(PUB) Morningstar FundInvestor

17

Morningstar FundInvestor

June 2 013

To help tee up the money for RMD s, it makes sense to begin positioning Ed’s IRA and 401 (k) more conserv- atively. Using a version of the bucket strategy, he could think about holding a combined one to two years’ worth of cash in his IRA and 401 (k) (bucket 1 ). The next segment of both IRA and 401 (k) accounts can be positioned to, together, provide living expenses for the next eight or nine years of retirement (bucket 2 ). I stairstepped this piece of the portfolio by risk level, ranging from quite conservative ( T. Rowe Price Short-Term Bond PRWBX ) to the most aggressive ( Loomis Sayles Bond LSBRX ). The remaining assets in Ed’s IRA can be held in stocks (bucket 3 ). Those adjustments should help reduce the risk level in their total portfolio, which, after a multiyear rally in stocks, is looking a bit equity-heavy given the couple’s time horizon. At the same time, bonds aren’t looking especially attractive, either, so Ed and Joanne might consider derisking immediately by moving the bond money into cash. They could then gradually build up their bond stakes as interest rates trend up and the outlook for the asset class improves. In contrast with Ed’s tax-sheltered assets, Joanne’s IRA and 403 (b) won’t need to be tapped for RMD s for another decade, so they’re too conservative. A high-quality equity fund such as Fidelity Spartan Total Market Index FSKTX can supplant Vanguard Total Bond Market Index VBTLX in her IRA ; she also can bump up her equity holdings in her 403 (b). Within the taxable portion of the portfolio, positions in Columbia Acorn ACRNX and Primecap Odyssey Aggressive Growth POAGX are giving the portfolio a heavy skew toward mid-growth stocks, so I scaled those positions back in favor of a core tax-managed fund that focuses on a diversified basket of mega- caps. (They should consider the tax implications before selling, however.) Their portfolio still tilts toward the growth side, but much of that exposure comes via valuation-sensitive core funds like Sequoia SEQUX and Jensen Quality Growth JENSX . I also moved some of their taxable equity assets into a short intermediate-term municipal-bond fund to provide ad- ditional liquidity. œ Contact Christine Benz at christine.benz@morningstar.com

Ed + Joanne Before

Market Value ($)

Weighting (%)

Star Rating

Ed’s IRA: Berkshire Hathway B BRK.B

4,736

0.26

QQQQ

Ed’s IRA: Dodge & Cox Income DODIX

118,737

6.53

QQQQ

Ed’s IRA: Harbor International Institutional HAINX

136,143

7.49

QQQQ

Ed’s IRA: Sequoia SEQUX

87,400

4.81

QQQQQ

Ed’s IRA: Vanguard Convertible Securities VCVSX

40,791

2.24

QQQQ

Ed’s IRA: Vanguard Primecap VPMCX

66,275

3.65

QQQQ

Ed’s IRA: UST Inflation Indexed Bond

60,201

3.31

—

Ed’s IRA: Jensen Quality JENSX

139,711

7.69

QQQQ

Ed’s IRA: Scout International UMBWX

177,613

9.77

QQQQ

Ed’s IRA: Vanguard Wellington VWELX

129,762

7.14

QQQQQ

Ed’s 401(k): DFA Global Equity R2 DGERX

90,617

4.99

QQQ

Joanne’s IRA: Vanguard Total Bond Mrkt Index VBTLX

145,311

7.99

QQQ

Joanne’s 403(b): PIMCO Total Return PTRAX

223,487

12.30

QQQQQ

Joanne’s Pension: Principal Lrg Cap S&P500 Index PLFPX

68,609

3.77

QQQ

Taxable: Columbia Acorn Z ACRNX

179,599

9.88

QQQ

Taxable: Mutual Shares Z MUTHX

58,314

3.21

QQQ

Taxable: Primecap Odyssey Aggressive Growth POAGX

75,732

4.17

QQQQQ

Taxable:

Vanguard Short-Term Federal VSGBX

14,559

0.80

QQQQ

1,817,597

100.00

Ed + Joanne After

Market Value ($)

Weighting (%)

Star Rating

Ed’s IRA: Cash

61,369

3.38

—

Ed’s IRA: T. Rowe Price Short-Term Bond PRWBX

120,000

6.60

QQQ

Ed’s IRA: Dodge & Cox Income DODIX

200,000

11.00

QQQQ

Ed’s IRA: Vanguard Total Bond Market Index VBTLX

60,000

3.30

QQQ

Ed’s IRA: UST Inflation Indexed Bond

60,000

3.30

—

Ed’s IRA: Loomis Sayles Bond LSBDX

60,000

3.30

QQQQ

Ed’s IRA: Harbor International Institutional HAINX

100,000

5.50

QQQQ

Ed’s IRA: Sequoia SEQUX

150,000

8.25

QQQQQ

Ed’s IRA: Vanguard Primecap VPMCX

75,000

4.13

QQQQ

Ed’s IRA: Jensen Quality JENSX

75,000

4.13

QQQQ

Ed’s 401(k): Stable Value Fund

50,000

2.75

—

Ed’s 401(k): DFA Global Equity R2 DGERX

40,617

2.23

QQQ

Joanne’s IRA: Fidelity Spartan Total Market Index FSKTX

145,311

7.99

QQQ

Joanne’s 403(b): PIMCO Total Return PTRAX

100,000

5.50

QQQQQ

Joanne’s 403(b): Vanguard Total Stock Mrkt Index VITSX

123,487

6.79

QQQQ

Joanne’s Pension: Principal Lrg Cap S&P 500 Index PLFPX

68,609

3.77

QQQ

Taxable: Vanguard Tax-Managed Grw & Income VTGLX

100,000

5.50

QQQQ

Taxable: Columbia Acorn Z ACRNX

79,599

4.38

QQQ

Taxable: Mutual Shares Z MUTHX

58,314

3.21

QQQ

Taxable: Primecap Odyssey Aggressive Growth POAGX

25,000

1.38

QQQQQ

Taxable: Fidelity Short-Intermediate Muni Income FSTFX

65,291

3.59

QQQQ

1,817,597

100.00