Portfolio Review and How am I doing?

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Portfolio Review and How am I doing?

Postby msj16 » Wed May 15, 2013 11:30 pm

Hello everyone,

I appreciate all of the great advice bogleheads have given me. Now, I would very much appreciate a portfolio review:

Emergency Funds: 3-6 months-yes-1 year
Debt: none, no car loans/mortgage paid off
Tax Filing: Married filing jointly
Tax Rate: 28% Federal, 6.37% State
State of Residence: NJ
Age: 48/49
Desired Asset Allocation: 80% Stock, 20% Bond (can stay the course during bear markets and severe dips)
Desired International Asset Allocation - 25%?
Portfolio Size: 860000 (excluding emergency funds)-14times projected retirement expenses

His 401k
21.5% Fidelity US Equity Index (.02%
12.4% Spartan US Bond Advisory (FXNAX) (.05%)
10.3% Vanguard Total International Stock Index (VTPSX) (.10%)
5.8% Northern Trust Russell 2000 Equity Index (.04%)
5.2% Fidelity Growth Company (FDGRX) (.90%)
4% T Rowe Price Retirement 2030 (TRRCX) (.75%)

His Roth IRA
5.4% Vanguard 500 Index (VFIAX) (.05%)

His Previous 401K
5.8% T Rowe Price Retirement 2030

His Traditional IRA
1.7% Vanguard Target Retirement 2030

Her Rollover IRA
6.7% Vanguard Target Retirement 2030 (VTHRX) (.17%)

Her SEP IRA
7.4% Vanguard Target Retirement 2030 (VTHRX) (.17%) - it has a 22% bond allocation
1.6% Vanguard Total International Index (VTIAX)

Her Roth IRA
1.2% Vanguard Total Bond Index (VBMFX) (.20%)
4% Vanguard Total Stock Index (VTSAX) (.05%)

Her Individual 401K
7% Vanguard Target Retirement 2030 (VTHRX) (.17%) - it has a 22% bond allocation
----------------------------------------------------------------------
Taxable: (did not include this in percentages listed above or total portfolio since this is for tiered emergency funds)
32% ING savings
12% Vanguard Intermediate Term Tax-Exempt Investor Shares (VWITX) (.20%)
31% Vanguard Short-term Investment Grade Fund Investor Shares (VFSTX) (.20%)
13% Vanguard Total Stock Market Index (VTSAX) (.05%)
12% I-Bonds (with plan to get 10,000 to 20,000 additional I-bonds a year.

-----------------------------------------------------------------------
New Annual Contributions
17,500 His 401K, next year will be 17,500 plus 5500 catch-up and match
25,000 Her individual 401K (minimum 17,500 per year plus additional dependent on income)
-----------------------------------------------------------------------
College Savings
277,000 UESP age-based aggressive growth (completely crazy amount I know - contributions are done)
----------------------------------------------------------------------
Available Funds His 401K
Dreyfus Appreciation (DGAGX) (.97%)
Goldman Sachs Collective Trust Strategic Value (.70%)
Jennison Small Cap Equity (.77%)
American Funds Europac Growth R5 (RERFX) (.55%)
Fidelity Puritan (FPURX) (.59%)
Galliard Fixed Income (.22%)
Fidelity Retirement Money Market (FRTXX) (.42%)
** new feature of using fidelity funds through Fidelity Brokeragelink - ETFs/mutual funds available
-----------------------------------------------------------------------
Available Funds her Solo 401K - all Vanguard Funds - plan on keeping individual 401K at Vanguard
-----------------------------------------------------------------------
Questions:
1. How are we doing? We got a late start but always max out tax-deferred accounts and save aggressively. I hope we are on track for retirement. Ideally, retirement at 60 would be within reach (edit: added-although at least one of us will likely work until 65 and we are prepared for an age 65 retirement).
2. His 401K is offering Fidelity Brokerage Link to access wider range of ETF's/funds (fee schedule not yet looked into). Is it worthwhile to consider or does His401K have sufficient diversification and good quality funds?
3. How much to keep in international? 25% a good number?
4. Is small cap necessary in his 401k?
5. Should Roth 401K be contributed to? Her individual 401K has access to Roth 401K. Backdoor Roth is not used due to Her IRA's and his one traditional IRA (of 14,000 value). I know based on (28% tax bracket) income tax-deferred is the way to go -but then I am confused as to why backdoor Roth is so popular.
6. Should Fidelity Growth Fund as actively managed fund be dumped in his 401K. It had a good run for a while, but is lagging versus the index and has higher fees.
7. Does our taxable tiered emergency fund look alright?

Many thanks for your input.
msj16
Last edited by msj16 on Thu May 16, 2013 8:45 pm, edited 4 times in total.
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Re: Portfolio Review and How am I doing?

Postby Bob's not my name » Thu May 16, 2013 4:15 am

msj16 wrote:Portfolio Size: 8600000
I assume based on your questions that there's an extra zero in there (or the 8 or the 6). Or it's yen.
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Re: Portfolio Review and How am I doing?

Postby Bob's not my name » Thu May 16, 2013 4:18 am

msj16 wrote:New Annual Contributions
17,000 His 401K, next year will be 17,000 plus catch-up and match
25,000 Her individual 401K (minimum 17,000 per year plus additional dependent on income)
$17,500 now.
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Re: Portfolio Review and How am I doing?

Postby msj16 » Thu May 16, 2013 6:32 am

Thanks Bob's not my name - No such luck for that extra zero. It was late when I entered all of those numbers. I have edited it now.
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Re: Portfolio Review and How am I doing?

Postby msj16 » Thu May 16, 2013 7:50 pm

Hello again,

I have had no responses to my request for portfolio analysis. I would really appreciate it if a few kind, wise people on this board give me some feedback. Even short replies are much appreciated!
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Re: Portfolio Review and How am I doing?

Postby RobInCT » Thu May 16, 2013 8:04 pm

For your ages and desired retirement ages, your allocation seems very equity-heavy to me. I think you're doing okay, but the stock market is way up right now. If it crashes tomorrow, suddenly you're 10 years out from retirement with only 8 times your annual income needs saved up. How would that make you feel?

You're close enough to retirement and have enough saved that I don't think you need to take as much risk as you are taking.
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Re: Portfolio Review and How am I doing?

Postby dbr » Thu May 16, 2013 8:19 pm

I would run your scenario through some of the retirement planners such as:

http://www.retirementoptimizer.com/
http://www.i-orp.com/
https://www.fidelity.com/calculators-to ... me-planner
http://www.esplanner.com/
http://www.firecalc.com/

Projecting retirement success may be more complicated than these models, but it is not simpler.
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Re: Portfolio Review and How am I doing?

Postby dbr » Thu May 16, 2013 8:24 pm

I think 80% stocks is too much this close to retirement. Your judgement and preference can disagree.

To me it has never made sense to pay taxes to put money in a Roth at 1/3 of the money lost upfront.

These would not seem to have any point and you should not pay these costs:

5.2% Fidelity Growth Company (FDGRX) (.90%)
4% T Rowe Price Retirement 2030 (TRRCX) (.75%)
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Re: Portfolio Review and How am I doing?

Postby Duckie » Fri May 17, 2013 2:36 am

msj16, you want an AA of 80% stocks, 20% bonds (low for your ages), with 25% of stocks in international. That breaks down to 60% US stocks, 20% international stocks, and 20% bonds. Here is a possible retirement portfolio:

His 401k -- 59%
19% (N/A) Fidelity US Equity Index Fund (0.02%) <-- This assumes this is a 500 Index fund.
20% (VTPSX) Vanguard Total International Stock Index Fund Institutional Plus Shares (0.10%)
20% (FXNAX) Spartan US Bond Index Fund Advantage Institutional Class (0.05%)

Her Individual 401k at Vanguard -- 7%
7% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

His Traditional IRA at Vanguard --8% <-- This includes "His Previous 401k".
8% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

Her Rollover IRA at Vanguard -- 7%
7% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

Her SEP IRA at Vanguard -- 9% <-- Is this still current or can it be combined with "Her Rollover IRA"?
4% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
5% (VEXAX) Vanguard Extended Market Index Fund Admiral Shares (0.14%) <-- Roughly 80% large caps (Equity Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.

His Roth IRA at Vanguard -- 5%
5% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

Her Roth IRA at Vanguard -- 5%
5% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

My comments:
-- A 20% bond AA at almost 50 is very aggressive and risky. I'd recommend at least 35% if not 40%.
-- Do you have a ticker symbol for Fidelity US Equity Index? I'm assuming it's something like (FXSIX) Spartan 500 Index Fund. US Equity Index and Spartan 500 merged a few years ago. If that's incorrect, and it is a total US stock fund, the above portfolio is a little tilted.
-- If possible combine "Her Rollover IRA" and "Her SEP IRA". Fewer accounts makes things easier. That's why I combined "His Traditional IRA" and "His Previous 401k".
-- It's too bad she got the I-401k at Vanguard. If it had been at Fidelity she would have been able to roll "Her Rollover IRA" and "Her SEP IRA" over, and would then have been able to use the 
Backdoor Roth IRA
 method. Oh well.

Your questions:
1. How are we doing? We got a late start but always max out tax-deferred accounts and save aggressively. I hope we are on track for retirement. Ideally, retirement at 60 would be within reach (edit: added-although at least one of us will likely work until 65 and we are prepared for an age 65 retirement).
-- You're doing very well.

2. His 401K is offering Fidelity Brokerage Link to access wider range of ETF's/funds (fee schedule not yet looked into). Is it worthwhile to consider or does His401K have sufficient diversification and good quality funds?
-- You don't need it.

3. How much to keep in international? 25% a good number?
-- 25% of stocks is fine. Vanguard has found that between 20% and 40% of stocks in international to be the "sweet spot". See the discussion and the Vanguard paper link. Vanguard splits the difference and uses 30% in their Target Retirement and LifeStrategy funds.

4. Is small cap necessary in his 401k?
-- If the Fidelity US Equity Index is a 500 Index fund then you need mid/small caps to balance it out. But the above portfolio has Extended Market in an IRA which covers it.

5. Should Roth 401K be contributed to? Her individual 401K has access to Roth 401K. Backdoor Roth is not used due to Her IRA's and his one traditional IRA (of 14,000 value). I know based on (28% tax bracket) income tax-deferred is the way to go -but then I am confused as to why backdoor Roth is so popular.
-- Check out these articles by tfb who posts here often: 
The Case Against Roth 401(k) and Roth 401(k) for People Who Contribute the Max.

6. Should Fidelity Growth Fund as actively managed fund be dumped in his 401K. It had a good run for a while, but is lagging versus the index and has higher fees.
-- It has a much higher cost. Drop it.

7. Does our taxable tiered emergency fund look alright?
-- Using a stock fund as part of your emergency fund is risky, other than that it's good.

Something to think about.
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Re: Portfolio Review and How am I doing?

Postby msj16 » Fri May 17, 2013 11:44 pm

Thanks for the feedback!

RobInCt - Thanks for your perspective. I think that given the collective wisdom I am getting, it may be a good time to rebalance and increase my bond holdings. I did that tonight by selling some Fidelity Growth and moving it into the bond index fund. I should clarify that although it would be great to retire at age 60, we expect at least one of us to work until age 65. I was taking my cues from Vanguard Target Retirement 2030 (retiring for us at age 65), which has a 22% bond allocation. I have always been able to stay the course, and even bought more during the 2008 crash, but I agree that it would shake me up to have such a loss close to retirement. Thanks for the succinct wake up call!

dbr-Thanks for the retirement calculators and I just now sold some Fidelity growth and moved the money into the bond index fund. I have to be honest though that I got tempted by how well Fidelity Growth did compared to the S&P 500 index fund over 10 years (about 11% versus about 7%).
I realize though that there can be a reversion to the mean and that high fees really affect returns so I have come to my senses.

Duckie-I really appreciate your detailed analysis. Yes, the Fidelity US Equity Index Fund is a 500 index fund. It is a comingled class available to employers but apparently not a true mutual fund so no ticker symbol I believe. It was really helpful to know that 20% mid/small cap make up the total US stock market. I see the value of the extended market fund.

Duckie-The Vanguard individual 401K was chosen since it allowed for a Roth 401K versus Fidelity which did not. I thought that would allow for Roth Contributions to make up for the lack of a Roth IRA. I can still open up an individual 401K at Fidelity another year and transfer all in. I would do that if a Backdoor Roth is better than a Roth 401K. I am assuming it is better since having already maxed out all tax-deferred - you can shelter even more money after-tax. Is that correct? Lastly, like I mentioned above, Vanguard's Target Retirement 2030 has about 21.7% bonds currently. I know one is not supposed to pick it based on retirement year, but we picked it because we think we can handle the allocation. I am hoping Vanguard has not put me out on a limb risk-wise. At the very minimum, based on the feedback, I am going to move my allocation to 30% bonds.
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Re: Portfolio Review and How am I doing?

Postby Duckie » Sat May 18, 2013 12:31 am

msj16, if his new 401k plan allows it he could roll "His Traditional IRA" and "His Previous 401k" over to "His 401k". The plan has some very good funds and it would allow for future use of the backdoor Roth IRA method for him.

If she is allowed to open a second Self-Employed 401k at Fidelity for the same business (I'm not sure if she can if she leaves the first plan open) then she could roll ''Her Rollover IRA" and "Her SEP IRA" into it. Although Vanguard's Individual 401k does not allow incoming rollovers from IRAs it does allow incoming rollovers from qualified plans and the SE-401k at Fidelity would be a qualified plan. She could then roll the Fidelity SE-401k over to the Vanguard I-401k. Either way, once the two IRAs are gone she could then use the backdoor Roth IRA method.

Just some possibilities.
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