Portfolio Advice Needed - Newbie Investors

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glosing
Posts: 47
Joined: Fri Aug 29, 2014 10:26 am

Portfolio Advice Needed - Newbie Investors

Post by glosing » Tue Sep 02, 2014 3:48 pm

Hi all, thanking you in advance for your advice. Here is the good, the bad, and the ugly: We have neglected our finances for thirty years of marriage. Now that our four kids are educated and on their own, we are getting serious about saving and planning for the future. Up until this summer we basically had his 401K, too much cash, and some stocks that I played with. Upon recommendation of some friends, we hired a FA at Ameriprise. We were advised of a $2800 annual fee and told that there were no other fees or expenses involved. We transferred all funds to them with the exception of the employer contributions of his 401K-- the amount we could take out was put into a Rollover IRA which they invested in a managed fund. When they called to let us know that they were selling our stocks and that we would have taxes to pay, I started questioning further (which we should have done at the beginning). It turns out that they were charging a 1% AUM which had not been disclosed in addition to other fees and charges. They were also being very pushy about purchasing LTC insurance and other policies which raised our suspicions. Once we found out about the 1% we demanded that they not invest our funds further. They had already invested the Rollover IRA and purchased a $33K non traded BDC and the rest remained untouched. Fast forward to today: Our accounts have been transferred in-kind to Schwab. Our $2800 was refunded. Only the BDC did not transfer. We now have to decide what to do and put ourselves on a positive path moving forward.

Emergency Funds: YES six months+
Debt: ~475K Mortgage @3.25% ARM (Home value ~$900K)
Student Loans (parent loans) ~$90K@5.25%-6.8%
Tax Filing Status: Married Filing Jointly
Tax Rate: 35% (may hit 39.6% in 2014) Federal, 0% State
State of Residence: Florida
His Professor Salary $145K
His 401K - 10% Employer Contribution and he maxes out to contribute $23,500 Employee Contribution
He has no plans to retire in the near future
Her Real Estate Business:
Salary of $96K
Additional S-Corp Income: 2013-$195K/ 2014- $300K estimated approximately
She has not plans to retire however her income is not stable. Because of her recent high income we have been able to start saving for the future, paying for weddings, etc. She estimates to be able to keep this earning level up for another 5 years or so but cannot count on more than $100K/year after that.
His Age: 60
Her Age: 55

Desired Asset Allocation: 65% stocks/ 35% bonds
Desired International allocation: ? (could use your help on this)

Current portfolio in high- mid six figures.

Current Assets:
Taxable:

2.84% Apple AAPL
0.79% HR Block HRB
1.08% Caterpillar CAT
2.36% Facebook FB
1.53% Google GOOG
4.95% Ishares select Div ETF DVY 0.40
3.98% SPDR S&P Div SDY 0.35
0.43% TCW Core Fixed Income TGFNX 0.83

36.11% CASH IN BANKS

5.20% Franklin Square Energy and Power Fund FSEP 2.84%



His Rollover IRA at Schwab:

19.80% Various Individual Stocks**


His Roth IRA at Schwab:

1.11% T Rowe Price 2020 Ret TRRBX 0.69

His 401K/403B at TIAA-CREF:

0.70% TIAA Traditional Variable Annuity
5.43% TIAA-Cref Growth & Income Fund-Retirement Class TRGIX 0.70
4.68% T-C Mid-cap value fund-RT TRVRX 0.70
3.16% T-C Large Cap Value Fund-RT TRLCX 0.70
1.15% T-C Int'l Equity Index Fund TRIEX 0.32
1.09% T-C Int'l Equity Fund TRERX 0.76
0.87% TIAA Real Estate Variable Annuity
0.42% T-C Lifecycle 2015 Fund - RC TCLIX 0.84
2.32% Cref Bond Mkt Variable Annuity 0.45

Contributions:
New Annual Contributions
$23,500 his 401k
$14,000 his 401k employer contribution
$50,000-75,000 taxable

Available Funds:
Funds available in his 401k

TIAA TRADITIONAL VA
CREF STOCK VARIABLE ANNUITY 0.46
CREF GLOBAL EQUITIES VA 0.47
CREF GROWTH VA 0.42
CREF EQUITY INDEX VA 0.39
T-C GROWTH & INCOME FUND - RET CLASS 0.70
T-C INT'L EQUITY FUND - RET CLASS 0.76
T-C INT'L EQUITY INDEX FUND -RET CLASS 0.32
T-C LC GROWTH INDEX FUND - RC 0.32
T-C LC VALUE FUND - RC 0.70
T-C LC VALUE INDEX FUND - RC 0.32
T-C MC GROWTH FUND - RC 0.72
T-C MID-CAP VALUE FUND - RC 0.70
T-C REAL ESTATE SECURITIES FUND - RC 0.77
T-C SC BLEND INDEX FUND - RC 0.41
T-C SC EQUITY FUND - RC 0.80
T-C SOCIAL CHOICE EQUITY FUND - RC 0.43
T-C S&P 500 INDEX FUND - RC 0.31
AMERICAN FUNDS EUROPACIFIC GROWTH FUND R5 0.54
AMERICAN FUNDS WASHINGTON MUTUAL INVESTORS FUND R5 0.35
T-C EQUITY INDEX FUND - RC 0.32
TIAA REAL ESTATE VAR ANNUITY
CREF BOND MARKET VA 0.45
CREF INFLATION LINKED BOND VA 0.41
WESTERN ASSET CORE PLUS BOND PORTFOLIO 0.51
VARIOUS LIFECYCLE TARGET DATE RETIREMENT FUNDS .80 AVG


Other Information:
She has a windfall of ~$450K in June 2016 from proceeds from her mother’s QPERT.
We have met with a Registered Investment Advisor who works with other family members for approximately 20 years. His fee is 50 basis points of portfolio under management which is kept in a Schwab custodial account. He is also a CFA. He earns no other fees. We are considering giving him about $350K for now while simultaneously investing the rest in index funds.
** The Franklin Square Energy & Power Fund (FSEP)was invested by Ameriprise ($33K). It is paying a 6% yield and is a non-traded BDC. We can sell shares back to the fund for a 10% redemption fee.
QUESTIONS:
1. Should we sell the FSEP and take the 10% hit? (I think I know the answer to this). We will try to get the loss reimbursed by Ameriprise as we were not fully informed of the risks and illiquidity of this investment.
2. Should we give the advisor a big chunk of this and invest about $100K + new money on our own? (I think I know what your answers to this will be as well). This would give me a comfort level as we can try the two pronged approach and have some feeling for it before we get the inheritance in less than two years.
3. How should we invest the funds at TIAA-CREF? The TIAA traditional guarantees a minimum of 3% but is a variable annuity? I am not sure how that works but I think the money can only be taken out over a period of ten years.
4. The stocks we own in the taxable account: there are some L-T gains and some S-T gains. I was thinking about taking off some FB LT and starting a Donor Advised Fund. Then we could sell the rest and pay the Capital Gains taxes. Some of the others are S-T and need to be held a bit longer. We are not reinvesting dividends.
5. Since we have so much cash to invest do you recommend investing all at once or going in to the market more slowly (I think I know the answer to this as well)?
6. The Rollover IRA - this was taken out of TIAA-CREF by Ameriprise and invested in a managed fund. They transferred over all of the holdings, about 25 equities altogether. It is actually up about 5% since they purchased them six weeks ago. I am assuming we can sell the portfolio and invest in index funds as there are no tax ramifications in this account, there will just be Schwab trading fees.
7. How should we invest whether we give some to the Advisor and invest the remainder + new money ourselves or if we decide to do it all on our own? A 3 or 4 fund portfolio? And how best for tax effeciency?
8. Should we pay off all of the remaining student loans or a part with taxable before doing anything? Our plan is to pay them off within three years. We have paid down >$100K in the past year.
9. We may want to purchase a condo for about the same price or less as our house is worth. We may need to do this before selling our house, as it is a sellers market and hard to find what we are looking for. We will need about $150K liquid in order to do this but it could take a year or two... so what are your suggestions for a less risky investment- or maybe change up the allocation for now?

This is all I can think of for now but I am sure more questions will arise. Thanking you already for your help and advice.

PocketChangePension
Posts: 121
Joined: Wed Feb 13, 2013 8:26 am

Re: Portfolio Advice Needed - Newbie Investors

Post by PocketChangePension » Tue Sep 02, 2014 8:26 pm

This is just one portion of it, and I may be wrong here, but she should push her salary up to $138k from the S-Corp, contribute $17.5k from her salary to a Solo-401k, and have the S-Corp contribute 25% of her salary ($34.5k) as the employer contribution for a total of $52,000 tax-free rather than in taxable.

NOTE: If you have employees, this will mean you have to contribute 25% of their salaries to 401k for them as well, and if that's the case there are other options.

8. Absolutely. At those interest rates that's a no brainer.

glosing
Posts: 47
Joined: Fri Aug 29, 2014 10:26 am

Re: Portfolio Advice Needed - Newbie Investors

Post by glosing » Wed Sep 03, 2014 6:51 am

PocketChangePension wrote:This is just one portion of it, and I may be wrong here, but she should push her salary up to $138k from the S-Corp, contribute $17.5k from her salary to a Solo-401k, and have the S-Corp contribute 25% of her salary ($34.5k) as the employer contribution for a total of $52,000 tax-free rather than in taxable.

NOTE: If you have employees, this will mean you have to contribute 25% of their salaries to 401k for them as well, and if that's the case there are other options.

8. Absolutely. At those interest rates that's a no brainer.
Thank you PocketChangePension for your reply. We are looking into various retirement options for the company. It has been suggested that because of her age and the short timeframe for the contributions to accrue/compound that it might not really make a big difference in the end; i.e. pay taxes now and then have it in taxable where there can be more tax-preferred investments rather than deferred and then all gains taken out as ordinary income? Any thoughts on that?

I really hope that some others will take the time to weigh in here on my original post. Thanks!

glosing
Posts: 47
Joined: Fri Aug 29, 2014 10:26 am

Re: Portfolio Advice Needed - Newbie Investors

Post by glosing » Wed Sep 03, 2014 6:30 pm

Bumping this up; is anyone able to help with any advice here? I know I wrote a long original post but tried to follow the format specifics.
Thank you.

dickenjb
Posts: 2941
Joined: Tue Jan 05, 2010 1:11 pm
Location: Philadelphia PA

Re: Portfolio Advice Needed - Newbie Investors

Post by dickenjb » Thu Sep 04, 2014 2:24 pm

I suggest you read about the Three Fund Portfolio and figure out how to best duplicate that with your holdings.

http://www.bogleheads.org/forum/viewtop ... 10&t=88005

I would sell the illiquid investment and I would open the Solo K for the wife.

livesoft
Posts: 61944
Joined: Thu Mar 01, 2007 8:00 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by livesoft » Thu Sep 04, 2014 2:59 pm

I thought the 403(b) / 401(k) contribution limit was $23,000 for 2014 and not yet $23,500. Maybe that was typo.

You haven't really come up with any kind of plan for your investments for the future, so it is hard to respond to your questions. Here are some questions I have:

1. Do you believe in using only index funds in the future, that is a low-expense-ratio, passively-managed index funds for all your investments: equities and fixed income?
2. What asset allocation do you wish to have? What percentage of US equities, international equities, and bonds do you wish to have?

3. Are you committed to ditching Ameriprise advisor and removing all money from that institution?

4. Does the CFA/advisor use only index funds and not stocks and not actively-managed funds?
Wiki This signature message sponsored by sscritic: Learn to fish.

glosing
Posts: 47
Joined: Fri Aug 29, 2014 10:26 am

Re: Portfolio Advice Needed - Newbie Investors

Post by glosing » Thu Sep 04, 2014 4:45 pm

livesoft wrote:I thought the 403(b) / 401(k) contribution limit was $23,000 for 2014 and not yet $23,500. Maybe that was typo.

You haven't really come up with any kind of plan for your investments for the future, so it is hard to respond to your questions. Here are some questions I have:

1. Do you believe in using only index funds in the future, that is a low-expense-ratio, passively-managed index funds for all your investments: equities and fixed income?
2. What asset allocation do you wish to have? What percentage of US equities, international equities, and bonds do you wish to have?

3. Are you committed to ditching Ameriprise advisor and removing all money from that institution?

4. Does the CFA/advisor use only index funds and not stocks and not actively-managed funds?
1. Yes I want to come up with a plan using low cost index funds.
2. Thinking of the 3 fund portfolio- 1/3 Bonds, 2/3 Equities (not sure how much of that to make International).
3. We ditched Ameriprise within the first month. All money has been removed. It is now at Schwab with the exception of the $33,000 Franklin Square BDC that we couldn't take out. We can sell that back for 10% hit.
4. No the Advisor does not use only index funds. Mostly individual stocks and some funds. It would be a completely different philosophy.

As you can see we are confused and could really use your advice. I do feel like we need some help so perhaps we should call Vanguard and speak to someone in their advising department?

Biffer
Posts: 116
Joined: Wed Jan 30, 2013 4:34 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by Biffer » Fri Sep 05, 2014 1:02 am

glosing wrote:1. Yes I want to come up with a plan using low cost index funds.
2. Thinking of the 3 fund portfolio- 1/3 Bonds, 2/3 Equities (not sure how much of that to make International).
3. We ditched Ameriprise within the first month...
Based on your responses 1-3, you don't look confused to me.
glosing wrote:4. No the Advisor does not use only index funds. Mostly individual stocks and some funds. It would be a completely different philosophy.
Now this one I don't understand. Why hire someone to row in the opposite direction from where you are rowing?
glosing wrote:4. The stocks we own in the taxable account: there are some L-T gains and some S-T gains. I was thinking about taking off some FB LT and starting a Donor Advised Fund. Then we could sell the rest and pay the Capital Gains taxes. Some of the others are S-T and need to be held a bit longer. We are not reinvesting dividends.
You're getting out of the business of picking stocks, aware of the tax implications of selling the ones you have, and taking reasonable steps to minimize the tax liability. Sounds right on track.
glosing wrote:8. Should we pay off all of the remaining student loans or a part with taxable before doing anything? Our plan is to pay them off within three years. We have paid down >$100K in the past year.
With your current income, I'd continue to blast away on the student loans.
glosing wrote:I do feel like we need some help so perhaps we should call Vanguard and speak to someone in their advising department?
Wouldn't hurt. I'd start by seeing if they can help you firm up your game plan. Once you have that, you may be in a better position to decide if you need any ongoing investment management services.

younginvestor
Posts: 90
Joined: Sun Nov 17, 2013 10:21 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by younginvestor » Fri Sep 05, 2014 1:41 am

Just a couple of thoughts (I am young and inexperienced, so take it with a grain of salt):

1. The asset allocation seems a little aggressive for 55-60 yo, but maybe you can handle risk/reward better than I. If you are interested in reading more about AA, I recommend "All about asset allocation" by Rick Ferri. It's a quick read and might make you feel more comfortable/justified with what you ultimately decide.

2. Check out the wiki and read some other threads on the forum regarding what is a good % for international equities. There is also a paper from Vanguard on the topic. Many on this forum say the "sweet spot" is around 20-40% of equities.

3. I don't think you need an advisor if you have decided to simplify your portfolio and buy index funds. You just need to read a few good books and threads on this forum. Write an IPS based on your reading and stay the course.

retiredjg
Posts: 33259
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by retiredjg » Sat Sep 06, 2014 9:39 am

glosing, I have some suggestions for you. But before you implement anything, you need to get a bit firmer in your head whether you want an actively managed portfolio (as with the advisor at Schwab) or whether you want a passively managed portfolio using index funds.

The decision to use an advisor does not have to rest at Schwab although that one seems somewhat reasonably priced. Instead, you could use Vanguard Advisory Services which only charges .3% as I understand it. Or, Vanguard also offers one time or occasional advisory services for free or for a low cost (I believe it depends on how much money you move over there). The point is that Vanguard offers everything from no advice to occasional advice to AUM and their mutual funds and ETFs are top notch. I don't see how you could do much better than that.

If you are interested in index funds (and I think you should be) Vanguard is the place to be, not Schwab. Fidelity is also a good place to be, but I can't recommend their advisors. Schwabs index mutual funds are limited and some don't always act like an index funds. However, if you like using ETFs instead of mutual funds, I think Schwab has some fine choices on their no-transaction fee list.

My recommendation is to move everything to Vanguard. After talking to them, you will have a better handle on whether you need their Advisory Service at .3% or not.

Here are some specific suggestions that you can do not matter what your other decisions are.

1) She apparently has no money in IRA so a back door contribution to Roth IRA would be easy and require no preparation. Here's information that will tell you what I'm talking about. Also see the Wiki. http://thefinancebuff.com/the-backdoor- ... ow-to.html This is easy and can be done with a few clicks of a mouse. You just have to remember at tax time to report what you did (two separate steps) rather than report that you contributed to Roth IRA.

2) He does have money in a rollover IRA. That money can (probably) be rolled into the current 401k/403b which would clear the way for him to make back door contributions to Roth IRA. Moving that money back to his work plan is fine since there are good choices there. It would be different if he had a poor plan.

3) She is making lots of money but putting nothing into a 401k type plan. Like others, I'd suggest a Solo 401k probably at Vanguard. In answer to your question about short time frame, that is not particularly relevant. You can pay 35% or 39.6% on that money now, or you can pay something like 15% or 25% or 28% on it later. Let's say there is 5 years until retirement. That's over $100k that can be taxed as high as 39.6 now or as low as 15% later. Which makes sense to you?

4) I think with some education here (Wiki, book list, and posts) you can learn how to set up a simple portfolio and manage it yourself. But even if you don't go that route, I'd suggest the Wiki, book list and reading posts so that you'll know what your advisor is talking about. If you use an advisor, I strongly suggest you use Vanguard, not an actively managed portfolio at Schwab.

I'll address your specific questions in a separate post.

retiredjg
Posts: 33259
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by retiredjg » Sat Sep 06, 2014 10:15 am

1. Should we sell the FSEP and take the 10% hit? (I think I know the answer to this). We will try to get the loss reimbursed by Ameriprise as we were not fully informed of the risks and illiquidity of this investment.
I'm undecided. Sometimes, the cure is worse than the disease and this investment is paying pretty well. If you raise enough heck at Ameriprise and can get that 10% hit waived, absolutely sell this piece of garbage. Alternatively, see how long that 10% hit is in effect. Another alternative is to see if this could be transferred to a donor advised fund. Or if you prefer, just dump it and not worry about it.

Most importantly, don't obsess over this one small investment. Whatever you do is not going to be a fatal mistake. Consider this the cost of your financial education (we've all been there) and move on.

2. Should we give the advisor a big chunk of this and invest about $100K + new money on our own? (I think I know what your answers to this will be as well). This would give me a comfort level as we can try the two pronged approach and have some feeling for it before we get the inheritance in less than two years.
Advisors will tell you otherwise, but there is no evidence that any actively managed approach can consistently outperform an index approach after costs are considered. Sometimes they will. Sometimes they won't. I think your best approach is to put everything into a passively managed index portfolio at Vanguard. At the very least, call and talk to them and see if you like what they say.

3. How should we invest the funds at TIAA-CREF? The TIAA traditional guarantees a minimum of 3% but is a variable annuity? I am not sure how that works but I think the money can only be taken out over a period of ten years.
This account can be the basis of a 3 or 4 fund portfolio. People who use the Traditional fund like it a lot. There is the 10 year withdrawal, but that is how they can offer so high a return - they know how much money will be there over a long time. However, you can use this 401k/403b easily even if you decide against Traditional.

4. The stocks we own in the taxable account: there are some L-T gains and some S-T gains. I was thinking about taking off some FB LT and starting a Donor Advised Fund. Then we could sell the rest and pay the Capital Gains taxes. Some of the others are S-T and need to be held a bit longer. We are not reinvesting dividends.
Even if you decide on a simple index portfolio, holding onto some of these individual stocks is not going to hurt you because it is not a huge portion of your portfolio. Decide what, if anything, you want to keep and sell the rest as you can do it without a huge tax hit. Donor advised fund is an excellent way to handle getting rid of either short or long term gains. I would caution against outright selling while you are in the 39.6% bracket since the long term capital gains tax rate is 20% for that bracket only.

5. Since we have so much cash to invest do you recommend investing all at once or going in to the market more slowly (I think I know the answer to this as well)?
All at once is fine and probably better. However, if you simply cannot do it, make a plan and get the money working for you in 6 months or a year at the most.

6. The Rollover IRA - this was taken out of TIAA-CREF by Ameriprise and invested in a managed fund. They transferred over all of the holdings, about 25 equities altogether. It is actually up about 5% since they purchased them six weeks ago. I am assuming we can sell the portfolio and invest in index funds as there are no tax ramifications in this account, there will just be Schwab trading fees.
You are correct that this can be sold without any tax-consequences. But rather than leave it in IRA, I'd roll it into the current 403k/403b to clear the way for Him to use back door contributions to Roth IRA.

7. How should we invest whether we give some to the Advisor and invest the remainder + new money ourselves or if we decide to do it all on our own? A 3 or 4 fund portfolio? And how best for tax effeciency?
Well see more specifically later. The general approach is to hold your bonds, to the extent you can, in the tax-advantaged accounts. Fill the rest of the tax-advantaged accounts with stock funds, and fill the taxable accounts with tax-efficient index funds such as a total stock market index or a total international stock index.

8. Should we pay off all of the remaining student loans or a part with taxable before doing anything? Our plan is to pay them off within three years. We have paid down >$100K in the past year.
I would. You may or may not make that much interest in your investments. If you pay the loan off, that is a guaranteed return of 5.25% to 6.8%.

9. We may want to purchase a condo for about the same price or less as our house is worth. We may need to do this before selling our house, as it is a sellers market and hard to find what we are looking for. We will need about $150K liquid in order to do this but it could take a year or two... so what are your suggestions for a less risky investment- or maybe change up the allocation for now?
This money should be saved, not invested. Cash, CDs, other vehicles that won't lose value. If you simply must invest it, you can put some into short term tax-exempt bonds.

glosing
Posts: 47
Joined: Fri Aug 29, 2014 10:26 am

Re: Portfolio Advice Needed - Newbie Investors

Post by glosing » Sat Sep 06, 2014 10:26 am

Thank you retiredjg for your responses. This is all very helpful. We have been reading voraciously and have decided that we are not going to go with an advisor. We believe that passive investing with index funds is the way to go. We just need to figure out the best way to implement this. We are thinking of consulting with a fee-only advisor (e.g. Allan Roth?) to help use in this endeavor -- as I would like someone who could look at our finances holistically and advise us regarding the 401k as well as any accounts we would have at Vanguard etc. Any thoughts on this? We definitely don't think we need an AUM arrangement/we may need help coming up with a plan and AA and to implement but otherwise I think we will be okay and have the fortitude and discipline to follow our plan.
1) She apparently has no money in IRA so a back door contribution to Roth IRA would be easy and require no preparation. Here's information that will tell you what I'm talking about. Also see the Wiki. http://thefinancebuff.com/the-backdoor- ... ow-to.html This is easy and can be done with a few clicks of a mouse. You just have to remember at tax time to report what you did (two separate steps) rather than report that you contributed to Roth IRA.
Will look into this and do this year. It looks like the limit is $6500/ year? So this is just something I will do every year for $6500? Is it really worth it for such a small amount given her age?
2) He does have money in a rollover IRA. That money can (probably) be rolled into the current 401k/403b which would clear the way for him to make back door contributions to Roth IRA. Moving that money back to his work plan is fine since there are good choices there. It would be different if he had a poor plan.
Will look into this. It was all at TIAA-CREF until Ameriprise moved it to a Rollover IRA so it would be (I think) simple to move back. It does seem that the ERs on the choices there are higher than on index funds at Vanguard though, so do you think it would be worth it? Considering again it is only $6500/year and he is 60 yrs old.
3) She is making lots of money but putting nothing into a 401k type plan. Like others, I'd suggest a Solo 401k probably at Vanguard. In answer to your question about short time frame, that is not particularly relevant. You can pay 35% or 39.6% on that money now, or you can pay something like 15% or 25% or 28% on it later. Let's say there is 5 years until retirement. That's over $100k that can be taxed as high as 39.6 now or as low as 15% later. Which makes sense to you?
Got it and agree-- will look into this and set up this year.
I'll address your specific questions in a separate post.
This was very helpful
Thank you.

glosing
Posts: 47
Joined: Fri Aug 29, 2014 10:26 am

Re: Portfolio Advice Needed - Newbie Investors

Post by glosing » Sat Sep 06, 2014 10:35 am

younginvestor wrote:Just a couple of thoughts (I am young and inexperienced, so take it with a grain of salt):

1. The asset allocation seems a little aggressive for 55-60 yo, but maybe you can handle risk/reward better than I. If you are interested in reading more about AA, I recommend "All about asset allocation" by Rick Ferri. It's a quick read and might make you feel more comfortable/justified with what you ultimately decide.

2. Check out the wiki and read some other threads on the forum regarding what is a good % for international equities. There is also a paper from Vanguard on the topic. Many on this forum say the "sweet spot" is around 20-40% of equities.

3. I don't think you need an advisor if you have decided to simplify your portfolio and buy index funds. You just need to read a few good books and threads on this forum. Write an IPS based on your reading and stay the course.
1. Reading Rick Ferri's book now. Other half is reading the new Bogleheads book.
2. Yes trying to understand the whole AA issue and how to allocate but I am definitely educating myself which is long overdue.
3. This forum is incredibly helpful. If anything we will use a fee only advisor/financial planner but I'm not sure if we even really need that.

Thanks again.

retiredjg
Posts: 33259
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by retiredjg » Sat Sep 06, 2014 12:50 pm

glosing wrote:We are thinking of consulting with a fee-only advisor (e.g. Allan Roth?) to help use in this endeavor -- as I would like someone who could look at our finances holistically and advise us regarding the 401k as well as any accounts we would have at Vanguard etc. Any thoughts on this?
I think this is a fine idea and Allan Roth would be someone that people here would recommend. If you have to shop around, be careful what you ask for. A person who manages money AUM can also be considered "fee only", so be specific about what services you want and don't want as you shop around.

Will look into this and do this year. It looks like the limit is $6500/ year? So this is just something I will do every year for $6500? Is it really worth it for such a small amount given her age?
The limit is indeed $6,500 a year. This is money that would otherwise go into a taxable account so you are making a choice between "will pay taxes on the earnings" vs "will never pay taxes on the earnings". Whether that is worth it is up to you to decide. I'll mention that this is pretty easy to do and takes very little time or effort. The only "hard" part is figuring out the tax paperwork the first year (Form 8606, front and back) and then making notes for yourself for the next tax season.

Will look into this. It was all at TIAA-CREF until Ameriprise moved it to a Rollover IRA so it would be (I think) simple to move back. It does seem that the ERs on the choices there are higher than on index funds at Vanguard though, so do you think it would be worth it? Considering again it is only $6500/year and he is 60 yrs old.
Same answer. And remember that this money could be growing tax free for 10, 20, 30 maybe even 40 years. You might consider whether you want your heirs to inherit a taxable account or a Roth account - I don't know enough about how Roth is treated to comment.

retiredjg
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Re: Portfolio Advice Needed - Newbie Investors

Post by retiredjg » Sat Sep 06, 2014 1:30 pm

Here is a quick and dirty portfolio suggestion to help you "see" how this works. It assumes that you don't mess a lot with the taxable account, that both His Rollover and His Roth move to Vanguard and that all the cash is invested (although I know that may not be your plan).

Taxable:
18.11 Vanguard Total Stock Index
18% Vanguard Total International Index
17.96 Various individual stocks and the ETFs and 1 mutual fund
5.20% Franklin Square Energy and Power Fund FSEP 2.84%

His Rollover IRA at Vanguard
19.80% Total Bond Market


His Roth IRA at Vanguard

1.11% Total Bond Market

His 401K/403B at TIAA-CREF 19.82%:
0% (for now) CREF EQUITY INDEX VA 0.39 <---Russell 3000 (essentially total stock market)
0.70% TIAA Traditional Variable Annuity
19.12% Cref Bond Mkt Variable Annuity 0.45 <--Total Bond Market

This is a modified "3 fund portfolio" with your individual stocks left intact till you get rid of them (or not). It is about 60% stocks, 40% bonds with about 30% of the stocks (18% of the portfolio) in international.

I won't work out the contributions till you decide whether you are going to do IRAs or not, but it would be pretty easy to maintain this with the contributions you have.

Here's something close to the same thing with His Rollover put back into his 401k/403b:

Taxable:
18.11 Vanguard Total Stock Index
18% Vanguard Total International Index
17.96 Various individual stocks and the ETFs and 1 mutual fund
5.20% Franklin Square Energy and Power Fund FSEP 2.84%

His Roth IRA at Vanguard
1.11% Total Stock Market

His 401K/403B at TIAA-CREF 39.62%:
0% (for now) CREF EQUITY INDEX VA 0.39 <---Russell 3000 (essentially total stock market)
19.62% TIAA Traditional Variable Annuity
20% Cref Bond Mkt Variable Annuity 0.45 <--Total Bond Market

This should help you picture how to set up a simple portfolio across several accounts. This idea would allow you to sell the individual stocks and that other stuff as you get around to it. As long as you are not making contributions, they will become a smaller and smaller portion of your portfolio.

If you decide to add a Roth IRA account, that is easily accommodated.

retiredjg
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Re: Portfolio Advice Needed - Newbie Investors

Post by retiredjg » Sat Sep 06, 2014 1:45 pm

Taxable:[/b]
2.84% Apple AAPL
0.79% HR Block HRB
1.08% Caterpillar CAT
2.36% Facebook FB
1.53% Google GOOG
4.95% Ishares select Div ETF DVY 0.40
3.98% SPDR S&P Div SDY 0.35
0.43% TCW Core Fixed Income TGFNX 0.83 <--when/if you get to selling, sell this one for sure; bonds are not tax-efficient and this one has a high expense ratio, and the .43% size is just a nuisance

BogleBoogie
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Location: AK

Re: Portfolio Advice Needed - Newbie Investors

Post by BogleBoogie » Sat Sep 06, 2014 1:50 pm

younginvestor wrote:Just a couple of thoughts (I am young and inexperienced, so take it with a grain of salt):

1. The asset allocation seems a little aggressive for 55-60 yo, but maybe you can handle risk/reward better than I. If you are interested in reading more about AA, I recommend "All about asset allocation" by Rick Ferri. It's a quick read and might make you feel more comfortable/justified with what you ultimately decide.

2. Check out the wiki and read some other threads on the forum regarding what is a good % for international equities. There is also a paper from Vanguard on the topic. Many on this forum say the "sweet spot" is around 20-40% of equities.

3. I don't think you need an advisor if you have decided to simplify your portfolio and buy index funds. You just need to read a few good books and threads on this forum. Write an IPS based on your reading and stay the course.
+1 (well put!)

Pistachioicecream
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Re: Portfolio Advice Needed - Newbie Investors

Post by Pistachioicecream » Sat Sep 06, 2014 2:23 pm

As your husband has access to TIAA-CREF funds you may want to do a bit of research on what is available to him. The TREA fund in TIAA CREF is a unique fund that offers direct ownership of real estate (different from REITs). It is not open to the general public, only to those who have access through their school or university retirement offerings. It has only gone down in a major way once, during 2008-09. However, there was plenty of discussion on the TIAA board about what was happening in TREA fund (it moves slowly), so that many investors transferred out w/o losing a lot of money and then transferred back in a couple of years later when things had improved. There are certain restrictions as to how much money you can have in the fund per investor ($150,000), although there are some ways around that as well.

You or your husband may want to check the TIAA discussion board hosted on Morningstar.com See: http://socialize.morningstar.com/NewSoc ... 00044.aspx
Many current retired professors chat there about how they use the TIAA funds to provide a secure retirement. Many of them invest in Vanguard and/or other funds as well, reserving TIAA for TREA and the Traditional account. You should learn more about each of these as they can reduce volatility to your portfolio and both can be annuitized, should you ever need/want to do so.


Hope this helps,
pistachio

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by livesoft » Sat Sep 06, 2014 2:28 pm

I think a better discussion of TREA is found right here on the bogleheads forum:
http://www.bogleheads.org/forum/viewtop ... &p=1804346

Bottom line: If you wish to own it, be sure to understand how to market time it because many of the other shareholders will be market timing it and you don't want to be left holding the bag.
Wiki This signature message sponsored by sscritic: Learn to fish.

Pistachioicecream
Posts: 43
Joined: Sun Dec 09, 2012 11:08 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by Pistachioicecream » Sat Sep 06, 2014 2:29 pm

Correction: The TREA fund has a limit on how much $$ can be placed in the fund ($150,000) - but you do not have to remove funds when the balance moves above that amount. There are ways to add money to the fund above that limit however, if you make systematic transfers. Apologies if I was not clear in my original statement.

Pistachio

glosing
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Re: Portfolio Advice Needed - Newbie Investors

Post by glosing » Sat Sep 06, 2014 3:06 pm

It seems to me that market timing the TREA goes against the idea of setting an allocation of passive investments and staying disciplined about rebalancing. Is it really worth wading into this?

Pistachioicecream
Posts: 43
Joined: Sun Dec 09, 2012 11:08 pm

Re: Portfolio Advice Needed - Newbie Investors

Post by Pistachioicecream » Sun Sep 07, 2014 9:13 am

My point in posting was to encourage you to look at what's unique about TIAA, as you have access through your husband to accounts that are not open to the general public. If the TREA account doesn't appeal to you at this point, no biggie. I would not ignore the TIAA Traditional account however, see:

http://moneyover55.about.com/od/howtoin ... fusion.htm

You may want to read the TIAA discussion board on Morningstar.com to learn more.

Pistachio

pkcrafter
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Re: Portfolio Advice Needed - Newbie Investors

Post by pkcrafter » Sun Sep 07, 2014 9:43 am

glosing, you have been given good advise, but your situation is very complex, so my advice is to do nothing until you have a plan, which is what you are missing right now. If you can't get the answers you need here, then I would agree that you need an hourly consultation with an advisor to help develop a solid plan.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

glosing
Posts: 47
Joined: Fri Aug 29, 2014 10:26 am

Re: Portfolio Advice Needed - Newbie Investors

Post by glosing » Sun Sep 07, 2014 4:32 pm

I am going to try to connect with Allan Roth tomorrow. Does anyhow have any experience with him? Any other recommendations?

HurdyGurdy
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Re: Portfolio Advice Needed - Newbie Investors

Post by HurdyGurdy » Sun Sep 07, 2014 5:58 pm

glosing wrote:It seems to me that market timing the TREA goes against the idea of setting an allocation of passive investments and staying disciplined about rebalancing. Is it really worth wading into this?
The specific piece of advice is on the regular market of stocks and bonds, that are unpredictable in the short term and can' t be timed. TREA's price is set differently, and can be timed.

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Rooster1
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Re: Portfolio Advice Needed - Newbie Investors

Post by Rooster1 » Sun Sep 07, 2014 11:23 pm

glosing wrote:I am going to try to connect with Allan Roth tomorrow. Does anyhow have any experience with him? Any other recommendations?
Here's a link to a recent thread about Allan Roth

http://www.bogleheads.org/forum/viewtop ... 2&t=135969

glosing
Posts: 47
Joined: Fri Aug 29, 2014 10:26 am

Re: Portfolio Advice Needed - Newbie Investors

Post by glosing » Thu Sep 11, 2014 10:32 am

Thanks for all of your responses. We could use your advice on the decision about whether or not to transfer the IRA Rollover back to TIAA-CREF so that we could do the backdoor Roth for my husband.
These are the issues as I see them:
1. Are the investments options at TIAA-CREF good vs transferring the IRA to Vanguard and investing in Index Funds?
2. If they are less good, is it worth the slight disadvantage to be able to have the roth?
3. My husband is 60 so if we contribute $6500 per year to a Roth is it worth it? Until what age can he fund the Roth doing the backdoor strategy?

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