Portfolio Cleanup Advice

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Topic Author
blaidd
Posts: 5
Joined: Wed Apr 03, 2019 1:56 am

Portfolio Cleanup Advice

Post by blaidd » Thu May 09, 2019 8:06 pm

Following the template, here's my info.
Questions are at the end.

Emergency funds: Have about three months in cash now
Debt:
  • Mortgage @ 3.625% - 27 years remaining, 52% debt:value
  • Auto loan @ 0% - 4.5 years remaining
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 9.3% State
State of Residence: CA
Age: 53
Wife 54, retired/not working

Desired Asset allocation: 70% stocks / 30% bonds (currently about 80/20)
Desired International allocation: 20% of stocks

Portfolio size:
Low seven figures - 401(k), Roth IRAs
Low six figures - taxable investment accounts

Taxable accounts:

Taxable "Wrap" Account at Financial Advisor
0.2% PERSHING GOVERNMENT ACCOUNT GMBXX 1.03%
1.9% iShares S&P 500 Growth ETF IVW 0.18%
1.7% iShares Russell 2000 ETF IWM 0.19%
1.8% SPDR S&P Midcap 400 ETF Trust MDY 0.24%
1.9% Invesco QQQ Trust QQQ 0.20%

Brokerage Account
0.04% Vanguard Tax-exempt Municipal Bond Index Fund VTEB 0.08%
0.19% Cisco Systems CSCO
0.09% Dell DELL
0.20% SAIC SAIC
0.05% Vodaphone VOD
0.07% Verizon VZ

Retirement Accounts:

His 401(k):
22.5% Vanguard Institutional Index Fund Institutional Shares VINIX 0.035%
1.9% Vanguard Mid-Cap Index Fund Institutional Shares VMCIX 0.04%
3.8% Vanguard Small-Cap Index Fund Admiral Shares VSMAX 0.05%
12.7% Vanguard Developed Markets Index Fund Institutional Shares VTMNX 0.05%
4.8% Vanguard Real Estate Index Fund Institutional Shares VGSNX 0.10%
15.7% Vanguard Total Bond Market Index Fund Institutional Shares VBTIX 0.035%

His Roth IRA #1 - in a "Wrap" account with FA
0.1% PERSHING GOVERNMENT ACCOUNT GMBXX 1.03%
4.0% HCM Tactical Growth Fund HCMGX 2.72%
1.4% Invesco QQQ Trust QQQ 0.20%
1.3% Vanguard Health Care ETF VHT 0.10%

His Roth IRA #2 - in a different wrap account with FA
0.1% Cash
1.1% Vanguard Total Bond Market ETF BND 0.035%
0.5% Vanguard Total International Bond ETF BNDX 0.09%
3.1% Vanguard S&P 500 ETF VOO 0.03%
0.7% Vanguard Extended Market ETF VXF 0.07%
2.5% Vanguard Total International Stock ETF VXUS 0.09%

His Trad IRA - used for "back door" Roth conversions
0.2% PERSHING GOVERNMENT ACCOUNT GMBXX 1.03%

Her Roth IRA #1 - in a "wrap" account with FA
0.1% PERSHING GOVERNMENT ACCOUNT GMBXX 1.03%
3.6% HCM Tactical Growth Fund HCMGX 2.72%
1.3% Invesco QQQ Trust QQQ 0.20%
1.2% Vanguard Health Care ETF VHT 0.10%

Her Roth IRA #2 - in a different "wrap" account with FA
0.2% Cash
1.3% Vanguard Total Bond Market ETF BND 0.035%
0.5% Vanguard Total International Bond ETF BNDX 0.09%
3.6% Vanguard S&P 500 ETF VOO 0.03%
0.7% Vanguard Extended Market ETF VXF 0.07%
2.8% Vanguard Total International Stock ETF VXUS 0.09%

Her Trad IRA - used for "back door" Roth conversions
0.04% PERSHING GOVERNMENT ACCOUNT GMBXX 1.03%
0.10% HCM Tactical Growth Fund HCMGX 2.72%
0.01% Invesco QQQ Trust QQQ 0.20%
0.01% Vanguard Health Care ETF VHT 0.10%

New Annual Contributions:
$24K to his 401k - Employer match + profit sharing adds another $16K, total $40K/yr
$6500 his Roth IRA
$6500 her Roth IRA
$5000 taxable (for retirement, not short term goals)

Available funds
Funds available in his 401(k):
Vanguard Inst Target Ret Inc Fund VITRX 0.09%
Vanguard Inst Target Ret 2015 Fund VITVX 0.09%
Vanguard Inst Target Ret 2020 Fund VITWX 0.09%
Vanguard Inst Target Ret 2025 Fund VRIVX 0.09%
Vanguard Inst Target Ret 2030 Fund VTTWX 0.09%
Vanguard Inst Target Ret 2035 Fund VITFX 0.09%
Vanguard Inst Target Ret 2040 Fund VIRSX 0.09%
Vanguard Inst Target Ret 2045 Fund VITLX 0.09%
Vanguard Inst Target Ret 2050 Fund VTRLX 0.09%
Vanguard Inst Target Ret 2055 Fund VIVLX 0.09%
Vanguard Inst Target Ret 2060 Fund VILVX 0.09%
Vanguard Inst Target Ret 2065 Fund VSXFX 0.09%
Vanguard Prime Money Mkt Fund  VMMXX 0.16%
Vanguard Retire Savings Trust III — 0.31%
PIMCO High Yield Instl PHIYX 0.57%
PIMCO Total Return Instl PTTRX 0.55%
Vanguard Total Bond Mkt Index Inst VBTIX 0.04%
Vanguard Wellington Fund Admiral VWENX 0.17%
Neuberger Berman Genesis Tr NBGEX 1.10%
Vanguard Inst Index Fund Inst VINIX 0.04%
Vanguard Mid-Cap Index Fund Inst VMCIX 0.04%
Vanguard PRIMECAP Fund Admiral VPMAX 0.31%
Vanguard Small-Cap Index Fund Adm VSMAX 0.05%
Vanguard Strategic Sm-Cap Equity VSTCX 0.29%
Vanguard Windsor II Fund Adm VWNAX 0.25%
American Funds Europacific Growth R6 RERGX 0.49%
Harding Loevner Instl Emerg Mkts I HLMEX 1.27%
Vanguard Developed Markets Idx Ist VTMNX 0.05%
Vanguard Real Estate Index Institl VGSNX 0.10%

Notes and Plans
After reading these forums for awhile, and having recently read many of the recommended books, I know that I'm paying a lot of fees (fund fees and portfolio management fees) that are not needed. I am not "firing" my Financial Advisor but I am going to end the "wrap" accounts, consolidate, and simplify. I can manage this myself that way.

My questions focus around the transition plan, and the asset allocations - to see if they make sense to those on this forum.

Transition Plan:
  • Consolidate Roth IRAs from wrap accounts into 2 accounts (his/her) at Vanguard (transfer in-kind at first, then reallocate as per AA below). This will eliminate the FA management fees.
  • Transfer in-kind taxable account from wrap account to taxable at Vanguard. I'll need to determine tax impact before selling funds to reallocate, but this will eliminate the FA management fees. I might sell a portion to increase emergency funds to six months.
  • Adjust 401(k) to hold all bond funds for retirement accounts, so as to put more tax-free growth in Roth IRAs.
Asset Allocation:
Since the index funds in my 401(k) are somewhat limited, I was thinking of keeping the same equity funds, but just adjusting the allocation to the bond index fund so as to match 30% of my total portfolio.

For the Roth IRAs I was looking at the following AA:
51% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 0.04%
28% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%
10% Vanguard Real Estate Index Fund Admiral Shares (VGSLX) 0.12%
11% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX) 0.07%
(percentages above are for each fund in the accounts, not total portfolio. These Roth IRAs combined are about 30% of my total portfolio today)

For the taxable investment account I was considering the following AA:
80% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 0.04%
20% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%
(again these percentages are of each fund in the account, not total portfolio. Taxable investments are about 7.5% of my total portfolio)

Questions
  1. Does the transition plan above make sense? Anything else that I should consider?
  2. Any recommendations regarding changing AA for the 401(k)?
  3. For the Roth IRA does the AA make sense. Is it too complex?
  4. Would it be worthwhile to hold some tax-exempt bond index fund in the taxable investment account?
  5. Any other general recommendations?
Thanks in advance for your advice. I will be checking back regularly as I want to take action soon.

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Misenplace
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Joined: Mon Feb 01, 2016 9:46 pm

Re: Portfolio Cleanup Advice

Post by Misenplace » Thu May 09, 2019 9:53 pm

Welcome to the forum! Nice first post- I can tell you have put a lot of thought into this plan.
Notes and Plans
After reading these forums for awhile, and having recently read many of the recommended books, I know that I'm paying a lot of fees (fund fees and portfolio management fees) that are not needed. I am not "firing" my Financial Advisor but I am going to end the "wrap" accounts, consolidate, and simplify. I can manage this myself that way.

My questions focus around the transition plan, and the asset allocations - to see if they make sense to those on this forum.

Transition Plan:
Consolidate Roth IRAs from wrap accounts into 2 accounts (his/her) at Vanguard (transfer in-kind at first, then reallocate as per AA below). This will eliminate the FA management fees.
Transfer in-kind taxable account from wrap account to taxable at Vanguard. I'll need to determine tax impact before selling funds to reallocate, but this will eliminate the FA management fees. I might sell a portion to increase emergency funds to six months.
Adjust 401(k) to hold all bond funds for retirement accounts, so as to put more tax-free growth in Roth IRAs.
Asset Allocation:
Since the index funds in my 401(k) are somewhat limited, I was thinking of keeping the same equity funds, but just adjusting the allocation to the bond index fund so as to match 30% of my total portfolio.

For the Roth IRAs I was looking at the following AA:
51% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 0.04%
28% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%
10% Vanguard Real Estate Index Fund Admiral Shares (VGSLX) 0.12%
11% Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX) 0.07%
(percentages above are for each fund in the accounts, not total portfolio. These Roth IRAs combined are about 30% of my total portfolio today)

For the taxable investment account I was considering the following AA:
80% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 0.04%
20% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%
(again these percentages are of each fund in the account, not total portfolio. Taxable investments are about 7.5% of my total portfolio)
Questions
Does the transition plan above make sense? Anything else that I should consider?
Yes, the transition plan makes sense. Excellent plan in fact. One additional point is to find out from Vanguard if you actually can transfer some of these funds in kind. Also find out how much it costs to sell them at the original broker (where you may have free trades) vs. at Vanguard. Sell them at whichever place it is cheaper for you.
Also, make sure that you make a record of your cost basis in the taxable account before making any moves. Once you move out of the old brokerage, they will have no incentive to help you find that information. Often, cost basis information is delayed in a transfer (I get it a week or so after moving), and it can get lost.
Any recommendations regarding changing AA for the 401(k)?
Think of your entire portfolio as one AA. You just put different investments in the best place. You have definitely done that- your 401K is where you should put your bond allocations. By the way, you have a great 401k options- I would not call them 'limited'.
For the Roth IRA does the AA make sense. Is it too complex?
You've put the investments with the most upside in the Roth, and no bonds, and that makes sense. It's up to you if you want to go with REITs and Small Cap Value, they do further complicate your portfolio but there is nothing wrong with that. Just be sure as to why you include them, and that you are willing to endure long periods where they may or may not perform.

Figure out what you want your total AA to look like, and then spread it among your accounts in the most tax efficient way. If you want to splice/dice and include REIT and Small Cap Value as dedicated allocations in your equities, many suggest to have at least 5% of your total portfolio value in that asset, because any less than that is just noise. Might as well use Total US and Total International, because they have those asset classes anyway.
Would it be worthwhile to hold some tax-exempt bond index fund in the taxable investment account?
I think this is not at all necessary with so much tax advantaged space. Tax-exempt bonds tend to not be as diversified, especially since you would probably have to use a CA muni fund. You might as well put all your bond allocation in your 401k where you have an excellent, very low cost total bond index.
Any other general recommendations?
Sell all your losers in your taxable accounts as soon as practical. Then you can be selective on the winners that you need to sell, perhaps spacing them out over two tax years in case the proceeds bump you into a higher tax bracket (I'm thinking stuff like the additional medicare tax on investment income if your AGI is over 250K MFJ- can't tell if this is an issue for you but you are in the range).
Read the Wiki pages on tax loss harvesting, as well as threads on this forum, so you are ready to do that if necessary.

Great start!

Topic Author
blaidd
Posts: 5
Joined: Wed Apr 03, 2019 1:56 am

Re: Portfolio Cleanup Advice

Post by blaidd » Fri May 10, 2019 3:38 pm

Thanks, I appreciate the advice!
It's up to you if you want to go with REITs and Small Cap Value, they do further complicate your portfolio but there is nothing wrong with that. Just be sure as to why you include them, and that you are willing to endure long periods where they may or may not perform.

Figure out what you want your total AA to look like, and then spread it among your accounts in the most tax efficient way. If you want to splice/dice and include REIT and Small Cap Value as dedicated allocations in your equities, many suggest to have at least 5% of your total portfolio value in that asset, because any less than that is just noise. Might as well use Total US and Total International, because they have those asset classes anyway.
My thinking about including some REITs and Small Cap Value index funds was that they might give a better return, plus REITs as an asset class adds diversification because they are less correlated to the stock market. But the way I have it set up above for the Roth IRAs, they'll each only represent about 3% of the total portfolio, which as you mention is not very significant. If I just go with Total US and Total International, that should be a lot easier to track and rebalance once a year.

This is also making me think twice about the AA in the 401(k), the allocations to REIT, Mid- and Small-cap index funds are so low that they are noise too.

Thanks again!

retiredjg
Posts: 36802
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Cleanup Advice

Post by retiredjg » Sat May 11, 2019 8:31 am

Thank you for posting according to the format we ask people to use. It makes it so much easier to help you. :D

I would not transfer non-Vanguard funds in kind because it is just easier to sell and let them handle the basis of all those positions. There is less work for you to do on your taxes and there is less likelihood of information getting lost or being incorrect.

I suspect you are trying to transfer in kind so that you can just slip away from your advisor without a discussion. I get that, but if you must go that route, you need to know the exact basis of each holding and you'll need to ask for some free trades at Vanguard. That basis information may not transfer correctly from the old custodian to the new one.

A simple email to your advisor saying "Thank you for your help in the past. I have decided to move my assets to Vanguard." is all that is needed. Make it a statement of your decision, not an invitation for a discussion.

Your proposed portfolio could be simplified if you want. There is no need to hold each asset class in each account.

Even if you choose not to do that, there is one change you should probably make. I would not hold the same funds in taxable and in Roth IRA when it can be avoided. This will eliminate the likelihood of a wash sale if you should decide to tax loss harvest later. If you are not familiar with those concepts, there is information in the Wiki.

Here is an example of a possible simplified portfolio.


Taxable 8.1%
8.1% Vanguard Total Stock Index (could also keep your handful of individual stocks if you want)


His 401(k) 61.4%
22.5% Vanguard Institutional Index Fund Institutional Shares VINIX 0.035
8.9% Vanguard Small Cap (or split with mid cap)
30% Vanguard Total Bond Market Index Fund Institutional Shares VBTIX 0.035%

His Roth IRA 14.8%
14.8% Vanguard Total International Index

Her Roth IRA 15.3%
0% International Index for now, but will need to hold some here next year
15.3% REIT or small cap or whatever


New Annual Contributions = $58,000
$40K to his 401k <--$17,400 to bonds, $18,000 to small cap, rest to 500 index
$6500 his Roth IRA<--All to International Index
$6500 her Roth IRA<--$3,000 to international index, rest to whatever you want
$5000 taxable<--all to Total Stock

Topic Author
blaidd
Posts: 5
Joined: Wed Apr 03, 2019 1:56 am

Re: Portfolio Cleanup Advice

Post by blaidd » Mon May 13, 2019 4:09 pm

I would not transfer non-Vanguard funds in kind because it is just easier to sell and let them handle the basis of all those positions. There is less work for you to do on your taxes and there is less likelihood of information getting lost or being incorrect.
Thanks - I had been thinking that transfer-in-kind would make it easier to get out of the portfolio management fees quickly and then worry about re-balancing into other funds later (particularly with the taxable account). However I also realize that Vanguard may not trade all funds and may have additional charges if we sell through them after the transfer.
I suspect you are trying to transfer in kind so that you can just slip away from your advisor without a discussion. I get that, but if you must go that route, you need to know the exact basis of each holding and you'll need to ask for some free trades at Vanguard. That basis information may not transfer correctly from the old custodian to the new one.

A simple email to your advisor saying "Thank you for your help in the past. I have decided to move my assets to Vanguard." is all that is needed. Make it a statement of your decision, not an invitation for a discussion.
No, not trying to slip away from our advisor without any discussoin. I've already communicated our intent firmly last week, and we are meeting this week to start the process.
Even if you choose not to do that, there is one change you should probably make. I would not hold the same funds in taxable and in Roth IRA when it can be avoided. This will eliminate the likelihood of a wash sale if you should decide to tax loss harvest later. If you are not familiar with those concepts, there is information in the Wiki.
Noted, and will adjust accordingly.

Thanks again for the advice!

retiredjg
Posts: 36802
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Cleanup Advice

Post by retiredjg » Mon May 13, 2019 4:46 pm

blaidd wrote:
Mon May 13, 2019 4:09 pm
...and we are meeting this week to start the process.
That may be your intent, but don't be surprised if your advisor has a different agenda.

Transferring money out usually involves other people, not the salesperson. Of course, maybe this time it is different. :happy

Topic Author
blaidd
Posts: 5
Joined: Wed Apr 03, 2019 1:56 am

Re: Portfolio Cleanup Advice

Post by blaidd » Sat May 18, 2019 2:17 pm

Update: We presented our plan to our FA and he informed us that his business model cannot support us as clients, if we transfer our funds to Vanguard. He was charging a flat annual fee for planning but this was supplemental to the commissions and fees from the wrap accounts. We agreed to part ways, and he's been helpful with information that we need for the transfers.

I have no complaints about our FA - we knew we were paying for the services, but after awakening to the impact of fees and expenses (and reading a lot of books + Bogleheads wiki and this forum), it was time for this change.

Some transfers I've been able to start through the online process, and some will require paperwork mailed back and forth, so it will take some time. Vanguard phone support was needed for a portion of this and they were very helpful.

Thanks again retiredjg and Misenplace for your advice.

retiredjg
Posts: 36802
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Cleanup Advice

Post by retiredjg » Sat May 18, 2019 4:21 pm

Good luck!

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Misenplace
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Re: Portfolio Cleanup Advice

Post by Misenplace » Sun May 19, 2019 5:51 pm

Glad to hear it is working out well. Good luck and don't be a stranger.

Topic Author
blaidd
Posts: 5
Joined: Wed Apr 03, 2019 1:56 am

Re: Portfolio Cleanup Advice

Post by blaidd » Wed Jul 10, 2019 6:28 pm

Following up,

The transfers were all completed without hassles. We did have to pay the other custodian some account closing fees on the way out.

Fee reduction - about 1.67% total:
  • Average fund expense ratio reduced from 0.45% to 0.05%
  • Average portfolio management wrap fees of 1.1% eliminated
  • Financial advisor annual fixed fees eliminated (about 0.17%)
  • Miscellaneous custodial fees and commissions eliminated
Simplification: 16 funds down to 6.
3 in 401(k), and 1 each in the Roth and taxable accounts.

Everything is in it's place now :happy

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vineviz
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Joined: Tue May 15, 2018 1:55 pm

Re: Portfolio Cleanup Advice

Post by vineviz » Wed Jul 10, 2019 6:49 pm

blaidd wrote:
Wed Jul 10, 2019 6:28 pm
Following up,

The transfers were all completed without hassles. We did have to pay the other custodian some account closing fees on the way out.

Fee reduction - about 1.67% total:
  • Average fund expense ratio reduced from 0.45% to 0.05%
  • Average portfolio management wrap fees of 1.1% eliminated
  • Financial advisor annual fixed fees eliminated (about 0.17%)
  • Miscellaneous custodial fees and commissions eliminated
Simplification: 16 funds down to 6.
3 in 401(k), and 1 each in the Roth and taxable accounts.

Everything is in it's place now :happy
Nicely done.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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goingup
Posts: 3582
Joined: Tue Jan 26, 2010 1:02 pm

Re: Portfolio Cleanup Advice

Post by goingup » Wed Jul 10, 2019 6:50 pm

I just want to congratulate you on getting this accomplished. Many people want to make a change from their FA but just can't summon the energy to follow through. Inertia seems to take over.

You did it and streamlined your portfolio and substantially reduced cost. Outstanding! :beer

retiredjg
Posts: 36802
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Cleanup Advice

Post by retiredjg » Wed Jul 10, 2019 6:59 pm

Good for you!

cp73
Posts: 37
Joined: Thu May 31, 2012 6:02 pm

Re: Portfolio Cleanup Advice

Post by cp73 » Wed Jul 10, 2019 7:29 pm

Nice job on clean up. You did it in under 2 months based on your post dates. After reading this I went and looked at my investments. I am retired and have all my investments at Vanguard and Fidelity. However they are spread out over 53 investments in 7 different accounts. I use a spreadsheet to summarize and update them about once a month and track my allocations. But now rethinking this I should be able to cut them down to less investments and drop the 53 to at least half of that. Many of the investments are the same just in a different account. You have movtivated me. It would also be a lot easier on my wife if anything every happened to me. :confused. Thanks for the post.

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ruralavalon
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Location: Illinois

Re: Portfolio Cleanup Advice

Post by ruralavalon » Thu Jul 11, 2019 9:14 am

blaidd wrote:
Wed Jul 10, 2019 6:28 pm
Following up,

The transfers were all completed without hassles. We did have to pay the other custodian some account closing fees on the way out.

Fee reduction - about 1.67% total:
  • Average fund expense ratio reduced from 0.45% to 0.05%
  • Average portfolio management wrap fees of 1.1% eliminated
  • Financial advisor annual fixed fees eliminated (about 0.17%)
  • Miscellaneous custodial fees and commissions eliminated
Simplification: 16 funds down to 6.
3 in 401(k), and 1 each in the Roth and taxable accounts.

Everything is in it's place now :happy
Nice move, congratulations.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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