Time for another fresh look

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Topic Author
GaDawg
Posts: 7
Joined: Sat Apr 02, 2016 7:01 am

Time for another fresh look

Post by GaDawg » Sun May 05, 2019 7:04 am

I have been MIA for a few years, but hoping for some suggestions on possible changes to my portfolio/RE strategy. My master plan called for me to RE at the end of this year, but I suspect I will ease my way into RE over the next 1 – 3 yrs as I enjoy what I am currently doing and have yet to find an alternative passion to fill my time. I am self-employed (only earner in family) and a high earner. I will be solely dependent upon my assets to cover my RE. I am planning for a relatively high RE spend rate in the $300K/yr range. This number has a significant amount of fat in it and could be cut back significantly if the SHTF. I generally subscribe to the “if you won the game, why keep playing” philosophy, but suspect in the end, my kids & charities will have a bundle.

Here is the lay of the land with questions to follow…

Debt: Home Mortgage - $341K @ 3.625% (House worth $900K). Plan is to pay it off when I RE.
Tax Filing Status: Married with 4 adult kids (1 Dependent until 2020)
Tax Rate: Marginal 37% Federal, 6% State
State of Residence: GA
Age:55 (wife 55)
Desired Asset allocation: 60% stocks / 40% bonds with a possible drift towards 50/50 as market gets to frothy. I have become somewhat interested in Paul Merriman’s Buy & Hold approach.

Current retirement assets (upper 7 approaching 8 figures)
All Accounts (held at Schwab)
36% Large Cap, 12% Small Cap, 13% International, 29% Fixed, 10% Cash

Taxable (48% of portfolio)
21% SWVXX (cash)
31% Large Cap: 5% LGILX 7% PRBLX 3% SCHB 16% SCHG
10% Small Cap: 4% IJR 6% SLYV
23% International: 5% BEXFX 18% SCHF
15% Fixed: 7% PGX 2% SCHZ 6% TGMNX

Tax Differed Accounts (primarily 401K – 52% of portfolio)
1% SWVXX (cash)
41 % Large Cap: 4% LGILX 5% PRBLX 3% SCHB 3% SCHG 4% SCHV 21% SCHX 1% SMVLX
13% Small Cap: 3% IJR 10% SLYV
4% International: 1% OBIOX 1% SCHE 2% SCHF
41% Fixed: 7% PGX 24% SCHZ 10% TGMNX

Other retirement Assets: Investment Real Estate interest = $95K

Questions:
1. I generally believe applying the same investing principle/techniques you apply to $1M portfolio can be applied to a $10M portfolio, but wonder if there is a point where I should be taking advantage of certain types of “other” investments, strategies due to a larger portfolio? Should I be taking a different approach here at this point other than the KISS method?

2. Being tax efficient can be challenging at times with almost 50% of my portfolio in taxable accounts. Just about every investment is in the black so tax loss harvesting is getting tough and has prevented me from doing certain buying/selling to further right size my portfolio with fewer and different investments. Should I just bite the bullet with capital gains rates being where they are and make the changes to my portfolio at once now to make it more efficient or do I slowly do it once I retire?

3. I plan on implementing the “total return” (as opposed to the bucket or income/dividend) approach when I do start drawing down assets. I am assuming my income will probably be drawn down as follows: 1) dividends/interest naturally created from my taxable account; 2) partial 401K withdrawal up to a desired tax bracket; 3) balance from strategic sale of taxable investments. Is this the best strategy?

4. Any other suggestions… resources, blogs, strategies?

retiredjg
Posts: 36805
Joined: Thu Jan 10, 2008 12:56 pm

Re: Time for another fresh look

Post by retiredjg » Sun May 05, 2019 7:52 am

2. Being tax efficient can be challenging at times with almost 50% of my portfolio in taxable accounts. Just about every investment is in the black so tax loss harvesting is getting tough and has prevented me from doing certain buying/selling to further right size my portfolio with fewer and different investments. Should I just bite the bullet with capital gains rates being where they are and make the changes to my portfolio at once now to make it more efficient or do I slowly do it once I retire?
I would not jump on this too fast because both your long term and short term cap gains rates will go down once your income is in the $300k range. If you do it now, more of the LTCG will be taxed at 20% (instead of 15%) and more will be exposed to the additional 3.8% NIIT and AMT if that is an issue ( I don't know how AMT works).

On the other hand, if it is bugging you and if you want to help build roads and bridges, you can certainly afford to pay some extra in taxes by doing it all now.

I'm not familiar with most of the tickers you posted, so "clean up" may be more urgent than is obvious to me.

3. I plan on implementing the “total return” (as opposed to the bucket or income/dividend) approach when I do start drawing down assets. I am assuming my income will probably be drawn down as follows: 1) dividends/interest naturally created from my taxable account; 2) partial 401K withdrawal up to a desired tax bracket; 3) balance from strategic sale of taxable investments. Is this the best strategy?
I think it is a good strategy. No thoughts on whether it is the "best" strategy.

Have you considered whether Roth conversions will be appropriate in your situation - to reduce the amount of tax-deferred money will be subject to RMDs?

Also consider some large charitable contributions now to reduce taxable income so you can Roth convert more each year.

Topic Author
GaDawg
Posts: 7
Joined: Sat Apr 02, 2016 7:01 am

Re: Time for another fresh look

Post by GaDawg » Sun May 05, 2019 8:52 am

Thanks.

Roth conversions don’t make any sense right now due to my tax bracket, but it’s something I need to explore when taxable income goes down in RE. I am maximizing my deduction strategies (I. E. Charity) while working, but not many left that move the needle.

retiredjg
Posts: 36805
Joined: Thu Jan 10, 2008 12:56 pm

Re: Time for another fresh look

Post by retiredjg » Sun May 05, 2019 9:12 am

I did mean Roth conversions later - when your income has dropped.

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goodenyou
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Re: Time for another fresh look

Post by goodenyou » Sun May 05, 2019 11:11 am

Do you believe having as many mutual funds as you have really has a benefit? When you have amassed a significant amount of money that has been driven by savings and tremendous market returns, it is often mentally challenging to withstand FOMO and to watch the trajectory flatten. Of course, there would be a sense of relief if the market tanks and you preserved your windfall. The upside of more at the risk of putting your achieved lifestyle in jeopardy is not worth it to me. Pigs get fat and hogs get slaughtered.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

Topic Author
GaDawg
Posts: 7
Joined: Sat Apr 02, 2016 7:01 am

Re: Time for another fresh look

Post by GaDawg » Sun May 05, 2019 3:06 pm

goodenyou wrote:
Sun May 05, 2019 11:11 am
Do you believe having as many mutual funds as you have really has a benefit? When you have amassed a significant amount of money that has been driven by savings and tremendous market returns, it is often mentally challenging to withstand FOMO and to watch the trajectory flatten. Of course, there would be a sense of relief if the market tanks and you preserved your windfall. The upside of more at the risk of putting your achieved lifestyle in jeopardy is not worth it to me. Pigs get fat and hogs get slaughtered.
Having all the mutual funds/ETFs currently in my portfolio was not my master plan, but the results of different buys over the years and an ever evolving/changing investment strategy. While many may be similar, concerns about creating a taxable event have primarily kept me from further simplifying. I am not sure if your "hogs get slaughtered" comment was directly related to your impression of my portfolio or just a general comment, but a 60/40 AA that may swing as conservative as a 50/50 AA from time to time does not feel too aggressive at my age. The main driver in my questioning is to get a sense of any other strategies I should be implementing differently/taking advantage of now with a much larger portfolio than when my portfolio was much smaller.

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goodenyou
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Re: Time for another fresh look

Post by goodenyou » Sun May 05, 2019 3:18 pm

GaDawg wrote:
Sun May 05, 2019 3:06 pm
goodenyou wrote:
Sun May 05, 2019 11:11 am
Do you believe having as many mutual funds as you have really has a benefit? When you have amassed a significant amount of money that has been driven by savings and tremendous market returns, it is often mentally challenging to withstand FOMO and to watch the trajectory flatten. Of course, there would be a sense of relief if the market tanks and you preserved your windfall. The upside of more at the risk of putting your achieved lifestyle in jeopardy is not worth it to me. Pigs get fat and hogs get slaughtered.
Having all the mutual funds/ETFs currently in my portfolio was not my master plan, but the results of different buys over the years and an ever evolving/changing investment strategy. While many may be similar, concerns about creating a taxable event have primarily kept me from further simplifying. I am not sure if your "hogs get slaughtered" comment was directly related to your impression of my portfolio or just a general comment, but a 60/40 AA that may swing as conservative as a 50/50 AA from time to time does not feel too aggressive at my age. The main driver in my questioning is to get a sense of any other strategies I should be implementing differently/taking advantage of now with a much larger portfolio than when my portfolio was much smaller.
No. The comment of pigs and hogs was not directed at your asset allocation and risk. It was a general comment on the regret that happens when you believe that you have “enough “ and you are reluctant to lower your risk profile. The legacy issues with your numerous taxable funds is real. It’s a good problem nonetheless. It will require some tax strategy to simply. If it were me, I would look to tax privilege accounts and clean it up to a simple portfolio with the lowest cost profile possible. Then I would tackle the tax implications of selling in taxable. You’ll need a good tax person and some homework yourself.

I say this because I’ve recently done this with a similar profile as yours. It’s a work in progress and money management needs constant upkeep to maximize all efficiencies from tax, cost and changing needs to take risk.

Best of luck!
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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