Investing Inheritance Late in Cycle

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Sublimelaxer
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Joined: Thu Oct 26, 2017 11:35 am

Investing Inheritance Late in Cycle

Post by Sublimelaxer » Thu Oct 26, 2017 5:17 pm

I just received an inheritance of $650,000 and I'm not exactly sure how I should invest it as I believe we are in the late stage of the business cycle. The inheritance came in as 1/3 cash, 1/3 Inherited IRA, and 1/3 taxable brokerage account. All of the investments are currently in municipal bonds.

I'm preparing to relocate back to Denver with my wife after I finish my MBA program within the next year. I will probably keep $50k in cash for expenses/myself or spouse being unable to find job immediately upon relocation. Ideally one of us will land a job and the other will then search with a local address.

Goals:
  • Semi-Aggressive growth
  • Potential retirement at 50-55 with 85% of last years income

My Current Stats:
  • Me: 28
  • Wife: 26
  • Total household income 160k base up to 200k with full commissions/bonus (wife is in commission heavy job and myself in bonus heavy)
  • We currently maxed out both of 401ks and roths since we got married at 22/21. I will also throw an additional $500-1,000 in when the market dips
  • My current allocation is 2.2% international bonds, 6.1% U.S. Bonds, 16.4% international stocks, 66.6% U.S. stocks, 2.4% alternatives, and 4.1% real estate. These are majority is in our patchwork funds within our 401k plans and with vanguard funds in rollover IRA accounts
Debt
  • Mortgage - [email protected]% 15 yr note, Current estimated home market value is $325k, will be selling in April/May 2018 in anticipation of relocating in later half of 2018 after graduation
  • Car Note: 2015 Subaru Forester 4,400 remaining at 0% financing, paid off Dec 2018, about 30k annual miles on vehicle, est life 4 more years
  • Car Note: 2016 Subaru Forester 7,400 remaining at 0% financing, paid off April 2019, about 9,000 annual miles on vehicle, est life 10-12 more years
  • No school debt: attended part time program at top 50 university while working full time
I am looking to invest both the inherited IRA and brokerage account in Vanguard funds. I am not sure what allocation to buy, when to buy, with what allocation given late stage of business cycle, or if I should liquidate all the bonds at once or sell off longer-term bonds first and dollar cost average fund minimums at first and then 2% per month after that.
Last edited by Sublimelaxer on Thu Oct 26, 2017 8:14 pm, edited 1 time in total.

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FIREchief
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Re: Investing Inheritance Late in Cycle

Post by FIREchief » Thu Oct 26, 2017 6:46 pm

What is "the late stage of the business cycle," and why do you think we are currently in it?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

MotoTrojan
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Re: Investing Inheritance Late in Cycle

Post by MotoTrojan » Thu Oct 26, 2017 7:07 pm

Time in the market, not timing the market. Sorry for your loss but congrats on a very healthy inheritance.

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Taylor Larimore
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Re: Investing Inheritance Late in Cycle

Post by Taylor Larimore » Thu Oct 26, 2017 7:33 pm

Sublimelaxer:

Welcome to the SatuMedia Forum!

You have a lot of money and you will probably get many good (conflicting) ideas here. In my opinion, you would be wise to consider using Vanguard's Personal Advisory Service to help your all-important asset-allocation, funds to select and abandon, tax-considerations and manage the transfer of any funds. All this by professional, salary-only, employees, for 0.3% a year. You can leave them after they have done their job.

This is the link:

https://investor.vanguard.com/financial ... ial-advice

By the way, SatuMedia are not market timers and make no attempt to forecast market cycles. You can read why here:

viewtopic.php?f=10&t=156499

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

aristotelian
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Re: Investing Inheritance Late in Cycle

Post by aristotelian » Thu Oct 26, 2017 7:41 pm

Pay off the cars. At age 28, you should be at least 80% stock.

Sublimelaxer
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Re: Investing Inheritance Late in Cycle

Post by Sublimelaxer » Thu Oct 26, 2017 8:05 pm

FIREchief wrote:
Thu Oct 26, 2017 6:46 pm
What is "the late stage of the business cycle," and why do you think we are currently in it?
I work in commercial/corporate banking (client debt needs of $25Mil-Syndications up to $2Bil). Activity has slowed and we’ve seen negative credit migration industry wide.

I’m currently thinking the asset allocation below might serve my timeline and risk tolerance effectively. Migrate 2.5% from small->mid->large->bonds at 30,35,40,45,50

20% bonds
12.5% small cap growth
12.5% small cap value
10% mid cap growth
10% mid cap value
7.5% large cap growth
7.5% large cap value
10% healthcare - VGHAX specifically
10% all world excluding us

Ps: I know I’ll get a lot of flack but I believe market is only semi efficient so I believe if I get an actively managed vanguard fund expense fee under 30bps it will perform better than an index run charging 10bps

MotoTrojan
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Re: Investing Inheritance Late in Cycle

Post by MotoTrojan » Thu Oct 26, 2017 8:32 pm

Sublimelaxer wrote:
Thu Oct 26, 2017 8:05 pm
FIREchief wrote:
Thu Oct 26, 2017 6:46 pm
What is "the late stage of the business cycle," and why do you think we are currently in it?
I work in commercial/corporate banking (client debt needs of $25Mil-Syndications up to $2Bil). Activity has slowed and we’ve seen negative credit migration industry wide.

I’m currently thinking the asset allocation below might serve my timeline and risk tolerance effectively. Migrate 2.5% from small->mid->large->bonds at 30,35,40,45,50

20% bonds
12.5% small cap growth
12.5% small cap value
10% mid cap growth
10% mid cap value
7.5% large cap growth
7.5% large cap value
10% healthcare - VGHAX specifically
10% all world excluding us

Ps: I know I’ll get a lot of flack but I believe market is only semi efficient so I believe if I get an actively managed vanguard fund expense fee under 30bps it will perform better than an index run charging 10bps
Ah now I see, you are implying you'll shift into bonds 2.5% every 5 years by moving equity out of smaller funds, which sounds like a great way to lose returns by changing equity allocation arbitrarily.

Also you say you want to reduce risk, but then you put down an 80% equity allocation (which seems appropriate for you)??? Are you aware that blending equal amounts of a growth & value index will give you similar results to the blend/total index for that size, while costing you more and being less tax-efficient? You also are tilting very very heavily to small/mid-cap, which further increases risk.

What makes the above active?

You have a great nest-egg. I really strongly recommend you consider a 3-fund portfolio, with Total US, Total International, and a Bond fund or other fixed-income that meets your tax-needs. Assuming a reasonable bond allocation, you could go Total Bond and put it 100% in the IRA, with Total SU and Total Int in taxable, which is a very tax-efficient placement. Maybe throw in healthcare or a small-cap value tilt if it makes you feel better, but the above portfolio doesn't seem prudent.

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badbreath
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Re: Investing Inheritance Late in Cycle

Post by badbreath » Thu Oct 26, 2017 9:01 pm

by MotoTrojan You have a great nest-egg. I really strongly recommend you consider a 3-fund portfolio, with Total US, Total International, and a Bond fund or other fixed-income that meets your tax-needs. Assuming a reasonable bond allocation, you could go Total Bond and put it 100% in the IRA, with Total SU and Total Int in taxable, which is a very tax-efficient placement. Maybe throw in healthcare or a small-cap value tilt if it makes you feel better, but the above portfolio doesn't seem prudent.
Moto
Did you look at my portfolio because that is almost exactly what I have.

Anyway have to agree with Moto, the three fund and then add a 5% of something you would like to gamble on
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

venkman
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Re: Investing Inheritance Late in Cycle

Post by venkman » Thu Oct 26, 2017 10:29 pm

Sublimelaxer wrote:
Thu Oct 26, 2017 8:05 pm
Ps: I know I’ll get a lot of flack but I believe market is only semi efficient so I believe if I get an actively managed vanguard fund expense fee under 30bps it will perform better than an index run charging 10bps
Since 2003, VWUAX (VG's active LC Growth fund - .32% ER) has a CAGR of 9.64%. Over that same time, VIGAX (VG's LC Growth index fund) has a CAGR of 10.01%.

Since 2001, VUVLX (VG's active LC Value fund - .23% ER) has outperformed VVIAX (VG's index LC Value fund), 6.95% to 6.19%. However, since 2003, the index fund has won, 9.7% to 8.95%.

No one here will deny that some active managers will beat their index in a given year. Some might even do it for an extended period. The problem is that there's no way to pick those managers in advance.

Sublimelaxer
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Re: Investing Inheritance Late in Cycle

Post by Sublimelaxer » Fri Oct 27, 2017 5:49 am

aristotelian wrote:
Thu Oct 26, 2017 7:41 pm
Pay off the cars.
I definitely prefer the liquidity and at 0% financing there is no incentive to pay off earlier. Even my bank pays me 1.3% on savings so the spread is free money.

MotoTrojan wrote:
Thu Oct 26, 2017 8:32 pm
Sublimelaxer wrote:
Thu Oct 26, 2017 8:05 pm
FIREchief wrote:
Thu Oct 26, 2017 6:46 pm
What is "the late stage of the business cycle," and why do you think we are currently in it?
I work in commercial/corporate banking (client debt needs of $25Mil-Syndications up to $2Bil). Activity has slowed and we’ve seen negative credit migration industry wide.

I’m currently thinking the asset allocation below might serve my timeline and risk tolerance effectively. Migrate 2.5% from small->mid->large->bonds at 30,35,40,45,50

20% bonds
12.5% small cap growth
12.5% small cap value
10% mid cap growth
10% mid cap value
7.5% large cap growth
7.5% large cap value
10% healthcare - VGHAX specifically
10% all world excluding us

Ps: I know I’ll get a lot of flack but I believe market is only semi efficient so I believe if I get an actively managed vanguard fund expense fee under 30bps it will perform better than an index run charging 10bps
Ah now I see, you are implying you'll shift into bonds 2.5% every 5 years by moving equity out of smaller funds, which sounds like a great way to lose returns by changing equity allocation arbitrarily.

Also you say you want to reduce risk, but then you put down an 80% equity allocation (which seems appropriate for you)??? Are you aware that blending equal amounts of a growth & value index will give you similar results to the blend/total index for that size, while costing you more and being less tax-efficient? You also are tilting very very heavily to small/mid-cap, which further increases risk.

What makes the above active?

You have a great nest-egg. I really strongly recommend you consider a 3-fund portfolio, with Total US, Total International, and a Bond fund or other fixed-income that meets your tax-needs. Assuming a reasonable bond allocation, you could go Total Bond and put it 100% in the IRA, with Total SU and Total Int in taxable, which is a very tax-efficient placement. Maybe throw in healthcare or a small-cap value tilt if it makes you feel better, but the above portfolio doesn't seem prudent.
I have looked into the three fund allocation however bonds and internationals are a huge drag on a portfolio weighted like that.

Yes the value/growth could be captured in one fund but when both funds cost 0.15 or less in not too worried about fees.

If you look at vanguards portfolio Wellington, Wesley, Morgan Growth, and Primecap funds charge close to 30bps but have beaten most of the index funds in fee adjusted returns over long hall. I’m comparing through two market cycles 2000-2017. Anyone could make money from 2009-2014 with QE. Within an index there will always be winners and losers if your fund is semi active and drops the losers off the index once a year it will perform better

This is not to give the impression I think they have some magical ability but take vanguards bond fund they invest in an index including a large amount of long duration bonds which get hammered everytime rates go up. Drop the longer duration out of the fund and fund would improve.

aristotelian
Posts: 3033
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Re: Investing Inheritance Late in Cycle

Post by aristotelian » Fri Oct 27, 2017 6:22 am

Sublimelaxer wrote:
Fri Oct 27, 2017 5:49 am
aristotelian wrote:
Thu Oct 26, 2017 7:41 pm
Pay off the cars.
I definitely prefer the liquidity and at 0% financing there is no incentive to pay off earlier. Even my bank pays me 1.3% on savings so the spread is free money.


OK, pay off the mortgage instead. Especially if concerned about valuation.

ryman554
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Joined: Sun Jan 12, 2014 9:44 pm

Re: Investing Inheritance Late in Cycle

Post by ryman554 » Fri Oct 27, 2017 8:18 am

aristotelian wrote:
Fri Oct 27, 2017 6:22 am
Sublimelaxer wrote:
Fri Oct 27, 2017 5:49 am
aristotelian wrote:
Thu Oct 26, 2017 7:41 pm
Pay off the cars.
I definitely prefer the liquidity and at 0% financing there is no incentive to pay off earlier. Even my bank pays me 1.3% on savings so the spread is free money.
OK, pay off the mortgage instead. Especially if concerned about valuation.
The OP prefers liquidity and you suggest to pay off the mortgage?

The OP is not adverse to debt, particularly given the OP's profession. That may or may not be wise, but it's what we have to work with.

The OP also is not particularly interested in index funds over active funds. But does want cheap active funds (semi-active?)

The OP has a recency bias in claiming "internationals are a drag". That certainly is not true over the past year, but was over the past half-decade. It is odd that there is a tilt toward small-markets, but yet a desire to avoid those very same small markets in the rest of the world.

I'm not sure what "beating most of the index funds" means -- what indices is the OP referring to. And, I should add "past performance does not guarantee....." and the OP should really research rolling 5 and 10 year returns to see if the outperformance is due to something special in 2000 or is continually outperforming on a percentage basis over time. A lot of active funds that look really good have an initial burst of "goodness" followed by a long period of apparent out-performance but is really just "keeping up", or "slightly losing ground" to the rest of the market as a whole. After the initial burst, going with these funds really doesn't buy you much other than additional expenses.

Truthfully, I'd just send the OP over to Wellington and be done with it. I would suggest, however, to keep things simple. Not for simplicity sake, but because the OP, like the rest of us, doesn't know anything that the robots don't know. Picking winners and losers now is a fools errand. I suggest to the OP to "be average" with personal finances. By do doing, the OP will be exceptional.

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jadd806
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Location: New England

Re: Investing Inheritance Late in Cycle

Post by jadd806 » Fri Oct 27, 2017 9:05 am

Sublimelaxer wrote:
Fri Oct 27, 2017 5:49 am
If you look at vanguards portfolio Wellington, Wesley, Morgan Growth, and Primecap funds charge close to 30bps but have beaten most of the index funds in fee adjusted returns over long hall. I’m comparing through two market cycles 2000-2017.
No, you're comparing through 1.5 market cycles. 2000 was a peak.
Sublimelaxer wrote:
Fri Oct 27, 2017 5:49 am
Anyone could make money from 2009-2014 with QE. Within an index there will always be winners and losers if your fund is semi active and drops the losers off the index once a year it will perform better
Since you've clearly figured out the secret to creating a fund which easily beats the market, why would you not become a fund manager and make billions? Look at us poor schlubs on the SatuMedia forum... accepting average returns when we could just drop our losers once a year and outperform! :oops:

Slothmeister
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Re: Investing Inheritance Late in Cycle

Post by Slothmeister » Fri Oct 27, 2017 9:17 am

I'd put 200K in Total Stock Market and Total Int'l Stock 70/30. Put 150k in CDs and the rest in high yield savings. Wait for the market to crash, put another 200k in Total Stock Market and Total Int'l Stock 70/30. Keep the rest in CDs and high yield savings.

fourwheelcycle
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Re: Investing Inheritance Late in Cycle

Post by fourwheelcycle » Fri Oct 27, 2017 9:23 am

Everyone on this forum who has money in the market, equity and/or bonds, is essentially reinvesting their total portfolio, by letting it ride, every day they do not withdraw it. I know it seems scary to invest your whole inheritance, less $50K, at a time when the market has gone up so much, but that is effectively what all the rest of us are doing. It's all about having your money in the market on the days it goes up, and steeling yourself not to worry on the days it goes down. If you think you can predict either of these types of days you are kidding yourself.

As far as picking funds that are better than the broad indexes - good luck. I use a nice simple two fund portfolio - TSM index and Intermediate Term Bond index, with all bonds in our tax deferred retirement accounts. Add international if you wish.

deltaneutral83
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Re: Investing Inheritance Late in Cycle

Post by deltaneutral83 » Fri Oct 27, 2017 10:22 am

Sublimelaxer wrote:
Fri Oct 27, 2017 5:49 am

I have looked into the three fund allocation however bonds and internationals are a huge drag on a portfolio weighted like that.

Yes the value/growth could be captured in one fund but when both funds cost 0.15 or less in not too worried about fees.

If you look at vanguards portfolio Wellington, Wesley, Morgan Growth, and Primecap funds charge close to 30bps but have beaten most of the index funds in fee adjusted returns over long hall. I’m comparing through two market cycles 2000-2017. Anyone could make money from 2009-2014 with QE. Within an index there will always be winners and losers if your fund is semi active and drops the losers off the index once a year it will perform better

This is not to give the impression I think they have some magical ability but take vanguards bond fund they invest in an index including a large amount of long duration bonds which get hammered everytime rates go up. Drop the longer duration out of the fund and fund would improve.
Ah, 28, on top of the world of investing! Read all of Bogles and Swedroe's books with historicals and then make your decision about active. You also didn't mention the huge tax burden that actively managed funds incur that passive funds mitigate significantly more. You will never see this published by an actively traded fund with regards to them docking their ROI %.

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mrc
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Re: Investing Inheritance Late in Cycle

Post by mrc » Fri Oct 27, 2017 10:33 am

Larry Swedroe's recent article Better To Face Correction explains why staying out until the right time isn't a good idea. The entire article is worth a read.
It then focused on a comparison over a three-year period, a length of time beyond which they felt an investor was unlikely to wait for the hoped-for correction. Following are its key findings:

* From a given “expensive” starting point, there was a 56% probability that the market had a 10% correction within three years, waiting for which would result in about a 10% return benefit versus having invested right away.
* In the 44% of cases where the correction doesn’t happen, there’s an average opportunity cost of about 30%—much greater than the average benefit.
* Putting these together, the mean expected cost of choosing to wait for a correction was about 8% versus investing right away.

The takeaway is this: Even if you believe the probability of a correction is high, it’s far from certain. And when the correction doesn’t happen, the expected opportunity cost of having waited is much greater than the expected benefit.
A great challenge of life: Knowing enough to think you're doing it right, but not enough to know you're doing it wrong. — Neil deGrasse Tyson

Mdmccall4
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Re: Investing Inheritance Late in Cycle

Post by Mdmccall4 » Fri Oct 27, 2017 11:06 am

If I were you, I would put my money in Real estate . Buy a nice house you can live in and enjoy . As your career goes forward dollar cost average into the market.

Sublimelaxer
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Re: Investing Inheritance Late in Cycle

Post by Sublimelaxer » Fri Oct 27, 2017 11:10 am

After continuing to read I think I’ve conluded I want my asset allocation to be:
15% bonds
10% international
25% large cap
22.5% mid cap
22.5% small cap
5% health care

I’m planning on using the following funds:

Inherited IRA
Vanguard Wellesley Income Fund Admiral Shares - VWIAX expenses 0.15% - $100,000
Vanguard Wellington Fund Admiral Shares - VWENX - expenses 0.16% - $50,000
Vanguard Morgan Growth Fund Admiral Shares - VMRAX - expenses 0.28% - $50,000

Taxable Brokerage Account
Vanguard Tax Managed Capital Appreciation Admiral Shares - VTCLX - expenses 0.09% - $200,000
Vanguard Tax Managed Small Cap Admiral Shares - VTMSX - expenses .09% - $200,000

Does this asset allocation sound appropriate for my age and do these look like best funds for my goals? Are these good buy and hold funds?


My wife will be rolling her previous 401ks and IRAs into a Vanguard account this week. Based on our current holdings the above funds would get us close to our target however I will need to bring up international, midcap, and Healthcare. This won’t be a problem once money is move to Vanguard.

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BolderBoy
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Re: Investing Inheritance Late in Cycle

Post by BolderBoy » Fri Oct 27, 2017 12:17 pm

Sublimelaxer wrote:
Thu Oct 26, 2017 8:05 pm
Ps: I know I’ll get a lot of flack but I believe market is only semi efficient so I believe if I get an actively managed vanguard fund expense fee under 30bps it will perform better than an index run charging 10bps
No flack, but you believe this despite all the research that shows the opposite is usually true?

Take a gander at the Three Fund Portfolio (in the wiki). Simplicity wins in the long run.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

Sublimelaxer
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Re: Investing Inheritance Late in Cycle

Post by Sublimelaxer » Fri Oct 27, 2017 1:48 pm

BolderBoy wrote:
Fri Oct 27, 2017 12:17 pm
No flack, but you believe this despite all the research that shows the opposite is usually true?

Take a gander at the Three Fund Portfolio (in the wiki). Simplicity wins in the long run.
I believe the markets to be semi efficient if they were efficient inside knowledge would be priced into market which I don’t believe it to be.

I think there are better returns to be had than the KISS 3 fund portfolio.

https://seekingalpha.com/article/358752 ... portfolios

MotoTrojan
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Re: Investing Inheritance Late in Cycle

Post by MotoTrojan » Fri Oct 27, 2017 2:36 pm

Sublimelaxer wrote:
Fri Oct 27, 2017 11:10 am
After continuing to read I think I’ve conluded I want my asset allocation to be:
15% bonds
10% international
25% large cap
22.5% mid cap
22.5% small cap
5% health care

I’m planning on using the following funds:

Inherited IRA
Vanguard Wellesley Income Fund Admiral Shares - VWIAX expenses 0.15% - $100,000
Vanguard Wellington Fund Admiral Shares - VWENX - expenses 0.16% - $50,000
Vanguard Morgan Growth Fund Admiral Shares - VMRAX - expenses 0.28% - $50,000

Taxable Brokerage Account
Vanguard Tax Managed Capital Appreciation Admiral Shares - VTCLX - expenses 0.09% - $200,000
Vanguard Tax Managed Small Cap Admiral Shares - VTMSX - expenses .09% - $200,000

Does this asset allocation sound appropriate for my age and do these look like best funds for my goals? Are these good buy and hold funds?


My wife will be rolling her previous 401ks and IRAs into a Vanguard account this week. Based on our current holdings the above funds would get us close to our target however I will need to bring up international, midcap, and Healthcare. This won’t be a problem once money is move to Vanguard.
Not my style, but I think this is better than what I imagined you were going to do before, by holding a value AND growth fund for the same index, rather than a blend.

Could also consider IJS/VIOV in place of the Tax Managed Small Cap. These are ETFs that track the S&P 600 Small-cap Value Index. They are very tax-efficient (way more than Vanguards Small-caps), and capture the small premium much better, with a median cap-size ~1/2 that of Vanguards small funds.

You atleast are managing taxes decently by putting Wellesley/Wellington in the IRA. I am not familar with Morgan Growth or Capital Appreciation funds.

MotoTrojan
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Re: Investing Inheritance Late in Cycle

Post by MotoTrojan » Fri Oct 27, 2017 2:41 pm

badbreath wrote:
Thu Oct 26, 2017 9:01 pm
by MotoTrojan You have a great nest-egg. I really strongly recommend you consider a 3-fund portfolio, with Total US, Total International, and a Bond fund or other fixed-income that meets your tax-needs. Assuming a reasonable bond allocation, you could go Total Bond and put it 100% in the IRA, with Total SU and Total Int in taxable, which is a very tax-efficient placement. Maybe throw in healthcare or a small-cap value tilt if it makes you feel better, but the above portfolio doesn't seem prudent.
Moto
Did you look at my portfolio because that is almost exactly what I have.

Anyway have to agree with Moto, the three fund and then add a 5% of something you would like to gamble on
I had not seen yours. I hold 55% Total US (VTI), 25% Total Int (VXUS), and 20% S&P600 SCV (VIOV). To me, a 5% holding is too small to be worth it, unless it is a vastly different asset type (gold, maybe REITs). Holding 5% SCV for example, when Total US includes that, just seems like added complexity. 20% for me is large enough to make a small difference over 40 years, get some rebalancing bonus, but not be overly exposed to a risky asset. I am a tinkerer by nature, so having this added layer of complexity keeps me happy. As my portfolio gets larger, I may also add some Small/Small-Value International exposure. I've also debated using small-cap international fully in place of the large-cap international, since it should be less correlated to Total US.

Sublimelaxer
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Re: Investing Inheritance Late in Cycle

Post by Sublimelaxer » Fri Oct 27, 2017 2:52 pm

MotoTrojan wrote:
Fri Oct 27, 2017 2:36 pm
Sublimelaxer wrote:
Fri Oct 27, 2017 11:10 am
After continuing to read I think I’ve conluded I want my asset allocation to be:
15% bonds
10% international
25% large cap
22.5% mid cap
22.5% small cap
5% health care

I’m planning on using the following funds:

Inherited IRA
Vanguard Wellesley Income Fund Admiral Shares - VWIAX expenses 0.15% - $100,000
Vanguard Wellington Fund Admiral Shares - VWENX - expenses 0.16% - $50,000
Vanguard Morgan Growth Fund Admiral Shares - VMRAX - expenses 0.28% - $50,000

Taxable Brokerage Account
Vanguard Tax Managed Capital Appreciation Admiral Shares - VTCLX - expenses 0.09% - $200,000
Vanguard Tax Managed Small Cap Admiral Shares - VTMSX - expenses .09% - $200,000

Does this asset allocation sound appropriate for my age and do these look like best funds for my goals? Are these good buy and hold funds?


My wife will be rolling her previous 401ks and IRAs into a Vanguard account this week. Based on our current holdings the above funds would get us close to our target however I will need to bring up international, midcap, and Healthcare. This won’t be a problem once money is move to Vanguard.
Not my style, but I think this is better than what I imagined you were going to do before, by holding a value AND growth fund for the same index, rather than a blend.

Could also consider IJS/VIOV in place of the Tax Managed Small Cap. These are ETFs that track the S&P 600 Small-cap Value Index. They are very tax-efficient (way more than Vanguards Small-caps), and capture the small premium much better, with a median cap-size ~1/2 that of Vanguards small funds.

You atleast are managing taxes decently by putting Wellesley/Wellington in the IRA. I am not familar with Morgan Growth or Capital Appreciation funds.
You mention it’s not your style but hypothetically if you were to construct a portfolio with 5-6 funds where would you place your money. There is a heavy allocation to bonds in the IRA because currently I’m nearly 100% equity in other accounts.

I’m also trying to invest big chunks into admiral shares (10&50k minimums). Once my wife and I consolidate our retirement accounts we will be able to bring up lagging pieces with combo of admiral/investor class shares.

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arcticpineapplecorp.
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Re: Investing Inheritance Late in Cycle

Post by arcticpineapplecorp. » Fri Oct 27, 2017 9:33 pm

Sublimelaxer wrote:
Fri Oct 27, 2017 5:49 am
If you look at vanguards portfolio Wellington, Wesley, Morgan Growth, and Primecap funds charge close to 30bps but have beaten most of the index funds in fee adjusted returns over long hall. I’m comparing through two market cycles 2000-2017. Anyone could make money from 2009-2014 with QE. Within an index there will always be winners and losers if your fund is semi active and drops the losers off the index once a year it will perform better

This is not to give the impression I think they have some magical ability but take vanguards bond fund they invest in an index including a large amount of long duration bonds which get hammered everytime rates go up. Drop the longer duration out of the fund and fund would improve.
Welcome to the forum. Couple things:

1. You say Wellington, Wesley [sic], Morgan Growth, and Primecap funds "have beaten most of the index funds"...which index funds are you referring to exactly? In order to do a comparison we need to know what you're comparing the above 4 managed funds to (and it's spelled Wellesley, not Wesley. It's good to know the actual names of funds you promote). So if you can provide the names of the losing index funds, we'd be happy to play along. Of course, is a 17 year past track record really something you'd be willing to stake the next 40+ years on (you are only 28 after all)? I wouldn't want to bet against the indexes for the next 40+ years. But good luck to you if you wish to try. You might want to read William Sharpe's "The Arithmetic of Active Management" first:
source: https://web.stanford.edu/~wfsharpe/art/ ... active.htm

2. "take Vanguard's bond fund"?? Which one? They've got several. Let's assume you mean the total bond market index fund?
"a large amount of long duration bonds..."??? What do you consider a "large amount"? What do you consider "long duration"?

Let's assume for the moment you define long term as any bonds of maturity over 10 years. Is that ok? I tend to think of intermediate as anywhere from 5-10 years and long as anything above that. If we can agree on that then Vanguard's total bond market index fund only has 16.9% of the total bond market index fund in longer maturity bonds. That means that 83.1% of the fund is in short to intermediate term bonds. That's why TBM is known as an intermediate bond fund, not a long term bond fund. You can see the average maturity is 8.3 years and average duration as 6.1 years. see below:

Image

Image

Image

Source: https://personal.vanguard.com/us/FundsS ... =INT#tab=0

Finally, I suggest you look at the following to see how the total bond market index fund (Vanguard) fared in times of rising rates (see below). You may not know this but during the 80s interest rates went up pretty high (as in double digits). The chart below doesn't show interest rates, but rather inflation rates. But still, interest rates did rise during the 80s. In fact the reason bonds have done so well over the past 30 years is because they came so far (down to 0%) from such a high point (double digits) in the 80s. Did the total bond market index fund get hammered as you put it (see below)?
Taylor Larimore wrote:
Thu Jan 31, 2013 5:18 pm
SatuMedia:

A recent article in the Wall Street Journal titled: "Avoid Vanguard Total Bond Fund ?" resulted in over 80 replies. A few days later another poster started a thread titled: Get out of Vanguard Bond Fund (VBILX)?. Many bond investors are worried. It helps to look at history.

Vanguard's Total Bond Market Index Fund was started by Jack Bogle in December, 1986. It is a very diversified, high-quality, intermediate-term bond index fund that tracks Barclays US Aggregate Bond Index (formerly the Lehman Aggregate Bond Index created in 1976). Jack's invention is now the world's largest bond index fund.

Listed below are the historical U.S. inflation rates (CPI-U) and total returns for the Aggregate Bond Index since its inception:

YEAR--INFLATION--BOND INDEX
1976-------4.9%--------15.6%
1977-------6.7-----------3.0
1978-------9.0-----------1.4
1979------13.3-----------1.9
1980------12.5-----------2.7
1980------12.5-----------2.7
1981-------8.9-----------6.3
1982-------3.8----------32.6
1983-------3.8-----------8.4
1984-------3.9----------15.2
1985-------3.8----------22.1
1986-------1.1----------15.2
1987-------4.4-----------2.8
1988-------4.4-----------7.9
1989-------4.6----------14.5
1990-------6.1-----------8.9
1991-------3.1----------16.0
1992-------2.9-----------7.4
1993-------2.7-----------9.7
1994-------2.7---------(-2.9)
1995-------2.5----------18.5
1996-------3.3-----------3.6
1997-------1.7-----------9.7
1998-------1.6-----------8.7
1999-------2.7---------(-0.8)
2000-------3.4----------11.6
2001-------1.6-----------8.4
2002-------2.4----------10.3
2003-------1.9-----------4.1
2004-------3.3-----------4.3
2005-------3.4-----------2.4
2006-------2.5-----------4.3
2007-------4.1-----------7.0
2008-------0.1-----------5.2
2009-------2.7-----------5.9
2010-------1.5-----------6.5
2011-------3.0-----------7.7
2012-------1.7-----------4.3
Source: U.S. Department of Labor and Barclays

Observations:
* Inflation increased from 4.9% in 1976 to 13.3% in 1979; nevertheless the Index had positive returns during that period of rising inflation.
* The Index had only two negative years (both small) reflecting low risk.

Past performance does not guarantee future performance.

This article from Vanguard Research is worth reading:
Deficits, the Fed, and rising interest rates: Implications and considerations for bond investors

Best wishes.
Taylor
source: viewtopic.php?t=110077
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Sandtrap
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Re: Investing Inheritance Late in Cycle

Post by Sandtrap » Sat Oct 28, 2017 1:51 am

Sublimelaxer wrote:
Fri Oct 27, 2017 11:10 am
After continuing to read I think I’ve conluded I want my asset allocation to be:
15% bonds
10% international
25% large cap
22.5% mid cap
22.5% small cap
5% health care

I’m planning on using the following funds:

Inherited IRA
Vanguard Wellesley Income Fund Admiral Shares - VWIAX expenses 0.15% - $100,000
Vanguard Wellington Fund Admiral Shares - VWENX - expenses 0.16% - $50,000
Vanguard Morgan Growth Fund Admiral Shares - VMRAX - expenses 0.28% - $50,000

Taxable Brokerage Account
Vanguard Tax Managed Capital Appreciation Admiral Shares - VTCLX - expenses 0.09% - $200,000
Vanguard Tax Managed Small Cap Admiral Shares - VTMSX - expenses .09% - $200,000

Does this asset allocation sound appropriate for my age and do these look like best funds for my goals? Are these good buy and hold funds?


My wife will be rolling her previous 401ks and IRAs into a Vanguard account this week. Based on our current holdings the above funds would get us close to our target however I will need to bring up international, midcap, and Healthcare. This won’t be a problem once money is move to Vanguard.
Simplicity, Indexing, Low ER.
Some helpful links:
Bogle Philosophy
/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
/wiki/Getting_started
/wiki/Bogleh ... rt-up_kit
Define General Investment Goals and Objectives
/wiki/Invest ... statement
Outline of Investing
/wiki/Outline_of_investing
Suggested Reading List
/RecommendedReading.php
What the experts say about investing
/wiki/What_ ... investing

inbox788
Posts: 4142
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Re: Investing Inheritance Late in Cycle

Post by inbox788 » Sun Oct 29, 2017 12:44 am

aristotelian wrote:
Fri Oct 27, 2017 6:22 am
OK, pay off the mortgage instead. Especially if concerned about valuation.
I agree! Why give up free money in 0% loan? The loan is a guaranteed return, and gives OP flexibility as to future order of purchase and sale of property. It also releases monthly obligation that can be applied to future investment stream that automatically dollar cost averages.

What significant difference is there in funds in cash vs taxable, especially when it's in taxfree municipal bonds?

Have you looked into Stretch IRA?

Keep investments simple. There is little need to complicate beyond a 3 fund portfolio, and at this stage, little need for bonds, especially if the home is paid off. Just keep enough cash for emergencies and plan for down payment on new home. The rest can be in equities (TSM, VT)

MotoTrojan
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Re: Investing Inheritance Late in Cycle

Post by MotoTrojan » Mon Oct 30, 2017 2:30 pm

Sublimelaxer wrote:
Fri Oct 27, 2017 2:52 pm
MotoTrojan wrote:
Fri Oct 27, 2017 2:36 pm
Sublimelaxer wrote:
Fri Oct 27, 2017 11:10 am
After continuing to read I think I’ve conluded I want my asset allocation to be:
15% bonds
10% international
25% large cap
22.5% mid cap
22.5% small cap
5% health care

I’m planning on using the following funds:

Inherited IRA
Vanguard Wellesley Income Fund Admiral Shares - VWIAX expenses 0.15% - $100,000
Vanguard Wellington Fund Admiral Shares - VWENX - expenses 0.16% - $50,000
Vanguard Morgan Growth Fund Admiral Shares - VMRAX - expenses 0.28% - $50,000

Taxable Brokerage Account
Vanguard Tax Managed Capital Appreciation Admiral Shares - VTCLX - expenses 0.09% - $200,000
Vanguard Tax Managed Small Cap Admiral Shares - VTMSX - expenses .09% - $200,000

Does this asset allocation sound appropriate for my age and do these look like best funds for my goals? Are these good buy and hold funds?


My wife will be rolling her previous 401ks and IRAs into a Vanguard account this week. Based on our current holdings the above funds would get us close to our target however I will need to bring up international, midcap, and Healthcare. This won’t be a problem once money is move to Vanguard.
Not my style, but I think this is better than what I imagined you were going to do before, by holding a value AND growth fund for the same index, rather than a blend.

Could also consider IJS/VIOV in place of the Tax Managed Small Cap. These are ETFs that track the S&P 600 Small-cap Value Index. They are very tax-efficient (way more than Vanguards Small-caps), and capture the small premium much better, with a median cap-size ~1/2 that of Vanguards small funds.

You atleast are managing taxes decently by putting Wellesley/Wellington in the IRA. I am not familar with Morgan Growth or Capital Appreciation funds.
You mention it’s not your style but hypothetically if you were to construct a portfolio with 5-6 funds where would you place your money. There is a heavy allocation to bonds in the IRA because currently I’m nearly 100% equity in other accounts.

I’m also trying to invest big chunks into admiral shares (10&50k minimums). Once my wife and I consolidate our retirement accounts we will be able to bring up lagging pieces with combo of admiral/investor class shares.
My style would not be to be so heavily in active funds, not necessarily multiple funds. I also don't hold bonds (young), but I don't think 15% of total assets is a "heavy allocation" as you say, although putting those solely in IRA is a good plan tax-wise.

If you held a gun to my head and said develop a 5-fund portfolio, it would probably be something like:
40% Total US
20% Small-cap Value (S&P600)
10% Total Int (Ex-US)
15% International Small-cap Value
15% Total Bond

The above would all be indexed with the possible exception of Int SCV, due to limited index availability.

Given that you have a good amount of IRA and taxable space, I would make taxable solely Total US and Total Int, and then use the IRA for small-cap (or S&P 600 could be taxable), bonds, and any other active funds you are interested in. No need for tax-managed funds in my eyes.

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