Posted: Mon Jun 13, 2011 11:48 pm?? ?Post subject: Suggestions for rebalancing 401K/IRA + investing savings?
EDIT: I've made updates to my original post to match the desired format - let me know if any more info would be helpful
After a few laissez-faire years of just using whatever the companies I work for set up as a default 401k and putting most of my other money in a savings account, I've decided to straighten things out and go with a more sensible and effective use of my money. Here's what I'm currently at:
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Emergency funds: $30K (about 2 years of expenses, currently in savings)
Goal: saving for retirement, and desired liquidity of ~$50K for potential mortgage down payment in a few years (but with the best rate I can get with that money)
Debt: $0
Tax Filing Status: Single
Tax Rate: 25% Federal 4% State
Age: 28
Desired Asset allocation: 75/25
Intl allocation: not sure, maybe 25% of stocks?
Current portfolio: $120K (excluding emergency funds)
Taxable
58.3% savings @ .6% interest, $70K
6.8% stocks, $8200:
- Matthews Asian Growth & Income (MACSX) (ER 1.13%), $3000
- Bank of America (BAC), $500
- Citigroup (C), $750
- Ford (F), $650
- Harley Davidson (HOG), $1500
- Intel (INTC), $1300
- Lloyds Banking Group (LYG), $500
Roth IRA at TRP (maybe switching to VG)
4.2% cash, $5K (opened account but haven't invested yet)
401k ($40K)
8.5% AMERICAN EUROPACIFIC GROWTH R4 (REREX, .86% ER) - 27.7% of 401k
5.4% VANGUARD INST INDEX (VINIX, .05% ER) - 17.8% of 401k
4.1% TRP EQUITY INCOME FUND (PRFDX, .73% ER) - 13.5% of 401k
3.2% TRP GROWTH STOCK FUND (PRGFX, .73% ER) - 10.4% of 401k
3.1% DFA U.S. TARGETED VALUE I (DFFVX, .38% ER) - 10.0% of 401k
2.3% VANGUARD SM CAP GR INDEX, INST (VSGIX, .08% ER) - 7.5% of 401k
2.1% TRP NEW INCOME FUND (PRCIX, .72% ER) - 7.0% of 401k
1.5% COHEN & STEERS REAL ESTATE (CSRSX, 1.06% ER) - 5.1% of 401k
0.3% DFA EMERGING MARKETS VALUE (DFEVX, .60% ER) - 1.2% of 401k
Total of All Accounts Together (not each account individually) equals 100%
New annual Contributions
$18.6K 401k (including matching contributions)
$5K Roth IRA
$15K taxable
Funds available in 401k:
TRP NEW INCOME FUND (PRCIX, .72% ER) -- the only bond fund in the 401K, 88% bonds TRP EQUITY INCOME FUND (PRFDX, .73% ER)
AMERICAN EUROPACIFIC GROWTH R4 (REREX, .86% ER)
VANGUARD INST INDEX (VINIX, .05% ER)
TRP GROWTH STOCK FUND (PRGFX, .73% ER)
DFA U.S. TARGETED VALUE I (DFFVX, .38% ER)
VANGUARD SM CAP GR INDEX, INST (VSGIX, .08% ER)
Cohen & Steers Realty Shares (CSRSX, .99% ER)
DFA EMERGING MARKETS VALUE (DFEVX, .60% ER)
Funds available in Roth IRA:
Looks like pretty much anything, though I'll get stuck
with certain $35 transaction fees unless I buy mostly TRP.
Hence the thought of switching the Roth IRA to VG.
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Yeah, it's probably a moderately to severely sub-optimal setup, I've come to realize that after doing some research lately. Any/all suggestions would be appreciated.
Also, I am saving up for a likely house purchase in a couple years (thinking about having $50K easily liquidable for down payment), but have been looking for something better than a savings account to invest that money in.
Thanks!
Last edited by zaboomafoozarg on Thu Jun 16, 2011 11:17 pm; edited 4 times in total
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Johm221122
Joined: 13 May 2011 Posts: 231
Posted: Tue Jun 14, 2011 12:25 am?? ?Post subject:
$100,000 savings. Emergency fund 30,000 cash/ibond 10,000 (eletric and paper) 40,000 for emergency and the rest
30,000 cash for house 30,000 cd maybe
30,000 plus 9000 taxable stock /5000 Roth total bond index. 16000 total stock index 18,000 total international index
40,000 in 401 /20,000 vanguard vanguard inst. Index 15,000 stable or bond fund (I do not see one listed)5,000 small cap growth index
Put new Roth in bond index
Put new taxable in house money and intentional index ( I bonds if international at your AA)
Put new 401 in vanguard inst. Index or bond( stable) or small index
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zaboomafoozarg
Joined: 12 Jun 2011 Posts: 21
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zaboomafoozarg
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Johm221122
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retiredjg
Joined: 10 Jan 2008 Posts: 8526
Posted: Thu Jun 16, 2011 11:52 am?? ?Post subject: Re: Suggestions for rebalancing 401K/IRA + investing savings
zaboomafoozarg wrote:
After a few laissez-faire years of just using whatever the companies I work for set up as a default 401k and putting most of my other money in a savings account, I've decided to straighten things out and go with a more sensible and effective use of my money. Here's what I'm currently at:
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28 years old, single, no debt
401k: $40K (at T. Rowe Price)
Savings: $100K @ .6%
Income: $70K
Taxable stock/fund investments: $9K
Roth IRA: $0 (just opened)
Current yearly investment amounts: 401k: $18.5k (max tax-free + company "match")
Roth IRA: $5k (just opened)
401k total investments (haven't rebalanced when it's been merged):
AMERICAN EUROPACIFIC GROWTH R4 (REREX, .86% ER) - 27.9%
COHEN & STEERS REAL ESTATE (CSRSX, 1.06% ER) - 5.1%
DFA EMERGING MARKETS VALUE (DFEVX, .60% ER) - 1.2%
DFA U.S. TARGETED VALUE I (DFFVX, .38% ER) - 9.9%
TRP EQUITY INCOME FUND (PRFDX, .73% ER) - 13.5%
TRP GROWTH STOCK FUND (PRGFX, .73% ER) - 10.3%
TRP NEW INCOME FUND (PRCIX, .72% ER) - 6.9%
VANGUARD INST INDEX (VINIX, .05% ER) - 17.8%
VANGUARD SM CAP GR INDEX, INST (VSGIX, .08% ER) - 7.4%
401k current elections:
AMERICAN EUROPACIFIC GROWTH R4 (REREX, .86% ER) - 28.0%
DFA EMERGING MARKETS VALUE (DFEVX, .60% ER) - 6.0%
DFA U.S. TARGETED VALUE I (DFFVX, .38% ER) - 13.0%
TRP NEW INCOME FUND (PRCIX, .72% ER) - 16.0%
VANGUARD INST INDEX (VINIX, .05% ER) - 30.0%
VANGUARD SM CAP GR INDEX, INST (VSGIX, .08% ER) - 7.0%
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Yeah, it's probably a moderately to severely sub-optimal setup, I've come to realize that after doing some research lately. Any/all suggestions would be appreciated. I'm thinking primarily domestic total stock market with a smaller portion in growth, and possibly no bonds (or very little) at this point. The 401k has to stay at TRP but the Roth IRA I'm considering switching to Vanguard.
Also, I am saving up for a likely house purchase in a couple years, but have been looking for something better than a savings account to invest that money in.
Thanks!
zaboom, perhaps you didn't get a lot of answers because your information is incomplete. Do you have an emergency fund? What is your tax bracket? Is all of the savings for the house? Is there a rollover IRA from your old 401ks or have you just rolled the old 401ks into the new 401ks?
What is in your taxable account? Where are the rest of the 401k choices? Etc.
Please go back and look at the format more closely and use the edit button to add information in your original post. If you don't know answers, just say so and we will help you figure it out. For example, if you don't know how to look up your tax bracket, just ask.
One thing you should reconsider is "little to no bonds". Check out this thread. _________________ Link to Asking Portfolio Questions
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zaboomafoozarg
Joined: 12 Jun 2011 Posts: 21
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retiredjg
Joined: 10 Jan 2008 Posts: 8526
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zaboomafoozarg
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retiredjg
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Posted: Fri Jun 17, 2011 11:43 am?? ?Post subject: Re: Suggestions for rebalancing 401K/IRA + investing savings
Emergency funds: $30K (about 2 years of expenses, currently in savings)
House fund: $50k - not included in your retirement portfolio
Quote:
Intl allocation: not sure, maybe 25% of stocks?
Sure. Vanguard recommends 20% to 40% of your stocks in international, up to market weight (about 58% for people who want that much).
Current portfolio: $73.2K (excluding emergency funds and house money)
Taxable 38.5% ($28.2k) 7.3% VG Total Stock Index VTSMX
20% VG Total International Index VGTSX
11.2% stocks <--this needs to be discussed
-Matthews Asian Growth & Income (MACSX) (ER 1.13%), $3000
- Bank of America (BAC), $500
- Citigroup (C), $750
- Ford (F), $650
- Harley Davidson (HOG), $1500
- Intel (INTC), $1300
- Lloyds Banking Group (LYG), $500
Roth IRA 6.8% ($5k) at TRP <--I'd just pay the fee and move it now if you think you'll ever want to move it. 6.8% Total Bond Market VBMFX or a free bond at TRP
401k 54.6% ($40K) 28.4% VANGUARD INST INDEX (VINIX, .05% ER)
4% VANGUARD SM CAP GR INDEX, INST (VSGIX, .08% ER)
4% DFA U.S. TARGETED VALUE I (DFFVX, .38% ER) small cap value 18.2% TRP NEW INCOME FUND (PRCIX, .72% ER) bonds
New annual Contributions
$18.6K 401k (including matching contributions)
$5K Roth IRA
$15K taxable <--how much for retirement instead of house or other short term goals?
This idea is about 75% stocks and 25% bonds with about 25% of the stocks in international. The Total Stock and Total International in taxable are both tax efficient and the Total International is eligible for the foreign tax credit.
Regarding your Asian mutual fund in taxable - it must go because it has both a high expense ratio and is it not tax-efficient. Just dump it.
As for your individual stocks, it's OK to hold a small percentage of your portfolio in individual stocks - 5% is fine, maybe even 10% if you really want to. However, they are more risky than a mutual fund and if they pay nice dividends, they are not tax-efficient which causes you to lose more of your return than necessary to taxes.
Your best bet is to dump them if you can do so at a loss. Your next best bet is to keep them and just not buy any more. Your next best bet is to keep them and don't buy much more - keeping the percentage at or less than 5%. If you do decide to sell some, check first to see your tax consequences. If you sell, just buy more total stock market to replace it.
Regarding your Roth IRA - you can leave it and just open a new Roth IRA at Vanguard next year. Or you can move it to Vanguard now (probably will be a fee to close the Roth IRA) and carry on. Either way, bonds would be a nice thing to hold there to reduce the dependence on the higher cost bonds in your 401k.
The other option is to just use the higher cost bonds in your 401k and put some stocks in your Roth IRA. Many people would find this preferable under the concept that Roth should hold something that is expected to grow more and faster. People do not agree on this. Just suit yourself.
I put in both the Vanguard small cap growth fund and the DFA small cap value fund in your 401k. Ordinarily, I probably would not go that route, but the DFA fund is particularly favored and does not cost that much. You could simplify and just use one or the other. If you want to tilt to small cap, use more small cap and less 500 index (VINIX).
As for your house, rates now are disappointing, but if you want your house at a certain date, that money needs to stay in cash, money market, CD, or possibly some (not all) in short term bonds. If you invest it in stocks or longer term bonds, the money may not be there when you want it. If your goal is just "sometime in the next 5 to 10 years", you could use some intermediate bonds and maybe even some stocks - keeping in mind that the money may come and go with the market and your house buying could come and go with the market as well. When I said "some" I don't mean the whole thing. Be somewhat conservative.
Let me know if you have any questions.
Wiki article link: Foreign tax credit
Wiki article link: Approximating Total Stock Market _________________ Link to Asking Portfolio Questions
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