Taking the plunge to 3 fund portfolio - Logistical Questions

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Topic Author
c_is_for_cow
Posts: 36
Joined: Sat Nov 21, 2015 8:19 am

Taking the plunge to 3 fund portfolio - Logistical Questions

Post by c_is_for_cow » Thu Nov 08, 2018 10:01 pm

Hello,

I just read Taylor's book which was great, thanks Taylor. I've also posted some questions here and had positive feedback so I think I am getting comfortable with the 3 fund portfolio and managing myself going forward. I have some basic questions which I want to have answered just to be extra safe with our next egg before I make any changes by myself (for the first time).

Accounts:
Wife 401a, 403b, 457b, vanguard rollover IRA
Me: 401K, vanguard rollover IRA
joint - Taxable Vanguard

Questions:
A. I plan on leaving the taxable account alone and selling/buying funds in the retirement accounts. 95% of the retirement accounts are pre-tax, with a little bit of ROTH 401K funds. Any tax implications of buying/selling funds in those? I don't think so...

B. If we sell/buy funds in the retirement accounts, are there any issues with losing the dollar cost averaging we have on the old shares since the new shares will all have the same cost basis with lump sum purchases? Not sure if there's a risk since it seems like the high and low swings of the new fund will be more extreme with the same cost basis for all shares vs. dollar cost averaging over time...

C. Our portfolio was recently down about $35,000 over a few week period. If we change funds to 3 fund portfolio during a time like this, are we locking in losses, or should we just move our money because it's considered timing the market waiting for it to rebound first?

D. Should there be a preference for which accounts we hold hold our funds in? We want to simplify so it's easy to re-balance in the future. We actively contribute to the 401a, 403b, and 401K pretax accounts. I am thinking to either hold bonds in our vanguard rollover IRA's (since we don't contribute to them) or use the 401a and 403b for bonds. I don't think there's any harm in either way but want to make sure I'm not missing something.

Thanks for reading and for any feedback.

Cow
Last edited by c_is_for_cow on Thu Nov 08, 2018 10:33 pm, edited 1 time in total.

mhalley
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Re: Taking the plunge to 3 fund portfolio - Logistical Questions

Post by mhalley » Thu Nov 08, 2018 10:24 pm

A. No tax consequences in retirement accounts.
B. Cost basis doesn’t matter in retirement accounts.
C. If you change to a 3 fund portfolio, you are making a sideways move unless you are also changing your asset allocation, so short term market movements don’t matter.
D. Hold the cheapest fund available in the appropriate account. Ie, if there is not a good cheap bond fund in the 401k, hold it in the Ira.

Traveller
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Re: Taking the plunge to 3 fund portfolio - Logistical Questions

Post by Traveller » Thu Nov 08, 2018 10:31 pm

c_is_for_cow wrote:
Thu Nov 08, 2018 10:01 pm
A. I plan on leaving the taxable account alone and selling/buying funds in the retirement accounts. 95% of the retirement accounts are pre-tax, with a little bit of ROTH 401K funds. Any tax implications of buying/selling funds in those? I don't think so...
Correct - no tax issues buying or selling in your retirement accounts since all will be taxed as ordinary income at withdrawal (in the case of pre tax accounts), or are tax free (roths) since they were funded with after tax money.
c_is_for_cow wrote:
Thu Nov 08, 2018 10:01 pm
B. If we sell/buy funds in the retirement accounts, are there any issues with losing the dollar cost averaging we have on the old shares since the new shares will all have the same cost basis with lump sum purchases? Not sure if there's a risk there.
Not really if I am understanding your question. The basis doesn't really matter in your pre-tax retirement accounts since all withdrawals will be taxed as normal income.
c_is_for_cow wrote:
Thu Nov 08, 2018 10:01 pm
C. Our portfolio was recently down about $35,000 over a few week period. If we change funds to 3 fund portfolio during a time like this, are we locking in losses, or should we just move our money because it's considered timing the market waiting for it to rebound first?
Little to no risk if you sell then buy at roughly the same time. If you sell in a down market, you're liikely buying a different fund in a down market as well.
c_is_for_cow wrote:
Thu Nov 08, 2018 10:01 pm
D. Should there be a preference for which accounts we hold hold our funds in? We want to simplify so it's easy to re-balance in the future. We actively contribute to the 401a, 403b, and 401K pretax accounts. I am thinking to either hold bonds in our vanguard rollover IRA's (since we don't contribute to them) or use the 401a and 403b for bonds. I don't think there's any harm in either way but want to make sure I'm not missing something.
See this
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Topic Author
c_is_for_cow
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Joined: Sat Nov 21, 2015 8:19 am

Re: Taking the plunge to 3 fund portfolio - Logistical Questions

Post by c_is_for_cow » Thu Nov 08, 2018 10:35 pm

To clarify the second question, I am not asking about tax risk. I am not sure if there's a risk since it seems like the high and low swings of the new fund will be more extreme with the same cost basis for all shares vs. dollar cost averaging over time...

mikeyzito22
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Re: Taking the plunge to 3 fund portfolio - Logistical Questions

Post by mikeyzito22 » Thu Nov 08, 2018 10:35 pm

Also: This helped me out by not trying to mirror accounts. The less "splits" the better
https://www.bogleheads.org/wiki/Asset_ ... e_accounts

Topic Author
c_is_for_cow
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Joined: Sat Nov 21, 2015 8:19 am

Re: Taking the plunge to 3 fund portfolio - Logistical Questions

Post by c_is_for_cow » Fri Nov 16, 2018 11:33 pm

Appreciate all the replies...
Last clarification..on question #3, while transferring into the new funds, I will be lowering our asset allocation from 72/28 to 65/35. Am I locking in losses or should I wait for the market to rebound a bit before transferring funds? Thanks again everyone.

COW

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bertilak
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Re: Taking the plunge to 3 fund portfolio - Logistical Questions

Post by bertilak » Sat Nov 17, 2018 6:55 am

c_is_for_cow wrote:
Thu Nov 08, 2018 10:35 pm
To clarify the second question, I am not asking about tax risk. I am not sure if there's a risk since it seems like the high and low swings of the new fund will be more extreme with the same cost basis for all shares vs. dollar cost averaging over time...
If by "second question" you mean "B," the question about cost basis and DCA ...
  1. Cost basis is meaningful only in a taxable account.
  2. DCA is not an interesting concept once you already own the shares, other than having created multiple tax lots which, again, is not an issue in those tax-advantaged accounts.
Given those two points, is there still a question? If so, it probably needs re-stating. (Or I am dense!)
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

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bertilak
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Re: Taking the plunge to 3 fund portfolio - Logistical Questions

Post by bertilak » Sat Nov 17, 2018 7:05 am

c_is_for_cow wrote:
Fri Nov 16, 2018 11:33 pm
Appreciate all the replies...
Last clarification..on question #3, while transferring into the new funds, I will be lowering our asset allocation from 72/28 to 65/35. Am I locking in losses or should I wait for the market to rebound a bit before transferring funds? Thanks again everyone.

COW
Don't try to time the market. It could go against you as likely as favoring you.

As Tuco (Eli Wallach) said in The Good, The Bad, and the Ugly: "When you have to shoot, shoot! Don't talk."
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

lostdog
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Re: Taking the plunge to 3 fund portfolio - Logistical Questions

Post by lostdog » Sat Nov 17, 2018 9:17 am

c_is_for_cow wrote:
Fri Nov 16, 2018 11:33 pm
Appreciate all the replies...
Last clarification..on question #3, while transferring into the new funds, I will be lowering our asset allocation from 72/28 to 65/35. Am I locking in losses or should I wait for the market to rebound a bit before transferring funds? Thanks again everyone.

COW

If you keep the same allocation, you won't lock in losses. It's more of a sideways move.

As for changing allocation strategy, someone else with more experience can chime in.
Current portfolio: 54% ITOT, VTSAX / 46% VTIAX

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