My portfolio - Beginner, looking for input

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Topic Author
drlaomd
Posts: 3
Joined: Sat Feb 09, 2019 9:36 pm

My portfolio - Beginner, looking for input

Post by drlaomd » Sat Feb 09, 2019 10:28 pm

Hi everyone, thank you in advance for advising on my portfolio. I have recently just started reading about portfolio management. I've read all the pages on bogleheads, and formulated my portfolio based on the reading, please let me know if i'm doing it right! I would also appreciate any input you guys may have, thank you.


Emergency funds: Have 2-3 months
Debt: 40K in medical school debt remaining, refinanced to 3.5%, will likely be paid off by end of this year.
Tax Filing Status: Married Filing Separately
Tax Rate: 35% Federal
State of Residence: CA
Age: 32
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 33% of stocks

Size of portfolio (rounding to keep it simple): $75,000

Accounts:
1.) Roth IRA (Backdoor): $25,000
2.) Work 403b: 45,000
3.) Work 457b: 5,000
No taxable account currently.

Available funds I identified to potentially invest in:

Roth IRA (Vanguard)
-VTSAX (Total stock market, admiral): ER 0.04%
-VTIAX (Total international market, admiral): ER 0.11%
-VBTLX (Total bonds, admiral): ER 0.05%

403b/457b (Can invest in same funds in both accounts): University of California
-UC Domestic Equity Index Fund (Benchmark is russell 3000, supposed to be 98% of total market): ER 0.005%
-UC International Equity Index Fund (Benchmark is MSCI world ex-US IMI): ER 0.01%
-UC Bonds (Benchmark is Barclays US aggregate bond index): ER 0.03%
-UC TIPS ER 0.03%, UC small Cap ER 0.01% and UC real estate (REITS) ER 0.01% still undecided on, maybe will include some.


Contributions: Max out IRA ($6000), 403B ($19,000), and 457 ($19,000) is the goal/year.

Questions:
1. From the reading on Bogleheads, it says to use the worst account with worse expense ratio's, most limited funds first, most problematic, in most cases this is the employer to put money in first. I don't understand that, why do you want to put in money into the worse options? Don't you want to put in more money into the funds with the best options first?

2.) From my choices, between my work (UC) and IRA (Vanguard) accounts, both are pretty good in my opinion, both have low ER's and seem to index very close to total stock market, and total international and bonds, right?

3.) My UC account has UC domestic equity, which is benchmarked to russell 3000, which is supposed to 98% of total stock market, ER is 0.005%, whereas my IRA has Vanguard Total stock market option, ER is 0.04%. 98% is pretty close to 100%. The only major difference is the ER. Should I put more money into Vanguard because it is 100% of market, or more money into UC domestic equity because of the 8x lower ER?


So I went ahead and proposed this portfolio with 75% stocks (50% domestic/25% international) and 25% bonds with total of $75,000 to invest
-Domestic stock: $37,500
-International stock: $18,750
-Bonds: $18,750

IRA at Vanguard ($25,000 to use) first
-Filled VTSAX (Total SM, ER 0.04%) first: $25,000

UC 403b ($45,000 to use) second
-Filled UC domestic equity (russell 3000, ER 0.005%): $12,500
-Filled UC International Equity (MSCI world ex-US, ER 0.01%): $18,750
-Filled UC Bonds (Barclays US aggregate bond index, ER 0.03%): $13,750

UC 457b ($5,000 to use) third
-Filled UC Bonds (Barclays US aggregate bond index, ER 0.03%): $5,000

Questions
1.) Thoughts?
2.) Should I have filled UC 403b/457b first? Then Roth IRA last? So it'll look like

UC 403b ($45,000 to use) first
-Filled UC domestic equity (russell 3000, ER 0.005%): $37,500
-Filled UC International Equity (MSCI world ex-US, ER 0.01%): $7,500

UC 457b ($5,000 to use) second
-Filled UC International Equity (MSCI world ex-US, ER 0.01%): $5,000

IRA at Vanguard ($25,000 to use) third
-Filled VTIAX (Total international market, ER 0.11%): $6,250
-Filled VBTLX (Total bonds, ER 0.05%): $18,750


Questions
1.) The second method seems more complicated. Thoughts?
2.) Thoughts on adding REITS? TIPS? Small Cap?

Thank you all in advance!

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David Jay
Posts: 7148
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: My portfolio - Beginner, looking for input

Post by David Jay » Sun Feb 10, 2019 4:56 pm

Welcome to the forum!

Don’t get to far “into the weeds” with fund selection. In the early years, the level of contributions is the primary determinant of outcome. In tax-advantaged space one can easily adjust fund selections at any time without tax consequences,
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

LeeMKE
Posts: 1884
Joined: Mon Oct 14, 2013 9:40 pm

Re: My portfolio - Beginner, looking for input

Post by LeeMKE » Sun Feb 10, 2019 6:50 pm

You are off to a good start!

Don't sweat the small stuff. Both the Vanguard and your USC funds are near identical. Use what you have available.
Don't worry about the "use the worst first" stuff. You are fully funding all available, and that is the most important at this stage.

My next questions are making sure you are using all available tax deferred space with your spouse:
(If they are working and contributing to their own accounts, some of these may not be options)
You can contribute to an IRA for your spouse if they don't contribute the max themselves.
When there is a high income earner, it makes sense for the partner to focus a bit more on tax shelter aspects of their own career choices. For example, a spouse might choose to work as an independent contractor/consultant rather than W-2, so they can open a Solo 401K ($53k max contribution), write off a home office, and maybe a car depending on the type of work being done.

I was once a trailing spouse and worked to shelter income more than generate higher taxable income.
The mightiest Oak is just a nut who stayed the course.

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Duckie
Posts: 6858
Joined: Thu Mar 08, 2007 2:55 pm
Location: California Bay Area

Re: My portfolio - Beginner, looking for input

Post by Duckie » Sun Feb 10, 2019 8:33 pm

drlaomd wrote:Available funds I identified to potentially invest in:

Roth IRA (Vanguard)
-VTSAX (Total stock market, admiral): ER 0.04%
-VTIAX (Total international market, admiral): ER 0.11%
-VBTLX (Total bonds, admiral): ER 0.05%
In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free. So put all your bonds in your pre-tax accounts and just stocks in Roth accounts.
From the reading on Bogleheads, it says to use the worst account with worse expense ratio's, most limited funds first, most problematic, in most cases this is the employer to put money in first. I don't understand that, why do you want to put in money into the worse options? Don't you want to put in more money into the funds with the best options first?
You look at the worst account first and pick the best option(s) in it. Then use your other accounts to fill in the missing assets. In your case you don't have a worst account, they're all good.
From my choices, between my work (UC) and IRA (Vanguard) accounts, both are pretty good in my opinion, both have low ER's and seem to index very close to total stock market, and total international and bonds, right?
Right.
My UC account has UC domestic equity, which is benchmarked to russell 3000, which is supposed to 98% of total stock market, ER is 0.005%, whereas my IRA has Vanguard Total stock market option, ER is 0.04%. 98% is pretty close to 100%. The only major difference is the ER. Should I put more money into Vanguard because it is 100% of market, or more money into UC domestic equity because of the 8x lower ER?
The two funds and their expense ratios are too close to matter. Pick what you want.
So I went ahead and proposed this portfolio with 75% stocks (50% domestic/25% international) and 25% bonds with total of $75,000 to invest
-Domestic stock: $37,500
-International stock: $18,750
-Bonds: $18,750

IRA at Vanguard ($25,000 to use) first
-Filled VTSAX (Total SM, ER 0.04%) first: $25,000

UC 403b ($45,000 to use) second
-Filled UC domestic equity (russell 3000, ER 0.005%): $12,500
-Filled UC International Equity (MSCI world ex-US, ER 0.01%): $18,750
-Filled UC Bonds (Barclays US aggregate bond index, ER 0.03%): $13,750

UC 457b ($5,000 to use) third
-Filled UC Bonds (Barclays US aggregate bond index, ER 0.03%): $5,000

Questions
1.) Thoughts?
That portfolio example ended up just fine but the way you set it up is odd. I personally start with bonds. I put them in pre-tax and then see what else will fit in pre-tax before moving to Roth and taxable accounts.)
2.) Should I have filled UC 403b/457b first? Then Roth IRA last? So it'll look like

UC 403b ($45,000 to use) first
-Filled UC domestic equity (russell 3000, ER 0.005%): $37,500
-Filled UC International Equity (MSCI world ex-US, ER 0.01%): $7,500

UC 457b ($5,000 to use) second
-Filled UC International Equity (MSCI world ex-US, ER 0.01%): $5,000

IRA at Vanguard ($25,000 to use) third
-Filled VTIAX (Total international market, ER 0.11%): $6,250
-Filled VBTLX (Total bonds, ER 0.05%): $18,750
Don't put bonds in the Roth IRA.
Thoughts on adding REITS? TIPS? Small Cap?
You could but they're not necessary. You already have REITs at the market weight so unless you want to overweight them, you don't need a separate fund. At your age you don't need TIPS. Your US stock funds are basically total US stocks so you don't need to add small caps unless you want to overweight them, and in that case small-cap value would be a better option.

Topic Author
drlaomd
Posts: 3
Joined: Sat Feb 09, 2019 9:36 pm

Re: My portfolio - Beginner, looking for input

Post by drlaomd » Sun Feb 24, 2019 10:48 pm

THANK YOU EVERYONE! all the tips have cleared up the situation tremendously.

Thanks again for your time

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