How fast to readjust AA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
knibloe
Posts: 61
Joined: Fri Mar 27, 2020 10:29 pm

How fast to readjust AA

Post by knibloe »

I am in my early 50's. My current AA is 87% (80 domestic and 7 foreign) stocks, 2% bonds and 10% cash. Roughly 1M total of which 75% is in my 401K. It worked well for me last year, but I know I am playing with fire and not good FIRE. In the early days of my 401K the match came as my companies stock and that has it's ups and downs. As it hit several peaks lately, I have transferred several large chunks into a 2035 target option in my 401K. Still hold 22% (14% 401K and 8% taxable) of my total portfolio in company stock.

Do I readjust all at once or over a period of time kinda of like dollar cost averaging?
magicrat
Posts: 1191
Joined: Sat Nov 29, 2014 6:04 pm

Re: How fast to readjust AA

Post by magicrat »

knibloe wrote: Tue Apr 20, 2021 7:24 am I am in my early 50's. My current AA is 87% (80 domestic and 7 foreign) stocks, 2% bonds and 10% cash. Roughly 1M total of which 75% is in my 401K. It worked well for me last year, but I know I am playing with fire and not good FIRE. In the early days of my 401K the match came as my companies stock and that has it's ups and downs. As it hit several peaks lately, I have transferred several large chunks into a 2035 target option in my 401K. Still hold 22% (14% 401K and 8% taxable) of my total portfolio in company stock.

Do I readjust all at once or over a period of time kinda of like dollar cost averaging?
Figure out what AA you want (for the long haul, not just for a little bit), then get to it right away (unless there are tax costs).
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: How fast to readjust AA

Post by dbr »

If you don't move quickly then you extend the time over which you are exposed to the risk and return of your company stock holding. You get to choose if that is what you want.

hint: That is probably not what you want.

As the previous poster mentions only some tax consideration would affect this. The one tax consideration that can affect company stock in a 401k would be using net unrealized appreciation tax treatment while rolling over your 401k to an IRA. It doesn't sound like keeping company stock while waiting to when that might be done, if ever, would make any sense.
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: How fast to readjust AA

Post by vineviz »

knibloe wrote: Tue Apr 20, 2021 7:24 am I am in my early 50's. My current AA is 87% (80 domestic and 7 foreign) stocks, 2% bonds and 10% cash. Roughly 1M total of which 75% is in my 401K. It worked well for me last year, but I know I am playing with fire and not good FIRE. In the early days of my 401K the match came as my companies stock and that has it's ups and downs. As it hit several peaks lately, I have transferred several large chunks into a 2035 target option in my 401K. Still hold 22% (14% 401K and 8% taxable) of my total portfolio in company stock.

Do I readjust all at once or over a period of time kinda of like dollar cost averaging?
Deciding what to do with the 8% of company stock that is in your taxable account probably merits a detailed tax forecast, since if you think there might be some years when your taxable income is <$80,000 (e.g. after retirement and before Social Security) then you might try to sell it then when the capital gains rates are lower.

My advice would be to get the company stock in your 401k down to zero as quickly as possible. If you're willing to do it all at once by exchanging the company stock for more of the 2035 fund, that's what I'd recommend. If that gives you pause, then doing 1/3 each year for three years probably wouldn't be a disaster.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
User avatar
Wiggums
Posts: 7051
Joined: Thu Jan 31, 2019 7:02 am

Re: How fast to readjust AA

Post by Wiggums »

I am not a big fan of getting a paycheck and holding stock from the same employer. If you feel the same way, why not sell the company stock and put into the TDF fund? It would not be unreasonable to hold 5-10% company stock. I just never did that.

I had coworkers that held their entire portfolio in company stock. They would have done better with the index fund and had less company risk.

Our company purchased another company and then it was acquired. The CEO make tons of money. The debt load of the combined company hurt the stock price. It never really moved more than a few points. I’m glad that I exchanged my company stock each year for the index fun.

I hope this helps.
"I started with nothing and I still have most of it left."
User avatar
David Jay
Posts: 14587
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: How fast to readjust AA

Post by David Jay »

I held a large portion of my portfolio in company stock due to an ESOP. I always converted all company stock at the earliest diversification period. I would never choose (given the option) to have both my retirement and my paycheck dependent on a single corporation.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
mnsportsgeek
Posts: 555
Joined: Mon Jan 19, 2015 12:39 pm

Re: How fast to readjust AA

Post by mnsportsgeek »

Since most of your portfolio is in a 401k, I'd rebalance immediately. Now is a great time to do it as the market is at a high and there are no tax implications if it's done within a 401k.

The 80k in company stock outside of the 401k is your biggest concern IMO. That's a good chunk of your portfolio tied up in one company that will have tax implications if sold. I don't have great advise there, but hopefully some others can chime in.

You can rebalance the rest of your portfolio in a couple hours easily. Figuring out how to diversify out of the 80k in taxable company stock is the tricky part.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: How fast to readjust AA

Post by retiredjg »

knibloe wrote: Tue Apr 20, 2021 7:24 am Do I readjust all at once or over a period of time kinda of like dollar cost averaging?
When you realize you are in the wrong place, I think it is best to get to the right place quickly.
Topic Author
knibloe
Posts: 61
Joined: Fri Mar 27, 2020 10:29 pm

Re: How fast to readjust AA

Post by knibloe »

Thank you all for your thoughts. I will reallocate my 401K now rather than wait. The 8% ESop won't be changed this year. My income is up in 2021 and there is no sense piling on the tax load. I have toyed with the idea of using the ESOP as my donations to church over a period of several years. That would help me avoid capital gains, but downside, I need to hold it.
Valuethinker
Posts: 49038
Joined: Fri May 11, 2007 11:07 am

Re: How fast to readjust AA

Post by Valuethinker »

[edited]
Last edited by Valuethinker on Wed Apr 21, 2021 7:47 am, edited 1 time in total.
Valuethinker
Posts: 49038
Joined: Fri May 11, 2007 11:07 am

Re: How fast to readjust AA

Post by Valuethinker »

knibloe wrote: Wed Apr 21, 2021 7:39 am Thank you all for your thoughts. I will reallocate my 401K now rather than wait. The 8% ESop won't be changed this year. My income is up in 2021 and there is no sense piling on the tax load. I have toyed with the idea of using the ESOP as my donations to church over a period of several years. That would help me avoid capital gains, but downside, I need to hold it.
Better to sell, pay tax, and still have the money, than not to have the money.

Company stock should ideally be 5% or less of your portfolio, and 10% at a maximum.
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: How fast to readjust AA

Post by vineviz »

Valuethinker wrote: Wed Apr 21, 2021 7:47 am
knibloe wrote: Wed Apr 21, 2021 7:39 am Thank you all for your thoughts. I will reallocate my 401K now rather than wait. The 8% ESop won't be changed this year. My income is up in 2021 and there is no sense piling on the tax load. I have toyed with the idea of using the ESOP as my donations to church over a period of several years. That would help me avoid capital gains, but downside, I need to hold it.
Better to sell, pay tax, and still have the money, than not to have the money.

Company stock should ideally be 5% or less of your portfolio, and 10% at a maximum.
Good rules of thumb, though not all "company stock" creates the same concentration risk.

For example, I'd be more nervous if 10% of my portfolio was in NVIDIA (NVDA) company stock than I would be if 15% of my portfolio was in Duke Energy (DUK) stock.

Riskiness of the industry/sector, volatility of the stock itself, and correlation of the stock with the rest of the portfolio are factors I'd look at.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Topic Author
knibloe
Posts: 61
Joined: Fri Mar 27, 2020 10:29 pm

Re: How fast to readjust AA

Post by knibloe »

I made some adjustments in my 401K. I diversified out of my company stock into two targeted funds. One for 2030 and the other for 2035. These now account for 30% of my 401K. The remaining 70% is still in stock mutual funds. Do I transfer out of those and into the two targeted funds with Fidelity?

OPCU SS TRGT RET 2035 M
OPCT SS TRGT RET 2030 M

As I write this, I realize that I am asking a group of strangers for advice. I do not have a financial advisor. I presume that I need one. How does one best go about this (trading a group of strangers on the internet for a paid stranger in person)?
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: How fast to readjust AA

Post by retiredjg »

Do not presume you need an advisor. Some people do, but many people do not. Investing can be very simple.

Have you considered posting your information here for some portfolio suggestions? See the link at the bottom of this message for how to do that.

Have you looked at the Getting Started section in the Wiki? C lick on the Wiki link above and look for "getting started".

If you definitely want to use an advisor, the only one I can suggest is Vanguard's Personal Advisor Service because they do not have incentives to put your portfolio in anything other than a simple low cost group of funds.
Topic Author
knibloe
Posts: 61
Joined: Fri Mar 27, 2020 10:29 pm

Re: How fast to readjust AA

Post by knibloe »

Well, I had some good fortune, last week when I traded out my company stock, it was up about $8 a share. Now it has lost those $8, so I was able to capitalize on the upswing. Nice to get a bit of good fortune once in a while.
Post Reply