need help with portfolio and asset location

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bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

need help with portfolio and asset location

Post by bogleboyz » Sun Jun 18, 2017 7:57 pm

Hi all

I am trying to get my financial house in order and would love to get your feedback on my portfolio and the location of the assets

so far i have been using the fidelity freedom funds 2045 fund (FFKGX) (ER 0.64) in my 401k and 457 at fidelity.
I also have roth IRA account for myself and my wife, plus a taxable account at Vanguard.

I want to take the money out of the Fidelity freedom funds and use the low cost Vanguard funds in the 401k and 457

Emergency funds: 6 months
Debt: $0
Tax Filing Status: married filing jointly
Tax Rate: 39% Federal, 0% State
Age: 40
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 33% of total stocks

I would like the following allocation

REIT Vanguard REIT index fund 7.5% (ER 0.12) (as total stock market has 3% REIT, this will get me around 10% REIT overall)

Remaining 72.5% of stocks are divided as follows

US stocks 48.5% of total portfolio
38.5% Vanguard total stock market index fund (0.04) or Fidelity Total Stock market index FSTVX (ER 0.045)
10% ISHARES S&P SMALL CAP 600 VALUE (ER 0.25) (equivalent of Vanguard small value index fund)


24% international stocks will be invested in Vanguard Total international stock market index fund (0.11)


For 20% Bonds I will use Vanguard total Bond market institutional index fund (available in 401k/457, ER 0.04)

Now regarding the location of the different funds in different accounts, here is what I am thinking

REIT index fund goes in the ROTH IRAs

Extra REIT amount which did not fit into ROTH IRA goes into 401K ( I can use fidelity brokerage link to access fidelity REIT index fund FSRVX ER 0.09)

457 will hold the Vanguard total Bond market index institutional

401 K will hold the following funds
- ISHARES S&P SMALL CAP 600 VALUE
- Vanguard total Bond market index fund institutional VBTIX (ER 0.04)
- Amount left will be invested in Fidelity Total Stock market index fund FSTVX (ER 0.045)

HSA (small balance) will be invested in Vanguard Small value index admiral VSIAX (ER 0.07 + 0.396 (extra fee charged by health equity) total ER 0.466)

Taxable Account
-Vanguard Total Stock Market index fund
-Vanguard Total International stock market index Fund


I would really appreciate any feedback . I am open to suggestions if you think there is a better way to locate these funds or if there any suggestions to improve the portfolio.

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Misenplace
Posts: 131
Joined: Mon Feb 01, 2016 9:46 pm

Re: need help with portfolio and asset location

Post by Misenplace » Sun Jun 18, 2017 9:09 pm

Hi bogleboyz,

You seem to have a great plan. I could not see any way to improve it. If I were starting with a clean slate and were your age, I think I would come up with something similar.

However, I wondered what your current portfolio looked like, and whether there were any issues moving to this proposed portfolio? Also, if you own real estate free and clear (you say you have no debts, so I assume no mortgage), I might not feel REIT's necessary. This is of course rather personal, and depending upon how much you already have tied up in real estate.

Best,
Misenplace

bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

Re: need help with portfolio and asset location

Post by bogleboyz » Wed Jun 21, 2017 12:28 am

Thanks for your reply

My current portfolio is a combination of the fidelity target date fund and vanguard total stock market, vanguard total international stock market.

I will only be making changes in the retirement accounts to there will be no capital gains.
I will change future contributions in the taxable account to achieve the desired allocation

However when going through the numbers i realized that my tax deferred space is limited and within the next year or i will not be able to keep the REIT, bonds and small value index fund in the retirement accounts.
At that point i will have either start holding the bonds or the small value index fund in the taxable account (which i understand is generally not advisable).

Therefore i was wondering if i should just forget about the small value index fund and use the total stock market for all of my US stocks?
It will probably make things simpler overall
I would appreciate any feedback
thanks

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Earl Lemongrab
Posts: 2933
Joined: Tue Jun 10, 2014 1:14 am

Re: need help with portfolio and asset location

Post by Earl Lemongrab » Wed Jun 21, 2017 12:47 pm

If I were going to skip one of those, it would be the REIT. That being said, I hold a good amount of small-value in taxable.
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

Re: need help with portfolio and asset location

Post by bogleboyz » Thu Jun 22, 2017 12:18 am

what fund do you use for small value in taxable?
it was my understanding that small value should be held in retirement accounts as it may not be tax efficient.
whats the impact of holding small vale in taxable from taxes stand point? doesnt that affect your return?

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Earl Lemongrab
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Joined: Tue Jun 10, 2014 1:14 am

Re: need help with portfolio and asset location

Post by Earl Lemongrab » Thu Jun 22, 2017 12:54 pm

bogleboyz wrote:what fund do you use for small value in taxable?
VBR and IJS. Generally IJS is more tax efficient, probably due to lower REIT percentage.
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

Re: need help with portfolio and asset location

Post by bogleboyz » Sat Jun 24, 2017 3:19 pm

Earl Lemongrab wrote:
bogleboyz wrote:what fund do you use for small value in taxable?
VBR and IJS. Generally IJS is more tax efficient, probably due to lower REIT percentage.
since my taxable account is with vanguard, can i hold IJS? what are the fees for holding IJS at vanguard?
whats the impact of holding VBR or IJS in taxable. How does it affect your return from taxes stand point

thanks

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Earl Lemongrab
Posts: 2933
Joined: Tue Jun 10, 2014 1:14 am

Re: need help with portfolio and asset location

Post by Earl Lemongrab » Sat Jun 24, 2017 5:07 pm

bogleboyz wrote:
Earl Lemongrab wrote:
bogleboyz wrote:what fund do you use for small value in taxable?
VBR and IJS. Generally IJS is more tax efficient, probably due to lower REIT percentage.
since my taxable account is with vanguard, can i hold IJS? what are the fees for holding IJS at vanguard?
whats the impact of holding VBR or IJS in taxable. How does it affect your return from taxes stand point.
If you have a Vanguard Brokerage account, you can hold almost any ETF. There is likely a commission for that.

All stock funds produce dividends and possibly other distributions (relatively rare with ETFs). You are taxed on those. Dividends have two tax classes, qualified and non-qualified. Non-qualified are taxed at your marginal rate, qualified at a special rate as are long-term capital gains. This for most people is 0% or 15%, but some higher brackets exist.
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

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Misenplace
Posts: 131
Joined: Mon Feb 01, 2016 9:46 pm

Re: need help with portfolio and asset location

Post by Misenplace » Mon Jun 26, 2017 10:10 pm

Hi bogleboyz,

In my opinion, simpler is almost always better, and certainly easier to stick with up and down over the years. Also, in your high tax bracket (39%), you certainly would not want REITs or small cap value (SCV) in your taxable account.

If you feel that you really want to hold REITs and SCV, continue to hold them in your tax deferred accounts and you may want to think about holding some muni bonds in your taxable to round out your bond asset allocation. But you need to believe that you can hold on to the SCV and REIT tilt through thick and thin- these can go through many years of underperformance, followed by years of high performance. I tend to prefer the simpler approach of just using total stock index in taxable, and bonds in tax deferred.

Full disclosure for my rather biased input- I myself shifted out of REITs last year since I felt we were enough exposed to the real estate market with our rather expensive home (yes I know that it is not the same as a diversified REIT fund, but the price of real estate in my area and the REIT fund performance do seem to correlate enough for me). I also hold some munis in my taxable, but I feel much more comfortable with Treasury bonds and Total bond in my tax deferred, so I do not plan on adding to my munis.

best,
Misenplace

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