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Asset Allocation Plan, Leaving Financial Advisor

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  • Asset Allocation Plan, Leaving Financial Advisor

    I posted something similar over at Bogleheads ( but realized mirroring my accounts would be more hassle than it was worth.  So I simplified the allocation plan which is much better than what my financial advisor set up previously.


    Emergency Funds: $25,000 in money market account (1% APY)


    • Mortgage (5 year fixed, then variable, current rate of 3.125%): $242,296.81

    • Student Loans, refinanced at 3.99%: $105,588.57

    • Auto Loan at 0: $9581.57

    Tax Filing Status: Married Filing Jointly

    Tax Rate:

    • Federal: 35%

    • State: 6.84%

    State of Residence: Nebraska


    • Me: 32

    • Wife: 28

    Desired Asset Allocation:

    • 55% US Equities

      • Preference for Total Stock Market Index Fund

      • If not available then S&P 500 Index with Mid Cap and Small Cap to recreate Total Stock Market Index

      • If not available then S&P 500 Index

    • 25% International Equities

      • Preference for Total International Stock Market Index Fund

    • 20% US Bonds

      • Preference for Total Bond Index or Intermediate Grade Bond Fund Index

    Planned Retirement Asset Allocation:

    • Principal 401k

      • 12.02% in S&P 500 Index Fund (PLFMX)              ER: 0.72

    • Fidelity 401(a)

      • 8.56% in Bond Index Fund (FXSTX)                     ER: 0.035

    • Fidelity 403(b)

      • 11.1% in S&P 500 Index Fund (FXSIX)                ER: 0.03

      • 1.37% in Mid Cap Index Fund (FSCKX)                ER: 0.05

      • 1.23% in Small Cap Index Fund (FSSVX)             ER: 0.05

    • Fidelity 457(b)

      • 11.7% in Bond Index Fund (FXSTX)                    ER: 0.035

    • Retirement Pension Account

      • 17.4% in International Index Fund (VTIAX)          ER: 0.11

    • Roth IRA (Me)

      • 9.56% in Total Stock Market Index Fund (VTSAX) ER: 0.04

    • Roth IRA (Wife)

      • 3.85% in Total Stock Market Index Fund (VTSAX) ER: 0.04

      • 7.82% in International Index Fund (VTIAX)          ER: 0.11

    • Taxable Account

      • 15.39% in Total Stock Market Index Fund (VTSAX)    ER: 0.04


    • 401k: On hold, plan to roll over to solo 401k then contribute (from previous employer)

    • 401(a): $13500 total ($5500 from employee, $8000 from employer)

    • 403(b): $18500

    • 457(b): $18500

    • Retirement Pension Account: $24750 (from employer)

    • Roth (Me): $5500

    • Roth (Wife): $5500

    • Taxable Account: $60,000 ($5000 per month)


    1. Thoughts on the asset allocation? I have stressed about the optimal percentages but ended up with paralysis from analysis. We are okay with an aggressive portfolio at our age and income level.

    2. I know little about REITs but I wonder if they are something I should include in our portfolio.

    3. I have the same question about small value funds. I know they are frequently mentioned as a way to increase your returns but it seems like holding the total stock market covers that.

    4. Any suggestions if we want to use the taxable account to buy a new house within the next year?

    Appreciate any help you all could provide.  Thanks!


  • #2
    2. I would consider a REIT within your portfolio. REIT's are obligated to pay out a high percentage of their 'net income'. REIT's come in a wide variety of flavors (Office Space, Malls, US, ex-US). REIT's are mostly interest rate sensitive.
    3. You are partially correct, a total stock fund would cover both small and mid capitalization funds. In the context of increasing returns (at the portfolio level), this refers to 'tilting' (greater weighting) towards a small value/growth as an asset class. Numerous academic studies have shown that tilting towards small value/growth over the long term (20 odd years) provides higher portfolio returns. A tilt will also introduce additional volatility/variability of both the tilt and your portfolio. Given your age only, I would consider a 'tilt' towards small value/growth, both in US and International.
    4. If you are planning on buying a home, I would not have your taxable in VTSAX, rather some type of MM fund. Yes, short term returns are bad, but better than enduring going from the ability to make a down payment to not on a home because of stock market volatility.


    • #3
      Frankly, I like the asset allocation.  It's well diversified, sound, and simple enough to make it easier to rebalance and stick to it.

      I didn't like the expense ratio on the Principal S&P 500 fund, but you're moving away from that.

      REITs are in the S&P 500 now, so I don't know that you need to bother with a separate position in REITs.  A small value tilt may help your returns over the next 2-3 decades, but you're fine to stick with total stock market for simplicity.

      I could see an argument for holding the international index fund in taxable so you can get the foreign tax credit.  Likewise, I might prefer government bonds (perhaps munis) over your total bond or intermediate bond fund.  Read William Bernstein for an argument to take risk in stocks and guard against risk with bonds.

      Speaking of bonds, you aren't clearing more than 3.99% after taxes.  Why not take the money you currently are putting into bonds and throw that against the student loans instead?  I'm biased towards paying off the student loans prior to upgrading to a bigger, pricier home.  Likewise, I'd compare doctor loan rates to other loan rates.  If you can put 10% or even zero percent into your new home for a rate within 25 basis point of a non-doctor loan, then you wouldn't have to raid the taxable account.  Look at BBVA, Suntrust, First Republic, and the other lenders here on WCI.

      Keep up the good work!


      • #4
        1) nope that should work. just reconsider the <3% splits to sc/mc. its kinda trivial....

        2) learn more, then decide. they are not necessary. unless you are one of the ppl that think they are.

        3) the data shows it takes a long time. they can also under perform for a long time. yes, their market weight is in TSM.

        4) in 1 year? savings account. dont invest it.



        • #5
          2. I think we may consider REITs later but knowing they are part of the Total Stock Market/S&P 500 makes feel better about waiting.

          3. Based on your feedback and what I've read we may do some small value tilt in the next couple years as well.

          As Hank said, the simplicity is the goal for our assets.

          Appreciate all the feedback, it is very helpful.