My divorce gave me...

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
SunnySaver
Posts: 4
Joined: Thu Jul 02, 2015 2:10 pm

My divorce gave me...

Post by SunnySaver »

...much sorrow and heartbreak, yet I received money in the split that I didn't have, and that I very much want to hold on to. When the divorce was final a year ago, I hired a financial planner to help me because I wasn't confident in my ability to invest the money. Now I'm ready to take these accounts back, and transfer them to Vanguard accounts (I had a Roth IRA with Vanguard previously). I want the simplest set up because I'm learning that is the best strategy. Also, I'm 53 years old. I'd be so grateful for some guidance from this forum.

Currently this is what I have:

$30,000 - credit union savings account
$143,500 Fidelity taxable account
$122,500 Fidelity Roth IRA
$237,500 Fidelity Traditional IRA

I'll receive $100,000 from my ex Jan. 1, 2016

Thank you!
mbres60
Posts: 1303
Joined: Tue Jul 03, 2007 1:47 pm

Re: My divorce gave me...

Post by mbres60 »

Have you read the Wiki on this site? That will give you lots of info. You need to determine your asset allocation (what percent of your money you want in stocks and how much in bonds). At your age many people do a 60/40 split (60% stock and 40% bond) however you do what is best for your risk tolerance. Look at your portfolio as a whole. It is easiest to move $$ in an IRA as no tax complications.

A simple portfolio would be the 3 fund one -- Total Stock Market, Total Bond Market, Total International. They are all index funds. Look to see what you currently have at Fidelity and see if any of them are these. If so compare their expense ratios with the Vanguard Fund. You want to pay the least amount of fees as possible.

I hope this helps you a little bit.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: My divorce gave me...

Post by pkcrafter »

Are you working? If so, how long are you planning to work? What is your tax bracket? Answers to these questions will help with suggestions, especially for the taxable account.

For the tax deferred accounts, Fidelity Freedom INDEX funds would be a very good choice. These are target retirement funds that have auto rebalancing, so no maintenance and no need to move to Vanguard. You would choose one by the asset allocation, not by date.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
User avatar
FelixTheCat
Posts: 2035
Joined: Sat Sep 24, 2011 12:39 am

Re: My divorce gave me...

Post by FelixTheCat »

Never do anything with your money when going through a difficult event.

If you are doing ok, then you can do the three fund index portfolio with Spartan funds at Fidelity if you want to keep the money there. Here's a equivalent wiki http://www.bogleheads.org/wiki/Fidelity You can still move your money to Vanguard if that's your preference.

Things to consider:
  • Do you have a 6 month emergency fund?
    Do you have any debt?
    Do you know what asset allocation your are comfortable?
    Think about tax efficiencies.
There's a bunch of other questions. House? Career?

Things will get better.
Felix is a wonderful, wonderful cat.
User avatar
Matahari
Posts: 725
Joined: Sun Mar 08, 2015 3:09 pm

Re: My divorce gave me...

Post by Matahari »

Do not overlook the Social Security benefits of a divorced spouse if your marriage lasted at least 10 years:

http://www.ssa.gov/planners/retire/divspouse.html

Best wishes to you going forward.
Lafder
Posts: 4117
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: My divorce gave me...

Post by Lafder »

It will be easier to make adjustments to what you have then to make a completely new portfolio, possibly.

With IRAs you can change where they are and what funds they hold without taxable consequences. But it is unclear where they are held now, it is possible they are already in great choices. Fidelity has some great fund options! Many folks on here do have funds at Fidelity. We do :)

The taxable accounts may incur capital gains tax if you sell your current holdings and move them.

Plus as you mentioned, another 100k will be coming that will be added to your taxable accounts.

I would take the time to post everything you have like this. viewtopic.php?f=1&t=6212

Include the names of the funds, and the Expense ratios for each to help decide how good they might be to keep. Make the total % add up to 100% except for your emergency fund which can be counted separately.

The format asks you to chose an asset allocation and list debts. Sometimes it makes sense to pay off a mortgage versus have taxable investments.

There is a general rec for age in bonds, but some folks have as low as age - 15. Any idea what you want ? What about International % ? Vanguard recs 20-40% but did raise their all in one funds to 40% recently.

I agree with the comment to consider a 3 fund portfolio or
Total Stock Market
Total International Stock Market
Total Bond Market

But some folks prefer the simplicity of all in one funds such as Target Date funds, Life strategy funds or other balanced funds.

It depends on how many times a year you want to check in and possibly make some rebalancing moves.

lafder
WhyNotUs
Posts: 2606
Joined: Sun Apr 14, 2013 11:38 am

Re: My divorce gave me...

Post by WhyNotUs »

Fido's Spartan Funds and close enough to Vanguard's core funds that you might find it simpler to stay put.

I think when I was with them they offered a free consultation. If you read the three fund info in the Wiki, you should be able to discuss the situation with them and tell them your desires and see if they can meet your needs with Spartan funds.
I own the next hot stock- VTSAX
Topic Author
SunnySaver
Posts: 4
Joined: Thu Jul 02, 2015 2:10 pm

Re: My divorce gave me...

Post by SunnySaver »

Thank you to everyone who responded. Clearly, I've got to be more specific--I'm new to this forum, and yes, I completely overlooked the guidelines for posting. I know my Roth and traditional IRAs are made up of a bunch of individual stocks; I'd prefer that they be in index or target/lifecycle funds--I want a simple, straightforward portfolio that I can manage without a lot of tinkering, especially since I'm new to this and learning so much. I also know it's best not paying fees to a financial services company. It's interesting to learn that it might be perfectly fine to stay with Fidelity. I do have to think of how best to handle the taxable money, especially since that will increase by 100K in January. Also, I'm in a 15% tax bracket and I don't have any debt.
lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 10:55 pm

Re: My divorce gave me...

Post by lack_ey »

Okay, in the taxable account if you sell shares this generates capital gains on the amount it's worth over the cost basis (what it was bought for). Long-term capital gains, for assets held longer than a year, are taxed at 0% up through the top of the 15% tax bracket.

What you'll want to do is sell whatever in the taxable account has a high basis and as much as possible, up to the point where you're still in the 15% tax bracket. Too much gains on top of your other income and you get into the 25% tax bracket. Though really, long-term capital gains there becomes 15% so it probably wouldn't be disastrous just to sell everything now and eat the taxes once.

For now, sell everything in the traditional and Roth and reallocate to Fidelity Spartan index funds. That should be simple enough.
WhyNotUs
Posts: 2606
Joined: Sun Apr 14, 2013 11:38 am

Re: My divorce gave me...

Post by WhyNotUs »

Your steps seem to be
1.) Identify an asset allocation that you feel comfortable with using diverse, low cost index funds
2.) Move your IRA funds toward that mix
3.) Start moving funds in the taxable toward that based on minimizing taxes

The third one could benefit from some professional help if long term capital gains and tax issues are not your cup of tea.
I own the next hot stock- VTSAX
bloom2708
Posts: 9855
Joined: Wed Apr 02, 2014 2:08 pm

Re: My divorce gave me...

Post by bloom2708 »

Vanguards Concierge service will help you transfer the accounts to Vanguard. They are very helpful.

Once the accounts are at Vanguard you will likely want to liquidate all funds. You will need to look at the gains in taxable. I would likely still sell and just pay the tax.

Then determine your asset allocation by reading about risk and options. I'll use 60% stocks / 40% bonds as an example.

Taxable $:

48% Total US Stock Index
12% Total International Stock Index
40% Intermediate-Term Tax-Exempt Bond

Tax Sheltered $:

48% Total US Stock Index
12% Total International Stock Index
40% Total US Bond Index

I put all three funds in each account. I know you can split and spread, but this just works for us.

You can get more complicated, you can add things to your mix, but this "3 fund portfolio" approach is both diversified and set up for the long haul.

Good luck!
JW-Retired
Posts: 7189
Joined: Sun Dec 16, 2007 11:25 am

Re: My divorce gave me...

Post by JW-Retired »

lack_ey wrote:
What you'll want to do is sell whatever in the taxable account has a high basis and as much as possible, up to the point where you're still in the 15% tax bracket. Too much gains on top of your other income and you get into the 25% tax bracket. Though really, long-term capital gains there becomes 15% so it probably wouldn't be disastrous just to sell everything now and eat the taxes once.
You should check your tax consequences if your state taxes capital gains as ordinary income, like my dear old California. Other states vary.
JW
Retired at Last
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: My divorce gave me...

Post by protagonist »

Hi, Sunny, and welcome to the forum.

I would second the recommendations of mbres and others above....mainly you want to keep things simple. Don't worry about tweaking much- just choose a fairly evenly balanced portfolio between stocks and fixed income depending on your risk tolerance (I prefer long-term CDs with generous early withdrawal penalties to bonds in this interest environment for fixed income but others would disagree). If you don't have a handle on your risk tolerance, 50-50 might be a good place to start. Less stock if you are prone to reacting in panic when the market is down. Just don't invest more in stock than you are afraid to potentially lose. Once you choose, let them take care of themselves- don't obsess over them.

As somebody above mentioned, first make sure you have enough liquid cash to cover emergency scenarios.

Also I would choose to pay off all debts prior to investing in stocks or bonds, and make staying out of debt your primary goal. Above all, make sure your credit cards are paid off in full every month.

Read the Boglehead wiki's, think critically about what you read, and understand what you are doing. Don't just take anybody's advice without thinking for yourself. Including mine.

I went through what you just went through almost a decade ago. In the process I made some bad financial decisions that at the time caused me distress and anger, but now, down the road, I no longer care. I am happier than ever. You probably will be too, because past mistakes are learning opportunities, and even very expensive learning opportunities are ultimately worth the price. Good luck.

ps...fire your financial planner ASAP. It's not rocket science.
dolphinsaremammals
Posts: 2094
Joined: Tue Jul 22, 2014 4:18 pm

Re: My divorce gave me...

Post by dolphinsaremammals »

How are you doing in terms of income vs. spending? Are you having to live out of that money, or do you have a job?
TIAX
Posts: 1433
Joined: Sat Jan 11, 2014 11:19 am

Re: My divorce gave me...

Post by TIAX »

Welcome to the forum! It would be best if you gave us a complete picture of your finances. What is your income? What other property do you have other than the accounts listed (real estate value, etc.). What are your federal and state tax brackets and how close are you to the next bracket? Do you have kids you need to put through college or other big expenses? etc. Will there be future payments from your ex other than the one you listed in 2016? (e.g., will you be receiving alimony or child support?).
Topic Author
SunnySaver
Posts: 4
Joined: Thu Jul 02, 2015 2:10 pm

Re: My divorce gave me...

Post by SunnySaver »

Wow! I'm so grateful for all of your feedback and kindness. I'm so glad I reached out to this forum. You guys are amazing! Here's the little bit crazy part: I'm on the run, so to speak. No, no, nothing illegal. It's just that I decided to leave the small town in Virginia where I've lived and worked for twenty years. My only child is a college student, and lives in that college town. I have no debt whatsoever. And I don't own a home. So I got rid of a lot of things--I'm storing the rest--and hit the road. For at least the next year, I'll bounce around the US and stay with family and friends, and occasionally travel solo to explore and think, and see and feel what life is like being single after 28 years of marriage. It's kind of scary, but exhilerating, too. And yes, I'm incredibly lucky to have such a terrific, albeit small, network of family and friends. As you can tell, it's important that I preserve the money I have and invest it smartly.
heyyou
Posts: 4452
Joined: Tue Feb 20, 2007 3:58 pm

Re: My divorce gave me...

Post by heyyou »

You are wise to sell the individual stocks and any non-index mutual funds that are inside both of your IRA accounts. There are no taxes due on the sales in those tax-sheltered accounts. By just selling soon, you will then have cash there until you decide on your allocation to stock and bond index funds.

Fidelity offers low cost Spartan funds to keep customers like you who are aware of Vanguard's low cost funds. Some good news is that if you choose to transfer to Vanguard (VG), the procedure is that you request paperwork from VG (for each account type--taxable, Roth IRA, traditional IRA), showing them the specific assets that are stored at Fidelity, then they ask Fidelity to send them your assets. Often some verification step will have to be repeated as a security feature (might want to keep the checking account at the bank where you are known).

The market has gone up so much that someday it will drop for a while. Here we are used to market fluctuations but market drops are often disconcerting to those who are starting to manage their portfolios. It is like rush hour traffic, unpleasant but an expected part of urban living.

In the taxable account, the assets can be liquidated but with tax consequences or just transferred to VG as is, without the tax figuring. If the individual stocks have grown in value, you will owe tax for the growth in the year when sold, but if they have lost value, those losses are subtracted from your gains on other stock sales. Owners of individual stocks can sometimes sell a little of both winners and losers to keep the tax small enough to not get bumped into a higher tax bracket.

Only the income that is more than your lower tax bracket is taxed at the higher rate. Some people misunderstand by thinking that their whole income is then taxed at the dreaded higher rate.

Suggested priorities:
Sell the individual stocks in the two IRA accounts soon, knowing that you will eventually buy index funds with the cash proceeds, after you have chosen a fund provider.
Sell the stocks in the taxable account according to the tax consequences this year and next, regardless of whether the account is at VG or Fidelity. A tax person, not an investment person, could help you choose how much of what to sell.
Decide whether to stay at Fidelity using Spartan index funds or expecting to transfer to VG when the dust settles from the tornado in your life. VG would be a fresh start.
Choose a preliminary allocation then think about it for a while before implementing it, knowing that you can change it as needed, but try not to tinker with it often. Patience, or just accepting good enough, is a profitable virtue when investing.
Using a Vanguard analogy, good luck on your voyage in a new direction. Probably feels like you were unexpectedly shanghaied onto a rocking boat from a land locked place.
User avatar
FelixTheCat
Posts: 2035
Joined: Sat Sep 24, 2011 12:39 am

Re: My divorce gave me...

Post by FelixTheCat »

SunnySaver wrote:it's important that I preserve the money I have and invest it smartly.
Good goal!

I'm going to provide a Fidelity example based on a 40% stock / 60% bond allocation (you mentioned preserving your wealth) while being tax efficient. The asset allocation is up to you to figure how much risk vs reward you want. This should provide an average annual return of 7.9% per Vanguard portfolio allocation models.
  • Taxable account (includes future 100K)
    Fidelity Spartan Total Market Index Fund (FSTVX) ~ 32%
    Fidelity Spartan Global ex U.S. Index Fund (FSGDX) ~8%

    Roth & Traditional IRA
    Fidelity Spartan U.S. Bond Index Fund (FSITX) ~ 60%
To see if this meets your income vs expenses, here's a way to look it up http://firecalc.com/

Have fun on your journey.

Asset Allocation
https://personal.vanguard.com/us/insigh ... llocations

Fidelity
http://www.bogleheads.org/wiki/Fidelity

Lazy Portfolio
http://www.bogleheads.org/wiki/Lazy_portfolios

Remember Tax Efficiency
http://www.bogleheads.org/wiki/Principl ... _placement
Felix is a wonderful, wonderful cat.
Topic Author
SunnySaver
Posts: 4
Joined: Thu Jul 02, 2015 2:10 pm

Re: My divorce gave me...

Post by SunnySaver »

I hope I haven't waited too long to reply back to everyone.

This is all very helpful and has gotten me reading and thinking. I'm inclined to do a 60% stock and 40% bond allocation for the IRAs, or even a 70/30. It seems I'm actually okay with some risk. I don't plan to touch the IRAs for 12-15 years, so I'd like to see those assets grow. I still plan to contribute the maximum $6500 annually to the Roth. However, maybe that allocation is too risky for a 53 year old? I'm feeling a bit more cautious with the taxable money, but not overly so. Also, I'm inclined to move everything over to Vanguard because that's where I set up my Roth originally. I like Vanguard.

But...

One thing I'm not sure about, is how to begin this process. I know I'm supposed to "fire" my advisor, but do I do that first? Or do I call Vanguard and get some guidance from them first? I'm not clear about the correct order of things. And I want to be cordial about it because my advisor is a friend -- not a close friend, but still a friend. I was thinking, too, that because of that, maybe I should keep everything at Fidelity -- that's who her company uses and why I had to switch from Vanguard. I know that many of you expressed that you're perfectly happy with Fidelity. Basically I'm not sure about the order of the steps I must take, and I'm afraid of making a costly mistake.

I'd appreciate any additional thoughts and guidance. Thank you!
jackholloway
Posts: 1063
Joined: Mon Jul 08, 2013 3:45 pm

Re: My divorce gave me...

Post by jackholloway »

It is very easy to begin the process.

You start by deciding whether to stay at fidelity or go to Vanguard. Both are ok choices, but do not stay at Fidelity because your advisor was there. Stay because you like their products or the local branch office. Switch because you like the funds array or the company ethos. I happened to pick VG, because my 401k was there and I liked the company style.

With around 500k, you qualify for a high tier at VG. https://investor.vanguard.com/what-we-o ... t-a-glance indicates a free CFP consultation and discount trades.

If you go that route, call them up and state that you would like to transfer assets in kind, and they will set up the forms.

If you stay at fidelity, all you need to do is call them and make sure your advisor no longer has permission to trade in your account.

In both cases, read the resources here, and perhaps post the portfolio question in full form to figure out your AA. 60/40 or 65/35 are both reasonable, though if you want to retire in a decade, I might go with the 60/40 to moderate risk a bit.

Fill out the forms, send them back, and in a few weeks, you should be good to go. I did exactly this when I consolidated from Janus, TRP, Berger, Royce, WellsTrade and Scottrade to VG. I still have some inherited accounts to consolidate, but they are fairly small.
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: My divorce gave me...

Post by protagonist »

SunnySaver wrote:
One thing I'm not sure about, is how to begin this process. I know I'm supposed to "fire" my advisor, but do I do that first? Or do I call Vanguard and get some guidance from them first? I'm not clear about the correct order of things. And I want to be cordial about it because my advisor is a friend -- not a close friend, but still a friend. I was thinking, too, that because of that, maybe I should keep everything at Fidelity -- that's who her company uses and why I had to switch from Vanguard. I know that many of you expressed that you're perfectly happy with Fidelity. Basically I'm not sure about the order of the steps I must take, and I'm afraid of making a costly mistake.

I'd appreciate any additional thoughts and guidance. Thank you!
1. "Friendship" and "business" are often strange bedfellows. Just as "cheap fast food" is often not so cheap, not so fast and hardly food. Firing your advisor is a business decision that you should do as soon as you decide to do something different with your money. Which seems to be now. If he/she asks why and if you feel compelled to explain, simply state that you are ready to manage your own finances and you are moving into low-cost index funds. If he/she has a problem with that, then he/she is not really much of a "friend". Move on.

2. Fidelity vs Vanguard: six of one, half dozen of the other. Like with Coke and Pepsi or different brands of vodka, everybody has their preference but if you check the label the ingredients are identical. I am with Fidelity because I have been with them for over 20 years and I have always been happy with their service. I would probably be equally happy with Vanguard. They are fierce competitors who offer similar products at similar prices. Go with the one you feel will suit you the best, and if you can't decide, flip a coin and you will probably be happy with the result.

3. Enjoy your travels and explorations.
Post Reply