Simplifying Portfolio- 15 Funds to 8?

[BibblyBob]

Hello,

When I originally set up my work accounts I tried to approximate the US Total Stock, US International Stock, and Bond markets in every account type I have, leading to a very unwieldy portfolio with 15 different funds total that is becoming a struggle to rebalance. I'd like to simply it by making my allocation spread across the total portfolio, not mirrored over the individual accounts, by changing the funds in my IRAs, HSA, and 401k.

Allocation goals:
85/15 stock/bond split
70/30 US/International Stock split
Aiming to approximate VTSAX and VTIAX composition for my US Stock and International Stock market allocations.

Current Holdings:
Schwab Traditional and Roth IRA ($ combined since they share the exact same funds):

• US Total Stock Index (SWTX) - $19,450

• International Total Stock Index (SWISX) - $6,510

• US Total Bond Index (SWAGX) - $14,094

Fidelity 401k:

• State Street S&P 500 Index Class I - $ 96,728

• State Street Russel Small/Mid Cap Index Class II - $ 20,228

• State Street World Developed ex US Index Class II - $ 34,279

• State Street Emerging Markets Index Class II - $ 9,861

• BlackRock US Debt Index U/A (WIGBA46) - $ 27,999

Vanguard Taxable Brokerage:

• US Total Stock Index (VTSAX) - $46,891

• International Total Stock Index (VTIAX) - $28,554

BofA HSA:

• US Total Stock Index (VTSAX) - $ 2,338 - closed in my HSA plan, no longer able to buy

• International Total Stock Index (VTIAX) - $ 874.70 - closed in my HSA plan, no longer able to buy

• iShares US Aggregate Bond Index Class K2 (WFBIX) - $ 1,743

• iShares MSCI Total International Index Fund Class K2 - $ 2,349

• iShares Russell 2000 Small-Cap Index Fund Class K2 - $ 273

• iShares Russell Mid-Cap Index Fund Class K2 - $ 562

• iShares S&P 500 Index Fund Class K2 - $ 4,978

I don't want to move any of the funds in my taxable account. I want to have 1 fund only in my HSA and IRAs. My 401k plan doesn't have any other low cost index funds (besides TDFs) besides the ones I'm already using here. Based on this Boggleheads article, https://www.bogleheads.org/wiki/Asset_a ... e_accounts, my plan is to set up the accounts like this:
Scwab IRAs:

• International Total Stock Index (SWISX) - $40,055

HSA:

• iShares US Aggregate Bond Index Class K2 (WFBIX) - $ 13,121

401k:

• State Street S&P 500 Index Class I - $ 120,828

• State Street Russel Small/Mid Cap Index Class II - $ 21,322

• State Street Emerging Markets Index Class II - $ 12,409

• BlackRock US Debt Index U/A (WIGBA46) - $ 34,537

Vanguard Taxable: (unchanged)

• US Total Stock Index (VTSAX) - $46,891

• International Total Stock Index (VTIAX) - $28,554

That has a 85/15 split between the S&P fund and the SS small-midcap in the 401k, which is pretty close to the Morningstar chart for the VTSAX. However my big problem is that I can't approximate the VTIAX with any of my international fund options. The two 401k funds don't have any small cap represented and both my HSA and Schwab funds don't track small-cap or emerging markets. I definitely want to have emerging markets accounted for here. The way I see it my best bet is to do the above combo of SWISX and 401k emerging markets and have my taxable VTIAX kinda bridge the gap, accepting I'm not gonna get a perfect representation.

I'm saving for FIRE, have 3-4 years left until I reach my 630k target, and will contribute to all of the tax-advantaged accounts in those years plus employer contributions- to HSA max, IRA max, and ~60k in the 401k.
Does this plan make sense, is there another solution that would better approximate VTIAX? What can I do to make rebalancing easier? Does buying-selling in mass like this incur taxes/fees in tax advantaged accounts? Are there other options or things I should consider before switching out my holdings?

[urgud]

Feel free to bash, but the easy answer is just to get a single total world fund and drop the bonds. That way you don't have to rebalance to keep the asset allocation. I honestly think bonds mostly make sense for institutional investors: the transparent nature of bonds belie the fact that managing bond risks is no trivial task... In fact I'd say you need an entire department working on fixed income.

Plus, you're extremely young, which speaks further in favor of stocks due to their ability to hedge unexpected inflation etc.

[DutchGirl]

This article might help: https://www.bogleheads.org/wiki/Tax-eff ... _placement

[jacob]

Are there other options or things I should consider before switching out my holdings?

1) Tax optimization. Eyeballing it, it doesn't look bad per se but maybe there's room for improvement. Do you do your taxes by hand, pencil and calculator style? If not, it's a very worthy exercise that'll teach you a lot!
2) Lifetime strategy. Since you're clearly playing the math game, you should map out when it's most optimal/likely to withdraw from a given account and arrange for that. Make a spreadsheet that goes year by year while changing the withdrawal strategy depending on your age. You'd probably want to look into HSA->IRA, Roth conversion ladders, and the likes.

As someone who runs about 30-40 individual stocks at any one time, I don't see the problem with 15 ETFs although it does seem like overkill for what you're trying to achieve.

A simple solution to overmanagement would be to simply widen your slop-bands. Some of your positions are so small they probably don't matter anyway.

[BibblyBob]

This article might help: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Thanks for the link- I did try to read through and use this article when sorting out how to simplify, but I'm honestly still pretty confused by when things count as tax efficient vs not. I'll have to read more into it

[Henry]

I gave up on emerging markets, international funds and small caps. Just give me the big US badasses and some sectors - health/cybersecurity/semis/REITS. I don't know what emerging means and since I've been investing I don't recall any markets emerging. I got clobbered on China. Fuck that. And what is international? Everything is international. Diversification is overrated. End up buying a lot of worthless shit from worthless places. I think there are too many choices that give you the illusion that you are protected by diversification but it ends up being just stagnant money.

[chenda]

Emerging markets also have greater risk of accountancy fraud and other unpleasant things.

[Henry]

If you want to argue whether capitalism can thrive in a non-democratic country like China, that's one thing. But you can't argue as to whether capitalism can thrive in a politically unstable country. Worrying about business is enough without worrying about environmental catastrophes, drug lords, weak monetary system, etc. I think history has proven it's not wise investing in a country where the leader where's a military outfit.

[chenda]

I think history has proven it's not wise investing in a country where the leader where's a military outfit.

Well not with index funds anyway. Probably requires a more hands on approach. I've known South Africans make millions investing in places like Angola where western companies were too scared to set foot in, probably for good reasons like needing an armed escort when visiting.

[IlliniDave]

I think you could make all your accounts look more/less like your IRA account:Total US index, Total ex-US index, and a bond fund. In any of the funds you could hold just one or two of the three. Seems like different brokerages offer you different choices as far as fund companies, so it wouldn't literally be 3 funds. But going with extra broad indexes makes them largely equivalent (i.e., differences between US total stock market indices will be trivial and largely driven by ER).

I have a larger number of funds than I would consider ideal spread across three accounts but I no longer manage them. Long story short is my plan was to put myself in the most conservative allocation I could stomach as I retired (iirc it was ~60/40) then mostly just let it run unless the stocks grew too fast too soon. Each year that goes by without hitting a financial disaster my risk tolerance becomes higher, and my expectation is I'll grow increasingly stock heavy over time, which is okay because I'm increasingly stewarding investments for children and grandchildren. I haven't checked my allocation since I retired and it's been over 3 years. Maybe I'll do that at the end of this year.

It was fun to fiddle around with managing investments while I was accumulating, but once I stopped working it became a chore. For that reason I think keeping it simple to start with is a good plan.

[BibblyBob]

Well not with index funds anyway.

What index funds tracking emerging markets have failed?

[BibblyBob]

1) Tax optimization. Eyeballing it, it doesn't look bad per se but maybe there's room for improvement. Do you do your taxes by hand, pencil and calculator style? If not, it's a very worthy exercise that'll teach you a lot!
2) Lifetime strategy. Since you're clearly playing the math game, you should map out when it's most optimal/likely to withdraw from a given account and arrange for that. Make a spreadsheet that goes year by year while changing the withdrawal strategy depending on your age. You'd probably want to look into HSA->IRA, Roth conversion ladders, and the likes.

Thanks for the tips, Jacob! I'm gonna do some more reading into tax optimization, right now I don't think I don't have a good grasp on it. I haven't done my taxes by hand before now, but I should this year, would be a fun challenge! Same for withdrawal strategies- right now my plan is to use a Roth conversion ladder with my 401k, taxable account for the 5 year wait period; I haven't gone through more complex scenarios than that. Time to find out!

[zbigi]

Emerging markets also have greater risk of accountancy fraud and other unpleasant things.

There was a bubble in emerging markets in the 2000s. It ended with 2008 crisis and didn't return since. But, you could triple your money in a couple of years with an emerging markets ETF back then. Since then, the people's outlook has been increasingly pesimistic, which means less risk apetite and moving their money back to developed countries. The latest trend of de-globalization has probably put a final nail in the coffin of emerged markets, at least in the mid-term perspective.