Need Advice on AA. New here [Portfolio help]

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ORatz
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Joined: Sat Apr 06, 2013 4:15 am

Need Advice on AA. New here [Portfolio help]

Post by ORatz » Sat Apr 06, 2013 4:36 am

Hi,

I'm 62 yrs old, retired with monies sitting in various "safe" accounts like MM, with no return. I've been so afraid to asset allocate all these years, esp on my own, but have some hope of doing so after reading the posts in this forum. I would much prefer doing it myself, but it's intimidating to me. Like everyone here, I've worked hard to obtain this savings, and don't want to lose it. Guess you could say I'm on the conservative side but really need to do something about it.

Ok, so I have total about 750k taxable, with about 60k in IRA..........................I spoke with a Vanguard rep, and he suggested the target retirment income with either Life strategy or Wellsley fund....but to put ALL my money in either AA. I'm not sure if that's wise, because I keep reading about not putting eggs in one basket. I do like the Wellsely fund but or the Target Ret Income, but I'm thinking that the taxable part would make it unwise to do.

I really need help. I'm a widow and a novice at this. Just when I think I have a hang of it, I become so overwhelmed, yet, don't want to pay high fees/commissions, if I'm able to do this on my own.

Any advice would be greatly appreciated!! Thank you!!!

DaveS
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Re: Need Advice on AA. New here [Portfolio help]

Post by DaveS » Sat Apr 06, 2013 9:10 am

There is a lot of confusing noise in the investment world. So you don't want to pay too much attention to people who are paid to talk 30 + minutes a day. They have to say something even if they can't think of anything intelligent to say. If you put all your money into something like Life Strategy Moderate Growth that is not like putting all your eggs in one basket because that fund is a collection of US, International and bond funds. It's not a bad allocation for someone your age. So look and see what it's composed of. I assume that your only going to hold it in taxable and that your tax free is going to be all bonds. But the life strategy fund has one disadvantage, it's bonds are taxable. I am about your age a station in life. You did not mention if you have reliable pension income, but I suspect that is the case. Here is what I would do if I were you.

Tax free:

Vanguard Intermediate Term Investment Grade Fund - or total bond. All.

Taxable:

Vanguard High Yield Tax Free Fund: 33%

Vanguard Total US Stock Market 40%

Vanguard Total International 27%

What that gives you is more tax efficiency than the moderate growth fund, or Wellsley in taxable. If you want to hold Wellsley, have it in taxable and adjust the bond and US stock holdings accordingly. Also you can lower the suggested percentages for stocks if you think I am being to aggressive. A lot turns on how much your going to need draw on the money you have invested. Dave

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Duckie
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Re: Need Advice on AA. New here [Portfolio help]

Post by Duckie » Sat Apr 06, 2013 6:48 pm

ORatz, welcome to the forum. Since we don't know what your desired AA is, and based solely on your age of 62 and "conservative side" comment, I'm going to recommend an AA of 40% stocks, 60% bonds, with 30% of stocks in international. That breaks down to 28% US stocks, 12% international stocks, and 60% bonds.

Portfolio #1
Taxable at Vanguard -- $750K -- 93%
either 93% (VSCGX) Vanguard LifeStrategy Conservative Growth Fund (0.15%)
or 93% (VTINX) Vanguard Target Retirement Income Fund (0.16%)

Traditional IRA at Vanguard -- $60K -- 7%
either 7% (VSCGX) Vanguard LifeStrategy Conservative Growth Fund (0.15%)
or 7% (VTINX) Vanguard Target Retirement Income Fund (0.16%)

Portfolio #2
Taxable at Vanguard -- $750K -- 93%
28% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.06%)
12% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.16%)
53% (VWIUX) Vanguard Intermediate-Term Tax-Exempt Bond Fund Admiral Shares (0.12%)<-- Or a state-specific muni fund for part of this.

Traditional IRA at Vanguard -- $60K -- 7%
7% (VAIPX) Vanguard Inflation-Protected Securities Fund Admiral Shares (0.11%)

My comments:
-- This ignores the tax cost of selling in taxable what you currently have.
-- Portfolio #1 is much easier to handle because it rebalances automatically, but it will kick out more taxable income because it has taxable bonds in taxable.
-- Portfolio #2 is a little cheaper, but has to be rebalanced manually. (Although that only takes a few minutes once or twice a year.)
-- Portfolio #2 has TISM in taxable to take advantage of the 
Foreign tax credit.
-- If it matters to you, LifeStrategy funds don't have TIPS, Target Retirement funds do.
-- There are no commissions to buy any of these funds if you buy them directly from Vanguard.
-- By buying a balanced fund you are not putting all your eggs into one basket. For example, in LS Conservative Growth you would be buying three funds: Total Stock Market (TSM), Total International Stock Market (TISM), and Total Bond Market (TBM). TSM holds over 3200 different US stocks (large caps, mid caps, small caps, growth, value). TISM holds over 6000 different non-US stocks (europe, asia, far east, emerging markets [Brazil, Russia], Canada, large caps, small caps). TBM holds over 5000 different US bonds (treasury, government, corporate, [does not include municipal bonds or TIPS]).

Just some possibilities.

ORatz
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Joined: Sat Apr 06, 2013 4:15 am

Re: Need Advice on AA. New here [Portfolio help]

Post by ORatz » Mon Apr 08, 2013 9:03 am

Thank you both so much! Your replies must have been in spam, since I just found this! I am going to go back and read both answers intently. Both have such wise and sound advice and seemingly safe.

No, Dave, no pensions, just my savings and the IRA. The 750 is taxable and the 60 is non taxable. I'm going to look at your suggestions again and try to figure this out. Thank you both so much for taking time to answer!

ORatz
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Re: Need Advice on AA. New here [Portfolio help]

Post by ORatz » Mon Apr 08, 2013 9:05 am

Do either of you think Wellesley would be a good place, should I do the "all in one" approach??

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Duckie
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Re: Need Advice on AA. New here [Portfolio help]

Post by Duckie » Mon Apr 08, 2013 7:25 pm

ORatz wrote:Do either of you think Wellesley would be a good place, should I do the "all in one" approach??
VWIAX Vanguard Wellesley Income Fund Admiral Shares (0.18%) is a good fund. It's not a favorite of mine because 1) it's actively managed, not an index fund, 2) it currently only holds 63 different stocks and 683 different bonds (that's really low on stock diversity), 3) it doesn't have international, and 4) it's designed to kick out a lot more income than even the LS or TR funds. But a lot of other people love it.

ORatz
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Re: Need Advice on AA. New here [Portfolio help]

Post by ORatz » Wed Apr 10, 2013 4:13 am

Duckie, what do you think of Wellesley with Target Ret Income? I like your portfolio outlines, and appreciate both of your comments and advice...immensely!

The thing is too that a small part of the 750k, is in individual baby bells, or what's left of them...Would i bring them over to Van Brokerage or cash them out an put them into one of the portfolios suggested? If I leave them, then the percentages illustrated in each fund, would have to be adjusted, so that's confusing to me. Forgive me if I don't make a whole lot of sense. I'm really just reading and listening right now......I'm fortunate to have you and Dave answer my questions since I was hoping for such. Thank you!

ORatz
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Re: Need Advice on AA. New here [Portfolio help]

Post by ORatz » Wed Apr 10, 2013 4:14 am

Oh, and I forgot to ask about tax managed funds, as one of the Van reps suggested yesterday...I think he mentioned the conservative growth...but i'm in a low tax bracket now, so not sure if that's even a consideration?? Thank you!

ORatz
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Re: Need Advice on AA. New here [Portfolio help]

Post by ORatz » Wed Apr 10, 2013 5:25 am

Also, what do you guys think of Annuities? I know little about them, but I like that they guarantee an income for whatever length of time. Do you know anything about Vanguard annuities or any other company that is solid? Thank you!

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Duckie
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Re: Need Advice on AA. New here [Portfolio help]

Post by Duckie » Wed Apr 10, 2013 7:21 pm

ORatz wrote:[W]hat do you think of Wellesley with Target Ret Income?
I see no point in mixing two balanced funds. TR Income has everything you need. But if you want to have both, it wouldn't be bad, just an unnecessary complication.
The thing is too that a small part of the 750k, is in individual baby bells, or what's left of them...Would I bring them over to Van Brokerage or cash them out an put them into one of the portfolios suggested?
Either sell them where they are or move them "in kind" and sell them, depending on the commissions. You don't need the hassle of individual stocks.
Oh, and I forgot to ask about tax managed funds, as one of the Van reps suggested yesterday...I think he mentioned the conservative growth...but i'm in a low tax bracket now, so not sure if that's even a consideration??
I'm not a fan of the five Vanguard tax-managed funds. If you go the TR/LS route they're not an issue, and if you go for the individual funds TSM and TISM are very tax-efficient. See Principles of Tax-Efficient Fund Placement.
Also, what do you guys think of Annuities? I know little about them, but I like that they guarantee an income for whatever length of time. Do you know anything about Vanguard annuities or any other company that is solid?
I know very little about annuities except for what I've read here on this board. I have read that the Immediate Fixed Annuity -- SPIA is usually the best option for most people. Yes, Vanguard sells some, see Annuities through Vanguard. To compare fixed annuities see AnnuityFYI.

In your PM you mentioned considering annuitizing $300K. That's a big chunk of your $810K retirement portfolio. If you decide to annuitize, the longer you wait, the older you get, the higher the rate will be. And you don't have to do it all at once. You could annuitize $100K and then a few years later annuitize another $100K, etc. Also you probably want to spread out the risk by buying from different insurance companies so you don't go above the limit for your state Guarantee Association.

ORatz
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Joined: Sat Apr 06, 2013 4:15 am

Re: Need Advice on AA. New here [Portfolio help]

Post by ORatz » Thu Apr 11, 2013 11:22 am

Thank you so much for your advice and for getting back to me, Duckie! I'm printing the whole page, as I type, with yours and Dave's advice.

I've been spending the past few days just absorbing what I'm reading, then hopefully, be less intimidated by making some kind of move. I already have a Prime MM acct with Vanguard, and I'm transferring my IRA which is in the works.

Maybe will look into a 100k annuity but will make sure to do my research.

Thank you so much! You have no idea how much your advice is helping me!

ORatz
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Joined: Sat Apr 06, 2013 4:15 am

Re: Need Advice on AA. New here [Portfolio help]

Post by ORatz » Thu Apr 11, 2013 11:28 am

ps...Duckie, are the TISM and TSM index funds?

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Duckie
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Re: Need Advice on AA. New here [Portfolio help]

Post by Duckie » Thu Apr 11, 2013 7:46 pm

ORatz wrote:[A]re the TISM and TSM index funds?
TSM -- Vanguard Total Stock Market Index Fund
TISM -- Vanguard Total International Stock Index Fund

See Abbreviations and Acronyms.

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