Portfolio Advice, Nearing Retirement, Hoping for a Look See

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Portfolio Advice, Nearing Retirement, Hoping for a Look See

Postby delawaremother » Fri Mar 15, 2013 4:15 pm

    Hello, I recently posted a question regarding a 403b in-service rollover to a T-IRA and received excellent advice.

    Many, many thanks to all who posted.

    I'm back with questions about our portfolio.

    I read the guidelines regarding format when posting this kind of question, so here goes:

    I am 51, husband is 60 and the main breadwinner.
    Married Filing Joint
    28% Federal, 6% WI
    Penfed Car loan @1.49% ~$21K remaining
    No credit card debt
    No mortgage, home worth ~$150K
    Most of our assets, ~$1.3M, are in tax-deferred accounts.
    Two children in college costing a total of $40K/year, both graduating May 2014 (knock on wood).
    We have a small amount in a state education account for them, $6K total, and mostly pay out
    of pocket for their expenses.
    We plan to contribute the following to our tax-deferred accounts this year:
    403b $16K
    457b $22.5K
    T-IRA $13K

    Per the forum guidelines, I posted our distribution amounts in percentages.

    Emergency Funds/Cash Accounts/Non Retirement
    American Funds MM 3.2%
    VG Energy Fund Investor 3.3%
    Credit Union Account 1.0%

    His T-IRA
    VG Energy Fund Admiral 6.3%
    VG Emerging Mkts Admiral 2.5%
    VG Int Growth Admiral 5.4%
    VG REIT Index Admiral 3.7%
    VG Mid Cap Growth 1.3%
    VG Wellington Inv 3.0%
    VG Windsor 4.0%
    Berkshire Hathaway B 1.1%
    Ford .6%

    His Rollover T-IRA
    VG Total Stk Mkt Admiral 28.8%

    His Roth IRA
    VG Health Care Fund Inv .6%

    His 403b
    ING Blackrock Large Cap Gro .31%
    ING Invesco VanKampen Eq&Inc .32%

    His 457b
    ING Fidelity VIP Growth 4.3%
    ING Russell Lar Cap Gr Index 2.2%
    ING Templeton Glob Bond 2.9%

    His Pension 17.7%
    (Fully funded in 2011, 90% funded 2012, mostly in mutual funds, though we don't know
    which, as we only get a one page statement every year)

    Her T-IRA
    VG Convertible Securities 1.2%
    VG International Growth 2.3%
    VG Mid Cap Growth 2.71%
    VG Star 1.0%

    Her Roth IRA
    VG Total Stock Mkt Index .2%

    I have been managing our investments for 25 years. I can't say I've done anything
    right except live below our means, max out on tax-deferred retirement savings
    through his work, and contribute to IRA's whether they were deductible or not.
    I never had any problem saving money, but I'm not sure where it should be now.

    I would like to decrease our risk exposure. Husband wants to ride the pony for
    all it's worth, but I feel we are getting a little too long in the tooth to be taking
    on that much risk anymore. He is, however, open to suggestions.

    Thanks in advance for any help : )
    Last edited by delawaremother on Fri Mar 15, 2013 5:48 pm, edited 2 times in total.
    delawaremother
     
    Posts: 26
    Joined: 17 Jan 2012

    Re: Nearing Retirement, Need a Look See

    Postby BrandonBogle » Fri Mar 15, 2013 4:41 pm

    I'm new to the forum, but I will say some simple things. As you are nearing retirement, you probably want to avoid unnecessary/uncompensated risk. One of those is holding individual stocks and sector bets in funds. At the dollar amounts you are likely savings, moving his T-IRA from slice and dice to Total Stock, Total International, Total Bond, and maybe Vanguard REIT Index Admiral will help simplify things so you aren't taking uncompensated risk. The account is tax-deferred, so nothing "spent" on selling those holdings and consolidating into a few positions. The same would apply to his Roth IRA. Basically, imagine you massive account of his and your assets, pick the Three Fund (or Three Fund + REIT) allocations you desire, and move the accounts into that setup. This will bring down your average expense ration and take out the risk of holding individual stocks.
    User avatar
    BrandonBogle
     
    Posts: 1064
    Joined: 29 Jan 2013

    Re: Portfolio Advice, Nearing Retirement, Hoping for a Look

    Postby Peter Foley » Fri Mar 15, 2013 6:52 pm

    In general, positions of less that 5% do not add much diversification nor are they large enough to increase the overall performance of a portfolio. With that said, you could do a lot of consolidating in your husband's TIRA. As Brandon indicated, concentrating on 3-5 very broad based mutuals funds will likely result in lower cost and will certainly reduce overall risk and simplify your holdings.
    At times, because of expense ratios and poor choices in deferred accounts, one has to start with the best options there and build around them. You might have to start by choosing the best of the worst in his 457 and 403b.
    If there are "negotiations" involved, one often mentioned approach is to have a 5% set aside for individual stocks and/or speciality funds. His TIRA perhaps?
    User avatar
    Peter Foley
     
    Posts: 2000
    Joined: 23 Nov 2007
    Location: Lake Wobegon

    Re: Portfolio Advice, Nearing Retirement, Hoping for a Look

    Postby Duckie » Fri Mar 15, 2013 9:42 pm

    delawaremother, the 7.5% in "Emergency Funds/Cash Accounts/Non-Retirement" and the 17.7% in "His Pension" do not belong in the retirement portfolio. They are assets, but are not part of the portfolio for rebalancing purposes.

    He can combine "His T-IRA" and "His Rollover T-IRA" into one account for simplicity.

    What are all the options, including the expense ratios, of "His 403b" and "His 457b" plans?
    User avatar
    Duckie
     
    Posts: 2115
    Joined: 8 Mar 2007

    Re: Portfolio Advice, Nearing Retirement, Hoping for a Look

    Postby rickmerrill » Fri Mar 15, 2013 11:06 pm

    It would help to know the expense ratios of each fund.
    The vg energy fund is a poor choice for the emergency fund - it is a stock fund, price may be way down when the money is needed. If you do not consider it for emergencies you should have a taxable investments section with it in there. But even then it is a sector bet so you'll still be advised to diversify and put into a total index fund.
    Market timers are usually advised to keep their play money at 5% or less of total portfolio.
    If I am stupid I will pay.
    rickmerrill
     
    Posts: 313
    Joined: 16 Jul 2010

    Re: Portfolio Advice, Nearing Retirement, Hoping for a Look

    Postby Default User BR » Sat Mar 16, 2013 1:23 am

    delawaremother wrote:I have been managing our investments for 25 years. I can't say I've done anything right except live below our means, max out on tax-deferred retirement savings through his work, and contribute to IRA's whether they were deductible or not.

    Doing those few things puts you way ahead of many.


    Brian
    Default User BR
     
    Posts: 7503
    Joined: 17 Dec 2007

    Re: Portfolio Advice, Nearing Retirement, Hoping for a Look

    Postby delawaremother » Sat Mar 16, 2013 7:11 am

    Peter Foley, your comment that portfolio funds amounting to less than 5% "do not add much diversification nor are they large enough to increase the overall performance of a portfolio," is very helpful. I thought about that comment all evening, and it is certainly an argument for simplifying the portfolio.

    The funds available for investment in the 403b are indeed a mix of bad and worse. It pains me to think of how long we've been contributing to them, and
    our only consolation is the match that his employer contributed. The 403b funds are all under the umbrella of ING and have wrap fees associated with them, so I am told, and as such, have no stock symbols like regular mutual funds.

    Duckie, you're right about the VG Energy fund. We should not be holding it as a source of emergency funds.
    As for the 403b and 457 fund choices and their fees, we received a packet over a year ago enabling us to calculate fees associated with all the funds offered. None were below 1%, with the exception of some money market funds. I complained to the fund manager last fall when we rolled over the 403b to VG, and he stated that he was considering offering a brokerage "window" that would enable participants to buy stocks or any mutual funds on the open market. I am guessing that his firm would stand to benefit from such an offering.

    Rickmerrill, thank you for your comment that we should have 5% in cash to buy into the market during downturns. I am beginning to understand what you all mean when you mention "sector bets." It's time to clean things up.

    Brian, thank you for your compliment. I enjoy putting money aside, but lack knowledge about how to invest. I think the number of funds that are listed in our portfolio above reflect that.

    One question: what are the consequences to moving money from one fund to another within the IRA? Am I opening us up to calculating gains and losses once we begin taking withdrawals in a few years?

    Thanks so very much for everyone's input : )
    delawaremother
     
    Posts: 26
    Joined: 17 Jan 2012

    Re: Portfolio Advice, Nearing Retirement, Hoping for a Look

    Postby delawaremother » Sat Mar 16, 2013 7:26 am

    BrandonBogle, I left you out! Sorry about that!

    I am working on convincing my husband that a simple three or four fund portfolio would be much easier to
    manage and would enable me to sleep better at night.
    He doesn't disagree with simplifying the investments, but coming to an agreement about out how much to put aside in lower
    earning, less risky funds is where we differ. After some discussion last night, we agreed that 20% in some kind of bond fund
    would probably be in our best interest.

    So, the question is which VG bond fund is suitable in a portfolio that probably won't be tapped for at least 5 years?
    delawaremother
     
    Posts: 26
    Joined: 17 Jan 2012

    Re: Portfolio Advice, Nearing Retirement, Hoping for a Look

    Postby pkcrafter » Sun Mar 17, 2013 10:48 am

    I would like to decrease our risk exposure. Husband wants to ride the pony for
    all it's worth, but I feel we are getting a little too long in the tooth to be taking
    on that much risk anymore. He is, however, open to suggestions.

    It looks like you have more than 90% in stock, so I would say unless your planned withdrawal rate is going to be less than 2%, you are taking a big chance of having to modify your retirement plans if we experience a major market drop.


    Paul
    pkcrafter
     
    Posts: 7527
    Joined: 4 Mar 2007
    Location: CA


    Return to Investing - Help with Personal Investments

    Who is online

    Users browsing this forum: Bing [Bot], bubbadog, CP4641, DojoPat, DSInvestor, happyisland, hillman, jimmyq, jrh, quanuec, Raladic, vtjon, Will do good and 111 guests