Rebalancing: stock funds for Roth IRA's?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Latecomer
Posts: 148
Joined: Mon Jan 14, 2008 12:36 pm

Rebalancing: stock funds for Roth IRA's?

Post by Latecomer »

Hello Everyone,
We could use some help regarding re-balancing.

We own two houses on 10 acres each, and live in one that is newly built. Both are free and clear, and any investments are in addition to the real estate. One of the houses will be a base for our business, which is related to online sales. We are now getting the second house ready to rent, so our cash flow is reduced until we rent it out.

The business is incorporated, and the S-corp will rent space in our present home.
My husband receives an inheritance quarterly.
We plan to work until around 2015, and here is our yearly projected income:

Rental house on 10 acres: $18,000
Corporation salary: 24,000
Inheritance 4,000
Social security (combined) at 66: 24,000
Total income by 2014 $70,000 per year

Re: Laura's questions:

We are comfortable with a 40/60 stock/bond ratio
We have long term health care insurance
We have health insurance
We have emergency funds, enough for one year
We have no debt.
Tax filing: married, filing jointly
Tax: 15% right now
Ages: Him - 64; Her - 66
Desired asset allocation: 40/60
International allocation: 40%

Current portfolio (besides 2 houses and cash): low 6 figures

Taxable (equities)
Vanguard Total Stock Market - 21%
Vanguard FTSE All-World ex US - 12%

Total in taxable 33%

Non-taxable - Roth IRA's
Vanguard Intermed. Treasuries fund 33%
Vanguard TIPS fund 34%

Total in non-taxable 67%

Cash (3 month CD's and money market acct)
The emergency fund is included here.

Questions:

1. What stock funds (if any) should we put in the Roth IRA's for 2011 - in order to re-balance?

2. When we get the house rented, we will be dollar-cost averaging into stocks - comments?

Thank you very much for your input :)
User avatar
mhc
Posts: 5257
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Rebalancing: stock funds for Roth IRA's?

Post by mhc »

Latecomer wrote:

Questions:

1. What stock funds (if any) should we put in the Roth IRA's for 2011 - in order to re-balance?

2. When we get the house rented, we will be dollar-cost averaging into stocks - comments?

Thank you very much for your input :)
I'll answer the two questions together.

Option 1
Roth International Small Cap Index
Taxable TSM

Option 2
Roth TSM
Taxable TISM

Since your current International fund is missing small cap, you could add that. If you don't want to bother, go with option 2. TISM in taxable is very tax efficient and allows you to take the foreign tax credit.

I don't think there is a big difference between the two. You have a very nice, simple portfolio. Don't make it too complicated.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
Topic Author
Latecomer
Posts: 148
Joined: Mon Jan 14, 2008 12:36 pm

Re: Rebalancing: stock funds for Roth IRA's?

Post by Latecomer »

"I'll answer the two questions together.

Option 1
Roth International Small Cap Index
Taxable TSM

Option 2
Roth TSM
Taxable TISM

Since your current International fund is missing small cap, you could add that. If you don't want to bother, go with option 2. TISM in taxable is very tax efficient and allows you to take the foreign tax credit.

I don't think there is a big difference between the two. You have a very nice, simple portfolio. Don't make it too complicated."
______________________________________________________________________________________________________

Thanks for getting back to me. We have two Roth IRA accounts to fund, which will be $6,000 and $6,000. I think that a small cap fund would be good for one, and small cap international fund would be good for the other. Then, I can feed money into the taxable accounts (TSM and FTSE all-world ex-US) with some of the proceeds from the rental house - for the rest of the year. The re-balancing will have to be done quarterly for awhile.
User avatar
mhc
Posts: 5257
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Rebalancing: stock funds for Roth IRA's?

Post by mhc »

Sounds like a good plan.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
Topic Author
Latecomer
Posts: 148
Joined: Mon Jan 14, 2008 12:36 pm

Re: Rebalancing: stock funds for Roth IRA's?

Post by Latecomer »

I was thinking about Trev H.'s posts regarding "the splitters." He referred to this stock portfolio:
25% LB - Large blend
25% SV - Small value
25% ILV - International large value
25% ISB - International blend.

However, since I already have TSM and FTSE ex US in our taxable accounts it may "throw things off kilter" by introducing small value and international blend funds.

It seems that a Small cap index fund and International small cap Index fund would blend more harmoniously with what I already have. I do want to keep it simple - just set everything up and re-balance as needed.

Thank you to all who consider this post :D
YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Rebalancing: stock funds for Roth IRA's?

Post by YDNAL »

Latecomer wrote:Ages: Him - 64; Her - 66
Desired asset allocation: 40/60
International allocation: 40% <---- Meaning 24/16/60 US/Foreign/Bonds

Current portfolio (besides 2 houses and cash): low 6 figures

Taxable (equities)
Vanguard Total Stock Market - 21%
Vanguard FTSE All-World ex US - 12%

Total in taxable 33%

Non-taxable - Roth IRA's
Vanguard Intermed. Treasuries fund 33%
Vanguard TIPS fund 34%

Total in non-taxable 67%

Cash (3 month CD's and money market acct)
The emergency fund is included here.

Questions:

1. What stock funds (if any) should we put in the Roth IRA's for 2011 - in order to re-balance?

2. When we get the house rented, we will be dollar-cost averaging into stocks - comments?

Thank you very much for your input :)
Latecomer,

You desire 24/16/60 US/Foreign/Bonds and are currently 21/12/67 US/Foreign/Bonds.
  1. You are missing 3% US Stocks and 4% Foreign Stocks to match your desired AA.
  2. More importantly, IMO, your Foreign Stocks are missing Foreign Small Caps.
  3. The easiest fix is to add Vanguard FTSE es US Small (VFSVX) and more Vanguard US Mkt (VTSMX) to each Roth.
When the second house is rented, we don't know how much of $18K in rent can be saved - you need to pay expenses from there, of course. Whatever it is, use ALL new savings to Taxable + Roth IRAs to maintain 24/16/60 US/Foreign/Bonds.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Topic Author
Latecomer
Posts: 148
Joined: Mon Jan 14, 2008 12:36 pm

Re: Rebalancing: stock funds for Roth IRA's?

Post by Latecomer »

Thank you, YDNAL and mhc,

One Roth IRA has Vanguard's intermediate treasury fund only.
The other Roth has Vanguard's TIPS fund only.

Are you saying that I should re-balance using:

Total Stock Market fund...in each Roth
FTSE all-world ex US small cap fund...in each Roth

or, use TSM in one of the Roths, and FTSE all-world ex US small cap fund in the other fund?

Again, I really appreciate your thoughts.
YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Rebalancing: stock funds for Roth IRA's?

Post by YDNAL »

Latecomer wrote:Thank you, YDNAL and mhc,

One Roth IRA has Vanguard's intermediate treasury fund only.
The other Roth has Vanguard's TIPS fund only.

Are you saying that I should re-balance using:

Total Stock Market fund...in each Roth
FTSE all-world ex US small cap fund...in each Roth

or, use TSM in one of the Roths, and FTSE all-world ex US small cap fund in the other fund?

Again, I really appreciate your thoughts.
IF I were you:

Taxable (equities)
Vanguard Total Stock Market - 21%
Vanguard FTSE All-World ex US - 12%
New money: $??? (X%) - split as needed, I would put new monies to Foreign in Total Intl VTIAX

Roth #1
Vanguard Intermed. Treasuries fund 33%
New money: $6K (Y%) FTSE Small VFSVX

Roth #2
Vanguard TIPS fund 34%
New money: $6K (Z%) Total Stk Mkt

You should figure:
1. The impact of 100% new money to Stocks in the overall portfolio to make sure that you don't fall short of 60% Bonds, as desired.
2. How much you need (going forward) in VFSVX to complete FTSE Large in Taxable. This is a personal decision, but I would personally target a 50/50 split.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Topic Author
Latecomer
Posts: 148
Joined: Mon Jan 14, 2008 12:36 pm

Re: Rebalancing: stock funds for Roth IRA's?

Post by Latecomer »

Thank you very much. I want to you to know that this really, really helps. :D
Default User BR
Posts: 7502
Joined: Mon Dec 17, 2007 6:32 pm

Re: Rebalancing: stock funds for Roth IRA's?

Post by Default User BR »

Latecomer wrote:I was thinking about Trev H.'s posts regarding "the splitters." He referred to this stock portfolio:
25% LB - Large blend
25% SV - Small value
25% ILV - International large value
25% ISB - International blend.
The last of those is international small blend. The goal is a 50/50 weighting in large/small, blend/value, and domestic/international.


Brian
Topic Author
Latecomer
Posts: 148
Joined: Mon Jan 14, 2008 12:36 pm

Re: Rebalancing: stock funds for Roth IRA's?

Post by Latecomer »

Thank you, Brian.
When I first started studying my options, I wanted to adopt Trev H.'s methodology.

But, I recognize that now we have TSM and FTSE all world ex US in taxable. I want to add small cap stocks in a way that would work with what I already have. I do not want to start all over again in order to incorporate Trev H.'s ideas.

Hope this isn't too confusing...
Post Reply