New Schwab Portfolio Advice

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Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

New Schwab Portfolio Advice

Post by emmagator »

Hello i have a couple other threads started but wanted consolidate everything into one thread. All of this was inherited a couple years ago and has been sitting in an Edward Jones account since then. I looking at long term growth, but would also like to produce some yearly short term income if that makes sense. In looking at statements it looks like my mom use to draw out about 10k/year out of the ETORX fund. I assume this was to supplement income??

Based on a previous thread, i will be moving the IRA to a target date fund. My focus is to how to handle the taxable account, which sits in Schwab as a joint account with my wife and I.

Emergency funds: Three months

Income:
Combined salary 110/year, wife works part time
Rental: owned free and clear 10,800/year

Debt: Just built a house, new construction loan. 460,576 @ 3.875 interest rate

Tax Filing Status: Married Filing Jointly, with Dependent Children

State of Residence: Oregon

Age:41

Desired Asset allocation: dont know
Desired International allocation: dont know

Please provide a hint as to the size of your current total portfolio 700K

Current retirement assets are all held in Edward Jones


Taxable:
T - 24%
PM - 19.7%
MDLZ - 11.26%
MO - 10.12%
CMSA - 8.02%
VZ - 6.7%
VOD - 2.92%
FE - 2.39%
JD - .47%
NCR - .32%
NOK - .04%

ETORX - 12.76%
FRORX - .65%

CASH - .64%


Trad IRA:
JD - 7.98%

MUTUAL FUNDS
ANCFX - 22.9%
AGTHX - 28.15%
AMECX - 14.17%
ANWPX - 26.77%

CASH - THIS CAME OVER FROM THE TRANSFER. NOT SURE WHAT IT IS
$40.00


His 401k in Black Rock Life Plan
Company match: yes

Her IRA still sit at Edward Jones
Last edited by emmagator on Tue Apr 27, 2021 11:58 am, edited 2 times in total.
Nyc10036
Posts: 693
Joined: Wed Oct 05, 2016 6:29 pm

Re: New Schwab Portfolio Advice

Post by Nyc10036 »

I am not familiar with any of those symbols.

Are they stocks?
hi_there
Posts: 800
Joined: Sat Aug 29, 2020 7:00 pm

Re: New Schwab Portfolio Advice

Post by hi_there »

"Please provide a hint as to the size of your current total portfolio 70K"

Is this a typo? If not, I would just put it in a target date or other long term fund for the next 20 years, as it's not going to generate much appreciable income.
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

Nyc10036 wrote: Tue Apr 27, 2021 11:22 am I am not familiar with any of those symbols.

Are they stocks?
Yes stocks. This account was my grandads from way back, then my mom inherited it and i dont think she didnt anything with it, now with my mom passing i have inherited it..
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

hi_there wrote: Tue Apr 27, 2021 11:29 am "Please provide a hint as to the size of your current total portfolio 70K"

Is this a typo? If not, I would just put it in a target date or other long term fund for the next 20 years, as it's not going to generate much appreciable income.
yes typo. 700k
Nyc10036
Posts: 693
Joined: Wed Oct 05, 2016 6:29 pm

Re: New Schwab Portfolio Advice

Post by Nyc10036 »

Since you mentioned Schwab, I would sell the funds in the tIRA and transfer the money over to Schwab.

If you have held the stocks longer them longer than 1 year, I would sell and put them in ETFs at Schwab.

Simplify into 3-fund portfolio.
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

Nyc10036 wrote: Tue Apr 27, 2021 12:27 pm Since you mentioned Schwab, I would sell the funds in the tIRA and transfer the money over to Schwab.

If you have held the stocks longer them longer than 1 year, I would sell and put them in ETFs at Schwab.

Simplify into 3-fund portfolio.
I should have been more clear. All my accounts are at Schwab now. We will be moving my wifes IRA over soon.
Bear906
Posts: 43
Joined: Fri Mar 12, 2021 1:07 am

Re: New Schwab Portfolio Advice

Post by Bear906 »

Nyc10036 wrote: Tue Apr 27, 2021 12:27 pm ...If you have held the stocks longer them longer than 1 year, I would sell and put them in ETFs at Schwab.

Simplify into 3-fund portfolio.
Absolutely! Since January, 2015, your inherited Taxable portfolio, tested using CMS in place of CMSA, has been a dismal performer: 7.08% annual return with a 12.07% Standard Deviation and a 14.95% maximum drawdown.

For an 83% stock portfolio, that is an absolutely pathetic return. Even using the SPIAX S&P 500 Index fund available at EJ, with the loads, would've generated much better returns than this. I hope your wife's IRA still at Ed Jones isn't allocated similarly.

Just replacing all those individual stocks with the SCHB (Schwab US Broad Market Index) ETF would've generated an 11.97% annual return over the same time frame.
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Tue Apr 27, 2021 2:12 pm
Nyc10036 wrote: Tue Apr 27, 2021 12:27 pm ...If you have held the stocks longer them longer than 1 year, I would sell and put them in ETFs at Schwab.

Simplify into 3-fund portfolio.
Absolutely! Since January, 2015, your inherited Taxable portfolio, tested using CMS in place of CMSA, has been a dismal performer: 7.08% annual return with a 12.07% Standard Deviation and a 14.95% maximum drawdown.

For an 83% stock portfolio, that is an absolutely pathetic return. Even using the SPIAX S&P 500 Index fund available at EJ, with the loads, would've generated much better returns than this. I hope your wife's IRA still at Ed Jones isn't allocated similarly.

Just replacing all those individual stocks with the SCHB (Schwab US Broad Market Index) ETF would've generated an 11.97% annual return over the same time frame.
Ok. What's the negatives is replacing the stocks with? Any based on my limited research, seems a good direction of to go?

US Broad Market ETF (SCHB)
International Equity Index ETF (SCHF)
U. S. Aggregate Bond Index ETF (SCHZ)
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Tue Apr 27, 2021 2:12 pm
Nyc10036 wrote: Tue Apr 27, 2021 12:27 pm ...If you have held the stocks longer them longer than 1 year, I would sell and put them in ETFs at Schwab.

Simplify into 3-fund portfolio.
Absolutely! Since January, 2015, your inherited Taxable portfolio, tested using CMS in place of CMSA, has been a dismal performer: 7.08% annual return with a 12.07% Standard Deviation and a 14.95% maximum drawdown.

For an 83% stock portfolio, that is an absolutely pathetic return. Even using the SPIAX S&P 500 Index fund available at EJ, with the loads, would've generated much better returns than this. I hope your wife's IRA still at Ed Jones isn't allocated similarly.

Just replacing all those individual stocks with the SCHB (Schwab US Broad Market Index) ETF would've generated an 11.97% annual return over the same time frame.
Ok. What's the negatives of replacing the stocks with something like these? Based on my limited research, seems a good direction of to go?

US Broad Market ETF (SCHB)
International Equity Index ETF (SCHF)
U. S. Aggregate Bond Index ETF (SCHZ)
typical.investor
Posts: 2631
Joined: Mon Jun 11, 2018 3:17 am

Re: New Schwab Portfolio Advice

Post by typical.investor »

emmagator wrote: Tue Apr 27, 2021 3:55 pm
Bear906 wrote: Tue Apr 27, 2021 2:12 pm
Nyc10036 wrote: Tue Apr 27, 2021 12:27 pm ...If you have held the stocks longer them longer than 1 year, I would sell and put them in ETFs at Schwab.

Simplify into 3-fund portfolio.
Absolutely! Since January, 2015, your inherited Taxable portfolio, tested using CMS in place of CMSA, has been a dismal performer: 7.08% annual return with a 12.07% Standard Deviation and a 14.95% maximum drawdown.

For an 83% stock portfolio, that is an absolutely pathetic return. Even using the SPIAX S&P 500 Index fund available at EJ, with the loads, would've generated much better returns than this. I hope your wife's IRA still at Ed Jones isn't allocated similarly.

Just replacing all those individual stocks with the SCHB (Schwab US Broad Market Index) ETF would've generated an 11.97% annual return over the same time frame.
Ok. What's the negatives of replacing the stocks with something like these? Based on my limited research, seems a good direction of to go?

US Broad Market ETF (SCHB)
International Equity Index ETF (SCHF)
U. S. Aggregate Bond Index ETF (SCHZ)
Those three funds are a fine selection.

Some will argue (particularly looking at the past 10 years) that US only is best. Others (including myself) counter that these things go in cycles and US returns have been buoyed by rising valuations (i.e. future earnings being baked into today's price further and further from the future) to such a degree that foreign equities don't need to acutally outperform for their stocks to outperform because their future earnings are cheaper.

Some will say that treasuries provide a better ballast for stock risk and suggest SCHR [intermediate treasuries] or (some amount -- perhaps 20% of bonds) SCHQ [long treasuries]. Others will are very sensitive to changes in rates and get spooked if their bonds drop from rate hikes (remember that bonds will recover in their duration).

SCHF only covers mid and large developed markets. To see how much to hold in SCHC (developed small) and/or SCHE (emerging), there is a calculator at:

https://docs.google.com/spreadsheets/d/ ... sp=sharing

The SCHC slice usually ends up being pretty small so some just roll it into SCHF (as both are developed) or some roll it into SCHE (as both are more volatile).

Just FYI, cap weighting for equities looks like:

SCHB 56%
SCHF 28%
SCHC 4%
SCHE 11%
Buglebum
Posts: 2
Joined: Fri Apr 23, 2021 9:46 pm

Re: New Schwab Portfolio Advice

Post by Buglebum »

Bear906 wrote: Tue Apr 27, 2021 2:12 pm Others will are very sensitive to changes in rates and get spooked if their bonds drop from rate hikes (remember that bonds will recover in their duration).
Hi, can you explain “bonds will recover in their duration?”
Bear906
Posts: 43
Joined: Fri Mar 12, 2021 1:07 am

Re: New Schwab Portfolio Advice

Post by Bear906 »

I see you're going with a Target Date fund in your Traditional IRA that's now at Schwab. Is it the Schwab Target 2040 Index Fund (SWYGX)? And are you using the BlackRock LifePath 2040 Fund in your 401k?

What, exactly, do you want to do with your taxable account? Is this 100% designated for retirement, or are you going to devote a portion of it to pre-retirement needs? You've mentioned seeking both growth and short-term (current?) income from your taxable account, and that suggests to me that you're considering the latter option.

Anyway, your IRA is already all set with the target-date fund, as is the 401k if you're using the LifePath fund there. Maintaining a similar asset allocation relative to the target date fund(s) with your other retirement assets would be a reasonable starting point.

Let's assume you're using SWYGX. As of today, that fund holds a 52% allocation to US stocks, 26% in International equities, and 22% in fixed-income.

Being in the 22% Federal and 8.75% Oregon tax bracket, holding corporate bond funds would be tax inefficient. The ETORX fund you already own is a tax-exempt Oregon muni fund, and also available No-Load/No Transaction Fee through Schwab. There may be other options for Oregon Muni funds. You could consider one of these for your fixed-income holding, or combine it with a Treasury bond fund to decrease your geographic risk, which would be exempt from Oregon taxes.

Although purchasing Vanguard mutual funds through Schwab incurs transaction fees, there is no extra charge for acquiring Vanguard's ETFs. I would forego Schwab's SCHF in favor of Vanguard's VXUS for the International equities allocation of a Taxable account. With SCHF, you're missing out on emerging markets and nearly all small caps.

Using SWYGX as a template, the retirement savings portion of your taxable would look like this:
52% SCHB
26% VXUS
22% ETORX and/or US Treasuries

Also, keep in mind that the figures above are just a starting point. You may--or may not--consider your rental property and its income stream as part of your overall fixed-income allocation. You may also consider the bond allocation of your target-date fund to be off-the-mark with the level of risk you're willing to take. If so, you'll want to adjust your mutual fund/ETF allocations accordingly.
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
typical.investor
Posts: 2631
Joined: Mon Jun 11, 2018 3:17 am

Re: New Schwab Portfolio Advice

Post by typical.investor »

Buglebum wrote: Wed Apr 28, 2021 2:50 am
Bear906 wrote: Tue Apr 27, 2021 2:12 pm Others will are very sensitive to changes in rates and get spooked if their bonds drop from rate hikes (remember that bonds will recover in their duration).
Hi, can you explain “bonds will recover in their duration?”
Well you can always just stick to intermediate term (such as SCHZ and not think about it too much). In general, it seems many are saying to avoid bonds because rates are going to go up.

So in the case of SCHZ which has a duration of about six years, if rates rise tomorrow you will see a loss of maybe 6% (but that's a rough estimate) as the bonds in SCHZ get repriced to have the same yield as a newly issued bond. Your bonds will slowly recover that loss and will break even at the six year mark.

So if you have no need or intention to use SCHZ for spending before that time, it's better to hold SCHZ than a short term bond.

Anyway, there is a lot of "rates are going to skyrocket, stay out of bonds" talk at the moment so I brought up the recovery point.
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Wed Apr 28, 2021 3:37 am I see you're going with a Target Date fund in your Traditional IRA that's now at Schwab. Is it the Schwab Target 2040 Index Fund (SWYGX)? And are you using the BlackRock LifePath 2040 Fund in your 401k? Yes & Yes

Is this 100% designated for retirement, or are you going to devote a portion of it to pre-retirement needs? Not 100% retirement. Id like to withdraw up to $10k/year if possible

Anyway, your IRA is already all set with the target-date fund, as is the 401k if you're using the LifePath fund there. Maintaining a similar asset allocation relative to the target date fund(s) with your other retirement assets would be a reasonable starting point.

Being in the 22% Federal and 8.75% Oregon tax bracket, holding corporate bond funds would be tax inefficient. The ETORX fund you already own is a tax-exempt Oregon muni fund, and also available No-Load/No Transaction Fee through Schwab. There may be other options for Oregon Muni funds. You could consider one of these for your fixed-income holding, or combine it with a Treasury bond fund to decrease your geographic risk, which would be exempt from Oregon taxes.You lost me here. Im still learning, but have a long way to go.

Although purchasing Vanguard mutual funds through Schwab incurs transaction fees, there is no extra charge for acquiring Vanguard's ETFs. I would forego Schwab's SCHF in favor of Vanguard's VXUS for the International equities allocation of a Taxable account. With SCHF, you're missing out on emerging markets and nearly all small caps.

Using SWYGX as a template, the retirement savings portion of your taxable would look like this:
52% SCHB
26% VXUS
22% ETORX and/or US Treasuries

Also, keep in mind that the figures above are just a starting point. You may--or may not--consider your rental property and its income stream as part of your overall fixed-income allocation. You may also consider the bond allocation of your target-date fund to be off-the-mark with the level of risk you're willing to take. If so, you'll want to adjust your mutual fund/ETF allocations accordingly.
I think i may visit the local Scwhab branch and meet with and advisor and just see what they say. With my inexperience comes nervousness, hesitation, and frustration. I know it may sound silly to some, but Im a little overwhelmed at this point.

Im also curious if using some of these funds to make a large lump payment towards mortgage makes sense?
typical.investor
Posts: 2631
Joined: Mon Jun 11, 2018 3:17 am

Re: New Schwab Portfolio Advice

Post by typical.investor »

emmagator wrote: Wed Apr 28, 2021 9:27 am
Bear906 wrote: Wed Apr 28, 2021 3:37 am I see you're going with a Target Date fund in your Traditional IRA that's now at Schwab. Is it the Schwab Target 2040 Index Fund (SWYGX)? And are you using the BlackRock LifePath 2040 Fund in your 401k? Yes & Yes

Is this 100% designated for retirement, or are you going to devote a portion of it to pre-retirement needs? Not 100% retirement. Id like to withdraw up to $10k/year if possible

Anyway, your IRA is already all set with the target-date fund, as is the 401k if you're using the LifePath fund there. Maintaining a similar asset allocation relative to the target date fund(s) with your other retirement assets would be a reasonable starting point.

Being in the 22% Federal and 8.75% Oregon tax bracket, holding corporate bond funds would be tax inefficient. The ETORX fund you already own is a tax-exempt Oregon muni fund, and also available No-Load/No Transaction Fee through Schwab. There may be other options for Oregon Muni funds. You could consider one of these for your fixed-income holding, or combine it with a Treasury bond fund to decrease your geographic risk, which would be exempt from Oregon taxes.You lost me here. Im still learning, but have a long way to go.

Although purchasing Vanguard mutual funds through Schwab incurs transaction fees, there is no extra charge for acquiring Vanguard's ETFs. I would forego Schwab's SCHF in favor of Vanguard's VXUS for the International equities allocation of a Taxable account. With SCHF, you're missing out on emerging markets and nearly all small caps.

Using SWYGX as a template, the retirement savings portion of your taxable would look like this:
52% SCHB
26% VXUS
22% ETORX and/or US Treasuries

Also, keep in mind that the figures above are just a starting point. You may--or may not--consider your rental property and its income stream as part of your overall fixed-income allocation. You may also consider the bond allocation of your target-date fund to be off-the-mark with the level of risk you're willing to take. If so, you'll want to adjust your mutual fund/ETF allocations accordingly.
I think i may visit the local Scwhab branch and meet with and advisor and just see what they say. With my inexperience comes nervousness, hesitation, and frustration. I know it may sound silly to some, but Im a little overwhelmed at this point.
Then this was truly fine:

US Broad Market ETF (SCHB)
International Equity Index ETF (SCHF)
U. S. Aggregate Bond Index ETF (SCHZ)
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Wed Apr 28, 2021 3:37 am
Anyway, your IRA is already all set with the target-date fund, as is the 401k if you're using the LifePath fund there. Maintaining a similar asset allocation relative to the target date fund(s) with your other retirement assets would be a reasonable starting point.
Are you suggesting maybe i leave the IRA as it is?
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

typical.investor wrote: Wed Apr 28, 2021 9:29 am
Then this was truly fine:

US Broad Market ETF (SCHB)
International Equity Index ETF (SCHF)
U. S. Aggregate Bond Index ETF (SCHZ)
Meaning if i put all of my taxable account into this portfolio, it'd be a step in the right direction investment wise?
Bear906
Posts: 43
Joined: Fri Mar 12, 2021 1:07 am

Re: New Schwab Portfolio Advice

Post by Bear906 »

emmagator wrote: Wed Apr 28, 2021 10:52 am
Bear906 wrote: Wed Apr 28, 2021 3:37 am
Anyway, your IRA is already all set with the target-date fund, as is the 401k if you're using the LifePath fund there. Maintaining a similar asset allocation relative to the target date fund(s) with your other retirement assets would be a reasonable starting point.
Are you suggesting maybe i leave the IRA as it is?
Yes. Your IRA and 401k look just fine as-is. Just make a plan for your Taxable account, implement it, and you're all set. You're oh-so-close to being done with this. :D

If you plan on continuing to hold a position in your tax-exempt Oregon Municipal Bond Funds (ETORX and FRORX), there's a geographical risk to consider. What if a huge natural disaster befell Oregon, or the tax base in Oregon became unstable due to an economic crisis? There would be a much greater chance that an Oregon-only bond fund would be stuck holding securities that end up being defaulted upon, versus a bond fund holding Treasuries and/or bonds sourced nationwide.

By splitting an Oregon muni fund with a Treasuries fund (such as SCHR), you cut the geographic risk. And while you lose the Federal tax-exempt benefit on dividends with a Treasuries fund, you still get out of the Oregon income tax (8.75%) on dividends. You're going to be stuck with the Oregon 8.75% tax on capital gains whether you buy munis, Treasuries, or corporate bonds--or any other kind of investment.

Here's a summary of the tax implications:

Oregon Muni Funds: Dividends taxed at 0%
National Muni Funds: Dividends generated from non-Oregon bonds taxed at 8.75%
Treasuries: Dividends taxed at 22%
Corporate bonds: Dividends taxed at 30.75%

In all cases, you'll pay 30.75% on short-term capital gains, and 23.75% on long-term capital gains as long as your AGI remains above $80K filing jointly.

While it means managing 4 funds instead of 3, I think it would make sense from a tax-efficiency and risk management aspect to split your fixed-income position between Oregon munis and Treasuries.

I find SCHR (Schwab Intermediate Term Treasury) hits the sweet spot for me between return and volatility for funds that I could need at any time. If you want a Treasuries fund holding bonds of all maturities, GOVT is a solid option.

A viable 1-fund option may be SWNTX, Schwab's national muni bond fund. It's not available yet as an ETF.

So, how much is in the Taxable account? I see you want to withdraw $10k annually. Knowing what you have to work with will help to calculate an asset allocation that meets that goal while minimizing risk.
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Wed Apr 28, 2021 12:37 pm
emmagator wrote: Wed Apr 28, 2021 10:52 am
Bear906 wrote: Wed Apr 28, 2021 3:37 am
Anyway, your IRA is already all set with the target-date fund, as is the 401k if you're using the LifePath fund there. Maintaining a similar asset allocation relative to the target date fund(s) with your other retirement assets would be a reasonable starting point.
Are you suggesting maybe i leave the IRA as it is?
Yes. Your IRA and 401k look just fine as-is. Just make a plan for your Taxable account, implement it, and you're all set. You're oh-so-close to being done with this. :D

If you plan on continuing to hold a position in your tax-exempt Oregon Municipal Bond Funds (ETORX and FRORX), there's a geographical risk to consider. What if a huge natural disaster befell Oregon, or the tax base in Oregon became unstable due to an economic crisis? There would be a much greater chance that an Oregon-only bond fund would be stuck holding securities that end up being defaulted upon, versus a bond fund holding Treasuries and/or bonds sourced nationwide.

By splitting an Oregon muni fund with a Treasuries fund (such as SCHR), you cut the geographic risk. And while you lose the Federal tax-exempt benefit on dividends with a Treasuries fund, you still get out of the Oregon income tax (8.75%) on dividends. You're going to be stuck with the Oregon 8.75% tax on capital gains whether you buy munis, Treasuries, or corporate bonds--or any other kind of investment.

Here's a summary of the tax implications:

Oregon Muni Funds: Dividends taxed at 0%
National Muni Funds: Dividends generated from non-Oregon bonds taxed at 8.75%
Treasuries: Dividends taxed at 22%
Corporate bonds: Dividends taxed at 30.75%

In all cases, you'll pay 30.75% on short-term capital gains, and 23.75% on long-term capital gains as long as your AGI remains above $80K filing jointly.

While it means managing 4 funds instead of 3, I think it would make sense from a tax-efficiency and risk management aspect to split your fixed-income position between Oregon munis and Treasuries.

I find SCHR (Schwab Intermediate Term Treasury) hits the sweet spot for me between return and volatility for funds that I could need at any time. If you want a Treasuries fund holding bonds of all maturities, GOVT is a solid option.

So, how much is in the Taxable account? I see you want to withdraw $10k annually. Knowing what you have to work with will help to calculate an asset allocation that meets that goal while minimizing risk.
There is about 550k in the taxable account.

So looking at past statements it seems my mom was drawing money out of ETORX yearly for supplemental income. And that is the purpose of a fixed income funds like ETORX? To provide income with tax advantages? But to your post above, there is a better way of doing that.
typical.investor
Posts: 2631
Joined: Mon Jun 11, 2018 3:17 am

Re: New Schwab Portfolio Advice

Post by typical.investor »

emmagator wrote: Wed Apr 28, 2021 10:58 am
typical.investor wrote: Wed Apr 28, 2021 9:29 am
Then this was truly fine:

US Broad Market ETF (SCHB)
International Equity Index ETF (SCHF)
U. S. Aggregate Bond Index ETF (SCHZ)
Meaning if i put all of my taxable account into this portfolio, it'd be a step in the right direction investment wise?
Yes definitely.

I know you want to make this as easy as possible, but it's been two years since you inherited it correct? So you probably have capital gains taxes to pay on the earning if you sell.

You want to be aware of how much you will have to pay, and what impact that may have on your taxes since it could push your income up and affect you.

Some people choose to sell holdings over time to minimize the impact. Some look for funds with a loss to offset the gains on others.

You definitely should turn dividend reinvestment off on holdings in the taxable account, and direct those proceeds to your target holdings (SCHB,SCHF, SCHZ for example). Short term gains have a higher tax rate so you want to avoid that.
Bear906
Posts: 43
Joined: Fri Mar 12, 2021 1:07 am

Re: New Schwab Portfolio Advice

Post by Bear906 »

Since your stated goal with the Taxable is to generate $10K in current income annually, be advised that the current holdings seem to have been selected with the intent of generating current income mostly via dividend paying individual stocks.

Currently, your portfolio is generating a 4.40% yield. With a $550K portfolio, that's good for around $24,000 in dividends.

The good news doesn't end there. Your stock dividends should be 100% qualified, and you'll be taxed at 23.75% instead of the 30.75% levied on ordinary income. The dividends from your Oregon munis are tax-exempt.

Your taxable portfolio is already exceeding your stated goal. Turn off dividend reinvesting and, barring a total collapse of the market, more than $10K should be sitting in your Schwab cash sweeps account by the end of the year.

With that in mind...there's no need to rush this process. You've got some time to carefully and tax-efficiently transition this to a more-diversified solution that will reduce your risk going forward. In the meantime, enjoy the fountain of dividends...and be thankful for your good fortune!
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
Topic Author
emmagator
Posts: 30
Joined: Thu Apr 08, 2021 11:42 am

Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Thu Apr 29, 2021 1:53 am Since your stated goal with the Taxable is to generate $10K in current income annually, be advised that the current holdings seem to have been selected with the intent of generating current income mostly via dividend paying individual stocks.

Currently, your portfolio is generating a 4.40% yield. With a $550K portfolio, that's good for around $24,000 in dividends.

The good news doesn't end there. Your stock dividends should be 100% qualified, and you'll be taxed at 23.75% instead of the 30.75% levied on ordinary income. The dividends from your Oregon munis are tax-exempt.

Your taxable portfolio is already exceeding your stated goal. Turn off dividend reinvesting and, barring a total collapse of the market, more than $10K should be sitting in your Schwab cash sweeps account by the end of the year.

With that in mind...there's no need to rush this process. You've got some time to carefully and tax-efficiently transition this to a more-diversified solution that will reduce your risk going forward. In the meantime, enjoy the fountain of dividends...and be thankful for your good fortune!
It looks like when the account transferred over, it defaulted to selecting "off" for dividend reinvestment, unless i dont remember selecting that, so should be set there. I suspect i can move to a point to do better than 4.40%? Being very inexperienced is causing me to feel i need to get something done ASAP, so thank you for the good advice on slowing down.

I am going to have a call/meeting with the local branch and talk with a consultant, just to see what they say. Also im hoping they can help me understand how to move funds around online and maybe discuss some tax considerations i need to make with this account.

I will also be reaching out to my tax professional in hopes she can guide through some of the tax implications associated with this account as well. I confirmed the cost basis info transferred over to Schwab correctly.
typical.investor
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Re: New Schwab Portfolio Advice

Post by typical.investor »

Do better than a yield of 4.4%? Trust me, that isn’t your goal.

Many retirees find dividends comforting because there is a regular payout they can see and spend from.

Total returns are more than dividends though and include capital appreciation which is generally better tax wise if in a taxable account.

So a fund like SCHB has a yield much lower than 4.4% but total returns which are higher.

I haven’t looked up your taxable holdings, but assuming they include some stocks, likely have seen some capital appreciation in addition to their yield.
Topic Author
emmagator
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Re: New Schwab Portfolio Advice

Post by emmagator »

typical.investor wrote: Thu Apr 29, 2021 9:04 am Do better than a yield of 4.4%? Trust me, that isn’t your goal.

Many retirees find dividends comforting because there is a regular payout they can see and spend from.

Total returns are more than dividends though and include capital appreciation which is generally better tax wise if in a taxable account.

So a fund like SCHB has a yield much lower than 4.4% but total returns which are higher.

I haven’t looked up your taxable holdings, but assuming they include some stocks, likely have seen some capital appreciation in addition to their yield.
So 4.4% is good? So the one of the main benefit of moving the stocks to something like SCHB, is stability and less volatility?
Bear906
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Re: New Schwab Portfolio Advice

Post by Bear906 »

Keep in mind that your Schwab representative isn't supposed to give out tax advice.

To generate $10,000 in income on a $550,000 portfolio, you need a 1.82% yield.

The total return of a portfolio includes dividends. Your portfolio is averaging a 7.08% annual return. It's generating a 4.4% yield. That leaves 3.68% for the growth of your principal: capital gains. If you just withdraw $10K in dividends and reinvest the rest, your portfolio is growing at an average annual return of 5.26%.

Using your target-date fund SWYGX as a template, let's consider this replacement portfolio for your Taxable account:

52% SCHB
26% SCHF
22% SWNTX

Since January 2015, this portfolio has generated a 9.46% annualized return. It is currently yielding 1.33%. You would have sell 0.49% of the portfolio's assets to bring your current income up to 1.82% of the portfolio, or $10,000. That still leaves you with a gain of 7.64% annually, instead of your current portfolio's 5.25%.

Over the long haul, a ~2.4% bump in total return makes a huge difference. Without withdrawing any dividends, $550K invested in your current Taxable portfolio in January, 2015 would be worth $843,370 today. $550K invested in the proposed portfolio at the same time would be worth $967,725 today.

That's a difference of $124,355 in less than 7 years.
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
Topic Author
emmagator
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Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Thu Apr 29, 2021 12:53 pm Keep in mind that your Schwab representative isn't supposed to give out tax advice.

To generate $10,000 in income on a $550,000 portfolio, you need a 1.82% yield.

The total return of a portfolio includes dividends. Your portfolio is averaging a 7.08% annual return. It's generating a 4.4% yield. That leaves 3.68% for the growth of your principal: capital gains. If you just withdraw $10K in dividends and reinvest the rest, your portfolio is growing at an average annual return of 5.26%.

Using your target-date fund SWYGX as a template, let's consider this replacement portfolio for your Taxable account:

52% SCHB
26% SCHF
22% SWNTX

Since January 2015, this portfolio has generated a 9.46% annualized return. It is currently yielding 1.33%. You would have sell 0.49% of the portfolio's assets to bring your current income up to 1.82% of the portfolio, or $10,000. That still leaves you with a gain of 7.64% annually, instead of your current portfolio's 5.25%.

Over the long haul, a ~2.4% bump in total return makes a huge difference. Without withdrawing any dividends, $550K invested in your current Taxable portfolio in January, 2015 would be worth $843,370 today. $550K invested in the proposed portfolio at the same time would be worth $967,725 today.

That's a difference of $124,355 in less than 7 years.
Ok would there be a different tax implication when using a SWYGX portfolio and selling the .49% to get 1.83% yield vs having my current portfolio putting dividends into cash and then pulling the 1.83% from those cash holdings?
Bear906
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Re: New Schwab Portfolio Advice

Post by Bear906 »

emmagator wrote: Thu Apr 29, 2021 1:26 pm Ok would there be a different tax implication when using a SWYGX portfolio and selling the .49% to get 1.83% yield vs having my current portfolio putting dividends into cash and then pulling the 1.83% from those cash holdings?
In your situation, the tax rate on a qualified stock dividend and a realized long-term capital gain from the sale of a security is the SAME.

If you liquidate your current portfolio and reinvest, you can start realizing long-term capital gains by selling the new holdings after you've owned them for over a year.

So, if you liquidate and reinvest, reinvest all but 0.49%, or $2695,of the portfolio. That would replace--and give you the use of--proceeds from selling securities that you won't want to touch until after they've become eligible for the long-term capital gains rate--a year and a day after you acquire the new holdings. Over the next year, the 1.33% yield expected from the portfolio would go into your cash sweeps account along with the 0.49% you didn't reinvest, for a total of 1.83% of your portfolio value--right around $10,000.

And keep in mind that the yield of a portfolio is going to fluctuate over the year. You might want to not reinvest, say, $3500, just to make sure you hit the $10K target if yields drop.
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
Topic Author
emmagator
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Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Thu Apr 29, 2021 3:30 pm
emmagator wrote: Thu Apr 29, 2021 1:26 pm Ok would there be a different tax implication when using a SWYGX portfolio and selling the .49% to get 1.83% yield vs having my current portfolio putting dividends into cash and then pulling the 1.83% from those cash holdings?
In your situation, the tax rate on a qualified stock dividend and a realized long-term capital gain from the sale of a security is the SAME.

If you liquidate your current portfolio and reinvest, you can start realizing long-term capital gains by selling the new holdings after you've owned them for over a year.

So, if you liquidate and reinvest, reinvest all but 0.49%, or $2695,of the portfolio. That would replace--and give you the use of--proceeds from selling securities that you won't want to touch until after they've become eligible for the long-term capital gains rate--a year and a day after you acquire the new holdings. Over the next year, the 1.33% yield expected from the portfolio would go into your cash sweeps account along with the 0.49% you didn't reinvest, for a total of 1.83% of your portfolio value--right around $10,000.

And keep in mind that the yield of a portfolio is going to fluctuate over the year. You might want to not reinvest, say, $3500, just to make sure you hit the $10K target if yields drop.
i have owned them for over a year.

I also have a call scheduled with a CFP from local Schwab branch Monday, as well as an appointment to see my tax lady. Hopefully they can slim down the amount of questions i have.
Bear906
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Re: New Schwab Portfolio Advice

Post by Bear906 »

emmagator wrote: Thu Apr 29, 2021 6:00 pm I also have a call scheduled with a CFP from local Schwab branch Monday, as well as an appointment to see my tax lady. Hopefully they can slim down the amount of questions i have.
Seeing a tax professional is a very wise move on your part. You should get the definitive answer there on what type of bond fund(s) should go in your Taxable account.

It would be a good idea to go to your Schwab account online and print out the first two pages of Schwab's Report Card for each of the following funds/ETFs. Bring them to your meeting with your tax lady so you'll have key facts about the investments handy. That way, she probably won't have to look them up online while you discuss your options:

ETORX Eaton Vance Oregon Municipal Income Fund
FRORX Franklin Oregon Tax Free Income Fund
SCHZ Schwab U.S. Aggregate Bond ETF
SWNTX Schwab Tax-Free Bond Fund
GOVT iShares U.S. Treasury Bond ETF
SCHR Schwab Intermediate-Term U.S. Treasury ETF
SCHB Schwab U.S. Broad Market ETF
SCHF Schwab International Equity ETF

The third page of the Schwab Report Cards are just footnotes and disclaimers. Don't bother printing them out.

Good luck with your meetings!
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
Topic Author
emmagator
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Re: New Schwab Portfolio Advice

Post by emmagator »

Bear906 wrote: Fri Apr 30, 2021 2:28 am
emmagator wrote: Thu Apr 29, 2021 6:00 pm I also have a call scheduled with a CFP from local Schwab branch Monday, as well as an appointment to see my tax lady. Hopefully they can slim down the amount of questions i have.
Seeing a tax professional is a very wise move on your part. You should get the definitive answer there on what type of bond fund(s) should go in your Taxable account.

It would be a good idea to go to your Schwab account online and print out the first two pages of Schwab's Report Card for each of the following funds/ETFs. Bring them to your meeting with your tax lady so you'll have key facts about the investments handy. That way, she probably won't have to look them up online while you discuss your options:

ETORX Eaton Vance Oregon Municipal Income Fund
FRORX Franklin Oregon Tax Free Income Fund
SCHZ Schwab U.S. Aggregate Bond ETF
SWNTX Schwab Tax-Free Bond Fund
GOVT iShares U.S. Treasury Bond ETF
SCHR Schwab Intermediate-Term U.S. Treasury ETF
SCHB Schwab U.S. Broad Market ETF
SCHF Schwab International Equity ETF

The third page of the Schwab Report Cards are just footnotes and disclaimers. Don't bother printing them out.

Good luck with your meetings!
Bear906 thanks. Really appreciate you taking the time to help.
Topic Author
emmagator
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Re: New Schwab Portfolio Advice

Post by emmagator »

Met with tax lady. Depending on which way i go, i think we have a plan tax wise.

I also met with with a CFP from Schwab. All in all seemed like a good meeting. Based on our goals and some of the investments ive been talking about, hes going to come up recommended plan and see what we think. He knows i will not be enrolling into a managed portfolio, but seems to be willing to work with us to get a good foundation, i take it from there(we'll see). I assume there will be some fees if i have him build the portfolio per my goals and instruction, but I may be willing to pay those if its a good foundation to move forward with. Or i have the option to review his recommendations and move forward myself, we'll see what he actually provides?
Bear906
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Re: New Schwab Portfolio Advice

Post by Bear906 »

emmagator wrote: Mon May 03, 2021 3:46 pm Met with tax lady. Depending on which way i go, i think we have a plan tax wise.

I also met with with a CFP from Schwab. All in all seemed like a good meeting. Based on our goals and some of the investments ive been talking about, hes going to come up recommended plan and see what we think. He knows i will not be enrolling into a managed portfolio, but seems to be willing to work with us to get a good foundation, i take it from there(we'll see). I assume there will be some fees if i have him build the portfolio per my goals and instruction, but I may be willing to pay those if its a good foundation to move forward with. Or i have the option to review his recommendations and move forward myself, we'll see what he actually provides?
Congratulations on your successful meetings! With the framework of a tax management plan now in place, I bet you're feeling a lot more confident about this process going forward.

Schwab has a number of model portfolios detailed here:
https://www.schwabmoneywise.com/public/ ... allocation
From what I've observed, their robo-advisor doesn't stray too far from these models. I'd similarly expect your Schwab CFP to make a proposal that's not unlike one of the models. We'll see.
Retirement: 48% WFSPX/SWPPX 12% BDOKX 40% PRRIX -- Other Needs: 25% SCHG 75% SCHR
Topic Author
emmagator
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Re: New Schwab Portfolio Advice

Post by emmagator »

Ive been doing some research into the Schwab intelligent portfolios. I know that that Schwab requires part of the portfolio to be in cash. Sifting through threads it seems most view that as a negative. However, I also see many recommendations from other investment resources(other than this forum), that suggest having some cash in your portfolio is not a negative, and is many times, is recommended to help reduce "portfolio volatility." What am i missing?
typical.investor
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Re: New Schwab Portfolio Advice

Post by typical.investor »

emmagator wrote: Wed May 05, 2021 9:40 am Ive been doing some research into the Schwab intelligent portfolios. I know that that Schwab requires part of the portfolio to be in cash. Sifting through threads it seems most view that as a negative. However, I also see many recommendations from other investment resources(other than this forum), that suggest having some cash in your portfolio is not a negative, and is many times, is recommended to help reduce "portfolio volatility." What am i missing?
It’s cheapest if you can DIY. Cash in a portfolio is fine, but the rate Schwab gives in SIP is less than you can get elsewhere.

That said, the cost of SIP when you factor in the cash drag is very similar to what Vanguard’s PAS charge.

It’s a fine product for those who want to be hands off. A target index retirement fund is cheaper though.
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LilyFleur
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Re: New Schwab Portfolio Advice

Post by LilyFleur »

Schwab has proprietary software that your Schwab advisor will use to run Monte Carlo simulations for you and give you a report. Your Schwab advisor can run it different ways for you (I recently got part-time employment, so he re-ran the report and it raised the chance of success for my portfolio by 10%!) The advisor can also add in "lumpy" expenses. I think he put $200,000 in the plan in 2023 for me to help out on down payments for my children's houses.

I get this free of charge yearly. However, I temper it with reading this forum. For example, my advisor says that traditionally this is the order of spending in retirement: taxable, tax-deferred retirement accounts, and then any Roths. I like to study tax strategy and may or may not follow that strictly, depending on my tax strategy for any given year. If tax laws preserve the step-up in cost basis in a taxable account when a person dies, I might leave some in there for my children to inherit and spend out of my 401k if my tax bracket is lower than theirs.

There are lots of tax nuances that you won't learn about in the complimentary Schwab visit, like IRMAA cliffs and whether or not a Roth conversion is a good idea for you, and tax loss and tax gain harvesting. Those things I learned about here.
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emmagator
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Re: New Schwab Portfolio Advice

Post by emmagator »

typical.investor wrote: Wed May 05, 2021 11:16 am
emmagator wrote: Wed May 05, 2021 9:40 am Ive been doing some research into the Schwab intelligent portfolios. I know that that Schwab requires part of the portfolio to be in cash. Sifting through threads it seems most view that as a negative. However, I also see many recommendations from other investment resources(other than this forum), that suggest having some cash in your portfolio is not a negative, and is many times, is recommended to help reduce "portfolio volatility." What am i missing?
It’s cheapest if you can DIY. Cash in a portfolio is fine, but the rate Schwab gives in SIP is less than you can get elsewhere.

That said, the cost of SIP when you factor in the cash drag is very similar to what Vanguard’s PAS charge.

It’s a fine product for those who want to be hands off. A target index retirement fund is cheaper though.
I really like the dividends that my current portfolio has the potential to make. We would like to be able to pull up to 15k a year to supplement income out of this account.

Im not sure what the downside of leaving it as is for now?
typical.investor
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Re: New Schwab Portfolio Advice

Post by typical.investor »

emmagator wrote: Tue May 11, 2021 9:23 am
I really like the dividends that my current portfolio has the potential to make. We would like to be able to pull up to 15k a year to supplement income out of this account.

Im not sure what the downside of leaving it as is for now?
The downsides I see are:

1) a little extra concentration risk in the handful of individual stocks
2) extra costs for the actively managed funds

As for pulling out 15k/year, you don't need dividend stocks to do that. Long term (+1 year) capital gains are taxed at the same rate as dividends. So really you can make a dividend any time you choose. (short term capital gains and nonqualified dividends are both taxed at your ordinary income rate).

I like to go fo the low hanging fruit. Are you going to move from Edward Jones? That to me is a clear move you should make.
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