Portfolio Review & Advice…1 yr after finding bogleheads

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Portfolio Review & Advice…1 yr after finding bogleheads

Postby SnowSkier » Wed May 22, 2013 9:40 am

Dear Bogleheads,

Can you please help with a portfolio review and any suggestions or comments? Any help or validation would be greatly appreciated.

Fortunately, I discovered bogleheads.org and the bogleheads books about 14 months ago. Since then, I’ve arrived at the asset allocation and investments listed below. I mainly want to sanity check what I’m doing…

Emergency funds: yes, about 60K in savings acct (1% interest), Not included in asset allocation
Debt: mortgage, 230K, 15yr fixed, 2.75% int, refinanced 6 months ago, on track to payoff at age 60
Tax Filing Status: Married Filing Jointly
Tax Rate: 33% Federal. No state income tax.
State of Residence: Texas
Age: 46, wife 42
Desired Asset Allocation: 80% stocks / 20% bonds (high stock %, but had higher stock in 2008-2009 and sold nothing…open to 75/25…but why not go with 80/20 in current bond environment if I know and have proven to myself that I won’t sell stocks in a major downturn?...if downturn, intent would actually be to rebalance)
Desired International allocation: 37% of stocks

Asset Allocation, % of Stocks / % of Portfolio, these are targets which equal actuals
38% / 30% US TSM (VTSAX)
20% / 16% US SmallCapValue (VSIAX) & Ext Mkt (VIEIX) (prefer SCV, fill in with VIEIX avail in 401k)
05% / 04% US REIT (VNQ)
22% / 18% Intl TISM (mostly VTIAX)
10% / 08% Intl SmallCap (VSS)
05% / 04% Intl REIT (VNQI)
--------------
100% of Stocks / 80% of Portfolio

Current breakdown of Bonds, 20% of Portfolio, these aren’t targets, just where I am now, after starting to max out I Bonds and do some CDs.
11% TBM
06% I Bonds at TreasuryDirect
03% CDs

Current portfolio ~800K (excludes emergency funds & 529)

Current retirement assets by account, % of Portfolio

Taxable (41% of portfolio)
16% VG TSM Index Fund Adm (VTSAX) (0.05% ER)
16% VG TISM Index Fund Adm (VTIAX) (0.16% ER)
03% CDs at Barclays, earning 1.85%, part of Bond allocation
06% I Bonds at TreasuryDirect (tax deferred until 30 yrs or redemption)

His 401k (35% of portfolio) (adding 17,500/yr plus match)
14% TSM Index (equivalent to VTSAX) (0.08% ER)
08% VG Extended Mkt Index Inst (VIEIX) (0.12% ER)
02% VG FTSE All-World ex-US Index Inst (VFWSX) (0.15% ER)
11% VG Total Bond Mkt Index Inst (VBTIX) (0.07% ER)

His Solo 401k at Fidelity (16% of portfolio) (not adding to this, just re-investing div & gains)
08% VG FTSE All-World ex-US Small-Cap ETF (VSS) (0.25% ER)
04% VG US REIT ETF (VNQ) (0.09% ER)
04% VG Global ex-US Real Estate ETF (VNQI) (0.32% ER)

His Roth IRA at Vanguard (4% of portfolio) (adding 5500/yr, via backdoor Roth)
04% VG Small-Cap Value Index Fund Adm (VSIAX) (0.10%)

Her Roth IRA at Vanguard (4% of portfolio) (adding 5500/yr, via backdoor Roth)
04% VG Small-Cap Value Index Fund Adm (VSIAX) (0.10%)

New annual Contributions
$17,500 his 401k, plus approx 8,000 from match = 25,500, see current allocation below
$ 5,500 his Roth IRA, intent is all SCV in 2014
$ 5,500 her Roth IRA, intent is all SCV in 2014
~$25,000 taxable, thinking about buying 25k I Bonds in 2014, and then rebalancing

Funds available in his 401k
TSM Index (equivalent to VTSAX) (0.08% ER), currently allocate 34% of every contribution
VG Ext Mkt Index Inst (VIEIX) (0.12% ER), currently allocate 17% (acts like SmallCap, VB)
VG FTSE All-World ex-US Index Inst (VFWSX) (0.15% ER), currently allocate 29%
VG TBM Index Fund Inst (VBTIX) (0.07% ER), currently allocate 20%
These four are the only index funds and are lowest-cost. I’m not listing the other choices, for simplicity.

Planning to rebalance annually at bonus-time, and also rebalance if any allocation gets off by 20% (Daryanini approach with 20% action limits and 10% target, or tolerance, limits).

Questions: Mainly want to sanity check what I’m doing…
1. Does the overall allocation & approach look reasonable? Any suggestions?
2. Does asset location look OK for tax purposes?
3. For part of my bond allocation, I’m maxing out I Bonds and doing a small amount of CDs. Make sense? About half of bonds is VG TBM Fund (avail in 401k).
4. I’m not doing any muni bond funds yet (e.g. VWLUX or VWIUX), because I have room in tax-advantaged so far. Make sense?

Many thanks!

(one small edit for accuracy & reference...my wife is 42 not 44 :oops: ; I must have been thinking about average age which I'm now using for bonds, i.e. my new bond% = avg age minus 20 = 24%)
Last edited by SnowSkier on Wed Jun 26, 2013 12:12 am, edited 3 times in total.
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Re: Portfolio Review & Advice…1 yr after finding bogleheads

Postby LH » Wed May 22, 2013 9:42 am

I would not go backwards on the bond allocation

edit:
Desired Asset Allocation: 80% stocks / 20% bonds (high stock %, but had higher stock in 2008-2009 and sold nothing…open to 75/25…but why not cut down on bonds in current environment if I know I won’t sell stocks?)


I was responding to that "cut down on bonds"
Last edited by LH on Wed May 22, 2013 11:34 am, edited 1 time in total.
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Re: Portfolio Review & Advice…1 yr after finding bogleheads

Postby SnowSkier » Wed May 22, 2013 9:50 am

I should clarify stock/bond. I'm at 80/20 and comfortable with that. I have no desire to take bonds below 20%. I'm open to considering 75/25. Not sure how to interpret "backwards". Thanks!
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Re: Portfolio Review & Advice…1 yr after finding bogleheads

Postby Duckie » Wed May 22, 2013 8:09 pm

SnowSkier wrote:1. Does the overall allocation & approach look reasonable? Any suggestions?

This is mostly reasonable. It's not what I would do, but it's obvious you thought about this and worked it all out to your own comfort level.

(If you're wondering what I would do, I would have more bonds, a lot more, and extended market and less REITs and small cap value.)

2. Does asset location look OK for tax purposes?

Yes.

3. For part of my bond allocation, I’m maxing out I Bonds and doing a small amount of CDs. Make sense? About half of bonds is VG TBM Fund (avail in 401k).

This makes sense.

4. I’m not doing any muni bond funds yet (e.g. VWLUX or VWIUX), because I have room in tax-advantaged so far. Make sense?

It makes sense.
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Re: Portfolio Review & Advice…1 yr after finding bogleheads

Postby SnowSkier » Wed May 22, 2013 9:30 pm

Thank you Duckie, greatly appreciated!

It helps to have another set of eyes on this that are more experienced than mine, to make sure I'm not missing some material mistake, or seeing the trees but not the forest.

Your comments on SmallCapValue (VSIAX for me) and SmallCap (VIEIX extended mkt for me) give me some helpful food for thought...if I'm thinking about this correctly, after a long day. At the moment my 20% combined allocation to these (% of stocks) just happens to be half and half. Instead of striving to max SmallCapValue (which uses up scarce space in Roth and could use scarce space in Solo 401k) and filling in the remainder of the 20% with VIEIX, I should probably stick with half and half. I haven't thought too much about this yet, but off the top of my head, this could give me more portfolio flexibility since the VIEIX is much easier to hold since it's in my 401k. i.e. free up some Roth space or solo 401k space down the road.

Thanks again!
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Re: Portfolio Review & Advice…1 yr after finding bogleheads

Postby Duckie » Wed May 22, 2013 9:52 pm

SnowSkier wrote:Your comments on SmallCapValue (VSIAX for me) and SmallCap (VIEIX extended mkt for me) give me some helpful food for thought.

Extended Market hold mid caps along with small caps. It's more complete.
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Re: Portfolio Review & Advice…1 yr after finding bogleheads

Postby retiredjg » Fri May 24, 2013 11:49 am

SnowSkier wrote:1. Does the overall allocation & approach look reasonable? Any suggestions?

Yes, except for your fixed asset allocation which is too low in my opinion.

2. Does asset location look OK for tax purposes?

Yes

3. For part of my bond allocation, I’m maxing out I Bonds and doing a small amount of CDs. Make sense? About half of bonds is VG TBM Fund (avail in 401k).

Yes.

4. I’m not doing any muni bond funds yet (e.g. VWLUX or VWIUX), because I have room in tax-advantaged so far. Make sense?

Yes. However, if muni bonds are attractive enough to get you to increase your bond allocation to 25% (minimum) or 30% (more appropriate), maybe you should consider munis.

I'm with Duckie. Your portfolio is not what I'd want, but you appear to have thought it out and know what you are doing. My only problem is your lack of fixed income assets. 20% in fixed assets is not much for people your ages. And with a high income and high savings rate, you do not need to take that much risk. There's just no point to it. :happy
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Re: Portfolio Review & Advice…1 yr after finding bogleheads

Postby SnowSkier » Fri May 24, 2013 8:14 pm

Thank you retiredjg!

Great food for thought.

I agree with you and duckie, and think I will find a sensible way to move to something like age minus 20 as my bond%. Still admittedly low range for bonds but not as low as 20%.

My retirement "number" probably needs to be much larger than I would have thought due to one of my daughters having special needs, but (1) age minus 20 is aggressive as it is, and (2) a bigger factor is living beneath our means and Saving a significant amount per year.

Many thanks for sanity checking!
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