Starting fresh

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
goskins81
Posts: 3
Joined: Mon Jan 09, 2017 9:50 am

Starting fresh

Post by goskins81 » Mon Jan 09, 2017 12:04 pm

Long-time lurker, first time poster :happy

I’m a 36-year old, married, with a young baby. When I got my first job out of college, I took my father’s advice and used his financial planner to start investing. Fourteen years later, I still have those accounts. They haven’t performed as well as they should (shocking, I know). I’m ready to shed the 1% advisory fee and speculative investments and take the Boglehead route. My goal for 1Q17 is to close the accounts with the financial advisor and take control of my investments.

Here’s the relevant background (all amounts approximate):
Emergency funds: six months of expenses
Debt: $40K car loan (1.84%), two mortgages (investment property, $250K @ 4.5% and primary home, $580K @ 3.25%), and a home equity credit line ($150K at 3.64%)
Tax Filing Status: Married filing jointly, 35% federal bracket and 8.75% state bracket. We itemize deductions.
Current portfolio:
Taxable –$250K with financial advisor in a variety of investments. Includes $25K roth IRA.
401(k) - $250K, all in Vanguard Target Retirement 2060
TSP - $75K
NY 529 - $15K

Now, to the questions --
First, given our tax brackets, would the tax-loss-harvesting service that Wealthfront offers make up for the 0.25% fee? Put another way, for those with experience with Wealthfront, would tax loss harvesting give me $625 in tax savings this year?

Second, assuming that Wealthfront is the wrong approach, I think my preferred allocation would be to open accounts with Vanguard and have a four-fund portfolio (VTSAX (Total Stock), VTIAX (Total International Stock), VBTLK (Total Bond), VGSLX (REIT)). My initial thought would be 55% VTSAX, 25% VTIAX, 15% VBTLK, 5% VGSLX. Does that sound reasonable? Any thoughts on the pros/cons of this allocation or suggestions on different allocations?

Third, to take advantage of a backdoor Roth contribution, I guess we’d need to open a Traditional IRA, put $5500 in it, and then immediately transfer it to a Roth IRA account. Is that correct?

Fourth, which funds would you place in the Roth IRA account? VGSLX and, assuming there was money left over, VBTLK?
Thanks in advance!
Last edited by goskins81 on Mon Jan 09, 2017 2:09 pm, edited 1 time in total.

User avatar
CAsage
Posts: 695
Joined: Sun Mar 27, 2016 6:25 pm

Re: Starting fresh

Post by CAsage » Mon Jan 09, 2017 2:00 pm

Suggest making it easier for people to respond by not making them look up all the tickers - we don't have them memorized!

1) You can tax loss harvest without Wealthfront. Do they offer other services you need? I would not.
2) 55% Total Stock VTSAX, 25% International Stock VTIAX, 15% VBTLK Total Bond, and 5% VGSLX REIT is not bad, but a little sporty for your age. 36 is still pretty darn young, but maybe 20~25% bonds? Keep the rest in proportion, and you should plan this across all your assets, every account (maybe not the 529).
3) Yes.
4) I would put all the stock allocation in a Roth (because that is where you want the max growth). Then either put bonds in Traditional IRA or 401k or get tax-free bonds in taxable account, because of your tax bracket. Read the Bogle Wiki on tax efficiency and allocations, it's a fluid topic.

Just my thoughts.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

User avatar
BolderBoy
Posts: 3454
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Starting fresh

Post by BolderBoy » Mon Jan 09, 2017 2:38 pm

CAsage wrote:Suggest making it easier for people to respond by not making them look up all the tickers - we don't have them memorized!

1) You can tax loss harvest without Wealthfront. Do they offer other services you need? I would not.
2) 55% Total Stock VTSAX, 25% International Stock VTIAX, 15% VBTLK Total Bond, and 5% VGSLX REIT is not bad, but a little sporty for your age. 36 is still pretty darn young, but maybe 20~25% bonds? Keep the rest in proportion, and you should plan this across all your assets, every account (maybe not the 529).
3) Yes.
4) I would put all the stock allocation in a Roth (because that is where you want the max growth). Then either put bonds in Traditional IRA or 401k or get tax-free bonds in taxable account, because of your tax bracket. Read the Bogle Wiki on tax efficiency and allocations, it's a fluid topic.

Just my thoughts.

I second your thoughts.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

goskins81
Posts: 3
Joined: Mon Jan 09, 2017 9:50 am

Re: Starting fresh

Post by goskins81 » Mon Jan 09, 2017 2:57 pm

Thanks! I updated the OP to include the funds and not just the ticker symbols.

goskins81
Posts: 3
Joined: Mon Jan 09, 2017 9:50 am

Re: Starting fresh

Post by goskins81 » Wed Jan 11, 2017 3:08 pm

One related question here --

One of the reasons I was attracted to Wealthfront (at least on a trial basis) is the direct-indexing they offer in conjunction with their TLH service. Their white papers likely overstate the benefits, but I don't think it is that far-fetched to envision their direct-indexed TLH algorithms (available for $100K plus accounts) being able to harvest enough losses to offset the 0.25% fee. I was thinking of trying it out for a few years and seeing how it performed -- if I was underwhelmed, I could always transfer over to Vanguard only a few hundred dollars the poorer.

Here's the question -- if I chose to put my taxable account in Wealthfront, but held a Roth account in Vanguard with the four-fund portfolio I described above, would you expect trouble with wash sales? I wouldn't think so -- Wealthfront 100 would be doing TLH through sales of individual stocks, whereas I'd be buying index funds in the separate account. But would be interested in anybody else's thoughts!

autopeep
Posts: 120
Joined: Fri Jan 01, 2016 6:30 pm

Re: Starting fresh

Post by autopeep » Wed Jan 11, 2017 4:14 pm

Given your two mortgages, you may wish to forgo additional asset allocation to a REIT

Post Reply