Simplyfing a Portfolio - Looking for Advice

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356Fan
Posts: 5
Joined: Wed Sep 12, 2018 6:37 am

Simplyfing a Portfolio - Looking for Advice

Post by 356Fan » Wed Sep 12, 2018 8:53 am

Hello,

NOTE: Post updated to include detailed portfolio info + personal info

Let me start by thanking folks in advance for their thoughts on my questions and to the board as a whole. I've been lurking on the board for several months and just joined. I really appreciate the depth and breadth of knowledge presented as well as the civility of the board. Apologies in advance for the length of this post as well as what I am sure will be some of my financial ignorance on display.

TL:DR:
I want to consolidate/simplify my portfolio (as well as make it more Bogle-like) but need advice on how to untangle my current portfolio, especially in regard to taxes + a couple of other related questions.

The good news:

- I starting investing pretty early (23) and stayed the course, even when it was painful.
- I avoided high-risk individual stocks, a 'great' real estate deal outside Detroit <g>, and other pitfalls. And I took advantage of most of the tax-advantaged vehicles available to me.
- Due the above, and honestly some very good luck with a business sale almost a decade ago, I think I am solid shape financially (details below).
- In an effort to consolidate, simplify, and adopt a more-Bogle-like investing approach, I've recently reduced the number of Investment companies I use from 3 to 1 (now just with Fidelity), and the number of mutual funds and ETFs we own by about a third.

The less good news:


- Even after the consolidation above, between my wife and I, I still have 24 funds in 9 different accounts(including treasury/money market funds). The only silver lining is that I can now see them all in one place which makes some of the analysis easier.

- Over the years, my overly-eager efforts to diversify my investments, along with a couple of job changes, has left me with a variety of funds in a variety of accounts (taxable, ROTH IRAs, 401K, Traditional IRAs).

- While I'm not too out of whack in terms of my stock/bonds allocation goal (75/25), several of the funds I am invested in are expensive, actively managed mutual funds or ETFs with relatively high fees, and again, due to the number of funds and the make-up of each, it is difficult to understand my portfolio. I really want to simplify and reduce my investment expenses.


High-level Summary:

Age: Me (50), Wife (48), kids (20, 16)
Net-worth: $4.2M
Emergency Fund: 6-months cash - $50K
Debt: $340K home mortgage @ 3.25% (30-yr fixed)
Invested Assets: $3.272M
Taxable accounts: $2.252M (13 funds total, 8 are "cheap" Vanguard funds, and 5 are higher-expense funds, including $500K sitting in cash (!) due recent forced stock sale)
Tax-advantaged: $1.020M (Variety of current and old 401Ks, ROTHs and Tradition IRAs for my wife and I)

Tax Status: Married Filing Jointly
Fed Tax Bracket: 33%
State Tax (VA): 5.75%

His & Hers Taxable Accounts

SYMBOL NAME Value/%Portfolio Expense Capital Gains
SPAXX Fidelity Gov. MM $110K - 3.4% (0.42) $0
EFG Equity Growth ETF $136K - 4.1% (0.40) $37K
FSTVX Fidelity Total Market $61K - 1.9% (0.015) $1K
FTEXX Fid. Mun. MM $178K - 5.4% (0.41) $0K
GLTR Precious Metals ETF $48K - 1.5% (0.60) (-$12K)
IGM iShares N, American Tech $176K - 5.4% (0.47) $126K
IVOO Vanguard Mid-Cap Equity $121K - 3.7% (0.15) $70K
SCHP Schwab TIPS $211K - 6.4% (0.05) $11K
VBK Vanguard Sm Cap Equity $129K - 3.9% (0.07) $79K
VCIT Vanguard Int. Corp Bond $104K - 3.2% (0.07) $3K
VCSH Vang. Short Corp Bonds $50K - $1.5% (0.06) $0
VEA Vanguard Intern. $121K - 3.7% (0.07) $22K
VNQ Vang Real Estate $77K - 2.3% (0.12) $35K
VTI Vang Total Stock Market $364K - 11.1% (0.04) $215K
FCASH Fidelity Cash $231K - .0% (0.40) $0
XYZ MegaCorp Ind. Stock $91K – 2.8% 0 (-$1K)

His Rollover IRA

FDGFX Fid. Div. Growth Equity $81K – 2.5% (0.52)

His ROTH IRA (Conversion)

FCNTX Fidelity Contrafund Stock $48K – 1.5% (0.74)

His ROTH IRA

FCNTX Fidelity Contrafund Stock $99K – 3.0% (0.74)

His 401K with old employer (MegaCorp)

TDLK Small/Mid Cap Equity Index $180 – 5.5% Unknown??
TDLO Small/Mid Cap Equity Fund $182K – 5.5% Unknown
TDLP International Equity $117K - 3.6% Unknown
TDMK Large Cap Equity Fund $167K - 5.3% Unknown

His new 401K


PBHAX High Yield Bonds $2K – 1.8% (0.81)

Her ROTH IRA (Conversion)

FCNTX Fidelity Contrafund Stock $48K – 1.5% (0.74)

Her ROTH IRA


FCNTX Fidelity Contrafund Stock $99K – 3.0% (0.74)

Her Rollover IRA

FBDIX Fid. Total Bond $59K – 1.6%% (0.52)



So what is the problem?

While I think I now have a good handle on the "as-is' of my portfolio, and at least a pretty good idea of what I'd like the "to-be" to look like (3 o 4 fund bogle allocation with maybe 5% in other to play around with), I'm running into some roadblocks. Here is where I am stuck:


1. Taxable accounts: If I were to "start over" and move the 13 funds in my taxable accounts into a 3 or 4 Bogle-recommended funds (with very low fees), I would have to recognize $583K in cap gains (I think) - ouch! Of that amount, $225K of cap gains is represented by funds with higher expense loads and the rest is with 8 Vanguard funds (but with the exception of VTI, not specific Vanguards I am targeting.) So those are really my initial focus. Many of my tax-advantaged accounts need to be have their investments moved into new funds also, but at least I can do that without tax implications. So do I -

- Stick with the funds I already have in the taxable accounts to avoid the big capital gains hit?

- Pull the band-aid off in one pull and just pay the taxes in one lump sum this year?

- Stagger the move to the new funds over several tax years to alleviate the pinch (I really don't have any significant losses to harvest)?

- I also welcome thoughts on the funds in my portfolio and where to go from here.

2. ROTH Accounts
: Currently my wife and I have two ROTH accounts? One account (each) is a ROTH conversion (formerly a Traditional IRA that I paid to convert) and the other is a "standard" ROTH that I started from scratch. I know I need at least two ROTH accounts as they are associated with distinct individuals, but can I combine the two accounts that are in each of our names? All four accounts are invested in the same thing - just looking to simplify from 4 ROTH accounts down to 2 accounts.
UPDATE: Questioned Answered – Thank you!

3. Identifying His 401K Funds: I am not able to look-up the four funds in my old 401K with MegaCorp (TDLO, TDLK, TDMK, TDLP)? I found this really odd. While I will likely roll these funds over into a Rollover IRA, I found it bizarre I wasn’t able to quick look up the expense ratios, etc. using the trading symbols Anybody know what these funds are? Are they proprietary? FWIW, MegaCorp uses Fidelity for their 401K plan.

Thanks again for any thoughts on the above. I have been pretty heads down work-wise for the last two decades, and I am realizing that I need to do a better job here.
Last edited by 356Fan on Sat Sep 15, 2018 12:09 pm, edited 2 times in total.

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ruralavalon
Posts: 14080
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Simplyfing a Portfolio - Looking for Advice

Post by ruralavalon » Wed Sep 12, 2018 10:27 am

Welcome to the forum :) .

You are indeed doing pretty well overall. Fidelity was a good choice as a fund company to consolidate your accounts.

Some additional information is needed.

What is your tax bracket, both federal and state? What is your tax filing status?

Please list all accounts, and the investments in each account giving fund names, tickers and expense ratios.

What are the relative sizes of each account, in other words what percentage of the total portfolio is in each account?

In the taxable account please state the unrealized capital gain or loss status of each fund.

Will your current employer's 401k accept a rollover from your old employer's 401k? Is there an annual account administration fee in your old 401k, if so what is it? What funds are offered in each 401k? Please give fund names, tickers and expense ratios.

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place. Please see the post "asking portfolio questions" for format.

356Fan wrote:
Wed Sep 12, 2018 8:53 am
Hello,

Let me start by thanking folks in advance for their thoughts on my questions and to the board as a whole. I've been lurking on the board for several months and just joined. I really appreciate the depth and breadth of knowledge presented as well as the civility of the board. Apologies in advance for the length of this post as well as what I am sure will be some of my financial ignorance on display.

TL:DR: I want to consolidate/simplify my portfolio (as well as make it more Bogle-like) but need advice on how to untangle my current portfolio, especially in regard to taxes.

The good news:

- I starting investing pretty early (23) and stayed the course, even when it was painful.
- I avoided high-risk individual stocks, a 'great' real estate deal outside Detroit <g>, and other pitfalls. And I took advantage of most of the tax-advantaged vehicles available to me.
- Due the above, and honestly some very good luck with a business sale almost a decade ago, I think I am solid shape financially (details below).
- In an effort to consolidate, simplify, and adopt a more-Bogle-like investing approach, I've recently reduced the number of Investment companies I use from 3 to 1 (now just with Fidelity), and the number of mutual funds and ETFs we own by about a third.

The less good news:

- Even after the consolidation above, between my wife and I, I still have 24 funds in 8 different accounts(including treasury/money market funds). The only silver lining is that I can now see them all in one place which makes some of the analysis easier.

- Over the years, my overly-eager efforts to diversify my investments, along with a couple of job changes, has left me with a variety of funds in a variety of accounts (taxable, ROTH IRAs, 401K, Traditional IRAs).

- While I'm not too out of whack in terms of my stock/bonds allocation, several of the funds I am invested in are expensive, actively managed mutual funds or ETFs with relatively high fees, and again, due to the number of funds and the make up of each, it is difficult to understand my portfolio. I really want to simplify and reduce my investment expenses.


High-level Summary:

Age: Me (50), Wife (48), kids (20, 16)
Net-worth: $4.2M
Invested Assets: $3.272M
Taxable accounts: $2.252M (13 funds total, 8 are "cheap" Vanguard funds, and 5 are higher-expense funds, including $500K sitting in cash (!) due recent forced stock sale)
Tax-advantaged: $1.020M (Variety of current and old 401Ks, ROTHs and Tradition IRAs for my wife and I)


So what is the problem?

While I think I now have a good handle on the "as-is' of my portfolio, and at least a pretty good idea of what I'd like the "to-be" to look like (3 o 4 fund bogle allocation with maybe 5% in other to play around with), I'm running into some roadblocks. Here is where I am stuck:


1. Taxable accounts: If I were to "start over" and move the 13 funds in my taxable accounts into a 3 or 4 Bogle-recommended funds (with very low fees), I would have to recognize $583K in cap gains (I think) - ouch! Of that amount, $225K of cap gains is represented by funds with higher expense loads and the rest is with 8 Vanguard funds (but with the exception of VTI, not specific Vanguards I am targeting.) Many of my tax-advantaged accounts need to be have their investments moved into new funds also, but at least I can do that without tax implications. So do I -


- Stick with the funds I already have in the taxable accounts to avoid the big capital gains hit? Pull the band-aid off in one pull and just pay the taxes in one lump sum this year? Stagger the move to the new funds over several tax years to alleviate the pinch (I really don't have any significant losses to harvest)?
In the taxable account please state the unrealized capital gain or loss status of each fund. Please list the funds currently in the taxable account giving fund names, tickers and expense ratios.

It's probably a good idea to keep many of your investments, any funds with relatively good diversification and fairly modest expense ratios. Some actively managed funds may be good to keep. Sales loads are a sunk cost, you never get that money back, so the loads should not impact the decision about selling.

366Fan wrote:2. ROTH Accounts: Currently my wife and I have two ROTH accounts? One account (each) is a ROTH conversion (formerly a Traditional IRA that I paid to convert) and the other is a "standard" ROTH that I started from scratch. I know I need at least two ROTH accounts as they are associated with distinct individuals, but can I combine the two accounts that are in each of our names? All four accounts are invested in the same thing - just looking to simplify from 4 ROTH accounts down to 2 accounts.


I have other questions, but I'll start with those. Thanks again for any thoughts on the above. I have been pretty heads down work-wise for the last two decade, and I am realizing that I need to do a better job here.
I think you can consolidate the Roth IRAs of each individual.

Will your current employer's 401k accept a rollover from your old employer's 401k? Is there any annual account administration fee charged in the old 401k, if so what is it? What funds are offered in each 401k? Please give fund names, tickers and expense ratios.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

356Fan
Posts: 5
Joined: Wed Sep 12, 2018 6:37 am

Re: Simplyfing a Portfolio - Looking for Advice

Post by 356Fan » Wed Sep 12, 2018 11:47 am

Thank you for the quick reply. I've added tax bracket info and tax filing status to the original post. I'll need a day to get the details on all the individual accounts. More to follow.

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Peter Foley
Posts: 4587
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Simplyfing a Portfolio - Looking for Advice

Post by Peter Foley » Wed Sep 12, 2018 2:48 pm

Even without details my guess is that you are rightly concerned about a lot of long term capital gains in your taxable account - especially given your marginal tax rate. If you are well diversified with these holdings and no single mutual fund is disproportionately large and narrow in terms of the assets it holds you are probably okay. At some point you might take advantage of a market downturn to simplify. (Odd thing to look forward to I guess.)

I agree you only need one Roth per person. There was an advantage to having multiple Roths when one could do a Roth conversion and recharacterize it if it didn't work out. That advantage went away with the tax reform legislation enacted lat year.
Last edited by Peter Foley on Sat Sep 15, 2018 10:38 pm, edited 1 time in total.

356Fan
Posts: 5
Joined: Wed Sep 12, 2018 6:37 am

Re: Simplyfing a Portfolio - Looking for Advice

Post by 356Fan » Sat Sep 15, 2018 6:32 pm

Original post updated with portfolio information

TXJeff
Posts: 65
Joined: Mon Sep 25, 2017 7:47 pm

Re: Simplyfing a Portfolio - Looking for Advice

Post by TXJeff » Sun Sep 16, 2018 9:50 am

This portfolio is actually not too bad. The IRA and ROTH funds can be changed without tax implications. That’s just a research project for you.

In the taxable, there are two issues: expense ratio, and holdings that are “off track” for your new total market index approach. If it were me, I’d look at the holdings where these two overlapped, and consider selling them sooner rather than later. (Like the Precious metals and north American tech)

A few more things to consider:

You don’t say what your income is, but the net investment income tax (NIIT) can add 3.9% tax to capital gains. Details here.https://www.irs.gov/newsroom/questions- ... income-tax

Are you considering early retirement? If so, those years could offer a window free from NIIT, with good AGI control, for more sales.

And if you haven’t already, make sure you turn off dividend reinvestment from unwanted holdings.

When I found Bogleheads and was deciding if/how to unwind a complex portfolio, I found it useful to create an Investment Policy Statement. That foundation made decisions about individual actions easy. https://www.bogleheads.org/wiki/Investm ... _statement

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ruralavalon
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Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Simplyfing a Portfolio - Looking for Advice

Post by ruralavalon » Sun Sep 16, 2018 10:00 am

Is the taxable account (or accounts) at Fidelity or Vanguard? Is it one joint taxable account, or one taxable account for him and another for her?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

356Fan
Posts: 5
Joined: Wed Sep 12, 2018 6:37 am

Re: Simplyfing a Portfolio - Looking for Advice

Post by 356Fan » Sun Sep 16, 2018 2:09 pm

TXJeff - your input is much appreciated. The two funds your identified are the two I had been looking to shut down first. Good point on the dividend reinvestment. I will shut those down.

I will also check out the NIIT - I wasn't tracking that issue.

To answer your other question - I am contemplating early-retirement, or at least a job change to something I find interesting and the pay can be secondary consideration. Today, I earn a very good salary, but the stress is high and hours can be brutal. Over the last two years my frustration level has risen and motivation has dropped as the hours have continued to increase. I find myself only enjoying 3 weeks out of the year which is pathetic. Right now, I'm grinding hard in hopes of a company sale in the next 18-24 months. If that were to happen, I would retire, but some weeks 18 months feels like a lifetime away.

Almost forget, the taxable account is a joint account with my wife and I as the owners. Vanguard funds are held through my Fidelity account.

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Simplyfing a Portfolio - Looking for Advice

Post by livesoft » Sun Sep 16, 2018 2:26 pm

First, a family like yours (and like mine) really ends up with at least 16 accounts and often more just because of the nature of tax laws. One is NOT going to simplify to less than that number of accounts.

Second, one can have MOST (but not ALL) of the accounts contain a single investment and put them in "set-and-forget" mode. The few accounts with multiple investments can be used for ALL rebalancing activities. For instance, the largest 401(k) account can handle all the rebalancing needed by the entire portfolio.

Third, there is no problem having the same investment in multiple accounts. Do not get attracted like a moth to the next burning flame or a fly to next pile of poop.

Fourth, c'mon! You know you need to sell for a loss that GLTR and that XYZ Mega Corp thing. Do it Monday. Use the $13K loss to sell some tax-inefficient winners in your taxable account that should not be in taxable AND can lead to simplification. Namely, VCIT, VCSH, FTEXX, SCHP. FSTVX. There I got rid of 6 holdings without any tax consequences. Of course, that egregious VNQ in taxable probably has to go eventually.

Fifth, stop automatically reinvesting any dividends in your taxable account. Take them cash.

Sixth, all cash in taxable can only go into 2 funds from now on: VTI and VEA. You can round out small-cap international by using something in a tax-advantaged account.

Seventh, that old 401(k) doesn't need any equities. It should probably all be in a single bond fund in the first instance, but equities can be used later.

Eighth, OK, I'll backtrack a little bit: You are permitted to have a single tax-exempt muni bond fund in your taxable account, but no money market funds, no savings accounts, no CDs, and no other bond funds.
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TXJeff
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Re: Simplyfing a Portfolio - Looking for Advice

Post by TXJeff » Mon Sep 17, 2018 10:15 am

356Fan wrote:
Sun Sep 16, 2018 2:09 pm

To answer your other question - I am contemplating early-retirement, or at least a job change to something I find interesting and the pay can be secondary consideration. Today, I earn a very good salary, but the stress is high and hours can be brutal. Over the last two years my frustration level has risen and motivation has dropped as the hours have continued to increase. I find myself only enjoying 3 weeks out of the year which is pathetic. Right now, I'm grinding hard in hopes of a company sale in the next 18-24 months. If that were to happen, I would retire, but some weeks 18 months feels like a lifetime away.
Considering this, yes, go ahead and make those portfolio changes soon, then use the 18-24 month timeframe to understand how to optimize retirement spending. (hint: there can be a surprising number of moving pieces) Bogleheads website has lots of related tools: https://www.bogleheads.org/wiki/Retirem ... d_spending
Firecalc, I-ORP and the Retiree Portfolio Model are three popular tools.

356Fan
Posts: 5
Joined: Wed Sep 12, 2018 6:37 am

Re: Simplyfing a Portfolio - Looking for Advice

Post by 356Fan » Mon Sep 17, 2018 11:09 am

Livesoft: I appreciate the feedback. I am moving forward with the recommendations. Hopefully this will all be settled by Weds. Follow-up to your 8 points:

1. Understood. I hope to get down to 6 accounts (from 9) by consolidating the ROTH accounts and rolling over my old 401K.

2. Understood. I'll use the rollover IRA (formerly 401K) to rebalance the portfolio going forward.

3. Understood. I'll keep it simple where I can.

4. Understood; I just put a sell order on 5 of the 6 funds you recommended (VCIT, VCSH, FTEXX, SCHP, GLITR). I will sell the individual stock (XYZ MegaCorp) by the end of the year. I will also look to get out of the VNQ in the next 6 months.


5. Partially understood. To confirm - When I stop reinvesting the dividends in the (remaining) funds in my taxable account and begin accumulating cash, I should reinvest that cash manually in the two of the remaining taxable funds - VTI and VEA, correct?

6. Partially understood. See above.

7. Understood. I'm lookign to switch fund into bonds as part of the rolling over the 401K into an IRA.

8. Understood. Ditching the money market funds and bond funds in my taxable account.

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Simplyfing a Portfolio - Looking for Advice

Post by livesoft » Mon Sep 17, 2018 12:13 pm

356Fan wrote:
Mon Sep 17, 2018 11:09 am
5. Partially understood. To confirm - When I stop reinvesting the dividends in the (remaining) funds in my taxable account and begin accumulating cash, I should reinvest that cash manually in the two of the remaining taxable funds - VTI and VEA, correct?

6. Partially understood. See above.
5. Correct.
6. You got it.

You may wish to contribute VNQ to a Donor-Advised Fund (DAF) and do your future charitable giving out of the DAF.

You could give children small amounts of VNQ and have them sell the shares immediately. As long as their LTcapital gains are low enough, they will not pay taxes on the gains. What is "low enough" will have to be investigated by you.
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