Retirement portfolio question

[jIM_Ohio]

Just so we're all on the same page....

Growth fund

Value fund

Blend fund

That web site had annoying pop ups which got by my pop up blocker.

Growth- Portfolio companies would mainly consist of companies with above-average growth in earnings that reinvest their earnings into expansion, acquisitions, and/or research and development.

Value-A stock mutual fund that primarily holds stocks that are deemed to be undervalued in price and that are likely to pay dividends

Value comment-A common misconception is that value investors simply seek out stocks with low price/earnings ratios. Although this can be a characteristic of an undervalued company, this is not the sole feature that astute value investors seek.

blend-A category of equity mutual funds with portfolios that are made up of a mix of value and growth stocks.

This is also referred to as a "hybrid fund".

[jIM_Ohio]

Your original question:



I am only going off of memory so check my "brain encylopedic" answer with your own research but I think:

1. Blend = mix of stocks and bonds
2. Growth = stocks where the co. tries to get share price to increase by improving it's balance sheet
3. Value = stocks where the share price is stable and a high dividend is the goal. The balance sheet should just be "balanced" because profits are distribued as dividends (classic example - utillity stocks)

I think it affects you decisions in 2 ways:

1. Your goals - accumulation or income?

2. Tax implications - I am not an accountant/tax advisor but I think dividends are taxed higher than capital gains. Please don't quote me on that. Anyway. . .you may want to pick different classes depending on the shelters you are using (Roth, 401(k), etc.) or not using.

Scanner- dividends and capital gains have the same tax rates.

5% if in 10 or 15% tax brackets
15% if in 25% tax bracket or higher

The only differences are this:

qualified dividends are taxed at those rates. REITs do not pay qualified dividends. so those are taxed at ordinary income levels.

you can use capital losses to offset capital gains
you cannot use capital losses to offset dividends

[kork13]

Wondering if you have taken inflation into account here. In order to have $800,000 in today's dollars you will need about 1.2 million by the time you are 50. With people living longer today and the cost of healthcare rising as with everything else living off of 1.2 million from 50 till you pass away is a very risky plan. Obviously I am not sure what you consider comfortable living but it wouldn't be enough for what I would consider comfortable. If you haven't considered inflation then $800,000 will be even more difficult to live off of for 30 plus years.

If you plan in today's dollars, and adjust savings over time to match inflation (similar to what 401k/IRA limits are doing), then it's all a wash.

[rooskers]

I agree kork13 but he has given a solid goal of $800,000 as his goal. My point is if he is in his 30's and plans on retiring at 50 this is not going to be enough to live "comfortably". I wonder if any thought has been given to how much he is going to need to live off of for 30+ years after he retires.

[jIM_Ohio]

If you plan in today's dollars, and adjust savings over time to match inflation (similar to what 401k/IRA limits are doing), then it's all a wash.

I have dealt with this issue in all my planning (do I adjust the target number needed for inflation). My answer and solution is NO.

The main issue is that when I earn money today, I earn it in todays dollars. When I spend money today, I spend it in todays dollars.

Do all planning based on present income and present expenses. You can only spend money you have, and the money you have is always spent in todays dollars even if it was earned in prior years with less valuable dollars. (with me so far?)

If you have 25X of todays income saved, you have met the target. What that number was 1 year ago is irrelevant. If you have 25X of todays expenses saved, you can probably retire as well. This assumes income>>expenses.

Example- my spending this year is around 70k, so I need 25X that number in savings. $1.75 M is that goal.

Next year we might spend 73k (4% increase). So next year the target will be 25X that number ($1.825M).

The third year spending might go down to 50k, 25X that number is $1.25M. If spending for that year was reasonable and I had $1.25M, I could retire.

Sooner or later a person cuts expenses (mortgage gets paid off, kids move out) and this will start to converge as retirement gets closer and inflation short term becomes less of a concern.

25X has taxes and inflation built in going forward- so if most of the 25X is in a Roth or taxable account, 25X becomes 22X or 20X (target lowers). If you budget conservatively you might remove some of these assumptions (for example if you plan to travel more, when mortgage is paid off you leave that money in budget, or if health care premiums are needed, you add that money to budget where applicable).

The budgeting skills are related to the retirement planning closely. If you know what you spend, you always spend in todays dollars. So know if your investments can generate that level of income, and have fun in retirement.

I agree kork13 but he has given a solid goal of $800,000 as his goal. My point is if he is in his 30's and plans on retiring at 50 this is not going to be enough to live "comfortably". I wonder if any thought has been given to how much he is going to need to live off of for 30+ years after he retires.

As long as the $800k is calculated from current expenses he'll be OK such that when he does calculation at retirement, it is still based on his current expenses.

Retirement saving motivation requires a number (800k in this case). I did not see the 800k in prior posts, but as long as that was derived from current expenses, and when retirement is occuring the target number is still derived from current expenses, all should be OK.

[Broken Arrow]

That web site had annoying pop ups which got by my pop up blocker.

Uh oh. I've never had pop-ups from Investopedia before. They have ad banners and those annoying roll-over bubbles, but not pop-ups that I am aware of. And no pop-ups also means no triggering of my ad-blocker.

Are you sure your computer is not infected?

[jIM_Ohio]

Uh oh. I've never had pop-ups from Investopedia before. They have ad banners and those annoying roll-over bubbles, but not pop-ups that I am aware of. And no pop-ups also means no triggering of my ad-blocker.

Are you sure your computer is not infected?

It was those ad bubbles- not pop ups per se I guess. I am at work, just about everything is blocked.

[mrpaseo]

ALCON,
Please excuse my delays as our internet access has been serverly limited over the past few weeks with no hope of being opened up again. I will do my best to keep this thread active as I want to develope/research this portfolio before February.

Thanks for all your help,
Ray

[mrpaseo]

I added some funds that I will start to research. Feel free to coment on any of the funds on the list.

Ray

[jIM_Ohio]

I added some funds that I will start to research. Feel free to coment on any of the funds on the list.

Ray

I'd suggest reposting deeper into thread- I don't want to re-read old posts and try to distinguish what is old and what is new.

[Broken Arrow]

I don't normally do this, but since I have some time to kill right now, and since you've gone through the trouble of organizing a very detailed post for us, I'll take a look at it.

43% Large Cap:
a. FCNTX
b. VHCOX
c. JSVAX

Performance-wise, they all seem like good funds, and despite the differences in the top ten holdings, they appear to trend roughly the same. And if they're all about the same, my personal preference would be towards the Vanguard fund since it sports the lowest expense ratio of them all.

14% Mid Cap:
a. JORNX
b. FCNTX

FCNTX is already in your large cap, which essentially leaves only JORNX in the list. The only thing that bothers me is that the fund manager, John Eisenger, has only started managing it since the beginning of this year. I didn't bother to look up his background, but in terms of allocation, if there are better funds, even if it's a different cap, I would pursue that first before settling into this fund....

14% Small Cap:
a. FSCIX
b. JATTX
c. DFEVX

I can't find much information about DFEVX's holdings, and I'm too lazy to find and read the prospectus right now. And anyway, MorningStar rates it as a mid-cap value. So, I think it's probably not a good choice in this category.

Janus Triton (JATTX) is interesting. The fund is only $155 million and change. Plenty of room for growth. Unfortunately, where it goes, I don't know. The fund also hasn't been around long enough to even historical performance to look at.

That leaves Fidelity's FSCIX as the possible tried-and-true choice here.

14% International Large Cap:
a. (FIGRX) Fidelity International Discovery
b. (FICDX) Fidelity Canada Fund

Off hand, I don't see anything unusual with two funds, you know, besides the obvious markets they play in. I also see that both are listed in your international small cap. Perhaps you could just stick with something like FIGRX and call it a day? Unless there's something particular you want to puruse with Canada....

5% International Small Cap:
a. PRLAX
b. FICDX
c. FIGRX

That leaves with PRLAX, which focuses in Latin America. I'm a simple guy, and I'd probably just get FIGRX, or if you wish, a combination of PRLAX and FICDX, if you want to diversify your international holdings by market.

5% Emerging Markets:
a. FSCDX.LW
B. PRSVX
C. TMCGX

Ok, the first choice is a 5.75% front load whereas the rest does not. That immediately puts me off. TMCGX is much smaller and perhaps prone to wilder swings, but also has more room to grow. PRSVX, however, does sport a lower ER, and has been out-performing the other fund since 2001. This is important because the fund manager that did that, Preston Athey, is still there.

So, that's my very quick take on it. I think you could also consolidate some of your fund choices there.

[jIM_Ohio]

BA has many many good points.

To add to what has been discussed before- you need an allocation defined and the allocation should point you to the right funds.

For example if a person wanted 70% large cap, 20% mid and 10% small, that whole allocation is available in a total stock market fund. 70-20-10 IS the allocation of the whole market (as defined by wilshire 5000).

Another example is risk tolerance. CGMFX is a great growth fund and probably is large cap. But the fund is much different than an S&P 500 fund, which is different than a large cap dividend fund. All 3 would be large cap as you have outlined your chart, but just having a list of 3 funds and suggesting to an investor to "pick one" is not a good method to do.

In addition most sector funds tend to be large cap. For example we own T Rowe Health Sciences, Financial Services and Science and Technology. All 3 probably show up as a large cap based on their overall holdings and top 10 holdings. But to hold one sector as your large cap allocation is not a good idea.

Extend this to emerging markets. Is the intent of this allocation to pick one country or region and concentrate on it (like Latin America or Africa) or hold a single fund which will invest some in Europe, some in Asia, some in Latin America and some in Africa? There is more than one way to fill in the sector. If you use regions, then you will need more than 3 identified emerging markets funds to choose from.

I know we e-mailed some on this. IMO you are over analyzing, over simplifying and misguiding the comments I made via private e-mails.

[jIM_Ohio]

To add to my previous post, and to give more detail, my portfolio will evolve as my risk tolerance changes.

A portfolio will go through 5 phases
1) starting out
2) accumulation
3) growth
4) stability
5) draw down

When accumulating (where I am now), I generally choose an allocation which overweights small and mid caps in an attempt to have a better overall return than the market over my accumulation period (1998-~2014).
Between 2014 and 2026 I expect my portfolio to enter growth. In that phase my allocation will probably lower the small and mid cap holdings, as well as reduce my emerging markets holding.
I enter stability when I retire around 2026. Again I will lower my small and mid cap holdings.

When accumulating I have some diversified holdings and some concentrated holdings.
In growth phase I will lower the concentrated holdings and keep the diversified holdings.
In stability, I eliminate the concentrated holdings completely and probably reduce the diversified holdings.

Different funds for different risk profiles. The diversified fund is a constant through all 3 phases, but the concentrated funds are not something I want when stability is the goal, as the volatility of the individual fund might destroy an otherwise sound financial plan.