(PUB) Morningstar FundInvestor

17

Morningstar FundInvestor

July 2 013

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 christine.benz@morningstar.com

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

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