Portfolio check up pre payout

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Bubbagump
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Joined: Thu May 09, 2013 11:42 pm

Portfolio check up pre payout

Post by Bubbagump » Mon Nov 17, 2014 2:42 pm

I have asked a few questions in this regard preparing for essentially today. We took on a large investor and there is a big payout headed my way in the next few days. So to sanity check and have folks poke holes in my thoughts... here I am.

I'll bypass a few of the "how to ask portfolio questions" rules as a lot don't apply.

Now:

80/20

$50k in high interest savings for short term emergency

Trad IRA
20% TBM (~$60K)

Taxable
20% Total International (~$60k)
60% Total Market (~$180k)

33% tax bracket

This is what I am thinking.

I get ~$5MM in proceeds after tax. Total portfolio now

60/40 with an equity split of 75 domestic/25 international

$250k in high interest savings

Convert IRA from TBM to VGSLX REIT index (Still $60k or 1.2%...)

Taxable
40% ($2MM) in VWIUX Vanguard Intermediate-Term Tax-Exempt
15% ($750k) in VTIAX Vanguard Total International
45% ($2.25MM) in VTSAX Total Stock Market

The REIT is sort of a throw away as , well, what else would I use that small amount of tax advantaged space for?

Thoughts?

EDIT: Math was way sideways.
EDIT 2:

I should also mention, I will have a salary for another few years, so my thought was to have a conservative growth position as I won't need income on this for some time (~5 years).

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Noobvestor
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Re: Portfolio check up pre payout

Post by Noobvestor » Mon Nov 17, 2014 11:20 pm

Just my opinions here but:

1) I wouldn't worry about the 1.2% part either way - whatever you want to do with that, go for it!

2) I would consider dropping your equity portion further - you've 'won the game' as they say, no reason to be above 50/50 IMHO

3) I would consider adding an inflation-protected component into the mix - with that much at stake I'd want some TIPS, or at minimum some non-munis. TIPS are still somewhat tax-efficient.

4) You could also keep more cash if you split it between institutions and still have FDIC protection - again, with that much at stake, I'd want somewhat more cash as a percentage of portfolio

5) Very subjectively here I would also hold more in ex-US stocks, but you're within the normal Boglehead range so *shrug*
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Bubbagump
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Re: Portfolio check up pre payout

Post by Bubbagump » Tue Nov 18, 2014 10:15 am

Hrm, TIPS. I hadn't really considered them because of the tax drag. I suppose there is some wisdom in protecting against inflation despite recent history being exceptionally low. Perhaps a 1/3 of the bond portion is reasonable? You said "at least non-munis" which I assume means something federal. I purposely avoided corporate for both risk and tax reasons. Thanks for the feedback!

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Noobvestor
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Re: Portfolio check up pre payout

Post by Noobvestor » Thu Nov 20, 2014 11:32 pm

Bubbagump wrote:Hrm, TIPS. I hadn't really considered them because of the tax drag. I suppose there is some wisdom in protecting against inflation despite recent history being exceptionally low. Perhaps a 1/3 of the bond portion is reasonable? You said "at least non-munis" which I assume means something federal. I purposely avoided corporate for both risk and tax reasons. Thanks for the feedback!
TIPS are exempt from state and local tax, so can have less tax drag than some other options depending on your state tax rate. Correct - non-munis I meant federal, though really you'd still gain some diversification adding corporates or something else (if you look, the muni bond funds don't have a lot of holdings, so if one falls through, it could make a dent, albeit still relatively small). But yes, I'd say 1/3 TIPS would be a good way to go!
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

Bubbagump
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Re: Portfolio check up pre payout

Post by Bubbagump » Thu Nov 20, 2014 11:58 pm

Less tax drag... the 33% deal (and top bracket this year) is a bit of a bummer. A good problem to have I suppose. The only muni fund I have considered is the Vanguard intermediate due to its diversification... 3500 some bond versus most others at ~1000. All this said, others claim bonds in your taxable is the way to do it. So maybe I am over thinking it and should take the lower risk over the tax advantage. Thanks again for the feedback.

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Noobvestor
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Re: Portfolio check up pre payout

Post by Noobvestor » Fri Nov 21, 2014 12:23 am

Bubbagump wrote:Less tax drag... the 33% deal (and top bracket this year) is a bit of a bummer. A good problem to have I suppose. The only muni fund I have considered is the Vanguard intermediate due to its diversification... 3500 some bond versus most others at ~1000. All this said, others claim bonds in your taxable is the way to do it. So maybe I am over thinking it and should take the lower risk over the tax advantage. Thanks again for the feedback.
I use Vanguard Intermediate and like it as a holding (your reason is one of the same reasons I don't hold their Long-Term Tax Exempt - not enough different bonds) - I'd feel a bit squeamish about holding more than 50% of my bonds in a tax-exempt fund personally (even if they are mostly AA or AAA), but I'm a sucker for diversification even if it comes at a bit of expense (always worried some muni-specific crisis could happen, perhaps regional in CA or another state where a lot of the holdings are). My larger reasoning is: if you have enough to retire, then probably preservation trumps cost differences, ergo hold some TIPS, etc... to diversify your protection versus maximizing your return.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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