Bogleheads

[rainbow321]

Hi,

I have been reading and learning a lot (but surely not enough!) from this forum. Over the past few years, I tried to adjust as I learned more but numerous obligations in life did not allow me to complete the job of creating a portfolio with the asset allocation I desire, and also easy to manage.

I really would appreciate any suggestion to help me with this big task (for me). And I really really would love to get it done this time.

I am thinking of moving all accounts except for 401K from Fidelity to Vanguard so I can consolidate things, although I am flexible on this.

Thank you so much in advance.

Sincerely, Lin

Here is my info:

Emergency funds = 12 months of expenses (not part of asset allocation)
Debt: 30 years fixed mortgage at 5.375%
Tax Filing Status: Married filing Jointly
Tax Rate: 15% Federal 8% State State of Residence : CA
Age: Husband 57, Wife 49
Desired Asset allocation: (55/45)
Intl allocation: 20% of stocks
Current portfolio in mid 6 figures

Taxable at Fidelity Ticker % Expense

5% FCFXX CASH$
0% Conexant Systems, Inc. CNXT
1% Dodge & Cox Intl Stock DODFX 0.64
1% Dodge & Cox Income DODIX 0.43
1% Fid Floating Rate High Income FFRHX 0.73
0% Fid Real Estate Investment FRESX 0.92
2% Fid Spartan Total Market Index Inv FSTMX 0.1
1% T. Rowe Price Equity Income PRFDX 0.69
10%


Taxable at Vanguard
7% VCTXX CASH$
1% Vanguard Dividend Growth VDIGX 0.36
1% FTSE All-World ex-US Index Inv VFWIX 0.35
8%


His Rollover at Fidelity
15% FDRXX CASH$
1% Baron Small Cap BSCFX 1.32
1% Fidelity Contrafund FCNTX 0.94
1% Fidelity Capital Appreciation FDCAX 0.82
2% Fidelity Diversified International FDIVX 1.02
2% Fidelity Floating Rate High Income RHX 0.73
1% Fidelity International Discovery FIGRX 1.05
0% Fidelity Strategic Dividend & Income FSDIX 0.81
1% Fidelity Strategic Income FSICX 0.73
2% Fidelity Spartan Total Market Index FSTMX 0.1
1% MainStay ICAP Select Equity I ICSLX 0.8
0% Jensen J JENSX 0.86
0% Meridian Growth MERDX 0.86
0% BlackRock Preferred Income StrategiesPSY 1.4
1% Technology Select Sector SPDR XLK 0.22
0% Xerox Corporation XRX
27%

His Roth at Fidelithy
6% FDRXX CASH$
0% Dodge & Cox Stock DODGX 0.52
1% Fidelity Contrafund FCNTX 0.94
0% Fidelity Capital Appreciation FDCAX 0.82
1% Fidelity International Discovery FIGRX 1.05
0% Fidelity Mid-Cap Stock FMCSX 0.72
0% Fidelity Strategic Dividend & Income FSDIX 0.81
1% PowerShares QQQ QQQQ 0.2
9%

Her Rollover at Fidelity
3% FDRXX CASH$
0% Fidelity Contrafund FCNTX 0.94
0% Fidelity Dividend Growth FDGFX 0.62
1% Fidelity Growth Company FDGRX 0.96
1% Fidelity Diversified International FDIVX 1.02
0% Fidelity FFIDX 0.64
0% Fidelity Large Cap Stock FLCSX 0.83
1% Fidelity Strategic Income FSICX 0.73
1% T. Rowe Price Small-Cap Stock OTCFX 0.93
6%

Her Roth at Fidelity
1% FDRXX CASH$
0% Fidelity Capital Appreciation FDCAX 0.82
1% Fidelity Diversified International FDIVX 1.02
0% Fidelity Strategic Dividend & Income FSDIX 0.81
3%

His 401K at Fidelity
2% FRTXX CASH$
6% Van Kampen Growth and Income I ACGMX 0.54
2% Baron Growth BGRFX 1.32
6% Managed Income Portfolio BOND$
5% Fidelity US Bond Index FBIDX 0.32
5% Fidelity Contrafund FCNTX 0.94
4% Fidelity Diversified International FDIVX 1.02
1% Fidelity Equity-Income FEQIX 0.71
0% Fidelity Freedom 2020 FFFDX 0.72
0% Fidelity Freedom 2040 FFFFX 0.79
0% Fidelity Freedom 2015 FFVFX 0.67
2% Fidelity Low-Priced Stock FLPSX 0.98
3% Fidelity Mid-Cap Stock FMCSX 0.72
0% TRQS TRQS
36%


Company Match – Not sure but not significant
Total of All Accounts Together :100%

New annual Contributions
$50K his 401k (including matching contributions)

Funds available in his 401(k)

Van Kampen Growth and Income I ACGMX 0.54
Baron Growth BGRFX 1.32
Managed Income Portfolio BOND$
FRTXX CASH$
Fidelity US Bond Index FBIDX 0.32
Fidelity Contrafund FCNTX 0.94
Fidelity Dividend Growth FDGFX 0.62
Fidelity Growth Company FDIVX 1.02
Fidelity Small Cap Independence FDSCX 0.94
Fidelity Emerging Markets FEMKX 1.02
Fidelity Equity-Income FEQIX 0.71
Fidelity Freedom Income FFFAX 0.48
Fidelity Freedom 2000 FFFBX 0.49
Fidelity Freedom 2010 FFFCX 0.64
Fidelity Freedom 2020 FFFDX 0.72
Fidelity Freedom 2030 FFFEX 0.76
Fidelity Freedom 2045 FFFGX 0.8
Fidelity Freedom 2050 FFFHX 0.82
Fidelity Freedom 2005 FFFVX 0.63
Fidelity FFIDX 0.64
Fidelity Freedom 2035 FFTHX 0.78
Fidelity Freedom 2025 FFTWX 0.74
Fidelity Freedom 2015 FFVFX 0.67
Fidelity Low-Priced Stock FLPSX 0.98
Fidelity Mid-Cap Stock FMCSX 0.72
Fidelity OTC FOCPX 1.13
Fidelity Spartan Extended Mkt Index Inv FSEMX 0.1
Fidelity Spartan US Equity Index Inv FUSEX 0.1
Royce Pennsylvania Mutual Invmt PENNX 0.89

p.s. I apologize for the messed up formatting. I tried to put things in the order of Percentage/Fund Name/Ticker/%Expense Ratio

[chaika]

Hi, rainbow!

I'll take a first pass through your list.

This may be a little simplistic. I think you have too many individual funds, but I may be going too far in the other direction. People here recommend not holding funds that make up less than 5% of your wealth. Also as you probably realize, you have not enough bonds for your stated desired asset allocation.

So, consolidating funds and moving cash to funds without moving anything over to Vanguard gives this:

Taxable Fido
10% FSTMX spartan total mkt

Taxable Vg
8% VFWIX FTSE allword x us

His Fido Rollover
27% Fido spartan

His Roth
9% DODGX (lowest ER of the ones you listed)

Her Rollover Fido
6% unk does she have other choices? You can get lower ERs at Vanguard?

Her Roth Fido
3% unk. Other choices?

His 401k
36% Fi US Bond Idx 0.32

summary:
36% bonds
46% US stock
08% foreign stock

I don't know what to do about what I indicated as "unk." Any low cost funds available in those accounts?

New contrib 50K to his 401k, so after a year you could fix the stock/bond allocation, putting contributions into both the bond index and Spartan US Equity index. You have low cost bond and US stock indexes in the 401k, so all you need in there is a foreign stock index fund -- you sure there isn't one? You could transfer some of the unk. ones and others over to Vanguard and invest in total International index, which would give you that. Then it looks like you could stay in your 55/45 balance just by balancing allocations in the 401k.

I am sure that others here can improve on this rough draft!

[Taylor Larimore]

Hi Rainbow:

You do, indeed, need to simplify a hodge-podge of funds. I wonder if you realize that any fund less than 5% of your portfolio is nearly meaningless except for added maintenance, confusion, taxes, and often costs.

You should be able to significantly improve your portfolio with a few easy steps:

* You have nearly everything at Fidelity. It's a very good company. I would close your MM and two 1% funds at Vanguard and hold everything directly (no brokerage) with Fidelity. This will cut your paperwork, taxes, etc almost in half.

* Your two taxable accounts total 18% of your portfolio. You should only hold tax-efficient stock funds and a money market fund in your taxable account.

Fidelity Spartan Total Market Index Fund should be ideal with an unbelievably low cost and it is very tax-efficient. Use only it and a Fidelity Money Market Fund in your taxable account.

If you have substantial capital gains in the other small taxable funds, with no offsetting capital losses, it might warrent keeping them--but don't add to them and don't reinvest their distributions.

* In the 401K you are restricted to the funds available. The lowest cost fund is Fidelity's US Bond Fund. This is a high quality, intermediate-term bond index fund. It is very suitable for the bond portion of your portfolio. Your desired allocation is 45% in bonds. Your 401K is 36% of your portfolio; therefore, fill it with this fund (FBIDX).

* Use your other tax-deferred accounts to round out your asset-allocation plan. IRAs give you unlimited selection. I'd stick to Fidelity and their total market index funds where possible. You need 9% more (45% -36%) in a bond fund, a broad international fund (20% of equity), and more US stocks in a stock fund.

* Try to hold only one or two funds in each tax-deferred account.

* Avoid balanced funds (holding stocks & bonds). They make it difficult to monitor your asset allocation and difficult to rebalance if you have other funds (which you do).

I am unfamiliar with most Fidelity funds. If you come back with a proposed portfolio using a few low-cost Fidelity funds, we can give you our opinion and possible suggestions.
_________________
Best wishes
Taylor

The Majesty of Simplicity

[rainbow321]

Thank you Chaika and Taylor for your input.

I like the idea of putting all 36% (401K) in Fid US Bond Indx. I also agree that I need to consolidate. Thank you for pointing out the key point - anything below 5% in a portfolio is insignificant.

Taylor: I do have a lot of harvested loss, unfortunately, that I can use to offset the capital gain. Unless the funds are so good that I should hold on to them, I am more leaning towards selling them to simplify the portfolio.

I have some very good points to base on now. I will come back with some plan and will appreciate your input and suggestions on them.

I really appreciate all the help.

p.s. I put down the wrong figure for annual contribution to his 401K. It should be 8K instead.

[retiredjg]

[rainbow321]

Thank you retiredjg for your input. I thought I would not be eligible for the two Spartan funds in his 401K. After checking them again, I found out that the initial investment is not 100K as I originally thought.


I have come up with these plans for my portfolio. Both favors keeping 401K at Fido and move others to Vanguard. I like the idea of low cost at Vanguard.

Plan A :

Taxable 18%
8% Total Stock Market VTSMX
11% FTSE All World VFWIX or Total International VGTSX

His 401k 36%
29% Fidelity Spartan US Equity Index Inv FUSEX 0.1 (500 index)
7% Fidelity Spartan Extended Mkt Index Inv FSEMX 0.1 (Extended Market)
0% Fidelity US Bond Index FBIDX 0.32

His Rollover 27%
20% Total Bond Market
7%TIPS

His Roth 9%
0% Total Bond market
9% TIPS


Her Rollover 6%
6% TIPS

Her Roth 3%
3% Total Bond Market
0% TIPS


Plan B:

Taxable 18%
8% Total Stock Market VTSMX
11% FTSE All World VFWIX or Total International VGTSX

His 401k 36%
0% Fidelity Spartan US Equity Index Inv FUSEX 0.1 (500 index)
0% Fidelity Spartan Extended Mkt Index Inv FSEMX 0.1 (Extended Market)
36% Fidelity US Bond Index FBIDX 0.32

His Rollover 27%
9% Total Bond Market
0%TIPS

His Roth 9%
0% Total Bond market
0% TIPS
9% FTSE All World VFWIX or Total International VGTSX

Her Rollover 6%
0% TIPS
6% Total Stock Market VTSMX (or other better choices)

Her Roth 3%
0% Total Bond Market
0% TIPS
3% Total Stock Market VTSMX (or other better choices)


The main difference is whether I want to fill up the 401K with bonds in Fido (Plan B) or use Total Bond and Tips in Vanguard (Plan A).

Can someone help me to compare these two options of bond portfolio. Also, please help me to understand what is the benefit of putting TIPS in my bond holding.

Another concern - WASH sale. If and when I move from Fido to Vangurad, in what situation do I have to watch for that?

And please do alert me if I need to be aware of any other tax consequences.

Thank you so much.

[retiredjg]

Plan A :

Taxable 18%
8% Total Stock Market VTSMX .18%
11% FTSE All World VFWIX .40% or Total International VGTSX .34%

His 401k 36%
29% Fidelity Spartan US Equity Index Inv FUSEX 0.1 (500 index)
7% Fidelity Spartan Extended Mkt Index Inv FSEMX 0.1 (Extended Market)
0% Fidelity US Bond Index FBIDX 0.32

His Rollover 27%
20% Total Bond Market .22%
7%TIPS .25%

His Roth 9%
0% Total Bond market
9% TIPS .25%


Her Rollover 6%
6% TIPS .25%

Her Roth 3%
3% Total Bond Market .22%
0% TIPS


Plan B: REVISED PARTS IN BLUE BECAUSE YOUR NUMBERS DID NOT ADD UP

Taxable 18%
8% Total Stock Market VTSMX .18%
11% FTSE All World VFWIX or Total International VGTSX

His 401k 36%
0% Fidelity Spartan US Equity Index Inv FUSEX 0.1 (500 index)
0% Fidelity Spartan Extended Mkt Index Inv FSEMX 0.1 (Extended Market)
36% Fidelity US Bond Index FBIDX 0.32

His Rollover 27%
9% Total Bond Market .22%
0%TIPS
18% Total Stock Market .18%

His Roth 9%
0% Total Bond market
0% TIPS
9% Total Stock Market .18%

Her Rollover 6%
0% TIPS
6% Total Stock Market VTSMX (or other better choices) .18%

Her Roth 3%
0% Total Bond Market
0% TIPS
3% Total Stock Market VTSMX (or other better choices) .18%

In order to compare, you have to assume all the bonds are the same. So for comparison, all the TIPS in Plan A are included with TBM. Also since both plans have identical taxable elements, those are thrown out.

TSM
36 units at .10% in Plan A
36 units at .18% in Plan B

TBM
45 units at .22% in Plan A
9 units at .22 % + 36 units at .32% in Plan B

So, using plan B means that you would pay more for both TSM and TBM than using Plan A. It is not a great deal more and if you like that plan, it is a perfectly fine plan.

However, you also have to consider the ease of making new contributions. Sit down with a pencil and paper and pretend you are adding contributions to each plan. One may be easier than the other. If you are not adding to the Roth IRAs, they may be equally easy - everything would be done in the 401. If you are adding to the Roth IRAs, it will depend on how much money you add to Roth in comparison to how much you add to the 401.

Bottom line, I think either is fine if they are easily added to.

The benefit of using TIPS for part of your bond allocation is that TIPS (Treasury Inflation Protected Securities) give some protection against inflation. Unlike stocks and other bonds (which could do anything), TIPS will pay more as inflation goes up, less as inflation goes down. Opinions vary as to when TIPS should become part of your portfolio. Some people say right from the start, some say they are not that important till nearer retirement. I put in TIPS since you are closer to retirement than starting out. They certainly are not required.

Your list of things that might trigger a wash sale:

5% FCFXX CASH$
0% Conexant Systems, Inc. CNXT
1% Dodge & Cox Intl Stock DODFX 0.64
1% Dodge & Cox Income DODIX 0.43
1% Fid Floating Rate High Income FFRHX 0.73
0% Fid Real Estate Investment FRESX 0.92
2% Fid Spartan Total Market Index Inv FSTMX 0.1
1% T. Rowe Price Equity Income PRFDX 0.69

Only the one fund in blue is of concern. That is because you are not going to buy the others again. A wash sale is triggered when you sell something in taxable at a loss and then buy it (or something "substantially identical") again within 30 days (before or after).

If you sell FSTMX at a loss, and if you intend to take that loss off your taxes, if you buy it again within 30 days , there could be a wash sale. (The "could be" is thrown in there because some people think FIDO's TSM and VG's TSM are "substantially identical". Others disagree.) Not illegal, but prevents you from taking the loss off your taxes. Leave the 2% FSTMX at FIDO, move everything else, 31 days after buying your new funds, you can sell the 2% FSTMX with no problem.

That's the only wash sale problem I see. Maybe someone else should check though.

Other tax problems? Anything in taxable sold at a gain would trigger a capital gains tax. Maybe your losses and gains will offset each other.

Here is a link to wash sales.

http://www.bogleheads.org/wiki/Wash_sale
_________________
Links to Investment Planning and Asking Portfolio Questions

[rainbow321]

Thank you again for your input and for filling in my missing info.

Your analysis on the cost of the two plans has helped me so much. I would scratch my head for a long time without knowing how to start.

I think I get the idea:

55/45 stock/bond ratio
fill up retirement account with bonds (with or without TIPS)
then go with Total Market index and International Index stocks

I should end up with 2 stock funds, 1-2 bond funds (a very simple portfolio).

I will take a closer look and may come back with more questions later.

Really appreciate your help.

[Taylor Larimore]

Hi Rainbow:

[rainbow321]

Hi all,

I am not sure if this is a "when is the best time and what is the best way to rebalance" question.

I am ready to move my tax deferred $ from Fido to Vanguard. After that, I can finally put my intended simple, tax efficient 55/45 allocation plan to work. The previous discussion has helped me to reaffirm my fund selection.

My question is: Fido requires me to liquidate the account before the transfer. The processing time will take about 2-3 weeks. That means I will be out of the market for that long of time. I am concerned that I may be selling at a down market.

Once the money is in Vanguard, should I go invest everything right away so as to minimize the time of being out of the market? What if the market goes way up?

I understand that there is no way to time the market. I guess it is the anxiety before a big move. Maybe some wise people can offer me some insight.

Also, there are some funds in specific sectors for example real estate that I am owning now. After rebalancing, if I put everything in Total Stock Market Index, I will be out of that sector to have any chance of recovering my loss. What are your opinion on this?

[retiredjg]

[rainbow321]

Good points, retiredjg. Thank you.

I will try to clarify with Fido and Vanguard to see if I can: set up a IRA account with Vanguard first with the cash portion of the ira account at fido, then I can either

1. sell the rest of fido funds when I want and move the $ over then

or

2. transfer the fido funds in the Vanguard brokerage account

When the whole amount in the ira account is moved out, then I can close the ira account at fido

What do you think of this action plan?

[retiredjg]

I think it is an ok idea - but I have no experience. You might want to open a thread on it or search for "in-kind transfer" information.

Just so you'll know, you don't have to actually have any money to open an IRA at Vanguard (at least on the mutual fund side of the house - I don't know about the brokerage service side of the house). When I opened my Vanguard IRA, I just opened it online and put money in it when I got it a few weeks later. At that time I did not know about "transfer in kind" so my money was out of the market for awhile.

Talk to Vanguard - let them do the work.

If all fails, just transfer a little at a time. It won't take forever.
_________________
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[Taylor Larimore]

Rainbow:

[celia]

Rainbow, I had not seen this thread until today. I agree with Taylor's original statement, but, like him, don't know about specific Fidelity funds.

My major contribution to this thread is that I think stocks need to go in your Roths since they have the potential to grow the most and that growth will be tax-free, being in Roths. If it was me, I would have started filling up the Roths first, then at the other end the taxable accounts, then the tax-deferred IRAs and 401k last. Personally, I do this by thinking of our accounts as being of 3 types:

18% taxable
69% tax-deferred (401k, 403b, traditional IRA)
12% Roths (401k, 403b, IRAs)

It doesn't matter who in the family owns them, but I always group them this way to reinforce the tax consequences of distributions, especially if I'm no longer around when someone else is deciding from which accounts to withdraw.

Are you planning on converting some of the traditional (roll-over) IRAs to Roths soon?

I, too, have some accounts I've wanted to move to Vanguard for over a year, but didn't want to be out of the market for a few weeks. The custodian will only send checks to us, not Vanguard, so there is a double mailing involved. So we're holding on for now.

[celia]

[Taylor Larimore]

Hi Celia:

[rainbow321]

Thank you Celia and Taylor and all who has posted to answer my questions.

I have not learned how to use quote. Celia: What do you mean by it does not matter who will be the owner the arrangement will be easy for that person to decide which account to withdraw? Can you explain?

I do intend to convert more from Rollover to Roth. I did up to the maximum before my tax bracket get raised last year. Since I am eligible for conversion without having to wait for 2010, I can do it again this year. I just have to convert to the point that I will not be ending in the higher tax rate and I have to make sure I can afford to drain the cash out to pay for income tax.

Right now, I have to take care of the details of moving from Fido to Vanguard, probably get into a basic simple portfolio and let the portfolio evolve (adding in REIT etc) as I learn more. I recognize with a busy life that at least I will have a ok portfolio even if I have no time to do anything else for a while.

Thank you everyone again for the help so far.

I am calling Vanguard to find out more about the details. If anyone had similar experience, I would appreciate if you can share.

[celia]

[rainbow321]

[rainbow321]

I have an idea of my new asset allocation.

Before:


Cash 42
U.S. Stocks 31
Foreign Stocks 12
Bonds 15
Other 1

AFTER:

US stocks 35
Foreign 20
bonds 45

Question:
I need to put in additional 30% worth of my portfolio into bonds. Should I do it all now considering that I may be buying into a bond bubble market and the price of bond in general is high? Should I invest the additional 30% in installment?

I also need to put in additional 12% of my portfolio into stocks. Should I dollar averaging in?

What are the options for me with the cash on hand? Short -term bonds? CD?

I would appreciate all help here.

[retiredjg]

[celia]

[rainbow321]

Thank you retiredjg and celia for your reply.

I guess that I have wasted enough time trying to figure out when is a right time to invest. In the past, when the market went down, I wanted to wait to see if it would go down further. Then when it went back up, I felt that it was expensive to buy. Before the end of the year, I waited for the beginning of next year so to avoid capital gain distribution. etc. etc. So I never acted.

This time, I want to implement my desired AA, just stay in course with periodic rebalancing and be done with it.

Retiredjg I want to thank you for suggesting to buy in a few Vanguard fund before the transfer from Fido. That is a great idea. I did some calculation, if I consolidate everything into Vanguard Total Bond index in the biggest IRA account (27% of my portfolio), it will cost me $75. The Vanguard rep told me that transfer a Vanguard fund in kind will be done electronically which is much faster than having Fido to write and send a check for cash. Hopefully it will shorten the processing time to 1-2 weeks and justify the transaction cost. I dropped the idea of moving the investment to WellsTrade because I want to set this up for long term. If eventually the deal is over, I will have to transfer another time. Right now, I see no need for a free trade account because I do not plan to have any ETF or stocks in my portfolio.



Celia: Thank you so much for sharing your system. It is so self explanatory without tedious instruction that I was thinking of putting down. Thank you.

By the way, I want to include Vanguard Dividend Growth in my stock portion. My fund allocation will look like:

Taxable 19%
8% Total Stock Market VTSMX
11% FTSE All World VFWIX or Total International VGTSX

His Rollover IRA (27%)
Vanguard Total Bond Market

His Roth IRA (9%)
Vanguard Dividend Growth

Her Rollover IRA (6%)
Vanguard Total Bond Market or TIPS

Her Roth IRA (3% )
Vanguard Total Bond Market or TIPS

His 401K (36%)
21% Fidelity Spartan US Equity Index Inv FUSEX 0.1 (500 index)
6% Fidelity Spartan Extended Mkt Index Inv FSEMX 0.1 (Extended Market)
9% Fidelity US Bond Index FBIDX 0.32

Please comment. Thank you very much.

[Taylor Larimore]

Rainbow:

I think your proposed plan contains all the elements of a superior portfolio:

* Meets your desired stock/bond allocation.

* Very low-cost

* Very diversified

* Very tax-efficient

* Simple to understand and maintain

Congratulations!
_________________
Best wishes
Taylor

The Majesty of Simplicity

[retiredjg]

rainbow, if you don't mind, when this is done, can you update this thread (or start another) and let us know how the transfer actually went?

I think your portfolio idea looks good. Now, just set a plan and do it. Good luck!
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Links to Investment Planning and Asking Portfolio Questions

[rainbow321]

Thank you Taylor and retiredjg and all who has posted in the forum. All of the wisdom you shared here has helped me to learn and shape my plan.

I can't wait to get the plan going and will gladly post an update later.