Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

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Small Law Survivor
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Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by Small Law Survivor » Mon Nov 20, 2017 8:54 am

I'm 66, sem-retired, $5MM portfolio.

Last week, I completed transferring approx. $1.6MM from my firm's 401K to Vanguard. It went into two accounts - $1.34MM to a rollover tIRA, $243,000 to a Roth IRA.

The pre-tax/after-tax had been commingled when in the 401K.

When this money was in my 401K it was invested via a Schwab brokerage account. Over many years I had created a highly diversified slice/dice portfolio. It was my investment playground, and although I stuck to BH principles for the most part, I had a lot of funds - 6 stock funds, 8 bond funds and a cash account, plus a cash account. Only two of these funds were non-index funds (Dodge & Cox), but it was a real slice/dice portfolio, along the lines of what Paul Merriman recommends (Merriman's "ultimate buy/hold" has 10 equity asset classes). It was invested approx 60/40.

These investments did very well over the years.

Now, all this money is sitting in Vanguard's settlement funds, and I'm faced with reinvesting it. Before this transfer I was approx. 50/50 overall (including money outside the 401K). At the moment, with this money waiting to be reinvested, I'm 40/60 (second number is bonds + cash).

My goals in moving this money out of the 401K were two-fold: first, to simplify things for my wife and heirs. I've saved them the hassle of transferring this money out of the 401K, and I'm pleased to have achieved that. Moving that amount of money is a bit nerve wracking, and involved a fair amount of paper work, so they won't have to deal with that in the future. The second goal was to be able to invest the pre-tax and after-tax money differently - the Roth $$ can be more aggressive than the pre-tax money.

However, I now have to decide how to reinvest this money, and I don't want to create the complexity of 14 or 15 funds. I want to simplify.

That said, this won't be easy for me, since I really enjoy investing slice/dice, take to it naturally and have no trouble managing a slice/dice portfolio with a lot of asset classes. The idea of a simpler portfolio is a bit painful for me to contemplate.

However, my wife and daughter lean heavily in the direction of simplicity, and I want to make these investments simpler for their benefit. And, to some extent for my own benefit, as I slip into my dotage.

So, here's what I'm thinking, in terms of assets classes.

Equities:

Vanguard Total World Stock Index - ever since this fund was issued I've had a strong attraction to it. If this isn't massive diversification, I don't know what is. I would make this the foundation-stone of the stock portfolio.

U.S. Small cap value - unsure which fund, but one of the Vanguard SCV funds. This is a nod to Merriman.

Int'l small cap value - Vanguard doesn't have an int'l SCV fund, so perhaps WisdomTree International SmallCap Dividend Fund (DLS), which Merriman recommends in his "best-in-class" list.

Bonds:

To this I would add a couple of plan-vanilla bond funds - total bond, intermediate treasury, maybe TIPS, a short-term fund. I find dealing with bond funds pretty easy.

Percentages would be different in the tIRA and rIRA accounts - probably 50/50 in pre-tax, 60/40 in Roth, since that money has a longer investment horizon. My goal is the have an overall 50/50 allocation, and the money I'm discussing here is only one component of this allocation.

Stock allocation would be 70% U.S., 30% int'l - that's pretty much what I've done in the past, and I'm comfortable continuing that allocation.

Psychologically speaking, the interesting thing is that although this is basically a lateral move, and I've been investing actively for 30 years (by which I mean I've been studying, reading for that time - but basically buy/hold), it's a bit nerve-wracking having to invest this sum of money. When the $$ was in the 401K it evolved organically, and there was a big component of inertia to my investment choices. Now, I've chosen to reconsider my investment choices, and I have an almost infinite number of choices - 3-fund, 4-fund, slice-dice, all of the various portfolios that are discussed on BH ad nauseam - constrained only by my desire to simplify at this point in my life, both for myself and my wife/heirs.

Any ruminations, observations, encouragement or discouragement are welcome. Thanks in advance.

Small Law Survivor

livesoft
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by livesoft » Mon Nov 20, 2017 9:12 am

I think you are on your own with this -- except for maybe the possibility of help from your spouse. Have you asked her?

The neat thing is that it doesn't matter what you try since you can always change it. So why not try LifeStrategy Moderate Growth VSMGX?
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Ethelred
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by Ethelred » Mon Nov 20, 2017 10:06 am

This is a good post, and it sounds like you have a good plan.

The only thing I will say is that if you really want to simplify things for your heirs, you could consider some sort of balanced fund - Target retirement, Life Strategy, Wellington or Wellesley, and maybe keep just a domestic SCV fund for some additional tilt. You might find dealing with bond funds easy, but your heirs or your future self might not.

123
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by 123 » Mon Nov 20, 2017 10:13 am

I am involved in a similar simplification effort, viewtopic.php?f=1&t=232450&p=3623279#p3623279

The closest single fund-of-funds solution I could identify for my needs was Vanguard LIfeStrategy Moderate Growth so I took a plunge into it for part of one account last week. As I get used to it I'm planning to move the remainder of our my tax-deferred accounts over to it. Taxable accounts have embedded capital gains so I'm not anxious to change those (except for discontinuing dividend reinvestment).

I figured that a single fund is really the only solution that simplifies things (likely still with some bank accounts/CDs on the side). We just have to get comfortable with the result. From my perspective the single fund solution is easier then expecting a non-interested surviving spouse to deal with any re-balancing or even a low-cost service like Vanguard PAS. As has been said before, you can spend a lot of effort in the relentless search for a perfect plan when a good plan will suffice. And, depending on market developments, the good plan could yield a better result than a perfect plan.

Edited to add:
For my needs Vanguard Wellington could likely be an acceptable single fund solution as well. The two factor that have prevented me from going with it are the higher expense-ratio and the fact that it's not based based on primary index(es).
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Chip
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by Chip » Mon Nov 20, 2017 10:34 am

From a tax efficiency standpoint, what are you doing with your taxable accounts and how does that interact with your proposed allocations?

I would be tempted to have the Roth 100% stocks. It's probably going to your daughter eventually, right?

Some here, maybe Larry S., used to suggest getting SCV exposure domestically because of the costs of international SCV. In your case going that route would also simplify your portfolio a bit.

I'd think one bond fund (Total) would be simpler than 4. :D Or, if you subscribe to "take your risk on the equity side" you could split 50/50 nominal Treasuries/TIPs. And bump up your equity percentage a little.

goingup
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by goingup » Mon Nov 20, 2017 10:36 am

Nice job retiring with such a robust 401K balance. When I hear young people wanting to forego their 401Ks because of less than rock-bottom costs, I think it's the wrong decision.

This 1.6M is just a 1/3 of your portfolio? I'd consider how to allocate the whole 5M. You'd likely want the tIRA to be bond heavy, and the Roth to be growthier. I'm not much a of a slicer/dicer so in these tax-advantaged accounts I'd probably hold only 1 or 2 funds. In taxable accounts I'm stuck with more and you may be too. :beer

GLState
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by GLState » Mon Nov 20, 2017 11:25 am

You're making your portfolio more complex that it needs to be with your "nods to Merriman". What are your reasons to go beyond a Life Strategy fund, a Total World/ Total Bond combo, or a simple three fund portfolio. Why add treasuries and short term bonds if you're going to buy Total Bond. It seems you're heading for a 7 or 8 fund portfolio that could be accomplished in 1,2, or 3 funds.

MotoTrojan
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by MotoTrojan » Mon Nov 20, 2017 11:34 am

I agree with those saying to use a fund of funds. If your real motive is ease for heirs, I'd strive to transition all tax-advantaged assets towards that, and then equities (total indexes) in taxable.

If you want to stick with your plan, I'd research alternative US SCV funds. I use VIOV (same as IJS) which tracks the S&P600 SCV. It is about half the comedian cap of the VG fund, which is 50/50 mid/small per most people's designations.

DrGoogle2017
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by DrGoogle2017 » Mon Nov 20, 2017 11:47 am

I’m slowly transition to Life style funds with small amounts. But what I noticed is the Conservative fund is not so conservative. It went down immediately after I purchased it. Maybe the Moderate fund is better. Still in the wait and see mode.

SimplicityNow
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by SimplicityNow » Mon Nov 20, 2017 3:56 pm

Well of course your desire to slice and dice runs contrary to your goal of simplification.

If you like Total Word Stock Index you could just do that with an intermediate term bond fund and call it a day.

But your comment re: multiple bond funds, tips, separate allocations in Roth and tIRA tell me you aren't going to simplify totally.

Why don't you just be honest with yourself and realize you can't have both. Compromise. If you were in 15 different funds you aren't going to deal with simplifying to 2, at least not all at once. Meet in the middle with 6 or 7. I think you already know how to choose them and allocate them. I

I am also trying to simplify, mostly for the benefit or my wife and kids. They all have varying degrees of interest in this ranging from none at all to some but not a lot. None of it is rocket science. If it was I wouldn't be able to manage it.

I'd reduce your picks to an amount you can be happy with (it's not going to be two or three ;) and once it is set try to educate your family about why it is invested the way it is.

As livesoft says, it can be changed later (at least the part not on taxable) without any consequences.

curmudgeon
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Re: Just Moved $1.6MM from 401K to Vanguard IRAs - now what?

Post by curmudgeon » Mon Nov 20, 2017 11:15 pm

Dealing with large lump sums like this, especially in retirement, is always going to be a bit nerve-wracking. Among other things, you don't want to be the one discovering the next Bernie Madoff... As others have mentioned, the nice thing with IRA investments is that you can change your mind without big tax consequences. You want your IRAs to have a planned relationship with your other investments, not to live in an isolated world. If you think it will be of interest to you over the next few years, I would say to go ahead and indulge your factor/tilt/whatever ideas in your IRA, within reason. Just write yourself (and your wife) a note now to remind your future self that there will come a time to just liquidate and dump it all into a lifestrategy fund (or Wellington, or whatever).

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