Am I on the right track?

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Placenshow
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Am I on the right track?

Post by Placenshow » Tue Oct 02, 2012 3:10 pm

Emergency funds: Yes
Debt: Mortgage only ($140K, 13 years left @ 3.75%)
Tax Filing Status: Married Filing Jointly
Tax Rate: 15%
State of Residence: MN
Age: 39
Desired Asset allocation: 80/20
Desired International allocation: 20-25%

Current total portfolio: Closing in on six figures

Current retirement assets:

Taxable - None

His 401k
50% Fidelity Extended Market Index (FSMEX) .10%
50% Fidelity Total Market Index (FSTMX) .10%
4% company match

Her Traditional IRA at Vanguard
50% Vanguard Intermediate Bond Index (VBIIX) .22%
50% Vanguard Total International Stock Index (VGTSX) .22%


Annual Contributions

$8000 to my 401k (not counting 4% match in company stock)
$3600 to my wife’s IRA (50/50 split between the two funds listed above


Questions:
I’ve finally come around to the index/passive style of investing and just want to make certain I’m on the right path. Do you see any issues with my current set-up? Is there something I should tweak to be better diversified? I appreciate any & all replies.

Take care.
Last edited by Placenshow on Mon Oct 15, 2012 12:41 pm, edited 1 time in total.

bigred77
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Re: Am I on the right track?

Post by bigred77 » Tue Oct 02, 2012 3:53 pm

It's hard to tell without changing the percentages to show 100% of your portfolio total instead of 100% of each account.

I would say you are DRASTICALLY overweighting mid and small cap stocks with your current set up. i would put more in the total market index and less in the extended market index (you may have chosen this route for a reason however.)

I would also add the following:

1.) your next step should be trying to up your savings rate if at all possible.I know it can be tough but you should look for ways to cut if your in the 25% bracket and your only debt is a reasonable mortgage.

2.) Don't forget to diversify out of your 4% match in comapny stock if you have the ability too.

Grt2bOutdoors
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Re: Am I on the right track?

Post by Grt2bOutdoors » Tue Oct 02, 2012 4:01 pm

+1 BigRed. OP you are substantially overweighing the Mid/SmallCap Index, which can lead to greater volatility in the portfolio. Are you comfortable with this level of increased risk?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Tue Oct 02, 2012 5:39 pm

Sorry about the percentages.

For my entire portfolio, this is the breakdown:

32% Fidelity Extended Market Index (FSMEX) .10%
32% Fidelity Total Maker Index (FSTMX) .10%
18% Vanguard Intermediate Bond Index (VBIIX) .22%
18% Vanguard Total International Stock Index (VGTSX) .22%

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Tue Oct 02, 2012 6:15 pm

One more update on my end, it appears I'm in the 15% federal tax bracket instead of the 25% I listed above. Does this change how I should allocate going forward.

Again, thanks for your help.

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mhc
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Re: Am I on the right track?

Post by mhc » Tue Oct 02, 2012 8:18 pm

Placenshow wrote:One more update on my end, it appears I'm in the 15% federal tax bracket instead of the 25% I listed above. Does this change how I should allocate going forward.

Again, thanks for your help.


15% federal tax bracket does not change how you allocate.

Why did you choose 50% extended market/50% TSM for your domestic equities?

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Tue Oct 02, 2012 8:23 pm

These were the only two index funds offered in my 401(k). From prior posts, it looks like I have this a bit out of whack.

Am I OK to go 80/20 split in favor of Total Market (FSTMX) or should I have 100% in Total Market.

Thanks again.

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mhc
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Re: Am I on the right track?

Post by mhc » Tue Oct 02, 2012 8:57 pm

I would recommend 100% TSM unless you have a compelling reason to tilt toward small/mid.

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Wed Oct 03, 2012 9:49 am

No reason other than ignorance with respect to my overweighting mid/small cap index.

Looking at "Core Four" with a sprinkling of mid/small exposure, how does this look?

35% Fidelity Total Stock Market Index (FSTMX) .10%
25% Vanguard Total International Stock Index (VGTSX) .22%
20% Vanguard Intermediate Bond Index (VBIIX) .22%
10% Fidelity Extended Market Index (FSMEX) .10%
10% Vanguard REIT Index (VGSIX) .24%

Take care.

bigred77
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Re: Am I on the right track?

Post by bigred77 » Wed Oct 03, 2012 10:06 am

Placenshow wrote:No reason other than ignorance with respect to my overweighting mid/small cap index.

Looking at "Core Four" with a sprinkling of mid/small exposure, how does this look?

35% Fidelity Total Stock Market Index (FSTMX) .10%
25% Vanguard Total International Stock Index (VGTSX) .22%
20% Vanguard Intermediate Bond Index (VBIIX) .22%
10% Fidelity Extended Market Index (FSMEX) .10%
10% Vanguard REIT Index (VGSIX) .24%

Take care.


This seems pretty reasonable to me.

The only other piece of advice I'd offer is make sure you understand and are comfortbale with this level of risk. At 39 yrs of age I might consider lowering my equity exposure a little more.

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mhc
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Re: Am I on the right track?

Post by mhc » Wed Oct 03, 2012 8:20 pm

I also think your proposal looks good. I agree with the previous poster that you should make sure you understand your choices. If you do not have a compelling reason why you chose it, it may be difficult to stay the course.

I think an 80/20 AA is fine. Disclaimer: I am a few years older than you and I have an 80/20 AA.

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Wed Oct 03, 2012 9:34 pm

Thanks for your input & guidance.

Due to where our money is and for the ease of getting the allocation %'s lined up, I think we're going to use Spartan US Bond Index (FBIDX) instead of Vanguard Intermediate Bond (VBIIX). The ER is a wash.

Any issues with this switch?

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mhc
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Re: Am I on the right track?

Post by mhc » Wed Oct 03, 2012 10:13 pm

Placenshow wrote:Thanks for your input & guidance.

Due to where our money is and for the ease of getting the allocation %'s lined up, I think we're going to use Spartan US Bond Index (FBIDX) instead of Vanguard Intermediate Bond (VBIIX). The ER is a wash.

Any issues with this switch?


No problems with the switch that I am aware of.

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Mon Oct 15, 2012 12:40 pm

After some final tweaking, I've now finally set out on the path below and look forward to many years of worry free investing. With the funds listed below, my overall ER is .15%....not too shabby.

35% - Fidelity Sparton Total Stock Market Index .10% ER
30% - Vanguard Total International Stock Market Index Admiral .18% ER
20% - Spartan US Bond Index .22% ER
10% - Fidelity Spartan Extended Market Index .10% ER
5% - Vanguard REIT Index .24% ER

One last question, with my Fidelity Spartan Total Stock Market Index fund holding ~3.5% in real estate stocks, is it wise to also have a REIT fund? Would I be better off eliminating the REIT fund and throwing the extra 5% to Fidelity Spartan Total Stock Market Index fund or am I being a bit too picky?

As always, thanks for your input.

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abuss368
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Re: Am I on the right track?

Post by abuss368 » Mon Oct 15, 2012 1:52 pm

My two cents:

1) Remove extended market. Combine with Total US Stock Market.
2) Possibly increase bonds a little considering your age.
3) 5% REIT is not that material and they are included in Total Stock. You could combine.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

retiredjg
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Re: Am I on the right track?

Post by retiredjg » Mon Oct 15, 2012 2:09 pm

You do not need the extended market fund. The stocks there are already included in the Total Stock Market fund. But if you wish to overweight mid and small caps, the ratio of TSM and extended market you posted last is not unreasonable. I would suggest that you not overweight mid and small caps unless you understand what that means and how it might increase your portfolio volatility.

As for the REIT, opinions vary considerably over this one as well. REIT stocks are already included in the TSM, but some people believe they are underweighted. Some people believe that having a little extra REIT is a good thing. This is a fairly minor decision. If you want super-simplicity, drop the REIT. If you want a little extra REIT, keep the REIT. Search the Wiki for information on Rick Ferri's "Core Four" portfolio (Total stock, total international, total bond, REIT).

I agree that only 20% bonds at 39 years old is getting near the max of reasonable. You might consider 25% for now, increasing more when you hit 45.

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Mon Oct 15, 2012 2:38 pm

The reason I use a bit of FSEMX is because the M* style maps do not show much exposure to small/micro caps in FSTMX (see links below).

Am I mis-interpreting the data?

http://quote.morningstar.com/fund/f.aspx?t=FSEMX

http://quote.morningstar.com/fund/f.aspx?t=fstmx

retiredjg
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Re: Am I on the right track?

Post by retiredjg » Mon Oct 15, 2012 3:06 pm

I don't think you are mis-interpreting the data. But you may not understand exactly what the data means. :wink:

The Total Stock Market fund represents the US stock market - which is roughly 70% large cap, 20% mid cap, and 10% small cap by definition. So, the exposure to mid and small caps is limited. But it is the exposure that actually exists in the market. "It is what it is" so to speak.

If you want more mid and small caps than the market holds, that's fine. But you should not stumble in that direction by accident or without realizing that mid and small cap stocks carry more risk. I'm not talking stupid crazy risk, just more risk than the market as a whole.

It sort of boils down to whether you want to invest in the market as it is or in some kind of custom blend that you make up for yourself.

dbr
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Re: Am I on the right track?

Post by dbr » Mon Oct 15, 2012 3:12 pm

Exactly. One should always remember that the definitions of where small, mid, and large separate are arbitrary.

Even stranger is that TSM is nearly exactly 1/3,1/3,1/3 value, core, and growth. How did that happen?

More interesting perhaps would be the Fama-French loadings on size and value of TSM. I believe they are very close to zero. That means TSM is neutral with respect to these factors.

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Thu Oct 18, 2012 7:25 am

One last question....

Is it wise to continue forward with the Spartan US Bond Index as my only bond fund or should I add a TIPS fund to round it out?

Thanks again for your help.

retiredjg
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Re: Am I on the right track?

Post by retiredjg » Thu Oct 18, 2012 7:46 am

Opinions vary on the TIPS question. Some people want TIPS from a young age, some only when nearing retirement. Some don't want TIPS at all. There is no one "right answer" to this one so just do whatever feels right to you.

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mhc
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Re: Am I on the right track?

Post by mhc » Thu Oct 18, 2012 7:53 am

The Spartan Bond Fund is fine for all of your bonds. It is not necessary to have TIPS. The TIPS would be such a small part of your portfolio, I doubt they would have much affect.

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abuss368
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Re: Am I on the right track?

Post by abuss368 » Thu Oct 18, 2012 9:44 am

mhc wrote:The Spartan Bond Fund is fine for all of your bonds. It is not necessary to have TIPS. The TIPS would be such a small part of your portfolio, I doubt they would have much affect.


Agreed.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Thu Oct 18, 2012 12:50 pm

Thanks again....helpful as always.

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Sat Oct 20, 2012 3:47 pm

I'm back with yet another question....

My 401k match (4%) is in company stock. Is it acceptable in the Boglehead world to keep a small % of company stock as part of your overall portfolio or is the recommendation to sell and spread the $$ across my core-four family of funds? Right now, 5% of my overall portfolio is tied up in company stock.

Thanks again!

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mhc
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Re: Am I on the right track?

Post by mhc » Sat Oct 20, 2012 10:34 pm

If you have the option to get rid of your company stock and put it into your core-4 plan, then do it. Here are my reasons:

1. Holding a single stock is assuming more risk than what you will be compensated for. If risk can be diversified away (e.g., TSM index), then you will not be compensated with higher returns for the higher risk.

2. You already have your job with the company. If the company falls apart, you could lose your job and money. Not good.

3. I think there is a risk that you may get deluded by all the hype about your company that you receive at work and not make sound judgment about the stock.

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Sun Oct 21, 2012 8:01 am

Thanks MHC.....this is my thinking as well but just nice to hear the thoughts of others.

Anyone else care to chime in?

YDNAL
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Re: Am I on the right track?

Post by YDNAL » Sun Oct 21, 2012 9:11 am

Placenshow wrote:Age: 39
Desired Asset allocation: 80/20
Desired International allocation: 20-25%

Current total portfolio: Closing in on six figures....

Annual Contributions
$8000 to my 401k (not counting 4% match in company stock)
$3600 to my wife’s IRA (50/50 split between the two funds listed above
Placenshow wrote:Sorry about the percentages.

For my entire portfolio, this is the breakdown:
32% Fidelity Extended Market Index (FSMEX) (FSEMX) .10%
32% Fidelity Total Maker Index (FSTMX) .10%
18% Vanguard Intermediate Bond Index (VBIIX) .22%
18% Vanguard Total International Stock Index (VGTSX) .22%

There are varying definitions of Risk and the split between Stocks and Bonds is a most important factor - you are purposedly already taking 80% Stock risk.
  • My definition of Risk is to lose money - which also means to leave POTENTIAL money on the table.
  • We don't know anything about the next 10, 20 years, but these were the last 10 years.
      FSEMX +10.75% annually, includes -52% October 2007-March 2009
      FSTMX +7.83% annually, includes -50% October 2007-March 2009
  • I would like to be shown the exponentially different risk factor according to my definition (or any other for that matter)! Conversely, I just showed you about a weighted 1.5% ANNUAL increase in return for the largest allocation in your AA (domestic Stocks).
I have no issue with your AA.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Tue Oct 23, 2012 7:49 am

I have the following plan currently set-up.

40% - Fidelity Spartan Total Stock Market Index .10% ER
25% - Vanguard Total International Stock Market Index Admiral .18% ER
25% - Spartan US Bond Index .22% ER
10% - Vanguard REIT Index .24% ER

I'm thinking of tweaking it a bit to the following....do you see any issues with my new proposal? Am I taking on un-needed risk?

35% - Fidelity Spartan Total Stock Market Index .10% ER
25% - Spartan US Bond Index .22% ER
20% - Vanguard Total International Stock Market Index Admiral .18% ER
10% - Vanguard REIT Index .24% ER
10% - Vanguard Small Cap Growth Index .24% ER

Take care.

Grt2bOutdoors
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Re: Am I on the right track?

Post by Grt2bOutdoors » Tue Oct 23, 2012 8:14 am

You are now proposing to overweigh Small Cap Growth. Yes, you are taking undue risk. You will not be compensated properly for that fund - do you have Small Cap Value available in your selection menu? Think of small cap growth as having to pay the equivalent of $5 for $1 dollar of value (the market is estimating infinite growth potential) - if those companies fail to perform, your $5 investment could become $2.50 overnight. Now, think of Small Cap Value as paying $1.20 or less than $1 for $1 of value, if small value delivers a positive earnings surprise, it can become worth $2 or more, which would you prefer? If no small cap value, then I would just stick with Total Stock Market Index.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Placenshow
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Re: Am I on the right track?

Post by Placenshow » Tue Oct 23, 2012 9:45 am

Vanguard does offer a Small Cap Value Index but the ER is .34% compared to .24% ER for Small Cap Growth....I was looking for the cheaper fund.

In your opinion, would you even bother with the 10% allocation to small cap value or just push forward with the Total Stock Market fund I already have established?

Thanks!

dbr
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Re: Am I on the right track?

Post by dbr » Tue Oct 23, 2012 9:50 am

Placenshow wrote:Vanguard does offer a Small Cap Value Index but the ER is .34% compared to .24% ER for Small Cap Growth....I was looking for the cheaper fund.

In your opinion, would you even bother with the 10% allocation to small cap value or just push forward with the Total Stock Market fund I already have established?

Thanks!


It's only an opinion, but I believe you would be well served to opt for the total market approach.

Default User BR
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Re: Am I on the right track?

Post by Default User BR » Tue Oct 23, 2012 12:38 pm

Placenshow wrote:Vanguard does offer a Small Cap Value Index but the ER is .34% compared to .24% ER for Small Cap Growth....I was looking for the cheaper fund.

It's not really useful to compare the ERs of such dissimilar funds. You could compromise and go with NAESX at .30%.


Brian

YDNAL
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Re: Am I on the right track?

Post by YDNAL » Tue Oct 23, 2012 6:36 pm

Placenshow wrote:Sorry about the percentages.

For my entire portfolio, this is the breakdown:
32% Fidelity Extended Market Index (FSMEX) (FSEMX) .10%
32% Fidelity Total Maker Index (FSTMX) .10%
18% Vanguard Intermediate Bond Index (VBIIX) .22%
18% Vanguard Total International Stock Index (VGTSX) .22%
Placenshow wrote:No reason other than ignorance with respect to my overweighting mid/small cap index.

Looking at "Core Four" with a sprinkling of mid/small exposure, how does this look?

35% Fidelity Total Stock Market Index (FSTMX) .10%
25% Vanguard Total International Stock Index (VGTSX) .22%
20% Vanguard Intermediate Bond Index (VBIIX) .22%
10% Fidelity Extended Market Index (FSMEX) .10%
10% Vanguard REIT Index (VGSIX) .24%
Placenshow wrote:After some final tweaking, I've now finally set out on the path below and look forward to many years of worry free investing. With the funds listed below, my overall ER is .15%....not too shabby.
35% - Fidelity Sparton Total Stock Market Index .10% ER
30% - Vanguard Total International Stock Market Index Admiral .18% ER
20% - Spartan US Bond Index .22% ER
10% - Fidelity Spartan Extended Market Index .10% ER
5% - Vanguard REIT Index .24% ER
Placenshow wrote:I have the following plan currently set-up.

40% - Fidelity Spartan Total Stock Market Index .10% ER
25% - Vanguard Total International Stock Market Index Admiral .18% ER
25% - Spartan US Bond Index .22% ER
10% - Vanguard REIT Index .24% ER

I'm thinking of tweaking it a bit to the following....do you see any issues with my new proposal? Am I taking on un-needed risk?

35% - Fidelity Spartan Total Stock Market Index .10% ER
25% - Spartan US Bond Index .22% ER
20% - Vanguard Total International Stock Market Index Admiral .18% ER
10% - Vanguard REIT Index .24% ER
10% - Vanguard Small Cap Growth Index .24% ER

Take care.

Placenshow,

First, educate yourself.
http://www.bogleheads.org/readbooks.htm/url

Second, do you even have an Investment Plan?
http://www.bogleheads.org/wiki/Investme ... _Statement

Last, select Funds.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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