Investing Strategy

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dchmelir
Posts: 7
Joined: Mon May 15, 2017 10:58 am

Investing Strategy

Postby dchmelir » Fri May 19, 2017 3:52 pm

Hello All,

Here is my portfolio for investment strategy help.

Looking to consolidate funds into some fidelity index funds instead of using the managed account.

Emergency funds: Have this
Debt: Mortgage $669,000 4.25% interest fixed for 30 years (27years to go)
Tax Filing Status: Married no children (but planning to)
Tax Rate: 28% Federal (effective), 10% State
State of Residence: CA
Age: 33
Desired Asset allocation: 95% stocks / 5% bonds
Desired International allocation: 25% of stocks

Overall Portfolio size, assets not counting equity in home or mortgage debt = low 7 figures

Current retirement assets:

Taxable
1.77% cash
14.01% stock (AAPL - current long term cap gains)
25.64% stock (AAPL - current short term cap gains)
(in a current managed acct with expense of 1.1% per year - there are hundreds of funds owned in this acct.)
12.44% Domestic Stock
5.11% Foreign Stock
3.55% Bonds
0.67% Short Term
0.44% Other

401k His 6% Company Match
17.07% LifePath Index 2050 Account A

401k Hers 6% Company Match
2.05% LifePath Index 2050 Account A
2.63% Eaton Vance Trust Co CIT High Yield Cl V
1.63% Vanguard Institutional 500 Index Trust
2.16% Fidelity Contrafund Commingled Pool
0.40% Vanguard Extended Market Index Trust
0.66% Nuveen NWQ Small-Cap Value I
2.17% Dodge & Cox International Stock
1.93% BNY Mellon EB Global Real Estate Sec II

Available 401k Funds listed here with Expense Ratios for people
LifePath Index 2020 Account A 0.05%
LifePath Index 2025 Account A 0.05%
LifePath Index 2030 Account A 0.05%
LifePath Index 2035 Account A 0.05%
LifePath Index 2040 Account A 0.05%
LifePath Index 2045 Account A 0.05%
LifePath Index 2050 Account A 0.05%
LifePath Index 2055 Account A 0.06%
LifePath Index 2060 Account A 0.06%
LifePath Index Retirement Account A 0.05%
Wells Fargo Stable Return Fund E 0.47%
Vanguard Total Bond Market Index Trust 0.03%
Eaton Vance Trust Co CIT High Yield Cl V 0.45%
Loomis Sayles Core Plus Bond Y 0.48%
Vanguard Windsor II Fund - Admiral 0.25%
Vanguard Institutional 500 Index Trust 0.01%
Fidelity Contrafund Commingled Pool 0.43%
William Blair SmallMid Cap Growth CIT II 0.75%
Vanguard Extended Market Index Trust 0.05%
Nuveen NWQ Small-Cap Value I 1.03%
Vanguard Total Intl Stock Idx InstlPls 0.07%
Dodge & Cox International Stock 0.64%
BNY Mellon EB Global Real Estate Sec II

His Roth IRA at Fidelity
1.30% FBGRX
1.27% FCNTX
1.29% FOCPX

Her Roth IRA at Fidelity
0.44% FBGRX
0.47% FCNTX
0.46% FOCPX
0.47% AMZN

Contributions

New annual Contributions (per year)
$18,000 his 401k (+ $10,200 employer match)
$18,000 her 401k (+ $8700 employer match)
$5500 his IRA then convert to Roth
$5500 her IRA then convert to Roth

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Fri May 19, 2017 4:41 pm

This is going to be a long and serious commitment to clean up. Are you on board for that?

Here are the problems I see on quick look.

1) You have way too much APPL. It needs to be trimmed down to 5% or less of your portfolio. Considering how much you have, this may take awhile. But realize that having that much money in one individual stock is extremely risky and reducing this number probably is more important than cleaning up the mess in the rest of your taxable account because the "hundreds" of funds probably includes at least some diversification.

In the meantime, stop reinvesting dividends from the APPLE stock. Send that money to either money market (which you will use once or twice a year to buy something you do want) or to something basic like a Total Stock Market Index.

2) Her 401k has too many funds. That can be immediately fixed by putting the entire account (and the future contributions) into a LifePath Fund.

3) I don't know what is in the Roth IRAs, but holding those tiny slices in a small account does not help anything and just causes unnecessary complexity. I'd put each Roth IRA into a Fidelity Freedom INDEX fund. Do not accidentally get the higher cost regular Fidelity Freedom funds.

4) For the taxable account, you are going to have to look at each of the "hundreds" of holdings individually in order to get rid of them in an intelligent manner. You would sell anything with a loss (short or long term) immediately and sell a corresponding amount of APPL to start trimming down that issue as quickly as possible. It would be most efficient if you sold equal amounts of short term losses to offset short term gains, but that is a lesser issue.

Do you already understand how short term and long term losses and gains are taxed?

5) You need to get away from whoever is managing your taxable account. It would be helpful if you wish to tell us who is doing the managing. Can you give us some idea what types of funds are held there? That will help determine whether you can transfer in kind or if you need to liquidate everything and just move it. Yes, there is likely to be a significant tax cost if you have to do that.

Is this taxable account a recent inheritance? That may change things.

mhalley
Posts: 4678
Joined: Tue Nov 20, 2007 6:02 am

Re: Investing Strategy

Postby mhalley » Fri May 19, 2017 9:34 pm

Hundreds of FUNDS? Talk about egregious, are these loaded per chance? Run away from this charlaton asap.

dchmelir
Posts: 7
Joined: Mon May 15, 2017 10:58 am

Re: Investing Strategy

Postby dchmelir » Tue May 23, 2017 3:20 am

Thanks retiredjg. Here are some answers to your questions:

1a. Too much AAPL
My wife and I both work at Apple and they give significant portion of our overall compensation in AAPL stock. Yes I know I need to diversify even more. Earlier this year we sold AAPL and put the money in the managed account to start the diversification process, but I know we need to do more.

1b. Too many funds in the taxable managed acct. I have put all funds and percentage within that account I own at the bottom.
I really am looking for a few good simple index funds to consolidate these into.

1c. Stop reinvesting dividends AAPL. I'd be fine just converting those dividends to the index funds twice a year when our big RSU grants vest so I can take care of reconsolidating into the right index funds all at once.

2. Too many funds in wife's 401k. Does make sense to put her into one Life Path Fund to make things easy.

3. Put Roth IRA money into Freedom Index fund. Do you have a recommend fund I can take a look at?

4. We haven't made that much in the managed account so far, and selling all outright would put all sales in short term cap gains territory. It's not the end of the world, but in general, simplification is the key I'm trying to go after.

4b. Short/long term losses and gains. I know the differences between short/long term gains, but I'm unclear how losses are counted differently.

5. Managed account. It's a Fidelity Managed Account. 40 funds... looks like hundreds when you glance at it. All info is listed below:
It is not an inheritance.

Managed Acct Assets (22% of total assets)
FDRXX** FIDELITY GOVERNMENT CASH RESERVES 0.62%
CEMVX CAUSEWAY EMERGING MRKTS FD INV CL 2.57%
COFRX COLUMBIA CONTRARIAN CORE FUND CL R5 2.02%
CWB SPDR SERIES TRUST BLMBRG BRC CNVRT 2.05%
EFA ISHARES MSCI EAFE ETF 3.87%
FCTFX FIDELITY CALIFORNIA MUNICIPAL INCOME 2.67%
FDGRX FIDELITY GROWTH COMPANY 4.16%
FIIIX FIDELITY ADVISOR INTL GROWTH CLASS I 2.67%
FKSCX FRANKLIN INTERNATL SM CAP GRWTH ADVISOR 0.36%
FLCSX FIDELITY LARGE CAP STOCK 4.90%
FMNDX FIDELITY CONSERVATIV INCOME MUNI BD CL I 0.49%
FTABX FIDELITY TAX-FREE BOND 0.66%
FUQIX FIDELITY SAI U.S. QUALITY INDEX FUND 0.93%
FVDFX FIDELITY VALUE DISCOVERY 4.53%
GNR SPDR INDEX SHS FDS S&P GLOBAL NAT RES ETF 1.61%
IEMG ISHARES INC CORE MSCI EMERGING MKTS ETF 1.61%
IJS ISHARES S&P SMALLCAP 600 VALUE ETF 1.18%
IJT ISHARES S&P SMALLCAP GROWTH ETF 1.16%
IWB ISHARES RUSSELL 1000 ETF 3.64%
IWF ISHARES RUSSELL 1000 GROWTH ETF 6.93%
JAENX JANUS ENTERPRISE FUND CLASS T SHARES 3.72%
LSGRX LOOMIS SAYLES GROWTH CL Y 2.15%
LVAEX LSV VALUE EQUITY FUND INVESTOR 3.68%
MFMIX MSIF FRONTIER MARKETS PORT CL I 0.18%
MIQBX MORGAN STA INST INC. INTERNATL EQUITY A 1.82%
MTBAX MAINSTAY TAX FREE BOND CLASS A 2.17%
OAKIX OAKMARK INTL INVESTOR CL 3.05%
OAKMX OAKMARK FUND INVESTOR CLASS 6.95%
PATFX T ROWE PRICE TAX FREE HIGH YIELD ADV 2.18%
PRIUX T ROWE PRICE INTERNATIONAL STK I 2.73%
PRZIX T ROWE PRICE EMERG MARKETS STOCK FUND I 2.31%
SDCSX DEUTSCHE CALIFORNIA TAX FREE INC FD S 5.16%
SHMMX WESTERN ASSET MANAGED MUNI CL A 1.60%
TIDDX T ROWE PRICE INTNATL DISCOVERY FUND I CL 0.41%
TPINX TEMPLETON GLOBAL BOND CLASS A 2.17%
TROIX T ROWE PRICE OVERSEAS STOCK I CL 2.45%
TSWIX TRANSAMERICA INTL EQUITY CL I 0.89%
WAFMX WASATCH FRONTIER EMERGING SMALL COS 0.37%
WFMDX WELLS FARGO SPECIAL MID CAP ADM 3.66%
WUSMX WELLS FARGO ULTRA SHT MUNI INC ADM 3.71%

mortfree
Posts: 518
Joined: Mon Sep 12, 2016 7:06 pm

Re: Investing Strategy

Postby mortfree » Tue May 23, 2017 4:16 am

It's tough to manage the apple portion because all the stock does is go up (and down on occasion-recent run was $135 to $90 to $153) and pays very nice dividends. And when you work for them and receive stock compensation they are just making it even harder.

There could be worse stocks to hold or be rewarded but not apple.

You have other stuff to clean up first so focus on that and enjoy your apple investment a little longer.

Also wanted to say Thanks to you and your wife for your daily efforts working there, whether or not you have direct influence on the stock.

rkhusky
Posts: 3973
Joined: Thu Aug 18, 2011 8:09 pm

Re: Investing Strategy

Postby rkhusky » Tue May 23, 2017 7:37 am

I suggest putting your tax-advantaged accounts in Lifepath 2050 or Fidelity Freedom Index 2050 (or 2040 or 2045 if you keep holding significant Apple stock). As retiredjg said, sell all funds in the managed account with a loss. I would then buy Total Stock Market, Total International and/or Intermediate Tax Exempt.

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Tue May 23, 2017 7:49 am

Just a quick reply right now. More later.


My wife and I both work at Apple and they give significant portion of our overall compensation in AAPL stock. Yes I know I need to diversify even more. Earlier this year we sold AAPL and put the money in the managed account to start the diversification process, but I know we need to do more.

The fact that you have two salaries dependent on the same company that your portfolio rests on is very concerning and very risky.

Of course, none of us believe that Apple will fail, but it has happened before and it will happen again to "can't fail" companies. During a downturn, you could both lose your jobs and lose a big chunk of your savings at the same time. That would be financially devastating and recovery could take quite a long time.

This is a completely unnecessary risk because you have control over it. Sell the APPLE stock and build up an emergency fund that will handle two job losses, not just one.


5. Managed account. It's a Fidelity Managed Account. 40 funds... looks like hundreds when you glance at it. All info is listed below:
It is not an inheritance.

Managed Acct Assets (22% of total assets)
FDRXX** FIDELITY GOVERNMENT CASH RESERVES 0.62%
CEMVX CAUSEWAY EMERGING MRKTS FD INV CL 2.57%
COFRX COLUMBIA CONTRARIAN CORE FUND CL R5 2.02%
CWB SPDR SERIES TRUST BLMBRG BRC CNVRT 2.05%
EFA ISHARES MSCI EAFE ETF 3.87%
FCTFX FIDELITY CALIFORNIA MUNICIPAL INCOME 2.67%
FDGRX FIDELITY GROWTH COMPANY 4.16%
FIIIX FIDELITY ADVISOR INTL GROWTH CLASS I 2.67%
FKSCX FRANKLIN INTERNATL SM CAP GRWTH ADVISOR 0.36%
FLCSX FIDELITY LARGE CAP STOCK 4.90%
FMNDX FIDELITY CONSERVATIV INCOME MUNI BD CL I 0.49%
FTABX FIDELITY TAX-FREE BOND 0.66%
FUQIX FIDELITY SAI U.S. QUALITY INDEX FUND 0.93%
FVDFX FIDELITY VALUE DISCOVERY 4.53%
GNR SPDR INDEX SHS FDS S&P GLOBAL NAT RES ETF 1.61%
IEMG ISHARES INC CORE MSCI EMERGING MKTS ETF 1.61%
IJS ISHARES S&P SMALLCAP 600 VALUE ETF 1.18%
IJT ISHARES S&P SMALLCAP GROWTH ETF 1.16%
IWB ISHARES RUSSELL 1000 ETF 3.64%
IWF ISHARES RUSSELL 1000 GROWTH ETF 6.93%
JAENX JANUS ENTERPRISE FUND CLASS T SHARES 3.72%
LSGRX LOOMIS SAYLES GROWTH CL Y 2.15%
LVAEX LSV VALUE EQUITY FUND INVESTOR 3.68%
MFMIX MSIF FRONTIER MARKETS PORT CL I 0.18%
MIQBX MORGAN STA INST INC. INTERNATL EQUITY A 1.82%
MTBAX MAINSTAY TAX FREE BOND CLASS A 2.17%
OAKIX OAKMARK INTL INVESTOR CL 3.05%
OAKMX OAKMARK FUND INVESTOR CLASS 6.95%
PATFX T ROWE PRICE TAX FREE HIGH YIELD ADV 2.18%
PRIUX T ROWE PRICE INTERNATIONAL STK I 2.73%
PRZIX T ROWE PRICE EMERG MARKETS STOCK FUND I 2.31%
SDCSX DEUTSCHE CALIFORNIA TAX FREE INC FD S 5.16%
SHMMX WESTERN ASSET MANAGED MUNI CL A 1.60%
TIDDX T ROWE PRICE INTNATL DISCOVERY FUND I CL 0.41%
TPINX TEMPLETON GLOBAL BOND CLASS A 2.17%
TROIX T ROWE PRICE OVERSEAS STOCK I CL 2.45%
TSWIX TRANSAMERICA INTL EQUITY CL I 0.89%
WAFMX WASATCH FRONTIER EMERGING SMALL COS 0.37%
WFMDX WELLS FARGO SPECIAL MID CAP ADM 3.66%
WUSMX WELLS FARGO ULTRA SHT MUNI INC ADM 3.71%

Congratulations. This is one of the ugliest taxable accounts I've ever seen posted. Your advisor has done you the worst kind of disservice. You are quite wise to realize so soon that this is just a mess. Getting out immediately would be the smartest thing to do, taxes or not taxes. There might be a few that are worth keeping, but I'll have to look at this list again later.

Where and how did you find this "advisor"? S/He should be ashamed.

goingup
Posts: 2478
Joined: Tue Jan 26, 2010 1:02 pm

Re: Investing Strategy

Postby goingup » Tue May 23, 2017 8:13 am

OP-
You've gotten great suggestions from retiredjg. You will have some work to do simplify, but it's worth it.

Now you may understand why this forum has such contempt for most advisors. They produce ridiculous portfolios at considerable cost with disappointing results. Clients get ensnared, especially with large taxable accounts, and feel like it's just easier to stay put.

User avatar
BL
Posts: 7012
Joined: Sun Mar 01, 2009 2:28 pm

Re: Investing Strategy

Postby BL » Tue May 23, 2017 8:47 am

goingup wrote:OP-
You've gotten great suggestions from retiredjg. You will have some work to do simplify, but it's worth it.

Now you may understand why this forum has such contempt for most advisors. They produce ridiculous portfolios at considerable cost with disappointing results. Clients get ensnared, especially with large taxable accounts, and feel like it's just easier to stay put.

+1
It looks like a taxable account. Normally one would suggest checking out the ERs to see what it is costing, but there are SOOO many!

Perhaps you have the Capital Gains/Losses for each fund, or at least the total, so you don't need to calculate them. I like to know what the tax results will be before selling, but that is a lot to calculate. Do you know what the gains are?

I wonder how a Vanguard PAS management (0.3%/yr AUM) would handle this mess. I would consider giving them a call to find out what they might do. They would probably sell and put you into a handful or so of low-ER Vanguard index funds. Not sure how they consider taxes, as most advisors stay away from that subject. You could drop them in a year or so if you wished and not be left with such a mess. Fidelity is fine if you know what you want, but I see the risk if you are not certain.

Owning so much stock in a company you work for is indeed a risk. I guess earning so much on them so far makes it a great problem to have.

dchmelir
Posts: 7
Joined: Mon May 15, 2017 10:58 am

Re: Investing Strategy

Postby dchmelir » Wed May 24, 2017 3:13 am

Man, you guys are awesome!!

I'm really not too concerned with just selling all the stuff in the managed account now, it's made only about $8000 in the last few months, so I'll just imagine I got a nice $8000 bonus from work, and I'll pay the taxes to get out of the mess.

I am definitely planning to sell the long term gain apple stock soon, I figured I would reach out here first before selling and putting it all in the managed account and adding to that rat's nest.

I'll take care of my wife's 401k consolidating all of it into the LifePath2050.

In general, is the strategy to hold the same funds in RothIRA that I hold in taxable accounts to keep things simple? Or is there a reason not to do that?

Can you give me some recommended funds that I can start to look at that? I figure you guys recommend having a few (not 40..haha) index funds that together address the 95/5 (stocks/bonds) and 70/30 (domestic/international) splits. Or are there goods funds that have it all diversified inside itself?

One note: In the investing help tutorial, it said to not include cash 'emergency' funds in the percentages I sent out initially. But I did want to let you know we have 5% of our overall assets in that cash account to guard against job loss, etc.

Thanks again for the all the help.

rkhusky
Posts: 3973
Joined: Thu Aug 18, 2011 8:09 pm

Re: Investing Strategy

Postby rkhusky » Wed May 24, 2017 2:42 pm

dchmelir wrote:In general, is the strategy to hold the same funds in RothIRA that I hold in taxable accounts to keep things simple? Or is there a reason not to do that?


That would be ideal in terms of simplicity. However, having taxable bonds in your taxable account would cause additional drag in your tax bracket. It's a question of whether you value simplicity versus tax efficiency.

The simplest would be to put a target year fund in taxable, which wouldn't be too bad initially, because target years 2040-2050 don't have much in the way of bonds anyway.

You could also go with a 3-fund approach, with Total Stock Martk (TSM), Total International Stock Market, Intermediate Tax Exempt in taxable, trying to emulate your target year fund's asset allocation.

You could go with just TSM and TISM in taxable, since the target year funds in your IRA/401K probably have more than 5% bonds, but this strategy may not work as well in the future, if you start to increase the amount of bonds in your portfolio.

You could forgo the target year funds and find a mix of TSM, TISM, Total Bond Market, and Intermediate Tax Exempt in your accounts that provides your desired allocation and allows simple allocation rebalancing. This is probably the most cost effective and tax efficient approach, but probably the most work.

inbox788
Posts: 3838
Joined: Thu Mar 15, 2012 5:24 pm

Re: Investing Strategy

Postby inbox788 » Wed May 24, 2017 8:39 pm

dchmelir wrote:I'm really not too concerned with just selling all the stuff in the managed account now, it's made only about $8000 in the last few months, so I'll just imagine I got a nice $8000 bonus from work, and I'll pay the taxes to get out of the mess.

Yes, what a mess with the managed account! You could just liquidate the account and pull off the bandaid (take the full tax hit) right now. Or if you want to take a little risk, consider keeping the biggest 2-4 dollar gains. When did you establish the account? How many dollars is IWF up? (over 12% YTD)
IWF ISHARES RUSSELL 1000 GROWTH ETF 6.93%

OAKMX has high fees, but tracks SP500. It might be one of the higher gains.
OAKMX OAKMARK FUND INVESTOR CLASS 6.95%

Find the highest dollar gain funds and if 2-4 of them come close to $8000 and you only need to hold them 6 months, consider taking the risk and waiting till next year to pay long term capital gains instead.

EFA and FDGRX are up nearly 15% YTD.
EFA ISHARES MSCI EAFE ETF 3.87%
FDGRX FIDELITY GROWTH COMPANY 4.16%

I'm having trouble just looking at the names figuring out where the losses or minor gains are, and if it takes too many funds to come up with a significant tax deferment, then it might not be worth the hassle.

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Sun May 28, 2017 8:44 am

dchmelir, sorry for the delay. Here's an idea to consider. It does not use the target funds I previously mentioned, but that is still a choice that can be considered.

Tax Rate: 28% Federal (effective), 10% State

Are you sure that is an "effective" rate or is it your actual tax bracket? My rough guess is that you are in the 33% tax bracket.


Age: 33
Desired Asset allocation: 95% stocks / 5% bonds
Desired International allocation: 25% of stocks

How did you come up with only 5% bonds? I suggest you reconsider this 95/5 allocation. It is very aggressive, definitely outside the guidelines I usually use, and you certainly have no need to be aggressive at all. At your ages, I would consider 85/15 to be the most aggressive you should go, but again...it does not appear you even have a need for an aggressive portfolio.



Taxable 63.6%
5.95% Fidelity Total Stock Index FSTVX
20% Fidelity Total International Index FTIPX
39.7% stock (AAPL ) <--as you sell this stuff, buy Total Stock or Total International

401k His 17.07%
7.07% Vanguard Institutional 500 Index Trust 0.01%
0% for now Vanguard Extended Market Index Trust 0.05%
10% Vanguard Total Bond Market Index Trust 0.03%

401k Hers 13.6%

0% for now Vanguard Institutional 500 Index Trust 0.01%
3.6% Vanguard Extended Market Index Trust 0.05%
10% Vanguard Total Bond Market Index Trust 0.03%


His Roth IRA at Fidelity 3.9%
3.9% 500 Index or REIT Index

Her Roth IRA at Fidelity 1.8%
1.8% Extended Market Index or REIT index



This is a first draft set up at 80% stock and 20% bonds with 25% of the stock, 20% of the portfolio, in international. I think portfolios do well with at least 20% bonds, even for young people. The extended market funds "complete" the 500 index funds to make something close to total stock market. The target ratio would be 80% 500 index and 20% extended market, but this is not a ratio to worry much about.



New annual Contributions (per year) <---how much goes cash and Apple stock into taxable each year?

$18,000 his 401k (+ $10,200 employer match)
$18,000 her 401k (+ $8700 employer match)
$5500 his IRA then convert to Roth
$5500 her IRA then convert to Roth[/quote]


If you prefer using target funds in the 401ks and Roth IRAs, you can do that. Pick the target fund by the stock to bond ratio you want, not the date in the name. At Fidelity, be sure you find the Fidelity Freedom Index funds, not the higher cost Fidelity Freedom Funds.

If you do this, your taxable account would change to

    Total Stock
    Total International
    An intermediate term tax-excmept bond, CA if available
    Apple stock

And here is the sticky wicket. Fidelity does not have a good lineup of low cost tax-exempt bonds. You would need to find something on their no-transaction-fee list of ETFs (or similar list of mutual funds) to get something with low cost. People here could help with that.

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Sun May 28, 2017 8:52 am

FCTFX FIDELITY CALIFORNIA MUNICIPAL INCOME
FTABX FIDELITY TAX-FREE BOND .25%
MTBAX MAINSTAY TAX FREE BOND CLASS A .8%

These are the tax-exempt bonds you already have along with their expense ratios. The first two might be worth considering. I would not use the one with an ER of .8%.

I do not know if Fidelity has anything better than this to offer. Again, a long look at the NTF lists is a good idea.

Chip
Posts: 1379
Joined: Wed Feb 21, 2007 4:57 am

Re: Investing Strategy

Postby Chip » Sun May 28, 2017 9:06 am

retiredjg wrote:And here is the sticky wicket. Fidelity does not have a good lineup of low cost tax-exempt bonds. You would need to find something on their no-transaction-fee list of ETFs (or similar list of mutual funds) to get something with low cost. People here could help with that.


You've given the OP some great advice. But I don't think anyone can come close to competing with Vanguard on muni bond funds. I had my mother's portfolio at Fidelity and ended up opening a Vanguard account just to hold her allocations to CA muni funds. I suggest the OP consider doing the same.

OP could also buy the Vanguard CA muni funds at Fidelity. But Admiral shares aren't available plus there's a $75 purchase fee. So $75 plus an ongoing .10% higher expense ratio. Not worth it in my mind just to avoid another account.

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Sun May 28, 2017 11:12 am

Chip wrote:
retiredjg wrote:And here is the sticky wicket. Fidelity does not have a good lineup of low cost tax-exempt bonds. You would need to find something on their no-transaction-fee list of ETFs (or similar list of mutual funds) to get something with low cost. People here could help with that.


You've given the OP some great advice. But I don't think anyone can come close to competing with Vanguard on muni bond funds. I had my mother's portfolio at Fidelity and ended up opening a Vanguard account just to hold her allocations to CA muni funds. I suggest the OP consider doing the same.

OP could also buy the Vanguard CA muni funds at Fidelity. But Admiral shares aren't available plus there's a $75 purchase fee. So $75 plus an ongoing .10% higher expense ratio. Not worth it in my mind just to avoid another account.

I too feel that Fidelity does not compete well with Vanguard in this particular area - muni bonds. And you are correct - it would not make sense to buy the Vanguard funds at Fido with that hefty purchase fee.

I think Fido sells MUB - a national tax exempt bond fund - without a transaction fee. However, that is not much help to someone who does not wish to use ETFs.

dchmelir
Posts: 7
Joined: Mon May 15, 2017 10:58 am

Re: Investing Strategy

Postby dchmelir » Tue May 30, 2017 1:55 am

retiredjg, et al, thanks a lot of the help. This really is great and I appreciate the effort and advice you are giving me here.

Tax bracket... just looked it up.. looks like we are in the 39.6% bracket. Ouch!

About the yearly contributions question. The 401k is payroll deducted evenly throughout the year and the match is added each payroll cycle. I can have that distributed any way I select (buying funds at certain ratios). We fund the Roth IRAs in January each year just from money in our checking account. I'm not sure if that answers your question, if not let me know. The increase in 401k value from payroll and match contributions will be ~10% of each 401k's value. The IRA contributions will be 5-10% increase of the IRA value (gains/losses excluded).

Additionally in 2017 we will vest additional RSU Stock (AAPL) worth about 25% of the current total portfolio that I will need to sell and move into the taxable acct buying funds at the right distributions to keep things balanced properly. This will happen each year, however the percentage of the portfolio this increase represents will go down each year, but it will still be a 10-20% increase yearly for the next few years until the portfolio gains significant size.

I read some articles from Buffett saying a more aggressive 95/5 stock/bond balance was reasonable, but I see other opinions more inline with your 80/20 recommendation. (If I really knew what I was doing, I wouldn't have that mess of a taxable acct... so I'm here to learn.)

I am seeing that your recommendation for the IRA's are Vanguard funds, I don't mind moving the IRAs to Vanguard at all if keeping them at Fidelity would be a costly choice.

Also, I see that the taxable account recommendation are for Fidelity funds, are there equitable Vanguard funds that you recommend as well? I guess if I'm moving the IRA's I might as well move the taxable as well - keeping everything under one roof for simplicity if that is recommended. Fidelity did get me into the mess... so I have no loyalty to stay.

I see that you recommended having all 20% of the bond funds in our 401k's opposed to having some in 401k and some in taxable. Do you not recommend keeping each account balanced to the 80/20 split (401k, IRA, Taxable)? What's the reasoning, I'm curious?

I was thinking that since my IRAs are actually quite low value (I didn't know about this Roth conversion until this year... we have been excluded from contributing to a Roth for many years due to income) and can only gain a small amount each year I could pick something simple and not worry too much about it. In a few years the total value of the Roth's will be only 1-2% of the total value of the assets. Additionally, since all of the funds you've recommended from Vanguard are available in our 401k's I could keep them balanced as if they were they were their own entity all together. Rebalancing within the 401k is free, so there is no problem keeping them at the right percentages. The last thing I would really have to deal with would be keeping my 'Taxable' account in the right balance when I add in the big stock grant sales, which I am sure I would have to buy multiple different funds anyway to keep things balanced.

I guess my thought is if I had 5 nearly identical account structures (2 IRA, 2 401k, 1 Taxable) I would be assured that I wouldn't have to worry about too many funds to rebalance between accounts. If I am crazy or missing something key, please let me know.

I think that covers all the questions I had so far, and the answers to your questions as well.

Thanks!

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Tue May 30, 2017 7:32 am

dchmelir wrote:Tax bracket... just looked it up.. looks like we are in the 39.6% bracket.

This means you need to become familiar with the concept of "tax-efficiency".

To get you started, there are funds that you would not want to hold in a taxable account because they throw off a lot of annual income in dividends and capital gains distributions - that triggers taxes some of which might be taxed at your 39.6% rate. Better to hold funds that grow in net asset value (price per share) rather than pay out earnings because increases in NAV are not taxed until you actually sell the shares and then at a much lower rate if you have held those shares more than a year.


About the yearly contributions question.

What I need to know is the amount of dollars that will go into your taxable account. Some will be your AAPL shares and some might be cash. Can you estimate how much of each? If now, I can work with just the cash you might put into taxable to be invested.


I am seeing that your recommendation for the IRA's are Vanguard funds, I don't mind moving the IRAs to Vanguard at all if keeping them at Fidelity would be a costly choice.

No. Fidelity has those same funds available in their own stable of index funds. No need to move at all. Here is the list of index funds available from Fido. https://www.fidelity.com/mutual-funds/f ... ndex-funds


Also, I see that the taxable account recommendation are for Fidelity funds, are there equitable Vanguard funds that you recommend as well? I guess if I'm moving the IRA's I might as well move the taxable as well - keeping everything under one roof for simplicity if that is recommended. Fidelity did get me into the mess... so I have no loyalty to stay.

For the funds I'm suggesting, Vanguard and Fidelity have essentially the same thing at very close to the same cost. Use whichever you prefer. People do say that Fidelity has a more robust web interface and that customer service can be better when Vanguard is overwhelmed.


I see that you recommended having all 20% of the bond funds in our 401k's opposed to having some in 401k and some in taxable. Do you not recommend keeping each account balanced to the 80/20 split (401k, IRA, Taxable)? What's the reasoning, I'm curious?

The reason is tax-efficiency. You do not want taxable bonds (or REIT) in your taxable account. However, many people are simply willing to use tax-exempt bonds in their taxable accounts. It is a reasonable choice, but I feel that avoiding bonds in taxable to the extent you can is the better choice. Others feel differently.


I was thinking that since my IRAs are actually quite low value (I didn't know about this Roth conversion until this year... we have been excluded from contributing to a Roth for many years due to income) and can only gain a small amount each year I could pick something simple and not worry too much about it.

Yes. One fund should do it. A 500 Index or a REIT fund is a good choice.


The last thing I would really have to deal with would be keeping my 'Taxable' account in the right balance when I add in the big stock grant sales, which I am sure I would have to buy multiple different funds anyway to keep things balanced.

Multiple? Probably not, but maybe I'm underestimating what the big stock grant sales amount to. Since your portfolio is quite large for a couple your age and since so much is taxable, it is possible the stock grants are much larger than I imagine.


I guess my thought is if I had 5 nearly identical account structures (2 IRA, 2 401k, 1 Taxable) I would be assured that I wouldn't have to worry about too many funds to rebalance between accounts. If I am crazy or missing something key, please let me know.

No it is not crazy to just have 5 nearly identical "mini-portfolios" running simultaneously. I don't usually set them up that way, but you can certainly do it if you want and if it is simpler for you. In fact, you could put both IRAs and both 401ks into target funds and just set up the taxable account with 4 funds: total stock, total international, short term tax-excmpt bond, and a CA tax exempt bond. This combination would shield most of the tax-exempt income from your high state taxes while still giving you the risk of an intermediate term bond fund.

If you are going to do this, I'd suggest that you hold the taxable account, or at least part of it, at Vanguard because of Vanguard's superior list of tax-exempt bonds. However, it is possible that Fidelity has something good that I don't know about on its NTF list (non-Fidelity funds that they sell without a transaction fee). This is something that could easily be asked here.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Tue May 30, 2017 9:44 am

I did a little research on the Fidelity site, looking for municipal bonds that might work for you.

In mutual funds, their choices start at expense ratio .35% and .46% for CA. That is way higher than Vanguard's funds which have an ER of .19%. Their choices are not egregious by any means, but over many years, there will be a difference you can see with that higher ER. If you want mutual funds, I would move that money to Vanguard.

But if you are willing to use ETFs, Fidelity has a couple of iShares ETFs at .25% - MUB is a national fund and CMF is a California fund. Again, Vanguard is cheaper, but the difference between these and Vanguard's funds is not so much if you decide you prefer to stay at Fidelity.

I don't use ETFs and no nothing about MUB or CMF, but people here could help with that.

dchmelir
Posts: 7
Joined: Mon May 15, 2017 10:58 am

Re: Investing Strategy

Postby dchmelir » Tue May 30, 2017 11:25 am

Ahh, I see the point about the growth in share price vs growth in wealth from dividend, that makes sense. I am not adverse to having the portfolio balanced across several accounts at different firms, I'll just have to make myself a balance sheet to make sure the percentages stay in the right ranges.

As far as yearly contributions go, we will vest about $150k (after taxes) of AAPL in the rest of 2017. Assuming a relatively similar stock price, we'll vest $300k in 2018, half in April, half in October, the times I would likely rebalance the portfolio. The current portfolio is about $1.3m right now, so we are adding a lot of principle to it each year. The yearly contributions should stay roughly the same in dollar value (assuming similar stock price) year over year.

With this strategy I anticipate that over the next few years the 401k's will likely hold all of my bond funds in my portfolio and little else. Is that okay?

Why do the bond funds have state names in them? Are they optimized for people living in those states for tax purposes?

Do you recommended Premier class or Investor class indexes with Fidelity? Is there any real difference between these classes besides the ER? I was looking at FUSEX 0.09%ER (investor) and FUSVX 0.045%ER (premium) for the Roth's, are these funds inline with your recommendations?

I think in general holding my bond allocation in 401k makes total sense, thanks for that insight.
If you think I can work the Taxable acct in Fidelity, that would make things easier since all the money is there now. Maybe once my 401k's are no longer 20% of my total asset value, I'll open a Vanguard acct to buy bond funds there, but I don't think I need to now.

Quick Summary:
20% bonds -> Vanguard Total Bond Market Index Trust in 401k's
20% International Stock -> FTIPX (Total Intl Index) in Taxable
60% Domestic Stock ->
FSTVX in Taxable
Vanguard Extended Market in 401k
Vanguard Institutional 500 Index in 401k
500 Index in Roth
Sell AAPL and Buy FSTVX in Taxable

Am I on the right track here?

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Tue May 30, 2017 1:08 pm

dchmelir wrote:As far as yearly contributions go, we will vest about $150k (after taxes) of AAPL in the rest of 2017. Assuming a relatively similar stock price, we'll vest $300k in 2018, half in April, half in October, the times I would likely rebalance the portfolio. The current portfolio is about $1.3m right now, so we are adding a lot of principle to it each year. The yearly contributions should stay roughly the same in dollar value (assuming similar stock price) year over year.

Ok. I get it now. Yes this will certainly mean that your 401ks would be all bonds in a few years and yes, that's OK. Some people prefer not to do it that way though. It's up to you.


Why do the bond funds have state names in them? Are they optimized for people living in those states for tax purposes?

A "national" muni eliminates federal taxes on that bond income, but not the state income. A state muni eliminates both state and federal taxes on the bond income. Since you are in such a high tax state, using at least some CA munis makes sense. You would not want to use all CA munis because that concentrates the risk in too small a place.

Do you recommended Premier class or Investor class indexes with Fidelity? Is there any real difference between these classes besides the ER? I was looking at FUSEX 0.09%ER (investor) and FUSVX 0.045%ER (premium) for the Roth's, are these funds inline with your recommendations?

The only difference is the ER. You'll be buying the lower ER funds because of the amount.



Quick Summary:
20% bonds -> Vanguard Total Bond Market Index Trust in 401k's
20% International Stock -> FTIPX (Total Intl Index) in Taxable
60% Domestic Stock ->
FSTVX in Taxable
Vanguard Extended Market in 401k
Vanguard Institutional 500 Index in 401k
500 Index in Roth
Sell AAPL and Buy FSTVX in Taxable

Am I on the right track here?

Yes, you are on the right track. :D You'll also need to buy Total International in taxable as well. And eventually, you will need some of those muni bonds in taxable as well.



Here's an example of how to determine what to do each year.

$300k taxable
$28,200 His 401k
26,700 Her 401k
$5500 his IRA then convert to Roth
$5500 her IRA then convert to Roth

Your contributions add up to something like $354,900. Send 20% ($70,980) to bonds. Obviously not all of that can fit into the 401ks so you'll likely be selling stock in the 401ks to buy bonds there to get to your 20% bond allocation. (I'm just using the example of 20% - I don't know if you have decided on that number or not.)

Send another 20% ($70,980) to international - all in taxable.

Fill in the rest with US stocks (that includes your APPL stock)



Working through this, I'm almost thinking it would be easier to just put a target fund in each account so that you only have to "mess with" the taxable account. Up to you - either approach will work well for you.

Again the caution - realize that both salaries and a huge portion of your nest egg depend all on one entity. It's risky. Not suggesting that one of you find a job elsewhere, but sell as much APPL as you can and don't let your lifestyle get out of hand because things are so lucrative for you now. It may not always be that way.

Also, I doubt you were invested in the last big market downturn. You have a little over $1 million today. If a crash starts tomorrow, you could easily see $400k of that simply disappear if your portfolio is 80/20. You will see this happen more than once in your lifetime. Consider if 80/20 is the right allocation. I'd suggest that you do not need that kind of risk and that 60/40 will get you through just fine and not be nearly as gut-wrenching during the bad times.

Yeah, I know you didn't ask for all that, but....I decided to mention it anyway. :happy

dchmelir
Posts: 7
Joined: Mon May 15, 2017 10:58 am

Re: Investing Strategy

Postby dchmelir » Thu Jun 01, 2017 11:21 am

Well, I have made the first of a few moves in the right direction.
Sold a lot of the AAPL stock and started the process of moving out of the managed acct. Sounds like Fidelity will refund my fee paid since I wasn't satisfied with their product. No harm done.

A few other questions as I start this process:

You mention a 'target fund' for (I'm guessing) the 401k and IRA so I only have to 'mess with the taxable account.' Can you give me an example of what you mean. Are these the "retire at 2050" funds that I currently have in my 401k? I look at them and they have very little bonds, 55% US Stocks, 38% Intl Stocks, 6% Cash, 1% Bonds. I am sure these adjust over time, but they seem to not follow your guidance of the 80/20, 70/30, 60/40 stocks/bonds recommendation for my current situation.

I don't mind manually managing the 401k right now as it seems that's a good place to allocate my bond funds.

Do you recommend holding any NASDAQ Composite Index funds (such as FNCMX) as part of the taxable stock section? Or just composite stock market?

Just to clarify, for trades inside RothIRA and 401k, I don't need to worry about taxable gains (such as the National vs CA Muni Bonds) since the account itself is protected from realizing gains until I withdraw from the 401k and never for RothIRA. Which is why I'll need to buy CA Muni Bonds in Taxable once I max my 401k with bonds in order to keep the allocation percentages correct. Am I understanding this correctly?

If I went to 70/30 Stocks/Bonds or 60/40, would I still be using my 401k primarily for the bonds (Vanguard Total Bond Index Trust) and then make up the rest with a CA Muni Bond in Taxable (or some CA Muni and some other less targeted one)?

Sounds like I should open a Vanguard account to have Bond funds there in taxable so I am not paying more fees and ER with Fidelity. Do you agree?

I think I am ready to start making moves, just need a couple days for the money in the accounts to transfer and settle from sales before I start calculating which amounts get purchased for which funds.

Thanks!!

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Thu Jun 01, 2017 12:35 pm

dchmelir wrote:Sounds like Fidelity will refund my fee paid since I wasn't satisfied with their product. No harm done.

Well, I'm impressed. :shock: And curious. I felt like their manager had done a very poor job in his fund choices, but I never expected you to get your money back.


You mention a 'target fund' for (I'm guessing) the 401k and IRA so I only have to 'mess with the taxable account.' Can you give me an example of what you mean. Are these the "retire at 2050" funds that I currently have in my 401k? I look at them and they have very little bonds, 55% US Stocks, 38% Intl Stocks, 6% Cash, 1% Bonds. I am sure these adjust over time, but they seem to not follow your guidance of the 80/20, 70/30, 60/40 stocks/bonds recommendation for my current situation.

Yes, those are the "retire at 2050" funds, but you would not pick 2050...you'd pick the one that has the stock to bond ratio that you decide on. The target funds in your plan are exceedingly low cost and so easy to use because all you do is add money.


I don't mind manually managing the 401k right now as it seems that's a good place to allocate my bond funds.

This is a good choice as well.


Do you recommend holding any NASDAQ Composite Index funds (such as FNCMX) as part of the taxable stock section? Or just composite stock market?

I don't although I can see how you might find that appealing.

Remember that whatever is on the NASDAQ Index is also included in the Total Stock Market. The fund you mention has a huge overweight in information technology stocks. You should not want that. You already have two salaries and a large portion of your nest egg in that sector, you certainly do not want to add more.

Also, take a look at this information about the downturn of 2002...."the technology crash". It has happened once and can happen again.

https://en.wikipedia.org/wiki/Stock_mar ... rn_of_2002



Just to clarify, for trades inside RothIRA and 401k, I don't need to worry about taxable gains (such as the National vs CA Muni Bonds) since the account itself is protected from realizing gains until I withdraw from the 401k and never for RothIRA. Which is why I'll need to buy CA Muni Bonds in Taxable once I max my 401k with bonds in order to keep the allocation percentages correct. Am I understanding this correctly?

I do think you understand.

If I went to 70/30 Stocks/Bonds or 60/40, would I still be using my 401k primarily for the bonds (Vanguard Total Bond Index Trust) and then make up the rest with a CA Muni Bond in Taxable (or some CA Muni and some other less targeted one)?

Yes. Well, you'd be using both 401ks for bonds, not just yours. And if your bonds in taxable end up being extensive, I would NOT use all CA bonds. While it is a small portion of your portfolio, using all CA would be fine.

Sounds like I should open a Vanguard account to have Bond funds there in taxable so I am not paying more fees and ER with Fidelity. Do you agree?

If you want to use mutual funds, yes. If you want to use ETFs, those last two I mentioned from Fidelity's NTF list are reasonable.

dchmelir
Posts: 7
Joined: Mon May 15, 2017 10:58 am

Re: Investing Strategy

Postby dchmelir » Sat Jun 10, 2017 7:52 pm

Hi All, a big thanks to retiredjg and everyone who helped me. I've switched everything around and am much happier looking at 3-4 funds in 2 places instead of 46 funds in 4 places.

You all are a great resource, and I've recommended the site to some colleagues as well.

Take care!

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Investing Strategy

Postby retiredjg » Sun Jun 11, 2017 5:54 am

All that mess cleaned up in less than a month and with only 7 posts. :shock:

I think you win the prize for being the most efficient bogelizer in history. Good luck to you!


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