Portfolio Guidance

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WonderingWanderer
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Joined: Thu Dec 07, 2017 5:00 pm

Portfolio Guidance

Post by WonderingWanderer » Thu Dec 07, 2017 6:53 pm

I am new to the forum and to the concepts. I am fully on board with buy and hold and with low expense ratios without management fees, though.

Being recently retired, I would like recommendations on our portfolio and my current plans for simplification.
Per the posting suggestions:
Emergency fund is in place.
Debt - None
Tax Filing status - Married filing jointly
Tax Rate: Federal - 15% Marginal this year/ State - None
State of Residence - Texas
Age - 65
Desired Asset Allocation: 70/30 stocks to bonds (open to discussion, but this came from Vanguard tool)
Desired international allocation: 20% of stocks
Our total portfolio is in the low to mid seven figures. In addition, we have a high six figures investment in real estate providing approximately 30% of our income needs. We currently are taking income from FKINX from my SERP and from an otherwise unlisted annuity. We are currently supplementing these with a withdrawal of approximately 1% of the portfolio.

Our current portfolio consists of:

32.4% Taxable
(Percent of Holdings/Name/Symbol/Expense Ratio)
16.7% Franklin Income Fund FKINX 0.61%
2.5% American Growth fund of America AGTHX 0.64%
3.0% American Capital Class A AMCPX 0.68%
0.8% American Small Cap SMCWX 1.07%
5.4% American Fund New Economy ANEFX 0.80%
1.6% Fidelity Value FDVLX 0.67%
2.4% T Rowe Price Capital Appreciation PRWCX 0.70%
Note - approximately 25% of this portion is subject to capital gains taxes currently.

35.0% His IRAs
1.3% DODGE & COX STOCK FUND DODFX 0.64%
2.7% iShares Core S&P 500 Fund IVV 0.04%
1.5% iSharess Core S&P Mid-Cap Fund IJH 0.07%
1.0% iShares Core S&P Small-Cap Fund IJR 0.07%
3.2% iShares Core MSCI EAFE Fund IEFA 0.08%
0.3% Vanguard Index 500 Fund IRAs VFINX 0.14%
5.0% T Rowe Price New Income (IRA) PRCIX 0.54%
15.1% T Rowe Price Equity Index 500 (IRA) PREIX 0.26%
0.5% Fidelity International Discovery FIGRX 1.00%
1.3% American Fund New Economy (IRA) ANEFX 0.82%
1.2% iShares Core MSCI Emerging Markets Fund IEMG 0.14%
0.4% ISHARES RUSSELL 2000 VALUE ETF IWN 0.25%
1.2% POWERSHARES QQQ TRUST SERIES 1 QQQ 0.20%
0.2% VANGUARD FTSE EMERGING MARKETS ETF FTSE EMERGING INDEX VWO 0.14%

11.9% Her IRAs
0.3% Cash within IRA QCERQ
1.6% Vanguard 500 Index Investor Shares VFINX 0.14%
1.3% American Fund New Economy (IRA) ANEFX 0.80%
0.2% ishares core S&P small cap ETF IJR 0.07%
2.6% POWERSHARES QQQ Nasdaq 100 QQQ 0.20%
3.3% Vanguard Wellington VWINX 0.16%
1.9% American Balanced ABALX 0.60%
0.7% T Rowe Price Capital Appreciation (IRA) PRWCX 0.70%

13.5% His 401k
1.5% Dodge and Cox Intl DODFX 0.64%
1.0% Vanguard Energy Index Adm VENAX 0.10%
3.5% T Rowe Price Mid Cap Growth RPTIX 0.63%
3.8% MFS Value R6 MEIKX 0.51%
3.7% Black Rock Total Stock Market Index BKTSX 0.20%

7.2% His SERP (Supplemental Retirement Plan - taking withdrawals for 13 more years)
2.4% Lincoln VIP MFS Value Std LVIP MFS 0.66%
2.4% Fidelity VIP Index 500 Portfolio Initial Class Symbol unknown 0.10%
2.4% MFS VIT Global Initial Symbol unknown 0.76%

I am at a loss as to how to extricate myself from the tax-inefficient makeup of the Taxable accounts without incurring a sizable tax bill. What would you suggest?

If I leave the taxable portion alone, my thoughts for the pieces are:
His IRA 39% VBTLX; 59% VTSAX; 12% VTIAX
Her IRA 39% VBTLX; 59% VTSAX; 12% VTIAX
His 401K Black Rock Total Stock Market Index BKTSX Exp Ratio 0.20% - unless I move this to His IRA - then it would go to VTSAX
His SERP 30% LVIP Delaware Bond and 70% Fidelity Index 500 Portfolio (Must stay within SERP available plans and these appear to be the most promising.

These changes would approximate the 70/30 Allocation split I am seeking, simplify things and reduce expenses to approximately 0.28% from their current 0.47%.

How does this look? Do you have better suggestions? Should I be interested in increasing bond holdings from the current 18% to 30% if I am confident that I will not panic in a down market? The old saying "Pigs get fat and hogs get slaughtered" leads me to think increasing bonds is a good idea.

One other idea that my wife asked is what happens if we are strongly invested with a single firm such as Vanguard if they go away? I don't see that happening, but what would become of our holdings?

As this is my first time in the system, your suggestions for greater clarity in the post are most welcome! Thank you for your thoughts.
Wondering Wanderer

mega317
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Re: Portfolio Guidance

Post by mega317 » Thu Dec 07, 2017 11:06 pm

70/30 is rather stock-heavy for a retiree. What is your withdrawal rate?

In the 15% bracket you don't pay capital gains taxes so you can get out of at least some of your taxable funds for free. Though I don't know how the income will affect SS if that's relevant for you.

Your allocation plan seems fine. Another option is put everything in a balanced fund like a lifestrategy.

If Vanguard goes away you won't lose anything. I don't know the logistics (it seems you might not have access to your money for a time) but you aren't invested in them, you are invested in the underlying securities that the funds hold.

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patrick013
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Re: Portfolio Guidance

Post by patrick013 » Thu Dec 07, 2017 11:16 pm

Sort your tax-deferred funds based on ER. It should be easy to
allocate then based on your desired AA.

Staying in your 15% marginal bracket you should be able to sell
some funds and pay 0% tax up to the 15% limit. Put the numbers
in an online tax program to estimate. Now is a good time to sell
stocks before the end of the year.
Last edited by patrick013 on Thu Dec 07, 2017 11:18 pm, edited 1 time in total.
age in bonds, buy-and-hold, 10 year business cycle

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Sandtrap
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Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Portfolio Guidance

Post by Sandtrap » Thu Dec 07, 2017 11:17 pm

Welcome :D
. . .In addition, we have a high six figures investment in real estate providing approximately 30% of our income needs. We currently are taking income from FKINX from my SERP and from an otherwise unlisted annuity.
Is this why you have chosen such an aggressive asset allocation?
j :D

WonderingWanderer
Posts: 8
Joined: Thu Dec 07, 2017 5:00 pm

Re: Portfolio Guidance

Post by WonderingWanderer » Sat Jan 06, 2018 10:34 am

Yes, it is. Thank you for your attention. I apologize for not getting back to you earlier. This is my first post, and I thought I would receive an email that the topic had been approved. I finally thought to check the site for a message. Rookie mistake.

WonderingWanderer
Posts: 8
Joined: Thu Dec 07, 2017 5:00 pm

Re: Portfolio Guidance

Post by WonderingWanderer » Sat Jan 06, 2018 10:42 am

Mega 317 - Thank you for your help.
I apologize for the late response. I just found your comments.

Our withdrawal rate is under 1%, although we are moving that up as we gain confidence in our plan. We are only 18 months into retirement and taking it slow. We are comfortable with the lifestyle we have.

I like your idea of mining things to the capital gains tax rate. I wish I had seen that advice before the end of the year, but I can plan to do so over the next several.

And thank you for your reassurance about what happens if Vanguard were to go away.

Best Regards!

WonderingWanderer
Posts: 8
Joined: Thu Dec 07, 2017 5:00 pm

Re: Portfolio Guidance

Post by WonderingWanderer » Sat Jan 06, 2018 10:45 am

Patrick 013 -

Thank you for your response. I will do the sort by ER and see where that takes us. By online tax program, do you mean something like TurboTax?

I apologize for not getting back to you earlier - I didn't understand that the topic had been approved and that you all were responding.

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patrick013
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Re: Portfolio Guidance

Post by patrick013 » Sat Jan 06, 2018 12:55 pm

WonderingWanderer wrote:
Sat Jan 06, 2018 10:45 am
Patrick 013 -

Thank you for your response. I will do the sort by ER and see where that takes us. By online tax program, do you mean something like TurboTax?

I apologize for not getting back to you earlier - I didn't understand that the topic had been approved and that you all were responding.
Yes TurboTax, TaxBrain, HRBlock, so there are several more to use and choose from. The
new tax laws will take awhile to appear in those online programs.

Tax loss harvesting - Bogleheads

If there's a 20% market correction you can sell unwanted funds for little or no tax
and purchase the general index funds you want. TSM, MC, SC indexes in Taxable.
I'd use IT and ST bond index for bonds in others. So if you leave the 0% cap gains tax
rate some funds would be better to sell than others tax wise. Lowest cost is very
important, they're all indexes anyway.
age in bonds, buy-and-hold, 10 year business cycle

WonderingWanderer
Posts: 8
Joined: Thu Dec 07, 2017 5:00 pm

Re: Portfolio Guidance

Post by WonderingWanderer » Sat Jan 06, 2018 8:57 pm

Hadn't thought of looking forward for a market correction! Thanks for the guidance, Patrick 013.

WonderingWanderer
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Taxable Account Portfolio Guidance

Post by WonderingWanderer » Sun Feb 11, 2018 4:41 pm

Thank you for your help with our IRAs. We are now consolidated and in Vanguard admiral shares and significantly reduced our portfolio's expenses, while creating an asset allocation that we can track and re-balance to.
We have over 1 year's needs available in money market accounts.

Since we have had a bit of a market correction, I am looking again at my taxable accounts.

The taxable portion of our investments makes up 30% of our mutual funds and are split 70/30 equities to bonds, matching the asset allocation we have in place overall. (IRAs are now in 56% VTSAX, 14% VTIAX, 30% VBTLX). We also have additional income which we think allows us to be this aggressive. I am 65 and retired.

Current taxable holdings are just over seven figures and include:
51% Franklin Income Fund FKINX - Taking $3,000/month out, (the income from the holding). This income is a welcome part of our monthly budget. Turnover is 61%, Expense Ratio is 0.61%. Unrealized gain is currently slightly negative.
8% American Growth Fund of America - AGTHX Turnover is 25%. Expense Ratio is 0.64%. Unrealized gain is $30K.
10% American Capital Class A - AMCPX- Turnover is 25%, Expense Ratio is 0.68%. Unrealized gain is $38K.
2% American Small Cap - SMCWX- Turnover is 29%, Expense Ratio is 1.07%. Unrealized gain is $6K.
17% American New Economy - ANEFX- Turnover is 25%, Expense Ratio is 0.8%. Unrealized gain is $125K.
5% Fidelity Value - FDVLX - Turnover is 72%, Expense Ratio is 0.67%. Unrealized gain is $32K.
7% T Rowe Price Capital Appreciation - PRWCX- Turnover is 62%, Expense Ratio is 0.70%. Unrealized gain is $47K.

I know that the taxable accounts should be low turnover and I also am certain that there are lower expense options to be had.
I am thinking that this is a good time to change out FKINX and that I could take income needed over the next several months to close out the relatively small holding in SMCWX.

I am reluctant to take on the other holdings due to their capital gains impacts.

My questions:
What do you suggest as a landing place for the funds now in FKINX? Does it make sense to select funds with monthly income, or should we opt for capital gains and just take out as needed? Would we need to hold for over a year in order for the gains to be long term?
Does closing out SMCWX over the next 9 months seem reasonable?
Do you have any other suggestions for extricating the other holdings - or should I just keep watching their unrealized gains for that opportunity?

Thank you very much for your insights!
Wondering Wanderer

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patrick013
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Re: Portfolio Guidance

Post by patrick013 » Mon Feb 12, 2018 3:20 pm

Tax-efficient Fund Placement

Other than having too many funds with high expense ratios fund
placement could be better. My 2 favorite bond funds would be
ticker BSV and BIV which are very low fee at Vanguard. :)

What would you switch to when closing out high fee funds in taxable ?
A LC like TSM, a MC general index and a SC general index are all that's
really needed. I like ticker IJR for SC. Fee is .07%

Market is up today so I don't know. Better to wait then.
age in bonds, buy-and-hold, 10 year business cycle

WonderingWanderer
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Joined: Thu Dec 07, 2017 5:00 pm

Re: Portfolio Guidance

Post by WonderingWanderer » Tue Feb 13, 2018 7:54 am

Thank you again, Patrick 013. The link you shared is good to keep in front of me while trying to do this. If LC is large cap, MC is mid-cap, and SC is Small Cap, are these all covered with a single Total Stock Market fund? Or perhaps one for US and one for International?

It seems odd to hope to have a bad market day to be able to sell low. That seems like reverse timing the market, but that is where I am, too.

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patrick013
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Re: Portfolio Guidance

Post by patrick013 » Tue Feb 13, 2018 3:16 pm

WonderingWanderer wrote:
Tue Feb 13, 2018 7:54 am
Thank you again, Patrick 013. The link you shared is good to keep in front of me while trying to do this. If LC is large cap, MC is mid-cap, and SC is Small Cap, are these all covered with a single Total Stock Market fund? Or perhaps one for US and one for International?

It seems odd to hope to have a bad market day to be able to sell low. That seems like reverse timing the market, but that is where I am, too.
Well I don't have high yield so that is up to you. That Franklin fund had
substantial high yield bonds in it. General indexes like tickers VTI, IJH,
and IJR are in mine and I think you already own those. I'd go ticker VWO
for emerging markets as VTI has substantial revenue for Intl already in it,
so the exposure is there. So 5 or 6 funds is all you need at the most.

For a 3 fund portfolio there is Total Stock, Total Intl, and something short term like
3 year CD's for bonds. Those funds are at Vanguard.
age in bonds, buy-and-hold, 10 year business cycle

WonderingWanderer
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Joined: Thu Dec 07, 2017 5:00 pm

Re: Portfolio Guidance

Post by WonderingWanderer » Thu Feb 15, 2018 5:32 pm

Thanks, again. We are making progress. Haven't taken steps on the taxable accounts, yet, but I am getting more of an idea as to what to do.

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patrick013
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Re: Portfolio Guidance

Post by patrick013 » Thu Feb 15, 2018 6:00 pm

WonderingWanderer wrote:
Thu Dec 07, 2017 6:53 pm
I am new to the forum and to the concepts. I am fully on board with buy and hold and with low expense ratios without management fees, though.
The Bogleheads Guide to Investing

Read this in your spare time - not very expensive.
age in bonds, buy-and-hold, 10 year business cycle

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