Portfolio balancing - what is your best move?

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Brainvest
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Joined: Fri Sep 15, 2017 2:15 pm

Portfolio balancing - what is your best move?

Post by Brainvest » Thu Oct 05, 2017 2:02 pm

I would like to request your advice with rebalancing and adding to my portfolio
This is current status:

401k VFORX Vanguard Institutional Target Retirement 2040 ER 0.10% $72,783.38 17%
401k VINIX Vanguard Institutional Index Fund ER 0.02% $91,276.27 22%
401k VEMPX Vanguard Extended Market Index Fund Institutional Plus Shares ER 0.16% $52,757.23 12%
401k VTPSX Vanguard Total Intl Stock Index - Institutional Plus ER 0.07% $87,371.45 20%
403B TCOIX T-C Lifecycle 2040-Inst ER 0.44% $25,719.37 6%
401A TCOIX T-C Lifecycle 2040-Inst ER 0.44% $32,841.75 8%
Roth VTSAX Vanguard Total Stock Mkt Idx ER 0.15% $5,500 1%
Pension Cash balance $58,913.57 14%
Total:427K

Questions:
1- Should I consider the cash balance when rebalancing as equivalent to bonds or totally apart from the stock/bond ratio?
2- I have only 2% bonds total (from the VFORX) - What do you think about switching VFORX for Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) - this way I reduce redundancies, add security in case of stock decline, and get close to the desired 20-30% bond ratio
3- How about In Roth account change VTSAX for Vanguard REIT Index Fund Investor Shares (VGSIX) to add diversification
4- I cannot change 403B and 401A
5- I have about 100k ready for investing in TAXABLE account - what do you think about adding to the portfolio:
- Vanguard Total Stock Mkt Idx Adm VTSAX 40%
- Vanguard Total International Stock Index Fund Admiral Shares - VTIAX 30%
- Munis 30 % - Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX) 15% & Vanguard Pennsylvania Long-Term Tax-Exempt Fund Investor Shares (VPAIX) 15%

I very much appreciate your feedback and advice
Best wishes

Jack FFR1846
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Re: Portfolio balancing - what is your best move?

Post by Jack FFR1846 » Thu Oct 05, 2017 2:07 pm

My first question would be: Is that $100k your emergency fund? Or do you have a separate emergency fund beyond this? If this is it, put it into CDs and/or high yield savings. Not the market.
Bogle: Smart Beta is stupid

Brainvest
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Re: Portfolio balancing - what is your best move?

Post by Brainvest » Thu Oct 05, 2017 4:31 pm

No - I have additional 60K for emergency fund on savings account with decent yield
Thanks

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Duckie
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Re: Portfolio balancing - what is your best move?

Post by Duckie » Thu Oct 05, 2017 4:56 pm

Brainvest wrote:Should I consider the cash balance when rebalancing as equivalent to bonds or totally apart from the stock/bond ratio?
Do not consider the pension for AA purposes. It's an asset but not part of the retirement portfolio.
I have only 2% bonds total (from the VFORX) - What do you think about switching VFORX for Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) - this way I reduce redundancies, add security in case of stock decline, and get close to the desired 20-30% bond ratio
Yes, drop VFORX and add VBTIX.
How about In Roth account change VTSAX for Vanguard REIT Index Fund Investor Shares (VGSIX) to add diversification
REITs are already in VTSAX at the market weight. Do you want to overweight them?
I cannot change 403B and 401A
Do you mean everyone at that job has to have TCOIX?
I have about 100k ready for investing in TAXABLE account - what do you think about adding to the portfolio:
- Vanguard Total Stock Mkt Idx Adm VTSAX 40%
- Vanguard Total International Stock Index Fund Admiral Shares - VTIAX 30%
- Munis 30 % - Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX) 15% & Vanguard Pennsylvania Long-Term Tax-Exempt Fund Investor Shares (VPAIX) 15%
I see no reason to put bonds here. Put your entire bond AA (ignoring the small amount of bonds in TCOIX) in your 401k.

Brainvest
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Re: Portfolio balancing - what is your best move?

Post by Brainvest » Thu Oct 05, 2017 9:40 pm

Thanks Duckie, your answers are very helpful
I was thinking on adding some tax exempt bonds to the Taxable so I can "protect" stocks and rebalance in case of stock underperformance/crash
Does it make any sense? I would not know how to rebalance the stocks in the taxable account other than by adding new funds
Thanks!

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Duckie
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Re: Portfolio balancing - what is your best move?

Post by Duckie » Fri Oct 06, 2017 4:52 pm

Brainvest wrote:I was thinking on adding some tax exempt bonds to the Taxable so I can "protect" stocks and rebalance in case of stock underperformance/crash
Does it make any sense?
You consider your entire portfolio when figuring your AA, not each account separately. If you need more bonds in the portfolio increase VBTIX in the 401k. If you need fewer bonds reduce VBTIX in the 401k. Do your selling in tax-sheltered accounts, not taxable.
I would not know how to rebalance the stocks in the taxable account other than by adding new funds
In taxable you set the dividends to go to a money market or settlement fund instead of being automatically reinvested. That way you can funnel the money to the specific fund you want to invest in (unless you want/need to spend the dividends on something else).

The following example has an AA of 70% stocks, 30% bonds, with 30% of stocks in international. That breaks down to 49% US stocks, 21% international stocks, and 30% bonds. You could have:

Taxable at Vanguard -- $100K -- 21%
21% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

401k -- $304K -- 65%
14% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.02%)
4% (VEMPX) Vanguard Extended Market Index Fund Institutional Plus Shares (0.16%)
17% (VTPSX) Vanguard Total International Stock Index Fund Institutional Plus Shares (0.07%)
30% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.04%)

403b -- $26K -- 6%
6% (TCOIX) TIAA-CREF Lifecycle 2040 Fund Institutional Class (0.44%)

401a -- $33K -- 7%
7% (TCOIX) TIAA-CREF Lifecycle 2040 Fund Institutional Class (0.44%)

Roth IRA at Vanguard -- $5.5K -- 1%
1% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.15%)

My comments/questions:
  • This puts all the bonds in the 401k (ignoring the ~2% [13% x 14%] in TCOIX).
  • This puts most of the international in the 401k (except for about 4% [13% x 28%] in TCOIX). At 0.07% this is cheaper than 0.11% and slightly reduces the VINIX/VEMPX rebalancing hassle.
  • Having TCOIX makes things more complicated. Its current AA is roughly 58% US stocks, 28% international stocks, and 14% bonds/cash. Are you sure you can't use a different fund in those accounts?
  • In the 401k I used the expense ratios you listed but I'm not sure they're correct.
  • Skip REITs in the Roth IRA until you get $10K in there. It can wait until next year for the cheaper Admiral class shares.
Something to think about.

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Peter Foley
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Re: Portfolio balancing - what is your best move?

Post by Peter Foley » Fri Oct 06, 2017 5:29 pm

In my opinion the most significant change you could make is the one you suggest - swap target retirement for a bond fund. This is a simplification and gives you a more mainstream AA.

Brainvest
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Re: Portfolio balancing - what is your best move?

Post by Brainvest » Sat Oct 07, 2017 10:03 am

Duckie,
Thanks again for your advice
I like very much your example for the AA
As you suggested, I find out there are many other choices for the 401a and 403b
There are multiple choices for passive (and active managed) funds from Vanguard, including:
Vanguard Developed Markets Index Fund Institutional Shares;
Vanguard Dividend Appreciation Index Fund Admiral
Vanguard Emerging Markets Stock Index Fund Institutional
Vanguard European Stock Index Fund Institutional
Vanguard Extended Market Index Fund Institutional
Vanguard FTSE All-World ex-US Index Admiral
Vanguard FTSE All-World ex-US Small-Cap Index Fund Investor
Vanguard FTSE Social Index Fund Investor
Vanguard Growth Index Institutional
Vanguard High Dividend Yield Index Fund Investor
Vanguard Institutional Index Fund Institutional
Vanguard Large-Cap Index Fund Admiral
Vanguard Mid-Cap Growth Index Admiral
Vanguard Mid-Cap Index Fund Institutional
Vanguard Mid-Cap Value Index Fund Admiral
Vanguard Pacific Stock Index Fund Admiral
Vanguard REIT Index Fund Institutional
Vanguard Small-Cap Growth Index Fund Institutional
Vanguard Small-Cap Index Fund Institutional
Vanguard Small-Cap Value Index Fund Institutional
Vanguard Total International Stock Index Fund Institutional
Vanguard Total Stock Market Index Fund Institutional
Vanguard Total World Stock Index Investor

What would you recommend for these accounts that represent 6% and 7% of the portfolio
Does it make sense to diversify international stocks if you already have Total International
Would you add REITs here?
Thanks a lot!

livesoft
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Re: Portfolio balancing - what is your best move?

Post by livesoft » Sat Oct 07, 2017 10:32 am

With all those Vanguard equity funds available I am surprised that you didn't list a bond fund. I'd make those 2 small tax-deferred accounts 100% a low-expense-ratio, passively-managed bond fund. Then you would not have to make any transactions in them except contributions. They would be in "set-and-forget" mode.

So Duckie's idea to use one single fund in the smaller accounts is something I actually do. Then I take them into account (<- pun!) when I use the one big account (the 401(k)) for rebalancing.
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dbr
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Re: Portfolio balancing - what is your best move?

Post by dbr » Sat Oct 07, 2017 10:47 am

That cash balance pension may indeed be a cash asset if you intend to recover it as cash at a point in time. That is different from a pension that is in fact an annuity, but an annuity is not quoted to have a cash balance.

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Duckie
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Re: Portfolio balancing - what is your best move?

Post by Duckie » Sat Oct 07, 2017 6:16 pm

Brainvest wrote:What would you recommend for these accounts that represent 6% and 7% of the portfolio
Does it make sense to diversify international stocks if you already have Total International
Would you add REITs here?
You have some great choices. I would use either Total Stock Market in both accounts, Total Bond Market in both accounts (assuming it's an option), or REIT in one account and either Total Stock or Total Bond in the other account.

Are you adding to these accounts thru payroll or are they from a former job?

I would probably go with the following:

Taxable at Vanguard -- $100K -- 21%
21% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

401k -- $304K -- 65%
11% (VINIX) Vanguard Institutional Index Fund Institutional Shares (0.02%)
3% (VEMPX) Vanguard Extended Market Index Fund Institutional Plus Shares (0.16%)
21% (VTPSX) Vanguard Total International Stock Index Fund Institutional Plus Shares (0.07%)
30% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.04%)

403b -- $26K -- 6%
6% (VGSNX) Vanguard REIT Index Fund Institutional Shares (0.10%)

401a -- $33K -- 7%
7% (VITSX) Vanguard Total Stock Market Index Fund Institutional Shares (0.035%)

Roth IRA at Vanguard -- $5.5K -- 1%
1% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.15%)

My reasons are:
  • By putting REITs (which you want) in the 403b you get the cheaper institutional class shares now instead of the slightly more expensive admiral class shares next year.
  • All accounts but one have only one fund so you'll use the 401k for all the rebalancing.

Brainvest
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Re: Portfolio balancing - what is your best move?

Post by Brainvest » Mon Oct 09, 2017 2:04 pm

Thanks so much again for your recommendations

Yes I am adding to the 401a and 403b thru payroll (this is my University payroll, which is way smaller than the Medical Center payroll than funds the 401k)

I am a physician and surgeon that has been misleaded until very recently by insurance salesman/financial advisors, and has decided for a DIY approach
In spite of reading several great books and multiple posts, I still need some help and your advice is very appreciated

The reason behind adding REITs (5%) is adding diversification as recommended by some experts
I am fine with a moderately aggressive portfolio with 25-30% bonds and the rest in stocks

Best

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