Haven Financial Advisors
Louis (Lou) Kokernak has been serving the investment community for nearly 30 years, after obtaining an MBA from The University of Texas. He founded Haven Financial Advisors as a fee only advisor in 2002. His goal was to deliver unbiased advice to clients. He has been quoted in the Wall Street Journal, Barrons, Bloomberg News among many other media outlets. Lou has taught courses to CFP candidates at The University of Texas, St. Edwards Univerisity, and the University of Texas at San Antonio.
Haven Financial Advisors is committed to their clients' future. They have been a fee only financial advisor since 2002. The first step in the relationship is getting to know clients and what their goals are. It's a two way communications process that requires the engagement of both parties. Lou and his team develop a financial plan that includes a diversified asset allocation tailored to every clients personal situation. Experience tells them that the key value proposition of the plan is the comfort level it delivers to the client - that clients are taking concrete steps to achieve realistic financial goals.
Lou has lived in Austin since 1990. He is a Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) and is a member of the National Association of Personal Financail Advisors (NAPFA). His charitable interests include public health and secondary education.
MBA, The University of Texas
BSCS, Rensselaer Polytechnic Institute
Assets Under Management:
Mission Statement of Haven Financial Advisors
Haven Financial Advisors explains the evolution of the HSA
Haven Financial Advisors Discusses the Benefits of Foreign Stocks
How to invest your Health Savings Account (HSA)
Not sure how your portfolio is invested. For the purposes of discussion, we'll assume that it is comprised of a balanced mix of stocks and bonds. Of the major stock indices you cited, the S&P 500 correlates best with movements in US stocks, primarily because its 500 members comprise the most of the market cap weighting of that market. You might also consider the somewhat lesser known Russell 3000 to gage equity performance. The Russell measure basically subsumes all relevant US stocks.
The bond piece is a little more complex because there is no outstanding index well known to the public. I will suggest the US Aggregate Bond index. It is generally considered to be one of the best recognized benchmarks in the American fixed income space. According to eVestment, about $663 billion of institutional assets is invested in 270 U.S. core fixed-income portfolios, 75% of which are benchmarked against the Barclays aggregate bond index. For more details on bond indexing, take a look at my recent article on the topic.
These benchmarks are good, but they have their shortfalls. The equity indices discussed here do NOT include foreign stocks. To the extent your portfolio has them, there will be some divergence. In the last seven years, US stocks have substantially outperformed overseas markets. Similarly, the Aggregate Bond Index does not include Treasury Inflation-Protected Securities (TIPs) nor Municipal Bonds.
You can use ETFs like SPY (S&P 500) and AGG (Aggregate Bond Index) to compare actual investment results of indexed portfolios to the calculated performance of your own investment accounts. If you have a 60/40 mix of stocks and bonds, you should be performing somewhere between SPY and AGG. If not, you need to understand why not. Is it because your asset allocation lies outside the bounds of the index or are your fund managers making bets within those bounds?
You can use your 410(k) assets to pay back taxes if your plan sponsor has made a provision for hardship withdrawals. The plan sponsor has some leeway in terms of establishing hardship criteria. You may have to jump through some documentation hoops to meet that criteria. However, it is likely that your 410(k) plan has also made a provision for taking a loan against your 410(k) balance. In fact, they may REQUIRE that you take a loan out before attempting to do a hardship withdrawal. While neither option is attractive, the loan is likely the better option for a couple of reasons. A loan will not trigger a 10% penalty, while your early withdrawal may do just that. Also, the documentation requirements for a 410(k) plan loan should be lighter than a hardship withdrawal.
You've already identified a couple of key issues in the retirement savings problem; Which vehicles should I use to save for retirement and how do I optimally take distributions? You are ahead of the game. There is no pat answer as everyone's circumstances differ. However, it is a good idea to build some Roth assets now. You can do so through Roth IRA contributions or through a Roth 401(k) option if your employer plan supports it. Both are non-deductible today, but offer tax free accrual and distribution in the future.
Don't know what your tax bracket is or what your expectations are for future earnings. However, I do recommend that most clients build a "post tax" Roth account of at least $50,000. There are a number of reasons for this. Roth IRAs have no Required Minimum Distribution (RMD) requirements and, thus, allow you some cash flow flexibility. A healthy Roth account allows you to take emergency distributions to fund expenses without pushing you into a higher tax bracket during your retirement. And, you're right - you may be in a higher tax bracket in retirement due to great wealth or an increase in tax rates. Either is very feasible.
Even if you are now making too much money to make a direct Roth IRA contribution, you can usually do a "Back Door" Roth IRA. You make a non-deductible traditional IRA contribution one day and convert it to a Roth IRA the next. It is loophole that still exists to allow high earners to fund Roth IRAs.
That takes us to the distribution question you raised. Yes, good tax planning typically suggests coordinated timing of distributions from taxable assets, pretax accounts, and post tax accounts. Financial planning 101 recommends that you start taking distributions from taxable accounts, then traditional IRAs/401(k)s, and finally Roth assets. One's own circumstances bear heavily on this general rule. You may fall into the category of a mass affluent retiree at age 65 who has accumulated significant wealth in both your taxable accounts and tax sheltered savings. As such, you may defer Social Security and fund your early retirement years by selling taxable assets and recognizing little taxable income. If that is the case, you may be well served by undertaking moderate size Roth conversions from your pretax accounts while your income is otherwise low. The following article discusses the strategy in some detail.
There are about 50 S&P 500 index funds available to investors. Index funds benefit from scale and 85% of the invested assets belong to just five of the funds. These larger funds can spread their fixed operating costs over a larger asset base. The Vanguard Group is synonymous with indexing and, of course, they have fine mutual fund and ETF options. VFIAX is their admiral class mutual fund offering with an expense ratio of 0.05% and an investment minimum of $10,000. If you open a Vanguard account, you can trade this commission free. Fidelity has an index fund (FUSVX) with a similar expense ratio and account minimum.
There are ETF options with no minimum investments required. ETFs trade throughout the day like stocks and have features that make them quite tax efficient. Ishares' IVV trades throughout the day and has an expense ratio of just 0.04% (just reduced this year). Vanguard has an ETF, ticker VOO, that is merely another share class of its mutual fund offering. The most heavily traded security around is State Street's S&P 500 ETF, SPY. All these ETFs have narrow bid/ask spreads and can support larger order sizes.
There is some subtle variation in total returns among these securities based on things like tax efficiency and securities lending. However, for a retail investor like yourself, all these funds provide broad exposure to the S&P 500 with very little tracking error. For more details, Morningstar has a fine article on the topic.
I would hesitate to shift your asset allocation based on a political event, regardless of the mechanism (target date funds) that you propose. Your retirement is almost ten years off and your life span will likely take you 20 years or so past that point. You still have a fairly long term investing horizon ahead of you. It will not be served by reacting to perceived changes in market sentiment. Let's face it, there will a lot of "shocking" news over the next 30 years.
Keep in mind that thousands of professionals are factoring in current events and are trading the market until equilibrium prices are reached. They are tough to outguess. Frankly, these traders have better information than you and I do. We are best served by buying and holding our investment portfolios long term.
Consider this - if you knew on November 1st that Trump was going to win, you would probably have sold stocks ahead of the election. At least that was the consensus of the pundits. Yet, here we are, 9 weeks later with the broader US market up several percent. That is a good cautionary tale about market timing.
That said, if you feel generally that your risk profile is too high, it might indeed make sense to execute a LONG TERM rebalance of your portfolio. I suspect that your investments include a lot more than a target date fund at this point in your life. You'll want to take a look at your consolidated assets and make adjustments accordingly. Any action should be based on your personal situation and not the vagaries of some political or economic news.