New investor seeking feedback about retirement accounts

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Topic Author
ukuleledad
Posts: 7
Joined: Fri Jan 11, 2019 1:49 pm

New investor seeking feedback about retirement accounts

Post by ukuleledad » Fri Jan 11, 2019 3:35 pm

Hello all,

I'm new here to the forum. I've heard this is a great place to get feedback and I would greatly appreciate anyone taking the time to do just that. I'm a new investor and have done some research to put together an investment and retirement plan for my wife and I. There is still a ton I don't understand but we're not getting any younger (we're both 49) and want to get as much time in the market as we possibly can. Excited to get started!
I've considered managing our investment accounts myself, mostly through Vanguard, but still don't feel comfortable enough to do so, especially where tax loss harvesting is concerned, so I'm thinking of going with Betterment. Thoughts?

In any case, here are my answers to the following questions:

Emergency funds: We have three months worth
Debt: My wife has $151,206 worth of student loans at 3.25%, We have a 30 year fixed 3.75% mortgage and the principal balance is $363,588.
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 9.9% State
State of Residence: Oregon
Age: 49
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 24% of stocks

Detailed breakdown within each asset class (58% large caps, 5% mid caps, 12% sm caps, 19% bonds, 6% cash) this is roughly

Size of your current total portfolio = low six-figures

Providing the split of your assets and contributions between taxable and tax-advantaged accounts is also helpful. Please include all investment and retirement accounts (yourself and spouse or civil partner, if applicable) as it's important to look at the portfolio as a unified whole rather than look at accounts in isolation. Also include the available funds in your employer provided retirement plans. For example:

Current retirement assets (percentages below are based on portfolio overall, not within each account)

Taxable - we currently don't have a taxable account but we're ready to open one. Just not sure if I should open through Vanguard or go through Betterment so I can have them automate tax loss harvesting, etc.
We have $12,000 to drop into a taxable account right now and plan to save about $3,900 per month to invest in this account.
Here's how I see our taxable account laid out, though as I understand it if I go through Betterment they chose for you (?)
24.9% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (expense ratio)
7.92% Vanguard FTSE All-World ex-US Index Fund Admiral Shares (VFWAX)
3.14% Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
14.59% Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX)

His Roth IRA at Vanguard - I have $6,000 in a traditional IRA at Vanguard and I'm about to convert it to Roth and choose these funds:
3.14% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX) (expense ratio 0.07%)
3.14% Vanguard Real Estate Index Fund Admiral Shares (VGSLX) (expense ratio 0.26%)

Her Roth IRA at Vanguard - She has $6,000 in a traditional IRA at Vanguard and I'm about to convert it to Roth and choose these funds:
3.14% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX) (expense ratio 0.07%)
3.14% Vanguard 500 Index Fund Admiral Shares (VFIAX) (expense ratio 0.14%)

Her 401k - She gets a company match though I'm not sure how much it is. It's handled by The Standard. We chose "Portfolio #4", which consists of the following:
5.81% cash equivalent
1.94% Vanguard 500 Index Fund Admiral Shares (VFIAX)
2.9% Harbor Capital Appreciation Fund Institutional Class (HACAX)
0.97% T. Rowe Price Equity Income Fund (PRFDX)
1.94% Shelton Capital Management S&P Midcap Index Fund Direct Shares (SPMIX)
0.97% JPMorgan Mid Cap Value Fund Class L (FLMVX)
0.97% American Beacon Stephens Small Cap Growth Fund Investor Class (STSGX)
1.94% Dodge & Cox International Stock Fund (DODFX)

Her 457b - She was offered to participate in a 457b last month but hasn't done so yet. We're getting ready to sign up with the following account:
19.36% T. Rowe Price Retire 2035 (TRRJX)

Contributions

New annual Contributions
$18,500 her 401k (employer matching contributions, not sure how much)
$18,500 her 457b
$6,000 his IRA/Roth IRA
$6,000 her IRA/Roth IRA
$46,771 taxable (for retirement, not short term goals)

Available funds - This is info I'll have to dig up.

Funds available in her 403(b)
Fund name (ticker symbol) (expense ratio)
Fund name (ticker symbol) (expense ratio)
Fund name (ticker symbol) (expense ratio)

Questions:
1. I'm a first time investor (numbers scare me) so please let me know what you think about the choices above. Is this a good portfolio for a married couple wanting to retire in 19 years?

2. Since I don't yet know enough yet, or have the time, to deal with managing the above taxable account myself should I go through Betterment?

3. I opened the Roth IRA accounts myself with Vanguard. Do these accounts require tax loss harvesting? If so, is there a way to automate tax loss harvesting through Vanguard? If not, what might be the best way to handle this if I don't want to do it myself?

Again, thank you to anyone willing to take their time to comment. I greatly appreciate it.

billfromct
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Joined: Tue Dec 03, 2013 9:05 am

Re: New investor seeking feedback about retirement accounts

Post by billfromct » Fri Jan 11, 2019 4:50 pm

It seems that you're letting the tax loss harvesting tail wag the dog. You're investing for the long term to increase the value your assets over the next 20-30 years. I have read that since 1926, the stock market has had a positive return in 72% or 73% of those years. Of course past results are no guarantee of future results.

Make your investment company decision on ease of investing, cost, and taxable & retirement offerings of the company.

I would recommend Vanguard. I have been a Vanguard customer for about 35 years so I may be a little biased.

Also 401k & 403b maximum contributions for 2019 is $19,000 if under 50 & $25,000 if 50 & older.

You can't tax loss harvest in a retirement account; only in a taxable account.

I'm sure others will chime in on the mutual fund decisions you listed.

bill

Topic Author
ukuleledad
Posts: 7
Joined: Fri Jan 11, 2019 1:49 pm

Re: New investor seeking feedback about retirement accounts

Post by ukuleledad » Fri Jan 11, 2019 4:59 pm

billfromct wrote:
Fri Jan 11, 2019 4:50 pm
It seems that you're letting the tax loss harvesting tail wag the dog. You're investing for the long term to increase the value your assets over the next 20-30 years. I have read that since 1926, the stock market has had a positive return in 72% or 73% of those years. Of course past results are no guarantee of future results.

Make your investment company decision on ease of investing, cost, and taxable & retirement offerings of the company.

I would recommend Vanguard. I have been a Vanguard customer for about 35 years so I may be a little biased.

Also 401k & 403b maximum contributions for 2019 is $19,000 if under 50 & $25,000 if 50 & older.

You can't tax loss harvest in a retirement account; only in a taxable account.

I'm sure others will chime in on the mutual fund decisions you listed.

bill
Thank you Bill. I really appreciate your response.
I wasn't aware of the max increase for 401k & 403b. I assume it's the same increase for 457b?

lakpr
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Re: New investor seeking feedback about retirement accounts

Post by lakpr » Fri Jan 11, 2019 5:20 pm

Yes same limits of $19000 / $25000 apply to 457(b) plans too.

https://www.irs.gov/retirement-plans/pl ... ion-limits

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Peter Foley
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Location: Lake Wobegon

Re: New investor seeking feedback about retirement accounts

Post by Peter Foley » Fri Jan 11, 2019 5:30 pm

I agree with all the points Bill made. I use Schwab, but Vanguard is fine too.

Taxable account: Way too many funds! In general anything less than 5% is too small to make a difference in yield or add to diversification. Better to manage this yourself.

401k - This does not seem to me to be a good low cost plan. Costs are too high for even basic index funds. I hope you have a couple low cost options.

457b - Private plans are not as highly regarded as public plans. More information needed here. A large non profit may be okay.

I would really consider paying down the student loan, especially if you do not itemize taxes.

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Duckie
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Re: New investor seeking feedback about retirement accounts

Post by Duckie » Fri Jan 11, 2019 9:59 pm

ukuleledad wrote:Debt: My wife has $151,206 worth of student loans
Why? What degree did she get that hasn't been paid off by now?
Age: 49
Desired Asset allocation: 75% stocks / 25% bonds
25% in bonds is low for your age.
Taxable - we currently don't have a taxable account but we're ready to open one. Just not sure if I should open through Vanguard or go through Betterment so I can have them automate tax loss harvesting, etc.
Do not go with Betterment.
We have $12,000 to drop into a taxable account right now and plan to save about $3,900 per month to invest in this account.
Have you considered using this to pay down her student loans?
Here's how I see our taxable account laid out, though as I understand it if I go through Betterment they chose for you (?)
24.9% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) (expense ratio)
7.92% Vanguard FTSE All-World ex-US Index Fund Admiral Shares (VFWAX)
3.14% Vanguard Developed Markets Index Fund Admiral Shares (VTMGX)
14.59% Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX)
Use Total Stock Market (VTSAX) and/or Total International Stock (VTIAX) in taxable. Only put muni bonds here if you run out of room in tax-sheltered.
His Roth IRA at Vanguard - I have $6,000 in a traditional IRA at Vanguard and I'm about to convert it to Roth and choose these funds:
3.14% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX) (expense ratio 0.07%)
3.14% Vanguard Real Estate Index Fund Admiral Shares (VGSLX) (expense ratio 0.26%)

Her Roth IRA at Vanguard - She has $6,000 in a traditional IRA at Vanguard and I'm about to convert it to Roth and choose these funds:
3.14% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX) (expense ratio 0.07%)
3.14% Vanguard 500 Index Fund Admiral Shares (VFIAX) (expense ratio 0.14%)
You're making this more complicated than it needs to be. Just use VTSAX or VTIAX in these Roth IRAs.
Her 401k - She gets a company match though I'm not sure how much it is. It's handled by The Standard. We chose "Portfolio #4", which consists of the following:
She should choose a decent bond fund for 100% of this account.
Her 457b - She was offered to participate in a 457b last month but hasn't done so yet. We're getting ready to sign up with the following account:
Again, she should choose a decent bond fund here.
I'm a first time investor (numbers scare me) so please let me know what you think about the choices above. Is this a good portfolio for a married couple wanting to retire in 19 years?
No. For someone who says he's new to investing you're making this a lot more complicated than it needs to be.
Since I don't yet know enough yet, or have the time, to deal with managing the above taxable account myself should I go through Betterment?
No. You only need one or two funds in the taxable account. You should do all rebalancing in tax-sheltered.
I opened the Roth IRA accounts myself with Vanguard. Do these accounts require tax loss harvesting?
No, although they can affect whether or not a taxable loss becomes a wash. I think you should ignore tax-loss harvesting for now.

Topic Author
ukuleledad
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Joined: Fri Jan 11, 2019 1:49 pm

Re: New investor seeking feedback about retirement accounts

Post by ukuleledad » Sat Jan 12, 2019 7:45 pm

Peter Foley wrote:
Fri Jan 11, 2019 5:30 pm
I agree with all the points Bill made. I use Schwab, but Vanguard is fine too.

Taxable account: Way too many funds! In general anything less than 5% is too small to make a difference in yield or add to diversification. Better to manage this yourself.

401k - This does not seem to me to be a good low cost plan. Costs are too high for even basic index funds. I hope you have a couple low cost options.

457b - Private plans are not as highly regarded as public plans. More information needed here. A large non profit may be okay.

I would really consider paying down the student loan, especially if you do not itemize taxes.
Thanks for the advise!
I tried to arrange the taxable account so it would reflect my overall asset allocation, but I suppose it could be simpler.
I'll look into the 401k and 457b a little closer.

Topic Author
ukuleledad
Posts: 7
Joined: Fri Jan 11, 2019 1:49 pm

Re: New investor seeking feedback about retirement accounts

Post by ukuleledad » Sat Jan 12, 2019 7:53 pm

Duckie wrote:
Fri Jan 11, 2019 9:59 pm
Why? What degree did she get that hasn't been paid off by now?[/quote]
She went into med school late. Got a masters in poetry from NYU first. We do want to pay this down as quickly as possible but also feel we need to start now to properly save for retirement.

Do not go with Betterment.[/quote]
Are they just bad?
Have you considered using this to pay down her student loans?[/quote]
We haven't really considered using the $12,000 in hand to pay down her loans right now. From everything I've heard before it might be better to put that into the market than pay down the low interest loans for now.
Use Total Stock Market (VTSAX) and/or Total International Stock (VTIAX) in taxable. Only put muni bonds here if you run out of room in tax-sheltered.[/quote]
That sounds good to me, thanks.
You're making this more complicated than it needs to be. Just use VTSAX or VTIAX in these Roth IRAs.
ok, I can do that.
She should choose a decent bond fund for 100% of this account.
That also sounds good to me. Thank you.
Again, she should choose a decent bond fund here.
ok


[/quote]

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Peter Foley
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Re: New investor seeking feedback about retirement accounts

Post by Peter Foley » Sat Jan 12, 2019 8:43 pm

ukuleledad,

Sorry I misread your post. Your proposal for taxable is okay in terms of the number of funds. I would consider not holding much in bonds in that account, however, if you have space in a tax deferred account. My preference is to hold some I-bonds for a little inflation protection.

Your wife's 401k is the account that could use a lot of simplification.

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Duckie
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Re: New investor seeking feedback about retirement accounts

Post by Duckie » Sun Jan 13, 2019 5:37 pm

ukuleledad wrote:
Duckie wrote:Do not go with Betterment.
Are they just bad?
No. As a robo advisor they're not bad, but they usually buy lots of things in taxable you don't need because they don't take the rest of your portfolio into consideration. This also affects their tax-loss harvesting. When they sell they don't know what you're buying elsewhere.

Topic Author
ukuleledad
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Joined: Fri Jan 11, 2019 1:49 pm

Re: New investor seeking feedback about retirement accounts

Post by ukuleledad » Mon Jan 14, 2019 2:39 pm

Peter Foley wrote:
Sat Jan 12, 2019 8:43 pm
ukuleledad,

Sorry I misread your post. Your proposal for taxable is okay in terms of the number of funds. I would consider not holding much in bonds in that account, however, if you have space in a tax deferred account. My preference is to hold some I-bonds for a little inflation protection.

Your wife's 401k is the account that could use a lot of simplification.
Ok, thank you, that clears things up for me a bit. Yes, I have heard that holding bonds, even though mine are munis, in taxable should be only because your 401k etc. is full of bonds, or something along those lines.

Topic Author
ukuleledad
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Joined: Fri Jan 11, 2019 1:49 pm

Re: New investor seeking feedback about retirement accounts

Post by ukuleledad » Mon Jan 14, 2019 2:40 pm

Duckie wrote:
Sun Jan 13, 2019 5:37 pm
ukuleledad wrote:
Duckie wrote:Do not go with Betterment.
Are they just bad?
No. As a robo advisor they're not bad, but they usually buy lots of things in taxable you don't need because they don't take the rest of your portfolio into consideration. This also affects their tax-loss harvesting. When they sell they don't know what you're buying elsewhere.
I haven't heard that before. That's good to know! Thanks.

Topic Author
ukuleledad
Posts: 7
Joined: Fri Jan 11, 2019 1:49 pm

Re: New investor seeking feedback about retirement accounts

Post by ukuleledad » Mon Jan 14, 2019 3:07 pm

Duckie wrote:
Fri Jan 11, 2019 9:59 pm

Use Total Stock Market (VTSAX) and/or Total International Stock (VTIAX) in taxable. Only put muni bonds here if you run out of room in tax-sheltered.

You're making this more complicated than it needs to be. Just use VTSAX or VTIAX in these Roth IRAs.
You're saying I should use just VTSAX and/or VTIAX in both taxable and Roth IRAs. That would simplify it but will that be ok considering diversification? Being new to investing that seems maybe too simple, but it might be the way to go.
She should choose a decent bond fund for 100% of this account.
I looked into what the company offers (The Standard handles her 401k) and it looks like to only bond fund they offer is VBILX - Vanguard Interm-Term Bond Index Adm[/quote]

Thank you again for your help.

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Duckie
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Re: New investor seeking feedback about retirement accounts

Post by Duckie » Mon Jan 14, 2019 5:54 pm

ukuleledad wrote:You're saying I should use just VTSAX and/or VTIAX in both taxable and Roth IRAs. That would simplify it but will that be ok considering diversification?
You diversify across your entire portfolio -- taxable, employer plans, IRAs, etc. You don't have to have every type of asset in every account. You have a desired AA of 25% bonds. Right now you have ~37% of your portfolio in the 401k and 457b. Those two accounts can (and should) hold all of the bonds until you run out of room.
I looked into what the company offers (The Standard handles her 401k) and it looks like to only bond fund they offer is VBILX - Vanguard Interm-Term Bond Index Adm
VBILX is a very good bond fund.

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