Need help with my portfolio

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Need help with my portfolio

Postby Vanessa » Sat Nov 16, 2013 8:45 pm

Hello.

I am new to Bogleheads and I need all the help that you can give me. I would like to thanks all for giving me your advices. I made a bad decision of cashing out all of my 7 years of Tax Deferred Annuity (403b) to buy a new house when moving to California. No tax shelter retirement plan at new work place for couple of years and did not know about Traditional/Roth IRA. 2 years ago I changed job and started contribute in employer 401k. 2 weeks ago I just found out about Roth IRA and then found out about backdoor Roth IRA. I am ignorant regarding mutual funds and therefore Fidelity manages my account for 2 years with ~0.64% fee. Recently I read about mutual fund and look into what funds I have and with what ER.

I plan to contribute to backdoor Roth IRA for HER and HIS in January 2014 ($5,500 for 2013 and $5,500 for 2014 x 2) with Vanguard.

It appears that ½ of my funds have high ER. I plan to manage my 401k account instead of giving it to Fidelity to manage.

Emergency Funds: 7-8 months of expense
Debt: 12 years on 15 yr fixed @ 2.75% include tax/insurance
Tax Filing Status: Married Filing Jointly, 2 children (14 & 17)
Tax rate: 33% Federal; 9.3% plus $4118 State
State of Residence: CA
Age: Avg. 45
Desired Asset allocation: 70% stocks/30% bonds
Desire International allocation: 20-30%

70% Stock:

45% US Stock:
Total US Stock Market 25%
Extended Market 10%
Large Value 5% (future)
Small Value 5% (future)
REITs 8% (future)

25% International Stock
Developed Markets
Emerging Markets 5% (future)

30% Bonds
Bonds



Current Retirement assets:

Taxable -- ($20k --- 7.6%)
Planning contributes $10k Vang Tot Intl Stk Index Fund Adm (VTIAX) – ER 0.16%
$10k Vang Tot Stk Mkt Index Fund Adm (VTSAX) – ER 0.05%

Her Old company 401(a) – ($170k $183k--- 69%) - Can't rollover until after age 55
Pension – yearly interest based on change in CPI as of the 12-month ending the previous Oct 31 + 3% <---- ? Similar to bonds

Her Current company 401k – (~$40k --- 15%) with Fidelity (no company match)
Large Cap
1.16% Vanguard Inst Index - S&P 500 (VINIX) – ER 0.04%
1.0% Vanguard Windsor II ADM (VWNAX) – ER 0.27%
2.27% Vanguard Primecap ADM (VPMAX) – ER 0.36%
Mid Cap
1.32% Fidelity Low Priced Stk K (FLPKX) – ER 0.68%
0.65% MSIF Mid Cap Grth I (MPEGX) – ER 0.71%
0.38% Virtus Mid Cap Val I (PIMVX) – ER 1.17%
Small Cap
0.58% Loomis Sm Cp Grth Is (LZEMX) – ER 0.95%
0.30% Vanguard Sm Cap Idx Sig (VSISX) – ER 0.1%
International
1.52% SPTN Intl Index ADV (FSIVX) – ER 0.17%
0.14% Lzrd Emrg Mkts EQ IS (LZEMX) – ER 1.1%
1.45% AF EuroPac Growth RS (RERGX) – ER 0.5%
Bond Investments
Income
1.75% PIM Total Rt Inst (PTTRX) – ER 0.46%
1.8% Vanguard Total Bd Mkt Sig (VBTSX) – ER 0.1%
Short-Term Investments
0.68% Fid Ret Govt MM (FGMXX) – ER 0.42%


Funds avail in Company 401k

Fid Contrafund K (FCNKX) – Large Cap - ER 0.63%
Mainstay LGCP Gr R1 (MLRRX) – Large Cap – ER 0.89%
Vang PrimeCap ADM (VPMAX) – Large Cap – ER 0.36%
Vang Windsor II ADM (VWNAX) – Large Cap – ER 0.27%
Vang Inst Index (VINIX) – Large Cap – ER 0.04%
Fid Low Priced Stk K (FLPKX) – Mid Cap – ER 0.68%
MSIF Mid Cap Grth I (MPEGX) – Mid Cap – ER 0.71%
SPTN Ext Mkt Idx ADV (FSEVX) – Mid Cap – ER 0.07%
Virtus Mid Cap VAL I (PIMVX) – Mid Cap – ER 1.17%
Loomis Sm Cp Grth IS (LSSIX) – Small Cap – ER 0.95%
Northern Sm Cap Val (NOSGX) – Small Cap – ER 1.37%
Vang Sm Cap Idx Sig (VSISX) – Small Cap – ER 0.10%
AF Europac Growth R5 (RERFX) – International – ER 0.55%
AF Europac Growth R6 (RERGX) – International – ER 0.50%
LZRD Emrg Mkts EQ IS (LZEMX) – International – ER 1.1%
SPTN Intl Index ADV (FSIVX) – International – ER 0.17%
Vang Wellington ADM (VWENX) – Blended Investment – ER 0.17%
PIM Total Rt Inst (PTTRX) – Bond – ER 0.46%
Vang Tot Bd Mkt Sig (VBTSX) – Bond – ER 0.10%
FID Ret Govt MM (FGMXX) – Short term investment – ER 0.42%
FID Freedom 2020 (FFFDX) – ER 0.69%
FID Freedom 2025 (FFTWX) – ER 0.73%
FID Freedom 2030 (FFFEX) – ER 0.79%
FID Freedom 2035 (FFTHX) – ER 0.81%

His 401k
none

Her Roth Ira - ($11k for 2013 and 2014 -- 4.2%)
Will contribute to Vang Tot Intl Stk Index Fund Adm (VTIAX)

His Roth Ira - ($11k for 2013 and 2014 -- 4.2%)
Will contribute to Vang Tot Stk Mkt Index Fund Adm (VTSAX) – ER 0.05%

Contributions:

New annual contributions
Max $17,500 to 401k
Max Her and His Roth IRA ($5,500 x 2)

Possible future contributions
$5,500 employer company's stock --- just find out can't buy this stock since not classified as part of "employees"
$10k to taxable if have some left after paying kid's college next year

Questions:

(1) Is it right if I consider my 401(a) as similar to bond, then I don't need to contribute any more to bond since 401(a) is 69% of my asset? If that is the case, then I should get US stock and International stock in Taxable account, 401k, and His/Her Roth IRA?

(2) After more reading, I think the recommendation is that I need roughly 80% large cap (500 index) plus 20% mid/small caps (extended market) to make up the total US stock market. If I have Vang Inst Index - S&P 500 (VBTSX) and SPTN ext Mkt Index ADV (FSEVX) to make up the total US stock market, do I even need Vang Small Cap Index (VSISX) in my porfolio?

(3) I plan to contribute $20k in Taxable Account. Is it better to invest in Vang Total Intl Stock Index Fund Admiral (VTIAX) instead of Vang Total Stock Market Index Fund Admiral (VTSAX) to take advantage of the foreign tax credit? Do I need to buy international small index fund instead of Total Stock Market Index Fund in Taxable Account? Which International Small index fund should I buy?

(4) VINIX is 3.5X of Vang Wellington ADM (VWENX), however ER 0.04%. Should I get VWENX instead of VINIX?

Vang Wellington ADM (VWENX) – Blended Investment – ER 0.17%

(5) Is this math right?

His/Her Roth IRA ($22k); Taxable ($20k); 401k ($40k)
$82K ---> 45% US stock/25% International stock ----> 64% / 36%

His Roth IRA with $11k VTSAX
Her Roth IRA with $11k VTIAX

Taxable: $10k VTSAX; $10k VTIAX

401k: $8,520 SPTN Intl Index (FSIVX) <------ future contribution 36% of $17,500
$29,049 Vang Inst Index - S&P 500 (VINIX) <------ future contribution 46.1% of $17,500
$5,247 Vang Small Cap Index (VSISX) <------ future contribution 11.5% of $17,500
$5248 SPTN ext market Index (FSEVX) <------ future contribution 6.4% of $17,500


(6) Please recommend any changes I need to make with this retirement porfolio.

Again, thanks for all the advice you can give me.

Vanessa
Last edited by Vanessa on Wed Nov 20, 2013 12:48 am, edited 37 times in total.
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Re: Need help with my porfolio

Postby alanwbaker » Sun Nov 17, 2013 2:27 am

Hi Vanessa,

Welcome to Bogleheads! You're on the right track.

First consider the sum of your investment--taxable accounts, Roth IRA's, traditional IRA's, 401a, 401k, the whole works. Your 70/30 strategic asset allocation should be applied to the total of these, not to particular accounts. http://www.bogleheads.org/wiki/Asset_allocation

You have a lot of different funds--too many. Look seriously at the "lazy" portfolios at http://www.bogleheads.org/wiki/Lazy_portfolios.

You'll still have quite a few different accounts, so next look at allocating your bonds, stock, international, etc. to the best accounts and dramatically reducing the number of funds in each--ideally to one or two funds per account. See http://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts

You can exchange the Vanguard funds for other Vanguard funds and you should indeed sell those high-expense-ratio funds. Be particularly methodical about selling funds in your taxable accounts and understand the capital gains implications of each. Put them all into a spreadsheet and calculate the capital gain or loss of each sale. Then sell them on a schedule that offsets gains and losses.

Again, you're on the right track; you just need to apply Bogleheads principle #9: invest with simplicity. http://www.bogleheads.org/wiki/Bogleheads_Investment_Philosophy
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Re: Need help with my porfolio

Postby Vanessa » Sun Nov 17, 2013 8:11 pm

Thanks for the advice and the links. I did the homework and also edited the original post.

Please give me further advises and recommendations.

Thanks,

Vanessa
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Re: Need help with my porfolio

Postby ieee488 » Sun Nov 17, 2013 9:08 pm

You talk about his and hers, but I don't see any information for HIS.

What is in your 401a?
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Re: Need help with my porfolio

Postby Vanessa » Sun Nov 17, 2013 9:14 pm

There is no information on HIS because HIS does not have anything.

I assume my 401(a) is cash. I was told there is no stock or bond. I will get yearly interest no matter what happen to the market.

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Re: Need help with my portfolio

Postby ieee488 » Sun Nov 17, 2013 9:39 pm

Looks like your choices you listed in (3) are what I would choose.

As for the employee stock purchase plan, can you sell the stocks immediately?
The rule of thumb is that if you can, you should participate.
You would be getting a great return for your money.
The only caveat is that there is generally a 1 week turn around.
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Re: Need help with my portfolio

Postby Vanessa » Sun Nov 17, 2013 9:57 pm

ieee488 wrote:Looks like your choices you listed in (3) are what I would choose.

As for the employee stock purchase plan, can you sell the stocks immediately?
The rule of thumb is that if you can, you should participate.
You would be getting a great return for your money.
The only caveat is that there is generally a 1 week turn around.


Thanks for reviewing my porfolio.

Regarding company's stock, it takes up to 45 days after the purchase to get the issue of share ownership. You can sell the shares anytime after getting the issue of ownership. Tax depends on if you sell the shares before or after 1 year of purchase.

Vanessa
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Re: Need help with my portfolio

Postby dbr » Sun Nov 17, 2013 10:02 pm

Vanessa wrote:
ieee488 wrote:Looks like your choices you listed in (3) are what I would choose.

As for the employee stock purchase plan, can you sell the stocks immediately?
The rule of thumb is that if you can, you should participate.
You would be getting a great return for your money.
The only caveat is that there is generally a 1 week turn around.


Thanks for reviewing my porfolio.

Regarding company's stock, it takes up to 45 days after the purchase to get the issue of share ownership. You can sell the shares anytime after getting the issue of ownership. Tax depends on if you sell the shares before or after 1 year of purchase.

Vanessa


It takes 45 days? It used to be at Megacorp the ESPP contribution was placed on the last day of the month and one could sell at no commission the next day, the shares being on record at the broker overnight.
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Re: Need help with my porfolio

Postby alanwbaker » Sun Nov 17, 2013 10:56 pm

[quote="alanwbaker"
First consider the sum of your investment--taxable accounts, Roth IRA's, traditional IRA's, 401a, 401k, the whole works. Your 70/30 strategic asset allocation should be applied to the total of these, not to particular accounts. http://www.bogleheads.org/wiki/Asset_allocation[/quote]

Hi Vanessa,

Suggestions on your tax-advantaged investments are only meaningful in the context of your other investments.

You didn't request suggestions on your taxable accounts so I infer that you are more satisfied with these. :happy We need to know at least 1) What is the asset allocation within these accounts and 2) what percentage of your total investments they represent.
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Re: Need help with my portfolio

Postby Vanessa » Sun Nov 17, 2013 11:28 pm

alanwbaker wrote:[quote="alanwbaker"
First consider the sum of your investment--taxable accounts, Roth IRA's, traditional IRA's, 401a, 401k, the whole works. Your 70/30 strategic asset allocation should be applied to the total of these, not to particular accounts. http://www.bogleheads.org/wiki/Asset_allocation


Hi Vanessa,

Suggestions on your tax-advantaged investments are only meaningful in the context of your other investments.

You didn't request suggestions on your taxable accounts so I infer that you are more satisfied with these. :happy We need to know at least 1) What is the asset allocation within these accounts and 2) what percentage of your total investments they represent.[/quote]

Hi alanwbaker,

I did not list Taxable Accounts since I don't have any. I only have checking/saving accounts with upper mid 5 digits.

My 401a is cash in tax shelter annuity. I was told there is no stock or bond in 401a. 401a is 73.25% of my total investments

All I have is 2 years of contribution in 401k. 401k is 17.25% of my total investments. I listed asset allocation as 45%/25%/30%.

I plan to open Roth IRA for HER and HIS on Jan 2/2014 with $11,000 in each account --- 9.5% of my total investments.

Maybe also open $10,000 Taxable Account in 2014.

Thanks again of reviewing my porfolio.

Vanessa
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Re: Need help with my portfolio

Postby alanwbaker » Mon Nov 18, 2013 1:40 am

Vanessa wrote:I did not list Taxable Accounts since I don't have any. I only have checking/saving accounts with upper mid 5 digits.
My 401a is cash in tax shelter annuity. I was told there is no stock or bond in 401a. 401a is 81% of my total investments
All I have is 2 years of contribution in 401k. 401k is 19% of my total investments. I listed asset allocation as 45%/25%/30%.
I plan to open Roth IRA for HER and HIS on Jan 2/2014 with $11,000 in each account.
Maybe also open $10,000 Taxable Account in 2014.
Thanks again of reviewing my porfolio.
Vanessa


Perfect--I get it now. Some thoughts...

    * About company stock... Buy it even if you hold it for the minimum period--it's 15% free money.
    * About that 401A with your former employer... Where do you fit into the vesting schedule? You may have options to roll that over into an IRA before age 55.
    * About a taxable account... Tax rules limit what you can contribute to tax-deferred accounts each year. Most people need to save more than this, so a taxable account is the place to put those dollars.
    * About your asset allocation... Even though that 401a is 81% of your tax-deferred assets, its black box nature makes it tough to call it either equity or bond, so for asset allocation purposes let's pretend it doesn't exist. So if you put $10K in the taxable account and $22K in the new Roths, there's ~40K in the 401K, for a total of $72K. At 70/30 overall and 45 US/25 international that's $32K US equities, $18K international equties, and $22K bonds.
    * For the taxable account: For tax effieciency http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement, put bonds into tax-deferred accounts and equities into taxable accounts. So consider filling the $10K taxable account with Vang Tot Stk Mkt Index Fund Adm (VTSAX).
    * For the backdoor Roths ($22K)... Admiral shares hold costs to a minimum so your option 2 is appealing. That's $11K US and $11K international equities.
    * For your current 401K ($40K)... To complete your allocation consider $7K SPTN Intl Index ADV (FSIVX), $22K Vanguard Total Bd Mkt Sig (VBTSX), and $11K Vanguard Inst Index - S&P 500 (VINIX). The last one could be split into large/medium/small cap, but it's overkill for $11K
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Re: Need help with my portfolio

Postby Vanessa » Mon Nov 18, 2013 2:52 am

I was told that my 401a is in a trust and I cannot rollover until after age 55.

Since I already have Vanguard inst Index - S&P 500 (VINIX) and Vanguard Small cap Index Sig (VSISX), I will allocate $8,000 in VINIX and $3,000 in VSISX.

I don't have enough fund to invest in SPTN Ext Mkt Index ADV (FSEVX) - Mid-Cap (ER 0.07%) since min investment is $10,000. I might contribute to this in the future when I am qualify to participate in the company's self match/profit sharing 401K up to $51k.

Next year I have an additional $17,500 in 401k, I will allocate $4,900 in Vang Tot Bond Market SIG (VBTSX), $4375 in SPTN Intl Index ADV (FSIVX), $8,275 Large/Mid/Small Cap.

Thanks again for your advice.

Vanessa
Last edited by Vanessa on Mon Nov 18, 2013 3:03 pm, edited 1 time in total.
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Re: Need help with my portfolio

Postby ieee488 » Mon Nov 18, 2013 11:13 am

Vanessa wrote:
I don't have enough fund to invest in SPTN Ext Mkt Index ADV (FSEVX) - Mid-Cap (ER 0.07%) since min investment is $10,000. I might contribute to this in the future when I am qualify to participate in the company's self match/profit sharing 401K up to $51k.


I don't understand this statement.

401K shouldn't have any minimum investment requirements.
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Re: Need help with my portfolio

Postby Vanessa » Mon Nov 18, 2013 3:24 pm

ieee488 wrote:
Vanessa wrote:
I don't have enough fund to invest in SPTN Ext Mkt Index ADV (FSEVX) - Mid-Cap (ER 0.07%) since min investment is $10,000. I might contribute to this in the future when I am qualify to participate in the company's self match/profit sharing 401K up to $51k.


I don't understand this statement.

401K shouldn't have any minimum investment requirements.



You are right. I did not know that 401k doesn't have any minimum investment requirements.

Therefore, in 401k I plan to allocate $6,200 in Vang Inst Index (VINIX), $3,200 in SPTN Ext Mkt Index ADV (FSEVX), and $1,600 in Vang Small Cap Index SIG (VSISX).

With next year contribution in 401k, I will put $4,900 in Vang Total Bond Mkt Sig (VBTSX), $4.375 in SPTN Intl Index ADV (FSIVX), $6,650 in VINIX, $875 in FSIVX, and $700 in VSISX.

Questions:
(1) Did I do the math right?

(2) If I have Vang Inst Index - S&P 500 (VBTSX) and SPTN ext Mkt Index ADV (FSEVX) to make up the total US stock market, do I even need Vang Small Cap Index (VSISX) in my porfolio?

(3) I plan to contribute $10,000 in Taxable Account. Is it better to invest in Vang Total Intl Stock Index Fund Admiral (VTIAX) instead of Vang Total Stock Market Index Fund Admiral (VTSAX) to take advantage of the foreign tax credit?

Thanks again for reviewing my porfolio.
Please do give me further recommendation and advises.

Vanessa
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Re: Need help with my portfolio

Postby Meg77 » Mon Nov 18, 2013 4:12 pm

Hi! Here is some help with the math...

First, I think you need to ask for a statement on your old 401a and see what it says. I am confused about what that $170K is made up of...surely it is not just sitting in cash. If it is then you should invest it, if possible, and add that into your asset allocation. Currently I am disregarding that asset in these calculations.

Investible Assets as of January 2014:
401k - $40K
Roth IRA (his) - $11K
Roth IRA (hers) - $11K
Total - $62K

That means you need $50K in stocks and $12K in bonds for an 80/20 split. Further, $12.5K of your stocks should be international for a 25% tilt toward that asset class. So actually this is pretty easy based on the values of your accounts. Here is what I would do:

401k - $35K in VINIX (S&P 500 index), $5K in VSISX (Small cap index)
Roth IRA (his) - Put all $11K in the VBTLX (Total bond index, admiral)
Roth IRA (hers) - VTIAX (Total International Index, admiral)

This will give you $51K in us stocks (82% of the total) and 11K in bonds (18% of the total). Your international holdings will make up 22% of your stock allocation. This plan also takes advantage of the cheapest funds in your 401k and gets you even cheaper options for your bonds and international holdings by putting them in the IRAs instead of your 401k.

If you allocate your new contributions to the 401k to 20% small cap and 80% S&P fund then at the end of 2014 you'll have nearly $70K in stocks while still only 11k in bonds (assuming no returns - 2014 growth or losses could change that of course). That means your bond allocation will have fallen below 15%, and your international allocation will have fallen as well, as a percentage of the total. So then you can use your 2015 Roth IRA contributions to rebalance, putting new money in bonds and/or international as needed to get the percentages back in line.

Of course if things get too far out of whack and you don't have room in the IRAs to rebalance, you can add the bond and/or international funds into your 401k as well. But for now you don't need that and I'd keep it simple and just put the domestic funds in the 401k.

Good luck!
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Re: Need help with my portfolio

Postby alanwbaker » Mon Nov 18, 2013 10:44 pm

alanwbaker wrote:* About that 401A with your former employer... Where do you fit into the vesting schedule? You may have options to roll that over into an IRA before age 55.
Vanessa wrote:I was told that my 401a is in a trust and I cannot rollover until after age 55.

What you were told may not be the complete picture. A 401A has a vesting schedule and you should get it to understand your options. A 401A's actual value depends on how much you are vested--from 0 to 100%. Your options and rights to that 401A also changed when you left that employer.

If 81% of my assets were tied up for the next ten years, I would want to see and understand the terms.
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Re: Need help with my portfolio

Postby Vanessa » Mon Nov 18, 2013 11:07 pm

alanwbaker wrote:
alanwbaker wrote:* About that 401A with your former employer... Where do you fit into the vesting schedule? You may have options to roll that over into an IRA before age 55.
Vanessa wrote:I was told that my 401a is in a trust and I cannot rollover until after age 55.

What you were told may not be the complete picture. A 401A has a vesting schedule and you should get it to understand your options. A 401A's actual value depends on how much you are vested--from 0 to 100%. Your options and rights to that 401A also changed when you left that employer.

If 81% of my assets were tied up for the next ten years, I would want to see and understand the terms.



I call CHI HR/Payroll connection Support Center a couple of times and the answers still the same.
I can't touch or do anything with it. I can rollover after age 55. I am fully vested and the money is in a trust. There is no stock or bond. I am not losing principal. I get interest on it which is based on the change in CPI as of the 12-month ending the previous Oct 31 + 3%. Last year I got an interest of 6.5%. Interest add to principal yearly. Look like this year the interest is 5.2%. So I guess I have $182,852 in 401a as of today.

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Re: Need help with my portfolio

Postby Vanessa » Mon Nov 18, 2013 11:21 pm

Meg77 wrote:Hi! Here is some help with the math...

First, I think you need to ask for a statement on your old 401a and see what it says. I am confused about what that $170K is made up of...surely it is not just sitting in cash. If it is then you should invest it, if possible, and add that into your asset allocation. Currently I am disregarding that asset in these calculations.

Investible Assets as of January 2014:
401k - $40K
Roth IRA (his) - $11K
Roth IRA (hers) - $11K
Total - $62K

That means you need $50K in stocks and $12K in bonds for an 80/20 split. Further, $12.5K of your stocks should be international for a 25% tilt toward that asset class. So actually this is pretty easy based on the values of your accounts. Here is what I would do:

401k - $35K in VINIX (S&P 500 index), $5K in VSISX (Small cap index)
Roth IRA (his) - Put all $11K in the VBTLX (Total bond index, admiral)
Roth IRA (hers) - VTIAX (Total International Index, admiral)

This will give you $51K in us stocks (82% of the total) and 11K in bonds (18% of the total). Your international holdings will make up 22% of your stock allocation. This plan also takes advantage of the cheapest funds in your 401k and gets you even cheaper options for your bonds and international holdings by putting them in the IRAs instead of your 401k.

If you allocate your new contributions to the 401k to 20% small cap and 80% S&P fund then at the end of 2014 you'll have nearly $70K in stocks while still only 11k in bonds (assuming no returns - 2014 growth or losses could change that of course). That means your bond allocation will have fallen below 15%, and your international allocation will have fallen as well, as a percentage of the total. So then you can use your 2015 Roth IRA contributions to rebalance, putting new money in bonds and/or international as needed to get the percentages back in line.

Of course if things get too far out of whack and you don't have room in the IRAs to rebalance, you can add the bond and/or international funds into your 401k as well. But for now you don't need that and I'd keep it simple and just put the domestic funds in the 401k.

Good luck!



Thank you for the recommendation

Isn't 20% bond a little low for my age?

How come I don't buy Vanguard total bond market Sig (VBTSX) with ER 0.1% in 401k which is same as Vanguard total bond index admiral (VBTLX) with ER 0.1%?

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Re: Need help with my portfolio

Postby Meg77 » Tue Nov 19, 2013 5:06 pm

Vanessa wrote:
Meg77 wrote:Hi! Here is some help with the math...

First, I think you need to ask for a statement on your old 401a and see what it says. I am confused about what that $170K is made up of...surely it is not just sitting in cash. If it is then you should invest it, if possible, and add that into your asset allocation. Currently I am disregarding that asset in these calculations.

Investible Assets as of January 2014:
401k - $40K
Roth IRA (his) - $11K
Roth IRA (hers) - $11K
Total - $62K

That means you need $50K in stocks and $12K in bonds for an 80/20 split. Further, $12.5K of your stocks should be international for a 25% tilt toward that asset class. So actually this is pretty easy based on the values of your accounts. Here is what I would do:

401k - $35K in VINIX (S&P 500 index), $5K in VSISX (Small cap index)
Roth IRA (his) - Put all $11K in the VBTLX (Total bond index, admiral)
Roth IRA (hers) - VTIAX (Total International Index, admiral)

This will give you $51K in us stocks (82% of the total) and 11K in bonds (18% of the total). Your international holdings will make up 22% of your stock allocation. This plan also takes advantage of the cheapest funds in your 401k and gets you even cheaper options for your bonds and international holdings by putting them in the IRAs instead of your 401k.

If you allocate your new contributions to the 401k to 20% small cap and 80% S&P fund then at the end of 2014 you'll have nearly $70K in stocks while still only 11k in bonds (assuming no returns - 2014 growth or losses could change that of course). That means your bond allocation will have fallen below 15%, and your international allocation will have fallen as well, as a percentage of the total. So then you can use your 2015 Roth IRA contributions to rebalance, putting new money in bonds and/or international as needed to get the percentages back in line.

Of course if things get too far out of whack and you don't have room in the IRAs to rebalance, you can add the bond and/or international funds into your 401k as well. But for now you don't need that and I'd keep it simple and just put the domestic funds in the 401k.

Good luck!



Thank you for the recommendation

Isn't 20% bond a little low for my age?

How come I don't buy Vanguard total bond market Sig (VBTSX) with ER 0.1% in 401k which is same as Vanguard total bond index admiral (VBTLX) with ER 0.1%?

Vanessa


I thought you had said you wanted 20% in bonds which is why I wrote that. Looking back it looks like you said 30%. If you feel you should have more then it's fine to buy bonds within your 401k as well. It doesn't really matter in your case since the expense ratios in your 401k are fairly low for those core index funds. However it looks like your entire 401a - which represents most of your assets - is in an annuity, which is very safe (although in my opinion it is not a great investment, particularly held within a tax deferred account, but that doesn't matter since you are stuck with it for now). Annuities give "guaranteed" streams of income, just like bonds. Therefore I would argue that you need no bonds at all right now...others may disagree though.
"An investment in knowledge pays the best interest." - Benjamin Franklin
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Re: Need help with my portfolio

Postby Vanessa » Wed Nov 20, 2013 12:57 am

I updated my original post and questions.

Can you please give comments and suggestions if I should view my 401(a) as bond.

Thanks ahead,

Vanessa
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Re: Need help with my portfolio

Postby Duckie » Wed Nov 20, 2013 10:45 pm

Vanessa, you want an AA of 70% stocks, 30% bonds (low for your ages), with 20% to 30% of stocks in international. I'll pick 30%. That breaks down to 49% US stocks, 21% international stocks, and 30% bonds. Here is a possible retirement portfolio as of the end of 2013:

Taxable -- $20K -- 28%
7% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.17%)
21% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)

Her current 401k -- $40K -- 56%
21% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.04%)
5% (FSEVX) Spartan Extended Market Index Fund Advantage Class (0.07%) <-- Roughly 80% large caps (Institutional Index) plus 20% mid/small caps (Extended Market) makes up the total US stock market.
30% (VBTSX) Vanguard Total Bond Market Index Fund Signal Shares (0.10%)

Her backdoor Roth IRA -- $5.5K -- 8%
8% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.17%)

His backdoor Roth IRA -- $5.5K -- 8%
8% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.17%)

My comments:
  • It's a little easier when the backdoor Roth IRA contribution and conversion both happen in the same year. So I recommend you make the 2013 c&c before the end of December.
    .
  • This has TISM in taxable to take advantage of the 
Foreign tax credit. Also, whatever you decide to hold in taxable should be set up so that the dividends / capital gains distributions are not automatically reinvested. Have them funneled to a money market or savings account.
    .
  • The reason I picked 30% of stocks in international is because Vanguard has found that between 20% and 40% of stocks in international to be the "sweet spot". See the discussion and the Vanguard paper link. Vanguard splits the difference and uses 30% in their Target Retirement and LifeStrategy funds. That's good enough for me.
    .
  • 30% in bonds is low for ages ~45. Normally I'd recommend you increase that to at least 35% and maybe 40% but because of the large 401a cash assets 30% is probably okay in this case.
    .
  • Keep the international at Vanguard. It's a much better option than the 401k Spartan fund.
    .
  • Take a good look at IRS Form 8606 (pdf). Because of the backdoor Roth IRA, you'll each be filling this out (either on paper or with TurboTax) from now on. Also see this thread.
Your questions:
(1) Is it right if I consider my 401(a) as similar to bond, then I don't need to contribute any more to bond since 401(a) is 69% of my asset? If that is the case, then I should get US stock and International stock in Taxable account, 401k, and His/Her Roth IRA?
    No. I'm ignoring the old 401a for now. You have no access to it, no control over it, and cannot use it for rebalancing (or anything else). When you hit age 55 and are allowed to roll it over it will become part of the portfolio. However, check to see if this eventually can be annuitized into an income stream like a pension. If so that may be a decent option.
(2) After more reading, I think the recommendation is that I need roughly 80% large cap (500 index) plus 20% mid/small caps (extended market) to make up the total US stock market. If I have Vang Inst Index - S&P 500 (VINIX) and SPTN ext Mkt Index ADV (FSEVX) to make up the total US stock market, do I even need Vang Small Cap Index (VSISX) in my porfolio?
    Unless you specifically want to overweight small caps (and I don't think you should) you don't need VSISX.
(3) I plan to contribute $20k in Taxable Account. Is it better to invest in Vang Total Intl Stock Index Fund Admiral (VTIAX) instead of Vang Total Stock Market Index Fund Admiral (VTSAX) to take advantage of the foreign tax credit?
    Yes. Because of the FTC, in taxable TISM should come first.
Do I need to buy international small index fund instead of Total Stock Market Index Fund in Taxable Account? Which International Small index fund should I buy?
    TISM already contains international small caps (along with developed markets, emerging markets, and Canada). It's a compete international fund.
(4) VINIX is 3.5X of Vang Wellington ADM (VWENX), however ER 0.04%. Should I get VWENX instead of VINIX?
    No. Once you hold separate funds also using a balanced fund is not optimum.
(5) Is this math right?
    Not in my opinion. It doesn't go with my above proposed portfolio.
  1. Because I'm ignoring the 401a I think you need bonds in this portfolio.
  2. Drop the small cap fund. You don't need it.
  3. Contribute to the three following 401k funds and rebalance once or twice a year:
    • 37% to VINIX
    • 9% to FSEVX
    • 54% to VBTSX
Something to think about.
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Re: Need help with my portfolio

Postby Vanessa » Thu Nov 21, 2013 1:22 am

Thank you Duckie for reviewing my porfolio and give me your recommendations.

Questions:

(1) What do you mean if my 401(a) can be annuitized into an income stream like a pension?
I went to the my 401(a) website and try to project my pension benefit with retire at age 62. This is what I saw:

Form of Payment ----- --- ---One-Time Payment------ Monthly Payments1 To You ------ To Your Beneficiary
Lump Sum Distribution ----------------$428,174 -- --
Single Life Annuity -- -------------------------------------------------------------- $3,615----------- $0
50% Joint and Survivor Annuity -- ------------------------------------------------- $3,409----------- $1,704
75% Joint and Survivor Annuity -- ------------------------------------------------- $3,314----------- $2,486
100% Joint and Survivor Annuity -- ------------------------------------------------ $3,225----------- $3,225
5 Year Certain
Before 02-01-2036 -- --------------------------------------------------------------$8,570----------- $8,570
Beginning 02-01-2036 -- --------------------------------------------------------------$0---------------- $0
10 Year Certain
Before 02-01-2041 -- --------------------------------------------------------------$5,099----------- $5,099
Beginning 02-01-2041 -- --------------------------------------------------------------$0---------------- $0
5 Year Certain and Life
Before 10-31-2018 -- --------------------------------------------------------------$3,584----------- $3,584
Beginning 10-31-2018 -- --------------------------------------------------------------$3,584----------- $0
10 Year Certain and Life
Before 10-31-2023 -- --------------------------------------------------------------$3,500----------- $3,500
Beginning 10-31-2023 -- --------------------------------------------------------------$3,500----------- $0
15 Year Certain and Life
Before 10-31-2028 -- --------------------------------------------------------------$3,387----------- $3,387
Beginning 10-31-2028 -- --------------------------------------------------------------$3,387----------- $0
1These are before-tax amounts.

Lump Sum Distribution
The entire value of your pension benefit is distributed as a single lump-sum payment. No other payments will be made to you or to your beneficiary. If you're married, your spouse must consent to this option.

Single Life Annuity
You receive a monthly benefit for life. No payments occur after your death. It's the standard form of pension payment if you're single. This option requires your spouse's consent if you're married.

50% Joint and Survivor Annuity
The plan pays reduced monthly benefits to you during your lifetime. After your death, the plan pays 50% of your benefit to your surviving spouse or beneficiary for his or her lifetime.

75% Joint and Survivor Annuity
The plan pays reduced monthly benefits to you during your lifetime. After your death, the plan pays 75% of your benefit to your surviving spouse or beneficiary for his or her lifetime.

100% Joint and Survivor Annuity <---- This look like the best option right?
The plan pays reduced monthly benefits to you during your lifetime. After your death, the plan pays 100% of your benefit to your surviving spouse or beneficiary for his or her lifetime.

5 Year Certain
You receive a monthly benefit for 5 years. If you die within the 5-year period your beneficiary receives monthly payments for the rest of the 5-year period. If you die after the 5-year period no payments will be made to your beneficiary. This option requires your spouse's consent if you're married.

10 Year Certain
You receive a monthly benefit for 10 years. If you die within the 10-year period your beneficiary receives monthly payments for the rest of the 10-year period. If you die after the 10-year period no payments will be made to your beneficiary. This option requires your spouse's consent if you're married.

5 Year Certain and Life
You receive a monthly benefit for life. If you die within the 5-year period, your beneficiary receives monthly payments for the rest of the 5-year period. If you die after the 5-year period, no payments will be made to your beneficiary. This option requires your spouse's consent if you're married.

10 Year Certain and Life
You receive a monthly benefit for life. If you die within the 10-year period, your beneficiary receives monthly payments for the rest of the 10-year period. If you die after the 10-year period, no payments will be made to your beneficiary. This option requires your spouse's consent if you're married.

15 Year Certain and Life
You receive a monthly benefit for life. If you die within the 15-year period, your beneficiary receives monthly payments for the rest of the 15-year period. If you die after the 15-year period, no payments will be made to your beneficiary. This option requires your spouse's consent if you're married.

(2) If I set contribution ($17.5K) to my 401k next year as this: 37% VINIX, 9% to FSEVX, 54%% to VBTSX, what do you recommend I get for HER & HIS Roth IRA next year ($5.5k x 2)?

(3) You said that "whatever I decide to hold in taxable should be set up so that the dividends / capital gains distributions are not automatically reinvested. Have them funneled to a money market or savings account." So if I have only TISM and TSM in Taxable Account and I don't sell them, then I don't have to do anything right?

Thank you again for your advises and recommendations.
Vanessa
 
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Re: Need help with my portfolio

Postby Duckie » Thu Nov 21, 2013 3:49 am

Vanessa wrote:I went to the my 401(a) website and try to project my pension benefit with retire at age 62. This is what I saw:
100% Joint and Survivor Annuity -- ------------------------------------------------ $3,225----------- $3,225
100% Joint and Survivor Annuity <---- This look like the best option right?
The plan pays reduced monthly benefits to you during your lifetime. After your death, the plan pays 100% of your benefit to your surviving spouse or beneficiary for his or her lifetime.

I'm not an expert on pensions but the 100% Joint and Survivor Annuity looks good to me. Someone else might want to run the numbers on whether rolling over the current $183K to an IRA at age 55 is better or worse than taking the pension at age 62. But there's no rush. You can't do anything for 10 years anyway.

If I set contribution ($17.5K) to my 401k next year as this: 37% VINIX, 9% to FSEVX, 54%% to VBTSX, what do you recommend I get for HER & HIS Roth IRA next year ($5.5k x 2)?

You'll probably put it in TSM (and that'll get you admiral shares).

You said that "whatever I decide to hold in taxable should be set up so that the dividends / capital gains distributions are not automatically reinvested. Have them funneled to a money market or savings account." So if I have only TISM and TSM in Taxable Account and I don't sell them, then I don't have to do anything right?

If you have TSM and TISM in taxable and have the dividends/gains sent to a money market then you have options. You can use the cash to pay the taxes on the dividends, to buy something else you need/want, or to reinvest in whichever fund is under its AA. For example, if TISM is under its 21% AA then money needs to be added to it. If it is over its 21% AA then money needs to be added to TSM. Avoid selling shares in taxable to rebalance. (Selling in tax-sheltered is fine.)
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Re: Need help with my portfolio

Postby Vanessa » Thu Nov 21, 2013 4:17 am

If I set contribution ($17.5K) to my 401k next year as this: 37% VINIX, 9% to FSEVX, 54%% to VBTSX, what do you recommend I get for HER & HIS Roth IRA next year ($5.5k x 2)?

You'll probably put it in TSM (and that'll get you admiral shares).


If I keep both Roth IRA as TSM admiral, then the AA 54%/15%/31%. Should I get 1 Roth IRA TISM to make the AA 48.5%/20.5%/31%?

Did I do the math right?

Total $99,500: 48.5% US stock, 20.5% Intl Stock, 31% Bond

Her backdoor Roth IRA ($11k): 11%
$5.5K Total Stock Market Invester (VTSMX) + $5.5K VTSMX ==> $11K Total Stock Market Admiral (VTSAX)

His backdoor Roth IRA ($11K): 11%
5.5% Total Stock Market Invester (VTSMX)
5.5% Total Intl Stock Market Invester (VGTSX)

Taxable ($20K) - 20%
5% VTSMX
15% VTIAX

401k ($57.5K) - 58%
31% Vang Total Bond Market Signal (VBTSX)
5.5% SPTN Extended Market (FSEVX)
21.5% Vang Inst Index - S&P 500 (VINIX)

Thanks again
Vanessa
 
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Re: Need help with my portfolio

Postby Duckie » Thu Nov 21, 2013 6:35 pm

Vanessa wrote:If I keep both Roth IRA as TSM admiral, then the AA 54%/15%/31%. Should I get 1 Roth IRA TISM to make the AA 48.5%/20.5%/31%?

Did I do the math right?

Putting TISM in one of the IRAs looks reasonable to me. You don't have to get things exact, just close.
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