Asset Allocation: Ahhh, help!

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Topic Author
SCvanguard
Posts: 6
Joined: Sat Nov 01, 2008 1:03 pm
Location: New York, New York

Asset Allocation: Ahhh, help!

Post by SCvanguard » Sun Nov 02, 2008 9:29 am

Okay, here we go!

Emergency Funds: Yes.

Debt: $250,000 mortgage balance (5/1 ARM; 4.5% resets in May; tied to 1yr T-Bill)

Tax Filing Status: Married last month -- not sure how we'll file yet.

Tax Rates: Federal: 33%; NY State: 6.85%; NY City 3.648%

Age: Husband and Wife, 30

Desired Asset Allocation: 80% stocks / 20% bonds

International Allocation: 30% of stocks

Current portfolio: Taxable: about $235k; Non-Taxable: about $119k

Taxable Accounts (no significant unrealized capital gains -- all wiped out):
  • Joint Account (Vanguard):
    19.28% Vanguard Prime Money Market Fund (VMMXX)
    2.78% Vanguard Total Bond Market Index Fund Investor Shs (VBMFX)
    1.85% Vanguard Value Index Fund Investor Shares (VIVAX)
    1.83% Vanguard Growth Index Fund Investor Shares (VIGRX)
    1.21% Vanguard Small-Cap Index Fund Investor Shares (NAESX)
    1.11% Vanguard Mid-Cap Index Investor Shares (VIMSX)
    2.27% Vanguard Total Stock Market Index Fund Investor Shs (VTSMX)
    2.93% Vanguard Total International Stock Index Fund (VGTSX)
  • Husband Individual Account (Vanguard):
    0.06% Vanguard Prime Money Market Fund (VMMXX)
    0.64% Vanguard 500 Index Fund Investors (VFINX)
    0.77% Vanguard International Value Fund (VTRIX)
    0.61% Vanguard Small-Cap Index Fund Investor Shares (NAESX)
    1.05% Vanguard Health Care Fund Investor Shares (VGHCX)
    1.54% Vanguard Windsor II Fund Investor Shares (VWNFX)
    0.58% Vanguard Strategic Equity Fund (VSEQX)
  • Wife Individual Account (Fidelity):
    1.03% Dreyfus Premier Strategic Value CL A (DAGVX)
    3.40% Fidelity Asset Manager 50% (FASMX)
    0.21% Fidelity Select Computers (FDCPX)
    0.49% Fidelity Small Cap Independence (FDSCX)
    1.86% Fidelity International Discovery (FIGRX)
    2.15% Fidelity Magellan (FMAGX)
    1.93% Spartan Total Market Index Investor Class (FSTMX)
    0.94% Fidelity Total Bond (FTBFX)
    2.17% Fidelity Municipal Money Market (FTEXX)
    0.42% Neuberger Berman Duration Bond Investor Class (LBSDX)
    0.54% Neuberger Berman Partners Investor (NPRTX)
    1.04% Wells Fargo Advanced Short Term Bond Investor Class (SSTBX)
    2.40% American Century Growth (TWCGX)
    2.37% Wells Fargo Advantage Income Plus Investors (WIPNX)
  • Husband's Stocks (Schwab Account):
    3.09% HJ Heinz Co. (250 shares of HNZ)
    1.37% Apple Inc. (45 shares of AAPL)
    1.13% Hewlett-Packard Co. (105 shares of HPQ)
    0.69% Time Warner Inc. (240 shares of TWX)
    0.41% Merck & Co. Inc. (45 shares of MRK)
    0.28% Ford Motor Co. (450 shares of F)
Non-Taxable Accounts:
  • Husband's Fidelity Roth 401k (from an old job):
    0.29% Columbia Acorn Fund Class Z (ACRNX)
    0.52% American Beacon Small Capital Value Fund (AVPAX)
    1.01% Fidelity Contrafund (FCNTX)
    1.40% Fidelity Capital Appreciation Fund (FDCAX)
    0.78% Fidelity Managed Income Portfolio II
    0.20% JPMorgan Midcap Value (FLMVX)
    1.00% Spartan US Equity Index Fund (FUSEX)
    0.79% Goldman Sachs High Yield Fund (GSHIX)
    1.73% Julius Baer International Equity Fund (JIEIX)
    0.54% Wells Fargo Small Cap Opportunities Fund (NVSOX)
    1.21% PIM Total Return Fund (PTTRX)
    0.94% American Funds Capital World Growth and Income Fund (RWIFX)
  • Husband's Schwab Roth 401k (to which he currently contributes):
    0.57% Dodge & Cox Stock (DODGX)
    0.61% Marsico Growth (MGRIX)
    0.16% Evergreen Small Cap Value A (ESKAX)
    0.21% Rice Hall James Small Cap (RHJMX)
    0.35% Dodge & Cox International Stock (DODFX)
    0.11% Templeton Institutional Emerging Markets (TEEMX)
    0.34% PIMCO Total Return Institutional (PTTRX)
    0.14% Dodge & Cox Balanced (DODBX)
    0.18% Schwab Stable Value
  • Wife's Fidelity Roth 401k (to which she currently contributes):
    1.15% American Beacon Large Cap Value Fund (AADEX)
    0.92% Fidelity Contrafund (FCNTX)
    1.07% Fidelity Growth Company Fund (FDGRX)
    1.53% Fidelity Diversified International Fund (FDIVX)
    0.54% Fidelity Value Fund (FDVLX)
    2.23% Fidelity Money Market Trust Retirement Govt Money Mkt (FGMXX)
    0.08% Fidelity Leveraged Co. Stock (FLVCX)
    0.57% Fidelity Intermediate Bond Fund (FTHRX)
    0.87% Spartan US Equity Index Fund (FUSEX)
    0.46% Goldman Sachs High Yield Fund (GSHIX)
    0.11% Rainier Small/Mid Cap Equity (RAISX)
    0.82% Wells Fargo Small Cap Value Fund (SSMVX)
    0.32% Wintergreen Fund (WGRNX)
  • Husband's Vanguard Roth IRA (can't contribute anymore):
    1.96% Vanguard Health Care Fund Investor Shares (VGHCX)
    0.93% Vanguard Total Bond Market Index Fund Investor Shs (VBMFX)
    2.80% Vanguard Total Stock Market Index Fund Investor Shs (VTSMX)
    0.95% Vanguard Global Equity Fund (VHGEX)
    0.62% Vanguard Retirement 2035 Fund (VTTHX)
  • Wife's Dreyfus Roth IRA (can't contribute anymore):
    2.57% Dreyfus Emerging Leaders Fund (DRELX)
Future Contributions:
1. We plan to maximize Roth 401k contributions in 2009 ($33k combined)
2. We plan to save/invest $90,000 in taxable accounts in 2009 ($7.5k/mo)

Questions:
1. It's difficult to figure out/change our asset allocation with all these funds. I'm a bit paralyzed... suggestions?

2. For the next few years, 75% of our investing will be in taxable accounts, but I'm not really sure how to factor that in.

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PiperWarrior
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Location: right on course

Post by PiperWarrior » Sun Nov 02, 2008 9:48 am

Welcome to the forum!

Could you list funds available in your 401(k) plans?

YDNAL
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Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Asset Allocation: Ahhh, help!

Post by YDNAL » Sun Nov 02, 2008 9:52 am

SCvanguard wrote:Desired Asset Allocation: 80% stocks / 20% bonds

International Allocation: 30% of stocks

Current portfolio: Taxable: about $235k; Non-Taxable: about $119k
SC,

Welcome to the Bogleheads forum.

At this moment, I can't offer anything more than straight talk.... you have a nightmare collection of funds.

IMHO, with $350K you shouldn't have more than perhaps 5-6 funds. There's an obvious lack of plan and direction with your holdings. For instance, what happens if 1.11% VISMX in Joint taxable quadruples in a few years? Absolutely nothing! Please go HERE, and some good reading will go a long way towards helping you out.

ps. Just noticed Piper posted while I typed - I'll step aside for a while.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

You win

Post by Laura » Sun Nov 02, 2008 10:20 am

SCvanguard,

I think you might win for the most funds divided into the smallest pieces. Once you post your 401k options we can give you some specific suggestions but you want to take advantage of this market downturn to clean up and streamline your entire portfolio.

You also have tax inefficient funds in your taxable accounts. With the market down you might be able to clean that up and harvest losses at the same time.

Next, you have an adjustable rate mortgage that will reset soon. Have you started looking in to a fixed rate mortgage? That might be harder to get right now than you think. Don't wait until the last second. You also might consider paying down the mortgage with the money you plan to use for taxable investing.

You are contributing to Roth 401ks despite a very high tax rate. Do you think your tax rate in retirement will be less than it currently is? If yes it probably doesn't make sense to contribute to roths right now and you should use the traditional 401k option instead.

You also have a roth 401k from a previous employer. You can roll these funds over and combine them with your already existing roth account. On the subject of consolidation I also merged the his stock and his individual taxable accounts.

Finally, do you receive any matching funds in either of the 401ks? Please break out which accounts will receive contributions like this:

$xx joint taxable
$xx his taxable
$xx her taxable

$xx his 401k (including matching contributions)
$xx her 401k (including matching contributions)

To get you started on an 80/20 asset allocation with 30% of equity in stocks you could aim for something like this:

joint taxable
24% FTSE World ex/US
9.26% Total Stock Market

his taxable
12.22% Total Stock Market

wife taxable
20.95% Total Stock Market

husband roth and rollover roth
17.68% Vanguard Inflation Protected Securities

his 401k roth
2.67% bonds

wife 401k
10.67% bonds

wife roth
2.57% Intermediate Term Treasury bonds

Without knowing exactly how much money is going into each account and which funds are available in your 401k accounts it isn't possible to make specific suggestions. This starts out a little bit heavy on bonds but that will be taken care of in the first few months of new taxable contributions.

You have no need to have a separate mini-portfolio in each account. A few funds covering the major asset classes and you will be set. Low cost, tax efficient, broadly diversified, and much, much easier to manage.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

livesoft
Posts: 68558
Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft » Sun Nov 02, 2008 10:52 am

Welcome to the forum. I like Laura's suggestions quite a lot. You can always evolve away from that in a few years if you desire.

I personally would not contribute to a Roth 401k in your situation. Instead, I would contribute to a traditional 401k. You would get to defer about 44% in taxes to start with which will allow you to contribute that extra money to a taxable account in tax-efficient funds (see Laura's suggestions). It is also likely that you will move away from NY & NYC in retirement and thus have that money always free of NYstate and city income taxes. With your income(s) and wealth you may be able to retire early enough to convert your 401(k) to a Roth while you are in a much much lower tax bracket.

Topic Author
SCvanguard
Posts: 6
Joined: Sat Nov 01, 2008 1:03 pm
Location: New York, New York

Post by SCvanguard » Sun Nov 02, 2008 10:58 am

Thank you Laura, Landy, PiperWarrior and livesoft. I know that this is a MESS and that now is the time to fix it... (Incidentally, this was not entirely achieved by design, but by circumstances of recent marriage, job change and not being able to contribute to IRAs any longer.)

I will post back with my/my wife's 401k options (there's no matching) and what we plan to invest in which accounts.

As far as the ARM goes, I've crunched the numbers and it doesn't make sense for us to refinance. We only plan to stay here for 2-3 more years, so the transaction costs to obtain a fixed rate mortgage wouldn't pay. Also, my ARM is tied to the 1 year T-Bill which is quite low right now.

Thanks again,
SC

Topic Author
SCvanguard
Posts: 6
Joined: Sat Nov 01, 2008 1:03 pm
Location: New York, New York

Post by SCvanguard » Sun Nov 02, 2008 10:59 pm

Please break out which accounts will receive contributions like this:

$xx joint taxable
$xx his taxable
$xx her taxable

$xx his 401k (including matching contributions)
$xx her 401k (including matching contributions)
We plan to invest in 2009:
$90,000 in our joint taxable account
$16,500 in his 401k (employer doesn't match)
$16,500 in her 401k (employer doesn't match)

Our 401k options are as follows:
  • Available in my 401k (with Schwab):
    1. Dodge & Cox Stock (DODGX; 0.52% expense ratio)
    2. Marisco Growth (MGRIX; 1.24%)
    3. Schwab S&P 500 Index Sel (SWPPX; 0.2%)
    4. Vanguard LifeStrategy Growth (VASGX; 0.23%)
    5. Evergreen Small Cap Value A (ESKAX; 1.47%)
    6. Rice Hall James Small Cap (RHJMX; 1.11%)
    7. Dodge & Cox International Stock (DODFX; 0.65%)
    8. Templeton Institutional Emerging Markets (TEEMX; 1.41%)
    9. PIMCO Total Return Institutional (PTTRX; 0.49%)
    10. Dodge & Cox Balanced (DODBX; 0.53%)
    11. Vanguard LifeStrategy Conservative Growth (VSCGX; 0.24%)
    12. Vanguard Life Strategy Moderate Growth (VSMGX; 0.23%)
    13. Schwab Retirement Advantage Money Fund
    14. Schwab Stable Value
    15. AllianceBernstein Target Retirement Funds
  • Available in my wife’s 401k (with Fidelity):
    1. American Beacon Large Cap Value (AADEX; 0.60%)
    2. Fidelity Contrafund (FCNTX; 0.91%)
    3. Fidelity Growth Company (FDGRX; 0.94%)
    4. Neuberger Berman Partners Fund (NPRTX; 0.81%)
    5. Spartan US Equity Index (FUSEX; 0.10%)
    6. Fidelity Leveraged Company Stock Fund (FLVCX; 0.83%)
    7. Fidelity Value Fund (FDVLX; 0.77%)
    8. Rainier Small Mid Cap Equity (RAISX; 0.91%)
    9. Wells Fargo Small Cap Value (SSMVX; 1.61%)
    10. Fidelity Diversified International Fund (FDIVX; 1.02%)
    11. Wintergreen Fund (WGRNX; 1.85%)
    12. Fidelity Freedom Funds (2000-2050)
    13. Fidelity Freedom Income Fund (FFFAX; 0.49%)
    14. Fidelity Managed Income Portfolio (stable value fund)
    15. Fidelity Intermediate Bond Fund (FTHRX; 0.45%)
    16. Goldman Sachs High Yield Fund Institutional Class (GSHIX; 0.75%)
    17. Fidelity Money Market Trust Retirement Gov’t Money Market Portfolio
Thanks in advance for any advice!
SC

Easy Rhino
Posts: 3267
Joined: Sun Aug 05, 2007 11:13 am
Location: San Diego

Post by Easy Rhino » Sun Nov 02, 2008 11:47 pm

Plant a bug in your ear about combining the individual taxable accounts into the joint account as well as part of a paperwork reduction campaign.

As for funds in the 401ks, it seems like so many that the cheapest options are stock indices. However, your tax bracket is pressing enough that I would vote for PTTRX and FTHRX as perfectly acceptable bond funds.

As for making the contributions to traditional vs Roth 401ks, I don't honestly know. But it is fundamentally a bet on your tax rates in retirement when making the drawdown. If your effective withdrawal tax rate is, say, 15% in retirement, the traditional is the winner. If it's as high as it currently is, then the Roths are the way to go. I googled up this calcutor and it spits out a breakeven tax rate if your effective rate in retirement drops from to 20% or so.

http://www.finance.cch.com/sohoApplets/ ... al401k.asp

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Proposal

Post by Laura » Mon Nov 03, 2008 5:55 am

SCvanguard,

Now that you have clarified which accounts are receiving new money and provided your fund options it is possible to finalize this. Here is one way to structure an 80/20 asset allocation with 30% of equity in international.

joint taxable
24% FTSE World ex/US
9.26% Total Stock Market

his taxable
12.22% Total Stock Market

wife taxable
20.95% Total Stock Market

husband roth and rollover roth
17.68% Vanguard Inflation Protected Securities

his 401k roth
2.67% PIMCO Total Return Institutional (PTTRX; 0.49%)

wife 401k
10.67% Fidelity Intermediate Bond Fund (FTHRX; 0.45%)

wife roth
2.57% Intermediate Term Treasury bonds

Since you are newly married it may be the time to merge the individual taxable accounts and just end up with one joint taxable account. That would certainly make things easier to manage in the long run.

New Contributions:

taxable
$30k FTSE World Ex/US
$60k Total Stock Market

his 401k
$16.5k PIMCO Total Return Institutional (PTTRX; 0.49%)

her 401k
$7.8k Spartan US Equity Index (FUSEX; 0.10%)
$8.7k Fidelity Intermediate Bond Fund (FTHRX; 0.45%)

If you move and start new jobs in 2-3 more years you can roll over the two 401ks into IRAs at Vanguard. This will allow you to hold more of the Inflation Protected Securities fund.

This proposed portfolio probably appears shockingly simply compared to what you have right now but each of these funds covers the total market in that area so you end up with investments in thousands of US and international companies and the US bond market.

You end up with a low cost, tax efficient, broadly diversified portfolio that you won't need to change for years and years. If you do move to different jobs it is easy to blend your current 401k accounts into IRAs of some sort then to start with new 401k plans at your new employer.

To get started you should get in touch with Vanguard and arrange to have your accounts moved to them. For your taxable accounts you will probably need to liquidate them then transfer the cash. I wouldn't wait too long to get started on that. Vanguard can help move the wife Dreyfus roth and your old 401k administrator can tell you how to move that account to Vanguard. By the end of the year you should be able to start with a clean, fresh portfolio.

Good luck.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

Topic Author
SCvanguard
Posts: 6
Joined: Sat Nov 01, 2008 1:03 pm
Location: New York, New York

Post by SCvanguard » Mon Nov 03, 2008 9:54 pm

Thank you everyone!!

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