Author Topic: Advice on retirement portfolio construction  (Read 4272 times)

TXScout2

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Advice on retirement portfolio construction
« on: January 14, 2016, 11:34:28 AM »
Hi,

I am looking for advice on how I can better construct my retirement portfolio.  I have a 401k, and then I have a Scottrade account with an IRA, Roth, and a taxable brokerage.  Is it appropriate to just post the portfolio and ask for advice on how I might improve it?  I don't see a lot of threads that have done that.  I'll start with just the 401k.  My contribution gets split 50/50 between two funds:

Fund Name   1 YR/   5 YR/   10 YR/   Since/    Inception Date/Gross Expense Ratio
AmFds Am Bal R6
Prospectus  |   Fact Sheet   1.06%   9.14%   6.15%   9.99%   07/25/1975   0.29%
Dtsch RREEF RealEst Sec S
Prospectus  |   Fact Sheet   2.15%   10.82%   6.73%   7.55%   05/02/2005   0.72%

The first fund has the second to lowest expense ratio that is available to me.  The lower expense ratio is:
Vngrd Mrgn Gr Adml
Prospectus  |   Fact Sheet   5.85%   11.44%   6.81%   5.18%   05/14/2001   0.26%

The second fund has a higher expense ratio, but I chose it because I thought it would help diversify me, and it gets better returns than the bond options, or money market.  Also, I have no index fund options.  The REIT fund has done better, it accounts for 51.63% of my account now, where the Amfds is 48.37%.  Total amount of the 401K is $50K. 

In my scottrade accounts, I have about $9700 of SPX, $6000 of DXJ, $5000 of VHCIX, $4000 of APPL, and then about $2500 of assorted other stocks I bought years ago.

I don't think I did too horribly just making it up but I'm sure I can do better.  I am guessing people will recommend I close the Scottrade account, and send all the assets to Vanguard or Betterment?




Ursus Major

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Re: Advice on retirement portfolio construction
« Reply #1 on: January 16, 2016, 11:45:54 AM »
Hi TxScout2,

You didn't receiver any replies yet and I would also find it hard to reply, because presenting your data in full-text instead of in table form.
I'd suggest that you present your current holdings and their current value in a table and then let us know, how big your annual contribution into each account is and how your are splitting that. And please list ticker symbols as well, because these abbreviated names are hard to parse.

The ticker symbol for funds is usually a 5 letter symbol, e.g. Vanguard Morgan Growth's symbol is either VMRGX or VMRAX depending on the share class that you invest in.

Also it would help, if you list all the options that you have in your 401(k), (once again by listing their ticker symbols as well).

Finally, you do not have to open a Vanguard account to buy Vanguard funds, you can do this in your Scottrade account as well. Some funds are "No transaction fee, no-load funds" and don't incur a commission, for all other funds the fee currently is $17.

U.

MustacheAndaHalf

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Re: Advice on retirement portfolio construction
« Reply #2 on: January 16, 2016, 10:45:38 PM »
It might help to just list fund names along with their percentages of your overall portfolio.  You can mention "(401k)" next to the funds where that applies.  It's easier to look at overall percentages than have everyone add up the numbers and divide by the total.

Couple notes:
1. Are you chasing performance?  I ask because all of your holdings look like things that recently performed well, but I don't see any overall pattern to them.  A Vanguard Morgan Growth Fund, plus Apple stock, plus the health care sector...  Each of these is less diverse than S&P 500 or Total Stock Market.
2. The "SPX" is the actual S&P 500 index tracking.  "SPX" is not a fund.  Your fund should have a name like "Vanguard S&P 500" or Fidelity Spartan 500, etc.
3. What are 2-3 lowest expense ratio funds in your 401k?  What's the alternative?

If Vanguard has a real estate fund (VNQ) and your 401k has a much more expensive fund that's pretty much equivalent, you might want to point that out to your company's 401k department.  They have a fiduciary duty to you and other employees, and they can be on the losing end of a lawsuit by ignoring fees like that.

MDM

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Re: Advice on retirement portfolio construction
« Reply #3 on: January 17, 2016, 02:37:08 PM »
I'd suggest that you present your current holdings and their current value in a table....
See http://forum.mrmoneymustache.com/forum-information-faqs/how-to-formatting-a-table/ for some ways to do this.

TXScout2

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Re: Advice on retirement portfolio construction
« Reply #4 on: January 18, 2016, 10:21:01 AM »
Thank you for the replies.  I will try to put the data into the table form as used in the example, and then answer the other questions as well!

TXScout2

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Re: Advice on retirement portfolio construction
« Reply #5 on: January 18, 2016, 12:32:29 PM »
Ok so here is my attempt to do this in table format.  It didn't turn out quite right but I think it's legible.

["table"]
[th]Holding[/th][th]Amount[/th][th]Percent of Portfolio[/th][th]Account Type[/th]
RLBGX$26,350.47 33.83%401(k)
RRRRX$24,782.22 31.82%401(k)
SPY$2,817.15 3.62%IRA
DXJ$2,228.25 2.86%Roth IRA
VHCIX$5,141.05 6.60%Roth IRA
SPY$6,573.35 8.44%Brokerage
AAPL$3,885.20 4.99%Brokerage
DXJ$3,476.07 4.46%Brokerage
NGVC$817.76 1.05%Brokerage
LULU$779.94 1.00%Brokerage
PLUUF$650.49 0.84%Brokerage
XOM$387.90 0.50%Brokerage
Total$77,889.85

And here are my 401k options (I didn't include the bonds or money market options):

["table"]
[th]Fund[/th][th]Gross Expense Ratio as Reported by Nationwide[/th]
RLBGX0.29%
RIRGX0.30%
ACEKX0.49%
RWIGX0.44%
RERGX0.49%
RLLGX0.71%
MDGCX1.05%
RAFGX0.37%
PJGZX0.80%
PVSYX0.73%
VMRAX0.26%
ABASX0.89%
DFVEX0.32%
EISMX0.98%
DHSCX1.03%
VEXRX0.36%
RRRRX0.72%

Answers to questions:  Am I chasing performance? This is basically investments I have made over the past 5 years using the information I had at the time.  At some points you can see I chose stocks I thought would go up, other times I chose index funds I thought would be more predictable.  I've actually never sold a stock.  So there's not really a grand strategy to any of it.

Contributions:  I am contributing $18k per year to the 401(k), at 50% RLBGX and 50% RRRRX.  Those are the funds I chose when I first joined the plan.   I also want to start contributing $500/month to my brokerage account.  I haven't done that yet.  I was considering changing brokerages, so I don't have to pay as high of fees.  I guess I should look into these "no load, no transaction fee" funds on Scottrade.  I was also considering Betterment since my income is around $140K per year and I'm single.  I figured I could save on taxes. 

Any help is appreciated.

MDM

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Re: Advice on retirement portfolio construction
« Reply #6 on: January 18, 2016, 01:16:56 PM »
Ok so here is my attempt to do this in table format.  It didn't turn out quite right but I think it's legible.
Good work!  Unfortunately the software for this forum doesn't understand the [th][/th] syntax - change the "th"s to "td"s and it works better:
Quote
HoldingAmountPercent of PortfolioAccount Type
RLBGX$26,350.47 33.83%401(k)
RRRRX$24,782.22 31.82%401(k)
SPY$2,817.15 3.62%IRA
DXJ$2,228.25 2.86%Roth IRA
VHCIX$5,141.05 6.60%Roth IRA
SPY$6,573.35 8.44%Brokerage
AAPL$3,885.20 4.99%Brokerage
DXJ$3,476.07 4.46%Brokerage
NGVC$817.76 1.05%Brokerage
LULU$779.94 1.00%Brokerage
PLUUF$650.49 0.84%Brokerage
XOM$387.90 0.50%Brokerage
Total$77,889.85

And here are my 401k options (I didn't include the bonds or money market options):

FundGross Expense Ratio as Reported by Nationwide
RLBGX0.29%
RIRGX0.30%
ACEKX0.49%
RWIGX0.44%
RERGX0.49%
RLLGX0.71%
MDGCX1.05%
RAFGX0.37%
PJGZX0.80%
PVSYX0.73%
VMRAX0.26%
ABASX0.89%
DFVEX0.32%
EISMX0.98%
DHSCX1.03%
VEXRX0.36%
RRRRX0.72%

Quote
Answers to questions:  Am I chasing performance? This is basically investments I have made over the past 5 years using the information I had at the time.  At some points you can see I chose stocks I thought would go up, other times I chose index funds I thought would be more predictable.  I've actually never sold a stock.  So there's not really a grand strategy to any of it.
You have done reasonably well thanks to high contributions - keep up the good work (and your plans to increase as noted below)!

But yes, it will likely help to have a strategy and stick with it.  See https://www.bogleheads.org/wiki/Category:Getting_started.

Quote
Contributions:  I am contributing $18k per year to the 401(k), at 50% RLBGX and 50% RRRRX.  Those are the funds I chose when I first joined the plan.
Too much in REITs for my taste but opinions may differ.  You might consider (after creating your Investment Policy Statement as described in the bogleheads' information) some combination of
VMRAX   0.26%
RLBGX   0.29%
RIRGX   0.30%
DFVEX   0.32%
VEXRX   0.36%


Quote
I also want to start contributing $500/month to my brokerage account.  I haven't done that yet.  I was considering changing brokerages, so I don't have to pay as high of fees.
Good!

Quote
I guess I should look into these "no load, no transaction fee" funds on Scottrade.  I was also considering Betterment since my income is around $140K per year and I'm single.  I figured I could save on taxes.
Don't understand "save on taxes" in this section - could you explain?  Have you considered the no load low fee funds at Vanguard, Fidelity, or Schwab?

TXScout2

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Re: Advice on retirement portfolio construction
« Reply #7 on: January 19, 2016, 10:57:59 AM »
Thanks for the advice on the 401K.  Did you choose those 5 because they had the lowest gross expense ratios?  You think no REITs?  Is there any reason to choose 5 rather than only 3, for example?  Diversification?

Any comments on the Brokerage account?  When I said "save on taxes" I was referring to tax loss harvesting.  I've been considering liquidating the Scottrade portfolio and moving it to Betterment.  I was also considering Vanguard.  Seems like it is controversial around here whether benefits of tax-loss harvesting outweigh the higher fees for the service. 

MDM

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Re: Advice on retirement portfolio construction
« Reply #8 on: January 19, 2016, 11:45:18 AM »
Thanks for the advice on the 401K.  Did you choose those 5 because they had the lowest gross expense ratios?  Yes
You think no REITs?  Some amount is fine.  50% seems high.
Is there any reason to choose 5 rather than only 3, for example?  Diversification? Does not have to be all five - assigning 0% to one or more would be fine, depending on your Investment Policy Statement.

Quote
Any comments on the Brokerage account?  When I said "save on taxes" I was referring to tax loss harvesting.  I've been considering liquidating the Scottrade portfolio and moving it to Betterment.  I was also considering Vanguard.  Seems like it is controversial around here whether benefits of tax-loss harvesting outweigh the higher fees for the service.
Ok, that makes sense.  Yes, it will either be a benefit or not - I'll abstain on that one.

MustacheAndaHalf

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Re: Advice on retirement portfolio construction
« Reply #9 on: January 19, 2016, 12:36:38 PM »
Just to provide follow up on my earlier comment (VNQ and low expense ratios) using poster's new data:
Deutsche Real Estate Securities Fund Institutional Class (RRRRX) has an expense ratio of 0.63% and for the past 5 years (your investment horizon so far) returned 10.47% annually according to morningstar's data.
Vanguard REIT Index Fund ETF Shares (VNQ) has an expense ratio of 0.12% and returned 10.47% per year (exactly!) over the 5 year time frame.

So would that chunk of your retirement be better served in VNQ?  If you have a brokerage account, you should be able to buy Vanguard ETFs with lower fees.  Vanguard isn't always the cheapest, but they make a strong effort at low fees.

TXScout2

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Re: Advice on retirement portfolio construction
« Reply #10 on: January 19, 2016, 01:50:35 PM »
Okay.  So assuming I don't get VNQ added to my 401(k) plan, I suppose I could reallocate the REIT part of my 401(k) to a lower load fund, and then I could reallocate my brokerage account to VNQ.  That would put me around 33% VNQ, and then 33% RLBGX, and then 33% whatever I reallocate to.  Maybe VEXRX...that would give me some exposure to small caps.  I'm sure some of those holdings may still be considered short-term capital gains/losses.  I'll have to look into that.  Any thoughts on that strategy? 

Bicycle_B

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Re: Advice on retirement portfolio construction
« Reply #11 on: January 19, 2016, 04:23:39 PM »
TxScout2,

A lot of replies so far are very kindly addressing the exact portfolio you have, assuming you have a detailed strategy.  IMHO, the simple answer is:

Yes, the standard advice here is likely to be maximize your tax advantages using the available accounts (401k, traditional IRA, etc); within those vehicles, use a Vanguard index fund or two instead of the various individual stocks.  Mr. Money Mustache's own take on the "which investment" part of the question is here:

http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

TL;DR version: Use Vanguard Total Stock Market Index Fund.  Unless you like reading about stocks and such, the rest of your time is best spent saving money and maximizing joy.  You'll be fine.

http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/


« Last Edit: January 19, 2016, 04:31:13 PM by Bicycle_B »

MustacheAndaHalf

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Re: Advice on retirement portfolio construction
« Reply #12 on: January 19, 2016, 08:52:42 PM »
I didn't want to go into more detail than just that optimization, because the rest of your portfolio is scattered.  It's hard to piece it together without changes.  For example, owing individual stocks and holding 33% in REIT.  You might be better off figuring out what portfolio you should have, and then figuring out the moves that get you closest to a better portfolio.

Sure, VNQ offers a better expense ratio - but I don't see why 1/3rd REIT makes sense.  How much can you take, in terms of losses?  What's the worst loss you've gone through with your current holdings?

TXScout2

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Re: Advice on retirement portfolio construction
« Reply #13 on: January 20, 2016, 03:29:35 PM »
Okay. I guess I am looking for information on why and how people choose what percentages of various funds to have in their portfolio.  Seems like people think 1/3 REIT is too much, what is considered more normal?  Regarding my own stomach for losses, I think it's fairly strong.  I am the polar opposite of impulsive, so I am never really tempted to sell.  I am more likely to just stand pat even when I shouldn't.  I did take a 90% loss on a stock once.  I still own it.  I think because of my tendency to not sell even when I should, I want to set up a more passive portfolio, that I can just contribute money to monthly, and not have to worry about monitoring individual stocks and when I might need to sell them.   I am still in the midst of reading the articles you guys linked me on Bogleheads and this site.  Thanks for all your help. 

Ursus Major

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Re: Advice on retirement portfolio construction
« Reply #14 on: January 20, 2016, 10:59:47 PM »
You can find some sample portfolios and their historical behavior here: http://portfoliocharts.com/portfolios/

Not sure, whether all of these portfolios are practical and to be recommended, but it gives a starting point.

TXScout2

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Re: Advice on retirement portfolio construction
« Reply #15 on: January 21, 2016, 01:17:54 PM »
You can find some sample portfolios and their historical behavior here: http://portfoliocharts.com/portfolios/

Not sure, whether all of these portfolios are practical and to be recommended, but it gives a starting point.

Awesome, thank you.  Interesting stuff.