Help with Dad's Portfolio - Updated with actions on bonds!

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happysteward
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Help with Dad's Portfolio - Updated with actions on bonds!

Post by happysteward » Tue Jan 09, 2018 7:58 pm

Hi fellow bogleheads,

I would appreciate a review of my dad's portfolio as summarized and parsed in the attached table. I am managing his money for him. He is 81, good health, physically and mentally, and all the accounts are taxable. With a 2% withdrawal (from the accounts shown) and his SS, annuities and small pension he can meet his living expenses.

The goals we have agreed on are shown in red.

One of the areas I would specifically appreciate comments on is the makeup of his bond portfolio, I am considering moving some of the corporates into government bonds (VCIT to VBTLX). Thanks

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Update - here is what I did...

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Last edited by happysteward on Sat Mar 03, 2018 12:38 pm, edited 3 times in total.
"How much money is enough?", John Rockefeller responded, "...just a little bit more." | "He who loves money will not be satisfied with money..." Ecclesiastes 5:10

radiowave
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Re: Help with Dad's Portfolio

Post by radiowave » Tue Jan 09, 2018 8:18 pm

Nice spreadsheet :beer

You could consider consolidating all of the bond MF into VBTLX depending if the capital gains hit is not too bad, but to be honest, unless simplification of the portfolio is a primary objective, maybe just leave things as they are.
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TheAncientOne
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Re: Help with Dad's Portfolio

Post by TheAncientOne » Tue Jan 09, 2018 8:21 pm

I agree with you regarding moving fixed income investments into governments. The purpose of fixed income positions is to hedge against declines in equities and to have funds available to invest when the market is down. Corporate bonds are likely to decline as well if the market decline is connected to recession.

carolinaman
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Re: Help with Dad's Portfolio

Post by carolinaman » Wed Jan 10, 2018 8:24 am

I think your idea of consolidating bonds is good. You did not state what his total income was or what his marginal tax rate is, but I wondered if his marginal tax rate is high enough to justify TE bonds. The TE funds do not appear to have any capital gains, so they would be an easy choice to consolidate.

You did not mention consolidating holdings but, IMO, that would be a good thing to do to simplify management of the portfolio. Obviously, if you do that, you need to consider capital gains taxes. Consolidation only makes sense if you can do it with minimal tax ramifications. But it does appear there are some small holdings that could be consolidated

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happysteward
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Re: Help with Dad's Portfolio

Post by happysteward » Wed Jan 10, 2018 3:50 pm

Thanks for the responses, would I be sacrificing anything significant with a move from VCIT to VBTLX
"How much money is enough?", John Rockefeller responded, "...just a little bit more." | "He who loves money will not be satisfied with money..." Ecclesiastes 5:10

inbox788
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Re: Help with Dad's Portfolio

Post by inbox788 » Fri Jan 12, 2018 9:08 pm

happysteward wrote:
Tue Jan 09, 2018 7:58 pm
The goals we have agreed on are shown in red.

One of the areas I would specifically appreciate comments on is the makeup of his bond portfolio, I am considering moving some of the corporates into government bonds (VCIT to VBTLX). Thanks
AA is aggressive for his age, but I assume based on 2% withdraw rate, he's leaving it behind to you and/or others. What are their ages?

Given it's a taxable account, without knowing tax bracket, it's hard to say whether it makes more sense to be in higher yield taxable vs lower tax exempt. I'm guessing he'll do better in corporates, and he's diversified, so I wouldn't be in a hurry to move things around.

Also, without cost basis and tax consequences, it's hard to recommend any specific action. Unless there's some attachment, I would eliminate nuisance amounts like VRT and VZ, and then XOM and VOX. On the bond side, those high fee American Funds would be on the top of my list. Tax consequences may dictate if you act now or spread over some/many years. AMECX looks like a higher than needed expense fee active income fund that complicates matters (include 20% bonds and more cash plus some international).

Goes without saying that you should take the dividends in cash (i.e. not automatically reinvest) and either use the cash or redeploy it as needed to meet your goals.

BTW, I see 9% cash (goal 7-13%). What is the purpose of this? What is the return (only 4% EE Savings Bonds look good)? I'm don't understand why this is needed, and my inclination would be to lump all the cash into slightly higher return bonds (i.e Total Bond). What is the annual expense budget? I've read here some retirees like 1-3 years in cash, but CDs might yield more and may be safer.

I was looking to see where the Municipal bonds were and those look like the high fee TE bonds, so the tax consequences of selling those may be minimal, so he may be able to get out now. If he doesn't need TE, I'd switch those, maybe 50/50 Total Bond/Corporate Bonds. Do some math and figure out the after-tax yields to figure out which are better performing assets.

https://www.americanfunds.com/individua ... fund/amecx

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Watty
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Re: Help with Dad's Portfolio

Post by Watty » Sat Jan 13, 2018 7:44 pm

If you are not already doing it then one thing you should do it to set all the mutual funds to not automatically reinvest the dividends and capital gains distributions. This could help reduce the need to sell funds.

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happysteward
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Re: Help with Dad's Portfolio

Post by happysteward » Tue Feb 13, 2018 8:02 am

Please help me think this thru a little more, why is this (quote below) a good thing to do ? Currently everything is automatically invested, kind of thought this was wise, but this is exactly why I love this board...

“Goes without saying that you should take the dividends in cash (i.e. not automatically reinvest) and either use the cash or redeploy it as needed to meet your goals. “

Addressing a couple other questions...
His incremental tax bracket is high

The cash is to fund his various journeys to Florida (and in a greater sense it helps him sleep at night, I.e. agreed upon allocation)
"How much money is enough?", John Rockefeller responded, "...just a little bit more." | "He who loves money will not be satisfied with money..." Ecclesiastes 5:10

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happysteward
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Re: Help with Dad's Portfolio

Post by happysteward » Sat Mar 03, 2018 12:31 pm

Thanks for your input all, here is what I did (in two steps) based on my original question and your input

Image
"How much money is enough?", John Rockefeller responded, "...just a little bit more." | "He who loves money will not be satisfied with money..." Ecclesiastes 5:10

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