portfolio feedback

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Joined: Sat May 21, 2016 2:30 am

portfolio feedback

Post by bogleboyz » Thu Jun 22, 2017 1:11 am

Hi Everyone

I am trying to make some changes to my portfolio 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 index funds. I would appreciate your feedback regarding my plan
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 will be invested in vanguard total stock market index fund (0.04) or Fidelity Total Stock market index FSTVX (ER 0.045)
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
– 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 REIT index institutional (ER 0.10 + 0.396 (extra fee charged by health equity) total ER 0.496)
what do you think about this portfolio?
is it ok to invest all the bond allocation into the Vanguard total bond market fund?
I appreciate your feedback

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Re: portfolio feedback

Post by BeBH65 » Thu Jun 22, 2017 1:47 am

Hello Bogleboyz,

We have a standard format fro portfolio descriptions that we are used to read and scanning quickly.
I suggest that you update your opening post to the format mentioned here.

BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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Joined: Sat Sep 12, 2015 11:19 am

Re: portfolio feedback

Post by Wall_St_Survivor » Thu Jun 22, 2017 7:27 am

Hi Bogleboyz,

You may get different opinions since the majority of folks who use this forum has their "ideal" indexing philosophy.

Objectively speaking, I don't think there's anything else you could improve on given your current sub-asset allocation. The key thing is that you stick with it, rebalance it according to your schedule, and not tweak it so often.

I believe that if we're overweighting in a given sector, that it should be limited to 10% overall of the portfolio, which is exactly what you've described. So I agree with what you did. You may find some forum members with a different opinion.

As far as asset location is concerned, I don't understand why you would only have the REIT Index fund in the HSA. I like to earmark my various accounts towards different buckets for different purposes. For instance, my 401k's and Roth IRA's are my retirement bucket, so it's a separate portfolio mix. HSA's are used for medical expenses, unless you have decided to view your HSA as a retirement vehicle. Personally, I would view an HSA as a separate bucket of money invested in a separate asset mix.

Unless it's a dire emergency, you're not going to tap into your retirement accounts for medical expenses. So for your HSA, you need to understand the risks associated with REIT's, we are in a rising interest rate environment regarding bonds, as interest rates rise, REIT's suffer. The reason why is simple, REIT's are often compared to bonds when it comes to dividends. REIT's are designed to pay at least 90% of its income from rent to its shareholders. I suspect that you chose REIT's based on past performance, it's done extremely well when it comes to appreciation since 2009. So where do bonds come in? Since the Great Recession, interest rates dropped down close to 0%. So if bonds aren't paying interest, what's the next thing that does....REIT's. Since 2009, REIT's have appreciated due to people seeking dividend income. My biggest concern when it comes to REIT's is that the Federal Reserve has started to raise their interest rates since 2015 and also start selling bonds off their balance sheets sometime late 2017 to early 2018. The Fed has meetings each month which you can google. As a result, bond funds will start to see higher dividend payments. Right now I think the Vanguard REIT index fund has a 3.9% yield and the Vanguard Total Bond has a 2.35% yield. Sometime in the near future, there will be a point when bonds have a yield that are comparable to REIT's. When it gets to that point, I would rather buy a bond that will preserve my principal when it pays just about the same interest rates as a REIT. And by that time, REIT's would have depreciated due to investors dumping REIT's and putting their money into bonds.

I apologize for the long academic rant on REIT's, but that is a big concern I have for them currently.

As for the Vanguard Total Bond, I like it. I personally don't slice and dice my bonds so for one fund to expose me to the bond market, I think Vanguard does a great job investing it. I think about 80-85% of it are in short-term and intermediate-term bonds which I think is ideal. The rest in long term bonds. It does a great job as a portfolio stabilizer. I'm just waiting on the Fed to keep raising the interest rates so the dividends can be higher.

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Re: portfolio feedback

Post by bogleboyz » Sat Jun 24, 2017 3:13 pm

Thanks for your reply

i am using the HSA for retirement.
I was initially going to keep it simple and just use total stock market for the HSA. However i was told that i wont be able to use total loss harvesting if i have the same funds in the HSA as the funds in my taxable account

currently my taxable account has total stock market and total international stock market. so i decided to use a different fund in HSA.
what would you suggest for the HSA keeping in mind the possibility of tax loss harvesting in the future.

I would appreciate any advice

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