Portfolio Review / 401K Advice

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Portfolio Review / 401K Advice

Postby Clark Griswold » Thu May 09, 2013 9:54 am

Hello All,

I’ve been lurking for a little while and thought now was a good time to post and try to get some advice. I recently started a new job and my wife and I just had our first child. My wife is working part time(I’m just happy she is working again) and doesn’t have a retirement plan at work. After some paralysis through analysis, I finally opened two Roth IRA’s and a 529 account to get the ball rolling. Here’s where we stand:

Emergency Fund: ~3 months
Filling Status: Married Filing Jointly
Tax Bracket: 15% Fed, 5% State
State of Residence: AL
Age: Me-27, Wife-26, 1 child – 4 months old

Debt:
Her Student Loan - $4,518 @ 5.35%
Car Loan - $8,632 @ 3.75%

Assets:
Money Market - $30,000(saving for part of a down payment on house)
500 shares private bank stock- purchased for $25/share, worth approx. $30/share- not traded publically
529 Account - $150 State 529 account (just opened)

Retirement Accounts:
His New 401K: $1100 – (contr. 8%, employer matches first 2% and 45% of the next 6% after 6 months of employment) Funds listed below.
His Old 401K: $6,889($4,329 vested) Fidelity Freedom 2050 (FFFLX) ER 1.04%

His Roth IRA - $1,100 Vanguard Target Retirement 2050(just opened)
Her Roth IRA - $1,100 Vanguard Target Retirement 2055(just opened)

Taxable Account:
Morgan Stanley – Eaton Vance Strategic Income A(ETSIX)(1.41%) - $10,350

Contributions:
New 401K - currently contributing 8% which is the eployer match that begins after 6 months of employment
Roth IRA's - $1300 to each. We will put more in after receiving our tax return
Any other extra funds are going toward Emergency Fund and paying off loans.

Current 401K Elections:
Election % Fund ER
20% ASTON/Montag & Caldwell Growth Fund N (MCGFX) - 1.07% Large Cap US Stock
20% Dodge & Cox Stock Fund (DODGX) - 0.52% Large Cap US Stock
20% Northern Small Cap Index Fund (NSIDX) - 0.16% Small Cap US Stock
20% Prudential Jennison Mid Cap Growth Z (PEGZX) - 0.76% Mid Cap US Stock
20% Vanguard Institutional Index Instl (VINIX) - 0.04% Large Cap US Stock

401K Fund Options:
PIMCO Total Return Admn (PTRAX) - 0.71% Diversified Bond
ASTON/Montag & Caldwell Growth Fund N (MCGFX) - 1.07% Large Cap US Stock
Dodge & Cox International Stock Fund (DODFX) - 0.64% International Stock
American Funds American Balanced Fund R4 B (RLBEX) - 0.65% Balanced
Dodge & Cox Stock Fund (DODGX) - 0.52% Large Cap US Stock
Stable Value Portfolio Fund - 0.68% Cash Fund
Northern Small Cap Index Fund (NSIDX) - 0.16% Small Cap US Stock
Prudential Jennison Mid Cap Growth Z (PEGZX) - 0.76% Mid Cap US Stock
Vanguard Institutional Index Instl (VINIX) - 0.04% Large Cap US Stock



Questions:
1.I just started a new job and wanted to get my 401K set up quickly. I just picked 5 funds based on past performance and spread the distribution evenly without much research or thinking(dumb I know). I’m thinking an AA of 85/15 going forward. Judging by the fund options posted any suggestions on how I should set my elections?
2.My 401K from my previous employer is sitting in a Fidelity account. Should I rollover my old 401K to my new 401K or into an IRA?
3.My father was the custodian on my Morgan Stanley portfolio, since he opened it a long time ago, up until a few years ago. He used money from that to purchase the stock in the private bank. It is a successful bank and should continue to do well. I can sell the stock if it would be beneficial to use the money somewhere else, but I’m inclined to hold on to it. It will sell quickly if we need money in a pinch. What should I do with the Morgan Stanley- EV Strategic Income? Move the funds to another account? Maybe pay off debt? Nothing?
4.I feel like we are behind and I’m doing my best to get us caught up. I would like to be debt free, except maybe a mortgage, in less than 2 years. My new job pays hourly and I’ve been working a good amount of overtime. Any overtime pay I get is going to build the emergency fund along with our usual monthly contributions. We are contributing extra to pay down the student loan debt while also contributing to the Roth IRA’s and the 529 Account. My wife has no retirement so I wanted to get that going asap. We are looking to buy a house fairly soon(within a year), so I don’t want to spend anything from the Money Market account. I guess this last one isn’t a specific question, I just want to get overall thoughts. See anything we could/should be doing differently?

Thanks in advance for any and all help.
Last edited by Clark Griswold on Fri May 10, 2013 9:37 am, edited 1 time in total.
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Re: Portfolio Review / 401K Advice

Postby ieee488 » Thu May 09, 2013 9:59 am

current 401K choices that I would pick : Northern Small Cap Index Fund (NSIDX) - 0.16% Small Cap US Stock and Vanguard Institutional Index Instl (VINIX) - 0.04% Large Cap US Stock

I would sell the bank stock and pay off your loans.
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Re: Portfolio Review / 401K Advice

Postby Clark Griswold » Thu May 09, 2013 10:13 am

ieee488 wrote:current 401K choices that I would pick : Northern Small Cap Index Fund (NSIDX) - 0.16% Small Cap US Stock and Vanguard Institutional Index Instl (VINIX) - 0.04% Large Cap US Stock

I would sell the bank stock and pay off your loans.



This has definitely crossed my mind. Also, I am debt averse so that would aliviate some stress.
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Re: Portfolio Review / 401K Advice

Postby damjam » Thu May 09, 2013 2:58 pm

Clark Griswold wrote:Questions:
1.I just started a new job and wanted to get my 401K set up quickly. I just picked 5 funds based on past performance and spread the distribution evenly without much research or thinking(dumb I know). I’m thinking an AA of 85/15 going forward. Judging by the fund options posted any suggestions on how I should set my elections? I concur with ieee488, Northern Small Cap Index Fund (NSIDX) - 0.16% Small Cap US Stock and Vanguard Institutional Index Instl (VINIX) - 0.04% Large Cap US Stock. Purchase them in ratios close to matching the market weight. Probably around 80% Vanguard/20% Northern.
2.My 401K from my previous employer is sitting in a Fidelity account. Should I rollover my old 401K to my new 401K or into an IRA? I would roll this over to Vanguard where you will have access to Total Bond Market, and other bond funds with lower expense ratios than your current 401k.
3.My father was the custodian on my Morgan Stanley portfolio, since he opened it a long time ago, up until a few years ago. He used money from that to purchase the stock in the private bank. It is a successful bank and should continue to do well. I can sell the stock if it would be beneficial to use the money somewhere else, but I’m inclined to hold on to it. It will sell quickly if we need money in a pinch. What should I do with the Morgan Stanley- EV Strategic Income? Move the funds to another account? Maybe pay off debt? Nothing? I would sell the bank stock. Too much concentrated risk in holding a single company. Pay off your loans with it and use the remainder to add to either your house fund or taxable investments for retirement. Also I would get funds out of Morgan Stanley and move them to Vanguard or other low cost provider such as Fidelity. Do you have large capital gains in EV Strategic Income? If not just sell it and move.
4.I feel like we are behind and I’m doing my best to get us caught up. I would like to be debt free, except maybe a mortgage, in less than 2 years. My new job pays hourly and I’ve been working a good amount of overtime. Any overtime pay I get is going to build the emergency fund along with our usual monthly contributions. We are contributing extra to pay down the student loan debt while also contributing to the Roth IRA’s and the 529 Account. My wife has no retirement so I wanted to get that going asap. We are looking to buy a house fairly soon(within a year), so I don’t want to spend anything from the Money Market account. I guess this last one isn’t a specific question, I just want to get overall thoughts. See anything we could/should be doing differently? See below.

You need to have a comprehensive investment plan. I would suggest a Three-fund portfolio. You should avail yourself of the WIKI to increase your understanding of the Boglehead Philosopy and how to direct your investing. You can start here: Getting Started.

Your actually doing well. With a few transactions you will be debt free and moving ahead with saving for your retirement and a home. Congratulations. My only word of caution would be: Don't buy a home too quickly. Unless your current situation is untenable for some reason, it is usually best to rent cheap and save as much as possible for as long as possible. It really doesn't become an issue until children reach school age. At that point, if necessary, you may want to move for a better school district.

Take it from someone who knows, owning a home isn't necessarily the most advantages move. When I was younger owning a house was the BIG dream, now having had one for over 18 years...eh. Owing a home is nice but also expensive and labor intesive. Luckily I have done well with my purchase and can afford it, but had I invested the money instead I would probably be years closer to retirement.

Keep learning and keep posting and you'll be light years ahead of your peers.
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Re: Portfolio Review / 401K Advice

Postby wilked » Thu May 09, 2013 4:31 pm

Morgan Stanley – Eaton Vance Strategic Income A(ETSIX)(1.41%) - $10,350

Ouch. This fund is very expensive. I would sell this plus the bank stock and pay off debts.
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Re: Portfolio Review / 401K Advice

Postby ruralavalon » Thu May 09, 2013 4:51 pm

Congratulations on the new job and the new baby.

What is the expected level of new contributions annually for the next few years?

See this for format -- viewtopic.php?t=6212
New annual Contributions
$xx his 401k (also specify any employer matching contributions)
$xx her 403b (also specify any employer matching contributions)
$xx his IRA/Roth IRA
$xx her IRA/Roth IRA
$xx taxable (for retirement, not short term goals)

What dollar amount of contribution is necessary to get the full employer match? What dollar amount of match would that be?

What are the choices (fund names, tickers, expense ratios) in the old 401k? Any Fidelity Spartan funds? I ask because sometimes its best to leave an old 401k where it is, if the choices offered are good ones.

How liquid is the private bank stock, that is could it easily be sold without discounting its reasonable value?


Please add this to your original post using the "edit' button; it helps a lot to have all of your information in one place.
Last edited by ruralavalon on Mon May 13, 2013 5:40 pm, edited 1 time in total.
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Re: Portfolio Review / 401K Advice

Postby Duckie » Thu May 09, 2013 8:51 pm

Clark Griswold, I recommend you sell the private bank stock and the Eaton Vance stock, then pay off your debts. You can use the rest to max your Roth IRAs for 2013 and increase your emergency fund (3 months isn't much with a kid).

Roll "His Old 401k" over to a Traditional/Rollover IRA at Vanguard (and consider converting it to a Roth IRA). You need more IRA space for international and maybe bonds. When you write "$4,329 vested" does that mean you lose the other $2,560?

You didn't specify an AA, so I'm going to recommend 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to roughly 56% US stocks, 24% international stocks, and 20% bonds.

In His 401k for now use:
    66% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.04%)
    14% (NSIDX) Northern Small Cap Index Fund (0.16%) <-- Roughly 83% large caps (Institutional Index) plus 17% small caps (Small Cap Index) makes up the total US stock market. See Approximating Total Stock Market.
    20% (PTRAX) PIMCO Total Return Fund Administrative Class (0.71%)
In both Roth IRAs and the new rollover IRA at Vanguard (former old 401k), use (VTHRX) Vanguard Target Retirement 2030 Fund (0.17%) to get the 20% bonds. You pick a target date fund by the AA inside, not by the date in the title. Later, when your Traditional/Rollover/Roth IRA assets get bigger you can exchange the TR funds for individual funds putting the international in (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.22%) and the bonds in (VBMFX) Vanguard Total Bond Market Index Fund Investor Shares (0.20%).

Just some possibilities.
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Re: Portfolio Review / 401K Advice

Postby Clark Griswold » Fri May 10, 2013 9:53 am

ruralavalon wrote:Congratulations on the new job and the new baby.

What is the expected level of new contributions annually for the next few years?

See this for format -- viewtopic.php?t=6212
New annual Contributions
$xx his 401k (also specify any employer matching contributions)
$xx her 403b (also specify any employer matching contributions)
$xx his IRA/Roth IRA
$xx her IRA/Roth IRA
$xx taxable (for retirement, not short term goals)

What dollar amount of contribution is necessary to get the full employer match? What dollar amount of match would that be?


This was mentioned in my original post, but I added it to the contributions section.

What are the choices (fund names, tickers, expense ratios) in the old 401k? Any Fidelity Spartan funds? I ask because sometimes its best to leave an old 401k where it is, if the choices offered are good ones.


No other options.

How liquid is the private bank stock, that is could it easily be sold without discounting its reasonable value?


Very. My brother is telilng me to hold out for IPO (he used to work for the bank). He said people are buying as much as they can, but it's hard to get. I'm very stuck on this one.

Please add this to your original post using the "edit' button; it helps a lot to have all of your information in one place.


I have edited my original post.
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Re: Portfolio Review / 401K Advice

Postby ruralavalon » Sat May 11, 2013 7:37 am

Clark Griswold wrote:Retirement Accounts:
His New 401K: $1100 – (contr. 8%, employer matches first 2% and 45% of the next 6% after 6 months of employment) Funds listed below.
. . . . .
Contributions:
New 401K - currently contributing 8% which is the eployer match that begins after 6 months of employment
Roth IRA's - $1300 to each. We will put more in after receiving our tax return

How much in dollars is that 8% annually you are contributing to the new 401k? How much in dollars is the employer going to be putting in annually?

I ask so we can know how rapidly the 401k will be growing in relation to the other accounts, and know what to suggest for what is best held in each account.
Last edited by ruralavalon on Mon May 13, 2013 3:42 pm, edited 1 time in total.
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Re: Portfolio Review / 401K Advice

Postby Clark Griswold » Mon May 13, 2013 9:21 am

ruralavalon wrote:
Clark Griswold wrote:Retirement Accounts:
His New 401K: $1100 – (contr. 8%, employer matches first 2% and 45% of the next 6% after 6 months of employment) Funds listed below.
. . . . .
Contributions:
New 401K - currently contributing 8% which is the eployer match that begins after 6 months of employment
Roth IRA's - $1300 to each. We will put more in after receiving our tax return

How much in dollars is that 8% annually you are contributing to the new 401k? How much in dollars is the employer going to be putting in annually?

I ask so we can know how rapidly the 401k will be growing in relation to the other accounts, and know what to suggest for what is best held in each account.


Salary is around $58K. Employer contribution will be 4.7%. So totoal contribution will be 12.7% or around $7,366.
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Re: Portfolio Review / 401K Advice

Postby ruralavalon » Mon May 13, 2013 3:22 pm

Clark Griswold wrote:Questions:
1.I just started a new job and wanted to get my 401K set up quickly. I just picked 5 funds based on past performance and spread the distribution evenly without much research or thinking(dumb I know). I’m thinking an AA of 85/15 going forward. Judging by the fund options posted any suggestions on how I should set my elections?

You say "I’m thinking an AA of 85/15 going forward." At ages 27 and 28, I'm going to suggest instead that the stock/bond allocation be 75/25. Please see -- Wiki article link: Asset Allocation ; and regression viewtopic.php?p=1217243#p1217243 .

I will also suggest about 30% of stocks in international stocks. Please see -- Vanguard paper https://personal.vanguard.com/pdf/icriecr.pdf ; and poll https://personal.vanguard.com/pdf/icriecr.pdf .

I suggest initially using the four funds listed below in his new 401k, in the proportions indicated.

In selecting funds its best to look at all accounts together as a single unified whole, rather than just look at one account in isolation.


Clark Griswold wrote:Questions:
. . . . .
2.My 401K from my previous employer is sitting in a Fidelity account. Should I rollover my old 401K to my new 401K or into an IRA?

I suggest moving his old 401k to a rollover IRA at Vanguard, for its very broad selection of low cost index funds. His new 401k has two good low cost domestic stock index funds, but does not have any bond index funds or international stock index funds.


Clark Griswold wrote:Questions:
. . . . .
3.My father was the custodian on my Morgan Stanley portfolio, since he opened it a long time ago, up until a few years ago. He used money from that to purchase the stock in the private bank. It is a successful bank and should continue to do well. I can sell the stock if it would be beneficial to use the money somewhere else, but I’m inclined to hold on to it. It will sell quickly if we need money in a pinch. What should I do with the Morgan Stanley- EV Strategic Income? Move the funds to another account? Maybe pay off debt? Nothing?

I suggest selling the Eaton Vance fund (its very expensive at er = 1.41%) and using the $10,350 proceeds to pay off the student loan ($4,518 @ 5.35%) and most ($5,800) of the car loan ($8,632 @ 3.75%). That gives you the equivalent of a guaranteed 6.76% rate of return for paying off one loan, and a 5.16% rate of return from paying down the other.


I suggest initially using the four funds listed below in his new 401k, in the proportions indicated. Here is an overall portfolio idea to consider for the several accounts (all percentages and dollar amounts rounded off, so may not add up exactly).

His New 401K (14% of portfolio; $1.1k; adds $4.6k/yr plus match = $7.4/yr total, or 74% of new contributions)
(precentages below for this 401k account, for both current balance and new contributions)
41% of 401k, Vanguard Institutional Index Instl (VINIX), er = 0.04%
09% of 401k, Northern Small Cap Index Fund (NSIDX), er = 0.16% , <= about 5:1 ratio of S&P 500 to small cap will approximate domestic total market, Wiki article link: Approximating Total Stock Market
25% of 401k, PIMCO Total Return Admn (PTRAX), er = 0.71%, <= good managed fund
25% of 401k, Dodge & Cox International Stock Fund (DODFX), er = 0.64%, <= good managed fund

Rollover IRA @ Vanguard, ex-His Old 401K (57% of portfolio; $4.3k vested)
57%, $4.3k, Vanguard Target Retirement 2025 Fund (VTTVX), er = 0.17%, <= 70/30 stocks/bonds

His Roth IRA (14% of portfolio; $1.1k; adds $1.3k/yr, or 13% of new contributions)
14%, Vanguard Target Retirement 2030 Fund (VTHRX), er = 0.17%, <= 80/20 stocks/bonds

Her Roth IRA (14% of portfolio; $1.1k; adds $1.3k/yr, or 13% of new contributions)
14%, Vanguard Target Retirement 2030 Fund (VTHRX), er = 0.17%, <= 80/20 stocks/bonds

When picking a Target Retirement fund, its best to look at the stock/bond ratio rather than the year in the fund name.

In a year or two when the Roth IRAs have balances above $3k (the initial minimum required for almost all Vanguard funds), you can switch the Roth IRAs to Vanguard Total International Stock Index Fund Investor Shares (VGTSX), er = 0.22%, and also switch the rollover IRA to Vanguard Total Bond Market Index Fund Investor Shares (VBMFX), er = 0.20%, at the same time reducing the interanational and bond holdings in the 401k. This will allow a lower overall expense ratio for the portfolio as a whole, by increasing the use of the best low expense ratio funds in the 401k.

You will periodically need to rebalance to keep to your desired asset allocation. Wiki article link: Rebalancing . Having all of the basic asset types in the 401k lets you do all or almost all necessary rebalancing inside that one account. Its advantageous to do rebalancing inside a tax protected account, so you can avoid creating unnecessary tax liability by realizing capital gains.

I hope that this helps.
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Re: Portfolio Review / 401K Advice

Postby Clark Griswold » Tue May 14, 2013 10:27 am

Lots of great info. Special thanks to everyone for the responses.
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