Full Portfolio Disclosure - Appreciate Any Feedback

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Topic Author
ER2023
Posts: 201
Joined: Mon Jun 24, 2013 10:14 am

Full Portfolio Disclosure - Appreciate Any Feedback

Post by ER2023 »

Edited Post - thanks for the feedback - I added the additional info below.

This is our first post - greatly appreciate any feedback. We disclosed pretty much everything. Thanks for responses.

Ages: Him 49, Her 43
Emergency funds: $143k in Capital One account that could be a 24 month emergency fund, but really saving money in here to pay off mortgage and car debt, while keeping some for emergency fund
Debt: $242k mortgage (3.375% interest), $24k car loan (.9% interest)
Tax Filing Status: Married Filing Jointly
Tax Rate: 33% Federal, 3.07% State
State of Residence: PA
Desired Asset allocation: Aggressive

Current retirement assets

Taxable
$27k in Vanguard Retirement 2035 account - we earmarked this for early retirement (before we can tap 401ks). We did temporarily stop funding this so we could put into the Cap One account to pay off mortgage and car debt.

401ks:
His 401k - maxed out 2 years ago - 4% company match
$239k balance
48.46% QMA US Broad Market Index Fund with 0.05% exp ratio
11.18% Artisan US Mid Cap Value (Institutional Select) with 0.79% exp ratio
17.60% Small Company Stock Account with 0% exp ratio
10.42% QMA INTL DEVEL MARKET IDX with 0.10% exp ratio
12.34% company stock

His available 401k options:

Fixed Rate Fund (0%)

Fixed Income - Gov’t Securities:
Fidelity Government Income FGOVX (.45%)

Fixed Income - Domestic:
Core Bond Enhanced Index/PIM Fund (.23%)

Fixed Income - High Yield:
Prudential High Yield CIT (.48%)

Fixed Income - Global / International:
Wells Fargo Advantage Intl Bond Instl ESICX (.71%)

Retirement Income - Income Flex:
IncomeFlex Aggressive Fund (1.10%)
IncomeFlex Conservative Fund (1.09%)
IncomeFlex Moderate Fund (1.10%)

Large Cap Stock - Value:
Large Cap Value/LSV Asset Management Fund (.62%)

Large Cap Stock - Blend:
Core Equity Account (0%)
QMA US Broad Market Index Fund (.05%)

Large Cap Stock - Growth:
Large Cap Growth / Jennison Fund (.46%)

Mid Cap Stock - Value
Artisan US Mid Cap Value (Institutional Select) (.79%)

Mid Cap Stock - Growth:
Jennison Mid Cap Growth (.56%)

Small Cap Stock - Blend:
Small Company Stock Account (0%)

International Stock- Blend:
GE INSTL INTL EQ INV GIEIX (.56%)
QMA INTL DEVEL MARKET IDX 922 (.10%)

Specialty - Natural Resources
Prudential Jennison Natural Resources Q (.75%)

Specialty - Other Real Estate:
Prudential Retirement Real Estate Fund (1.10%)

Other - Company Stock
Prudential Financial Common stock (N/A)

Her 401k - maxed out 2 years ago - with a 3% company match
$218k balance
9.17% Loomis Sayles Strategic Income Y with .71% exp ratio
15.41% Wells Fargo Russell 2000 Index Fund N
15.25% SSgA S&P Mid Cap Index NL Series Fund C
46.05% T. Rowe Price Blue Chip Growth with .76% exp ratio
14.12% SSgA International Index NL Series Fd C

Her available 401k options:

Stable Value Investment Fund (.29%)
PIMCO Total Return (Inst) PTTRX (.46%)
Loomis Sayles Strategic Income Y NEZYX (.71%)
Manning Napier Ret Target Income I (Gross .5%/Net .69%)
Manning Napier Ret Target Income 2030 (Gross .90%/Net .69%)
American Beacon Large Cap Value (Inst) AADEX (.60%)
Davis New York Venture Fund Y DNVYX (.64%)
Columbia Small Cap Value I Fund Z CSCZX (1.10%)
Buffalo Small Cap Fund BUFSX (1.01%)
RS Value Y RSVYX (1.13%)
Wells Fargo Advantage Opportunity I WOFNX (Gross .83% / Net .76%)
Dodge & Cox Intern’l Stock DODFX (.64%)
MFS Inter’l New Discovery R4 (1.14%)
SSgA US Bond Index NL Series Fund C (.06%)
WF/BlackRock RU 2000 Index CIT N DRTF1 (.187%)
SSgA S&P Mid Cap Index NL Series Fund C (.06%)
SSgA Inter’l Index NL Series Fund C (.09%)
RS Investment Quality Bond Y RSQYX (Gross .74%/Net .66%)
RS Large Cap Alpha Y RCEYX (.69%)
RS Emerging Markets Fund Y RSENX (1.31%)
RS Small Cap Equity Y RSCYX (1.08%)
Wells Fargo Enhanced Stock Market Fund N (.13%)
T. Rowe Price Blue Chip Growth TRBCX (.76%)

Neither one of us contributes to any other retirement accounts.

Pension:
His: $410k lump sum at age 60
Hers: $1k/month at age 65

We purchased a home for $150k - the land alone was worth that much, the house was a total mess. We put about $400k into it, and loads of sweat equity - and just had it appraised for $800k. We know that doesn't mean much anymore, but we really love the house and location - and have no plans of moving - even in retirement, unless we desperately need the money.

We know we are short on our savings and hoping to really catch up now. Our expenses are:
3013 Mortgage (we refinanced last year for 3.375 for 10 years)
470 Car Payment
400 Electric
150 Cable/Internet/Land Line (have to have this in our location)
145 Cell phones
500 Groceries
400 Gas
200 Charity
550 Misc Spending (house projects, etc)
4500 to Cap One to pay off mortgage and car debt

We know we *should* be investing the money versus putting into a Cap One account to pay off debt, but we want to make sure our house is paid off should anything happen. We've been at our jobs for over 20 years and a lot of jobs are being outsourced. Since jobs are not really secure anymore, peace of mind is a priority for us.

We are hoping to retire somewhat early - between 55-60, but will definitely continue to earn some kind of part-time income. It would be nice to have a $80-100k annual spend, but that is probably wishful thinking. When we run the numbers (taking out the Social Security projections), we are so far behind, but we plan to put the 4500 plus car and mortgage payments (once paid off) into either the Vanguard Retirement 2035 or another Vanguard account.

Questions:
First, we would appreciate ANY feedback on our portfolio - good, bad, pointing out the obvious we aren't seeing - anything!
Some other questions we have - is the Vanguard Target Retirement 2035 a good choice for the pre-retirement spending?
Does our 401(k) allocations look appropriate? And should we be this aggressive at our age? I've read so many articles on this and I know it depends on your risk tolerance.

Would greatly appreciate ANY feedback on our portfolio - or what you would do differently. Thanks again.
Last edited by ER2023 on Sun Jun 30, 2013 6:22 am, edited 1 time in total.
Occupier
Posts: 284
Joined: Wed Feb 01, 2012 9:21 pm

Re: Full Portfolio Disclosure - Appreciate Any Feedback

Post by Occupier »

Am I correct 15% or so in bonds. That is really high risk at your age. Given that your a bit behind the curve I might increase that to 25-30%, but the rule of thumb is age in bonds. The target fund is not as tax efficient as having a broad market index such as total stock market (or total International) in taxable. That is because the target fund has taxable bonds - you want those in retirement. You might want to reduce the expensive funds in the retirement that .7+ expense ration adds up to quite a bit of lost appreciation over time. Dave
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Frengo
Posts: 447
Joined: Wed Jun 12, 2013 1:16 am

Re: Full Portfolio Disclosure - Appreciate Any Feedback

Post by Frengo »

How much are you paying after-tax on your mortgage, and on your car loan ? Compare to your after-tax return from Capital One.
I suspect using a chunk of those 143k to repay some of that debt would be a much better investment.
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LAlearning
Posts: 1365
Joined: Wed May 09, 2012 12:26 pm
Location: Los Angeles

Re: Full Portfolio Disclosure - Appreciate Any Feedback

Post by LAlearning »

ER2023 wrote:This is our first post - greatly appreciate any feedback. We disclosed pretty much everything. Thanks for responses.

Ages: Him 49, Her 43
Emergency funds: $143k in Capital One account that could be a 24 month emergency fund, but really saving money in here to pay off mortgage and car debt, while keeping some for emergency fund
--If part of this is earmarked for the car, I would put 24k towards the car now. No need to let it sit around. I agree as a home-owner you should have ~12 months of expenses available in an EF.
Debt: $242k mortgage, $24k car loan --Interest rate %?
Tax Filing Status: Married Filing Jointly
Tax Rate: 33% Federal, 3.07% State
State of Residence: PA
Desired Asset allocation: Aggressive

Current retirement assets

Taxable
$27k in Vanguard Retirement 2035 account - we earmarked this for early retirement (before we can tap 401ks). We did temporarily stop funding this so we could put into the Cap One account to pay off mortgage and car debt.
--In your tax bracket, this is not a good choice. You are paying taxes on the bond portion at your tax rate, not LTCG. Also, you lose the foreign tax credit on Intl. Sell this, and exchange for something more tax efficient (VTSAX or VTIAX or IBonds or Muni fund).

401ks:
His 401k - maxed out 2 years ago - 4% company match
$239k balance
48.46% QMA US Broad Market Index Fund with 0.05% exp ratio
11.18% Artisan US Mid Cap Value (Institutional Select) with 0.79% exp ratio--Any reason you overweight midcap?
17.60% Small Company Stock Account with 0% exp ratio--I'm assuming not 0%, but hopefully something reasonable. Again, assuming you want to overweight small cap.
10.42% QMA INTL DEVEL MARKET IDX with 0.10% exp ratio
12.34% company stock--Can you exchange this for your broad index fund? Or is this not fully vested? This is putting your eggs in one basket a la Enron...I'd get rid of it. Now if your company sells you at a discount, you can buy it if you want, but get rid off as soon as it's vested.

Her 401k - maxed out 2 years ago - with a 3% company match
$218k balance--Just a general hodge podge. Did you choose this or a computer/salesperson? Generally you should choose the best 1-2 options in each 401k and use them to help balance each other, not replicate each other.
9.17% Loomis Sayles Strategic Income Y with .71% exp ratio
15.41% Wells Fargo Russell 2000 Index Fund N
15.25% SSgA S&P Mid Cap Index NL Series Fund C
46.05% T. Rowe Price Blue Chip Growth with .76% exp ratio
14.12% SSgA International Index NL Series Fd C

Pension:
His: $410k lump sum at age 60
Hers: $1k/month at age 65

We purchased a home for $150k - the land alone was worth that much, the house was a total mess. We put about $400k into it, and loads of sweat equity - and just had it appraised for $800k. We know that doesn't mean much anymore, but we really love the house and location - and have no plans of moving - even in retirement, unless we desperately need the money. --Congrats.

We know we are short on our savings and hoping to really catch up now. Our expenses are:
3013 Mortgage (we refinanced last year for 3.375 for 10 years)
470 Car Payment--Get rid of.
400 Electric
150 Cable/Internet/Land Line (have to have this in our location)
145 Cell phones
500 Groceries
400 Gas
200 Charity
550 Misc Spending (house projects, etc)
4500 to Cap One to pay off mortgage and car debt--You are placing in a (probably) <1% account to eventually pay off >3% loan, while each month you add on interest. Use the money now if that is what it is earmarked for.

We know we *should* be investing the money versus putting into a Cap One account to pay off debt Not necessarily. Paying off your debt is a guaranteed xx% return, while the market can go up/down/sideways. You should not be saving this money up to lump sum your debts., but we want to make sure our house is paid off should anything happen. We've been at our jobs for over 20 years and a lot of jobs are being outsourced. Since jobs are not really secure anymore, peace of mind is a priority for us.

We are hoping to retire somewhat early - between 55-60, but will definitely continue to earn some kind of part-time income. It would be nice to have a $80-100k annual spend, but that is probably wishful thinking. When we run the numbers (taking out the Social Security projections), we are so far behind, but we plan to put the 4500 plus car and mortgage payments (once paid off) into either the Vanguard Retirement 2035 or another Vanguard account. Again, place in tax efficient vehicles after maxing out retirement plans.

Questions:
--Any other retirement accounts? tIRA, rIRA, 529, HSA?

First, we would appreciate ANY feedback on our portfolio - good, bad, pointing out the obvious we aren't seeing - anything!
--Please make sure all the %'s add up to 100% TOTAL. Not 100% in each account.

Some other questions we have - is the Vanguard Target Retirement 2035 a good choice for the pre-retirement spending?
--No. See above.

Does our 401(k) allocations look appropriate?
--Please post all of the funds available in each of your 401k with exp ratios. At first glance....no. Too aggressive, unnecessary overlap, possible not best use of funds available.

And should we be this aggressive at our age?
--In brief both sides to that question: 1) No. You only want to work 5-10 more years and if the market drops 50% or more again, you will be looking at working much longer. You should try and protect what you have with an age appropriate allocation. 2) Yes. You have a pension that will provide an income floor, so you can be aggressive and wait out whatever the market gives you. Also SS will add to your cushion. It'll be up to you to choose which way you go. I've read so many articles on this and I know it depends on your risk tolerance. What did you do in 2000-2001, 2008-2009? That will help guide you.

Would greatly appreciate ANY feedback on our portfolio - or what you would do differently. Thanks again.
--Hope this helps.
I know nothing!
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Full Portfolio Disclosure - Appreciate Any Feedback

Post by ruralavalon »

Welcome to the forum :) .

Good move on refinancing that mortgage.
ER2023 wrote:Emergency funds: $143k in Capital One account that could be a 24 month emergency fund, but really saving money in here to pay off mortgage and car debt, while keeping some for emergency fund
Debt: $242k mortgage, $24k car loan

What are the interest rates on those loans? If high enough, it may be that your best "investment" is paying the loans down now using some of that extra Emergency Fund money. Wiki article link: Paying down loans versus investing ; and Wiki article link: Prioritizing investments .

ER2030 wrote: ']Some other questions we have - is the Vanguard Target Retirement 2035 a good choice for the pre-retirement spending?

No, its not very tax efficient and so is costing you some money in tax liability. It would be better to use a tax managed stock fund or a large cap or total market type stock index fund. Wiki article link: Principles of Tax-Efficient Fund Placement .

ER2023 wrote:Does our 401(k) allocations look appropriate?
What are the funds (names, tickers, expense ratios) offered in the 401ks? We really need these details in order to say anything about how to improve your 401k holdings.

Are you required to continue to hold the company stock? Any restriction on selling it?

How much (in dollars) are you contributing to the 401ks?

Is there a match in the 401ks? How much (in dollars)? Are you both contributing enough to get the full match each year?

. . . . . . . . . . . . . . . .

What are your expected contributions to investing annually for the next few years?

Any other accounts, like IRAs? Are you eligible to contribute to Roth IRAs? Wiki article link: Roth IRA .

What is your desired asset allocation? Or do you just want a suggestion on that?

What are you currently spending on your living expenses (not including expenses that would stop on or before retirement, like payroll tax, medicare tax, mortgage, car payment, work related costs, etc.)?

Have you looked into medical insurance costs for pre-medicare (age 65) coverage? Medicare Part B premium, and local costs for Medicare Supplement & Part D coverage after age 65?

What are your projected SS benefits?

Please add any additional information to your original post using the "edit" button; it helps a lot to have all of you information in one place. Here is a format -- Asking Portfolio Questions
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
ER2023
Posts: 201
Joined: Mon Jun 24, 2013 10:14 am

Re: Full Portfolio Disclosure - Appreciate Any Feedback

Post by ER2023 »

Thanks, I made the edits below.
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Full Portfolio Disclosure - Appreciate Any Feedback

Post by ruralavalon »

Debt

As stated before, I think you did well to refinance the home mortgage to a lower rate and 10 year term.

As Frengo and LAlearning have already proposed, I do think you should take the $57k currently invested in the taxable account, and use it now to pay off the car loan and to pay down the mortgage. Also, take some of that $143k, 24 month, emergency fund and pay down the mortgage loan.

Rather than taxable investing at this time, I suggest accelerating pay down of the rest of the mortgage loan while maxing out your contributions to the 401ks. Paying down the loans will give you some peace of mind from reducing your overall debt, some extra cash flow from paying off the car loan, and give you the equivalent of a guaranteed rate of return on investment in paying down the home loan. Wiki article link: Paying down loans versus investing .


Tax Deferred Investing

You are fortunate to have some very nice options to choose from in the 401ks. You are currently using nine funds, some with expense ratios around 0.7% - 0.8%, with a lot of unnecessary duplication and overlap. I do believe that you can create a simpler, lower expense portfolio than what you currently have. Your current portfolio seems to have only about 04% in bonds, and that is in Loomis Sayles Strategic Income Y NEZYX (.71%) holding lower credit quality bonds. NEZYX on Morningstar. Thats far too risky in my opinion. You seem to have just 11% of the portfolio in international stocks, which is low in my opinion so you could be more aggressive there.
ER2023 wrote:Ages: Him 49, Her 43
. . . . .
Desired Asset allocation: Aggressive
You said "[w]e know we are short on our savings and hoping to really catch up now." Its very dangerous to try to play catch up by being aggressive; that could easily back fire and put you further behind. Better to have a high savings rate and low investing expenses (to increase your net gain), plus broad diversification and a reasonable asset allocation to reduce your risk

I will suggest a general asset allocation of 70/30 stocks/bonds, 2011, % stocks vs age, with 40% of stocks in international, 2013 poll . That allocation would be regarded as fairly aggressive, but not outrageously so. This asset allocation works out to: 30% bonds; 28% international stocks; and 42% domestic stocks.

Paying off/down the loans as suggested earlier, leaves an investment portfolio for retirement of $457k, in the two 401ks. The idea in fund selection should be to achieve broad diversification (to decrease your risk, Investing in Total Markets) in combination with low expenses (to increase your net return, Stopping the silent killer of returns).

Here is a possible portfolio for you to consider, in the asset allocation suggested, which uses just 5 funds with generally lower expense ratios (none over 0.1%). Its aggressive without being unreasonable, in my opinion. All percentages and amounts are rounded off. As you can see I am not entirely certain which index is used by certain funds/accounts, so can you check your plan documents to see if you can clarify that? Also check the plan documents to see if there are any additional fees charged (like management or account fees) especially on the funds/accounts stated to have expense ratios of 0.0%.

His 401k (52% of portfolio; $239k; add $17.5k/yr; 4% company match).
30%, Core Equity Account (0%), <= what index does this use???
OR
30%, QMA US Broad Market Index Fund (.05%), <= follows Wilshire 5000 stock index???
12%, Small Company Stock Account (0%), <= what index does this use???
10%, QMA INTL DEVEL MARKET IDX 922 (.10%)

Her 401k (48% of portfolio; $218k; add $17.5k/yr; 3% company match).
30%, SSgA US Bond Index NL Series Fund C (.06%), <= follows Barclays U.S. Aggregate Bond Index???
18%, SSgA Inter’l Index NL Series Fund C (.09%), <= developed market fund

This gives you a simple, easy to manage, broadly diversified portfolio with very low expenses.

Above age 50 (next year for him, 7 years for her) you are allowed contribute more to the 401ks, Retirement Plan / Qualified Plan Limits .


Taxable Investing

Once the car and house loans are paid off, you could open a joint taxable account to start investments to cover some early retirement costs. Use tax efficient investments like : tax managed stock funds, and large or total market type stock index funds. Wiki article link: Principles of Tax-Efficient Fund Placement .

When you do that, adjust your holdings in the 401ks so that you keep to your desired asset allocation.


Retirement Expenses and Income
ER23023 wrote:We are hoping to retire somewhat early - between 55-60, but will definitely continue to earn some kind of part-time income. It would be nice to have a $80-100k annual spend, but that is probably wishful thinking. When we run the numbers (taking out the Social Security projections), we are so far behind
So that means some type of retirement in say 10 - 15 years (say him 61, her 55?), which if you contribute $17.5k/yr to each 401k gives you additional contributions of around $420k, plus the $457k you have currently, plus the $410k from his lump sum pension at age 60, or a total of around $1,287k without any adjustment for either market gains/losses or inflation.

But that will be around 6 -12 years prior to full retirement age at age 67, and around 5 -10 years before eligibility for Medicare at age 65.

At a withdrawal rate of 03% (Wiki article link: Safe Withdrawal Rates ), that $1,287k would give you a withdrawal of around $38k/yr or around $3k per month. You state that her pension will give $1k/month at age 65.

Adding up your stated monthly living expenses, minus the loan obligations that should be long gone by retirement, you have listed:
400 Electric
150 Cable/Internet/Land Line (have to have this in our location)
145 Cell phones
500 Groceries
400 Gas
200 Charity
550 Misc Spending (house projects, etc)
$2,345/mo TOTAL, or $28k/yr

You have not stated what your expected social security benefits might be.

Also, I am concerned that your list of living expenses might not be comprehensive.

So retirement at that time seems a possibility (though not at the $80-100k/yr level), provided you have good estimates of all of your living expenses and you max out your 401k contributions to both accounts. I am concerned, though, as you have no estimate for medical insurance premium costs and out of pocket for the years pre-65, or for the lesser premiuns and costs post-65. These are likely to be large numbers. I strongly that suggest you inquire of local insurance providers for the premium cost and out of pocket limits offered for both pre-Medicare coverage, and for post-age 65 for part B premiums, part D premiums and medicare supplement policies.

I also strongly suggest that you compile a comprehensive list of your annual expenses covering a period of a couple of years. This can be done from your checking account statements and credit card bills. Looking at just monthly expenses, its easy to forget bills that don't come monthly like: auto or home insurance, proprety tax bills, etc., and also easy to forget costs that do not occur at regular intervals, like: buying new cars, dining out, travel or entertainment.

So I think you have some more fact gathering to do in order to get a real estimate of prospects for retirement at the time you want. You said "[w]e know we are short on our savings and hoping to really catch up now", but I don't feel that you are as far behind as you seem to think.

If you want to do so, you can plug in your numbers for social seciurity, expenses, retirement ages, contributions, etc. here, Firecalc , for estimates that should be more comprehensive.


Finally, I suggest you do some self education, with some reading from the General Investing and Retirement Planning sections of this reading list -- Investing Books .


I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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