Seeking guidance on investment portfolio

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Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Seeking guidance on investment portfolio

Post by Leah » Sun Mar 06, 2016 1:21 am

Taxable Account
Vanguard REIT Index Fund Admiral Shares(VGSLX)

$20,225.72
Vanguard Target Retirement 2035 Fund(VTTGX)

$38,584.84
Vanguard Total Bond Market Index Fund Admiral Shares(VBTLX)

$40,547.56
Vanguard Total International Stock Index Fund Investor Shares(VGTSX)

$56,986.42
Vanguard Total Stock Market Index Fund Admiral Shares(VTSAX)

$38,168.95

CD in bank: $15000
Available cash in bank for investing $157000.00

401K
The school does not match. The company 401k is through Nationwide. They offer only one index fund which is Nationwide Midcap Market Index A(GMXAX). The fees are: Net expense 0.68, Management 0.21, Initial Sales fee: 5.75%.

Traditional IRA
My traditional IRA is through Schwab. Started only last year. Total: $9300.00, equally invested in Schwab Total Stock Market Index fund(SWTSX) and Schwab S & P 500 Index Fund(SWPPX).

HSA(Health Account Saving)
Just started this year. Yearly maximum contribution is $3300. This is offered through Avidia Bank HSA savings account. The only index fund is Columbia Large Cap Index (no load), and with an expense ratio 0.45. I am allowed to start invest when my account reach 1k.

Emergency funds: $12,000 (six months of expenses)
Debt: None
Tax Filing Status: (Single)
Tax Rate: 25% Federal, 8% State
State of Residence: CA
Age:53
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 50% of stocks?

Questions:
1. I haven’t signed up with my company’s 401K yet and I need guidance on whether it makes sense to sign up with the only index fund’s expense ratio of net expense 0.68, Management 0.21, Initial Sales fee: 5.75%. Yearly maximum contribution allowed to my 401K is $23,000.00

2. I would also appreciate if I could get guidance on whether I should transfer my Schwab IRA to Vanguard or not. Is it better to have Roth IRA or traditional IRA for my case.

I’m new to investment and thank you very much for your guidance.

Leah

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in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Seeking guidance on investment portfolio

Post by in_reality » Sun Mar 06, 2016 6:59 am

Welcome!
Leah wrote: 401K
The school does not match. The company 401k is through Nationwide. They offer only one index fund which is Nationwide Midcap Market Index A(GMXAX). The fees are: Net expense 0.68, Management 0.21, Initial Sales fee: 5.75%.
I wouldn't use the 401K at those prices.

A total market fund will have around 2% dividends and if you pay 15% tax on that, you are looking at a what 0.3% burden. International is a little higher.

Are there any decent bond funds? I think you want to get bonds out of taxable and into tax deferred.
Leah wrote:Traditional IRA
My traditional IRA is through Schwab. Started only last year. Total: $9300.00, equally invested in Schwab Total Stock Market Index fund(SWTSX) and Schwab S & P 500 Index Fund(SWPPX).
I'd want to hold bonds in the IRA and use SCHZ and reduce VBTLX in taxable.

If you expect to be in a higher tax bracket in retirement or that taxes will rise, then a ROTH makes sense.

snarlyjack
Posts: 780
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: Seeking guidance on investment portfolio

Post by snarlyjack » Sun Mar 06, 2016 9:45 am

Leah,

It does not make sense to invest in a 401k that charges
a 5% load plus a high ER (expense Ratio).

It's all about the load & expense ratio's. The load's & ER
over the years can literally cost you thousand's of dollars.

I love Vanguard because of the low cost index funds! Super
low ER's & no sales fee's. I would go 100% Vanguard & try to
max out your money before you retire. If the market goes
down (don't sell) buy more & average down into it!

Best of luck!

retiredjg
Posts: 33262
Joined: Thu Jan 10, 2008 12:56 pm

Re: Seeking guidance on investment portfolio

Post by retiredjg » Sun Mar 06, 2016 9:50 am

I think whether you use the 401k depends partly on how much you save each year. If you are only saving $9,800 or less, you don't need the 401k because you can save all of that in an IRA or Roth IRA and the HSA.

If you are saving more than about $9,800 a year you should probably use the 401k instead of saving the money in a taxable account.

It seems you have been letting your excess accumulate in a taxable savings account for quite awhile. I think you should be using the 401k, even if it is not perfect. Tax-deferral is a good thing for most people. I'm not sure it will make a lot of difference for you though.

A few comments.
  • 1) Your desired stock to bond ratio (75/25) is pretty aggressive for your age (53). This does not mean it is wrong. Did you intend to be aggressive?

    2) Having half of your stocks in international is also pretty aggressive. Did you intend to do that?

Some questions that might help people help you.
  • 1) You mention school and you mention 401k. Typically, schools have a 403b instead of a 401k. Are you sure yours is a 401k?

    2) Do you expect to have a pension? If so, is the pension likely to cover most of your ordinary living expenses in retirement?

    3) Do you expect to get SS?

    4) There are several things in your taxable account that are not tax-efficient (REIT, the target funds, total bond market). What are your thoughts on selling those? Do you have large capital gains in those funds?

    5) What are the 5 lowest cost choices available in your 401k? Please list name, ticker if any, and expense ratio.

    6) Are you sure that there is a load charged for the funds in your 401k? Frequently (not always) the load is waived inside a 401k/403b plan.

Moving your tIRA from Schwab to Vanguard - it seems your taxable account is at Vanguard. I'd move it just to consolidate. However, for the funds you are using, there is not a great deal of difference between Schwab and Vanguard.

artbug
Posts: 51
Joined: Mon Sep 02, 2013 5:11 pm

Re: Seeking guidance on investment portfolio

Post by artbug » Sun Mar 06, 2016 11:19 am

Leah wrote:401K
The school does not match. The company 401k is through Nationwide. They offer only one index fund which is Nationwide Midcap Market Index A(GMXAX). The fees are: Net expense 0.68, Management 0.21, Initial Sales fee: 5.75%.
Where did you get your information about the 5.75% sales charge/load? Have you confirmed that with the 401k provider that the sales charge will be levied against your contributions? I say this because looking up GMXAX at Morningstar.com does show the load, but many providers waive those loads for 401k participants. At Morningstar.com I also see they show that the load does get waived for the same fund, depending.

I flipped when reviewing my sister-in-law's 401k plan years ago. 5.75% load funds with high ERs. I had to search and search the literature, but I did finally find some small print in what seemed an unrelated location that stated that all loads were waived for funds in the plan.

IF you only have the expense ratio and management AUM fee, then you probably should invest in GMXAX.

If the 401k provider confirms that a 5.75% is applied to your contributions, I would probably express in no uncertain terms that a 401k is for helping people get a leg up in retirement, not rape them of their hard earned savings before they've ever had a chance to grow and when one can expect an era of meager returns. I would also say that I will do what I can to fight for a better 401k and to discourage other employees from letting the 401k help itself to their money without being able to guarantee they'll even make the money back.

The above may be bad advice on my part since I don't know enough about your situation, but I also have a big mouth. :annoyed
Last edited by artbug on Sun Mar 06, 2016 3:37 pm, edited 1 time in total.

jimkinny
Posts: 1271
Joined: Sun Mar 14, 2010 1:51 pm

Re: Seeking guidance on investment portfolio

Post by jimkinny » Sun Mar 06, 2016 11:31 am

A good place to start for anyone is the 2 Boglehead Guide to Retirement and Guide to Investing. You can get both at Amazon. There is a lot of free information on the Boglehead Wiki. If you read from start to finish you will learn a lot but the two books are just a lot easier to read because of the organization.

I would not pay a sales charge to invest in a 401. I would complain about this, knowing what I know now.

A total stock market index fund has all of the stocks contained in a S&P 500 index fund plus some midcaps and small caps. A large Cap Index will be very close to both, maybe identical to the 500 index. I would go with the total stock market index but there is not much difference in long term historical data re performance but you should determine what index a Large Cap follows first: look at the fund data.

Do all of the funds in your 401 have a sales charge? Actively managed funds can be a decent choice but not with a sales charge, IMO. Remember, once you leave this employer, you can rollover you money to an IRA to wherever you want but a sales charge would rule it out for me.

The traditional approach to bonds and stock placement is to have bonds funds in tax protected accounts and index equity in taxable accounts. This is for tax reasons: read about fund placement on the boglehead Wiki. Some very knowledgeable people think it does not matter a lot, especially with today's very low rates. I think it may be a tossup depending upon ones marginal tax rates.

A target date fund has anywhere from about 30%-90% equities with bonds getting it to 100%.

Get the Boglehead Guide Books. Read what the real experts think.

Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Re: Seeking guidance on investment portfolio

Post by Leah » Sun Mar 06, 2016 11:48 am

in_reality wrote:Welcome!
Thank you for your advice. Very helpful.
Leah wrote: 401K
The school does not match. The company 401k is through Nationwide. They offer only one index fund which is Nationwide Midcap Market Index A(GMXAX). The fees are: Net expense 0.68, Management 0.21, Initial Sales fee: 5.75%.
I wouldn't use the 401K at those prices.

A total market fund will have around 2% dividends and if you pay 15% tax on that, you are looking at a what 0.3% burden. International is a little higher.

Are there any decent bond funds? I think you want to get bonds out of taxable and into tax deferred.
Leah wrote:Traditional IRA
My traditional IRA is through Schwab. Started only last year. Total: $9300.00, equally invested in Schwab Total Stock Market Index fund(SWTSX) and Schwab S & P 500 Index Fund(SWPPX).
I'd want to hold bonds in the IRA and use SCHZ and reduce VBTLX in taxable.

If you expect to be in a higher tax bracket in retirement or that taxes will rise, then a ROTH makes sense.

Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Re: Seeking guidance on investment portfolio

Post by Leah » Sun Mar 06, 2016 11:50 am

Thank you very much for your advice. Very helpful. Leah

Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Re: Seeking guidance on investment portfolio

Post by Leah » Sun Mar 06, 2016 11:55 am

snarlyjack wrote:Leah,
Thank you for your advice, Snarlyjack.
It does not make sense to invest in a 401k that charges
a 5% load plus a high ER (expense Ratio).

It's all about the load & expense ratio's. The load's & ER
over the years can literally cost you thousand's of dollars.

I love Vanguard because of the low cost index funds! Super
low ER's & no sales fee's. I would go 100% Vanguard & try to
max out your money before you retire. If the market goes
down (don't sell) buy more & average down into it!

Best of luck!

Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Re: Seeking guidance on investment portfolio

Post by Leah » Sun Mar 06, 2016 11:55 am

Thank you for your advice.

Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Re: Seeking guidance on investment portfolio

Post by Leah » Sun Mar 06, 2016 12:46 pm

[s



Hi Thank you very much for taking your time to provide advice to me.
Below are some of answers:
Background on myself.
I'm a Canadian citizen started to work for a private preschool as a teacher since last September. I don't have any savings or pension in Canada. From my present work, I expect I will be able to save about 25000 a year.

A few comments.

  • 1) Your desired stock to bond ratio (75/25) is pretty aggressive for your age (53). This does not mean it is wrong. Did you intend to be aggressive? I was thinking I won't take out this money until ten to fifteen years later.

    2) Having half of your stocks in international is also pretty aggressive. Did you intend to do that?
-- Maybe I should it reduce it to 40 percent?

Some questions that might help people help you.
  • 1) You mention school and you mention 401k. Typically, schools have a 403b instead of a 401k. Are you sure yours is a 401k? -- Yes it's a private school

    2) Do you expect to have a pension? If so, is the pension likely to cover most of your ordinary living expenses in retirement? --No pension or very small.

    3) Do you expect to get SS? -- No. I'm a Canadian. The school is planning to apply for a green card for me this year.

    4) There are several things in your taxable account that are not tax-efficient (REIT, the target funds, total bond market). What are your thoughts on selling those? Do you have large capital gains in those funds? --- I just bought those in last Nov. and have lost 5k out of these funds.

    5) What are the 5 lowest cost choices available in your 401k? Please list name, ticker if any, and expense ratio. --Need to speak to a representative to clarify first.


    6) Are you sure that there is a load charged for the funds in your 401k? Frequently (not always) the load is waived inside a 401k/403b plan.
--Need to confirm. I found the load charge from the Nationwide website.


Moving your tIRA from Schwab to Vanguard - it seems your taxable account is at Vanguard. I'd move it just to consolidate. However, for the funds you are using, there is not a great deal of difference between Schwab and Vanguard.[/quote]

Thank you again for your advice.

Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Re: Seeking guidance on investment portfolio

Post by Leah » Sun Mar 06, 2016 1:13 pm

Thank you, Jim.
jimkinny wrote:A good place to start for anyone is the 2 Boglehead Guide to Retirement and Guide to Investing. You can get both at Amazon. There is a lot of free information on the Boglehead Wiki. If you read from start to finish you will learn a lot but the two books are just a lot easier to read because of the organization.

I would not pay a sales charge to invest in a 401. I would complain about this, knowing what I know now.

A total stock market index fund has all of the stocks contained in a S&P 500 index fund plus some midcaps and small caps. A large Cap Index will be very close to both, maybe identical to the 500 index. I would go with the total stock market index but there is not much difference in long term historical data re performance but you should determine what index a Large Cap follows first: look at the fund data.

Do all of the funds in your 401 have a sales charge? Actively managed funds can be a decent choice but not with a sales charge, IMO. Remember, once you leave this employer, you can rollover you money to an IRA to wherever you want but a sales charge would rule it out for me.

The traditional approach to bonds and stock placement is to have bonds funds in tax protected accounts and index equity in taxable accounts. This is for tax reasons: read about fund placement on the boglehead Wiki. Some very knowledgeable people think it does not matter a lot, especially with today's very low rates. I think it may be a tossup depending upon ones marginal tax rates.

A target date fund has anywhere from about 30%-90% equities with bonds getting it to 100%.

Get the Boglehead Guide Books. Read what the real experts think.

retiredjg
Posts: 33262
Joined: Thu Jan 10, 2008 12:56 pm

Re: Seeking guidance on investment portfolio

Post by retiredjg » Sun Mar 06, 2016 1:19 pm

One other thing that might be important - do you plan to retire in the US or Canada or do you know?

The fact that you are Canadian might greatly affect whether you should use the 401k or not. If you use the 401k and move back do Canada to retire, to you know how the 401k would be taxed?

The fact that you are in California makes a difference as well because California has very high state taxes.

Are you aware of our sister Canadian website? See the links with the Canadian flags on this website for information that might be more applicable to you.

https://www.bogleheads.org/SitesOfInterest.php

Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Re: Seeking guidance on investment portfolio

Post by Leah » Sun Mar 06, 2016 8:04 pm

retiredjg wrote:One other thing that might be important - do you plan to retire in the US or Canada or do you know?

The fact that you are Canadian might greatly affect whether you should use the 401k or not. If you use the 401k and move back do Canada to retire, to you know how the 401k would be taxed?

The fact that you are in California makes a difference as well because California has very high state taxes.

Are you aware of our sister Canadian website? See the links with the Canadian flags on this website for information that might be more applicable to you.

https://www.bogleheads.org/SitesOfInterest.php
Thank you for your new information!

retiredjg
Posts: 33262
Joined: Thu Jan 10, 2008 12:56 pm

Re: Seeking guidance on investment portfolio

Post by retiredjg » Sun Mar 06, 2016 9:32 pm

Leah, people here can help you invest, but we don't know about the tax implications of whether you should use the 401k or not. See what you can find out about that and then come back here.

We can help you pick appropriate funds for you situations. We just don't know about your tax situation so it is hard to know what types of accounts you should use.

Leah
Posts: 9
Joined: Sun Mar 06, 2016 1:05 am

Re: Seeking guidance on investment portfolio

Post by Leah » Mon Mar 07, 2016 12:00 am

retiredjg wrote:Leah, people here can help you invest, but we don't know about the tax implications of whether you should use the 401k or not. See what you can find out about that and then come back here.

We can help you pick appropriate funds for you situations. We just don't know about your tax situation so it is hard to know what types of accounts you should use.

I will talk to to my 401K to find out more information. I need to find info on tax implications. It's a bit unsettling since i don't know where i will retire eventually. Thank you for your help.

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