Hypothetical portfolio

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Topic Author
ArboristInTraining
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Joined: Thu Jan 09, 2020 2:35 am

Hypothetical portfolio

Post by ArboristInTraining » Fri Jan 10, 2020 10:53 pm

Evening Bogleheads,

What are you opinions on this hypothetical portfolio? Feedback is much appreciated!

Total assets: 180,00K
Asset allocation: 90% stocks, 10% bonds

Stocks:
60% VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares) Expense ratio0.040%
20% VWNFX (Vanguard Windsor™ II Inv) Expense Ratio 0.340%
10% VGTSX (Vanguard Total International Stock Index Fund) Expense Ratio 0.170%
10% VGSIX (Vanguard Real Estate Index Investor) Expense Ratio 0.260%

Bonds: 100% VBMFX (Vanguard Total Bond Market Index Inv) Expense Ratio 0.150%

I'm 23 years old and I'd like to be as aggressive as possible early on. My plan is to hold and pour in about 30k each year for the first couple years, and more as my income goes up.

Thoughts?

retired@50
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Re: Hypothetical portfolio

Post by retired@50 » Fri Jan 10, 2020 11:27 pm

ArboristInTraining wrote:
Fri Jan 10, 2020 10:53 pm
Evening Bogleheads,

What are you opinions on this hypothetical portfolio? Feedback is much appreciated!

Total assets: 180,00K
Asset allocation: 90% stocks, 10% bonds

Stocks:
60% VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares) Expense ratio0.040%
20% VWNFX (Vanguard Windsor™ II Inv) Expense Ratio 0.340%
10% VGTSX (Vanguard Total International Stock Index Fund) Expense Ratio 0.170%
10% VGSIX (Vanguard Real Estate Index Investor) Expense Ratio 0.260%

Bonds: 100% VBMFX (Vanguard Total Bond Market Index Inv) Expense Ratio 0.150%

I'm 23 years old and I'd like to be as aggressive as possible early on. My plan is to hold and pour in about 30k each year for the first couple years, and more as my income goes up.

Thoughts?
Is the account a 401k, IRA, Roth IRA, taxable?

Why the actively managed fund (VWNFX) for exposure to the large cap value area?

VGTSX is a bad ticker. Use VTIAX for total international stock index, ER = .11%, minimum = $3,000

VBMFX is a bad ticker. Use VBTLX for total US Bond index, ER = .05%, minimum = $3,000

If the Windsor fund will be inside a Roth IRA, then it would be okay. If the Windsor fund is in taxable, I'd argue against it, since it pays dividends AND capital gains from time to time. This will become more of a headache on your tax returns as time goes by.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

Topic Author
ArboristInTraining
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Joined: Thu Jan 09, 2020 2:35 am

Re: Hypothetical portfolio

Post by ArboristInTraining » Sat Jan 11, 2020 7:26 am

The account is a taxable one. Thank you for the feedback!

HomeStretch
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Re: Hypothetical portfolio

Post by HomeStretch » Sat Jan 11, 2020 7:50 am

I am not a fan of VGSIX (tax inefficient) or VWNFX (hold more VTSAX instead) in a Taxable account.

Do you contribute to any tax deferred plans like a 401k? Do you contribute annually to a Roth IRA either directly or via a backdoor Roth? If so, VGSIX could be held there.

Topic Author
ArboristInTraining
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Joined: Thu Jan 09, 2020 2:35 am

Re: Hypothetical portfolio

Post by ArboristInTraining » Sat Jan 11, 2020 7:55 am

I didn't think think of the tax implications, so I appreciate you bringing that to my attention. I dont currently contribute to a tax deferred account, but I plan to once I begin my new job!

saver1
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Re: Hypothetical portfolio

Post by saver1 » Sun Jan 12, 2020 12:58 am

REITS may not be needed at your age. Also, why not go 100% stocks since you are so young and want to be as aggressive as possible?

You should use the admiral shares as well.

Topic Author
ArboristInTraining
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Joined: Thu Jan 09, 2020 2:35 am

Re: Hypothetical portfolio

Post by ArboristInTraining » Sun Jan 12, 2020 1:21 am

I might just do that. I'm just still unsure of which equity index funds to go with and in what allocation. Any suggestions?

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305pelusa
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Re: Hypothetical portfolio

Post by 305pelusa » Sun Jan 12, 2020 1:54 am

ArboristInTraining wrote:
Sun Jan 12, 2020 1:21 am
I might just do that. I'm just still unsure of which equity index funds to go with and in what allocation. Any suggestions?
It’s a little weird to have an allocation to REITs (which are currently fairly expensive and not value) and Windsor (which is about buying inexpensive, value stocks).

Check out the Windsor sector allocations. It strongly tilts away from real estate at the moment for this reason. It’s a little strange to counteract that with a REIT allocation.

Also, 10% International is on the low end from a diversification standpoint. Different people have different opinions but I follow what the smart people of Vanguard, Schwab, Fidelity and more recommend. 30-50% in International.

I don’t know much about Windsor and I’m certainly not interested in actively managed funds but what’s wrong with a simple:
60% VTSAX
40% VTIAX

Topic Author
ArboristInTraining
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Re: Hypothetical portfolio

Post by ArboristInTraining » Sun Jan 12, 2020 2:09 am

I like simple. I also understand the distaste for actively managed funds. However, wouldn't it be beneficial to include a large cap growth fund like VWSUX (Vanguard US Growth Investor) Expense Ratio 0.390%, if it has the potential for greater gains? Or is the higher cost associated with an actively managed fund make it not worthwhile over time?

saver1
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Re: Hypothetical portfolio

Post by saver1 » Sun Jan 12, 2020 3:09 am

You can start by building the core three fund portfolio.

Total US Stock market index
Total international stock market index
Total US bond market index (you can leave this out if deciding to go 100% stocks)

Once you have established your core portfolio then you can decide if you want to expand into other funds.

For example, you can add mid cap and small cap index funds and even choose if you want value or growth.

I personally don’t favor international stocks so I only have 20% allocated to international. It’s a personal choice you have to make.

I have 30% allocated into small and mid cap funds. I have another 40% allocated to S&P 500 or US total stock market index (VTSAX). The remaining 10% is in total US bond market index.

snailderby
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Re: Hypothetical portfolio

Post by snailderby » Sun Jan 12, 2020 10:55 am

Welcome to the forum!

1. Are you eligible to contribute to a tax-advantaged account, like a (traditional or Roth) 401(k), (traditional or Roth) IRA, or HSA?

2. You asked, "[W]ouldn't it be beneficial to include a large cap growth fund like VWSUX (Vanguard US Growth Investor) Expense Ratio 0.390%, if it has the potential for greater gains?"

a. Any actively-managed fund has the potential to outperform or underperform the index. But the odds are not in your favor. Over a 15-year period, 92% of large-cap growth funds underperformed their benchmarks. See https://www.ifa.com/articles/spiva_-yea ... scorecard/.

b. Historically, growth funds have underperformed value funds. No idea what the future will hold but I would be careful about overweighting growth funds.
Last edited by snailderby on Sun Jan 12, 2020 11:54 am, edited 1 time in total.

dbr
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Re: Hypothetical portfolio

Post by dbr » Sun Jan 12, 2020 11:33 am

ArboristInTraining wrote:
Fri Jan 10, 2020 10:53 pm

60% VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares) Expense ratio0.040%
20% VWNFX (Vanguard Windsor™ II Inv) Expense Ratio 0.340%
10% VGTSX (Vanguard Total International Stock Index Fund) Expense Ratio 0.170%
10% VGSIX (Vanguard Real Estate Index Investor) Expense Ratio 0.260%

Bonds: 100% VBMFX (Vanguard Total Bond Market Index Inv) Expense Ratio 0.150%
There is no reason for you to hold Windsor or Real Estate.

To make sense you need to specify the percents held as a whole. You don't say anything about your stock/bond proportion, which is the one thing that matters.

retired@50
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Re: Hypothetical portfolio

Post by retired@50 » Sun Jan 12, 2020 12:57 pm

ArboristInTraining wrote:
Sat Jan 11, 2020 7:55 am
I didn't think think of the tax implications, so I appreciate you bringing that to my attention. I dont currently contribute to a tax deferred account, but I plan to once I begin my new job!
Unfortunately, taxes are an ever-present issue. Some up-front planning can go a long way toward minimizing regrets (and tax bills) later on. Having an inconvenient investment in the wrong account can create unnecessary headaches. It's a little like planting a tree in the wrong spot. You don't want to have to transplant a tree every few years, do you? So, you pick a good spot to plant the tree, then leave it alone. Same with investments. Put them in the right place, then leave them alone.

For your current taxable account, I'd suggest you stick to the total US stock fund (VTSAX) and the total international stock fund (VTIAX). Once you get a list of the 401k offerings in your new job (congrats!), look for a bond index fund to round out your portfolio. If you're uncertain about your 401k fund offerings, come back here and list them in a post, so the group can help you decide.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

Topic Author
ArboristInTraining
Posts: 14
Joined: Thu Jan 09, 2020 2:35 am

Re: Hypothetical portfolio

Post by ArboristInTraining » Sun Jan 12, 2020 2:05 pm

Thanks for the feedback! Once my brokerage account transfers over to vanguard I'll be going with that two fund portfolio. This community is awesome.

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305pelusa
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Re: Hypothetical portfolio

Post by 305pelusa » Sun Jan 12, 2020 2:13 pm

ArboristInTraining wrote:
Sun Jan 12, 2020 2:09 am
I like simple. I also understand the distaste for actively managed funds. However, wouldn't it be beneficial to include a large cap growth fund like VWSUX (Vanguard US Growth Investor) Expense Ratio 0.390%, if it has the potential for greater gains? Or is the higher cost associated with an actively managed fund make it not worthwhile over time?
It's probably not beneficial no. The reason is that you could just decrease your bond holdings a bit and increase your stock holdings a bit. This would also have the net result of targeting a higher expected return but you get to save on the fund fees.

And if you're dead-set on buying riskier stock positions (and there are good reasons for it), then instead of an actively managed fund in a very efficient market (like VWSUX), how about simply buying index fund in a much riskier part of the market? Say like a small capitalization, value fund like VIOV? It's also cheaper to boot.

Topic Author
ArboristInTraining
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Re: Hypothetical portfolio

Post by ArboristInTraining » Sun Jan 12, 2020 4:21 pm

I'll definitley look into the small value capitalization fund.

If I was looking to sell off my current portfolio and exchange it for the two fund portfolio mentioned earlier in this thread, would it make sense to have a vanguard personal advisor do it for me? Or should I simply do that on my own?

retired@50
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Re: Hypothetical portfolio

Post by retired@50 » Mon Jan 13, 2020 12:36 am

ArboristInTraining wrote:
Sun Jan 12, 2020 4:21 pm
I'll definitley look into the small value capitalization fund.

If I was looking to sell off my current portfolio and exchange it for the two fund portfolio mentioned earlier in this thread, would it make sense to have a vanguard personal advisor do it for me? Or should I simply do that on my own?
I would generally advise doing it on your own, but you'll need to gauge your level of comfort with the process. You can always post more specific questions if you need to. If you don't think you can handle it, or don't want to, using the Vanguard advisor is fine. Since it's a taxable account we're talking about, you'll need to be mindful of any capital gains or losses and deal with those consequences on your tax return for 2020, filed by April 15, 2021.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

Topic Author
ArboristInTraining
Posts: 14
Joined: Thu Jan 09, 2020 2:35 am

Re: Hypothetical portfolio

Post by ArboristInTraining » Mon Jan 13, 2020 3:14 am

I've seen it mentioned on forums that individuals used PAS for the first year or so and then managed the portfolio on their own, and I'm leaning towards that strategy. This is all still very new to me!

This might be a silly question, but is there an advantage to putting the funds in a taxable account over a tax deferred one? For example, if I wont need the funds or plan to touch them for the next 20/30 years for certainty, would it be beneficial make an IRA account and place the assets there? Along with any future contributions to those index funds. My current portfolio is a taxable one simply because my initial broker set it up that way.

snailderby
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Re: Hypothetical portfolio

Post by snailderby » Mon Jan 13, 2020 10:18 am

ArboristInTraining wrote:
Mon Jan 13, 2020 3:14 am
This might be a silly question, but is there an advantage to putting the funds in a taxable account over a tax deferred one? For example, if I wont need the funds or plan to touch them for the next 20/30 years for certainty, would it be beneficial make an IRA account and place the assets there? Along with any future contributions to those index funds. My current portfolio is a taxable one simply because my initial broker set it up that way.
You can get a tax break for contributions to a traditional IRA or 401(k). With a Roth IRA or 401(k), contributions are not tax deductible. But qualified withdrawals are tax free, for both contributions and earnings/growth.

Whether you go with a traditional or Roth account, investing in a tax-advantaged account can potentially save you hundreds of thousands of dollars in taxes. The downside is there are restrictions on when and whether you can withdraw money from these accounts before you turn 59 1/2.

retired@50
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Re: Hypothetical portfolio

Post by retired@50 » Mon Jan 13, 2020 11:05 am

snailderby wrote:
Mon Jan 13, 2020 10:18 am
ArboristInTraining wrote:
Mon Jan 13, 2020 3:14 am
This might be a silly question, but is there an advantage to putting the funds in a taxable account over a tax deferred one? For example, if I wont need the funds or plan to touch them for the next 20/30 years for certainty, would it be beneficial make an IRA account and place the assets there? Along with any future contributions to those index funds. My current portfolio is a taxable one simply because my initial broker set it up that way.
You can get a tax break for contributions to a traditional IRA or 401(k). With a Roth IRA or Roth 401(k), contributions are not tax deductible. But qualified withdrawals are tax free, for both contributions and earnings/growth.

Whether you go with a traditional or Roth account, investing in a tax-advantaged account can potentially save you hundreds of thousands of dollars in taxes. The downside is there are restrictions on when and whether you can withdraw money from these accounts before you turn 59 1/2.
Added the word Roth in reference to the Roth 401(k) mentioned by snailderby above.

I agree that putting some money into a traditional IRA or a Roth IRA is smart. Since you've stated that you'll be using a 401k plan at work in the near future, I'd use that workplace account for your tax-deferred space (traditional 401k) and also set up a Roth IRA account at the custodian of your choice (Vanguard, Fido, whoever). Feel free to read up in the Boglehead Wiki about tax-deferred accounts, in addition to "Roth" style accounts. Understanding and utilizing these advantages over a lifetime of earning can make a huge difference in your net worth.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

HomeStretch
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Re: Hypothetical portfolio

Post by HomeStretch » Mon Jan 13, 2020 11:29 am

You have a Taxable account and plan to contribute to an employer 401k when you start a new job. Consider also contributing to a Roth IRA.

You can contribute directly to a Roth IRA up to $6k for 2019 (by 4/15/20) and 2020 if you have eligible compensation and don’t exceed the IRS income limit (if you do exceed the income limit you can do a backdoor Roth). So, if any funds in your Taxable account are for long-term retirement savings, consider using a portion to contribute to a Roth IRA for 2019 and/or 2020, if eligible. Roth accounts grow tax free whereas income/growth in a Taxable account is generally taxed.

Agree with prior suggestions to consider:
1. 100% stock allocation
2. Use VTSAX/VTIAX
3. Hold bond allocation, if any, in your 401k

Likely not all of your savings should be invested in the market:
1. Keep an emergency fund of at least 3 months living expenses in case of job loss in a safe liquid vehicle like a high-yield savings account, no-penalty CD (Ally offers them), brokerage money market fund (like Vanguard’s VMMXX Prime), etc.
2. Savings needed in < 5 years for short to medium-term goals (such as car or home purchase, wedding, etc.) belong in the same type of safe vehicles above or TBills.

With your new job/salary, spend time to create a plan/budget that allocates your income to savings, debt repayment (if any), spending and taxes. Plan to save at least 15-20% per year, live below your means and avoid debt.

Topic Author
ArboristInTraining
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Re: Hypothetical portfolio

Post by ArboristInTraining » Mon Jan 13, 2020 1:20 pm

Once I build up my emergency fund again I'll look into making a Roth IRA and begin contributing right away!

I couldn't thank you all enough for your thorough advice and consideration. There's always a nagging feeling with financial representatives that their advice is tainted, but you all genuinely want to improve the financial well being of other people. It's a wonderful thing.

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JoeRetire
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Re: Hypothetical portfolio

Post by JoeRetire » Mon Jan 13, 2020 1:22 pm

ArboristInTraining wrote:
Fri Jan 10, 2020 10:53 pm
I'm 23 years old and I'd like to be as aggressive as possible early on. My plan is to hold and pour in about 30k each year for the first couple years, and more as my income goes up.
Makes sense to me, as long as you are willing to endure a bumpy ride.
Very Stable Genius

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