help with portfolio and asset location

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bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

help with portfolio and asset location

Post by bogleboyz » Sat Apr 15, 2017 9:20 pm

Hi

I am trying to get my financial house in order and would love to get your feedback on my portfolio and the location of the assets

so far i have been using the fidelity freedom funds 2045 fund (FFKGX) (ER 0.64) in my 401k and 457 at fidelity.
I also have roth IRA account for myself and my wife, plus a taxable account at Vanguard. I use the Vanguard personal advisory service for the vanguard accounts (they charge 0.3%). Unfortunately they dont help much with the non-vanguard accounts.

I want to take the money out of the Fidelity freedom funds and use the low cost Vanguard funds in the 401k and 457

Emergency funds: 6 months
Debt: $0
Tax Filing Status: married filing jointly
Tax Rate: 39% Federal, 0% State
Age: 40
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 33% of total stocks

I would like the following allocation

REIT Vanguard REIT index fund 10%

Remaining 65% of stocks are divided as follows

US stocks 43% of total portfolio
33% Vanguard total stock market index fund
10% Fidelity equivalent of Vanguard small value index fund


22% international stocks will be invested in Vanguard Total international stock market index fund


For 25% Bonds I would like to divide it between an index bond fund and TIPS.

12.5% Vanguard total Bond market index fund (available in 401k) or some other bond fund (I am open to suggestions)
12.5% in TIPS


Now regarding the location of the different funds in different accounts, here is what I am thinking

REIT index fund goes in the ROTH IRAs

Extra REIT amount which did not fit into ROTH IRA goes into 401K ( I can use fidelity brokerage link to access fidelity REIT index fund)

401 K and 457 will also hold the following funds
- Fidelity equivalent of Vanguard Small Value index fund (suggestions welcome)
- Vanguard total Bond market index fund (available in 401k)
- TIPS (suggestions welcome for a fidelity fund)

Taxable Account
-Vanguard Total Stock Market index fund
-Vanguard Total International stock market index Fund


I would really appreciate any feedback . I am open to suggestions if you think there is a better way to locate these funds or if there any suggestions to improve the portfolio.

Additional layer of complexity is added by the fact that my 401k/457 has vanguard s & p 500 index fund, vanguard extended market index fund and vanguard total bond market index fund but does not have any of the other vanguard funds mentioned above. However I can use any fidelity funds through brokerage link for no additional fees. Unfortunately for using vanguard funds through the brokerage link I will have to pay additional transaction fees which I would like to avoid



Thanks a lot

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Peter Foley
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Re: help with portfolio and asset location

Post by Peter Foley » Sat Apr 15, 2017 10:57 pm

For the 401k and the 457 plan I would use a combination of the Vanguard S&P 500 and the Extended Market index. The two together in the right proportion are the equivalent of total stock market.

I would suggest a short term TIPS fund, or possible a stable value fund if one is available and pays a rate that matches inflation or better. I've owned both a regular TIPS fund and a Short Term TIPS fund. I found the latter to be less volatile - thus my preference.

Mudpuppy
Posts: 5427
Joined: Sat Aug 27, 2011 2:26 am
Location: Sunny California

Re: help with portfolio and asset location

Post by Mudpuppy » Sun Apr 16, 2017 1:44 pm

Why have both the Vanguard Total Stock Market and a small-cap index fund? What is your rationale for leaning towards both small-cap and REITs?

As for dealing with having only Vanguard S&P 500 and Extended available, I have the same situation in one account. The last time I did the calculations, a mix of 81% S&P 500 / 19% Extended for my U.S. stock portion gave almost the exact same Morningstar X-Ray analysis as Total Stock Market. You could have a slightly higher percentage of Extended if you wanted to lean towards small-cap, as it's about a 50/50 mix of small-cap and mid-cap.

Alternatively, do you have access to the entire range of Fidelity index funds? The three-fund portfolio does not have to be purely Vanguard funds. It's about approximating the market, not using Vanguard products exclusively. Fidelity has a pretty good line of index funds too, so if you have access to the following Fidelity funds, you could build the three-fund portfolio out of them, and avoid the additional fees your plan has for non-Fidelity funds:
  • Fidelity Total Market Index Fund (U.S. total stock market)
  • Fidelity Total International Index Fund (international total stock market)
  • Fidelity U. S. Bond Index Fund (U.S. total bond)
If you want to split your bonds with a TIPS fund and lean towards a REIT fund, here are the Fidelity index funds for those:
  • Fidelity Inflation-Protected Bond Index Fund
  • Fidelity Real Estate Index Fund
You can see more about the full range of Fidelity's index funds at their page: https://www.fidelity.com/mutual-funds/f ... ndex-funds

bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

Re: help with portfolio and asset location

Post by bogleboyz » Mon Apr 17, 2017 9:35 pm

Mudpuppy wrote:Why have both the Vanguard Total Stock Market and a small-cap index fund? What is your rationale for leaning towards both small-cap and REITs?

As for dealing with having only Vanguard S&P 500 and Extended available, I have the same situation in one account. The last time I did the calculations, a mix of 81% S&P 500 / 19% Extended for my U.S. stock portion gave almost the exact same Morningstar X-Ray analysis as Total Stock Market. You could have a slightly higher percentage of Extended if you wanted to lean towards small-cap, as it's about a 50/50 mix of small-cap and mid-cap.

Alternatively, do you have access to the entire range of Fidelity index funds? The three-fund portfolio does not have to be purely Vanguard funds. It's about approximating the market, not using Vanguard products exclusively. Fidelity has a pretty good line of index funds too, so if you have access to the following Fidelity funds, you could build the three-fund portfolio out of them, and avoid the additional fees your plan has for non-Fidelity funds:
  • Fidelity Total Market Index Fund (U.S. total stock market)
  • Fidelity Total International Index Fund (international total stock market)
  • Fidelity U. S. Bond Index Fund (U.S. total bond)
If you want to split your bonds with a TIPS fund and lean towards a REIT fund, here are the Fidelity index funds for those:
  • Fidelity Inflation-Protected Bond Index Fund
  • Fidelity Real Estate Index Fund
You can see more about the full range of Fidelity's index funds at their page: https://www.fidelity.com/mutual-funds/f ... ndex-funds

Thanks for your reply
I want to add a REIT index fund for added diversity. I know real estate does correlate with stock market though
small value index fund was added because of the data showing possibly better performance of value funds. I actually was considering to add more value funds such an international value fund but unfortunately i dont have enough tax protected space. I understand that the value funds should go in a tax protected account because of the taxes.

what do you think about the idea of splitting the bonds with a TIPS fund?
Thanks for the suggestion for the Fidelity inflation protected bond index fund.

Do you see any major issue with the location of the assets in the different accounts?

thanks for your suggestions

bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

Re: help with portfolio and asset location

Post by bogleboyz » Mon Apr 17, 2017 9:47 pm

Peter Foley wrote:For the 401k and the 457 plan I would use a combination of the Vanguard S&P 500 and the Extended Market index. The two together in the right proportion are the equivalent of total stock market.

I would suggest a short term TIPS fund, or possible a stable value fund if one is available and pays a rate that matches inflation or better. I've owned both a regular TIPS fund and a Short Term TIPS fund. I found the latter to be less volatile - thus my preference.
thanks for your suggestions
I am holding the total stock market index fund in taxable account which is at Vanguard
for the 401/457 i am looking for suggestions of Fidelity equivalent of Vanguard small value index fund

Do you have any specific suggestions for a Fidelity TIPS fund or a short term TIPS fund from fidelity
what is a stable value fund?

thanks

Mudpuppy
Posts: 5427
Joined: Sat Aug 27, 2011 2:26 am
Location: Sunny California

Re: help with portfolio and asset location

Post by Mudpuppy » Mon Apr 17, 2017 10:20 pm

bogleboyz wrote:what do you think about the idea of splitting the bonds with a TIPS fund?
Thanks for the suggestion for the Fidelity inflation protected bond index fund.
There's nothing inherently wrong with having TIPS as a portion of your bond allocation. I don't personally do this, but I do have some I-Bonds in my mid-term savings account, which fill a similar purpose in that account.
bogleboyz wrote:Do you see any major issue with the location of the assets in the different accounts?
As long as the cumulative breakdown between asset classes over all the accounts is within your desired asset allocation, there's no problem in having your IRA focused on one or two asset classes while your 401(k) and 457(b) cover the remaining asset classes. I did that for a few years when one of the plans did not have good options (it only had S&P 500 and Total Bond index funds). That plan has since been restructured to have the full line of Vanguard index funds, so now I just replicate my AA individually in each account. But either approach is fine. You're looking at the portfolio as a whole, not each account individually.

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Peter Foley
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Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: help with portfolio and asset location

Post by Peter Foley » Tue Apr 18, 2017 11:06 pm

I don't have a suggestion for a TIPS fund. I have used the only one available in the 403b my wife has.

"Stable value" is a term used to cover a variety of income funds often found in 401k and 403b plans. They provide a fixed rate of interest with (supposedly) little chance of losing value. Generally speaking, they do little more than keep up with inflation, but they have less risk than a bond fund which in turn, may decline in value when interest rates rise. Stable value funds pay more interest than a money market, in part because they usually have some restrictions regarding withdrawals.

The Federal Thrift Savings Plan has a well known stable value fund, the G fund.

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