First Year Complete, Time for a Checkup

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Bacchus01
Posts: 2046
Joined: Mon Dec 24, 2012 9:35 pm

First Year Complete, Time for a Checkup

Post by Bacchus01 » Mon Dec 30, 2013 11:26 pm

It was just one year ago that I found this site and decided to get my financial house in order. We were doing well, but it was more out of sheer luck than actual planning. This place has been an unbelievable source of information and knowledge sharing. Thank you!

Here is my original thread: http://www.bogleheads.org/forum/viewtop ... 0#p1562540

Here is updated information:

Some of the biggest changes include:
- Getting rid of individual stock holdings and going to index funds
- Using several strategies to go from $0 Roth to more than $50K Roth in one year
- Opening first HSA account and fully funding that while paying expenses out of pocket.
- Went heavier on equities than original plan (was 75/25, not 80/20)

Emergency funds: 6 months
Debt: 2.25% on 5/1 ARM (18 mos. in) on first home; 2.5% on 15 year fixed on second home (12 months in) – both with Wells Fargo
Tax Filing Status: Married Filing Jointly
Effective Tax Rate: 25% Federal, 6% State
State of Residence: WI
Age: Me 40, Wife 44
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 40% of stocks
Desired Small/mid-cap Tilt: 20% of stocks

Current portfolio is ~ $1.5M
Current household income is over $350K/annually

All %s are of TOTAL portfolio, not of sub-class. Rounding some means doesn't equal 100%.

Current retirement/other assets
Real Estate Equity – 12%
11% main home
2% second home - plan to sell in about 15 years

Taxable – 43%
11% cash – Ally Bank
3% CDs - Allly Bank
12% Vanguard Total International (VTIAX) - .18%
15% Vanguard Total Stock Market (VTSAX) - .06%
<1% Motorola Stock (MOT) - SmithBarney

His 401k Former Employer A – Fidelity – 22%
22% Vanguard Institutional Index Plus (VIIIX) - .02%

Her 401k Former Employer – 6%
6% NT Collective S&P MidCap 400 Index Fund - Lending - NOMIX .036%

His 401K Former Employer B – Wells Fargo – 8%
8% Wells Fargo S&P 500 Index Fund N5 .09%

529 Plans – TIAA Craf – 3%
3% age-based funds

His Roth IRA - 2%
2% Vanguard's Extended Market Index Fund Admiral VEXAX .14%

Her Roth IRA - 1%
1% Vanguard's Extended Market Index Fund Admiral VEXAX .14%

His HSA Account - <1%
<1% Money Market Account (for now)

Contributions

New annual Contributions Planned
401k - $17,500 his 401k ~$8K in employer match
$11K to 2 back-door Roth accounts, possibly more if new 401K allows after-tax conversions to Roth IRA
$15K to 529 plans
$6450 to HSA
$50K-$100K taxable additional investment/year depending on bonus/short-term expenses

Available funds

Funds available in his former employer 401(k)a
Company Stock (XXX)
Fidelity Low Priced Stock K (FLPKX) - .76%
Vanguard Institutional Index Plus (VIIIX) - .02%
Pimco Total Return Institutional (PTTRX) - .46%
Vanguard Target 2030 (a bunch of these from 2020 through 2060)- .083%
Fidelity Diversified International K (FDIKX) - .73%
Fidelity Contrafund K (FCNKX) - .69%

Funds available in his former employer 401(k)b
Wells Fargo Stable Return Fund N25
Artio Total Return Bond I JBGIX .44%
Fidelity Capital & Income FAGIX .77%
Wells Fargo Advantage DJ Target Today WOTDX .45%
WF Dow Jones Target 2010 (I) WFOAX .48%
WF Dow Jones Target 2020 (I) WFOBX .5%
WF Dow Jones Target 2030 (I) WFOOX .51%
WF Dow Jones Target 2040 (I) WFOSX .52%
WF Dow Jones Target 2050 (I) WFQFX .52%
Columbia Acorn/Z ACRNX .76%
Columbia Mid Cap Value Opportunity R5 RSCMX .82%
Hartford Growth Opportunities HAGOX .66%
T. Rowe Price Equity Income PRFDX .68%
Wells Fargo Advantage Emerging Gr Instl WEMIX .9%
Wells Fargo S&P 500 Index Fund N5 .102%
American EuroPacific Growth RERFX .56%
Oppenheimer Developing Markets Y ODVYX 1.03%
Cohen & Steers Realty Shares CSRSX .96%
Prudential High-Yield Z PHYZX .62%
Waddell & Reed Core Investment A UNCMX 1.12%
Goldman Sachs Smcap Inst GSSIX 1.01%
T. Rowe Price Blue Chp Gwth TRBCX .77%
PIMCO Total Return P PTTPX .56%

Funds available in her former employer 401(k)
NT Collective Aggregate Bond Index Fund – Lending - .035%
Motorola Solutions Short Term Bond Fund - .041%
Motorola Solutions Balanced Fund I - .048%
Motorola Solutions Balanced Fund II - .051%
NT Collective S&P 500 Index Fund – Lending - .034%
NT Collective S&P MidCap 400 Index Fund – Lending - .036%
NT Collective EAFE Index Fund – Lending - .137%
NT Collective Russell 2000 Index Fund – Lending - .045%
Motorola Solutions Stock Fund - .084%


Comments
I recently took a new job and am not yet enrolled in the company 401k. I will be effective Jan 1st. They fund choices are lousy, but there is one Vanguard S&P type fund and a decent broad bond fund. I'll be investing in one or both of those two.

My biggest goal over the year was simplification, and I have definitely achieved that. I have far fewer accounts/funds to manage. Additionally we moved nearly 100% out of our individual stock holdings, which at this time last year accounted for nearly 60% of our holdings.

I definitely learned some things here like backdoor Roths and after-tax 401K Roth conversions.

I rebalance on the first of each month using new money and only really shift out of a position if it is a TLH opportunity or if it is in tax preferred accounts.

Questions:
1. How have I done? I know I'm not at my desired allocations yet, but am working towards that.

2. I'm still a little cash heavy. I was in some bond funds for a while in tax deferred, but moved completely out of them and went to cash in my taxable. I would like to think about some tax free bond funds. Any suggestions?

3. Alternatively, I could move some tax preferred into bond funds and move the taxable cash position into equity index funds. Is this preferred? If so, which of the bond funds available through our 401K accounts above would be best to change into from the equity funds?

4. Any suggested changes to the fund mix?

5. I'll be eligible for a NQ deferred comp plan later in 2014. What strategies should I consider to use that? I'm interested in getting my MAGI below $250k to avoid some of the "extra" taxes that come above that point. Any suggestions?

6. What am I missing?

Thank you.

User avatar
sometimesinvestor
Posts: 1208
Joined: Wed May 13, 2009 6:54 am

Re: First Year Complete, Time for a Checkup

Post by sometimesinvestor » Tue Dec 31, 2013 10:48 am

I actually think you are doing well .As you suggested yourself you are surely a candidate for an investment in tax free bonds. There does not seem to be a fund investing in Wisconsin bonds so you need a national fund.Vanguard has good choices https://investor.vanguard.com/mutual-fu ... axeff=xmpt

as do other firms .At this time I would suggest VWITX an intermediate fund.If interest rates climb a good deal and a year from now you are losing money on this investment would be the time to consider a bolder choice such as VWLTX or the even riskier VWAHX

retiredjg
Posts: 34372
Joined: Thu Jan 10, 2008 12:56 pm

Re: First Year Complete, Time for a Checkup

Post by retiredjg » Tue Dec 31, 2013 12:20 pm

I think you have done quite well at simplifying things and especially getting rid of that huge percentage of one individual stock. Excellent progress which I'm sure took a lot of work!

Here are some things I think you should consider.
Effective Tax Rate: 25% Federal, 6% State
It is ok to be aware of your effective tax rate, but it is your marginal rate that is critical to remember. Changes occur on the margin (apparently 33% for you) so any changes you make that affect taxes are occurring at 33%, not 25%. It's not really as cut and dry as that if you are in a phase out or something, but you get the point, I'm sure. In short, it is 33% number that you should use to guide your decisions, not the 25% number.

Age: Me 40, Wife 44
Desired Asset allocation: 80% stocks / 20% bonds
I think this number needs to be reconsidered.
  • -This number is very aggressive for your average age of 42 years in that it is more than "age minus 20" in bonds (which is considered on the aggressive side around here).

    -You have no need to take this kind of risk. You have saved quite a lot already and will continue to save quite a lot of money. You will almost certainly reach your retirement goals just based on the amount of money you save and other good financial habits. It does not make sense (to me) to take more risk than you need to take. Does it make sense to you?

    -It appears you are using your houses in your calculations. It is not wrong, but it skews things so that your 80/20 is apples and our 80/20 is oranges. I'm not saying your way is wrong, just that you must remember your are arriving at your number differently from the way it is generally discussed here. By my calculations you are currently sitting at 82% stocks and 18% bonds.
Desired Small/mid-cap Tilt: 20% of stocks
I don't think you are there yet. But you said you have not reached your goal so you might be aware of that.

My biggest goal over the year was simplification, and I have definitely achieved that. I have far fewer accounts/funds to manage. Additionally we moved nearly 100% out of our individual stock holdings, which at this time last year accounted for nearly 60% of our holdings.
:D Very smart move.

I rebalance on the first of each month using new money and only really shift out of a position if it is a TLH opportunity or if it is in tax preferred accounts.
There probably is no harm in this, but it is not necessary. If you decide to rebalance less frequently, it's ok.

1. How have I done? I know I'm not at my desired allocations yet, but am working towards that.
You have done very well!

2. I'm still a little cash heavy. I was in some bond funds for a while in tax deferred, but moved completely out of them and went to cash in my taxable. I would like to think about some tax free bond funds. Any suggestions?
In the long run, holding taxable bonds in your tax-deferred accounts should work out better. Sometimes that is reversed and holding the tax free bonds is better. If you want to do that, I'd suggest Vanguard's Intermediate Term Tax-Exempt bond fund unless you can find a tax-exempt bond fund for your state. Another suggestion would be the Limited Term Tax-Exempt fund - it will lose less value when/if interest rates rise.

3. Alternatively, I could move some tax preferred into bond funds and move the taxable cash position into equity index funds. Is this preferred? If so, which of the bond funds available through our 401K accounts above would be best to change into from the equity funds?
It is preferred in the sense that you never have to keep an eye on whether taxable or tax-exempt bonds are paying better at any one time. I'd probably use this one --> NT Collective Aggregate Bond Index Fund – Lending - .035% followed by -->Pimco Total Return Institutional (PTTRX) - .46%. What is available in your new 401k? Also, what is Wells Fargo Stable Return Fund N25 paying? It might be a decent choice.

5. I'll be eligible for a NQ deferred comp plan later in 2014. What strategies should I consider to use that? I'm interested in getting my MAGI below $250k to avoid some of the "extra" taxes that come above that point. Any suggestions?
Is this a 457b? If it is, a governmental 457b is considered a good thing. A non-governmental 457b is often not a good choice in that the money does not belong to you (subject to employer's creditors) and it cannot be rolled over into an IRA or a new 401k/403b.

Bacchus01
Posts: 2046
Joined: Mon Dec 24, 2012 9:35 pm

Re: First Year Complete, Time for a Checkup

Post by Bacchus01 » Tue Dec 31, 2013 12:33 pm

Thanks for the feedback.

On risk, I tend to take a different approach. We feel we are ahead of the game and our biggest asset continues to be my future earning power, so we can afford to take more risk as the downside risk doesn't ultimately infringe on us meeting our goals. I know that is easier said in a bull market. Will probably peel off from. 80/20 over time.

The NQ deferred comp is in a private company. I don't know what matching or fund options are available yet, so will post again when I know more. But I will look at the tax, match, and fund scenario at the time. I'm leery of putting too much in the company, but feel pretty confident of the prospects and am an insider.

Thanks for the bond advice.

On rebalancing , I do if monthly as I usually have new money going in every month to the tune of 10k plus that I'd rather put to work.

I haven't fully evaluated my new 401k except to the extent that it's fees are the highest of any 401k we have assets with.

retiredjg
Posts: 34372
Joined: Thu Jan 10, 2008 12:56 pm

Re: First Year Complete, Time for a Checkup

Post by retiredjg » Tue Dec 31, 2013 12:51 pm

Bacchus01 wrote:The NQ deferred comp is in a private company. I don't know what matching or fund options are available yet, so will post again when I know more. But I will look at the tax, match, and fund scenario at the time. I'm leery of putting too much in the company, but feel pretty confident of the prospects and am an insider.
I don't think I'm familiar with this type of deferred comp. It will be interesting to learn about it when you post details.

Good luck!

Bacchus01
Posts: 2046
Joined: Mon Dec 24, 2012 9:35 pm

Re: First Year Complete, Time for a Checkup

Post by Bacchus01 » Thu Jan 02, 2014 12:44 pm

You are right on the marginal tax rates. I keep forgetting to change that.

Our marginal fed tax rate is 33%.

Post Reply