PAS suggested portfolio, too complex ?

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geo5000
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Joined: Mon Feb 11, 2019 4:25 pm

PAS suggested portfolio, too complex ?

Post by geo5000 » Tue Oct 08, 2019 7:24 pm

After speaking to PAS advisor, this is the recommended portfolio he suggested, the ETF sector funds were recently brought over from wife's Merril account. I'm personally not comfortable having all these sector funds, especially If I decide to manage this portfolio myself. I told him in our initial talk that I wanted to keep it simple. The sector funds make up about 12% of our assets at VG. I really don't want to give $6,000 of my hard earned money to PAS, I'm just not sure its worth it! Ive become very frugal since hanging out in the BH community.


Recommended asset mix: 60% Stocks, 40% Bonds
Stocks

24% US large-cap stock
10% US mid/small-cap stock
14% Int'l stock
12% Individual/sector stock

Bonds

11% US short-term bond
13% US intermediate-term bond
9% US long-term bond
8% Int'l bond

His Taxable acct - 21.5%
Vanguard Long-Term Tax Exempt Fund (VPALX)
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total Int'l Stock ETF (VTI)
Vanguard Municipal Money Market Fund (VMSXX)


Her IRA

Vanguard Total Bond ETF (BND)


His IRA - 11%
Vanguard Total Bond Market ETF (BND)
Vanguard Total Int'l Bond ETF (BNDX)

Her Taxable acct - 39%

Vanguard Total Int'l Stock Index Fund (VTIAX)
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Limited-Term Tax-Exempt Fund (VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWIUX)
Vanguard Consumer Staples ETF (VDC) (.10)
Vanguard Industrials ETF (VIS) (.10)
Vanguard Information Tech ETF (VGT) (.10)
Consumer Discretionary Select Sector SPDR (XLY) (.13)
First Trust Dow Jones Internet Index ETF (FDN) (.52)
Ishares Core MSCI EAFE ETF (IEFA) (.07)
Ishares Nasdaq Biotech ETF (IBB) (.47)
Financial Select Sector SPDR ETF (XLF) (.13)
Healthcare Select Sector SPDR ETF (XLV) (.13)
Real Estate Select Sector SPDR ETF (XLRE) (.13)
Utilities Select Sector SPDR ETF (XLU) (.13)
Vanguard Total Int'l Stock ETF (VXUS) (.09)
Vanguard FTSE Emerging Markets ETF (VWO) (.12)
Last edited by geo5000 on Tue Oct 08, 2019 8:20 pm, edited 1 time in total.

historikerstreit
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Re: PAS suggested portfolio, too complex ?

Post by historikerstreit » Tue Oct 08, 2019 7:33 pm

Without even getting into the specifics, my initial thought is that the number of funds in Her taxable account is excessive: if you are expecting to rebalance, you risk lots of tax costs and complexity trying to keep the various percentages right. I'm not sure why an advisor who suggests 4 funds in one taxable account has suggested such a medley in the other. And that's not even assessing whether sector funds are a good idea....

RadAudit
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Re: PAS suggested portfolio, too complex ?

Post by RadAudit » Tue Oct 08, 2019 7:57 pm

What were the reasons the PAS provided for recommending the ETFs in the DW's side of the portfolio? What does your DW want to do with them?
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Topic Author
geo5000
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Re: PAS suggested portfolio, too complex ?

Post by geo5000 » Tue Oct 08, 2019 8:09 pm

RadAudit wrote:
Tue Oct 08, 2019 7:57 pm
What were the reasons the PAS provided for recommending the ETFs in the DW's side of the portfolio? What does your DW want to do with them?

I have a follow up this Friday and plan on asking the reasoning for the ETF allocation, we are ok with selling most or all these sector ETF's.

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whodidntante
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Re: PAS suggested portfolio, too complex ?

Post by whodidntante » Tue Oct 08, 2019 8:15 pm

That doesn't seem like good advice to me. Ask them why they recommend it.

Mister A
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Re: PAS suggested portfolio, too complex ?

Post by Mister A » Tue Oct 08, 2019 8:19 pm

I'm pretty surprised that PAS is building portfolios out of SPDR and iShares sector ETFs.

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RickBoglehead
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Re: PAS suggested portfolio, too complex ?

Post by RickBoglehead » Tue Oct 08, 2019 8:25 pm

What is the gain in selling her already held funds that she seems to be keeping.
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Topic Author
geo5000
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Re: PAS suggested portfolio, too complex ?

Post by geo5000 » Tue Oct 08, 2019 8:36 pm

RickBoglehead wrote:
Tue Oct 08, 2019 8:25 pm
What is the gain in selling her already held funds that she seems to be keeping.

About $45,000 in LT unrealized gains.

Topic Author
geo5000
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Re: PAS suggested portfolio, too complex ?

Post by geo5000 » Tue Oct 08, 2019 8:40 pm

I know nothing about sector investing and would not feel comfortable managing these myself. I'm leaning towards filling up our Tax-deferred accounts with total bond funds, and our taxable with VTSAX, VTIAX and a mix of limited-term/intermediate/long-term tax-exempt muni bonds plus a municipal money market fund for cash. Simple, tax efficient/easy to re-balance.

livesoft
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Re: PAS suggested portfolio, too complex ?

Post by livesoft » Tue Oct 08, 2019 8:45 pm

Mister A wrote:
Tue Oct 08, 2019 8:19 pm
I'm pretty surprised that PAS is building portfolios out of SPDR and iShares sector ETFs.
That is not happening. Those assets are already in the portfolio. It looks simply like there is no need to sell them right now and take a tax hit.
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Mister A
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Re: PAS suggested portfolio, too complex ?

Post by Mister A » Tue Oct 08, 2019 9:02 pm

livesoft wrote:
Tue Oct 08, 2019 8:45 pm
Mister A wrote:
Tue Oct 08, 2019 8:19 pm
I'm pretty surprised that PAS is building portfolios out of SPDR and iShares sector ETFs.
That is not happening. Those assets are already in the portfolio. It looks simply like there is no need to sell them right now and take a tax hit.
Ah, silly me. I misunderstood. Thanks for clearing that up.

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RickBoglehead
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Re: PAS suggested portfolio, too complex ?

Post by RickBoglehead » Tue Oct 08, 2019 9:12 pm

geo5000 wrote:
Tue Oct 08, 2019 8:36 pm
RickBoglehead wrote:
Tue Oct 08, 2019 8:25 pm
What is the gain in selling her already held funds that she seems to be keeping.

About $45,000 in LT unrealized gains.
That was not clear to many. That is why they are being kept.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Nate79
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Re: PAS suggested portfolio, too complex ?

Post by Nate79 » Tue Oct 08, 2019 9:42 pm

Why do you care how many funds you have in PAS? That's what you are paying their high management fee to do. Hand them the keys, let them manage it, and move on. Or do it yourself. Of course you should watch what they are doing and understand the details but for them to manage 3 or 20 funds is easy. Clearly they felt that you shouldn't be selling the funds and pay taxes on the gains but I'm sure if you instructed them to sell and make a simpler portfolio they would do it for you.

randomguy
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Re: PAS suggested portfolio, too complex ?

Post by randomguy » Tue Oct 08, 2019 10:15 pm

geo5000 wrote:
Tue Oct 08, 2019 8:09 pm
RadAudit wrote:
Tue Oct 08, 2019 7:57 pm
What were the reasons the PAS provided for recommending the ETFs in the DW's side of the portfolio? What does your DW want to do with them?

I have a follow up this Friday and plan on asking the reasoning for the ETF allocation, we are ok with selling most or all these sector ETF's.
I think if you make it clear to PAS that you are ok paying 7k+ in taxes this year to have fewer funds, they will be happy to sell them and move that money into the total market funds. This just sounds like a misunderstanding where PAS is trying to avoid paying taxes that you are ok paying.

retiredjg
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Re: PAS suggested portfolio, too complex ?

Post by retiredjg » Wed Oct 09, 2019 7:23 am

geo5000 wrote:
Tue Oct 08, 2019 7:24 pm
I really don't want to give $6,000 of my hard earned money to PAS, I'm just not sure its worth it! Ive become very frugal since hanging out in the BH community.
If you have not already signed on to the PAS program, there is no reason you cannot do this yourself if you know how to sell ETFs (or can learn) and how to buy what you want.

Even if you have signed onto the program, I don't think there is a minimum length of time you must stay. Well, do they charge by the quarter instead of the day? I don't know how they do it, but you are not bound to them for long if at all.

You should ask for some free trades to clean up the sector funds and buy total market funds. You might get a few.

DarkHelmetII
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Re: PAS suggested portfolio, too complex ?

Post by DarkHelmetII » Wed Oct 09, 2019 7:37 am

For what it's worth, I had referred my mother-in-law to a Fiduciary wealth manager at TIAA who did a portfolio review / plan for no charge. He cooked up something that was quite complex. The individual funds were reasonable (low-cost, passively managed) but the # of funds was way too many and represented in a 100+ page report across multiple PDF files. After a little back and forth he conceded that two funds - Vanguard total stock market and total bond - would achieve nearly the same returns at a small fraction of the complexity.

HomeStretch
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Re: PAS suggested portfolio, too complex ?

Post by HomeStretch » Wed Oct 09, 2019 7:58 am

If you are willing to sell all sector stocks and don’t want to pay PAS $6k per year, then why not manage your portfolio yourself?

With your desired portfolio allocation of 60/40 equities/bonds, consider:

IRAs 39.5%
39.5% VBTLX Total US Bond Fund

Taxable 60.5%
48% VTSAX Total US Stock Market Fund
12% VTIAX Total International Stock Market Fund *
0.5% VMMXX Prime or VUSXX Treasury money market **

* You didn’t mention your desired international allocation, so I assumed 20%. Hold International in equities and skip international bonds.

**You didn’t mention your marginal tax rates. If no state tax, VMMXX makes sense. If a state tax, VUSXX may give you a higher tax equivalent yield. There is a $50k minimum investment that you only need to meet initially (you can hold < $50k after that) so as you sell move your proceeds temporarily into VUSXX to meet the minimum.

Topic Author
geo5000
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Re: PAS suggested portfolio, too complex ?

Post by geo5000 » Wed Oct 09, 2019 2:09 pm

Thank you all for the replies and suggestions everyone, what I'm leanings towards is managing these investments myself without the added complexity of these sector ETS's, will I achieve similar results with only 3-5 funds? Time will tell.

Topic Author
geo5000
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Re: PAS suggested portfolio, too complex ?

Post by geo5000 » Thu Oct 10, 2019 11:44 am

HomeStretch wrote:
Wed Oct 09, 2019 7:58 am
If you are willing to sell all sector stocks and don’t want to pay PAS $6k per year, then why not manage your portfolio yourself?

With your desired portfolio allocation of 60/40 equities/bonds, consider:

IRAs 39.5%
39.5% VBTLX Total US Bond Fund

Taxable 60.5%
48% VTSAX Total US Stock Market Fund
12% VTIAX Total International Stock Market Fund *
0.5% VMMXX Prime or VUSXX Treasury money market **

* You didn’t mention your desired international allocation, so I assumed 20%. Hold International in equities and skip international bonds.

**You didn’t mention your marginal tax rates. If no state tax, VMMXX makes sense. If a state tax, VUSXX may give you a higher tax equivalent yield. There is a $50k minimum investment that you only need to meet initially (you can hold < $50k after that) so as you sell move your proceeds temporarily into VUSXX to meet the minimum.
Thanks HomeStretch, 35% fed, 3% state, PA resident

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