My first portfolio was a disaster! Is this one better?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
MisterAndrew
Posts: 3
Joined: Sun Jul 29, 2012 7:33 pm

My first portfolio was a disaster! Is this one better?

Post by MisterAndrew » Sun Jul 29, 2012 8:40 pm

My first portfolio was somewhat of a disaster. I read all the books (Four Pillars, Random Walk, etc.), but sliced and diced without consideration for taxes, and now need to fix everything. Please jump in with your suggestions. THANK YOU!

All about me
  • Age = 30
  • Income = 230k/year
  • Debt = None
  • Family = Nope
Current monetary allocation (taxable portion may slightly increase in the coming years w/r/t the sheltered portions)
  • Total monies: 258k (100%)
  • Taxable account: 195k (76%)
  • Roth IRA: 16k (6%)
  • 401k: 47k (18%)
High-level second portfolio attempt
  • 60% Stocks in taxable account (70% domestic and 30% foreign)
  • 6% REIT in Roth IRA
  • 34% Bonds split between taxable and 401k (25% TIPS in 401k, 27% Mid-Grade Corporate in 401k, 48% Munis in Taxable)
Detailed second portfolio attempt
  • Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (108.4k in Taxable = 42%)
  • Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (46.4k in Taxable = 18%)
  • Vanguard REIT Index Fund Admiral Shares (VGSLX) (15.5k in Roth IRA = 6%)
  • Sit MN Tax-Free Income( SMTFX) (43.3 in Taxable = 16.7%)
  • TCW Total Return Bond N (TGMNX) (24.4 in 401k = 9.3%)
  • Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX) (22.6k in 401k = 8.8%)
First portfolio attempt
  • Taxable: Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX) (23.0k = 9%)
  • Taxable: Vanguard Limited-Term Tax-Exempt Fund Investor Shares (VMLTX) (20.9k = 8.1%)
  • Taxable: Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX) (20.9k = 8.1%)
  • Taxable: Vanguard Short-Term Treasury Fund Investor Shares (VFISX) (20.6k = 8.0%)
  • Taxable: Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) (42.8k = 16.6%)
  • Taxable: Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (60.8k = 23.6%)
  • Roth IRA: Vanguard Emerging Markets Select Stock Fund (VMMSX) (2.8k = 1.1%)
  • Roth IRA: Vanguard REIT Index Fund Investor Shares (VGSIX) (3.3k = 1.3%)
  • Roth IRA: Vanguard Total International Stock Index Fund Investor Shares (VGTSX) (4.1k = 1.6%)
  • Roth IRA: Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) (5.6k = 2.2%)
  • 401k: (Large Value) Dodge & Cox Stock (DODGX) (26.0k = 10.1%)
  • 401k: (Small Value) Allianz NFJ Small Cap Value Instl (PSVIX) (16.9k = 6.6%)
  • 401k: (International) Harbor International Instl (HAINX) (4.5k = 1.7%)
Notes
  • I am maxing out my 401k and a traditional IRA, which I convert to a Roth every year
  • For bonds, the 401k only offers TIPS, mid-grade corporate, or junk
Questions
  • Should I add in tax-advantaged small cap (15% of stocks in taxable?) with Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)
  • Is a $250 sit down with a Vanguard CFA for a Vanguard Financial Plan worthwhile?
  • It makes sense for me to sell all my taxable bond funds, correct? If so, I will incur short term gains ($1.4k) and long term gains ($2.8k). Should I tax loss harvest for 30 days swap out the Total International Stock index fund for the Vanguard FTSE? The only loss is in my Total international Stock Index Fund with a short term loss ($1.2k) and a long term loss ($1.8k).
  • Anything else to consider?
Truly grateful,
Andrew

* Edit: Fixed a typo in size of 401k account
Last edited by MisterAndrew on Mon Jul 30, 2012 10:01 am, edited 1 time in total.

bdpb
Posts: 1528
Joined: Wed Jun 06, 2007 3:14 pm

Re: My first portfolio was a disaster! Is this one better?

Post by bdpb » Sun Jul 29, 2012 10:11 pm

MisterAndrew wrote: Anything else to consider?
Does your 401k allow for after-tax contributions and in-service withdrawal/rollover to Roth/Roth401k?
If so, you can put up to 50k per year into your tax advantaged accounts.
If not, beg for it.

FinanceFun
Posts: 722
Joined: Mon Nov 28, 2011 9:29 am

Re: My first portfolio was a disaster! Is this one better?

Post by FinanceFun » Mon Jul 30, 2012 7:36 am

How did you end up with such a large taxable portfolio and such a small tax advantaged portfolio? Seems very odd!

DONT FORGET IBONDS. It's $10k per year tax advantaged space, and at your age could entirely replace TIPS.

wilked
Posts: 1315
Joined: Thu Mar 24, 2011 1:50 pm

Re: My first portfolio was a disaster! Is this one better?

Post by wilked » Mon Jul 30, 2012 7:49 am

FinanceFun wrote:How did you end up with such a large taxable portfolio and such a small tax advantaged portfolio? Seems very odd!
That was my first thought as well

As to paying someone $250, I can't see any reason to, other than blowing money

User avatar
JamesSFO
Posts: 3106
Joined: Thu Apr 26, 2012 10:16 pm

Re: My first portfolio was a disaster! Is this one better?

Post by JamesSFO » Mon Jul 30, 2012 7:57 am

wilked wrote:
FinanceFun wrote:How did you end up with such a large taxable portfolio and such a small tax advantaged portfolio? Seems very odd!
That was my first thought as well

As to paying someone $250, I can't see any reason to, other than blowing money
I did the VG Ask a CFP earlier this year and it was free to me as a Flagship client and was useful. Also saved me $400/year in ERs so if I had paid $250 it would have paid for itself in the first year. That said the program is very focused on your retirement funds and is not going to be hyper-personalized to you and will overall heavily favor a 3 fund approach of total stock, total intl, total bond.

User avatar
hoppy08520
Posts: 2003
Joined: Sat Feb 18, 2012 11:36 am

Re: My first portfolio was a disaster! Is this one better?

Post by hoppy08520 » Mon Jul 30, 2012 8:00 am

MisterAndrew wrote:[*] Is a $250 sit down with a Vanguard CFA for a Vanguard Financial Plan worthwhile?
wilked wrote:As to paying someone $250, I can't see any reason to, other than blowing money
One little mistake with tax implications can cost way more than $250. I think that if nothing else, having a qualified second set of eyes look over a plan, especially a plan where you have so much in taxable accounts where things get a bit more complicated, and considering that the OP has made mistakes before and is still learning, is probably worth it and I wouldn't describe it as "blowing money".

As another poster noted, if you move $50,000 (?) or more (maybe it's $100,000) into Vanguard, you get that 1-hour consultation with a Vanguard CFP for free.

Shireman28
Posts: 189
Joined: Fri Nov 02, 2007 8:49 am

Re: My first portfolio was a disaster! Is this one better?

Post by Shireman28 » Mon Jul 30, 2012 8:08 am

It's your money, but 34% bonds at age 30 is too conservative for me, especially held in taxable.

azanon
Posts: 1917
Joined: Mon Nov 07, 2011 10:34 am
Location: Little Rock, AR

Re: My first portfolio was a disaster! Is this one better?

Post by azanon » Mon Jul 30, 2012 8:58 am

Shireman28 wrote:It's your money, but 34% bonds at age 30 is too conservative for me, especially held in taxable.
X2. Maybe he's retiring soon? :confused

I'll give you some advice that isn't very popular here. At 30, go all stock, including international, and don't care about volatility because you won't need the money for some 30 years (or more). When you hit 50 or so, then see where you're at and maybe scale back on the stocks.

Bonds have 2 primary uses: To lower volatility and to preserve principle. You don't need either at 30 in a retirement fund.

User avatar
bottlecap
Posts: 5818
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: My first portfolio was a disaster! Is this one better?

Post by bottlecap » Mon Jul 30, 2012 9:13 am

azanon wrote: I'll give you some advice that isn't very popular here. At 30, go all stock, including international, and don't care about volatility because you won't need the money for some 30 years (or more). When you hit 50 or so, then see where you're at and maybe scale back on the stocks.

Bonds have 2 primary uses: To lower volatility and to preserve principle. You don't need either at 30 in a retirement fund.
On the other hand, depending on where he lives and the cost of living, being single with a income of $230,000 per year, he may not NEED to take the risk of a 100% stock portfolio. Staying all stocks until you're 50 years old sounds great in theory until, in practice, you take a 50% haircut when you're 49. That will ruin your early retirement plans real quickly.

JT

P.S. OP, I think your second attempt is just fine.

Shireman28
Posts: 189
Joined: Fri Nov 02, 2007 8:49 am

Re: My first portfolio was a disaster! Is this one better?

Post by Shireman28 » Mon Jul 30, 2012 9:26 am

I would invest in FDIC CDs then in taxable instead of bonds, no risk of loss of principle and when interest rates go back up and you can buy cheaper bonds later.

Van
Posts: 575
Joined: Wed Oct 27, 2010 9:24 am

Re: My first portfolio was a disaster! Is this one better?

Post by Van » Mon Jul 30, 2012 10:07 am

Hey Folks,

It's principal, not principle.

A Boglehead should not make this mistake.

MisterAndrew
Posts: 3
Joined: Sun Jul 29, 2012 7:33 pm

Re: My first portfolio was a disaster! Is this one better?

Post by MisterAndrew » Mon Jul 30, 2012 10:29 am

Thanks for the replies! A few comments...

bdpb: "Consider after-tax 401k contributions and in-service withdrawal" -- Thanks! 100+ hours studying investment theory and I had no idea that this was out there. Emailing HR today. If this goes through I owe you a beer.

FinanceFun: "Why is taxable portfolio so large?" -- Two reasons: (i) A typo listed my 401k account at 17k instead of 47k, and (ii) I have only been working and out of grad school for four years (only three of which I maxed out my retirement accounts)

FinanceFun: "Consider IBONDS" -- I hadn't thought much about I Bonds and will for sure look more into them

JamesSFO: "I had a positive Vanguard CFP experience" -- Thanks. I was hoping to hear some personal-experience stories. I will probably ask their advice in the coming weeks.

hoppy08520: "Maybe Vanguard CFP is free at 50k or 100k?" -- It seems that a Vanguard CFP plan is free only if you have more than 500k with Vanguard. It can't hurt to ask, though. (See https://personalp.vanguard.com/us/whatw ... andvoyager)

Shireman28: "34% bonds seems too conservative" -- I wrestle with my bond allocation. I "lavisly" spend about 38k a year right now, and am on the hyper-early retirement track so long as I do not have a family

Azanon: "Go 100% bonds!" -- Ha! Thanks for the advice, but that probably will not happen. I get the point though and may be more aggressive.

bottlecap: "It all looks good" -- Thanks for the feedback. And yes, a good income in the Midwest goes a long way.

Shireman28: "Go CDs in taxable instead of bonds" -- I haven't thought about this much (maybe I should?), but was hoping for greater returns than super-safe CDs. To be clear, corporate bonds would entirely be housed in my 401k and only munis outside of my 401k

As a long-time lurker and first time poster, thanks for the friendly welcome.

User avatar
hoppy08520
Posts: 2003
Joined: Sat Feb 18, 2012 11:36 am

Re: My first portfolio was a disaster! Is this one better?

Post by hoppy08520 » Mon Jul 30, 2012 10:46 am

MisterAndrew wrote:hoppy08520: "Maybe Vanguard CFP is free at 50k or 100k?" -- It seems that a Vanguard CFP plan is free only if you have more than 500k with Vanguard. It can't hurt to ask, though. (See https://personalp.vanguard.com/us/whatw ... andvoyager)
Interesting, when I transferred a Roth IRA over to Vanguard earlier this year, it lifted my total account assets at VG over $50K, which they said (over the phone) entitled me to the complementary one-time CFP plan, which I took. Maybe they stopped doing that, or maybe they moved up the eligibility level recently? Either way, I'd ask.

Tips on using the Vanguard CFP: Remember, it's only 1 hour. You're not going go to get a thorough plan with a lot of personalized research out of this. I used it more as a Q&A session, "I'm thinking of doing this, does this make sense?" Or "I'm not sure if I should do 20% for this or 30% for that, what do you think?" or "I'm not sure if I should do Bond Fund X or Bond Fund Y, what would you recommend?", etc. I think you need to come with a rough sketch of a plan, and have some specific questions, and then run it by the Vanguard CFP. I wouldn't say, "I have $XXX,XXX, tell me what to do." I think the Vanguard CFP, as I wrote above, can, at the very minimum, spot red flags or mistakes that you may have overlooked. Good luck.

mptfan
Posts: 4661
Joined: Mon Mar 05, 2007 9:58 am

Re: My first portfolio was a disaster! Is this one better?

Post by mptfan » Mon Jul 30, 2012 10:50 am

Van wrote:Hey Folks,

It's principal, not principle.

A Boglehead should not make this mistake.
:thumbsup This is one of my pet peeves too!

Shireman28
Posts: 189
Joined: Fri Nov 02, 2007 8:49 am

Re: My first portfolio was a disaster! Is this one better?

Post by Shireman28 » Mon Jul 30, 2012 11:28 am

You'll have to break my sword over your knee and drum me out of the organization, you grammar nits!

MisterAndrew
Posts: 3
Joined: Sun Jul 29, 2012 7:33 pm

Re: My first portfolio was a disaster! Is this one better?

Post by MisterAndrew » Sat Aug 04, 2012 8:51 pm

Two interesting updates:

* Vanguard gave me an hour with a CFA: I called Vanguard, and they said that I was entitled to one free consultation with a CFA. Their website says that accounts of 500k/year get one free consultation a year, and that accountholders with smaller accounts should call. In my case, Vanguard said that I was entitled to one free consultation because I had over 200k with Vanguard and had not previously used a free consultation. I get the impression that there are non-published criteria for free consultations (e.g., size of regular contributions to your account if less than 500k).

* "Four Pillars" either misled me or provides contrarian advice: The reason that I believed that my "first" portfolio was a disaster was due to the heavy bond allocation in my taxable account. I just re-read "The Four Pillars of Investing" by Bernstein and the book repeatedly suggests placing bonds in taxable accounts, even when there is sheltered space available. He suggests this for two reasons: (1) So that your emergency fund bonds are available without selling sheltered funds (But, I don't understand why one could not just sell stocks in the taxable fund for cash, and then swap out some bonds in the sheltered account for stocks); and (2) The book strongly emphasizes slicing and dicing and placing tax inefficient stock funds in the sheltered account (e.g., value stocks, emerging markets, etc.). With the taxable bonds, Four Pillars surprisingly doesn't push significant muni tilt, but an even split in taxable between treasuries, TIPS, corporate, and munis. This seems very different than most advice I have read recently, which is to use the sheltered account for bonds, rather than placing inefficient stock funds in a sheltered account and using munis for the bond allocation. What do you guys think? Fewer funds with the bonds in sheltered, or heavily sliced and diced which pushes more bonds into the taxable account?

clevername
Posts: 277
Joined: Sun Jul 10, 2011 7:13 pm
Location: FL

Re: My first portfolio was a disaster! Is this one better?

Post by clevername » Sat Aug 04, 2012 10:02 pm

bdpb wrote:
MisterAndrew wrote: Anything else to consider?
Does your 401k allow for after-tax contributions and in-service withdrawal/rollover to Roth/Roth401k?
If so, you can put up to 50k per year into your tax advantaged accounts.
If not, beg for it.
Could you elaborate a bit on this please?

livesoft
Posts: 62699
Joined: Thu Mar 01, 2007 8:00 pm

Re: My first portfolio was a disaster! Is this one better?

Post by livesoft » Sat Aug 04, 2012 10:19 pm

MisterAndrew wrote:.... With the taxable bonds, Four Pillars surprisingly doesn't push significant muni tilt, but an even split in taxable between treasuries, TIPS, corporate, and munis. This seems very different than most advice I have read recently, which is to use the sheltered account for bonds, rather than placing inefficient stock funds in a sheltered account and using munis for the bond allocation. What do you guys think? Fewer funds with the bonds in sheltered, or heavily sliced and diced which pushes more bonds into the taxable account?
I think some advisors have seen many folks who cannot bring themselves to understand the double-exchange needed when selling equities in taxable and exchanging bonds for equities in tax-deferred. So they don't fight it, but just go with the flow.

I also think that since Four Pillars was written, that fund products have changed, so that a simple slice-and-dice approach is good enough and a heavily sliced and diced approach is not necessary anymore.
Wiki This signature message sponsored by sscritic: Learn to fish.

Post Reply