Author Topic: Is this a good mix for the taxable account?  (Read 6181 times)

jeromedawg

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Is this a good mix for the taxable account?
« on: November 21, 2014, 10:20:31 AM »
This is just for starting out in an individual taxable account, which I have around $185k in for investment:

$75k - FSTVX
$50k - FSEVX
$25k - FSGDX

Not sure yet with the additional $35k - for now I may just consider it "emergency" funds but not sure yet and can adjust accordingly. This [$185k] is money that I initially was saving up for a down payment but have since decided it's not worth it to seek out buying a new home, especially right now. So I'd be much better off just investing it and letting it grow instead. I really should have been directing this to my 401k instead of saving it after the fact but hindsight is 20/20...

Speaking of 401ks and IRAs, I've started reinvesting in FSTVX/FSTMX/FXSIX/FXAIX between my IRAs (both Roth and Traditional) as well as my wife's 401k and my 401k. This after selling off a bunch of other funds I was investing in that didn't make a lot of sense (and I still have a few more to sell off and reinvest in index/bond/etc funds). We still have her IRAs (Roth and Traditional) to decide on but I'm thinking maybe we'll invest in a good bond fund and maybe more international/global funds in her IRAs?

If we have existing funds in the Roth IRA but will be contributing to Traditional moving forward, is there a specific fund I should invest in the existing Roth IRA and likewise for the Traditional? Or does it really make a difference?
« Last Edit: November 21, 2014, 10:24:37 AM by jplee3 »

GGNoob

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Re: Is this a good mix for the taxable account?
« Reply #1 on: November 21, 2014, 10:25:46 AM »
I assume IRAs are maxed out for the year? Set aside $11k for IRA contributions on January.

International allocation is a little low, but thats all up to you. Most would recommend 20-50% of stocks.

If you both are not maxing out 401ks, you could up your contributions as much as possible for the remaining part of this year and then lower them to $1,500 a month next year. Then you could just live off of this money until it runs out, then go back to your normal contribution amounts. If it was going to take too long to invest it all that way, put a good chunk of it into a taxable now and use this strategy for what is left.

jeromedawg

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Re: Is this a good mix for the taxable account?
« Reply #2 on: November 21, 2014, 10:39:54 AM »
I assume IRAs are maxed out for the year? Set aside $11k for IRA contributions on January.

International allocation is a little low, but thats all up to you. Most would recommend 20-50% of stocks.

If you both are not maxing out 401ks, you could up your contributions as much as possible for the remaining part of this year and then lower them to $1,500 a month next year. Then you could just live off of this money until it runs out, then go back to your normal contribution amounts. If it was going to take too long to invest it all that way, put a good chunk of it into a taxable now and use this strategy for what is left.

Yes, IRAs are definitely maxed out for this year. Good idea to set aside $11k for IRA contributions next year - I'll make sure to keep that amount set aside.

In fact, we are doing exactly what you described as I just went in and upped our contributions to the max. I should be able to max out my 401k this year but I don't think my wife will quite get there. For next year we plan on upping our % to max it all out.
But even after that, we should still have enough to live off of per month where we don't have to dip into that $185k I *think* (will have to revisit the budget again to make sure). This is why I was going to just invest it longer-term. There's always the thought that comes up though of "what if I need it for something or another later down the road?" hmm

Good point on the international. In terms of where it sits %-wise, I think it's around 10-15% of what's already allocated. I might keep it that way or maybe just cancel the order.

GGNoob

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Re: Is this a good mix for the taxable account?
« Reply #3 on: November 21, 2014, 10:47:25 AM »
Ya, if you can max out 401ks (or come close) and not touch the $185k, may as well just invest it now.

Here's my go to post on international allocation: http://www.rickferri.com/blog/investments/foreign-stocks-for-the-long-run/
That blog post and Vanguards recommendation are why I'm at 70% US and 30% international.

There's always the thought that comes up though of "what if I need it for something or another later down the road?" hmm

If you don't already have an emergency fund, now would be the time to make sure you have one. That way you don't have to sell stocks at a loss. Most will always recommend putting it into a savings account. To be honest, mine is invested at TD Ameritrade in the commission-free ETFs. I'm invested 40% stock (with the same allocation as below) and 60% bonds split 50/50 between SHM and ITM. I hate the thought of money sitting in cash so I figured I'd invest it so it has the chance to grow. Right now I only have 1 month's expenses there, but my goal is to eventually have 3 month's expenses. After 3 months in there, any taxable invests will be 100% stock at Vanguard.

My reasoning for the 40% stock and 60% bonds is based on Betterment's advice in this article. If you want a really easy to use investment emergency fund, I'd actually recommend using Betterment. Transfers in and out are as easy as using an online savings account. I just chose TD Ameritrade to keep the stock allocation of it the same as the rest of my investments.
« Last Edit: November 21, 2014, 10:50:19 AM by Logan T »

jeromedawg

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Re: Is this a good mix for the taxable account?
« Reply #4 on: November 21, 2014, 11:03:32 AM »
Ya, if you can max out 401ks (or come close) and not touch the $185k, may as well just invest it now.

Here's my go to post on international allocation: http://www.rickferri.com/blog/investments/foreign-stocks-for-the-long-run/
That blog post and Vanguards recommendation are why I'm at 70% US and 30% international.

There's always the thought that comes up though of "what if I need it for something or another later down the road?" hmm

If you don't already have an emergency fund, now would be the time to make sure you have one. That way you don't have to sell stocks at a loss. Most will always recommend putting it into a savings account. To be honest, mine is invested at TD Ameritrade in the commission-free ETFs. I'm invested 40% stock (with the same allocation as below) and 60% bonds split 50/50 between SHM and ITM. I hate the thought of money sitting in cash so I figured I'd invest it so it has the chance to grow. Right now I only have 1 month's expenses there, but my goal is to eventually have 3 month's expenses. After 3 months in there, any taxable invests will be 100% stock at Vanguard.

My reasoning for the 40% stock and 60% bonds is based on Betterment's advice in this article. If you want a really easy to use investment emergency fund, I'd actually recommend using Betterment. Transfers in and out are as easy as using an online savings account. I just chose TD Ameritrade to keep the stock allocation of it the same as the rest of my investments.
'
Thanks for the tips! And great advice with Betterment - that's actually a really cool way to think about stashing money from a savings account. I'll have to consider that. We actually have at least a dedicated/combined $40k~ roughly between my savings and my wife's savings which is acting as our "emergency" fund currently. Based on our spending trends for this past year, I think this could last us at least another year if the both of us were to become unemployed for an extended period of time, worst case scenario. So I suppose that $35k that I haven't decided to invest yet should most likely be allocated fully towards stock/bond/etc funds and however I decide allocating.

Will have to read up more on the two articles you posted so thanks for those. What's your take on the "extended market" fund?

GGNoob

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Re: Is this a good mix for the taxable account?
« Reply #5 on: November 21, 2014, 11:19:45 AM »
What's your take on the "extended market" fund?

A lot of people just add small-cap value to their total stock market fund. If you've been investing for a long time, then it seems like it has paid off. But in the last 10 years, the mid-cap index has actually out performed the small-cap index and small-cap value. So while SCV may actually pay off in the future, I'm just as happy with extended market.



So I like the extended market fund because it is more diversified and adds more exposure to everything but the S&P 500 companies...tilting towards mid and small-cap in one fund. VSS for international is doing the same.

Here's the breakdown of my US stocks when split 50% VTI and 50% VXF:



And here is my overall portfolio of 35% VTI, 35% VXF, 15% VEU, 15% VSS:

« Last Edit: November 21, 2014, 11:42:08 AM by Logan T »

jeromedawg

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Re: Is this a good mix for the taxable account?
« Reply #6 on: November 21, 2014, 11:27:35 AM »
What's your take on the "extended market" fund?

A lot of people just add small-cap value to their total stock market fund. If you've been investing for a long time, then it seems like it has paid off. But in the last 10 years, the mid-cap index has actually out performed the small-cap index and small-cap value. So while SCV may actually pay off in the future, I'm just as happy with extended market.



So I like the extended market fund because it is more diversified and adds more exposure to everything but the S&P 500 companies...pretty much tilting towards mid and small-cap in one fund. VSS for international is doing the same.

Here's the breakdown of my US stocks when split 50% VTI and 50% VXF:



And here is my overall portfolio of 35% VTI, 35% VXF, 15% VEU, 15% VSS:



Nice, that's a great mix - thanks for sharing. I had invested in a bunch of large cap/value funds over the past 10 years and really had no clue what I was doing until I started reading up more here as well as at jlcollinsnh & Bogleheads. I have a better picture of what to do and why but still learning. Regarding Betterment's "safety net" article, I'm actually considering now moving the $35k over to Betterment and investing it there. I don't think we want to completely drain our savings accounts (especially because there are minimums to keep them open I think) but it would be good to leave the minimum in and invest whatever is 'excess' elsewhere. Betterment seems like a good idea to keep things flexible/liquid without incurring a bunch of transaction fees. I also signed up for WiseBanyan but am currently on the wait-list; I'm wondering if I should just wait to get an account and WiseBanyan instead and open a "safety net" fund over there...
« Last Edit: November 21, 2014, 11:31:04 AM by jplee3 »

GGNoob

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Re: Is this a good mix for the taxable account?
« Reply #7 on: November 21, 2014, 11:41:08 AM »
Nice, that's a great mix - thanks for sharing. I had invested in a bunch of large cap/value funds over the past 10 years and really had no clue what I was doing until I started reading up more here as well as at jlcollinsnh & Bogleheads. I have a better picture of what to do and why but still learning. Regarding Betterment's "safety net" article, I'm actually considering now moving the $35k over to Betterment and investing it there. I don't think we want to completely drain our savings accounts (especially because there are minimums to keep them open I think) but it would be good to leave the minimum in and invest whatever is 'excess' elsewhere. Betterment seems like a good idea to keep things flexible/liquid without incurring a bunch of transaction fees.

After reading Bogleheads a lot myself, I liked the thought of a simple portfolio. Before reading Bogleheads, our taxable and IRA accounts were at Betterment. I don't care for bonds and I'm not sure anyone could convince me to invest in them (for retirement). So I started with the simple concept of 70% VTI and 30% VEU (actually was going to use VXUS, but switched to VEU since that's what's available commission free in my work accounts at TD Ameritrade). But then I wanted to tilt towards small and mid cap. After playing around with different allocations in Morningstar's Instant X-Ray tool and viewing the allocation in my Personal Capital account, I decided on my current allocation. Plus its an easy allocation to maintain.

There are some small fees with Betterment, but I think its worth it for a real easy set it and forget it emergency fund investment. I keep debating going back to Betterment for my emergency fund, but I've already closed my account so I figure I'll leave it closed.

My favorite thing about an investment emergency fund is the fact that it should hopefully grow with you as your expenses increase. So if your expenses increase 3% a year, hopefully your emergency fund does too and you won't have to add to it. If it grows too fast, you can always move that money into another investment account.

GGNoob

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Re: Is this a good mix for the taxable account?
« Reply #8 on: November 21, 2014, 11:45:04 AM »
Here's the breakdown of my US stocks when split 50% VTI and 50% VXF:



And here is my overall portfolio of 35% VTI, 35% VXF, 15% VEU, 15% VSS:



I just wanted to add a comparison here. This is 70% VTI and 30% VXUS:


jeromedawg

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Re: Is this a good mix for the taxable account?
« Reply #9 on: November 21, 2014, 12:44:12 PM »
Nice, that's a great mix - thanks for sharing. I had invested in a bunch of large cap/value funds over the past 10 years and really had no clue what I was doing until I started reading up more here as well as at jlcollinsnh & Bogleheads. I have a better picture of what to do and why but still learning. Regarding Betterment's "safety net" article, I'm actually considering now moving the $35k over to Betterment and investing it there. I don't think we want to completely drain our savings accounts (especially because there are minimums to keep them open I think) but it would be good to leave the minimum in and invest whatever is 'excess' elsewhere. Betterment seems like a good idea to keep things flexible/liquid without incurring a bunch of transaction fees.

After reading Bogleheads a lot myself, I liked the thought of a simple portfolio. Before reading Bogleheads, our taxable and IRA accounts were at Betterment. I don't care for bonds and I'm not sure anyone could convince me to invest in them (for retirement). So I started with the simple concept of 70% VTI and 30% VEU (actually was going to use VXUS, but switched to VEU since that's what's available commission free in my work accounts at TD Ameritrade). But then I wanted to tilt towards small and mid cap. After playing around with different allocations in Morningstar's Instant X-Ray tool and viewing the allocation in my Personal Capital account, I decided on my current allocation. Plus its an easy allocation to maintain.

There are some small fees with Betterment, but I think its worth it for a real easy set it and forget it emergency fund investment. I keep debating going back to Betterment for my emergency fund, but I've already closed my account so I figure I'll leave it closed.

My favorite thing about an investment emergency fund is the fact that it should hopefully grow with you as your expenses increase. So if your expenses increase 3% a year, hopefully your emergency fund does too and you won't have to add to it. If it grows too fast, you can always move that money into another investment account.

Sweet, I had no idea about Personal Capital until my co-worker just mentioned it as well as you. I opened an account and linked all my accounts - it was extremely easy, and gives an awesome overview of our finances with an investment-centric view. I think it's exactly what I needed to see to get a better overview. Right now we have a lot of assets in cash, which isn't good. Gotta try to get that allocated to something.

So within the framework of $150k, I went ahead and changed up my allocation a bit.
50k FSTVX
50k FSEVX
50k FSGDX

I still have a long ways to go with investing the rest of my cash.

« Last Edit: November 21, 2014, 12:49:10 PM by jplee3 »

GGNoob

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Re: Is this a good mix for the taxable account?
« Reply #10 on: November 21, 2014, 01:19:21 PM »
Sweet, I had no idea about Personal Capital until my co-worker just mentioned it as well as you. I opened an account and linked all my accounts - it was extremely easy, and gives an awesome overview of our finances with an investment-centric view. I think it's exactly what I needed to see to get a better overview. Right now we have a lot of assets in cash, which isn't good. Gotta try to get that allocated to something.

So within the framework of $150k, I went ahead and changed up my allocation a bit.
50k FSTVX
50k FSEVX
50k FSGDX

I still have a long ways to go with investing the rest of my cash.

I really like Personal Capital. I have all of my accounts linked (banks, credit cards, loans, and investment) and then added a couple of manual accounts. My wife's 401k and HSA are capable of being linked, but show as cash and not the actual funds. So I entered them manually so I can get a good look at our allocation. They have a pretty good mobile app too.

That looks like a very solid allocation and it will be extremely easy to maintain. Good luck!

WillPen

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Re: Is this a good mix for the taxable account?
« Reply #11 on: November 21, 2014, 05:58:09 PM »
I have a question that fits into the discussion but hopefully doesn't derail the thread.

Logan, If I put everything into ETF terms, does

VOO + VXF = VTI?

Is your reason for combining VXF with VTI because you want more exposure to small and mid caps?

I ask because all of my domestic stock holdings are in Total Stock Market Index funds (like VTSAX). I've been debating taking a % of that and putting it towards an extended market fund like you're talking about.

- W

WillPen

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Re: Is this a good mix for the taxable account?
« Reply #12 on: November 21, 2014, 06:00:40 PM »
Looking at your portfolio breakdowns from Morningstar, I see the answer to my question :) I guess I skimmed that part. I am interested in doing something similar to what you're talking about, though.

GGNoob

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Re: Is this a good mix for the taxable account?
« Reply #13 on: November 21, 2014, 08:04:14 PM »
Haha yup. 80% VOO + 20% VXF = VTI.

I could have done VOO + VXF at 50/50 and still have a good exposure to mid/small-cap. But I chose VTI to give me a little more exposure at a lower fee (lower than adding more VXF).




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