Reducing expense ratios: How and when to move Roth IRA funds to something better?

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Parachute07
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Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Parachute07 »

My wife and I have had Roth IRAs through Wells Fargo for the past ~10 years. We started in our late 20's (in our late 30's now). We didn't know anything when we started and let the advisor guide us into American Funds, which we now realize have high expense ratios compared to Vanguard or others. We now have a bit over $110K in our Roth IRAs spread over a number of funds that don't really make sense. I'd like to move toward the 3 Index Fund type of concept. My first and most important question is how to go about doing this: Do we sell it all at once and move it all into a couple of Index Funds at one time (I'm thinking an S&P 500 fund, a total market fund, and some amount of it in a bond fund more or less -- maybe a percentage in a foreign market fund as well).

My concern here is losing any dollar cost averaging benefit by plunging it all into 3 or 4 funds at once. At the same time, given what it's costing each year in expense ratios, maybe that shouldn't be a consideration.

Also, I know that timing the market is a fool's game, but there is part of me that worries that now in particular, given how fast things have recovered, we may be in for higher-than-average volatility in 2020. Would you wait a year to make a change and/or stagger the movement from American Funds to something like Vanguard's lost-cost Index Fund ETFs?

If it makes any difference, I am also intending to transfer our Roth IRAs from Wells Fargo to Merrill Edge to take advantage of something on the Bank of America side. Still planning to contribute the max each year to Roth as long as we are eligible (income comes in just under the wire to be eligible to put in $6K each per year). We are also investing separately from this and are looking to grow that also, but I'm here first and foremost to get this Roth thing straightened out before we go another 10 years throwing away extra money.

Tax filing status: Married filing jointly
Federal Tax bracket: 24%
State tax bracket: 6.49%
Ages: P1 35, P2 39
Debt: $14K Auto loan, 2.25% interest
Available funds: A little over $100K in various bank accounts

Roth IRA holdings:

P1 Roth IRA:
American Funds Fundamental Invs A (ANCFX) (ER: 0.62%, front load fee: 5.75%): $37K
American Funds New Economy Fund A (ANEFX) (ER: 0.80%, front load fee: 5.75%): $10K
American Funds SMALLCAP World A (SMCWX) (ER: 1.08%, front load fee: 5.75%): $7K
American Funds Developing World Growth and Income Fund - Class A (DWGAX) (ER: 1.30%, front load fee: 5.75%): $3K

P2 Roth IRA:
American Balanced Fund, Class A Shs (ABALX) (ER: 0.59%, front load fee: 5.75%): $24K
American Funds SMALLCAP World A (SMCWX) (ER: 1.08%, front load fee: 5.75%): $16K
International Growth and Income Fd, Cl A Shs (IGAAX) (ER: 0.93%, front load fee: 5.75%): $12K
American Funds EuroPacific Growth A (AEPGX) (ER: 0.84%, front load fee: 5.75%): $6K

College savings

529 Savings
About $10K. Not sure what this is in. Did it through New York State.
Note: We have a second child coming and intended to put about the same in a second 529. No plans to contribute more to these after the initial funding.

Taxable holdings (not necessarily considered "retirement" savings, but not in any hurry to liquidate):

$3K in Bitcoin
$2K Vanguard S&P 500 ETF (VOO) (ER: 0.03%)
$1.5K Vanguard Total Stock Market ETF (VTI) (ER: 0.03%)
$1.5K Vanguard Large-Cap ETF (VV) (ER: 0.04%)
$1K Berkshire Hathaway Class B
$4K in random stocks that I've mostly gotten as bonuses from investing apps (like deposit $X, get X number of free shares and/or referral bonuses)

New contributions:
-$500 every month in both Roth IRAs (to the $6K max as long as we are eligible.
-Looking to make a one-time contribution of about $20K to a long-term taxable investment account, then $2K every month for long-term goals

As noted above, along with this move of the IRA, we intend to invest $20K of our current cash holdings in a taxable Merrill Edge account and to continue to invest at least $2K per month for the foreseeable future. Also intend to create custodial accounts for 2 children (likely funding them with a small amount like $1K each to start and $100 per month). The desire on the custodial accounts is to put something away for the next generation and to hopefully teach them what I didn't know about investing.

Key questions:
1. We are definitely moving the Roth IRA out of Wells Fargo and intend to get out of those front-load high expense funds in favor of funds like the Vanguard Total Stock Market (VTI) fund. Should we move all of the Roth IRA money at once time into low-cost Index funds like this or stagger the switchover?
2. No intention to touch the IRA funds for at least 25 years. Other than a total market ETF, what other types of investments should we be considering for the Roth IRA funds?
3. Should we aim for a similar asset allocation in the taxable account? In the responses below, someone noted that a smart strategy would be to keep Roth IRA more aggressive. This makes sense from a tax standpoint, so my inclination is to put some of the taxable account in bonds to balance with some lower risk investments. That said, with no intention to touch this money soon either, I'm inclined to keep most of it in equities. Any recommendations?

Thoughts / suggestions about how to proceed?
Last edited by Parachute07 on Sat Jul 11, 2020 1:02 pm, edited 4 times in total.
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David Jay
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by David Jay »

Welcome to the forum!
Parachute07 wrote: Fri Jul 10, 2020 8:49 am My wife and I have had Roth IRAs through Wells Fargo for the past ~10 years. We started in our late 20's (in our late 30's now). We didn't know anything when we started and let the advisor guide us into American Funds, which we now realize have high expense ratios compared to Vanguard or others. We now have a bit over $110K in our Roth IRAs spread over a number of funds that don't really make sense. I'd like to move toward the 3 Index Fund type of concept. My first and most important question is how to go about doing this: Do we sell it all at once and move it all into a couple of Index Funds at one time?

Yes

(I'm thinking an S&P 500 fund, a total market fund, and some amount of it in a bond fund more or less -- maybe a percentage in a foreign market fund as well).

An SP500 and Total Market are very closely correlated (perform the same). Pick one. I prefer Total Market for behavioral reasons.

My concern here is losing any dollar cost averaging benefit by plunging it all into 3 or 4 funds at once. At the same time, given what it's costing each year in expense ratios, maybe that shouldn't be a consideration.

Dollar Cost Averaging does not really come into play here, fear the expense ratio.

Also, I know that timing the market is a fool's game, but there is part of me that worries that now in particular, given how fast things have recovered, we may be in for higher-than-average volatility in 2020. Would you wait a year to make a change and/or stagger the movement from American Funds to something like Vanguard's lost-cost Index Fund ETFs?

You already know what to do, don’t let your gut (emotions) override your head (reason).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Katietsu
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Katietsu »

You reduce the market timing aspect by keeping the your asset allocation, at the high level, similar before and after.

I hope you mean you will be moving from Wells Fargo to a Merrill Edge account.

Since you seem unclear on some of the issues, consider spending a little more time reading and learning or just use a target date retirement fund.
02nz
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by 02nz »

Parachute07 wrote: Fri Jul 10, 2020 8:49 am Do we sell it all at once and move it all into a couple of Index Funds at one time (I'm thinking an S&P 500 fund, a total market fund, and some amount of it in a bond fund more or less -- maybe a percentage in a foreign market fund as well).
Think of your portfolio as a whole. Not everything has to be in all accounts. Generally you want to place the funds with highest expected returns (stock funds) in your Roth IRA. I would not place bonds there. But a target date fund (with a small bond allocation, at your age) is also fine.

One issue is whether to transfer "in kind" to your new brokerage and sell there, or sell first at WF and transfer as cash. The latter is easier, but the former minimizes/eliminates time "out of the market" and missing out on gains (or losses!). Check first with the receiving institution to see if they charge fees for selling the funds you hold now; if not, transferring in-kind is probably better.
Parachute07 wrote: Fri Jul 10, 2020 8:49 am I am also intending to transfer our Roth IRAs from Wells Fargo to Merrill Lynch to take advantage of something on the Bank of America side.
BoA offers some nice benefits if you hold investments there, but make sure you're transferring to Merrill Edge, their self-directed service, not to Merrill Lynch, which has high fees. (Some of the paperwork for Merrill Edge will say Merrill Lynch, as much of the back end is shared.)
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Jack FFR1846 »

Its been said a couple times already....move to Merrill Edge, not the full service Merrill Lynch, where their fees will make Wells seem like a zero cost house.
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Third Son
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Third Son »

Even in retirement, I am keeping all Roth monies in equity positions. I expect to draw from this account last (if at all) and want to keep investments there the most aggressive. Mostly FSKAX (Fidelity Total Market Index Fund). I would just transfer in-kind to your preferred brokerage and convert from there.
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pkcrafter
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by pkcrafter »

Welcome to the forum,

Parachute07 wrote: Fri Jul 10, 2020 8:49 am My wife and I have had Roth IRAs through Wells Fargo for the past ~10 years. We started in our late 20's (in our late 30's now). We didn't know anything when we started and let the advisor guide us into American Funds, which we now realize have high expense ratios compared to Vanguard or others. We now have a bit over $110K in our Roth IRAs spread over a number of funds that don't really make sense. I'd like to move toward the 3 Index Fund type of concept. My first and most important question is how to go about doing this: Do we sell it all at once and move it all into a couple of Index Funds at one time (I'm thinking an S&P 500 fund, a total market fund, and some amount of it in a bond fund more or less -- maybe a percentage in a foreign market fund as well).

It sounds like you want to move into low-cost funds, but stay at Wells. It would be far better if you transferred the cash to Vanguard. Fidelity or Schwab are also good options.

You do IRA transfers by setting up a custodian to custodian direct transfer, which is initiated at the company you are moving to. You could also transfer your current funds IF the receiving company carries them all. If they don't carry them all, the transfer will occur, but a few funds will be left in the old account.


My concern here is losing any dollar cost averaging benefit by plunging it all into 3 or 4 funds at once. At the same time, given what it's costing each year in expense ratios, maybe that shouldn't be a consideration.

You are already invested, so what you are doing is a sideways move. There in no reason to dollar cost average. When the transfer is completed, just set up the portfolio with the low cost index funds and the allocations you want.


Also, I know that timing the market is a fool's game, but there is part of me that worries that now in particular, given how fast things have recovered, we may be in for higher-than-average volatility in 2020. Would you wait a year to make a change and/or stagger the movement from American Funds to something like Vanguard's lost-cost Index Fund ETFs?

That is a poor strategy. You don't know what the market will do. You could wait out a year, get back in and then get hit. Don't try to outguess the market--it's made up of people who are all guessing, and surprising news can come at any time. Ride it out, but make sure you have an asset allocation you can stay with.

If it makes any difference, I am also intending to transfer our Roth IRAs from Wells Fargo to Merrill Lynch to take advantage of something on the Bank of America side.

Stay away from banks for investing. You get charged by the bank, and by the fund companies.


Still planning to contribute the max each year to Roth as long as we are eligible (income comes in just under the wire to be eligible to put in $6K each a year). We are also investing separately from this and are looking to grow that also, but I'm here first and foremost to get this Roth thing straightened out before we go another 10 years throwing away extra money.

By "investing separately", do you mean a taxable account?

Paul


When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Topic Author
Parachute07
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Joined: Fri Jul 10, 2020 7:18 am

Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Parachute07 »

Thank you all very much for the very helpful replies. I've read all of your replies and appreciate the good advice!

For those who asked, yes I meant Merrill Edge. Not looking to throw away more money in advising fees. I'm going for Merrill Edge specifically because along with our other investments / money we intend to invest), we'll qualify for BoA's Platinum Honors program. That gives a 75% bonus on credit card earnings (i.e. a floor of 2.62% cash back on their Premium Rewards credit card). With high reimbursable expenses, that is worth the small potential hassle of moving the IRA (have been wanting to move the IRA anyway given my distaste over the combination of poor advice and high fees when getting started -- first and foremost my own fault for sure, but it doesn't make me particularly loyal to Wells).
Topic Author
Parachute07
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Joined: Fri Jul 10, 2020 7:18 am

Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Parachute07 »

pkcrafter wrote: Fri Jul 10, 2020 10:35 am Welcome to the forum,

Parachute07 wrote: Fri Jul 10, 2020 8:49 am My wife and I have had Roth IRAs through Wells Fargo for the past ~10 years. We started in our late 20's (in our late 30's now). We didn't know anything when we started and let the advisor guide us into American Funds, which we now realize have high expense ratios compared to Vanguard or others. We now have a bit over $110K in our Roth IRAs spread over a number of funds that don't really make sense. I'd like to move toward the 3 Index Fund type of concept. My first and most important question is how to go about doing this: Do we sell it all at once and move it all into a couple of Index Funds at one time (I'm thinking an S&P 500 fund, a total market fund, and some amount of it in a bond fund more or less -- maybe a percentage in a foreign market fund as well).

It sounds like you want to move into low-cost funds, but stay at Wells. It would be far better if you transferred the cash to Vanguard. Fidelity or Schwab are also good options.

See my response above -- I want to move into low-cost funds, have no desire to stick with Wells, and specifically want the Platinum Honors at Bank of America that comes with $100K in cash & investments (based on my understanding, Merrill Edge has no fees, so I think it would be the same difference as buying from Vanguard directly, right?)

You do IRA transfers by setting up a custodian to custodian direct transfer, which is initiated at the company you are moving to. You could also transfer your current funds IF the receiving company carries them all. If they don't carry them all, the transfer will occur, but a few funds will be left in the old account.


Thank you for this. I saw that they carried one of the funds and assumed they likely carry all of them -- but I should know better than to make assumptions. I'll check.

My concern here is losing any dollar cost averaging benefit by plunging it all into 3 or 4 funds at once. At the same time, given what it's costing each year in expense ratios, maybe that shouldn't be a consideration.

You are already invested, so what you are doing is a sideways move. There in no reason to dollar cost average. When the transfer is completed, just set up the portfolio with the low cost index funds and the allocations you want.


Also, I know that timing the market is a fool's game, but there is part of me that worries that now in particular, given how fast things have recovered, we may be in for higher-than-average volatility in 2020. Would you wait a year to make a change and/or stagger the movement from American Funds to something like Vanguard's lost-cost Index Fund ETFs?

That is a poor strategy. You don't know what the market will do. You could wait out a year, get back in and then get hit. Don't try to outguess the market--it's made up of people who are all guessing, and surprising news can come at any time. Ride it out, but make sure you have an asset allocation you can stay with.

If it makes any difference, I am also intending to transfer our Roth IRAs from Wells Fargo to Merrill Lynch to take advantage of something on the Bank of America side.

Stay away from banks for investing. You get charged by the bank, and by the fund companies.


Is that true with Merrill Edge? As far as I've read, it looks like there are no fees on ETF trading.

Still planning to contribute the max each year to Roth as long as we are eligible (income comes in just under the wire to be eligible to put in $6K each a year). We are also investing separately from this and are looking to grow that also, but I'm here first and foremost to get this Roth thing straightened out before we go another 10 years throwing away extra money.

By "investing separately", do you mean a taxable account?

Paul


Yes, I mean a taxable Merrill Edge account. My intention is just to invest more than I can in the Roth IRA and leave it alone. We have more cash on hand than we should and we have money invested in a mix of ETFs (and a few stocks for fun) via Robinhood, but I plan to move the bulk of this stuff to Merrill Edge and simplify it as I am currently in more ETFs than necessary.

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Parachute07
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Parachute07 »

Thank you!
02nz wrote: Fri Jul 10, 2020 10:20 am
Parachute07 wrote: Fri Jul 10, 2020 8:49 am Do we sell it all at once and move it all into a couple of Index Funds at one time (I'm thinking an S&P 500 fund, a total market fund, and some amount of it in a bond fund more or less -- maybe a percentage in a foreign market fund as well).
Think of your portfolio as a whole. Not everything has to be in all accounts. Generally you want to place the funds with highest expected returns (stock funds) in your Roth IRA. I would not place bonds there. But a target date fund (with a small bond allocation, at your age) is also fine.

--> Good advice. Why didn't our financial advisor tell us this? Gosh I feel silly for not looking at it that way.

One issue is whether to transfer "in kind" to your new brokerage and sell there, or sell first at WF and transfer as cash. The latter is easier, but the former minimizes/eliminates time "out of the market" and missing out on gains (or losses!). Check first with the receiving institution to see if they charge fees for selling the funds you hold now; if not, transferring in-kind is probably better.

--> I intended to transfer-in-kind and then sell/buy, but didn't think to make sure I won't incur fees for selling. I'll check on that, thanks.
Parachute07 wrote: Fri Jul 10, 2020 8:49 am I am also intending to transfer our Roth IRAs from Wells Fargo to Merrill Lynch to take advantage of something on the Bank of America side.
BoA offers some nice benefits if you hold investments there, but make sure you're transferring to Merrill Edge, their self-directed service, not to Merrill Lynch, which has high fees. (Some of the paperwork for Merrill Edge will say Merrill Lynch, as much of the back end is shared.)
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ruralavalon
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by ruralavalon »

Parachute07 wrote: Fri Jul 10, 2020 8:49 am My wife and I have had Roth IRAs through Wells Fargo for the past ~10 years. We started in our late 20's (in our late 30's now). We didn't know anything when we started and let the advisor guide us into American Funds, which we now realize have high expense ratios compared to Vanguard or others. We now have a bit over $110K in our Roth IRAs spread over a number of funds that don't really make sense. I'd like to move toward the 3 Index Fund type of concept. My first and most important question is how to go about doing this: Do we sell it all at once and move it all into a couple of Index Funds at one time (I'm thinking an S&P 500 fund, a total market fund, and some amount of it in a bond fund more or less -- maybe a percentage in a foreign market fund as well).

My concern here is losing any dollar cost averaging benefit by plunging it all into 3 or 4 funds at once. At the same time, given what it's costing each year in expense ratios, maybe that shouldn't be a consideration.

Also, I know that timing the market is a fool's game, but there is part of me that worries that now in particular, given how fast things have recovered, we may be in for higher-than-average volatility in 2020. Would you wait a year to make a change and/or stagger the movement from American Funds to something like Vanguard's lost-cost Index Fund ETFs?

If it makes any difference, I am also intending to transfer our Roth IRAs from Wells Fargo to Merrill Lynch to take advantage of something on the Bank of America side. Still planning to contribute the max each year to Roth as long as we are eligible (income comes in just under the wire to be eligible to put in $6K each a year). We are also investing separately from this and are looking to grow that also, but I'm here first and foremost to get this Roth thing straightened out before we go another 10 years throwing away extra money.

Here are our current holdings:

P1:
ANCFX: $37K
ANEFX: $10K
SMCWX: $7K
DWGAX: $3K

P2:
ABALX: $24K
SMCWX: $16K
IGAAX: $12K
AEPGX: $6K

Thoughts / suggestions about how to proceed?
Parachute07 wrote: Fri Jul 10, 2020 10:56 am Thank you all very much for the very helpful replies. I've read all of your replies and appreciate the good advice!

For those who asked, yes I meant Merrill Edge. Not looking to throw away more money in advising fees. I'm going for Merrill Edge specifically because along with our other investments / money we intend to invest), we'll qualify for BoA's Platinum Honors program. That gives a 75% bonus on credit card earnings (i.e. a floor of 2.62% cash back on their Premium Rewards credit card). With high reimbursable expenses, that is worth the small potential hassle of moving the IRA (have been wanting to move the IRA anyway given my distaste over the combination of poor advice and high fees when getting started -- first and foremost my own fault for sure, but it doesn't make me particularly loyal to Wells).
I am glad you mean Merrill Edge.

For domestic stocks in Roth IRAs at Merrill Edge I suggest:
1) Vanguard Total Stock Market ETF (VTI) ER 0.03%; OR
2) iShares Core S&P Total US Stock Mkt ETF (ITOT) ER 0.03%.

I suggest switching to the new ETF now, and all at once. I see no benefit to stringing out the process.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Parachute07
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Parachute07 »

ruralavalon wrote: Fri Jul 10, 2020 12:10 pm
Parachute07 wrote: Fri Jul 10, 2020 8:49 am My wife and I have had Roth IRAs through Wells Fargo for the past ~10 years. We started in our late 20's (in our late 30's now). We didn't know anything when we started and let the advisor guide us into American Funds, which we now realize have high expense ratios compared to Vanguard or others. We now have a bit over $110K in our Roth IRAs spread over a number of funds that don't really make sense. I'd like to move toward the 3 Index Fund type of concept. My first and most important question is how to go about doing this: Do we sell it all at once and move it all into a couple of Index Funds at one time (I'm thinking an S&P 500 fund, a total market fund, and some amount of it in a bond fund more or less -- maybe a percentage in a foreign market fund as well).

My concern here is losing any dollar cost averaging benefit by plunging it all into 3 or 4 funds at once. At the same time, given what it's costing each year in expense ratios, maybe that shouldn't be a consideration.

Also, I know that timing the market is a fool's game, but there is part of me that worries that now in particular, given how fast things have recovered, we may be in for higher-than-average volatility in 2020. Would you wait a year to make a change and/or stagger the movement from American Funds to something like Vanguard's lost-cost Index Fund ETFs?

If it makes any difference, I am also intending to transfer our Roth IRAs from Wells Fargo to Merrill Lynch to take advantage of something on the Bank of America side. Still planning to contribute the max each year to Roth as long as we are eligible (income comes in just under the wire to be eligible to put in $6K each a year). We are also investing separately from this and are looking to grow that also, but I'm here first and foremost to get this Roth thing straightened out before we go another 10 years throwing away extra money.

Here are our current holdings:

P1:
ANCFX: $37K
ANEFX: $10K
SMCWX: $7K
DWGAX: $3K

P2:
ABALX: $24K
SMCWX: $16K
IGAAX: $12K
AEPGX: $6K

Thoughts / suggestions about how to proceed?
Parachute07 wrote: Fri Jul 10, 2020 10:56 am Thank you all very much for the very helpful replies. I've read all of your replies and appreciate the good advice!

For those who asked, yes I meant Merrill Edge. Not looking to throw away more money in advising fees. I'm going for Merrill Edge specifically because along with our other investments / money we intend to invest), we'll qualify for BoA's Platinum Honors program. That gives a 75% bonus on credit card earnings (i.e. a floor of 2.62% cash back on their Premium Rewards credit card). With high reimbursable expenses, that is worth the small potential hassle of moving the IRA (have been wanting to move the IRA anyway given my distaste over the combination of poor advice and high fees when getting started -- first and foremost my own fault for sure, but it doesn't make me particularly loyal to Wells).
I am glad you mean Merrill Edge.

For domestic stocks in Roth IRAs at Merrill Edge I suggest:
1) Vanguard Total Stock Market ETF (VTI) ER 0.03%; OR
2) iShares Core S&P Total US Stock Mkt ETF (ITOT) ER 0.03%.

I suggest switching to the new ETF now, and all at once. I see no benefit to stringing out the process.
Thanks! VTI is what I had in mind. I bought shares of VTI, VOO, and VV back in March when they all hit lows (managed to get very lucky and space my buys right around the low point on all 3 -- wish I'd have thought to move my IRAs then. Ha). I also own a single share of IJT (iShares S&P Small Cap 600 Growth).

I don't quite want to put all of my eggs in the VTI basket. I have a lot more reading to do in these forums, but what would you think would make sense to supplement VTI?

To be clear, I don't want things spread as willy nilly as they are right now at Wells, but I was thinking about perhaps something that tracks the Nasdaq or smaller companies that may have some more opportunity for growth (albeit at higher risk). We intend to continue investing for the next 25 years.

If it makes a difference, the current plan is to take $20K out of cash savings to put into an investment account with the goal of also dividing that over just a few funds and adding at least $2K per month to it (ideally closer to $3K -- we'll add as much as we can).
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ruralavalon
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by ruralavalon »

Thanks! VTI is what I had in mind. I bought shares of VTI, VOO, and VV back in March when they all hit lows (managed to get very lucky and space my buys right around the low point on all 3 -- wish I'd have thought to move my IRAs then. Ha). I also own a single share of IJT (iShares S&P Small Cap 600 Growth).

I don't quite want to put all of my eggs in the VTI basket. I have a lot more reading to do in these forums, but what would you think would make sense to supplement VTI?
I don't think it makes sense to "supplement" Vanguard Total Stock Market ETF (VTI) with any of the funds you mention. Unlike the other two ETFs you bought, VTI includes stocks of small-cap companies.

That ETF already includes stocks of the same companies as in both Vanguard S&P 500 ETF (VOO) and Vanguard Large-Cap ETF (VV), and more. The top ten holdings in each fund are identical:
1) Microsoft Corp.
2) Apple Inc.
3) Amazon.com Inc.
4) Alphabet Inc.
5) Facebook Inc.
6) Johnson & Johnson
7) Berkshire Hathaway Inc.
8) Visa Inc.
9) Procter & Gamble Co.
10) UnitedHealth Group Inc.

The historical performance of the three ETFs has been virtually identical. Portfolio, 2011-2020.

If you absolutely insist that you have to add another domestic stock fund for higher risk and possibly higher returns, then I suggest Vanguard S&P Small-Cap 600 Value ETF (VIOV) ER 0.15%.

However "The concept of portfolio value tilting is intended for advanced investors. Tilting is not recommended for new investors, as it intentionally deviates from investing in the total market- a Bogleheads' approach to managing your portfolio." Wiki article , "Value tilting - stock".

If it makes a difference, the current plan is to take $20K out of cash savings to put into an investment account with the goal of also dividing that over just a few funds and adding at least $2K per month to it (ideally closer to $3K -- we'll add as much as we can).
You have mentioned a Roth IRA and a taxable brokerage account, both to be at Merrill Edge.

Is there a plan offered at work, such as a 401k, 403, 457, SEP IRA, SIMPLE IRA, TSP? If so do you contribute to the plan? How much do you contribute? Is there an employer match, and how much is it? What funds do you use in your account, and what funds are offered in that plan? Please give fund names, tickers and expense ratios.

It is often important to coordinate investments among all accounts, treating all accounts together as a single unified portfolio, rather than treat each account individually.

You need a comprehensive plan for the overall portfolio.

For more comprehensive suggestions please provide more information. Please see this for information needed and format: "Asking Portfolio Questions" .

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.
Last edited by ruralavalon on Fri Jul 10, 2020 5:35 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Parachute07
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Parachute07 »

ruralavalon wrote: Fri Jul 10, 2020 5:06 pm
Thanks! VTI is what I had in mind. I bought shares of VTI, VOO, and VV back in March when they all hit lows (managed to get very lucky and space my buys right around the low point on all 3 -- wish I'd have thought to move my IRAs then. Ha). I also own a single share of IJT (iShares S&P Small Cap 600 Growth).

I don't quite want to put all of my eggs in the VTI basket. I have a lot more reading to do in these forums, but what would you think would make sense to supplement VTI?
I don't think it makes sense to "supplement" Vanguard Total Stock Market ETF (VTI) with any of the funds you mention. Unlike the other two ETFs you bought, VTI includes stocks of small-cap companies.

That ETF already includes stocks of the same companies as in both Vanguard S&P 500 ETF (VOO) and Vanguard Large-Cap ETF (VV), and more. The top ten holdings in each fund are identical:
1) Microsoft Corp.
2) Apple Inc.
3) Amazon.com Inc.
4) Alphabet Inc.
5) Facebook Inc.
6) Johnson & Johnson
7) Berkshire Hathaway Inc.
8) Visa Inc.
9) Procter & Gamble Co.
10) UnitedHealth Group Inc.

The historical performance of the three ETFs has been virtually identical. Portfolio, 2011-2020.

If you absolutely insist that you have to add another domestic stock fund for higher risk and possibly higher returns, then I suggest Vanguard S&P Small-Cap 600 Value ETF (VIOV) ER 0.15%.

However "The concept of portfolio value tilting is intended for advanced investors. Tilting is not recommended for new investors, as it intentionally deviates from investing in the total market- a Bogleheads' approach to managing your portfolio." Wiki article , "Value tilting - stock".
Thanks for the feedback. Great stuff and I appreciate the link for further reading.

So would you then invest all of the Roth IRA holdings for both of us in VTI?
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by ruralavalon »

If it makes a difference, the current plan is to take $20K out of cash savings to put into an investment account with the goal of also dividing that over just a few funds and adding at least $2K per month to it (ideally closer to $3K -- we'll add as much as we can).
So would you then invest all of the Roth IRA holdings for both of us in VTI?
You have mentioned a Roth IRA and a taxable brokerage account, both to be at Merrill Edge.

Is there a plan offered at work, such as a 401k, 403b, 457b, SEP IRA, SIMPLE IRA, TSP? If so do you contribute to the plan? How much do you contribute? Is there an employer match, and how much is it? What funds do you use in your account, and what funds are offered in that plan? Please give fund names, tickers and expense ratios.

It is often important to coordinate investments among all accounts, treating all accounts together as a single unified portfolio, rather than treat each account individually.

You need a comprehensive plan for the overall portfolio.

For more comprehensive suggestions please provide more information. Please see this for information needed and format: "Asking Portfolio Questions" .

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.
Last edited by ruralavalon on Fri Jul 10, 2020 5:59 pm, edited 1 time in total.
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Eagle33 »

You need one single asset allocation for your total portfolio that exist in multiple accounts. See wiki for Asset allocation in multiple accounts.

My spouse and I have have consolidated down to 2 Roth IRAs and 2 TIRAs for our total portfolio. Both Roths have just VTSAX (total US market), spouse TIRA has just VBTLX (total bond), while the largest account my TIRA has all 3 funds (including VTIAX total international market). Beining retired I use the large account for distributions for expenses and rebalancing of our total portfolio.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by dogagility »

Parachute07 wrote: Fri Jul 10, 2020 10:56 am Thank you all very much for the very helpful replies. I've read all of your replies and appreciate the good advice!

For those who asked, yes I meant Merrill Edge. Not looking to throw away more money in advising fees. I'm going for Merrill Edge specifically because along with our other investments / money we intend to invest), we'll qualify for BoA's Platinum Honors program. That gives a 75% bonus on credit card earnings (i.e. a floor of 2.62% cash back on their Premium Rewards credit card). With high reimbursable expenses, that is worth the small potential hassle of moving the IRA (have been wanting to move the IRA anyway given my distaste over the combination of poor advice and high fees when getting started -- first and foremost my own fault for sure, but it doesn't make me particularly loyal to Wells).
Good idea. Take advantage of the transfer bonus too! https://www.merrilledge.com/offers/900offer
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
Topic Author
Parachute07
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Parachute07 »

ruralavalon wrote: Fri Jul 10, 2020 5:37 pm
If it makes a difference, the current plan is to take $20K out of cash savings to put into an investment account with the goal of also dividing that over just a few funds and adding at least $2K per month to it (ideally closer to $3K -- we'll add as much as we can).
So would you then invest all of the Roth IRA holdings for both of us in VTI?minim
You have mentioned a Roth IRA and a taxable brokerage account, both to be at Merrill Edge.

Is there a plan offered at work, such as a 401k, 403b, 457b, SEP IRA, SIMPLE IRA, TSP? If so do you contribute to the plan? How much do you contribute? Is there an employer match, and how much is it? What funds do you use in your account, and what funds are offered in that plan? Please give fund names, tickers and expense ratios.

It is often important to coordinate investments among all accounts, treating all accounts together as a single unified portfolio, rather than treat each account individually.

You need a comprehensive plan for the overall portfolio.

For more comprehensive suggestions please provide more information. Please see this for information needed and format: "Asking Portfolio Questions" .

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.
Thanks. I have updated the OP with additional info as per this suggestion.

To answer you directly, there is no plan at work for either of us - we're on our own to plan investments/retirement, which is why I'm finally waking up to the fact that we've been flushing 5.75% in front load fees and more than 1% annually on some of these funds and trying to fix it (and why I'm working to move some of our cash into investments and more of our cash moving forward into investments).

Not in my OP but perhaps relevant is that I have the mental goal to get to $4mil in the next 25 years and intend to reduce expenses where I can, add income when possible (I'm not afraid to hustle for additional income and have more opportunities in this regard than many folks), and invest more than what I have in the OP. The OP is minimum expectations. I'm hopeful to do better and to set up the next generation of my family to be better positioned and more knowledgeable than I was.
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by ruralavalon »

Parachute07 wrote: Sat Jul 11, 2020 1:24 amThanks. I have updated the OP with additional info as per this suggestion.

To answer you directly, there is no plan at work for either of us - we're on our own to plan investments/retirement, which is why I'm finally waking up to the fact that we've been flushing 5.75% in front load fees and more than 1% annually on some of these funds and trying to fix it (and why I'm working to move some of our cash into investments and more of our cash moving forward into investments).

Not in my OP but perhaps relevant is that I have the mental goal to get to $4mil in the next 25 years and intend to reduce expenses where I can, add income when possible (I'm not afraid to hustle for additional income and have more opportunities in this regard than many folks), and invest more than what I have in the OP. The OP is minimum expectations. I'm hopeful to do better and to set up the next generation of my family to be better positioned and more knowledgeable than I was.
What is your tax bracket, both federal and state? What are you your professions or occupations? Is your tax filing status married filing jointly, or married filing separately?

I ask because I am wondering if traditional IRAs (their contributions are tax deductible) instead of Roth IRAs might be good for you. Also your tax bracket has an effect on what funds you might use to in the taxable brokerage account.

Also are either or both of you self-employed? If so there are other kinds of tax-advantaged accounts that might be used (SEP IRA, SIMPLE IRA, or individual [solo] 401k).

What is your desired asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?

Again you can simply add this to your original post using the edit button, so that all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Parachute07
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by Parachute07 »

ruralavalon wrote: Sat Jul 11, 2020 9:18 am
Parachute07 wrote: Sat Jul 11, 2020 1:24 amThanks. I have updated the OP with additional info as per this suggestion.

To answer you directly, there is no plan at work for either of us - we're on our own to plan investments/retirement, which is why I'm finally waking up to the fact that we've been flushing 5.75% in front load fees and more than 1% annually on some of these funds and trying to fix it (and why I'm working to move some of our cash into investments and more of our cash moving forward into investments).

Not in my OP but perhaps relevant is that I have the mental goal to get to $4mil in the next 25 years and intend to reduce expenses where I can, add income when possible (I'm not afraid to hustle for additional income and have more opportunities in this regard than many folks), and invest more than what I have in the OP. The OP is minimum expectations. I'm hopeful to do better and to set up the next generation of my family to be better positioned and more knowledgeable than I was.
What is your tax bracket, both federal and state? What are you your professions or occupations? Is your tax filing status married filing jointly, or married filing separately?

I ask because I am wondering if traditional IRAs (their contributions are tax deductible) instead of Roth IRAs might be good for you. Also your tax bracket has an effect on what funds you might use to in the taxable brokerage account.

Also are either or both of you self-employed? If so there are other kinds of tax-advantaged accounts that might be used (SEP IRA, SIMPLE IRA, or individual [solo] 401k).

What is your desired asset allocation (stock/bond mix, and domestic/international stock mix) that you want to aim for?

Again you can simply add this to your original post using the edit button, so that all of your information is in one place.
Sorry in advance for a long-winded reply. I appreciate the help so far and didn't want to be vague in response.

I've added filing status and tax bracket information. The truth is that we are right on the cusp of the 22% / 24% brackets after the standard deduction. It's close. Our income is somewhat variable. We won't make it to the next bracket up, but we could definitely be on either side of that 22% / 24% cusp. I haven't finished the numbers for 2019 yet (on my list of things to do this weekend), but we are close enough that maybe something like a traditional IRA could bring us down to the next bracket lower for 2019, and given the 2020 environment we could likely drop into that 22% bracket this year with a Traditional IRA, but we could just as easily have a situation another year where the spread would be too big for the IRA to make enough difference.

I don't say that to mean that I'm definitively turned off from the idea of a traditional IRA, but more to tell you that our situation isn't predictable enough to know that a strategy like a traditional IRA would consistently bring us down a bracket. But along with that, I've always figured that the Roth would be more advisable as long as we qualify since we intend to have not touched that money for at least 35 years before withdrawing (already invested for 10 years and expect to not touch it for another 25). I am at least hopeful that the growth will be significant enough to be worth having gone with a Roth (note that it isn't lost on me that I clearly wasn't smart enough not to have avoided getting myself into funds with 5.75% load fees and high expense ratios, so I know that whatever benefit I've seen in the first 10 years may have been negligible compared to a Traditional IRA, but I'm hopeful the Roth will be a sound decision long term). Shifting back in the other direction again, our income is within a few thousand dollars of the phase outs for Roth contributions -- so a year where we make an extra $10K or $20K (which isn't impossible for us) could disqualifiy us for a Roth anyway.

Neither of us are self-employed, though both of us have run our own sole proprietorships in the past as side hustles and have been exploring the possibility of a side hustle that may create a self-employment situation (as noted above, putting $2K per month into long-term investments is a minimum expectation; I am actively interested in adding more income to be able to invest more if possible). When I had asked someone about the prospect of setting up a retirement plan as a sole proprietor years ago (someone whose advice I don't value more than yours, just noting that I did inquire about it), it sounded like setting up a retirement account for a sole proprietorship would not have been worth it if the side business only earned $30K or $40K per year. Was that poor advice?

As for desired asset allocation, I can give you an answer, but the truth is that I'm still trying to figure out what that answer should be. I watched the Financing Life videos by Rick Van Ness last night, so I now know the philosophy of owning your age in bonds. Averaging our ages, we'd be around 38% bonds and 62% stocks based on that principle. We would like some of the stock holdings to be foreign markets, but I really don't know foreign index funds yet.

That said, my instinct is that a 38% allocation to bonds may be higher than necessary for us. I'd like to plan for us to be able to stop working in 25 years and to plan to pass any inheritance we may receive from our families to our next generation, but the truth is that we likely won't stop working completely in 25 years and our retirement savings likely will not be our entire nest egg. I don't want to go 100% stocks and no bonds, but I am not yet convinced that something like 38% in bonds makes sense. I was thinking more like 20% bonds 80% stocks -- but recognizing that this is not my area of expertise, I am willing to accept it if this is a foolish idea and I should go higher on the bond side. I'd think that any more than 30% bonds would be overkill and losing the opportunity to build growth over these next 10-20 years. Wherever we start in bonds, I could concede to re-balance and add 1% in bonds each year.

Thoughts?
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by David Jay »

Parachute07 wrote: Sat Jul 11, 2020 1:39 pmAs for desired asset allocation, I can give you an answer, but the truth is that I'm still trying to figure out what that answer should be. I watched the Financing Life videos by Rick Van Ness last night, so I now know the philosophy of owning your age in bonds. Averaging our ages, we'd be around 38% bonds and 62% stocks based on that principle. We would like some of the stock holdings to be foreign markets, but I really don't know foreign index funds yet.

That said, my instinct is that a 38% allocation to bonds may be higher than necessary for us. I'd like to plan for us to be able to stop working in 25 years and to plan to pass any inheritance we may receive from our families to our next generation, but the truth is that we likely won't stop working completely in 25 years and our retirement savings likely will not be our entire nest egg. I don't want to go 100% stocks and no bonds, but I am not yet convinced that something like 38% in bonds makes sense. I was thinking more like 20% bonds 80% stocks -- but recognizing that this is not my area of expertise, I am willing to accept it if this is a foolish idea and I should go higher on the bond side. I'd think that any more than 30% bonds would be overkill and losing the opportunity to build growth over these next 10-20 years. Wherever we start in bonds, I could concede to re-balance and add 1% in bonds each year.

Thoughts?
Here at BH, the conservative recommendation is "age in bonds". Many people are using "age minus 10" and even "age minus 20". AA is very individual, based on your personal risk profile.

When it comes to asset allocation, the most important issue is your commitment to not reducing your equity allocation in a downturn. Emotions get us humans all messed up when we suffer a loss, and if you get worried and sell in a downturn it is a permanent loss of capital. This will have a bigger financial impact than holding an extra 10% in bonds.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by dogagility »

Parachute07 wrote: Sat Jul 11, 2020 1:39 pm That said, my instinct is that a 38% allocation to bonds may be higher than necessary for us. I'd like to plan for us to be able to stop working in 25 years and to plan to pass any inheritance we may receive from our families to our next generation, but the truth is that we likely won't stop working completely in 25 years and our retirement savings likely will not be our entire nest egg. I don't want to go 100% stocks and no bonds, but I am not yet convinced that something like 38% in bonds makes sense. I was thinking more like 20% bonds 80% stocks -- but recognizing that this is not my area of expertise, I am willing to accept it if this is a foolish idea and I should go higher on the bond side. I'd think that any more than 30% bonds would be overkill and losing the opportunity to build growth over these next 10-20 years. Wherever we start in bonds, I could concede to re-balance and add 1% in bonds each year.
Thoughts?
I agree with your thinking. With a 25 year or more investment horizon,I would suggest a bond allocation of no more than 30%. 80% or higher stock allocation is my suggestion. So you know where I am coming from, I was 100% stock in your situation.

If you are prone to panic selling, then choose a higher bond allocation.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
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Re: Reducing expense ratios: How and when to move Roth IRA funds to something better?

Post by ruralavalon »

Asset allocation.
Parachute07 wrote: Fri Jul 10, 2020 8:49 amAges: P1 35, P2 39
Parachute07 wrote: Sat Jul 11, 2020 1:39 pmAs for desired asset allocation, I can give you an answer, but the truth is that I'm still trying to figure out what that answer should be. I watched the Financing Life videos by Rick Van Ness last night, so I now know the philosophy of owning your age in bonds. Averaging our ages, we'd be around 38% bonds and 62% stocks based on that principle. We would like some of the stock holdings to be foreign markets, but I really don't know foreign index funds yet.

That said, my instinct is that a 38% allocation to bonds may be higher than necessary for us. I'd like to plan for us to be able to stop working in 25 years and to plan to pass any inheritance we may receive from our families to our next generation, but the truth is that we likely won't stop working completely in 25 years and our retirement savings likely will not be our entire nest egg. I don't want to go 100% stocks and no bonds, but I am not yet convinced that something like 38% in bonds makes sense. I was thinking more like 20% bonds 80% stocks -- but recognizing that this is not my area of expertise, I am willing to accept it if this is a foolish idea and I should go higher on the bond side. I'd think that any more than 30% bonds would be overkill and losing the opportunity to build growth over these next 10-20 years. Wherever we start in bonds, I could concede to re-balance and add 1% in bonds each year.
At ages 35 and 39 I suggest about 20-25% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. 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";
3) Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio". and
4) White Coat Investor (9/23/2016), "In Defense of Bonds".

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).

Morningstar (11/14/2019), "Revisiting the Case for International". "The case for diversifying internationally isn’t as strong as it used to be, especially if you’re looking for significant risk reduction or consistently better returns. From a portfolio perspective, we typically recommend a healthy international weighting--roughly 25% of total assets--for investors with longer time horizons."

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. 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.



Traditional vs Roth.
Sunday edit: I have given some additional thought to this since yesterday, and revised this section.
Parachute07 wrote: Fri Jul 10, 2020 8:49 amTax filing status: Married filing jointly
Federal Tax bracket: 24%
State tax bracket: 6.49%
Parachute07 wrote: Sat Jul 11, 2020 1:24 amTo answer you directly, there is no plan at work for either of us - we're on our own to plan investments/retirement, . . .
Parachute07 wrote: Sat Jul 11, 2020 1:39 pmI've added filing status and tax bracket information. The truth is that we are right on the cusp of the 22% / 24% brackets after the standard deduction. It's close. Our income is somewhat variable. We won't make it to the next bracket up, but we could definitely be on either side of that 22% / 24% cusp. I haven't finished the numbers for 2019 yet (on my list of things to do this weekend), but we are close enough that maybe something like a traditional IRA could bring us down to the next bracket lower for 2019, and given the 2020 environment we could likely drop into that 22% bracket this year with a Traditional IRA, but we could just as easily have a situation another year where the spread would be too big for the IRA to make enough difference.


I don't say that to mean that I'm definitively turned off from the idea of a traditional IRA, but more to tell you that our situation isn't predictable enough to know that a strategy like a traditional IRA would consistently bring us down a bracket. But along with that, I've always figured that the Roth would be more advisable as long as we qualify since we intend to have not touched that money for at least 35 years before withdrawing (already invested for 10 years and expect to not touch it for another 25). I am at least hopeful that the growth will be significant enough to be worth having gone with a Roth (note that it isn't lost on me that I clearly wasn't smart enough not to have avoided getting myself into funds with 5.75% load fees and high expense ratios, so I know that whatever benefit I've seen in the first 10 years may have been negligible compared to a Traditional IRA, but I'm hopeful the Roth will be a sound decision long term). Shifting back in the other direction again, our income is within a few thousand dollars of the phase outs for Roth contributions -- so a year where we make an extra $10K or $20K (which isn't impossible for us) could disqualifiy us for a Roth anyway [emphasis added].
You are nearly at the phase out for Roth IRA contributions, but since you don't have work-based plans you can still deduct contributions to traditional IRAs. IRS, "2020 IRA contribution and deduction limits . . . ." .

Use of traditional IRAs for future contributions is probably best. Will you be eligible for a substantial pension in addition to Social Security? What is your profession or occupation? For most people, without a significant pension in addition to Social Security, traditional deductible IRA contributions will likely be better than contributions to Roth IRAs.

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 use of a traditional deductible IRA will probably be better.

Because the tax code is progressive, when you withdraw from your IRAs 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)." Because the tax code is progressive, "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). 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." I notice that you are in the 24% tax bracket, and currently have nothing in traditional tax-deferred accounts.

Will you be eligible for a substantial pension in addition to Social Security? 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.

Wiki article, "Traditional vs Roth".



Self-employment.
Sunday edit: I have given some additional thought to this since yesterday, and added this section.
Parachute07 wrote: Sat Jul 11, 2020 1:39 pmNeither of us are self-employed, though both of us have run our own sole proprietorships in the past as side hustles and have been exploring the possibility of a side hustle that may create a self-employment situation (as noted above, putting $2K per month into long-term investments is a minimum expectation; I am actively interested in adding more income to be able to invest more if possible). When I had asked someone about the prospect of setting up a retirement plan as a sole proprietor years ago (someone whose advice I don't value more than yours, just noting that I did inquire about it), it sounded like setting up a retirement account for a sole proprietorship would not have been worth it if the side business only earned $30K or $40K per year. Was that poor advice?
The contribution limits for self-employed accounts are higher than for regular IRAs. It is worth looking into if you start your own businesses again.

When you are self-employed you could consider using a SEP IRA, SIMPLE IRA, or individual (solo) 401k. Vanguard, small-business plans,"Compare plans". That link has a nice table comparing the features (like contribution limits, amount of paperwork required, etc.) of the three types of plans.

Both Fidelity and Schwab also offer the same types of plans, as does Merrill Edge.

The Bogleheads' wiki has articles on each type of plan. Boglehead's wiki, "SEP IRA". Boglehead's wiki, "SIMPLE IRA". Boglehead's wiki, "Solo 401k Plan".



Tax-efficiency.
Sunday edit: I have given some additional thought to this since yesterday, and revised this section.

It is often better to coordinate investments among all accounts, in other words treat all accounts together as a single unified portfolio, rather than view each account separately. It is not necessary to put all elements of the desired asset allocation in each account.

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

Distributions from a Roth IRA are tax free, so it's best to use a Roth IRA to hold stock funds with their higher expected returns, rather than bond funds. At Merrill Edge I suggest using Vanguard Total Stock Market ETF (VTI) ER 0.03% and Vanguard Total International Stock ETF (VXUS) ER 0.08%. Stock index ETFs are also well suited to any type of account.

Bond funds are not very tax-efficient because their interest distributions which are taxed as ordinary income. Ordinarily a bond fund should be placed in a tax-advantaged account, preferably a tax-deferred account like a traditional IRA. Wiki article "Tax-efficient fund placement". But you currently do not have any traditional tax-deferred accounts, and bond fund yields are so low right now that it's probably best to have your bond allocation in the taxable brokerage account. The current SEC Yield on Vanguard Total Bond Market ETF (BND) is just 1.34%.



New annual contributions.
Parachute07 wrote: Fri Jul 10, 2020 8:49 amNew contributions:
-$500 every month in both Roth IRAs (to the $6K max as long as we are eligible.
-Looking to make a one-time contribution of about $20K to a long-term taxable investment account, then $2K every month for long-term goals

As noted above, along with this move of the IRA, we intend to invest $20K of our current cash holdings in a taxable Merrill Edge account and to continue to invest at least $2K per month for the foreseeable future. Also intend to create custodial accounts for 2 children (likely funding them with a small amount like $1K each to start and $100 per month). The desire on the custodial accounts is to put something away for the next generation and to hopefully teach them what I didn't know about investing.

Example portfolio.
Sunday edit: I have given some additional thought to this since yesterday, and revised this section.

Here is an example portfolio that you could consider, as a way to begin. As mentioned above, in my opinion future IRA contributions should be to traditional tax-deductible IRAs. This is a three-fund type portfolio. Total current portfolio = $148k. New annual contributions = $36k. The asset allocation is: 20% bonds; 20% international stocks; and 60% 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. Sometimes I state 00% to indicate funds you might want to add in the future.

Taxable account @ Merrill Edge (22% of total; $33k; adds $24k annually = 67% of new annual contributions)
02%, Vanguard Total Stock Market ETF (VTI) ER 0.03%
00%, Vanguard Total International Stock ETF (VXUS) ER 0.08%
20%, Vanguard Total Bond Market ETF (BND) ER 0.035%
(To simplify I suggest selling the other investments. The exception would be if you have large UNrealized capital gains in an investment, so that selling would create large income tax liability.)

P1 Roth IRA @ Merrill Edge (39% of total; $57k)
29%, Vanguard Total Stock Market ETF (VTI) ER 0.03%
10%, Vanguard Total International Stock ETF (VXUS) ER 0.08%

P2 Roth IRA @ Merrill Edge (39% of total; $58k)
29%, Vanguard Total Stock Market ETF (VTI) ER 0.03%
10%, Vanguard Total International Stock ETF (VXUS) ER 0.08%


Rebalancing.
Because the funds will grow at different and unpredictable rates, it may be necessary occasionally to rebalance in order to maintain the desired asset allocation. Wiki article, "Rebalancing". You can easily adjust the domestic/international stock allocation by exchanging between funds inside the Roth IRAs. You can adjust the stock/bond allocation by how you invest new contributions in the taxable brokerage account, or how you use the traditional IRAs.

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


Education.
A quick education for a beginning self-directed investor is Dr. Bernstein's free short on-line book, "If You Can". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

To go beyond the most basic I suggest that you also 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".

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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