Managing my own portfolio

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soulpatch
Posts: 9
Joined: Thu Dec 06, 2018 1:37 pm

Managing my own portfolio

Post by soulpatch » Thu Dec 06, 2018 4:02 pm

Hello hordes of investment savvy people!

I recently took the plunge to manage my own investments. I had an excellent fee-only financial planner who was charging 0.8% of AUM (across all of my investments, including 401k and 403b). But I figured I could educate myself and keep that 0.8% for myself. So I read up - Bogle, Bernstein, Malkiel, Shiller, The Boglehead's Guide, among others. And then I fired my CFP (in a nice way - he's a great guy!).

Anyway, now that I have to take charge of my own investments I am struggling with keeping the more complex mix of investments that my advisor had invested me in or simplifying to a 3-fund, 4-fund, or 5-fund portfolio. So this is a portfolio question above all else.

Here are my vitals:
Emergency funds: Got it covered
Debt: $320k at 3.5% (house is probably worth $900k - I got lucky here!), and $4k of student loan at 3.375%
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 4.63% State
State of Residence: Colorado
Age: 41/41
Desired Asset allocation: 80% stocks / 20% bonds (my advisor had me at 70/30, but I think more aggressive might be right, advice appreciated!)
Desired International allocation: 40% of stocks (advice also welcomed here)
Current portfolio: Around $530k

Current retirement assets

Taxable EDIT: (VTSAX has always been at Vanguard - this was my experimental account in doing things myself, the DFCEX and VVIAX are being transferred as I write)
2.07% Vanguard Total Stock Market (VTSAX) (0.04%) EDIT: as of 12/8/18 unrealized loss -$377.40
0.82% DFA Emerging Markets Core Equity (DFCEX) (0.55%) EDIT: as of 12/7/18 unrealized gain +$831.98
0.49% Vanguard Value Index Fund Admiral (VVIAX) (0.05%) EDIT: as of 12/8/18 unrealized gain/loss [cannot tell due to transfer]

His 401k
2.48% Fidelity Extended Market Index (FSMAX) (0.045%)
16.44% Fidelity US Bond Index (FXNAX) (0.025%)
8.77% Fidelity Sparta Intnl Index (FSPSX) (0.045%)
12.61% Fidelity 500 (FXAIX) (0.015%)
Company match: 5%

His Roth IRA (being transferred to Vanguard as I write!)
2.56% Vanguard REIT Index Admiral (VGSLX) (0.12%)
1.16% DFA US Small Cap Value (DFSVX) (0.52%)
4.64% DFA Intnl Small Cap Value (DISVX) (0.68%)

His Traditional IRA (being transferred to Vanguard as I write!)
3.22% Vanguard REIT Index Admiral (VGSLX) (0.12%)

Her 403b (TSP)
14.48% G fund (no ticker) (0.033%)
2.99% I fund (no ticker) (0.033%)
7.16% S fund (no ticker) (0.033%)
10.36% C fund (no ticker) (0.033%)
Employer match: 5%

Her Roth IRA (being transferred to Vanguard as I write!)
1.36% DFA US Small Cap Value (DFSVX) (0.52%)
0.27% DFA Intnl Small Cap Value (DISVX) (0.68%)
4.46% DFA Emerging Markets Core Equity (DFCEX) (0.55%)
1.27% Vanguard REIT Index Admiral (VGSLX) (0.12%)

Her Traditional IRA (being transferred to Vanguard as I write!)
2.34% DFA US Small Cap Value (DFSVX) (0.52%)

Total of All Accounts: Okay, so that only equals 99.95%, but there are small cash balances in various accounts making up the remainder. I hope that's close enough!

Contributions

New annual Contributions
$19,000 his 401k (about $5k employer match, EDIT: in addition to the $19k)
$19,000 her 403b (about $5k employer match, EDIT: in addition to the $19k)
EDIT: $6,000 his Roth IRA
EDIT: $6,000 her Roth IRA
$30,000 taxable (this is aspirational, I only started saving this heavily 6 months ago, but I think I should have this much available in 2019)

Available funds

Funds available in his 401(k)
Af Amcap R6 (RAFGX) (0.36%)
Fidelity 500 Index (FXAIX) (0.015%)
Mainstay Lg Cap Gr I (MLAIX) (0.75%)
NB Sustain Eq I (NBSLX) (0.67%)
Vanguard Equity Inc Adm (VEIRX) (0.17%)
Vanguard Growth Index Adm (VIGAX) (0.05%)
Vanguard Value Index Adm (VVIAX) (0.05%)
Artisan Mid Cap Inv (ARTMX) (1.18%)
Fidelity Extended Market Index (FSMAX) (0.045%)
Vanguard Selected Value (VASVX) (0.39%)
Abf Sm Cap Value Y (ABSYX) (0.91%)
Crln E Sm Cap Gr A (HRSCX) (1.08%)
AF Europac Growth R5 (RERFX) (0.53%)
Fidelity Spartan Intnl Index (FSPSX) (0.045%)
Lzrd Emrg Mkts Eq Is (LZEMX) (1.08%)
Vanguard Target Retirement 2015 (VTXVX) 0.13%
Vanguard Target Retirement 2020 (VTWNX) 0.13%
Vanguard Target Retirement 2025 (VTTVX) 0.14%
Vanguard Target Retirement 2030 (VTHRX) 0.14%
Vanguard Target Retirement (VTTHX) 0.14%
Vanguard Target Retirement 2040 (VFORX) 0.15%
Vanguard Target Retirement 2045 (VTIVX) 0.15%
Vanguard Target Retirement 2050 (VFIFX) 0.15%
Vanguard Target Retirement 2055 (VFFVX) 0.15%
Vanguard Target Retirement 2060 (VTTSX) 0.15%
Vanguard Target Retirement 2065 (VLXVX) 0.15%
Vanguard Target Retirement Inc (VTINX) 0.13%
MIP CL 1 (no ticker bond fund) (0.77%)
Fidelity US Bond Index (FXNAX) (0.025%)
Metwest Tot Rtn Bd I (MWTIX) (0.45%)
Vanguard Intm Treasury ADM (VFIUX) (0.1%)
Vanguard Infl Prot Adm (VAIPX) (0.1%)
Fidelity Govt Money Markey (SPAXX) (0.42%)

Funds available in her 403(b)
Only government TSP Funds (G/F/C/S/I and L Funds)

Questions:
1. Here is the biggie: Do I keep the current allocation my former financial advisor put me in or simplify these holdings to make it easier to track and rebalance? I'm wary of a 3-investment portfolio because I'd like more exposure to REITs and small cap stocks. Maybe other things?

2. Do I keep the higher cost DFA investments since they give me small cap exposure and I cannot buy them w/o a broker?

3. Do I forego some tax advantaged saving in order to grow my taxable/accessible account faster? I'm thinking early retirement here. EDIT: Okay, to provide further clarity, I'm looking to get to financial independence, not retirement. My job is looking uncertain past 9/2019 though, while my wife's is rock solid (as it can get) with the federal government. In other words, my situation may change in the near future, but hers will not. This is a flexible issue - my wife is happy at her job, which is also where we get most of our benefits, including health - and our family can survive and still save max 403b and max Roths on just her income. The having taxable/accessible money question stems from this employment uncertainty as much or more than the financial independence question. Regardless, I'd like the ability to retire from our current jobs at around 50 - so some drawdown on taxable accounts will be necessary for a few years until 55 (if we keep the 401ks) or 59 1/2 (if we roll over into IRAs).

4. Should I switch my taxable account to ETFs to reduce tax drag? EDIT: Sounds like the answer is at Vanguard it makes no difference.

5. What changes would you recommend to get to an 80/20 portfolio? Is 80/20 appropriate?

6. Any other fine tuning advice appreciated!

Thanks in advance to anyone who takes the time to go through all of this and provide feedback!

- Jason
Last edited by soulpatch on Sun Dec 09, 2018 12:53 am, edited 1 time in total.

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Duckie
Posts: 6063
Joined: Thu Mar 08, 2007 2:55 pm

Re: Managing my own portfolio

Post by Duckie » Thu Dec 06, 2018 6:23 pm

soulpatch, welcome to the forum.
soulpatch wrote:Age: 41/41
Desired Asset allocation: 80% stocks / 20% bonds (my advisor had me at 70/30, but I think more aggressive might be right, advice appreciated!)
I agree with your advisor. At your ages 70/30 is more reasonable.
Desired International allocation: 40% of stocks (advice also welcomed here)
Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks. Your 40% is reasonable.
New annual Contributions
$19,000 his 401k (about $5k employer match)
$19,000 her TSP (about $5k employer match)
$5,500 his Roth IRA
$5,500 her Roth IRA
The IRA contributions go up to $6K in 2019. Is the $5K employer match on top of the $19K or included?
Funds available in his 401(k)
The best options are:
  • Fidelity 500 Index (FXAIX) (0.015%) -- Large caps, 80% of US stocks
  • Fidelity Extended Market Index (FSMAX) (0.045%) -- Mid/small caps, 20% of US stocks
  • Fidelity Spartan Intnl Index (FSPSX) (0.045%) -- Developed markets, 75% of international stocks
  • Fidelity US Bond Index (FXNAX) (0.025%) -- US bonds
Do I keep the current allocation my former financial advisor put me in or simplify these holdings to make it easier to track and rebalance?
Simplify.
I'm wary of a 3-investment portfolio because I'd like more exposure to REITs and small cap stocks/
You can tilt to REITs and small caps and still simplify.
Do I keep the higher cost DFA investments since they give me small cap exposure and I cannot buy them w/o a broker?
I wouldn't. You can get small cap value in a cheaper index fund.
Do I forego some tax advantaged saving in order to grow my taxable/accessible account faster? I'm thinking early retirement here.
I wouldn't. You're already planning to contribute $30K annually in taxable.
Should I switch my taxable account to ETFs to reduce tax drag?
I wouldn't. That tax drag is small.
What changes would you recommend to get to an 80/20 portfolio? Is 80/20 appropriate?
I would recommend 70/30 but 80/20 is okay. The following example has an AA of 80% stocks, 20% bonds, with 40% of stocks in international. That breaks down to 48% US stocks, 32% international stocks, and 20% bonds. You could have:

Taxable at Vanguard -- 3%
3% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

His 401k -- 40%
26% (FXAIX) Fidelity 500 Index Fund (0.015%)
6% (FSMAX) Fidelity Extended Market Index Fund (0.045%)
8% (FSPSX) Fidelity International Index Fund (0.045%)

Her Thrift Savings Plan -- 35%
15% (N/A) I Fund (0.033%)
20% (N/A) G Fund (0.033%)

His Traditional IRA at Vanguard -- 3%
3% (VSAIX) Vanguard Small-Cap Value Index Fund Admiral Shares (0.07%)

Her Traditional IRA at Vanguard -- 2%
2% (VSAIX) Vanguard Small-Cap Value Index Fund Admiral Shares (0.07%)

His Roth IRA at Vanguard -- 9%
9% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

Her Roth IRA at Vanguard -- 8%
8% (VGSLX) Vanguard REIT Index Fund Admiral Shares (0.12%)

My comments:
  • This has one fund in all accounts except the two employer plans. All rebalancing can be done in them.
  • This ignores the tax consequences of selling in taxable.
Something to think about.

User avatar
ruralavalon
Posts: 14250
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Managing my own portfolio

Post by ruralavalon » Thu Dec 06, 2018 6:59 pm

Welcome to the forum :) .

Those were excellent choices in reading materials. You made the right decision to get out from under that 0.80% AUM fee.


Questions.
Some additional information will be helpful in answering your questions. I wouldn't want to give you an example portfolio without first understanding your tax situation on the funds in your taxable account.

Is the taxable account at Vanguard?

What is the unrealized capital gain/loss status in each of these funds in the taxable account?

How early to you expect you might retire? At what age?

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.




Asset allocation.
soulpatch wrote:
Thu Dec 06, 2018 4:02 pm
Age: 41/41
Desired Asset allocation: 80% stocks / 20% bonds (my advisor had me at 70/30, but I think more aggressive might be right, advice appreciated!)
Desired International allocation: 40% of stocks (advice also welcomed here)
At age 41 I suggest about 25 -30% in bonds or other fixed income investments (like CDs). This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest 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).

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.


Fund selection and placement.
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, SIMPLE IRA, TSP etc.), where the choices offered are limited. Then complete the rest of the asset allocation using the nearly unlimited 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 plans. Do not try to put all components of the asset allocation in every account. Wiki article, "Asset allocation in multiple accounts".
soulpatch wrote:
Thu Dec 06, 2018 4:02 pm
Taxable
2.07% Vanguard Total Stock Market (VTSAX) (0.04%)
0.82% DFA Emerging Markets Core Equity (DFCEX) (0.55%)
0.49% Vanguard Value Index Fund Admiral (VVIAX) (0.05%)
Is the taxable account at Vanguard?

What is the unrealized capital gain/loss status in each of these funds? You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Given your tax bracket ("24% Federal, 4.63% State") you probably do not want to simplify yourself into a large income tax liability.

Those are all good funds in my opinion.

In general, in a taxable account I suggest using Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. Both are very tax-efficient. Wiki article "Tax-efficient fund placement". Those funds are also well suited to any type of account. Both are very diversified with very low expense ratios.


soulpatch wrote:
Thu Dec 06, 2018 4:02 pm
His 401k
2.48% Fidelity Extended Market Index (FSMAX) (0.045%)
16.44% Fidelity US Bond Index (FXNAX) (0.025%)
8.77% Fidelity Sparta Intnl Index (FSPSX) (0.045%)
12.61% Fidelity 500 (FXAIX) (0.015%)
Company match: 5%
Those are the correct funds to consider using in his 401k in my opinion.

For domestic stocks I suggest using a total stock market index fund where available; otherwise an S&P 500 index fund 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, 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.

Fidelity Spartan International Index (FSPSX) (0.045%) invests only in larger companies in developed markets, excluding Canada. You could instead use Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11% in other accounts, and not hold an international fund in your 401k.

Fidelity US Bond Index (FXNAX) (0.025%) is a total bond market index fund.


soulpatch wrote:
Thu Dec 06, 2018 4:02 pm
His Roth IRA (being transferred to Vanguard as I write!)
2.56% Vanguard REIT Index Admiral (VGSLX) (0.12%)
1.16% DFA US Small Cap Value (DFSVX) (0.52%)
4.64% DFA Intnl Small Cap Value (DISVX) (0.68%)

His Traditional IRA (being transferred to Vanguard as I write!)
3.22% Vanguard REIT Index Admiral (VGSLX) (0.12%)

Her 403b (TSP)
14.48% G fund (no ticker) (0.033%)
2.99% I fund (no ticker) (0.033%)
7.16% S fund (no ticker) (0.033%)
10.36% C fund (no ticker) (0.033%)
Employer match: 5%

Her Roth IRA (being transferred to Vanguard as I write!)
1.36% DFA US Small Cap Value (DFSVX) (0.52%)
0.27% DFA Intnl Small Cap Value (DISVX) (0.68%)
4.46% DFA Emerging Markets Core Equity (DFCEX) (0.55%)
1.27% Vanguard REIT Index Admiral (VGSLX) (0.12%)

Her Traditional IRA (being transferred to Vanguard as I write!)
2.34% DFA US Small Cap Value (DFSVX) (0.52%)
The traditional IRAs, his 401k, and her TSP should be considered for holding the bond allocation. Wiki article "Tax-efficient fund placement".

Preferably use the Roth IRAs for stock funds, such as Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%. If you want to go beyond the three-fund portfolio, the Roth IRAs might be suitable for Vanguard Small-Cap Value Index Fund Admiral (VSIAX) ER 0.07% and Vanguard Real Estate Index Fund Admiral Shares (VGSLX) ER 0.12%.


I wouldn't want to give you an example portfolio without first understanding your tax situation on the funds in your taxable account.



soulpatch wrote:
Thu Dec 06, 2018 4:02 pm
Questions:
1. Here is the biggie: Do I keep the current allocation my former financial advisor put me in or simplify these holdings to make it easier to track and rebalance? I'm wary of a 3-investment portfolio because I'd like more exposure to REITs and small cap stocks. Maybe other things?
As mentioned, at age 41 I suggest about 25 -30% in bonds or other fixed income investments (like CDs).

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".

I suggest starting with a very diversified three-fund portfolio. After covering those fundamentals consider adding extras like small-cap value or a REIT fund.

soulpatch wrote:
Thu Dec 06, 2018 4:02 pm
2. Do I keep the higher cost DFA investments since they give me small cap exposure and I cannot buy them w/o a broker?
Unless DFA will allow you to purchase more of those funds, I suggest instead using Vanguard funds in the soon-to-be IRAs at Vanguard. Your very significant ongoing contributions will shortly make the existing amounts in DFA Funds insignificant.


soulpatch wrote:
Thu Dec 06, 2018 4:02 pm
3. Do I forego some tax advantaged saving in order to grow my taxable/accessible account faster? I'm thinking early retirement here.
I think probably not. Tax-advantaged investing is very important.

How early to you expect you might retire? At what age?

Again, you can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.


soulpatch wrote:
Thu Dec 06, 2018 4:02 pm
4. Should I switch my taxable account to ETFs to reduce tax drag?
No, that's not necessary. At Vanguard the ETF is just another share class of the mutual fund, so the mutual fund and ETF have the same tax-efficiency.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: Managing my own portfolio

Post by megabad » Thu Dec 06, 2018 7:05 pm

Duckie's post is great. A little possible tweak, I might hold a little more international in your taxable. I know it seems like a small credit, but you can get up to $600 in FITC for basically no work (once you get over that, you have to fill out a little form and calculate some things). I am cheap like that.

Another consideration, you say you are in 24% bracket and that your are contributing close to the maximum directly to Roth IRA. Are you sure you are allowed to do this? Your income may be over the limit in the near future, so you may want to pursue the Backdoor Roth which mean you will need to rollover or convert the tIRAs first to avoid pro rata taxes.

User avatar
galeno
Posts: 1413
Joined: Fri Dec 21, 2007 12:06 pm

Re: Managing my own portfolio

Post by galeno » Thu Dec 06, 2018 9:55 pm

70-80% VT + 20-30% BND is all you need. KISS.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

Dandy
Posts: 5465
Joined: Sun Apr 25, 2010 7:42 pm

Re: Managing my own portfolio

Post by Dandy » Fri Dec 07, 2018 9:48 am

5. What changes would you recommend to get to an 80/20 portfolio? Is 80/20 appropriate?
The key to me is what is your number? You are adding close to 90k per year, which is great, but depending on your number you may get there or exceed it with a less aggressive allocation. I would suggest looking at how modest an annual return you need to get there given your savings rate and co. match. You don't have to use the minimum rate of return but it may show you how much wiggle room you have in setting an initial allocation or one to use further down the road.

I would not try to be overly aggressive after a 8 yr or so bull market.

soulpatch
Posts: 9
Joined: Thu Dec 06, 2018 1:37 pm

Re: Managing my own portfolio

Post by soulpatch » Sun Dec 09, 2018 1:00 am

Duckie wrote:
Thu Dec 06, 2018 6:23 pm
soulpatch, welcome to the forum.
Thanks Duckie! And thanks for the detailed response and AA recommendation. I adressed all of the questions you asked in my original post and used "EDIT:" to make those changes easier to find. I'm not sure any of those changes make a big difference in your recommendations, but thanks for the advice!

soulpatch
Posts: 9
Joined: Thu Dec 06, 2018 1:37 pm

Re: Managing my own portfolio

Post by soulpatch » Sun Dec 09, 2018 1:03 am

ruralavalon wrote:
Thu Dec 06, 2018 6:59 pm
Welcome to the forum :) .

Those were excellent choices in reading materials. You made the right decision to get out from under that 0.80% AUM fee.


Questions.
Some additional information will be helpful in answering your questions. I wouldn't want to give you an example portfolio without first understanding your tax situation on the funds in your taxable account.

Is the taxable account at Vanguard?

What is the unrealized capital gain/loss status in each of these funds in the taxable account?

How early to you expect you might retire? At what age?

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
Thanks ruralavalon! Great questions. I have updated my post to answer some of them using "EDIT:" to make it easier to find the changes. And thanks for pointing me to wikis, threads, and posts that will allow me to do some more research on my own.

soulpatch
Posts: 9
Joined: Thu Dec 06, 2018 1:37 pm

Re: Managing my own portfolio

Post by soulpatch » Sun Dec 09, 2018 1:08 am

Dandy wrote:
Fri Dec 07, 2018 9:48 am
5. What changes would you recommend to get to an 80/20 portfolio? Is 80/20 appropriate?
The key to me is what is your number? You are adding close to 90k per year, which is great, but depending on your number you may get there or exceed it with a less aggressive allocation. I would suggest looking at how modest an annual return you need to get there given your savings rate and co. match. You don't have to use the minimum rate of return but it may show you how much wiggle room you have in setting an initial allocation or one to use further down the road.

I would not try to be overly aggressive after a 8 yr or so bull market.
Thanks for responding Dandy! So my number is about $1.2M to both pay off the house and survive indefinitely using the 4% rule. You will see in my update above that my job is less certain starting late next year, so my savings rate and absolute savings in dollars will both suffer accordingly if that plays out. Note that we can still max my wife's 403b contributions and max a Roth for both of us and still survive as a family on just her income. But it will slow progress toward financial independence significantly.

soulpatch
Posts: 9
Joined: Thu Dec 06, 2018 1:37 pm

Re: Managing my own portfolio

Post by soulpatch » Sun Dec 09, 2018 1:16 am

galeno wrote:
Thu Dec 06, 2018 9:55 pm
70-80% VT + 20-30% BND is all you need. KISS.
Thanks Galeno for the response. So KISS is great, except...well two things:

1) I cannot control the number of accounts I have open: 2 for work, 2 traditional IRAs, 2 Roth IRAs, 1 taxable (not to mention 2 UTMAs!). And since the offerings across these accounts are different, some complexity is inevitable - although in a post above Duckie suggested a specific AA that looks simpler than what I have currently.

2) Based on the reading I have done, it seems like some more-than-market-cap-weighted small value exposure is likely to increase returns and REITs appear to offer some diversification benefits that many claim is desirable above-and-beyond the classic stock/bond diversification. Basically I'm thinking of things as a stock/bond/REIT diversification of assets rather than just stocks/bond. Would still appreciate thoughts on that though as my understanding at this point is completely academic.

soulpatch
Posts: 9
Joined: Thu Dec 06, 2018 1:37 pm

Re: Managing my own portfolio

Post by soulpatch » Sun Dec 09, 2018 1:22 am

megabad wrote:
Thu Dec 06, 2018 7:05 pm
Duckie's post is great. A little possible tweak, I might hold a little more international in your taxable. I know it seems like a small credit, but you can get up to $600 in FITC for basically no work (once you get over that, you have to fill out a little form and calculate some things). I am cheap like that.
Thanks for the response megabad! Can you point me to a resource for the FITC you mention? I'd love to understand how that works.
megabad wrote:
Thu Dec 06, 2018 7:05 pm
Another consideration, you say you are in 24% bracket and that your are contributing close to the maximum directly to Roth IRA. Are you sure you are allowed to do this? Your income may be over the limit in the near future, so you may want to pursue the Backdoor Roth which mean you will need to rollover or convert the tIRAs first to avoid pro rata taxes.
Yes, we are close to the Roth limits next year (this year is fine). I'm guessing I can find a wiki or topic for Backdoor Roths here on Bogleheads, but if you have any other references you can point me to, that would be great! I did not know that having a tIRA was a problem with the Backdoor. And I'm curious where the balance point is in additional taxes paid to convert a tIRA versus the tax-free gains of the Roth I would not otherwise be able to contribute to. Sounds like you just gave me a homework assignment to figure out in 2019!

Dandy
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Re: Managing my own portfolio

Post by Dandy » Sun Dec 09, 2018 9:15 am

"...and survive indefinitely using the 4% rule. "

The "safe withdrawal rate of 4%" can be misleading. I believe it is better thought of as a reasonable initial withdrawal rate. No withdrawal rate is set it and forget it. The 4% idea is based on past performance and was projected to last for 30 years not indefinitely. Most likely it will serve your needs but past performance may not track closely with the future.

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galeno
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Re: Managing my own portfolio

Post by galeno » Sun Dec 09, 2018 3:30 pm

The 4% SWR is CONSERVATIVE.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

Dandy
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Re: Managing my own portfolio

Post by Dandy » Sun Dec 09, 2018 7:02 pm

The 4% SWR is CONSERVATIVE.
MOST LIKELY BUT MAYBE NOT - The future doesn't have to look anything like the past. So, good to start with but be prepared to change rather than have blind faith and assume you can take 4% plus inflation indefinitely no matter what.

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Duckie
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Re: Managing my own portfolio

Post by Duckie » Sun Dec 09, 2018 7:51 pm

soulpatch wrote:Can you point me to a resource for the FITC you mention? I'd love to understand how that works.
Foreign tax credit
Yes, we are close to the Roth limits next year (this year is fine). I'm guessing I can find a wiki or topic for Backdoor Roths here on Bogleheads, but if you have any other references you can point me to, that would be great!
Backdoor Roth IRA method
Backdoor Roth: A Complete How- To
Backdoor Roth IRA Tutorial
The Definitive Guide to the "Back-Door Roth"
How to Report Backdoor Roth in TurboTax
I did not know that having a tIRA was a problem with the Backdoor. And I'm curious where the balance point is in additional taxes paid to convert a tIRA versus the tax-free gains of the Roth I would not otherwise be able to contribute to.
Pro-rata rule
You can probably "hide" your TIRAs without tax consequences. Her TSP will allow a rollover from her TIRA. Find out if your 401k will allow a rollover from your TIRA. The alternative is to convert them.

soulpatch
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Re: Managing my own portfolio

Post by soulpatch » Mon Dec 10, 2018 10:40 am

Dandy wrote:
Sun Dec 09, 2018 9:15 am
"...and survive indefinitely using the 4% rule. "

The "safe withdrawal rate of 4%" can be misleading. I believe it is better thought of as a reasonable initial withdrawal rate. No withdrawal rate is set it and forget it. The 4% idea is based on past performance and was projected to last for 30 years not indefinitely. Most likely it will serve your needs but past performance may not track closely with the future.
Thanks Dandy! I totally get it. But I actually think the 4% rule will work nicely based on the research I have done. There are some conservative assumptions baked in - like I will certainly work at something income earning in "retirement," I believe we can count on some social security down the road, my wife has a pension, one set of parents at least will probably leave us something not insubstantial, etc. But I do look at the 4% calculation as a floor to ensure that I am being conservative with such an important calculation.
galeno wrote:
Sun Dec 09, 2018 3:30 pm
The 4% SWR is CONSERVATIVE.
I think I err on this side of the debate Galeno. But I do take Dandy's point and think it important for people not to apply the 4% rule blindly.

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Re: Managing my own portfolio

Post by galeno » Mon Dec 10, 2018 11:00 am

If one holds a stock and bond portfolio of at least 30% stocks and the rest in INVESTMENT GRADE bonds then YES. The 4% rule can be applied BLINDLY and it will work as advertised.

If you're REALLY worried about the 4% rule you can take an additional step. No "inflation raises" when the market goes down.

There's lots of ways to complicate the 4% rule. It's a perfectly good rule right now. Simple. Why mess with it?
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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Re: Managing my own portfolio

Post by soulpatch » Mon Dec 10, 2018 11:23 am

Duckie wrote:
Thu Dec 06, 2018 6:23 pm
soulpatch, welcome to the forum.

Taxable at Vanguard -- 3%
3% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

His 401k -- 40%
26% (FXAIX) Fidelity 500 Index Fund (0.015%)
6% (FSMAX) Fidelity Extended Market Index Fund (0.045%)
8% (FSPSX) Fidelity International Index Fund (0.045%)

Her Thrift Savings Plan -- 35%
15% (N/A) I Fund (0.033%)
20% (N/A) G Fund (0.033%)

His Traditional IRA at Vanguard -- 3%
3% (VSAIX) Vanguard Small-Cap Value Index Fund Admiral Shares (0.07%)

Her Traditional IRA at Vanguard -- 2%
2% (VSAIX) Vanguard Small-Cap Value Index Fund Admiral Shares (0.07%)

His Roth IRA at Vanguard -- 9%
9% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

Her Roth IRA at Vanguard -- 8%
8% (VGSLX) Vanguard REIT Index Fund Admiral Shares (0.12%)

My comments:
  • This has one fund in all accounts except the two employer plans. All rebalancing can be done in them.
  • This ignores the tax consequences of selling in taxable.
Something to think about.
Thanks for crunching these numbers Duckie. Now with a little time to think them over I have a few questions. I hope you will humor me with your thoughts!

1) I notice you put all bond exposure in the G fund. I know there is a unique risk profile for these funds that many find attractive, but it seems like their returns are also low as a consequence (Although probably not this year!). Any thoughts on the value of the G Fund over high quality corporate bonds like the Vanguard's Total Bond Market Index Fund Admiral Shares (VBTLX)?

2) The mix of FXAIX and FSMAX that you recommend - is that to approximate the composition of a total market fund? I've heard a rule of thumb that 4:1 500 index:extended market does this. Just curious what drove your recommendation.

3) How did you settle on the total amount of exposure to small-cap value? Your proposed 5% of total assets in those funds brings my total small-cap value exposure to 12.5% of U.S. stock holdings (plus whatever might be in the VTSAX and FSMAX). Are you aiming for a particular distribution among subclasses of U.S. stocks, or just a keep it simple, but emphasize small-cap value strategy?

4) I see that you have selected the I Fund in the TSP. My understanding is that this fund has no Canadian, emerging market, or small cap exposure...yet. Something that is supposed to change in 2019. Curious why you chose this fund compared to others in other accounts that are more diversified internationally, of course understanding that the fund itself will be changing, and soon!

5) You point out that all rebalancing can happen in the TSP and 401k accounts. This is true as long as I am not rebalancing the REIT portion, right? I think this is okay because I consider 8% in REITs to be a good floor. Maybe 10% as a ceiling. So if the percentage of my total drops below 8% I can buy. If it goes up, I am good until around 10%, at which point I would probably need to buy a second fund in that account for rebalancing purposes. Does that make sense? I suppose I should investigate how much of VTSAX and FXAIX are invested in REITs to get a fuller picture here.

6) Also around the rebalancing question, but more about adding assets. When I add to my assets, I will not likely be adding to the tIRAs unless one job or the other goes south. This means that my percentage of small-cap value stocks will decline over time as I accumulate more wealth. Unless I put some small-cap funds in another account to maintain a target allocation. Any sense of which account makes the most sense for additional small-cap exposure? Taxable or Roth IRA?

7) Also, correct me if I am mis-calculating, but it appears that your stock allocation errs more heavily on international than you say (closer to 55/45 US/Intnl). How do you handle REITs in making your calculations of US versus international stocks? Do my calculations differ from your for some other reason?

Thanks again for the insight! I'm learning so much and very grateful to everyone willing to help me learn!

-Jason
Last edited by soulpatch on Mon Dec 10, 2018 12:59 pm, edited 3 times in total.

Dandy
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Re: Managing my own portfolio

Post by Dandy » Mon Dec 10, 2018 11:29 am

The 4% rule can be applied BLINDLY and it will work as advertised.
:oops:

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Duckie
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Re: Managing my own portfolio

Post by Duckie » Mon Dec 10, 2018 3:30 pm

soulpatch wrote:I notice you put all bond exposure in the G fund. I know there is a unique risk profile for these funds that many find attractive, but it seems like their returns are also low as a consequence (Although probably not this year!). Any thoughts on the value of the G Fund over high quality corporate bonds like the Vanguard's Total Bond Market Index Fund Admiral Shares (VBTLX)?
If you don't want to use the G Fund then choose the F Fund (or a mix of both). It's similar to VBTLX but a bit cheaper. Or you could put 20% FXNAX Fidelity U.S. Bond Index Fund in his 401k and then put most or all of the international AA in the I Fund in her TSP. This avoids the less complete FSPSX international option.
The mix of FXAIX and FSMAX that you recommend - is that to approximate the composition of a total market fund?
Yes. Since you wanted to tilt to small-caps I ignored them when figuring the 500 Index/Extended Market ratio.
How did you settle on the total amount of exposure to small-cap value? Your proposed 5% of total assets in those funds brings my total small-cap value exposure to 12.5% of U.S. stock holdings (plus whatever might be in the VTSAX and FSMAX). Are you aiming for a particular distribution among subclasses of U.S. stocks, or just a keep it simple, but emphasize small-cap value strategy?
I was keeping it simple. You could just use one of the TIRAs (if you keep them) to hold small-caps.
I see that you have selected the I Fund in the TSP. My understanding is that this fund has no Canadian, emerging market, or small cap exposure...yet. Something that is supposed to change in 2019. Curious why you chose this fund compared to others in other accounts that are more diversified internationally, of course understanding that the fund itself will be changing, and soon!
I chose it because it will change soon. Right now it's similar to FSPSX in his 401k.
You point out that all rebalancing can happen in the TSP and 401k accounts. This is true as long as I am not rebalancing the REIT portion, right? I think this is okay because I consider 8% in REITs to be a good floor. Maybe 10% as a ceiling. So if the percentage of my total drops below 8% I can buy. If it goes up, I am good until around 10%, at which point I would probably need to buy a second fund in that account for rebalancing purposes. Does that make sense?
Yes.
Any sense of which account makes the most sense for additional small-cap exposure? Taxable or Roth IRA?
Roth IRA is better than taxable.
Also, correct me if I am mis-calculating, but it appears that your stock allocation errs more heavily on international than you say (closer to 55/45 US/Intnl). How do you handle REITs in making your calculations of US versus international stocks? Do my calculations differ from your for some other reason?
VGSLX is a US REIT fund so I consider it to be part of the US allocation. The international funds are:
  • 8% FSPSX Fidelity International
    15% I Fund
    9% VTIAX Vanguard Total International
They total 32% which is 40% of 80%.
__________________________

The following is an adjusted portfolio. It replaces the G Fund, reduces the small-cap value tilt, and assumes that the TIRAs will be moved to the employer plans to take advantage of the backdoor Roth IRA method. It still has the 48/32/20 AA.

Taxable at Vanguard -- 3%
3% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

His 401k -- 43%
18% (FXAIX) Fidelity 500 Index Fund (0.015%)
5% (FSMAX) Fidelity Extended Market Index Fund (0.045%)
20% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

Her Thrift Savings Plan -- 37%
5% (N/A) C Fund (0.033%)
32% (N/A) I Fund (0.033%)

His Roth IRA at Vanguard -- 9%
6% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
3% (VSAIX) Vanguard Small-Cap Value Index Fund Admiral Shares (0.07%)

Her Roth IRA at Vanguard -- 8%
8% (VGSLX) Vanguard REIT Index Fund Admiral Shares (0.12%)

Just some possibilities.

soulpatch
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Re: Managing my own portfolio

Post by soulpatch » Tue Dec 11, 2018 12:56 am

Duckie wrote:
Mon Dec 10, 2018 3:30 pm
Just some possibilities.
Thanks for all the specific feedback. More to think about!

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