Help with this portfolio. Asset Allocation

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scooter101
Posts: 8
Joined: Sun Apr 14, 2019 7:17 am

Help with this portfolio. Asset Allocation

Post by scooter101 » Sat Nov 16, 2019 9:49 am

Emergency funds: 10,000

Debt: No Debt. No Mortgage, no car payment, no credit card debt. No Loans.

Tax Filing Status: Married Filing Jointly.

Tax Rate: Federal: 12% State: 5%

State of Residence: Mississippi

Age: Him 54 Her 49

Income: His $60,000 Her $29,000 Combined $89,000

Desired Asset Allocation: Him: 70% Equities, 30% Bonds or possibly 80/20. Higher risk does not bother him.

His Current Portfolio: He has two Traditional 401Ks, one is from a old employer.
The first one is with Fidelity.
17.32% $221,000 in Vanguard Institutional index fund. VINIX expense ratio 0.035 (old employer)
Current choice for Bonds/income are:
Loomis Sayles Strategic Income Fund Class Y NEZYX expense ratio 0.71
PIMCO Total Return Fund Institutional Class PTTRX expense ratio 0.71
Vanguard Total Bond Market Index Fund Admiral Shares VBTLX 0.05
Current choice for international fund:
Vanguard International Growth Fund Admiral Shares VWILX Expense ratio 0.32
Vanguard Total International Stock Index Fund Admiral Shares VTIAX 0.11
Invesco Oppenheimer Developing Markets Fund Class R6 ODVIX 0.85

The second one is with Wells Fargo, current employer, with a 5% match up to 2.5% total.
23.66% $302,000 WF/Blackrock S&P 500 Index Expense ratio 0.03
Current choice for Bonds/income are:
Morley Stable Value Cl 45-II
Dodge & Cox Income DODIX Expense ratio 0.42
Vanguard Inflation-Protected Sec Inst VIPIX expense ratio 0.07

Charles Schwab:
Roth conversion IRA: 3.84% $49,000 Schwab index 500 SWPPX Expense ratio 0.02
1.09% $14,000 cash to invest.
Rollover IRA Traditional: 7.60% $97,000 Schwab Total Stock Market. SWTSX Expense ratio 0.03
.03% $400.00 Schwab index 500 SWPPX Expense ratio 0.02
Taxable Account Brokerage: 28.05% $358,000 Schwab Index 500 SWPPX Expense ratio 0.02
9.64% $123,00 Schwab Total Stock Market SWTSX Expense ratio 0.03
7.52% $96,000 To invest.

HSA with Bank Of America: .15% $2,000 in cash.
1.05% $13,500 invested In iShares S&P 500 Index Fund (K) WFSPX Expense ratio 0.03
Current choice for Bonds/income are:
BlackRock High Yield Bond Fund (K) BRHYX Expense ratio 0.50
iShares US Aggregate Bond Index Fund (K) WFBIX Expense ratio 0.05
PIMCO Low Duration Fund (I) PTLDX Expense ratio 0.71
PIMCO Total Return Fund (I PTTRX Expense ratio 0.71
Vanguard Inflation Protected Secs. Fund (Adm VAIPX Expense ratio 0.10

His Total Portfolio value 1,275,900.00


Her Portfolio: Her Desired Asset Allocation: 60 Equites 40 Bonds

Public School System Retirement Plan State of Mississippi (PERS). Defined benefits plan. Mandatory 9% employee contribution. State contribution 15.75%. Currently my contributions total 10.73% $35,000. I do not know total the state has contributed.

Annuity: Statefarm. Retirement Annuity, deferred annuity with single premium Oct 2013. 36.79% $120,000 10 year fixed, 2.60% Matures Oct 2023

Local Brokerage: Roth IRA 4.85% $15,844 Putnam Capital Spectrum Fund Class C PVSCX Expense ratio 1.06%
6.99% $ 22,813 American Funds Global Growth Portfolio Class C GGPCX Expense ratio 1.56%

Taxable Brokerage Acct: Vanguard 39.29% $128,145 Vanguard LifeStrategy Growth Fund Investor Shares VASGX Expense ratio: .14%

HSA Bank of America 1.31% $4,300 cash with future investments.

Her Total Portfolio value $326,102.00

Combined value 1,602,002.00

For him, he has been maxing out his traditional 401k plan at work, his Traditional IRA, and his HSA. Going forward in 2020 he will start contributing $26,000 to a Roth 401k, $7,000 Roth conversion IRA , and $4,500 in his HSA. Provided we can make our money stretch that far. He does work on the side for extra money. He is not expecting excess money for the brokerage account.
Expected retirement age for him (65-67). He will also have a pension from work and will be drawing SS benefits. (Currently only about $40,000 in pension.)
As we said before he has a very high tolerance for risk, but we are thinking we need to tone back a little. Say 70/30 or 80/20. We don't live a very fancy life style, but we would like to do a few things in retirement. Our living expenses are less than 1,500 a month.
Should he think about a Back Door Roth IRA?

For her, we know the local Brokerage expense ratios are very high, and are thinking about transferring them to Vanguard where she recently opened up an account. Where we have more control and less pressure from local brokerage.
Not sure what to do with the Annuity. She is eligible to retire at age 60 from PERS. Will likely wait until age 62/65.
Her current pension value is around $35,000 and she will also be drawing SS benefits. She is currently maxing out her Roth IRA and she will not be contributing to her taxable account.

Any advice on this Portfolio is greatly appreciated. We will answer questions to the best of our ability.
Last edited by scooter101 on Sun Nov 17, 2019 10:09 am, edited 4 times in total.

krow36
Posts: 2252
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Help with this portfolio. 100% stock.

Post by krow36 » Sat Nov 16, 2019 2:01 pm

For him, he has been maxing out his traditional 401k plan at work, his Traditional IRA, and his HSA. Going forward in 2020 he will start contributing $26,000 to a Roth 401k, $7,000 Roth conversion IRA , and $4,500 in his HSA. Provided we can make our money stretch that far. He does work on the side for extra money. He is not expecting excess money for the brokerage account.
Expected retirement age for him (65-67).
As we said before he has a very high tolerance for risk, but we are thinking we need to tone back a little. Say 70/30 or 80/20. We don't live a very fancy life style, but we would like to do a few things in retirement. Our living expenses are less than 1,500 a month.
Should he think about a Back Door Roth IRA?

For her, we know the local Brokerage expense ratios are very high, and are thinking about transferring them to Vanguard where she recently opened up an account. Where we have more control and less pressure from local brokerage.
Not sure what to do with the Annuity. She is eligible to retire at age 60 from PERS. Will likely wait until age 62/65.
I agree that reducing the risk of his accounts is a good idea. A 70/30 ratio would be the highest I would consider. It's easy to make changes in his tIRA accounts. Changing to Roth 403k contributions in 2020 makes sense.

Transferring her brokerage to Vanguard is a very good idea. Those ERs are way too high and the fund selection questionable. The fixed annuity sounds like the equivalent to a long-term CD. Is it inside an IRA? Is it possible to pull out 10% a year without incurring a surrender penalty?

As a school district employee, she can contribute to a 403b and/or a 457 plan. That might be a better option than adding to her taxable account?

I think you both have the ability to contribute directly to a Roth IRA, and should do so before adding to the taxable accounts. The backdoor Roth is used for those with income too high to contribute directly. His traditional IRAs would prevent the backdoor unless he rolled them into his 401k. You should make Roth IRA direct contributions rather than (or in addition to?) converting tIRA to Roth IRA.

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ruralavalon
Posts: 16716
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with this portfolio. 100% stock.

Post by ruralavalon » Sat Nov 16, 2019 2:41 pm

It's great to see that you are debt free, using low expense index funds, and making maximum contributions to his 401k and IRA. With "Combined value 1,602,002.00" and "living expenses are less than 1,500 a month" it looks like you are in good shape.

Some additional information may be useful, see my questions below. Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

scooter101 wrote:
Thu Nov 14, 2019 5:20 pm
Getting ready to post my portfolio, but when I do , do I need to include my wife's assets also? We both manage our money and retirement accounts separately, she is very conservative and I am on the aggressive side. Although we file our taxes Married and filing jointly.
scooter101 wrote:
Fri Nov 15, 2019 6:29 am
Thanks everyone, I am going to list both of ours, but we will be managing them separately. I will have percentages for my portfolio and percentages for her portfolio. Again much Thanks for everyone on here.


His portfolio.
scooter101 wrote:
Sat Nov 16, 2019 9:49 am

Tax Rate: Federal: 12% State: 5%

State of Residence: Mississippi

Age: Him 54 Her 49

Income: His $60,000 Her $29,000 Combined $89,000

Desired Asset Allocation: Him: 70% Equities, 30% Bonds or possibly 80/20. Higher risk does not bother him.
. . . . .
Expected retirement age for him (65-67).
As we said before he has a very high tolerance for risk, but we are thinking we need to tone back a little. Say 70/30 or 80/20.
In my opinion at age 54 expecting to retire around 65-67, an asset allocation of 30% fixed income (bonds) is within the range of what is reasonable.

Do you not want any allocation to international stocks?

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.


His portfolio.
scooter101 wrote:
Sat Nov 16, 2019 9:49 am
His Current Portfolio: He has two Traditional 401Ks, one is from a old employer.
The first one is with Fidelity.
17.32% $221,000 in Vanguard Institutional index fund. VINIX expense ratio 0.035 (old employer)
Current choice for Bonds/income are:
Loomis Sayles Strategic Income Fund Class Y NEZYX expense ratio 0.71
PIMCO Total Return Fund Institutional Class PTTRX expense ratio 0.71
Vanguard Total Bond Market Index Fund Admiral Shares VBTLX 0.05
What other funds are offered in your former employer's 401k plan? Are there any low or moderate expanse international stock funds? Please give fund names, tickers and expense ratios.

Of the bond funds I would prefer Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%

scooter101 wrote:
Sat Nov 16, 2019 9:49 am
The second one is with Wells Fargo, current employer, with a 5% match up to 2.5% total.
23.66% $302,000 WF/Blackrock S&P 500 Index Expense ratio 0.03
Current choice for Bonds/income are:
Morley Stable Value Cl 45-II
Dodge & Cox Income DODIX Expense ratio 0.42
Vanguard Inflation-Protected Sec Inst VIPIX expense ratio 0.07
What other funds are offered in your current employer's 401k plan? Are there any low or moderate expanse international stock funds? Please give fund names, tickers and expense ratios.

Of the bond funds offered my preference would be Dodge & Cox Income (DODIX) ER 0.42%. Although actively managed it is a good intermediate-term (effective duration = 4.20 years), investment-grade bond fund (credit quality = BBB), with a moderate expense ratio.


scooter101 wrote:
Sat Nov 16, 2019 9:49 am
Charles Schwab:
Roth conversion IRA: 3.84% $49,000 Schwab index 500 SWPPX Expense ratio 0.02
1.09% $14,000 cash to invest.
Rollover IRA Traditional: 7.60% $97,000 Schwab Total Stock Market. SWTSX Expense ratio 0.03
.03% $400.00 Schwab index 500 SWPPX Expense ratio 0.02
For a little better diversification I suggest just using Schwab Total Stock Market (SWTSX) ER 0.03%. I see no point to using both funds, they are nearly duplicates of each other.


scooter101 wrote:
Sat Nov 16, 2019 9:49 am
Taxable Account Brokerage: 28.05% $358,000 Schwab Index 500 SWPPX Expense ratio 0.02
9.64% $123,00 Schwab Total Stock Market SWTSX Expense ratio 0.03
7.52% $96,000 To invest.
For a little better diversification I suggest just using Schwab Total Stock Market (SWTSX) ER 0.03%. I see no point to using both funds, they are nearly duplicates of each other.


scooter101 wrote:
Sat Nov 16, 2019 9:49 am
HSA with Bank Of America: .15% $2,000 in cash.
1.05% $13,500 invested In iShares S&P 500 Index Fund (K) WFSPX Expense ratio 0.03
Current choice for Bonds/income are:
BlackRock High Yield Bond Fund (K) BRHYX Expense ratio 0.50
iShares US Aggregate Bond Index Fund (K) WFBIX Expense ratio 0.05
PIMCO Low Duration Fund (I) PTLDX Expense ratio 0.71
PIMCO Total Return Fund (I PTTRX Expense ratio 0.71
Vanguard Inflation Protected Secs. Fund (Adm VAIPX Expense ratio 0.10
Of the bond fund choices my preference would be iShares US Aggregate Bond Index Fund (K) (WFBIX) ER 0.05%. It is essentially identical to Vanguard Total Bond Market Index Fund.



Traditional vs Roth contributions.
scooter101 wrote:
Sat Nov 16, 2019 9:49 am
For him, he has been maxing out his traditional 401k plan at work, his Traditional IRA, and his HSA. Going forward in 2020 he will start contributing $26,000 to a Roth 401k, $7,000 Roth conversion IRA , and $4,500 in his HSA. Provided we can make our money stretch that far. He does work on the side for extra money. He is not expecting excess money for the brokerage account.
. . . . .
Should he think about a Back Door Roth IRA?
I do not suggest a Roth IRA or Roth 401k contributions. For most people traditional 401k and traditional IRA contributions will likely be better.

The income tax code is progressive, with a lower tax rate for lower income. Retirement usually means that employment income has ended. Therefore, most people are in a lower tax bracket in retirement and for most people traditional 401k contributions will probably be better.

In addition when you withdraw from your 401k or IRA in retirement, the income is not all taxed at the marginal tax rate specified for your tax bracket. TFB blog post, "The case against Roth 401k". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k)." "Until you know you can generate from your Traditional 401(k) enough income to fill the lower brackets, it doesn’t make sense to contribute to a Roth 401(k). (You currently have just $302k in your traditional 401k, and $79k in your traditional rollover IRA. You did not list a traditional tax-deferred account for your wife. What is the projected Social Security income, and expected pension income?) For people without a traditional defined benefit pension plan, it means the majority of the retirement savings should go to a Traditional 401(k), not Roth."

Will you be eligible for a substantial pension in addition to Social Security? How substantial is your wife's pension? Is she also eligible for Social Security on her own record? A pension changes that analysis, so that Roth contributions are likely better if you have a significant pension coming in addition to Social Security. TFB blog post, "Most TSP participants should switch to the Roth TSP". That post discussed the effect of a federal pension, but the analysis should hold for other pensions.

What is your profession or occupation?

Wiki article, "Traditional vs Roth".
"Tax considerations:
* If your current marginal tax rate is 15% or less, prefer a Roth.
* If you expect to have higher marginal rates than your current marginal rate for most of your career, prefer a Roth.
* If you will have a traditional account or a pension large enough to meet your expected retirement expenses (and you expect to take that pension shortly after retiring), prefer a Roth. (You currently have just $302k in your traditional 401k, and $79k in your traditional rollover IRA. You did not list a traditional tax-deferred account for your wife. What is the projected Social Security income, and expected pension income?)
* Otherwise, prefer a traditional account."








Her portfolio.
scooter101 wrote:
Sat Nov 16, 2019 9:49 am
Her Portfolio: Her Desired Asset Allocation: 60 Equites 40 Bonds
In my opinion at age 49, expecting to retire at age 62-65, with a pension coming, a 60/40 asset allocation is within the range of what is reasonable.


scooter101 wrote:
Sat Nov 16, 2019 9:49 am
Public School System Retirement Plan State of Mississippi (PERS). Defined benefits plan. Mandatory 9% employee contribution. State contribution 15.75%. Currently my contributions total 10.73% $35,000. I do not know total the state has contributed.

Annuity: Statefarm. Retirement Annuity, deferred annuity with single premium Oct 2013. 36.79% $120,000 10 year fixed, 2.60% Matures Oct 2023
Is her pension in addition to her Social Security? In other words is she also eligible for Social Security on her record?

What is her projected pension income?

Is the deferred annuity held in a IRA?


scooter101 wrote:
Sat Nov 16, 2019 9:49 am
Local Brokerage: Roth IRA 4.85% $15,844 Putnam Capital Spectrum Fund Class C PVSCX Expense ratio 1.06%
6.99% $ 22,813 American Funds Global Growth Portfolio Class C GGPCX Expense ratio 1.56%
I suggest rolling over this IRA to a Roth IRA at Vanguard, to use index funds with lower expense ratios.

scooter101 wrote:
Sat Nov 16, 2019 9:49 am
Taxable Brokerage Acct: Vanguard 39.29% $128,145 Vanguard LifeStrategy Growth Fund Investor Shares VASGX Expense ratio: .14%

HSA Bank of America 1.31% $4,300 cash with future investments.

Investing priority.
Is she eligible to contribute to a 403b or 457b plan at work? If so then that should be a priority over investing in a taxable account.

Here is a general account funding priority that usually works well for many people (when there is no high interest debt or HSA use):
1) Contribute to the work-based plans (401k, 403b, 457, SIMPLE IRA, TSP, etc.) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based accounts; and
4) Contribute to a taxable investing account.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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