Help Setting up Taxable 3 Fund Portfolio

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Topic Author
Fisherman8
Posts: 75
Joined: Tue Jan 07, 2014 4:36 pm

Help Setting up Taxable 3 Fund Portfolio

Post by Fisherman8 »

Help setting up Taxable 3 Fund Portfolio

I first want to thank Bogleheads for helping me get debt free in two years. I posted this back in 2016! Debt or Taxable Account

I am now looking to start a taxable investment account with weekly contributions but I need clarity on the allocation. Thank you!

Emergency Fund: Yes
Tax Filing Status: Single
Tax Rate: Federal 35% State 0%
State of Residence: Florida
Age: 36
Debt: Zero
Desired Allocation: Not sure Anywhere from 80:20 to 60:40
Desired International Allocation: Not Sure 20-50%
Simplicity is important to me.
These are the three funds for my taxable account - I just need help with allocation: I have access to DFA funds with no additional advisory cost but thoughts about keeping it simple with Vanguard 3 or 4 Fund Portfolio:
VTSAX Vanguard Total Stock Market Index Fund Admiral Share
VTIAX Vanguard Total International Stock Index Admiral Shares
VWIUX Vanguard Intermediate- Term Tax-Exempt Fund Admiral Share.
**What about International Bonds?

Current Portfolio
$250,000 Roth 401k & Roth IRA with DFA 100% stocks
US Vector DFVEX 68%
International Vector DFVQX 16%
Emerging Market Core DFCEX 9%
Global Real Estate DFGEX 7%

$15,000 Taxable Vanguard Money Market Fund
$50,000 Cash in Ally Bank Savings Account

New Contributions
Annual: $18,000 Roth 401K + Traditional Match 401k
Annual: $5,500 Roth IRA
Weekly: $10,000 invested in Taxable

Net Worth
$500,000 Primary Residency
$250,000 Retirement Accounts
$2,000,000 estimated Business Value
$50,000 Cash
$35,000 Vehicle

Goals for Taxable Account:

Certainty:
3-10 years: Purchase primary family home 1.2-1.5 million with cash using equity from current home.
6.3 million liquid assets in 10 years

Possibly:
Commercial Practice Building 400k-1 million
I may sell one of my practices in 5-7 years for about 1 million pre tax dollars.
I also may cut back on working once I hit 40 which will reduce my savings rate.

Here are four allocations I have considered:
I like the even numbers so I can visualize where I need to put new investments to rebalance each week.
US Stocks | International Stocks | Bonds
40|20|40
34|33|33 (I like this one the most but not sure about amount Int).
50|25|25
60|20|20

Thank you for taking the time to read and respond.
l1am
Posts: 372
Joined: Wed Mar 02, 2016 2:27 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by l1am »

Is the taxable account purely for retirement?

I’m in a similar conundrum w/taxable since I might want to partially dip into the funds within 5-10 years and not sure I want to suffer a 50% drawdown.

I’m currently targeting 60/20/20 in taxable (exact same funds), which matches 80/20 overall allocation.

Considering a higher bond allocation for that reason (perhaps iBonds too but that’s limited at $10k).

And did I read that right, $10k per WEEK investment?
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by PFInterest »

401k is 18.5 this year, 19K next year.
you probably shouldnt be doing Roth yet.
buying weekly is annoying to me. i think monthly is easier for TLH purposes.

all you need to do is buy total US/INTL, increase bonds in 401k.
once thats full then add munis, ibonds.

continue indefinitely.
l1am
Posts: 372
Joined: Wed Mar 02, 2016 2:27 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by l1am »

PFInterest wrote: Fri Nov 23, 2018 3:20 pm 401k is 18.5 this year, 19K next year.
you probably shouldnt be doing Roth yet.
buying weekly is annoying to me. i think monthly is easier for TLH purposes.

all you need to do is buy total US/INTL, increase bonds in 401k.
once thats full then add munis, ibonds.

continue indefinitely.
So you would increase bonds in 401k to 100%?

There is some controversy over where to allocate bonds, which is why I settled on a matching bond allocation in both 401k and taxable.

Having all bonds in 401k means missing out on some compounding growth when you’re almost certainly not touching that until retirement (low tax bracket).

Also there the matter of max drawdown in taxable if you need to access funds, plus the ability to directly reallocate bonds->stocks in taxable in a market recession.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by PFInterest »

l1am wrote: Fri Nov 23, 2018 3:26 pm So you would increase bonds in 401k to 100%?

There is some controversy over where to allocate bonds, which is why I settled on a matching bond allocation in both 401k and taxable.

Having all bonds in 401k means missing out on some compounding growth when you’re almost certainly not touching that until retirement (low tax bracket).

Also there the matter of max drawdown in taxable if you need to access funds, plus the ability to directly reallocate bonds->stocks in taxable in a market recession.
yes.
no reason to recreate portfolio across different accounts.
total portfolio return matters more. remember, the 401k is a loan to the govt. this persons projected NW wont put them in a lower bracket possibly.
this is for retirement. there should be no draw down. if there is, then its a TLH opportunity anyways.
new money and bonds in 401k could just as easily be allocated to stocks in a bear.
Topic Author
Fisherman8
Posts: 75
Joined: Tue Jan 07, 2014 4:36 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by Fisherman8 »

Thank you for the replies.
I just included the 401k so people could see the whole picture. However, it is going to be a small, long term bucket for retirement assets. My taxable will surpass my retirement accounts in about 6 months of contributions.
So I would like to look at the taxable account as a separate asset. I may need to draw some of the money in 3-10 years to buy my family beach house (becoming my primary home). I plan on working for 15+ years. I would just like some clarity on the allocations people would recommend in my situation so I can set it up at beginning of next year and then just contribute on a weekly/monthly basis - rebalancing with new contributions.
retiredjg
Posts: 41925
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by retiredjg »

I first want to thank Bogleheads for helping me get debt free in two years. I posted this back in 2016! Debt or Taxable Account
Very, very impressive. :D


I suggest 40% US, 30% Foreign, 30% bonds. Or 45% US, 25% Foreign, 30% bonds depending on whether you want 43% or 36% of your stocks in international.

70% stock and 30% bonds is plenty aggressive for you - you essentially have no need for any risk because you save so much. Of course, 60/40 would be fine as well.
Topic Author
Fisherman8
Posts: 75
Joined: Tue Jan 07, 2014 4:36 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by Fisherman8 »

retiredjg wrote: Sat Nov 24, 2018 11:53 am
I first want to thank Bogleheads for helping me get debt free in two years. I posted this back in 2016! Debt or Taxable Account
Very, very impressive. :D


I suggest 40% US, 30% Foreign, 30% bonds. Or 45% US, 25% Foreign, 30% bonds depending on whether you want 43% or 36% of your stocks in international.

70% stock and 30% bonds is plenty aggressive for you - you essentially have no need for any risk because you save so much. Of course, 60/40 would be fine as well.
Thank you!
I was thinking around 30-35% bonds. What would be the pros/cons of doing higher international versus lower percentage? I still don't fully understand the international allocation. If globally its around 53:47 ratio US:International wouldn't that mean if you had close to the 50:50 it would be the most diversified? Or does that add risk that is not necessary in my situation?
retiredjg
Posts: 41925
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by retiredjg »

Fisherman8 wrote: Sat Nov 24, 2018 7:15 pm What would be the pros/cons of doing higher international versus lower percentage? I still don't fully understand the international allocation. If globally its around 53:47 ratio US:International wouldn't that mean if you had close to the 50:50 it would be the most diversified? Or does that add risk that is not necessary in my situation?
Nobody knows what will be best during the years that you invest. Nevertheless, opinions abound and they are all over the map.

Our mentor Jack Bogle, suggests that no international stock is needed because US stocks have a lot of foreign exposure. So Jack suggests 0% to 20% (1/5th of the stocks you hold)...if you simply must have some.

Vanguard suggests 20% as a minimum up to the market weight which wanders around between about 45% and the low 50's. They think you need some, maybe a good chunk of it.

Taylor Larimore suggests 20% because that is the junction of the two. Other people suggest other things.

See any even remotely reliable pattern? :D

Yes, being closer to market weight is probably more diversified and also probably carries more risk.

What to do? Pick a number between none and half - something that makes sense to you and that you are comfortable with - and stick with it and don't switch around a lot.

I think most people would agree on that.
retiredjg
Posts: 41925
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by retiredjg »

viewtopic.php?p=3007700#p3007700

Some food for thought.
Topic Author
Fisherman8
Posts: 75
Joined: Tue Jan 07, 2014 4:36 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by Fisherman8 »

retiredjg wrote: Sat Nov 24, 2018 7:57 pm viewtopic.php?p=3007700#p3007700

Some food for thought.
Yes thank you. I read through a lot of those post which really just made me more confused :)
I guess the biggest thing is I don't need a lot of risk due to my savings rate and 30-40% bonds would be completely fine at my age. I would love to have a even ratio (1:1, 2:1, 3:1) so I can just visually see where I need to put money each time but Im sure I can just do a quick calculation each week. I am leaning towards your initial allocation you suggested of 40:30:30.

One last question - if I am going to be contributing weekly is there a statistically better day in the week to buy stocks if I do it every week? I am not talking about timing the market but I wonder if human behavior tends to warrant a better day of the week to buy?
retiredjg
Posts: 41925
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help Setting up Taxable 3 Fund Portfolio

Post by retiredjg »

Fisherman8 wrote: Sun Nov 25, 2018 10:22 am Yes thank you. I read through a lot of those post which really just made me more confused :)
Keep in mind that when there is a lot of disagreement it may not matter a lot because there are a lot of good choices.

One last question - if I am going to be contributing weekly is there a statistically better day in the week to buy stocks if I do it every week? I am not talking about timing the market but I wonder if human behavior tends to warrant a better day of the week to buy?
Nothing reliable that I know of.
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