Need Major AA advice.

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BashDash
Posts: 314
Joined: Mon Nov 28, 2016 12:31 pm

Need Major AA advice.

Postby BashDash » Wed Jan 11, 2017 2:31 pm

Edited post to eliminate all questions except I need help in Asset Allocation. Major Help.

Hi all, I had a previous similar thread but made some changes but I am having some difficulty understanding a few things ( see questions at bottom). I have been feeling great and empowered about our overall progress especially my 403b changeover to ASPIRE but I still think some tweaks are necessary.

Emergency funds: 210k( see below in ally 1%)

Debt:
no student, CC, or car debt
rental condo debt: 156K at 4.5% currently being rented to lose 100$ per month. ( taxes 6k ). This was purchased for a price roughly 100k more than it is valued now.
current residence debt: 232K at 4% ( taxes 10k)

Tax Filing Status: married, 2 children
Tax Rate: Each of us have 100k salary.
State of Residence: NY
Age: Mid 30s
Desired Asset allocation: 80/20 for now and moving to 60/40 in about 10 years or so. We both filled out the investor questionnaire on the NY 457 plan and were "moderately aggressive".

Taxable

110k in ally savings (1%)
100k in ally savings no penalty cd ( 1.25% )

100k in tradeking stock account but is moving to Merril Edge. I would say the whole account is probably yielding 4%. 30k of the 90k is earnings. Thinking of liquidating this over time and indexing. Holding on to it is more emotional than intelligent. Most were purchased during 2008 sell off so most cost basis are very good with accidentally high dividends.

5k in a motif investing account with one motif of 4% yield

Pension:
Percent of final average salary.

College NY 529 plan
46K in vanguard funds and contributing 350$ per month.
Vanguard Institutional Total Stock Market Index Fund 70%
Vanguard Total International Stock Index Fund 30%

Tax Deferred
His 403B: in VOYA being rolled over to ASPIRE ( .13% asset plus 40 fee.)
88k.
80% VTSAX (.05 ER)
20% VBTLX (.05 ER)
New Contributions: $1100 a month for 10 months

Her 403B:
75K VOYA fixed account yielding 4%. No new contributions.

His NY 457 plan: (20$ maintenance fee plus .045% maintenance fee for assets between 20,000-200,000)
Vanguard Small Cap institutional Index 16% (.06 ER)
Vanguard institutional Index fund 64% (.02 ER)
Vanguard institutional Bond Market Index Fund 20% (.05 ER)

Her 457 plan: New contributions max to the 18,000 per year. May not reach max this year due to partial work stoppage maternity.
100% Vanguard Wellington VWENX (.18 ER)


Questions:
1) Need major Asset Allocation help.

2)-Overall, how are we doing? On a good path?

Thanks for any insights and for any of the past help from the many many members.
Last edited by BashDash on Fri Jan 13, 2017 12:59 pm, edited 1 time in total.

aristotelian
Posts: 1624
Joined: Wed Jan 11, 2017 8:05 pm

Re: Portfolio Critique ( round 2 )

Postby aristotelian » Wed Jan 11, 2017 9:01 pm

The 200K sitting in savings accounts and 100K in stocks strikes me as weird if I understand your portfolio correctly. The savings accounts would seem to be too conservative for someone who is looking to build up savings for retirement, but investing in stocks would seem to be overly risky. Neither is getting the tax benefits of a Roth or Traditional IRA. That is where you should start. Start an IRA with Vanguard and contribute $5500 per year for each of you starting now, and split it between VTI and BND depending on your risk tolerance.

[deleted comment on Wellington]

BashDash
Posts: 314
Joined: Mon Nov 28, 2016 12:31 pm

Re: Portfolio Critique ( round 2 )

Postby BashDash » Thu Jan 12, 2017 9:59 am

I can't disagree with you at all. It is completely out of whack. My new contributions I feel are getting me on track in some sense but the savings and stock account are confusing me for my AA. I'm trying to leave it out of my AA in a sense as I want to use it for expenses as I begin to liquidate the taxable stocks. I'm upset with myself in a sense for being uneducated when I built up that account but I thought I was doing a good thing at the time when I was in my early 20s. I guess it is not the worst mistake in the world to have built up 100k in general but the account I did it in was obviously not good. What kind of IRA should I open up? I thought there was income limits for Roth IRA's. Thank you for your response.

aristotelian
Posts: 1624
Joined: Wed Jan 11, 2017 8:05 pm

Re: Portfolio Critique ( round 2 )

Postby aristotelian » Thu Jan 12, 2017 10:58 am

BashDash wrote:I can't disagree with you at all. It is completely out of whack. My new contributions I feel are getting me on track in some sense but the savings and stock account are confusing me for my AA. I'm trying to leave it out of my AA in a sense as I want to use it for expenses as I begin to liquidate the taxable stocks. I'm upset with myself in a sense for being uneducated when I built up that account but I thought I was doing a good thing at the time when I was in my early 20s. I guess it is not the worst mistake in the world to have built up 100k in general but the account I did it in was obviously not good. What kind of IRA should I open up? I thought there was income limits for Roth IRA's. Thank you for your response.


Don't beat yourself up! You are young, you have $300k+ in your portfolio, and many years to save and invest wisely.

Income limit for Roth IRA's is 184k for married filing jointly. If you are above that, you can start a Traditional IRA and at least save on taxes now. I believe you can roll over any old 403b accounts into your Traditional IRA, then start contributing on top of them. The advantage of rolling over would be that you could start over from scratch and invest in whatever you want to invest in with exactly the allocation you want.

I am not familiar with the VOYA fixed 4%, but I would look to get out of it and invest in stocks and/or bonds with higher risk/return since you are trying to get to 80/20. For the purposes of figuring your asset allocation, yes, I would consider it more of a bond fund.

BashDash
Posts: 314
Joined: Mon Nov 28, 2016 12:31 pm

Re: Portfolio Critique ( round 2 )

Postby BashDash » Thu Jan 12, 2017 11:54 am

Thank you for the encouragement. Our income ( 200k + ) will put us over the limit. However, does our tax deferrals lower our income? If we each max out 18k each in our 403b does that take 36k off of our total income? Also, if we were to open an IRA do I just set one up with Merril Edge and put $ from our taxable Ally account and fund it or does that have to be tax deferred through my employer. Thanks again!

BashDash
Posts: 314
Joined: Mon Nov 28, 2016 12:31 pm

Re: Need Major AA advice.

Postby BashDash » Fri Jan 13, 2017 1:00 pm

Edited original post to just focus on AA advice. Thanks all.

krow36
Posts: 1231
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Need Major AA advice.

Postby krow36 » Fri Jan 13, 2017 3:45 pm

BashDash wrote:Thank you for the encouragement. Our income ( 200k + ) will put us over the limit. However, does our tax deferrals lower our income? If we each max out 18k each in our 403b does that take 36k off of our total income? Also, if we were to open an IRA do I just set one up with Merril Edge and put $ from our taxable Ally account and fund it or does that have to be tax deferred through my employer. Thanks again!

Your tax bracket is determined by your “taxable income” on line 43 of your 1040. Use this table to find your tax bracket. http://www.bankrate.com/finance/taxes/tax-brackets.aspx
Yes your tax-deferred contributions lower your AGI and your taxable income. So does your 4 exemptions (congratulations on the new one!) and your itemized deductions. I suspect your taxable income is low enough for you to contribute directly to a Roth IRA. Use the Worksheets 2.1 and 2.2 to find your Modified AGI and the allowed Roth IRA contribution. https://www.irs.gov/publications/p590a/ ... k100025085

If you can’t contribute directly to a Roth IRA, you can use the “backdoor method” which involves contributing to a nondeductible traditional IRA and the converting it to a Roth IRA. I doubt if you need the backdoor while DW is taking non-paid leave for a year or two.

BashDash
Posts: 314
Joined: Mon Nov 28, 2016 12:31 pm

Re: Need Major AA advice.

Postby BashDash » Fri Jan 13, 2017 5:20 pm

Thanks krow! I've helped two coworkers since you've helped me with my 403b. Sounds like if we make around 210k minus the deferred we can contribute to a Roth. I can open fee free thru a new Merrill account I just transferred money too. My hope was to liquidate with no commissions my stocks. That is how I open a Roth IRA right? This is not deferred income correct? Silly question but I just take money from my taxable and just toss it in the Roth right? I can buy VTI and BND. I just requested an asset allocation book at the library because I need to sort out this AA. Also, check out the Voya thread I got some more info and I didn't get charged to switc to aspire.

krow36
Posts: 1231
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Need Major AA advice.

Postby krow36 » Fri Jan 13, 2017 5:29 pm

Taxable
100k in tradeking stock account but is moving to Merril Edge. I would say the whole account is probably yielding 4%. 30k of the 90k is earnings. Thinking of liquidating this over time and indexing. Holding on to it is more emotional than intelligent. Most were purchased during 2008 sell off so most cost basis are very good with accidentally high dividends.
Tax Deferred
His 403B: in VOYA being rolled over to ASPIRE ( .13% asset plus 40 fee.)
88k.
80% VTSAX (.05 ER)
20% VBTLX (.05 ER)
New Contributions: $1100 a month for 10 months
Her 403B:
75K VOYA fixed account yielding 4%. No new contributions.
His NY 457 plan: (20$ maintenance fee plus .045% maintenance fee for assets between 20,000-200,000)
Vanguard Small Cap institutional Index 16% (.06 ER)
Vanguard institutional Index fund 64% (.02 ER)
Vanguard institutional Bond Market Index Fund 20% (.05 ER)
Her 457 plan: New contributions max to the 18,000 per year. May not reach max this year due to partial work stoppage maternity.
100% Vanguard Wellington VWENX (.18 ER)

I think your 80/20 asset allocation is reasonable at this time. If you only consider your retirement funds, you can leave out the 529 accounts and the emergency fund (the Ally savings). Those accounts should have different AAs. If DW will not be contributing to her new 457 account for a year or so, you don’t have to consider it at this time. If she does work, Wellington at about 65/35 is not that far off. His 403b and his 457 will receive new contributions at 80/20, so no problem there. That leaves the 90k taxable stock account and Her 403b Fixed account, neither of which will receive new contributions. That would mean that you would stop reinvestment of dividends in the stock account and use them for living expenses so you can contribute more to (or max) your tax-deferred plans. Considering that Her 403b Fixed Account is not flexible because of the cost of the other VOYA offerings, you could consider your AA close enough.

You might want to think about having so much of your bond allocation in the VOYA Fixed Account. The bond part of your AA is there for stability and to reduce the overall volatility of your portfolio. The Fixed Account is probably safe enough, but having so much in it is a bit like using a single stock for your bonds. Most of us want our bond component to include a good portion of Treasuries and also a good portion of corporate bonds. You don’t know how VOYA is investing the Fixed Account money—hedge funds? private equity? collateralized debt obligations?? I would rather see that VOYA 403b 75k moved to Aspire and invested in Vanguard bond funds (or Wellington for that matter).

I'll comment on your last post and the other thread later.

BashDash
Posts: 314
Joined: Mon Nov 28, 2016 12:31 pm

Re: Need Major AA advice.

Postby BashDash » Fri Jan 13, 2017 8:19 pm

That makes complete sense. Can't treat the fixed like it is FDIC insured. I am starting to understand the AA a little better. For some reason, I thought it would be harder to figure out my AA since we are starting such a new contribution pattern. I like how aspire does the automatic rebalance every June too. I'm going to look into switching her 403b to aspire or at least most of it. Should be easy now that I know the process. Would the vanguard target retirement funds be a bad idea for that? Ill have to check a year out and see the allocation. I'm also thinking why can't I just copy the year I want and create my own for a lower ER. Would putting into Wellington be okay even her 457 is 100% in that. Thanks again for your help I've learned a ton.

krow36
Posts: 1231
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Need Major AA advice.

Postby krow36 » Sat Jan 14, 2017 7:08 pm

BashDash wrote:Thanks krow! I've helped two coworkers since you've helped me with my 403b. Sounds like if we make around 210k minus the deferred we can contribute to a Roth. I can open fee free thru a new Merrill account I just transferred money too. My hope was to liquidate with no commissions my stocks. That is how I open a Roth IRA right? This is not deferred income correct? Silly question but I just take money from my taxable and just toss it in the Roth right? I can buy VTI and BND. I just requested an asset allocation book at the library because I need to sort out this AA. Also, check out the Voya thread I got some more info and I didn't get charged to switc to aspire.

Yes, set up a Roth IRA account and then move up to 5.5k from the MM fund in your taxable account into it (up until April 17). That should be designated for 2016. You can add another 5.5k to it for 2017 anytime before the April 2018 tax day. And your DW can do the same thing based on either her or your earnings. There's no deferral on a Roth--you're using money that has been taxed already, sometimes called post-taxed.

That's great that you didn't get charged a surrender fee moving from your VOYA annuity based 403b to the Aspire mutual fund based 403b! I haven't heard of VOYA (or any insurance company giving investors a break like that. :)

BashDash
Posts: 314
Joined: Mon Nov 28, 2016 12:31 pm

Re: Need Major AA advice.

Postby BashDash » Sun Jan 15, 2017 10:45 am

Ok that is what I thought but wanted to check. It would make more sense to fill them up even before our 403b with aspire as there is no fee on a Roth IRA. With our income after the deferral I think we will qualify for quote some time.


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