + cash = 15% for now, given the OP's high stock allocation, the low expected returns of bonds, the short period that the money remains in cash. Cash is now invisible to portfolio considerations until contributed due to a couple errors (except 2012 & 2013 IRA contributions because those can be made immediately). Portfolio now shows a 15% bond allocation.

After contributing to IRAs in Jan 2014, OP would rebalance some money from His 401k Total Stock fund into His 401k short-term bonds so that that fund represents 15% of the portfolio. Doing so pushes the weighted ER lower at the same time that a similar amount of new contributions will have made it into the 403b's low cost Total Stock Fund.

In 2014 and 2015, the focus of employer contributions goes to Her 403b Total Stock fund, which will continue to reduce the reliance on the more expensive one (continuing to lower the weighted ER). At some point, a change may be in order.

Using Her 403b American Century Inflation-Adj Bond (ACITX) was another great suggestion, but not a priority for me at this time.

ahinman1, does either spouse expect a pension in retirement?
Last edited by pingo on Sat Mar 16, 2013 3:07 pm, edited 1 time in total.
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Re: Newbie Portfolio Help Please

Postby pingo » Sat Mar 16, 2013 5:42 pm

Please note some corrections and edits to my last two posts.
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