Forming a strategy, seeking opinions.

[TimesAWastin]

Hi everyone. I've been lurking but now would like some opinions on what my best options might be with the resources I have to set up my investments proper. So, first off, here's my general outline as per the "Asking Portfolio Questions" topic.

ETA: I've edited the percentages below so that they represent my total investment, rather than per-account investment.


The Data

Emergency Funds: 4 months living expenses in a 5-year CD ladder with plans to grow it slowly to 6 months living expenses as the CDs mature and are reinvested.
Debt: None. My credit cards are paid off in full every month.
Tax Filing Status: Single
Tax Rate: 28% Federal, 10.23% State
State of Residence: California
Age: 33
(Seeking opinion on an asset allocation. I am comfortable with aggressive growth strategies)
Desired Asset Allocation: 90-95% Stocks / 5-10% Bonds
Desired International Allocation: 20-30% of Stocks


The Accounts

My 401(k) (30% of total)
30% Vanguard Target Retirement 2050 Inv (VFIFX) (0.18%)

Taxable Schwab Brokerage (70% of total)
Bonds (10.5%)
5.25% Schwab GNMA Fund (SWGSX) (0.55%)
5.25% Schwab Treasury Inflation Protected Securities Fund (SWRSX) (0.29%)
International (10.5%)
3.5% Schwab Fundamental Emer Mkt Large Co Index (SFENX) (0.61%)
7% Schwab Intl Index Fund (SWISX) (0.19%)
US Market (31.5%)
10.5% Schwab S&P 500 Index Fund (SWPPX) (0.09%)
10.5% Schwab Total Stock Mkt Index (SWTSX) (0.09%)
14% Schwab Small Cap Index Fund (SWSSX) (0.17%)
Real-Estate (14%)
14% Schwab Global Real Estate Fund (SWASX) (1.05%)

By Category (approximate)
30% LifeCycle / Unknown
24.5% Large Cap Equity
17.5% Small Cap Equity
17.5% International Equity
10.5% Fixed Income


About the 401(k)
My employer matches 20% of my contribution to a maximum of $3,500 total match value, which works out to be exactly 20% of $17,500, this year's 401(k) contribution limit. Contributions can only be made by paycheck deduction and I am contributing enough to max out for the year. The plan allows contributions to be made either pre-tax into a traditional 401(k) or post-tax into a Roth 401(k).

Funds offered in the plan
Vanguard Target Retirement funds from 2010-2055 and "Target Retirement Income I"
Large-Company Stock Funds
LSV Value Equity (LSVEX) (0.66%)
MainStay Large Cap Growth I (MLAIX) (0.79%)
Vanguard Institutional Index I (VINIX) (0.04%)
Small/Mid Co. Stock Funds
Champlain Small Company Adv (CIPSX) (1.4%)
Vanguard Extended Market Idx I (VIEIX) (0.12%)
International Stock Funds
Dodge & Cox International Stock (DODFX) (0.64%)
Vanguard FTSE All-World ex-US Index (VFWSX) (0.12%)
Bond Funds
PIMCO Total Return Instl (PTTRX) (0.46%)
SSgA US Aggregate Bond Market Index (No symbol) (uknown Net ER)
Capital Preservation Funds
Vanguard Prime Money Market Instl (VMRXX) (0.09%)
Wells Fargo Stable Return (No symbol) (0.48%)

Despite the fact that there are Vanguard options in every category, the plan is run by Schwab.

The 401(k) is my only tax-advantaged account. My income is such that I am excluded from making deductible contributions to a traditional IRA, or any contributions to a Roth IRA.


About my Taxable Account @ Schwab
When building this I decided to go entirely with Schwab funds, preferring funds on the Select List. All are no-load / no-fee. I've since learned that it may be ill-advised to have fixed-income (particularly TIPS) and real-estate funds in this account. I'm also feeling like I'd like to switch from index funds to ETFs for this account, and maybe mix in some individual stocks as well. I'm in the process of learning about trading and want to have an active hand in some small % of the over-all. But I'm also fine saying that, say, 80% will be in index funds / ETFs and the rest is for play.


Questions
1. A little over a month ago I did put $2,000 into a Roth IRA. I did not list it above because I need to close it. "Things happened" and now I am ineligible to put anything into it.. I will exceed the income limit for contributing to a Roth IRA for this year, so all $2,000 plus whatever the funds in it have earned (about $40 so far) will be in excess. I added them to year 2013. I would like advice on what I should do here. Just pull it out now and just deal with the $4-$5 in penalties? Leave it until year end? I'm confused here. My 2012 income was low enough to be able to put in a full $5,000 for _that_ year. I did not contribute to 2012 because by the time I learned about this, I had already done my taxes for TY2012. This is a poor excuse, but I really am unsure what I can do right now. I've been negligent when it came to investing but I'm trying to fix that now.
Can I contribute to TY2012 now and deal with it on next year's tax return?
2. Should I move the fixed-income/bond portion of my investments to be housed entirely in my 401(k)?
3. What about real-estate? There are no REITs in the 401(k) plan and I feel like I should have some money in a real-estate fund.
3. What's the deal with those funds in my 401(k) plan which have no symbol?
4. I have about $10,000 ready to invest right now. It's sitting in a high-yield savings account awaiting instructions. I'm seeking ideas on how to invest it.

Thank you.

[letsgobobby]

Welcome!

How long have you been investing? What did you do during the 2000-02 tech crash and the 2007-09 financial crisis? How do you know you have a high risk tolerance?

[TimesAWastin]

Welcome!

How long have you been investing? What did you do during the 2000-02 tech crash and the 2007-09 financial crisis? How do you know you have a high risk tolerance?

During the 2000-02 tech crash I was eating macaroni and under a mountain of debt; what was happening in the markets wasn't on my mind other than I saw all these companies I wanted to work for go boom.

I've had investments since mid-2009. I didn't have any active investments during the decline so it is true that I am yet to see what my actual reaction would be when my money is actually disappearing. But, I live my life by statistics. I know that the market grows over time and my investment time horizon is decades down the road. I am confident that I can act rationally in the face of steep dive.. my instinct is to invest more. When the market hit rock bottom (though, I had no idea that that was the case at the time), I took what I had in savings and put it into a medium-low risk mutual fund account.

Ultimately the answer is, I have yet to find out if I really have the cajones, but I feel good about it. I'm willing to take that risk now and see what transpires. It definitely can't be worse than what I have been doing with my excess funds: spending!

[xram]

I think it would be wise to consider using Schwab ETFs in your taxable account. Much cheaper. Just as an example, the TIPS ETF at Schwab is only ER = 0.07% compared to ER = 0.29% for the fund you are using. Just a thought. Check it out.

Also, TIPS should probably be in tax-advantaged space.
REITS should be in tax advantaged (ie roth, 401k) as well

schwab ETFs
http://www.schwab.com/public/schwab/inv ... chwab_etfs

tax-efficient investing
http://www.bogleheads.org/wiki/Principl ... _Placement

nice short intro videos on boglehead philosophy
http://www.bogleheads.org/wiki/Video:Bo ... philosophy

I am NOT one of the "experts" on here so ... wait to hear from others ...good luck

[letsgobobby]

I'm going to repeat something nisiprius has written which in my opinion is extremely wise.

Every investor should be required to remain 60/40 until having lived through one entire market cycle (up and down, or down and up).

Also, consider that smarter people than me have written you should never be 90-95% stocks: Ben Graham (max 75% stocks), Jack Bogle (age in bonds), etc.

You're not talking about a ton of money but it's the principle that matters; the idea that you can accurately appraise yourself which is important than whether you are in fact 80/20 or 95/5 at this point in your life.

Please read through this thread as well.

viewtopic.php?f=10&t=111670

[TimesAWastin]

I think it would be wise to consider using Schwab ETFs in your taxable account. Much cheaper. Just as an example, the TIPS ETF at Schwab is only ER = 0.07% compared to ER = 0.29% for the fund you are using. Just a thought. Check it out.

Thank you. Yeah, that is primarily why I am looking at ETFs, not because intend to trade them frequently. They seem like the right choice, but there is a fair amount of conflicting information out there comparing index funds to etfs. Some recommend ETFs for people with higher incomes, others go the other way. I'm primarily invested in index funds right now.

Also, TIPS should probably be in tax-advantaged space.
REITS should be in tax advantaged (ie roth, 401k) as well

Yep, this is what I've learned in the past week and what has spurred me to action to try and reorganize thing. I designed my original portfolio loosely based on the Swensen model, which included TIPs and real-estate, but I only designed it with 1 account in mind; not the whole of my investments.

I'm eager to hear what people here have to say about the bond options, and lack of real-estate options, in my 401(k).

BTW thank you for the link to the videos. I know what I'll be doing for the next hour.

[TimesAWastin]

Please read through this thread as well.
viewtopic.php?f=10&t=111670

Hah, yep. I'm excited about investing right now but I know that will fade. It is somewhat coincidental with the activity in the market, but it would be foolish to suggest I am not at least partially enticed by the steady gains we're seeing right now. I'm also driven by a relationship which will, in 2ish years, turn into a marriage (we're getting engaged soon) and the reality of that has made me realise that I need to plan for the distant future; something I had not done as a swinging bachelor. That, and the bonuses I received this year which I alluded to earlier. I want to use the enthusiasm I have now to set things up right so that I don't have to think about it later when I'm more settled in my ways. The advice you mention about maintaining a 60/40 until I've gone through a full market cycle is something I will consider.

Two things I feel I need to get sorted sooner than later though:
First, can I make a TY2012 contribution to my Roth IRA and use it when I file taxes next year, or must I amend this years return if I do so? (Edit: By this I just mean, do I need to report anything to the IRS?)
Second, given that I haven't a tax-advantaged account other than my 401(k), which itself has limited and somewhat-confusing bond options and nothing in the way of TIPS or real-estate, should I bother with those at all?

[xram]

Second, given that I haven't a tax-advantaged account other than my 401(k), which itself has limited and somewhat-confusing bond options and nothing in the way of TIPS or real-estate, should I bother with those at all?

If you are unable to obtain TIPS or REITs in a tax-advantaged account (401(k), ROTH IRA, 457, 403b etc) most people on here would say that you should not mess with them (i.e do not hold them in a taxable account).....

I hold TIPS in my ROTH but up until now (new 401k available) I did not have "ROOM" for REITS.

MIght not be a good time to get into REITS - see Larry Swedroe article below

http://www.cbsnews.com/8301-505123_162- ... investors/

[Default User BR]

1. A little over a month ago I did put $2,000 into a Roth IRA. I did not list it above because I need to close it. "Things happened" and now I am ineligible to put anything into it.. I will exceed the income limit for contributing to a Roth IRA for this year, so all $2,000 plus whatever the funds in it have earned (about $40 so far) will be in excess. I added them to year 2013. I would like advice on what I should do here. Just pull it out now and just deal with the $4-$5 in penalties? Leave it until year end? I'm confused here. My 2012 income was low enough to be able to put in a full $5,000 for _that_ year. I did not contribute to 2012 because by the time I learned about this, I had already done my taxes for TY2012. Can I contribute to TY2012 now and deal with it on next year's tax return?

If you were eligible to make Roth contributions for 2012, do so. It doesn't matter whether you can for 2013 or not. It doesn't matter whether your taxes for 2012 have already been done, as the Roth is a non-tax event that doesn't need to be recorded on the tax forms. There's nothing to deal with.

For 2013, if you can't contribute to a Roth directly, make a non-deductible contribution to a Traditional Roth and convert to Roth. If the 2000 you already contributed was for 2013 (you didn't specify) then recharacterize to traditional then convert.


Brian