Author Topic: Please help me overhaul my portfolio  (Read 1432 times)

Outside the Box

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Please help me overhaul my portfolio
« on: July 09, 2017, 05:48:11 PM »
Hello MMM community. I'm a long-time reader/lurker and I'm trying to achieve FIRE.

I'm 34 and work in IT in Texas. My income is roughly $115-125k yearly. I have about $120k cash in the bank (emergency fund, and yes I know it's too much). My car is paid off (purchased used Prius). I "own" a house on a 15-year mortgage with about 9 years left @ 2.99%. It has appreciated roughly 100k since I purchased it, if that matters.

I max out 401k at work, backdoor Roth once a year, and contribute to taxable brokerage account (Vanguard) every 2 weeks automatically. I have roughly $338k in investments including $17k in Lending Club (Roth IRA) which I don't add new money to, but I do reinvest the payments.

However, I feel my portfolio has just grown out of control, especially when looking at the 2-3 fund methods and Jim Collins' approach. I have a couple of problems though. I need to balance across taxable, 401k, and Roth IRA. Additionally, I don't have a "total US market" fund in my 401k.

This leaves me attempting to approximate the total market with small and large cap (500) funds. Additionally, I based my allocation on FutureAdvisor's recommendations years ago, and it's just way too complex.

I have US, international, international emerging, REITs, international REITs, bonds, international bonds, TIPS, etc.

It is a nightmare to rebalance across my accounts. My idea is that I'd like to simplify, and go down to maybe approximating the US market and dumping the international entirely (based on Jim Collins who made a lot of sense, since most large-cap US stuff also has international and has no currency risk). The REITs haven't really performed well over time and were intended as an inflation hedge. I believe MMM wrote about these before, and I was trying to get the benefits of being a landlord without being a landlord.



Here are all my current investments and allocation desired/actual. Additionally, here are my funds I have available in my 401k (sorted by ER).

I'd like some direction on where to go. Additionally, I've never actually sold anything in my taxable brokerage account, so I'm scared about the short-term gains vs long-term gains. I'd like to sell, over time, the international stuff as it hits long-term gains, so that I'm only subject to 15% tax and not my marginal rate. Can anyone explain to me how to do that?

Additionally, I'm seeking opinions on cutting back to just US total market approximation with no other asset classes (other than Lending Club, which I'd prefer we just ignore for the sake of these comparisons).

Objectives:
  • Determine if it's wise to simplify to just US total market from my 9 current asset classes (8 if you count small/large as US total market).
  • If it's wise, how to best approach doing that across all my accounts.
  • How to contribute money in the future (red amounts in the "new funding" column indicate how much more I will contribute this year, bi-weekly).
  • How to keep taxation low (cap gains rather than short term, I don't understand what cost basis to do or how to ensure that I'm selling just long-term) when selling the funds/ETF in the taxable brokerage account.
  • Keep where things are invested as tax-advantaged as possible. Examples: I have international stocks in taxable so that I get the foreign tax paid credit, and I have bonds in 401k/Roth IRA so that I don't get hit with taxes on dividends.
  • I would also like to lower my bond percentages to about 5%. I really don't think I need any right now, since I'm working and have a high tolerance for risk.

Ideally I'd like to make changes at least to future elections before this before Friday.

Thank you so much!
« Last Edit: July 09, 2017, 05:52:28 PM by Outside the Box »

PapaBear

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Re: Please help me overhaul my portfolio
« Reply #1 on: July 10, 2017, 08:42:42 AM »
To be honest, I would rather drop all REITs before I drop the international exposure.
I might be biased, since I am not US-based, but in my opinion stating that "US companies have a share of x% revenue abroad, thus you don't need to diversify internationally" is a bit too simplified/shortsighted. I like JLCollins quest for simplicity, since it helps a lot to stick the course over a 30-year investment phase, but here and there it is a bit over-simplified in my opinion.

It is not only a question of revenue but also a question of legislation, market access and understanding the local customers. For a long-term portfolio with a 30+ year investment horizon, I would not want to miss investing in the Alibaba's, Baidu's and Tencent's of this world - next to Facebook, Apple, Google and the like.
The question is, where will the growth happen in the future and who will benefit the most of it? Since I am not a fortune-teller, I don't know - so I try to invest everywhere.

As a reference, I like the allocation of the Vanguard target funds quite a lot, since they are simple and easy to replicate (e.g., https://investor.vanguard.com/mutual-funds/target-retirement/#/mini/holdings/0306). For the Target 2045, they allocate 54% US Total, 36% Intl., ~7% US Bond, ~3% Intl. bonds. If you don't have a US total market fund available, splitting it in large and mid/small caps is also not a big issue. However, I think your VSMAX is only small cap, so you might miss US midcaps.

Thus, for the overall allocation, I would drop money market, US REITs, International REITs, Lending club and maybe International emerging, as they are included with   ~10% in VTIAX. Regarding TIPS I am not sure, aren't their returns tax-advantaged in the US? However, I am very sure that an element with 1.5% portfolio weight will have close to zero impact on the total portfolio performance. I guess a portfolio element with <5% is already borderline in terms of impact on the total portfolio performance.
You can see that  by trying out different portfolios with one of the available backtesting tools, e.g. at portfoliovisualizer.com

Regarding Bonds: The Vanguard Target Retirement fund for your age bracket has a bond allocation of 10%. I think that is fair. If you want to go a more risky route, go for it. However I would rather reduce the cash in the emergency fund a bit instead of touching the bond part. Can you explain your rationale behind the large amount in your emergency fund? That might shed a different light on your risk tolerance.

Thus, a potential target allocation excluding your lending club balance could be the following:
- US large - 50% (simple 80/20 allocation between large and small)
- US mid/small - 12%
- International - 28% (exactly your current international exposure if you club Intl, Intl Emerging and Intl Reits together and exclude Lending Club)
- US Bonds - 7% (based on the Vanguard Target 2045 fund)
- International bonds - 3% (based on the Vanguard Target 2045 fund)




« Last Edit: July 10, 2017, 08:45:29 AM by PapaBear »

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #2 on: July 10, 2017, 05:31:28 PM »
To be honest, I would rather drop all REITs before I drop the international exposure.

Should I read that as you think my current allocations are sound, and I should stay the course, attempting to rebalance across the same accounts?

I would not want to miss investing in the Alibaba's, Baidu's and Tencent's of this world - next to Facebook, Apple, Google and the like.

That's very true and a good point, but when I look at their growth since inception, it looks terrible compared to US, and I feel like I've sacrificed a ton of growth by having 20% in international rather than US. I know that's a bit of "timing the market" but I'm a novice and I'm not really sure how to feel about it.

As a reference, I like the allocation of the Vanguard target funds quite a lot

However, I think your VSMAX is only small cap, so you might miss US midcaps.

I have access to iShares Core S&P Mid-Cap ETF (IJH, ER: 0.07%) in the 401k as well as Vanguard mid-cap in my Roth/Taxable accounts. Would it be wise to add this in, or use just small/large cap?

Thus, for the overall allocation, I would drop money market

Money market is just parking money until investment, not something I usually have $ in.

I would drop US REITs, International REITs, Lending club and maybe International emerging, as they are included with ~10% in VTIAX.

I'm considering dropping the REITs. Do you have any thoughts on them in general? Does anyone else. I agree with the international emerging. I'm still not sure how to liquidate without hitting short-term capital gains though.

Lending Club isn't liquid, but I'm going to stop re-investing there, I think and slowly withdraw as funds are available (I'm not sure if I want to sell on the secondary notes platform), which is hard with my very old account, since Cama is my custodian and I'll have to mail forms every time I want to transfer it into my Vanguard Roth IRA.

Regarding TIPS I am not sure, aren't their returns tax-advantaged in the US? However, I am very sure that an element with 1.5% portfolio weight will have close to zero impact on the total portfolio performance. I guess a portfolio element with <5% is already borderline in terms of impact on the total portfolio performance.

I don't even remember why I have TIPS. Presumably an inflation hedge. They are not tax-exempt, but they are not subject to local/state income taxes. But, I live in Texas where we don't have those. They're still subject to federal taxation.

You can see that  by trying out different portfolios with one of the available backtesting tools, e.g. at portfoliovisualizer.com

I hadn't seen that. I will be playing with it.

Regarding Bonds: The Vanguard Target Retirement fund for your age bracket has a bond allocation of 10%. I think that is fair. If you want to go a more risky route, go for it. However I would rather reduce the cash in the emergency fund a bit instead of touching the bond part. Can you explain your rationale behind the large amount in your emergency fund? That might shed a different light on your risk tolerance.

I'll try to explain.

  • I have about $20k deferred house maintenance that I'm expecting to pay in the next couple of years.
  • I have targeting savings accounts for a few other things, like vacations, HOA dues, expected vet bills, etc.
  • Due to having a relatively high income (compared to average), if I lost my job, I would expect it to be a while before I would find a job making the same amount of money, so I want an emergency fund that would cover me for up to 1.5 years including costs that might go up like healthcare.
  • This doesn't feel like a great time to plow $60k into the market at what could be the top of a boom before a bust (yes, I know, timing the market, but I'd still want to dollar cost average if I was going to plow that kind of money in). If we have a crash, you can probably assume I will plow quite a bit of that into the US market.

Thus, a potential target allocation excluding your lending club balance could be the following:
- US large - 50% (simple 80/20 allocation between large and small)
- US mid/small - 12%
- International - 28% (exactly your current international exposure if you club Intl, Intl Emerging and Intl Reits together and exclude Lending Club)
- US Bonds - 7% (based on the Vanguard Target 2045 fund)
- International bonds - 3% (based on the Vanguard Target 2045 fund)

Great! Thanks so much for your help. Sorry it took me so long to respond.

You still think it would be a good idea to liquidate REITs? MMM seemed to like them in 2011.

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #3 on: July 10, 2017, 05:31:43 PM »
Also, I think I may have misunderstood REITs. I re-read that old MMM REIT article. He invested in an individual REIT, SNH. It currently has a 8.05% dividend yield. VGSLX from Vanguard only has 3.29% (I think. It's hard to analyze for me since it's a fund, not an ETF). VNQI has 4.12%.

I was looking purely at the growth of the ticker, not the dividends, which appears to be the point I missed or forgot.

Any other thoughts on REITs? Drop them, keep them, modify holdings to individual ETFs? I've kept everything Vanguard at this point to eliminate trading commissions.

DavidAnnArbor

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Re: Please help me overhaul my portfolio
« Reply #4 on: July 10, 2017, 07:34:27 PM »
I think you're fine, don't change anything.

You can rebalance in tax-deferred or Roth, but don't bother doing that in taxable accounts

Don't worry so much about rebalancing to make everything perfectly lined up with the aspiration you want.

Keep the International exposure, keep the REITS.


PapaBear

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Re: Please help me overhaul my portfolio
« Reply #5 on: July 11, 2017, 06:48:20 AM »
I have access to iShares Core S&P Mid-Cap ETF (IJH, ER: 0.07%) in the 401k as well as Vanguard mid-cap in my Roth/Taxable accounts. Would it be wise to add this in, or use just small/large cap?

When I compare an 80/20 Portfolio of VFIAX and VSMAX with VTI at Portfoliovisualizer.com, the difference is quite small - VTI (red line) is outperforming the other portfolio slightly. However, I would keep it as it is, for the sake of simplicity.

PapaBear

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Re: Please help me overhaul my portfolio
« Reply #6 on: July 11, 2017, 08:08:06 AM »
Also, I think I may have misunderstood REITs. I re-read that old MMM REIT article. He invested in an individual REIT, SNH. It currently has a 8.05% dividend yield. VGSLX from Vanguard only has 3.29% (I think. It's hard to analyze for me since it's a fund, not an ETF). VNQI has 4.12%.

I was looking purely at the growth of the ticker, not the dividends, which appears to be the point I missed or forgot.

Any other thoughts on REITs? Drop them, keep them, modify holdings to individual ETFs? I've kept everything Vanguard at this point to eliminate trading commissions.

I guess MMM falls a bit in the trap of mental accounting here - where people value different streams of income at different levels.
Both looking at just the ticker or just the dividend is wrong, since your total return consists of both increases/decreases in share price and distributed income (dividends).
The dividend yield alone says nothing about the performance of a REIT. You can always sell shares if you need a payout.
If you want to compare REITs, I would look at comparing apples to apples as a total return index (with all dividends virtually re-invested) - especially when comparing a single REIT with an index, since I am not sure if the index fund is required to distribute the same 90%+ of returns to the investor as a REIT needs to.

That being said, the general question of the role of REITs in the portfolio for increased diversification is debated. I found this thread on Bogleheads quite interesting in terms of the different views in the literature: https://www.bogleheads.org/forum/viewtopic.php?p=1407046#p1407046
On the other hand, this older article here (https://www.forbes.com/sites/rickferri/2014/01/07/reits-and-your-portfolio/#71dd713f71ac) presents some data regarding the volatility of the correlation to the stock market. Whereas the correlation of 0.8 in some periods would not be a very strong diversifying factor, the correlation of 0.2-0.4 in other periods would be quite beneficial for diversification.

Quote
I don't even remember why I have TIPS
Overall, when reviewing your comments, it seems that you are unsure about quite a few aspects of you asset allocation and that you might have changed your view on certain asset classes over time.

Maybe it would help to draft a Investment policy statement? See e.g., here https://www.bogleheads.org/wiki/Investment_policy_statement and here https://www.thebalance.com/how-to-write-an-investment-policy-statement-357210
The important part is to also include a rationale for every line item of your asset allocation. And in the best case, the rationale is not "because XYZ recommended it" but rather "because there is evidence for a diversification effect when adding x% of XXX" or "Because I want to replicate the total US economy and REITs are underrepresented by x% in the total US stock market". This provides a strong reinforcement to stick to the once chosen asset allocation in case you have doubts at a later point in your investment career - on the other hand it also allows you to drop/change asset classes if they did not provide the intended value/rationale to your portfolio. 
 

PapaBear

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Re: Please help me overhaul my portfolio
« Reply #7 on: July 11, 2017, 08:23:49 AM »
Last comment for today :)

I'll try to explain.
  • I have about $20k deferred house maintenance that I'm expecting to pay in the next couple of years.
  • I have targeting savings accounts for a few other things, like vacations, HOA dues, expected vet bills, etc.
  • Due to having a relatively high income (compared to average), if I lost my job, I would expect it to be a while before I would find a job making the same amount of money, so I want an emergency fund that would cover me for up to 1.5 years including costs that might go up like healthcare.
  • This doesn't feel like a great time to plow $60k into the market at what could be the top of a boom before a bust (yes, I know, timing the market, but I'd still want to dollar cost average if I was going to plow that kind of money in). If we have a crash, you can probably assume I will plow quite a bit of that into the US market.

Makes sense with this context.

However, if you know your preferences, why not splitting it up permanently in these three pots:
- Target savings accounts (not part of emergency fund, not part of portfolio)
- Real emergency fund (the money that lets you sleep well at night, e.g., your xx months of expenses, not part of portfolio)
- Money to invest (part of your portfolio and you should have a plan on how to invest it)

You can avoid market timing by setting up a plan for the investment, e.g., adding 10k every x months to your portfolio.
If you set up an Investment policy statement, the above mentioned pots for planned expenses and the emergency fund should be also included in there with their rationale.


Radagast

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Re: Please help me overhaul my portfolio
« Reply #8 on: July 11, 2017, 08:33:56 AM »
It is a nightmare to rebalance across my accounts. My idea is that I'd like to simplify, and go down to maybe approximating the US market and dumping the international entirely (based on Jim Collins who made a lot of sense, since most large-cap US stuff also has international and has no currency risk).
Currency risk is a reason you should hold international because it generally reduces the risk of your portfolio by having up to 30-40% stocks invested internationally, though the optimal amount may vary widely over time from 0% to nearly 100%. Since we can't predict which country will do best in the future or which risks will show up, that seems like as good a number as any.
The REITs haven't really performed well over time and were intended as an inflation hedge. I believe MMM wrote about these before, and I was trying to get the benefits of being a landlord without being a landlord.
VNQ has done similarly to the S&P 500, but up to you if worth it

Here are all my current investments and allocation desired/actual. Additionally, here are my funds I have available in my 401k (sorted by ER).

I'd like some direction on where to go. Additionally, I've never actually sold anything in my taxable brokerage account, so I'm scared about the short-term gains vs long-term gains. I'd like to sell, over time, the international stuff as it hits long-term gains, so that I'm only subject to 15% tax and not my marginal rate. Can anyone explain to me how to do that?
Don't pay taxes you don't have to. Losing 15% of your money because you read J Collins is stupid.

Additionally, I'm seeking opinions on cutting back to just US total market approximation with no other asset classes (other than Lending Club, which I'd prefer we just ignore for the sake of these comparisons).

Objectives:
  • Determine if it's wise to simplify to just US total market from my 9 current asset classes (8 if you count small/large as US total market).
Simplifying to 3-5 sounds like a fine idea.
  • If it's wise, how to best approach doing that across all my accounts.
Don't sell in taxable at a 15% loss, unless its really tax inefficient like REITs and you will make it up soon because of increased tax efficiency.
  • How to contribute money in the future (red amounts in the "new funding" column indicate how much more I will contribute this year, bi-weekly).
Sorry had no time to look
  • How to keep taxation low (cap gains rather than short term, I don't understand what cost basis to do or how to ensure that I'm selling just long-term) when selling the funds/ETF in the taxable brokerage account.
Don't sell in taxable if you don't have to
  • Keep where things are invested as tax-advantaged as possible. Examples: I have international stocks in taxable so that I get the foreign tax paid credit, and I have bonds in 401k/Roth IRA so that I don't get hit with taxes on dividends.
  • I would also like to lower my bond percentages to about 5%. I really don't think I need any right now, since I'm working and have a high tolerance for risk.
You have a huge emergency fund, so no need for bonds. In fact invest the efund too, it's losing you money every day. At a very minimum in a tax exempt bond fund yielding at least 2% (current inflation rate).
Ideally I'd like to make changes at least to future elections before this before Friday.
No hurry
Thank you so much!
VSMAX has a lot of midcaps, I wouldn't bother with a separate mid cap fund. Just use 80% S&P500 20% VSMAX and you'll be fine,

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #9 on: July 11, 2017, 09:22:05 AM »
Thanks for the reply everybody. Is the consensus just stay with my current allocation for international, drop the emerging international (but keep that % in intl total), rebalance/contribute, and possibly drop the bonds too?

If I drop emerging international (VEMAX), I guess I'd just take the short/long term gains hit now to keep the portfolio simple. It's not very much right now on the gains. Please see the attached image.

727.09*0.25 (marginal rate expected) + 139.10*0.15 (cap gains) = $202.63

Paying that now (in April) vs keeping it in my portfolio forever just to avoid some cap gains due to what I now see as an error seems like a good tradeoff.

Regarding the investment statement of goals/strategy, I think that's a really good idea. Unfortunately, I really don't know what I want, as you identified. That's part of what I was hoping to get here. I just know I want to plow money into something that will get me FIRE ASAP. I have a good income and relatively low expenses (though I have some optimizations to do there still), so I'm seeking the best use of time and allocation.

I plan to do a roth conversion ladder from 401k and working part time, if possible upon FIRE.

PapaBear

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Re: Please help me overhaul my portfolio
« Reply #10 on: July 11, 2017, 07:26:24 PM »
If you want to sell international emerging and want to have a clean slate, you can take the tax hit, 200 USD will most likely not matter in the long run.
However, if you don't mind another value in your taxable investment account you can also just keep it there and stop adding to it. Over time it will become insignificant and you can sell it in a year or so, when all of it will be taxed with 15% capital gains tax (by the way, there is either an error in your picture or your calculation - at least to my knowledge long-term is taxed with 15% and short-term with your personal tax rate).

Regarding bonds: Over longer periods, the stock market will most likely outperform the bond market. That is why some people suggest a asset allocation of 100% stocks (see e.g., https://www.nytimes.com/2016/02/13/your-money/how-much-of-your-nest-egg-to-put-into-stocks-all-of-it.html ). However, on the way, the ride could get a bit bumpy with 100% stocks. If you can stomach that without panicking and selling stuff, then a 0% bonds allocation is fine. If you can't tolerate the volatility of 100% stocks, then you should balance the asset allocation with a bit more stable assets. I guess in your case even the REITs should have a bit of a stabilizing effect. I personally hold >10% of my AA in bonds since that lets me sleep well at night but other people have other preferences.

Unfortunately, no one here but you yourself can sign off your asset allocation, as there is no universal asset allocation and it has to fit the individual investor. If you don't like  complicated portfolios and rebalancing, then simplify to a tolerable level, eliminate the small and fancy stuff and get on with life. In that case, you will only need to worry about your portfolio once or twice a year when you rebalance it.

JohnWC

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Re: Please help me overhaul my portfolio
« Reply #11 on: July 11, 2017, 07:57:23 PM »
With your income you're in the top 7% of households in the US. IMO It's time to start thinking like the rich person that you are. Your financial picture is complex enough to warrant paying a trusted financial advisor ~1% per year to deal with these issues and a good quality CPA to check their work and provide additional advice. Spend your time doing what you're good at or building new skills. As you stated, you have tax implications, balancing, and international exposure. There are products and strategies out there for rich people that your average layperson hasn't even heard of - can't even begin to look at these with the limited detail given. Advice you get on an internet forum about managing a situation as complex as this is bound to be constrained at the very least by lack of detail about you and your life.

First of all we don't even know how old you are or what you're planning to do with the remainder of your life. Kids/grandkids/ages/expected costs? Major upcoming expenses? Projected income over 5/10/20 year periods? Other sources of income? What are you spending per month? I mean this is all relevant detail for managing your portfolio in a way that makes sense for your life and what you're aiming to achieve. This is all stuff a good advisor should ask about and build around.

It's great you are in touch with your risk tolerance - most people aren't. BTW I think that your savings cushion is not too high if it helps you sleep at night. For myself I like 12-18 months of living expenses in near cash personally, but minimum 6 months.

Radagast

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Re: Please help me overhaul my portfolio
« Reply #12 on: July 11, 2017, 08:12:52 PM »
Thanks for the reply everybody. Is the consensus just stay with my current allocation for international, drop the emerging international (but keep that % in intl total), rebalance/contribute, and possibly drop the bonds too?
Probably. Close enough. Dropping international REIT also seems good. Dropping bonds is good because the emergency fund already counts as a huge bond.
If I drop emerging international (VEMAX), I guess I'd just take the short/long term gains hit now to keep the portfolio simple. It's not very much right now on the gains. Please see the attached image.

727.09*0.25 (marginal rate expected) + 139.10*0.15 (cap gains) = $202.63
Like Papa Bear said, it is short term gains X 25% + long term gains X 15%. Stop reinvesting dividends and after a year all gains will be long term (but maybe much higher).
Paying that now (in April) vs keeping it in my portfolio forever just to avoid some cap gains due to what I now see as an error seems like a good tradeoff.
Personal preference. To me simplicity could be worth hundreds of dollars, but not thousands of dollars.
Regarding the investment statement of goals/strategy, I think that's a really good idea. Unfortunately, I really don't know what I want, as you identified. That's part of what I was hoping to get here. I just know I want to plow money into something that will get me FIRE ASAP. I have a good income and relatively low expenses (though I have some optimizations to do there still), so I'm seeking the best use of time and allocation.

I plan to do a roth conversion ladder from 401k and working part time, if possible upon FIRE.

Your financial picture is complex enough to warrant paying a trusted financial advisor ~1% per year to deal with these issues...
Nothing drops a 4% safe withdrawal rate to 3% quite as effectively as a leech taking 1% through thick and thin. CPA could be ok though. As a household he isn't that rich.
There are products and strategies out there for rich people that your average layperson hasn't even heard of - can't even begin to look at these with the limited detail given.
Most of them are shitty strategies that make the adviser rich while giving worse returns than a 60/40 portfolio. Better off with Jim Collins in 80% of cases.
Spend your time doing what you're good at or building new skills. As you stated, you have tax implications, balancing, and international exposure....Advice you get on an internet forum about managing a situation as complex as this is bound to be constrained at the very least by lack of detail about you and your life.
This is true.

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #13 on: July 11, 2017, 08:52:43 PM »
Everyone is right, of course. I did the calculations backward in haste. It should actually be $143.83. You're also all right about stopping re-investment, waiting and then doing it all at 15%, reducing the allocation accordingly, until I can move it all and then reduce allocation to 0%.

I also agree about dropping ex-US REITs. I know literally nothing about that product. I thought "I have international stocks, International bonds, why not international REITs too to go with my US REITs". I shouldn't invest in something I literally know nothing about.

As far as plans, I don't want to be too specific, naturally, but I have a significant other. Planning as if it was solo and I had to cover all costs for me + all housing + all utilities. At this point, I'm thinking I'd sell the house, move that equity into the market. I don't really like being tied down.

Child free, permanently (except my dog). I like travel, but I spend a lot on flights/hotels/etc right now because of time pressures to get back to work. I hope in FIRE I can travel at a more leisurely pace and take advantage of last-minute travel deals that I can't do right now due to having to get approval from work.

I'm definitely not paying an adviser 1%. I'd rather just sell everything but stocks/bonds and put it in 60/40 like Radagast said. There's no way I'd come out ahead. I don't consider myself "rich". I consider myself starting later than I should with FIRE. I only discovered it about 5 years ago and only got really serious about it in the last few years. I'm spending very little beyond necessity.

Based on numbers I've run, I'd be fine in retirement on $35k while renting ($1500/mo rent assumed). If I got to $40k/yr, that would make me feel super-secure, but I'd probably still take some contract work occasionally anyway. I have some specialized skills that might allow me to be selective, but that's not guaranteed. I would like to use a 3.5% SWR. That means I need a minimum of $1M.

I have $338K now. I believe, in an optimistic projection, I can reach fire in 7 years, selling the house in 2 years, investing the recovered equity (accounting for transactional fees, needed maintenance, etc) immediately, investing the majority ($100k) of the cash (since there's no need for it anymore at that point). I based it on a 6% growth rate with the deposits at those times specified. I used 6% since I was trying to account for today's dollars with 8% growth and 2% inflation.

I appreciate all the help. I hope that provides some more context.

Car Jack

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Re: Please help me overhaul my portfolio
« Reply #14 on: July 12, 2017, 07:27:40 AM »
You have the most important basics nailed.

1) You're saving like a banshee!

2) You're not paying a clown.  Uh, I mean adviser.

Where you're getting tripped up is "simplicity".  Do you need foreign REIT or emerging markets in 3rd world countries or commodities or crypto currency ETFs or penny stocks or fruit bats or gummy bears?  Not really.  3 fund it, man.  You don't need this across your accounts, either.  I'll put up my basic account structure as an example:

My IRA (50% of my portfolio) contains 3 fund.  I rebalance there.
My 9 other accounts each contain exactly 1 of the 3 fund, placed for either tax efficiency or ER.  I add to them, if I need money, I sell off some taxable but there's no rebalancing going on inside them. 

I keep track on a simple excel spread sheet and rebalance on my birthday.


dca

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Re: Please help me overhaul my portfolio
« Reply #15 on: July 12, 2017, 08:32:42 AM »
You have the most important basics nailed.

1) You're saving like a banshee!

2) You're not paying a clown.  Uh, I mean adviser.

Where you're getting tripped up is "simplicity".  Do you need foreign REIT or emerging markets in 3rd world countries or commodities or crypto currency ETFs or penny stocks or fruit bats or gummy bears?  Not really.  3 fund it, man.  You don't need this across your accounts, either.  I'll put up my basic account structure as an example:

My IRA (50% of my portfolio) contains 3 fund.  I rebalance there.
My 9 other accounts each contain exactly 1 of the 3 fund, placed for either tax efficiency or ER.  I add to them, if I need money, I sell off some taxable but there's no rebalancing going on inside them. 

I keep track on a simple excel spread sheet and rebalance on my birthday.

+1. After ~100h of reading and thinking about investing, I decided to go 3-fund myself:

https://www.bogleheads.org/wiki/Three-fund_portfolio
https://www.bogleheads.org/forum/viewtopic.php?t=88005

All contributions are automated, with rebalancing every 1-2 years. It's easy to manage and, most importantly, to stick to over time.

RE: emerging market fund. *Shrug.* You could count it as a part of your international allocation for simplicity's sake and hold it until retirement. At that time, depending on your situation, you may be paying 0% for capital gains.

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #16 on: July 12, 2017, 03:43:04 PM »
OK I've done a lot more research and thinking after reading all your comments. Here are my main steps I'll be taking:
  • Eliminating International Emerging (VEMAX) - Already included in VTIAX
  • Eliminating International REIT (VNQI) - Too risky/no knowledge about it
  • Eliminating TIPS (VIPSX) - No knowledge, not significant portion of portfolio, not a great hedge since I already have bonds.
  • Rebalance through transfers and purchases
I have decided on this allocation:
  • Stocks: 87%
  • Bonds: 6%
    • US: 70%
    • International: 30%
  • US REITs: 7%
Please see my updated spreadsheet here. It has the Market Sector breakdown used to get the portfolio % for each allocation. Additionally, it has 2 extra sheets at the bottom, for immediate steps and year-end (steps detailed below). It doesn't account for growth through the rest of the year.

Immediate steps to take:
  • Exchange 100% VNQI for more VGSLX
  • Sell $500 VIPSX for to do minimum investments below in backdoor Roth IRA rollover.
  • Exchange $2291.78 VIPSX for more VTIBX
  • Exchange $1152.74 VIPSX for more VGSLX
    • The three above are take VIPSX to 0%
  • Exchange 100% VEMAX for more VTIAX (This is taxable, but the difference between doing it now and later is only $15 (10% difference of short-term gains). Worth it for simplicity.)
  • Exchange $1652.74 VTIBX (intl bonds) for more VGSLX (US REIT)
  • Convert taxable VFINX to VFIAX (admiral shares) now that it is eligible. I hadn't noticed.
  • Rollover/Invest Backdoor Roth IRA money recently deposited (+$500 sold above):
    • Buy $3,000 VFINX (US large cap) minimum investment
    • Buy $3,000 VBMFX (US Bonds) minimum investment
Steps to take by year-end:
  • Invest all new taxable contributions ($15,000) into VTIAX (intl stocks) to take advantage of foreign tax paid credits by holding more here.
  • Exchange $9,214.34 VTIAX (intl) in 401k for VFIAX (82%)/VSMAX (18%)
  • Change 401k contributions to contribute the $7,854.26 for the rest of the year
    • VFIAX (US stocks): 57% = $4476.93
    • VSMAX (intl stocks): 43% = $3377.33
  • As Lending Club notes mature, I will move that money into the Vanguard Roth IRA (it's a pain in the ass to do so this will be at most twice a year) and buy more VFIAX/VGSLX probably, until LC reaches 0% allocation (its % will be added to bonds as this happens).
Let me know what you think, please! (Especially if you see anything wrong with any of this, or even if you just agree.)
« Last Edit: July 12, 2017, 03:47:12 PM by Outside the Box »

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #17 on: July 12, 2017, 07:44:59 PM »
Please see my latest post with plans for the immediate future. I think PizzaSteve may have written the reply as I was composing all that.

Sorry for the silly bump, but I wanted to make sure it didn't get lost. It took me hours.

PapaBear

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Re: Please help me overhaul my portfolio
« Reply #18 on: July 13, 2017, 07:04:22 AM »
Looks like a sound plan. If you feel comfortable with it, it will be all right.
The important part will be sticking with it in the long run.

Two minor comments:
- Don't be afraid to round your overall percentages up or down to the next integer on overall portfolio level, two decimals are just over-complicating the rebalancing and will not make any difference in the long run.
- International bonds at 1.73% of the total portfolio will have very little impact on the overall portfolio. But I guess this is okay for now, as you will be redirecting the lending club money to the bond allocation.

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #19 on: July 13, 2017, 08:25:11 AM »
l be sticking with it in the long run.

Two minor comments:
- Don't be afraid to round your overall percentages up or down to the next integer on overall portfolio level, two decimals are just over-complicating the rebalancing and will not make any difference in the long run.
- International bonds at 1.73% of the total portfolio will have very little impact on the overall portfolio. But I guess this is okay for now, as you will be redirecting the lending club money to the bond allocation.

The "Alloc Desired" row comes from the table below named "Market Sectors". Since I'm really only dealing in dollars, not percents, I don't see the fractional percents as being a problem.

I can now drive those percent differences by just changing the percents below at the macro level, like changing to a 60/30/10 split or something. Everything re-calculates and re-populates the Alloc Desired row. You can test it by doing File -> Make a copy.

I based the 70/30 split on US/intl for stocks and bonds on Vanguard's LifeStrategy funds from the 2015 allocation update. The stocks/bonds/REIT split is my own. The formulas account for everything else to get the % of portfolio left over after LendingClub that then goes up into the Alloc Desired row.

I understand where you're coming from, but I'm actually less stressed about the percents now, because they're generated by formulas from my high-level strategy desires, making everything much more readable when it comes to rebalancing time.

I hope that makes sense. Thanks for your response.

PapaBear

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Re: Please help me overhaul my portfolio
« Reply #20 on: July 13, 2017, 08:50:51 AM »
I understand where you're coming from, but I'm actually less stressed about the percents now, because they're generated by formulas from my high-level strategy desires, making everything much more readable when it comes to rebalancing time.

Perfect, when it works for you better this way, it is completely legitimate.
The important part is, that it is simple and convenient to feed and to rebalance - otherwise sticking to the chosen strategy in the long term will be a hassle.

kenaces

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Re: Please help me overhaul my portfolio
« Reply #21 on: July 13, 2017, 12:10:11 PM »
Great job!

I am of the opinion that Int/EM should be a bigger slice of your equity portfolio, and would suggests you avoid the very common "home country" bias.  That said keeping a close eye on fees(seems like you are already doing this) and taxes is more important.

Managing taxes across multiple accounts has gotten a bit complicated for me as well and I found this last night -

https://www.betterment.com/tax-coordinated-portfolio/

I haven't made up my mind if the juice is worth the squeeze but I am planning on reading up on it and would like to know others thoughts on it?

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #22 on: July 13, 2017, 12:17:55 PM »
Managing taxes across multiple accounts has gotten a bit complicated for me as well and I found this last night -

https://www.betterment.com/tax-coordinated-portfolio/

I haven't made up my mind if the juice is worth the squeeze but I am planning on reading up on it and would like to know others thoughts on it?

I'd be interested in one of the robot advisors, except a lot of my portfolio is locked in 401k, as you can see, and if they don't control the accounts, they won't give you advice, or you have to get it from a person and it's very general. I went through this with FutureAdvisor when evaluating their free service. Same with Personal Capital.

My company doesn't do in-service distributions, so I can't move it to an IRA.

Additionally, you can always take your money back from the robot investors, but some, like Personal Capital at least will have already moved your money to stocks you wouldn't use as your own indexes, since they directly index by using specific companies (I had one of their long phone call sessions with them once where they tried to sell me on the services; they still call me from time to time). If you plan to use a robot investment service, it seems like you should be prepared to be committed to them "forever" or at least know that your own rebalancing after you take it back is going to be significantly more complicated.

I could be totally wrong, of course.

kenaces

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Re: Please help me overhaul my portfolio
« Reply #23 on: July 13, 2017, 01:50:47 PM »
I was thinking about your roth ira and taxable accounts could be a candidate for the betterment product?

You can create account at wealthfront and betterment and see exact allocations, and ETFs they suggest.  Not saying they are "best" as I am of the mindset that we are best served by just picking reasonable allocation and then just making sure we keep fees/taxes to minimum.

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #24 on: July 13, 2017, 02:18:17 PM »
I was thinking about your roth ira and taxable accounts could be a candidate for the betterment product?

You can create account at wealthfront and betterment and see exact allocations, and ETFs they suggest.  Not saying they are "best" as I am of the mindset that we are best served by just picking reasonable allocation and then just making sure we keep fees/taxes to minimum.

I agree their suggestions could be good, but they use even more asset classes than I do now. I want to make sure I'm managing all of my accounts holistically and keeping fees/taxes to a minimum by keeping things in appropriate places.

I'm of the opinion/mindset that I'd rather just learn how to do something than pay someone else to do it, if I can help it. It may not always be easy, but it usually pays off.

Being able to bounce ideas off you guys and gals here is a great resource. I think once I figured out what I wanted to do, figuring out how to do it was easier.

Woody Viet

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Re: Please help me overhaul my portfolio
« Reply #25 on: July 13, 2017, 03:35:02 PM »
As everyone has made such thoughtful and detailed posts I will only add a few things.

You're going to get far more meaningful diversification from including international stocks than US small cap. You're also buying them for a somewhat lower price than you would your US companies. Both of these are appeal to me as rationales for keeping them around - insurance against subpar US economic performance and against a US centric stock market panic

You are most definitely still be exposed to currency risk if you only hold US companies. If those companies make money abroad then those profits are still denominated in foreign currency. If the exchange rate moves then those foreign profits are worth more or less independent of whether they are held in a US or foreign stock. Just because your incorporate something in the US doesn't somehow protect you from currency risk (from the perspective of a US investor) if said company does its business abroad.

Lastly I wouldn't worry so much about little details. if you get things even roughly right you will have a wonderful experience in the long run. Just make sure you never sell!

Outside the Box

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Re: Please help me overhaul my portfolio
« Reply #26 on: July 14, 2017, 12:09:31 PM »
I just executed all the "immediate steps" trades. I've never seen my Order Status screen look so crazy all at once (sell/buy/exchange/rollover). I'll update next week with a post/spreadsheet of how everything looks, for anyone who still cares. :)

I estimate selling VEMAX costs me $246 harvesting that capital gain mix of long/short term in TY 2017. That's how much a $10k portfolio would cost to manage under Betterment for a year! I still think it's worth it, for the simplicity moving forward of knowing exactly where to put everything and not getting analysis paralysis again.

I don't know if that's mustachian or not to capture that cap gain in order to make my future investing easier/more productive.

Thanks again for all the advice/analysis.