Portfolio Help Please!

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ebrasmus21
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Joined: Tue Nov 29, 2016 6:06 pm

Portfolio Help Please!

Post by ebrasmus21 » Tue Nov 29, 2016 7:20 pm

**EDIT 1** Added expense ratios to 401k options. Corrected a couple of tickers.
**EDIT 2** New question added below
**EDIT 3** (HSA Investment?? See below)

Hello Bogleheads this is my very first post. Thank you all in advance for all the help; I've spend the past three days reading thread after thread.

Any advice would be appreciated. Our goal is growth. We'd like to take on the prudent amount of risk given we are both going to be working for the next 40 or so years. We also need to save a greater % of our income... We are working on that but below is what we currently have.

Emergency funds: 25k (fully funded 6 months)
Debt: none
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal, 9% State
State of Residence: CA
Age: 28 and 28
Desired Asset allocation: 80% stocks / 10% bonds
Desired International allocation: ~20% of stocks

Current retirement assets:

Taxable - nothing at this time

His 401k
40% Fidelity Total Market Index (FSTMX) .09
10% DFA US Small Cap (DFSTX) .37
20% American Funds New Perspective R5 (RNPFX) .49
10% MFS International Value R4 (MINHX) 0.76
20% Loomis Sayles Core Plus Bond Y (NERYX) .49

Company match? My company has a 3k max match that I'm taking full advantage of

His IRA at Vanguard 100% Target Retirement 2055 [ VFFVX ]

We also have a HSA through my employer. Right now we are not currently investing the HSA although I fully intend to. Current HSA balance is about 9K. I'd like to start investing the HSA funds but in something conservative like a bond fund. We use our HSA for medical expenses.

The only bond funds we have in our HSA are the following:
- VTAPX (Vang Short-Term Infl Protect Securities)
- VBMPX (Vang Total Bond)
- VIPIX (Vang Inflation Protected Securities)


Any recommendations on the HSA Fund selection or reasons why to keep it as cash?

Contributions

Her, no IRA. Also, new employer for her (waiting to make it through the probationary period). 401K options TBD.

New annual Contributions
$4,000 his 401k (+ 3,000 employer match)
$5,500 to his IRA
$3,000 to HSA (+ 1,100 employer match)

Available funds

Funds available in his 401(k)
Columbia Dividend Income Z [ GSFTX ] 0.77
Columbia Large Cap Growth A [ LEGAX ] 0.69
Fidelity Total Market Index [ FSTMX ] 0.09
JPMorgan Equity Income R5 [ OIERX ] 0.62
Voya Corporate Leaders 100 I [ IICLX ] 0.59
Wells Fargo Growth A [ SGRAX ] 0.80
AllianzGI High Yield Bond I [ AYBIX ] 0.63
American Century Infl-Adj Bd Instl [ AIANX ] 0.27
Federated Instl High Yield Bond Instl [ FIHBX ] 0.57
Fidelity Advisor Emerging Markets Inc I [ FMKIX ] 0.89
JPMorgan Core Bond A [ PGBOX ] 0.53
Loomis Sayles Core Plus Bond Y [ NERYX ] 0.49
MFS Emerging Markets Debt R4 [ MEDFX ] 0.87
PIMCO Global Bond (Unhedged) Instl [ PIGLX ] 0.57
PIMCO Income A [ PONAX ] 0.70
PIMCO Long Duration Total Return Instl [ PLRIX ] 0.55
PIMCO Real Return A [ PRTNX ] 0.58
Pioneer Strategic Income Y [ STRYX ] 0.73
RidgeWorth Seix US Gov Sec Ultra-St Bd I [ SIGVX ] 0.41
Templeton Global Bond Adv [TGBAX] 0.66
Vanguard Long-Term Bond Index Inv [ VBLTX ] 0.16
Victory Incore Fund for Income A [ IPFIX ] 0.65
Fidelity Advisor Industrials I [ FCLIX ] 0.80
First Eagle Gold A [ SGGDX ] 1.33
Invesco Gold & Precious Metals Y [ IGDYX ] 1.32
Principal Real Estate Securities Inst [ PIREX ] 1.08
T. Rowe Price New Era [ PRNEX ] 0.67
Delaware Small Cap Value Instl [ DEVIX ] 0.96
DFA US Small Cap [ DFSTX ] 0.37
Eagle Small Cap Growth R5 [ HSRSX ] 0.78
Invesco Select Companies Fund Y [ ATIYX ] 0.98
Undiscovered Mgrs Behavorial Value Inst [ UBVLX ] 1.55
Virtus Small-Cap Core I [ PKSFX ] 1.12
Delaware Smid Cap Growth Instl [ DFDIX ] 0.94
JHancock Disciplined Value Mid Cap I [ JVMIX ] 0.86
Principal MidCap Index Inv [ PCBIX ] 0.67
Vanguard Mid Cap Blend Inst [ VIMSX ] 0.20
Vanguard Selected Value Inv [ VASVX ] 0.39
Victory Sycamore Est Value R [ GETGX ] 0.63
Columbia Contrarian Core Z [ SMGIX ] 0.84
American Century One Choice 2045, 2050 and 2055 - 0.74, 0.76 and 0.78
MFS Lifetime Income R4 [ MLLHX ] 0.78
American Funds New Perspective R5 [ RNPFX ] 0.49
Artisan International Value Investor [ ARTKX ] 1.21
Calamos International Growth A [ CIGRX ] 1.06
Fidelity Pacific Basin [ FPBFX ] 1.17
Franklin Intl Small Cap Growth Adv [ FKSCX ] 1.12
MFS Global Total Return R3 [ MFWHX ] 1.03
MFS International Diversification R4 [ MDITX ] 0.96
MFS International Value R4 [ MINHX ] 0.76
Oppenheimer Developing Markets A [ ODMAX ] 1.31
Prudential Global Real Estate Z [ PURZX ] 0.97
T. Rowe Price Global Tech [ PRGTX ] 0.91
Templeton Instl Foreign Smaller Co Ser A [ TFSCX ] 0.98

Questions:
1. Based on the fact that we are willing to hold a high level of equities and want to focus on growth are my current selections for my 401k and IRA wise from an AA perspective and fees perspective? If the answer is no, can you tell me why? I want to learn.

2. Regarding the HSA - We will being using for medical expenses as needed. I also want to take advantage of the HSA from a tax perspective so I'm just wondering... when we are ready to invest the HSA how would we choose AA given our current portfolio and the need to use HSA funds as needed.

3. We don't know what we don't know. Are we completely missing something or are we "on the right track"?

4. Based on my 401k options and in the spirit of keeping things as simple as possible are they any recommendations on fund-selection compared to my actual selection listed above?

Thanks everyone, looking forward to learning from you all!
Last edited by ebrasmus21 on Thu Mar 01, 2018 11:39 am, edited 3 times in total.

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FiveK
Posts: 4931
Joined: Sun Mar 16, 2014 2:43 pm

Re: Portfolio Help Please!

Post by FiveK » Tue Nov 29, 2016 9:48 pm

ebrasmus21 wrote: Tax Rate: 25% Federal, 9% State
His 401k...allocations:
50% Fidelity Total Market Index [ FSTMX ] [0.09]
10% DFA US Small Cap [ DFSTX ] [0.37]
10% Vanguard Long Term Bond Index [ VBLTX ] [0.16]
20% American Funds New Perspective R5 [ RNPFX ] [0.49]
10% MFS International Value R4 [ MINHX ] [0.76]

His IRA at Vanguard current balance 37K
100% Target Retirement 2055 [ VFFVX ]

We also have a HSA through my employer. Right now we are not currently investing the HSA although I fully intend to. Current HSA balance is about 2K.

Her, no IRA. Also, new employer for her (waiting to make it through the probationary period). 401K options TBD.

New annual Contributions
$4,000 his 401k (+ 3,000 employer match)
$5,500 to his IRA
$3,000 to HSA (+ 1,100 employer match)

Questions:
1. Based on the fact that we are willing to hold a high level of equities and want to focus on growth are my current selections for my 401k and IRA wise from an AA perspective and fees perspective? If the answer is no, can you tell me why? I want to learn.
AA perspective is fine. You could drop the two high fee (RNPFX and MINHX) funds in favor of more FSTMX (or VIMSX if you want to tilt that way).
2. Regarding the HSA - We will being using for medical expenses as needed. I also want to take advantage of the HSA from a tax perspective so I'm just wondering... when we are ready to invest the HSA how would we choose AA given our current portfolio and the need to use HSA funds as needed.
If you expect to need the HSA funds within a few years, a conservative AA should be used.
If you expect the HSA won't be needed until you start suffering from "senioritis" etc., then you can be more aggressive.
3. We don't know what we don't know. Are we completely missing something or are we "on the right track"?
If you are in the 25% federal bracket, you might be able to afford (between the two of you)
$36K 401k
$11K tIRA
$6750 HSA
------
$53750 in tax-advantaged investements
...and still have enough cash flow for food, clothing, shelter, etc. How does this look to you?

ebrasmus21
Posts: 191
Joined: Tue Nov 29, 2016 6:06 pm

Re: Portfolio Help Please!

Post by ebrasmus21 » Tue Nov 29, 2016 10:09 pm

FiveK:

Thank you for taking the time to look over my portfolio. As for your idea to max out our tax advantaged accounts - I hope to get to a place where we can max out as you've suggested (I sincerely do). I don't think we are there yet. We just got our emergency fund in order and we still would like to save for a downpayment for a home. Also, truth be told, I think we just spend too much. I believe your right though, we should be able to pull that off and have acceptable cash flow sometime in the near future.

I'm also going to look at the funds you've suggested as I'm not thrilled as to the ER on RNPFX and certainly not on MINHX

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FiveK
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Re: Portfolio Help Please!

Post by FiveK » Tue Nov 29, 2016 10:32 pm

For some people (so this may or may not apply to you), spending expands and contracts based on money available. You have done a nice job establishing the $25K e-fund, and that gives you room to experiment a little.

You might try increasing those pre-tax investments as high as you think you can, then watch your checking account balance. If you have to replenish significant amounts from the e-fund, and can't cut spending, then you can reduce the pre-tax amounts.

If, however, you find that your checking account doesn't run out...congratulations!

ebrasmus21
Posts: 191
Joined: Tue Nov 29, 2016 6:06 pm

Re: Portfolio Help Please!

Post by ebrasmus21 » Tue Nov 29, 2016 10:40 pm

You make a good point. Starting out our marriage we spent a lot of money getting married and getting our "feet on the ground" now I think we will have the ability to save money wisely and spend the rest! Thank you for the advice. :happy

radiowave
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Re: Portfolio Help Please!

Post by radiowave » Tue Nov 29, 2016 10:40 pm

Hi, welcome to the forum.

For his 401k choices, the only appealing one in the list is Fidelity Total Market Index [ FSTMX ]. Maybe the Vanguard Long Term bond but you really need a good total bond fund. Note on growth in a tax deferred account, when you withdraw the money many years from now you will pay taxes at your marginal tax rate. If you have equity funds in taxable, you would pay capital gains likely at a lower rate than income tax. So a simple strategy is to put tax efficient equity in taxable accounts, bonds in tax deferred. See the tax efficient page on the Wiki.

As for emergency funds, consider, if you haven't done so already, a high yield savings account like Ally, AMEX, Capital One, Discover, etc. All are highly regarded by Bogleheads. You'll get about 1% compared to your local bank probably .01%?! Think about if you or your spouse lost a job, got ill/hurt, you have a fire or some other calamity and how would you support yourselves? How easy is it to get to cash for immediate needs. Also, part of the discussion on emergency funds is credit as in using credit cards wisely, use rewards to your advantage, and pay off credit card balance each month. You can save for retirement if you are paying high % for credit care debt. Credit cards and checks are the most liquid forms of emergency funds. if you have investments in taxable, you have to sell them (and likely pay capital gains) so they are not immediately available.

If you have some short to medium goals, like buying a house, consider an intermediate term CD to get a little more savings.

If you haven't done so already, check out the Wiki https://www.bogleheads.org/wiki/Main_Page.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

ebrasmus21
Posts: 191
Joined: Tue Nov 29, 2016 6:06 pm

Re: Portfolio Help Please!

Post by ebrasmus21 » Tue Nov 29, 2016 10:50 pm

Thank you radiowave! I like the idea of using a CD for the e-fund. We don't run balances on our credit cards so we have some wiggle room there too.

Regarding your advice on accounts for equities and accounts for bonds I slowly learning what you are saying. I've been reading the mega thread Taylor started on the three fund portfolio (I'm currently on page 8) and a lot of people had been asking questions about where and when to use taxable/tax advantaged accounts. I'm learning a lot but still a complete newbie.

radiowave
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Joined: Thu Apr 30, 2015 5:01 pm

Re: Portfolio Help Please!

Post by radiowave » Tue Nov 29, 2016 11:36 pm

ebrasmus21 you are both doing well starting out investing early in your careers - wish I had done that.

One pearl of wisdom about dual income couples. It will be a bit more complex managing multiple retirement accounts, Roth/Traditional IRAs, taxable brokerage accounts, savings and checking and credit cards. Your respective employment plans will have different and confusing (and probably expensive funds). Keep things as simple and low cost as you can (as Taylor Larimore says) to make things manageable. If you have access to target retirement accounts in your tax deferred (retirement) plans and they are index based and low expense ratios, that is worth considering. When you start balancing a 3 or 4 fund portfolio across multiple accounts, that gets to be a good bit of work. Nothing bad about 3-4 fund portfolio, just something to consider as you move forward.

And don't worry about the volatility of the market. Invest for the long run.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

ebrasmus21
Posts: 191
Joined: Tue Nov 29, 2016 6:06 pm

Re: Portfolio Help Please!

Post by ebrasmus21 » Tue Nov 29, 2016 11:48 pm

Keeping it simple is the name of the game. What Bogleheads preach I can certainly get behind. I like my Vanguard TR fund because its so simple for a person like me. Unfortunately, the plan offered by employer includes TR funds that seem to be significantly more expensive than Vanguard....

pingo
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Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Help Please!

Post by pingo » Wed Nov 30, 2016 12:06 am

Could you add the expense ratios to your list of 401(k) options? We can look it up, but the ERs we find will usually be different than what you have in your employer plan. Also, if we spend all that time I have looking up the ERs of those funds, we may not have any time left to contribute in a timely manner.

:thumbsup

ebrasmus21
Posts: 191
Joined: Tue Nov 29, 2016 6:06 pm

Re: Portfolio Help Please!

Post by ebrasmus21 » Wed Nov 30, 2016 11:45 am

pingo - thanks for your reply. Expense ratios have been added!

ebrasmus21
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Joined: Tue Nov 29, 2016 6:06 pm

Re: Portfolio Help Please!

Post by ebrasmus21 » Wed Nov 30, 2016 8:38 pm

[quote="pingo"]Could you add the expense ratios to your list of 401(k) options? We can look it up, but the ERs we find will usually be different than what you have in your employer plan. Also, if we spend all that time I have looking up the ERs of those funds, we may not have any time left to contribute in a timely manner.

I thought I was forgetting something in my post, thanks for pointing out I forgot the expense ratios (just a minor detail :happy )

pingo
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Re: Portfolio Help Please!

Post by pingo » Thu Dec 01, 2016 2:20 pm

Who is your 401k provider?

ebrasmus21
Posts: 191
Joined: Tue Nov 29, 2016 6:06 pm

Re: Portfolio Help Please!

Post by ebrasmus21 » Thu Dec 01, 2016 2:27 pm

Who is your 401k provider? Empower Retirement

trystero
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Joined: Fri Apr 08, 2016 2:34 pm

Re: Portfolio Help Please!

Post by trystero » Thu Dec 01, 2016 2:51 pm

My wife and I were in a similar position to yours about three years ago, and we're also newcomers to this forum. Thought our experience may be of use to you in regards to getting to the spending/savings targets that we wanted. As many, many state on the forum and elsewhere the key for us was accurate budgeting and tracking. We created a budget for the year with the following categories (and matching bank accounts):

Control (checking account), where all income (after deducting directly into tax advantaged accounts) is received and regular bills are paid out of (such as utility bills, mortgage etc). We also fund the other accounts from here.
Irregular Required (savings account), for non-regular bills such as insurance premiums. This way we have accumulated the necessary amounts by the time it comes to pay that bill and we avoid all financing charges.
Irregular Optional (savings account), for things like gifts and vacations.
Emergency (savings account), for the Emergency Fund.

We also have accounts for personal spending - for these we track the amount that goes in, but not each individual purchase.

Although this system seemed onerous at first, it has worked really well for us. Seeing exactly where our money is going has made it possible for us to both feel secure that we have the necessary cash flow for the year and - more importantly - increase the amount of savings. When we started we were in the same boat as you - feeling that it was not possible to meet cash flow needs, savings for a house AND maxing tax advantaged space. Two years after starting this system we were able to max 401K and IRA contributions as well as save into taxable retirement accounts and even a 529, all without significant increases in income. Another advantage of the budget is that it made us, as a couple, talk through the things that mattered to us, what our shared goals are and come to a consensus on what we want to save and spend for. Finally, there's been an enormous psychological advantage in accurately seeing, and planning for, months in which our spending is below our income - which is now almost all of them.

Just a few cents on this element of your planning - hope it's helpful!

T&N

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Thu Dec 01, 2016 3:02 pm

trystero:

Thank you for the reply. It's encouraging to hear from a couple that recently worked through similar situations to me and my wife. I think with the proper organization and communication we could get close to (if not max out) our tax advantaged accounts and also have cash flow met.

My wife and I need to sit down and get more organized to the benefit of us both. Thanks again for your reply its very encouraging!

pingo
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Re: Portfolio Help Please!

Post by pingo » Thu Dec 01, 2016 3:04 pm

I have a little experience with Empower. Does the platform they provide for your employer plan include a Rebalancer tool? Please login to your account or call their customer service to find out.

ebrasmus21
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Joined: Tue Nov 29, 2016 6:06 pm

Re: Portfolio Help Please!

Post by ebrasmus21 » Thu Dec 01, 2016 4:34 pm

pingo - I'm currently set up to re-balance twice annually with the Empower re-balance tool. At this point in time I'm set up to re-balance with the allocations I've indicated in my original post.

pingo
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Re: Portfolio Help Please!

Post by pingo » Thu Dec 01, 2016 7:01 pm

ebrasmus21 wrote:Regarding the HSA - We will being using for medical expenses as needed. I also want to take advantage of the HSA from a tax perspective so I'm just wondering... when we are ready to invest the HSA how would we choose AA given our current portfolio and the need to use HSA funds as needed.
Let's deal with that question when the time comes. I tend to prefer to leave cash and/or bonds in the HSAs because it's a kind of emergency fund and because IF the time comes that you can include it in your investment portfolio, the 401ks and Roth will probably dwarf the HSA in size--in which case maintaining simplicity in the portfolio may call for keeping it in bonds anyway...

..or maybe not. Either way, let's cross that bridge when we get there.
ebrasmus21 wrote:We don't know what we don't know. Are we completely missing something or are we "on the right track"?
ebrasmus21 wrote:Based on the fact that we are willing to hold a high level of equities and want to focus on growth are my current selections for my 401k and IRA wise from an AA perspective and fees perspective? If the answer is no, can you tell me why? I want to learn.
ebrasmus21 wrote:Based on my 401k options and in the spirit of keeping things as simple as possible are they any recommendations on fund-selection compared to my actual selection listed above?
First off, you actually have a good enough 401k plan to build a great portfolio and I have to say, you did a very good job of fund selection. Let's see if there are any appetizing improvements to be made. Since you want to learn, let's analyze what you've done:
ebrasmus21 wrote:We'd like to take on the prudent amount of risk given we are both going to be working for the next 40 or so years
ebrasmus21 wrote:Age: 28 and 28
Desired Asset allocation: 90% stocks / 10% bonds
A prudent amount of risk to me sounds more like 80% stocks maximum. If you check out Vanguard's Portfolio Allocation Models, you won't see a large historical difference in return between 100% stocks and 80% stocks, but you will see a significant difference in risk/volatility.
ebrasmus21 wrote:His 401k current balance is 5K
allocations:
50% Fidelity Total Market Index [ FSTMX ] [0.09]
10% DFA US Small Cap [ DFSTX ] [0.37]
10% Vanguard Long Term Bond Index [ VBLTX ] [0.16]
20% American Funds New Perspective R5 [ RNPFX ] [0.49]
10% MFS International Value R4 [ MINHX ] [0.76]
ebrasmus21 wrote:His IRA at Vanguard current balance 37K
100% Target Retirement 2055 [ VFFVX ]
Fidelity Total Market covers the whole U.S. stock market: large, medium and small company stocks. Adding DFA US Sm Cap gives you a moderate small cap tilt, which is fine and DFA Sm Cap may be one of the best in terms of tilting to small, especially at that expense ratio. The tilt may seem larger at first glance than it really is for reasons we'll see below.

AF New Perspective (RNPFX) and MFS Intl Value (MINHX) were a good combination for international stocks since RNPFX is relatively low cost, but is a very much a "growth" style stock fund. American Funds are very good funds when you don't have to pony up egregious front or back end loads, but MFS Intl Value is equally venerable, though more expensive. It's what I probably would have done to diversify away from New Perspective's focus on growth stocks. Since New Perspective is a global stock fund (roughly 50:50 US/International) it makes sense to have twice the RNPFX as MINHX, putting 20% of the 401k in international stock. The U.S. stock portion of New Perspective is Large Cap, so the tilt that DFA Small Cap might otherwise provide is balanced back the other direction (not entirely, though) by New Perspective.

Vanguard LT Bond fund has its favorable arguments when investing in such an aggressive portfolio because theoretically (or historically, I can't remember which) LT bonds tend to have negative correlation with stocks. I'm not comfortable doing a 90/10 LT bonds, but it's a stomach thing. I feel better with intermediate or short-term bonds just in case the theory/history doesn't work out at the wrong moment. As far as bonds go, LT can be on the volatile side. So, a chart like this shows lots of negative correlation (stocks going up/down when VBLTX is going down/up to lower portfolio volatility overall), but when I take a closer look over the last 10 years here I see a few moments when they're both going the same direction (during 2008 it was a mixed bag).

Overall the charts make an interesting justification for VBLTX in a highly aggressive portfolio, but at the end of the day, I still choose intermediate and/or short-term bonds, which is also in line with general Boglehead advice. Compare VBLTX to the "total" bond market here. Aaaaah. Total bond. Calm amid the storm.
ebrasmus21 wrote:Unfortunately, the plan offered by employer includes TR funds that seem to be significantly more expensive than Vanguard....
...and the Rebalancer tool (which you are using) allows you to fashion a portfolio that is complete and that has lower costs that will take care of itself as if it were a single balance fund/fund-of-funds/asset allocation fund.

Before we move on, please let us know what you think about having an 80/20 portfolio vs. 90/10 and any other thoughts you have on the above. We Bogleheads tend to resist having more than 80% stocks, but it is, after all, your portfolio. I should have my portfolio suggestions ready by the time you respond.
Last edited by pingo on Fri Dec 02, 2016 11:46 am, edited 1 time in total.

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Thu Dec 01, 2016 7:25 pm

pingo:

That is a thoughtful response, thank you.

HSA Concerns: I have no problem keeping cash and/or bonds until later on down the road (as you've suggested)

401k Concerns: thank you for the link to Vanguard's Portfolio Allocation Models. That, along with the Boglehead nation, make a strong case for a lower allocation of equities. I could get behind the idea of 80/20 AA.

Thanks for complimenting my selections. I did try to tilt a little but I must admit I didn't realize that part of my tilt cancelled itself out by way of RNPFX (thanks for pointing it out). I can't say that I'm sold one way or the other on tilting since there seems to be a raging debate on tilting's usefulness in the Boglehead world.

Long Term Bonds: if any other bond selections at my disposal are a better fit I will gladly learn why or why not. A number of the PIMCO options seem to be a big more expensive then Vanguard.

Side note, I'm on page 17 of the mega Three-Fund Portfolio thread. Pingo, I've enjoyed the numerous, thoughtful responses you've shared within that thread as well. Thanks again.

pingo
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Re: Portfolio Help Please!

Post by pingo » Fri Dec 02, 2016 1:22 pm

pingo wrote:First off, you actually have a good enough 401k plan to build a great portfolio and I have to say, you did a very good job of fund selection. Let's see if there are any appetizing improvements to be made.
Yeah...I'm going to have to stand by that statement. Good 401k, good fund arrangement, automatic rebalancing. For the moment, I don't see "any [particularly] appetizing improvements to be made", although I'd like to clarify the statement a little.
ebrasmus21 wrote:Also, new employer for her (waiting to make it through the probationary period). 401K options TBD.
Right now your 90/10 portfolio (401k and IRA combined) has a weighted expense ratio of 0.17%. Very low cost, indeed. And if we were to include the HSA (I know we're ignoring it for most purposes), it means you actually have more in cash/bonds than that 90/10 figure lets on. I think it's fine to leave things just where they are until we know how your spouse's plan and contributions will affect the whole picture.

When costs are already in check, simplicity is extremely important. For you, it seems simpler to hold that wonderful target fund in the IRA along with your enviable 401k setup that automatically rebalances for you. I would recommend you set the rebalancer to rebalance annually, rather than ever 6 months, but there's not even a need to do that until we know what's going to happen when we include your spouse's plan.

Now, if you decide to move to an 80/20 portfolio, I would probably use the Loomis Sayles Core Plus Bond Y (NERYX) ER 0.49%. They are excellent bond managers. NERYX is a slightly higher risk bond fund (higher duration) than the typical intermediate bond fund we recommend her, which might in part explains it's higher returns vs. a "total" index bond fund. It tends to correlate positively with the VG LT bond fund which means it tends to correlate negatively with stocks like VG LT bond fund, but it does so with far less volatility.Compare the two funds here.

Most Bogleheads would probably suggest the American Century Inflation-Adjusted Bond Fund (AIANX) ER 0.27%, which is a good choice in terms of cost and duration, but that's probably the maximum amount of TIPS I'd want to have in my portfolio in retirement. In other words, it's a good bond choice in the plan, but I'd keep in mind where you want to go when you need to move to more than 20% bonds? A combination of NERYX and AIANX would be a fine compromise. Others may disagree.

What about that Three Fund Portfolio you've been reading about?

His 401k ($5k or 12% of the portfolio)
12% Fidelity Total Market Index (FSTMX) .09 <--$7,000 or 100% of 401k contributions.

His Vanguard IRA ($37k or 88% of the portfolio)
47% Vanguard Total Stock (VTSAX) .05 <--$500/yr.
20% Vanguard Total International (VTIAX) 0.12 <--$$2,500/yr.
20% Vanguard Total Bond (VBMFX) .16 <--$2,500/yr.

Weighted ER = 0.08% compared to a current weighted ER of 0.17.

The point of a 3-fund portfolio is to cover all essential asset classes at low cost, in the most diversified manner, and with simplicity. I see no important difference in asset allocation between your way and the Three Fund Portfolio way. In your case, the Three Fund Portfolio is simple, but you'll have judge which is the simplest or most desirable solution. At these cost levels, it's a matter of weighing the benefit of the greatest simplicity (current hands-free portfolio management) vs. lower costs that you can brag about to fellow Bogleheads, but the difference in dollars will hardly dramatic.

What say you?

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Fri Dec 02, 2016 1:50 pm

pingo:

My initial gut response is to keep things simple (for me) which means TR Fund and auto re-balance on the 401k. In my mind, this allows me NOT to "screw it up." Could I really screw up the simple Three Fund Portfolio? I doubt it, even with my experience level I probably wouldn't screw things up. At the same point in time I'm so new to all these ideas I don't know if I'm confident in my own understanding at this time.

This is a lot to chew on and I have a work luncheon to attend, pardon the pun. I will provide a more detailed response when I get back. Thanks!

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Fri Dec 02, 2016 6:50 pm

pingo:

**Edit: grammar and clarification**

After thinking about it a bit more I still like the idea of not having to do much of anything at all with respect to my current setup. Right now all I have to do is make contributions. Keeping things the way they are - a weighted ER of 0.17% doesn't seem to shabby. But, in your three-fund proposal, a weighted ER of 0.08% is a sexy number as far as expenses go...

If I go the way of the three fund would your recommendations be to keep what I have thus far in the TR fund OR exchange the balance of my TR fund for the appropriate VG funds along with making future contributions to the three funds?

Lastly, what type of hypothetical money could I save when looking at ERs of 0.17 vs 0.08? Is there an easy answer to that question?

pingo
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Re: Portfolio Help Please!

Post by pingo » Fri Dec 02, 2016 8:43 pm

ebrasmus21 wrote:what type of hypothetical money could I save when looking at ERs of 0.17 vs 0.08?
No hypothetical about it. Keep in mind that you have the opportunity to cut your costs in half at these levels, but the impact on returns is negligible when compared to, say, ER 1.00%. For example:

At ER 1.00%, a $42,000 portfolio incurs costs of $420/yr.
Compare that to $71 at ER 0.17%.
Compare that to $33 at ER 0.08%.
ebrasmus21 wrote:If I go the way of the three fund would your recommendations be to keep what I have thus far in the TR fund OR exchange the balance of my TR fund for the appropriate VG funds along with making future contributions to the three funds?
I provided the Three Fund Portfolio for information purposes...and just in case you saw it and it spoke to you, seeing as how you brought up the mega-thread in its name. But, as I said:
pingo wrote:For the moment, I don't see "any [particularly] appetizing improvements to be made" [.]
ebrasmus21 wrote:After thinking about it a bit more I still like the idea of not having to do much of anything at all with respect to my current setup. Right now all I have to do is make contributions. Keeping things the way they are - a weighted ER of 0.17% doesn't seem to shabby. But, in your three-fund proposal, a weighted ER of 0.08% is a sexy number as far as expenses go...
You hit the nail on the head. Just because there is such a marvelous thing as a Three Fund Portfolio, does not mean it's the simplest option nor will it always make sense for everyone. You have a great portfolio (a bit risky for my tastes) with ER 0.17% that is great ER by any standard.

It all could change once we get a chance to look into your spouse's 401k or once the 401k(s) begin to dominate the portfolio...or not (just like this thread).

:thumbsup

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Fri Dec 02, 2016 9:21 pm

Pingo:

It's been very helpful having this dialogue with you. Thanks so much for giving me advice like this (for free of all things).

In light of the risks vs rewards vs what-I-want I think I will move forward with making the AA changes you've recommended 80/20 while staying on auto-pilot. Along with the bond changes. If I'm understanding you correctly I will not be adding TIPS until I'm a couple of years away from retirement, correct?

You have me thinking, seriously, about that 0.08 ER. I'll be doing what I can to educate myself and learn more about the Boglehead way of life along with setting up a more organized strategy with my wife. Until then the VG TR fund and a few changes to my 401k + AA I'd say is the way to go.

As a point of clarification you mentioned that my current setup is a bit on the risky side for your taste. Moving to 80/20 + bond selections changes your opinion from "overly risky" to "prudent" correct?

pingo
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Re: Portfolio Help Please!

Post by pingo » Sat Dec 03, 2016 1:36 am

I'm glad you're asking for clarification, because I rarely get my words right the first try. (Nor, the second, third, fourth...) :D

By "risky side", I mean 90/10 is on the risky side.

Your portfolio is Bogleheadish. (Would that I could creat that portfolio with my employer plan!)
pingo wrote:Most Bogleheads would probably suggest the American Century Inflation-Adjusted Bond Fund (AIANX) ER 0.27%, which is a good choice in terms of cost and duration, but that's probably the maximum amount of TIPS I'd want to have in my portfolio in retirement. In other words, it's a good bond choice in the plan, but I'd keep in mind where you want to go when you need to move to more than 20% bonds? A combination of NERYX and AIANX would be a fine compromise. Others may disagree.
What I mean is that by the time I'm in retirement, I expect that 20% Inflation-Protected Securities is the most I'd allow in my portfolio. I used to include my employer Inflation Protection Fund in order to lower my costs until it was altered dramatically. Putting myself in your shoes, allocating 20% to AIANX is also fine, but when it's time to increase your bonds from beyond 20%, I'd hesitate to add more to AIANX, which brings NERYX back into the picture. You probably have several years before you'll think about increasing bonds above 20%, and a lot can change by then.

Anyway, this is how I'd do it, although you aren't required to do it like me:

His 401k ($5k or 12% of the portfolio)
40% Fidelity Total Market Index (FSTMX) .09 <--I moved 10% from here...
10% DFA US Small Cap (DFSTX) .37
20% American Funds New Perspective R5 (RNPFX) .49
10% MFS International Value R4 (MINHX) 0.76
20% Loomis Sayles Core Plus Bond Y (NERYX) .49 <--...and added it to the bond allocation.

His Vanguard IRA ($37k or 88% of the portfolio)
100% Vanguard LifeStrategy Growth Fund (VASGX) .15 <--Notice the change here, too.



IRA: LS Growth is identical to a Vanguard Target Retirement Fund, except that LS Growth maintains a constant 80/20 portfolio just like your 401k until you decide it's time for a change. Contrarily, VG TR funds have a glide path where they'll become more conservative as time passes. If you still want to use a Target Fund, VG 2035 (VTTHX) is also 80/20. Here's LS Growth's portfolio (scroll down) and here's VG 2035's portfolio, for comparison.

401k: The bond allocation is all in NERYX. It is perfectly okay to use AIANX instead (and most Bogleheads would probably advise it), or to go half and half. I have an affinity for NERYX, so that's what I chose. Like the other "expensive" funds in your current portfolio (which, believe me, are sooo much better than most plans), NERYX is another longtime best in class fund that you have at your disposal at about the lowest cost I've seen. That's great in my book. Downright desirable. And that's coming from a guy who uses passive funds almost exclusively!

(Disclosure: In my employer plan, I utilize a different iteration of NERYX, but it's not my only bond fund and I also rely on bonds that are in my Vanguard Roth IRA Target Retirement Fund--hey, the parallels just dawned on me!)

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Sat Dec 03, 2016 2:37 pm

Thanks pingo, everything is making sense to me so far. That's cool you use a VG TR fund; from what I gather that seems to be generally accepted by Bogleheads and I was pleased to learn that when I first found this forum. The life strategy fund seems like a good slightly cheaper option.

Out of curiosity you recommended to only re-balance my 401k once per year. Is that just for the sake of simplicity since the portfolio is still pretty small?

pingo
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Re: Portfolio Help Please!

Post by pingo » Mon Dec 05, 2016 6:02 pm

Rebalancing simply doesn't need to happen that often and there can be a small disadvantage to doing it frequently. I read that 18 months to 3 years has been optimal, but even that's not so important for one force the issue. One year is good enough because that's the longest your Rebalancer tool will permit and hands-off simplicity is more important. For those who don't have a Rebalancer, it's easier to remember to do it on one's birthday each year, as well.
Last edited by pingo on Mon Dec 05, 2016 6:55 pm, edited 1 time in total.

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Mon Dec 05, 2016 6:43 pm

I'm happy my 401k can be set up to re-balance without me. I want to keep things simple for sure. Thanks pingo, I'm glad to know I can save a little extra money with the LifeStrategy fund as well :)

pingo
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Re: Portfolio Help Please!

Post by pingo » Mon Dec 05, 2016 6:56 pm

All the best!

:thumbsup

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Mon Jul 24, 2017 12:18 pm

***UPDATE***

Referring back to this thread to ask for input on international funds. Among the original international funds available I now have access to:

- Vanguard International Growth Adm, VWILX, net ER 0.33

In light of now having access to this fund I'm seeking feedback as to whether I should change my international allocation?

Avo
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Re: Portfolio Help Please!

Post by Avo » Mon Jul 24, 2017 12:42 pm

What is your current allocation? I didn't see it simply displayed.

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Mon Jul 24, 2017 12:46 pm

Avo wrote:What is your current allocation? I didn't see it simply displayed.
Current investments:
40% Fidelity Total Market Index (FSTMX) .09
10% DFA US Small Cap (DFSTX) .37
20% American Funds New Perspective R5 (RNPFX) .49
10% MFS International Value R4 (MINHX) 0.76
20% Loomis Sayles Core Plus Bond Y (NERYX) .49

Avo
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Re: Portfolio Help Please!

Post by Avo » Mon Jul 24, 2017 1:20 pm

VWILX is an actively managed fund with an expense ratio of 0.33%. MINHX is an actively managed fund with an expense ratio of 0.76%. MINHX has a really great track record. Personally, I would keep paying the extra 0.43%, though that would not likely be the consensus here.

Note that RNPFX (another actively-managed fund that has done very well) is half international.

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Mon Jul 24, 2017 2:27 pm

Avo wrote:VWILX is an actively managed fund with an expense ratio of 0.33%. MINHX is an actively managed fund with an expense ratio of 0.76%. MINHX has a really great track record. Personally, I would keep paying the extra 0.43%, though that would not likely be the consensus here.

Note that RNPFX (another actively-managed fund that has done very well) is half international.
Thank you, Avo. Appreciate the response.

pingo
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Re: Portfolio Help Please!

Post by pingo » Wed Aug 02, 2017 12:41 pm

Sorry I'm so late to the party, but I wanted to add that MFS International Value is a great fund, especially at that price. You could do far worse.

Fact is, Vanguard International Growth is another one of those really great actively-managed international funds at a good price--one that is lower than MFS Intl Value. I think you won't go wrong using either one, or both. Just like Vanguard's International Value Fund, VG Intl Growth has outperformed VG International Index Fund. MFS's track record is still superior. I know, past performance is no predictor of future returns...

Normally, I'd suggest splitting the difference for diversification-sake, i.e. get some balance between "growth" and "value" stocks. The problem there is the following: despite the use of "value" in the name, MFS Intl Value is very much in the growth stock category. That would mean parsing through their holdings to see whether they have too many holdings in common.

Their number of holdins is roughly equivalent (100 in MFS Intl Value; 116 in VG Intl Gr). I will note that MFS Intl Value has a lower average market cap. The VG Intl Growth focusses more on Giant companies. MFS Intl also has lower turnover (14% vs. 29% for VG Intl Gr), not that Vanguard's is very high. Actively managed funds with low turnover have better odds beating their benchmarks.

At this point, I'm just babbling. Either choice is fine in my book. All the best!

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Sun Aug 06, 2017 9:09 pm

pingo wrote:Sorry I'm so late to the party, but I wanted to add that MFS International Value is a great fund, especially at that price. You could do far worse.

Fact is, Vanguard International Growth is another one of those really great actively-managed international funds at a good price--one that is lower than MFS Intl Value. I think you won't go wrong using either one, or both. Just like Vanguard's International Value Fund, VG Intl Growth has outperformed VG International Index Fund. MFS's track record is still superior. I know, past performance is no predictor of future returns...

Normally, I'd suggest splitting the difference for diversification-sake, i.e. get some balance between "growth" and "value" stocks. The problem there is the following: despite the use of "value" in the name, MFS Intl Value is very much in the growth stock category. That would mean parsing through their holdings to see whether they have too many holdings in common.

Their number of holdins is roughly equivalent (100 in MFS Intl Value; 116 in VG Intl Gr). I will note that MFS Intl Value has a lower average market cap. The VG Intl Growth focusses more on Giant companies. MFS Intl also has lower turnover (14% vs. 29% for VG Intl Gr), not that Vanguard's is very high. Actively managed funds with low turnover have better odds beating their benchmarks.

At this point, I'm just babbling. Either choice is fine in my book. All the best!
Pingo, I really appreciate the consideration you give in your responses. Thank you very much for the insight!!

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Thu Mar 01, 2018 11:40 am

OP updated with question on HSA. Looking for advice - thank you all.

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Fri Mar 02, 2018 10:56 am

Bump, just looking for a little guidance on the HSA. Thanks so much everyone :)

TwstdSista
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Re: Portfolio Help Please!

Post by TwstdSista » Fri Mar 02, 2018 11:49 am

You mention that you actually use your HSA to pay for medical expenses -- I'd keep it in cash. (In fact, I do keep our HSA in cash, and we also use it for medical expenses.)

ebrasmus21
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Re: Portfolio Help Please!

Post by ebrasmus21 » Fri Mar 02, 2018 12:09 pm

TwstdSista wrote:
Fri Mar 02, 2018 11:49 am
You mention that you actually use your HSA to pay for medical expenses -- I'd keep it in cash. (In fact, I do keep our HSA in cash, and we also use it for medical expenses.)
Thanks Twstd - I'm most comfortable with cash as well.

My wife and I are healthy and don't tend to use the HSA all that much. For 2017 I think we had 500 buck that we used from it. But, should the time come for some unexpected medical expense we'd want that money ready.

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