Format for quarterly investment review

[Broken Arrow]

Have you looked into mint.com and Bloomberg.com yet?

[zetta]

Question- do you prioritize the Roth deposits before or after a SEP deposit (for example if you had a bad year, and only 9k was invested, would you max the SEP then fund Roth with remainder, or fully fund Roth with 5k then put remainder into SEP?).

It's mutually exclusive. My income puts us over the top -- if I earn money, we can't contribute to a ROTH, but can put money in a SEP. When I am a SAHM, we can contribute to the ROTH, but have no income eligible for the SEP. I only plan to be a SAHM for 2 years (I enjoy my profession and find part-time work to be ideal for me.)

I would prioritize contributing to SEP over a traditional IRA due to the tax break.

[zetta]

Comment 3 of the 772k investment assets, I read/interpret that you have control of 77% (600k) of the total. Is this correct? If you feel comfortable, can you help me understand the dynamic where husband invests in what he wants? If you made a suggestion, would he listen?

Our financial styles are very different -- I get lost measuring each and every tree and can't make a decision, where he flies over the forrest at mach 3 and uses some sort of intuitive algorithm I don't understand to make investment choices. It's hard to find time to have a conversation about investment, and when we do it usually doesn't go well -- I guess I come across as telling him what to do.

It's correct that about 77% of the total is in my name and under my control. I brought more money into the marriage -- I started maxing out my 401k at age 22, and bought a house before I met him that was sold for double the purchase price. He immigrated to America and started his 401k about 4 years later, and originally only contributed enough to get the employer match. Although we didn't do a prenup, the accounts have remained separate (retirement accounts are always in one name in any case), and compound interest has worked its magic. The flip side is that because I'll spend 8-10 years as either a SAHM or working part-time, the largest portion of new money is going into his 401k.

I'm hoping to show DH the current status of all the accounts, and get him to suggest modifications to the target asset allocation. Perhaps he'll take a look at the allocation in his 401k as a result. I'm going to ask him to help me research REITs, and to help me decide which funds to sell and buy if I rebalance my accounts.

[jIM_Ohio]

Our financial styles are very different -- I get lost measuring each and every tree and can't make a decision, where he flies over the forrest at mach 3 and uses some sort of intuitive algorithm I don't understand to make investment choices. It's hard to find time to have a conversation about investment, and when we do it usually doesn't go well -- I guess I come across as telling him what to do.

It's correct that about 77% of the total is in my name and under my control. I brought more money into the marriage -- I started maxing out my 401k at age 22, and bought a house before I met him that was sold for double the purchase price. He immigrated to America and started his 401k about 4 years later, and originally only contributed enough to get the employer match. Although we didn't do a prenup, the accounts have remained separate (retirement accounts are always in one name in any case), and compound interest has worked its magic. The flip side is that because I'll spend 8-10 years as either a SAHM or working part-time, the largest portion of new money is going into his 401k.

I'm hoping to show DH the current status of all the accounts, and get him to suggest modifications to the target asset allocation. Perhaps he'll take a look at the allocation in his 401k as a result. I'm going to ask him to help me research REITs, and to help me decide which funds to sell and buy if I rebalance my accounts.

Zetta- my wife would do a mach 3 decision as well if I were out of picture... so if you simply suggested to him a target date fund close to 80% equities, that would work for portfolio.

My wife knows her Roth is the most aggressive investments we have. If I tried explaining any more of the system to her, she would get a headache (she probably already has one from another reason or two or three anyways LOL).

What I would suggest is make sure the mach 3 decision compliments the asset allocation instead of trying to make 77% of the assets react to the decision of the 23%. Because that decision might not be based on logic, might be based more on chasing returns, hunches or other... you want his holdings to compliment yours, and if I were to rank how to guide husband, it would be in this order

1) Target date fund which is 80-20 right now (any 80-20 fund fits this role well)
2) Balanced fund which is fixed at 80-20 permanently
3) Balanced fund which is 60-40 all the time (lots of funds come to mind)
4) income fund which is 40-60 all the time (Vanguard Wellesley would be at top of this list)
5) all in one fund like Permanent Portfolio for all IRA holdings (PRPFX is ticker). Holds US and foreign stocks, US and international bonds, gold and silver all at fixed percentages.

As long as the investment chosen is "fixed". it compliments what I am suggesting for you well, and because he has most of the new money to invest in his name, it makes new money work for overall goal as well.

More alternatives on this issue could be brainstormed. For example, try to learn his system. Seriously. Do not disagree with it (you cannot learn something you disagree with)... just try to understand how the mach 3 decision is made.

My GUESS is DH is chasing returns. It is a guess.

4) spouse 401k: $54k -- large-cap blend international funds
5) spouse rollover/traditional IRA: $57k -- Asia, latin America, emergng markets funds
6) spouse Roth IRA: $6k -- international value

If you can get him to invest his assets with a 50% domestic and 50% international flavor and never deviate from this high level alloction (he could choose 50% small caps and 50% emerging markets, that is OK because high level allocation of domestic to foreign matter more than large caps vs small caps). Suggest to him to diversify the 50-50 domestic/foreign as he sees fit (so the 50% small cap and 50% emerging markets theory is never actually tested and proven right or wrong LOL), and that might work.

Has DH always owned 100% foreign funds? Can he explain why? Without judging his answers, ask him and learn from him... you do not need to react to answers given, just troll for information to come up with a solid go forward plan.

Here is an updated model with just your 600k now

600k in 2010
1.2 M in 2018
2.4 M in 2026
4.8 M in 2034

this is with you contributing "nothing" more to accounts in your name.

IMO the Roth is more important than the SEP by a factor of 25%.
Meaning if you could put 5k into Roth, that is better than 6250 into SEP.
that is the cost of being SAHM... If you can fully fund 1 or both Roths while being SAHM, that is more important than maxing 401k or using the SEP IRA.
Meaning you have a great opportunity while being SAHM to shelter yourself from US income taxes for a long time. You probably already knew that, but I am reminding you anyways...

[zetta]

What I would suggest is make sure the mach 3 decision compliments the asset allocation instead of trying to make 77% of the assets react to the decision of the 23%. Because that decision might not be based on logic, might be based more on chasing returns, hunches or other... you want his holdings to compliment yours, and if I were to rank how to guide husband, it would be in this order

1) Target date fund which is 80-20 right now (any 80-20 fund fits this role well)
2) Balanced fund which is fixed at 80-20 permanently
3) Balanced fund which is 60-40 all the time (lots of funds come to mind)
4) income fund which is 40-60 all the time (Vanguard Wellesley would be at top of this list)
5) all in one fund like Permanent Portfolio for all IRA holdings (PRPFX is ticker). Holds US and foreign stocks, US and international bonds, gold and silver all at fixed percentages.

These suggestions are so not my DH's style...much more mine! He's more likely to be interested something that is 90% equities, think sector funds or geographic ones like Latin America. He's interested in investing (actually more than I am, although he doesn't have time to pursure it), but somehow does the analysis in his head rather than making up spreadsheets like I do. I'm ok with holding the boring stuff like balanced finds in my accounts and having him place sector bets within his IRA. I believe he chose the international funds that are in his 401k because he felt they were the best of the funds offered in the plan -- they're from American Funds, not anything exotic.

I personally don't want to deal with choosing sector funds. My accounts are already spread across 12 funds (from within the same fund family) and I'd prefer to consolidate and simplify and let the fund managers manage the sector allocation.

More comments later...I get a chance to type one-handed about every 3 hours as the girls are feeding -- remember those days?

[jIM_Ohio]

These suggestions are so not my DH's style...much more mine! He's more likely to be interested something that is 90% equities, think sector funds or geographic ones like Latin America. He's interested in investing (actually more than I am, although he doesn't have time to pursure it), but somehow does the analysis in his head rather than making up spreadsheets like I do. I'm ok with holding the boring stuff like balanced finds in my accounts and having him place sector bets within his IRA. I believe he chose the international funds that are in his 401k because he felt they were the best of the funds offered in the plan -- they're from American Funds, not anything exotic.

I personally don't want to deal with choosing sector funds. My accounts are already spread across 12 funds (from within the same fund family) and I'd prefer to consolidate and simplify and let the fund managers manage the sector allocation.

More comments later...I get a chance to type one-handed about every 3 hours as the girls are feeding -- remember those days?

If you use same allocation in all 3 of your tax sheltered accounts, you can easily reduce all 3 accounts to maybe 8 funds, or possibly 6 with this allocation.

Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

For domestic stock, choose 1 large cap and 1 mid/small cap fund
For international, choose 1 large cap, 1 small cap and 1 emerging markets fund
For bonds, choose 1 well diversified bond fund
for REIT choose 1 fund
for commodity choose 1 fund

I could find ways to combine asset classes into 1 fund, it might involve using a fund like PRPFX or similar which combine commodities, stocks and bonds into one fund. Or RPSIX which combines bonds, stocks, REIT and similar into one fund.


If Husband is willing to consider input to decisions, it would assist the efforts. Because 77% of assets are in your name, as long as those 4 accounts are highly diversified, you will have success reaching your goal of retirement in 22 years.

Input would be to consider making sure MOST of new money is invested in line with target allocation. Or input to NOT change investments more than once every 3-5 years (choose a fund and stick with it so allocation can be predicted). Or input into what the overall allocation should be. Or input into diverting some of 401k into your taxable account (meaning shift deposits to a place where you have more control over new money invested.

[zetta]

Have you looked into mint.com and Bloomberg.com yet?

I took a look last night.

Mint looked mostly like a budgeting program -- no mention of investment tracking details.

Bloomberg looks good for tracking account balance and fund returns. I was disappointed they don't calculate asset allocation for you. My "diversity" tab said I was "99% funds". No kidding, I never would've noticed that!

Yahoo finance would give me the latest trading price and track my gain/loss, but again no info for asset allocation.

[zetta]

My argument for having each account have a "similar" asset allocation include
a) you can rebalance one account without even concerning yourself with amounts of deposits in any other account.
b) when comparing rates of return from your Roth to your 401k, it is apples to apples (most of the time). Meaning if you see a 15% return in your Roth, and a 13% return in your 401k, if the accounts have different asset allocations you cannot draw any conclusions from the return difference. If the accounts have similar allocations, there are analogies to be made.

The accounts have such a large difference in size (216k vs 36k and 28k) that it doesn't make sense to me to try and divide the small accounts up into many funds to duplicate the asset allocation in each one. The ROTH is only going to get 2 years of contributions, max.

I don't see a great need to compare the performance of the IRA to the ROTH to the SEP, so the second point doesn't apply.

I think it makes sense to allocate the taxable accounts as a unit, and the retirement accounts as a unit -- so I'll work on rebalancing that way.

Rebalancing is tougher in my taxable accounts because they aren't getting new money and selling triggers taxes. I will be selling to move money from taxable to 529 and ROTH, so will try to sell with an eye toward rebalancing.

In the retirement accounts, is there a particular asset that is better to hold in a ROTH, perhaps growth-oriented funds? Then I can move money around in the IRA to bring the overall allocation in line with the target. (Of course if the asset in the ROTH gets too big for the target I'd have to move some of that money into another fund within the ROTH.)

[zetta]

I personally am not comfortable with more than 35% international, even though the weak dollar makes for better international returns these days.

The full service broker who my account is with says that much of the international holdings of American Funds are actually in American multi-national firms, for instance Microsoft and Merck.

[LMA]

If you don't mind me posting this link, you can see a description of exactly how to do it here Personal Net Worth – Tracking Your Wealth
and the quarterly update here.

[kv968]

What class are the American Funds that you have with your broker? You may be getting killed with expense ratios.

[zetta]

Now that I listed a whole bunch of issues and comments, I wanted to make sure I focused on original question- what to track...

Net worth- this number might help you, it did not factor into any of the numbers I listed below...

asset allocation- I think discussing how you allocate is as important as tracking it. This is main issue of my focus in responses... and along these lines I will add some comments

[...]

YTD dividends and capital gains
track this by account and total- this might start suggesting what withdraw strategy is when you near retirement (can you live off of gains only). During accumulation, this is not a needed number to track, though.

Potential activity. I don't fully understand listing things you might do. Roth conversions are automatic- if you can it up to bracket cap, do it. If each account has the same allocation, then there is no net effect on anything except the tax consequences now.

[...]

YTD return of each account is a must
I would also track YTD of each each asset class inside each account (probably each mutual fund) and also track
YTD return of all asset classes across all accounts (compare how the 3-4 foreign funds performed relative to each other and compare how the small cap funds did relative to each other).

Fund analysis-
If you do the sector fund strategy with a small amount of money, this is needed. Not to detail you describe- I know why fund is there- but more along lines of is this particular sector fund a dog?

Thanks for picking apart my allocation and making some great suggestions! You've brought up some points that make me look at the big picture in a different way.

So here's what my report format looks like so far:

Net Worth -- just because I like seeing it.

Target Asset Allocation

Actual Retirement Allocation

Actual Taxable Allocation

YTD dividends and capital gains -- This is useful to me when I'm projecting our taxes and checking our withholdings. (Between ESPP, stock options, and trading in DH's stock account, we're going to have $12k in short term capital gains this year.)

YTD return of each account
YTD of each mutual fund in each account

Upcoming Activity -- a reminder to myself of actions to take

[jIM_Ohio]

The accounts have such a large difference in size (216k vs 36k and 28k) that it doesn't make sense to me to try and divide the small accounts up into many funds to duplicate the asset allocation in each one. The ROTH is only going to get 2 years of contributions, max.

I don't see a great need to compare the performance of the IRA to the ROTH to the SEP, so the second point doesn't apply.

I think it makes sense to allocate the taxable accounts as a unit, and the retirement accounts as a unit -- so I'll work on rebalancing that way.

Rebalancing is tougher in my taxable accounts because they aren't getting new money and selling triggers taxes. I will be selling to move money from taxable to 529 and ROTH, so will try to sell with an eye toward rebalancing.

In the retirement accounts, is there a particular asset that is better to hold in a ROTH, perhaps growth-oriented funds? Then I can move money around in the IRA to bring the overall allocation in line with the target. (Of course if the asset in the ROTH gets too big for the target I'd have to move some of that money into another fund within the ROTH.)

If the accounts have different allocations, comparing returns of the accounts is meaningless (agree there).

If two accounts have large cap funds, or 2 accounts have foreign funds, you want IRR to be tracked such that you can see the IRR of all foreign funds on one report (it appears as though 3-5 of the 8 accounts hold foreign funds).

Its interesting that you use account size to justify NOT allocating them the same, as that is the reason I would use for justifying you DO want to allocate them the same.

If your Roth (small size) has 10-20k in just one mutual fund, and it skyrockets, how do you plan to rebalance the rest of portfolio?


I never mentioned taxable account because I think rebalancing taxable accounts should be done using some other guidelines
a) Bush tax cuts make for some 0% tax rates on long term gains (2010 I think). Have you looked into this? You could sell all holdings, wait 31 (or is it 61?) days and buy back in. No tax owed and rebalance complete.
b) direct all dividends and capital gains to a common money market account. Use this cash to buy more of the lower performing funds to rebalance.
c) selling to rebalance is going to increase taxes (because you will probably sell well performing securities).

If it were me I would take the normal allocation you have, and try to make a tax efficient version.

Normal (desrired./stated) allocation
Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

Tax efficient allocation
Domestic stock- own more growth than value and consider only owning individual stocks which do not pay dividends (like Oracle, Cisco). Or own a total market index (wilshire 5000) which pays a low yield.
International stock- find an index which is low yield.
Bond- own muni bonds only
REIT- is your house 10% of this portfolio- no need for taxable REIT, count house as a taxable real estate asset for this portion of allocation.
Commodity- this is where I would add MORE to taxable. Meaning if taxable has 20% commodity and the other accounts only have 5%, that is OK. Most commodities do not pay a dividend.

I really like a fund like PRPFX for a broad coverage of most of the assets listed here. If you did not own commodities it would not make sense to suggest, but because you want some exposure to them, consider the fund to clean up the taxable allocation and tax "in efficiency". It is NOT in the proportions you list (it owns 25% gold and 5% silver) but it is tax efficient- probably more than most mutual funds which are pure domestic or pure international.

[kv968]

Bush tax cuts make for some 0% tax rates on long term gains (2010 I think). Have you looked into this? You could sell all holdings, wait 31 (or is it 61?) days and buy back in. No tax owed and rebalance complete.

If selling with short term gains (< year), those will be taxed at the normal tax rate. Long term gains (> year) are taxed at 15% maximum or possibly less depending on income. The 15% capital gains tax is the one coming due in 2010 and most likely will be abolished.

The selling of a holding and waiting 31 days is a wash sale. With that you sell a LOSING stock and take the deduction on that loss while buying the stock back in 31 days if you want to continue to hold it. Doing so with a stock that made money will only realize that gain and won't help with taxes.

[zetta]

I really like a fund like PRPFX for a broad coverage of most of the assets listed here. If you did not own commodities it would not make sense to suggest, but because you want some exposure to them, consider the fund to clean up the taxable allocation and tax "in efficiency". It is NOT in the proportions you list (it owns 25% gold and 5% silver) but it is tax efficient- probably more than most mutual funds which are pure domestic or pure international.

How do you determine how tax-efficient a fund is?

I don't own a commodities fund or a REIT yet, but am interested in adding a 5% stake in each because in theory they will have low correlation with stocks and bonds.

My current mutual funds already provide the 10% in bonds, so I don't think I need to buy a bond fund at this point.