Author Topic: First attempt: IPS suggestions welcome  (Read 1981 times)

trailrated

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First attempt: IPS suggestions welcome
« on: December 23, 2014, 09:41:38 AM »
First attempt at an IPS, open to suggestions.

Quick overview, I am looking into purchasing a house but that is about 5 years out. So I am starting to put some money away towards that goal but not super aggressively. I have a 1 1/2 year old son. I have 80% of surplus going into accounts for either the down-payment or brokerage, the other 20% will be for travel and a few short term "wants". Current account balances are the following:


Checking: $2,000
E-Fund: $18,000 (Due to my son's medical and some other stuff that dropped down to as low as $10,000 over the course of the year. It is back up again but the number is so high because it provides comfort. Not willing to budge on this amount)

Brokerage:
$8,500 Total US Stock
$3,000 Total International Stock
$3,000 Total US Bond

Retirement:
$20,500 SSgA Aggressive Strategic Balanced Securities Lending Series Fund - Class VII

529:
$3,000


Open house down-payment fund (Online Bank W/ High Interest)
30% of all windfalls/monthly surplus shall be put into this account starting 1/1/15

Brokerage:
Vanguard
50% of all windfalls/monthly surplus shall be placed into account
Basic 3 fund portfolio
5% max in individual “fun” stocks starting in 2016

Retirement:
401K
Max out every year

Little Man 529:
Vanguard Aggressive Age Based Fund
All monetary gifts for him go into this account
   
   
Asset Allocations Targets:

Brokerage Account
60% Total Stock Market VTSMX
20% International Stock Market VGTSX
20% Total US Bond VBMFX
   
Little Man 529:
Vanguard Aggressive Age Based Fund

Retirement Account:
SSgA Aggressive Strategic Balanced Securities Lending Series Fund - Class VII
Can change if a plan offers funds with lower ER’s

Rebalancing Ranges:
Rebalance every 6 months beginning in January

GGNoob

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Re: First attempt: IPS suggestions welcome
« Reply #1 on: December 23, 2014, 09:50:36 AM »
First thing I noticed is that you are missing an IRA account. Because of what I assume must be higher fees in your 401k, you should be maxing an IRA out after you get the full match in your 401k. Then once the IRA is maxed, go back to the 401k.

trailrated

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Re: First attempt: IPS suggestions welcome
« Reply #2 on: December 23, 2014, 09:55:32 AM »
First thing I noticed is that you are missing an IRA account. Because of what I assume must be higher fees in your 401k, you should be maxing an IRA out after you get the full match in your 401k. Then once the IRA is maxed, go back to the 401k.

That is one thing I have been going back and forth in my head over. I was thinking if I did open an IRA I might throw some REIT's in there. The ER for my 401k is .88 so it would be nice to get something in a retirement account at a better rate. Thanks for the suggestion.

GGNoob

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Re: First attempt: IPS suggestions welcome
« Reply #3 on: December 23, 2014, 10:28:12 AM »
First thing I noticed is that you are missing an IRA account. Because of what I assume must be higher fees in your 401k, you should be maxing an IRA out after you get the full match in your 401k. Then once the IRA is maxed, go back to the 401k.

That is one thing I have been going back and forth in my head over. I was thinking if I did open an IRA I might throw some REIT's in there. The ER for my 401k is .88 so it would be nice to get something in a retirement account at a better rate. Thanks for the suggestion.

Since you have an emergency fund already built up, there's no need for the taxable brokerage account until you are out of space in tax-advantaged accounts. Personally, I'd liquidate $11,000 from the brokerage and contribute to an IRA (Roth or Traditional, whatever you prefer and whatever makes sense for your income and tax rate). Put $5,500 in as a 2014 contribution (you have until April 15, 2015). Then on January 1, you can make another contribution of $5,500 for 2015.

If you have a high deductible health plan,  you should also open a HSA and contribute to that.

Your investment order should be something like this:

1. 401k up to employer match
2. HSA if you can
2. IRA
3. Max out 401k
4. Taxable brokerage account

For our monthly "scheduled" investments, my wife and I only contribute to our 401ks and my 457. So I have a "scheduled investment order" in our IPS that looks like this:

1. Wife's 401k up to match
2. Max my 401k
3. Max my 457 (Note: Would normally do the 457 first, but it is easier to update monthly contributions to my 457 as I can do it online versus submitting signed paper work to HR for my 401k. So we are upping the 457 contributions as our income increases.)
4. Max wife's 401k

My wife's 401k is last due to lower fees in my accounts. I don't get any employer match in my accounts.

Then we get some business income and have a monthly "buffer" built into our budget. So this money counts as our remaining cash / windfall money and gets invested like this:

1. 1 month's expenses in emergency fund
2. Max HSA
3. Max IRAs
4. 6 month's expenses in emergency fund
5. Taxable brokerage account

This extra money is currently enough to make sure we can keep our minimum of 1 month's expenses in the emergency fund and to max out HSA and IRAs. Then we'll slowly work to build up to 6 months expenses and then finally work on the taxable account.

I don't have an actual IPS, but more of a financial plan. So mine talks about our budget and our emergency fund. So I include a list of how we will pay for emergencies, especially if our emergency fund doesn't cover it. Here's my order:

1. Adjust monthly budget and/or savings (for smaller unexpected expenses)
2. Withdraw from emergency fund
3. Withdraw from taxable brokerage account
4. Withdraw qualified reimbursable expenses from HSA
5. Withdraw Roth IRA contributions

Hopefully I never need a number 6.

You have the right idea for your IPS. Just make sure it is detailed enough that you can stick to it down the road and not be finding "loopholes" to change your investments.

mxt0133

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Re: First attempt: IPS suggestions welcome
« Reply #4 on: December 23, 2014, 10:30:03 AM »
You could be more tax efficient if you put all your fixed income/high yield investments into tax deferred accounts instead of taxable accounts.  So in your case i would move the Total Bond fund in your brokerage to a similar asset class in your Retirement accounts.

I would also consider funding a Roth IRA if your are not funding a Traditional IRA before your taxable brokerage accounts.

For more details check out:

https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement#Step_1:_Categorize_your_portfolio.27s_tax_efficiency