Portfolio Review

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Topic Author
neukid
Posts: 7
Joined: Tue Jun 05, 2018 12:01 am

Portfolio Review

Post by neukid » Tue Jun 05, 2018 12:12 am

Hi All - I have been lurking on here for a while now and have learned a lot. Decided it was time to post for a portfolio review to get second opinions on my implementation. I have a tendency to complicate my portfolio more than I need to. Thanks in advance for your review and advice!

- Age: HIM 34 & HER 33
- Tax Filing: Married Joint with 7, 5, 5, & 2 year olds
- Tax Rate: 22% (effective 0%) / 3% (AZ)
- Job: Stable Single Earner (Gross annual income: $90,000)
- Emergency Funds: $30k, approx. 6 months expenses in high yield savings and CDs ranging from 1.55% to 2%
- Savings (beyond e-fund): $10k (windfall I have not decided what to do with it. Have not wanted to throw it all into investments because of the stock market highs right now.)
- Debt: 15 yr mortgage with 12 years remaining, 3.5%, $107k remaining balance, current home value of $375k (plan to stay put for a long time but may do an addition in the next 5 years. Have not costed it out yet.)
- Retirement accounts:
- 401k & ROTH 401k (HIS): $116k
- ROTH IRA (HIS): $72k
- ROTH IRA (HER): $48k
- No pension
- Both wife and I are eligible for social security
- College Savings: None
- Desired Asset Allocation: 95% stocks / 5% bonds (aggressive)
- Desired International allocation: 35%

Current Portfolio (Percentages are of combined retirement portfolio ($236k). HSA value not included for percentages) Overall expense ratio is 0.10%.

No Taxable

401k & ROTH 401k (HIS): Schwab. Current value $116k. Company matches 100% up to 4%.
- 5.8% ($13.5k) Vanguard International Value Fund Investor Shares VTRIX .40%
- 2.2% ($5k) Vanguard Developed Markets Index Fund Admiral Shares VTMGX .07% (new fund available in 401k)
- 18% ($43k) Schwab® S&P 500 Index Fund SWPPX .03%
- 0% ($0k) Vanguard Total Bond Market Index Fund Admiral Shares VBTLX .05%
- 23% ($54k) Company Stock (A&E) (ESOP)

Vanguard ROTH IRA (HIS): Current Value $72k
- 6% ($14.5k) Vanguard Total Stock Market Index Fund Admiral Shares VTSAX .04%
- 6.4% ($15k) Vanguard Selected Value Fund Investor Shares VASVX .39%
- 9% ($21k) Vanguard Emerging Markets Stock Index Fund Admiral Shares VEMAX .14%
- 4.2% ($10k) Vanguard Total Bond Market Index Fund Admiral Shares VBTLX .05%
- 4.7% ($11k) Vanguard Small Cap Value Index Fund Admiral Shares VSIAX .07%

Vanguard ROTH IRA (HER): Current Value $48k
- 2.5% ($6k) Vanguard Selected Value Fund Investor Shares VASVX .39%
- 8.5% ($20k) Vanguard Total International Stock Index Fund Admiral Shares VTIAX .11%
- 5.1% ($12k) Vanguard Mid-Cap Index Fund Admiral Shares VIMAX .05%
- 4.3% ($10k) Vanguard European Stock Index Fund Investor Shares VEURX .10%

HSA Current value $20k. Insurance $7k deductible:
$11.6k cash
$8.5k invested
- 60% ($5k) Vanguard 500 Index Fund Admiral Shares VFIAX .04%
- 20% ($1.7k) Vanguard Mid-Cap Index Fund Admiral Shares VIMAX .05%
- 20% ($1.7k) Vanguard Total International Stock Index Fund Investor Shares VGTSX .17%


Annual Contributions:
- $9k into 401k (half ROTH and half pre-tax)
- $5.5k into Roth IRA (HIS)
- $5.5k into Roth IRA (HER)
- $6,950 HSA


QUESTIONS:
- Should I open college savings account. RIght now I am maxing out the ROTH IRAs with the thought that the principle can be used for college if needed.
- Should we max HIS 401k before going into a taxable account?
- Should I do something different with the e-fund other than CDs?
- Advice on fund selection?
- Any other advice?

Thanks!

edited to add fund names
Last edited by neukid on Tue Jun 05, 2018 9:43 am, edited 1 time in total.

student
Posts: 4133
Joined: Fri Apr 03, 2015 6:58 am

Re: Portfolio Review

Post by student » Tue Jun 05, 2018 5:25 am

1) I would suggest that you take care of your own retirement first before starting college savings account, as you have not maxed out your 401k yet.
2) I would think maxing out HIS 401k before going into a taxable account is a good idea.
3) I believe emergency fund at the 6 months level should stay in CD or high yield savings account.
4) You may want to type out the name of the funds rather than just the symbols. It seems that you have a number of overlapping funds. Many believe that a single domestic fund such as VTSAX is enough, some may want to tilt by adding a fund say in emerging market such as VEMAX. You also have value, VASVX, and other specific market fund, which I don't quite understand what you are tilting towards.

Topic Author
neukid
Posts: 7
Joined: Tue Jun 05, 2018 12:01 am

Re: Portfolio Review

Post by neukid » Tue Jun 05, 2018 9:46 am

I tilted towards value and small/mid cap for US. A tilt towards Europe and EM for international. This is one of the areas where I think I may have over complicated my portfolio.

I edited my post to add fund names.

megabad
Posts: 2487
Joined: Fri Jun 01, 2018 4:00 pm

Re: Portfolio Review

Post by megabad » Wed Jun 06, 2018 10:24 pm

It seems like you have a number of very slight tilts. Tilts of this size probably won't have a significant impact on performance and make a portfolio more complex. Just a personal preference but I might pick one tilt and focus on that one a little more strongly if you are convicted in that approach. Right now you own the European Equities in Total Int, Dev Mrkts, and in European Index. That is quite a bit of overlap and a small tilt.

You seem to have a larger ESOP holding than I would feel comfortable with, but you will have to make a decision as to what allocation % that should be.

I noticed you have large cash position in the HSA. Is this because you use the HSA for year to year expenses?

You have good options in retirement accounts, so I agree with focusing on maxing 401k, and ira before college savings or taxable. Personally would lean toward Roth (401k and IRA) first to fill up bracket since you appear to be in 12% bracket.

Topic Author
neukid
Posts: 7
Joined: Tue Jun 05, 2018 12:01 am

Re: Portfolio Review

Post by neukid » Thu Jun 07, 2018 10:47 pm

Yeah, I was thinking that the multiple positions with slight tilts probably were something that I was over complicating with. I was planning on leaving the VEURX position but I did not before it went down in value earlier this year. While I know it is not good to time the market, I have been waiting for it to increase in value before exchanging it for Total International (VEURX lost more than VTIAX earlier this year). Call me out if this is a stupid reason for not doing it.

I have also been looking to get out of my Select Value positions and putting that money into Total Stock Market and Mid-Cap Index but haven't yet.

I am reevaluating the ESOP position. Can only sell once a year and receive my match in ESOP that I cannot sell.

I previous years I have used my HSA for my deductible (have had to pay the full $7k 3 out of the last 5 years). Also, my company recently switched HSA companies. All the stock sold out of the old HSA right after the correction and was not available to reinvest for over a month. I was a little gun shy with reinvesting since it feels more like "real money" that may have a near-term use. I also have not completely been able to convince myself to treat HSA money as retirement money yet.

For the retirement account, would you recommend keeping all my international allocation in either V International Value or V Dev Markets? I know they have different tilts. I have been debating whether I should switch over to V Dev Markets for the lower ER and to simplify.

Topic Author
neukid
Posts: 7
Joined: Tue Jun 05, 2018 12:01 am

Re: Portfolio Review

Post by neukid » Thu Jun 07, 2018 11:52 pm

Question about the HSA funds. Do you include your HSA funds in your retirement asset allocation or do you have a separate allocation that is more conservative since it can be tapped into sooner? I could see making it more conservative than my overall allocation and then my bond allocation would end up almost entirely in my HSA.

TexMexIndex
Posts: 34
Joined: Wed Mar 28, 2018 12:38 pm

Re: Portfolio Review

Post by TexMexIndex » Fri Jun 08, 2018 2:22 am

My thoughts:
Max your 401k.
Why not just do target retirement funds?
I do 529s, I like the idea. I put in 5k when each kid turned 1 and now my 7 year old can
pay for 2.5 years of tuition instead of 1 year.

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ruralavalon
Posts: 16669
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Portfolio Review

Post by ruralavalon » Fri Jun 08, 2018 10:51 am

Welcome to the forum :) .

1) I think that fully funding the Roth IRAs is a better idea than using college savings accounts.

2) I suggest fully funding your 401k as a priority ahead of contributions to a taxable account.

3) You could simplify by exchanging Vanguard Select Value to Vanguard Total Stock Market Index Fund.

4) Expense ratio is not the only criteria for fund selection. For international stocks I suggest Vanguard Total International Stock Index Fund (VTIAX) instead of international value or developed markets or Europe. VTIAX gives you both broad diversification (to decrease risk) and low expense ratio )to.increase net return).

5) I suggest Vanguard Total Stock Market Index Fund instead a S&P 500 index fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

megabad
Posts: 2487
Joined: Fri Jun 01, 2018 4:00 pm

Re: Portfolio Review

Post by megabad » Fri Jun 08, 2018 11:48 am

neukid wrote:
Thu Jun 07, 2018 10:47 pm
Yeah, I was thinking that the multiple positions with slight tilts probably were something that I was over complicating with. I was planning on leaving the VEURX position but I did not before it went down in value earlier this year. While I know it is not good to time the market, I have been waiting for it to increase in value before exchanging it for Total International (VEURX lost more than VTIAX earlier this year). Call me out if this is a stupid reason for not doing it.

I have also been looking to get out of my Select Value positions and putting that money into Total Stock Market and Mid-Cap Index but haven't yet.

I am reevaluating the ESOP position. Can only sell once a year and receive my match in ESOP that I cannot sell.

I previous years I have used my HSA for my deductible (have had to pay the full $7k 3 out of the last 5 years). Also, my company recently switched HSA companies. All the stock sold out of the old HSA right after the correction and was not available to reinvest for over a month. I was a little gun shy with reinvesting since it feels more like "real money" that may have a near-term use. I also have not completely been able to convince myself to treat HSA money as retirement money yet.

For the retirement account, would you recommend keeping all my international allocation in either V International Value or V Dev Markets? I know they have different tilts. I have been debating whether I should switch over to V Dev Markets for the lower ER and to simplify.
All of the funds you mentioned have very different prospectus goals (VTIAX, VEURX, V Dev Mrkts, V Int Value). I would not want to tell you any if these are better are worse than any other, they are just different. I am not a huge value tilter and I prefer mostly market cap based indices (but I tend to hold dev mrkts and emerg separately for other reasons). For international specifically, if I were going to go value, I would use something like iShares EFV instead of V Int Value but you (and others) may feel differently. You will find many here (see prior posts) that recommend a much simpler portfolio with 3-4 funds that represent near market cap representation of the market and that likely deserves consideration as well.

I figured you might be needing the HSA money, no problem with not investing it (or investing it very conservatively) if thats the case as you mentioned. If you find yourself hitting deductibles/OOP max consistently and you have a non HDHP available I might run the numbers to make sure HSA is still right for you.
Last edited by megabad on Fri Jun 08, 2018 1:54 pm, edited 1 time in total.

ExitStageLeft
Posts: 1630
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Review

Post by ExitStageLeft » Fri Jun 08, 2018 1:26 pm

I've become addicted to using Portfolio Visualizer to compare how various portfolio build perform against the lazy three-fund portfolio based on Total Market (VTSAX), Total International (VTIAX) and Total Bond (VBTLX). Here's how your portfolio did over the last six years.

It's a challenge for someone who isn't a market professional to outperform the total market indices. Heck, it's still a challenge for those who are market professionals. Those that do well for a couple years and outperform usually end up losing ground over the long term. I feel the same about tilts. By the time you or I are aware of the next hot trend, its expected performace has already been priced in. If you're lucky you can catch the continued trend growth and perhaps slightly outperform the total market. More likely, you bought in at its peak and will enjoy a mediocre run as that sector reverts to the mean.

Topic Author
neukid
Posts: 7
Joined: Tue Jun 05, 2018 12:01 am

Re: Portfolio Review

Post by neukid » Mon Jul 02, 2018 12:35 am

ruralavation: I have been thinking about exchanging the Select Value for Total Stock Market. THe advice I am getting here is confirming that. Thanks.

megabad: V Dev Mrkts and V Int Value are the only international funds I have available in my 401k that are under a 1% ER. V Dev Mrkts just became available this year, so that i why I am more weighted towards V Int Value. Right now, I am trying to consolidate my investments and simplify. Trying to simplify a lot of things right now. Like a said before, usually, I try to play around and end up just making it more complicated.

ExitStageLeft: Thanks for sharing the portfolio visualizer. I have been thinking about doing something like this but haven't wanted to put the time in to do it by hand. After all the advice here, i am thinking that I will probably abandon most of my tilts.

All: When changing a position (getting out of my tilts) would you suggest just biting the bullet and doing it all at once or doing it over time. Looking at V Select Value, I don't really want switch it all over to V Total Stock Market right now as it took a beating earlier this year and has not yet recovered. Would you say that is trying to time the market or trying not to buy high and sell low. RIght now, I fall into the later camp but am open to hearing thoughts on it.

ExitStageLeft
Posts: 1630
Joined: Sat Jan 20, 2018 4:02 pm

Re: Portfolio Review

Post by ExitStageLeft » Mon Jul 02, 2018 1:54 pm

It is reasonable to expect the market as whole to resume its upward progression eventually. I don't think you can apply that to individual stocks or market sectors. If you hold on to an asset waiting for it to turn around, you may end up waiting for eternity. Meanwhile, the market as a whole will likely have moved onward and upward.

I would sell the funds that took the beating and replace with total market funds. Take your losses and move on. If it helps, perhaps make a plan and execute it in 30 days. If you see an opportunity earlier to recoup sopme of those losses you can sell earlier. If the beatings continue for another month, stick to the plan. Pull the plug on that tilt and move on.

soccerrules
Posts: 946
Joined: Mon Nov 14, 2016 4:01 pm

Re: Portfolio Review

Post by soccerrules » Mon Jul 02, 2018 2:20 pm

I agree with the following
1) Work to max HIS 401K -- get it in there sooner -- compounding interest
2) I'd hold off on 529's for fear of risking your retirement for the sake of kids education (they can earn scholarships, work in HS to save for college) Also your mortgage will be done at your kids ages 19,17,17 and 14. You could cash flow some college at that time if you are pretty set for retirement
3) Can you increase income ? (promotion ?, move companies ?, side gig? )

You may be starting to find out by now but kids are expensive. There are a number of ways to spend money with/on them. Competitive sports, music, hobbies. You have 4 of them and I would expect your out of pocket expenses start to rise as they get more involved.

best of luck
Don't let your outflow exceed your income or your upkeep will be your downfall.

megabad
Posts: 2487
Joined: Fri Jun 01, 2018 4:00 pm

Re: Portfolio Review

Post by megabad » Mon Jul 02, 2018 6:02 pm

neukid wrote:
Mon Jul 02, 2018 12:35 am
All: When changing a position (getting out of my tilts) would you suggest just biting the bullet and doing it all at once or doing it over time. Looking at V Select Value, I don't really want switch it all over to V Total Stock Market right now as it took a beating earlier this year and has not yet recovered. Would you say that is trying to time the market or trying not to buy high and sell low. RIght now, I fall into the later camp but am open to hearing thoughts on it.
Well I think you know what the consensus on this board will be when you ask a question like that :happy . I would posit that you are attempting to time the market. This may end well, or it may not. For me, the decision is made robotically. I review my IPS roughly every 5 years (or at life changing event), and I decide what I should be invested in and how my allocation will shift over 5 years. Either V Select Value is in my plan or it isn't and I buy and sell enough to get me to the allocation I desire and I do this in one fell swoop without hesitation. You will need to decide your own strategy here.

Topic Author
neukid
Posts: 7
Joined: Tue Jun 05, 2018 12:01 am

Re: Portfolio Review

Post by neukid » Tue Jul 03, 2018 1:28 am

ExitStageLeft wrote:
Mon Jul 02, 2018 1:54 pm
It is reasonable to expect the market as whole to resume its upward progression eventually. I don't think you can apply that to individual stocks or market sectors. If you hold on to an asset waiting for it to turn around, you may end up waiting for eternity. Meanwhile, the market as a whole will likely have moved onward and upward.

I would sell the funds that took the beating and replace with total market funds. Take your losses and move on. If it helps, perhaps make a plan and execute it in 30 days. If you see an opportunity earlier to recoup sopme of those losses you can sell earlier. If the beatings continue for another month, stick to the plan. Pull the plug on that tilt and move on.
Thanks. The month plan is a good idea. With investing, I have followed the buy low and keep it thought process. It kills me to sell when a fund is going down or has gone down recently.

soccerrules wrote:
Mon Jul 02, 2018 2:20 pm
You may be starting to find out by now but kids are expensive. There are a number of ways to spend money with/on them. Competitive sports, music, hobbies. You have 4 of them and I would expect your out of pocket expenses start to rise as they get more involved.
Yes, kids are pricey. . .but worth every cent:) I have been amazed how much my food bill has gone up recently. Figure I am going to have to get a second job during the teenage years or move to a farm.

megabad wrote:
Mon Jul 02, 2018 6:02 pm
Well I think you know what the consensus on this board will be when you ask a question like that :happy . I would posit that you are attempting to time the market. This may end well, or it may not. For me, the decision is made robotically. I review my IPS roughly every 5 years (or at life changing event), and I decide what I should be invested in and how my allocation will shift over 5 years. Either V Select Value is in my plan or it isn't and I buy and sell enough to get me to the allocation I desire and I do this in one fell swoop without hesitation. You will need to decide your own strategy here.
I figured the consensus would be against my gut feeling. . .it was an attempt to find a way to do what I knew I should do while making it less painful:)

soccerrules
Posts: 946
Joined: Mon Nov 14, 2016 4:01 pm

Re: Portfolio Review

Post by soccerrules » Tue Jul 03, 2018 8:21 am

neukid wrote:
Tue Jul 03, 2018 1:28 am
soccerrules wrote:
Mon Jul 02, 2018 2:20 pm
You may be starting to find out by now but kids are expensive. There are a number of ways to spend money with/on them. Competitive sports, music, hobbies. You have 4 of them and I would expect your out of pocket expenses start to rise as they get more involved.
Yes, kids are pricey. . .but worth every cent:) I have been amazed how much my food bill has gone up recently. Figure I am going to have to get a second job during the teenage years or move to a farm.
I have 3 and love them dearly. On top of the normal everyday expenses of them growing (clothes, food) and the already mention activities including every friends birthday parties, trips to whatever trampoline gym,skate park etc.
You have the larger expenses. :moneybag
Braces :D
Cars :o
Car Insurance :shock:
Wisdom Teeth Extraction :D
It is an awesome experience watching them grow into contributing citizens, but it is not inexpensive and not for the faint of heart.

Thus the reason I would encourage you to save as much as possible now and for the next few years so in the event you needed to pull back a little on savings you will be on a good track and allow your savings to work for you instead of 10-15 years from now you realize you need to play catch-up.
Remember "The days are long but the years are short"
Don't let your outflow exceed your income or your upkeep will be your downfall.

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ruralavalon
Posts: 16669
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Location: Illinois

Re: Portfolio Review

Post by ruralavalon » Tue Jul 03, 2018 7:42 pm

neukid wrote:
Tue Jun 05, 2018 12:12 am
- Tax Filing: Married Joint with 7, 5, 5, & 2 year olds
- Tax Rate: 22% (effective 0%) / 3% (AZ)
- Job: Stable Single Earner (Gross annual income: $90,000)
Is your federal effective income tax rate really zero? This will make a difference when considering traditional versus Roth contributions.


neukid wrote:
Tue Jun 05, 2018 12:12 am
- Age: HIM 34 & HER 33
- . . . . .
- Desired Asset Allocation: 95% stocks / 5% bonds (aggressive)
- Desired International allocation: 35%
At ages 33 and 34 I suggest about 20 - 25% in bonds. This is expected to substantially reduce portfolio volatility (risk), with only a relatively slight decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.


neukid wrote:
Tue Jun 05, 2018 12:12 am
QUESTIONS:
- Should I open college savings account. RIght now I am maxing out the ROTH IRAs with the thought that the principle can be used for college if needed.
- Should we max HIS 401k before going into a taxable account?
- Should I do something different with the e-fund other than CDs?
- Advice on fund selection?
- Any other advice?
I suggest contributions to college accounts, like 529s, only if tax-advantaged retirement accounts are receiving maximum annual contributions.

I suggest making the maximum annual employee contribution ($18.5k) to the 401k, as a priority priority over a taxable account.

I suggest also making the maximum annual contributions ($5.5k each) to the Roth IRAs, if practical for you. Because your 401k offers good, low-cost funds, it may be preferable to contribute the maximum to the 401k before contributing to an IRA.

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts (If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA.) ; and
4) Contribute to a taxable investing account.
Please see the wiki article "Prioritizing investments".

In my opinion both high yield savings and CDs (ranging from 1.55% to 2%) are reasonable choices for your emergency fund. An additional reasonable choice for the emergency fund is Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.04%.


neukid wrote:
Tue Jun 05, 2018 12:12 am
Advice on fund selection?
- Any other advice?

Fund selection.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Wiki article "Three-fund portfolio". Forum discussion, "The Three-Fund Portfolio".

It is often better coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited or choices available in a taxable account or any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based accounts like 401ks.

For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund (such as Schwab® S&P 500 Index Fund, SWPPX, in your 401k) is good enough by itself for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

An S&P 500 index fund covers 81% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies, and in the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

If you want to add the extended market fund in one of the Roth IRAs, then an 81/19 mix of S&P 500 and extended market will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.

You say "V Dev Mrkts and V Int Value are the only international funds I have available in my 401k that are under a 1% ER" Of those two possibilities I suggest using Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) ER 0.07% because more diversified with a lower expense ratio.

To augment the developed markets fund you might consider using some Vanguard Emerging Markets Stock Index Fund Investor Shares (VEIEX) in one of the Roth IRAs, or more simply just use Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11% in a Roth IRA.

To make portfolio management and rebalancing easy it’s usually helpful to have a one or more tax-advantaged accounts which contain all three basic asset types (bonds, international stocks, and domestic stocks).


Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Current portfolio size = $236k. New annual contributions = about $. The asset allocation is: 20% bonds; 20% international stocks; and 60% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly.

His 401k (49% of total; $116k)
20%, $47k, Schwab® S&P 500 Index Fund (SWPPX) ER 0.03%
09%, $21k, Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) ER 0.07%
20%, $47k, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%

His Roth IRA (31% of total; $72k)
20%, $46k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
11%, $26k, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%

Her Roth IRA (20% of total; $48k)
20%, $48k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the asset allocation by exchanging between funds inside your 401k.



neukid wrote:
Tue Jun 05, 2018 12:12 am
. . . I have a tendency to complicate my portfolio more than I need to. . . .
neukid wrote:
Mon Jul 02, 2018 12:35 am
ruralavation: I have been thinking about exchanging the Select Value for Total Stock Market. THe advice I am getting here is confirming that. Thanks.

megabad: V Dev Mrkts and V Int Value are the only international funds I have available in my 401k that are under a 1% ER. V Dev Mrkts just became available this year, so that i why I am more weighted towards V Int Value. Right now, I am trying to consolidate my investments and simplify. Trying to simplify a lot of things right now. Like a said before, usually, I try to play around and end up just making it more complicated.

ExitStageLeft: Thanks for sharing the portfolio visualizer. I have been thinking about doing something like this but haven't wanted to put the time in to do it by hand. After all the advice here, i am thinking that I will probably abandon most of my tilts.

All: When changing a position (getting out of my tilts) would you suggest just biting the bullet and doing it all at once or doing it over time. Looking at V Select Value, I don't really want switch it all over to V Total Stock Market right now as it took a beating earlier this year and has not yet recovered. Would you say that is trying to time the market or trying not to buy high and sell low. RIght now, I fall into the later camp but am open to hearing thoughts on it.
In my opinion it is a good idea for you to "consolidate [your] investments and simplify". I agree that its probably better to abandon the "tilts" you currently have and switch to a very simple three-fund type portfolio.

I don't believe that the "tilts" which you currently have make much sense, except possibly for a small-cap value tilt.

Once you have settled on a plan, I suggest simply switching over all at once. When making a lateral move, don't hesitate to sell a fund which is down in order to buy the fund you really want to own instead.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

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

Topic Author
neukid
Posts: 7
Joined: Tue Jun 05, 2018 12:01 am

Re: Portfolio Review

Post by neukid » Tue Jul 03, 2018 11:04 pm

ruralavalon wrote:
Tue Jul 03, 2018 7:42 pm
neukid wrote:
Tue Jun 05, 2018 12:12 am
- Tax Filing: Married Joint with 7, 5, 5, & 2 year olds
- Tax Rate: 22% (effective 0%) / 3% (AZ)
- Job: Stable Single Earner (Gross annual income: $90,000)
Is your federal effective income tax rate really zero? This will make a difference when considering traditional versus Roth contributions.
Yes, with the new tax bill my income tax rate went to 0%. I was surprised so i caled it twice. Because of that, I am putting everything into my ROTH IRAs and ROTH 401k.
ruralavalon wrote:
Tue Jul 03, 2018 7:42 pm
neukid wrote:
Tue Jun 05, 2018 12:12 am
- Age: HIM 34 & HER 33
- . . . . .
- Desired Asset Allocation: 95% stocks / 5% bonds (aggressive)
- Desired International allocation: 35%
At ages 33 and 34 I suggest about 20 - 25% in bonds. This is expected to substantially reduce portfolio volatility (risk), with only a relatively slight decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.
I am fairly confident in my ability to not sell if there is a major market correction or downturn which is why I have kept a high stock allocation. I will read the articles you linked.

ruralavalon wrote:
Tue Jul 03, 2018 7:42 pm
neukid wrote:
Tue Jun 05, 2018 12:12 am
QUESTIONS:
- Should I open college savings account. RIght now I am maxing out the ROTH IRAs with the thought that the principle can be used for college if needed.
- Should we max HIS 401k before going into a taxable account?
- Should I do something different with the e-fund other than CDs?
- Advice on fund selection?
- Any other advice?
I suggest contributions to college accounts, like 529s, only if tax-advantaged retirement accounts are receiving maximum annual contributions.

I suggest making the maximum annual employee contribution ($18.5k) to the 401k, as a priority priority over a taxable account.

I suggest also making the maximum annual contributions ($5.5k each) to the Roth IRAs, if practical for you. Because your 401k offers good, low-cost funds, it may be preferable to contribute the maximum to the 401k before contributing to an IRA.

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts (If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA.) ; and
4) Contribute to a taxable investing account.
Please see the wiki article "Prioritizing investments".

In my opinion both high yield savings and CDs (ranging from 1.55% to 2%) are reasonable choices for your emergency fund. An additional reasonable choice for the emergency fund is Vanguard Prime Money Market Fund (VMMXX) current SEC Yield = 2.04%.
In my initial post, I stated that we were thinking about adding on. If we are thinking that is about 3 to 5 years out, would you still recommend keeping that money in a CD? It will probably be around $30k to $40k. We would rather pay cash rather than take out a loan.
ruralavalon wrote:
Tue Jul 03, 2018 7:42 pm
neukid wrote:
Tue Jun 05, 2018 12:12 am
Advice on fund selection?
- Any other advice?

Fund selection.
In selecting funds strive for a combination of broad diversification (to reduce risk) and low expense ratios (to increase your net gain). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Wiki article "Three-fund portfolio". Forum discussion, "The Three-Fund Portfolio".

It is often better coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Select just one or two of the better funds (most diversified + lower expense ratio) in the work-based account (401k, 403b, 457, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited or choices available in a taxable account or any IRAs. This approach lets you avoid having to use sub-par funds often found in work-based accounts like 401ks.

For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund (such as Schwab® S&P 500 Index Fund, SWPPX, in your 401k) is good enough by itself for domestic stocks. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

An S&P 500 index fund covers 81% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies, and in the 26 years since the creation of the first total stock market index fund the total return of the two types of funds has been almost identical. Morningstar, "growth of $10k" graph, VTSAX vs VFIAX. In the first 10 years the S&P 500 fund did better, in the last 10 years the total market fund did better, and over the 26 years the total market fund gave a little more return (0.11% per year), but at the cost of a little more volatility (risk): nisiprius post, in the forum discussion "Exchanging the S&P 500 for the TSM". See also Allan Roth, CBS Moneywatch, "John C. Bogle on the S&P 500 vs. the Total Stock Market". So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

If you want to add the extended market fund in one of the Roth IRAs, then an 81/19 mix of S&P 500 and extended market will approximate the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.

You say "V Dev Mrkts and V Int Value are the only international funds I have available in my 401k that are under a 1% ER" Of those two possibilities I suggest using Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) ER 0.07% because more diversified with a lower expense ratio.

To augment the developed markets fund you might consider using some Vanguard Emerging Markets Stock Index Fund Investor Shares (VEIEX) in one of the Roth IRAs, or more simply just use Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11% in a Roth IRA.

To make portfolio management and rebalancing easy it’s usually helpful to have a one or more tax-advantaged accounts which contain all three basic asset types (bonds, international stocks, and domestic stocks).


Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Current portfolio size = $236k. New annual contributions = about $. The asset allocation is: 20% bonds; 20% international stocks; and 60% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages and dollar amounts are rounded off, so may not add up exactly.

His 401k (49% of total; $116k)
20%, $47k, Schwab® S&P 500 Index Fund (SWPPX) ER 0.03%
09%, $21k, Vanguard Developed Markets Index Fund Admiral Shares (VTMGX) ER 0.07%
20%, $47k, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%

His Roth IRA (31% of total; $72k)
20%, $46k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
11%, $26k, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%

Her Roth IRA (20% of total; $48k)
20%, $48k, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the asset allocation by exchanging between funds inside your 401k.
Thanks for all the info, I really appreciate it. I have a google spreadsheet that I am tracking all of my accounts together with that has helped with re balancing. I am debating whether to treat my HSA with the same allocation as my retirement since the HSA feels more like "real money" that can be accessed a lot sooner than retirement can be if needed. It definitely makes more sense to have the high deductible plan at my work with how the other premiums calc out even if I max out my deductible every year (real possibility with the way my kids run around).

ruralavalon wrote:
Tue Jul 03, 2018 7:42 pm
neukid wrote:
Tue Jun 05, 2018 12:12 am
. . . I have a tendency to complicate my portfolio more than I need to. . . .
neukid wrote:
Mon Jul 02, 2018 12:35 am
ruralavation: I have been thinking about exchanging the Select Value for Total Stock Market. THe advice I am getting here is confirming that. Thanks.

megabad: V Dev Mrkts and V Int Value are the only international funds I have available in my 401k that are under a 1% ER. V Dev Mrkts just became available this year, so that i why I am more weighted towards V Int Value. Right now, I am trying to consolidate my investments and simplify. Trying to simplify a lot of things right now. Like a said before, usually, I try to play around and end up just making it more complicated.

ExitStageLeft: Thanks for sharing the portfolio visualizer. I have been thinking about doing something like this but haven't wanted to put the time in to do it by hand. After all the advice here, i am thinking that I will probably abandon most of my tilts.

All: When changing a position (getting out of my tilts) would you suggest just biting the bullet and doing it all at once or doing it over time. Looking at V Select Value, I don't really want switch it all over to V Total Stock Market right now as it took a beating earlier this year and has not yet recovered. Would you say that is trying to time the market or trying not to buy high and sell low. RIght now, I fall into the later camp but am open to hearing thoughts on it.
In my opinion it is a good idea for you to "consolidate [your] investments and simplify". I agree that its probably better to abandon the "tilts" you currently have and switch to a very simple three-fund type portfolio.

I don't believe that the "tilts" which you currently have make much sense, except possibly for a small-cap value tilt.

Once you have settled on a plan, I suggest simply switching over all at once. When making a lateral move, don't hesitate to sell a fund which is down in order to buy the fund you really want to own instead.

. . . . .

I suggest that you read one or two books on general investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

If you have any questions just ask.

I hope that this helps.
So the tilts I was going for were small/mid cap, value, and international. I have since gotten out of my european tilt. What are your thoughts with a value tilt. The mid cap value tilt and the fact that V Selected Value did really well the first couple years I was in it is a reason I have so much in that fund.

Thanks again for taking the time to write out you thoughts. I appriciate it.

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ruralavalon
Posts: 16669
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Location: Illinois

Re: Portfolio Review

Post by ruralavalon » Wed Jul 04, 2018 6:52 pm

neukid wrote:
Tue Jul 03, 2018 11:04 pm
I am fairly confident in my ability to not sell if there is a major market correction or downturn which is why I have kept a high stock allocation. I will read the articles you linked.
You were around 23 - 24 in the last stock market crash of 2008, probably had little in investments at that time, and so don't know what a stock market crash feels like. A stock market crash can be terrifying, watching your life savings vanish in a few days. It's easy to feel "fairly confident" in the ability to not sell (and instead buy) during a stock market crash, but harder to do in real life.


neukid wrote:
Tue Jun 05, 2018 12:12 am
- Emergency Funds: $30k, approx. 6 months expenses in high yield savings and CDs ranging from 1.55% to 2%
- Savings (beyond e-fund): $10k (windfall I have not decided what to do with it. Have not wanted to throw it all into investments because of the stock market highs right now.)
neukid wrote:
Tue Jul 03, 2018 11:04 pm
In my initial post, I stated that we were thinking about adding on. If we are thinking that is about 3 to 5 years out, would you still recommend keeping that money in a CD? It will probably be around $30k to $40k. We would rather pay cash rather than take out a loan.
If you want to use the $10k to enlarge the emergency fund, then the same three options are still reasonable: 1) a federally insured high yield savings account; 2) federally insured short-term CDs; and 3) Vanguard Prime Money Market Fund (VMMXX); or a combination of the three.

You could use the extra $10k to increase your contributions to your 401k, and invest in the funds which I listed for the 401k.

Increase the withholding for contributions to your 401k, and use the $10k to fund living expenses which you would otherwise have paid out of your paycheck. That has the effect of slowly moving your $10k extra savings into your 401k over a period of several months.


neukid wrote:
Tue Jul 03, 2018 11:04 pm
So the tilts I was going for were small/mid cap, value, and international. I have since gotten out of my european tilt. What are your thoughts with a value tilt. The mid cap value tilt and the fact that V Selected Value did really well the first couple years I was in it is a reason I have so much in that fund.
If you really want a value tilt then I suggest simply using a small-cap value index fund (instead of a mid-cap fund) in one of the Roth IRAs.

Keep in mind that a value tilt may or may not produce an added return, there is no guarantee. Keep in mind that any added return may not materialize for a long time, perhaps decades. You will need to be patient. Wiki article, "Value tilting - stock". "The concept of portfolio value tilting is intended for advanced investors. Tilting is not recommended for new investors".

If you want a small-cap value tilt, then Rick Ferri has suggested using a small-cap value index fund at around 25% of domestic stocks. “My preference is 75 percent to a total market index fund and 25 percent allocation to a small-value index fund“, Rick Ferri, etf.com, "To Tilt Or Not To Tilt?". I use 25% in Vanguard Small-cap Value Index Fund Admiral Shares (VSIAX) ER 0.07%. An alternative is Vanguard S&P Small-Cap 600 Value ETF (VIOV) ER 0.20%, which has a greater weight in small and value with a higher expense ratio.


As mentioned before, I suggest around 20 - 30% of stocks in international stocks.

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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