17
Morningstar FundInvestor
July 2
013
Catherine’s “before” asset-allocation mix—at
45%
in stocks
and
27%
apiece in bonds and cash
—is
arguably a bit too conservative given her age, life
stage, and what are apt to be low returns from bonds
during the next decade. I targeted a
55%
equity
stake
, though I would recommend she increase her
equity position very gradually given stocks’ extended
runup of late. To boost equities, I pulled from bonds
rather than cash, largely because the yield differential
between cash and bonds is so low right now. Her
cash position is still too large, especially when her
stable-value funds are factored in, but I’d rather see
her move some of that money into bonds once yields
jump up, allowing bonds to once again offer a favor-
able risk/reward trade-off. Should she need to begin
tapping her portfolio within the next few years, her
ample cash reserve means that she wouldn’t need to
sell any of her longer-term holdings.
One obvious spot to add equities is her Roth
IRA
, the
portion of the portfolio that she’ll likely tap last in
retirement. Catherine has been using that piece of her
portfolio to house tax-inefficient holdings such
as high-yield bonds,
TIPS
, and
REIT
s. But I think it’s
better-used as a growth engine for her later retire-
ment years, so I populated it with a few low-cost
index funds.
I also boosted equities within her
401
(k). Catherine
had selected some fine funds, both stock and
bond, through her
401
(k) plan’s brokerage window,
and I hated to leave them on the cutting-room
floor. However, I wanted to ensure that she has ade-
quate core bond exposure, so I built two positions
in the brokerage portfolio,
Metropolitan West Total
Return Bond
MWTRX
and
Harbor Real
Return
HARRX
.
Those steps all helped reduce the number of holdings
in the portfolio, but I did the most cutting in Cathe-
rine’s taxable account, especially the portfolio that
she relies on an advisor to oversee. Her many sector-
specific
ETF
s, while low-cost, are delivering very
marketlike exposure, so I supplanted them with
broad index-trackers, both U.S. and foreign. I also
streamlined the fixed-income holdings in her tax-
able account, giving more shelf space to core-type
investments. Because this is likely to be the portion
of the portfolio she would tap first in retirement,
I put the lion’s share of bond assets into high-quality
funds without a lot of interest-rate sensitivity.
œ
Contact Christine Benz at
Catherine Before
Market Value
($)
Weighting
(%)
Star Rating
Roth IRA: Vanguard High Yield Corporate VWEHX
22,943
2.10
QQQ
Roth IRA: Vanguard Inflation-Protected Securities VIPSX
10,552
0.97
QQQQ
Roth IRA: Vanguard Total Bond Market Index VBMFX
5,055
0.46
QQQ
Roth IRA: Vanguard REIT ETF VNQ
18,815
1.72
QQQ
Self-Managed Taxable: Vanguard FTSE EmergMrkt ETF VWO
8,089
0.74
QQQ
Self-Managed Taxable: Vanguard High Dividend Yield VYM
3,008
0.28
QQQQ
Self-Managed Taxable: Vanguard Dividend Growth VDIGX
4,587
0.42
QQQQQ
Self-Managed Taxable: Vanguard Hgh Yld Tax-Exmpt VWAHX
10,021
0.92
QQQQQ
Self-Managed Taxable: Vanguard NY Lng-Trm Tax-Exmpt VNYTX
9,925
0.91
QQQ
Self-Managed Taxable: I-bonds
15,000
1.37
N/A
Self-Managed Taxable: Cash
132,000
12.08
N/A
401(k): Wells Fargo Stable Return Fund
140,834
12.89
N/A
401(k): American Century Inflation Adjusted Bnd ACITX
19,775
1.81
QQQ
401(k): Federated Total Ret Bond FTRFX
24,200
2.21
QQQ
401(k): Wells Fargo Advantage DJ Target 2015 WFSCX
11,496
1.05
QQQ
401(k): Wells Fargo Advantage DJ Target 2025 WFTYX
58,591
5.36
QQQQ
401(k): Wells Fargo Advantage DJ Target 2035 WFQRX
1,938
0.18
QQQQ
401(k): Vanguard Small Cap Index/Signal VSISX
15,870
1.45
QQQQ
401(k): Vanguard Total Intl Stock Index Signal VTSGX
42,477
3.89
QQQQ
401(k): Neuberger Berman Genesis Fund NBGNX
38,668
3.54
QQQQ
401(k) Brokerage: 11 Stock and Bond Funds
105,392
—
N/A
Advisor-Managed Taxable: 18 Sector Funds
381,411
—
—
Health Savings Account: 4 Stock and Allocation Funds
12,266
0.28
QQQ
1,092,913
100.00
Catherine After
Market Value
($)
Weighting
(%)
Star Rating
Roth IRA: Vanguard Total Stock Market Index VTSAX
40,000
3.66
QQQQ
Roth IRA: Vanguard FTSE All-World ex-US VFWAX
17,365
1.59
QQQ
401(k): Wells Fargo Stable Return Fund
103,849
9.50
N/A
401(k): American Funds Fundamental Investors R4 RFNEX
175,000
16.01
QQQQ
401(k): Vanguard Total Intl Stock Index Signal VTSGX
50,000
4.57
QQQQ
401(k): Neuberger Berman Genesis Fund NBGNX
25,000
2.29
QQQQ
401(k) Brokerage: Harbor Real Return Bond HARRX
25,000
2.29
QQQQ
401(k) Brokerage: Metropolitan West Total Return Bond MWTRX
80,392
7.36
QQQQQ
Self-Managed Taxable: Vanguard Interm Trm Tax-Exmpt VWITX
35,000
3.20
QQQQ
Self-Managed Taxable: I-bonds
15,000
1.37
N/A
Self-Managed Taxable: Cash
132,630
12.14
N/A
Advisor-Managed Taxable: Vanguard Total Stock Market ETF VTI
250,000
22.87
QQQQ
Advisor-Managed Taxable: Vanguard FTSE All-World ex-US VEU
50,000
4.57
QQQ
Advisor-Managed Taxable: Eaton Vance Float Rt Fnd CL I EIBLX
15,000
1.37
QQQ
Advisor-Managed Taxable: T. Rowe Price Short-Term Bond
66,411
6.08
QQQ
Health Savings Account: JPMorgan Core Bond Fund PGBOX
12,266
1.12
QQQ
1,092,913
100.00
