Asset Allocation Help with Vanguard & TIAA-CREF

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Topic Author
newtoohere
Posts: 70
Joined: Mon Mar 09, 2009 7:07 pm

Asset Allocation Help with Vanguard & TIAA-CREF

Post by newtoohere »

Hello all,

I need some help again with our asset allocation. I posted a new topic on the site in the spring of 2009 (see our original post here: http://www.bogleheads.org/forum/viewtop ... highlight=).

Much has change since then, but much is still the same. I have updated my original post to reflect our current situation and I am hoping to get some more advice on our asset allocation.

Emergency funds = 6 months of expenses

Debt:
Mortgage: $348k @ 5.00% (30yr fixed)
$55k @ 6.25% (15 fixed)
(We recasted the loan to get the lower rates with our bank)

Student Loans: $41k @ 3.25% (Wife)
$28k @ 2.75% (Husband)


Family Loan: $0k now was $10k - Paid parents back for school loan

Tax Filing Status: Married filing Jointly

Tax Rate: 28% Federal 3% State PA

Age: 31 (both)

Desired Asset allocation: 70/20/10 (I'll explain shortly)

Intl allocation: 30% of stocks

We have TIAA-CREF available to us in our 403(b) and we were recommended to do at least 10% in the TIAA Real Estate hence the 70/20/10

Current portfolio: Low six digits

HIS ROTH @ Vanguard -
4% Vanguard Total Stock Market (VTSMX) (0.18%)
3% Vanguard Prime Money Market - Just placed this in this fund now until I figure out where to put it for our asset allocation


HIS ROLLOVER IRA @ Vanguard
9% Vanguard Total Bond (VBMFX) (0.22%)
6% Vanguard Total Stock Market (VTSMX) (0.18%)
3% Vanguard Small Value Index (VIVSX) (0.28%)
3% Vanguard Small Cap Index (NAESX) (0.28%)

HIS 403(b) @ TIAA-CREF
11% Large Cap Growth Index (TRIRX) (0.34%)
11% Large Cap Value Index (TRCVX) (0.35%)
6% Small Cap Blend Index (TRBIX) (0.35%)

HER ROTH @ Vanguard
4% Vanguard Total Stock Market (VTSMX) (0.18%)
3% Vanguard Prime Money Market - Just placed this in this fund now until I figure out where to put it for our asset allocation

HER ROLLOVER @ Vanguard
17% Vanguard Total International Stock Market (VGTSX) (0.26%)
2% Vanguard TIPS (VIPSX) (0.20%)

HER 403(b) @ TIAA-CREF
7% Large Cap Growth Index (TRIRX) (0.34%)
7% Large Cap Value Index (TRCVX) (0.35%)
4% Small Cap Blend Index (TRBIX) (0.35%)

New annual Contributions
$10k his 403b
$5k her 403b
$10k - Roth IRA

Funds available in both 403(b)
TIAA Traditional (No Ticker) (Don't know expense)
CREF Stock (No Ticker) (.62%)
CREF Growth (No Ticker) (0.63%)
CREF Equity Index (No Ticker) (0.56%)
CREF Global Equities (No Ticker) (0.66%)
TIAA-CREF Growth & Income Fund - Retirement Class (TRGIX)(0.75%)
TIAA-CREF Social Choice Equity Fund - Retirement Class (TRSCX)(0.46%)
TIAA-CREF Real Estate Securities Fund - Retirement (TRRSX)(0.81%)
TIAA-CREF International Equity Fund - Retirement Class (TRERX)(0.79%)
TIAA-CREF Large-Cap Value Fund - Retirement Class (TRLCX)(0.74%)
TIAA-CREF Mid-Cap Growth Fund - Retirement Class (TRGMX)(0.81%)
TIAA-CREF Mid-Cap Value Fund - Retirement Class (TRVRX)(0.77%)
TIAA-CREF S&P 500 Index Fund - Retirement Class (TRSPX)(0.31%)
TIAA-CREF Large-Cap Growth Index Fund - Retirement (TRIRX)(0.34%)
TIAA-CREF Large-Cap Value Index Fund - Retirement (TRCVX)(0.35%)
TIAA-CREF Mid-Cap Blend Index Fund - Retirement (TRMBX)(0.35%)
TIAA-CREF Mid-Cap Growth Index Fund - Retirement (TRMGX)(0.35%)
TIAA-CREF Mid-Cap Value Index Fund - Retirement (TRVUX)(0.35%)
TIAA-CREF Small-Cap Blend Index Fund - Retirement (TRBIX)(0.35%)
TIAA-CREF Small-Cap Growth Index Fund - Retirement (TRCGX)(0.35%)
TIAA-CREF Small-Cap Value Index Fund - Retirement (TRSVX)(0.35%)
TIAA-CREF International Equity Index Fund - Retirement (TRIEX)(0.36)
TIAA-CREF Small-Cap Equity Fund - Retirement Class (TRSEX)(0.78%)
TIAA Real Estate (No Ticker) (0.84%)
CREF Bond Market (No Ticker)(0.58%)
CREF Inflation-Linked Bond (No Ticker)(0.56%)
CREF Money Market (0.54%)
CREF Social Choice (No Ticker)(0.59%)
TIAA-CREF Lifecycle 2010 Fund - Retirement Class (TCLEX)(0.66%)
TIAA-CREF Lifecycle 2015 Fund - Retirement Class (TCLIX)(0.67%)
TIAA-CREF Lifecycle 2020 Fund - Retirement Class (TCLTX)(0.69%)
TIAA-CREF Lifecycle 2025 Fund - Retirement Class (TCLFX)(0.70%)
TIAA-CREF Lifecycle 2030 Fund - Retirement Class (TCLNX)(0.71%)
TIAA-CREF Lifecycle 2035 Fund - Retirement Class (TCLRX)(0.72%)
TIAA-CREF Lifecycle 2040 Fund - Retirement Class (TCLOX)(0.72%)

Here are my thoughts and questions::

*Obviously we need to rebalance to achieve a 70/20/10 allocation. What I don’t know exactly is how to achieve this with the various accounts that we have. What should I put in the Roth vs the 403(b) vs the roll-over IRA?
*We sold out of TREA while it was taking a dive after reading interesting posts on the TIAA-CREF forum on Morningstar? I want to get back in but don’t know if I should buy back in all at once at 10% or slowly accumulate 10% over a period of time?
User avatar
Optimistic
Posts: 344
Joined: Tue Sep 28, 2010 5:05 pm

Post by Optimistic »

Hi newtoohere,
Debt:
Mortgage: $348k @ 5.00% (30yr fixed)
$55k @ 6.25% (15 fixed)
(We recasted the loan to get the lower rates with our bank)
I'm guessing the 55k is a home equity loan? I suggest looking into trying to get a better rate for it. For example, Pentagon FCU is currently offering home equity loans up to 15 years at 3.99% with no closing costs. Over the next 15 years, the lower interest rate would save you almost $12,000 in interest payments.

Also, with the high amount of debt you currently are carrying, I suggest you read the wiki's entry on Paying down loans versus investing. You might want to at least consider splitting your new contributions up between investment and debt.

Respectfully,
Optimistic
User avatar
House Blend
Posts: 4878
Joined: Fri May 04, 2007 1:02 pm

Re: Asset Allocation Help with Vanguard & TIAA-CREF

Post by House Blend »

newtoohere wrote:*Obviously we need to rebalance to achieve a 70/20/10 allocation. What I don’t know exactly is how to achieve this with the various accounts that we have. What should I put in the Roth vs the 403(b) vs the roll-over IRA?

*We sold out of TREA while it was taking a dive after reading interesting posts on the TIAA-CREF forum on Morningstar? I want to get back in but don’t know if I should buy back in all at once at 10% or slowly accumulate 10% over a period of time?
2. Get back into TREA all at once. It ain't gonna nosedive immediately.

1. Looks like you have have 46% at T-C and 54% at VG. Here's how I would recommend hitting your allocation targets:

At T-C:
10% TREA
20% CREF Bond and/or CREF Inflation-Linked Bond
10% CREF Equity Index or SP500 Index (TRSPX)
6% Small Blend Index (TRBIX)

At VG:
21% Total International
27% TSM
6% Small Value or Small Blend

The small amounts of small caps I picked at random. Nothing specific should be read into that, orther than the fact that I noticed you had a tilt to small and small value.

Your $25K in new contributions could get divided like this:

T-C 403(b)'s:
$2.5K TREA
$5.0K Bonds
$6.0K US Large
$1.5K Small Blend

VG:
$5.0K International -> call that one Roth contribution
$3.5K TSM
$1.5K US Small/Small Value

So that suggests putting International in one Roth, a mix of TSM and Small in the other, with the Rollovers used to clean up the spillage.
rock_marmot3
Posts: 63
Joined: Wed Nov 04, 2009 7:56 am

Post by rock_marmot3 »

House Blend's proposed allocation looks right to me.

The only thing I'd suggest is that you try and boost your savings rate, if possible... 25K/year on income of $150k-$200k is a bit shy of the 20% people typically advise around here.

And unlike "Optimistic", I wouldn't pay down debt unless I was maxing out tax-advantaged contributions first.
Topic Author
newtoohere
Posts: 70
Joined: Mon Mar 09, 2009 7:07 pm

Post by newtoohere »

Thanks so far for the replies. With 2 children now and significant amount of debt, we are currently putting any extra money towards the 2nd mortgage. In August 2011, we are expecting our income to increase by about 17%. Our thoughts were to put all that towards our 2nd mortgage, but maybe that is not the best of ideas at this point.

The 2nd mortgage is not a home equity loan, but rather a fixed 15yr mortgage. I would like to re-fi that or apply with PenFed for a home equity loan with a lower rate, but I think the house is worth what I owe. Would one still qualify in that situation?

I really like your breakdown of funds, House Blend. Question: Why would you choose Cref Equity or SP500 Index instead of the Large Cap Growth Index or Large Cap Value Index?
555
Posts: 4955
Joined: Thu Dec 24, 2009 6:21 am

Post by 555 »

Are the expense ratios up to date. Some have gone down in the past couple of years. For example CREF Stock now has ER 0.44% which makes it more attractive.

http://www.tiaa-cref.org/public/perform ... /1001.html
User avatar
House Blend
Posts: 4878
Joined: Fri May 04, 2007 1:02 pm

Post by House Blend »

newtoohere wrote:I really like your breakdown of funds, House Blend. Question: Why would you choose Cref Equity or SP500 Index instead of the Large Cap Growth Index or Large Cap Value Index?
Just going for simplicity. Looks like you weren't especially aiming for a value tilt, so might as well just use one fund for US Large. And the ER on the SP500 is about as low as T-C gets in the retirement share class: 0.33 according to my data. Large Cap Value Index and Growth Index are 0.34, and CREF Equity Index is 0.39.

The fewer moving parts, the better.
Topic Author
newtoohere
Posts: 70
Joined: Mon Mar 09, 2009 7:07 pm

Post by newtoohere »

555 wrote:Are the expense ratios up to date. Some have gone down in the past couple of years. For example CREF Stock now has ER 0.44% which makes it more attractive.

http://www.tiaa-cref.org/public/perform ... /1001.html
You are correct, some of them are wrong. My apologizes. I went off a print out that I had from work, but when checking online, I noticed that they have changed. I now see why CREF Equities Index or Stock would be a better option.
raywax
Posts: 361
Joined: Sat Sep 20, 2008 10:19 am
Location: Phoenix, AZ

Post by raywax »

I do not have any Vanguard funds though I had owned some VBSSX in the recent bear market. My suggestion is to put your T-C investments into the TIAA Real Estate account and in the Traditional Account if the latter is held in an RA or GRA where the return is greater than that for the Traditional Account in an SRA, GSRA or IRA. As you have read the M* TIAA-CREF forum you should remember that many there, myself included, used the Traditional Account as their fixed income investment. The guarantee of a minimum 3% return in the RA/GRA accounts turned out to be quite valuable in the recent downturn and I would use it now if I were your age. I am not; I am more than twice as old as you are and in fact am fully retired.

Ray
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novastepp
Posts: 340
Joined: Sun Apr 03, 2011 8:13 pm
Location: Indiana

Post by novastepp »

Like your update, I would go with CREF Stock. From what I have read and discussed, the CREF Stock fund does a good job of following the 4 indexes it aims to replicate and outperform. It is decently deversified between large cap amsll/mid cap and international. Maybe all you'd really need in terms of stock.
If you were needing bonds, they have a bond fund, a TIPS fund, and teh popular traditional account, which provides a return currently of 3.85% which I hope will be elevated the end of this month.
Topic Author
newtoohere
Posts: 70
Joined: Mon Mar 09, 2009 7:07 pm

Post by newtoohere »

raywax wrote:I do not have any Vanguard funds though I had owned some VBSSX in the recent bear market. My suggestion is to put your T-C investments into the TIAA Real Estate account and in the Traditional Account if the latter is held in an RA or GRA where the return is greater than that for the Traditional Account in an SRA, GSRA or IRA. As you have read the M* TIAA-CREF forum you should remember that many there, myself included, used the Traditional Account as their fixed income investment. The guarantee of a minimum 3% return in the RA/GRA accounts turned out to be quite valuable in the recent downturn and I would use it now if I were your age. I am not; I am more than twice as old as you are and in fact am fully retired.

Ray
Ray - thanks for the advice. I currently have about 10% of our total portfolio in a GRA account with TIAA-CREF, but all new money is going to a GRSA account. What are your thoughts on holding 10% in the Traditional fund in the GRA for the fixed income, and then maintaining this level by adding new money to Traditional in a GRSA account? If not, where would you recommend new money go to increase this % in the future?
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