Author Topic: Portfolio Help - Investing $150K Taxable + 401K  (Read 6267 times)

flyersman

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Portfolio Help - Investing $150K Taxable + 401K
« on: June 09, 2016, 10:12:01 AM »
Basically im 34 and have been saving for quite some time. I own a house, and condo I rent out and have been maxing out my 401K and IRA. Make about $150-200K. I am all screwed up with my allocations and need to get them straightened out so I have a good foundation moving forward. More over, sitting on cash not doing anything just sucks! Any suggestions are welcome. Currently have cash on hand and think I can allocate $100-150K or more to investments

1. Can anyone provide suggestions on how to better allocate my funds in my Fidelity and 401K?
2. Where should one be putting Cash right now? Real Estate or maybe just put it in a Bond account which would earn more than stupid money markets.
Cash.

Trying fot 60/40 or 70/30 split

Not invested and can move to Vanguard or Fidelity. $300K+

IRA - Fidelity (FSITX) - $16,860

401K Allocation (Merrill through employer) $230,783

We just got BSPIX this year so all future allocation are going 100% to that fund since its the only with a very low ER. All others options other than what i have picked suck. I might transfer all the other balances as well over to that fund.

(PTTAX) PIMCO Total Return Fund - Class A - $30,162.67
(BSPIX) BlackRock S&P 500 Index Fund - Institutional Class - $70,866.52
(OLGAX) JPMorgan Large Cap Growth Fund - Class A - $40,696.17
(HAGAX) Eagle Mid Cap Growth Fund - Class A - $48,998.06
(SLMCX) Columbia Seligman Communications and Information Fund - Class A - $40,060.43
« Last Edit: June 09, 2016, 11:11:54 AM by flyersman »

dandarc

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #1 on: June 09, 2016, 10:21:34 AM »
I'd personally move everything in the 401K to BSPIX.  The other funds have front-loads, so certainly no new money into those.  They also have high expense ratios - the cheapest one is PIMCO at 0.85% if I looked correctly - the rest are all over 1%.  You can do a lot worse than a low-cost S&P 500 fund.

What is your target allocation?  Do you have an IPS?

https://www.bogleheads.org/wiki/Investment_policy_statement

Do you want to be sitting on $300K in cash?  Are you buying a house soon or something?

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #2 on: June 09, 2016, 10:45:16 AM »
I'd personally move everything in the 401K to BSPIX.  The other funds have front-loads, so certainly no new money into those.  They also have high expense ratios - the cheapest one is PIMCO at 0.85% if I looked correctly - the rest are all over 1%.  You can do a lot worse than a low-cost S&P 500 fund.

What is your target allocation?  Do you have an IPS?

https://www.bogleheads.org/wiki/Investment_policy_statement

Do you want to be sitting on $300K in cash?  Are you buying a house soon or something?

My Target would be about 60/40 unless you think at my age I can afford to go 70/30 (Stock/Bond). Not sure what breakdown of Stocks would be (US vs Intl).

I own a house already with a low mortgage and plan on staying there the next 2-3 years. Will rent it out after that. My wife also works and makes over 100K she puts away.

With the Cash on hand we have been looking to buy another property to rent where we can make a little $ to put towards principal and mortgage payments so in 10-15 yrs we will own it scott free.

Hopefully that helps

dandarc

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #3 on: June 09, 2016, 10:56:38 AM »
I'm 33 and going 80-20.  Your allocation is a very personal thing - nobody can tell you what you'll be comfortable enough with to ride out the downturns.

So, your plan for the cash is to buy real-estate in the short term?  Then leave it in cash until you find the property.  Maybe a very short-term bond fund, but anything you'll need within the next 5 years or so needs to be in pretty stable investments.

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #4 on: June 09, 2016, 11:01:07 AM »
I'm 33 and going 80-20.  Your allocation is a very personal thing - nobody can tell you what you'll be comfortable enough with to ride out the downturns.

So, your plan for the cash is to buy real-estate in the short term?  Then leave it in cash until you find the property.  Maybe a very short-term bond fund, but anything you'll need within the next 5 years or so needs to be in pretty stable investments.

I think I can definitely invest $100-150K into something long term and still have enough for a down payment of a house if need be. If I buy real estate now, were looking about 20-30K Down payment max split between me and wife.


dandarc

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #5 on: June 09, 2016, 11:15:19 AM »
Well, if you want 60-40, and your 401K is going to be all stocks, you'll need to buy about $150K in bonds between your IRA and taxable accounts, then make additions in 60-40 ratio and periodically rebalance.  This ignores your cash position - overall, your allocation would be more like 45 (stocks) 27.5 (bonds) 27.5 (cash).  Given that your cash is such a large portion of your portfolio, might want to take consideration into that - holding a lot of cash is a big drag on your portfolio. 

Sounds like your tax rate might be pretty high - may be reasonable to buy tax-exempt municipal bonds in your taxable account.  Corporate might work out better as well - depends on your tax rate and the premium on municipals at the time of purchase.

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #6 on: June 09, 2016, 11:36:50 AM »
Well, if you want 60-40, and your 401K is going to be all stocks, you'll need to buy about $150K in bonds between your IRA and taxable accounts, then make additions in 60-40 ratio and periodically rebalance.  This ignores your cash position - overall, your allocation would be more like 45 (stocks) 27.5 (bonds) 27.5 (cash).  Given that your cash is such a large portion of your portfolio, might want to take consideration into that - holding a lot of cash is a big drag on your portfolio. 

Sounds like your tax rate might be pretty high - may be reasonable to buy tax-exempt municipal bonds in your taxable account.  Corporate might work out better as well - depends on your tax rate and the premium on municipals at the time of purchase.

Damn. Thats a lot of bonds :)

Lets say I do 70/30 allocation which is reasonable. Maybe I could split the allocation between BSPIX and PTTRX in my 401K. How would that then calculate out between Cash, Bonds and Stocks.

Are you taking my total 401K + IRA + $100K Cash and then doing a 70/30 splits or are you adding all my cash and doing a split off of (total Cash+401 + ira) $547,643?
« Last Edit: June 09, 2016, 11:41:56 AM by flyersman »

MustacheAndaHalf

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #7 on: June 09, 2016, 11:56:35 AM »
... its the only with a very low ER. All others options other than what i have picked suck.
Do the other options "suck" because of the high expense ratio?  What changed your mind - what motivated you to switch allocations?

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #8 on: June 09, 2016, 02:04:56 PM »
I was motivated by basic
I was motivated by a an Index Fund that tracked the market plus the super low ER Ration. Here are the funds i had available with ER's


MERRILL LYNCH - 401K Available Funds (I know ER Ratios suck but I got to make due
Investment Fund   Expense Ratio   
Ready Assets Prime Money Fund   0.69   
Putnam Stable Value Fund   0.91   
Prudential Government Income Fund - Class R   1.22   
PIMCO Total Return Fund - Class R   1.10   
JPMorgan High Yield Fund - Class R2   1.31   
PIMCO Real Return Fund - Class R   1.10   
Templeton Global Bond Fund - Class R 1.15   
American Century One Choice In Retirement Portfolio - Class R   1.26   
American Century One Choice 2030 Portfolio - Class R 1.34
American Century One Choice 2040 Portfolio - Class R 1.40   
American Funds Capital Income Builder Fund - Class R2   1.38   
BlackRock Global Allocation Fund, Inc. - Class R   1.47   
Columbia Dividend Income Fund - Class R   1.27   
Putnam Equity Income Fund - Class R   1.23   
Lord Abbett Fundamental Equity Fund - Class R2   1.30
JPMorgan Large Cap Growth Fund - Class R2   1.30   
MainStay Large Cap Growth Fund - Class R3   1.34   
AB Discovery Value Fund - Class R   1.54   
JPMorgan Market Expansion Index Fund - Class R2   0.98
Eagle Mid Cap Growth Fund - Class R3   1.48   
Columbia Select Smaller-Cap Value Fund - Class R   1.63
Goldman Sachs Small Cap Value Fund - Service Class   1.45   
Eagle Small Cap Growth Fund - Class R3   1.42
Templeton Foreign Fund - Class R   1.41   
Janus Overseas Fund - Class R   1.18   
American Funds EuroPacific Growth Fund - Class R2   1.57   
American Funds Capital World Growth and Income Fund - Class R2 1.52   
American Funds New Perspective Fund - Class R2 1.54
American Funds SMALLCAP World Fund - Class R2   1.83
Oppenheimer Developing Markets Fund - Class R   1.57   
Oppenheimer Gold & Special Minerals Fund - Class R   1.40
Neuberger Berman Real Estate Fund - Class R3   1.46
Columbia Seligman Communications and Information Fund - Class R 1.61   

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #9 on: June 09, 2016, 02:32:28 PM »
I'd personally move everything in the 401K to BSPIX.  The other funds have front-loads, so certainly no new money into those.  They also have high expense ratios - the cheapest one is PIMCO at 0.85% if I looked correctly - the rest are all over 1%.  You can do a lot worse than a low-cost S&P 500 fund.

What is your target allocation?  Do you have an IPS?

https://www.bogleheads.org/wiki/Investment_policy_statement

Do you want to be sitting on $300K in cash?  Are you buying a house soon or something?

Bolded for emphasis, you need to do this yesterday. Seems like you and your wife could be very close to Financially Independent (if your wife has similar savings as you, because it seems from the way you wrote your assets you and your wife split everything).

I'd say you could be less than 1 year from stopping working if you're so inclined.

If I were you - I'd transfer all money in 401k to BSPIX ($230,783) until you quit working there, then immediately transfer all money to Fidelity or Vanguard in an IRA. Then I'd allocate whatever % bonds you want to have (20-40% of your entire portfolio) within your newly created IRA from your 401k transfer. This is better for tax purposes. You can keep your current IRA account at Fidelity (plenty of low cost options with them). I'd immediately put $250,000 of your cash into a total stock market fund (brokerage account) with Fidelity or Vanguard.

If you plan on retiring soon, I'd frontload your 401k to get the maximum contribution. Then when you retire you can begin the Roth conversion pipeline.

http://www.madfientist.com/retire-even-earlier/
http://www.madfientist.com/traditional-ira-vs-roth-ira/
http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #10 on: June 09, 2016, 07:08:52 PM »
I'd personally move everything in the 401K to BSPIX.  The other funds have front-loads, so certainly no new money into those.  They also have high expense ratios - the cheapest one is PIMCO at 0.85% if I looked correctly - the rest are all over 1%.  You can do a lot worse than a low-cost S&P 500 fund.

What is your target allocation?  Do you have an IPS?

https://www.bogleheads.org/wiki/Investment_policy_statement

Do you want to be sitting on $300K in cash?  Are you buying a house soon or something?

Bolded for emphasis, you need to do this yesterday. Seems like you and your wife could be very close to Financially Independent (if your wife has similar savings as you, because it seems from the way you wrote your assets you and your wife split everything).

I'd say you could be less than 1 year from stopping working if you're so inclined.

If I were you - I'd transfer all money in 401k to BSPIX ($230,783) until you quit working there, then immediately transfer all money to Fidelity or Vanguard in an IRA. Then I'd allocate whatever % bonds you want to have (20-40% of your entire portfolio) within your newly created IRA from your 401k transfer. This is better for tax purposes. You can keep your current IRA account at Fidelity (plenty of low cost options with them). I'd immediately put $250,000 of your cash into a total stock market fund (brokerage account) with Fidelity or Vanguard.

If you plan on retiring soon, I'd frontload your 401k to get the maximum contribution. Then when you retire you can begin the Roth conversion pipeline.

http://www.madfientist.com/retire-even-earlier/
http://www.madfientist.com/traditional-ira-vs-roth-ira/
http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

I will get working on my IPS. I really like a 70/30 split in stocks to bonds and about $100-150K Cash stored away earning interest.

We are not totally financially independent and have a small bank account together and a joint credit card. We also pay for things on each others card all the time. Dont really think about it.

I still have a mortgage on my home and ourcondo and a car lease but that's about it. She is paying off student loans but those are really only expenses.

I do front load my 401K and max out within the first 2-3 months of the year.

If i am doing a 70/30 split but and plan to invest $100-150K + keeping another $100K-150K cash  in a safe interest bearing account or emergency what would i be looking at? Not retiring for at least 10.

I have looked at diverisying with things like Group Funding with Prosper but I am in a quaker state (PA) so I am not allowed.
« Last Edit: June 10, 2016, 07:47:58 AM by flyersman »

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #11 on: June 10, 2016, 08:29:24 AM »
I get it, I get it. You've saved up all this money and don't feel comfortable having it all invested because you might "lose" it. But, frankly having that much cash on hand is a waste. There are hundreds of posts on this forum and internet that prove cash drags down a portfolio. If you want to hold bonds immediately I'd still hold them in your 401k only (don't hold bonds in your taxable account).

Do you love what you do enough to work 10 more years at it? If you and your wife split things 50/50 (mostly as you said). Then have you done the calculations on how much you'd need in order to never work again? Let's do a quick scenario, say you and your wife spend jointly $50,000 per year - of which $25,000 is your share - now multiply that by 25 (the inverse of the 4% rule) = $625,000. If you want to be more conservative then you can use 3% (which you would then multiply your yearly spend by ~33 = $825,000.

From your OP, it seems like you've got ~$550,000 in investments, (insert amount here) in home equity, and (insert amount here) in rental income. Based on your annual earnings of $100-150k, you could likely add $75,000 to your nest egg over the next year. This would make you officially able to quit work in 1 year (and most likely less). If you're going for 3% SWR, then you're looking at a max work life of ~3.5 years from right now.

If you'd like to talk about why you want to keep so much cash on hand, maybe we could help you work through some of those fears?

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #12 on: June 10, 2016, 08:35:54 AM »
Well, if you want 60-40, and your 401K is going to be all stocks, you'll need to buy about $150K in bonds between your IRA and taxable accounts, then make additions in 60-40 ratio and periodically rebalance.  This ignores your cash position - overall, your allocation would be more like 45 (stocks) 27.5 (bonds) 27.5 (cash).  Given that your cash is such a large portion of your portfolio, might want to take consideration into that - holding a lot of cash is a big drag on your portfolio. 

Sounds like your tax rate might be pretty high - may be reasonable to buy tax-exempt municipal bonds in your taxable account.  Corporate might work out better as well - depends on your tax rate and the premium on municipals at the time of purchase.

Damn. Thats a lot of bonds :)

Lets say I do 70/30 allocation which is reasonable. Maybe I could split the allocation between BSPIX and PTTRX in my 401K. How would that then calculate out between Cash, Bonds and Stocks.

Are you taking my total 401K + IRA + $100K Cash and then doing a 70/30 splits or are you adding all my cash and doing a split off of (total Cash+401 + ira) $547,643?

When figuring out your Asset Allocation (AA), you need to account for all assets, not just those in stocks and bonds. Lot's of people also lump in their real estate assets (for example, since i have XXXX amount of home equity - do I really want to have any REITS in my AA?)

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #13 on: June 10, 2016, 08:45:51 AM »
I get it, I get it. You've saved up all this money and don't feel comfortable having it all invested because you might "lose" it. But, frankly having that much cash on hand is a waste. There are hundreds of posts on this forum and internet that prove cash drags down a portfolio. If you want to hold bonds immediately I'd still hold them in your 401k only (don't hold bonds in your taxable account).

Do you love what you do enough to work 10 more years at it? If you and your wife split things 50/50 (mostly as you said). Then have you done the calculations on how much you'd need in order to never work again? Let's do a quick scenario, say you and your wife spend jointly $50,000 per year - of which $25,000 is your share - now multiply that by 25 (the inverse of the 4% rule) = $625,000. If you want to be more conservative then you can use 3% (which you would then multiply your yearly spend by ~33 = $825,000.

From your OP, it seems like you've got ~$550,000 in investments, (insert amount here) in home equity, and (insert amount here) in rental income. Based on your annual earnings of $100-150k, you could likely add $75,000 to your nest egg over the next year. This would make you officially able to quit work in 1 year (and most likely less). If you're going for 3% SWR, then you're looking at a max work life of ~3.5 years from right now.

If you'd like to talk about why you want to keep so much cash on hand, maybe we could help you work through some of those fears?

"From your OP, it seems like you've got ~$550,000 in investments, (insert amount here) in home equity, and (insert amount here) in rental income."
I am not even looking at home equity or condo equity right now.

Based on my OP, let me clarify a little better.
Trying 70/30 split

Current Situation
Cash - $300K - Would like to invest $100-150K of that somewhere.
IRA - Fidelity (FSITX) - $16,860
401K Allocation (Merrill through employer) $230,783

Additionaly with making $150-$200K year (before 401k and ira contributions) - Want to invest $60-70K of that again a year on top.

First Matter of Business
I need to straiten out my current allocations in both IRA and 401K, then figure out where to deposit my cash in a Taxable and with what funds. I have thought Real Estate Rentals might be good or just plop it in Fidelity/Vanguard


From a fears standpoint, I dont really have them. Its more so that I worked my butt off the last few years and just kept amassing $$$. Didnt really start thinking about getting my finances in order until this year. The struggle is just wrapping my head around everything. The first stone is always the most important so once I get 401K and IRA allocations figured out and Taxable straight, I at least know I now have a good base and can just follow a gameplan from there.
« Last Edit: June 10, 2016, 08:48:21 AM by flyersman »

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #14 on: June 10, 2016, 09:02:05 AM »
Based on your wants -

Starting Assets = $550,000 with an AA of 70% stocks / 30% bonds (I really think you need to include cash in the bonds category) = $385,000 in stocks (total stock market, S&P 500, mid cap, or small cap index funds or etfs) and $165,000 in bonds and cash.

Of your current cash - you indicate you're willing to invest up to $150,000 of that - leaving you with $150,000 in cash. That cash, plus the bonds you hold in your Fidelity account already put you at 30% AA.

So, in my eyes it is very simple. You should go 100% stock in your 401k and 100% stock with the $150,000 cash that you would like to invest in a taxable account. It is up to you to decide if this works for you or not. For your taxable investments - you need to decide if you want to hold the total stock market (VTSAX or similar), or if you want to tilt towards, large, mid or small cap stocks.

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #15 on: June 10, 2016, 09:34:32 AM »
Based on your wants -

Starting Assets = $550,000 with an AA of 70% stocks / 30% bonds (I really think you need to include cash in the bonds category) = $385,000 in stocks (total stock market, S&P 500, mid cap, or small cap index funds or etfs) and $165,000 in bonds and cash.

Of your current cash - you indicate you're willing to invest up to $150,000 of that - leaving you with $150,000 in cash. That cash, plus the bonds you hold in your Fidelity account already put you at 30% AA.

So, in my eyes it is very simple. You should go 100% stock in your 401k and 100% stock with the $150,000 cash that you would like to invest in a taxable account. It is up to you to decide if this works for you or not. For your taxable investments - you need to decide if you want to hold the total stock market (VTSAX or similar), or if you want to tilt towards, large, mid or small cap stocks.

Any preference on Fidelity vs Vanguard. Fidelity has a VTSAX equivalent. Right now it seems to be the highest its been in a while. Should have put money in on the drop 2 months ago.

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #16 on: June 10, 2016, 09:42:26 AM »
I have Fidelity, many here have Vanguard. At this point it's personal preference. It's just as easy to set up an account with Vanguard as it is with Fidelity.

Personally, I tilt mid cap index funds. All of my employer sponsored 401k is FSEVX.

Timing the market is a fool's errand. Put your money in and don't worry about it. You'll never think about when you put it in the market 5,10,30 years from now.

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #17 on: June 13, 2016, 09:58:20 AM »
Based on your wants -

Starting Assets = $550,000 with an AA of 70% stocks / 30% bonds (I really think you need to include cash in the bonds category) = $385,000 in stocks (total stock market, S&P 500, mid cap, or small cap index funds or etfs) and $165,000 in bonds and cash.

Of your current cash - you indicate you're willing to invest up to $150,000 of that - leaving you with $150,000 in cash. That cash, plus the bonds you hold in your Fidelity account already put you at 30% AA.

So, in my eyes it is very simple. You should go 100% stock in your 401k and 100% stock with the $150,000 cash that you would like to invest in a taxable account. It is up to you to decide if this works for you or not. For your taxable investments - you need to decide if you want to hold the total stock market (VTSAX or similar), or if you want to tilt towards, large, mid or small cap stocks.

Any preference on Fidelity vs Vanguard. Fidelity has a VTSAX equivalent. Right now it seems to be the highest its been in a while. Should have put money in on the drop 2 months ago.


What would be a good breakdown in Fidelity of the $150K? Just do all in FSTVX or maybe break it up? I see international funds and some large/mid but an uncertain which to look at. Expenses ratios for the Large Cap seemed high in the .8+ while Mid cap was about .2

PS. Not sure what the enhanced funds are.

Fidelity Spartan Total Market Index Fund Advantage Class (FSTVX)
Fidelity Spartan Global ex U.S. Index Fund Investor Advantage Class (FSGDX)
Fidelity Large Cap Value Enhanced Index Fund (FLVEX)
Fidelity Large Cap Stock Fund (FLCSX)
Spartan Mid Cap Index Fund - Fidelity Advantage Class (FSCKX)
FidelityŽ Mid Cap Enhanced Index Fund (FMEIX)

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #18 on: June 13, 2016, 10:55:28 AM »
Enhanced funds are "actively managed funds" to a point, where they try to track (and beat) the fund they are tracking (ie S&P500). They also may use leverage in order to beat the market.

It seems as though you have not figured out what you want your asset allocation to be. Read around the forums, there are hundreds of threads on asset allocation. Whether to include foreign funds or not. A couple of people commenting on this board saying "I do this", shouldn't make you comfortable with how your money is invested.

That said, it's not hard to quickly amass lots of useful information and come to a rational decision that will make you comfortable.

FWIW, FSTVX seems like a good choice to park your money until you gather more info.

FYI, as you amass more money - you should make sure to rebalance to your desired AA once per year.

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #19 on: June 13, 2016, 11:06:34 AM »
If I were you, I'd use Fidelity Spartan funds - or the equivalent ETFs. Here's the link to all the Spartan funds and the Fidelity iShares. Note that iShares can be purchased and sold commission free (rules apply).

FYI, if you choose the index funds - since you're investing so much - you should select Advantage class.
https://www.fidelity.com/mutual-funds/fidelity-funds/why-index-funds

https://www.fidelity.com/etfs/ishares-view-all

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #20 on: June 13, 2016, 02:30:12 PM »
I have Fidelity, many here have Vanguard. At this point it's personal preference. It's just as easy to set up an account with Vanguard as it is with Fidelity.

Personally, I tilt mid cap index funds. All of my employer sponsored 401k is FSEVX.

Timing the market is a fool's errand. Put your money in and don't worry about it. You'll never think about when you put it in the market 5,10,30 years from now.

Ok so today was phase 1 of me switching things up.

401K
Moved all funds to BSPIX

Taxable
Spent $50K of my available cash $150K investment on FSTVX. Plan to buy the rest incrementally over next week or two.
« Last Edit: June 14, 2016, 08:05:36 AM by flyersman »

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #21 on: June 14, 2016, 08:07:44 AM »
Enhanced funds are "actively managed funds" to a point, where they try to track (and beat) the fund they are tracking (ie S&P500). They also may use leverage in order to beat the market.

It seems as though you have not figured out what you want your asset allocation to be. Read around the forums, there are hundreds of threads on asset allocation. Whether to include foreign funds or not. A couple of people commenting on this board saying "I do this", shouldn't make you comfortable with how your money is invested.

That said, it's not hard to quickly amass lots of useful information and come to a rational decision that will make you comfortable.

FWIW, FSTVX seems like a good choice to park your money until you gather more info.

FYI, as you amass more money - you should make sure to rebalance to your desired AA once per year.

In an earlier post you said I should lump my siting cash in with the bond allocation.

Instead of having it sit, is it worth sticking a good amount of that Cash in Bonds and at least earn something on it? Any place I can get 2-3% return? CD's, Tbills?

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #22 on: June 14, 2016, 08:09:42 AM »
... its the only with a very low ER. All others options other than what i have picked suck.
Do the other options "suck" because of the high expense ratio?  What changed your mind - what motivated you to switch allocations?

The other options sucked as ER's were all well over 1%. I am not going to complain as I got some good gains 6-9% on some of those funds between 2009-2015 but over the last year things have flatlined.

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #23 on: June 14, 2016, 09:23:54 AM »
Read this on why holding cash is bad for long term portfolio growth. (Edit: you can disregard their salespitch to invest with Betterment)
https://www.betterment.com/resources/investment-strategy/the-real-cost-of-cash-drag/

Then read this on why holding bonds in a taxable account is not optimal (still doable, but not the best option).
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
http://www.schwab.com/public/schwab/nn/articles/The-Importance-of-Tax-Efficient-Investing
« Last Edit: June 14, 2016, 09:50:23 AM by DrFunk »

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #24 on: June 14, 2016, 09:34:54 AM »
In an earlier post you said I should lump my siting cash in with the bond allocation.

Instead of having it sit, is it worth sticking a good amount of that Cash in Bonds and at least earn something on it? Any place I can get 2-3% return? CD's, Tbills?

Bolded for emphasis.

One option is this - you said you were carrying a mortgage on your primary residence and your rental. If you're looking to generate >3% return on your cash over the next few years you could make a huge principle payment on either property. This is a guaranteed return. Then if you really need that extra cash for anything, you can always get a HELOC from the bank for either property.

Can anyone provide some good commentary on the benefits of paying down principle on a property if the only other option the person would do is hold the money as cash?

(Edit: if you do this option and make a huge principle payment on one of your properties, then your asset allocation would need to be altered)

added MMM link: http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/
« Last Edit: June 14, 2016, 10:46:10 AM by DrFunk »

dandarc

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #25 on: June 14, 2016, 09:40:47 AM »
If the other option is sitting on cash, paying down / off the mortgage is a no-brainer to me.  Be sure to retain at least a few months worth of payments as an emergency fund, as an extra principal payment will not stop the obligation to pay every month.

2 things you might look at once the big payment is made:

1.  Get the HELOC fairly immediately, if it will make you feel better to have a large chunk of money readily available.  Do not draw on it until necessary.  It is a line of credit, so opening it doesn't put you into debt necessarily.  At least a couple of banks near me will do a no-closing cost HELOC.

2.  Look into a recast.  After a large payment, some banks will let you recast, spreading payments out over the initial term.  This gives you additional cash-flow flexibility as you'll need to come up with a smaller payment each month.  Assuming that you haven't paid the mortgage all the way off, that is.

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #26 on: June 14, 2016, 10:00:27 AM »
I don't know much about municipal bonds, but they are tax efficient - so you could hold them easily in your taxable account. If you wanted to go this route, then here's one option. I know nothing about Tbills. CD's are a joke right now.

https://www.ishares.com/us/products/239766/ishares-national-amtfree-muni-bond-etf

DrF

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #27 on: June 14, 2016, 10:22:30 AM »

2.  Look into a recast.  After a large payment, some banks will let you recast, spreading payments out over the initial term.  This gives you additional cash-flow flexibility as you'll need to come up with a smaller payment each month.  Assuming that you haven't paid the mortgage all the way off, that is.

I wouldn't recast, but would continue making the same monthly payments as per the original mortgage. This will ensure you lock in the 3+% return from making the principle payment.

A quick check showed that an interest only HELOC from a national bank runs ~3.75% currently. Pretty low rate for emergency use.

dandarc

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #28 on: June 14, 2016, 10:42:19 AM »

2.  Look into a recast.  After a large payment, some banks will let you recast, spreading payments out over the initial term.  This gives you additional cash-flow flexibility as you'll need to come up with a smaller payment each month.  Assuming that you haven't paid the mortgage all the way off, that is.

I wouldn't recast, but would continue making the same monthly payments as per the original mortgage. This will ensure you lock in the 3+% return from making the principle payment.

A quick check showed that an interest only HELOC from a national bank runs ~3.75% currently. Pretty low rate for emergency use.
The lower balance is what locks in the 3% return from making the principal payment.  Your interest is now based on X - 100K (or whatever you throw at it) instead of X.  Regardless of how long your repayment term is, you save the 3% interest on that 100K for the life of the loan once you pay it.

flyersman

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Re: Portfolio Help - Investing $150K Taxable + 401K
« Reply #29 on: June 15, 2016, 08:16:30 AM »
Read this on why holding cash is bad for long term portfolio growth. (Edit: you can disregard their salespitch to invest with Betterment)
https://www.betterment.com/resources/investment-strategy/the-real-cost-of-cash-drag/

Then read this on why holding bonds in a taxable account is not optimal (still doable, but not the best option).
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
http://www.schwab.com/public/schwab/nn/articles/The-Importance-of-Tax-Efficient-Investing

Ok cool thanks.

Any reason one would hold a non indexed Bond fund like MUB or FBND over FSTIX?

Thoughts on REITS as a small portion of my portfolio? 5-10%