Advice on asset allocations

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Topic Author
jvchavez86
Posts: 6
Joined: Sun Oct 06, 2019 11:10 pm

Advice on asset allocations

Post by jvchavez86 » Sun Oct 06, 2019 11:16 pm

Thank you for the wealth of information that exists here! I stumbled across BH when a coworker mentioned about it last month. My wife and I are in our early thirties and spent the last 7 years of our working lives paying off student debt loans. I am here because I truly believe we can embark on the wealth accumulation phase now and I wanted to make sure we don’t make any mistakes while we do so. My employer offers a 401k plan and I take advantage of that and I have started contribute $19,000 since the student loan debts are paid off this year. Below are my allocations in 401k, taxable and Roth IRA. My mother unfortunately passed away this year and I was fortunate enough to receive an inheritance of$20,000 that I plan to invest in my taxable account.

Do our allocations make sense? We are starting late but at least it is start..

Location : Manteca, California
Combined family income: $155,000
Debt : Mortgage of $325,000
Monthly Savings : $1,500 which we plan to invest in taxable every month.
Emergency fund: We have an emergency fund for 6 months built up now. Should we invest this in a CD or something that will beat inflation perhaps? Can't think of any right and looking for suggestions.

401k
———
45% Vinix
11% vieix
24% vtsnx
20% vbtix

Taxable
————
45% VTI
11% VXF
24% VXUS
20% *=( please recommend bonds which are tax efficient for taxable?)

ROTH IRA
————
60% VTI
20% VXUS
10% BND
10% VNQ

One more thing, should we DCA the $20,000 inheritance that we have to invest in taxable over the next 12 months or just jump right in?

BarbBrooklyn
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Location: NYC

Re: Advice on asset allocations

Post by BarbBrooklyn » Mon Oct 07, 2019 12:58 am

Hi and welcome!

Others will be along with advice, but I want to ask if your wife has access to any tax deferred plan.

Think about a California Tax exempt bond fund for your taxable account, perhaps.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Topic Author
jvchavez86
Posts: 6
Joined: Sun Oct 06, 2019 11:10 pm

Re: Advice on asset allocations

Post by jvchavez86 » Mon Oct 07, 2019 7:31 am

Hello BarbBrooklyn, no she does not.

Topic Author
jvchavez86
Posts: 6
Joined: Sun Oct 06, 2019 11:10 pm

Re: Advice on asset allocations

Post by jvchavez86 » Mon Oct 07, 2019 9:20 am

I am hoping to hear if my asset allocation sound reasonable? Please advice.

NxNW
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Re: Advice on asset allocations

Post by NxNW » Mon Oct 07, 2019 10:30 am

You can help us out by providing the names as well as the tickets for less well known funds.

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CABob
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Location: Southern California

Re: Advice on asset allocations

Post by CABob » Mon Oct 07, 2019 10:45 am

With regard to a tax efficient fund for bonds in a taxable account I have a holding in VCADX which is a California tax exempt bond fund.
But you might also consider increasing your bond allocation in your tax advantaged accounts and not include bonds in the taxable account.
Bob

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Duckie
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Re: Advice on asset allocations

Post by Duckie » Mon Oct 07, 2019 4:50 pm

jvchavez86 wrote:Do our allocations make sense?
Not quite. You should be holding all of your bond AA in your pre-tax 401k. If possible hold just stocks in your Roth IRA and taxable accounts. Also, VTI is total US stocks so you don't need VXF in taxable. That is overweighting mid/small caps.
Combined family income: $155,000
Monthly Savings : $1,500 which we plan to invest in taxable every month.
Does your wife have an IRA? Even if she is unemployed she can contribute to an IRA based on joint income. The two of you could be putting $12K a year into Roth IRAs.
Emergency fund: We have an emergency fund for 6 months built up now. Should we invest this in a CD or something that will beat inflation perhaps? Can't think of any right and looking for suggestions.
The purpose of an emergency fund is to be there when you really, really need it. That mean high-yield savings accounts, CDs, and/or money market accounts.
401k
———
45% Vinix
11% vieix
24% vtsnx
20% vbtix

Taxable
————
45% VTI
11% VXF
24% VXUS
20% *=( please recommend bonds which are tax efficient for taxable?)

ROTH IRA
————
60% VTI
20% VXUS
10% BND
10% VNQ
The above has 100% in each account. We need to know what the percentages are for 100% total. For example:
  • 401k -- 60%
    Taxable -- 25%
    Roth IRA -- 15%
One more thing, should we DCA the $20,000 inheritance that we have to invest in taxable over the next 12 months or just jump right in?
I'd put it all in at once but your stomach may differ.

Topic Author
jvchavez86
Posts: 6
Joined: Sun Oct 06, 2019 11:10 pm

Re: Advice on asset allocations

Post by jvchavez86 » Mon Oct 07, 2019 11:07 pm

Not quite. You should be holding all of your bond AA in your pre-tax 401k. If possible hold just stocks in your Roth IRA and taxable accounts. Also, VTI is total US stocks so you don't need VXF in taxable. That is overweighting mid/small caps.
Okay, the reasoning I had was to hold some kind of tax free bond in taxable(such as Muni) to avoid any tax penalties(preferably Ca owned). If this is not a smart move I can change this and as a result my taxable distribution will be -

Taxable
----------
75% VTI(Total US Stock Market ETF)
25% VXUS(Total International ETF)

Does your wife have an IRA? Even if she is unemployed she can contribute to an IRA based on joint income. The two of you could be putting $12K a year into Roth IRAs.
Point taken. I will contribute towards this.

As a result my ROTH IRA would look something like this-

Roth IRA
-----------
55% VTI
25% VXUS
20% BND

My 401K will remain the same, with the exception of VIEIX. Should I take that out and put a 56% allocation for Total Stock, instead?

401K
------
56% Vinix
24% vtsnx
20% vbtix
The above has 100% in each account. We need to know what the percentages are for 100% total. For example:
401k -- 60%
Taxable -- 25%
Roth IRA -- 15%
My allocations are as follows -
401k -- 80%
Taxable -- 20%
Roth IRA -- 0% (will start to contribute towards that)
The purpose of an emergency fund is to be there when you really, really need it. That mean high-yield savings accounts, CDs, and/or money market accounts.
I've heard a lot of good things about Ally. Maybe I will give that a whirl.

I'd put it all in at once but your stomach may differ.
I know market timing is against BH philosophy but is there any disadvantage in DCA over a predefined period of time?

HomeStretch
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Re: Advice on asset allocations

Post by HomeStretch » Mon Oct 07, 2019 11:18 pm

For simplicity and highest expected tax-free growth, consider holding just VTI in your/spouse’s Roth IRA.

Hold all of your bond allocation and the balance of your US/International equity allocations in your 401k account.

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Duckie
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Location: California Bay Area

Re: Advice on asset allocations

Post by Duckie » Tue Oct 08, 2019 5:36 pm

jvchavez86 wrote:Okay, the reasoning I had was to hold some kind of tax free bond in taxable(such as Muni) to avoid any tax penalties(preferably Ca owned). If this is not a smart move I can change this and as a result my taxable distribution will be -
You need to look at all accounts earmarked for retirement as one big portfolio. You do not need to put the same things in every account. Put just stocks in taxable and Roth accounts and all your bond AA in pre-tax accounts if you have room, and you have room.
As a result my ROTH IRA would look something like this-

Roth IRA
-----------
55% VTI
25% VXUS
20% BND
In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free. So don't put bonds in the Roth IRA.
My 401K will remain the same, with the exception of VIEIX. Should I take that out and put a 56% allocation for Total Stock, instead?
First, VINIX is not Total Stock, it's 500 Index, so using VIEIX is fine in the 401k. It's not absolutely necessary but you could use it at a four to one ratio.

Second, since you look at all accounts as one you won't have 100% of the portfolio in the 401k. Right now it's 80% and you want all your bonds there. By the end of the year what do you expect the percentages to be (totaling 100%)?

Taxable for retirement -- ??
His 401k -- ??
His Roth IRA -- ??
Her Roth IRA -- ??

Topic Author
jvchavez86
Posts: 6
Joined: Sun Oct 06, 2019 11:10 pm

Re: Advice on asset allocations

Post by jvchavez86 » Thu Oct 10, 2019 8:53 pm

You need to look at all accounts earmarked for retirement as one big portfolio. You do not need to put the same things in every account. Put just stocks in taxable and Roth accounts and all your bond AA in pre-tax accounts if you have room, and you have room.
After heeding to the advice given, I will my adjust my allocation to as follows -

Taxable
----------
75% VTI(Total US Stock Market ETF)
25% VXUS(Total International ETF)

Roth IRA
-----------
75% VTI(Total US Stock Market ETF)
25% VXUS

401K
------
64% Vinix
16% vtsnx
20% vbtix

This turned much more simpler that I thought.
Second, since you look at all accounts as one you won't have 100% of the portfolio in the 401k. Right now it's 80% and you want all your bonds there. By the end of the year what do you expect the percentages to be (totaling 100%)?

Taxable for retirement -- ??
His 401k -- ??
His Roth IRA -- ??
Her Roth IRA -- ??
Ideally, I would like all of my portfolio to be 80% in stock and 20% in bonds. I just don't know how to adjust my taxable, tax deferred and tax sheltered accounts wisely given my allocation target of 80/20 split.

Here is what we will currently have by the end of the year

His 401K = 55%
His IRA = 0%
Her 401K = 0%(new employer does not offer 401k)
Her IRA = 25%(she just rolled over her 401K from her last job)
Taxable = 15%
ROTH =5%

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Duckie
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Location: California Bay Area

Re: Advice on asset allocations

Post by Duckie » Thu Oct 10, 2019 9:49 pm

jvchavez86 wrote:Ideally, I would like all of my portfolio to be 80% in stock and 20% in bonds. I just don't know how to adjust my taxable, tax deferred and tax sheltered accounts wisely given my allocation target of 80/20 split.

Here is what we will currently have by the end of the year

His 401K = 55%
His IRA = 0%
Her 401K = 0%(new employer does not offer 401k)
Her IRA = 25%(she just rolled over her 401K from her last job)
Taxable = 15%
ROTH =5%
The following example has an AA of 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to 56% US stocks, 24% international stocks, and 20% bonds. By the end of the year you could have something like:

Taxable at Vanguard -- 15%
15% (VTI) Vanguard Total Stock Market ETF (0.03%)

His 401k -- 55%
11% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.035%)
24% (VTSNX) Vanguard Total International Stock Index Fund Institutional Shares (0.08%)
20% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.035%)

Her Rollover IRA at Vanguard -- 25%
24% (VTI) Vanguard Total Stock Market ETF (0.03%)

His Roth IRA at Vanguard -- 2.5%
2.5% (VTI) Vanguard Total Stock Market ETF (0.03%)

Her Roth IRA at Vanguard -- 2.5%
2.5% (VTI) Vanguard Total Stock Market ETF (0.03%)

Just some possibilities.

Topic Author
jvchavez86
Posts: 6
Joined: Sun Oct 06, 2019 11:10 pm

Re: Advice on asset allocations

Post by jvchavez86 » Sat Oct 12, 2019 5:27 pm

The following example has an AA of 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to 56% US stocks, 24% international stocks, and 20% bonds. By the end of the year you could have something like:

Taxable at Vanguard -- 15%
15% (VTI) Vanguard Total Stock Market ETF (0.03%)

His 401k -- 55%
11% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.035%)
24% (VTSNX) Vanguard Total International Stock Index Fund Institutional Shares (0.08%)
20% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.035%)

Her Rollover IRA at Vanguard -- 25%
24% (VTI) Vanguard Total Stock Market ETF (0.03%)

His Roth IRA at Vanguard -- 2.5%
2.5% (VTI) Vanguard Total Stock Market ETF (0.03%)

Her Roth IRA at Vanguard -- 2.5%
2.5% (VTI) Vanguard Total Stock Market ETF (0.03%)

Just some possibilities.
Thank you for breaking this up for me.
I noticed all of the international exposure is in the 401K, instead of split between taxable and 401K. Why is that so? I thought they were tax efficient enough to be kept anywhere.

Also, I have an EM. I currently have it in a savings account offering 1.75 %. Should it be multi tiered(50% Savings, 25% VMMXX(Money Market) and the rest 25% in VUBFX(Vanguard Ultra Short Term Bond) perhaps so it at least attempts to beat inflation?

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Duckie
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Re: Advice on asset allocations

Post by Duckie » Sat Oct 12, 2019 7:15 pm

jvchavez86 wrote:I noticed all of the international exposure is in the 401K, instead of split between taxable and 401K. Why is that so? I thought they were tax efficient enough to be kept anywhere.
I put all the international in the 401k for three reasons:
  1. VTSNX has an expense ratio of 0.08%. VXUS is 0.09% and VTIAX is 0.11%. So there is a very, very slight advantage holding international in the 401k.
  2. Since there is not a total US stock fund in the 401k you have to use either a combination of VINIX and VIEIX to get the "total" or just VINIX to get close enough. By putting the entire international allocation in the 401k it reduces the space for US stocks and makes it easier to use just VINIX.
  3. The dividends for Total Stock Market (TSM) are about 95% qualified and the dividends for Total International Stock Market (TISM) are about 70% qualified. This makes TSM better in taxable at first glance. But when you add in the Foreign tax credit that evens things out. One year TSM may do a little better and the next year TISM may, so it's pretty much a wash which fund is better in taxable for IRS purposes. However, if there are state income taxes and the FTC is not allowed (and that's the case for California) then TISM is at a disadvantage in taxable.
Also, I have an EM. I currently have it in a savings account offering 1.75 %. Should it be multi tiered(50% Savings, 25% VMMXX(Money Market) and the rest 25% in VUBFX(Vanguard Ultra Short Term Bond) perhaps so it at least attempts to beat inflation?
VMMXX is currently yielding 1.99% and VUBFX is 3.34% for the last year. Since you have a six-month emergency fund I would be inclined to use all three but reduce the savings account to 25% and add the other 25% to one or both of the Vanguard funds in addition to the above 25%.

For example: SA -- 25%, VMMXX -- 35%, VUBFX -- 40%.

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