Moving from diversified to one-fund portfolio

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justgary
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Moving from diversified to one-fund portfolio

Post by justgary » Sat Jun 27, 2020 3:54 pm

Hello all -

I'm curious what sort of strategies you might recommend for people who are near retirement and have portfolios that are well diversified, but having seen the light of the One-Fund Portfolio and Variable Percentage Withdrawal, now want to begin switching to one fund in anticipation of using VPW.

I realize that recent events may have created a (missed) opportunity to sell off equities at a lower taxable gain, but in general, what's the best way?

A few assumptions, just for fun: You have 1/3 of your investments in a 401K at Vanguard in mutual funds, 1/3 in a taxable account with a discount broker in stocks, and 1/3 in a managed account charging 1% of the balance per year in stocks and funds. The managed account is about 70% 401K and 30% Roth IRA. In other words, not terribly simple to just switch to one fund. Which one fund is not important here, but you could assume that it's a LifeStrategy fund if you would like. Assume further that the house is paid off, kids are gone, no credit debt, and all of that stuff that might otherwise encumber a clean answer. If you need a number, assume $3M total, so $1M in each of the three accounts.

Obviously, one could just fire the manager, liquidate the equities, move the money to Vanguard, and buy the one fund (well, three times one fund; taxable, traditional, and Roth). Surely you have a better way....

Regards,

- Just Gary

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Re: Moving from diversified to one-fund portfolio

Post by HawkeyePierce » Sat Jun 27, 2020 4:25 pm

justgary wrote:
Sat Jun 27, 2020 3:54 pm
Obviously, one could just fire the manager, liquidate the equities, move the money to Vanguard, and buy the one fund (well, three times one fund; taxable, traditional, and Roth). Surely you have a better way....
Why not?

1) Fire the manager, move all your tax-advantaged accounts into a one-fund portfolio at the broker of your choice (Vanguard would be fine)
2) Are the equities in single stocks are funds? Depending on how big a tax hit you'd take to liquidate, you could simply leave those alone and stop contributing.

If you're planning to eventually leave money to your heirs, you could draw from the tax-advantaged accounts instead of the taxable accounts, leaving your heirs with a stepped-up cost basis on those equities.

It sounds like 2/3rds of your portfolio is tax-advantaged. If you want to avoid taking a big tax hit right now, you could convert all the tax-advantaged accounts to a one-fund portfolio, then either wait for periodic opportunities to liquidate your individual stocks or plan to leave them to your heirs.

A "one fund and stuff" portfolio isn't as simple as a true one-funder, but it's a significant step towards simplification without paying a boatload in taxes right now.

L82GAME
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Re: Moving from diversified to one-fund portfolio

Post by L82GAME » Sat Jun 27, 2020 4:36 pm

HawkeyePierce wrote:
Sat Jun 27, 2020 4:25 pm
justgary wrote:
Sat Jun 27, 2020 3:54 pm
Obviously, one could just fire the manager, liquidate the equities, move the money to Vanguard, and buy the one fund (well, three times one fund; taxable, traditional, and Roth). Surely you have a better way....
Why not?

1) Fire the manager, move all your tax-advantaged accounts into a one-fund portfolio at the broker of your choice (Vanguard would be fine)
2) Are the equities in single stocks are funds? Depending on how big a tax hit you'd take to liquidate, you could simply leave those alone and stop contributing.

If you're planning to eventually leave money to your heirs, you could draw from the tax-advantaged accounts instead of the taxable accounts, leaving your heirs with a stepped-up cost basis on those equities.

It sounds like 2/3rds of your portfolio is tax-advantaged. If you want to avoid taking a big tax hit right now, you could convert all the tax-advantaged accounts to a one-fund portfolio, then either wait for periodic opportunities to liquidate your individual stocks or plan to leave them to your heirs.

A "one fund and stuff" portfolio isn't as simple as a true one-funder, but it's a significant step towards simplification without paying a boatload in taxes right now.
+1; iterative improvements can elicit incommensurate gains. For example, don’t discount the cost avoidance in future years of brokerage/AUM/Fund ER fees eliminated or greatly reduced, and the simplicity of management for you and any fiscal agents acting on your behalf should you or your spouse become incapacitated. Talented and generous folks here can help you dive into the tax considerations of your taxable account following these conventions: viewtopic.php?f=1&t=6212

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KEotSK66
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Re: Moving from diversified to one-fund portfolio

Post by KEotSK66 » Sun Jun 28, 2020 8:15 am

i could be retiring almost any time over the next 4 years

my roth and rollover iras are both 100% wellesley income (i'll be rolling my 401k into wellesley in my rollover ira when i retire)

i doubt i'll ever have risky money invested in my taxable account but if i do i'll use a fund with low distributions, ie tax-efficient

investing in a single fund (abap) is simple and powerful, your portfolio and retirement needs together within a realistic personal plan

good luck
"i just got fluctuated out of $1,500", jerry

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Re: Moving from diversified to one-fund portfolio

Post by columbia » Sun Jun 28, 2020 8:21 am

Depending on one’s need and willingness to take risk, the life strategy, target date, Balanced index, Wellington and Wellesley are all excellent solutions. :beer
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: Moving from diversified to one-fund portfolio

Post by 1789 » Sun Jun 28, 2020 6:58 pm

I am thinking about it at some point in the future. I don't know what my futureself would think, but at age 60 Vanguard balanced index fund would be a good fund to have in all of our accounts. This would be easy to manage for my spouse, assuming i would go to heaven first.
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Re: Moving from diversified to one-fund portfolio

Post by bluewater23t » Mon Jun 29, 2020 9:11 am

So does investing 'new' money into these balanced 60:40 (or whatever ratio) funds make sense from the bond side? Looking back at 2009-2015 when interest rates were also nearly bottomed out, these funds still did great through those years.

Of course no one knows the future of interest rates and inflation, but I've read on this forum a number of people poo-pooing bonds because of poor yields and current low interest rates.

Thanks
Ted

dbr
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Re: Moving from diversified to one-fund portfolio

Post by dbr » Mon Jun 29, 2020 9:38 am

justgary wrote:
Sat Jun 27, 2020 3:54 pm

A few assumptions, just for fun: You have 1/3 of your investments in a 401K at Vanguard in mutual funds, 1/3 in a taxable account with a discount broker in stocks, and 1/3 in a managed account charging 1% of the balance per year in stocks and funds. The managed account is about 70% 401K and 30% Roth IRA. In other words, not terribly simple to just switch to one fund. Which one fund is not important here, but you could assume that it's a LifeStrategy fund if you would like. Assume further that the house is paid off, kids are gone, no credit debt, and all of that stuff that might otherwise encumber a clean answer. If you need a number, assume $3M total, so $1M in each of the three accounts.

Always, the devil is in the details. Give us your actual situation in detail and people might suggest ways to change over that investment selection.

Otherwise, several things apply.

1. You can just sell what you have in each account and buy your one-fund with the proceeds. If the manager objects you fire him and move on. If the 401k does not have the necessary fund, then you roll it over to an IRA that does. If the only place you can find the one-fund you want is not where you have an account, you open accounts and transfer everything.

So is there anything here that would not be doable?

2. Here are some issues that might arise. Selling things in a taxable account might create some costs you don't want. If that is the case how to minimize that can be discussed if we know what it is. In general the one-fund may not be as tax efficient as wanted in a taxable account. You pay your money and you take your choice.

It might be there are trading costs you don't want to pay to do this. That is usually minor and can be handled.

Can you be more specific what problems you might be thinking of?

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Re: Moving from diversified to one-fund portfolio

Post by pkcrafter » Mon Jun 29, 2020 11:36 am

justgary wrote:
Sat Jun 27, 2020 3:54 pm
Hello all -

I'm curious what sort of strategies you might recommend for people who are near retirement and have portfolios that are well diversified, but having seen the light of the One-Fund Portfolio and Variable Percentage Withdrawal, now want to begin switching to one fund in anticipation of using VPW.

What is your initial withdrawal rate (percent of assets) going to be?


I realize that recent events may have created a (missed) opportunity to sell off equities at a lower taxable gain, but in general, what's the best way?

A few assumptions, just for fun: You have 1/3 of your investments in a 401K at Vanguard in mutual funds, 1/3 in a taxable account with a discount broker in stocks, and 1/3 in a managed account charging 1% of the balance per year in stocks and funds.

Please list the taxable account holdings and managed account holdings. I would suggest you get rid of the managed accounts by doing a custodian to custodian direct transfer, which is initiated by the receiving company.


The managed account is about 70% 401K and 30% Roth IRA. In other words, not terribly simple to just switch to one fund.

Well, no, but you could hold one fund in each.

Which one fund is not important here, but you could assume that it's a LifeStrategy fund if you would like. Assume further that the house is paid off, kids are gone, no credit debt, and all of that stuff that might otherwise encumber a clean answer. If you need a number, assume $3M total, so $1M in each of the three accounts.

Obviously, one could just fire the manager, liquidate the equities, move the money to Vanguard, and buy the one fund (well, three times one fund; taxable, traditional, and Roth). Surely you have a better way....

No..... but you need to keep the taxable account tax-efficient, so normally no bonds in it, just use tax-efficient equity funds or Vanguard tax-managed balanced. All 3 accounts are parts of one, single portfolio.

Paul

When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Moving from diversified to one-fund portfolio

Post by nisiprius » Mon Jun 29, 2020 12:07 pm

Just to be clear, all of the various suggestions that have been made--LifeStrategy, Target Retirement, Balanced Index, Wellesley, Wellington--are highly "diversified" by any sensible meaning of the term.

Some people have theories that it possible to be "more" diversified--I don't happen to agree, or to think that it matters--but if you are holding any of these funds you are highly diversified. For example, if you are holding LifeStrategy, Target Retirement, and Balanced Index, then you are holding both stocks and bonds--probably the single most important diversification; and you are holding literally thousands of stocks, and what is more important you are holdings stocks of companies in all eleven business sectors.
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Re: Moving from diversified to one-fund portfolio

Post by rich126 » Mon Jun 29, 2020 12:17 pm

I guess I would never be comfortable putting everything in any one fund. Maybe if you had a large pension and the other money was mostly "fun" money I might. The big question is the international stocks and their outlook. Been mostly a drag for a while now but 10, 20 years down the road is a long time and the USA prospects might end up much dimmer than international stocks, you just don't know.

I'm more of a pessimist for the US market but not exactly sold on the rest of the world either.

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Re: Moving from diversified to one-fund portfolio

Post by 02nz » Mon Jun 29, 2020 12:20 pm

rich126 wrote:
Mon Jun 29, 2020 12:17 pm
I guess I would never be comfortable putting everything in any one fund.
The LifeStrategy and TDF funds linked by OP for the "one-fund portfolio" are actually funds of funds, each holding 4 underlying funds.

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Re: Moving from diversified to one-fund portfolio

Post by rich126 » Mon Jun 29, 2020 12:25 pm

02nz wrote:
Mon Jun 29, 2020 12:20 pm
rich126 wrote:
Mon Jun 29, 2020 12:17 pm
I guess I would never be comfortable putting everything in any one fund.
The LifeStrategy and TDF funds linked by OP for the "one-fund portfolio" are actually funds of funds, each holding 4 underlying funds.
Thanks. I do know that. I just have a strong aversion to putting all my money in any one fund, bank account, brokerage, etc. Just my "issue".

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Re: Moving from diversified to one-fund portfolio

Post by abuss368 » Mon Jun 29, 2020 12:25 pm

justgary wrote:
Sat Jun 27, 2020 3:54 pm

Obviously, one could just fire the manager, liquidate the equities, move the money to Vanguard, and buy the one fund (well, three times one fund; taxable, traditional, and Roth). Surely you have a better way....

Regards,

- Just Gary
Sounds like an excellent start to a good plan.
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Topic Author
justgary
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Re: Moving from diversified to one-fund portfolio

Post by justgary » Wed Jul 01, 2020 9:37 am

A big thank you to all who have replied so far. To be clear, I am not asking which one fund or why one fund instead of (for example) three.

For some reason, I had convinced myself that this was going to take a lot of calculations to figure out how to proceed, and for some reason it didn't even dawn on me that I really *can* just fire the manager, move the tax-advantaged stuff, liquidate, and buy the one fund.

As for the equities in the taxable account, they are all long-term holdings. Some of them have very high gains due to the length of time I have held them. Without getting into specifics here (I do realize that I can ask for specific help in the other forum), I guess I was hunting around for some rule of thumb that I had never heard before, like "sell the highest gains first," or "sell the highest gains last." I would prefer to not sell all of the equities at once.

After thinking about it more, it might make sense for me to get the tax-advantaged ducks into one fund, then wait until I actually retire to work on the taxable account. I pay enough tax right now while I'm working, but then again the tax on long-term gains is a set rate, so it doesn't really matter when I pay it. I can bridge the SS gap by selling equities, but I don't think that leaves me in a great place with RMDs later. Ideally, I need to figure out how to sell the equities, pay the tax, and convert some or all of the 401K and traditional IRAs to Roth.

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