Portfolio reorganized. Thanks BH

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Portfolio reorganized. Thanks BH

Postby rexhat » Fri Aug 30, 2013 12:15 am

My family is going through a period of transitions as I graduate into my first job as an attending physician. We also just had our first child. I’m revisiting our investments that we accrued as residents. I recently trashed the asset allocation to take out a 403(b) loan (to pay off higher interest rate student loans) and didn’t rebalance. Right now, I’m a bit all over the place. We plan to invest more $ going forward so I want to have a cohesive plan. I rebalance every six months.

Emergency funds: 3-4 months
Debt:
His student loans (started at $150k), now $92.3k
Govt: $16.8k @ 4.5%, $49k @ 2.63%, 30 year term (prepaying the 4.5% loan at random intervals)
School loans: $20k @ 5%, $3.4k @ 4%, $2.9k @2%, 10 year term (prepaying the 5% loan at random intervals)

Car loan: $21.5k @1.9% 36 months, 34 months left , $639 monthly

Loan from 403(b) used to pay off student loans at 6.8% and 9% before interest started to accrue. 1% effective interest rate on $25k over 5 years ($75 dollar administrative fee 3.25% interest with 1% charged and 2.25% going back to the account)

No other debt (housing (renter) or credit card)


Tax Filing Status: Married Filing Jointly
Children: 1 newborn
Tax Rate: 33% Federal Marginal; State of Residence: NJ Marginal 6.37%, Work in NYC and live in NJ
Age: 34 (Him) 32 (Her)
Current retirement assets ($133k after removing $25k as a 403(b) loan as above so had assets of $158k)

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25% of portfolio or 31.25% of stocks
Desired/actual allocation:
(1)US Large Cap 20.00%/21.74%
(2)US Small Cap 15.00%/11.47%
(3)US Mid Cap 10.00%/11.72%
(4)International Developed 15.00%/%9.73
(5)International emerging 10.00%/10.87%
(6)REITS 10.00%/10.42%
(7)High Yield Bonds 10.00%/5.12%
(8)Total US Bond 10.00%/14.86%
(9)Unallocated / Other 0.00%/4.07

Current retirement assets (number in parentheses before xx% is asset class I assigned)

Taxable
(5) 2.29% Vanguard Emerging Markets Stock Index Fund (VEIEX) 0.33%
(8) 1.63% Vanguard New York Long-Term Tax-Exempt Fund Investor Shares (VNYTX) 0.20%

His 403(b) current at Vanguard
No match
Got lazy, overwhelmed with all the changes so just put all in
(4,1,8) 3.98% in 2045 Target Retirement Fund (VTIVX) (0.18% ER) would like to break this down a little to make more tax efficient
I think any open Vanguard fund is available though

His Roth IRA at Vanguard
(2) 5.51% Vanguard Small Capitalization Growth Index Fund Investor Shares (VISGX) (0.24%)
(6) 8.25% Vanguard REIT ETF (VNQ) (0.10%)

His Roth IRA at Fidelity (one my first accounts has a few individual stocks and higher ER funds)
(1) 1.6%% Ford Motor Company (F)
(3) 11.77% Fidelity Spartan Mid Cap Index Fund Investor Class (FSCLX) (0.24%)
(1) 2.39% Exxon Mobil Corporation (XOM)
(1) 3.81% Yacktman Focused Fund Service Class (YAFFX) (1.25%)

His Old 403(b) with TransAmerica
$25k – loan to be repaid to portfolio
(8) 1.71% Vanguard Total Bond Market Index Fund Institutional Shares (vbtix) 0.07%
(8) 1.56% PIMCO Real Return Fund Institutional Class (prrix) 0.45%
(1) 4.74% Vanguard Institutional Index Fund Institutional Shares (vinix) 0.04%
(1) 0.08% Harbor Capital Appreciation Fund Institutional Class (hacax) 0.66% (no idea how this snuck in)
(2) 5.89% Vanguard Extended Market Index Fund Institutional Shares (vieix) 0.12%
(2) 0.05% Neuberger Berman Genesis Fund Institutional Class (nbgix) 0.85% (no idea how this snuck in)
(4) 1.97% American Funds EuroPacific Growth Fund Class R-6 (rergx) 0.50%
(4) 4.99% Vanguard FTSE All-World ex-US Index Fund Institutional Shares (vfwsx) 0.12%

Other options in this account:
American Beacon Large Cap Value Instituional AADEX (0.60%)
Virtus Emerging Markets Opportunities HIEMX (1.37%)
Black Rock Global Allocation Institutional MALOX 0.88%
Vanguard Target Retirement Income, 2015, 2025, 2035, 2045, and 2055

Her Current 403(b)
Will start new job after maternity leave is over not sure what investment options are yet

Her prior 403(b) with TIAA-Cref
(6) 2.16% Vanguard REIT Index Fund Signal Shares (VGRSX) 0.1%
(4, 1, 8) 6.21% Vanguard Target Retirement 2040 Fund Investor Shares (VFORX) 0.18%
(1) 1.44% Vanguard Capital Value Fund Investor Shares (VCVLX) 0.47%
(5) 1.22% Vanguard International Growth Fund Admiral Shares (VWILX) 0.36%
(1) 0.15% Vanguard Capital Opportunity Fund Admiral Shares (VHCAX) 0.41%
(8) 0.98% Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX) 0.1%

Her Roth IRA
(1) 1.07% Bank of America Corp BAC
(9) 4.07% Fidelity Cash Reserves Fund FDRXX
(7) 5.12% Fidelity Capital & Income Fund FAGIX (0.73%)
(5) 7.41% Fidelity Spartan Emerging Markets Index Fund Investor Class FPEMX (0.31%)
(8) 7.94% PIMCO Total Return ETF Trust (Bond) 0.55%
--total 99.96% (rounding errors)

New Contributions
$17.5k His 403(b) (no company match)
$17.5k Her 403(b) (no company match)
$5.5k His Back door Roth
$5.5k Her Back door Roth
Non retirement: $16k to 529 (10k NY and 6k Utah), would like to start saving for house downpayment for 3 years from now, continue paying down higher interest rate student loans

Available funds

Funds available in his 403(b) current I believe any open Vanguard fund.
Funds available in his 403(b) prior see above
Funds available in her current 403(b) (don’t know yet)
Funds available in her prior 403(b) TIAA-cref: about 100 Vanguard funds


Questions:
1. Thoughts on my asset allocation? This is our first year earning a salary close to our salary for the next 20-25 years so my bond allocation is fairly low.
2. Advice on consolidating and making this entire portfolio MUCH simpler without high transaction costs? I know the asset classes I assumed some funds to be in are not correct.
3. How aggressively should I aim to pay student loan debt versus save for retirement given the various interest rates and terms?
4. Obtained term life and disability insurance for my spouse and me. Car and Renter’s insurance with umbrella policy for $1M. Took care of forming trust, will and healthcare power of attorney as well. Any other administrative things to take care of? We formed the trust through a legal plan benefit for $0 additional dollars. Not sure what the benefit is for having done so though. Anyone know? Our lawyer didn't seem interested in explaining it.
5. What funds are good for the 3 year downpayment time horizon?
6. Any other advice welcome.

Thank you!!
Last edited by rexhat on Fri Oct 04, 2013 8:14 pm, edited 1 time in total.
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Re: Please help organize this portfolio

Postby ieee488 » Fri Aug 30, 2013 9:29 am

rexhat wrote:Desired/actual allocation:
(1)US Large Cap 20.00%/21.74%
(2)US Small Cap 15.00%/11.47%
(3)US Mid Cap 10.00%/11.72%
(4)International Developed 15.00%/%9.73
(5)International emerging 10.00%/10.87%
(6)REITS 10.00%/10.42%
(7)High Yield Bonds 10.00%/5.12%
(8)Total US Bond 10.00%/14.86%
(9)Unallocated / Other 0.00%/4.07



Way too complicated. I don't understand why this is even necessary.

You have already stated
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25% of portfolio or 31.25% of stocks


I have the 3-fund Lazy Portfolio. http://www.bogleheads.org/wiki/Lazy_Portfolios
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Re: Please help organize this portfolio

Postby rexhat » Fri Aug 30, 2013 1:41 pm

Thank you. I think going through this exercise alone helped me realize that the portfolio is too complicated and fragmented. I will likely consolidate into a form of a lazy portfolio. Any thoughts on questions 3-5?
3. How aggressively should I aim to pay student loan debt versus save for retirement given the various interest rates and terms?
4. Obtained term life and disability insurance for my spouse and me. Car and Renter’s insurance with umbrella policy for $1M. Took care of forming trust, will and healthcare power of attorney as well. Any other administrative things to take care of? We formed the trust through a legal plan benefit for $0 additional dollars. Not sure what the benefit is for having done so though. Anyone know?
5. What funds are good for the 3 year downpayment time horizon?
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Re: Please help organize this portfolio

Postby Rainier » Fri Aug 30, 2013 1:50 pm

Don't worry about all that stuff, just pay off your loans and figure out how not to take on more loans, except for a mortgage.
- Bill
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Re: Please help organize this portfolio

Postby Aptenodytes » Fri Aug 30, 2013 2:04 pm

I don't think it is too complicated (8 categories is not too complicated), but I don't think it is sound.

Overweight small-cap: OK
Overweight emerging markets: not supported by robust research
High yield bonds: not supported by robust research

You have a small-tilt portfolio with REITS, encumbered by some dubious stuff. Jettison the dubiousity and I think you are fine. On US equities you could go with a total stock market plus a small-cap or a small-value fund. On international equities you could go with total international (ex US). Logically you should add an international small or small-value (why seize the premium at home but eschew it aborad?). For bonds anything that omits high-yield would be better.
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Re: Please help organize this portfolio

Postby Stan Dup » Fri Aug 30, 2013 2:09 pm

ieee488 wrote:Way too complicated. I don't understand why this is even necessary.

You have already stated
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25% of portfolio or 31.25% of stocks


I have the 3-fund Lazy Portfolio. http://www.bogleheads.org/wiki/Lazy_Portfolios



I agree with this. When you achieve this with your accounts, investing will become boring, as it should be.

Can you combine your IRAs and 403Bs? Roll them over into one account (well, two) and simplify. A 3-fund lazy portfolio with low ERs is the goal.
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti
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Re: Please help organize this portfolio

Postby ieee488 » Fri Aug 30, 2013 10:23 pm

rexhat wrote:Thank you. I think going through this exercise alone helped me realize that the portfolio is too complicated and fragmented. I will likely consolidate into a form of a lazy portfolio. Any thoughts on questions 3-5?
3. How aggressively should I aim to pay student loan debt versus save for retirement given the various interest rates and terms?
4. Obtained term life and disability insurance for my spouse and me. Car and Renter’s insurance with umbrella policy for $1M. Took care of forming trust, will and healthcare power of attorney as well. Any other administrative things to take care of? We formed the trust through a legal plan benefit for $0 additional dollars. Not sure what the benefit is for having done so though. Anyone know?
5. What funds are good for the 3 year downpayment time horizon?


The way to think about loan debt is to ask yourself where you are going to easily get a guaranteed 5% or 4.5% return on investments.

Down payment in a money market account paying about 1%.
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Re: Please help organize this portfolio

Postby rexhat » Sun Sep 01, 2013 9:26 am

Thanks for the additional feedback. Using everyone's input how would this asset allocation work?
How much international should I have--should I go higher?



US Stock 50%, 40% total stock market and 10% small cap
International Stock 25%, 20% total international, 5% small cap/value
REITS 5%
Bonds 20%-- not sure how to slice this
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Re: Please help organize this portfolio

Postby epictetus » Sun Sep 01, 2013 9:55 am

I would suggest first to take a deep breath or two. You have had a lot of changes in a short amount of time.

You are doing ok financially for this point in your education/career.

The following are the thoughts I have:
1. I would suggest bumping up the emergency fund to 6 months.
2. I would suggest doing the 3 fund portfolio (total stock, total international stock except US, and total bond). It will make investing much less stressful. Both Fidelity and Vanguard have funds that will allow you to accomplish this easily.
3. You might be interested in the white coat investor blog. It is written by a person on this board who is a physician and it deals with financial issues. Here is the link: http://whitecoatinvestor.com/
4. Going forward I would encourage you to minimize debt. Over time given your income you should be able to pay cash for what you purchase.
5. If you will not let your lifestyle creep up to your new income and will keep focusing on saving all you reasonably can in a few years you will be in a very good place.

Hope this is helpful.
The crow of anxiety always finds some branch to land on. -William Kentridge
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Re: Portfolio reorganized. Thanks BH

Postby rexhat » Fri Oct 04, 2013 8:21 pm

Thanks all for your advice.

Since I last wrote, I consolidated some accounts and transferred some money from Fidelity to Vanguard (took a $50 hit on closeout fees). I re-read my old post and it helped me realize how complicated my plan was.

1. Slowly increasing the emergency fund to 6 months from 3-4 months.
2. I am doing a Lazy 3 fund portfolio (80/20) with 25% international (VTSAX, IXUS, and VBTIX). I will eventually tilt with small caps, REITS and value, but for now I'm going to keep it simple. All my ER's are very low now.
3. Continuing to pay down loans and avoiding any new debt.

Thanks. I'm looking forward to having other hobbies.
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