New Investor- how does Berkshire Hathaway fit in a Portfolio
New Investor- how does Berkshire Hathaway fit in a Portfolio
Hello all,
I am 23, recent college graduate, and an enthusiastic fan of Vanguard and it's index fund offerings to investors. I've always had an interest in investing, but I really took an interest after my second year of college when a microeconomics professor of mine encouraged us to invest in a low-cost S&P 500 index fund (if we were interested in investing at all). I quickly followed that advice and bought into the Vanguard 500 index fund.
Today, I've become more aggressive, and put a great deal of my money towards Vanguard's various offerings, but I plan on reshuffling my portfolio to the "3 Fund Portfolio" with something along the lines of 20% Total Bond Market, 45% Total Stock Market, and 35% Total International Stock Market. I am very open to adjusting my allocation.
I also happen to hold equity in both Berkshire Hathaway and Eli Lilly. Both of these come from inheritance that was passed down to me, and are held in a separate brokerage account. I intend on holding them for the foreseeable future. Given that I hold equity in both Berkshire Hathaway and Eli Lilly, I'm assuming that it will have a significant affect on how I re-position my holdings.
Emergency Funds: Three months of expenses
Debt: None
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.75%
State of Residence: VA
Desired Asset Allocation: 80% Stocks / 20% Bonds
Desired International Allocation: 35% Stocks
Current Portfolio Size: low-mid six-figures
Holdings:
Taxable (UMB Financial Services):
77% Berkshire Hathaway B
8% Eli Lilly
Taxable (Vanguard):
0.9% VEIEX (Vanguard Emerging Markets Index, Investor) -- 0.33%
0.9% VGSIX (Vanguard REIT Index, Investor) -- 0.24%
3% VTIAX (Vanguard Total International Stock Index, Admiral) -- 0.14%
3% VTSAX (Vanguard Total Stock Market Index, Admiral) -- 0.05%
0.9% VWINX (Vanguard Wellesley, Investor) -- 0.25%
Vanguard Roth IRA (maxed out 2014 and 2015 contribution limits):
2% VFINX (Vanguard 500 Index, Investor) -- 0.17%
2% VTTSX (Vanguard Target Retirement 2060) -- 0.18%
1% VBMFX (Vanguard Total Bond Market Index, Investor) -- 0.20%
1% VTIBX (Vanguard Total International Bond Index, Investor) -- 0.23%
Vanguard 401K (contribute 6%, employer matches 1/2 up to 6% contribution)***:
0.2% Vanguard Extended Market Index Fund Institutional Plus Shares
0.1% Vanguard FTSE All-Word ex-US Index Fund Institutional Plus Shares
0.1% Vanguard Institutional Index Fund Institutional Plus Shares
***For whatever reason, I cannot access my retirement page on Vanguard for my contribution per each index fund and the expense ratios of those funds. I will update as soon as I can access the account.
1) Given that I will not be doing anything with the BRK-B and Eli Lilly holdings, how should I formulate my portfolio around them? How exactly do they fit in with a portfolio that I plan on diversifying through the "Three Fund approach?" Would it change my planned asset allocation (especially relating to my planned Vanguard Total Stock Market allocation)?
2) Should I completely rethink my intended asset allocation?
I've been reading through the forums for a couple weeks, and I truly believe in the low-cost indexing philosophy. I know that you all generally do not recommend holding individual stocks, but given that they were passed down to me, I feel I can't possibly get rid of them. I feel like I've learned more the past few weeks reading through here than I have in a life time. Bogleheads has definitely opened my eyes. Any and all advice is welcomed.
I am 23, recent college graduate, and an enthusiastic fan of Vanguard and it's index fund offerings to investors. I've always had an interest in investing, but I really took an interest after my second year of college when a microeconomics professor of mine encouraged us to invest in a low-cost S&P 500 index fund (if we were interested in investing at all). I quickly followed that advice and bought into the Vanguard 500 index fund.
Today, I've become more aggressive, and put a great deal of my money towards Vanguard's various offerings, but I plan on reshuffling my portfolio to the "3 Fund Portfolio" with something along the lines of 20% Total Bond Market, 45% Total Stock Market, and 35% Total International Stock Market. I am very open to adjusting my allocation.
I also happen to hold equity in both Berkshire Hathaway and Eli Lilly. Both of these come from inheritance that was passed down to me, and are held in a separate brokerage account. I intend on holding them for the foreseeable future. Given that I hold equity in both Berkshire Hathaway and Eli Lilly, I'm assuming that it will have a significant affect on how I re-position my holdings.
Emergency Funds: Three months of expenses
Debt: None
Tax Filing Status: Single
Tax Rate: 25% Federal, 5.75%
State of Residence: VA
Desired Asset Allocation: 80% Stocks / 20% Bonds
Desired International Allocation: 35% Stocks
Current Portfolio Size: low-mid six-figures
Holdings:
Taxable (UMB Financial Services):
77% Berkshire Hathaway B
8% Eli Lilly
Taxable (Vanguard):
0.9% VEIEX (Vanguard Emerging Markets Index, Investor) -- 0.33%
0.9% VGSIX (Vanguard REIT Index, Investor) -- 0.24%
3% VTIAX (Vanguard Total International Stock Index, Admiral) -- 0.14%
3% VTSAX (Vanguard Total Stock Market Index, Admiral) -- 0.05%
0.9% VWINX (Vanguard Wellesley, Investor) -- 0.25%
Vanguard Roth IRA (maxed out 2014 and 2015 contribution limits):
2% VFINX (Vanguard 500 Index, Investor) -- 0.17%
2% VTTSX (Vanguard Target Retirement 2060) -- 0.18%
1% VBMFX (Vanguard Total Bond Market Index, Investor) -- 0.20%
1% VTIBX (Vanguard Total International Bond Index, Investor) -- 0.23%
Vanguard 401K (contribute 6%, employer matches 1/2 up to 6% contribution)***:
0.2% Vanguard Extended Market Index Fund Institutional Plus Shares
0.1% Vanguard FTSE All-Word ex-US Index Fund Institutional Plus Shares
0.1% Vanguard Institutional Index Fund Institutional Plus Shares
***For whatever reason, I cannot access my retirement page on Vanguard for my contribution per each index fund and the expense ratios of those funds. I will update as soon as I can access the account.
1) Given that I will not be doing anything with the BRK-B and Eli Lilly holdings, how should I formulate my portfolio around them? How exactly do they fit in with a portfolio that I plan on diversifying through the "Three Fund approach?" Would it change my planned asset allocation (especially relating to my planned Vanguard Total Stock Market allocation)?
2) Should I completely rethink my intended asset allocation?
I've been reading through the forums for a couple weeks, and I truly believe in the low-cost indexing philosophy. I know that you all generally do not recommend holding individual stocks, but given that they were passed down to me, I feel I can't possibly get rid of them. I feel like I've learned more the past few weeks reading through here than I have in a life time. Bogleheads has definitely opened my eyes. Any and all advice is welcomed.
Re: New Investor- how does Berkshire Hathaway fit in a Portf
Welcome to the forum.
The legacy stocks will be part of your asset allocation to stocks. Your AA at 80/20 is appropriate for your age.
That said, continue reading and learning. Holding legacy stock may not be appropriate for you in the long term. Used to be, folks would inherit a load of IBM or GM or Sears with instructions to hold onto it for life. That didn't work out so well, so you may change your mind, but you'll know when you are ready to consider whether it is still a good fit for you.
The legacy stocks will be part of your asset allocation to stocks. Your AA at 80/20 is appropriate for your age.
That said, continue reading and learning. Holding legacy stock may not be appropriate for you in the long term. Used to be, folks would inherit a load of IBM or GM or Sears with instructions to hold onto it for life. That didn't work out so well, so you may change your mind, but you'll know when you are ready to consider whether it is still a good fit for you.
The mightiest Oak is just a nut who stayed the course.
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Re: New Investor- how does Berkshire Hathaway fit in a Portf
Hi - Welcome to the forum. I can sense your enthusiasm and excitement.
Have you heard of an IPS, Investing Policy Statement? http://www.bogleheads.org/wiki/Investme ... _Statement This is a commitment and documentation device that will help you make a plan and stick to it. When you choose a major there was a curriculum for you to earn a degree. Fortunately someone made that plan for you, and you just had to grind through it. Investing is like that, except you have to make your own plan. Instead of a degree, you will earn financial independence.
Keep reading. You're 23 and clearly ahead of the game. Make a plan first and I'm sure you'll meet your goal. Good luck.
Again, Welcome!
EHEngineer
Stop here. Don't start moving money around. You need to write down an asset allocation that you plan to stick with for the long term. Bogleheads stay the course. They don't trade, and don't change allocations. They make a plan and then do it.acc17 wrote: I am very open to adjusting my allocation.
Have you heard of an IPS, Investing Policy Statement? http://www.bogleheads.org/wiki/Investme ... _Statement This is a commitment and documentation device that will help you make a plan and stick to it. When you choose a major there was a curriculum for you to earn a degree. Fortunately someone made that plan for you, and you just had to grind through it. Investing is like that, except you have to make your own plan. Instead of a degree, you will earn financial independence.
Keep reading. You're 23 and clearly ahead of the game. Make a plan first and I'm sure you'll meet your goal. Good luck.
Again, Welcome!
EHEngineer
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
I know this is a very late reply, but thank you for the advice. I ended up creating an IPS -- which has been so helpful in giving me the "bigger picture." I decided on an asset allocation for everything but Berkshire Hathaway and Eli Lilly with a 45% Total Stock Market/30% Total International Stock Market/ 5% REIT/20% Intermediate-Term Tax-Exempt Fund. VWITX and VTSAX are in Taxable, VGSIX and VTIAX are in Roth IRA.
I now use the automatic investment every week (deduct a portion of my biweekly paycheck into VTSAX). Plan on growing my total in VTSAX (via automatic contributions) and then converting VGSIX into Vanguard Emerging Markets Stock Index Fund (VEIEX) or just converting it to VTIAX.
Thanks again for all the help. It has helped me out so much.
I now use the automatic investment every week (deduct a portion of my biweekly paycheck into VTSAX). Plan on growing my total in VTSAX (via automatic contributions) and then converting VGSIX into Vanguard Emerging Markets Stock Index Fund (VEIEX) or just converting it to VTIAX.
Thanks again for all the help. It has helped me out so much.
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
Any particular reason you keep REIT index in your taxable account? Those are usually tax-inefficient and best placed in tax-deferred accounts.
Don't only practice your art, but force your way into its secrets. For it and knowledge can raise men to the divine. |
L. Beethoven
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Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
Does your 401k have a good low cost bond fund like Total Bond Market Index? If yes, use that for your bond allocation as much as possible and reduce or eliminate VWITX (Intermediate term tax exempt bond) in the taxable account. Your OP indicates that you're contributing 6% to 401k. You should max it out for 18K/yr.
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
Id rather not have them at all then in taxable personally. They just don't seem necessary.Sents wrote:Any particular reason you keep REIT index in your taxable account? Those are usually tax-inefficient and best placed in tax-deferred accounts.
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
acc17 wrote: I also happen to hold equity in both Berkshire Hathaway and Eli Lilly. Both of these come from inheritance that was passed down to me, and are held in a separate brokerage account. I intend on holding them for the foreseeable future. Given that I hold equity in both Berkshire Hathaway and Eli Lilly, I'm assuming that it will have a significant affect on how I re-position my holdings.
Congratulations on your early start to saving and investing!
For all the time and attention given to proper asset allocation (80/20 is reasonable given your age and presumed risk tolerance), the most important thing you can do early in your accumulation years is to build good habits around saving.
Specific to your post, I would question your intent to continue to hold the Berkshire Hathaway and Eli Lilly given how large a portion of your overall holdings they represent, and the uncompensated risk you take on by owning individual stocks. Especially if the inheritance was recent, you likely have an opportunity to liquidate these stocks with minor tax implications, and gradually transfer from taxable to tax advantaged accounts by maxing your "retirement" savings (401(k) + IRA) each year, and using your taxable account to fund living expenses if needed.
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
I would argue that Berkshire is itself a pretty diversified portfolio!
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
I realize it may be difficult, however, I believe you should not place sentimental value upon any part of your portfolio. Not saying there's anything wrong with keeping the BH/EL holdings... as long as it's for the right reasons.
Invest with your mind, not your heart.
Good luck!
:beerCheers,
packet
Invest with your mind, not your heart.
Good luck!
:beerCheers,
packet
Last edited by packet on Wed May 27, 2015 12:19 pm, edited 1 time in total.
First round’s on me.
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
You can simplify your smaller accounts by having just one fund. You do not need to recreate your AA in each account. Use your bigger accounts for rebalancing. Your total AA is across all accounts.
lafder
lafder
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
Agree that you should put $18,000 into your 401k each year , using taxable funds as needed to live off of while you stuff the 401k, first with all bonds you want. You have a great Vanguard 401k, so I assume you have very low ERs available there. If you don't want to save on taxes now, then see if you can do Roth 401k. Those REITs in taxable could be sold off and put in Vanguard 401k if desired.
Also agree to the risk of having so much stocks. BH has an old man in charge; what happens when he is no longer there? It may still be great, but that does increase an already high individual risk. It may have not been sold because capital gains would be too high, so was left for heirs to sell with stepped up basis and no CG on date of death. I am saying that it might not have been held for any other reason so it may have been expected that you would be the one to sell it at no cost. Lots of heirs have same problem and it may not have been intended for them to keep but they feel they need to keep it because they owe it to the one who died. Plan to keep some for sentimental reasons if you like (maybe 5%), but why not sell off some, especially with lower CGs if recently inherited. The Wiki has a page on Windfalls:
https://www.bogleheads.org/wiki/Managing_a_windfall
Here is a nice little online book you might like:
http://www.etf.com/docs/IfYouCan.pdf
Also agree to the risk of having so much stocks. BH has an old man in charge; what happens when he is no longer there? It may still be great, but that does increase an already high individual risk. It may have not been sold because capital gains would be too high, so was left for heirs to sell with stepped up basis and no CG on date of death. I am saying that it might not have been held for any other reason so it may have been expected that you would be the one to sell it at no cost. Lots of heirs have same problem and it may not have been intended for them to keep but they feel they need to keep it because they owe it to the one who died. Plan to keep some for sentimental reasons if you like (maybe 5%), but why not sell off some, especially with lower CGs if recently inherited. The Wiki has a page on Windfalls:
https://www.bogleheads.org/wiki/Managing_a_windfall
Here is a nice little online book you might like:
http://www.etf.com/docs/IfYouCan.pdf
Re: New Investor- how does Berkshire Hathaway fit in a Portfolio
Not real sure what you meant about this statement:
If you recently inherited the stock, you could be in a very advantageous position to sell the stock without a huge tax implication. That is because the cost basis for inherited stock is usually based on its value on the date of the original owner's death.
Did you inherit the stock? Or did someone else inherit the stock and gift it to you? It seems like there are either strings attached that require you to keep the stock or that you have some emotional attachment to the stock because of who owned it before.I also happen to hold equity in both Berkshire Hathaway and Eli Lilly. Both of these come from inheritance that was passed down to me, and are held in a separate brokerage account. I intend on holding them for the foreseeable future. Given that I hold equity in both Berkshire Hathaway and Eli Lilly, I'm assuming that it will have a significant affect on how I re-position my holdings.
If you recently inherited the stock, you could be in a very advantageous position to sell the stock without a huge tax implication. That is because the cost basis for inherited stock is usually based on its value on the date of the original owner's death.
“I take my investment advice from my dentist, because he’s just as likely to lose me money as a financial advisor.” |
― Jarod Kintz, This Book Title is Invisible