What's my next step? (Edited / Updated with portfolio details)

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Topic Author
SallyP
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Joined: Sat May 11, 2019 4:58 pm

What's my next step? (Edited / Updated with portfolio details)

Post by SallyP »

My husband and I are about to break up with our financial advisor of 15 years.

Prior to hiring him, I managed our investments through index funds (95%) and a few vanity stocks. Several issues over the past year, including a realization of exactly how much we've been paying him, have led us to decide to fire him.

I'd like to go back to indexing but the transition plan will be formidable. We own 55 different individual stocks, 29 in our taxable account, with around 300k in unrealized capital gains at stake. (High tax bracket.)

Following the decision to fire him, I stopped the "hands off and just trust the guy I'm paying a kazillion dollars to" and started analyzing things myself and realized we have 300k in bond/bond funds in our TAXABLE account? I was asleep at the wheel here and trusted him, and the reports we receive are aggregated in a way that didn't make this obvious. Because this is just dumb, right?

My tendency is to go back to a simple indexing strategy with a handful of funds, but I don't know how to get there from here without the potential of serious mistakes. We are 5-9 years from retirement, and our primary interest at this point is preservation of our capital (thus the extreme conservative tilt to our allocation.)

Is it rational to consider, at least starting out, leaving the the stocks alone (all solid, dividend yielding, hold until you die type stuff) and balance everything outside of that in index funds? The 300k in capital gains would be a brutal price to pay at our current tax bracket.

I'm thinking the first step is to meet with a fee-only financial planner to make sure we have our retirement cash flow & tax implications clear, and to revisit our asset allocation (which has a serious tilt toward the conservative.) Perhaps the planner can also help map out a transition toward more passive and more tax-savvy allocations?

What else should I be doing at this point? I'm a little overwhelmed & would welcome any advice.

Current retirement assets (% of total portfolio)

Taxable at Schwab
4.6% Cash
3.3% Bond Funds (OOF)
10.5% Individual Bonds (OOF)
3.6% Mutual Funds
13.1% Individual Stocks (29 different stocks, unrealized capital gains of $300k, dividends NOT being reinvested)

His 401k at Fidelity in a self-directed brokerage account at TD Ameritrade so have huge range of options
16.2% Cash
6.42% Bond Funds
3.1% Individual Bonds
14.1% Mutual Funds

His Rollover IRA at Schwab
2.6% Cash
3.1% Individual Bonds
1.3% Individual Stocks

His Traditional IRA at Schwab
2.4% Cash
1.0% Individual Stocks

Her IRA at Schwab
3.8% Cash
1.6% Bond Funds
3.2% Individual Bonds
4.1% Individual Stocks

His Defined Benefit Pension Plan managed via his company
10-15% Equity
85-90% Fixed Income
(We don't get the exact breakdown on this account.)

I'm sure many will focus on the extremely conservative nature of the portfolio (only about 40% equities), and that is one thing I want to speak to a financial planner about, but that was deliberate. I've been quite concerned about event risk over the past couple of years and we chose to sacrifice growth potential for lower risk.
Last edited by SallyP on Sun May 12, 2019 6:46 pm, edited 12 times in total.
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sometimesinvestor
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Re: What's my next step?

Post by sometimesinvestor »

I think your responses are minimal because you have not told us enough.Do you have retirement accounts, , an emergency fund how much capital gains in your taxable account . What are the choices in your retirement account etc,etc,etc





As a first step go toa library and find out what value line thinks about your individual stocks. It may not be right to sell your individual stocks but to do your diversification elsewhere
Living Free
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Re: What's my next step?

Post by Living Free »

SallyP wrote: Sat May 11, 2019 6:20 pm
I'm more inclined to go back to indexing because I'm sold on the fact that I can't beat the market but I can control costs. Is it a viable plan to keep the individual stock positions we already have and use indexes to flush out the rest of our asset allocation?
I agree we just need more information. I'd suggest you post using the asking portfolio questions format, as it will provide much more information for folks to work with and make suggestions from: viewtopic.php?t=6212

Some things I'm wondering about are what portion of your portfolio is in individual stocks and what is the cost basis for those?
I'd certainly not invest further in individual stocks and turn off re-investment of dividends into these stocks or funds that you don't want to own.

If you have no income you can have quite a bit of long term capital gains per year and stay within the 0% long term capital gains tax bracket. https://www.bogleheads.org/wiki/Capital ... stribution
272 Sheep
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Re: What's my next step?

Post by 272 Sheep »

Hi SallyP,
Welcome to the forum you and your husband.
Looks to me, that you've done a good job of recognizing and addressing the complex problems you are faced dealing with portfolio and adviser.
I would make sure, if looking for fee-only planner help, that the main knowledge is about taxes to go along with possible advice unwinding individual stock. (if necessary)

Indexing is not just low-cost but provides wide diversification. It is hard for me to visualize you having enough individual stock to be properly diversified. It might be better to bite the bullet now, if having a long retirement. In may take several years to accomplish.
An index fund portfolio (3 fund) is not hard to manage. Since you've done similar before you could easily do it again and pocket the adviser fee.
If not, you could get Vanguard Robo-adviser for .30%

Don't sweat it, you'll get through it. Your already doing the right thing!
Carl W.
Topic Author
SallyP
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Re: What's my next step?

Post by SallyP »

sometimesinvestor wrote: Sat May 11, 2019 7:38 pm I think your responses are minimal because you have not told us enough.Do you have retirement accounts, , an emergency fund how much capital gains in your taxable account . What are the choices in your retirement account etc,etc,etc





As a first step go toa library and find out what value line thinks about your individual stocks. It may not be right to sell your individual stocks but to do your diversification elsewhere
/thanks. I wasn't sure how detailed to get as I'm new. I will add the details to the OP.
Topic Author
SallyP
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Re: What's my next step?

Post by SallyP »

sometimesinvestor wrote: Sat May 11, 2019 7:38 pm I think your responses are minimal because you have not told us enough.Do you have retirement accounts, , an emergency fund how much capital gains in your taxable account . What are the choices in your retirement account etc,etc,etc





As a first step go toa library and find out what value line thinks about your individual stocks. It may not be right to sell your individual stocks but to do your diversification elsewhere
LOL I had assumed responses were minimal because I posted on a Saturday night :)
Topic Author
SallyP
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by SallyP »

FYI I have updated the original post with portfolio details. Thanks for any input.
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ruralavalon
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by ruralavalon »

SallyP wrote: Sat May 11, 2019 6:20 pmWe are 5-9 years from retirement, and our primary interest at this point is preservation of our capital (thus the extreme conservative tilt to our allocation.)
. . . . .
I'm sure many will focus on the extremely conservative nature of the portfolio (only about 40% equities), and that is one thing I want to speak to a financial planner about, but that was deliberate. I've been quite concerned about event risk over the past couple of years and we chose to sacrifice growth potential for lower risk.
40% equities is too low in my opinion.

Even with an emphasis on capital preservation, at 5-9 years from retirement an asset allocation around 60/40 equities/fixed income would be more reasonable in my opinion.

Here are two good articles on the classic 60/40 stock/bond allocation:
1) Peter Bernstein, Bloomberg Personal Finance (2002) , "The 60/40 Solution"; and
2) Rick Ferri, etf.com (2/25/15), "Wisdom Of 60/40 Portfolios Timeless"".


SallyP wrote: Sun May 12, 2019 1:22 pm FYI I have updated the original post with portfolio details. Thanks for any input.
It's not outrageous to keep 13% of portfolio in individual stocks (in the taxable account) and so avoid the large tax hit. Please list the stocks in that account with ticker symbols, so we can see if there is reasonable diversification.

What mutual funds are held in the taxable account? Please give fund names, tickers and expense ratios.

Please list the funds available in his 401k. Please give fund names, tickers and expense ratios so that suggestions can be made.

What fund firm is her IRA with? Is her IRA Roth or traditional?

About how much will you be contributing annually to investing?

What is your tax bracket, both federal and state?

What is your tax filing status?

Are either of you eligible for a significant pension?

Who a the approximate size of your investing portfolio?

Do you have an estimate of the amount for you annual retirement living expenses?

Does his 401k permit Roth contributions?

With additional information we will be able to give some suggestions on transitioning a back to index funds.


SallyP wrote: Sat May 11, 2019 6:20 pmI'm thinking the first step is to meet with a fee-only financial planner to make sure we have our retirement cash flow & tax implications clear, and to revisit our asset allocation (which has a serious tilt toward the conservative.) Perhaps the planner can also help map out a transition toward more passive and more tax-savvy allocations?
Here is a guide to help in deciding if you want or need a planner to advise you: "The great paradox of using an advisor is that you must know some basics in order to evaluate the advice, and once you do, you also know enough to consider doing your own management." "Chapter 10 – On Your Own or Hire an Advisor".

1) Vanguard offers a Personal Advisory Service, Fidelity and Schwab offer a similar service.

2) Harry Sit, who sometimes posts here, offers a service thru his blog to help people locate an advisor in their locality. "Advice-Only Search and Screening".

3) Two links for finding an advisor:
http://www.napfa.org/consumer/index.asp
http://www.garrettplanningnetwork.com/
Last edited by ruralavalon on Sun May 12, 2019 6:01 pm, edited 2 times in total.
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Watty
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by Watty »

One thing to do right away is to change any mutual funds in the taxable account to not automatically reinvest and dividends or capital gains distributions. That way you will not be buying more of a fund that you do not want to keep for the long term.

You can also sell any stocks in the taxable account that have a loss or minimal gains.

You can then sell some of the stocks in the taxable account that have capital gains, but just enough to match the capital losses you too.

At that point if any of the stocks in the taxable accounts are more than 5% of your portfolio then I would sell them down to 5% just so that you don't have too much in any one stock.

That will likely leave you with some stocks in the taxable portfolio but it might just be better to keep them for now. There is a saying, "The dream of a perfect plan is the enemy of a good plan."

If you support a charity or someone like parents you may be able to give them stock instead of cash.

The funds in the retirement accounts you can just move to a three fund portfolio.

https://www.bogleheads.org/wiki/Three-fund_portfolio

I have not read it yet but one of the Boglehead founders recentely wrote a book on three fund portfolios.

https://www.amazon.com/Bogleheads-Guide ... 154&sr=8-2
Topic Author
SallyP
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Re: What's my next step?

Post by SallyP »

272 Sheep wrote: Sat May 11, 2019 8:43 pm

I would make sure, if looking for fee-only planner help, that the main knowledge is about taxes to go along with possible advice unwinding individual stock. (if necessary)

thanks for the response! What should I be wary off with a fee-only planner if I decide to go that route? We've never used one.
Topic Author
SallyP
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by SallyP »

Watty wrote: Sun May 12, 2019 5:57 pm One thing to do right away is to change any mutual funds in the taxable account to not automatically reinvest and dividends or capital gains distributions. That way you will not be buying more of a fund that you do not want to keep for the long term.

You can also sell any stocks in the taxable account that have a loss or minimal gains.
Good points. The individual stocks have auto-reinvest turned off but I need to check on the mutual funds.

[/quote]
You can then sell some of the stocks in the taxable account that have capital gains, but just enough to match the capital losses you too.
[/quote]

The good news is that there aren't any losses, at least at present. But if I decide to hold them and manage myself, I'll need to keep an eye out for tax loss harvesting opportunities.

Thanks for your time!
272 Sheep
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by 272 Sheep »

SallyP wrote: Sun May 12, 2019 6:57 pm
272 Sheep wrote: Sat May 11, 2019 8:43 pm

I would make sure, if looking for fee-only planner help, that the main knowledge is about taxes to go along with possible advice unwinding individual stock. (if necessary)

thanks for the response! What should I be wary off with a fee-only planner if I decide to go that route? We've never used one.
You ought to be wary of any financial adviser. You have to check their history. All provide ADV2 but not all volunteer ADV1.
Adv1 is where any disciplinary records will be. If they won't provide, leave. Always interview "3" advisers and don't be afraid to negotiate hourly fee ($200 -$300/hr range) Used fee-only in 2008 concerning pension and wife and I were satisfied for that purpose.
For your purpose, I would recommend a fee-only adviser who is a tax specialist.
https://garrettplanningnetwork.com/
272 Sheep
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by 272 Sheep »

I forgot to mention, that fee-only advisers are the only advisers which can be held accountable for their advice.
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SallyP
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by SallyP »

272 Sheep wrote: Mon May 13, 2019 9:16 am
SallyP wrote: Sun May 12, 2019 6:57 pm
272 Sheep wrote: Sat May 11, 2019 8:43 pm

I would make sure, if looking for fee-only planner help, that the main knowledge is about taxes to go along with possible advice unwinding individual stock. (if necessary)

thanks for the response! What should I be wary off with a fee-only planner if I decide to go that route? We've never used one.
You ought to be wary of any financial adviser. You have to check their history. All provide ADV2 but not all volunteer ADV1.
Adv1 is where any disciplinary records will be. If they won't provide, leave. Always interview "3" advisers and don't be afraid to negotiate hourly fee ($200 -$300/hr range) Used fee-only in 2008 concerning pension and wife and I were satisfied for that purpose.
For your purpose, I would recommend a fee-only adviser who is a tax specialist.
https://garrettplanningnetwork.com/
Dead on right! Thank you for pointing that out. It is both the proper approach and something that will make my search easier.
272 Sheep
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by 272 Sheep »

One more thing.
When your interviewing your "3" fee-only advisers, don't fall-in-love with the first and second right away. See all 3.
After comparing, you'll get a good idea of who you will want.
In all 3 cases, the first hour is for free!
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neurosphere
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Re: What's my next step? (Edited / Updated with portfolio details)

Post by neurosphere »

272 Sheep wrote: Mon May 13, 2019 9:16 am You ought to be wary of any financial adviser. You have to check their history. All provide ADV2 but not all volunteer ADV1.
Adv1 is where any disciplinary records will be. If they won't provide, leave.
https://garrettplanningnetwork.com/
Part I of the ADV is public (as if part 2) and is easy to look up on the SEC site: https://www.adviserinfo.sec.gov/IAPD/default.aspx

But yes, if one refused to easily provide any publicly available information directly, that's a warning sign. The ADV Part 2 can be formatted as a PDF and is easily "shareable" and is typically handed out or linked to in an email or website. Part I is a "check box" type form, and doesn't lend itself very well to handing out, but it's easily viewable online. Here's a link to a sample ADV Part 1 of a person well-known around here: https://www.adviserinfo.sec.gov/IAPD/co ... _PK=300479

ADVs are typically more about the firm than the individual, unless the individual is a one-person business in which case they are one and the same. You can also get information/disclosures about individuals at that site and also here (https://brokercheck.finra.org/), although I think Broker Check really just eventually takes one to the SEC site.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".
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