2018 Portfolio Review

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Agwapijaw
Posts: 49
Joined: Tue Oct 15, 2013 10:27 am

2018 Portfolio Review

Post by Agwapijaw » Fri Apr 20, 2018 10:46 am

Emergency funds: 6 months
Debt: 191K 3.55% Home loan. Year 8 of 30.
Tax Filing Status: Married Filing Jointly.
Tax Rate: Effective rate 11% (25% bracket)
State of Residence: VA
Age:34
Desired Asset allocation: 80% stocks / 20% bonds / (open to a REIT tilt)
Current retirement assets (Total size mid 6 figures)

His Taxable
14% company stock (Averaging solid returns for past 5 years.)
His 401k
47% VTRLX Vanguard 2050 Retirement ER 0.09%
His Roth IRA at Vanguard
16% VTIVX Vanguard 2040 Retirement ER 0.15%
Her 401k
12% TRPDX Trowe 2040 Retirement ER 0.59%
Her Roth IRA at TRowe
11% TRRMX Trowe 2050 Retirement ER 0.74%

New annual Contributions
$27,500 his 401k (Includes Match and profit share)
$10,380 her 401k (Includes Match and profit share) (plan to max out within 2 years)
$5,500 his Roth IRA
$5,500 her Roth IRA
$20K his taxable via company stock/grants

Available funds funds available in his 401(k)
American Funds EuroPacific Growth R6 RERGX 0.5
Carillon Eagle Small Cap Growth Fund R6 HSRUX 0.66
Goldman Sachs Small Cap Value Inst GSSIX 0.95
JPMorgan Mid Cap Value L FLMVX 0.75
MainStay Large Cap Growth R6 MLRSX 0.63
MassMutual Select Mid Cap Gr Eq II I MEFZX 0.72
Metropolitan West Total Return Bond Fd MWTSX 0.38
MFS Value R6 MEIKX 0.49
Vanguard Extended Market Idx Adm VEXAX 0.08
Vanguard Target Retirement Funds 0.09
Vanguard Total Intl Stock Index Adm VTIAX 0.11
Vanguard Total Bond Market Index Adm VBTLX 0.05
Blackrock S&P 500 0.03
Wells Fargo Stable Value Fund (30)

Funds available in her 401(k)
American Funds American Balanced Fund (R6) RLBGX 0.28
BlackRock Infla. Protected Bond Fund (K) BPLBX 0.34
DFA US Targeted Value Portfolio (I) DFFVX 0.37
DFA World ex US Govt. Fix. Inc. Portfolio (I) DWFIX 0.2
Dodge & Cox Income Fund DODIX 0.43
Fidelity Real Estate Investment Portfolio FRESX 0.76
Hartford MidCap Fund (R6) HFMVX 0.76
Ivy International Core Equity Fund (N) IINCX 0.78
JPMorgan US Small Company Fund (R6) JUSMX 0.72
Lord Abbett High Yield Fund (R6) LHYVX 0.6
MFS Mid Cap Value Fund (R6) MVCKX 0.71
Oppenheimer Developing Markets Fund (I) ODVIX 0.88
T. Rowe Price Blue Chip Growth Fund (I) TBCIX 0.58
T. Rowe Price New Horizons Fund (I) PRJIX 0.65
T. Rowe Price Retirement I Funds
Vanguard Equity Income Fund (Adm) VEIRX 0.17
Vanguard Intermed. Term Treasury Fund (Adm) VFIUX 0.1
Vanguard Mid-Cap Index Fund (Adm) VIMAX 0.06
Vanguard 500 Index Fund (Adm) VFIAX 0.04
Wells Fargo Stable Value Fund (30)

Goals:

Financial independence by age 45 (11 years.) (ability to refocus on lower/potentially no income jobs) Baring a medical issue, I don't currently have plans to ever retire... but would like to travel more in my 40s and 50s.

Questions:

1. While I have benefited from my stock/equity benefits, I believe it might be time to divest and move to a more diversified risk like an index fund. My concern is selling a significant amount at once will bring my income out of the limits for our Roths. What is a good work around here? Stock performance has been better than total market funds; however, risk is a factor. Do I chunk out a bit a year? Do I mess around with a back door?

2. Is there an online tool to test the what ifs? EG: What if I was on the fund allocation vs my current over the past 5 years, 10 years.. etc? I know I
can build one with excel and yahoo data; but I wanted to see if there was something that looked nicer out there.

3. Taking into account my shifting my company stock to indexed funds what is the optimal way to balance the accounts? Should I retain the simplicity of the target funds? Moving my company stock to VTSAX in taxable would end up over allocating me to equities though. How would you balance with the funds available? Would aligning to something along the below make sense (reallocation every August?)

64% US / 16% Int / 20% Bonds
Taxable -
14% VTSAX Vanguard Total Stock Market Index Fund Admiral 0.04
His 401K
15% VBTLX Vanguard Total Bond Market Index Admiral ER .05
17% BlackRock S&P 500 Index CIT N ER 0.03
16% VTIAX Vanguard Total Intl Stock Index Adm ER 0.11
His Roth
16% VTSAX Vanguard Total Stock Market Index Fund Admiral ER 0.04
Her 401K
5% VFIAX Vanguard 500 Index Fund (Adm) ER .04
5% PRJIX T. Rowe Price New Horizons Fund (I) ER .65 (small cap exposure for the 22% of the port in 500 funds)
Her Roth (she likes T Rowe; but is open to move, this would place her in Vanguard)
7% VTSAX Vanguard Total Stock Market Index Fund Admiral 0.04
5% VBTLX Vanguard Total Bond Market Index Admiral ER .05


I look forward to discussing.

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FiveK
Posts: 5396
Joined: Sun Mar 16, 2014 2:43 pm

Re: 2018 Portfolio Review

Post by FiveK » Fri Apr 20, 2018 11:52 am

Agwapijaw wrote:
Fri Apr 20, 2018 10:46 am
Questions:
1. My concern is selling a significant amount at once will bring my income out of the limits for our Roths. ... Do I mess around with a back door?

2. Is there an online tool to test the what ifs?

3. Would aligning to something along the below make sense...?
1. A Backdoor Roth IRA takes minimal effort and should work well for you.

2. See Portfolio simulation tools - Bogleheads.org for several suggestions. Of course, past performance is no guarantee....

3. That is a reasonable set of funds, which is the best one can do without benefit of hindsight. Good luck!

Agwapijaw
Posts: 49
Joined: Tue Oct 15, 2013 10:27 am

Re: 2018 Portfolio Review

Post by Agwapijaw » Fri Apr 20, 2018 12:49 pm

FiveK,

Thanks for confirming the backdoor route. I searched the wrong forum I guess on the tools... these look great to get some sense of alignment.
On the fund layout I have in the post is there anything you would change? Anything I should look out for?

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FiveK
Posts: 5396
Joined: Sun Mar 16, 2014 2:43 pm

Re: 2018 Portfolio Review

Post by FiveK » Fri Apr 20, 2018 1:25 pm

Agwapijaw wrote:
Fri Apr 20, 2018 12:49 pm
On the fund layout I have in the post is there anything you would change? Anything I should look out for?
I might pick different ones, or not. I didn't do an exhaustive study of the options, but did look at your choices and they look reasonable. At some point it's similar to "which of Baskin-Robbins' 31 flavors do you prefer?" I.e., a matter of taste....

The .65 ER on PRJIX stands out, but historically that fund's results have justified it. There are a few percent of actively managed funds that do outperform indices, so who knows? - maybe this one will continue to do so. Or not. At 5% of your assets it won't have a huge impact either way, so leaving it there is not unreasonable.

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Duckie
Posts: 5891
Joined: Thu Mar 08, 2007 2:55 pm

Re: 2018 Portfolio Review

Post by Duckie » Fri Apr 20, 2018 6:03 pm

Agwapijaw wrote:Is there an online tool to test the what ifs? EG: What if I was on the fund allocation vs my current over the past 5 years, 10 years.. etc? I know I can build one with excel and yahoo data; but I wanted to see if there was something that looked nicer out there.
Try Backtest Portfolio Asset Allocation.
Her 401K
5% VFIAX Vanguard 500 Index Fund (Adm) ER .04
5% PRJIX T. Rowe Price New Horizons Fund (I) ER .65 (small cap exposure for the 22% of the port in 500 funds)
Instead of using PRJIX in her 401k you could use VEXAX in his 401k. It's a lot cheaper and is designed to complement the 500 Index at an 80/20 ratio.
Her Roth (she likes T Rowe; but is open to move, this would place her in Vanguard)
7% VTSAX Vanguard Total Stock Market Index Fund Admiral 0.04
5% VBTLX Vanguard Total Bond Market Index Admiral ER .05
In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free.
Taking into account my shifting my company stock to indexed funds what is the optimal way to balance the accounts?
Use his 401k for the majority of rebalancing.
Should I retain the simplicity of the target funds?
Not once you have a taxable account for retirement purposes.
Moving my company stock to VTSAX in taxable would end up over allocating me to equities though. How would you balance with the funds available?
With an AA of 64/16/20 you could have:

Taxable at Vanguard -- 14%
14% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

His 401k -- 48%
17% (N/A) BlackRock S&P 500 Index CIT (0.03%)
7% (VEXAX) Vanguard Extended Market Index Fund Admiral Shares (0.08%)
4% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)
20% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

Her 401k -- 10%
10% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

His Roth IRA at Vanguard -- 16%
16% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Her Roth IRA at Vanguard -- 12%
12% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

Just some possibilities.
Last edited by Duckie on Thu Jun 14, 2018 6:06 pm, edited 1 time in total.

pingo
Posts: 2594
Joined: Sat Sep 19, 2009 8:24 pm

Re: 2018 Portfolio Review

Post by pingo » Fri Apr 20, 2018 6:23 pm

I love your portfolio funds just the way they are. Purists will see the opportunity for lower costs. However, think weighted ER, which currently is 0.23% and shrinking. That's pretty darn good.

What concerns me is the company stock. I'll forgive your current holding that is 14% of the whole portfolio (more than most would be comfortable with), but I don't care to see it move to 20% or more over the years.

If the company stock contributions are a gift, I guess that's cool.

If any of the company stock contributions come out of your paycheck, you should either:

a. Stop saving after-tax money into company stock and increase savings to Her 401k by an equivalent amount (tax-adjusted); or,
b. See if His 401k allows you to save after-tax money into plan funds and withdraw the money on any kind of a regular basis. If so, you can take advantage of what we affectionately call The Mega Backdoor Roth IRA.

Some other reading re: Mega Backdoor Roth:

Bogleheads.org Wiki After-Tax 401(k)

The Finance Buff: The Elusive Mega Backdoor Roth IRA


How soon are you able to sell company stock after receiving it? That would reduce the resulting taxation from stock growth. Another way to soften the blow of selling taxable stock: max out Her 401k to ramp up tax savings. If maxing Her 401k means you can't buy groceries, make sure you sell enough company stock, after taxes, to compensate for the difference in take home pay.

The fungibility of money allows you to basically shift/move the placement of your assets with little-to-no tax impact, and maybe you'll obtain tax benefit from it.

Agwapijaw
Posts: 49
Joined: Tue Oct 15, 2013 10:27 am

Re: 2018 Portfolio Review

Post by Agwapijaw » Sat Apr 21, 2018 6:59 am

Duckie wrote:
Fri Apr 20, 2018 6:03 pm
Try Backtest Portfolio Asset Allocation.
I've had a lot of fun with this tool. I've been playing with it since FiveK linked the post. Thanks for confirming the viability of the tool! It is a good way to show potential with the knowledge that the past does not always show what the future will be.
Instead of using PRJIX in her 401k you could use VEXAX in his 401k. It's a lot cheaper and is designed to complement the 500 Index at an 80/20 ratio.
Everything I've read about PRJIX is that it is a very strong and well performing fund that poses as a small cap growth; however, includes a fair amount of mid cap as well. That said, I will look into this.
In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already the paid the taxes in the Roth accounts so future growth is tax-free.
I didn't even think about this, but this makes a lot of sense. The original plan was to try to include some bonds in her side of the port; however, her 401k bond options were not great. She is much more risk adverse than I. That said, its a total picture here so I should be able to sell it at such and pivot on my 401k as the rebalance account. For simplicity.

Agwapijaw
Posts: 49
Joined: Tue Oct 15, 2013 10:27 am

Re: 2018 Portfolio Review

Post by Agwapijaw » Sat Apr 21, 2018 7:19 am

pingo wrote:
Fri Apr 20, 2018 6:23 pm
What concerns me is the company stock. I'll forgive your current holding that is 14% of the whole portfolio (more than most would be comfortable with), but I don't care to see it move to 20% or more over the years.

How soon are you able to sell company stock after receiving it? That would reduce the resulting taxation from stock growth. Another way to soften the blow of selling taxable stock: max out Her 401k to ramp up tax savings. If maxing Her 401k means you can't buy groceries, make sure you sell enough company stock, after taxes, to compensate for the difference in take home pay.
Its a spilt between discounted purchases on the paycheck and grants. There is a year long cool off and a vesting period on the grants. It concerns me as well; however, its difficult to walk away from. The stock has performed nearly 20% a year over the past 20 years with only a few down years. I get that things could change quickly and the need for diversification.
a. Stop saving after-tax money into company stock and increase savings to Her 401k by an equivalent amount (tax-adjusted); or,
b. See if His 401k allows you to save after-tax money into plan funds and withdraw the money on any kind of a regular basis. If so, you can take advantage of what we affectionately call The Mega Backdoor Roth IRA.
We are ramping up her 401k. I'll review that strategy as well.

Starting to lean toward this based on the responses. Simplifies it all a bit.
65% US / 15% Int / 20% Bonds
Taxable -
7% VTSAX Vanguard Total Stock Market Index Fund Admiral 0.04
7% Company Stock Tilt? (would I be crazy for keeping a small percent)
His 401K (all rebalancing will be done in this account)
20% VBTLX Vanguard Total Bond Market Index Admiral ER .05
13% BlackRock S&P 500 Index CIT N ER 0.03
15% VTIAX Vanguard Total Intl Stock Index Adm ER 0.11 (debating dropping int to 10% and S&P to 18% After all US companies are global now)
His Roth
16% VTSAX Vanguard Total Stock Market Index Fund Admiral ER 0.04
Her 401K
5% VFIAX Vanguard 500 Index Fund (Adm) ER .04
5% PRJIX T. Rowe Price New Horizons Fund (I) ER .65 (small/mid cap exposure for the 17% of the port in 500 funds)
Her Roth (Move to Vanguard)
12% VTSAX Vanguard Total Stock Market Index Fund Admiral 0.04

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