Asset Allocation at age 61

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GetSmarter
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Asset Allocation at age 61

Post by GetSmarter »

Thoughts on Asset Allocation recommendation for 61 year old single female with $2 million, no debt, no job. Monthly expenses, including estimated taxes figured in, approximately $4,500 a month or $55,000 a year. I won't take social security until 70 ($1,240 month).

I'm inclined to go to 40 equities/40 bonds/20 cash

I need to generate around 55k a year from my portfolio to live. I'd like to get a part-time job but plan as if I won't. I was 50/50 asset allocation but I became over-weighted in equities, recently 70/30, when I inherited high-dividend stocks. I like the income potential with dividend stocks in our low-yield environment (this individual stock portfolio of 14 positions, gives an average $1,200 monthly). I also have my tried and true total stock market index funds. Something has to give in my portfolio though and go toward bonds/CDs. I feel 70% equities is too great risk at my age, in our unstable world. There's longevity in my family. So I figure I could live into my 90s.

For bond funds I have FXNAX and VBTLX and VBILX. Recommendations for bond funds to exchange my equities into? I am also considering Vanguard's world bond index fund, VTABX.

For diversification, does anyone suggest precious metals, gold/silver?

Whatever assets I choose to sell now to rebalance, remind me not to time the market. It's hard to sell when it's rough in the markets.

Thank you for your recommendation.
livesoft
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Re: Asset Allocation at age 61

Post by livesoft »

I would suggest 60/40, no cash for the rest of your life.

If you can unload the individual stocks without much in the way of tax consequences, then I would suggest you do that and purchase broad market equity index funds. Do that before the stocks blow up and become a tax problem.

I feel our world is as stable as it has ever been and my family has a 60/40 AA and no cash and we are few years older than you.
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delamer
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Re: Asset Allocation at age 61

Post by delamer »

What do you mean by “generate around 55K?”

Are you trying to avoid selling any assets? Because that can cause you to end up with a less-than-optimal allocation.

At your age, you realistically can take 4% a year — $80,000 adjusted for inflation annually. Whether that’s from earnings/income or withdrawals is irrelevant (accept maybe for taxes).
dbr
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Re: Asset Allocation at age 61

Post by dbr »

delamer wrote: Thu Sep 10, 2020 5:25 pm What do you mean by “generate around 55K?”

Are you trying to avoid selling any assets? Because that can cause you to end up with a less-than-optimal allocation.

At your age, you realistically can take 4% a year — $80,000 adjusted for inflation annually. Whether that’s from earnings/income or withdrawals is irrelevant (accept maybe for taxes).
Right. This is a critical question because a portfolio is a reservoir of wealth from which you can take whatever you want, whether that be dividends, interest, selling shares or anything else. The thing that has to be attended to is not running out of money before you want to.

The above estimate of 4% is highly likely to be good for 30 years provided you hold at least 30%-40% in stocks. Almost certainly you will die with far more wealth than you started but the rare worst cast just gets you there at 30 years and nothing left. If you want to be sure that the worst case is still probably no loss in real value at the end, then the number is probably less than or about 3%, meaning $60,000/year. If you want to be sure that the portfolio value never, anywhere along its course, falls below the real initial value then that is really difficult, maybe impossible to ensure.
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GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

delamer wrote: Thu Sep 10, 2020 5:25 pm What do you mean by “generate around 55K?”

Are you trying to avoid selling any assets? Because that can cause you to end up with a less-than-optimal allocation.

At your age, you realistically can take 4% a year — $80,000 adjusted for inflation annually. Whether that’s from earnings/income or withdrawals is irrelevant (accept maybe for taxes).
I haven't had to live off my portfolio before. What I meant by generate $55k a year from dividends and selling stock or cashing in CDs.

I wanted advice about asset allocation. Right now it's close to 70/30. My 30% has a lot of CDs, not so much bonds. Looking for the best mix and allocation. I have a lot of equities in my IRA and I could exchange for bond funds. Advice about asset allocation?
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

livesoft wrote: Thu Sep 10, 2020 5:17 pm I would suggest 60/40, no cash for the rest of your life.

If you can unload the individual stocks without much in the way of tax consequences, then I would suggest you do that and purchase broad market equity index funds. Do that before the stocks blow up and become a tax problem.

I feel our world is as stable as it has ever been and my family has a 60/40 AA and no cash and we are few years older than you.
Thank you for your thoughts. Two questions:

When you suggest selling individual stocks before they blow up, do you mean if they gain too much value and I try to sell, the capital gain may hurt?

If you ever need money for a big purchase, like a car or a roof or ? you just sell some stock or bonds? That's the sort of reasoning I keep cash, and I suppose habit, knowing it's there.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

delamer wrote: Thu Sep 10, 2020 5:25 pm What do you mean by “generate around 55K?”

Are you trying to avoid selling any assets? Because that can cause you to end up with a less-than-optimal allocation.

At your age, you realistically can take 4% a year — $80,000 adjusted for inflation annually. Whether that’s from earnings/income or withdrawals is irrelevant (accept maybe for taxes).
I'm trying to understand how best to make my money last. Asset allocation. I'm new to this situation in that I've never relied on investments. I just let my investments grow and reinvested dividends. And recently I inherited some stocks. So now I'm not working and wondering how best to navigate my money moving forward. Thanks for your thoughts.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
bltn
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Re: Asset Allocation at age 61

Post by bltn »

I would allot 50% to stocks, 90% of which would be in stock index funds. 40% in bond funds including currently a significant in short term and ultra short term funds. And 10% in cash, mostly cd s with early withdrawal penalties of 6 months interest or less.

I would plan to withdraw 3.5% the first year and adjust for inflation annually afterward with an exception. That will be about 70,000 the first year, which, after taxes, will provide your living expenses. Years the stock market is down, I would not make the annual inflation adjustment. A small hedge, but it may provide added security.

When I start to take my Social Security money, I would add half of it to my expense money, and save the other half.

Good luck.
J295
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Re: Asset Allocation at age 61

Post by J295 »

Your 40/40/20 is reasonable.
delamer
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Re: Asset Allocation at age 61

Post by delamer »

GetSmarter wrote: Thu Sep 10, 2020 7:54 pm
delamer wrote: Thu Sep 10, 2020 5:25 pm What do you mean by “generate around 55K?”

Are you trying to avoid selling any assets? Because that can cause you to end up with a less-than-optimal allocation.

At your age, you realistically can take 4% a year — $80,000 adjusted for inflation annually. Whether that’s from earnings/income or withdrawals is irrelevant (accept maybe for taxes).
I'm trying to understand how best to make my money last. Asset allocation. I'm new to this situation in that I've never relied on investments. I just let my investments grow and reinvested dividends. And recently I inherited some stocks. So now I'm not working and wondering how best to navigate my money moving forward. Thanks for your thoughts.
Given your level of expenses, you could go with a more conservative portfolio of 30% stocks and the remainder in bonds/cash — similar to your original idea.

Conversely, you could be more aggressive and reverse those numbers. Even keeping your current 70% stock allocation would be OK as long as you have a few years of expenses in cash.

The main point is that you have more than enough saved to cover your expenses (and especially so with Social Security in several years). So unless you go all cash or all stocks, you will achieve your stated goal of making your money last.

I don’t recommend diversification like gold, etc. Keep things simple. I am not a fan of corporate bonds; I’d stick to government bond funds.

Good luck.
livesoft
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Re: Asset Allocation at age 61

Post by livesoft »

GetSmarter wrote: Thu Sep 10, 2020 7:50 pmWhen you suggest selling individual stocks before they blow up, do you mean if they gain too much value and I try to sell, the capital gain may hurt?
Yes, but it is unclear to me if the stocks are in a taxable account where capital gains tax could be an issue or if they are in tax-advantaged accounts where that is not an issue. And yes, because individual stocks are riskier than broad market index funds.

In general, I see that people hold on to inherited stocks for sentimental reasons and not for sound reasons. If these stocks got a step-up basis, then I think it is good to sell them ASAP and buy broad market index funds with the money.

If you ever need money for a big purchase, like a car or a roof or ? you just sell some stock or bonds? That's the sort of reasoning I keep cash, and I suppose habit, knowing it's there.
Yes, I just sell shares. My shares have always done better than cash in the long run. Also, a roof is not expensive (less than $20K) and car dealers always give me 0% car loans.
Last edited by livesoft on Thu Sep 10, 2020 8:29 pm, edited 1 time in total.
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Topic Author
GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

bltn wrote: Thu Sep 10, 2020 8:10 pm I would allot 50% to stocks, 90% of which would be in stock index funds. 40% in bond funds including currently a significant in short term and ultra short term funds. And 10% in cash, mostly cd s with early withdrawal penalties of 6 months interest or less.

I would plan to withdraw 3.5% the first year and adjust for inflation annually afterward with an exception. That will be about 70,000 the first year, which, after taxes, will provide your living expenses. Years the stock market is down, I would not make the annual inflation adjustment. A small hedge, but it may provide added security.

When I start to take my Social Security money, I would add half of it to my expense money, and save the other half.

Good luck.
Thank you!
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GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

livesoft wrote: Thu Sep 10, 2020 8:18 pm
GetSmarter wrote: Thu Sep 10, 2020 7:50 pmWhen you suggest selling individual stocks before they blow up, do you mean if they gain too much value and I try to sell, the capital gain may hurt?
Yes, but it is unclear to me if the stocks are in a taxable account where capital gains tax could be an issue or if they are in tax-advantaged accounts where that is not an issue. And yes, because individual stocks are riskier than broad market index funds.

If you ever need money for a big purchase, like a car or a roof or ? you just sell some stock or bonds? That's the sort of reasoning I keep cash, and I suppose habit, knowing it's there.
Yes, I just sell shares. My shares have always done better than cash in the long run. Also, a roof is not expensive (less than $20K) and car dealers always give me 0% car loans.
Thank you. Yes, my individual stocks are in taxable account. They have high dividend yields so I thought of keeping some. I appreciate your thoughts. I'm in a new life chapter and learning.
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livesoft
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Re: Asset Allocation at age 61

Post by livesoft »

In general, I see that people hold on to inherited stocks for sentimental reasons and not for sound reasons. If these stocks got a step-up basis, then I think it is good to sell them ASAP and buy broad market index funds with the money.
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GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

delamer wrote: Thu Sep 10, 2020 8:15 pm
GetSmarter wrote: Thu Sep 10, 2020 7:54 pm
delamer wrote: Thu Sep 10, 2020 5:25 pm What do you mean by “generate around 55K?”

Are you trying to avoid selling any assets? Because that can cause you to end up with a less-than-optimal allocation.

At your age, you realistically can take 4% a year — $80,000 adjusted for inflation annually. Whether that’s from earnings/income or withdrawals is irrelevant (accept maybe for taxes).
I'm trying to understand how best to make my money last. Asset allocation. I'm new to this situation in that I've never relied on investments. I just let my investments grow and reinvested dividends. And recently I inherited some stocks. So now I'm not working and wondering how best to navigate my money moving forward. Thanks for your thoughts.
Given your level of expenses, you could go with a more conservative portfolio of 30% stocks and the remainder in bonds/cash — similar to your original idea.

Conversely, you could be more aggressive and reverse those numbers. Even keeping your current 70% stock allocation would be OK as long as you have a few years of expenses in cash.

The main point is that you have more than enough saved to cover your expenses (and especially so with Social Security in several years). So unless you go all cash or all stocks, you will achieve your stated goal of making your money last.

I don’t recommend diversification like gold, etc. Keep things simple. I am not a fan of corporate bonds; I’d stick to government bond funds.

Good luck.
Thank you!
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Re: Asset Allocation at age 61

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GetSmarter wrote: Thu Sep 10, 2020 5:13 pmI'm inclined to go to 40 equities/40 bonds/20 cash
20% in cash is $400k. Don't do that. Plan on a 40/60 portfolio or even 30/70. If you want to keep some cash lying around, do 1-2%, live on that and replenish it by selling some of your portfolio from time-to-time.

Do a forum search for "two fund portfolio" and shoot for consolidating everything into two funds for simplicity.

With a little luck you won't outlive your money.

An anecdote: I designated $400k of my portfolio to carry me for 9 years (retirement) until I take SS, which I'll be doing shortly. Spending $36-40k/yr, I still have $260k left thanks to market returns during the 9 years. My AA has been 30/70 for most of the 9 years.
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Re: Asset Allocation at age 61

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GetSmarter wrote: Thu Sep 10, 2020 8:28 pmThank you. Yes, my individual stocks are in taxable account. They have high dividend yields so I thought of keeping some. I appreciate your thoughts. I'm in a new life chapter and learning.
Feel free to list the stocks. Not everyone that is a forum member here at Bogleheads is 100% index funds. Many also own stocks and might have some insight on your particular basket of stocks.

You say they are all dividend paying stocks. Are any of them non-qualified dividends? Any REITs for example? The reason to list them is for us to see if they are perhaps all tilted too much to one factor or sector(s) of the market.

You might find this part of the Boglehead Wiki an interesting read: https://www.bogleheads.org/wiki/Passive ... 20incurred.

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GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

CyclingDuo wrote: Thu Sep 10, 2020 10:08 pm
GetSmarter wrote: Thu Sep 10, 2020 8:28 pmThank you. Yes, my individual stocks are in taxable account. They have high dividend yields so I thought of keeping some. I appreciate your thoughts. I'm in a new life chapter and learning.
Feel free to list the stocks. Not everyone that is a forum member here at Bogleheads is 100% index funds. Many also own stocks and might have some insight on your particular basket of stocks.

You say they are all dividend paying stocks. Are any of them non-qualified dividends? Any REITs for example? The reason to list them is for us to see if they are perhaps all tilted too much to one factor or sector(s) of the market.

You might find this part of the Boglehead Wiki an interesting read: https://www.bogleheads.org/wiki/Passive ... 20incurred.

CyclingDuo
Thanks for offering to look at my stocks and sending helpful article. I'm new to individual stocks, and hadn't thought about the tax implications of capital gains versus high-yielding dividends. Prior to gaining individual stocks, I hold VTSAX, VFIAX, VBTLX,VBILX, VSIGX, and VTIAX in tax-sheltered and taxable accounts. The individual stocks are in taxable account. I'm considering selling 1/3 or more of the individual stocks and putting into bonds because I'm currently 70/30 asset allocation and prefer to be 40-50 equities instead. While I inherited stocks, I recently naively bought Apple (5% my equity portfolio) near its height and guess I'll ride out its current wave down until it swings into a better future. While they're not equally weighted, thoughts on my individual stocks and asset allocation (stocks/bonds/cash) appreciated.

DUK
PEP
KR
VZ
DIS
LIN
ABBV
PCAR
LOW
MSFT
AAPL
GOOGL
CAT
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CyclingDuo
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Re: Asset Allocation at age 61

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GetSmarter wrote: Thu Sep 10, 2020 11:26 pmThanks for offering to look at my stocks and sending helpful article. I'm new to individual stocks, and hadn't thought about the tax implications of capital gains versus high-yielding dividends. Prior to gaining individual stocks, I hold VTSAX, VFIAX, VBTLX,VBILX, VSIGX, and VTIAX in tax-sheltered and taxable accounts. The individual stocks are in taxable account. I'm considering selling 1/3 or more of the individual stocks and putting into bonds because I'm currently 70/30 asset allocation and prefer to be 40-50 equities instead. While I inherited stocks, I recently naively bought Apple (5% my equity portfolio) near its height and guess I'll ride out its current wave down until it swings into a better future. While they're not equally weighted, thoughts on my individual stocks and asset allocation (stocks/bonds/cash) appreciated.
I understand your desire to center in on your asset allocation and make sure your portfolio covers your expenses as well as lasts throughout your remaining years. I like your idea of taking SS at age 70 as that builds in a longevity insurance.

Enthusiasm for Apple stock with what is really a non-event (a stock split) took it into frenzy trading. Sounds like you may have been caught up in that bug with your purchase of Apple to complete your Baker's Dozen of stocks. :wink: Keep in mind, earlier this year many got got caught up in the same type of a frenzy bug - only that frenzy bug was to the downside and sold Apple at $56 ($224 pre-split). It works in both directions. This opens up the discussion of behavioral mistakes. Keep in mind, that there were just as many in panic mode here on the Bogleheads forums that were dumping their index funds in March as well as individual stocks.

If you read the Wiki link about passively managing individual stocks, Bogle was talking about the longer term and keeping costs low. These days, there are no trading costs to buy or sell a share of stock, so your ER (expense ratio) is lowered even more than when he wrote that. I would remove the notion that the reason to hold individual stocks is to beat the market. Rather, if you keep them, think of trying to come close to matching the market as the goal. Whether you are slightly under or slightly over the market's return depending on the year, over the long run most will simply match it with a DIY (do it yourself) index fund made up of many stocks. This opens up the discussion of how many stocks to own if you are going to hold individual stocks.

You have the options to reinvest the dividends from your baker's dozen of 13 stocks into buying partial shares of the same stock (DRIP), just letting the dividends go to your cash account and spending them, or even purchasing more shares of either individual stocks or more shares of your index stock and bond funds. The dividends in your taxable account are taxed at your long term capital gains rate, so depending on your current income level you may pay $0 taxes on the dividends or capital gains if you sold the shares in an orderly fashion this year and in consecutive years to avoid paying taxes. Or if you just hang on to them for the longer term, you also may pay $0 on the qualified dividends - again depending on your income. I know that since we file MFJ, we can have up to $80K in taxable income and still qualify to pay $0 on our dividends. I believe for filing single, it is up to $40K in taxable income before qualified dividends get taxed.

These articles do not have the latest 2020 tax figures, but it is now up to $40K taxable income for a single filer and up to $80K for MFJ before qualified dividends get taxed:

https://retireby40.org/pay-no-tax-dividend-income/
https://www.qtaxservices.com/zero-tax-o ... idend.html
https://mymoneywizard.com/earn-100000-zero-taxes/
https://www.thebalance.com/how-to-pay-n ... ins-357399

Sectors not covered in your Baker's Dozen: Financials, Real Estate

The good news is that your individual stocks cover the majority of sectors and 5 of them are Dividend Aristocrats with at least 25 years of consecutive annual dividend growth. You also have some growth stocks. They are all large cap stocks, so no coverage in the mid cap and small cap area (which you have covered in your index funds). It's actually not a bad mix at first glance. Disney's dividend will come back at some point in the future. Google will most likely start paying a dividend at some point in time if they follow the history of other large cap technology companies that have matured. Microsoft and Apple will continue to grow their dividends and it wouldn't surprise me to see that happen for a lot of consecutive years. You didn't mention how much you have invested in each individual stock and what percentage of your overall portfolio is currently invested in individual stocks compared to your index stock and bond funds.

DUK = Duke Energy (4.71% yield) in the Utilities Sector

*PEP = PepsiCo (3.04% yield) Beverages/Snacks in the Consumer Defensive Sector
KR = Kroger (2.07% yield) Grocery Stores in the Consumer Defensive Sector

GOOGL = Alphabet (no dividend) Internet Content and Information in Communication Services Sector
VZ = Verizon (4.22% yield) Telecom Services in the Communication Services Sector
DIS = Disney (dividend currently suspended due to Covid) Entertainment in Communication Services Sector

*LIN = Linde PLC (1.56% yield) Specialty Chemicals in Basic Materials Sector

*ABBV = AbbVie (5.26% yield) Drug Maker in Healthcare Sector

PCAR = Paccar Inc (1.55% yield) Farm and Heavy Construction Machinery in Industrials Sector
*CAT = Caterpillar (2.75% yield) Farm and Heavy Construction Machinery in Industrials Sector

*LOW = Lowe's (1.52% yield) Home Improvement Retail in Consumer Cyclical Sector

MSFT = Microsoft (.99% yield) Software Infrastructure in Technology Sector
AAPL = Apple (.72% yield) Consumer Electronics in Technology Sector

*Dividend Aristocrats with at least 25 years of consecutive dividend growth

The bad news is that 13 stocks don't offer as much diversification as needed and are at the mercy of market skewness. Behavioral mistakes can also crop up (such as getting excited and buying more Apple at highs or getting freaked out and selling shares of one of your companies at lows). If you read the various studies at the Passively Managing Individual Stocks Wiki link, you get a good idea of how a 13 stock portfolio will perform and fluctuate compared to a one stock portfolio, a 30 stock portfolio, a 50 stock portfolio, a 75 stock portfolio, a 100 stock portfolio, a 120 stock portfolio, etc... and how they compare to owning the overall market. We actually own 11 of your 13 stocks as individual stocks in our portfolio (which includes our own large "DIY Index Fund" of many stocks). PCAR and KR we do not own individually, but they are in our Vanguard Index Funds.

Your main advantage - if there is one for a 13 stock portfolio - is that your costs are low (no ER fees, no trading fees) if you held them for the longer term. That advantage may not be enough though to perform as well as a 30 stock portfolio, or a 75 stock portfolio, or a 120 stock portfolio, or an index fund. I'm in the camp that if you don't have enough money or investing discipline to spread it around to a DIY Index Fund with many more stocks, you're most likely better off just owning the Index Fund. Or, if you want to own individual stocks at some level and not diversify through broad holdings, then just own a maximum of 5-10% of your overall portfolio in individual stocks. In your case, though, you inherited the individual stocks and only chose Apple on your own to add to the mix. Inheritance is not a bad thing, it just leaves you trying to understand what works best for you as your portfolio and needs are different than who you inherited the stocks from as their picture may have been totally different.

In your current attempt to get a grasp on your asset allocation, and how you are going to create an income stream (be it from dividends, capital gains, interest or a combination of them all) - I would not rush to make decisions.

The Boglehead Wiki page on managing a windfall (your inheritance) is a good source to always go back to and review what you have done up to this point, and to prepare a path of continuing your education for making any investment decisions or lifestyle change decisions:

https://www.bogleheads.org/wiki/Managing_a_windfall

You stated your current thoughts that you need to generate an annual income of $55,000 to maintain your current lifestyle and expenses until you begin taking SS. That's a 2.75% withdrawal rate on a $2M portfolio, so should be pretty safe to do whether it comes from dividends, capital gains, and or interest. 9 years from now, you will begin taking Social Security and not need to withdraw as much from your portfolio. So you could divide up your timeline for what you need in the next 9 years as one segment, then the years beyond that as the additional income stream of Social Security is flowing in every month. You also have the option of taking SS earlier as well as you mentioned, taking a part-time job if so desired. Again - plenty of options for you to make it all work. As I said above, I like the idea of longevity insurance by waiting until 70 to take your SS - especially since you mentioned your family has good longevity into their 90's.

The 11 stocks that you own and currently pay dividends have a combined dividend yield of 2.58% (Disney will be back at some point with their dividend, but for now we exclude it along with Alphabet). How does that compare to some dividend ETF's that own many more stocks within them?

VTI (Vanguard's Total Stock Market Index) is currently yielding 1.85%. NOBL (Invesco's ProShares S&P 500 Dividend Aristocrats ETF) which holds all of the S&P 500 Dividend Aristocrats is currently yielding 2.32%. VYM (Vanguard's High Dividend Yield ETF) is currently yielding 3.75%. VNQ (Vanguard's Real Estate Index Fund ETF) is currently yielding 3.96% (this is an ETF I would not suggest holding in taxable as they are not qualified dividends so are taxed at a higher rate and are best held in the Roth IRA space).

To use as an example since we have a similar sized portfolio to yours which includes a lot of dividend paying stocks, growth stocks, growth and income stocks, and Index Stock and Bond Funds. These are the annual dividends we receive, and you can see the 4 spiked months where the dividends from the stock index funds roll in each quarter (2019 shown):

Image

If we had to live off of the dividends alone, as you can see the way it is currently structured, we would not be able to do that on just the dividends if we needed $55K a year (to use your figure). We would also need to use interest and possibly sell shares of something to fill the gap between $38K and $55K each year until we hit SS (your case). Regardless, it would still be at a safe withdrawal rate whether it comes from dividends, cap gains or interest (or a combination of all) to not deplete the portfolio over the next 9 years and beyond.

In our case, we are both still working and accumulating, so everything currently gets reinvested. We also will have a pension for income, and then eventually both have Social Security (ages 58/62 right now). So our portfolio is structured to eventually transition into the coming phases of moving from a dual income household, to a single income with a pension and dividends (if needed) household, then a dual retired household with pension, dividends/cap gains/interest and Social Security. Obviously we have two mouths to feed, where you only have one.

One can remain pretty agnostic about whether the money comes from capital gains, dividends, interest or a combination of them as long as you understand what they all represent, how they are taxed, and how best to meet your needs.

You look to be in very good shape as it is. What to do with your current overall portfolio and the windfall also provides plenty of options. Why to make changes, how to make changes, and when to make changes is nothing that you need to immediately be rushing into, but continue your discovery and getting up to speed with what you are comfortable doing. You already hinted at that by stating perhaps selling only some of the shares of individual stocks to rebalance. I don't get too excited about individual stocks as they are simply a tool whether we own them as a collective group (ETF's, mutual funds) or as a basket of individual stocks - or in our case, as a hybrid approach of index funds and a diverse basket of individual stocks. If you are new to them as you say, keep any excitement in check. :beer

Asset Allocation regarding equities, bonds, cash is never a one size fits all ratio. In your case, the sequence of returns risk seems to be the main target - since you have seemingly just recently retired - and need to be able to cover your expenses for a period of time in case there is a bear market so you do not deplete your portfolio. This should be item number one to tackle and get organized. Does that mean having 5-7 years of your annual $55K set aside in bonds and cash to avoid selling equities at lows? That would be $275K to $385K or 13.75% to 19.25% of your portfolio set aside to protect you for the initial years of sequence of returns risk in bonds/CD/cash. Even if we round it up to an even $300K to $400K as a bare minimum so you do not have to sell anything from your equities over the next 5-7 years, it sounds like you are already there based on your statement of currently being invested 70/30. Does that mean that you suddenly need to go from 70/30 to something like 40/60 or 50/50 in the blink of an eye? Again, as has been shown and said throughout this thread - it's not a one size fits all ratio. Your risk tolerance and the need to take risk or not take risk to fund your retirement comes into play. I don't think any of us would disagree with erring on the conservative side since you are currently not working, and did not mention any other streams of income such as a pension or rental income. Whether that ends up being 60%, 55%, 50%, or 40% in equities - it probably won't make much difference. Have you run your numbers in FIRECalc?

https://www.firecalc.com/

Not that this is the be all end all regarding the glide path (since bonds no longer yield what they did when Kitces wrote about this), but here's what that looks like visually using the Bond Tent from Michael Kitces...

Image

Image

There is also the "spending smile" approach in retirement that shows in the early years, which are known as your go-go years you will spend more. The middle years of retirement known as the slow-go years, you will spend less. And the final years known as the no-go years, you will once again spend more due to the rise in your health care cost needs.

https://www.kitces.com/blog/estimating- ... ing-smile/

https://www.forbes.com/sites/wadepfau/2 ... 3c99d42056

https://retirementresearcher.com/retire ... end%20less.

As a follow up, keep us informed in this thread of your additional thoughts and questions, as well as conclusions you have come to for your decision making. Although the narrative changes for every recession, a year such as we have had thus far has been dramatic for the entire globe.

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright
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ruralavalon
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Re: Asset Allocation at age 61

Post by ruralavalon »

GetSmarter wrote: Thu Sep 10, 2020 5:13 pm Thoughts on Asset Allocation recommendation for 61 year old single female with $2 million, no debt, no job. Monthly expenses, including estimated taxes figured in, approximately $4,500 a month or $55,000 a year. I won't take social security until 70 ($1,240 month).

I'm inclined to go to 40 equities/40 bonds/20 cash

I need to generate around 55k a year from my portfolio to live. I'd like to get a part-time job but plan as if I won't. I was 50/50 asset allocation but I became over-weighted in equities, recently 70/30, when I inherited high-dividend stocks. I like the income potential with dividend stocks in our low-yield environment (this individual stock portfolio of 14 positions, gives an average $1,200 monthly). I also have my tried and true total stock market index funds. Something has to give in my portfolio though and go toward bonds/CDs. I feel 70% equities is too great risk at my age, in our unstable world. There's longevity in my family. So I figure I could live into my 90s.

For bond funds I have FXNAX and VBTLX and VBILX. Recommendations for bond funds to exchange my equities into? I am also considering Vanguard's world bond index fund, VTABX.

For diversification, does anyone suggest precious metals, gold/silver?

Whatever assets I choose to sell now to rebalance, remind me not to time the market. It's hard to sell when it's rough in the markets.

Thank you for your recommendation.
GetSmarter wrote: Thu Sep 10, 2020 7:44 pm . . . . .
I haven't had to live off my portfolio before. What I meant by generate $55k a year from dividends and selling stock or cashing in CDs.

I wanted advice about asset allocation. Right now it's close to 70/30. My 30% has a lot of CDs, not so much bonds. Looking for the best mix and allocation. I have a lot of equities in my IRA and I could exchange for bond funds. Advice about asset allocation?
GetSmarter wrote: Thu Sep 10, 2020 7:54 pm . . . . .
I'm trying to understand how best to make my money last. Asset allocation. I'm new to this situation in that I've never relied on investments. I just let my investments grow and reinvested dividends. And recently I inherited some stocks. So now I'm not working and wondering how best to navigate my money moving forward. Thanks for your thoughts.
GetSmarter wrote: Thu Sep 10, 2020 11:26 pm
CyclingDuo wrote: Thu Sep 10, 2020 10:08 pm
GetSmarter wrote: Thu Sep 10, 2020 8:28 pmThank you. Yes, my individual stocks are in taxable account. They have high dividend yields so I thought of keeping some. I appreciate your thoughts. I'm in a new life chapter and learning.
Feel free to list the stocks. Not everyone that is a forum member here at Bogleheads is 100% index funds. Many also own stocks and might have some insight on your particular basket of stocks.

You say they are all dividend paying stocks. Are any of them non-qualified dividends? Any REITs for example? The reason to list them is for us to see if they are perhaps all tilted too much to one factor or sector(s) of the market.

You might find this part of the Boglehead Wiki an interesting read: https://www.bogleheads.org/wiki/Passive ... 20incurred.

CyclingDuo
Thanks for offering to look at my stocks and sending helpful article. I'm new to individual stocks, and hadn't thought about the tax implications of capital gains versus high-yielding dividends. Prior to gaining individual stocks, I hold VTSAX, VFIAX, VBTLX,VBILX, VSIGX, and VTIAX in tax-sheltered and taxable accounts. The individual stocks are in taxable account. I'm considering selling 1/3 or more of the individual stocks and putting into bonds because I'm currently 70/30 asset allocation and prefer to be 40-50 equities instead. While I inherited stocks, I recently naively bought Apple (5% my equity portfolio) near its height and guess I'll ride out its current wave down until it swings into a better future. While they're not equally weighted, thoughts on my individual stocks and asset allocation (stocks/bonds/cash) appreciated.

DUK
PEP
KR
VZ
DIS
LIN
ABBV
PCAR
LOW
MSFT
AAPL
GOOGL
CAT
A $2 million portfolio can support an annual withdrawal of $55k, that comes to just 2.75% annually.

I would not carry 20% of the portfolio in cash. That is likely to give a negative real return net of inflation and taxes.

I think that delaying Social Security until age 70 is a very good idea.

In my opinion the 60/40 equity/fixed income asset allocation already suggested is reasonable.

The bond funds you have been using (FXNAX, VBTLX, VBILX, and VSIGX) are all good choices in my opinion. You could use those funds for any additions to your bond allocation. It's okay to use CDs as part of the fixed income allocation.

I suggest primarily using very diversified stock index funds, rather than individual stocks, for the equity allocation. The stock index funds which you have been using (VTSAX, VFIAX, and VTIAX) are all good choices.

About what percentage of your equities are in individual stocks as opposed to stock index funds?

Since you will be selling some of the individual stocks, I suggest turning off any automatic reinvestment of dividends you may have set up. There is no sense in buying more of stocks that you want to sell. all

I do not suggest "precious metals, gold/silver" for diversification.

You have mentioned having "tax-sheltered and taxable accounts." Can you tell us what specific accounts you have (like 401k, Roth IRA, traditional IRA, taxable brokerage, etc.), and what specific investments you have in each account? Please give fund or stock names, and ticker symbols.

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place. P!ease see this for format: "Asking Portfolio Questions".
Last edited by ruralavalon on Fri Sep 11, 2020 11:51 am, edited 4 times in total.
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Chris K Jones
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Re: Asset Allocation at age 61

Post by Chris K Jones »

You have plenty of good replies above. I am 62 yrs old and plan to maintain a 60% equity 40% fixed income portfolio for the rest of my life. I call it fixed income, but most of it is bond funds (VBILX and FXNAX). I have 1.5% in various cash accounts. As noted above, this should last 30 years with 4% withdrawal and inflation adjustments. Congratulations. I think you are in good shape.
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David Jay
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Re: Asset Allocation at age 61

Post by David Jay »

Please, go purchase Jane Quinn Bryant's book "Making Your Money Last" - it is the best single reference for our (I'm two years ahead of you) stage of life.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Toons
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Re: Asset Allocation at age 61

Post by Toons »

60/40
:mrgreen:
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DSBH
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Re: Asset Allocation at age 61

Post by DSBH »

GetSmarter wrote: Thu Sep 10, 2020 5:13 pm Thoughts on Asset Allocation recommendation for 61 year old single female with $2 million, no debt, no job. Monthly expenses, including estimated taxes figured in, approximately $4,500 a month or $55,000 a year. I won't take social security until 70 ($1,240 month).

I'm inclined to go to 40 equities/40 bonds/20 cash

I need to generate around 55k a year from my portfolio to live ...
I like the 40 equities/40 bonds/20 cash (or short term bond) AA idea.

There are different ways to get there but let's assume that with 1.6M you buy a 2-fund portfolio (e.g. 50% Total Stock Index + 50% Total Bond Index), and a short term bond fund with 400k, by the time you spend all the short term bond money in the next 8 years (and not having to deal with stock market volatilities in those years) your 2-fund portfolio may grow back to 2M or more, perhaps even giving you an AA around 60/40 to withdraw from by the same time of SS benefits .
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GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

David Jay wrote: Fri Sep 11, 2020 11:08 am Please, go purchase Jane Quinn Bryant's book "Making Your Money Last" - it is the best single reference for our (I'm two years ahead of you) stage of life.
Thank you for the suggestion. Will do!
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
Posts: 93
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Re: Asset Allocation at age 61

Post by GetSmarter »

DSBH wrote: Fri Sep 11, 2020 1:19 pm
GetSmarter wrote: Thu Sep 10, 2020 5:13 pm Thoughts on Asset Allocation recommendation for 61 year old single female with $2 million, no debt, no job. Monthly expenses, including estimated taxes figured in, approximately $4,500 a month or $55,000 a year. I won't take social security until 70 ($1,240 month).

I'm inclined to go to 40 equities/40 bonds/20 cash

I need to generate around 55k a year from my portfolio to live ...
I like the 40 equities/40 bonds/20 cash (or short term bond) AA idea.

There are different ways to get there but let's assume that with 1.6M you buy a 2-fund portfolio (e.g. 50% Total Stock Index + 50% Total Bond Index), and a short term bond fund with 400k, by the time you spend all the short term bond money in the next 8 years (and not having to deal with stock market volatilities in those years) your 2-fund portfolio may grow back to 2M or more, perhaps even giving you an AA around 60/40 to withdraw from by the same time of SS benefits .
Thank you for sharing your thoughts!
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
Posts: 93
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Re: Asset Allocation at age 61

Post by GetSmarter »

Chris K Jones wrote: Fri Sep 11, 2020 11:01 am You have plenty of good replies above. I am 62 yrs old and plan to maintain a 60% equity 40% fixed income portfolio for the rest of my life. I call it fixed income, but most of it is bond funds (VBILX and FXNAX). I have 1.5% in various cash accounts. As noted above, this should last 30 years with 4% withdrawal and inflation adjustments. Congratulations. I think you are in good shape.
Thank you for your thoughts.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
Posts: 93
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Re: Asset Allocation at age 61

Post by GetSmarter »

ruralavalon wrote: Fri Sep 11, 2020 11:00 am
GetSmarter wrote: Thu Sep 10, 2020 5:13 pm Thoughts on Asset Allocation recommendation for 61 year old single female with $2 million, no debt, no job. Monthly expenses, including estimated taxes figured in, approximately $4,500 a month or $55,000 a year. I won't take social security until 70 ($1,240 month).

I'm inclined to go to 40 equities/40 bonds/20 cash

I need to generate around 55k a year from my portfolio to live. I'd like to get a part-time job but plan as if I won't. I was 50/50 asset allocation but I became over-weighted in equities, recently 70/30, when I inherited high-dividend stocks. I like the income potential with dividend stocks in our low-yield environment (this individual stock portfolio of 14 positions, gives an average $1,200 monthly). I also have my tried and true total stock market index funds. Something has to give in my portfolio though and go toward bonds/CDs. I feel 70% equities is too great risk at my age, in our unstable world. There's longevity in my family. So I figure I could live into my 90s.

For bond funds I have FXNAX and VBTLX and VBILX. Recommendations for bond funds to exchange my equities into? I am also considering Vanguard's world bond index fund, VTABX.

For diversification, does anyone suggest precious metals, gold/silver?

Whatever assets I choose to sell now to rebalance, remind me not to time the market. It's hard to sell when it's rough in the markets.

Thank you for your recommendation.
GetSmarter wrote: Thu Sep 10, 2020 7:44 pm . . . . .
I haven't had to live off my portfolio before. What I meant by generate $55k a year from dividends and selling stock or cashing in CDs.

I wanted advice about asset allocation. Right now it's close to 70/30. My 30% has a lot of CDs, not so much bonds. Looking for the best mix and allocation. I have a lot of equities in my IRA and I could exchange for bond funds. Advice about asset allocation?
GetSmarter wrote: Thu Sep 10, 2020 7:54 pm . . . . .
I'm trying to understand how best to make my money last. Asset allocation. I'm new to this situation in that I've never relied on investments. I just let my investments grow and reinvested dividends. And recently I inherited some stocks. So now I'm not working and wondering how best to navigate my money moving forward. Thanks for your thoughts.
GetSmarter wrote: Thu Sep 10, 2020 11:26 pm
CyclingDuo wrote: Thu Sep 10, 2020 10:08 pm
GetSmarter wrote: Thu Sep 10, 2020 8:28 pmThank you. Yes, my individual stocks are in taxable account. They have high dividend yields so I thought of keeping some. I appreciate your thoughts. I'm in a new life chapter and learning.
Feel free to list the stocks. Not everyone that is a forum member here at Bogleheads is 100% index funds. Many also own stocks and might have some insight on your particular basket of stocks.

You say they are all dividend paying stocks. Are any of them non-qualified dividends? Any REITs for example? The reason to list them is for us to see if they are perhaps all tilted too much to one factor or sector(s) of the market.

You might find this part of the Boglehead Wiki an interesting read: https://www.bogleheads.org/wiki/Passive ... 20incurred.

CyclingDuo
Thanks for offering to look at my stocks and sending helpful article. I'm new to individual stocks, and hadn't thought about the tax implications of capital gains versus high-yielding dividends. Prior to gaining individual stocks, I hold VTSAX, VFIAX, VBTLX,VBILX, VSIGX, and VTIAX in tax-sheltered and taxable accounts. The individual stocks are in taxable account. I'm considering selling 1/3 or more of the individual stocks and putting into bonds because I'm currently 70/30 asset allocation and prefer to be 40-50 equities instead. While I inherited stocks, I recently naively bought Apple (5% my equity portfolio) near its height and guess I'll ride out its current wave down until it swings into a better future. While they're not equally weighted, thoughts on my individual stocks and asset allocation (stocks/bonds/cash) appreciated.

DUK
PEP
KR
VZ
DIS
LIN
ABBV
PCAR
LOW
MSFT
AAPL
GOOGL
CAT
A $2 million portfolio can support an annual withdrawal of $55k, that comes to just 2.75% annually.

I would not carry 20% of the portfolio in cash. That is likely to give a negative real return net of inflation and taxes.

I think that delaying Social Security until age 70 is a very good idea.

In my opinion the 60/40 equity/fixed income asset allocation already suggested is reasonable.

The bond funds you have been using (FXNAX, VBTLX, VBILX, and VSIGX) are all good choices in my opinion. You could use those funds for any additions to your bond allocation. It's okay to use CDs as part of the fixed income allocation.

I suggest primarily using very diversified stock index funds, rather than individual stocks, for the equity allocation. The stock index funds which you have been using (VTSAX, VFIAX, and VTIAX) are all good choices.

About what percentage of your equities are in individual stocks as opposed to stock index funds?

Since you will be selling some of the individual stocks, I suggest turning off any automatic reinvestment of dividends you may have set up. There is no sense in buying more of stocks that you want to sell. all

I do not suggest "precious metals, gold/silver" for diversification.

You have mentioned having "tax-sheltered and taxable accounts." Can you tell us what specific accounts you have (like 401k, Roth IRA, traditional IRA, taxable brokerage, etc.), and what specific investments you have in each account? Please give fund or stock names, and ticker symbols.

You can simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place. P!ease see this for format: "Asking Portfolio Questions".
Thank you for your thoughts and suggestion to post all assets for review. I'll do that another day.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
bearwithbear
Posts: 76
Joined: Thu Jun 28, 2018 5:55 pm

Re: Asset Allocation at age 61

Post by bearwithbear »

OP,

How much of your 2 million portfolio is tax deferred?
Your portfolio is large enough that you should be fine, but since your are only 61 you may have enough time to implement a strategy that helps you keep more of your rmds.

Bear
Topic Author
GetSmarter
Posts: 93
Joined: Tue Oct 02, 2018 11:49 pm

Re: Asset Allocation at age 61

Post by GetSmarter »

CyclingDuo wrote: Fri Sep 11, 2020 10:35 am
GetSmarter wrote: Thu Sep 10, 2020 11:26 pmThanks for offering to look at my stocks and sending helpful article. I'm new to individual stocks, and hadn't thought about the tax implications of capital gains versus high-yielding dividends. Prior to gaining individual stocks, I hold VTSAX, VFIAX, VBTLX,VBILX, VSIGX, and VTIAX in tax-sheltered and taxable accounts. The individual stocks are in taxable account. I'm considering selling 1/3 or more of the individual stocks and putting into bonds because I'm currently 70/30 asset allocation and prefer to be 40-50 equities instead. While I inherited stocks, I recently naively bought Apple (5% my equity portfolio) near its height and guess I'll ride out its current wave down until it swings into a better future. While they're not equally weighted, thoughts on my individual stocks and asset allocation (stocks/bonds/cash) appreciated.
I understand your desire to center in on your asset allocation and make sure your portfolio covers your expenses as well as lasts throughout your remaining years. I like your idea of taking SS at age 70 as that builds in a longevity insurance.

Enthusiasm for Apple stock with what is really a non-event (a stock split) took it into frenzy trading. Sounds like you may have been caught up in that bug with your purchase of Apple to complete your Baker's Dozen of stocks. :wink: Keep in mind, earlier this year many got got caught up in the same type of a frenzy bug - only that frenzy bug was to the downside and sold Apple at $56 ($224 pre-split). It works in both directions. This opens up the discussion of behavioral mistakes. Keep in mind, that there were just as many in panic mode here on the Bogleheads forums that were dumping their index funds in March as well as individual stocks.

If you read the Wiki link about passively managing individual stocks, Bogle was talking about the longer term and keeping costs low. These days, there are no trading costs to buy or sell a share of stock, so your ER (expense ratio) is lowered even more than when he wrote that. I would remove the notion that the reason to hold individual stocks is to beat the market. Rather, if you keep them, think of trying to come close to matching the market as the goal. Whether you are slightly under or slightly over the market's return depending on the year, over the long run most will simply match it with a DIY (do it yourself) index fund made up of many stocks. This opens up the discussion of how many stocks to own if you are going to hold individual stocks.

You have the options to reinvest the dividends from your baker's dozen of 13 stocks into buying partial shares of the same stock (DRIP), just letting the dividends go to your cash account and spending them, or even purchasing more shares of either individual stocks or more shares of your index stock and bond funds. The dividends in your taxable account are taxed at your long term capital gains rate, so depending on your current income level you may pay $0 taxes on the dividends or capital gains if you sold the shares in an orderly fashion this year and in consecutive years to avoid paying taxes. Or if you just hang on to them for the longer term, you also may pay $0 on the qualified dividends - again depending on your income. I know that since we file MFJ, we can have up to $80K in taxable income and still qualify to pay $0 on our dividends. I believe for filing single, it is up to $40K in taxable income before qualified dividends get taxed.

These articles do not have the latest 2020 tax figures, but it is now up to $40K taxable income for a single filer and up to $80K for MFJ before qualified dividends get taxed:

https://retireby40.org/pay-no-tax-dividend-income/
https://www.qtaxservices.com/zero-tax-o ... idend.html
https://mymoneywizard.com/earn-100000-zero-taxes/
https://www.thebalance.com/how-to-pay-n ... ins-357399

Sectors not covered in your Baker's Dozen: Financials, Real Estate

The good news is that your individual stocks cover the majority of sectors and 5 of them are Dividend Aristocrats with at least 25 years of consecutive annual dividend growth. You also have some growth stocks. They are all large cap stocks, so no coverage in the mid cap and small cap area (which you have covered in your index funds). It's actually not a bad mix at first glance. Disney's dividend will come back at some point in the future. Google will most likely start paying a dividend at some point in time if they follow the history of other large cap technology companies that have matured. Microsoft and Apple will continue to grow their dividends and it wouldn't surprise me to see that happen for a lot of consecutive years. You didn't mention how much you have invested in each individual stock and what percentage of your overall portfolio is currently invested in individual stocks compared to your index stock and bond funds.

DUK = Duke Energy (4.71% yield) in the Utilities Sector

*PEP = PepsiCo (3.04% yield) Beverages/Snacks in the Consumer Defensive Sector
KR = Kroger (2.07% yield) Grocery Stores in the Consumer Defensive Sector

GOOGL = Alphabet (no dividend) Internet Content and Information in Communication Services Sector
VZ = Verizon (4.22% yield) Telecom Services in the Communication Services Sector
DIS = Disney (dividend currently suspended due to Covid) Entertainment in Communication Services Sector

*LIN = Linde PLC (1.56% yield) Specialty Chemicals in Basic Materials Sector

*ABBV = AbbVie (5.26% yield) Drug Maker in Healthcare Sector

PCAR = Paccar Inc (1.55% yield) Farm and Heavy Construction Machinery in Industrials Sector
*CAT = Caterpillar (2.75% yield) Farm and Heavy Construction Machinery in Industrials Sector

*LOW = Lowe's (1.52% yield) Home Improvement Retail in Consumer Cyclical Sector

MSFT = Microsoft (.99% yield) Software Infrastructure in Technology Sector
AAPL = Apple (.72% yield) Consumer Electronics in Technology Sector

*Dividend Aristocrats with at least 25 years of consecutive dividend growth

The bad news is that 13 stocks don't offer as much diversification as needed and are at the mercy of market skewness. Behavioral mistakes can also crop up (such as getting excited and buying more Apple at highs or getting freaked out and selling shares of one of your companies at lows). If you read the various studies at the Passively Managing Individual Stocks Wiki link, you get a good idea of how a 13 stock portfolio will perform and fluctuate compared to a one stock portfolio, a 30 stock portfolio, a 50 stock portfolio, a 75 stock portfolio, a 100 stock portfolio, a 120 stock portfolio, etc... and how they compare to owning the overall market. We actually own 11 of your 13 stocks as individual stocks in our portfolio (which includes our own large "DIY Index Fund" of many stocks). PCAR and KR we do not own individually, but they are in our Vanguard Index Funds.

Your main advantage - if there is one for a 13 stock portfolio - is that your costs are low (no ER fees, no trading fees) if you held them for the longer term. That advantage may not be enough though to perform as well as a 30 stock portfolio, or a 75 stock portfolio, or a 120 stock portfolio, or an index fund. I'm in the camp that if you don't have enough money or investing discipline to spread it around to a DIY Index Fund with many more stocks, you're most likely better off just owning the Index Fund. Or, if you want to own individual stocks at some level and not diversify through broad holdings, then just own a maximum of 5-10% of your overall portfolio in individual stocks. In your case, though, you inherited the individual stocks and only chose Apple on your own to add to the mix. Inheritance is not a bad thing, it just leaves you trying to understand what works best for you as your portfolio and needs are different than who you inherited the stocks from as their picture may have been totally different.

In your current attempt to get a grasp on your asset allocation, and how you are going to create an income stream (be it from dividends, capital gains, interest or a combination of them all) - I would not rush to make decisions.

The Boglehead Wiki page on managing a windfall (your inheritance) is a good source to always go back to and review what you have done up to this point, and to prepare a path of continuing your education for making any investment decisions or lifestyle change decisions:

https://www.bogleheads.org/wiki/Managing_a_windfall

You stated your current thoughts that you need to generate an annual income of $55,000 to maintain your current lifestyle and expenses until you begin taking SS. That's a 2.75% withdrawal rate on a $2M portfolio, so should be pretty safe to do whether it comes from dividends, capital gains, and or interest. 9 years from now, you will begin taking Social Security and not need to withdraw as much from your portfolio. So you could divide up your timeline for what you need in the next 9 years as one segment, then the years beyond that as the additional income stream of Social Security is flowing in every month. You also have the option of taking SS earlier as well as you mentioned, taking a part-time job if so desired. Again - plenty of options for you to make it all work. As I said above, I like the idea of longevity insurance by waiting until 70 to take your SS - especially since you mentioned your family has good longevity into their 90's.

The 11 stocks that you own and currently pay dividends have a combined dividend yield of 2.58% (Disney will be back at some point with their dividend, but for now we exclude it along with Alphabet). How does that compare to some dividend ETF's that own many more stocks within them?

VTI (Vanguard's Total Stock Market Index) is currently yielding 1.85%. NOBL (Invesco's ProShares S&P 500 Dividend Aristocrats ETF) which holds all of the S&P 500 Dividend Aristocrats is currently yielding 2.32%. VYM (Vanguard's High Dividend Yield ETF) is currently yielding 3.75%. VNQ (Vanguard's Real Estate Index Fund ETF) is currently yielding 3.96% (this is an ETF I would not suggest holding in taxable as they are not qualified dividends so are taxed at a higher rate and are best held in the Roth IRA space).

To use as an example since we have a similar sized portfolio to yours which includes a lot of dividend paying stocks, growth stocks, growth and income stocks, and Index Stock and Bond Funds. These are the annual dividends we receive, and you can see the 4 spiked months where the dividends from the stock index funds roll in each quarter (2019 shown):

Image

If we had to live off of the dividends alone, as you can see the way it is currently structured, we would not be able to do that on just the dividends if we needed $55K a year (to use your figure). We would also need to use interest and possibly sell shares of something to fill the gap between $38K and $55K each year until we hit SS (your case). Regardless, it would still be at a safe withdrawal rate whether it comes from dividends, cap gains or interest (or a combination of all) to not deplete the portfolio over the next 9 years and beyond.

In our case, we are both still working and accumulating, so everything currently gets reinvested. We also will have a pension for income, and then eventually both have Social Security (ages 58/62 right now). So our portfolio is structured to eventually transition into the coming phases of moving from a dual income household, to a single income with a pension and dividends (if needed) household, then a dual retired household with pension, dividends/cap gains/interest and Social Security. Obviously we have two mouths to feed, where you only have one.

One can remain pretty agnostic about whether the money comes from capital gains, dividends, interest or a combination of them as long as you understand what they all represent, how they are taxed, and how best to meet your needs.

You look to be in very good shape as it is. What to do with your current overall portfolio and the windfall also provides plenty of options. Why to make changes, how to make changes, and when to make changes is nothing that you need to immediately be rushing into, but continue your discovery and getting up to speed with what you are comfortable doing. You already hinted at that by stating perhaps selling only some of the shares of individual stocks to rebalance. I don't get too excited about individual stocks as they are simply a tool whether we own them as a collective group (ETF's, mutual funds) or as a basket of individual stocks - or in our case, as a hybrid approach of index funds and a diverse basket of individual stocks. If you are new to them as you say, keep any excitement in check. :beer

Asset Allocation regarding equities, bonds, cash is never a one size fits all ratio. In your case, the sequence of returns risk seems to be the main target - since you have seemingly just recently retired - and need to be able to cover your expenses for a period of time in case there is a bear market so you do not deplete your portfolio. This should be item number one to tackle and get organized. Does that mean having 5-7 years of your annual $55K set aside in bonds and cash to avoid selling equities at lows? That would be $275K to $385K or 13.75% to 19.25% of your portfolio set aside to protect you for the initial years of sequence of returns risk in bonds/CD/cash. Even if we round it up to an even $300K to $400K as a bare minimum so you do not have to sell anything from your equities over the next 5-7 years, it sounds like you are already there based on your statement of currently being invested 70/30. Does that mean that you suddenly need to go from 70/30 to something like 40/60 or 50/50 in the blink of an eye? Again, as has been shown and said throughout this thread - it's not a one size fits all ratio. Your risk tolerance and the need to take risk or not take risk to fund your retirement comes into play. I don't think any of us would disagree with erring on the conservative side since you are currently not working, and did not mention any other streams of income such as a pension or rental income. Whether that ends up being 60%, 55%, 50%, or 40% in equities - it probably won't make much difference. Have you run your numbers in FIRECalc?

https://www.firecalc.com/

Not that this is the be all end all regarding the glide path (since bonds no longer yield what they did when Kitces wrote about this), but here's what that looks like visually using the Bond Tent from Michael Kitces...

Image

Image

There is also the "spending smile" approach in retirement that shows in the early years, which are known as your go-go years you will spend more. The middle years of retirement known as the slow-go years, you will spend less. And the final years known as the no-go years, you will once again spend more due to the rise in your health care cost needs.

https://www.kitces.com/blog/estimating- ... ing-smile/

https://www.forbes.com/sites/wadepfau/2 ... 3c99d42056

https://retirementresearcher.com/retire ... end%20less.

As a follow up, keep us informed in this thread of your additional thoughts and questions, as well as conclusions you have come to for your decision making. Although the narrative changes for every recession, a year such as we have had thus far has been dramatic for the entire globe.

CyclingDuo
Dear CyclingDuo,

I am most grateful for your thorough response. It's kind of you. I will read the links you shared and consider posting specifics of my portfolio at a later time. First, I prioritize grasping my overall picture and psychology, managing my money/future. No more emotional buying or selling. It was my first and last time doing so with AAPL. Now I wonder if I should hold on to that overpriced AAPL for long-term or wait to sell it (or part of it) until I've figured out my overall plan? How much individual stocks vs. index funds will I swap for bonds? In order to have no more than 50 or 60% equities, I need to downsize equities. I'm thinking, before the individual stocks get too much capital gain, sell more before end of year. A few stocks are skyrocketing to more than offset my lemon-timing of Apple, anyway. I'm inclined to keep individual stocks but trim the big positions (PEP, LIN, CAT, DIS) and put that money into bond funds, where I'm deficient.

Regarding taxes, maybe I read it here: Some suggest, as example, owning VTSAX with low dividends, over high-yielding stocks because capital gains are more tax-efficient that dividends. With taxes in mind, I'm thinking the bond funds will go in my IRAs, which means I'll be exchanging VTSAX in them now. I also have VTSAX in taxable account.

While I don't have an advisor, Fidelity and Vanguard recommend I pay a small fee for them to manage and rebalance as needed. Do you or other Bogleheads recommend in certain situations hiring an advisor to rebalance and mind a portion of portfolio, if not the whole thing? I'm guessing that's what this forum is for and you sound extremely involved in managing your portfolio. I am inclined to stick to learning from others like yourself, this forum, books, and managing my portfolio myself. In more than one area of life, I've paid a price for trusting someone else. And my parents were financially abused by someone in a position of trust. It left a bad taste; who and how I'll trust, moving forward. Inclined that no one will have access to my assets ever, unless I live a very long time and then I'll find someone(s) with controls in place.

So thanks again for sharing helpful information.

Thanks again, CyclingDuo!
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
Posts: 93
Joined: Tue Oct 02, 2018 11:49 pm

Re: Asset Allocation at age 61

Post by GetSmarter »

bearwithbear wrote: Fri Sep 11, 2020 2:05 pm OP,

How much of your 2 million portfolio is tax deferred?
Your portfolio is large enough that you should be fine, but since your are only 61 you may have enough time to implement a strategy that helps you keep more of your rmds.

Bear
Hi Bear,

About $460k is in tax deferred IRA. This is where I'm considering exchanging equity index funds for more bond funds. Currently, my bond portfolio is $230,000, some in IRA, some in taxable.

Thanks for weighing in.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
tibbitts
Posts: 11547
Joined: Tue Feb 27, 2007 6:50 pm

Re: Asset Allocation at age 61

Post by tibbitts »

GetSmarter wrote: Fri Sep 11, 2020 3:24 pm
bearwithbear wrote: Fri Sep 11, 2020 2:05 pm OP,

How much of your 2 million portfolio is tax deferred?
Your portfolio is large enough that you should be fine, but since your are only 61 you may have enough time to implement a strategy that helps you keep more of your rmds.

Bear
Hi Bear,

About $460k is in tax deferred IRA. This is where I'm considering exchanging equity index funds for more bond funds. Currently, my bond portfolio is $230,000, some in IRA, some in taxable.

Thanks for weighing in.
Consider converting some of your deferred IRA money to a Roth, certainly through most of the 22% if not 24% brackets, before your 2-year medicare look-back period. Admittedly there are lots of factors that might make that a good move or not, but it's worth thinking about.
User avatar
CyclingDuo
Posts: 3589
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Re: Asset Allocation at age 61

Post by CyclingDuo »

GetSmarter wrote: Fri Sep 11, 2020 2:19 pmI am most grateful for your thorough response. It's kind of you. I will read the links you shared and consider posting specifics of my portfolio at a later time. First, I prioritize grasping my overall picture and psychology, managing my money/future. No more emotional buying or selling. It was my first and last time doing so with AAPL. Now I wonder if I should hold on to that overpriced AAPL for long-term or wait to sell it (or part of it) until I've figured out my overall plan? How much individual stocks vs. index funds will I swap for bonds? In order to have no more than 50 or 60% equities, I need to downsize equities. I'm thinking, before the individual stocks get too much capital gain, sell more before end of year. A few stocks are skyrocketing to more than offset my lemon-timing of Apple, anyway. I'm inclined to keep individual stocks but trim the big positions (PEP, LIN, CAT, DIS) and put that money into bond funds, where I'm deficient.
We're in the midst of a correction for the Nasdaq after the run-up from the March lows, so typically that could be anywhere in the 10-20% variety. That's the pain one has to go through to capture the longer term gains.
GetSmarter wrote: Fri Sep 11, 2020 2:19 pmRegarding taxes, maybe I read it here: Some suggest, as example, owning VTSAX with low dividends, over high-yielding stocks because capital gains are more tax-efficient that dividends. With taxes in mind, I'm thinking the bond funds will go in my IRAs, which means I'll be exchanging VTSAX in them now. I also have VTSAX in taxable account.
Actually, the taxes are the same for qualified dividends as long term capital gains and is based on your taxable income. Here's the chart for you 2020 for single filers...

Image

So you can see that if you could keep your taxable income at $40K or less (that would be after the standard deduction of $12,400) - your qualified dividends as well as your long term capital gains tax would be goose egg: $0. I think many things you may have read was the tax game one has to play with their dividends to get to retirement in terms of them being not as tax-efficient. You are no longer in that scenario, so it is not a worry. We are in that scenario, and we keep our taxable income low by maxing out all of our retirement plans, the mandatory pension contribution and of course the standard deduction for MJF which is 2x what yours is and allows us to trim off $24,800 from taxable income to get it down low enough to pay zero on the dividends in our taxable account. Anyway, as I said - you are beyond having to do that mitigation for tax-efficiency during the working years and accumulation years.
GetSmarter wrote: Fri Sep 11, 2020 2:19 pmWhile I don't have an advisor, Fidelity and Vanguard recommend I pay a small fee for them to manage and rebalance as needed. Do you or other Bogleheads recommend in certain situations hiring an advisor to rebalance and mind a portion of portfolio, if not the whole thing? I'm guessing that's what this forum is for and you sound extremely involved in managing your portfolio. I am inclined to stick to learning from others like yourself, this forum, books, and managing my portfolio myself. In more than one area of life, I've paid a price for trusting someone else. And my parents were financially abused by someone in a position of trust. It left a bad taste; who and how I'll trust, moving forward. Inclined that no one will have access to my assets ever, unless I live a very long time and then I'll find someone(s) with controls in place.

So thanks again for sharing helpful information.

Thanks again, CyclingDuo!
No worries. Most of us that are on here have chosen to be DIY for a variety of reasons. One of them being to save the AUM fees. However, that doesn't mean everyone is gung-ho to be DIY and may want to hire an advisor in some shape or form. There is nothing wrong with that for those who prefer it. Fidelity and Vanguard are both great firms. I think you have acumen to learn on your own and manage your nest egg for now. That would be my suggestion in the early going to dive in and educate yourself enough. Do you do your own taxes, or does somebody do them for you. In my opinion, they go hand in hand doing them yourself as you learn a lot about tax-efficiency and mitigating your tax bills along the way. Again, it's not for everyone, but I enjoy doing it. I have to say that as my Mom ran an H&R Block tax franchise. :mrgreen:

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright
Topic Author
GetSmarter
Posts: 93
Joined: Tue Oct 02, 2018 11:49 pm

Re: Asset Allocation at age 61

Post by GetSmarter »

BolderBoy wrote: Thu Sep 10, 2020 8:45 pm
GetSmarter wrote: Thu Sep 10, 2020 5:13 pmI'm inclined to go to 40 equities/40 bonds/20 cash
20% in cash is $400k. Don't do that. Plan on a 40/60 portfolio or even 30/70. If you want to keep some cash lying around, do 1-2%, live on that and replenish it by selling some of your portfolio from time-to-time.

Do a forum search for "two fund portfolio" and shoot for consolidating everything into two funds for simplicity.

With a little luck you won't outlive your money.

An anecdote: I designated $400k of my portfolio to carry me for 9 years (retirement) until I take SS, which I'll be doing shortly. Spending $36-40k/yr, I still have $260k left thanks to market returns during the 9 years. My AA has been 30/70 for most of the 9 years.
Thanks for sharing. Did you rebalance annually that 400k to maintain your asset allocation?
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
chw
Posts: 826
Joined: Thu May 24, 2012 4:22 pm

Re: Asset Allocation at age 61

Post by chw »

I’m you’re age, retired 3 years (no pension), and at 60/40 for life. I do hold 4 years of expenses in S-T bonds/cash (part of the 40% bond allocation). 55k/year from a 2M portfolio with SS kicking in at age 70, should cover a 30 year retirement.

I would keep your portfolio simple- Total Stock Market/Total Int’l for equities (possible tilt to SCV), and an Intermediate Bond Fund for the bond allocation (with perhaps an allocation as desired to a ST bond fund).

SS at 70 is a good idea. Check your projected benefit- $1,290/mo seems a bit low for a delayed benefit.
medt
Posts: 54
Joined: Wed Apr 06, 2011 5:58 pm

Re: Asset Allocation at age 61

Post by medt »

You got several great responses and it appears that majority recommended 60/40 AA.

The most important fact is that you won the game - you have more than enough assets to cover you retirement indefinitely (if your withdrawal rate remains within 3-4% range).

I estimate that your fixed income assets are about $600 k and about $450k-500k of it is in your taxable account.

This is another way to look at managing your portfolio:

You have enough cash alike assets in your taxable account to cover you until you are 70 and start drawing SS. Getting $14400 in dividends annually means that you need $40-45k from your fixed income assets to cover all your expenses. The remaining $50k could be reserve for the big ticket items.

If you are NOT risk averse and able to withstand 40-50% market correction for your 14 stocks I would not touch them. By using only their dividends (and your current fixed assets in the taxable accounts to live off) you will not need to sell them for another 25-?? years.

I would suggest to use your IRA assets, SS income and dividends to cover your needs from age 70 till 85 (or longer if they last).
I would invest all your IRA assets in a target retirement fund (2025 or 2030).

After all IRA assets are depleted your income will come from dividends, SS income, any remaining cash/bonds/CDs in your taxable account and proceeds from the individual stocks sales.

Completely different approach, but worth considering if you are willing to keep those individual stocks. Otherwise, you can sell them before any significant capital gains kick in and buy S&P 500 instead.

P.S. 1: You will most likely arrive at approximate 60/40 AA by choosing 2025 Target Retirement Fund in your IRA, but you can afford to be more aggressive by choosing 2030)).
P.S. 2: When you decide how to proceed before pulling the trigger in your taxable account make sure to understand tax consequences regarding
ACA subsidies, if they apply and any Medicare Advantage costs after you turn 65.
Topic Author
GetSmarter
Posts: 93
Joined: Tue Oct 02, 2018 11:49 pm

Re: Asset Allocation at age 61

Post by GetSmarter »

GetSmarter wrote: Fri Sep 11, 2020 2:19 pm
CyclingDuo wrote: Fri Sep 11, 2020 10:35 am
GetSmarter wrote: Thu Sep 10, 2020 11:26 pmThanks for offering to look at my stocks and sending helpful article. I'm new to individual stocks, and hadn't thought about the tax implications of capital gains versus high-yielding dividends. Prior to gaining individual stocks, I hold VTSAX, VFIAX, VBTLX,VBILX, VSIGX, and VTIAX in tax-sheltered and taxable accounts. The individual stocks are in taxable account. I'm considering selling 1/3 or more of the individual stocks and putting into bonds because I'm currently 70/30 asset allocation and prefer to be 40-50 equities instead. While I inherited stocks, I recently naively bought Apple (5% my equity portfolio) near its height and guess I'll ride out its current wave down until it swings into a better future. While they're not equally weighted, thoughts on my individual stocks and asset allocation (stocks/bonds/cash) appreciated.
I understand your desire to center in on your asset allocation and make sure your portfolio covers your expenses as well as lasts throughout your remaining years. I like your idea of taking SS at age 70 as that builds in a longevity insurance.

Enthusiasm for Apple stock with what is really a non-event (a stock split) took it into frenzy trading. Sounds like you may have been caught up in that bug with your purchase of Apple to complete your Baker's Dozen of stocks. :wink: Keep in mind, earlier this year many got got caught up in the same type of a frenzy bug - only that frenzy bug was to the downside and sold Apple at $56 ($224 pre-split). It works in both directions. This opens up the discussion of behavioral mistakes. Keep in mind, that there were just as many in panic mode here on the Bogleheads forums that were dumping their index funds in March as well as individual stocks.

If you read the Wiki link about passively managing individual stocks, Bogle was talking about the longer term and keeping costs low. These days, there are no trading costs to buy or sell a share of stock, so your ER (expense ratio) is lowered even more than when he wrote that. I would remove the notion that the reason to hold individual stocks is to beat the market. Rather, if you keep them, think of trying to come close to matching the market as the goal. Whether you are slightly under or slightly over the market's return depending on the year, over the long run most will simply match it with a DIY (do it yourself) index fund made up of many stocks. This opens up the discussion of how many stocks to own if you are going to hold individual stocks.

You have the options to reinvest the dividends from your baker's dozen of 13 stocks into buying partial shares of the same stock (DRIP), just letting the dividends go to your cash account and spending them, or even purchasing more shares of either individual stocks or more shares of your index stock and bond funds. The dividends in your taxable account are taxed at your long term capital gains rate, so depending on your current income level you may pay $0 taxes on the dividends or capital gains if you sold the shares in an orderly fashion this year and in consecutive years to avoid paying taxes. Or if you just hang on to them for the longer term, you also may pay $0 on the qualified dividends - again depending on your income. I know that since we file MFJ, we can have up to $80K in taxable income and still qualify to pay $0 on our dividends. I believe for filing single, it is up to $40K in taxable income before qualified dividends get taxed.

These articles do not have the latest 2020 tax figures, but it is now up to $40K taxable income for a single filer and up to $80K for MFJ before qualified dividends get taxed:

https://retireby40.org/pay-no-tax-dividend-income/
https://www.qtaxservices.com/zero-tax-o ... idend.html
https://mymoneywizard.com/earn-100000-zero-taxes/
https://www.thebalance.com/how-to-pay-n ... ins-357399

Sectors not covered in your Baker's Dozen: Financials, Real Estate

The good news is that your individual stocks cover the majority of sectors and 5 of them are Dividend Aristocrats with at least 25 years of consecutive annual dividend growth. You also have some growth stocks. They are all large cap stocks, so no coverage in the mid cap and small cap area (which you have covered in your index funds). It's actually not a bad mix at first glance. Disney's dividend will come back at some point in the future. Google will most likely start paying a dividend at some point in time if they follow the history of other large cap technology companies that have matured. Microsoft and Apple will continue to grow their dividends and it wouldn't surprise me to see that happen for a lot of consecutive years. You didn't mention how much you have invested in each individual stock and what percentage of your overall portfolio is currently invested in individual stocks compared to your index stock and bond funds.

DUK = Duke Energy (4.71% yield) in the Utilities Sector

*PEP = PepsiCo (3.04% yield) Beverages/Snacks in the Consumer Defensive Sector
KR = Kroger (2.07% yield) Grocery Stores in the Consumer Defensive Sector

GOOGL = Alphabet (no dividend) Internet Content and Information in Communication Services Sector
VZ = Verizon (4.22% yield) Telecom Services in the Communication Services Sector
DIS = Disney (dividend currently suspended due to Covid) Entertainment in Communication Services Sector

*LIN = Linde PLC (1.56% yield) Specialty Chemicals in Basic Materials Sector

*ABBV = AbbVie (5.26% yield) Drug Maker in Healthcare Sector

PCAR = Paccar Inc (1.55% yield) Farm and Heavy Construction Machinery in Industrials Sector
*CAT = Caterpillar (2.75% yield) Farm and Heavy Construction Machinery in Industrials Sector

*LOW = Lowe's (1.52% yield) Home Improvement Retail in Consumer Cyclical Sector

MSFT = Microsoft (.99% yield) Software Infrastructure in Technology Sector
AAPL = Apple (.72% yield) Consumer Electronics in Technology Sector

*Dividend Aristocrats with at least 25 years of consecutive dividend growth

The bad news is that 13 stocks don't offer as much diversification as needed and are at the mercy of market skewness. Behavioral mistakes can also crop up (such as getting excited and buying more Apple at highs or getting freaked out and selling shares of one of your companies at lows). If you read the various studies at the Passively Managing Individual Stocks Wiki link, you get a good idea of how a 13 stock portfolio will perform and fluctuate compared to a one stock portfolio, a 30 stock portfolio, a 50 stock portfolio, a 75 stock portfolio, a 100 stock portfolio, a 120 stock portfolio, etc... and how they compare to owning the overall market. We actually own 11 of your 13 stocks as individual stocks in our portfolio (which includes our own large "DIY Index Fund" of many stocks). PCAR and KR we do not own individually, but they are in our Vanguard Index Funds.

Your main advantage - if there is one for a 13 stock portfolio - is that your costs are low (no ER fees, no trading fees) if you held them for the longer term. That advantage may not be enough though to perform as well as a 30 stock portfolio, or a 75 stock portfolio, or a 120 stock portfolio, or an index fund. I'm in the camp that if you don't have enough money or investing discipline to spread it around to a DIY Index Fund with many more stocks, you're most likely better off just owning the Index Fund. Or, if you want to own individual stocks at some level and not diversify through broad holdings, then just own a maximum of 5-10% of your overall portfolio in individual stocks. In your case, though, you inherited the individual stocks and only chose Apple on your own to add to the mix. Inheritance is not a bad thing, it just leaves you trying to understand what works best for you as your portfolio and needs are different than who you inherited the stocks from as their picture may have been totally different.

In your current attempt to get a grasp on your asset allocation, and how you are going to create an income stream (be it from dividends, capital gains, interest or a combination of them all) - I would not rush to make decisions.

The Boglehead Wiki page on managing a windfall (your inheritance) is a good source to always go back to and review what you have done up to this point, and to prepare a path of continuing your education for making any investment decisions or lifestyle change decisions:

https://www.bogleheads.org/wiki/Managing_a_windfall

You stated your current thoughts that you need to generate an annual income of $55,000 to maintain your current lifestyle and expenses until you begin taking SS. That's a 2.75% withdrawal rate on a $2M portfolio, so should be pretty safe to do whether it comes from dividends, capital gains, and or interest. 9 years from now, you will begin taking Social Security and not need to withdraw as much from your portfolio. So you could divide up your timeline for what you need in the next 9 years as one segment, then the years beyond that as the additional income stream of Social Security is flowing in every month. You also have the option of taking SS earlier as well as you mentioned, taking a part-time job if so desired. Again - plenty of options for you to make it all work. As I said above, I like the idea of longevity insurance by waiting until 70 to take your SS - especially since you mentioned your family has good longevity into their 90's.

The 11 stocks that you own and currently pay dividends have a combined dividend yield of 2.58% (Disney will be back at some point with their dividend, but for now we exclude it along with Alphabet). How does that compare to some dividend ETF's that own many more stocks within them?

VTI (Vanguard's Total Stock Market Index) is currently yielding 1.85%. NOBL (Invesco's ProShares S&P 500 Dividend Aristocrats ETF) which holds all of the S&P 500 Dividend Aristocrats is currently yielding 2.32%. VYM (Vanguard's High Dividend Yield ETF) is currently yielding 3.75%. VNQ (Vanguard's Real Estate Index Fund ETF) is currently yielding 3.96% (this is an ETF I would not suggest holding in taxable as they are not qualified dividends so are taxed at a higher rate and are best held in the Roth IRA space).

To use as an example since we have a similar sized portfolio to yours which includes a lot of dividend paying stocks, growth stocks, growth and income stocks, and Index Stock and Bond Funds. These are the annual dividends we receive, and you can see the 4 spiked months where the dividends from the stock index funds roll in each quarter (2019 shown):

Image

If we had to live off of the dividends alone, as you can see the way it is currently structured, we would not be able to do that on just the dividends if we needed $55K a year (to use your figure). We would also need to use interest and possibly sell shares of something to fill the gap between $38K and $55K each year until we hit SS (your case). Regardless, it would still be at a safe withdrawal rate whether it comes from dividends, cap gains or interest (or a combination of all) to not deplete the portfolio over the next 9 years and beyond.

In our case, we are both still working and accumulating, so everything currently gets reinvested. We also will have a pension for income, and then eventually both have Social Security (ages 58/62 right now). So our portfolio is structured to eventually transition into the coming phases of moving from a dual income household, to a single income with a pension and dividends (if needed) household, then a dual retired household with pension, dividends/cap gains/interest and Social Security. Obviously we have two mouths to feed, where you only have one.

One can remain pretty agnostic about whether the money comes from capital gains, dividends, interest or a combination of them as long as you understand what they all represent, how they are taxed, and how best to meet your needs.

You look to be in very good shape as it is. What to do with your current overall portfolio and the windfall also provides plenty of options. Why to make changes, how to make changes, and when to make changes is nothing that you need to immediately be rushing into, but continue your discovery and getting up to speed with what you are comfortable doing. You already hinted at that by stating perhaps selling only some of the shares of individual stocks to rebalance. I don't get too excited about individual stocks as they are simply a tool whether we own them as a collective group (ETF's, mutual funds) or as a basket of individual stocks - or in our case, as a hybrid approach of index funds and a diverse basket of individual stocks. If you are new to them as you say, keep any excitement in check. :beer

Asset Allocation regarding equities, bonds, cash is never a one size fits all ratio. In your case, the sequence of returns risk seems to be the main target - since you have seemingly just recently retired - and need to be able to cover your expenses for a period of time in case there is a bear market so you do not deplete your portfolio. This should be item number one to tackle and get organized. Does that mean having 5-7 years of your annual $55K set aside in bonds and cash to avoid selling equities at lows? That would be $275K to $385K or 13.75% to 19.25% of your portfolio set aside to protect you for the initial years of sequence of returns risk in bonds/CD/cash. Even if we round it up to an even $300K to $400K as a bare minimum so you do not have to sell anything from your equities over the next 5-7 years, it sounds like you are already there based on your statement of currently being invested 70/30. Does that mean that you suddenly need to go from 70/30 to something like 40/60 or 50/50 in the blink of an eye? Again, as has been shown and said throughout this thread - it's not a one size fits all ratio. Your risk tolerance and the need to take risk or not take risk to fund your retirement comes into play. I don't think any of us would disagree with erring on the conservative side since you are currently not working, and did not mention any other streams of income such as a pension or rental income. Whether that ends up being 60%, 55%, 50%, or 40% in equities - it probably won't make much difference. Have you run your numbers in FIRECalc?

https://www.firecalc.com/

Not that this is the be all end all regarding the glide path (since bonds no longer yield what they did when Kitces wrote about this), but here's what that looks like visually using the Bond Tent from Michael Kitces...

Image

Image

There is also the "spending smile" approach in retirement that shows in the early years, which are known as your go-go years you will spend more. The middle years of retirement known as the slow-go years, you will spend less. And the final years known as the no-go years, you will once again spend more due to the rise in your health care cost needs.

https://www.kitces.com/blog/estimating- ... ing-smile/

https://www.forbes.com/sites/wadepfau/2 ... 3c99d42056

https://retirementresearcher.com/retire ... end%20less.

As a follow up, keep us informed in this thread of your additional thoughts and questions, as well as conclusions you have come to for your decision making. Although the narrative changes for every recession, a year such as we have had thus far has been dramatic for the entire globe.

CyclingDuo
Dear CyclingDuo,

I am most grateful for your thorough response. It's kind of you. I will read the links you shared and consider posting specifics of my portfolio at a later time. First, I prioritize grasping my overall picture and psychology, managing my money/future. No more emotional buying or selling. It was my first and last time doing so with AAPL. Now I wonder if I should hold on to that overpriced AAPL for long-term or wait to sell it (or part of it) until I've figured out my overall plan? How much individual stocks vs. index funds will I swap for bonds? In order to have no more than 50 or 60% equities, I need to downsize equities. I'm thinking, before the individual stocks get too much capital gain, sell more before end of year. A few stocks are skyrocketing to more than offset my lemon-timing of Apple, anyway. I'm inclined to keep individual stocks but trim the big positions (PEP, LIN, CAT, DIS) and put that money into bond funds, where I'm deficient.

Regarding taxes, maybe I read it here: Some suggest, as example, owning VTSAX with low dividends, over high-yielding stocks because capital gains are more tax-efficient that dividends. With taxes in mind, I'm thinking the bond funds will go in my IRAs, which means I'll be exchanging VTSAX in them now. I also have VTSAX in taxable account.

While I don't have an advisor, Fidelity and Vanguard recommend I pay a small fee for them to manage and rebalance as needed. Do you or other Bogleheads recommend in certain situations hiring an advisor to rebalance and mind a portion of portfolio, if not the whole thing? I'm guessing that's what this forum is for and you sound extremely involved in managing your portfolio. I am inclined to stick to learning from others like yourself, this forum, books, and managing my portfolio myself. In more than one area of life, I've paid a price for trusting someone else. And my parents were financially abused by someone in a position of trust. It left a bad taste; who and how I'll trust, moving forward. Inclined that no one will have access to my assets ever, unless I live a very long time and then I'll find someone(s) with controls in place.

So thanks again for sharing helpful information.

Thanks again, CyclingDuo!
Hi CyclingDuo,

Do you recommend a particular finance spreadsheet program to watch/update your portfolio?
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
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Re: Asset Allocation at age 61

Post by GetSmarter »

GetSmarter wrote: Thu Sep 10, 2020 5:13 pm Thoughts on Asset Allocation recommendation for 61 year old single female with $2 million, no debt, no job. Monthly expenses, including estimated taxes figured in, approximately $4,500 a month or $55,000 a year. I won't take social security until 70 ($1,240 month).

I'm inclined to go to 40 equities/40 bonds/20 cash

I need to generate around 55k a year from my portfolio to live. I'd like to get a part-time job but plan as if I won't. I was 50/50 asset allocation but I became over-weighted in equities, recently 70/30, when I inherited high-dividend stocks. I like the income potential with dividend stocks in our low-yield environment (this individual stock portfolio of 14 positions, gives an average $1,200 monthly). I also have my tried and true total stock market index funds. Something has to give in my portfolio though and go toward bonds/CDs. I feel 70% equities is too great risk at my age, in our unstable world. There's longevity in my family. So I figure I could live into my 90s.

For bond funds I have FXNAX and VBTLX and VBILX. Recommendations for bond funds to exchange my equities into? I am also considering Vanguard's world bond index fund, VTABX.

For diversification, does anyone suggest precious metals, gold/silver?

Whatever assets I choose to sell now to rebalance, remind me not to time the market. It's hard to sell when it's rough in the markets.

Thank you for your recommendation.
I just created a new thread on this platform, requesting a portfolio review. I wasn't sure if I should just add my positions here to the helpful Bogleheads who already weighed in on my asset allocation. So I'll add my portfolio just in case you see my additions here, but not on the platform. I must rebalance my equities to bonds and appreciate your thoughts, especially those inherited individual stocks that are way too big a part of my pie. Do I sell at once? I'm inclined to figure my plan and do it all at once despite I lost quite a bit in the last few weeks! Particularly with my individual stocks that swing high and swing low. I'm still debating my asset allocation with myself, between 30-50% equities. Hope to decide this week, or at least get my equities down to 50% as a start.

14.55% Cash: $290,998

Taxable Equities

Index Funds (Total is 24.05% $481,404)

3.5% Fidelity Total Market Index FSKAX (.015) - $70,303

0.59% Fidelity International Index FSPSX (.035) - $11,831

1.02% Fidelity 500 Index FXAIX (.015) -$20,403

0.82%Vanguard Dividend Appreciation Index Fund VDADX (0.08) 1.66% Yield $17,207.42

1.77%Vanguard Dividend Growth Fund VDIGX (0.27) 1.75% Yield $35,284

0.98%Vanguard Health Care Fund Investor VGHCX (0.32) 0.95%Yield $19,543.28

0.67%Vanguard Tax-Managed Balanced Fund Admiral Shares VTMFX (0.09) 1.41% Yield $13,807.30

3.81%Vanguard 500 Index Fund Admiral Shares VFIAX (0.04) 1.57% Yield $75,474.05

0.21%Vanguard 500 VFIAX $4278.75

0.58%Vanguard Total International Stock Index Fund Admiral Shares VTIAX (.11) $11,653

5.08%Vanguard Total Stock Market Index Fund VTSAX (.04) 1.51% Yield $101,602

2.80%Janus Henderson Global Life Sciences Fund Class T JAGLX (.92) .66 Yield $56,171

2.19%American Century Equity Growth Fund BEQGX (.67) .96 Yield $43,847


35.59% Taxable Individual Stocks: $711,985

Income = Current dividend stocks projected income: $14,100 a year.

Following hold in long positions Dividend Yields

8.93% Linde (LIN) $178,592 1.5%
3.42% Walt Disney (DIS) $68415 N/A
6.90% Catepillar (CAT) $137,295 2.7%
3.11% Paccar (PCAR) $61388 4.2%
5.78% Pepsi (PEP) $115,054 3.1%
0.35% Google (GOOGL) $7300 N/A
3.16% Microsoft (MSFT) $63256 1.1%

Following hold in short positions.

0.42% Duke 0.28%$8406 4.6
0.15% Verizon 0.10 $3,035 4.1
0.13% Abbvie 0.09% $2711 5.3
2.69% Apple 1.80% $53,942 0.7
0.16% Kroger 0.10% $3296 2.2
0.50% Lowes 0.33% $10,028 1.5

Taxable Bonds (1.56%) $31,275

0.21% Vanguard Total Bond Market Index Fund Admiral Shares VBTLX (0.05%) $4,215

1.35% Vanguard California Intermediate Term Tax Exempt Fund Investor VCAIX (0.17%) $27,060

My IRAS

Roth IRA at Vanguard

0.36% Vanguard Total Stock Market Index Fund VTSAX (.04) 1.51% Yield $7,355

SEP IRA at Vanguard (4.53%) $92,148

2.18% Vanguard Total Stock Market Index Fund VTSAX (.04) 1.51% Yield $43603

1.76% Vanguard 500 Index Fund Admiral Shares VFIAX (0.04) 1.57% Yield $35,203

0.24 Vanguard Total Bond Market Index Fund Admiral Shares VBTLX (0.05%) $4938

0.23% Vanguard Intermediate Term Treasury Index Fund Admiral Shares VSIGX (0.07) $4759

0.18% Vanguard Target Retirement 2025 Fund VTTVX (.13) 1.92 yield $3645

IRA
0.48% Jackson National Life Annuity? $9760

_____________________________________________


INHERITED IRAS

Inherited IRA at Fidelity (8.95%) $182,819

0.33% Fidelity Contrafund FCNTX (.85) $6,743

3.77% Fidelity Total Market Index FSKAX (.015) $75527.14

1.38% Fidelity International Index FSPSX (.035) $27627.49

1.44% Fidelity 500 Index FXAIX (.015) $28,967

0.25% Fidelity Short Term Bond Fund FUMBX (.03) $5003

1.44% Fidelity U.S. Bond Index Fund FXNAX (.025) $28,967


2.88% Inherited John Hancock Annuity - 3% yield - $57,623


Inherited IRA at Vanguard (1.65) $33,200

0.24% Vanguard 500 Index Fund VFIAX (0.04) $4903

1.41% Vanguard Intermediate-Term Bond Index Fund Admiral Shares VBILX (0.07) $28,297


Inherited IRA (5.09) $101,433.62

1.79% Large-Cap Index - $35,835

3.30% Bond Index Fund - $66,063

Total 99.80%

Thank you, Bogleheads!
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
Posts: 93
Joined: Tue Oct 02, 2018 11:49 pm

Re: Asset Allocation at age 61

Post by GetSmarter »

livesoft wrote: Thu Sep 10, 2020 8:18 pm
GetSmarter wrote: Thu Sep 10, 2020 7:50 pmWhen you suggest selling individual stocks before they blow up, do you mean if they gain too much value and I try to sell, the capital gain may hurt?
Yes, but it is unclear to me if the stocks are in a taxable account where capital gains tax could be an issue or if they are in tax-advantaged accounts where that is not an issue. And yes, because individual stocks are riskier than broad market index funds.

In general, I see that people hold on to inherited stocks for sentimental reasons and not for sound reasons. If these stocks got a step-up basis, then I think it is good to sell them ASAP and buy broad market index funds with the money.

If you ever need money for a big purchase, like a car or a roof or ? you just sell some stock or bonds? That's the sort of reasoning I keep cash, and I suppose habit, knowing it's there.
Yes, I just sell shares. My shares have always done better than cash in the long run. Also, a roof is not expensive (less than $20K) and car dealers always give me 0% car loans.
Thank you for your response. I'm strongly leaning to sell all my individual stocks soon, as you suggested. They are in a taxable account but I have losses I can apply to offset most gains. My question is given I haven't yet made an investment plan, a work in progress, should I sell and put money in cash until I'm ready? Or not sell and risk holding longer until I know exactly how I'll reinvest money. I'm still mourning loss of a parent and didn't want to rush my next moves but I do want to minimize capital gains from individual stocks and am concerned if I wait.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
listenandlearn
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Re: Asset Allocation at age 61

Post by listenandlearn »

Since you have a goal of having income of around $55k per year, you may want to consider a fixed annuity with a guaranteed minimum lifetime income rider. There are some that will allow you to rollover about $275k from your IRA that will net you about $55k per year for the rest of your life. That frees up the remainder of your assets to cover inflation, and you don't have to annuitize (i.e. give up control of your assets) to do it.
Last edited by listenandlearn on Mon Sep 21, 2020 11:40 pm, edited 1 time in total.
livesoft
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Re: Asset Allocation at age 61

Post by livesoft »

Your latest question is unanswerable except by you. I'd sell all the stocks and use the money to immediately buy a total US stock market index fund.
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dwickenh
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Re: Asset Allocation at age 61

Post by dwickenh »

David Jay wrote: Fri Sep 11, 2020 11:08 am Please, go purchase Jane Quinn Bryant's book "Making Your Money Last" - it is the best single reference for our (I'm two years ahead of you) stage of life.
+1 I have bought several copies for friends and you can get it at Thriftbooks used.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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dwickenh
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Re: Asset Allocation at age 61

Post by dwickenh »

livesoft wrote: Tue Sep 22, 2020 5:19 am Your latest question is unanswerable except by you. I'd sell all the stocks and use the money to immediately buy a total US stock market index fund.
+1

I would also sell the individual stocks and reinvest in a total market fund the same day.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
Topic Author
GetSmarter
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Joined: Tue Oct 02, 2018 11:49 pm

Re: Asset Allocation at age 61

Post by GetSmarter »

livesoft wrote: Tue Sep 22, 2020 5:19 am Your latest question is unanswerable except by you. I'd sell all the stocks and use the money to immediately buy a total US stock market index fund.
Thank you for your reply! I'll probably do just that.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
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Joined: Tue Oct 02, 2018 11:49 pm

Re: Asset Allocation at age 61

Post by GetSmarter »

dwickenh wrote: Tue Sep 22, 2020 6:20 am
David Jay wrote: Fri Sep 11, 2020 11:08 am Please, go purchase Jane Quinn Bryant's book "Making Your Money Last" - it is the best single reference for our (I'm two years ahead of you) stage of life.
+1 I have bought several copies for friends and you can get it at Thriftbooks used.
Thank you for your thoughts and book recommendation. I did just read the book to my benefit. I'm glad it was recommended here.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
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Joined: Tue Oct 02, 2018 11:49 pm

Re: Asset Allocation at age 61

Post by GetSmarter »

livesoft wrote: Tue Sep 22, 2020 5:19 am Your latest question is unanswerable except by you. I'd sell all the stocks and use the money to immediately buy a total US stock market index fund.
I'm planning to sell the individual stocks but I'm still working on my investment plan. Currently, I have too much in equities (75%) so if I sell individual stocks I'm not ready to put it all in US stock market index fund. Also I want to move my money to another brokerage firm. If I do it in kind, I'm told it takes 10 days. Or I can sell into cash and then transfer cash. Thoughts on holding cash for awhile until I have my investment plan? I'm torn seeing the market tanking, certainly my stocks this week. I'm still up a little but am concerned if I wait to sell everything before I have an investment plan, I'll be selling at a loss or stuck for a longer ride with these stocks. Thank you for your input.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
livesoft
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Re: Asset Allocation at age 61

Post by livesoft »

You asked the same question a different way. My answer is exactly the same.

You may be suffering from loss aversion, too. I would sell losers as soon as possible and get the tax benefits.
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Dave55
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Re: Asset Allocation at age 61

Post by Dave55 »

David Jay wrote: Fri Sep 11, 2020 11:08 am Please, go purchase Jane Quinn Bryant's book "Making Your Money Last" - it is the best single reference for our (I'm two years ahead of you) stage of life.
Excellent suggestion.
+1

Dave
Kaktus
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Re: Asset Allocation at age 61

Post by Kaktus »

If I suddenly took over a portfolio like that I think I would start to move out of the funds with highish fees and into the Vanguard Total market. To get my feet wet.:) But I dont know about the tax issues.
One way to slowly lower you stock percentage, you seem set on this, is to take out the dividends and on top of that sell off the individual stocks each year to reach your needed 55k. There may be tax issues you should take into account though. I would be cool with the individual stocks as a passive fund but funds are very nicely timefficient and one doesnt have to think about any tough decisions.
In a year when stock markets are in the red I would take from the cash stash instead (which to my eyes is suboptimally big).
The 60/40 ballpark with some cash available eventually is as good as any.
You seem very well set financially.
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LilyFleur
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Re: Asset Allocation at age 61

Post by LilyFleur »

I may have missed this, but do you pay state income taxes? Some states charge regular income tax rates on dividends and capital gains, which may or may not affect your investing strategy.

Depending on how soon you sell your individual stocks, you may want to turn off dividend reinvestment, as it can make the tax accounting more difficult if you have many different cost basis lots.
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