Advice for revised portfolio

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

Advice for revised portfolio

Post by Abbey » Wed Feb 02, 2011 10:37 pm

I've edited his 401 & 403 to include fund options. Fidelity also offers some (but not all) of their actively managed accounts. I didn't include them since we prefer indexes. I did include all the bond & balanced options.

His funds that seemed most useful are bolded - US stock index. Then we increase bonds in "hers." Correct?

Will we need a US small/mid fund?


Emergency funds = 6-12 months of expenses
Debt: None

Tax Filing Status: Married filing Jointly
Tax Rate: 33% Federal; 0% State (TX)
Age: both 55

Desired Asset allocation: (US/Intl/Bond/REIT = 40/20/35/5)
If this is wrong, we can adjust.
Current portfolio: mid-6 figures

Taxable
0.7% cash
4.0% Pimco Municipal (PMUPX) (.55)
0.6% Dodge & Cox Stock (DODGX) (.52)
3.6% Vgd Tot Intl (VTIAX) (.23)

His IRA
2.5% Bank CD @ 4.8% (matures this year)

His 401(a) at Fidelity
4.9% Mgd Inc Port II (not traded; in-house)
7.6% Cash Reserve (money mkt)
Choices here include mostly actively managed funds like Contrafund, Magellan, Blue Chip, etc.
Spartan 500 Idx (FUSEX) (.10)
Dodge & Cox Intl (DODFX) (.65)
Dodge & Cox Stk (DODGX) (.52)
These are the only bond funds available.
Fid Inter Bond (FTHRX) (.45)
Fid Invest Grd Bond (FBNDX) (.45)
Fid Inter Govt Inc (FSTGX) (.45)
Pimco Total Return (PTTRX) (.47)
Fid Freedom K Fund 200 (FFKBX) (.43)
thru
Fid Freedom K Funds 2045 (FFKGX) (.62)

His 2nd 401(k) at Fidelity
3.5% Fidelity Money Mkt (.42)
Could use:
Spartan Tot Mkt Idx (FSTMX) (.1)
Spartan Extended Mkt Idx (FSEMX) (.1)

Fid Inter Bond (FTHRX) (.45)
Fid Invest Grd Bond (FBNDX) (.45)
Fid Short Term Bond (FSHBX) (.45)
Fid Freedom 2000 (FFFBX) (.51)
thru
Fid Freedom 2050 (FFFHX) (.84)

His 1st 401(k) at Merrill Lynch
(He’s invested in every fund available.)
0.2% Alger Capital Appreciation (ACAAX) (1.32)
0.02% AllianceBernstein International (AWPAX) (1.31)
0.1% AllianzNFJ Div (PNEAX) (1.06)
0.1% Blackrock Global Alloc (MDLOX) (1.08 )
4.5% Blackrock S&P 500 Idx (MDSRX) (.61)
1.3% Columbia USA (LAUAX) (1.32)
0.3% Franklin Total Return (FKBAX) (.87)
5.8% Ivy Ltd Term Bond (WLTAX) (1.00)
2.0% Merrill Lynch Retirement Preservation (in-house)
1.9% Perkins MidCap Value (JDPAX) (1.16)

Her Roth
4.0% Vgd Energy (VGENX) (.38 )
3.4% Dodge & Cox Intl (DODFX) (.65)
7.5% Dodge & Cox Stk (DODGX) (.52)
3.3% Vgd REIT (VGSLX) (.13)

Her IRA
4.2% Vgd Tot Intl (VTIAX) (.23)
10.0% Vgd Inter Bond (VBILX) (.12)
10.2% Vgd Tot Stk (VTSAX) (.07)
11.2% Vgd Tips (VAIPX) (.12)

Her 403(b)
2.6% Vgd FTSE ex-US (VFWIX)

New annual contributions
$14500 her 403b (no match)
$6000 his IRA (back-door Roth)
$6000 her IRA or taxable

The taxable accounts are only being held till they have LT gains/losses.

Distributions from VGENX go to VGSLX. Future contributions to her 403 go to VGTSX as do distributions from VFWIX. I’m planning to move all of it to VGTSX when the holding period is complete. Everything else reinvests.

His employment is changing so we're not absolutely certain where all new money will go but the current plan:

Keep his 401s & 403. Transfer his current post-tax IRA to Roth & pay taxes on the small growth. Fund his IRA & backdoor Roth annually.

Fund her 403 to $14500.

Thank you for answering my previous questions. New questions:

1. I chose VFWIX for my 403(b) last year because Vanguard won’t allow admiral shares in 403s and this fund didn't have admiral anyway. As I understood Landy’s earlier advice, we should consider more small cap. Does converting to VFTSX help or is there a better way?

2. Part of the reason I like Tips is that they help "inflation-protect" my non-COLA pension. However, does this work for funds or only for individual tips?

Thank you again for your time & advice.
Last edited by Abbey on Wed Feb 09, 2011 5:34 pm, edited 2 times in total.
Abbey

Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: Advice for revised portfolio

Post by Default User BR » Thu Feb 03, 2011 10:38 am

Abbey wrote:1. Most likely our IRA contributions will be post-tax. Since all my IRAs are pre-tax and all his are post-tax, he should make future IRA contributions & convert to Roth immediately. I should not contribute to IRA at all unless/ until I convert current IRA to Roth (and pay taxes due). Is this correct?
You could go ahead and make non-deductible contributions, understanding that you will need to file 8606 to record the basis, then use that information when you convert at a lower tax bracket. However, I would probably go with tax-efficient funds in taxable.
Abbey wrote:2. He no longer works for the companies where he established the 401s and would like to transfer them to Vanguard. However, I think we should convert the IRA to a Roth before any 401 transfers to avoid tax issues with conversion. Is this correct?
It's more complicated than that. He has to keep those funds out of an IRA in the same year as the conversion. The calculations look at the status of all IRAs on 12/31 of the conversion year.
Abbey wrote:3. What is the best placement for his 401s since we want to continue back-door Roth conversions for him. Is it possible to keep them as 401s at Vanguard? Is that better than converting to IRAs? The 401s are all pre-tax.
You can't move qualified plans to Vanguard. Your choices are basically, leave them there, roll into an IRA, or roll into a new employer plan. The second causes problems for back-door Roth.

I'd recommend posting more information about what is available in his old plans. Right now there are a number of small holdings in expensive funds.



Brian

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Re: Advice for revised portfolio

Post by Wagnerjb » Thu Feb 03, 2011 10:41 am

Abbey wrote:My questions:
1. Most likely our IRA contributions will be post-tax. Since all my IRAs are pre-tax and all his are post-tax, he should make future IRA contributions & convert to Roth immediately. I should not contribute to IRA at all unless/ until I convert current IRA to Roth (and pay taxes due). Is this correct?

2. He no longer works for the companies where he established the 401s and would like to transfer them to Vanguard. However, I think we should convert the IRA to a Roth before any 401 transfers to avoid tax issues with conversion. Is this correct?
Yes, you are wise to wait to roll over his 401k to an IRA.

In my opinion, you have way too many funds in his 401k. You have enough assets and flexibility in her 401k and her Roth so that you can focus your assets in his 401k on the "least bad fund", likley an S&P500 fund with the lowest cost. Once you focus his 401k assets in lower cost funds, you can achieve overall portfolio balance my making adjustments in your other accounts.

Best wishes.
Andy

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

Post by Abbey » Thu Feb 03, 2011 7:50 pm

It's more complicated than that. He has to keep those funds out of an IRA in the same year as the conversion. The calculations look at the status of all IRAs on 12/31 of the conversion year.
I knew I had insufficient information and that bogleheads could help. Thanks for keeping me out of this morass.
You have enough assets and flexibility in her 401k and her Roth so that you can focus your assets in his 401k on the "least bad fund", likley an S&P500 fund with the lowest cost. Once you focus his 401k assets in lower cost funds, you can achieve overall portfolio balance my making adjustments in your other accounts.
I missed that idea completely since I've been so focused on getting out of his high fee 401s. But it makes sense in the overall picture. I'll get information and post again soon.

Thank you both for excellent advice.
Abbey

letsgobobby
Posts: 11697
Joined: Fri Sep 18, 2009 1:10 am

Post by letsgobobby » Fri Feb 04, 2011 12:56 am

First question I have is why 65/35 at age 55? Conservative/traditional advice is Age in Bonds (55%). More modern/less conservative advice is Age - 10 in Bonds (45%). You're at "Post-modern" = Age - 20 in bonds. Not necessarily wrong, especially with a pension (though we don't know the details). Just asking. What makes it even more confusing is that your current AA if you include cash in bonds/fixed income is actually 45/55. So it seems you're either way off your desired AA, in which case one has to ask how did that happen, and are you sure you can tolerate the 65/35 you want; or, you mistyped 65/35 as your desired goal.

I agree with the others - pick the least bad 401k options and build your portfolio around them. Make his 2010 and 2011 non-deductible IRA contributions (should be $12,000) and immediately convert to a Roth. Continue accessing the backdoor Roth for him as long as allowed and as long as his 401ks stay 401ks.

You have lots of tax-deferred space to make lots of changes 'for free', which is good.

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

Post by Abbey » Fri Feb 04, 2011 12:57 pm

First question I have is why 65/35 at age 55? Conservative/traditional advice is Age in Bonds (55%). More modern/less conservative advice is Age - 10 in Bonds (45%). You're at "Post-modern" = Age - 20 in bonds.
I try to avoid things I don't understand as investments. Things I've read, including Bogle, suggest that bond funds don't perform as well as individual bonds which has also made me wary of funds.

Although previous downturns didn't bother me, I realize we won't have the luxury of waiting out another. So we need a less volatile plan and I must learn about bonds.
What makes it even more confusing is that your current AA if you include cash in bonds/fixed income is actually 45/55.
We married recently. I think these choices are the administrative default. He wants me to handle retirement funds going forward. I tried to pick a happy medium between what we both had in the past to start.
Not necessarily wrong, especially with a pension (though we don't know the details).
I will have a state teacher pension in 4 years, about 50% of my salary, no COLA. Or I can take my or spousal SS in about 10 years. (If I do that I think I will get my contributions back from state.)
I agree with the others - pick the least bad 401k options and build your portfolio around them. Make his 2010 and 2011 non-deductible IRA contributions (should be $12,000) and immediately convert to a Roth. Continue accessing the backdoor Roth for him
This does seem like the smartest thing. I need to look into his 401s further. I was so unimpressed with costs & choices that my first reaction was "move to Vanguard." But backdoor Roths seem seem like very good choices for him. I don't want to make anything worse so thought I'd get advice before making any changes.

Thanks for the thoughtful responses.
Last edited by Abbey on Thu Feb 10, 2011 6:28 pm, edited 1 time in total.
Abbey

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

Re: Advice for revised portfolio

Post by YDNAL » Fri Feb 04, 2011 1:34 pm

Abbey wrote:Last year I received some good advice from Landy about asset allocation & placement. I have more questions about distributing the AA among our accounts. AA changed to reflect both our tendencies.
Abbey,

Last year you wanted a 60/40 AA, and the information (then) looks nothing like now with the inclusion of His accounts.
  1. Her accounts reflect SOME of the suggestions from last year.
    Abbey wrote:Taxable
    0.7% cash
    4.0% Pimco Municipal (PMUPX) (.55)
    0.6% Dodge & Cox Stock (DODGX) (.52)
    3.6% Vgd Tot Intl (VTIAX) (.23)

    Her Roth
    4.0% Vgd Energy (VGENX) (.38 )
    3.4% Dodge & Cox Intl (DODFX) (.65)
    7.5% Dodge & Cox Stk (DODGX) (.52)
    3.3% Vgd REIT (VGSLX) (.13)

    Her IRA
    4.2% Vgd Tot Intl (VTIAX) (.23)
    10.0% Vgd Inter Bond (VBILX) (.12)
    10.2% Vgd Tot Stk (VTSAX) (.07)
    11.2% Vgd Tips (VAIPX) (.12)

    Her 403(b)
    2.6% Vgd FTSE ex-US (VFWIX)

    New annual contributions
    $14500 her 403b (no match)
  2. Combined, I count 27 holdings in a mid 6-fig portfolio.
    His IRA
    2.5% Bank CD @ 4.8% (matures this year)

    His 401(a) at Fidelity
    4.9% Mgd Inc Port II (not traded; in-house)
    7.6% Cash Reserve (money mkt)

    His 401(k) at Fidelity
    3.5% Fidelity Money Mkt
    0.2% Alger Capital Appreciation (ACAAX) (1.32)
    0.02% AllianceBernstein International (AWPAX) (1.31)
    0.1% AllianzNFJ Div (PNEAX) (1.06)
    0.1% Blackrock Global Alloc (MDLOX) (1.08 )
    4.5% Blackrock S&P 500 Idx (MDSRX) (.61)
    1.3% Columbia USA (LAUAX) (1.32)
    0.3% Franklin Total Return (FKBAX) (.87)
    5.8% Ivy Ltd Term Bond (WLTAX) (1.00)
    2.0% Merrill Lynch Retirement Preservation (in-house)
    1.9% Perkins MidCap Value (JDPAX) (1.16)
  3. You should look at a unified portfolio. What do you intend (as a couple) to do about all those holdings? Also, you didn't include a list of options in His 401K.
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 » Wed Feb 09, 2011 5:42 pm

I edited the post with choices for his 401 & 403.

Thanks for all the help.
Abbey

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

Post by Abbey » Thu Feb 10, 2011 11:19 pm

This is my current iteration of our AA. I haven't moved all my accounts to Vanguard, but will when our plan is set.

He converted his IRA to Roth yesterday and will fund 2010-11 IRA/ convert to Roth in March.

Taxable (8.9%)
1.3% Vgd Tot Stk Idx VTSAX (.07)
4.0% Pimco Municipal (PMUPX) (.55)
3.6% Vgd Tot Intl (VTIAX) (.23)
New money: $6000 to Vanguard funds.

His Roth (2.5%)
2.5% Bank CD @ 4.8% (matures this year) then move to VBILX (Intermed Bond)
New money: $6000 (backdoor Roth) – to VBILX

His 403(b) at Fidelity (12.5%)
12.5% Spartan 500 Idx (FUSEX) (.10)

His 2nd 401(k) at Fidelity (3.5%)
3.5% Spartan Tot Mkt Idx (FSTMX) (.1)
OR Spartan Extended Mkt Idx (FSEMX) (.1)

His 1st 401(k) at Merrill Lynch (15.9%)
15.9% Blackrock S&P 500 Idx (MDSRX) (.61)

Her Roth (18.2%)
4.0% Vgd Energy (VGENX) (.38 )
8.2% Vgd Intl ex-US (VTIAX) (.23)
1.0% Vgd Tot Stk (VTSAX) (.07)
5.0% Vgd REIT (VGSLX) (.13)

Her IRA (35.6%)
15.1% Vgd Inter Bond (VBILX) (.12)
3.0% Vgd Tot Stk (VTSAX) (.07)
17.5% Vgd Tips (VAIPX) (.12)

Her 403(b) (2.6%)
2.6% Vgd FTSE ex-US (VFWIX)
New money: $14500, no match

Questions:
1. We're still underweight international. Should I move all taxable stock funds to international?

2. We plan to keep funding her 403 with international. Does this limit repositioning?

3. Is extended market better for his 2nd 401 since the others (his 403 & 1st 401) have only S&P500? (These were the best choices I saw but you can look at my edited previous post to see more options.)

Making this plan is much harder than I ever thought. Changes in jobs & funding plans made it more difficult. It helps to think I'm moving in the right direction even if I'm not there yet.

Thanks for your assistance!
Abbey

Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Post by Default User BR » Fri Feb 11, 2011 10:46 am

You don't have to sweat the details all that much. As long as you're reasonably close to your desired allocation, things are fine. You will have opportunities to adjust as time goes along.



Brian

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

Post by Abbey » Fri Feb 11, 2011 10:14 pm

As long as you're reasonably close to your desired allocation, things are fine.
Thanks for the reminder and for the information about 401 conversions. That's a mistake avoided!
Abbey

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