Please Review Proposed AA (Low Cost/Tax & Long-Term)

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Shaoya
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Joined: Fri Sep 14, 2007 8:51 am

Please Review Proposed AA (Low Cost/Tax & Long-Term)

Post by Shaoya » Sun Sep 06, 2009 11:45 am

After percolating on much-appreciated Boglehead advice, I’m ready to shift out of pricier VG active funds, especially in our taxable accounts, to more tax-efficient fare.

My proposal takes a few of retiredjg & YDNAL’s suggestions. [Thank you both as well Lauren, Frank, Taylor, and SamLJ!]

In the context of our financial/life situation (right below), please review our proposed AA (given right after our current AA), and let me know what you think. [Specific questions at end.]

Investment & Finance Goals

Short & Medium
Using up to $3,000 (in today’s dollars) annually for 15 years. From this “annual activities fund,” we would like to be able to draw from our taxable funds for discrete, one time, relatively expensive “extras” like family vacations, home improvements, or child activity/school tuition.

Long (18-23years)
College for two kids, probably. A 529 Savings Plan has been started for Kid #1 - $400 added/month.
(not included in money below), but we imagine that we’ll need to add to this with monies from the taxable accounts.

Longer (30 years+)
We would like to consider retirement at 60-65.

Emergency Fund – $21K in VG Prime Money Market, 4-5 months living expenses (not included below ).

Debt
Mortgage –30 year fixed at 4.75% (refi’d May 2009)
Credit card – none
Student – 1.6% fixed @ $130 a month.
Car – none

Tax Filing Status
Married Filing Jointly – 15% Fed in 2008 (probably the same bracket in 2009?); 9% Oregon(2008)

Age
Hers – 33
His – 36
Son (DOB:5-7-08)

Stable jobs (even now, I think….I hope?) in local/state government with an annual income of ~$100K, but we don’t realistically expect this to increase dramatically (2-3 fold relative to inflation) later in our careers. Intend to stay in our current house/city indefinitely (“…’til they cart me out in a box!”)

Desired AA
Overall: 72/25/3 Stock/Bond/Cash
Stocks: 76/24 Domestic/Foreign


Current Investments ~100%

Taxable

12.0% Vanguard PRIMECAP Fund (VPMCX) (0.50)
15.4% Vanguard Windsor II (VWNFX) (0.39%)

1.4% Vanguard GNMA (VFIIX) (0.23%)
2.1% Vanguard Total Bond Mkt Index Inv (VBMFX) (0.22%)

5.90% Vanguard Explorer Fund Investor (VEXPX) (0.51%)
6.10% Vanguard Small-Cap Index (NAESX) (0.23%)
2.3% Vanguard Strategic Equity (VSEQX) (0.32%)

7.20% Vanguard Health Care Fund Inv (VGHCX) (0.33%)

15.10% Vanguard Total Int'l Stock Index (VGTSX) (0.34%)
1.2% Vanguard Global Equity (VHGEX) (0.58%)

Tax-advantaged

IRA
11.70% Vanguard Inflation-Protect Sec (VIPSX) (0.25%)

Roths (on track to max contributions in 2009)

1.9% (hers) Vanguard Total Stock Mkt Idx (VTSMX) (0.18%)
1.3% (his) Vanguard Total Stock Mkt Idx (VTSMX) (0.18%)

1.3% Vanguard Mid-Cap Growth (VMGRX) (0.61)
5.8% Vanguard Windsor II (VWNFX) (0.39%)
2.2% Vanguard 500 Index (VFINX) (0.18%)

457 Accounts (no employer match!)

2.5% The Growth Fund of America - Class R-4 (RGAEX) (0.69%) [Hers]

0.8% Short Term Fixed Option (0.11%) [His]
SSgA Government Short-Term Fund – money market.

0.9% Intermediate Bond Option (0.09%) [His]
Blended performance of the following:
BGI Debt Index
Fidelity Broad Market Duration (?)
Wellington Capital Core Bond Plus (?)

0.2% Stock Index Option (0.035%) [His]
Tracks BGI Russell 3000 Index

Total 100% (~$300K)

Annual Contributions

457 Plans (no employer match!)
$4800 The Growth Fund of America - Class R-4 (RGAEX) (100%)
$4800 split between Short Term Fixed Option (40%), Intermediate Bond Option (40%), & Stock Index Option (20%)

$10,000 to Roth IRA’s (His & Hers)

Proposed Investments

Taxable

37.8% Vanguard Total Stock Mkt Idx (VTSMX) (0.18%)
15.1% Vanguard Total Int'l Stock Index (VGTSX) (0.34%)
7.2% Vanguard Health Care Fund (VGHCX) (0.33%)

Annual Activities Fund (see “Short/Medium Goal“ above)
3.4% Vanguard Short-Term Investment-Grade Bonds (VFSIX) (0.09%)
1.7% Certificate of Deposit (CD) (Bank ???)
1.7% Vanguard Total Stock Mkt Idx (VTSMX) (0.18%)
1.7% Vanguard Prime Money Market (VMMXX) (0.28%)

Tax-Advantaged

Roth IRA

7.7% Vanguard Total Stock Mkt Idx (VTSMX) (0.18%)
2.7% Vanguard Interm-Term Investment-Grade (VFICX) (0.26%)
2.0% Vanguard FTSE All-World Except US (VFWIX) (0.40%)

IRA
11.7 % Vanguard Inflation-Protect Sec (VIPSX) (0.25%)

Her 457
5.2 % Vanguard Total Bond Market IndeX – Admiral(VBMFX) (0.10%)

His 457
1.9 % Intermediate Bond Option (0.09%)

Total 100%

Questions on New AA

• Are there particular taxable funds (like Small-Cap Index NAESX) that you’d keep or another method I should tilt?
• What would you do differently?
• Is a CD a good idea to diversify funding accessed over 15 years? If so, which CD would you currently recommend?
• Is my desired 72/25/3 Stock/Bond/Cash asset allocation appropriate for our life situation?


Thank you, in advance, for your assistance. - Shaoya

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