Unwinding and transferring positions

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Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Unwinding and transferring positions

Post by Minisoda » Tue Oct 09, 2018 2:45 pm

As a quick refresher, I have had a bad experience with a broker over the past 18 months, who managed to lose a nice chunk of $$$ in a rock solid market. I've been very nervous about self-managing the account, but bit the bullet today and converted our Fidelity account away from Professionally Managed.

I now have a portfolio of equity and fixed income positions that I need to rebalance. 20 equity and 6 fixed income.

What's the best way to gain forum feedback on the rebalancing act?

I know rule #1 of fight club is not timing the market, but I'm also a little nervous about plowing everything into a three fund portfolio. My two reservations are:

1. I don't understand the fixed income environment well enough (given rising interest rates) and am unsure what fund(s) to choose there.
2. Little nervous about plowing into VTI when the market has been hot for this long.

Thanks all!

Soda

magicrat
Posts: 521
Joined: Sat Nov 29, 2014 7:04 pm

Re: Unwinding and transferring positions

Post by magicrat » Tue Oct 09, 2018 3:45 pm

Minisoda wrote:
Tue Oct 09, 2018 2:45 pm
As a quick refresher, I have had a bad experience with a broker over the past 18 months, who managed to lose a nice chunk of $$$ in a rock solid market. I've been very nervous about self-managing the account, but bit the bullet today and converted our Fidelity account away from Professionally Managed.

I now have a portfolio of equity and fixed income positions that I need to rebalance. 20 equity and 6 fixed income.

What's the best way to gain forum feedback on the rebalancing act?

I know rule #1 of fight club is not timing the market, but I'm also a little nervous about plowing everything into a three fund portfolio. My two reservations are:

1. I don't understand the fixed income environment well enough (given rising interest rates) and am unsure what fund(s) to choose there.
2. Little nervous about plowing into VTI when the market has been hot for this long.

Thanks all!

Soda
The best way to get feedback is to post in this format: https://www.bogleheads.org/wiki/Asking_ ... _questions

For changing around your funds, it is important to know what investments you have now, in what type of accounts, and whether there are gains/losses (for taxable accounts).

1. Vanguard Total Bond (VBTLX) is a good fund, especially for tax-advantaged accounts. If you are in a high tax bracket and need bonds in taxable, Vanguard Intermediate Term Tax Exempt (VWIUX) is good. Expected increases in interest rates are already priced in.
2. What is your target asset allocation? It should be something that you are comfortable regardless of market conditions. People have been "nervous" about the market being "hot" for years. Staying on the sidelines and/or trying to jump in or out will not work.

123
Posts: 3911
Joined: Fri Oct 12, 2012 3:55 pm

Re: Unwinding and transferring positions

Post by 123 » Tue Oct 09, 2018 4:47 pm

For your 20 equity positions,I assume their individual stocks or ETFs, you should have no reluctance to sell them and buy VTI because you are simply exchanging individual equities for an index ETF. Your risk should be less with a move diversified position, which is what you get with VTI. You may have gains or losses on the individual positions but that happens anytime you a lot of individual equities. With the 20 individual positions you have more equity/stock market risk than with an index ETF. If someone is a stock watcher they often take solace in have 10 winners and 10 losers on any particular day, week, or month versus a single number (VTI) that goes up or down. Indexing is pretty boring after all.
The closest helping hand is at the end of your own arm.

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Tue Oct 09, 2018 5:09 pm

Minisoda wrote:
Tue Oct 09, 2018 2:45 pm
What's the best way to gain forum feedback on the rebalancing act?
You are not indicating an interest in "rebalancing". Rebalancing means bringing your portfolio back to it's target. What you need is re-allocation.

The only way to get help with that is to tell us what you actually have and what you actually want. See the link at the bottom of this message for how to do that.

The closer you follow the format, the easier it is to help you. Please note that the format is not asking for how much money you have in each fund. We are interested in percentages - what percentage of the portfolio each fund you currently have represents. If you need help figuring that out, just ask.

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Unwinding and transferring positions

Post by Minisoda » Tue Oct 09, 2018 6:36 pm

Emergency funds: 12 month cash emergency fund
Debt: $350k mortgage
Tax Filing Status: Married Joint
Tax Rate: 35% Federal, 9.85% State
State of Residence: MN
Age: 42
Desired Asset allocation: 40% stocks / 60% bonds. <-- open to feedback here
Desired International allocation: 15% of stocks. <-- open to feedback here

Portfolio:
2.4M in taxable account previously managed by broker
400k in private equity partnership <-- nothing to discuss or consider here / not liquid but performing very well and will lead to a material event in 3-4 years
400k in IRA that came from previous 401k plan
small amount in new 401k
30k in a couple of "converted" IRAs (I can't recall what you call these)


Providing the split of your assets and contributions between taxable and tax-advantaged accounts is also helpful. Please include all investment and retirement accounts (yourself and spouse or civil partner, if applicable) as it's important to look at the portfolio as a unified whole rather than look at accounts in isolation. Also include the available funds in your employer provided retirement plans. For example:

Current retirement assets

Taxable
Ticker Percent of Portfolio Percent Gain/Loss
Cash 30.2% n/a
2% CD 10/18/2018 8.4% 0.00%
1.5% CD 11/2/2018 10.5% -0.03%
2.05% CD 2/28/2019 8.4% -0.02%
2.1% CD 1/18/2019 8.4% -0.02%
1.55% CD 11/29/2018. 8.4% -0.07%
ABB 0.5% -3.58%
APA 1.6% -5.20%
BAC 1.3% 31.16%
BRKB 3.5% 27.08%
CAH 1.0% 5.44%
CO 1.0% -36.71%
CPB 1.2% 13.13%
CVX 1.7% 16.44%
FNV 0.5% -8.73%
GSK 1.8% -5.41%
INPCF 0.6% -35.83%
MRK 1.6% 15.47%
NGD 0.3% -59.74%
NSRGY 1.7% 7.09%
NTR 1.7% 37.51%
RAD 0.7% -68.72%
SAND 1.6% 8.07%
T 1.1% 1.74%
VOD 1.5% -21.50%



His 401k
<need to get this info>

His Roth IRA
<need to get this info>

His Rollover IRA
Bogleheads three fund portfolio (doing very well)
VTI
VXUS
BND

Her Traditional IRA at Vanguard
<need to get this info>


Contributions

New annual Contributions
MAX his 401k (also specify any employer matching contributions)
$xx her 403b (also specify any employer matching contributions) <--- not doing this today - should we be?
$xx his IRA/Roth IRA <--- need to revisit this / how much can we invest here annually?
$xx her IRA/Roth IRA <--- need to revisit this / how much can we invest here annually?

Questions:
1. My biggest question is around the taxable account. How do I reallocate all of those holdings to a simpler three fund portfolio?
2. Given the 10% MN tax rate, seems like building in some MN state munis would make sense.
3. Feels like I should just ride out a couple of those equity positions that have lost a ton... I realize that's counter to everything on this forum, but seems like selling low would be ill advised.
4. How do I approach the bond market with rising interest rates? Some good commentary above on that.

Mostly just moral support as I disconnected from the professional advisor! The good news is that I couldn't screw it up much more than he did.

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Tue Oct 09, 2018 7:05 pm

You are headed in the right direction, but we are not interested in what percent an investment represents in just one account. That is a fairly meaningless number.

What percent of your portfolio are all those things? And what are those things? Nobody here is going to look all of them up. You need to tell us what they are. Are they all individual stocks or do some of them have expense ratios?

If you want help, you need to make it easy to help you. I'm sorry if that sounds harsh, but this is something you need to do in order to get your situation under control.

Do you have a 401k or similar plan available to you now? If yes, why are you not contributing to it? What about your spouse's accounts?

30k in a couple of "converted" IRAs (I can't recall what you call these)
Might be a Roth IRA, but I suspect your "advisor" has you in something much worse. Find out what it is.

$xx her 403b (also specify any employer matching contributions) <--- not doing this today - should we be?
Yes. This is a no-brainer.

$xx his IRA/Roth IRA <--- need to revisit this / how much can we invest here annually?
$xx her IRA/Roth IRA <--- need to revisit this / how much can we invest here annually?
We'll get to that. It is not straightforward in your case.

1. My biggest question is around the taxable account. How do I reallocate all of those holdings to a simpler three fund portfolio?
Find out what your "unrealized short term and long term gains" are. In dollars. Apparently there are losses. Those can be used to offset gains to get you out of this mess.

2. Given the 10% MN tax rate, seems like building in some MN state munis would make sense.
Maybe. Maybe not. It might be better to put your bonds into tax-deferred accounts.

3. Feels like I should just ride out a couple of those equity positions that have lost a ton... I realize that's counter to everything on this forum, but seems like selling low would be ill advised.
Selling low might give you enough losses to get out of this mess without paying a lot of taxes.

4. How do I approach the bond market with rising interest rates? Some good commentary above on that.
Ignore the rising interst rates. Buy some kind of fixed income assets so that you have a reasonable portfolio.


I'm sorry to sound so negative, but you have a mess. It will take some work on your part to fix it. People here will always be available to help.

Do the work and we can help you fix this. :happy

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Unwinding and transferring positions

Post by Minisoda » Tue Oct 09, 2018 8:24 pm

Apologies. Thought I copied the format directly from the site, but cleaned a few things up based on your input. The main account I need to focus on right now is the taxable account moving from a broker that has $2.4M in assets. I broke out CDs vs. stocks in the updated format below.

Honestly, this isn't a mess. I'd call it an "opportunity to organize". A mess would be $24k of net worth in penny stocks, two car payments, jumbo mortgage, $5k rent payment..... and a few credit cards to boot. :D

Emergency funds: 12 month cash emergency fund
Debt: $350k mortgage
Tax Filing Status: Married Joint
Tax Rate: 35% Federal, 9.85% State
State of Residence: MN
Age: 42
Desired Asset allocation: 40% stocks / 60% bonds. <-- open to feedback here
Desired International allocation: 15% of stocks. <-- open to feedback here

Portfolio:
2.4M in taxable brokerage account
400k in private equity partnership <-- nothing to discuss or consider here / not liquid
400k in Rollover IRA
~20k in 401k
30k in two backdoor Roth IRA accounts
30k in 529 plan

Taxable Brokerage Account (2.4M total / roughly 70% of net worth not including home equity)

Ticker Percent of Portfolio Percent Gain/Loss
Cash 30.2% n/a

CDs
2% CD 10/18/2018 8.4% 0.00%
1.5% CD 11/2/2018 10.5% -0.03%
2.05% CD 2/28/2019 8.4% -0.02%
2.1% CD 1/18/2019 8.4% -0.02%
1.55% CD 11/29/2018. 8.4% -0.07%

Equity Positions
ABB 0.5% -3.58%
APA 1.6% -5.20%
BAC 1.3% 31.16%
BRKB 3.5% 27.08%
CAH 1.0% 5.44%
CO 1.0% -36.71%
CPB 1.2% 13.13%
CVX 1.7% 16.44%
FNV 0.5% -8.73%
GSK 1.8% -5.41%
INPCF 0.6% -35.83%
MRK 1.6% 15.47%
NGD 0.3% -59.74%
NSRGY 1.7% 7.09%
NTR 1.7% 37.51%
RAD 0.7% -68.72%
SAND 1.6% 8.07%
T 1.1% 1.74%
VOD 1.5% -21.50%

The above portfolio is currently sitting at $8,452 net long term gain.
30k unrealized losses available.

His 401k
$20k and will be max’d out annually.

His Rollover IRA $400k (
Bogleheads three fund portfolio (doing very well)
80% VTI
5% VXUS
13% BND
2% spread among Disney, Bank of America and Apple

Contributions

New annual Contributions
MAX his 401k (also specify any employer matching contributions)
$xx her 403b
$xx his IRA/Roth IRA <--- I don’t think we can continue doing backdoor Roth since we have a rollover IRA account established. Is that correct?
$xx her IRA/Roth IRA
$2,400 annually to 529 plan

Questions:
1. My biggest question is around the taxable account. How do I reallocate all of those holdings to a simpler three fund portfolio?
2. Given the 10% MN tax rate, seems like building in some MN state munis would make sense.
3. Feels like I should just ride out a couple of those equity positions that have lost a ton... I realize that's counter to everything on this forum, but seems like selling low would be ill advised.
4. How do I approach the bond market with rising interest rates? Some good commentary above on that.
5. How can we pull off a 403b for her if not employed by a non profit?

ALSO, important to state my goal in the next 5 years... if we continue to execute on the business side, there will be an event that yields conservatively between 4.5M and 7M before taxes. Could be higher. I'd like to get to a position where I can take my foot off the gas a little bit... possibly moving to more of a consulting role working 50% of the year. Would be nice to get to a position where fixed income investments can throw off baseline earnings and I pick the rest up doing consulting work.

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Wed Oct 10, 2018 8:30 am

Minisoda wrote:
Tue Oct 09, 2018 8:24 pm
Honestly, this isn't a mess. I'd call it an "opportunity to organize". A mess would be $24k of net worth in penny stocks, two car payments, jumbo mortgage, $5k rent payment..... and a few credit cards to boot. :D
I can't disagree with that! :happy

Age: 42
Desired Asset allocation: 40% stocks / 60% bonds. <-- open to feedback here
Desired International allocation: 15% of stocks. <-- open to feedback here
Holding 60% in bonds is quite conservative for people in their 40's. I'm not saying it is wrong, but is a "very conservative" portfolio what you actually want? If yes, then 60% bonds is fine.

The allocation to international is one of many numbers that is reasonable. In fact, there are people here who believe that anything from 0% to 50% is the "right" amount to hold.


Taxable Brokerage Account (2.4M total / roughly 70% of net worth not including home equity)

Ticker Percent of Portfolio Percent Gain/Loss
Cash 30.2% n/a

CDs
2% CD 10/18/2018 8.4% 0.00%
1.5% CD 11/2/2018 10.5% -0.03%
2.05% CD 2/28/2019 8.4% -0.02%
2.1% CD 1/18/2019 8.4% -0.02%
1.55% CD 11/29/2018. 8.4% -0.07%
A 30% cash allocation is a bit concerning. I had not noticed that in original list. What is this money for? Why has it not been invested? Are you ready to invest it now?

Are you planning to keep the CDs?
Equity Positions
ABB 0.5% -3.58%
APA 1.6% -5.20%
BAC 1.3% 31.16%
BRKB 3.5% 27.08%
CAH 1.0% 5.44%
CO 1.0% -36.71%
CPB 1.2% 13.13%
CVX 1.7% 16.44%
FNV 0.5% -8.73%
GSK 1.8% -5.41%
INPCF 0.6% -35.83%
MRK 1.6% 15.47%
NGD 0.3% -59.74%
NSRGY 1.7% 7.09%
NTR 1.7% 37.51%
RAD 0.7% -68.72%
SAND 1.6% 8.07%
T 1.1% 1.74%
VOD 1.5% -21.50%

The above portfolio is currently sitting at $8,452 net long term gain.
30k unrealized losses available.
The tax rate to get rid of this will be high - 20% fed cap gains plus 3.8% NIIT, and probably some state tax in addition to that. I do not know if AMT gets involved or not. Nevertheless, the amount is relatively small considering the size of the account (about $625k?) and just paying it might be worth it to achieve what you want.

I don't know what those things are, but do recognize Berkshire B. Many people believe that BRKB is diversified enough to consider it like a broad fund instead of an individual stock. If you wish to avoid any taxes on this, keeping the BRKB (or some of it) might eliminate the tax.






1. My biggest question is around the taxable account. How do I reallocate all of those holdings to a simpler three fund portfolio?
The two stock funds to use would be a total stock index and a total international index. If there are bonds in the taxable account, you should use tax-exempt bond funds because of your high tax rate. If there is a state tax-exempt muni for MN, using some of that would be a good choice.



2. Given the 10% MN tax rate, seems like building in some MN state munis would make sense.
If there are bonds in taxable, yes. You already have a significant allocation to CDs in taxable which are an acceptable alternative to bonds. They are not as tax-efficient as muni bonds, but you probably don't want to do an early withdrawal on them, do you?

3. Feels like I should just ride out a couple of those equity positions that have lost a ton... I realize that's counter to everything on this forum, but seems like selling low would be ill advised.
No. Do not let your losers become an anchor. Selling low will allow you to prevent a very high tax rate on the ones that have done well. If you wait for your losers to "regain" if they ever do, you will just pay more tax on the other stuff.

5. How can we pull off a 403b for her if not employed by a non profit?
Huh? Didn't you say she has a 403b available and that you have not been using it? Maybe I misunderstood.

$xx his IRA/Roth IRA <--- I don’t think we can continue doing backdoor Roth since we have a rollover IRA account established. Is that correct?
$xx her IRA/Roth IRA
You should not use the back door since you have a rollover IRA. You could roll the IRA into your 401k (if it permits) and then you could use the back door.

As for Her Roth IRA, you mentioned a Her tIRA in the earlier post, but not this one. Does She have one?
Last edited by retiredjg on Wed Oct 10, 2018 2:07 pm, edited 1 time in total.

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Wed Oct 10, 2018 8:37 am

Minisoda wrote:
Tue Oct 09, 2018 2:45 pm
1. I don't understand the fixed income environment well enough (given rising interest rates) and am unsure what fund(s) to choose there.
Your CDs are playing the roll of fixed income assets in the taxable account. Are you comfortable with them?

2. Little nervous about plowing into VTI when the market has been hot for this long.
Get over it. :happy You are not "getting into a hot market" because you are already in the hot market. You are exchanging one handful of stocks for a better basket of stocks. In fact, you are going to be selling a bunch of losers to get into a better investment.

This is a sideways move, not a get into the market move, and you should not be concerned at all.

magicrat
Posts: 521
Joined: Sat Nov 29, 2014 7:04 pm

Re: Unwinding and transferring positions

Post by magicrat » Wed Oct 10, 2018 8:45 am

For the taxable account: First, sell all of the stocks with losses. Second, sell stocks with gains until your realized losses have been used up. You should do this by selling the stocks with the highest cost basis first. Third, invest the proceeds into your selected funds according to your target asset allocation. Fourth, see how much left you have in the old equity positions and develop a tax-efficient plan to wind them down.

Do not "ride out" those equity positions. If you realize that is counter to everything on this forum, believe it. Or don't, your call, but know that you would be falling into a common, well-understood, and costly behavioral trap called the sunk cost fallacy.

Lafder
Posts: 3844
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Unwinding and transferring positions

Post by Lafder » Wed Oct 10, 2018 9:20 am

The good news is that you have more losses than gains in your taxable stocks. So you can sell all at a loss now, then reallocate it all without owing taxes.

Ok to sit on what you have til you make a definite decision.

Have you considered paying off your mortgage with a chunk of your cash ? That is the only guaranteed return you can get at that rate.

I hold my bonds in our retirement accounts. Our retirement accounts are larger than taxable. In your case, you have room for tax advantaged bonds in taxable.

Age in bonds is reasonably conservative. But you may feel more comfortable being even safer with your already larger than most nest egg.

Folks here can help make more specific suggestions. I have to leave for work but I will peek again tonight. You have saved yourself a nice chunk of $$ annually by dropping the management services.

I would max out retirement accounts :) And Roths, or back door Roths.

Making the decisions on what to have are the hardest. Once you have it decided, the changes won't be too hard to make.

You have come to a great site to work this all out :)

lafder

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Wed Oct 10, 2018 9:29 am

Here's what your portfolio looks like now: (Your private equity partnership and 529 accounts are not included)

Total retirement portfolio is $2.85 million and all percentages are based on that total.

Taxable 2.4M 84.2%
25.4% Cash
43.8% % CDs
15% Stocks

400k in Rollover IRA. 14%
11.2% VTI
0.7% VXUS
1.8% BND
0.3% individual stocks

20k in 401k 0.7%
0.7% inknown

30k in two backdoor Roth IRA accounts 1%
1% unknown


This is a suggestion to consider:

Taxable 2.4M 84.2%
33.9% Total Stock Index
6% Total International Index
44.3% CDs - buy muni bond fund as these mature if you want

400k in Rollover IRA. 14%
14% broad bond index

20k in 401k 0.7%
0.7% broad bond index

30k in two backdoor Roth IRA accounts 1%
1% broad bond index (some people prefer to hold stocks in Roth IRA)

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Wed Oct 10, 2018 9:33 am

Minisoda wrote:
Tue Oct 09, 2018 8:24 pm
The above portfolio is currently sitting at $8,452 net long term gain.
30k unrealized losses available.
Lafder and I have interpreted this information in different ways. Can you clarify?

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Unwinding and transferring positions

Post by Minisoda » Wed Oct 10, 2018 1:14 pm

Sorry, that was a little unclear. In the large brokerage account (with all the positions I listed above) there is currently:

- $38k in unrealized losses
- YTD $8,400 in realized gains


Plenty of losses to go around and it appears they just grew a bit this afternoon. ;-)


Soda
Last edited by Minisoda on Wed Oct 10, 2018 3:01 pm, edited 1 time in total.

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Wed Oct 10, 2018 2:06 pm

Ok. Then ignore what I said above about that.

Lafder
Posts: 3844
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Unwinding and transferring positions

Post by Lafder » Wed Oct 10, 2018 9:26 pm

I like the simplified way retiredjg broke it down!

If there is a big enough stock market crash to need to buy stocks with bonds, you can buy stocks in your IRA or 401k. It bugs me a bit to have just bonds there. But the bulk of your money is in non retirement accounts, and it is nice and simple.

Is it an active 401k ? How are the available funds/expenses ? Can the Rollover IRA be moved to the 401k so it is easier to do back door Roths for both spouses without the IRA balance ?

I hope you are feeling more confident with your options already!

lafder

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Unwinding and transferring positions

Post by Minisoda » Sun Oct 14, 2018 7:05 am

Quick update and answer to your questions:

1. Used the market drop through Thursday of last week as an opportunity to take some of the cash in the brokerage account (the big taxable one) and buy VTI.
2. Also starting to sell off individual equities in that account to clean it up and prepare for a simple portfolio. There are a couple big ones that have essentially bottomed out ... watching for any signs of recovery before I liquidate and take the big loss.
3. I am not sure if I can transfer my IRA to 401k to open up the back door option. I will check that out ASAP.
4. Above someone mentioned that I should be doing a 403b for my spouse. She does not work outside of the home... am I missing some available option to get her into a 403b?

I’ve gone from stressed to actually quite relaxed! I’m not worried about individual company volatility or up/down days in the market. Just letting it ride brings a sense of calm.

Many thanks for all the help!

Soda

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Sun Oct 14, 2018 7:18 am

Minisoda wrote:
Sun Oct 14, 2018 7:05 am
4. Above someone mentioned that I should be doing a 403b for my spouse. She does not work outside of the home... am I missing some available option to get her into a 403b?
There is a mention of Her 403b in your second post and a question about whether you should be contributing to it. That made it look like she has one available. But if she is not employed, she does not have one available.

Glad to see you are making progress. :happy

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Unwinding and transferring positions

Post by Minisoda » Thu Oct 18, 2018 10:10 am

Continuing to unwind my positions and actually having fun in the process! We will likely have a big long term capital gain event in the next few years, so these carry forward losses will be used.

I’ve done a ton of research and continue to struggle on bond fund allocation. My IRA uses BND, but I’ve learned a lot since that acquisition.

Here’s the scenario:

- relatively high tax situation at 35% plus 10% state.
- still in accumulation phase and am ok with some risks that may come with high yield or intermediate fund

What it make sense to split my bond exposure between BND and a product like VCIT? Are there Admiral shares of either that I should look at?

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Thu Oct 18, 2018 10:22 am

BND is the ETF version of Vanguard's Total Bond Market index fund. As such it does not have Investor shares or Admiral shares. It should have the same expense ratio as the Admiral share class of the Total Bond mutual fund.

Total Bond already contains corporate bonds. I don't know the ratio, but I'm not sure anything is gained by adding another corporate bond fund to your portfolio. I suppose it might pay a little more since the fund you are looking at is of medium quality (higher risk) and Total Bond is rated as high quality.

What bond choices are available in your 401k? That's the first place to consider holding your bonds.

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Unwinding and transferring positions

Post by Minisoda » Thu Oct 18, 2018 10:30 am

Good point - I need to start looking at the portfolio as ONE and move fixed income products to tax free accounts. Current 401k is small, but have a decent chunk the IRA that I could use. I’ve been reading that recommendation last night and the light finally clicked on when I realized those monthly bond fund interest payments are all taxable.

Doing some more research, maybe I just go with one bond fund like VBILX that includes a spread of govt, AAA and some BAA.

retiredjg
Posts: 34401
Joined: Thu Jan 10, 2008 12:56 pm

Re: Unwinding and transferring positions

Post by retiredjg » Thu Oct 18, 2018 10:42 am

Minisoda wrote:
Thu Oct 18, 2018 10:30 am
Good point - I need to start looking at the portfolio as ONE....
Yes.
...and the light finally clicked on when I realized those monthly bond fund interest payments are all taxable.
If the bonds are held in a taxable account, that is true. If you ever do hold bonds in taxable, they probably need to be tax-exempt bonds because of your high tax bracket.

Minisoda
Posts: 28
Joined: Sat Feb 11, 2017 9:45 am

Re: Unwinding and transferring positions

Post by Minisoda » Thu Oct 18, 2018 10:53 am

I’m overthinking this. BND includes Govt all the way down to BAA corporate with 10% less weight on BAA that is pushed up to govt. It’s .02% less expensive and still has yields close to a riskier bond fund. Sticking with that.

Just to confirm, if I sell all the VTI in my IRA and move it to BND, there would be no taxable dollars on those capital gains, right?

Soda

deikel
Posts: 579
Joined: Sat Jan 25, 2014 7:13 pm

Re: Unwinding and transferring positions

Post by deikel » Thu Oct 18, 2018 11:33 am

Minisoda wrote:
Tue Oct 09, 2018 2:45 pm
As a quick refresher, I have had a bad experience with a broker over the past 18 months, who managed to lose a nice chunk of $$$ in a rock solid market. I've been very nervous about self-managing the account, but bit the bullet today and converted our Fidelity account away from Professionally Managed.

I now have a portfolio of equity and fixed income positions that I need to rebalance. 20 equity and 6 fixed income.

What's the best way to gain forum feedback on the rebalancing act?

I know rule #1 of fight club is not timing the market, but I'm also a little nervous about plowing everything into a three fund portfolio. My two reservations are:

1. I don't understand the fixed income environment well enough (given rising interest rates) and am unsure what fund(s) to choose there.
2. Little nervous about plowing into VTI when the market has been hot for this long.

Thanks all!

Soda

First off, since you only rebalance (and also simplify at the same time) you are not plowing all money into the market at a hot time possibly loosing some in a downturn - you just change assets in their classes and simplify, the money stays invested one way or another.

If you are truly worried about how the market does tomorrow, than you should increase the bond portion of your portfolio to provide a smaller loss potential in a general downturn (realize that this probably costs you return in the long run (TBD), but provides you a shock absorber in case of a crash and money to re-balance from in a downturn market).

Since you state that you don't understand the bond portion of the portfolio, go with a total market bond index fund and be done with it - no more thinking required. It will be the lowest fee fund and will cover the bond market in a diversified manner. If you want to optimize some, pick a short (shorter term) bond fund, even at slightly higher fee rates.

Also simplify your stock allocation into either S+p500 or total market or total market ex S+P 500 funds and be done with that part.

Pick a low fee international total market fund and you are done. 3 part portfolio done, so simple is scares people to be too simple...that's the real problem.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

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