Portfolio Review

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Topic Author
mnvalue
Posts: 1107
Joined: Sun May 05, 2013 2:22 pm

Portfolio Review

Post by mnvalue »

Emergency funds: 6 months of expenses
Debt: Mortgage ($126,700 left, 29 years left, 4.375% rate = 4.4638% APR)
Tax Filing Status: Married Filing Jointly (no children yet)
Tax Rates: 28% 25% Federal, 6% State
State of Residence: Minnesota
Ages: 27 (Him), 25 (Her)

Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 30% of stocks
Portfolio Size: $350,000


Current Retirement Assets (percentages total 97% due to rounding)

Our Taxable at Wells Fargo
No retirement assets.

His 401k / Profit Sharing Program @ Merrill Lynch (100% vested)
25% of this account is Roth
75% of this account is tax-deferred

14% MDLHX Blackrock Large Cap Growth ER: 1.26% Turnover: 132%
12% IEDAX ING Large Cap Value ER: 1.22% Turnover: 84%
11% MDILX Blackrock International ER: 1.39%
9% GREAX Goldman Sachs Real Estate ER: 1.51% Turnover: 40%
4% SASMX Clearbridge Small Cap Growth ER: 1.32% Turnover: 14%
4% WMGYX Ivy Mid Cap Growth ER: 1.30% Turnover: 29%
2% FRVLX Franklin Small Cap Value ER: 1.28% Turnover: 5%
3% EKWAX Wells Fargo Precious Metals ER: 1.15% Turnover: 4%
3% MVCAX MFS Mid Cap Value ER: 1.29% Turnover: 52%

This allocation comes from the "Goalmanager Aggressive Model". See the Available Funds section for details.

His Roth IRA at Wells Fargo
8% VFIFX Vanguard Target 2050 ER: 0.18%
4% WBGAX Wells Fargo Tactical Equity

His U.S. Savings Bonds
7% Series I, Issued 10/2000, 3.60% Fixed Rate

His HSA - Investments at Charles Schwab
6% PEOPX Dreyfus S&P 500 ER: 0.51%

Her 401k / Profit Sharing Program @ Wells Fargo (only vested money counted)
96% of this account is Roth
4% of this account is tax-deferred

7% WFQFX Wells Fargo DJ Target 2050 ER: 0.52% Turnover: 19%

Her Roth IRA at Wells Fargo
3% VFIFX Vanguard Target 2050 ER: 0.18%


Contributions (2013 estimated)

$22,000 His 401k / PSP (Employer Profit Sharing, tax-deferred)
$ 5,500 His Roth IRA
$ 5,500 Her Roth IRA
$17,500 Her 401k / PSP (Roth)
$ 1,600 Her 401k / PSP (Employer Match / Profit Sharing / Vesting, tax-deferred)


Available Funds

Funds available in his 401k:

The Goalmanager Aggressive Model has the following policy (with quarterly rebalancing to target):
22% MDLHX Blackrock Large Cap Growth ER: 1.26% Turnover: 132%
20% MDILX Blackrock International ER: 1.39%
Not available to me outside of goalmanager
18% IEDAX ING Large Cap Value ER: 1.22% Turnover: 84%
14% GREAX Goldman Sachs Real Estate ER: 1.51% Turnover: 40%
6% WMGYX Ivy Mid Cap Growth ER: 1.30% Turnover: 29%
6% SASMX Clearbridge Small Cap Growth ER: 1.32% Turnover: 14%
6% EKWAX Wells Fargo Precious Metals ER: 1.15% Turnover: 4%
4% FRVLX Franklin Small Cap Value ER: 1.28% Turnover: 5%
4% MVCAX MFS Mid Cap Value ER: 1.29% Turnover: 52%

Stock Funds (other than those listed above):
MDSPX Blackrock Value Opportunities ER: 1.30% Turnover: 45%
NEIAX Columbia Large Cap Index ER: 0.45% Turnover: 6%
NTIAX Columbia Mid Cap Index ER: 0.68% Turnover: 15%

Bond Funds:
BHYAX Blackrock High Yield Bond ER: 1.01% Turnover: 69%
PIOBX Pioneer Bond ER: 1.03% Turnover: 21%

Allocation Funds:
MDLOX Blackrock Global Allocation ER: 1.16% Turnover: 39%
ACEIX Invesco Equity and Income ER: 0.81% Turnover: 21%

Self-Directed Brokerage Option
$125/year (Employer will pay this fee.)
Stocks: $29.95/trade + $0.03/share (over 1000 shares)
Funds: $49.95/trade
Many fund families available without a fee. Vanguard funds are subject to the transaction fees. Some Fidelity funds are not, but the Spartan funds have the fees, and the Spartan Advantage share classes are not available at all.

Funds available in his HSA:
All funds are no load or have the load waived.
MDDVX Blackrock Equity Dividend ER: 0.99%
HWLAX Hotchkis & Wiley Value ER: 1.30%
IFAFX American Funds Income ER: 0.64%
CVTRX Calamos Growth & Income ER: 1.09%
ITHAX Hartford Capital Appreciation ER: 1.16%
MGRIX Marsico Growth ER: 1.35%
CVGRX Calamos Growth ER: 1.29%
GFAFX American Funds Growth ER: 0.68%
NBGNX Neuberger Berman Genesis ER: 1.03%
DCCAX Delaware Small Cap Core ER: 1.45%
FKASX Federated Kaufmann Small Cap ER: 2.31%
FAIDX Fidelity Advisor Int'l ER: 1.34%
SGOVX First Eagle Overseas ER: 1.17%
NTIAX Columbia Mid Cap Index ER: 0.68%
NAESX Vanguard Small Cap Index ER: 0.24%
PTTDX Pimco Total Return ER: 0.75%
PLDDX Pimco Low Duration ER: 0.75%
FHAIX Franklin High Income ER: 0.78%
NREAX Neuberger Berman Real Estate ER: 1.52%
PCRDX Pimco Commodity Real Return ER: 1.35%
GGSAX Goldman Sachs Growth ER: 1.38%
GOIAX Goldman Sachs Growth & Income ER: 1.38%
GIPAX Goldman Sachs Balanced ER: 1.31%

Funds available in her 401k:
PTRAX PIMCO Total Return Admin ER: 0.71% Turnover: 584%
WGSDX Wells Fargo Government ER: 0.68% Turnover: 327%
WOTDX Wells Fargo DJ Target Today ER: 0.45% Turnover: 46%
WFOAX Wells Fargo DJ Target 2010 ER: 0.48% Turnover: 43%
WFOBX Wells Fargo DJ Target 2020 ER: 0.50% Turnover: 35%
WFOOX Wells Fargo DJ Target 2030 ER: 0.51% Turnover: 26%
WFOSX Wells Fargo DJ Target 2040 ER: 0.52% Turnover: 20%
WFQFX Wells Fargo DJ Target 2050 ER: 0.52% Turnover: 19%
BOSOX Boston Trust Small Cap ER: 1.00% Turnover: 31%
HDMBX Hartford Small Company ER: 0.96% Turnover: 110%
MLAIX MainStay Large Cap Growth ER: 0.79% Turnover: 60%
PAFDX T. Rowe Price Equity Income ER: 0.92% Turnover: 16%
WFIOX Wells Fargo Index ER: 0.25% Turnover: 9%
SSMVX Wells Fargo Small Cap Value ER: 1.35% Turnover: 16%
REREX American Funds EuroPacific Gr ER: 0.85% Turnover: 24%
TEMWX Templeton World ER: 1.09% Turnover: 19%

Questions:
  1. Should I change away from the automatic goalmanager program in my ("his") 401k? Perhaps the best I can do is go self-directed and buy a Fidelity target date fund. Or, buy Vanguard ETFs once a year to reduce the effect of commissions?
  2. Should I change the asset allocation in the HSA? I'm presently treating it as a stealth IRA (which is why I'm listing it here), but it does have additional advantages (the ability to use for health care) over a traditional IRA.
  3. I'm thinking I should sell the WBGAX for VFIFX. It was my first fund, but I'm not sure the active fund approach pays off long-term (which is why I'm here at Bogleheads).
  4. Should I make any changes in the interest of tax efficiency?
Last edited by mnvalue on Thu May 16, 2013 2:54 pm, edited 1 time in total.
DaveS
Posts: 1308
Joined: Fri Jun 15, 2007 9:42 am
Location: Reno, NV

Re: Portfolio Review

Post by DaveS »

Don't walk, run away from those high cost funds in your 401. The extra 1% a year just for the management fee adds up to a lot of lost appreciation over 30+ years. The turnover is less important than the fee because your not subject to gains taxes in a tax free account. But the brokerage commissions for high turnover funds are not included in the high fee. I would just ask the wife to hold one of the target funds and you have something like a 4 fund portfolio. Total Stock, Total International, Small Value and Total Bond or their ETF's. Then you buy one of the etf's every 3 months and make that your contribution for the year for that fund. you can rebalance by buying a little less or more if a fund is ahead or behind others.
I don't understand your tax efficiency question. All the accounts you mention are tax free. Were you just referring to the savings bonds? I would keep them because the rates are so much better than what you can get with other interest bearing bonds or whatever these days. Dave
Topic Author
mnvalue
Posts: 1107
Joined: Sun May 05, 2013 2:22 pm

Re: Portfolio Review

Post by mnvalue »

This may affect the plan a bit... the employer profit sharing contribution into my ("his") 401k/PSP happens generally once a year (around February). In some years, they've split it between November and February. We're not currently contributing any employee contributions into my 401k. So I'll only get annual rebalancing.

In terms of tax efficiency, I was asking about placement in tax-deferred vs tax-free (Roth) accounts. I suspect it won't make a huge difference, but I thought I'd ask. Longer-term, I'm wondering if we should contribute money into a taxable account even though I haven't maxed out my 401k. I know that's bad if the money is definitely for retirement. But what if we're not sure it's for retirement? We may want to have some medium-term investments (future kids' college, perhaps).

I'm definitely not selling those I bonds.
Novine
Posts: 1240
Joined: Mon Nov 17, 2008 8:07 pm

Re: Portfolio Review

Post by Novine »

How much are you contributing annually into the HSA?

"Should I change away from the automatic goalmanager program in my ("his") 401k?"

Absolutely. Not only are you getting jammed on the ERs on these funds, you often are hit with another quarterly or annual fee if you participate in these kinds of programs. These are another way that financial institutions have found to skim from the financial uninformed. Don't be one of the suckers getting ripped off.
Topic Author
mnvalue
Posts: 1107
Joined: Sun May 05, 2013 2:22 pm

Re: Portfolio Review

Post by mnvalue »

I'm not sure if I'm eligible to continue contributing to the HSA. So at this moment, I'm not planning on contributing anything this year.

I'm 100% certain that I'm not being charged a separate fee for the goalmanager service or the rebalancing. So it's just the expense ratios of the funds that's at issue.
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ofcmetz
Posts: 2465
Joined: Tue Feb 08, 2011 7:09 pm
Location: Louisiana

Re: Portfolio Review

Post by ofcmetz »

I would only use the large cap and mid cap stock index funds in the 401K. They are the only decent choices in my opinion. I would then hold my bonds in my ROTH and my taxable. You really have too many funds and the ER's are way to high.
Never underestimate the power of the force of low cost index funds.
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retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Review

Post by retiredjg »

Welcome to the forum! I think some improvements can be made.

Debt: Mortgage ($126,700 left, 29 years left, 4.375% rate = 4.4638% APR) <--this is somewhat high; consider refinancing when you can

Desired Asset allocation: 90% stocks / 10% bonds
I would encourage you to consider at least 15% - 20% bonds.


Here's an idea with much lower costs than you currently have. This is far from perfect just starting out, but can probably be improved with time. You would change your current investments to the following then maintain/improve it with your contributions.

His 401k 62%
56% NEIAX Columbia Large Cap Index ER: 0.45%
0% some extended market or small cap index from the brokerage option that does not have a transaction fee
6% some bond fund from the brokerage option that does not have a transaction fee

His Roth IRA at Wells Fargo 12%
12% Vanguard Total International

His U.S. Savings Bonds
7% Series I, Issued 10/2000, 3.60% Fixed Rate

His HSA - Investments at Charles Schwab 6%
6% NAESX Vanguard Small Cap Index ER: 0.24%

Her 401k 7%
0% WFIOX Wells Fargo Index ER: 0.25%
7% TRAX PIMCO Total Return Admin 0.71% and/or WGSDX Wells Fargo Government 0.68%

Her Roth IRA at Wells Fargo 3%
3% Vanguard Total International


Contributions = $52,100

$22,000 His 401k <--split between Large Cap Index and whatever extended market or small cap index you find in the brokerage window
$ 5,500 His Roth IRA <--all to international
$ 5,500 Her Roth IRA <--all to international
$19,100 Her 40k <--$10,420 to bonds, $8,680 to the Wells Fargo Index

These suggestions may change depending on what you find in the brokerage window.

[*]Should I change away from the automatic goalmanager program in my ("his") 401k? Perhaps the best I can do is go self-directed and buy a Fidelity target date fund. Or, buy Vanguard ETFs once a year to reduce the effect of commissions?
You should not use the goalmanager since all the funds are high fee. We need to know what you can get in the brokerage window without a transaction fee. Look for index funds, particular a bond fund and a "completion" index or a small cap index.

[*]Should I change the asset allocation in the HSA? I'm presently treating it as a stealth IRA (which is why I'm listing it here), but it does have additional advantages (the ability to use for health care) over a traditional IRA.
If you want it available for health care, it should be removed from your allocation and invested in something conservative. If you want it to be a stealth IRA, I put small cap index in there to balance out your large allocation to 500 index.

[*]I'm thinking I should sell the WBGAX for VFIFX. It was my first fund, but I'm not sure the active fund approach pays off long-term (which is why I'm here at Bogleheads).
The expense ratio for that fund is criminal. Dump it.

[*]Should I make any changes in the interest of tax efficiency?
As already discussed, till you have a taxable account there really are no tax efficiency questions. As far as "what goes better in Roth" type questions, those are irrelevant until you actually have choices. At this point, your choices need to be decided by cost so you don't really have a lot of choices about what should go where.


Do you get free trades at Wells Fargo? If not, I would either use different funds or move the Roth IRAs to Vanguard.

Do not be concerned about turnover in funds that are held in a tax-advantaged account. That is an issue in taxable accounts.
Topic Author
mnvalue
Posts: 1107
Joined: Sun May 05, 2013 2:22 pm

Re: Portfolio Review

Post by mnvalue »

If I'm going to go self-directed on my ("his") 401k at all, why not "go all the way" and buy Vanguard ETFs? They have lower expense ratios than the Vanguard funds (since Admiral shares are only available at Vanguard), the commissions for stock trades are less than the transaction fees for mutual funds, and I have enough money that a single trade (to invest the employer contribution) per year is less than the difference in expense ratio between a Vanguard ETF and the Fidelity target funds (which are no transaction fee funds in my 401k).

To keep to one trade a year, basically... three out of every four years, I'd buy VTI; every fourth year, I'd buy VXUS. I'd keep the overall AA ratios by rebalancing in the IRAs using both existing money and contributions. I have PMA-linked accounts from before the change in April, so I get 100 free trades per account.

If she stays at her job, we'd keep funneling 100% of her income into her 401k and IRA. To the extent that we keep buying the S&P fund in her 401k, we'd need to round that out with some more small caps (NAESX or its ETF equivalent) in her IRA, but that's pretty simple. If she leaves the job, we roll it all into her Roth IRA (there's very little pre-tax money, so converting those funds to Roth likely wouldn't be very expensive on taxes and simplifies things), rebalancing at that time.

So between current assets and this year's contributions, we'd target this:

His 401k / Profit Sharing Program @ Merrill Lynch (100% vested)
40% VTI
23% VXUS

His Roth IRA at Wells Fargo
12% VTI

His U.S. Savings Bonds
7% Series I, Issued 10/2000, 3.60% Fixed Rate

His HSA - Investments at Charles Schwab
5% NAESX Vanguard Small Cap Index ER: 0.24%

Her 401k / Profit Sharing Program @ Wells Fargo (only vested money counted)
6% WFIOX Wells Fargo Index ER: 0.25%
3% PTRAX PIMCO Total Return Admin ER: 0.71%

Her Roth IRA at Wells Fargo
4% VXUS
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retiredjg
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Re: Portfolio Review

Post by retiredjg »

Seems like it would work. What do you plan to hold the money in for the year before you buy the Vanguard ETFs?
Topic Author
mnvalue
Posts: 1107
Joined: Sun May 05, 2013 2:22 pm

Re: Portfolio Review

Post by mnvalue »

retiredjg wrote:What do you plan to hold the money in for the year before you buy the Vanguard ETFs?
If you're asking about the initial transition to Vanguard ETFs... I'd just do that right away, even though it's two trades. (I just can't quite get that down to one ETF and keep my asset allocation.) If you're asking about the yearly monies... for now, it's all employer profit sharing contributions. I'm not contributing anything to that account. The employer contributions typically come in once a year. At most, twice. If they start doing the half-in-November, half-in-February contribution timing again, I could just park it in a Fidelity Target fund. Those are the lowest expense ratio (0.77%) funds available without a transaction fee. That's low enough that I wouldn't break even on a second trade's commission in 3 months, so I'd just make the Vanguard trade once in February.
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retiredjg
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Re: Portfolio Review

Post by retiredjg »

mnvalue wrote:If you're asking about the yearly monies... for now, it's all employer profit sharing contributions. I'm not contributing anything to that account.
Oh. I guess if you read what you wrote upthread very carefully, that is what you actually said. I had assumed the $22k included elective deferrals from your paycheck.

Which brings up the $17,500 that is going into Her Roth 401k. In the 28% tax bracket, it is likely that the better choice would be to use traditional 401k instead of Roth 401k. Why pay 28% on that money now when it is likely that she could pay less than 28% later?
Topic Author
mnvalue
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Joined: Sun May 05, 2013 2:22 pm

Re: Portfolio Review

Post by mnvalue »

retiredjg wrote:Which brings up the $17,500 that is going into Her Roth 401k. In the 28% tax bracket, it is likely that the better choice would be to use traditional 401k instead of Roth 401k. Why pay 28% on that money now when it is likely that she could pay less than 28% later?
I double-checked. We're in the 25% bracket. I must have looked at the tax tables for single filers when I put in 28%. Even if she quits working, we'll still be in the 25% bracket. Does this correction change your opinion?

Preferring Roth made sense to me back when I was single and maxing out my Roth IRA and contributing the max to my Roth 401k (on top of what the company puts in tax-deferred). Now I'm on the fence. We've stuck to Roth to hedge. Since I have such a large amount of traditional money coming in from the employer, doing our contributions as Roth seemed like a good way to "split the difference". This approach is not optimal in either outcome (our marginal tax rates being higher or lower than now), but it's never the worst option either.

If we had children, the child tax credit phase-out issue would likely be a good reason to do traditional, but we don't have children.
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retiredjg
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Re: Portfolio Review

Post by retiredjg »

mnvalue wrote:
retiredjg wrote:Which brings up the $17,500 that is going into Her Roth 401k. In the 28% tax bracket, it is likely that the better choice would be to use traditional 401k instead of Roth 401k. Why pay 28% on that money now when it is likely that she could pay less than 28% later?
I double-checked. We're in the 25% bracket. I must have looked at the tax tables for single filers when I put in 28%. Even if she quits working, we'll still be in the 25% bracket. Does this correction change your opinion?
I think the argument is not as strong for the 25% bracket as it is for the 28% bracket, but it does not really change my opinion much.

Many people in the 25% bracket retire in the 15% bracket. So there is the possibility of paying less later than now. Or paying the same later as now. Also, not all of the money coming out of your 401k/IRA buckets in retirement will be taxed at 25% if you do end up in the 25% bracket (unless you have a pension in which case it may all be taxed at 25%).

So if tax laws didn't change, traditional is still the better choice or at least an equal choice. However, we do know that tax laws can and do change so it is something of a crap shoot.

What catches my eye is that you are not getting any reduction of taxable income - all of your contributions are Roth. On the other hand, your profit sharing is going in as traditional and that is a significant amount of your overall portfolio. I'd argue for more traditional, but you are the one who has to be comfortable with the balance in the end. I'd just keep that balance in mind as you make this decision year after year.
Topic Author
mnvalue
Posts: 1107
Joined: Sun May 05, 2013 2:22 pm

Re: Portfolio Review

Post by mnvalue »

Thanks for your help everyone! So I've started putting this into practice. Everything but my 401k is done. I'll make that plunge Monday. We've switched her 401k contributions to be traditional. We don't qualify for deductible traditional IRA contributions. Since she's maxing out her 401k, the only remaining relevant question is if we should be contributing to either Roth IRA instead of putting that 11k (or just my share) into my 401k instead.

And in any case, since we're now saving in taxes, I need to put that difference into my 401k (or we will have decreased our effective savings rate).
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retiredjg
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Re: Portfolio Review

Post by retiredjg »

mnvalue wrote:And in any case, since we're now saving in taxes, I need to put that difference into my 401k (or we will have decreased our effective savings rate).
Yes.
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