Help w/ transition to 3Fund Portf (but big muni ladder)

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Help w/ transition to 3Fund Portf (but big muni ladder)

Post by spyman » Sun Nov 17, 2013 2:15 pm

We would be enormously grateful for some assistance in figuring how to transition to a simplified 3 Fund type Portfolio given our current holdings, including a large municipal bond ladder. We have lots of stuff left from when the accounts were managed so need to start selling stuff off. But do we do this all at once? And then invest in the new funds all at once? I'm tempted to try to find someone to pay on an hourly basis to give advice when needed and help us get the portfolio in shape for better self management. We’re also re-thinking our allocation and risk tolerance. I went thru the initial post and think I've put together a thorough description of the current situation (see below). Thanks for any suggestions. -- spy

Emergency funds: Yes we have this and excluded this from snapshot below
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 28% Federal, 5% State
State of Residence: Illinois
Age: Mid 50s
Desired Asset allocation: Still debating this -- perhaps 50% stocks / 50% bonds
Desired International allocation: 10% of stocks?

Current total portfolio: $3.2 million
+ Retirement assets: $1.8 million (have converted 680k of this amount to Roth)
+ Non-retirement assets: $1.4
+ NOTE: College $$ is in 529 funds and I’m excluding these from analysis

75k cash (exclusive of emergency funds)
277k Stock ETFs
+ 210k VTI
+ 57k SPY
+ 10k VEU

29k Templeton Growth Fund (TEPLX) (held directly with them for many yrs with reinvested dividends so dreading the tax computation when I eventually sell)
42k of mutual funds that I’d like to liquidate to simplify portfolio.

18k US Treasury TIPS (bought direct; not a fund)

950k of individual muni bonds (GO and Rev) in a ladder of 26 bonds with maturities of 1 to 11 years and avg duration of 6 yrs.
+ 9 of the bonds were purchased in mid 2009 to mid 2010 by UBS when I had an account there. These were roughly 25k each and were of about 5 years duration.
+ 17 of the bonds were purchased in Jan-Feb 2013 (a couple in 6/13 and 8/13) by Fidelity (actually Breckenridge which has a contract with Fidelity to manage muni bond accts for Fidelity customers for .35%). Using my existing UBS bonds, Breckenridge bought another 500k of bonds to create a ladder stretching out 11 yrs with avg duration of 6 yrs. I have no discretion on mgmt of this account. Breck does a good job choosing, buying/selling the bonds BUT I worry that I’m overexposed to munis. Given that I’m holding individual bonds in a ladder, there is no easy way to reduce the exposure so I regret that I didn’t choose a bond fund and may want to gradually exit the ladder, though I still need to figure out how to do this without taking a hit. Here is an example of a couple of the bonds to give you an idea of what I’m holding:

Examples: Breckenridge bought on 1/16/2013: OHIO ST UNIV GEN RCPTS GEN RCPTS BDS 05.00000% 06/01/2023 (9.5 yrs) SER. 2013A Cash Shares: +40,000.000 Price: $127.985 Amount: -$51,194.00; And UBS bought in 2010: FLORIDA ST DEPT GEN SVCS DIV FACS MGMT 05.00000% 09/01/2014 REV REV REF BDS FACILITIES POOL SER. 2005A 20,000 103.830 -0.013 $20,766.00


Her 401k from former job
(Fed Govt TSP)
Expense ratio .027%
Total: 355k
280k C Fund (like S&P 500)
75k S Fund (invests in a stock index fund that tracks Dow Jones U.S. Completion Total Stock Market Index)

Her 401k from former private sector job
(Fidelity self managed acct)
Total: $644k

82k cash
60k Vanguard Total Index (VTI)
11k IShare Russell 1000 Value (IWD)

158k in corporate bonds (6 bonds of about 25k each bought by UBS in 6/10 and 7/10 and maturing between 9/14 and 5/17; all A ratings)

333k in 10 mutual funds that we’d like to sell to simplify and reduce expenses; UBS bought these before I moved to Fidelity to self manage)

+ 46k in arbitrage fund class r (arbfx)
+ 43k in doubleline total rt bond fd cl n (dltnx)
+ 41k in virtus multi sector short term bond cl a (narax)
+ 31k in pimco unconstrained bond fund cl a (pubax)
+ 29k in putnam absolute return 500 fund cl a (pjmdx)
+ 21k in hartford floating rate fund class a (hflax)
+ 21k in pimco total return class a (pttax)
+ 19k in jp morgan strategic income opport a (jsoax)
+ 18k in cbre clarion long/ short fund investor (clsvx)

Her Roth accounts (converted from IRA)
Total: $527k in Ishares and Vanguard ETFs

+ 147k Russell 1000 Growth (IWF)
+ 85k Russell 2000 (IWM)
+ 83k Russell Midcap (IWR)
+ 87k Russell 1000 Value (IWD)
+ 100k Vanguard Intl Equity All World ex US (VEU)
+ 28k Vanguard Intl Emerging (VWO)

Her 401k Roth from former job
$62k in 20 different mutual funds
This started off as a Fidelity managed account but I stopped it when they took the 62k and put it in no fewer than 20 different funds, 6 of which had less than $1,000. Although they turned off the trading and fees (it’s now unmanaged), I still need to get rid of these funds to simplify the portfolio.

+ $8,600 in Strategic advisers international fund (filfx)
+ $7,900 in fidelity high income (sphix)
+ $6,800 in strategic advisers core fund (fcsax)
+ $5,900 in strategic advisers value fund (fvsax)
+ $5,800 in strategic advisers growth fund (fsgfx)
+ $4,300 in strategic advisers core income fund (fpcix)
+ $3,400 in fidelity total bond (ftbfx)
Won't waste your time listing the remaining 13 funds, some with positions of under $500!

His Rollover IRA at Fidelity
(Self managed)
Total: $109,000

7k Cash
17k Vanguard Total Index (VTI)
25k ivy asset strategy cl a (wasax)
18k permanent portfolio (prpfx)
18k us treasury tips
9k ishares tips bond (tip)
14k oppenheimer gold & spec minerals cl a (opgsx)

His Roth Account at Fidelity (Converted from IRA)
(Self managed)
Total 81k

22k cash
24k Vanguard Total Index (VTI)
13k guggenhm timber etf (CUT)
12k powershares db commodity index tracking fd unit ben int (DBC)
10k powershares db g10 currency harvest com ut ben int (DBV)

His old Roth (from before he made too much to contribute to one)
14k in Fidelity High Income (SPHIX)

HSA Account (no longer contributing to this but also not using it yet to pay medical)
47k Total
+ 36k Vanguard 500 Index
+ 11k Vanguard All World ex US (VEU)

No new contributions or savings expected over the next 10 yrs til retirement (took a much lower paying job that is secure and comes with a good pension)

Based on Fidelity tool, I was able to add the non-Fidelity accounts into the picture, and hit a button to see what the allocation is. If it’s working right, the allocation is:

39% Domestic Stock
7% Foreign Stock
44% Bonds
9% Short term
1% Unknown

The tool says our stock style is Large Blend -- generally invested in Large Cap stocks which have characteristics of both Value and Growth stocks.
Bond style is Intermediate Investment Grade -- generally invested in bonds with maturity dates of five to twelve years that have a relatively low risk of default as compared to non-investment grade bonds

As you can see this is a mess and I'd like to move ahead with simplifying all of this.

Thanks so much for your help!!


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Re: Help w/ transition to 3Fund Portf (but big muni ladder)

Post by hoppy08520 » Sun Nov 17, 2013 2:49 pm

spyman, wow, that's quite a portfolio! I'd bet it took a week just to get that post together. :) Of course that's a good problem to have.

Just one thought, your wife has a TSP, and she also has $644K in an old 401(k) and $62K in an old Roth 401(k). She might want to consider transferring that into her TSP. She would then have two sub accounts in her TSP, a regular TSP and a Roth TSP. Also, she might want to consider using the TSP's G Fund for a portion of the portfolio. It's one of the most desired funds in the TSP yet she's not even using it. The one drawback to this is that, if you still want to do Roth conversions, you can't do that within the TSP.

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Re: Help w/ transition to 3Fund Portf (but big muni ladder)

Post by spyman » Sun Nov 17, 2013 6:01 pm

Thanks for the suggestion. I will look into this since the expense ratio is quite low. It's a little more cumbersome to use and I'll have to figure out what to put and where as part of an overall allocation with these funds (and funds outside the TSP).

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Re: Help w/ transition to 3Fund Portf (but big muni ladder)

Post by bondsr4me » Sun Nov 17, 2013 6:24 pm

I really think you need to sit down with a Certified Financial Planner who is a "fee only" planner and who is also a CPA. I would not do this on your own. I hope this is helpful to you. Don.

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Re: Help w/ transition to 3Fund Portf (but big muni ladder)

Post by spyman » Sun Nov 17, 2013 6:37 pm

Thanks. I'll try to find someone since it definitely would be helpful. I know that with the muni bonds, I will need to hold them to maturity but I don't need to buy new muni bonds. Instead I could reinvest some or all of the proceeds in Vanguard Muni Funds. If I stay in the Breckenridge managed account, they will keep reinvesting in new individual muni bonds to maintain the ladder.

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Re: Help w/ transition to 3Fund Portf (but big muni ladder)

Post by Artsdoctor » Sun Nov 17, 2013 6:56 pm


I would not be too concerned with your muni portfolio; what's done is done and you can simply let the bonds mature. Having approximately half of your fixed income assets in munis is not the end of the world and would not that unusual for a multi-million dollar portfolio. Tell Breck that you want the dividends put into your cash accout and you can handle the allocation from there.

What I am concerned about is the cohesiveness of your portfolio. There's just too much going on here, some of the balances are just too small to make any difference whatsoever, and you've created a complex mix without any benefit.

You've got reasonable assets and you'll have to decide what your goal is. Then you have to devise an asset allocation on how to get there. A 50/50 portfolio might be reasonable indeed; or, you can increase the equities if you need/want to take more risk, or decrease equities if you don't need to. Deciding your equity/fixed income allocation will be the biggest and most important step.

Once you do that, you can then decide (without making any trades), what sort of subclass allocation you want. How much domestic, how much international, and do you want REITs or not. Why not just limit it to that?

Then, you can begin selling your funds that do not conform to your plan. If you start doing this in your tax-advantaged accounts, you will probably not incur any fees unless there are minimum holding period. You can use the Morningstar X-ray feature to see how you're doing from an asset allocation perspective.

Take a look on Morningstar's site from today. Rick Ferri gave a great interview on simplification of one's portfolio. You might find that a useful starting point. You should have your strategy written down and planned before making your first trade. Use that statement (your Investment Policy Statement) to guide you while you streamline your portfolio so you don't get yourself into trouble. You will most likely be your own worst enemy so writing down a decent, simple plan, and then doing it will save you a lot of a grief later.

Hope that is helpful. Don't make it more complicated than it needs to be.


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Re: Help w/ transition to 3Fund Portf (but big muni ladder)

Post by spyman » Sun Nov 17, 2013 11:26 pm

This makes perfect sense Artsdoctor. Thanks so much for taking the time to respond. I will definitely pull Rick Ferri's article and start working on the overall plan. I think the implementation will be a challenge but we shall see.


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Re: Help w/ transition to 3Fund Portf (but big muni ladder)

Post by Artsdoctor » Mon Nov 18, 2013 12:03 pm


As you're writing down your plan, ask yourself a fundamental question. Take a good look at the portfolio, and count up the number of funds you have. The amount of money you have in some of the those funds is tiny and will not influence the total return of your portfolio. Ask yourself exactly how you got to this point that you're in. What prompted you to buy into so many funds at such small amounts? What were you hoping to accomplish? If you can learn from your past behavior, you will be much less to repeat the behavior in the future (something I think you'll agree you have to do here).

I'm a big believer in writing things down in order to reduce the amount of emotion when it comes to investing. During the 2008-2009 meltdown, I hung on and did everything I was supposed to do but it was extremely hard and sometimes nauseating; I wrote down how I felt during the depths of the blood bath and I refer back to those thoughts whenever I feel the need to stray from my financial plan.

I don't think divesting many of those assets will be difficult if you have a plan. Remove your emotions from the process and manage your money with as much steely resolve as you can muster. There is no room for emotion with long-term investing.


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Re: Help w/ transition to 3Fund Portf (but big muni ladder)

Post by spyman » Mon Nov 18, 2013 9:25 pm

I ended up in a lot of the managed funds when my account was managed. For example, when Fidelity took over 62k Roth to manage, they must have plugged me into some computerized trading model because they immediately put me in 20 funds and some of these have less than $500. Part of the reason for starting to self manage is to simplify, reduce the number positions, and reduce the expenses. But because I have so many positions right now and am not starting from scratch in building the 3 Fund Portfolio, I have my work cut out for me. Thanks for the help! Spyman

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