Dilemma - Redoing Portfolio

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Topic Author
Always passive
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Location: Israel

Dilemma - Redoing Portfolio

Post by Always passive »

Close family member situation

Mid 50s, candidate for aggressive portfolio (70-80% equities) based on risk tolerance and very long term view. Current portfolio:
Extensive real estate ownership (very adequate source of income for living expenses). Well managed+
$5MM in investment grade corporate bonds with maturities in the 2-7 years, YTMs in the 1.5%, plus very small % of perpetuity bonds with 4% coupon. Portfolio built a few years ago by bank, and highly disregarded (her own words)
My suggestion: 75% globally diversified equity portfolio with value tilt (S&P P/E 32 seems very unsustainable); Keep 20% of current bonds with highest YTM; 5% Gold.
Comments very much appreciated
SnowBog
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Joined: Fri Dec 21, 2018 11:21 pm

Re: Dilemma - Redoing Portfolio

Post by SnowBog »

What's the dilemma?

Sounds to me like living expenses are covered by real estate income, and they have an extra $5M which is apparently unneeded.

Seems to me this is working for them just fine.

Could they have "more" in 30+ years if they invest more aggressively? Sure. But it sounds like they have "enough", and there doesn't seem to be a "need" to take on more risk (or not one that's been shared).

Might it be better to follow ageless advice from people like Benjamin Graham who said that you should never hold more than 75% of your portfolio in stocks and no more than 75% of your portfolio in bonds? Yep. But I don't see a need for an urgent change.

Would I be 100% bonds? Never! But I don't have a [likely] multi-million dollar real estate portfolio generating enough income to cover my expenses with an additional $5M portfolio.
Always passive wrote: Tue Sep 14, 2021 12:37 am Extensive real estate ownership (very adequate source of income for living expenses). Well managed + $5MM...
As for actionable recommendations, not nearly enough information provided.

If they have any tax-advantaged accounts, those could be rebalanced without tax impact. And if the owner wants to change their AA, that would be an easy place to start.

But if the bulk of this is in taxable, then you need to start factoring in the tax implications.
MattB
Posts: 225
Joined: Fri May 28, 2021 12:27 am

Re: Dilemma - Redoing Portfolio

Post by MattB »

Always passive wrote: Tue Sep 14, 2021 12:37 am Close family member situation

Mid 50s, candidate for aggressive portfolio (70-80% equities) based on risk tolerance and very long term view. Current portfolio:
Extensive real estate ownership (very adequate source of income for living expenses). Well managed+
$5MM in investment grade corporate bonds with maturities in the 2-7 years, YTMs in the 1.5%, plus very small % of perpetuity bonds with 4% coupon. Portfolio built a few years ago by bank, and highly disregarded (her own words)
My suggestion: 75% globally diversified equity portfolio with value tilt (S&P P/E 32 seems very unsustainable); Keep 20% of current bonds with highest YTM; 5% Gold.
Comments very much appreciated
Did they ask you for your advice? Are you seeing the potential for higher returns and can't resist? Or...?
Topic Author
Always passive
Posts: 995
Joined: Fri Apr 14, 2017 4:25 am
Location: Israel

Re: Dilemma - Redoing Portfolio

Post by Always passive »

SnowBog wrote: Tue Sep 14, 2021 1:02 am What's the dilemma?

Sounds to me like living expenses are covered by real estate income, and they have an extra $5M which is apparently unneeded.

Seems to me this is working for them just fine.

Could they have "more" in 30+ years if they invest more aggressively? Sure. But it sounds like they have "enough", and there doesn't seem to be a "need" to take on more risk (or not one that's been shared).

Might it be better to follow ageless advice from people like Benjamin Graham who said that you should never hold more than 75% of your portfolio in stocks and no more than 75% of your portfolio in bonds? Yep. But I don't see a need for an urgent change.

Would I be 100% bonds? Never! But I don't have a [likely] multi-million dollar real estate portfolio generating enough income to cover my expenses with an additional $5M portfolio.
Always passive wrote: Tue Sep 14, 2021 12:37 am Extensive real estate ownership (very adequate source of income for living expenses). Well managed + $5MM...
As for actionable recommendations, not nearly enough information provided.

If they have any tax-advantaged accounts, those could be rebalanced without tax impact. And if the owner wants to change their AA, that would be an easy place to start.

But if the bulk of this is in taxable, then you need to start factoring in the tax implications.
This is always the dilema. If you have more than enough wealth, whatever to relax risk (cut back on equities); or because of it and since it most likely it will be part of the children’s inheritance, take more risk. These are personal decisions that an outside adviser cannot/shouldn’t answer
Topic Author
Always passive
Posts: 995
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Location: Israel

Re: Dilemma - Redoing Portfolio

Post by Always passive »

MattB wrote: Tue Sep 14, 2021 3:12 am
Always passive wrote: Tue Sep 14, 2021 12:37 am Close family member situation

Mid 50s, candidate for aggressive portfolio (70-80% equities) based on risk tolerance and very long term view. Current portfolio:
Extensive real estate ownership (very adequate source of income for living expenses). Well managed+
$5MM in investment grade corporate bonds with maturities in the 2-7 years, YTMs in the 1.5%, plus very small % of perpetuity bonds with 4% coupon. Portfolio built a few years ago by bank, and highly disregarded (her own words)
My suggestion: 75% globally diversified equity portfolio with value tilt (S&P P/E 32 seems very unsustainable); Keep 20% of current bonds with highest YTM; 5% Gold.
Comments very much appreciated
Did they ask you for your advice? Are you seeing the potential for higher returns and can't resist? Or...?
I am in the money management business/family office. (Of course this work is pro bone, being a family member.)
Notwithstanding that, this forum has many talented people, so I like to get other opinions.
Ed 2
Posts: 1952
Joined: Sat May 15, 2010 9:34 am

Re: Dilemma - Redoing Portfolio

Post by Ed 2 »

Always passive wrote: Tue Sep 14, 2021 12:37 am Close family member situation

Mid 50s, candidate for aggressive portfolio (70-80% equities) based on risk tolerance and very long term view. Current portfolio:
Extensive real estate ownership (very adequate source of income for living expenses). Well managed+
$5MM in investment grade corporate bonds with maturities in the 2-7 years, YTMs in the 1.5%, plus very small % of perpetuity bonds with 4% coupon. Portfolio built a few years ago by bank, and highly disregarded (her own words)
My suggestion: 75% globally diversified equity portfolio with value tilt (S&P P/E 32 seems very unsustainable); Keep 20% of current bonds with highest YTM; 5% Gold.
Comments very much appreciated
Mid 50s and confidante for aggressive portfolio? How they ended up in mostly fixed income for decades in the begin with? It’s odd. I doubt they are unless you trying to make a sale.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
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Stinky
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Re: Dilemma - Redoing Portfolio

Post by Stinky »

If your family member were to follow your recommendation on equities, what would happen to the existing real estate holdings? Would some or all of the real estate be divested?

If the real estate was divested, what are the capital gains tax implications?

And does your relative want to divest of real estate?

Most importantly, does your relative want to change anything? It sounds like he/she has done a pretty good job at accumulating wealth.
It's a GREAT day to be alive! - Travis Tritt
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