I need help revamping my portfolio!

[Sowhatdoidonow]

Happy New Year everyone. I have recently fired my broker with UBS and have moved all my assets to a self directed Fidelity account. I am a passive investor wanna be and am almost finished with the "Investors Manifesto". In the meantime, I need to sort through the mess I have made over the years with UBS. I am not sure if this forum is the appropriate place as I have quite a bit of reallocating to do but I hope some of you would be willing to take the time and help me get started. I have more than enough Capital Loss Carryfowards to selloff my entire portfolio without any current tax consequences.

Here is my information:

Background

Employment Status: Retired since Dec 2007

Age:46

Married w/ 3 Children: Ages 16, 13, 12

Home (Paid for)

Income: Only source of income is from investments

Withdrawal Rate Needed as % of Investment Portfolio (Excluding Real Estate) in Today's dollars:
For the Next 10 Years = 3% (Need to fund kids education)
Thereafter estimate 2% rate

Other: Capital Loss Carry forward available (approx 10%) of portfolio value

Investment Expertise: Novice but I do have a CPA license and MBA in taxation so some finance background

Max % of Equity I can handle without selling in panic markets = 37.5% (P.S. Where do you think those NOLs came from?)

International - Unsure but maybe middle of the road at 30%

Emergency funds = Yes

Debt: No debt or mortgage

Tax Filing Status: Married filing Jointly w/ 3 dependent children

Tax Rate:
Federal Taxes: Effective (Tax/AGI)- 15%; Marginal (Tax/Taxable Income)- 25%
State Taxes: Effective 4%; Marginal6%

No prefereence on subcategory breakdowns

Current portfolio size = X,XXX,XXX (7 Figures)

Investment other than Stocks and Bonds (Real Estate approx 10% of S&B Portfolio)


Summary of Investments:
Cash & Equivalents 39% (Includes CDs that are maturing in the next several weeks)
Equites 27%
Bonds 34%



Taxable

Bond Funds (32.97%)
5.13% LOOMIS SAYLES INVST GRADE BOND CL A (LIGRX) 0.80%
4.83% FRANKLIN GEORGIA TAX FREE INCOME A (FTGAX) 0.69%
4.75% BLACKROCK GNMA PORT CLASS A (BGPAX) 1.09%
4.73% OLD MUTUAL DWIGHT SHORT TERM FXD INC A (OIRAX) 0.95%
3.79% LOOMIS SAYLES GLOBAL BOND RETAIL (LSGLX) 1.00%
2.41% ISHARES BARCLAYS TREAS INFLATION PROTECTED SECS FD (TIP) 0.20%
2.01% WELLS FARGO ULTRA SHRT TRM MUNI CL A (SMAVX) 0.68%
1.37% PUTNAM PREMIER INC TR SH BEN INT (PPT) 0.88%
1.35% EATON VANCE LTD DURATION INCOME FD (EVV) 1.09%
1.34% WESTERN ASSET MANAGED HIGH INCOME FD INC COM (MHY) 0.96%
1.22% NUVEEN PREM INCOME MUN FD INC (NPI) 1.16%
0.03% LOOMIS SAYLES GLOBAL BOND RETAIL (LSGLX) 1.00%

Cash & Equivalents (38.57%)
27.77% WFCU 13 month CDs 3.98% Maturing 1/31/2010
10.80% Cash (Excludes 12 Month Emergency Fund)

Equity Funds (21.99%)
3.28% S & P 500 DEPOSITORY RECEIPT (SPY) 0.09%
3.24% DIAMONDS TRUST SER I (DIA) 0.17%
2.39% ISHARES TR MSCI EAFE INDEX FD (EFA) 0.35%
1.33% CALAMOS GROWTH CLASS A (CVGRX) 1.32%
1.26% ISHARES TR RUSSELL MIDCAP INDEX FD (IWR) 0.20%
1.26% MUTUAL SERIES MUTUAL SHARES CLASS A (TESIX) 1.08%
1.23% ISHARES TR RUSSELL 2000 INDEX FD (IWM) 0.20%
1.13% BLACKROCK GLOBAL ALLOCATION CL A (MDLOX) 1.22%
1.04% FIRST EAGLE GLOBAL CLASS A (SGENX) 1.14%
0.64% ISHARES TR MSCI EMERGING MKTS INDEX FD (EEM)0.72%
0.64% COHEN & STEERS REALTY SHARES (CSRSX) 1.00%
0.62% IVY GLOBAL NATURAL RESOURCES CLASS A (IGNAX) 1.40%
0.61% ROYCE MICROCAP INVESTMENT CLASS (RYOTX) 1.69%
0.61% OPPENHEIMER DEV MARKETS FD CLASS A (ODMAX) 1.43%
0.60% ALLIANCEBER SMALL MID CAP VALUE CL A (ABASX) 1.15%
0.54% THORNBURG INTL VALUE CL A (TGVAX) 1.36%
0.53% FIRST EAGLE OVERSEAS CLASS A (SGOVX) 1.15%
0.51% MUTUAL SERIES GLOBAL DISCOVERY CLASS A (TEDIX) 1.30%
0.51% GATEWAY FUND CL A (GATEX) 0.94%
0.02% COHEN & STEERS REALTY SHARES (CSRSX) 1.00%

Equity Stocks (1.25%)
0.43% MERCK & CO INC NEW COM (MRK)
0.34% INTEL CORP (INTC)
0.33% AT&T INC COM (T)
0.15% DISNEY WALT CO DEL (DIS)

Options (-.12%)
-0.02% CALL (NQ ) INTEL CORP JAN 20 (100 SHS) (-NQAD)
-0.02% CALL (DIS) DISNEY WALT CO DEL JAN 28 (100 SHS) (-DISAV)
-0.04% CALL (MZR) MERCK & CO INC APR 35 (100 SHS) (-MZRDG)
-0.04% CALL (T AT&T INC JAN 25 (100 SHS) (-TAE)

HIS IRA

Bond Funds (.97%)

0.54% BLACKROCK GNMA PORT CLASS A (BGPAX) 1.09%
0.43% LOOMIS SAYLES INVST GRADE BOND CL A (LIGRX) 0.80%

Equity Funds (3.98%)
0.70% ALLIANCEBER SMALL MID CAP VALUE CL A (ABASX) 1.15%
0.51% MUTUAL SERIES MUTUAL SHARES CLASS A (TESIX) 1.08%
0.48% THORNBURG INTL VALUE CL A (TGVAX) 1.36%
0.46% CALAMOS GROWTH CLASS A (CVGRX) 1.32%
0.44% PUTNAM INTERNATIONAL EQUITY CL A (POVSX) 1.42%
0.38% FIRST EAGLE GLOBAL CLASS A (SGENX) 1.14%
0.38% BLACKROCK GLOBAL ALLOCATION CL A (MDLOX) 1.22%
0.29% OPPENHEIMER DEV MARKETS FD CLASS A (ODMAX) 1.43%
0.26% IVY GLOBAL NATURAL RESOURCES CLASS A (IGNAX) 1.40%
0.08% FIDELITY FOUR-IN-ONE INDEX (FFNOX) 0.20%

HER IRA

Equity Funds (.39%)
0.39% FIRST EAGLE GLOBAL CLASS C (FESGX) 1.89%

100.00% Total Portfolio





OK, so after mulling it over reading tons of post, here is what I am thinking in terms of a restructured portfolio:

If I go with this structure, the allocations both before and after between asset types will be as follows:

The Cash/MM is essentially a 1 1/2 years of emergency funds.

This represents a 100% selloff of my current investments. I am more interested in the asset buckets and locations then the individual funds/etfs at this point.

Let me know what you think.

 

[golfnut]

I'm a real novice even tho I just finished the investor's manifesto book. You might want to post on the boglehead forum-alot of good advice there from some experts including Larry Swedroe, Rick Ferri (both of whom have authored some great investment books).

 

[easysurfer]

By being a passive investor wannabe, did you mean to no longer use active investments and just follow indexes? If so, you can even consolidate more and get total indexes for each asset class (tot us stock, tot international stock, total bond, cash (money market and CDs). Would make things even more simple as you'd basically then be working on getting your asset allocation percentages the way you wish.

 

[clifp]

I like it other than the 1% allocation to the REITs (Under 4-5% for a mutual fund I think falls into the why bother category if the fund triples or is cut by 2/3 it will almost no impact on your lifestyle).

You could simplify further but going from 50+ investments to 10 is fine first step.

My only concrete suggestion is to run turbo tax and see if you really need 39% of your assets in muni funds, or might you be better off with say some in munis and some in the Vanguard GNMA or Total bond index. Also a quick glance of the muni funds portfolios shows quite a few California Muni bonds, which are probably fine but the fiscal situation for the Golden State ain't golden.

 

[Sowhatdoidonow]

A bit of an update. Still trying to put this puzzle together whiel trying to avoid "analysis paralysis"!

Since my last posts I think the majors issues I need to get comfotable with before putting together an asset model are as follows:

1) The need for tax efficiency: I have looked carefully at my tax situation and I do not think, at least for the next several years that I will have a reason to hold tax free bonds in my taxable accounts. This is driven by several factors, primarily the fact that I get a pretty large deduction for "investment interest" from a K-1 where I am a 45% owner in a commercial property development. That coupled with the qualified dividend treatment of US stocks and all the standard exemption stuff should keep my marginal rate low enough to not justify holding tax exempts in my taxable account. Of course if I was working this would certainly be a different case.

The fear of a treasury bubble: I am really struggling with this one. I want to be a purist when it comes to passive investing but my gut will not let me in one area. I certainly cannot talk in a sophisticated manner hear in terms of yield curves etc.... BUT I just look at risk versus opportunity. It seems to me that the upside for US treasuries is nominal given the current yields and the downside is great. Is there a treasury bubble like some would argue, I just do not know but, do I really want to risk it given the limited upside? So why am I talking about treasuries in a conversation about buying into broad based passive bond funds? It's because these funds invest based on The Barclays Capital Aggregate Bond Index. This index buys bonds based on the weighting according to the market size of each bond type. The only thing excluded are Municipal bonds and Treasury Inflation-Protected Securities. As a result, the index includes a 28% stake in Treasury securities.

Now since I am going to repurchase a 100% stake into a new portfolio with potentially a 60% bond mix this would mean I am purchasing a close to 18% stake in treasuries. This just gives me a huge gut check. One hypothetical answer would be to create a bond ladder that focuses mainly on corporate bonds or to somehow find a low cost index fund that is not so heavily US Govt weighted. I don't know if any of this rambling has any merit. I would love some insight as to where my logic does not hold up or what some good alternatives are.

Thanks Sam

 

[brewer12345]

You are missing attractive diversifying assets. I would add allocations to commodities and non-USD bonds. I would also devote stome funds to a merger arb fund like MERFX or ARBFX. These funds have a good track record of decent returns, a smooth ride and holding up well in market debacles.

 

[Free To Canoe]

You seem very financially and educationly evolved to be an investment "novice".
I will learn more from this thread than I contribute. Knowing your gut equity level from experience is an accomplishment.
Seems odd that almost all of your funds are Vanguard yet you went to Fidelity, where they ding me with fees for each Vanguard fund transaction. Maybe it is not an issue for high net worth?
I would trust your gut on most things. IMHO you should too with regard to the treasuries.

Congrats on a well thought out plan.

Free to canoe

 

[Ed_The_Gypsy]

THIS is a very key point.

You could simplify further but going from 50+ investments to 10 is fine first step.

I like your turn to Vanguard funds, especially ETFs.

Also, you really don't have bonds, you have bond funds. Big difference!

You can lose equity in a bond fund when interest rates go up again. (A short-term bond fund is less vulnerable, though.) Interest rates ain't very high today, so up seems highly likely. You might consider replacing your bond funds with a bond ladder or CD ladder right now. This requires you to become knowledgeable about individual bonds. That would be too much work for me, but you might enjoy it.

Best of luck.

 

[Darryl]

Congratulations on taking control of your portfolio. You don't need to rush to make changes. Sounds like you don't need to take risk to meet your goals so equity exposure less than 50% seems logical to me. There is plenty of suggested reading available here, Four Pillars would be a good choice. I would move REIT to tax advantaged or drop it, I would fill up tax advantaged with bonds and hold the equity in taxable, I would not bother with anything that represents less than 5% of portfolio, I would pick the appropriate low cost equity funds and sell the high cost funds to buy them. I would hold at least 50% of my bonds as tips or tips fund and that is what I did. If that is not exotic enough as Brewer said you may want to consider some commodities. Good luck.

 

[clifp]

Personally, I think the allocation to TIPS is about right and in the correct location (IRA).

A lot of folks (including to some extend myself) think that inflation is just around the corner.. But what if we are all wrong and we are actually looking for a decade of basically no or low inflation like Japan. The implied inflation suggested by TIPS (the difference between the Treasury and TIPS) is 2.4% for the next decade a higher than normal spread and more importantly the TIPS 1.4% real return isn't enough to fund most people including the OPs retirement.

FWIW, SoNow I share your concern about US Treasuries although it is contrary to the principal of passive index investing. Vanguard offers a variety of bond funds that avoid treasuries. So what about replacing the 2 muni funds with a couple of corporate vanguard funds and 3rd foreign bond as Brewer suggests.

 

[Sowhatdoidonow]

Seems odd that almost all of your funds are Vanguard yet you went to Fidelity, where they ding me with fees for each Vanguard fund transaction. Maybe it is not an issue for high net worth?

Well, I went from UBS to Fidelity and then started trying to figure out my allocations. As part of that process I discovered that passive low cost investing is a niche for Vanguard. However, I have discovered that you can do equities a hair cheaper at Fidelity using say a Spartan fund. And even the Vanguard representatives admit that the online interface for Fidelity and the Smartcash account with the Amex having 2% cash back is far superior at Fidelity. I think my ultimate allocation will be equities at Fidelity and I will open a Vanguard account for bond funds.

 

[Free To Canoe]

Well, I went from UBS to Fidelity and then started trying to figure out my allocations. As part of that process I discovered that passive low cost investing is a niche for Vanguard. However, I have discovered that you can do equities a hair cheaper at Fidelity using say a Spartan fund. And even the Vanguard representatives admit that the online interface for Fidelity and the Smartcash account with the Amex having 2% cash back is far superior at Fidelity. I think my ultimate allocation will be equities at Fidelity and I will open a Vanguard account for bond funds.

Fidelity then Vanguard. Kind of what I did (actually I am in that process). On second thought, the ETF versions of the Vanguard is a good way to go when you are in Fidelity.

Free to canoe