Total Portfolio Cleanup

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whanaumark
Posts: 33
Joined: Tue Mar 14, 2017 1:15 pm

Total Portfolio Cleanup

Post by whanaumark » Wed Apr 19, 2017 12:15 am

(Topic relabeled!)

Dear All,
After much learning on the forum and a consult with Vanguard Personal Services I have been transitioning my portfolio into a more bogleheadish direction.
The numerous symbols are a result of an actively managed portfolio, combined with a betterment allocation !

I believe I have a workable plan, which I would like to invite critiques on.

The Details
Tax Filing Status: Married Filing Separately
Tax Rate: 39.6% Federal, 3.8% State (Dropping to 33% next year)
State of Residence: IL
Age: 31
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 25% of stocks

Roth
30k presently in cash (arrived from betterment)

401k
VFIFX VANGUARD TARGET DATE 2050 ER 0.16% 113k

(Access to FSTIX Fidelity® U.S. Bond Index Fund - Premium Class ER 0.05 )

Taxable

US Stocks individual (with preferreds *)

Total $257k, with $46k in Long term gains total

ACN- $42k
BAX - $13k
LMT - $40k
MSFT - $23k
TWX - $ 29k
CPRL -$26k *
MSPRF - $26k *
JPMPRD $27k *
GSPRK - $27k *


US Stocks Mutual Fund
VTSAX VANGUARD TOTAL MARKET MUTUAL FUND ADMIRAL ER 0.05% $275k

US Stocks ETF (from betterment)

Total $252k with ~40k in Long term gains
VTI VANGUARD TOTAL STOCK MARKET ETF ER 0.05% $78k
SCHB SCHWAB U S BROAD MARKET ETF ER 0.03% $19k
VTV VANGUARD VALUE ETF ER 0.08% $55k
IVE ISHARES S&P 500 VALUE ETF ER 0.18% $42k
VOE VANGUARD MID CAP VALUE ETF ER 0.08% $19k
IWS ISHARES RUSSELL MID CAP VALUE ETF ER 0.25% $11k
VBR VANGUARD SMALL CAP VALUE ETF ER 0.08% $23k
IWN ISHARES RUSSELL 2000 VALUE ETF ER 0.25% $3k

International Stocks (from betterment)

Total 270k with ~20k in Long and short term gains

VEA VANGUARD FTSE DEVELOPED MKTS ETF ER 0.09% $120k
SCHF SCHWAB INTL EQUITY ETF ER 0.06% $97k
VWO VANGUARD FTSE EMERGING MARKETS ETF ER 0.15% $18k
IEMG ISHARES CORE MSCI EMERGING MARKETS ETF ER ER 0.14% $35k

Bonds
Total 200k ~4 k gains
Individual Coupons in Financials (JP Morgan, BAC, Citi)
Example CUSIPS (060505ED2,064058AB6)
Average Yield 5.42%

Corporate bond ETFs

Total $22k ~ 1k of gains
LQD ISHARES IBOXX $INVESTMENT GRADE CORP BOND ETF ER 0.15% - $16k
VCIT VANGUARD INTERMEDIATE TERM CORP BOND ETF ER 0.07% $6k

International bond ETFS

Total $64k , ~1 k of gains

BNDX VANGUARD TOTAL INTL BOND INDEX ETF ER 0.12% - $45k
EMB ISHARES JPMORGAN USD EMERGING MARKETS BOND ETF ER 0.59% $4k
VWOB VANGUARD EMERGING MKTS GOVT BOND INDEX ETF ER 0.39% $15k

Tax Exempt
TFI SPDR NUVEEN BLOOMBERG BARCLAYS MUN BOND ETF ER 0.30% $43k
VWIUX Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares ER 0.09% $50k

My Plan
1. Sell All international bond ETFs, since they do not fit my IPS
2. Sell All corporate bond ETFS
3. Keep the betterment value for US etfs Tilt, because of the embedded gains. Sell if TLH havesting allows in the future
4. Keep the international etfs, but maintain the Emerging/Developed split in the same ratio as Vanguard Total International VTIAX
5. 401k will be used to hold Fidelity Total Bond
6. Roth will hold VTSAX Total Stock

Next year:
3. Sell the individual bonds (which have 4k of long term gains) next year at the lower tax bracket of %15
4. Sell the individual stock when I am in the lower tax bracket

Final Portfolio Outcome

US Stocks 52%
VTSAX $557k
(VTI,SCHB,VTV,IVE,VOE,IWS,VBR,IWN 252k)

International 17%
(VEA, SCHF, VWO, IEMG 262k)

Bonds 30%
FSTIX (Fidelity Total Bond) - 113k
VWIUX - 349k


My Questions
1. Vanguard Personal Advisor services have recommended that the municipal bond allocation be allocated
30% Short term
40% Intermediate term
30% Long term

The large allocation to Tax Exempt intermediate makes me slightly nervous, will the addition of the shorter term and longer term funds help me sleep better ? Should I add some other fixed income types in taxable ?

2. I have resolved to keep the "Value" Tilt that Betterment have left me with and reduce its relative size over time with new contributions to total stock.
I do not have a preference to tilt in any way in my IPS.
Should I just take the tax hit ?

3. Thoughts on the usage of the 401k space ? Is FSTIX the best I can do , or is it worth "paying up" in ER for the Vanguard Total Bond fund (not admiral). Any other Fidelity Funds which could do a better job of a bond holding ?

4. I estimate the tax savings of waiting a year to sell all the individual stocks (I have cleaned up much with carryover losses) as around 4k (since I move from 20% to 15%). Am I letting the tax tail wag the dog by waiting ? Should I just get it over with and sell now (so to speak)

Thanks to all those for reading, and please advise if more clarity is needed
Last edited by whanaumark on Wed Apr 19, 2017 5:44 pm, edited 2 times in total.

radiowave
Posts: 1209
Joined: Thu Apr 30, 2015 5:01 pm

Re: Fixed Income Portfolio Cleanup

Post by radiowave » Wed Apr 19, 2017 7:37 am

Welcome to the forum.

First, you will probably get a better response if you post your entire portfolio. Showing just the bond portion, doesn't really help. As a rule of thumb, bonds should be in your tax-advantage portion of your portfolio as they are not tax efficient (you get taxed at your marginal tax rate). The exception is the municipal bond fund - VWIUX is an excellent and low cost choice. Also, to paraphrase Taylor Larimore bonds are for safety and take risk on the equity side. So your corporate bonds are correlated with your equity portion of your portfolio . . . consider a good total stock fund, e.g. the Vanguard VTSAX or Fidelity FSTVX. The total bond choices, FSITX or Vanguard equivalent (don't remember the ticker off the top of my head) are both excellent, low cost total bond funds, and should be in your tax-deferred space (401k) not taxable account.

whanaumark
Posts: 33
Joined: Tue Mar 14, 2017 1:15 pm

Re: Total Portfolio Cleanup

Post by whanaumark » Wed Apr 19, 2017 10:43 am

Thanks radiowave, I have updated my post on your feedback

whanaumark
Posts: 33
Joined: Tue Mar 14, 2017 1:15 pm

Re: Total Portfolio Cleanup

Post by whanaumark » Wed Apr 19, 2017 5:43 pm

A polite *bump*, would really appreciate some advice on the questions, and a general critique
much appreciated

HoleInTheAir
Posts: 27
Joined: Sun Aug 28, 2016 8:47 am

Re: Total Portfolio Cleanup

Post by HoleInTheAir » Wed Apr 19, 2017 10:51 pm

Man, doing quite well for yourself at 31. Can I ask what career field you're in?

As for the portfolio, can you explain the rationale behind holding so many ETFs?

I feel like you could beef up VTSAX some, maybe add another mutual fund or two, and have it way more simple and cheap. At the amount of your holdings, shaving just from a blended expense (average expense of your investments) of 0.3-0.4 to 0.1 would save you thousands of dollars.

aristotelian
Posts: 2787
Joined: Wed Jan 11, 2017 8:05 pm

Re: Total Portfolio Cleanup

Post by aristotelian » Wed Apr 19, 2017 11:05 pm

If you are looking to hold some bonds without taking up Roth space, you could go for I and EE Bonds to complement the munis.

whanaumark
Posts: 33
Joined: Tue Mar 14, 2017 1:15 pm

Re: Total Portfolio Cleanup

Post by whanaumark » Thu Apr 20, 2017 8:28 am

HoleInTheAir wrote:Man, doing quite well for yourself at 31. Can I ask what career field you're in?

As for the portfolio, can you explain the rationale behind holding so many ETFs?

I feel like you could beef up VTSAX some, maybe add another mutual fund or two, and have it way more simple and cheap. At the amount of your holdings, shaving just from a blended expense (average expense of your investments) of 0.3-0.4 to 0.1 would save you thousands of dollars.


The ETFS have come over from betterment, and I take your point about getting rid of them. The only thing preventing me is the capital gains.

Career field: Finance, plus I was fortuitous enough to ride the London property market and sell the house (in pounds) at the right time for USD

I will investigate I Bonds

whanaumark
Posts: 33
Joined: Tue Mar 14, 2017 1:15 pm

Re: Total Portfolio Cleanup

Post by whanaumark » Thu Apr 20, 2017 9:03 am

aristotelian wrote:If you are looking to hold some bonds without taking up Roth space, you could go for I and EE Bonds to complement the munis.


Any thoughts on the vanguard recommendation for short and long muni funds ?

aristotelian
Posts: 2787
Joined: Wed Jan 11, 2017 8:05 pm

Re: Total Portfolio Cleanup

Post by aristotelian » Thu Apr 20, 2017 9:42 am

whanaumark wrote:
aristotelian wrote:If you are looking to hold some bonds without taking up Roth space, you could go for I and EE Bonds to complement the munis.


Any thoughts on the vanguard recommendation for short and long muni funds ?


The return on the short muni's is very low. It's almost like a money market fund. From what I have read, the best bang for buck in short term tends to be corporate. I would not hesitate to invest in the intermediate and long muni's, although I think you are right that it is always good to diversify.

I have about even amounts of VWLTX (Vanguard Long Term Tax Exempt), my state muni fund (which is also long term), and I-Bonds. I would add short-term corporate but I have a strong corporate tilt in my 403B through Wellesley Income Fund.

In your case, I would put all of your 401K in Total Bond or equivalent if available. If I am doing the math correctly, you are looking for about $300K total in bonds, and that would take care of $100K.

For remaining $200K in taxable, something like:

$10K I-Bonds (plus contribute $10K annually)
$10K EE-Bonds (plus $10K annually)
$60K Short Term Corporate
$60K Intermediate Muni (VWIATX)
$60K Long Term Muni (VWLTX)

I just got done with Swedroe's Winning Bond Strategy book. Really good overview of bond options if you are interested.

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