"4 Ways to Uncomplicate Your Retirement Portfolio"

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Taylor Larimore
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"4 Ways to Uncomplicate Your Retirement Portfolio"

Post by Taylor Larimore »

Bogleheads:

Christine Benz, Morningstar's Director of Personal Finance, has written an important article about the importance of Simplicity for retirement portfolios. These are the excerpts that I liked the most:
"Retirement planning is complicated. Your retirement portfolio shouldn't be."

"Even investors who are using an advisor to help them plan their retirements need to educate themselves or get a second opinion on various matters."

"Creating a financial plan for retirement is too dang complicated. As pensions have been ebbing away, more and more people coming into retirement are grappling with knotty issues like figuring out a withdrawal rate, managing taxes while pulling assets from various account types, and determining how to cover healthcare and long-term-care expenses from their coffers."

"When it comes to your investment portfolio, simplicity should be your watchword."

"Here are four steps to take to ensure that your portfolio is as simple and effective as it can be:

Streamline your investment accounts.
Embrace simple portfolio building blocks.
Prune faux diversifiers and other clutter.
Document and stick with a once-annual review."

"Multiple tax-deferred accounts, whether IRAs or company retirement plan assets, offer a major consolidation opportunity, in that it is possible to collapse them into a single large traditional IRA."

"Employing a single provider for all of these accounts can also greatly simplify your oversight and record-keeping responsibilities."

"You could reasonably get away with a single total U.S. market tracker, an international index fund, a bond fund, and cash holdings." The Three-Fund Portfolio

"You can also keep your portfolio streamlined by cutting holdings that you thought would supply diversification and/or returns but that, at the end of the day, haven't added a lot to your portfolio's risk/reward profile."

"Plain-vanilla high-quality bonds, especially government bonds, have been the best diversifiers for equities."

"Many investors operate small "side" portfolios that consist of individual stocks. Such portfolios are usually ripe for the cutting when I do my Portfolio Makeovers each year."

"I'm a big believer in limiting your portfolio-oversight duties to a single comprehensive review per year, ideally as the year winds down. That way you won't be tempted by market action to change up your portfolio, and you'll have more time to focus on other things, financial and otherwise."
4 Ways To Uncomplicate Your Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success."
"Simplicity is the master key to financial success." -- Jack Bogle
matti
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by matti »

Thanks for the reminder. I am fairly knowledgeable about the basics, but admit that I probably don't understand half of the investing terms used on this forum (even though I have learned a lot!). I also know I want a simple approach that is as hands-off as possible, which is why I have every single retirement dollar invested in a Vanguard TDF. I am hopeful that this will pay off when it comes time to retire!
JayB
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by JayB »

Taylor did not include the part in red below from Ms. Benz, but it is critical to folks like me who have TIAA Traditional accounts; there is simply no way to replicate the value of this in a traditional IRA (in terms of yield, guaranteed minimum returns, creditor protection in certain states, or potential for lifetime annuitization at great rates). Simplicity has its costs, and they can be substantial.
Multiple tax-deferred accounts, whether IRAs or company retirement plan assets, offer a major consolidation opportunity, in that it is possible to collapse them into a single large traditional IRA. There are some valid reasons to leave money behind in an employer-provided plan like a 401(k), like creditor protections or a stable-value fund, but aggregating the assets into a single IRA is the right call from the standpoint of simplicity and reduced oversight.
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by abuss368 »

Taylor Larimore wrote: Thu Sep 22, 2022 1:31 pm Bogleheads:

Christine Benz, Morningstar's Director of Personal Finance, has written an important article about the importance of Simplicity for retirement portfolios. These are the excerpts that I liked the most:
"Retirement planning is complicated. Your retirement portfolio shouldn't be."

"Even investors who are using an advisor to help them plan their retirements need to educate themselves or get a second opinion on various matters."

"Creating a financial plan for retirement is too dang complicated. As pensions have been ebbing away, more and more people coming into retirement are grappling with knotty issues like figuring out a withdrawal rate, managing taxes while pulling assets from various account types, and determining how to cover healthcare and long-term-care expenses from their coffers."

"When it comes to your investment portfolio, simplicity should be your watchword."

"Here are four steps to take to ensure that your portfolio is as simple and effective as it can be:

Streamline your investment accounts.
Embrace simple portfolio building blocks.
Prune faux diversifiers and other clutter.
Document and stick with a once-annual review."

"Multiple tax-deferred accounts, whether IRAs or company retirement plan assets, offer a major consolidation opportunity, in that it is possible to collapse them into a single large traditional IRA."

"Employing a single provider for all of these accounts can also greatly simplify your oversight and record-keeping responsibilities."

"You could reasonably get away with a single total U.S. market tracker, an international index fund, a bond fund, and cash holdings." The Three-Fund Portfolio

"You can also keep your portfolio streamlined by cutting holdings that you thought would supply diversification and/or returns but that, at the end of the day, haven't added a lot to your portfolio's risk/reward profile."

"Plain-vanilla high-quality bonds, especially government bonds, have been the best diversifiers for equities."

"Many investors operate small "side" portfolios that consist of individual stocks. Such portfolios are usually ripe for the cutting when I do my Portfolio Makeovers each year."

"I'm a big believer in limiting your portfolio-oversight duties to a single comprehensive review per year, ideally as the year winds down. That way you won't be tempted by market action to change up your portfolio, and you'll have more time to focus on other things, financial and otherwise."
4 Ways To Uncomplicate Your Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success."
Hi Taylor -

Thank you fro this wonderful reminder. I have learned over the years from your teachings and Jack Bogle that simplicity is best.

This applies to both financial and non-financial life!

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
dknightd
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by dknightd »

I agree 100% with 90% of what she said. Good writer.

She said, "Having a pared-down portfolio can also be considered an estate-planning tool, in that it reduces your loved ones' oversight obligations in case something should happen to you."

This is important to me. It also reduces the complexity for me as I get older.

She said, "aggregating the assets into a single IRA is the right call from the standpoint of simplicity and reduced oversight. "

For me this would be a big mistake. I have two distinct types of 403b plans, one subject to state income tax, the other not. If I commingled them keeping track of what was state taxable, and which was not, would be a book keeping nightmare. I actually have several 403b accounts, but plan to get down to just two before I'm 70. If we move to a different state, which is possible, that distinction would disappear. If that happens I guess I'd be able to simplify even more.

I'm a little surprised she did not mention buying SPIA. To me this might be the best way to simplify things. I plan to annuitize my smaller 403b accounts. 100% to survivor. That will turn complicated investment accounts into a simple to understand income stream.

Edit: Maybe she does not get paid to talk about SPIA. Or maybe that will be her next article.

She said, "Employing a single provider for all of these accounts can also greatly simplify your oversight and record-keeping responsibilities"

To me, this is a big one. I've decided to use TIAA since that is where most our money is. They may not be the best provider, but they are not too bad. And perhaps more important spouse and I are both comfortable with them.


I agree, to "Uncomplicate Your Retirement Portfolio" is a very good idea. And her suggestions are good ones. But sometimes uncomplicating things is more complicated than you might want/hope. And we might not all end up with the same uncomplicated thing. My goal is three accounts - 403b not subject to state income tax, 403b subject to state income tax (my flexible TIAA Traditional holdings are in this account), and a Roth IRA. I'm going to eliminate all other 403b accounts (likely by turning them in to a "pension"), and the traditional IRA (which I currently keep just because withdrawals from IRA are not subject to mandatory 20% federal tax withholding).
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by dknightd »

I guess my point is uncomplicating might not be a simple as it might appear. Dare I say making things less complex could be complicated? And for sure we will not end up in the same place. There are many roads to Babylon!
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
dbr
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by dbr »

I wonder if the present enthusiasm for opening all kinds of Treasury Direct accounts, buying Treasury and TIPS bonds all over the place, and parking cash here, there, and everywhere, is going to be a helpful habit in the end.

I am happy that between my wife and myself there are only seven items in our money management, including the checking account, a brokerage, and a 401k. Investments per se are accounted for in five funds/ETFs between the two of us. I don't count settlement funds that have no balance in them.

This is already plenty for one of us as survivor or for an executor to track down and manage.

Pensions and Social Security are income sources that are easy to track.
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by CyclingDuo »

dbr wrote: Sat Sep 24, 2022 8:43 amI wonder if the present enthusiasm for opening all kinds of Treasury Direct accounts, buying Treasury and TIPS bonds all over the place, and parking cash here, there, and everywhere, is going to be a helpful habit in the end.

I am happy that between my wife and myself there are only seven items in our money management, including the checking account, a brokerage, and a 401k. Investments per se are accounted for in five funds/ETFs between the two of us. I don't count settlement funds that have no balance in them.

This is already plenty for one of us as survivor or for an executor to track down and manage.

Pensions and Social Security are income sources that are easy to track.
Only 7? Kudos! :beer

We're currently at 12, but come retirement will finally be able to consolidate down into the single digits. Mostly in part due to 403b's, 457b's, t401k, Roth401k, ESPP/RSU's, etc... all of which will be rolled over to the same place under one roof come retirement.

I share your concern - especially with all of the posts we have seen about forum members being locked out of the TD accounts due to incorrectly typing their passwords, or changing bank accounts, etc... .

CyclingDuo
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by rascott »

matti wrote: Thu Sep 22, 2022 1:39 pm Thanks for the reminder. I am fairly knowledgeable about the basics, but admit that I probably don't understand half of the investing terms used on this forum (even though I have learned a lot!). I also know I want a simple approach that is as hands-off as possible, which is why I have every single retirement dollar invested in a Vanguard TDF. I am hopeful that this will pay off when it comes time to retire!
TDFs are great and are as hands-off as you can get.
dbr
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by dbr »

matti wrote: Thu Sep 22, 2022 1:39 pm Thanks for the reminder. I am fairly knowledgeable about the basics, but admit that I probably don't understand half of the investing terms used on this forum (even though I have learned a lot!). I also know I want a simple approach that is as hands-off as possible, which is why I have every single retirement dollar invested in a Vanguard TDF. I am hopeful that this will pay off when it comes time to retire!
Just know that TDF funds are not a good choice in taxable accounts but fine in 401k, IRA, etc. The reason is that bond interest and possible capital gains distributions can cost you in taxes and because as time goes on and unrealized gain piles up it is tax costly to change out of the position even as it gets more and more bond heavy.
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by vineviz »

dbr wrote: Sat Sep 24, 2022 11:01 am
Just know that TDF funds are not a good choice in taxable accounts but fine in 401k, IRA, etc.
I disagree.

While they might not be theoretically ideal, they are often the best choice for DIY investors. They are certainly a good choice in many cases, even in taxable accounts.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by Robot Monster »

Taylor Larimore wrote: Thu Sep 22, 2022 1:31 pm "You could reasonably get away with a single total U.S. market tracker, an international index fund, a bond fund, and cash holdings." The Three-Fund Portfolio
You need more than a single bond fund if you want to duration match, no?
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by dbr »

vineviz wrote: Sat Sep 24, 2022 11:07 am
dbr wrote: Sat Sep 24, 2022 11:01 am
Just know that TDF funds are not a good choice in taxable accounts but fine in 401k, IRA, etc.
I disagree.

While they might not be theoretically ideal, they are often the best choice for DIY investors. They are certainly a good choice in many cases, even in taxable accounts.
I think it is a better idea to commit taxable holdings to things there is very little chance one will ever want to get out of. If a person is happy with a target income fund at 30/70 when they are 65 years old or something, then that's fine. I prefer my taxable account be all stocks that pay qualified dividends and will get basis step up on a larger fraction of the gain than a TD would. This all depends on the whole picture though, as people have very different balances across taxable and tax deferred holdings and also very different tax cost situations. One factor is being at already high tax rates due to pensions and SS.
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by invest4 »

Simplicity is one of the many great learnings I have had since joining this forum.

I am a strong advocate and highlight this frequently when sharing advice.
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by vineviz »

dbr wrote: Sat Sep 24, 2022 11:14 am
vineviz wrote: Sat Sep 24, 2022 11:07 am
dbr wrote: Sat Sep 24, 2022 11:01 am
Just know that TDF funds are not a good choice in taxable accounts but fine in 401k, IRA, etc.
I disagree.

While they might not be theoretically ideal, they are often the best choice for DIY investors. They are certainly a good choice in many cases, even in taxable accounts.
I think it is a better idea to commit taxable holdings to things there is very little chance one will ever want to get out of. If a person is happy with a target income fund at 30/70 when they are 65 years old or something, then that's fine. I prefer my taxable account be all stocks that pay qualified dividends and will get basis step up on a larger fraction of the gain than a TD would. This all depends on the whole picture though, as people have very different balances across taxable and tax deferred holdings and also very different tax cost situations. One factor is being at already high tax rates due to pensions and SS.
There’s almost always a hypothetical “better” way to do most anything in investing but IMHO investors are often their own worst enemies.

A “good” solution that is simple often outperforms “better” solutions in this arena.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by abuss368 »

vineviz wrote: Sat Sep 24, 2022 11:07 am
dbr wrote: Sat Sep 24, 2022 11:01 am
Just know that TDF funds are not a good choice in taxable accounts but fine in 401k, IRA, etc.
I disagree.

While they might not be theoretically ideal, they are often the best choice for DIY investors. They are certainly a good choice in many cases, even in taxable accounts.
I look at the Target Date funds in a taxable account as fine if this one fund strategy helps the investor stay the course and not blow up their wealth prospects by making any bad or impulsive decisions.

Perhaps they are not ideal from a tax aspect as they hold taxable bonds. However, that is largely a calculation based on the investors individual tax rate.

One could certainly construct a much less ideal taxable portfolio than simply including Target Date Funds.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
matti
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Re: "4 Ways to Uncomplicate Your Retirement Portfolio"

Post by matti »

dbr wrote: Sat Sep 24, 2022 11:01 am
matti wrote: Thu Sep 22, 2022 1:39 pm Thanks for the reminder. I am fairly knowledgeable about the basics, but admit that I probably don't understand half of the investing terms used on this forum (even though I have learned a lot!). I also know I want a simple approach that is as hands-off as possible, which is why I have every single retirement dollar invested in a Vanguard TDF. I am hopeful that this will pay off when it comes time to retire!
Just know that TDF funds are not a good choice in taxable accounts but fine in 401k, IRA, etc. The reason is that bond interest and possible capital gains distributions can cost you in taxes and because as time goes on and unrealized gain piles up it is tax costly to change out of the position even as it gets more and more bond heavy.
Thanks. I am aware of this, but don't have a taxable account at this time.
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