Portfolio advice & fund placement questions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Abbey
Posts: 33
Joined: Wed Feb 24, 2010 4:18 am
Location: Texas

Portfolio advice & fund placement questions

Post by Abbey » Sat May 29, 2010 11:48 pm

I would like some advice and opinions about my portfolio placement. I've saved/invested for years and have reached the point where it is hard to re-balance with new money only.

Recently married. We will keep our original assets separate so this is my portfolio only. When I get mine straight, I'll work on DH and finally our joint (future) assets. I realize we'll have overlapping funds. Please accept my apologies for the extra trouble this causes anyone kind enough to offer advice.

I have no debt.
Future tax bracket 33% federal, 0% state (TX).
Married, filing jointly.
Both mid-50's.

Emergency funds = 18 months (I have some upcoming expenses.)
I will have a non-COLA pension when I retire in 5 years (estimate 48% of small salary)
Total funds mid 6-figures.

Desired asset allocation
10% Cash
60% Stocks (55/5% US/International)
30% Bonds

Current asset placement
% Account Expense Ratio

Taxable Accounts
4% Dodge & Cox Stock (DODGX) .52%
2% Individual Stocks & Stock Options
5% Cash (1-yr laddered CDs)
Roth
8% Vanguard Energy Index(VGENX) .27%
5% Dodge & Cox Int'l Stock (DODFX) .65%
12% Dodge & Cox Stock (DODGX) .52%
2% Vanguard REIT Index (VGSIX) .26%
1% Vanguard Money Mkt
IRA
23% AmCapA (AMCPX) .78%
16% Dodge & Cox Stock (DODGX) .52%
18% Vanguard TIPS Index (VIPSX) .25%
403(b)
3% Vanguard REIT Index (VGSIX) .26%
1% ING Money Mkt (Choices are really bad expense ratios >2% so I hold cash.)

New annual contributions
$6000 to IRA. I have questions here. I've always maxed my Roth but will no longer be able to contribute. I thought about putting it in IRA and then converting but all other IRA money is pre-tax. Seems like a big tax bite for unknown benefit.

$4000 to taxable accounts.

Thoughts
1. I would like to replace AmCap (AMCPX) with Vanguard Total Stock Market (VTSMX).
2. Amount in Roth Vanguard Money Market is only waiting till I have funds arranged. I don't want to do this twice or pay for early withdrawals.
3. I like Dodge & Cox even though they are way down. I would move some.
4. I don't mind selling things but have no need for tax loss harvesting as I understand it. (We have a backlog.)
5. I may change jobs and the 403(b) ING Money Market would be movable.

Questions
1. Much higher tax bracket with this marriage. What should I consider going forward?
2. How do I arrange this for minimum number of funds, ease of re-balancing & maximum tax advantage?

Thanks. Abbey
Last edited by Abbey on Sun May 30, 2010 6:04 am, edited 1 time in total.

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Portfolio advice & fund placement questions

Post by YDNAL » Sun May 30, 2010 2:19 am

Abbey wrote:I have no debt.
Future tax bracket 33% federal, 0% state (TX).
Married, filing jointly.
Both mid-50's.

Emergency funds = 18 months (I have some upcoming expenses.)
I will have a non-COLA pension when I retire in 5 years (estimate 48% of small salary)
Total funds mid 6-figures.

Desired asset allocation
10% Cash
60% Stocks (5% International) <- do you mean 55/5 or 5% of 60% = 3%?
30% Bonds

Thoughts
1. I would like to replace AmCap (AMCPX) with Vanguard Total Stock Market (VTSMX).
2. Amount in Roth Vanguard Money Market is only waiting till I have funds arranged. I don't want to do this twice or pay for early withdrawals.
3. I like Dodge & Cox even though they are way down. I would move some.
4. I don't mind selling things but have no need for tax loss harvesting as I understand it. (We have a backlog.)
5. I may change jobs and the 403(b) ING Money Market would be movable.

Questions
1. Much higher tax bracket with this marriage. What should I consider going forward?
2. How do I arrange this for minimum number of funds, ease of re-balancing & maximum tax advantage?
Abbey, welcome to the Forum.

It is a typically a mistake to ignore other assets and have separate AAs. There is risk of duplication, unnecessary use of expensive funds, and lack diversification with options in one portfolio when better options are available using a unified portfolio.

Also, either 5% or 3% International is not worth the effort. You should either minimally hold ~25% of Equities, or consider nothing.

Taxable Accounts
6% Total Stock Market (VTSMX)
5% FTSE ex US Small (VFSVX)
no need for cash (CDs) in Taxable, especially at the higher tax bracket.
New money: $4000

Roth
18% Total Stock (VTSMX)
10% FTSE ex US Large (VFWIX)
New Money: $6000 (note: if your IRA is pre-tax, the IRS will prorate conversion)
Roth IRA (and conversion)

IRA
9% CDs
18% Intermediate Bond (VBIIX)
12% Vanguard TIPS Index (VIPSX) .25%
18% Total Stock Market (VTSMX)

403(b)
3% Vanguard REIT Index (VGSIX) .26%
1% ING Money Mkt (Choices are really bad expense ratios >2% so I hold cash.)
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

Abbey
Posts: 33
Joined: Wed Feb 24, 2010 4:18 am
Location: Texas

Post by Abbey » Sun May 30, 2010 6:03 am

Landy,
Thanks for the reply. I agree with you about separate AAs but can't think of a better way. Since in the final disposition these assets will go to someone else, I'd hate to have all the equities or vice-versa. It seemed more prudent to duplicate the overall AA with each group. I'd be interested in hearing how others in this situation handle assets.

Do I really need 25% international if I have large cap US? AmCap, Dodge & Cox and TSM are weighted that way. Aren't most large caps multinationals or am I "blissfully ignorant"?
Taxable Accounts
6% Total Stock Market (VTSMX)
5% FTSE ex US Small (VFSVX)
no need for cash (CDs) in Taxable, especially at the higher tax bracket.
New money: $4000
I was afraid the CDs would not be suitable in a higher tax bracket. Currently have EF and cash mixed - 2 months income in passbook savings, most of the rest in laddered CDs. Do I shorten the CD ladder for the EF (perhaps a 6-month ladder) or use something else?

You're suggesting FTSE ex US Small (VFSVX) here because fewer dividends / more LT cap gains / lower tax bill that All World ex US?
Roth
18% Total Stock (VTSMX)
10% FTSE ex US Large (VFWIX)
New Money: $6000 (note: if your IRA is pre-tax, the IRS will prorate conversion)
Roth seemed a good choice for a low-tax-rate head of household but conversion doesn't seem too smart at the new rate. Our combined incomes are too high for a deductible IRA, much less contributing to a Roth. There may be a 403(b) without a match if I change jobs. Don't have details yet so I don't know the fees. Is a deductible 403(b) better than a non-deductible IRA assuming reasonable fees and funds? And if I don't add to the Roth, should I change the location of these funds to the IRA?
IRA
9% CDs
18% Intermediate Bond (VBIIX)
12% Vanguard TIPS Index (VIPSX) .25%
18% Total Stock Market (VTSMX)
Why Intermediate Bond (VBIIX) rather than TBM?

Again, thanks for your advice. I've read many of your posts to new Bogleheads and appreciate the time you're taking to share your expertise with me.

Abbey

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Portfolio advice & fund placement questions

Post by YDNAL » Sun May 30, 2010 7:50 am

Abbey wrote:Landy,
Thanks for the reply. I agree with you about separate AAs but can't think of a better way. Since in the final disposition these assets will go to someone else, I'd hate to have all the equities or vice-versa. It seemed more prudent to duplicate the overall AA with each group. I'd be interested in hearing how others in this situation handle assets.

Do I really need 25% international if I have large cap US? AmCap, Dodge & Cox and TSM are weighted that way. Aren't most large caps multinationals or am I "blissfully ignorant"?
Abbey,

Think about it. If you have a 60% allocation to Equities, and assume all Large Caps (not the case since I suggested some Small Foreign):
1) Wouldn't you rather allocate some of your capital to Bank of America and Barclays?
2) How about to some Large company in Canada, another in China, another in Australia, another.....

This is one essential premise in diversification. In fact, personally I believe in holding closer to market weights (40/60 US/Foreign)... but that's neither here or there, as far as your portfolio.
Abbey wrote:I was afraid the CDs would not be suitable in a higher tax bracket. Currently have EF and cash mixed - 2 months income in passbook savings, most of the rest in laddered CDs. Do I shorten the CD ladder for the EF (perhaps a 6-month ladder) or use something else?
No, don't use Cash in Taxable. Since you want 10% Cash, I left it in the IRA (9%) and 403b (1%) and you can hold whatever mix of Cash Equivalents (CDs, MM) makes you feel comfortable.
Abbey wrote:You're suggesting FTSE ex US Small (VFSVX) here because fewer dividends / more LT cap gains / lower tax bill that All World ex US?
No, I suggested VFSVX because of additional diversification in line with what I discussed in your first question. This asset class (Foreign Small) should be nearly as tax-efficient as Foreign Large.
Abbey wrote:Why Intermediate Bond (VBIIX) rather than TBM?
I prefer VBIIX to eliminate mortgage-backed Bonds. This index only holds about 50/50 Treasuries/Corporates. You also hold TIPS and Cash.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

Abbey
Posts: 33
Joined: Wed Feb 24, 2010 4:18 am
Location: Texas

Post by Abbey » Sun May 30, 2010 11:36 pm

I spent part of the day looking on M* and Vanguard at the funds you suggested and some others. Here's my current iteration.

Taxable Accounts
6% Total Stock Market (VTSMX) (.18 )
5% FTSE ex-US Stock Idx (VFWIX) (.40) or Tax Managed Int'l (VTMGX) (.20)
no cash (CDs) in Taxable
New money: $4000

Roth
13% Total Stock Market (VTSMX) (.18 )
10% FTSE ex-US Int'l Idx(VFWIX) (.40)
5% Energy Stock Idx (VGENX) (.38 )

IRA
9% CDs
15% Intermediate Bond (VBIIX) (.24)
15% Vanguard TIPS Index (VIPSX) (.25)
15% Total Stock Market (VTSMX) (.18 )
2% REIT (VGSIX) (.26)
New Money: $6000.

403(b)
3% Vanguard REIT Index (VGSIX) (.26)
1% ING Money Mkt (Other choices have very high expenses & no match.)

I took FTSE ex-US Small out because it had purchase and redemption fees without regard to holding period. Also I don't understand international that well and would rather hold larger companies overseas. And the Tax-Managed fund appears to be a better choice in a taxable account. Am I missing something?

I'm comfortable with REIT & Energy; have held them for a while. REITs usually have low correlation with stock. I understand energy. Perhaps not the best reasons to keep them but there it is. OTOH the international funds have lots of major oils in their top holdings.

Ran M* X-ray and very similar to previous suggestions. A bit more large cap.
Comments and suggestions?

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Portfolio advice & fund placement questions

Post by YDNAL » Mon May 31, 2010 12:04 am

Abbey wrote:I spent part of the day looking on M* and Vanguard at the funds you suggested and some others. Here's my current iteration.....
Abbey,

Good. I will make comments below.
Abbey wrote:I took FTSE ex-US Small out because it had purchase and redemption fees without regard to holding period. Also I don't understand international that well and would rather hold larger companies overseas. And the Tax-Managed fund appears to be a better choice in a taxable account. Am I missing something?

I'm comfortable with REIT & Energy; have held them for a while. REITs usually have low correlation with stock. I understand energy. Perhaps not the best reasons to keep them but there it is. OTOH the international funds have lots of major oils in their top holdings.

Ran M* X-ray and very similar to previous suggestions. A bit more large cap.
Comments and suggestions?
FYI... the FTSE Small is a newer asset class at Vanguard and it has purchase/redemption fees until it gets more assets. The FTSE Large did similarly and dropped the fees and Expense Ratio after a while. Currently, the only fee is 2% if held < 2 months to discourage frequent trading. At Vanguard, those fees go to the fund for the benefit of all share holders.

The issue with TM International is a 5-year holding period (1% fee otherwise) and this fund is strictly Large Developed (Europe/Pacific) - excludes Emerging Markets (huge) and Canada and not as diversified.

I had left REITs in the 403b as diversifier. The beauty of Total Market funds, however, is that they hold all Sectors of the market at market weight. If you want to *overweight* any other sector (Energy in this instance), that would be a matter of personal preference.

Good luck.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

Post Reply