56-year-old beginning the Boglehead journey - portfolio & tax efficiency questions

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jrl3741
Posts: 2
Joined: Thu Mar 19, 2015 5:07 pm

56-year-old beginning the Boglehead journey - portfolio & tax efficiency questions

Post by jrl3741 » Thu Oct 11, 2018 6:25 pm

Hi everyone,

Note - I am editing my post (struggling w/format) to provide all information needed. Thanks d.r.a!

I am 56-year-old who is too aggressively invested and my taxable vs retirement accounts are not set-up correctly. I am beginning the Boglehead journey.

Below are my portfolio specifics based on “asking portfolio questions” sticky.

Emergency funds: 6 months covered in Money Market
Debt: $123k – 30-year fixed rate mortgage – rate 3.5%
Tax Filing Status: Married Filing Jointly
Tax Rate: xx% Federal, xx% State – varies per year as does income
State of Residence: Missouri
Age: 56
Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 15-20% of stocks?

Taxable at Fidelity
% Fund Name Ticker Expense ratio
3% FIDELITY GOVERNMENT CASH RESERVES FDRXX 0.37%
27% FIDELITY U.S. BOND INDEX PREMIUM CLASS FSITX 0.03%
20% FIDELITY INTERNATL INDEX PREMIUM CLASS FSIVX 0.05%
50% FIDELITY TOTAL MKT INDEX PREMIUM CLASS FSTVX 0.02%

His 401-K at Fidelity
% Fund Name Ticker Expense ratio
43% Fidelity® Contrafund® K6 FLCNX 0.45%
19% T. Rowe Price Mid-Cap Value Fund I Class TRMIX 0.65%
7% Franklin Small Cap Growth Fund Class R6 FSMLX 0.63%
16% American Funds EuroPacific Growth Fund® Class R-6 RERGX 0.49%
15% JPMorgan Core Plus Bond Fund Class R6 JCPUX 0.39%

His - Roth IRA at Fidelity
% Fund Name Ticker Expense ratio
25% FIDELITY GOVERNMENT CASH RESERVES FDRXX 0.37%
16% FIDELITY CONTRAFUND FCNTX 0.74%
59% FIDELITY TOTAL MKT INDEX PREMIUM CL FSTVX 0.02%

His IRA at Fidelity % Fund Name Ticker Expense ratio
17% FIDELITY GOVERNMENT CASH RESERVES FDRXX 0.37%
21% FIDELITY U.S. BOND INDEX PREMIUM CLASS FSITX 0.25%
19% FIDELITY INTERNATL INDEX PREMIUM CLASS FSIVX 0.05%
43% FIDELITY TOTAL MKT INDEX PREMIUM CLASS FSTVX 0.02%

Her Roth at Fidelity
% Fund Name Ticker Expense ratio
24% FIDELITY GOVERNMENT CASH RESERVES FDRXX 0.37%
75% FIDELITY TOTAL MKT INDEX PREMIUM CLASS FSTVX 0.02%

Her Sep IRA at Fidelity
% Fund Name Ticker Expense ratio
40% FIDELITY GOVERNMENT CASH RESERVES FDRXX 0.37%
9% FID U.S. BOND INDEX INVESTOR CLASS FBIDX 0.03%
21% FIDELITY INTERNATL INDEX PREMIUM CLASS FSIVX 0.05%
30% FIDELITY TOTAL MKT INDEX PREMIUM CLASS FSTVX 0.02%

Her Rollover IRA at Fidelity
% Fund Name Ticker Expense ratio
25% FIDELITY GOVERNMENT CASH RESERVES FDRXX 0.37%
19% FID U.S. BOND INDEX INVESTOR CLASS FBIDX 0.03%
20% FIDELITY INTERNATL INDEX PREMIUM CLASS FSIVX 0.05%
36% FIDELITY TOTAL MKT INDEX PREMIUM CLASS FSTVX 0.02%

Contributions
New annual Contributions
$6500/yearly his+ hers IRA Roth IRA

Available funds
Fund’s available in his 401(k) - Fidelity

Name Symbol Expense ratio
Janus Henderson Enterprise Fund Class N JDMNX 0.67%
Franklin Small Cap Growth Fund Class R6 FSMLX 0.65%
American Funds Fundamental Investors® Class R-6 RFNGX 0.30%
Vanguard Institutional Index Fund Institutional Shares VINIX 0.04%
MFS® New Discovery Value Fund Class R6 NDVVX 0.97%
T. Rowe Price Mid-Cap Growth Fund I Class RPTIX 0.62%
Vanguard Small-Cap Index Fund Admiral Shares VSMAX 0.05%
T. Rowe Price Mid-Cap Value Fund I Class TRMIX 0.65%
Vanguard Mid-Cap Index Fund Admiral Shares VIMAX 0.05%
T. Rowe Price Value Fund I Class TRPIX 0.63%
Dodge & Cox International Stock Fund DODFX 0.63%
Vanguard Total International Stock Index Fund Admiral Shares VTIAX 0.11%
American Funds EuroPacific Growth Fund® Class R-6 RERGX 0.49%
Fidelity® Contrafund®K6 FLCNX 0.45%
T. Rowe Price Retirement I 2045 Fund I Class TRPKX 0.59%
T. Rowe Price Retirement I 2050 Fund I Class TRPMX 0.59%
T. Rowe Price Retirement I 2055 Fund I Class TRPNX 0.59%
T. Rowe Price Retirement I 2060 Fund I Class TRPLX 0.59%
T. Rowe Price Retirement I 2040 Fund I Class TRPDX 0.58%
T. Rowe Price Retirement I 2035 Fund I Class TRPJX 0.56%
Janus Henderson Balanced Fund Class N JABNX 0.58%
T. Rowe Price Retirement I 2030 Fund I Class TRPCX 0.53%
T. Rowe Price Retirement I 2025 Fund I Class TRPHX 0.50%
T. Rowe Price Retirement I 2020 Fund I Class TRBRX 0.47%
T. Rowe Price Retirement I 2015 Fund I Class TRFGX 0.43%
T. Rowe Price Retirement I 2010 Fund I Class TRPAX 0.39%
T. Rowe Price Retirement I 2005 Fund I Class TRPFX 0.40%
Templeton Global Bond Fund Class R6 FBNRX 0.56%
JPMorgan Core Plus Bond Fund Class R6 JCPUX 0.40%
Fidelity® U.S. Bond Index Fund - Institutional Premium Class FXNAX 0.03%
Fidelity® Government Money Market Fund SPAXX 0.42%

Index Funds available in His/her IRA, SEP, Rollover IRA - Fidelity
Fidelity Index Funds Ticker Expense ratio
Fidelity® 500 Index Premium FUSVX 0.02%
Fidelity® Total Market Index Premium FSTVX 0.02%
Fidelity® Extended Market Index Premium FSEVX 0.05%
Fidelity® Large Cap Growth Index Prm FSUPX 0.04%
Fidelity® Large Cap Value Index Prm FLCHX 0.04%
Fidelity® Mid Cap Index Premium FSCKX 0.03%
Fidelity® Small Cap Index Premium FSSVX 0.03%
Fidelity® International Index Premium FSIVX 0.05%
Fidelity® Global ex US Index Premium FSGDX 0.06%
Fidelity® Total Intl Index Premium FTIPX 0.06%
Fidelity® Emerging Markets Index Premium FPMAX 0.08%
Fidelity® Real Estate Index Premium FSRVX 0.07%
Fidelity® US Bond Index Premium FSITX 0.03%
Fidelity® Short-Term Treasury Bd Index Prm FSBAX 0.03%
Fidelity® Intermediate Trs Bd Index Prem FIBAX 0.03%
Fidelity® Long-Term Treasury Bd Index Prem FLBAX 0.03%
Fidelity® Short-Term Bond Index Fund FNSKX 0.03%
Fidelity® U.S. Sustainability Index Fund FENSX 0.11%

I have 1 taxable account which I have with Fidelity valued at $713k and 6 retirements accounts due to 2nd marriage, etc. valued at $940k. I plan to use a 60% stock, 40% bond AA. Both Boglehead books I have read, suggest placing bond funds in tax-advantaged accounts (retirement) and tax-efficient stock funds in taxable accounts. My question is that

Questions:
1. I have more in retirement accounts as opposed to taxable accounts. If I plan to allocate 40% of my total portfolio ($743k) to bonds in my retirement accounts, what do I do with the remainder $197k in retirement accounts?
2. What are my best fund options for my taxable and retirement accounts?

Thanks in advance!
Last edited by jrl3741 on Wed Oct 17, 2018 11:41 am, edited 1 time in total.

delamer
Posts: 6428
Joined: Tue Feb 08, 2011 6:13 pm

Re: 56-year-old beginning the Boglehead journey - tax efficiency question

Post by delamer » Thu Oct 11, 2018 6:44 pm

The remaining $197K should go to stocks.

It is not unusual to have this problem. It is not always possible to be optimally tax efficient, depending on your preferred allocation and the dollars in each type of account.

Maybe an extreme example, but we had all of our retirement money in tax-deferred. So no stocks in taxable and no ability to be tax efficient.

So do the best you can, tax wise, but stick with your target allocation.

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villars
Posts: 200
Joined: Sat Jan 18, 2014 11:07 pm

Re: 56-year-old beginning the Boglehead journey - tax efficiency question

Post by villars » Thu Oct 11, 2018 6:48 pm

welcome to bogleheads.
You buy an index fund of stocks ( either US , or international+US ) with the 197K . Most retirement accounts offer a fund indexed to the SP500 with reasonably low costs .

As stocks outgrow bonds, you may run into the scenario where your entire tax advantaged space is full of bonds, in which case you may have to buy bonds in taxable to maintain your 55/45 asset allocation.

If you are still in accumulation phase , you may want to start purchasing some tax exempt bonds now , to avoid a scenario in a few years where you run out of tax advantaged space for bonds , and your stock allocation outpaces 55% and you would have to sell stocks and pay capital gains in order to buy tax-exempt bonds. Unless you have a high savings rate, new contributions to this large portfolio may not be enough to keep AA balanced and rebalancing by selling stocks to buy bonds would be necessary ( assuming bull market continues, of course).

OregonDucksFan
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Location: Earth

Re: 56-year-old beginning the Boglehead journey - tax efficiency question

Post by OregonDucksFan » Thu Oct 11, 2018 6:51 pm

Tax efficiency is only a priority suggestion, not an absolute rule... as in place less tax efficient funds such as bond funds in 401k until meeting the allocation.

When stocks in overall portfolio appreciate beyond asset allocation threshold, you could shift in 401k stocks to bonds as part of rebalancing.

jrl3741
Posts: 2
Joined: Thu Mar 19, 2015 5:07 pm

Re: 56-year-old beginning the Boglehead journey - tax efficiency question

Post by jrl3741 » Sat Oct 13, 2018 5:31 pm

OK, thanks your responses.

My 401-K is very limited in terms of Bonds. Any ideas of which is preferred?

Below are my Bond choices:
* Templeton Global Bond Fund Class R6 - FBNRX
* JPMorgan Core Plus Bond Fund Class R6 - JCPUX
* Fidelity® U.S. Bond Index Fund - Institutional Premium Class - FXNAX

I appreciate your help!

Soon2BXProgrammer
Posts: 541
Joined: Mon Nov 24, 2014 11:30 pm

Re: 56-year-old beginning the Boglehead journey - tax efficiency question

Post by Soon2BXProgrammer » Sat Oct 13, 2018 5:35 pm

jrl3741 wrote:
Thu Oct 11, 2018 6:25 pm
Hi everyone,

I am a 56-year-old who is too aggressively invested and my taxable vs retirement accounts are not set-up correctly. Today, I am beginning the Boglehead journey.

I would like to ask you 1 question regarding tax efficiency. I have 1 taxable account which I have with Fidelity valued at $713k and 6 retirements accounts due to 2nd marriage, etc. valued at $940k. I plan to use a 55% stock, 45% bond AA. Both Boglehead books I have read, suggest placing bond funds in tax-advantaged accounts (retirement) and tax-efficient stock funds in taxable accounts. My question is that I have more in retirement accounts as opposed to taxable accounts. If I plan to allocate 45% of my total portfolio ($743k) to bonds in my retirement accounts, what do I do with the remainder $197k in retirement accounts?

Thanks in advance!
Actually, depending on what is in your taxable account, and its balance of gains and losses, you need to take that into consideration... if you have something in taxable that has a huge taxable gain and its something that "fits" into your portfolio going forward, i would not sell it to move it.

delamer
Posts: 6428
Joined: Tue Feb 08, 2011 6:13 pm

Re: 56-year-old beginning the Boglehead journey - tax efficiency question

Post by delamer » Sat Oct 13, 2018 5:54 pm

jrl3741 wrote:
Sat Oct 13, 2018 5:31 pm
OK, thanks your responses.

My 401-K is very limited in terms of Bonds. Any ideas of which is preferred?

Below are my Bond choices:
* Templeton Global Bond Fund Class R6 - FBNRX
* JPMorgan Core Plus Bond Fund Class R6 - JCPUX
* Fidelity® U.S. Bond Index Fund - Institutional Premium Class - FXNAX

I appreciate your help!
As a rule, an option that has “index” in the name is going to be better than an option that doesn’t.

Do you have the expense ratios (ER) for each option? Again, as a rule, the lower the better.

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dratkinson
Posts: 4384
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Location: Centennial CO

Re: 56-year-old beginning the Boglehead journey - tax efficiency question

Post by dratkinson » Sun Oct 14, 2018 12:46 pm

BH 56-year-old beginning the Boglehead journey - tax efficiency question


Everything affects everything. You shouldn’t make any change without considering everything.

So instead of trying to piecemeal your solution---asking one question at a time---it's a more efficient use of your time to tackle everything all at once. How? Simple. You provide all of your information. We use your information to offer suggestions for a complete solution. You choose the suggestions what work best for you.

To that end, suggest you edit your OP (original post, original poster) to provide all of the information requested in the sticky* "Asking Portfolio Questions". That will tell us what we need to know.

* Copy the sticky. Edit it offline. Upload it to your OP when ready.

Example.
--If we learn that your TA (tax-advantaged) accounts offer good TDR (target-date retirement) fund options, then you could invest in one of those, in each TA account, at the correct AA (asset allocation). So, one (fund) and done. Easy peasy.
--Your full information will also help us offer suggestions to restructure your taxable investments.
--With full information you get suggestions for a complete solution: tax-advantaged + taxable.


But since we don't yet know your complete information, we can't offer suggestions for a complete solution. And your piecemealed answers may be OBE (overcome by events) as you reveal more information. False start = start over. Hence the request for your complete information; it’s a more efficient use of your time.


Disclosure. I started my BH journey by restructuring my investments (taxes) to copy a lazy portfolio. I didn't know it was wrong for me until problems arose a few years later. A forum review told me what I'd done wrong. More restructuring (taxes) to correct.

Trust me. It's cheaper to do it right the first time. One and done.



Welcome.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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