Portfolio Question

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Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

roccodean wrote: Mon Sep 05, 2022 9:58 am
retiredjg wrote: Mon Sep 05, 2022 9:43 am
As you can see, bulk of income going into taxable brokerage account- is this a good portfolio if goal is 60/40 stock/bond?
You do not have a "bad portfolio" but it is not very tax efficient because of the taxable bonds in the taxable account.

The first thing you need to do is see the portfolio as a whole, not as a bunch of separate accounts. It looks like this.
  • Total portfolio = $1,888,000 not including the 529 accounts.

    Taxable. Total 900k 47.7%
    17.2% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
    11.4 % ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS) <---typo? Do you hold the STAR fund too?
    6.7% VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)
    6.7% Vanguard Total Bond Market Index Fund (BND)
    5.7% Vanguard Total International Bond Index Fund (BNDX)

    His 401k 472k 25%
    12.5 FID FREEDOM 2030 K (FSNQX)
    12.5 FID FREEDOM 2035 K (FSNUX)


    His Roth IRA at Vanguard $36k 1.9%
    1.9% VTTHX- 2035 target retirement


    Her 403b $230k 12.2%
    12.2% Fidelity 2030 fund class K ( FSNQX) 64/36 stock/bond

    Her Roth IRA- vanguard $250K 13.2%
    13.2% VTTHX- 2035 target retirement
I believe you have set it up that way intentionally, to take advantage of the easy target funds in all the accounts except taxable. The way to make this more tax-efficient is to

1. fill His 401k and Her 403b with a taxable bond fund (whatever your best choice is)

2. Sell all the total bond and total international bond in the taxable account

3. Keep only as much of the tax-exempt bond as needed to reach your 60/40 desired allocation. Since your taxable contributions account for such a large portion of total contributions, the tax-exempt bond percentage in taxable will grow over time. If you are not comfortable with that much in VTEB, put some into a short term treasury fund (lower dividends and no state tax).

4. Put a 500 index fund (or 500 index plus extended market index) in the Roth IRAs.

It would look like this:
  • Taxable. Total 900k 47.7%
    24.7% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
    20% % ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS) <---typo? Do you hold the STAR fund too?
    3% % VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)


    His 401k 472k 25%
    25% best bond fund


    His Roth IRA at Vanguard $36k 1.9%
    1.9% 500 index or extended market index


    Her 403b $230k 12.2%
    12.2% best bond fund


    Her Roth IRA- vanguard $250K 13.2%
    13.2% 500 index



Contributions

New annual Contributions
$20,500 his deductible 401k + employer matches addition $30,000 <--all to bonds
His mega backdoor roth (post tax dollars convert to Roth): additonal $11,000 approx <--all to bonds
$20,500 her 403b + additional $10,000 employer match <--all to bonds
$6000 his backdoor Roth IRA <--all to stocks
$6000 her backdoor Roth IRA<--all to stocks
$300,000 taxable (for retirement, not short term goals) into chase brokerage <--split between US stocks, foreign stocks and VTEB to attain your 60/40.


A different alternative, if you don't like this idea, is to keep things much as they are but replace the 2 taxable bond funds with VTEB and maybe a short term treasury fund.

thank you very much for this. I will look into it in more detail.

Regarding the VXUS fund, it is Vanguard Total International Stock Index Fund (VXUS)
2 questions:
1) in the Roth IRA: why use SP500 as opposed to using vti/vxus max (as I’ve been doing to mimic the vanguard life strategy funds )

2) since there are no foreign bonds available in our 401k/403b accounts , is it worth it to hold any in taxable or Roth IRA ?
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Duckie
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Re: Portfolio Question

Post by Duckie »

roccodean wrote: Mon Oct 03, 2022 5:48 pm 1) in the Roth IRA: why use SP500 as opposed to using vti/vxus max (as I’ve been doing to mimic the vanguard life strategy funds )
You hold both VTI and VXUS in taxable. The best way to avoid potential wash sales is to use different funds in other accounts.
2) since there are no foreign bonds available in our 401k/403b accounts , is it worth it to hold any in taxable or Roth IRA ?
No. You don't want to hold bonds in taxable or Roth IRAs. I realize you have to hold bonds in taxable, but you can use a muni bond fund like VTEB. Taxable bonds are best suited for pre-tax tax-sheltered accounts. And in my opinion foreign bonds are unnecessary anyway.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Mon Oct 03, 2022 5:48 pm 2 questions:
1) in the Roth IRA: why use SP500 as opposed to using vti/vxus max (as I’ve been doing to mimic the vanguard life strategy funds )

2) since there are no foreign bonds available in our 401k/403b accounts , is it worth it to hold any in taxable or Roth IRA ?
My answers are the same as Duckie. You want 500 index in the 401k to avoid wash sales with the total stock in taxable. International bonds are not necessary. If you had some place to put them, it would be fine to hold some, but they do not belong in a taxable account.
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

Duckie wrote: Mon Sep 05, 2022 6:18 pm
roccodean wrote: Mon Sep 05, 2022 8:18 am Desired Asset allocation: 60 stocks / 40 bonds , ok with a little more stock exposure in retirement accounts (70/30 ish)
You should look at the portfolio as a whole and put just stocks in Roth accounts and all your bonds in pre-tax if possible. With your large taxable contributions it won't be possible so use tax-efficient muni bond funds in taxable.
Taxable
The only funds that belong here are VTI, VXUS, and VTEB. But since selling the other two funds might create a tax-hit at the very least make sure all automatic dividends/distributions reinvestments are turned OFF. If BND and BNDX have a loss or small gain consider selling them.
His 401k
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID TOTAL INTL IDX (FTIHX) 0.06% -- Complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 401k held at Fidelity?
40% of total amount is roth deferred (was doing Roth 401k for some time)
Are you allowed to hold different funds in the pre-tax side than the Roth side of the 401k or do they have to be the same?
His Roth IRA at Vanguard
Put just stocks in a Roth IRA.
Her 403b
The best options are:
  • FID 500 INDEX (FXAIX) 0.015% -- Large caps, 80% of US stocks
  • FID EXTD MKT IDX (FSMAX) 0.035% -- Mid/small caps, 20% of US stocks
  • FID GLB EX US IDX (FSGGX) 0.055% -- Almost complete international stocks
  • FID US BOND IDX (FXNAX) 0.025% -- US bonds
Is this 403b held at Fidelity?
Her Roth IRA- vanguard
Put just stocks in a Roth IRA.
________________________________

The following portfolio example has an AA of 60% stocks, 40% bonds, with 25% of stocks in international. That breaks down to 45% US stocks, 15% international stocks, and 40% bonds. Ignoring the tax consequences of selling in taxable you could shortly have something like this:

Taxable at Chase -- $900K -- 48%
30% (VTI) Vanguard Total Stock Market ETF (0.03%)
15% (VXUS) Vanguard Total International Stock ETF (0.07%)
3% (VTEB) Vanguard Tax-Exempt Bond ETF (0.05%)

His 401k -- $472K -- 25%
25% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

Her 403b -- $230K -- 12%
12% (FXNAX) Fidelity U.S. Bond Index Fund (0.025%)

His Roth IRA at Vanguard -- $36K -- 2%
2% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Her Roth IRA at Vanguard -- $250K -- 13%
13% (VFIAX) Vanguard 500 Index Fund Admiral Shares (0.04%)

Just some possibilities.

In his and her Roth IRA, why did you choose the Vanguard 500 index fund admiral shares as opposed to the Vanguard 5&P 500 ETF (VOO) ?
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

Ok after doing some detailed math I have a question regarding specific breakdown of funds.
My goal is total asset allocation of 65/35 stock/bonds.

Goal 65/35
Total Stock (will have some sp 500 ETF included in this to fill roth IRA bucket) 39%
Total bond 35%
Total international stock 26%

I am sure it is up for debate on how much international stock to have, but I essentially am mimicking vanguard life strategy 60/40 fund. I fugure they did the research. Thoughts?
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

As I am doing this I came across a couple more thoughts

1) With all bonds in my 401/403b's , do I care that the growth on these will be lower long term (and in theory will be holding these longer?). If it matters I suspect I will work about 15 more years (but hope to be able to retire in 10).

2) What if I just kept everything the same (wouldn't have to rebalance, more "cruise control" etc) but sold the taxable bonds in my taxable account and held all VTEB to accomplish my AA goal?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Tue Oct 04, 2022 6:46 am Ok after doing some detailed math I have a question regarding specific breakdown of funds.
My goal is total asset allocation of 65/35 stock/bonds.

Goal 65/35
Total Stock (will have some sp 500 ETF included in this to fill roth IRA bucket) 39%
Total bond 35%
Total international stock 26%

I am sure it is up for debate on how much international stock to have, but I essentially am mimicking vanguard life strategy 60/40 fund. I fugure they did the research. Thoughts?
If you want to mimic lifestrategy 60/40, why would you set up set up your portfolio at 65/35?

As for the amount of international stock, what you show is 40% of stocks in international. That is a common suggestion and a good one if you are comfortable with it.
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Tue Oct 04, 2022 7:41 am
roccodean wrote: Tue Oct 04, 2022 6:46 am Ok after doing some detailed math I have a question regarding specific breakdown of funds.
My goal is total asset allocation of 65/35 stock/bonds.

Goal 65/35
Total Stock (will have some sp 500 ETF included in this to fill roth IRA bucket) 39%
Total bond 35%
Total international stock 26%

I am sure it is up for debate on how much international stock to have, but I essentially am mimicking vanguard life strategy 60/40 fund. I fugure they did the research. Thoughts?
If you want to mimic lifestrategy 60/40, why would you set up set up your portfolio at 65/35?

As for the amount of international stock, what you show is 40% of stocks in international. That is a common suggestion and a good one if you are comfortable with it.

I am comfortable with a 65/35 asset allocation. I meant that I am deriving the specific allocation from the life strategy.
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Tue Oct 04, 2022 7:08 am As I am doing this I came across a couple more thoughts

1) With all bonds in my 401/403b's , do I care that the growth on these will be lower long term (and in theory will be holding these longer?). If it matters I suspect I will work about 15 more years (but hope to be able to retire in 10).
No. You should not care. In fact, it could be a benefit that your portfolio growth is in other accounts instead of the tax-deferred accounts. You already have a good amount saved in tax-deferred accounts and will continue putting money there for at least another 10 years. It is possible for tax-deferred accounts to become large enough to become a burden - keeping yours in bonds will help prevent that.

2) What if I just kept everything the same (wouldn't have to rebalance, more "cruise control" etc) but sold the taxable bonds in my taxable account and held all VTEB to accomplish my AA goal?
Holding most or all of your bond allocation in tax-exempt bonds is not wise in my opinion. They are riskier than taxable bonds and not nearly as diversified.

I suggest, to the extent you can, not holding more than half your bonds in tax-exempt bonds. Since you are adding so much to your taxable account each year, this will become more difficult over time.
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

I can’t thank you enough retiredjg.
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Duckie
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Re: Portfolio Question

Post by Duckie »

roccodean wrote: Tue Oct 04, 2022 6:39 am In his and her Roth IRA, why did you choose the Vanguard 500 index fund admiral shares as opposed to the Vanguard 5&P 500 ETF (VOO) ?
Because I personally prefer mutual funds over ETFs. If you are fine with ETFs then VOO will be fine for you.
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

Duckie wrote: Tue Oct 04, 2022 3:19 pm
roccodean wrote: Tue Oct 04, 2022 6:39 am In his and her Roth IRA, why did you choose the Vanguard 500 index fund admiral shares as opposed to the Vanguard 5&P 500 ETF (VOO) ?
Because I personally prefer mutual funds over ETFs. If you are fine with ETFs then VOO will be fine for you.
Why do you prefer mutual funds to ETFs?

Also should the SPX500 fund I place in our Roth IRAs be considered in the "total stock bucket" ? Like below :

Goal 65/35
Total Stock (will have some sp 500 ETF included in this to fill roth IRA bucket) 39%
Total bond 35%
Total international stock 26%
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Fri Sep 30, 2022 6:51 am
roccodean wrote: Thu Sep 29, 2022 8:35 pm I am trying to figure out the order of "buckets" to fill with the taxable bonds.
Inside my company 401k (Fidelity), I was contributing to the roth 401k for some time so 39% of my 456k is in roth. I am unsure if that matters and I dont think I can specify where to buy funds but I think it is looked as one big fund.
So is the correct order:
1st Our 401k / roth 401k
2nd Traditional IRA
3rd Roth IRA

?
This question does not seem to apply to you because you do not have a traditional IRA. Also, the order does not matter much because you need to fill all of your 401k/403b and traditional IRA (if you had one) with bonds.


But for a taxable bond fund like Total Bond Market, the order would be:

Traditional IRA
401k because some of it is Roth
Roth IRA (which is Ok, but many people do not want bonds in Roth IRA)

If the entire 401k was tax-deferred (no Roth), it would not matter if you put bonds into traditional IRA or 401k first.

However, there is no reason you should be using only taxable bonds. You should continue using tax-exempt municipal bonds in taxable (along with treasury bonds if you want).


What problem are you trying to solve with these questions about taxable bonds?

The plot thickens. I believe my fidelity person I spoke to was wrong. When I was going to rebalance my current employee 401k/roth 401k/megabackdoor roth account balance it allowed me to choose between 2 sources (it appears its non roth vs roth). See options below:

Source:
Source Group 1
(1 EMPLOYEE DEFERRAL, 2 SAFE HARBOR NONELECTIVE, 3 EMPLOYER DISCRETIONARY, 4 QUALIFIED DISCRETIONARY, 5 ROLLOVER, 6 FROZEN MPP, 7 SAFE HARBOR MATCH, 8 AFTER-TAX ROLLOVER, 9 PRIOR MATCH EMS, 11 ROTH ROLLOVER, 12 QNEC EPMG, 13 EMPLOYEE DOLLAR DEFERRAL, 15 ROTH IN-PLAN CONVERSION, 16 PRIOR MONEY PURCHASE, 17 PRIOR EMPLOYER 3 YR VEST, 18 PRIOR EMPLOYER 100%, 19 PRIOR TBE EMPLOYER, 20 PRIOR ESP PSP, 21 AFTER-TAX DEFERRAL, 22 AFTER-TAX DOLLAR, 23 ROTH IPC-EMPLOYEE, 24 ROTH IPC-EMPLOYER, 25 PRIOR PROFIT SHARING ESP, 26 PRIOR COMPANY P
S, 27 PRIOR EMPLOYER MATCH)
283k available

Souce group 2
ROTH DOLLAR DEFERRAL
$182k available

So two questions:
1) Should I still hold all bonds in this entire account (including the roth dollar deferral)?

2) Next year when I can do the megs backdoor roth, should I still hold all bond funds here (assuming I will need to to get to my 35% total portfolio %) ?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

This does not change anything I suggested above. Your bonds have to go somewhere. If they don't all fit in the traditional IRA, or if the traditional IRA goes away, the 401k (and her 403b) is the next best place for bonds even if part of it is Roth.

If you find a way to put the bonds into Source 1 and keep bonds out of Source 2, there might be a small advantage. However, not knowing how it actually works, it could actually backfire.

The idea that bonds are a fatal flaw in Roth accounts is a exaggerated in my opinion. When all things are equal and you have a choice to put bonds into tax-deferred accounts instead of Roth accounts....sure, do it that way. Sometimes, it just does not work out that way though and in those cases, bonds in Roth are way better than not having the Roth account in the first place.
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Duckie
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Re: Portfolio Question

Post by Duckie »

roccodean wrote: Wed Oct 05, 2022 8:28 am Why do you prefer mutual funds to ETFs?
Because that is what I am used to. I'm old school and like it like that. If I ever leave Vanguard I will transition to ETFs first for convenience, but I haven't gotten to that point yet.
Also should the SPX500 fund I place in our Roth IRAs be considered in the "total stock bucket"?
Yes. 500 Index is close enough to total US to be included in that bucket.
Topic Author
roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Mon Sep 05, 2022 9:43 am
As you can see, bulk of income going into taxable brokerage account- is this a good portfolio if goal is 60/40 stock/bond?
You do not have a "bad portfolio" but it is not very tax efficient because of the taxable bonds in the taxable account.

The first thing you need to do is see the portfolio as a whole, not as a bunch of separate accounts. It looks like this.
  • Total portfolio = $1,888,000 not including the 529 accounts.

    Taxable. Total 900k 47.7%
    17.2% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
    11.4 % ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS) <---typo? Do you hold the STAR fund too?
    6.7% VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)
    6.7% Vanguard Total Bond Market Index Fund (BND)
    5.7% Vanguard Total International Bond Index Fund (BNDX)

    His 401k 472k 25%
    12.5 FID FREEDOM 2030 K (FSNQX)
    12.5 FID FREEDOM 2035 K (FSNUX)


    His Roth IRA at Vanguard $36k 1.9%
    1.9% VTTHX- 2035 target retirement


    Her 403b $230k 12.2%
    12.2% Fidelity 2030 fund class K ( FSNQX) 64/36 stock/bond

    Her Roth IRA- vanguard $250K 13.2%
    13.2% VTTHX- 2035 target retirement
I believe you have set it up that way intentionally, to take advantage of the easy target funds in all the accounts except taxable. The way to make this more tax-efficient is to

1. fill His 401k and Her 403b with a taxable bond fund (whatever your best choice is)

2. Sell all the total bond and total international bond in the taxable account

3. Keep only as much of the tax-exempt bond as needed to reach your 60/40 desired allocation. Since your taxable contributions account for such a large portion of total contributions, the tax-exempt bond percentage in taxable will grow over time. If you are not comfortable with that much in VTEB, put some into a short term treasury fund (lower dividends and no state tax).

4. Put a 500 index fund (or 500 index plus extended market index) in the Roth IRAs.

It would look like this:
  • Taxable. Total 900k 47.7%
    24.7% VANGUARD INDEX FUNDS VANGUARD TOTAL STOCK MARKEt (VTI)
    20% % ANGUARD STAR FD VANGUARD TOTAL INTL STOCK INDEX (VXUS) <---typo? Do you hold the STAR fund too?
    3% % VANGUARD MUNICIPAL BOND FUNDS VANGUARD TAX EXEmpt (VTEB)


    His 401k 472k 25%
    25% best bond fund


    His Roth IRA at Vanguard $36k 1.9%
    1.9% 500 index or extended market index


    Her 403b $230k 12.2%
    12.2% best bond fund


    Her Roth IRA- vanguard $250K 13.2%
    13.2% 500 index



Contributions

New annual Contributions
$20,500 his deductible 401k + employer matches addition $30,000 <--all to bonds
His mega backdoor roth (post tax dollars convert to Roth): additonal $11,000 approx <--all to bonds
$20,500 her 403b + additional $10,000 employer match <--all to bonds
$6000 his backdoor Roth IRA <--all to stocks
$6000 her backdoor Roth IRA<--all to stocks
$300,000 taxable (for retirement, not short term goals) into chase brokerage <--split between US stocks, foreign stocks and VTEB to attain your 60/40.


A different alternative, if you don't like this idea, is to keep things much as they are but replace the 2 taxable bond funds with VTEB and maybe a short term treasury fund.
JG,
As I am doing the leg work to everything rec'd, I realize that every month when I put in taxable I will have to rebalance, decide how much to put in etc.
As you rec'd above in your last statement, What if I left everything the same in current 401k/403b/Roth IRAs and simply sold all the taxable bond funds in my taxable account (BND and BNDX) and replaced with VTEB? My total asset allocation goal of 65/35 would still be there as long as each bucket is about 65/35. Is there a negative to doing this? Are the expected returns on VTEB (as opposed to FXNAX where I would place most of my and her 401k/403b bonds) too low for this, bc this taxable account will grow quickly bc how much I will put in annually?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

Well, I did suggest that a month ago, but when you asked me about it yesterday, I didn't much like the idea. It's because I don't like the idea of such a large portion of your bonds in VTEB...because it is a tax-exempt bond fund. My feeling is that tax-exempt bonds should be no more than half the bond allocation because they tend to be riskier than taxable bonds.

Maybe that concern is misplaced. VETB does contain over 6000 bonds and Vanguard ranks it a 2 on the risk scale, same as the total bond market you would hold in your 401k/403b plans. So maybe it is an OK idea to have a large amount of VTEB.

Maybe Duckie (or others) could comment on that?

Or, the VTEB could be "watered down" a bit, as it gets to be a large amount of your portfolio, with a short term treasury fund in the taxable account (lots of stability, not a lot of taxable income, not taxable by the state).


On the other side of the argument, I don't think you would need to decide how much to put where every month. Once you figure out how much to put into Total Stock, Total International, and VTEB the first month, you could use the same amounts (or same ratio) each month and only do the calculations maybe every 3rd or 4th month.

Regarding the return of total bond vs VTEB, I have read here in the past that the taxable bonds do tend to return more, even after taxes, in the long run. The current SEC yields of the two funds don't support that thinking at the current time. So I don't know what to think about that. However, it would not be part of the decision for me - the difference in return will be a drop in the bucket considering the size of your current and future portfolio.
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Thu Oct 06, 2022 7:51 am Well, I did suggest that a month ago, but when you asked me about it yesterday, I didn't much like the idea. It's because I don't like the idea of such a large portion of your bonds in VTEB...because it is a tax-exempt bond fund. My feeling is that tax-exempt bonds should be no more than half the bond allocation because they tend to be riskier than taxable bonds.

Maybe that concern is misplaced. VETB does contain over 6000 bonds and Vanguard ranks it a 2 on the risk scale, same as the total bond market you would hold in your 401k/403b plans. So maybe it is an OK idea to have a large amount of VTEB.

Maybe Duckie (or others) could comment on that?

Or, the VTEB could be "watered down" a bit, as it gets to be a large amount of your portfolio, with a short term treasury fund in the taxable account (lots of stability, not a lot of taxable income, not taxable by the state).


On the other side of the argument, I don't think you would need to decide how much to put where every month. Once you figure out how much to put into Total Stock, Total International, and VTEB the first month, you could use the same amounts (or same ratio) each month and only do the calculations maybe every 3rd or 4th month.

Regarding the return of total bond vs VTEB, I have read here in the past that the taxable bonds do tend to return more, even after taxes, in the long run. The current SEC yields of the two funds don't support that thinking at the current time. So I don't know what to think about that. However, it would not be part of the decision for me - the difference in return will be a drop in the bucket considering the size of your current and future portfolio.
That was my concern also, having too much in VTEB. Bc my total taxable account will grow at about 250-300k/year , while my tax deferred accounts limited to roughly 91k/year.
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roccodean
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Re: Portfolio Question

Post by roccodean »

It seems like I could/should deploy some of my “emergency fund” into something else. The 500k in my ally savings (2.3% interest) is more than I need for a true emergency fund. But this is the amount that we are comfortable having at no risk….I understand I bonds are great now but that’s only 10k/Person. I have read in here about T bills, but how do you actually purchase these ?
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retiredjg
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Thu Oct 06, 2022 8:20 am It seems like I could/should deploy some of my “emergency fund” into something else. The 500k in my ally savings (2.3% interest) is more than I need for a true emergency fund. But this is the amount that we are comfortable having at no risk….I understand I bonds are great now but that’s only 10k/Person. I have read in here about T bills, but how do you actually purchase these ?
Never purchased any, but I think there have been a couple of threads recently about how to purchase. I think you can get them at Treasury Direct or from a broker.

If you use the google box above right, it will find previous threads here on Bogleheads.
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retired@50
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Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Thu Oct 06, 2022 8:20 am ... I have read in here about T bills, but how do you actually purchase these ?
Harry Sit has a "how-to" article here: https://thefinancebuff.com/treasury-bil ... arket.html

Kevin M has a thread here: viewtopic.php?t=378350

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Portfolio Question

Post by retired@50 »

retiredjg wrote: Thu Oct 06, 2022 7:51 am Maybe Duckie (or others) could comment on that?
My take on your bond holdings is to fill up the tax-deferred portion of your 401k with a bond fund, and your wife's 403b with a bond fund, then use VTEB in your taxable account as needed.

Your 401k seems to be part tax-deferred and part Roth, and it now seems possible to make specific sub-allocations by tax treatment, so I'd just use the tax-deferred part for the bond funds. Leave the Roth space for stock funds if possible.

As far as having no more than 50% of your bond holdings in municipal bonds, I really don't know where that "rule" came from, and it seems like it's something someone dreamed up, and it keeps getting repeated, so now it's a Boglehead edict.

Since municipal bankruptcies are more rare than corporate bankruptcies, I really don't have much concern that the risk in VTEB is too high.

I used state specific tax-exempt bond funds while I was working and had good results, so maybe that is the reason for my optimism in this area.

Since you're in Ohio, you could even consider using the Vanguard state-specific fund for Ohio.
Link: https://investor.vanguard.com/investmen ... file/vohix

It will technically be riskier than VTEB, but if avoiding Ohio income taxes is important, it's probably worth considering for a portion of your tax-exempt bond holdings.

Regards,
Last edited by retired@50 on Thu Oct 06, 2022 9:23 am, edited 1 time in total.
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Wed Oct 05, 2022 4:42 pm This does not change anything I suggested above. Your bonds have to go somewhere. If they don't all fit in the traditional IRA, or if the traditional IRA goes away, the 401k (and her 403b) is the next best place for bonds even if part of it is Roth.

If you find a way to put the bonds into Source 1 and keep bonds out of Source 2, there might be a small advantage. However, not knowing how it actually works, it could actually backfire.

The idea that bonds are a fatal flaw in Roth accounts is a exaggerated in my opinion. When all things are equal and you have a choice to put bonds into tax-deferred accounts instead of Roth accounts....sure, do it that way. Sometimes, it just does not work out that way though and in those cases, bonds in Roth are way better than not having the Roth account in the first place.
Can you explain how putting bonds in source 1 and stocks in source 2 can backfire ?
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Thu Oct 06, 2022 9:22 am
retiredjg wrote: Wed Oct 05, 2022 4:42 pm This does not change anything I suggested above. Your bonds have to go somewhere. If they don't all fit in the traditional IRA, or if the traditional IRA goes away, the 401k (and her 403b) is the next best place for bonds even if part of it is Roth.

If you find a way to put the bonds into Source 1 and keep bonds out of Source 2, there might be a small advantage. However, not knowing how it actually works, it could actually backfire.

The idea that bonds are a fatal flaw in Roth accounts is a exaggerated in my opinion. When all things are equal and you have a choice to put bonds into tax-deferred accounts instead of Roth accounts....sure, do it that way. Sometimes, it just does not work out that way though and in those cases, bonds in Roth are way better than not having the Roth account in the first place.
Can you explain how putting bonds in source 1 and stocks in source 2 can backfire ?
I was trying to say that it could backfire because it is not clear how it works. The plan administrator should be able to help you with that, but someone there already said it could not be done...so who knows?

I'm not sure I would go to all that trouble myself. It seems like it would require a lot of "tending". But I have no experience with a plan that allows that. And I'm a very lazy investor.

To me, avoiding bonds in Roth 401k is not much of an advantage if it pushes more bonds into taxable. However, I think this is one of those things that pretty much boil down to personal preference.
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Re: Portfolio Question

Post by retiredjg »

retired@50 wrote: Thu Oct 06, 2022 9:10 am Since you're in Ohio, you could even consider using the Vanguard state-specific fund for Ohio.
Link: https://investor.vanguard.com/investmen ... file/vohix

It will technically be riskier than VTEB, but if avoiding Ohio income taxes is important, it's probably worth considering for a portion of your tax-exempt bond holdings.
Now this is interesting. I didn't know that Vanguard even had an Ohio tax-exempt bond fund.

I would wonder if those bonds would be included in VTEB though.
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Re: Portfolio Question

Post by retired@50 »

retiredjg wrote: Thu Oct 06, 2022 9:46 am
retired@50 wrote: Thu Oct 06, 2022 9:10 am Since you're in Ohio, you could even consider using the Vanguard state-specific fund for Ohio.
Link: https://investor.vanguard.com/investmen ... file/vohix

It will technically be riskier than VTEB, but if avoiding Ohio income taxes is important, it's probably worth considering for a portion of your tax-exempt bond holdings.
Now this is interesting. I didn't know that Vanguard even had an Ohio tax-exempt bond fund.

I would wonder if those bonds would be included in VTEB though.
I would imagine there is some overlap between the Ohio specific fund and VTEB, but if avoiding Ohio income taxes is a goal, then the Ohio fund meets that threshold, and I suspect the VTEB fund wouldn't.

To OP, after re-reading some of the posts, it appears retiredjg and I are providing what might be interpreted as conflicting advice. Use Roth space for bonds or don't use Roth space for bonds.

Let me say that I would rather see you control your asset allocation percentages in stocks / bonds / cash as Job #1. This is the most important thing. Period.

Then, consider asset location, which means using the accounts most suited to holding bonds first, like tax-deferred. Don't get all tied up in knots if you have to put some Roth money into a bond fund. You're set up for a cushy retirement regardless of any tiny, second order asset location "errors".

Municipal bonds don't scare me in the slightest, which is why I suggest them to forum members who are in high tax brackets.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Thu Oct 06, 2022 9:41 am
roccodean wrote: Thu Oct 06, 2022 9:22 am
retiredjg wrote: Wed Oct 05, 2022 4:42 pm This does not change anything I suggested above. Your bonds have to go somewhere. If they don't all fit in the traditional IRA, or if the traditional IRA goes away, the 401k (and her 403b) is the next best place for bonds even if part of it is Roth.

If you find a way to put the bonds into Source 1 and keep bonds out of Source 2, there might be a small advantage. However, not knowing how it actually works, it could actually backfire.

The idea that bonds are a fatal flaw in Roth accounts is a exaggerated in my opinion. When all things are equal and you have a choice to put bonds into tax-deferred accounts instead of Roth accounts....sure, do it that way. Sometimes, it just does not work out that way though and in those cases, bonds in Roth are way better than not having the Roth account in the first place.
Can you explain how putting bonds in source 1 and stocks in source 2 can backfire ?
I was trying to say that it could backfire because it is not clear how it works. The plan administrator should be able to help you with that, but someone there already said it could not be done...so who knows?

I'm not sure I would go to all that trouble myself. It seems like it would require a lot of "tending". But I have no experience with a plan that allows that. And I'm a very lazy investor.

To me, avoiding bonds in Roth 401k is not much of an advantage if it pushes more bonds into taxable. However, I think this is one of those things that pretty much boil down to personal preference.
Right, if I don’t put bonds in the 182k roth deferral of my 401k, those will go to taxable account. And with the megabackdoor Roth option next year I will be adding only about 10k yearly into the Roth portion.
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Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Thu Oct 06, 2022 9:58 am
retiredjg wrote: Thu Oct 06, 2022 9:46 am
retired@50 wrote: Thu Oct 06, 2022 9:10 am Since you're in Ohio, you could even consider using the Vanguard state-specific fund for Ohio.
Link: https://investor.vanguard.com/investmen ... file/vohix

It will technically be riskier than VTEB, but if avoiding Ohio income taxes is important, it's probably worth considering for a portion of your tax-exempt bond holdings.
Now this is interesting. I didn't know that Vanguard even had an Ohio tax-exempt bond fund.

I would wonder if those bonds would be included in VTEB though.
I would imagine there is some overlap between the Ohio specific fund and VTEB, but if avoiding Ohio income taxes is a goal, then the Ohio fund meets that threshold, and I suspect the VTEB fund wouldn't.

To OP, after re-reading some of the posts, it appears retiredjg and I are providing what might be interpreted as conflicting advice. Use Roth space for bonds or don't use Roth space for bonds.

Let me say that I would rather see you control your asset allocation percentages in stocks / bonds / cash as Job #1. This is the most important thing. Period.

Then, consider asset location, which means using the accounts most suited to holding bonds first, like tax-deferred. Don't get all tied up in knots if you have to put some Roth money into a bond fund. You're set up for a cushy retirement regardless of any tiny, second order asset location "errors".

Municipal bonds don't scare me in the slightest, which is why I suggest them to forum members who are in high tax brackets.

Regards,

Thank you. It seems like putting all bonds in the roth portion of my 401k is the “cleanest” and easiest thing to do.

When you say “Muni bonds” I am assuming you mean the vanguard Ohio bonds or are there other muni bonds avail I can house in my chase brokerage (I typically use vanguard funds )? VTEB is not a muni bond correct?

And then this begs the question, is there a consensus what percent of total bond allocation should be in muni ?
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Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Thu Oct 06, 2022 12:28 pm
retired@50 wrote: Thu Oct 06, 2022 9:58 am
retiredjg wrote: Thu Oct 06, 2022 9:46 am
retired@50 wrote: Thu Oct 06, 2022 9:10 am Since you're in Ohio, you could even consider using the Vanguard state-specific fund for Ohio.
Link: https://investor.vanguard.com/investmen ... file/vohix

It will technically be riskier than VTEB, but if avoiding Ohio income taxes is important, it's probably worth considering for a portion of your tax-exempt bond holdings.
Now this is interesting. I didn't know that Vanguard even had an Ohio tax-exempt bond fund.

I would wonder if those bonds would be included in VTEB though.
I would imagine there is some overlap between the Ohio specific fund and VTEB, but if avoiding Ohio income taxes is a goal, then the Ohio fund meets that threshold, and I suspect the VTEB fund wouldn't.

To OP, after re-reading some of the posts, it appears retiredjg and I are providing what might be interpreted as conflicting advice. Use Roth space for bonds or don't use Roth space for bonds.

Let me say that I would rather see you control your asset allocation percentages in stocks / bonds / cash as Job #1. This is the most important thing. Period.

Then, consider asset location, which means using the accounts most suited to holding bonds first, like tax-deferred. Don't get all tied up in knots if you have to put some Roth money into a bond fund. You're set up for a cushy retirement regardless of any tiny, second order asset location "errors".

Municipal bonds don't scare me in the slightest, which is why I suggest them to forum members who are in high tax brackets.

Regards,

Thank you. It seems like putting all bonds in the roth portion of my 401k is the “cleanest” and easiest thing to do.

When you say “Muni bonds” I am assuming you mean the vanguard Ohio bonds or are there other muni bonds avail I can house in my chase brokerage (I typically use vanguard funds )? VTEB is not a muni bond correct?

And then this begs the question, is there a consensus what percent of total bond allocation should be in muni ?
Muni bonds are municipal bonds, they are also often called tax-exempt bonds. Municipal bonds can be purchased individually (generally not advised) or they can be purchased in a bond fund like VTEB or the Vanguard Ohio tax-exempt fund (VOHIX).

The terminology can get sloppy, but VTEB and VOHIX are both tax-exempt funds that hold municipal bonds, so yes, VTEB is a muni bond fund. The difference is that VTEB is nationally focused (meaning it holds municipal bonds from possibly all 50 states) while VOHIX only holds municipal bonds from Ohio, which is why it would be exempt from Ohio income taxes.

VTEB would be exempt from Federal income tax, but not from Ohio income tax.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Thu Oct 06, 2022 7:51 am Well, I did suggest that a month ago, but when you asked me about it yesterday, I didn't much like the idea. It's because I don't like the idea of such a large portion of your bonds in VTEB...because it is a tax-exempt bond fund. My feeling is that tax-exempt bonds should be no more than half the bond allocation because they tend to be riskier than taxable bonds.

Maybe that concern is misplaced. VETB does contain over 6000 bonds and Vanguard ranks it a 2 on the risk scale, same as the total bond market you would hold in your 401k/403b plans. So maybe it is an OK idea to have a large amount of VTEB.

Maybe Duckie (or others) could comment on that?

Or, the VTEB could be "watered down" a bit, as it gets to be a large amount of your portfolio, with a short term treasury fund in the taxable account (lots of stability, not a lot of taxable income, not taxable by the state).


On the other side of the argument, I don't think you would need to decide how much to put where every month. Once you figure out how much to put into Total Stock, Total International, and VTEB the first month, you could use the same amounts (or same ratio) each month and only do the calculations maybe every 3rd or 4th month.

Regarding the return of total bond vs VTEB, I have read here in the past that the taxable bonds do tend to return more, even after taxes, in the long run. The current SEC yields of the two funds don't support that thinking at the current time. So I don't know what to think about that. However, it would not be part of the decision for me - the difference in return will be a drop in the bucket considering the size of your current and future portfolio.
So I guess my options decide on how much of my entire allocation I want in Vteb.

Option 1: so nothing with other accounts except taxable, here : sell taxable bonds (at a loss) and buy all VTEB to meet my 65/35 goal.
By doing this my VTEB would be about half of my total bond exposure. And go higher as I put in monthly flows.

Options 2
Move all money in tax deferred to bonds.
Sell taxable bonds in taxable account.
Fill taxable account w Vteb to meet desired overall 65/35 AA.

Thoughts ?
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Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Thu Oct 06, 2022 1:09 pm
roccodean wrote: Thu Oct 06, 2022 12:28 pm
retired@50 wrote: Thu Oct 06, 2022 9:58 am
retiredjg wrote: Thu Oct 06, 2022 9:46 am
retired@50 wrote: Thu Oct 06, 2022 9:10 am Since you're in Ohio, you could even consider using the Vanguard state-specific fund for Ohio.
Link: https://investor.vanguard.com/investmen ... file/vohix

It will technically be riskier than VTEB, but if avoiding Ohio income taxes is important, it's probably worth considering for a portion of your tax-exempt bond holdings.
Now this is interesting. I didn't know that Vanguard even had an Ohio tax-exempt bond fund.

I would wonder if those bonds would be included in VTEB though.
I would imagine there is some overlap between the Ohio specific fund and VTEB, but if avoiding Ohio income taxes is a goal, then the Ohio fund meets that threshold, and I suspect the VTEB fund wouldn't.

To OP, after re-reading some of the posts, it appears retiredjg and I are providing what might be interpreted as conflicting advice. Use Roth space for bonds or don't use Roth space for bonds.

Let me say that I would rather see you control your asset allocation percentages in stocks / bonds / cash as Job #1. This is the most important thing. Period.

Then, consider asset location, which means using the accounts most suited to holding bonds first, like tax-deferred. Don't get all tied up in knots if you have to put some Roth money into a bond fund. You're set up for a cushy retirement regardless of any tiny, second order asset location "errors".

Municipal bonds don't scare me in the slightest, which is why I suggest them to forum members who are in high tax brackets.

Regards,

Thank you. It seems like putting all bonds in the roth portion of my 401k is the “cleanest” and easiest thing to do.

When you say “Muni bonds” I am assuming you mean the vanguard Ohio bonds or are there other muni bonds avail I can house in my chase brokerage (I typically use vanguard funds )? VTEB is not a muni bond correct?

And then this begs the question, is there a consensus what percent of total bond allocation should be in muni ?
Muni bonds are municipal bonds, they are also often called tax-exempt bonds. Municipal bonds can be purchased individually (generally not advised) or they can be purchased in a bond fund like VTEB or the Vanguard Ohio tax-exempt fund (VOHIX).

The terminology can get sloppy, but VTEB and VOHIX are both tax-exempt funds that hold municipal bonds, so yes, VTEB is a muni bond fund. The difference is that VTEB is nationally focused (meaning it holds municipal bonds from possibly all 50 states) while VOHIX only holds municipal bonds from Ohio, which is why it would be exempt from Ohio income taxes.

VTEB would be exempt from Federal income tax, but not from Ohio income tax.

Regards,
See my question above. I’m guessing you don’t have an issue with more exposure on VTEB as time goes on this will be most of my bond exposure?
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Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Thu Oct 06, 2022 1:34 pm See my question above. I’m guessing you don’t have an issue with more exposure on VTEB as time goes on this will be most of my bond exposure?
I wouldn't put a hard limit on VTEB, but I'd still fill up the tax-deferred space with taxable bond funds like FXNAX or VBTLX or BND or whatever is available in the various workplace plans.

First world problems, right? You've got lots of money, but by holding some taxable bond funds in tax-deferred accounts and holding some tax-exempt bond funds in your taxable account you're actually gaining some diversification.

Just try to balance things out as best you can, and if you start to get even more conservative (meaning you want even more bond funds) over time you can start to use Roth space for taxable bond funds too.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Thu Oct 06, 2022 1:49 pm
roccodean wrote: Thu Oct 06, 2022 1:34 pm See my question above. I’m guessing you don’t have an issue with more exposure on VTEB as time goes on this will be most of my bond exposure?
I wouldn't put a hard limit on VTEB, but I'd still fill up the tax-deferred space with taxable bond funds like FXNAX or VBTLX or BND or whatever is available in the various workplace plans.

First world problems, right? You've got lots of money, but by holding some taxable bond funds in tax-deferred accounts and holding some tax-exempt bond funds in your taxable account you're actually gaining some diversification.

Just try to balance things out as best you can, and if you start to get even more conservative (meaning you want even more bond funds) over time you can start to use Roth space for taxable bond funds too.

Regards,
Thanks. To get my desired asset location,I would have to fill mine and my wife 401k/403 (incl my Roth portion) entirely with taxable bond (FXNAX) and no stocks. Is that any consideration?
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Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Thu Oct 06, 2022 2:02 pm
retired@50 wrote: Thu Oct 06, 2022 1:49 pm
roccodean wrote: Thu Oct 06, 2022 1:34 pm See my question above. I’m guessing you don’t have an issue with more exposure on VTEB as time goes on this will be most of my bond exposure?
I wouldn't put a hard limit on VTEB, but I'd still fill up the tax-deferred space with taxable bond funds like FXNAX or VBTLX or BND or whatever is available in the various workplace plans.

First world problems, right? You've got lots of money, but by holding some taxable bond funds in tax-deferred accounts and holding some tax-exempt bond funds in your taxable account you're actually gaining some diversification.

Just try to balance things out as best you can, and if you start to get even more conservative (meaning you want even more bond funds) over time you can start to use Roth space for taxable bond funds too.

Regards,
Thanks. To get my desired asset location,I would have to fill mine and my wife 401k/403 (incl my Roth portion) entirely with taxable bond (FXNAX) and no stocks. Is that any consideration?
Having the tax-deferred accounts as 100% bond funds wouldn't bother me at all, but some investors like to leave a slice of a stock index fund and/or an international stock index fund in the 401k/403b to help with re-balancing, since transactions in the tax-deferred accounts won't cause any income taxes.

In your current case, it would appear that you could easily re-balance by altering future contributions to your taxable account as needed to help maintain your desired asset allocation.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Thu Oct 06, 2022 12:28 pm And then this begs the question, is there a consensus what percent of total bond allocation should be in muni ?
There is no consensus.

My personal preference is for the bond allocation to be put into tax-deferred accounts (traditional IRA, traditional 401k, etc.) to the extent possible.

If/when bonds spill over, I prefer splilling over into taxable instead of Roth.

In taxable, the bonds should be tax-exempt for people in higher tax brackets.

For people in very high tax states (CA, NJ), splitting the bonds in taxable between a state tax-exempt and a national tax-exempt is helpful with both state and federal tax.

I would not use a state tax-exempt bond fund alone unless it was a small portion of my bond allocation. I feel that concentrates too much risk in a small place.

I do agree with the notion that no more than half of a bond allocation should be in tax-exempt bonds. In some situations, this is not possible. For me, that would mean holding a short term treasury fund in taxable to diversify away from so much in tax-exempt bonds.

The reason I suggest holding bonds in your 401k is that I think it may be easier than trying to keep the bonds out of Roth 401k. And eventually, your VTEB allocation is going to be quite large.

I know you are trying to nail down something that you can stick with for a long time. But if you decide to stick with your target funds for now, you can always switch those accounts to all bonds later on when it makes more sense to you.

"Stay the course" does not mean you cannot make adjustments as you learn how plans work and how you like to do your own investing.
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Thu Oct 06, 2022 1:32 pm So I guess my options decide on how much of my entire allocation I want in Vteb.

Option 1: so nothing with other accounts except taxable, here : sell taxable bonds (at a loss) and buy all VTEB to meet my 65/35 goal.
By doing this my VTEB would be about half of my total bond exposure. And go higher as I put in monthly flows.

Options 2
Move all money in tax deferred to bonds.
Sell taxable bonds in taxable account.
Fill taxable account w Vteb to meet desired overall 65/35 AA.

Thoughts ?
I think you understand the choices well. My personal preference is Option 2, but that does not mean that Option 1 is wrong. And neither option has to be forever.
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Thu Oct 06, 2022 5:08 pm
roccodean wrote: Thu Oct 06, 2022 1:32 pm So I guess my options decide on how much of my entire allocation I want in Vteb.

Option 1: so nothing with other accounts except taxable, here : sell taxable bonds (at a loss) and buy all VTEB to meet my 65/35 goal.
By doing this my VTEB would be about half of my total bond exposure. And go higher as I put in monthly flows.

Options 2
Move all money in tax deferred to bonds.
Sell taxable bonds in taxable account.
Fill taxable account w Vteb to meet desired overall 65/35 AA.

Thoughts ?
I think you understand the choices well. My personal preference is Option 2, but that does not mean that Option 1 is wrong. And neither option has to be forever.
Can’t thank you enough.

So, my tax person has been doing my taxes wrong. So I am going to amend the last 3 years.
I think I want to then move wife’s portion of her traditional ira that I can (the tax deferred part)to her 403b , then move the basis (which will be about 15k I suspect) to her Roth IRA.

1) should I do this so that I can have a “clean” backdoor Roth IRA yearly w no pro rata ?

2) I already did back door for 2022. Should/can I do this prior to 12/31/22? Or should I wait to do this in 2023?
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Re: Portfolio Question

Post by retiredjg »

roccodean wrote: Thu Oct 06, 2022 5:40 pm So, my tax person has been doing my taxes wrong. So I am going to amend the last 3 years.
I'm curious, if you don't mind sharing. Does your tax person agree it was done wrong? Is your tax person going to do these amendments for you or will you have to do it yourself?

I think I want to then move wife’s portion of her traditional ira that I can (the tax deferred part)to her 403b , then move the basis (which will be about 15k I suspect) to her Roth IRA.

1) should I do this so that I can have a “clean” backdoor Roth IRA yearly w no pro rata ?
I don't see any reason not to do this if you/she are willing to do the work.

The two other options are to stop doing the backdoor for her (put the money into taxable) or continue pro-rating each backdoor and pay taxes on the conversion.

2) I already did back door for 2022. Should/can I do this prior to 12/31/22? Or should I wait to do this in 2023?
I would attempt to get this done by the end of the year. If you can do that and her tIRA is empty by the end of the year, the 2022 backdoor will not have to be pro-rated.

One thing I'm not sure about, you can only amend back 3 years. I'm not exactly sure how that is counted. Do you know?
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Re: Portfolio Question

Post by retiredjg »

More thoughts. It should not take very long to fill out the old 8606 forms. That will give you an estimate (or exact calculation) of how much basis (line 14 of last 8606) is left in the tIRA right now.

Let's say there is $15k basis left. You could go ahead now and send all of the other money to the 403b (I'd add a $1,000 buffer, leaving $16k in the tIRA). When it gets there, convert whatever is left to Roth paying taxes on the extra. That will leave the tIRA empty by the end of the year.

Or not. You might not want to rush it - completely up to you.

What you don't want to do is wait until mid-December to roll the tIRA into 403b. Things happen very slowly in December and it might not get done in time. Not the end of the world, but I'm sure you want to get this out of the way.
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Fri Oct 07, 2022 8:15 am
roccodean wrote: Thu Oct 06, 2022 5:40 pm So, my tax person has been doing my taxes wrong. So I am going to amend the last 3 years.
I'm curious, if you don't mind sharing. Does your tax person agree it was done wrong? Is your tax person going to do these amendments for you or will you have to do it yourself?

I think I want to then move wife’s portion of her traditional ira that I can (the tax deferred part)to her 403b , then move the basis (which will be about 15k I suspect) to her Roth IRA.

1) should I do this so that I can have a “clean” backdoor Roth IRA yearly w no pro rata ?
I don't see any reason not to do this if you/she are willing to do the work.

The two other options are to stop doing the backdoor for her (put the money into taxable) or continue pro-rating each backdoor and pay taxes on the conversion.

2) I already did back door for 2022. Should/can I do this prior to 12/31/22? Or should I wait to do this in 2023?
I would attempt to get this done by the end of the year. If you can do that and her tIRA is empty by the end of the year, the 2022 backdoor will not have to be pro-rated.

One thing I'm not sure about, you can only amend back 3 years. I'm not exactly sure how that is counted. Do you know?

Yes, he admits. Both our faults. When asked “total amount jn all ira”, he put $0 and I didn’t double check work and know had to tell him that either.
Last edited by roccodean on Fri Oct 07, 2022 9:47 am, edited 1 time in total.
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retired@50
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Re: Portfolio Question

Post by retired@50 »

We've been talking about VTEB quite a bit in this thread.

Just in case you become interested in a tax-exempt bond fund with a shorter duration and less share price volatility, you could consider using the Vanguard Limited Term Tax-Exempt fund (VMLUX)
Link: https://investor.vanguard.com/investmen ... file/vmlux

Or if you prefer to use a mutual fund, instead of an ETF, you could use VTEAX, which is the Admiral share class cousin of VTEB.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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roccodean
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Fri Oct 07, 2022 8:22 am More thoughts. It should not take very long to fill out the old 8606 forms. That will give you an estimate (or exact calculation) of how much basis (line 14 of last 8606) is left in the tIRA right now.

Let's say there is $15k basis left. You could go ahead now and send all of the other money to the 403b (I'd add a $1,000 buffer, leaving $16k in the tIRA). When it gets there, convert whatever is left to Roth paying taxes on the extra. That will leave the tIRA empty by the end of the year.

Or not. You might not want to rush it - completely up to you.

What you don't want to do is wait until mid-December to roll the tIRA into 403b. Things happen very slowly in December and it might not get done in time. Not the end of the world, but I'm sure you want to get this out of the way.
I am planning on doing this. Just convert the basis to Roth IRA and pay taxes. Get it over with. Then in 2023 can do backdoor roth with no pro rata.
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Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Fri Oct 07, 2022 9:46 am We've been talking about VTEB quite a bit in this thread.

Just in case you become interested in a tax-exempt bond fund with a shorter duration and less share price volatility, you could consider using the Vanguard Limited Term Tax-Exempt fund (VMLUX)
Link: https://investor.vanguard.com/investmen ... file/vmlux

Or if you prefer to use a mutual fund, instead of an ETF, you could use VTEAX, which is the Admiral share class cousin of VTEB.

Regards,
Thank you.
I read both perspectus’ but am still a little confused by VTEB vs VMLUX.
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Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Fri Oct 07, 2022 9:51 am
retired@50 wrote: Fri Oct 07, 2022 9:46 am We've been talking about VTEB quite a bit in this thread.

Just in case you become interested in a tax-exempt bond fund with a shorter duration and less share price volatility, you could consider using the Vanguard Limited Term Tax-Exempt fund (VMLUX)
Link: https://investor.vanguard.com/investmen ... file/vmlux

Or if you prefer to use a mutual fund, instead of an ETF, you could use VTEAX, which is the Admiral share class cousin of VTEB.

Regards,
Thank you.
I read both perspectus’ but am still a little confused by VTEB vs VMLUX.
You're welcome.

If you have a specific question I might be able to help.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Portfolio Question

Post by retiredjg »

Here is a short story.

Limited term has a shorter "duration" and its value will drop less in price than intermediate term (VTEB) when interest rates rise.

Limited term should produce less yield because it is less risky (a 1 on the Vanguard risk scale instead of a 2).

VTEB is magically not subject to AMT ( I have not idea how they do that or exactly how much it matters).


A suggestion frequently put forth by Grabiner is to use a long term state fund (like the Ohio fund mentioned above) together with the Limited Term fund to average out to an intermediate term in duration and risk...but making more than half of the income exempt from state taxes.

Having said that, I believe that VTEB is your best choice...unless you get to the point that it seems like too much to you. If/when that happens, you could use a bit of long term Ohio/Limited Term to avoid more VTEB. Or a short term treasury fund. Or even CDs if you wanted.

Of course that approach puts more funds into taxable, but that is not a fatal flaw and is not very different from the number of funds you currently have in taxable.
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Re: Portfolio Question

Post by retiredjg »

A little tidbit that comes in handy (if you don't already know it).

If a fund has a "duration" of 5 years, you can expect your fund to drop 5% in value if interest rates are raised by 1%. If interest rates go up another 1%, the value will go down by about another 5%. (Keep in mind that interest rates usually do not go up in 1% leaps.)


So you can see why a fund with a duration of 2 years will drop less in value due to interest rates than a fund with a duration of 5 years or 10 years.

It also goes in the opposite direction. When interest rates go down, the value of your bond fund will go up.
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Fri Oct 07, 2022 10:10 am A little tidbit that comes in handy (if you don't already know it).

If a fund has a "duration" of 5 years, you can expect your fund to drop 5% in value if interest rates are raised by 1%. If interest rates go up another 1%, the value will go down by about another 5%. (Keep in mind that interest rates usually do not go up in 1% leaps.)


So you can see why a fund with a duration of 2 years will drop less in value due to interest rates than a fund with a duration of 5 years or 10 years.

It also goes in the opposite direction. When interest rates go down, the value of your bond fund will go up.

Thank you
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Re: Portfolio Question

Post by roccodean »

retiredjg wrote: Thu Oct 06, 2022 5:08 pm
roccodean wrote: Thu Oct 06, 2022 1:32 pm So I guess my options decide on how much of my entire allocation I want in Vteb.

Option 1: so nothing with other accounts except taxable, here : sell taxable bonds (at a loss) and buy all VTEB to meet my 65/35 goal.
By doing this my VTEB would be about half of my total bond exposure. And go higher as I put in monthly flows.

Options 2
Move all money in tax deferred to bonds.
Sell taxable bonds in taxable account.
Fill taxable account w Vteb to meet desired overall 65/35 AA.

Thoughts ?
I think you understand the choices well. My personal preference is Option 2, but that does not mean that Option 1 is wrong. And neither option has to be forever.

Currently leaning toward option 1. As I was doing the math I realized with option 2, all of my taxable will be in stocks at first until I fill entire stock asset allocation. Not sure I can handle the volatility of one account all in stocks. I know I should look at entire portfolio as one bucket but seeing my taxable (all stocks) portfolio down 30k in one day May spook me a little.
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Re: Portfolio Question

Post by roccodean »

retired@50 wrote: Fri Oct 07, 2022 9:56 am
roccodean wrote: Fri Oct 07, 2022 9:51 am
retired@50 wrote: Fri Oct 07, 2022 9:46 am We've been talking about VTEB quite a bit in this thread.

Just in case you become interested in a tax-exempt bond fund with a shorter duration and less share price volatility, you could consider using the Vanguard Limited Term Tax-Exempt fund (VMLUX)
Link: https://investor.vanguard.com/investmen ... file/vmlux

Or if you prefer to use a mutual fund, instead of an ETF, you could use VTEAX, which is the Admiral share class cousin of VTEB.

Regards,
Thank you.
I read both perspectus’ but am still a little confused by VTEB vs VMLUX.
You're welcome.

If you have a specific question I might be able to help.

Regards,
Just tying to figure out what percent of my total bond portfolio should be VTEB vs short term like VMLUX vs Ohio
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Re: Portfolio Question

Post by retired@50 »

roccodean wrote: Fri Oct 07, 2022 11:51 am
retired@50 wrote: Fri Oct 07, 2022 9:56 am
roccodean wrote: Fri Oct 07, 2022 9:51 am
retired@50 wrote: Fri Oct 07, 2022 9:46 am We've been talking about VTEB quite a bit in this thread.

Just in case you become interested in a tax-exempt bond fund with a shorter duration and less share price volatility, you could consider using the Vanguard Limited Term Tax-Exempt fund (VMLUX)
Link: https://investor.vanguard.com/investmen ... file/vmlux

Or if you prefer to use a mutual fund, instead of an ETF, you could use VTEAX, which is the Admiral share class cousin of VTEB.

Regards,
Thank you.
I read both perspectus’ but am still a little confused by VTEB vs VMLUX.
You're welcome.

If you have a specific question I might be able to help.

Regards,
Just tying to fire out what percent of my total bond portfolio should be VTEB vs short term like VMLUX vs Ohio
Given your age (40) in the original post, I'd imagine the longer duration of VTEB and/or VOHIX would be suitable. I'm presuming an investing time horizon of well over 10 years. However, if you're the nervous type that doesn't ever expect to see a bond fund fall in value (very much), then throwing in some VMLUX could help ease your nerves.

I don't have a prescriptive asset mix in mind, but in my case I used 50% intermediate and 50% long term tax-exempt state-specific bond funds while I was working.

Investing can cause all sorts of emotional reactions based on brain chemistry, your own personal history with money, your childhood, etc. Maybe if you find yourself having some trouble in this area, doing some reading on the topic might help. See the wiki page of recommended books, specifically the behavioral finance section here.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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