Roth IRA Portfolio Options

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Roth IRA Portfolio Options

Post by thenovice » Tue Nov 12, 2019 12:11 pm

Hello,

I need help to create my Roth IRA portfolio. I was considering something like these:

(1)
* Vanguard Total Stock Market ETF (VTI) (60%)
* Vanguard Total International Stock ETF (VXUS) (20%)
* Vanguard Total Bond Market Fund (BND) (7%)
* Vanguard Total International Bond Index (BNDX) (7%) (or may be substitute both bonds by BLV or EDV)
* Vanguard Real Estate ETF (VNQ) (6%)

(2)
50.00% Vanguard Total Stock Mkt Idx Adm (VTSAX)
30.00% Vanguard Total Bond Market Index Adm (VBTLX)
20.00% Vanguard Total Intl Stock Index Admiral (VTIAX)

(3)
VOO (90%)
EDV (10%)

Could you help to figure out which of these provide enough diversification, return and low volatibility in the long term (25 years from now)?

bloom2708
Posts: 6958
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Roth IRA Portfolio Options

Post by bloom2708 » Tue Nov 12, 2019 12:33 pm

The "correct" answer may be none of the above.

Roth IRA should be reserved for stock index funds. The exception would be you have no other space in workplace retirement or taxable for bonds.

Do you have a workplace plan? (401k, 403b, 457, Thrift Savings Plan, i401k)

If so, put bonds there. If not then put them in a taxable account (future).

Our Roths have Total US Stock index and Mid-Cap Stock index. My "tilt" is to mid-cap. Some like REIT or Small Cap. My international is in 401ks.

Look at your entire portfolio as one entity. Place funds based on expense ratio, availability and tax efficiency. If possible. 1-3 funds usually does the trick if you think about your portfolio as one.
Last edited by bloom2708 on Tue Nov 12, 2019 1:58 pm, edited 1 time in total.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

lakpr
Posts: 3065
Joined: Fri Mar 18, 2011 9:59 am

Re: Roth IRA Portfolio Options

Post by lakpr » Tue Nov 12, 2019 12:33 pm

Roth IRA should never have bonds in it. Your overall portfolio should, but specifically Roth accounts should not.

The defining feature of Roth accounts is that, in exchange for paying current taxes, all future growth is tax free. So it's in your best interest to maximize that future growth, and therefore pack it with those asset classes that have the highest *expected* return rates: equities.

You should have all your bonds in your tax-deferred accounts: 401k, traditional IRA, etc.

I recommend this simple portfolio:

80% VTSAX (Vanguard Total Stock Market Index)
20% VTIAX (Vanguard Total International Stock Market Index)

joylesshusband
Posts: 27
Joined: Thu Jan 18, 2018 6:35 pm

Re: Roth IRA Portfolio Options

Post by joylesshusband » Tue Nov 12, 2019 1:18 pm

lakpr wrote:
Tue Nov 12, 2019 12:33 pm
Roth IRA should never have bonds in it. Your overall portfolio should, but specifically Roth accounts should not.
Hogwash.

How do you apply the above statement to a retiree with target AA of 70/30, who has the balance of a Roth IRA constituting more than 70% of his entire portfolio?
Retired July 2018 @ age 59. Posting here purely for amusement.

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Tue Nov 12, 2019 1:28 pm

Okay, thank you.

So, it looks like bonds are out of place in a Roth IRA portfolio. I was not aware of what you just explained. I was copying in some way a Roth IRA that I have at Wealthfront in which 15% is allocated to Emerging Market Bonds.
So, I have two more questions:
1) Do you think a portfolio like the one suggested by lakpr (80% VTSAX / 20% VTIAX) needs to become more conservative once the retirement age is approaching? If so, What would be a good allocation, let's say, 15 years from now?
2) What do you think about VOO? It looks that it provides better returns than VTSAX
3) Don't you think I need a real estate ETF like VNQ at all in my portfolio for diversification sake?

Thank you my friends for helping me to figure it out

(By the way, I don't have another retirement account, just a regular investment account at Wealthfront)
Last edited by thenovice on Tue Nov 12, 2019 1:40 pm, edited 1 time in total.

lakpr
Posts: 3065
Joined: Fri Mar 18, 2011 9:59 am

Re: Roth IRA Portfolio Options

Post by lakpr » Tue Nov 12, 2019 1:39 pm

joylesshusband wrote:
Tue Nov 12, 2019 1:18 pm
lakpr wrote:
Tue Nov 12, 2019 12:33 pm
Roth IRA should never have bonds in it. Your overall portfolio should, but specifically Roth accounts should not.
Hogwash.

How do you apply the above statement to a retiree with target AA of 70/30, who has the balance of a Roth IRA constituting more than 70% of his entire portfolio?
I didn't think it required explicitly saying so -- having bonds in your Roth IRA only reduces your own expected returns. This hypothetical person whose Roth IRA constitutes more than 70% of the entire portfolio very likely did not make tax-wise optimal choices during the accumulation / contribution years. A mixture of contributions to tax-deferred accounts and Roth accounts would be / should be optimal, and if one asset class is significantly outweighing the other in percentage terms, one should have investigated, and taken corrective actions. Has this issue been caught early on, perhaps the bonds could have been placed either in tax-deferred (optimal) or taxable (slightly less optimal, but better choice than Roth).

It's a free country, brother, if having bonds in Roth IRA scratches your itch so be it .....

lakpr
Posts: 3065
Joined: Fri Mar 18, 2011 9:59 am

Re: Roth IRA Portfolio Options

Post by lakpr » Tue Nov 12, 2019 1:52 pm

thenovice wrote:
Tue Nov 12, 2019 1:28 pm
Okay, thank you.

So, it looks like bonds are out of place in a Roth IRA portfolio. I was not aware of what you just explained. I was copying in some way a Roth IRA that I have at Wealthfront in which 15% is allocated to Emerging Market Bonds.
So, I have two more questions:
1) Do you think a portfolio like the one suggested by lakpr (80% VTSAX / 20% VTIAX) needs to become more conservative once the retirement age is approaching? If so, What would be a good allocation, let's say, 15 years from now?
2) What do you think about VOO? It looks that it provides better returns than VTSAX
3) Don't you think I need a real estate ETF like VNQ at all in my portfolio for diversification sake?

Thank you my friends for helping me to figure it out

(By the way, I don't have another retirement account, just a regular investment account at Wealthfront)
My position is that, even in retirement, Roth accounts should be constituting only equities. I am a bit of purist in that sense. Your portfolio should definitely become more conservative as you near the retirement, but Roth is not the place to go conservative. The gradual increase in bonds -- until you run out of room -- should be in your 401k/traditional IRA accounts; and even if you run out of room in tax-deferred, add bonds in your taxable than pollute :) Roth IRA.

There is not much difference between VOO and VTSAX, do yo see any day light between the two lines in the below chart?

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Don't be fooled by returns within the last one year. That is likely a flash in the pan. The Total Stock Market index is diversified to represent 3400+ stocks instead of just the top 500.

No to real estate, as VTSAX includes REITs too to the respective market cap.

Edited to comment/ask further: why is it that you do not have any other retirement account? Don't you have 401k or 403b or SEP IRA or any such employer sponsored accounts? If not, why not? Self-employed?

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Tue Nov 12, 2019 2:48 pm

Thank you lakpr,
You are right. I learned a lot today!
My employer do not sponsor any retirement account (don't know if because it's a religious organization).
I have a bank account at Schwab, so I thought if I could create my Roth IRA portfolio there. I see that I can buy the Vanguard ETFs from them (right now free) or may be they offer a similar product. Or do you think it's a better idea to open a new account directly with Vanguard?
Last edited by thenovice on Tue Nov 12, 2019 3:08 pm, edited 1 time in total.

MotoTrojan
Posts: 6865
Joined: Wed Feb 01, 2017 8:39 pm

Re: Roth IRA Portfolio Options

Post by MotoTrojan » Tue Nov 12, 2019 2:58 pm

You have one retirement portfolio, pick an AA for that. Then distribute the assets to your Roth, 401K, taxable, HSA, etc, depending on tax-efficiency, fund options, and expenses.

lakpr
Posts: 3065
Joined: Fri Mar 18, 2011 9:59 am

Re: Roth IRA Portfolio Options

Post by lakpr » Tue Nov 12, 2019 4:56 pm

thenovice wrote:
Tue Nov 12, 2019 2:48 pm
My employer do not sponsor any retirement account (don't know if because it's a religious organization).
I am assuming that your total annual income is below $193k (if married) or $123k (if single). These are the income limits at which ability to contribute to Roth IRA is phased out -- and in the absence of any workplace retirement plan, ALSO serve as the income limits where you can deduct your traditional IRA contributions. If true, I suggest that you alternate between Roth and traditional IRA contributions each year.

Actually let me add a slight twist to it. Go ahead and contribute fully to Roth IRA through 2025; and in 2026, start contributing to the traditional IRA.

In 2026, unless Congress acts again, the tax rates will revert to 2017 levels -- at least 3% higher than now, and the tax brackets are also narrower. That would be the time to contribute to traditional IRA and get the tax deduction. Now through 2025 will be the time to contribute to Roth IRA and get the tax-free growth.

Through steady contributions to the traditional IRA starting in 2026, achieve your eventual asset allocation ratio.

It's not necessary to include bonds in your portfolio at the very beginning of investing. I feel it's also counterproductive to start including bonds until your portfolio reaches a certain minimum size .... say $50k minimum. I liken this to taking the expressway to your destination. Invest heavily in stocks to reach that $50k balance as quickly as possible. then start adding bonds up to what you think your ideal asset allocation should be.
thenovice wrote:
Tue Nov 12, 2019 2:48 pm
I have a bank account at Schwab, so I thought if I could create my Roth IRA portfolio there. I see that I can buy the Vanguard ETFs from them (right now free) or may be they offer a similar product. Or do you think it's a better idea to open a new account directly with Vanguard?
The only advantage you get by buying at Vanguard directly is that you can put the full $6000 to work in a mutual fund. With ETFs, you can only buy whole shares, which could mean that the last few dollars approximately cannot be invested as they would not buy a whole ETF share. But then, consolidation at one shop (Schwab in this case) has its own simplicity that's valuable. As long as you don't mind seeing something like $5991.75 invested and $8.25 sitting in a money market account, you are fine to simply go with Schwab.

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Tue Nov 12, 2019 5:34 pm

Thank you my friend. You have helped me a lot!

joylesshusband
Posts: 27
Joined: Thu Jan 18, 2018 6:35 pm

Re: Roth IRA Portfolio Options

Post by joylesshusband » Tue Nov 12, 2019 5:47 pm

lakpr wrote:
Tue Nov 12, 2019 1:39 pm
joylesshusband wrote:
Tue Nov 12, 2019 1:18 pm
lakpr wrote:
Tue Nov 12, 2019 12:33 pm
Roth IRA should never have bonds in it. Your overall portfolio should, but specifically Roth accounts should not.
Hogwash.

How do you apply the above statement to a retiree with target AA of 70/30, who has the balance of a Roth IRA constituting more than 70% of his entire portfolio?
I didn't think it required explicitly saying so -- having bonds in your Roth IRA only reduces your own expected returns. This hypothetical person whose Roth IRA constitutes more than 70% of the entire portfolio very likely did not make tax-wise optimal choices during the accumulation / contribution years. A mixture of contributions to tax-deferred accounts and Roth accounts would be / should be optimal, and if one asset class is significantly outweighing the other in percentage terms, one should have investigated, and taken corrective actions. Has this issue been caught early on, perhaps the bonds could have been placed either in tax-deferred (optimal) or taxable (slightly less optimal, but better choice than Roth).

It's a free country, brother, if having bonds in Roth IRA scratches your itch so be it .....
Another hogwash.

Two points:

1. The "hypothetical" person as you saw it, is quite real actually.
There are thousands upon thousands of savvy investors, many of whom - retirees, who have chosen to convert a big chunk of their traditional IRAs to Roth ones before reaching the age of 70, as for many the RMDs with even 20% of their traditional IRAs left unconverted is quite harmful from taxation (and positive cashflow) standpoint.

2. "This issue" as you chose to paint it, is not an issue at all, and you seem to be confused in your preference to keep bonds in taxable rather than in a Roth account. Do you understand the concept of "income tax consequences"?

Your postings in this thread paint you as a narrow-sighted theoretician with full disregard of practical and pragmatic aspects in the different stages and phases of an investor's lifetime. It would suit you if you became capable of accepting the fact that there are other perspectives, no less real and valuable than your own.
Retired July 2018 @ age 59. Posting here purely for amusement.

User avatar
1789
Posts: 307
Joined: Fri Aug 16, 2019 3:31 pm
Location: OR

Re: Roth IRA Portfolio Options

Post by 1789 » Tue Nov 12, 2019 5:57 pm

thenovice wrote:
Tue Nov 12, 2019 12:11 pm
Hello,

I need help to create my Roth IRA portfolio. I was considering something like these:

(1)
* Vanguard Total Stock Market ETF (VTI) (60%)
* Vanguard Total International Stock ETF (VXUS) (20%)
* Vanguard Total Bond Market Fund (BND) (7%)
* Vanguard Total International Bond Index (BNDX) (7%) (or may be substitute both bonds by BLV or EDV)
* Vanguard Real Estate ETF (VNQ) (6%)

(2)
50.00% Vanguard Total Stock Mkt Idx Adm (VTSAX)
30.00% Vanguard Total Bond Market Index Adm (VBTLX)
20.00% Vanguard Total Intl Stock Index Admiral (VTIAX)

(3)
VOO (90%)
EDV (10%)

Could you help to figure out which of these provide enough diversification, return and low volatibility in the long term (25 years from now)?
I do this

2)
100% Vanguard Total Stock Mkt Idx Adm (VTSAX)
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

markcoop
Posts: 1054
Joined: Fri Mar 02, 2007 8:36 am

Re: Roth IRA Portfolio Options

Post by markcoop » Tue Nov 12, 2019 6:16 pm

I have always had a bit of a different perspective about stocks in Roth accounts. I don't think it is a bad thing, just a trading of risks.

There are two main extreme possibilities that show my point:

1) Stocks keeps rising - Your biggest growing asset will then be stocks and would most benefit from being in a Roth account.
2) Stocks goes into a long recession - Your biggest growing asset will then be bonds and would most benefit from being in a Roth account.

Now let's look at two allocations:
a) All bonds in 401K, all stocks in Roth - In case 1, you hit a homerun. You couldn't have done better. In case 2, you basically struck out as you lost money in your Roth and therefore did not benefit from the tax-free growth.
b) All stocks in 401K, all bonds in Roth - In case 1, you kindda hit a double. You could've done better if you had the stocks in the Roth, but you still do ok as the stock market rose. In case 2, you did the best you could (call it a walk). You basically shared your lose with the gov't by paying less taxes in your 401K.

So, it comes down to whether the risk shows up for stocks. Allocation (a) is feast or famine. I understand feast is more likely, but the usual stock risk is amplified by the taxes. In allocation (b), you still do well if the stock market rises, but control your loses otherwise.

Given all this, I am not opposed to stocks in Roth. I keep a healthy chunk of risky assets there. But I also keep some more conservative assets there that I can't get in my 401K - Individual TIPS and some commodities.
Mark

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Tue Nov 12, 2019 8:44 pm

lakpr wrote:
Tue Nov 12, 2019 4:56 pm
thenovice wrote:
Tue Nov 12, 2019 2:48 pm
My employer do not sponsor any retirement account (don't know if because it's a religious organization).
I am assuming that your total annual income is below $193k (if married) or $123k (if single). These are the income limits at which ability to contribute to Roth IRA is phased out -- and in the absence of any workplace retirement plan, ALSO serve as the income limits where you can deduct your traditional IRA contributions. If true, I suggest that you alternate between Roth and traditional IRA contributions each year.

Actually let me add a slight twist to it. Go ahead and contribute fully to Roth IRA through 2025; and in 2026, start contributing to the traditional IRA.

In 2026, unless Congress acts again, the tax rates will revert to 2017 levels -- at least 3% higher than now, and the tax brackets are also narrower. That would be the time to contribute to traditional IRA and get the tax deduction. Now through 2025 will be the time to contribute to Roth IRA and get the tax-free growth.

Through steady contributions to the traditional IRA starting in 2026, achieve your eventual asset allocation ratio.

It's not necessary to include bonds in your portfolio at the very beginning of investing. I feel it's also counterproductive to start including bonds until your portfolio reaches a certain minimum size .... say $50k minimum. I liken this to taking the expressway to your destination. Invest heavily in stocks to reach that $50k balance as quickly as possible. then start adding bonds up to what you think your ideal asset allocation should be.
thenovice wrote:
Tue Nov 12, 2019 2:48 pm
I have a bank account at Schwab, so I thought if I could create my Roth IRA portfolio there. I see that I can buy the Vanguard ETFs from them (right now free) or may be they offer a similar product. Or do you think it's a better idea to open a new account directly with Vanguard?
The only advantage you get by buying at Vanguard directly is that you can put the full $6000 to work in a mutual fund. With ETFs, you can only buy whole shares, which could mean that the last few dollars approximately cannot be invested as they would not buy a whole ETF share. But then, consolidation at one shop (Schwab in this case) has its own simplicity that's valuable. As long as you don't mind seeing something like $5991.75 invested and $8.25 sitting in a money market account, you are fine to simply go with Schwab.
Just found two Schwab mutual funds similar to Vanguard's VTSAX and VTIAX: SWTSX (ER 0.03%) and SWISX (ER 0.06%). If I choose Vanguard's I would have to buy their ETF version in Schwab (free right now): VTI (ER 0.03%) and VXUS (ER 0.09%). Which ones do you recommend? Vanguard ETFs (ER 0.11%) or Schwab Mutual Funds (ER 0.09%)? I see there are some differences between the two families, such as number of holds and market caps, and I'm not sure how these differences could affect my portfolio in the future.

Any idea?

lakpr
Posts: 3065
Joined: Fri Mar 18, 2011 9:59 am

Re: Roth IRA Portfolio Options

Post by lakpr » Tue Nov 12, 2019 8:58 pm

I would have zero hesitation to go with Schwab mutual funds. Also, the ER will be a weighted average of your contributions to the individual funds, not sum.

Say you are contributing $6000 to the IRA
Buying $4500 of SWTSX, 0.03% ER
Buying $1500 of SWISX, 0.06% ER

Expense on first fund = 0.03% * $4500 = $1.35
Expense on second fund = 0.06% * $1500 = $0.90
Total expense = $2.25
Total expense ratio = $2.25 ÷ $6000 = 0.0375%

The blended ER falls in between the two.

retiredjg
Posts: 38461
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth IRA Portfolio Options

Post by retiredjg » Tue Nov 12, 2019 9:10 pm

thenovice wrote:
Tue Nov 12, 2019 12:11 pm
Hello,

I need help to create my Roth IRA portfolio.
You will get better help if you look at all of the savings you have/will have for retirement as one portfolio and tell us about all that you have.

I get that you don't have a plan at work, but Roth IRA cannot make up your entire retirement portfolio - it won't be big enough. What you put in Roth depends on whatever else you have. In your case, it might be best to put some bonds in Roth IRA - it just depends.

Consider pulling all your information together in the format we use to help people with their portfolio questions. We'll help you figure out where to put what (although I cannot guarantee that everybody will think the same thing).

See the format in the link at the bottom of this question for how to present your information in a way that makes it easier for us to help you.

retiredjg
Posts: 38461
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth IRA Portfolio Options

Post by retiredjg » Tue Nov 12, 2019 9:14 pm

EDV = Vanguard Extended Duration Treasury ETF

I'm not familiar with this fund, but Vanguard ranks it as a 5 out of 5 on their risk scale. For that reason, it is not a good choice for your core bond allocation.

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Tue Nov 12, 2019 9:40 pm

Thanks to all of you

retiredjg
Posts: 38461
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth IRA Portfolio Options

Post by retiredjg » Wed Nov 13, 2019 8:37 am

thenovice wrote:
Tue Nov 12, 2019 9:40 pm
Thanks to all of you
I'd like to make some comments on the things you have posted. I hope you find them valuable.

1. Your 3 portfolio ideas in the original post are considerably different in terms of risk. Much of your portfolio risk is determined by the stock to bond ratio. Some is determined by the type of funds you pick.
  • #1 is a nice well rounded portfolio with 14% in bonds.

    #2 is a nice well rounded portfolio with 30% in bonds. It is more conservative than #1.

    3# is a less diversified portfolio and it does have both stocks and bonds, but the allocation to bonds is only 10% and the bonds in that fund are very aggressive making this combination act more like only 5% in bonds (guestimation on my part). This idea is more aggressive than #1.
Since you are considering all 3 of these, it indicates you have not yet made a decision about your desired risk level. Other than how much money to save, your risk level is the most important investing decision you will make. You should probably give this more thought before making any decision.


2. It makes no sense to plan a Roth IRA without considering what is in your Wealthfront account(s). It will be a portfolio without a plan. Your accounts might be supporting each other. They might not.


3. It may be that $6k a year is all you can save right now. If so, Roth IRA may or may not be your best choice. It is sometimes better to use traditional IRA because that might give you access to some tax credits.


4. For now, it appears that Roth IRA is the only thing you have available? If so, your bonds will have to go into Roth IRA. This is not a problem and is a much smarter approach than choosing to hold no bonds at all. Or maybe you also have a taxable account at Wealthfront? It's unclear. Whatever you have, your plan needs to include it all.


5. 15% in emerging market bonds is a bit nuts. Is that one of Wealthfront's recipes for investing or did you pick that one yourself? Either way, some reconsideration might be in order.


6. I think a portfolio containing only 80% total stock and 20% total international is a portfolio without bonds. None of your original ideas was a portfolio without bonds. Why consider that now? And yes, it likely should be more conservative as you age.

Your question implies that you are 15 years from retirement - consider that a portfolio of 100% stocks may not even be appropriate for that stage in life.


7. S&P 500 index and total stock track each other so closely as to be essentially the same.


8. REIT stocks are already included in the total stock market (and to some extent in the 500 index). You don't "need" more. Some people like to have more and that is generally regarded as ok in the amounts you are considering.


9. Schwab is fine. Whether you use Schwab mutual funds or any other companies ETFs is up to your personal preferences.

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Wed Nov 13, 2019 12:15 pm

I do have a regular investment account at Wealthfront. I was unable to create my portfolio there; they just created for me with the following allocations based upon a risk score of 9.5 of 10:

U.S. Stocks 35%
Foreign Stocks 29%
Emerging Markets 19%
Dividend Stocks 10%
Municipal Bonds 7%
Cash 0.9% (since they don't offer fractional shares I have always some non invested cash)

Don't know if right now, since I'm considering to open a Roth IRA at Schwab with all stocks, I should decrease that risk score so they increase the bond allocations in my portfolio. Anyway, don't know if having these two portfolios in two different locations could trigger a wash sale (I have read about it)

retiredjg
Posts: 38461
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth IRA Portfolio Options

Post by retiredjg » Wed Nov 13, 2019 12:56 pm

Is it possible when you said "15% emerging market bonds" earlier that you meant just "15% emerging markets"? Or maybe you think that "emerging markets" refers to bonds?

Your account at Wealthfront - one place you called it a Roth IRA and one place you called it a "regular investment account". Which is it? Or do you have both located there?

Don't know if right now, since I'm considering to open a Roth IRA at Schwab with all stocks, I should decrease that risk score so they increase the bond allocations in my portfolio. Anyway, don't know if having these two portfolios in two different locations could trigger a wash sale (I have read about it)
If Wealthfront is tax loss harvesting your account, it can definitely cause a wash sale. Most people want to avoid that. Are they doing tax loss harvesting?

The way to avoid a wash sale would be to put a target fund (an all in one fund containing all your asset classes) in the Roth IRA. Or just put REIT in the Roth IRA if the Roth IRA is small enough in comparison to the rest of your portfolio. Or a combination of a target fund and a REIT fund in the Roth IRA - might be the best idea.

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Wed Nov 13, 2019 1:48 pm

retiredjg wrote:
Wed Nov 13, 2019 12:56 pm
Is it possible when you said "15% emerging market bonds" earlier that you meant just "15% emerging markets"? Or maybe you think that "emerging markets" refers to bonds?

Your account at Wealthfront - one place you called it a Roth IRA and one place you called it a "regular investment account". Which is it? Or do you have both located there?

Don't know if right now, since I'm considering to open a Roth IRA at Schwab with all stocks, I should decrease that risk score so they increase the bond allocations in my portfolio. Anyway, don't know if having these two portfolios in two different locations could trigger a wash sale (I have read about it)
If Wealthfront is tax loss harvesting your account, it can definitely cause a wash sale. Most people want to avoid that. Are they doing tax loss harvesting?

The way to avoid a wash sale would be to put a target fund (an all in one fund containing all your asset classes) in the Roth IRA. Or just put REIT in the Roth IRA if the Roth IRA is small enough in comparison to the rest of your portfolio. Or a combination of a target fund and a REIT fund in the Roth IRA - might be the best idea.
I had two accounts at Wealthfront. One Roth IRA and one regular investment. I’m moving the Roth to Schwab so I can choose my own portfolio and avoid the .25 Wealthfront fee. But I planned to leave the regular investment at Wealthfront so they can do tax loss harvesting on that one.

The emerging markets allocation is on stocks.

retiredjg
Posts: 38461
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth IRA Portfolio Options

Post by retiredjg » Wed Nov 13, 2019 1:58 pm

Ok. That clears that up.

My suggestion would be to put 5% - 8% of total portfolio (both accounts together) into the Vanguard REIT fund and put the rest of the Roth IRA into a target fund - maybe 2055 since you want to be aggressive. That would give you very broad diversification and a little extra exposure to REIT and there would be no wash sale conflicts...

...unless there are some REIT stocks tucked away in the allocations to US stocks or Dividend stocks. You would have to check to be sure. Or ask if you need help with that part.


If you put the other things you were considering into the Roth IRA, there will definitely be some wash sales to keep up with.

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Wed Nov 13, 2019 8:44 pm

retiredjg wrote:
Wed Nov 13, 2019 1:58 pm
Ok. That clears that up.

My suggestion would be to put 5% - 8% of total portfolio (both accounts together) into the Vanguard REIT fund and put the rest of the Roth IRA into a target fund - maybe 2055 since you want to be aggressive. That would give you very broad diversification and a little extra exposure to REIT and there would be no wash sale conflicts...

...unless there are some REIT stocks tucked away in the allocations to US stocks or Dividend stocks. You would have to check to be sure. Or ask if you need help with that part.


If you put the other things you were considering into the Roth IRA, there will definitely be some wash sales to keep up with.
If that is the case things get more complex. My wife has an investment and a Roth IRA at Wealthfront; I have one investment as shown above. I opened a Roth IRA at Schwab (to transfer mine from Wealthfront). I wanted a very aggressive and diversified portfolio in the Roth IRA, and as it was suggested, I was thinking to invest in Schwab mutual funds equivalent to those at Vanguard: SWTSX (ER 0.03%) and SWISX (ER 0.06%). Nonetheless, I see that Wealthfront portfolio uses VTI Vanguard Total Stock Market ETF, ITOT iShares Core S&P Total U.S. Stock Mkt ETF, and SCHB Schwab U.S. Broad Market ETF; so can they potentially cause a wash sale with SWTSX? On the other hand, they use VEA Vanguard FTSE Developed Markets ETF, IXUS iShares Core MSCI Total Intl Stk ETF, and SCHF Schwab International Equity ETF. Can they also conflict with SWISX? How similar are SWTSX and SWISX mutual funds to Wealthfront ETFs so they can trigger a wash sale?

You suggested me to choose a Vanguard Target Fund, but in order to open that fund I would have to create still another account at Vanguard. Also, I'm not sure how well it would do in terms of returns and diversification compare to SWTSX (ER 0.03%) and SWISX (ER 0.06%) in an 80/20 portfolio. Don't know if I could opt out of the tax harvesting feature at Wealthfront (don't know if doing this will be enough, though).

I was also thinking to transfer all accounts (including my wife's) to Schwab if they provide advise of a potentially wash sale (don't know if they do that).

Any clarification and/or suggestion?

retiredjg
Posts: 38461
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth IRA Portfolio Options

Post by retiredjg » Wed Nov 13, 2019 9:07 pm

I'll take another look at these questions in the morning over coffee.

Until then, you might give some consideration to posting your information in the format we use to help people with their portfolio questions. See the link at the bottom of this message for how to do that.

Maybe you don't see it yet, but the original question you asked triggered a lot of answers and suggestions that are totally inappropriate for your situation because people did not know what your actual situation is. They just answered your questions assuming that what you told them is all that was important. It seems there is more to the story, especially since you have a spouse who also has investments.

So it is probably better to just start over from the beginning if you are willing to do that. Again, see the link at the bottom of this message. The closer you follow the format, the easier it is to help you (which means the more and better help you will get).

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Wed Nov 13, 2019 10:22 pm

Emergency funds: Three to six months of expenses

Debt: Mortgage at 4% interest rate.

Tax Filing Status: Married Filing Jointly. Two Dependents.

Tax Rate: Lower Tax Rate

State of Residence: NC

Age: 40

Desired Asset allocation: 80-85% stocks / 0% bonds

Desired International allocation: 20-15% of stocks

Current retirement assets

My Current Portfolios:

Wealthfront Regular Investment Account (mid four-figures; created about one year ago with 14.71% time-weighted return):

U.S. Stocks 35% (Leading ETFs for this Category: VTI Vanguard Total Stock Market ETF, ITOT iShares Core S&P Total U.S. Stock Mkt ETF, SCHB Schwab U.S. Broad Market ETF)

Foreign Stocks 29% (Leading ETFs for this Category: VEA Vanguard FTSE Developed Markets ETF, IXUS iShares Core MSCI Total Intl Stk ETF, SCHF Schwab International Equity ETF)

Emerging Markets 19% (Leading ETFs for this Category: VWO Vanguard FTSE Emerging Markets ETF, IEMG iShares Core MSCI Emerging Markets ETF, SCHE Schwab Emerging Markets Equity ETF)

Dividend Stocks 10% (Leading ETFs for this Category: VIG Vanguard Dividend Appreciation, DVY iShares Dow Jones Select Dividend Index ETF, SCHD Schwab Dow Jones U.S. Dividend 100 Index)

Municipal Bonds 7% (Leading ETFs for this Category: VTEB Vanguard S&P National AMT-Free Muni, TFI State Street Barclays Capital Muni, MUB iShares S&P National AMT-Free Muni)

And,

Schwab Roth IRA (Just opened. Not yet invested. Thought to invest mid four-figures in SWTSX (ER 0.03%) and SWISX (ER 0.06%) mutual funds with an allocation of 80-85/20-15)

My wife’s Current Portfolios:

Wealthfront Regular Investment Account (low four-figures; created about one year ago with 12.55% time-weighted return):

U.S. Stocks 35% (Leading ETFs for this Category: VTI Vanguard Total Stock Market ETF, ITOT iShares Core S&P Total U.S. Stock Mkt ETF, SCHB Schwab U.S. Broad Market ETF)

Foreign Stocks 29% (Leading ETFs for this Category: VEA Vanguard FTSE Developed Markets ETF, IXUS iShares Core MSCI Total Intl Stk ETF, SCHF Schwab International Equity ETF)

Emerging Markets 19% (Leading ETFs for this Category: VWO Vanguard FTSE Emerging Markets ETF, IEMG iShares Core MSCI Emerging Markets ETF, SCHE Schwab Emerging Markets Equity ETF)

Dividend Stocks 10% (Leading ETFs for this Category: VIG Vanguard Dividend Appreciation, DVY iShares Dow Jones Select Dividend Index ETF, SCHD Schwab Dow Jones U.S. Dividend 100 Index)

Municipal Bonds 7% (Leading ETFs for this Category: VTEB Vanguard S&P National AMT-Free Muni, TFI State Street Barclays Capital Muni, MUB iShares S&P National AMT-Free Muni)

And,

Wealthfront Roth IRA Account (mid three-figures; created about one year ago with 5.68% time-weighted return)

U.S. Stocks 35% (Leading ETFs for this Category: VTI Vanguard Total Stock Market ETF, ITOT iShares Core S&P Total U.S. Stock Mkt ETF, SCHB Schwab U.S. Broad Market ETF)

Foreign Stocks 22% (Leading ETFs for this Category: VEA Vanguard FTSE Developed Markets ETF, IXUS iShares Core MSCI Total Intl Stk ETF, SCHF Schwab International Equity ETF)

Emerging Markets 14% ( (Leading ETFs for this Category: VWO Vanguard FTSE Emerging Markets ETF, IEMG iShares Core MSCI Emerging Markets ETF, SCHE Schwab Emerging Markets Equity ETF)

Real Estate 12% (Leading ETFs for this Category: VNQ Vanguard REIT ETF, IYR iShares Dow Jones U.S. Real Estate ETF, SCHH
Schwab U.S. REIT ETF)

Emerging Market Bonds 17% (Leading ETFs for this Category: EMB iShares JPM EMBI Global Core, PCY PowerShares DB EM USD Liquid Balanced, EMLC Market Vectors Emerging Markets Local Currency Bond ETF)

No employer provided retirement plans nor other investment for any of us.

Contributions

New annual Contributions
$6000 my Roth IRA
$5000 my wife’s IRA/Roth IRA
$2500 my taxable (for retirement, not short term goals)
$2000 my wife’s taxable (for retirement, not short term goals)

Follow-up Questions

My wife has an investment and a Roth IRA at Wealthfront; I have one regular investment account at Wealthfront as well. I just opened a Roth IRA at Schwab. I want a very aggressive and diversified portfolio in my Roth IRA. I was thinking to invest in Schwab mutual funds which are equivalent to those at Vanguard: SWTSX (ER 0.03%) and SWISX (ER 0.06%). Nonetheless, I see that Wealthfront portfolio uses VTI Vanguard Total Stock Market ETF, ITOT iShares Core S&P Total U.S. Stock Mkt ETF, and SCHB Schwab U.S. Broad Market ETF; so can they potentially cause a wash sale with SWTSX? On the other hand, they use VEA Vanguard FTSE Developed Markets ETF, IXUS iShares Core MSCI Total Intl Stk ETF, and SCHF Schwab International Equity ETF. Can they also conflict with SWISX? How similar are SWTSX and SWISX mutual funds to Wealthfront ETFs so they can trigger a wash sale?

You suggested me to choose a Vanguard Target Fund but I'm do not like the fact that with Target Funds I can’t manage risk on my own; also, I’m not sure how well Vanguard Target Fund would do in terms of returns and diversification compare to SWTSX (ER 0.03%) and SWISX (ER 0.06%) in an 80/20 portfolio. What about Fidelity Freedom® Index 2055 Fund compared to Vanguard Target Fund 2065 or Schwab Target 2060 Fund? Follow this link.

Also, what if I can opt out of the tax harvesting feature at Wealthfront? (Don't know if doing this will be enough, though).

I was also considering to transfer all accounts (including my wife's) to Schwab (or Vanguard or Fidelity) if they provide advise of a potentially wash sale (don't know if they do that). It doesn't matter if I have to close the recently opened Schwab Roth IRA account if one of these other alternatives look better.

Any clarification and/or suggestion?
Last edited by thenovice on Thu Nov 14, 2019 8:19 am, edited 7 times in total.

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Wed Nov 13, 2019 10:23 pm

retiredjg wrote:
Wed Nov 13, 2019 9:07 pm
I'll take another look at these questions in the morning over coffee.

Until then, you might give some consideration to posting your information in the format we use to help people with their portfolio questions. See the link at the bottom of this message for how to do that.

Maybe you don't see it yet, but the original question you asked triggered a lot of answers and suggestions that are totally inappropriate for your situation because people did not know what your actual situation is. They just answered your questions assuming that what you told them is all that was important. It seems there is more to the story, especially since you have a spouse who also has investments.

So it is probably better to just start over from the beginning if you are willing to do that. Again, see the link at the bottom of this message. The closer you follow the format, the easier it is to help you (which means the more and better help you will get).
Thank you. Just submitted in the format requested. Hope this will help.

infotrader
Posts: 264
Joined: Tue Feb 28, 2017 2:39 pm

Re: Roth IRA Portfolio Options

Post by infotrader » Wed Nov 13, 2019 11:36 pm

I second

2)
100% Vanguard Total Stock Mkt Idx Adm (VTSAX)

I doubt if the OP will use the money even after 25 years.

retiredjg
Posts: 38461
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth IRA Portfolio Options

Post by retiredjg » Thu Nov 14, 2019 8:22 am

Thank you for the update.
I was thinking to invest in Schwab mutual funds which are equivalent to those at Vanguard: SWTSX (ER 0.03%) and SWISX (ER 0.06%). Nonetheless, I see that Wealthfront portfolio uses VTI Vanguard Total Stock Market ETF, ITOT iShares Core S&P Total U.S. Stock Mkt ETF, and SCHB Schwab U.S. Broad Market ETF; so can they potentially cause a wash sale with SWTSX? On the other hand, they use VEA Vanguard FTSE Developed Markets ETF, IXUS iShares Core MSCI Total Intl Stk ETF, and SCHF Schwab International Equity ETF. Can they also conflict with SWISX? How similar are SWTSX and SWISX mutual funds to Wealthfront ETFs so they can trigger a wash sale?
These are difficult questions to answer because the standard for what causes a wash sale is "substantially identical" which has never been clearly defined. Nobody knows exactly what it means, but everybody has an opinion.

Some people believe if two investments follow different indexes, they are not substantially identical (and do not cause a wash sale). Some people think that even if two funds follow the same index, if they are from different companies, they are not substantially identical.

Here is a discussion regarding SCHB and SWTSX. There are probably many more discussions that you could find using the google box above.

viewtopic.php?p=4260558#p4260558

I tend to think that there would not be a problem with these two but that is simply my opinion.

However, I think the story is different with the international funds. I think SWISX follows an index that one of the funds at Wealthfront uses. There are probably different opinions about whether a fund at Schwab and a fund at another place which follows the same index are substantially identical. You could, however, use VXUS Vanguard's Total International Index because it contains both developed and emerging markets and the Wealthfront funds are only developed markets.

You suggested me to choose a Vanguard Target Fund but I'm not sure how well it would do in terms of returns and diversification compare to SWTSX (ER 0.03%) and SWISX (ER 0.06%) in an 80/20 portfolio. What about Fidelity Freedom® Index 2055 Fund compared to Vanguard Target Fund 2065 or Schwab Target 2060 Fund?
I think I suggested a target fund, not necessarily a Vanguard target fund. There is no question that a target fund will not cause a wash sale. The target funds are more diversified than just the two stock funds and a target fund that is 90% stock and 10% bonds will perform almost as well as 100% stocks.

Schwab offers target funds. I think they have two different series of target funds. One is actively managed and one is just index funds and lower cost. You could certainly use one of the Schwab Target Index funds for the Roth IRA.

Also, what if I can opt out of the tax harvesting feature at Wealthfront? (Don't know if doing this will be enough, though).
I don't know, but I think you can. In fact, don't you actually pay extra to have them tax loss harvest?

I was also considering to transfer all accounts (including my wife's) to Schwab (or Vanguard or Fidelity) if they provide advise of a potentially wash sale (don't know if they do that). It doesn't matter if I have to close the recently opened Schwab Roth IRA account if one of these other alternatives look better.
I don't know that anybody provides advice about wash sale conflicts. That would be tax advice which they tend to steer away from.

Any clarification and/or suggestion?
I think you may be attempting to have a portfolio that is too aggressive. It appears that you have less than $15,000 saved for retirement and you are trying to play catch up. If you have no experience in the stock market, when the bear market comes you may be more uncomfortable than you expect.


Unless you are just very happy with Wealthfront and see a great benefit, I think you should consider moving all the accounts. There is no reason to pay them - I think you said .25%? - when you can do the same exact thing (except the tax loss harvesting) with a target index fund. If you are getting a good benefit from the tax loss harvesting, that could be reason to stay.

Topic Author
thenovice
Posts: 19
Joined: Tue Nov 12, 2019 11:54 am

Re: Roth IRA Portfolio Options

Post by thenovice » Fri Nov 15, 2019 4:27 pm

Thank you!

ChiLawyer
Posts: 4
Joined: Thu Aug 22, 2019 11:10 pm

Re: Roth IRA Portfolio Options

Post by ChiLawyer » Fri Nov 15, 2019 5:18 pm

I am 100% VIGAX (Vanguard Growth Index Admiral) in my Roth IRA. The reason is because I don't need to touch this account for a really long time (30+ years), so I choose the fund that tracked the market, but had the highest likelihood of aggressive growth. You'd be equally fine at 100% S&P or 100% Total Stock, but the Roth IRA (especially if you're not touching it for a long time) is the place to take index fund related risks.

Post Reply