Adding in International

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Topic Author
katsmeow
Posts: 75
Joined: Wed Nov 25, 2009 9:46 am

Adding in International

Post by katsmeow »

DH is retired and I am semi-retired. We have 2 kids in college and will have unusually high expenses for the next 3 years which require larger portfolio withdrawals than typical. We expect our portfolio to shrink over the next 3 years due to the higher expenses, but this was planned so are OK with it. To avoid having to sell off to fund expenses over the next 3 years in the event of a drop in the market, we have set aside separate from the below about 20% of our total portfolio and cash. We expect to spend that 20% over the next 3 years plus about 4% of the portfolio below. Then, after the 3 years, we would expect to spend 3-3.5% of the portfolio thereafter (depending a bit on what age I choose to take SS).

Our desired portfolio asset allocation is 55/45. Before setting aside the 20% we had all of our international equities (VTIAX) in our taxable account (they were about 15% of our overall equities). However, to set aside the 20%, we are selling the International and other equities in the taxable account and will basically be using that money to live on until the taxable money is mostly gone.

Before I sell off the VTIAX in the taxable account I want to rebalance what will left in the resulting investment portfolio (i.e. our now total portfolio minus 20% setting aside), including ending up with about 15% of our equities in international. I am uncertain how to best do this given the available options.

What we have in the resulting portfolio:

His IRA

Wellesley - VWIAX - ER-.18 - 14.9% of Portfolio
Vanguard High-Yield Corporate - VWEHX - ER .14 - 6.4%
Vanguard Short-Term Investment Grade - VFSUX - .16 - 10.6%
Vanguard Extended Market - VEXAX - ER - .14 - 14.5%

PenFed 5Yr CD 0 - 14.4% (this is in process, we are selling our Total Bond Market and putting it in the PenFed 5 year 3% CD)

My 401k

Dreyfus S&P 500 - PEOPX - ER .51 - 39.2%

Our preference is to draw from DH's IRA before drawing from my 401k. He will be hitting 70 several years before I do. DH is 66 now.

My 401k doesn't have great choices in it. I prefer to keep it as a 401k for a few years.

There are a couple of International choices in it, but I don't like the ER on them. There is also a stable value fund and a Strategic income fund, if I wanted to put some of our fixed income in my 401k.

Choices in my 401k:

FA INTL DISCOVERY T FTADX ER 1.59
OPPHMR DEV MKTS N ODVNX ER 1.56
FA STABLE VALUE ER 0.91 - current yield is .84%
FA High Income FHITX ER 1.05
FA Strat Income FSIAX ER 0.98

Right now the overall portfolio is at about 59/41. It really should be at 55/45.

Comments on the funds we have and how I feel about changing them:

Wellesley - This has done very well for us and I prefer to keep it in the portfolio. That said, I wouldn't be averse to selling 20 or 30% of it to achieve the other goals that I have.

Vanguard High-Yield - I am fairly neutral about this. I would ideally like to keep it at about 5% of the total portfolio. That said, now that there is an International Bond fund I've thought about selling part of this and putting it in the international bond fund.

Vanguard Short-Term Investment Grade - I don't particularly want to change this except to a minor amount. Again, I've thought about putting something in the international bond fund.

Vanguard Extended Market - I have this to try to help to approximate the Total Stock Market fund given that my 401k is in an S&P 500 fund (with no choice for any other index fund). This is the obvious place where I could sell about half of this to buy international. But, not sure whether to do this or to keep it given that I have so much in the S&P 500 fund in my 401k

PenFed CD - This is in progress at the moment - Plan to keep this in PenFed CD replacing the Total Bond Fund.

Dreyfus S&P 500 Fund - The only index fund in my 401k and it has lowest ER. I have considered the possibility of putting some of this in the Strategic Income Fund and then taking part of my fixed income at Vanguard and putting it in the Vanguard total international. The strategic income fund has an ER of .98 which is one of the lower options in my 401k. Alternatively, I could sell some of the S&P 500 fund and buy FTADX or ODVNX (or both) but they have ERs of 1.59 and 1.56 respectively so that isn't appealing to me.

The basic question comes down to whether I keep all the S&P 500 fund and sell some of VEXAX in DH's IRA to buy international or whether I move some of the S&P 500 fund to fixed income so I can buy international in DH's IRA without selling VEXAX or whether I just buy international in my 401k.

I'm probably leaning to moving some of the S&P 500 in my 401k to Strategic Income, then selling a little bit of Wellesley in DH's IRA, some of the VWEHX and some of the VFSUX and buying total international in DH's IRA. I would sell some of VEXAX since I need to do a little rebalancing and use that to most likely to buy some of the international bond fund. But is there a better solution?
Topic Author
katsmeow
Posts: 75
Joined: Wed Nov 25, 2009 9:46 am

Re: Adding in International

Post by katsmeow »

Seeing as this has received no responses but has had 150 views, is there additional information that would be helpful.

At this point, what I am thinking of doing is:

Well a little over about 1/3 of VWEHX and buy the international bond fund.
In my 401k Sell about 30% of my PEOPX and buy the strategic income fund.
In the IRA, sell part of VFSUX and part of VWEHX and buy the total international stock fund (making it about 8.2% of the overall portfolio).

Once that was all done then the investment portfolio would be:

VWIAX - 14.9% of portfolio
VWEHX - 2.9%
International Bond - 2.2%
VFSUX - 3.5%
VEXAX - 14.5%
VTIAX - 8.2%
Penfed CD - 14.4%
PEOPX - 27.4%
FSIAX - 11.8%

This would be in addition to the funds set aside for the higher expenses in the next 3 years which will be held primarily in cash, money market fund and VFSUX.

Is there a better way to do this?
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 6:40 pm

Re: Adding in International

Post by Laura »

Sorry we missed your request. Can you restructure your post slight now that you really only have two accounts.

his IRA

her 401k

Your current total comes to 85.6% so you need to update it so these two account will now reflect 100% of your portfolio. Once you do that it should be fairly easy to move things around in the IRA account to add back in international.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
katsmeow
Posts: 75
Joined: Wed Nov 25, 2009 9:46 am

Re: Adding in International

Post by katsmeow »

OK, the current is:

His IRA

Wellesley - VWIAX - ER-.18 - 14.9% of Portfolio
Vanguard High-Yield Corporate - VWEHX - ER .14 - 6.4%
Vanguard Short-Term Investment Grade - VFSUX - .16 - 10.6%
Vanguard Extended Market - VEXAX - ER - .14 - 14.5%

PenFed 5Yr CD 0 - 14.4% (this is in process, we are selling our Total Bond Market and putting it in the PenFed 5 year 3% CD)

My 401k

Dreyfus S&P 500 - PEOPX - ER .51 - 39.2%

This does not include the money that we have separately set aside for higher expenses than typical during the next 3 years.

We want the above to be a 55/45 asset allocation (it is a little above that now, but not much) but would like to have about 15% of our equities in International.

The choices I have for international would primarily be Vanguard Total International if done through DH's IRA or in my 401k - FA INTL DISCOVERY T FTADX ER 1.59
or OPPHMR DEV MKTS N ODVNX ER 1.56.

The pros and cons of the various approaches are in my first post.
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 6:40 pm

Re: Adding in International

Post by Laura »

Thanks for the update.

The reason it is so difficult to add international is the multi-asset class Wellesley fund. It holds about 33% in stock and 67% in fixed income. You are also limited by the one S%P 500 fund in your 401k. The easiest way to do this would be to stop using the Wellesley fund and to do the following:

his IRA
14.4% CD at PenFed
8.25% Total Intl Stock Market
7.55% Extended Market Index
5% HY Corp
25.6% ST Inv Grade

her 401k
39.2% S&P 500

Because you locked yourself into a CD, want intl, and need the extended market to offset the S&P you have less flexibility than you really need.

If the issue is that you are still contributing to your 401k while semi-retired I suggest removing Wellesley for now and you can add it back lack if you really love it. If you use it you will be overweight in stocks in this portfolio and underweight in fixed income. That adds risk and isn't a good option. If you substitute Wellesley for the Extended Market index you will be slightly overweight in fixed income and would not have the mid/small cap coverage to offset the S&P 500. So, you need to decide on your highest priority and go from there.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
katsmeow
Posts: 75
Joined: Wed Nov 25, 2009 9:46 am

Re: Adding in International

Post by katsmeow »

I will probably not be semi-retired much longer so not a lot of additions will go into my 401k.

I do like the Wellesley so don't want to get rid of it entirely although I would be amenable to reducing it some. I would be OK with selling 25% or so of it. One option I have is to do that to get some of the international, then I could sell some of the extended market and then buy international.

The other option would be sell some of my S&P 500 in my 401k and just buy international there - but I don't like that high ER.

Or, I could do that and instead buy some of the strategic income or stable value in my 401k. Then I could sell some of the Short Term investment grade in the IRA and use that to be the International Fund. The main reason I didn't want to do that is ER of .98 on the strategic income, a not very good stable value fund, and the fact that we won't withdraw from my 401k for a long time so I was tending to keep equities in it. (DH is older and will hit 70 much sooner so we will be withdrawing from his IRA first).
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