Portfolio advice

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Portfolio advice

Postby protons » Fri Mar 17, 2017 1:40 pm

Emergency funds: 3 months
Debt: Loans 200K at 4.615% with SoFI, monthly payment $2297
Tax Filing Status: single
Tax Rate: 33.34% Federal,4.225% State
Income: 600K
State of Residence: MO
Age: 33
Desired Asset allocation: 80% stocks 20% bonds

Size of current portfolio: ~200K

Current retirement assets

2.4%, DFA Tax Managed US Small Cap, DFTSX, ER 0.52%
3.3%, DFA Tax Managed US Equity, DTMEX, ER 0.22%
9.9% DFA Tx Mgd US Marketwide Value CL P, DTMMX, ER 0.37%
12.2% DFA Tax Managed US Targeted Value, DTMVX, ER 0.44%
22.8% DFA Tax Managed International Value, DTMIX, ER 0.53%
1.7% Novocure Limited ORD, NVCR
1.1% DFA Emerging Markets Stock ETF, DFEMX, ER 0.48%
0.5% Vanguard Emerging Markets Stock ETF, VWO, ER 0.14%
10.3% DFA Intermediate Term Muni Bond D, DFTIX, ER 0.23%
0.9% TDAM Municipal Portfolio Class A, ZTD79 cash equivalent

0.3% 0OIA4 Vanguard Intermediate Bond Index IP, Expense ratio?
2.9% Fidelity Spartan 500 Index INV, FUSEX, ER 0.09%
0.6%, Spartan Emerging Market Index Fund Investor, FPEMX, ER 0.3%
0.6% Fidelity US Bond Index CL INV, FBIDX, ER 0.15%
1.0% Fidelity Large Cap Value Enhanced Index, FLVEX, ER 0.45%
1.1% Spartan Small Cap index Investor CI, FSSPX, ER 0.23%
1.3% Fidelity Spartan International Index INV, FSIIX, ER 0.19%
0.5% Spartan Emerging Market Index Fund Investor, FPEMX, ER 0.3%
Company match: 50%

2.4% DFA US Targeted Value CL I, DFFVX, ER 0.37%
1.5% Vanguard Explorer CL ADM, VEXRX, ER 0.34%
2.3% Vanguard Institutional Index Inst PI, VIIIX, ER 0.02%
1.7% Oppenheimer International Growth Fund Class I SHS, OIGIX, ER 0.7%
6.6% 0OIA4, Vanguard Intermediate Bond Index IP, Expense ratio?

Roth IRA at Vanguard
0.8% Vanguard Value ETF, VTV, ER 0.8%
3.3% Vanguard Emerging Markets Stock ETF, VWO, ER 0.14%
0.2% IDA12 TDA cash equivalent money market
5.9% DFA Intl Value CL I, DFIVX, ER 0.43%
1.9% ishares MSCI EAFE Value Index, EFV, ER 0.40%

Total Investments
401K: $13K
403B: $22K
Roth: $19K
Taxable: 106K


New annual Contributions
$18,000 401K, 50% match
$18,000 403b, 50% match
$5,500 IRA/Roth IRA
$100,000 taxable

1. Should I continue to pay off my loan as I am or pay more aggressively?

2. I have a financial advisor and am thinking of doing more on my own. The charge is 1% Any suggestions as to what I should purchase on my own?

This is my first post of this nature. Please let me know if there is anything that doesn’t look right or if there is something else I should include.

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Re: Portfolio advice

Postby retireearly » Fri Mar 17, 2017 3:57 pm


My first post on this board! What jumps out is your age. At 33, I strongly recommend having 0% bonds! I don't see any value prop, etc for Corp High Yield (maybe?). Also, you're asking good questions, so why give 1% to someone when you can home in on portfolio by doing what you're doing!

[u]]First, definitely do not stop any contribution to retirement acct with their many advantages. 100K taxable per year?? (Congrats!) I would be tempted to take a good chunk of that each year and pay off the loan in 2-3 years. You are still dipping toes into the market via retirement money, and a some taxable investment money, but at a minimum, you're guaranteeing a return of 4.6% (and some peace of mind). If valuations were 10 years ago where PE's were in low teens and there was a huge sell off, I'd say pump everything into the market but after this run up for nearly 8 years or so, guaranteeing 4.6% by paying your loan off is not a bad idea! If your job is stable, heck, why not use the emergency 3 month and then your new annual taxable money and pay it off? Remember, Roth money is still emergency money.

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Re: Portfolio advice

Postby protons » Sat Mar 18, 2017 3:43 pm

Thanks. My investment advisor says to pay off the loan slowly because over time the market will do better. Sure is tempting to pay off like you said.

I'm in an aggressive mix of mutual funds and stocks etc, which my advisor claims will do better than 10% as long as I don't touch it during the down times, and I'm overall a pretty patient person with those types of things.

Do you think there's not much guarantee the market will do that well?

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Re: Portfolio advice

Postby autopeep » Sat Mar 18, 2017 4:19 pm

Paying off the loan is a sound plan before further taxable investing (and should be very doable at your income). I strongly disagree with the recommendation that you use your emergency fund to do so.

Bonds are a matter of personal philosophy. A small holding of bonds (10-20%) at your age may dampen volatility while minimally impacting your return.

The elephant in the room though is that this portfolio is an overly complicated incoherent mess. I personally would simplify.

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Re: Portfolio advice

Postby Youngblood » Sat Mar 18, 2017 4:52 pm

You could do it yourself for no fee, if you have the time and desire to do so.

At the rate you are saving and your matching funds, even if the market does not average 10% a year (unknown) you will do very well keeping things just as they are. But, I would consider reducing the number of funds you hold (KISS) and monitoring all your assets, loans, investments in one place (I use Quicken but there are other ways to do so).

Paying 1% year after year on all money your advisor controls regardless of whether or not the market goes up or down is a great position for him/her to be in. Fast forward and now you have 2 million and now your cost is 20K a year and growing. That of course doesn't include individual fund expenses.

Therefore, if you have the time and interest I would do it myself. OTOH, if your work would suffer and result in less compensation or loss of job, paying someone may be worth it. In that case, I would look into hiring Vanguard to manage my portfolio for .3 % a year and also reduce the individual fund expenses by using Vanguard funds or ETFs.

Your mortgage is fine and considering mortgage expense deduction and paying off in cheaper dollars due to inflation over the years your expense is below 2%.

Bottom line (if I were you) I would hire Vanguard pay the yearly .3% fee for the time being and take my time deciding whether or not I want to do it entirely on my own. Your human capital is your greatest asset, don't risk reducing it or losing it.

Congratulations and good luck!

"I made my money by selling too soon." | Bernard M. Baruch

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Re: Portfolio advice

Postby protons » Sat Mar 18, 2017 5:11 pm

The whole time typing this, I kept wondering if he was making this so complicated so I won't believe I could do it myself!

0.3% does sound a lot better. Or perhaps my advisor will bargain with me... :mrgreen:

Will the vanguard ETF funds be as good as the DFA tax managed funds? From what I have read, there's not too much difference.

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Re: Portfolio advice

Postby Globalviewer58 » Sat Mar 18, 2017 5:34 pm

I would pay the loan down following the monthly schedule. At your income you have no financial pressure to pay off more quickly.

You are paying too much for an advisor at 1% AUM. I had a DFA advisor for several years at 0.25% AUM which I considered tuition as I learned about diversification and tax loss harvesting. After a few years of this I went without the advisor and continue to hold the DFA funds but cannot buy more of these funds except for reinvestment of dividends. The barrier to selling now is high capital gains in the funds.

Your portfolio is relatively small so you might consider the long term benefits of taking a much simpler route with a 3-fund portfolio. I would use a Target Retirement Fund and a Total Bond Market Fund in the 401k and 403b accounts to reduce to one or two holdings in each account. This makes rebalancing very easy.

You may have a loss to realize later this year in the taxable account DFA Muni Fund as the Federal Reserve moves rates higher. If so, use the loss to offset gains from selling the other DFA holdings and reinvest in Vanguard or similar Total Stock and Total International Equity Funds. The biggest lever you have for financial independence is saving rate. You do not need a complex set of holdings to juggle.

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Re: Portfolio advice

Postby Misenplace » Sat Mar 18, 2017 5:50 pm

Hi Proton,

Congratulations and welcome to the forum!

Your advisor has you in a lot of funds, but overall it appears like a good portfolio. I think you hit the nail on the head- with so many funds, it is much harder for you to keep track of it. He definitely has you in a Value/Small Cap tilt, which is what the academic literature by Fama and French advocate. The DFA funds are only available to a select network of advisors, and they are generally good funds although their expense ratios are higher than index funds. He also has you in a strong Emerging Market tilt, maybe a bit much. I am concerned that he is guaranteeing you a 10% return in the long run if you just ride with him. No one can guarantee that.

I think it is fine to stay with him if you are willing to pay both the higher expenses on the DFA funds and his 1%. You need to ask yourself if paying 1.3% of your portfolio is worth it to you or not. I recommend doing some reading on the Wiki. Also, here is my best advice: review this pamphlet by William Bernstein, and work through the assigned reading list. http://efficientfrontier.com/ef/0adhoc/2books.htm Only then will you be able to decide if you have been throwing that 1.3% away on the promise of more returns than that or not. Regardless, I would ask your advisor about simplifying it. Also, as your portfolio grows, you should pay less than 1% so negotiate that.

Some other points- your tax rate is not 33.34%- you are at the highest rate 39.6% plus the extra medicare tax for high earners of 2.35%.

What is Novocure Limited ORD- be careful not to let individual stocks get to be too high a percentage of your net worth, especially if they are your employer. 1.7% isn't bad, but my own rule of thumb is 4%. Diversity is your only free lunch.

As for your loan, is it a mortgage or something else? I would be tempted to beef up your emergency fund a bit, and then pay it off. Some on this forum consider a mortgage as a "negative bond."

Be careful of lifestyle creep- stay living below your means. You can save much more than 100K a year in taxable. If you save half of your income every year, you will be financially independent in about 12 years. Finally, you may want to think about disability insurance.
Kind regards,

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Re: Portfolio advice

Postby protons » Sun Mar 19, 2017 8:59 am

Thanks very much for the helpful replies.

The loan I have is a student loan. So I don't think the rate will go down.

Novocure is all on me - it's a medical device I believe in. In it for the long haul.

Thanks for clarification on the tax rate. Yes, in the beginning of the year when I have to pay Medicare taxes my tax rate is close to 50%.

Misenplace, I'll take a look at that book. Great recommendation.

Globalviewer, I will have to do some work to figure out how to do all that myself. Thanks for the tips.

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Re: Portfolio advice

Postby midareff » Sun Mar 19, 2017 10:33 am

First welcome to the forum and congratulations on being well established at 33.

You said you had $200K of which I see $160K detailed in your summary of accounts so I assume you are including your emergency fund ($40K?) in the total. If you are paying an advisor who assisted in, or promoted the establishment of 28 different funds across four accounts that advisor should be dismissed immediately. At a 1% fee it is impossible for you to obtain market results for yourself AND, at 1% for the advisor paying off that 4.615% loan is equivalent to a 5.615% return as compared to adding new money with this advisor. I would accelerate the payoff of the debt which on a $600K annual income should make it fairly easy to dismiss rapidly.

While you said you would like an 80/20 split for you AA you may not find that necessary or helpful across all accounts.

To start... Novocure Limited which you want to hold should be in your Roth. If it goes gangbusters for the next 5, 10 or 20 years do you want it in an account you will have capital gains exposure on or one that doesn't. If you insist on investing/speculating on an individual stock do it in your Roth and no more than a couple of percent of total. With single stock conviction comes larger risk, both of gain and loss. While we are on Roth accounts it is logical for the Roth, from while (eventually) all distributions will be tax free to hold the assets which have the highest probability of long term gains. This is the account that would seem most logical for Emerging Market funds if you wanted to hold them. That would have your Roth at one stock and one or two Emerging Market funds.

Taxable account is an ideal place for low costs index funds. While your advisor may be able to identify one fund or more of DFA that outperformed and equivalent Vanguard of Fidelity low cost index adding that 1% makes it a real no starter for me. In taxable I would look at Vanguard Total US and Vanguard Total International and if you choose to hold some bonds in that account I would look for a high rated municipal bond fund since with $600K of employment income the last thing you need is more taxable income. I'd look at Vanguard's intermediate term offering. That would have taxable at three funds.

401K ... You presently have one Vanguard fund there and seven (7) Fidelity Funds. Vanguard's Intermediate Bond Index is a fine bond fund made up of corporate and government bonds, very diversified. Again, keep it simple with either Vanguard's or Fidelity's Total US and Total International Funds in any ratio of US/International you are comfortable with. Anywhere from 20% to 40% international is frequently cited on this board and many also go 50/50. Three funds in this account is plenty.

403b ... You presently have three Vanguard funds, one DFA and one Oppenheimer. I have two suggestions for you. The first is simply mirror your 401k here. The second would be to use more mid and small cap funds here such as Fidelity's extended market index, Vanguards International Explorer and an International Bond Fund such as Vanguards. Again, no more than three funds only.

End result, taxable 3 funds, 401k and 403b, no more than 3 each and same with the Roth. That replaces 28 funds with no more than 12, IF, you have a bond fund in every account. You might decide to carry bonds only in your taxable or only in one of the 401/403 accounts. Which could reduce your complexity to as few as 9, or even go with Total US in the 401 and Total International in the 403. The only free lunch in investing is diversification. .. it is not at your advisor's desk.. you are paying dearly for that one. Keep it simple, sleep well at night and have a written plan which you are able to follow when the invariable occasional black swans fly.
403b ..

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Re: Portfolio advice

Postby protons » Sun Mar 19, 2017 8:05 pm

Thanks everyone for the comments. Sounds like the consensus on the student loan is to go ahead and pay it off sooner.

And somebody mentioned disability insurance. I do have that - thanks as I do agree that is critical.

And midareff thanks very much for your detailed answer. I'll switch Novocure to the Roth and I like the idea of simplifying. Eventually it looks like I could handle it on my own. Can you explain a little bit more about how it is impossible to obtain market results with 28 different funds and a 1% fee?

If this is useful to the board I also want to pass on that I have my emergency fund and banking with Alliant Credit Union. The savings account makes 1%, and you can switch cash from checking to savings with a simple few clicks with no fee. They are based out of Chicago and you don't have to live there to sign up. Lots of other benefits also.

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