Porfolio Review

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Topic Author
skyfall007
Posts: 3
Joined: Tue Aug 13, 2019 3:00 pm

Porfolio Review

Post by skyfall007 » Tue Aug 13, 2019 4:24 pm

Hello everyone I am new to the forum, but I have been lurking for the past year. I am trying to create a workable plan that I can manage and fight my temptation to be to active. I appreciate the feedback and enjoy the conversation around here.

Portfolio:

Emergency Funds: Yes

Debt: No debt

Tax Filing Status: Married Filing Jointly

Tax Rate: 12% Federal/5% State

State of Residence: KY

Age: 29


Desired Asset Allocation: 75% Stocks/25% Bonds
Desired International Allocation: 20%

Portfolio Size: 70K

Taxable at Robinhood
5% of Total Portfolio
Vanguard Total Interantional Stock Index (VXUS) 0.09%

His 401k (Paychex)
15% of Total Portfolio
90% Fidelity Advisor Growth Opportunitis Fund Class M (FAGOX) 1.28%
10%Fidelity Advisor Total Bond Fund Class M (FEPTX) 0.76%

His Roth IRA at Vanguard
47% of Total Portfolio
80% Vanguard Total Stock Market Index (VTSAX) 0.04%
20% Vanguard Total Bond Market Index (VBTLX) 0.05%

His Trad IRA at Vanguard
3% of Total Portfolio
Vanguard Total Stock Market Index Fund ETF Shares (VTI) 0.03%

Her Roth IRA at Vanguard
20% of Total Portfolio
Vanguard Total Stock Market Index (VTSAX) 0.04%

Her Trad IRA at Vanguard
10% of Total Portfolio
Vanguard Total Stock Market Index (VTSAX) 0.04


Contributions:

New Annual Contributions

$19000 his 401k (no match)
$6000 his Trad IRA
$6000 her Trad IRA
$5000 Taxable

Available Funds

Fidelity Advisor Balanced M FAIGX 1.12%
Fidelity Advisor Dividend Growth M FDGTX 1.09%
Fidelity Advisor Equity Growth M FAEGX 1.25%
Fidelity Advisor Equity Income M FEIRX 1.17%
Fidelity Advisor Freedom 2005 M FFTVX 0.98%
Fidelity Advisor Freedom 2010 M FCFTX 1.02%
Fidelity Advisor Freedom 2015 M FFVTX 1.06%
Fidelity Advisor Freedom 2020 M FDTFX 1.10%
Fidelity Advisor Freedom 2025 M FTTWX 1.15 %
Fidelity Advisor Freedom 2030 M FTFEX 1.19%
Fidelity Advisor Freedom 2035 M FTTHX 1.23%
Fidelity Advisor Freedom 2040 M FTFFX 1.25%
Fidelity Advisor Freedom 2045 M FFFTX 1.25%
Fidelity Advisor Freedom 2050 M FFFQX 1.25%
Fidelity Advisor Freedom 2055 M FHFTX 1.25%
Fidelity Advisor Freedom 2060 M FDKTX 1.25%
Fidelity Advisor Freedom Income M FTAFX 0.97%
Fidelity Advisor Government Income M FVITX 0.76%
Fidelity Advisor Growth Opportunities M FAGOX 1.28%
Fidelity Advisor Limited Term Bond M FTBRX 0.76%
Fidelity Advisor Mid Cap Ii M FITIX 1.28%
Fidelity Advisor New Insights M FNITX 1.30%
Fidelity Advisor Overseas M FAERX 1.44%
Fidelity Advisor Small Cap M FSCTX
Fidelity Advisor Strategic Dividend & Income M FTSDX 1.26%
Fidelity Advisor Strategic Income M FSIAX 0.98%
Fidelity Advisor Total Bond M FEPTX 0.76%
Fidelity Government Money Market Dly Mny FZBXX


Questions:

1) I am thinking of changing all of our IRA accounts to VTSAX and using my 401k as our entire bond allocation in the FEPTX fund. My thinking is that my fund options are not good and the bond fund is one of the lower ER. Is this a sound strategy or am I overlooking something?

2) I am thinking of putting our entire international allocation in our taxable account (VXUS).

3) Does this strategy use good funds and place them in the right buckets?


Thank you in advance for your feedback.

lakpr
Posts: 2100
Joined: Fri Mar 18, 2011 9:59 am

Re: Porfolio Review

Post by lakpr » Tue Aug 13, 2019 5:23 pm

Those are terrible choices, and except for the Fidelity Freedom funds, MorningStar reports they carry loads as well. That FAGOX fund you are investing in, carries a 3.5% load for retail investors. The FEPTX fund you are thinking of directing future contributions to, carries a 4% load.

Not sure if your plan waives the load for you, please check. Or at least check your 401k balances, does it seem 3% or 4% is skimmed off the top?

If the load is not waived, I would hold the nose and invest only in Freedom funds. If it is waived, then invest in the bond fund.

Regardless of either of these choices, your traditional and Roth IRAs should be 100% stocks.

megabad
Posts: 2139
Joined: Fri Jun 01, 2018 4:00 pm

Re: Porfolio Review

Post by megabad » Tue Aug 13, 2019 6:17 pm

Looks like you are with a small employer and are stuck with high fees in the 401k. How long do you anticipate working here? Do you anticipate a big raise in the next few years (bumping tax brackets)? If you plan on working there a long time, I might forgo the 401k in your current tax bracket.

Not sure about only VXUS in taxable. I think I might hold taxable bonds there if your tax bracket is stable but probably not a huge deal. In any case, with VXUS I would urge you to own the fund directly at Vanguard though instead of at Robin Hood if you are set on the Vanguard ETF.

lakpr
Posts: 2100
Joined: Fri Mar 18, 2011 9:59 am

Re: Porfolio Review

Post by lakpr » Tue Aug 13, 2019 7:49 pm

megabad wrote:
Tue Aug 13, 2019 6:17 pm
If you plan on working there a long time, I might forgo the 401k in your current tax bracket.
This is a very reasonable option, I will second it too.

With a 12% tax bracket, the advantage of tax deferral diminishes. We might even make the case that 12% is about the absolute lowest tax bracket that one would see in a lifetime, so it argues for making Roth contributions more than tax deferred contributions. With such obscene expense ratios in the plan, it is better to skip 401k altogether and max out the Roth IRA and invest the rest in a taxable account at Vanguard (or Fidelity).

When the income increases enough to land the OP in a 22% tax bracket or higher, then contributing to the 401k plan makes sense, even then just enough to drop down to the top of the 12% tax bracket.

Topic Author
skyfall007
Posts: 3
Joined: Tue Aug 13, 2019 3:00 pm

Re: Porfolio Review

Post by skyfall007 » Tue Aug 13, 2019 8:21 pm

Thank you all for the responses. It is a small employer and we only recently got access to the plan.

-The load fees are waived in the plan, but ER are still sky high. Is the FEPTX fund bad enough that I should not even consider it for my bond allocation?

-I do anticipate my wife going back to work after staying home with our child, that will roughly double our income to 120k. I'm also hoping that her retirement plan will be much better than mine.

So if I forgo contributions to the 401k plan I should just set up a taxable brokerage with schwab or vanguard to run 3 fund ETFs? Or is it fine just buying the ETFs in the robinhood account?

Topic Author
skyfall007
Posts: 3
Joined: Tue Aug 13, 2019 3:00 pm

Re: Porfolio Review

Post by skyfall007 » Tue Aug 13, 2019 8:26 pm

megabad wrote:
Tue Aug 13, 2019 6:17 pm
Looks like you are with a small employer and are stuck with high fees in the 401k. How long do you anticipate working here? Do you anticipate a big raise in the next few years (bumping tax brackets)? If you plan on working there a long time, I might forgo the 401k in your current tax bracket.

Not sure about only VXUS in taxable. I think I might hold taxable bonds there if your tax bracket is stable but probably not a huge deal. In any case, with VXUS I would urge you to own the fund directly at Vanguard though instead of at Robin Hood if you are set on the Vanguard ETF.
What is the advantage of holding ETFs directly in a Vanguard brokerage? Is it based on the Foreign Tax Credit, Tax Lots, or something else? The reason I didn't go with vanguard for the brokerage is the $7.95 commission per trade.

lakpr
Posts: 2100
Joined: Fri Mar 18, 2011 9:59 am

Re: Porfolio Review

Post by lakpr » Tue Aug 13, 2019 8:31 pm

Unless there is a match, in your 12% bracket, I would completely forego contributing to 401k. Max your Roth IRAs instead.

FEPTX is an ok choice for a bond fund if the load is waived, but still does not make sense for you as long as you remain in a 12% bracket.

Does buying ETF through Robinhood have trading fees? If so I would dissuade that. I suggest Fidelity, there are no minimums and no fees even if you choose their Zero lineup of funds for taxable investments.

While you are at it, since you are in a 12% bracket, learn about Tax Gain harvesting that would reduce your future taxes.

https://www.bogleheads.org/wiki/Tax_gain_harvesting

megabad
Posts: 2139
Joined: Fri Jun 01, 2018 4:00 pm

Re: Porfolio Review

Post by megabad » Wed Aug 14, 2019 10:01 am

skyfall007 wrote:
Tue Aug 13, 2019 8:26 pm
megabad wrote:
Tue Aug 13, 2019 6:17 pm
Looks like you are with a small employer and are stuck with high fees in the 401k. How long do you anticipate working here? Do you anticipate a big raise in the next few years (bumping tax brackets)? If you plan on working there a long time, I might forgo the 401k in your current tax bracket.

Not sure about only VXUS in taxable. I think I might hold taxable bonds there if your tax bracket is stable but probably not a huge deal. In any case, with VXUS I would urge you to own the fund directly at Vanguard though instead of at Robin Hood if you are set on the Vanguard ETF.
What is the advantage of holding ETFs directly in a Vanguard brokerage? Is it based on the Foreign Tax Credit, Tax Lots, or something else? The reason I didn't go with vanguard for the brokerage is the $7.95 commission per trade.
Without getting into the weeds too much, I encourage all investors to review how their broker is compensated. Many brokers (like yours) are paid for order flow. It is my belief that this is in conflict with acting in the best interest of the client. To my knowledge, Vanguard does not accept order flow compensation on ordinary transactions (I think they do on options trading). Vanguard has a long list of commission free ETFs so commissions shouldn't come into play for you. I simplified this to just hold your funds directly at Vanguard, but there are many articles that discuss this issue online better than I could. Vanguard is not the only broker that doesn't sell order flow either. I believe Fidelity is also a good option if you want to hold their commission free ETFs instead.

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