Newbie investing questions

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BogleAlltheWay
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Newbie investing questions

Post by BogleAlltheWay » Mon May 15, 2017 8:28 pm

Hi all,
I have decided to educate myself on investing and have come to see the merits of indexing. Any help is greatly appreciated. Paying fees of 1.25% for Russell tax managed growth strategies on top of a 1% advisory fee (for very little advisement) got me here. I am currently 33. This is my situation:

Tax 25% Federal 6.5% State
File Single
Desired allocation: 90/10

Taxable Account: 45% 60K
401k: 40% 50K
Roth IRA: 15% 20K

Contributions: 401K : 8-10K Match: $750
Roth IRA: (max each year) As much as I can from salary and the rest take out of taxable
IN the taxable account I current have the "Russell tax managed growth strategies" (3.5K of capital gain)
(I was advised to sell my investments in 2015 so I dont have much captial gains)


401k These are the only index funds (I pay a .5% allocation fee) (All the international funds have a min ER of 1.0% )
BlackRock S&P 500 Index Fund - Institutional Class: BSPIX 11% ER
BlackRock Mid Cap Index Fund - Institutional Class: BRMIX 13% ER(Moringstar says .06%)
BlackRock Small Cap Index Fund - Institutional Class MASKX 14% ER
Federated Total Return Bond Fund - Institutional Class: FTRBX .37% ER

I want to move my IRA and taxable accounts to Vanguard in the following funds:
Vanguard Total International Stock Index Fund Admiral Shares: VTIAX
Vanguard FTSE All Wd Ex US Small Cap ETF: VSS
Vanguard Emerging Markets Stock Index Fund Admiral Shares: VEMAX
US stock index fund(s)

1. Reading the tax efficient order on https://www.bogleheads.org/wiki/Tax-efficient_fund_placement, my Bond allocation should be in tax sheltered. Is it better to have the .37% ER Federated Total Return Bond Fund in my 401k or a much cheaper Vangaurd bond fund in taxable? (Roth IRA does not seem optimal) * I am leaning toward the 401k due to the tax sheltered and the fact that my 401K will likely outgrow my US allocation.

2.I do have Roth IRA space to use for my international funds. Looking at the Boglehead chart it seems like my choice is either the FTSE All Wd Ex US Small Cap ETF or the Emerging Markets Stock Index but the Total International Stock Index seems to have the highest tax ratio on Morningstar. Which one is best for the Roth IRA? *Since the tax rates seem similar I am leaning toward emerging markets due to growth potential.

3. How should I divide my US allocation between 401k and taxable? *I am thing The Vanguard Total Stock Market Index or the seem to be my best choice for taxable considering its tax efficiency and I will be likely selling it for international allocation as my 401K grows. Then I could divide my 401k among the three Blackrock funds.

4. Is it worth selling some taxable funds to contribute to either a Roth IRA or 401k(indirectly)?

5. Does turnover or the Moringstar Tax ratio matter in a tax differed or tax-free?

6. How do I compare Fund A in 401k vs Fund B taxable? For example, in my case the cheapest international fund is the Thornburg International Value Fund Class R5 with ER of .95%. Is it better for me to contribute to my 401k (post match) to that fund with the .95% ER and the .5% allocation fee or say the Vanguard Total International Stock Index with a .11% ER. in a taxable account? I would assume pre-match is a win for the fund in the 401k.

Thank you in advance for you help. I know its a lot. My eyes have been open on the right way to invest.
Last edited by BogleAlltheWay on Fri May 19, 2017 3:04 pm, edited 2 times in total.

TheJoker
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Location: Bellingham, Wa

Re: Newbie investing questions

Post by TheJoker » Mon May 15, 2017 9:11 pm

You are correct, this is a lot. Being an investor for over 40 years I think it is safe to say that we all start out with many more funds then we need. Eventually most of us end up with a simple low cost stock index and a low cost bond fund. Bogle has said and Buffett agrees that the average investor should not try to beat the market, it is best to buy the haystack rather then trying to pick out the needles. Each of them have been investing for some 60 years. Learn from their experience. At your age a low cost simple stock bond allocation will do fine.

TheJoker

BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Mon May 15, 2017 9:57 pm

Thanks. I am trying to learn all the stuff now to optimize my requirement portfolio.

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ruralavalon
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Re: Newbie investing questions

Post by ruralavalon » Tue May 16, 2017 4:38 pm

Welcome to the forum :) .

Some additional information will be helpful.

What is your tax bracket, both federal and state?
What is your tax filing status?

What are the sizes of the accounts? Like this:
taxable account, aa%, $xx
401k, bb%, $yy
Roth IRA, cc%, $zz
total = 100%
Please include all accounts.

About how much (in dollars) do you expect you may be contributing to each account? How much (in dollars) is the employer match?

What investments do you currently have in the taxable account? What is the unrealized capital gain/loss status of each of those investments?

You can simply add this to your original post using the edit button, so that all of your information is in one place.

. . . . .

I will try to give some partial answers to your questions.

BogleAlltheWay wrote:1. Reading the tax efficient order on https://www.bogleheads.org/wiki/Tax-efficient_fund_placement, my Bond allocation should be in tax sheltered. Is it better to have the .37% ER Federated Total Return Bond Fund in my 401k or a much cheaper Vangaurd bond fund in taxable? (Roth IRA does not seem optimal) * I am leaning toward the 401k due to the tax sheltered and the fact that my 401K will likely outgrow my US allocation.

It's hard to say in the abstract without knowing the relative sizes of the accounts and the expected annual contributions.

I think it is likely better to use Federated Total Return Bond Fund - Institutional Class (FTRBX) ER 0.37% in your 401k.



BogleAlltheWay wrote:2.I do have Roth IRA space to use for my international funds. Looking at the Boglehead chart it seems like my choice is either the FTSE All Wd Ex US Small Cap ETF or the Emerging Markets Stock Index but the Total International Stock Index seems to have the highest tax ratio on Morningstar. Which one is best for the Roth IRA? *Since the tax rates seem similar I am leaning toward emerging markets due to growth potential.

It's hard to say in the abstract without knowing the relative sizes of the accounts and the expected annual contributions.

Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11% includes both small-cap stocks and stocks of companies in emerging markets. So I would not use the Small-cap or emerging market funds.



BogleAlltheWay wrote:3. How should I divide my US allocation between 401k and taxable? *I am thing The Vanguard Total Stock Market Index or the seem to be my best choice for taxable considering its tax efficiency and I will be likely selling it for international allocation as my 401K grows. Then I could divide my 401k among the three Blackrock funds.

It's hard to say in the abstract without knowing the relative sizes of the accounts and the expected annual contributions.

You will need to use the domestic stock index funds in your 401k.

In a taxable account I generally suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.05% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Both are very tax-efficient. Wiki article "Tax-efficient fund placement".



BogleAlltheWay wrote:4. Is it worth selling some taxable funds to contribute to either a Roth IRA or 401k(indirectly)?

Maybe. It's hard to say in the abstract without knowing the tax information.



BogleAlltheWay wrote:5. Does turnover or the Moringstar Tax ratio matter in a tax differed or tax-free?

No.

But turnover can still be helpful information, it tells you something about the quality of the management of the fund.

By the way the Morningstar tax cost ratio is not very helpful, I am told that it does not recognize qualified dividends.



BogleAlltheWay wrote:6. How do I compare Fund A in 401k vs Fund B taxable? For example, in my case the cheapest international fund is the Thornburg International Value Fund Class R5 with ER of .95%. Is it better for me to contribute to my 401k (post match) to that fund with the .95% ER and the .5% allocation fee or say the Vanguard Total International Stock Index with a .11% ER. in a taxable account? I would assume pre-match is a win for the fund in the 401k.

It's hard to say in the abstract without knowing the relative sizes of the accounts, without the expected annual contributions, and without the tax information.

My guess is that it may be better to buy Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11% in the taxable account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Tue May 16, 2017 6:24 pm

@ruralavalon Thanks for the detailed reply. I really appreciate it. Sorry I left out so much info. I edited my post.
I am eager to learn about saving for retirement.

Where should I look to get accurate tax information? Should I just look at the after tax returns?

This unBoglelike but the reason I wanted the Emerging Stock fund and the international small cap is to give a slight tilt toward those categories and an opportunity to tax harvest.

With regards to turnover, the Blackrock index funds in my 401k have about a 10% higher turnover than their Vangaurd counterparts. (The reason I was asking is that if it did matter, I have the option to hold the BlackRock S & p 500 fund and hold a small cap in taxable.

EdLaFave
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Re: Newbie investing questions

Post by EdLaFave » Tue May 16, 2017 6:57 pm

What the heck is an "allocation fee"? I may be missing something but if I'd max out my 401k, then max out my IRA, and then contribute to taxable. You may have a good reason for not doing it but it is something to think about.

What are you trying to accomplish in your proposed IRA/taxable? More specifically, why overweight international small cap and emerging markets? I'm not sure how much extra tax harvesting you'll get out of it. My taxable investing lifetime is post 2008, I only own total market index funds, and I've already harvested enough losses to last a decade...when an actual bear market comes around I'll probably have enough for a lifetime.

1. Sorry I didn't take the time to do the math. As a general rule of thumb I pick the lowest cost funds in my 401k and use my other accounts to fill in the gaps. Is there a reason you aren't considering bonds in the IRA? If taxable is a route your considering then municipal bonds may be a consideration, although I've never done the math to calculate the tax drag of a regular bond fund.

2. International funds are fine in any account, they don't need to be in an IRA. Unless there is a reason you're trying to overweight international small caps or emerging markets then I'd go with 100% total international. I'd also consider holding my bonds here, others will point out that it will limit your growth in an account you don't have to pay taxes...I've never had to do the math, you should.

3. Generally speaking I love Vanguard Total Stock Market. If I were forced into an account without access to it then I'd use a large cap, mid cap, and small cap to approximate Vanguard Total Stock Market. Sounds like you're on the right path.

4. I'd need more context. If you want to go that route then I'd at least choose to NOT reinvest taxable dividends and put those in an IRA or increase my 401k contributions and use the dividends to pay for living expenses.

5. No but I would never buy a high turnover fund. I exclusively buy index funds and by definition they're low turnover.

...as far as getting accurate tax information, I personally don't get wrapped up in the details. I don't hold bonds in a taxable account because they throw off a lot of income that is taxed as regular income (high!). I only hold index funds with VERY low turnover.

BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Tue May 16, 2017 7:59 pm

Thanks for your response.

The allocation fee is what I get charged in fees each year. They take it out quarterly. My problem was I did not contribute to my 401k or more toward IRA because I didn't know better. I was planning to contribute to my 401k up to match, then Roth IRA, then attempt to max out 401k. Maybe I should be maxing out my 401k and Ira until I get rid of all the taxable account?

In my IRA taxable I am trying to place the right funds in the right sports between my 401k, Roth and taxable until I get most of the taxable into tax sheltered. I have heard argument for and against tilting. Considering my long time horizon I like the higher risk/reward of them. It only costs a couple of extra basis points to have those funds.

1. I am considering Bonds in my IRA. I was trying to figure out if it was better to have a .37% ER Bond fund in 401k vs the cheaper 05% ER in taxable. I was trying to figure the best way to allocate my funds with BlackRock index funds (er .11-.14) and Bond (.37) in 401k and US total market and cheaper bond fund in taxable.

2. I have 20k of Roth IRA space to use on bonds or international. I am not fully sure ( I will attempt to do that math) but considering my long time horizon and the paltry bonds rates it seems bets to put in high growth funds. Use the 401k for bonds. (I was thinking of maybe adding a REIT eventually to Roth). Also I have access to tax free state munis.

3. (Check)

4. the 65K I have in taxable I plan to use for retirement My goal to get all that money into tax sheltered (directy or indirectly)

5. I should rephrase (I am only buying index funds) but for example the 401k Blackrock small cap has a 35% turnover vs 20% for Vangaurd.

If I was smarter I would have had the taxable money in tax sheltered by now. Either way no bonds in taxable. :(

BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Thu May 18, 2017 7:54 am

bump!

ICMoney
Posts: 92
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Re: Newbie investing questions

Post by ICMoney » Thu May 18, 2017 10:33 am

BogleAlltheWay wrote:Thanks for your response.

The allocation fee is what I get charged in fees each year. They take it out quarterly. My problem was I did not contribute to my 401k or more toward IRA because I didn't know better. I was planning to contribute to my 401k up to match, then Roth IRA, then attempt to max out 401k. Maybe I should be maxing out my 401k and Ira until I get rid of all the taxable account?

In my IRA taxable I am trying to place the right funds in the right sports between my 401k, Roth and taxable until I get most of the taxable into tax sheltered. I have heard argument for and against tilting. Considering my long time horizon I like the higher risk/reward of them. It only costs a couple of extra basis points to have those funds.

1. I am considering Bonds in my IRA. I was trying to figure out if it was better to have a .37% ER Bond fund in 401k vs the cheaper 05% ER in taxable. I was trying to figure the best way to allocate my funds with BlackRock index funds (er .11-.14) and Bond (.37) in 401k and US total market and cheaper bond fund in taxable.

2. I have 20k of Roth IRA space to use on bonds or international. I am not fully sure ( I will attempt to do that math) but considering my long time horizon and the paltry bonds rates it seems bets to put in high growth funds. Use the 401k for bonds. (I was thinking of maybe adding a REIT eventually to Roth). Also I have access to tax free state munis.

3. (Check)

4. the 65K I have in taxable I plan to use for retirement My goal to get all that money into tax sheltered (directy or indirectly)

5. I should rephrase (I am only buying index funds) but for example the 401k Blackrock small cap has a 35% turnover vs 20% for Vangaurd.

If I was smarter I would have had the taxable money in tax sheltered by now. Either way no bonds in taxable. :(



Here is one idea for asset allocation on your current accounts:

Taxable Account: 45% 60K - put whatever your desired international stock allocation is here (Vanguard FTSE All-World ex-US Index) and put the rest in Vanguard Total Stock Market.

401k: 40% 50K - use the bond fund up to whatever your desired bond allocation is, and then put the rest in a mix of the stock funds (or just the S&P 500 Index if you want to keep it simple).

Roth IRA: 15% 20K - put it all in Vanguard Total Stock Market

Your 401k options aren't terrible (the allocation fee is a bummer though), so I think it's a good idea to max out your traditional 401k and sell off taxable to live off if needed. You said you have little to no gains in your taxable account, right? That won't matter if you're in the 15% bracket though as any gains will be taxed at 0%. Would maxing out your traditional 401k get you into the 15% tax bracket?

Are you enrolled in a high-deductible health plan, so that you can contribution to a HSA? If so, you should max that out as well, which will further lower your taxable income.

Best,
ICM

BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Thu May 18, 2017 11:31 am

Thanks ICM

On top the allocation fee the match is low: 20% up to 5% of salary.

My taxable account only has about 3k of capital gains. My adviser had me sell in 2015 to get into a better fund and I paid alot of taxes. I am in the 25% even if I maxed out my 401k. I also have the option of buying NY state tax exempt muni bonds in my taxable for ER of .19% vs .37%ER in my 401k (Federated Total Return Bond Fund: FTRBX) Which is better or should I buy both?

Since you suggested the Vanguard Total Stock Market in the Roth, is it less tax-efficent than the Vanguard Total International Stock Market or the Vanguard international small cap (VSS) ? Does it makes sense to have some international allocation in tax sheltered in case I need to rebalance? The international funds in my 401k are horrible.

I currently have a FSA but not a HSA. Looking at it now it seems to make more sense for me to have an HSA. Thanks for the advice.

ICMoney
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Re: Newbie investing questions

Post by ICMoney » Thu May 18, 2017 12:03 pm

BogleAlltheWay wrote:Thanks ICM

On top the allocation fee the match is low: 20% up to 5% of salary.

My taxable account only has about 3k of capital gains. My adviser had me sell in 2015 to get into a better fund and I paid alot of taxes. I am in the 25% even if I maxed out my 401k. I also have the option of buying NY state tax exempt muni bonds in my taxable for ER of .19% vs .37%ER in my 401k (Federated Total Return Bond Fund: FTRBX) Which is better or should I buy both?

Since you suggested the Vanguard Total Stock Market in the Roth, is it less tax-efficent than the Vanguard Total International Stock Market or the Vanguard international small cap (VSS) ? Does it makes sense to have some international allocation in tax sheltered in case I need to rebalance? The international funds in my 401k are horrible.

I currently have a FSA but not a HSA. Looking at it now it seems to make more sense for me to have an HSA. Thanks for the advice.


I know little about muni bonds so will let other members comment on the preferability of that to the Total Bond Fund for your 401k. But I'm guessing Total Bond Fund is still ok to use, despite the ER not being as low as you'd like.

Typically international is best in taxable (if you have taxable, it's not a reason to contribute to taxable ahead of tax sheltered). Since you have taxable already, that's why I suggested international there. See this in the wiki's tax efficient fund placement for international. https://www.bogleheads.org/wiki/Tax-eff ... le_account Once you don't have taxable anymore, you can put international in one of your tax sheltered accounts.

If you think you might be able to start/contribute to a HSA, you could ask HR If they can make your FSA a "limited purpose" FSA which would allow you to contribute to a HSA. That may only make sense for this year if you could spend all of your FSA funds on "limited purpose" expenses (i.e. dental/vision), since I'm guessing your FSA may not roll over if unused. Regardless, something to look into for open enrollment for next year.

Also - I don't think your match is low. If you are making $60K/year and contributing $18K to your 401k, they are contributing $3000. If you are making $72K or more and maxing out, they are contributing $3600. 5% of salary is a reasonably standard match per my understanding.

Best,
ICM

BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Thu May 18, 2017 12:40 pm

Good point. I have read that page, but it just looked at the order, which as international as less tax efficient, but I missed that they out the international into taxable because of the foreign tax credit.
Does it affect rebalancing that I have no internation funds in tax sheletered?


FSA doesn't rollover rover. (I only have 350 in it) All I use it for is dental and vision . Luckily I am in relativity good health. In my case, the HSA makes more sense because there will likely be a year when I will need it for medical expenses. Is there an advantage of having a limited FSA vs using my HSA to pay for eye and denal care?

I wish I had that match.
Maybe I said it wrong but the max they will contribute is 1% of my salary. So on 60k the max is 600 hundred a year.

Thanks again ICM. I am trying to educate myself on all of this,

ICMoney
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Re: Newbie investing questions

Post by ICMoney » Thu May 18, 2017 3:54 pm

BogleAlltheWay wrote:Good point. I have read that page, but it just looked at the order, which as international as less tax efficient, but I missed that they out the international into taxable because of the foreign tax credit.
Does it affect rebalancing that I have no internation funds in tax sheletered?


FSA doesn't rollover rover. (I only have 350 in it) All I use it for is dental and vision . Luckily I am in relativity good health. In my case, the HSA makes more sense because there will likely be a year when I will need it for medical expenses. Is there an advantage of having a limited FSA vs using my HSA to pay for eye and denal care?

I wish I had that match.
Maybe I said it wrong but the max they will contribute is 1% of my salary. So on 60k the max is 600 hundred a year.

Thanks again ICM. I am trying to educate myself on all of this,


First, you will want to look at your asset allocation on a tax-adjusted basis, see this wiki article (https://www.bogleheads.org/wiki/Tax-adj ... allocation). When you ask if it affects rebalancing to have international in taxable, are you concerned there will be capital gains generated when you rebalance out of international (if it appreciates) and into something else, i.e. Total Stock Market? In the short term, this could be the case, but once all of your assets are tax sheltered there won't be tax consequences when you rebalance. You could also start directing new contributions (i.e. 401k contributions, IRA contributions) into your under-allocated asset class as a way of rebalancing if that seems preferable to you (that might not work for international within your 401k due to poor international ERs, but you can always buy some international in your Roth IRA for rebalancing purposes to get a better international ER).

Many bogleheads use HSA as an additional traditional IRA - i.e. invest the HSA funds (which many HSA custodians allow) and just reimburse small or no medical expenses. You have to be very careful if you have a FSA and HSA at the same time that the FSA provisions are changed to be "limited purpose" - otherwise you are not allowed to contribute to a HSA. I suppose if you can predict your dental/vision expenses AND you can make your FSA "limited purpose", you can optimize this by contributing the max to your HSA and still keeping a small "limited purpose" FSA for dental/vision expenses. If you end up only being able to do one or the other, HSA is probably better and you can either reimburse your dental/vision expenses from the HSA immediately or save copies of/electronic versions of your receipts for years and reimburse decades down the road. (wiki https://www.bogleheads.org/wiki/Health_ ... e_the_plan, and this blog post is helpful too http://www.madfientist.com/ultimate-retirement-account/)

I must have misunderstood your description of the match: "20% up to 5% of salary". I took that to mean 20% of your total 401k contribution, not to exceed 5% of your salary. It sounds like you're saying you actually get 1% of salary for the match though.

Best,
ICM

BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Thu May 18, 2017 8:01 pm

I was concerned about capital gains with rebalancing. I think you are right in that I can rebalance international in my future Roth contributions. Thanks for the link. No one knows where the market is going, but does it make sense to have international in Roth at the moment considering that the US stock market is considered overvalued as compared to the the rest of the world?


By reading the link, I think inventively realized that all things being equal, I should put all my bonds in my 401k due the the .5% 401k asset allocation fee. Bonds return less than stocks over the long hall, so I will be saving on fees. However things are not equal: I can get a Bond fund outside of my 401k at 30 basis points cheaper but Blackrock index funds in my account are only 8 basis points more expensive than what I can get elsewhere. I also have the option for tax free munis. Does the analyst sound right? I will take your idea of asking that question.

I never realized the full benefits of a HSA. It is essentially like a traditional IRA with the option of drawing on it early in case of high medical. If I get close to 65 with money in it, I can apply to old medical bills. I am going to find out at work what I can do, but I don't think I can contribute for 2017.
This changes everything IF I can put the funds into something. If I can't I still think it is wise to throw in some money because I will eventually have some medical bill.

Don't worry everyone, including me gets confused in the way they word it. Exactly I get 1%. When I first saw the measly match I thought they screwed up. What it really is saying is they match 20% of your contributions until you put 5% of your salary in the 401k.

As always. Thanks.

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ruralavalon
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Re: Newbie investing questions

Post by ruralavalon » Fri May 19, 2017 12:15 pm

What to do with the taxable account?
BogleAlltheWay wrote:Tax 25% Federal 6.5% State
. . . . .
IN the taxable account I current have the "Russell tax managed growth strategies" (3.5K of capital gain)
(I was advised to sell my investments in 2015 so I dont have much captial gains)
. . . . .
4. Is it worth selling some taxable funds to contribute to either a Roth IRA or 401k(indirectly)?

Yes it is worth it in my opinion. I suggest selling all of the taxable account holdings. Your tax liability will be relatively small. There are good low expense funds offered in your 401k, you are not making the maximum contributions now, you will get a tax deduction for any additional contributions to the 401k, and you will then get the benefit of tax deferred growth and compounding.

I suggest selling all of the taxable account holdings. Continue to contribute the maximum $5.5k/yr to the Roth IRA. Increase your contributions to the 401k so that you reach the maximum $18k/yr, and draw money from the taxable account money to pay living expenses you would otherwise have paid out of your paycheck. This has the effect of transferring money from your taxable account into your 401k.



BogleAlltheWay wrote:Taxable Account: 45% 60K
401k: 40% 50K
Roth IRA: 15% 20K

Contributions: 401K : 8-10K Match: $750
Roth IRA: (max each year) As much as I can from salary and the rest take out of taxable

That would mean perhaps $8-10k drawn annually from your taxable account to help fully fund the 401k each year. How much would you need to draw annually from the taxable account to fully fund the Roth IRA each year?

I am trying to determine about how much each year would likely be transferred out of the taxable account to help fully fund the maximum annual contributions to those th 401k and Roth IRA.



Do you have any debt? If so what types, amounts and interest rates? If you have high interest debt, then paying that off may be a high prioity use for the money from the taxable account.

Is a High Deductible Health Plan (HDHP) offered at work, so that you could contribute to a Health Savings Account (HSA)? If so a HSA could be a good way to invest the money from the taxable account.

Again you can simply add this to you original post using the edit button, so that all of your information is one place.



Asset allocation.
Before choosing exactly which funds to use in your 401k and and which to use in your Roth IRA you need to decide on an asset allocation, at least a tentative preliminary decision.

I suggest about 20 - 25% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, "Never bear too much or too little risk", and "Asset allocation".

At age 33 I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

What is your desired asset allocation? Again you can simply add this to you original post using the edit button, so that all of your information is one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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ruralavalon
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Re: Newbie investing questions

Post by ruralavalon » Fri May 19, 2017 12:44 pm

BogleAlltheWay wrote:Where should I look to get accurate tax information? Should I just look at the after tax returns?

Yes, compare the before tax and after tax returns for any particular fund.


BogleAlltheWay wrote:401k These are the only index funds (I pay a .5% allocation fee)
. . . . .
The allocation fee is what I get charged in fees each year. They take it out quarterly.

That's certainly a bummer.

BogleAlltheWay wrote: My problem was I did not contribute to my 401k or more toward IRA because I didn't know better. I was planning to contribute to my 401k up to match, then Roth IRA, then attempt to max out 401k. Maybe I should be maxing out my 401k and Ira until I get rid of all the taxable account?

The combined charges, for example 0.61% for using the 401k to invest in BlackRock S&P 500 Index Fund Institutional Class (BSPIX), are not so high as to outweigh the tax advantage from fully using the 401k instead of a taxable ccount.
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BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Fri May 19, 2017 1:41 pm

Thanks for your reply.

BogleAlltheWay wrote:Taxable Account: 45% 60K
401k: 40% 50K
Roth IRA: 15% 20K

Contributions: 401K : 8-10K Match: $750
Roth IRA: (max each year) As much as I can from salary and the rest take out of taxable
That would mean perhaps $8-10k drawn annually from your taxable account to help fully fund the 401k each year. How much would you need to draw annually from the taxable account to fully fund the Roth IRA each year?
I am trying to determine about how much each year would likely be transferred out of the taxable account to help fully fund the maximum annual contributions to those th 401k and Roth IRA.


I plan on living on my own the next 1-2 years. I can afford to to max out both my 401k and Roth with salary until I do move out. After that I am planning to 8-10K retirement funds from salary and maybe 2K for a roth and the rest of the money from taxable.


Do you have any debt? If so what types, amounts and interest rates? If you have high interest debt, then paying that off may be a high prioity use for the money from the taxable account.


I have no debt.

Is a High Deductible Health Plan (HDHP) offered at work, so that you could contribute to a Health Savings Account (HSA)? If so a HSA could be a good way to invest the money from the taxable account.


I have a HDHP. I was confused. I did not realize I could open a HSA outside of work and put the money in an index fund

Asset allocation.
Before choosing exactly which funds to use in your 401k and and which to use in your Roth IRA you need to decide on an asset allocation, at least a tentative preliminary decision.

I suggest about 20 - 25% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, "Never bear too much or too little risk", and "Asset allocation".

At age 33 I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

What is your desired asset allocation? Again you can simply add this to you original post using the edit button, so that all of your information is one place.


My plan was to essentially copy the allocation of the Vangaurd Target fund 2050 (55% US, 35% Int, 10% bonds). Looking at other target funds from Schwab, Fidelity, T Row price etc. most have bewteen 10-25% bonds, about 55-65%% US stock, 25-35% International. I heard Bogle (speaking about the market in 1999) and agree with him that if the market seems overvalued to shift a bit away from it, but nothing crazy.


Two additional questions:
In light of my new found knowledge on HSA, should I not max out my 401k (with .5%) allocation and instead contribute to 401k up to match, then max HSA,and max Roth. I can save the taxable money for when I can't max all of this out from salary in 2 years.
The combined charges, for example 0.61% for using the 401k to invest in BlackRock S&P 500 Index Fund Institutional Class (BSPIX), are not so high as to outweigh the tax advantage from fully using the 401k instead of a taxable ccount.

In light of my question of how to split funds among the 401k, Roth, and taxable, I should point out that my 401k has a .5% allocation fee, which makes it more favorable to bonds since they grow slower. However I save about 25 basis point if I keep my bonds outstide my 401k. The Blackrock funds in my 401k are only about 7 basis points more than anything I can get on the outside.

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ruralavalon
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Re: Newbie investing questions

Post by ruralavalon » Mon May 22, 2017 10:55 am

Asset allocation.
BogleAlltheWay wrote:My plan was to essentially copy the allocation of the Vangaurd Target fund 2050 (55% US, 35% Int, 10% bonds). Looking at other target funds from Schwab, Fidelity, T Row price etc. most have bewteen 10-25% bonds, about 55-65%% US stock, 25-35% International. I heard Bogle (speaking about the market in 1999) and agree with him that if the market seems overvalued to shift a bit away from it, but nothing crazy.
That works out to something like 20% bonds, 20% international stocks, and 60 % domestic stocks. On my opinion that would be within the range of what is reasonable for age 33.



Investing priority.
BogleAlltheWay wrote:
ruralavalon wrote:Do you have any debt? If so what types, amounts and interest rates? If you have high interest debt, then paying that off may be a high prioity use for the money from the taxable account.
I have no debt.
ruralavalon wrote: Is a High Deductible Health Plan (HDHP) offered at work, so that you could contribute to a Health Savings Account (HSA)? If so a HSA could be a good way to invest the money from the taxable account.
I have a HDHP. I was confused. I did not realize I could open a HSA outside of work and put the money in an index fund.

. . . . .

In light of my question of how to split funds among the 401k, Roth, and taxable, I should point out that my 401k has a .5% allocation fee, which makes it more favorable to bonds since they grow slower. However I save about 25 basis point if I keep my bonds outstide my 401k. The Blackrock funds in my 401k are only about 7 basis points more than anything I can get on the outside.
Here is a general account funding priority that often works well for many people (when there is no high interest debt):
1) Contribute to the 401k enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute to a Health Savings Account (HSA) (if suitable as a way to finance your medical needs);
3) Contribute the maximum to an IRA, traditional or Roth, depending on eligibility and personal circumstances;
4) Contribute the remainder of the maximum employee contribution to the 401k; and
5) Contribute to a taxable investing account.

Please see the wiki article "Prioritizing investments".



New annual contributions.
BogleAlltheWay wrote:I plan on living on my own the next 1-2 years. I can afford to to max out both my 401k and Roth with salary until I do move out. After that I am planning to 8-10K retirement funds from salary and maybe 2K for a roth and the rest of the money from taxable.
I understand that there will be two stages of contributions to consider.

1) You will contribute the maximum out of salary to both 401k and IRA for the next 1-2 years.
2) After 1-2 years you are planning to contribute $8-10 from salary to the taxable account, and contribute from salary $2k to the IRA. To m complete the maximums to both the 401k and IRA
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Mon May 22, 2017 12:14 pm

1) Contribute to the 401k enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute to a Health Savings Account (HSA) (if suitable as a way to finance your medical needs);
3) Contribute the maximum to an IRA, traditional or Roth, depending on eligibility and personal circumstances;
4) Contribute the remainder of the maximum employee contribution to the 401k; and
5) Contribute to a taxable investing account.
I understand that there will be two stages of contributions to consider.

1) You will contribute the maximum out of salary to both 401k and IRA for the next 1-2 years.
2) After 1-2 years you are planning to contribute $8-10 from salary to the taxable account, and contribute from salary $2k to the IRA. To m complete the maximums to both the 401k and IRA
Using the order above

Now that I found out about the HSA.
1) I will max out Roth IRA, HSA, and 401k. (Taking ~ 3K out of taxable)
2) After 1-2 years: Contribute to the 401k up to match, max out HSA out of salary ~ 8K, ~2k for Roth out of salary. (sell taxable to max out Roth )
Another caveat: Chances are I will marrying someone who can contribute up the employer match and that is it. She is not eligible for an HSA. My point is in this case, it would be more optimal to max out her Roth as opposed to contributing to my 401k past the match. I would be taking about 9K out of taxable a year to this is (her total Roth and half of mine). Considering I would saving about .55% in ER (.5% allocation fee + cheaper funds ER) a year due to my 401k options, is it better for me to not max out my 401k and put those funds in taxable and sell them in about 7 years to max out her Roth?

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ruralavalon
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Re: Newbie investing questions

Post by ruralavalon » Mon May 22, 2017 2:52 pm

BogleAlltheWay wrote:
ruralavlon wrote:1) Contribute to the 401k enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute to a Health Savings Account (HSA) (if suitable as a way to finance your medical needs);
3) Contribute the maximum to an IRA, traditional or Roth, depending on eligibility and personal circumstances;
4) Contribute the remainder of the maximum employee contribution to the 401k; and
5) Contribute to a taxable investing account.
ruralavalon wrote:I understand that there will be two stages of contributions to consider.

1) You will contribute the maximum out of salary to both 401k and IRA for the next 1-2 years.
2) After 1-2 years you are planning to contribute $8-10 from salary to the taxable account, and contribute from salary $2k to the IRA. To m complete the maximums to both the 401k and IRA
Using the order above

Now that I found out about the HSA.
1) I will max out Roth IRA, HSA, and 401k. (Taking ~ 3K out of taxable)
2) After 1-2 years: Contribute to the 401k up to match, max out HSA out of salary ~ 8K, ~2k for Roth out of salary. (sell taxable to max out Roth )
1) sounds OK to me.

2) In my opinion you should also include making the maximum employee contribution to the 401k, depleting the taxable account as necessary. Even with the added 0.50% fee, the total of 0.61% for using BlackRock S&P 500 Index Fund Institutional Class (BSPIX) in the 401k is still low enough to prefer that over taxable investing. The tax deduction ("Tax 25% Federal 6.5% State") and the tax-deferred growth and compounding more than make up for the modestly higher expense ratio.

BogleAlltheWay wrote:Another caveat: Chances are I will marrying someone who can contribute up the employer match and that is it. She is not eligible for an HSA. My point is in this case, it would be more optimal to max out her Roth as opposed to contributing to my 401k past the match. I would be taking about 9K out of taxable a year to this is (her total Roth and half of mine). Considering I would saving about .55% in ER (.5% allocation fee + cheaper funds ER) a year due to my 401k options, is it better for me to not max out my 401k and put those funds in taxable and sell them in about 7 years to max out her Roth?
You are correct, it is often best to look at all accounts of a married couple together together as a single unified whole, rather than consider each separately. She should certainly contribute enough to her 401k to get the full employer match each year. What she should do beyond that depends a lot on the quality and expense of the funds offered in her 401k. I don't think it's a good idea or even really possible to plan how to coordinate her investments until after the marriage. The funds offered in her 401k plan or your 401k plan may change by then.

So, if I understand the situation correctly, I think you should make maximum employee contributions to your 401k drawing money from the taxable account as need. After the marriage consider whether and how to alter that.
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BogleAlltheWay
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Re: Newbie investing questions

Post by BogleAlltheWay » Mon May 22, 2017 4:28 pm

You are correct, it is often best to look at all accounts of a married couple together together as a single unified whole, rather than consider each separately. She should certainly contribute enough to her 401k to get the full employer match each year. What she should do beyond that depends a lot on the quality and expense of the funds offered in her 401k. I don't think it's a good idea or even really possible to plan how to coordinate her investments until after the marriage. The funds offered in her 401k plan or your 401k plan may change by then.

So, if I understand the situation correctly, I think you should make maximum employee contributions to your 401k drawing money from the taxable account as need. After the marriage consider whether and how to alter that.
If this does happen it will be in a year or two. Her 401k plan is better than mine. No allocation fee, cheaper ERs, bigger selection. Odds are slim that the 401k are changing. I do see you point nothing in life is guaranteed, but I like to way the pros and cons.

Thanks for the help. More research ahead!

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