Investment Review/Advice

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pipesnbytes
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Joined: Tue Mar 07, 2017 5:48 pm

Investment Review/Advice

Post by pipesnbytes » Tue Mar 07, 2017 7:58 pm

Hi,
New user here and stumbled across these forums (and Vanguard) after spending some time on reddit's personal finance section. Here's my stats:
I'm 35, own a home that my partner just moved into and have no debts other then my mortgage which has about $82k (10 years) left on a 15 year fixed rate 3.25% mortgage in NY. I'm in the 25% tax bracket, make about $90k and contribute 11% of my salary to my employers 401k. They match 50% of the first 6% and also make a variable yearly contribution of about 5.5%. My emergency fund sits at $15k earning 2.5% interest in a local checking account.

The last few months/year I've been taking a deeper look at my finances and am looking for some advice on the various investment accounts I have.

Back in July 2009 I opened a taxable account with a local CFP (the account is through CommonWealth Financial) who also handles my company's 401k. I've always said this account was the extra $$ I would have put towards my mortgage but since my rate was so low, I can get a better return in the market. I've added to it over the years and it now sits a little less then $50k. I didn't pay much/any attention to it as I didn't understand it other then knowing I wanted to invest in the market (they recommended the funds).

Around July 2015 they recommended I switch account types since it was over $25k and eligible for a different type. It was still a taxable investment account but they said it had lower fees. This new account classification came with a management fee of 1.25% whereas previously all fees were part of the fund expense fee and I never paid any management fee or commissions when I bought shares. I should mention I never sold any shares since that came with fees. I have no problem holding funds long term and my thought process is to buy and hold.

Since this new account came with a 1.25% fee, I've been taking note each time it's charged and deciding how to proceed as I don't like it. Since 2015, I meet with this CFP twice a year but don't usually make changes. We did rearrange some funds when I switched types though they made sure there was no tax consequences of doing so. The account currently has 4 holdings as follows (that they recommended):
GFAFX - 34% (.71 ER) American Funds Growth Fund of Amer F1
TEFAX - 17% (1.13 ER) Franklin Mutual Financial Services Z
HLIEX - 19% (.79 ER) JPMorgan Equity Income Select
MYIIX - 30% (1.28 ER) Mainstay International Opportunities I

Not liking the 1.25% management fee, last month I opened a taxable Vanguard investment account given the lower fee structure. I will be contributing the $400 a month I was putting towards the CommonWealth account to buy certain stocks and am debating if I should buy the same funds in my IRA (see below). Is that a good idea?

One big question that is bugging me is what to do with the Commonwealth account. I don't plan on adding to it (I'll be putting new $$ into Vanguard funds) and ideally I don't want to pay the high fees (both management and ER) anymore. The way I see it there are a few options:
1) Leave it where it sits and continue to pay the 1.25% management fee + fund expense fees
2) Transfer it to Vanguard and pay only the fund expense fees
3) Liquidate it and buy lower expense funds (probably the 3 or 4 fund portfolio concept).
4) Some other option I can't think of.
I think option 3 would be ideal but I'd be saddled with taxes on the gains which is about $14k. Part of me says option 1 is the best for the short term and wait and see if there are any tax benefits coming with the proposed Trump tax cuts. However I'm paying about ~$100/quarter for little value. I'm not interested in actively managing anything and have read about how fees eat away at long term gains.

On a side note, in 2015 I decided to open a Roth IRA with Vanguard and have been contributing the max amount. It sits at about $10k and picked some funds that have been mixed success (bonds are down) and am leaning towards changing to the 3 (or 4) fund portfolio ideology since I want my accounts as a 'set it and forget it' setup. The current funds are:
VTIVX 23% (.16 ER) Vanguard Target Retirement 2045 Inv
VTSMX 30% (.16 ER) Vanguard Total Stock Mkt Idx Inv
VDC 10% (.1 ER) Vanguard Consumer Staples ETF
BIV 9% (.09 ER) Vanguard Interm-Term Bond ETF
VGLT 8% (.07 ER) Vanguard Long-Term Government Bd ETF
VOX 8% (.1 ER) Vanguard Telecommunication Services ETF
VPU 12% (.1 ER) Vanguard Utilities ETF

Besides these accounts, I also have a 401k (about $200k value) with my employer broken down as follows:
JUEAX 20% (.94 ER) JPMorgan US Equity A
OPGIX 15% (1.19 ER) Oppenheimer Global Opportunities A
FKGRX 15% (.88 ER) Franklin Growth Fund-A
RGACX 10% (.98 ER) American Fnds Grwth Fd Of AM-R3 
OIGAX 10% (1.14 ER) Oppenheimer Internat'L Growth-A 
RIRCX 10% (.96 ER) American Funds Cap Inc Bldr-R3 
MDKFX 10% (.7 ER) MM S&P Mid Cap Index R4
RNWCX 5% (1.34 ER) American Funds New World Fund-R3 
JDMAX 5% (1.14 ER) Janus Enterprise A 

Additional fund options are:
AGDAX (.85 ER) AB High Income A
RRRAX (.98 ER) Deutsche Real Estate Securities A
COVAX (1.27 ER) Columbia Small Cap Value Fund II A
CSXAX (.54 ER) Calvert US Large Cap Core Rspnb Idx A
LCEAX (.83 ER) Invesco Diversified Dividend A
FRSTX(.88 ER) Franklin Strategic Income A
FEPTX (.77 ER) Fidelity Advisor® Total Bond T
PPCAX (1.24 ER) PNC Small Cap A
PSRAX (1.05 ER) Pioneer Strategic Income A
OMBXX (.64 ER) Oppenheimer Government Money Market Fund Class A
MSFHX (.74 ER) MFS Total Return R3
MINGX (1.01 ER) MFS International Value R3
VETAX (.99 ER) Victory Sycamore Established Value A
TPINX (.93 ER) Templeton Global Bond A
RRTMX (1.12 ER) T. Rowe Price Retirement 2015 R
RRTBX (1.16 ER) T. Rowe Price Retirement 2020 R
RRTCX (1.22 ER) T. Rowe Price Retirement 2030 R
RRTDX (1.26 ER) T. Rowe Price Retirement 2040 R
RRTFX (1.26 ER) T. Rowe Price Retirement 2050 R

The fees look about average but are there any glaring changes that might make sense?

Does anyone have any thoughts on what I can be doing better and if the taxable account should be closed, moved or nothing. The investment person I use is nice though I can't expect him to give me advice to switch to Vanguard so that's why I'm posting this.

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Duckie
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Joined: Thu Mar 08, 2007 2:55 pm

Re: Investment Review/Advice

Post by Duckie » Tue Mar 07, 2017 9:43 pm

pipesnbytes, welcome to the forum.

pipesnbytes wrote:One big question that is bugging me is what to do with the Commonwealth account. I don't plan on adding to it (I'll be putting new $$ into Vanguard funds) and ideally I don't want to pay the high fees (both management and ER) anymore. The way I see it there are a few options:
1) Leave it where it sits and continue to pay the 1.25% management fee + fund expense fees
2) Transfer it to Vanguard and pay only the fund expense fees
3) Liquidate it and buy lower expense funds (probably the 3 or 4 fund portfolio concept).
4) Some other option I can't think of.

Start with #2. Transfer the four funds "in kind" to Vanguard to avoid the 1.25% management fee. Then you can slowly do #3 when fiscally prudent. Make sure you have all the cost basis information before you transfer. And when you get to Vanguard make sure you are not automatically reinvesting anything. You don't want to buy more.

On a side note, in 2015 I decided to open a Roth IRA with Vanguard and have been contributing the max amount. It sits at about $10k and picked some funds that have been mixed success (bonds are down) and am leaning towards changing to the 3 (or 4) fund portfolio ideology since I want my accounts as a 'set it and forget it' setup. The current funds are:
VTIVX 23% (.16 ER) Vanguard Target Retirement 2045 Inv
VTSMX 30% (.16 ER) Vanguard Total Stock Mkt Idx Inv
VDC 10% (.1 ER) Vanguard Consumer Staples ETF
BIV 9% (.09 ER) Vanguard Interm-Term Bond ETF
VGLT 8% (.07 ER) Vanguard Long-Term Government Bd ETF
VOX 8% (.1 ER) Vanguard Telecommunication Services ETF
VPU 12% (.1 ER) Vanguard Utilities ETF

For $10K just use one fund, either Total Stock Market or Total International Stock. That way you can use the cheaper Admiral shares.

The fees look about average but are there any glaring changes that might make sense?

You may consider the fees "average", I consider them high. In this 401k account I'd use just:
  • CSXAX (.54 ER) Calvert US Large Cap Core Rspnb Idx A -- Large cap US stocks
  • MINGX (1.01 ER) MFS International Value R3 -- Developed international stocks
  • FEPTX (.77 ER) Fidelity Advisor® Total Bond T -- US bonds
Just some possibilities.

pipesnbytes
Posts: 5
Joined: Tue Mar 07, 2017 5:48 pm

Re: Investment Review/Advice

Post by pipesnbytes » Wed Mar 08, 2017 9:56 am

Thanks Duckie. The advice is much appreciated and am a huge NCIS fan so I love your username.

Start with #2. Transfer the four funds "in kind" to Vanguard to avoid the 1.25% management fee. Then you can slowly do #3 when fiscally prudent. Make sure you have all the cost basis information before you transfer. And when you get to Vanguard make sure you are not automatically reinvesting anything. You don't want to buy more.


How easy is it to find the cost basis info? Since the account types have already changed 1.5 years ago I feel all the info might not transfer over properly and have been reading that it's better to sell everything and buy new funds. This was one of my concerns with this option.

For $10K just use one fund, either Total Stock Market or Total International Stock. That way you can use the cheaper Admiral shares.

Silly question but does the Total Stock Market Fund (VTSMX) cover bonds to or would I be 100% in stocks. Wouldn't I want to diversify a little or is that one fund diversification enough?

You may consider the fees "average", I consider them high. In this 401k account I'd use just:
  • CSXAX (.54 ER) Calvert US Large Cap Core Rspnb Idx A -- Large cap US stocks
  • MINGX (1.01 ER) MFS International Value R3 -- Developed international stocks
  • FEPTX (.77 ER) Fidelity Advisor® Total Bond T -- US bonds

What would an acceptable breakdown be for these funds...50/40/10 (large cap/international/bonds)? I don't mind risk and don't intend to micro manage this. I'm reading Jack Bogles Common Sense on Mutual Funds and want to keep things simple. Should I be contributing more then the minimum match? I'm currently putting 11% but am no where near maxing out my yearly limit of $18k.

Thanks again.

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Duckie
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Re: Investment Review/Advice

Post by Duckie » Wed Mar 08, 2017 6:26 pm

pipesnbytes wrote:How easy is it to find the cost basis info?

You should be able to find in online at your brokerage site. The total would be "unrealized gains". But you should have been keeping track of this. Every time you buy (including reinvesting dividends) or sell something you should have gotten a confirmation. And once a month/quarter you should have a statement with all purchases and sales itemized.

Since the account types have already changed 1.5 years ago I feel all the info might not transfer over properly and have been reading that it's better to sell everything and buy new funds.

You get the information and save it with screenshots or pdfs before you close the account. Anything in the last couple of years is required by law to be tracked but earlier transactions are not.

Silly question but does the Total Stock Market Fund (VTSMX) cover bonds to or would I be 100% in stocks. Wouldn't I want to diversify a little or is that one fund diversification enough?

You consider all your retirement assets to be one portfolio. That means the 401k, the Roth IRA, and possibly some of the taxable account. Put the bonds in the 401k. Put one fund in the Roth IRA (at least for now). Put stocks in taxable.

What would an acceptable breakdown be for these funds...50/40/10 (large cap/international/bonds)?

At age 35 I recommend at least 20% bonds, so 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to 56% US stocks, 24% international stocks, and 20% bonds spread across all accounts earmarked for retirement.

Should I be contributing more then the minimum match? I'm currently putting 11% but am no where near maxing out my yearly limit of $18k.

If you can afford to contribute more to the 401k then do so.

The following is an example of a retirement portfolio with an AA of 56/24/20.

Taxable at Vanguard -- $45K -- 18%
18% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

401k -- $200K -- 78%
56% (CSXAX) Calvert U.S. Large Cap Core Responsible Index Fund Class A (0.54%)
2% (MINGX) MFS International Value Fund Class R3 (1.01%)
20% (FEPTX) Fidelity Advisor Total Bond Fund Class T (0.77%)

Roth IRA at Vanguard -- $10K -- 4%
4% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

By putting international in taxable and the Roth IRA you limit the most expensive 401k option. (You could even skip it.) Plus putting international in taxable allows you to take advantage of the Foreign tax credit.

pipesnbytes
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Re: Investment Review/Advice

Post by pipesnbytes » Fri Mar 10, 2017 5:56 pm

For the taxable account, I'm not sure if it will be for retirement. My mentality has been to use it to pay off the mortgage once it's big enough or maybe get a second house though the more I think about it the more I feel like that's a bad idea financial idea (though it could make me 100% debt free). That decision is a few years off though and in the meantime I keep contributing to it. Should it still be judged as part of the retirement allocation until I have a firmer idea of it's purpose? If so I suppose that means I would liquidate the taxable where it is, pay taxes and invest in VTIAX.

By putting international in taxable and the Roth IRA you limit the most expensive 401k option. (You could even skip it.)

What do you mean by limiting the most expensive option in the ROTH? That makes sense to put international in taxable to take advantage of the tax credit...maybe I'm just misinterpreting it.

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Duckie
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Re: Investment Review/Advice

Post by Duckie » Fri Mar 10, 2017 6:42 pm

pipesnbytes wrote:
By putting international in taxable and the Roth IRA you limit the most expensive 401k option.

What do you mean by limiting the most expensive option in the ROTH? That makes sense to put international in taxable to take advantage of the tax credit...maybe I'm just misinterpreting it.

In your 401k the international option (MINGX at 1.01%) is the most expensive of the three. By putting international in taxable and the Roth IRA you are putting very little international in the 401k, thereby severely reducing that high expense ratio to a tiny portion of your portfolio.

Dollarsign16
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Location: CA

Re: Investment Review/Advice

Post by Dollarsign16 » Fri Mar 10, 2017 7:00 pm

pipesnbytes, I would recommend dumping the advisor and moving to Vanguard. To make it easy, you can invest in the Balanced Index Admiral Shares (VBIAX), Wellington (VWELX) or a Life Strategy Fund in order to have a single fun with exposure to both equities and bonds. You won't need to worry about rebalancing and the low ERs will take the sting off of your (what I consider) horrible 401k. With 50K to invest, you would also qualify for the lower ERs in many VG funds.
Too many people spend money they earned..to buy things they don’t want..to impress people they don’t like. –Will Rogers

pipesnbytes
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Re: Investment Review/Advice

Post by pipesnbytes » Thu Oct 12, 2017 4:36 pm

It's been 7 months since my first post and thought I'd give an update.

I transferred my taxable account to Vanguard and got rid of my CFP. Going with a CFP was probably the worst financial decision I ever made and wish I knew about Vanguard and understood the market years ago. MY funds are still the same though I'm not reinvesting the dividends. A question about ER as Vanguard shows the ER on MYIIX as 3.09% but on Morningstar it shows 1.31%. Both are high but don't know why they're different.

Any advice on when I should liquidate these 4 funds (GFAFX, TEFAX, HLIEX, MYIIX) and buy less expensive funds such as VTSAX. I'm looking at approximately $15k in gains which will be a large tax bill. Are there ways to minimize this?

For my Roth IRA, I've been consolidating shares to VTSAX. The only exception is about $900 in BIV which has lost value since I bought it last year. Once that breaks even I intend to switch it to VTSAX.

I've not touched my 401k allocations yet. My YTD 401k return has been 18% and that seems pretty good even with a high ER. Come the end of the year I'll probably reevaluate and see what changes make sense.

Thanks for everyone's help. This is really a great forum and value everyone's input.

livesoft
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Re: Investment Review/Advice

Post by livesoft » Thu Oct 12, 2017 4:50 pm

pipesnbytes wrote:
Thu Oct 12, 2017 4:36 pm
For my Roth IRA, I've been consolidating shares to VTSAX. The only exception is about $900 in BIV which has lost value since I bought it last year. Once that breaks even I intend to switch it to VTSAX.
It is a shame that you are waiting for BIV to break even before switching to VTSAX in the Roth. That's a severe behavioral finance trap. You have missed out on gains for VTSAX in a Roth because of this trap you have fallen into. And all for a mere $900, so the loss must be really small, too.

I would have sold BIV and bought VTSAX right away. I would have bought a bond fund in my 401(k) to replace the BIV that used to be in my Roth. That is, sell BIV low and buy an equivalent bond fund in my 401(k) low. That would be like moving the money without worrying about a loss that wasn't really a loss anyways since you replaced the shares by buying in the 401(k).
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aristotelian
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Re: Investment Review/Advice

Post by aristotelian » Thu Oct 12, 2017 5:11 pm

livesoft wrote:
Thu Oct 12, 2017 4:50 pm
pipesnbytes wrote:
Thu Oct 12, 2017 4:36 pm
For my Roth IRA, I've been consolidating shares to VTSAX. The only exception is about $900 in BIV which has lost value since I bought it last year. Once that breaks even I intend to switch it to VTSAX.
It is a shame that you are waiting for BIV to break even before switching to VTSAX in the Roth. That's a severe behavioral finance trap. You have missed out on gains for VTSAX in a Roth because of this trap you have fallen into. And all for a mere $900, so the loss must be really small, too.

I would have sold BIV and bought VTSAX right away. I would have bought a bond fund in my 401(k) to replace the BIV that used to be in my Roth. That is, sell BIV low and buy an equivalent bond fund in my 401(k) low. That would be like moving the money without worrying about a loss that wasn't really a loss anyways since you replaced the shares by buying in the 401(k).
The whole thread reeks of behavioral traps. The whole situation started with the mental justification that some particular funds would otherwise be going to his mortgage.

OP, you have one big portfolio. Only question is what overall allocation do you want and what is the most cost effective and tax efficient way to set up the funds. Where money came from or what funds have done in the past are not relevant.

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Earl Lemongrab
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Re: Investment Review/Advice

Post by Earl Lemongrab » Thu Oct 12, 2017 5:14 pm

livesoft wrote:
Thu Oct 12, 2017 4:50 pm
It is a shame that you are waiting for BIV to break even before switching to VTSAX in the Roth.
Right. If you expect BIV to do better over the period while you wait for it to break even (what is magic about that value?) then you should expect it to keep doing better and so hold onto it forever. Remember that there is always an opportunity cost from the thing you didn't buy because you didn't sell. If you want it, keep it. If don't, sell it.
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

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