Portfolio Review Request - New to Indexing

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JackArbor
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Portfolio Review Request - New to Indexing

Post by JackArbor » Thu Mar 23, 2017 9:27 pm

I’ve been researching here for a few months and want to say THANK YOU to the whole community for all the amazing content. Having finally found index investing, I’m going all-in with my tax-advantaged accounts and am seeking feedback on my choices.

After a few months of research, I’ve settled on Rick Ferri’s Core Four and plan to set it and forget it. Because I’m concerned about the hyper-inflated market and current political climate, I’m choosing a 70/30 allocation. I plan to rebalance once a year.

My Information
Emergency fund: Four months of expenses (not included in current assets)
Debt: Mortgage @ 3.625%, one small (under $10K) car loan @ 5.25%, minor revolving @ 9.4%
Tax filing status: Married
Tax bracket: 33%
State of residence: CO
Age: 47
Desired asset allocation (tax-ad): 70% stocks, 30% bonds
Current asset allocation (tax-ad and taxed): 87% cash, 10% Fidelity Target Fund (401K), 3% taxed conservative WealthFront portfolio (for fun)
Investment temperament: I can handle some risk, but not as much as I thought I could
Investment experience: Freshman
Target retirement age: 70 (goal is to convert to self-employment in the next 10 years and keep working).

Current Assets
Taxable account: $60K in cash - 17% (very conservative WealthFront), 83% Cash (Fidelity)
Trad IRA (Vanguard): $220,000 all cash
401K, Company Sponsored (Fidelity): $32,000 *FID FREEDOM K 2035 -FKTHX - 100% (fees: .67%)

Annual Contributions
Savings, taxed account: $12,000
401K: 15%, $27,000
Trad IRA: $0 (income capped)

Funds available in 401K
Name / Expense Ratio / Category
ABF LG CAP VAL INV (AAGPX) 0.93% Large Cap
FID 500 INDEX PR (FUSVX) 0.05% Large Cap
FID CONTRAFUND K (FCNKX) 0.58% Large Cap
FID GROWTH CO K (FGCKX) 0.66% Large Cap
AB DISC VALUE A (ABASX) 1.15% Mid-Cap
ARTISAN MID CAP VAL (ARTQX) 1.16% Mid-Cap
FID EXT MKT IDX PR (FSEVX) 0.07% Mid-Cap
FID LOW PRICED STK K (FLPKX) 0.78% Mid-Cap
FID MID CAP STOCK K (FKMCX) 0.61% Mid-Cap
MSIF MID CAP GRTH A (MACGX) 1% Mid-Cap
FID SM CAP IDX PR (FSSVX) 0.07% Small Cap
FID SMALL CAP GROWTH (FCPGX) 1.13% Small Cap
FID SMALL CAP VALUE (FCPVX) 1.22% Small Cap
FID DIVERSIFD INTL K (FDIKX) 0.92% International
FID INTL INDEX PR (FSIVX) 0.08% International
TEMPLETON FOREIGN A (TEMFX) 1.22% International
FID FREEDOM K 2005 (FFKVX) 0.49% N/A
FID FREEDOM K 2010 (FFKCX) 0.53% N/A
FID FREEDOM K 2015 (FKVFX) 0.56% N/A
FID FREEDOM K 2020 (FFKDX) 0.58% N/A
FID FREEDOM K 2025 (FKTWX) 0.61% N/A
FID FREEDOM K 2030 (FFKEX) 0.65% N/A
 FID FREEDOM K 2035 (FKTHX) 0.67% N/A
FID FREEDOM K 2040 (FFKFX) 0.67% N/A
FID FREEDOM K 2045 (FFKGX) 0.67% N/A
FID FREEDOM K 2050 (FFKHX) 0.67% N/A
FID FREEDOM K 2055 (FDENX) 0.67% N/A
FID FREEDOM K 2060 (FDKNX) 0.67% N/A
FID FREEDOM K INCOME (FFKAX) 0.44% N/A
FID CAPITAL & INCOME (FAGIX) 0.75% Income
FIDELITY GOVT INCOME (FGOVX) 0.45% Income
PIMCO REAL RTN BD AD (PARRX) 0.83% Income
PIMCO TOT RETURN ADM (PTRAX) 0.72% Income
TMPL GLOBAL BOND A (TPINX) 0.96% Income

Proposed Tax-Advantaged Allocations
Rick Ferri’s Core Four
Splitting between Vanguard Trad IRA and Fidelity 401K:

30% VBTLX Vanguard Total Bond Market Index Fund
21% VTSAX Vanguard Total Stock Market Index Fund
14% FUSVX Fidelity 500 Index Premium
28% VTIAX Vanguard Total International Stock Index Fund
7% VGSLX Vanguard REIT Index Fund

Questions
1. I don’t seem to have great choices in my 401K to match the suggested Vanguard funds for Core Four. I’d appreciate feedback on my choice of FUSVX (versus perhaps FSIVX). I don’t have access to Fidelity US Bond Index Fund Premium (FSITX) or or Fidelity Total Market Index Fund Premium (FSTVX).

2. I’m trying to preserve the $50K in my taxed account for a future real estate investment or investment in my side business. I’d appreciate any recommendations on something conservative other than cash in our current climate. Maybe Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX) or Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX)?

3. I’d of course welcome any other feedback on my approach.

Thank you in advance!
“The man who chases two rabbits, catches neither.” ~ Confucius

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CAsage
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Re: Portfolio Review Request - New to Indexing

Post by CAsage » Fri Mar 24, 2017 4:04 pm

You do have some super cheap funds in your 401K, the FID 500 INDEX PR (FUSVX) 0.05% (Large Cap) and the FID INTL INDEX PR (FSIVX) 0.08% (International). I would put all of the 401k in those two funds, maybe 2/3 US and 1/3 International. Rebalance now, and keep adding to it.
Then, put your bonds and the rest of the stock allocation in your IRA, where you have control over the funds you choose. Since you are all in cash and the market is ... mature... you might want to shift over 10% a month or something slow and steady. Whatever you are comfortable with.

You might not qualify for an IRA, but anyone can do a backdoor IRA from a non-deductible IRA. Also, I just keep a spreadsheet of my total funds to balance them out, just use Excel to calculate whether each asset is what you want.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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Duckie
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Re: Portfolio Review Request - New to Indexing

Post by Duckie » Fri Mar 24, 2017 5:51 pm

JackArbor, welcome to the forum.
JackArbor wrote:Trad IRA: $0 (income capped)
If your income is under the limit for direct Roth IRA contributions you are allowed to contribute to a Roth IRA directly (for both you and your spouse). If your income is above the limit you may be able to use the Backdoor Roth IRA method. However, your TIRA assets will get in the way because of the pro-rata rule. Does your 401k plan allow incoming rollovers from IRAs?
Funds available in 401K
The best options are:
  • FID 500 INDEX PR (FUSVX) 0.05% -- Large caps, 80% of US stocks
  • FID EXT MKT IDX PR (FSEVX) 0.07% -- Mid/small caps, 20% of US stocks
  • FID INTL INDEX PR (FSIVX) 0.08% -- Developed markets, ~80% of international stocks
  • FIDELITY GOVT INCOME (FGOVX) 0.45% -- US government bonds
I don’t seem to have great choices in my 401K to match the suggested Vanguard funds for Core Four. I’d appreciate feedback on my choice of FUSVX (versus perhaps FSIVX). I don’t have access to Fidelity US Bond Index Fund Premium (FSITX) or or Fidelity Total Market Index Fund Premium (FSTVX).
You don't have exactly what you want but you do have a few good index fund options. Combining FUSVX and FSEVX gives you FSTVX.
I’m trying to preserve the $50K in my taxed account for a future real estate investment or investment in my side business. I’d appreciate any recommendations on something conservative other than cash in our current climate. Maybe Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX) or Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX)?
I'd be more inclined toward (VWIUX) Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (0.09%). It's older than VTEAX, is not an index fund, and does not have the 0.25% purchase fee.

JackArbor
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Location: Basalt, CO
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Re: Portfolio Review Request - New to Indexing

Post by JackArbor » Sat Mar 25, 2017 10:14 am

CAsage and Duckie -

Yes, very concerned about the ...mature... market. Maybe I'll start with the minimums to gain Admiral shares, then move over slowly. Great advice.

I'll look into the backdoor IRA strategy - hadn't heard of that. Looks promising.

Thank you for taking the time to reply!
“The man who chases two rabbits, catches neither.” ~ Confucius

tinvestor
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Joined: Sun Mar 19, 2017 7:09 pm

Re: Portfolio Review Request - New to Indexing

Post by tinvestor » Sat Apr 01, 2017 7:38 pm

Duckie wrote:JackArbor, welcome to the forum.
JackArbor wrote:Trad IRA: $0 (income capped)
If your income is under the limit for direct Roth IRA contributions you are allowed to contribute to a Roth IRA directly (for both you and your spouse). If your income is above the limit you may be able to use the Backdoor Roth IRA method. However, your TIRA assets will get in the way because of the pro-rata rule. Does your 401k plan allow incoming rollovers from IRAs?
Funds available in 401K
The best options are:
  • FID 500 INDEX PR (FUSVX) 0.05% -- Large caps, 80% of US stocks
  • FID EXT MKT IDX PR (FSEVX) 0.07% -- Mid/small caps, 20% of US stocks
  • FID INTL INDEX PR (FSIVX) 0.08% -- Developed markets, ~80% of international stocks
  • FIDELITY GOVT INCOME (FGOVX) 0.45% -- US government bonds
I don’t seem to have great choices in my 401K to match the suggested Vanguard funds for Core Four. I’d appreciate feedback on my choice of FUSVX (versus perhaps FSIVX). I don’t have access to Fidelity US Bond Index Fund Premium (FSITX) or or Fidelity Total Market Index Fund Premium (FSTVX).
You don't have exactly what you want but you do have a few good index fund options. Combining FUSVX and FSEVX gives you FSTVX.
I’m trying to preserve the $50K in my taxed account for a future real estate investment or investment in my side business. I’d appreciate any recommendations on something conservative other than cash in our current climate. Maybe Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX) or Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX)?
I'd be more inclined toward (VWIUX) Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (0.09%). It's older than VTEAX, is not an index fund, and does not have the 0.25% purchase fee.

Why is VTEAX being an index fund a bad thing or worse thing than VWIUX ?

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Duckie
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Re: Portfolio Review Request - New to Indexing

Post by Duckie » Sun Apr 02, 2017 3:18 pm

tinvestor wrote:Why is VTEAX being an index fund a bad thing or worse thing than VWIUX ?
It's not a bad thing. I was just mentioning the differences between the two funds.

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dratkinson
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Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: Portfolio Review Request - New to Indexing

Post by dratkinson » Sun Apr 02, 2017 5:53 pm

+1.


Poor 401k options. Use your lowest cost 401k options (500 index*, ext index*, int'l index), then round out your needs using your other accounts. (* 80% 500 index + 20% ext index = 100% TSM.)


IRA. You can contribute to a non-deductible traditional IRA. You can roll your (non-deductible) tIRA into a backdoor rIRA and owe no additional taxes.

You don't list your spouse's 401k options/investments so assume unemployed and that they don't exist. In which case you are eligible for a spousal IRA (backdoor rIRA). Many place taxable bonds here, but I prefer to "shoot for the moon" in my too-small rIRA so place equities here. Your choice.

You have until 17 Apr to make IRA contributions for 2016 for the both of you.


Taxable investments. TSM and TISM are tax efficient so can be used here. You can also use municipal bond funds here.

VTEAX is Vanguard's index (newest) muni fund, however I recall it's a "monthly accrual" fund (and it may be more expensive); meaning it's subject to the IRS 6-mo holding period requirement to protect the tax preferential treatment of tax-exempt dividends. Vanguard's other munis are "daily accrual" so exempt from this IRS requirement. Why do you care? Because daily accrual funds can do double-duty: as part of your bond AA, and as an easy-to-tap tier of your emergency funds (only CG reporting is required).


Muni baby steps. The mainstream forum advice, if you go the muni route, is to use an IT fund (VWITX/VWIUX), or be more conservative and use a shorter duration fund. See how you like it over several years.

I eventually learned (after many years) that I much preferred single-state and LT munis (VWLTX/VWLUX). Why? I'm not planning to sell anytime soon so don't worry about NAV fluctuations, and I really like the better tax treatment and higher dividends. (I do have some remaining VWIUX as the last tier of my formal EF, new car fund, and dry powder.)


Your $50K. If you can't afford to lose this money, then insured savings/CDs/mmkt are the correct investments. If you can withstand some value fluctuation*, then maybe use a short-term (VWSTX) or limited term (VMLTX) muni fund. Double-check that both are "daily accrual" funds to avoid that IRS tax issue. (* To hopefully minimize any NAV loss, could match duration with expected need date.)


Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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dratkinson
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Re: Portfolio Review Request - New to Indexing

Post by dratkinson » Wed Apr 05, 2017 6:31 am

Additional thoughts.


After tax 401k. If your current employer's 401k allows for after-tax contributions and in-service rollovers, then use those to make additional contributions to your backdoor Roth.
See: https://www.bogleheads.org/wiki/After_tax_401k


Self-employment. Once self-employed, set up a business retirement plan that allows for multiple employees, and if possible, after-tax contributions and in-service rollovers. Hire your spouse as your office assistant/bookkeeper/retirement plan manager so you can focus on growing your core business.


Books. Find Wiki topic on recommended "books" (search term) and read a few.

If you have not already done so, The Boglehead's Guide to Investing is a good place to start.

Read a couple on bonds. Why? So you choose only recommended funds to provide needed investment stability during a stock market crash.

Where recommended authors agree, that is the central route. Where they disagree, those are optional routes. Your choice.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

JackArbor
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Re: Portfolio Review Request - New to Indexing

Post by JackArbor » Mon Apr 10, 2017 9:48 pm

Dear dratkinson and tinvestor,

Thank you for the additional thoughts, they're very much appreciated. I'm just wrapping up getting my accounts transferred and will start investing later this week. Despite my reticence about the mature market... :|
I'll let you know where I end up.

-Jack
“The man who chases two rabbits, catches neither.” ~ Confucius

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