Complete Portfolio Redesign - Leaving EJ - Asset Allocation

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surftheweb
Posts: 1
Joined: Sun Apr 15, 2018 1:03 am

Complete Portfolio Redesign - Leaving EJ - Asset Allocation

Post by surftheweb » Sun Apr 15, 2018 1:39 am

Hello BH community, I am looking for some help to completely redesign a high six-figure total portfolio (Taxable, Roth, 401k, Cash Balance Plan, HSA) to be more aligned with the Boglehead Philosophy.

The Taxable holdings are currently with EJ (mostly high ER funds) and I am looking to get out. These will be transferred to VG once I figure out the best asset allocation plan for the entire portfolio. I’ve checked and all of the taxable funds have the option to transfer to VG in-kind and sell there if that is the best choice. I also have some cash available for investing. The total taxable holdings (EJ + cash) is about 60% of the total portfolio. These funds can be used to purchase low-cost index funds at VG as needed. New contributions will be added to the taxable account of about $13k annually.

The Roth is also at EJ. Many of these funds will not transfer to VG directly, so I am thinking to liquidate all of these at EJ and transfer to VG Roth investments. The Roth is about 3.25% of the total portfolio. The Roth will be contributed to the maximum level annually, $5.5k.

The employer 401k is currently invested in a mix of a VG TR fund (50% of 401k) and three other funds (50% of 401k). The 401k is about 27.75% of the entire portfolio. These funds can be reallocated as needed. The 401k will be contributed to the maximum level annually plus employer match, about $24.5k.

The employer also has a Cash Balance Plan that is automatically invested and cannot be changed. The interest rate of this investment is the 30-year United States Treasury bond rate, plus 1%. The Cash Balance Plan is about 9% of the total portfolio. I am thinking that this investment could contribute to the overall Bond allocation of the entire portfolio. This contribution is about $10k annually.

The employer HSA plan has investment capability after an initial minimum cash holding. I have recently been contributing the maximum level to this account and can now use the available investment options as needed as part of the portfolio allocation. I plan to use the HSA for investment and pay current medical expenses from taxable funds. The contribution level will remain at the maximum level annually, $3.45k.

I appreciate any portfolio expertise that you can provide. Based on all of the reading that I have been doing on this site, I have a general idea of what needs done to fix my portfolio. I am really interested in specific recommendations related to asset allocation across my multiple accounts and the best strategy to maintain this throughout the years. I really want to get this right as I make the switch from EJ to VG and do this on my own. Thanks!

Emergency funds: Yes
Debt: None
Tax Filing Status: Single
Tax Rate: 32% Federal, 3.3% State
State of Residence: IN
Age: 38
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 30% of stocks

Current retirement assets

Cash - (4.04% of total portfolio)
4.04% cash (for investing)

Taxable at EJ - (55.94% of total portfolio)
8.41% CAPITAL INCOME BUILDER CL A (CAIBX) (0.59)
7.22% INCOME FUND OF AMERICA CL A (AMECX) (0.56)
4.84% NEW PERSPECTIVE FUND CL A (ANWPX) (0.75)
4.50% AMERICAN MUTUAL FUND CL A (AMRMX) (0.60)
4.44% INVESCO EQUITY AND INCOME CL A (ACEIX) (0.81)
3.70% AMCAP FUND CL A (AMCPX) (0.69)
3.69% GROWTH FUND OF AMERICA CL A (AGTHX) (0.64)
3.05% INVESCO INTERMEDIATE TERM MUNICIPAL INCOME CL C (VKLCX) (1.59)
3.03% AMERICAN BALANCED FUND CL A (ABALX) (0.57)
2.67% AMERICAN FUNDS GLOBAL BALANCED FUND CL A (GBLAX) (0.86)
2.57% INVESCO DIVERSIFIED DIVIDEND CL A (LCEAX) (0.85)
2.44% INVESCO GROWTH AND INCOME CL A (ACGIX) (0.82)
2.25% INVESCO DIVIDEND INCOME CL A (IAUTX) (1.06)
1.56% BLACKROCK MULTI ASSET INCOME CL C (BCICX) (1.70)
0.82% TAX EXEMPT BOND FUND OF AMERICA CL A (AFTEX) (0.53)
0.75% INVESCO COMSTOCK CL A (ACSTX) (0.84)

Roth IRA at EJ - (3.21% of total portfolio)
0.64% AMERICAN NEW PERSPECTIVE CL F3 (FNPFX) (0.45)
0.46% AMERICAN INVESTMENT COMPANY OF AMERICA CL F3 (FFICX) (0.31)
0.37% AMERICAN BALANCED CL F3 (AFMBX) (0.29)
0.34% AMERICAN GLOBAL BALANCED CL F3 (GFBLX) (0.53)
0.26% AMERICAN AMCAP CL F3 (FMACX) (0.37)
0.26% JPMORGAN MID CAP VALUE CL L (FLMVX) (0.75)
0.26% MFS TOTAL RETURN CL R6 (MSFKX) (0.40)
0.25% INVESCO EQUITY AND INCOME CL R6 (IEIFX) (0.39)
0.17% MFS INTERNATIONAL DIVERSIFICATION FD CLASS R6 (MDIZX) (0.81)
0.15% INVESCO DIVERSIFIED DIVIDEND CL R6 (LCEFX) (0.42)
0.04% MNY MKT FUND RETIREMENT SHARES

401k - (27.73% of total portfolio)
13.91% Vanguard Target Retirement 2045 (VTIVX) (0.06)
6.84% American Funds Growth Fund (RGAGX) (0.33)
5.59% Vanguard Wellington Balanced (VWENX) (0.16)
1.39% Vanguard Int'l Value Fund (VTRIX) (0.43)

Cash Balance Plan - (8.98% of total portfolio)
8.98% balance (the interest rate is the 30-year United States Treasury bond rate, plus 1%)

HSA - (0.10% of total portfolio)
0.10% balance (no investment yet)

Contributions

New annual Contributions
$13k Taxable (for retirement)
$5.5k Roth IRA (max contribution)
$24.5k 401k (max employee and employer contributions)
$10k Cash Balance Plan (employer contribution)
$3.45k HSA (max employee and employer contributions)

Available funds

Funds available in 401(k)
JPMorgan Stable Value Fund (0.35)
Northern Trust Bond Index Fund (0.05)
PIMCO Total Return Fund (PTTRX) (0.51)
Vanguard Wellington Balanced (VWENX) (0.16)
Vanguard Target Retirement Inc (0.06)
Vanguard Target Retirement 2015 (0.06)
Vanguard Target Retirement 2020 (0.06)
Vanguard Target Retirement 2025 (0.06)
Vanguard Target Retirement 2030 (0.06)
Vanguard Target Retirement 2035 (0.06)
Vanguard Target Retirement 2040 (0.06)
Vanguard Target Retirement 2045 (0.06)
Vanguard Target Retirement 2050 (0.06)
Vanguard Target Retirement 2055 (0.06)
Vanguard Target Retirement 2060 (0.06)
NTGI S&P 500 Index Fund (0.04)
American Funds Growth Fund (RGAGX) (0.33)
Longleaf Partners Fund (LLPFX) (0.95)
Vanguard Extended Market Index (VEMPX) (0.05)
Royce Total Return Instit Fund (0.87)
NT ACWI ex-US Index Fund (0.14)
Vanguard Int'l Value Fund (VTRIX) (0.43)
Dreyfus Int'l Stock Fund (DISRX) (0.94)

Funds available in HSA
Gabelli Asset Fund (GABIX) (1.11)
Hotchkis & Wiley Value Opps (HWAIX) (0.99)
American Funds New Economy (NEFFX) (0.56)
Vanguard Total Stock Market Index (VITSX) (0.04)
American Heritage (ATHIX) (0.81)
Vanguard Mid-Cap Index (VIMAX) (0.06)
Fidelity Advisor Small Cap (FSCIX) (0.78)
PIMCO StocksPLUS Small (PSCSX) (0.74)
Vanguard Small Cap Index (VSMAX) (0.06)
Franklin Mutual Global Discovery (MDISX ) (0.99)
MFS International Value (MINIX) (0.76)
Oppenheimer Developing Markets (ODVIX) (0.88)
PIMCO International StocksPlus (PISIX) (0.81)
Vanguard Total Intl Stock Index (VTIAX) (0.11)
Calvert Short Duration Income (CDSIX) (0.53)
Goldman Sachs Short Dur Govt (GSTGX) (0.53)
Ivy High Income (IVHIX) (0.71)
PIMCO Investment Grade Corp Bond (PIGIX) (0.51)
Templeton Global Adv (TGBAX) (0.74)
Vanguard Total Bond Market Index (VBTLX) (0.05)
American Century Strat Allc: Agrsv (AAAIX) (0.96)
Ivy Asset Strategy (IVAEX) (0.85)
MFS Conservative Allocation (MACIX) (0.68)
MFS Aggressive Growth Allocation (MIAGX) (0.87)
MFS Moderate Allocation (MMAIX) (0.73)
T. Rowe Price Global Real Estate (TIRGX) (0.86)
Fidelity Instl. Money Market Govt. Portfolio (FRGXX) (0.18)

User avatar
nedsaid
Posts: 9689
Joined: Fri Nov 23, 2012 12:33 pm

Re: Complete Portfolio Redesign - Leaving EJ - Asset Allocation

Post by nedsaid » Sun Apr 15, 2018 10:55 am

surftheweb wrote:
Sun Apr 15, 2018 1:39 am
Hello BH community, I am looking for some help to completely redesign a high six-figure total portfolio (Taxable, Roth, 401k, Cash Balance Plan, HSA) to be more aligned with the Boglehead Philosophy.

Nedsaid: Thanks for posting and welcome to Bogleheads. These real life portfolios and real life financial situations are a big part of what makes this site interesting. This is a nice contribution to the forum.

Secondly, you have come to the right place. This is as good of place as any to get objective investment advice.

The Taxable holdings are currently with EJ (mostly high ER funds) and I am looking to get out. These will be transferred to VG once I figure out the best asset allocation plan for the entire portfolio. I’ve checked and all of the taxable funds have the option to transfer to VG in-kind and sell there if that is the best choice. I also have some cash available for investing. The total taxable holdings (EJ + cash) is about 60% of the total portfolio. These funds can be used to purchase low-cost index funds at VG as needed. New contributions will be added to the taxable account of about $13k annually.

Nedsaid: You are finding out I did with active funds in a taxable account. That is that you get unwanted capital gains distributions that you have to pay tax on even though the funds are reinvested. You will have dividend distributions with index funds in a taxable account, so those can't be avoided. When I realized that I got an unwanted tax bill on what amounts to phantom income, I stopped contributing to that fund. Index funds with their low turnover are very tax efficient compared to actively managed funds which are rarely managed for tax efficiency.

The Roth is also at EJ. Many of these funds will not transfer to VG directly, so I am thinking to liquidate all of these at EJ and transfer to VG Roth investments. The Roth is about 3.25% of the total portfolio. The Roth will be contributed to the maximum level annually, $5.5k.

Nedsaid: The Roth is not a problem. No tax consequence to selling your funds and moving the cash to Vanguard. You will get charged an exit fee by Edward Jones.

The employer 401k is currently invested in a mix of a VG TR fund (50% of 401k) and three other funds (50% of 401k). The 401k is about 27.75% of the entire portfolio. These funds can be reallocated as needed. The 401k will be contributed to the maximum level annually plus employer match, about $24.5k.

The employer also has a Cash Balance Plan that is automatically invested and cannot be changed. The interest rate of this investment is the 30-year United States Treasury bond rate, plus 1%. The Cash Balance Plan is about 9% of the total portfolio. I am thinking that this investment could contribute to the overall Bond allocation of the entire portfolio. This contribution is about $10k annually.

Nedsaid: Getting 4% interest in a low interest rate environment is a good deal. I agree this should be considered as part of the bond portion of your portfolio.


The employer HSA plan has investment capability after an initial minimum cash holding. I have recently been contributing the maximum level to this account and can now use the available investment options as needed as part of the portfolio allocation. I plan to use the HSA for investment and pay current medical expenses from taxable funds. The contribution level will remain at the maximum level annually, $3.45k.

Nedsaid: Excellent move. You can spend this money tax free for medical care in retirement. This is a very underrated savings account for retirement. A CPA husband of one of my former co-workers recommended maximizing contributions to these type of accounts as one approaches retirement. Brilliant advice, he was the only person I was aware of giving this advice.

I appreciate any portfolio expertise that you can provide. Based on all of the reading that I have been doing on this site, I have a general idea of what needs done to fix my portfolio. I am really interested in specific recommendations related to asset allocation across my multiple accounts and the best strategy to maintain this throughout the years. I really want to get this right as I make the switch from EJ to VG and do this on my own. Thanks!

Nedsaid: Seeing that you have substantial taxable and tax-deferred accounts, read the Wiki article concerning tax efficient placement of assets in different types of accounts. For example, TIPS and REITs are not tax efficient and should be placed in tax deferred accounts. You can buy I-Bonds at Treasury Direct at a rate of $10,000 a year, these have similarities to TIPS and are tax deferred instruments. There is a slight tax drag to International Stocks as foreign taxes are paid out of dividends, you can claim the Foreign Tax Credit for International Stocks held in taxable accounts. Stocks are good in taxable accounts because capital gains (when you sell) and qualified dividends are taxed at favorable capital gains tax rates. Thus, you can make taxable accounts stock heavy and your tax-deferred accounts more bond heavy. I do think you should have a good helping of stocks in your tax-deferred retirement accounts, otherwise you doom yourself to low returns in those accounts.

Emergency funds: Yes
Debt: None
Tax Filing Status: Single
Tax Rate: 32% Federal, 3.3% State
State of Residence: IN
Age: 38
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 30% of stocks

Nedsaid: I am not going to get hung up on trying to recommend individual funds. What I will say is that I like your asset allocation very much. 80/20 is a good mix for somebody approaching 40. 30% of stocks in International is pretty close to the "sweet spot" of diversification between US and International. This is an excellent allocation and I would counsel you to keep your eye on the big picture as you select your funds.

Current retirement assets

Cash - (4.04% of total portfolio)
4.04% cash (for investing)

Taxable at EJ - (55.94% of total portfolio)
8.41% CAPITAL INCOME BUILDER CL A (CAIBX) (0.59)
7.22% INCOME FUND OF AMERICA CL A (AMECX) (0.56)
4.84% NEW PERSPECTIVE FUND CL A (ANWPX) (0.75)
4.50% AMERICAN MUTUAL FUND CL A (AMRMX) (0.60)
4.44% INVESCO EQUITY AND INCOME CL A (ACEIX) (0.81)
3.70% AMCAP FUND CL A (AMCPX) (0.69)
3.69% GROWTH FUND OF AMERICA CL A (AGTHX) (0.64)
3.05% INVESCO INTERMEDIATE TERM MUNICIPAL INCOME CL C (VKLCX) (1.59)
3.03% AMERICAN BALANCED FUND CL A (ABALX) (0.57)
2.67% AMERICAN FUNDS GLOBAL BALANCED FUND CL A (GBLAX) (0.86)
2.57% INVESCO DIVERSIFIED DIVIDEND CL A (LCEAX) (0.85)
2.44% INVESCO GROWTH AND INCOME CL A (ACGIX) (0.82)
2.25% INVESCO DIVIDEND INCOME CL A (IAUTX) (1.06)
1.56% BLACKROCK MULTI ASSET INCOME CL C (BCICX) (1.70)
0.82% TAX EXEMPT BOND FUND OF AMERICA CL A (AFTEX) (0.53)
0.75% INVESCO COMSTOCK CL A (ACSTX) (0.84)

Nedsaid: The saving grace here is that the American Funds are a good fund group. They have lower expenses and lower turnover than other active fund groups, but they still are less tax efficient than index funds. Make certain that you have the tax basis of these funds, which will include the purchase price and reinvested capital gains and dividends. Also be aware of the different methods of calculating gains when selling shares: Last in, first out; first in, first out; specific share identification; and average cost. It will really help if you have kept your statements. If you don't have those statements, get back statements before you tell your advisor you are moving your accounts. Get schooled in the tax consequences of selling these funds before you do anything. You don't want a nasty surprise of a larger tax bill than expected.


Roth IRA at EJ - (3.21% of total portfolio)
0.64% AMERICAN NEW PERSPECTIVE CL F3 (FNPFX) (0.45)
0.46% AMERICAN INVESTMENT COMPANY OF AMERICA CL F3 (FFICX) (0.31)
0.37% AMERICAN BALANCED CL F3 (AFMBX) (0.29)
0.34% AMERICAN GLOBAL BALANCED CL F3 (GFBLX) (0.53)
0.26% AMERICAN AMCAP CL F3 (FMACX) (0.37)
0.26% JPMORGAN MID CAP VALUE CL L (FLMVX) (0.75)
0.26% MFS TOTAL RETURN CL R6 (MSFKX) (0.40)
0.25% INVESCO EQUITY AND INCOME CL R6 (IEIFX) (0.39)
0.17% MFS INTERNATIONAL DIVERSIFICATION FD CLASS R6 (MDIZX) (0.81)
0.15% INVESCO DIVERSIFIED DIVIDEND CL R6 (LCEFX) (0.42)
0.04% MNY MKT FUND RETIREMENT SHARES

401k - (27.73% of total portfolio)
13.91% Vanguard Target Retirement 2045 (VTIVX) (0.06)
6.84% American Funds Growth Fund (RGAGX) (0.33)
5.59% Vanguard Wellington Balanced (VWENX) (0.16)
1.39% Vanguard Int'l Value Fund (VTRIX) (0.43)

Nedsaid: Here is a question. The Vanguard Target Retirement 2045 is meant as an all-inclusive retirement fund, where everything you need is in one fund. Why are you mixing the 2045 fund with other funds in your 401(k)? These are all good funds. I recommend that you use the Morningstar Portfolio X-Ray to see what you really own in this combination of funds.

Cash Balance Plan - (8.98% of total portfolio)
8.98% balance (the interest rate is the 30-year United States Treasury bond rate, plus 1%)

HSA - (0.10% of total portfolio)
0.10% balance (no investment yet)

Contributions

New annual Contributions
$13k Taxable (for retirement)
$5.5k Roth IRA (max contribution)
$24.5k 401k (max employee and employer contributions)
$10k Cash Balance Plan (employer contribution)
$3.45k HSA (max employee and employer contributions)

Available funds

Funds available in 401(k)
JPMorgan Stable Value Fund (0.35)
Northern Trust Bond Index Fund (0.05)
PIMCO Total Return Fund (PTTRX) (0.51)
Vanguard Wellington Balanced (VWENX) (0.16)
Vanguard Target Retirement Inc (0.06)
Vanguard Target Retirement 2015 (0.06)
Vanguard Target Retirement 2020 (0.06)
Vanguard Target Retirement 2025 (0.06)
Vanguard Target Retirement 2030 (0.06)
Vanguard Target Retirement 2035 (0.06)
Vanguard Target Retirement 2040 (0.06)
Vanguard Target Retirement 2045 (0.06)
Vanguard Target Retirement 2050 (0.06)
Vanguard Target Retirement 2055 (0.06)
Vanguard Target Retirement 2060 (0.06)
NTGI S&P 500 Index Fund (0.04)
American Funds Growth Fund (RGAGX) (0.33)
Longleaf Partners Fund (LLPFX) (0.95)
Vanguard Extended Market Index (VEMPX) (0.05)
Royce Total Return Instit Fund (0.87)
NT ACWI ex-US Index Fund (0.14)
Vanguard Int'l Value Fund (VTRIX) (0.43)
Dreyfus Int'l Stock Fund (DISRX) (0.94)

Funds available in HSA
Gabelli Asset Fund (GABIX) (1.11)
Hotchkis & Wiley Value Opps (HWAIX) (0.99)
American Funds New Economy (NEFFX) (0.56)
Vanguard Total Stock Market Index (VITSX) (0.04)
American Heritage (ATHIX) (0.81)
Vanguard Mid-Cap Index (VIMAX) (0.06)
Fidelity Advisor Small Cap (FSCIX) (0.78)
PIMCO StocksPLUS Small (PSCSX) (0.74)
Vanguard Small Cap Index (VSMAX) (0.06)
Franklin Mutual Global Discovery (MDISX ) (0.99)
MFS International Value (MINIX) (0.76)
Oppenheimer Developing Markets (ODVIX) (0.88)
PIMCO International StocksPlus (PISIX) (0.81)
Vanguard Total Intl Stock Index (VTIAX) (0.11)
Calvert Short Duration Income (CDSIX) (0.53)
Goldman Sachs Short Dur Govt (GSTGX) (0.53)
Ivy High Income (IVHIX) (0.71)
PIMCO Investment Grade Corp Bond (PIGIX) (0.51)
Templeton Global Adv (TGBAX) (0.74)
Vanguard Total Bond Market Index (VBTLX) (0.05)
American Century Strat Allc: Agrsv (AAAIX) (0.96)
Ivy Asset Strategy (IVAEX) (0.85)
MFS Conservative Allocation (MACIX) (0.68)
MFS Aggressive Growth Allocation (MIAGX) (0.87)
MFS Moderate Allocation (MMAIX) (0.73)
T. Rowe Price Global Real Estate (TIRGX) (0.86)
Fidelity Instl. Money Market Govt. Portfolio (FRGXX) (0.18)
A fool and his money are good for business.

User avatar
Duckie
Posts: 5708
Joined: Thu Mar 08, 2007 2:55 pm

Re: Complete Portfolio Redesign - Leaving EJ - Asset Allocation

Post by Duckie » Sun Apr 15, 2018 4:42 pm

surftheweb wrote:Taxable at EJ - (55.94% of total portfolio)
Ouch, that's a lot of expensive funds. Many of them are decent, but they're costly. Before moving "in kind" make sure you have all the cost basis for each fund. When you do finally sell them you don't want to be begging EJ for the basis information. In checking, Vanguard can take all of these funds. You can't buy more of the American Funds but you can transfer them.
Roth IRA at EJ - (3.21% of total portfolio)
Find out the cost to sell at EJ and at Vanguard. Sell wherever it's cheaper. In checking, Vanguard cannot take MSFKX, IEIFX, MDIZX, and LCEFX.
Funds available in 401(k)
The best options are:
  • NTGI S&P 500 Index Fund (0.04) -- Large caps, 80% of US stocks
  • Vanguard Extended Market Index (VEMPX) (0.05) -- Mid/small caps, 20% of US stocks
  • NT ACWI ex-US Index Fund (0.14) -- Almost complete international stocks
  • Northern Trust Bond Index Fund (0.05) -- US bonds
  • JPMorgan Stable Value Fund (0.35) -- Depending on current interest rate
Funds available in HSA
The best options are:
  • Vanguard Total Stock Market Index (VITSX) (0.04) -- Complete US stocks
  • Vanguard Total Intl Stock Index (VTIAX) (0.11) -- Complete international stocks
  • Vanguard Total Bond Market Index (VBTLX) (0.05) -- US bonds

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