How to best invest proceeds from taxable company stock compensation?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

How to best invest proceeds from taxable company stock compensation?

Post by iim7V7IM7 »

I wanted to solicit advise on how to best invest taxable $ with a 5-7 time frame. This money is NOT part of our retirement savings which are invested tax deferred in a 401k, IRAs and Roth IRAs. We. Also have a separate 6 month liquid savings. We are 60 years old and have a 60/40 asset allocation. This taxable money will be primarily used to supplement our current home sale to buy our retirement home in another state in 5 to 7 years. Any remaining money will likely be used to delay social security from 67 to 70.

Part of my long-term compensation is given in company stock RSUs (I work for a DOW 30 company) paid out in thirds across a 3-year period. When shares are granted I sell them. I have about $250,000 in the Vanguard Municipal Money Market (VMSXX) from prior sales of company RSUs. I am in the 35% Federal tax bracket and a 6.37% State tax bracket. Each year, when I receive shares, they are taxed as income and I sell them near the day that they are granted (minimal short term capital gains) and put the proceeds into VMSXX. This is approximately $50,000/year each May. I also contribute about $10,000/year from an annual cash bonus each March. So figure + $60k/year over the next 5 years from 2022-2026 when I am planning to retire.

Proposed Portfolios:

I was thinking of investing it in Vanguard Tax-Managed Balanced (VTMFX) which is 40-50% stocks and 50-60% bonds but given the relatively short time horizon, I am now thinking to invest the money in something more conservative like a 20% stock / 60% bonds / 20% cash portfolio comprised of:

Vanguard Municipal Money Market - 20% VMSXX $50,000
Vanguard Short Term Tax Exempt - 20% (VWSTX $50,000
Vanguard Intermediate Term Tax Exempt - 40% (VWITX) $100,000
Vanguard Total Stock Market Index - 20% (VTSAX) $50,000
or
Vanguard Tax-Managed Capital Appreciation (VTCLX) $50,000

Questions:

Given my tax bracket and goals for the money what do you think of this proposed portfolio?
Are there alternatives that I should consider?
At my tax bracket is Tax-Managed Capital Appreciation preferred over Total Stock Market Index?
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: How to best invest proceeds from taxable company stock compensation?

Post by anon_investor »

iim7V7IM7 wrote: Sat Nov 27, 2021 5:50 pm I wanted to solicit advise on how to best invest taxable $ with a 5-7 time frame. This money is NOT part of our retirement savings which are invested tax deferred in a 401k, IRAs and Roth IRAs. We. Also have a separate 6 month liquid savings. We are 60 years old and have a 60/40 asset allocation. This taxable money will be primarily used to supplement our current home sale to buy our retirement home in another state in 5 to 7 years. Any remaining money will likely be used to delay social security from 67 to 70.

Part of my long-term compensation is given in company stock RSUs (I work for a DOW 30 company) paid out in thirds across a 3-year period. When shares are granted I sell them. I have about $250,000 in the Vanguard Municipal Money Market (VMSXX) from prior sales of company RSUs. I am in the 35% Federal tax bracket and a 6.37% State tax bracket. Each year, when I receive shares, they are taxed as income and I sell them near the day that they are granted (minimal short term capital gains) and put the proceeds into VMSXX. This is approximately $50,000/year each May. I also contribute about $10,000/year from an annual cash bonus each March. So figure + $60k/year over the next 5 years from 2022-2026 when I am planning to retire.

Proposed Portfolios:

I was thinking of investing it in Vanguard Tax-Managed Balanced (VTMFX) which is 40-50% stocks and 50-60% bonds but given the relatively short time horizon, I am now thinking to invest the money in something more conservative like a 20% stock / 60% bonds / 20% cash portfolio comprised of:

Vanguard Municipal Money Market - 20% VMSXX $50,000
Vanguard Short Term Tax Exempt - 20% (VWSTX $50,000
Vanguard Intermediate Term Tax Exempt - 40% (VWITX) $100,000
Vanguard Total Stock Market Index - 20% (VTSAX) $50,000
or
Vanguard Tax-Managed Capital Appreciation (VTCLX) $50,000

Questions:

Given my tax bracket and goals for the money what do you think of this proposed portfolio?
Are there alternatives that I should consider?
At my tax bracket is Tax-Managed Capital Appreciation preferred over Total Stock Market Index?
If you want to be 20/80, why not keep it simple?
20% VTSAX
80% VWITX
User avatar
Wiggums
Posts: 7051
Joined: Thu Jan 31, 2019 7:02 am

Re: How to best invest proceeds from taxable company stock compensation?

Post by Wiggums »

Vanguard Tax-Managed Capital Appreciation (VTCLX) is 100% stock??

20-40% stock is conservative and is reasonable for your timeframe.

Depending on your flexibility for the money in 5-7 years, you can add more stock.
"I started with nothing and I still have most of it left."
Topic Author
iim7V7IM7
Posts: 474
Joined: Sun Nov 21, 2021 12:26 pm

Re: How to best invest proceeds from taxable company stock compensation?

Post by iim7V7IM7 »

Using the Monte Carlo simulator (https://www.portfoliovisualizer.com/mon ... simulation) looking at specific tickers over a 5-year period, after tax returns, with a starting balance of $250k with annual $60k contributions ($550k), Federal Tax Rate of 35%, Cap Gains of 20%, Dividends of 20%, State Rate of 6.37%, statistical returns, normal returns, no adjustments to risk returns, full history, annual rebalancing, and looked at a variety of investment mixes.

Investment——————————-——10th———25th———50th——-75th———90th—Uncertainty
100% in Money Market (VMSXX)—$608k—-$614k——-$621k—-$628k——$635k——$27,000
20%/80% (VTCLX/VWITX)————$618k——$649k——-$668k—$694k——$721k——$103,000
30%/70% (VTCLX/VWITX)————-$617k—-$642K——-$672k—$705k—-—$735k—-$118,000
40%/60% (VTCLX/VWITX)————-$614k—-$644k——-$680k—$718k——-$755k—-$141,000
40%/60% (VSCGX)————————$628k—-$657k——-$692k—$730k——-$766k—-$138,000
40%/60% (VWINX)————————$679k—-$710k——-$747k—-$787k——-$825k—-$146,000
50%/50% (VTMFX)————————-$617k—-$651k——-$691k—$734k——-$776k—-$159,000
100% in Stocks (VTCLX)——————$571k—$636k——-$714k—-$807k——-$903k—-$332,000

So looking at all cash to all stock and a mix of tax efficient stock and muni bond mixes. I also included two theoretically tax inefficient balanced funds (life strategy conservative growth and actively Wellesley Income). Perhaps I set some parameters incorrectly, but at my tax rate I am not seeing the tax benefits of tax managed capital appreciation and intermediate term tax exempt funds over the tax inefficient peers. Am I missing something? I suspect YES.
Post Reply