Recently Married | Personal Investment Recommendations

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Topic Author
mwow83
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Joined: Sun Jul 01, 2012 10:31 pm

Recently Married | Personal Investment Recommendations

Post by mwow83 »

First and foremost, thank you. I appreciate any comments, recommendations, and/or insight anyone can provide with me regarding investing. These forums appear to be a wealth of knowledge and I've been extremely impressed with the recommendations and insights that those commenting have provided.

My wife and I recently married - and I'd like to make sure we're on track financially for now and our future. Please take and a look at the details below, specifically my questions. I'm certainly open to suggestions!

Emergency funds: = 12 months of expenses ($30k cash - assuming living current lifestyle, not just necessities)

Debt: $170k mortgage at 3.75% (just did a refinance at 30yr)

Tax Filing Status: Married filing Jointly
His annual salary: $80k
Her annual salary: $39k

Tax Rate: 25% Federal, 0% State (Florida)

Age: Husband and Wife both 29yrs old

Desired Asset allocation: 70% stocks/ 30% bonds

Intl allocation: 35% of stocks

Current portfolio:
$12k 1yr CD @ 1.03% due Nov 2012
$12k 1yr CD @ 0.99% due Jan 2013
$2.5k 4yr CD @ 1.45% due June 2016
$10k cash (extra cash - not part of Emergency Fund)

His 401k
$73k, current allocation: 40% Int Stocks, 35% Large Cap, 15% Small/Mid Cap, 10% Bonds
Currently, I contribute 13% of income (7% trad, 6% roth); company matches 50% up to 8%

Government Short Term Investment Fund HSJYX (0.17%)
Stable Value Fund (0.3%)
Broad Market Bond Index Fund NOBOX (0.13%)
S&P 500 Indexed Equity Fund SVSPX (0.11%)
Value Equity Fund IWD (0.37%)
Investment Company of America Fund RICFX (0.1%)
American Century Growth Fund (0.52%)
Small / Mid-Cap Indexed Equity Fund MASKX (0.12%)
New Perspective Fund RNPFX (0.1%)
MSCI EAFE Indexed Equity Fund EFA (0.14%)
Global Real Estate Fund IRGIX (1.0%)
Emerging Markets Indexed Equity Fund NOEMX (0.22%)

His Trad at Vanguard
$4.9k Wellington (VWELX) (0.27%)

His Roth at Vanguard
$3k Target 2050 Fund (VFIFX) (0.19%)

His Treasury I-Bond
$5k @ 3.07%

Her 403b
$26k, she contributes max allowed (3%); company contributes 4%

PIMCO Total Return Fund (0.6)
Pyramis Intermediate Duration Pool Fund (0.11)
Pioneer Fund (0.74)
Prudential Mid-Cap Quantitative Core Equity Fund (0.35)
Fidelity Growth Company Fund (0.68)
American Beacon Small-Cap Value Fund (0.82)
American Funds Euro-Pacific Growth Fund (0.5)
American Funds New Perspective Fund (0.53)

Her 457 deferred compensation
$5.2k (this is managed)

Calamos Growth A (.25) @25%
PIMCO High Yield A (.25) @50%
TRP Capital Appreciation Adv (.25) @25%


Questions:
1. Should we contribute to traditional or roth IRAs and 401K?
2. Should we contribute up to company match, max out roth's, then contribute back to company plan?
3. What should we do with extra cash?
4. What are your general recommendations and/or thoughts?
Last edited by mwow83 on Tue Jul 03, 2012 1:22 pm, edited 1 time in total.
Default User BR
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Re: Recently Married | Personal Investment Recommendations

Post by Default User BR »

We need the selections (with expenses) for the 401(k)/403(b)/457.



Brian
Topic Author
mwow83
Posts: 54
Joined: Sun Jul 01, 2012 10:31 pm

Re: Recently Married | Personal Investment Recommendations

Post by mwow83 »

Default User BR wrote:We need the selections (with expenses) for the 401(k)/403(b)/457.

Brian
His 401k options (couldn't find fees of ticker symbols):Government Short Term Investment Fund
Stable Value Fund
Broad Market Bond Index Fund
S&P 500 Indexed Equity Fund
Value Equity Fund
Investment Company of America Fund
American Century Growth Fund
Small / Mid-Cap Indexed Equity Fund
New Perspective Fund
MSCI EAFE Indexed Equity Fund
Global Real Estate Fund
Emerging Markets Indexed Equity Fund

Her 403b options:PIMCO Total Return Fund (0.6)
Pyramis Intermediate Duration Pool Fund (0.11)
Pioneer Fund (0.74)
Prudential Mid-Cap Quantitative Core Equity Fund (0.35)
Fidelity Growth Company Fund (0.68)
American Beacon Small-Cap Value Fund (0.82)
American Funds Euro-Pacific Growth Fund (0.5)
American Funds New Perspective Fund (0.53)

Her 457 selections:
Calamos Growth A (.25) @25%
PIMCO High Yield A (.25) @50%
TRP Capital Appreciation Adv (.25) @25%
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ruralavalon
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Location: Illinois

Re: Recently Married | Personal Investment Recommendations

Post by ruralavalon »

mwow83 wrote:His 401k options (couldn't find fees of ticker symbols):Government Short Term Investment Fund
Stable Value Fund
Broad Market Bond Index Fund
S&P 500 Indexed Equity Fund
Value Equity Fund
Investment Company of America Fund
American Century Growth Fund
Small / Mid-Cap Indexed Equity Fund
New Perspective Fund
MSCI EAFE Indexed Equity Fund
Global Real Estate Fund
Emerging Markets Indexed Equity Fund
Can you at least give us the names of the fund companies offering each of these funds.

You should be able to get the tickers and expense ratios from HR or the plan administrator.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Grt2bOutdoors
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Location: New York

Re: Recently Married | Personal Investment Recommendations

Post by Grt2bOutdoors »

ruralavalon wrote:
mwow83 wrote:His 401k options (couldn't find fees of ticker symbols):Government Short Term Investment Fund
Stable Value Fund
Broad Market Bond Index Fund
S&P 500 Indexed Equity Fund
Value Equity Fund
Investment Company of America Fund
American Century Growth Fund
Small / Mid-Cap Indexed Equity Fund
New Perspective Fund
MSCI EAFE Indexed Equity Fund
Global Real Estate Fund
Emerging Markets Indexed Equity Fund
Can you at least give us the names of the fund companies offering each of these funds.

You should be able to get the tickers and expense ratios from HR or the plan administrator.
Not the OP - American Funds offers the New Perspective Fund, Investment Co. of America, Global Real Estate, Value Equity funds.
American Century - Growth Fund. (aka JP Morgan)
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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hoppy08520
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Re: Recently Married | Personal Investment Recommendations

Post by hoppy08520 »

OP, if you can get the expense ratios for the funds, that's really important. Without them, it's like ordering dinner of a menu without any prices -- you want to know what you're paying for before ordering (since you're picking up the check).

A few thoughts on Roth vs. Traditional:
* You have to ask yourself if you think your average tax rate when you start withdrawing in retirement will be higher or lower than your marginal tax rate today. That's obviously a tough call.
* Except in some cases where there's a clear argument in favor of one or the other, a lot of people are on the edge of Roth vs. Traditional, and you have to dig deeper into your personal tax/financial situation to determine which direction might be most beneficial.
* The fact that you're in a 0% income tax state gives some advantages to Roth, since you don't have as strong of a need to find deductions.
* Do you forecast you or your wife being out of the workforce in the near future, which would lower your taxable income? EG, stay-at-home-parent or grad school? That could be an argument for doing some Traditional contributions today and converting some of that to Roth during the time when your joint income is lower and you can convert in the 15% tax bracket (although a counter-argument is that you might not even be up to the 15% bracket when you retire.) If you foresee lower income in near future, then don't do Roth today at 25% when you could do that a couple of years down the line at 15%.
* With your income, you'd have to do the math, but you might be able to get your taxable income down to $70,700 which is the cut-off between the 25% and 15% federal tax bracket (box 43 on the 1040 form) for Married Filing Jointly. To get to that cut-off, you're probably going to to have contribute mostly to Traditional to get enough deductions to get to the 15% bracket. Why is this important? Once you get your marginal tax rate down to 15%, then at that point the argument for Roth is stronger for any savings dollars beyond that. So, maybe you do as much Traditional as you need to in order to get down to 15%, and then any additional goes to Roth. Maybe that's a good compromise. It looks like you might already be doing that by splitting your 401k contributions between Roth and Traditional.

BTW, here's an interesting article with more on this topic: http://thefinancebuff.com/case-against-roth-401k.html. The comments are also helpful as there's a lot of Q&A in the comments.
Easy Rhino
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Re: Recently Married | Personal Investment Recommendations

Post by Easy Rhino »

Many people (like me) end with with a mix of traditional and roth accounts. Like a 401k and a Roth IRA, this is a low tech way of hedging your tax bets. Since you're not in a super high or super low tax bracket, there's no obviously better choice.

The scheme of : "Should we contribute up to company match, max out roth's, then contribute back to company plan" is often a good one. From the stats, your wife's plans seem pretty good, and we don't know about your expenses yet. An excellent 401k might be a better or easier option that even a Roth IRA at vanguard (although on average, the Vanguard IRA is better fees).

For extra cash, if you don't have any known future expenses (car, college, baby), then I'd recommend saving more in tax-advantaged accounts. even using the cash for daily expenses while increase savings rates. Are those CD's part of the emergency fund, or just cash sloshing around in your life?

... some of the numbers on the retirement plans seem... fishy. for instance, in the 403b, the listed expense ratios are pretty low. but 403bs more often have high fees, so perhaps some other fees are listed elsewhere. Also, it seems like there aren't many gund choices there, like no SP500 index fund, and only one bond fund and one "pool". And for the 457, i don't know what "managed" means, and 0.25% expense ratios seem far too low, I wonder if the advisor is charging a fee. And is the REALLY limited to only 3% contributions in her 403b? that seems kind of strange.

Anyway, once you get everything sorted out. you'll want to set up your portfolios so you have the "best" options in each fund while maintaining your overall target AA. It will be tricky. Hopefully your wife is on board with this idea :)
Topic Author
mwow83
Posts: 54
Joined: Sun Jul 01, 2012 10:31 pm

Re: Recently Married | Personal Investment Recommendations

Post by mwow83 »

Easy Rhino wrote:Are those CD's part of the emergency fund, or just cash sloshing around in your life?
Not part of the emergency fund, just extra cash sloshing around :)
Easy Rhino wrote:And for the 457, i don't know what "managed" means, and 0.25% expense ratios seem far too low, I wonder if the advisor is charging a fee. And is the REALLY limited to only 3% contributions in her 403b? that seems kind of strange.
In addition to those expense ratios, the advisor has been collecting $20 per year in fees. And yes, the 3% contribution is limited by the state employer.
Topic Author
mwow83
Posts: 54
Joined: Sun Jul 01, 2012 10:31 pm

Re: Recently Married | Personal Investment Recommendations

Post by mwow83 »

mwow83 wrote:
Default User BR wrote:We need the selections (with expenses) for the 401(k)/403(b)/457.

Brian
His 401k options (couldn't find fees of ticker symbols):
Government Short Term Investment Fund HSJYX (0.17%)
Stable Value Fund (0.3%)
Broad Market Bond Index Fund NOBOX (0.13%)
S&P 500 Indexed Equity Fund SVSPX (0.11%)
Value Equity Fund IWD (0.37%)
Investment Company of America Fund RICFX (0.1%)
American Century Growth Fund (0.52%)
Small / Mid-Cap Indexed Equity Fund MASKX (0.12%)
New Perspective Fund RNPFX (0.1%)
MSCI EAFE Indexed Equity Fund EFA (0.14%)
Global Real Estate Fund IRGIX (1.0%)
Emerging Markets Indexed Equity Fund NOEMX (0.22%)
Topic Author
mwow83
Posts: 54
Joined: Sun Jul 01, 2012 10:31 pm

Re: Recently Married | Personal Investment Recommendations

Post by mwow83 »

I appreciate the comments so far - I've updated my original post with all of the relevant info.

An additional question: Which Vanguard funds should I contribute toward with both (his and her's) IRA money? Right now it's the Wellington (VWELX) and Target 2050 Fund (VFIFX)...
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ruralavalon
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Location: Illinois

Re: Recently Married | Personal Investment Recommendations

Post by ruralavalon »

mwow83 wrote:Age: Husband and Wife both 29yrs old

Desired Asset allocation: 70% stocks/ 30% bonds

Intl allocation: 35% of stocks
In my opinion your desired asset allocation is within the range of what is reasonable.

In constructing a portfolio, generally strive for a combination of low cost and broad diversification. Fortunately the 401k and 403b have some nice choices, so there are probably several good ways to do this. If I am understanding you correctly you have investable money, beyond the emergency fund, totalling $153.6k. In computing percentages I have rounded off, so %s may not always add up.

The taxable account should be set up for tax efficiency, which means shifting the money there to a tax-efficient equity fund. Please see -- Wiki article link: Principles of Tax-Efficient Fund Placement . Vanguard's Total International would be a good choice there. Making that change dictates some adjustments over the next few months, but will get you to a much simpler, low-cost, and tax-efficient portfolio.

A mix of S&P 500 with mid/sm caps in a 4:1 ratio will approximate the total domestic stock market, please see -- Wiki article link: Approximating Total Stock Market .

Here is a portfolio idea for you to consider --

Taxable ($36.5 extra for investing, 24%)
08%, $12k 1yr CD @ 1.03% due Nov 2012
08%, $12k 1yr CD @ 0.99% due Jan 2013
02%, $2.5k 4yr CD @ 1.45% due June 2016
06%, $10k, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX), er = 0.18%, <= Very tax efficient. Excellent international fund, includes all developed markets (incl Canada), emerging markets, and int'l small caps.
(I suggest, as CDs mature, that the CD money go into more purchases of this fund.)


His 401k ($73k, 48%; add $10.4/yr plus company match of $3.2k)
37%, SSgA S&P 500 Indexed Equity Fund SVSPX (0.11%)
01%, Blackrock Small / Mid-Cap Indexed Equity Fund MASKX (0.12%), <= keeping a 4:1 ratio between S&P 500 vs mid/sm cap approximates total market
07%, MSCI EAFE Indexed Equity Fund EFA (0.14%), <= nice price, but does not include Canada or int'l small caps
03%, Emerging Markets Indexed Equity Fund NOEMX (0.22%)
( I suggest as the int'l holdings in taxable increase, decrease the above 2 int'l holdings in the 401k putting that money in the 2 domestic funds in the 401k)
00%, Northern Broad Market Bond Index Fund NOBOX (0.13%), <= add later if needed to adhere to your desired asset allocation for bonds.

Her 403b ($26k, 17%; add $1.1k/yr, plus company match of %1.5k)
07%, Pyramis Intermediate Duration Pool Fund (0.11), <= low cost, intermediate term, high credit-quality, bond pool, looks well diversified.
( I suggest increasing the above bond holding, and decreasing the equity holding below, as you shift the CDs in taxable to an equity fund)
10%, Prudential Mid-Cap Quantitative Core Equity Fund (0.35)

His Trad at Vanguard ($4.9k; 3%)
03%, $4.9k, Vanguard Total International Stock Index Fund Investor Shares (VGTSX) er = 0.22%, <= Excellent international fund, includes all developed markets (incl Canada), emerging markets, and int'l small caps.

His Roth at Vanguard ($3k, 02%; add $5k/yr???)
02%, $3k, Vanguard Total International Stock Index Fund Investor Shares (VGTSX) er = 0.22%, <= excellent international fund, includes all developed markets (incl Canada), emerging markets, and int'l small caps.

His Treasury I-Bond ($5k, 03%; buying more of this???)
03%, $5k @ 3.07%

Her 457 deferred compensation ($5.2k, 03%, this is managed)
<01%,Calamos Growth A (.25) @25%, <= 45/55 blended fund, managed
>01%, PIMCO High Yield A (.25) @50%
<01%,TRP Capital Appreciation Adv (.25) @25% < 60/40 blended fund, managed

This gives you a portfolio in your desired asset allocation, which is both low cost and broadly diversified. It looks a bit complicated because of the shifts needed to get tax efficiency in the taxable account, but will soon (by Jan. 2013) produce a fairly simple portfolio consisting primarily of just 4 funds: (1) SSgA S&P 500 Indexed Equity Fund SVSPX; (2) Blackrock Small / Mid-Cap Indexed Equity Fund MASKX; (3) Vanguard Total International Stock Index Fund Admiral Shares (VTIAX); and (4) Pyramis Intermediate Duration Pool Fund.

As I say, there are probably several good ways to do this.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
mwow83
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Joined: Sun Jul 01, 2012 10:31 pm

Re: Recently Married | Personal Investment Recommendations

Post by mwow83 »

ruralavalon wrote: In my opinion your desired asset allocation is within the range of what is reasonable.

In constructing a portfolio, generally strive for a combination of low cost and broad diversification. Fortunately the 401k and 403b have some nice choices, so there are probably several good ways to do this. If I am understanding you correctly you have investable money, beyond the emergency fund, totalling $153.6k. In computing percentages I have rounded off, so %s may not always add up.
ruralavalon, I appreciate the review and recommendation. I'm stick a little confused and before I make changes, would like to make sure I understand all the details.

1) I've invested in CD's because I don't necessarily want to lock up all of that money for retirement, at least not now. My wife may be going to grad school (while working), we may buy another home (in 2-4years, keeping our current as a rental), and potentially starting a family. So, of the $36.5k, would I be able to access this money without penalty?
2) After thinking about my allocation a little further, I'm not confident that I want 35% or 70% of my portfolio in international stocks. What are your thoughts and recommendations on the following allocation: 40% u.s. stock, 30% intm bond, 20% foreign stock, and 10% real estate?
3) Thoughts/recommendations on the Core Four?
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ruralavalon
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Re: Recently Married | Personal Investment Recommendations

Post by ruralavalon »

mwow83 wrote: 1) I've invested in CD's because I don't necessarily want to lock up all of that money for retirement, at least not now. My wife may be going to grad school (while working), we may buy another home (in 2-4years, keeping our current as a rental), and potentially starting a family. So, of the $36.5k, would I be able to access this money without penalty?
Here is how that could work: as theCDs mature, increase your bond allocation by the amount you want to set aside for grad school or down payment or child expenses; put that add'l amount in bonds a tax-protected account; when the time comes to pay for grad school or for a down payment or child expenses, sell equities from the taxable account and then adjust your holdings in tax-protected to maintain your desired asset allocation. Please see -- Wiki article link: Placing Cash Needs in a Tax-Advantaged Account .

So, for example, when the Nov. 2012 CD matures, take that $12K and buy add'l Vanguard Total International in taxable, and then sell the equivalent amount of the int'l funds in the 401k and put that in the bond fund in the 401k.

A second tax-efficient fund you could buy in taxable, as needed to limit your int'l allocation to 20%, is Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), er = 0.06%.

mwow83 wrote: 2) After thinking about my allocation a little further, I'm not confident that I want 35% or 70% of my portfolio in international stocks. What are your thoughts and recommendations on the following allocation: 40% u.s. stock, 30% intm bond, 20% foreign stock, and 10% real estate?
That is also within the range of what is reasonable, in my opinion. The key is to find the asset allocation that you are most comfortable with, so that you can later weather the next insane thing that happens in the market.

mwow83 wrote: 3) Thoughts/recommendations on the Core Four?
I assume for "real estate" you mean to use a REIT fund, like Vanguard REIT Index Fund Admiral Shares (VGSLX). http://www.bogleheads.org/forum/viewtopic.php?t=10413 . Yes, I think that is a good idea at up to 10% of portfolio, we use that fund ourselves. A REIT fund should be kept in a tax-protected account, its very tax-INefficient. The IRAs would be good locations for this fund.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
YDNAL
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Re: Recently Married | Personal Investment Recommendations

Post by YDNAL »

mwow83 wrote:My wife and I recently married - and I'd like to make sure we're on track financially for now and our future. Please take and a look at the details below, specifically my questions. I'm certainly open to suggestions!

Tax Rate: 25% Federal, 0% State (Florida)

Age: Husband and Wife both 29yrs old

Desired Asset allocation: 70% stocks/ 30% bonds

Intl allocation: 35% of stocks

Questions:
1. Should we contribute to traditional or roth IRAs and 401K?
2. Should we contribute up to company match, max out roth's, then contribute back to company plan?
3. What should we do with extra cash?
4. What are your general recommendations and/or thoughts?
I've invested in CD's because I don't necessarily want to lock up all of that money for retirement, at least not now. My wife may be going to grad school (while working), we may buy another home (in 2-4years, keeping our current as a rental), and potentially starting a family. So, of the $36.5k, would I be able to access this money without penalty?

After thinking about my allocation a little further, I'm not confident that I want 35% or 70% of my portfolio in international stocks. What are your thoughts and recommendations on the following allocation: 40% u.s. stock, 30% intm bond, 20% foreign stock, and 10% real estate?
MW,

1. With plans at work (401K, 403B), tax-deduction on traditional IRA is reduced (minimally) and potentially eliminated. So, the question is really Roth IRA and 401K - the answer is yes. Roth IRAs are very valuable since they are not required to withdraw under Required Minimum Distributions later in life and all expected growth in the account is not taxed when/if you take it out.

2. If a Roth IRA makes sense to you, put $5K in Roth IRA and the rest in 401K. Same for your wife.

3. Based on your latest input (quote above), any saving which is NOT for retirement should not be included in a retirement portfolio and should be invested according to need and timeframe for the money. If CDs and Cash are put aside for house downpayment, starting a family, etc. then this is not retirement money.

4. Something for you to consider:
  • Current portfolio:
    $12k 1yr CD @ 1.03% due Nov 2012
    $12k 1yr CD @ 0.99% due Jan 2013
    $2.5k 4yr CD @ 1.45% due June 2016
    $10k cash (extra cash - not part of Emergency Fund)
    ^ NOT retirement money

    $73k His 401k
    $0K Broad Market Bond Index Fund NOBOX (0.13%) <-- this if for new contributions, as needed
    $30K S&P 500 Indexed Equity Fund SVSPX (0.11%)
    $23K Small / Mid-Cap Indexed Equity Fund MASKX (0.12%)
    $10K MSCI EAFE Indexed Equity Fund EFA (0.14%)
    $10K Emerging Markets Indexed Equity Fund NOEMX (0.22%)

    His Trad at Vanguard
    $4.9k Vanguard Total International (VGTSX)

    His Roth at Vanguard
    $3k Vanguard Total International (VGTSX)

    His Treasury I-Bond
    $5k @ 3.07%

    Her 403b
    $26k Pyramis Intermediate Duration Pool Fund (0.11)
    she contributes max allowed (3%); company contributes 4%

    Her 457 deferred compensation <-- options?
    $5.2k (this is managed)

    Calamos Growth A (.25) @25%
    PIMCO High Yield A (.25) @50%
    TRP Capital Appreciation Adv (.25) @25%
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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