Planning Session

This evening I spent an hour on the phone with a Vanguard Financial Planner. I decided to try their planning service for a $250 fee. To begin, I completed a questionnaire which covered the basics - current allocation and savings etc. Vanguard then puts together recommendations based on a selected allocation. Going in to the process, I was fairly comfortable with our setup. I was mainly looking for a second opinion. The result was pretty good.

Overall, we're in good shape, which was obviously comforting. One of the challenges at this point (with retirement so far away) is that the countless assumptions and time span until we retire creates such a wide range of outcomes. So at this point, the goal is simply to determine if we're taking the right steps.

Vanguard basically comes up with two recommendations. They provide an integrated portfolio suggestion, which takes our current setup and provides a few tweaks to optimize the portfolio. This integrated approach resulted in little overall change, which I take as a compliment to my portfolio design.

The second approach is a complete redesign and simplification to the portfolio. I will likely use this approach as it works to minimize the number of different assets (or mutual funds) used. It's primarily made up of index funds with some active management exposure. Probably the biggest change I'll be making will be to maximize the total tax efficiency of the entire portfolio. Until now I've managed each account (taxable and tax deferred) as its own portfolio. But this is not a wise tax strategy. For taxable accounts, stock index funds are best as the generate minimal capital gains and don't throw off much income. Bond exposure is left to the 401(k)s since all the interest is tax sheltered. Stock index funds also go into the Roth IRAs. Since these accounts are made up of after tax contributions, the objective is to maximize growth (and therefore getting the most bang for your after tax dollars).

I used a taxable money market fund to hold a cash reserve. This will be converted to a muni (tax free) money market.

Overall, the only tweaks I'll be making, which is a deviation from the market allocation will be to overweight slightly on international exposure. Why? Aside from the dollar weakness, growth is much more likely to come from abroad.

The other recommendation for the future involves making some IRA contributions. In 2010, these funds can be converted to Roth IRAs. The goal - tax diversification.

Round Up

After reading Ben Stein's book on supercharging my portfolio, I've been trying to narrow down some options to best fine tune things. Overall, I'm pretty happy with the current setup. In Vanguard taxable account, the stock/bond mix is roughly 85/15 excluding the cash stash. The cash continues to grow and I'm not sure I want to continue to build the cash reserve. Perhaps the money is better off sitting in a short term bond fund or high dividend stock fund - something to get a little more yield.

My individuals stocks at the moment consist of Apple, Mastercard and Toyota. I see no reason to do much with these at the moment. Apple is likely in for a good run with the upcoming iPhone related news. I've long since sold my original cost basis. Letting it run sounds good to me.

Currently, I have nothing in the way of ETFs. But after reading Stein's book, it seems some changes are due. Commodities (maybe expensive now), Utilities, Precious Metals (also expensive) are items I need to research. Coming up with a watchlist is probably the first step.

I'm also considering adding a position in one or two more stocks - maybe JNJ for starters. It's a low volatility long term play on health care.

To be continued...