Help with messy portfolio

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Topic Author
jus10
Posts: 3
Joined: Thu Jun 18, 2020 11:35 am

Help with messy portfolio

Post by jus10 »

Hi everyone - I've read a lot of great advice here, but I rarely post.
I'm looking for a little help with what has become a somewhat chaotic portfolio of retirement accounts and assets due to a variety of employment situations and experiments. We also have a sizeable amount parked in post-tax cash right now in excess of what we would need for an emergency fund (although other recent posts here suggest that there aren't a lot of good options for cash in the current environment). I'm looking for feedback and suggestions. Although I understand the mechanics of investing and asset allocation, I don't have a strong gut feeling one way or the other. Thanks.

Emergency funds: More than 6 months of expenses in cash (We are over-allocated into cash right now)

Debt:

$470,000 home mortgage, 10y at 1.5% (from a family member)
Home in Oakland CA, current Zillow value is ~$1.5M

Tax Filing Status: Married filing jointly

Tax Rate: (marginal) 35% Federal, 9.3% State

State of Residence: California

Age: 48, wife is 51

Desired Asset allocation: uncertain

Total portfolio

Cash

$438k in Amex High Yield Savings (~$80-100k of this should be reserved for emergency fund) - currently paying 0.8% APY

Current retirement assets

His Roth IRA at Schwab ~$66k
15.2% AMZN
84.3% SWPPX (Schwab S&P Index)

His SEP IRA at Schwab ~$18k
37% SWISX (Schwab Int’l Index)
45% SWPPX (Schwab S&P Index)
18% cash

His Rollover IRA at Schwab ~$380k
99% VTTHX (Vanguard Target 2035)

His Rollover Robo-investment IRA at Schwab ~$160k
(Schwab Intelligent Portfolios) - robo trades
2.6% SCHH Schwab US ETF
2.77% IAU IShares Gold
6.2% SCHE Schwab Emerging Markets
8.66% FNDE Fundamental Emerging Markets
7.7% FNDF Fundamental Intl Large
4.5% FNDC Fundamental Intl Small
9.1% FNDX Fundamental US Large
6.7% FNDA Fundamental US Small
6.8% SCHF Schwab Intl Equity
3% SCHC Schwab Intl Small Cap
14.6% SCHX Schwab US Large
9.1% SCHA Schwab US Small Cap
2% SCHP Schwab US Tips
1.8% EPND SPDR Bloomberg Emerg Mkt
1% SPIB SPDR Intermediate
1.5% VNQI Vanguard Global Ex US real estate
2.7% VCIT Vanguard Intermediate Term
1.9% VMBS Vanguard Mortgage Backed
7% cash

His Traditional IRA at Wealthfront Roboinvestment ~$270k
35.6% VTI Vanguard Total Stock Market
19.8% VEA Vanguard FTSE Developed Markets
12.3% VWO Vanguard FTSE Emerging Markets
10.2% VNQ Vanguard REIT ETF
7.2% LQD iShares iBoxx IG Corp Bond
14.8% EMB iShares JPM EMBI Global Core

His Vanguard 401k ~$16k
100% VTTHX (Target 2035)
contributing IRS maximum with employer match (but I’m leaving this employer soon)

Her Vanguard Rollover IRA ~$330k
15.7% VWIGX International Growth Fund
8.5% VBTLX Total Bond Market
75.8% VTSAX Total Stock Market

Her Vanguard Inherited IRA ~$486k
(mandatory distributions annually, except 2020 I believe)
100% VFORX (Target 2040)

Her Schwab Roth IRA ~$85k

40% SNXFX Schwab 1000
27% BEGRX Franklin Mutual Beacon Z
17.6% VSMAX Vanguard Small Cap
15.5% SWISX Schwab Intl Index

Her Schwab SEP IRA ~$433k
40% FCNTX Fidelity Contrafund
26% SNXFX Schwab 1000
23.4% VSMAX Vanguard Small Cap
10.5% VEUSX Vanguard European


Thank you in advance for your wisdom!
Valuethinker
Posts: 41791
Joined: Fri May 11, 2007 11:07 am

Re: Help with messy portfolio

Post by Valuethinker »

I am not American so others can give you help on specific funds & tax exempt accounts etc.

You have a lot of cash, and a mortgage - but it is at a very low family rate. So it is probably not worth repaying early.

Your first decision is risk tolerance, bonds v equity v cash. That's very hard to do but let me give you an example of a "normal" portfolio:

50% equities
40% bonds
10% cash

The expected downside risks on these, over 12 months are roughly: equities -50% (a bad bear market), bonds -10% (a repeat of 1994 but there were periods in the 1970s with inflation raging when bonds did even worse), cash 0%. So you have to look at that allocation and say to yourself "how would I feel if 25% of my portfolio disappeared in a few days or weeks in a stock market crash?).

Then you need very few funds to actually implement this:

Equities
- I would say c 40% (/50%) in a fund like Vanguard Total Stock Market or S&P 500 index fund
- 10-15% in a global (ex US) equity investment fund if one is available w a low expense ratio. We argue here endlessly about whether American investors should hold foreign equities at all (the US market has outperformed by so much in the last 10 years). As a non American I think yes, lots of Americans here (with reasons that range from the very good to the illogical) think no. The Vanguard evidence say 20-40% of your equity portfolio (ie 10%-20% here) international gives the best risk-return outcome. So I have selected the lowest of that range. It probably won't make a big difference- decades of outperformance by US stocks have tended to be followed by decades of underperformance (but the good decades have more than made up for the bad ones) -- choose your endpoint & time period, and you can make an argument either way.

Bonds

- you want a fund like Vanguard Total Bond Market or an Intermediate Term US Treasury bond fund (typically meaning bonds with maturities of 5-10 years). You may have to cobble together this from available funds

Cash

- Money Market Funds have almost no yield right now. CDs in FDIC insured institutions, within FDIC limits per institution per depositor, actually probably are the best way of doing this. As long as the CDs are cashable (with a penalty) so that they are actual easy-access money, then it's fine to lock up say 1/3rd deposit accounts & less than 6 months, 2/3rds 1-4 years say (ie 1/6th at 1 yr, 2 yr, 3 yr). At current interest rates there's no "right" way to do this except to maintain safety

I would remind yourself, especially if you are married, that a couple can build up a significant portfolio of iBonds - I don't fully understand these (being non American) but I believe each of you can buy $10k a year. They become, after a time, as good as cash and the inflation protection is better than for other investments.

It does not need to be more complex than this. See wikis on the 3 Fund portfolio or 2 Fund portfolio (+ cash). What's important is:

- low cost funds & broad market indexation (they go together)
- safety for the cash part
- staying the course especially during the next bear market. By definition bears are a loss of 20% or more of market value, but the real bears typically lose 30-50% of equity value and last 1+ years (March was an odd exception; 2008-09 you lost nearly 50%, top to bottom, in about 9 months; May 2000 to March 2003 you lost -35% over that period). Stocks have had a fantastic decade, the next decade is likely to be a lot tougher- I would be unsurprised if the S&P 500 has not moved 4 years from now (with a lot of volatility on the way)

The whole strategy depends upon rebalancing. When equities fall relative to bonds, you buy more equities. When equities rise relative to bonds, you sell equities. You sell just when you don't feel like it, and buy when every instinct screams against it.

Variations

You could be up to 60% equities 30% bonds 10% cash. But see "stay the course".
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celia
Posts: 11879
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Help with messy portfolio

Post by celia »

OP, Do you know what your current Asset Allocation is and if that is appropriate for you?

Usually, when we show our portfolios, we give everything as a percentage OF THE ENTIRE PORTFOLIO. Everything should add up to 100%. Could you edit the original post to change this? Just click on the pencil symbol at the top of that post, when you are signed in.

The first thing I would change is merging some accounts, where possible. There's nothing to combine the Roths with. And if you are still working for the employer who set up the SEP IRAs, you likely can't touch those until you "separate" from the employer. And Inherited IRAs have to be kept separate (unless you have multiple IRAs from the same deceased). That leaves you with:
jus10 wrote: Tue Sep 01, 2020 2:02 am His Rollover IRA at Schwab ~$380k
99% VTTHX (Vanguard Target 2035)

His Rollover Robo-investment IRA at Schwab ~$160k
(Schwab Intelligent Portfolios) - robo trades
2.6% SCHH Schwab US ETF
2.77% IAU IShares Gold
6.2% SCHE Schwab Emerging Markets
8.66% FNDE Fundamental Emerging Markets
7.7% FNDF Fundamental Intl Large
4.5% FNDC Fundamental Intl Small
9.1% FNDX Fundamental US Large
6.7% FNDA Fundamental US Small
6.8% SCHF Schwab Intl Equity
3% SCHC Schwab Intl Small Cap
14.6% SCHX Schwab US Large
9.1% SCHA Schwab US Small Cap
2% SCHP Schwab US Tips
1.8% EPND SPDR Bloomberg Emerg Mkt
1% SPIB SPDR Intermediate
1.5% VNQI Vanguard Global Ex US real estate
2.7% VCIT Vanguard Intermediate Term
1.9% VMBS Vanguard Mortgage Backed
7% cash

His Traditional IRA at Wealthfront Roboinvestment ~$270k
35.6% VTI Vanguard Total Stock Market
19.8% VEA Vanguard FTSE Developed Markets
12.3% VWO Vanguard FTSE Emerging Markets
10.2% VNQ Vanguard REIT ETF
7.2% LQD iShares iBoxx IG Corp Bond
14.8% EMB iShares JPM EMBI Global Core
These could all be combined into one account unless there is a future possibility you would roll a Rollower IRA into a future employer 401K. I'm curious as to how long you used the robo advisors and what you now think of them. Are you ready to give them up?

I've never used a roboadvisor, but assume they base their "decisions" on some kind of input from you. Do they even know about the rest of your portfolio outside of what they hold? We look at your asset allocation across the entire portfolio, not across one account, or one type of account (Taxable, tax-deferred, Roth).

The first robo has lots of holdings that are less than 5% of the account (and of the portfolio). These small holdings will have little impact on the portfolio, since even if they doubled in value, they wouldn't impact the portfolio. Just noise, there. Then there are several funds that are invested the same as other funds (eg, 6.2% SCHE Schwab Emerging Markets, 8.66% FNDE Fundamental Emerging Markets, 1.8% EPND SPDR Bloomberg Emerg Mkt, 12.3% VWO Vanguard FTSE Emerging Markets). Obviously, you don't need 4 accounts that do the same thing!
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Chip
Posts: 3180
Joined: Wed Feb 21, 2007 4:57 am

Re: Help with messy portfolio

Post by Chip »

Adding to VT's comments:

His suggestion of the three fund portfolio should be your initial goal, then adjusted for your particular circumstances.

If you're no longer contributing to the SEP-IRAs I believe that they could be combined with your and your spouse's other traditional IRAs (including the rollover IRAs). That would reduce the number of traditional IRA accounts from 6 to 2. The inherited IRA must remain separate, of course.

I'm not a fan of the robo-advisors. They add complexity when simplicity is desired. There is little or nothing they can do that you can't do yourself, especially in tax-advantaged accounts.

If your new employer's 401k allows it (and has decent funds) you should roll your traditional IRAs into the new 401k. This would clear the way for you to make backdoor Roth contributions. I believe that the inherited IRA will prevent your spouse from doing the same, even if there were a 401k for her to roll her regular IRAs into (inherited IRAs can't be rolled into 401ks).

I would not hold both target retirement funds and separate equity/bond funds. It muddies up your asset allocation. I would suggest getting rid of the target date funds and just holding the regular equity/bond funds.

Taxable accounts for high bracket taxpayers in CA may require a different approach than often recommended here. You may wish to put a CA muni bond fund there vs. the traditional recommendation of a total market equity fund. There are quite a few threads on this issue. Or, though it may seem crazy, pay down the mortgage. You're paying 1.5% and getting .8% on your savings. Is your mortgage interest being deducted on your taxes?

You may wish to put a good bit of your bond allocation into the inherited IRA to reduce the growth of the RMDs.

If you consolidate your accounts as much as possible and swap out the collection of funds you have for a single US total market equity fund, a single total international fund, and a single total bond fund (and/or a CA muni fund), you will have simplified things enormously.
retiredjg
Posts: 42811
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help with messy portfolio

Post by retiredjg »

Yes, it is quite a mess. :happy

What accounts are receiving contributions each year? How much?

Where would you like most of your money to live?
Topic Author
jus10
Posts: 3
Joined: Thu Jun 18, 2020 11:35 am

Re: Help with messy portfolio

Post by jus10 »

I will definitely focus my efforts on achieving 3 fund simplicity. Not all of our accounts can easily be consolidated (like SEP IRAS) so I'll have to juggle things around a bit.

I had invested in the robo advisors 6 months ago out of curiosity and professional interest (some of my work revolves around AI in another field). In the last 6 months, the S&P 500 is up 22%, my Wealthfront portfolio is up 19.8%, and Schwab is only up 8%. So I think it's definitely time to terminate the Schwab experiment.

BTW, quick question - should I be including our emergency fund in our cash allocation in the 3 fund model?

I believe we will be able to deduct mortgage interest, although our income has bounced around that AMT level for a while.

We like the convenience of Schwab Bank, but my wife and I have a difference of opinion about whether Schwab's index funds are equivalent to Vanguard's. We probably should settle on one or the other.

Thank you so much!
123
Posts: 6756
Joined: Fri Oct 12, 2012 3:55 pm

Re: Help with messy portfolio

Post by 123 »

jus10 wrote: Tue Sep 01, 2020 2:02 am ...His Rollover Robo-investment IRA at Schwab ~$160k
(Schwab Intelligent Portfolios) - robo trades
2.6% SCHH Schwab US ETF
2.77% IAU IShares Gold
6.2% SCHE Schwab Emerging Markets
8.66% FNDE Fundamental Emerging Markets
7.7% FNDF Fundamental Intl Large
4.5% FNDC Fundamental Intl Small
9.1% FNDX Fundamental US Large
6.7% FNDA Fundamental US Small
6.8% SCHF Schwab Intl Equity
3% SCHC Schwab Intl Small Cap
14.6% SCHX Schwab US Large
9.1% SCHA Schwab US Small Cap
2% SCHP Schwab US Tips
1.8% EPND SPDR Bloomberg Emerg Mkt
1% SPIB SPDR Intermediate
1.5% VNQI Vanguard Global Ex US real estate
2.7% VCIT Vanguard Intermediate Term
1.9% VMBS Vanguard Mortgage Backed
7% cash

...
I am amazed that Schwab would come up with a Robo-investment this complex. I guess they are not above creating confusion in an account so that the account looka ao complex that the investor thinks he is getting something for his money and becomes reluctant to touch it. What a shame.
The closest helping hand is at the end of your own arm.
retiredjg
Posts: 42811
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help with messy portfolio

Post by retiredjg »

jus10 wrote: Wed Sep 02, 2020 12:10 am BTW, quick question - should I be including our emergency fund in our cash allocation in the 3 fund model?
For a small portfolio, you would not include it because it skews things too much. With a portfolio this size, it does not matter much - just do what makes sense to you.
whereskyle
Posts: 1293
Joined: Wed Jan 29, 2020 10:29 am

Re: Help with messy portfolio

Post by whereskyle »

jus10 wrote: Tue Sep 01, 2020 2:02 am Hi everyone - I've read a lot of great advice here, but I rarely post.
I'm looking for a little help with what has become a somewhat chaotic portfolio of retirement accounts and assets due to a variety of employment situations and experiments. We also have a sizeable amount parked in post-tax cash right now in excess of what we would need for an emergency fund (although other recent posts here suggest that there aren't a lot of good options for cash in the current environment). I'm looking for feedback and suggestions. Although I understand the mechanics of investing and asset allocation, I don't have a strong gut feeling one way or the other. Thanks.

Emergency funds: More than 6 months of expenses in cash (We are over-allocated into cash right now)

Debt:

$470,000 home mortgage, 10y at 1.5% (from a family member)
Home in Oakland CA, current Zillow value is ~$1.5M

Tax Filing Status: Married filing jointly

Tax Rate: (marginal) 35% Federal, 9.3% State

State of Residence: California

Age: 48, wife is 51

Desired Asset allocation: uncertain

Total portfolio

Cash

$438k in Amex High Yield Savings (~$80-100k of this should be reserved for emergency fund) - currently paying 0.8% APY

Current retirement assets

His Roth IRA at Schwab ~$66k
15.2% AMZN
84.3% SWPPX (Schwab S&P Index)

His SEP IRA at Schwab ~$18k
37% SWISX (Schwab Int’l Index)
45% SWPPX (Schwab S&P Index)
18% cash

His Rollover IRA at Schwab ~$380k
99% VTTHX (Vanguard Target 2035)

His Rollover Robo-investment IRA at Schwab ~$160k
(Schwab Intelligent Portfolios) - robo trades
2.6% SCHH Schwab US ETF
2.77% IAU IShares Gold
6.2% SCHE Schwab Emerging Markets
8.66% FNDE Fundamental Emerging Markets
7.7% FNDF Fundamental Intl Large
4.5% FNDC Fundamental Intl Small
9.1% FNDX Fundamental US Large
6.7% FNDA Fundamental US Small
6.8% SCHF Schwab Intl Equity
3% SCHC Schwab Intl Small Cap
14.6% SCHX Schwab US Large
9.1% SCHA Schwab US Small Cap
2% SCHP Schwab US Tips
1.8% EPND SPDR Bloomberg Emerg Mkt
1% SPIB SPDR Intermediate
1.5% VNQI Vanguard Global Ex US real estate
2.7% VCIT Vanguard Intermediate Term
1.9% VMBS Vanguard Mortgage Backed
7% cash

His Traditional IRA at Wealthfront Roboinvestment ~$270k
35.6% VTI Vanguard Total Stock Market
19.8% VEA Vanguard FTSE Developed Markets
12.3% VWO Vanguard FTSE Emerging Markets
10.2% VNQ Vanguard REIT ETF
7.2% LQD iShares iBoxx IG Corp Bond
14.8% EMB iShares JPM EMBI Global Core

His Vanguard 401k ~$16k
100% VTTHX (Target 2035)
contributing IRS maximum with employer match (but I’m leaving this employer soon)

Her Vanguard Rollover IRA ~$330k
15.7% VWIGX International Growth Fund
8.5% VBTLX Total Bond Market
75.8% VTSAX Total Stock Market

Her Vanguard Inherited IRA ~$486k
(mandatory distributions annually, except 2020 I believe)
100% VFORX (Target 2040)

Her Schwab Roth IRA ~$85k

40% SNXFX Schwab 1000
27% BEGRX Franklin Mutual Beacon Z
17.6% VSMAX Vanguard Small Cap
15.5% SWISX Schwab Intl Index

Her Schwab SEP IRA ~$433k
40% FCNTX Fidelity Contrafund
26% SNXFX Schwab 1000
23.4% VSMAX Vanguard Small Cap
10.5% VEUSX Vanguard European


Thank you in advance for your wisdom!
One thing not yet mentioned is that, before deciding your stock/bond ratio, you should attempt to settle on an approximate year and portfolio amount for retirement. Once you reach a number, 4% of which will meet your expenses per year, then you can determine how much risk you need to take to accomplish your goals. For instance, if you only need a 5% annual return to reach your number when you need to, you might be able use a lower stock allocation, if you are concerned about stock-market volatility.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
bogswenbern
Posts: 1
Joined: Tue May 05, 2020 7:20 am

Re: Help with messy portfolio

Post by bogswenbern »

Throw everything into VT and call it a day. That's what I'm thinking of doing.
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