My portfolio information and questions

[fermata]

The information below is my best attempt to follow the “Asking Portfolio Questions” template on the Bogleheads site, with some minor variations and adjustments.

Emergency funds: $70K in regular savings.

Debt: No current debt. Pay off CC each month. May purchase car in next year, so planning $500/month payment unless I pay cash.

Tax Filing Status: Single

Tax Rate: Effective rates: 14.5% Federal, 3% State

State of Residence:Ohio

Age:73

Relevant Personal Info

I’m single, no immediate family, but I do have four siblings, two of whom I’d like to help more. I have no other assets, such as a home or real estate investments, fine art, jewelry, etc. If I have some money to leave when I die, that’d be great. But if I spend it all, that’s OK too.

My current income is from a small pension and a decent social security check (I waited until I was 70). I’m finding I can live OK on that combined income stream, though I may want to purchase a condo at some point. My RMD, after 25% to the IRS, goes back into my taxable account. I drive a 20-year-old car, if that tells you anything about my lifestyle My biggest financial concerns (other than markets crashing) are 1)being able to fund my last few years in a senior living situation, 2)helping my two sisters out, and 3)being able to continue making annual contributions to my favorite charities.

I’ve been at Schwab for several years and overall I’m very pleased with them, and especially with my new account rep. I’ve moved money several times and it’s a pain. Schwab set it up so I can trade Vanguard funds with no trading fees, except of course for any redemption fees I might incur.

Before the nitty gritty starts below, I apologize for being too long-winded, redundant, repetitious, or whatever human failing is evident in this post. Oh, and for also occasionally using two periods at the end of a sentence, unless the BB removes them. Hey, I’m old. Thanks for bearing with me.

Current Asset Allocation:*From February 2022
35% US Equity
10% Intl Equity
11% Fixed Income
44% Cash

Desired Asset Allocation:
25% US Large Cap
5% US Small Cap
10% International
50% Fixed Income
10% Cash

Current Portfolio and some background information
I’m obviously well aware of my cash problem, and of too high expense ratios, particularly in the Roth holdings.

I have four accounts - two taxable, one of them a Schwab Intelligent Portfolios (SIP) account, the other a regular retail taxable account. Then I have a Rollover IRA, and a Roth IRA.

I’m way overloaded with cash, partly because a good chunk of it was in bond-ladder ETF’s (Guggenheim Bullet Shares, now something else) spanning several years. They’ve all liquidated now. Another part of the reason is that I was careless with stop-loss orders a few years back and a lot of valuable assets sold quickly during a volatile period. Also, I’m nervous about the bond market because of interest-rate risk.

In general, fear and overall inertia have held me back over the last few years. I go through periods of reading a lot, and then either life gets in the way, or I lose interest, or more likely I just become completely overwhelmed, leading to indecision and procrastination.

I’ve been happy making about 35-40% of what the major indexes were doing, even with too much cash. The SIP account was a major blunder in that I used taxable dollars, so getting out of all that “needless complexity masking as sophistication” (IMHO) will result in <mostly> long-term gains. By the way, SIP didn’t do a very good job with tax-loss harvesting, even in down times.

My accounts are listed below (images from a spreadsheet), as well as a cash summary at the end. Apologies for the different size images.

All cash held in investment accounts is available for investing, except the 10% cash reserve as mentioned above in Desired Asset Allocation.

Taxable


Taxable - SIP


Rollover IRA


Roth IRA


Cash Summary


After-tax RMD amounts (30 - 35K typically)

Contributions
No longer allowed to make contributions, unless there’s something I’m missing. A Roth conversion (see below in Questions) might be possible

Questions:
1. How do I simplify this mess? Should I just go with a Vanguard (or Schwab ETF equivalent) three of four fund portfolio? Actually, I’m not that far off from my desired allocation, exception converting the cash to fixed income.

2. Should I sell out of SIP all-at-once, or gradually? Or maybe I should keep SIP and let the cash there serve as part of my desired cash allocation. Same problem for the non-cash holdings in the regular taxable account though the numbers are smaller.

3. I have 3 equities with no cost basis. Not sure what to declare for those. Info got lost in the transfer process from other institutions, and one was for gifts of company stock but I can’t remember the dates. How safe is it to take guesses on figuring out cost basis?

4. The Roth holdings were based on advice from a Fidelity rep long ago. The account has performed badly, even in good times. I’d like to make it my highest risk account because it’s the last money I’ll spend.

5. I’ve always been concerned about interest-rate risk even though it’s never really materialized. I-Bonds are yielding 9.7% currently, but the limit is $10K in a single year. Is it a good place to stash some cash, knowing I’ll be able to wait the 12 months to maturity? What other bond investments, other than Vanguard’s fixed income funds, might make sense? Schwab had recommended SWVXX (money market fund) as a holding place when the annual yield was something like 2.5%. No more. I guess short-term treasury ETF’s are the only safe option.

6. I’d like to switch to value funds/ETFs in my Rollover IRA and accrue as much as possible from dividends while maintaining relatively stable price performance. Does that make sense? And for the taxable side, invest in muni-bonds so at least I’d get a break from the IRS, even though Medicare adds them into my income to calculate MAGI which is used then to calculate my Part B premiums.

7. I’m getting slammed lately with SPY in the Rollover, because it contains so much tech. Does the 3 or 4 fund approach help smooth this out? I’ve researched a little on IVV and RSP as good ways to stay in the broad market but more evenly balanced.

8. If I decide to purchase a condo and I have the cash available, is it better to pay for it outright or take a mortgage? When rates were low, I’d have take a mortgage in order to preserve potentially investable assets, but now in a rising rate environment, maybe that’s not the best choice.

9. Every year I think about, but never do, a Roth conversion. I’ve read that converting an amount that takes you to the highest income level within your current marginal tax bracket is a good strategy. It’s something I should have done in 2020 when I didn’t have to take the RMD because of covid and therefore had a relatively low taxable income. Hindsight! What are other ways to avoid taxes on RMD’s and to become more tax-efficient in general?

I keep getting invitations from local money manager types to go to group lunches or dinners. I went to one. The emphasis was on buying annuities and/or letting them manage the money for 1+%. They claim to be fiduciaries, i.e., aren’t selling specific products for a commission. Not sure how they can claim that and at the same time trying to sell annuities, or… what am I missing? Years ago, I hired someone to give me advice. She advised that I work 3 more years (this was during the great recession) and then recommended several of the high expense ratio funds in my accounts. Generally speaking, I’m leary of professional advice, unless it really is fee-for-advice only, hopefully along with some good tax advice. Then again, it might be easy to claim that I’ve been penny-wise but pound-foolish in not being willing to turn it over to someone.

I guess I should end this stream-of-consciousness post. It’s taken me forever to decide to do this, and then when I did make up my mind to try, it took me another forever to actually do it. See above re: inertia, procrastination, etc. And finally, thanks for reading this and for any advice you’re willing to give. I will respond to all comments, one way or another.

[niagara_guy]

what you are missing is that they lie like a rug. They want 1% plus other fees to manage your money and then they will sell you an annuity you probably don't want. You have 1.8mm, why would you give someone 18k per year as a 1% commission? I sure as heck wouldn't. Oh but wait, you got a 'free' dinner. I get it.

If you need professional advise (and probably you will get just as good advice here) then find someone who charges by the hour. There have been some recommendations in posts here.

If you sell in taxable you will pay taxes on gains, so it's worth planning ahead and maybe taking losses if you have any first. You can sell by lots if you have spec-id turned on which might help. If you are in a low tax bracket then long term capital gains will be in a lower tax bracket so the tax hit will be lower.

[fermata]

I was kind of being sarcastic about the advisor/dinner thing. I know it's a bad idea, so I wasn't actually missing that. Thanks for your advice.

[LeeMKE]

I'll make a stab at your questions:

First, there is way too much complexity in your holdings for our taste. This does not have to be so difficult. Read about the 3 and 4 fund portfolios and move toward this. The fees you are paying are a big part of the reason your Roth is doing poorly. Yup, the SIP was a bad idea. Me, I'd rip the bandaid off and get rid of that account. Others may differ.

Second, did you say what your annual spending is? No matter, you ain't spending 4% of 1.8 million. Once you make the decision about whether to buy a property, you might want to consider beginning gifts to your sisters instead of waiting for your demise. And converting to Roth for the next few years will position some money more efficiently.

Third, in my planning, I am staying aware of my age. I know I won't be as sharp in a few years as I am now. You also may want to clean this up and streamline both the holdings inside your accounts and how you manage cash. Letting this much cash sit around has not helped you, and now that inflation is back, this a a serious risk for you, losing 10% each year. The good news is that the market is down, so you can re-arrange things right now with less downside risk.

Welcome to the forum!

[NYCPete]

Welcome to the forum, fermata!

Re: questions 1 & 2 - Simplifying the taxable accounts may include incurring capital gains taxes. Is that the case for you? If so, minimizing any capital gains taxes is something to be aware of. If you're typically donating cash to charity every year, there's a simplification and tax-minimizing tactic available to you. You might find it worthwhile to donate appreciated stock, ETF, or mutual funds to charity or a donor advised fund, and then whatever cash you would have donated, you can instead use the cash to invest in your more preferred new asset allocation.

For example, say you typically donate $10,000 a year to a charity, using cash. Instead, you donate approximately $10K of appreciated investments out of the SIP, or one of the individual stocks in your taxable account. The charity sells the investment instead of you, and you avoid the capital gains. You then take the $10,000 in cash you would have donated, and instead invest it in the four fund portfolio. Wash, rinse, repeat. Depending on what your giving annually typically is, you could do this for any number of years and avoid most of the tax consequences of simplifying your investments and getting out of the SIP.

Re: Question 9, if you're being forced to take RMDs and you don't need them, you can also essentially donate the RMD to charity, and not realize the income. From a tax perspective, it's typically better than taking the RMD, turning around and donating the cash, and then taking a deduction. As with my previous example, if you're already donating cash to charity, you could switch to donating this way and likely save some taxes. Qualifed Charitable Distribution is the term you'll want to communicate to the IRA custodian. The charities you donate to can help in that process. Making QCDs can offset your RMD, or potentially eliminate it completely.

Hope this helps!

Best,
Peter

[fermata]

Thanks, LeeMKE, for your comments. Some replies below.

I'll make a stab at your questions:

First, there is way too much complexity in your holdings for our taste. This does not have to be so difficult. Read about the 3 and 4 fund portfolios and move toward this. The fees you are paying are a big part of the reason your Roth is doing poorly. Yup, the SIP was a bad idea. Me, I'd rip the bandaid off and get rid of that account. Others may differ.

Yeah, I'm thinking about "ripping the bandaid off the SIP", but more likely I'll DCA out of it. I read about the 3 or 4 fund portfolios but I'm stuck on how to start getting in - slowly or all at once or...?

Second, did you say what your annual spending is? No matter, you ain't spending 4% of 1.8 million. Once you make the decision about whether to buy a property, you might want to consider beginning gifts to your sisters instead of waiting for your demise. And converting to Roth for the next few years will position some money more efficiently.

I live on my pension and SS. Seems like enough. And you're right, 4% added to that would be way more than I've ever spent. That said, I'm pretty frugal.

Third, in my planning, I am staying aware of my age. I know I won't be as sharp in a few years as I am now. You also may want to clean this up and streamline both the holdings inside your accounts and how you manage cash. Letting this much cash sit around has not helped you, and now that inflation is back, this a a serious risk for you, losing 10% each year. The good news is that the market is down, so you can re-arrange things right now with less downside risk.

I think my age has a lot to do with my inability to focus better on investing. My excuse used to be that I was always working. Now I have no excuses, except, as you suggest, my aging brain . As far as cash, I'm worried about bond prices falling as yields rise. I guess I don't understand well enough how bonds work. If I buy an ETF of short term treasuries and/or TIPS, are they internally managed such that there aren't significant price fluctuations? Does that mean I'd be buying actively managed bond funds or ETFs?

[MarkVH0518]

Full disclosure: I'm 64; live in Ohio; retired 7 years; I only keep my cars for 15 years

Questions:
1. How do I simplify this mess? Should I just go with a Vanguard (or Schwab ETF equivalent) three of four fund portfolio? Actually, I’m not that far off from my desired allocation, exception converting the cash to fixed income.

The answer is YES, just do it - with one caveat. You will need to be concerned about capital gains in the taxable accounts.
My personal favorites are ETFs: ITOT (ishares total us stock), VXUS (you know), and BND (Vanguard total bond index)
This is where you find the funds that most match the 3-fund portfolio for each fund provider.
https://www.bogleheads.org/wiki/Three-fund_portfolio

2. Should I sell out of SIP all-at-once, or gradually? Or maybe I should keep SIP and let the cash there serve as part of my desired cash allocation. Same problem for the non-cash holdings in the regular taxable account though the numbers are smaller.

This is biggest problem area for you for two reasons: capital gains and high fees.
To deal with the taxable account match winners with losers to minimize total capital gains and then replace those monies
with your selected 3-fund portfolio equivalent.
You should also focus on selling the funds with highest fees first.
Sell until your capital gains hit the limit on your tax bracket (or IRMAA bracket)
Then execute the process again in the next year.
Repeat until all your holding in the 3-fund portfolio.

3. I have 3 equities with no cost basis. Not sure what to declare for those. Info got lost in the transfer process from other institutions, and one was for gifts of company stock but I can’t remember the dates. How safe is it to take guesses on figuring out cost basis?

Sorry, I have no suggestions here

4. The Roth holdings were based on advice from a Fidelity rep long ago. The account has performed badly, even in good times. I’d like to make it my highest risk account because it’s the last money I’ll spend.

Roth for the highest risk account is the correct perspective. See:
https://www.bogleheads.org/wiki/Tax-eff ... _placement
That wiki page is way too complicated; so here's the summary for the 3-fund investor:
Bonds first in traditional IRA; International first in Taxable (for small tax advantage); US Stocks first in Roth.
Second choice is much less important than first ones.
But the primary criteria is maintain your asset allocation across your entire accounts.

5. I’ve always been concerned about interest-rate risk even though it’s never really materialized. I-Bonds are yielding 9.7% currently, but the limit is $10K in a single year. Is it a good place to stash some cash, knowing I’ll be able to wait the 12 months to maturity? What other bond investments, other than Vanguard’s fixed income funds, might make sense? Schwab had recommended SWVXX (money market fund) as a holding place when the annual yield was something like 2.5%. No more. I guess short-term treasury ETF’s are the only safe option.

I've been worried the same for a good 20+ years - I finally gave up. I use ETF BND (Vanguards total bond fund).
Yes, bonds are down now, but the fund is still throwing off interest.
I'm eying purchase of 30 year TIPS once real rates reach 2%, but that is really not necessary - perhaps even discouraged by 3-fund advocates.

6. I’d like to switch to value funds/ETFs in my Rollover IRA and accrue as much as possible from dividends while maintaining relatively stable price performance. Does that make sense? And for the taxable side, invest in muni-bonds so at least I’d get a break from the IRS, even though Medicare adds them into my income to calculate MAGI which is used then to calculate my Part B premiums.

I recommend leaving your IRA stock holding pretty much alone. This is the account that is closest to 3-fund portfolio.
Just move your MM funds to BND. There is no reason to prefer dividends over capital gains, I even suggest selling VIG for ITOT (or you favorite total stock fund). SPY fully qualifies as a 3-fund portfolio fund - total stock funds are better, but SPY fully qualifies.
No need to sell SPY at all.

7. I’m getting slammed lately with SPY in the Rollover, because it contains so much tech. Does the 3 or 4 fund approach help smooth this out? I’ve researched a little on IVV and RSP as good ways to stay in the broad market but more evenly balanced.

Not really. As I stated above SPY is a 3-fund portfolio fund. If you go total stock fund, the percentage of tech might even increase.
If you intend to be a full-blooded, Boglehead 3-fund portfolio investor, then this is volatility you live with.

8. If I decide to purchase a condo and I have the cash available, is it better to pay for it outright or take a mortgage? When rates were low, I’d have take a mortgage in order to preserve potentially investable assets, but now in a rising rate environment, maybe that’s not the best choice.

Personally, I think debt in retirement is a bit nuts, but I've not done detailed analysis

9. Every year I think about, but never do, a Roth conversion. I’ve read that converting an amount that takes you to the highest income level within your current marginal tax bracket is a good strategy. It’s something I should have done in 2020 when I didn’t have to take the RMD because of covid and therefore had a relatively low taxable income. Hindsight! What are other ways to avoid taxes on RMD’s and to become more tax-efficient in general?

Yes, Roth conversions to current marginal bracket is a useful strategy, but not a super, super big winner.
QCD, as stated in a previous post, are charitable donations taken in lieu of RMD and are therefore not taxed.

I keep getting invitations from local money manager types to go to group lunches or dinners. I went to one. The emphasis was on buying annuities and/or letting them manage the money for 1+%. They claim to be fiduciaries, i.e., aren’t selling specific products for a commission. Not sure how they can claim that and at the same time trying to sell annuities, or… what am I missing? Years ago, I hired someone to give me advice. She advised that I work 3 more years (this was during the great recession) and then recommended several of the high expense ratio funds in my accounts. Generally speaking, I’m leary of professional advice, unless it really is fee-for-advice only, hopefully along with some good tax advice. Then again, it might be easy to claim that I’ve been penny-wise but pound-foolish in not being willing to turn it over to someone.

If you are living on your pension + social security AND you have all these investment, then
THERE IS ABSOLUTELY NO REASON FOR YOU TO PURCHASE AN ANNUITY OF ANY KIND


This should be enough for you to start by working on your Roth account first.
By just starting - you will learn so much while taking action.
I concede that managing the taxable account deserves a bit of consideration on taxes.
But if you focus on keeping capital gains down and ridding yourself of the highest fees first you will be able to
produce a roadmap for execution

Regards
Mark

[fermata]

Welcome to the forum, fermata!

Thanks Peter. Some thoughts below.

Re: questions 1 & 2 - Simplifying the taxable accounts may include incurring capital gains taxes. Is that the case for you? If so, minimizing any capital gains taxes is something to be aware of. If you're typically donating cash to charity every year, there's a simplification and tax-minimizing tactic available to you. You might find it worthwhile to donate appreciated stock, ETF, or mutual funds to charity or a donor advised fund, and then whatever cash you would have donated, you can instead use the cash to invest in your more preferred new asset allocation.

For example, say you typically donate $10,000 a year to a charity, using cash. Instead, you donate approximately $10K of appreciated investments out of the SIP, or one of the individual stocks in your taxable account. The charity sells the investment instead of you, and you avoid the capital gains. You then take the $10,000 in cash you would have donated, and instead invest it in the four fund portfolio. Wash, rinse, repeat. Depending on what your giving annually typically is, you could do this for any number of years and avoid most of the tax consequences of simplifying your investments and getting out of the SIP.

Yes, it is the case that I have gains in both taxable accounts (though shrinking rapidly the past couple of months). You've definitely piqued my interest about donating stock and not incurring the cap gains hit because someone else owns it and is selling it or whatever they're doing with it. I'll have to learn more about how to do that. I wonder if I'd have to transfer those holdings out of SIP and into my other taxable account before I do that. I'll ask Schwab

Re: Question 9, if you're being forced to take RMDs and you don't need them, you can also essentially donate the RMD to charity, and not realize the income. From a tax perspective, it's typically better than taking the RMD, turning around and donating the cash, and then taking a deduction. As with my previous example, if you're already donating cash to charity, you could switch to donating this way and likely save some taxes. Qualifed Charitable Distribution is the term you'll want to communicate to the IRA custodian. The charities you donate to can help in that process. Making QCDs can offset your RMD, or potentially eliminate it completely.

OK, so this is similar to your first point about donating stock, except that in this case I'm donating some or all of the RMD amount to charity before I actually take the RMD. I'll have to check with Schwab re: Qualified Charitable Distributions.

I really appreciate the techniques you've advised I look into, but they also remind me of my anxiety about doing this sort of thing on my own. It comes back to the question of whether I should hire a fee for advice planner/tax consultant, or learn enough to execute these things on my own.

Thanks again so much for your tax-saving/tax efficiency tips. Definitely going to dig into this.

[LeeMKE]

It sounds like you are in agreement on several suggestions. So, here is a shopping list for you to do now. Please don't fool around and miss this once in a lifetime opportunity while all the markets are down. The last time I gave someone a shopping list, they dawdled until the market rose, and now are sitting on almost all cash and whining that they should have moved when we talked in 2009. That was a life altering mistake for them. Don't be them.

1. Open a charitable account at Schwab.
Move assets equal to this year's RMD to this account, from your SIP. And think about moving more than this year's RMD - the sooner you get the assets in the charitable account, the more tax shelter you create for other sales in your taxable accounts. I would move those stock holdings into the charitable account. You don't have documentation to moderate the taxable portion, so just solve it by giving it to charity. One less thing to think about.

You don't need to think about where to deploy this money. You get the deduction this year, to use to help with the other moves you should be making, and can later come back to make donations. We solved a similar problem for a friend, and he used the charitable account to make his usual donations for several years.

2. Pick your 3/4 funds you want to use. See here: https://www.bogleheads.org/wiki/Three-fund_portfolio.

3. I'll be back in a few hours. I just realized I have a meeting coming up. Back soon!

[LeeMKE]

NOTES:
There are several goals in this process:
Fix the bleeding caused by high fees and too much cash.
Streamline the portfolio for easier management as your retirement progresses. Or, as my ISP states, "so a monkey can manage the portfolio if I become unable to do so." KISS is my motto.

3. Sell all in Roth and IRA.
This is not a taxable event inside these accounts.
4. Buy your new funds as per this outline:
ONE fund for each row. Remember, KISS.


NOTES:
I started with a portfolio as you described,
30% US Stocks (use Total Market, no need for slicing and dicing. That just raises fees and complexity)
10% International Stocks
50% Bonds
10% Cash

But you mention that you may buy a home, and with your history, I suspect you'd like to have a bit more cash available. Finally, you will find banks reluctant to give you a mortgage, and frankly, it ain't worth the trouble when you have enough to pay cash. No point buying swimming pools for some mortgage bankers. So, I put about 300K in cash, and reduced the bond percent to accommodate the extra cash.

Next up: The Taxable account

[NYCPete]

I really appreciate the techniques you've advised I look into, but they also remind me of my anxiety about doing this sort of thing on my own. It comes back to the question of whether I should hire a fee for advice planner/tax consultant, or learn enough to execute these things on my own.

Thanks again so much for your tax-saving/tax efficiency tips. Definitely going to dig into this.

Speaking as a Boglehead who works in the charitable sector, you're going to run into this conundrum: most financial advisors, even a surprising number of good fee only ones, don't keep up on or prioritize effective charitable techniques. Most tax advisors don't have a good grasp of sound investment planning. And charities & charitable advisors by their nature aren't going to be able to give you advice that the first two types do. It's not the easiest to find a good advisor who can check off all the boxes. Unfortunately, in most cases you as the investor and donor are the only one who holds all the cards, informationally speaking.

If it's any encouragement, if you're capable enough to organize your finances in the suggested format of the Bogleheads forum, you're totally capable of figuring this stuff out!

You've definitely piqued my interest about donating stock and not incurring the cap gains hit because someone else owns it and is selling it or whatever they're doing with it. I'll have to learn more about how to do that.

I can't speak for all charities, but it is pretty standard practice that charities will sell donated securities shortly after receiving, sometimes the very next day. A donor needs to contact the charity to get transfer information and instructions, and then the donor uses that information on their end with their brokerage. Stock and ETFs are the easiest to donate. Mutual funds can get a little complicated for charities to receive, and the process can take longer.

1. Open a charitable account at Schwab.
Move assets equal to this year's RMD to this account, from your SIP. And think about moving more than this year's RMD - the sooner you get the assets in the charitable account, the more tax shelter you create for other sales in your taxable accounts. I would move those stock holdings into the charitable account. You don't have documentation to moderate the taxable portion, so just solve it by giving it to charity. One less thing to think about.

LeeMKE has given you a great suggestion, and I want to unpack it for you a bit. It's squarely dealing with the first option I described in my previous post, not the second.

The situation
-You've got cash coming out of your IRA in the form of an RMD, every year.
-You know how much this cash amount is.
-You want to redeploy your taxable investments without taking a capital gains tax hit.
-You also want to give to charity.

The solution
-Based on the RMD table, your age, and the IRA balance you've shared, you're next going to have an RMD of approximately $19,000.
-This means you could donate roughly $19K to charity this year, and mostly offset the taxes from the RMD.
-But you're not going to donate $19K in cash, you're going to donate $19K in appreciated investments where you have capital gains.
-Prioritize donating the investments with the highest capital gain.
-Then use the cash you received from the RMD to reinvest in the four fund portfolio-type investment in your taxable account.

What this does is uses cash from the IRA that has to come out anyway, and uses it to help you start simplifying your investments.

What about a "charitable account" you might ask? What's being suggested here is opening a donor advised fund at Schwab Charitable. Why would you do this?
-Most large not-for-profits can easily administer accepting gifts of appreciated securities. But your local religious institution, or neighborhood food pantry might not. For those small organizations, donors often use a donor advised fund (DAF) to donate appreciated securities and then send the cash from the DAF to the charity.
-If one donates to numerous charities, it can be a pain to go through a securities transfer process with each charity.
-Using a DAF that is essentially attached to the financial institution where you hold your investments makes it a really smooth process to donate appreciated securities.
-The DAF can sell the appreciated investments and give you the charitable deduction, since the DAF is a 501c3. You avoid cap gains and get a deduction just like you would if you did it to your favorite charity.

The drawbacks to a DAF
-While you do get a deduction immediately after donating to the DAF, from the standpoint of making the impact you want to make with your donations on your favorite charities, that doesn't happen until you tell the DAF to send a check to your charity. You still have to tell it to make the gift.
-There are fees to have a DAF, but in most cases there are not fees to give directly to charities.

Hope this gives earlier suggestions more context.

Best,
Peter

[LeeMKE]

5. The Taxable Account is last and will take several steps to keep your taxes at a reasonable level.
a. First, the numbers on the chart will be different because you should have already moved all the individual stocks to the Charitable account, and an amount equal to or greater than your RMD for 2022. Pick your best winners to move IN KIND to the Charitable account. Jot down the total amount, which you will use in a few more steps.
b. Next, match your winners and losers. That is, find out the gains/losses in each fund, and then match them so that you sell a fund with a $10000 gain, matched with a fund or two with a total $10000 loss, which will zero out taxes. This is a great moment to do this. DON'T PROCRASTINATE! You won't get another opportunity to do this once the market begins to recover. It will cost a fortune in taxes later. Do it now.
When I am doing this, I sell as I go, so it is easier to see what is left to be done.
c. Now, you'll be left with a few funds that have gains. Compare these gains to the tax deduction you have from the first round of donating assets to your Charitable account. Remember that these funds will generate Long Term Capital Gains, but the donations from step 5.a. are reductions to ordinary income. You will be able to stretch the tax shelter of the Charitable account to cover a nice hunk of LTG (Long Term Gains).
If the tax bill looks too big for you to swallow, you still have some choices:
i. Donate the biggest winners that are left, until you get the tax bill down enough for you to pull the trigger.
ii. Do it anyway. This problem isn't going away, and each year your RMD is increasing and causing the problem to get bigger. Rip off the bandage and get on with life.

[LeeMKE]

NYCPete » Fri May 13, 2022 7:44 am

fermata wrote: ↑Thu May 12, 2022 8:56 pm

I really appreciate the techniques you've advised I look into, but they also remind me of my anxiety about doing this sort of thing on my own. It comes back to the question of whether I should hire a fee for advice planner/tax consultant, or learn enough to execute these things on my own.

Thanks again so much for your tax-saving/tax efficiency tips. Definitely going to dig into this.
Speaking as a Boglehead who works in the charitable sector, you're going to run into this conundrum: most financial advisors, even a surprising number of good fee only ones, don't keep up on or prioritize effective charitable techniques. Most tax advisors don't have a good grasp of sound investment planning. And charities & charitable advisors by their nature aren't going to be able to give you advice that the first two types do. It's not the easiest to find a good advisor who can check off all the boxes. Unfortunately, in most cases you as the investor and donor are the only one who holds all the cards, informationally speaking.

If it's any encouragement, if you're capable enough to organize your finances in the suggested format of the Bogleheads forum, you're totally capable of figuring this stuff out!

Pete is correct. Folks with much worse issues have arrived here and been able to get themselves organized. You saved plenty, but who knew that spending it down was going to be so scary!

A few things I will add about the DAF accounts:
You can make the donations anonymously, which I really appreciate.
And you can "donate" to the DAF, but take a few years to disburse to charities. While large charities can choke down large donations responsibly, small charities may not. One of the Bogleheads in our local chapter made a large contribution to his new DAF, but had the donation disbursed to his church a bit at a time.
In the event of my demise, my friends will be let loose to choose charities for the remainders. If they can't agree, the DAF automatically begins disbursements 5 years after no activity (My DAF is at Fidelity, but Schwab is probably the same or similar since they are all working under the same federal law.) to a grab bag of typical charities.

[LeeMKE]

OOPS! One mistake in Pete's post that is key to the OP

The drawbacks to a DAF
-While you do get a deduction, from the standpoint of making the impact you want to make with your donations, that doesn't happen until you tell the DAF to send a check to your charity. You still have to tell it to make the gift.

The deduction happens when the assets are moved into the DAF. No need to disburse to charities immediately.

[LeeMKE]

Send me a PM with your email address and I'll send you the excel file I created for your portfolio.

This would allow you to change the numbers as you go, so you can make adjustments as necessary.

Keep going!

P.S. I did not discuss Roth conversions (which will shock others on the forum who know I am a big advocate of Roth conversions to reset portfolios) because it will not move the needle for you. The big gain is to take advantage of this down market to get the portfolio reset and ready for ease of management. There are plenty of ideas to jigger portfolios into better shape. But you can hear lots of noise and get confused and then do nothing. One step at a time.

[LeeMKE]

6. Use the cash in Taxable to buy bonds as per the portfolio outline.

So, you should end up with a tidy portfolio that is easier to manage and tax efficient.

Future RMDs are not sufficient to allow you to correct the SIP and other drags on returns in a reasonable time frame. You need to reorganize the portfolio. And you have a golden moment that will not last, when everything is down.

O.K. I think I'm finished.

[NYCPete]

OOPS! One mistake in Pete's post that is key to the OP

The drawbacks to a DAF
-While you do get a deduction immediately after donating to the DAF, from the standpoint of making the impact you want to make with your donations on your favorite charities, that doesn't happen until you tell the DAF to send a check to your charity. You still have to tell it to make the gift.

The deduction happens when the assets are moved into the DAF. No need to disburse to charities immediately.

No, what I said is correct. You do get a deduction. But DAFs separate the deduction from the impact. DAFs are a charity by law, but they're just an account that holds money and gives people a deduction. DAFs don't make the change or impact, the charities do. A donor can get a deduction by donating to a DAF, but that doesn't mean they've yet made any impact on the causes they care about. When a donor donates to a DAF, the donor has benefited, but their favorite charities haven't yet, until they tell the DAF to send a check to the charity. Hope that clarifies what I was getting at.

Yes, donor who opens a donor advised fund is not required to disburse to charities immediately. But that doesn't mean they have to wait, or that it's expected. There's no best practice, and plenty of donors who have DAFs use them as pass-through entities to streamline their giving. OP didn't state a preference, and whether they let money sit in a DAF or give it away immediately doesn't have any bearing on the rest of their investment and tax situation.

EDIT: I see where my original statement might have caused confusion. Edited my original post and in the quote above in bold.

Best,
Peter

[Wiggums]

NOTES:
There are several goals in this process:
Fix the bleeding caused by high fees and too much cash.
Streamline the portfolio for easier management as your retirement progresses. Or, as my ISP states, "so a monkey can manage the portfolio if I become unable to do so." KISS is my motto.

3. Sell all in Roth and IRA.
This is not a taxable event inside these accounts.
4. Buy your new funds as per this outline:
ONE fund for each row. Remember, KISS.


NOTES:
I started with a portfolio as you described,
30% US Stocks (use Total Market, no need for slicing and dicing. That just raises fees and complexity)
10% International Stocks
50% Bonds
10% Cash

But you mention that you may buy a home, and with your history, I suspect you'd like to have a bit more cash available. Finally, you will find banks reluctant to give you a mortgage, and frankly, it ain't worth the trouble when you have enough to pay cash. No point buying swimming pools for some mortgage bankers. So, I put about 300K in cash, and reduced the bond percent to accommodate the extra cash.

Next up: The Taxable account

This is a good plan. Start with the accounts that won’t be taxed for switching funds. We hold the three fund portfolio plus a state municipal fund. Simple is better.

We also have a DAF at Fidelity. It’s easy to tell them online where to send the funds.

In taxable, I would tackle a little bit each year.

You’re doing great financially. Cleaning things up will benefit you and your heirs. My DW is handling her Mom’s estate. We appreciate
that she had everything simple and very organized.

[fermata]

Just a quick note to thank everyone who's replied with their advice, suggestions, and encouragement so far:

Niagara_Guy
LeeMKE
NYCPete
MarkVH0518
Wiggums

I confess to being a little overwhelmed at this point. NYCPete said that if I can figure out how to organize a post using the Asking Portfolio Questions template then I should be able to figure out how to implement a 3 or 4 fund portfolio based on all the recommendations I’ve received. I wish I had such confidence. But, I’m taking to heart LeeMKE’s comment about this being a great time to reorganize while markets are down. Over the years, after my bonds matured, I promised myself I’d deploy the cash to investments once the indexes were down 10%. There have been some opportunities but I of course missed them.

Also have to admit that I'm still struggling a little with using the site.

I’ll respond more to individual suggestions/comments in the next few days. Just wanted to say right now how much I appreciate all the great feedback!

[MarkVH0518]

... This is a great moment to do this. DON'T PROCRASTINATE! You won't get another opportunity to do this once the market begins to recover. It will cost a fortune in taxes later. Do it now.
...

I'm not comfortable with these particular statements at all.
Let me be clear, the technical recommendations everyone has made are quite good. We are all generally agreeing.
While I agree today appears to be a fortuitous time to be selling undesired holdings, that is not guaranteed.

The primary important aspect of advice is for the recipient to be comfortable with the actions to be taken.
If the biggest mistake is that the OP pays a bit more in capital gains tax then they could have, no big deal.
I suspect his capital gains tax is 15% - maybe even less. Paying a 15% tax is nothing to be ashamed of.
The cost of OP understanding the better investment options may require paying a bit more in capital gains tax.

While I too encourage you to START, there is no reason to rush.

You've already done the heavy lifting of saving enough for your retirement.
Your understanding and comfort is more important.
Improving the cost effectiveness of your portfolio is very valuable, but not the ultimate need here.

Regards,
Mark

[HMSVictory]

The above responses have outlined how to create a simple, efficient and easy to manage 3 fund portfolio. VTI, VXUS and BND.

Yes I would rip the band aid off and pay any capital gains taxes owed on your taxable account - Roth accounts will have none. I'd hold VTI and VXUS in the Roth accounts and the cash and BND in your taxable account. If you want to mess with iBonds that is fine too for your FI position.

If holding 44% of your portfolio in cash helps you stay the course with the rest of it then that's where you should be. AA is very personal and one persons portfolio may not work for someone else. Seems like you have no need at all for income from your portfolio so you can be 90/10 to 30/70 and or anywhere in between.

If you decide to buy a house I would pay cash for it and consider that as part of your FI asset allocation.

[MarkVH0518]

My first response was ordered by the questions you posed,
but you posed so many I think that method did not provide a simple enough plan of execution.
So upon further reflection, here is a much simpler plan of execution.

1) Work on the Roth first.
Because there are no tax implications, this account can be cleaned up as fast a you are comfortable moving.
Before you begin, select the investments you will be using and then sell the high cost funds
and replace them with your new low-cost ones you've selected.
Easy, peasy

2) Work more carefully on the taxable account.
Keep the cash for your down payment.
Otherwise, match high cost investments with large capital losses with high cost investments with large capital gains.
Purchase your new low cost investments with the proceeds.
Continue until the total net capital gains reaches the limits of your tax bracket (or IRMAA bracket)
Wait until January and start again
If you decide to make donations, choose high cost investments with the largest capital gains as the first donations.

3) For the IRA, only one step necessary
Purchase a bond fund with the cash.
Deciding to QCD your RMD (I think you know these acronyms now) will have no other impact on these investments.
There is no urgent need to sell any of the stock funds in your IRA; these investments are all in the neighborhood of a 3-fund portfolio.

Regards,
Mark

[HMSVictory]

No point buying swimming pools for some mortgage bankers.

Very nicely laid out for the OP. Well done. Simple is beautiful.

Oh and by the way its paying Porsche payments and yacht storage fees for bankers!