Requesting Critique of My Portfolio

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madmartigan
Posts: 13
Joined: Sat Nov 26, 2016 12:11 pm

Requesting Critique of My Portfolio

Post by madmartigan » Sun Feb 26, 2017 11:32 am

Hi everyone. I’ve been reading through posts on the Bogleheads forum for a while now. I’m continually impressed with the advice, support, and civility of this group. I’m hoping this post will help me take action on several points of indecision / uncertainty I’ve had over the past year.

Basic Info

Him: Age = 33y, Income = 380k
Her: Age = 33y, Income = 73k
Location: San Jose, CA (VHCOL area)

Emergency funds: 50k (~6 months), currently sitting in a bank account
Debt: 0
Tax Filing Status: Married Filing Jointly (1 Dependent, 4y son)
2015 Tax Rate: 19.3% Federal, 6.8% State (Based off ~250k)
Desired Asset allocation: 90% stocks / 10% bonds → 80% / 20% (somewhere in this range, I’m OK with more risk).
Desired International allocation: I don’t know.

Current retirement assets

Cash
155k - Sitting in various saving / checking accounts. This does not include emergency fund.


His 401k at Vanguard
230k Vanguard Target Retirement 2050 Trust Select (1682) (0.05% ER)
Allocation to underlying funds as of 12/31/2016
Ranking by Percentage Fund Percentage
1 Vanguard Total Stock Market Index Fund Institutional Plus Shares 54.0%
2 Vanguard Total International Stock Index Fund Institutional Plus Shares 35.9%
3 Vanguard Total Bond Market II Index Fund** 7.3%
4 Vanguard Total International Bond Index Fund Institutional Shares 2.8%


His Roth IRA at Vanguard
8k Vanguard Prime Money Market Fund (VMMXX) (0.16% ER)

Her 403b
Not using it. No match.

Contributions

New Contributions in 2017
$27k his 401k Pre-Tax (18k + 9k company match)
$27k his 401k After-Tax > Converted to Roth 401k
$160k into After Tax accounts. This is based off investing everything else after current expenses + expected taxes on 450k.

Available funds

Funds available in his 401(k)
Fund name Fund symbol/
Number Total annual operating expenses Average annual total return**
as of 01/31/2017 Benchmark
As a % Per $1000 1-Year 5-Year 10-Year Since inception 1-Year 5-Year 10-Year
Short-Term Reserves
Vanguard Federal Money Mkt Fund VMFXX
0033 0.11% 1.10 0.32% 0.08% 0.79% — 0.03% 0.01% 0.58%
U.S. Government Money Market Funds Average
Vanguard Retire Savings Trust II —
0338 0.31% 3.10 2.07% 2.12% 2.91% — 0.30% 0.09% 0.68%
Citigroup Three-Month U.S. Treasury Bill Index
Bond Funds
Metropolitan West Total Return Bd Plan MWTSX
3449 0.38% 3.80 1.67% 3.81% — — 1.45% 2.09% 4.37%
BBgBarc US Agg Bond TR USD
Vanguard Total Bond Mkt Ix Ist Pls VBMPX
0850 0.04% 0.40 1.47% 2.05% 4.37% — 1.59% 2.10% 4.39%
Spliced Bloomberg Barclays U.S. Aggregate Float Adjusted Index
Balanced Funds (Stocks and Bonds)
Vanguard Target Ret Income Tr Sel —
1686 0.05% 0.50 7.04% — — — 7.24% 4.73% 4.96%
Target Retirement Income Composite Index
Vanguard Target Ret 2010 Tr Sel —
1674 0.05% 0.50 7.36% — — — 7.63% 5.66% 4.66%
Target Retirement 2010 Composite Index
Vanguard Target Ret 2015 Tr Sel —
1675 0.05% 0.50 9.80% — — — 10.12% 6.91% 4.91%
Target Retirement 2015 Composite Index
Vanguard Target Ret 2020 Tr Sel —
1676 0.05% 0.50 11.63% — — — 12.06% 7.87% 5.16%
Target Retirement 2020 Composite Index
Vanguard Target Ret 2025 Tr Sel —
1677 0.05% 0.50 13.05% — — — 13.48% 8.52% 5.19%
Target Retirement 2025 Composite Index
Vanguard Target Ret 2030 Tr Sel —
1678 0.05% 0.50 14.37% — — — 14.85% 9.15% 5.19%
Target Retirement 2030 Composite Index
Vanguard Target Ret 2035 Tr Sel —
1679 0.05% 0.50 15.71% — — — 16.22% 9.77% 5.31%
Target Retirement 2035 Composite Index
Vanguard Target Ret 2040 Tr Sel —
1680 0.05% 0.50 17.03% — — — 17.59% 10.17% 5.49%
Target Retirement 2040 Composite Index
Vanguard Target Ret 2045 Tr Sel —
1681 0.05% 0.50 17.38% — — — 17.95% 10.21% 5.51%
Target Retirement 2045 Composite Index
Vanguard Target Ret 2050 Tr Sel —
1682 0.05% 0.50 17.40% — — — 17.95% 10.21% 5.51%
Target Retirement 2050 Composite Index
Vanguard Target Ret 2055 Tr Sel —
1683 0.05% 0.50 17.40% — — — 17.95% 10.21% —
Target Retirement 2055 Composite Index
Vanguard Target Ret 2060 Tr Sel —
1685 0.05% 0.50 17.44% — — — 17.95% 10.21% —
Target Retirement 2060 Composite Index
Vanguard Wellesley Income Fund Adm VWIAX
0527 0.15% 1.50 8.67% 7.03% 6.73% — 8.91% 6.94% 5.98%
Wellesley Income Composite Index
Domestic Stock Funds
American Funds Growth Fund of Amer R6 RGAGX
3264 0.33% 3.30 22.99% 14.85% — — 20.04% 14.09% 6.99%
S&P 500 TR USD
CRM Small Cap Value Instl CRISX
3267 0.90% 9.00 32.63% 13.67% 6.87% — 40.22% 13.44% 6.03%
Russell 2000 Value TR USD
Dodge & Cox Stock DODGX
0292 0.52% 5.20 33.18% 16.24% 5.96% — 20.04% 14.09% 6.99%
S&P 500 TR USD
Fidelity® Low-Priced Stock K FLPKX
6083 0.78% 7.80 16.37% 12.17% — — 33.53% 13.00% 6.93%
Russell 2000 TR USD
TIAA-CREF Social Choice Eq Instl TISCX
3081 0.18% 1.80 22.51% 12.91% 6.70% — 21.73% 13.97% 7.07%
Russell 3000 TR USD
Vanguard Ext Mkt Index Inst Plus VEMPX
1860 0.05% 0.50 30.12% 13.51% — — 29.94% 13.38% 7.71%
S&P Completion Index
Vanguard Inst Index Fund Inst Plus VIIIX
0854 0.02% 0.20 20.03% 14.08% 7.01% — 20.04% 14.09% 6.99%
S&P 500 Index
WB Small Mid Growth —
5602 0.85% 8.50 18.46% — — — 24.65% 12.73% 8.16%
Russell 2500 Growth Index
International Stock Funds
Fidelity® Diversified International K FDIKX
6084 0.92% 9.20 5.93% 6.99% — — 12.03% 6.04% 0.97%
MSCI EAFE NR USD
Vanguard Tot Intl Stock Ix Inst Pl VTPSX
1870 0.07% 0.70 15.36% 4.88% — — 16.38% 4.87% 1.29%
Spliced Total International Stock Index
Specialty Stock Funds
Vanguard REIT Index Fund Inst VGSNX
3123 0.10% 1.00 12.23% 10.39% 4.39% — 12.34% 10.47% 4.34%
REIT Spliced Index
Client Specific Funds
Vanguard Brokerage Option Fund —
2733 — — — — — — — — —


Additional Context:
I’ve been fortunate enough to have my income grow significantly over the last few years. I’ve gone from individual contributor > manager > middle-management > director opportunity. My income will be variable over the next couple of years, peaking this year. My personal expected income is going to be: 380k/2017, 300k/2018, 300k/2019, 200k/2020. My wife’s will likely stay flat. My plan over the next few years is to make an attempt at a director or C-level position at a larger company in my industry, if my appetite for the work and progression continues. I view my chances of achieving that at ~10%; it’s much more likely I find a lateral position, or go back down on the rung or simply find something different. My intention is to save as much as I can, knowing that my income level will likely be going down.

My wife is exceptionally disciplined about her money management, avoiding debt, and is on board with our savings goals. However, she has no interest in actively managing our finances, nor pursuing her 403b options. This is something I could do, but I’m wary about asserting myself too far into her affairs, especially given how convoluted the 403b system appears to be.


Questions:
  • I’m in the Target Retirement 2050 fund. Given I’ll have money in a taxed account, I feel like it’s time to move to a 3 fund portfolio and balance across my accounts. I’d appreciate your suggestions on how I should structure it.
  • I have 155k sitting in various saving / checking accounts. I’d like to consolidate this into a Vanguard account and roll this into my savings portfolio. What account should I create, or use?
  • I am maxing out my 401k contributions this year. Should I also open up non-deductible traditional IRA’s for both my wife and I, so we can contribute an additional 11k for this year? I believe I will then be able to convert this into a Roth account with my plan at Vanguard.
  • I’ve struggled to understand my wife’s 403b plan. Her district (Oak Grove) only provides annuity based choices that appear poor. However, looking at this 403b site, it looks like I could use Vanguard for her 403b option, though I’m unclear how to make this happen. Any advice? If I could find appropriate funds, I would think I should then have her max this out as quickly as possible. How should I move forward and set this up? Any advice from California teachers would be appreciated.
  • The template asks what percentage of international funds I desire in my portfolio. I don’t know. What do you recommend, and why?
  • My Roth IRA at Vanguard was an old account I was contributing to when I was younger. Should I roll this into another account? Won't I have to do this if I set up a non-deductible traditional IRA? I haven’t touched this since I’ve been focused on maxing out my 401k accounts; I think now it’s time to figure this out.

Thank you in advance for your advice.

- Mark
Last edited by madmartigan on Sun Feb 26, 2017 7:10 pm, edited 2 times in total.

User avatar
nedsaid
Posts: 8823
Joined: Fri Nov 23, 2012 12:33 pm

Re: Requesting Critique of My Portfolio

Post by nedsaid » Sun Feb 26, 2017 11:59 am

madmartigan wrote:Hi everyone. I’ve been reading through posts on the Bogleheads forum for a while now. I’m continually impressed with the advice, support, and civility of this group. I’m hoping this post will help me take action on several points of indecision / uncertainty I’ve had over the past year.

Nedsaid: Welcome to the Bogleheads forum. Thanks for posting as it contributes to the forum and helps make it more interesting. It is good to see "real life" situations and what real people are doing with their money. It takes courage to do this as you might get criticism.

Basic Info

Him: Age = 33y, Income = 380k
Her: Age = 33y, Income = 73k
Location: San Jose, CA (VHCOL area)

Nedsaid: I suspect you work in high tech. This is a volatile industry and you might consider upping your emergency funds to one year's worth of living expenses. I knew a lot of people who worked for Hewlett-Packard in a town I lived in.

Emergency funds: 50k (~6 months), currently sitting in a bank account
Debt: 0
Tax Filing Status: Married Filing Jointly (1 Dependent, 4y son)
2015 Tax Rate: 19.3% Federal, 6.8% State (Based off ~250k)
Desired Asset allocation: 90% stocks / 10% bonds → 80% / 20% (somewhere in this range, I’m OK with more risk).
Desired International allocation: I don’t know.

Nedsaid: I would recommend 20% to 50% of your stocks in international. International bonds are entirely optional in my opinion.


Current retirement assets

Cash
155k - Sitting in various saving / checking accounts. This does not include emergency fund.


His 401k at Vanguard
230k Vanguard Target Retirement 2050 Trust Select (1682) (0.05% ER)
Allocation to underlying funds as of 12/31/2016
Ranking by Percentage Fund Percentage
1 Vanguard Total Stock Market Index Fund Institutional Plus Shares 54.0%
2 Vanguard Total International Stock Index Fund Institutional Plus Shares 35.9%
3 Vanguard Total Bond Market II Index Fund** 7.3%
4 Vanguard Total International Bond Index Fund Institutional Shares 2.8%

Nedsaid: This is a good portfolio and seeing that this is the 2050 fund, it reflects the best
thinking of the experts at Vanguard.


His Roth IRA at Vanguard
8k Vanguard Prime Money Market Fund (VMMXX) (0.16% ER)

Her 403b
Not using it. No match.

Contributions

New Contributions in 2017
$27k his 401k Pre-Tax (18k + 9k company match)
$27k his 401k After-Tax > Converted to Roth 401k
$160k into After Tax accounts. This is based off investing everything else after current expenses + expected taxes on 450k.

Nedsaid: I am astonished at what some folks make and what they are able to save. I would say you are doing well and keep doing what you are doing.

Available funds

Funds available in his 401(k)
Fund name Fund symbol/
Number Total annual operating expenses Average annual total return**
as of 01/31/2017 Benchmark
As a % Per $1000 1-Year 5-Year 10-Year Since inception 1-Year 5-Year 10-Year
Short-Term Reserves
Vanguard Federal Money Mkt Fund VMFXX
0033 0.11% 1.10 0.32% 0.08% 0.79% — 0.03% 0.01% 0.58%
U.S. Government Money Market Funds Average
Vanguard Retire Savings Trust II —
0338 0.31% 3.10 2.07% 2.12% 2.91% — 0.30% 0.09% 0.68%
Citigroup Three-Month U.S. Treasury Bill Index
Bond Funds
Metropolitan West Total Return Bd Plan MWTSX
3449 0.38% 3.80 1.67% 3.81% — — 1.45% 2.09% 4.37%
BBgBarc US Agg Bond TR USD
Vanguard Total Bond Mkt Ix Ist Pls VBMPX
0850 0.04% 0.40 1.47% 2.05% 4.37% — 1.59% 2.10% 4.39%
Spliced Bloomberg Barclays U.S. Aggregate Float Adjusted Index
Balanced Funds (Stocks and Bonds)
Vanguard Target Ret Income Tr Sel —
1686 0.05% 0.50 7.04% — — — 7.24% 4.73% 4.96%
Target Retirement Income Composite Index
Vanguard Target Ret 2010 Tr Sel —
1674 0.05% 0.50 7.36% — — — 7.63% 5.66% 4.66%
Target Retirement 2010 Composite Index
Vanguard Target Ret 2015 Tr Sel —
1675 0.05% 0.50 9.80% — — — 10.12% 6.91% 4.91%
Target Retirement 2015 Composite Index
Vanguard Target Ret 2020 Tr Sel —
1676 0.05% 0.50 11.63% — — — 12.06% 7.87% 5.16%
Target Retirement 2020 Composite Index
Vanguard Target Ret 2025 Tr Sel —
1677 0.05% 0.50 13.05% — — — 13.48% 8.52% 5.19%
Target Retirement 2025 Composite Index
Vanguard Target Ret 2030 Tr Sel —
1678 0.05% 0.50 14.37% — — — 14.85% 9.15% 5.19%
Target Retirement 2030 Composite Index
Vanguard Target Ret 2035 Tr Sel —
1679 0.05% 0.50 15.71% — — — 16.22% 9.77% 5.31%
Target Retirement 2035 Composite Index
Vanguard Target Ret 2040 Tr Sel —
1680 0.05% 0.50 17.03% — — — 17.59% 10.17% 5.49%
Target Retirement 2040 Composite Index
Vanguard Target Ret 2045 Tr Sel —
1681 0.05% 0.50 17.38% — — — 17.95% 10.21% 5.51%
Target Retirement 2045 Composite Index
Vanguard Target Ret 2050 Tr Sel —
1682 0.05% 0.50 17.40% — — — 17.95% 10.21% 5.51%
Target Retirement 2050 Composite Index
Vanguard Target Ret 2055 Tr Sel —
1683 0.05% 0.50 17.40% — — — 17.95% 10.21% —
Target Retirement 2055 Composite Index
Vanguard Target Ret 2060 Tr Sel —
1685 0.05% 0.50 17.44% — — — 17.95% 10.21% —
Target Retirement 2060 Composite Index
Vanguard Wellesley Income Fund Adm VWIAX
0527 0.15% 1.50 8.67% 7.03% 6.73% — 8.91% 6.94% 5.98%
Wellesley Income Composite Index
Domestic Stock Funds
American Funds Growth Fund of Amer R6 RGAGX
3264 0.33% 3.30 22.99% 14.85% — — 20.04% 14.09% 6.99%
S&P 500 TR USD
CRM Small Cap Value Instl CRISX
3267 0.90% 9.00 32.63% 13.67% 6.87% — 40.22% 13.44% 6.03%
Russell 2000 Value TR USD
Dodge & Cox Stock DODGX
0292 0.52% 5.20 33.18% 16.24% 5.96% — 20.04% 14.09% 6.99%
S&P 500 TR USD
Fidelity® Low-Priced Stock K FLPKX
6083 0.78% 7.80 16.37% 12.17% — — 33.53% 13.00% 6.93%
Russell 2000 TR USD
TIAA-CREF Social Choice Eq Instl TISCX
3081 0.18% 1.80 22.51% 12.91% 6.70% — 21.73% 13.97% 7.07%
Russell 3000 TR USD
Vanguard Ext Mkt Index Inst Plus VEMPX
1860 0.05% 0.50 30.12% 13.51% — — 29.94% 13.38% 7.71%
S&P Completion Index
Vanguard Inst Index Fund Inst Plus VIIIX
0854 0.02% 0.20 20.03% 14.08% 7.01% — 20.04% 14.09% 6.99%
S&P 500 Index
WB Small Mid Growth —
5602 0.85% 8.50 18.46% — — — 24.65% 12.73% 8.16%
Russell 2500 Growth Index
International Stock Funds
Fidelity® Diversified International K FDIKX
6084 0.92% 9.20 5.93% 6.99% — — 12.03% 6.04% 0.97%
MSCI EAFE NR USD
Vanguard Tot Intl Stock Ix Inst Pl VTPSX
1870 0.07% 0.70 15.36% 4.88% — — 16.38% 4.87% 1.29%
Spliced Total International Stock Index
Specialty Stock Funds
Vanguard REIT Index Fund Inst VGSNX
3123 0.10% 1.00 12.23% 10.39% 4.39% — 12.34% 10.47% 4.34%
REIT Spliced Index
Client Specific Funds
Vanguard Brokerage Option Fund —
2733 — — — — — — — — —


Additional Context:
I’ve been fortunate enough to have my income grow significantly over the last few years. I’ve gone from individual contributor > manager > middle-management > director opportunity. My income will be variable over the next couple of years, peaking this year. My personal expected income is going to be: 380k/2017, 300k/2018, 300k/2019, 200k/2020. My wife’s will likely stay flat. My plan over the next few years is to make an attempt at a director or C-level position at a larger company in my industry, if my appetite for the work and progression continues. I view my chances of achieving that at ~10%; it’s much more likely I find a lateral position, or go back down on the rung or simply find something different. My intention is to save as much as I can, knowing that my income level will likely be going down.

Nedsaid: It appears you are in a volatile industry and you are wise to save. The sad fact is that when you get into your fifties, your fat salary and age will make you a target for layoff, even if you get into management. Make and save all you can and be sure to have a Plan B.

My wife is exceptionally disciplined about her money management, avoiding debt, and is on board with our savings goals. However, she has no interest in actively managing our finances, nor pursuing her 403b options. This is something I could do, but I’m wary about asserting myself too far into her affairs, especially given how convoluted the 403b system appears to be.


Questions:
  • I’m in the Target Retirement 2050 fund. Given I’ll have money in a taxed account, I feel like it’s time to move to a 3 fund portfolio and balance across my accounts. I’d appreciate your suggestions on how I should structure it.

    Nedsaid: I would use the Target Date 2050 fund for your retirement accounts but not for your taxable accounts. The rebalancing within the fund will create unwanted taxable events. The broad stock index funds are excellent choices for a taxable account. I would also consider a mix of municipal bond funds and US Treasury Bond funds for your taxable accounts. US Treasuries are not taxed by the states. Municipal funds could be split 50/50 between California and a national Muni-bond fund.
  • I have 155k sitting in various saving / checking accounts. I’d like to consolidate this into a Vanguard account and roll this into my savings portfolio. What account should I create, or use?

    Nedsaid: I would use FDIC Insured Accounts at your local bank and/or US Government Money Market Funds for emergency cash. If you want a bit more yield, use a short term US Treasury bond fund.
  • I am maxing out my 401k contributions this year. Should I also open up non-deductible traditional IRA’s for both my wife and I, so we can contribute an additional 11k for this year?
  • I’ve struggled to understand my wife’s 403b plan. Her district (Oak Grove) only provides annuity based choices that appear poor. However, looking at this 403b site, it looks like I could use Vanguard for her 403b option, though I’m unclear how to make this happen. Any advice? If I could find appropriate funds, I would think I should then have her max this out as quickly as possible. How should I move forward and set this up? Any advice from
  • California teachers would be appreciated.
  • The template asks what percentage of international funds I desire in my portfolio. I don’t know. What do you recommend, and why?

    Nedsaid: If your wife's 403b has access to Vanguard funds, go for it. Make certain that the Vanguard funds are not within an Insurance Company Annuity but are directly from Vanguard itself. Some of these 403b plans are notoriously bad. High fees and all.
  • My Roth IRA at Vanguard was an old account I was contributing to when I was younger. Should I roll this into another account? Won't I have to do this if I set up a non-deductible traditional IRA? I haven’t touched this since I’ve been focused on maxing out my 401k accounts; I think now it’s time to figure this out.

Thank you in advance for your advice.

- Mark
A fool and his money are good for business.

DavidRoseMountain
Posts: 74
Joined: Sun Nov 30, 2014 3:27 pm

Re: Requesting Critique of My Portfolio

Post by DavidRoseMountain » Sun Feb 26, 2017 2:50 pm

Yes I agree a Vanguard Total Stock market index, Vanguard Total International Index, and Vanguard total Bond market index are the way to go.

It looks like your 401K offers those, so I would put the money there, the expense ratios are going to be the lowest. High expense ratios will eat up a portfolio over the decades.

To transfer your savings into Vanguard, just simply transfer the money directly over to the taxable account part of Vanguard.

See if you can make non-deductible contributions to your 401k plan, I believe this can be used for a mega back door Roth. There many steps involved for that, so do a search for that. A mega backdoor Roth would make more sense than contributing to a non-deductible tIRA.

International can be around 20-45% of your portfolio.

madmartigan
Posts: 13
Joined: Sat Nov 26, 2016 12:11 pm

Re: Requesting Critique of My Portfolio

Post by madmartigan » Sun Feb 26, 2017 6:58 pm

nedsaid wrote:
madmartigan wrote:Hi everyone. I’ve been reading through posts on the Bogleheads forum for a while now. I’m continually impressed with the advice, support, and civility of this group. I’m hoping this post will help me take action on several points of indecision / uncertainty I’ve had over the past year.

Nedsaid: Welcome to the Bogleheads forum. Thanks for posting as it contributes to the forum and helps make it more interesting. It is good to see "real life" situations and what real people are doing with their money. It takes courage to do this as you might get criticism.

Thank you!

Basic Info

Him: Age = 33y, Income = 380k
Her: Age = 33y, Income = 73k
Location: San Jose, CA (VHCOL area)

Nedsaid: I suspect you work in high tech. This is a volatile industry and you might consider upping your emergency funds to one year's worth of living expenses. I knew a lot of people who worked for Hewlett-Packard in a town I lived in.

I do, although I'm in the aerospace industry. I'm in a bit of a blend of both right now. I think I have a variety of options staying strictly in the aerospace industry, albeit it in different locations across the country, and at considerably less pay. My time horizon for my job could be as short as 3 years; a trade for the high pay I'm receiving. I'll take your suggestion under consideration, but in reality right now, I'd likely eat into my taxable account reserves if I lost my job tomorrow and couldn't find anything for 6+ months.

Emergency funds: 50k (~6 months), currently sitting in a bank account
Debt: 0
Tax Filing Status: Married Filing Jointly (1 Dependent, 4y son)
2015 Tax Rate: 19.3% Federal, 6.8% State (Based off ~250k)
Desired Asset allocation: 90% stocks / 10% bonds → 80% / 20% (somewhere in this range, I’m OK with more risk).
Desired International allocation: I don’t know.

Nedsaid: I would recommend 20% to 50% of your stocks in international. International bonds are entirely optional in my opinion.
Why? Is the reasoning for further diversification, to avoid significant losses if domestic stocks took a huge hit? Would you consider 20% to be riskier, and 50% to be more conservative?

Current retirement assets

Cash
155k - Sitting in various saving / checking accounts. This does not include emergency fund.


His 401k at Vanguard
230k Vanguard Target Retirement 2050 Trust Select (1682) (0.05% ER)
Allocation to underlying funds as of 12/31/2016
Ranking by Percentage Fund Percentage
1 Vanguard Total Stock Market Index Fund Institutional Plus Shares 54.0%
2 Vanguard Total International Stock Index Fund Institutional Plus Shares 35.9%
3 Vanguard Total Bond Market II Index Fund** 7.3%
4 Vanguard Total International Bond Index Fund Institutional Shares 2.8%

Nedsaid: This is a good portfolio and seeing that this is the 2050 fund, it reflects the best
thinking of the experts at Vanguard.


His Roth IRA at Vanguard
8k Vanguard Prime Money Market Fund (VMMXX) (0.16% ER)

Her 403b
Not using it. No match.

Contributions

New Contributions in 2017
$27k his 401k Pre-Tax (18k + 9k company match)
$27k his 401k After-Tax > Converted to Roth 401k
$160k into After Tax accounts. This is based off investing everything else after current expenses + expected taxes on 450k.

Nedsaid: I am astonished at what some folks make and what they are able to save. I would say you are doing well and keep doing what you are doing.

Additional Context:
I’ve been fortunate enough to have my income grow significantly over the last few years. I’ve gone from individual contributor > manager > middle-management > director opportunity. My income will be variable over the next couple of years, peaking this year. My personal expected income is going to be: 380k/2017, 300k/2018, 300k/2019, 200k/2020. My wife’s will likely stay flat. My plan over the next few years is to make an attempt at a director or C-level position at a larger company in my industry, if my appetite for the work and progression continues. I view my chances of achieving that at ~10%; it’s much more likely I find a lateral position, or go back down on the rung or simply find something different. My intention is to save as much as I can, knowing that my income level will likely be going down.

Nedsaid: It appears you are in a volatile industry and you are wise to save. The sad fact is that when you get into your fifties, your fat salary and age will make you a target for layoff, even if you get into management. Make and save all you can and be sure to have a Plan B.

My wife is exceptionally disciplined about her money management, avoiding debt, and is on board with our savings goals. However, she has no interest in actively managing our finances, nor pursuing her 403b options. This is something I could do, but I’m wary about asserting myself too far into her affairs, especially given how convoluted the 403b system appears to be.


Questions:
  • I’m in the Target Retirement 2050 fund. Given I’ll have money in a taxed account, I feel like it’s time to move to a 3 fund portfolio and balance across my accounts. I’d appreciate your suggestions on how I should structure it.

    Nedsaid: I would use the Target Date 2050 fund for your retirement accounts but not for your taxable accounts. The rebalancing within the fund will create unwanted taxable events. The broad stock index funds are excellent choices for a taxable account. I would also consider a mix of municipal bond funds and US Treasury Bond funds for your taxable accounts. US Treasuries are not taxed by the states. Municipal funds could be split 50/50 between California and a national Muni-bond fund. Thank you
  • I have 155k sitting in various saving / checking accounts. I’d like to consolidate this into a Vanguard account and roll this into my savings portfolio. What account should I create, or use?

    Nedsaid: I would use FDIC Insured Accounts at your local bank and/or US Government Money Market Funds for emergency cash. If you want a bit more yield, use a short term US Treasury bond fund. Thanks. To be clear, this is money I should be investing into taxable accounts, and is separate from my emergency fund. Most of the money came from recently selling my house, and I hadn't figured out what to do with it yet.
  • I am maxing out my 401k contributions this year. Should I also open up non-deductible traditional IRA’s for both my wife and I, so we can contribute an additional 11k for this year?
  • I’ve struggled to understand my wife’s 403b plan. Her district (Oak Grove) only provides annuity based choices that appear poor. However, looking at this 403b site, it looks like I could use Vanguard for her 403b option, though I’m unclear how to make this happen. Any advice? If I could find appropriate funds, I would think I should then have her max this out as quickly as possible. How should I move forward and set this up? Any advice from
  • California teachers would be appreciated.
  • The template asks what percentage of international funds I desire in my portfolio. I don’t know. What do you recommend, and why?

    Nedsaid: If your wife's 403b has access to Vanguard funds, go for it. Make certain that the Vanguard funds are not within an Insurance Company Annuity but are directly from Vanguard itself. Some of these 403b plans are notoriously bad. High fees and all.
  • My Roth IRA at Vanguard was an old account I was contributing to when I was younger. Should I roll this into another account? Won't I have to do this if I set up a non-deductible traditional IRA? I haven’t touched this since I’ve been focused on maxing out my 401k accounts; I think now it’s time to figure this out.

Thank you in advance for your advice.

- Mark

madmartigan
Posts: 13
Joined: Sat Nov 26, 2016 12:11 pm

Re: Requesting Critique of My Portfolio

Post by madmartigan » Sun Feb 26, 2017 7:09 pm

DavidRoseMountain wrote:Yes I agree a Vanguard Total Stock market index, Vanguard Total International Index, and Vanguard total Bond market index are the way to go.

It looks like your 401K offers those, so I would put the money there, the expense ratios are going to be the lowest. High expense ratios will eat up a portfolio over the decades.

To transfer your savings into Vanguard, just simply transfer the money directly over to the taxable account part of Vanguard.

See if you can make non-deductible contributions to your 401k plan, I believe this can be used for a mega back door Roth. There many steps involved for that, so do a search for that. A mega backdoor Roth would make more sense than contributing to a non-deductible tIRA.

International can be around 20-45% of your portfolio.


It looks like the funds you recommend are what's in the 2050 target. Basically, I'd be replicating this in my taxable account with Vanguard? With respect to the 401k, I have the option to contribute after-tax funds into the 401k. I am doing this, maxing out my 401k contributions, and then rolling it into a Roth 401k within the plan. I wasn't clear in my original post and I'll correct it, but I believe I'd be able to also convert the non-deductible tIRA to a Roth account.

financial.freedom
Posts: 336
Joined: Fri Oct 03, 2014 1:18 am

Re: Requesting Critique of My Portfolio

Post by financial.freedom » Sun Feb 26, 2017 7:21 pm

[*]I have 155k sitting in various saving / checking accounts. I’d like to consolidate this into a Vanguard account and roll this into my savings portfolio. What account should I create, or use?

Taxable.

[*]I am maxing out my 401k contributions this year. Should I also open up non-deductible traditional IRA’s for both my wife and I, so we can contribute an additional 11k for this year? I believe I will then be able to convert this into a Roth account with my plan at Vanguard.

Yes, do backdoor Roth 11k each year. Think you can do 22k (if you didn't do 2016 yet). Make sure you've cleared the backdoor and read up on doing it the correct way and file Form 8606 when you do your taxes.

[*]I’ve struggled to understand my wife’s 403b plan. Her district (Oak Grove) only provides annuity based choices that appear poor. However, looking at this 403b site, it looks like I could use Vanguard for her 403b option, though I’m unclear how to make this happen. Any advice? If I could find appropriate funds, I would think I should then have her max this out as quickly as possible. How should I move forward and set this up? Any advice from California teachers would be appreciated.

Not familiar with 403b, others here have more experience.

[*]The template asks what percentage of international funds I desire in my portfolio. I don’t know. What do you recommend, and why?

Recommend 20-40%, but don't take my advice -- read the Vanguard white paper on international.

[*]My Roth IRA at Vanguard was an old account I was contributing to when I was younger. Should I roll this into another account? Won't I have to do this if I set up a non-deductible traditional IRA? I haven’t touched this since I’ve been focused on maxing out my 401k accounts; I think now it’s time to figure this out.[/list]

You'll set up tIRA for backdoor to your existing Roth IRA.

Thank you in advance for your advice.

- Mark[/quote]

financial.freedom
Posts: 336
Joined: Fri Oct 03, 2014 1:18 am

Re: Requesting Critique of My Portfolio

Post by financial.freedom » Sun Feb 26, 2017 7:25 pm

PS -- just keep it simple in your other accounts. If your AA fits with VG TD 2050 and the same glide path, then pick that and leave it in each account (Roth IRA, 401k). Set it, forget it. Then focus on the account that most of your money is going into -- taxable. In taxable, do 3-fund with TSM, TISM, and Munis (split CA intermed and National intermed).
madmartigan wrote:Hi everyone. I’ve been reading through posts on the Bogleheads forum for a while now. I’m continually impressed with the advice, support, and civility of this group. I’m hoping this post will help me take action on several points of indecision / uncertainty I’ve had over the past year.

Basic Info

Him: Age = 33y, Income = 380k
Her: Age = 33y, Income = 73k
Location: San Jose, CA (VHCOL area)

Emergency funds: 50k (~6 months), currently sitting in a bank account
Debt: 0
Tax Filing Status: Married Filing Jointly (1 Dependent, 4y son)
2015 Tax Rate: 19.3% Federal, 6.8% State (Based off ~250k)
Desired Asset allocation: 90% stocks / 10% bonds → 80% / 20% (somewhere in this range, I’m OK with more risk).
Desired International allocation: I don’t know.

Current retirement assets

Cash
155k - Sitting in various saving / checking accounts. This does not include emergency fund.


His 401k at Vanguard
230k Vanguard Target Retirement 2050 Trust Select (1682) (0.05% ER)
Allocation to underlying funds as of 12/31/2016
Ranking by Percentage Fund Percentage
1 Vanguard Total Stock Market Index Fund Institutional Plus Shares 54.0%
2 Vanguard Total International Stock Index Fund Institutional Plus Shares 35.9%
3 Vanguard Total Bond Market II Index Fund** 7.3%
4 Vanguard Total International Bond Index Fund Institutional Shares 2.8%


His Roth IRA at Vanguard
8k Vanguard Prime Money Market Fund (VMMXX) (0.16% ER)

Her 403b
Not using it. No match.

Contributions

New Contributions in 2017
$27k his 401k Pre-Tax (18k + 9k company match)
$27k his 401k After-Tax > Converted to Roth 401k
$160k into After Tax accounts. This is based off investing everything else after current expenses + expected taxes on 450k.

Available funds

Funds available in his 401(k)
Fund name Fund symbol/
Number Total annual operating expenses Average annual total return**
as of 01/31/2017 Benchmark
As a % Per $1000 1-Year 5-Year 10-Year Since inception 1-Year 5-Year 10-Year
Short-Term Reserves
Vanguard Federal Money Mkt Fund VMFXX
0033 0.11% 1.10 0.32% 0.08% 0.79% — 0.03% 0.01% 0.58%
U.S. Government Money Market Funds Average
Vanguard Retire Savings Trust II —
0338 0.31% 3.10 2.07% 2.12% 2.91% — 0.30% 0.09% 0.68%
Citigroup Three-Month U.S. Treasury Bill Index
Bond Funds
Metropolitan West Total Return Bd Plan MWTSX
3449 0.38% 3.80 1.67% 3.81% — — 1.45% 2.09% 4.37%
BBgBarc US Agg Bond TR USD
Vanguard Total Bond Mkt Ix Ist Pls VBMPX
0850 0.04% 0.40 1.47% 2.05% 4.37% — 1.59% 2.10% 4.39%
Spliced Bloomberg Barclays U.S. Aggregate Float Adjusted Index
Balanced Funds (Stocks and Bonds)
Vanguard Target Ret Income Tr Sel —
1686 0.05% 0.50 7.04% — — — 7.24% 4.73% 4.96%
Target Retirement Income Composite Index
Vanguard Target Ret 2010 Tr Sel —
1674 0.05% 0.50 7.36% — — — 7.63% 5.66% 4.66%
Target Retirement 2010 Composite Index
Vanguard Target Ret 2015 Tr Sel —
1675 0.05% 0.50 9.80% — — — 10.12% 6.91% 4.91%
Target Retirement 2015 Composite Index
Vanguard Target Ret 2020 Tr Sel —
1676 0.05% 0.50 11.63% — — — 12.06% 7.87% 5.16%
Target Retirement 2020 Composite Index
Vanguard Target Ret 2025 Tr Sel —
1677 0.05% 0.50 13.05% — — — 13.48% 8.52% 5.19%
Target Retirement 2025 Composite Index
Vanguard Target Ret 2030 Tr Sel —
1678 0.05% 0.50 14.37% — — — 14.85% 9.15% 5.19%
Target Retirement 2030 Composite Index
Vanguard Target Ret 2035 Tr Sel —
1679 0.05% 0.50 15.71% — — — 16.22% 9.77% 5.31%
Target Retirement 2035 Composite Index
Vanguard Target Ret 2040 Tr Sel —
1680 0.05% 0.50 17.03% — — — 17.59% 10.17% 5.49%
Target Retirement 2040 Composite Index
Vanguard Target Ret 2045 Tr Sel —
1681 0.05% 0.50 17.38% — — — 17.95% 10.21% 5.51%
Target Retirement 2045 Composite Index
Vanguard Target Ret 2050 Tr Sel —
1682 0.05% 0.50 17.40% — — — 17.95% 10.21% 5.51%
Target Retirement 2050 Composite Index
Vanguard Target Ret 2055 Tr Sel —
1683 0.05% 0.50 17.40% — — — 17.95% 10.21% —
Target Retirement 2055 Composite Index
Vanguard Target Ret 2060 Tr Sel —
1685 0.05% 0.50 17.44% — — — 17.95% 10.21% —
Target Retirement 2060 Composite Index
Vanguard Wellesley Income Fund Adm VWIAX
0527 0.15% 1.50 8.67% 7.03% 6.73% — 8.91% 6.94% 5.98%
Wellesley Income Composite Index
Domestic Stock Funds
American Funds Growth Fund of Amer R6 RGAGX
3264 0.33% 3.30 22.99% 14.85% — — 20.04% 14.09% 6.99%
S&P 500 TR USD
CRM Small Cap Value Instl CRISX
3267 0.90% 9.00 32.63% 13.67% 6.87% — 40.22% 13.44% 6.03%
Russell 2000 Value TR USD
Dodge & Cox Stock DODGX
0292 0.52% 5.20 33.18% 16.24% 5.96% — 20.04% 14.09% 6.99%
S&P 500 TR USD
Fidelity® Low-Priced Stock K FLPKX
6083 0.78% 7.80 16.37% 12.17% — — 33.53% 13.00% 6.93%
Russell 2000 TR USD
TIAA-CREF Social Choice Eq Instl TISCX
3081 0.18% 1.80 22.51% 12.91% 6.70% — 21.73% 13.97% 7.07%
Russell 3000 TR USD
Vanguard Ext Mkt Index Inst Plus VEMPX
1860 0.05% 0.50 30.12% 13.51% — — 29.94% 13.38% 7.71%
S&P Completion Index
Vanguard Inst Index Fund Inst Plus VIIIX
0854 0.02% 0.20 20.03% 14.08% 7.01% — 20.04% 14.09% 6.99%
S&P 500 Index
WB Small Mid Growth —
5602 0.85% 8.50 18.46% — — — 24.65% 12.73% 8.16%
Russell 2500 Growth Index
International Stock Funds
Fidelity® Diversified International K FDIKX
6084 0.92% 9.20 5.93% 6.99% — — 12.03% 6.04% 0.97%
MSCI EAFE NR USD
Vanguard Tot Intl Stock Ix Inst Pl VTPSX
1870 0.07% 0.70 15.36% 4.88% — — 16.38% 4.87% 1.29%
Spliced Total International Stock Index
Specialty Stock Funds
Vanguard REIT Index Fund Inst VGSNX
3123 0.10% 1.00 12.23% 10.39% 4.39% — 12.34% 10.47% 4.34%
REIT Spliced Index
Client Specific Funds
Vanguard Brokerage Option Fund —
2733 — — — — — — — — —


Additional Context:
I’ve been fortunate enough to have my income grow significantly over the last few years. I’ve gone from individual contributor > manager > middle-management > director opportunity. My income will be variable over the next couple of years, peaking this year. My personal expected income is going to be: 380k/2017, 300k/2018, 300k/2019, 200k/2020. My wife’s will likely stay flat. My plan over the next few years is to make an attempt at a director or C-level position at a larger company in my industry, if my appetite for the work and progression continues. I view my chances of achieving that at ~10%; it’s much more likely I find a lateral position, or go back down on the rung or simply find something different. My intention is to save as much as I can, knowing that my income level will likely be going down.

My wife is exceptionally disciplined about her money management, avoiding debt, and is on board with our savings goals. However, she has no interest in actively managing our finances, nor pursuing her 403b options. This is something I could do, but I’m wary about asserting myself too far into her affairs, especially given how convoluted the 403b system appears to be.


Questions:
  • I’m in the Target Retirement 2050 fund. Given I’ll have money in a taxed account, I feel like it’s time to move to a 3 fund portfolio and balance across my accounts. I’d appreciate your suggestions on how I should structure it.
  • I have 155k sitting in various saving / checking accounts. I’d like to consolidate this into a Vanguard account and roll this into my savings portfolio. What account should I create, or use?
  • I am maxing out my 401k contributions this year. Should I also open up non-deductible traditional IRA’s for both my wife and I, so we can contribute an additional 11k for this year? I believe I will then be able to convert this into a Roth account with my plan at Vanguard.
  • I’ve struggled to understand my wife’s 403b plan. Her district (Oak Grove) only provides annuity based choices that appear poor. However, looking at this 403b site, it looks like I could use Vanguard for her 403b option, though I’m unclear how to make this happen. Any advice? If I could find appropriate funds, I would think I should then have her max this out as quickly as possible. How should I move forward and set this up? Any advice from California teachers would be appreciated.
  • The template asks what percentage of international funds I desire in my portfolio. I don’t know. What do you recommend, and why?
  • My Roth IRA at Vanguard was an old account I was contributing to when I was younger. Should I roll this into another account? Won't I have to do this if I set up a non-deductible traditional IRA? I haven’t touched this since I’ve been focused on maxing out my 401k accounts; I think now it’s time to figure this out.

Thank you in advance for your advice.

- Mark

User avatar
Duckie
Posts: 5131
Joined: Thu Mar 08, 2007 2:55 pm

Re: Requesting Critique of My Portfolio

Post by Duckie » Sun Feb 26, 2017 7:52 pm

madmartigan wrote:Desired Asset allocation: 90% stocks / 10% bonds → 80% / 20% (somewhere in this range, I’m OK with more risk).

At your ages I'd go with a minimum of 20% bonds.

Desired International allocation: I don’t know.

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.

Funds available in his 401(k)

The best options are:
  • Vanguard Inst Index Fund Inst Plus VIIIX 0.02% -- Large caps, 80% of US stocks
  • Vanguard Ext Mkt Index Inst Plus VEMPX 0.05% -- Mid/small caps, 20% of US stocks
  • Vanguard REIT Index Fund Inst VGSNX 0.10% -- US REITs
  • Vanguard Tot Intl Stock Ix Inst Pl VTPSX 0.07% -- Complete international stocks
  • Vanguard Total Bond Mkt Ix Ist Pls VBMPX 0.04% -- US bonds
  • or the Target Retirement fund that comes closest to your AA
I have 155k sitting in various saving / checking accounts. I’d like to consolidate this into a Vanguard account and roll this into my savings portfolio. What account should I create, or use?

It will be what we call a taxable account and what Vanguard calls either an individual or joint account.

I am maxing out my 401k contributions this year. Should I also open up non-deductible traditional IRA’s for both my wife and I, so we can contribute an additional 11k for this year? I believe I will then be able to convert this into a Roth account with my plan at Vanguard.

Yes. You mentioned no non-Roth IRAs so the pro-rata rule will not apply if you use the Backdoor Roth IRA method. And don't forget, you have until mid-April to contribute for 2016.

I’ve struggled to understand my wife’s 403b plan. Her district (Oak Grove) only provides annuity based choices that appear poor. However, looking at this 403b site, it looks like I could use Vanguard for her 403b option, though I’m unclear how to make this happen. Any advice? If I could find appropriate funds, I would think I should then have her max this out as quickly as possible. How should I move forward and set this up?

She will have to contact HR and find out all the possible custodians and then check each one to see what all the options/fees are. It's a PITA but it would shelter more of your income and it could be used for bonds if there's a decent fund available.

The template asks what percentage of international funds I desire in my portfolio. I don’t know. What do you recommend, and why?

30% of stocks. See above for reasoning.

My Roth IRA at Vanguard was an old account I was contributing to when I was younger. Should I roll this into another account? Won't I have to do this if I set up a non-deductible traditional IRA?

If your Roth IRA at Vanguard was set up on the mutual fund side you won't be able to use it for conversions because all new accounts are set up on the brokerage side and you can't convert across platforms. So you will probably have to set up a TIRA and Roth IRA for each of you on the brokerage side. At some point you can "upgrade" the mutual fund Roth IRA to a brokerage account.

I’m in the Target Retirement 2050 fund. Given I’ll have money in a taxed account, I feel like it’s time to move to a 3 fund portfolio and balance across my accounts. I’d appreciate your suggestions on how I should structure it.

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. Right now you could have:

Joint taxable at Vanguard -- $155K -- 39%
39% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)

His 401k at Vanguard -- $230K -- 59%
12% (VIIIX) Vanguard Institutional Index Fund Institutional Plus Shares (0.02%)
3% (VEMPX) Vanguard Extended Market Index Fund Institutional Plus Shares (0.05%)
24% (VTPSX) Vanguard Total International Stock Index Fund Institutional Plus Shares (0.07%)
20% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.04%)

Her 403b -- $0 -- 0%

His Roth IRA at Vanguard -- $8K -- 2%
2% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.16%)

Her Roth IRA at Vanguard -- $0 -- 0%

Eventually, when your taxable account dwarfs your tax-sheltered accounts use the 401k/403b for bonds and REITs if you want them. Put total US stock, total international stock, and if necessary tax-exempt bonds into taxable.

Just some possibilities.

User avatar
nedsaid
Posts: 8823
Joined: Fri Nov 23, 2012 12:33 pm

Re: Requesting Critique of My Portfolio

Post by nedsaid » Sun Feb 26, 2017 11:37 pm

madmartigan wrote:
Nedsaid: I would recommend 20% to 50% of your stocks in international. International bonds are entirely optional in my opinion.
Why? Is the reasoning for further diversification, to avoid significant losses if domestic stocks took a huge hit? Would you consider 20% to be riskier, and 50% to be more conservative?


The biggest reason for International diversification is to avoid home country bias. Japan is a good example of a major country with large multi-national companies that suffered a bear market during the time that much of the rest of the world was in a bull market. When the Japanese bear market started in 1989, Japan was the number two economy in the world. The Japanese stock market still has not recovered after all these years. I consider a Japan scenario for the US unlikely but I don't dismiss that it could happen here.

For myself, I keep about 25% or so of my stocks in International and about 7% for bonds.
A fool and his money are good for business.

User avatar
nedsaid
Posts: 8823
Joined: Fri Nov 23, 2012 12:33 pm

Re: Requesting Critique of My Portfolio

Post by nedsaid » Mon Feb 27, 2017 12:10 am

You asked a second question about the level of risk in International investing. You asked if a 20% allocation would be riskier than a 50% allocation. Great question.

Currency risk is a big factor in International stock returns. A strong US Dollar vs. other currencies tends to be headwinds for International Stocks and Bonds. Earnings from stocks or interest from bonds will buy fewer dollars when translated back into dollars. On the other hand, US multi-nationals derive a lot of their earnings from overseas, so a strong dollar can hurt earnings of such companies. A weak US Dollar vs. other currencies tends to be tailwinds for International Stocks and Bonds since earnings or interest payments in foreign currencies will buy more dollars. If you are worried about currency risk, a 20% allocation of stocks to International would be a more conservative and less risky allocation.

If you are worried about home country bias and single country risk, you could make a pretty good argument that a 50% allocation to International Stocks would be less risky than a 20% allocation. That is if you believe that single country risk outweighs currency risks.

I said your question is a great question because there is no clear answer. A lot depends upon how you define risk. Arguments can also be made about accounting standards and political risk. It is a complex issue.
A fool and his money are good for business.

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