Asset Allocation and Bonds

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mybogledhead
Posts: 42
Joined: Wed Feb 04, 2015 10:25 pm

Asset Allocation and Bonds

Post by mybogledhead » Sat Jul 09, 2016 8:34 am

Hello,
Here is our current portfolio, with a few questions at the end. I haven't included many specifics because, as you'll see, each individual account is allocated 90/10, thus keeping my overall allocation 90/10. This was done for simplicity sake only, but is also the simplicity is causing problems that I would appreciate some help with it!

Self 401(k)
11% TIAA Target Index 2045

Self 457
12% TIAA Target Index 2045

Wife's old 401(k)
15% MM SP500 Index fund (MIEZX)
2% MM Russell 2000 Small-Cap Index (MCJIX)
4% American Funds EuroPacific Growth (REREX)
3% Northern Bond Index fund (NOBOX)

Self Roth IRA
5% Vanguard Target Index 2045

Wife Roth IRA
11% Vanguard Target Index 2045

Joint Taxable
18% Vanguard SP500 Index fund (VFIAX)
8% Vanguard Total International Index fund (VTIAX)
7% Vanguard Small-Cap Index fund (VSMAX)
4% Vanguard Total Bond Market Index fund (VBMFX)

New 401(k) Choices (ER + plus flat 0.99% administrative fee)
American Funds AMCAP (1.36%)
American Funds EuroPacific Growth (1.48%)
American Funds New World Fund (1.64%)
American Funds SMALLCAP World Fund (1.7%)
Janus Triton (1.67%)
Vanguard Mid-Cap Index (1.08%)
Vanguard Small Cap Index (1.08%)
American Funds cap World Growth and Income (1.43%)
American Funds Investment Co of America (1.29%)
Vanguard 500 Index (1.04%)
American Funds Capital Income Builder (1.28%)
American Funds Income Fund of America (1.27%)
American Funds American Balanced (1.28%)
American Funds Capital world Bond (1.51%)
Metropolitan West Total Return Bond (1.43%)
PIMCO Total Return (1.45%)
Vanguard Inflation Protected Securities (1.19%)


Questions
1: I'm thinking about selling my bond fund in taxable and buying a municipal bond fund to replace it. We are probably 39% federal tax bracket next year and 8 or 9% state tax (Iowa).
2: I'm thinking about adding real estate to our allocation by switching to REIT's in our Roth IRAs. We will contribute more in January via Roth conversion.
3: Holding target funds destroys my small-cap tilt. How can I regain it without ruining my chances to tax-loss harvest in my taxable account?
4: In general, how would you recommend I move things around to take a more "total portfolio" approach and improve tax efficiency?

Thank you!
Last edited by mybogledhead on Sat Jul 09, 2016 12:00 pm, edited 1 time in total.

Lafder
Posts: 3531
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Asset Allocation and Bonds

Post by Lafder » Sat Jul 09, 2016 8:58 am

mybogledhead,

On the surface, holding all accounts at 90/10 sounds simple. In reality it is not since each account must be adjusted if you AA gets off.

For the first "change" that will really help, rather than look at your holdings as 100% per account, translate it to % of total portfolio for all accounts not including emergency fund. Go back and edit your holdings above to reflect this.

This will allow you to see the relative size of holdings in each account, and allow you to rebalance just some accounts to hit your overall AA.

In my smaller accounts I have just one holding. In our Roths I have just total stock market for now, but will add bonds with age. Our taxable accounts are also mostly stocks.

Once you convert all to % of total, I am hoping it will become more clear.

The nice thing about all in one funds such as Target Retirement date funds is that you can just leave them and not need to rebalance or mess with them at all. You can still have a REIT or small cap tilt by having all in one plus some REITs and small cap funds somewhere.

Yes it is usually rec that if you hold bonds in taxable that they be tax advantaged. REITs are rec in retirement accounts. Small cap would be fine in taxable.

lafder

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BeBH65
Posts: 839
Joined: Sat Jul 04, 2015 7:28 am

Re: Asset Allocation and Bonds

Post by BeBH65 » Sat Jul 09, 2016 9:04 am

Hi,

Please have a look at the Tax-efficient_fund_placement and Asset_allocation_in_multiple_accounts wiki pages. Maybe you should't have any bonds in your taxable account...

Depending on the relative sizes of your accounts you might be able to keep one fund in most of your accounts.
Your actions might be:
- Select the least terrible fund in your wives 401k
- Allocate bonds in your IRAs
- Allocate international into Taxable
- Use SP500 and SC fonds to fill the gaps in the account to achieve your desired AA. Strive for the mimimum number of funds in each account.

Please consider updating your opening post posting the % of each fund in such a way that all % together sum up to 100%>
Even better update the OP with the available funds in yr wife 401 and the other info according to this format

regards
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

kolea
Posts: 1234
Joined: Fri Jul 11, 2014 5:30 pm
Location: Maui and Columbia River Gorge

Re: Asset Allocation and Bonds

Post by kolea » Sat Jul 09, 2016 9:09 am

mybogledhead wrote:Questions
1: I'm thinking about selling my bond fund in taxable and buying a municipal bond fund to replace it. We are probably 39% federal tax bracket next year and 8 or 9% state tax (Iowa).


I like Munis but they can suffer a liquidity issue in a crisis so be aware of that. I do not think it is a big deal but it does mean you might have to be patient in selling them. I am retired so need some liquidity and therefore match every dollar I put into a Muni with a dollar into AGG.
Kolea (pron. ko-lay-uh). Golden plover.

mybogledhead
Posts: 42
Joined: Wed Feb 04, 2015 10:25 pm

Re: Asset Allocation and Bonds

Post by mybogledhead » Sat Jul 09, 2016 12:03 pm

BeBH65 wrote:Hi,

Please consider updating your opening post posting the % of each fund in such a way that all % together sum up to 100%>
Even better update the OP with the available funds in yr wife 401 and the other info according to this format

regards




Please see me original post for a better breakdown of our current accounts and my wife's 401(k) choices...

User avatar
BeBH65
Posts: 839
Joined: Sat Jul 04, 2015 7:28 am

Re: Asset Allocation and Bonds

Post by BeBH65 » Mon Jul 25, 2016 4:13 pm

Hello Mybogledhead,

mybogledhead wrote:Hello,
Here is our current portfolio, with a few questions at the end. I haven't included many specifics because, as you'll see, each individual account is allocated 90/10, thus keeping my overall allocation 90/10. This was done for simplicity sake only, but is also the simplicity is causing problems that I would appreciate some help with it!

Self 401(k)
11% TIAA Target Index 2045

Self 457
12% TIAA Target Index 2045

Wife's old 401(k) What are the ER of these? IT might be beneficial to select low cost funds, or roll these investment s to another account
15% MM SP500 Index fund (MIEZX)
2% MM Russell 2000 Small-Cap Index (MCJIX)
4% American Funds EuroPacific Growth (REREX)
3% Northern Bond Index fund (NOBOX)

Self Roth IRA
5% Vanguard Target Index 2045

Wife Roth IRA
11% Vanguard Target Index 2045

Joint Taxable
18% Vanguard SP500 Index fund (VFIAX)
8% Vanguard Total International Index fund (VTIAX)
7% Vanguard Small-Cap Index fund (VSMAX)
4% Vanguard Total Bond Market Index fund (VBMFX) Might not be tax efficient to put bonds in taxable account

New 401(k) Choices (ER + plus flat 0.99% administrative fee)
American Funds AMCAP (1.36%)
American Funds EuroPacific Growth (1.48%)
American Funds New World Fund (1.64%)
American Funds SMALLCAP World Fund (1.7%)
Janus Triton (1.67%)
Vanguard Mid-Cap Index (1.08%)
Vanguard Small Cap Index (1.08%) possibly useful to approximate total stock market
American Funds cap World Growth and Income (1.43%)
American Funds Investment Co of America (1.29%)
Vanguard 500 Index (1.04%) This looks like the least expensive fund in yr new 401. You might put all your money here
American Funds Capital Income Builder (1.28%)
American Funds Income Fund of America (1.27%)
American Funds American Balanced (1.28%)
American Funds Capital world Bond (1.51%)
Metropolitan West Total Return Bond (1.43%)
PIMCO Total Return (1.45%)
Vanguard Inflation Protected Securities (1.19%)


Questions
1: I'm thinking about selling my bond fund in taxable and buying a municipal bond fund to replace it. We are probably 39% federal tax bracket next year and 8 or 9% state tax (Iowa). Or buy the bonds in one of the tax advantaged accounts
2: I'm thinking about adding real estate to our allocation by switching to REIT's in our Roth IRAs. We will contribute more in January via Roth conversion. Remember, your stock funds already contain REITs
3: Holding target funds destroys my small-cap tilt. How can I regain it without ruining my chances to tax-loss harvest in my taxable account?
Don't see a lot of smal cap tilt ;-) > What is your desired tilt? Maybe you can replace your target date funds by individual funds. Not sure I understand your TLH comment - but am not a TLH expert. What about simply augmenting your SC in the accounts where you have SC?
4: In general, how would you recommend I move things around to take a more "total portfolio" approach and improve tax efficiency?

Thank you!
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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