asset allocation for nervous novice

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asset allocation for nervous novice

Postby nervousnovice » Mon Jul 15, 2013 12:06 am

hello all,
i am so happy to find this forum! late last year for the first time in my life i felt like my husband and i needed a financial advisor/money manager. but soon after talking with a couple, i happened to watch the PBS Frontline show The Retirement Gamble, which prompted me to take several of the morningstar free courses (stocks, bonds, mutual funds and portfolio). recently i read this article: http://www.modernluxury.com/san-francisco/story/the-best-investment-advice-youll-never-get and this one: http://www.npr.org/templates/story/story.php?storyId=89324244 and now i am a total convert to index investing and feel like it could be something i can manage. i also bought the books recommended in this forum in the investment planning thread but have not read them yet.....

here is a little background: my husband and i are around 50 years of age, we have no children, we have no debt. neither of us has a pension and we don't expect any social security (we consider that gravy if we get it). the house is paid off, our cars are paid for with cash (we keep them for 10 years or more) and our revolving credit cards are paid off monthly. the only debt we have is the 5 years left to pay out the former owner of the business that my husband and a partner are buying and working at. i do not currently work.

i'm a bit nervous that we won't have enough money to last us in retirement - we are both super healthy! i should also mention that my husband is very cautious, while i am willing to take on more risk. and when i say cautious, i mean that my husband is happy theoretically having the majority of our assets in cash stashed under the mattress.

Emergency funds: we have this and more in cash now (see below)
Debt: none
Tax Filing Status: Married Filing Jointly
Tax Rate: 38% Federal, 10% State
State of Residence: CA
Age: 50
Desired Asset allocation: this is where i need assistance
Desired International allocation: this is also where i need assistance

here is a snapshot of our situation of about 800K towards retirement (plus our house which we don't intend to sell until we can't walk up or down stairs)

taxable account:
POAGX - 7%
VIG - 2.6%
CASH=25.2%

his current 401K at Schwab (maximum contributions per year, monthly deposits)
OAKIX - 6.5%
SWMXX - 2%

his former employer 401K at JPMorgan:
VINIX - 7.2%

his former employer 401K at Schwab:
PTTRX - 22%
BAC - 2.6%
CSCO - 1%
SWMXX - .4%

her former employer 401K at Fidelity:
FCNKX - 4.5%
VIFSX - 15%

her rollover traditional IRA at Schwab:
MGK - 4%

with this in mind, my biggest question is on asset allocation and any thoughts on getting back into the market (its so high!). i am open to all suggestions. also, i am considering moving everything to vanguard, my husband can move his current 401K plan there within the next 2 months.

thank you in advance for any feedback/comments/guidance/advice. please let me know if you have any questions about this info.
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Re: asset allocation for nervous novice

Postby pkcrafter » Mon Jul 15, 2013 2:33 am

Welcome, please add fund names and expense ratios to the tickers. Thanks. A few more bits of information would be helpful in suggesting an AA (asset allocation).

[*]What is your target retirement age?
[*]How much you are going to need for living expenses when you do retire?
[*]How much are you saving toward retirement each year. You are contributing $23,000 to the 401k?
How much to other areas (taxable)?
[*]How much is left to pay on the business and what is the interest rate?
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Re: asset allocation for nervous novice

Postby nervousnovice » Mon Jul 15, 2013 4:01 am

i will add the names and expenses tomorrow afternoon, but i should add that i am not married to keeping any of these investments. i would like to move our portfolio into a more index passive management portfolio, probably using vanguard funds (vtsmx, vgtsx, veiex, vgsix, etc).....before executing on that, i think i need to have a set asset allocation, right?

to answer your other questions:
retirement age: for practical purposes, i am retired now, assume my husband would like to be by age 65 or 67.
living expenses: should i use the 80% rule, is it still valid? lets assume 100-150k per year, does that seem reasonable?
saving the max of 50k to 401k (hubby not quite 50) and another 12-30k per year after tax.
the biz payout model is entirely based on corporate earnings, so not pertinent to the discussion other than it affects our after tax contribution levels over the next 5 years.

does that help?
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Re: asset allocation for nervous novice

Postby IlliniDave » Mon Jul 15, 2013 8:05 am

nervousnovice wrote:i will add the names and expenses tomorrow afternoon, but i should add that i am not married to keeping any of these investments. i would like to move our portfolio into a more index passive management portfolio, probably using vanguard funds (vtsmx, vgtsx, veiex, vgsix, etc).....before executing on that, i think i need to have a set asset allocation, right?

to answer your other questions:
retirement age: for practical purposes, i am retired now, assume my husband would like to be by age 65 or 67.
living expenses: should i use the 80% rule, is it still valid? lets assume 100-150k per year, does that seem reasonable?
saving the max of 50k to 401k (hubby not quite 50) and another 12-30k per year after tax.
the biz payout model is entirely based on corporate earnings, so not pertinent to the discussion other than it affects our after tax contribution levels over the next 5 years.

does that help?


The 80% rule is fine for a 25-30 year old setting ballpark targets for 30 years down the road. In your situation it's time to sit down with a sharp pencil and come up with a good estimate of your current spending (the more detail the better) then carefully think through how things will change in retirement. It's not the kind of thing you can sit down and do in 30 minutes. For me it's an ongoing effort that I've been refining over the last 2 years. For reference I'm looking at needing about 20% of my current income out of my investment accounts during retirement (to put the 80% rule in context--for me it would be overkill and I'm thinking my income is likely well below yours). I do consider SS/defined benefit annuity in my planning.

For a quick rule of thumb, divide your target income by 4% (or multiply it by 25). That would put you in the range of needing 2.5-3.75M in 15 years for a ballpark guess. I didn't see where you say what your current investment balances are, so it's hard to say whether you can be there in 15 years.
Don't do something. Just stand there!
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Re: asset allocation for nervous novice

Postby pkcrafter » Mon Jul 15, 2013 11:45 am

Retirement withdrawals are loosely based on the so-called safe withdraw rate at age 65 of about 4% of retirement assets the first year, and that includes taxes and advisory fees if any. Based on that, for a withdrawal of 100k/first year, you would need a retirement portfolio of 2.5 million.

You now have 800k, and by adding 75k/year for 15 years with a modest 3.5% growth rate, you would end up with 2.8 million, so you are on target to meet your goal. Since your goal can be accomplished with a modest return rate, you can keep the equity allocation on the low side. You will get various opinions on what's optimal, but for a risk averse investor, I would suggest 35-40% equity for 5-7 years, then if still on target, drop equity to 30%. If those numbers make your DH squirm, then you will have to go lower and maybe adjust your target. You might also consider purchasing a single payment immediate annuity (SPIA) in your late 60s with part of your retirement money to create a stable monthly income.

Vanguard recommends international allocation between 20% and 40% of equity.

When developing your new portfolio, think of all accounts as one portfolio, and only put tax efficient funds in taxable. Often, risk averse investors are more comfortable with balanced funds, so you might think about using them where you can.

Please list the lower cost funds available in the 401k. Is it possible to transfer old 401ks into the current one?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: asset allocation for nervous novice

Postby YDNAL » Mon Jul 15, 2013 1:33 pm

nervousnovice wrote:here is a little background: my husband and i are around 50 years of age, we have no children, we have no debt. neither of us has a pension and we don't expect any social security (we consider that gravy if we get it). the house is paid off, our cars are paid for with cash (we keep them for 10 years or more) and our revolving credit cards are paid off monthly. the only debt we have is the 5 years left to pay out the former owner of the business that my husband and a partner are buying and working at. i do not currently work.

here is a snapshot of our situation of about 800K towards retirement (plus our house which we don't intend to sell until we can't walk up or down stairs)
...

i'm a bit nervous that we won't have enough money to last us in retirement - we are both super healthy!
nervousnovice wrote:to answer your other questions:
retirement age: for practical purposes, i am retired now, assume my husband would like to be by age 65 or 67.
living expenses: should i use the 80% rule, is it still valid? lets assume 100-150k per year, does that seem reasonable?
saving the max of 50k to 401k (hubby not quite 50) and another 12-30k per year after tax.
the biz payout model is entirely based on corporate earnings, so not pertinent to the discussion other than it affects our after tax contribution levels over the next 5 years.

OK - I choose retirement for your husband to be 66 (65-67). :D I explain below.

The next 16 years are going to determine how successfully you accumulate a portfolio to withdraw $100-$150K annually. This is not a contradiction to Paul (pkcrafter), but just another viewpoint.
  • I also choose $71K ($62-$80K) for your savings - which is equivalent to a Nominal (no Inflation) $1.152 million before growth.
  • Assuming growth = inflation, you will have roughly $2 million.
  • This back-of-envelope guess seems INsuffucient to fund a $100-$150K annual withdrawal from age 66 - ___.
  • So, yes, I would be uncomfortable given your anticipated withdrawal.
I would say that paying __% to a "money manager" is not only unnecessary, but also added expense after all.
nervousnovice wrote:late last year for the first time in my life i felt like my husband and i needed a financial advisor/money manager.

Now, 16 years is a long time and many variables are unknown. The only controllable things are the amount you save, the cost you pay to invest, and the amount you would spend later in retirement. I would focus on these.

Finally, one elephant in the room. How would your husband value (monetarily) this business ?
nervousnovice wrote:the only debt we have is the 5 years left to pay out the former owner of the business that my husband and a partner are buying and working at.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: asset allocation for nervous novice

Postby nervousnovice » Mon Jul 15, 2013 3:01 pm

thank you all for the feedback, this is very useful!

to answer some questions posed and maybe fill in some blanks, our home is probably valued at about $2M right now, so that might factor into things. ALSO, while i have a handle on what the taxes would be annually, are there any ballparks regarding home maintenance costs post retirement or should i not consider that?

another great question regarding the value of my husband's business - i believe conservatively could be valued at $1M, split between he and his partners would net $500K. this is a low-ball conservative number at this point....maybe we will feel more confident about factoring it into the equation once they are done with the payout in 5 years.

ideally i would like to move everything, including old 401Ks to Vanguard. a few questions i have on that is what are the legal ramification with regards to lawsuits and 401Ks versus IRAs? also, should i roll over to traditional IRAs or Roth IRA? can i combine all of my old 401K's/rollover IRAs into a single account (keeping my husbands separate in a single account as well)?

here is more info on the investments:

taxable:
7% POAGX - Primecap Odyssey Aggressive Growth - .68 exp ratio - Midcap growth
2.6% VIG - Vanguard Dividend Appreciation ETF - .10 exp ratio - Large Blend
25% CASH

tax deferred:
6.5% OAKIX - Oakmark International - 1.06 exp ratio - Foreign Large Blend
2.4% SWMXX - Schwab Money Market Sweep - .28 exp ratio - money market
7.2% VINIX - Vanguard Institutional Index - .04 exp ratio - Large Blend
22% PTTRX - Pimco Total Return Institutional - .46 exp ratio - Intermediate Term Bond
2.6% BAC - Bank of America Corp stock
1% CSCO - Cisco Systems stock
4.5% FCNKX - Fidelity Contrafund K - .63 exp ratio - Large Growth
15% VIFSX - Vanguard 500 Index Signal - .05 exp ratio - Large Blend
4% MGK - Vanguard Mega Cap Growth ETF - .10 exp ratio - Large Growth

ideally i would love to hear what i should keep/dump from the above list and asset allocation recommendations for specific asset classes, hopefully available in index mutual funds or ETFs. it sounds like if we are behind in savings, that would make the case for a more aggressive asset allocation, which we will allow for. also, if necessary, my husband can/would work for 20 years and we could sock away more each year.

based on this, what should we keep/dump? and what would be percentage recommendations for the following asset classes?

domestic equity - large cap
domestic equity - mid-cap
domestic equity - small-cap
foreign equity - developed
foreign equity - emerging markets
short term bonds
intermediate term bonds
long term bonds
TIPS
REIT
Commodities

thank you again!
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Re: asset allocation for nervous novice

Postby YDNAL » Mon Jul 15, 2013 3:54 pm

nervousnovice wrote:ideally i would like to move everything, including old 401Ks to Vanguard. a few questions i have on that is what are the legal ramification with regards to lawsuits and 401Ks versus IRAs?

http://online.wsj.com/article/SB124181801239401917.html

nervousnovice wrote:also, should i roll over to traditional IRAs or Roth IRA?

A tax-deferred account rollover to a Roth (after tax) IRA is a taxable event. Before considering anything like that, know the tax bite.

nervousnovice wrote:can i combine all of my old 401K's/rollover IRAs into a single account (keeping my husbands separate in a single account as well)?

Yes, keeping them separate.... An Individual Retirement Account (IRA) is "individual."

You can certainly rollover every tax-deferred (401K, t-IRA) into a single account. So can your husband. Be careful with anything going to Roth IRA (see second response above).
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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Re: asset allocation for nervous novice

Postby nervousnovice » Mon Jul 15, 2013 6:59 pm

thank you, landy, that wsj article is just what i needed!
also, we are definitely NOT interested in incurring any taxes on these accounts, so a Roth IRA is out for now.

any suggestions on asset allocations? or a reference to study up on how to make a good mix? i read part 1 of The Only Guide to a Winning Investment Strategy You'll Ever Need last night but started to get too tired and lost during the risk section in part 2.....
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Re: asset allocation for nervous novice

Postby pingo » Tue Jul 16, 2013 12:42 am

According to Morningstar.com's Instant X-Ray Tool your portfolio is 49% Stocks / 51% Bonds and Cash. Your international stocks comprise 15% of the equity part of your portfolio. (15% of equities in International is below what is generally recommended on this forum.)

I think it ironic that you say your husband is so cautious. He holds individual stocks in his Former Schwab 401k which is very risky, indeed. Of course, all the bonds and cash he also holds would have a tendency to smooth out the ride.

I also think it pretty cool that you are each around 50 years old and your combined portfolio is at around 50% bonds. Holding "one's age in bonds" is not a bad place to start when considering what may be an appropriate asset allocation. Another general suggestion for starting out, when one doesn't know what AA to choose, is to split one's assets 50/50 between stocks and bonds. Again, you're already there. Vanguard's Target Retirement Date funds even hold 50% Stocks / 50% Bonds at the time of the target date, presumibly the year one retires. And lastly, it just so happens that historically speaking, a 50/50 portfolio has had the most consistent, inflation-adjusted returns throughout booms and busts from 1926-2009 (source link). (Be warned that past performance does not guarantee future returns.) And I don't have the source right now, but I also recall that last year John Bogle spoke to a group of endowment managers, stating that 15 years prior at the same conference of managers he predicted that a simple 50/50 portfolio would outperform the majority of endowment portfolios with less risk and that the prediction had come to pass.

If you both have been comfortable where you're at, perhaps you should stay put for a while. Pkcrafter's allocation advice is excellent, though, as it suggests moving 10-15% over the the bond side, in order to be more conservative. You might take some time to discuss whether you want to be more conservative than you are currently, rather than discussing whether or not you want to invest conservatively in abstract terms. Regardless of what you choose, the portfolio can certainly be altered to hold your desired asset allocation in a simpler way that is more diversified and perhaps even lower risk.

If those are all your accounts, your husband could divert $6,500 per year from taxable savings to do what we call The Backdoor Roth (Wiki link + TFB's Complete How-To). In 15 years, it would result in almost $100,000 in contributions to a tax-free space that is also free from Required Minimum Distributions. Another $6,500 per year could be use to contribute to a Backdoor Roth for you, if you can roll your Traditional IRA assets in that old 401k of yours, or if you can qualify for a Fidelity Solo 401k in order to roll the TIRA to that account.

The Backdoor Roth might be reason to not rollover the old 401ks into Vanguard IRA's, but perhaps others with more experience can put into perspective whether it's worth it to do a Backdoor Roth in your situation.
Last edited by pingo on Fri May 09, 2014 6:58 pm, edited 4 times in total.
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Re: asset allocation for nervous novice

Postby nervousnovice » Tue Jul 16, 2013 6:52 pm

pingo - thank you for your feedback, i really appreciate it! i am very familiar with using morningstar's tools and portfolio xray....was hoping to get some feedback on the allocation levels for specific assets, like small cap, mid cap, foreign developed, emerging markets, etc......feel free to point me to a link that discusses things like >15% of equity portion in international, i'm happy to read up on it and hungry for more specifics.

also, re the individual stocks and our portfolio - i manage all of the accounts, so i'm the one that bought the shares in BAC & CSCO during the downturn. ;)

also, i do NOT want to keep all of the holdings we currently have (i.e. OAKIX, POAGX, FCNKX, etc.) - so any suggestions on good index funds would be much appreciated. i am happy after talking with vanguard yesterday that we qualify for admiral shares, so even lower expenses!

here is what i am currently thinking but would LOVE feedback or links to where i can read up on this:

30% VTSAX - vanguard total stock market (domestic)
20% VGSLX - vanguard REIT
15% VTIAX (or VDMAX) - vanguard foreign developed markets
5% VEMAX - vanguard emerging markets

for bonds, i'm stuck. should i stick with PTTRX or move to vanguard? should i make my own split of short, intermediate, long term and TIPS or go with a total bond index (which is weighted to intermediate)? based on other comments on this board i am skipping international bonds.....

also, thanks on the backdoor roth ira but i'm not sure if we can do that due to our income level, but i will check out your links.

thank you again for any insight/feedback/suggestions on moving forward.
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Re: asset allocation for nervous novice

Postby JW Nearly Retired » Tue Jul 16, 2013 7:42 pm

nervousnovice wrote:
Also, thanks on the backdoor roth ira but i'm not sure if we can do that due to our income level, but i will check out your links.

I strongly second pingo's backdoor Roth suggestion. There is no income limit for a backdoor Roth. Probably you are above the limit for direct Roth contributions but backdoor gets around that. (There is no 38% bracket but we assume your bracket is high.)

If you could "hide" your current TIRA in a 401k, for example, you could do his/hers backdoor Roths every year husband has earned income. Means you could make Roth contributions of about 16x$6,500x2 = $208k in total contributions by age 66, which should grow to a tidy tax free sum in the 16 years. A Roth is much more valuable than either taxable or non-deductible TIRA savings. No taxes on any earnings and no RMDs.

I would think your Fidelity 401k would be happy to accept your TIRA money (4%x 800k = $32k ???). But even if they won't for some reason, it might pay to just Roth convert it now and pay the tax owed to enable doing the backdoor Roths forevermore. Look into it carefully.
JW
ps: do you have any post-tax contributions cost basis in your current TIRA?
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Re: asset allocation for nervous novice

Postby pingo » Tue Jul 16, 2013 10:21 pm

Why is he able to move his current 401k to Vanguard? You are sure he can do this?

It's great if he can. He could also roll all former 401ks to the new/current Vanguard 401k as well.

nervousnovice wrote:saving the max of 50k to 401k (hubby not quite 50) and another 12-30k per year after tax.


I believe the new 2013 combined 401k limit is $51,000.

nervousnovice wrote:...feel free to point me to a link that discusses things like >15% of equity portion in international...


In brief, the usual recommendation on this forum for all but the most internationally squeamish is 20% to 40% or even up to world market weight:

Vanguard Paper: Considerations for International Equity

Bogleheads.org Discusion: AA - how much should be International?

Bogleheads.org Wiki: Domestic/International

nervousnovice wrote:here is what i am currently thinking but would LOVE feedback or links to where i can read up on this:

30% VTSAX - vanguard total stock market (domestic)
20% VGSLX - vanguard REIT
15% VTIAX (or VDMAX) - vanguard foreign developed markets
5% VEMAX - vanguard emerging markets


First off, you left me/us with the impression that an aggressive portfolio isn't desirable. Actually let me back up half a step because that sentence sounds annoyed and it's merely an observation. I'm not scolding you. I'm just saying that comments here have been geared toward making allocations conservative and 70% Stocks is not conservative.

20% REIT is also extremely high for any portfolio. I can think of one person who might have it that high, and s/he's been holding REITs for a loooooong time and is very experienced. In your case, you'd be dumping a large amount into REITs after they've have had a huge run up and when future prospects are not as high. As William Bernstein (author of The Four Pillars of Investing) puts it in a Morninstar interview, they are "overgrazed", meaning that they've have caught the fancy of too many investors who have piled in, which has pushed prices high; that they may have unrealistic expectations about REIT future returns base, as usual, on past performance.

Mind you, I'm not trying to promote market timing as much as I'm trying to discourage performance chasing and extreme risk-taking. REITs can still offer diversification if they move with low correlation to the general stock market (some people want that, regardless of expected returns), but for the time being I wouldn't expect returns to be any higher than the stock market as a whole, and they are included (in a much smaller amount) in Vanguard Total U.S. Stock anyway.

If it were me, I'd first determine whether I want REITs to be calculated as a proportion of my equities, or as an absolute fixed allocation in the whole portfolio (there is a BIG difference), which may take some thought and study. I'd probably simplify and forget 'em for now, or I'd lower the allocation. But that's me.

Emerging Markets make up 25% of your combined international equities in that list. There's absolutely nothing wrong with that, nor with splitting your Developed International from your Emerging Markets, but depending on what you consider to be Emerging Markets (and when) that same relationship is already built into Vanguard Total International. (I can't recall or find where I came to that 25% conclusion, so take it with a grain of salt.) Also, note that Vanguard says Emerging Markets are currently close to 20% of its Total International (VGTSX or VTIAX), but Morningstar.com says EM are less than 16% of international markets. They're both looking at the same markets, but each has difference criteria for which markets are Emerging. Regardless, you could just invest in Vanguard Total International to keep things simpler, especially if you will be holding international stocks in the taxable account (which I suspect will be recommended). The added simplicity and tax efficiency of Total International should probably rule the day.

If you're interested, here's another paper to read: Vanguard Paper: International Equity Investing: Investing in Emerging Markets

nervousnovice wrote:also, thanks on the backdoor roth ira but i'm not sure if we can do that due to our income level, but i will check out your links.


Definitely read the links I provided. There is no income limit to make annual non-deductible Traditional IRA contributions, which can be converted to a Roth in a tax-efficient manner if the individual doesn't have any other traditional IRAs. Please look into whether or not you can roll your Traditional IRA into your old 401k. That would eliminate your TIRA, too, so it wouldn't have to be partially taxed at your income tax rate in order to convert non-deductible TIRA contributions over to a Roth each year.

Your husband appears to have no TIRA's, so he should be able do the Backdoor Roth as suggested in the links.

nervousnovice wrote:for bonds, i'm stuck. should i stick with PTTRX or move to vanguard? should i make my own split of short, intermediate, long term and TIPS or go with a total bond index (which is weighted to intermediate)? based on other comments on this board i am skipping international bonds.....


I think we need to first see how/where the accounts will end up. Don't worry about losing access to PTTRX at ER 0.46%. When I looked at Vanguard FundAccess (link), I saw many versions of PIMCO Total Return and I've read of one or two Bogleheads that own that fund through Vanguard at ER 0.46%. You'll have to do some hunting to be sure you don't pick one with a load or some other PIMCO expense nonsense, but I believe it can be had as you desire it. (Definitely check with Vanguard, however, before you take my word for it.)
Last edited by pingo on Tue Aug 06, 2013 6:16 pm, edited 6 times in total.
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Re: asset allocation for nervous novice

Postby nervousnovice » Wed Jul 17, 2013 12:45 am

this is excellent info, thank you so much! you're right, i was talking about conservative allocations because my husband is way more conservative than me and also our nest egg is getting bigger and his salary acts more like a stock than a bond.....HOWEVER, since it seems like we might be a little behind on our savings, then i think we can do 2 things to make up for that: 1. save more into a taxable or backdoor roth AND 2. be a little more aggressive in our allocations. so i am open to all recommendations on the asset allocations based on our situation. i will definitely read up on the links provided.

on the subject of REITs, i will definitely NOT invest in them for the reasons you mentioned, thank you for that.

also, as an alternative to splitting up foreign developed and emerging, i will research vanguard total international stock to see how they allocate between developed and emerging, check the fees and this would be a better alternative holding.

hang on to PTTRX for the time being until i research the alternatives. do you think i should invest in a total bond fund or into separate short, intermediate, long term and TIPS?

as for the backdoor roth ira contribution, you are right, my husband does not currently have a TIRA (only me). so it seems like he would have to have one set up in order to accomplish this and then create a separate roth ira that gets funded with the shares from the TIRA? (is this like an in-kind transfer?)....sorry i am definitely new to this sort of thing but very much interested in doing this after reading a little. or should we do it with my TIRA (which is in the process of getting moved to vanguard as of yesterday).

right now he has 1 prior employer 401k AND an old account that is a schwab one account but NOT a regular 401k (i'm not sure the exact type of account, though, it was pre-tax contributions like a 401K and brokerage so i can buy stock or mutual funds with it). also, he has a "new" retirement account since he and his partner took over the business. again i am not sure what the exact designation of this account is (401k? 403b? other?), all i know is the 51k for 2013 limit on pre-tax contributions. should he convert one of these to an IRA to begin this process? i'm still reading the links on this, so might have more questions later - i think i'll open a separate thread on that though and keep this one focused on asset allocation?
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Re: asset allocation for nervous novice

Postby pingo » Sat Jul 20, 2013 2:37 pm

nervousnovice wrote:do you think i should invest in a total bond fund or into separate short, intermediate, long term and TIPS?


A "total bond" a.k.a. Barclay's U.S. Aggregate bond index fund invests in short, intermediate and long-term bonds in what seems a reasonable balance. (Mission accomplished!) When averaging out the durations, it lands in the middle, which is why it lists as an intermediate-term bond fund, but it is well diversified across durations with a hefty balance in U.S. treasuries.

There can be reasons to invest in each (or only some) kinds of bonds separately, but you have not expressed any that I can see. As a personal example, my employer-sponsored nominal bond fund leans heavier toward the long end of intermediate duration corporate bonds. So, I use my employer TIPS index fund for the diversification Treasuries can bring to the equation and to increase my overall bond quality, even though I wouldn't otherwise feel the compelling need for TIPS. I then use a stable value fund to pull down the average duration of my bonds so that my overall bond duration a little. Not that it's absolutely necessary to have done so. If I only had access to one of the funds, I'd use it and be content.

After more study, you may determine that total bond is not for you, but I'd stick with it for now (and maybe forever). Each of the renowned author-researcher-asset-manager-forum members I can think of right now (Rick Ferri, Larry Swedroe, William Bernstein) appears to have a preference when it comes to bonds: one prefers total bond; another, intermediate-term treasuries; another, short-term treasuries. I even think there's an author or two out there (that are probably also Bogleheads) that recommend all-TIPS. Read their books and you'll see their reasoning. They would all probably agree that the most important decisions are costs and the stock-bond split. After that, one might fine tune the portfolio based on personal needs, philosophy, understanding and tolerance of any risks that will show up in the fund(s).
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Re: asset allocation for nervous novice

Postby pingo » Mon Jul 22, 2013 3:13 am

Oh! I just noticed this current topic which might be of interest:

Discussion: vanguard total bond versus intermediate bond
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Re: asset allocation for nervous novice

Postby pingo » Mon Jul 29, 2013 2:51 pm

I'm so sorry to have taken this long to get back to your thread. In fact I have to apologize twice because don't have as much to post as I thought I would, or at least not yet.

This is because I realized that we still don't have a list of available options and expense ratios of the current and former 401ks. I recall you said he could/would move his Current 401k to Vanguard, but that doesn't mean (unless otherwise confirmed) that he'll get the best expense ratios that way, so it might make sense to keep 1 or 2 of the Old 401ks around. For example, I don't know if His Current 401k is an Individual or "Solo" 401k, in which case using Vanguards Individual 401k results in Investor Share funds, not Admiral funds. Have you found out more that could help clarify in this regard?

Also, you still haven't confirmed if you can roll your Traditional IRA into your Old Schwab Fidelity 401k. It's rare, but sometimes it can be done even after one is no longer at that employer. Doing so allows for the Backdoor Roth for you without having to pay heavy taxes on the 4% in the TIRA, and putting getting taxable money into a Roth is much preferred over saving it in a taxable account.

You previously asked about some of the mechanics of setup up a Backdoor Roth. I believe this very short discussion answers your questions:

Where to setup a backdoor Roth? And post-tax 401k rollovers

As to your desire for Asset Allocation suggestions, you currently have a (roughly) 50/50 portfolio and had proposed 70/30 when all the while I was thinking it could stay at < 50/50 or go perhaps to 60/40 if you wanted to be more aggressive. I guess I'm being stubborn, but what if we compromise between 70/30 and 60/40 and make it 65/35? :D (I'm just testing the waters, but obviously I'll work with what you've decided.)
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Re: asset allocation for nervous novice

Postby nervousnovice » Mon Jul 29, 2013 6:38 pm

hi pingo,
thanks for the additional insight....let me try to answer your questions.

first, at a high level we are fine keeping the allocation 50/50, maybe consider moving it to 55/45 and at most 60/40. so i am definitely off of the 70/30 split kick. my main concern was whether we should have a little more aggressive AA since we are behind on savings.....

also, since i started this thread, i did move my old 401k from fidelity to vanguard (still settling, about $160K). and also my TIRA from schwab to vanguard (about $35K in MGK). and i moved 175K from the taxable account (sitting in cash at BofA) into vanguard (planning on investing at least a portion in VTIAX. what other MF here?).

i do not have an active 401K but I am doing some independent consulting through our S-corp.....so does that mean i can open an I401K and if so, should i? can i put all of the money i earn consulting into it? can/should I open this at vanguard?

nothing from my husband's accounts has been moved. to answer your questions regarding the options and ERs, here you go:
JPMorgan (total value approx 52K):
RWIEX - American Funds Capital World G/I R4, .80 ER
REREX - American Funds EuroPac Growth R4, .85 ER
RGAEX - American Funds Growth Fund of America R4, .69 ER
BSCFX - Baron Small Cap Retail, 1.31 ER
EILVX - Eaton Vance Large Cap Value, .74 ER
FPURX - Fidelity Puritan, .59 ER
JINXX - JPM Money Market, .21 ER
JGSMX - JPM Small Growth R6, .75 ER
PRRIX - Pimco Real Return Instl, .45 ER
PTTRX - Pimco Total Return Instl, .46 ER
RLPIX - Royce Low Priced Stock Instl, 1.19 ER
VINIX - Vanguard Institutional Index I, .04 ER (everything is here)
VSISX - Vanguard Small Cap Index Signal, .10 ER
VWNEX - Vanguard Windsor Adm, .31 ER

He also has an old employer sponsored plan (not sure of designation, but a "Schwab-One" account with his previous company owner's name as a trustee if that tells you anything....currently has the PTTRX, BAC, CSCO and cash holdings (about $220K total).

And his current account is an Individual 401K at Schwab (confirmed that on his statement, about $73K currently, holding about $54K in OAKIX, ER=1.06). This is the area I think we need help because of ongoing contributions and Schwab is so expensive for the good Mutual Funds. I suppose he could buy ETFs instead, but its still costs I would rather avoid. I would really like to move this out of Schwab, ideally....

Lastly, since he does NOT have an IRA of any type, I think we are going to set up the back door Roth through Vanguard. I'm pretty sure I understand how to do that now, thanks for the articles on it!

I think that is it, but let me know if I inadvertantly left anything out. And thank you so very much for the assistance.
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Re: asset allocation for nervous novice

Postby CyberBob » Mon Jul 29, 2013 7:21 pm

nervousnovice wrote:...when i say cautious, i mean that my husband is happy theoretically having the majority of our assets in cash stashed under the mattress.

Cash under the mattress is simply trading the obvious market ups-and-downs risk for the hidden risk of inflation. According to the Social Security Administration, a 50 year old woman has a life expectancy of 35.4 years. Over the previous 35 years, inflation would have chipped away at every dollar until it was eventually worth only 28 cents. That's 72% lost in the search for 'safety'! :shock: I've always viewed inflation as a greater risk than whatever the Dow Jones Industrial Average may have done yesterday.

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Re: asset allocation for nervous novice

Postby nervousnovice » Mon Jul 29, 2013 8:16 pm

i totally agree with you bob! in fact, i had my hubby watch the Bogleheads investment philosophy videos and he is on board with the methodology. so i have the greenlight from him to set up a solid AA and buy mutual funds/etf's to support it and we won't hold such a big cash position.
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Re: asset allocation for nervous novice

Postby pingo » Wed Jul 31, 2013 8:16 pm

nervousnovice wrote:i do not have an active 401K but I am doing some independent consulting through our S-corp.....so does that mean i can open an I401K and if so, should i? can i put all of the money i earn consulting into it? can/should I open this at vanguard?


I'm not an expert, but probably. This may be where you have to check with a tax or other professional. Perhaps this link will help: http://www.solo401kcalculator.com/

pingo wrote:Don't worry about losing access to PTTRX at ER 0.46%. When I looked at Vanguard FundAccess (link), I saw many versions of PIMCO Total Return and I've read of one or two Bogleheads that own that fund through Vanguard at ER 0.46%. You'll have to do some hunting to be sure you don't pick one with a load or some other PIMCO expense nonsense, but I believe it can be had as you desire it. (Definitely check with Vanguard, however, before you take my word for it.)


I have to backpedal here for a moment. I believe Pimco Total Return ER 0.46% would have to be accessed through a Vanguard Brokerage account, which I believe cannot be opened inside of a Vanguard Individual 401k. Also, the fund minimum may be as high as $50,000 (although it might actually be as low as $25,000).
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Re: asset allocation for nervous novice

Postby pingo » Wed Jul 31, 2013 8:25 pm

nervousnovice wrote:He also has an old employer sponsored plan (not sure of designation, but a "Schwab-One" account with his previous company owner's name as a trustee if that tells you anything....currently has the PTTRX, BAC, CSCO and cash holdings (about $220K total).


The Schwab-One account is not included in the original portfolio post, is it?

Also, Vanguard i401ks do not allow one to roll IRAs into the i401k. I'm pretty sure (but don't know for fact) that Vanguard i401ks will allow other 401ks to roll into the i401k, but please check first. The Schwab-One account may have to be rolled into the current 401k first, before moving all 401ks into the Vanguard i401k.

Or, He might have to open up a Fidelity Solo 401k instead, if Vanguard won't accept the former 401ks into a new i401k. Fidelity allows IRAs and 401ks to roll over to their Solo 401ks.

Check with Vanguard. I see in your other thread that Vanguard says they'll give his i401k access to Admiral shares which is nice. I've never heard that they'll make acceptions. I've only read that their i401k won't allow access to Brokerage services or Admiral shares.
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Re: asset allocation for nervous novice

Postby nervousnovice » Wed Jul 31, 2013 10:38 pm

Thanks Pingo, I'm going to check with schwab to see if he can move his old "pension" (maybe a keogh?) into his active I401K before moving anything. Seems like the JPM legacy 401K should stay put, as I did open a TIRA for him at Vanguard and plan to move that to Roth next month. Thanks EVERYONE for the tip on that!

I am the one that had the Fidelity account and I have already moved it to an IRA at Vanguard and combined it with another legacy IRA I have had for years.

Re: PTTRX - the minimum is 100K and I bought that at Schwab and had to pay $76 transaction fee for it...As of now, I'm thinking we'll keep that old pension fund at schwab and just move the I401K to Vanguard.

Re: Admiral shares at Vanguard....from what I have read on the Vanguard i401K plan materials and what a Vanguard specialist told me, they DO allow admiral shares in i401Ks as long as you meet the minimum requirement. I can't find anything on Vanguard paperwork so far that says otherwise. Even without the Admiral shares, I think the Vanguard i401K is better than Schwab due to better choice of low cost index funds. And I feel safer investing in mutual funds instead of ETFs where possible.

So, in summary, here is where I am at:

ME:
legacy 401K (Fidelity) and legacy TIRA (Schwab) rolled into TIRA at Vanguard, total assets=$195K

HUBBY:
1. legacy 401K (JPM)=$54K total value, all in VINIX Vanguard Institional Index ER=.04 (inclined to leave this here to keep the .04 ER)
2. legacy pension (Schwab)=$215K total value, about $180K in PTTRX Pimco Total Return Instl ER=.46, BAC=$22K, CSCO=$9K, CASH=$4K
3. active i401K (Schwab)=$75K total value, $55K in OAKIX Oakmark International I ER=1.06, the rest in money market
4. TIRA (Vanguard)=$5.5K to Roth next month

Taxable
1. Merrill Edge=$21K in VIG Vanguard Dividend Appreciation
2. Bank Account=$160K cash
3. Vanguard Taxable Brokerage=$175K cash

QUESTIONS:
1. regarding original asset allocation, we want 50/50 AA, the question is how to break it up. I am torn between
Option 1: 40% total US equities + 10% total ex-US equities + 25% total US bond index (OR 25% short term bonds) + 25% TIPS
or Option 2: splitting the domestic and international equities further to have a small tilt towards small cap. Appreciate any feedback on this.

2. after reading the wiki, I now realize the international should be in our taxable account to take advantage of the foreign tax credit. what else should go in taxable? what about in the Roth (i know high growth, but what of the above fits that category best - domestic index or small cap if i break that out?)

3. am i forgetting anything?

Thanks again in advance for any feedback.
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Re: asset allocation for nervous novice

Postby pingo » Thu Aug 01, 2013 2:01 pm

Sounds like things are coming together. Here's something that left me scratching my head:

First you said...

nervousnovice wrote:taxable account:
POAGX - 7%
VIG - 2.6%
CASH=25.2%


...then you said...

nervousnovice wrote:Taxable
1. Merrill Edge=$21K in VIG Vanguard Dividend Appreciation
2. Bank Account=$160K cash
3. Vanguard Taxable Brokerage=$175K cash


...so what happened to POAGX? Did you liquidate it? Is that the $160k cash?
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Re: asset allocation for nervous novice

Postby pingo » Thu Aug 01, 2013 2:34 pm

Something else that should be settled is whether you will be opening up an i401k and making Backdoor Roth contributions. It would be a hastle, but it appears that you would have to open a Fidelity Solo 401k, roll Her Rollover TIRA from Vanguard to the Fidelity Solo 401k and determine whether you will stay at Fidelity, or open a Vanguard i401k and then roll the Fidelity Solo 401k into the Vanguard i401k. (sigh)

It's important because that alters how much of what money flows where, which in turn can affect fund placement because we want to set things up to require as little maintenance as possible.

pingo wrote:
nervousnovice wrote:i do not have an active 401K but I am doing some independent consulting through our S-corp.....so does that mean i can open an I401K and if so, should i? can i put all of the money i earn consulting into it? can/should I open this at vanguard?


I'm not an expert, but probably. This may be where you have to check with a tax or other professional. Perhaps this link will help: http://www.solo401kcalculator.com/


You probably read this, but here's also what Vanguard.com says:

Here's a link to what Vanguard wrote:Participants | Sole proprietors or partners who have no
common-law employees. [Independent contractors are not employees.]
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Re: asset allocation for nervous novice

Postby nervousnovice » Thu Aug 01, 2013 9:13 pm

thanks and yes, i liquidated POAGX. ;)

and i don't think i can do the backdoor roth for me because i already have a TIRA with substantial funds and we don't want the tax liability to convert.

i am going to talk to our accountant re: i401K for me, but i think it will work as i am the only "employee". from your comments it sounds like: Vanguard won't allow me to roll a TIRA into an i401K with them, correct? so in order to do that i'd need to open an i401K with Fidelity and have Vanguard transfer my TIRA into the Fidelity i401k (is that allowed)? but vanguard does allow the transfer of an i401K?

if i do the i401K, then we are able to save $51K per year tax deferred, plus my small earnings tax deferred and then $5500 for hubby in backdoor roth and $6500 for me in backdoor roth (total=$12K taxed, but tax free and we can touch the principal w/o penalty before age 59.5)......and then whatever else we save in our taxable account. we'll be left with the following accounts:

Tax deferred:
Vanguard i401k for hubby
Schwab legacy pension for hubby
JPM legacy 401k for hubby
Fidelity or Vanguard i401K for me (with TIRA rolled into it somehow)

Earnings Tax free:
Vanguard TIRA/backdoor Roth for me
Vanguard TIRA/backdoor Roth for hubby

Taxable:
Vanguard
Merrill
bank account

is that it? should i do something differently to optimize/simplify? and what goes where?
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Re: asset allocation for nervous novice

Postby pingo » Thu Aug 01, 2013 9:37 pm

nervousnovice wrote:from your comments it sounds like: Vanguard won't allow me to roll a TIRA into an i401K with them, correct?


That's my understanding of it. It's always good to call Vanguard, regardless, because every now and then they say no and then you say the size of the assets and they suddenly say, "Oh, for an account that size it's not a problem." I'm not saying it'll happen for you, because I don't really know the reasons, rules and regulations involved, but sometimes the answer is no until it isn't.

If not, there's always the option to...

nervousnovice wrote:open an i401K with Fidelity and have Vanguard transfer my TIRA into the Fidelity i401k (is that allowed)?


...since I have been led to understand Vanguard i401ks will allow rollovers from a Fidelity Solo 401k.

nervousnovice wrote:if i do the i401K, then we are able to save $51K per year tax deferred, plus my small earnings tax deferred and then $5500 for hubby in backdoor roth and $6500 for me in backdoor roth (total=$12K taxed, but tax free and we can touch the principal w/o penalty before age 59.5)......and then whatever else we save in our taxable account. we'll be left with the following accounts:

Tax deferred:
Vanguard i401k for hubby
Schwab legacy pension for hubby
JPM legacy 401k for hubby
Fidelity or Vanguard i401K for me (with TIRA rolled into it somehow)

Earnings Tax free:
Vanguard TIRA/backdoor Roth for me
Vanguard TIRA/backdoor Roth for hubby

Taxable:
Vanguard
Merrill
bank account

is that it? should i do something differently to optimize/simplify? and what goes where?


You know when I think of it, why not move it all to Fidelity instead? Fidelity's Spartan Advantage Class funds are available to the Solo 401k's so they're less expensive than Vanguards Investor Class funds. And you could use iShares ETFs with no commissions if you need some asset class that's not available via the Spartan funds. Something to think about.
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Re: asset allocation for nervous novice

Postby nervousnovice » Thu Aug 01, 2013 10:36 pm

i think we qualify for admiral funds in too many of the accounts and so fidelity would be more expensive. and i am still not convinced that i401ks at Vanguard don't allow admiral funds - i still haven't seen anything in writing from vanguard to indicate such. everything seems to be "i was told by vanguard", and my experience this week was that i was told by vanguard that its not a problem to own admiral shares in an i401k....i am going to call vanguard again tomorrow to dig deeper.

also, i don't feel as *safe* with ETFs because of shorting, etc. with them, seems like too many games available....is that irrational? or just a healthy distrust of "market makers"?

so given this, what should go where? we'll keep VINIX at JPM, keep PTTRX in the schwab pension. but aside from putting international in our taxable account, some more bonds in the tax deferred accounts, i'm stuck on what else? and also stuck on the small cap "tilt" (in domestic and international).....appreciate words of wisdom on this.
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Re: asset allocation for nervous novice

Postby pingo » Fri Aug 02, 2013 1:16 am

nervousnovice wrote:i think we qualify for admiral funds in too many of the accounts and so fidelity would be more expensive. and i am still not convinced that i401ks at Vanguard don't allow admiral funds - i still haven't seen anything in writing from vanguard to indicate such. everything seems to be "i was told by vanguard", and my experience this week was that i was told by vanguard that its not a problem to own admiral shares in an i401k....i am going to call vanguard again tomorrow to dig deeper.


Keep digging. You never know, things may have changed.

I know we keep giving you a hard time about this one. It's because many a Boglehead has tried and posted about it. We're talking about people that will leave no stone unturned to reduce expense by a basis point!

nervousnovice wrote:so given this, what should go where?


I know it seems like you're never going to get any recommendations, but they're coming. I have most of it prepared and I'm willing to put it out there without every detail and then it can be used like a worksheet if things with the accounts don't quite work out as anticipated.

I might even post some ideas before you respond next, but I'd still appreciate answers to the following questions and then I'll adjust things with the information I get.

nervousnovice wrote:if i do the i401K, then we are able to save $51K per year tax deferred, plus my small earnings tax deferred [...]


Do you have even a rough idea what your small contributions to an i401k would be?

nervousnovice wrote:[...]and then $5500 for hubby in backdoor roth and $6500 for me in backdoor roth (total=$12K taxed, but tax free and we can touch the principal w/o penalty before age 59.5)...


Er, not quite. Each contribution/conversion must be in there for 5 years before principal can be withdrawn until/unless you already are eligible for qualified distributions.

nervousnovice wrote:...and then whatever else we save in our taxable account.


Which if I recall correctly, was going to be 12-30k per year after tax, but would now be $0-$18k?
Last edited by pingo on Sat Aug 03, 2013 8:12 am, edited 2 times in total.
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Re: asset allocation for nervous novice

Postby pingo » Fri Aug 02, 2013 1:41 am

nervousnovice wrote:QUESTIONS:
1. regarding original asset allocation, we want 50/50 AA, the question is how to break it up. I am torn between
Option 1: 40% total US equities + 10% total ex-US equities + 25% total US bond index (OR 25% short term bonds) + 25% TIPS
or Option 2: splitting the domestic and international equities further to have a small tilt towards small cap. Appreciate any feedback on this.


The account arrangement and tax efficient ability to carry out one idea over the other sometimes determines the direction of the portfolio.
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Re: asset allocation for nervous novice

Postby pingo » Fri Aug 02, 2013 3:11 am

This is a work in progress, but I know you're eager to see something. Please give me feedback and we can correct any errors below:

Ages: 50
Desired Asset Allocation: 50% Stocks / 50% Bonds
Desired International: 30% of equities
Portfolio Size: $900,500
Translation: 35 US / 15 International / 25-ish Nominal Bonds / 25-ish TIPS & iBonds

New Annual Contributions
$51,000 His i401k
$ 3,000 - 5,000 Her i401k
$ 5,500 His Backdoor Roth <--Increase to $6,500 when he's turns 50.
$ 6,500 Her Backdoor Roth
$0-18,000 Taxable
Total $66,000 - $86,000



Vanguard Taxable ($356k or 40%) <--$0 - $18,000/yr
02% Vanguard Dividend Appreciation ETF (VIG) 0.10 ($21k) <--Transfer "in-kind" from Merrill Edge; tax loss harvest into Total US or Total Int'l.
15% Vanguard Total International (VTIAX) 0.16
23% Vanguard Total US Stock (VTSAX) 0.05

Her Vanguard i401k ($195 or 22%) <--Maneuver legacy Fido 401k & Schwab TIRA into this acct.
22% Vanguard Inflation-Protected Securities Fund Admiral (VAIPX) 0.10 (VIPSX) ER 0.20 <--$3,000-5,000/yr.

His Legacy JPM 401k ($54k or 6%) <--Consider moving to i401k; see comments below.
06% Vanguard Institional Index (VINIX) 0.04

His Legacy Schwab One Pension? ($215 or 24%)
24% Pimco Total Return Instl (PTTRX) 0.46

His Vanguard i401k ($75k or 8%) <--His active Schwab i401k moves here.
00% Vanguard Total US Stock (VTSAX) 0.05 (VTSMX) 0.17 <--$15,500/yr.
04% Vanguard Small Cap (VSMAX) 0.10 (NAESX) 0.24
04% Vanguard Total Bond (VBTLX) 0.10 (VBMFX) 0.20 <--$35,500/yr.

His Vanguard Backdoor Roth ($5.5k)
01% Vanguard Small Cap (VSMAX) 0.10 (NAESX) 0.24 <--$5,500/yr; converts to (VSMAX) 0.10 @ $10,000.

Her Vanguard Backdoor Roth ($6.5k)
01% Vanguard Small Cap (VSMAX) 0.10 (NAESX) 0.24 <--$5,500/yr; converts to (VSMAX) 0.10 @ $10,000.

Weighted ER = 0.18% 0.21%

* 22% TIPS is close enough, but low contributions will mean a relative lowering of that allocation. I don't have a problem with this, as Vanguard's Target Retirement Funds top out with 20% TIPS.
* International starts higher than requested (30% vs. 20% of equities), but low and varying contributions to taxable should slowly allow it to settle down to 20% to prevent the need to rebalance for a looong time.
* Starts you off with a minor tilt to Small, that increases very gradually/slowly.
* An alternative is to save up to $25,000/yr in I-Bonds ($10k each + $5k paper iBond via tax return) instead of contributing more to TIPS fund. iBonds are tax-deferred until redemption for up to 30 years, and they keep up with inflation and will not fluctuate like TIPS fund. Contributing taxable money to iBonds merely means that all Her i401k contributions all go to VTIAX (the 22% allocation to TIPS fund remains in the account, however).
* Consider moving JPM account to Vanguard once you are sure that Admiral Funds are available via the i401k. This is because VINIX ER 0.04 + VG Small ER 0.10 at market weight = weighted ER 0.05%, which is the same as VG Total US (VTSAX) ER 0.05. You would reduce number of accounts and funds and increase tilt to small a tinge without increasing portfolio expenses.
Last edited by pingo on Mon Aug 05, 2013 6:13 pm, edited 10 times in total.
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Re: asset allocation for nervous novice

Postby nervousnovice » Fri Aug 02, 2013 5:35 pm

pingo - thanks so much! i have been working on my IPS and cascading asset allocation spreadsheet (started with the template here: https://docs.google.com/spreadsheet/ccc ... 5dmc#gid=0) with these exact same funds in them (except one scenario also has VBIRX, plus i had identified 3 other alternatives for small cap VTMSX, VSIAX, & VSTCX). i should mention that i am fine with 1/4 to 1/3 of equities in international, it doesn't need to be 20%.

so i just got off the phone with a concierge for small business where he did confirm that they do not offer admiral funds in the i401K plans. as a side note, you can get them with a SEP IRA. it was the concierge for the personal investing side of the house that told me you can invest in admiral shares in an i401k. oh well....that throws a monkey wrench into everything wrt i401K's.....

but, they mentioned that Vanguard has the option in the i401K to have a Roth component where you can invest up to $23K after tax annually. this is something new and i need to research but are you familiar with it? this sounds like it could be better than the backdoor Roth at $5500....

anyway, my contributions to i401K if i can do one are going to be more in the $3K - $5K per year - its really really part time consulting.
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Re: asset allocation for nervous novice

Postby nervousnovice » Fri Aug 02, 2013 5:59 pm

ah yes, now i see why this is a bad deal: i401K at vanguard doesn't allow admiral shares AND it doesn't allow ETFs, mutual funds only. okay, real monkey wrench on what to put where.....
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Re: asset allocation for nervous novice

Postby nervousnovice » Fri Aug 02, 2013 11:35 pm

looking at the numbers, i inadvertantly included in the taxable cash portion our emergency fund and savings for our master bath renovation, so our amount is closer to 825K. that cash reserves i count towards the fixed income side of the portfolio - is that correct or up for debate? also, what are your thoughts on putting that in a muni fund?

also, we are increasing our after tax savings to a significant amount, at least 50K annually and trying for more.
and as i mentioned in my other post, my i401K contributions will probably closer to $3k-$5k annually instead of 10k.

here is a problem i noticed: the backdoor Roth's will not have enough to qualify for Admiral Shares until next year....so placeholder for now is NAESX (.24%) or better yet, VB(.10%).....can you please confirm that the Vanguard Roth's can have brokerage?

so on the account maneuverings....i need to confirm with fidelity that i can move my TIRA from vanguard to them. then i need to confirm i can open an i401K (confirming with our accountant) and confirm fidelity will combine it for me. at this point, i might just keep it at fidelity as you originally suggested because how much in fees is moving custodians going to cost?

already confirmed no admiral shares in i401k (sorry i doubted everyone on this!), so the JPM legacy 401k is staying put in VINIX at .04%.

on his schwab one legacy pension, you have it with all PTTRX, which will hit me with $76 fee (once i sell BAC & CSCO at schwab, not sure what vanguard would charge or if its even available) and i'm not up for doing that again. so i need to think about this....

finally, i might keep the merrill account in place and use corresponding ETFs since i have free trades there...

lastly, wouldn't i want to start a bit higher in small cap because the higher returns are dependent on holding it longer?
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Re: asset allocation for nervous novice

Postby nervousnovice » Fri Aug 02, 2013 11:50 pm

also, are you using this type of spreadsheet? http://www.bogleheads.org/wiki/Using_a_ ... readsheets

i am trying to fill it in now so i don't need so much hand holding. in the meantime, thank you so much for your advice!
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Re: asset allocation for nervous novice

Postby pingo » Sat Aug 03, 2013 12:18 am

nervousnovice wrote:pingo - thanks so much! i have been working on my IPS and cascading asset allocation spreadsheet (started with the template here: https://docs.google.com/spreadsheet/ccc ... 5dmc#gid=0) with these exact same funds in them (except one scenario also has VBIRX, plus i had identified 3 other alternatives for small cap VTMSX, VSIAX, & VSTCX). i should mention that i am fine with 1/4 to 1/3 of equities in international, it doesn't need to be 20%.

so i just got off the phone with a concierge for small business where he did confirm that they do not offer admiral funds in the i401K plans. as a side note, you can get them with a SEP IRA.


SEP-IRAs are great, they're simpler than i401ks, they don't require filing Form 5500 every year once assets are > $250k...but they're still IRAs and make it a problem to do the Backdoor Roth when one is in a position to do the Backdoor Roth. The "profit sharing" contibution in an i401k is almost the same as the entire eligible contribution for an SEP-IRA. The i401k also allows up to $17,500/yr personal contributions + $5,500/yr catchup contributions for those who are 50+, not that you'll make enough to take advantage of it all.

nervousnovice wrote:but, they mentioned that Vanguard has the option in the i401K to have a Roth component where you can invest up to $23K after tax annually.


In case it needs pointing out, the $23,000 annually is based on your age. It's not related to the Roth i401k itself. Just like you are allowed to make an additional $1,000/yr catchup contributions to a TIRA/RIRA after turning 50, one is allowed additional catchup contributions of up to $5,500/yr in 401ks.

nervousnovice wrote:or this is something new and i need to research but are you familiar with it? this sounds like it could be better than the backdoor Roth at $5500....


If you will be in a lower bracket in retirement, it is usually better to get the tax deduction now in order to avoid excessive taxation since you pay fewer taxes in retirement.

So the question here is whether in your case it is better to contribute pre-tax into a Traditional 401k or post-tax into a Roth 401k. My first response is to say tax-deferral in Traditional accounts is better in your tax bracket (assuming a decline in tax bracket during retirement), but it may be a great topic for another thread. If you expect your tax bracket to be 38% Federal and 10% State during retirement, then the Roth is better because you effectively create more tax advantaged space (on a tax adjusted basis) with no disadvantage over tax-deferral. The only difference is whether you pay the taxes now or later, not the percent you pay. Also, having more RMD-free assets can be nice. It might even make sense if you'll only be the next bracket underneath 38% during retirement, although I'm not confident about that statement.

Having just said all that, let me refer you to The Finance Buff, who's also a Boglehead and who has two great articles, one against the Roth 401k and one in favor of it for certain individual. You may fit the bill:

Roth 401k For People Who Contribute the Max

The Case Against the Roth 401k

The reason for the emphasis on the Backdoor Roth is that when one has used all other tax advantaged options and all one has left is to save in taxable or do a Backdoor Roth (being that tax-deductible IRA contributions are not allowed at your income level), the Backdoor Roth is the clear winner and we don't want to miss out on the opportunity if we can help it.

nervousnovice wrote:anyway, my contributions to i401K if i can do one are going to be more in the $3K - $5K per year - its really really part time consulting.


Thank you. This is helpful. I may need some time to think things over...I'll be back.
Last edited by pingo on Tue Aug 06, 2013 6:18 pm, edited 2 times in total.
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Re: asset allocation for nervous novice

Postby pingo » Sat Aug 03, 2013 1:41 am

nervousnovice wrote:also, are you using this type of spreadsheet? http://www.bogleheads.org/wiki/Using_a_ ... readsheets


Nope. Just pen and paper and the "post reply" box.

nervousnovice wrote:i have been working on my IPS and cascading asset allocation spreadsheet (started with the template here: https://docs.google.com/spreadsheet/ccc ... 5dmc#gid=0)


I have no idea how to do one of those. :shock: I better read that wiki link.

nervousnovice wrote:ah yes, now i see why this is a bad deal: i401K at vanguard doesn't allow admiral shares AND it doesn't allow ETFs, mutual funds only. okay, real monkey wrench on what to put where.....


I wouldn't call it a bad deal. I think it's a great deal, as Vanguard Investor share class is still one of the best deals in town. Remember, 401ks are more expensive to do. Vanguard is letting the Investor share expense ratios be the "extra expense" of administering the plan. In fact, if I had the ability to do an i401k, I'd probably still use Vanguard myself, although I really do like Fidelity, too.
Last edited by pingo on Tue Aug 06, 2013 6:19 pm, edited 2 times in total.
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Re: asset allocation for nervous novice

Postby Default User BR » Sat Aug 03, 2013 1:48 am

nervousnovice wrote:but, they mentioned that Vanguard has the option in the i401K to have a Roth component where you can invest up to $23K after tax annually. this is something new and i need to research but are you familiar with it? this sounds like it could be better than the backdoor Roth at $5500....

The Roth 401(k) would be in place of tax-deferred employee contributions to the solo plan. At your tax rate you want deferred. You should still do the backdoor Roth, using the savings from the tax-deferral to do both.


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Re: asset allocation for nervous novice

Postby Default User BR » Sat Aug 03, 2013 1:52 am

pingo wrote:I wouldn't call it a bad deal. I think it's a great deal, as Vanguard Investor share class is still one of the best deals in town. Remember, 401ks are more expensive to do. Vanguard is letting the Investor share expense ratios be the "extra expense" of administering the plan. In fact, if I had the ability to do an i401k, I'd probably still use Vanguard myself, although I really like Fidelity, too.

It's at best an OK deal. I would use another custodian that provided better selections. In general, while I like Vanguard products, I'm not that impressed with them as custodians. If you can't even get the free ETFs or Admiral funds, I don't know what the point is.


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Re: asset allocation for nervous novice

Postby pingo » Sat Aug 03, 2013 10:20 am

^ That makes a lot of sense. And that quote above brought something subtle to my attention:

pingo wrote:if I had the ability to do an i401k, I'd probably still use Vanguard myself, although I really like Fidelity, too.


Better said: if I had the ability, and considering my own personal circumstances, I'd probably still use a Vanguard i401k despite its limitations. What I don't mean: "if I were in your shoes". (Not that I haven't made those kinds of statement before, mind you.)

Here's what I found when comparing total/weighted portfolio expenses when including a Vanguard i401k vs. Fidelity Solo 401k...

• Portfolio using Vanguard i401k and with tilt to small (as above results in weighted ER = 0.21%.
• Portfolio using Vanguard i401k and without tilt results in weighted ER = 0.21%.
• Portfolio using Vanguard i401k without portfolio tilt and using LifeStrategy/Retirement Income funds in tax-advantaged accounts: weighted ER = 0.19 -20%. Asset allocation moves up to 56% - 62% (also depending) and makes compromises as to TIPS. It should still see a sufficient reduction in equities by retirement since the lion's share of new contributions would go to iBonds and LS/Retirement Income.
• Portfolio using Fidelity Solo 401k and with same tilt to Small and using Advantage Class funds results in Weighted ER of 0.19%.
• Portfolio using Fidelity Solo 401k without tilt and using Advantage Class funds results in weighted ER of 0.18%.

You might shave off 2 or 3 basis points with either Firm if 1/4 of the portfolio weren't in Pimco TR (ER 0.46%), but if you want to continue using Pimco or if you confirm that it cannot be rolled over to a Solo/i401k (I suspect it can), then the point is moot.

I'm not super-savy with Fidelity's commission-free ETFs, but it also looks like using them won't make a difference. (Somebody please correct me if I'm wrong.)

Vanguard and Fidelity are the 2 firms where I have some familiarity. Perhaps there's a better deal out there. If you stay (or go back) to Schwab and can use their commission-free ETFs, maybe that'd make a difference, but I'm all out of math right now and I don't know what other account fees apply to Schwab i401ks.
Last edited by pingo on Tue May 13, 2014 6:59 am, edited 2 times in total.
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Re: asset allocation for nervous novice

Postby nervousnovice » Sun Aug 04, 2013 12:36 am

Thank you Brian and Pingo for the tips....so we will max out the i401K contributions and I will call fidelity to find out specifics about moving the TIRA from vanguard there and rolling it into an i401K so that i can set up a backdoor Roth.....did I get that right?

In the meantime, I am working on a spreadsheet using the model in the text of this wiki page - NOT the actual downloadable spreadsheet cause that was too complex with too many asset classes for a novice like me.

http://www.bogleheads.org/wiki/Using_a_ ... allocation

i made a few adjustments. i added a column for institution and another for CASH since we have a lot in cash still. to the right of the Total column, i added columns for "Holdings Detail", "Qty", "ER", "Pct of Investments" and "Total Fees" (where i can calculate my weighted average ER).

at the bottom, i have Total, Percentage, Desired PERCENT and then the dollar difference - so I can use this section for rebalancing. i'm pretty happy with this for now....thank you again for the help!
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Re: asset allocation for nervous novice

Postby pingo » Mon Aug 05, 2013 8:40 pm

Wow. The longer the thread, the harder it is to keep things straight. I printed things out to get a fresh look at your situation and realized that it is as if I never read one of your posts, even though I responded to a piece of it.

nervousnovice wrote:looking at the numbers, i inadvertantly included in the taxable cash portion our emergency fund and savings for our master bath renovation, so our amount is closer to 825K.


I'm sorry if I'm not connecting all the dots right now, but does that mean I shave $75,500 from the taxable account?

nervousnovice wrote:that cash reserves i count towards the fixed income side of the portfolio - is that correct or up for debate?


Which cash reserves? The emergency fund? The renovation money? I count any cash within the portfolio with the bonds/fixed income because of the stability it offers. Some individuals have a large enough portfolio that they no longer have an "emergency" fund because the portfolio can cover for emergencies without being hurt. Whether you do this or not, is up to you, but I would think you have more risk given your husband's business partnership and it's debt. As such, it may be good to keep emergency savings separate and in cash. Others may disagree.

The remodeling money might as well stay in cash, assuming you'll use it soon, but it shouldn't make much difference either way. I would not count this with portfolio assets.

nervousnovice wrote:also, we are increasing our after tax savings to a significant amount, at least 50K annually and trying for more.
and as i mentioned in my other post, my i401K contributions will probably closer to $3k-$5k annually instead of 10k.


I'll make the adjustments.

nervousnovice wrote:here is a problem i noticed: the backdoor Roth's will not have enough to qualify for Admiral Shares until next year....so placeholder for now is NAESX (.24%) or better yet, VB(.10%).....can you please confirm that the Vanguard Roth's can have brokerage?


I realize things are still in flux regarding the search for where accounts will end up, but I'll address the above just in case:

You would use NAESX (0.24). VG Brokerage Services requires a $20 account fee which makes VB's ER as if it were 0.41% and 0.46%, respectively for the Roths. A regular VG mutual fund account waives the $20 account fee if you sign up for electronic notification. With all your contributions, I'm positive you'll be able fill the Backdoor Roths on January 1, 2014 to qualify for Admiral soon enough. And if you forget to exchange the fund for Admiral Shares (as if!), Vanguard will do it automatically within a few months.

nervousnovice wrote:so on the account maneuverings....i need to confirm with fidelity that i can move my TIRA from vanguard to them. then i need to confirm i can open an i401K (confirming with our accountant) and confirm fidelity will combine it for me. at this point, i might just keep it at fidelity as you originally suggested because how much in fees is moving custodians going to cost?


Sound good. I'm confident they'll all confirm that you can do it all, but confirming is key. For simplicity, it's making more and more sense to forget about Vanguard and move all possible accounts to Fido. Less logins, less places to look to get the info for rebalancing. That way you can view more of your assets in one place. Of course, you need to determine whether it's more important to you to have, say a Vanguard account with Total International Admiral and ER 0.16, which also includes International Small Caps, or greater simplicity by holding more accounts at Fidelity where you'd use FSGDX ER 0.18 without the small caps (Large and Mid Caps only). It's a personal choice. Some care more about one thing, others care more about the other.

nervousnovice wrote:already confirmed no admiral shares in i401k (sorry i doubted everyone on this!), so the JPM legacy 401k is staying put in VINIX at .04%.


Nothing wrong with that, if you prefer ER 0.04 over simplicity (and I'm not suggesting which is better). I'll be honest that I don't know which choice I'd make, because 0.04 ERs don't happen every day. It's only 6% of your portfolio so it represents a weighted cost of 1/4 of a basis point, whereas joining it to the VG i401k Total Stock Investor Class would mean weighted costs of 1 basis point, or moving it to a Fidelity i401k Total Stock Fund means weighted costs of ~1/2 of a basis point. You save yourself 1/4 to 3/4 of a basis point by keeping JPM, assuming no other account fees. The savings becomes even more miniscule (percent-wise) as the JPM 401k eventually represents only 5%, then 4%, then 3% and so on to less than 1% of the portfolio because of new contributions to the other accounts.

Also keep in mind that if you were to move that JPM 401k to an i401k Total Stock Fund, it adds a speck more small caps to your total, or you can use the money to increase your tilt significantly.

As I posted earlier, getting rid of PTTRX actually moves the needle more significantly, but only by couple basis points at that. I suppose it all adds up, but there comes a point where you need to figure out what it's all worth to you. The difference between 1% and 0.21% is huge and much more important than the difference between 0.21% and 0.18%. 1 basis point applied to a $2.5 million portfolio is a savings or cost of $250.

nervousnovice wrote:on his schwab one legacy pension, you have it with all PTTRX, which will hit me with $76 fee (once i sell BAC & CSCO at schwab, not sure what vanguard would charge or if its even available) and i'm not up for doing that again. so i need to think about this....


I did not realize there would be a transaction fee/s for buying/selling PTTRX. :oops:

Regardless, you'd probably be hit with similar fees to change accounts and/or transfer in kind to Vanguard/Fidelity/whathaveyou. $76 adds a one-time additional cost of less than 1 basis point (0.008%) to your portfolio for that year. If you consider it in isolation relative to the Pimco's ER, it adds less than 4 basis points to the 0.46 ER (so, 0.50% that year only).

nervousnovice wrote:finally, i might keep the merrill account in place and use corresponding ETFs since i have free trades there...


Any account fees? They might matter.

nervousnovice wrote:wouldn't i want to start a bit higher in small cap because the higher returns are dependent on holding it longer?


Perhaps I mispoke by calling it a "minor" tilt to small. My first idea holds a total of 24% of your US stocks in small caps (remember that VG Total Stock holds small caps, too). 25% of your combined US & International stocks would be small. By comparison, Small Caps only make up 9% of US stocks, or 6% of US and International markets when combined at market weights. I'd say that's a healthy tilt. Also VIG and VINIX dampen the impact of the small cap funds, whereas using a Total Stock fund in their stead increases the tilt a little more.

It is what it is. If you want to keep VIG and VINIX (and in the case of VIG taxes might necessitate keeping it), you find yourself limited somewhere else. If you want to raise your risk-profile given your the limitations, I suppose you could replace Small Blend with Small Value. Another alternative is to roll the PTTRX and/or the JPM accounts into the i401k to give you more flexibility with Small Caps at the expense of holding PTTRX. Only you can decide how important it is to leave those accounts alone. If you merely move the Old JPM 401k to the i401k and add it to the Small Cap fund, your Small Caps would be 40% of US stocks, but your costs increase, too.

Nothing's written in stone about how much, when, or even whether or not you'll see higher returns from your small caps. For me, I need to see where all the accounts end up because each account places restrictions on a portfolio. Also, each individual has priorities and you were a bit on the fence (earlier) about whether to tilt, so it didn't muscle out some of the other more objective priorities (tax-efficiency, keeping PTTRX and VINIX, the likelihood that VIG shouldn't be liquidated at this time do to capital gains, where the i401k ends up, etc.). They can easily trump the mere possibility of boosting returns by tilting. Why take more risk for a small impact on portfolio returns, when tax costs can easily cancel out the impact and then some?
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Re: asset allocation for nervous novice

Postby pingo » Tue Aug 06, 2013 1:37 pm

nervousnovice wrote:here is a problem i noticed: the backdoor Roth's will not have enough to qualify for Admiral Shares until next year....so placeholder for now is NAESX (.24%) or better yet, VB(.10%).....can you please confirm that the Vanguard Roth's can have brokerage?


Sorry, I forgot to confirm it directly: yes. A Vanguard Roth can have a brokerage. I know because I have one. :D

Some people find Vanguard Brokerage Services lacking, whereas the Vanguard mutual fund side of things tends to get higher marks. Regardless, see my post a above about using NAESX until you qualify for Admiral.
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Re: asset allocation for nervous novice

Postby nervousnovice » Tue Aug 06, 2013 9:07 pm

thanks pingo, that info is great to know and i will keep it in mind as i get these accounts set up.

i confirmed with Fidelity and Schwab today that legacy 401K and qualified retirement plans as well as IRAs can be rolled into individual/self employed 401Ks at both institutions. i like the fund choices at fidelity much better than schwab since they are closer to vanguard's. plus schwab's don't ever get very good ratings on morningstar it seems. however, after discovering this forum i certainly have come to realize the shortcomings of morningstar's ratings systems, etc......in the past i used it as gospel. i do like that they have "forward" returns predicted using their new Gold, Silver and Bronze ratings, but i digress......

soooooo, i just need to talk to our accountant and confirm i can set up i401k for myself, then roll the stuff from vanguard into fidelity and get that set up. same for hubby....but i'm going to keep the Roth IRAs and the big chunk of taxable funds at vanguard since i do prefer their choices and fees overall. we don't have account fees at merrill, so thats not an issue other than its a nice place to park cash in investments while we are waiting on using it (i.e. the bathroom renovation).

i have been reading and reading on tilting, etc. and i decided to postpone any decisions on that for now. i think your advice at the beginning of the thread (& others) to keep it simple is right on. so i'm going to stick with the 3 fund lazy portfolio for now. once i get all the accounts settled to their "new" homes, then i can look at it and decide whether or not to tilt. also, i don't even think i'm going to do TIPS for the time being, it seems like there are questions about long term performance since they haven't been around for very long?

now, as my old habits die hard, i have to decide on the best strategy to jump into the market on some of the new funds.....i'm not going to lie, i usually watch the market like a hawk and wait for a few down days to pull the trigger on buys. BUT, i'm really concerned that the budget fiasco thats going to hit the government in the fall is going to give us a lot more volatility before the year is out. but i know that i should NOT TIME THE MARKET. so maybe i will just start DCA into the new funds now (and do it monthly), since we are down for a couple of days.....
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Re: asset allocation for nervous novice

Postby pingo » Tue Aug 06, 2013 10:18 pm

nervousnovice wrote:i like the fund choices at fidelity much better than schwab since they are closer to vanguard's.


I like the simplicity, too. It often takes more Schwab funds/ETFs to obtain the same objectives.

nervousnovice wrote:plus schwab's don't ever get very good ratings on morningstar it seems. however, after discovering this forum i certainly have come to realize the shortcomings of morningstar's ratings systems, etc......in the past i used it as gospel.


It's all past performance and period dependent, which can really matter depending on when the fund/ETF started. It's almost a mathematic certainty that low cost index funds will rank in the middle over the short term and high over the loooooong-term. You are increasing your odds of outperforming a portfolio of actively managed funds which Morningstar confirms that they do relatively poorly after they've received a high M* rating because more people jump in (buying high). In fact their low rated funds tend to do just as well/poor as the high rated ones. Hmm.

nervousnovice wrote:i do like that they have "forward" returns predicted using their new Gold, Silver and Bronze ratings......


Meh. I doubt they'll mean much in the long run.

nervousnovice wrote: reading on tilting, etc. and i decided to postpone any decisions on that for now. i think your advice at the beginning of the thread (& others) to keep it simple is right on. so i'm going to stick with the 3 fund lazy portfolio for now. once i get all the accounts settled to their "new" homes, then i can look at it and decide whether or not to tilt. also, i don't even think i'm going to do TIPS for the time being, it seems like there are questions about long term performance since they haven't been around for very long?


If you axe TIPS, use the same U.S. Bond fund as used in His i401k, or the Spartan Shot-Term Bond Index Fund if you decide to go that route.

Diversification is about risk reduction. If inflation takes off (I'm not saying it will) and is higher than anticipated, TIPS would do terrific. I've read that their long term expected returns are hardly lower than nominal bonds, so you pay a teeny price for the insurance. In fact, I look at them as insurance (with a small cost) as well as an investment and portfolio diversifier. Perhaps it will help to read the following discussion: What is the role of TIPS in your portfolio?

nervousnovice wrote:now, as my old habits die hard, i have to decide on the best strategy to jump into the market on some of the new funds...


I don't think you do. You are already in the market. You basically have a 50% Stock/ 50% Bond and cash portfolio already. Re-arrangement your accounts isn't leaving or getting back in, or do I misunderstand? You are merely increasing your diversification (risk reduction) with a coherent plan. Let me also indicate that selling your individual stocks in exchange for 10,000 stocks is staying in the market, but reducing your risk substantially. Exchanging Contrafund (which is currently tracking the S&P 500) for Total Stock is pretty much zero-sum. You're exchanging Oakix for Total International and just adding a little more to the position. It doesn't matter that they're being sold in one account and reappear in a new, different account. Money is fungible.

nervousnovice wrote:...i'm not going to lie, i usually watch the market like a hawk and wait for a few down days to pull the trigger on buys.


It is highly likely that no good will come of it.

nervousnovice wrote: BUT, i'm really concerned that the budget fiasco thats going to hit the government in the fall is going to give us a lot more volatility before the year is out.


Have you forgotten the last time we had to deal with the fiscal cliff? It was only the end of last year/beginning of this year. Sooooo many investors said the same thing. And now U.S. stocks are up 20%.

Remember the Euro crisis which is still ongoing? Folks sold out and avoided International stocks "knowing" the fit would hit the shan in. European stocks were the highest performing asset class last year. As an aside, International stocks have gone nowhere, even down this year...is that the buy signal you're looking for or is it just going to get worse?

All I'm saying is that these things can't timed right.

nervousnovice wrote:but i know that i should NOT TIME THE MARKET.


(Cough!) :D
Last edited by pingo on Wed Aug 07, 2013 11:14 pm, edited 8 times in total.
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Re: asset allocation for nervous novice

Postby pingo » Tue Aug 06, 2013 10:19 pm

Ages: 50-ish
Desired Asset Allocation: 50% Stocks / 50% Bonds
Desired International: 30% of equities
Portfolio Size: $825,000
Translation: 35 US / 15 International / 25-ish Nominal Bonds / 25-ish TIPS

New Annual Contributions
$51,000 His i401k
$ 3,000 to 5,000 Her i401k
$ 5,500 His Backdoor Roth <--Increase to $6,500 when he's turns 50.
$ 6,500 Her Backdoor Roth
$50,000 Taxable
Total $116,000 to $118,000



Merril Edge Taxable ($21,000 or 3%)
03% Vanguard Dividend Appreciation ETF (VIG) 0.10 ($21k) <--Transfer "in-kind" from Merrill Edge and/or tax loss harvest into Total US or Total Int'l; do not re-invest dividends.

Vanguard Taxable ($259,500 or 31%) <--Turn off dividend reinvestment feature.
15% Vanguard Total International (VTIAX) 0.16 <--$17,550/yr or whatever is necessary to keep @ 15%.
16% Vanguard Total US Stock (VTSAX) 0.05 <--$32,450/yr; be flexible since US can rebalance elsewhere w/o tax consequences.

Her Fidelity Solo 401k ($195 or 23%) <--Her legacy Fido 401k & Schwab TIRA roll into this acct.
23% Fidelity Spartan Inflation-Protected Bond Index Fund - Advantage FSIYX) 0.10 <--$3,000 to 5,000/yr.

His Legacy JPM 401k ($54k or 6%)
06% Vanguard Institutional Index (VINIX) 0.04

His Legacy Schwab One Pension? ($215 or 26%)
26% Pimco Total Return Instl (PTTRX) 0.46

His Fidelity Solo 401k ($75k or 9%) <--His active Schwab i401k transfers here.
00% Fidelity Spartan U.S. Bond Index - Advantage (FSITX) 0.10 <--$51,000/yr.
09% Fidelity Spartan Total U.S. Market (FSTVX) 0.06 <--Rebalance here, if necessary.

Her Vanguard Backdoor Roth ($6.5k)
01% Vanguard Total Stock (VTSMX) 0.17 <--$6,500/yr; converts to (VTSAX) 0.05 @ $10,000.

His Vanguard Backdoor Roth ($5.5k)
01% Vanguard Total Bond (VBMFX) 0.20 <--$5,500/yr; converts to (VBTLX) 0.10 @ $10,000.

Weighted ER = 0.19

* 23% TIPS is close enough, but low contributions will mean a relative lowering of that allocation. I don't have a problem with this, as Vanguard's Target Retirement Funds top out with 20% TIPS. If you don't want TIPS, use the Fido U.S. Bond fund or short-term bond fund if that's what you decide to do. Perhaps it will help to read the following discussion: What is the role of TIPS in your portfolio?
* If you decide to skip TIPS, use Fido U.S. Bond Index Fund instead, or perhaps the Fidelity Short-Term Treasury Bond Index Fund (FSBAX) ER 0.10.
* Do not automatically reinvest dividends in taxable accounts, as it complicates your accounting your cost basis. Use dividend cash to aid rebalancing once per year.

Make sense?
Last edited by pingo on Wed Aug 07, 2013 11:13 pm, edited 3 times in total.
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Re: asset allocation for nervous novice

Postby nervousnovice » Wed Aug 07, 2013 5:58 pm

thank you so much pingo for putting this together, this is extremely helpful! i am going to mull it all over and discuss with our accountant and probably start a new thread for a review once i get the plan finalized. i really appreciate all the work you put into this and everyone else's feedback, thank you again!!!!
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Re: asset allocation for nervous novice

Postby pingo » Wed Aug 07, 2013 8:27 pm

:beer
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Re: asset allocation for nervous novice

Postby nervousnovice » Wed Aug 07, 2013 9:05 pm

quick question: i turn off the dividend reinvestment in the taxable accounts so i can use (if necessary) tax loss harvesting when rebalancing?
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Re: asset allocation for nervous novice

Postby pingo » Wed Aug 07, 2013 11:17 pm

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