Help with AA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
newbeeinvestor
Posts: 3
Joined: Mon Mar 02, 2020 1:58 pm

Help with AA

Post by newbeeinvestor »

Hi

We are requesting help with asset allocation.

We are in 40s, planning to work more for 20 -25 years.

Combined yearly income ~ 500K

Debt: None, will have soon as in process of buying home

Tax filing status - Married filing jointly

Tax bracket - 28% Federal, no state tax

Desired asset allocation: Don't know/haven't decided. Need advice.

my 401 K ~ 140K ---> 130K (401K funds decreased as would with market going down)

Spouse 401 K ~ 130K (401K funds decreased as would with market going down)

Vanguard account with total assets of around $330 k which includes VTSAX $18K, Backdoor Roth IRA - 17K for each of us in VTIAX ( including 6K unallocated for each of us for 2020) and rest of all are in stocks.

I bought stocks for 120K on Friday and plan to buy 150K more of stock and VTSAX if market goes down further.

We have no loans.

We have a land for125K - planning to sell it.

In process of buying home.

300K for emergency funds in savings.

Please help with asset allocation.

I have 100% of 401 K invested in Vanguard Growth Index Fund VIGAX

Below are available fund choices in my 401 K with expense ratio.

Wells Fargo Stable Return Fund (Galliard) 0.82%
JP Morgan Core Plus Bond Fund 0.4%
PGIM High-Yield Fund 0.54%
MFS Total Return Fund 0.74%
American Funds 2010 Target Date Retirement Fund 0.66%
American Funds 2015 Target Date Retirement Fund 0.66%
American Funds 2020 Target Date Retirement Fund 0.66%
American Funds 2025 Target Date Retirement Fund 0.68%
American Funds 2030 Target Date Retirement Fund 0.70%
American Funds 2035 Target Date Retirement Fund 0.72%
American Funds 2040 Target Date Retirement Fund 0.75%
American Funds 2045 Target Date Retirement Fund 0.75%
American Funds 2050 Target Date Retirement Fund 0.77%
American Funds 2055 Target Date Retirement Fund 0.77%
American Funds 2060 Target Date Retirement Fund 0.79%
American Beacon Bridgeway Large Cap Value Fund 0.72%
BlackRock iShares S&P 500 Index Fund 0.03%
Columbia Disciplined Core Fund 0.7%
Vanguard Growth Index Fund 0.04%
Columbia Mid Cap Index Fund 0.45%
Carillon Eagle Mid Cap Growth Fund 0.75%
Vanguard Small-Cap Value Index Fund 0.07%
JP Morgan Small Cap Equity Fund 0.8%
Wells Fargo Small Company Growth Fund 0.95%
MFS International Intrinsic Value Fund 0.98%
American Funds EuroPacific Growth Fund 0.49%
Goldman Sachs Emerging Markets Equity Insights Fund 1.09%
Invesco Real Estate Fund 0.88%



Spouse has 100% of 401 K invested in Schwab US Large Cap ETF SCHX.

Below are choices available in 401K for spouse with expense ratio.

Stocks

Large Company
SCHX – Schwab US Large-Cap ETF —-Net Expense Ratio 0.03%

SCHG – Schwab US Large-Cap Growth ETF —-Net Expense Ratio 0.04%
SCHV – Schwab US Large-Cap Value ETF —-Net Expense Ratio 0.04%
VOO – Vanguard S&P 500 ETF —-Net Expense Ratio 0.04%

Small/Mid Co.
SCHM – Schwab US Mid-Cap ETF —-Net Expense Ratio 0.05%
SCHA – Schwab US Small-Cap ETF —-Net Expense Ratio 0.04%
VOT – Vanguard Mid-Cap Growth ETF —-Net Expense Ratio 0.07%
VOE – Vanguard Mid-Cap Value ETF —-Net Expense Ratio 0.07%
VBK – Vanguard Small-Cap Growth ETF —-Net Expense Ratio 0.07%
VBR – Vanguard Small-Cap Value ETF —-Net Expense Ratio 0.07%

Intl/Global
EFG – iShares MSCI EAFE Growth ETF —-Net Expense Ratio 0.4%
SCZ – iShares MSCI EAFE Small-Cap ETF —-Net Expense Ratio 0.39%
EFV – iShares MSCI EAFE Value ETF —-Net Expense Ratio 0.38%
SCHE – Schwab Emerging Markets Equity ETF —-Net Expense Ratio 0.13%
SCHF – Schwab International Equity ETF —-Net Expense Ratio 0.06%

Specialty
IAU – iShares Gold Trust —-Net Expense Ratio 0.25%
SCHH – Schwab US REIT ETF —-Net Expense Ratio 0.07%
RWX – SPDR Dow Jones International RelEst ETF —-Net Expense Ratio 0.59%
USCI – United States Commodity Index —-Net Expense Ratio 0.8%

Bonds
PCY – Invesco Emerging Markets Sov Debt ETF —-Net Expense Ratio 0.5%
IGOV – iShares International Treasury Bond ETF —-Net Expense Ratio 0.35%
SCHR – Schwab Intermediate-Term US Trs ETF —-Net Expense Ratio 0.06%
SCHZ – Schwab US Aggregate Bond ETF —-Net Expense Ratio 0.04%
SCHP – Schwab US TIPS ETF —-Net Expense Ratio 0.05%
JNK – SPDR Blmbg Barclays High Yield Bd ETF —-Net Expense Ratio 0.4%
SPSB – SPDR Portfolio Short Term Corp Bd ETF —-Net Expense Ratio 0.07%
VGSH – Vanguard Short-Term Treasury ETF —-Net Expense Ratio 0.07%

Capital Preservation Bank Deposit
Schwab Bank Savings | Rate —- current APY is 1.51%


We have not invested in Bonds as thought still have 20 - 25 years to work.

Appreciate any and all advise.

Thank You
Last edited by newbeeinvestor on Mon Mar 02, 2020 10:49 pm, edited 1 time in total.
User avatar
Duckie
Posts: 7837
Joined: Thu Mar 08, 2007 2:55 pm

Re: Help with AA

Post by Duckie »

newbeeinvestor, welcome to the forum.
newbeeinvestor wrote:Vanguard account with total assets of around $330 k which includes VTSAX $18K, Backdoor Roth IRA - 17K for each of us in VTIAX ( including 6K unallocated for each of us for 2020) and rest of all are in stocks.
$278K in individual stocks?
Below are available fund choices in my 401 K with expense ratio.
The best options are:
  • BlackRock iShares S&P 500 Index Fund 0.03%
  • Vanguard Small-Cap Value Index Fund 0.07%
  • American Funds EuroPacific Growth Fund 0.49%
  • JP Morgan Core Plus Bond Fund 0.40%
EuroPacific and JP Morgan are expensive but they are the least worst of their options.
Below are choices available in 401K for spouse with expense ratio.
She has better options. The best are:
  • VOO – Vanguard S&P 500 ETF 0.04%
  • SCHA – Schwab US Small-Cap ETF 0.04%
  • SCHF – Schwab International Equity ETF 0.06%
  • SCHZ – Schwab US Aggregate Bond ETF 0.04%
I'd use just 500 Index in his 401k and use hers for small caps, international (SCHF is only developed markets), and bonds if you decide to buy some. Fill any leftover space with 500 Index.
We have not invested in Bonds as thought still have 20 - 25 years to work.
That is risky. At your ages I'd be at least 25% bonds if not more. And they'd all be in tax-sheltered accounts, preferably pre-tax like your 401k plans.
ExitStageLeft
Posts: 1973
Joined: Sat Jan 20, 2018 4:02 pm

Re: Help with AA

Post by ExitStageLeft »

Welcome to the forum!

I'm not a fan of individual stocks, but it looks like you're otherwise doing great focusing on low-cost index funds. The thing you need to decide is how much of your portfolio should be in bonds or other fixed income assets? I think you should have at least 20% bonds, but the balance that is right for you both will be determined by your combined willingness, need and ability to embrace risk. Your nest egg is getting large enough it should have some bonds portion as ballast.

I would put 20% of total portfolio into bonds in her 401k, in a total bond fund such as SCHZ. The remainder in her 401k can be stock funds such as SCHX and SCHM in a 4:1 ratio. That is a reasonable approximation of a total market fund.

If you want more detailed recommendations, you should go through the exercise of editing your original post to include the information in this format. You would be surprised how relevant all that seemingly disconnected information really is.
Topic Author
newbeeinvestor
Posts: 3
Joined: Mon Mar 02, 2020 1:58 pm

Re: Help with AA

Post by newbeeinvestor »

Thanks for the reply.

So if I understand it correctly, I should include all stocks and 401k mutual funds in stock allocation (80%) and change to 20% bond.

In 80% stocks, how should I divide my asset allocation - as I have some stocks with vanguard? Which other stock options to choose from 401K other than s&p 500 (which I guess would be Large cap just like my other stocks with Vanguard would be Large Cap) and what %age?

In stock allocation, how much should I have international stocks? I have some investment in VTIAX and would have to choose remaining international stock investment from 401K.

Thank You
User avatar
BolderBoy
Posts: 5186
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Help with AA

Post by BolderBoy »

newbeeinvestor wrote: Mon Mar 02, 2020 2:10 pm We are requesting help with asset allocation.

We are in 40s, planning to work more for 20 -25 years.
How about 70/30? You are going to handily win the game so no need to swing for the fence. When you get into your 50s, move toward and AA of 60/40.

And move away from individual stock ownership and to owning mutual funds and/or ETFs instead (better diversification.)
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
ExitStageLeft
Posts: 1973
Joined: Sat Jan 20, 2018 4:02 pm

Re: Help with AA

Post by ExitStageLeft »

newbeeinvestor wrote: Mon Mar 02, 2020 10:53 pm ...
In stock allocation, how much should I have international stocks? I have some investment in VTIAX and would have to choose remaining international stock investment from 401K.

Thank You
There's no single recommended value for how much international stocks. Jack Bogle suggested you don't need any, but the Vanguard target date funds include them at market weight, which fluctuates but is around 45%. So you could have anywhere from 0% to 45% of stocks be in international markets and be within the expert-recommended range. I split the difference and have 25% of stocks in international.

The Schwab funds in her 401k are good options. It looks like a 4:1 ratio of SCHF to SCHE will be very close to a total market fund like VXUS. Check out the Exposure tab at Portfolio Visualizer: https://www.portfoliovisualizer.com/bac ... ion3_1=100
Topic Author
newbeeinvestor
Posts: 3
Joined: Mon Mar 02, 2020 1:58 pm

Re: Help with AA

Post by newbeeinvestor »

I don't have any Bonds in my portfolio? However bond yields have come down to a level not imagined in past. Should I still have Bonds in my AA with current scenario?
User avatar
retired@50
Posts: 4130
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Help with AA

Post by retired@50 »

newbeeinvestor wrote: Sat Mar 07, 2020 11:06 am I don't have any Bonds in my portfolio? However bond yields have come down to a level not imagined in past. Should I still have Bonds in my AA with current scenario?
Asset allocation is a very personal decision. The best anyone on this forum can do is give you ideas about what is appropriate for the "average" person who is your age. I'd suggest you try to decide this for yourself. Perhaps try the investor questionnaire from Vanguard. See link. These types of questions try to tease out your preferences (and fears) and guide you from there, but ultimately it's your choice.

https://personal.vanguard.com/us/FundsI ... unds/tools

Regards,
This is one person's opinion. Nothing more.
tdmp
Posts: 81
Joined: Sat Mar 09, 2019 10:12 am

Re: Help with AA

Post by tdmp »

BolderBoy wrote: Tue Mar 03, 2020 11:33 am
newbeeinvestor wrote: Mon Mar 02, 2020 2:10 pm We are requesting help with asset allocation.

We are in 40s, planning to work more for 20 -25 years.
How about 70/30? You are going to handily win the game so no need to swing for the fence. When you get into your 50s, move toward and AA of 60/40.

And move away from individual stock ownership and to owning mutual funds and/or ETFs instead (better diversification.)
I agree with this. You should assess your risk tolerance carefully. My personal opinion is that risk tolerance/appropriate asset allocation is the most important part of investment for the long-term. Markets are unpredictable. In some years you may have over $4 million invested. Let's say market dives 50%, would you (or your spouse) lose sleep b/c you just "lost" $2 million? And also would you be able to "Stay the course"? There are a lot of people (even on this forum) are either contemplating or already pulled money out of the market with just a mild correction (I think it was 16% off the market peak). Many investors overestimate their risk tolerance. The recent Lipper Fund Flow: showed there was about $56 billion of OUTFLOW from equity funds the last 2 weeks (the opposite of buy low, sell high). Human psychology is weird: the magnitude of sadness/despair is greater in losses than the magnitude of happiness in gains. Many investors have FOMO during bull market; and then panic during mild corrections. However, some investors are extremely disciplined and are at 100% equity and able to "stay the course" just fine. Can you? Only you and your spouse can answer that question.
You have the ability and probable willingness to take a lot of risk. I am not sure if you have the NEED.

The following are several articles written by Larry Swedroe in regards to asset allocation/risk tolerance:
https://www.cbsnews.com/news/asset-allo ... -you-take/
https://www.cbsnews.com/news/asset-allo ... tolerance/
https://www.cbsnews.com/news/asset-allo ... -you-need/

After reading those: you might want to read the boglehead wiki on those topics that kinda' summarize them a little bit:
https://www.bogleheads.org/wiki/Risk_tolerance
https://www.bogleheads.org/wiki/Asset_allocation
Post Reply