Making Changes to Roth IRA and 403b - Portfolio Review

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Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Tue Apr 30, 2013 11:11 pm

My first post here, but I've been lurking for about the last year! Thanks in advance for reviewing my portfolio.

Emergency funds: Yes, 2 months of expenses
Debt: $13,500 at 3.5% IR - student loan
Gross Income: $45,000 from full-time job, $10,000 from part-time job
Tax Filing Status: Single
Tax Rate: 25% Federal, 8.5% marginal DC tax rate
State of Residence: DC
Age: 28
Desired Asset allocation: 70% stocks/30% bonds.I want stable growth over the long-term for the money I will need at retirement age. I would love to retire early, however, so I’m willing to take risks in other areas when I feel stable with the amount I am contributing towards the conventional retirement funds.
Desired International allocation: Not sure - but I know I need international stock!

Current Retirement Assets:
Roth IRA - with Wells Fargo
84% Franklin Income Series Class C (FCISX) - 1.13% expense ratio + $40 annual fee w/Wells Fargo

403(b) Tax-Deferred Annuity Plan, work retirement - fully vested
TIAA-CREF
6% TIAA Traditional Annuity
5% CREF Stock - 0.49% expense ratio
1% TIAA-CREF Mid-Cap Growth Fund Retirement Class (TRGMX) - 0.73% expense ratio
2% TIAA Real Estate - 0.92% expense ratio
2% CREF Inflation-Linked Bond - 0.45% expense ratio

Contributions
Annually:
$1,800 to Roth (will fully fund once student loan is paid off and e-fund is up to 6 months of expenses)
$8,100 to 403b (12% of salary from employer, 6% of salary from self)

Questions
I would like to switch to Vanguard for my Roth IRA and Fidelity for my work 403b.

Here is what I have come up with for the switch to Vanguard for my Roth IRA

57% VFIAX Vanguard 500 Index Admiral Shares - 0.05% expense ratio
27% VBMFX Vanguard Total Bond Market Investor Shares - 0.2% expense ratio

Here is what I propose for the switch to Fidelity for my 403b. All of the following are available in my plan.

9% FSGUX: Spartan Global ex U.S. Index Fund Investor Class - 0.34% expense ratio (changed this from FSIIX - found out the ex-U.S. is offered in my work plan
3.5% FSTMX: Spartan Total Market Index Fund - 0.06% expense ratio
3.5% FSEMX: Spartan Extended Market Index Fund Investor Class - 0.1% expense ratio

Overall, the asset allocation is 73% stocks (10% international, 90% US) and 27% bonds. I’m fine with the stock to bonds ratio since it is near my age in bonds (28) and approximately the 70/30 ratio that seems reasonable to me.

1. Any thoughts on the funds I have chosen? Am I missing something?

2. Am I lacking in international stocks?

Note: I don’t want this to be too complicated. Choosing 10 funds for one account isn’t exactly what I’m going for. My main goal is to move over to index funds so I can escape the fees while also creating diversification across assets.

I'm looking forward to your comments!
Last edited by KatieSSS on Wed May 01, 2013 2:26 pm, edited 1 time in total.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Bob's not my name » Wed May 01, 2013 4:30 am

KatieSSS wrote:Gross Income: $45,000 from full-time job, $10,000 from part-time job
Tax Filing Status: Single
Tax Rate: 25% Federal, 8.5% marginal DC tax rate

Contributions
Annually:
$1,800 to Roth (will fully fund once student loan is paid off and e-fund is up to 6 months of expenses)
$8,100 to 403b (12% of salary from employer, 6% of salary from self)
$55,000 gross income
- $2,700 403b contribution
- $2,000 pre-tax health, dental, and disability insurance premiums withheld from your pay (guess, might be more or less)
- $300 student loan interest deduction
--------------
$50,000 AGI
- $3,900 personal exemption
- $6,100 standard deduction
-------------
$40,000 taxable income

That puts you about $4,000 into the 25% bracket (you must be about the same with respect to the DC 8.5% bracket, but I did not look at that closely). Since your marginal rate is 33.5% and presumably you'll retire to a lower tax state (which means almost any of them), I suggest skipping the Roth and contributing more to your 403b or contributing to a traditional IRA. Your $1,800 Roth contribution, on which you're paying $900 in taxes, could instead be a $2,700 403b or TIRA contribution.

Your existing Roth and your new TIRA can each serve as an emergency fund, the latter being better for major emergencies, the former for minor emergencies. See http://thefinancebuff.com/your-traditio ... -fund.html
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Grt2bOutdoors » Wed May 01, 2013 8:50 am

KatieSSS wrote:My first post here, but I've been lurking for about the last year! Thanks in advance for reviewing my portfolio.


Here is what I propose for the switch to Fidelity for my 403b. All of the following are available in my plan.

9% FSIIX: Spartan International Index Fund - 0.2% expense ratio
3.5% FSTMX: Spartan Total Market Index Fund - 0.06% expense ratio
3.5% FSEMX: Spartan Extended Market Index Fund Investor Class - 0.1% expense ratio

Overall, the asset allocation is 73% stocks (10% international, 90% US) and 27% bonds. I’m fine with the stock to bonds ratio since it is near my age in bonds (28) and approximately the 70/30 ratio that seems reasonable to me.

1. Any thoughts on the funds I have chosen? Am I missing something?

2. Am I lacking in international stocks?

Note: I don’t want this to be too complicated. Choosing 10 funds for one account isn’t exactly what I’m going for. My main goal is to move over to index funds so I can escape the fees while also creating diversification across assets.

I'm looking forward to your comments!


Hello and welcome to the forum!
Great job on saving for your retirement.

My only comment relates to your choice for International stock within Fidelity. Do you have access to the Fidelity Spartan Global Ex-US fund? The symbol is FSGUX (Investor Class) for balances less than $10K. The expense ratio is 0.22% with fee waivers - on par with Vanguards's Global Ex-US fund. The international selection you listed above from Fidelity FIISX - excludes exposure to Emerging Markets. The FSGUX fund includes exposure to Emerging Markets. I would use the FSGUX fund.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Wed May 01, 2013 9:24 am

Grt2bOutdoors wrote:
My only comment relates to your choice for International stock within Fidelity. Do you have access to the Fidelity Spartan Global Ex-US fund? The symbol is FSGUX (Investor Class) for balances less than $10K. The expense ratio is 0.22% with fee waivers - on par with Vanguards's Global Ex-US fund. The international selection you listed above from Fidelity FIISX - excludes exposure to Emerging Markets. The FSGUX fund includes exposure to Emerging Markets. I would use the FSGUX fund.


I didn't see the Spartan Global Ex-US fund (FSGUX) in my list of options, but I have that on my list of questions to ask. I noticed that FSGUX has been recommended a lot around here, so I already made a note to ask Fidelity if that is available to me in my 403b. If I don't have the option of FSGUX, is there something else besides FIISX that would get me the emerging markets or be a better option?

Thanks for the welcome and advice!
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Wed May 01, 2013 9:28 am

Bob's not my name wrote:
That puts you about $4,000 into the 25% bracket (you must be about the same with respect to the DC 8.5% bracket, but I did not look at that closely). Since your marginal rate is 33.5% and presumably you'll retire to a lower tax state (which means almost any of them), I suggest skipping the Roth and contributing more to your 403b or contributing to a traditional IRA. Your $1,800 Roth contribution, on which you're paying $900 in taxes, could instead be a $2,700 403b or TIRA contribution.

Your existing Roth and your new TIRA can each serve as an emergency fund, the latter being better for major emergencies, the former for minor emergencies. See http://thefinancebuff.com/your-traditio ... -fund.html


Where are you getting that I'm paying $900 in taxes on a $1,800 contribution to the Roth? A 50% tax on Roth contributions?

I do want to open a Traditional IRA at some point, but figured I would wait to do that until I had more in my Roth. I also don't believe in using my retirement accounts as an emergency fund, but I know some are comfortable with that.

Thanks for the help!
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Grt2bOutdoors » Wed May 01, 2013 9:32 am

KatieSSS wrote:
Grt2bOutdoors wrote:
My only comment relates to your choice for International stock within Fidelity. Do you have access to the Fidelity Spartan Global Ex-US fund? The symbol is FSGUX (Investor Class) for balances less than $10K. The expense ratio is 0.22% with fee waivers - on par with Vanguards's Global Ex-US fund. The international selection you listed above from Fidelity FIISX - excludes exposure to Emerging Markets. The FSGUX fund includes exposure to Emerging Markets. I would use the FSGUX fund.


I didn't see the Spartan Global Ex-US fund (FSGUX) in my list of options, but I have that on my list of questions to ask. I noticed that FSGUX has been recommended a lot around here, so I already made a note to ask Fidelity if that is available to me in my 403b. If I don't have the option of FSGUX, is there something else besides FIISX that would get me the emerging markets or be a better option?

Thanks for the welcome and advice!


Use the option available to you (FIISX) if the other fund is not available. When you are able to fully fund the IRA, you can then purchase a separate Emerging Mkts fund from Vanguard. Excluding EM, the FIISX fund will cover about 75% of the world-ex US market. Still a good choice as opposed to a regional fund or global including US fund.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Grt2bOutdoors » Wed May 01, 2013 9:36 am

KatieSSS wrote:
Bob's not my name wrote:
That puts you about $4,000 into the 25% bracket (you must be about the same with respect to the DC 8.5% bracket, but I did not look at that closely). Since your marginal rate is 33.5% and presumably you'll retire to a lower tax state (which means almost any of them), I suggest skipping the Roth and contributing more to your 403b or contributing to a traditional IRA. Your $1,800 Roth contribution, on which you're paying $900 in taxes, could instead be a $2,700 403b or TIRA contribution.

Your existing Roth and your new TIRA can each serve as an emergency fund, the latter being better for major emergencies, the former for minor emergencies. See http://thefinancebuff.com/your-traditio ... -fund.html


Where are you getting that I'm paying $900 in taxes on a $1,800 contribution to the Roth? A 50% tax on Roth contributions?

I do want to open a Traditional IRA at some point, but figured I would wait to do that until I had more in my Roth. I also don't believe in using my retirement accounts as an emergency fund, but I know some are comfortable with that.

Thanks for the help!


Not Bob - $1,800 after-tax * marginal tax rate = $2,400 plus give or take of pre-tax dollars. If you contribute to a TIRA or 403b plan instead you get the benefit of paying a reduced tax rate - every dollar contributed pre-tax will save you about 33.5 cents. Every dollar contributed to ROTH today will benefit you much later on down the road. The idea Bob is saying is to get the maximal amount of dollars working and compounding for you today while receiving upfront tax benefit in doing so - sort of a "bird in hand is better than two in a bush" kind of thing. :wink:
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Bob's not my name » Wed May 01, 2013 9:39 am

KatieSSS wrote:Where are you getting that I'm paying $900 in taxes on a $1,800 contribution to the Roth? A 50% tax on Roth contributions?
50% if you use the wrong denominator.

900/2700 = 33%

You can shelter $2,700 in your 403b or you can pay $900 in taxes and shelter $1,800 in your Roth IRA. You are voluntarily paying $900 in taxes that you could be avoiding. Eventually you'll pay tax on the 403b withdrawals, but many retirees pay no federal or state tax. For example, for the past five years I have managed the finances of an elderly multimillionaire with $150,000 of annual income who is in the 0% bracket.

Did you read the article? It's not about using retirement savings for an emergency. It's about not voluntarily paying taxes today, since you may in the next half century be laid off, be disabled, have a major medical expense, retire early, or live in a nursing home, in which case those taxes may have been paid needlessly.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Bogle101 » Wed May 01, 2013 9:40 am

KatieSSS wrote:
Where are you getting that I'm paying $900 in taxes on a $1,800 contribution to the Roth? A 50% tax on Roth contributions?

I do want to open a Traditional IRA at some point, but figured I would wait to do that until I had more in my Roth. I also don't believe in using my retirement accounts as an emergency fund, but I know some are comfortable with that.

Thanks for the help!


I think he means that the money you use to fund the Roth is after tax dollars, and it would be more beneficial to contribute to the 403(b) with pre tax dollars.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Bob's not my name » Wed May 01, 2013 9:41 am

Grt2bOutdoors wrote:$1,800 after-tax * marginal tax rate = $2,400 plus give or take of pre-tax dollars.
Also incorrect math.

$1,800 / 66.5% = $2,707

$2,707 gross income * 33.5% tax = $907 tax, leaving $1,800 to put in the Roth IRA.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Wed May 01, 2013 9:50 am

Grt2bOutdoors wrote:
Not Bob - $1,800 after-tax * marginal tax rate = $2,400 plus give or take of pre-tax dollars. If you contribute to a TIRA or 403b plan instead you get the benefit of paying a reduced tax rate - every dollar contributed pre-tax will save you about 33.5 cents. Every dollar contributed to ROTH today will benefit you much later on down the road. The idea Bob is saying is to get the maximal amount of dollars working and compounding for you today while receiving upfront tax benefit in doing so - sort of a "bird in hand is better than two in a bush" kind of thing. :wink:


Ah, I see. So balanced approach to get you the best tax breaks both while contributing and withdrawing. Gotcha! Since I'm not able to fully-fund the Roth yet, I sort of thought it wouldn't be worthwhile to open a TIRA and be splitting my contributions since I can't contribute more than $1,800/year to both a Roth and TIRA.

And thanks for the clarification on the emerging international markets - I've made a note to look at a Vanguard option in the future if I don't have the FSGUX option in my 403b plan.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Bob's not my name » Wed May 01, 2013 9:57 am

I don't think you should split, either. I think you should go all 403b and skip the Roth. At a 33.5% marginal rate I think you should max your pre-tax savings before putting anything into post-tax (Roth). TIRA is merely an alternative to 403b if you like it better for the investment options. A Roth is very nice to have, but very pricey to get at your tax rate.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Wed May 01, 2013 10:00 am

Bob's not my name wrote:
KatieSSS wrote:Where are you getting that I'm paying $900 in taxes on a $1,800 contribution to the Roth? A 50% tax on Roth contributions?
50% if you use the wrong denominator.

900/2700 = 33%

You can shelter $2,700 in your 403b or you can pay $900 in taxes and shelter $1,800 in your Roth IRA. You are voluntarily paying $900 in taxes that you could be avoiding. Eventually you'll pay tax on the 403b withdrawals, but many retirees pay no federal or state tax. For example, for the past five years I have managed the finances of an elderly multimillionaire with $150,000 of annual income who is in the 0% bracket.

Did you read the article? It's not about using retirement savings for an emergency. It's about not voluntarily paying taxes today, since you may in the next half century be laid off, be disabled, have a major medical expense, retire early, or live in a nursing home, in which case those taxes may have been paid needlessly.


Ok, I wasn't understanding where you were getting the $2,700 in your math, but now I get that you were comparing the $2,700 in pre-tax contribution to the $1,800 contribution after-tax to the Roth. I admit I am slow on the uptake - math/investing are huge weaknesses of mine, which is why I'm seeking out advice.

I haven't read the article yet - I thought it was related to what you said: "your existing Roth and your new TIRA can each serve as an emergency fund." I took issue with using my retirement accounts for emergencies, so I wasn't interested in reading it. Now that I know the article is about not voluntarily paying taxes today, I'll take a look.

And regarding the Roth being pricey to get - you can't contribute to it when you pass a certain amount of income, so isn't it worth contributing to it while you are eligible? I do want both TIRA and Roth in my portfolio so that I have a balance when I am withdrawing (taxable and non-taxable.)
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Bob's not my name » Wed May 01, 2013 10:20 am

Your income is less than half the Roth contribution limit, which increases each year. You don't appear to be at risk of going above it, but I don't know your career plan. Even above the limit there is the back door Roth, which you can read about on the wiki. If you do expect your salary to triple in real dollars, or if you expect to marry someone who is making more than 4X your salary, then you can use the back door method. In that case, 403b contributions are preferred over TIRA due to the pro rata rule on conversions (explained on the wiki).

Yes, it's very nice to have Roth, as I said, but you can get it at a much cheaper price later. For example, I converted the elderly multimillionaire's IRA to Roth at a very low tax rate (some of it at 0%). Early retirement (<75 for you, I would guess) is also a great time to convert to Roth because you have no other income. Many taxpayers are better off always contributing to a TIRA and converting to Roth, because their states exempt conversions from taxation (subject to a wide range of age and dollar limits).
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Wed May 01, 2013 10:38 am

It is heartening that the discussion is more on whether I should be investing in a Roth or TIRA than the poor choices I have chosen for my switches to Fidelity and Vanguard! Which must mean I've picked good funds! Any other suggestions in the asset allocation and choices of funds I have listed? For example, would it be better to choose Vanguard's Total Stock Market Index fund (VTSMX) instead of the Vanguard 500 Index Admiral Shares (VFIAX) since the former includes small and mid cap stocks?

I know I need to learn a lot more about TIRA's and whether I need to open one - Thanks Bob's not my name for pointing out the tax issues. For now, my main goal is to get my current accounts, the Roth and 403b, working better for me.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby House Blend » Wed May 01, 2013 11:58 am

KatieSSS wrote:It is heartening that the discussion is more on whether I should be investing in a Roth or TIRA than the poor choices I have chosen for my switches to Fidelity and Vanguard! Which must mean I've picked good funds! Any other suggestions in the asset allocation and choices of funds I have listed? For example, would it be better to choose Vanguard's Total Stock Market Index fund (VTSMX) instead of the Vanguard 500 Index Admiral Shares (VFIAX) since the former includes small and mid cap stocks?

I know I need to learn a lot more about TIRA's and whether I need to open one - Thanks Bob's not my name for pointing out the tax issues. For now, my main goal is to get my current accounts, the Roth and 403b, working better for me.



My thoughts:

To be a middle of the road Boglehead, I would suggest a 70/30 split between US/International equity. So something like

50% US Total Market (Fidelity or Vanguard)
20% International (prefer VG Total International or Spartan Global)
30% Bond Index (Fidelity or Vanguard)

I see no reason to use a 500 index fund or an Extended Markets fund.

Agree with others that tax-deferral is better than Roth for now. If you can't get Spartan Global in your 403b, put all of your International in the Vanguard Roth. If you reach the point where can max out your 403b contributions, then consider opening a trad IRA (if contributions would be tax-deductible) or resume adding to your Roth.

One other caution: depending on what kind of contract you have at TIAA-CREF, your TIAA Traditional may not be transferable to Fidelity except over a 10 payment/9 year period. In fact a likely scenario is that the matching funds from your employer are locked up this way, but your contributions are not. So you may have to accept the 9 year transfer, or leave the Traditional at TIAA-CREF and count it as part of your bond allocation.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Wed May 01, 2013 3:35 pm

Thanks, HouseBlend, those are good suggestions.
Also, Bob's not my name: I've run the numbers and totally get what you are saying now. If I go up from 6% of my salary to 10% in my 403b contributions, that takes care of the $1,800 I have been investing in the Roth IRA, thus saving me taxes right now. Based on this, I'm leaning towards stopping the Roth contributions for a while. Since I currently have more money in the Roth than I do the 403b, it is worth focusing on the 403b for a while.

I've come up with a new set of allocations based on the suggestions here and some research. I'll list it here, but should I go back and edit my original post? Not sure what the correct etiquette is.

55% US Stock
20% International Stock
25% Bonds

Roth IRA
45% VTSMX Vanguard Total Stock Market Index Fund - 0.17% expense ratio
13% VGTSX Vanguard Total International Stock Index Fund - 0.22% expense ratio
25% VBMFX Vanguard Total Bond Market Investor Shares - 0.2% expense ratio

Fidelity 403b
7% FSGUX Spartan Global ex-U.S. Index Funds Investor Class - 0.34% expense ratio
10% FSTMX Spartan Total Market Index Fund - 0.06% expense ratio

Revised contributions
$9,900/year to 403b (10% employee, 12% employer)
None to Roth IRA for the time being

ETA:
If I only contribute to the 403b for a while, then I'll plan on looking at the allocations after a year passes to make sure I'm still on target. The bond ratio will get smaller if I'm not contributing to the Roth, for example.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby retiredjg » Wed May 01, 2013 4:50 pm

It's a good idea, but it won't work. That's because there are no bonds in the 403b (which is where all the new contributions are going). If you add a bond fund to the 403b, it should work fine. Or you could leave the bond fund out of the 403b and continually adjust the Roth IRA to increase bonds there. I doubt you want to do that.

Do you have a bond index fund in the 403b? If not, what is the cheapest bond fund available?
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Wed May 01, 2013 5:03 pm

retiredjg wrote:It's a good idea, but it won't work. That's because there are no bonds in the 403b (which is where all the new contributions are going). If you add a bond fund to the 403b, it should work fine. Or you could leave the bond fund out of the 403b and continually adjust the Roth IRA to increase bonds there. I doubt you want to do that.

Do you have a bond index fund in the 403b? If not, what is the cheapest bond fund available?


I wondered if that would be a problem. Here are the low-fee options in my Fidelity plan:

Spartan Intermediate Treasury Bond Index Fund Investor Class (FIBIX) - 0.2% expense ratio
Spartan Long-Term Treasury Bond Index Fund Investor Class (FLBIX) - 0.2% expense ratio
Spartan Short-Term Treasury Bond Index Fund Investor Class (FSBIX) - 0.2% expense ratio
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby Peter Foley » Wed May 01, 2013 5:11 pm

Actually your plan would work if you just increase your bond allocation in your Roth. Or as retired jg suggested add a low cost bond fund in your 403b.

I would suggest exploring a couple of other options on the bond side. Does your 403b have a stable value fund available or a TIPs fund? I think diversifying the non equities portion of your allocation should be considered.

Also - I would suggest total stock market instead of the 500 index in your Roth. Not a big difference, but a little more exposure to mid cap and small cap stocks.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby retiredjg » Wed May 01, 2013 6:07 pm

KatieSSS wrote:I wondered if that would be a problem. Here are the low-fee options in my Fidelity plan:

Spartan Intermediate Treasury Bond Index Fund Investor Class (FIBIX) - 0.2% expense ratio <--good choice
Spartan Long-Term Treasury Bond Index Fund Investor Class (FLBIX) - 0.2% expense ratio
Spartan Short-Term Treasury Bond Index Fund Investor Class (FSBIX) - 0.2% expense ratio <--good choice if you specifically want a short term bond fund
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Thu May 02, 2013 10:53 am

Peter Foley wrote:Actually your plan would work if you just increase your bond allocation in your Roth. Or as retired jg suggested add a low cost bond fund in your 403b.

I would suggest exploring a couple of other options on the bond side. Does your 403b have a stable value fund available or a TIPs fund? I think diversifying the non equities portion of your allocation should be considered.

Also - I would suggest total stock market instead of the 500 index in your Roth. Not a big difference, but a little more exposure to mid cap and small cap stocks.


Just looked through my plan options, and in addition to the Spartan funds I listed above, I have access to the following:

Fidelity Corporate Bond Fund (FCBFX) - 0.45% expense ratio
Fidelity Inflation-Protected Bond Fund (FINPX) - 0.45% expense ratio
Fidelity Intermediate Bond Fund (FTHRX) - 0.45% expense ratio
Fidelity Investment Grade Bond Fund (FBNDX) - 0.45% expense ratio
Fidelity Short-Term Bond Fund (FSHBX) - 0.45% expense ratio
Fidelity Total Bond Fund (FTBFX) - 0.45%
Fidelity U.S. Bond Index Fund (FBIDX) - 0.22% expense ratio
FIdelity Ultra-Short Bond Fund (FUSFX) - 0.45% expense ratio

Perhaps I could choose 2-3 bond funds in my 403b to diversify and also make it so that I don't have to constantly adjust my Roth allocations. Maybe a combo of the U.S. Bond Index Fund (FBIDX), the Inflation-Protected Bond Fund (FINPX) and maybe the Spartan Intermediate Treasury Bond Index Fund (FIBIX)?
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby House Blend » Thu May 02, 2013 11:13 am

Too much overlap. Six funds does not necessarily mean 'more diversified' than three funds.

Pick the Fidelity US Bond Index. It's nearly indistinguishable from VG Total Bond Market.

Someday you might want to add the inflation protected bond fund, but IMO this is unnecessary for now.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby retiredjg » Thu May 02, 2013 11:24 am

KatieSSS wrote:Fidelity Corporate Bond Fund (FCBFX) - 0.45% expense ratio
Fidelity Inflation-Protected Bond Fund (FINPX) - 0.45% expense ratio
Fidelity Intermediate Bond Fund (FTHRX) - 0.45% expense ratio
Fidelity Investment Grade Bond Fund (FBNDX) - 0.45% expense ratio
Fidelity Short-Term Bond Fund (FSHBX) - 0.45% expense ratio
Fidelity Total Bond Fund (FTBFX) - 0.45%
Fidelity U.S. Bond Index Fund (FBIDX) - 0.22% expense ratio
FIdelity Ultra-Short Bond Fund (FUSFX) - 0.45% expense ratio

Perhaps I could choose 2-3 bond funds in my 403b to diversify and also make it so that I don't have to constantly adjust my Roth allocations. Maybe a combo of the U.S. Bond Index Fund (FBIDX), the Inflation-Protected Bond Fund (FINPX) and maybe the Spartan Intermediate Treasury Bond Index Fund (FIBIX)?

You don't need 3 in this one account and probably don't even need 2. The US Bond Index (a total bond market index fund) contains all those other things except TIPS. Suggest you use just Bond Index or just TIPS (since you will have Total Bond in the Roth IRA) or a combo of the two.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Thu May 02, 2013 12:15 pm

Thanks for the feedback. I think I have a pretty good asset allocation now, and I'll review it every year to rebalance. I'll probably pay closer attention the first year and review every few months to make sure that I'm on my ratio targets (55% US Stock, 20% Intl, 25% Bonds) with only contributing to the 403b.

Here we go:

Roth IRA
46% VTSMX Vanguard Total Stock Market Index Fund - 0.17% expense ratio
17% VGTSX Vanguard Total International Stock Index Fund - 0.22% expense ratio
20%VBMFX Vanguard Total Bond Market Investor Shares - 0.2% expense ratio

403b
3% FSGUX Spartan Global ex-U.S. Index Funds Investor Class - 0.34% expense ratio
9% FSTMX Spartan Total Market Index Fund - 0.06% expense ratio
2% FBIDX Fidelity U.S. Bond Index Fund - 0.22% expense ratio
3% FINPX Fidelity Inflation-Protected Bond Fund - 0.45% expense ratio

I went with a little extra TIPS in the 403b since I won't have any of those in the Roth IRA.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby retiredjg » Thu May 02, 2013 1:43 pm

That will certainly work and you should only have to mess with the 403b. The Roth IRA can be put on the back burner. Good luck!
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Thu May 02, 2013 2:32 pm

retiredjg wrote:That will certainly work and you should only have to mess with the 403b. The Roth IRA can be put on the back burner. Good luck!


Great! Thank you all for the great advice and guidance! Now on to put the plan in motion... :)
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby bayview » Thu May 02, 2013 3:39 pm

I'd also bump up your emergency fund. Two months' worth is a bit on the light side.

When the time comes that you open a Roth, it can double to some extent as an emergency emergency fund, so to speak, in that you can withdraw your contributions (not earnings.) But you can not go back and replace them; thus the "emergency emergency" bit.

Congrats on getting going on this!
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Thu May 02, 2013 3:48 pm

bayview wrote:I'd also bump up your emergency fund. Two months' worth is a bit on the light side.

When the time comes that you open a Roth, it can double to some extent as an emergency emergency fund, so to speak, in that you can withdraw your contributions (not earnings.) But you can not go back and replace them; thus the "emergency emergency" bit.

Congrats on getting going on this!


Yep, that's on my list of things to do right after I get out of debt - bumb up the emergency fund.

Ugh - I just got off the phone with my Wells Fargo financial adviser, which is currently where I house my Roth IRA. I called to ask about the process of switching, but as I expected, he tried to deter me from making these investments. He thinks that I should stay with WF and then buy Vanguard funds with my current account there. When I pointed out the $40 yearly fee WF charges me, he said they could waive that. He was making the argument that I should not be investing in the VBMFX total bond market because corporate bonds are better. He also said that he would rather I invest in something like Vanguard Wellington and Vanguard Wellesley instead of the VTSMX total stock market and VGTSX total international. He said I should definitely not be investing any international.

Any thoughts on this advance? A bunch of hooey?
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby bayview » Thu May 02, 2013 4:02 pm

Well, he will make money if he persuades you to do what he "advises." :D

I just read this article, which was linked to on another thread here: http://www.gsb.stanford.edu/news/resear ... JE.twitter A great commentary on indexing, including investing in international.

The thread discussing this article: http://www.bogleheads.org/forum/viewtopic.php?f=10&t=115714

And now I will let the veterans take over.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby retiredjg » Thu May 02, 2013 4:55 pm

In your first post, you said you wanted to switch from WF to Vanguard. I took that to mean you meant moving the Roth IRA to Vanguard. Apparently, you meant using Vanguard mutual funds at Wells Fargo? That's OK under 1 condition - you don't pay any transaction fees. With the WF PMA deal, you get free transactions. Without that, I think you have to pay transaction fees and that defeats your goal of low cost investing. If you have to pay transaction fees, you should not be buying Vanguard mutual funds there. You should just move the Roth IRA to Vanguard.

About corporate bonds - that is an issue over which intelligent people can disagree. The total bond market includes corporate bonds. Some people (including Jack Bogle) wish it had more corporate bonds. You could use a corporate bond fund if you want, but I would not put all my bond money there. If you want to use total bond plus some TIPS plus some corporates, that would be fine.

Wellington and Wellesley are great funds. They just don't particularly fit into your plan.

Definitely not be investing in any international? I think very few people would agree with that. There are a few.

It does not seem you were looking forward to talking to your "advisor". Why stay there?
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Thu May 02, 2013 5:00 pm

retiredjg wrote:In your first post, you said you wanted to switch from WF to Vanguard. I took that to mean you meant moving the Roth IRA to Vanguard. Apparently, you meant using Vanguard mutual funds at Wells Fargo? That's OK under 1 condition - you don't pay any transaction fees. With the WF PMA deal, you get free transactions. Without that, I think you have to pay transaction fees and that defeats your goal of low cost investing. If you have to pay transaction fees, you should not be buying Vanguard mutual funds there. You should just move the Roth IRA to Vanguard.

About corporate bonds - that is an issue over which intelligent people can disagree. The total bond market includes corporate bonds. Some people (including Jack Bogle) wish it had more corporate bonds. You could use a corporate bond fund if you want, but I would not put all my bond money there. If you want to use total bond plus some TIPS plus some corporates, that would be fine.

Wellington and Wellesley are great funds. They just don't particularly fit into your plan.

Definitely not be investing in any international? I think very few people would agree with that. There are a few.

It does not seem you were looking forward to talking to your "advisor". Why stay there?


All great points - and you are right, I wasn't looking forward to talking to my advisor. Because I'm skeptical of brokers.

And I do want to switch my entire Roth over to Vanguard, and that is what I'm going to do. I think the broker just made me doubt myself, and because I still feel insecure about my knowledge of investing, I listened to him. Funny, I went to Vanguard and took their online "get a mutual fund recommendation" quiz. I got the EXACT same fund choices that I already decided to go with here, based on the collective advice here. That sealed the deal for me that I'm not going about this the wrong way. And I did look at Wellington and Wellesley and they are good funds. But I'm not staying at Wells Fargo, because they do charge me fees.

Thanks for calling me back from the dark place I was going to in my brain!
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby retiredjg » Thu May 02, 2013 5:15 pm

Good for you!

A good salesperson can sell ice to an Eskimo. That does not mean the Eskimo needs ice.

The salesperson has nothing to lose and everything to gain by keeping you at WF. That does not mean WF is the best place for you to be. You are headed in the right direction. Just keep on. And don't be shocked if WF charges you a fee to close the Roth account. They might. Just pay it and move on.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Fri May 03, 2013 9:26 am

I got the following in an email from my Wells Fargo broker this morning:

"You can change the current fund over to the same Vanguard funds you mentioned or any Vanguard fund for that matter and keep the current account. A transfer is not necessary to accomplish owning the Vanguard funds and the same cost structure is applied to Vanguard funds with Wells as they are at Vanguard."

----Except for the $40/year cost to manage my account, the 1.1% expense ratio of my current portfolio, and the $50 no-load mutual fund accommodation fee.

"Very Broad market investments like the funds you mentioned should be fully understood before you make that kind of an investment direction shift, I am prepared to go over the specific nuances of owning such investments so that you understand the very different risks you will face vs. the current strategy. Just let me know when you have 30 min to discuss."

"I strongly caution you on owning longer term bonds at this stage. The market and interest rate cycle conditions that currently exist are very important to understand. Please don’t mix successful long term investing with the notion that you have to own the global market, or that owning the global market will in some way protect you from losses. Successful long term investing involves understanding the holdings of the portfolio so that you can use shorter term events like a market selloff or a move in interest rates to you benefit. Please don’t confuse a broad market investment with the notion that you don’t have to pay detailed attention to the portfolio."

---This sounds like he is basically arguing that I need a broker to take advantage of the shifts in the market.

"All things being equal, internal fund fees are very important. However you must understand that fees should not be the only consideration in selecting an investment. The holdings of the investment and how they serve your investment direction and expectations of return are far more important."

----True, but I don't want to get hosed on fees and have my 7% return turn into 6% every year for years on end.

"I would like to leave you with this thought. The investment direction shift that you are contemplating is huge."

---What I don't understand is why he thinks that owning 20% of my total portfolio in a total bond market fund is bad. Plus, this is actually only about $4,000 of real money. And 30% of that is in his beloved corporate bonds. This is just getting annoying. I'm frankly not interested in sitting down and having a conversation with him because I feel like he really isn't interested in my investment strategy. Time to call Vanguard and have them initiate the switch.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby BogleNamedSue » Fri May 03, 2013 9:50 am

Agreed: It is much, much easier to make the switch to Vanguard by calling Vanguard and having them handle the process of moving your Roth from WF to Vanguard. You don't need to talk to the WF advisor ever again.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby retiredjg » Fri May 03, 2013 11:11 am

KatieSSS wrote:This is just getting annoying. I'm frankly not interested in sitting down and having a conversation with him because I feel like he really isn't interested in my investment strategy. Time to call Vanguard and have them initiate the switch.

Time to call Vanguard. You don't have to talk to this "advisor" any more and apparently, you don't want to. Can't blame him for trying to keep your business though.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Fri May 03, 2013 11:48 am

retiredjg wrote:
KatieSSS wrote:This is just getting annoying. I'm frankly not interested in sitting down and having a conversation with him because I feel like he really isn't interested in my investment strategy. Time to call Vanguard and have them initiate the switch.

Time to call Vanguard. You don't have to talk to this "advisor" any more and apparently, you don't want to. Can't blame him for trying to keep your business though.


Yeah, can't blame the guy, I guess! I'll be calling Vanguard in a bit to initiate everything.
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby KatieSSS » Fri May 03, 2013 1:24 pm

Phew - just called Vanguard and made the switch!

In the end, I decided to go with VASGX Vanguard LifeStrategy Growth Fund (expense ratio 0.17%) since it has almost the exact asset allocation I had proposed for in the VTSMX, VGTSX, and VBMFX. But with the LifeStrategy, Vanguard uses those three funds in this growth fund and keeps the allocation at 80 stocks/20 bonds without me having to do it myself. This way, I can focus on getting the correct allocations in my 403b with Fidelity while counting on my Roth to stay the same in allocations. I figure this is a good way to start with Vanguard and will make the process simpler for now. He did tell me it would be more advantageous in the future to manage those three funds myself once I qualify for admiral shares. So right now the plan is to stay with VASGX until I can get the admiral shares. Sweet - a plan!

The rep I spoke with at Vanguard was VERY helpful and first and foremost wanted ME to tell him why I wanted to go with Vanguard and what my investing needs were. After I told him all that I had been telling you here, he said I was a perfect fit for Vanguard based on their philosophy and that I should even be a spokesperson for the company - ha ha! I guess I've read a lot of John Bogle :)

Ahh...so relieved :)
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Re: Making Changes to Roth IRA and 403b - Portfolio Review

Postby retiredjg » Fri May 03, 2013 8:51 pm

KatieSSS wrote:Ahh...so relieved :)

THAT's how you should feel about the people handling your money.
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