Portfolio Change Advice

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Blueskies60
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Portfolio Change Advice

Post by Blueskies60 » Mon Dec 02, 2019 11:14 am

Hello Bogleheads,

After reading your recommendations to myself and others, here is a strategy I’ve come up with, with regards to investments and a financial plan. I appreciate your thoughts and suggestions.

GENERAL INFORMATION:
Salary: 68K - Hope to work until 66yo, longer if I'm able
Emergency Fund: TBD
Debt: None
Filing: Single Head of Household
Federal Tax Rate: 24%
State Withholding Rate: 4.25%
Age: 59
Children: 2, one in college, one in HS
Desired Asset allocation: 60/40 or 50/50 (I'm on the fence but lean toward Jack Bogle's AA of 50/50)


EMPLOYER INFORMATION:
403b has a variety of Vanguard Mutual Funds ~ Most of the popular ones anyway.
Employer does not have a 457b plan. I've been requesting that they provide one to their employees with no luck. :(


CURRENT RETIREMENT ASSETS:
403b (am currently maxing out deposits to this account yearly)
VBIAX/ 0.07 Vanguard Balanced Index Fund- $100K

Traditional IRA (no longer can contribute to this account) @ Fidelity
FSKAX/ 0.015 Fidelity Total Market Index Fund - 50K
FXAIX/ 0.02 Fidelity 500 Index Fund - 20K
FNCMX/0.26 Fidelity Nasdaq Composite Index Fund - 7K
GPXJ/0.54 VanEck Vectors Gold Miners ETF - 20K

Taxable Account
FSKAX/0.015 Fidelity Total Market Index Fund - 90K
FTIHX/ 0.06 Fidelity Total International Index Fund - 10K

Roth IRA
FFNOX/ 0.22 Fidelity 4 in 1 Index Fund - 15K

Money Market @ Fidelity
FZDXX - FIDELITY MMKT PREMIUM CLASS 7 day yield 1.62% - 675K EXP Ratio Gross 3.7% EXP CAP Dated 0.3%

CD
End date 2021 earning 2.5% interest, - $275K



PROPOSED CHANGES TO RETIREMENT ASSETS: Scenario #1 - More Conservative
403b (am currently maxing out deposits to this account yearly)
VBTLX - Vanguard Total Bond Market Index Fund- 115K

Traditional Tax Free IRA (no longer can contribute to this account)
BND - Vanguard Total Bond 105K

Taxable Account at Fidelity - Traditional IRA
VTI - Vanguard Total Market Index ETF - 300K
VXUS - Vanguard Total International Market Index ETF - 40K
VNQ - Vanguard REIT - 10K

Roth IRA
FFNOX/ 0.22 Fidelity 4 in 1 Index Fund - 15K


Money Market @ Fidelity
FZDXX - FIDELITY MMKT PREMIUM CLASS 7 day yield 1.62% - 675K EXP Ratio Gross 3.7% EXP CAP Dated 0.3%

CD
End date 2021 earning 2.5% interest, - $275K

(Note: I may be purchasing another house in the next year or two and plan to use the MM funds for that purpose. )



PROPOSED CHANGES TO RETIREMENT ASSETS: Scenario #2 - A little less conservative
403b (am currently maxing out deposits to this account yearly)
VBAIX - Vanguard Balanced Market Index Fund- 115K

Traditional Tax Free IRA (no longer can contribute to this account)
BND Vanguard Total Bond - 105K
(or should I put it in VTI Total Market Index ETF as I have cash in MM and CD?)

Taxable Account
VTI - Vanguard Total Market Index ETF - 300K
VXUS - Vanguard Total International Market Index ETF - 40K
VNQ - Vanguard REIT - 10K

Roth IRA
FFNOX/ 0.22 Fidelity 4 in 1 Index Fund - 15K

Money Market @ Fidelity
FZDXX - FIDELITY MMKT PREMIUM CLASS 7 day yield 1.62% - 675K EXP Ratio Gross 3.7% EXP CAP Dated 0.3%

CD
End date 2021 earning 2.5% interest, - $270K

(Note: I may be purchasing another house in the next year or two and plan to use the MM funds for that purpose. )


In general, am I being too conservative with so much cash in a MM and CD? I guess I’m gun shy as I worry this incredible market run might be coming to an end. Also, what are your thoughts about the balance amounts I've proposed? I've tried to follow Boglehead advice with regards to tax efficiency as well. If I've overlooked something, please share! Thanks in advance for sharing your wisdom.
Last edited by Blueskies60 on Mon Dec 02, 2019 6:34 pm, edited 1 time in total.

snailderby
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Re: Portfolio Change Advice

Post by snailderby » Mon Dec 02, 2019 11:28 am

1. I wouldn't keep $950,000 in a money market fund and CDs. If you are worried about the market crashing, you might consider a more conservative stock/bond asset allocation.

2. Is the 403(b) a traditional or Roth account?

3. Are you maxing out contributions to your Roth IRA every year?

4. Are you eligible to contribute to an HSA?

5. Do you have any taxable gains for FSKAX and FTIHX in your taxable account? How much? Short-term or long-term?
Last edited by snailderby on Mon Dec 02, 2019 1:57 pm, edited 1 time in total.

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Blueskies60
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Re: Portfolio Change Advice

Post by Blueskies60 » Mon Dec 02, 2019 11:43 am

The 403b is a traditional account and I'm maxing it out. I contribute to a Roth IRA each year. I looked into the HSA but it is too costly with regards to my health insurance plan options.

I'm not sure about the taxable gains in my taxable account. I'll find out this tax season but fear my taxes will be high. That's why I'm looking to change to the ETF per Boglehead advice. I'm concerned about rebalancing but will have to figure out how to do it.

As far as holding bonds instead of MM or CDs, it looks to me like the bonds earn about the same amount of interest, so why take the risk? Am I wrong about that?

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Blueskies60
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Re: Portfolio Change Advice

Post by Blueskies60 » Mon Dec 02, 2019 11:55 am

What bonds do you recommend holding in a taxable account?

ohai
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Re: Portfolio Change Advice

Post by ohai » Mon Dec 02, 2019 11:55 am

Agree on moving some money to longer duration bonds (i.e. not money market) to get a bit more yield. Even BND or AGG are fine.

Are you including houses in your asset allocation? Let's say your first house is worth $750k. Then, your current asset allocation is something like 45% House1, 35% cash, 20% equities. Do you really want to move to to 80% in two random houses, and 20% diversified? (just conceptualizing numbers, didn't do calculations). I've seen a lot of people get rich from having a lot of houses, but others also got ruined if they were in the wrong area.

Gold Miners index - I don't know the purpose of this; would probably get rid of it. I'd also get rid of the REITs, since you already have a lot of housing exposure and real estate is already part of the general stock market. VNQ sort of stuff is also tax-inefficient due to high unqualified dividends (might or might not matter, based on your tax bracket).

Overall, you seem to have a lot of money for your income. You must have saved a lot in your life. Main focus should be not to do things that might unnecessarily risk your assets, in my opinion.

lakpr
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Re: Portfolio Change Advice

Post by lakpr » Mon Dec 02, 2019 11:55 am

With a salary of $68k, I think you are in the 22% tax bracket, not a 24% bracket as you wrote above. Surely with maxing out your 403b, the income reported on your W-2 form will be $68k - $25k (since you are over age 50) = $43k, which puts you even in a 12% bracket.

What is the expense ratio being charged in your plan for that Vanguard Balanced Index fund? If it is less than 0.10%, then I think you should roll over the Traditional IRA with pre-tax assets (that you have $97k in) into the 403b plan. For a person aged 59, a 60:40 allocation ratio is PERFECT, so if you roll the fund from tIRA to 403b, you have a ONE FUND location where all your retirement assets are in.

The other change I would make is to move away from FFNOX in your Roth IRA (which contains some bonds) to a complete 100% stock portfolio (FSKAX, Fidelity Total Stock Index fund). Mentally earmark this Roth IRA as your kids' inheritance, and think that you are investing in this fund based on your kids' investing horizon, which is at least 60 years out. You are being a temporary custodian of those funds. With such a long investing horizon, a 100% equities portfolio is the best.

I will leave the taxable accounts and the CDs alone. Taxable accounts -- because of possibly large capital gains hit. CDs because there is penalty. But once the CD matures, and only after then, I would invest in again a 60:40 ratio.

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Blueskies60
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Re: Portfolio Change Advice

Post by Blueskies60 » Mon Dec 02, 2019 12:22 pm

Lakpr, I never thought about rolling the IRA into the 403b. I will be looking into that. The only issue I see is that my IRA is in Fidelity and the 403b is at a smaller company that I planned on rolling into Fidelity once I retire. I suppose I could keep the IRA in the 403b plan until I retire then return all funds to Fidelity upon retirement, if that is an option.

Ohai, I own about $250-300K in real estate, my home and a small (cheap) vacation home (that I'd like to get rid of but my one son wants me to keep). My home (condo) is in a desirable area with high property values, though I live in a safe but less desirable part of town, (which suits me as my property taxes are less than most homes in the area).

Good suggestion about the Roth ~ I also opened Roth accounts for both my kids and told them I'd fund them up to 5K apiece and want them to continue funding them as well, when they're able. I have them in a Fidelity Target Fund.

So, am I hearing that both of you would put NO equities (VTI) in a taxable account? That I put all funds in bonds?
Also, Ohai, you wouldn't advise trading FSKAX in taxable at all and just leave it ?

Thanks

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Blueskies60
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Re: Portfolio Change Advice

Post by Blueskies60 » Mon Dec 02, 2019 12:26 pm

Am wondering if I need an advisor to set things up correctly initially. I'm so leery of advisors though. Do not want the "hard sell". I want to keep costs low, with low fees and Index funds, like the Bogleheads advise. :)

lakpr
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Re: Portfolio Change Advice

Post by lakpr » Mon Dec 02, 2019 12:31 pm

The rollover of the existing IRA funds into 403b simplifies your portfolio tremendously, and negates a lot of the dilemma you are having as to where to put what funds.

Your retirement = 403b, no worries if you subsequently roll it back to Fidelity and put it in a 60:40 ratio. Even better that you have a single fund there ..
Your Roth IRA = for your kids = 100% equities. Don't use target date funds here. This is for your kids' retirement, not their college, if you get my drift ... no bonds!!

What can be simpler than that?

The 40% bonds you have in your 403b through Vanguard Balanced Index fund should be more than enough for your bond allocation. Although, being that you are in a 22% and possibly 12% bracket, the exact location of the bond funds is not really going to swing it one way or the other. Ideally, though, bonds and fixed income instruments belong in tax-deferred accounts. Equities belong in Taxable and Roth IRA.

I would also repeat my advise about not touching the FSKAX in your taxable account. Leave it alone, draw upon it only when absolutely necessary (where your retirement assets are not accessible, etc.)

HomeStretch
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Re: Portfolio Change Advice

Post by HomeStretch » Mon Dec 02, 2019 12:33 pm

Questions:
1. What emergency fund $ do you want to hold?
2. Is the house fund $ you want to hold the $475k per Scenario #1 for a house purchase in 1-2 years?
3. Is any portion of your portfolio earmarked for college costs? If so, how much?
4. Do you have a house now? What is your equity? Do you have a mortgage? If yes, what is rate and remaining loan term?
5. The account you call a “Tax Free IRA” - what type of IRA is this? Is it a Roth IRA, a Traditional IRA (pretax contributions that you deducted on your tax return) or a Traditional IRA with some basis (i.e., non-deductible IRA contributions)?
6. Is your Taxable account at Fidelity? In your online account, you can view (unrealized) capital gains for each Taxable holding. Add this information to your post as any changes in this Taxable account will have tax consequences. You don’t need to wait until tax time.
7. What is your desired asset allocation for your retirement portfolio?
8. Which Fidelity MMF are you using? 7-day SEC yields have come down so I would be surprised if yours has a 7-day SEC yield anywhere near 2%.

—————————-

Comments:
If my math is right...

The total of all your accounts (including CD and MMF) is $1,262k. From there, subtract your emergency fund (?), house fund $475k(?) and college fund (?) to come up with your retirement portfolio (RP) which is (let’s say for now) $787k (= $1,262k - $475k).

What is your desired asset allocation for your RP? Your current RP asset allocation is very conservative, perhaps overly so if you want it to keep up with inflation. Your RP of $787k is currently invested 34/66 (equity/fixed income). Your scenario 1 is slightly less conservative at 37/63.

With your answers to the questions above, it will be easy to help you tweak your portfolio a bit.

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ruralavalon
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Re: Portfolio Change Advice

Post by ruralavalon » Mon Dec 02, 2019 12:39 pm

Taxes and tax-efficiency.
Blueskies60 wrote:
Mon Dec 02, 2019 11:14 am
Federal Tax Rate: 24%,
. . . . .
CURRENT RETIREMENT ASSETS:
. . . . .
Taxable Account
FSKAX/0.015 Fidelity Total Market Index Fund - 90K
FTIHX/ 0.06 Fidelity Total International Index Fund - 10K
I would not sell these Fidelity stock index funds in your taxable account, you probably have significant capital gains which means income tax liability when you sell.

Blueskies60 wrote:
Mon Dec 02, 2019 11:14 am
PROPOSED CHANGES TO RETIREMENT ASSETS: Scenario #1 - More Conservative
. . . . .
Taxable Account
VTI - Vanguard Total Market Index ETF - 300K
VXUS - Vanguard Total International Market Index ETF - 40K
VNQ - Vanguard REIT - 10K
I would NOT use a REIT fund or ETF in a taxable account. It's very tax-INefficient. Wiki article "Tax-efficient fund placement".

Where is the your taxable account located? If your taxable account is at Fidelity consider using iShares ETFs for your total stock funds instead of Vanguard ETFs. Specifically:
1) iShares Core S&P Total US Stock Mkt ETF (ITOT); and
2) iShares Core MSCI Total Intl Stk ETF (IXUS).



Asset allocation.
What equity/fixed income allocation do you wish to have? Its a mistake to omit CDs and money market funds in evaluating asset allocation. Count bond funds, the bond portion of any balanced fund, CDs, and money market funds as fixed income in determining asset allocation.

At age 59, hoping to work until age 66, I would normally suggest about 40% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to substantially reduce portfolio volatility (risk). Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/10/2019), "The Best Diversifiers for Your Equity Portfolio".

Here are two good articles on the classic 60/40 stock/bond allocation:
1) Peter Bernstein, Bloomberg Personal Finance (2002) , "The 60/40 Solution"; and
2) Rick Ferri, etf.com (2/25/2015), "Wisdom Of 60/40 Portfolios Timeless"".

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).

But you seem to wish to be very conservative. 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.


. . . . .

Current portfolio size is $1,262k, with about $992k in fixed income giving a very conservative asset allocation of about 21% equity/79% fixed income.

Your "Scenario #1 - More Conservative" has about $972k fixed income giving a very conservative asset allocation of about 23% equity/77% fixed income.

Your "Scenario #2 - A little less conservative" has about $967k in fixed income giving a very conservative asset allocation of 23% equity/77% fixed income.
Last edited by ruralavalon on Mon Dec 02, 2019 12:53 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

ohai
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Re: Portfolio Change Advice

Post by ohai » Mon Dec 02, 2019 12:49 pm

"Also, Ohai, you wouldn't advise trading FSKAX in taxable at all and just leave it ?"

It seems pretty normal. Do you have any concerns about this fund? Maybe you'd save 0.05% or something similar through a cheaper fund, but that's not enough to change your investment decision, if you ask me.

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ruralavalon
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Re: Portfolio Change Advice

Post by ruralavalon » Mon Dec 02, 2019 1:02 pm

What asset allocation do you want to aim for?

What type of account is "Traditional Tax Free IRA (no longer can contribute to this account)", and where is that account located?

Where is your taxable account located?

What money market fund are you using? Please give fund name, ticker and expense ratio.

What funds are offered in your 403b plan? Please give fund names, tickers and expense ratios.

Does your employer also offer a 457b plan?

What is your federal tax bracket? Here are methods you can use to estimate your federal tax bracket. First estimate your "taxable income". Moneychimp, "Tax Calculator". Or if your income etc. is fairly consistent from year to year, then look at line 43 on your 1040 tax return for last year for your "taxable income". Then use your "taxable income" to estimate your "tax bracket". Moneychimp, "Federal Tax Brackets".

What is your tax filing status?

What is your State income tax bracket?

What State do you pay any State income tax to?

Please simply add any new information to your original post using the edit button (2 pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
Last edited by ruralavalon on Mon Dec 02, 2019 1:27 pm, edited 2 times in total.
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HomeStretch
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Re: Portfolio Change Advice

Post by HomeStretch » Mon Dec 02, 2019 1:17 pm

Blueskies60 wrote:
Mon Dec 02, 2019 12:22 pm
So, am I hearing that both of you would put NO equities (VTI) in a taxable account? That I put all funds in bonds?
Also, Ohai, you wouldn't advise trading FSKAX in taxable at all and just leave it ?
(Not lakpr or ohai)
Everyone’s tax situation is different. But it probably makes sense for you to hold equities in your Taxable account (for tax efficiency) and Roth accounts (for highest expected growth, tax free). Hold all bonds and the rest of your equity allocation in a tax deferred account like your 403b and/or Traditional IRA (if that’s what your “Tax Free IRA” is).

Your current taxable holdings at Fidelity(?) of FSKAX and FTIHX are good Fidelity mutual funds. But as they have distributed capital gains in recent years, they are not as tax efficient as an ETF in a Fidelity Taxable account, such as VTI or ITOT instead of FSKAX. But don’t sell FSKAX and FTIHX just to buy ETFs if you would incur significant capital gains. An alternative could be to turn off reinvestment of dividends and capital gains so you don’t buy more. Instead by the more tax efficient ETFs going forward.

snailderby
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Re: Portfolio Change Advice

Post by snailderby » Mon Dec 02, 2019 1:43 pm

Blueskies60 wrote:
Mon Dec 02, 2019 11:43 am
I'm not sure about the taxable gains in my taxable account. I'll find out this tax season but fear my taxes will be high. That's why I'm looking to change to the ETF per Boglehead advice. I'm concerned about rebalancing but will have to figure out how to do it.
Like lakpr and HomeStretch said, if you have significant capital gains in your taxable account (e.g., if you bought FSKAX for $20K, and it's now worth $40K), the tax hit of selling FSKAX/FTIHX and exchanging them for ETFs probably won't be worth any minimal gains in tax efficiency.
As far as holding bonds instead of MM or CDs, it looks to me like the bonds earn about the same amount of interest, so why take the risk? Am I wrong about that?
Bonds may be more volatile than cash, viewed in isolation. But as part of a larger portfolio?
Last edited by snailderby on Mon Dec 02, 2019 2:03 pm, edited 5 times in total.

snailderby
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Re: Portfolio Change Advice

Post by snailderby » Mon Dec 02, 2019 1:44 pm

What's your preferred stock/fixed income (bonds + money market + CD) asset allocation, going forward? And what's your desired split between U.S./international stocks?

snailderby
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Re: Portfolio Change Advice

Post by snailderby » Mon Dec 02, 2019 2:16 pm

You may already know this, but you may be able to make extra catch-up contributions to your 403(b) plan if (a) you are 50 or older, and/or (b) you have more than 15 years of service "with a public school system, hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization)." See https://www.irs.gov/retirement-plans/pl ... ion-limits.

- The base limit on employee contributions is $19,000 for 2019 and $19,500 for 2020.
- If you are 50 or older, you can make an additional contribution of $6,000 for 2019 or $6,500 for 2020.
- If you qualify under the 15-year rule, you may be able to make an additional contribution of up to $3,000. (But see the link above for details.)

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Blueskies60
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Re: Portfolio Change Advice

Post by Blueskies60 » Mon Dec 02, 2019 6:53 pm

Questions:
1. What emergency fund $ do you want to hold?
~Not sure. What are your suggestions? Perhaps $50K

2. Is the house fund $ you want to hold the $475k per Scenario #1 for a house purchase in 1-2 years?
~Yes.

3. Is any portion of your portfolio earmarked for college costs?
~Yes, I have a separate account that will pay for younger child's tuition, and I will pay for his housing costs out of MM funds. He will have completed two years of college while in HS, (awesome kid). So I believe housing costs for 2-3 years of college post HS will be approximately 30-45K. Older child's college costs are paid for, (another awesome kid).

4. Do you have a house now? What is your equity? Do you have a mortgage? If yes, what is rate and remaining loan term?
~No mortgage. Owned outright. Value, approx. 165K. No debt.

5. The account you call a “Tax Free IRA” - what type of IRA is this? Is it a Roth IRA, a Traditional IRA (pretax contributions that you deducted on your tax return) or a Traditional IRA with some basis (i.e., non-deductible IRA contributions)?
~Traditional IRA

6. Is your Taxable account at Fidelity?
~YES.
6a. In your online account, you can view (unrealized) capital gains for each Taxable holding. Add this information to your post as any changes in this Taxable account will have tax consequences. You don’t need to wait until tax time.
~Capital Gains history for 2018 is $225.00 for FIDELITY TOTAL MARKET INDEX FUND - FSKAX (if I read the information correctly) and $10.70 for FIDELITY TOTAL INTL INDEX FUND - FTIHX

7. What is your desired asset allocation for your retirement portfolio?
~50/50 (maybe 60/40? - still pondering this)

8. Which Fidelity MMF are you using? 7-day SEC yields have come down so I would be surprised if yours has a 7-day SEC yield anywhere near 2%.
~FZDXX

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Blueskies60
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Re: Portfolio Change Advice

Post by Blueskies60 » Mon Dec 02, 2019 7:20 pm

Thanks for all the great ideas and information. And thanks for being gentle. This stuff is fairly new to me. I'm learning a lot, though it's somewhat overwhelming to be honest. So here goes with more questions/comments ~

Homestretch, I had no idea that you could turn off reinvestment of dividends and capital gains so you don’t buy more. Instead by the more tax efficient ETFs going forward. I will look into that for sure!!!!

Snailderby, I'm maxing out the 403b and adding on the catch up amounts. I wasn't aware of the possible $3000 per year option. I'm going to talk to my 403b company about it tomorrow to find out if I qualify for this. Thank you!

Also, does anyone have a preference of VTI, VXUS, and BND over ITOT, IXUS, and AGG at Fidelity? I called Fidelity and was told that there are no additional costs there when holding ETF's. Hoping I understood this correctly. RuralAvalon, you suggested the latter funds, but if Fidelity now doesn't discriminate between Vanguard and the IShares, would you still go with the IShares? Also, I will look into the tax information you suggested. I need to know these things. And thanks for breaking the numbers down into percentages. 21/79 is probably a bit too conservative as is 23/77, (sarcasm... lol)

And Homestretch, you did the math a bit differently but I'm still at 37/63 in my less conservative scenario. I'd prefer to be at least at 50/50.

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ruralavalon
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Re: Portfolio Change Advice

Post by ruralavalon » Tue Dec 03, 2019 1:58 pm

Questions:
1. What emergency fund $ do you want to hold?
~Not sure. What are your suggestions? Perhaps $50K
A common suggestion is 3-6 months of basic living expenses. How safe is your employment?

What dollar amount would 3 - 6 months of basic living expenses be?

2. Is the house fund $ you want to hold the $475k per Scenario #1 for a house purchase in 1-2 years?
~Yes.
The house fund should be separate from the retirement portfolio, the asset allocation will be different.




Asset allocation.
Salary: 68K - Hope to work until 66yo, longer if I'm able
. . . . .
Age: 59
. . . . .
Desired Asset allocation: 60/40 or 50/50 (I'm on the fence but lean toward Jack Bogle's AA of 50/50)
In my opinion both 60/40 and 50/50 are within the range of what is reasonable for an asset allocation at age 59 with about 7 years until retirement.

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.


Taxable account at Fidelity.
Filing: Single Head of Household
Federal Tax Rate: 24%
State Withholding Rate: 4.25%
6a. In your online account, you can view (unrealized) capital gains for each Taxable holding. Add this information to your post as any changes in this Taxable account will have tax consequences. You don’t need to wait until tax time.
~Capital Gains history for 2018 is $225.00 for FIDELITY TOTAL MARKET INDEX FUND - FSKAX (if I read the information correctly) and $10.70 for FIDELITY TOTAL INTL INDEX FUND - FTIHX
You need the total unrealized capital gain for each fund, not just for 2018.

If the total unrealized capital gains are small then sell the funds, and replace with similar ETFs.

If the unrealized capital gains are large, then keep the funds. Don't incur a large unnecessary income tax liability. Turn off automatic reinvestment in those funds, and make new investments in similar ETFs.
Also, does anyone have a preference of VTI, VXUS, and BND over ITOT, IXUS, and AGG at Fidelity? I called Fidelity and was told that there are no additional costs there when holding ETF's. Hoping I understood this correctly. RuralAvalon, you suggested the latter funds, but if Fidelity now doesn't discriminate between Vanguard and the IShares, would you still go with the IShares?
I do not have any accounts at Fidelity and do not use ETFs. I suggested iShares ETFs only because I knew that they trade with no transaction fees at Fidelity. I have no opinion on whether one firm's ETFs are better than the other. Both Vanguard and iShares ETFs have been very tax-efficient. Triceratops post, "2017 Relative Tax Efficiency".


Fund selection.
In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".

It is often better to coordinate investments across all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. Don't try to place all elements of the asset allocation in each account.

This approach allows for better tax-efficiency when you use a taxable account. Wiki article, "Tax-efficient Fund Placement".


Fund placement.
In a taxable account use very tax-efficient stock index funds. Wiki article "Tax-efficient fund placement". Stock index funds are also well suited to any type of account.

Bond funds are not very tax-efficient. Ordinarily a bond fund should be placed in a tax-advantaged account, preferably a tax-deferred account like a traditional 403b or traditional IRA. Wiki article "Tax-efficient fund placement".

To make portfolio management and rebalancing easy it is often better to have at least one large tax-advantaged account which contains all three basic asset types (bonds, international stocks, and domestic stocks). In the future that could be your 403b account. Don’t try to put all components of the asset allocation in every account.



Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio. Portfolio size = $855k. The asset allocation is: 50% fixed income (bonds plus CDs); 12% international stocks; and 38% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Fidelity (41% of total retirement portfolio; $350k)
29%, Vanguard Total Stock Market ETF (VTI) ER 0.03%
12%, Vanguard Total International Stock ETF (VXUS) ER 0.09%

CDs (32% of total retirement portfolio; $270k)
32%, CDs with 2.5% interest maturing 2021

Traditional 403b (13% of total retirement portfolio; $115k; contribute up to $26k/yr)
07%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
00%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11
06%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%

Traditional IRA @ Fidelity (12% of total retirement portfolio; $105k; no longer contributes)
12%, Fidelity U.S. Bond Index Fund (FXNAX) 0.025%

Roth IRA @ Fidelity (02% of total retirement portfolio; $15k)
02%, Fidelity Total Market Index Fund (FSKAX) 0.015%



Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary every few years to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing".

Avoid rebalancing by exchanging between funds in the taxable account, which can create income tax liability.

. . . . .

I suggest that you read one or two books on investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below. A quick education for a beginning investor is Dr. Bernstein's free, short, on-line book, "If You Can".

If you have any questions just ask.

I hope that this helps.


EDITS for grammar, punctuation and spelling.
Last edited by ruralavalon on Tue Dec 03, 2019 3:08 pm, edited 7 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

snailderby
Posts: 478
Joined: Thu Jul 26, 2018 11:30 am

Re: Portfolio Change Advice

Post by snailderby » Tue Dec 03, 2019 2:29 pm

Blueskies60 wrote:
Mon Dec 02, 2019 7:20 pm
Also, does anyone have a preference of VTI, VXUS, and BND over ITOT, IXUS, and AGG at Fidelity?
All of those ETFs are highly liquid. All of those ETFs have very low expense ratios. And VTI/ITOT, VXUS/IXUS, and BND/AGG track similar indexes.

IXUS had a higher QDI% than VXUS in 2017 and 2018 (compare https://advisors.vanguard.com/iwe/pdf/QDI_2018.pdf and https://advisors.vanguard.com/VGApp/iip ... endfigures with https://www.ishares.com/us/literature/t ... 364617.pdf and https://www.ishares.com/us/literature/t ... 711553.pdf). But it's unclear whether that will continue to be the case going forward.
Last edited by snailderby on Tue Dec 03, 2019 8:01 pm, edited 2 times in total.

HomeStretch
Posts: 2968
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio Change Advice

Post by HomeStretch » Tue Dec 03, 2019 3:21 pm

ruralavalon wrote:
Tue Dec 03, 2019 1:58 pm
Example portfolio.
Here is an example portfolio that you could consider. This is a three-fund type portfolio, modified as necessary to accommodate the fund offerings in your 401k. Portfolio size = $855k. The asset allocation is: 50% fixed income (bonds plus CDs); 12% international stocks; and 38% domestic stocks. The percentages given are percentages of the total portfolio, not of a given account. The suggestion is to switch both the existing balances and the new contributions to the funds indicated. All percentages are rounded off, so may not add up exactly. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Fidelity (41% of total retirement portfolio; $350k)
29%, Vanguard Total Stock Market ETF (VTI) ER 0.03%
12%, Vanguard Total International Stock ETF (VXUS) ER 0.09%

CDs (32% of total retirement portfolio; $270k)
32%, CDs with 2.5% interest maturing 2021

Traditional 403b (13% of total retirement portfolio; $115k; contribute up to $26k/yr)
07%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%
00%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11
06%, Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) ER 0.05%

Traditional IRA @ Fidelity (12% of total retirement portfolio; $105k; no longer contributes)
12%, Fidelity U.S. Bond Index Fund (FXNAX) 0.025%

Roth IRA @ Fidelity (02% of total retirement portfolio; $15k)
02%, Fidelity Total Market Index Fund (FSKAX) 0.015%
OP -

+1 to the portfolio suggested above by ruralavalon. It is simple, low cost, diversified and tax efficient. You may need to adjust the holding percentages if:
1. you want to use an asset allocation other than 50/50 (your suggested range of 50/50 or 60/40 is reasonable)
2. you want international holdings higher or lower than 24% of equities
3. if your retirement portfolio is not $855k (see below)

Your current portfolio is $1,262k.

Your short to medium-term savings goals total $555k - $570k:
1. Emergency fund $50k (is this at least 3-6 months of expenses?)
2. House fund $475k
3. College housing costs $30-$45k
This money should be in "safer" investments like Fidelity MMF FZDXX, CD, high yield bank account or short-term Treasuries)

Your retirement portfolio would be about $700k (= $1,262k - ($555k or $570k))
This money should be invested according to your desired asset allocation

HomeStretch
Posts: 2968
Joined: Thu Dec 27, 2018 3:06 pm

Re: Portfolio Change Advice

Post by HomeStretch » Tue Dec 03, 2019 3:50 pm

Blueskies60 wrote:
Mon Dec 02, 2019 6:53 pm
Questions:
6a. In your online account, you can view (unrealized) capital gains for each Taxable holding. Add this information to your post as any changes in this Taxable account will have tax consequences. You don’t need to wait until tax time.

~Capital Gains history for 2018 is $225.00 for FIDELITY TOTAL MARKET INDEX FUND - FSKAX (if I read the information correctly) and $10.70 for FIDELITY TOTAL INTL INDEX FUND - FTIHX
The 2018 information you posted above looks like your realized capital gains/losses from 2018 sales and/or fund dividends/capital gains distributions. This information would have been included in your 2018 tax return. Is this information from your Fidelity online account in the "Tax Forms and Information" page?

The FSKAX and FTIHX mutual funds you currently hold in your Taxable account aren't quite as efficient as the ETFs discussed in this thread. But it is fine to hold them if you have unrealized capital gains that if sold would result in owing significant taxes. You can find the unrealized capital gains/losses displayed in your online Fidelity account main screen by clicking on the "Positions" tab at the top. Look at the "FSKAX" and "FTIHX " lines in your Taxable account. The 4th column is called "Total Tax Gain" and this amount represents the total gain or loss that you would incur if you sold the entire holdings today. If you then click on "FSKAX" or "FTIHX", the screen will drop down and you will see a button called "Purchase History/Tax Lots". That will show you the detail of each of your purchases (tax lots) of FSKAX (for example) - date, # shares, cost/share based on your account's cost basis method (see below).

We already discussed that you have the ability in your online account to turn off automatic reinvestment of dividends and capital gain distributions for your Taxable account if you don't want to buy more FSKAX and FTIHX (and instead use the money to buy ETFs).

You also have the ability in your Taxable account to select different cost basis methods. I suggest you consider setting the cost basis method for your Taxable account to "Specific ID" (if that isn't your current method). That means each of the tax lots will show the actual cost you paid for that purchase. This can come in handy when you want to sell a portion of your holdings as you can choose to select tax lot(s) with a higher or lower cost basis in order to minimize or maximize your realized gain/loss on the sale. You may find it handy if the market drops to sell FSKAX/FTIHX to clean-up your Taxable account or to tax loss harvest.

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Blueskies60
Posts: 55
Joined: Sat Mar 10, 2018 10:32 am

Re: Portfolio Change Advice

Post by Blueskies60 » Tue Dec 03, 2019 7:57 pm

WOW! Thank you all for the AWESOME advice!!!! It is so very appreciated!!!!

I believe my employment is safe, (hope so!), and am sure 50K would currently cover at least 3-6 months.

I really don't think my housing fund needs to be at $475. $300-350 is probably more like it. I may decide to stay in my small home longer and not purchase another place, in which case my retirement portfolio will become larger. Am waiting for child in HS to graduate before I make any housing changes.

RuralAvalon and Homestretch, the breakdown of my portfolio is so helpful. I'm going to study your proposed ideas in depth, in addition to the reading material you suggested. Why didn't I learn about this stuff when I was younger? I'd best get to my homework ASAP!

Homestretch, I agree about switching the FSKAX and FTIHX funds to comparable ETF funds while capital gains are small. I just as soon take a smaller hit now and streamline my funds into something along the lines of the 3 fund portfolio, (more simple, right?). The idea of selling these funds when the market drops to mitigate gains is a good one. I will keep that in mind when planning my strategy.

Snailderby, thanks for the info on International Stocks. I've read some of the controversy here on the forum about them ~ yes, lots of varying opinions. I read Jl Collins book, "Simple Path to Wealth", and recall that he doesn't include any international in his portfolio and doesn't think it's necessary, though I personally think I'd like to have some amount in mine.

Again, all your excellent thoughts and advice are fantastic. Thanks again!!! :)

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