Suggestions needed for my situation!!!

**responduser** · 04-21-2008, 05:10 AM

Suggestions for where to put the money market money, or do you think we should leave it in the bank?

I would suggest you to either educate yourself enough on Investment field so that you can confident enough to take a wise decision or find a financial planner who can give you many options from which you can select the most suitable one.

**noppenbd** · 04-21-2008, 05:13 AM

I want to say that you should be very proud of yourselves, you are doing great and are on track for a very secure life financially. I'm not sure that you really need to do anything drastic. Moving the Roths to Fidelity is a good move.

1. This is somewhat of a toss-up. You don't need $147K in a money market, which is making you around 2.5% after taxes. However, interest rates will go up in the next 15 years, making savings more attractive. At this point I would lean towards paying it off since you can then reduce your need for income (see #3 below). That would leave you with $74K in the MM, still more than 1 years salary, which is quite high for an emergency fund. I would make sure you are maxing out all available retirement vehicles, including 401k. That means $5K for each of you into the Roths for 2008 and beyond. If you have to take a bit out of the MM account this year to do this go for it.
2. What is your dissatisfaction with the current brokerage?
3. I would sell the GSHAX. After eliminating the mortgage payment you will not need the dividends for income, which are taxable. I would move it into a tax-managed fund or portfolio of index ETFs (S&P 500, MSCI EAFE, Russell 2000, etc). I would also consider selling the individual stocks and investing in the same index ETFs. Even though you own a fairly large basket of stocks, you are still taking on a lot of risk playing around with single stocks. CVGRX and CWGIX look pretty good, so you could hold onto them, making them a part of your overall asset allocation.
4. I would keep 6 months of expenses, excluding the mortgage (which you are paying off) in the MM fund. I would move the rest of it into your brokerage account and invest the same as #3, for either medium-long term savings or education expenses for your children. If you feel confident that some of your children will be attending college you could consider putting a chunk of that into a 529 plan.

I would say that in general you are doing quite well and you should trust the instincts that have gotten you this far.

**Broken Arrow** · 04-21-2008, 05:27 AM

Welcome, MomofFour.

I won't have all the answers, but I'll try weighing in with some food for thought....

Maybe it's my imagination, but your portfolio seems like it's all over the place. Is it maybe a mash-up from when you guys were married? I'm a simpleton, so I would lean towards consolidating and simplifying everything.

For one thing, I would STOP buying any more GSHAX, CVGRX, and CWGIX! The expense ratio is irritating enough, but the front load is insane. Plus, GSHAX in particular is in a taxable account....

Whether you want to keep CVGRX and CWGIX, or sell them is up to you, but if you don't need the passive income, I would definitely consider selling GSHAX.... It's very tax-inefficient, and yet, it's sitting in a taxable account....

More importantly, do you guys like owning individual stocks? I could be wrong, but those are um.... interesting picks.

In the sense that they're highly publicized picks. Tell me, which publication articles do you guys read?

In general, I don't recommend following any stock tips from any articles explicitly.... I recommend to do your own homework... and more importantly, realize that most publicized stock tips fail due to market efficiency and the speculation effect.

Personally, the only ones I like out of the bunch is JNJ and UNH.... If you like stocks and stock picking, I would keep them until market conditions improve (eventually). If not, I would just go ahead and sell them all, and use it as a tax deduction (if any) to off-set any mutual fund sells you make.

Oh yes, and I would also consider paying off your mortgage... because you have more than enough funds to do so... and chances are good that your money market interest rates are lower than the mortgage's right now.... But that's just me.

Well, anyway, good luck. I think you guys are in very good shape... especially for a combined income of only 50k. Tell me, how do you guys do it?

As for your portfolio, I think it's just a matter of getting all of these investments simplified and more tax-efficient.

Oh yeah, and there are plenty of good investment companies out there, but if you like Fidelity, I'd say go ahead and just stick with them. Then you can have all of your investment needs under one roof.

**jIM_Ohio** · 04-21-2008, 05:28 AM

Originally posted by MomofFour View Post

I am 33, my husband is 37, we have four young children. We have been working with a financial advisor for several years now. I am tired of paying loads for mutual funds, and high commissions for stock purchases. We are in the process of transferring our money so we no longer work with him, I would like to take care of our finances on my own. I have read several books and checked out numerous websites, but I still have questions specific to our circumstance that I can’t ever find answers for! I have read many of your posts over the last few weeks and I think I’ve found just the place to help me!
Here goes…
Our combined yearly earned income is around 50k/ year
Our only debt is a 15 yr. fixed mortgage, appr. 73k left, at 5.625%
Retirement accounts:
My husband has a 401k through Fidelity with 103k, current contribution 20%
Roth IRA, mine, 18k
Roth IRA, my husband, 14k
(Our Roths are in the now in the process of being transferred to Fidelity)
Taxable accounts:
We have 78k in GSHAX
Brokerage acct. with 31k in individual stocks (GRMN,COH,CROX,HANS,JNJ,SO,&UNH) and 22k in mutual funds (CVGRX & CWGIX)
Money market savings accounts, combined 147k
Now for the questions.
1. Should we use some of the money in the money market account to pay off our mortgage?
2. What brokerage firm should I move my taxable account to?
3. What is your opinion on GSHAX, should we sell some of it or keep it since we already paid a load to buy it? We do receive about $530 in dividends a month that we have been using to live off of, but if we paid off our mortgage or changed the 401k contribution we wouldn’t need that any more.
4. Suggestions for where to put the money market money, or do you think we should leave it in the bank?
Any suggestions/ comments are greatly appreciated!

You are doing a GREAT job.
1) No- do not pay off mortgage
2) I like T Rowe Price for my investments (taxable or not). If you like Fidelity, use them instead. Keep all your money in one spot is my advice.

3) this question makes me think you are retired. if so, maybe #1 changes.

4) before I answer anymore- are you retired? Why use interest to pay off mortgage?

My initial reactions were this:

Making 50k, saving 20% is EXCELLENT. I assume you can live off of 40k gross?

103k in 401k
32k in Roth IRAs
78k in mutual fund 1 (I was not familiar with tickers you listed)
31 k brokerage
147k in money market

Here is what I would do:
set aside 3 months expenses (from money market) and leave in cash
set aside another 3-12 months expenses (from money market) and put in a really moderate investment. A mutual fund like PRPFX (that is what I use). RPSIX (I own that too) or any other mutual fund which is atleast 60% bonds (maybe a 40-60 fund). The purpose of this fund is for larger emergencies, house repairs, car repairs etc... and this money should grow and keep up with inflation (but this also has some more risk than the money market you have now).

I assume the above strategy would take about 30-50k from the money market.
You would have 120k left I would add the 120k into the overall asset allocation, which is next issue.

You have high savings, but I saw little mention of your goals, risk tolerance for achieving the goals, or your asset allocation for managing the risk level you define. I would add the 120k, and realize you have about 340k you need to invest with a clear goal of the desired outcome.

With 340k, and saving 20%, My guess is you can retire with 2 doubles, which might take 12-18 years (depending on the risks you are comfortable taking). 2 doubles means 340 doubles to 680k, then 680k doubles to 1360k (1.3 M).

In that same 12-18 years the mortgage would pay itself off with normal payments, and the mortgage is only costing you 5.6%, where as most of the investments the 340k would be put in would be 6-12% returns on average, so it makes sense to invest (if you are comfortable with that level of risk).

Do not let me or anyone else tell you what risks you need to take. Define how much risk you want to take, then we can help you.

3 risk profiles for you:

retire in 12 years. aggressive growth. Worst case, IMO, with this profile is retirement in 18-24 years. Invest in 80% equites and 20% bonds. Do not pay off mortgage early because you are expecting 12% returns from investments. 30% large cap domestic, 10% mid cap domestic, 10% small cap domestic, 20% foreign large cap and 10% foreign small cap/emerging markets. 20% bonds spread out amongst government (5%) inflation protected (5%) foreign (5%) and high yield (5%). A fund like RPSIX gives all these in one bond fund.

retire in 18 years. Moderate growth. Worst case is this plan does not work because markets did not do what I said. I have a hard time envisioning this plan not working. Do not pay off mortgage early, because within 18 years, it will be paid off anyways. Looking for a solid 8% return from the investments. Invest 60% equites and 40% bonds. I would do 20% large cap domestic, 5% domestic mid cap, 5% domestic small cap, 20% foreign large cap, 5% emerging markets and 5% foreign small cap. 10% bonds in each of four classes I mentioned above.

retire in 24-36 years. Low risk. Pay off mortgage. Look for 6% returns from investments with a 40-60 mix or 60-40 mix similar to allocations stated above. Because less capital is growing now (because of mortgage payoff), your biggest risk here is actually inflation, not the markets.

There is probably a 4th risk profile where mortgage is paid off and you go aggressively for 12 year retirement. If you state your risk tolerance and goals, it might be easier to help.

2 edits:

Might make sense to put 74k into the moderate investment for house repairs, as this could be cashed in anytime if you chose to pay off mortgage. It would not change the double plan, as you only "need" 1.25M to retire on and the plan I listed estimated final value at ~1.4 M.

If you like the dividends coming in, I would not worry about taxes, because you are probably being taxed only 5% on the dividends, and that income stream should be quite helpful in retirement (dividends tend to outpace inflation), so dividend investing at the core of an income investing strategy is a good thing, IMO, if that is defined within the asset allocation which manages your risk tolerance. Especially if you choose the 12 year retirement route, you have 12 years where the 5% taxes slow you down (5% taxes on dividends) and then 50 years or more??? where the low taxes on dividends save you money (same withdraw from a 401k would cost you 15% or 25%).

I do not see tax efficiency as a need if you choose the early retirement path.

**Broken Arrow** · 04-21-2008, 06:01 AM

Ah, agree or disagree, it's illuminating as always Jim.

Let me add that I don't think it's necessary to pay off the mortgage either. In fact, since they're in their 30's and apparently doing well enough, I agree that there's no reason to....

On the other hand, paying off the mortgage early can also be considered as a very conservative form of investing.... One that may be more practical to the monthly budget for a family with 4 kids and a combined 50k income....

Still, I would agree that if the monthly budget isn't too tight, investing is most likely the better route.

I also agree that dividend in a taxable account isn't a big deal either, especially since they're still in a low income tax bracket.... However, I'm anal about paying more taxes than need be.

So, if there's any way to avoid that, I would... especially if the passive income is no longer needed.

**noppenbd** · 04-21-2008, 06:17 AM

I don't have a problem with dividends per se in a taxable account, but I do question the choice of GSHAX. This fund is kind of a dog IMHO. Pretax it is only returning 5-6% a year. Taxes are going to be around 15-20% (not 5%), when you include federal (15%) and state and local (5%), so after tax return is only 4-5%.

Also, most of OP's current situation (excluding individual stocks in brokerage) suggests conservative risk tolerance (15 yr mortgage, dividend paying mutual funds, 147K in a money market), so based on that I would think paying off the house and investing aggressively for retirement and moderately for medium term (education, cars, etc) would be the best plan. If OP disagrees with the conservative risk tolerance then Jim's #1 or #2 might be more appropriate.

EDIT: I was wrong about the capital gains rate, it is 5% in current tax bracket. I still think a different fund would be a better choice if dividends are needed for income.

**jIM_Ohio** · 04-21-2008, 06:53 AM

Originally posted by noppenbd View Post

I don't have a problem with dividends per se in a taxable account, but I do question the choice of GSHAX. This fund is kind of a dog IMHO. Pretax it is only returning 5-6% a year. Taxes are going to be around 15-20% (not 5%), when you include federal (15%) and state and local (5%), so after tax return is only 4-5%.

Also, most of OP's current situation (excluding individual stocks in brokerage) suggests conservative risk tolerance (15 yr mortgage, dividend paying mutual funds, 147K in a money market), so based on that I would think paying off the house and investing aggressively for retirement and moderately for medium term (education, cars, etc) would be the best plan. If OP disagrees with the conservative risk tolerance then Jim's #1 or #2 might be more appropriate.

If in 15% tax bracket (50k gross is in middle of 15% tax bracket) dividends and long term capital gains are currently taxed at only 5%.

I saw the edit, posted this to make sure OP sees it.

I did not comment on funds per se. That is not the biggest problem the OP has (risks, goals and asset allocation are more important right now than fund selection).

**MomofFour** · 04-21-2008, 03:27 PM

Thank you all for your great responses!

I wanted to try to answer a few of your questions...

I would suggest you to either educate yourself enough on Investment field so that you can confident enough to take a wise decision or find a financial planner who can give you many options from which you can select the most suitable one.

That is what I have been working on lately, I�m ready to do it myself!

2. What is your dissatisfaction with the current brokerage?

The problem is that it is directly through the financial advisor that we were working with.

Maybe it's my imagination, but your portfolio seems like it's all over the place. Is it maybe a mash-up from when you guys were married? I'm a simpleton, so I would lean towards consolidating and simplifying everything.

That is one of my main objectives now. Another reason I�m ready to get rid of the old advisor, he seemed to always be pulling us in different directions.

More importantly, do you guys like owning individual stocks? I could be wrong, but those are um.... interesting picks. In the sense that they're highly publicized picks. Tell me, which publication articles do you guys read?

The stocks that we own all came recommended by our advisor. (Seems to be a theme doesn�t it, I�m done with him!)

3.) this question makes me think you are retired. if so, maybe #1 changes.

No, neither one of us is retired. My husband works full time and I work very part time, but will be able to work more in a few years when all the kids are in school! We do not have any early retirement plans at this point.

I know it looks like from our choices that we are very conservative, and I guess in some ways we are. We do really like the idea of being completely debt free and having our mortgage paid off. I also like the fact that if the mortgage is paid off, we could live off our earned income (with the exception of major purchases). However, I would say for the majority of our money we would like to move it to more growth oriented choices. I would also like to find more tax efficient funds, although taxes hasn't been too much of a problem for us the past couple of years.

One thing to note, a large part of our money in the money market account came from a recent sale of some investment property.
Thanks again for your responses, you've given me a lot to think about.

**jIM_Ohio** · 04-21-2008, 04:42 PM

Originally posted by MomofFour View Post

No, neither one of us is retired. My husband works full time and I work very part time, but will be able to work more in a few years when all the kids are in school! We do not have any early retirement plans at this point.

I know it looks like from our choices that we are very conservative, and I guess in some ways we are. We do really like the idea of being completely debt free and having our mortgage paid off. I also like the fact that if the mortgage is paid off, we could live off our earned income (with the exception of major purchases). However, I would say for the majority of our money we would like to move it to more growth oriented choices. I would also like to find more tax efficient funds, although taxes hasn't been too much of a problem for us the past couple of years.

One thing to note, a large part of our money in the money market account came from a recent sale of some investment property.
Thanks again for your responses, you've given me a lot to think about.

It is OK to be conservative, you just needed to say that. Growth oriented and conservative are not usually mentioned together in same paragraph though. And it's tough to measure the price of a paid off house.

Here is what I would do:
1) pay off the house now. It appears this will give you peace of mind. It is not what I would do, but it appears this is what you want to do and it's OK- most people with paid off houses do not regret it.
2) define an asset allocation (% stocks-%bonds) based on what you know now. I am guessing somewhere between 80-20 and 50-50 is where you will end up. Web sites like T Rowe Price or Fidelity will help you with this. Do their retirement calculators and risk assessments.
3) pick asset classes to make up the asset allocation- large cap stocks, mid cap stocks, small cap stocks, growth stocks, value stocks, foreign stocks, REITs, commodities, bonds etc...
4) analyze current holdings and decide if any of them fit the asset allocation and asset classes in 2) and 3)

The asset allocation should have 3 pieces which are managed seperately
1) Emergency fund with between 3-6 months expenses in cash
2) Intermediate expenses (things like new roof for house or new car) could be cash or something more moderate. This allocation should be geared towards stability (cash) or similar (a 20-80 or 40-60 balanced fund works too)
3) retirement savings (this should be the 60-40 or 80-20 allocation you decide above).

Some people combine 1 and 2, some combine 2 and 3. Few people consider the EF part of their allocation as best I can tell (I do not consider it part of mine).

**MomofFour** · 04-24-2008, 11:01 AM

Just curious, has anyone heard of any trouble at Fidelity? My old financial advisor called me today after finding out that I am transferring out our Roth IRA's and said that Fidelity has a lot of things going on now and that I will probably regret my decision in a year or so. When questioned about it, all he would say was that they had more money going out than what they took in January of this year. He said they were other places that he would have recommended instead of Fidelity. I'm guessing that he's just upset because he's losing money, but I thought I would check here!!!

I would love to simplify my finances, but I'm not totally against having two Roth IRA's, does anyone think someplace is better than Fidelity?

**noppenbd** · 04-24-2008, 11:13 AM

I think your advisor's information is based on this news report:

Fidelity sees $9.9 bln outflow in Jan - research | Funds | News | Reuters

It says that Fidelity's stock and bond flows suffered $10 billion outflows in January, not including flows into and out of money market funds. When you include MM funds, Fidelity's net inflow was $14.4 billion. So I think this is just a result of people moving a ton of money out of the market and into safer investments.

Fidelity is a highly regarded institution and I don't think you will have any problems with them.

I prefer Vanguard but to each his/her own.

**MomofFour** · 04-24-2008, 11:27 AM

Noppenbd, do you invest in only Vanguard's index funds, or do you also invest in their actively managed funds? Which funds do you recommend?

**noppenbd** · 04-24-2008, 12:27 PM

I use Scott Burn's 10-speed portfolio (AssetBuilder Inc. - Registered Investment Advisor- Couch Potato Results) which uses 10 equally weighted funds. Scott is a writer for USAA's magazine. Almost all of his recommendations are Vanguard index funds. Here is what I own:

10% VTSMX (Vanguard Total Stock Market Index)
10% VIPSX (Vanguard TIPS)
10% BJBIX (international growth managed fund)
10% BWX (international bonds ETF)
10% VGSIX (Vanguard REIT Index)
10% VDE (Vanguard Energy ETF)
10% VIVAX (Vanguard Value Index)
10% VISVX (Vanguard Small Cap Value Index)
10% VEIEX (Vanguard Emerging Markets Index)
10% VTRIX (Vanguard International Value)

I hold BWX and BJBIX in another account so that is why they are not Vanguard mutual funds. I use VDE because I cannot make the minimums (yet) on the VGENX (Vanguard Energy fund).

This works out to about 80% equities, 20% bonds, so it is fairly aggressive. The 80% equities is made up of 30% international, 15% small caps, 25% large caps, and 10% REITs.

**Ima saver** · 04-24-2008, 01:50 PM

I like Vanguard funds myself because of the lower expenses. I am mostly in vanguard Index funds. If I was younger, I would diversify into other vangard funds.

Suggestions needed for my situation!!!