What should I do with my taxable account?

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jenig0013
Posts: 20
Joined: Sat Aug 02, 2014 10:52 pm
Location: Central Florida

What should I do with my taxable account?

Post by jenig0013 » Sun Jul 08, 2018 10:28 pm

Thanks for the feedback to change to the template for asking portfolio questions. Here's our situation:

Question (1) What should I put in taxable account? Considering putting exclusively bonds to try to balance our portfolio to more 15% bonds (we seem a little stock heavy but that sounds controversial
Question (2) If I can't or shouldn't put only bonds in taxable, should I change my 401k currently in Vanguard TR 2050 to an earlier year to make heavier in bonds?


Emergency funds - 3 months of expenses at Ally, working at building this to 6 months after buying a house earlier this year
Debt- Mortgage 365k, 3.865%, 29yrs left, 1 car loan, 12k, 0%, 2.5yrs left
Tax filing status - MFJ
Tax Rate - 33% Federal, 0% State
State of Residence - Florida
Age - 34 and 37
Income - 250k
Desired Asset allocation - 85/15%, Desired International allocation - 66% domestic, 33% Intl
Current retirement assets - 330k
His 401k - ADP, no match, just opened this month, Nationwide S&P 500 Index Fund Class A GRMAX, ER .77%
His Rollover IRA at Fidelity - 65k (67% in FSTVX .04% ER, 10% FBIDX .14% ER, 1% C, 1% BAC, 5% FFNOX .11% ER, 15% FIENX .59% ER)
His traditional IRA at Fidelity - 7k in FFNOX ER 0.11%
Her 401k - Vanguard VFIFX 209k ER .08%
Her Roth conversion IRA at Vanguard - 5.5k VTSMX
Taxable -Fidelity 28k in FFNOX ER .11%

New Annual Contributions:
His 401k - 18.5k/year
Her 401k - 18.5k/year with 4% employer match and 3% profit sharing
His IRAs at Fidelity - $0
Her Conversion Roth IRA - $5.5k/year
Taxable - $0

His Available Funds in 401k (name followed by ER)
Invesco Stable Asset Fund 1.08%
Lord Abbett Short Duration Income Fund - Class R3 0.89%
Eaton Vance Government Opportunities Fund - Class R 1.38%
JPMorgan Government Bond Fund - Class R2 1.1%
PGIM Total Return Bond Fund - Class R 1.01%
Lord Abbett Bond Debenture Fund - Class R3 1.1%
Lord Abbett High Yield Fund - Class R3 1.19%
Nuveen Inflation Protected Securities Fund - Class R3 1.03%
Oppenheimer International Bond Fund - Class R 1.25%
American Funds 2010 Target Date Retirement Fund - Class R2E 1.13%
American Funds 2015 Target Date Retirement Fund - Class R2E 1.12%
American Funds 2020 Target Date Retirement Fund - Class R2E 1.14%
American Funds 2025 Target Date Retirement Fund - Class R2E 1.16%
American Funds 2030 Target Date Retirement Fund - Class R2E 1.18%
American Funds 2035 Target Date Retirement Fund - Class R2E 1.19%
American Funds 2040 Target Date Retirement Fund - Class R2E 1.2%
American Funds 2045 Target Date Retirement Fund - Class R2E 1.2%
American Funds 2050 Target Date Retirement Fund - Class R2E 1.2%
American Funds 2055 Target Date Retirement Fund - Class R2E 1.21
American Funds 2060 Target Date Retirement Fund - Class R2E 1.26%
American Funds American Balanced Fund - Class R2E 1.07%
Columbia Balanced Fund - Class R 1.21%
ClearBridge Large Cap Value Fund - Class R 1.2%
American Funds Fundamental Investors Fund - Class R2E
1.09%
JPMorgan U.S. Equity Fund - Class R2 1.19%
Nationwide S&P 500 Index Fund - Class R 0.77%
American Funds The Growth Fund of America - Class R2E 1.12%
JPMorgan Intrepid Growth Fund - Class R2 1.09%
Putnam Sustaintable Future Fund - Class R 1.33%
Wells Fargo Special Mid Cap Value Fund - Class R 1.43%
JPMorgan US Small Company Fund - Class R2 1.5
Nationwide Small Cap Index Fund - Class R 0.96%
Columbia Overseas Value Fund - Class R 1.54%
Oppenheimer International Equity Fund - Class R 1.49%
Franklin International Growth Fund - Class R 1.37%
American Funds New Perspective Fund - Class R2E 1.24%
Wells Fargo Emerging Markets Equity Income Fund - Class R 1.88%
BlackRock Health Sciences Opportunities Portfolio - Class R1.49%
Columbia Global Energy and Natural Resources Fund - Class R 1.6%
American Century Global Gold Fund - Class R 1.17%
Deutsche Real Estate Securities Fund - Class R 1.31%
Invesco Global Real Estate Fund - Class R 1.61%
Putnam Global Technology Fund - Class R 1.53%

Her Available Funds in 401k
Target Retire 2015 Tr II .08%
Target Retire 2020 Tr II .08%
Target Retire 2025 Tr II .08%
Target Retire 2030 Tr II .08%
Target Retire 2035 Tr II .08%
Target Retire 2040 Tr II .08%
Target Retire 2045 Tr II .08%
Target Retire 2050 Tr II .08%
Target Retire 2055 Tr II .08%
Target Retire 2060 Tr II .08%
Target Retire 2065 Tr II .08%
Target Retire Inc Tr II .08%
Vanguard Treasure Money Market .09%
Metropolitan West Total Return Bond Fund Plan Class (MWTSX) .38%
Principal High Yield Fund Institutional Class (PHYTX) .62%
Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX) .10%
Vanguard Short-Term Bond Index Fund Institutional Shares (VBITX) .05%
Vanguard Total International Bond Index Fund Admiral Shares (VTABX) .11%
Vanguard Total Bond Market Index Fund Institutional Shares .04%
American Funds Washington Mutual Investors Fund Class R-6 (RWMGX) .3%
Goldman Sachs Small Cap Value Fund Class R6 (GSSUX) .96%
Hartford Core Equity Fund Class R6 .41%
JPMorgan Mid Cap Value Fund Class L .86%
JPMorgan Small Cap Equity Fund Class R6 (VSENX) .74%
PGIM Jennison Mid-Cap Growth Fund- Class R6 (PJGQX) .58%
T. Rowe Price Blue Chip Growth Fund I Class (TBCIX) .57%
T. Rowe Price New Horizons Fund I Class (PRJIX) .65%
Vanguard Institutional Index Fund Institutional Plus Shares (VIIIX) .02%
Vanguard Mid-Cap Index Fund Institutional Shares (VMCIX) .04%
Vanguard Small-Cap Index Fund Institutional Shares (VSCIX) .04%
American Funds EuroPacific Growth Fund® Class R-6 (RERGX) .45%
Vanguard Total International Stock Index Fund Institutional Shares (VTSNX) .09%
DFA Global Real Estate Securities Portfolio (DFGEX) .37%

bloom2708
Posts: 4284
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: What should I do with my taxable account?

Post by bloom2708 » Mon Jul 09, 2018 9:56 am

Taxable should be stocks unless you have no 401k space for bonds.

Think 1 or 2 funds max in each account (if possible).

Taxable: Total US or Total International
Roth: Total US or Total International
401k: Stocks + Bonds. This is the best place for your 15% bonds

How do you get to 15% in 401k?

Pick a Target Date fund based on the mix of stocks and bonds. For example, you pick Target Date 2030 (~65/35). If 35% of your 401k balance = 15% of your total portfolio. For most, the 401k pre-tax grows pretty fast because you can put $18,500 pre-tax in and you may get match dollars.

In question #2, you mention exactly the strategy. More bonds in 401k by moving down in Target Date year. Those expense ratios in his 401k are not great. .77% for the S&P 500 index. Ouch. The match and profit sharing and pre-tax savings still make it worth filling up though in my mind.

Approaching 40, I would move toward 80/20. Part of a plan is it has to work when stocks are tanking. Finding that middle ground and taking a bit of risk of the table.

Keep it simple and keep saving. Looks good.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Glockenspiel
Posts: 422
Joined: Thu Feb 08, 2018 1:20 pm

Re: What should I do with my taxable account?

Post by Glockenspiel » Mon Jul 09, 2018 10:43 am

I agree, put taxable account into Total Stock Market. Bonds should go in 401k, if possible. Roth IRA should have the most aggressive and risky fund in your overall portfolio.

Rjbutler
Posts: 2
Joined: Thu Jul 06, 2017 11:03 am

Re: What should I do with my taxable account?

Post by Rjbutler » Mon Jul 09, 2018 11:29 am

For someone hoping to retire before 59.5, is it reasonable to have a a few years of living expenses in fixed income in taxable accounts, or is the recommendation still to keep fixed income in retirement accounts and to use substantially equal periodic payments if necessary to pull money out of retirement accounts early?

mhalley
Posts: 5820
Joined: Tue Nov 20, 2007 6:02 am

Re: What should I do with my taxable account?

Post by mhalley » Mon Jul 09, 2018 1:59 pm

I wanted to have bonds in my taxable account when I retired as I planned to live off the taxable account as long as possible before having to access the IRAs. I felt that having bonds would mitigate the risk of retiring, having a large stock market drop (sequence of returns risk) resulting in my depleting the taxable account sooner. Of course I had substantial savings in taxable. I used Muni bonds before retiring, and now use TBM. With bonds yielding so little, having them in taxable isn't as bad as in the past. WCI thinks bonds are fine in taxable:
https://www.whitecoatinvestor.com/asset ... n-taxable/

mhop
Posts: 35
Joined: Tue Jul 23, 2013 12:41 pm

Re: What should I do with my taxable account?

Post by mhop » Mon Jul 09, 2018 2:20 pm

Rjbutler wrote:
Mon Jul 09, 2018 11:29 am
For someone hoping to retire before 59.5, is it reasonable to have a a few years of living expenses in fixed income in taxable accounts, or is the recommendation still to keep fixed income in retirement accounts and to use substantially equal periodic payments if necessary to pull money out of retirement accounts early?
That's my plan. If the goal is to retire early I don't see the harm in going heavy stocks in the 401k and using a Roth conversion ladder to get that money out tax free. In such a scenario, you'd want closer to 5 years expenses in taxable. If you had $150k in bonds at 4% you'd receive $6k of taxable income that would slightly hamper your conversion ladder every year which isn't too bad. You can look at munis/treasuries/i-bonds to mitigate this effect to some extent.
Last edited by mhop on Mon Jul 09, 2018 2:26 pm, edited 1 time in total.

jenig0013
Posts: 20
Joined: Sat Aug 02, 2014 10:52 pm
Location: Central Florida

Re: What should I do with my taxable account?

Post by jenig0013 » Mon Jul 09, 2018 2:24 pm

Thanks all. That’s what I was thinking. And I agree with bloom, we have way to many funds in some of these and I’d like to move to 1-2 funds/account and maybe 4 funds total in the portfolio.

So I’d been contributing monthly to the taxable for about two years up until March - do you suggest I wait until March 2019 and then exchange it all for a total market fund to avoid it being taxed as ordinary income? Or take some out now? I’m not quite clear how determining cost basis works if I’ve put in money over a period of time.

megabad
Posts: 287
Joined: Fri Jun 01, 2018 4:00 pm

Re: What should I do with my taxable account?

Post by megabad » Mon Jul 09, 2018 3:44 pm

jenig0013 wrote:
Sun Jul 08, 2018 10:28 pm
Question (1) What should I put in taxable account? Considering putting exclusively bonds to try to balance our portfolio to more 15% bonds (we seem a little stock heavy but that sounds controversial
Question (2) If I can't or shouldn't put only bonds in taxable, should I change my 401k currently in Vanguard TR 2050 to an earlier year to make heavier in bonds?
1) I would go maybe Total Int Stock index or Total Stock Index in your tax bracket
2) her 401k (which is great by the way) can go 3 fund portfolio and balance your AA out with some bonds as needed.

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Duckie
Posts: 5711
Joined: Thu Mar 08, 2007 2:55 pm

Re: What should I do with my taxable account?

Post by Duckie » Mon Jul 09, 2018 7:25 pm

jenig0013 wrote:What should I put in taxable account? Considering putting exclusively bonds to try to balance our portfolio to more 15% bonds (we seem a little stock heavy but that sounds controversial
Put stocks in your taxable account. Put bonds in tax-sheltered.
If I can't or shouldn't put only bonds in taxable, should I change my 401k currently in Vanguard TR 2050 to an earlier year to make heavier in bonds?
The problem with using a target-date fund in your 401k is that balanced funds (funds with both stocks and bonds) should really be all or none and once you have a taxable account for retirement purposes using balanced funds and individual funds together makes things more complicated. If you want 15% bonds then pick an individual bond fund in her 401k and/or his rollover IRA.
Age - 34 and 37
Income - 250k
Desired Asset allocation - 85/15%, Desired International allocation - 66% domestic, 33% Intl
At your ages I'd be at least 20% bonds and maybe 25%.
Current retirement assets - 330k
Your numbers add up to $314K.
His Available Funds in 401k
Yikes, those are expensive options. The least bad are:
  • Nationwide S&P 500 Index 0.77% -- Large caps, 80% of US stocks
  • Nationwide Small Cap Index 0.96% -- Small caps, 14% of US stocks
  • Lord Abbett Short Duration Income 0.89% -- US bonds
I'd use just the 500 Index fund.
Her Available Funds in 401k
Great options. For individual funds go with:
  • Vanguard Institutional Index (VIIIX) .02% -- Large caps, 80% of US stocks
  • Vanguard Mid-Cap Index (VMCIX) .04% -- Mid caps, 6% of US stocks
  • Vanguard Small-Cap Index (VSCIX) .04% -- Small caps, 14% of US stocks
  • Vanguard Total International Stock Index (VTSNX) .09% -- Complete international stocks
  • Vanguard Total Bond Market Index .04% -- US bonds
----------------------

You have a desired AA of 85% stocks, 15% bonds with 33% of stocks in international. That breaks down to 57% US stocks, 28% international stocks, and 15% bonds. Right now you could have:

Taxable at Fidelity -- $28K -- 9%
9% (FSTVX) Fidelity Total Market Index Fund Premium Class (0.035%)

His 401k at ADP -- $0 -- 0%
0% (GRMRX) Nationwide S&P 500 Index Fund Class R (0.77%)

Her 401k -- $209K -- 66%
23% (VIIIX) Vanguard Institutional Index Fund Institutional Plus Shares (0.02%)
28% (VTSNX) Vanguard Total International Stock Index Fund Institutional Shares (0.09%)
15% (VBTIX) Vanguard Total Bond Market Index Fund Institutional Shares (0.04%)

His Rollover IRA at Fidelity -- $72K -- 23% <-- Combined with his TIRA.
17% (FSTVX) Fidelity Total Market Index Fund Premium Class (0.035%)
6% (FSEVX) Fidelity Extended Market Index Fund Premium Class (0.07%) <-- 80% 500 Index in his 401k and Institutional Index in her 401k plus 20% Extended Market here makes up the total US stock market. This could be skipped.

Her Roth IRA at Vanguard (via backdoor) -- $5K -- 2%
2% (VTSMX) Vanguard Total Stock Market Index Fund Investor Shares (0.14%)

Something to think about.

jenig0013
Posts: 20
Joined: Sat Aug 02, 2014 10:52 pm
Location: Central Florida

Re: What should I do with my taxable account?

Post by jenig0013 » Thu Jul 12, 2018 12:31 am

Thanks so much Duckie. This is super helpful. The last 20k is from a cash balance retirement I have from a previous job, I think it’s guaranteed 6% interest, but I’m waiting to get a statement from that account.

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