Take Two: Need Advice on the next 30 years

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Topic Author
stroopwafel
Posts: 27
Joined: Thu Oct 19, 2017 5:08 pm

Take Two: Need Advice on the next 30 years

Post by stroopwafel »

Okay, so last time I posted, I actually was offered a new job just days after I posted, and this really threw a wrench in everything. Now, I am ready to level set, so I'd appreciate it if you guys give me some guidance because I really DO NOT want to hire a Financial Advisor -- this stuff is not rocket science but it does confuse me at times. Please see below:

Emergency funds: $10K

Debt: $0
Tax Filing Status: Single
Tax Rate: 25% Federal, 0% State

State of Residence: WA

Age: 27


Desired Asset Allocation: 90% Stocks, 10% Bonds (would like to bring it down to 80:20 or 70:30 if I can make it happen per below)
Desired Int'l Equity Allocation: 25%

Taxable:
Vanguard Total Bond Market Index Fund Admiral Shares - $36K (ER: .05%)
Vanguard Total International Stock Index Fund Admiral Shares - $23K (ER: .11%)
Vanguard Total Stock Market Index Fund Admiral Shares - $72K (ER: .04%)

'Roth IRA:
Vanguard Total Bond Market Index Fund Admiral Shares - $10K (ER: .05%)
Vanguard Total International Stock Index Fund Investor Shares - $5.5K (ER: .18%)
Vanguard Total Stock Market Index Fund Admiral Shares - $10K (ER: .04%)

401K (Old Employer)
Vanguard Target Retirement Fund 2050 - $100K (ER: .08%)
-$80K is Pre-tax 401K, $20K is Roth 401K

401K (New Employer) Fund Choices
I have pinned this down to these choices I am comfortable with:
Target Retirement 2050 Trust Plus (ER .06%)
Vanguard Institutional Total Bond Market Index Trust (ER: .038%)
Vanguard Institutional Total International Stock Market Index Trust (ER .068%)


I am getting thoroughly confused because I keep reading that you need to look at your entire portfolio when determining your allocation, and I am also reading about Tax Efficient Fund Placement. So my plan was as follows:

My Tentative Plan Pending Feedback
1) Move the Pre-Tax 401k $80K into my New Employer's Vanguard Total International Stock Market Index AND Total Bond Market Index because I read it is good to have bonds in tax efficient vehicles.

2) Move the Roth 401K $20K into my Roth IRA and purchase Total Stock Market Admiral

3) Change my Taxable Investments and Roth a IRA investments to Total Stock Market Admiral

Future State #1 would be:
Taxable:
Vanguard Total Stock Market Index Fund Admiral Shares - $132K (ER: .04%)

'Roth IRA:
Vanguard Total Stock Market Index Fund Admiral Shares - $45.5K (ER: .04%)

401K (New Employer)
Vanguard Institutional Total Bond Market Index Trust - $30K (ER: .038%)
Vanguard Institutional Total International Stock Market Index Trust - $50K (ER .068%)

Future State #2 would be:
Taxable:
Vanguard Total Stock Market Index Fund Admiral Shares - $82K (ER: .04%)
Vanguard Total International Stock Index Fund Admiral Shares - $50K (ER: .11%)

'Roth IRA:
Vanguard Total Stock Market Index Fund Admiral Shares - $45.5K (ER: .04%)

401K (New Employer)
Vanguard Institutional Total Bond Market Index Trust - $80K (ER: .038%)


Future State 1 puts me at 90:10, with bonds in a Tax Efficient vehicle, and low expense ratios across the board. Future State 2 puts me at 70:30 which I am ALSO okay with, and my bonds are in a Tax Efficient vehicle, but I also get the foreign tax credit deal by keeping Int'l stocks in taxable. Other relevant info: I am in a position where I can max out my 401k, max out my Roth IRA, and then have some (not sure how much yet) leftover for Taxable -- at least $10K a year

1) What do you guys think overall?
2) I read on the Bogleheads wiki that there is a Foreign Tax Credit that I won't get because my Int'l stock is in the 401K -- is the low expense ratio enough to offset the lack of gain from the Foreign Tax Credit? I.e. Scenario 1 vs Scenario 2 pros weighted against each other -- Is this getting way to meticulous? I can't cover every angle here.

Help me out fellas, I'm losing my mind looking at this stuff.
Last edited by stroopwafel on Mon Dec 11, 2017 11:16 pm, edited 2 times in total.
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Tyler Aspect
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Re: Take Two: Need Advice on the next 30 years

Post by Tyler Aspect »

Can you post your new 401k's offering of US stock indexes?

You mentioned the usual recommendation that international stock allocation should be in the taxable account. That allows the foreign tax credit to be declared in 1040 tax form.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.
Topic Author
stroopwafel
Posts: 27
Joined: Thu Oct 19, 2017 5:08 pm

Re: Take Two: Need Advice on the next 30 years

Post by stroopwafel »

Tyler Aspect wrote: Mon Dec 11, 2017 10:39 pm Can you post your new 401k's offering of US stock indexes?

You mentioned the usual recommendation that international stock allocation should be in the taxable account. That allows the foreign tax credit to be declared in 1040 tax form.
Yes, see below:
DOMESTIC STOCK FUNDS

American Beacon Small Cap Value R6 ER .82%

SS Rus La Ca Gro Ind NL C .04%

SS Russell LgCapVal NL .04%

Vanguard Explorer Fund Admiral .34%

Vanguard FTSE Social Index Inst .12%

Vanguard Instl 500 Index Trust .02%


I don't feel comfortable with these because I'm highly unfamiliar and I want to follow the 3 fund portfolio to the T, not necessarily mirror it by adding more and more funds. But I am all ears!

Edit: you got me thinking. I could go all bonds in my 401K. I am okay with that -- 80K in my 401K in pure bonds would force my allocation to 70:30 which again I am totally OKAY with. I'm fine in the range of 70:30 to 90:10
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Tyler Aspect
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Re: Take Two: Need Advice on the next 30 years

Post by Tyler Aspect »

Thanks for supplying the US stock index information for the new 401k program. The S&P 500 index is similar to the US total stock market index, and therefore close enough for inclusion.

If you need to take a tax loss in the taxable TSM fund, do it on Feb 10, May 10, Aug 10, or Nov 10. This avoids the potential of a wash sale from your Roth IRA TSM dividend reinvestment.

Sample portfolio:
Taxable:
Vanguard Total Stock Market Index Fund Admiral Shares - $72K (ER: .04%)
Vanguard Total International Stock Market - $60k

'Roth IRA:
Vanguard Total Stock Market Index Fund Admiral Shares - $45.5K (ER: .04%)

401K (New Employer)
Vanguard Institutional Total Bond Market Index Trust - $50K (ER: .038%)
Vanguard Institutional 500 Index Trust - $40K (ER .02%)
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.
Topic Author
stroopwafel
Posts: 27
Joined: Thu Oct 19, 2017 5:08 pm

Re: Take Two: Need Advice on the next 30 years

Post by stroopwafel »

Tyler Aspect wrote: Mon Dec 11, 2017 11:07 pm Thanks for supplying the US stock index information for the new 401k program. The S&P 500 index is similar to the US total stock market index, and therefore close enough for inclusion.

If you need to take a tax loss in the taxable TSM fund, do it on Feb 10, May 10, Aug 10, or Nov 10. This avoids the potential of a wash sale from your Roth IRA TSM dividend reinvestment.

Sample portfolio:
Taxable:
Vanguard Total Stock Market Index Fund Admiral Shares - $72K (ER: .04%)
Vanguard Total International Stock Market - $60k

'Roth IRA:
Vanguard Total Stock Market Index Fund Admiral Shares - $45.5K (ER: .04%)

401K (New Employer)
Vanguard Institutional Total Bond Market Index Trust - $50K (ER: .038%)
Vanguard Institutional 500 Index Trust - $40K (ER .02%)
Hey man, I'm not sure I really understand the first two paragraphs of your post. That is beyond my expertise -- could you break that one down a little?

Also, I like your breakdown -- you mind taking a look at my original post giving me your thoughts on Scenario 2? it's along the same lines that you just posted, except pure bonds in the 401K.
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Tyler Aspect
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Re: Take Two: Need Advice on the next 30 years

Post by Tyler Aspect »

I calculated that $50k of bond would give you a 80% stock / 20% bond portfolio. If you would want a 70% stock / 30% bond portfolio it would be fine as well. 70% stock / 30% bond would give you a bit less return, but more stability.

The rules on wash sales are a bit complicated. If you are selling a fund for a loss, then you should not purchase that same fund elsewhere within 30 days of the date of sale. You can modify your fund line-up to remove the possibility of wash sales, which I have done below.

Sample portfolio:
Taxable:
Vanguard Total Stock Market Index Fund Admiral Shares - $72K (ER: .04%)
Vanguard Total International Stock Market - $60k

'Roth IRA:
Vanguard 500 Index Admiral Shares - $45.5K

401K (New Employer)
Vanguard Institutional Total Bond Market Index Trust - $50K (ER: .038%)
Vanguard Institutional 500 Index Trust - $40K (ER .02%)
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.
Topic Author
stroopwafel
Posts: 27
Joined: Thu Oct 19, 2017 5:08 pm

Re: Take Two: Need Advice on the next 30 years

Post by stroopwafel »

Tyler Aspect wrote: Mon Dec 11, 2017 11:25 pm I calculated that $50k of bond would give you a 80% stock / 20% bond portfolio. If you would want a 70% stock / 30% bond portfolio it would be fine as well. 70% stock / 30% bond would give you a bit less return, but more stability.

The rules on wash sales are a bit complicated. If you are selling a fund for a loss, then you should not purchase that same fund elsewhere within 30 days of the date of sale. You can modify your fund line-up to remove the possibility of wash sales, which I have done below.

Sample portfolio:
Taxable:
Vanguard Total Stock Market Index Fund Admiral Shares - $72K (ER: .04%)
Vanguard Total International Stock Market - $60k

'Roth IRA:
Vanguard 500 Index Admiral Shares - $45.5K

401K (New Employer)
Vanguard Institutional Total Bond Market Index Trust - $50K (ER: .038%)
Vanguard Institutional 500 Index Trust - $40K (ER .02%)
Appreciate you walking me through this. I bolded the part that concerns me. Am I going to get slammed with some tax implications? All my investments are up YTD -- I'm not sure I would be selling any at a loss, so if I execute on any of these scenarios, are you saying that i have to consider tax implications as well?
Topic Author
stroopwafel
Posts: 27
Joined: Thu Oct 19, 2017 5:08 pm

Re: Take Two: Need Advice on the next 30 years

Post by stroopwafel »

Just wanted to bump this one along in case anybody has any additional insight.
WhiteMaxima
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Re: Take Two: Need Advice on the next 30 years

Post by WhiteMaxima »

Vanguard target fund 2017+30. Done.
Topic Author
stroopwafel
Posts: 27
Joined: Thu Oct 19, 2017 5:08 pm

Re: Take Two: Need Advice on the next 30 years

Post by stroopwafel »

WhiteMaxima wrote: Tue Dec 12, 2017 6:50 pm Vanguard target fund 2017+30. Done.
Honestly, this is what I ended up doing. So much simpler, and I can purchase bonds in the 401K as time progresses....thank you.
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