1st time Portfolio Review

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WVbaron
Posts: 17
Joined: Sun Apr 30, 2017 2:12 am

1st time Portfolio Review

Post by WVbaron » Thu Sep 07, 2017 3:29 pm

Hello Bogleheads!

I have been a long time reader and this is the first time that I have submitted a portfolio review. I look forward to your candid feedback. Thank you and happy saving!

Emergency funds: $50K (checking) / $100K @ 0.02% interest rate (savings) Bank of America
Debt: $135K @ 6.5% / $14.8K @ 6.75% = Total $149.8K
Both loans are from a farm credit where I purchased raw land and built a cabin. The loans are in my name but my parents / I split the monthly mortgage payment as this is a vacation property for us to enjoy.
Tax Filing Status: Single
Tax Rate: 28% Federal, 5.75% Ohio
State of Residence: Ohio (But on Expat assignment in the UK)
Age: 37, Annual salary: $116K + appx $20K bonus, Monthly expenses $2,200
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 20-25% of stocks

Total portfolio size is $483K + $150K cash (Checking & Savings acct)

Current retirement assets

Taxable
Vanguard Brokerage account (16% of portfolio)
$18.5K / 25% Vanguard Total Bond Market Index Fund, Admiral shares (VBTLX) (0.05% expense ratio)
$20.8K / 25% Vanguard Total International Stock Index Fund, Admiral shares (VTIAX) (0.11% expense ratio)
$40K / 50% Vanguard Total Stock Market Index Fund, Admiral shares (VTSAX) (0.04% expense ratio)

401k @ Fidelity (51% of portfolio)
$116K / 47.2% FID 500 Index INST (large cap), (FXSIX) (0.03% expense ratio)
$39K / 15.7% FID EXT MKT IDX PR (mid cap), (FSEVX) (0.07% expense ratio)
$37K / 15.1% FID INTL Index (Intl), (FSPNX) (0.05% expense ratio)
$33K / 13.5% FID US Bond Index (bond), (FXSTX) (0.03% expense ratio)
$21K / 8.4% Target Retirement 2045 (FXSIX) (0.25% expense ratio)
Roth IRA @ Vanguard (15% of portfolio)
$75K / 100% Vanguard Target Retirement Fund 2045 (VTIVX) (0.16% expense ratio)

Company Pension (17% of portfolio)
$83K / Company makes 7.25% of my annual salary as a contribution each year. I am fully vested and can take contributions any time after I reach the age of 55 (if I retire early) or upon retirement

Contributions

New annual Contributions
$3,700 (3%) + $3,700 (3% company match) 401K
Due to being considered HCE (Highly compensated employee) and our company’s 401K not meeting certain IRS requirements, I am not allowed to contribute more than 3% annually

$5,500 Roth IRA (backdoor contribution) I do this once a year in May and keep my traditional IRA balance at $0.00.
$41,600 Vanguard Brokerage account. For the past 18 months of so, I have been doing a $1,600 contribution to my Vanguard brokerage account every 2 weeks with my pay, splitting it between the 3 funds list above.



Questions:
1. Overall feedback / thoughts on my portfolio vs my age (37)

2. I have been an expat (UK) for the past 5 years which has helped me build up my emergency fund and brokerage account. When I first moved abroad, I was also saving because I thought when I returned to the US, I would buy a house and wanted a down payment. However, it is now likely that I will stay abroad for the foreseeable future (1-3 yrs, maybe longer…) and I would rather put the $100K in my savings account to much better use. I am thinking about evenly splitting it into the 3 funds in my brokerage account. This would still leave me with $50K in my checking account as an emergency fund and I might ladder some of that into CD’s. Thoughts?

3. I would really appreciate feedback about the mix of stock funds vs bonds in my taxable / non taxable accounts. I need to research this more but I have read on this site about having bonds in your tax deferred account and stocks in your taxable. I have stocks and bonds in both my tax deferred and taxable accounts and feel like this isn’t the right approach, even though I am trying to follow the 3 fund portfolio strategy. This question I would appreciate the most feedback on as I know the least about how to go about next steps.

4. When I set up my Vanguard brokerage 3 fund portfolio about 2 years ago, I continued to leave my Roth IRA in the target retirement fund. I have been wondering recently if that makes sense or if it should use that as part of the 3 fund strategy?

5. I had about 8% of my 401K in company stock. We are in the process of delisting from the NYSE and the company automatically converted that to a target retirement fund. I would like to move the money out of that fund and most likely just spread it into the other 4 funds I have in my 401K. Thoughts? Other ideas?
Last edited by WVbaron on Thu Sep 07, 2017 7:01 pm, edited 1 time in total.

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badbreath
Posts: 593
Joined: Mon Jul 18, 2016 7:50 pm

Re: 1st time Portfolio Review

Post by badbreath » Thu Sep 07, 2017 5:36 pm

You are doing something that I really do not like in a portfolio. You have target date funds mixed with non target date funds, pick one or the other not both. One (TDF) you never have to rebalance with a mix it makes it really hard to rebalance.

you also have bonds in your taxable. I would move (adjust) all bonds to your tax advantage. Read this,

www.bogleheads.org/wiki/Tax-efficient_fund_placement
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

radiowave
Posts: 1267
Joined: Thu Apr 30, 2015 5:01 pm

Re: 1st time Portfolio Review

Post by radiowave » Thu Sep 07, 2017 5:44 pm

I concur with badbreath. You can increase your bond portion in Fidelity using FXSTX (and that's an excellent ER) and take out bonds in taxable and probably break up the target date fund proportionally with the SP500, international and bond fund.

and welcome to the forum!
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

User avatar
Duckie
Posts: 5088
Joined: Thu Mar 08, 2007 2:55 pm

Re: 1st time Portfolio Review

Post by Duckie » Thu Sep 07, 2017 6:02 pm

WVbaron wrote:Emergency funds: $50K (checking) / $100K @ 0.02% interest rate (savings) Bank of America
Debt: $135K @ 6.5% / $14.8K @ 6.75% = Total $149.8K
Both loans are from a farm credit where I purchased raw land and built a cabin. The loans are in my name but my parents / I split the monthly mortgage payment as this is a vacation property for us to enjoy.
Your loans are over 6% and your savings are paying 0.02%. Take that $100K and maybe the $50K and pay off those loans. Your parents can pay you instead of splitting the mortgage payments.
Taxable
Vanguard Brokerage account (16% of portfolio)
$18.5K / 25% Vanguard Total Bond Market Index Fund, Admiral shares (VBTLX) (0.05% expense ratio)
$20.8K / 25% Vanguard Total International Stock Index Fund, Admiral shares (VTIAX) (0.11% expense ratio)
$40K / 50% Vanguard Total Stock Market Index Fund, Admiral shares (VTSAX) (0.04% expense ratio)
Taxable bonds don't belong in a taxable account. Put your bond AA in your 401k. FXSTX is an excellent bond fund.
401k @ Fidelity (51% of portfolio)
$116K / 47.2% FID 500 Index INST (large cap), (FXSIX) (0.03% expense ratio)
$39K / 15.7% FID EXT MKT IDX PR (mid cap), (FSEVX) (0.07% expense ratio)
$37K / 15.1% FID INTL Index (Intl), (FSPNX) (0.05% expense ratio)
$33K / 13.5% FID US Bond Index (bond), (FXSTX) (0.03% expense ratio)
$21K / 8.4% Target Retirement 2045 (FXSIX) (0.25% expense ratio)
Holding both individual funds and a balanced fund (FXSIX) is unnecessary. Drop FXSIX. Also, since FSPNX is only developed markets you would be better off skipping this here and putting international in taxable and the Roth IRA.
Roth IRA @ Vanguard (15% of portfolio)
$75K / 100% Vanguard Target Retirement Fund 2045 (VTIVX) (0.16% expense ratio)
This would be better in an individual fund.
Company Pension (17% of portfolio)
$83K / Company makes 7.25% of my annual salary as a contribution each year. I am fully vested and can take contributions any time after I reach the age of 55 (if I retire early) or upon retirement
While the vested amounts are part of your net worth the pension is not part of the portfolio for AA purposes. You have no access to it, no control over it, and can't use it for rebalancing.
I would rather put the $100K in my savings account to much better use. I am thinking about evenly splitting it into the 3 funds in my brokerage account. This would still leave me with $50K in my checking account as an emergency fund and I might ladder some of that into CD’s. Thoughts?
The best use of that $100K is to pay down your over 6% loans.
I would really appreciate feedback about the mix of stock funds vs bonds in my taxable / non taxable accounts. I need to research this more but I have read on this site about having bonds in your tax deferred account and stocks in your taxable. I have stocks and bonds in both my tax deferred and taxable accounts and feel like this isn’t the right approach, even though I am trying to follow the 3 fund portfolio strategy. This question I would appreciate the most feedback on as I know the least about how to go about next steps.
Sell bonds in taxable and put them all in the 401k. Put international at Vanguard. See below.
When I set up my Vanguard brokerage 3 fund portfolio about 2 years ago, I continued to leave my Roth IRA in the target retirement fund. I have been wondering recently if that makes sense or if it should use that as part of the 3 fund strategy?
Move it to individual funds. See below.
I had about 8% of my 401K in company stock. We are in the process of delisting from the NYSE and the company automatically converted that to a target retirement fund. I would like to move the money out of that fund and most likely just spread it into the other 4 funds I have in my 401K. Thoughts? Other ideas?
See below.

You have a desired AA of 85% stocks, 15% bonds (very aggressive for age 37), with 20-25% of stocks in international. I'll go with 25%. That breaks down to 64% US stocks, 21% international stocks, and 15% bonds. You could have:

Taxable at Vanguard -- $79K -- 20%
10% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
10% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

401k at Fidelity -- $246K -- 61%
37% (FXSIX) Fidelity 500 Index Fund Institutional Class (0.03%)
9% (FSEVX) Fidelity Extended Market Index Fund Premium Class (0.07%)
15% (FXSTX) Fidelity U.S. Bond Index Fund Institutional Class (0.03%)

Roth IRA at Vanguard -- $75K -- 19%
8% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
11% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

My comments:
  • This removes the pension from the portfolio.
  • This ignores the tax cost of selling the bond fund in taxable.
  • This puts the international at Vanguard because it's a more complete fund than the 401k option.
  • This puts some of the international in taxable to take advantage of the Foreign tax credit. I'd have made all of taxable VTIAX but I didn't want the tax-hit of selling VTSAX.
  • I would increase the bond AA to at least 25% which would change the other percentages.
Something to think about.

WVbaron
Posts: 17
Joined: Sun Apr 30, 2017 2:12 am

Re: 1st time Portfolio Review

Post by WVbaron » Thu Sep 07, 2017 6:23 pm

radiowave wrote:
Thu Sep 07, 2017 5:44 pm
I concur with badbreath. You can increase your bond portion in Fidelity using FXSTX (and that's an excellent ER) and take out bonds in taxable and probably break up the target date fund proportionally with the SP500, international and bond fund.

and welcome to the forum!
Thanks for feedback and agree about the need to get bonds out of taxable. Something I need to adjust when reworking the portfolio.

WVbaron
Posts: 17
Joined: Sun Apr 30, 2017 2:12 am

Re: 1st time Portfolio Review

Post by WVbaron » Thu Sep 07, 2017 6:28 pm

badbreath wrote:
Thu Sep 07, 2017 5:36 pm
You are doing something that I really do not like in a portfolio. You have target date funds mixed with non target date funds, pick one or the other not both. One (TDF) you never have to rebalance with a mix it makes it really hard to rebalance.

you also have bonds in your taxable. I would move (adjust) all bonds to your tax advantage. Read this,

www.bogleheads.org/wiki/Tax-efficient_fund_placement
Agree on both points. I want to get out of target funds altogether. The 401K target fund just happened as our company was delisted from NYSE and my company stock holdings were placed there. The Roth target fund is a legacy from when I was young and just starting out.

I also want to get bonds out of taxable with this reworking of the portfolio. Thanks for your comments.

WVbaron
Posts: 17
Joined: Sun Apr 30, 2017 2:12 am

Re: 1st time Portfolio Review

Post by WVbaron » Thu Sep 07, 2017 6:49 pm

Duckie wrote:
Thu Sep 07, 2017 6:02 pm
WVbaron wrote:Emergency funds: $50K (checking) / $100K @ 0.02% interest rate (savings) Bank of America
Debt: $135K @ 6.5% / $14.8K @ 6.75% = Total $149.8K
Both loans are from a farm credit where I purchased raw land and built a cabin. The loans are in my name but my parents / I split the monthly mortgage payment as this is a vacation property for us to enjoy.
Your loans are over 6% and your savings are paying 0.02%. Take that $100K and maybe the $50K and pay off those loans. Your parents can pay you instead of splitting the mortgage payments.
Taxable
Vanguard Brokerage account (16% of portfolio)
$18.5K / 25% Vanguard Total Bond Market Index Fund, Admiral shares (VBTLX) (0.05% expense ratio)
$20.8K / 25% Vanguard Total International Stock Index Fund, Admiral shares (VTIAX) (0.11% expense ratio)
$40K / 50% Vanguard Total Stock Market Index Fund, Admiral shares (VTSAX) (0.04% expense ratio)
Taxable bonds don't belong in a taxable account. Put your bond AA in your 401k. FXSTX is an excellent bond fund.
401k @ Fidelity (51% of portfolio)
$116K / 47.2% FID 500 Index INST (large cap), (FXSIX) (0.03% expense ratio)
$39K / 15.7% FID EXT MKT IDX PR (mid cap), (FSEVX) (0.07% expense ratio)
$37K / 15.1% FID INTL Index (Intl), (FSPNX) (0.05% expense ratio)
$33K / 13.5% FID US Bond Index (bond), (FXSTX) (0.03% expense ratio)
$21K / 8.4% Target Retirement 2045 (FXSIX) (0.25% expense ratio)
Holding both individual funds and a balanced fund (FXSIX) is unnecessary. Drop FXSIX. Also, since FSPNX is only developed markets you would be better off skipping this here and putting international in taxable and the Roth IRA.
Roth IRA @ Vanguard (15% of portfolio)
$75K / 100% Vanguard Target Retirement Fund 2045 (VTIVX) (0.16% expense ratio)
This would be better in an individual fund.
Company Pension (17% of portfolio)
$83K / Company makes 7.25% of my annual salary as a contribution each year. I am fully vested and can take contributions any time after I reach the age of 55 (if I retire early) or upon retirement
While the vested amounts are part of your net worth the pension is not part of the portfolio for AA purposes. You have no access to it, no control over it, and can't use it for rebalancing.
I would rather put the $100K in my savings account to much better use. I am thinking about evenly splitting it into the 3 funds in my brokerage account. This would still leave me with $50K in my checking account as an emergency fund and I might ladder some of that into CD’s. Thoughts?
The best use of that $100K is to pay down your over 6% loans.
I would really appreciate feedback about the mix of stock funds vs bonds in my taxable / non taxable accounts. I need to research this more but I have read on this site about having bonds in your tax deferred account and stocks in your taxable. I have stocks and bonds in both my tax deferred and taxable accounts and feel like this isn’t the right approach, even though I am trying to follow the 3 fund portfolio strategy. This question I would appreciate the most feedback on as I know the least about how to go about next steps.
Sell bonds in taxable and put them all in the 401k. Put international at Vanguard. See below.
When I set up my Vanguard brokerage 3 fund portfolio about 2 years ago, I continued to leave my Roth IRA in the target retirement fund. I have been wondering recently if that makes sense or if it should use that as part of the 3 fund strategy?
Move it to individual funds. See below.
I had about 8% of my 401K in company stock. We are in the process of delisting from the NYSE and the company automatically converted that to a target retirement fund. I would like to move the money out of that fund and most likely just spread it into the other 4 funds I have in my 401K. Thoughts? Other ideas?
See below.

You have a desired AA of 85% stocks, 15% bonds (very aggressive for age 37), with 20-25% of stocks in international. I'll go with 25%. That breaks down to 64% US stocks, 21% international stocks, and 15% bonds. You could have:

Taxable at Vanguard -- $79K -- 20%
10% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
10% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

401k at Fidelity -- $246K -- 61%
37% (FXSIX) Fidelity 500 Index Fund Institutional Class (0.03%)
9% (FSEVX) Fidelity Extended Market Index Fund Premium Class (0.07%)
15% (FXSTX) Fidelity U.S. Bond Index Fund Institutional Class (0.03%)

Roth IRA at Vanguard -- $75K -- 19%
8% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
11% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

My comments:
  • This removes the pension from the portfolio.
  • This ignores the tax cost of selling the bond fund in taxable.
  • This puts the international at Vanguard because it's a more complete fund than the 401k option.
  • This puts some of the international in taxable to take advantage of the Foreign tax credit. I'd have made all of taxable VTIAX but I didn't want the tax-hit of selling VTSAX.
  • I would increase the bond AA to at least 25% which would change the other percentages.
Something to think about.
Hi Duckie! A big thank you for your time and effort putting the comments together for me. It is definitely a lot to think about in terms of rebalancing everything.

Your recommended fund mix is very similar to what I want to get my portfolio to look like. I need to get bonds out of taxable and dropping FXSIX makes sense. It's also probably a good time to revisit my overall bond % and look at getting it higher than it is now.

Thanks again for your time and I will continue to work on your feedback.

WVbaron
Posts: 17
Joined: Sun Apr 30, 2017 2:12 am

Re: 1st time Portfolio Review

Post by WVbaron » Tue Sep 12, 2017 4:26 pm

Hi all,

After some additional research and feedback from the forum, I am finalizing the plan below:

* Adjust desired allocation to 80% stock / 20% bonds (Once I hit 40, I will revisit and move somewhere between 75/25 or 70/30)
* Adjust international allocation to 25% of stock holdings
* Take $14.8K from savings and pay off the land loan with a 6.75% interest rate
* Take an additional $75K from savings and put it into my taxable account (I might put additional cash into the other loan to help pay it off early and working my parents on some options, however I feel more comfortable right now putting this money into my taxable account instead of putting it towards the loan.)

With the desired allocations above and adding $75K into the portfolio, it would look like this:

Taxable at Vanguard -- $154K -- 32%
23% -- $110.5K (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
9% -- $43.5K (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

401K at Fidelity -- $246K -- 52%
26% -- $122.5K (FXSIX) Fidelity 500 Index Fund Institutional Class (0.03%)
6% -- $28.5K (FSEVX) Fidelity Extended Market Index Fund Premium Class (0.07%)
20% -- $95K (FXSTX) Fidelity U.S. Bond Index Fund Institutional Class (0.03%)

Roth IRA at Vanguard -- $75K -- 16%
16% -- $75K (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

Contributions

New annual Contributions
$3,700 (3%) + $3,700 (3% company match) 401K
Due to being considered HCE (Highly compensated employee) and our company’s 401K not meeting certain IRS requirements, I am not allowed to contribute more than 3% annually.

$5,500 Roth IRA (backdoor contribution) I do this once a year in May and keep my traditional IRA balance at $0.00.
$41,600 Vanguard Brokerage account. For the past 18 months of so, I have been doing a $1,600 contribution to my Vanguard brokerage account every 2 weeks with my pay.

Questions:
1. Overall feedback on the plan outlined above

2. I am struggling a bit in terms of how I maintain this AA in the long term. I assume that I will need to put my entire 401K contribution into FXSTX to help maintain my AA with the possibility of having to rebalance perhaps twice a year. My annual backdoor Roth IRA contribution would be to VTIAX. I will still have between $3,200 - $4,000 to invest each month into my Taxable account. I can put a small % into VTIAX and most of it into VTSAX. Over the long term with rebalancing, I will end up with most of my Taxable account in VTSAX, 401K in FXSTX, and Roth in VTIAX. I realize this is the 3 fund approach but due to the limits I can make in my 401K, the 3 funds will almost live entirely on their own in separate accounts. I would just like some feedback before I move forward to make sure I am approaching this correctly.

Thanks again for everyone taking the time to read this post and for your comments. This forum is so helpful. Happy Saving!

User avatar
Duckie
Posts: 5088
Joined: Thu Mar 08, 2007 2:55 pm

Re: 1st time Portfolio Review

Post by Duckie » Tue Sep 12, 2017 5:40 pm

WVbaron wrote:* Adjust desired allocation to 80% stock / 20% bonds (Once I hit 40, I will revisit and move somewhere between 75/25 or 70/30)
* Adjust international allocation to 25% of stock holdings
This breaks down to 60% US stocks, 20% international stocks, and 20% bonds.
With the desired allocations above and adding $75K into the portfolio, it would look like this:
You're at 55% US stocks, 25% international stocks, and 20% bonds.
Overall feedback on the plan outlined above
I'd pay down more debt but since you've decided not to, the above plan will work. Your actual AA is off a little from your desired AA, but not much.
I assume that I will need to put my entire 401K contribution into FXSTX to help maintain my AA with the possibility of having to rebalance perhaps twice a year.
Correct.
I would just like some feedback before I move forward to make sure I am approaching this correctly.
This will work for several years. Eventually you'll need to either put taxable bonds in the Roth IRA or tax-exempt muni bonds in the taxable account.

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