My 1st portfolio questions

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Sab3699
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Joined: Wed Jan 03, 2018 12:24 pm

My 1st portfolio questions

Post by Sab3699 » Wed Mar 21, 2018 11:21 pm

Good evening Bogleheads!

I have posted some questions before, but here is my 1st portfolio questions. Just some background - I have been working for 6.5 years now and have been able to max contribute to a roth IRA for the 1st 6 years. This was done through a custodian. Mid 2017 I changed jobs with a major increase in salary. I was able to max out my 2017 401k and had to recharacterize my 2017 roth IRA contributions to a traditional IRA. After reading the bogleheads book and encouragement from this forum, I moved the Roth IRA account from my parents custodian to Vanguard to manage myself. Also I live in NYC and have approximately 3k monthly rent and high NY state and city taxes. Below is my current portfolio:

Emergency funds: 50% complete
Debt: Car Loan - 4.5% - 25.4k to payoff
Tax Filing Status: Single
Tax Rate: 35% Federal, 6.85% State, 3.87% City
State of Residence: NY
Age: 33
Desired Asset allocation: 80% stocks / 20% bonds

Current retirement assets - Approximately 50k total

Employer 401k
3.7% - Capital World Bond R4 (RCWEX) (0.89) 
5.4% - Oppenheimer Main St Fund (MSIGX) (0.94)
8.1% - Growth Fund of America (RGAEX) (0.68)
8.1% - Oppenheimer Main St Mid Cap (OPMSX) (1.11)
3.9% - Invest Small Cap Discovery (VASCX) (1.4)
9.7% - Oppenheimer Global A (OPPAX) (1.15)

Company match - None 1st year - Varies afterwards

Roth IRA at Vanguard
16.8% Vanguard S&P 500 ETF (VOO) (0.04) - 9.9k
10.7% Vanguard Total Bond Market ETF (BND) (0.04) - 6.3k
10.7% Vanguard Total INTL Stock ETF (VXUS) (0.11) - 6
10.7% Vanguard Total Stock Market ETF (VTI) (0.04)
1.7% Money Market Settlement Fund

Traditional IRA at Vanguard
9.8% Vanguard Total Stock Market ETF (VTI) (0.04) - Will backdoor this to the Roth account this month


2018 Planned Contributions 
$18.5k to Employer 401k (plus any match) 
$5.5k to traditional IRA with plan to backdoor to Roth

2018 Goal:
- Max 401k and tIRA with roth backdoor
- Complete emergency fund
- Refinance Car Loan to lower rate

2019 Goal:
- Max 401k and tIRA with roth backdoor
- Payoff majority of carloan
- Begin some non retirement investing

Questions:
1. After putting this together, I realize how astronomical some of the expense ratios are in the 401k. Other things available are not much better. The ones that caught my eye are JP Morgan target retirement funds. I am thinking of moving all of the 401k except the the Growth Fund of America to the JP Morgan Smart Retire 2055 fund (JFFAX) (0.89%). What are opinions on these funds and is it worth it to make this change?

2. Does anyone have any criticism over current goals/strategy, especially taking into account the tax bracket and high state tax?

3. I do at some point want to consider buying a condo (will be at least 850k) but monthly maintenance fees and taxes have kept me away when I realize that so much of the monthly expense are still dead money. Any thoughts on this, especially with the new tax laws regarding claiming state tax?

Any other advice would be greatly appreciated!

Thanks!

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mhadden1
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Location: North Alabama

Re: My 1st portfolio questions

Post by mhadden1 » Wed Mar 21, 2018 11:45 pm

Sab3699 wrote:
Wed Mar 21, 2018 11:21 pm
I am thinking of moving all of the 401k except the the Growth Fund of America to the JP Morgan Smart Retire 2055 fund (JFFAX) (0.89%). What are opinions on these funds and is it worth it to make this change?
Of the funds you are in, Growth Fund of America is not a bad fund- although the ER is high, it may be your best 401k choice. Did you post a list with your choices? For a long while it was also my best 401k alternative, until my employer helpfully added a very low cost Vanguard S&P 500 fund. :happy
My 401k also offered the JPM target date funds, but like yours they were too expensive to be desirable. I would grit my teeth, hold my nose and go with all GFA in the 401k. For a while you should have enough room in your Vanguard account to flesh out the rest of your AA. After that - maybe your employer will add good low-cost choices to your 401k. You should ask! Try to get Vanguard Total Stock Market, Total Bond Market, and Total International - or the equivalents from other companies.
Last edited by mhadden1 on Wed Mar 21, 2018 11:47 pm, edited 1 time in total.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

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StormShadow
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Re: My 1st portfolio questions

Post by StormShadow » Wed Mar 21, 2018 11:45 pm

What I'd do:

1. Pay off the car.
2. Finish out your emergency fund.
3. Contribute to 401k to the match (if available). Put it into the lowest ER without loads (looks like RGAEX).
4. Max out your IRA.
5. Max out your remaining 401k (again, I'd put it ALL into the fund with the lowest ER). Adjust your IRA holdings according to your overall portfolio.
6. Invest in taxable.

Personally I wouldn't bother to buy a place in NYC, particularly if single without a family. Invest what you would be saving for a down payment.

Sab3699
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Re: My 1st portfolio questions

Post by Sab3699 » Thu Mar 22, 2018 5:35 am

mhadden1 wrote:
Wed Mar 21, 2018 11:45 pm
Sab3699 wrote:
Wed Mar 21, 2018 11:21 pm
I am thinking of moving all of the 401k except the the Growth Fund of America to the JP Morgan Smart Retire 2055 fund (JFFAX) (0.89%). What are opinions on these funds and is it worth it to make this change?
Did you post a list with your choices?
This is whats avaialable

JP MORGAN SMARTRETIRE TGT 2055 - JFFAX (0.89)
TFLIC GUARANTEED POOLED FD NEW (0.25)
INTERMEDIATE BOND FUND - RBOEX (0.62)
JP MORGAN GOV'T BOND - OGGAX (.75)
BLACKROCK INFLATION PROTECTED - BPRAX (0.6)
CAPITAL WORLD BOND R4 - RCWEX (0.89)
BLACKROCK HIGH YLD BOND INV A - BHYAX (.93)
AMERICAN FUNDS BALANCED - RLBEX (.63)
AMERICAN MUTUAL FUND R4 - RMFEX (.64)
CLEARBRIDGE LARGE CAP VALUE - SINAX (.89)
BLACKROCK EQUITY INDEX - 012CF (.29)
Oppenheimer Main Street Fund - MSIGX (.94)
AMERICAN FUND AMCAP - RAFEX (.72)
AMERICAN FUNDS NEW ECONOMY - RNGEX (.81)
GROWTH FUND OF AMERICA - RGAEX (.68)
OPPENHEIMER CAPITAL APPREC - OPTFX (1.07)
OPPEN MAIN STREET MID-CAP - OPMSX (1.11)
COLUMBIA MID CAP GROWTH A - CBSAX (1.18)
INVESCO SMALL CAP DISCOVERY - VASCX (1.4)
OPPENHEIMER GLOBAL A - OPPAX (1.15)
AM FUNDS EUROPACIFIC GROWTH - REREX (.85)
OPPENHEIMER DEVELOPING MARKETS - ODMAX (1.32)
INVESCO REAL ESTATE FUND - IARAX (1.24)
FIDELITY HEALTH CARE - FACDX (1.04)
BLACKROCK NATURAL RESOURCE - MDGRX (1.13)


Thanks for your responses!

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mhadden1
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Location: North Alabama

Re: My 1st portfolio questions

Post by mhadden1 » Thu Mar 22, 2018 7:51 am

Looks like BLACKROCK EQUITY INDEX could be the best of the sad 401k choices, if it is similar an S&P 500/Total Stock Market fund. You can look at the prospectus and see which index it follows to find out.

More than ever I am grateful that my employer, over time, added some great low cost index fund choices to my 401k options.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

ivk5
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Re: My 1st portfolio questions

Post by ivk5 » Thu Mar 22, 2018 8:39 am

BLACKROCK EQUITY INDEX appears to be an S&P 500 index fund and I agree with mhadden1 that that's the one to use for equities in the 401k. In principle you can use the Extended Market fund/ETF in Roth (at roughly 1:4 ratio with S&P 500) to make the position truly mimic total US market. I'd suggest skipping this for now - trade some tracking error for simplicity - and consider adding as a future refinement when you get a bit more comfortable with all this (including rebalancing).

TFLIC GUARANTEED POOLED FD NEW looks like a stable value fund. Find out what rate it's paying. You want to try not to waste valuable Roth space on fixed income if possible. I'd go for a decent SVF in the 401k over bonds in Roth, but for purposes of illustration below, I pessimistically assume it's not a good rate and show bonds in Roth. If that's the way you go, I'd move bonds to taxable once you get that going (using munis if tax-equivalent yield makes sense at the time - just watch duration and single-state risk). Debatable between taxable and traditional for someone with high marginal tax rate (WhiteCoatInvestor has a good post with the math), but taxable vs Roth is a no-brainer to me due to opportunity cost.

What is desired int'l allocation as % of equities? There are different views ranging from 0 to 50%. I use 30% in example below - a moderate home country bias relative to global market cap.

Assuming int'l target is 30% of equities, you could have 56% US equities / 24% non-US equities / 20% bonds, and distribution could be something like the following (after converting your tIRA to Roth; percentages rounded since original ones didn't quite foot):

Employer 401k
39% - Blackrock Equity Index - 012CF (.29)

Roth IRA at Vanguard
20% Vanguard Total Bond Market ETF (BND) (0.04)
24% Vanguard Total INTL Stock ETF (VXUS) (0.11)
17% Vanguard Total Stock Market ETF (VTI) (0.04) -- no need to have VOO in addition to VTI

As to your other questions:
Sab3699 wrote:
Wed Mar 21, 2018 11:21 pm
2. Does anyone have any criticism over current goals/strategy, especially taking into account the tax bracket and high state tax?
Goals seem reasonable. I assume by "non-retirement investing" you mean investing in non-tax-advantaged aka "taxable" accounts, but still investing for retirement or other long-term goals.
Sab3699 wrote:
Wed Mar 21, 2018 11:21 pm
3. I do at some point want to consider buying a condo (will be at least 850k) but monthly maintenance fees and taxes have kept me away when I realize that so much of the monthly expense are still dead money. Any thoughts on this, especially with the new tax laws regarding claiming state tax?
I agree with StormShadow that I personally wouldn't buy in NY as a single person, and didn't despite living there for ~6 years before getting married and another ~3 before our son was born. I needed and valued agility. But that's a highly personal decision that depends a lot on your future plans/expectations etc. Try plugging some numbers into the NYT rent vs buy calculator.
Last edited by ivk5 on Thu Mar 22, 2018 8:55 am, edited 3 times in total.

silverex
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Re: My 1st portfolio questions

Post by silverex » Thu Mar 22, 2018 8:40 am

BLACKROCK EQUITY INDEX - 012CF (.29) - looks like it's S&P 500 index, and is a cheapest option, I'd go with it.

ivk5
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Joined: Thu Sep 22, 2016 9:05 am

Re: My 1st portfolio questions

Post by ivk5 » Thu Mar 22, 2018 9:02 am

By the way, out of curiosity, what does a single person in NYC need a car for? 3k in rent means you're probably not in, say, Canarsie...

Sab3699
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Re: My 1st portfolio questions

Post by Sab3699 » Thu Mar 22, 2018 9:39 am

ivk5 wrote:
Thu Mar 22, 2018 9:02 am
By the way, out of curiosity, what does a single person in NYC need a car for? 3k in rent means you're probably not in, say, Canarsie...
I live in manhattan and work in an area in queens where public transportation takes too long

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ruralavalon
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Location: Illinois

Re: My 1st portfolio questions

Post by ruralavalon » Thu Mar 22, 2018 10:55 am

Asset allocation.
In my opinion your desired asset allocation of 80/20 is within the range of what is reasonable for age 33.

I suggest around 20-30% of stocks in international stocks. Historically 20% of stocks in international stocks would have captured about 85% of the maximum diversification benefit, and 30% of stocks in international stocks would have captured about 99% of the maximum diversification benefit. For a pdf of a Vanguard paper on the subject Google "Considerations for Investing in Non-U.S Equities", see pp. 5-6.

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks.


Fund selection.
In selecting funds strive for a combination of broad diversification (to decrease your risk) and low expense ratios (to increase your net return. to simply and easily achieve both I suggest a three-fund type portfolio. Please see the wiki article "Three-fund Portfolio" and the forum discussion "The Three-fund Portfolio".

For domestic stocks I prefer a total stock market index fund if available. If not then an S&P 500 index fund (such as BlackRock Equity Index Fund in your 401k) is good enough for domestic stocks. In the 25 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Historically there has been little benefit to adding small-cap stocks to what is
included in the S&P 500.



Example portfolio.
Here is an example portfolio which you could consider. Total current portfolio = about $50k. New annual contributions = $ 24k. Asset allocation is 20% bonds, 20% international stocks, and 60% domestic stocks. The percentages are percentages of the total portfolio, not percentages of any particular account. Sometimes I indicate 00% to indicate funds you might want to add in the future. The idea is to switch both the current balances and future contributions to the funds indicated. All percentages are rounded off.

401k (39% of total; adds $18.5k year + match)
39%, BlackRock Equity Index Fund (S&P 500 index fund), ER 0.29%
00%, American Funds Intermediate Bond Fund of America R4 (RBOEX) ER 0.62%

Roth IRA @ Vanguard, includes ex-traditional IRA (61% of total; adds $5.5k/year)
21%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
20%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%
20%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%

. . . . .

I suggest that you read one or two books on general investing. Please see the wiki article "Books: Recommendations and Reviews".

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

MJW
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Re: My 1st portfolio questions

Post by MJW » Thu Mar 22, 2018 11:06 am

I know the recommendation is to keep the bulk of bond holdings in the 401(k), but the 0.62% expense ratio on a bond fund...ugh.

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ruralavalon
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Re: My 1st portfolio questions

Post by ruralavalon » Thu Mar 22, 2018 11:55 am

MJW wrote:
Thu Mar 22, 2018 11:06 am
I know the recommendation is to keep the bulk of bond holdings in the 401(k), but the 0.62% expense ratio on a bond fund...ugh.
The expense ratio of 0.62% for American Funds Intermediate Bond Fund in the 401k is higher than I like, but not too high to use.

I mentioned that for possible future use because over 74% of ongoing contributions will be going in to the 401k, so Sab3699 may eventually need to use something besides the S&P 500 index fund in the 401k.

American Funds Intermediate Bond Fund of America (RBOEX) ER 0.62% is a safe, actively managed, short-term bond fund with good credit quality, average effective duration = 3.11 years, average credit quality = AA.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Sab3699
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Re: My 1st portfolio questions

Post by Sab3699 » Thu Mar 22, 2018 12:43 pm

ruralavalon wrote:
Thu Mar 22, 2018 10:55 am
Asset allocation.

Roth IRA @ Vanguard, includes ex-traditional IRA (61% of total; adds $5.5k/year)
21%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
20%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%
20%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%
Thank you everyone for the advice and ideas. Ill plan to move my 401k holdings into the Blackrock funds but out of Curiosity, Why change the Vanguard ETFs that I have now to the equivalent mutual funds.

Thanks

Sab3699
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Joined: Wed Jan 03, 2018 12:24 pm

Re: My 1st portfolio questions

Post by Sab3699 » Thu Mar 22, 2018 6:37 pm

ruralavalon wrote:
Thu Mar 22, 2018 10:55 am
Asset allocation.

Roth IRA @ Vanguard, includes ex-traditional IRA (61% of total; adds $5.5k/year)
21%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
20%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%
20%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%
Comparing Vanguard Admiral Class Mutual Fund Shares to ETFs
When considering the Admiral shares of the Vanguard 500 Index, the decision between the mutual fund and ETF changes. This fund's expense ratio is 0.05%, which is identical to the ETF's expense ratio. This makes the mutual fund just as advantageous as the ETF for long-term buy-and-hold investors. Only investors who trade throughout the day would find the ETF more desirable. Investors who want to trade but are comfortable with the once-a-day pricing of mutual funds are likely to find that product more beneficial, since there would be no transaction fees involved if they are traded through Vanguard directly.



I found this on Investopedia, anyone have any thoughts or another thread on this?

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ruralavalon
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Re: My 1st portfolio questions

Post by ruralavalon » Fri Mar 23, 2018 7:33 am

Sab3699 wrote:
Thu Mar 22, 2018 12:43 pm
ruralavalon wrote:
Thu Mar 22, 2018 10:55 am
Asset allocation.

Roth IRA @ Vanguard, includes ex-traditional IRA (61% of total; adds $5.5k/year)
21%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
20%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%
20%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%
Thank you everyone for the advice and ideas. Ill plan to move my 401k holdings into the Blackrock funds but out of Curiosity, Why change the Vanguard ETFs that I have now to the equivalent mutual funds.

Thanks
You can buy fractional shares. Therefore it is easy to set up automatic investment, it is easy to set up automatic reinvestment of dividends and gains, and it's easier to rebalance.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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