First time post for Allocation advice

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Topic Author
dsound
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First time post for Allocation advice

Post by dsound »

Greetings Bogleheads,
This is actually my second post. My first post was a bit hurried and I neglected to read the posting format. So here goes:

I've been reading a lot about a simple 3 or 4 fund lazy portfolio. Given my age (43), I really need to get going on retirement planning. I will have a pension and SS but will of course need much more than that. I once tried to trade my account and that was a mistake for obvious reasons. Since I have an account with Fidelity, I'm going to take advantage of their commission free iShares ETF's. It has been recommended that for a 3 fund portfolio I go with Total U.S. Stock (ITOT), Total International Stock (IXUS), and Total Bond (AGG). Not sure about the breakdown yet and also not sure about REIT's. Also after having read about tax efficient fund placement, I understand it as the Stock funds would go into my taxable account and bond funds would go into IRA?

Emergency Fund: 20K (some of this might go into my investments but I guess that defeats the purpose. Just don't like the idea of it just sitting in a savings account).
Debt:
- Student loan (Mine): $17,659
- Credit Card (Mine/Hers): $7000
Tax Filing: Married file jointly - no children (planning to have 1)
Tax Rate: max Fed, State, City? (NYC)
State residence: NY
Age: Me 43 her 35
Current Income: (mine abt 120K (varies +/- 30k because of meritocratic nature of my job. her: 110K
Desired asset allocation (Mine) 70% Stock (Domestic and International) 20% Bond 10% REIT

Current Portfolio (mine):
Taxable - 16K
divided into 10 different mutual funds from an old Morgan Stanley AA account that I later transferred to my Fidelity Brokerage account

Traditional IRA - 7K (might leave inactive)
Positions: 70% SPY SPDR S&P 500 ETF TRUST
30% VWO VANGUARD INTL EQUITY INDEX FDS MSCI EMERGING MKTS ETF

SEP IRA (1099) - 7K (Will use this as my tax deferred account)
Cash

My wife and I own a home purchased at $480K ($505K with renovations) and is valued at $510 now). We got a 30 fixed mortgage at 20% @ 3.35% interest. This was purchased this year in April.

My wife's total portfolio is 30K.
She has 2 TD Ameritrade accounts all Cash and holds stock in BB&T (Dad is former employee) worth $4K (?)

She is planning to go with a 401K plan at her job.

I hope this enough information of our financial picture. Any advice would be greatly appreciated.
Last edited by dsound on Sun Aug 04, 2013 1:58 pm, edited 1 time in total.
livesoft
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Re: First time post for Allocation advice

Post by livesoft »

With Fidelity and your experience trading and your high income, may I suggest you use the Fidelity Spartan Advantage index funds and not those ETFs you mentioned? Some ticker symbols to investigate are FSTVX, FSGDX, FSITX and other Spartan index funds.

Also, I would get rid of the BB&T stock and all emotional ties to it. Sell it. I'd sell all the old Morgan Stanley stuff as well and start over. Do you know if you have unrealized losses? Short-term gains? Long-term gains? Stop any automatic dividend reinvesting of distributions from those funds now.

With your SEP IRA can you defer $17,500 or more annually? You may wish to open a solo 401(k) instead. Fidelity can help you with that. You didn't list the 401(k) options for your spouse.

You are probably not in the max tax bracket, but could be paying low taxes if you do things differently. Here is a thread on how to pay low taxes if your family has $200K or so gross income: http://www.bogleheads.org/forum/viewtopic.php?t=79510 Maybe you can even get income taxes down below 10%?
Last edited by livesoft on Sun Aug 04, 2013 1:59 pm, edited 1 time in total.
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Taylor Larimore
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The Three Fund Portfolio.

Post by Taylor Larimore »

dsound:

Welcome to the Bogleheads Forum!
It has been recommended that for a 3 fund portfolio I go with Total U.S. Stock (ITOT), Total International Stock (IXUS), and Total Bond (AGG).

You might do a little better but you could easily do a lot worse. You can read the advantages and expert recommendations here:

The Three Fund Portfolio

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
dsound
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Joined: Thu Aug 01, 2013 10:53 am

Re: First time post for Allocation advice

Post by dsound »

livesoft wrote:With Fidelity and your experience trading and your high income, may I suggest you use the Fidelity Spartan Advantage index funds and not those ETFs you mentioned? Some ticker symbols to investigate are FSTVX, FSGDX, FSITX and other Spartan index funds.

Also, I would get rid of the BB&T stock and all emotional ties to it. Sell it. I'd sell all the old Morgan Stanley stuff as well and start over. Do you know if you have unrealized losses? Short-term gains? Long-term gains? Stop any automatic dividend reinvesting of distributions from those funds now.

With your SEP IRA can you defer $17,500 or more annually? You may wish to open a solo 401(k) instead. Fidelity can help you with that. You didn't list the 401(k) options for your spouse.

You are probably not in the max tax bracket, but could be paying low taxes if you do things differently. Here is a thread on how to pay low taxes if your family has $200K or so gross income: http://www.bogleheads.org/forum/viewtopic.php?t=79510 Maybe you can even get income taxes down below 10%?
I will look into this. I figured my wife's 401K plan would be better because the company will contribute each year. Not sure how much. I need to find out from her. I had thought combining all of our investment money into on 3 or 4 fund AA.

I forgot to ask in my initial post if I should cash out my Mutual Funds and put that into my new simplified plan.
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Taylor Larimore
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Grab the "match."

Post by Taylor Larimore »

desound wrote:
I figured my wife's 401K plan would be better because the company will contribute each year. Not sure how much. I need to find out from her.
There may be exceptions, but for the vast majority of investors, the best investment they will ever make is the company "match" in 401K plans. It is 100% free money and tax-advantaged.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
dsound
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Joined: Thu Aug 01, 2013 10:53 am

Re: First time post for Allocation advice

Post by dsound »

livesoft wrote:With Fidelity and your experience trading and your high income, may I suggest you use the Fidelity Spartan Advantage index funds and not those ETFs you mentioned? Some ticker symbols to investigate are FSTVX, FSGDX, FSITX and other Spartan index funds.

I'd sell all the old Morgan Stanley stuff as well and start over. Do you know if you have unrealized losses? Short-term gains? Long-term gains? Stop any automatic dividend reinvesting of distributions from those funds now.
Ah I see now. Yes I will probably sell the Mutual funds. Most are in the green except or 2.

Also, my spouse says that she will be contributing 10K per year to her 401K and her company will match but only 25 cents to the dollar up to 6%.

She has 2 separate TD Ameritrade accounts: 1 is a Traditional IRA in cash. The other is an SEP-IRA also in cash. Since she will be contributing her income to a 401K, she doesn't see herself contributing to the TD Ameritrade IRA's.
Topic Author
dsound
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Re: First time post for Allocation advice

Post by dsound »

Ok so I'm getting ready to pull the trigger for my new simplified portfolio. Just wanted to double check some advice given in replies to my initial post.

1) Sell the mutual funds and start over, using that cash to go into my new simplified portfolio

2) look into the Fidelity Spartan Advantage funds - FSTVX, FSGDX, FSITX. Spartan advantage minimum is 10K?

3) But bond funds (e.g. FSTIX) into my SEP-IRA and FSTVX and FSGDX into my taxable account.

4) if I decide to invest in REIT's, put those in SEP-IRA as well.

Should I not put any Stock based funds into my SEP-IRA?

I will look into the tax issues that livesoft brought up.
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Bogle101
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Re: First time post for Allocation advice

Post by Bogle101 »

Double income (6 figures) and no kids. Come on man, attack that credit card debt and start in on the student loans. Guaranteed return on your investment.
40% Extended Market | 40% S&P 500 | 10% REIT | 5% State Muni Bond | 5% Cash
livesoft
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Re: First time post for Allocation advice

Post by livesoft »

Sorry, but I don't see a sound plan by the OP. Sure the OP is going to jump into index funds, but it sure seems like there is no overall plan. Maybe there is a plan, but it is not articulated very well.

And why is spouse only putting $10,000 in 401(k) and not $17,500? What will she use in her 401(k)? How much will you be contributing? $17,500 as well?
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Taylor Larimore
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Order of investments for maximum tax-efficiency

Post by Taylor Larimore »

dsound:
#3) But taxable bond funds (e.g. FSTIX) into my SEP-IRA and FSTVX and FSGDX into my taxable account.
I would change #3 to read: "Put FSTIX (bond) fund into my tax-advantaged account(s). FSTVX (Total U.S. Market) should then be used to fill tax-advantaged accounts to their maximum. Any remaining stock funds will then go into my taxable account."

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
dsound
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Joined: Thu Aug 01, 2013 10:53 am

Re: First time post for Allocation advice

Post by dsound »

Bogle101 wrote:Double income (6 figures) and no kids. Come on man, attack that credit card debt and start in on the student loans. Guaranteed return on your investment.
The Credit Card and Student Loan debt is being paid off monthly.


Regarding plan, I have been using retirement calculators using SS, pension and investments to figure out what I'll need at retirement. I have a rough idea and still refining it but thought it wouldn't hurt to get a more simplified portfolio now.
pkcrafter
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Re: First time post for Allocation advice

Post by pkcrafter »

Desired asset allocation (Mine) 70% Stock (Domestic and International) 20% Bond 10% REIT

Does this mean you and your wife have different asset allocations/separate investing portfolios? Also, your AA is 80% stock counting REITs.

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.
Topic Author
dsound
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Joined: Thu Aug 01, 2013 10:53 am

Re: First time post for Allocation advice

Post by dsound »

pkcrafter wrote:
Desired asset allocation (Mine) 70% Stock (Domestic and International) 20% Bond 10% REIT

Does this mean you and your wife have different asset allocations/separate investing portfolios? Also, your AA is 80% stock counting REITs.

Paul
Yes we have separate investment portfolios but we would set up her IRA's with similar index funds. She won't be able to contribute to them if she's contributing maximum percentage to her 401k.
Topic Author
dsound
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Re: First time post for Allocation advice

Post by dsound »

livesoft wrote: And why is spouse only putting $10,000 in 401(k) and not $17,500? What will she use in her 401(k)? How much will you be contributing? $17,500 as well?
We're not sure she can afford more than that. We're planning on having 1 child and we'll need 30K alone just to get a nanny for the first year. We need some cash ready.
Default User BR
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Re: First time post for Allocation advice

Post by Default User BR »

If the credit cards are paid in full each month, I wouldn't even include that in the analysis, it will only confuse things. What interest rate(s) apply to the student loans?


Brian
Topic Author
dsound
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Re: First time post for Allocation advice

Post by dsound »

Default User BR wrote:If the credit cards are paid in full each month, I wouldn't even include that in the analysis, it will only confuse things. What interest rate(s) apply to the student loans?


Brian
What I meant was we make monthly payments on these loans every month.

I believe the Student Loan is at 5%. I make payments of $300 every month towards it.
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LAlearning
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Re: First time post for Allocation advice

Post by LAlearning »

dsound wrote: Emergency Fund: 20K (some of this might go into my investments but I guess that defeats the purpose. Just don't like the idea of it just sitting in a savings account).
--whoa whoa whoa cowboy. Yes it defeats it, because emergencies happen when the market crashes, like its a rule or something. Choose a number you are comfortable with that covers what you would need to continue to pay in an EMERGENCY (mortgage, credit card, etc) and forget about it.

Debt:
- Student loan (Mine): $17,659
- Credit Card (Mine/Hers): $7000
Tax Filing: Married file jointly - no children (planning to have 1)
Tax Rate: max Fed, State, City? (NYC)
State residence: NY
Age: Me 43 her 35
Current Income: (mine abt 120K (varies +/- 30k because of meritocratic nature of my job. her: 110K
Desired asset allocation (Mine) 70% Stock (Domestic and International) 20% Bond 10% REIT
--Having separate accounts is fine, but why are you guys planning for different things? I understand many people become divorced but wasn't the idea of getting married to make it to the end? Either way....
Current Portfolio (mine):
Taxable - 16K
divided into 10 different mutual funds from an old Morgan Stanley AA account that I later transferred to my Fidelity Brokerage account
--Whoa. Mk, what is the cost basis? What is the ER? Are you paying a load? I would sell them all (since your in a high tax bracket regardless) and change to a Total US, Total Intl, and Muni bond fund. If you already own these within the 10, obviously don't sell them.
--At the very least turn off automatic re-investment and direct this to your new index funds.


Traditional IRA - 7K (might leave inactive)
Positions: 70% SPY SPDR S&P 500 ETF TRUST
30% VWO VANGUARD INTL EQUITY INDEX FDS MSCI EMERGING MKTS ETF
--So depending on your deductions, do you make deductible or non-deductible contributions? No tax consequences here so Total Bond or equivalent.

SEP IRA (1099) - 7K (Will use this as my tax deferred account)
--You can see my other post for a general break down, but fill with bonds, then stock or reits.
Cash

My wife and I own a home purchased at $480K ($505K with renovations) and is valued at $510 now). We got a 30 fixed mortgage at 20% @ 3.35% interest. This was purchased this year in April.

My wife's total portfolio is 30K.
She has 2 TD Ameritrade accounts all Cash and holds stock in BB&T (Dad is former employee) worth $4K (?)
--So yea, either try and convince her to change out the stock for a index fund, or try and plan together. What is here AA going to be?

She is planning to go with a 401K plan at her job.
--This adds another wrench as usually IRA choices are much better than 401k choices. Therefore, choose the best option in the 401k and then adjust the IRAs as needed.

Im guessing you guys are new professionals? But either way, with your salary, max out her 401k (17.5)+ then as much as you can SEPIRA (up to 51k) + then IRAs (11k together). I'm assuming you don't want to work past 65, so this means you have ~20-25 years to build this up. You can do it, but its time to get going.
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Topic Author
dsound
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Re: First time post for Allocation advice

Post by dsound »

I would like to ask a question about combining my wife's IRA's and my IRA's and Taxable account. I'm trying to get my head wrapped around tax efficient placement with 4 IRA's and 1 taxable account. Since the tax deferred accounts outweigh the taxable, could it be set up something like this:

My Taxable and 2 IRA's - adhere to strict tax efficient placement.

Her 2 IRA's - just use a simple 3 fund allocation for each the way you'd normally divide up any account.
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