Grade my portfolio please, newbie here

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NRB
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Joined: Sun Jul 15, 2018 5:53 pm

Grade my portfolio please, newbie here

Post by NRB » Sun Jul 15, 2018 8:09 pm

Hey y'all,

I just opened a taxable brokerage account with Vanguard and would love to hear your thoughts about my portfolio. Please be as harsh, critical as you would like. I have thick skin and very new to this. I have had initial talks with a financial advisor, but was not overly impressed (kept asking me to sign over all my money for him to manage, when I just asked him for advise on setting up a vanguard account and advise on which funds to pick).

A little about me:

Age: 35 years old, wife 33
Tax: Married, Filing Jointly
Occupation: Doctor
Debt: Just finished paying off student loans last year. No debt except mortgage
Emergency/future practice fund: I have been advised to hold 100k in cash to live off while opening possible future practice. (1.5-2 years living expenses while starting practice and not taking salary) no plans as of yet, but have the cash ready.

We have been maxing out 401k for a number of years and have about 250k between the two of us in those.
Starting to do backdoor Roth IRAs this year, but looking to invest remaining saved money (about 150k a year)

Proposed portfolio:
55 US / 25 International / 20 Bonds

US
30% Vanguard Total Stock Market Fund (VTSAX)
10% Vanguard Small-Cap Index Fund (VSMAX)
5% Vanguard Mid-Cap Growth Index Fund (VMGIX)
5% Vanguard US Growth Portfolio Fund (VWUSX)
5% Vanguard Windsor Fund (VWNDX)

International
10% Vanguard Total International Stock Index Fund (VTIAX)
10% Vanguard International Growth Fund (VWIGX)
5% Vanguard Emerging Markets Stock Index (VEIEX)

Bonds
15% Vanguard Intermediate-Term Tax Exempt Fund (VWITX)
5% Vanguard High-Yield Tax-Exempt Fund (VWAHX)
(Thought process was BBC of high tax bracket)

I tried to keep it pretty passive , low turnover funds, and low cost, but tried to add a little tilt. I am not married to this and would love if you think any fund is to heavy, redundant, not smart, etc. Be as harsh as you would like. There are no International Bonds, REITs, and maybe light on Bonds, which I know may not be liked by everyone. Look forward to hear what everyone has to say.

TIA

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

Re: Grade my portfolio please, newbie here

Post by ExitStageLeft » Sun Jul 15, 2018 9:03 pm

NRB wrote:
Sun Jul 15, 2018 8:09 pm
...
I tried to keep it pretty passive , low turnover funds, and low cost, but tried to add a little tilt. I am not married to this and would love if you think any fund is to heavy, redundant, not smart, etc. Be as harsh as you would like. There are no International Bonds, REITs, and maybe light on Bonds, which I know may not be liked by everyone. Look forward to hear what everyone has to say.

TIA
Welcome to the forum! It looks like you've got a firm grasp of the Boglehead fundamentals.

Is this portfolio going to be spread across the 401k and Roth accounts as well as the taxable account? If so, you can use the 401k accounts to hold your bond assets. Since it's tax-deferred you can go with the slightly better yielding VBTLX. Then have the US an international stock funds in the Roth and taxable accounts.

NRB
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Joined: Sun Jul 15, 2018 5:53 pm

Re: Grade my portfolio please, newbie here

Post by NRB » Sun Jul 15, 2018 9:14 pm

Thanks for the reply!

It's is not going to be across all accounts bc my 401k has NO passive index funds. They are all actively managed mutual funds with higher expense ratios, which I am obviously not excited about. I guess that's why I was trying to keep this as low cost and passive as possible.

Mayb a dumb question here, but if my 401k is all Roth money I already paid taxes on, why wouldn't I want to have it all in stocks to grow it without taxes? I have all my 401k in a JP Morgan smart retirement 2050 BBC there are no passive index funds. Maybe not the smartest move, but not many good options. I was planning to do that until I left my current job, and could do a roll over to vanguard and reallocate?

Thanks for all your thoughts. Trying to learn as much as possible, as quick as possible.

Did the proposed AA look ok? Any ideas on how to improve?

Thanks!!!!!

averagedude
Posts: 178
Joined: Sun May 13, 2018 3:41 pm

Re: Grade my portfolio please, newbie here

Post by averagedude » Sun Jul 15, 2018 9:27 pm

Congrats on paying off your student loans. Im sure alot of your peers that are your age envy you because of this. Your portfolio is reasonable, but i believe having a portfolio that you can stay the course with is the upmost importance. Since you are young, i see no problem being heavily invested in stocks, as long as you dont sell when a bear market happens. You are diversified by having international stocks. Me personally im not a fan of the tilts you have to growth companies. I personally tilt the other way to value companies due to academic studies that show that value has had better historic returns than growth. Noone really knows which category will be better in the future, but as long as you are aware of your tilt, and are willing to stay the course, you will be fine. Growth has performed well the last several years, and most experts think that if we did have a bear market soon, portfolios tilted heavily to growth would take a larger beating. One other nugget of advice, check out the white coat investor website and podcast. A fantastic resource for professionals like you.

Tal-
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Joined: Fri Apr 22, 2016 10:41 pm

Re: Grade my portfolio please, newbie here

Post by Tal- » Sun Jul 15, 2018 9:50 pm

I like it. You could leave it as-is and be in great shape. But, you asked for some thoughts, so here's my two cents:

I don't mind i, but are you sure that you're good with a 55/25/20 allocation? That's aggressive, and will have a lot of volatility between now and retirement. If you can handle that volatility and stay the course, I'm good with this allocation... But, if you can't promise that you'll stay the course in the face of a 50% decline, you may want to back off.

You're actually overweight smaller cap stocks. Your total stock market index will already invest in mid- and small-cap companies. By buying a total market index funds, and then mid- and small-cap funds on top of that, you're basically doubling up on small- and mid-cap investments. Note that this is not inherently bad, but is quite aggressive, and does mean that your small cap exposure is great than 10%.

I'm not sure that you need a mid-cap fund. But, if you do hold one, my preference would be for it to include both growth and value stocks.

Given that this will be held in a tax sheltered account, I wouldn't recommend a tax exempt bond fund. I'd just simplify here, and go with a total bond market index fund.

I'm good with 25% international, but I think you're too aggressive with your tilts within that 25%. I'd go 20% (no lower than 15%) total international, and then 5% total in *either* of the two funds you listed.

Overall, I think you're trying to eak out additional return by tilting in three ways (smaller caps, emerging vs established markets, and growth vs value). I'm a bit worried about trying to do all three at once, and I'm also a bit worried about how heavily your portfolio is tilted in these ways. I'd much rather see your total tilt of ~ 5%-10%, and tilting towards one factor.

But, these are all picky points. You're in great shape, and your portfolio is still very good. Like I said - just my two cents.
Debt is to personal finance as a knife is to cooking.

NRB
Posts: 3
Joined: Sun Jul 15, 2018 5:53 pm

Re: Grade my portfolio please, newbie here

Post by NRB » Sun Jul 15, 2018 10:00 pm

averagedude wrote:
Sun Jul 15, 2018 9:27 pm
Congrats on paying off your student loans. Im sure alot of your peers that are your age envy you because of this. Your portfolio is reasonable, but i believe having a portfolio that you can stay the course with is the upmost importance. Since you are young, i see no problem being heavily invested in stocks, as long as you dont sell when a bear market happens. You are diversified by having international stocks. Me personally im not a fan of the tilts you have to growth companies. I personally tilt the other way to value companies due to academic studies that show that value has had better historic returns than growth. Noone really knows which category will be better in the future, but as long as you are aware of your tilt, and are willing to stay the course, you will be fine. Growth has performed well the last several years, and most experts think that if we did have a bear market soon, portfolios tilted heavily to growth would take a larger beating. One other nugget of advice, check out the white coat investor website and podcast. A fantastic resource for professionals like you.

Thanks for the reply!!!

I really like the WCI. He had an article I followed very closely while I was paying off my student loans vs investing.

So you would suggest doing a blended or value fund instead of the growth funds?

So change the mid cap growth for mid cap value or mid cap index?

Do you like the Windsor fund since it is a value fund?

Would you do a small cap value or keep at the small cap blended index that's proposed?

Would you increase the total international to 15 and reduce the international growth the 5?

Thanks!!!!!

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luminous
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Re: Grade my portfolio please, newbie here

Post by luminous » Sun Jul 15, 2018 10:28 pm

Hello and welcome!

To get more of your bonds into the 401k, consider choosing a JP Morgan smart retirement fund that is for a different year. Perhaps 2030. This is what I've done to increase bond holdings in my tax-advantaged accounts and keep bonds out of my taxable account.
Proposed portfolio:
55 US / 25 International / 20 Bonds
This allocation looks fine, but I'd look at your portfolio overall. So add in your 401k monies, adjust the target retirement year fund as necessary to get the bond allocation you want, then fill in taxable with Vanguard Total Stock Market Fund (VTSAX) and Vanguard Total International Stock Index Fund (VTIAX). This would be the simplest thing you can do, and would help you avoid tinkering with your funds all the time which might cause taxable events, heartburn, and regret.
50/20/30 US stock/international stock/bonds. Hope to semi-retire in 2026.

averagedude
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Re: Grade my portfolio please, newbie here

Post by averagedude » Sun Jul 15, 2018 10:51 pm

Since you seem to tilt to growth and are unsure about that, i would just stick to blend funds. By doing this you won't be wrong, but you won't be right either when it comes to value vs growth. Im not a huge fan of the managed fund Windsor. Since you have VTSAX, i would just get rid of the mid cap fund.Therefore i would suggest 45% in VTSAX and 10% in VSMAX for your domestic holdings. This would be a tilt to small cap companies. You would have roughly 60 percent in large, 16 percent in mid, and 24 percent in small. I think it is a very modest tilt for a person your age. As far as international holding, why not tilt it the same way as your domestic holdings? You could go 15% total international (VTIAX), 5% emerging market (VEMAX), and 5% ftse ex us small cap (VFSVX). These tilts would give you roughly 35 percent in emerging markets and 25 percent in small caps in your international holdings. All of these funds are also available in etf's.This is just my recommendation, and if you asked 100 people, you may get 100 answers. Whatever you decide, know what you own and stay the course.

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danielc
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Joined: Sun Dec 10, 2017 4:48 am

Re: Grade my portfolio please, newbie here

Post by danielc » Sun Jul 15, 2018 10:58 pm

NRB wrote:
Sun Jul 15, 2018 8:09 pm
I just opened a taxable brokerage account with Vanguard and would love to hear your thoughts about my portfolio. Please be as harsh, critical as you would like. I have thick skin and very new to this. I have had initial talks with a financial advisor, but was not overly impressed (kept asking me to sign over all my money for him to manage, when I just asked him for advise on setting up a vanguard account and advise on which funds to pick).
Yeah... That makes me suspicious too. Bad vibes. There are good advisors out there, but I wouldn't choose one that was more interested in me giving him all my money than answering my questions.

NRB wrote:
Sun Jul 15, 2018 8:09 pm
Debt: Just finished paying off student loans last year. No debt except mortgage
Emergency/future practice fund: I have been advised to hold 100k in cash to live off while opening possible future practice. (1.5-2 years living expenses while starting practice and not taking salary) no plans as of yet, but have the cash ready.
You could at leat put that in CDs or treasuries. It's still basically cash, but you'd help the money keep up with inflation.

NRB wrote:
Sun Jul 15, 2018 8:09 pm
Proposed portfolio:
55 US / 25 International / 20 Bonds
Sounds reasonable to me.

NRB wrote:
Sun Jul 15, 2018 8:09 pm
US
30% Vanguard Total Stock Market Fund (VTSAX)
10% Vanguard Small-Cap Index Fund (VSMAX)
5% Vanguard Mid-Cap Growth Index Fund (VMGIX)
5% Vanguard US Growth Portfolio Fund (VWUSX)
5% Vanguard Windsor Fund (VWNDX)
Any specific reason for the Windsor and the growth funds? Is there a specific reason you didn't just go 100% Total Stock Market?

NRB wrote:
Sun Jul 15, 2018 8:09 pm
International
10% Vanguard Total International Stock Index Fund (VTIAX)
10% Vanguard International Growth Fund (VWIGX)
5% Vanguard Emerging Markets Stock Index (VEIEX)
I see you choosing a lot of growth funds. Nothing wrong with that, but is there a reason for that choice? Some people think that "growth" means "higher risk/return" but it's the opposite. A growth company is one that is epxected to grow its earnings faster than the rest of the market. So they tend to be popular well-loved brands like Google or Amazon. The opposite of growth is value. Value companies are the ones you haven't heard of that are often having some kind of financial trouble. Growth stocks tend to be a bit less volatile and they tend to return a bit less than value stocks. Is this what you intended?
NRB wrote:
Sun Jul 15, 2018 8:09 pm
Bonds
15% Vanguard Intermediate-Term Tax Exempt Fund (VWITX)
5% Vanguard High-Yield Tax-Exempt Fund (VWAHX)
(Thought process was BBC of high tax bracket)
I'm not a fan of high-yield bonds. First, high-yield is a nice way of saying "junk bonds". They have high returns, and high credit risk (i.e. the risk that the company or city just won't pay). An issue with corporate bonds in general is that they have an "equity-like" behaviour -- they tend to crash at the same time that the stock market crashes. The reason is simple: When companies are losing money and are at risk of dying, that's also when you are most worried that they might not be able to pay their debt obligations. Now, your high-yield fund is municipals, not companies. But munis also tend to go down when the market goes down because cities can also be in distress when the market crashes. You already have a fairly aggressive portfolio (80% stock). I worry about what will happen in the next bear market.

Intermediate treasuries tend to go up in value when markets crash. They are not going to rescue your portfolio by any stretch of the imagination, but they might go along way toward giving you peace of mind next time we hit the inevitable bear market. I'm a bit concerned that your stock allocation is aggressive, and all the bonds you've chosen will go down at the same time that stocks go down. So the LEAST that I would recommend is to replace the "junk municipals" with intermediate treasuries, and maybe consider moving some of the regular municipals as well.
NRB wrote:
Sun Jul 15, 2018 8:09 pm
I tried to keep it pretty passive , low turnover funds, and low cost, but tried to add a little tilt.
Tilt toward what? Most people who tilt, tilt toward small value. But you seem to have tilted toward growth.
NRB wrote:
Sun Jul 15, 2018 8:09 pm
There are no International Bonds, REITs,
I agree with those choices. Yields on international bonds are pretty miserable right now; they're pure exchange rate risk. REITs are extremely tax inefficient. Only buy them if you can shelter them.
NRB wrote:
Sun Jul 15, 2018 8:09 pm
and maybe light on Bonds,
A bit, but you're young. This is the time to be light on bonds.

Hope that helps.

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Tamarind
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Re: Grade my portfolio please, newbie here

Post by Tamarind » Mon Jul 16, 2018 5:04 am

You're off to a great start and your overall strategy is sound.

Re: where to put your bonds, you are indeed balancing tax-free growth in the Roth 401k money against taxes on bond fund dividends in taxable. The traditional wisdom is to put bonds in tax-deferred accounts, and this is usually more important for those (like you) who will spend most of their time in a high tax bracket. A sustained high income means the bulk of your savings will be in taxable accounts in just a few years.

For a similar reason, once your income goes up you may want to switch from Roth 401k to traditional 401k. A pool of Roth money is helpful for everyone, but doctors can typically be confident that their tax rate will be lower in retirement which would make traditional contributions the better choice.

I don't tilt, so I'd have suggested a much simpler portfolio for you. I'd pick a Target date fund for your 401k that includes enough bonds, then put all of your taxable account in VTSAX and VTIAX (Total US and International).

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