Portfolio Review Question(s)

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Topic Author
Maat16
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Joined: Sun Nov 05, 2017 2:09 pm

Portfolio Review Question(s)

Post by Maat16 »

I am 65 years old and husband 69 years old. We are presently retired; living off of Social Security and one pension. Converting to ROTH whenever possible. Presently have 12 years of $120,000 mortgage balance with monthly payment of $1,045 (principal, interest, property tax and home insurance). No other debt.

Any suggestion on my present portfolio allocation would be appreciated:

tIRA (Pretax) (65 years old)
Vanguard Total Stock Market - VTSAX 44%
Vanguard Total International Stock Market - VTIAX 12%
Vanguard Total Bond Market - VBTLX 40%
Vanguard High Dividend Yield - VYM 4%
I am not sure if I should keep VYM and if not what to do with the 4% presently allocated to VYM? I was wondering if this amount can be allocated to a money market fund (I presently have $15.00 in VUSXX) or added to VBTLX or VTIAX or any fund that makes sense in this present market environment? Should I focus on building a cash reserve in a money market fund for required minimum distribution from now or at least 4 years from now for RMD in year 2027?

ROTH IRA [5 years] (65 years old)
Vanguard Total Stock Market - VTSAX 70%
Vanguard Total International Stock Market - VTIAX 30%

ROTH IRA [3 years] (69 years old)
Vanguard Total Stock Market - VTSAX 42%
Vanguard Total International Stock Market - VTIAX 14%
Vanguard Wellington Admiral - VWENX 44%
Does it make sense to have VWENX in this account and are we better off with just VTSAX and VTIAX?

IRA (Taxable)
Vanguard Total Stock Market - VTSAX 63%
Vanguard High Yield Tax Exempt - VWAHX 37%
Presently live in Nevada and any comment on this portfolio would be appreciated. Thanks for your time.
------------------------------------------------------------
The question what is IRA taxable? I have an IRA brokerage account separate from the pretax account.

The interest rate on my mortgage is 3.5%.

The dollar percentage(s) in each account from total:
tIRA (65 years old) - 84%
ROTH (65 years) - 7.5%
ROTH (69 years) - 8%
IRA Brokerage - -5% and the dollar amount in this taxable account is $8,285
Total - 100%

Desired asset allocation:
US Equities - 40%
International equities - 15%
Bonds US - 40% / 45%
Cash - 0% / 5% (4 years from now)

Tax bracket in 2018 was 24% and 2019 was 22%. 2020 and going forward will be 12% or whatever is the lowest based on tax regulations.
Last edited by Maat16 on Wed Sep 23, 2020 2:09 pm, edited 2 times in total.
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David Jay
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Re: Portfolio Review Question(s)

Post by David Jay »

A few comments:
Maat16 wrote: Tue Sep 22, 2020 5:36 pmShould I focus on building a cash reserve in a money market fund for required minimum distribution from now or at least 4 years from now for RMD in year 2027?
I think it is too early, especially in the current low-interest-rate environment. I would recommend waiting 2 years and then turn off “reinvest interest and dividends” for each of the funds in the tIRA. This will allow dividends and interest to begin to accrue in the settlement account.
Does it make sense to have VWENX in this account and are we better off with just VTSAX and VTIAX?
I don’t have a strong opinion either way on the fund, but if you choose to keep it you should hold it in pre-tax, not in a Roth. Funds containing bonds should typically not be held in Roth when there are other available accounts.

[edit] Here is the Wiki on tax efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement
Vanguard High Yield Tax Exempt - VWAHX 37%
I presume that “Taxable” is correct (not an IRA). I would look at their to see if it still makes sense now that you are retired and in a lower tax bracket. Tax exempt funds pay less interest but are good for people in a high tax bracket because of the tax savings.

There is probably little cost to exchange the fund because bond funds pay out most of their gains as interest.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
Maat16
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Re: Portfolio Review Question(s)

Post by Maat16 »

1. You've clarified timing of cash reserve.

2. Think I will consolidate to only VTSAX and VTIAX.

3. VWAHX in taxable is correct. I believe this was selected because I was bumped up to 22% tax bracket during conversion, but will be in a lower tax bracket next year. Therefore I need to do further research.
Thanks.
-------------------------------------------------------------------
The question what is IRA taxable? I have an IRA brokerage account separate from the pretax account.

The interest rate on my mortgage is 3.5%.

The dollar percentage(s) in each account from total:
tIRA (65 years) - 84%
ROTH (65 years) - 7.5%
ROTH (69 years) - 8%
IRA Brokerage - -5%
Total - 100%

Desired asset allocation:
US Equities - 40%
International equities - 15%
Bonds US - 40% / 45%
Cash - 0% / 5% (4 years from now)

Tax bracket in 2018 was 24% and 2019 was 22%. 2020 and going forward will be 12% or whatever is the lowest based on tax regulations.

The dollar amount in the taxable account is $8,285
Last edited by Maat16 on Wed Sep 23, 2020 1:44 pm, edited 2 times in total.
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

You have not said what stock to bond ratio you want. And we don't know the relative size of the different accounts. But it appears you may have a pretty aggressive portfolio for your ages.

What do you want?

Do you know what you have

What is that IRA (taxable). Did you mean it is an IRA containing pre-tax money?
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ruralavalon
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Re: Portfolio Review Question(s)

Post by ruralavalon »

Maat16 wrote: Tue Sep 22, 2020 5:36 pm I am 65 years old and husband 69 years old. We are presently retired; living off of Social Security and one pension. Converting to ROTH whenever possible. Presently have 12 years of $120,000 mortgage balance with monthly payment of $1,045 (principal, interest, property tax and home insurance). No other debt.
What is the interest rate on your mortgage note?

How much (in dollars) is in the taxable account?

Maat16 wrote: Tue Sep 22, 2020 5:36 pmAny suggestion on my present portfolio allocation would be appreciated:

tIRA (Pretax) (65 years old)
Vanguard Total Stock Market - VTSAX 44%
Vanguard Total International Stock Market - VTIAX 12%
Vanguard Total Bond Market - VBTLX 40%
Vanguard High Dividend Yield - VYM 4%
I am not sure if I should keep VYM and if not what to do with the 4% presently allocated to VYM? I was wondering if this amount can be allocated to a money market fund (I presently have $15.00 in VUSXX) or added to VBTLX or VTIAX or any fund that makes sense in this present market environment? Should I focus on building a cash reserve in a money market fund for required minimum distribution from now or at least 4 years from now for RMD in year 2027?

ROTH IRA [5 years] (65 years old)
Vanguard Total Stock Market - VTSAX 70%
Vanguard Total International Stock Market - VTIAX 30%

ROTH IRA [3 years] (69 years old)
Vanguard Total Stock Market - VTSAX 42%
Vanguard Total International Stock Market - VTIAX 14%
Vanguard Wellington Admiral - VWENX 44%
Does it make sense to have VWENX in this account and are we better off with just VTSAX and VTIAX?

IRA (Taxable)
Vanguard Total Stock Market - VTSAX 63%
Vanguard High Yield Tax Exempt - VWAHX 37%
Presently live in Nevada and any comment on this portfolio would be appreciated. Thanks for your time.
What percentage of the total portfolio is in each account? Like this:
tIRA (Pretax) (65 years old), aa%
ROTH IRA [5 years] (65 years old), bb%
ROTH IRA [3 years] (69 years old), cc%
(Taxable), dd%
Total = 100%

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

What has your tax bracket been in retirement?

You can simply add this new information 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.

I do not suggest building a cash reserve in anticipation of Required Minimum Distributions (RMDs).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

Thank you for the update.

Let's get some terminology straight first. An ordinary account that does not have some kind of tax advantage is called a "taxable account". That is because everything you do in that kind of account might be taxable. "Taxable accounts" include both savings accounts and investment accounts that are NOT something like a Roth IRA, traditional IRA, 401k, 403b, etc. . Those are tax-advantaged accounts.

I think the 5% account might be an IRA which contains contributions that will be taxed as you take the money out. Or it could be a taxable account (not an IRA). Please let us know which it is. The fact that you are holding a tax-exempt municipal bond in there makes me think it is a taxable account, but why would you call it an IRA?

Here is what your portfolio looks like with each holding expressed as a percentage of the whole portfolio.


tIRA (Pretax) (65 years old) 84%
37% Vanguard Total Stock Market - VTSAX
10.1% Vanguard Total International Stock Market - VTIAX (12%)
33.6% Vanguard Total Bond Market - VBTLX (40%)
3.4% Vanguard High Dividend Yield - VYM (4%)


ROTH IRA [5 years] (65 years old) 7.5%
5.3% Vanguard Total Stock Market - VTSAX (70%)
2.2% Vanguard Total International Stock Market - VTIAX (30%)


ROTH IRA [3 years] (69 years old) 8%
3.4% Vanguard Total Stock Market - VTSAX 42%
1.1% Vanguard Total International Stock Market - VTIAX 14%
3.5% Vanguard Wellington Admiral - VWENX 44%. (about 2.3% stocks and 1.2% bonds)


Taxable 0.5%
.3% Vanguard Total Stock Market - VTSAX 63%
.2% Vanguard High Yield Tax Exempt - VWAHX 37% (muni bond)

The portfolio is currently 68% stock and.......well, things are not adding up to 100%. Is the thing you are calling "IRA Brokerage" supposed to be 0.5% or 5%?

Thanks for the update. Your portfolio makes sense now. I calculate it as 65% stock and 35% bonds with 20% of the stock (about 13% of the portfolio) in international stocks. This is more aggressive than what you said you wanted so you need to sell about 10 percentage points of the stocks and buy bonds with that money.
Last edited by retiredjg on Fri Sep 25, 2020 7:50 am, edited 2 times in total.
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

Maat16 wrote: Tue Sep 22, 2020 10:48 pm The dollar amount in the taxable account is $8,285
If that account is 5% of your portfolio, then your portfolio is only about $166k. Not impossible, but inconsistent with your tax bracket while working.

Is this supposed to be 0.5% of your portfolio? That would make your portfolio about $1.6 million which would be more consistent with your earlier tax bracket.
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ruralavalon
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Re: Portfolio Review Question(s)

Post by ruralavalon »

IRA Brokerage - -5%
On your monthly or quarterly account statement what is the name given for this account?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Maat16
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Joined: Sun Nov 05, 2017 2:09 pm

Re: Portfolio Review Question(s)

Post by Maat16 »

Maat16 wrote: ↑Tue Sep 22, 2020 8:48 pm
The dollar amount in the taxable account is $8,285
If that account is 5% of your portfolio, then your portfolio is only about $166k. Not impossible, but inconsistent with your tax bracket while working.

Is this supposed to be 0.5% of your portfolio? That would make your portfolio about $1.6 million which would be more consistent with your earlier tax bracket.

-----------------------------

1. The account in question is a taxable account. The name on the account says "Brokerage". [Sorry for any confusion].
2. The percentage is 0.5% of the portfolio; and
3. The total portfolio balance is approximately $1.4M. Thanks a bunch.
Topic Author
Maat16
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Re: Portfolio Review Question(s)

Post by Maat16 »

Please excuse my terminology re: type of account. My tax bracket was fortunately/unfortunately bumped up in 2018 after retiring, because I was given a payout (not a lump sum). I did not attend finance (economics or accounting) classes and hope am explaining myself clearly now. I do my own taxes in order to learn more (I hope). I made a lot of missteps over the years with this portfolio. I have gotten this far without a fee advisor and would like to focus on preservation.

Based on feedback so far and my review I would like someone to comment on my proposed revised permanent portfolio(s):
tIRA (65 year old)
35% - Vanguard Total Stock Market - VTSAX
15% - Vanguard Total International Market - VTIAX
50 % - Vanguard Total Bond Market - VBTLX
* Convert VYM - Vanguard High Dividend Yield to ROTH account OR should this be dropped completely?
**From year 1/2023 Stop reinvestment in above funds and direct to Vanguard Federal Money Market Fund - VMFXX

ROTH (65 year old)
50% - Vanguard Total Stock Market - VTSAX
25% - Vanguard Total International Market - VTIAX
[25% - Vanguard High Dividend Yield - VYM?]

ROTH (69 years)
65% - Vanguard Total Stock Market - VTSAX
35% - Vanguard Total International Market - VTIAX

Taxable Brokerage account (proposed):
40% - Vanguard Total Stock Market - VTSAX
35% - Vanguard Intermediate Term Tax Exempt - VWITX
25% - Vanguard FTSE All-World - VEU
I dollar cost average into this account right now. It is about 2 years old.

[My present emergency fund $35,000 is in a Savings Account with PenFed Credit Union currently earning .70% interest].
Thanks to my learned friends.
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

Maat16 wrote: Thu Sep 24, 2020 6:20 pm Please excuse my terminology re: type of account.
No problem. The terminology is quite confusing, but it was important to figure out just what you have.

I'll have time to look at your portfolio tomorrow. Others may get to it before that. :happy
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

Maat16 wrote: Thu Sep 24, 2020 6:20 pm Based on feedback so far and my review I would like someone to comment on my proposed revised permanent portfolio(s):
Thank you for the update. I posted updated information in blue in my earlier comment above.

Your current portfolio is about 65% stocks and 35% bonds - this is a higher stock to bond ratio that what you want.


tIRA (65 year old)
35% - Vanguard Total Stock Market - VTSAX
15% - Vanguard Total International Market - VTIAX
50 % - Vanguard Total Bond Market - VBTLX
* Convert VYM - Vanguard High Dividend Yield to ROTH account OR should this be dropped completely?
**From year 1/2023 Stop reinvestment in above funds and direct to Vanguard Federal Money Market Fund - VMFXX

ROTH (65 year old)
50% - Vanguard Total Stock Market - VTSAX
25% - Vanguard Total International Market - VTIAX
[25% - Vanguard High Dividend Yield - VYM?]

ROTH (69 years)
65% - Vanguard Total Stock Market - VTSAX
35% - Vanguard Total International Market - VTIAX

Taxable Brokerage account (proposed):
40% - Vanguard Total Stock Market - VTSAX
35% - Vanguard Intermediate Term Tax Exempt - VWITX
25% - Vanguard FTSE All-World - VEU
I dollar cost average into this account right now. It is about 2 years old.
Do you have a way to know what overall stock to bond ratio this proposal is? Is it on the target you want? Are you using a spreadsheet or just guessing at your overall ratio?

Do you understand what I did in my previous post, showing each holding as a percentage of your portfolio?

You say you are dollar cost averaging into the taxable account. Where is that money coming from? How much will be going in there? If that money is coming from the two SS and one pension income streams, that's OK. If it is coming from savings...then you sort of have a problem with how you have calculated things so far.

It makes little sense to split up 0.5% of your portfolio into 3 funds.

If you will be in the 12% bracket, you do not "need" a tax exempt bond fund in taxable. However, right now, it might be paying more than a taxable bond fund is paying. I have not checked lately.

About the High Dividend Yield stock fund (VYM) - you can keep it, you can get rid of it, you can move it....it really does not matter. This is entirely your personal preference.
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

Maat16 wrote: Thu Sep 24, 2020 6:20 pm tIRA (65 year old)
35% - Vanguard Total Stock Market - VTSAX
15% - Vanguard Total International Market - VTIAX
50 % - Vanguard Total Bond Market - VBTLX
* Convert VYM - Vanguard High Dividend Yield to ROTH account OR should this be dropped completely?
**From year 1/2023 Stop reinvestment in above funds and direct to Vanguard Federal Money Market Fund - VMFXX
What is the purpose of not reinvesting dividends/earnings in this account starting in 2023?
Topic Author
Maat16
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Re: Portfolio Review Question(s)

Post by Maat16 »

What is the purpose of not reinvesting dividends/earnings in this account starting in 2023?

To establish a cash reserve for RMD.

Is this not a good idea?
Last edited by Maat16 on Fri Sep 25, 2020 11:05 am, edited 1 time in total.
Topic Author
Maat16
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Re: Portfolio Review Question(s)

Post by Maat16 »

Do you have a way to know what overall stock to bond ratio this proposal is? Is it on the target you want? Are you using a spreadsheet or just guessing at your overall ratio?

Do you understand what I did in my previous post, showing each holding as a percentage of your portfolio?

You say you are dollar cost averaging into the taxable account. Where is that money coming from? How much will be going in there? If that money is coming from the two SS and one pension income streams, that's OK. If it is coming from savings...then you sort of have a problem with how you have calculated things so far.

It makes little sense to split up 0.5% of your portfolio into 3 funds

---

No. I do not have a way to know what overall stock to bond ratio I have other than Vanguard's website. But, whatever in the previous post you did you were very close and would be happy to learn. I dollar cost average with new money.
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

Maat16 wrote: Fri Sep 25, 2020 10:49 am What is the purpose of not reinvesting dividends/earnings in this account starting in 2023?

To establish a cash reserve for RMD.

Is this not a good idea?
I've never given this any thought and I don't recall seeing it discussed.

If you do accumulate the dividends in a money market account, that will shift your stock to bond ratio some because the money market would be considered part of the bond side of your portfolio. I don't think it would shift it a lot though, not in a few short years.

I would not do this myself, but if it suits you, I don't yet see any reason not to do it.
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

No. I do not have a way to know what overall stock to bond ratio I have other than Vanguard's website. But, whatever in the previous post you did you were very close and would be happy to learn. I dollar cost average with new money.
It is helpful to see your portfolio as one thing rather than several accounts. That way, you can see what your stock to bond ratio is for the portfolio, not each account.

To do this, you simply multiply percentages. For example,

tIRA (65 year old) is 84% of the entire portfolio and the Vanguard Total Stock Market is 35% of that account.

You multiply .35 times 84 = and find that this VTSAX holding is 29.4% of the entire portfolio.

Once you do this with each holding, it is easy to know just what the stock to bond ratio of the portfolio is.

A different approach....Add up the entire portfolio to get a total dollar amount. Then divide the dollar amount of each holding by that total. This should give you the same answer as the first approach.

Many people use a spreadsheet for this. I just find the pencil and calculator method easier and faster.

Let me know if that is enough to get you going on this.
Topic Author
Maat16
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Re: Portfolio Review Question(s)

Post by Maat16 »

I will be able to handle this with pencil and paper. Looked at the wiki article pertaining to tax efficiency and will make changes slowly where possible and rebalance. Based on the responses I received on RMD question I realized that i have many options. Best of health.
retiredjg
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Re: Portfolio Review Question(s)

Post by retiredjg »

Maat16 wrote: Thu Sep 24, 2020 6:20 pm Based on feedback so far and my review I would like someone to comment on my proposed revised permanent portfolio(s):
tIRA (65 year old)
35% - Vanguard Total Stock Market - VTSAX
15% - Vanguard Total International Market - VTIAX
50 % - Vanguard Total Bond Market - VBTLX
* Convert VYM - Vanguard High Dividend Yield to ROTH account OR should this be dropped completely?
**From year 1/2023 Stop reinvestment in above funds and direct to Vanguard Federal Money Market Fund - VMFXX

ROTH (65 year old)
50% - Vanguard Total Stock Market - VTSAX
25% - Vanguard Total International Market - VTIAX
[25% - Vanguard High Dividend Yield - VYM?]

ROTH (69 years)
65% - Vanguard Total Stock Market - VTSAX
35% - Vanguard Total International Market - VTIAX

Taxable Brokerage account (proposed):
40% - Vanguard Total Stock Market - VTSAX
35% - Vanguard Intermediate Term Tax Exempt - VWITX
25% - Vanguard FTSE All-World - VEU
I dollar cost average into this account right now. It is about 2 years old.

[My present emergency fund $35,000 is in a Savings Account with PenFed Credit Union currently earning .70% interest].
Thanks to my learned friends.
I did a quickie pencil/calculator estimation of this idea yesterday and found it remarkably close to what you said you want. :wink: It is important, though, for you to know how to do it.

Tax-efficiency pertains mostly to a taxable account. Yours is small enough (currently) that tax-efficiency does not matter. However, there is nothing in your proposal that "should" not be in a taxable account.

Your portfolio proposal is fine. Good luck!
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