Investment Allocation - 25 year old (Bonds, SCV, REITS)

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te5486a
Posts: 24
Joined: Sun Feb 28, 2010 10:33 pm

Investment Allocation - 25 year old (Bonds, SCV, REITS)

Post by te5486a » Fri Nov 09, 2012 1:16 pm

Emergency funds: Three to six months of expenses (Looking to boost this to 6 months – Vested Federal Employee)
Debt: No credit card debt, car loan, or mortgage. I owe approximately $55,000 to my parents for school. They took out a home equity line of credit at 2-3% (I believe it’s variable). Two months ago I paid off a separate loan at a higher interest rate, so I’m looking to put more money towards this one. Parents have not kept track of how much they borrowed for me (and my siblings education) and how much we each owe. I would really like to get principal and interest rate before contributing more.
Tax Filing Status: (Single)
Tax Rate: 25% Federal, -- 4 percent on the first $10,000 of taxable income,-- 6 percent on taxable income between $10,001 and $40,000,
-- 8.5 percent on taxable income of $40,001 and above.
State of Residence: Washington DC
Age:25
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 50% of stocks

Current retirement assets – High five figures

His Thrift Savings Plan
29.0% - C Fund - Vanguard Equivalent is Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.025%)
21.1% - S Fund - Vanguard Equivalent is Vanguard Extended Market Index Fund Institutional Shares (VIEIX) (0.025%)
20.1% - I Fund - Vanguard Equivalent is Vanguard Developed Markets Index Fund Institutional Shares (VIDMX) (0.025%)
His Roth IRA at Vanguard)
8.1% - Vanguard Mid-Cap Growth Index Inv (VMGIX) (0.24%) ------> This should be exchanged for Vanguard Small Cap Value Index: VSIVX/VSIAX (Investor/Admiral)
7.7% - Vanguard Emerging Mkts Stk Idx Inv (VEIEX) (0.33%)
4.6% - Vanguard FTSE AW xUS Sm-Cp Idx Inv (VFSVX) (0.5%)
5.5% - Vanguard Prime Money Market Fund (VMMXX) (0.2%) ------> Waiting to be invested
2.5% - Citigroup (C) (none) ------> Can be liquidated
1.4% - General Electric (GE) (none) ------> Can be liquidated

Contributions

New annual Contributions
$17,000 his 401k (5% employer match) – 2012 – on track.
$17,500 his 401k (5% employer match) – 2013
$5,000 his Roth IRA – 2012, not made.
$5,500 his Roth IRA – 2013.

Available funds

Funds available in his 401(k)
Target date funds, F Fund , and G Fund.

Funds available in his Roth IRA
Anything available at Vanguard.

Questions:
1. I am looking to re-allocate my portfolio to 20% bonds. I hate the yield on fixed income, but I should have something to re-balance into.

2. I am looking to tilt towards a 10% stock allocation to small cap value and 10% to real estate investment trusts. I would also like to eventually go to Admiral shares.

Thanks for your help in advance. -- Tim

Johm221122
Posts: 5072
Joined: Fri May 13, 2011 6:27 pm

Re: Investment Allocation - 25 year old (Bonds, SCV, REITS)

Post by Johm221122 » Sat Nov 10, 2012 9:38 am

A little aggressive but good,I like G fund for bonds and F fund is also great choice
A written investment plan may help
http://www.bogleheads.org/wiki/Investme ... _Statement
Hope this bumps you up
John

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Pennstateclj1
Posts: 501
Joined: Sun Apr 03, 2011 2:53 pm
Location: State College, PA

Re: Investment Allocation - 25 year old (Bonds, SCV, REITS)

Post by Pennstateclj1 » Sat Nov 10, 2012 10:09 am

te5486a wrote:5.5% - Vanguard Prime Money Market Fund (VMMXX) (0.2%) ------> Waiting to be invested
2.5% - Citigroup (C) (none) ------> Can be liquidated
1.4% - General Electric (GE) (none) ------> Can be liquidated
C and GE are such a small part of your portfolio (and will continue to get smaller with each contribution to TSP) I would just liquidate and add them to your overall desired AA. They don't really fit in with your plan.

As far as your 80/20 stock bonds go, I don't see any bonds in your current portfolio, are you looking to just pull the trigger on it and get it done? I'd do it within the TSP.
Overall 80/20 AA possibility with 50% of stocks international-
TSP ~70% of overall portfolio
10% G
10% F
40% C
30% S
10% I

Roth- ~30% of overall portfolio
100% Total International Stock Index

Your TSP will outgrow your ROTH by sheer contribution rate, so you'll need to figure out how the new allocations will keep the percentages in check. You can divert each paycheck to the underperforming funds while your portfolio is still relatively small, but eventually this won't work anymore and you'll have to use rebalancing.

Make sure in TSP you're using dollar amounts so you don't out contribute your agency match before the end of the year.

The Total International is more complete with Vanguard which is why I chose it for the ROTH, so make sure you max the ROTH with that, and compliment it with the I fund. Also, I overweighted small caps in the TSP because of your age and investing time horizon, expected return is higher on them than C, but they are also more volatile. If you don't like that you can hold the C and S something like 55/15 or 45/25.

User avatar
Pennstateclj1
Posts: 501
Joined: Sun Apr 03, 2011 2:53 pm
Location: State College, PA

Re: Investment Allocation - 25 year old (Bonds, SCV, REITS)

Post by Pennstateclj1 » Sat Nov 10, 2012 10:27 am

I might have jacked up the percentages on the above, but it's early so forgive my bad math.

te5486a
Posts: 24
Joined: Sun Feb 28, 2010 10:33 pm

Re: Investment Allocation - 25 year old (Bonds, SCV, REITS)

Post by te5486a » Wed Nov 14, 2012 9:55 pm

Thank you very much for the advice. I agree that maintaining asset allocation between the Roth and TSP may be difficult given due to the additional contributions.

te5486a
Posts: 24
Joined: Sun Feb 28, 2010 10:33 pm

Re: Investment Allocation - 25 year old (Bonds, SCV, REITS)

Post by te5486a » Wed Nov 14, 2012 9:56 pm

Johm221122 wrote:A little aggressive but good,I like G fund for bonds and F fund is also great choice
A written investment plan may help
http://www.bogleheads.org/wiki/Investme ... _Statement
Hope this bumps you up
John
Thank you. I will work on this.

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