Author Topic: Have a lump sum and not sure where to invest for target allocation/tax eff....  (Read 2410 times)

jeromedawg

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Hey guys,

So I've got roughly $70k of taxable money sitting in a Fidelity account ready to be invested somewhere. My current target allocation is pretty aggressive on stocks so I have most of my funds in my 401ks/IRAs tied up in the S&P500 (FSTVX, FSEVX, FUSVX). Currently I'm super underweight in US Stocks because I've allocated most of them in the 401ks and IRAs, which I don't hold as many funds in as my taxable accounts (I got on the late train with investments...unfortunately). That said, I'm *slightly* underweight in Intl stocks, of which any I have I hold in the taxable accounts. I have it setup this way to maximize on the foreign tax credits. If I were to invest the $70k fully in more intl stocks (I'm currently in FSGDX at the moment but would go between that and FSIVX depending on if I could claim losses). Other than that, I have a good amount of FUSVX in the taxable account and another taxable account with a bunch of iShares that I was 'playing' with. Do you guys think I should just dump all the money into FSGDX or FSIVX (in the taxable account) at this point?

I'm 'loosely' following Personal Capital's target allocations btw, FWIW. Not sure if that's the greatest idea but I've tried to stick with it in general. They are recommending a pretty significant increase of investment in "alternatives" which I'm not so sure about.... I dunno, gold bars? lol or maybe REITs?
« Last Edit: October 13, 2016, 09:59:35 AM by jplee3 »

jeromedawg

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Anybody?

MDM

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Currently I'm super underweight in US Stocks....
If you believe that, why wouldn't you allocate new money there?

jeromedawg

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Currently I'm super underweight in US Stocks....
If you believe that, why wouldn't you allocate new money there?

That's true... I guess I was thinking, for "maximizing tax efficiency" aim to keep intl stocks in the taxable accounts and S&P 500 in the non-taxable ones, but that's not practical since I'd always be underweight in US Stocks (since it's not like I can contribute any *more* to the IRAs). And the only way I'd contribute more to the 401k is if my salary goes up or I opt to contribute more out of my current salary, which isn't ideal unless my cost of living is super minimal :)

gb8895

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Try posting your question on boggleheads. Seems this forum is not helping you out much on this one.  I get the tax efficiency on foreign stocks part but it depends on when you are taking your earnings off.  You could also use dividend investments if you are looking to skim off early or annual earnings. I would use betterment only for non-retirement accounts b/c they charge a fee which you supposedly recoup on their "tax loss harvesting" which really doesn't apply to tax sheltered investments (at least for me in my 30's).  It's worth playing around on their platform if you want to tweak things easily for non-retirement accounts.  If you want a low fee investment on Fidelity take a look at FFNOX (fidelity 4 in one).
Hope this helps...

Frankies Girl

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I have my entire taxable account in Fido's total market index fund (FSTVX). Very tax efficient, very easy and doing just fine.

Betterment is lame. Fido has great index funds, so there is no reason not to use them if you already are with Fido and like them. I personally have all of my portfolio with them and am completely satisfied.

If you have room in a tax deferred account, take a look at Fidelity REIT Index (FSRVX). I really like this fund and it's performed crazy well over the years and it does offer a bit of diversity if you think you need it. I have about 12% of my portfolio in this (mostly holding FSTVX and about 10% of Fido's bond fund for the safety - I hold only three total funds).

Do not put the REIT fund in a taxable tho, because it will throw off many taxable events.


Radagast

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I'd like to help, but the post is hard to understand.
Quote
"Currently I'm super underweight in US Stocks"
"That said, I'm *slightly* underweight in Intl stocks"

Which is it?

You would probably get a better answer if you posted percentages and dollar amounts, including your targets.

jeromedawg

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I'd like to help, but the post is hard to understand.
Quote
"Currently I'm super underweight in US Stocks"
"That said, I'm *slightly* underweight in Intl stocks"

Which is it?

You would probably get a better answer if you posted percentages and dollar amounts, including your targets.

I'm actually underweight in both US and Intl right now. It's just that with US stocks, I'm more underweight than I am with Intl stocks (which is close to being on target). I'll have to gather percentages and what not, or figure out how to glean those from Personal Capital. Anyway, if I were to allocate the full $75k~ into intl stocks I'd be way overweight there. If I were to invest most of it into US stocks, I'd be closer to 'target' if you will.

EDIT: I've attached a screenshot of the PC graph from my investment checkup. Perhaps that will help a little...
« Last Edit: October 18, 2016, 01:43:00 PM by jplee3 »

Radagast

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I think I can understand your confusion. "What are 'alternatives' and why are they so important?" is a question that comes to mind. You may be better off determining your own asset allocation and sticking to it, rather than going strictly by the Personal Capital recommendations. For example, 50% US stock, 35% international, 15% bonds.

The foreign tax credit is not a big enough deal to avoid US stocks in taxable space, if your allocation calls for it.

seattlecyclone

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Currently I'm super underweight in US Stocks....
If you believe that, why wouldn't you allocate new money there?

That's true... I guess I was thinking, for "maximizing tax efficiency" aim to keep intl stocks in the taxable accounts and S&P 500 in the non-taxable ones, but that's not practical since I'd always be underweight in US Stocks (since it's not like I can contribute any *more* to the IRAs). And the only way I'd contribute more to the 401k is if my salary goes up or I opt to contribute more out of my current salary, which isn't ideal unless my cost of living is super minimal :)

Two things:

1) Tax efficiency is a spectrum. International stocks are generally considered the most efficient, sure, but US stocks are next. If the total percentage of your money that you now have in taxable as a result of this lump sum is higher than the percentage of your money that you want to put in international stocks, it's just fine to invest the remainder in US stocks after you complete your international allocation.

2) Now might be a good time to increase your 401(k) contributions. There's no rule saying you need to keep your spending under your net paycheck. If you want to max out that 401(k) while spending some of that lump sum, effectively transferring that lump sum into the 401(k), that's a perfectly valid thing to do.

jeromedawg

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Currently I'm super underweight in US Stocks....
If you believe that, why wouldn't you allocate new money there?

That's true... I guess I was thinking, for "maximizing tax efficiency" aim to keep intl stocks in the taxable accounts and S&P 500 in the non-taxable ones, but that's not practical since I'd always be underweight in US Stocks (since it's not like I can contribute any *more* to the IRAs). And the only way I'd contribute more to the 401k is if my salary goes up or I opt to contribute more out of my current salary, which isn't ideal unless my cost of living is super minimal :)

Two things:

1) Tax efficiency is a spectrum. International stocks are generally considered the most efficient, sure, but US stocks are next. If the total percentage of your money that you now have in taxable as a result of this lump sum is higher than the percentage of your money that you want to put in international stocks, it's just fine to invest the remainder in US stocks after you complete your international allocation.

2) Now might be a good time to increase your 401(k) contributions. There's no rule saying you need to keep your spending under your net paycheck. If you want to max out that 401(k) while spending some of that lump sum, effectively transferring that lump sum into the 401(k), that's a perfectly valid thing to do.

Thanks for the pointers... stupid me just realized I already am maxing out my 401k :P I think it was just the [company] matching that I was subconsciously thinking about, where if my salary goes up, the amount of the match increases based on the percentage, etc. At the moment though, I have my contributions set to max the 401k out fully. I've been doing this for the past couple years at least (got started late in the game).
« Last Edit: October 19, 2016, 01:03:45 PM by jplee3 »