Portfolio advice after windfall

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Treeboi
Posts: 5
Joined: Sun Feb 21, 2016 11:52 am

Portfolio advice after windfall

Post by Treeboi » Wed Oct 04, 2017 8:44 pm

Hello,

I recently received a significant windfall and hoped some of the smart folks here could make sure I am on the right path.

Emergency funds....12 months of living expenses
Debt....none
Tax filing status....single
Tax rate...Federal-25%, State-4.24%
State....AZ
Age....40
Desired asset allocation....80/20 equities to bonds
Desired international allocation....20% of equities

Current retirement assets:

TSP account
C fund (20% of TSP balance currently
L2040 lifecycle fund (80% of TSP balance currently)

Roth IRA
VTSMX (60% of Roth currently)
VGTSX (40% of Roth currently)

Taxable account
VBMFX (20% of taxable balance currently)
VFIAX (80% of taxable balance currently)

Contributions
18k in TSP per year
5.5k in Roth per year
Average 10-15k per year in taxable, this will increase going forward

Overall retirement asset allocation currently at roughly 80/20 equity to bonds. Current total assets in these accounts is low 6 figures. Taxable account currently approximately 25% of total assets, although this will increase by quite a bit once windfall money added.


I just received a sizeable inheritance (mid 6 figures) and I wanted some advice for how to distribute my funds across these 3 accounts. My plan is to change my TSP account into my defacto bond bucket using the G and F funds. My Roth would not change, although the percentages allocated to each of the 2 funds may change as I rebalance. My taxable account will grow immensely and i would probably keep the 500 fund, but I believe that I should move out of the total bond fund in taxable. I was thinking about an intermediate term bond fund. Is this advisable? I do not want to use Roth space for bonds. I would also add the total international stock fund to my taxable to maintain a 20% portion of my equities in international.

With no debt and very, very low monthly expenses, I will be able to rapidly add to my taxable account going forward and I have no short term plans for the money in taxable. buy and hold.

I have been a lurker here on the boards for some time and I think I am on the right path here, just hoping that I may get some feedback to confirm or suggestions that I had not thought of before I start moving things around.

Thanks!

bloom2708
Posts: 2680
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Portfolio advice after windfall

Post by bloom2708 » Mon Oct 09, 2017 3:08 pm

Welcome.

Start here:

https://www.bogleheads.org/wiki/Managing_a_windfall

Go slow. This might be a time to look at 70/30 or 60/40 if your goals can be met with a lower level of risk.

I might use the Total US Stock index over the 500 index in taxable.

I would use the Vanguard Intermediate-Term Tax-Exempt Bond index fund in taxable. You do not want taxable bonds in taxable. Bond interest is 100% taxable. In the 25% bracket it is probably a wash, but your new dividends could push you up into 28%.

Total US + Total International + Int-Term Tax-Exempt = 3 fund portfolio. At Vanguard, this is well diversified, low cost, tax efficient and easy to maintain.

Make sure you have a good Emergency Fund. Set aside cash for near term spending. Taxes, cars, vacations, house repairs. Invest the rest at an asset allocation you can sleep well at night with. Maybe 80-20 worked with your previous savings. With a big new pile, it might keep you up at night thinking about a potential 40% loss (50% of 80% stocks).

Congrats on your windfall. Good luck. Hopefully others chime in.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Treeboi
Posts: 5
Joined: Sun Feb 21, 2016 11:52 am

Re: Portfolio advice after windfall

Post by Treeboi » Mon Oct 09, 2017 9:16 pm

Bloom2708,

Thanks for the response. Good advice on reading the "managing a windfall" wiki--- I have read this several times over the last couple years while awaiting the windfall to work it's way through the system.

I've been at a 90/10 AA for a while and have only recently become more conservative with the 80/20 AA. I may be able to stomach 75/25 but I would have a tough time seeing the need to be too conservative at this juncture in my career. I didn't lose any sleep watching my portfolio lose 50% during 2008. The main opportunity this windfall presents for me is the option to retire early if I stay the course.

From running the numbers it seems like VBTLX vs VWIUX is essentially a wash tax wise. However, you make a good point about the dividend income potentially pushing me into the 28% bracket and I have been leaning towards VWIUX as a result.

I have a substantial emergency fund already in place and my total monthly expenses are under $1500. My only "vice" spending wise is international travel and I can comfortably afford that with my regular income. The only unusual purchase I made after receiving the money was a trip to Starbucks for an overpriced coffee, haha.

Thanks again for the feedback...I appreciate it.

technovelist
Posts: 2322
Joined: Wed Dec 30, 2009 9:02 pm
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Re: Portfolio advice after windfall

Post by technovelist » Mon Oct 09, 2017 9:35 pm

It sounds to me as if you could retire tomorrow if you wanted to.

How much do you think you will need to retire?
In theory, theory and practice are identical. In practice, they often differ.

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Peter Foley
Posts: 4038
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Portfolio advice after windfall

Post by Peter Foley » Mon Oct 09, 2017 10:01 pm

Treeboi wrote: I added my reaction in red.
My plan is to change my TSP account into my defacto bond bucket using the G and F funds. Yes. My Roth would not change, although the percentages allocated to each of the 2 funds may change as I rebalance. Yes My taxable account will grow immensely and i would probably keep the 500 fund, but I believe that I should move out of the total bond fund in taxable.I would do total stock market instead of S&P 500. I was thinking about an intermediate term bond fund. Is this advisable? Yes, but in taxable a tax free fund might be even better. I do not want to use Roth space for bonds.I agree. I would also add the total international stock fund to my taxable to maintain a 20% portion of my equities in international. Yes.

Treeboi
Posts: 5
Joined: Sun Feb 21, 2016 11:52 am

Re: Portfolio advice after windfall

Post by Treeboi » Tue Oct 10, 2017 9:11 pm

Technovelist,

Even with my expenses being so low I figure I still have quite a ways to go before I can even think about retiring. My go had always been around age 50-55 and that may be very possible now.

I don't know if I have a set number in mind as to what I will need to retire. I think of it in 2 stages, early retirement (using my taxable to live off of) and my regular retirement age at 60-62, when I would get my pension and tap into my TSP/401K.

Treeboi
Posts: 5
Joined: Sun Feb 21, 2016 11:52 am

Re: Portfolio advice after windfall

Post by Treeboi » Tue Oct 10, 2017 9:17 pm

Peter,

Thank you for the feedback. Glad to hear that I seem to be heading in the right direction with all this. In my original posting I should have clarified in that I meant and intermediate term tax free bond fund, like VWIUX. I failed to specify the 'tax free' part. Thank you for catching that. In my tax bracket, taxable vs tax free bonds seems to be a wash, but I anticipate getting closer to the 28% bracket soon and then the advantage lies with tax free.

Thanks!

Grt2bOutdoors
Posts: 16985
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Portfolio advice after windfall

Post by Grt2bOutdoors » Tue Oct 10, 2017 11:04 pm

Keep your mouth zipped. Nothing attracts the flies faster than the thought of free money - your money. Age is not a factor, folks love helping others spend their money.

Sorry for your loss.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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