Page 1 of 1

Looking for help structuring three fund portfolio between 6 accounts

Posted: Tue Sep 15, 2020 10:16 pm
by TommyTwoTone
Hi Bogleheads,

My wife and I are in our mid forties with two children under 10. I work full-time. After selling some real estate we've accumulated some savings but online savings account rates aren't what they used to be. I could really use some guidance for how to restructure our finances for improved future growth. I've done some research on my own and have some ideas but could use more feedback before I start moving money around...

*************************
Current Landscape

We currently have 3 interest-generating accounts. For simplicity sake let's assume between my wife's pension, my 401K and our savings we have $1M investable assets.

My Wife's Pension: Represents 10% of our total available investable assets. This earns interest at a steady rate of 6%. There's no fund picking or modifying this as far as I know. She's moved on from that job so she's not paying into it anymore but she's fully vested.

My 401K: Represents 17.5% of our total available investable assets. I plan to continue contributing the max % indefinitely, although I typically see an annual overpayment refund because I get dinged as a Highly Compensated Employee. 100% of my 401K is invested in "T. Rowe Price Retirement 2040 Fund - Class R Report Ticker: RRTDX".

Savings: The remainder of our available investable assets are here. I plan to leave a 6 to 12 month cash reserve behind in case of emergency.

Expenses: We've got a 7/1 ARM on our home that is fixed for another 6 years at 4.25%.

*************************
Goals

Construct a minimum 3 fund portfolio with a 70/30 stock/bond allocation that's as tax efficient as possible between the following accounts:

My existing 401K
Roth IRA in my name (NEW ACCOUNT - likely Vanguard)
Roth IRA in my Wife's name (NEW ACCOUNT - likely Vanguard)
529 account for Child #1 (NEW ACCOUNT - either CA, Utah, or Nevada)
529 account for Child #2 (NEW ACCOUNT - either CA, Utah, or Nevada)
Cash Management Account (NEW ACCOUNT - likely Vanguard)

We're handcuffed a bit with what we can do with my wife's pension but a steady 6% that's not tied directly to the market sounds like a good thing so I'm tempted to leave it alone (rather than do a rollover). This would make account #7.

The funds I'm looking at are VTSAX, VGTSX, and VBTLX, although that is negotiable.

Question #1 - I've read I should target 20% of my equity investments going to the International Stock Index Fund (roughly $140,000). Should all of this go in my CMA for tax purposes?

Question #2 - Vanguard funds aren't an option through my 401K (available funds are listed at the bottom). What kinds of funds does it make most sense to pick for my 401K? Stocks? Bonds? Whatever has the lowest Expense Ratios? Highest Morning-star ratings?

Question #3 - What funds and % should I look to put in the Roth IRA's?

Question #4 - How much $ in total to put into the 529 accounts? What funds and % should go in there? Perhaps one of those funds with a sliding allocation?

Question #5 - Our income has been reduced since we bought our home so we can't refinance without paying down the principal some. My wife may go back to work in 2021 but she'd need 6 months of pay stubs before the banks will let us count her income. Should I just use some of my available cash to pay down the principle so I can refinance now (loan terms provided above; see 'Expenses')? I probably should have led with this question!

Thanks in advance for your advice!

Code: Select all

[b]Funds Available in my 401K[/b]
[i](Expense Ratio) Fund Name: 3Y/5Y/10Y[/i]
(0.52) State Street S&P 500 Index Securities Lending Series Fund - Class IX: 13.86/13.76/NA
(0.56) State Street S&P MidCap Index Non-Lending Series Fund - Class J: 4.73/7.42/NA
(0.57) State Street Russell Small Cap Index Securities Lending Series Fund - Class VIII: 4.47/7.01/NA
(0.60) State Street International Index Securities Lending Series Fund - Class VIII: 1.96/4.25/NA
(0.75) Loomis Sayles Investment Grade Bond Fund - Class A: 5.26/5.37/4.68
(0.93) PIMCO Real Return Fund - Class A: 5.30/4.23/3.23
(0.95) Ivy High Income Fund - Class A: 2.48/4.40/6.26
(0.96) Loomis Sayles Strategic Income Fund - Class A: 1.45/3.46/4.98
(1.00) T. Rowe Price Retirement Balanced Fund - Class R: 5.88/6.15/5.99
(1.00) JPMorgan Equity Income Fund - Class A: 7.60/9.32/12.27
(1.02) T. Rowe Price Retirement 2010 Fund - Class R: 6.16/6.65/7.06
(1.05) Invesco Stable Asset Fund: 1.61/1.34/NA
(1.05) T. Rowe Price Retirement 2015 Fund - Class R: 6.49/7.16/7.91
(1.08) T. Rowe Price Retirement 2020 Fund - Class R: 6.98/7.84/8.76
(1.09) T. Rowe Price International Value Equity Fund - Advisor Class: -3.55/0.19/3.55
(1.10) Invesco Oppenheimer International Growth Fund - Class A: 5.13/6.83/8.08
(1.12) T. Rowe Price Retirement 2025 Fund - Class R: 7.48/8.44/9.49
(1.15) T. Rowe Price Retirement 2030 Fund - Class R: 7.90/8.99/10.13
(1.16) Alger Capital Appreciation Institutional Fund - Class I: 23.62/19.58/18.59
(1.16) Janus Henderson Triton Fund - Class S: 10.30/11.43/14.57
(1.17) Eaton Vance Atlanta Capital SMID Cap Fund  - Class A: 10.90/11.66/15.04
(1.18) T. Rowe Price Retirement 2035 Fund - Class R: 8.22/9.37/10.59
(1.20) T. Rowe Price Retirement 2040 Fund - Class R: 8.48/9.68/10.85
(1.21) T. Rowe Price Retirement 2045 Fund - Class R: 8.61/9.83/10.92
(1.21) T. Rowe Price Retirement 2050 Fund - Class R: 8.62/9.83/10.93
(1.21) T. Rowe Price Retirement 2055 Fund - Class R: 8.53/9.78/10.90
(1.21) T. Rowe Price Retirement 2060 Fund - Class R: 8.55/9.78/NA
(1.22) Goldman Sachs Mid Cap Value Fund - Class A: 4.45/5.18/9.50
(1.50) Victory Integrity Small-Cap Value Fund - Class A: -5.03/0.76/7.94
(1.57) Virtus Vontobel Emerging Markets Opportunities Fund - Class A: 1.63/6.54/4.90

Re: Looking for help structuring three fund portfolio between 6 accounts

Posted: Wed Sep 16, 2020 10:00 am
by Grt2bOutdoors
Leave your wife’s pension alone and consider it to be part of fixed income. Sounds like it’s part of a government pension plan, how well funded is the plan?

Choose the lowest cost funds in your 401k - that appears to be the State Street index funds. You can choose the S&P 500 fund, MidCap and small cap index funds to approximate the Total stock market index. You can also use the Total International index fund as well. The Pimco fund seems to be the lowest cost bond fund, depending on your asset allocation the overall blended expense ratio for all funds will be markedly lower than the TRowePrice Retirement funds.

How much to save for college? Look at the Vanguard college planner on Vanguard website, you can play with the variables for each child to come up with a ballpark annual or monthly savings amount.

If you pay down principal- how much of your liquidity will you need to give up? What are the new terms on a refinance?

PS. Have you tried calling 867-5309 for advice?
Sorry, couldn’t help it. :wink:

Re: Looking for help structuring three fund portfolio between 6 accounts

Posted: Wed Sep 16, 2020 12:38 pm
by pkcrafter
Welcome to the forum,

Grt2bOutdoors has provided some good advice to get you on track.
TommyTwoTone wrote: Tue Sep 15, 2020 10:16 pm Hi Bogleheads,

My wife and I are in our mid forties with two children under 10. I work full-time. After selling some real estate we've accumulated some savings but online savings account rates aren't what they used to be. I could really use some guidance for how to restructure our finances for improved future growth. I've done some research on my own and have some ideas but could use more feedback before I start moving money around...

*************************
Current Landscape

We currently have 3 interest-generating accounts. For simplicity sake let's assume between my wife's pension, my 401K and our savings we have $1M investable assets.

My Wife's Pension: Represents 10% of our total available investable assets. This earns interest at a steady rate of 6%. There's no fund picking or modifying this as far as I know. She's moved on from that job so she's not paying into it anymore but she's fully vested.

My 401K: Represents 17.5% of our total available investable assets. I plan to continue contributing the max % indefinitely, although I typically see an annual overpayment refund because I get dinged as a Highly Compensated Employee. 100% of my 401K is invested in "T. Rowe Price Retirement 2040 Fund - Class R Report Ticker: RRTDX".

While RRTDX is a decent fund, it is expensive. You could use other target date funds in tax-advantaged accounts if you wanted to, but keep in mind all retirement accounts are part of one unified portfolio. In taxable you need tax-efficient funds. One option there is Vanguard tax-managed balanced (50/50)

https://investor.vanguard.com/mutual-fu ... file/VTMFX

Tax-efficient fund placement

https://www.bogleheads.org/wiki/Tax-eff ... _placement


Savings: The remainder of our available investable assets are here. I plan to leave a 6 to 12 month cash reserve behind in case of emergency.

Expenses: We've got a 7/1 ARM on our home that is fixed for another 6 years at 4.25%.

That is higher than most rates which are fixed.

*************************
Goals

Construct a minimum 3 fund portfolio with a 70/30 stock/bond allocation that's as tax efficient as possible between the following accounts:

My existing 401K
Roth IRA in my name (NEW ACCOUNT - likely Vanguard)
Roth IRA in my Wife's name (NEW ACCOUNT - likely Vanguard)
529 account for Child #1 (NEW ACCOUNT - either CA, Utah, or Nevada)
529 account for Child #2 (NEW ACCOUNT - either CA, Utah, or Nevada)
Cash Management Account (NEW ACCOUNT - likely Vanguard)

Don't count 529 plans in retirement assets or allocations.

We're handcuffed a bit with what we can do with my wife's pension but a steady 6% that's not tied directly to the market sounds like a good thing so I'm tempted to leave it alone (rather than do a rollover).

Yes, it's a very good thing--leave it.

The funds I'm looking at are VTSAX, VGTSX, and VBTLX, although that is negotiable.

These represent the 3-fund portfolio, but they can be distributed across all accounts in the most efficient manor.


viewtopic.php?f=10&t=88005

Question #1 - I've read I should target 20% of my equity investments going to the International Stock Index Fund (roughly $140,000). Should all of this go in my CMA for tax purposes?

CMA -- Cash Management Account? Vanguard's international fund is tax-efficient as is Vanguard's total stock market.

Question #2 - Vanguard funds aren't an option through my 401K (available funds are listed at the bottom). What kinds of funds does it make most sense to pick for my 401K? Stocks? Bonds? Whatever has the lowest Expense Ratios? Highest Morning-star ratings?

You do have a S&P500 fund that's a good choice. All bonds should be in tax-advantaged accounts. Here is how to approximate total stock market. The alternative that makes things easier is to just use the S&P500 and don't worry about mid and small.

https://www.bogleheads.org/wiki/Approxi ... ock_market


Question #3 - What funds and % should I look to put in the Roth IRA's?

Ideally, you want higher expected return funds in Roth since you won't pay taxes on withdrawal. Most people here don't recommend bonds in Roth.

Question #4 - How much $ in total to put into the 529 accounts? What funds and % should go in there? Perhaps one of those funds with a sliding allocation?

You now have about 10 years until you need the money, so an allocation of maybe 40-50% stock is OK, but that will have to be reduced to almost zero at about 5 years from needing the money for college.

Question #5 - Our income has been reduced since we bought our home so we can't refinance without paying down the principal some. My wife may go back to work in 2021 but she'd need 6 months of pay stubs before the banks will let us count her income. Should I just use some of my available cash to pay down the principle so I can refinance now (loan terms provided above; see 'Expenses')? I probably should have led with this question!

Yes, pay down and refi so you can benefit from current lower rates.


Paul





Re: Looking for help structuring three fund portfolio between 6 accounts

Posted: Fri Sep 25, 2020 8:36 pm
by TommyTwoTone
Grt2bOutdoors wrote: Wed Sep 16, 2020 10:00 am Leave your wife’s pension alone and consider it to be part of fixed income. Sounds like it’s part of a government pension plan, how well funded is the plan?

Choose the lowest cost funds in your 401k - that appears to be the State Street index funds. You can choose the S&P 500 fund, MidCap and small cap index funds to approximate the Total stock market index. You can also use the Total International index fund as well. The Pimco fund seems to be the lowest cost bond fund, depending on your asset allocation the overall blended expense ratio for all funds will be markedly lower than the TRowePrice Retirement funds.

How much to save for college? Look at the Vanguard college planner on Vanguard website, you can play with the variables for each child to come up with a ballpark annual or monthly savings amount.

If you pay down principal- how much of your liquidity will you need to give up? What are the new terms on a refinance?

PS. Have you tried calling 867-5309 for advice?
Sorry, couldn’t help it. :wink:
Thank you for the advice to treat my wife's pension as fixed income. Makes sense. It's a state pension plan...no idea how well funded the plan is. How would I find that out?

If I read Taylor's 3 fund investing advice correctly I should keep all my fixed income investments in my 401K. Any reason why you recommended the PIMCO Real Return Fund (ER of 0.93) over the Loomis Sayles Investment Grade Bond Fund (ER of 0.75)?

If I pay down principal on my home I'll probably have to kick in about $350K. I'm sure I could get a 30Y fixed @ sub 3%. I need to get together with my loan advisor to see what I'm looking at.

I reserve 867-5309 for pleasure calls...this is all business. ;)

@pkcrafter, thanks for your reply as well but between this and the 529 plans I'm reviewing this has all been slow to digest. I need to piece through your response.

Re: Looking for help structuring three fund portfolio between 6 accounts

Posted: Sat Sep 26, 2020 3:03 am
by Grt2bOutdoors
My error - go with the Loomis Sayles Investment Grade Fund at 0.75 expense ratio.

State pension plan website - look for annual report statement that will disclose investment performance and actual pension funding as a percentage of actual benefit obligation. You want to see a 70% plus funding level. If it’s like NJ or Illinois with lower funding levels be concerned that future viability is questionable.

Re: Looking for help structuring three fund portfolio between 6 accounts

Posted: Wed Sep 30, 2020 6:01 pm
by TommyTwoTone
I've been learning a lot over past few weeks and I think I'm ready to take the plunge. I've setup some accounts and here's a near-final blueprint:

Overall

I'm beginning with an asset allocation of 80%/20% Equities/Fixed Income. AA will be adjusted as I advance in age. 20% of total equities will be in an International Stock Index fund (VTIAX).

My Wife's Pension

Will remain untouched and be counted as Fixed Income. Unless she goes back to work for the state no additional contributions will be made to this account.

My 401K

Will change from 2040 Target Retirement Fund (ER 1.21) in favor of Loomis Sayles Investment Grade Bond Fund (ER 0.75). I'll backfill with the three State Street Funds (S&P 500 Index Securities Lending Series Fund (ER 0.52), S&P MidCap Index Non-Lending Series Fund (ER 0.56), and Russell Small Cap Index Securities Lending Series Fund (ER 0.57); in a 76%/18%/6% ratio, respectively, to preserve an approximation of a Total Stock Market Index fund) as necessary to achieve my desired portfolio AA provided above. I'll continue to maximize my annual contributions here as time progresses.

Roth IRA's

I've setup a Roth IRA in my name and one in my Wife's name. We will contribute $12K total for 2020, with 100% of it going to VTSAX. Dividends and capital gains will be reinvested. We will continue with maximum annual contributions investing only in VTSAX, indefinitely.

Cash Management Account (Taxable)

I configured a joint account in both my and my wife's name (Joint Tenants with Survivorship). Dividends and capital gains from this account will be transferred to a money market settlement fund (See Question #2 below). 100% of our International Stock Index holdings will be kept here for a potential tax credit for foreign taxes paid. At least initially the remainder of this account will be comprised of shares of the Total Stock Market Index Fund (VTSAX). As the years progress and my AA shifts to bonds I'll sprinkle in investments of a TAX-EXEMPT Total Bond Market fund, as necessary.

529 Plans

I'll probably opt for the target enrollment funds with the lowest fees to keep things simple. Per pkcrafter's recommendation I will not include the 529 plans as part of my retirement assets or allocations.

My Mortgage

I'll keep enough cash on hand to pay down my current loan enough so I can refinance. This will improve my cash flow and likely put me in a position to contribute additional monies to my CMA.

Questions

#1 - Does anyone see any flaws in this plan or enhancements you'd like to suggest?

#2 - I read somewhere along the way that it's generally a good idea to transfer dividends and capital gains from your taxable accounts to a money market settlement fund rather than choosing to automatically reinvest them. Can someone explain why? Is it for ease of rebalancing? Or possibly because that's the only way to you can get the tax credit for foreign taxes paid? What do you do with the funds in the settlement fund once they get there and how often should I be doing it?

Thank you for your wisdom and guidance,

TTT