Newbie - Requesting Portfolio Review.

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Newbie - Requesting Portfolio Review.

Postby masterofinvesting » Sat Jun 29, 2013 12:30 pm

Hello There,

Just finished reading "The Intelligent Asset Allocator", and it has given me a fresh new perspective on investing. It also helped me realize that my investments are all over the place (I did know about the benefits of index investing, but never paid much attention to asset allocation and tax efficiency). I am requesting a portfolio review, and would appreciate any help/insight regarding my current portfolio. I am married (single income) and will have my first child soon.

Emergency Funds: > 2 yrs (saving to buy a home next year or so) - all in banks/money market accts.
Debt: None (credit cards paid in full each month).
Tax Filing Status: Married filing jointly.
Tax Rate: 28% Fed, 9.30% CA
State of Residence: CA
Age: 35
Desired Asset Allocation:
Actually, would appreciate some advice in this area. I am quite fine with handling risk (I switched my 401k elections to 100% stock during 2008). My current preference is as follows:
70% Stock (35% domestic, 35% international)
10% REIT.
20% Bonds (10% domestic, 10% international).

Current Retirement Assets:
==========================
Total Porfolio Value: Low six-figures.

Taxable
I have quite a few RSUs/ESPP/Stock options that I don't really consider as retirement assets. I keep selling these whenever (1) they become long-term/qualifying dispositions, and (2) I get a decent profit. So far, this is what I have in terms of taxable investments (DCA'ed into Vanguard).

Code: Select all
Ticker  Name                                    ER      Allocation
---------------------------------------------------------------------
VTSMX   Vanguard Total Stock Market Index       0.17    5%
VBMFX   Vanguard Total Bond Market Index        0.20    3%
VGTSX   Vanguard Total International Stock Idx  0.22    3%
VMMXX   Vanguard Prime Money Market             0.16    2%


His 401k
I am listing below the funds available, ER and current percentage allocation. Clearly, it is all over the place. I have quite a bit of cash/bonds in the account as I have been periodically selling some stock funds that appreciated quite a bit since 2008 with the intention of "locking in gains" (probably not a good idea in hindsight).

Code: Select all
Ticker  Name                                    ER      Allocation
---------------------------------------------------------------------
VIIIX   Vanguard Institutional Index Fund       0.02    20%
FMPXX   Fidelity Institutional Money Market     0.21    15%
VMCPX   Vanguard Mid-Cap Index Fund             0.06    12%
FGOVX   Fidelity Government Income Fund         0.45    12%
PTTRX   PIMCO Total Return Fund                 0.46    12%
RWIGX   American Funds Capital World G&I        0.45    4%
RERGX   American Funds EuroPacific Growth Fund  0.50    4%
VEXRX   Vanguard Explorer Fund                  0.32    3%
FCNKX   Fidelity Contrafund - Class K           0.63    2%
FOCKX   Fidelity OTC Portfolio                  0.77    1%
VWNAX   Vanguard Windsor II Fund                0.27    1%
DFEVX   DFA Emerging Markets Value              0.61    1%
AVFIX   American Beacon Small Cap Value         0.92    <1%
FLPKX   Fidelity Low-Priced Stock               0.76    <1%
VT**X   Vang Target Ret (2015, 25, 35, 45)      0.17    -
VTINX   Vang Target Ret Income                  0.16    -
        BrokerageLink                             -     -


Current Asset Allocation:
==========================

Morningstar Xray
Code: Select all
US Stocks           44%
Foreign Stocks      11%
Bonds               32%
Cash                12%
Other                1%


Contributions (Planned):
======================
$17.5K (individual) + 6K (match) -> 401(k)
$4K/yr -> Taxable.

Available Funds:
=================
I have listed all the available mutual funds in the "His 401k" section. But, Fidelity also supports "Brokerage Link" which allows me to buy/sell mutual funds/stocks. But, I think only selected funds (ex: Fidelity-based, Spartan Funds etc.,) have no commisions (otherwise, there is $75 charge ... ouch!). Another problem with Brokerge link is that you cannot put it on auto-pilot - i.e., you have to remember to buy funds each month/quarter etc., if you are dollar-cost-averaging.

Questions:
===========
1. Given my current 401k allocation (and the available funds), what would be a good set of investment elections that I can make for future investments? I'd appreciate any suggestions that would help me simplify my portfolio (for easier management).
2. I am woefully underinvested in real-estate. Given the cash reserves I have in my 401K, should I consider DCA'ing into REIT funds (Ex: Spartan Real Estate Index Fund - FSRVX) ? (via Brokerage Link).
3. Any other suggestions for investing the cash in both 401k and taxable accounts?

Please let me know any other suggestions you may have.

Thanks,
Victor.
Last edited by masterofinvesting on Sun Jun 30, 2013 11:41 am, edited 1 time in total.
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Re: Newbie - Requesting Portfolio Review.

Postby Duckie » Sat Jun 29, 2013 11:07 pm

masterofinvesting, if all you have for retirement are the taxable and 401k accounts, then with an AA of 80% stocks (including REITs), 20% bonds (low for your age), and 50% of non-REIT stocks in international (a little high), that breaks down to 45% US stocks (including 10% REITs), 35% international stocks, and 20% bonds. Here is an example of a retirement portfolio:

Taxable at Vanguard -- 13%
13% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)

His 401k -- 87%
35% (FSTVX) Spartan Total Market Index Fund Advantage Class (0.06%) <-- The same as Vanguard Total Stock Market.
10% (FSRVX) Spartan Real Estate Index Fund Advantage Class (0.10%) <-- Similar to Vanguard REIT.
22% (FSGDX) Spartan Global ex U.S. Index Fund Advantage Class (0.18%) <-- Almost the same as Vanguard Total International Stock. It's missing small caps.
20% (FSITX) Spartan U.S. Bond Index Fund Advantage Class (0.10%) <-- The same as Vanguard Total Bond Market.

My comments/questions:
  • This ignores the tax cost of selling in taxable.
  • This has TISM in taxable to take advantage of the 
Foreign tax credit and at Vanguard because it's a smidge better than the Spartan FSGDX.
  • Holding taxable bonds (VBMFX) in taxable is not prudent. Put the bonds in tax-sheltered accounts (401k, IRA).
  • REITs are included in TSM (VTSMX/FSTVX) at the market weight. Unless you want to overweight them, you are not "underinvested". I put them in the above example because you want them, but you don't need them.
  • 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. You're a little high.
  • Using the "Brokerage Link" sounds like a good idea. Fidelity Spartan funds are excellent choices. They have some outstanding funds you could use. See above.
  • Why are you not contributing to IRAs?
  • Does the $17K going to His 401k include the $6K employer match or is that extra? And the federal limit is $17.5K for 2013.
  • Do you/your spouse have any retirement accounts not listed?
Something to think about.
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Re: Newbie - Requesting Portfolio Review.

Postby LAlearning » Sun Jun 30, 2013 11:41 am

Good morning, and welcome to The Forum!

First and foremost, Duckie has given you a great plan for your specifications, and I will not suggest anything better. I just wanted to make some general comments.


masterofinvesting wrote:Hello There,

Just finished reading "The Intelligent Asset Allocator", and it has given me a fresh new perspective on investing. It also helped me realize that my investments are all over the place (I did know about the benefits of index investing, but never paid much attention to asset allocation and tax efficiency). I am requesting a portfolio review, and would appreciate any help/insight regarding my current portfolio. I am married (single income) and will have my first child soon.--Congrats.

Emergency Funds: > 2 yrs (saving to buy a home next year or so) - all in banks/money market accts.--Keep in mind CD's and for longer term IBonds.
Debt: None (credit cards paid in full each month).
Tax Filing Status: Married filing jointly.
Tax Rate: 28% Fed, 9.30% CA
State of Residence: CA
Age: 35
Desired Asset Allocation:
Actually, would appreciate some advice in this area. I am quite fine with handling risk (I switched my 401k elections to 100% stock during 2008). My current preference is as follows:
70% Stock (35% domestic, 35% international)
10% REIT.
20% Bonds (10% domestic, 10% international).

Current Retirement Assets:
==========================
Total Porfolio Value: Low six-figures.

Taxable
I have quite a few RSUs/ESPP/Stock options that I don't really consider as retirement assets. I keep selling these whenever (1) they become long-term/qualifying dispositions, and (2) I get a decent profit. Good. We generally recommend exactly this so as to minimize too much risk in 1 company (ie. your employer!).So far, this is what I have in terms of taxable investments (DCA'ed into Vanguard).

Code: Select all
Ticker  Name                                    ER      Allocation
---------------------------------------------------------------------
VTSMX   Vanguard Total Stock Market Index       0.17    5%
VBMFX   Vanguard Total Bond Market Index        0.20    3%
VGTSX   Vanguard Total International Stock Idx  0.22    3%
VMMXX   Vanguard Prime Money Market             0.16    2%

----Given your high tax bracket, bonds in taxable usually is not a good choice given the taxable dividends so we try and shelter these in tax-deferred accounts. Eventually if you run out of room, you can add tax-exempt bond funds or IBonds.
----Re: MMF. Is this part of the EF? Or separate?

His 401k
I am listing below the funds available, ER and current percentage allocation. Clearly, it is all over the place. I have quite a bit of cash/bonds in the account as I have been periodically selling some stock funds that appreciated quite a bit since 2008 with the intention of "locking in gains" (probably not a good idea in hindsight). Your plan says 20% Bonds. Therefore you should decide how far out you are willing to go before you bring your allocation back into place (ie. bonds at 18/22% rebalance etc). This will keep your risk at 80/20 and not let the market dictate your risk by shifting your allocation.

Code: Select all
Ticker  Name                                    ER      Allocation
---------------------------------------------------------------------
VIIIX   Vanguard Institutional Index Fund       0.02    20%
FMPXX   Fidelity Institutional Money Market     0.21    15%
VMCPX   Vanguard Mid-Cap Index Fund             0.06    12%
FGOVX   Fidelity Government Income Fund         0.45    12%
PTTRX   PIMCO Total Return Fund                 0.46    12%
RWIGX   American Funds Capital World G&I        0.45    4%
RERGX   American Funds EuroPacific Growth Fund  0.50    4%
VEXRX   Vanguard Explorer Fund                  0.32    3%
FCNKX   Fidelity Contrafund - Class K           0.63    2%
FOCKX   Fidelity OTC Portfolio                  0.77    1%
VWNAX   Vanguard Windsor II Fund                0.27    1%
DFEVX   DFA Emerging Markets Value              0.61    1%
AVFIX   American Beacon Small Cap Value         0.92    <1%
FLPKX   Fidelity Low-Priced Stock               0.76    <1%
VT**X   Vang Target Ret (2015, 25, 35, 45)      0.17    -
VTINX   Vang Target Ret Income                  0.16    -
        BrokerageLink                             -     -


Current Asset Allocation:
==========================

Morningstar Xray
Code: Select all
US Stocks           44%
Foreign Stocks      11%
Bonds               32%
Cash                12%
Other                1%


Contributions (Planned):
======================
$17K/yr to 401K (employer match $6K).So $23k? Also the limit this year is $17.5k, make sure to adjust your savings accordingly.
$4K/yr to Taxable.Is this part of your house fund or after saving for the house? Why not an IRA? If you could scrounge up enough you could open one for you AND your wife, netting another $11k (5.5k each) in tax-deferred vehicles. A thought....

Available Funds:
=================
I have listed all the available mutual funds in the "His 401k" section. But, Fidelity also supports "Brokerage Link" which allows me to buy/sell mutual funds/stocks. But, I think only selected funds (ex: Fidelity-based, Spartan Funds etc.,) have no commisions (otherwise, there is $75 charge ... ouch!). Another problem with Brokerge link is that you cannot put it on auto-pilot - i.e., you have to remember to buy funds each month/quarter etc., if you are dollar-cost-averaging.You have enough great choices to not need this at this time.

Questions:
===========
1. Given my current 401k allocation (and the available funds), what would be a good set of investment elections that I can make for future investments? I'd appreciate any suggestions that would help me simplify my portfolio (for easier management).See Duckie's post.
2. I am woefully underinvested in real-estate. Given the cash reserves I have in my 401K, should I consider DCA'ing into REIT funds (Ex: Spartan Real Estate Index Fund - FSRVX) ? (via Brokerage Link).You own the market weight in the Total Stock Mutual fund (ish). Therefore, you are choosing to OVERWEIGHT real-estate. Just make sure you realize this. Also, once you buy a house, some will say to consider that as your real estate portion.
3. Any other suggestions for investing the cash in both 401k and taxable accounts?

Please let me know any other suggestions you may have.

Thanks,
Victor.


Hope this helps.
I know nothing!
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Re: Newbie - Requesting Portfolio Review.

Postby masterofinvesting » Sun Jun 30, 2013 11:59 am

Reply to Duckie's Post:

Thanks a lot Duckie for your response! I would probably need some more time to process the information you have provided, and develop a plan, but I do have some quick comments/answers to your questions.
  • Thanks for the Spartan fund recommendations in his 401(k) - but, they all seem to be based on BrokerageLink. I am doing some online research to figure out how to automate purchase of mutual funds in the BrokerageLink account for every salary contribution.
  • As the Spartan funds have a minimum investment of $10K, I need to be careful with my initial purchase - i.e., for each Spartan fund, I need to pick an highly-correlated existing investment such that I sell it and buy the corresponding Spartan fund on the same day. The cash reserves I have in my 401(k) should allow me to do this atomic transfer (ex: FGOVX/PTTRX -> FSITX).
  • I have updated my "Planned Contributions" section to reflect the fact that I plan to contribute 17K (individual) + $6K (employer match) = $23K this year.
  • Regarding your question about IRAs and additional retirement accounts: I have not thought about IRAs until very recently. In fact, this is the first year I plan to max out my 401(k). I will start looking into this as well.
  • I will move VBMFX outside of taxable account as you recommended. I will also read the materials/discussions you have suggested on international stock allocation.
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Re: Newbie - Requesting Portfolio Review.

Postby Duckie » Sun Jun 30, 2013 5:33 pm

masterofinvesting wrote:Thanks for the Spartan fund recommendations in his 401(k) - but, they all seem to be based on BrokerageLink. I am doing some online research to figure out how to automate purchase of mutual funds in the BrokerageLink account for every salary contribution.

If you can't automate it, the best option is to send the contribution to one non-BrokerageLink fund temporarily and then manually buy what you want. I would pick (VTINX) Vanguard Target Retirement Income Fund (0.16%) because it's the cheapest option with substantial fixed income so it won't fluctuate as much before you swap it out.

This assumes there actually are no commissions/fees charged for the Spartan funds at BrokerageLink. If it turns out there are, the fund choice advice would change.
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Re: Newbie - Requesting Portfolio Review.

Postby masterofinvesting » Sun Jun 30, 2013 7:06 pm

Thanks for your response, LALearning !

Emergency Funds: > 2 yrs (saving to buy a home next year or so) - all in banks/money market accts.--Keep in mind CD's and for longer term IBonds.


Thanks for the advice regarding CDs and I-Bonds. I will look into this. In fact, I really should correct "next year or so" to be "in the next few years".

----Given your high tax bracket, bonds in taxable usually is not a good choice given the taxable dividends so we try and shelter these in tax-deferred accounts. Eventually if you run out of room, you can add tax-exempt bond funds or IBonds.


Yup. Duckie had the same suggestion. Will take care of this right away.

----Re: MMF. Is this part of the EF? Or separate?


Maybe I shouldn't have listed this as a long-term investment. I opened this MMKT fund account to deposit dividends which I can reinvest in bulk later. So, a portion contains dividends and the bulk is just the minimum opening balance. I will consolidate this as a part of my updated plan.


$17K/yr to 401K (employer match $6K).So $23k? Also the limit this year is $17.5k, make sure to adjust your savings accordingly.


This is correct. I have fixed this in the original post.

$4K/yr to Taxable.Is this part of your house fund or after saving for the house? Why not an IRA? If you could scrounge up enough you could open one for you AND your wife, netting another $11k (5.5k each) in tax-deferred vehicles. A thought....


I was considering this as "long-term investment" (not necessarily retirement alone). But, I will start looking into IRAs instead, and since, I have a kid coming, will also start looking into 529 fund options as well.

2. I am woefully underinvested in real-estate. Given the cash reserves I have in my 401K, should I consider DCA'ing into REIT funds (Ex: Spartan Real Estate Index Fund - FSRVX) ? (via Brokerage Link).You own the market weight in the Total Stock Mutual fund (ish). Therefore, you are choosing to OVERWEIGHT real-estate. Just make sure you realize this. Also, once you buy a house, some will say to consider that as your real estate portion.


Yup. I think didn't think of it this way at all. If TSM includes maket weighted REITs, then I am fine with just owning TSM alone.
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Re: Newbie - Requesting Portfolio Review.

Postby masterofinvesting » Wed Jul 03, 2013 10:42 am

A few updates:
I asked around and found that there is a way to automate purchases of Spartan index funds in BrokerageLink (just like regular 401k funds, but needs a call to a Fidelity representative).

I put more thought into AA. A few things I found:
  • I gave up on overweighting REITs - happy with market weighting in TSM.
  • I initially chose a 50/50 allocation of local/international stocks based on market weight (noticed that even VTWSX has about 48% US stock). But, after reading the Vanguard paper, I am convinced that a 40% max allocation is good enough and provides all diversification benefits. So, I will go with approx 60/40 allocation.
  • I took the Vanguard Investor Questionnaire and it suggested 20% bonds. I chose to increase this to 25%.
  • So, overall this comes to:
    • US Stocks: 45%
    • International Stocks: 30%
    • Bonds: 25%
Should I divide this AA up even further? Bernstein suggests allocating some percentage for small-cap stocks (tilting?) even for the "basic level-1" investor ("who would consider investing to be the equivalent of root-canal work" :-)), and Vanguard suggests allocating some percentage for international bonds (from the Vanguard Investor Questionnarie). For now, I will start with the 3 fund portfolio and think about adding other asset classes later.
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Re: Newbie - Requesting Portfolio Review.

Postby BigOilTexan » Wed Jul 03, 2013 11:17 am

Start simple like you're planning on doing. Once you have everything set up and you are happy with it, then decide how much you want to slice and dice. Also consider the additional time managing a more complicated portfolio takes and make sure that's something you'll find engaging long-term. Most importantly, do your homework and make sure you know why you're tilting a certain direction so that you can stick with it when it doesnt work out (see: Emerging Markers, 2013).
Peak oil is a myth perpetrated by those who dont believe in technological innovation.
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