Portfolio help

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zguy
Posts: 7
Joined: Wed May 16, 2018 4:03 pm

Portfolio help

Post by zguy » Tue May 22, 2018 9:05 am

I'm in the midst of transferring assets to Vanguard and taking this time to look at our overall investment picture. Wanted to run it by this board to see if I am on the right track and making smart choices.

Emergency funds: ~200k in HYS (EF + downpayment for house upgrade in the hopefully near term)
Debt: 30 yr. mortgage, 180k left @ 4.25%
Tax Filing Status: (Married Filing Jointly)
Tax Rate: 24% Federal, 6% State
State of Residence: NJ
Age: me 33, wife 32, + 6 month old
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 15-20% of stocks

Current retirement assets
~250k

Taxable
No taxable account currently

His 401k at small company, 3% company match regardless of contribution,
23%, State Street S&P 500 Index Securities Lending Series Fund - Class IX, no ticker, ER 0.70

Everything at Vanguard is currently sitting in settlement or waiting for completed transfer

His proposed Roth IRA at Vanguard
23% Total Stock Market (VTSAX)
7% Total International (VTIAX)
5% Total Bond (VBTLX)

Her proposed 401k at Megacorp, 6% matching, no tickers
4% S&P 500 Index Fund 0.04
3% Russell Small Cap Index Fund 0.06
3% Megacorp Stock
9% International Developed Markets Index Fund 0.11
6% Intermediate Government Bond Index Fund 0.06
6% Stable Value Option 0.3

Her proposed Roth IRA at Vanguard
8% Total Stock Market (VTSAX)
1.5% Total International (VGTSX)
1.5% Total Bond (VBMFX)

New annual Contributions

maxing both 401k accounts
maxing both traditional IRAs, backdoor roths to follow
maxing HSA

Funds available in his 401(k)
Invesco Stable Asset Fund 1.08
JPMorgan Core Bond Fund - Class R3 (JCBPX) 0.94
Pioneer Bond Fund - Class A (PIOBX) 0.99
Prudential High Yield Fund - Class A (PBHAX) 0.81
State Street U.S. Inflation Protected Bond Index Non-Lending Series Fund - Class G 0.72
Invesco Diversified Dividend Fund - Class A (LCEAX) 0.84
JPMorgan US Equity Fund - Class R3 (JUEPX) 1.01
State Street S&P 500 Index Securities Lending Series Fund - Class IX (0.70)
State Street S&P MidCap Index Non-Lending Series Fund - Class J (0.71)
JPMorgan Small Cap Value Fund - Class R3 (JSVPX) 1.28
JPMorgan US Small Company Fund - Class R3 (JUSPX) 1.25
State Street Russell Small Cap Index Securities Lending Series Fund - Class VIII 0.96
Janus Henderson Triton Fund - Class S (JGMIX) 1.17
Ivy International Core Equity Fund - Class A (IVIAX) 1.29
State Street International Index Securities Lending Series Fund - Class VIII 0.99
Virtus Vontobel Emerging Markets Opportunities Fund - Class A (HEMZX) 1.58
Deutsche Real Estate Securities Fund - Class A (RRRAX) 0.98
Target Funds 1.2

Funds available in her 401k
Stable Value Option 0.3
Intermediate Government Bond Index Fund 0.06
U.S.Core Fixed Income Balanced Risk (FIBR) Fund 0.14
S & P 500 Index Fund 0.04
S & P Mid Cap Index Fund 0.06
Russell Small Cap Index Fund 0.06
International Developed Markets Index Fund 0.11
Emerging Markets Index Fund 0.2
Real Asset Index Fund 0.25
Target Date Funds, 0.12

HSA
~12k, not invested currently

529
~3k, NY plan, age based option
I plan to open a second one in NJ to take advantage of the $1,500 scholarship if you go to in state school. Seems like a decent option for contributing the required $3,600. Most of the funds have high ERs, but there is an SP500 with an ER of 0.14.

Questions:

1. I feel ok doing it, but should I even be maxing my 401k with the high ER? I think we are going to try and change it to a lower cost option or add better choices so that makes me feel better.

2. Does this allocation make sense across our accounts? I tried to keep everything as simple as possible, it's just a little complicated in her 401k. I'm trying to balance out the large SP500 allocation in my 401k with the small cap in her account to replicate total market. Is this a decent strategy?

3. Should I only hold stable value or intermediate bond in her 401k and not both for simplicity? SV yield is stated as 2.5% I'm assuming before expenses. For the bond fund they list coupon yield at 2.1%, effective duration is 3.8 yrs.

4. There is no treasury fund or anything available in the HSA that would be exempt from NJ tax that I can find, is it still worth investing? I've gone back and forth on this can't decide if it's worth the hassle of tracking it for taxes.

5. Does anyone in the state invest in the NJ 529 plan up to the min to qualify for the scholarship or think it's worth it to do so?

6. Been trying to decide if it is time to open a taxable account or just keep adding to the savings account until we purchase a new home.

Thanks!

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Sandtrap
Posts: 5098
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Portfolio help

Post by Sandtrap » Tue May 22, 2018 9:31 am

zguy wrote:
Tue May 22, 2018 9:05 am

Questions:

1. I feel ok doing it, but should I even be maxing my 401k with the high ER? I think we are going to try and change it to a lower cost option or add better choices so that makes me feel better.Good idea.

2. Does this allocation make sense across our accounts? I tried to keep everything as simple as possible, it's just a little complicated in her 401k. I'm trying to balance out the large SP500 allocation in my 401k with the small cap in her account to replicate total market. Is this a decent strategy? Some would simplify by not adding the small cap. KISS. Provided a link for you below to the morningstar tool that can help organize allocation, etc, across all accounts.

3. Should I only hold stable value or intermediate bond in her 401k and not both for simplicity? Yes. Int. Bond? Link below on "simplicity".SV yield is stated as 2.5% I'm assuming before expenses. For the bond fund they list coupon yield at 2.1%, effective duration is 3.8 yrs.

4. There is no treasury fund or anything available in the HSA that would be exempt from NJ tax that I can find, is it still worth investing? I've gone back and forth on this can't decide if it's worth the hassle of tracking it for taxes.

5. Does anyone in the state invest in the NJ 529 plan up to the min to qualify for the scholarship or think it's worth it to do so?

6. Been trying to decide if it is time to open a taxable account or just keep adding to the savings account until we purchase a new home.why not do both concurrently? When do you plan to buy a home? How much of the savings is for house and how much set aside for EF?

Thanks!
Welcome.
Congratulations on having a well thought out plan early in the game.

Are you comfortable with the allocation you've chosen?

Do you have a solid IPS Statement constructed?
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement

Morningstar link to portfolio tool.
Morningstar Instant Xray
https://members.morningstar.com/Registe ... L100&vUrl=

TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505

IMHO things can be further simplified by looking at all the funds comprehensively
You can streamline further by reducing the amount of funds you have.
Avoid overlap and redundancy. Eliminate and consolidate funds to do so.
Minimize ER.
Place funds to best tax advantage:
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement

some random thoughts and hopefully helpful suggestions amongst many options that may be helpful.
aloha :D
j
Last edited by Sandtrap on Tue May 22, 2018 9:37 am, edited 2 times in total.

PFInterest
Posts: 1627
Joined: Sun Jan 08, 2017 12:25 pm

Re: Portfolio help

Post by PFInterest » Tue May 22, 2018 9:32 am

zguy wrote:
Tue May 22, 2018 9:05 am

Questions:

1. I feel ok doing it, but should I even be maxing my 401k with the high ER? I think we are going to try and change it to a lower cost option or add better choices so that makes me feel better.

2. Does this allocation make sense across our accounts? I tried to keep everything as simple as possible, it's just a little complicated in her 401k. I'm trying to balance out the large SP500 allocation in my 401k with the small cap in her account to replicate total market. Is this a decent strategy?

3. Should I only hold stable value or intermediate bond in her 401k and not both for simplicity? SV yield is stated as 2.5% I'm assuming before expenses. For the bond fund they list coupon yield at 2.1%, effective duration is 3.8 yrs.

4. There is no treasury fund or anything available in the HSA that would be exempt from NJ tax that I can find, is it still worth investing? I've gone back and forth on this can't decide if it's worth the hassle of tracking it for taxes.

5. Does anyone in the state invest in the NJ 529 plan up to the min to qualify for the scholarship or think it's worth it to do so?

6. Been trying to decide if it is time to open a taxable account or just keep adding to the savings account until we purchase a new home.

Thanks!
get the FI out of your rIRA. should put in 401k.
it isnt ideal but you are right, hopefully will improve with some nudging by you but also should still beat taxable.
you can do either SV or bond or a mix. no preference given the difference between the yields right now.
HSA is triple tax protected, so yes, worth it
what is your expected down payment? otherwise yes, taxable is next. dont forget you can always sell taxable at any time.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio help

Post by ExitStageLeft » Tue May 22, 2018 12:42 pm

Agree with the posters above, you've got a good plan that can be made a little better. Focus on simplicty and tax efficiency. Were I fortunate enough to be in your shoes I would:

- Simplify. Adopt a three-fund portfolio with low-cost indexed funds. That isn't always doable when you've got accounts with several providers it looks like you could drop down to about four or five funds.

- Minimize taxes, current and future. Let the Roth accounts fill up with your high yield funds. Put the bonds in a 401k account.

- Relax. Check it once a year and re-balance as needed.

delamer
Posts: 5478
Joined: Tue Feb 08, 2011 6:13 pm

Re: Portfolio help

Post by delamer » Tue May 22, 2018 12:50 pm

The rule of thumb is that investments that constitute less than 5% of your portfolio are not going to have a material effect on its return.

So you can make life/rebalancing easier and get rid of the small positions. For your 401(k), use the options that have ERs of about 0.7%. Make up your allocation in the other accounts.

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Duckie
Posts: 5805
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio help

Post by Duckie » Tue May 22, 2018 5:11 pm

zguy wrote:I feel ok doing it, but should I even be maxing my 401k with the high ER?
Yes. Although high for Bogleheads, 0.70% is not high for a 401k.
Does this allocation make sense across our accounts? I tried to keep everything as simple as possible, it's just a little complicated in her 401k. I'm trying to balance out the large SP500 allocation in my 401k with the small cap in her account to replicate total market. Is this a decent strategy?
Do not try to put the same things in each account. Put the best, cheapest options in employer plans and use the Roth IRAs to make up the difference. See below.
Should I only hold stable value or intermediate bond in her 401k and not both for simplicity? SV yield is stated as 2.5% I'm assuming before expenses.
Stable value rates are always after expenses. Either one or both is fine.
There is no treasury fund or anything available in the HSA that would be exempt from NJ tax that I can find, is it still worth investing?
What are the HSA options?
Been trying to decide if it is time to open a taxable account or just keep adding to the savings account until we purchase a new home.
What's the timeline on the new home?

---------------

You have a desired AA of 80% stocks, 20% bonds, with 15-20% of stocks in international. I'll go with 20%. That breaks down to 64% US stocks, 16% international stocks, and 20% bonds. You could have:

His 401k -- 23%
23% (N/A) State Street S&P 500 Index Fund (0.70%)

Her 401k -- 31%
11% (N/A) S&P 500 Index Fund (0.04%)
20% (N/A) Intermediate Government Bond Index Fund (0.06%)

His Roth IRA at Vanguard -- 35%
23% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
7% (VEXAX) Vanguard Extended Market Index Fund Admiral Shares (0.08%)
5% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

Her Roth IRA at Vanguard -- 11%
11% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

My comments:
  • This puts all bonds in her 401k because 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.
  • This puts all international in the Roth IRAs because they have access to a total international fund.
  • The two 500 Index funds total 34%. Adding 7% Extended Market makes it 80% large caps and 20% mid/small caps, similar to total stock market.
  • Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks. 20% is fine.
Just some possibilities.
Last edited by Duckie on Thu Jun 14, 2018 6:02 pm, edited 3 times in total.

zguy
Posts: 7
Joined: Wed May 16, 2018 4:03 pm

Re: Portfolio help

Post by zguy » Tue May 22, 2018 9:57 pm

Thanks to all for the suggestions and help on this.

edit: Duckie, missed it on the first go around, but I see that the her 401k does not add up properly in your suggestion. Would it be 11% SP 500 instead of 21%?
Sandtrap wrote: Are you comfortable with the allocation you've chosen?
I feel pretty good about it, could probably go more aggressive and still feel fine, 90/10 perhaps, but I think this will help me sleep a little better at night.
Sandtrap wrote: Do you have a solid IPS Statement constructed?
I have a basic outline in my head, but need to write it down to work out some of the specific details.

In regards to the home that some have asked about...Downpayment will probably be in the $100-130k range. Rest is EF until the current place is then sold. Will re-group when that happens. Ultimately would like to have 12 months EF. Timeline is hoping for this year, if not next. Definitely before our baby starts school in a few years.
Duckie wrote: What are the HSA options?
Here are all available funds in the HSA.

Bond Funds
Managers Intermediate Duration Government, MGIDX, 0.87
Dodge & Cox Income, DODIX, 0.43
Metropolitan West Total Return Bond, MWTRX, 0.67
Vanguard Long-Term Bond Index, VBLTX, 0.15

Large Blend
American Funds 2020 TRGT Retire, RRCTX, 0.35
American Funds 2025 TRGT Retire, RFDTX, 0.37
American Funds 2030 TRGT Retire, RFETX, 0.39
American Funds 2035 TRGT Retire, RFFTX, 0.40
American Funds 2040 TRGT Retire, RFGTX, 0.41
Vanguard LIfeStrategy Conservative Growth Investor, VSCGX, 0.12
Vanguard LifeStrategy Moderate Growth Investor, VSMGX, 0.13
Vanguard Dividend Appreciation Index Investor, VDAIX, 0.17
Vanguard Developed Markets Index Fund, VTMGX, 0.07
Vanguard Emerging Markets Stock Index Fund, VEMAX, 0.14
Vanguard 500 Index Fund Admiral Shares, VFIAX, 0.04

Large Cap
JPMorgan Large Cap Growth, SEEGX, 0.69
Davis New York Venture Fund Class Y, DNVYX, 0.63

Large Cap Int'l
Dodge & Cox International Stock Fund, DODFX, 0.63
Thornburg International Value, TGVIX, 0.95

Large Growth
American Funds 2045 TRGT Retire, RFHTX, 0.41
American Funds 2050 TRGT Retire, RFITX, 0.42
American Funds 2055 TRGT Retire, RFKTX, 0.42

Large Value
Schwab Fundamental US Large Co. Index Fund, SFLNX, 0.25

Mid-cap Blend
Parnassus Mid Cap Fund Institutional Shares, PFPMX, 0.75

Small and Mid-cap
American Century Mid Cap Value Fund Institutional Class, AVUAX, 0.76
Artisan Small Cap Fund Institutional Shares, APHSX, 1.01
Oppenheimer Main Street Fund Class Y, MIGYX, 0.69

Small Blend
Vanguard Small Cap Index Fund, VSMAX, 0.05

User avatar
Duckie
Posts: 5805
Joined: Thu Mar 08, 2007 2:55 pm

Re: Portfolio help

Post by Duckie » Wed May 23, 2018 2:48 pm

zguy wrote:I see that the her 401k does not add up properly in your suggestion. Would it be 11% SP 500 instead of 21%?
:oops: Yes.
Here are all available funds in the HSA.
Depending on the HSA purpose (use for current expenses or save for retirement) these are the best options:
  • Vanguard 500 Index VFIAX 0.04
  • Vanguard Small Cap Index VSMAX 0.05
  • Vanguard Developed Markets Index VTMGX 0.07
  • Vanguard Emerging Markets Stock Index VEMAX 0.14
  • Vanguard Long-Term Bond Index VBLTX 0.15
  • Or for simplicity, one of the Vanguard LifeStrategy funds

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