My portfolio checkup

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Topic Author
mich_bogle
Posts: 77
Joined: Mon Jun 02, 2014 3:54 pm

My portfolio checkup

Post by mich_bogle »

33 year old single male living in Michigan. Only debt is a 3% mortgage with 85k left on it.

Assets
Taxable Accounts
  • AAPL Apple Computer - 85 shares worth $54,000.
    • Had this since I was a teenager, original cost basis was $600. Last week I sold my first-ever chunk of this. 15 shares to cash out at $9500 (I had an even 100 shares before last week. I used $2500 of that to purchase (below)
  • VBMFX - Vanguard Total Bond Market Index Fund - $2500.
    • Bought this with part of my AAPL proceeds because I decided that I was too light on bonds and I knew that Vanguard was "good". Probably should have gotten a bond ETF and thought more about tax efficiency before doing this
Roth IRA
  • VOO Vanguard S&P 500 ETF - $5800. Just bought this with my 2013 contribution.
  • SYK Stryker Corporation - $5600.
  • AMRMX American Funds American Mutual - $16300.
  • CAIBX American Funds Capital Income Builder Fund - $17000.
  • CWGIX American Funds Capital World Growth and Income Fund - $17500.
    • These American Funds were bought years ago when my parents helped with contributions and I let them choose allocation
Taxable balance - $56,500
Deferred balance - $67,700
Cash on hand - $28,000.
No 401k available from employer (I might try to work on this but not at the moment)

I'd like to invest about $8k (mostly the cash earned from the AAPL sale)

The way I see it my problems are:
1. Too much invested in AAPL
2. My holdings are probably not arranged in tax-efficient manner

I plan on slowly divesting the AAPL until I am down to around 50 shares. I know holding even that many is quite possibly irrational, but it has been so good to me and I believe in the company.

Is it worth doing anything else with my existing holdings to make them more tax-efficient, or should I just be more mindful of tax-efficient allocation on future investments?
With the $8k I have to invest right now I intend to buy a couple more Vanguard ETFs. Still haven't decided what, but probably BND.

Any friendly advice would be appreciated :)
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Duckie
Posts: 8165
Joined: Thu Mar 08, 2007 2:55 pm

Re: My portfolio checkup

Post by Duckie »

mich_bogle, welcome to the forum.

Holding taxable bonds in a taxable account for long-term purposes is not a good idea. They kick out too much non-qualified dividend income. If the bond fund is for retirement it should be in your Roth IRA.

You don't show a desired Asset allocation so based solely on your age I'm going to recommend an AA of 75% stocks, 25% bonds, with 30% of stocks in international. That breaks down to 52% US stocks, 23% international stocks, and 25% bonds. Here is a possible retirement portfolio:

Taxable at Vanguard -- $56K -- 45%
22% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
23% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.14%)

Roth IRA at Vanguard -- $68K -- 55%
30% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.05%)
25% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.08%)

My comments/questions:
  • This ignores the tax cost of selling AAPL in taxable so I don't expect this to happen right away, but it'll give you an idea.
  • You can probably sell the bond fund for little taxable gain and easily switch things around in the Roth IRA.
  • If holding ETFs buy VTI, VXUS, and BND.
  • This has TISM in taxable to take advantage of the 
Foreign tax credit.
  • By holding only stocks in taxable and putting the bonds in tax-sheltered you are being tax-efficient. See here.
  • You have $28K in cash and want to invest $8K. What is the purpose of the remaining $20K? Is it part of your emergency fund or short-term-needs fund (new car, fancy vacation)?
Just some possibilities.
Topic Author
mich_bogle
Posts: 77
Joined: Mon Jun 02, 2014 3:54 pm

Re: My portfolio checkup

Post by mich_bogle »

Thanks for the thorough reply Duckie.

The bond fund purchase at Ameritrade came with a hefty $50 commission, but I suppose it would make sense to rectify this purchase now before there are any taxable gains (I only purchased it 3 days ago). So I will sell that and replace it with something like VTIAX, and then add a bond fund like BND to my Roth.

Regarding my cash: Once I get comfortable with my plan I can see reducing my cash on hand to about $15k, but I am planning on getting married in the next 24 months, and replacing my laptop.
Topic Author
mich_bogle
Posts: 77
Joined: Mon Jun 02, 2014 3:54 pm

Re: My portfolio checkup

Post by mich_bogle »

I'm in the process of combining my accounts so that I can more easily rebalance my portfolio (merging two different IRA accounts, bringing my AAPL over from another broker into a taxable account at my IRA brokerage).

My question is how I should regard AAPL in the context of the larger portfolio. Let's say I want an asset allocation of:
75% stocks
--- 75% US 25% international
25% bonds


Should I consider the AAPL to belong to the US stock allocation, or should I regard it as being separate, and allocate all of the non-AAPL money that way?

As mentioned before, I had about $65k in AAPL, and just recently sold 15% of that. I could go down to 50% before I start nudging the next tax bracket, but I also don't want a $6000 tax bill next year. So my plan is to divest down to 75% of the original total in 2014, then do another 25% in 2015, and a further 25% in 2016.

I'd like to keep some chunk of AAPL in my portfolio in the long term. Call it irrational emotional attachment, but I'd like to just think of it as playing with a small portion of the wildly successful earnings. Somewhere between 10-25% of the current total.

But again, should I make this my "US stocks" asset allocation, or just segregate it away while the rest of the invested money is allocated with a more traditional/Bogle-like index fund mixture?
User avatar
thedayisbrave
Posts: 106
Joined: Sun May 05, 2013 8:56 pm
Location: NC

Re: My portfolio checkup

Post by thedayisbrave »

I'll let others chime in with what you should do in your specific case since AAPL is such a huge chunk, but personally my individual stock/"play" money is not part of my AA.
letsgobobby
Posts: 12073
Joined: Fri Sep 18, 2009 1:10 am

Re: My portfolio checkup

Post by letsgobobby »

Your aapl holding is too large to ignore so you have to count it as large cap u.s. stock.
climbhigh
Posts: 18
Joined: Fri May 30, 2014 1:54 pm

Re: My portfolio checkup

Post by climbhigh »

mich_bogle wrote:The bond fund purchase at Ameritrade came with a hefty $50 commission...
Perhaps you should consider moving your accounts to Vanguard, where you won't have to pay commission to buy/sell Vanguard funds/ETFs. Not sure if Ameritrade charges a fee to sell the fund as well, but if so you would be better off moving your accounts to Vanguard, then selling the bond fund. It takes 2-3 weeks to get accounts moved over, but the Ameritrade commission may outweigh any taxable gains you'll incur during those 2-3 weeks. Don't forget about transfer fees that Ameritrade may charge, but again, after just a couple of trades at Vanguard you'll come out ahead by avoiding costly commissions. I just had all of my accounts moved over to Vanguard, and figure that I'll be saving a few hundred dollars per year by not paying those fees.
Topic Author
mich_bogle
Posts: 77
Joined: Mon Jun 02, 2014 3:54 pm

Re: My portfolio checkup

Post by mich_bogle »

climbhigh wrote:
mich_bogle wrote:The bond fund purchase at Ameritrade came with a hefty $50 commission...
Perhaps you should consider moving your accounts to Vanguard, where you won't have to pay commission to buy/sell Vanguard funds/ETFs. Not sure if Ameritrade charges a fee to sell the fund as well
I went into this somewhat more in depth in a different thread:
http://www.bogleheads.org/forum/viewtop ... 1&t=140430

But the upshot is that Ameritrade has some incentives to bring accounts over, plus they have commission-free trading on many ETF's, including about 20 of Vanguard's most popular. So I will be able to do almost all of my trades for free. So any different will be negligible.
placeholder
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Joined: Tue Aug 06, 2013 12:43 pm

Re: My portfolio checkup

Post by placeholder »

For those not familiar with TDA's list:
http://research.tdameritrade.com/grid/p ... onfree.asp
And their current bonus program:
https://www.tdameritrade.com/client/rig ... index.html
Topic Author
mich_bogle
Posts: 77
Joined: Mon Jun 02, 2014 3:54 pm

Re: My portfolio checkup

Post by mich_bogle »

Alright, I've worked out a spreadsheet with a tentative rebalanced portfolio.

For AAPL, I have allocated the 25% that I intend to hold for the foreseeable future to my US Stocks section.
The remainder of the AAPL I am not including in the Asset Allocation.

This is mostly based on the Core Four lazy portfolio, with a couple of extra slices. I am attempting to use tax-efficient allocation as I understand it. I chose VEU for the Int'l Stock instead of the recommended VXUS, because it is free to trade VEU on Ameritrade.

Image

I would love some feedback on this. I will probably be doing the trading in the next 2-3 days.
Topic Author
mich_bogle
Posts: 77
Joined: Mon Jun 02, 2014 3:54 pm

Re: My portfolio checkup

Post by mich_bogle »

I'll give this one bump, if that doesn't work I'll probably post a new thread since the question has somewhat changed since my original post :)
letsgobobby
Posts: 12073
Joined: Fri Sep 18, 2009 1:10 am

Re: My portfolio checkup

Post by letsgobobby »

Given your premise it seems reasonable but I don't understand at all the rationale of excluding AAPL shares from your US stock allocation. What is it, if not a mega cap US stock?

Maybe you just think of it as a lottery ticket? Objectively, it's a large cap US stock so if you 'ignore' part of it in your asset allocation you simply have to recognize that you are taking more risk than your AA illustrates (also ok, as long as you understand it).

Going back to the Ameritrade and Vanguard issue. It doesn't sound like you'll have a ton of trading costs, but it doesn't make much sense to me to pay ETF trading fees and mutual fund buy/sell fees through a broker when you can just go to Vanguard itself and do it all for free - buying/selling their ETFs cost $0 and buying/selling their mutual funds costs $0.

I was tempted by some of the bonuses for moving money to Schwab, Ameritrade, Fidelity, etc, but ultimately just decided to keep everything where it was. In my case it would have been even more profitable than for you since I would be just shuffling around a single account holding exactly one Schwab ETF, leaving it here for a few months for a few hundred dollars, then there for a few months for a few hundred dollars, etc. I wouldn't have bought or sold anything, but I would have to pay the transfer out fees each time. Are you sure that over the time period in question the extra buy/sell fees won't outweigh the bonus that you have received?
Topic Author
mich_bogle
Posts: 77
Joined: Mon Jun 02, 2014 3:54 pm

Re: My portfolio checkup

Post by mich_bogle »

At the moment I am pretty locked in on the Ameritrade part of the question. I am only going to trade commission-free ETFs on Ameritrade, which include most of Vanguard's ETFs (all the ETFs I list in my example portfolio are free to trade)

I am mostly looking for feedback on my tentative portfolio.

Yeah, I understand that the AAPL is bringing the diversification of my portfolio way down and hence my risk way up. My thinking was to remove the portion of AAPL that I plan to steadily divest, but I could also do it this way:

Image

Perhaps this is a more reasonable way to do it. This will give me more exposure to international stocks and to bonds, which should make the portfolio a little more stable while I divest the AAPL.

Thoughts?
letsgobobby
Posts: 12073
Joined: Fri Sep 18, 2009 1:10 am

Re: My portfolio checkup

Post by letsgobobby »

I do like that much better!
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