Personal Investments • Getting re-started - seeking confirmation and advice

Hopefully, I get this right - first time poster, and short-time member, but excited to join the community!

Welcome! I hope you get useful suggestions, but if anything's not clear always feel free to ask follow-up questions.

1) I need to rebalance all of my accounts. Being in my mid-40s, I feel like I should be in a mix of 60% Domestic, 30% International, and 10% Bonds…perhaps even moving to 60/35/5.I think I leave the 401K and Roth as is, in the 2045 Target fund (0.034% expense ratio) and then match my allocation in the roll-over IRA and investment account (at Fidelity) into: 60% Vanguard Total Stock Market Index Fund ETF (VTI), 35% Vanguard Total International Stock Index Fund ETF (VXUS), and 5% in Vanguard Total World Bond ETF (BNDW). Does this seem right?

Here's what I think you're currently holding, along with a proposed reallocation that would meet your 90/10 AA with 40% of stocks in international. This gets the bonds (included in the Target Date 2045) out of the Roth IRA and only holds stocks in Taxable, which adheres to Tax-Efficient Fund Placement. I've chosen Total US Stock Market (VTI) for Taxable because you do not have a Total Stock Market option in your 401K, so that means no Total US STock fund in any of the tax-advantaged accounts in order to avoid Wash Sales (e.g., Trad 401k, Roth IRA, and R/O Trad IRA all hold S&P-500 Index, not VTI). Just to keep the other accounts simpler, your entire international stock and US bond allocation are in the (currently) largest account, which is the R/O Trad IRA. That will change over 20 years to be your current employer 401k unless you frequently change jobs, but you should be rebalancing annually, so if it becomes easier to put all the bonds & int'l stock in a different account you can do it when you do your annual rebalance trades.


I used Vanguard Funds for the R/O IRA, but forgot it's at Fidelity, so that would be S&P-500 (FXAIX), Total Int'l Stock (FZILX), and Total Bond (FXNAX).

A template spreadsheet (not your data) is located here for you to do this kind of planning/rebalancing yourself.
Asset Allocation Sheet
AA Current and Proposed

Regarding whether or not 90/10 is right, nobody can really answer that except you. There are some guides/tools, but all of them are expected to be tailored for your personal risk-tolerance, which is unique to you.

Control Your Risk
Read the Wiki article for Assessing Risk Tolerance, take the Vanguard Investor Questionnaire, then tailor the asset allocation (AA) that was recommended by the quiz based on your knowledge of your personal risk tolerance having read the Wiki article.

Alternatively (or in addition to), ask "How much of a drop in portfolio value as a % of total value can I handle?" cut that % in half to get standard deviation, then lookup that std. dev. on the X-Axis of the chart below, and finally scan up to see what AA that corresponds to. As an example, if you can only stomach a -24% drop in portfolio value, that's a ±12% std. dev, which corresponds to an AA of 60/40. The return you get is an average and you'll get what you get with your unique sequence of returns (there's a lot of variance in outcomes due to the associated volatility of stocks so it probably will NOT be the average, but something more or less).

2) I recently left Edward Jones after realizing I needed to be doing this myself and I was getting fleeced. I wish I had found this site years ago. I am also late to the party, having been wiped out by divorce and not focused on my retirement. I feel like I am playing major catch up and want to do it the RIGHT way. Nevertheless, onward and upward!

Let's take a look at if you're on track or behind with an Accumulation Monte Carlo. Assumptions: You're AA is 90/10 with a 10-year glide-slop down to 70/30 at your retirement date, your average expense ratio is 0.10%, you retire at 60, you contribute $102K/yr with +3%/yr increases for raises/inflation, and your initial draw is 3.7% (down from the "4% rule" because you're retiring at 60 rather than 65). That set of assumptions produces a range of outcomes that looks something like this:



End-BalPercentile
$2,703.7K 5th
$4,102.6K 25th
$5,410.4K 50th
$7,252.0K 75th
$11,144.6K 95th

Using the 5th percentile outcome (bad sequence of returns, but 95% chance of a better outcome, so good for planning purposes), that $2.7M balance supports an initial 3.7% draw of $100K/yr, which is $66.1K in today's purchasing power. If SocSec + Pension + $66.1K > retirement expenses, then you're good! If not, then yes, you're playing catch up and you'll need to save more, work longer, cut retirement expenses, or some combination. Alternatively, perhaps you're a risk-taker and are willing to plan that you will have a $4.1M balance (25% risk of not reaching this vs 5% risk for $2.7M).

To estimate your retirement expenses, you can use @KlangFool's formula to estimate your current expenses: Annual Expenses = Gross Income - Taxes (1040, Line 24) - Annual Savings as a starting point, then adjust that by what you expect to change in retirement (e.g., no principal & interest on mortgage, but still property taxes & insurance; no more retirement savings, but still home repair, new cars, vacation savings; maybe commuting costs go down but vacation travel costs go up; etc.).

To estimate your SocSec, create an account on http://ssa.gov and check your benefits if you were to claim at 62, 65, 67, and 70.

If you have a pension, your HR department or your company's pension website should give you the estimated benefit.

That range of end-balance predictions is from my own model, which is linked below, along with other models I like.
Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo <- image above
Withdrawal Monte Carlo

You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).

I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (I like this one best),
FiCalc (probably easiest to use),
TPAW, and
FireCalc.

Is my contribution mix correct, in other words, should I be contributing 30% to the 401k, 30% to the Roth, and 30% to my post-tax investment account?

This seems fine to me, but optimizing this to be "right" may not be worth the effort. It is worth looking at the Wiki topic on Trad vs Roth to get a feel for how to evaluate that, then you can decide if it's worth the effort.

For me, if I had a crystal ball when I was 30 (and I had access to a Roth 401k, which I didn't), I would have probably put enough into Trad to hold all the bonds I would ever need, and put everything else into a Roth. Back then I assumed my tax bracket would drop in retirement (it did not), so I was fine putting as much as I could into a Trad 401k while maxing out a Roth IRA. Now in semi-retirement my Trad balance dwarfs my Roth balance, and I wish they were at least similar in magnitude. It's hard to know the future, but if you want to try and optimize, you can make your best guess and calculate the outcome for different splits between Trad & Roth that are available to you.

For general savings and emergency funds, should I just park this money in Fidelity Government Money Market Fund (SPAXX) or an HYSA? Other suggestions?

SPAXX is fine. If you find that your EF + general savings exceeds $100K, you might consider Fidelity® Money Market Fund Premium Class (FZDXX), which pays more interest, but has that high minimum initial investment. We've had at least one poster talk to their Fido rep and they were told they just needed $100K to open, but if the balance fell below $100K Fido would not force them back into SPAXX, so something to consider.

If your general savings goals are mid-term (5-10 years) rather than short-term (<5 years), you might consider a balanced fund that's around 60/40 to 40/60 (depending on your risk-tolerance), which is what I do for the assets going towards home improvement & new cars.

Statistics: Posted by bonesly — Wed Aug 07, 2024 11:31 am — Replies 9 — Views 835

---