Simplified Retirement Portfolio

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
itboglesthemind
Posts: 36
Joined: Sun Jan 24, 2010 5:50 am

Simplified Retirement Portfolio

Post by itboglesthemind »

I posted earlier, but fear it may have been too jumbled... Thanks in advance for any thoughts!!!

I just liquidated my funds at a brokerage and plan to put into Vanguard Index funds and IRAs, so I'm all cash, but still in the respective brokerage accounts for the moment, and am looking to go fully into Vanguard (or similar) Indexes.

Emergency funds: Zero
(We have cash on hand and will begin building a segregated 6-month Emergency Fund immediately with new income and gradually build to 12 month EF over next two years).

Debt:
20k car loan (3.5%)
14k student loan (1.2%)
750k mortgage (30-yr fixed 4.8%)

Tax Filing Status:
Married, filing jointly, one child

Income:
mid-high six-figures

Tax Rate:
35% Federal
9.1% State
California

Age:
39 (me - plan to retire at 65)
29 (wife)
1.5 (child)

Desired Asset allocation:
70/30

Intl allocation:
20% of stocks

Current Investment Assets:
SEP IRA: $160k
Wife's 401(k) at Hancock: $8500

New annual Contributions:
- Wife is about contribute $33k from 2009 into SEP IRA
- We will each contribute $49k in 2010 into SEP IRA

My proposed allocation:

40% Vanguard Total Stock Market Index (VTSMX)
20% Vanguard Total Intl. Sock Index (VGTSX)
5% Vanguard REIT Index (VGSIX)
5% Vanguard Health Care (VGHCX)

20% Vanguard Total Bond Market Index (VBMFX)
10% Vanguard Inflation-Protected (VIPSX)


Questions:
1. Comments on proposed allocations?
2. Best place for Emergency Fund - I'm thinking a 12mo CD ladder at Ally bank.
3. Don't qualify for Roth, but could convert some -- still unsure if it's worth it in 35% tax-bracket.
4. I'm also thinking about (VCAIX) CA Interm-Term Tax-Advantage Muni Fund (again in light of my tax-bracket and residency) but am unsure about risk, and what a prudent percentage of my bond portfolio would be.
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Answer to questions

Post by Taylor Larimore »

Hi:
1. Comments on proposed allocations?
I like your proposed portfolio very much. Your most important decision is your stock/bond allocation. Based on your ages, you have that about right.

"The enemy of a good plan is the search for a perfect plan." -- Jack Bogle
2. Best place for Emergency Fund - I'm thinking a 12mo CD ladder at Ally bank.


It doesn't make much difference with rates so low. We use Vanguard's Limited Term Tax-Exempt bond fund. I don't want to bother with CD ladders and their penalty if money needs to be withdrawn in an emergency.

If you have access to money in an emergency, you may not need a separate emergency fund.
3. Don't qualify for Roth, but could convert some -- still unsure if it's worth it in 35% tax-bracket.


That's a tough question in a high tax-bracket (which means it may not make much difference). You might find this calculator helpful to make a decision:

Morningstar IRA calculator
4. I'm also thinking about (VCAIX) CA Interm-Term Tax-Advantage Muni Fund (again in light of my tax-bracket and residency) but am unsure about risk, and what a prudent percentage of my bond portfolio would be.
If you open a taxable account, and if the California muni-fund is a nominal portion of your total portfolio, I think VCAIX would be a good choice.

Comment: If you intend to invest substantial amounts in your taxable account, consider a tax-deferred 529 college plan for your child's education.
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
itboglesthemind
Posts: 36
Joined: Sun Jan 24, 2010 5:50 am

Post by itboglesthemind »

Thank you, Taylor. Very much appreciated! I've read the book but am still very new at this.

For my son's education we currently have:

$56,000.00 UTMA (cash)

$4,000.00 Vang. Coverdell (STAR Fund) (we're able to max this every year through our Family Trust)

$350.00 Vang. 529 (contributions from a Upromise account)

Where do you think the best place for the UTMA funds is?

Thanks again!!
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

College investing

Post by Taylor Larimore »

I think it is important to have college funds become more conservative as college time approaches. Try to have mostly cash or short-term bond funds during the last 5 years in your TOTAL college plans.

I like the Target Funds for their diversification and low maintenance. Just pick the Fund with the stock/bond allocation you like. Exchange it later to a more conservative Target Fund if the "glide-path" is not steep enough (or too steep).
"Simplicity is the master key to financial success." -- Jack Bogle
YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Simplified Retirement Portfolio

Post by YDNAL »

itboglesthemind wrote:I posted earlier, but fear it may have been too jumbled... Thanks in advance for any thoughts!!!

Questions:
1. Comments on proposed allocations?
2. Best place for Emergency Fund - I'm thinking a 12mo CD ladder at Ally bank.
3. Don't qualify for Roth, but could convert some -- still unsure if it's worth it in 35% tax-bracket.
4. I'm also thinking about (VCAIX) CA Interm-Term Tax-Advantage Muni Fund (again in light of my tax-bracket and residency) but am unsure about risk, and what a prudent percentage of my bond portfolio would be.
itbogles,

I lost track of your previous post over the weekend. :(

I noticed that you settled on a unified portfolio with one AA (instead of his and hers).
itboglesthemind wrote:Desired Asset allocation:
70/30

Intl allocation:
20% of stocks <- suggest 43% x 70% Stocks = 30% of Portfolio (see below)

Current Investment Assets:
SEP IRA: $160k
Wife's 401(k) at Hancock: $8500

New annual Contributions:
- Wife is about contribute $33k from 2009 into SEP IRA
- We will each contribute $49k in 2010 into SEP IRA
With the unified AA settled, consider:

95% SEP IRA
25% Vanguard Total Stock Market Index (VTSMX)
10% Vanguard Small Cap Value (VISVX)
10% Vanguard FTSE ex US Large (VFWIX)
20% Vanguard FTSE ex US Small (VFSVX)
20% Vanguard Total Bond Market Index (VBMFX)
10% Vanguard Inflation-Protected (VIPSX)

5% 401K at Hancock (transfer to Vanguard?)
can probably go to REITs or Healthcare if you wish
  1. I took a 35% Stock bucket for TSM and FTSE Large.
  2. Took a 30% Stock bucket for SC Value and FTSE Small.
  3. The 5% remaining in the 401K is open for REITs or Healthcare (only 1) that you like.
  4. Overall is 40/30/30 Domestic/Foreign/Bonds.
  5. You can tweak the above %s in many different ways - according to personal preference and expectations.
My $0.02.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Topic Author
itboglesthemind
Posts: 36
Joined: Sun Jan 24, 2010 5:50 am

Post by itboglesthemind »

Thank you very much!! The AA looks great, certainly an improvement over mine...

One thing I forgot/screwed up, is that I am incorporated (my wife and I are the only employees), and recently opened a 401(k) for the company through our former broker.

We're getting our hands on the terms, fees, available allocation, etc. but I know it's designed to be very user friendly.

Anyway, my point is that the $16.5k my wife already contributed was to our 401(k) and not the SEP. We will each make a similar contribution in 2010 as well, giving us total $49.5K tax-advantaged (I'm planning to max this out early). I assume then that TIPS and Total Bond Market should be allocated in as well?

Thanks again for taking the time! I'm learning so much from this site (and the book).
Topic Author
itboglesthemind
Posts: 36
Joined: Sun Jan 24, 2010 5:50 am

Post by itboglesthemind »

Sorry, another questions.

YDNAL, would you maintain the current allocation w/in the stock portion of the portfolio going forward ad-infinitum, or would you gradually change it over time as retirement approaches.

Thanks again!
YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Simplified Retirement Portfolio

Post by YDNAL »

itboglesthemind wrote:Sorry, another questions.

YDNAL, would you maintain the current allocation w/in the stock portion of the portfolio going forward ad-infinitum, or would you gradually change it over time as retirement approaches.

Thanks again!
itbogles,

As you age and approach retirement, your NEED for risk typically diminishes and the time to recover Stock losses also diminishes. This, then, means that Stock risk should be reduced (reduced Stocks) and the allocation to Bonds increases.

By the time you are 50yo and closer to retirement, and say you want a 50/50 AA, then the portfolio could look something like this:
  • 20% Vanguard Total Stock Market Index (VTSMX)
    10% Vanguard Small Cap Value (VISVX)
    10% Vanguard FTSE ex US Large (VFWIX)
    10% Vanguard FTSE ex US Small (VFSVX)
    25% Vanguard Total Bond Market Index (VBMFX)
    25% Vanguard Inflation-Protected (VIPSX)
  1. I took a 30% Stock bucket for TSM and FTSE Large.
  2. Took a 20% Stock bucket for SC Value and FTSE Small.
  3. Overall is 30/20/50 Domestic/Foreign/Bonds.
  4. These types of AA changes can be planned and executed with new contributions over time.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Topic Author
itboglesthemind
Posts: 36
Joined: Sun Jan 24, 2010 5:50 am

Post by itboglesthemind »

Thanks again! I guess my only remaining question is the reasoning behind weighting so heavily towards foreign, especially emerging markets?
Post Reply