Portfolio Questions and Review

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Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Portfolio Questions and Review

Post by Pax » Sun Apr 23, 2017 12:50 pm

Salutations!
First and most important is thanks for reviewing my portfolio situation below. Secondly, this is my first post, so I apologize for any unintended errors. Also, I really tried to line up the columns and I could not do it. :oops:
I feel that I am throwing at you the “kitchen sink”. Putting all this together took a lot of time and thinking (that was way due).

Thankful for your feedback...Here I go..

Emergency funds : 9 months of expenses
Debt : Mortgage
Tax Filing Status : Single
Tax Rate : 13.46% Federal (effective rate from 1040) (Tax Bracket 25%)
State of Residence : Maryland (MD) 4.75% (from MD Website)
Current Age : 57
Wish to Retire at Age : 68
Desired Asset allocation : 70% stocks / 30% bonds
Size of portfolio : $1.2M

Stock Portion (of the 70% stocks / 30% bonds)
85% in Total Stock Market or Large/Mid/Small Cap
or Large/Mid/Small Cap Ratios:
- Large Cap 80%
- Mid Cap 20%
- Small Cap 10%

15% in Diversified International
or
10% Developed (EAFE)
5% Emerging MarketsDesired International allocation: 15% of stocks
** I prefer using ETFs whenever possible **

However, instead, I am be open an use a *Simple or Very Simple Portfolio" such as:
*** ETFs ***
1.0 Very Simple Portfolio Using ETF
1.1 Very Simple 1
Vanguard Total Stock Market ETF (VTI) Broad/Multi Cap / Core or Blend Equity ETF
iShares Barclays Bond Fund (AGG)

1.2 Very Simple 2
iShares Core S&P Total U.S. Stock Market ETF (ITOT)
or iShares S&P 500 (IVV) (need to compare)
iShares Barclays Aggregate Bond Fund (AGG)

1.3 Very Simple 3 (Buffet)
Vanguard S&P 500 ETF (VOO) (90%)
Shares 1-3 Year Treasury Bond ETF (SHY) (10%)

2.0 Simple Portfolio Using ETF
2.1 Simple 1
iShares Core S&P Total U.S. Stock Market ETF (ITOT)
Core S&P Mid-Cap (IJH)
Core S&P Small-Cap (IJR)
iShares Barclays Bond Fund (AGG)

*** Mutual Funds ***
3.0 Very Simple Using Mutual Funds
3.1 Very Simple 1
Fidelity® Total Market (FSTVX)
Fidelity Short-Term Treasury Bond Index Fund (FSBAX)
or
Fidelity U.S. Bond Index Fund (FSITX)

4.0 Simple Using Mutual Funds
4.1 Simple 1:
Vanguard Total Stock Market Index Fund (VTSAX) (60%)
Vanguard Total International Stock Index Fund (VGTSX) (30%)
Vanguard Total Bond Market Index Fund (VBTLX) (10%)

4.2 Simple 2:
Fidelity® Total Market Index Premium (FSTVX)
Fidelity® Small Cap Index Fund - Premium Classs (FSSVX)
Fidelity® Investment Grade Bond Fund(FBNDX)

4.3 Simple 3:
Fidelity Small Cap Index Fund (FSSVX)
Fidelity Mid Cap Index Fund (FSCKX)
Fidelity Total Market Index Fund (FSTVX)

4.4 Simple 4:
Fidelity U.S. Bond Index Fund (FSITX)
Fidelity® Total Market (FSTVX)
Fidelity® Global ex U.S. Index Fund Premium Class (FSDX)


CURRENT RETIREMENT ASSETS
Taxable - None. Current taxable has been budgeted for parent care, new car and Mortgage Payoff. Sadly, nothing has been budgeted for retirement.

Note: I do have a Taxable Account "Mortgage Pay off budget" which is in case I decide to pay off mortgage in 6 years. Otherwise mortgage will be paid off in 9 years. I have been making 15 year payments on my 30 year mortage that has a 3.5% interest rate)
Mortgage Payoff Budget is composed of :
Berkshire Hathaway Inc. (BRK.B) 16%
Janus Balanced Fund Class T (JABAX) 84%

Traditional IRA Fidelity
Symbol Name Category Porfolio % ER
NA Cash Cash 28.14% NA
AGG iShares Barclays Aggregate Bond Fund Bonds 10.74% 0.05
AMP Ameriprise Financial, Inc. US Stocks 0.42%
BRK.B Berkshire Hathaway Inc. US Stocks 6.65% 0.05
DVY iShares Select Dividend ETF US Stocks 10.28% 0.05
IDV iShares Dow Jones EPAC Sel Div Ind ETF Int’l 3.32% 0.05
IJH iShares Core S&P Mid Cap ETF US Stocks 3.24% 0.07
IWO iShares Russell 2000 Growth Index (ETF) US Stocks 1.54% 0.25
TROW T. Rowe Price Group Inc US Stocks 6.60%

ROTH IRA Fidelity
Symbol Name Category Porfolio % ER
NA Cash Cash 5.45%
DVY iShares Select Dividend ETF US Stocks 1.00% 0.05
IDV iShares Dow Jones EPAC Sel Div I (ETF) Int’l 0.64% 0.05

Company 401(k) Plan
Symbol Name Category Porfolio % ER
FSEVX Fidelity® Extended Market Index Fund US Stocks 4.82% 0.07 (mid-low cap)
VFWPX Vanguard FTSE All-World ex-US Index Fd Int’l Stocks 2.11% 0.23
VIIIX Vanguard Institutional Index Fund US Stocks 10.68% 0.05 (large cap)
NA Cash Balance - Annuity Cash 2.77%

HSA Alliant Credit Union
NA Cash Cash 1.59%

Note:
This is about $20K in cash now in HSA Alliant Credit Union considering to invest in funds below:
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total Bond Market Index Fund (VBTLX)
Vanguard Total International Stock Index (VTIAX) (ER=0.11%)

CONTRIBUTIONS
New annual Contributions
401K $18,000 plus $6,000 (catch-up) 401k
Notes:
Employer Matches On Contributions Up To 8%
Automatic Contribution 3.5%
AFTER-TAX BASIC 8%
AFTER-TAX SUPPLEMENTAL 8%
EMPLOYEE PRE-TAX CATCH-UP 12%
Calculated Rate of Return +5.77%

I have been transferring AFTER TAX inside company 401K to Personal ROTH (cost me $24 per transaction - once a year or when the amount is large enough).

ROTH IRA Fidelity $6,000
TAXABLE ACCOUNT $0 taxable (for retirement)
HSA $3,400 plus $1,00 = $ 4,400
TRADITIONAL IRA $6,500

Funds available in employer's 401(k) plan
Name Asset Class Category
VANG TOT BD MK IS PL (VBMPX) Bond/Managed Income
FID CAPITAL & INCOME (FAGIX) Bond/Managed Income
FID BLUE CHP GR POOL Stock Large Cap Growth
VANG PRIMECAP ADM (VPMAX) Stock Large Cap Growth
*** VANG INST INDEX PLUS (VIIIX) Stock Large Cap Blend
MFS VALUE R6 (MEIKX) Stock Large Cap Value
FID MID CAP STK POOL Stock Mid-Cap Growth
*** FID EXT MKT IDX PR (FSEVX) Stock Mid-Cap Blend
ROCK COL SMID VALUE Stock Mid-Cap Blend
LOOMIS SM CP GRTH N (LSSNX) Stock Small Cap Growth
FID DIVSFD INTL POOL Stock Foreign
MFS INTL VALUE R6 (MINJX) Stock Foreign
*** VANG FTSE AW IS PL (VFWPX) Stock Foreign
FID STRAT REAL RET (FSRRX) Blended Asset Allocation
VANG TOT BD MK IS PL (VBMPX) Bond/Managed Income Intermediate-Term
FID CAPITAL & INCOME (FAGIX) Bond/Managed Income High-Yield
*** = I own

QUESTIONS
1. Allocations across different accounts
After years of holding without a good plan, I have been cashing out the high Expense Ration(ER) funds and I would like to get feedback on how to rebalance my retirement portfolio.

I do plan to keep (my “pet stocks”): Ameriprise Financial, Inc. (AMP), Berkshire Hathaway Inc.(BRK.B) and TROW.

How should I diversify across these 4 main vehicles/accounts?
Traditional IRA
ROTH IRA
401K plan
HSA

In the meantime, there’s a really big chunk of money sitting in cash ($420K) . By the way, my plan would be to re-balance all at once or no more than in 2 - 4 buying sessions.
Actually, putting all this together, I feel a little overwhelmed, so I know that your feedback will give me clarity!

2. In the HSA
There is about $20K in cash now in HSA Alliant Credit Union considering to invest in funds below:
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total Bond Market Index Fund (VBTLX)
Vanguard Total International Stock Index (VTIAX) (ER=0.11%)

However, since Boglehead strategy is to place bonds in tax-advantaged spaces whenever possible. ( https://www.bogleheads.org/wiki/Individ ... harvesting)

Could just make this an all bonds account and re-calculate?

3. The most important question - Allocation - Age
Is an Asset allocation of 70% stocks / 30 bonds appropriate for my age?

4. Just a note on Long Term Care - in case someone has comments.
I also need to plan for Long Term Care (LTC) for me at age 59. One of my parents live to 94 (and was productive 4 monts before passing). The other is now 97 but has had Alzeimers for the past 10 years and I have seen the drain emotionally and financially. Family has 2-3 years left in the budget.
I still need to think about LTC coverage and how premiums will be paid now and during the initial retirement years.

Well this is it. I hope this finds you well and thanks again!! Warm regards, Pax :moneybag

Chip
Posts: 2074
Joined: Wed Feb 21, 2007 4:57 am

Re: Portfolio Questions and Review

Post by Chip » Sun Apr 23, 2017 2:40 pm

Hi, and welcome!

You've obviously given this a good bit of thought.

I suspect most here would say that 70/30 is awfully aggressive at age 59. Though I will admit to being at about that allocation at about that age. How did you sleep during the turmoil of 2008/9?

Will you have significant pensions and social security in retirement? How much will you have to draw from the portfolio to fund your spending needs? If your answer is 2% that might dictate a different stock/bond ratio than if the answer is 5%.

What do you expect your tax rate to be in retirement? Both before and after all pensions and SS kick in. That should have a bearing on whether you should be making the after tax 401k contributions.

I don't see any need to diversify your holdings within each account. Own as few funds as possible while meeting your allocation goals. Start with your 401k, since it has the most limited selection of low ER funds. I would just fill it with the Vanguard Total Bond fund. Get the rest of your allocation to it in your tIRA.

There's no need to break total market funds out into their components unless you plan to tilt to small cap or something like that. Even then, most here just buy total market and then add additional small cap. So, VTI or ITOT or FSTVX. Any of them will work.

Consider VXUS (ETF for VTIAX) or IXUS for international, since you prefer ETFs.

It wouldn't be Bogleheads if I didn't say to think twice about your pet stocks. Since you have them in your mortgage fund maybe you ditch them in the IRA.

LTC insurance is a tough one. There are many good threads here discussing it. The problem I see is that, for the most part, you can't really insure for the 10 year care nightmare that you describe. Most policies will only pay out for 5 years, then you're on the hook again. That does me very little good. It's really just a prepayment for nursing care. I would buy a policy if it had ME pay for 5 years then the insurance kicked in for life, no limit.

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Sun Apr 23, 2017 4:03 pm

Hi Chip!
Thanks for the reply. It was loaded, so I need to put back on my thinking hat and will get back with my thoughts. In the meantime, I can tell you that:

- I got that 70/30 recommendation from the VanGuard tool on their site. I was surprised, as I was expecting something like 60/40 or even more conservative.

- About the 2008/2009, I found it interesting but I was surprised that I was OK. I thought that time was on my side. But now, I only have 10 years on my side to survive something that crazy. That's why I am not putting my plan together.

- At retirement, I will only have social security and whatever that $34k cash balance (annuity) pays off which I am likely to cash out if/when I leave my current employer.

- Tax rate at retirement? Gosh... I need to do some thinking capping on that. I was thinking of selling my house by then (a 3k sq ft waterfront for one is too much) and should net after tax $400K to $500K, then rent or buy something small. (But who know? Well, I have to be the one to "know" :)

- My "pet stocks" TROW and BRK.B are about $160K of the Traditional IRA (So they will count as Large Cap). I will however, re-think per your advice.

More later. Thanks again for ETF mentioned.. more thinking cap time!

Pax

Chip
Posts: 2074
Joined: Wed Feb 21, 2007 4:57 am

Re: Portfolio Questions and Review

Post by Chip » Mon Apr 24, 2017 6:49 am

A couple of other things.

1. Read the Bogleheads wiki (link at top right) if you haven't already. There is a ton of good information there.
2. Schwab has a lineup of very low cost ETFs that are worth considering. See those that are market cap-based here.

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Mon Apr 24, 2017 10:25 pm

One Fund? Really?
Do Bogleheads put $1M in a single fund like the FXIFX Fidelity Freedom® Index 2030 Fund - Investor Class ER=0.15 ?
Initially, was thinking of a Three Fund Portfolio using ETF but the simplification factor and the no need to manually re-balance is significant.

Now, if I go with the one-fund I could do this with my Traditional IRA and ROTH. ($894K and $9K, respectively.)
I would then still have to deal with the 401K and the HSA.

401K and HSA
Which by the way, -- if I don't go the one fund route -- I am liking the idea of converting all my 401k and HSA into the VANG TOT BD MK IS PL (VBMPX).

Leave in 401K or Roll Over
If I do go the one-fund route, I guess I will use th 3-fund portfolio somehow for the 401K and HSA. And I guess that when I leave work I will then roll the 401k to the Traditional IRA (At that time I should also be able to roll-over the Employer Cash Balance/Annuity ($34K).
However, there are advantages of having money in a 401K vs rolling it over. I think is has something to do with when you can take the money out.

Re-Post the One Fund Question
Maybe I should ask the one-fund portfoilio question on its own post. I wonder if people really put $1-2M in single fund.

(From http://www.obliviousinvestor.com/8-simp ... ares-etfs/ )
One-Fund Portfolio
FXIFX Fidelity Freedom® Index 2030 Fund - Investor Class ER=0.15

Three-Fund Portfolio
35% Fidelity Total Market Index Fund (FSTVX) ER=0.45 or iShares Core S&P Total U.S. Stock Market ETF (ITOT) ER=0.03
35% Fidelity Total International Index Fund (FTIPX)ER=0.11 or iShares Core MSCI Total International Stock (IXUS) ER=0.11
30% Fidelity U.S. Bond Index Fund (FSITX) or iShares Core U.S. Aggregate Bond ETF (AGG) ER=0.05

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Thu Apr 27, 2017 12:23 am

I don't visit this site as much as I used to, but this thread caught my eye and I figured I'd try to add my $0.02 if it didn't resolve quickly.
Pax wrote:One Fund? Really?
Do Bogleheads put $1M in a single fund like the FXIFX Fidelity Freedom® Index 2030 Fund - Investor Class ER=0.15 ?
Yes. In reality, the Fido Freedom 2030 Index Fund (FXIFX) is a complete portfolio of market weighted, all cap index funds exactly like we suggest for a 3 fund portfolio, with unimportant differences like a smidgeon of commodities and some TIPS that they incorporate into the bond allocation to help fight inflation. I am a big proponent of low cost, all-in-one asset allocation funds (target funds, lifecycle funds, balanced funds) for simplicity.
Pax wrote:Initially, was thinking of a Three Fund Portfolio using ETF but the simplification factor and the no need to manually re-balance is significant.
I heartily agree.
Pax wrote:Now, if I go with the one-fund I could do this with my Traditional IRA and ROTH. ($894K and $9K, respectively.)
I would then still have to deal with the 401K and the HSA.
401k: If your 401k provider is Fidelity, they have and auto-rebalance feature that will rebalance your funds to your desired asset allocation each year. I'm surprised your 401k doesn't offer target date funds...

...oh, I see here that it does offer target date funds. Yes, SSgA is very reputable. SSgA is one of the "big guys" when it comes to index fund management. SSgA's target "funds" are portfolios of broadly diversified index funds like Vanguard's and Fidelity's Freedom Index series and very comparable to a Three Fund Portfolio, in my opinion.

HSA: I'm no expert, but if it were me, I'd keep it simple and put it all in the Vanguard Total Bond Fund Institutional Plus (VBMPX) and call it a day. It'll earn something while being low risk so that big risks don't show up at the same time you happen to need that money. That's just me.
Pax wrote:Leave in 401K or Roll Over
And I guess that when I leave work I will then roll the 401k to the Traditional IRA (At that time I should also be able to roll-over the Employer Cash Balance/Annuity ($34K).
However, there are advantages of having money in a 401K vs rolling it over. I think is has something to do with when you can take the money out.
Probably the only important reason to roll the 401k to your tIRA is if the 401k is clearly inferior (which it is not); if the 401k will charge you large fees upon termination or retiring (it could happen); or, if you feel the need to reduce the number of accounts.

Barring any of those reasons, there's nothing wrong with leaving the money in your 401k.

Below is my suggestion for your portfolio. It is currently 68% stocks. In 8-10 years it will be somewhere in the vecinity of 50% stocks, which still within the range of reasonable:

401k
SSgA Target Retirement 2025 Fund 0.15%

Fidelity Traditional IRA
100% Fidelity Freedom 2025 Index Fund (FQIFX) 0.17%

Fidelity Roth IRA
100% Fidelity Freedom 2025 Index Fund (FQIFX) 0.17%

HSA
100% Vanguard Total Bond Fund Instl Plus (VBMPX)

You can arguably use separate index funds to have the same asset allocation at marginally lower costs, but the above is already extremely low cost and you are not likely to manage the portfolio as efficiently as the target funds. There's a very important difference between cutting portfolio expenses from ER 1.00% to 0.17% that would have an unquestionably large impact on returns over the next 40 years. The same case cannot be made for cutting expenses from ER 0.17% to, say, 0.11%.

I'd go with the majesty of simplicity.

Thoughts?

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Thu Apr 27, 2017 10:01 am

pingo wrote:... (excerpt)

401k
SSgA Target Retirement 2025 Fund 0.15%

Fidelity Traditional IRA
100% Fidelity Freedom 2025 Index Fund (FQIFX) 0.17%

Fidelity Roth IRA
100% Fidelity Freedom 2025 Index Fund (FQIFX) 0.17%

HSA
100% Vanguard Total Bond Fund Instl Plus (VBMPX)

You can arguably use separate index funds to have the same asset allocation at marginally lower costs, but the above is already extremely low cost and you are not likely to manage the portfolio as efficiently as the target funds. There's a very important difference between cutting portfolio expenses from ER 1.00% to 0.17% that would have an unquestionably large impact on returns over the next 40 years. The same case cannot be made for cutting expenses from ER 0.17% to, say, 0.11%.

I'd go with the majesty of simplicity.

Thoughts?
"I'd go with the majesty of simplicity" - nice comforting words!
Thanks pingo. I feel that I am growing and re-adjusting my thoughts and beliefs as I go through this exercise. It is as if, I was not willing to look at my financial situation. Subreal in a way.

ER 0.17% to, say, 0.11%
I need to crunch the numbers. For example on $1,000 the difference between ER 0.17% and ER 0.11 on a $1M portfolio is $1700 - $1100 = $600.
If my math is correct then the One Fund cost $600 more than the 3-Fund. And I would think that $600 might be recovered by the innate efficiency of the rebalancing of the one fund approach. Not to mention, the convenience factor. Wow! :)

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Thu Apr 27, 2017 10:53 am

That's right.

There are those that will prefer to manage their portfolio to cut out any basis points they can. The argument—it's a good one—is that $600 is $600 and it is something over which we have control. When it comes to investing, costs and asset allocation are two of the few areas where we can influence portfolio returns.

My viewpoint, for what it's worth, is that the $600 (or whatever the resulting savings) is nothing compared to performance difference that will inevitably result between a your DIY portfolio options and using the target funds simply because of rebalancing. The two approaches may perform closely, but merely rebalancing on different days will have a greater impact on your returns than the cost savings...and that's something over which you have no control.

Since there's is no way to predict which portfolio will inch past the other in the end based on costs, choose the one that pleases you most.

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

My 401K Plan Offers Vanguard!! Three Fund Portfolio Approach

Post by Pax » Mon May 01, 2017 9:44 am

Either this was added to my company plan while I was reseraching or I had blinders on when I was looking at this :oops: . Now this could be my Three Fund Portfolio Approach

Three Fund Portfolio Approach

401k
45% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
20% Vanguard FTSE All-World ex-US Index Fund Institutional Plus Shares (VFWPX) (0.07%)
35% Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX) (0.03%)


Questions:
1) Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) and Fidelity Total Market Index Fund (FSTVX) comparable?
2) For a 65% Stock / 35% Bonds Allocation. How much of the stock should be International? I read 20%. It that 20% of the Stock portion or 20% of the total portfolio?

Fidelity Traditional and ROTH IRA
45% Fidelity Total Market Index Fund (FSTVX) ER=0.45 0.045% or iShares Core S&P Total U.S. Stock Market ETF (ITOT) ER=0.03
20% Fidelity Total International Index Fund premium (FTIPX)ER=0.11 (or FSIVX 0.08%) or iShares Core MSCI Total International Stock (IXUS) ER=0.11
35% Fidelity U.S. Bond Index Fund (FSITX) 0.05% or iShares Core U.S. Aggregate Bond ETF (AGG) ER=0.05

HSA
Vanguard Total Bond Market Index Fund Investor Share (VBMFX) 0.16% plus $72/yr

This has been a challenging journey, indeed! Thanks to you, I don't feel that I will be making too many stupid mistakes and if I do -- at least -- I know that I really tried to think this process through to the best of my ability. My confidence grows and yet I remain alert and cautious!

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: My 401K Plan Offers Vanguard!! Three Fund Portfolio Approach

Post by pingo » Mon May 01, 2017 3:44 pm

Pax wrote:Questions:
1) Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) and Fidelity Total Market Index Fund (FSTVX) comparable?
Yes. Fido Total Stock (FSTVX) = 80% VG Instl Idx (VIIIX) + 20% Fido Ext Mkt (FSEVX). VIIIX and FSTVX are broad market indexes, but FSTVX is technically more complete. Truth be known, VIIIX alone will pretty much track FSTVX, which we see over the last 10 years:

Fidelity Total Stock Market Index Fund - Premium (FSTVX) 0.07%
Vanguard Institutional Index Fund (VIIIX) 0.02%
Image

While both are very diversified, we tend to prefer FSTVX's greater diversification (3380 stocks vs. ~500 stocks). Some subscribe to the theory that the relatively smaller capitalization stocks included in FSTVX should increase returns slightly over the long haul, but it may not be the case. If we compare the two funds over the entire lifetime of FSTVX, it might looks like the theory is proving true during the last 1/3 of the chart below, but keep in mind a similar underperformance of FSTVX during the first 1/3. So, we may simply be viewing a mean reversion of some sort:

Fidelity Total Stock Market Index Fund - Premium (FSTVX) 0.07%
Vanguard Institutional Index Fund (VIIIX) 0.02%
Image
Pax wrote:2) For a 65% Stock / 35% Bonds Allocation. How much of the stock should be International? I read 20%. It that 20% of the Stock portion or 20% of the total portfolio?
20% of the stock portion, not of the whole portfolio. In other words, 1/5 of your stocks would be international. That way your U.S./International keep the same relationship with each other when you begin adding more bonds to your portfolio.

That said, where did you read 20%? It's fine, but not authoritative. You need to determine your international allocation based on your own world view and assessment of risk. Some prefer to hold world market weight (or 50:50 US/Intl, which is close enough). Others want zero international because they can't accept the risks, including our mentor John Bogle. Historically (for whatever the past is worth), holding 20-50% increased portfolio returns over 100% US. From 20 to 30+ percent, there was also a small decrease in portfolio volatility/risk. 40% Intl didn't alter volatility. 50% was slightly more volatile.

Lately, it seems that a lot of people are dumping their international holdings after several years of disappointing returns. Disappointing performance is part of accepting risk, as I have, which is why I continue to hold. The same risk of underperformance exists in a 100% U.S. stock allocation. What we don't want is for you to shift back and forth at the wrong time after the risk shows up. That's known as skating to where the puck was.
Last edited by pingo on Fri May 05, 2017 11:09 am, edited 1 time in total.

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Mon May 01, 2017 4:32 pm

Those charts are wonderful! Thanks, so much.

Regarding, the International AA sugestion, I got it from this thread by 8/6/2016 Taylor Larimore :
How much international stock? A suggestion.
viewtopic.php?t=196956

What is your take on iShares Core S&P Total U.S. Stock Market ETF (ITOT) with Fidelity Total Market Index Fund (FSTVX) ?
I am still considering using ETF.

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Mon May 01, 2017 4:40 pm

Nothing inherently wrong with the ETF. Nothing inherently wrong with using either or both funds to fill your desired U.S. stock allocation.

My question for you: what is it about ETFs that you prefer over equivalent traditional index funds?

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Mon May 01, 2017 4:57 pm

I realize that you may need a little more orientation, which we're happy to give. In order to do so, please answer to following questions so that I can be sure I understand your earlier posts with clarity:

1. Are you contributing to a Traditional (pre-tax) or Roth 401k (post-tax)?
2. Are you contributing $6,500/yr to a Traditional IRA?
3. Is the $6,000 "contribution" to a Roth IRA actually the Roth conversion from the After-Tax 401k feature of your employer plan?
4. What is the dollar amount of your employer contribution to the 401k?
5. Does your 401k have a automatic rebalancing tool/feature?

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Mon May 01, 2017 7:05 pm

pingo wrote:I realize that you may need a little more orientation, which we're happy to give. In order to do so, please answer to following questions so that I can be sure I understand your earlier posts with clarity:

1. Are you contributing to a Traditional (pre-tax) or Roth 401k (post-tax)?
My 401k plan has an After-Tax Plan (not a ROTH), I do not contribute to a Traditional IRA. The reason why I do not contribute to a Traditional IRA *now* is because before I did not qualify and also I wanted to have money in a ROTH IRA to use that money during the first year(s) of retirement, as needed.
This year I was thinking to going back to contributing to a Traditional IRA once I look to see if it can lower my tax bracket.


2. Are you contributing $6,500/yr to a Traditional IRA?
No. I contribute $6,500 to my Personal Roth IRA every January and not to a Traditional IRA.

3. Is the $6,000 "contribution" to a Roth IRA actually the Roth conversion from the After-Tax 401k feature of your employer plan?
No. See above with correction on the amount.

4. What is the dollar amount of your employer contribution to the 401k?
Employer Contributions $708.76 /month

5. Does your 401k have a automatic rebalancing tool/feature?
The 401k plan is with Fidelity and they do advertise an automatic rebalancing feature but I don’t think it can be set up online. I suspect that you have to fill a paper form.
However, it can be done on the website manually and it is very straight forward.
6. Why I prefer ETF over funds?
I prefer not having to wait until the end of the day to see the valuation of a mutual fund. I like that I can see the ETF valuations as the matket changes.

Thanks!! :beer

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Tue May 02, 2017 11:21 am

Thank you for your response. I appreciate your patience as I may require further correction if I have misunderstood your posts.

Please review the following table. If there are any errors, please make corrections onto the table and re-post it. It'll be a big help on my end to have it for easy reference.

Expected Annual Contributions
Pre-tax Traditional 401k Contribution: $0
After-tax 401k savings: $18,000 + $6000 catchup (gets rolled into Roth IRA once per year)
Employer 401k Match: $8505.12 ($708.76/month)
Traditional IRA: $0
Roth IRA: $6,500
HSA:$4400
Taxable: $0 for retirement purposes.

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Tue May 02, 2017 6:27 pm

Pingo:
I really appreciate your assistance! Your questions have generated more questions on what I am actually doing. I believe that I didn't give you monthly contributions since I have actually making payments based on 10 months a year and not 12 months a year. My apologies. Plus I had bonuses that triggered After-Tax contributions.
For 2016
Employee Contributions $23,594.05
Employer Contributions $6,597.90
Summary of Contributions Total $30,191.95

I also realized that there's a mismatch :twisted: in the roll over of the 401K After-Tax money to my personal Roth IRA. The numbers do not match and I beg your patience while I clear all this up with Fidelity.

On top of this, I am off on vacation for 10 days and I will be remote location. So, it will take some effort for me to get this sorted out.

I am glad that asked me these questions. I will try to do this remotely and the same time, I don't want to spoil my vacation. :confused

Thanks again!!

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Thu May 04, 2017 10:54 am

pingo wrote: After-tax 401k savings: $18,000 + $6000 catchup (gets rolled into Roth IRA once per year
Pingo:
I called Fidelity and before age 59 1\2 I am limited on the amount that I can roll over to 16%. So let's use 16k for the calculations.
Now my vacation can start! :greedy
Thanks again. For your generous assistance!

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Wed May 24, 2017 12:00 pm

Pax wrote:In the meantime, there’s a really big chunk of money sitting in cash ($420K) .
Where is this $420k? I don't see it placed anywhere in your financial summary. Is it part of the money you have already marked for parent care, new care and mortgage pay-off?

Also, you list one 401k account, but doesn't the employer match go into a pre-tax account? If so, please indicate the percent that each 401k account represents in the portfolio, because new contributions influence fund placement.

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Wed May 24, 2017 4:03 pm

pingo wrote:
Pax wrote:In the meantime, there’s a really big chunk of money sitting in cash ($420K) .
Where is this $420k? I don't see it placed anywhere in your financial summary. Is it part of the money you have already marked for parent care, new care and mortgage pay-off?

Also, you list one 401k account, but doesn't the employer match go into a pre-tax account? If so, please indicate the percent that each 401k account represents in the portfolio, because new contributions influence fund placement.
A lot has happened since that post. I felt the need to move. I figures that I can adjust as needed later. The $420K at that time referred to the cash incurred from selling the hight cost ER. Parent care, new care, mortgage pay are budget cash items in my taxable portfoilo. Which I will adress next.

However, I have just completed my retirement allocations as follows:
Traditonal IRA
---------------------
45% - US ITOT plus Bershire Hathway B and AMP stock
20% - Intl IXUS
35% - Bonds AGG

Roth
-------------------
45% - US ITOT
20% - Intl IXUS
35% - Bonds

401k Plan
-------------------
52% Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) (0.02%)
13% Vanguard FTSE All-World ex-US Index Fund Institutional Plus Shares (VFWPX) (0.07%)
35% Vanguard Total Bond Market Index Fund Institutional Plus Shares (VBMPX) (0.03%)

Note:
401K Contributions (I onluy have one 401K account)
Employer Matches On Contributions Up To 8%
AFTER-TAX BASIC - 8%
AFTER-TAX SUPPLEMENTAL - 8%
EMPLOYEE PRE-TAX CATCH-UP - 12%

HSA - Not completed yet. But planning, 100% Vanguard Total Bond Market Index Fund Investor Share (VBMFX) (0.16% plus $72/yr)

I will look at my taxable situation next, as I said. I have to review my budget (for example, I will add what I had in the Car fund to the Parent Care fund, I need to calculate how much I need in the Emergency fund and come up with a tier strategy, plus somehow invest monthly.

I do apprecite the help that you have provided. It was instrumental..now I need to do a little more homework.

All the best to you!

Pax

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Wed May 24, 2017 8:05 pm

I think you're fund selection in the above post is great. I cannot argue with your choices. Well done!

Please consider 2 reasons I personally think you'll be better served by using one target fund in each account before moving on:

1. You seem to need to reduce as many distractions in your financial and personal life as possible.
2. There's nothing inferior about the target fund options available in each or your retirement plan accounts.

The information you give is all over the place which makes it hard to organize, let alone obtain. It troubles me that there's a mismatch in the amount of money you thought was rolled from the After-tax 401k and that you don't see that your 401k has more than one account inside of it ("I only have one 401k account"). It troubles me that I ask if you're contributing to a Traditional pre-tax 401k here and your response focuses solely on the After-tax 401k account and the IRAs, yet you just posted for the second time that 12% of your income is going into the very pre-tax Traditional 401k I've been asking about ("EMPLOYEE PRE-TAX CATCH-UP - 12%"). I have no idea what else I could have done to make it simpler to get the dollar of pre-tax contributions from you. (See here.)

Nobody's perfect. My point is that you seem to have a lot on your plate and you tend to have many details flying through your head causing interference. The breakdown in communication makes it as hard for you to get the information you request as it is to request the information we need. It's a Who's On First Routine that would make Abbot and Costello proud.

Lecture over. You can do this. I wish you the best my friend! :beer

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Thu May 25, 2017 12:17 pm

pingo wrote:rolled from the After-tax 401k
Pingo:

Thanks for your feedback. And the deserved / needed lecture!! :) I have to admit that -- you are right -- I considered my Employer's 401K plan as one-single account, now I see that it has several parts (or accounts), i.e:
- AFTER-TAX BASIC - 8%
- AFTER-TAX SUPPLEMENTAL - 8%
- EMPLOYEE PRE-TAX CATCH-UP - 12%

My employer used to have a Roth 401K plan and now they have an "After-tax 401k" -- obviously, I need to learn more about that.

Clearly now what I can roll-over to a Roth is only the portion of my After-Tax contributions.

So, sorry for the confusion..BUT.. I was, indeed, confused and I didn't even know it.

I will slow down and review all this carefully now that I am back in the market . I will re-consider using one target fund, yet, I don't want to make too many changes too quickly. Heavens knows, how hard it was to decide on the Three-Fund Portfolio and executing it was even harder:)

Thanks again for your patience! I am taking a breather and then Round #2 -- Taxable Portfolio and Budgets is next.

Pax

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Thu May 25, 2017 1:49 pm

If you already setup the 401k with those funds, don't touch it for at least 3 months in order to avoid any 1-3 month short-term trading fees they'd probably impose.

When you start a new thread to discuss taxable portfolio and budgeting, you should also probably update and include all the information as requested in the sticky regarding asking portfolio questions, as you've already seen. Part of the reason is that I can already see that you might be in a unique situation to save up to $54,000 per year in your 401k, even if you think you can't afford it. I don't know if you see how yet, but we can help you max your 401k at $54,000/year if we can nail down some of the specifics we missed in this discussion.

:thumbsup

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Thu May 25, 2017 3:35 pm

Wo, $54K a year! Yet I will need money left in my paycheck to pay the bills. I see the possibilities once I get more financial clarity. For example, I have a 30 year mortgage and I am making 15 yr payments. Maybe, instead, I should putting those paynents in the 401K... but I am jumping the gun. I will do as you have suggested, first.
Thanks again!
Pax

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Thu May 25, 2017 4:49 pm

You could increase your 401k savings somewhat by taking advantage of pre-tax Traditional 401k contributions and putting the 29.75% marginal tax savings to work in the After-tax 401k...to the tune of up to $5,355 per year without shrinking your paycheck.

Also, my back of the envelope math tells me that you could effectively move anywhere up to $30,000 a year from emergency savings into your After-tax 401k account and then roll it into your Roth IRA for tax-free withdrawals in retirement. (I will no longer call your cash a taxable portfolio to avoid confusion with retirement investments.)

If you realize you don't need as much cash on hand, you could increase 401k contributions to reach the $54,000 combined limit for 401ks. (That's $18,000 personal contributions + $6,000 employer match + $30,000 After-tax 401k savings up to $54,000.) Assuming your take home pay wouldn't be enough for groceries, etc., you buy groceries with your excess cash. It is effectively the same as transferring outside cash into a 401k even though it isn't literally a transfer.

Pax
Posts: 68
Joined: Sun Apr 23, 2017 10:56 am

Re: Portfolio Questions and Review

Post by Pax » Fri May 26, 2017 10:30 pm

Interesting and creative.

Is there a calculator the marginal tax savings? How did you come up with 29.75% ?

Thanks

Pax

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: Portfolio Questions and Review

Post by pingo » Fri Jun 02, 2017 1:37 pm

Sorry for the delay. I somehow missed the notification.

"29.75% marginal" comes from adding your federal and state brackets together. 401k pre-tax contributions defer taxes at your highest marginal rate. (Unlike retirement, where spending down the 401k starts off at your lowest marginal rate and progresses upward the more you spend.)

So, you can save $100 pre-tax, or you can save $70.25 after the federal government takes $25 and the state takes $4.75. The impact on your "net" take home pay each year is the same.

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