Portfolio initial setup help

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arf00121
Posts: 4
Joined: Fri Jun 09, 2017 10:48 am

Portfolio initial setup help

Post by arf00121 » Fri Jun 09, 2017 10:50 am

Emergency funds: $0
Debt: $2,500 on 0% APR credit card. Pay down $250/month. When 0% APR runs out I typically transfer the balance to a new 0% APR card
Tax Filing Status: Single
Tax Rate: 10% Federal, 4.63% State
State of Residence: Colorado
Age: 27
Desired Asset allocation: 78% stocks / 22% bonds
Desired International allocation: 39% of stocks

Roth IRA: $13,000
Traditional IRA: $3200
Brokerage Account: $4000

Current retirement assets

Taxable $400
19.8% cash
Currently liquidated and sitting in vanguard brokerage account
Was all in Intel (INTC) as gift from grandparents. Sold it all in preparation to rebalance

Rollover Traditional IRA from old 401K $3200
15.84%


Roth IRA $13000
64.36%


New annual Contributions
No current contributions. Working in my startup with minimal salary.



Questions:

Background: up until now my portfolio was with Ed Jones. Once I became tuned to the Boglehead way and started reading I decided to transfer my portfolio to vanguard and manage myself. The transfers completed this week and I sold all my ed jones funds in preparation to rebalance. By sold, I mean the funds are sitting in the account, but I have not made any withdrawals.

1. How should I allocate the funds in the traditional IRA? The traditional IRA is rollover from old employer 401K. I believe from the Boglehead wiki that I should not contribute to this so I can keep track of the money that was from the 401k.
Should all all this money be used to purchase one fund? For example US total stock index? Or should I split it up across different funds

2. For the Roth.. I plan to divide it up as Desired Asset allocation: 78% stocks (38% international) / 22% bonds in the following funds. Using Age-5 for bond allocation. How does this sounds in terms of risk level? Am I playing it too safe with bonds at my age? How do I incorporate the traditional IRA into this mix?
Vanguard Total Stock Market Index Fund (VTSMX)
Vanguard Total International Stock Index Fund (VGTSX)
Vanguard Total Bond Market Fund (VBMFX)

3. Stocks- I plan to rebalance and shift the money from the stocks into the ROTH, leaving 5% of total portfolio value in the brokerage account to play with. How does this sound?

4. Also considering the VFFVX Target retirement fund 2055. Is there any reason not to do this? Part of me feels I should go with the Vanguard target fund since it is managed by experts and they likely will outperform my individual decisions. If I do this, should I put all money from both Roth and Traditional in the Target Fund?

Thank you for your responses. I realize many of these issues are based on my personal risk preference, but I am interested to hear peoples’ opinions and feedback. For example, if you think age-5 may be too aggressive or too conservative for my age, feel free to make that known.

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BolderBoy
Posts: 4047
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Portfolio initial setup help

Post by BolderBoy » Fri Jun 09, 2017 4:05 pm

I think not having an emergency fund is risky - very risky. Be sure to get that funded while you are doing other stuff.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

21&lewis
Posts: 17
Joined: Sun Nov 06, 2016 8:42 pm

Re: Portfolio initial setup help

Post by 21&lewis » Fri Jun 09, 2017 4:25 pm

Bolderboy hit the nail on the head...with a boulder

Lack of an emergency fund is the most likely deficiency to derail your current portfolio plans. I'm too lazy to do the calculations, but you list $400 and then 19.8% cash as representative of your portfolio. Not sure if you meant you have $400 in taxable + 19.8% in cash from the grandparent gift or you meant to list $4000 as your cash position (all in taxable). Doesn't really matter that much as long as you don't risk your emergency fund in the market (my opinion...just like the rest of this post). In your tax bracket (suggesting not that high of an income), your biggest risk is an unanticipated expense in the $1000s. Switching credit cards is fine until you're painted in a corner with a high balance. That would be a financial "death sentence" relative to your hard work YTD. Suck up the inflation erosion of an emergency fund and place X amount of dollars (X=3-6 months of expenses) into a crappy low interest savings account or CD. There's a reasonable chance you'll never need it and my advice will cost you a couple $100 bucks. If you do need it, then I'll be even smarter than I think I am...

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Duckie
Posts: 5954
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio initial setup help

Post by Duckie » Fri Jun 09, 2017 5:35 pm

arf00121, welcome to the forum.
arf00121 wrote:How should I allocate the funds in the traditional IRA? The traditional IRA is rollover from old employer 401K. I believe from the Boglehead wiki that I should not contribute to this so I can keep track of the money that was from the 401k.
Should all all this money be used to purchase one fund? For example US total stock index? Or should I split it up across different funds
Use the pre-tax TIRA for bonds.
For the Roth.. I plan to divide it up as Desired Asset allocation: 78% stocks (38% international) / 22% bonds in the following funds. Using Age-5 for bond allocation. How does this sounds in terms of risk level?
Skip the bonds in this account for now.
Am I playing it too safe with bonds at my age?
No, you need some bonds.
How do I incorporate the traditional IRA into this mix?
See below.
Stocks- I plan to rebalance and shift the money from the stocks into the ROTH, leaving 5% of total portfolio value in the brokerage account to play with. How does this sound?
You don't have enough assets to "play with" yet. Wait until your account gets bigger.
Also considering the VFFVX Target retirement fund 2055. Is there any reason not to do this? Part of me feels I should go with the Vanguard target fund since it is managed by experts and they likely will outperform my individual decisions. If I do this, should I put all money from both Roth and Traditional in the Target Fund?
If you go with a target-date fund then put it in both IRAs. But if you do choose a t-d fund pick the fund with the AA closest to your desired AA (78/22) which would be (VTTHX) Vanguard Target Retirement 2035 Fund, with a current AA of 80/20.

Ignoring the $4K in taxable because you have debt and need an emergency fund, you have about $16K in retirement assets. You have a desired AA of 78% stocks, 22% bonds, with 38/39% of stocks in international. That breaks down to 48% US stocks, 30% international stocks, and 22% bonds. You could have either:

Portfolio #1
Rollover IRA at Vanguard -- $3K -- 19%
19% (VTTHX) Vanguard Target Retirement 2035 Fund (0.15%)

Roth IRA at Vanguard -- $13K -- 81%
81% (VTTHX) Vanguard Target Retirement 2035 Fund (0.15%)

or

Portfolio #2
Rollover IRA at Vanguard -- $3K -- 19%
19% (VBMFX) Vanguard Total Bond Market Index Fund Investor Shares (0.15%)

Roth IRA at Vanguard -- $13K -- 81%
51% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.15%)
30% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.18%)

Portfolio #1 is easier and a smidgeon cheaper right now. When you have more assets and can purchase Admiral class shares then Portfolio #2 will be cheaper.

Just some possibilities.

arf00121
Posts: 4
Joined: Fri Jun 09, 2017 10:48 am

Re: Portfolio initial setup help

Post by arf00121 » Sat Jun 10, 2017 12:44 pm

Thank you everyone for your feedback!! Very helpful.

arf00121
Posts: 4
Joined: Fri Jun 09, 2017 10:48 am

Re: Portfolio initial setup help

Post by arf00121 » Mon Jun 12, 2017 7:50 pm

Portfolio #2
Rollover IRA at Vanguard -- $3K -- 19%
19% (VBMFX) Vanguard Total Bond Market Index Fund Investor Shares (0.15%)

Roth IRA at Vanguard -- $13K -- 81%
51% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.15%)
30% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.18%)

Portfolio #1 is easier and a smidgeon cheaper right now. When you have more assets and can purchase Admiral class shares then Portfolio #2 will be cheaper.

Just some possibilities.
Why not portfolio #2 with ETF's until I can afford admiral shares? Lower expense ratio and no minimums? any other downsides besides manual dividend reinvestment?
That breaks down to 48% US stocks, 30% international stocks, and 22% bonds. You could have either
curious- If my desired AA for stocks is 50/50 why the suggested breakdown above?
I think not having an emergency fund is risky - very risky. Be sure to get that funded while you are doing other stuff.
should I liquidate the 4k in taxable to fund this?





How does the suggested portfolio look?

Portfolio #3
Trad IRA
Total Bond Market ETF (BND)- 16%

Roth IRA
Vanguard Total Stock Market ETF (VTI)- 42%
Vanguard Total International Stock ETF (VXUS)-42%

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Duckie
Posts: 5954
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio initial setup help

Post by Duckie » Tue Jun 13, 2017 2:04 pm

arf00121 wrote:Why not portfolio #2 with ETF's until I can afford admiral shares? Lower expense ratio and no minimums? any other downsides besides manual dividend reinvestment?
I don't deal with ETFs so I don't know all their ins and outs, but at this stage of your investing they'll work fine.
curious- If my desired AA for stocks is 50/50 why the suggested breakdown above?
It's a terminology issue. In your original post you wanted 78% stocks, 22% bonds, with 39% of stocks in international. To us on this board that means 39% of the stock allocation, not 39% of the portfolio. 0.78 times 0.39 equals 0.30.
should I liquidate the 4k in taxable to fund this?
I would.
How does the suggested portfolio look?
It'll work fine if that's what you want.

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