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Portfolio Strategy Questions

Posted: Fri Aug 17, 2018 8:48 pm
by tweet737
Current Accounts and Positions:

His Roth IRA: VBTLX; VTSAX
Her Roth IRA: VBTLX
His Roth 401K: VTSAX
His Traditional 401K: 2035 Target Date Fund
Joint Taxable: VTIAX, VTSAX

1) I initially placed our Bond holdings in our Roths accounts because they are tax-advantaged. My understanding since is it's better to hold stock funds in the Roth IRAs (for greater potential tax-free growth) and hold bonds in tax-deferred accounts. Since all our bond holdings are in our Roth IRA's, I could start putting all new 401K investments in my traditional 401K, and then exchange equivalent amounts of VBTLX for VTSAX in our Roth accounts. However, although not a market-timer, it seems to me I'd be buying a lot of stock at market highs.

- Should I wait for a significant market correction for this kind of move?
- Should I just execute the strategy now?
- Should I leave my current bonds in the Roths and ensure all NEW bond purchases are in my traditional 401K?

2) My 2035 fund in my t401K is actively-managed and has an ER of .40%, which is high by 3-Fund Portfolio standards. However, it has outperformed the Vanguard equivalent every year of it's existence. Should the higher ER and active-management cause me to adopt the three-fund there as well, or should it's simplicity and track-record make it a worthy "exception" to the Boglehead principles of low-cost and indexing?

Re: Portfolio Strategy Questions

Posted: Fri Aug 17, 2018 9:02 pm
by MotoTrojan
How is selling stock in your pretax account to exchange it for stock in your Roth buying new stock? If most of your tax-advantaged is Roth it’s okay to keep bonds there.

The market is often at an all-time high. May never be a better day than today to buy.

Also are you sure you are comparing the target funds correctly? The 401k fund could be total return whereas you’d need to add the dividend to a Vanguard fund.

Re: Portfolio Strategy Questions

Posted: Sat Aug 18, 2018 1:34 pm
by tweet737
MotoTrojan wrote:
Fri Aug 17, 2018 9:02 pm
The 401k fund could be total return whereas you’d need to add the dividend to a Vanguard fund.
Thanks for the response Moto.

I'm not sure I understand your comment above. Can you explain further? I'm using the same analysis tool (Morningstar) to compare the fund symbols with each other, so in my mind I'm comparing apples to apples. I could be wrong!

Re: Portfolio Strategy Questions

Posted: Sat Aug 18, 2018 1:45 pm
by MotoTrojan
tweet737 wrote:
Sat Aug 18, 2018 1:34 pm
MotoTrojan wrote:
Fri Aug 17, 2018 9:02 pm
The 401k fund could be total return whereas you’d need to add the dividend to a Vanguard fund.
Thanks for the response Moto.

I'm not sure I understand your comment above. Can you explain further? I'm using the same analysis tool (Morningstar) to compare the fund symbols with each other, so in my mind I'm comparing apples to apples. I could be wrong!
Some 401k funds do not payout a quarterly dividend and instead just roll it into the share price (rather than share qty). A mutual fund will not include this so you may not be comparing 1-1 if you don’t include the dividend as a reinvestment. Even if they are both return values without dividends, the dividend may not be the same so it’s still not a valid comparison.

Morningstar should be able to do a total return output though so maybe you are. Just checking.

Do the funds have the same asset allocation to equities? International?

Re: Portfolio Strategy Questions

Posted: Sat Aug 18, 2018 2:03 pm
by tweet737
MotoTrojan wrote:
Sat Aug 18, 2018 1:45 pm
tweet737 wrote:
Sat Aug 18, 2018 1:34 pm
MotoTrojan wrote:
Fri Aug 17, 2018 9:02 pm
The 401k fund could be total return whereas you’d need to add the dividend to a Vanguard fund.
Do the funds have the same asset allocation to equities? International?
Since you asked, the fund is the American Funds 2035 Class R-6 (RFFTX). RFFTX is put together very differently than the Vanguard 2035 equivalent, especially since it has active vs passive holdings. But the VG 2035 is not an option for me in my 401K. However, I CAN hold all the VG Total Stock, Total Intl Stock and Total Bond funds in my 401K.

I think there is a LOT to be said for Ret Date funds to remove the desire to tinker, but I also appreciate the simplicity and logic behind the Three-Fund Portfolio.

I really appreciate your continued interest in my thread.

Re: Portfolio Strategy Questions

Posted: Sat Aug 18, 2018 2:07 pm
by MotoTrojan
tweet737 wrote:
Sat Aug 18, 2018 2:03 pm
MotoTrojan wrote:
Sat Aug 18, 2018 1:45 pm
tweet737 wrote:
Sat Aug 18, 2018 1:34 pm
MotoTrojan wrote:
Fri Aug 17, 2018 9:02 pm
The 401k fund could be total return whereas you’d need to add the dividend to a Vanguard fund.
Do the funds have the same asset allocation to equities? International?
Since you asked, the fund is the American Funds 2035 Class R-6 (RFFTX). RFFTX is put together very differently than the Vanguard 2035 equivalent, especially since it has active vs passive holdings. But the VG 2035 is not an option for me in my 401K. However, I CAN hold all the VG Total Stock, Total Intl Stock and Total Bond funds in my 401K.

I think there is a LOT to be said for Ret Date funds to remove the desire to tinker, but I also appreciate the simplicity and logic behind the Three-Fund Portfolio.

I really appreciate your continued interest in my thread.
All 2035 funds aren’t created the same. May have a higher allocation to equities and/or US stocks which would explain the recent outperformance. A better comparison to see what the active (doubt it’s that active) is achieving would be a frequently rebalanced 3-fund that replicates the American fund’s AA. True apples to apples.