Investment Portfolio Help- 31 y/o 1st time poster

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Hanksmoney
Posts: 59
Joined: Fri Feb 24, 2017 10:04 am

Investment Portfolio Help- 31 y/o 1st time poster

Post by Hanksmoney » Wed Mar 08, 2017 2:13 pm

Greetings! I'm excited to have found this resource and to be taking an initiative to delve into my financial strategy.

Me: 31 years old Married, Engineer for Electric Utility, no kids yet...but maybe in a year or so
Her: 28 y/o employed
Combined income: $120K
Federal Tax: 25%
State (SC): 7%
Emergency Fund: :$3500 (not much more than 1 mo) I want to get this up to about $18K
Debt: $5K & 2 years left on vehicle left (4 yr @ 2.25%)
$167K & 13 yrs left on mortgage (15yr at 3.625%)

Desired Asset allocation: 80% stocks / 20% bonds (could be swayed +/-)
Desired International allocation: 30% of stocks (but what do i know? :D )

Cash: $3500
401K Balance (6% company match): $135K
Roth IRA (Vanguard): $4000 (just opened and contributed to 2016)

Current retirement assets

My Roth IRA
100% - Vanguard LifeStrategy Growth Fund - VASGX - 0.15%

My 401K (6% match)
  • portfolio%/Stock Name/Ticker/ER
    ______ Stock
    0.44% ______ AMG TIMESSQUARE MID CAP GRTH Z 1 _( TMDIX )__ 1.03%
    13.41% ______ DODGE & COX INTERNATIONAL ST _( DODFX )__ 0.64%
    4.99% ______ DODGE & COX STOCK FUND _( DODGX )__ 0.52%
    9.61% ______ JANUS RESEARCH FUND CL I _( JRAIX )__ 0.83%
    44.68% ______ SCANA CORP NEW COM _( SCG )__ N/A
    2.24% ______ T ROWE PRICE MID CAP VAL _( TRMCX )__ 0.80%
    ------ ______ VANGUARD EXTENDED MKT INDX ADM _( VEXAX )__ 0.09%
    1.12% ______ VANGUARD INSTITUTIONAL INDEX _( VINIX )__ 0.04%
    2.24% ______ VANGUARD TOTAL INTL STOCK ADM _( VTIAX )__ 0.12%
    ------ ______ VICTORY RS PARTNERS CL FD Y _( RSPYX )__ 1.17%
    1.45% ______ VOYA SMALL CAP OPPORTUNITIES I _( NSPIX )__ 1.14%

    BOND/FIXED INCOME
    7.28% ______ PIMCO TOTAL RETURN PORT. INSTL _( PTTRX )__ 0.46%
    ______ VANGUARD TTL BD MRKT INDX ADM _( VBTLX )__ 0.06%
    ______ MONEY MARKET/STABLE VALUE _( )__ #N/A
    ______ WELLS FARGO STABLE RETURN FD C _( WESRT )__ 0.57%

    ALLOCATION FUNDS
    ------ ______ VANGUARD 2015 INSTL TARGET RET _( VITVX )__ 0.09%
    ------ ______ VANGUARD 2020 INSTL TARGET RET _( VITWX )__ 0.10%
    ------ ______ VANGUARD 2025 INSTL TARGET RET _( VRIVX )__ 0.10%
    ------ ______ VANGUARD 2030 INSTL TARGET RET _( VTTWX )__ 0.10%
    ------ ______ VANGUARD 2035 INSTL TARGET RET _( VITFX )__ 0.10%
    ------ ______ VANGUARD 2040 INSTL TARGET RET _( VIRSX )__ 0.10%
    11.41% ______ VANGUARD 2045 INSTL TARGET RET _( VITLX )__ 0.10%
    ------ ______ VANGUARD 2050 INSTL TARGET RET _( VTRLX )__ 0.10%
    1.13% ______ VANGUARD 2055 INSTL TARGET RET _( VIVLX )__ 0.10%
    ------ ______ VANGUARD 2060 INSTL TARGET RET _( VILVX )__ 0.10%
    ______ VANGUARD INCM INSTL TARGET RET _( VITRX )__ 0.09%
The problems I have with my portfolio is I have to many investments. I'd like to simplify to only a few to make re-balancing easy. My company matches 6% in company stock - that's why it is so high. I like to drop it down to 20%-30% max of my total. I'm sure even that amount will get cringes here, but it has a10 year annualized return of 10.17% w/ no ER, outperforming the rest of my pack.

My plan is to save up $18K in emergency fund, then start back into the Roth. I feel like I need the most help in selling off and reallocating my 401k. Thanks! :sharebeer

bloom2708
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Location: Fargo, ND

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by bloom2708 » Wed Mar 08, 2017 4:11 pm

Welcome. You have good, low cost funds in your 401k. Many will be jealous of your fund choices.

One option:

56% Vanguard Institutional Index
24% Vanguard Total International Index
20% Vanguard Total Bond Market

That is your basic "3 fund portfolio". You could add the Vanguard Extended Market (Take 10% of your Vanguard Institutional Index).

I would probably stick with the 3. Easier to track. Low cost, diversified. Rebalance 1 time per year if your allocations get off.

An alternative would be to only use the Target Fund 2040 or 2045. I only use a Target fund in my current 401k. At Vanguard I use a 3 fund approach.

Less is more. All of these funds are essentially buying from the same pool of stocks. So having more investments doesn't mean you are more diversified. You just have duplication.

Good luck. I hope others will give their advice.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

Loandapper
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Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by Loandapper » Wed Mar 08, 2017 5:23 pm

Considering your access to incredibly low cost funds in your 401k, you should consider putting everything in Vanguard Institutional Target Retirement 2050 (VTRLX) and calling it a day. Conversely, you'd save a few bucks a month switching to a traditional three-fund portfolio, as bloom describes above. Either way, you should do one of these because you're spending a lot on fees right now for a number of overlapping funds.

BW1985
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Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by BW1985 » Wed Mar 08, 2017 5:37 pm

You have access to the ideal funds according to many BH's. Great news!

Vanguard Institutional Index
Vanguard Extended Market Index
Vanguard Total International Index
Vanguard Total Bond Market

You just need to decide if you want to hold market cap weighted ratio of Institutional (large cap) to Extended (mid & small cap) or if you want to tilt towards Extended. Market cap is approx. 4 to 1 (80/20) Institutional to Extended.

International allocation is a topic highly discussed. Market cap weight is 50%, some hold that while others hold none. 20-30% is also common. Opinions differ between BH's. One could make the case that anywhere between 0-50% is reasonable.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

iamlucky13
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Location: Western Washington

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by iamlucky13 » Wed Mar 08, 2017 6:15 pm

bloom2708 wrote: Good luck. I hope others will give their advice.
But what's left to add? Your answer is basically exactly what he asked for. :sharebeer

Actually, I do have a couple inputs. He said his 401k match is in company stock - currently 44.68% of his portfolio in a single company. Past performance is no guarantee of the future, so it's risky holding that much in one company, doubly so since your source of income is potentially linked to the same company's fortunes.

I know the sense of being confident in the place you work, and it's a good thing. I still hold some stock from my last employer. Regardless, I personally would keep that below 10% unless there are rules on the match that limit your ability to sell it. Rationally, I think 0% is the best advice, but I'm conceding partially to what you asked for.

Secondly, I really like the added diversification of the total US stock market versus the S&P 500 in Vanguard Institutional. VTSMX is roughly 1/4 small and mid caps, according to Morningstar, and I'm inclined to stick with their weightings as a baseline.

So here's my suggestion, using the same 70/30 US to international split, with the employer stock treated separately from the 80:20 allocation target for simplicity, and a 75:25 split of S&P 500 to the extended market index for the US equity share:

10% Employer Stock
37% Vanguard Institutional Index
13% Vanguard Extended Market Index
22% Vanguard Total International
18% Vanguard Total Bond

Or if you want even simpler:
10% Employer Stock
90% Vanguard Target Date (2035 is closest to your 80:20 target)

You can manipulate holdings in both your IRA and 401k to match whatever percentages you ultimately choose, or you can just keep your IRA in LifeStrategy Growth, since it is an 80:20 stock to bond allocation like you requested and has a reasonable weighting (60:40) of US to international stock.

anil686
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Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by anil686 » Wed Mar 08, 2017 7:15 pm

I would put it all in a target date fund and forget about it. I know that sounds pretty basic but I think it holds some signficant advantages behaviorally compared to the three fund (which I use in a taxable account but not in my 401K/IRA which are in TR funds or LS funds).

1. While slightly higher cost than the average 3 fund - it is rebalanced daily giving it a different return than the three fund rebalanced on any other schedule (every quarter, six months, year, birthday, anniversary, five years, etc.). Rick Ferri looked at this over time (in relation to rebalancing in general) and look at the differences in returns for different schedules - they exceed the difference in cost between a TR fund and a three fund. so while the cost might be slightly less (less than 0.1% ER or even less with your very good institutional ERs for TR funds) - the returns will likely be similar over a long period.

https://www.forbes.com/sites/rickferri/ ... 3bcda01f53

2. You would need to rebalance - this sounds easy to remember especially now when you are making a plan. But will you remember in one year, five years, 10 years, 20 years? Will you be free to that on the date you choose - New Year's Eve, a birthday, an anniversary, New Years? with a TR fund - there is no need to do anything.

3. Rebalancing means selling your winners and contributing to your losers which sometimes is like putting money into a fund while holding your nose (like international for the past few years). If you are having a tough time selling your company stock because it is a winner - it may be difficult to sell your winners and put money into the losers.

Note - none of the above reflect an inferiority of the three fund - it certainly does not. It reflects my opinion that I am not strong enough mentally or disciplined enough to follow through easily with a plan and the TR fund helps me do that. JMO though...

Hanksmoney
Posts: 59
Joined: Fri Feb 24, 2017 10:04 am

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by Hanksmoney » Thu Mar 09, 2017 8:32 am

Thanks for all the advice! I have been pouring over it.
bloom2708 wrote:Welcome. You have good, low cost funds in your 401k. Many will be jealous of your fund choices.
One option:
56% Vanguard Institutional Index
24% Vanguard Total International Index
20% Vanguard Total Bond Market
That is your basic "3 fund portfolio". You could add the Vanguard Extended Market (Take 10% of your Vanguard Institutional Index).
This does line up exactly with what I was thinking. The additional advice of the Vanguard Institutional index spurred a bit of research into what the difference is between the 2 domestics and what the 80/20 split means. You were right on point and I learned something!
BW1985 wrote:
You just need to decide if you want to hold market cap weighted ratio of Institutional (large cap) to Extended (mid & small cap) or if you want to tilt towards Extended. Market cap is approx. 4 to 1 (80/20) Institutional to Extended.
Same subject - but thanks for also getting into this. I'm also picking up on that 80/20 is referring to Domestics, which can be 80/20 with International. And Stocks can be 80/20 with bonds. That's a lot of compounding 80%'s! But it's easy to remember in my case.
BW1985 wrote: International allocation is a topic highly discussed. Market cap weight is 50%, some hold that while others hold none. 20-30% is also common. Opinions differ between BH's. One could make the case that anywhere between 0-50% is reasonable.
Maybe I will breach this more. I am thinking 20% of my total portfolio. When you are saying 50% & 20-30% are you saying 50% of the stock portion of the portfolio? I think so, but wanted to make sure.
BW1985 wrote:Either way, you should do one of these because you're spending a lot on fees right now for a number of overlapping funds.
Yeah, being a inexperienced, I considered that diversification but now I can see how it's not. This site has sold me on the value of low cost funds. I suppose in the past I would get on Morningstar and be wow'ed by the 4 and 5 stars of some of the higher cost funds, Like the VOYA Small Call for example. Even the PIMCO Bond (PTTRX), being more expensive has had a better return than the VBTLX- not sure if it does factoring in cost though....
iamlucky13 wrote: Actually, I do have a couple inputs. He said his 401k match is in company stock - currently 44.68% of his portfolio in a single company. Past performance is no guarantee of the future, so it's risky holding that much in one company, doubly so since your source of income is potentially linked to the same company's fortunes.

I know the sense of being confident in the place you work, and it's a good thing. I still hold some stock from my last employer. Regardless, I personally would keep that below 10% unless there are rules on the match that limit your ability to sell it. Rationally, I think 0% is the best advice, but I'm conceding partially to what you asked for.
I love it and I hate it. I am have the same negative sentiments you mentioned but haven't had the discipline to keep selling it off. It builds up so quickly and, because the ticker is on my homepage every day, I get the false feeling that I know when it's high and when it's low. Like for instance, they paid out the quarterly dividend yesterday (0.8%) and the stock dropped 2%. Well, now I feel stupid for not selling before the dividend because now I'd be selling half my portfolio at a 2% loss into a market that seems high.
iamlucky13 wrote: So here's my suggestion, using the same 70/30 US to international split, with the employer stock treated separately from the 80:20 allocation target for simplicity, and a 75:25 split of S&P 500 to the extended market index for the US equity share:

10% Employer Stock
37% Vanguard Institutional Index
13% Vanguard Extended Market Index
22% Vanguard Total International
18% Vanguard Total Bond

You can manipulate holdings in both your IRA and 401k to match whatever percentages you ultimately choose, or you can just keep your IRA in LifeStrategy Growth, since it is an 80:20 stock to bond allocation like you requested and has a reasonable weighting (60:40) of US to international stock.
I appreciate you taking into consideration the company stock. I have no problem dropping the allocation down to 10%. I probably sell it down to 4% since, like i say, it will build up so quickly. I just checked and it's down another 2% today :shock: .

iamlucky13
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Location: Western Washington

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by iamlucky13 » Thu Mar 09, 2017 2:03 pm

Hanksmoney wrote:but haven't had the discipline to keep selling it off. It builds up so quickly
I'd suggest simply doing your regular company stock sales on the same schedule you rebalance the rest of your investments, or once every 6 to 12 months if you're not doing any other rebalancing. Although 6% will build up very fast when your total portfolio is small, that will change as your portfolio grows.
Hanksmoney wrote:Well, now I feel stupid for not selling before the dividend because now I'd be selling half my portfolio at a 2% loss into a market that seems high.
This happens to me, too. It's hard to escape the sense that you should try to pick the right day to buy or sell, even with mutual funds, but there's seldom a good reason to think you can consistently do so. You've just got to resolve not to think about the day's pricing and either go ahead and do it, or make a plan to do it in a couple phases to dollar cost average the change.

Actually, with as much as you currently have in the company stock, I think I'd personally find it easier to get myself started by dollar cost averaging my way out in 2-4 transactions over 6-12 months.
Hanksmoney wrote:When you are saying 50% & 20-30% are you saying 50% of the stock portion of the portfolio? I think so, but wanted to make sure.
That's the percentage of the stock portion of your portfolio.

Hanksmoney
Posts: 59
Joined: Fri Feb 24, 2017 10:04 am

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by Hanksmoney » Thu Mar 09, 2017 3:01 pm

iamlucky13 wrote: ...or make a plan to do it in a couple phases to dollar cost average the change.

Actually, with as much as you currently have in the company stock, I think I'd personally find it easier to get myself started by dollar cost averaging my way out in 2-4 transactions over 6-12 months.
That's a fantastic idea actually. Why try to pick a winning day or a losing day? - if you spread it out, it reduces the risk... I'll definitely do that.

Tal-
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Joined: Fri Apr 22, 2016 10:41 pm

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by Tal- » Thu Mar 09, 2017 3:22 pm

You're in good shape, and have got good advice above.

Like you, I lean towards a custom (low-cost) allocation rather than a target date fund, but know that there is no harm nor shame in either. With that said, I wouldn't mix-and-match between these two strategies.

I think you know the issues holding company stock, so I'll avoid my lecture.

Your short (emergency fund) and longer (Roth IRA) term goals both seem spot-on. And your car debt/mortgage both seem reasonable. And, I'm even happy that you have a reasonable start to your emergency fund.

You're of to a great start. Props!
Debt is to personal finance as a knife is to cooking.

Hanksmoney
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Joined: Fri Feb 24, 2017 10:04 am

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by Hanksmoney » Thu Mar 09, 2017 4:30 pm

Tal- wrote:You're in good shape, and have got good advice above.

Like you, I lean towards a custom (low-cost) allocation rather than a target date fund, but know that there is no harm nor shame in either. With that said, I wouldn't mix-and-match between these two strategies.

I think you know the issues holding company stock, so I'll avoid my lecture.

Your short (emergency fund) and longer (Roth IRA) term goals both seem spot-on. And your car debt/mortgage both seem reasonable. And, I'm even happy that you have a reasonable start to your emergency fund.

You're of to a great start. Props!
:thumbsup :sharebeer

MarkVH0518
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Joined: Tue Dec 13, 2016 2:14 pm

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by MarkVH0518 » Thu Mar 09, 2017 5:06 pm

Well, I will give a lecture on avoiding your company stock.
I came of age in the tech boom working for what was, even then, a fading telecom company, although that was not apparent
at the time (except in the PE ratio). My investing colleagues were hounding me about not investing in my company and other companies like it.
My proudest investment accomplishment was avoiding this hype.

1) All the issues about inability to time the market are all the more relevant for your own company.
Most people *must* be emotionally committed to their employer or they can't do good work.
In that environment, it's harder to see the 'writing on the wall'.
Furthermore, unless you are a high level officer (and maybe not even then) you actually don't have enough
scope to know when things are bad.

2) The most significant issue is that now you have both your job and your investment portfolio highly correlated
to one single event, the success of your employer. And you are not like owner or founder of the company, you
don't have much power to influence things nor even insight to recognize them.

3) My recommendation is the sell your stock acquisitions *exactly* as the vest. Certainly quarterly, and maybe even monthly
if the transaction costs are not too high. I acknowledge that this does not address the large holding you currently have.
I suggest you sell all but 5% (of portfolio) right now and celebrate the success (i.e. gains) you've had thus far.
Betting that you work for the next Google is not realistic, not even probable.

MarkVH0518
Posts: 45
Joined: Tue Dec 13, 2016 2:14 pm

Re: Investment Portfolio Help- 31 y/o 1st time poster

Post by MarkVH0518 » Thu Mar 09, 2017 5:07 pm

Well, I will give a lecture on avoiding your company stock.
I came of age in the tech boom working for what was, even then, a fading telecom company, although that was not apparent
at the time (except in the PE ratio). My investing colleagues were hounding me about not investing in my company and other companies like it.
My proudest investment accomplishment was avoiding this hype.

1) All the issues about inability to time the market are all the more relevant for your own company.
Most people *must* be emotionally committed to their employer or they can't do good work.
In that environment, it's harder to see the 'writing on the wall'.
Furthermore, unless you are a high level officer (and maybe not even then) you actually don't have enough
scope to know when things are bad.

2) The most significant issue is that now you have both your job and your investment portfolio highly correlated
to one single event, the success of your employer. And you are not like owner or founder of the company, you
don't have much power to influence things nor even insight to recognize them.

3) My recommendation is the sell your stock acquisitions *exactly* as the vest. Certainly quarterly, and maybe even monthly
if the transaction costs are not too high. I acknowledge that this does not address the large holding you currently have.
I suggest you sell all but 5% (of portfolio) right now and celebrate the success (i.e. gains) you've had thus far.
Betting that you work for the next Google is not realistic, not even probable.

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