Please help me simplify my portfolio & asset allocation

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Simplify11
Posts: 4
Joined: Thu Jan 11, 2018 12:24 am

Please help me simplify my portfolio & asset allocation

Post by Simplify11 » Sun Jan 21, 2018 8:04 pm

BACKGROUND:
Emergency funds: About 4 years (sitting in online bank earning 1.4%) Trickling a little at a time into brokerage acct (VTSAX & VGTSX)
Debt: Zero (mortgage paid)
Tax Filing Status: Married Filing Jointly (no kids)
Tax Rate: 25%
State of Residence: CA
Age: mid 40s
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 20% of stocks?

QUESTION: Is there a better way to consolidate the portfolio below or is this adequate? I'm a novice investor and would like some advice.
1. Should I keep doing what I'm doing with current employer or not mess around with large cap value, mid cap, small cap, etc?
2. Is it better to allocate future funds into desired asset allocation or should I reshuffle current funds?

I want to be adequately diversified and invest for long term but also want to NOT take unnecessary risk so I'd rather get 6% average returns than lose 50% in case of a major market downturn. Any advice is much appreciated. Thank You!

CURRENT PORTFOLIO:
Cash: 0.8% (not including cash in online bank)
INTL BONDS 1%
US BONDS 10.9%
INTL STOCKS 12.4%
US STOCKS 71.9%
ALTERNATIVES 3%

Portfolio breakdown with funds & Expense Ratios
PAST EMPLOYERS:
PRE-TAX 403B Vanguard Total Bond 0.03% & Vanguard Institutional Index 0.02%
PRE-TAX 457 International Equity Index 0.01%
PRE-TAX 403B Domestic Equity Index 0.005%, International Equity Index 0.01%, Target Fund 2045 0.11%

CURRENT EMPLOYER:
PRE-TAX 403B Fidelity 500 Index 0.03%; FIBAX (Interm. Treasury bond index) 0.06%; Large cap value, 0.05%, Mid cap Index 0.05%; Total Market Index 0.05%; International Index 0.06%

POST-TAX 401A Fidelity US Bond Index 0.14%; Fidelity 500 Index 0.05%, Small Cap Index 0.05%

ROTH IRA: FUSEX (Fidelity 500 Index) 0.09%

VANGUARD:
Traditional IRA VTSAX 0.04%, VGHCX (Healthcare Fund) 0.37%, VWELX (Wellington) 0.25%
Rollover IRA: VBTLX (Total Bond Index) 0.05%, VTSAX 0.04%, VWELX (Wellington) 0.25%, FSIIX (Fidelity International Index) 0.16%
Brokerage Acct: VTSAX 0.04% & VGTSX (total Internal Index) 0.18%

Thanks for reading,
Newbie looking to diversify but simplify

bloom2708
Posts: 3359
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Please help me simplify my portfolio & asset allocation

Post by bloom2708 » Mon Jan 22, 2018 12:21 pm

Welcome.

You have good fund options.

If you start with the 3 fund portfolio: Total US (All the US stocks), Total International (All the Not US stocks) and Total US Bond (All the US bonds)

That would be very good diversification. If the funds held "everything". "All" isn't really every single stock or bond, but it is a good representation of "All".

3 funds is extremely diversified and simple. When you go to buy something new, to add "diversity", you are not. You are just buying more of something you already own. Take your healthcare fund. You buy the Total US market and then Healthcare. Is that more diversity? Nope. You are buying more of the healthcare stocks. Moving away from the cap weighted amount of healthcare stocks you already own.

If you understand this, then you can certainly tilt/buy more of things that are "hot" or "catchy" or sound diversifying. They really aren't.

If you start as that as your baseline and you want to be diversified and simple, stick with the 3 fund portfolio.

What does that mean for your various tax-sheltered containers? Move to Total US, Total International and Total US Bond if you have those funds available. If you don't, then you use one of your other containers to keep the 3 funds in the right proportion.

Sell 500 index, buy Total US index. Sell healthcare, buy Total US

Many will say that 3 funds is not enough. They buy Emerging Markets in International or Small Cap Value in the US. They might already have the Total US market. That is fine. As long as you understand, then you know what you are buying.

We stick with the general 3 fund approach. If you get an itch to buy, then buy more Total US or Total International or Total US Bond.

To me it looks like you have great funds and could move to a 3 fund with little issue. Simple and diversified. Good luck!
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

delamer
Posts: 3622
Joined: Tue Feb 08, 2011 6:13 pm

Re: Please help me simplify my portfolio & asset allocation

Post by delamer » Mon Jan 22, 2018 1:38 pm

“Unnecessary risk” is a subjective term.

That said, a portfolio of nearly 85% stocks is aggressive at your age and for someone who wants to limit the downside.

Take a look at these charts: https://personal.vanguard.com/us/insigh ... llocations

It is so clear that the tradeoff for increased long-term performance (having more stocks) is a lot more volatility. You already know this intuitively, but the charts may help you find your sweet spot.

You are fortunate to have good, low cost investment options. There are books recommended on the site plus information in the wiki that will help you design a simplified portfolio.

Here is the book list: https://www.bogleheads.org/RecommendedReading.php

Here are descriptions of several “lazy” simple portfolios: https://www.bogleheads.org/wiki/Lazy_portfolios

Note that with the portfolios, you can use the funds/ETFs suggested but adjust the weight of each component to your accomodate your preferred risk level. Also, you should implement your portfolio across all your retirement accounts and not try to duplicate it within each account.

inbox788
Posts: 4556
Joined: Thu Mar 15, 2012 5:24 pm

Re: Please help me simplify my portfolio & asset allocation

Post by inbox788 » Mon Jan 22, 2018 8:04 pm

Simplify11 wrote:
Sun Jan 21, 2018 8:04 pm
Emergency funds: About 4 years (sitting in online bank earning 1.4%) Trickling a little at a time into brokerage acct (VTSAX & VGTSX)
Why do you have such a big emergency fund?
Debt: Zero (mortgage paid)
Well done! Now direct all the mortgage payment directly into your investments and it will grow very quickly!
Desired Asset allocation: 70% stocks / 30% bonds
You appear to be at 90/10 or 85/15 currently. Adjusted for your huge emergency fund, you might be close to 70/30. Why not just have a more typical emergency fund and a 70/30 AA?
QUESTION: Is there a better way to consolidate the portfolio below or is this adequate? I'm a novice investor and would like some advice.
1. Should I keep doing what I'm doing with current employer or not mess around with large cap value, mid cap, small cap, etc?
2. Is it better to allocate future funds into desired asset allocation or should I reshuffle current funds?
I'm all for simplicity, and don't know which account your fund are in, but I wouldn't bother with 1% international bonds or 3% alternatives (please elaborate on what they are).
Since you have access to low cost index total us stock funds, there's no need to bother with large/mid/small cap growth/value unless you really want to and have good reason.
I want to be adequately diversified and invest for long term but also want to NOT take unnecessary risk so I'd rather get 6% average returns than lose 50% in case of a major market downturn.
You're not likely to achieve both goals. How much are you willing to lose? Depends on who you listen to, but a 100% portfolio might be expected to return 6%, but carries a 50% or more downside. Your goal of 70/30 should avoid the steep drop, probably around 35% if we had another great recession, but I wouldn't expect it to beat 5% in the long run. We could get lucky, but plan conservatively.

As far as consolidating past with current employer, I don't know if it's better one way or another. I generally like to consolidate things for simplicity, but there may be an advantage keeping the old employer account. For the most part the funds you have have low fees, so almost any of them will do and there isn't any particular incentive to make any big moves. Reduce to fewer funds so it's easier to keep track of things. Making changes and corrections in your tax advantaged accounts is simple, but you might have tax consequences in taxable, so pay more attention to what you put in those.

Simplify11
Posts: 4
Joined: Thu Jan 11, 2018 12:24 am

Re: Please help me simplify my portfolio & asset allocation

Post by Simplify11 » Mon Jan 22, 2018 10:47 pm

Thank you all for your help. Will look into consolidating some of these funds this week.
To answer inbox788:
Why do you have such a big emergency fund? It was a windfall from earlier this year. So maybe just directing this money into brokerage acct and changing the 401K accounts to reflect a higher bond % might be the easiest way around this. I'll have to do more reading to figure out the different bond types as I still don't fully understand the differences between short term, long & interm. or treasury, muni bonds.

Thanks again...I really appreciate all the knowledge here.

armeliusc
Posts: 215
Joined: Wed Dec 21, 2011 9:40 am

Re: Please help me simplify my portfolio & asset allocation

Post by armeliusc » Mon Jan 22, 2018 11:46 pm

As others have stated, if you are looking to simplify, use the Three-Fund Portfolion: Total Stock Market, Total International Stock, and Total Bond. Your desired AA seems reasonable to me.

You seem to have good fund choices to get to 3-Fund portfolios in all of your accounts; Just use the funds corresponding to the components of the 3-fund. Where total stock is not an option, 500 index fund is a close enough approximation. You can go further to try to approximate total stock, but I personally won't bother for the sake of simplicity.

Some of your funds choices seem redundant, for example, why also have Target Fund in 403B, and Wellington in IRA? I'd stick to the 3 fund and probably eliminate also mid and small caps, healthcare fund. Again, that is if the goal is simplicity. If you want to tilt and/or slice-and-dice, that's a different reason, but make sure you know why you want to do that.

I honestly also do not understand the different types of bonds. But I have a simple answer to that: I don't worry about it. I just use Total Bond and be done with it.

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