Portfolio Review

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savingforadream
Posts: 1
Joined: Tue Dec 22, 2020 7:40 pm

Portfolio Review

Post by savingforadream »

I'm trying to determine next steps - potentially using PAS or another service. Right now I'm flailing a bit. This is admittedly in part since I don't have a real plan. I lived pay check to pay check for much of my life and really have only right sized things since I have been divorced and received a modest work related windfall. Here's what I have:

Emergency funds: Three to six months of expenses although it's not necessarily earmarked as such.

Debt: No debt.

Tax Filing Status: Single (divorced, father of a 20 year old college junior and 17 year old high school junior)

Tax Rate: 35% Federal, 6 % State

State of Residence: Maryland

Age: 53

Desired Asset allocation: 75% stocks / 25% bonds. [Too aggressive?]
Desired International allocation: 20% of stocks. [Although remain unsure and open to suggestions]

Approximate total portfolio of roughly $1.3m

Taxable (47.2%)
26.7% cash: 8.3% in Money Markets at Merrill Edge (Blackrock TSTXX and TMCXX) and 18.4% in HYSAs
11.5% Vanguard Total Stock Market VTI (currently at Merrill Edge) (.03 expense ratio)
3.0% Ibonds (planning on buying another $10,000; probably split between now and May)
6.0% in 1 year CDs (4.65% and 5%)

401k (12.9%)
Company Proprietary Bond Fund 2.7% (.08% expense ratio)
Company Proprietary Large Cap Equity 1.2% (06% expense ratio)
Company Proprietary Mid Cap Equity .3% (.06% expense ratio)
Company Proprietary Small Cap Equity .2% (.07% expense ratio)
Stable Value at 2.4% 8.1%
Proprietary Balanced Fund .4%
Company match: Yes 4%

Former Company A 401k (21.6%)
JP Morgan Chase Bank Target Date Income 2035. JPMCB SR PB 2035 CF 9.3% (.16% expense ratio) (Figure I should move out of this but it's passive investments and inexpensive so been sitting on it)
Fidelity 500 FXAIX 5.0% (.02%)
Fidelity Extended Market FSMAX 3.9% (.04%)
Fidelity US Bond FSNAX 2.3% (.03%)
Fidelity International Index FSPSX 1.1% (.04%)

Former Company B (10.3%)
Vanguard Developed Market VTMGX 8.2% (.07% expense ratio)
Western Asset Core Bond Fund WATFX 2.1% (expense ratio.46%) (Need to get out of this one presumably)

Roth IRA (5.0%)
Merrill Edge 1.4 VTI (.03% expense ratio)
Betterment at 75/25% 3.6% (.4% PLUS underlying ETFs)

HSAs 2.2% (uninvested and do not plan to use until retirement (Assume should move all to Fidelity as the best option and fold into my overall asset allocation.)

Currently contribute maximum amount to 401k ($30,000)
Large Cap Equity Index Fund (Blended Return of S&P 500 Index and Bloomberg US Aggregate Bond Index). 70%
Mid Cap Equity (S&P 400 Index) 20%
Small Cap Equity Russell (2000 Index) 10%

Available 401k funds:
FIxed Income (Similar to stable value fund) Currently paying 2.6%
Bond Index Fund (Bloomberg US Aggregate Bond Index (.075% expense ratio)
Balanced Index Fund (Blended Return of S&P 500 Index and Bloomberg US Aggregate Bond Index) (.086% expense ratio)
Large Cap Equity Index Fund (S&P Index) (.066% expense ratio)
Large Cap Value Index Fund (Russell 1000 Value Index) (.089% expense ratio)
Mid Cap Equity Index Fund (S&P 400 Index) (.058% expense ratio)
Small Cap Equity fund (Russell 2000 Index) (.065% expense ratio)
Internatioal Equity Fund (MSCI ACWI ex-US index)(.442% expense ratio)
There is also a self directed option which looks to have additional fees

Questions:
My goal is to simplify by holding a three fund portfolio --Total US Stock and Total International in my Taxable Accounts and Total Bond in Tax Advantaged Accounts. I'd also like to consolidate my accounts.
1. I'm unclear of the pro-rata rule and how that may affect my taxes. I did a backdoor Roth IRA this year and last year. What are the implications of transferring my former company 401ks to an IRA?
2. I'd like to keep $100,000 at Merrill Edge for the Bank of America card bonus unless that doesn't make sense. I could transfer the former 401ks to Merrill Edge or Vanguard or Fidelity. Thoughts?
3. I have a bunch of cash but I'm somewhat concerned about dumping it into this volatile market. I've read many posts and recognize the time in market trumps timing the market. Nevertheless, I'm a bit stuck.
4. Is a 3 fund portfolio make sense here?
5. Anything catching your eye as an opportunity?

Thanks. I've been reading the forum for years and have wanted to post. This post helped me organize my information so I'm appreciative and welcome comments.
SnowBog
Posts: 4903
Joined: Fri Dec 21, 2018 10:21 pm

Re: Portfolio Review

Post by SnowBog »

Welcome to the forum!!!

Great job on your first post!

For clarity, is this a former 401k?
savingforadream wrote: Fri Mar 17, 2023 7:22 pm Former Company B (10.3%)
Vanguard Developed Market VTMGX 8.2% (.07% expense ratio)
Western Asset Core Bond Fund WATFX 2.1% (expense ratio.46%) (Need to get out of this one presumably)
And what are your annual expenses (ideally inclusive of taxes)? IMHO that's the most important piece of data, as your expenses drive what you need to save.
SnowBog
Posts: 4903
Joined: Fri Dec 21, 2018 10:21 pm

Re: Portfolio Review

Post by SnowBog »

savingforadream wrote: Fri Mar 17, 2023 7:22 pm Questions:
My goal is to simplify by holding a three fund portfolio --Total US Stock and Total International in my Taxable Accounts and Total Bond in Tax Advantaged Accounts. I'd also like to consolidate my accounts.
1. I'm unclear of the pro-rata rule and how that may affect my taxes. I did a backdoor Roth IRA this year and last year. What are the implications of transferring my former company 401ks to an IRA?
Basically, if you have a "traditional" IRA - you more-or-less "lose" your ability to do backdoor Roth's. That pro-rata rule will make the taxes outweigh the benefits...

As such, you are much better off if you can roll your "old" 401k(s) into your "current" 401k - assuming it has reasonable funds and low costs (which it seems like it did).
savingforadream wrote: Fri Mar 17, 2023 7:22 pm 2. I'd like to keep $100,000 at Merrill Edge for the Bank of America card bonus unless that doesn't make sense. I could transfer the former 401ks to Merrill Edge or Vanguard or Fidelity. Thoughts?
I'm not a fan of keeping $100k there - as presumably you mean "cash". BoA's interest rates are atrocious... ME may have some reasonable MM funds, but IMHO that's a waste...

However, if you are keeping your VTI there (that's > $100k) - that's a great option - and basically what I do as well.

I actually keep a bit more than $100k (in stock value) there, so if stocks go up/down - I remain comfortably above the $100k mark.
savingforadream wrote: Fri Mar 17, 2023 7:22 pm 3. I have a bunch of cash but I'm somewhat concerned about dumping it into this volatile market. I've read many posts and recognize the time in market trumps timing the market. Nevertheless, I'm a bit stuck.
This was going to be one of my comments - as your stated AA is 75/25, but in reality you are closer to 52/48 (before accounting for your bonds in your "target" date fund).

For what it's worth, your concerns about the "volatile market" are common. I had similar concerns when I found my way here many years ago. Some of the things that helped me are:
  • Realizing that its always volatile. Put differently, try to find the "best time to invest" in the S&P 500 by looking at its history Image. You'll notice a ton of little changes - but the primary change is markets tend to grow over time. In other words, it doesn't really matter if you buy a share at $25 or $24.50 if it falls a little bit, what's more important is that you bought the share and benefit from its growth over X years.
  • Realizing that even if you were the "world's worst market timer" - meaning you bought just before major crashes - but importantly didn't sell during the crash - you'd end up just fine: https://www.youtube.com/watch?v=pFgPNVytlwA
  • Realizing that market timing (and stock picking) is a fool's game. https://www.etf.com/docs/IfYouCan.pdf and if you need more details https://www.amazon.com/Bogleheads-Guide ... 1119487331 and
  • Realizing its ok to start small - just start and hold yourself accountable. You aren't likely going to invest that 23% "excess fixed income" into the markets overnight... You maybe should... But it's OK if you don't... Maybe you are more comfortable doing so over 3 months, 6 months, or 12 months. Pick what you are comfortable with it - and stick with it.
What you'll hopefully eventually learn is to "turn out the noise." There will always be some "financial drama". Most of them won't be as big/bad as they "sound" - most aren't going to even happen, and those that do won't even be "visible" on an historical chart. And the "big ones" - they suck - but stick with "the plan" - as it doesn't really matter if things go down today/tomorrow/next month - you aren't investing for then - you are investing for 10-30+ years from now.

You want to get yourself to where "investing is automatic - no emotions." Once you get your "excess" cash invested, as much as you can set things on autopilot going forward. If you get an unexpected $10k - you can see how your AA is doing - and invest it to whatever is the lowest. Simple decision, simple execution.
savingforadream wrote: Fri Mar 17, 2023 7:22 pm 4. Is a 3 fund portfolio make sense here?
Yes - I think the 3-fund approach makes a ton of sense. However, I'll argue that "3-fund" doesn't necessarily mean "3-fund"...

The idea isn't that you get down to exactly 3 funds. The idea is "all you need" is a mix of:
  • Total Stock Market Index
  • International Stock Index
  • Total Bond Index
It's completely OK if that ends up being 10+ funds in your portfolio. For example, you might have accounts at Merril, Fidelity, Vanguard, etc. - and maybe you can't use the "same" "Total Stock Market Index in all of them. No big deal!

So don't get hung up on "having 3 funds"...

Instead, recognize that what it really means is "investing doesn't need to be complicated".
SnowBog
Posts: 4903
Joined: Fri Dec 21, 2018 10:21 pm

Re: Portfolio Review

Post by SnowBog »

savingforadream wrote: Fri Mar 17, 2023 7:22 pm 5. Anything catching your eye as an opportunity?
Here's my thoughts:

1) "Fix" Roth
savingforadream wrote: Fri Mar 17, 2023 7:22 pm Roth IRA (5.0%)
Merrill Edge 1.4 VTI (.03% expense ratio)
Betterment at 75/25% 3.6% (.4% PLUS underlying ETFs)
Get out of Betterment - transfer those funds to your Merrill Roth, and invest 100% in VTI. Per the "3-fund" note above, investing doesn't need to be complex. And IMHO Betterment is doing nothing for you other than adding to your costs and complexity, and you don't even get a theoretical benefit of "tax loss harvesting" as this is a Roth (no harvesting possible). And if you follow https://www.bogleheads.org/wiki/Tax-eff ... _placement, your Roth should be 100% in equities (no bonds/cash) as you want to that tax-free growth!

2) Invest HSA
savingforadream wrote: Fri Mar 17, 2023 7:22 pm HSAs 2.2% (uninvested and do not plan to use until retirement (Assume should move all to Fidelity as the best option and fold into my overall asset allocation.)
Get those HSA $$ working for you!!! HSA is the best tax-advantaged account, tax-free going in, tax-free growth, and tax-free withdrawals (when used for medical expenses - even if they were years ago [keep your records!!!]).

Invest these ASAP into the closest to a "total stock market" fund you have available!

3) Consider consolidating your 401k(s)

IMHO it's much easier to work with 1 "large" 401k vs. a bunch of smaller ones... And IMHO it makes getting to - and keeping your AA and "three-fund" portfolio that much easier.

For the rest, I'm going to assume that you consolidate the 2 (??) old 401k(s) into your current 401k.

4) Determine how much "cash" you want to keep (and if you are going to "include" your "emergency fund" in that or not)

For example, let's say you want $52k (4% of $1.3M)... Your CD's alone are more than that... So, you'd want to not buy new CD's (or not as much)...

We'll deal with investing any "extra" cash later...

5) Set your AA.

A very wise man said anything between 80/20 and 20/80 "makes sense", so your 75/25 seems perfectly reasonable. Myself, I'm in my mid-40's, planning to retire in my early 50's, and we are most of the way to the $$ we need to save, so I've switched to 60/40 as that's what's "right" for us. Your AA is your AA - its highly personal - and no-one else can tell you what's right for you...

But let's assume you keep it at 75/25 as your OP noted. "Cash" is part of that 75/25 - as are I Bonds. So, using my example of $52k cash (4%) + the 3% in I Bonds but let's round up to 3.7% given your pending purchase + the 8.1% in your stable value fund in your 401k - which means you only "need" 9.2% more to hit your target of 25%...

Assuming you consolidate your 401k(s) into your current one, put 9.2% (roughly $120k) into some combination of:
  • FIxed Income (Similar to stable value fund) Currently paying 2.6%
  • Bond Index Fund (Bloomberg US Aggregate Bond Index (.075% expense ratio)
Use money coming in from the 401k consolidations and/or exchange other funds (see below) to get there.

6) With the above, you should have "enough" fixed income going forward - time to clean up some things in your tax-advantaged.

I'm assuming your "old" 401k(s) will be consolidated, and waiting to be re-invested. I'd also sell/exchange all of the following, they might be "fine" - but I favor a "well known" fund vs. a "company proprietary" offering:
savingforadream wrote: Fri Mar 17, 2023 7:22 pm 401k (12.9%)
Company Proprietary Bond Fund 2.7% (.08% expense ratio)
Company Proprietary Large Cap Equity 1.2% (06% expense ratio)
Company Proprietary Mid Cap Equity .3% (.06% expense ratio)
Company Proprietary Small Cap Equity .2% (.07% expense ratio)
Proprietary Balanced Fund .4%
In particular, if your goal is to get to 20% international, 20% international of 75% stocks is 15%. So, invest/exchange until you have 15% (roughly $195k against $1.3M) into International Equity Fund (MSCI ACWI ex-US index)(.442% expense ratio)

As an alternative, given this isn't a "great" international option, you may want to keep your "A 401k" and instead exchange things until you get Fidelity International Index FSPSX (.04%) to 15% (again around $195k). This is arguably a "better" international fund - and assuming you don't have high fees for keeping that 401k - and don't mind managing both - then go ahead and do so. If you keep the account, consider moving everything else in that account into Fidelity 500 FXAIX (.02%) - goal of keeping things simple.

At this point, you've hit your "fixed income" and "international" targets, everything else in your 401k(s) goes to "total stock market", in your 401k the best is likely Large Cap Equity Index Fund (S&P Index) (.066% expense ratio). While this isn't a "total stock market" fund - the consensus is the S&P 500 is "good enough" if you don't have a "total stock market" option.

I'm not sure its worth the extra complexity... But if you "really wanted to", you could approximate the "total stock fund" with a mix of large/mid/small as noted here: https://www.bogleheads.org/wiki/Approxi ... ock_market

7) Taxable - finally!

At this point, you should already have enough "cash" and "fixed income" between what's in your restructured 401k, I Bonds, and however much "cash" (in CD's, HYSA, MM's) you decided to keep.

The next step is to get the rest invested!

With my hypothetical assumption that you'd maintain $52k (4%) in "cash", that means you have something like 28.7% of your portfolio left in cash in taxable accounts you need to invest - or roughly $373k.

Unless you've developed nerves of steel - as I noted in my prior post, it's OK to do this slowly. But recommend you:
  • Decide when you want to be done (I'd argue no longer than 1 year - don't drag this out too long)
  • Decide how frequently you plan to invest (daily, weekly, monthly, etc.)
  • Calculate how much needs to be invested per period (for example, if you decide to do monthly investments for a year - that would be about $31k/month; if you did weekly for a year, that would be around $7k)
You'll probably want to do the first few by hand until you are comfortable...

But ASAP - schedule these! You want this to be routine and automated - no emotions - no sweating over "what if...", "I heard...", "but...".

Don't forget to keep moving money where needed for the automated investments to execute...

8) Future investments

You didn't say how much per year you plan to invest...

You mentioned $30k (max) into your 401k, presumably you max your HSA ($3,850 I think), and sounds like you did a backdoor Roth ($7,500 assuming 50+ catchup), that's $41,350 so far...

For example, let's say you invest a "total" of $50,000 per year (the rest going to taxable).
  • Again, your Roth & HSA should be 100% stocks.
  • 25% to "fixed income" would be $12,500, or roughly 42% of your $30k 401k contribution
  • 15% (20% of 75%) to "international" would be roughly $7,500, or roughly 25% of your $30k 401k contribution
  • The "rest" goes to stocks (across 401k, taxable, etc.)
Set those, and then just "tweak" them if/as needed. For example, if your fixed income is getting low - increase your fixed contributions to a higher %. If fixed is getting to high, lower the contribution %. If/as needed - you can rebalance if things get out of balance more than you can nudge them back with new contributions.

9) Figure out if you are "on-track"

As I noted in a prior post, your "expenses" are the main driver of what you'll need for retirement. With a good "rule of thumb" that you should save 25 times your estimated retirement expenses (inclusive of estimated taxes). A more accurate number would factor in any "retirement income" you'd get, such as pensions and social security.

10) Enjoy!

As mentioned in my "3-fund" comments, its not about having "3-funds" - its about "investing doesn't need to be complicated". Get the basics setup correctly, and most things can go to "auto pilot", and you can spend your time enjoying life!
SnowBog
Posts: 4903
Joined: Fri Dec 21, 2018 10:21 pm

Re: Portfolio Review

Post by SnowBog »

savingforadream wrote: Fri Mar 17, 2023 7:22 pm Desired International allocation: 20% of stocks. [Although remain unsure and open to suggestions]
One final thought...

There is no "right or wrong" answer on international stocks... You'll find people who will advocate everything from:
  • 0%
  • 10% - 20%
  • "market weight" (which I think is currently around 50%)
  • "over weight" (aka > 50%)
People like Jack Bogle argue that you don't "need" international. His example would be many of the US companies found in a "total stock market" fund are themselves fairly internationally diversified. For example, Apple (world's largest stock by market value) gets roughly 60% of its revenue from outside the US. Although he wasn't "against" owning international stock, IIRC he thought an investment of no more than 20% might make sense.

The "market weight" folks would argue that "diversification is the only free lunch in investing", and that by holding a mix that approximates the "worlds stocks" - you are well protected if the US were to diminish, suffer some sort of regional issue, or inversely another part of the world starts exceeding expectations.

Pages and pages of debate have been written on this subject... Ultimately, what makes sense and works for you is probably going to be the overriding factor...

If you care, I'm personally in the 10-20% camp... I tend to buy into Bogle's view that most of the US companies are themselves well diversified. But at the same point, I recognize that the "next Apple" might be an international company - so I want some exposure to them...

Edited to add, this post includes a video on the subject, and pages of debate. viewtopic.php?t=400140
User avatar
retiredjg
Posts: 54740
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Review

Post by retiredjg »

Welcome to the forum. :happy
savingforadream wrote: Fri Mar 17, 2023 7:22 pm Desired Asset allocation: 75% stocks / 25% bonds. [Too aggressive?]
This strikes me as too aggressive if you intend to retire in the next 10 years. I'd suggest 35% in bonds. It is time to start thinking about preserving what you have.

Desired International allocation: 20% of stocks.
Nobody knows what will be "best". Recommendations range from 0% to 50%. 20% is seen by many to be the lowest percentage to use if you do want to have international.


1. I'm unclear of the pro-rata rule and how that may affect my taxes. I did a backdoor Roth IRA this year and last year. What are the implications of transferring my former company 401ks to an IRA?
If you move those old accounts to IRA, you should stop using the backdoor Roth process. And don't move it until after the end of this year. The better choice would be to roll them all into your current 401k plan.

2. I'd like to keep $100,000 at Merrill Edge for the Bank of America card bonus unless that doesn't make sense. I could transfer the former 401ks to Merrill Edge or Vanguard or Fidelity. Thoughts?
I don't know if this is a bad idea or not. I would not do it if simplicity is your goal. I know some people chase credit card bonuses and cash back deals, but this is just not a worthwhile interest in my book.

3. I have a bunch of cash but I'm somewhat concerned about dumping it into this volatile market. I've read many posts and recognize the time in market trumps timing the market. Nevertheless, I'm a bit stuck.
Maybe with a plan, you can get unstuck. Investing in a down market means you get to buy shares cheaper. That's a good thing and makes more sense than waiting till things are "stable" and things cost more.

4. Is a 3 fund portfolio make sense here?
It certainly could make a lot of sense. I'll put together a simple suggestion assuming all old plans roll to current 401k and no $100k left for the credit card bonus.
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retiredjg
Posts: 54740
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Review

Post by retiredjg »

This is a quick suggestion of how simple your portfolio could be without paying any tax to make changes. It is about 75% stocks and 25% bonds with 20% of stocks (15% of portfolio) in international.


Taxable (47.2%)
23.2% Vanguard Total Stock Market VTI (currently at Merrill Edge) (.03 expense ratio)
15% Total International Stock Index
3.0% Ibonds (planning on buying another $10,000; probably split between now and May)
6.0% in 1 year CDs (4.65% and 5%)


401k (12.9% + 21.6 + 10.3 = 44.8% )
20% Company Proprietary Large Cap Equity (06% expense ratio)
6% Company Proprietary Mid Cap Equity (.06% expense ratio)
2.8% Company Proprietary Small Cap Equity (.07% expense ratio)
8% Stable Value at 2.4%
8% Company Proprietary Bond Fund (.08% expense ratio)

Roth IRA (5.0%)
5% 500 index (to avoid wash sales with VTI in taxable)

HSAs 2.2%
2.2% 500 index or a target fund that suits you
Outer Marker
Posts: 4528
Joined: Sun Mar 08, 2009 8:01 am

Re: Portfolio Review

Post by Outer Marker »

retiredjg wrote: Sat Mar 18, 2023 10:35 am This is a quick suggestion of how simple your portfolio could be without paying any tax to make changes. It is about 75% stocks and 25% bonds with 20% of stocks (15% of portfolio) in international.


Taxable (47.2%)
23.2% Vanguard Total Stock Market VTI (currently at Merrill Edge) (.03 expense ratio)
15% Total International Stock Index
3.0% Ibonds (planning on buying another $10,000; probably split between now and May)
6.0% in 1 year CDs (4.65% and 5%)


401k (12.9% + 21.6 + 10.3 = 44.8% )
20% Company Proprietary Large Cap Equity (06% expense ratio)
6% Company Proprietary Mid Cap Equity (.06% expense ratio)
2.8% Company Proprietary Small Cap Equity (.07% expense ratio)

8% Stable Value at 2.4%
8% Company Proprietary Bond Fund (.08% expense ratio)

Roth IRA (5.0%)
5% 500 index (to avoid wash sales with VTI in taxable)

HSAs 2.2%
2.2% 500 index or a target fund that suits you <Bond or Stable Value in case you need it>
retiredjg has given you some excellent suggestions on simplification and streamlining. I'd take it one step further and eliminate the small holdings in small and mid cap in your 401K. The diference between Total Market and the S&P is so small it can hardly been seen with the naked eye, which is essentially what you're trying to do with those completion funds. Not worth the effort in my opinion. Just roll it all up in the large cap/S&P fund. You're holding Total Market in taxable, so will capture some s/mid cap diversification in any event.

I would also use a less volatile fund in your HSA in case you need to access the funds for current medical needs. Adjust the 401K holdings accordingly to maintain your desired balance.

Finally, I think 75/25 is fine for 10 years to go to retirement with your high income and the ability to make up any shortfall. Personally, I'm 70/30 with about 5 years to go until retirement and plan to remain there forever. I'll have "enough" under almost any conceivable scenario and will leave the remainder to my kids.
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