2M savings investment help

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fipt2030
Posts: 49
Joined: Tue Oct 03, 2017 8:09 am

2M savings investment help

Post by fipt2030 » Tue Oct 03, 2017 11:16 pm

Hi Bogleheads,
First time poster. For past 15 years, except participating in 401K plans, we never invested our savings ( :oops: ) We paid off significant, six figure student loans though.

Past 10 years savings and proceeds through sale of my start up business last year are sitting in brokerage account :2M Need some guidance on how to pull the trigger and start investing. Was in highest tax bracket for past few years, after sale of the business, will make less now for
at least 2-4 more years, by design

Emergency funds : 6 month expense kept at Capital one 360

Debt : Home mortgage of $275K at 2.75%, home value is about 650K

Tax filing status : MFJ

State : MA

Tax rate : 28% and 5.15% (together, pull in about 350k annually)

Age : 43 and 40 (she)

Desired AA : Need help

Current retirement assets :

His 401K : 160K - Lord Abbott fixed income fund (1.00% ER) no employer match and not a great plan

Her 401k : 354K - VBMPX Total bond market index (0.06% ER) 5% match

Her Pension plan : 25K, 4k employer contribution per year (not part of AA)

Just converted them to bond funds from equities, initial step of making an AA plan based on tax efficiency

His and Her IRA : Total of 90K at Fidelity, traditional non deductable, will convert them to backdoor Roth after paying taxes on appreciation
100% in FUSVX (0.04% ER) Fidelity S&P Index fund

Contributions :

$18k his 401K
$18K plus match $5K - her 401K
$5.5K each to Traditional IRA
10K to child’s 529 plan (total of 80K, only kid, 7 yrs old) not part of AA

Apart from these assets :

Own a professional condo outright, worth $250K earning monthly rent $3.5K

Invested about $200k in some real estate projects as minority stake holder (small private REIT), showing some promise. Will know results in next 2-5 years, should be worth 400k in 10 years

Due to above exposure, won’t invest in REIT’s

I own some private stock in a VC fund, worth 350K now, could be 0-500K and taxes in 2-3 years

We would love to be financially independent soon. Wife wants to quit job in 5 years and I don’t mind working 10-15 years FT and then Part time.

Our SS could provide us 40-50K per year if we wait til 67. We need about 160K in retirement and 4M is our target for the nest egg.

We need help in Asset Allocation. I have access to a flat fees DFA fund advisor who prefers DFA funds to Vanguard index funds. I have a full blown paralysis by analysis. We figured 60% bonds will limit the asset depreciation in worst case scenario.

I need help in making my AA plan, presently about 20% in 401k’s in Bonds and 4.5% in Equities , soon to be Roth IRA

These are the funds I picked based on my reading for the taxable account, remaining 75.5% of investable assets.

Bond funds (tax free) didn't adjust the yields given
- Short term - VMLUX (0.09% ER) 1.2% Yield
- Intermediate - VWIUX (0.09% ER) 1.72% Y
- Longer high yield - VWALX (0.09% ER) 2.86% Y

Bond funds, Taxable Investment grade
- short term - VFSUX (0.10% ER) 2.04% Yield
- Intermediate - VFIDX (0.10% ER) 2.63%
-Intermediate - VBILX (0.07% ER) 2.47%
- DFTEX (0.22% ER) 2.9%
Treasuries - VFIUX (0.10% ER) 1.74%

International Bond fund DFGBX (0.27% ER) - 1.52%



Equities :

Small cap : VSIAX (0.07% ER)
Mid cap : VTCLX (0.09% ER)
: VIMAX (0.06% ER)
Large cap : VFIAX (0.04% ER)
Large Val : VVIAX (0.06% ER)


VCSAX (consumables) (0.10% ER)

VWIAX (0.15% ER) Wellesley fund
International equities :

Large blend : DFALX (0.23% ER)
Large Value : VTRIX (0.43% ER)
small-Mid : VFSVX (0.27% ER)
Emerging mkts : VEMAX (0.14% ER)
Diversified : VHGEX (0.51% ER)



I need to know the right asset allocations and very nervous about entering the market now(all the indices are highest ever)
Worried about bond funds, interest rates are gonna go up soon bringing the NAV down. I can add in about 100K in savings for next 15 years and I will hit my Target, even if I don’t take any risk, I just need to be ahead of inflation

I am totally lost, I know we can’t market time and also know if I have been investing that money I would have at least 500K more in that account by now.

Thanks in advance

fipt2030
Posts: 49
Joined: Tue Oct 03, 2017 8:09 am

Re: 2M savings investment help

Post by fipt2030 » Wed Oct 04, 2017 6:16 pm

Bump for evening crowd

birdy
Posts: 277
Joined: Sun May 02, 2010 7:31 pm

Re: 2M savings investment help

Post by birdy » Wed Oct 04, 2017 6:26 pm

I also have investments around $2.6 m. Three fund portfolio
60/40 (age 62)
the "40" is in savings bonds, CDs and 2 bond funds. (largest amount is in CD's)

Spouse and I accumulated this amount due to investing in 401k's and Roths. Also became boglehead fairly early so was confident in the mutual funds I invested in. Investments did well! Goal was $1m----very happy!

birdy

fipt2030
Posts: 49
Joined: Tue Oct 03, 2017 8:09 am

Re: 2M savings investment help

Post by fipt2030 » Wed Oct 04, 2017 6:32 pm

I would love to add get involved with investing, need some guidance, scared to enter now.

Puerto rico muni bond market struggles shook my confidence on bond funds too, what if everyone takes a leaf out of that playbook

tbone555
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Joined: Thu Apr 13, 2017 1:28 pm

Re: 2M savings investment help

Post by tbone555 » Wed Oct 04, 2017 6:38 pm

You are overthinking this IMO. Be happy for what you have achieved at such a young age instead of what could have been. You have more money than most people ever will and a great opportunity to continue to grow your wealth. I suggest a conservative allocation that will let you sleep at night. Why not 50/50 or 40/60? Whatever will keep you from jumping ship when the market corrects.

Don't over think it.
Last edited by tbone555 on Wed Oct 04, 2017 6:51 pm, edited 4 times in total.

fipt2030
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Re: 2M savings investment help

Post by fipt2030 » Wed Oct 04, 2017 6:44 pm

Honestly, I know luck played a big part in our journey so far and couldn't be happier. It's not even, "what could have been " bug either, just a novice here looking for a holding hand

lostdog
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Re: 2M savings investment help

Post by lostdog » Wed Oct 04, 2017 6:49 pm

Anytime is the best time to invest. Time in the market is better than timing the market.
Financial Independence is the best revenge. | "Our life is frittered away by detail. Simplify, simplify." -Thoreau

veindoc
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Re: 2M savings investment help

Post by veindoc » Wed Oct 04, 2017 6:50 pm

Where is your money now? All in cash?
You mentioned a donor advised fund. Are you working with an advisor?

We are about your age with similar assets, but most of our money is on tax deferred accounts.

I would recommend a straight 70-30 allocation. You are a little more than halfway towards your goals with some risky investments (VC fund) and a 10-15 yr horizon to get there, I would go for growth which is why I would recommend 70% in equities. I have 20% international exposure- most recommend 10-20%. I tilt towards REITS but it seems you already have some real estate exposure. Other tilts include emerging markets or small caps.

My bond portion is strictly total bond fund. I have thought of exploring muni bonds since we are in a high tax bracket but haven't quite gotten around to exploring that.

Whatever you choose I would keep it simple. I have found with rebalancing annually the less moving parts the better.

If you are feeling exceptionally nervous I think vanguards personal advisory service might be of benefit to you at a fairly low fee.

tbone555
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Joined: Thu Apr 13, 2017 1:28 pm

Re: 2M savings investment help

Post by tbone555 » Wed Oct 04, 2017 7:00 pm

Tax managed is nice and simple.

VTMFX

"As part of Vanguard’s series of tax-managed investments, this fund provides exposure to the mid- and large-capitalization segments of the U.S. stock market with about 50% of assets, while the balance of assets are invested in federally tax-exempt municipal bonds. The stock component’s unique index-oriented approach attempts to track its benchmark, while minimizing taxable dividend income. Investors in higher tax brackets who are seeking some growth of principal and who are able to tolerate the risks that come from the volatility of the stock and bond markets may wish to consider this fund."
Last edited by tbone555 on Wed Oct 04, 2017 7:01 pm, edited 1 time in total.

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Ged
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Re: 2M savings investment help

Post by Ged » Wed Oct 04, 2017 7:00 pm

Sounds like you have over complicated things.

No need for capitalization sectors and all that. Just a total market fund.

For bonds just a total market fund.

International total market about 20% of the US allocation.

Classic 3 fund per this:

https://www.bogleheads.org/blog/the-thr ... portfolio/

I don't like the high risk of the private stock investment. Can you exit without a penalty?

Since you have all of these other activities going on I'd be relatively conservative with the 3 fund - say 50% bonds and 50% equities.

Not a big fan in taking concentrated risk in real estate investments, plus the time investment it takes. Why do that when you have it made anyway?

delamer
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Re: 2M savings investment help

Post by delamer » Wed Oct 04, 2017 7:04 pm

if you can meet your goals with minimal risks, then take minimal risk.

That said, it doesn't matter if the stock market is at highs now. The issue is whether it will go even higher over your lifetime. If you think it won't, then don't invest in stocks. If you think it will, then you should invest in stocks.

Also, S&P500 dividends make up about 1/3 of the return of the index (with the other 2/3 coming from appreciation). So as long as you are out of the market, you are missing dividends that can never be recovered.

aristotelian
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Re: 2M savings investment help

Post by aristotelian » Wed Oct 04, 2017 7:13 pm

Personally, I would probably DCA in $50k or $100k increments up to my comfort level.

That said...if you have won the game and are risk averse, it is completely fine to stay out of the market. You have no need to take risk. If doing so goes against your inclination, then don't do it.

If you decide to invest, you might be a candidate for TIPS, just to keep pace with inflation, although they are not tax efficient. Perhaps I Bonds or EE Bonds, which you can't buy all at once anyway. Consider a very conservative portfolio, something like:

30% Total Stock Market Index
25% TIPS
25% Intermediate US Treasuries
20% Short Term Corporate Bond Index
...plus $10k per year in I Bonds and EE Bonds.

Do remember that market risk is only one type of risk. If you stay in cash, you are subjecting yourself to inflation risk. TIPS and 30% stocks would give you some protection against inflation without subjecting you to too much market risk.

veindoc
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Re: 2M savings investment help

Post by veindoc » Wed Oct 04, 2017 7:18 pm

One other thing, we too had a large amount in savings. We threw every xtra dollar in there for our down payment and continued to allocate money towards the savings account over a year after we bought the house. Eventually we decided to invest. Every month I transferred a sizeable amount to vanguard. Within six months we transferred all of it.

You could just rip off the bandaid and put it all in but I would dollar cost average over the course of the year. The economy is strong but the political climate is a bit volatile. Either way is likely fine.

Mors
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Re: 2M savings investment help

Post by Mors » Wed Oct 04, 2017 7:52 pm

I would probably let Betterment manage all the accounts with its core portfolio. The majority of your assets will be in taxable accounts and you are in a high tax bracket, and there tax harvesting will do its magic and save you much more than the annual fees.

Betterment has the advantage of managing your 401k too, so there is no fear of wash sales.

Alternatively, for these asset size Wealthfront uses direct indexing (buys individual stocks instead of funds), which eliminates fund ER and gives even more of a tax harvesting advantage.

Edit: For assets worth more than 2m, Betterment taxes no fee. With this in mind it is a fantastic choice.

https://support.betterment.com/customer ... s/articles
Last edited by Mors on Thu Oct 05, 2017 4:23 am, edited 1 time in total.

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Cycle
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Location: Minneapolis, USA

Re: 2M savings investment help

Post by Cycle » Wed Oct 04, 2017 8:13 pm

Thanks for the detailed info. The 401k and private stock make it a bit tricky to keep fees down and take those into account for AA. I sell my stock grants as soon as I am able. I buy company stock at a discount and sell that once or twice a year after it goes long-term capital gains, to minimize fees. I just don't include those temporary investments in my allocation calculations, since I close those positions as soon as possible.

I recommend the following allocation.

Age-10 bonds (vanguard Total bond)
100-bonds in stocks (40% total int vanguard / 60% total US)
Emergency reserve - 20k in a 2% credit union checking account (20k limit)
No debt.
1 rental

I would be totally frozen on when to pull the trigger on rebalancing, perhaps you could just creep up on the allocation with an incremental monthly rebalance over a 24 month period.

fipt2030
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Joined: Tue Oct 03, 2017 8:09 am

Re: 2M savings investment help

Post by fipt2030 » Wed Oct 04, 2017 8:35 pm

Yes, the money is in cash for past many months, Nov/Dec 2016 political climate spooked me and it continues to bug me that something ain't right.
I am working with a very reputable flat fees advisor with access to DFA funds, according to them present equities are way overvalued. He and his deputy advised 65/35 split with 65 being bond funds and split the equity portion into three quarterly infusions.

I compared their Fund recommendations and mixed them with lower ER Vanguard ones (they did suggest Vanguard bond funds and DFA equity ones) as listed above, just don't know how to split the money into those funds

Private stock was given to me as part of the business sale with portion of sale proceeds, no choice there, it appreciated 30% in two years and I need to wait two more years before I can sell, I am not sweating it. Real estate investments were all done in a fast expanding city and we are close to some real progress (saw it appreciate 20% in 3 years after expenses already) and could double my investment in 3-5 years.

Above two investments are risky and are 15 % of my portfolio and bond funds in tax deferred accounts comprise roughly another 15 % and equities in IRA's worth 3%. Remaining 67% is in cash (2M) they were never in market so not really a market timing thing.

If I never invest that money, I can still reach my goal of 4M in 15-20 years with addition of yearly savings, chance of losing the sweat money is what keeping me away from the market. I could as well keep half of it in laddered brokered CD's (1.2-1.5 %) and split the other half, 1 M into Wellesley fund
I bonds (10K each, every year) is worth our attention

Never been good at this

Leemiller
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Re: 2M savings investment help

Post by Leemiller » Wed Oct 04, 2017 8:47 pm

Why not look into a variable rate annuity? That would protect your funds and give you some of the market returns. You lost a lot of money sitting on the sidelines based on last year's election results. An annuity would have saved you from yourself. I thought the market was overvalued awhile ago, but I don't have any faith that the market is rationale or that I'm right so luckily I didn't act.

CFM300
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Re: 2M savings investment help

Post by CFM300 » Wed Oct 04, 2017 9:15 pm

fipt2030 wrote:
Tue Oct 03, 2017 11:16 pm
Own a professional condo outright, worth $250K earning monthly rent $3.5K
What is a professional condo, and how are you able to earn rent of $3.5k/month on one that's only worth $250k?

fipt2030
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Re: 2M savings investment help

Post by fipt2030 » Wed Oct 04, 2017 9:19 pm

Business condo in a professional building, 3.5k on a 10 year lease, lucked out. I bought the condo with an existing tenant who signed the 10 year lease.

I forgot to add it to my portfolio, %'s are out of whack now

tbone555
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Re: 2M savings investment help

Post by tbone555 » Wed Oct 04, 2017 10:09 pm

Please don't buy a variable annuity.

veindoc
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Re: 2M savings investment help

Post by veindoc » Thu Oct 05, 2017 7:46 am

Never been good at this
I don't think that's true. You have more money than me and I have been investing for 15 years. The goal is to have enough, not every single cent you can. You could have had more but so what you are a multimillionaire and very close to your goal. Given your risk tolerance I think your advisor's plan is sound. What are the fees associated with this advisor?

You have an advisor you call reputable. You've investigated the funds and seem pleased with them. What is stopping you from pulling the trigger? You say you don't know how to split the money into the funds. They would help you with that. What is really stopping you from pulling the trigger? Is their plan not conservative enough for you? Then ask them to make it more conservative until you are comfortable. Or is it something else? What's really stopping you?

veindoc
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Re: 2M savings investment help

Post by veindoc » Thu Oct 05, 2017 7:46 am

Never been good at this
I don't think that's true. You have more money than me and I have been investing for 15 years. The goal is to have enough, not every single cent you can. You could have had more but so what you are a multimillionaire and very close to your goal. Given your risk tolerance I think your advisor's plan is sound. What are the fees associated with this advisor?

You have an advisor you call reputable. You've investigated the funds and seem pleased with them. What is stopping you from pulling the trigger? You say you don't know how to split the money into the funds. They would help you with that. What is really stopping you from pulling the trigger? Is their plan not conservative enough for you? Then ask them to make it more conservative until you are comfortable. Or is it something else? What's really stopping you?

fipt2030
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Re: 2M savings investment help

Post by fipt2030 » Thu Oct 05, 2017 9:29 am

The advisor charges $2500 per year and not pushy

Not knowing enough about all the options available makes me not want to pull the trigger
May be you are right, I may have to ask them to be more conservative

Some one mentioned here about I Bonds and Variable annuities
I know Annuties aren't good for me, I wish the advisor takes a long term view on my portfolio and come up with with such stuff
Main advisor wants me to wait till end of the month before going into equities
His deputy prefers DFA funds for equities and I feel Vanguard has better track record at that on top of low ER

I am just being indecisive

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Psyayeayeduck
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Re: 2M savings investment help

Post by Psyayeayeduck » Thu Oct 05, 2017 9:41 am

tbone555 wrote:
Wed Oct 04, 2017 6:38 pm
You are overthinking this IMO. Be happy for what you have achieved at such a young age instead of what could have been.
+1

"Perfection is the enemy of good enough."

Katietsu
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Re: 2M savings investment help

Post by Katietsu » Thu Oct 05, 2017 9:46 am

There are many threads on Vanguard vs DFA. My personal conclusion from those threads is to use DFA funds if you are going to be paying an advisor anyway.

It sounds like your advisor gave you good advice. Some on this board probably not will not like the market timing aspect of it. But I think that it may be more that the advisor is accounting for the risk you are taking elsewhere and your skiddishness with the current climate. I would be inclined to take the advice you have paid for already.

veindoc
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Re: 2M savings investment help

Post by veindoc » Thu Oct 05, 2017 3:11 pm

Have you read the bogleheads guide to investing? It will give you a nice overview. The most important thing is for you to decide how much you want to put in stocks. The recommendation, even for late retirees is at least 20 percent. Your advisors plan for 35 is reasonable given your age. DFA funds are a good choice. The white coat investor is an enthusiastic DIY investor and even he believes DFA funds are good if you are working with an advisor. In terms of your bonds/fixed income portion - a total bond fund would be appropriate. Only thing to consider is that since this is a taxable account a muni bond fund might be a better option.

You can only buy $10k of I bonds per year per individual. While they can be a part of the puzzle, you need other pieces.

As others have stated you are overthinking this, your advisor is unlikely to come up with some magic formula you have not already considered yourself. And neither are the bogleheads. It's investing not rocket science.

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sergeant
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Re: 2M savings investment help

Post by sergeant » Sat Oct 07, 2017 6:30 pm

Leemiller wrote:
Wed Oct 04, 2017 8:47 pm
Why not look into a variable rate annuity? That would protect your funds and give you some of the market returns. You lost a lot of money sitting on the sidelines based on last year's election results. An annuity would have saved you from yourself. I thought the market was overvalued awhile ago, but I don't have any faith that the market is rationale or that I'm right so luckily I didn't act.
OP, if you look into a variable rate annuity you will find out quickly not to put a penny into it. Just say NO!
Lincoln 3 EOW!

fipt2030
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Re: 2M savings investment help

Post by fipt2030 » Sat Oct 07, 2017 7:02 pm

NO to annuities, for sure. I know little about mutual funds and bond funds and hesitating to pull the trigger. I grew up in an atmosphere with no exposure to investing and has been very cynical about it.

I thought I knew basics about investment vehicles till I talked to my adviser and now just can't take her word for it (if you remove her fees as a non factor) that DFA funds are better. Kept comparing them(performance since 2000 including their value at their lowest point, SEC yield and annual returns) to Vanguard funds and feel Vanguard funds are better and haven't pulled the trigger.

I really need to educate myself more before I can take things with more conviction

JW-Retired
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Re: 2M savings investment help

Post by JW-Retired » Sat Oct 07, 2017 8:24 pm

fipt2030 wrote:
Tue Oct 03, 2017 11:16 pm
State : MA

Tax rate : 28% and 5.15% (together, pull in about 350k annually)

Age : 43 and 40 (she)
At $350k gross income, I would think your tax bracket would definitely call for muni-bonds, especially since you said at some point you expect to be back up in the top bracket in a very few years. Actually, it's hard to imagine how you got your taxable income down below the bottom of the 33% bracket ($233k) as it is.

Did your DFA advisor know your income? What did she say about your bonds choice? Especially since you want a bond heavy portfolio this choice is going to matter.
JW
Last edited by JW-Retired on Sat Oct 07, 2017 8:27 pm, edited 2 times in total.
Retired at Last

Grt2bOutdoors
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Re: 2M savings investment help

Post by Grt2bOutdoors » Sat Oct 07, 2017 8:25 pm

fipt2030 wrote:
Sat Oct 07, 2017 7:02 pm
NO to annuities, for sure. I know little about mutual funds and bond funds and hesitating to pull the trigger. I grew up in an atmosphere with no exposure to investing and has been very cynical about it.

I thought I knew basics about investment vehicles till I talked to my adviser and now just can't take her word for it (if you remove her fees as a non factor) that DFA funds are better. Kept comparing them(performance since 2000 including their value at their lowest point, SEC yield and annual returns) to Vanguard funds and feel Vanguard funds are better and haven't pulled the trigger.

I really need to educate myself more before I can take things with more conviction
Way too complicated. You could invest in as little as two funds or as many as 5-6 funds.
First step is to write an Investment Policy Statement - if you don't have one, please search in the wiki under Investment Policy Statement for examples.
Second step is to select an asset allocation you can sleep at night well with. Don't try the market timing game, it's okay to be conservative so long as it enables you to achieve your end goals. Market timing is a big no-no.
Third step - consider using large broad based market indexes as the building blocks for your portfolio - Total Stock Market Index, Total International Stock Index, depending on your tax bracket - Total Bond Market Index or Intermediate Term Tax Exempt.

Past performance is not indicative of future performance - looking at SEC yield and annual returns is not predictive of the future so why are you doing that?

What books have you read on Investing? Recommend picking up a book like Larry Swedroe's Only Guide to a Winning Investment Strategy or William Bernstein's Four Pillars of Investing - read them cover to cover.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: 2M savings investment help

Post by Grt2bOutdoors » Sat Oct 07, 2017 8:29 pm

fipt2030 wrote:
Wed Oct 04, 2017 6:32 pm
I would love to add get involved with investing, need some guidance, scared to enter now.

Puerto rico muni bond market struggles shook my confidence on bond funds too, what if everyone takes a leaf out of that playbook
What does Puerto Rico have to do with a national municipal marketplace - very little. Why? Simple, the financial troubles plaguing P.R. have been well known for quite some time before they defaulted. Those holding the P.R. bonds knew what they were walking into, but you can not avoid greedy speculators. P.R. is not a state, it's not the U.S. Treasury either, are you telling us that you let a small issuer like P.R. shake your confidence in fixed income investments?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: 2M savings investment help

Post by Grt2bOutdoors » Sat Oct 07, 2017 8:32 pm

Leemiller wrote:
Wed Oct 04, 2017 8:47 pm
Why not look into a variable rate annuity? That would protect your funds and give you some of the market returns. You lost a lot of money sitting on the sidelines based on last year's election results. An annuity would have saved you from yourself. I thought the market was overvalued awhile ago, but I don't have any faith that the market is rationale or that I'm right so luckily I didn't act.
A variable annuity is the last thing the OP should consider using. The OP did not lose anything other than incur opportunity cost while the OP was formulating and continues to formulate their Investment Policy Statement. The only thing annuities would have done is benefit the bottom line of the insurance company. The OP needs to determine what the purpose of the money is first, then finish writing their IPS and then implement what the Investment Policy Statement says to do.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: 2M savings investment help

Post by Grt2bOutdoors » Sat Oct 07, 2017 8:46 pm

fipt2030 wrote:
Tue Oct 03, 2017 11:16 pm
Hi Bogleheads,
First time poster. For past 15 years, except participating in 401K plans, we never invested our savings ( :oops: ) We paid off significant, six figure student loans though.

Past 10 years savings and proceeds through sale of my start up business last year are sitting in brokerage account :2M Need some guidance on how to pull the trigger and start investing. Was in highest tax bracket for past few years, after sale of the business, will make less now for
at least 2-4 more years, by design

Emergency funds : 6 month expense kept at Capital one 360

Debt : Home mortgage of $275K at 2.75%, home value is about 650K

Tax filing status : MFJ

State : MA

Tax rate : 28% and 5.15% (together, pull in about 350k annually)

Age : 43 and 40 (she)

Desired AA : Need help

Current retirement assets :

His 401K : 160K - Lord Abbott fixed income fund (1.00% ER) no employer match and not a great plan

Her 401k : 354K - VBMPX Total bond market index (0.06% ER) 5% match

Her Pension plan : 25K, 4k employer contribution per year (not part of AA)

Just converted them to bond funds from equities, initial step of making an AA plan based on tax efficiency

His and Her IRA : Total of 90K at Fidelity, traditional non deductable, will convert them to backdoor Roth after paying taxes on appreciation
100% in FUSVX (0.04% ER) Fidelity S&P Index fund

Contributions :

$18k his 401K
$18K plus match $5K - her 401K
$5.5K each to Traditional IRA
10K to child’s 529 plan (total of 80K, only kid, 7 yrs old) not part of AA

Apart from these assets :

Own a professional condo outright, worth $250K earning monthly rent $3.5K

Invested about $200k in some real estate projects as minority stake holder (small private REIT), showing some promise. Will know results in next 2-5 years, should be worth 400k in 10 years

Due to above exposure, won’t invest in REIT’s

I own some private stock in a VC fund, worth 350K now, could be 0-500K and taxes in 2-3 years

We would love to be financially independent soon. Wife wants to quit job in 5 years and I don’t mind working 10-15 years FT and then Part time.
Have you calculated how much money you need to live on each year? Can you live on your income alone if wife stops working at year 5?
Our SS could provide us 40-50K per year if we wait til 67. We need about 160K in retirement and 4M is our target for the nest egg.

We need help in Asset Allocation. I have access to a flat fees DFA fund advisor who prefers DFA funds to Vanguard index funds. I have a full blown paralysis by analysis. We figured 60% bonds will limit the asset depreciation in worst case scenario.

I need help in making my AA plan, presently about 20% in 401k’s in Bonds and 4.5% in Equities , soon to be Roth IRA

These are the funds I picked based on my reading for the taxable account, remaining 75.5% of investable assets.

Bond funds (tax free) didn't adjust the yields given
- Short term - VMLUX (0.09% ER) 1.2% Yield
- Intermediate - VWIUX (0.09% ER) 1.72% Y
- Longer high yield - VWALX (0.09% ER) 2.86% Y

Bond funds, Taxable Investment grade
- short term - VFSUX (0.10% ER) 2.04% Yield
- Intermediate - VFIDX (0.10% ER) 2.63%
-Intermediate - VBILX (0.07% ER) 2.47%
- DFTEX (0.22% ER) 2.9%
Treasuries - VFIUX (0.10% ER) 1.74%

International Bond fund DFGBX (0.27% ER) - 1.52%



Equities :

Small cap : VSIAX (0.07% ER)
Mid cap : VTCLX (0.09% ER)
: VIMAX (0.06% ER)
Large cap : VFIAX (0.04% ER)
Large Val : VVIAX (0.06% ER)


VCSAX (consumables) (0.10% ER)

VWIAX (0.15% ER) Wellesley fund
International equities :

Large blend : DFALX (0.23% ER)
Large Value : VTRIX (0.43% ER)
small-Mid : VFSVX (0.27% ER)
Emerging mkts : VEMAX (0.14% ER)
Diversified : VHGEX (0.51% ER)



I need to know the right asset allocations and very nervous about entering the market now(all the indices are highest ever)
Worried about bond funds, interest rates are gonna go up soon bringing the NAV down. I can add in about 100K in savings for next 15 years and I will hit my Target, even if I don’t take any risk, I just need to be ahead of inflation
The NAV comes down and the yield will go up. If you were able to contribute $100K per year for 15 years and earn a nominal rate of 5% on average you would have $4mm real at the end. You can not control returns, you can control expenses, rate of savings and amount of risk you take. Have you considered a 60 equities/40 bonds allocation or 50/50 - some may say that is conservative, but you indicate that you are risk-averse. Far better to pick a conservative allocation and be able to stick with it, through thick and thin.

I am totally lost, I know we can’t market time and also know if I have been investing that money I would have at least 500K more in that account by now.
Do not use actively managed funds in a taxable account - funds like Wellesley belong in a tax deferred account, it holds mostly bonds and about 30% large value equity -
too conservative. I would skip the use of sector funds, don't make overweight bets on sectors with your retirement money, it will be well represented in the Total Stock Market Index fund.

Thanks in advance
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

fipt2030
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Re: 2M savings investment help

Post by fipt2030 » Sun Oct 08, 2017 12:12 pm

Grt2bOutdoors,
Thank you for taking time to comment, my response

- No doubt , I need more structured reading, I have those books you recommended

- PR muni bonds shouldn't spook me

- When I am trying to understand any fund I tend to assess the worst case scenario by looking back at their performance during past Wall Street downturns ( past performance isn't future performance, but it gives me a sense of risk involved)

Isn't SEC yield, especially for bond funds the most important measure

-Regarding personal finance stuff, if my wife quits her job, it shouldn't be a big difference for us as we expect to pay off our mortgage in next 5-7 years and I would switch gears at my work and compensate for it

- Why shouldn't the actively managed funds like Wellesley be in taxable accounts, is it due to higher ER? Really no clue here, we have no such options in our tax deferred accounts ( we are using the bond funds like total bond fund in our 401K)

More than 70% of our money is in taxable account

- Going forward from this year, we are looking at a possible 40k total in EE/I Bonds for us both, each year and place remaining savings of (40-60k) in equities along with about 50k in tax deferred accounts (10k in 529 is conservative portfolio anyway)

I am comfortable doing above strategy which needs to re-evaluated every 5 yrs based on our jobs , income and savings rate

This 2M in taxable account is what keeping me up every night

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bertilak
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Re: 2M savings investment help

Post by bertilak » Sun Oct 08, 2017 1:21 pm

fipt2030 wrote:
Sun Oct 08, 2017 12:12 pm
- Why shouldn't the actively managed funds like Wellesley be in taxable accounts, is it due to higher ER? Really no clue here, we have no such options in our tax deferred accounts ( we are using the bond funds like total bond fund in our 401K)

More than 70% of our money is in taxable account
The idea is NOT to avoid putting ANY balanced fund (has both stocks and bonds) in a taxable account but to minimize (not necessarily eliminate) the number of bonds in a taxable account as the income they provide is taxed as it occurs.

So, if space in your tax-advantaged accounts is limited relative to the size of your nest egg, your AA can "force" bonds into the taxable account. Having "too big" a nest egg is not a bad problem to have! Don't mess things up by reducing your bond holdings below what you consider a prudent AA.
Listen very carefully. I shall say this only once. (There! I've said it.)

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wander
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Re: 2M savings investment help

Post by wander » Sun Oct 08, 2017 1:25 pm

You are doing very well at your ages. At this point, you can stay in cash and still be just fine.

inbox788
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Re: 2M savings investment help

Post by inbox788 » Wed Oct 11, 2017 12:22 am

I'm lost in the weeds and can't figure out the problem. If it's simply the $2m in taxable, it needs to be in the context of the portfolio. What is the current overall AA? What is the desired? Seems like it can be a wide range, so absent a particular need, 50/50 is as good as any. The rest of the problem is tax efficient asset location with is a minor optimization. That just means smartly juggling investments around, but won't have a big overall effect. Same with switching around similar funds, so simplification with fewer low cost index funds will make the overall picture easier to see.

Anyway, if it's simply a matter of putting the $2m cash to work, treat it like a windfall and dollar cost average it into your desired AA over the next 12 months (lump sum option seems to be too abrupt a change so it simplifies matters not having more choices).

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bigROI
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Re: 2M savings investment help

Post by bigROI » Wed Oct 11, 2017 10:46 am

I would not do any less risk than an 50/50 equity/security fund. Make sure to get keep all your equities on the taxable side and get as many securities into the retirement funds unless muni bonds. Keep maybe 100-200k in a ally 1.5% CD for quick access cash based on need. Good problem to have at your age, I would just see what is also available vs that garbage Abbot fund.
A penny saved is much more then a penny earned when you consider the tax/SS/medicare cut.

fipt2030
Posts: 49
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Re: 2M savings investment help

Post by fipt2030 » Wed Oct 25, 2017 5:22 am

I am taking the advice given seriously and first note to myself is to educate myself. Haven't done anything with the money yet. Lord Abbott fund is the only thing available in my 401K for bond funds and at 0.94% ER, it's not a great fund.

niceguy7376
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Re: 2M savings investment help

Post by niceguy7376 » Wed Oct 25, 2017 8:37 am

Why are you still contributing to a non deductible Trad IRA?

fipt2030
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Re: 2M savings investment help

Post by fipt2030 » Wed Oct 25, 2017 8:43 am

Will be converting them to Roth IRA’s and keep building that part of tax deferred part of portfolio

inbox788
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Re: 2M savings investment help

Post by inbox788 » Thu Oct 26, 2017 12:35 pm

OP, IMO, you're in the weeds. The actual funds you pick don't matter, as long as their decent.

https://www.whitecoatinvestor.com/150-p ... han-yours/

Figure out your current AA and desired AA and work your way towards that. As someone else already suggested, invest $100k/month or so at a time until you reach that desired AA.

Put that $2M cash to better use. What is your return on the cash? Put it in short term bonds or CDs if it's not going into equities soon. Or just pay off your mortgage.

Figure out your comfort zone between greed and fear. A fair target would be somewhere between 30/70 to 70/30. Your current position is losing out to market gains and loss to inflation. A 50/50 AA might be a good balance, and I'd avoid complicated portfolios, including DFA. Aim for the simplicity of a 2 fund or 3 fund portfolio. If you compare the alternatives, you'll likely find there isn't that much of a difference.

fipt2030
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Re: 2M savings investment help

Post by fipt2030 » Sat Nov 11, 2017 7:38 am

Thanks for chiming in, we came to this conclusion

- Use 1M to build a Muni bond ladder, with AA and above, GO bonds ( Revenue bonds for water utilities and gas pipeline companies are O.K) upto 10 year term and keep them to maturity

That’s about 1.6 M in bonds (taxable account)and bond funds (tax deferred space)

Remaining 1M, investing 500K in equities right now and 500 K in CDs to be invested in equities in next few months

DFTCX DFA US TA Core Equity 2 9.38% 187,500
DTMVX DFA US TM TARGETED VALUE 3.12%. 62,500
DFTWX DFA TA WORLD EX_US CORE EQUITY 12.50% 250,000

60/40 bonds/equities portfolio

Will continue similar strategy for new cash inflows ( yearly savings, both taxable and tax deferred combined
100k +/yr)

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busdriver
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Re: 2M savings investment help

Post by busdriver » Sat Nov 11, 2017 4:34 pm

fipt2030 wrote: Thanks for chiming in, we came to this conclusion

- Use 1M to build a Muni bond ladder, with AA and above, GO bonds ( Revenue bonds for water utilities and gas pipeline companies are O.K) upto 10 year term and keep them to maturity
Why add the complexity of a ladder of individual munis when you could put it all in Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)? https://personal.vanguard.com/us/funds/ ... IntExt=INT With varying maturities of individual bonds, in my estimation, it replicates a ladder enough for me to not want individual bonds.

While I'm a tad bit older than you, (64), I strive for simplification. It helps me sleep well at night. I have a sub 3M Three-Fund Portfolio, (viewtopic.php?f=10&t=88005), with what I think is a slightly aggressive allocation for my age at 60/40 stocks/bonds. My Investment Policy Statement, (IPS), will step me down to 30/70 over time.

fipt2030
Posts: 49
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Re: 2M savings investment help

Post by fipt2030 » Sat Nov 11, 2017 6:34 pm

busdriver wrote:
Sat Nov 11, 2017 4:34 pm
fipt2030 wrote: Thanks for chiming in, we came to this conclusion

- Use 1M to build a Muni bond ladder, with AA and above, GO bonds ( Revenue bonds for water utilities and gas pipeline companies are O.K) upto 10 year term and keep them to maturity
Why add the complexity of a ladder of individual munis when you could put it all in Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)? https://personal.vanguard.com/us/funds/ ... IntExt=INT With varying maturities of individual bonds, in my estimation, it replicates a ladder enough for me to not want individual bonds.

While I'm a tad bit older than you, (64), I strive for simplification. It helps me sleep well at night. I have a sub 3M Three-Fund Portfolio, (viewtopic.php?f=10&t=88005), with what I think is a slightly aggressive allocation for my age at 60/40 stocks/bonds. My Investment Policy Statement, (IPS), will step me down to 30/70 over time.
Great job, in implementing the simple approach. I am just dragging my feet worrying about capital preservation and following Larry Swedroe recommendation of bond ladder

I will keep the bonds till maturity and just can’t handle the volatility of bond fund during “ interest rise “ times

gerntz
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Re: 2M savings investment help

Post by gerntz » Mon Nov 13, 2017 1:47 pm

busdriver wrote:
Sat Nov 11, 2017 4:34 pm

Why add the complexity of a ladder of individual munis when you could put it all in Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)? https://personal.vanguard.com/us/funds/ ... IntExt=INT With varying maturities of individual bonds, in my estimation, it replicates a ladder enough for me to not want individual bonds.
Depending on his/her state taxes, bonds of that state may offer a decent return premium vs. a fund.

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