Portfolio HELP - time to stop the bleeding from AUM fee

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101invest
Posts: 11
Joined: Fri Jan 11, 2019 10:58 pm

Portfolio HELP - time to stop the bleeding from AUM fee

Post by 101invest » Fri Jan 11, 2019 11:39 pm

We've recently been fortunate to be referred to the Bogleheads site by a friend. For the past 10 years we've relied on a financial planner to take care of our investments with a fee structure based on total assets managed. Through the process of being educated by the Boglehead website we've quickly learned we need to become educated and take charge of our investment portfolio. We were really intrigued by the simplicity of the Three-Fund portfolio concept and rushed out to purchased T. Larimore's new book. Our current investment portfolio includes tax-advantaged accounts (401K) and a single taxable account. We're hoping we can rely on the Boglehead community to help us through this transition.

Background:
Age: Early/Mid 40s
State of Residence: WI
Filing Status: Married Filing Jointly
Tax Rate: 35% Federal, 7.65% State
Emergency fund: Yes
Debt: None
Desired Asset Allocation: 60% stocks? / 40% bonds? (would like feedback on this subject)
Desired International: 20%?

Portfolio Total:
59% - Taxable account
24% - 401K
17% - Spouse 401K

Taxable Account (Value >$1M) - Management Fee 0.475% - Broker: Commonwealth Financial Network
65.08% - Domestic Equity
17.06% - Balanced
14.82% - International Equity
1.97% - Fixed Income
1.07% - Cash and Equivalents

Holdings:
Stocks - 29.72%: 24 individual stocks (Apple, Facebook, Johnson and Johnson, Kraft, Walgreens, Walmart, etc)
Unrealized CG range from: -$2021.86 / -26.55% --> 24550.34 / 297.63%
Mutal Funds - 66.70%:
3.01% - American Funds Capital Income Builder Cl F-2 (CAIFX) ER: 0.41% Unrealized CG: $2099.04 / 4.66%
3.82% - American Funds Global Balanced F-2 (GBLFX) ER: 0.64% Unrealized CG: $1309.63 / 2.22%
2.52% - American Funds New World Cl F-2 (NFFFX) ER: 0.72% Unrealized CG: $4940.83 / 14.11%
2.31% - American Funds Small-Cap World Cl F-2 (SMCFX) ER: 0.79% Unrealized CG: $15411.82 / 70.75%
3.03% - Dodge & Cox Global Stock Fund (DODWX) ER: 0.63% Unrealized CG: $8228.97 / 20.73%
2.4% - Fidelity Advisor Health Care Fund I Cl (FHCIX) ER: 0.79% Unrealized CG: $10276.62 / 35.96%
3.58% - First Eagle Global Fund Cl I (SGIIX) ER: 0.84% Unrealized CG: $1465.93 / 2.66%
2.58% - First Eagle Overseas Fund Cl I (SGOIX) ER: 0.87% Unrealized CG: $10290.17 / 34.10%
5.85% - Franklin Growth Fund Advisor Cl (FCGAX) ER: 0.62% Unrealized CG: $56644.51 / 153.56%
0.98% - JPMorgan Mid-Cap Value Fund Cl L (FLMVX) ER: 0.75% Unrealized CG: $681.11 / 4.53%
2.14% - Lazard Global Listed Infrastructure Portfolio Institutional Shares (GLIFX) ER: 0.96% Unrealized CG: $3310.45 / 11.02%
0.43% - Oppenheimer Developing Markets Fund Cl I (ODVIX) ER: 0.87% Unrealized CG: -$573.45 / -7.62%
2.89% - T. Rowe Price Capital Appreciation Fund (PRWCX) ER: 0.71% Unrealized CG: $3362.47 / 7.91%
2.59% - T. Rowe Price Dividend Growth Fund (PRDGX) ER: 0.64% Unrealized CG: $8133.00 / 24.75%
4.71% - T. Rowe Price New Horizons Fund (PRNHX) ER: 0.78% Unrealized CG: $48555.35 / 178.24%
5.53% - T. Rowe Price Tax-Efficient Equity Fund (PREFX) ER: 0.78% Unrealized CG: $45849.53 / 106.52%
5.23% - Vanguard Dividend Growth Fund Investor Shares (VDIGX) ER: 0.26% Unrealized CG: $37360.34 / 82.91%
3.74% - Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) ER: 0.09% Unrealized CG: $965.13 / 1.67%
5.68% - Vanguard Tax-Managed Capital Appreciation Fund Cl Administrative (VTCLX) ER: 0.09% Unrealized CG: $26317.67 / 41.18%
1.84% - Vanguard Tax-Managed Small-Cap Fund Institutional Shares (VTSIX) ER: 0.06% Unrealized CG: $2168.45 / 7.86%
1.97% - Fidelity Advisor Limited Term Municipal Income Fund - Institutional Cl (FISHX) ER: 0.54% Unrealized CG: $458.94 / 1.52%
ETF - 1.61% - ETF: Vaneck Vectors Morningstar Wide Moat ETF (MOAT) ER: 0.48% Unrealized CG: $2020.43 / 8.51%

401k (Value >$500K)
30.77% (target 25%) - FID CONTRAFUND (FCNTX) ER: 0.74%
14.40% (target 20% ) - FID OVERSEAS (FOSFX) ER: 1.0%
24.69% (target 20%) - FID BLUE CHIP GR (FBGRX) ER: 0.72%
6.02% (target 20%) - FID LARGE CAP STOCK (FLCSX) ER: 0.67%
8.32% (target 5%) - FID MID CAP STOCK (FMCSX) ER: 0.61%
1.35% (target 5%) - FID SM CAP DISCOVERY (FSCRX) ER: 0.69%
7.62% (target 5%) - FID REAL ESTATE INVS (FRESX) ER: 0.76%
6.58% (target 0%) - FID SMALL CAP VALUE (FCPVX) ER: 0.91%
0.24% (target 0%) - FID GROWTH COMPANY (FDGRX) ER: 0.85%
Available Funds: https://docs.google.com/spreadsheets/d/ ... sp=sharing

Spouse 401k (Value >$500K)
32.67% (target 35%) - BMO Balanced Allocation (BGRQX) ER: 0.54%
24.47% (target 35%) - Dodge And Cox Stock (DODGX) ER: 0.52%
13.32 (target 15%) - American EuroPacific Growth (RERHX) ER: 0.64%
3.11% (target 15%) - Carillon Eagle Mid Cap Growth (HARSX) ER: 0.79%
18.92% (target 0%) - T Rowe Price Growth Stock Fund (PRUFX) ER: 0.52%
3.95% (target 0%) - Franklin Small Cap Growth (FSMLX) ER: 0.65%
3.56% (target 0%) - Columbia Select Mid Cap Value (CFDRX) ER: 0.92%
Available Funds: https://docs.google.com/spreadsheets/d/ ... sp=sharing

Future Income:
Expect to be able to contribute $500K-1M annually for the next 10 years in our taxable account. Will continue to contribute the maximum amount to both 401K accounts moving forward.

Questions:
1. Recommended asset allocation based on age and size of current and future portfolio

2. Any large benefit of opening the taxable account with Fidelity over Vanguard since one of our 401K accounts is with Fidelity?

3. We like the idea of the three-fund investing concept:
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
Does this approach make sense with our expected future portfolio size? Due to high tax bracket which Bond Fund or state-specific tax-free bond fund should be used in our taxable account? Vanguard's Tax-Exempt Intermediate-Term Bond Fund (VWIUX)? Should we include a Total International Bond Index Fund as well to diversify further in Bonds? Or should we simply stick with the standard Vanguard Total Bond Market Fund (VBTLX)?

4. Does it make sense to reorganize portfolio to move 401K accounts strictly to bonds or to a targeted retirement fund? OR should we hold stocks with a higher expected return in the tax-advantaged accounts? Should we keep existing funds and only move new money into the newly selected funds, or sell off existing funds to completely restructure? I don't believe there are any tax implications by selling existing funds in a 401K, please confirm.

5. We currently don't have any IRAs. I believe we would be able to do a backdoor IRA. Would it make sense to do this?

6. What immediate action (if any) to take with the existing taxed account under active management by advisor? Leaning toward leaving it alone until we're comfortable and have had some time investing on our own. Would stop adding new funds to the managed account and put all new money toward the new taxed account (Vanguard or Fidelity). I've read some recommendations to stop the automatic reinvestment of distributions as one first step. Every year it is "managed" it is costing us $8K + higher fund expense ratios.

Any and all comments are appreciated. Hoping for some good feedback to help guide us on the correct path to future success. Thanks to all Bogleheads!
Last edited by 101invest on Sat Jan 12, 2019 4:30 pm, edited 1 time in total.

mhalley
Posts: 7262
Joined: Tue Nov 20, 2007 6:02 am

Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by mhalley » Sat Jan 12, 2019 12:29 pm

Asset allocation is a very personal decision. For someone on their early 40s it could vary anywhere from 60/40 to 90/10, depending on your risk tolerance and retirement date. You can try taking some of the aa questionairres, but the man thing is how much of a loss you can tolerate. It also depends on when you plan to retire, as I would go more conservative about 8-10 years out.
International recommendations range from zero (Bogle) to 40% (Vanguard). 20% seems like a good compromise to me. Bogleheads have not really embraced intl bond funds.
I think I would go with fidelity for the taxable portion as their cash management account plus cc seems better than vanguard.
The 3 fund portfolio works no matter the size of the portfolio.
The most difficult part will be unwinding the taxable account. Turn off dividend reinvestment, sell all losers, offset those losses with some gains that you can unwind completely. Then come up with an amount of capital gains you are willing to pay each year going forward. A goal of eventually getting down to 10% individual stocks is reasonable.
At your bracket you would need muni bonds in taxable.

User avatar
ruralavalon
Posts: 16152
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by ruralavalon » Sat Jan 12, 2019 1:12 pm

Welcome to the forum :) .

It's good to see that you are debt free, and interested in low expense index investing using the very diversified three-fund portfolio.

101invest wrote:
Fri Jan 11, 2019 11:39 pm
We've recently been fortunate to be referred to the Bogleheads site by a friend. For the past 10 years we've relied on a financial planner to take care of our investments with a fee structure based on total assets managed. Through the process of being educated by the Boglehead website we've quickly learned we need to become educated and take charge of our investment portfolio. We were really intrigued by the simplicity of the Three-Fund portfolio concept and rushed out to purchased T. Larimore's new book. Our current investment portfolio includes tax-advantaged accounts (401K) and a single taxable account. We're hoping we can rely on the Boglehead community to help us through this transition.

Background:
Age: Early/Mid 40s
State of Residence: WI
Filing Status: Married Filing Jointly
Tax Rate: 35% Federal, 7.65% State
Emergency fund: Yes
Debt: None
Desired Asset Allocation: 60% stocks? / 40% bonds? (would like feedback on this subject)
Desired International: 20%?
Your desired asset allocation is within the range of what is reasonable in my opinion.


101invest wrote:Portfolio Total:
59% - Taxable account
24% - 401K
17% - Spouse 401K

Taxable Account (Value >$1M) - Management Fee 0.475%
65.08% - Domestic Equity
17.06% - Balanced
14.82% - International Equity
1.97% - Fixed Income
1.07% - Cash and Equivalents

Holdings:
Stocks - 29.72%: 24 individual stocks (Apple, Facebook, Johnson and Johnson, Kraft, Walgreens, Walmart, etc)
Mutal Funds - 66.70%:
3.01% - American Funds Capital Income Builder Cl F-2 (CAIFX) ER: 0.41%
3.82% - American Funds Global Balanced F-2 (GBLFX) ER: 0.64%
2.52% - American Funds New World Cl F-2 (NFFFX) ER: 0.72%
2.31% - American Funds Small-Cap World Cl F-2 (SMCFX) ER: 0.79%
3.03% - Dodge & Cox Global Stock Fund (DODWX) ER: 0.63%
2.4% - Fidelity Advisor Health Care Fund I Cl (FHCIX) ER: 0.79%
3.58% - First Eagle Global Fund Cl I (SGIIX) ER: 0.84%
2.58% - First Eagle Overseas Fund Cl I (SGOIX) ER: 0.87%
5.85% - Franklin Growth Fund Advisor Cl (FCGAX) ER: 0.62%
0.98% - JPMorgan Mid-Cap Value Fund Cl L (FLMVX) ER: 0.75%
2.14% - Lazard Global Listed Infrastructure Portfolio Institutional Shares (GLIFX) ER: 0.96%
0.43% - Oppenheimer Developing Markets Fund Cl I (ODVIX) ER: 0.87%
2.89% - T. Rowe Price Capital Appreciation Fund (PRWCX) ER: 0.71%
2.59% - T. Rowe Price Dividend Growth Fund (PRDGX) ER: 0.64%
4.71% - T. Rowe Price New Horizons Fund (PRNHX) ER: 0.78%
5.53% - T. Rowe Price Tax-Efficient Equity Fund (PREFX) ER: 0.78%
5.23% - Vanguard Dividend Growth Fund Investor Shares (VDIGX) ER: 0.26%
3.74% - Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) ER: 0.09%
5.68% - Vanguard Tax-Managed Capital Appreciation Fund Cl Administrative (VTCLX) ER: 0.09%
1.84% - Vanguard Tax-Managed Small-Cap Fund Institutional Shares (VTSIX) ER: 0.06%
1.97% - Fidelity Advisor Limited Term Municipal Income Fund - Institutional Cl (FISHX) ER: 0.54%
ETF - 1.61% - ETF: Vaneck Vectors Morningstar Wide Moat ETF (MOAT) ER: 0.48%
Where is your taxable account currently located? At Vanguard, Fidelity, T. Rowe Price, etc.?

Can you tell us the unrealized capital gain/loss status for each of those investments?

This is a first step in deciding whether what to do about the existing taxable investments.

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.


101invest" wrote:401k (Value >$500K)
30.77% (target 25%) - FID CONTRAFUND (FCNTX) ER: 0.74%
14.40% (target 20% ) - FID OVERSEAS (FOSFX) ER: 1.0%
24.69% (target 20%) - FID BLUE CHIP GR (FBGRX) ER: 0.72%
6.02% (target 20%) - FID LARGE CAP STOCK (FLCSX) ER: 0.67%
8.32% (target 5%) - FID MID CAP STOCK (FMCSX) ER: 0.61%
1.35% (target 5%) - FID SM CAP DISCOVERY (FSCRX) ER: 0.69%
7.62% (target 5%) - FID REAL ESTATE INVS (FRESX) ER: 0.76%
6.58% (target 0%) - FID SMALL CAP VALUE (FCPVX) ER: 0.91%
0.24% (target 0%) - FID GROWTH COMPANY (FDGRX) ER: 0.85%
Available Funds: https://docs.google.com/spreadsheets/d/ ... sp=sharing
There are some excellent funds offered in this 401k, you are fortunate.

In my opinion the funds to consider using are:
1) Fidelity Total Stock Market Index Fund (FSKAX) ER 0.02%;
2) Fidelity International Index Fund (developed markets only) (FSPSX) ER 0.06%.
3) Fidelity U.S. Bond Index Fund (FXNAX) ER 0.03%.


101invest" wrote:Spouse 401k (Value >$500K)
32.67% (target 35%) - BMO Balanced Allocation (BGRQX) ER: 0.54%
24.47% (target 35%) - Dodge And Cox Stock (DODGX) ER: 0.52%
13.32 (target 15%) - American EuroPacific Growth (RERHX) ER: 0.64%
3.11% (target 15%) - Carillon Eagle Mid Cap Growth (HARSX) ER: 0.79%
18.92% (target 0%) - T Rowe Price Growth Stock Fund (PRUFX) ER: 0.52%
3.95% (target 0%) - Franklin Small Cap Growth (FSMLX) ER: 0.65%
3.56% (target 0%) - Columbia Select Mid Cap Value (CFDRX) ER: 0.92%
Available Funds: https://docs.google.com/spreadsheets/d/ ... sp=sharing
There are some excellent funds offered in the spouse 401k, you are fortunate.

In my opinion the funds to consider using in this 401k are:
1) Vanguard Institutional Index Fund (a S&P 500 index fund) (VINIX) ER 0.15%;
2) Vanguard Total International Stock Index Fund (VTIAX) ER 0.23%; and
3) Vanguard Total Bond Market Index Fund (VBTLX) ER 0.17%.



101invest wrote:Future Income:
Expect to be able to contribute $500K-1M annually for the next 10 years in our taxable account.
You.don't say so, but I assume you will make maximum annual contributions to both 401ks. You should.


101invest wrote:Questions:
1. Recommended asset allocation based on age and size of current and future portfolio
In my opinion your desired asset allocation is within the range of what is reasonable.



[quote"invest"]2. Any large benefit of opening the taxable account with Fidelity over Vanguard since one of our 401K accounts is with Fidelity?[/quote]
I usually favor having all investing accounts at one location, for simplicity and convenience.

However, I think here is a large advantage for you in having your taxable account at Vanguard. Vanguard funds are more tax-efficient, which will be important in your tax bracket with your high level of contributions.


101invest wrote:3. We like the idea of the three-fund investing concept:
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
Does this approach make sense with our expected future portfolio size? Due to high tax bracket which Bond Fund or state-specific tax-free bond fund should be used in our taxable account? Vanguard's Tax-Exempt Intermediate-Term Bond Fund (VWIUX)? Should we include a Total International Bond Index Fund as well to diversify further in Bonds? Or should we simply stick with the standard Vanguard Total Bond Market Fund (VBTLX)?
You will probably want most of your 401ks in Vanguard Total Bond Market Index Fund and Fidelity U.S. Bond Index Fund.

You might consider Vanguard Intermediate-termTax-Exempt in the taxable account.

I am not aware of a State specific tax-exempt fund for Wisconsin.


101invest wrote:4. Does it make sense to reorganize portfolio to move 401K accounts strictly to bonds or to a targeted retirement fund? OR should we hold stocks with a higher expected return in the tax-advantaged accounts? Should we keep existing funds and only move new money into the newly selected funds, or sell off existing funds to completely restructure? I don't believe there are any tax implications by selling existing funds in a 401K, please confirm.
I don't suggest using the target date funds.

There is no tax consequence to exchanging between funds inside a 401k.

In the 401k's I suggest switching both the existing both the balances and new contributions to the desired new funds in each 401k.


101invest wrote:5. We currently don't have any IRAs. I believe we would be able to do a backdoor IRA. Would it make sense to do this?
Does either 401k allow
1) non-Roth after-tax contributions,
2) and allow an in-service distributions,
3) or allow in-plan Roth conversions?

Please Google the term "mega backdoor Roth" and look for a blog post by thefinancebuff.



101invest wrote:6. What immediate action (if any) to take with the existing taxed account under active management by advisor? Leaning toward leaving it alone until we're comfortable and have had some time investing on our own. Would stop adding new funds to the managed account and put all new money toward the new taxed account (Vanguard or Fidelity). I've read some recommendations to stop the automatic reinvestment of distributions as one first step. Every year it is "managed" it is costing us $8K + higher fund expense ratios.
As you mentioned
1) stop any automatic reinvestment of dividends and gains which may have been.set up, and
2) no more new contributions from you to these investments.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

bei22000
Posts: 92
Joined: Mon Jan 30, 2017 2:58 pm

Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by bei22000 » Sat Jan 12, 2019 2:08 pm

in my opinion, .47% management fee is not too high at all unless you have other hidden costs not listed. With your investment size and incomes, there might be some more services needed in addition to balancing your portfolio each year. Your advisor may be able to provide services such as taxes management and others . Your portfolio is made up with many funds. I don’t know if that’s what you really need.

FoolMeOnce
Posts: 628
Joined: Mon Apr 24, 2017 11:16 am

Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by FoolMeOnce » Sat Jan 12, 2019 2:29 pm

You can simplify your 401k's with no tax consequences. That's a good place for your bond allocation for tax efficiency.

Your taxable account has pretty bad expenses ratios (on top of the surprisingly reasonable advisor fee). I was in a similar situation a couple of years ago, left the advisor, and have tried to simplify the holdings while limiting the capital gains consequences. I've accepted paying some taxes to simplify and get rid of the most expensive funds, but if I had your income and expected savings over the next decade, I would bite the tax bullet and get it all done at once.

EDIT: here is the advice I got for unwinding my mess of a portfolio; might be helpful: viewtopic.php?f=1&t=217463&p=3343674#p3343674
Last edited by FoolMeOnce on Sat Jan 12, 2019 3:31 pm, edited 1 time in total.

User avatar
BL
Posts: 9067
Joined: Sun Mar 01, 2009 2:28 pm

Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by BL » Sat Jan 12, 2019 2:43 pm

First get/print the basis or unrealized gains for each item in taxable. Post so you can get suggestions on how to handle it.

You might like to temporarily (1-2 years) use Vanguard PAS (0.3%/yr) to set up your account. With fund ERs of 0.04 to 0.11, total cost would be under 0.4%, compared with your cost of AUM + ER, which is lower than most advisers. That surely is a bunch of funds! Simple is good!

If you like to ask about investing, I think V is safer than other brokerages who have more of a profit motive. If you know exactly what you want, any low-cost brokerage would do.

Not sure why your adviser did not get you started on Backdoor Roth. What other services does he give besides investing?

You could put more bonds in 401k, less muni bonds in taxable. Taxable munis may yield less than taxable bonds.

retiredjg
Posts: 37153
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by retiredjg » Sat Jan 12, 2019 2:58 pm

101invest wrote:
Fri Jan 11, 2019 11:39 pm
Desired Asset Allocation: 60% stocks? / 40% bonds? (would like feedback on this subject)
This is a conservative ratio for your age. However, since you have no need for risk (because you are saving so much), it is a very appropriate number if you are comfortable there. You could even have less stock and do fine.


Desired International: 20%?
Anywhere from 0% to about 50% is recommended by someone smart. I think 20% is fine. There is no way to know what number will be "best" in the future time period that you will be investing in. Just pick something and call it good.

Portfolio Total:
59% - Taxable account <---fill this account, for now, with a total stock index and an international index. Both Fido and Vanguard have good choices

24% - 401K<---fill with the FXNAX FID US BOND IDX 0.03%

17% - Spouse 401K <--fill with VBTLX Vanguard Total Bond Mkt Index 0.17%

If you did this today, your portfolio would be almost exactly 60% stocks and 40% bonds. However, as you add those huge amounts to your taxable account each year, you will need to use a tax-exempt bond fund there. Unless this has changed, Vanguard has better choices than Fidelity. However, Fido may have some good tax-exempt bond etfs that I'm not familiar with.

1. Recommended asset allocation based on age and size of current and future portfolio
I think 60% stock and 40% bonds is fine. In reality, you could be 100% stocks or 100% bonds and not run out of money. Just pick something that you are comfortable with. If you pick 60/40, you can expect your portfolio to drop by about 25 to 30% in value during a bad downturn like the one that started in 2007. It could be less, it could be more, but 25 to 30% disappearance is almost certainly in your future at some point if you choose 60/40. Decide how you feel about watching a few million dollars just disappear for awhile.

2. Any large benefit of opening the taxable account with Fidelity over Vanguard since one of our 401K accounts is with Fidelity?
They are equally matched for stock index funds. But you are going to need tax-exempt bond funds in your taxable account and I believe that Vanguard may be the better choice. However, this could be because I don't know much about Fido's tax-exempt bond ETFs.

3. We like the idea of the three-fund investing concept:
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
Does this approach make sense with our expected future portfolio size?
It makes perfect sense until you need some bonds in taxable (which could be later this year).

Due to high tax bracket which Bond Fund or state-specific tax-free bond fund should be used in our taxable account? Vanguard's Tax-Exempt Intermediate-Term Bond Fund (VWIUX)? Should we include a Total International Bond Index Fund as well to diversify further in Bonds? Or should we simply stick with the standard Vanguard Total Bond Market Fund (VBTLX)?
The tax exempt fund is a good choice once you need bonds in the taxable account. A state fund, if one exists, would also be a good choice for maybe half the bonds in taxable. Do not put Total Bond into taxable. You will make less money and you will also pay more in taxes.

4. Does it make sense to reorganize portfolio to move 401K accounts strictly to bonds...
That is the best way to handle this in my opinion.

... or to a targeted retirement fund?
No. This would just force more bonds into taxable.

OR should we hold stocks with a higher expected return in the tax-advantaged accounts?

No. Worst idea yet.

Should we keep existing funds and only move new money into the newly selected funds, or sell off existing funds to completely restructure? I don't believe there are any tax implications by selling existing funds in a 401K, please confirm.
Get rid of all you have and use only a single bond fund in each 401k.

5. We currently don't have any IRAs. I believe we would be able to do a backdoor IRA. Would it make sense to do this?
You could but it would be useless in my opinion and a waste of your time. What's the point of having $50k in a Roth IRA after several years when you have a taxable account that is several million?

If you find your employer(s) offer after-tax contributions (not the same as Roth) to a 401k, that might be a different story. You might be able to put $30k or so into Roth each year using the "mega back door" which is not the same as the "back door".


6. What immediate action (if any) to take with the existing taxed account under active management by advisor? Leaning toward leaving it alone until we're comfortable and have had some time investing on our own. Would stop adding new funds to the managed account and put all new money toward the new taxed account (Vanguard or Fidelity). I've read some recommendations to stop the automatic reinvestment of distributions as one first step. Every year it is "managed" it is costing us $8K + higher fund expense ratios.
This is the project that is going to take your time and energy. Some of those funds need to go no matter what - they have high expense ratios and/or are not tax-efficient. Others could stay as part of your stock allocation.

Low hanging fruit

- sell anything that is at a loss and replace with total stock and/or total international

-every time the market dips, look for new opportunities to sell at a loss

-turn off reinvestment of dividends

-about the rest, decide if you want to do this over time or tear off the band-aid or some combination (considering that your long term gains will be taxed at a high rate until you stop working, I'd just dump it all and pay the tax. In fact, I'd have the advisor dump it all so you don't have to worry about it. Peace of mind is worth this.

Stocks - 29.72%: 24 individual stocks (Apple, Facebook, Johnson and Johnson, Kraft, Walgreens, Walmart, etc)
These can be kept if you don't buy more. Eventually, this will drop to less than 10% of your portfolio and that's OK.


3.01% - American Funds Capital Income Builder Cl F-2 (CAIFX) ER: 0.41%
3.82% - American Funds Global Balanced F-2 (GBLFX) ER: 0.64%
2.52% - American Funds New World Cl F-2 (NFFFX) ER: 0.72%
2.31% - American Funds Small-Cap World Cl F-2 (SMCFX) ER: 0.79%
3.03% - Dodge & Cox Global Stock Fund (DODWX) ER: 0.63%
2.4% - Fidelity Advisor Health Care Fund I Cl (FHCIX) ER: 0.79%
3.58% - First Eagle Global Fund Cl I (SGIIX) ER: 0.84%
2.58% - First Eagle Overseas Fund Cl I (SGOIX) ER: 0.87%
5.85% - Franklin Growth Fund Advisor Cl (FCGAX) ER: 0.62%
0.98% - JPMorgan Mid-Cap Value Fund Cl L (FLMVX) ER: 0.75%
2.14% - Lazard Global Listed Infrastructure Portfolio Institutional Shares (GLIFX) ER: 0.96%
0.43% - Oppenheimer Developing Markets Fund Cl I (ODVIX) ER: 0.87%
2.89% - T. Rowe Price Capital Appreciation Fund (PRWCX) ER: 0.71%
2.59% - T. Rowe Price Dividend Growth Fund (PRDGX) ER: 0.64%
4.71% - T. Rowe Price New Horizons Fund (PRNHX) ER: 0.78%
5.53% - T. Rowe Price Tax-Efficient Equity Fund (PREFX) ER: 0.78%
1.97% - Fidelity Advisor Limited Term Municipal Income Fund - Institutional Cl (FISHX) ER: 0.54%
ETF - 1.61% - ETF: Vaneck Vectors Morningstar Wide Moat ETF (MOAT) ER: 0.48%
At some point in the not too distant future, get rid of all these. Their expense ratios are high and/or they are actively managed. Actively managed funds are a poor choice in a taxable account because they cause you to pay unnecessary taxes each year on dividends and capital gains distributions.

5.23% - Vanguard Dividend Growth Fund Investor Shares (VDIGX) ER: 0.26%
I'd probably dump this one, but not sure.

3.74% - Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) ER: 0.09%
5.68% - Vanguard Tax-Managed Capital Appreciation Fund Cl Administrative (VTCLX) ER: 0.09%
1.84% - Vanguard Tax-Managed Small-Cap Fund Institutional Shares (VTSIX) ER: 0.06%
These can be kept if you want. At some point they will become little nuisances. Dump them then if you want.

Topic Author
101invest
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by 101invest » Sat Jan 12, 2019 6:44 pm

Thanks everyone for all of the valuable feedback, much appreciated! I added the unrealized capital gain for each fund for the taxable account to the original post as requested.

To summarize the feedback we've received so far I believe this is where we're at:

1. Open a new taxable account with Vanguard. Vanguard funds are more tax-efficient, which will be important in our tax bracket with our expected high level of future contributions.

2. Add new money to the following funds in our taxable Vanguard account:
a. Vanguard Total Stock Market Index Fund (VTSAX)
b. Vanguard Total International Stock Index Fund (VTIAX)

3. Add a tax-exempt bond as the account grows to maintain our desired allocation (60% stocks and 40% bonds):
a. Vanguard Tax-Exempt Intermediate-Term Bond Fund (VWIUX)
Question - is this the best tax exempt fund for our situation in our taxable account? Some have suggested municipal bonds.

4. Exchange current 401K funds with the following:
a. Fidelity U.S. Bond Index Fund (FXNAX) ER: 0.03%
b. Vanguard Total Bond Market Index Fund (VBTLX) ER: 0.17% (Spouse 401K)

5. I believe the consensus is to not waste time and effort at this point with the backdoor IRA. I will investigate if either 401K account offers non-Roth after-tax contributions to take advantage of the "mega backdoor Roth". I'm pretty sure neither 401K plan offers but will confirm.

6. Taxable account under management fee. I added the unrealized capital gain amount and percentage for each fund to the original post and looking for more feedback on best approach. So far I have the following feedback:
a. do not add any new contributions
b. terminate any automatic reinvestment of dividends and gains
c. sell anything that is at a loss and replace with total stock and/or total international
d. every time the market dips, look for new opportunities to sell at a loss
Question - It sounds possible to simply transfer the managed assets from the broker to our new taxable account at Vanguard. What are your thoughts on this approach?
Question - Should the stocks be transferred to the new account at Vanguard and just hold for the future? Currently stocks is 18% of our total portfolio and will continue to be a lower total percentage as the account grows.

mkrizzz83
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by mkrizzz83 » Sun Jan 13, 2019 12:54 am

Being in a similar situation with having an advisor and a Norwestern mutual account with many different funds and individual equities, I’d also like to know if these can just be transferred directly to my vanguard account without having to liquidate. I’d like to get my funds out of the managed account ASAP and then slowly simplify by selling the funds with losses and buying indexed mutual funds.

M

shess
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by shess » Sun Jan 13, 2019 3:37 am

101invest wrote:
Fri Jan 11, 2019 11:39 pm
We've recently been fortunate to be referred to the Bogleheads site by a friend. For the past 10 years we've relied on a financial planner to take care of our investments with a fee structure based on total assets managed.
While your AUM fee is certainly not preferred, I don't find it offensive. What I find appalling is that your asset manager apparently has never seen a fund they didn't think you needed to be in! I think the best case is that they simply don't know what they're doing, but the worst case is that they're intentionally doing it to manage _you_.

To position myself before commenting, I'm in my late 40's (for a few more months), with numbers comfortably above those you give, but living in a much more expensive area of the country (so you might have the advantage of me in the end). My path to our current 3(-ish) fund portfolio was that I spent a lot of time trying to work my portfolio with complications, but for over a decade, now, I've switched to striving for simplicity, and I find that I really like it. Before, I had a complicated portfolio and couldn't tell if I was beating the market, and now I have a simple portfolio and don't care about beating the market, and it's a great improvement.

The main thing I find compelling about the simple portfolio is that at any given time, I pretty much can figure out what needs to happen without consulting "experts" or spending a weekend running numbers. I still have to figure out _where_ to put things (taxable, traditional IRA/401k, Roth versions), but _what_ I'm putting in there is pretty easy. When I was working, new cash in the 401k and re-invested dividends MORE than sufficed to keep things balanced without having to do much in the way of explicit rebalancing (basically, I'd just figure it out in November, and tweak my 401k settings appropriately, and that was usually enough).

With stock/bond and domestic/international, the important thing to realize is that the main magic of asset allocation is in having substantive allocations to varying assets, with diminishing returns as you get closer and closer to the optimal split. You'll hear all sorts of rules-of-thumb, but the fact of the matter is that you really can't know ahead of time. After many years of contemplating this and trying to crack the code, I finally realized that the real lesson is that it mostly doesn't matter. If 60/40 was optimal, 70/30 and 50/50 would probably be more-or-less fine, too. If you ran 10,000 simulations comparing an optimal 60/40 to a sub-optimal 70/30, you'd not find 10,000 cases where 70/30 did worse, you'd find more like 3000 cases where it did worse, 2000 cases where it did better, and 5000 cases where it was hard to tell. The most important thing is getting close, but once you're in the right ballpark, the rewards for getting closer and closer to perfection are incremental.

My allocation is 75/25 stock/bond, and 50/50 domestic/intl on the stock side. The bond side is about 50/50 inflation-protected versus regular bonds, all intermediate-term, mostly US Treasury securities (I live in California, so I also have some CA munis, and I also have some iBonds from back when you could buy a reasonable amount per year). I am quite comfortable with this allocation, even though international has been pretty flat this past decade. I would be quite comfortable up to 70/30 domestic/intl, and down to 65/35 stock/bond.

One thing to keep in mind when figuring out asset allocation is that your current aggregate numbers are pretty substantial, and you're still young. You could get more aggressive, because you can afford more losses than someone with less. OR, you could get conservative, because you're already getting into a size of portfolio you could retire on, if you manage it well. Personally, I'd suggest middle-of-the-road, until you get comfortable with what you're doing. I'd hate to be aggressive for good reasons but take a big loss because of a procedural mistake or something.
101invest wrote:
Fri Jan 11, 2019 11:39 pm
Future Income:
Expect to be able to contribute $500K-1M annually for the next 10 years in our taxable account. Will continue to contribute the maximum amount to both 401K accounts moving forward.
Bravo! On the one hand, this means the tax cost of taking capital gains to restructure your portfolio will be high. On the other hand, it means you can afford it. 2008 handed me the ability to restructure and book a ton of losses, so fortunately I didn't have to decide. Given your portfolio, I'd probably start by trimming some of the smaller items just to get them out of my hair, and hope for the best with the bigger items.
101invest wrote:
Fri Jan 11, 2019 11:39 pm
2. Any large benefit of opening the taxable account with Fidelity over Vanguard since one of our 401K accounts is with Fidelity?
I have my various accounts at Vanguard, and like only having to deal with one company. Since your 401k accounts are anchored with Fidelity, I'd have no real qualms going with them for this. On the other hand, even at Vanguard the 401k feels like a different sub-site entirely, so I don't think it would be a big loss to have taxable at a distinct location.

You indicate an interest in Vanguard funds - you might want to check whether you'll have transaction fees to buy them wherever else you are. That's part of why I shifted my brokerage account to Vanguard in the first place, because it was cheaper to pay their slightly higher commissions on stock trades than it was to pay the mutual-fund commissions my brokerage of the time wanted to charge me.
101invest wrote:
Fri Jan 11, 2019 11:39 pm
3. We like the idea of the three-fund investing concept:
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
Does this approach make sense with our expected future portfolio size? Due to high tax bracket which Bond Fund or state-specific tax-free bond fund should be used in our taxable account? Vanguard's Tax-Exempt Intermediate-Term Bond Fund (VWIUX)? Should we include a Total International Bond Index Fund as well to diversify further in Bonds? Or should we simply stick with the standard Vanguard Total Bond Market Fund (VBTLX)?
IMHO, just stick with total-bond-market in a tax-advantaged account. IMHO, international bonds are of dubious value, I'd prefer to make international bets in equities. Many will argue against state-specific muni funds, and I question our position every quarter or so.
101invest wrote:
Fri Jan 11, 2019 11:39 pm
4. Does it make sense to reorganize portfolio to move 401K accounts strictly to bonds or to a targeted retirement fund? OR should we hold stocks with a higher expected return in the tax-advantaged accounts? Should we keep existing funds and only move new money into the newly selected funds, or sell off existing funds to completely restructure? I don't believe there are any tax implications by selling existing funds in a 401K, please confirm.
In the 401k, you can just flip everything over and rebuild it like you want it. Sometimes there are in-and-out restrictions, like you can't repurchase a fund you sold recently. There's a wiki page about fund placement:
https://www.bogleheads.org/wiki/Tax-eff ... _placement
101invest wrote:
Fri Jan 11, 2019 11:39 pm
5. We currently don't have any IRAs. I believe we would be able to do a backdoor IRA. Would it make sense to do this?
IMHO, yes, having a backdoor Roth IRA makes sense. You don't have to pay taxes on earnings, which is always a win.
101invest wrote:
Fri Jan 11, 2019 11:39 pm
6. What immediate action (if any) to take with the existing taxed account under active management by advisor? Leaning toward leaving it alone until we're comfortable and have had some time investing on our own. Would stop adding new funds to the managed account and put all new money toward the new taxed account (Vanguard or Fidelity). I've read some recommendations to stop the automatic reinvestment of distributions as one first step. Every year it is "managed" it is costing us $8K + higher fund expense ratios.
IMHO, this is a good idea for a start. Stop the bleeding, and start to get experience elsewhere. Siphon off dividends to buff your new taxable account, add new funds, etc, give yourself something to work with. Then you can maybe trim off some of the lowest-gain items and losers and move their proceeds over, etc.

That said, personally I try not to let taxes drive my decisions TOO much. What I often find with cleanup projects like this is that, at first, I'm very reluctant to disrupt things, but as I get more comfortable, I decide that what I'm saving in taxes (or whatever) is just not worth the annoyance of looking at the mess :-).

Note that you probably can do an in-kind transfer of most of these, and you certainly can on the stocks.

retiredjg
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by retiredjg » Sun Jan 13, 2019 8:14 am

101invest wrote:
Sat Jan 12, 2019 6:44 pm
3. Add a tax-exempt bond as the account grows to maintain our desired allocation (60% stocks and 40% bonds):
a. Vanguard Tax-Exempt Intermediate-Term Bond Fund (VWIUX)
Question - is this the best tax exempt fund for our situation in our taxable account? Some have suggested municipal bonds.
When people say "municipal bonds", they generally mean a tax-exempt municipal bond fund. The fund you have listed is the usual default if you choose to go with Vanguard. I believe that Fidelity carries "MUB" which is an iShares municipal bond ETF which should be pretty similar.


Question - It sounds possible to simply transfer the managed assets from the broker to our new taxable account at Vanguard. What are your thoughts on this approach?
You probably should find out what it will cost to sell these where they are vs at Vanguard. Since you are transferring significant dollar amounts, Vanguard may give you some free trades.

I would also consider just liquidating it and paying your taxes. Yes, I realize the tax rate will be high (20% + 3.8% + 7.65 and maybe more if AMT enters into the question), but considering the amount of your income I would think the relief of just being done with it would make it worth it.

Question - Should the stocks be transferred to the new account at Vanguard and just hold for the future? Currently stocks is 18% of our total portfolio and will continue to be a lower total percentage as the account grows.
I think that should be fine. You can count them as part of your US stock allocation.

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ruralavalon
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by ruralavalon » Sun Jan 13, 2019 9:37 am

I agree with retiredjg's post.

As mentioned before you could consider keeping the three Vanguard tax-managed funds.

If you donate to charity, then you could consider donating appreciated shares of some of the other funds instead of donating cash. Please see the wiki article "Donating Appreciated Securities".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

retiredjg
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by retiredjg » Sun Jan 13, 2019 10:20 am

ruralavalon wrote:
Sun Jan 13, 2019 9:37 am
If you donate to charity, then you could consider donating appreciated shares of some of the other funds instead of donating cash. Please see the wiki article "Donating Appreciated Securities".
This suggestion should re re-emphasized. If you are a charitable donor, instead of sending a check you can donate shares of mutual funds or stocks. You get rid of them and pay no taxes and get a tax deduction (if large enough). Win win.

This can be done directly with many charities. Or you can use a "donor advised fund".

shess
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by shess » Sun Jan 13, 2019 11:35 am

retiredjg wrote:
Sun Jan 13, 2019 10:20 am
ruralavalon wrote:
Sun Jan 13, 2019 9:37 am
If you donate to charity, then you could consider donating appreciated shares of some of the other funds instead of donating cash. Please see the wiki article "Donating Appreciated Securities".
This suggestion should re re-emphasized. If you are a charitable donor, instead of sending a check you can donate shares of mutual funds or stocks. You get rid of them and pay no taxes and get a tax deduction (if large enough). Win win.

This can be done directly with many charities. Or you can use a "donor advised fund".
A donor-advised fund (DAF) is a great idea, because it lets you make a large charitable deduction now, and then pass it on to charities over a few years. A common way to do this might be something like giving $250,000 worth of long-term-gain assets to the DAF, and then selling assets with ~$250k worth of gains (this would generally be far more than $250k worth of assets). The deduction from the donation approximately nets out against the costs of the gains.

The main consideration is that you deduct the entire value for gifted assets with long-term gains, but only the cost basis for assets with short-term gains. The effect of this is that you generally want to gift the assets with the highest possible ratio of embedded long-term gains. That way you maximize the amount of unrealized gains shuffled directly out of your portfolio, _and_ the resulting deduction covers realized gains on the positions you're left with.

Of course, the gifted money is no longer _your_ money, you are required to further grant it to charities. I have found that to be reasonable. I'm nervous about giving these kinds of numbers away directly, but when I consider my likely giving over a ten-year timeframe, it seems pretty reasonable.

If this does seem like an attractive direction to go, I encourage you to consult a knowledgeable tax person, or at least use a tax package to run the numbers with and without the contribution. In the older tax climate, I found that any gifts had positive effects on my taxes pretty immediately because of high state and local taxes, whereas under the current tax bill there's a big gap before the effect kicks in. Also, there are various deductibility limitations to consider.

retiredjg
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by retiredjg » Sun Jan 13, 2019 12:31 pm

shess wrote:
Sun Jan 13, 2019 11:35 am
...whereas under the current tax bill there's a big gap before the effect kicks in. Also, there are various deductibility limitations to consider.
Is there a gap other than the increased standard deduction?

Topic Author
101invest
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by 101invest » Sun Jan 13, 2019 7:00 pm

Thanks again everyone for all of the valuable feedback!

Does anyone have any further feedback after seeing the unrealized capital gain/loss for each fund contained within the AUM taxable account?

Prior to including the unrealized capital gain/loss information I received the following feedback from "retiredjg":

Dump due to high ER and/or actively managed:
3.01% - American Funds Capital Income Builder Cl F-2 (CAIFX) ER: 0.41% Unrealized CG: $2099.04 / 4.66%
3.82% - American Funds Global Balanced F-2 (GBLFX) ER: 0.64% Unrealized CG: $1309.63 / 2.22%
2.52% - American Funds New World Cl F-2 (NFFFX) ER: 0.72% Unrealized CG: $4940.83 / 14.11%
2.31% - American Funds Small-Cap World Cl F-2 (SMCFX) ER: 0.79% Unrealized CG: $15411.82 / 70.75%
3.03% - Dodge & Cox Global Stock Fund (DODWX) ER: 0.63% Unrealized CG: $8228.97 / 20.73%
2.4% - Fidelity Advisor Health Care Fund I Cl (FHCIX) ER: 0.79% Unrealized CG: $10276.62 / 35.96%
3.58% - First Eagle Global Fund Cl I (SGIIX) ER: 0.84% Unrealized CG: $1465.93 / 2.66%
2.58% - First Eagle Overseas Fund Cl I (SGOIX) ER: 0.87% Unrealized CG: $10290.17 / 34.10%
5.85% - Franklin Growth Fund Advisor Cl (FCGAX) ER: 0.62% Unrealized CG: $56644.51 / 153.56%
0.98% - JPMorgan Mid-Cap Value Fund Cl L (FLMVX) ER: 0.75% Unrealized CG: $681.11 / 4.53%
2.14% - Lazard Global Listed Infrastructure Portfolio Institutional Shares (GLIFX) ER: 0.96% Unrealized CG: $3310.45 / 11.02%
0.43% - Oppenheimer Developing Markets Fund Cl I (ODVIX) ER: 0.87% Unrealized CG: -$573.45 / -7.62%
2.89% - T. Rowe Price Capital Appreciation Fund (PRWCX) ER: 0.71% Unrealized CG: $3362.47 / 7.91%
2.59% - T. Rowe Price Dividend Growth Fund (PRDGX) ER: 0.64% Unrealized CG: $8133.00 / 24.75%
4.71% - T. Rowe Price New Horizons Fund (PRNHX) ER: 0.78% Unrealized CG: $48555.35 / 178.24%
5.53% - T. Rowe Price Tax-Efficient Equity Fund (PREFX) ER: 0.78% Unrealized CG: $45849.53 / 106.52%
1.97% - Fidelity Advisor Limited Term Municipal Income Fund - Institutional Cl (FISHX) ER: 0.54% Unrealized CG: $458.94 / 1.52%
ETF - 1.61% - ETF: Vaneck Vectors Morningstar Wide Moat ETF (MOAT) ER: 0.48% Unrealized CG: $2020.43 / 8.51%

Consider Keeping:
5.23% - Vanguard Dividend Growth Fund Investor Shares (VDIGX) ER: 0.26% Unrealized CG: $37360.34 / 82.91%

Probably Keep:
3.74% - Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) ER: 0.09% Unrealized CG: $965.13 / 1.67%
5.68% - Vanguard Tax-Managed Capital Appreciation Fund Cl Administrative (VTCLX) ER: 0.09% Unrealized CG: $26317.67 / 41.18%
1.84% - Vanguard Tax-Managed Small-Cap Fund Institutional Shares (VTSIX) ER: 0.06% Unrealized CG: $2168.45 / 7.86%

Let me know if this still holds true after seeing the unrealized gains and if there are certain funds that make sense to dump immediately. We're not in a huge rush to make drastic changes to the managed account unless it makes sense to do so at this time. Would like to get the Vanguard account setup and some money invested to make sure we're comfortable with the overall process. If we're able to immediately transfer the stocks to our new taxable Vanguard account this would reduce the total assets manged by 18% and would immediately save us ~$1500 a year in management fees.

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BL
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by BL » Sun Jan 13, 2019 8:08 pm

You have received good advice.

Perhaps you would like to list them in order of low to high $ gains to help in deciding which to dump first. Selling the low gains means you could get rid of more of them for the tax cost you accept and thus reduce the number of funds faster. For instance, if you are willing to pay tax on 20k CG, that would cut down the number of funds quite a lot if you sell just the gainers with lower gains. (If you do charitable contributions, a Donor Fund might off-set quite a bit more high-gain funds, assuming you itemize.)

You might look at online or paper dividend/capital gains distributions for 2018 (that will end up in a 1099-div and on your 1040 taxes). The funds that distribute a high % of these are not tax-friendly, so you might prioritize getting rid of some of them. They could also probably be looked up on Morningstar or the fund company if you don't find them handily. With that many funds it might take a while to do, but is worthwhile. It would also demonstrate why it is best to buy tax-efficient funds such as Total Stock Market/Total International Stock market.
https://www.bogleheads.org/wiki/Tax-eff ... _placement
(The Vanguard ones have not been distributing any CGs and around 2% dividends, most of which are qualified and taxed at CG rates.) You will see your totals when you get your 1099-Div.

If you set your 401ks to bonds, that will simplify a lot.

I don't know about the actual cost of selling. Some might say transfer to a brokerage that gives free sales but I am not sure the complication is worth it. You would have to ask V and your current brokerage what the cost would be, so you can decide what to do.

retiredjg
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by retiredjg » Sun Jan 13, 2019 8:35 pm

Just to be clear....my list of "dump these" did not mean you have to get rid of them this week. They are funds that you should not want in your portfolio long term, particularly in your taxable account.

Why not? Either the expense ratio is higher than you should pay or the fund is not "tax-efficient". Or both." Not tax-efficient" means that a fund causes you to pay unnecessary taxes each year. This causes a "tax drag" on your taxable account.

You can take your time getting rid of this stuff if you want. I just don't see the point. It might save you a few bucks along the way, but with your income the few bucks does not seem worth the hassle. But that is only my opinion.

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nedsaid
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by nedsaid » Sun Jan 13, 2019 8:45 pm

bei22000 wrote:
Sat Jan 12, 2019 2:08 pm
in my opinion, .47% management fee is not too high at all unless you have other hidden costs not listed. With your investment size and incomes, there might be some more services needed in addition to balancing your portfolio each year. Your advisor may be able to provide services such as taxes management and others . Your portfolio is made up with many funds. I don’t know if that’s what you really need.
That was my reaction too. The advisory fee was pretty low at about 0.50%. If the advisor had put you in low cost ETFs and index funds, I would probably tell the original poster to consider keeping the advisor. He recommended active mutual funds, which aren't very tax efficient, for a taxable account and that was disappointing. But he didn't commit horrible investing sins either. It seemed like a standard selection of better known mutual funds with good reputations. Can't go too far wrong with T Rowe Price or American Funds. My rough guess is that all-in costs were about 1.2% a year or maybe a bit less. Not bad. A lot of Bogleheads wouldn't like the individual stocks.

Can't say too much as this isn't unlike what I have done with my own portfolio. But I don't pay Assets Under Management fees to an advisor and my expense ratio is less that 0.45% for my portfolio. I have active funds, index funds, and ETFs in my own portfolio. What he did was probably too complex by Boglehead standards but not a disaster either.

Another critique is that your portfolio is very stock heavy even for folks in their early 40's. A recommended allocation might be 70% stocks or as high as 80% stocks but it appears you are over 90% equities. Too much. You need to be in the process of de-risking the portfolio.
A fool and his money are good for business.

shess
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by shess » Sun Jan 13, 2019 9:44 pm

retiredjg wrote:
Sun Jan 13, 2019 12:31 pm
shess wrote:
Sun Jan 13, 2019 11:35 am
...whereas under the current tax bill there's a big gap before the effect kicks in. Also, there are various deductibility limitations to consider.
Is there a gap other than the increased standard deduction?
Running numbers against TurboTax, I think that's mostly what's hitting me on Federal. There's no savings for awhile, then each incremental dollar appears to reduce taxes appropriate to bracket, then it drops off again (probably pulled me down a bracket). "Unfortunately", since I'm currently retired, my deduction gets capped relatively early, so the proportion of dollars which wouldn't get much benefit is higher than it would have been when I had a solid income to raise the cap on what I could deduct. So I decided to wait on making more contributions to my DAF until taxes change again, or until I have a big year of income (something I'm working to avoid due to kids-in-college considerations). My state taxes of course gave different results, California marginal-rate savings kick in pretty much immediately if I made DAF contributions.

In any case, if one had the income to support making a $250k contribution to a DAF, this would be pretty immaterial. But for a $50k contribution, it maybe is relevant, and for a $20k contribution it's almost certainly relevant, especially if you're in a low-tax state in the first place. At that end of things, you maybe would want to batch things across years to maximize benefit once you get past the standard deduction.

Topic Author
101invest
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by 101invest » Sun Jan 13, 2019 10:33 pm

BL and retiredjg - Your feedback makes sense. Sounds like we're going to have to do some work to find the best way to unravel the mess our advisor created for us. :( We'll look into the dividend/capital gains distributions on our 2018 1099-div when available. But as you suggest might be best just to dump everything at once and be done with it. Although still thinking transferring the stocks and the Vanguard funds makes sense to have less tax consequences.

nedsaid - we're aware our current portfolio is very heavy on stocks. It was setup in this manner per our discretion since we were unwilling to pay the advisor fee on money invested in a low return investments (bonds). Instead we held our "bond" portion of our portfolio in personal money markets, bank accounts, CDs, etc. I believe we can quickly rectify the situation by immediately setting our 401K accounts to bonds. This should provide the 60/40 split we're comfortable with.

DA200
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by DA200 » Sun Jan 13, 2019 11:24 pm

I have had to unwind a taxable portfolio with similar messes.
For your situation (high income/high tax brackets) for the forseeable future, I would first sell any holding, except Vanguard funds, with $10K or less of unrealized capital gains (for simplification/reduction of number of funds without major tax consequences).
Then I would study the remaining funds and determine which of these generate high capital gain distributions.
Any funds generating high capital gain distributions should be sold next.
I should also state that if you are inclined to donate to any causes, you should first start with donating funds with the highest % unrealized capital gains. Then you can follow the order to unwind listed above.
It took me around 4 years to unwind a mess of 40 high cost funds down to only 3 funds that I didn't want. This was much easier to manage, calculate asset allocation, and rebalance, as compared to a 40 fund portfolio. You can do the same.

Roth IRA - do the backdoor and start the process now. You can do both 2018 and 2019 backdoor roths now (2x$5.5K + 2x$6K =$23K). Setting up traditional ira and roth ira account at Vanguard takes 5 minutes online.
Last edited by DA200 on Mon Jan 14, 2019 8:31 am, edited 1 time in total.

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nedsaid
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by nedsaid » Mon Jan 14, 2019 12:25 am

101invest wrote:
Sun Jan 13, 2019 10:33 pm
BL and retiredjg - Your feedback makes sense. Sounds like we're going to have to do some work to find the best way to unravel the mess our advisor created for us. :( We'll look into the dividend/capital gains distributions on our 2018 1099-div when available. But as you suggest might be best just to dump everything at once and be done with it. Although still thinking transferring the stocks and the Vanguard funds makes sense to have less tax consequences.

nedsaid - we're aware our current portfolio is very heavy on stocks. It was setup in this manner per our discretion since we were unwilling to pay the advisor fee on money invested in a low return investments (bonds). Instead we held our "bond" portion of our portfolio in personal money markets, bank accounts, CDs, etc. I believe we can quickly rectify the situation by immediately setting our 401K accounts to bonds. This should provide the 60/40 split we're comfortable with.
Very interesting point. By golly you are right, why pay an Assets Under Management fee on assets with low returns? You made a very logical choice by holding your "safe" assets outside of your AUM arrangement. That is using the old noggin.
A fool and his money are good for business.

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BL
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by BL » Mon Jan 14, 2019 2:07 am

DA200 wrote:
Sun Jan 13, 2019 11:24 pm
I have had to unwind a taxable portfolio with similar messes.
For your situation (high income/high tax brackets) for the forseeable future, I would first sell any holding, except Vanguard funds, with $10K or less of unrealized capital gains (for simplification/reduction of number of funds without major tax consequences).
Then I would study the remaining funds and determine which of these generate high capital gain distributions.
Any funds generating high capital gain distributions should be sold next.
I should also state that if you are inclined to donate to any causes, you should first start with donating funds with the highest % unrealized capital gains. Then you can follow the order to unwind listed above.
It took me around 4 years to unwind a mess of 40 high cost funds down to only 3 funds that I didn't want. This was much easier to manage, calculate asset allocation, and rebalance, as compared to a 40 fund portfolio. You can do the same.

Roth IRA - do the backdoor and start the process now. You can do both 2018 and 2019 backdoor roths now (2x2x$6K=$24K). Setting up traditional ira and roth ira account at Vanguard takes 5 minutes online.
+1
You could also look at getting rid of high-ER funds. This gives you 3 lists of things to sell:
1. low gains
2. high taxable distributions
3. high ERs
If all 3 are true in the same fund, SELL!

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101invest
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by 101invest » Mon Jan 14, 2019 12:28 pm

I checked into the option of after-tax contributions to take advantage of the "mega backdoor Roth" and was told it wasn't offered by our 401K plan since it would more than likely fail ACP testing due to only highly compensated employees participating. Assuming this is why it's not a common option and only available with large companies where there is a larger pool of people to participate to help pass the annual ACP testing.

So sounds like the only option available to us is the backdoor Roth IRA. Sill not sure it's worth the hassle since we can only contribute $11K per year and will probably be <1% of our total portfolio in the end.

retiredjg
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by retiredjg » Mon Jan 14, 2019 1:09 pm

Obviously, people have different opinions. Here's a suggestion that supports my opinion that this may be more trouble for you than it is worth.

If you use the google box in the upper right corner, you can search for previous threads on any subject. Search for things like backdoor messed up or help with back door or especially CP2000 and you will see the various ways that people have messed this up. You will also see how the IRS messed up in 2016 resulting in a lot of inquiries this last spring/summer of 2018.

Roth IRA will be a piddlin portion of your assets and the size of your taxable account will mean that a tiny Roth IRA will offer you essentially no benefits. I just don't see the point in your risking the nuisances that occasionally accompany this process.

On the other side of the argument, with your income it is likely that you pay someone to do your taxes. If that person knows what a back door is and knows the pitfalls and how to handle them, and won't charge you too much to fix things if things go sideways....there really is no harm in doing it. :happy

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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by niceguy7376 » Mon Jan 14, 2019 1:47 pm

retiredjg wrote:
Mon Jan 14, 2019 1:09 pm
Obviously, people have different opinions. Here's a suggestion that supports my opinion that this may be more trouble for you than it is worth.
In this case where they can contribute 500K to 1M every year, i totally agree on the risk of added complexity compared to the amount invested.
OP can spend more time cleaning up that taxable first.

megabad
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by megabad » Mon Jan 14, 2019 1:50 pm

101invest wrote:
Sun Jan 13, 2019 7:00 pm
Thanks again everyone for all of the valuable feedback!

Does anyone have any further feedback after seeing the unrealized capital gain/loss for each fund contained within the AUM taxable account?
Donate to DAF as suggested above if you are charitably inclined at all or if you ever will be in the future (now is the time, you can give to the actual end user charity later if you so choose). Otherwise I would try to stay at 15% LTCG federal rate and sell a little each year, but then you still have to pay state taxes. I am not keen on tripping up into 25%+ tax rate on capital gains, but you still come out way ahead by selling anyway (since you will save on advisor fees and ERs).

Side note, agree with posts about the insignificance of backdoor Roth for you. However, I take every dime of tax savings I can personally (I do my own taxes and always will). I do not find backdoor Roth all that complicated. Probably not economical with my time, but that is just the type of person I am (depression era mentality). I also pick up pennies off the ground if I spot them if that gives you an idea of my overdiligence. To each his or her own I guess.

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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by shess » Mon Jan 14, 2019 1:59 pm

101invest wrote:
Mon Jan 14, 2019 12:28 pm
So sounds like the only option available to us is the backdoor Roth IRA. Sill not sure it's worth the hassle since we can only contribute $11K per year and will probably be <1% of our total portfolio in the end.
My general approach to weighing the value of options is to consider both percentage-wise and absolute. So if something adds some percentage-wise gain for a reasonably fixed cost, such as cleaning up an expensive account setup, I'll go for that. Percentage-wise, Roth IRA isn't going to do much for you.

On the absolute side, I'll run the numbers to make sure it's a reasonable outcome in terms of absolute value. So while saving $1000 on something isn't going to rock my boat on a percentage basis, I'm certainly willing to put a bit of time into it simply because $1000 moves the needle on an absolute basis.

I guess where I'm going with this is that if you have zero dollars in traditional IRA accounts, then backdoor Roth IRA is pretty reasonable. You make your non-deductible contribution to an IRA, invested in a money-market fund, then a few days later you request a Roth conversion, then you're done. With Vanguard it takes me like 15 minutes, maybe? And it builds up to a reasonable amount over time.

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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by bltn » Mon Jan 14, 2019 2:45 pm

101invest wrote:
Fri Jan 11, 2019 11:39 pm
We've recently been fortunate to be referred to the Bogleheads site by a friend. For the past 10 years we've relied on a financial planner to take care of our investments with a fee structure based on total assets managed. Through the process of being educated by the Boglehead website we've quickly learned we need to become educated and take charge of our investment portfolio. We were really intrigued by the simplicity of the Three-Fund portfolio concept and rushed out to purchased T. Larimore's new book. Our current investment portfolio includes tax-advantaged accounts (401K) and a single taxable account. We're hoping we can rely on the Boglehead community to help us through this transition.

Background:
Age: Early/Mid 40s
State of Residence: WI
Filing Status: Married Filing Jointly
Tax Rate: 35% Federal, 7.65% State
Emergency fund: Yes
Debt: None
Desired Asset Allocation: 60% stocks? / 40% bonds? (would like feedback on this subject)
Desired International: 20%?

Portfolio Total:
59% - Taxable account
24% - 401K
17% - Spouse 401K

Taxable Account (Value >$1M) - Management Fee 0.475% - Broker: Commonwealth Financial Network
65.08% - Domestic Equity
17.06% - Balanced
14.82% - International Equity
1.97% - Fixed Income
1.07% - Cash and Equivalents

Holdings:
Stocks - 29.72%: 24 individual stocks (Apple, Facebook, Johnson and Johnson, Kraft, Walgreens, Walmart, etc)
Unrealized CG range from: -$2021.86 / -26.55% --> 24550.34 / 297.63%
Mutal Funds - 66.70%:
3.01% - American Funds Capital Income Builder Cl F-2 (CAIFX) ER: 0.41% Unrealized CG: $2099.04 / 4.66%
3.82% - American Funds Global Balanced F-2 (GBLFX) ER: 0.64% Unrealized CG: $1309.63 / 2.22%
2.52% - American Funds New World Cl F-2 (NFFFX) ER: 0.72% Unrealized CG: $4940.83 / 14.11%
2.31% - American Funds Small-Cap World Cl F-2 (SMCFX) ER: 0.79% Unrealized CG: $15411.82 / 70.75%
3.03% - Dodge & Cox Global Stock Fund (DODWX) ER: 0.63% Unrealized CG: $8228.97 / 20.73%
2.4% - Fidelity Advisor Health Care Fund I Cl (FHCIX) ER: 0.79% Unrealized CG: $10276.62 / 35.96%
3.58% - First Eagle Global Fund Cl I (SGIIX) ER: 0.84% Unrealized CG: $1465.93 / 2.66%
2.58% - First Eagle Overseas Fund Cl I (SGOIX) ER: 0.87% Unrealized CG: $10290.17 / 34.10%
5.85% - Franklin Growth Fund Advisor Cl (FCGAX) ER: 0.62% Unrealized CG: $56644.51 / 153.56%
0.98% - JPMorgan Mid-Cap Value Fund Cl L (FLMVX) ER: 0.75% Unrealized CG: $681.11 / 4.53%
2.14% - Lazard Global Listed Infrastructure Portfolio Institutional Shares (GLIFX) ER: 0.96% Unrealized CG: $3310.45 / 11.02%
0.43% - Oppenheimer Developing Markets Fund Cl I (ODVIX) ER: 0.87% Unrealized CG: -$573.45 / -7.62%
2.89% - T. Rowe Price Capital Appreciation Fund (PRWCX) ER: 0.71% Unrealized CG: $3362.47 / 7.91%
2.59% - T. Rowe Price Dividend Growth Fund (PRDGX) ER: 0.64% Unrealized CG: $8133.00 / 24.75%
4.71% - T. Rowe Price New Horizons Fund (PRNHX) ER: 0.78% Unrealized CG: $48555.35 / 178.24%
5.53% - T. Rowe Price Tax-Efficient Equity Fund (PREFX) ER: 0.78% Unrealized CG: $45849.53 / 106.52%
5.23% - Vanguard Dividend Growth Fund Investor Shares (VDIGX) ER: 0.26% Unrealized CG: $37360.34 / 82.91%
3.74% - Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) ER: 0.09% Unrealized CG: $965.13 / 1.67%
5.68% - Vanguard Tax-Managed Capital Appreciation Fund Cl Administrative (VTCLX) ER: 0.09% Unrealized CG: $26317.67 / 41.18%
1.84% - Vanguard Tax-Managed Small-Cap Fund Institutional Shares (VTSIX) ER: 0.06% Unrealized CG: $2168.45 / 7.86%
1.97% - Fidelity Advisor Limited Term Municipal Income Fund - Institutional Cl (FISHX) ER: 0.54% Unrealized CG: $458.94 / 1.52%
ETF - 1.61% - ETF: Vaneck Vectors Morningstar Wide Moat ETF (MOAT) ER: 0.48% Unrealized CG: $2020.43 / 8.51%

401k (Value >$500K)
30.77% (target 25%) - FID CONTRAFUND (FCNTX) ER: 0.74%
14.40% (target 20% ) - FID OVERSEAS (FOSFX) ER: 1.0%
24.69% (target 20%) - FID BLUE CHIP GR (FBGRX) ER: 0.72%
6.02% (target 20%) - FID LARGE CAP STOCK (FLCSX) ER: 0.67%
8.32% (target 5%) - FID MID CAP STOCK (FMCSX) ER: 0.61%
1.35% (target 5%) - FID SM CAP DISCOVERY (FSCRX) ER: 0.69%
7.62% (target 5%) - FID REAL ESTATE INVS (FRESX) ER: 0.76%
6.58% (target 0%) - FID SMALL CAP VALUE (FCPVX) ER: 0.91%
0.24% (target 0%) - FID GROWTH COMPANY (FDGRX) ER: 0.85%
Available Funds: https://docs.google.com/spreadsheets/d/ ... sp=sharing

Spouse 401k (Value >$500K)
32.67% (target 35%) - BMO Balanced Allocation (BGRQX) ER: 0.54%
24.47% (target 35%) - Dodge And Cox Stock (DODGX) ER: 0.52%
13.32 (target 15%) - American EuroPacific Growth (RERHX) ER: 0.64%
3.11% (target 15%) - Carillon Eagle Mid Cap Growth (HARSX) ER: 0.79%
18.92% (target 0%) - T Rowe Price Growth Stock Fund (PRUFX) ER: 0.52%
3.95% (target 0%) - Franklin Small Cap Growth (FSMLX) ER: 0.65%
3.56% (target 0%) - Columbia Select Mid Cap Value (CFDRX) ER: 0.92%
Available Funds: https://docs.google.com/spreadsheets/d/ ... sp=sharing

Future Income:
Expect to be able to contribute $500K-1M annually for the next 10 years in our taxable account. Will continue to contribute the maximum amount to both 401K accounts moving forward.

Questions:
1. Recommended asset allocation based on age and size of current and future portfolio

2. Any large benefit of opening the taxable account with Fidelity over Vanguard since one of our 401K accounts is with Fidelity?

3. We like the idea of the three-fund investing concept:
Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)
Does this approach make sense with our expected future portfolio size? Due to high tax bracket which Bond Fund or state-specific tax-free bond fund should be used in our taxable account? Vanguard's Tax-Exempt Intermediate-Term Bond Fund (VWIUX)? Should we include a Total International Bond Index Fund as well to diversify further in Bonds? Or should we simply stick with the standard Vanguard Total Bond Market Fund (VBTLX)?

4. Does it make sense to reorganize portfolio to move 401K accounts strictly to bonds or to a targeted retirement fund? OR should we hold stocks with a higher expected return in the tax-advantaged accounts? Should we keep existing funds and only move new money into the newly selected funds, or sell off existing funds to completely restructure? I don't believe there are any tax implications by selling existing funds in a 401K, please confirm.

5. We currently don't have any IRAs. I believe we would be able to do a backdoor IRA. Would it make sense to do this?

6. What immediate action (if any) to take with the existing taxed account under active management by advisor? Leaning toward leaving it alone until we're comfortable and have had some time investing on our own. Would stop adding new funds to the managed account and put all new money toward the new taxed account (Vanguard or Fidelity). I've read some recommendations to stop the automatic reinvestment of distributions as one first step. Every year it is "managed" it is costing us $8K + higher fund expense ratios.

Any and all comments are appreciated. Hoping for some good feedback to help guide us on the correct path to future success. Thanks to all Bogleheads!
I m not sure I can add anything to the excellent advice already given. As an amateur investor, in your position, I would the following.
1. Decide what fraction of my stock and bond allocation I want to place overseas. I see no benefit to foreign bonds. For that matter I don t think the benefit of overseas stocks is that great, although I understand the diversification argument. I m a bit more in the camp of Jack Bogle and Warren Buffet. I think you ll do fine with U.S. stocks. (How old fashioned). I m a three fund guy, Vanguard Total Stock Market, Vanguard Short Term Investment Grade Bond, And Vanguard Intermediate Term Investment Grade Bond funds.
2.I would sell all funds with a capital gain of 10,000 dollars or less. A bit arbitrary but a good start. Sell the others on dips , in an order based on how tax inefficient they, that is how big their yearly capital gains distributions are. Sell the others gradually as taxes and market factors would dictate.
Or, as a Vanguard advisor recommended to me, sell all stocks and actively managed mutual funds now and bite the bullet with one big tax bill. ( I couldn't t do it).
3. Have Vanguard transfer all stocks and funds in kind over to their management. I have accounts with Fidelity and Vanguard, and if I had to choose one, I would pick Vanguard.
4. To the extent you can, keep all tax advantaged funds in fixed income. I would choose short and intermediate term funds, investment grade.
5. All capital gains and dividend distributions into money market funds for distribution later into index funds.
6. As much as I like Roth IRA s, in your circumstances with your high tax bracket and the possible complications mentioned above , I d forget about these.
7.I believe you don t need to be aggressive with your stock/bond allocation. Some peace of mind during corrections is worth a lot. With your expected future contributions you don t need to be too aggressive to do well.
8.No more individuaL stocks. It will be tempting, but resist.
9.All new investment money into your 3 fund portfolio. You will have to put some after tax money into bonds, choose whether tax free or taxable works better for you based on the numbers.

I think you ll feel better managing your own money. Keeping it simple with stock broad based index funds matching the market will work well for you. Stay the course.
Best of luck.

bltn
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by bltn » Mon Jan 14, 2019 2:48 pm

shess wrote:
Mon Jan 14, 2019 1:59 pm
101invest wrote:
Mon Jan 14, 2019 12:28 pm
So sounds like the only option available to us is the backdoor Roth IRA. Sill not sure it's worth the hassle since we can only contribute $11K per year and will probably be <1% of our total portfolio in the end.
My general approach to weighing the value of options is to consider both percentage-wise and absolute. So if something adds some percentage-wise gain for a reasonably fixed cost, such as cleaning up an expensive account setup, I'll go for that. Percentage-wise, Roth IRA isn't going to do much for you.

On the absolute side, I'll run the numbers to make sure it's a reasonable outcome in terms of absolute value. So while saving $1000 on something isn't going to rock my boat on a percentage basis, I'm certainly willing to put a bit of time into it simply because $1000 moves the needle on an absolute basis.

I guess where I'm going with this is that if you have zero dollars in traditional IRA accounts, then backdoor Roth IRA is pretty reasonable. You make your non-deductible contribution to an IRA, invested in a money-market fund, then a few days later you request a Roth conversion, then you're done. With Vanguard it takes me like 15 minutes, maybe? And it builds up to a reasonable amount over time.
I agree. If it is that simple and you want to take the time, why not? It won t hurt, 11,000 dollars a year in a tax favored account. I d do it.

aristotelian
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by aristotelian » Mon Jan 14, 2019 3:31 pm

You have gotten good advice. I don't have much to add except to say that you should not let the complexity of the portfolio from leaving the financial advisor immediately. Just doing that will be saving you $5K annually on the brokerage account.

The only thing I will add is that you should keep a close eye on the markets for the next few months while unwinding these positions. If you had moved quickly when all of these positions were down by 10%, many of those positions that are currently showing gains would have been in the red. You could have used that opportunity to get out of these funds with a much lower tax hit. Keep an eye out for another big drop and use it to the fullest advantage.

One other thing in case this hasn't been mentioned. Your unrealized gains numbers do not tell the full story. It is possible that you can look under the hood of each of those positions using Specific ID and identify shares that have losses even if the majority of the position has gains. You could sell the shares with losses with no tax hit and at least get rid of those.

Elysium
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Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by Elysium » Mon Jan 14, 2019 3:55 pm

OP,

What is your performance results for last 10 years?

I did not see this part addressed anywhere in your post or in the replies.

What are the returns? what was your asset allocation? what was the return for an appropriate benchmark like a 3-fund or Target Retirement Fund?

Has the FA provided value before fees? and what about after fees?

Topic Author
101invest
Posts: 11
Joined: Fri Jan 11, 2019 10:58 pm

Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by 101invest » Mon Jan 14, 2019 9:12 pm

Elysium,
We have only had the managed account for a little less than 10 years but over the years it has under performed using the "S&P 500" as the benchmark. It tracks very close to the benchmark of "MSCI World Index".

All funds / stocks are listed in the original post.

Not sure about your question about value of the FA. The FA was suppose to be selecting tax efficient investments due to our high tax bracket but based on the feedback from the Bogleheads the FA didn't do very well in tax efficiency or ERs.

retiredjg
Posts: 37153
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio HELP - time to stop the bleeding from AUM fee

Post by retiredjg » Tue Jan 15, 2019 8:11 am

101invest wrote:
Mon Jan 14, 2019 9:12 pm
The FA was suppose to be selecting tax efficient investments due to our high tax bracket but based on the feedback from the Bogleheads the FA didn't do very well in tax efficiency or ERs.
Maybe, maybe not.

It is common for advisors to select tax-exempt bonds over taxable bonds for people in a high tax bracket. So on the bond side, they probably are watching tax efficiency.

But I think it would be somewhat uncommon for advisors 10 years ago to select tax efficient stock funds because the funds they generally sell are actively managed and by their very nature those are not tax-efficient. I don't recall seeing many index funds in the accounts of people who have been at places like Edward Jones or Ameriprise or Raymond James. Index funds are not part of their product line.

Of course, you could have been at an independent shop and I believe some of them were more likely to use index funds or more recently ETFs. But from your list, it does not appear you were at one of them.

Bogleheads do pay a lot of attention to tax-efficiency because we are so interested in costs - paying extra taxes is not consistent with keeping costs down. But to the run of the mill "advisor" out there, tax-efficiency for stock funds has not really been on their radar...or so it seems to me from the portfolios we see posted here.

This is the nature of their industry rather than being specific to your salesperson.

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