Help Me Invest Savings, Please!

[sedura]

I want to invest $15,000 in some Vanguard funds, and I filled out a little questionnaire on their ETF website, and it said I should invest:

42%   $6,300.00   Vanguard Total Stock Market ETF (VTI)
18%   $2,700.00   Vanguard Total International Stock ETF (VXUS)
40%   $6,000.00   Vanguard Total Bond Market ETF (BND)

What do you all think?  I'm 33 years old, and this is just plain, taxable savings with no plans.  I suppose you could call it my EF.  It could (hopefully) stay in this account forever.

[GreenGuava]

I'm 33 years old, and this is just plain, taxable savings with no plans.  I suppose you could call it my EF.  It could (hopefully) stay in this account forever.

I would suggest not calling this your emergency fund.  In fact, I would keep your emergency fund separate from investments - for now.  If your total stash is $15k, you probably need to keep most of it in cash as an emergency fund.  Such funds must be easily accessible and liquid.

As your total stash grows, you can have less and less of an emergency fund, as the necessity decreases.  This isn't even an ERE/MMM thing: many investments experts don't bother with one once their taxable accounts are sufficiently large.

But $15k isn't sufficiently large.  I wouldn't feel comfortable suggesting anyone to start investing their emergency fund until their taxable stash is such that something like 80% of the value in bonds + 50% of the value in stocks is over a year's expenses.  That way, in event of an emergency (such as those that tend to be coupled with down markets, such as job loss and difficulty finding one), you have something reasonable to draw upon.

I hope that didn't sound harsh.  I want to keep you from making a mistake, in case you were about to make one. 

Now, let's deal with the investment.  Do you have a separate emergency fund?  If not, how much of this will really be able to be invested?  What is the goal of this investment?  Is it towards retirement, a house in the future, or something else entirely?  If it is towards retirement, do you have any other retirement savings (such as an IRA or 401(k)), and if so, do you want to treat all of this as one large portfolio or each separately?

[sedura]

I LOVE all the questions!

I have about 45k sitting in my checking account that just needs to find a good home.  That's why I want to invest $15k.  I figure I have another $30 to use for monthly cash flow, and I want to put new roofs on two of my rental properties, so I'm thinking another 10k will disappear shortly.

I have a very small retirement savings.  My husband who is 36 has about 30k in his (state employee version of a) 401k.  We also each have 15k (total 30) in a Roth IRA I recently started.  I have 6k in a SEP IRA I just started last year.  I also have an old traditional IRA that has about 12k in it.  However, I do have some real estate investments.  I own four rental properties

1. Value $125k, Owe 100k, rents for $1150/month
2. Value $180k, Owe 60k, rents for $1300/month
3. Value $180k, Owe 0, rents for $1350/month
4. Value $200k, Owe $140k, rents for $1600/month

We just bought a new home for $330k and owe 300k on it (soooo not mustachian).  My husband makes a very steady 87k/year, and I make a less steady but very reliable 60-80k year (real estate agent and property manager income)

I also have some separate savings in an ING account, broken into different funds for things like property taxes, vacations, next car, home maintenance.  This totals about $17k right now, and I add $1800 to it every month.

So, long story short, this really is just $15k that needs a nice home for an indeterminate number of years.  I don't need to save up for anything except retirement at this point.  Should I put more away?  30k still seems like too much dead money to have laying around.

[GreenGuava]

I have about 45k sitting in my checking account that just needs to find a good home.  That's why I want to invest $15k.  I figure I have another $30 to use for monthly cash flow, and I want to put new roofs on two of my rental properties, so I'm thinking another 10k will disappear shortly.

Okay, well, hang onto some of it.  I'll help you with what you want to allocate.

I have a very small retirement savings.  My husband who is 36 has about 30k in his (state employee version of a) 401k.  We also each have 15k (total 30) in a Roth IRA I recently started.  I have 6k in a SEP IRA I just started last year.  I also have an old traditional IRA that has about 12k in it. 

Cool.  My suggestion:  let's look at the total portfolio here.  Do you know what you want your asset allocation to be?  Consider your risk tolerance and time horizon.   When do you intend to retire, and if it's before 59.5, do you want to treat all of your retirement assets (his employer plan, your Roth IRA, his Roth IRA, your SEP IRA, that old traditional IRA, this taxable account) as one large portfolio?

(I would suggest, at the very least, treating all of the tax-advantaged accounts as one large portfolio and allocate accordingly)

I ask about this total portfolio thing because holding bonds in a taxable account - even in the form of a bond ETF - is much less efficient than holding them in an IRA.  Furthermore, if you're treating them separately, you're going to have to do so.  But at your tax bracket, you might want to consider municipal bonds instead.  It's up to you how you want to allocate, though, and I'll help you with doing so according to whatever decision you make.

(If you're going to treat tax-advantaged and taxable separately, do you mind my asking what state you live in?  I ask because there are some state-specific muni bond funds that are good)

Lastly, you have a good idea of your income and expenses.  How often do you plan to add to your taxable investment portfolio?  That may affect fund choices (and the mutual fund vs ETF choice).

However, I do have some real estate investments.  I own four rental properties

Cool.  You can account for that in your asset allocation.  Different people treat this differently.  Among other things, you won't have to deal with whether or not you want REITs (probably won't, since you already have a sizable real estate investment).  Some people, since they have steady income coming from the investment properties, would decide they can handle more volatility in taxable;  others would decide that they can afford to take less risk (with the attendant lower expected return) and would have a higher bond allocation.

We just bought a new home for $330k and owe 300k on it (soooo not mustachian).

Depends where you live.  In Los Angeles, a $330k home is a closet or is in a bad neighborhood.  In New York, it's a refrigerator box or something nearly as bad in the South Bronx.  In parts of Kansas, it might be a mansion.

I also have some separate savings in an ING account, broken into different funds for things like property taxes, vacations, next car, home maintenance.  This totals about $17k right now, and I add $1800 to it every month.

Good.  Money you need for near-term future expenses shouldn't be used for investing.

So, long story short, this really is just $15k that needs a nice home for an indeterminate number of years.  I don't need to save up for anything except retirement at this point.  Should I put more away?  30k still seems like too much dead money to have laying around.

Okay, you've convinced me that this isn't your only $15k that you want to try to increase and take a risk on.  Let's look at the follow-ups and get you to a reasonable allocation.

[sedura]

Thanks for the follow up!

I don't know what the best asset allocation is for me.  I'm 33 and own my own business, so I don't really have a set retirement goal.  I like working, and I figure I'll piddle around in my business for as long as it doesn't drive me crazy.  My husband is 36, and he said he would like to retire at 55, but he carries our health insurance, and he has no mustache....not even a 5 o'clock shadow.  If he does retire at 55, I'm doing it too!

I feel pretty secure with the real estate rentals.  I live in a college town in North Carolina, and there has never been more than a week vacancy in any of the houses (and that's only because I needed the week to get repairs and upgrades done).  Therefore, I feel pretty risk tolerant when it comes to stocks.  I don't mind being 100% in stocks, but I also know there are different types and some are riskier than others.  Of course, I don't want to lose money, but if it happens, it wouldn't be a disaster.

I think I could commit to adding at least $15,000/year to the taxable accounts.  I currently have:
$45k in checking (10k going to roofs, so make that $35k)
$17k in short term savings ING
1,030 in USBSX - taxable
approx 30k in hubby's 403b.  I have no idea what it's invested in, and he doesn't know where to begin figuring that out
6,096 in VMMXX - SEP IRA.  It's in the MM acct because the stock market is at an all time high, and I didn't want to buy high.  I know, I know...don't try to time the markets.  I can't help it!
14,283 VFORX My Roth IRA
14,283 VFORX Husband's Roth IRA
13,168 in Alliance Bernstein 2035 Retire Strat B - Roth IRA

I like to keep a 10k buffer in checking to pay bills.  I suppose I could add 25k to an account right now instead of 15, but again, with the markets being so high, I don't know that I want to go all in.

Trust me, this house is not Mustachian.  I'm in NC, and 330k gets you a lot of house.  The payment is the same as what we are renting the old house out for, so that's how I justified the expense.  Plus, the neighborhood is way better, and we have lots more room for our twin one year olds.  I work from home, so I needed a dedicated office space, etc....I could go on and on about why I "needed" this house.  I love it here, though. ☺

[GreenGuava]

I don't know what the best asset allocation is for me.  I'm 33 and own my own business, so I don't really have a set retirement goal.  I like working, and I figure I'll piddle around in my business for as long as it doesn't drive me crazy.  My husband is 36, and he said he would like to retire at 55, but he carries our health insurance, and he has no mustache....not even a 5 o'clock shadow.  If he does retire at 55, I'm doing it too!

Fair enough.  I'd like to suggest, since you're already in VFORX, to use the same asset allocation: 90% stocks, with 30% of those in international.

I feel pretty secure with the real estate rentals.  I live in a college town in North Carolina, and there has never been more than a week vacancy in any of the houses (and that's only because I needed the week to get repairs and upgrades done).  Therefore, I feel pretty risk tolerant when it comes to stocks.  I don't mind being 100% in stocks, but I also know there are different types and some are riskier than others.  Of course, I don't want to lose money, but if it happens, it wouldn't be a disaster.

There's actually almost no benefit to being 100% stocks as compared to 90%.    And we're going to tax shelter the bonds anyway.

I think I could commit to adding at least $15,000/year to the taxable accounts. 

Cool.  That makes the mutual funds I'm going to suggest more attractive;  you'll get to the same expense ratio as the ETFs soon enough, and you'll be able to buy fractional shares and control exactly how much you put in.  Plus, you won't have to deal with market hours or big/ask spreads;  you can just place an order and it will happen at the next market close.  In short, you'll get all the benefits of ETFs without any of the drawbacks.

I currently have:
$45k in checking (10k going to roofs, so make that $35k)
$17k in short term savings ING

Cool.  You said we're pulling $15k from this for investing now.  Let's deal with asset allocation as it is now.

1,030 in USBSX - taxable

I'm going to suggest selling this.  At the very least, turn off dividend reinvestment and direct those to your bank account, and sell when it's all long-term gains.  This is a terrible fund for a few reasons.  First, the expense ratio is 1.06% - that's more than twice the point that I (and many others around here) designate as the maximum possible expense ratio you should ever consider paying without getting some sort of perk for it.

approx 30k in hubby's 403b.  I have no idea what it's invested in, and he doesn't know where to begin figuring that out

Then we're going to ignore it for now.  By the way, if he thinks he's going to retire at 55, he better find out what's in this and start to find out how he's going to pay for said retirement (I realize some of the real estate is his, too).   He can start by asking his employer - there's got to be a human resources or equivalent - about it.  Or ask a co-worker who he thinks is financially savvy.

6,096 in VMMXX - SEP IRA.  It's in the MM acct because the stock market is at an all time high, and I didn't want to buy high.  I know, I know...don't try to time the markets.  I can't help it!

Just so you know the contradiction you're showing here:  first you say you have a high risk tolerance.  Then you say you're so risk averse that you can't stand the thought of losing any.

14,283 VFORX My Roth IRA
14,283 VFORX Husband's Roth IRA

We're going to replicate this in your accounts elsewhere, and use this asset allocation. 

13,168 in Alliance Bernstein 2035 Retire Strat B - Roth IRA

4% load and 1.76% expense ratio.  Don't contribute another dime to this.  Why are you in this in the first place, and how long has it been since you contributed to it? 

I like to keep a 10k buffer in checking to pay bills.  I suppose I could add 25k to an account right now instead of 15, but again, with the markets being so high, I don't know that I want to go all in.

What worries you about the market at the moment?  Is it the absolute number?  Yeah, that's an all-time high.  But the fundamentals are far better than they were last time it was at this number.  Adjusted for inflation, it isn't at an all-time high.  When you measure P/E, it isn't anywhere near a problematic level.  And besides, aren't markets supposed to go up, at least over time?  They'll keep setting more and more all time highs in your lifetime, and if you try to time it, you'll probably lose out on much of the gains.

But there's an alternative we can do:  we can take your funds that are invested and transfer them to other investments - no change from your POV no matter what the market does.  Then we can take your cash assets - the MM in your SEP IRA and your checking account money that you're putting towards this - and dollar-cost average it in.  This will lower your expected return (because, again, in expectation, markets go up over long periods of time), but will lower some downside risk (if it crashes while you're investing, you'll buy more at lower prices). 

Trust me, this house is not Mustachian.  I'm in NC, and 330k gets you a lot of house.  The payment is the same as what we are renting the old house out for, so that's how I justified the expense.  Plus, the neighborhood is way better, and we have lots more room for our twin one year olds.  I work from home, so I needed a dedicated office space, etc....I could go on and on about why I "needed" this house.  I love it here, though. ☺

Eh.  From your income and assets, you can afford it.  If you genuinely like your job, all the better;  you won't mind the extra years you "have" to work to pay for this (versus a different price house).  And in the over-spending department, there are far worse ways to do this.

So, round two:

* Find out if USBSX has gains, and if so, how much is long term vs short term.  Redirect any distributions from "reinvest" to your bank account.

* Decide if your husband's Roth IRA should be considered part of your combined asset allocation (probably better to let him decide, actually) or if we're just looking at yours.

* If your husband can find out what his retirement account at work is in, and what the choices are, we can help set him up as best we can (whether or not the two of you want your accounts treated as one).

* Find out when you last contributed to the Alliance Bernstein fund, and what the load (sales charge) would be if you sold it.  You may need to call the custodian to find out.

When we have that, we can (probably, unless something unexpected comes up, like funds with back-loads did this time) set up an investment plan for you.  Then, once it's set, follow it unemotionally.  In the short term, investing is all about controlling emotions, while in the long term, it's all about economics.  If you have a good plan, and stick to it without your emotions getting in the way, you'll do fine.

[sedura]

The USBSX was something I blindly invested $50/month in back when I was broke.  USAA is great for so many things that I assumed their investments must be good too.  The only reason there's not a lot more in here is because I drained a lot of accounts in preparation of buying the current house.  I didn't stop the $50/month contributions, so that's why it's back up to $1000.  I'd be happy consolidating everything and selling this.

Husband wants to retire at 55, but figuring out how to do it is apparently my job.  And it can't involve him not spending money on clothes.  To be fair, he's not a total spendthrift, but he is also not thrifty by any mustachian measure.  Our latest "discussion" has been about him wanting to hire a cleaning person and me telling him that he IS the cleaning person.

I'll make it a point to find out more about his retirement account.

It's not that I can't stand the thought of losing any, but it just logically seems like when the market is at an all time high, that's not the time to jump in.  I know that statistically the market returns are over 8% no matter when you start, but it would be even more if you bought during the great recession and sold now.  I know that amateur thinking, but math is still math.  ☺  Now, if the DOW was at 12,000 and I bought a bunch and it went to 10,000, I would be like "meh, you win some you lose some....I'm sure it will bounce back."

4% load and 1.76% expense ratio.  Don't contribute another dime to this.  Why are you in this in the first place, and how long has it been since you contributed to it? 

This is a very old fund that my dad started for me when I was a kid.  It used to be PIMCO, then he changed it to this.  I have no idea why any money is in there.  It used to be a traditional IRA, but I converted it to a roth a long time ago.  I have not contributed anything to it in years.  At one point, I was going to roll it over to the Vanguard IRA, but I never got around to doing it.  Should I make that a priority?  This is what is hows in the account history:
Description   Trade Date   Shares   Price   Total Amount   Share Balance

2012 FIDUCIARY ADMIN. FEE   12/26/2012   2.475   $10.1000   $25.00 -   1,174.687

INCOME REINVEST 0.034   12/17/2012   3.946   $10.1100   $39.89 +   1,177.162

2011 FIDUCIARY ADMIN. FEE   12/27/2011   2.741   $9.1200   $25.00 -   1,173.216

INCOME REINVEST 0.067   12/19/2011   8.916   $8.7700   $78.19 +   1,175.957

2010 FIDUCIARY ADMIN. FEE   12/27/2010   2.523   $9.9100   $25.00 -   1,167.041

INCOME REINVEST 0.088   12/16/2010   10.429   $9.7800   $102.00 +   1,169.564

2009 FIDUCIARY ADMIN. FEE   05/27/2010   2.877   $8.6900   $25.00 -   1,159.135

CAP GAIN REINV 0.034   12/17/2009   4.493   $8.7400   $39.27 +   1,162.012

INCOME REINVEST 0.02   12/17/2009   2.643   $8.7400   $23.10 +   1,157.519

IRA CONVERSION EXCHANGE   04/06/2009   1,154.876   $6.5300   $7,541.34 +   1,154.876

What worries you about the market at the moment?  Is it the absolute number?  Yeah, that's an all-time high.  But the fundamentals are far better than they were last time it was at this number.  Adjusted for inflation, it isn't at an all-time high.  When you measure P/E, it isn't anywhere near a problematic level.  And besides, aren't markets supposed to go up, at least over time?  They'll keep setting more and more all time highs in your lifetime, and if you try to time it, you'll probably lose out on much of the gains.

But there's an alternative we can do:  we can take your funds that are invested and transfer them to other investments - no change from your POV no matter what the market does.  Then we can take your cash assets - the MM in your SEP IRA and your checking account money that you're putting towards this - and dollar-cost average it in.  This will lower your expected return (because, again, in expectation, markets go up over long periods of time), but will lower some downside risk (if it crashes while you're investing, you'll buy more at lower prices). 

I suppose I'm making more an issue out of it than I really think it is.  I think I just wish it was 2008 again. ☺ I'm ok with putting the whole $15k in at once.  I think my dollar cost averaging will come into play with future deposits.  Would it make sense to start with $15k and then auto-contribute a monthly $1500?  I think that would ensure I don't put off investing.  I have a tendency to procrastinate.

I would like to treat my husband's and my investments as one whole pie.  We will be working as a team, and now that we have the twins, he knows he's not allowed to leave me...EVER.  If he does, he has to take the house, kids and cats.  I get the money and freedom.  So, I don't think he'll be going anywhere.  He's going to get me the log in information tonight so I can see what's in this account.

 

[GreenGuava]

It's not that I can't stand the thought of losing any, but it just logically seems like when the market is at an all time high, that's not the time to jump in. 

Look at it this way:  what do you know about the market that the professional investors don't know?  If it's at an all-time high and thus is sure to decline, why isn't that priced in?  Can't professionals look at the history, too?

(Since you've decided elsewhere to continue with your investment, I'll stop yammering about this)

This is a very old fund that my dad started for me when I was a kid.  It used to be PIMCO, then he changed it to this.  I have no idea why any money is in there.  It used to be a traditional IRA, but I converted it to a roth a long time ago.  I have not contributed anything to it in years.  At one point, I was going to roll it over to the Vanguard IRA, but I never got around to doing it.  Should I make that a priority? 

Yep.  Call Vanguard - and have the account information available to you - and they'll walk you through it.  Have them transfer it in such a way that it doesn't get withdrawn.  For now, have the proceeds put into the same fund your Roth IRA is in (or a money market, it doesn't really matter, since it won't be sitting there long term).

I suppose I'm making more an issue out of it than I really think it is.  I think I just wish it was 2008 again. ☺

So do I.  I have more money to invest now.  But you and I have long time horizons, and for all we know, we're sitting at the new low.  Maybe in ten years, you'll look back at everyone sitting on the sidelines now and think "wow, I really did something smart by getting in back in May of 2013." 

Or maybe one asset class drops a bit, you re-balance, and in a few years, you're back where you were - all the while purchasing more "on sale."

I'm ok with putting the whole $15k in at once.  I think my dollar cost averaging will come into play with future deposits.  Would it make sense to start with $15k and then auto-contribute a monthly $1500?  I think that would ensure I don't put off investing.  I have a tendency to procrastinate.

Yes.  If you are certain the money will always be in your bank account, you can set up auto deposits through Vanguard too.  We'll discuss that when we set up your portfolio.

I would like to treat my husband's and my investments as one whole pie.  We will be working as a team, and now that we have the twins, he knows he's not allowed to leave me...EVER.  If he does, he has to take the house, kids and cats.  I get the money and freedom.  So, I don't think he'll be going anywhere.  He's going to get me the log in information tonight so I can see what's in this account.

Cool.  Find the choices in his 403(b) - if you can get ticker symbols, names, and expense ratios, that'd be fantastic.  Also, let me know if your SEP IRA has all the Vanguard options or just a subset.

Once this is all here, I'm going to set you up with the closest approximation I can of VFORX, spread out in the most tax-efficient manner across your accounts (including taxable), while making the best of the 403(b) options presented to us.   And then you can check on it once a year or so (I'll give you some pointers on how), but between auto deposit and an appropriate balance of funds, you'll be fine.

One last question:  have you made your Roth IRA contributions for 2013 yet, and if not, do you intend to do so?

[sedura]

So do I.  I have more money to invest now.

Me too!  I was broke in 2008 and barely had anything in the market.  Grrr...

This is what is available in the SEP IRA.  I don't know if this is all of their funds or not.
Mutual funds
General attributes
    Name (Minimum)   Ticker   Asset
Class   Fund No.   Expense ratio
    500 Index   VFINX   Stock - Large-Cap Blend   0040   0.17%
Admiral Treasury Money Market    VUSXX   Money Market   0011   0.10%
    Balanced Index   VBINX   Balanced   0002   0.24%
    Capital Opportunity   VHCOX   Stock - Mid-Cap Growth   0111   0.48%
    Capital Value   VCVLX   Stock - Mid-Cap Value   0328   0.47%
    Convertible Securities   VCVSX   Balanced   0082   0.52%
    Developed Markets Index   VDMIX   International   0227   0.20%
    Diversified Equity   VDEQX   Stock - Large-Cap Blend   0608   0.40%
    Dividend Appreciation Index   VDAIX   Stock - Large-Cap Blend   0602   0.25%
    Dividend Growth   VDIGX   Stock - Large-Cap Blend   0057   0.31%
    Emerging Markets Government Bond Index
Purchase Fee: 0.75%   VGOVX   International   1120   —
    Emerging Markets Select Stock   VMMSX   International   0752   0.92%
    Emerging Markets Stock Index   VEIEX   International   0533   0.33%
    Energy   VGENX   Stock - Sector   0051   0.34%
    Equity Income   VEIPX   Stock - Large-Cap Value   0065   0.30%
    European Stock Index   VEURX   International   0079   0.26%
    Explorer   VEXPX   Stock - Small-Cap Growth   0024   0.49%
    Explorer Value   VEVFX   Stock - Small-Cap Value   1690   0.63%
    Extended Market Index   VEXMX   Stock - Mid-Cap Blend   0098   0.28%
Federal Money Market     VMFXX   Money Market   0033   0.16%
    FTSE All-World ex-US Index   VFWIX   International   0770   0.30%
    FTSE All-World ex-US Small-Cap Index
Purchase Fee: 0.50%
Redemption Fee:0.50%   VFSVX   International   1684   0.45%
    FTSE Social Index   VFTSX   Stock - Large-Cap Growth   0213   0.29%
    Global Equity   VHGEX   International   0129   0.59%
    Global ex-U.S. Real Estate Index
Purchase Fee: 0.25%
Redemption Fee:0.25%   VGXRX   International   0738   0.45%
    GNMA   VFIIX   Bond - Inter-term Government   0036   0.21%
    Growth and Income   VQNPX   Stock - Large-Cap Blend   0093   0.36%
    Growth Equity   VGEQX   Stock - Large-Cap Growth   0544   0.54%
    Growth Index   VIGRX   Stock - Large-Cap Growth   0009   0.24%
    Health Care   VGHCX   Stock - Sector   0052   0.35%
    High Dividend Yield Index   VHDYX   Stock - Large-Cap Value   0623   0.20%
High-Yield Corporate     VWEHX   Bond - Inter-term Low Quality   0029   0.23%
    Inflation-Protected Securities   VIPSX   Bond - Inter-term Government   0119   0.20%
    Intermediate-Term Bond Index   VBIIX   Bond - Inter-term Investment   0314   0.20%
    Intermediate-Term Investment-Grade   VFICX   Bond - Inter-term Investment   0071   0.20%
    Intermediate-Term Treasury   VFITX   Bond - Inter-term Government   0035   0.20%
    International Explorer   VINEX   International   0126   0.43%
    International Growth   VWIGX   International   0081   0.49%
    International Value   VTRIX   International   0046   0.41%
    Large-Cap Index   VLACX   Stock - Large-Cap Blend   0307   0.24%
    LifeStrategy Conservative Growth   VSCGX   Balanced   0724   0.15%
    LifeStrategy Growth   VASGX   Balanced   0122   0.17%
    LifeStrategy Income   VASIX   Balanced   0723   0.14%
    LifeStrategy Moderate Growth   VSMGX   Balanced   0914   0.16%
    Long-Term Bond Index   VBLTX   Bond - Long-term Investment   0522   0.20%
    Long-Term Investment-Grade   VWESX   Bond - Long-term Investment   0028   0.22%
    Long-Term Treasury   VUSTX   Bond - Long-term Government   0083   0.20%
    Managed Payout Distribution Focus   VPDFX   Balanced   1499   0.51%
    Managed Payout Growth and Distribution   VPGDX   Balanced   1498   0.43%
    Managed Payout Growth Focus   VPGFX   Balanced   1497   0.35%
    Market Neutral   VMNFX   Stock - Long-Short   0634   1.90%
    Mid-Cap Growth   VMGRX   Stock - Mid-Cap Growth   0301   0.54%
    Mid-Cap Growth Index   VMGIX   Stock - Mid-Cap Growth   0832   0.24%
    Mid-Cap Index   VIMSX   Stock - Mid-Cap Blend   0859   0.24%
    Mid-Cap Value Index   VMVIX   Stock - Mid-Cap Value   0835   0.24%
    Morgan Growth   VMRGX   Stock - Large-Cap Growth   0026   0.40%
    Pacific Stock Index   VPACX   International   0072   0.26%
    Precious Metals and Mining   VGPMX   Stock - Sector   0053   0.29%
    Prime Money Market   VMMXX   Money Market   0030   0.16%
PRIMECAP Core     VPCCX   Stock - Large-Cap Blend   1220   0.50%
PRIMECAP     VPMCX   Stock - Large-Cap Growth   0059   0.45%
    REIT Index   VGSIX   Stock - Sector   0123   0.24%
    Selected Value   VASVX   Stock - Mid-Cap Value   0934   0.38%
    Short-Term Bond Index   VBISX   Bond - Short-term Investment   0132   0.20%
    Short-Term Federal   VSGBX   Bond - Short-term Government   0049   0.20%
    Short-Term Inflation-Protected Securities Index
Purchase Fee: 0.25%   VTIPX   Bond - Short-term Government   1967   0.20%
    Short-Term Investment-Grade   VFSTX   Bond - Short-term Investment   0039   0.20%
    Short-Term Treasury   VFISX   Bond - Short-term Government   0032   0.20%
    Small-Cap Growth Index   VISGX   Stock - Small-Cap Growth   0861   0.24%
    Small-Cap Index   NAESX   Stock - Small-Cap Blend   0048   0.24%
    Small-Cap Value Index   VISVX   Stock - Small-Cap Value   0860   0.24%
    STAR   VGSTX   Balanced   0056   0.34%
    Strategic Equity   VSEQX   Stock - Mid-Cap Blend   0114   0.29%
    Strategic Small-Cap Equity   VSTCX   Stock - Small-Cap Blend   0615   0.40%
    Target Retirement 2010   VTENX   Balanced   0681   0.16%
    Target Retirement 2015   VTXVX   Balanced   0303   0.16%
    Target Retirement 2020   VTWNX   Balanced   0682   0.16%
    Target Retirement 2025   VTTVX   Balanced   0304   0.17%
    Target Retirement 2030   VTHRX   Balanced   0695   0.17%
    Target Retirement 2035   VTTHX   Balanced   0305   0.18%
    Target Retirement 2040   VFORX   Balanced   0696   0.18%
    Target Retirement 2045   VTIVX   Balanced   0306   0.18%
    Target Retirement 2050   VFIFX   Balanced   0699   0.18%
    Target Retirement 2055   VFFVX   Balanced   1487   0.18%
    Target Retirement 2060   VTTSX   Balanced   1691   0.18%
    Target Retirement Income   VTINX   Balanced   0308   0.16%
    Total Bond Market Index   VBMFX   Bond - Inter-term Investment   0084   0.20%
    Total International Stock Index   VGTSX   International   0113   0.22%
    Total Stock Market Index   VTSMX   Stock - Large-Cap Blend   0085   0.17%
    Total World Stock Index   VTWSX   International   0628   0.35%
    U.S. Growth   VWUSX   Stock - Large-Cap Growth   0023   0.45%
    U.S. Value   VUVLX   Stock - Large-Cap Value   0124   0.29%
    Value Index   VIVAX   Stock - Large-Cap Value   0006   0.24%
    Wellesley Income   VWINX   Balanced   0027   0.25%
    Wellington   VWELX   Balanced   0021   0.25%
    Windsor   VWNDX   Stock - Large-Cap Value   0022   0.41%
    Windsor II   VWNFX   Stock - Large-Cap Value   0073   0.35%

Find the choices in his 403(b) - if you can get ticker symbols, names, and expense ratios, that'd be fantastic.

It looks like I was wrong about his retirement.  It's seems to be a pension of some sort.  If her retires after 20 years of service (when he's 51) he would collect about $1000/month.  If he waits until 61  then it's between 2600-3200/month.  There are different "options," and I don't know what they mean, but the lease amount projected is $2600.

have you made your Roth IRA contributions for 2013 yet, and if not, do you intend to do so

I have autodraft set up to deduct the maximum contribution for each of us broken into monthly deductions...about 458/month.

[GreenGuava]

I'm going to ignore the pension;  that'll help cover him if he retires at 55, and your cashflow going forward, but we can ignore it for now.

I'm going to try to replicate VFORX's asset allocation - 10% bonds, 30% of stocks (27% of total portfolio) in international - across your accounts.

$16K in taxable (including sale of USBSX), plus $12K expected additional contributions over the course of the year.
$6K in SEP IRA
~$14K in your Roth IRA, expected ~$3200 additional contributions this year
Same situation for his Roth IRA
$13K in a Roth IRA that you're going to move to Vanguard at some point and add to your existing Roth IRA.

Total portfolio (including future 2013 contributions):  about $67,400.  If you were to have all this in one account, you'd put about $6K into bonds, about $18000 into international (non-U.S.) stocks, and the rest into domestic stocks.

So I have great news.  Because of your account balances and choices, this is going to be very easy to set up. 

Put your SEP IRA into VTSMX - Total (U.S.) stock market index.  Even though this account is about 10% of your portfolio, we want the bonds to be in an account that has another asset class, too, so when you want to re-balance, you can do so.  I'll explain in a bit how to do this.

In taxable, buy $12000 worth of VTIAX - Vanguard's total international stock market index and $4000 worth of VTSMX (total U.S. Stock market).  Split future contributions however you like;  I would suggest doing this as 50/50.  Your goal is to get the VTIAX up to $18000 by year's end (so it will be about 30% of your stock holdings).  After that, contribute 30% of your taxable stock investing to this;  alternately, compute how much to put in to bring this to 30% of your new total, and put that much in.  That may be more trouble than it's worth.

For both of the funds in taxable, I'd suggest choosing to take any dividends/distributions sent to your bank account, and add that to your next contribution.  Distributions are taxed the same whether or not the re-investment is automatic, and this gives you more opportunity to re-balance without paying additional taxes.  If you don't think you'll have the discipline to do this, set the re-investments to be automatic instead. 

By the way, when your VTSMX reaches $10,000, Vanguard will convert the shares from "investor" to "Admiral" shares.  This is NOT a taxable event if you let it happen, but will be taxed if you instead sell from one class and buy in the other.  All this does is lower the cost from .17% to .05% of these assets.

In your husband's Roth IRA, put it 100% into VTSAX - Vanguard's total stock market index (already enough for the cheaper Admiral class shares)

In your Roth IRA, complete with the "new" funds from the existing one that you'll get merged (call Vanguard and they'll walk you through moving them), put $6000 into VBMFX (total bond market index) and the rest into VTSAX.   Once a year or so (maybe on or around your birthday), compute what 10% of your retirement portfolio is, and buy or sell between these two funds (strictly within the Roth IRA!) to get your bonds to 10% of your total portfolio (or whatever your desired percentage becomes;  many people increase this gradually every few years).  Then, with future taxable investing dollars, adjust either the taxable total stock market or total international stock market to get the latter to 30% of your stocks (don't sell - and, in the process, realize capital gains - in order to do this).

And there you have it.  VFORX, spread out over many accounts in one portfolio.  Once it's set up, it should take you only a very small amount of time each year to maintain, and your expense ratio will be lower than VFORX because many of your holdings will be eligible for Admiral class shares (not to mention getting out of unduly expensive existing funds!).  Plus, because your international stocks are held in taxable, you might be eligible for foreign tax credit (ask your accountant or TurboTax, or however you do your tax planning.  Vanguard will send you the appropriate form early next year) -- a credit on your U.S. taxes for some of the foreign taxes paid when the foreign-based companies issued dividends.

One more thing:  please read and understand this before you act on it.  And, once you understand it, ensure that it's something you want to do (I think it's a good plan, but I have my own biases).  If you have any questions, ask.  One of the worst things you can do as an investor is to invest in something you don't really understand -- no matter how good a plan it is.

If you'd rather see a professional - and hey, I won't be offended if you'd rather pay a pro than take free advice from some guy on the internet - move the assets to Vanguard anyway.  Take the money you'd put in taxable and put it into a money market account (this is only to hold it briefly).  Roll the old Roth IRA to Vanguard and put it into the VFORX you already have.  You'll now qualify for Voyager services, their term for investors with over $50k in Vanguard assets at Vanguard.  Among other things, you can now ask them to set you up with a fee-only certified financial planner;  this CFP will charge you $250 (flat rate) to look at your assets and make investment suggestions.  While it is the case that this person works for Vanguard, he or she isn't paid on commission, nor does his or her pay in any way change based on the choices you make.  Accordingly, they won't have a conflict of interest (and Vanguard is a not-for-profit anyway, so they aren't looking out for the company's bottom line). 

[oldtoyota]

By the way, when your VTSMX reaches $10,000, Vanguard will convert the shares from "investor" to "Admiral" shares.  This is NOT a taxable event if you let it happen, but will be taxed if you instead sell from one class and buy in the other.  All this does is lower the cost from .17% to .05% of these assets.

Eek. Is the above rule about taxes applicable if you sell off $30K of one fund (Cap Opportunity) to buy into VTSAX at the Admiral class? Or, does the above just apply when you buy/sell the same fund to get to the higher class?

[GreenGuava]

By the way, when your VTSMX reaches $10,000, Vanguard will convert the shares from "investor" to "Admiral" shares.  This is NOT a taxable event if you let it happen, but will be taxed if you instead sell from one class and buy in the other.  All this does is lower the cost from .17% to .05% of these assets.

Eek. Is the above rule about taxes applicable if you sell off $30K of one fund (Cap Opportunity) to buy into VTSAX at the Admiral class? Or, does the above just apply when you buy/sell the same fund to get to the higher class?

It's only when you convert share classes within the same fund.  Sorry.

[oldtoyota]

By the way, when your VTSMX reaches $10,000, Vanguard will convert the shares from "investor" to "Admiral" shares.  This is NOT a taxable event if you let it happen, but will be taxed if you instead sell from one class and buy in the other.  All this does is lower the cost from .17% to .05% of these assets.

Eek. Is the above rule about taxes applicable if you sell off $30K of one fund (Cap Opportunity) to buy into VTSAX at the Admiral class? Or, does the above just apply when you buy/sell the same fund to get to the higher class?

It's only when you convert share classes within the same fund.  Sorry.

No need to be sorry. Your post was amazingly helpful and well written. Thank you for sharing all of that here.

Also, you saved me $$ on taxes! I am in a bond fund and am $700 away from the Admiral Share. I know how to do get to the higher class without getting slammed with taxes!!