Help with Improving my Portfolio

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Topic Author
Alana888
Posts: 112
Joined: Thu Apr 10, 2014 3:50 am

Help with Improving my Portfolio

Post by Alana888 »

I have invested ignorantly and haphazardly over the years and I am now wanting to get more focused in my investing. After talking with several advisors over the past month I feel most comfortable with the investment approach described on these boards.

I have had taxable T Rowe Price and Franklin Templeton Funds for many years and will likely keep them as they are for now because the taxable income from selling them would cause me to lose my health insurance subsidy (about $4000 per year) and create a hefty tax bill.
I would like to replace my non taxable (expensive) Managed Account at Schwabb, my Inherited IRA Account at Schwabb and my Janus Short Term Bond fund at Schwabb
I like what I have read on this site about simple, diversified, low cost Vanguard funds
I would like some advice about what specifically to replace these accounts with in light of the my other investments, or advice about the entire portfolio.
I am rather risk adverse. Twice sold everything when the market crashed, but was able to hang in there during the 2008 downturn, so I am learning.

I have $500,000 in cash (included in the amounts below) and I am thinking to keep a good bit of that in cash as my income will decrease dramatically in the next year so will likely need to live on these $

I have a 6 month emergency fund in addition to assets below. I expect to semi - retire and start living off of my assets, in about 1 year.

I own my home and have a mortgage at 4.2%
I also have 2 mortgages on 2 rental properties, one at 5.8% and one at 4.3% These properties just about pay for themselves with rental income.
They lost a good bit of value in the real estate crash so have little equity at this point
I have no other debt

Tax Filing Status: Single,
Tax Rate: 15% Federal, 2% State
State of Residence: California
Age: 57
Portfolio is about $900,000

Taxable

Cash (CD's) 53.91%
Mutual Funds
1.7% Mutual Beacon (BEGRX) (0.84 %) Held at Franklin Templeton
1.72% Mutual Quest Z (MQIFX ) (90 %) Held at Franklin Templeton
3.01 % TRowe Price Equity Income PRFDX (.068%) Held at T Rowe Price
2.96% TRowe Price Short Term BOnd PRWBX(.051%) Held at T Rowe Price
.63 % Janus Short-Term Bond (JASBX )(.085%) Held at Schwabb

Traditional IRA -at T Rowe Price
.71% TRowe PricePersonal Strategy PRSIX (.076%)

Inherited IRA Account - at Schwab (mandatory taxable withdrawal of about $6K per year)
1.71 % Buffalo Flexible Income (BUFBX) (1.04 %)
2.70. % Janus Short-Term Bond (JASBX ) (.085%)
3.02 Oakmark Equity & Income (OAKBX ) (.77 %)
3.49% Pimco Total Return (PTTDX) (.75 %)
3.28% Vanuard Short Term Bond (VBISX) (.20%)
1.25% Cash

Non Taxable Managed Moderate Conservative Account - at Schwabb
Schwabb charges 1% managed fund fee in additional to fund expenses
Account is actively managed and currently has the following holdings

1.71% SWSXX Cash Reserves
.76% Baird Core Plus Bond (BCOSX) (55%)
.30% Eaton Vance Floating-Rate (EAFZX) (1.19%)
.32% Manning & Napier World (EXWAX) (109%)
.63% MainStay ICAP Select Eq ICSLX (.98%)
.48% JPMorgan Value Advantage A(JVAAX) (1.35%)
.46 % JHancock Disciplined Value. (JVLAX) (1.20%)
.46% Loomis Sayles Bond Retail (LSBRX) (.92%)
1.97% Metropolitan West Total Return Bond (MWTRX) (61%)
.31% Northern Small Cap Value (NOSGX) (1.37%)
.62% Oakmark International (OAKIX) (.98%)
47% PIMCO Foreign Bond (PFBDX) (.93%)
.15% PIMCO Income( PONDX) (.82%)
1.67% PIMCO Total Return (PTTDX) (.75%
.15 % ClearBridge Small Cap Growth (SASMX) (1.24 %)
.30% RidgeWorth Small Cap Value (SCETX) (1.24 %)
.30% Wells Fargo Advantage Growth Fund (SGRKX)(102%)
.45%FMI Large Cap (FMIHX) (.96%)
.60% American Century Growth (TWCGX) (0.97 %)
.48% American Century Value Inv (TWVLX) (1.00 %)
.63 % Scout Internationa (UMBWX) (1.02%)
1.84 % Western Asset Core Plus.. (WACIX) (0.75 %)
.5% Yacktman Focused Sv (YAFFX) (1.25 %)
.11% Cash

Non Taxable Account - at Franklin Templeton
3.39% % Mutual Quest Z (MQIFX ) (90 %)

Roth IRA - at Franklin Templeton
.35% Mutual Beacon (BEGRX) (0.84 %)
.81% Mutual Quest Z (MQIFX ) ( 90 %)

New annual Contributions
It is not likely that I will continue to be able to make contributions.
I have a business that is ending. There might be income for contributions for another year, but after that I will likely start living on this money, which is why I have so much in cash. I am thinking I would like to have have about 5 years worth of living expenses out of the market, so I do not have stress about investments. The amount I currently have in cash is about that, though I am open to suggestions about that

Questions:
1. My short term intention is to replace the expensive Managed Account at Schwabb and the holdings in the Inherited IRA at Schwabb.
I would love some guidance about which Vanguard funds to buy for each of the 2 accounts to create a balanced well diversified portfolio, given my other T Rowe and Franklin Templeton investments and the large amount of cash.

The income and capital gains on the (soon to be formerly) managed fund is tax free, so I want to take advantage of that by having the new funds with the higher returns in this account.
I have to withdraw at least $6000 per year from the Inherited IRA and this will be taxable. I would love some advice about which recommended funds should be held in the taxable and which in the non taxable account

I'm thinking of moving one or both accounts to Vanguard, or selling these holdings and buying Vanguard funds through Schwabb.
It would be easy to sell the individual holdings in the Inherited IRA and buy Vanguard funds through the Schwabb account, unless there is a benefit in moving the entire account to Vanguard.

I would like my portfolio to be conservative, maybe 40/60 cash- fixed income/stocks and very widely diversified and as simple as possible given where I am starting from
My long term goal is to move everything into a few balanced Vanguard funds as suggested on this site, but the consequences of doing that all at once aren't worth it, so I would like to begin moving what I can and at the same time become more diversified, simplified, balanced and tax wise in my investments

Thank you for your time
ieee488
Posts: 1989
Joined: Thu Dec 10, 2009 7:57 am

Re: Help with Improving my Portfolio

Post by ieee488 »

Unless there is something wrong with my math, when I add up all the percentages, I get 146.82%

I think you meant 0.47% for the PIMCO Foreign Bond.
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chaz
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Joined: Tue Feb 27, 2007 1:44 pm

Re: Help with Improving my Portfolio

Post by chaz »

Keep it simple.

Look at the forum wiki for some good ideas, such as a 3 fund portfolio composed of low cost index funds.

Good luck.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
Topic Author
Alana888
Posts: 112
Joined: Thu Apr 10, 2014 3:50 am

Re: Help with Improving my Portfolio

Post by Alana888 »

Yes o.47 for Pimco Foreign Bond. My apologies.
Yes i have read the Wiki forum. I was hoping for more specific suggestions to balance out the funds I plan to keep and to maximize my tax efficiency
Thank you
ieee488
Posts: 1989
Joined: Thu Dec 10, 2009 7:57 am

Re: Help with Improving my Portfolio

Post by ieee488 »

Alana888 wrote:Yes o.47 for Pimco Foreign Bond. My apologies.
Yes i have read the Wiki forum. I was hoping for more specific suggestions to balance out the funds I plan to keep and to maximize my tax efficiency
Thank you
I don't really see any fund I would want to keep.

Tax efficiency is discussed in a wiki page.

I agree with chaz about a simple 3-fund portfolio. There is a wiki page about that.

Use a spreadsheet to help you with the math of the percentages.

I think 53.91% in cash is way too much. If you want to keep that percentage, then considering building a CD ladder.
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Topic Author
Alana888
Posts: 112
Joined: Thu Apr 10, 2014 3:50 am

Re: Help with Improving my Portfolio

Post by Alana888 »

I don't really see any fund I would want to keep.

Thank for your response
Can you elaborate on the problem with the T Rowe and Franklin Funds?
Do you think it is worth the tax consequences to replace them?
I've had them over 20 years, so those might be significant
ieee488
Posts: 1989
Joined: Thu Dec 10, 2009 7:57 am

Re: Help with Improving my Portfolio

Post by ieee488 »

Alana888 wrote:
I don't really see any fund I would want to keep.

Thank for your response
Can you elaborate on the problem with the T Rowe and Franklin Funds?
Do you think it is worth the tax consequences to replace them?
I've had them over 20 years, so those might be significant
High expense ratios is the problem with activately managed funds.
However, they only constitute 10% of your portfolio.

Do you have an asset allocation in mind?

Are you planning on keeping over 50% of your portfolio in cash?
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Topic Author
Alana888
Posts: 112
Joined: Thu Apr 10, 2014 3:50 am

Re: Help with Improving my Portfolio

Post by Alana888 »

Alana888 wrote:
I don't really see any fund I would want to keep.

Thank for your response
Can you elaborate on the problem with the T Rowe and Franklin Funds?
Do you think it is worth the tax consequences to replace them?
I've had them over 20 years, so those might be significant
High expense ratios is the problem with activately managed funds.
However, they only constitute 10% of your portfolio.
Thank you. Yes I understand the problem with the actively managed fund which is why I want to drop it. Wondering what to replace it with given my other investments
My question was referring to the previous responder saying there were no funds in my portfolio that they would keep and I was wondering if the problems they perceive with the T Rowe and Franklin funds warrant the tax consequences that would result in dropping them. I was planning to keep them for now because of the tax issue.
I would like perhaps a 50/50 or 40/60 asset allocation depending on how much I keep in cash
Not sure about what to do with the cash. I will need it to live on over the next 5 - 8 years so cannot afford to lose the principal, but I am not attached to keeping it all in cash
Topic Author
Alana888
Posts: 112
Joined: Thu Apr 10, 2014 3:50 am

Re: Help with Improving my Portfolio

Post by Alana888 »

Use a spreadsheet to help you with the math of the percentages.
Can anyone recommend where I might find guidance on how to do that?
Is there a tool somewhere to help create a spreadsheet that would help me figure out what I have and what I need to replace the accounts I want to drop to create a reasonable portfolio ?.
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retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Help with Improving my Portfolio

Post by retiredjg »

Alana888 wrote:I have had taxable T Rowe Price and Franklin Templeton Funds for many years and will likely keep them as they are for now because the taxable income from selling them would cause me to lose my health insurance subsidy (about $4000 per year) and create a hefty tax bill.
Maybe not. It appears you have something like $90k in those funds. Not all of that will be gains that have not been taxed. If you really are in the 15% marginal tax bracket, your long term capital gains will be taxed at 0%. Any gains that slop over into the 25% tax bracket will be taxed at 15%. Any short term capital gains would be taxed at whatever your marginal bracket is.

So if your capital gains are $50k (made up number) and you have $10k headroom in the 15% marginal bracket (another made up number), you could get rid of those funds for free over a period of 5 years. Or pay a little tax each year, but not sell enough to loss your subsidy.

So first you would have to figure out what your capital gains are in each fund (long term and short term) Then strategically sell something each year to get rid of it all.

Whatever you decide to do with these funds, stop reinvesting dividends. Every time you reinvest a dividend, you start a one year clock on the money that money makes. This results in a lot of tax lots and you will never be able to sell it all without some short term gains (unless you sell at a loss). Either send the dividends to a money market account or your savings account or whatever.

I'm pretty sure you are not in a 2% tax bracket in California. Even if you are a low income tax payer, the number is probably closer to 7% or 8%. How did you arrive at that number?

I have $500,000 in cash (included in the amounts below) and I am thinking to keep a good bit of that in cash as my income will decrease dramatically in the next year so will likely need to live on these $....

....I am thinking I would like to have have about 5 years worth of living expenses out of the market, so I do not have stress about investments. The amount I currently have in cash is about that, though I am open to suggestions about that
I may be reading you wrong. Are you saying that your $500k in cash is about 5 years expenses?

If your portfolio is about $900k when you retire, you can only take out $36k a year at the most and that includes the tax you will pay on that $36k. It also assumes you have more stocks that you will have. Keeping $500k in cash needs to be seriously reconsidered.

I own my home and have a mortgage at 4.2%
how much is this mortgage?
I also have 2 mortgages on 2 rental properties, one at 5.8% and one at 4.3% These properties just about pay for themselves with rental income.
They lost a good bit of value in the real estate crash so have little equity at this point
I have no other debt
"Just about pay for themselves" means a negative cash flow. Any hope of selling one or both of these? Any realistic hope the situation will get better?


Non Taxable Managed Moderate Conservative Account - at Schwabb
Schwabb charges 1% managed fund fee in additional to fund expenses
Account is actively managed and currently has the following holdings
If this is non-taxable, do you mean an IRA or what?

You cannot afford to pay 1% for someone to manage your money. Besides, you don't need to pay 1% for someone to manage your money.


Non Taxable Account - at Franklin Templeton
3.39% % Mutual Quest Z (MQIFX ) (90 %)
What kind of account is this?



The income and capital gains on the (soon to be formerly) managed fund is tax free, so I want to take advantage of that by having the new funds with the higher returns in this account.
Again, what type of account is this?

I'm thinking of moving one or both accounts to Vanguard, or selling these holdings and buying Vanguard funds through Schwabb.
It would be easy to sell the individual holdings in the Inherited IRA and buy Vanguard funds through the Schwabb account, unless there is a benefit in moving the entire account to Vanguard.
I think you have to pay transaction fees to buy Vanguard mutual funds at Schwabb. I'm not sure what you pay for Vanguard ETFs there - are you interested in ETF's? Schwab has some good index funds, but I'm not sure they have everything you need. I have not looked lately.
I would like my portfolio to be conservative, maybe 40/60 cash- fixed income/stocks and very widely diversified and as simple as possible given where I am starting from
60% stocks is not what I would call a conservative portfolio for someone who is risk averse. You also can't do that if you keep $500k in cash. I'm wondering if I've misread something in your post.
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

Do you have any idea what your current stock to bond (including cash) ratio is?
Topic Author
Alana888
Posts: 112
Joined: Thu Apr 10, 2014 3:50 am

Re: Help with Improving my Portfolio

Post by Alana888 »

Thank you for your response retiredjg. Very helpful
So if your capital gains are $50k (made up number) and you have $10k headroom in the 15% marginal bracket (another made up number), you could get rid of those funds for free over a period of 5 years. Or pay a little tax each year, but not sell enough to loss your subsidy.
Yes this is my plan. A little at time for these accounts. The Inherited IRA and the Managed fund I can transfer right away, so that is what I want to do first. Can you tell me what is not good about the Franklin and T Rowe funds. I do want to eventually condense everything into a few funds at Vanguard for convenience, but is there another reason to drop these funds as soon as possible
Whatever you decide to do with these funds, stop reinvesting dividends. Every time you reinvest a dividend, you start a one year clock on the money that money makes. This results in a lot of tax lots and you will never be able to sell it all without some short term gains (unless you sell at a loss). Either send the dividends to a money market account or your savings account or whatever.
Very helpful. Thank you
I may be reading you wrong. Are you saying that your $500k in cash is about 5 years expenses?
Perhaps I was in error to include the $500 K as part of my portfolio. I'm not sure what to do with it. In the short term I will need it to live on.Perhaps I will have the opportunity to earn again in the future, but it is unknown. That is why I didn't want to invest it in anything that I could lose. Perhaps I should consider only $200K are part of my portfolio and the rest as part of my emergency fund since I will likely need it for income in the coming few years. Forgive my clumsiness in describing all this. I am trying to figure it out but getting the opinion of other with more experience
I own my home and have a mortgage at 4.2%
$260,000
"Just about pay for themselves" means a negative cash flow. Any hope of selling one or both of these? Any realistic hope the situation will get better?
Yes the real estate market is rebounding well in this area and looks like it will continue to. I didn't want to sell at a loss so have been waiting for values to rise and they have been. The rental market is also improving (from a landlords point of view) and I will be able to raise the rents and break even by next year. I will likely sell one or both of these properties when they reach the amount I paid for them.
Non Taxable Managed Moderate Conservative Account - at Schwabb
Schwabb charges 1% managed fund fee in additional to fund expenses
Account is actively managed and currently has the following holding
If this is non-taxable, do you mean an IRA or what?

You cannot afford to pay 1% for someone to manage your money. Besides, you don't need to pay 1% for someone to manage your money
Yes Roth IRA
Yes I have just recently realized this and I am wanting to get out of this managed fund ASAP. Just trying to figure out what to replace it with.
Non Taxable Account - at Franklin Templeton
3.39% % Mutual Quest Z (MQIFX ) (90 %)
What kind of account is this?
Roth IRA
I think you have to pay transaction fees to buy Vanguard mutual funds at Schwabb. I'm not sure what you pay for Vanguard ETFs there - are you interested in ETF's? Schwab has some good index funds, but I'm not sure they have everything you need. I have not looked lately.
Don't understand enough about EFT's to know if I am interested.
60% stocks is not what I would call a conservative portfolio for someone who is risk averse. You also can't do that if you keep $500k in cash. I'm wondering if I've misread something in your post.
No you haven't misread anything. Just my unclarity in trying to explain my situation. Apologies I was thinking I need to invest more heavily in stocks if I am going to keep a large amount in cash, but I can see how that is unclear.
I would like to keep a good chunk in cash as a sort of long term emergency fund, perhaps not the entire $500K but some.
For the rest I would like a diversified balanced blend, probably heavier on stocks to balance the large amount in cash. I know I do not have enough money to retire without taking more risk, but I do not want to sabotage myself by taking on more risk than I can handle and freaking out and selling when things go down. Trying to find a balance. Having enough to live on for a good while in cash makes it easier for me to take more risk with the rest.
Do you have any idea what your current stock to bond (including cash) ratio is?
No I wish I had some way of figuring this out as it seems to be at the crux of my questions. Its difficult for me to know what to buy to obtain the appropriate allocation because I'm not really able to figure out what I have
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

I'd like to go over what I think you've said because I'm not sure I have everything right.

1) I think you have about $900k total in cash and investments. However, it could be you have $500k in cash plus $900k in investments. Which is correct?

2) You are talking about 60% stock and 40% bonds, but I'm not sure if the $500k cash is included in that or if the 60/40 is for the money that you don't keep in cash.

3) You want 5 years of expenses in cash. How much money is that? Be realistic and remember that whatever number you say includes the taxes you pay to the federal govt and the state of CA so this is really not just living expenses.

4) Let's nail down your tax brackets. Compare your taxable income (line 43 on Form 1040) to this chart. http://www.moneychimp.com/features/tax_brackets.htm . If you find you really are in the 15% marginal bracket, are you right up near the top, or is there some room left before you hit the 25% bracket?

5) For California, see Schedule X on this page (unless some other schedule applies to you). https://www.ftb.ca.gov/forms/2013_Calif ... ions.shtml Which line applies to you?

6) You seem to be concerned about living expenses for 5 to 8 years. Is this because you have a pension or SS starting at some point?

7)I think this is your breakdown. Please be sure I have this right. The reason I don't think it is right is because I can't figure why you'd call one Roth IRA a "Roth IRA" and call another Roth IRA a "non-taxable managed account". I also can't figure why you'd have two Roth IRAs at one place (Templeton) and call one a "Roth IRA" while calling the other a "non-taxable account". I'm wondering if these "non taxable accounts" are really variable annuities.
  • Taxable 63.93%

    tIRA at T.Rowe Price .71%

    inherited IRA at Schwab 15.45%

    Roth IRA at Schwab 15.67%

    Roth IRA at Templeton 3.39%

    Roth IRA at Templeton 1.16%
Before you get overwhelmed with all this, I'd like to assure you that you are headed in the right direction. Your current portfolio is a mess (sorry :( ) and it needs to be cleaned up. The costs are high and as you mentioned there is a bit of haphazardness to it. This does not mean it can't be fixed. It will take some work, but you seem willing to do that.

You asked if there is a way to figure out what you have. There is, but it will be tedious. However, you might learn a lot by doing it. On the morningstar website, under tools, there is a thing called "instant xray". You can plug your investments in there and it will tell you what you have. You cannot save the info unless you are a member, so be sure to print out all the pages. I always forget how to enter cash though. You'll have to look around for info on how to do that.

Once you get answers to the questions above, we can move forward some. I'd like you to start thinking in terms of a "makeover" rather than just replacing this and that. Nibbling around the edges is not a solution to your needs.
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windhog
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Re: Help with Improving my Portfolio

Post by windhog »

Welcome to the forum.

The more time I spend here the more I can appreciate the learning process that results from the give and take of a thread like yours. I have been following along and trying to decide if and when to chime in with some thoughts that might be helpful. You have a pretty complex situation. There are still some information gaps that are relevant to your financial situation (e. g. Do you expect to draw Social Security retirement benefits?), but your focus is clearly on ‘stopping the bleeding’ in your Schwab Roth IRA. You should understand that any decisions you make for that account may need to be reconsidered as you shift your mindset from that of a retail investment client (Which fund should I buy?) to that of a Boglehead. You have come far enough to understand that things need to change, but I want to encourage you to keep reading and learning beyond the scope of what amounts to some portfolio First Aid.

I would second the thoughts of retiredjg, who has given you good advice and begun the process of getting you to think like a Boglehead. Turing off automatic reinvestment of dividends is essential when you see the need to sell off inappropriate funds, and I hope that is already done.

It seems you have two (or possibly three) Roth IRA accounts at Schwab and Franklin-Templeton. If that is correct, simplification could come in the form of transferring some or all of these accounts to Vanguard, which can usually be done with one phone call to Vanguard. The problem is that Vanguard may not be able to accept all of the funds you currently own, and that would complicate the process of a so-called in-kind transfer, where the entire account is just swept from one custodian to another with no changes. The reason you might prefer this process is that Vanguard would not charge a transaction fee for selling all of those funds, whereas your current custodians would likely do so. To move forward with this First Aid process, I would suggest a call to Vanguard, asking about an in-kind Roth IRA transfer for each of these accounts. You should get clarity about which, if any funds you might need to sell before doing such a transfer, and what fees Vanguard might charge to do the job. Since these are Roth accounts, you need not worry about tax issues, and cash from a fund sale is never a transfer problem.

Once the accounts have been transferred, you can sell off whatever funds remain and purchase a low-cost all-in-one fund, such as a Life Strategy or a Target Retirement fund that reflects your best guess about your desired asset allocation. This bit of First Aid ignores the Boglehead view that you should make decisions based on all of your retirement holdings, but it does represent a first step in the right direction. A more nuanced plan should follow when you have had more time to learn to think like a Boglehead, and retiredjg has just posted an excellent response focused on that goal. While it would be nice to know just what your current asset allocation is, I don’t think the lack of that information should stop this First Aid process, particularly if you choose a conservative (50:50) fund.

So, give Vanguard a call and see what they have to say. I am hoping doing a little First Aid will make the rest of this process less intimidating.
Paul
Topic Author
Alana888
Posts: 112
Joined: Thu Apr 10, 2014 3:50 am

Re: Help with Improving my Portfolio

Post by Alana888 »

I am so very appreciative for this kind and detailed help and encouragement from both of you. I have never really talked to anyone about my total finances before, and the answers to many of your questions are changing a bit as I hear from you all and read more on this site.

I will answer your questions below. I tried to provide my investments using percentages as the encouraged in the forum guidelines, but I think it will be helpful if I provide the numbers, which are fixed and clear, separate from what I think I want, which is changing as I get educated here and open to suggestions.
1) I think you have about $900k total in cash and investments. However, it could be you have $500k in cash plus $900k in investments. Which is correct?
According to my calculations I currently have a total of $925,000 which includes the $500,000 that is currently in cash (CD's actually).

About $30,000 of this is in taxable accounts at Franklin, $55,000 in taxable accounts at T Rowe, $6000 at Schwabb, for a total of about $91,000 total (in addition to the cash) in taxable accounts

In non taxable accounts and tax deferred accounts, there are 2 non taxable (Roth IRA's ) at Franklin totaling $42,000 (one is held in my partners name, hence the 2 accounts, but mine to invest and benefit from. Too complicated to explain on this board but included as part of the portfolio to invest)
One non taxable managed account at Schwabb with $143,000 (same story as above - too much to explain but suffice to know its non taxable Roth) One Inherited IRA at Schwabb with $142,000 (mandatory distributions every year), one traditional IRA at TRowe with $7000 for a total of $334,000 in non taxable and tax deferred accounts
2) You are talking about 60% stock and 40% bonds, but I'm not sure if the $500k cash is included in that or if the 60/40 is for the money that you don't keep in cash.
Yes I was confused about that as well, but I think I am getting clearer that this 60/40 stock/ bond balance would be for the money I do not keep in cash.
As I get comfortable holding less cash, I would likely shift my allocation to higher percentage of bonds to balance out the risk of less cash.
3) You want 5 years of expenses in cash. How much money is that? Be realistic and remember that whatever number you say includes the taxes you pay to the federal govt and the state of CA so this is really not just living expenses
My living expenses fluctuate enormously, so there is no way to know, but I am comfortable with $500,000 in cash/CD's for now.
I am in a time of change in both income and expenses, so I might be comfortable risking more of it later.
My thought process is that if I kept the $500,000 that I have in cash in cash, I will feel comfortable to invest the rest appropriately without panicking and selling when the market goes down. This would give me enough to live on no matter what happens with my income and expenses for at least 5 years, probably longer.
Let's nail down your tax brackets. Compare your taxable income (line 43 on Form 1040) to this chart. http://www.moneychimp.com/features/tax_brackets.htm . If you find you really are in the 15% marginal bracket, are you right up near the top, or is there some room left before you hit the 25% bracket?
4)

Thank you for these tables. For 2014 I will be in the top end of the 15% bracket federal (no head room), and 6% state. I owed no taxes for 2013 because I had very little income. For 2012 and 2011 I was in the 25% bracket. My work and income situation tends to be unpredictable, so its hard to say, but for now, 15% federal, 6% state
6) You seem to be concerned about living expenses for 5 to 8 years. Is this because you have a pension or SS starting at some point?
No I will not receive a pension or SS (well maybe a tiny bit of SS, nothing that will impact much).
I am imagining I will likely have some source of income in the future, though that is not for sure. I will have some more money when I sell my rental properties sometime in the next 5 years. Even if I only sell for what I paid for them I will recoup about $300,000 from the down payments.

The cash is more about what psychologically will allow me to stay the course with an investment plan. I am still skittish about investing in general. I'm one of those people who in the old days would have kept my money in the mattress because I didn't trust banks. I feel that I have to have some amount of money out of the market in order to be comfortable having any in.
The $500,000 is what I currently have in CD's and it makes me feel safe enough to invest the rest and ride out market down cycles, even long ones.
Given that I don't have enough to retire perhaps I shouldn't ideally hold as much in cash.
But I have a history of panicking when I see my funds dwindle so I am wanting a strategy that I will be able to stay with emotionally.
Finding a perfect strategy that I abandon is not as good as an imperfect one I can stick with, is what I am thinking.
Bailing on losing funds when things got rough in the past is part of why I have such a haphazard mess of funds now.
If my future income becomes more stable or I get more comfortable with investing, I will likely slowly invest some of the cash.
7)I think this is your breakdown. Please be sure I have this right. The reason I don't think it is right is because I can't figure why you'd call one Roth IRA a "Roth IRA" and call another Roth IRA a "non-taxable managed account". I also can't figure why you'd have two Roth IRAs at one place (Templeton) and call one a "Roth IRA" while calling the other a "non-taxable account". I'm wondering if these "non taxable accounts" are really variable annuities.
If we count the entire $900,000 + (including cash) as 100%, these numbers are pretty much correct.
Before you get overwhelmed with all this, I'd like to assure you that you are headed in the right direction. Your current portfolio is a mess (sorry ) and it needs to be cleaned up. The costs are high and as you mentioned there is a bit of haphazardness to it. This does not mean it can't be fixed. It will take some work, but you seem willing to do that.
Yes I know it is a mess and I am willing to do the work, especially if I can do it in a few steps over a few months rather than change everything at one.
It is a bit overwhelming, but in the general scheme of things, if my problems are about being confused about what to do with my extra money, I am very grateful
You asked if there is a way to figure out what you have. There is, but it will be tedious. However, you might learn a lot by doing it. On the morningstar website, under tools, there is a thing called "instant xray".
I will look into this . Thank you

Paul, thank you for your advice. I plan to stop reinvesting my dividends right away, haven't made the call yet, but probably on Monday. I will also call Vanguard on Monday and see about transferring the Franklin and T Rowe IRA's and what is involved. I hadn't realized I could do that

In the meantime, I have been reading more and am thinking of moving the inherited IRA, the managed account and my individual account, all at Schwabb to Vanguard and buying the following 4 funds first with that money

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) $110,000
Vanguard Total International Stock Index Fund (VGTSX) $37,000.00
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) $108 ,000.
Vanguard Total International Bond Index Fund Investor Shares (VTIBX) $37,000

This will give me about a 60/40 balance including the other funds I have at TRowe and Frankin and not including the cash

I would still need to figure out which of these to hold in the taxable accounts and which in the non taxable? Can you offer advice on that?

Now that Paul has mentioned that I might be able to move some of those Franklin/ TRowe IRA funds right into Vanguard, I will also move the ones that I can without cost and then replace them with the same type Vanguard fund (ie, stock funds to the Vanguard stock fund, bond funds with the Vanguard bond funds) to maintain the same allocation as I get rid of the Franklin accounts

The taxable funds I will replace over the next years with funds of a similar category from the above.

Does this make sense? Perhaps I am jumping the gun here. I am open to more info and other suggestions before I do anything.
Just speculating at this point

Thanks again for all your help and any suggestions
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

Alana888, you are headed in the right direction, but we need to take time out here for a reality check.

You said you don't have enough money to retire, but I'm not sure you realize you will NEVER have enough money to retire if you spend that $500k. Especially if you spend it in 5 years. The exception, of course, is a large inheritance, but an inheritance is rarely a sure thing.

Here is how it works. If you retired today with $925k, you could pretty safely withdraw
  • -about $37k a year (roughly $33k for you and $4k for taxes)

    -for 30 years

    -if the $925k is invested with at least 40% in stocks
You are talking about needing more than $37k a year, for probably longer than 30 years, and you are planning to invest way less than 40% in stocks. Does this help you see just how far you are from having a workable plan?

I understand your need to have some money in cash, but that $500k must last you a lot longer than 5 or even 8 years. You need to start looking for more income now and you need to also start reducing your expenses now. If you don't do both of these things, your circumstances might be dire.

I realize I don't understand your total situation and you don't need to explain further. I just want to be sure you have a realistic understanding of your situation.
My thought process is that if I kept the $500,000 that I have in cash in cash, I will feel comfortable to invest the rest appropriately without panicking and selling when the market goes down. This would give me enough to live on no matter what happens with my income and expenses for at least 5 years, probably longer.
In general this is not an unreasonable approach, but $500k is too much to keep out of the market. And you can't afford to be without income long enough to use up the $500k.

The cash is more about what psychologically will allow me to stay the course with an investment plan. I am still skittish about investing in general. I'm one of those people who in the old days would have kept my money in the mattress because I didn't trust banks. I feel that I have to have some amount of money out of the market in order to be comfortable having any in.
The $500,000 is what I currently have in CD's and it makes me feel safe enough to invest the rest and ride out market down cycles, even long ones.
Given that I don't have enough to retire perhaps I shouldn't ideally hold as much in cash.
But I have a history of panicking when I see my funds dwindle so I am wanting a strategy that I will be able to stay with emotionally.
You are well in touch with your history and the emotional side of investing. This is a HUGE advantage.

Have you considered that having less in cash but using a more conservative asset allocation might satisfy all of your needs? What if you held out $100k and invested $825k conservatively - say $30% stock and 70% bonds. In a crash, the portfolio might drop about 15%. Could you tolerate that?

I'll have some more thoughts and numbers, but don't have time now. I'm traveling today and may or may not have internet access for the next couple of days. Continue thinking and reading. Don't move anything yet, but I think your decision to move it all to Vanguard is a good one.
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

Thank you so much for your reply and it certainly gives me a lot to think about.
Many people are telling me the same thing so of course I have to consider it

I could handle a temporary 15% loss in my portfolio if I was convinced that it would be temporary, but I am not as sure of that as others seem to be.
To me, the entire economy seems like a random and fragile construct and the possibility of it collapsing or experiencing unprecedented declines in my lifetime is real. In retrospect, 2008 seems like a temporary setback in a growing economy, but at the time it seemed that things could have easily gotten a lot worse for a lot longer. I would love to hear more about the thinking that growth of money invested is a sure thing. It seems that no one mentions the fact that one could lose their investment (though it is mentioned on frequently on every website page)
Some people are also saying that the value of bond funds could decline and stay declined for a decade. What would that mean for me if 70% of my money was invested in bond funds.

Perhaps you or others could share more about why this isn't a concern.The fact that it hasn't happened in our lifetime or in the last 100 years is not reason enough for me. All throughout history there are examples of major economic shifts and unravelings. The US is a very baby country in the context of history

I am not trying to be contrary. I would love to be convinced as the idea of investing all my money and having even 37K for life sounds wonderful. But to be comfortable doing that I would need a deeper understanding of why my fear of losing what I have accumulated this far is unfounded.
Perhaps it is my limited understanding of how the economy works. Any insights are welcome

I think the question of whether I invest the additional $500 K is not something I can decide at this moment, though I am becoming more open to investing part of it.
I would love to hear more about what to do with the other money that I already decided to invest that is currently invested poorly. I think if I understand and feel confident with that, it will be easier to feel comfortable putting more of my savings into it.

I will not move anything yet and will continue to gather info and consider my options. Thank you again for your time. I really appreciate it
dbr
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Re: Help with Improving my Portfolio

Post by dbr »

What I pick up here is a lot of uncertainty about income and spending. I am trying to reconcile several statements about needing $500K to live on for awhile at what appears to be a spending rate of maybe $100K a year but then saying being able to invest for a retirement income of $37K for life would be wonderful. I think it would be helpful to understand what the rate of spending really is expected to be from this point forward and for a lifetime.

How much one wants to spend compared to what assets you have is a far more fundamental issue than asset allocations and picking funds, and so on. Important questions are how much you are earning and saving now and until you want to retire, or if you already unemployed and don't plan to work again.

Is there a problem with cash flow for the properties? You say they are about to pay for themselves in rental income and also that the net equity is near zero. What is your plan going forward for expecting positive cash flow or fearing negative cash flow? What is the long term plan for net asset appreciation from the properties? Are you exposed to risk that you can't afford, such as draining your liquid investments due to cash losses on the rentals? Is that why you might need to spend the $500K?
fposte
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Re: Help with Improving my Portfolio

Post by fposte »

Alana888 wrote:It seems that no one mentions the fact that one could lose their investment (though it is mentioned on frequently on every website page)
Some people are also saying that the value of bond funds could decline and stay declined for a decade. What would that mean for me if 70% of my money was invested in bond funds.

Perhaps you or others could share more about why this isn't a concern.
Other folks will be able to explain this more factually than I, but I think you're falling into a common pattern of ignoring the risk of what you're accustomed to. It's sort of like saying "People get hurt exercising, so I'm much safer just sitting on the couch," which ignores the fact that just sitting on your couch is not good for you at all. Losing all your money is a concern. Not having enough money is also a concern (or, to put it with somewhat more nuance, having money that isn't worth what you thought). We can't completely eradicate either of those risks, but we can work on minimizing them both.

My guess is that you're trying to be both pessimistic and conservative and are using 100k per year as a safety overestimate rather than a genuine projection based on your annual expenditures. You don't have to tell us the number, but if you haven't, can you pull together your data and find out just how much you spent last year and in what areas? Was it closer to the $37k you said would be enough to get annually off your portfolio, or the $100k annually you're projecting for the next five years? If it's closer to the $100k, is $37k a realistic goal, and what could you cut to get there? If it's closer to the $37k, what about reestimating your five-year costs based on the total and investing the surplus?

You also mentioned that you have to take about $6k per year from the inherited IRA. Be aware that that's not a flat dollar amount; if you're doing the stretch IRA (as it sounds), an increasing percentage annually based on the account's total value at the end of the previous year, so don't fall afoul of the IRS by only taking $6k if the RMD is actually larger than that. Schwab will probably calculate it for you but won't be responsible if the incorrect amount is taken.
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

Thank you so much for all your replies.
I appreciate them all.
I really have no way to estimate how much money I will earn in the future and how much I will spend. What I spend will of course be somewhat determined by what I have. I understand that its important to look at the whole picture and it is hard to offer guidance without that, but I would truly be pulling numbers out of the air to try to predict these things.

I am not necessarily looking for ways to make this money last the rest of my life, but more trying to find the best way to invest the money I do want to invest in a way that will give me the highest rate of return with a level of risk I am comfortable with. I think as I ease into this, I will become more comfortable investing more. I understand that I will have to find ways to generate other income if I don't invest more and the consequences of that

I am taking to heart everyone's suggestion that I should not keep $500,000 in cash and will reconsider this. This money is in a CD until October, so the penalty will be high to take it all out now anyway.

In the meantime, we are also in agreement that my current investments are a mess and I am wondering if there is anyway to begin to remedy this without knowing what my future income and expenses will be. And then slowly begin to invest more as I am comfortable
My guess is that you're trying to be both pessimistic and conservative and are using 100k per year as a safety overestimate rather than a genuine projection based on your annual expenditures. You don't have to tell us the number, but if you haven't, can you pull together your data and find out just how much you spent last year and in what areas? Was it closer to the $37k you said would be enough to get annually off your portfolio, or the $100k annually you're projecting for the next five years? If it's closer to the $100k, is $37k a realistic goal, and what could you cut to get there? If it's closer to the $37k, what about reestimating your five-year costs based on the total and investing the surplus?
Yes this is exactly right. $100K a year is worst case scenario, unexpected expenses, illness, my family needing help, or even something expensive that I really want to do. etc.
You also mentioned that you have to take about $6k per year from the inherited IRA. Be aware that that's not a flat dollar amount; if you're doing the stretch IRA (as it sounds), an increasing percentage annually based on the account's total value at the end of the previous year, so don't fall afoul of the IRS by only taking $6k if the RMD is actually larger than that. Schwab will probably calculate it for you but won't be responsible if the incorrect amount is taken.
My understanding with an Inherited IRA is that I divide the amount in account by the number of years they expect me to live (there is a table) and that is the amount I have to withdraw every year. Is that incorrect? yes if the investments make money, and the account balance grows, I will have to take out more (so far this has not been the case, which is part of the reason I am here :happy .
Is there a problem with cash flow for the properties? You say they are about to pay for themselves in rental income and also that the net equity is near zero. What is your plan going forward for expecting positive cash flow or fearing negative cash flow? What is the long term plan for net asset appreciation from the properties? Are you exposed to risk that you can't afford, such as draining your liquid investments due to cash losses on the rentals? Is that why you might need to spend the $500K?
The current shortfall on the properties is tiny. Not an issue. There is always the possibility of repair expenses, which is another reason I like to have more cash than my living expenses around.

I understand that the feeling is I need to invest more of my savings to make the money I have last longer and I am definitely considering it.I would love to hear more about what I should invest it in, which funds, what funds should go in the taxable accounts and which in the non taxable, etc.
I think if I had a solid investment plan for the money I currently want to invest, it will be easier for me to invest more when my CD comes up in October

Thank you!
fposte
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Re: Help with Improving my Portfolio

Post by fposte »

Alana888 wrote: I really have no way to estimate how much money I will earn in the future and how much I will spend. What I spend will of course be somewhat determined by what I have. I understand that its important to look at the whole picture and it is hard to offer guidance without that, but I would truly be pulling numbers out of the air to try to predict these things.
I'm close to your age and just embarked on retirement planning a couple of years ago, and I felt much the same way at first--I think there's the equivalent of writer's block/fear of the blank page when it comes to committing to a future.

But we're not even talking a commitment yet--you can consider a bunch of different scenarios, and see whether they look like they'd get you the life you want and if you're willing to do what's necessary to get there, before ever moving any real money. I have about five different retirement dates sketched out, with numbers for different rates of return with each. I didn't choose any of them yet, but I found out which ones I couldn't reasonably expect to happen with the money I currently had. You might think about how much income you would want in order to avoid needing to go back to work, for instance, and see if you're above that number. Just find a starting place, and think about where it takes you. That'll also help you frame the decisions about, say, that expensive thing you really want, and whether you still want it if it means you'd have to go back to work for a bit.

I think the October date for the CDs is well timed; it'll give you a chance to get more informed and think through some scenarios before you move the money, and you won't feel rushed into it. Folks around here are really good about helping people along as they learn and work out their portfolios, too.
Alana888 wrote:My understanding with an Inherited IRA is that I divide the amount in account by the number of years they expect me to live (there is a table) and that is the amount I have to withdraw every year. Is that incorrect?
Yup, you've got it (just make sure you deduct one year rather than going back to the table in succeeding years, but again, Schwab will probably just tell you the number). I just like to make sure because those inherited IRAs rules are so different.
Topic Author
Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

Thank you for your response.
I would really like to like to move the money I have in my Schwabb accounts pretty soon.
I am ready to move my investment accounts to Vanguard and whatever I decide to do with the $500,000 in October, I think this is a good start
I am hoping someone will give me some advice about that as that is something I can and would like to do soon

It seems that much of the focus or the responses has been on the fact that I have $500,000 in cash and what to do about that and I appreciate that that is important in the larger scheme of things. The input and encouragement about that has been useful to me and I am starting to see it differently

Perhaps someone can chime in with advice on what to do with the $425,000 mutual funds I am ready and eager to move now

Thanks
ieee488
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Re: Help with Improving my Portfolio

Post by ieee488 »

Alana888 wrote: It seems that much of the focus or the responses has been on the fact that I have $500,000 in cash and what to do about that and I appreciate that that is important in the larger scheme of things.
Yes, larger scheme of things. The big picture. You are still bogged down in the little picture.
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dickenjb
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Re: Help with Improving my Portfolio

Post by dickenjb »

I do not understand:

1) How you have no idea what you will spend in retirement

and

2) Why you will have no social security benefit - either your own or ex spouse or widow benefit

It seems to me if you are not able to live on roughly $36K of income from a $900K portfolio that this is a train wreck situation.

Yes your portfolio is a mess, but the bigger mess is you have no idea what standard of living you are wanting to have in retirement.
dbr
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Re: Help with Improving my Portfolio

Post by dbr »

dickenjb wrote:I do not understand:

1) How you have no idea what you will spend in retirement

and

2) Why you will have no social security benefit - either your own or ex spouse or widow benefit

It seems to me if you are not able to live on roughly $36K of income from a $900K portfolio that this is a train wreck situation.

Yes your portfolio is a mess, but the bigger mess is you have no idea what standard of living you are wanting to have in retirement.
That where I am still stuck with this. There isn't any way to figure out what to invest in if we don't know what we are investing for.

Maybe later today I can give some more thought to how to simply replace the exisiting investments with something that has similar overall properties, if that is what helps right now.
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

There are many ways to look at this situation.

Starting with what is good about it:
  • -you've managed to save (or possibly inherit and keep) about $925k

    -your home mortgage is too big, but not absolutely huge

    -you know you are risk averse
What is scary about it:
  • -your net worth is not $925k, because of the three mortgages; in fact your net worth is scary small for your age

    -you live in a high cost of living area

    -your rental property is draining your assets instead of adding to your assets

    -you can see yourself not having income for 5 to 8 years
It is really that last point that is the kicker. If you can continue to have income, the rest could be pretty workable given some good financial habits and a bit of luck. It is the lack of income that is the sticky part.



There are also different ways to look at your money situation. You keep calling the $500k "cash", and in one sense it is cash. However, in another sense, once you get past a reasonable emergency fund, CDs are part of the bond allocation of your stock to bond ratio. If you keep $500k in the CDs and invest the rest at 60% stocks and 40% bonds, what you really have is a portfolio at 28% stocks and 72% bonds/fixed income assets. This is not an unreasonable number for a person who is risk averse.


How can risk averse people survive if they cannot dive into the investment pool whole heartedly? There are only a few ways to remedy this. You can save more, spend less, and work longer than someone who is willing and able to invest at a more aggressive level. There is really nothing else to do but that.

As for what to do, consider moving all of the accounts to Vanguard (not sure if you can move the taxable stuff there or not) and investing in a balanced fund (containing both stocks and bonds) like the LifeStrategy Moderate Growth Fund which is 60% stock and 40% bonds and is comprised of the 4 funds you mentioned earlier. I'm suggesting this because or your risk averseness. If you put some of your accounts all into stocks, in a crash, you might find that intolerable.

As for the current mutual funds in the taxable account, do not reinvest any dividends and sell them as you can - especially in a year when you have headroom in the 15% bracket. The expenses are too high to keep, but not so high that you have to sell them ASAP. Don't be spending your dividends though - invest the dividends in the LIfeStrategy Moderate Growth Fund or CDs or whatever you need to maintain your desired stock to bond ratio.

As for your current CDs, as long as they are keeping up with inflation they are a reasonable choice. If the interest rates are too low when October comes, consider a short term bond for part of this money and CDs for some of this money. A short term national (as opposed to California) muni bond is worth considering.
Topic Author
Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

-your net worth is not $925k, because of the three mortgages; in fact your net worth is scary small for your age

-you live in a high cost of living area

-your rental property is draining your assets instead of adding to your assets

-you can see yourself not having income for 5 to 8 years


I am not saying I won't work for 5- 8 years, just that there is that possibility. I've worked my entire life and managed to save over $900,000, so I work is not difficult for me. My current source of income is changing in the next year and I am not sure what is next. I hope to continue to be paid for what I do, but until I that happens I don't know for sure. I am wanting to be safe and make sure that I have money to live on if I don't find another source of income right away and be sure I won't find myself having to draw on my investments in a down market if the worse case scenario of no income were to happen.
I hope to continue to work.

There are also different ways to look at your money situation. You keep calling the $500k "cash", and in one sense it is cash. However, in another sense, once you get past a reasonable emergency fund, CDs are part of the bond allocation of your stock to bond ratio. If you keep $500k in the CDs and invest the rest at 60% stocks and 40% bonds, what you really have is a portfolio at 28% stocks and 72% bonds/fixed income assets. This is not an unreasonable number for a person who is risk averse.
Yes. This is the way I was seeing it as well. This works for me and I could easily imagine moving more from the CD over time to make the balance even more reasonable with a goal of 40/60 bond/stock, keeping a portion of the bond portion in CD's in case I need it.
As for what to do, consider moving all of the accounts to Vanguard (not sure if you can move the taxable stuff there or not) and investing in a balanced fund (containing both stocks and bonds) like the LifeStrategy Moderate Growth Fund which is 60% stock and 40% bonds and is comprised of the 4 funds you mentioned earlier. I'm suggesting this because or your risk averseness. If you put some of your accounts all into stocks, in a crash, you might find that intolerable.
Thank you. This is very helpful and feels right. If the LifeStrategy Moderate Growth Fund is the same as the 4 funds I mentioned, might it make sense to hold those individually so I can maximize the tax benefit of having the less tax efficient funds in the tax free accounts. It would also give me the ability to alter the stock/bond balance if I become less risk aversive. What do you think about the pros and cons of that? I understand what you are saying about seeing one account go down in a crash spooking me, but if the holdings were balanced in the same way the Life Strategy Fund, I think that would be fine.
As for the current mutual funds in the taxable account, do not reinvest any dividends and sell them as you can - especially in a year when you have headroom in the 15% bracket. The expenses are too high to keep, but not so high that you have to sell them ASAP. Don't be spending your dividends though - invest the dividends in the LIfeStrategy Moderate Growth Fund or CDs or whatever you need to maintain your desired stock to bond ratio.
Thank you. This makes sense. I will turn off the dividend reinvesting today and hold them in savings until I get my new portfolio set up and then funnel dividends into that.

Thank you so much for your help. I know my situation is a bit unusual with all the unknowns and I appreciate you taking the time to figure out how to help me anyway
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

Alana888 wrote:If the LifeStrategy Moderate Growth Fund is the same as the 4 funds I mentioned, might it make sense to hold those individually so I can maximize the tax benefit of having the less tax efficient funds in the tax free accounts.
Tax efficiency is mostly about what you hold in your taxable account. Right now, you have that filled with stuff that you can't just eliminate today.

So yes, we might ordinarily suggest holding International Index and/or Total Stock Index in taxable, but that space is currently encumbered with CDs (the bond side of the allocation) and the stuff you need to eventually get rid of.

Besides, if you remain in a relatively low tax bracket (15% or less) tax-efficiency is not as critical as for a very high tax bracket. Not saying you want to be sloppy in-efficient, but as long as you are holding all those CDs in your taxable account, you can't put much of your stocks there.

You could make a goal of something like this - you'd have to work the numbers:

Taxable 63.93%
CDs
Vanguard Total International

Tax-advantaged accounts 36.07
Vanguard Total Stock Index
Bonds (total bond and international bond index)

and as you sell CDs, buy International and/or Total Stock for the taxable account and exchange stock into bonds in the tax-advantaged accounts.

Your early posts sounded pretty helter-skelter and flighty - like you were on the verge of doing stupid stuff and not even realizing it. You are starting to sound a little more grounded. This is a good thing. I think you've got a good start on a retirement portfolio. If you can continue to have income, it may work out pretty well. If you start spending down that "cash" more than just a little, you should expect some pretty grim times in the future.

As you are looking for income, consider that getting more quarters for SS might be a very good thing.
dbr
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Re: Help with Improving my Portfolio

Post by dbr »

I think retiredjg and others are sending you in the right direction.

There seem to be a lot of questions about these funds:

1.7% Mutual Beacon (BEGRX) (0.84 %) Held at Franklin Templeton
1.72% Mutual Quest Z (MQIFX ) (.90 %) Held at Franklin Templeton
3.01 % TRowe Price Equity Income PRFDX (.68%) Held at T Rowe Price
2.96% TRowe Price Short Term Bond PRWBX(.51%) Held at T Rowe Price
.63 % Janus Short-Term Bond (JASBX )(.85%) Held at Schwabb

and more specifically about the three stock funds that account for 6.43% of your assets or about $60,000. These are bad funds because they are too expensive (I corrected the expense ratio.), especially once the costs of turnover are included. The two funds at FT could be costing you another .5% for the money they spend on brokers buying and selling that is not in the ER. You should ascertain the basis you have in those funds and estimate the tax you would have to pay to sell them this year, next year, or whenever. You can compare that cost for however long you are holding the shares compared to the tax cost and decide how much you care. The bond funds probably do not have a lot of capital gain. The replacement for all those shares could be total stock or total international stock. If you can't transfer the funds to your final low cost broker, then you may have to sell them where they are.
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

Thank you!
Tax efficiency is mostly about what you hold in your taxable account. Right now, you have that filled with stuff that you can't just eliminate today.
Yes mostly, though I have $6000 in a taxable account and have to do another $6000 withdrawal from the Inherited IRA, so that is $12000 to start that I will add to that as I decrease the CD holdings and sell the other taxable funds. So good to know what to put where. Thank you[
Your early posts sounded pretty helter-skelter and flighty - like you were on the verge of doing stupid stuff and not even realizing it. You are starting to sound a little more grounded. This is a good thing. I think you've got a good start on a retirement portfolio. If you can continue to have income, it may work out pretty well. If you start spending down that "cash" more than just a little, you should expect some pretty grim times in the future.
Yes I have learned an amazing amount in a few days. Life changing, really
As you are looking for income, consider that getting more quarters for SS might be a very good thing.
I was thinking the same
and more specifically about the three stock funds that account for 6.43% of your assets or about $60,000. These are bad funds because they are too expensive (I corrected the expense ratio.), especially once the costs of turnover are included. The two funds at FT could be costing you another .5% for the money they spend on brokers buying and selling that is not in the ER. You should ascertain the basis you have in those funds and estimate the tax you would have to pay to sell them this year, next year, or whenever. You can compare that cost for however long you are holding the shares compared to the tax cost and decide how much you care. The bond funds probably do not have a lot of capital gain. The replacement for all those shares could be total stock or total international stock. If you can't transfer the funds to your final low cost broker, then you may have to sell them where they are.
Thank you for explaining that. The Janus has not made any money so I can sell that easily and it sounds like the bond fund might not incur that much tax. I will find out how much tax the others will generate and sell them over the next few years or sooner, depending on if the tax bill (and subsequent loss of the health insurance subsidy) are worth the savings in fees.

Thank you both again for this useful help
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

About selling your funds in taxable...

Your basis is not only what you paid for the funds. It also includes all those reinvested dividends (which you have paid tax on already). You may not have as large an untaxed gain in those funds as you think.
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

Your basis is not only what you paid for the funds. It also includes all those reinvested dividends (which you have paid tax on already). You may not have as large an untaxed gain in those funds as you think.
Yes I was looking at that.

It looks like a couple of thousand taxable income in each of the Franklin.
Haven't looked at the TROWE yet

More of a cost would be losing the Health insurance subsidy than the actual taxes on the capital gains

I called Vanguard today and know what I have to do to move what I can move now. Now I just have to firm up the allocation and I am ready to go.
It feels really good to have a plan.
Thank you.
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Jazztonight
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Re: Help with Improving my Portfolio

Post by Jazztonight »

Alana888 wrote:I called Vanguard today and know what I have to do to move what I can move now. Now I just have to firm up the allocation and I am ready to go.It feels really good to have a plan.Thank you.
I'm so glad to hear that you called Vanguard today. It demonstrates to us that you "mean business," and are serious about dealing with your situation.

Please report back as you take action.

You've gotten some excellent advice from some great people here. Go for it!
"What does not destroy me, makes me stronger." Nietzsche
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

I'm so glad to hear that you called Vanguard today. It demonstrates to us that you "mean business," and are serious about dealing with your situation.

Please report back as you take action.
I definitely will. I am very grateful for the advice I received
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

Okay I am getting ready to make the switch to Vanguard and I wanted to double check my plan here before I pull the trigger.
Please let me know if this sounds okay.

I am planning to transfer ~
From Schwabb ~ my Roth IRA ($144,000) my inherited IRA ($142,500) and the funds in my personal account ($6000)
From Franklin ~ my 2 Roth IRA's ($31,000 and $10,500)
From T Rowe ~ my Traditional IRA ($ 7000)
for a total of (approximately) $341,000

I will transfer into the same type of respective accounts at Vanguard, using the same funds in roughly the same allocations as the Vanguard Life Strategy Moderate Growth Fund.

After the transfer I will take the mandatory $5500 Inherited IRA distribution for this year and put the $ in the personal account

I am thinking to distribute the above as follows, based on what I understood about tax efficiency

Roth Ira
$10,500 - Total International Bond Index Fund

Roth IRA 2
$16,500 - Total International Bond Index Fund
$109,000 - Total Bond Market Index Fund
$49,500 - Total Stock Market Index Fund

Traditional IRA
$ 7000 - Total International Stock Index Fund

Inherited IRA
$93,500 - Total Stock Market Index Fund
$43, 500 - Total International Stock Index Fund

Personal Account
$11,500 - Total International Stock Index Fund

which I believe will come out to approximately

Vanguard Total Stock Market Index Fund - $143,000 - 42.1%

Vanguard Total International Stock Index Fund - $62,000 - 18.1%

Vanguard Total Bond Market II Index Fund - $109,000 - 31.9%

Vanguard Total International Bond Index Fund - $27,000 - 7.9%

I'm thinking to buy the 4 funds separately rather than as the LIfe Strategy fund because it seems to give me more freedom for tax efficiency and more freedom to change the percentages if I get braver in the future.

Does this make sense or is it just as good to put everything in the Life Strategy Moderate Growth Fund?
Is there a downside to this, or something I should do differently?

Thank you
dbr
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Re: Help with Improving my Portfolio

Post by dbr »

Alana888 wrote:
I'm thinking to buy the 4 funds separately rather than as the LIfe Strategy fund because it seems to give me more freedom for tax efficiency and more freedom to change the percentages if I get braver in the future.

Does this make sense or is it just as good to put everything in the Life Strategy Moderate Growth Fund?
Is there a downside to this, or something I should do differently?

Thank you
My personal bias is strongly if favor of holding the four funds separately for exactly the reasons you state. Some people think a balanced fund is better because the investor is kept less aware of the volatility of the separate components and less likely to make a bad move if something upsets them. I feel the opposite that it is good for people to see and understand how the different components of their strategy are actually working as long as the investor does not start worrying too much about each kind of investment in isolation.
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

Looks fine to me if you can remember, in a crash, to look at your whole portfolio instead of each account.

Remember that today is tax day and the Vanguard website might be very busy. :happy
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

One thing I did notice is that if I wanted to keep only these funds in these accounts, it limits my ability to move $ between accounts without upsetting the balance.
For example when I take my yearly mandatory inherited IRA distribution I can put the $ in my personal account by adding the same amount in International stock fund to my personal account, but if I wanted to put that money in the Roth IRA account I would have to add one of the stock funds to that account to maintain the same balance.
Not a big deal I guess.

Thanks for reminding me that today is not the best day to call Vanguard
I'll wait until tomorrow
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Hawkeye5
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Re: Help with Improving my Portfolio

Post by Hawkeye5 »

I've got to hand it to you, good job on the funds!

As I started the thread I thought "what a mess". You've made a really great recovery with the fund side of your financial life. I would be concerned with the real estate/debt. Not that real estate is bad in and of itself, I just hate debt and cannot fathom entering retirement owing a nickle.
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

Alana888 wrote:One thing I did notice is that if I wanted to keep only these funds in these accounts, it limits my ability to move $ between accounts without upsetting the balance.
For example when I take my yearly mandatory inherited IRA distribution I can put the $ in my personal account by adding the same amount in International stock fund to my personal account, but if I wanted to put that money in the Roth IRA account I would have to add one of the stock funds to that account to maintain the same balance.
Not a big deal I guess.

Thanks for reminding me that today is not the best day to call Vanguard
I'll wait until tomorrow
This might be an argument to use the LifeStrategy Funds. You'd just change the location of where you hold it. Or just add a fund to the Roth IRA - really not that big a deal.

If you have income, you should be putting money into tIRA or Roth IRA if possible each year. Which one you use would depend on your circumstances that year. Are you doing that? Putting money into Roth IRA is always preferable, in my opinion, to putting it into a taxable account.
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

've got to hand it to you, good job on the funds!
Thank you
If you have income, you should be putting money into tIRA or Roth IRA if possible each year. Which one you use would depend on your circumstances that year. Are you doing that? Putting money into Roth IRA is always preferable, in my opinion, to putting it into a taxable account.
Yes and if I don't have income I will put the money I have to withdraw from the inherited IRAinto the Roth account.
So I am thinking instead of moving the $5500 from the Inherited IRA into my personal account I will put it in the Roth IRA 1 and add $5500 of Total International Stock Index Fund to Roth IRA 1 (instead of my personal account)
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

Alana888 wrote:Yes and if I don't have income I will put the money I have to withdraw from the inherited IRAinto the Roth account.
You have to have income to contribute to a Roth IRA. Am I missing something?
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

You have to have income to contribute to a Roth IRA. Am I missing something?
Does that mean I can't take the mandatory distribution $ from the Inherited IRA and put them in the Roth IRA?
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

Alana888 wrote:
You have to have income to contribute to a Roth IRA. Am I missing something?
Does that mean I can't take the mandatory distribution $ from the Inherited IRA and put them in the Roth IRA?
Do you have any earned income?
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retiredjg
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Re: Help with Improving my Portfolio

Post by retiredjg »

My bad. As pointed out in another thread, it is compensation, not earned income. See page 8 of publication 590.

http://www.irs.gov/pub/irs-pdf/p590.pdf
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Alana888
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Re: Help with Improving my Portfolio

Post by Alana888 »

Thanks for the clarification
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