Portfolio Housecleaning - Seeking Advice

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Portfolio Housecleaning - Seeking Advice

Postby Televators » Thu May 02, 2013 11:29 pm

Greetings,

I'm new to posting, and am hoping for some serious help with my "portfolio". I hesitate to call it a portfolio at this point, and I am a bit ashamed to say that I haven’t been paying enough attention to my money.

Up to this point, I have simply been sending money to my 401k each paycheck (and recently to my ROTH IRA as attempt to save more) and thinking that was the right thing to do.

A friend referred me to these forums and my mind is spinning a bit with all this information and I feel like I’m making some major mistakes, but don’t really know where to start and feel like I might be too late in some way to make this right. I had to look up nearly all of this information and wasn't aware of the fees, etc. I was paying until reading the posts here and going to look at my own funds, so I am really starting to open my eyes to this stuff. Posting my portfolio and asking for help seemed like the next logical step in getting this right.

I am very open to changes based on any suggestions, and am looking for help on where to start. The 10 principles make sense to me, but I am a little overwhelmed and worried about screwing something up.

Thank you very much for any thoughts and advice, I really appreciate it.

Josh

Questions:
1. I am honestly not sure when to target retirement, or what would even be realistic. For someone with this type of portfolio, what would be something reasonable to target at least as a window to keep in mind?
2. From a tactical approach, I am wondering if my target asset allocation makes sense, and how should I get there?
3. I feel like I have a lot of options, and my money is in a lot of funds/stocks. Is there a way to simplify this, but still be safe?
4. I have a lot of my portfolio in stock options, and I'm not sure how to treat those differently if appropriate?

Emergency Funds: 4 Months Expense in Cash (starting to look for a better option than savings)

Debt
Her student loan: $2,178 - 6.55%
His student loan $5,216 - 6.75%
Auto loan $9547 - 3.74%
Mortgage $308,383 - 2.0% including $150 per mo in PMI for the next 17 payments

Tax Filing Status: Married Filing Jointly
Tax Rate: His 25% Federal, Hers 25% (0% State)

State of Residence: WA
Age: 34 (Him), 31 (Her), 1 (Child)

Desired Asset allocation: 70% stocks / 30% bonds (very much would like feedback, kind of copying what I see others do in similar situations)
Desired International allocation: 25% of stocks (same here)

Current Portfolio Total: Low six-figures (~$200k)

Current retirement assets

Taxable account at Fidelity
0.42% Cash
1.78% Stock - International Business Machines (IBM)
0.32% Sprott Physical Silver Trust (PSLV)
5.60% Stock - Starbucks Coffee (SBUX)
2.81% Restricted Stock Units - Starbucks Coffee (SBUX)
21.70% Employee Stock Options (fully vested)- Starbucks Coffee (SBUX)

His 401k at Fidelity
19.75% Vanguard Target Retirement 2045 Trust II 0.13%
10.01% Vanguard Institutional Index Fund Institutional Shares (VINIX) 0.04%
5.72% Vanguard Total International Stock Index Fund Signal Shares (VTSGX) 0.16%
4.53% Vanguard FTSE Social Index Fund Institutional Shares (VFTNX) 0.16%
4.24% Vanguard Total Bond Market Index Fund Signal Shares (VBTSX) 0.10%
2.71% Vanguard Small Cap Index Fund Signal Shares (VSISX) 0.10%

His Roth IRA at Fidelity – Opened in 2012
0.78% Stock – American Tower Corporation (AMT)
1.01% Stock – Amazon.com Inc. (AMZN)
0.89% Stock – Disney Walt Co (DIS)
0.89% Stock – International Business Machines (IBM)
2.18% Cash (Just deposited for 2013)

Her 401k at 401Save.com (not very user friendly)
1.56% American Funds Growth Fund of Amer A (AGTHX) 0.71%
1.60% American Funds Washington Mutual A (AWSHX) 0.62%
1.55% American Funds Invmt Co of Amer (AAIVSX) 0.62%
1.47% American Funds EuroPacific Gr A (AEPGX) 0.84%
1.65% American Funds Smallcap World A (SMCWX) 1.14%
6.85% American Funds Bond Fund of Amer A (ABNDX) 0.60%

Contributions

New annual Contributions
MAX his 401k (Company match 4-6% based on company performance)
5% of salary (~$3000) her 401k (Discretionary company match up to 5%)
MAX his ROTH IRA (maxed for 2013)
Restricted Stock Units - Starbucks Coffee (SBUX) based on company performance
~13% of salary Employee Stock Options - Starbucks Coffee (SBUX)

Available funds

Funds available in his 401k
Nuveen Winslow Large-Cap Growth Fund Class I (NVLIX) 0.89%
Vanguard FTSE Social Index Fund Institutional Shares (VFTNX) 0.16%
American Funds Fundamental Investors Fund Class R-4 (RFNEX) 0.66%
Vanguard Institutional Index Fund Institutional Shares (VINIX) 0.04%
Wells Fargo Advantage Discovery Fund Administrator Class (WFDDX) 1.14%
Harbor Small Cap Value Fund Institutional Class (HASCX ) 0.86%
Vanguard Small Cap Index Fund Signal Shares (VSISX) 0.10%
MFS Institutional International Equity Fund (MIEIX) 0.78%
Vanguard Total International Stock Index Fund Signal Shares (VTSGX) 0.16%
PIMCO Real Return Fund Institutional Class (PRRIX) 0.47%
Dodge & Cox Income Fund (DODIX) 0.43%
Vanguard Total Bond Market Index Fund Signal Shares (VBTSX) 0.10%
Wells Fargo Stable Return Fund Class C 0.49%
Vanguard Target Retirement 2010 Trust II 0.13%
Vanguard Target Retirement 2015 Trust II 0.13%
Vanguard Target Retirement 2020 Trust II 0.13%
Vanguard Target Retirement 2025 Trust II 0.13%
Vanguard Target Retirement 2030 Trust II 0.13%
Vanguard Target Retirement 2035 Trust II 0.13%
Vanguard Target Retirement 2040 Trust II 0.13%
Vanguard Target Retirement 2045 Trust II 0.13%
Vanguard Target Retirement 2050 Trust II 0.13%
Vanguard Target Retirement 2055 Trust II 0.13%
Vanguard Target Retirement 2060 Trust II 0.13%
Vanguard Target Retirement Income Trust II 0.13%

Funds available in her 401k
American Funds Growth Fund of Amer A (AGTHX) 0.71%
American Funds Washington Mutual A (AWSHX) 0.62%
American Funds Invmt Co of Amer (AAIVSX) 0.62%
American Funds EuroPacific Gr A (AEPGX) 0.84%
American Funds Smallcap World A (SMCWX) 1.14%
American Funds Bond Fund of Amer A (ABNDX) 0.60%
American Funds American Balanced A (ABALX) 0.63%
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Re: Portfolio Housecleaning - Seeking Advice

Postby core5 » Fri May 03, 2013 2:43 pm

Three things that stood out to me are your stock options, individual stock holdings and emergency fund.

I would boost your emergency fund to 6 months-worth of expenses, or greater, especially since you have a child.

Because your individual stocks are not widely diversified (I've read you really need 30-60 holdings spread across different sectors to have anywhere near the diversification of "total stock market" funds), I think you should consider moving them to an index fund.

From what I've read in a few books and on this site, you should consider selling off your stock options when you can. The logic for this is you're already investing your self and your time into your company. When you own your company's stock, you are investing compensation for work you've already done. The danger is, if the company falls on hard times, you may lose a significant portion of that investment, because it is not diversified. Worse yet, if you get laid off during that time, you've lost your job AND a portion of your invested income.

With that said, 70/30 allocation is a good target for risk reduction over the long term.
[size=85]The problem with closed-mindedness is it that it's rarely accompanied by a closed mouth[/size]
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Re: Portfolio Housecleaning - Seeking Advice

Postby flipflopliving » Fri May 03, 2013 3:20 pm

Core5 has given you solid advice and those three jumped out at me as well. I sure wish we had the 40,000 invested at a five percent discount that went to zero upon the employer's demise back.

You might think more along when do you want to be financially independent rather than retire. It is easier to think it through. :happy
Take the course opposite to custom, you will almost always do well. Rousseau
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Re: Portfolio Housecleaning - Seeking Advice

Postby Bogle101 » Fri May 03, 2013 3:51 pm

I would suggest Target 2035 or you can just do a mix of the funds below depending on your appetite for risk.

Vanguard Institutional Index Fund Institutional Shares (VINIX) 0.04%
Vanguard Small Cap Index Fund Signal Shares (VSISX) 0.10%
Vanguard Total International Stock Index Fund Signal Shares (VTSGX) 0.16%
Vanguard Total Bond Market Index Fund Signal Shares (VBTSX) 0.10%

I personally prefer PIMCO Total Return to Total Bond, but difference is probably inconsequential.
Taxable: 25% VTSAX | 25% VEXAX | 10% VDMAX | 10% VEMAX | 10% VFSVX | 10% VGENX | 10% VGHCX
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Re: Portfolio Housecleaning - Seeking Advice

Postby roymeo » Fri May 03, 2013 4:19 pm

I'm another advocate for selling off the stocks and especially any of the 'your company' stock ASAP taking into account your specific tax situation. It's great that your employer rewards you with stock, but I see it the same as if my employer gave me a hippopotamus--cute and appreciated, but it doesn't fit with my lifestyle. Or some other thing I don't want like a giant SUV, collectable car, 10K painting, etc. I'd sell it. I wouldn't try to time my exit to the market or hold on to it for a couple more years because it might really appreciate if the artist dies, I'd say thanks and make that 'value' USEFUL to me by putting into something I do want. My company's stock has gone up quite a bit in the last year, but I feel much better about having sold it to park in my down-payment fund earning almost nothing vs. the stress of the risk involved with having left the money in the company stock and possibly not being able to move on a house.
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Re: Portfolio Housecleaning - Seeking Advice

Postby wilked » Fri May 03, 2013 10:55 pm

My thoughts:

You should erase the school loan debts as soon as possible. Use your taxable account for this. The loans are high interest rate, other than employee match you will likely not do better elsewhere.

I would really look to simplify. Your taxable account, I would sell off individual stocks and the silver trust. Move the money into index funds.

In the Fidelity account, consider moving all of the money into the Target 2035 fund. You could save a little basis points by splitting it into individual, but maybe save that for a task a year from now after you have lurked on the boards. It won't make much of a difference.

In her fund, maybe move everything into the American Bonds fund.

At this point, re-do your percentages, and use your taxable account to balance the bonds with appropriate stocks. Make sure you are familiar with the wiki on tax-efficiency and placement of funds.

To answer your specific questions:

1. I can't answer with a number or date, but feel good that you are clearly above the majority of your peers. If you keep saving at a high rate you will be fine. In 5 years or so I would re-ask this question, for now it's a little early to say.
2. See above. Keep expenses low, and simplify your portfolio to a handful of index funds.
3. See above.
4. I am not positive how to answer.
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Re: Portfolio Housecleaning - Seeking Advice

Postby Televators » Sat May 04, 2013 10:44 am

Thank you everyone for your great advice. I am going to digest this for a couple days and build out an action plan before I ask a bunch of random questions and start putting these changes into motion.

Thanks again all of you for taking the time to offer your insights, me and my family appreciate it tremendously.
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Re: Portfolio Housecleaning - Seeking Advice

Postby ogd » Sat May 04, 2013 12:11 pm

Televators wrote:Thank you everyone for your great advice. I am going to digest this for a couple days and build out an action plan before I ask a bunch of random questions and start putting these changes into motion.

Thanks again all of you for taking the time to offer your insights, me and my family appreciate it tremendously.


One more observation wrt. employee stock / stock options: you should sell stocks and RSUs immediately as you receive them, there are no tax consequences for doing so. For stock options, there are sometimes reasons to delay, either because of taxes or how far they are above water; e.g. an option that is only 5% above strike has the potential to appreciate 400% with a rather pedestrian 20% rise in the stock.

But if you're far enough from the option strike price (+100% is a good mark imho) and your tax bracket looks stable, the need for diversification wins.
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Re: Portfolio Housecleaning - Seeking Advice

Postby Televators » Sat May 04, 2013 11:44 pm

A clarifying question:

I see two of you mentioned the Vanguard Target 2035 fund.

If I put my money in there, how can I control the asset allocation?

I apologize if this is not a clear question, I'm trying to understand how to get to that 70/30 ratio.
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Re: Portfolio Housecleaning - Seeking Advice

Postby bayview » Sun May 05, 2013 12:06 am

Televators wrote:A clarifying question:

I see two of you mentioned the Vanguard Target 2035 fund.

If I put my money in there, how can I control the asset allocation?

I apologize if this is not a clear question, I'm trying to understand how to get to that 70/30 ratio.

I think this is what you're asking; my apologies if I misread:

Take the percentage of your total investment that is in the fund, and multiply each component by that percentage. So if it's (very roughly) 60% US equity/ 26% international equity/ 13% bonds/ 1% cash, and 25% of your money is in this fund, it would mean .60*.25 in US stocks, .26*.25 in international, .13*.25 bonds, and .01*.25 cash. Multiply those figures by your total $$$ and then you can figure out how much else you need elsewhere to hit your ratio.
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Re: Portfolio Housecleaning - Seeking Advice

Postby jlawrence01 » Sun May 05, 2013 12:26 am

While I agree that holding a high concentration of stock is NOT a smart move, you also need to consider any ramifications that a large sale will have upon your career with your current employer. Corporate CEOs often pay close attention to employee stock sales, especially of corporate personnel.
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Re: Portfolio Housecleaning - Seeking Advice

Postby Televators » Sun May 05, 2013 12:01 pm

bayview wrote:
Televators wrote:A clarifying question:

I see two of you mentioned the Vanguard Target 2035 fund.

If I put my money in there, how can I control the asset allocation?

I apologize if this is not a clear question, I'm trying to understand how to get to that 70/30 ratio.

I think this is what you're asking; my apologies if I misread:

Take the percentage of your total investment that is in the fund, and multiply each component by that percentage. So if it's (very roughly) 60% US equity/ 26% international equity/ 13% bonds/ 1% cash, and 25% of your money is in this fund, it would mean .60*.25 in US stocks, .26*.25 in international, .13*.25 bonds, and .01*.25 cash. Multiply those figures by your total $$$ and then you can figure out how much else you need elsewhere to hit your ratio.


Ok, I understand. It sounds like you decompose the target fund into its classes to figure it out. I think I might go along the lines of what Bogle101 called out or one of these three fund portfolio type approaches (I don't think I can get quite that simple with my wife's 401k options) so I can easily see the totals, etc.
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Re: Portfolio Housecleaning - Seeking Advice

Postby Televators » Sun May 05, 2013 12:02 pm

jlawrence01 wrote:While I agree that holding a high concentration of stock is NOT a smart move, you also need to consider any ramifications that a large sale will have upon your career with your current employer. Corporate CEOs often pay close attention to employee stock sales, especially of corporate personnel.


Unfortunately I don't think I'm significant enough in my company that my CEO would notice that small of a transaction. : (
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Re: Portfolio Housecleaning - Seeking Advice

Postby bayview » Sun May 05, 2013 12:31 pm

Televators wrote:
jlawrence01 wrote:While I agree that holding a high concentration of stock is NOT a smart move, you also need to consider any ramifications that a large sale will have upon your career with your current employer. Corporate CEOs often pay close attention to employee stock sales, especially of corporate personnel.


Unfortunately I don't think I'm significant enough in my company that my CEO would notice that small of a transaction. : (

There's a lot to be said for flying under the radar in some situations.
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Re: Portfolio Housecleaning - Seeking Advice

Postby stan1 » Sun May 05, 2013 12:56 pm

Open and contribute to a Roth IRA for your wife. Contribute only enough to get the match on her 401K until you max out the Roth IRA -- given that she doesn't have a good selection of low cost index funds available in her 401K.
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Re: Portfolio Housecleaning - Seeking Advice

Postby retiredjg » Sun May 05, 2013 6:29 pm

Televators wrote:... but I am a little overwhelmed and worried about screwing something up.

Don't worry too much about this. At first it can be confusing because there are so many "rules", but once you figure out which rules trump the others, it suddenly falls into place.


3. I feel like I have a lot of options, and my money is in a lot of funds/stocks. Is there a way to simplify this, but still be safe?

Things can be much simpler. It will also be easier to understand when it is simpler.


4. I have a lot of my portfolio in stock options, and I'm not sure how to treat those differently if appropriate?

Your stock options are the biggest weak point in your situation. Not that stock options are bad, just that you have too much of your wealth tied up in the same company that pays your salary. You need to reduce your stock options considerably. What are the tax consequences of doing something with the options?


Emergency Funds: 4 Months Expense in Cash (starting to look for a better option than savings)

You might increase this to 6 months. There's not a lot of choices other than savings. You could look at CDs for part of your emergency fund. You could consider I Bonds (realizing the money is NOT AVAILABLE for a year so you have to tread carefully there), or you could use some short term bonds for a little of it.



Desired Asset allocation: 70% stocks / 30% bonds (very much would like feedback, kind of copying what I see others do in similar situations)
Desired International allocation: 25% of stocks (same here)

These are both reasonable choices for your age.



Current retirement assets

Taxable account at Fidelity
0.42% Cash
1.78% Stock - International Business Machines (IBM)
0.32% Sprott Physical Silver Trust (PSLV)
5.60% Stock - Starbucks Coffee (SBUX)
2.81% Restricted Stock Units - Starbucks Coffee (SBUX)
21.70% Employee Stock Options (fully vested)- Starbucks Coffee (SBUX)

You should not be putting retirement money into a taxable account until you fill all your tax-advantaged accounts. And you should also not be saving money in a taxable account when there is moderate to high interest debt that you could pay off. What would be the tax consequences of getting rid of some of this?


His 401k at Fidelity <--This is way more funds than you need in this one account. But let's hear your plan for the taxable account before dealing with this.
[/b]19.75% Vanguard Target Retirement 2045 Trust II 0.13%
10.01% Vanguard Institutional Index Fund Institutional Shares (VINIX) 0.04%
5.72% Vanguard Total International Stock Index Fund Signal Shares (VTSGX) 0.16%
4.53% Vanguard FTSE Social Index Fund Institutional Shares (VFTNX) 0.16%
4.24% Vanguard Total Bond Market Index Fund Signal Shares (VBTSX) 0.10%
2.71% Vanguard Small Cap Index Fund Signal Shares (VSISX) 0.10%

His Roth IRA at Fidelity – Opened in 2012 <---much improvement possible here
[/b]0.78% Stock – American Tower Corporation (AMT)
1.01% Stock – Amazon.com Inc. (AMZN)
0.89% Stock – Disney Walt Co (DIS)
0.89% Stock – International Business Machines (IBM)
2.18% Cash (Just deposited for 2013)

Her 401k at 401Save.com (not very user friendly) <--again, many more funds than needed
[/b]1.56% American Funds Growth Fund of Amer A (AGTHX) 0.71%
1.60% American Funds Washington Mutual A (AWSHX) 0.62%
1.55% American Funds Invmt Co of Amer (AAIVSX) 0.62%
1.47% American Funds EuroPacific Gr A (AEPGX) 0.84%
1.65% American Funds Smallcap World A (SMCWX) 1.14%
6.85% American Funds Bond Fund of Amer A (ABNDX) 0.60%

Contributions

New annual Contributions
MAX his 401k (Company match 4-6% based on company performance) <--we need a number for the match
5% of salary (~$3000) her 401k (Discretionary company match up to 5%)
MAX his ROTH IRA (maxed for 2013)
Restricted Stock Units - Starbucks Coffee (SBUX) based on company performance <--Is this a bonus? Is this a match to your 401k?
~13% of salary Employee Stock Options - Starbucks Coffee (SBUX) <--is this by choice? If so, STOP DOING THIS till you get your company stock to a much smaller percentage of your savings.


[b]Funds available in his 401k <--many good choices

[b]Funds available in her 401k <--not great, but usable
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