Hep with rethinking portfolio.

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skyghost
Posts: 7
Joined: Sat May 13, 2017 8:57 pm

Hep with rethinking portfolio.

Postby skyghost » Sun May 14, 2017 12:54 pm

Hi

I just finished reading the boglehead's guide to investing (great book, already recommended it to a few friends) and it got me thinking about simplifying my current portfolio. Right now I probably have about 8 or 9 ETFs and a small percentage in individual stock for speculation (less than 4 or 5%. Looking to simplify to a core four strategy over my 5 accounts. I have an idea of where I would reorganize things but looking for a second opinion.

Emergency funds: Yes Funded 5 months
Debt: Only a mortgage on my home. 30 year mortgage at 3.75%
Tax Filing Status: Single – No dependents
Tax Rate: 25% Fed 5.5% state
State of NC:
Age: 29
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25-30% of stocks


Portfolio size: 73k

401K: 13k 16% of portfolio
Rollover IRA from previous employer: 11k 15% of portfolio
Roth IRA: 24k 33% of portfolio
HSA Investments: 3.5k 5% of portfolio:
Taxable account: 21.5k 31% of portfolio:

Contributions

New annual Contributions
$7,000 401k $2,000 employer match
$3,400 HSA - Max
$5,500 Roth IRA - Max
$10,000 taxable to taxable account

Current Funds
I’m mostly invested in ETFs in my taxable account and IRA / Roth IRA although I have a few stocks in it as a small percentage just for speculation (less than 5%). Looking to consolidate these into Vanguard Mutual Funds / ETFs.

Available funds

Funds available in 401(k)
Bond: There are additional funds however all have high expenses ratios 1% or greater.
VANGUARD TOTAL BOND MKT INDEX – VBMPX Exp .03%
Vanguard Short-Term Bond Index Fund Institutional Shares – VBITX Exp .05%
Vanguard Intermediate-Term Treasury Fund Admiral Shares (VFIUX) Exp .10%
Stock: There are additional funds however all have high expenses ratios 1% or greater.
Vanguard REIT Index Institutional VGSNX Exp .10%
Vanguard Explorer Fund Admiral Shares (VEXRX) Exp .34%
Vanguard Employee Benefit Index Fund (VKPMG) (sorry could not find an expenses ratio)
American Funds Europacific Growth R6 RERGX Exp .50%
American Funds Growth Fund of Amer R6 RGAGX Exp .33%
MFS Value R6 MEIKX Exp .50%

Funds available in HSA

M. FUNDS CAP. WORLD GRO. & INC. FUND (F2) WGIFX 0.55
BLACKROCK EQUITY DIVIDEND FUND (K) MKDVX 0.59
BLACKROCK S&P 500 INDEX FUND (K) WFSPX 0.04
COLUMBIA GLOBAL STRATEGIC EQUITY FUND (R4) CWPRX 1.02
COLUMBIA CAPITAL ALLOC. CONSERV. FUND (R4) CPCYX 0.79
COLUMBIA CAP. ALLOCA. MOD. AGGRESS. FUND (R4) CGBRX 0.91
COLUMBIA MID CAP GROWTH FUND (R4) CPGRX 0.95
COLUMBIA MID CAP INDEX FUND (Z) NMPAX 0.39
COLUMBIA SMALL CAP INDEX FUND (Z) NMSCX 0.2
COLUMBIA SMALL CAP VALUE FUND II (R4) CLURX 1.02
COLUMBIA US TREASURY INDEX FUND (Z) IUTIX 0.41
BLACKROCK INTERNATIONAL INDEX FUND (K) BTMKX 0.1




Questions:
1. I want to consolidate my taxable and IRA accounts to a core four portfolio to simplify it a bit being 20% bonds, 40% US equity, 30% international equity, 10% REITs. I would put the bonds and REIT in the IRA / Roth IRA but not sure which. I’m thinking of moving my funds to Vanguard to have access to the admiral shares of the mutual funds. If I do, I could only hold one fund of admiral shares in the IRA account as the value just qualifies being over 10k. How should I best allocate the 4 funds over these account and does it make sense for one account to hold all of one of the four funds?

2. Currently I have my 401k plan and HSA as a mix of US/international equities & bonds. Should I change this and move the international equities all into the taxable account or is it good to keep some diversification within tax advantaged accounts? Given the strategy I’m going for in the other accounts, how must to supplement this in the 401k and HSA given the limited investment options.

3. I'm considering switching from ETFs to mutual funds if I can get admiral shares for the same expenses ratio. Does it make sense to move my taxable / IRAs from TD to Vanguard to take advantage of this? I do like how at TD I have all my accounts linked and can quickly look at the performance.

User avatar
Duckie
Posts: 4845
Joined: Thu Mar 08, 2007 2:55 pm

Re: Hep with rethinking portfolio.

Postby Duckie » Sun May 14, 2017 6:55 pm

skyghost, welcome to the forum.

skyghost wrote:Age: 29
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25-30% of stocks

Reasonable for your age. Just be aware that 30% of 80% stocks is 24% international stocks.

New annual Contributions
$7,000 401k $2,000 employer match
$3,400 HSA - Max
$5,500 Roth IRA - Max
$10,000 taxable to taxable account

You have some decent 401k options. Why are you contributing to a taxable account before maxing your 401k?

Funds available in 401(k)

Your best options are:
  • Vanguard Employee Benefit Index Fund (VKPMG) Exp .02% -- Large caps, 80% of US stocks
  • Vanguard REIT Index Institutional VGSNX Exp .10% -- REITs
  • Vanguard Total Bond Mkt Index VBMPX Exp .03% -- US bonds
Where did you find the expense ratios? You need the 401k plan costs, not retail costs.

Funds available in HSA

The best options are:
  • BLACKROCK S&P 500 INDEX FUND (K) WFSPX 0.04 -- Large caps, 80% of US stocks
  • COLUMBIA SMALL CAP INDEX FUND (Z) NMSCX 0.2 -- Small caps, 14% of US stocks
  • BLACKROCK INTERNATIONAL INDEX FUND (K) BTMKX 0.1 -- Developed markets, 75% of international stocks
  • COLUMBIA US TREASURY INDEX FUND (Z) IUTIX 0.41 -- US bonds
Because you may need the HSA for current medical expenses at least some should be in bonds/cash.

1. I want to consolidate my taxable and IRA accounts to a core four portfolio to simplify it a bit being 20% bonds, 40% US equity, 30% international equity, 10% REITs. I would put the bonds and REIT in the IRA / Roth IRA but not sure which. I’m thinking of moving my funds to Vanguard to have access to the admiral shares of the mutual funds. If I do, I could only hold one fund of admiral shares in the IRA account as the value just qualifies being over 10k. How should I best allocate the 4 funds over these account and does it make sense for one account to hold all of one of the four funds?

2. Currently I have my 401k plan and HSA as a mix of US/international equities & bonds. Should I change this and move the international equities all into the taxable account or is it good to keep some diversification within tax advantaged accounts? Given the strategy I’m going for in the other accounts, how must to supplement this in the 401k and HSA given the limited investment options.

See below.

3. I'm considering switching from ETFs to mutual funds if I can get admiral shares for the same expenses ratio. Does it make sense to move my taxable / IRAs from TD to Vanguard to take advantage of this? I do like how at TD I have all my accounts linked and can quickly look at the performance.

I'm a Vanguard fan and know little about TD. Can't help here.

The following portfolio example has an AA of 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to 56% US stocks (including 10% REITs), 24% international stocks, and 20% bonds. Right now you could have:

Taxable at Vanguard -- $21.5K -- 29%
5% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.15%)
24% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

401k -- $13K -- 18%
3% (VKPMG) Vanguard Employee Benefit Index Fund (0.02%)
15% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.03%)

Rollover IRA at Vanguard -- $11K -- 15%
15% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Roth IRA at Vanguard -- $24K -- 33%
23% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
10% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.26%)

Health Savings Account -- $3.5K -- 5%
5% Cash

Something to think about.
Last edited by Duckie on Mon May 15, 2017 2:42 pm, edited 1 time in total.

Dottie57
Posts: 1646
Joined: Thu May 19, 2016 5:43 pm

Re: Hep with rethinking portfolio.

Postby Dottie57 » Sun May 14, 2017 8:23 pm

IMHO, you should keep 1year of max OUt of pocket expenses in cahs formyour HSA.

5 or 6 years ago I came down what turned out to be a "virus" of unknown origin or name. It attacked the nerves in my hands and arms and lasted 3 months. I far exceeded the OOP amount ny August of the year. I was glad to have the cash in my HSA as you never know whhen you will need it.

skyghost
Posts: 7
Joined: Sat May 13, 2017 8:57 pm

Re: Hep with rethinking portfolio.

Postby skyghost » Sun May 14, 2017 9:00 pm

Dottie57 wrote:IMHO, you should keep 1year of max OUt of pocket expenses in cahs formyour HSA.

5 or 6 years ago I came down what turned out to be a "virus" of unknown origin or name. It attacked the nerves in my hands and arms and lasted 3 months. I far exceeded the OOP amount ny August of the year. I was glad to have the cash in my HSA as you never know whhen you will need it.


Totally agree with this. When I mentioned the HSA account, I was only referring to the portion that I had invested. I have cash in the account to cover my max OOP medical expenses if something were to happen.

skyghost
Posts: 7
Joined: Sat May 13, 2017 8:57 pm

Re: Hep with rethinking portfolio.

Postby skyghost » Sun May 14, 2017 9:31 pm

Thank you for the detailed feedback.

Duckie wrote:skyghost, welcome to the forum.

skyghost wrote:Age: 29
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 25-30% of stocks

Reasonable for your age. Just be aware that 30% of 80% stocks is 24% international stocks.

25% was the top end of what I wanted for international so goal was to keep it below that.

New annual Contributions
$7,000 401k $2,000 employer match
$3,400 HSA - Max
$5,500 Roth IRA - Max
$10,000 taxable to taxable account

You have some decent 401k options. Why are you contributing to a taxable account before maxing your 401k?

Honestly no good reason. Previously looking at my 401k options they were not that great (don't think we had any Vanguard funds in it), but they added some options a few months ago. Also I do want to have better access to some of my portfolio in the next 10 to 15 years if I get married and want to buy a bigger home in the area. Thus putting 2/3 into retirement accounts not touching those for 30 to 40 years and the taxable account to have some flexibility if needed.

Funds available in 401(k)

Your best options are:
  • Vanguard Employee Benefit Index Fund (VKPMG) Exp. ??% -- Large caps, 80% of US stocks
  • Vanguard REIT Index Institutional VGSNX Exp .10% -- REITs
  • Vanguard Total Bond Mkt Index VBMPX Exp .03% -- US bonds
Where did you find the expense ratios? You need the 401k plan costs, not retail costs.

I did some more digging around and found the following expense ratios on the website.

VKPMG : .02% (Ths is whats listed as the gross ER. The website said there is no perspicuous Because this is an unregistered investment, it does not have a prospectus.
The other ER were based on the gross ER provided on the webpage.

Funds available in HSA

The best options are:
  • BLACKROCK S&P 500 INDEX FUND (K) WFSPX 0.04 -- Large caps, 80% of US stocks
  • COLUMBIA SMALL CAP INDEX FUND (Z) NMSCX 0.2 -- Small caps, 14% of US stocks
  • BLACKROCK INTERNATIONAL INDEX FUND (K) BTMKX 0.1 -- Developed markets, 75% of international stocks
  • COLUMBIA US TREASURY INDEX FUND (Z) IUTIX 0.41 -- US bonds
Because you may need the HSA for current medical expenses at least some should be in bonds/cash.

Agreed. I should have been more clear but I do have cash in another portion of the HSA account to cover OOP medical expenses for a year. I'd agree that I'd want this to be a more conservative portion of my portfolio to ensure the cash is there in case something medical related happened.

1. I want to consolidate my taxable and IRA accounts to a core four portfolio to simplify it a bit being 20% bonds, 40% US equity, 30% international equity, 10% REITs. I would put the bonds and REIT in the IRA / Roth IRA but not sure which. I’m thinking of moving my funds to Vanguard to have access to the admiral shares of the mutual funds. If I do, I could only hold one fund of admiral shares in the IRA account as the value just qualifies being over 10k. How should I best allocate the 4 funds over these account and does it make sense for one account to hold all of one of the four funds?

2. Currently I have my 401k plan and HSA as a mix of US/international equities & bonds. Should I change this and move the international equities all into the taxable account or is it good to keep some diversification within tax advantaged accounts? Given the strategy I’m going for in the other accounts, how must to supplement this in the 401k and HSA given the limited investment options.

See below.

3. I'm considering switching from ETFs to mutual funds if I can get admiral shares for the same expenses ratio. Does it make sense to move my taxable / IRAs from TD to Vanguard to take advantage of this? I do like how at TD I have all my accounts linked and can quickly look at the performance.

I'm a Vanguard fan and know little about TD. Can't help here.

The following portfolio example has an AA of 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to 56% US stocks (including 10% REITs), 24% international stocks, and 20% bonds. Right now you could have:

Taxable at Vanguard -- $21.5K -- 29%
5% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.15%)
24% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

401k -- $13K -- 18%
3% (VKPMG) Vanguard Employee Benefit Index Fund (0.??%)
15% (VBMPX) Vanguard Total Bond Market Index Fund Institutional Plus Shares (0.03%)

Rollover IRA at Vanguard -- $11K -- 15%
15% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Roth IRA at Vanguard -- $24K -- 33%
23% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
10% (VGSIX) Vanguard REIT Index Fund Investor Shares (0.26%)

Health Savings Account -- $3.5K -- 5%
5% Cash

Something to think about.


Thank you for the feedback. So in your example you have 15% bonds and 5% cash to equal the total 20% bonds allocation. Given that I already have my OOP medical expenses covered with cash in another part of my HSA account, would you put this in the COLUMBIA US TREASURY INDEX FUND in the HSA? Note crazy about the .41% expense ratio but better to be conservative and pay a bit more.

User avatar
Duckie
Posts: 4845
Joined: Thu Mar 08, 2007 2:55 pm

Re: Hep with rethinking portfolio.

Postby Duckie » Mon May 15, 2017 2:52 pm

skyghost wrote:So in your example you have 15% bonds and 5% cash to equal the total 20% bonds allocation. Given that I already have my OOP medical expenses covered with cash in another part of my HSA account, would you put this in the COLUMBIA US TREASURY INDEX FUND in the HSA? Not crazy about the .41% expense ratio but better to be conservative and pay a bit more.

Since your OOP is covered separately you could make the 18% 401k all bonds and then put 2% cash/bonds in the HSA and the other 3% in the 500 Index fund. Yes, 0.41% isn't cheap, but the cash won't pay much of anything either. Or even skip the cash/bonds in the HSA and be a little short on bonds until your 401k gets bigger.

skyghost
Posts: 7
Joined: Sat May 13, 2017 8:57 pm

Re: Hep with rethinking portfolio.

Postby skyghost » Mon May 15, 2017 8:12 pm

Duckie wrote:
skyghost wrote:So in your example you have 15% bonds and 5% cash to equal the total 20% bonds allocation. Given that I already have my OOP medical expenses covered with cash in another part of my HSA account, would you put this in the COLUMBIA US TREASURY INDEX FUND in the HSA? Not crazy about the .41% expense ratio but better to be conservative and pay a bit more.

Since your OOP is covered separately you could make the 18% 401k all bonds and then put 2% cash/bonds in the HSA and the other 3% in the 500 Index fund. Yes, 0.41% isn't cheap, but the cash won't pay much of anything either. Or even skip the cash/bonds in the HSA and be a little short on bonds until your 401k gets bigger.


Interesting thought. If I have the 401k in all bonds, that percentage of my portfolio would steady increase over time as I increase my 401k contributions making my portfolio more conservative as I get older.

I think I still have to force myself to look at my portfolio being diversified as a whole rather than each account needs some diversification in it.

skyghost
Posts: 7
Joined: Sat May 13, 2017 8:57 pm

Re: Hep with rethinking portfolio.

Postby skyghost » Wed May 17, 2017 9:20 pm

Sorry for the multiple questions but I have been doing some more thinking on this.

In the soonish future I may be living outside of the US for a certain period of time and was thinking it may be easier to mange everything with Schwab due to their live 24/7 support and other benefits.

If I do this, I would probably use the Schwab ETFs to build the taxable / IRA and Roth part of the portfolio. I would likely do the following.

Roth IRA 33%
23 % SCHB - US Broad Market .03 ER
10% SCHH - US REIT .07 ER

IRA 15%
15 % SCHB - US Broad Market .03 ER

Taxable - 29%
5 % SCHB - US Broad Market .03 ER
16 % SCHF - International equity ETF .06 ER
8 % SCHE - International emerging markets .13 ER

The remaining 23% is unchanged in the 401k and HSA noted previously.

I greatly appreciate the feedback.

KlangFool
Posts: 6003
Joined: Sat Oct 11, 2008 12:35 pm

Re: Hep with rethinking portfolio.

Postby KlangFool » Wed May 17, 2017 9:31 pm

<< New annual Contributions
$7,000 401k $2,000 employer match
$3,400 HSA - Max
$5,500 Roth IRA - Max
$10,000 taxable to taxable account

You have some decent 401k options. Why are you contributing to a taxable account before maxing your 401k?

Honestly no good reason. Previously looking at my 401k options they were not that great (don't think we had any Vanguard funds in it), but they added some options a few months ago. Also I do want to have better access to some of my portfolio in the next 10 to 15 years if I get married and want to buy a bigger home in the area. Thus putting 2/3 into retirement accounts not touching those for 30 to 40 years and the taxable account to have some flexibility if needed. >>

OP,

You should max up your 401K before you put any money into the taxable account. You are paying 25+% tax for every dollar that you do not put into the 401K account.

<< Also I do want to have better access to some of my portfolio in the next 10 to 15 years if I get married and want to buy a bigger home in the area.>>

A) You can withdraw your Roth IRA contribution any time without penalty.

B) You can withdraw your Trad. 401K money without penalty using Roth Conversion.

https://www.bogleheads.org/wiki/Roth_IRA_conversion

So, you can access your money even if they are in Trad. 401K and Roth IRA account. Furthermore, by contributing 18K to Trad. 401K, you will have enough tax savings for both Roth IRA and the taxable account.

KlangFool

skyghost
Posts: 7
Joined: Sat May 13, 2017 8:57 pm

Re: Hep with rethinking portfolio.

Postby skyghost » Thu May 18, 2017 5:07 pm

KlangFool wrote:
<< Also I do want to have better access to som

A) You can withdraw your Roth IRA contribution any time without penalty.

B) You can withdraw your Trad. 401K money without penalty using Roth Conversion.

https://www.bogleheads.org/wiki/Roth_IRA_conversion

So, you can access your money even if they are in Trad. 401K and Roth IRA account. Furthermore, by contributing 18K to Trad. 401K, you will have enough tax savings for both Roth IRA and the taxable account.

KlangFool


I agree with point A that you made but I'm not following your logic on point B. Is the assumption for point B that I am unemployed and need access to the funds in it? For the traditional 401k, I cannot remove this money from the 401k account with my current employer unless I either leave my employer, or if I take a loan from the 401k account. Not very liquid in my opinion

For the IRA account, I could convert it to a Roth without paying the 10% early withdrawal penalty but that would still be subject to tax. If I had a year of very low income, then yes it would make sense to make a Roth conversion

KlangFool
Posts: 6003
Joined: Sat Oct 11, 2008 12:35 pm

Re: Hep with rethinking portfolio.

Postby KlangFool » Thu May 18, 2017 5:21 pm

skyghost wrote:
KlangFool wrote:
<< Also I do want to have better access to som

A) You can withdraw your Roth IRA contribution any time without penalty.

B) You can withdraw your Trad. 401K money without penalty using Roth Conversion.

https://www.bogleheads.org/wiki/Roth_IRA_conversion

So, you can access your money even if they are in Trad. 401K and Roth IRA account. Furthermore, by contributing 18K to Trad. 401K, you will have enough tax savings for both Roth IRA and the taxable account.

KlangFool


I agree with point A that you made but I'm not following your logic on point B. Is the assumption for point B that I am unemployed and need access to the funds in it? For the traditional 401k, I cannot remove this money from the 401k account with my current employer unless I either leave my employer, or if I take a loan from the 401k account. Not very liquid in my opinion

For the IRA account, I could convert it to a Roth without paying the 10% early withdrawal penalty but that would still be subject to tax. If I had a year of very low income, then yes it would make sense to make a Roth conversion


skyghost,

<< I'm not following your logic on point B.>>

1) How likely that you will be working for this employer continuously for the next 38 years until you are 67 years old?

2) How likely that you will be working for this employer continuously for the next 26 years until you are 55 years old?

3) How likely that you will be continuously fully-employed with no gap between employment for the next 38 years? Please note that you may be in between jobs for one of those years.

If you are a normal aka average person, you will be unemployed or under-employed for some time over the next 38 years. The answer will be no to the question (1) to (3). Hence, what is the problem with the logic of point (B)?

<< Is the assumption for point B that I am unemployed and need access to the funds in it?>>

This is for tax management. It may or may not have to do with whether you need the money. If there is a year where you could convert $X amount of money into Roth IRA without pay tax or paying low tax, why won't you do it?

KlangFool

skyghost
Posts: 7
Joined: Sat May 13, 2017 8:57 pm

Re: Hep with rethinking portfolio.

Postby skyghost » Thu May 18, 2017 10:12 pm

ok I think we are on the same page now. I thought you were talking about a normal year when i was fully employed. I know a lot about individual tax so when you mentioned it would be penalty free, i knew there would still be tax on it if i could not off set it with deductions.


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