The Cali 40YO Single Guy Strategy

[AdmiralAdama]

I'm 40 years old, no kids, single.

I have high six figures to play with. No debt but for a 15K car loan at .9%

I'm in Cali, Make about 130K a year.

I'm hoping to go for a 80% Stock/20% Bond ratio. I made it thru the 2008 collapse okay, and bought some stock at the bottom. (wish i'd bought more!)

Right now I have

401K --10% in Fidelity Retirement Target 2035
401K -- 10% in Various Stocks
Actively Managed Schwab Account 20%
Various Large Cap Stocks, large APPL position 55%
CASH -- 5%

Contributing 21K a year to IRA, hope to get spending down next year and add 12K to that saving rate.

Thinking about going

10% Vanguard Bond Index
10% TIPS
30% US index
30% INTL index
10% REIT
10% SMALL Cap Value/Play Fund

So -- if I do this, what do I sell first? What do I buy first? How is my AA? Do I do it all at once, in one year, more? And what do people think about getting a house if I can keep my mortgage monthly down to my rental monthly cost? I want a Great Dane!

Thanks much for your help!

[Easy Rhino]

Where do you live where you still call it Cali?

only 20% bonds might be a little bit aggressive for your age. (i'm only slightly more conservative myself though). But besides that, your proposed allocation seems fime.

How are you putting more than 5k a year into an IRA?

I think you should post which accounts you have your holdings in. If they're in tax-deferred (401k or IRA), then you can change them around whenever you want, but if there are taxable, then you'll also want to list which items you currently have significant unrealized capital gains or losses on.

[92irish]

Where do you live where you still call it Cali?

Maybe he lives in "Frisco".

[sscritic]

Or he is really LL Cool J.
http://www.youtube.com/watch?v=FdizL4on-Rc

No, LL is 42, not 40.

[AdmiralAdama]

Ooops, I meant 401K I was putting 21K in a year
IRA I guess Im gonna put in the limit
Maybe convert to Roth IRA?

So here is the situation

10% of portfolio in 401K -- Fidelity Retirement Target 2035
10% of portfolio in IRA -- 15% Bond Funds 85% Equity Funds
20% of portfolio in Actively Managed Schwab Fund -- unrealized gains of 13K
55% of portfolio in Stocks, large APPL position -- unrealized gains of 200K
5% of portfolio in Cash

Easy Rhino, I don't understand this
"I think you should post which accounts you have your holdings in. If they're in tax-deferred (401k or IRA)..."

I thought I did post which accounts i have my holdings in -- in my first post -- (although I mixed up a 401K with IRA) -- can you explain?

Thanks for the help!

Sorry about the Cali thing. It's ironic.

G

[livesoft]

I was thinking Colombia.

You asked what to sell first. That's easy: Sell all stock and fund positions in taxable accounts that have unrealized losses first. Next considered selling all stocks in taxable accounts with unrealized long-term cap gains in order to offset your realized losses. You wrote you had 55% of assets in large-cap stocks but did not detail unrealized gains and losses. I would not sell stocks with unrealized short-term gains without thinking about it more.

[AdmiralAdama]

I will check out all my loss-harvesting options and proceed along that line.

But you think the AA is okay, if a little aggressive?

And should I/can I switch the 401K/IRA investments immediately?

G

[umfundi]

I will check out all my loss-harvesting options and proceed along that line.

But you think the AA is okay, if a little aggressive?

And should I/can I switch the 401K/IRA investments immediately?

G

As a general rule, once you have made a decision, you should implement it immediately. At the very end of the year, you may want to time investments (by only a week or two) to avoid year-end distributions and other tax consequences.

Your 80/20 AA bothers me a lot. Even though it worked for me. I would suggest 60/40 or even 50/50. Here's why:

The Boglehead philosophy has evolved from active management doesn't work to invest in index funds to invest in the total market to invest in the total international market. The total global market is more bonds than stocks.

If you look at the Efficient Frontier graph, it says that 100% bonds has a certain risk (beta). As you add stocks, that risk decreases, up to about 20% stocks. When you get to 40% stocks, the risk is the same as 100% bonds, and the returns are substantially higher. Increasing stocks beyond that shows a diminishing reward/risk ratio.

If you accept the Boglehead tenets, that active management and market timing doe not work, etc., you are left with only two knobs: Your savings rate and your asset allocation. I think it is dangerous to trade these two against each other.

In other words, fix your AA at 60/40 and then save as much as you can.

My opinion.

There is one final knob, the date on which you can safely retire, but you won't know until you get there.

Keith