Advice adjusting Asset Allocation

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Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Advice adjusting Asset Allocation

Post by reddison »

Edited (original post is below it)

Thx everyone for the initial responses. I have attempted to follow the general format in listing all of our investments as requested. Some general comments on statements/questions to those who have responded. I am aware that Wellington should not be in my taxable account but wasn't when I invested it there - something I'm trying to correct. Yes as we are approaching retirement I am getting cold feet on how I've been investing (for aggressive growth), especially after such a long, good run for equities and market volatility now. I was really hoping to average a 9% return for a couple more years but probably is not realistic and is too risky - hence wanting to change now. Reminder that when I retire, I will receive about $100k per year for 5 years and will only need to draw down between 1-2% per year. After that Social Security will kick in and our drawdown will still be around 3%. So thx again and here is my info:

Emergency funds: >12 months
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 32% Federal, 3.23% State
State of Residence: IN
Age: almost 61
Desired Asset allocation: 60-70% stocks / 30-40% bonds
Desired International allocation: 20% of stocks

Current total portfolio: 2.6 million
1.85m tax advantaged
750k taxable

$2.6 million saved - about 1.85M in 401k/IRAs and $750k in taxable accounts. I know most would not have this asset allocation at our age but currently we are 77% equity, 11% bonds and 12% money market/cash. When I retire, I will receive about $100k per year for 5 years and will only need to draw down between 1-2% per year. After that Social Security will kick in and our drawdown will still be around 3%. I would like to be at 70% equity now, with an eye towards moving to a more conservative position over the next couple of years. Currently all of our bond holdings are in balanced funds with about 100k in Wellington (taxable), 65k in American Funds Balanced Fund (IRA) and 125k in American Century Balanced (401k). We are investing 18k/yr into my wife's company 401k, 61K/yr into my 401k and 120k/yr into Vanguard taxable funds.

Current retirement assets

Taxable – Total 726k (I think I was counting something else listed below as part of taxable)

Checking and other 127k
Inherited Stocks – 86k total - Allstate (ALL), Discover (DFS), Morgan Stanley (MS)
VG Funds (513k total)
VG Div Growth (VDIGX) ER .26 49k
VG Fed Money Mkt (VMFXX) .11 71k
VG Small Cap Indx (VSMAX) .05 29k
VG Ttl Intl (VTIAX) .11 42k
VG Ttl Stk Adm (VTSAX) .04 106k
Wellington Adm (VWENX) .17 116k
VG Growth Indx Adm (VIGAX) .05 100k

His 401k (Total 1.358m)
No company match
xx% fund name (ticker symbol) (expense ratio)
Amer Cent Balanced Fund (ABINX) .71 278k
Amer Cent Equity Inc (ACIIX) .73 104k
Federated Govt MMF (GOFXX) -- 129k
Fidelity Adviser New Insight (FINSX) .68 344k
Opp Dev Mkts Class Y (ODVYX) 1.07 77k
T Rowe P New Horiz (PRJIX) .65 264k
VG Mid Cap Indx Adm (VIMAX) .05 162k

His Rollover IRA at Vanguard
Wellington Adm (VWENX) .17 152k

His Inherited IRA at Vanguard
VG Target Ret 2030 (VTHRX) .14 26k

529 Plan – 30k remaining to pay final year of college

HSA – VG 500 Indx Adm - 40k total

Her 401k (only American Funds offered) 2% match – 270k Total
AF Balanced Funds Class A (ABALX) .57 83k
AF Cap World Growth (CWGIX) .77 44k
AF Inv Co. America Class A (AIVSX) .58 41k
AF New Perspective Cl A (ANWPX) .75 6k
AF Growth Fund America (AGTHX) .64 96k

Contributions

New annual Contributions
$61k his 401k (no match)
$18k her 401k (includes 2% match)
$120k taxable into VG (10k/month)
8k - HSA

Fund Options: There are far too many to list between both our plans but it covers the gamut. Hers are only American Funds and I have a pretty broad selection of funds across all types.

Questions:
1. As stated in my original post, we plan to retire in 2-3 years and I am trying to fix some of my past errors of the funds selected in tax advantaged and taxable accounts, keeping in mind that we have a fair amount of capital gains in the VG taxable funds (19k short term & 37k long term = 56K total).

2. I am also wanting to determine the best way to change my asset allocation, lower equities, increase bonds. As mentioned previously, funds with bonds available in my 401k plan are:

American Century Balanced ABINX ER .71 (Balanced with 30-50% bonds)
Dodge and Cox Income DODIX .43
Oppenheimer Int'l Bond Y OIBYX .75
Touchstone Ultra Short Duration TSYYX .44
VG Target Retirement Funds 2015 up to 2050 with ERs from .13 to .15 (I kind of like this alternative)


ORIGINAL POST:


Can use some help from the group. I am just shy of 61 and my wife and I are planning to retire in 2 or 3 years. We have no debt, own our home that we plan to remain in, and currently have around $2.6 million saved - about 1.85M in 401k/IRAs and $750k in taxable accounts. I know most would not have this asset allocation at our age but currently we are 77% equity, 11% bonds and 12% money market/cash. When I retire, I will receive about $100k per year for 5 years and will only need to draw down between 1-2% per year. After that Social Security will kick in and our drawdown will still be around 3%. I would like to be at 70% equity now, with an eye towards moving to a more conservative position over the next couple of years. Currently all of our bond holdings are in balanced funds with about 100k in Wellington (taxable), 65k in American Funds Balanced Fund (IRA) and 125k in American Century Balanced (401k). We are investing 18k/yr into my wife's company 401k, 61K/yr into my 401k and 120k/yr into Vanguard taxable funds.

In order to move to 70% equity now, I would need to move almost $200,000 into bonds and I don't know how best to do this. Do I move a large lump sum out of equities in my 401k into bond funds, or just start directing future investments into those funds? Or some other way? The funds available to me in my 401k are as follows:

American Century Balanced ABINX ER .71 (Balanced with 30-50% bonds)
Dodge and Cox Income DODIX .43
Oppenheimer Int'l Bond Y OIBYX .75
Touchstone Ultra Short Duration TSYYX .44
VG Target Retirement Funds 2015 up to 2050 with ERs from .13 to .15


My taxable funds are all in Vanguard so another alternative is to pick their bond funds but I know bond funds are supposed to be in tax-favored accounts.

Thanks.
Last edited by reddison on Tue Jul 17, 2018 1:19 pm, edited 2 times in total.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Advice adjusting Asset Allocation

Post by retiredjg »

Welcome to the forum!

If/when you are ready to move to a higher bond allocation, just do it. Sell stocks in the 401k and buy bonds. There is no reason to do anything else.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 11:25 am

Re: Advice adjusting Asset Allocation

Post by PFInterest »

please edit your post to look like this:
viewtopic.php?t=6212

you will get much more detailed responses and better able to formulate a plan going forward.
if you are in american funds, they can be improved to say the least.
Wellington also isnt the greatest for a taxable account. you say you know bonds should go in tax protected, but then you didnt do that.
Those fixed income options arnt the greatest. Easiest would be to increase Total Bond in your IRAs. Using the Vanguard TDF are also a great option as well.

anyways, lots to fix here. Nice thing is you have a lot of money with a long time left so this will pay off a lot!
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Advice adjusting Asset Allocation

Post by pkcrafter »

Welcome,
reddison wrote: Mon Jul 16, 2018 2:40 pm Can use some help from the group. I am just shy of 61 and my wife and I are planning to retire in 2 or 3 years. We have no debt, own our home that we plan to remain in, and currently have around $2.6 million saved - about 1.85M in 401k/IRAs and $750k in taxable accounts. I know most would not have this asset allocation at our age but currently we are 77% equity, 11% bonds and 12% money market/cash. When I retire, I will receive about $100k per year for 5 years and will only need to draw down between 1-2% per year. After that Social Security will kick in and our drawdown will still be around 3%. I would like to be at 70% equity now, with an eye towards moving to a more conservative position over the next couple of years. Currently all of our bond holdings are in balanced funds with about 100k in Wellington (taxable), 65k in American Funds Balanced Fund (IRA) and 125k in American Century Balanced (401k). We are investing 18k/yr into my wife's company 401k, 61K/yr into my 401k and 120k/yr into Vanguard taxable funds.

Do not hold Wellington in a taxable account, it's very tax-inefficient.

In order to move to 70% equity now, I would need to move almost $200,000 into bonds and I don't know how best to do this. Do I move a large lump sum out of equities in my 401k into bond funds, or just start directing future investments into those funds? Or some other way? The funds available to me in my 401k are as follows:

American Century Balanced ABINX ER .71 (Balanced with 30-50% bonds)
Dodge and Cox Income DODIX .43
Oppenheimer Int'l Bond Y OIBYX .75
Touchstone Ultra Short Duration TSYYX .44
VG Target Retirement Funds 2015 up to 2050 with ERs from .13 to .15

Always consider all accounts as part of one portfolio, so yes, increase bonds in the 401k. DODIX probably best choice, but you could also put 25-30% into TSYYX. It's shorter duration, but lower quality.

My taxable funds are all in Vanguard so another alternative is to pick their bond funds but I know bond funds are supposed to be in tax-favored accounts.

Correct, bonds should not be in taxable if tax-advantaged accounts are available. Please list the funds you hold in the taxable Vanguard account.

Note on risk. When assessing risk, we think of ability, need, and willingness. If you have ability (you do because of low withdrawal rate), and when you have ability you don't have as much need. So, you have some flexibility there and it might come down to willingness. At 70% stock, you might see a portfolio drop of 20-30% in a bad fall. You could probably handle that, but do you want to?

Risk--

https://www.bogleheads.org/wiki/Risk_an ... troduction



Paul

When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Advice adjusting Asset Allocation

Post by retiredjg »

pkcrafter wrote: Mon Jul 16, 2018 4:02 pm Always consider all accounts as part of one portfolio, so yes, increase bonds in the 401k. DODIX probably best choice, but you could also put 25-30% into TSYYX. It's shorter duration, but lower quality.
I'm thinking of using a low cost Vanguard Target fund that has lots of bonds in that account. Lower cost. Gets bonds out of taxable. I don't usually like to mix targets with non-targets, but this might be a case where it is worth it.

Reddison, I agree with the earlier poster who said there are several things here that could be improved if you are interested. But it will take some work on your part. See the link at the bottom of this message for how to do that.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Advice adjusting Asset Allocation

Post by pkcrafter »

retiredjg wrote: Mon Jul 16, 2018 4:18 pm
pkcrafter wrote: Mon Jul 16, 2018 4:02 pm Always consider all accounts as part of one portfolio, so yes, increase bonds in the 401k. DODIX probably best choice, but you could also put 25-30% into TSYYX. It's shorter duration, but lower quality.
I'm thinking of using a low cost Vanguard Target fund that has lots of bonds in that account. Lower cost. Gets bonds out of taxable. I don't usually like to mix targets with non-targets, but this might be a case where it is worth it.

Reddison, I agree with the earlier poster who said there are several things here that could be improved if you are interested. But it will take some work on your part. See the link at the bottom of this message for how to do that.
What jg suggests is also a viable option and I almost included it too, but I didn't see TR Income, which would be 70% bonds. :happy

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Dandy
Posts: 6701
Joined: Sun Apr 25, 2010 7:42 pm

Re: Advice adjusting Asset Allocation

Post by Dandy »

It looks as if you will be in fine financial shape and withdrawing 3% or less per year. My question is why do you still want to go for aggressive growth? The years just prior and just after retirement are the most risky from a bad sequence of return situation. Remember you may be looking at market declines, loss of human capital while withdrawing.

Aggressive growth has been good for a long time so I can see why if it has been good for you you would want to stick with it. But, most need to look at their near and in early retirement risk tolerance and subsequent allocation based on retirement being a significant life change.
Dandy
Posts: 6701
Joined: Sun Apr 25, 2010 7:42 pm

Re: Advice adjusting Asset Allocation

Post by Dandy »

It looks as if you will be in fine financial shape and withdrawing 3% or less per year. My question is why do you still want to go for aggressive growth? The years just prior and just after retirement are the most risky from a bad sequence of return situation. Remember you may be looking at market declines, loss of human capital while withdrawing.

Aggressive growth has been good for a long time so I can see why if it has been good for you you would want to stick with it. But, most need to look at their near and in early retirement risk tolerance and subsequent allocation based on retirement being a significant life change.
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

Duplicate deleted
Last edited by reddison on Tue Jul 17, 2018 1:33 pm, edited 1 time in total.
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

PFInterest wrote: Mon Jul 16, 2018 3:29 pm please edit your post to look like this:
viewtopic.php?t=6212

you will get much more detailed responses and better able to formulate a plan going forward.
if you are in american funds, they can be improved to say the least.
Wellington also isnt the greatest for a taxable account. you say you know bonds should go in tax protected, but then you didnt do that.
Those fixed income options arnt the greatest. Easiest would be to increase Total Bond in your IRAs. Using the Vanguard TDF are also a great option as well.

anyways, lots to fix here. Nice thing is you have a lot of money with a long time left so this will pay off a lot!
Please see edited post
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

pkcrafter wrote: Mon Jul 16, 2018 4:02 pm Welcome,
reddison wrote: Mon Jul 16, 2018 2:40 pm Can use some help from the group. I am just shy of 61 and my wife and I are planning to retire in 2 or 3 years. We have no debt, own our home that we plan to remain in, and currently have around $2.6 million saved - about 1.85M in 401k/IRAs and $750k in taxable accounts. I know most would not have this asset allocation at our age but currently we are 77% equity, 11% bonds and 12% money market/cash. When I retire, I will receive about $100k per year for 5 years and will only need to draw down between 1-2% per year. After that Social Security will kick in and our drawdown will still be around 3%. I would like to be at 70% equity now, with an eye towards moving to a more conservative position over the next couple of years. Currently all of our bond holdings are in balanced funds with about 100k in Wellington (taxable), 65k in American Funds Balanced Fund (IRA) and 125k in American Century Balanced (401k). We are investing 18k/yr into my wife's company 401k, 61K/yr into my 401k and 120k/yr into Vanguard taxable funds.

Do not hold Wellington in a taxable account, it's very tax-inefficient.

In order to move to 70% equity now, I would need to move almost $200,000 into bonds and I don't know how best to do this. Do I move a large lump sum out of equities in my 401k into bond funds, or just start directing future investments into those funds? Or some other way? The funds available to me in my 401k are as follows:

American Century Balanced ABINX ER .71 (Balanced with 30-50% bonds)
Dodge and Cox Income DODIX .43
Oppenheimer Int'l Bond Y OIBYX .75
Touchstone Ultra Short Duration TSYYX .44
VG Target Retirement Funds 2015 up to 2050 with ERs from .13 to .15

Always consider all accounts as part of one portfolio, so yes, increase bonds in the 401k. DODIX probably best choice, but you could also put 25-30% into TSYYX. It's shorter duration, but lower quality.

My taxable funds are all in Vanguard so another alternative is to pick their bond funds but I know bond funds are supposed to be in tax-favored accounts.

Correct, bonds should not be in taxable if tax-advantaged accounts are available. Please list the funds you hold in the taxable Vanguard account.

Note on risk. When assessing risk, we think of ability, need, and willingness. If you have ability (you do because of low withdrawal rate), and when you have ability you don't have as much need. So, you have some flexibility there and it might come down to willingness. At 70% stock, you might see a portfolio drop of 20-30% in a bad fall. You could probably handle that, but do you want to?

Risk--

https://www.bogleheads.org/wiki/Risk_an ... troduction



Paul


Paul - thx for the response. Please see the edited post with detailed info. The questions is whether to let Wellington ride for now instead of paying capital gains tax, and changing it when I do a rollover in 2-3 years. Also, do I go with one of the VG Target funds with 60% bonds for now as an initial step. I certainly like the expense ratio and returns better than the bond funds offered in my 401k.
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

retiredjg wrote: Mon Jul 16, 2018 4:18 pm
pkcrafter wrote: Mon Jul 16, 2018 4:02 pm Always consider all accounts as part of one portfolio, so yes, increase bonds in the 401k. DODIX probably best choice, but you could also put 25-30% into TSYYX. It's shorter duration, but lower quality.
I'm thinking of using a low cost Vanguard Target fund that has lots of bonds in that account. Lower cost. Gets bonds out of taxable. I don't usually like to mix targets with non-targets, but this might be a case where it is worth it.

Reddison, I agree with the earlier poster who said there are several things here that could be improved if you are interested. But it will take some work on your part. See the link at the bottom of this message for how to do that.
retiredjg - thx for the response. I have edited the post with complete info and am open to suggestions.
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

Dandy wrote: Mon Jul 16, 2018 5:12 pm It looks as if you will be in fine financial shape and withdrawing 3% or less per year. My question is why do you still want to go for aggressive growth? The years just prior and just after retirement are the most risky from a bad sequence of return situation. Remember you may be looking at market declines, loss of human capital while withdrawing.

Aggressive growth has been good for a long time so I can see why if it has been good for you you would want to stick with it. But, most need to look at their near and in early retirement risk tolerance and subsequent allocation based on retirement being a significant life change.
Dandy - thx for the response and see my edited post. The answer is no to continued aggressive growth. I want to make changes but not radical ones right away. Seeking advice.
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

reddison wrote: Tue Jul 17, 2018 1:23 pm
PFInterest wrote: Mon Jul 16, 2018 3:29 pm please edit your post to look like this:
viewtopic.php?t=6212

you will get much more detailed responses and better able to formulate a plan going forward.
if you are in american funds, they can be improved to say the least.
Wellington also isnt the greatest for a taxable account. you say you know bonds should go in tax protected, but then you didnt do that.
Those fixed income options arnt the greatest. Easiest would be to increase Total Bond in your IRAs. Using the Vanguard TDF are also a great option as well.

anyways, lots to fix here. Nice thing is you have a lot of money with a long time left so this will pay off a lot!
Please see edited post
Pf interest - edited as requested. Yes I wasn't aware of the Wellington/taxable account issue when I did it. I know now. As you say, lots to fix and seeking advice.
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Updated info - Advice Adjusting Asset Allocation

Post by reddison »

[Post merged into here, see below. --admin LadyGeek]

Edited (original post is below it)

Thx everyone for the initial responses. I have attempted to follow the general format in listing all of our investments as requested. Some general comments on statements/questions to those who have responded. I am aware that Wellington should not be in my taxable account but wasn't when I invested it there - something I'm trying to correct. Yes as we are approaching retirement I am getting cold feet on how I've been investing (for aggressive growth), especially after such a long, good run for equities and market volatility now. I was really hoping to average a 9% return for a couple more years but probably is not realistic and is too risky - hence wanting to change now. Reminder that when I retire, I will receive about $100k per year for 5 years and will only need to draw down between 1-2% per year. After that Social Security will kick in and our drawdown will still be around 3% or less. So thx again and here is my info:

Emergency funds: >12 months
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 32% Federal, 3.23% State
State of Residence: IN
Age: almost 61
Desired Asset allocation: 60-70% stocks / 30-40% bonds
Desired International allocation: 20% of stocks or 15% of overall portfolio

Current total portfolio: 2.6 million
1.85m tax advantaged
750k taxable

I know most would not have this asset allocation at our age but currently we are 77% equity, 11% bonds and 12% other money market/cash. When I retire, I will receive about $100k per year for 5 years and will only need to draw down between 1-2% per year. After that Social Security will kick in and our drawdown will still be around 3%. I would like to be at 70% equity now, with an eye towards moving to a more conservative position over the next couple of years. Currently all of our bond holdings are in balanced funds with about 100k in Wellington (taxable), 65k in American Funds Balanced Fund (IRA) and 125k in American Century Balanced (401k). We are investing 18k/yr into my wife's company 401k, 61K/yr into my 401k and 120k/yr into Vanguard taxable funds.

Current retirement assets

Taxable – Total 726k (I think I was counting something else listed below as part of taxable)

Checking and other 127k
Inherited Stocks – 86k total - Allstate (ALL), Discover (DFS), Morgan Stanley (MS)
VG Funds (513k total)
VG Div Growth (VDIGX) ER .26 49k
VG Fed Money Mkt (VMFXX) .11 71k
VG Small Cap Indx (VSMAX) .05 29k
VG Ttl Intl (VTIAX) .11 42k
VG Ttl Stk Adm (VTSAX) .04 106k
Wellington Adm (VWENX) .17 116k
VG Growth Indx Adm (VIGAX) .05 100k

His 401k (Total 1.358m)
No company match
xx% fund name (ticker symbol) (expense ratio)
Amer Cent Balanced Fund (ABINX) .71 278k
Amer Cent Equity Inc (ACIIX) .73 104k
Federated Govt MMF (GOFXX) -- 129k
Fidelity Adviser New Insight (FINSX) .68 344k
Opp Dev Mkts Class Y (ODVYX) 1.07 77k
T Rowe P New Horiz (PRJIX) .65 264k
VG Mid Cap Indx Adm (VIMAX) .05 162k

His Rollover IRA
Wellington Adm (VWENX) .17 152k

His Inherited IRA at Vanguard
VG Target Ret 2030 (VTHRX) .14 26k

529 Plan – 30k remaining to pay final year of college

HSA – VG 500 Indx Adm - 40k total

Her 401k (only American Funds offered) 2% match – 270k Total
AF Balanced Funds Class A (ABALX) .57 83k
AF Cap World Growth (CWGIX) .77 44k
AF Inv Co. America Class A (AIVSX) .58 41k
AF New Perspective Cl A (ANWPX) .75 6k
AF Growth Fund America (AGTHX) .64 96k

Contributions

New annual Contributions
$61k his 401k (no match)
$18k her 401k (includes 2% match)
$120k taxable into VG (10k/month)
8k - HSA

Fund Options: There are far too many to list between both our plans but it covers the gamut. Hers are only American Funds and I have a pretty broad selection of funds across all types.

Questions:
1. As stated in my original post, we plan to retire in 2-3 years and I am trying to fix some of my past errors of the funds selected in tax advantaged and taxable accounts, keeping in mind that we have a fair amount of capital gains in the VG taxable funds (19k short term & 37k long term = 56K total).

2. I am also wanting to determine the best way to change my asset allocation, lower equities, increase bonds. As mentioned previously, funds with bonds available in my 401k plan are:

American Century Balanced ABINX ER .71 (Balanced with 30-50% bonds)
Dodge and Cox Income DODIX .43
Oppenheimer Int'l Bond Y OIBYX .75
Touchstone Ultra Short Duration TSYYX .44
VG Target Retirement Funds 2015 up to 2050 with ERs from .13 to .15 (I kind of like this alternative)

All suggestions are welcome. Thanks!

ORIGINAL POST:


Can use some help from the group. I am just shy of 61 and my wife and I are planning to retire in 2 or 3 years. We have no debt, own our home that we plan to remain in, and currently have around $2.6 million saved - about 1.85M in 401k/IRAs and $750k in taxable accounts. I know most would not have this asset allocation at our age but currently we are 77% equity, 11% bonds and 12% money market/cash. When I retire, I will receive about $100k per year for 5 years and will only need to draw down between 1-2% per year. After that Social Security will kick in and our drawdown will still be around 3%. I would like to be at 70% equity now, with an eye towards moving to a more conservative position over the next couple of years. Currently all of our bond holdings are in balanced funds with about 100k in Wellington (taxable), 65k in American Funds Balanced Fund (IRA) and 125k in American Century Balanced (401k). We are investing 18k/yr into my wife's company 401k, 61K/yr into my 401k and 120k/yr into Vanguard taxable funds.

In order to move to 70% equity now, I would need to move almost $200,000 into bonds and I don't know how best to do this. Do I move a large lump sum out of equities in my 401k into bond funds, or just start directing future investments into those funds? Or some other way? The funds available to me in my 401k are as follows:

American Century Balanced ABINX ER .71 (Balanced with 30-50% bonds)
Dodge and Cox Income DODIX .43
Oppenheimer Int'l Bond Y OIBYX .75
Touchstone Ultra Short Duration TSYYX .44
VG Target Retirement Funds 2015 up to 2050 with ERs from .13 to .15


My taxable funds are all in Vanguard so another alternative is to pick their bond funds but I know bond funds are supposed to be in tax-favored accounts.

Thanks.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Advice adjusting Asset Allocation

Post by retiredjg »

Thanks for the extra information.

It is helpful to start seeing your portfolio as a "whole" and seeing each holding as a percentage of the whole. So the portfolio adds up to 100%. I've done that for you, leaving out the $127k in checking and other. If you want to invest some of that money, you can add in in and change all the numbers accordingly.

I also left out the 529 plan. I came up with a retirement portfolio of $2,445,000. All percentages are based on that number.


Emergency funds: >12 months
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: 32% Federal, 3.23% State
State of Residence: IN
Age: almost 61
Desired Asset allocation: 60-70% stocks / 30-40% bonds
Desired International allocation: 20% of stocks

Current total portfolio: 2.6 million
1.85m tax advantaged
750k taxable



Taxable 24.5% $599k
Inherited Stocks – 86k total - Allstate (ALL), Discover (DFS), Morgan Stanley (MS)
3.5% VG Div Growth (VDIGX) ER .26 49k
2.9% VG Fed Money Mkt (VMFXX) .11 71k
1.2% VG Small Cap Indx (VSMAX) .05 29k
1.7% VG Ttl Intl (VTIAX) .11 42k
4.3% VG Ttl Stk Adm (VTSAX) .04 106k
4.7% Wellington Adm (VWENX) .17 116k
4.1% VG Growth Indx Adm (VIGAX) .05 100k


His 401k 55.5% (Total 1.358m)
11.4% Amer Cent Balanced Fund (ABINX) .71 278k
4.3% Amer Cent Equity Inc (ACIIX) .73 104k
5.3% Federated Govt MMF (GOFXX) -- 129k
14.1% Fidelity Adviser New Insight (FINSX) .68 344k
3.1% Opp Dev Mkts Class Y (ODVYX) 1.07 77k
10.8% T Rowe P New Horiz (PRJIX) .65 264k
6.6% VG Mid Cap Indx Adm (VIMAX) .05 162k


His Rollover IRA at Vanguard 6.2% $152k
6.2% Wellington Adm (VWENX) .17 152k


His Inherited IRA at Vanguard 1.1% 26k
1.1% VG Target Ret 2030 (VTHRX) .14 26k


HSA 40k–1.6%
1.6% VG 500 Indx Adm - 40k total

Her 401k – 11% 270k Total
3.4% AF Balanced Funds Class A (ABALX) .57 83k
1.8% AF Cap World Growth (CWGIX) .77 44k
1.7% AF Inv Co. America Class A (AIVSX) .58 41k
0.2% AF New Perspective Cl A (ANWPX) .75 6k
3.9% AF Growth Fund America (AGTHX) .64 96k


Since you like the idea of using a target fund in His 401k, I think that can be done if you are willing to manage 3 mini-portfolios (which would not be that hard.). As long as each of the Mini's is about 65/35 (just picking the middle of the range) you will be close enough to target.

Mini-Port #1 -Put His 401k into a target fund that is about 65% stocks and 35% bonds

Mini-Port #2 Leave the taxable account as is more or less other than investing the money market. If more bonds are needed, an intermediate term tax-exempt fund could be added. The taxable account could be cleaned up a lot but that can be done over time.

Put His Rollover, His Inherited IRA and the HSA into bonds. Combined with the taxable account, this is not too far off of about 70/30 (but please check my math because I didn't. :happy )

Mini-Port #3 - Her 401k - Find an American Fund fund (or two) that averages out to about 65/35.


What do you think about this idea so far?

The other alternative is to use the Dodge and Cox bond fund in His 401k and adjust all the other accounts using only individual funds.
Topic Author
reddison
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Re: Advice adjusting Asset Allocation

Post by reddison »

jg - thx for tweaking the numbers and adding the percentages. I like the general ideas and in managing the 3 minifunds at least until retirement/rollover time comes and I can consolidate. I am reluctant to take all funds in my 401k and putting it all into a target retirement fund in one fell swoop so I might ease into it a bit. I have targeted about 500k to move initially. I just learned that our 401k is adding VG Total Bond Market to our lineup so that gives me another option.

On moving the Rollover IRA (152k) out of Wellington and into bonds, any suggestions on which VG bond mutual fund makes sense?

Thank you.
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retiredjg
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Re: Advice adjusting Asset Allocation

Post by retiredjg »

reddison wrote: Wed Jul 18, 2018 2:26 pm jg - thx for tweaking the numbers and adding the percentages. I like the general ideas and in managing the 3 minifunds at least until retirement/rollover time comes and I can consolidate. I am reluctant to take all funds in my 401k and putting it all into a target retirement fund in one fell swoop so I might ease into it a bit. I have targeted about 500k to move initially. I just learned that our 401k is adding VG Total Bond Market to our lineup so that gives me another option.
All you are doing is exchanging one set of stocks (and a few bonds) for another set of stocks and bonds. Yes, it is a lot of money but it would take me about 2 seconds to exchange from your high priced funds into the one low cost Vanguard target fund. :happy
On moving the Rollover IRA (152k) out of Wellington and into bonds, any suggestions on which VG bond mutual fund makes sense?

Thank you.
Total bond Market is my go to bond fund unless there is a specific reason to look for something else.
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retiredjg
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Re: Advice adjusting Asset Allocation

Post by retiredjg »

Something to put on your agenda. When you hit age 70.5, your RMDs are going to be pretty large and may be more than you actually need. At some point, your RMDs may push you into a higher tax bracket than earlier in retirement. When one of you dies, the survivor may be pushed into even a higher tax bracket than that.

As you are making plans, consider how much of your tax-deferred accounts you want to get converted to Roth before you reach 70.5. There are several moving parts to this kind of decision (tax rate, IRMAA, etc). Try to keep an eye out for threads dealing with this issue.
Topic Author
reddison
Posts: 175
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Re: Advice adjusting Asset Allocation

Post by reddison »

retiredjg wrote: Wed Jul 18, 2018 2:50 pm
reddison wrote: Wed Jul 18, 2018 2:26 pm jg - thx for tweaking the numbers and adding the percentages. I like the general ideas and in managing the 3 minifunds at least until retirement/rollover time comes and I can consolidate. I am reluctant to take all funds in my 401k and putting it all into a target retirement fund in one fell swoop so I might ease into it a bit. I have targeted about 500k to move initially. I just learned that our 401k is adding VG Total Bond Market to our lineup so that gives me another option.
All you are doing is exchanging one set of stocks (and a few bonds) for another set of stocks and bonds. Yes, it is a lot of money but it would take me about 2 seconds to exchange from your high priced funds into the one low cost Vanguard target fund. :happy

It is going to take some attitude adjustment on my part. A number of the funds in my 401k are killing it on returns, so the thought of tossing 100% of them into a significantly lower returning Target Retirement Fund is difficult. I might have to do it in stages.
On moving the Rollover IRA (152k) out of Wellington and into bonds, any suggestions on which VG bond mutual fund makes sense?

Thank you.
Total bond Market is my go to bond fund unless there is a specific reason to look for something else.
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

retiredjg wrote: Wed Jul 18, 2018 2:55 pm Something to put on your agenda. When you hit age 70.5, your RMDs are going to be pretty large and may be more than you actually need. At some point, your RMDs may push you into a higher tax bracket than earlier in retirement. When one of you dies, the survivor may be pushed into even a higher tax bracket than that.

As you are making plans, consider how much of your tax-deferred accounts you want to get converted to Roth before you reach 70.5. There are several moving parts to this kind of decision (tax rate, IRMAA, etc). Try to keep an eye out for threads dealing with this issue.
I will definitely be in a lower bracket after I retire. And you're right, when RMDs kick in, we will have more coming in than we need. So I've been reading about backdoor Roth conversions but it doesn't make any sense right now at our tax rate. After I retire I will need to reassess. In those 1st five years, my taxable income should be roughly 125k per year, then it could decline for a couple of years which will be post company payout but adding social security (assuming you should count social security). If you do count social security, we could be pushing 200k once RMDs kick in. Lots to figure out moving forward.
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retiredjg
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Re: Advice adjusting Asset Allocation

Post by retiredjg »

reddison wrote: Wed Jul 18, 2018 3:05 pm So I've been reading about backdoor Roth conversions but it doesn't make any sense right now at our tax rate.
Just a clarification of a common misunderstanding or mis-naming.

What you need to consider are "Roth conversions". This is a different thing from the "back door" which is a two step maneuver that includes a Roth conversion.

It is going to take some attitude adjustment on my part. A number of the funds in my 401k are killing it on returns, so the thought of tossing 100% of them into a significantly lower returning Target Retirement Fund is difficult. I might have to do it in stages.
Yeah, I get that....but....it appears you already have more money than you need. Continuing to stay very aggressive also means you are risking a larger loss when/if the market crashes, followed by a bear market for any number of months or years.

The time has come to concentrate on keeping/preserving what you have, not making a lot more. It would be foolish to continue trying to make money you don't need if there is a possibility you could suffer great loss, leaving you with less than you will need.

What I'm telling you is that time has come. It is not some time in the future.
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LadyGeek
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Re: Advice adjusting Asset Allocation

Post by LadyGeek »

reddison - You had a duplicate post, which I merged into here. The post is different than the one following it, I'm not sure which one you intended to use. Feel free to edit either post to remove the duplicate content - combine as necessary. Bump the post when you are done to let everyone know it's been updated. Thanks.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Topic Author
reddison
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Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

Thx Lady Geek - I edited my original post but couldn't figure out how to bump it up. It was so far down and I didn't think it was being seen so I pasted it into a new post. How do you bump up a post? Thx
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retiredjg
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Re: Advice adjusting Asset Allocation

Post by retiredjg »

reddison wrote: Thu Jul 19, 2018 9:05 am Thx Lady Geek - I edited my original post but couldn't figure out how to bump it up. It was so far down and I didn't think it was being seen so I pasted it into a new post. How do you bump up a post? Thx
Just add a reply to the post saying something like "bump".
Topic Author
reddison
Posts: 175
Joined: Mon Jul 16, 2018 11:13 am

Re: Advice adjusting Asset Allocation

Post by reddison »

retiredjg wrote: Wed Jul 18, 2018 4:49 pm
reddison wrote: Wed Jul 18, 2018 3:05 pm So I've been reading about backdoor Roth conversions but it doesn't make any sense right now at our tax rate.
Just a clarification of a common misunderstanding or mis-naming.

What you need to consider are "Roth conversions". This is a different thing from the "back door" which is a two step maneuver that includes a Roth conversion.

It is going to take some attitude adjustment on my part. A number of the funds in my 401k are killing it on returns, so the thought of tossing 100% of them into a significantly lower returning Target Retirement Fund is difficult. I might have to do it in stages.
Yeah, I get that....but....it appears you already have more money than you need. Continuing to stay very aggressive also means you are risking a larger loss when/if the market crashes, followed by a bear market for any number of months or years.

The time has come to concentrate on keeping/preserving what you have, not making a lot more. It would be foolish to continue trying to make money you don't need if there is a possibility you could suffer great loss, leaving you with less than you will need.

What I'm telling you is that time has come. It is not some time in the future.
Thx dj - I understand what you're saying.
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