Let talk our new direction 3 Fund Portfolio

[stygz]

I have posted here several times about moving from EJ (non AUM fee based) to Fido. That is starting to take affect.

Our past investment strategy has been the C (SP500), S (small/Mid cap), and I (international) funds (80-10-10) in our TSP's. In our Roth's, we have been using five American Funds with EJ getting us exposure across most everything. $100 each fund per month for both of us. This means we have been maxing out our Roth's. We both have pensions between the VA, Federal Employee, and Military. It is estimated about $7k a month in todays dollars at age 57. It will go up from there at 62.

Since moving to Fido, we are looking at doing the 3 fund portfolio. I am seriously considering a 90-10 allocation. 80 for Total market, 10 International, 10 Bonds. All index funds. Currently we own zero bonds or fixed investments. We do own some individual stocks as well.This includes apple, google, and microsoft to name a few. Our Apple was purchased in 2013 at an initial investment of about 16k. We have just let it do its thing and it is now around $90k. This is close to 25% of all our investments combined. I am not sure if I should just let it ride or start systematically selling it. Lots of things on the horizon with Apple.

Anyway. I am thinking a 90/10 3 fund portfolio because of our age and pensions but am wondering if we need to get to a more conservative mix. Thoughts? We are 40 and 42.

 

[pb4uski]

At 40/42 yo, 90/10 sounds fine to me.

I used to have a significant international equities allocation and the long term performance was disappointing so I eliminated international equities from my portfolio. If you do hold an international equity fund you should hold it in a taxable account because if it is in a tax-deferred or tax-free account then the foreign tax credit for foreign taxes paid is wasted.

I'm not keen on bond funds in a rising interest rate environment and prefer a bond ladder of CDs, USTs and GSE/Agency bonds. There is a small learning curve but it is very easy to do. You can get all or even more of the yield of a bond fund but know that you'll get your par back if you hold to maturity.

So in your situation, I would advise 90 in a dometic equity fund like som sort of total stock fund and 10 in a CD/UST/GSE Agency bond ladder.

I wouldn't hold more than 5% in any single individual stock, so I would slowly pare back the individual stock holdings to reduce concentration risk.

 

[jazz4cash]

25% in one stock is very high. Is it in a taxable account?

 

[stygz]

25% in one stock is very high. Is it in a taxable account?

Roth IRA

 

[stygz]

At 40/42 yo, 90/10 sounds fine to me.

I used to have a significant international equities allocation and the long term performance was disappointing so I eliminated international equities from my portfolio. If you do hold an international equity fund you should hold it in a taxable account because if it is in a tax-deferred or tax-free account then the foreign tax credit for foreign taxes paid is wasted.

I'm not keen on bond funds in a rising interest rate environment and prefer a bond ladder of CDs, USTs and GSE/Agency bonds. There is a small learning curve but it is very easy to do. You can get all or even more of the yield of a bond fund but know that you'll get your par back if you hold to maturity.

So in your situation, I would advise 90 in a dometic equity fund like som sort of total stock fund and 10 in a CD/UST/GSE Agency bond ladder.

I wouldn't hold more than 5% in any single individual stock, so I would slowly pare back the individual stock holdings to reduce concentration risk.

I will have to look at the CD idea. I will check Fido, Ally, and USAA on this.

Thoughts on converting the American funds in this plan once it moves to Fido?

 

[SecondAttempt]

Dump EJ and AF ASAP. VTI works.

 

[eytonxav]

At your age, 90/10 seems reasonable to me.

 

[pb4uski]

I will have to look at the CD idea. I will check Fido, Ally, and USAA on this.

Thoughts on converting the American funds in this plan once it moves to Fido?

On the first part, I recently put together a CD/UST/GSE ladder for my mother. It is very short... 90% matures within 2 years... but the YTM is about 3%. IMO much better than BND which has a 3.4% portfolio YTM but has a 6.9 duration.

On the second part, look at these:

... here are some of the best total stock index funds on the market:

Vanguard Total Stock Market Index Admiral Shares (VTSAX): Opening to investors in 1992, VTSAX was among the first index funds to capture the total market. This fund tracks the CRSP U.S. Total Market Index. With an expense ratio of 0.04% and exposure to more than 3,500 stocks, it makes a solid core holding for a diversified mutual fund portfolio. For exposure to the same stocks and a lower expense ratio of 0.04%, you can buy the ETF version, Vanguard Total Stock Market ETF (VTI).

Fidelity Total Market Index Fund (FSKAX): With an expense ratio of just 0.015%, FSKAX is currently the leader for the lowest expense ratio among total stock index funds. This mutual fund tracks the Dow Jones U.S. Total Stock Market Index, representing around 3,000 U.S. stocks.

Schwab Total Stock Market Index (SWTSX): SWTSX has a low expense ratio of 0.03% for a mutual fund. The fund also tracks the Dow Jones U.S. Total Stock Market Index.

iShares Russell 3000 Index Fund (IWV): With IWV, you gain access to the Russell 3000, which covers about 3,000 U.S. stocks. While the expense ratio of 0.20% for IWV is a bit higher than that of a few other total stock index funds, IWV is among the largest ETFs of its kind, with over $12 billion in assets.​