New to investing: general portfolio suggestions?

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Topic Author
JasonA1987
Posts: 25
Joined: Tue Dec 06, 2016 5:56 pm

New to investing: general portfolio suggestions?

Post by JasonA1987 »

Hello,

I am incredibly new to any form of investing and I was hoping to get some expert eyes on what I have done so far and any advice for the future. I have read a lot over the past few months, much of it on Bogleheads.org, and I think I have a pretty good idea, but I am still nervous that I am missing something. As a general overview, I have contributed 5% of my salary to a 401K for 8 years with my currently employer. They offer a 5% match, that I have taken from the beginning. (My salary has increased over this time and the match started at 1% the first year then increased incrementally)

My wife has a 401K, with match, through her part time employer as well. (I was not going to ask advice on this, as it is very little money, and a very similar plan to mine.

We started a Roth IRA with Vanguard this year.

Below I copied and answered all of the questions that I could:


Emergency funds: Currently, $10,000. This is around 6 months of expenses.
Debt: We have a home mortgage for $180,000 at 3.25% for 30 years. We have $4,000 in medical bills on a payment plan with 0% interest. No other debt.
Tax Filing Status: Married
Tax Rate: I don't know and I am unsure how to find this. Our combined income is approximately $70,000 now.
State of Residence: Colorado
Age: I am 29, my wife is 25.
Desired Asset allocation: This is where I need some help! I think +90% stocks, and the remaining bonds?
Desired International allocation: Again, I am not sure.

My 401K currently has a balance of: $31,910. It is invested in the Colorado County Officials and Employees Retirement Association. I put 5% and have an employer match of 5%.

Asset allocation of 401K: 90% CCOERA 2060 Target Date Fund
10% Vanguard Small Cap Index Instl

The CCOERA 2060 is made up of the following:

Vanguard Institutional Index 17.50%
American Beacon Int'l Equity Inst'l 11.00 %
American Funds EuroPacific Growth R6 11.00%
DFA Emerging Markets Core 9.00%
Dodge & Cox Stock Fund 8.75%
Harbor Capital Appreciation Fund Inst'l 8.75%
Cohen & Steers Realty Inst'l 5.00%
Opp Steelpath MLP Alpha 5.00%
Credit Suisse Commodity Return Strategy Inst'l 5.00%
Artisan Mid Cap Inst'l 4.69%

U.S. Stock 54.00%
Non U.S. Stock 31.00%
Other 11.00%
Short Term Investments 3.00%
Fixed Income 1.00%

Expense Ratio 0.53%



We also have an Roth IRA that we just funded this year to $5,500. It is 100% in the Vanguard Target Date 2060.

Questions:
1.
My wife and I are planning on contributing the maximum allowed to the Roth IRA for the foreseeable future. I would like something that I can just set it and forget about it for a year or so at a time, ie, I don't really want to meddle or have to think about it. I thought the Target Date 2060 was the right choice because it will hold the 90% stock, 10% bond for the longer period of time, realizing that that may need adjusted down the road. Is this the right place for our rIRA? Would there be another better option for a hands-off investor?

2.
Is my 401K in the right spot as well? 10% is in the Small Cap Index because the stock:bond ratio seemed a bit low on their Target Date, and I figured that a little bit higher risk was worth it. I can list the other options for my 401K if it helps.

Thank you all for taking a look and helping me out! I hope this all made sense and it not just the rambling of a investing rookie with no clue.

Jason
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Duckie
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Re: New to investing: general portfolio suggestions?

Post by Duckie »

JasonA1987, welcome to the forum.
JasonA1987 wrote:My wife has a 401K, with match, through her part time employer as well. (I was not going to ask advice on this, as it is very little money, and a very similar plan to mine.
Is she contributing enough to get the full match?
Age: I am 29, my wife is 25.
Desired Asset allocation: This is where I need some help! I think +90% stocks, and the remaining bonds?
At your ages I'd go 20% bonds, but 10% is not ridiculous.
Desired International allocation: Again, I am not sure.
Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks.
We also have an Roth IRA that we just funded this year to $5,500. It is 100% in the Vanguard Target Date 2060.
Whose Roth IRA? His or hers?
My wife and I are planning on contributing the maximum allowed to the Roth IRA for the foreseeable future. I would like something that I can just set it and forget about it for a year or so at a time, ie, I don't really want to meddle or have to think about it. I thought the Target Date 2060 was the right choice because it will hold the 90% stock, 10% bond for the longer period of time, realizing that that may need adjusted down the road. Is this the right place for our rIRA? Would there be another better option for a hands-off investor?
TR2060 may be the best option. It depends on what you could have in the 401k
Is my 401K in the right spot as well? 10% is in the Small Cap Index because the stock:bond ratio seemed a bit low on their Target Date, and I figured that a little bit higher risk was worth it. I can list the other options for my 401K if it helps.
What are the options in the plan? List the fund names, ticker symbols if available, and most importantly the plan expense ratios. Also list any extra costs/fees. If the funds have loads, are the loads waived in the plan?
Topic Author
JasonA1987
Posts: 25
Joined: Tue Dec 06, 2016 5:56 pm

Re: New to investing: general portfolio suggestions?

Post by JasonA1987 »

Duckie,

Thank you for your reply!

My wife is contributing to receive a full match.

Is a 10% more reasonable in other factors are taken into consideration? Such as that we don't have a lot to put into retirement?

The rIRA is would be His. We don't have enough income at the moment to fund a Her rIRA.

Here are the other options for the 401K with cost ratios:

American Beacon Int'l Equity Fund - Inst 0.74 / 0.74 AAIEX
American Beacon Small Cp Val Inst 0.82 / 0.82 AVFIX
American Funds EuroPacific Gr R6 0.50 / 0.50 RERGX
Artisan Mid Cap Instl 0.95 / 0.95 APHMX
CCOERA 2010 Target Date 0.50 / 0.47
CCOERA 2015 Target Date 0.51 / 0.48
CCOERA 2020 Target Date 0.56 / 0.54
CCOERA 2025 Target Date 0.55 / 0.54
CCOERA 2030 Target Date 0.55 / 0.54
CCOERA 2035 Target Date 0.56 / 0.55
CCOERA 2040 Target Date 0.55 / 0.54
CCOERA 2045 Target Date 0.55 / 0.54
CCOERA 2050 Target Date 0.54 / 0.53
CCOERA 2055 Target Date 0.54 / 0.53
CCOERA 2060 Target Date 0.54 / 0.53
CCOERA Book Value Fund 0.06 / 0.06
CCOERA Income Fund 0.40 / 0.37
Cohen & Steers Instl Realty Shares 0.76 / 0.75 CSRIX
Dodge & Cox Stock Fund 0.52 / 0.52 DODGX
Fidelity Contrafund 0.71 / 0.71 FCNTX
Fidelity Low-Priced Stock 0.88 / 0.88 FLPSX
Harbor Capital Appreciation Instl 0.70 / 0.65 HACAX
Metropolitan West Total Return Bond I 0.44 / 0.44 MWTIX
Neuberger Berman Socially Rspns R6 0.60 / 0.60 NRSRX
PIMCO High Yield Instl 0.56 / 0.55 PHIYX
Vanguard Federal Money Market Inv 0.11 / 0.11 VMFXX
Vanguard Institutional Index I 0.04 / 0.04 VINIX
Vanguard Mid Cap Index Ins 0.07 / 0.07 VMCIX
Vanguard Small Cap Index Instl 0.07 / 0.07 VSCIX

There are no other fees or costs that I know of. What is a "load" and where would I find that information?
CppCoder
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Re: New to investing: general portfolio suggestions?

Post by CppCoder »

JasonA1987 wrote: There are no other fees or costs that I know of. What is a "load" and where would I find that information?
A load is a commission, either front end (when you buy the fund) or back end (when you sell the fund). In a 401k, you should be able to see information about your funds in what is called the summary plan description (SPD). You certainly will not have any loads in your IRA if you stick to Vanguard funds.

Like Duckie, I prefer a 20% bond allocation at your age, but 10% is not unreasonable if you want to take slightly more risk. My personal preference is not to mix target date funds and individual funds. If you pick target date funds, so stick with them 100%. They are great for set it and forget it type investing in a tax deferred account. For a little more time and a little more complexity, you can select individual funds and save some costs. A good option individual funds would be VINIX in your 401k and Vanguard Total Bond Index in your IRA. When you get enough funds in the IRA to meet your desired bond allocation and have excess funds, you could add Vanguard total international index to the IRA.
Elbowman
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Re: New to investing: general portfolio suggestions?

Post by Elbowman »

JasonA1987 wrote:CCOERA Book Value Fund 0.06 / 0.06
JasonA1987 wrote:Vanguard Institutional Index I 0.04 / 0.04 VINIX
Vanguard Mid Cap Index Ins 0.07 / 0.07 VMCIX
Vanguard Small Cap Index Instl 0.07 / 0.07 VSCIX
This is what Duckie was looking for :-) . You can build a Three Fund Portfolio spread across your 401k and IRA. In the 401k you can use the Book Value Fund for you bond allocation, and you can approximate Total Stock Market using the Institutional, Mid Cap, and Small Cap indices. You can use your IRA to hold Total International Stock Market, plus whatever additional bonds and domestic stocks you need.

The difference in expense ratios between the Target Date approach and the "roll your own" approach will be ~0.45%, which is actually pretty big. Assuming a 6% return with low expenses, and a 5.55% return with the Target Date, over forty years the TD fund would return 15.7% less (1.0555 ^ 40 / 1.06 ^ 40 = 0.843).
Topic Author
JasonA1987
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Joined: Tue Dec 06, 2016 5:56 pm

Re: New to investing: general portfolio suggestions?

Post by JasonA1987 »

I can see I have some more reading to do! Thank you for the guidance.

Where would I find what percent of each of the Inst, Mid Cap, and Small Cap would equate to the Total Stock Market?
User avatar
BL
Posts: 9535
Joined: Sun Mar 01, 2009 2:28 pm

Re: New to investing: general portfolio suggestions?

Post by BL »

You are off to a good start with those Vanguard funds!

Good to get some reading done in Wiki and threads, also a recommended book or 2.
Here is a great little pdf booklet with new investors in mind:
https://www.etf.com/docs/IfYouCan.pdf
Topic Author
JasonA1987
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Joined: Tue Dec 06, 2016 5:56 pm

Re: New to investing: general portfolio suggestions?

Post by JasonA1987 »

Let me see if I am getting an idea of what you guys are recommending.

60% of total assets should be domestic stocks made up of:
70% of instl index, 30% mid, and 10% small cap. This would approximate a total market index.

Then a 30% of total assets in International stock and 20% of total assets in the bond index.

If I did that, I would have a version of a 3 fund portfolio and be set? I see the great advantage to the low cost ratio, I had never looked at it for the 401k, I just assumed that was the best I could do.
Last edited by JasonA1987 on Sat Dec 24, 2016 5:51 am, edited 1 time in total.
User avatar
Duckie
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Re: New to investing: general portfolio suggestions?

Post by Duckie »

JasonA1987 wrote:Here are the other options for the 401K with cost ratios:
The best options are:
  • Vanguard Institutional Index VINIX 0.04 -- Large caps, 80% of US stocks
  • Vanguard Mid Cap Index VMCIX 0.07 -- Mid caps, 6% of US stocks
  • Vanguard Small Cap Index VSCIX 0.07 -- Small caps, 14% of US stocks
  • American Funds EuroPacific Gr RERGX 0.50 -- International stocks
  • Metropolitan West Total Return Bond MWTIX 0.44 -- US bonds
You have $32K in his 401k and $5.5K in his Roth IRA. How much is in her 401k? What are the options in her 401k? Even if it is "very little money" it should still be considered.

Since his 401k is with Colorado County Officials and Employees Retirement Association are you sure it is a 401k and not a governmental 457 plan?
Let me see if I am getting an idea of what you guys are recommending.
The following example has an AA of 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to 56% US stocks, 24% international stocks, and 20% bonds. It ignores her 401k because I don't have information about it. If you provide that information I will refigure the percentages.

His 401k at CCOERA -- $32K -- 85%
45% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.04%)
11% (VSCIX) Vanguard Small-Cap Index Fund Institutional Shares (0.07%)
9% (RERGX) American Funds EuroPacific Growth Fund R-6 Class (0.50%)
20% (MWTIX) Metropolitan West Total Return Bond Fund I Class (0.44%)

His Roth IRA at Vanguard -- $5.5K -- 15%
15% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.19%)

The above has a pro-rated expense ratio of 0.17% instead of the 0.53% in your CCOERA 2060 fund.

Just some possibilities.
Topic Author
JasonA1987
Posts: 25
Joined: Tue Dec 06, 2016 5:56 pm

Re: New to investing: general portfolio suggestions?

Post by JasonA1987 »

Duckie,

Thank you so much for that breakdown! I spent most of the day reading and figuring and came out with a very, very similar percentage for each of those. I feel dumb now because all of this information was already on this forum and I had overlooked it all.

I did have one difference in what I figured out. The AA in his 401k was almost exactly the same, except I left off the bond funds. My reasoning for doing so was that come January 1, I could get the Vanguard Total Market Bond Index in the RIRA and bring the bond allocation up to 20% then. That does leave my AA with 0% bonds for another 3 weeks, but is that a big problem?

What I came up with was 77% Instl, 10%Mid Cap, and 13% small cap. The plan for the $5500 in the RIRA was the same.

Thank you all again for your time and patience!
Topic Author
JasonA1987
Posts: 25
Joined: Tue Dec 06, 2016 5:56 pm

Re: New to investing: general portfolio suggestions?

Post by JasonA1987 »

Oh, and as far as her 401, you are going to shake your heads, I need to track down the paperwork and statements. They are in her files somewhere........
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