retiring soon need fixed income suggestions and portfolio critique

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
medvfx
Posts: 5
Joined: Thu May 25, 2017 8:23 pm

retiring soon need fixed income suggestions and portfolio critique

Post by medvfx » Sat Jul 15, 2017 3:38 pm

My wife and I are nearing full retirement in about 6 months (depending on when she decides as I am semi to nearly fully retired). She is fortunate enough to have a pension that will essentially cover our essential expenses. We do very little if any discretionary spending. If I choose to access Social Security in 10 years our combined pension and SS should be adequate (barring any catastrophic medical issues). With the addition of our invested savings we are confident that we are adequately funded for our lifestyle going forward. Our current investments are a hodgepodge and no doubt part of our retirement transition will be spent trying to simplify. At this point our investment picture looks like this:

Emergency funds: currently have approximately 3 years of expenses
Debt: none
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Fed, 3.96% State
State of Residence: Ohio
Age: 60
Desired Asset allocation: 50% stocks / 50% bonds
Desired International allocation: 20% of stocks

Current total portfolio is low 7 figures with ~50% taxable and ~50% tax advantaged.

Current retirement assets

His Fidelity Taxable 8% of total portfolio
31.2% cash available
64% Fidelity Total Market (FSTVX) (0.045)
4.8% Parnassus Endeavor Fund (PARWX) (0.95)

His Vanguard Taxable 4.8% of total portfolio
37.5% cash available
25% Total International Stock Admiral Class (VTIAX) (0.11)
37.5% Total Stock Market Admiral Class (VTSAX) (0.04)

Her Actively Managed Taxable 40.7% of total portfolio
1.8% cash available
26.18% Fixed Income
4.18% Blackrock Strategic Inc Opport Ins (BSIIX) (0.62)
3.6% Metropolitan West High Yield Bd I (MWHIX) (0.61)
9.12% Metropolitan West Total Return Bd I (MWTIX) (0.44)
2.06% T Rowe Price Emer Mkts Bond I (TREBX) (0.70)
1.52% Vanguard Inflation Protect Adm #5119 (VIPSX??) (0.20??)
0.99% Vanguard S/t Inflation Protect Adm (VTAPX) (0.07)
4.7% Vanguard Shtm Invest Grade Adm #539 (??) (??)
7.26% Equity Common Stocks
0.95% Woodward Inc (WWD) (??)
6.31% Disney Common Stock (DIS) (??)
62.33% Equity Funds
1.0% American Beacon Large Cap Value Inst (AADEX) (0.60)
9.16% T Rowe Price Growth Stk Fd Inv (PRGFX?) (0.68?)
7.66% Vanguard Dividend Growth – Inv (VDIGX) (0.30)
20.02% Vanguard Total Stock Mkt Index – Adm (VTSAX) (0.04)
3.37% Vanguard Selected Value (VASVX) (0.35)
4.53% Massmutual Select Mid Cap Growth (MMELX ) (1.03)
3.66% Vanguard Small Cap Index – Adm (VSMAX) (0.06)
3.47% Harbor International Fd Instl (HAINX) (0.79)
5.09% Ivy International Core Equity N (IINCX) (0.82)
4.35% Oppenheimer Developing Markets I (ODVIX) (0.88)
2.43% Alternatives
2.43% Invesco Commodity Strategy Y (BRCYX) (1.31)

Her Inherited IRA 3.7% of portfolio
2.29% cash available
27.56% Fixed Income
4.1% Blackrock Strategic Inc Opport Ins ( BSIIX) (0.62)
3.92% Metropolitan West High Yield Bd I (MWHIX) (0.61)
10.06% Metropolitan West Total Return Bd I (MWTIX) (0.44)
2.08% T Rowe Price Emer Mkts Bond I (TREBX) (0.70)
1.68% Vanguard Inflation Protect Adm #5119 (??) (??)
1.09% Vanguard S/t Inflation Protect Adm (VTAPX) (0.07)
4.64% Vanguard Shtm Invest Grade Adm #539 (??) (??)
67.48% Equity Funds
3.05% American Beacon Large Cap Val Inst (AADEX) (0.60)
9.85% T Rowe Price Growth Stk Fd Inv (PRGFX?) (0.68?)
8.44% Vanguard Dividend Growth – Inv (VDIGX) (0.30)
19.30% Vanguard Total Stock Mkt Index – Adm (VTSAX) (0.04)
4.89% Massmutual Select Mid Cap Growth (MMELX ) (1.03)
3.66% Vanguard Selected Value (VASVX) (0.35)
1.87% Clearbridge Small Cap Gr – I (SBPYX) (0.90)
2.36% Columbia Small Cap Index R5 (CXXRX) (0.20)
3.80% Harbor International Fd Instl (HAINX) (0.79)
5.57% Ivy International Core Equity N (IINCX) (0.82)
4.67% Oppenheimer Developing Markets I (ODVIX) (0.88)
2.67% Alternatives
2.67% Invesco Commodity Strategy Y (BRCYX) (1.31)

His Roth IRA at TIAA-Cref 4.8% of total portfolio
100% TIAA Traditional

His Traditonal IRA at TIAA-Cref 2.2% of total portfolio
100% TIAA Traditional

His Traditional IRA at Fidelity 2.4% of total portfolio
100% Fidelity Puritan (FPURX) (0.56)

His Inherited IRA At Fidelity 20% of total portfolio
17% Fidelity International Capital Appreciation (FIVFX) (1.14)
16% Fidelity Total Mkt (FSTVX) (0.045)
38% Fidelity Total Bond (FTBFX) (0.45)
15%Pimco Income Fund (PONDX) (0.79)
12% CD’s

Her 403b 4.7% of total portfolio
16% TIAA Traditional
84% Equities
53% Cref Stock R3 (QCSTIX) (0.32)
19% Cref Global Equities (QCGLIX) (0.33)
11% Cref Growth R3 (QCGRIX) (0.27)

Her Traditional IRA at Fidelity 1.9% of total portfolio
100% Fidelity Puritan (FPURX) (0.56)

Her Roth IRA at TIAA-Cref 6.8% of total portfolio
59% TIAA Traditional
32% Equities
11% TIAA-Cref Growth and Income Fund (TRGIX) (0.67)
11% TIAA-Cref Mid Cap Value Fund (TRVRX) (0.66)
10% TIAA-Cref Social Choice Equity Fund (TRSEX) (0.67)
5% Real Estate
5% TIAA Real Estate
3% Fixed
3% Cref Bond Market R1 (QCBMRX) (0.68)
Contributions

New annual Contributions
$20,000 her 403b
$6,500 his IRA/Roth IRA
$6,500her IRA/Roth IRA
$(unknown, anywhere from 50,000-200,000) taxable (for retirement, not short term goals)

Questions:
1.Please note her taxable and inherited IRA are actively managed by a professional investment group and probably won’t be changed by her unless she chooses to terminate their services. Included in list for the sake of completeness as best I can.
2. We are maxed out in her 403b contributions and our IRA’s and as a consequence primarily invest in taxable accounts. A fair amount of cash is currently idle in both Fidelity and Vanguard taxable accounts. Additionally there is ~15% of total portfolio value in cash sitting idle in a bank money market account that is open for investment. Any suggestions for all of this cash is appreciated.

I have just recently opened the Vanguard taxable account in an effort to run a comparison with Fidelity and to see if the returns might compete with my wife’s fully managed taxable account (a fully sliced and diced portfolio with fairly high expenses). If it makes sense I am happy to transfer cash from Fidelity and or bank money market account to Vanguard in order to fund it more fully. As Vanguard is all equities at this point I am need of guidance for a fixed income approach. I am presently considering the following for Vanguard taxable fixed income:
1.Total bond index (VBTLX) or tax exempt (VTEBX).
2. Perhaps to hedge interest rate risk something like an intermediate term tax exempt fund would be appropriate (VWITX) and or short term corporate (VSCSX).

Thanks to all for your valued suggestions and critiques.

User avatar
dwickenh
Posts: 771
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: retiring soon need fixed income suggestions and portfolio critique

Post by dwickenh » Sat Jul 15, 2017 5:22 pm

Welcome medvfx,

I will give you my opinion on your questions, knowing that many others will get more involved with their answers.

1) (a fully sliced and diced portfolio with fairly high expenses) Your description of your wife's portfolio does not do it justice. To me it is just
unnecessarily complex with many overlapping funds. It is usually to the advantage of the portfolio manager to make it complicated and costly.
I do not see any clear advantage for your wife.

2) Your holding of cash in the accounts is an oversight, or an attempt at market timing? If you think the market is too pricey to invest your cash,
you may need to do some dollar cost averaging to enter the market. Invest per your Asset Allocation in index funds taking into account the need for fixed income in tax sheltered accounts if possible.

3) Your choice of the Total Bond Index and the Short term corporate could both work together in your fixed income. I currently own both funds in my fixed income tax sheltered account. I also have the short term fund in my taxable account for short term expenses.

There will be brighter minds than mine that will give you more insight.

Good luck to you,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

GMT-8
Posts: 121
Joined: Fri Mar 26, 2010 5:11 pm

Re: retiring soon need fixed income suggestions and portfolio critique

Post by GMT-8 » Sat Jul 15, 2017 6:03 pm

Hello Medvfx,

I agree with Dan. My circumstances are similar to yours although I'm about 5 years older than you, with a wife's pension which covers the bulk of our expenses. After retiring a few years ago I spent the better part of a year whittling away at our portfolio until I have reached a point that I know roughly what our accounts are from memory.

I suggest you simplify your holdings.

Here's what we did.

We started on my tax-advantaged accounts by selling little annoying balances to get rid of them; I decided that anything less than $50k would be liquidated. You could choose a percentage as the BH recommend - let's say 5% of total portfolio - if your holdings are smaller than, that they become irrelevant. Sell them. Now there are fewer and larger chunks to manage.

We requested various little accounts due us from former employers, got the cash instead or transferred it into IRAs at Vanguard, buying VTSAX Total Stock Market Index with all of it.

Then I adjusted our asset allocation by buying more of the things I wanted, using assets I didn't need (we were overweight on stock). We are now near 50-50.

Some things I couldn't change quickly, such as our TIAA holdings. They are on a 9-year glide down to zero, and being used to buy what we need, which at the moment is TIAA's offering of VMCIX Vanguard Mid-Cap Institutional.

I am now down to 4 bond index funds, 4 stock index funds, 2 managed funds and a money market. That's spread across 3 IRAs, and 1 taxable account, plus two banks and one credit union. It's not the 3-fund portfolio yet, but its still simple enough for me, still making money, and easy to manage. Each holding is now between $100k to $500k.

In fixed income within my tax-advantaged space I have (and might ultimately consolidate):

VBTLX Total Bond Market Index Fund Admiral Shares
VBILX Intermediate-Term Bond Index Fund Admiral Shares
VBLTX Long Term Bond Index Fund Admiral Shares

In taxable account I have the same sort of thing in California:

VCADX California Intermediate-Term Tax-Exempt Fund Admiral Shares
VCLAX California Long-Term Tax-Exempt Fund Admiral Shares

The composite expense ratio is under 0.1% and everything is at Vanguard except the TIAA. We keep about a year's worth of expenses in money market.

I hope this is helpful.

GMT-8

Kennyt7
Posts: 32
Joined: Mon Jan 19, 2015 7:28 pm

Re: retiring soon need fixed income suggestions and portfolio critique

Post by Kennyt7 » Sun Jul 16, 2017 1:00 pm

put the cash in tax free munis
you need to simplify and put everything into vanguard
whoever is advising you should be fired asap :happy

medvfx
Posts: 5
Joined: Thu May 25, 2017 8:23 pm

Re: retiring soon need fixed income suggestions and portfolio critique

Post by medvfx » Sun Jul 16, 2017 2:53 pm

Thank you immensely for your comments dwickenh, GMT-8 and Kennyt7. I certainly agree with all your criticism of the managed portfolio but as it is tied up in a complicated family dynamic I expect it will continue as is for a few more years at least. I hope my DIY investing at Vanguard and Fidelity will help to develop some evidence to argue against the managed approach for the future.

As you pointed out dwickenh, I am very cash heavy. This not due to oversight or an attempt to time the market but simply because I haven't caught up with the management of it. My excessive cash positions are primarily due to fact that they are derived from an inheritance windfall and haven't been moved yet in order to finalize some estate issues. I am now pretty much clear of those responsibilities and will move to investment with a goal of maintaining a ~8% short term position.

Thank you dwickenh and GMT-8 for your insights regarding fixed income products. I am still a bit undecided on which direction to go but am beginning to see a picture whereby I might look into setting up a 3 bucket approach for Vanguard comprised of maybe 4 or 5 funds that I might be able to move the bulk of my assets into. As pointed out by GMT-8 I expect it will take me a year or so to do it.

GMT-8, as a fellow TIAA holder, if given the choice of holding or selling and moving into Vanguard with TIAA positions, would you stick with TIAA? Our TIAA holdings are not annuitized and can be moved. I have basically been looking at my positions there as a fixed income option. If it stays there then I probably should put more of my idle cash into stocks in order to maintain my target allocation.

Thanks to all the insight. I am sure it will help.

User avatar
Tyler Aspect
Posts: 475
Joined: Mon Mar 20, 2017 10:27 pm
Location: California
Contact:

Re: retiring soon need fixed income suggestions and portfolio critique

Post by Tyler Aspect » Sun Jul 16, 2017 5:24 pm

medvfx wrote:My wife and I are nearing full retirement in about 6 months (depending on when she decides as I am semi to nearly fully retired). She is fortunate enough to have a pension that will essentially cover our essential expenses. We do very little if any discretionary spending. If I choose to access Social Security in 10 years our combined pension and SS should be adequate (barring any catastrophic medical issues). With the addition of our invested savings we are confident that we are adequately funded for our lifestyle going forward. Our current investments are a hodgepodge and no doubt part of our retirement transition will be spent trying to simplify. At this point our investment picture looks like this:
Welcome to Bogleheads!

Emergency funds: currently have approximately 3 years of expenses
Debt: none
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Fed, 3.96% State
State of Residence: Ohio
Age: 60
Desired Asset allocation: 50% stocks / 50% bonds
Desired International allocation: 20% of stocks

Questions:
1.Please note her taxable and inherited IRA are actively managed by a professional investment group and probably won’t be changed by her unless she chooses to terminate their services. Included in list for the sake of completeness as best I can.
Your wife could ask her advisor to stick to index funds, but this is her money and her decision.

2. We are maxed out in her 403b contributions and our IRA’s and as a consequence primarily invest in taxable accounts. A fair amount of cash is currently idle in both Fidelity and Vanguard taxable accounts. Additionally there is ~15% of total portfolio value in cash sitting idle in a bank money market account that is open for investment. Any suggestions for all of this cash is appreciated.
You are drawing on the pension which is sufficient for your living expense, so that I think just a single year living expense needs to be in cash. Total stock market index is where I would dump the extra cash.

I have just recently opened the Vanguard taxable account in an effort to run a comparison with Fidelity and to see if the returns might compete with my wife’s fully managed taxable account (a fully sliced and diced portfolio with fairly high expenses). If it makes sense I am happy to transfer cash from Fidelity and or bank money market account to Vanguard in order to fund it more fully. As Vanguard is all equities at this point I am need of guidance for a fixed income approach. I am presently considering the following for Vanguard taxable fixed income:
1.Total bond index (VBTLX) or tax exempt (VTEBX).
2. Perhaps to hedge interest rate risk something like an intermediate term tax exempt fund would be appropriate (VWITX) and or short term corporate (VSCSX).
Your all equity taxable account is just fine. If you want more stability you can stick with total bond index in your inherited IRA account and in your traditional IRA account. One other option is for her managed IRA account to go 100% bond.

Thanks to all for your valued suggestions and critiques.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

medvfx
Posts: 5
Joined: Thu May 25, 2017 8:23 pm

Re: retiring soon need fixed income suggestions and portfolio critique

Post by medvfx » Sun Jul 16, 2017 6:36 pm

Thanks Tyler Aspect. I like your simplification strategy and especially your options to simplify fixed income. I can definitely see consolidating some IRA's now and moving them to less tax efficient total bond holdings. Looks like a no-brainer to roll my Fidelity and maybe my TIAA traditional IRA into a Vanguard account along with moving cash into Vanguard equities. That should knock a few rungs off the ladder.

Thanks again for a very concise critique.

User avatar
Watty
Posts: 11559
Joined: Wed Oct 10, 2007 3:55 pm

Re: retiring soon need fixed income suggestions and portfolio critique

Post by Watty » Sun Jul 16, 2017 8:28 pm

medvfx wrote:Current total portfolio is low 7 figures....
Wit reasonable growth assumption you will be in the income range where estate taxes are an issue if the money is left invested for a couple of decades. You should get professional estate planning to minimize that.

medvfx
Posts: 5
Joined: Thu May 25, 2017 8:23 pm

Re: retiring soon need fixed income suggestions and portfolio critique

Post by medvfx » Sun Jul 16, 2017 10:45 pm

Watty wrote:
medvfx wrote:Current total portfolio is low 7 figures....
Wit reasonable growth assumption you will be in the income range where estate taxes are an issue if the money is left invested for a couple of decades. You should get professional estate planning to minimize that.
Good point Watty. We have some basic planning done but need to explore it further.

GMT-8
Posts: 121
Joined: Fri Mar 26, 2010 5:11 pm

Re: retiring soon need fixed income suggestions and portfolio critique

Post by GMT-8 » Sun Jul 16, 2017 10:53 pm

GMT-8, as a fellow TIAA holder, if given the choice of holding or selling and moving into Vanguard with TIAA positions, would you stick with TIAA? Our TIAA holdings are not annuitized and can be moved. I have basically been looking at my positions there as a fixed income option. If it stays there then I probably should put more of my idle cash into stocks in order to maintain my target allocation.
I was looking at using the TIAA as a fixed income option too, but it was less than $1000 a month single annuity, and they couldn't or wouldn't explain how that gets calculated (it's insurance, not "investment") which I didn't or couldn't comprehend. So we decided to move it out - once you make a decision the die is cast and can't be changed. So in terms of freedom, I like it better. In terms of potential wealth, it looks like we will have twice the balance we would have had if we stayed in the TIAA plan (fingers crossed). If so, and if we need the income, we can use it to buy a single annuity later.

Luckily this is only 10% of our portfolio, and it doesn't make too much difference; as it stands now we have enough anyway without it. It looks like you might have plenty too. So this is idle speculation (a nice luxury to have).

I hope this helps.

GMT-8

medvfx
Posts: 5
Joined: Thu May 25, 2017 8:23 pm

Re: retiring soon need fixed income suggestions and portfolio critique

Post by medvfx » Mon Jul 17, 2017 8:44 am

GMT-8 wrote:
GMT-8, as a fellow TIAA holder, if given the choice of holding or selling and moving into Vanguard with TIAA positions, would you stick with TIAA? Our TIAA holdings are not annuitized and can be moved. I have basically been looking at my positions there as a fixed income option. If it stays there then I probably should put more of my idle cash into stocks in order to maintain my target allocation.
I was looking at using the TIAA as a fixed income option too, but it was less than $1000 a month single annuity, and they couldn't or wouldn't explain how that gets calculated (it's insurance, not "investment") which I didn't or couldn't comprehend. So we decided to move it out - once you make a decision the die is cast and can't be changed. So in terms of freedom, I like it better. In terms of potential wealth, it looks like we will have twice the balance we would have had if we stayed in the TIAA plan (fingers crossed). If so, and if we need the income, we can use it to buy a single annuity later.

Luckily this is only 10% of our portfolio, and it doesn't make too much difference; as it stands now we have enough anyway without it. It looks like you might have plenty too. So this is idle speculation (a nice luxury to have).

I hope this helps.

GMT-8
Thanks GMT-8. Glad to hear that I am not the only one that finds TIAA cryptic. Which is probably enough reason to move out of it (and as you point out I don't have that much in).

Post Reply