Help repair my portfolio

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Topic Author
nvmsfb
Posts: 10
Joined: Sat May 28, 2022 10:21 pm

Help repair my portfolio

Post by nvmsfb »

Hello,

My portfolio is dominated by a few individual stocks and cash. I'd rather not get into how I ended up here but am looking for advice from this forum to move to a 3 or 4-fund diversified portfolio. There's ~$200k of long term capital gains involved, which becomes relevant when discussing liquidation of these individual stocks. Also, curious to hear how to use up the $450k of cash - lumpsum/dollar cost average / ...?

Age: 45, wife not employed
Goal: Retire by 55. Fully fund college education for 2 kids.

In taxable account: approx. $1.25M
NVDA: $263k, of which $67k is capital gain as of 5/27, all long-term.
MSFT: $405k, of which $130k is capital gain as of 5/27, all long-term.
FB: $125k, $7k short-term loss
Cash: $450k (Yes, bad. Hence this post)

Unvested company stock
FB: $1.2M (was ~2M a few months ago, but here we are).

401k: $265k, 2040 target date fund
Roth IRA: $210k, 2040 target date fund (mostly mega backdoor contributions)

House: Valued at $1.6M, $450k mortgage at 2.5% 30 year fixed

Thanks!
Last edited by nvmsfb on Sun May 29, 2022 10:16 am, edited 1 time in total.
User avatar
BL
Posts: 9874
Joined: Sun Mar 01, 2009 1:28 pm

Re: Help repair my portfolio

Post by BL »

Quick, sell the losses right now!
Bama12
Posts: 826
Joined: Fri Aug 30, 2019 11:48 pm

Re: Help repair my portfolio

Post by Bama12 »

nvmsfb wrote: Sat May 28, 2022 11:10 pm Hello,

My portfolio is dominated by a few individual stocks and cash. I'd rather not get into how I ended up here but am looking for advice from this forum to move to a 3 or 4-fund diversified portfolio. There's ~$200k of long term capital gains involved, which becomes relevant when discussing liquidation of these individual stocks. Also, curious to hear how to use up the $450k of cash - lumpsum/dollar cost average / ...?

Age: 45, wife not employed
Goal: Retire by 55. Fully fund college education for 2 kids.

In taxable account: approx. $1.25M
NVDA: $263k, of which $67k is capital gain as of 5/27, all long-term.
MSFT: $405k, of which $130k is capital gain as of 5/27, all long-term.
FB: $125k, $7k short-term loss
Cash: $450k (Yes, bad. Hence this post)

Unvested company stock
FANG: $1.2M (was ~2M a few months ago, but here we are).

401k: $265k, 2040 target date fund
Roth IRA: $210k, 2040 target date fund (mostly mega backdoor contributions)

House: Valued at $1.6M, $450k mortgage at 2.5% 30 year fixed

Thanks!
I would put 350k in VTI in taxable.
Keep 100k as a e-fund in a money market
I would sell NVDA,MSFT and FB pay the taxes with the CG. Move the rest to VTI.

Unvested company stock-Not sure what you could do with this.
FANG: $1.2M (was ~2M a few months ago, but here we are).
tashnewbie
Posts: 4230
Joined: Thu Apr 23, 2020 12:44 pm

Re: Help repair my portfolio

Post by tashnewbie »

I’d sell anything with a loss on Tuesday.

Sell equivalent amount of gains to offset those losses.

Turn off automatic reinvestment of dividends and cap gains distributions and redirect to your desired long term holdings.

Set aside some of the cash for an emergency fund that makes you and spouse comfortable.

Invest the rest in broad market index funds like VTSAX/VTI and VTIAX/VXUS.

Decide how you want to unwind the rest of the taxable holdings. This wiki might be helpful: https://www.bogleheads.org/wiki/Paying_ ... itch_funds
User avatar
CyclingDuo
Posts: 5989
Joined: Fri Jan 06, 2017 8:07 am

Re: Help repair my portfolio

Post by CyclingDuo »

nvmsfb wrote: Sat May 28, 2022 11:10 pmMy portfolio is dominated by a few individual stocks and cash. I'd rather not get into how I ended up here but am looking for advice from this forum to move to a 3 or 4-fund diversified portfolio. There's ~$200k of long term capital gains involved, which becomes relevant when discussing liquidation of these individual stocks. Also, curious to hear how to use up the $450k of cash - lumpsum/dollar cost average / ...?

Age: 45, wife not employed
Goal: Retire by 55. Fully fund college education for 2 kids.

In taxable account: approx. $1.25M
NVDA: $263k, of which $67k is capital gain as of 5/27, all long-term.
MSFT: $405k, of which $130k is capital gain as of 5/27, all long-term.
FB: $125k, $7k short-term loss
Cash: $450k (Yes, bad. Hence this post)

Unvested company stock
FANG: $1.2M (was ~2M a few months ago, but here we are).

401k: $265k, 2040 target date fund
Roth IRA: $210k, 2040 target date fund (mostly mega backdoor contributions)

House: Valued at $1.6M, $450k mortgage at 2.5% 30 year fixed

Thanks!
Step 1: MSFT and NVDA pay dividends, so rather than reinvest the dividends in more shares of the same - direct them into something like VTI to begin the diversification in the taxable account. You could use some of the $450K cash as well to diversify into domestic and foreign equity index funds.

Step 2: For the sake of diversification, it would make sense to have a plan to trim the holdings in MSFT, NVDA, FB to a lower portion of your overall portfolio and use the proceeds to diversify into more eggs than just those 3 in your basket. Those 3 eggs are also larger percentage holdings in the S&P 500 and Total Stock Market Index funds, so you would still own them in the index funds. Whether you do the selling in chunks over time, or all at once - it is up to you. We would be in the camp that you don't have to sell them all, but come up with some sort of a single stock limit in your IPS that makes sense to you and that you can stick with going forward. *See Below

Step 3: The company stock that is unvested will have to wait until each block vests. One could easily make the case to sell the shares when they vest to diversify into a total market index fund and bond index fund to balance out your AA with the taxable account and your retirement account(s).

*Counting the unvested shares, you have $2,925,000 in investments.

41% is in Diamondback (FANG) unvested shares (it is only .06% of the S&P 500, so no worries there)
16.2% is in Target 2040 Fund
15.3% is in Cash
13.8% is in Microsoft (it is also 5.9% of the S&P 500)
8.9% is in Nvidia (it is also 1.3% of the S&P 500)
4.2% is in Facebook (it is also 1.3% of the S&P 500)

Many have thrown around percentages for a rule regarding owning one individual stock in their IPS (investor personal statement - example here as to how to write one ---- https://www.whitecoatinvestor.com/how-t ... statement/), but I seem to recall reading a lot of posts here at BH - to use as an example - where many said something like 5% or 10% as a general rule of thumb to try and avoid surpassing for one specific company. That is each individual's decision to set a guideline or limit to avoid something going haywire with an individual company or individual company stock, so the percentages are not all the same.

We also like to add the percentage of the company that is in the S&P 500 or Total Stock Market Index so we know how much we hold in an individual company. Example: Apple is currently 6.93% of the S&P 500. If one also owned individual shares of the company, they own a higher percentage than 6.93%. You are similar to that with your Microsoft holding + its current 5.9% weighting in the S&P 500.

Obviously, RSU's from one's employer, ESPP from company stock, etc... can easily add up for those who work for a company - so I included them in your overall current picture. Your salary is also tied to the company, so that is a heck of a lot of eggs in one basket which would inspire most to diversify the rest of their portfolio to account for that lopsidedness more than you have thus far. Things will still remain lopsided until each block vests, but you can work on the other side of the lopsidedness in your taxable account. In other words, that certainly speaks to Microsoft and Nvidia shares as they are a higher percentage on that side of the portfolio than say a guideline such as 5% in many investors personal statements would allow.

Although it certainly could all be done in one fell swoop, we would probably advocate not for doing everything all at once. Microsoft, Nvidia, Meta, Diamondback are not all going away in the next week, month, or year. So the unwind will take time. Maybe come up with a plan of what percentage you really feel comfortable holding of each, and what you want to diversify into with the cash, selling of some current shares, and additional investments you add with new money over the years going forward. You don't have to do it all on Tuesday morning. You could unwind the lopsidedness over a number of months to years and probably still be just fine.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
delamer
Posts: 17348
Joined: Tue Feb 08, 2011 5:13 pm

Re: Help repair my portfolio

Post by delamer »

Given the high risk of your other investments, the cash really isn’t that bad. That’s especially true if your job has become less secure due to the economy or stock market. You also can spend down some of the cash is you need to to max out your retirement plan contributions, including a spousal IRA for your wife.

Sell the FB stock.

Use those losses to offset some the capital gains of selling some of the MSFT, since that is your largest position.*

Use tax software to figure out how much of the MSFT you can sell this year without triggering extra taxes and/or a higher bracket. You may decide it’s worth it to sell more, but you don’t want any surprises come tax time. You could use the proceeds to start 529 plans for your kids; particularly good if you get a state tax deduction.

Repeat in 2023, but maybe sell some of the NVDA.

* I’m assuming you can’t do anything with FANG, since it’s unvested?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
nvmsfb
Posts: 10
Joined: Sat May 28, 2022 10:21 pm

Re: Help repair my portfolio

Post by nvmsfb »

Great suggestions! I will reply to those in a bit. Quick reply here to clarify that unvested stock is Meta (edited my post). I used the popular FANG acronym to anonymize but did not realize its the ticker for a real company Diamondback.
pasadena
Posts: 2336
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

Re: Help repair my portfolio

Post by pasadena »

delamer wrote: Sun May 29, 2022 10:14 am Given the high risk of your other investments, the cash really isn’t that bad. That’s especially true if your job has become less secure due to the economy or stock market. You also can spend down some of the cash is you need to to max out your retirement plan contributions, including a spousal IRA for your wife.

Sell the FB stock.

Use those losses to offset some the capital gains of selling some of the MSFT, since that is your largest position.*

Use tax software to figure out how much of the MSFT you can sell this year without triggering extra taxes and/or a higher bracket. You may decide it’s worth it to sell more, but you don’t want any surprises come tax time. You could use the proceeds to start 529 plans for your kids; particularly good if you get a state tax deduction.

Repeat in 2023, but maybe sell some of the NVDA.

* I’m assuming you can’t do anything with FANG, since it’s unvested?
+1, this is exactly what I would do. Also, going forward I would sell the RSUs immediately upon vesting (and ESPP, if FB has one). You have enough FB, no need to keep growing that position (assuming all your shares aren't in the red).

OP, what's your tax situation? Tax bracket, both FED and State (I'm assuming you're in CA?). Are you subject to NIIT and AMT?
Topic Author
nvmsfb
Posts: 10
Joined: Sat May 28, 2022 10:21 pm

Re: Help repair my portfolio

Post by nvmsfb »

OP, what's your tax situation? Tax bracket, both FED and State (I'm assuming you're in CA?). Are you subject to NIIT and AMT?
In WA, so no state tax. Married filing jointly. Yes, subject to NIIT and AMT.
Also, going forward I would sell the RSUs immediately upon vesting (and ESPP, if FB has one). You have enough FB, no need to keep growing that position.
Agree, thanks!
carminered2019
Posts: 1934
Joined: Fri Jun 21, 2019 7:06 pm

Re: Help repair my portfolio

Post by carminered2019 »

I would at least keep MSFT for future charities or to use it as gift. I still have over 500K in MSFT and have been gifting to my retired parents and funding my 26yo daughter medical school. So far they paid ZERO taxes on the gifted amount due to very low income.
aristotelian
Posts: 12262
Joined: Wed Jan 11, 2017 7:05 pm

Re: Help repair my portfolio

Post by aristotelian »

Maybe buy some options to hedge against FB stock going down. I forget what they are called. Also selling the FB stock with losses is a no brainer. Do any of the NVDA and MSFT shares have losses? You can sell those while keeping the least tax efficient shares using Spec ID.
Topic Author
nvmsfb
Posts: 10
Joined: Sat May 28, 2022 10:21 pm

Re: Help repair my portfolio

Post by nvmsfb »

carminered2019 wrote: Sun May 29, 2022 10:54 am I would at least keep MSFT for future charities or to use it as gift. I still have over 500K in MSFT and have been gifting to my retired parents and funding my 26yo daughter medical school. So far they paid ZERO taxes on the gifted amount due to very low income.
This is a good one. Although, in your case I guess you avoid the "kiddie tax" as your daughter is older than 24. Did you also use this strategy before she turned 24, and if so, how did it work with taxes?
Topic Author
nvmsfb
Posts: 10
Joined: Sat May 28, 2022 10:21 pm

Re: Help repair my portfolio

Post by nvmsfb »

aristotelian wrote: Sun May 29, 2022 11:05 am Maybe buy some options to hedge against FB stock going down. I forget what they are called. Also selling the FB stock with losses is a no brainer. Do any of the NVDA and MSFT shares have losses? You can sell those while keeping the least tax efficient shares using Spec ID.
None of the MSFT stock have losses. A small lot of NVDA does have losses, which is a good candidate to sell, as well as FB with losses.
Hedging against FB stock (if you mean buying put options) is against company policy, and is not something I'd like to get into.
carminered2019
Posts: 1934
Joined: Fri Jun 21, 2019 7:06 pm

Re: Help repair my portfolio

Post by carminered2019 »

nvmsfb wrote: Sun May 29, 2022 11:07 am
carminered2019 wrote: Sun May 29, 2022 10:54 am I would at least keep MSFT for future charities or to use it as gift. I still have over 500K in MSFT and have been gifting to my retired parents and funding my 26yo daughter medical school. So far they paid ZERO taxes on the gifted amount due to very low income.
This is a good one. Although, in your case I guess you avoid the "kiddie tax" as your daughter is older than 24. Did you also use this strategy before she turned 24, and if so, how did it work with taxes?
I gifted her the amount at age 26 and used 529 for undergrad school.
Activesloth
Posts: 133
Joined: Wed Oct 20, 2021 7:03 pm

Re: Help repair my portfolio

Post by Activesloth »

I wouldn’t be in a hurry to sell anything. You’d be selling low. NVDA is down 36% and MSFT down 18%. Meta is so beaten down, its PE ratio is less than 15. These are good companies, not meme stocks. I think these stocks have more upside potential. I’d concentrate on mobilizing your cash into VTI or VOO. I would move from individual stocks to ETFs over several years, paying attention to your income taxes. You have plenty of time.
DIYtrixie
Posts: 380
Joined: Sun Sep 13, 2020 12:11 pm

Re: Help repair my portfolio

Post by DIYtrixie »

+1 to delamer’s suggestion to start a spousal IRA, if your wife does not already have one.

$20k of I bonds (you and your wife) doesn’t sound like much but purchased every year will start accumulating a nice fixed income egg for your portfolio. A different kind of diversification. And better than cash, if you don’t need that $20k in the next few years.
Topic Author
nvmsfb
Posts: 10
Joined: Sat May 28, 2022 10:21 pm

Re: Help repair my portfolio

Post by nvmsfb »

CyclingDuo wrote: Sun May 29, 2022 9:43 am
nvmsfb wrote: Sat May 28, 2022 11:10 pmMy portfolio is dominated by a few individual stocks and cash. I'd rather not get into how I ended up here but am looking for advice from this forum to move to a 3 or 4-fund diversified portfolio. There's ~$200k of long term capital gains involved, which becomes relevant when discussing liquidation of these individual stocks. Also, curious to hear how to use up the $450k of cash - lumpsum/dollar cost average / ...?

Age: 45, wife not employed
Goal: Retire by 55. Fully fund college education for 2 kids.

In taxable account: approx. $1.25M
NVDA: $263k, of which $67k is capital gain as of 5/27, all long-term.
MSFT: $405k, of which $130k is capital gain as of 5/27, all long-term.
FB: $125k, $7k short-term loss
Cash: $450k (Yes, bad. Hence this post)

Unvested company stock
FANG: $1.2M (was ~2M a few months ago, but here we are).

401k: $265k, 2040 target date fund
Roth IRA: $210k, 2040 target date fund (mostly mega backdoor contributions)

House: Valued at $1.6M, $450k mortgage at 2.5% 30 year fixed

Thanks!
Step 1: MSFT and NVDA pay dividends, so rather than reinvest the dividends in more shares of the same - direct them into something like VTI to begin the diversification in the taxable account. You could use some of the $450K cash as well to diversify into domestic and foreign equity index funds.

Step 2: For the sake of diversification, it would make sense to have a plan to trim the holdings in MSFT, NVDA, FB to a lower portion of your overall portfolio and use the proceeds to diversify into more eggs than just those 3 in your basket. Those 3 eggs are also larger percentage holdings in the S&P 500 and Total Stock Market Index funds, so you would still own them in the index funds. Whether you do the selling in chunks over time, or all at once - it is up to you. We would be in the camp that you don't have to sell them all, but come up with some sort of a single stock limit in your IPS that makes sense to you and that you can stick with going forward. *See Below

Step 3: The company stock that is unvested will have to wait until each block vests. One could easily make the case to sell the shares when they vest to diversify into a total market index fund and bond index fund to balance out your AA with the taxable account and your retirement account(s).

*Counting the unvested shares, you have $2,925,000 in investments.

41% is in Diamondback (FANG) unvested shares (it is only .06% of the S&P 500, so no worries there)
16.2% is in Target 2040 Fund
15.3% is in Cash
13.8% is in Microsoft (it is also 5.9% of the S&P 500)
8.9% is in Nvidia (it is also 1.3% of the S&P 500)
4.2% is in Facebook (it is also 1.3% of the S&P 500)

Many have thrown around percentages for a rule regarding owning one individual stock in their IPS (investor personal statement - example here as to how to write one ---- https://www.whitecoatinvestor.com/how-t ... statement/), but I seem to recall reading a lot of posts here at BH - to use as an example - where many said something like 5% or 10% as a general rule of thumb to try and avoid surpassing for one specific company. That is each individual's decision to set a guideline or limit to avoid something going haywire with an individual company or individual company stock, so the percentages are not all the same.

We also like to add the percentage of the company that is in the S&P 500 or Total Stock Market Index so we know how much we hold in an individual company. Example: Apple is currently 6.93% of the S&P 500. If one also owned individual shares of the company, they own a higher percentage than 6.93%. You are similar to that with your Microsoft holding + its current 5.9% weighting in the S&P 500.

Obviously, RSU's from one's employer, ESPP from company stock, etc... can easily add up for those who work for a company - so I included them in your overall current picture. Your salary is also tied to the company, so that is a heck of a lot of eggs in one basket which would inspire most to diversify the rest of their portfolio to account for that lopsidedness more than you have thus far. Things will still remain lopsided until each block vests, but you can work on the other side of the lopsidedness in your taxable account. In other words, that certainly speaks to Microsoft and Nvidia shares as they are a higher percentage on that side of the portfolio than say a guideline such as 5% in many investors personal statements would allow.

Although it certainly could all be done in one fell swoop, we would probably advocate not for doing everything all at once. Microsoft, Nvidia, Meta, Diamondback are not all going away in the next week, month, or year. So the unwind will take time. Maybe come up with a plan of what percentage you really feel comfortable holding of each, and what you want to diversify into with the cash, selling of some current shares, and additional investments you add with new money over the years going forward. You don't have to do it all on Tuesday morning. You could unwind the lopsidedness over a number of months to years and probably still be just fine.

CyclingDuo
First up, huge thanks for analyzing my portfolio way better than me, very grateful for this forum! Apologies for the mix up with FANG, edited my post to clarify that it is all FB unvested stock. The idea of gradually unwinding and shifting the balance resonates very well with me. Assuming FB does not collapse (and taking into account yearly refreshers), there should be ~400k+ of new money each year (hopefully more, but being conservative). So an organic way to diversify based on your and other suggestions in this thread would be:

1. Sell 125k of FB on Tuesday and invest into VTI. There's enough unvested FB stock to capture upside. I'd like to hold NVDA and MSFT (for the reasons motivated by Activesloth, carminered2019).
2. Sell all new FB stock immediately upon vest and invest in VTI or equivalent. ~400k+ per year (as suggested by Pasadena, CyclingDuo and others)
3. Divert dividends from MSFT and NVDA into VTI or equivalent
4. Move ~300k of cash to VTI or equivalent
5. 20k of I bonds (spouse and myself) and 6k spousal IRA each year ( as suggested by DIYTrixie, delamer)
6. $125k of cash in money market (emergency fund)

This would increase my VTI holding to ~825k by the end of 2022 and increase by ~400k each year. I'd still need to do my homework on what my single stock limit should be but over 2-3 years, the balance would slowly tilt towards VTI/equivalent.

What would your recommendation be for stock/bond split, given my portfolio?
User avatar
CyclingDuo
Posts: 5989
Joined: Fri Jan 06, 2017 8:07 am

Re: Help repair my portfolio

Post by CyclingDuo »

nvmsfb wrote: Sun May 29, 2022 11:58 am
CyclingDuo wrote: Sun May 29, 2022 9:43 am
nvmsfb wrote: Sat May 28, 2022 11:10 pmMy portfolio is dominated by a few individual stocks and cash. I'd rather not get into how I ended up here but am looking for advice from this forum to move to a 3 or 4-fund diversified portfolio. There's ~$200k of long term capital gains involved, which becomes relevant when discussing liquidation of these individual stocks. Also, curious to hear how to use up the $450k of cash - lumpsum/dollar cost average / ...?

Age: 45, wife not employed
Goal: Retire by 55. Fully fund college education for 2 kids.

In taxable account: approx. $1.25M
NVDA: $263k, of which $67k is capital gain as of 5/27, all long-term.
MSFT: $405k, of which $130k is capital gain as of 5/27, all long-term.
FB: $125k, $7k short-term loss
Cash: $450k (Yes, bad. Hence this post)

Unvested company stock
FANG: $1.2M (was ~2M a few months ago, but here we are).

401k: $265k, 2040 target date fund
Roth IRA: $210k, 2040 target date fund (mostly mega backdoor contributions)

House: Valued at $1.6M, $450k mortgage at 2.5% 30 year fixed

Thanks!
Step 1: MSFT and NVDA pay dividends, so rather than reinvest the dividends in more shares of the same - direct them into something like VTI to begin the diversification in the taxable account. You could use some of the $450K cash as well to diversify into domestic and foreign equity index funds.

Step 2: For the sake of diversification, it would make sense to have a plan to trim the holdings in MSFT, NVDA, FB to a lower portion of your overall portfolio and use the proceeds to diversify into more eggs than just those 3 in your basket. Those 3 eggs are also larger percentage holdings in the S&P 500 and Total Stock Market Index funds, so you would still own them in the index funds. Whether you do the selling in chunks over time, or all at once - it is up to you. We would be in the camp that you don't have to sell them all, but come up with some sort of a single stock limit in your IPS that makes sense to you and that you can stick with going forward. *See Below

Step 3: The company stock that is unvested will have to wait until each block vests. One could easily make the case to sell the shares when they vest to diversify into a total market index fund and bond index fund to balance out your AA with the taxable account and your retirement account(s).

*Counting the unvested shares, you have $2,925,000 in investments.

41% is in Diamondback (FANG) unvested shares (it is only .06% of the S&P 500, so no worries there)
16.2% is in Target 2040 Fund
15.3% is in Cash
13.8% is in Microsoft (it is also 5.9% of the S&P 500)
8.9% is in Nvidia (it is also 1.3% of the S&P 500)
4.2% is in Facebook (it is also 1.3% of the S&P 500)

Many have thrown around percentages for a rule regarding owning one individual stock in their IPS (investor personal statement - example here as to how to write one ---- https://www.whitecoatinvestor.com/how-t ... statement/), but I seem to recall reading a lot of posts here at BH - to use as an example - where many said something like 5% or 10% as a general rule of thumb to try and avoid surpassing for one specific company. That is each individual's decision to set a guideline or limit to avoid something going haywire with an individual company or individual company stock, so the percentages are not all the same.

We also like to add the percentage of the company that is in the S&P 500 or Total Stock Market Index so we know how much we hold in an individual company. Example: Apple is currently 6.93% of the S&P 500. If one also owned individual shares of the company, they own a higher percentage than 6.93%. You are similar to that with your Microsoft holding + its current 5.9% weighting in the S&P 500.

Obviously, RSU's from one's employer, ESPP from company stock, etc... can easily add up for those who work for a company - so I included them in your overall current picture. Your salary is also tied to the company, so that is a heck of a lot of eggs in one basket which would inspire most to diversify the rest of their portfolio to account for that lopsidedness more than you have thus far. Things will still remain lopsided until each block vests, but you can work on the other side of the lopsidedness in your taxable account. In other words, that certainly speaks to Microsoft and Nvidia shares as they are a higher percentage on that side of the portfolio than say a guideline such as 5% in many investors personal statements would allow.

Although it certainly could all be done in one fell swoop, we would probably advocate not for doing everything all at once. Microsoft, Nvidia, Meta, Diamondback are not all going away in the next week, month, or year. So the unwind will take time. Maybe come up with a plan of what percentage you really feel comfortable holding of each, and what you want to diversify into with the cash, selling of some current shares, and additional investments you add with new money over the years going forward. You don't have to do it all on Tuesday morning. You could unwind the lopsidedness over a number of months to years and probably still be just fine.

CyclingDuo
First up, huge thanks for analyzing my portfolio way better than me, very grateful for this forum! Apologies for the mix up with FANG, edited my post to clarify that it is all FB unvested stock. The idea of gradually unwinding and shifting the balance resonates very well with me. Assuming FB does not collapse (and taking into account yearly refreshers), there should be ~400k+ of new money each year (hopefully more, but being conservative). So an organic way to diversify based on your and other suggestions in this thread would be:

1. Sell 125k of FB on Tuesday and invest into VTI. There's enough unvested FB stock to capture upside. I'd like to hold NVDA and MSFT (for the reasons motivated by Activesloth, carminered2019).
2. Sell all new FB stock immediately upon vest and invest in VTI or equivalent. ~400k+ per year (as suggested by Pasadena, CyclingDuo and others)
3. Divert dividends from MSFT and NVDA into VTI or equivalent
4. Move ~300k of cash to VTI or equivalent
5. 20k of I bonds (spouse and myself) and 6k spousal IRA each year ( as suggested by DIYTrixie, delamer)
6. $125k of cash in money market (emergency fund)

This would increase my VTI holding to ~825k by the end of 2022 and increase by ~400k each year. I'd still need to do my homework on what my single stock limit should be but over 2-3 years, the balance would slowly tilt towards VTI/equivalent.

What would your recommendation be for stock/bond split, given my portfolio?
Sounds like a good plan!

Yes, I wondered a bit why you said shares of FANG had dropped in the past year since that stock has been on a tear along with all the oil and energy stocks. I figured maybe you had already sold a portion that had vested.

Now I'm in the know. :beer

Regarding your age of 45, and how to go about choosing an AA between equities/bonds....

This one is highly individual regarding AA based on your need, willingness and ability to take risk. It's different for everyone, so there is not really a concrete answer that any of us can give you. Traditionally, the older one gets the AA moves from aggressive in your youth, to a bit more moderate in your age category, to more conservative as you approach retirement.

Let's take a look where you stand currently.

Cash is 15.3% of your portfolio = $450,000
20.5% of the 2040 fund is in bonds = $97,375
Total of $547,375

This means that Cash + Bonds are 18.7% of your total portfolio at the moment (I am including your non vested Meta shares in this calculation). That's not a bad allocation at age 45 to be 81.3% equities/18.7% bonds. It's close to the moderately aggressive 80/20 AA that is used by many people during their 30's and 40's. T RowePrice has some AA pie charts for various ages you can take a look at here:

https://www.troweprice.com/personal-inv ... ement.html

We would also point out that many consider the $450K mortgage as a negative bond. :shock:

If we counted the mortgage debt as a negative bond and offset it with your $450K in cash, that means you are left with the $97,375 in your 2040 fund that is invested in bonds. At least that is one way to look at it to take a deep dive into actually how much of your overall financial picture is currently invested in bonds. I would also agree that maxing out your I Bonds for both you and your spouse would be a good plan. Your tax bracket (assume location in CA) might be good to look at some CA municipal bond funds in your taxable account as well to couple with the cash, 2040 fund, I Bonds.

Looking forward to your 50's, 60's and beyond - there is an interesting thing to look at which is called the bond tent. In spite of our feeling about tweaking the bond tent AA percentages in our own particular household (due to a pension, staggered retirement years between my wife and myself, and our dual SS income stream), I point out the article to you because it is worthy of reading about and being aware of as you think about your particular asset allocation of equities and bonds between your current age of 45 and your stated goal of retiring at age 55: https://www.kitces.com/blog/managing-po ... -red-zone/

All of that to say, or rather ask the question if 80/20 is correct for you? Or 70/30? Or 60/40? As you will read time and time again on the Boglehead message boards - it is all highly individual. For example, now that we are age 60 and 64 respectively - we keep all of our retirement accounts at 60/40 for my wife, and mine are set at 70/30 and 65/35. The remainder is more aggressive as we have a goal of legacy/inheritance, so invest that portion accordingly.

Lastly, I would point you to watch the 57 minute YouTube video of JL Collins talking to Google employees about investing. Much like your RSU's, the Google employees have a lot of eggs in one basket along with their salary being tied to the company. His advice is spot on, at least in our opinion...

https://www.youtube.com/watch?v=T71ibcZAX3I

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
JDave
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Re: Help repair my portfolio

Post by JDave »

Why does wife not have a job?
aristotelian
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Re: Help repair my portfolio

Post by aristotelian »

JDave wrote: Sun May 29, 2022 3:24 pm Why does wife not have a job?
I'm guessing with $3.8M net worth they think they are doing OK on one income.
DIYtrixie
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Re: Help repair my portfolio

Post by DIYtrixie »

nvmsfb wrote: Sun May 29, 2022 11:58 am First up, huge thanks for analyzing my portfolio way better than me, very grateful for this forum! Apologies for the mix up with FANG, edited my post to clarify that it is all FB unvested stock. The idea of gradually unwinding and shifting the balance resonates very well with me. Assuming FB does not collapse (and taking into account yearly refreshers), there should be ~400k+ of new money each year (hopefully more, but being conservative). So an organic way to diversify based on your and other suggestions in this thread would be:

1. Sell 125k of FB on Tuesday and invest into VTI. There's enough unvested FB stock to capture upside. I'd like to hold NVDA and MSFT (for the reasons motivated by Activesloth, carminered2019).
2. Sell all new FB stock immediately upon vest and invest in VTI or equivalent. ~400k+ per year (as suggested by Pasadena, CyclingDuo and others)
3. Divert dividends from MSFT and NVDA into VTI or equivalent
4. Move ~300k of cash to VTI or equivalent
5. 20k of I bonds (spouse and myself) and 6k spousal IRA each year ( as suggested by DIYTrixie, delamer)
6. $125k of cash in money market (emergency fund)

This would increase my VTI holding to ~825k by the end of 2022 and increase by ~400k each year. I'd still need to do my homework on what my single stock limit should be but over 2-3 years, the balance would slowly tilt towards VTI/equivalent.

What would your recommendation be for stock/bond split, given my portfolio?
I agree with CyclingDuo that this plan puts you off to a great start. The only angle I don’t see covered is college for your kids. If CA has tax advantages for 529 plans, you should consider this for some of your cash, invested as you wish based on the years left until your kids start college.

Regarding asset allocation: you’re “only” 45 but aspire to retire in early 50s, right? When my spouse and I got to <12 years from our planned retirement date, we started gradually shifting from 90/10 to our current 70/30 allocation with 10 years to go, following the “bond tent” concept CyclingDuo described. Frankly, I hadn’t planned to shift to 70/30 so soon, but the post-2020 stock run-up got us so close to our “number” so much earlier than I expected that I realized at our last annual review that I had lost some of my NEEED and WILLINGNESS to take so much risk.
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nvmsfb
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Re: Help repair my portfolio

Post by nvmsfb »

CyclingDuo wrote: Sun May 29, 2022 1:19 pm
Tons of useful info. I'll need to adjust your calculations if I divert 300k of my cash to VTI but I get the point of the balance being a personal decision. I'll rework the numbers and find a comfortable sweet spot, thanks!
Lastly, I would point you to watch the 57 minute YouTube video of JL Collins talking to Google employees about investing.
Just finished watching this, great resource. I got lucky the last 3-5 years with NVDA and MSFT but am sold on the value of index investing.
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nvmsfb
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Re: Help repair my portfolio

Post by nvmsfb »

DIYtrixie wrote: Sun May 29, 2022 4:14 pm I agree with CyclingDuo that this plan puts you off to a great start. The only angle I don’t see covered is college for your kids. If CA has tax advantages for 529 plans, you should consider this for some of your cash, invested as you wish based on the years left until your kids start college.

Regarding asset allocation: you’re “only” 45 but aspire to retire in early 50s, right? When my spouse and I got to <12 years from our planned retirement date, we started gradually shifting from 90/10 to our current 70/30 allocation with 10 years to go, following the “bond tent” concept CyclingDuo described. Frankly, I hadn’t planned to shift to 70/30 so soon, but the post-2020 stock run-up got us so close to our “number” so much earlier than I expected that I realized at our last annual review that I had lost some of my NEEED and WILLINGNESS to take so much risk.
I am actually in WA and don't get tax breaks for 529. My plan is to use mega backdoor Roth IRA for this purpose as I find it to be more flexible (~35k per year post-tax that grows tax free). I'd only withdraw the principal (penalty free as I'd meet the 5 year threshold) and not the earnings (which only become tax free after 59.5 yrs of age)

Great point on factoring my intent to retire in about 10 years when considering the stock/bond split. Leaning towards 70/30.
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nvmsfb
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Re: Help repair my portfolio

Post by nvmsfb »

When researching I Bonds, I noticed we can also get 10k worth of I Bonds for each kid in a minor linked account. This sounds like a good way to save 40k a year (2 adults + 2 kids) in bonds with inflation protection - and I don't anticipate needing this cash for at least 5 years. Any gotchas?
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HMSVictory
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Re: Help repair my portfolio

Post by HMSVictory »

Only in America does a multi-millionaire post that they drastically need help! Oh the horror! j/k :D

Now on to the mechanics of this transaction. What would be wrong with paying your house off?

That's gonna make you a heck of a lot more than the return on cash and have absolutely zero risk (none). It will then free up a mortgage payment of what your mortgage is for further investing. That puts you at a debt free net worth of over $3M.... with a paid for house and a nice equity portfolio. Sounds good to me!

Sell the stocks on Tuesday and pay your capital gains taxes (be done with it).... Never let the tax tail wag the investment dog. Never.

Oh and when the FB stock vests I'm selling that and super funding a 529 plan. Problems all solved.
Stay the course!
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nvmsfb
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Re: Help repair my portfolio

Post by nvmsfb »

HMSVictory wrote: Sun May 29, 2022 6:12 pm Only in America does a multi-millionaire post that they drastically need help! Oh the horror! j/k :D

Now on to the mechanics of this transaction. What would be wrong with paying your house off?

That's gonna make you a heck of a lot more than the return on cash and have absolutely zero risk (none). It will then free up a mortgage payment of what your mortgage is for further investing. That puts you at a debt free net worth of over $3M.... with a paid for house and a nice equity portfolio. Sounds good to me!

Sell the stocks on Tuesday and pay your capital gains taxes (be done with it).... Never let the tax tail wag the investment dog. Never.

Oh and when the FB stock vests I'm selling that and super funding a 529 plan. Problems all solved.
Haha :) Call it my ignorance.

Re. mortgage, I have a 30-year fixed mortgage at 2.5%. True, I have been letting my cash sit idly but the intent to put it to better use has always been there. Better = greater than 2.5% return, which I should get with I bonds and (hopefully) VTI.
Never let the tax tail wag the investment dog. Never.
:thumbsup
WhatsIRR
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Re: Help repair my portfolio

Post by WhatsIRR »

I’m in a similar spot with a currently unemployed wife.

How does the spousal IRA work if you exceed the income limits as I’m sure the OP does? Is it just a non deductible IRA contribution? Use it for a back door Roth?
DIYtrixie
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Re: Help repair my portfolio

Post by DIYtrixie »

WhatsIRR wrote: Sun May 29, 2022 7:30 pm I’m in a similar spot with a currently unemployed wife.

How does the spousal IRA work if you exceed the income limits as I’m sure the OP does? Is it just a non deductible IRA contribution? Use it for a back door Roth?
Yes, non-deductible IRA contributions, converter to Roth using back door. Requires not having a traditional (pre-tax) IRA to avoid pro rata rule.
chassis
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Re: Help repair my portfolio

Post by chassis »

nvmsfb wrote: Sat May 28, 2022 11:10 pm Hello,

My portfolio is dominated by a few individual stocks and cash. I'd rather not get into how I ended up here but am looking for advice from this forum to move to a 3 or 4-fund diversified portfolio. There's ~$200k of long term capital gains involved, which becomes relevant when discussing liquidation of these individual stocks. Also, curious to hear how to use up the $450k of cash - lumpsum/dollar cost average / ...?

Age: 45, wife not employed
Goal: Retire by 55. Fully fund college education for 2 kids.

In taxable account: approx. $1.25M
NVDA: $263k, of which $67k is capital gain as of 5/27, all long-term.
MSFT: $405k, of which $130k is capital gain as of 5/27, all long-term.
FB: $125k, $7k short-term loss
Cash: $450k (Yes, bad. Hence this post)

Unvested company stock
FB: $1.2M (was ~2M a few months ago, but here we are).

401k: $265k, 2040 target date fund
Roth IRA: $210k, 2040 target date fund (mostly mega backdoor contributions)

House: Valued at $1.6M, $450k mortgage at 2.5% 30 year fixed

Thanks!
Do nothing. I see a nice portfolio here (numbers don’t add precisely due to rounding):

$2.5m equities, 20% of which are conservative
$0.5 cash
$1.6 RE
$0.5 debt
= $4.6m total balance sheet

43% equities, 20% of which are conservative
10% cash
10% debt
35% RE

Good work, carry on.

caveat: you need to have sufficient positive cash flow from income - expenses. What is your income and what are your living expenses?
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