Follow-up to 59 & 76 YOs requesting alloc. & brokerage input

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Follow-up to 59 & 76 YOs requesting alloc. & brokerage input

Postby cjonblanchard » Sun Jun 30, 2013 11:01 pm

I posted on 6/22/13 (viewtopic.php?f=1&t=118498) and appreciated the input received. Shared it with my husband, particularly lhl12’s suggestion that we (1) consider as if all IRAs/Roths were my $ and (2) decide the asset allocation as if I were single. Husband agrees that the chances of running out of money in his lifetime (he’s 76) are hopefully nill, and expressed concern if a 25%/75% to 40%/60% conservative allocation would endanger my future financial security, as well as size of kids’ inheritance. I have good genes/health, so likely our portfolio (v.low 7 figures) might need to last 30 to 35 years.

I’ve run an unrealized gain/loss report of trust account holdings. Bottom line is if we sold all stk/fds except Vanguard Total Stock Market Idx Fd., we’d suffer an approx. $2,200 L.T. loss (Exelon should’ve been dumped long ago) and a $1,150 S.T. loss (we’re in the 25% federal (12% after deductions) and 5% IL tax brackets). I’ve read “Asset Allocation in Multiple Accounts,” “Lazy Porfolio,” and other articles. Now I’m back at you with a few more requests for comments:

(1) Questions as to a possbile 50%/50% allocation apportioned as follows:
- 25% Vanguard Total Bond Market Index Fund (VBTLX)
- 25% Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP)
- 40% Vanguard Total Stock Market Index Fund (VTSAX)
- 10% Vanguard Total International Stock Index Fund (VTIAX)

I’m uncertain as to how to divvy up the 50% bond portion. Read concern among posters about the bond market (moving out of bonds, discussing different bond funds, etc.) and yet I know that Total Bond Market Index Fund is part of the 3-leg stool of funds. Thoughts?

Also wondering if an additional 5% portion to Vanguard REIT Index Fund (VGSLX) would be advisable at our stage in life. This would cut VTSAX to 35%.

As to future allocation, we tentatively plan to decrease equity/increase bonds by 5% every 5 yrs. (at 65, it'd be 45% stk./55% bds., etc.) until my age 80, when they'd change forever to 25% stk./75% bds. We also plan to check/rebalance every year in mid-January. Sound right?

(2) Designing portfolio across our account buckets -- my 401, our IRAs (his/mine), Roth (his/mine) & family trust (taxable).

A. My 401K (1.5% of portfolio) has fairly good selections, the best of which are:
- PIMCO Total Return (PTTRX) 0.46%
- Vanguard 500 Index (VIFSX) 0.05%
- Vanguard Small Cap Index (VSISX) 0.10%
- Vanguard Total Int'l Stock (VTSGX) 0.16%

I need to fill the 401K bucket first, as it has the most limited choice of funds. Should I go with PIMCO, which is a bond fund so is well situated, yet bears the highest expense … OR go with 87% VIFSX & 13% VSISX (simulating Total Stock Mkt. Index), the cheapest ones? I don’t plan making future contributions (unmatched).

B. Next question is Roths (approx. 3% of portfolio): here again I see a difference of opinion as to whether to fill the bucket with bonds or equities. I don’t get why it’s best to fill it with bonds when there are no tax repercussions. We hope to pass the Roths on to heirs untouched. Yet just in case we need to tap it, I’m inclined to go 50% bonds and 50% Total Stock Market Index. We plan to continue making the max Roth contribs. as long as I'm working (approx. 3 yrs.).

C. After the Roths, I’d proceed to fill the IRAs with bonds, then with Total Stock Market Index. The taxable trust bucket would hold some Ttl. Stk. Market Index and all Total Int’l Stock Index. The trust bucket would continue holding US Savings Bonds and 3 I bonds (nearly 4% of portfolio).

We also have CDs in our IRAs and trust accounts getting 1.75% - 2% interest and expiring in 2015 -16 (a low 3 mo. penalty to break). Thoughts on breaking some/all CDs to invest in the Vanguard buckets?

(3) Double-checking for more thoughts on consolidating all holdings into Vanguard. They’re presently 4% w/Uncle Sam, 5% at Vanguard, 20% at banks :oops: , and 71% at Scottrade. Opinions, please. I see merit in both consolidating down to 1 brokerage but also in moving much to Vanguard and keeping some at Scottrade (or another brokerage: open to changing).

That’s it for now. Your input, as always, is invaluable and most appreciated! :happy
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Re: Follow-up to 59 & 76 YOs requesting alloc. & brokerage i

Postby lhl12 » Mon Jul 01, 2013 6:56 am

25/25 on TBM/TIPS seems too heavily weighted to TIPS to me. I'd suggest 35/15 instead. Others may differ, though.

I would favor including 5% in REITS - it's relatively small, but gives you additional diversification.

I like your 5 year rebalancing plan. Keep in mind, however, that if things go well financially then when you're 80 your actuarial life expectancy will then be relatively short - maybe 10-15 years? - and with each passing year thereafter the portfolio will be more and more for his kids, not you. At that point you might consider a heavier weighting to equities than 25%. You can cross that bridge when you come to it, though.

I am a big fan of simplification, and would therefore put everything at Vanguard (plus your bank for the checking account and ATM card only.). I would not break the CD's - 2016 is not that far off and those rates aren't terrible. Think of the CD's as if they were VBTLX for asset allocation purposes for now, then move them over to VBTLX as they mature.

I have found that as I age, my ability (and tolerance) for managing complexity has declined. Why not move to the simplest structure possible, freeing up more time and mental energy for your husband and yourself to enjoy these years together?

If the goal is to pass the Roth to the kids, then I would make it 100% equities and keep it that way for the duration.

Vanguard offers brokerage accounts if you need one. That way you can see everything all in one place. I'm not sure why you would still need one, though.
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Re: Follow-up to 59 & 76 YOs requesting alloc. & brokerage i

Postby livesoft » Mon Jul 01, 2013 4:57 pm

IMHO, Scottrade is probably the least desirable brokerage with regards to fees and services. TDAmeritrade, Fidelity, Schwab, and Vanguard are better and lower cost.

I would recommend that you move everything to Vanguard since you can do so without tax cost. You might sell something every week and send the money to Vanguard to invest. That way, you will not be out of the market for your entire portfolio while you fix things.

As for the 401(k), why are you not contributing? Since it is such a small fraction of your portfolio, I'd use only one fund in it. It might as well be the cheapest.

As for the Roth and whether to have bonds or equities, I put both in my Roth IRA, but if I see a buying opportunity I will exchange from bonds to equities. Once those equities go up, I exchange back to bonds+equities. I don't like to lose money in my Roth IRA, so I will not go 100% equities unless I feel the chance of loss is very low. Even if your Roths are really for your heirs, your heirs would probably not be invested 100% in equities right now anyways. Since the Roths are precious tax-free space, I would suggest a mix of equities and bonds to reduce the chances of losses there.
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Re: Follow-up to 59 & 76 YOs requesting alloc. & brokerage i

Postby cjonblanchard » Mon Jul 01, 2013 9:10 pm

lhl12 wrote:25/25 on TBM/TIPS seems too heavily weighted to TIPS to me. I'd suggest 35/15 instead. Others may differ, though.
Thanks so much -- I'll go with that.

I am a big fan of simplification, and would therefore put everything at Vanguard (plus your bank for the checking account and ATM card only.). I would not break the CD's - 2016 is not that far off and those rates aren't terrible. Think of the CD's as if they were VBTLX for asset allocation purposes for now, then move them over to VBTLX as they mature.
OK, sounds good: We'll do that. We also have $20K in Roth CDs and I am inclined to move those, though. 3-1/2 yrs. from now is too long to wait for those 1.75% CDs to mature.

I have found that as I age, my ability (and tolerance) for managing complexity has declined. Why not move to the simplest structure possible, freeing up more time and mental energy for your husband and yourself to enjoy these years together?
Yes, that's what I love about the Boglehead approach and now the idea of moving everything to Vanguard. Husband is very pleased as well.

If the goal is to pass the Roth to the kids, then I would make it 100% equities and keep it that way for the duration.

Vanguard offers brokerage accounts if you need one. That way you can see everything all in one place. I'm not sure why you would still need one, though.
Only reason I will use a brokerage account is to liquidate the stocks I'm transferring from Scottrade. Once all is moved to Vanguard, I'll get the 25 free trades which will care for the stocks and the two mutual funds that carry a fee to sell. Might also use if want to buy a Vanguard ETF from time to time.
Last edited by cjonblanchard on Tue Jul 02, 2013 6:40 am, edited 3 times in total.
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Re: Follow-up to 59 & 76 YOs requesting alloc. & brokerage i

Postby cjonblanchard » Mon Jul 01, 2013 9:50 pm

livesoft wrote:IMHO, Scottrade is probably the least desirable brokerage with regards to fees and services. TDAmeritrade, Fidelity, Schwab, and Vanguard are better and lower cost.
Thanks for your comments! Glad you seconded this decision. Enjoyed lots of free trades at Scottrade, but that expired and don't need to buy anymore -- just sell. Contemplated making a circuitous route to Vanguard by taking advantage of Fidelity's very nice IRA transfer rewards, but I just want to be done.

I would recommend that you move everything to Vanguard since you can do so without tax cost. You might sell something every week and send the money to Vanguard to invest. That way, you will not be out of the market for your entire portfolio while you fix things.
What I plan to do unless it's not a good idea is transfer the Scottrade portfolio in kind to Vanguard all at once. There's enough in Vanguard funds already so that when added to what's already there, Flagship Svcs. status is attained. Then I can sell the stocks in the brokerage accounts for free (25 free trades and $2 thereafter) vs. $7 or more ea. at ST. I won't be able to trade for 2 wks. or so, but the $$ will remain invested during that period.

As for the 401(k), why are you not contributing? Since it is such a small fraction of your portfolio, I'd use only one fund in it. It might as well be the cheapest.
Not contributing because we're already taking husband's MRD from his IRAs plus a little extra and it seemed like we dipped into his IRA more because I contributed to my 401K. Plus we're already overloaded on IRAs vs. taxable. Both of us are, though, contributing full to Roths to make up for not contributing to the IRA. Not sure all this makes sense, but I like the idea of putting $$ in Roth more than in a 401K or IRA. Thanks for your suggestion of the V. 500% index.

As for the Roth and whether to have bonds or equities, I put both in my Roth IRA, but if I see a buying opportunity I will exchange from bonds to equities. Once those equities go up, I exchange back to bonds+equities. I don't like to lose money in my Roth IRA, so I will not go 100% equities unless I feel the chance of loss is very low. Even if your Roths are really for your heirs, your heirs would probably not be invested 100% in equities right now anyways. Since the Roths are precious tax-free space, I would suggest a mix of equities and bonds to reduce the chances of losses there.
That's the course I was leaning toward: I may go with 60% V. Ttl. Stk. Mkt./40% V. Ttl. Bd. Mkt. Or 100% V. Wellington, tho that's not an index fund. We plan to cash out the Roth 1.75% CDs and xfer them to Vangd. soon.
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