Author Topic: Need Help With Balancing Retirement/Investment Balances  (Read 3910 times)

cjl1978

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Need Help With Balancing Retirement/Investment Balances
« on: January 14, 2013, 09:29:18 AM »
Wife(40) and I(35) have saved $609k, despite two kids(5/3). We own our house (worth $420k, $320k mortgage 4.25%), own two cars (one outright/one $15k loan @1.9%), and an investment apartment (worth $140k, $107k mortage @4.5% and rent>monthly costs). All that seems fine to me, and perhaps even Moustachian.

But I have less confidence in the balance of our retirement/investment accounts. We max out our 401ks, contribute to 529s for both kids, and put away post-tax money too.

We have $236k in post-tax index fund investments with Vanguard:
-500 Index $51k
-Emerging Markets Stock Index $58k
-Pacific Stock Index $29k
-Total Bond Market Index $2k
-Total International Stock Index $43k
-Value Index $53k

We each have an active retirement account:
-Fidelity: $175k (Freedom 2035)
-TSP: $86k (Small Cap Index $45k, International Stock Index $41k)

We each have a 401k from a previous employer, which I'd like to roll into Vanguard IRAs for ease and lower fees.
-Lincoln Financial: $12k (Bond Fund $3k, American Growth $3k, Small Cap $3k, Social Awareness $3k)
-TRowePrice: $100k (Growth Stock $8k, Mid Cap $10k, Developing Markets $46k, Small Cap Stock $36k)

And we put away $7200/kid/year in 529s, half S&P index and half age-appropriate funds. We’ll shift the S&P index 529s into more conservative investments later on.

So our $609k in retirement and post-tax balances as follows:
International: $217k/36% (including $104k/17% emerging markets)
Domestic Large/Mid-Cap: $128k/21%
Domestic Small Cap: $84k/14%
Bonds: $5k/<1%
Target Date/Pre-Balanced: $175k/29%

The $112k in rollovers from our past 401ks is what makes me want to get the balance right – it seems like a good chance to correct any big-picture imbalance that’s there now. (I previously had used them rather than the post-tax accounts to buy small cap funds, to avoid lots of taxable events.) I recognize that our overall investments are pretty heavy on international, but that’s my instinct and frankly they’ve performed well over the decade that we’ve held them.

Am I right to want to roll these old 401(k)s over into Vanguard? What kinds of funds would folks recommend we roll them into? What other rebalancing would you recommend? More bonds even though I'm young(ish)? 

And am I at the point where I should find a fixed-fee adviser/consultant for these questions?

Another Reader

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Re: Need Help With Balancing Retirement/Investment Balances
« Reply #1 on: January 14, 2013, 10:22:09 AM »
I like some of the T. Rowe Price funds, and a couple of yours have been excellent performers.  I would dump the Lincoln and move the money to Vanguard, T. Rowe Price or Fidelity, depending on what you want to invest it in.  Fidelity has some pretty good asset allocation/portfolio analysis tools, and you can add in your other accounts outside Fidelity.  Vanguard is weak in portfolio analysis.

I would not bother with an advisor.  You can do as good a job yourself.  You are pretty much doing what they would do, except they would probably increase your bond allocation. 

tooqk4u22

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Re: Need Help With Balancing Retirement/Investment Balances
« Reply #2 on: January 14, 2013, 10:29:30 AM »
In addition to the rollovers you could use the post-tax funds to balance as you would like. 

Personally, I don't like the Pacific Stock index as has way too much weighting in Japan (60%) and I don't think the value funds really give you much difference from a S&P 500 or total market fund (I think the total market fund has done better than the value fund almost any period - the top 10 investments aren't that different but in the value fund they account for 30% vs. 16% in the total fund. 

I think you can take domestic large/mid/small/value funds and just put them in the total US fund and you will do the same. 


Zaga

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Re: Need Help With Balancing Retirement/Investment Balances
« Reply #3 on: January 14, 2013, 10:29:51 AM »
I'd work backwards.  Decide what asset allocation you want first.  This is percent domestic stocks/international stocks/bonds.  Once you know what you want for your own risk tolerance here figure out which specific funds will be the best fit.  These could be total stock market index, S&P 500 index, bond index, international index, etc.

Now that you know that and the balance in your accounts, select which accounts will hold which investments.  So taxable accounts should probably hold only stock indexes for tax efficiency.  The other accounts just spread things as they work best.

Then new contributions should be directed in such a way as to keep your allocation the same.

Don't make this too complicated.  Your current portfolio is pretty scattered, although you've done a great job of saving so far!

cjl1978

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Re: Need Help With Balancing Retirement/Investment Balances
« Reply #4 on: January 15, 2013, 09:40:07 AM »
Thanks to all for the good advice.  For ease and simplicity, I'm thinking I'll roll both the old 401ks into Vanguard IRAs, just to have it all in one place and easily accessible.  Because I'm more internationally-focused, I'm planning on a 55% international stocks/40% US stocks/5% bonds balance, using four funds:

VEMAX Emerging Markets Stock Index Fund:  20%
VTIAX Total International Stock Index Fund:  35%
VTSAX Total Stock Market Index Fund:  40%

VBTLX Total Bond Market Index Fund:  5%

This will require some consolidation from my existing several taxable funds, as well as decisions on where precisely to roll over the T Rowe Price and Lincoln holdings.  Are there any of these funds that, by their pattern of dividends or distributions or other characteristics, make more sense to hold entirely/predominantly in the tax-deferred IRA versus the taxable account?

Thanks again to you guys for helping.
« Last Edit: January 15, 2013, 10:21:52 AM by cjl1978 »

hoppy08520

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Re: Need Help With Balancing Retirement/Investment Balances
« Reply #5 on: January 16, 2013, 08:01:39 PM »
A few thoughts:
* Are you contributing to a Roth IRA? If not, is it because you're over the income eligibility limits? Then do a Backdoor Roth IRA. To clear the way for this, you should roll your old 401(k) to your TSP instead of to a traditional IRA. For her to contribute to backdoor Roth IRA, she should roll her old 401(k) to her current 401(k).  See http://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html.
* TSP - hold on to it. Also, the I Fund is not an ideal international fund because it tracks the MSCI EAFE index, an incomplete index that lacks emerging markets and small caps. Better to leave I Fund out of your TSP and hold Vanguard Total International Stock Market Index fund in an IRA or taxable account; it looks like you might be trying to make up for I Fund's shortcomings with your emerging markets funds. Why not just hold the Vanguard fund instead to make it easier?
* Freedom funds - are you sure? http://www.obliviousinvestor.com/should-i-use-fidelitys-freedom-funds-in-my-401k/.
* When you have so many accounts, it becomes impractical to hold target date funds like the Freedom Funds. Agree with Zaga. Start with 401(k) when selecting funds, as you typically have the worst options there, then fill in the rest of your accounts around that. For a simple case study, see: http://evanswanson.com/personal-finance/investing-personal-finance/how-to-apply-asset-allocation-to-multiple-investment-accounts/.

frugalcoconut

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Re: Need Help With Balancing Retirement/Investment Balances
« Reply #6 on: January 23, 2013, 09:30:18 PM »
I'm sharing my current portfolio below in case it helps for comparison purposes or to spark any ideas, since it sounds like you were leaning toward a similar path as I have chosen.  (Percentages aren't ideal due to contribution limitations and emphasis on qualifying for Admiral status so I'm leaving out the actual numbers for now.)

Employer-sponsored Retirement Plan:
  • S&P 500 index fund
Roth IRA (all Vanguard funds):
  • Extended Market Index Fund
  • Small-Cap Index Fund
  • FTSE All-World ex-US Index Fund
  • FTSE All-World ex-US Small-Cap Index Fund
  • Emerging Markets Stock Index Fund
  • REIT Index Fund
  • Global ex-U.S. Real Estate Index Fund
  • High-Yield Corporate Fund
  • Short-Term Investment Grade Fund
  • Intermediate-Term Investment Grade Fund
  • Long-Term Investment Grade Fund
  • Total Bond Market Index Fund
  • Inflation-Protected Securities Fund
At some point I might also buy into the relatively new Short-Term Inflation-Protected Securities Index Fund ... but I'm not in any rush to buy additional bond funds at this time.  I'm hoping that someday Vanguard adds a couple of international bond funds into their mix of offerings as I'm eager to get exposure there.

My guess is that a lot of people would consider this to be way too many funds and suggest that I narrow down the selection ... but I aim to equalize weights among various categories (with a little extra emphasis on the REITs due to personal preference).  Interestingly, even though I don't have an account with T. Rowe Price, they allow anyone to set up a free login to access some [also free] badass MorningStar tools which help to analyze your holdings for overall diversification, target balance/ratios within each asset class, duplication avoidance, etc. 

Disclaimer:  I am not a finance professional nor do I have any related credentials.  Opinions expressed are merely my own and do not constitute investment advice.  Do your own research and seek out unbiased information from reputable sources.