Portfolio Review and Taxable account help

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Portfolio Review and Taxable account help

Postby ugaDAWGS09 » Wed May 22, 2013 1:14 pm

(My other thread was lost in the crash)

I’m a 27 year old pharmacist, and I’m looking for some advice with my 401k and I would also like to invest in a taxable account.

My emergency fund is in place
I currently only have two debts, a student loan of about 6,000, and a mortgage of about 200k (low interest of 3.875)

Tax status is married filing jointly, and I live in GA. I’m in the 28% federal tax bracket.

My desired AA is about 75/25, but I like to be a little safer so I may go with 70/30.

All of my investments are currently in tax-deferred accounts: 68k in my 401k, and 10k in my Roth. All of my wife’s investments are also in tax-deferred: 20k in 401k.

My 401k is through JP Morgan. I currently contribute 12,500 a year (plus 5000 match and 2800 profit share), however, I will be maxing out as of this year.

My Roth is invested in VWELX. I maxed out last year, and will continue to do so in the future. We are starting a Roth for my wife this year, and will be contributing the max to her account as of this year. As of now, we are going to invest her
account in VWELX, but may decide to do a split of VTI, VXUS, BND. I chose VWELX because I like the safer allocation and low cost of the fund, plus it has performed well and is well established.

My wife’s 401k is through Nationwide. She contributes 4800 a year, but her company isn’t currently providing a match. She doesn’t make nearly what I make and would have to cut her take home pay by more than half to max out her 401 and she just isn’t going to do that right now. We obviously have extra income because we have about 50k available to invest in a taxable account, but she still doesn’t want to see such a huge amount come out of her check.

My JP Morgan available funds:
All the Vanguard Target Retirement Funds (ER 0.13%)
Blackrock Equity Index T (ER 0.03%)
Blackrock Extended Equity Market K (0.11%)
Blackrock ACWI ex-US Index –R (0.12%)
Blackrock US Debt Index – W (0.04%)
Invesco Stable Value (0.35%) – yields 2.55% annually
PIMCO total return (PTTRX) (0.46%)
Vanguard Inflation Protected Securities (VIPIX) (0.07%)
Dodge and Cox Stock (DODGX) (0.52%)
T Rowe Price Large Cap (TRLGX) (0.57%)
Vanguard Capital Opportunity- Admiral (VHCAX) (0.41%)
Dodge and Cox International (DODFX) (0.64%)

My Current Breakdown:
20% PTTRX,
20% Index –T, 15% Market-K, 15% DODGX, 10% TRLGX, 20% VHCAX

My wife’s 401k options: (not many good low-cost options) – listed her percent invested in each after ER

Invesco Eq Inc A (0.81%) --------- 0%
Oakmark Eq Inc (1.09%) -----------28%
American Inflation Adjusted Bond (0.73%) – lowest cost bond ----------- 17%
American Funds World (0.98%) – best international coverage option -----------15%
American Funds Gr Fd Am (0.98%)- best large cap option -----------16%
Prudential Jnisn Midcap group A (1.06%) – best mid cap option ------------10%
LeggM ClrBrdg SmCap Group A (1.32%) – only small cap option ------------12%

I could really use some help here with her 401k, which seems to high a lot of high expense ratios.

Questions:

1. What changes would you make to mine and my wife’s 401k? She just doesn’t have many options to pick from and has a lot of high cost funds. Would I be better off using the Blackrock funds and avoiding the other mutual funds? Some of those mutual funds have done great for me this past year (VHCAX up about 40%). I could also use a target retirement fund by Vanguard.
2. How about my taxable investment? I’m looking to invest 50k in a taxable account, and I really just don’t know which route I should take. I could invest it in TSM and International, but I hate to see that account be so volatile, even though I know you should view your account as a whole. I wish I would pick a fund with some bonds that wouldn’t be so bad for taxes, but then again some funds with lower bond portions like 20% shouldn’t have much effect on taxes. If I’m reading it right, would a fund with 50k total (10K in bonds that yields 3%) pay about 300 a year in dividends. Then that 300 would be taxed at my normal rate (28% plus Ga tax), so it would cost me about 100 extra a year? That doesn’t really seem like much to be concerned with? How about the Vanguard tax-efficient funds, are these good funds for taxable account? I see they have a balanced fund available.
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Re: Portfolio Review and Taxable account help

Postby sometimesinvestor » Wed May 22, 2013 2:55 pm

Its easier to suggest changes in your account in part because your wife's choices are not all that appealing. To my surprise my search indicated index T is a foreign index fund I guess I would look for an S+P 500 index rather than the Oakmark and T.Rowe Price funds I assume extended is a small and midcap fund in which case with capital opportunity you are overweight in midcaps.

While past performance may not work in the future I like Dodge and Cox so my suggested portfolio is quite different from yours . I would go 70% Vanguard Target 2025(roughly 70-30) Plus 10% Dodge and Cox + 20% in the stable value fund. Bill Gross does not think bonds will be great for awhile and I won't disagree.

In your taxable I would go 20K in tax managed balanced (roughly 50% stock, 50% muni) 10k in i bonds 10k in total stockmarket and 10k in total international. While aware of the theory arguments against dollar cost averaging I think I would invest 10k per month rather than lump some invest 50k all at once.

Your wife's account is very difficult. I guess I would suggest funding a Roth with better choiices . Left over funds can go into a taxable fund with extended market + i bonds.
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Re: Portfolio Review and Taxable account help

Postby ugaDAWGS09 » Wed May 22, 2013 3:08 pm

sometimesinvestor wrote:Its easier to suggest changes in your account in part because your wife's choices are not all that appealing. To my surprise my search indicated index T is a foreign index fund I guess I would look for an S+P 500 index rather than the Oakmark and T.Rowe Price funds I assume extended is a small and midcap fund in which case with capital opportunity you are overweight in midcaps.

While past performance may not work in the future I like Dodge and Cox so my suggested portfolio is quite different from yours . I would go 70% Vanguard Target 2025(roughly 70-30) Plus 10% Dodge and Cox + 20% in the stable value fund. Bill Gross does not think bonds will be great for awhile and I won't disagree.

In your taxable I would go 20K in tax managed balanced (roughly 50% stock, 50% muni) 10k in i bonds 10k in total stockmarket and 10k in total international. While aware of the theory arguments against dollar cost averaging I think I would invest 10k per month rather than lump some invest 50k all at once.

Your wife's account is very difficult. I guess I would suggest funding a Roth with better choiices . Left over funds can go into a taxable fund with extended market + i bonds.


The index T is supposed to be an S and P 500 tracking index, I'm not sure where you saw the foreign part but I may be reading it wrong. I like the idea of using the stable value fund. In my 401k that would give me about a 60/40 split. I would think about putting 10% in the stable value and 10% in VHCAX or Index-t fund. Would give me about a 70/30 split.

Can you tell me more about the tax managed balanced fund? Are the municipal bonds guaranteed to yield a certain rate? I don't know much about these or I bonds. Which funds allow you to invest in I bonds?
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Re: Portfolio Review and Taxable account help

Postby sometimesinvestor » Wed May 22, 2013 3:40 pm

http://www.treasurydirect.gov/ is where you buy i bonds.Its basically a sort of savings bond which is not taxed till you cash it in (no penalty after 5 years 3 month penalty after 1 year. Interest rate adjusts every 6 months depending on changes in the CPI(currently 1.16%) When you go to the web site first click on i bonds in the left hand column
The tax managed balanced fund invests in stocks + muni bonds (no rate is guarenteed) (its something a little bit more conservative than wellington (50% stocks 50% muni bonds).Why i bonds/:The market for inflation protected bonds is a bit weird at this time so i bonds have much less downside risk)

This is why I said T was a foreign fund
https://ingcustom.ingplans.com/einfo/pd ... pu/401.pdf

That link was relatively high up when I searched
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Re: Portfolio Review and Taxable account help

Postby ugaDAWGS09 » Wed May 22, 2013 4:37 pm

sometimesinvestor wrote:http://www.treasurydirect.gov/ is where you buy i bonds.Its basically a sort of savings bond which is not taxed till you cash it in (no penalty after 5 years 3 month penalty after 1 year. Interest rate adjusts every 6 months depending on changes in the CPI(currently 1.16%) When you go to the web site first click on i bonds in the left hand column
The tax managed balanced fund invests in stocks + muni bonds (no rate is guarenteed) (its something a little bit more conservative than wellington (50% stocks 50% muni bonds).Why i bonds/:The market for inflation protected bonds is a bit weird at this time so i bonds have much less downside risk)

This is why I said T was a foreign fund
https://ingcustom.ingplans.com/einfo/pd ... pu/401.pdf

That link was relatively high up when I searched


Is there a way to determine the rate currently being paid on the bond portion of the tax managed balanced fund?
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Re: Portfolio Review and Taxable account help

Postby sometimesinvestor » Wed May 22, 2013 6:40 pm

Here isa link which gives some info on the fund

https://personal.vanguard.com/us/funds/ ... =INT#tab=1
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Re: Portfolio Review and Taxable account help

Postby Duckie » Wed May 22, 2013 8:37 pm

ugaDAWGS09, most of this was formulated from the original post before the forum crash. You want an AA of 70-75% stocks, 25-30% bonds, with unknown in international. At your age I'll pick 75% stocks, 25% bonds, with 30% of stocks in international. That breaks down to 52% US stocks, 23% international stocks, and 25% bonds. Here is a possible retirement portfolio:

Taxable at Vanguard -- $45K -- 32% <-- Use $5K to pay off the 6% student loans.
9% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
23% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)

His 401k at JP Morgan -- $67K -- 48%
18% (N/A) BlackRock Equity Index Fund T Class (0.03%)
5% (N/A) BlackRock Extended Equity Market Fund K Class (0.11%) <-- Roughly 80% large caps (Equity Index) plus 20% mid/small caps (Extended Equity) makes up the total US stock market.
25% (PTTRX) PIMCO Total Return Fund Institutional Class (0.46%)

Her 401k at Nationwide -- $20K -- 14%
14% (RGACX) American Funds Growth Fund of America R3 Class (0.98%)

Roth IRA -- $9K -- 6% <-- Is this split between two Roth IRAs, his and hers?
6% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.17%)

My comments:
  1. This has TISM in taxable to take advantage of the 
Foreign tax credit and at Vanguard because it's a much more complete international fund than your 401k.
  2. Having balanced funds (Wellington) when also having separate funds makes monitoring and rebalancing difficult.
  3. Pay off the student loan. Getting rid of a 6% debt is a slam-dunk.
Your questions:
  1. Best place to invest my taxable account (50K)? I’m thinking 50% total stock market, 20% total stock international, 30% total bond, but is this my best option?
    -- Bonds do not belong in a taxable account unless there is no room in tax-sheltered, and you have room. EE and I savings bonds are exceptions.
  2. How about my current 401k allocation, would you recommend any changes?
    -- See above.
Something to think about.
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Re: Portfolio Review and Taxable account help

Postby ugaDAWGS09 » Thu May 23, 2013 6:52 am

Duckie, thanks so much for the help. I feel that your plan should work great for me. I just need to work on making sure my AA stays the same as I add money to each account. I'm probably going to DCA in my taxable account starting today. Thanks again for making it easy to follow.
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Re: Portfolio Review and Taxable account help

Postby Duckie » Thu May 23, 2013 6:51 pm

ugaDAWGS09 wrote:I just need to work on making sure my AA stays the same as I add money to each account.

You add amounts/percentages so that it's close to what you want, then rebalance once or twice a year to get it into line. It doesn't have to be exact.
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