Portfolio Revamp - Opinions Wanted

[The Dutchman]

I wanted to get your guys thoughts on my portfolio plan as I see it now.  Please let me know if something looks out of whack.  I am into minimalism when it comes to this kind of thing.  I will set the funds and re-balance every 6 months making tweaks to risk as I get closer to retirement.

My wife and I are 28 and 27 respectively. 
3% Employer 401k with 50% match on contribution goes to.  Vanguard Target Retirement Fund 2050
8% goes into my personal Roth IRA (this is the one I am curious about)

Current Roth IRA (3 Fund - http://www.bogleheads.org/wiki/Three-fund_portfolio)
50% - VTSAX - Total Stock Market Index Fund
40% - VGTSX - Total International Index Fund
10% - VBMFX - Total Bond Index Fund

Seems safe if  you ask me.  So if you treat it as 3 categories US, International, and Bond I am thinking I will add some more "risk."  What do you guys think about keeping the same categorical percentages but splitting the US between Total Stock Market and (VISGX) Small Cap.  I would also split International between Total International and (VGXRX) International Real Estate. 

Revised Roth IRA
US
- 25% - VTSAX - Total Stock Market Index Fund
- 25% - VISGX - Small Cap
International
- 25% - VGTSX - Total International Index Fund
- 15% - VGXRX - International Real Estate
Bonds
-10% - VBMFX - Total Bond Index Fund

I would go from 3 funds to 5 but really retain my same categories.  I would just be adding more risk in the short term.  However, I would be adding a broader base as I currently have no Real Estate and no Small Caps.  As I got older I would phase the two risky ones out (VISGX and VGXRX).  Also, from looking into the fund details of those five funds I don't see much overlap at all. 

No specific questions; just wanted comments or insight from those who have been at it for a while. 

[GreenGuava]

My wife and I are 28 and 27 respectively. 
3% Employer 401k with 50% match on contribution goes to.  Vanguard Target Retirement Fund 2050

Any other good options in your 401(k)?  Is there any particular reason you're treating it and your Roth IRA separately?  Also, do you not have any taxable investments towards retirement, or are you choosing to treat taxable and tax-advantaged separately (which is fine)?

I would go from 3 funds to 5 but really retain my same categories.  I would just be adding more risk in the short term.  However, I would be adding a broader base as I currently have no Real Estate and no Small Caps.

Total stock market includes small caps.  You're tilting towards more small caps - significantly.  If that's what you want, go ahead.

No opinion from me one way or the other about the real estate fund.

[The Dutchman]

Any other good options in your 401(k)?  Is there any particular reason you're treating it and your Roth IRA separately?  Also, do you not have any taxable investments towards retirement, or are you choosing to treat taxable and tax-advantaged separately (which is fine)?

My 401k options are quite limited.  It is through Merrill Lynch and only has like 20 options to choose from.  Also, for simplicity sake I have chosen the Target Retirement Fund.

As far as the taxable investments investments I am a veritable Noob.  I have no taxable investments at this point.  I plan to in the next year purchase my first Quad to rent out.  I feel like that will be my taxable investment. 

Out of curiosity what is the advantage of taxable accounts?  If you ask me the only advantage is amount you can contribute.  If I get to the point where I am contributing the max then I will think about it. 

[GreenGuava]

Out of curiosity what is the advantage of taxable accounts?  If you ask me the only advantage is amount you can contribute.  If I get to the point where I am contributing the max then I will think about it.

Well, if you want to retire before 60, you need some source of income.  If you're buying a rental property, that may someday provide some or all of said income.  I've gone the stocks and bonds route.  One of the forum moderators recently achieved FI, and I believe it's either primarily or entirely through the ownership of rental property.

In a taxable account, you can contribute whatever you want and withdraw whenever you want, although you pay taxes on distributions (dividends, etc) and capital gains.  If you hold international stocks in taxable, you're eligible for some form of tax credit (although that doesn't outweigh the tax advantage of holding in an IRA;  but if you're out of tax advantaged space, this helps the decision of where to place what).

[Joet]

this seems to violate the KISS principle. Also given the Roth contribution limits I suspect some of these current/proposed balances are sub $10k per fund. Honestly 3 funds in your Roth is probably over-doing it until you have 50-100k+ in there. Or something like that.

How bad are the fees in your 401k? No index funds in there?

Personally I think one equity fund and one bond fund (to allow re-balancing.... no more than 2x a year, and normally youd just rebalance with new contributions)

Treat the whole portfolio as one [which perhaps you are], including anything your spouse has, or in taxable space.
Also foreign exposure is a *little overrated, especially if you are investing in a target fund already. Bogle mentioned that the US large caps 'are all he really needs for foreign exposure', given just how dependent they are on foreign markets for earnings/growth.
I think you should shoot for savings in three buckets [I'm sure you already are]
taxable
tax-deferred [401k/403]
tax-free [Roth]

However, I'd like to see you hit the 17.5k + match in the tax-deferred. Sure tax rates later "must" be more expensive, but if you're here as a MMM... I'm thinking you'll have some "zero" wage income years to convert 401k to Roth in the 0% federal tax bracket [aka less then you have now]

also, if you arent fully utilizing the 17.5k of AGI-lowering-tax-deferred awesomeness now, well thats just no fun. Watch your tax rate fall and savings grow [even if it is only just deferred, still, many people neglect that GIANT ZERO PERCENT FEDERAL TAX BRACKET] woo

[disclaimer, I'm about 18% foreign equities via a portfolio xray tool]

[The Dutchman]

also, if you arent fully utilizing the 17.5k of AGI-lowering-tax-deferred awesomeness now, well thats just no fun. Watch your tax rate fall and savings grow [even if it is only just deferred, still, many people neglect that GIANT ZERO PERCENT FEDERAL TAX BRACKET] woo

Can you expound on this a little?  I am completely daft in this respect. 

[Joet]

lower your AGI [and therefore tax liability] today via a 17.5k 401k contribution/year


in the future, perhaps you will have years of zero federal tax liability [standard deduction, perhaps other health deductions, property tax, etc]
http://www.moneychimp.com/features/tax_brackets.htm

somewhere around 15k or less/yr and you'd have a zero federal tax liability. Perhaps use that time to convert 401k to Roth---100% free.
Or step up to the 10% [or 15%] brackets if you want to convert more

[The Dutchman]

somewhere around 15k or less/yr and you'd have a zero federal tax liability. Perhaps use that time to convert 401k to Roth---100% free.

Have you, or anyone you know, done this?  If you get your AGI down to where your tax rate is zero great. However, when  you convert your 401k to Roth IRA it is considered income (treated like a paycheck).  Thus your AGI would automatically go up by the roll over amount.  I am sure this is not insurmountable.  Maybe I am looking at it wrong or don't understand it.  It sounds like the only way this could work is if you take a job making very little money and contribute all of it to a 401k thus making sure your agi is almost zero... and with deductions under zero.  You could then roll over 401k for the difference of the aforementioned number. 

I just don't see this being possible. Please explain.