Vanguard Financial Planning Services Plan- Review, Please

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Vanguard Financial Planning Services Plan- Review, Please

Postby Piebald » Tue Aug 26, 2008 6:04 pm

I am in the process of consolidating what I can of my retirement accounts to Vanguard. I used Vanguard's Financial Planning Services.

Below is my situation, per sticky guidelines and Vanguard's proposal embedded within. I went with the Consolidated Portfolio suggestion, yet had no pressure to do so. Simplicity is my goal here.

______________________________________________________________

Emergency funds = 4 months

Debt: 20,000 auto loan; 110,000 left on 170,000 mortgage to be paid off in 5 years (4.75 15 year term)

Tax Filing Status: Single, but finances combined with Domestic Partner's

Tax Rate: 25% federal both, no state

Age: 55 and 53 Ideal retirement age 62, very doable with 60/40 allocation

The following portfolio proposal is for my account only. My partner has a retirement portfolio that we are keeping separate from the mix due to the current federal non-recognition of non traditional marriages. We are satisfied with my partner's portfolio's allocations/holdings.

Desired Asset allocation: 60/40


Proposed breakdown of asset allocation per Vanguard's plan:

34% Large Caps
14% Mid Cap/Small Cap
0% REIT
12% International stocks
0% Sector
40% Bonds
0% Cash

My current retirement portfolio (no taxable funds) is currently app 237,00; partner’s retirement portfolio app 125,000
Annual Contributions

My current retirement savings: $7000 into Simple IRA, to increase yearly

Vanguard Financial Planning Services recommendations:

Rollover IRA

Diversified Equity 45, 200
Total Stock Market Index 34,100

Roth IRA

Total International Stock 12, 800

Variable Annuity

Total Bond Market Index 96,200
Total Stock Market Index 20,000
International Portfolio 16,100

Simple IRA

Diversified Equity 12, 500

TOTAL: 236,900


My concerns/questions

1. The Vanguard financial advisor, when I questioned him about the Diversified Equity fund, said that could easily be replaced by the Total Stock Index. However, I still respect well managed funds so he said I could slice the Diversified Equity fund into some of the fund's holdings: 35% Large Value through Windsor II, 35% Growth through Morgan Growth, 15% mid cap through Strategic Equity and 15% Small Cap through Explorer.

I like slicing up the Diversified Equity Fund as per his suggestion, but beyond adding more complexity and cost to the mix, what value would I be adding? It seems clear Vanguard is hedging its bets between indexing and management in its plan recommendations.

2. The international allocation seems, to me, low. I read the link on wiki to the 1996 Vanguard paper that suggested a 20% of equity, at minimum.

3. I am currently funding my Simple IRA only through work. I could transfer this (currently in STAR) to the Total Stock Index and make it "really simple".

4. I am not concerned about the lack of REITs in my portfolio. My partner's portfolio includes REITs.

We need not need to take any more risk beyond the 60/40 allocation to be fine in retirement.

I welcome suggestions to the suggested portfolio, keeping in mind that after years of juggling various portfolios, I am now convinced indexing is the way to go as is simplicity.

Thank you in advance,

Piebald
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Postby House Blend » Wed Aug 27, 2008 10:54 am

I'm surprised no one has responded to your post. I'll add my $0.02 to bump you up and maybe one of the local experts will weigh in.

1. You need to think of both portfolios (you + SO) as one. Nothing wrong with putting Bonds in your 401K and REIT's in the SO's, if that's where the best fund options are. BUT: it's hard to get good advice from this forum unless you provide information about all of your accounts.

2. I would stay away from Vanguard's Diversified Equity Fund. It comes up here from time to time, and the only reason for it seems to be that VG's financial planners like to push it. The consensus around here is that this fund is a dog. Stick with TSM and Total International, given your stated preference for simplicity.

3. Regarding your international/domestic split, the Boglehead consensus seems to be that international should be 20% to 50% of your equity. This is a wide range, and my recommendation is not to go above 30% unless you've educated yourself on the risks involved and know what you are doing.
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Postby chaz » Wed Aug 27, 2008 11:15 am

In an IRA, consider a Vanguard Target Retirement fund.

Good luck.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
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Postby kenner » Wed Aug 27, 2008 7:43 pm

I agree you need more international, at least 30% to 40%. FTSE All-World ex-US would be a good candidate.

However, my biggest question is in regard to the Variable Annuities. Are those old accounts or new proposals? If new, what is the rationale for putting tax-efficient funds like TSM in a VA? Also, if the VAs are new, your time to retirement of 7 to 9 years makes VAs an expensive and questionable choice.

Regards,
Ken
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Re: Vanguard Financial Planning Services Plan- Review, Pleas

Postby Hedgy » Wed Aug 27, 2008 7:51 pm

Piebald wrote:I still respect well managed funds so he said I could slice the Diversified Equity fund into some of the fund's holdings: 35% Large Value through Windsor II, 35% Growth through Morgan Growth, 15% mid cap through Strategic Equity and 15% Small Cap through Explorer.

... after years of juggling various portfolios, I am now convinced indexing is the way to go as is simplicity.



I think you should consider where you really stand on this issue before deciding on your AA.
Good luck.
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Postby Piebald » Wed Aug 27, 2008 7:59 pm

House Blend, I agree Diversified Equity is not the way I will go. Because of current federal laws regarding non-spousal inheritance of IRAs, we have to have two separate retirement portfolios. If one of us were to die before 59 1/2, we'd have to draw down the other's retirement portfolio.

Chaz, the Target Retirement fund/s was my first choice. But, the Vanguard planner stated that by separating the stock and bond funds, it was easier to control withdrawals. For example, if the market was down for stocks, we could withdraw from the bonds.

kenner, the VA is an old one. Bad decision, done deal. It will be rolled over to Vanguard because where it is now is expensive! Also, thanks for the input into the international.

Hedgy, I clearly am on the fence on the index/managed account issue, eh? Yes, I do have to make up my mind.

Thanks all for responding.
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