How to allocate 3-6 million in assets to achieve goals?

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Sandtrap
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How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Wed Jan 11, 2017 11:21 am

(I hope this is the right format)

Emergency funds: (as below)
Debt: Zero (home/car/rental properties = no loans)
Marital Status: Married (adult children financially independent and away . . . “so far”)
Tax Rate: 15% (recently sold business – no taxable income beyond current interest on proceeds)
Residence: AZ
Age: 63/62
Desired Asset Allocation: unsure?
Current investible portfolio: 6 mil. cash. (as below)
Social Security: Not applied for yet.
Lifestyle: frugal - simple -- Newly Retired? :shock:

Current Assets:
3 mil cash. (from R/E business/assets sale, net)
2-3 mil. in progress receivables (partially in escrow properties + commercial properties sale in progress)
Home: $600k – no loan.
Rental properties: 3 townhouses – no loans. Income: $2400/mo.
Pensions: Zero
Contributions: Zero

Questions :confused

1 How to create a “pension” portfolio with some of the funds that generates an immediate reliable income stream of approx.. $6k/month with conservative growth potential and min. risk? (Not interested in SPIA)

2. How to create a secondary “portfolio” (3-4 fund?) with the balance of funds available that will be added to as my business assets are liquidated?

3. Does a 50/50 Wellington/Wellesley have a useful role to accomplish these goals?

4. Would a 3 fund portfolio such as SWTSX (Schwab total stock market), SWISX (Schwab International), and SWLBX (Schwab total bond index) be a good starting point and for which portfolio? (or Vanguard equiv)

5. I’ve asked this on another thread but will reinsert it here because maybe it’s in better context.
Is there anything to be gained by “containment” to help focus the 2 purposes/goals I have in mind by having my funds split between 2 brokerages, Schwab and Vanguard?

5. All suggestions appreciated.

7. Homework welcome. :confused

Huge thanks to everyone for helping this Bogleheads “newbie” up to this point (retiredjg, abuss368, livesoft, indexfan, blevine, nisiprius, and more. :sharebeer )
It has helped me better define my goals and questions to ask.

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David Jay
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by David Jay » Wed Jan 11, 2017 11:34 am

You have probably read this on other threads, but any portfolio provides "income", you just withdraw $6,000 a month. If you focus specifically on dividends it will skew your allocation and you will likely pay more in taxes (no LTCG with dividends).

I would look at your need, ability and willingness to take risk, select an asset allocation that fits and use a 3/4 fund portfolio for the $3M. The above withdrawal rate is 2.7 percent, which is near the "perpetual" number (I have read that 2.5% withdrawal is a reasonable number to take out with NO long term depletion of capital).

[edit] Larry Swedroe feels that a 30/70 allocation is the "sweet spot" for retirees, so I would start there and move your AA ratio to suit your comfort level.
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flossy21
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by flossy21 » Wed Jan 11, 2017 12:26 pm

It seems you want to have 2 buckets. One bucket would be for you to live on for the rest of your days and the other would be investing for future generations or to leave as a legacy?

How about something like this?

Bucket #1 - Money to live on for the rest of your days.

You could create a bond or CD Ladder that would come close to meeting your $6,000 per month income needs using the cash you have on hand. $2.5M CD Ladder paying 2% a year would be $75k/yr or about $4,200 a month. Keep the remaining $0.5M as your emergency fund and draw the remainder of the $1,800 from that each month; invest it in a low yield/low risk/guaranteed instrument of your choosing.

Here's the wiki that describes how to do that -- https://www.bogleheads.org/wiki/Laddering_bonds_or_CDs

Bucket #2 - Money to leave as a legacy

I would invest in a 3 fund portfolio like Total Stock Market, Total International and Total Bond in an Asset Allocation that suits your taste for risk and let it ride from there while reinvesting dividends. As new money comes along from the sale of your business then you can drop it in based on your chosen AA.

Here's the wiki on the various 3 fund porfolios -- https://www.bogleheads.org/wiki/Three-fund_portfolio

Of course you could always combine #2 & #1 and scrap the whole CD/Bond ladder idea. Just withdraw your $6,000 per month from the principal because this would be a withdrawal rate of 1.5% on $5M which is well below what is considered a safe perpetual withdrawal rate.

Here's the wiki that discusses Safe Withdrawal Rates (SWR) -- https://www.bogleheads.org/wiki/Safe_withdrawal_rates

livesoft
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by livesoft » Wed Jan 11, 2017 12:33 pm

Sandtrap wrote:3. Does a 50/50 Wellington/Wellesley have a useful role to accomplish these goals?

In my opinion, No. The main reason is that these funds are terribly tax inefficient even for someone in the 15% marginal income tax bracket. It appears that you haven't listed any tax-advantaged accounts that would help shelter investment income. I suppose you are counting on your rental property to shelter income?
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bigred77
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by bigred77 » Wed Jan 11, 2017 12:45 pm

OP,

I'm probably in the minority of bogleheads who likes the concept of "buckets", or mental accounting, or even just putting funds in different accounts if they are to be used for specific purposes. I know many here don't subscribe to this idea but I admit to doing it myself.

In your case however, I don't think it makes a whole lot of sense. You didn't state your annual expenses but from your post I assume it's probably close to 6k a month (or maybe 6k a month after accounting for the 2.4k you get from rental income, so 8.4k)? If that's the case, and I know you said you wern't interested in this but I really think it makes some sense in your situation based on the limited information, I would really consider a SPIA. You could guarantee 6k a month for both you and your wife for the rest of your lives for about $1.2M. That's only 20% of your assets and you can put an income floor under yourself for the rest of your days. That, plus SS (it probably makes sense to defer until 70 in your case but do your own research), plus your rental income would probably allow you to live on 10k a month once you reach 70. Plus you have almost $5M in reserve to fund one off expenses or increase your standard of living as you see fit (or just invest to leave a legacy). I think it's at least worth considering.

Since you've already won the game, I would just have one portfolio with a simple AA. Any reasonable allocation will work for you. 50/50 in wellington/wellesley is just fine (although probably not very tax efficient as I assume the majority of your assets are outside retirement vehicles). 40% US total stock market, 40% Muni Bond Index, and 20% Total international is also a simple, perfectly acceptable allocation (and likely more tax efficient for you). You have a lot leeway here (again, only if your expenses are similar to my assumptions).

Good luck and congrats.

gilgamesh
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by gilgamesh » Wed Jan 11, 2017 3:16 pm

If it's me, for the $6k (or more like $72k/year) I'll build a TIPS ladder until age 80. I will also add a large TIPS to mature at age 80 to buy an SPIA at that time. I might even suggest a nominal SPIA ladder.

At this stage, interest rates are abysmal, so may look at nominal CD's for the near future and delay the TIPS ladder purchase.

That's what Ill be doing when I retire. Side portfolio 80:20.

Just an idea. Not an expert.

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patrick013
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by patrick013 » Wed Jan 11, 2017 4:03 pm

You could get a 10 year Agency bond new issue that pays
over 3% as part of your fixed income.
age in bonds, buy-and-hold, 10 year business cycle

Chadnudj
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Chadnudj » Wed Jan 11, 2017 4:52 pm

$500k in a cash "emergency fund" (kept in 2-5 online savings banks to ensure FDIC insurance limits are observed)
$5.5 million in VTSAX.

The $5.5 million in VTSAX, with a current SEC dividends yield of 1.96%, would yield $107,800 per year ($8983 a month), nearly $3k a month in excess of your $6k per month "need," with considerable growth upside (long-term, it should increase).

The $500k would fund your expenses for nearly 7 years. In the event of a 50% market collapse (which might leave your dividends in VTSAX at $53,900 instead -- $18,100 short of your $6k per month target), you could withdraw from that until needed.

Grab Social Security at 70 (for whichever one of you/your spouse was the higher earner; if the other is eligible themselves, they can grab their own benefit earlier) and you'll have even more safety.

Adjust if you want less volatility by either (a) increasing the cash portfolio, or (b) buying some Vanguard Total Bond.

You've won the game, and then some. Insure your floor expenses, then take some risk with the rest so you can leave a really cool legacy to your heirs/charities.

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dratkinson
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by dratkinson » Wed Jan 11, 2017 5:50 pm

Not 100% clear on your situation: is $6K/mo in addition to $2.4K provided by rental income, or inclusive?

But assuming $6K/mo represents your total expenses. Then $72K/$6M = 1.2%, which is well within the realm of a self-sustaining rate of withdrawals. Meaning you could invest in a two or three fund portfolio and call it done, as you should be able to live on dividends alone.

Assuming this portfolio is 100% taxable and begins as $6M cash, then I favor this asset allocation:
--Total US stock market index. Why? Dividend yield ~2% and 100% QDI for the past several years (taxed at 0% in 15% fed tax bracket).
--(optional) Total international stock market index. Why? Nice to have something lower to buy when US is high, but lower dividend yield and ~70% QDI for past several years.
--Long-term national municipal bond fund (VWLUX). Why? SEC yield is ~2%, fed tax exempt, and does not add to AGI so helps to keep stock QDI taxed at 0%.

See: https://www.bogleheads.org/wiki/Princip ... _Placement
See: https://www.bogleheads.org/wiki/Three-fund_portfolio

Think I'd favor a 50/50 allocation. Why?
--More growth potential than more conservative retirement AAs.
--It's the "I don't know AA" and splits the difference to answer the question, "Which will do better this year: stocks or bonds?".

But if you don't need the extra growth, then no need to take the extra risk that comes with 50/50. Go with a more conservative retirement AA.

Schwab and Vanguard. If it makes you more comfortable to split your investments then do so. Otherwise I much prefer the simplicity of having fewer statements and accounts to manage.

Believe you should delay SS until age 70.
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Dandy
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Dandy » Wed Jan 11, 2017 6:02 pm

With 3-6 million you could do almost anything except gamble it away and you should be fine.

I like Dr. Wm Bernstein's approach which is if you have won the "game" (and you have) stop playing. He suggests you take your income needs to supplement any pension/social security/annuity etc. 20 - 25 years of those assets in "safe" products. e.g. CDs, Savings, Individual TIPS, short term bond funds, etc. and the rest is a "risk" portfolio that you can invest anyway you want.

So for you if you are needing 6,000 a month x 12 = $72,000 x 25 = $1,800,000. This would provide pretty secure funding for your
base needs to age 87 or so. I've ignored Social Security. The rest can be invested based on your risk tolerance, goals e.g. for extra vacations, charity, heirs etc. You will need to make sure that $6000 a month is a reasonable monthly income going forward and make necessary adjustment when necessary.

I don't have assets at that level but have a fairly high income floor. The above "safe" and "risk" approach has given a nice rational to my investment approach. I will begin to take RMDs in a little more than a year and will take some or all from the "risk" portfolio if the market does well and from the "safe" portfolio if it does poorly. I ended up with about a 44/56 overall allocation and I sleep well.

Good luck

dbr
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by dbr » Wed Jan 11, 2017 6:17 pm

Sandtrap wrote:1 How to create a “pension” portfolio with some of the funds that generates an immediate reliable income stream of approx.. $6k/month with conservative growth potential and min. risk? (Not interested in SPIA)



I agree with the general comments to the effect that the expected income is a very small withdrawal rate from the portfolio and can be obtained almost any way a person might want. If it were me I would abandon the concept of needing a "pension" and just invest the money in bonds and not too little in stocks and go away. I certainly would not try to configure "income" from dividends and interest. These points are being made by others as well.

But to directly address the above, one stake that could be driven into the sand would be the SPIA except that such an approach explicitly abandons the principal and a requirement is conservative growth. A different stake that could be driven into the sand would be to buy thirty year TIPS, take the real income as a reliable income stream and consider that growth at the rate of inflation meets "conservative growth." The low risk speaks for itself. So given a real rate today on 30 year TIPS of 0.88%, an income of $72,000/year, increasing with inflation, would require the purchase of a little over $8M in TIPS. This suggests that if the requirements are taken literally, there is actually a problem in accomplishing this "pension" as stated. Note that the conflict here is between the ideas of "reliable income" "growth (or at least not shrinking in real dollars) of the principal" and "minimum risk." A different way of saying this is having one's cake and eating it too and not having any uncertainty in the outcome.

Just something for thought. Also, the culprit is low interest rates, which is why there is a problem in bonds now.

qwertyjazz
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by qwertyjazz » Wed Jan 11, 2017 6:51 pm

With your withdrawal rate you are investing for your children's retirement- greater than 50 years
I would be 100 percent stocks minus 1-2 years spending in cash - 50/50 US international
For homework read through early retirement now website for really long term withdrawal stability
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Sandtrap
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 9:55 am

livesoft wrote:
Sandtrap wrote:3. Does a 50/50 Wellington/Wellesley have a useful role to accomplish these goals?

In my opinion, No. The main reason is that these funds are terribly tax inefficient even for someone in the 15% marginal income tax bracket. It appears that you haven't listed any tax-advantaged accounts that would help shelter investment income. I suppose you are counting on your rental property to shelter income?

Thanks "livesoft". Your posts are always helpful.
I don't have any tax advantaged accounts. And, while I still have properties, there will come a time that I don't have any R/E for tax shelters, so that is a concern.

So how does one construct a portfolio that is tax favorable?
Bond weighted?

Sandtrap
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 9:57 am

qwertyjazz wrote:With your withdrawal rate you are investing for your children's retirement- greater than 50 years
I would be 100 percent stocks minus 1-2 years spending in cash - 50/50 US international
For homework read through early retirement now website for really long term withdrawal stability

Thanks "qwertyjazz".
I have indeed been reading up on "withdrawal strategies. I can see how it can make a huge difference in returns and portfolio longevity.

Sandtrap
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 10:00 am

dbr wrote:
Sandtrap wrote:1 How to create a “pension” portfolio with some of the funds that generates an immediate reliable income stream of approx.. $6k/month with conservative growth potential and min. risk? (Not interested in SPIA)



I agree with the general comments to the effect that the expected income is a very small withdrawal rate from the portfolio and can be obtained almost any way a person might want. If it were me I would abandon the concept of needing a "pension" and just invest the money in bonds and not too little in stocks and go away. I certainly would not try to configure "income" from dividends and interest. These points are being made by others as well.
. . . . . . . .

Thanks for helping "dbr", always look forward to your posts.

When you mention "trying to configure 'income' from dividends and interest" . . . . please explain.

Is a well constructed portfolio supposed to provide growth of principlal as well as "income stream", if targeted for those purposes? :confused

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 10:08 am

Dandy wrote:With 3-6 million you could do almost anything except gamble it away and you should be fine.

I like Dr. Wm Bernstein's approach which is if you have won the "game" (and you have) stop playing. He suggests you take your income needs to supplement any pension/social security/annuity etc. 20 - 25 years of those assets in "safe" products. e.g. CDs, Savings, Individual TIPS, short term bond funds, etc. and the rest is a "risk" portfolio that you can invest anyway you want.

So for you if you are needing 6,000 a month x 12 = $72,000 x 25 = $1,800,000. This would provide pretty secure funding for your
base needs to age 87 or so. . . . . .Good luck


Thanks "Dandy".
Yes. I have been studying Bernstein and his conservative strategies make sense. As far as "winning the game", not so sure. I'm trying to "retire" and resist having the retirement party and funeral on the same day as so many of my extremely ambitious ancestors have done.

What you mention sounds like the "bucket analogy" where 1 bucket fullfills the "base income" (floor?) and so forth.
Like compartmentalization of funds and purpose?
Is that correct?

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in_reality
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by in_reality » Thu Jan 12, 2017 10:10 am

Sandtrap wrote:4. Would a 3 fund portfolio such as SWTSX (Schwab total stock market), SWISX (Schwab International), and SWLBX (Schwab total bond index) be a good starting point and for which portfolio? (or Vanguard equiv)



SWTSX and SWISX in taxable aren't the most tax efficient as they'll have yearly capital gains (not huge since they are index funds but still not zero like the ETFs). Many of Vanguard's mutual funds have an ETF share class, and the mutual fund takes advantage of the ETF mechanism to avoid yearly capital gain distributions.

I'd recommend Schwab ETFs. You can see a market weighted portfolio here (data is pulled from Morningstar when you load the page). https://docs.google.com/spreadsheets/d/ ... =842559917
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

livesoft
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by livesoft » Thu Jan 12, 2017 10:15 am

Sandtrap wrote:So how does one construct a portfolio that is tax favorable?
Bond weighted?

One uses broad market tax-efficient passively-managed low-expense-ratio index funds such as a Total US Stock Market Index fund and Total International Stock Market Index fund along with a muni tax-exempt bond fund. That's just 3 funds.

I would not say that's "Bond weighted."
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Sandtrap
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 10:16 am

dratkinson wrote:Not 100% clear on your situation: is $6K/mo in addition to $2.4K provided by rental income, or inclusive?
. . . . . . .
Think I'd favor a 50/50 allocation. Why?
--More growth potential than more conservative retirement AAs.
--It's the "I don't know AA" and splits the difference to answer the question, "Which will do better this year: stocks or bonds?".
. . . . . . . .
Believe you should delay SS until age 70.


Thanks for the detailed help "dratkinson", very well thought out.
One "fly in the ointment" right now is that I'm unsure when the rest of my real estate assets will be sold. It's all "in progress" and over the next year or following at most would not be an unreasonable scenario.
In the meantime, as the primary rental properties (apartment buildings) are sold, I no longer have an income stream and end up sitting on a large pile of cash. Like "no more egg producing chickens. . now eating chickens" which is not good.
So the advice of lst creating a "floor?" to fullfill basic needs with the funds I have is a good one.
Then what to do as large amounts of "cash" come my way. Add to existing portfolio, create another, and so forth.

Do you think those changing parameters change the AA?

Since I "only" have several million to work with at present what should happen lst as far as AA?

dbr
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by dbr » Thu Jan 12, 2017 10:17 am

Sandtrap wrote:
dbr wrote:
Sandtrap wrote:1 How to create a “pension” portfolio with some of the funds that generates an immediate reliable income stream of approx.. $6k/month with conservative growth potential and min. risk? (Not interested in SPIA)



I agree with the general comments to the effect that the expected income is a very small withdrawal rate from the portfolio and can be obtained almost any way a person might want. If it were me I would abandon the concept of needing a "pension" and just invest the money in bonds and not too little in stocks and go away. I certainly would not try to configure "income" from dividends and interest. These points are being made by others as well.
. . . . . . . .

Thanks for helping "dbr", always look forward to your posts.

When you mention "trying to configure 'income' from dividends and interest" . . . . please explain.

It makes no difference to the future value of the portfolio whether you withdraw from a portfolio by cashing dividend and interest checks or by selling shares and taking out the money. But if you are willing to take out money by any combination of cashing dividends and selling shares you can set the withdrawals exactly as you want them. This meets your first criterion of the income being stable. If you want to withdraw a specified amount only by taking all the dividends out, you have to mess around finding investments that pay exactly your target income. That is a bothersome, never finished, inefficient process that can also lead to taking unneeded risks or having a badly diversified portfolio. Of course, if your needed withdrawals are much less than the dividends paid you can just reinvest the excess, but you still may not be as tax efficient as you should be if you have unneeded high dividend payments in a taxable account.

Is a well constructed portfolio supposed to provide growth of principlal as well as "income stream", if targeted for those purposes? :confused

If your objective is to obtain an income stream and grow the portfolio, then a well constructed portfolio is probably a necessary condition but it is not a sufficient condition. The outcome depends on how much income you want and what degree of uncertainty you can tolerate. I posted the somewhat extreme example of going all TIPS to illustrate what a bind you place yourself in if you want constant real income from interest, a guarantee that the real value of the principal will be returned, and "no" risk. By contrast if you invest in a low cost diversified portfolio of stocks and bonds and set a withdrawal rate as low as yours, the probabilities are that the portfolio will grow to fabulous wealth with very little chance of falling below its initial value in real dollars at the end. Even so, there is not zero chance of failure. There could be points in time when the portfolio value is less than the starting value. The value of the portfolio will fluctuate a lot and could suffer large declines, but by the time they happen you would likely have a much higher portfolio value to fall from. In any case the final outcome will be quite unpredictable. How predictable and all the other issues is determined by the stock/bond allocation and by the luck of history. Also, to repeat, the biggest single determinate of outcome is the withdrawal rate, which for you is very small.


Sandtrap
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 3:01 pm

in_reality wrote:
Sandtrap wrote:4. Would a 3 fund portfolio such as SWTSX (Schwab total stock market), SWISX (Schwab International), and SWLBX (Schwab total bond index) be a good starting point and for which portfolio? (or Vanguard equiv)



SWTSX and SWISX in taxable aren't the most tax efficient as they'll have yearly capital gains (not huge since they are index funds but still not zero like the ETFs). Many of Vanguard's mutual funds have an ETF share class, and the mutual fund takes advantage of the ETF mechanism to avoid yearly capital gain distributions.

I'd recommend Schwab ETFs. You can see a market weighted portfolio here (data is pulled from Morningstar when you load the page). https://docs.google.com/spreadsheets/d/ ... =842559917


Thanks "in_reality" for the spreadsheet link.
My geek brain can make sense of that, though I can see that I have so much more to learn.
Homework is good.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 3:04 pm

in_reality wrote:
Sandtrap wrote:4. Would a 3 fund portfolio such as SWTSX (Schwab total stock market), SWISX (Schwab International), and SWLBX (Schwab total bond index) be a good starting point and for which portfolio? (or Vanguard equiv)


. . . . . . Many of Vanguard's mutual funds have an ETF share class, and the mutual fund takes advantage of the ETF mechanism to avoid yearly capital gain distributions.. . . . . .


Please explain what is the "ETF mechanism to avoid yearly capital gains distributions. . . " :confused or point to "homework I can do".

Thanks

Dandy
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Dandy » Thu Jan 12, 2017 3:30 pm

What you mention sounds like the "bucket analogy" where 1 bucket fullfills the "base income" (floor?) and so forth.
Like compartmentalization of funds and purpose?
Is that correct?


No not really that is why I used the term portfolio. In the usual bucket strategy there are several buckets and you use the short term buckets (of say 5 years safe money) first then fill that bucket with the intermediate bucket (of moderate risk) money and then fill the intermediate bucket with the long term bucket (usually higher risk) money etc. Lots of moving money.

As I understand it the Bernstein idea is you have enough in the "safe" portfolio to fund your retirement for 20 - 25 years. You take the funding from that "safe" portfolio and don't replace it with the "risk" portfolio. So the whole or almost whole funding for retirement is "safe" (not just 5 years). So the "risk" portfolio can be any allocation you want even 100% equities (not for me!!).

So there is not really any moving money around just withdrawing from your "safe" portfolio. Now, of course, if you are hale and healthy when the "safe" portfolio is getting to a few years of funding left you should consider how to fund additional years. That is why I added my approach which says when the "risk" portfolio does well I will take some or all from it rather than the "safe" portfolio. (Bernstein didn't address this).

In my mind that will preserve the "safe" portfolio by extending its useful life and/or having a bit more "safe" assets to account for expense inflation. Right now my "safe" portfolio is targeted to age 90 when I get to age 85 or so and am in good health I might want to add more "safe" money since longevity might require additional funding. It also might help those you really can't afford to have a "safe" portfolio of 20 years or more. By tapping the "risk" portfolio when it does well might help extend say a 15 year "safe" portfolio into a longer coverage.

Hope this helps and that I didn't misrepresent Dr. Bernstein's intentions.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by GMT-8 » Thu Jan 12, 2017 3:58 pm

Allocating assets for investment purposes, or "low-risk holding", and withdrawing the assets for retirement are different subjects.

I luckily started putting modest amounts into an IRA when they first came out ~ 40 years ago, and time & compound interest have been my friends. But withdrawing the money now that I am retired is another thing entirely, and I am nearly paralyzed by the variety of strategies that are suggested.

However, one tool I have found helpful is called the Optimal Retirement Planner by James Welch, which you can find free on the Web. It allows you to run some scenarios on the whole pie (or separate buckets) to establish how your holdings might grow, and how you can slice them up to enjoy them.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Dandy » Thu Jan 12, 2017 5:06 pm

Allocating assets for investment purposes, or "low-risk holding", and withdrawing the assets for retirement are different subjects.


I guess you can look at it that way especially in the accumulation stage. When you retire, or even shortly before, it is wise to reassess your allocation to account for loss of salary, bonuses, contributions, company matches and especially, for most, loss of human capital rather quickly, etc. If you do reassess your allocation as you enter retirement you should probably do so with your withdrawal strategy in mind.

I believe Dr. Bernstein's idea was explicitly for new retirees and set up the "safe" portfolio as the withdrawal source by design. It that case the investment allocation and withdrawal strategy were/are linked. Of course Dr. Bernstein didn't address special allocation for the "risk" portfolio - he just said you basically could have whatever allocation you desired.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 5:24 pm

citromike wrote:Allocating assets for investment purposes, or "low-risk holding", and withdrawing the assets for retirement are different subjects.

I luckily started putting modest amounts into an IRA when they first came out ~ 40 years ago, and time & compound interest have been my friends. But withdrawing the money now that I am retired is another thing entirely, and I am nearly paralyzed by the variety of strategies that are suggested.

However, one tool I have found helpful is called the Optimal Retirement Planner by James Welch, which you can find free on the Web. It allows you to run some scenarios on the whole pie (or separate buckets) to establish how your holdings might grow, and how you can slice them up to enjoy them.

I agree. Living off the money post "retirement" (tough getting used to that word) is another thing entirely.
Paralysis by analysis is very real. Short par 4 after a missed tee shot. 2nd shot. . . layup or risk the approach shot?

"Living Off Your Money: The Modern Mechanics of Investing During Retirement with Stocks and Bonds Hardcover – April 28, 2016
by Michael H McClung " is an outstanding work on various withdrawal strategies.
https://www.amazon.com/gp/product/0997403411/

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by JDCarpenter » Thu Jan 12, 2017 6:01 pm

Sandtrap wrote:...

"Living Off Your Money: The Modern Mechanics of Investing During Retirement with Stocks and Bonds Hardcover – April 28, 2016
by Michael H McClung " is an outstanding work on various withdrawal strategies.
https://www.amazon.com/gp/product/0997403411/


I also thought McClung's book/analysis was strong. But have you read the extensive thread critiquing/analyzing it? Here: viewtopic.php?t=192105 Some good points are raised on all sides. I will be putting his spreadsheet through its paces, along with BigFoot48's RPM.
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Thu Jan 12, 2017 7:06 pm

JDCarpenter wrote:
Sandtrap wrote:...

"Living Off Your Money: The Modern Mechanics of Investing During Retirement with Stocks and Bonds Hardcover – April 28, 2016
by Michael H McClung " is an outstanding work on various withdrawal strategies.
https://www.amazon.com/gp/product/0997403411/


I also thought McClung's book/analysis was strong. But have you read the extensive thread critiquing/analyzing it? Here: viewtopic.php?t=192105 Some good points are raised on all sides. I will be putting his spreadsheet through its paces, along with BigFoot48's RPM.


Thanks "JD". . .
There was at least one comment? on that thread about most works/books focusing on the accumulation phase and not on the immediate and long term repercussions of "withdrawal strategy" which after reading a bit beyond the "prime harvesting" section I tend to agree. At least at my "newbie level".
I think as long as one initially disregards the graphs and actuarial supporting data and tries to absorb each "withdrawal strategy" in the bigger picture it's digestible. I'm not as well read on these things as others here but there must be better books or sources on withdrawal strategies that address the concerns of the retiree in the 'survival' stage vs the "accumulation phase" of life.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by RAchip » Thu Jan 12, 2017 7:58 pm

I would suggest that you open a brokerage account where they will give you free trades every year. Then take $3mm and buy abut 20-25 blue-chip dividend stocks (I suggest, in alphabetical order: AMGN, BP, ED, F, GE, GIS, INTC, JNJ, KMB, LLY, LMT, MCD, MO, MSFT, PAYX, PEP, PG, SO, T, UPS, VZ, WBA, WMT). You don't have to buy exactly equall amounts. (I would allocate a little more money to MO, VZ, T, SO , JNJ and MSFT). This portfolio will produce at least $100,000 in dividends annually for you (depending on you exact allocation among the holdings) and those dividends are highly likely to grow by at least 3-5% every year. The total cost of this to you is ZERO. If you just buy and hold, these dividends are qualified dividends taxed at the same rate as LTCG under Trump (20%). In 10 years it is highly likely that in addition to paying you $100,000 (and growing) every year, the market value of this portfolio will very substantially exceed $3mm.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by dratkinson » Thu Jan 12, 2017 8:08 pm

Sandtrap wrote:...
So the advice of lst creating a "floor?" to fullfill basic needs with the funds I have is a good one.
Then what to do as large amounts of "cash" come my way. Add to existing portfolio, create another, and so forth.

Do you think those changing parameters change the AA? No.
...


I believe your retirement AA should be constant---not affected by owing/selling properties. (This assumes we're not talking about an investment in REITS. Why? Because REITs are tax inefficient and belong in a tax-advantaged account---not your situation.)

In the past (your working years) you received income (rent) from properties. In the future (your retirement years) you will receive income (distributions: ordinary dividends, tax-exempt dividends, QDI, STCG, LTCG) from your investments. As the first source draws down, the second should ramp up. So don't worry about losing a source of income, you are not, as you are just transitioning sources of income. So your task now is to set up your retirement investments so your future income will be tax efficient.

Due to inflation, believe your point of greatest risk is being all cash---believe it to be unwise to just sit on a large pile of cash. So the sooner you set up your retirement investments, the sooner you begin creating "more eggs to produce more chickens".

Believe it's okay set aside some funds (~5-yrs of livings expenses) to create a floor to fulfill basic needs during the transition period. But believe all the rest should be invested in your AA. And as you sell properties, then add the sale proceeds to your AA.

And if/when the day comes that you discover that your investments are producing more income than you need, then plow the excess back into your AA. And if the (~5-yr) cash floor you've set aside comes to seem excessive, then move some of it into your AA too.

Bottom line. Do whatever allows you to sleep well at night: the size of your cash floor, your AA, using one brokerage or multiple,....
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by itstoomuch » Thu Jan 12, 2017 8:54 pm

Sandtrap, OP wrote:Current Assets:
3 mil cash. (from R/E business/assets sale, net)
2-3 mil. in progress receivables (partially in escrow properties + commercial properties sale in progress)
Home: $600k – no loan.
Rental properties: 3 townhouses – no loans. Income: $2400/mo.
Pensions: Zero
Contributions: Zero
Questions :confused

1 How to create a “pension” portfolio with some of the funds that generates an immediate reliable income stream of approx.. $6k/month with conservative growth potential and min. risk? (Not interested in SPIA)
2. How to create a secondary “portfolio” (3-4 fund?) with the balance of funds available that will be added to as my business assets are liquidated?
3. Does a 50/50 Wellington/Wellesley have a useful role to accomplish these goals?
4. Would a 3 fund portfolio such as SWTSX (Schwab total stock market), SWISX (Schwab International), and SWLBX (Schwab total bond index) be a good starting point and for which portfolio? (or Vanguard equiv)
5. I’ve asked this on another thread but will reinsert it here because maybe it’s in better context.
Is there anything to be gained by “containment” to help focus the 2 purposes/goals I have in mind by having my funds split between 2 brokerages, Schwab and Vanguard?
[6]. 5. All suggestions appreciated.
7. Homework welcome. :confused

Huge thanks to everyone for helping this Bogleheads “newbie” up to this point (retiredjg, abuss368, livesoft, indexfan, blevine, nisiprius, and more. :sharebeer )
It has helped me better define my goals and questions to ask.

1 & 3. ans. If you want to have a pension like portfolio without annuities, I don't know if you can do it. I tried to do it in W funds until 2008 when I lost my nerve and bought annuities.

5,6 & 7. ans.
We discovered the joys of early tax free SS, before we turned on other income streams. My health condition indicates that I may not make median mortality or breakeven point for delaying SS to FRA or to 70.5yo
We discovered 2016 tax year (our first full year) the wonders of RE depreciation, income, asset growth. This asset only happened in 2015.
There are other annuities besides SPIA.
We have more than enough income. We have slightly more income than you require on less current asset valuations that are appreciating and will be left to heir(s).
We have Discretionary Accts that are heavy in dividend companies.
You will need to do your homework.
What worked for us, may no longer be applicable.
YMMV :beer
4 buckets: SS+pension;dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rental. Do OK any 2 bkts. LTCi. Own, not asset. Tax 25%. Early SS. FundingRatio (FR) >1.1 Age 67/70

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Re: How to allocate 3-6 million in assets to achieve GOALS?

Post by celia » Thu Jan 12, 2017 9:22 pm

Sandtrap wrote:...Huge thanks to everyone for helping this Bogleheads “newbie” up to this point (retiredjg, abuss368, livesoft, indexfan, blevine, nisiprius, and more. :sharebeer )
It has helped me better define my goals and questions to ask.

Maybe I missed it and don't recall reading any of your other threads, but what are your "goals"? It seems to me you have likely reached them already with your ample net worth.

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Re: How to allocate 3-6 million in assets to achieve GOALS?

Post by Sandtrap » Thu Jan 12, 2017 10:55 pm

celia wrote:
Sandtrap wrote:...Huge thanks to everyone for helping this Bogleheads “newbie” up to this point (retiredjg, abuss368, livesoft, indexfan, blevine, nisiprius, and more. :sharebeer )
It has helped me better define my goals and questions to ask.

Maybe I missed it and don't recall reading any of your other threads, but what are your "goals"? It seems to me you have likely reached them already with your ample net worth.


Excellent question "celia".
Simplistically, my goals are similar to what I did in real estate.
First, to establish a reliable income stream. (It would be nice to have it as substantial as it used to be but, realistically, it's not needed.)
Second, long term "prosperity & growth".
Conceptually, my fascination lay within the "chess game" itself rather than the "achievement of a defined financial net worth".

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by SDBoggled » Fri Jan 13, 2017 3:05 am

Sorry this does not answer your question but I was wondering why you are selling apartment buildings which generate income which you have to replace.

Could you not 1031 into more attractive real estate assets and use a manager?

I expect my real estate to generate sufficient retirement income AND appreciate for my kids (near passive degree of effort for more than last decade). More importantly, I don't expect to pay tax on appreciation due to stepped up basis.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by lostdog » Fri Jan 13, 2017 8:00 am

Chadnudj wrote:$500k in a cash "emergency fund" (kept in 2-5 online savings banks to ensure FDIC insurance limits are observed)
$5.5 million in VTSAX.

The $5.5 million in VTSAX, with a current SEC dividends yield of 1.96%, would yield $107,800 per year ($8983 a month), nearly $3k a month in excess of your $6k per month "need," with considerable growth upside (long-term, it should increase).

The $500k would fund your expenses for nearly 7 years. In the event of a 50% market collapse (which might leave your dividends in VTSAX at $53,900 instead -- $18,100 short of your $6k per month target), you could withdraw from that until needed.

Grab Social Security at 70 (for whichever one of you/your spouse was the higher earner; if the other is eligible themselves, they can grab their own benefit earlier) and you'll have even more safety.

Adjust if you want less volatility by either (a) increasing the cash portfolio, or (b) buying some Vanguard Total Bond.

You've won the game, and then some. Insure your floor expenses, then take some risk with the rest so you can leave a really cool legacy to your heirs/charities.


+1. This is a simple plan or go 50/50. 50% Vanguard Total Stock Market Index Admiral and 50% Vanguard Intermediate-Term Tax Exempt and you're done. If you're in the 25% tax bracket or below you could go with Vanguard Total Bond Market Index fund. If you want international in the mix you can add Vanguard Total International Index fund in the range of 20% to 40% of your stock allocation.
"Our life is frittered away by detail. Simplify, simplify." -Thoreau | Vanguard Total World Index

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Fri Jan 13, 2017 12:03 pm

SDBoggled wrote:Sorry this does not answer your question but I was wondering why you are selling apartment buildings which generate income which you have to replace.
Yes. There's a huge temptation to remain in R/E. Financial comfort zone. 40 years of hard experience. Just need to generate a frugal retiree income stream as I have no "pension".
Could you not 1031 into more attractive real estate assets and use a manager?
Yes. An option. No. Not feasible.
I expect my real estate to generate sufficient retirement income AND appreciate for my kids (near passive degree of effort for more than last decade). More importantly, I don't expect to pay tax on appreciation due to stepped up basis.Awesome. Congratulations.


Why sell?
Deleting "accumulation phase".
2 spine surgeries. (big one)
Sleep factor.
Last edited by Sandtrap on Fri Jan 13, 2017 12:21 pm, edited 1 time in total.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Fri Jan 13, 2017 12:15 pm

[/quote]
+1. This is a simple plan or go 50/50. 50% Vanguard Total Stock Market Index Admiral and 50% Vanguard Intermediate-Term Tax Exempt and you're done. If you're in the 25% tax bracket or below you could go with Vanguard Total Bond Market Index fund. If you want international in the mix you can add Vanguard Total International Index fund in the range of 20% to 40% of your stock allocation.[/quote]

Thanks for the advice and clarity.

Why do you add "international" into the mix?

What influences the decision to go with a specific "x"% allocation (20-40%) of "international" as a subset of the 50% stock asset class?

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Fri Jan 13, 2017 12:22 pm

Sandtrap wrote:

+1. This is a simple plan or go 50/50. 50% Vanguard Total Stock Market Index Admiral and 50% Vanguard Intermediate-Term Tax Exempt and you're done. If you're in the 25% tax bracket or below you could go with Vanguard Total Bond Market Index fund. If you want international in the mix you can add Vanguard Total International Index fund in the range of 20% to 40% of your stock allocation.[/quote]

Thanks "lostdog" for the advice and clarity.

Why do you add "international" into the mix?

What influences the decision to go with a specific "x"% allocation (20-40%) of "international" as a subset of the 50% stock asset class?[/quote]

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by JDCarpenter » Fri Jan 13, 2017 1:37 pm

Sandtrap wrote:...

Why do you add "international" into the mix?

What influences the decision to go with a specific "x"% allocation (20-40%) of "international" as a subset of the 50% stock asset class?


You'll get a wide range of responses to this question here. Some see US as more than sufficient given its track record, the fact most of us live here, and the fact that much of the US index derives substantial earnings from international operations. Others see the US stocks as ~50% of world cap weight, look at high current CAPE ratio, and have nightmare of retiring in Japan during December 1989--those folks (moi, pretty much) will skew to a 50% international weighting. Others will settle in somewhere in the middle.

Other than my firm belief that "of course, I'm right," there is no definitive answer.
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by dbr » Fri Jan 13, 2017 6:18 pm

No there is a definitive answer. Bogleheads firmly believe the right allocation is any number between 0% of stocks and 50% of stocks (for US investors.) There is a concept of "simple numbers" that says divide the difference by 2, hence 25%. If one adds to that the concept of prime number allocations, one can choose 23% and be pretty good.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by JDCarpenter » Fri Jan 13, 2017 6:24 pm

dbr wrote:No there is a definitive answer. Bogleheads firmly believe the right allocation is any number between 0% of stocks and 50% of stocks (for US investors.) There is a concept of "simple numbers" that says divide the difference by 2, hence 25%. If one adds to that the concept of prime number allocations, one can choose 23% and be pretty good.


:sharebeer
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by in_reality » Fri Jan 13, 2017 8:43 pm

Sandtrap wrote:Why do you add "international" into the mix?

What influences the decision to go with a specific "x"% allocation (20-40%) of "international" as a subset of the 50% stock asset class?


Adding International is most import in accumulation I think. US valuations are high now and expected returns lower. If one were to spend years trying to accumulate that way, only to see the value of the dollar fall, I don't think it would be optimal.

You have accumulated and are spending in dollars so it might not be so important. I have too but keep international at 40% of equities. (50% FI, 30% US, 20% international overall). I overweight emerging markets as a secondary inflation protection and value stocks too.

I was 30% international but increased as the US did well since I worry about valuations.

Anyway, total return is probably better than a dividend strategy. You can sell to make your own dividend anytime. There are great dividend funds out there as rock bottom ERs like SCHD at Schwab if you really have to go that route. Vanguard has them too. There is also SCHH (Real Estate) if you need to overweight it.

For fixed income I use munis, brokered CDs and have lots of foreign currency due to being an expat and a wife who gets and holds it though work. I go longer in the munis and CDs for the yield knowing that the cash is earning nothing and has a zero duration. There is currency risk but that is just life.

I also overweight real estate (both US and foreign) modestly as another secondary inflation protection (you probably know more than I on the wisdom of this).

You can have a look at Schwab's Target Date Index funds (all-in-one) which are for retirement here: https://www.csimfunds.com/secure/file/P-9430864

Notice they are out of emerging by retirement, don't hold international small (which I overweight -- particularly small value), hold intermediate TIPS (SCHP) for inflation protection and short term treasuries and cash to limit rate risk.

Since my portfolio will be large enough by retirement, I am going to keep holding the emerging and international small value knowing that even if it's volatile, it's ok because I won't have to sell much really (dividends will pretty much cover my expenses) and can hold them until they do well enough to sell. 50% in equities is a good amount in terms of beta risk-- but I also think the extra expected returns from holding value and small value will help it out. If there is higher inflation, I think emerging and real estate may help [it's not true in all cases of course -- this is very general --].

Also, long term higher US inflation would probably mean currency devaluation so having international should help as they'd get a currency boost. I am not really an expert though and I don't know what happened to foreign stocks during the energy crisis in the US. That was a global supply problem so maybe no place did well. That said, even gulf nations now are in emerging funds. China does scare me a little because I don't think investors have protections, and some funds are really increasing their exposure to A shares. I don't want to get into market cap weighting of China as it's too much exposure given their large market cap. Investor protections are lacking in all emerging countries probably but China has the strength I think to really defy the world if it so chose.

Sorry for the the unorganized off the top of my head answer ...

The downside of my more complicated portfolio is if my wife has to manage it after I die. I might have her go to Schwab's new Intelligent advisory services (not out yet actually) which is comparable in price to Vanguards but will continue a modest small value tilt like I have.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by abuss368 » Fri Jan 13, 2017 9:42 pm

You could include U.S. And International REITs in your allocation for additional cash flows to you from dividends. You have real estate with no loans and it is taxed the same. Have you invested in the properties so long there is no more depreciation?
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Sat Jan 14, 2017 8:18 am

abuss368 wrote:You could include U.S. And International REITs in your allocation for additional cash flows to you from dividends. You have real estate with no loans and it is taxed the same. Have you invested in the properties so long there is no more depreciation?


Thanks "abuss368" for the help. Appreciate it.
I willl study up on REITs as you suggest. Some of my properties have been held for over 30 years, others less than 10. I helped fund the last of the ACA with the capital gains I paid last year. (millions) Huuuge :(
Homework is good.
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Sat Jan 14, 2017 8:32 am

in_reality wrote:
Sandtrap wrote:Why do you add "international" into the mix?

What influences the decision to go with a specific "x"% allocation (20-40%) of "international" as a subset of the 50% stock asset class?

. . . . . . . . . .
Anyway, total return is probably better than a dividend strategy. You can sell to make your own dividend anytime. There are great dividend funds out there as rock bottom ERs like SCHD at Schwab if you really have to go that route. Vanguard has them too. There is also SCHH (Real Estate) if you need to overweight it. . . . .
Please explain the concept of "dividend strategy"? What is "overweigh"?
You can have a look at Schwab's Target Date Index funds (all-in-one) which are for retirement here: https://www.csimfunds.com/secure/file/P-9430864 Thanks for the link. I will read it thoroughly. Very interesting. Compare it to 3 fund portfolio?
. . . . . . .
Sorry for the the unorganized off the top of my head answer ...I greatly appreciate the help. Homework is good.
. . . . . . . . . . .
The downside of my more complicated portfolio is if my wife has to manage it after I die. I might have her go to Schwab's new Intelligent advisory services (not out yet actually) which is comparable in price to Vanguards but will continue a modest small value tilt like I have.

Yes. This was my thought exactly. I'm taking a huugge loss converting tangible apartment buildings and properties into a portfolio, as well as a property mgt company and construction company. "Closure was tough." I will tell my successor trustee about the Schwab intelligent advisory. I assume you've done in depth research on it. Is it like Vanguards PAS services with similar fees? What is your opinion of both services?

Again, thanks for your help and advice. Homework is good.

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Re: How to allocate 3-6 million in assets to achieve goals?

Post by in_reality » Sat Jan 14, 2017 10:14 am

Sandtrap wrote:
in_reality wrote:
Sandtrap wrote:Why do you add "international" into the mix?

What influences the decision to go with a specific "x"% allocation (20-40%) of "international" as a subset of the 50% stock asset class?

. . . . . . . . . .
Anyway, total return is probably better than a dividend strategy. You can sell to make your own dividend anytime. There are great dividend funds out there as rock bottom ERs like SCHD at Schwab if you really have to go that route. Vanguard has them too. There is also SCHH (Real Estate) if you need to overweight it. . . . .
Please explain the concept of "dividend strategy"? What is "overweigh"?
You can have a look at Schwab's Target Date Index funds (all-in-one) which are for retirement here: https://www.csimfunds.com/secure/file/P-9430864 Thanks for the link. I will read it thoroughly. Very interesting. Compare it to 3 fund portfolio?
. . . . . . .
Sorry for the the unorganized off the top of my head answer ...I greatly appreciate the help. Homework is good.
. . . . . . . . . . .
The downside of my more complicated portfolio is if my wife has to manage it after I die. I might have her go to Schwab's new Intelligent advisory services (not out yet actually) which is comparable in price to Vanguards but will continue a modest small value tilt like I have.

Yes. This was my thought exactly. I'm taking a huugge loss converting tangible apartment buildings and properties into a portfolio, as well as a property mgt company and construction company. "Closure was tough." I will tell my successor trustee about the Schwab intelligent advisory. I assume you've done in depth research on it. Is it like Vanguards PAS services with similar fees? What is your opinion of both services?

Again, thanks for your help and advice. Homework is good.[/quote.

Ok, you have a lot to learn....

Do you understand Market Cap Weighting? VTI or VTSAX (same fund) is an example that holds all companies according to their size (market capitalization).

Dividend Strategy is what was recommended earlier ... holding companies that pay higher dividends. It sounds great but you can go total return and hold companies that use profits to grow the business and sell some appreciate shares if you need money. That is total return.

Overweight means buy more of something than it's Market Cap. So if you overweight Real Estate, you hold more than it's true weight in the economy.

Anyway, PAS is low cost and goes by market cap weighting. It's top notch and there are no worries using it. International bonds are a little questionable but they won't lost value if US rate spike so are there for less volatility. Anyway, it basically the three fund portfolio that gets recommended here plus the international bonds.

Schwab tilts to small and value in their robo advisory (not the target date fund I linked to earlier). That service is going to be part of the Schwab Advisory so you will get a small value tilt which has higher expected returns with the downside of underperforming for long periods until it does well. I don't use advisory or their robot service and just use the funds myself FNDA, FNDC, FNDE etc. I had enough of advisory and Wells Fargos Private Bank and am cynical on advice. I will probably have Schwab Advisory named as investment advisor in my trust. The only issue is their cash holdings (which they earn money on via lending out through their bank). It's true cash is a zero duration bond and can buffer volatility but then the cash drag might add additional cost. I think the real cost is quite similar to PAS but I prefer Schwab's value exposure.

This now gets us to factor investing which a small value tilt is one type of.

We argue endlessly here about whether factor investing or market cap weighting is best.

Some argue that multi factor funds are superior (Schwab doesn't use them). However, they are really new and have no track record. It's a huge undertaking to understand the merits and evaluate it. A great book is here http://www.etf.com/sections/index-inves ... -investing

Larry isn't that fond of the Schwab funds but others here are. The value funds aren't in the calculator I showed you which only includes the market cap weighting because it's too difficult to try to explain factor investing right off the bat to everyone. You seem like you want to learn as much as you can so I mention it and that book is probably the best explanation.

I haven't used PAS myself but my experience at Vanguard was terrible. They are busy handling all the transfers in and their IT system was doing weird things like confusing whether things should be a + or a - and it caused me some trouble and they ended our relationship after I complained too much.

A lot of people question whether factor investing is worth it -- it takes time to understand, it has higher cost, it might look like it's underperforming for even a decade or potentially decade(s) -- and market cap is good enough or perhaps better. To me I want diversification in holdings and beyond just holding many companies and countries, I want diversification in the factors that academic have identified leading to success. For example, everyone knows Japanese returns since their bubble have been awful, but actually Japanese value stocks have done ok. So I want more exposure to value stocks somehow just to avoid buying things that are overvalued.

We also argue endlessly about international exposure.

The great thing about indexing is there are so many ways to do it right. It doesn't really matter if you go PAS or Schwab advisory or manage your own funds or your exact allocation to international. Broad diversification and low fees is such a winning combo that actually it's hard to go wrong. Of course we can have nuclear war the melts the planet but what is going to protect you agains that anyway.

Broad diversification and low fees. That's what you want and there are any number of reasonable interpretations on that. Don't stress about thinking you have to get it perfect...
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

Sandtrap
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Sat Jan 14, 2017 11:40 am

in_reality wrote:
Sandtrap wrote:
in_reality wrote:
Sandtrap wrote:. . . . . . . .
Again, thanks for your help and advice. Homework is good.[/quote.
. . . . . . . You seem like you want to learn as much as you can . . . . . .
You're absolutely correct on that. I feel I've done passably well over the decades because I have a need? (OCD?) to fully understand every known factor to attribute to a tangible success (gain) or tangible failure (loss) > then internalize (learn) to do better the next time. Learning is immersive and rewarding if applied successfully.
. . . . . . . .
The great thing about indexing is there are so many ways to do it right. It doesn't really matter if you go PAS or Schwab advisory or manage your own funds or your exact allocation to international. Broad diversification and low fees is such a winning combo that actually it's hard to go wrong. . . . . . Thanks for that confirmation. I doubt that I will pay the fees for PAS, etc, if I can do it competently myself. (more fun anyway)
. . . . . . .
Broad diversification and low fees. That's what you want and there are any number of reasonable interpretations on that. Don't stress about thinking you have to get it perfect.Yes. Successful competency vs Perfection . . . tough...


Thank you for your time and advice. I will work through the homework right away. Right now I am earning .03% on millions so every day is costing me :moneybag

retiredjg
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by retiredjg » Sat Jan 14, 2017 11:47 am

Sandtrap, as already mentioned by a few people, it's not going to matter much what you do as long as you don't get stupid and gamble it away. Seems unlikely. So almost any decision is good enough.

You have more than enough money to live a somewhat lavish life, yet your yearly expenses are planned to be quite low (for wealthy people). You could set up almost any sort of reasonable portfolio and accomplish this. So almost any decision is good enough.

When all the choices are good enough, just do whatever you like, whatever makes sense to you. Especially if "whatever" is easy. If simplicity is important to you in your older years, just keep a very simple portfolio so you don't have to "tend" to it all the time.


A few comments about how things are taxed.

    Dividend income from bonds will be taxed at your ordinary rate - 15%.

    Stock long term capital gains (except REIT) will be taxed at 0% to the extent that your total income stays in the 15% bracket. Whatever spills over into the 25% bracket will be taxed at 15%. To harvest this income though, you need to sell shares of your stock funds. I think this might be a sticking point for you.

    REIT stocks produce a lot of income but it is all taxed at 15% - you don't get the lower tax rate for REIT because the dividends are not qualified.

Based on the above....where is the best place to have your income stream from? An income stream that is all taxed at at least 15% or an income stream that has no tax at all on part and 15% on the rest? Hmmmm, something to ponder.


The problem with the above choice may be that you are stuck in the idea that "living on the dividends" and never touching the principal is the best way to go. It simply isn't so. The only thing that matters is the total return of your portfolio, not the income it produces. I believe you read the Vanguard paper on Total Return and caught on immediately. Perhaps you should review it again.



1 How to create a “pension” portfolio with some of the funds that generates an immediate reliable income stream of approx.. $6k/month with conservative growth potential and min. risk? (Not interested in SPIA)

2. How to create a secondary “portfolio” (3-4 fund?) with the balance of funds available that will be added to as my business assets are liquidated?

First, figure out what stock to bond ratio you can tolerate. NOTHING can happen until you decide this.

I don't think having a primary portfolio and a secondary portfolio are needed. As you get the new money, just add it to the first portfolio. I also don't think having two portfolios is harmful with one exception - it makes it more complex. If that satisfies a need you have, fine. But don't add complexity that you don't get some benefit from.


3. Does a 50/50 Wellington/Wellesley have a useful role to accomplish these goals?

Half and Half W & W is about 50% stocks and 50% bonds. If that fits in with your primary decision (what stock to bond ratio do I want?), they you could consider it. This would be a fine portfolio if you can stomach the losses of a 50% stock portfolio during a crash. It is not as tax-efficient as you could be, but since you are not going to run out of money, it probably doesn't matter much.

4. Would a 3 fund portfolio such as SWTSX (Schwab total stock market), SWISX (Schwab International), and SWLBX (Schwab total bond index) be a good starting point and for which portfolio? (or Vanguard equiv)

The Vanguard or Fidelity equivalent would be fine. The Schwab funds are OK, but the international fund is incomplete (probably not in any way that matters a lot) and they have no Total Bond Index mutual fund. They do have a Total Bond fund that is not an index that people mistake for an index. It may not matter much, but if holding index funds is important to you, the Schwab mutual fund isn't one. Schwab does have excellent ETFs if you want to use ETFs rather than mutual funds.

5. I’ve asked this on another thread but will reinsert it here because maybe it’s in better context.
Is there anything to be gained by “containment” to help focus the 2 purposes/goals I have in mind by having my funds split between 2 brokerages, Schwab and Vanguard?

Financially, there is nothing to be gained. If it makes you feel better, it isn't going to hurt much.



7. Homework welcome. :confused

Homework is a good thing, but don't let it become a roadblock. Apparently you have an appointment with Vanguard PAS in a few weeks? If your decision is not made by probably 2 weeks after that, you need to give serious consideration to how to fix your analysis paralysis. :happy

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dratkinson
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by dratkinson » Sat Jan 14, 2017 3:03 pm

retiredjg wrote:...So almost any decision is good enough.
...
A few comments about how things are taxed.

    Dividend income from bonds will be taxed at your ordinary rate - 15%.

    Stock long term capital gains (except REIT) will be taxed at 0% to the extent that your total income stays in the 15% bracket. Whatever spills over into the 25% bracket will be taxed at 15%. To harvest this income though, you need to sell shares of your stock funds. I think this might be a sticking point for you.

    REIT stocks produce a lot of income but it is all taxed at 15% - you don't get the lower tax rate for REIT because the dividends are not qualified.


Adding to above.


REITS. REITs, US and international, are both tax-inefficient so belong in a tax-advantaged account. You don't have one so recommend avoiding REITs.

However, if you decide to go the REIT route (forced by your real-estate background), then you can watch your tax returns and change if you don't like what you see (compared to the favorable tax treatment of the QDI produced by total market index funds).


Bonds in taxable. The last time I checked, the amount of after-tax income produced by bond investments in the 15% tax bracket was (least to most):
--Intermediate-term national muni bond fund (VWIUX).
--Total bond market index fund (VBTLX, recommended 3-fund partner).
--Long-term national muni bond fund (VWLUX).

So I used the LT muni fund in the 15% tax bracket. Why?
--More after-tax income than TBM.
--Tax-exempt dividends don't add to AGI, so kept me in the 15% bracket longer.
--I could withstand the reported greater risk (compared to TBM).

Recall there is a Wiki topic on "municipal bonds" (search term). Can find it for more information.

Homework. Compute the taxable-equivalent yield for each muni fund candidate. Compare the TEY of each muni fund, to the SEC yield of each taxable bond fund candidate, and to the APY of each CD candidate.

Muni TEY = Muni fund's SEC yield / (1 - your fed tax bracket)

Homework. Repeat above exercise under the assumption that you move into the 25% fed tax bracket.

Bottom line. If your homework convinces you not to choose taxable bonds, then an investment in Wellington/Wellesley is also off the table.


Analysis paralysis. The cost of this is a guaranteed 0.03%. To offset this and begin moving forward, you could start by investing in your known core holding---US total stock market index fund---as this is a correct holding in all discrete-fund retirement investing AAs.


Bottom line. Plan for the worst, hope for the best. Create the most tax-efficient retirement portfolio you can for the 15% fed tax bracket, and it should also be the most tax-efficient should you move into a higher tax bracket.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

Sandtrap
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Re: How to allocate 3-6 million in assets to achieve goals?

Post by Sandtrap » Mon Jan 16, 2017 3:28 pm

dratkinson wrote:
retiredjg wrote:...So almost any decision is good enough.
...
A few comments about how things are taxed.
    Dividend income from bonds will be taxed at your ordinary rate - 15%.
    Stock long term capital gains (except REIT) will be taxed at 0% to the extent that your total income stays in the 15% bracket. Whatever spills over into the 25% bracket will be taxed at 15%. To harvest this income though, you need to sell shares of your stock funds. I think this might be a sticking point for you. Yes. My heavy R/E background has ingrained that precept. Less of a sticking point now that I understand why. Thanks.
    REIT stocks produce a lot of income but it is all taxed at 15% - you don't get the lower tax rate for REIT because the dividends are not qualified.

Adding to above.
REITS. REITs, US and international, are both tax-inefficient so belong in a tax-advantaged account. You don't have one so recommend avoiding REITs. Thank you very much "dratkinson", for taking the time to teach. Appreciate it.
Okay. I agree. Ongoing "homework" validates that. REIT bears no resemblance to tangible R/E income property that I have experienced. Different animal.

However, if you decide to go the REIT route (forced by your real-estate background), then you can watch your tax returns and change if you don't like what you see (compared to the favorable tax treatment of the QDI produced by total market index funds). No. Off the table. Thanks for the helping me do that.

Bonds in taxable. The last time I checked, the amount of after-tax income produced by bond investments in the 15% tax bracket was (least to most):
--Intermediate-term national muni bond fund (VWIUX).
--Total bond market index fund (VBTLX, recommended 3-fund partner).
--Long-term national muni bond fund (VWLUX).
So would it be advantageous to include all of these in a "subset" of the portfolio bond allocation?

So I used the LT muni fund in the 15% tax bracket. Why?
--More after-tax income than TBM.
--Tax-exempt dividends don't add to AGI, so kept me in the 15% bracket longer.
--I could withstand the reported greater risk (compared to TBM).
So a balance between maximizing returns through tax exemption > so a greater % is within the 15% bracket?
Recall there is a Wiki topic on "municipal bonds" (search term). Can find it for more information.
Yes. Printed it out and have been referencing it as a comparison to alternative bond funds. Thanks. Earlier in my research I had looked into the Fidelity? Arizona Muni Bond Fund as a way to exempt both fed and state tax.

Homework. Compute the taxable-equivalent yield for each muni fund candidate. Compare the TEY of each muni fund, to the SEC yield of each taxable bond fund candidate, and to the APY of each CD candidate.
Muni TEY = Muni fund's SEC yield / (1 - your fed tax bracket) In progress. Thanks.
Homework. Repeat above exercise under the assumption that you move into the 25% fed tax bracket. In progress. Yes. Meeting and exceeding the 25% bracket is very very real for me. I no longer have the large R/E offsets. :(
Bottom line. If your homework convinces you not to choose taxable bonds, then an investment in Wellington/Wellesley is also off the table.
Okay. Huge "aha!" here. Beginning to connect the dots. Thanks.
Analysis paralysis. The cost of this is a guaranteed 0.03%. To offset this and begin moving forward, you could start by investing in your known core holding---US total stock market index fund---as this is a correct holding in all discrete-fund retirement investing AAs.
I agree. Within the next 2 weeks I plan on moving at least 1-2 mil in each of Schwab and Vanguard to do this first small step. (huge for me) As my R/E assets get sold off I will then concurrently develop the portfolio further by either adding new funds or adding into existing ones.
Bottom line. Plan for the worst, hope for the best. Create the most tax-efficient retirement portfolio you can for the 15% fed tax bracket, and it should also be the most tax-efficient should you move into a higher tax bracket.

Another "huuuuge" aha! In income R/E the solution is to "simply" buy another apartment building thereby instantly generating more tax offset/write offs/etc. But this is different. Right? So in other words there's nothing I can do beyond a certain point as far as "tax efficiency". And, what works well will continue to work well even with a larger portfolio?

Huge thanks, "dratkinson".
Really appreciate the lessons. I am absorbing all of it.
Last edited by Sandtrap on Mon Jan 16, 2017 10:51 pm, edited 3 times in total.

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