Requesting portfolio review

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Softie
Posts: 5
Joined: Wed Sep 19, 2018 12:42 pm

Requesting portfolio review

Post by Softie » Wed Sep 19, 2018 3:34 pm

Hello esteemed Boglehead members, I discovered this fantastic forum about 2 years ago. It has helped me tremendously in simplifying my portfolio and rethinking my asset allocation. This is my first post. Without further ado, and following the recommended format:

Debt: None
Tax Filing Status MFJ
Tax rate: 24% Federal, 9.5 % State (California)
Age me 51 wife 47
Desired Asset allocation: ?

Current Retirement Assets

Total portfolio: $6.9 million

Taxable
31 % Vanguard Total Stock Market VTI ER 0.04
7.5 % Vanguard Total International Stock Market VXUS ER 0.11
5.3 % Vanguard CA Interm-Term Tax-Exempt Fund VCAIX ER 0.19
4.7 % T. Rowe Price California Tax-Free Bond Fund PRXCX ER 0.54

Roth
3.5 % Vanguard Total Stock Market VTI ER 0.04

401k
18 % Vanguard Total Stock Market VTI ER 0.04
8.5 % Vanguard Total International Stock Market VXUS ER 0.11
10 % Vanguard Total Bond Market BND ER 0.05
3.7 % DoubleLINE Total Return Bond Fund DBLTX ER 0.47
6.2 % PIMCO Income Fund Institutional Class PIMIX ER 0.74
2.7 % Schwab US Aggregate Bond Index Fund SWAGX ER 0.04

Other information:
Home paid off.
Yearly expenses after taxes: $170k (I am aware this may be considered high by some, but any reduction in this amount is something we very much hope to avoid).
I earned more earlier in my career and now work about half time earning about $200k/year as an independent contractor. My wife makes 40k/year but we have medical benefits though her (no health benefits after retirement).
No pension. Anticipated SS benefit age 70 is around $3000 for me and I believe my wife would take spousal 50 % benefit.

Questions:

1. My current asset allocation is 51 % U.S. stocks, 16 % international stocks, 33 % fixed income. What asset allocation would forum contributors choose if they were in my situation?

2. Fixed income holdings comprise 33 % of my portfolio. As shown above, 10 % of this is in taxable accounts in the form of federal and CA tax exempt funds VCAIX and PRXCX. The remaining 23 % is in 401k roughly evenly split between actively and passively managed bond funds. I sort of stumbled my way into this structure and would appreciate critical eyes. My thoughts at this point include not being too happy about holding VCAIX (ER 0.19) as there is an Admiral Shares version of this, i.e. VCADX which has a lower ER 0.09 but I have no access to this without opening a Vanguard account. Second, the actively managed bond funds have somewhat high ER and I am not sure they are a good choice. There would be almost no capital gains tax implications if I were to restructure my bond holdings, so changing is not an issue. My question: Starting fresh, how would you structure bond holdings if you were in my situation?

3. Health care expenses are an unknown for me since if we retire now we would have to buy individual policies for 14 years for me and 18 years for my spouse before medicare. Assuming 20k/year higher for health care expenses than we are paying now, my total expenses could be around 190k/year. If I had to draw down 230k/year to pay these, my withdrawal would be around 3.3 %. My question: How comfortable would you be retiring now if you were in my situation? Admittedly, I have run FIRECalc which has indicated 100 % success rate with an asset allocation 65 % equities. Running models on Schwab and Fidelity also gives >90 % success rates.

Many thanks in advance for any insights or advice offered.
Last edited by Softie on Wed Sep 19, 2018 7:01 pm, edited 3 times in total.

retiredjg
Posts: 33868
Joined: Thu Jan 10, 2008 12:56 pm

Re: Requesting portfolio review

Post by retiredjg » Wed Sep 19, 2018 4:12 pm

1. My current asset allocation is 51 U.S. stocks, 16 % international stocks, 33 % fixed income. What asset allocation would forum contributors choose if they were in my situation?
This is a reasonable choice.

2. Fixed income holdings comprise 33 % of my portfolio. As shown above, 10 % of this is in taxable accounts in the form of federal and CA tax exempt funds VCAIX and PRXCX. The remaining 23 % is in 401k roughly evenly split between actively and passively managed bond funds. I sort of stumbled my way into this structure and would appreciate critical eyes. My thoughts at this point include not being too happy about holding VCAIX (ER 0.19) as there is an Admiral Shares version of this, i.e. VCADX which has a lower ER 0.09 but I have no access to this without opening a Vanguard account. Second, the actively managed bond funds have somewhat high ER and I am not sure they are a good choice. There would be almost no capital gains tax implications if I were to restructure my bond holdings, so changing is not an issue. My question: Starting fresh, how would you structure bond holdings if you were in my situation?
I would not use the higher cost funds.

I would not hold a total stock fund in the Roth IRA because it could cause an unintended wash sale. You could exchange it to 500 Index/Extended Market Index 80/20 and have essentially the same thing. Or put the tiny Roth IRA into a REIT fund.

JBTX
Posts: 4043
Joined: Wed Jul 26, 2017 12:46 pm

Re: Requesting portfolio review

Post by JBTX » Wed Sep 19, 2018 5:31 pm

Softie wrote:
Wed Sep 19, 2018 3:34 pm
Hello esteemed Boglehead members, I discovered this fantastic forum about 2 years ago. It has helped me tremendously in simplifying my portfolio and rethinking my asset allocation. This is my first post. Without further ado, and following the recommended format:

Debt: None
Tax Filing Status MFJ
Tax rate: 24% Federal, 9.5 % State (California)
Age me 51 wife 47
Desired Asset allocation: ?

Current Retirement Assets

Total portfolio: $6.9 million

Taxable
31 % Vanguard Total Stock Market VTI ER 0.04
7.5 % Vanguard Total International Stock Market VXUS ER 0.11
5.3 % Vanguard CA Interm-Term Tax-Exempt Fund VCAIX ER 0.19
4.7 % T. Rowe Price California Tax-Free Bond Fund PRXCX ER 0.54

Roth
3.5 % Vanguard Total Stock Market VTI ER 0.04
401k
18 % Vanguard Total Stock Market VTI ER 0.04
8.5 % Vanguard Total International Stock Market VXUS ER 0.11
10 % Vanguard Total Bond Market BND ER 0.05
3.7 % DoubleLINE Total Return Bond Fund DBLTX ER 0.47
6.2 % PIMCO Income Fund Institutional Class PIMIX ER 0.74
2.7 % Schwab US Aggregate Bond Index Fund SWAGX ER 0.04

Other information:
Home paid off.
Yearly expenses after taxes: $170k (I am aware this may be considered high by some, but any reduction in this amount is something we very much hope to avoid).
I earned more earlier in my career and now work about half time earning about $200k/year as an independent contractor. My wife makes 40k/year but we have medical benefits though her (no health benefits after retirement).
No pension. Anticipated SS benefit age 70 is around $3000 for me and I believe my wife would take spousal 50 % benefit.

Questions:

1. My current asset allocation is 51 U.S. stocks, 16 % international stocks, 33 % fixed income. What asset allocation would forum contributors choose if they were in my situation?
First of all, you've done very well and what you have set up is very logical. I'm not sure I'm in the position to give you advice. So consider my musings comparative observations.

Your asset allocation is roughly similar to ours, and our age is in the same ballpark. If you had lower projected annual expenses I may say maybe scale it back to 60% and be more defensive.

2. Fixed income holdings comprise 33 % of my portfolio. As shown above, 10 % of this is in taxable accounts in the form of federal and CA tax exempt funds VCAIX and PRXCX. The remaining 23 % is in 401k roughly evenly split between actively and passively managed bond funds. I sort of stumbled my way into this structure and would appreciate critical eyes. My thoughts at this point include not being too happy about holding VCAIX (ER 0.19) as there is an Admiral Shares version of this, i.e. VCADX which has a lower ER 0.09 but I have no access to this without opening a Vanguard account. Second, the actively managed bond funds have somewhat high ER and I am not sure they are a good choice. There would be almost no capital gains tax implications if I were to restructure my bond holdings, so changing is not an issue. My question: Starting fresh, how would you structure bond holdings if you were in my situation?
Overall what you have is fine. As to bonds in tax deferred vs taxable advice, I don't think it makes as much difference as many think it does. As to active bond funds, I'm steering more to index. For years I had a position in PIMCO total return, and it generally kept up with or slightly edged a bond index, I finally liquidated it. I have a hard time believing that active bond funds yielding 3% give or take can overcome a half point or more of fees long term.

In my 401k accounts I'm actually steering more towards target date funds where the expense ratios are discounted.

I also have some in TIPS funds also in retirement accounts.

3. Health care expenses are an unknown for me since if we retire now we would have to buy individual policies for 14 years for me and 18 years for my spouse before medicare. Assuming 20k/year higher for health care expenses than we are paying now, my total expenses could be around 190k/year. If I had to draw down 230k/year to pay these, my withdrawal would be around 3.3 %. My question: How comfortable would you be retiring now if you were in my situation? Admittedly, I have run FIRECalc which has indicated 100 % success rate with an asset allocation 65 % equities. Running models on Schwab and Fidelity also gives >90 % success rates.

Many thanks in advance for any insights or advice offered.
It is hard to tell a person with nearly 7 million saved they can't retire. By any reasonable scenario you should be able to comfortably do so. You will (likely) eventually have some social security coming in also.

My only question is do you (and spouse) really want to retire now? If you like your consulting then milk it for a few years. Or maybe you scale back even more if that is possible. Do you have specific plans for retirement.

Also given your savings and your expenses, your withdrawals may take more planning than normal to optimize for tax purposes. Do you pull taxable first? Should you do Roth conversions? Etc.

Softie
Posts: 5
Joined: Wed Sep 19, 2018 12:42 pm

Re: Requesting portfolio review

Post by Softie » Wed Sep 19, 2018 6:35 pm

retiredjg wrote:
Wed Sep 19, 2018 4:12 pm
I would not use the higher cost funds.

I would not hold a total stock fund in the Roth IRA because it could cause an unintended wash sale. You could exchange it to 500 Index/Extended Market Index 80/20 and have essentially the same thing. Or put the tiny Roth IRA into a REIT fund.
I am leaning away from the higher costs funds too, thank you.

Not being knowledgeable about wash sales, I googled it and I assume you are referencing the possibility that at some point I may want to tax-loss harvest a position in VTI in a taxable account? In that case, I would have to be careful about adding the VTI position in the Roth IRA. It is a subtle point that may very well be relevant and I am glad to be alerted to it. If my understanding of your point is not entirely correct I would appreciate further clarification.

Thank you!
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
If you had lower projected annual expenses I may say maybe scale it back to 60% and be more defensive.
Will keep this advice in mind, thanks.
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
I have a hard time believing that active bond funds yielding 3% give or take can overcome a half point or more of fees long term.
An elegant observation, I think I will follow your lead on switching to passive bond funds. The nail in the coffin for PRXCX is that I can harvest a small capital loss if I sell it now. Any suggestion on a lower cost tax exempt bond fund?
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
In my 401k accounts I'm actually steering more towards target date funds where the expense ratios are discounted.

I also have some in TIPS funds also in retirement accounts.
Interesting, I had not considered either target-date funds or TIPS funds up to this point but will read up on these. I certainly like the idea of discounted expense ratios! May I ask what is the relative size of your TIPS holding? In what form do you buy TIPS?
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
My only question is do you (and spouse) really want to retire now? If you like your consulting then milk it for a few years. Or maybe you scale back even more if that is possible. Do you have specific plans for retirement.
That's the dilemma. My gut sense is that I will be quite happy being retired. I have interests outside of work, and feel that I practice healthier habits on my days off. However, I do fear that at some point I may feel my life is somewhat meaningless. Retirement from my field would be irreversible so I am wrestling with this. I am leaning toward working for five to six more years, or less if anything deteriorates at work.
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
Also given your savings and your expenses, your withdrawals may take more planning than normal to optimize for tax purposes. Do you pull taxable first? Should you do Roth conversions? Etc.
Another shrewd observation, as the size of my RMD's at age 70 1/2 looks to be large. My current thinking is that once I retire, I will pull from taxable (selectively limiting capital gains) and do Roth conversions although I am unclear up to what level would make sense, and whether the total amount converted will be very meaningful. One of the reasons I like having some bond holdings in tax-exempt funds is that this will leave more space for Roth conversions.

retiredjg
Posts: 33868
Joined: Thu Jan 10, 2008 12:56 pm

Re: Requesting portfolio review

Post by retiredjg » Wed Sep 19, 2018 6:44 pm

Softie wrote:
Wed Sep 19, 2018 6:35 pm
Not being knowledgeable about wash sales, I googled it and I assume you are referencing the possibility that at some point I may want to tax-loss harvest a position in VTI in a taxable account? In that case, I would have to be careful about adding the VTI position in the Roth IRA. It is a subtle point that may very well be relevant and I am glad to be alerted to it. If my understanding of your point is not entirely correct I would appreciate further clarification.
I think you are understanding it somewhat.

But it would not have to be an intentional tax loss harvest in taxable - you might just need to sell something for cash. And it would not have to be "adding to the VIT position in Roth IRA" - it could just be a reinvestment of dividends/capital gains, something you might not even be aware of.

To avoid having to "watch" for all these things, I just prefer to set things up so they won't even happen whether anyone is paying attention or not. And the 500 index/extended market index is the same investment without no possibility of an unintended wash sale (unless you buy 500 index or extended market index in your taxable account).

There is wash sale information in the Wiki if you need more.

Softie
Posts: 5
Joined: Wed Sep 19, 2018 12:42 pm

Re: Requesting portfolio review

Post by Softie » Wed Sep 19, 2018 6:53 pm

retiredjg wrote:
Wed Sep 19, 2018 6:44 pm
To avoid having to "watch" for all these things, I just prefer to set things up so they won't even happen whether anyone is paying attention or not.
Thank you for the clarification and point well taken. Unfortunately, I will probably not remember this issue tomorrow, let alone at some future date when I may be selling VTI for whatever purpose. I also appreciate very much your specific advice regarding an equivalent replacement for this.

Ron Scott
Posts: 973
Joined: Tue Apr 05, 2016 5:38 am

Re: Requesting portfolio review

Post by Ron Scott » Wed Sep 19, 2018 7:15 pm

Softie wrote:
Wed Sep 19, 2018 3:34 pm
1. My current asset allocation is 51 % U.S. stocks, 16 % international stocks, 33 % fixed income. What asset allocation would forum contributors choose if they were in my situation?
I would eliminate the international equity portfolio as unnecessary and transfer most of it into bonds, leaving close to a 50-50 AA. With assets between $5-$15M I think risk avoidance. If for some reason you feel the need for international exposure in your portfolio keep it to a max of 20% of your equity holdings, i.e., 10% of a 50-50.

Your asset location plan is good (do you really need the TRP fund in addition to VG's for CA munis?) and you can start thinking about Roth conversions up to the limit of your current bracket, or even the next one if you suspect today's brackets might get less friendly in the future. Let your accountant model all this for you.

Maybe I missed it. Did you say you wanted to retire now or soon?
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

JBTX
Posts: 4043
Joined: Wed Jul 26, 2017 12:46 pm

Re: Requesting portfolio review

Post by JBTX » Wed Sep 19, 2018 7:18 pm

Softie wrote:
Wed Sep 19, 2018 6:35 pm
retiredjg wrote:
Wed Sep 19, 2018 4:12 pm
I would not use the higher cost funds.

I would not hold a total stock fund in the Roth IRA because it could cause an unintended wash sale. You could exchange it to 500 Index/Extended Market Index 80/20 and have essentially the same thing. Or put the tiny Roth IRA into a REIT fund.
I am leaning away from the higher costs funds too, thank you.

Not being knowledgeable about wash sales, I googled it and I assume you are referencing the possibility that at some point I may want to tax-loss harvest a position in VTI in a taxable account? In that case, I would have to be careful about adding the VTI position in the Roth IRA. It is a subtle point that may very well be relevant and I am glad to be alerted to it. If my understanding of your point is not entirely correct I would appreciate further clarification.

Thank you!
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
If you had lower projected annual expenses I may say maybe scale it back to 60% and be more defensive.
Will keep this advice in mind, thanks.
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
I have a hard time believing that active bond funds yielding 3% give or take can overcome a half point or more of fees long term.
An elegant observation, I think I will follow your lead on switching to passive bond funds. The nail in the coffin for PRXCX is that I can harvest a small capital loss if I sell it now. Any suggestion on a lower cost tax exempt bond fund?
I don't really have any tax exempt bonds, so I'm not an expert. I live in low tax state and most of my investments are in tax advantaged. I would think Vanguard would have some low cost CA offerings that would also offer you state income tax break. I am sure others here can give better advice.
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
In my 401k accounts I'm actually steering more towards target date funds where the expense ratios are discounted.

I also have some in TIPS funds also in retirement accounts.


Interesting, I had not considered either target-date funds or TIPS funds up to this point but will read up on these. I certainly like the idea of discounted expense ratios! May I ask what is the relative size of your TIPS holding? In what form do you buy TIPS?
Wife and I happen to be in several 401ks that get institutional rates, so the expense ratio is somewhere around .08 vs the .15 that you would typically see with vanguard target date funds. Target dates really only make sense in tax advantaged accounts. A lot of people want to customize their own allocations, but I'm generally OK with the target date allocations. Alternatively, vanguard lifestrategies work the same way, except they maintain the same allocation, if you don't want to glidepath downward as much as target dates do.

As to TIPS, it is interesting you ask. I don't spend a lot of time analyzing my portfolio, and I just looked and it is now down to just 10% of my total bond position. I may consider actually increasing it. Also have about 15% in Ibonds, which I consider as somewhat of a extended emergency/liquidity/kids backup college fund. I used to have a lot less bonds, and TIPS were about 30%.

I don't think there is any magic TIPS allocation. Most on this board aren't big fans of TIPS. They are better for an inflation scenario, but don't provide as much cushion in an economic downturn driven "crash". My TIPS are in Vanguard inflation protected securities.

JBTX wrote:
Wed Sep 19, 2018 5:31 pm
My only question is do you (and spouse) really want to retire now? If you like your consulting then milk it for a few years. Or maybe you scale back even more if that is possible. Do you have specific plans for retirement.
That's the dilemma. My gut sense is that I will be quite happy being retired. I have interests outside of work, and feel that I practice healthier habits on my days off. However, I do fear that at some point I may feel my life is somewhat meaningless. Retirement from my field would be irreversible so I am wrestling with this. I am leaning toward working for five to six more years, or less if anything deteriorates at work.
JBTX wrote:
Wed Sep 19, 2018 5:31 pm
Also given your savings and your expenses, your withdrawals may take more planning than normal to optimize for tax purposes. Do you pull taxable first? Should you do Roth conversions? Etc.
Another shrewd observation, as the size of my RMD's at age 70 1/2 looks to be large. My current thinking is that once I retire, I will pull from taxable (selectively limiting capital gains) and do Roth conversions although I am unclear up to what level would make sense, and whether the total amount converted will be very meaningful. One of the reasons I like having some bond holdings in tax-exempt funds is that this will leave more space for Roth conversions.
I'd keep an eye on things as we approach 2026 to see if tax rates revert - that may or may not play a factor at that time whether you increase tax conversions. Also, I'd play with one of the "hump" calculators to see what impact social security will have on your marginal rate when you start drawing it. Perhaps you will have enough income that you pass "the hump" such that it doesn't matter. Of course by the time you and I draw SS there is a greater than zero chance laws will change.

Softie
Posts: 5
Joined: Wed Sep 19, 2018 12:42 pm

Re: Requesting portfolio review

Post by Softie » Thu Sep 20, 2018 1:37 am

Ron Scott wrote:
Wed Sep 19, 2018 7:15 pm
I would eliminate the international equity portfolio as unnecessary and transfer most of it into bonds, leaving close to a 50-50 AA. With assets between $5-$15M I think risk avoidance. If for some reason you feel the need for international exposure in your portfolio keep it to a max of 20% of your equity holdings, i.e., 10% of a 50-50.

Your asset location plan is good (do you really need the TRP fund in addition to VG's for CA munis?)
Thanks Ron I appreciate your perspective on my asset allocation. Until a couple years ago I had almost no money in bonds. While it may have been wise to change this, it was not profitable! Selling the international will also be a little painful, as my contributions this year were largely to international due to their poor performance, and I have watched that sector continue to relatively underperform. Notwithstanding all that, I have to concede your advice is prudent and I will likely do what you suggest about halfway.

Regarding TRP, I would like to change it to a Vanguard tax exempt fund but will probably open up a Vanguard account so I can purchase the Admiral shares fund VCADX there. I will also liquidate my VCAIX and purchase VCADX at Vanguard-will wait 30 days after selling as there will be a $2500 tax loss harvest with that sale. Thanks for the advice on Roth conversions.
Ron Scott wrote:
Wed Sep 19, 2018 7:15 pm
Maybe I missed it. Did you say you wanted to retire now or soon?
I would like to retire now but will probably continue working five or six years as work is not that bad and that will provide further security. I am a little nervous about retiring with a 3.3 % withdrawal rate at my age. What do you think about that WD rate?
JBTX wrote:
Wed Sep 19, 2018 7:18 pm
As to TIPS, it is interesting you ask. I don't spend a lot of time analyzing my portfolio, and I just looked and it is now down to just 10% of my total bond position. I may consider actually increasing it. Also have about 15% in Ibonds, which I consider as somewhat of a extended emergency/liquidity/kids backup college fund. I used to have a lot less bonds, and TIPS were about 30%.

I don't think there is any magic TIPS allocation. Most on this board aren't big fans of TIPS. They are better for an inflation scenario, but don't provide as much cushion in an economic downturn driven "crash". My TIPS are in Vanguard inflation protected securities.
Thanks for elaborating on the TIPS and also the target date funds. Since I don't have access to the institutional funds that you do, the target date funds don't sound like a great choice for me. After reading what you have written on TIPS, I will probably hold off on these and limit my bond holdings to BND in my 401k, and the Vanguard tax-exempt funds in taxable accounts.
JBTX wrote:
Wed Sep 19, 2018 7:18 pm
I'd keep an eye on things as we approach 2026 to see if tax rates revert - that may or may not play a factor at that time whether you increase tax conversions. Also, I'd play with one of the "hump" calculators to see what impact social security will have on your marginal rate when you start drawing it. Perhaps you will have enough income that you pass "the hump" such that it doesn't matter. Of course by the time you and I draw SS there is a greater than zero chance laws will change.
I'm not familiar with the "hump" and Social Security issue. Fortunately, it seems I have some time to get up to speed on this issue. Thank you for the heads up!

BetaTracker
Posts: 182
Joined: Fri Sep 21, 2012 7:57 am

Re: Requesting portfolio review

Post by BetaTracker » Thu Sep 20, 2018 2:32 am

Not to add more complexity, but do you have a backup plan if something happens to you? Is your wife willing and able to assume responsibilities for any eventual portfolio you devise?
I ask because we're a little bit older and further along in our retirement planning. But after going through all of the various scenarios and moving around various parts of our portfolio, I took a final plan to my wife before implementation. She listened intently, but surprised me by looking up at me at the end and saying, "I don't think this is something I can handle on my own." She said it like she was letting me down.
I worked with her over the course of the next few years, but I could see portfolio management wasn't something she'd ever really feel comfortable or confident about assuming on her own. Don't get me wrong, she's a very well-educated and smart lady, if I say so myself. But it was a real lesson to me in understanding that this finance stuff isn't for everyone.
That's been the greatest challenge I've found in moving from the accumulation phase of life to retirement. The portfolio dynamics are the easy part. The tougher aspect has been learning to simplify our lives, not just in terms of finances but in almost all facets of life. We ended up going with a simple three-fund portfolio and transferred as much of our assets as possible to Vanguard. The rest will follow later. And if anything happens to me, my wife will simply call Vanguard's personal advising service and tell them to take over. We've talked to some of their advisors already, and it's nice to know that for a pretty low fee my wife will still have access to a human advisor. Although their advisors are mainly focused on portfolio questions, they told us they can help point her in the general direction to help figure out other types of planning issues. Not exactly white glove service, but enough at a decent fee so she feels like there's someone to help support her after I'm gone.
Another important factor is that I know Vanguard won't try to do anything too wacky. Although they'll probably add some extra funds to our portfolio that I wouldn't on my own, their advisors aren't on commission and they've impressed us with their honesty and integrity.
Hopefully, you wife is interested in portfolio management. Even so, I'd strongly suggest you have a backup plan in case either one of you becomes incapacitated or get to the point where doing basic financial chores becomes too difficult. If you've got kids to help out, maybe start planning now to get them up to speed on financial planning and the like ... ???
I'd rather be content than happy -- Lao Tzu.

Ron Scott
Posts: 973
Joined: Tue Apr 05, 2016 5:38 am

Re: Requesting portfolio review

Post by Ron Scott » Thu Sep 20, 2018 5:28 am

Softie wrote:
Thu Sep 20, 2018 1:37 am

Ron Scott wrote:
Wed Sep 19, 2018 7:15 pm
Maybe I missed it. Did you say you wanted to retire now or soon?
I would like to retire now but will probably continue working five or six years as work is not that bad and that will provide further security. I am a little nervous about retiring with a 3.3 % withdrawal rate at my age. What do you think about that WD rate?
Assuming your ability to grow your portfolio dramatically in the near future, with a liquidity event for example, is not realistic, you are comfortable with your current level of spend, and you don’t like work, retirement is a good alternative for you.

SWR gets tricky with lengthy retirements, 40+ years. Using historical data to support 30 years is difficult logically and at 40 you’re adding instability to the picture and the data are being tortured to yield a result for you.

Moving away from reliance on US 20th century historical data to drive future sims, you could contemplate some conservative average returns and see how that meets your needs. At 0% real—quite conservative—a 40 year retirement gets a 2.5% WR and gives you your $170. That’s good. If you believe American markets may keep humming as they did in America’s glory days you can meet me halfway, say 3% WR.

The point is, don’t put yourself in a position where you are relying on strong performance from your portfolio or need to sell equities in a prolonged downturn. I plan to live on my bonds and leave my equity behind, a position most would consider extreme but which I feel is reasonable given the unknowns.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

retiredjg
Posts: 33868
Joined: Thu Jan 10, 2008 12:56 pm

Re: Requesting portfolio review

Post by retiredjg » Thu Sep 20, 2018 7:38 am

Softie wrote:
Thu Sep 20, 2018 1:37 am
Ron Scott wrote:
Wed Sep 19, 2018 7:15 pm
I would eliminate the international equity portfolio as unnecessary and transfer most of it into bonds, leaving close to a 50-50 AA. With assets between $5-$15M I think risk avoidance. If for some reason you feel the need for international exposure in your portfolio keep it to a max of 20% of your equity holdings, i.e., 10% of a 50-50.

Your asset location plan is good (do you really need the TRP fund in addition to VG's for CA munis?)
Thanks Ron I appreciate your perspective on my asset allocation. Until a couple years ago I had almost no money in bonds. While it may have been wise to change this, it was not profitable! Selling the international will also be a little painful, as my contributions this year were largely to international due to their poor performance, and I have watched that sector continue to relatively underperform. Notwithstanding all that, I have to concede your advice is prudent and I will likely do what you suggest about halfway.
This is not a good idea. And it is market timing, the bad backfiring kind.

You should decide what portion of your portfolio will be in international and keep it that way no matter what the market is doing. You should not decide to sell because international has not done well. That is a poor idea.

Ron Scott is not suggesting you sell because of the market. Ron Scott has voiced the opinion that Ron Scott does not want an allocation to international at all.

Opinions of how much international to use are all over the place - pretty much from 0% to half of your stocks. None of us know which number will work out the best in the next 50 years. The important thing is to pick a number and stay there. It is the switching back and forth that will ruin your portfolio performance.

JBTX
Posts: 4043
Joined: Wed Jul 26, 2017 12:46 pm

Re: Requesting portfolio review

Post by JBTX » Thu Sep 20, 2018 11:31 am

retiredjg wrote:
Thu Sep 20, 2018 7:38 am
Softie wrote:
Thu Sep 20, 2018 1:37 am
Ron Scott wrote:
Wed Sep 19, 2018 7:15 pm
I would eliminate the international equity portfolio as unnecessary and transfer most of it into bonds, leaving close to a 50-50 AA. With assets between $5-$15M I think risk avoidance. If for some reason you feel the need for international exposure in your portfolio keep it to a max of 20% of your equity holdings, i.e., 10% of a 50-50.

Your asset location plan is good (do you really need the TRP fund in addition to VG's for CA munis?)
Thanks Ron I appreciate your perspective on my asset allocation. Until a couple years ago I had almost no money in bonds. While it may have been wise to change this, it was not profitable! Selling the international will also be a little painful, as my contributions this year were largely to international due to their poor performance, and I have watched that sector continue to relatively underperform. Notwithstanding all that, I have to concede your advice is prudent and I will likely do what you suggest about halfway.
This is not a good idea. And it is market timing, the bad backfiring kind.

You should decide what portion of your portfolio will be in international and keep it that way no matter what the market is doing. You should not decide to sell because international has not done well. That is a poor idea.

Ron Scott is not suggesting you sell because of the market. Ron Scott has voiced the opinion that Ron Scott does not want an allocation to international at all.

Opinions of how much international to use are all over the place - pretty much from 0% to half of your stocks. None of us know which number will work out the best in the next 50 years. The important thing is to pick a number and stay there. It is the switching back and forth that will ruin your portfolio performance.
Agree with retiredjg. Personally I have about 35% of stocks in international. My take is I'd like to hedge at least somewhat against a US poor performance scenario (maybe like a Japan "lite"), and international may help. 50/50 stocks and bonds is pretty conservative, but not unreasonable. In your case given your higher than average spending you probably want more long term growth, thus I think 60% is probably a bit more appropriate.

As to your higher than average spend rate (while not quite at your level, ours is higher than average for here too), it may be that when you get into your 70's your spend rate may go down.

Softie
Posts: 5
Joined: Wed Sep 19, 2018 12:42 pm

Re: Requesting portfolio review

Post by Softie » Thu Sep 20, 2018 9:32 pm

BetaTracker wrote:
Thu Sep 20, 2018 2:32 am
Not to add more complexity, but do you have a backup plan if something happens to you? Is your wife willing and able to assume responsibilities for any eventual portfolio you devise?
I ask because we're a little bit older and further along in our retirement planning. But after going through all of the various scenarios and moving around various parts of our portfolio, I took a final plan to my wife before implementation. She listened intently, but surprised me by looking up at me at the end and saying, "I don't think this is something I can handle on my own." She said it like she was letting me down.
Betatracker, thanks for sharing that vignette about your wife which is a great reminder not to forget about succession planning. My wife takes an active interest in managing our portfolio and would be willing and able to take over alone (I think). We have no children. so there will be serious succession issues if only one of us is left and is incapacitated. That's something I don't have a solution for at this point.

Ron Scott wrote:
Thu Sep 20, 2018 5:28 am

The point is, don’t put yourself in a position where you are relying on strong performance from your portfolio or need to sell equities in a prolonged downturn. I plan to live on my bonds and leave my equity behind, a position most would consider extreme but which I feel is reasonable given the unknowns.
A conservative line of thinking, I appreciate your sharing it with me, especially as I have the option for now of continuing to work.

retiredjg wrote:
Thu Sep 20, 2018 7:38 am
This is not a good idea. And it is market timing, the bad backfiring kind.


Of course you are correct. It is quite difficult for me to consider these issues without being influenced by my past performance. My only defense is that I committed far worse market timing (and other) sins early in my investing career, so this is progress? :oops: Seriously, I understand your point and I will plan to accumulate a little more knowledge and perspective, hopefully from Boglehead contributors like yourself before making a properly based decision on my asset allocation.
JBTX wrote:
Thu Sep 20, 2018 11:31 am
Agree with retiredjg. Personally I have about 35% of stocks in international. My take is I'd like to hedge at least somewhat against a US poor performance scenario (maybe like a Japan "lite"), and international may help. 50/50 stocks and bonds is pretty conservative, but not unreasonable. In your case given your higher than average spending you probably want more long term growth, thus I think 60% is probably a bit more appropriate.

As to your higher than average spend rate (while not quite at your level, ours is higher than average for here too), it may be that when you get into your 70's your spend rate may go down.
Thanks JBTX, it's helpful to hear your well considered perspective on allocation to international.

I think you're correct that there will be a buffer zone in my spending once I am in my 70's. In a true crisis, sale of my home would also raise enough funds to keep us comfortable.

PDX_Traveler
Posts: 29
Joined: Mon Nov 14, 2016 2:18 am

Re: Requesting portfolio review

Post by PDX_Traveler » Fri Sep 21, 2018 3:15 am

retiredjg wrote:
Wed Sep 19, 2018 6:44 pm
Softie wrote:
Wed Sep 19, 2018 6:35 pm
Not being knowledgeable about wash sales, I googled it and I assume you are referencing the possibility that at some point I may want ... <snip>

But it would not have to be an intentional tax loss harvest in taxable - you might just need to sell something for cash. And it would not have to be "adding to the VIT position in Roth IRA" - it could just be a reinvestment of dividends/capital gains, something you might not even be aware of.

<...>

There is wash sale information in the Wiki if you need more.
I'm sorry, I'm not getting this point - I tried to look at wash sale related info, but not sure I got the concern the above note specifically is raising. Is the concern specific to Roth IRA holding substantially similar investment as in taxable, and this doesn't apply to traditional IRAs? I will have to figure out how to unravel this - we've kept dividend/cap gain re-investment in Roth and traditional tax-deferred accounts and turned it off in taxable accounts. But my 401k is a combined mess - Roth 401k, 'traditional' 401k and rollover tax-deferred IRA funds, so I guess I will have to be careful regarding fund selection in the appropriate asset buckets.
I'll continue to look for further info, but if someone could provide a pointer to the specific problem , it would be very helpful. Thank you!

retiredjg
Posts: 33868
Joined: Thu Jan 10, 2008 12:56 pm

Re: Requesting portfolio review

Post by retiredjg » Fri Sep 21, 2018 5:48 am

PDX_Traveler wrote:
Fri Sep 21, 2018 3:15 am
Is the concern specific to Roth IRA holding substantially similar investment as in taxable, and this doesn't apply to traditional IRAs?
No, it could be any other taxable account or any IRA (Roth or traditional). It could even be an account that belongs solely to your spouse )such as an IRA).

Opinions vary as to whether investments in a 401k/403b/457b type plan or HSA plan count or not.

The standard is "substantially identical" not "substantially similar".

PDX_Traveler
Posts: 29
Joined: Mon Nov 14, 2016 2:18 am

Re: Requesting portfolio review

Post by PDX_Traveler » Fri Sep 21, 2018 2:26 pm

retiredjg wrote:
Fri Sep 21, 2018 5:48 am
PDX_Traveler wrote:
Fri Sep 21, 2018 3:15 am
Is the concern specific to Roth IRA holding substantially similar investment as in taxable, and this doesn't apply to traditional IRAs?
No, it could be any other taxable account or any IRA (Roth or traditional). It could even be an account that belongs solely to your spouse )such as an IRA).

Opinions vary as to whether investments in a 401k/403b/457b type plan or HSA plan count or not.

The standard is "substantially identical" not "substantially similar".
Thank you, I've learnt something. In my continuing quest to simplify things with a view to the future, I now have to consider turning off dividend/cap gains reinvestment in Roth/trad IRAs as well, or alternatively choose substantially non-identical investments in the same bucket across different accounts. The former seems simpler, from the point of view of portfolio simplification...

retiredjg
Posts: 33868
Joined: Thu Jan 10, 2008 12:56 pm

Re: Requesting portfolio review

Post by retiredjg » Fri Sep 21, 2018 5:05 pm

PDX_Traveler wrote:
Fri Sep 21, 2018 2:26 pm
Thank you, I've learnt something. In my continuing quest to simplify things with a view to the future, I now have to consider turning off dividend/cap gains reinvestment in Roth/trad IRAs as well, or alternatively choose substantially non-identical investments in the same bucket across different accounts. The former seems simpler, from the point of view of portfolio simplification...
You could do that, but if the only fund held in both accounts is total stock index, it's pretty easy to replace that with 500 index and extended market and have the same stuff but it would not be "substantially identical".

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