Looking for guidance on implementing 3 fund portfolio

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4growth
Posts: 6
Joined: Thu May 10, 2018 12:23 am

Looking for guidance on implementing 3 fund portfolio

Post by 4growth » Fri May 25, 2018 5:39 pm

First off, I want to say how grateful I am for stumbling upon this great community. I came across the Bogleheads site several months back and ending up purchasing the Bogleheads Guide to Investing book. Between my reading much of the Boglehead information here and in the book, I feel that I have learned a tremendous amount. These resources have provided my wife and me enough information & confidence to make a move out of a long relationship with one of the large financial institutions. We just sold all of our assets in our retirement and brokerage accounts and are in the process of transferring to a more reasonable cost institution(yes, we did the capital gains assessment before deciding to pull the trigger on the brokerage accounts :) ). Therefore, before re-investing these funds, I would like some feedback on implementing a Three Fund portfolio. Our info is as follows:


Tax Filing Status: Married Filing Jointly
Tax Rate: 35% Federal, ~10% State
Age both mid 40s
401k ($72k) (VFORX)(.15%) - Company matches and I max out contributions yearly
Desired Asset allocation: 80% stocks(64% US & 16% Intl) / 20% bonds


Current retirement assets ($1,192,000) excluding above mentioned 401K since it's a life-cycle fund.

Aiming to implement the 3 Fund Portfolio. If I am doing this correctly, across all the accounts below, I believe the asset allocation across the portfolio would be as follows:
  • Vanguard Total Stock Market Index Fund (VTSAX) → 64% → $762,880
  • Vanguard Total International Stock Index Fund (VTIAX) → 16% → $190,720
  • Vanguard Total Bond Market Index Fund (VBTLX) → 20% → $238,000

Each of the following accounts have funds ready to invest.
  • Taxable ($500k)
  • His Roth IRA ($17k)
  • His Rollover IRA ($560k)
  • Her Roth IRA ($17k)
  • Her Rollover IRA ($104k)

My Questions

1) Looking for feedback on how to distribute the three funds across these accounts.


2) For our IRAs and Roths is it better to have some % of the funds(bonds & stocks) in each of our retirement accounts? Or conversely, have one of our IRA account’s contain the entire portfolio’s % of a fund(for example: $243k of bond index fund in my IRA and none in wifes)?


3) Given these accounts are 100% cash, is it recommend to purchase all up front or spread it out over a period of time?


4) Bonds - I have seen two approaches on whether it should be placed in taxable or tax deferred. Any guidance for my situation? Based on the book, I am leaning towards the IRA accounts.


5) Best place to park short term cash? I have set aside ~$50k to pay capital gains. I will be paying quarterly estimates(June, Sept, & Jan) and then some in April 2019. So, I am wondering what would be the best approach for these funds. CDs, Money Market or other suggestions?

Thank you in advance!
Last edited by 4growth on Sat May 26, 2018 9:58 am, edited 1 time in total.

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vineviz
Posts: 303
Joined: Tue May 15, 2018 1:55 pm

Re: Looking for guidance on implementing 3 fund portfolio

Post by vineviz » Fri May 25, 2018 6:22 pm

4growth wrote:
Fri May 25, 2018 5:39 pm
My Questions

1) Looking for feedback on how to distribute the three funds across these accounts.


2) For our IRAs and Roths is it better to have some % of the funds(bonds & stocks) in each of our retirement accounts? Or conversely, have one of our IRA account’s contain the entire portfolio’s % of a fund(for example: $243k of bond index fund in my IRA and none in wifes)?


3) Given these accounts are 100% cash, is it recommend to purchase all up front or spread it out over a period of time?


4) Bonds - I have seen two approaches on whether it should be placed in taxable or tax deferred. Any guidance for my situation? Based on the book, I am leaning towards the IRA accounts.
3 is easy: invest now.

1,2,and 4 depend mainly on how long you have until retirement, which I don’t think you told us. http://news.morningstar.com/classroom2/ ... e=3&CN=COM

TheHouse7
Posts: 290
Joined: Fri Jan 13, 2017 2:40 am

Re: Looking for guidance on implementing 3 fund portfolio

Post by TheHouse7 » Fri May 25, 2018 6:35 pm

Please consider simplicity, for the sake of others that may have to take over management. Keep US stock in all of your smaller accounts and then keep your 20% bonds in traditional ira. :sharebeer
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

4growth
Posts: 6
Joined: Thu May 10, 2018 12:23 am

Re: Looking for guidance on implementing 3 fund portfolio

Post by 4growth » Fri May 25, 2018 6:49 pm

vineviz wrote:
Fri May 25, 2018 6:22 pm
4growth wrote:
Fri May 25, 2018 5:39 pm
My Questions

1) Looking for feedback on how to distribute the three funds across these accounts.


2) For our IRAs and Roths is it better to have some % of the funds(bonds & stocks) in each of our retirement accounts? Or conversely, have one of our IRA account’s contain the entire portfolio’s % of a fund(for example: $243k of bond index fund in my IRA and none in wifes)?


3) Given these accounts are 100% cash, is it recommend to purchase all up front or spread it out over a period of time?


4) Bonds - I have seen two approaches on whether it should be placed in taxable or tax deferred. Any guidance for my situation? Based on the book, I am leaning towards the IRA accounts.
3 is easy: invest now.

1,2,and 4 depend mainly on how long you have until retirement, which I don’t think you told us. http://news.morningstar.com/classroom2/ ... e=3&CN=COM
My apologies for not including it. About 15 years until retirement.

And thank you for the "Rules of thumb" link. Very helpful!

4growth
Posts: 6
Joined: Thu May 10, 2018 12:23 am

Re: Looking for guidance on implementing 3 fund portfolio

Post by 4growth » Fri May 25, 2018 6:57 pm

TheHouse7 wrote:
Fri May 25, 2018 6:35 pm
Please consider simplicity, for the sake of others that may have to take over management. Keep US stock in all of your smaller accounts and then keep your 20% bonds in traditional ira. :sharebeer
Great point point on keeping is simple. Appreciate the quick responses!

4growth
Posts: 6
Joined: Thu May 10, 2018 12:23 am

Re: Looking for guidance on implementing 3 fund portfolio

Post by 4growth » Sat May 26, 2018 9:29 am

TheHouse7 wrote:
Fri May 25, 2018 6:35 pm
Please consider simplicity, for the sake of others that may have to take over management. Keep US stock in all of your smaller accounts and then keep your 20% bonds in traditional ira. :sharebeer
As I was thinking about this more I realized I can interpret the bonds feedback two ways. Did you mean hold bonds in both traditional IRAs, so that combined they equal the 20% or hold the 20% bonds in one IRA?

retiredjg
Posts: 32731
Joined: Thu Jan 10, 2008 12:56 pm

Re: Looking for guidance on implementing 3 fund portfolio

Post by retiredjg » Sat May 26, 2018 1:55 pm

I would put all the international into taxable and fill the rest of the taxable account with total stock.

I'd put all the bonds in the Rollover IRA(s) - all in one or split any way you like, it does not matter.

In the rest of the Rollover IRAs and the Roth IRAs, I'd use 500 index and Extended Market index (about 80/20) to approximate total stock market. This eliminates the possibility of a wash sale if you sell the total stock in taxable at a loss as a tax loss harvest or simply because you happen to need/want the money.

This seems a little more complex but it can make things easier down the line.

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Duckie
Posts: 5679
Joined: Thu Mar 08, 2007 2:55 pm

Re: Looking for guidance on implementing 3 fund portfolio

Post by Duckie » Sat May 26, 2018 6:49 pm

4growth wrote:401k[/b] ($72k) (VFORX)(.15%) - Company matches and I max out contributions yearly
VFORX is 85/15. If you want 80/20 pick a different target-date fund. Or better yet, pick an individual fund (one with only US stocks, or only international stocks, or only US bonds) to make rebalancing easier with the rest of your portfolio. What are the options (fund names, ticker symbols, plan expense ratios) in the 401k?
Desired Asset allocation: 80% stocks(64% US & 16% Intl) / 20% bonds
20% bonds is aggressive for age mid 40s. I'd be at least 30% and maybe 35%.
Looking for feedback on how to distribute the three funds across these accounts.
See below.
For our IRAs and Roths is it better to have some % of the funds(bonds & stocks) in each of our retirement accounts? Or conversely, have one of our IRA account’s contain the entire portfolio’s % of a fund(for example: $243k of bond index fund in my IRA and none in wifes)?
Put bonds in your pre-tax accounts and stocks in your Roth and taxable accounts.
Given these accounts are 100% cash, is it recommend to purchase all up front or spread it out over a period of time?
Since you just sold, buy now.
Bonds - I have seen two approaches on whether it should be placed in taxable or tax deferred. Any guidance for my situation? Based on the book, I am leaning towards the IRA accounts.
Bonds belong in tax-sheltered accounts as long as you have room, and you have room.
Best place to park short term cash? I have set aside ~$50k to pay capital gains. I will be paying quarterly estimates(June, Sept, & Jan) and then some in April 2019. So, I am wondering what would be the best approach for these funds. CDs, Money Market or other suggestions?
Money market or savings account.

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

You have a desired AA of 64% US stocks, 16% international stocks, and 20% bonds. Ignoring the 401k for now, you could have:

Taxable -- $500K -- 42%
26% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
16% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

His Rollover IRA at Vanguard -- $560K -- 47%
27% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
20% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

Her Rollover IRA at Vanguard -- $104K -- 9%
9% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

His Roth IRA at Vanguard -- $17K -- 1%
1% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Her Roth IRA at Vanguard -- $17K -- 1%
1% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Just some possibilities.

4growth
Posts: 6
Joined: Thu May 10, 2018 12:23 am

Re: Looking for guidance on implementing 3 fund portfolio

Post by 4growth » Sun May 27, 2018 1:45 am

retiredjg wrote:
Sat May 26, 2018 1:55 pm
I would put all the international into taxable and fill the rest of the taxable account with total stock.

I'd put all the bonds in the Rollover IRA(s) - all in one or split any way you like, it does not matter.

In the rest of the Rollover IRAs and the Roth IRAs, I'd use 500 index and Extended Market index (about 80/20) to approximate total aastock market. This eliminates the possibility of a wash sale if you sell the total stock in taxable at a loss as a tax loss harvest or simply because you happen to need/want the money.

This seems a little more complex but it can make things easier down the line.
Interesting point on the wash sale. I definitely had not taken that into consideration, so I will need to read up to educate myself a bit better on that. Really appreciate the feedback!

retiredjg
Posts: 32731
Joined: Thu Jan 10, 2008 12:56 pm

Re: Looking for guidance on implementing 3 fund portfolio

Post by retiredjg » Sun May 27, 2018 6:43 am

4growth wrote:
Fri May 25, 2018 5:39 pm
3) Given these accounts are 100% cash, is it recommend to purchase all up front or spread it out over a period of time?
This money just came out of the market. This is a sideways move. Putting it back in slowly makes no sense at all.


5) Best place to park short term cash? I have set aside ~$50k to pay capital gains. I will be paying quarterly estimates(June, Sept, & Jan) and then some in April 2019. So, I am wondering what would be the best approach for these funds. CDs, Money Market or other suggestions?
For that short a time, I'd use savings account or money market.

4growth
Posts: 6
Joined: Thu May 10, 2018 12:23 am

Re: Looking for guidance on implementing 3 fund portfolio

Post by 4growth » Tue May 29, 2018 1:00 am

Duckie wrote:
Sat May 26, 2018 6:49 pm
4growth wrote:401k[/b] ($72k) (VFORX)(.15%) - Company matches and I max out contributions yearly
VFORX is 85/15. If you want 80/20 pick a different target-date fund. Or better yet, pick an individual fund (one with only US stocks, or only international stocks, or only US bonds) to make rebalancing easier with the rest of your portfolio. What are the options (fund names, ticker symbols, plan expense ratios) in the 401k?
Desired Asset allocation: 80% stocks(64% US & 16% Intl) / 20% bonds
20% bonds is aggressive for age mid 40s. I'd be at least 30% and maybe 35%.
Looking for feedback on how to distribute the three funds across these accounts.
See below.
For our IRAs and Roths is it better to have some % of the funds(bonds & stocks) in each of our retirement accounts? Or conversely, have one of our IRA account’s contain the entire portfolio’s % of a fund(for example: $243k of bond index fund in my IRA and none in wifes)?
Put bonds in your pre-tax accounts and stocks in your Roth and taxable accounts.
Given these accounts are 100% cash, is it recommend to purchase all up front or spread it out over a period of time?
Since you just sold, buy now.
Bonds - I have seen two approaches on whether it should be placed in taxable or tax deferred. Any guidance for my situation? Based on the book, I am leaning towards the IRA accounts.
Bonds belong in tax-sheltered accounts as long as you have room, and you have room.
Best place to park short term cash? I have set aside ~$50k to pay capital gains. I will be paying quarterly estimates(June, Sept, & Jan) and then some in April 2019. So, I am wondering what would be the best approach for these funds. CDs, Money Market or other suggestions?
Money market or savings account.

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

You have a desired AA of 64% US stocks, 16% international stocks, and 20% bonds. Ignoring the 401k for now, you could have:

Taxable -- $500K -- 42%
26% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
16% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

His Rollover IRA at Vanguard -- $560K -- 47%
27% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
20% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

Her Rollover IRA at Vanguard -- $104K -- 9%
9% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

His Roth IRA at Vanguard -- $17K -- 1%
1% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Her Roth IRA at Vanguard -- $17K -- 1%
1% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

Just some possibilities.
Thank you Duckie. I appreciate your detailed feedback here. Super helpful.

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