What to Rollover my old 401k into? Do I need more bond exposure?

[REfinAnon]

Hello Mustachians,

Here is my situation. I just turned 27 years old. Not sure it's completely relevant, but I wouldn't say I'm gunning for extreme early retirement. Perhaps 45 at the earliest but that's a long way off.

I also just switched jobs, and I have a 401k with about 23k that I need to do address. The money is currently with Fidelity in a Vanguard 2050 Target Date Fund.

Here is where the rest of my money is:

Cash: 25K

Stifel Nicolaus (all taxable accounts): 84k broken down as follows:
                  41K Growth fund of America AGTHX
                  28k Invesco Value Opportunities VVOAX
                  11K Massachusetts Financial Emerging Markets MFEGX
                  remainder in Cash Equivalents

Charles Schwab
       48K in taxable accounts broken down as follows:
                  26K in Schwab 1000 index fund SNXFX
                  7K in Schwab int'l index fund SWISX
                  4K in Schwab small cap index fund SWSSX
                  11K in Schwab Total Stock Mkt Index fund SWTSX
       12K in Roth IRA broken down as follows:
                  3K in Schwab int'l index fund SWISX
                  3K in Schwab small cap index fund SWSSX
                  6K in Schwab Total Stock Mkt Index fund SWTSX

If I could start things over I might do things a lot differently. For one thing, I'd really like to simplify things into a three fund portfolio, but I don't want to trigger any tax events. Similarly, I would like to get out of the actively managed Stifel accounts (these are essentially leftover college funds that were set up by my father) and into passive funds but again, I don't want to trigger a tax event.

I've only recently begun to really pay attention to where my money is, and one thing has really struck me: I'm almost fully exposed to stocks! The only bond exposure I currently have is through the target date fund, and I think that would be quite minimal. Especially given the tremendous run the stock market has had, now seems like it might be a good opportunity to address this (yes, there is some degree of market timing that is influencing my thinking).

My plan is to rollover the old 401k into an IRA with Charles Schwab (I really like working with "Chuck" for their app, website and phone service). I'm told this means I will have to liquidate my holdings when I transfer the money over.

Would it be very irrational for me to place the entire 23k into Schwab Total Bond Market Fund? Does it make no sense to hold bonds in an IRA? This would still leave me with a pretty low bond allocations. But I'm young and my horizon is long, do I even need bond exposure? I am a little nervous about the prospect of watching my net worth go down for the first time since I've really been paying close attention to my finances.

Additionally, I don't understand a lot about tax implications going forward. If the market did take a dive, would I be able to exit the bonds and buy the dip without significant tax implications?

Any help is much appreciated.

[REfinAnon]

Bump?

My check finally arrived in my new rollover IRA account and now I'm feeling a little overwhelmed about what to do. I've never invested over 20k at once before. I'm scared to invest with the dow at almost 18k, although I know many will say that is irrational.

[GGNoob]

If you were happy with the Vanguard TRD 2050 fund, you could open the IRA at Vanguard and just toss it into there. Otherwise you have accounts at Charles Schwab already, so you could put it there into the same funds you have or go with their extremely low cost ETFs.

Do you have a preferred overall asset allocation?

I tossed your investments into Personal Capital to get a breakdown of your allocation. Not counting the $25k cash or the $4k cash equivalents in your Stifel Nicolaus account, here's what it looks like:

79.71% US Stocks

13.55% International Stocks
-12.8% Developed
-0.75% Emerging

3.52% Alternatives
-1.63% Real Estate
-1.89% Other

3.23% Cash or bonds

I'll try to take screenshots and post them here in a couple of hours.

My suggestions would be more international (and more emerging markets in that international). You could also add REITs and/ore more small and mid caps if you choose, which you'll see the allocation of that when I post screenshots.

I would also suggest that as you can, you start moving out of those expensive funds at Stifel Nicolaus. Overtime, those fees will really eat into your returns. Put your info into this website to see just how bad it will be.

[GGNoob]

Bump?

My check finally arrived in my new rollover IRA account and now I'm feeling a little overwhelmed about what to do. I've never invested over 20k at once before. I'm scared to invest with the dow at almost 18k, although I know many will say that is irrational.

If the money was in all cash before, then it might be different investing it all at once at market highs. But the market generally moves up so it will usually be at or near market highs. Since this money was all invested before, don't worry about investing it all at once.

[GGNoob]

Here's your portfolio holdings:


Here's your overall portfolio allocation:


Here's your US allocation:


Here's your international allocation:


Here's your alternatives allocation:

[kpd905]

Are you still investing into the taxable account?  If so, those funds have 5.5-5.75% front end load fees, so you are making your adviser a nice chunk of money each time you put money in.  The expense ratios are pretty horrible too.

[REfinAnon]

Wow. That is awesome. Thank you for taking the time to respond. I did not even know online tools like that existed. I guess I don't really have a target allocation, perhaps that is part of my problem.

My account is already opened at Schwab, and the money just hit the Rollover IRA on Friday (currently in cash, so I need to do something quickly). I don't have anything against Vanguard but I'm trying to limit the number of websites/phone apps etc I have to regularly visit.

More international is definitely good advice, and something I also had in the back of my mind. I guess I won't worry too much about the lack of bond exposure given my horizon.

I agree regarding the actively managed stifel accounts. My only concern is that I think there will be a very large tax burden, it was probably mostly purchased 15 years ago or more. I know it's something that I should do at some point, I would love to move that money to low cost schwab accounts - but I just don't know when the best time to do that is. Also this might sound like a really silly question, but when you sell a large investment like that, would Stifel withhold the taxes for you? Would they be able to tell you before you sell what the tax burden would be?

[REfinAnon]

Are you still investing into the taxable account?  If so, those funds have 5.5-5.75% front end load fees, so you are making your adviser a nice chunk of money each time you put money in.  The expense ratios are pretty horrible too.

I still invest in the taxable index funds at schwab when I have spare cash (ocassionally i try to buy market dips).

I do not invest in the Stifel accounts ever. It is my intention to wind these down eventually. It's worth noting that I did have a conversation with my Stifel "adviser" earlier this year and he actually doesn't charge any fees on that account. He said he charged a fee back when the funds were originally purchased. Obviously I still am paying fees to the actual fund managers. The Stifel accounts is essentially an offshoot of my Dad's portfolio that was set up in my name. I'm pretty sure the adviser doesn't give two shits about my portfolio there - which is why I'd rather just handle it myself.

[kpd905]

Yeah, the front end fees have already been paid, but those expense ratios are still 8-10x what you should be paying.

[ClaycordJCA]

You should be able to transfer the holdings from the Stiefel account to a taxable Schwab account. The broker does not withhold taxes on your sales; it is all reported year end to the IRS. If you've held the Funds in the Stiefel account for more than a year, you will be taxed at the 15% capital gains rate on gains (excluding gains on dividends paid in the last year) so the tax hit may not be that bad.  You could delay the sale until January 2015, which would give you until 2016 to pay taxes.

[Spondulix]

Wow. That is awesome. Thank you for taking the time to respond. I did not even know online tools like that existed. I guess I don't really have a target allocation, perhaps that is part of my problem.

Start a free account with personalcapital.com. They have a 401k portfolio analysis (which may be where the screenshot comes from)