Bear Check-Up

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hellobogle
Posts: 20
Joined: Sat Mar 01, 2014 4:17 pm

Bear Check-Up

Post by hellobogle » Tue Nov 20, 2018 2:00 pm

Hello Bogleheads!
This will be my first bear market, so I wanted to get a check-up and make sure that I am well-prepared. Any advice would be greatly appreciated.

Emergency funds: 1 month
Debt: $1000 left on financed purchase. Credit card is paid monthly.
Tax Filing Status: Single
Tax Rate: 24% Federal, 6.65% State, 3.876% City
State of Residence: New York
Age: 31
Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 30-40% of stocks
Total Portfolio Value: $150,000
Income: $120,000

403b
39% Blackrock Lifepath 2050 (LIPKX) (0.11%)
7% Vanguard Strategic Small-Cap Equity Investor (VSTCX) (0.29%)
5% Goldman Sachs International Small Cap Insights Institutional (GICIX) (0.90%)
Company match: 50% of all contributions

Roth IRA at Vanguard
2% Vanguard FTSE All-World ex-US Small Capital Index Fund Investor Shares (VFSVX) (0.25%)
16% Vangaurd Small Cap Value Index Fund (VSIAX) (0.07%)
6% Vanguard FTSE All World ex-US Small Cap ETF (VSS) (0.13%)

TDA
25% Fixed Return fund guaranteed 7% annual return with no principal loss

New annual Contributions
$27,000 403b (includes $9,000 company match)
$5,500 Roth IRA
I can no longer contribute to the TDA

Funds available in 403(b) (in addition to bond funds and irrelevant LifePath funds)
Blackrock LifePath Index 2050 K (LIPKX) (0.11%)
Invesco Comstock R6 (ICSFX) (0.42%)
Vanguard 500 Index (VFIAX) (0.04%)
Vanguard Mid Cap Index (VIMAX) (0.05%)
Vanguard Strategic Small-Cap Equity (0.29%)
Artisan International Value (APDKX) (1.09%)
Goldman Sachs International Small Cap Institutional (GICIX) (0.90%)
Vanguard Real Estate Index (VGSLX) (0.12%)

Questions:

1. Should I be contributing to the Traditional 403b or the Roth 403b? I have both a Traditional 403b and a Roth 403b available. I had previously saved everything into the Traditional 403b. Last year, I switched to the Roth 403b due to the lower tax brackets however the significant company match automatically goes into the traditional. Does this affect my ability to contribute to a Roth IRA? I am pushing against the income limits. Should I even consider the Roth 403b with the high taxes?

2. I have never created a taxable account. Should I do so now? I could probably save some more. I am wondering if now would be a good time to start saving more due to the potential upcoming bear market. Would it be better to pay off my $1000 financed purchase or re-save my emergency fund instead?

3. Anything else I should be aware of as I enter my first bear market?

Thank you again for all of your support through this journey!

Farmergolf
Posts: 5
Joined: Tue Nov 25, 2014 1:05 pm

Re: Bear Check-Up

Post by Farmergolf » Tue Nov 20, 2018 2:05 pm

I am not up to date on all funds but think I should changed all my stuff to the TDA fixed return fund that guarantees 7% with no lose of principal.
Edit- I googled real quick and see it is a pension plan type fund. That sounds like a great deal, would put all I could in that!

hellobogle
Posts: 20
Joined: Sat Mar 01, 2014 4:17 pm

Re: Bear Check-Up

Post by hellobogle » Tue Nov 20, 2018 2:22 pm

Thank you Farmer Golf. I have allocated everything in that account to that fund, however I am no longer with that employer so I cannot contribute any more money to that account. I use this as my "bond" allocation an carry no other bonds in my portfolio. This also allows me to be more risky with my Roth IRA in all small and small-value funds.

Aside from the quirky Fixed Return fund, is there any other advice regarding my questions above?

hap_ca
Posts: 20
Joined: Sat Jun 09, 2018 3:42 pm

Re: Bear Check-Up

Post by hap_ca » Tue Nov 20, 2018 2:27 pm

That black rock fund looks actively managed? I’d get out of that and shift the 403b to a blend of VFIAX and VIMAX to mirror VTSAX as closely as possible.

Roth can go 100% in vanguard total international since the 403 has no good options. It already holds small caps so I’d just get rid of the other tilts and use a single fund to reduce complexity.

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welderwannabe
Posts: 827
Joined: Fri Jun 16, 2017 8:32 am

Re: Bear Check-Up

Post by welderwannabe » Tue Nov 20, 2018 2:28 pm

hellobogle wrote:
Tue Nov 20, 2018 2:00 pm
1. Should I be contributing to the Traditional 403b or the Roth 403b? I have both a Traditional 403b and a Roth 403b available. I had previously saved everything into the Traditional 403b. Last year, I switched to the Roth 403b due to the lower tax brackets however the significant company match automatically goes into the traditional. Does this affect my ability to contribute to a Roth IRA? I am pushing against the income limits. Should I even consider the Roth 403b with the high taxes?
Contributing to a traditional will reduce your MAGI, which is what the Roth IRA limits are based on. With being as close to the phaseout band as you are, 403b traditional contributions could lower your MAGI enough to allow you to contribute to a Roth. You will just have to keep an eye on things.

With your large state and city tax rates, I would probably go traditional even if you wern't close. I think it makes more sense.
hellobogle wrote:
Tue Nov 20, 2018 2:00 pm
2. I have never created a taxable account. Should I do so now? I could probably save some more. I am wondering if now would be a good time to start saving more due to the potential upcoming bear market. Would it be better to pay off my $1000 financed purchase or re-save my emergency fund instead?
Once you have maxxed out 403b and Roth IRA you should do a taxable. As to the debt, I hate debt so I would pay it off immediately. Just my opinion...$1,000 isn't gonna mean a hill of beans one way or the other in your financial picture with a $120K income, so why not just get rid of it.
hellobogle wrote:
Tue Nov 20, 2018 2:00 pm
3. Anything else I should be aware of as I enter my first bear market?
No one knows where the market is headed. No one. Just strap in and keep on course.

I would not slice and dice small and mid-cap, but that is a preference thing. I slice and dice my bonds instead.

Your fund selections all look good to me. Regardless of indexed or active management, they are all very low ER. You are in real good shape.

EDIT: I just missed the 5% Goldman Sachs International Small Cap Insights Institutional (GICIX) (0.90%) fund. Dump that. Its way too expensive.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

hap_ca
Posts: 20
Joined: Sat Jun 09, 2018 3:42 pm

Re: Bear Check-Up

Post by hap_ca » Tue Nov 20, 2018 2:32 pm

The Blackrock fund returned -7.86% in the past 5 years. Vanguard target retirement 2050 is up 25.99% in the same period. Dump the black rock fund

hellobogle
Posts: 20
Joined: Sat Mar 01, 2014 4:17 pm

Re: Bear Check-Up

Post by hellobogle » Tue Nov 20, 2018 3:09 pm

Thank you for your reply. I did not realize that the Blackrock LifePath funds varied their allocation to the index funds based on their proprietary outlook on asset class projections. Is this different than Vanguard's Target Retirement changing allocations (adding international bonds, increasing international allocation)?

Here is the Blackrock LifePath 2050 current allocation:
50% - iShares Russell 1000 Index
31% - iShares Core MCSI Total International Stock
16% - iShares Developed Real Estate
1% - iShares US Aggregate Bond Index Fund
1% - iShares Russell 2000 Small Cap
0.4% - iShares MCSI Total International Index

I am not seeing your posted 5-year returns. Morningstar reports the following 5-year returns:
Blackrock LifePath Index 2050 (LIPKX) - 6.94
Vanguard Target Retirement 2050 (VFIFX) - 6.77

Should I be concerned? Is there a way to see how much it has changed over the years? Morningstar reports 5% turnover.

Thank you for encouraging me to look into the Blackrock LifePath fund more deeply. Is it worth switching? My international options are quite limited. Given the drastic differences in contributions to the 403b vs. the Roth IRA, my US/Intl allocation would be off in no time. Help! I need portfolio advice!

Grt2bOutdoors
Posts: 19490
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Bear Check-Up

Post by Grt2bOutdoors » Tue Nov 20, 2018 3:20 pm

Pay off your debt. Boost your e-fund (secure job or not), 1 month is not enough.
You'll have plenty of time to experience bear markets, focus on the immediate tasks at hand - efund, debt payoff.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Earl Lemongrab
Posts: 5826
Joined: Tue Jun 10, 2014 1:14 am

Re: Bear Check-Up

Post by Earl Lemongrab » Tue Nov 20, 2018 5:11 pm

hellobogle wrote:
Tue Nov 20, 2018 2:00 pm
Hello Bogleheads!
This will be my first bear market
How do you know you're entering a bear market? The stock market has been up and down this year. We've hit this price level for the S&P 500 three times this year so far. It might go down more, it might rebound again. No one knows.

A core principle of my investing plan is that I don't know what the markets are doing, so I don't try to time them. I have an allocation set up with 5/25 rebalancing ranges. I rebalance and tax-loss harvest as needed.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

aristotelian
Posts: 4885
Joined: Wed Jan 11, 2017 8:05 pm

Re: Bear Check-Up

Post by aristotelian » Tue Nov 20, 2018 5:23 pm

In your tax bracket, you certainly want Traditional for your 403b.

If you can stay the course with your allocation, then you are prepared. That is a personal question for every investor.

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welderwannabe
Posts: 827
Joined: Fri Jun 16, 2017 8:32 am

Re: Bear Check-Up

Post by welderwannabe » Tue Nov 20, 2018 8:41 pm

hellobogle wrote:
Tue Nov 20, 2018 3:09 pm
I am not seeing your posted 5-year returns. Morningstar reports the following 5-year returns:
Blackrock LifePath Index 2050 (LIPKX) - 6.94
Vanguard Target Retirement 2050 (VFIFX) - 6.77

Should I be concerned? Is there a way to see how much it has changed over the years? Morningstar reports 5% turnover.

Thank you for encouraging me to look into the Blackrock LifePath fund more deeply. Is it worth switching? My international options are quite limited. Given the drastic differences in contributions to the 403b vs. the Roth IRA, my US/Intl allocation would be off in no time. Help! I need portfolio advice!
I am not seeing the returns the other poster mentioned either. Not sure where they came from.

The Blackrock target fund looks fine to me.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

hellobogle
Posts: 20
Joined: Sat Mar 01, 2014 4:17 pm

Re: Bear Check-Up

Post by hellobogle » Wed Nov 21, 2018 9:47 am

Thank you for everyone's advice. So here is what I am collectively hearing:

1. Switch from Roth 401K to Traditional 401K.

2. Pay off debt and build up emergency fund before opening a taxable account.

Does this sound alright? I will continue to keep my eye on the Blackrock LifePath fund. Thank you again! I don't know what I would do without this community!

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jakehefty17
Posts: 50
Joined: Fri May 11, 2018 6:48 pm
Location: New York

Re: Bear Check-Up

Post by jakehefty17 » Wed Nov 21, 2018 10:15 am

hellobogle wrote:
Wed Nov 21, 2018 9:47 am
Thank you for everyone's advice. So here is what I am collectively hearing:

1. Switch from Roth 401K to Traditional 401K.

2. Pay off debt and build up emergency fund before opening a taxable account.

Does this sound alright? I will continue to keep my eye on the Blackrock LifePath fund. Thank you again! I don't know what I would do without this community!
+1
"The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence." -Charles Bukowski

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CyclingDuo
Posts: 1838
Joined: Fri Jan 06, 2017 9:07 am

Re: Bear Check-Up

Post by CyclingDuo » Wed Nov 21, 2018 11:59 am

hellobogle wrote:
Tue Nov 20, 2018 2:00 pm
This will be my first bear market, so I wanted to get a check-up and make sure that I am well-prepared. Any advice would be greatly appreciated.

403b
39% Blackrock Lifepath 2050 (LIPKX) (0.11%) - Dump
7% Vanguard Strategic Small-Cap Equity Investor (VSTCX) (0.29%) - Dump
5% Goldman Sachs International Small Cap Insights Institutional (GICIX) (0.90%) - Dump

Company match: 50% of all contributions

Roth IRA at Vanguard
2% Vanguard FTSE All-World ex-US Small Capital Index Fund Investor Shares (VFSVX) (0.25%)
16% Vangaurd Small Cap Value Index Fund (VSIAX) (0.07%)
6% Vanguard FTSE All World ex-US Small Cap ETF (VSS) (0.13%)

New annual Contributions
$27,000 403b (includes $9,000 company match)
$5,500 Roth IRA
I can no longer contribute to the TDA

Funds available in 403(b) (in addition to bond funds and irrelevant LifePath funds)
Vanguard 500 Index (VFIAX) (0.04%)
Vanguard Mid Cap Index (VIMAX) (0.05%)
Vanguard Total Bond Market Fund

*Vanguard Real Estate Index (VGSLX) (0.12%)


Questions:

1. Should I be contributing to the Traditional 403b or the Roth 403b? I have both a Traditional 403b and a Roth 403b available. I had previously saved everything into the Traditional 403b. Last year, I switched to the Roth 403b due to the lower tax brackets however the significant company match automatically goes into the traditional. Does this affect my ability to contribute to a Roth IRA? I am pushing against the income limits. Should I even consider the Roth 403b with the high taxes?
Traditional 403b all the way, then fill your Roth IRA space.
hellobogle wrote:
Tue Nov 20, 2018 2:00 pm
2. I have never created a taxable account. Should I do so now? I could probably save some more. I am wondering if now would be a good time to start saving more due to the potential upcoming bear market. Would it be better to pay off my $1000 financed purchase or re-save my emergency fund instead?
Sure, after your 403b and Roth IRA space is filled, if you have remaining money to invest/save - consider tax efficient investments in taxable (Total Stock Market, Total International) as well as cash and CD's for shorter term goals that are less than 5 - 7 years away
hellobogle wrote:
Tue Nov 20, 2018 2:00 pm
3. Anything else I should be aware of as I enter my first bear market?
You really want to keep your costs low. For that reason, I would dump the higher cost funds (in red above) that you are currently using in your 403b and go right for the candy - the lower cost Vanguard Funds in the green above. I would also add the Vanguard Total Bond Market Fund assuming it is available within your plan (you mentioned bond funds were available, you just didn't list them so I typed it in on your list) to build the three fund portfolio, or use the *REIT fund to build the CORE Four fund. You would use the S&P 500 Index fund in combination with the Mid Cap Fund in your 403b to approximate the Total Stock Market. You didn't list it, but you could use the Extended Market Fund as well if available.

Approximating Total Stock Market instructions are here:

https://www.bogleheads.org/wiki/Approxi ... ock_market

Corrections/Bear Markets take weeks/months (for corrections) to years (bear markets) to play out in terms of the full cycle, so your strategy should be to keep contributing/investing through it all (DCA) with your automated monthly contributions. They are part of the journey, and having your asset allocation set to a level you can tolerate with your focus on the longer term is key to not get sucked into the doom and gloom during the down cycles, or the euphoria in the up cycles. Study the ups and downs of the business cycle here so you know what to expect with all of the swoons and ascensions:

https://www.yardeni.com/pub/sp500corrbear.pdf

A nice concise primer from a Boglehead here is available for you to read entitled Road Map for Investing:

https://investingroadmap.wordpress.com/
"Everywhere is within walking distance if you have the time." ~ Steven Wright

3funder
Posts: 783
Joined: Sun Oct 15, 2017 9:35 pm

Re: Bear Check-Up

Post by 3funder » Wed Nov 21, 2018 12:04 pm

At age 31, your portfolio could be comprised of 100% emerging market stocks and it wouldn't matter. Your portfolio is positioned just fine for any kind of market conditions you might experience at this point in your investing life.

btenny
Posts: 4608
Joined: Sun Oct 07, 2007 6:47 pm

Re: Bear Check-Up

Post by btenny » Wed Nov 21, 2018 1:12 pm

I am not sure where or how you keep your Emergency funds but 1 month is too small. You need at least 3 months of funds readily available to use if you get fired tomorrow or have a family emergency etc.. I prefer 6 months of savings. In your case you might need 6 month to find a new job or recover from a skiing/climbing accident. Life happens.

In my case (retired old guy) I keep one year of spending money in cash in my brokerage account that pays 1.5% or so. I also keep several years of $$$ in muni funds in my taxable account. That way if the stock market crashes or I need extra money for a health issue I just sell those bonds. No worry.

Good Luck.

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