Help with streamlining investment in 401K/Roth IRA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
sdsu04
Posts: 15
Joined: Sun Nov 19, 2017 11:53 pm

Help with streamlining investment in 401K/Roth IRA

Post by sdsu04 » Tue Feb 13, 2018 12:21 am

Hello BH,

Basic Info:
I am 34 and my spouse is 36. We live in CA and have a 3 year old. Gross total income ~$300K (salary, have bonus and stock separately which is variable). We need help with reviewing our portfolio and need feedback on what we should change. Have 6 months emergency fund in cash.We max out both our 401Ks and HSA. In addition we put in another 30K in mega backdoor roth. We expect the mega back door roth option to go away in 2018 due to change in employer). Presently don't have any 529s. Have a mortgage with 3% 30 year fixed with ~25% paid off.

AA goal: 90% stocks and 10% bonds. In the stock portfolio 30% in international and rest in US.

Total Portfolio in tax deferred accounts: ~ 650K
Total Portfolio in taxable accounts: ~ 300K


Her 401K:
100%: VANGUARD TARGET RETIREMENT TRUST SELECT 2045 0.06%

Other options available include:
VANGUARD DEVELOPED MRKTS INSTL VTMNX 0.05%
VANGUARD EMPLOYEE BENEFIT INDX VEBCT
VANGUARD EXPLORER FUND VEXRX 0.34%
VANGUARD EXTENDED MARKET INDEX VEMPX 0.05%
VANGUARD PRIMECAP CORE FUND VPCCX 0.46%

Her Roth IRA:
35% PROSHARES TRUST PROSHARES LARGE CAP CORE PLUS CSM 0.45%
14% ISHARES TRUST MSCI INDIA INDEX FD INDA 0.68%
9% SPDR SER TR S&P DIVID ETF SDY 0.35%
13% VANGUARD FTSE DEVELOPED MARKET ETF VEA 0.07%
29% VANGUARD INDEX FDS FORMERLY VANGUARD INDEX TR TO 05/24/2001 VOO 0.04%

His 401K:
87% VANGUARD TARGET 2050 Collective Investment Trust 0.06%
13% FID OTC K FOCKX 0.70%

Other options available include
FID CONTRAFUND K (FCNKX) 0.58%
VANG INST 500 IDX TR 0.014%
VANG WINDSOR II ADM (VWNAX) 0.25%
VANG MD CP IDX IS PL (VMCPX) 0.04%
FIDELITY GOVT INCOME (FGOVX) 0.45%

His Roth IRA:
17% PROSHARES TRUST PROSHARES LARGE CAP CORE PLUS CSM 0.45%
18% ISHARES RUSSELL 1000 VALUE ETF IWD 0.20%
16% ISHARES TR CORE MSCI TOTAL IXUS 0.11%
14% SPDR SER TR S&P DIVID ETF SDY 0.35%
4% VANGUARD SECTOR INDEX FDS VANGUARD HEALTH CARE VIPERS VHT 0.10%
17% VANGUARD INDEX FDS FORMERLY VANGUARD INDEX TR TO 05/24/2001 VOO 0.04%
7% VANGUARD INTL EQUITY INDEX FUND INC FTSE EMERGING MARKETS ET VWO 0.14%
5% VANGUARD WHITEHALL FDS HIGH DIVIDEND YIELD ETF SHS VYM 0.08%
3% SELECT SECTOR SPDR TR ENERGY XLE 0.13%

HSA Account:
100% Vanguard Total Stock Market 0.04 VITSX Institutional

Other investment options in HSA
Vanguard S&P 500 0.04 VFIAX Admiral
Vanguard Mid-Cap 0.05 VMCIX Institutional
Vanguard Extended Market 0.06 VIEIX Institutional
Vanguard Small Cap 0.05 VSCIX

Taxable account:
27% WISDOMTREE TR EMERGING MKTS DGS 0.63%
13% FIDELITY INTL ENHANCED INDEX FUND FIENX 0.59%
11% ISHARES TRUST CORE MSCI EAFE ETF IEFA 0.08%
26% ISHARES INC CORE MSCI EMERGING MKTS ETF IEMG 0.14%
12% ISHARES INC MSCI GERMANY ETF EWG 0.49%
11% GLOBAL X FDS GLOBAL X CHINA TECHNOLOGY ETF QQQC 0.65%
In addition to the above taxable investments we have ~$250K in individual stocks (realize its not a smart idea)


Questions:
1. Any changes you would recommend wrt the 401K fund investments given the other options I have listed?

2. We have invested in too many Roth IRA funds over time. How do we simplify this?

3. We have no 529 plans as there is a possibility of relocating to a different country in the next 5 years. I believe this should rule out investments in 529? The possibility is low though. In this scenario, how do we plan for college savings?

4. After maxing out tax advantaged accounts, does it make more sense to put the reminder of the money in taxable investments or pay down mortgage? Presently we are not paying down mortgage.

5. We don't plan on retiring until we are 60 and hence the AA 90/10. Any comments on the AA?

6. We have no life insurance. How does one go about getting a term life policy (any suggested websites/companies)?

7. What changes do you recommend to the investments in the taxable account? Specifically how should I start to liquidate individual shares and where to invest the money. The individual shares have both winners and losers. Some are short term gains and some are long term.

8. Any comment son tax efficiency of the investment choices? Are there investments that are better suited in taxable vs Roth (and vice versa) that you see listed above?

Thanks for your feedback!
Last edited by sdsu04 on Tue Feb 13, 2018 2:47 pm, edited 1 time in total.

gostars
Posts: 135
Joined: Mon Oct 09, 2017 7:53 pm

Re: Help with streamlining investment in 401K/Roth IRA

Post by gostars » Tue Feb 13, 2018 1:21 am

Does either 401k have a decent bond fund? I'd have a preference of holding a bond fund in tax-deferred, if you've got something acceptable. It doesn't have to be Vanguard, just something that is an aggregate/total bond market fund at a decent ER, or at least worth paying a slightly above reasonable ER (e.g. PTTRX).

I would simplify the Roths back to total US stock market funds (VTI/ITOT/SCHB).

I wouldn't rush to pay off a mortgage at 3%.

90/10 might be a touch aggressive on a 25 year timeframe. I'd be more comfortable at 80/20, but whatever lets you sleep at night.

I would look to get out of the more expensive international funds in taxable if possible without taking a big tax hit. IEFA and IEMG are fine, but DGS, EWG, and QQQC are expensive, and FIENX is expensive and kicks out capital gains. Look to total international funds like VXUS and IXUS since they're inexpensive, pretty good at tax efficiency, and offer broader exposure. In terms of individual stocks, sell the losers and use your losses to offset capital gains on other things you're selling.

sdsu04
Posts: 15
Joined: Sun Nov 19, 2017 11:53 pm

Re: Help with streamlining investment in 401K/Roth IRA

Post by sdsu04 » Tue Feb 13, 2018 9:08 am

Thanks! We have access to VBLTX I can use that for rebalancing into bonds. We also have access to brokerage link in our 401K, any small/mid cap funds you recommend?

Also, should I get out of FOCKX in the 401K?

gostars
Posts: 135
Joined: Mon Oct 09, 2017 7:53 pm

Re: Help with streamlining investment in 401K/Roth IRA

Post by gostars » Tue Feb 13, 2018 11:43 pm

What percentages of the total are in each account? Can you fit your full desired bond allocation in Her 401k (guessing that's where VBTLX is)? If there's any extra left, you could hold VEMPX, and then switch His 401k to the S&P 500 fund. 20% VEMPX and 80% S&P 500 is effectively total stock market. If you don't have enough space in the 401k to meet that ratio, you could also hold it in ETF form as VXF in a Roth.

I would get out of FOCKX.

sdsu04
Posts: 15
Joined: Sun Nov 19, 2017 11:53 pm

Re: Help with streamlining investment in 401K/Roth IRA

Post by sdsu04 » Thu Feb 15, 2018 9:07 am

Is there a reason for the target date fund being a bad idea? The 2045 fund has the right mix of us, foreign stocks and bonds to closely match my AA. Would it make sense to put 100% in it in both the 401k? Then Ivan follow the 3 fund portfolio in the Roth. Any issues with that approach?

gostars
Posts: 135
Joined: Mon Oct 09, 2017 7:53 pm

Re: Help with streamlining investment in 401K/Roth IRA

Post by gostars » Thu Feb 15, 2018 10:55 pm

Target date funds are fine, they can just make it harder to calculate the percentages needed elsewhere to maintain your target AA. That's especially true when you've got money in taxable where you wouldn't want target date or bond funds. It also means that to balance stock funds that you have in taxable, you need to hold bond funds in your Roth. Ideally, you want your Roth to have the most possible growth since you never have to pay taxes on it. Bonds won't give you that. The way I would do it:
  1. Figure out how much you need in bonds, and hold that in tax-deferred space (401k). Once you completely run out of tax-deferred space for bonds, either hold an aggregate bond fund in Roth, or a municipal bond fund in taxable
  2. Figure out how much you need in international, and hold that in taxable. If you don't have enough taxable, put the rest wherever you have room for it.
  3. Total stock market fills the rest. If you're using a 401k that doesn't have a TSM fund, hold S&P 500 instead, and hold extended market somewhere else to balance.
You're still holding mostly the same funds either way, just distributed differently.

sdsu04
Posts: 15
Joined: Sun Nov 19, 2017 11:53 pm

Re: Help with streamlining investment in 401K/Roth IRA

Post by sdsu04 » Sun Feb 18, 2018 11:21 am

Thanks for the inputs. I also have access to brokerage account in our 401K. Does it make sense to totally ignore the defaul choices and use the brokerage account to invest in the 3 fund portfolio?

gostars
Posts: 135
Joined: Mon Oct 09, 2017 7:53 pm

Re: Help with streamlining investment in 401K/Roth IRA

Post by gostars » Sun Feb 18, 2018 6:30 pm

That depends on what the complete list of funds you have available is. Your 401k might have funds that are as good as or better than what you can get from the brokerage. That .014% S&P 500 fund is cheaper than anything you're going to get at a brokerage, as are the target date funds. Do you have a good aggregate bond/total bond market fund available? Does it cost money to use the brokerage link? Some plans include it at no extra charge, but some want another $50 a year or something like that, which probably isn't worth the cost.

Post Reply