~15K to start portfolio, suggestions?

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baseballcb95
Posts: 17
Joined: Mon Dec 03, 2012 5:12 pm

~15K to start portfolio, suggestions?

Post by baseballcb95 »

Hey Bogleheads,

I currenly have a "net worth" of about $28,500. I am 17 years old with no debt, no montly obligations, and a sufficient college fund. The net worth is just a combintion of different investments that have been set up for me, that I set up for myself, and cash.

Roth IRA- Maxed for 2012, not much expected income in 2013

Vanguard Target Retirement 2055 (VFFVX)- .18 ER
2012 contribution- $4,700.00
Current Value- $4,935.91

Taxable Accounts- All of these were started for me a while ago

Putnam Multi-Cap Growth Fund A (PNOPX)- 1.15 ER
Current Value- $6,364.44

Putnam Voyager Fund A (PVOYX)- 1.07 ER
Current Value- $3,281.52

Franklin Small-Mid Cap Growth Fund A (FRSGX)- .99 ER
Current Value- $3,891.12

Cash

Checking+Savings Value- $10,171.70


Here is my desired allocation for Taxable Accounts-
40% Large Domestic
20% Small Domestic
20% International
20% Bonds

I would like to keep about 8,000 in cash and I am very happy with my Roth IRA. 28,000-8,000-4,935 = $15,000 to invest to achieve my desired allocation.

Now that you know the background info, here are my questions...

1) Is this a resonable allocation? I know Bogleheads like the traditional 3 fund portfolios but I like Small Caps.

2) Do you have any reccommendations on combinations of funds that would work well with this AA? I am thinking a 500 index (fidelity, vanguard or schwab) for the large domestic but need assistance with the others.

3) How do I go about closing out my other accounts witout having to pay long-term capital gains tax? I make under $5,000 per year if that plays any role.

4) Any other suggestions?

Thank you!
gvsucavie03
Posts: 1460
Joined: Sat Feb 16, 2013 7:30 am

Re: ~15K to start portfolio, suggestions?

Post by gvsucavie03 »

If and when you sell the shares in your taxable account, you or the person who started your accounts will owe capital gains. I'd probably sell now before it becomes too large and before you lose out on the benefit of lower ER's in index funds. You or whoever set up these accounts on your behalf should already be getting taxed, correct? The $2,000 cash you'll have left over (you said you wanted to keep 8k of it) could be partially used to cover the taxes.

If you like small caps - check out the Vanguard Small Cap Index NAESX. That plus the Vanguard S&P 500 index would meet your desired AA. I don't think you can start your own taxable account until you are 18, though, so you may be waiting a year. The money you put in outside of your ROTH IRA would definitely need to be index funds since they are taxable. You may not meet minimum income requirements for a traditional IRA, but I'd check into that. You might have to ask a tax professional about it next year if you try to create accounts with money that exceeds your yearly income.

Wow, I wish I had thought like you when I was 17!!
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RyeWhiskey
Posts: 864
Joined: Thu Jan 12, 2012 9:04 pm

Re: ~15K to start portfolio, suggestions?

Post by RyeWhiskey »

1) Sell those high ER funds in your taxable account. Pay the tax on the capital gains. You will probably recover much of it in your tax return anyway. Move the money to Vanguard.
2) Contribute the maximum to your Roth allowed for 2013.
3) If you want to keep 8k in cash that's fine, but that brings your investment total to around $20,500. So according to your allocation you'd have:
20% in bonds = $4,100
20% in international = $4,100
20% in small cap = $4,100
40% in large cap = $8,200
Since you have about $4,700 in your Roth already, it may be wisest to put your bond portion in your tax shelter and keep the rest of the equities in taxable. So it'd look like:
Roth: $4,100 in VBMFX (Total Bond Market), $600 in VOO (S&P Index)
Taxable: $4,100 in VGTSX (Total Int. Stock), $4,100 in NAESX, and the remainder of $7,500 in VOO.
4) Always contribute the maximum allowed to your Roth and simply re-balance once a year to keep your allocations in line.

Hope that helps.
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Topic Author
baseballcb95
Posts: 17
Joined: Mon Dec 03, 2012 5:12 pm

Re: ~15K to start portfolio, suggestions?

Post by baseballcb95 »

bump, thank you guys, just looking for a couple other views.
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JamesSFO
Posts: 3404
Joined: Thu Apr 26, 2012 10:16 pm

Re: ~15K to start portfolio, suggestions?

Post by JamesSFO »

1) Is this a resonable allocation? I know Bogleheads like the traditional 3 fund portfolios but I like Small Caps.
Why? And to what degree? Remember something like Total Stock Market will give you market weight small cap exposure [edit to add: approx 10%].

Not every BH has a 3 fund portfolio, but there are a lot of good reasons for such an idea, 20% small cap only fund seems rather high for your portfolio. How comfortable losing all of that money? Small cap will be the most volatile, how will you feel if 50% of it goes away overnight, will you stay the course?
2) Do you have any reccommendations on combinations of funds that would work well with this AA? I am thinking a 500 index (fidelity, vanguard or schwab) for the large domestic but need assistance with the others.
Obviously you could do Total Stock, Total Intl, Total and add a small cap fund. Quite honestly around this asset level you might even want to consider an all-in-one fund and then supplement, e.g. Life strategy 80 stock/20 bond + some small cap. It isn't perfectly tax efficient but it might be a lot easier to manage.
3) How do I go about closing out my other accounts witout having to pay long-term capital gains tax? I make under $5,000 per year if that plays any role.
I don't think you can completely avoid it provided there are gains, just pay the gains and move on.

That said, if you won't even have Roth level earned income (<$5K in 2013) you might still barely have to file a tax return or if you do you might not owe taxes.
4) Any other suggestions?
You may want a bigger emergency fund. We don't know your living expenses but $8K in cash = ? months of living expenses.
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