How best to (re)balance portfolio?

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Posts: 590
Joined: Wed Nov 04, 2009 9:45 am

How best to (re)balance portfolio?

Post by masteraleph » Mon Nov 13, 2017 11:57 am

Emergency funds: 6 months
Debt: None
Tax Filing Status: MFJ
Tax Rate: 15% Federal, 10.041% State (NYS+NYC)- Taxable income of ~$87000
State of Residence: NYS/NYC
Age: me- 33, wife- 30, daughter- 2
Desired Asset allocation: 67.5% stocks (42.5% US, 25% International), 25% bonds, 7.5% real estate
Desired International allocation: 25% of total portfolio
Total Retirement Assets: ~$453,000

Retirement Assets:

His 401k, from Voya:
*34.9% Vanguard 500 Index Admiral- VFIAX (.54%)
*1.7% Vanguard Mid Cap Index Fund- VIMAX (.56%)
*6.3% Vanguard Small Cap Admiral Index Fund- VSMAX (.56%)
Other reasonable funds in the 401k that I don't hold:
*Voya Index Solution Portfolio funds 2020-2060 and Solution Income Portfolio- ERs from .67%-.70%
*Voya Intermediate Bond Fund R6- ER of .81%
*There are no international, bond, or real estate investments with an ER under 1.1%.

His 403b, from TIAA (employer has closed, so no new contributions- could be rolled over):
*9.1% TIAA Traditional GSRA (yielding 3%)
*7.0% TIAA Real Estate

His Roth IRA, with Vanguard:
13.5% Vanguard Total Bond Market Index Admiral- VBTLX 0.05%
6.6% Vanguard Total International Index Admiral- VTIAX 0.11%

Her Roth IRA, with Vanguard:
15.5% Vanguard Total International Index Admiral- VTIAX 0.11%

His HSA, with Payflex (could be moved somewhere else; closed to new contributions because I don't have an HDHP at the moment):
4.4% Vanguard Developed Markets Index Admiral- VTMGX .07%
1% Vanguard Emerging Markets Index Admiral- VEMAX .14%

Total breakdown:
US Stock- 42.9%
International Stock- 27.5%
Fixed Income- 22.6%
Real Estate- 7.0%

With the accounts that we can currently contribute to, contributions for 2018 will be:

$5500- His Roth IRA
$5500- Her Roth IRA
$18500- His 401k
$6700- His Employer contribution to 401k (December 2017)/$8600 His employer contribution (December 2018)

As you can see, international stock is starting to drift higher and fixed income is starting to drift lower. That can be compensated for (shift some international to bond in the Roth IRAs), but US stock is also drifting higher due to new investments (I intentionally underweighted it a bit at the beginning of this year, at about 40.5%, because of the new 401k contributions). That's not possible to compensate for using the investments we currently are in. The main options that I see right now are:

1) As necessary, start putting some 401k contributions into the intermediate bond fund, despite the higher expense ratio.
2) Use something like the Voya Solution Income Portfolio, which has a significant weighting of bonds and a cheaper ER. Try to balance it out in other accounts.
3) Actually reallocate so that all bonds are in the 401k. That would be a higher expense ratio, but it would put some US Stock into the Roth IRA, where gains will never be taxed, and Bonds into the 401k, where their likely lower gains would therefore be taxed less.

Any advice/recommendations? Does any of those sound better? Any better options out there?

Posts: 2557
Joined: Tue Apr 19, 2016 10:55 am

Re: How best to (re)balance portfolio?

Post by mega317 » Mon Nov 13, 2017 5:04 pm

First of all, I don't know your history but to have 450k in retirement at age 33 with your income is admirable. Nice work.

All of your proposals are decent options, I don't think it matters very much. I would probably do all bonds in the 401k because I value simplicity, I will (hopefully) have large RMDs, and will be in a higher bracket than you. I would NOT do option #2, too much math in my opinion to mix target funds and individual funds.

You could also just accept that you're a few % off of your targets and do nothing, and direct new contributions at your desired ratios.

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