Just started residency, need some portfolio advice

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Just started residency, need some portfolio advice

Postby brokemedstudent » Sun Jun 30, 2013 10:38 pm

Hi everyone,

I just started pediatric residency and have been offered to participate in my hospital's 403b plan. I was hoping to receive some guidance from fellow Bogleheads, as I still have some questions after reading the Bogleheads' Guide to Investing and All About Asset Allocation books.

Emergency funds: $10k
Debt: $300k, interest rates vary between 6.8% and 7.9%. I anticipate a couple inheritances (~$50-100k) in the near future that I will put towards paying this down.
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.25% State
State of Residence: MA
Age: 26
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 20% of stocks

Anticipated Asset Allocation Breakdown: Once my portfolio is established, this is the allocation that I hope to maintain.
1) Equity (80%)
• Total U.S. Equity Market 40%
• Small Cap Value 10%
• International Equity 20%
• REIT 10%

2) Fixed Income (20%)
• Total Bond Market 15%
• TIPS 5%


Current Retirement Assets:

Taxable
30% McDonald's common stock (MCD)
30% Intel common stock (INTC)
10% Cash

His 403b at Fidelity
0% (just enrolled, see below)

His Roth IRA at Vanguard
30% Vanguard Total Bond Market Index Fund (VBMFX) (0.20%)

New Annual Contributions (anticipated):
$10,000 his 403b (no company match)
$5,500 his Roth IRA
$0 taxable

Available Funds:

Funds available in his 403b at Fidelity

JPMorgan SmartRetirement 2010 Fund (JSWIX) (0.77%)
JPMorgan SmartRetirement 2015 Fund (JSFIX) (0.80%)
JPMorgan SmartRetirement 2020 Fund (JTTIX) (0.84%)
JPMorgan SmartRetirement 2025 Fund (JSNIX) (0.88%)
JPMorgan SmartRetirement 2030 Fund (JSMIX) (0.92%)
JPMorgan SmartRetirement 2035 Fund (SRJIX) (0.96%)
JPMorgan SmartRetirement 2040 Fund (SMTIX) (0.99%)
JPMorgan SmartRetirement 2045 Fund (JSAIX) (1.01%)
JPMorgan SmartRetirement 2050 Fund (JTSIX) (1.03%)
JPMorgan SmartRetirement Income Fund(JSIIX) (0.75%)
American Century Investments Mid Cap Value Fund (AVUAX) (0.81%)
Fidelity Contrafund Fund Class K (FCNKX) (0.63%)
Fidelity Growth Company Fund Class K (FGCKX) (0.77%)
JPMorgan US Equity Fund (JMUEX) (0.68%)
MFS International Diversification Fund Class R4 (MDITX) (1.10%)
Fidelity Spartan Total Market Index Institutional Fund (FSKTX) (0.07%)
PIMCO Total Return Fund Administrative Class (PTRAX) (0.71%)
American Funds New Perspective R6 Fund (RNPGX) (0.46%)
Columbia Dividend Opportunity Fund Class Z (CDOZX) (0.85%)
Fidelity Low-Priced Stock Fund (FLPKX) (0.76%)
Fidelity Small Cap Discovery Fund (FSCRX) (1.07%)
Franklin International Small Cap Growth Fund (FKSCX) (1.20%)
Goldman Sachs Small Cap Value Institutional Fund (GSSIX) (1.04%)
ING MidCap Opportunities Fund Class Institutional (NMCIX) (1.01%)
Janus Triton Fund Class I (JSMGX) (0.79%)
Oppenheimer Developing Markets Fund Class Y (ODVYX) (1.03%)
Fidelity Spartan 500 Index Advantage Fund (FUSVX) (0.07%)
Fidelity Spartan Extended Market Index Advantage Fund (FSEVX) (0.07%)
BlackRock Global Allocation Fund Institutional (MALOX) (0.88%)
Fidelity Strategic Income Fund (FSICX) (0.70%)
Lord Abbett Short Duration Income I Fund (LLDYX) (0.39%)
Fidelity Spartan U.S. Bond Index Fund (FSITX) (0.17%)
Fidelity Retirement Government Money Market Fund (FGMXX) (0.42%)

Questions:

1. Obviously just from looking at the choices I have, it seems to behoove me to go with the Spartan funds due to their low ERs. That being said, would I be better off starting to slice and dice from the get-go by investing in both the Fidelity Spartan 500 Index and Extended Market Funds, or should I just go with Total Market?

2. I am living a very frugal lifestyle right now so I can pay down debt and save for retirement. I am currently doing the income-based repayment plan and thus I'm not required to pay anything for the first six months after my grace period (the IBR uses your previous year's income to calculate payments for the next year, and I had no income from being in school). As I mentioned above, I know I will be getting a couple of windfalls in the near future from inheritances, which will go a long way towards helping me pay down this debt. With this in mind, and knowing my salary currently as a resident is around $50-55k, I hope to put away roughly 20% of my income for retirement between my Roth and the 403b. Is this doable?

3. The McDonald's and Intel common stock were gifted to me. I have both in an account at ETRADE, and I figure I'll switch to a low-cost index fund once the rest of my account allocations are decided. Assuming I go with the Spartan market funds in my 403b, what asset class would be the next most tax-efficient that I could replace the common stocks with?
brokemedstudent
 
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Joined: 26 Jun 2012

Re: Just started residency, need some portfolio advice

Postby letsgobobby » Mon Jul 01, 2013 1:44 am

Your proposed allocation looks good. What's preventing you from switching from your actual (heavy overweight in two individual stocks) to your proposed allocation now?

If between windfalls and IBR you expect not to have to repay most of your loans with earnings, I would max a Roth IRA first, then as much toward a Roth 403b if your employer offers it, else a 403b.

You probably want to own the Fido US bond index in your 403b and stocks in your Roth IRA and taxable accounts.
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Re: Just started residency, need some portfolio advice

Postby mrwalken » Mon Jul 01, 2013 4:38 am

Which income-based repayment program are you on (IBR, PAYE, PSLF)? If your residency qualifies for PSLF, I would consider going that route, in which case I would save/invest the inheritances and all other income.
mrwalken
 
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Re: Just started residency, need some portfolio advice

Postby Cash » Mon Jul 01, 2013 7:14 am

brokemedstudent wrote:1. Obviously just from looking at the choices I have, it seems to behoove me to go with the Spartan funds due to their low ERs. That being said, would I be better off starting to slice and dice from the get-go by investing in both the Fidelity Spartan 500 Index and Extended Market Funds, or should I just go with Total Market?


Use the total stock market fund. No point in splitting between 500 and extended market. The U.S. bond index is the only other fund in your 403(b) that looks good. I'd split between those two and use your IRA and taxable for your international allocation (which I would recommend increasing to 40-50%).
Cash
 
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Re: Just started residency, need some portfolio advice

Postby LowER » Mon Jul 01, 2013 7:55 am

White Coat Investor just published on this very topic this morning.
User avatar
LowER
 
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Re: Just started residency, need some portfolio advice

Postby brokemedstudent » Mon Jul 01, 2013 7:18 pm

letsgobobby wrote:Your proposed allocation looks good. What's preventing you from switching from your actual (heavy overweight in two individual stocks) to your proposed allocation now?


I suppose I could free it up to add to my Roth IRA, but at Vanguard the funds I would want require $3k minimum investments and I can only contribute $2.5k more for this year.

Cash wrote:
brokemedstudent wrote:1. Obviously just from looking at the choices I have, it seems to behoove me to go with the Spartan funds due to their low ERs. That being said, would I be better off starting to slice and dice from the get-go by investing in both the Fidelity Spartan 500 Index and Extended Market Funds, or should I just go with Total Market?


Use the total stock market fund. No point in splitting between 500 and extended market. The U.S. bond index is the only other fund in your 403(b) that looks good. I'd split between those two and use your IRA and taxable for your international allocation (which I would recommend increasing to 40-50%).


So sell the Vanguard bond index fund in my Roth in exchange for the international allocation? I guess the 0.03% difference in ERs is tempting.

LowER wrote:White Coat Investor just published on this very topic this morning.


Thanks for the tip! I read White Coat Investor when I can, and I didn't see there was a new post today.
brokemedstudent
 
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