Portfolio Advice - New Boglehead Leaving Edward Jones

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Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Wed Aug 28, 2013 10:58 pm

Our goal is to invest smarter and more aggressively once we are confident we're on the right track, which leads me to why I am posting here asking for your advice. We started investing immediately out of college into Roth IRAs with Edward Jones. A company SIMPLE IRA managed through this same Edward Jones was converted to a Traditional IRA after leaving the company.

We like our Edward Jones advisor, but we realize now that we don't get enough from that relationship to justify the higher expenses and fees (that we didn't originally understand) and that their relationship with American Funds might not be in our best interests. Now that his 401k is with Vanguard, it feels like the right time to move all of our Edward Jones funds to Vanguard (if that makes sense) and to simplify our investments. We are also less than confident in our current Vanguard fund choices and ready and willing to both change and simplify those.

Emergency funds: 6 months in an emergency fund "high" interest checking account earning 1.01%
Debt: Mortgage at 2.5% with 14 years left
Tax Filing Status: Married Filing Jointly
Tax Rate: 28% Federal, 0% State
State: SD
Age: 29 & 31
Desired Asset allocation: 80% stocks / 20% bonds [Our risk tolerance is still high and wondering if this is the right mix]
Desired International allocation: 40% of stocks [This seems to be a safe % based on all the debate around this topic]

Current retirement assets [totaling in the low six figures]

His 401k at Vanguard (7%) [some expense ratios negotiated lowered by employer company]
3% Vanguard Wellington Admiral Fund (VWENX) (.19%)
1% Vanguard International Value Fund (VTRIX) (.41%)
1% American Beacon Small Cap Value (AVFIX) (.83%)
2% Vanguard Target Retirement 2045 Fund (VTIVX) (.083%)
Company matches 4.5% to employee 6% [spouse has option for 401k but company halted matches]

His Roth IRA at Edward Jones (40%)
16% American Funds Capital World Grow (CWGIX) (.82%)
8% American Funds Cap Income Builder (CAIBX) (.63%)
10% American Funds Growth Fund of America Class A (AGTHX) (.71%)
6% American Funds American Balanced (ABALX) (.63%)
$40 annual fee / $95 transfer-out fee

Her Roth IRA at Edward Jones (31%)
12% American Funds Capital World Grow (CWGIX) (.82%)
6% American Funds Cap Income Builder (CAIBX) (.63%)
7% American Funds Growth Fund of America Class A (AGTHX) (.71%)
6% American Funds American Balanced (ABALX) (.63%)
$40 annual fee / $95 transfer-out fee

His Traditional IRA at Edward Jones (22%) [rolled over from a SIMPLE IRA after job change]
11% American Funds Capital World Grow (CWGIX) (.82%)
5% American Funds Cap Income Builder (CAIBX) (.63%)
6% American Funds Growth Fund of America Class A (AGTHX) (.71%)
$20 annual fee / $95 transfer-out fee

Contributions

New annual Contributions
$3,900 his 401k ($2,925 employer match) [could increase by up to $10k more for now and see how that goes]
$0 her 401k (0% employer matching contributions)
$5,500 his Roth IRA [always maxed]
$5,500 her Roth IRA [always maxed]
$0 his Traditional IRA

Available funds

Funds available in his 401(k)

All-In-One: Target Retirement Income 2010 - 2060 (.083% for all of them)
Short-Term Reserves:
Fidelity Managed Income Portfolio; Institutional Class (QEROQ) (.68%)
Vanguard Retirement Savings Trust III (-) (.16%)

Bond Funds:
Vanguard Inflation-Protected Securities Fund Institutional Shares (VIPIX) (.11%)
Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (.07%)

Balanced Funds (Stocks & Bonds):
Vanguard Wellington Fund Admiral Shares (VWENX) (.19%)

Domestic Stock Funds:
American Beacon Small Cap Value Fund Class Institutional (AVFIX) (.83%)
Vanguard Institutional Index Fund Institutional Shares (VINIX) (.04%)
Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (.08%)
Vanguard Morgan Growth Fund Admiral Shares (VMRAX) (.28%)
Vanguard Russell 1000 Value Index Fund Institutional Shares (VRVIX) (.08%)
Vanguard Small-Cap Growth Index Fund Institutional Shares (VSGIX) (.08%)

International Stock Funds:
Vanguard International Growth Fund Admiral Shares (VWILX) (.36%)
Vanguard International Value Fund (VTRIX) (.41%)

Questions
1. The American Funds with Edward Jones have performed fairly well recently, but the expense ratios are obviously too high. Is there any reason we shouldn't just move everything over to Vanguard?

2. What are your suggestions for the Vanguard funds we should be in knowing that we are still young and medium-high risk tolerant? We haven't settled on a portfolio strategy yet.

3. In addition to the emergency funds, we do have mid five figures in cash currently earning 0.85% with Capital One 360 that we're saving it for an auto purchase in 2014 or 2015 and a possible real estate investment. With most CDs not beating the CO360 rate, do you recommend we invest the money short-term anywhere else?

4. I didn't want to clutter the information above, but we have two HSAs (originally on two separate health plans), one of which we still contribute to and max out now at the family limit. They currently earn 0.1% so I would eventually like to figure out a better solution for these to earn more. We meticulously record our qualified medical expenses, pay with cash, and leave the HSAs alone. Any quick thoughts on this at the end would be great.

Your advice is much appreciated. Thank you!

Edit #1: Corrected tax filing status and rate.
Edit #2: Added His/Her percentage totals
Last edited by bogleherik on Thu Aug 29, 2013 9:28 am, edited 2 times in total.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby tyler_cracker » Thu Aug 29, 2013 1:14 am

bogleherik wrote:We like our Edward Jones advisor, but we realize now that we don't get enough from that relationship to justify the higher expenses and fees (that we didn't originally understand) and that their relationship with American Funds might not be in our best interests.


i have no personal experience with EJ, but i've seen their fees and read lots of stories on these boards from... less-than-satisfied former customers. i think your analysis is even-handed and spot-on.

Desired Asset allocation: 80% stocks / 20% bonds [Our risk tolerance is still high and wondering if this is the right mix]
Desired International allocation: 40% of stocks [This seems to be a safe % based on all the debate around this topic]


this is on the aggressive side but certainly reasonable for folks with a long horizon and ability to stay the course through a market tumble.

i've taken a crack at a portfolio for you. look at how much simpler your financial life could be.

His 401k at Vanguard - 7%
7% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (.07%)

His Roth IRA - 40%
32% Total International Stock Market (40% of 80% = 32%)
8% Total US Stock Market

Her Roth IRA - 31%
31% Total US Stock Market

His Traditional IRA - 22%
13% Total Bond Market
9% Total US Stock Market


diversified, simple, low-cost. hooray!

Contributions

New annual Contributions
$3,900 his 401k ($2,925 employer match) [could increase by up to $10k more for now and see how that goes]
$0 her 401k (0% employer matching contributions)
$5,500 his Roth IRA [always maxed]
$5,500 her Roth IRA [always maxed]
$0 his Traditional IRA


you listed yourselves as married filing separately in the 33% bracket. i don't see how you could make direct roth contributions. did you mean married filing jointly, or is something else going on with your tax situation? i'm not an expert in this area so apologies if i'm missing something.

you also have a significant traditional IRA in the mix, which complicates a current or future backdoor roth contribution. if you expect your income to increase in the future (e.g. career advancement), you might want to start converting that tIRA to his Roth bit by bit if you have headroom in your tax bracket.

1. The American Funds with Edward Jones have performed fairly well recently, but the expense ratios are obviously too high. Is there any reason we shouldn't just move everything over to Vanguard?


nope!

3. In addition to the emergency funds, we do have mid five figures in cash currently earning 0.85% with Capital One 360 that we're saving it for an auto purchase in 2014 or 2015 and a possible real estate investment. With most CDs not beating the CO360 rate, do you recommend we invest the money short-term anywhere else?


i think "high-yield" savings is the best place for funds you want in the next year or two. to me, a few extra bucks in a year or two is not worth dealing with another account, especially if it makes it hard to buy when a swingin' deal appears out of the blue.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby BL » Thu Aug 29, 2013 8:09 am

Here is a link to Vanguard regarding HSA: https://personal.vanguard.com/us/whatweoffer/overview/healthsavings

I think you have gotten good advice above.

I assume you both have high incomes since you mention MFS. Be sure to try it both ways.
You can't contribute directly to a Roth if you do MFS and your income is above $10,000:
http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby Grt2bOutdoors » Thu Aug 29, 2013 8:17 am

bogleherik wrote:Our goal is to invest smarter and more aggressively once we are confident we're on the right track, which leads me to why I am posting here asking for your advice. We started investing immediately out of college into Roth IRAs with Edward Jones. A company SIMPLE IRA managed through this same Edward Jones was converted to a Traditional IRA after leaving the company.

We like our Edward Jones advisor, but we realize now that we don't get enough from that relationship to justify the higher expenses and fees (that we didn't originally understand) and that their relationship with American Funds might not be in our best interests. Now that his 401k is with Vanguard, it feels like the right time to move all of our Edward Jones funds to Vanguard (if that makes sense) and to simplify our investments. We are also less than confident in our current Vanguard fund choices and ready and willing to both change and simplify those.

Emergency funds: 6 months in an emergency fund "high" interest checking account earning 1.01%
Debt: Mortgage at 2.5% with 14 years left
Tax Filing Status: Married Filing Separately
Tax Rate: 33% Federal, 0% State
State: SD
Age: 29 & 31
Desired Asset allocation: 80% stocks / 20% bonds [Our risk tolerance is still high and wondering if this is the right mix]
Desired International allocation: 40% of stocks [This seems to be a safe % based on all the debate around this topic]

Current retirement assets [totaling in the low six figures]

His 401k at Vanguard [some expense ratios negotiated lowered by employer company]
3% Vanguard Wellington Admiral Fund (VWENX) (.19%)
1% Vanguard International Value Fund (VTRIX) (.41%)
1% American Beacon Small Cap Value (AVFIX) (.83%)
2% Vanguard Target Retirement 2045 Fund (VTIVX) (.083%)
Company matches 4.5% to employee 6% [spouse has option for 401k but company halted matches]

His Roth IRA at Edward Jones
16% American Funds Capital World Grow (CWGIX) (.82%)
8% American Funds Cap Income Builder (CAIBX) (.63%)
10% American Funds Growth Fund of America Class A (AGTHX) (.71%)
6% American Funds American Balanced (ABALX) (.63%)
$40 annual fee / $95 transfer-out fee

Her Roth IRA at Edward Jones
12% American Funds Capital World Grow (CWGIX) (.82%)
6% American Funds Cap Income Builder (CAIBX) (.63%)
7% American Funds Growth Fund of America Class A (AGTHX) (.71%)
6% American Funds American Balanced (ABALX) (.63%)
$40 annual fee / $95 transfer-out fee

His Traditional IRA at Edward Jones [rolled over from a SIMPLE IRA after job change]
11% American Funds Capital World Grow (CWGIX) (.82%)
5% American Funds Cap Income Builder (CAIBX) (.63%)
6% American Funds Growth Fund of America Class A (AGTHX) (.71%)
$20 annual fee / $95 transfer-out fee

Contributions

New annual Contributions
$3,900 his 401k ($2,925 employer match) [could increase by up to $10k more for now and see how that goes]
$0 her 401k (0% employer matching contributions)
$5,500 his Roth IRA [always maxed]
$5,500 her Roth IRA [always maxed]
$0 his Traditional IRA

Available funds

Funds available in his 401(k)

All-In-One: Target Retirement Income 2010 - 2060 (.083% for all of them)
Short-Term Reserves:
Fidelity Managed Income Portfolio; Institutional Class (QEROQ) (.68%)
Vanguard Retirement Savings Trust III (-) (.16%)

Bond Funds:
Vanguard Inflation-Protected Securities Fund Institutional Shares (VIPIX) (.11%)
Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (.07%)

Balanced Funds (Stocks & Bonds):
Vanguard Wellington Fund Admiral Shares (VWENX) (.19%)

Domestic Stock Funds:
American Beacon Small Cap Value Fund Class Institutional (AVFIX) (.83%)
Vanguard Institutional Index Fund Institutional Shares (VINIX) (.04%)
Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (.08%)
Vanguard Morgan Growth Fund Admiral Shares (VMRAX) (.28%)
Vanguard Russell 1000 Value Index Fund Institutional Shares (VRVIX) (.08%)
Vanguard Small-Cap Growth Index Fund Institutional Shares (VSGIX) (.08%)

International Stock Funds:
Vanguard International Growth Fund Admiral Shares (VWILX) (.36%)
Vanguard International Value Fund (VTRIX) (.41%)

Questions
1. The American Funds with Edward Jones have performed fairly well recently, but the expense ratios are obviously too high. Is there any reason we shouldn't just move everything over to Vanguard?
Hello and welcome to the forum! You should up your pre-tax 401K contribution if you can - especially since you are in the 33% tax bracket. As for the American Funds, not only are the expense ratio's mid to high, but every year you keep getting dinged to the tune of $120 in annual fees by EJ's :oops: in addition to the er's you are paying for the funds, and not counting they upfront sales charge you paid to get into the funds (sunk costs).
2. What are your suggestions for the Vanguard funds we should be in knowing that we are still young and medium-high risk tolerant? We haven't settled on a portfolio strategy yet. 70/30 would work well for your ages if you are medium-high risk tolerant. A 3 fund portfolio - Total Stk Market - 49%, Total International Stock Index - 21%, Tax-Exempt Intermediate or Limited Term or Short-Term Tax Exempt - 30%.

3. In addition to the emergency funds, we do have mid five figures in cash currently earning 0.85% with Capital One 360 that we're saving it for an auto purchase in 2014 or 2015 and a possible real estate investment. With most CDs not beating the CO360 rate, do you recommend we invest the money short-term anywhere else?No, short term money should be kept liquid and free of principal fluctuation or potential penalties for liquidating.

4. I didn't want to clutter the information above, but we have two HSAs (originally on two separate health plans), one of which we still contribute to and max out now at the family limit. They currently earn 0.1% so I would eventually like to figure out a better solution for these to earn more. We meticulously record our qualified medical expenses, pay with cash, and leave the HSAs alone. Any quick thoughts on this at the end would be great.

Your advice is much appreciated. Thank you!
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Thu Aug 29, 2013 8:44 am

tyler_cracker wrote:you listed yourselves as married filing separately in the 33% bracket. i don't see how you could make direct roth contributions. did you mean married filing jointly, or is something else going on with your tax situation? i'm not an expert in this area so apologies if i'm missing something.

Thank you all for the advice so far! We're still digesting it, but I wanted to quickly address the 33% tax bracket I listed. In short, that was dumb. We are in the 28% bracket and do still qualify for full Roth contributions. I'll adjust my original post, and I apologize again since that plays heavily in the advice you already gave.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Thu Aug 29, 2013 11:22 am

tyler_cracker wrote:
bogleherik wrote:His 401k at Vanguard - 7%
7% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (.07%)

His Roth IRA - 40%
32% Total International Stock Market (40% of 80% = 32%)
8% Total US Stock Market

Her Roth IRA - 31%
31% Total US Stock Market

His Traditional IRA - 22%
13% Total Bond Market
9% Total US Stock Market

diversified, simple, low-cost. hooray!

It really can be that sample can't it? With all of our investments currently in tax-advantaged accounts, is there much of a reason to focus on tax-efficient fund placement? I'm thinking mostly about my tax-deferred Traditional and what asset class(es) it would be best to have in it. I still do not have a firm grasp on tax-efficiency strategies.

tyler_cracker wrote:You also have a significant traditional IRA in the mix, which complicates a current or future backdoor roth contribution. If you expect your income to increase in the future (e.g. career advancement), you might want to start converting that tIRA to his Roth bit by bit if you have headroom in your tax bracket.

I've thought about this and debated what would be best: slowly convert the Traditional into the Roth or continue maxing the Roths with new, uninvested funds. It almost feels like a missed opportunity by just moving money from Traditional to Roth, but expecting incomes to increase and assuming taxes will also increase, it makes sense to do this, right?
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby BL » Thu Aug 29, 2013 11:56 am

You might find out if you can move your tIRA to your 401K if/when you need it out of the way for Backdoor Roth. That limit may also increase with inflation so it might depend on whether you expect a huge jump in income, way over 178,000! Otherwise you might want to wait until a lower income year such as spouse not working, early retirement, etc. 28% seems pretty high to pay for converting. If you don't have a pension, you may not be in a higher bracket in retirement, who knows? Anyway, be sure to fill your Roth and 401k every year if possible.

Since you don't have any money in taxable (that would be the last choice when everything else is filled) you don't have to worry about tax-efficiency. If you have still more to save for retirement after everything else is filled, then you would try to get your equities (maybe total international for the foreign tax credit) in taxable and adjust somewhere else to keep in balance.

Yes, it can be that simple! It is efficient, well-diversified, and low-cost as well as simple.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby tyler_cracker » Thu Aug 29, 2013 12:16 pm

bogleherik wrote:I've thought about this and debated what would be best: slowly convert the Traditional into the Roth or continue maxing the Roths with new, uninvested funds. It almost feels like a missed opportunity by just moving money from Traditional to Roth, but expecting incomes to increase and assuming taxes will also increase, it makes sense to do this, right?


roth contributions and roth conversion are orthogonal; you can do both in the same year.

however, BL's advice is good: roth conversion for its own sake isn't all that attractive in the 28% bracket. "hiding" the tIRA in your 401k is probably a better plan if you can swing it and if you end up needing the backdoor roth in the future.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Thu Aug 29, 2013 4:05 pm

I confirmed with Vanguard that I can roll my Edward Jones Traditional IRA to my Vanguard 401k through the use of a temporary Conduit IRA. This is possible because my Traditional IRA is purely a convert from my SIMPLE IRA with no additional contributions... from what I understand.

Also, are there any timing issues we should worry about or plan for before moving to Vanguard from Edward Jones? I can't think of any, and no matter when we do it, they'll most likely hit us with the termination/closing fees. I'm asking to make sure I haven't overlooked something I should consider before making the big move.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Fri Aug 30, 2013 11:09 am

We're ensuring we are comfortable with our investment choices and figuring out distributions knowing that my 401(k) will take a bump when I move my traditional IRA into it before we initiate the process with EJ. So before I can provide more of an update, I have another question for you.

My company offers the option of both the traditional 401(k) and a Roth 401(k). I hadn't really considered the Roth and actually forgot about it until just today, as I don't hear of anyone taking advantage of it around here. After deductions, my spouse and I still qualify for full Roth IRA contributions. We could squeeze in some Roth 401(k) contributions as well, with the company match still going to the traditional 401(k) and anything extra we would need to keep our MAGI down.

After reading this Boglehead discussion, I'm inclined to just keep my 401(k) the way it is and increase contributions. A lot of advice ends up saying that you could just split the difference and do 50/50 traditional/roth 401(k). With that in mind, I'm thinking I already have that split going with my Roth IRAs / traditional IRA and 401(k), so why invest more in the after-tax side? However, a devil on my shoulder keeps whispering that Roths in any form shouldn't be disregarded -- "take the tax hit now if you can and let that money grow free with the added benefit that you can pull out initial contributions at any time." :twisted:

My simple plan is to stick with the traditional 401(k) and just keep in mind that I have the option for the Roth 401(k) if we ever no longer qualify for Roth IRAs, but I could be convinced to shake it up.

Thanks in advance for the advice and have a great weekend! :beer
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby BL » Fri Aug 30, 2013 11:43 am

I personally think the Roth 401k should not even be considered until you have maxed every possible tax-advantaged account. Then you might consider partial contributions just to stuff more into it (because the government doesn't own 28% of your Roth as it has already been paid.) Still it has it's pros and cons. I am not sure you can withdraw Roth 401ks at any time like Roth IRA contributions.
Last edited by BL on Fri Aug 30, 2013 2:48 pm, edited 1 time in total.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Fri Aug 30, 2013 12:03 pm

BL wrote:I personally think the Roth 401k should not even be considered until you have maxed every possible tax-advantaged account. Then you might consider partial contributions just to stuff more into it (because the government doesn't own 28% of your Roth as it has already been paid.) Still it has it's pros and cons. I am not sure you can withdraw Roth 401ks at any time like Roth IRA contributions.

We're maxing out both Roth IRAs and our family HSA. When it comes to the tax-advantaged 401(k), that is where the rest of our investments will be focused. We have a $17,500/annual limit that we aren't reaching yet and that applies to both the traditional 401(k) and Roth 401(k) combined if I'm not mistaken. So I think I am focusing on maxing out my remaining tax-advantaged option, or by tax-advantaged are you meaning focus on tax-deferred before tax-free? Please forgive me if I'm missing something or mixing up terms.

Regarding withdrawal of contributions, I believe you can according to this source and a few others I previously referenced.
wikinvest wrote:Since the Roth 401(k) is funded by after-tax dollars, individuals can withdraw their contributions to the account without facing any penalty or taxes. However, withdrawals beyond contribution cannot be made till the employee reaches the age of 59½ and has had the account for 5 years (except under special circumstances). Withdrawals (above contribution) before this age are subject to 10% penalty and income taxes. For example: if someone has contributed $25,000 to a Roth 401(k) and had gains of $3,000, he would be allowed to withdraw up to $25,000 without paying a penalty.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby BL » Fri Aug 30, 2013 2:43 pm

I stand corrected on the Roth 401k.

I was referring to everything. You seem to have most of that covered except some space left in 401k which I, personally, would fill before considering doing some Roth 401k. You get 28% of that back immediately because you don't pay tax on it until you take it out when you might be in a lower bracket. Granted, if you wanted to think of it as a back-up emergency fund, that is possibly a good reason to use it, assuming it really is for critical needs. Still, you already have some Roth IRA which could be used as a back-up. AFAIK, you can't put it back (well, possibly with a 60-day limit). There are no absolutes with this so each person must make the best decision for him/her self based on knowledge and assumptions. I think you are doing great.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Fri Aug 30, 2013 5:10 pm

BL wrote:I stand corrected on the Roth 401k.

I was referring to everything. You seem to have most of that covered except some space left in 401k which I, personally, would fill before considering doing some Roth 401k. You get 28% of that back immediately because you don't pay tax on it until you take it out when you might be in a lower bracket. Granted, if you wanted to think of it as a back-up emergency fund, that is possibly a good reason to use it, assuming it really is for critical needs. Still, you already have some Roth IRA which could be used as a back-up. AFAIK, you can't put it back (well, possibly with a 60-day limit). There are no absolutes with this so each person must make the best decision for him/her self based on knowledge and assumptions. I think you are doing great.

Thank you, BL. I think the deal is that when funds go into the 401(k), we can essentially choose between putting that money in as pre-tax traditional or post-tax Roth or both. The 6%+ going in to receive the company match can go into either, but the match itself is required to go in as traditional pre-tax. I'm learning this for the first time today. So if we can channel the 401(k) money into the Roth side and still keep our MAGI low enough to invest fully into Roth IRAs, should we? I don't think there is a correct answer, especially since future tax brackets are near-impossible to predict, but does anyone have an educated or gut-reaction recommendation either way?

Thanks again for the help so far. I love this place.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Sun Sep 01, 2013 11:46 am

tyler_cracker wrote:His 401k at Vanguard - 7%
7% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (.07%)

His Roth IRA - 40%
32% Total International Stock Market (40% of 80% = 32%)
8% Total US Stock Market

Her Roth IRA - 31%
31% Total US Stock Market

His Traditional IRA - 22%
13% Total Bond Market
9% Total US Stock Market

If I were to do something like you've laid out for me, do you see it being very difficult to rebalance when necessary? I've just started thinking of this, but it seems it wouldn't be too difficult. If the bond value is low, I will increase the bond percentage in the 401k or if it's too high the other funds will get more percentage in that 401k. If international value is too low, that percentage can be increased in his Roth IRA and lowering the domestic stocks percentage in his Roth IRA, which if that lowered domestic too much, further adjustments could be made in the 401k to increase domestic. I know that's a sloppy way of describing it, but is that essentially how it's done? I just want to make sure I won't need to add additional funds to an account if it can be avoided from the start. It seems like this will work out.

His 401k at Vanguard (Traditional IRA rolled in) - 29%
20% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (.07%)
9% Total US Stock Market

His Roth IRA - 40%
32% Total International Stock Market (40% of 80% = 32%)
8% Total US Stock Market

Her Roth IRA - 31%
31% Total US Stock Market
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby tyler_cracker » Sun Sep 01, 2013 2:12 pm

rebalancing is one of those things that seems hard until you go to do it. then it's just moving numbers around. no big deal.

it looks to me like you've got a good grasp on how it will work.

consolidating the tIRA into your 401k makes things even simpler doesn't it! :)

gl.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Fri Sep 06, 2013 10:40 am

Okay, we're finally going to pull the trigger, but I wanted to run these funds by you first. Beginning January 1, 2014, we've decided to max his 401(k) at $17,500 or $18,000 assuming the limit is raised. We'll be putting it all into a the Roth 401(k) option. This will dramatically increase the percentage of our funds going toward the 401(k), so that is why we've included all three asset classes to make it easier to maintain our balance. As always, your critical thoughts and advice are greatly appreciated.

His 401k at Vanguard (Traditional IRA rolled in) - 29%
20% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (.07%) [VIPIX just lowered its ER to .07%; stick with VBTIX?]
8% Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (.08%) [debated on Small-Cap VSGIX (.08%) too]
1% Vanguard International Growth Fund Admiral Shares (VWILX) (.36%)

His Roth IRA - 40%
40% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.05%)

Her Roth IRA - 31%
31% Vanguard Total International Stock Index Fund Investor Shares (VGTSX) (.22%)


It's been a little over a week since we started this process and asked for Boglehead advice. It's been so great and such a learning experience. Cheers! :beer
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby rkhusky » Fri Sep 06, 2013 11:47 am

The decision on whether to use a Roth 401K depends on what you expect your tax bracket to be in retirement and whether you will be drawing a pension. How much do you expect to pull out of your savings yearly in retirement? Remember that a portion of that will be taxed at 0%, some at 10%, some at 15% and some at 25%, etc (assuming the same tax brackets as now). If you have a pension, that will fill up some of the lower brackets, but there may be a lot of room left. If there is, you want a good chunk of regular 401K to fill up those lower brackets.

For what it's worth, I am in the low 25% bracket (higher income, but a lot of deductions) and expect to live off of $100K/year and, even with a small pension, I am shooting for a 70/30 Trad/Roth mix.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Fri Sep 06, 2013 12:14 pm

rkhusky wrote:The decision on whether to use a Roth 401K depends on what you expect your tax bracket to be in retirement and whether you will be drawing a pension. How much do you expect to pull out of your savings yearly in retirement? Remember that a portion of that will be taxed at 0%, some at 10%, some at 15% and some at 25%, etc (assuming the same tax brackets as now). If you have a pension, that will fill up some of the lower brackets, but there may be a lot of room left. If there is, you want a good chunk of regular 401K to fill up those lower brackets.

Good point. I'll run the numbers before choosing Roth over Traditional. My thought before considering filling those lower brackets was simply that if we can afford to do the Roth 401(k) right now, maybe we should go for it and revert back to Traditional 401(k) when we need a little extra money (children, vehicle, etc.). We are already Roth heavy with 71% after-tax and only 29% pre-tax, so we'll spend some time decided on the right mix for us.

Any thoughts on our fund choices and allocations? With the 401(k) about to grow much more quickly than the Roth IRAs, I was really debating on where to put the different asset classes to maximize low expense ratios and make it easy to maintain our bond/domestic/international percentages. In terms of fund choices, this is where we are most uncomfortable and hoping to be corrected/properly guided before we make any further mistakes that we did early on.

rkhusky wrote:For what it's worth, I am in the low 25% bracket (higher income, but a lot of deductions) and expect to live off of $100K/year and, even with a small pension, I am shooting for a 70/30 Trad/Roth mix.

This is great insight. Thank you.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby rkhusky » Fri Sep 06, 2013 12:51 pm

In terms of fund choices, I wouldn't bother with the International Growth fund or the Small Growth fund. The Mid-Cap fund is fine if you want to tilt a bit towards smaller stocks. The Russell 1000 Value Index might be okay if you want to tilt towards the value side of things, which many do here. The Institutional Index Fund is an S&P 500 fund, which is good if you want the larger stocks. Some here recommend TIPS, so VIPIX would okay for that function, but should not be your whole bond allocation. I don't know the right mix there, since I don't use them. If you are looking for a straight market-cap portfolio, I would replace the 8/1 MidCap/Int Growth with 6/3 (or 7/2) Institutional Index/MidCap.

If you have to get more International in the future than you can only in Her Roth, I would put some Total International in His Roth and use the Institutional Index/MidCap mix to approximate Total Stock Market (you will be missing some small caps) in the 401K.

You may actually want both Total Stock and Total International in both IRA's to make it easier to rebalance. If you use the suggested approximation for Total Stock in the 401K, you can rebalance between stocks/bonds there.
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby Grt2bOutdoors » Sat Sep 07, 2013 7:14 am

rkhusky wrote:In terms of fund choices, I wouldn't bother with the International Growth fund or the Small Growth fund. The Mid-Cap fund is fine if you want to tilt a bit towards smaller stocks. The Russell 1000 Value Index might be okay if you want to tilt towards the value side of things, which many do here. The Institutional Index Fund is an S&P 500 fund, which is good if you want the larger stocks. Some here recommend TIPS, so VIPIX would okay for that function, but should not be your whole bond allocation. I don't know the right mix there, since I don't use them. If you are looking for a straight market-cap portfolio, I would replace the 8/1 MidCap/Int Growth with 6/3 (or 7/2) Institutional Index/MidCap.

If you have to get more International in the future than you can only in Her Roth, I would put some Total International in His Roth and use the Institutional Index/MidCap mix to approximate Total Stock Market (you will be missing some small caps) in the 401K.

You may actually want both Total Stock and Total International in both IRA's to make it easier to rebalance. If you use the suggested approximation for Total Stock in the 401K, you can rebalance between stocks/bonds there.


+1 I agree. Avoid the Small Growth and International Growth options. It appears you want a slight tilt to the Midcap sector of the market. Remember, Total Stock Market is the whole market - large cap, mid cap, small cap - the latter two represent about 20-25% of the whole. You will not be compensated by Small Growth for the risk you are taking - paying above market multiples in the hopes of increasing returns. The benefit of owing the whole market - you own both value and growth and blend stocks - if one under-performs, another will usually pick up the slack and more. :wink: The key is to stay the course and re-balance annually or as appropriate (view the wiki on re-balancing).
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Sun Sep 08, 2013 12:16 am

Thank you rkhusky and Grt2bOutdoors. We've decided to go with the following funds and allocations after considering your advice. We've also decided to fund the 401(k) as Traditional and not Roth, as we are Roth heavy. By investing both Roth IRAs into Stock Market and International, we have the flexibility for rebalancing as needed and are able to invest in lower cost Admiral Shares across the board. We've started the easy process of transferring the Roth IRAs from Edward Jones and will begin the process of liquidating and rolling the Traditional IRA (originally converted from a SIMPLE IRA) into the 401(k). I'll probably post one more time when the entire process and educational experience is complete. Thank you everyone who posted on this thread!

His 401k with Vanguard - 29%
20% Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) (.07%)
2% Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) (.08%)
7% Vanguard Institutional Index Fund Institutional Shares (VINIX) (.04%)

His Roth IRA - 40%
23% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.05%)
17% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (.16%)

Her Roth IRA - 31%
16% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (.05%)
15% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (.16%)

Allocation: 20% Bonds / 48% Stock / 32% International
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Fri Sep 13, 2013 1:57 pm

While we're busy waiting for our funds to make their way from Edward Jones to Vanguard, I thought I would provide an unnecessary update and ask you about HSA investing. The nice thing about transferring the Roth IRAs is that Vanguard brokerage can hold all of my American Funds, so we didn't need to liquidate assets and mail checks. Instead, we'll be able to sell them when they are in Vanguard and move to what I've posted above. The Traditional IRA (formerly a SIMPLE IRA and referred to by Vanguard as a Conduit IRA) did need to be liquidated. After filling out the Vanguard 401(k) plan-specific rollover contribution form and having Vanguard write an official Letter of Acceptance to Edward Jones, the funds were liquidated on 9/12 (the market was a little higher on 9/11 :?) and should be on their way to Vanguard to be rolled into the Vanguard 401(k).

We started out on separate individual HDHPs and had individual HSAs. One HSA currently holds $3,250 and gets no contributions while the other, which is now the family and primary HDHP HSA, has about $12,900. By April 2014, it will be slightly over $19,400. Both are currently earning .1% (.001) APY. We keep meticulous records on all of our qualifying medical expenses and have paid for all of them out-of-pocket and plan on continuing that strategy as long as possible.

Because the first HSA will never receive contributions again, we're debating on paying ourselves the entire amount, which we have enough prior medical expenses to allow, and just closing that account. For the larger HSA, it's been annoying looking at all of the less than ideal HSA alternatives, but we've decided to go with HSA Bank, keep $5,000 in the bank account to avoid fees, and invest the rest in Vanguard Total Bond Market ETF (BND).
  1. Do you see much benefit in keeping the smaller HSA and trying to move it to a higher interest rate knowing that it won't be contributed into?
  2. Assuming HSA Bank sounds fine with you, would you eliminate the fees or would you invest the whole chunk and pay the $66/year fees?
  3. Do you suggest something other than Vanguard Total Bond Market ETF (BND)? We want to be fairly low-risk with this money.
  4. Once invested, would you account for the HSA investments when rebalancing asset allocations or keep the HSA monies out of the mix?
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Re: Portfolio Advice - New Boglehead Leaving Edward Jones

Postby bogleherik » Tue Sep 24, 2013 12:02 pm

The transfer from Edward Jones is almost complete. It's basically just a waiting game at this point.

Any thoughts regarding my HSA questions about? Pretty sure we'll just go with HSA Bank, keep $5,000 in savings to avoid fees, and invest the rest in Vanguard Total Bond Market ETF (BND). Since it will be a Stealth IRA for us, we probably will account for it in our asset allocation, which will change a few things.

I do have new question. Since the 401(k) has both Vanguard Inflation-Protected Securities Fund Institutional Shares (VIPIX) and Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX), would you split the 20% bond investment 50/50 across those instead of putting it all in VBTIX? There are a fee commission-free ETF TIPS choices through HSA Bank/TDA as well.
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