Portfolio Review - High Net Worth

[help911]

Hello Bogleheads! Looking for a general portfolio review and feedback to some specific questions below:

Background:
Age: upper 40s
State of Residence: WI
Filing Status: Married Filing Jointly
Tax Rate: 35% Federal, 7.65% State, 20% Capital
Emergency fund: Yes
Debt: None
Portfolio Total: ~$20M
Annual expenses: ~$150k
Retirement: Undetermined but likely 3-5 years

Desired Asset Allocation: 80% stocks / 20% fixed income (Bonds/MM/CD/Cash)
Desired International: 16%

Current Asset Allocation: 72% stocks / 28% fixed income (Bonds/MM/CD/Cash)
Current International: 9%

Portfolio:
Taxable Account - 80% of total portfolio
59% - Total Stock Market Index Fund
8% - Total International Stock Market Index Fund
33% - Federal Money Market Fund + CDs

401k - 12% of total portfolio
80% - Total Stock Market Index Fund
14% - Total International Stock Market Index Fund
6% - Total Bond Market Index Fund

401k Spouse - 8% of total portfolio
81% - Total Stock Market Index Fund
15% - Total International Stock Market Index Fund
4% - Total Bond Market Index Fund

Future Income:
Still actively working and expect to be able to contribute $500K+ annually to investments for the next 5+ years in our taxable account. Will continue to contribute the maximum amount to 401K accounts.

Notes:
1. Money Market / CDs have grown substantially in our taxable account since we had intentions to purchase an investment property to help with portfolio diversification in 2024. This option is still on the table but would need to be the right opportunity and the likelihood is probably low.

2. International allocation is currently lower than our target (9% vs 16%). Have struggled to further invest in International as US stocks continue to dominate. May reduce target allocation (16% -> 10%) for international instead of increasing to meet current diversification target.

Questions:
1. Should the 401K accounts be transitioned strictly toward money market and/or bond investments, moving the current US and International Total Stock investments to our taxable account? I don't believe we're very tax efficient with 33% of our taxable account being invested in Vanguard Federal Money Market Fund (VMFXX) and bank CDs, especially since we still have available space in our tax deferred accounts (401K). Although equities with higher returns would effectively expand our tax-advantaged space, so would that make more sense knowing we’ll likely always be in a high tax bracket?

2. If we make the transition in our 401K, should it be into bonds or money market? Neither the Fidelity (FXNAX) or Vanguard (VBTLX) Total Bond funds have done very well over the past 10 years. Money market has a much better return today and I believe it even has a better overall average 10 year return. Both 401K accounts have a money market available as an investment option. What is the opinion on the best long term investment in a 401K account being at the age of late 40s?

3. Once we run out of room with bonds / money market in our 401Ks, what would be the best option to hold long term "fixed income" in our taxable account to make sure we continue to meet our diversification target goals?

4. Is there anything else we should be doing differently or any necessary changes as our net worth continues to increase? We pay a LOT of taxes annually, so any tax efficiency ideas would be appreciated as well.

[SuzBanyan]

Welcome to the forum! I’m sure better minds than mine will come along soon and give you more specifics, but I can start off with a few thoughts.

1. Yes, you should generally stuff your 401(k) with your fixed income. The value of traditional 401(k) accounts is generally in the deduction (and any employer match). After that, every dollar that comes out for you to spend will be ordinary income. Better to keep equities in taxable accounts (where you pay capital gains rates, and then only on the gains, and maybe not even that if you pass away while still owning the assets).

2. I’ll leave to others to comment on the best fixed income investment in your 401(k).

3. When you have all the fixed income you need in your 401(k), you seem like a perfect candidate to look at muni bond funds, especially if you can buy ones that are state specific and thus avoid both state and federal tax. Always be cognizant, however, of not over investing in state/local bonds which may under perform just at the same time as your job prospects suffer.

4. You could open a backdoor Roth IRA for each of you. See the Wiki, but basically you make a nondeductible contribution to an IRA, then immediately convert it to a Roth IRA, thus avoiding the income limit. While the annual contribution limit is small compared to your savings rate, it does add up over time. And it starts the five year clock running to allow you to pull all funds from the Roth tax-free, which could be helpful after your retire (especially if you are not yet 59.5 when that retirement happens). These are the accounts to stuff with equities as the growth is completely tax free (once you satisfy the 5 year clock).

You didn’t ask a question about the international investment falling below its allocation, but your comments sound an awful lot like market timing. But trust me, we have all been there and tempted to do that. Go back and review your investment policy statement. Why did you choose 16%? Has something changed about your situation that suggests your previously perfect AA is now wrong?

[CoAndy]

What is the value of your portfolio in relation to your annual expenses?

[Harmanic]

I notice you have the same funds in both taxable and tax deferred accounts. Make sure they are not exactly the same, as they can trigger wash sales in your taxable account if you ever do loss harvesting. You don't need to sell what you have, just invest in something different going forward, since your older investments probably have only gains. Tax gain harvesting is not subject to the same restrictions. Alternatively, you can switch the funds in your tax deferred account without tax consequences (assuming there are good low cost alternatives, like a target date index fund).

[goodenyou]

Let's say you have $10M,

To achieve your desire asset allocation (and create tax efficiency):

1. Sell all your stock in tax-advantaged accounts. Buy up to $2M in fixed income in all tax-advantaged space.

2. Buy up to $8M of equities in taxable space. Dollar cost average or lump sum to get to your target.


If you run out of bond space (fixed income) in tax-advantaged in your allocation, buy a state-specific muni fund in taxable, or federal muni fund (state income taxable) to spread risk

[James.534]

I would look at this differently especially if you are contemplating retiring soon. I calculated 10 years of safe spending , cash or equivalents and bonds in IRAs, and the rest in equities in roth and taxable. This still puts me at about a 85/15 portfolio. Any additional contributions will go to equities. If you have a large portfolio, you have safety due to the amount saved, especially if you have a low burn rate.

[help911]

@SuzBanyan thanks for the feedback. I'm aware of the backdoor Roth IRA option but have avoided it for the exact reason you noted (annual contribution limit is small compared to my savings rate). To keep things simple I wanted to avoid another account to worry about and deal with annually. Unfortunately neither 401K account offers non-Roth after-tax contributions to take advantage of the "mega backdoor Roth".

When you suggest a muni bond fund for my taxable account once we run our of space in the 401k, would the Vanguard Tax-Exempt Intermediate-Term Bond Fund (VWIUX) be the preferred choice?

I understand your comment on "market timing" with my international equity but I'm to the point where I think I'm convinced from several years of return data to make a change to my investment policy statement. This could prove to be a mistake in the long run but I feelthere is enough international exposure with large companies in the SP500 that I'm not not sure it matters all that much at the end of the day.

I will review and reply to other feedback I've received as soon as I have bandwidth. Also would appreciate any further reviews of our portfolio and feedback on my specific questions from the Bogleheads community!

[goodenyou]

@SuzBanyan thanks for the feedback. I'm aware of the backdoor Roth IRA option but have avoided it for the exact reason you noted (annual contribution limit is small compared to my savings rate). To keep things simple I wanted to avoid another account to worry about and deal with annually. Unfortunately neither 401K account offers non-Roth after-tax contributions to take advantage of the "mega backdoor Roth".

When you suggest a muni bond fund for my taxable account once we run our of space in the 401k, would the Vanguard Tax-Exempt Intermediate-Term Bond Fund (VWIUX) be the preferred choice?

I understand your comment on "market timing" with my international equity but I'm to the point where I think I'm convinced from several years of return data to make a change to my investment policy statement. This could prove to be a mistake in the long run but I feelthere is enough international exposure with large companies in the SP500 that I'm not not sure it matters all that much at the end of the day.

I will review and reply to other feedback I've received as soon as I have bandwidth. Also would appreciate any further reviews of our portfolio and feedback on my specific questions from the Bogleheads community!

I wouldn't (and don't) put a lot of $$$ in a muni fund in taxable. IMO, the risk profile is low, but not as safe as a treasury fund. I would put 20-30% of my taxable bond allocation in VWIUX and possibly (State-specific Muni) to save on state income taxes. For the same reason, I wouldn't load up on sate-specific muni funds. The risk may be small, but I am risk adverse.

Less risk, less reward. YMMV.

[help911]

@Harmanic – The wash sale concern with having the same funds in both taxable and tax deferred accounts makes sense. I will make some adjustments to avoid this future concern.

@James.534 – I understand your approach and it really all comes down to how much risk a person is willing to take. I agree an account with a high dollar value can afford a larger downturn but can the person handle the emotion toll of the downturn.

Back to my specific questions, is the general consensus from the community to covert tax deferred (401k) accounts to all fixed income and move equities to tax account? If so does it make the most sense long term to use a bond fund or a money market fund in our tax deferred accounts? And once we run out of room in our 401k accounts, what fixed income vehicle is best in a taxable account at our age (late 40s) and high tax level (35% / 7.65%).

For reference, these are the specific questions we asked in the original post with more detail included:

1. Should the 401K accounts be transitioned strictly toward money market and/or bond investments, moving the current US and International Total Stock investments to our taxable account? I don't believe we're very tax efficient with 33% of our taxable account being invested in Vanguard Federal Money Market Fund (VMFXX) and bank CDs, especially since we still have available space in our tax deferred accounts (401K). Although equities with higher returns would effectively expand our tax-advantaged space, so would that make more sense knowing we’ll likely always be in a high tax bracket?

2. If we make the transition in our 401K, should it be into bonds or money market? Neither the Fidelity (FXNAX) or Vanguard (VBTLX) Total Bond funds have done very well over the past 10 years. Money market has a much better return today and I believe it even has a better overall average 10 year return. Both 401K accounts have a money market available as an investment option. What is the opinion on the best long term investment in a 401K account being at the age of late 40s?

3. Once we run out of room with bonds / money market in our 401Ks, what would be the best option to hold long term "fixed income" in our taxable account to make sure we continue to meet our diversification target goals?

4. Is there anything else we should be doing differently or any necessary changes as our net worth continues to increase? We pay a LOT of taxes annually, so any tax efficiency ideas would be appreciated as well.

Appreciate everyone’s feedback so far and hoping to get additional opinions from the community!

[IOException]

I know this will make me sound like an ass, but is a couple million considered high net worth?

Anyways, a couple points of consideration, take it or leave it OP:

• Consider what your fixed income needs actually are. A couple million in diversified index funds churns out 6 figures a year with the dividend yield alone. You have no debt. Does the volatility really matter if you can pay your bills and live comfortably?

• Consider using a Robo with TLH enabled for taxable accounts you're actively contributing to. I get slapped around with 35+% LTCG, and this helps a lot with offsetting the tax drag on qualified dividends.

• Rental income is taxed as ordinary income. Unless you plan to continue to take paper losses by reinvesting in more property, you might find the taxes wipe out any upside.

• People with considerable savings and income should go against conventional wisdom and analyze investing in a Roth. A lot of this depends on when you plan to retire and how long you plan to stay retired (AKA stay alive), but I like to think that every additional dollar I save adds to what I already have. If you're 40 years old, that might mean that a dollar saved now is for year 85. When you factor in RMDs on your existing retirement assets, taxable social security income, and dividends from taxable accounts, you might find your marginal tax rate doesn't drop much lower from today's historic lows. Add in the tax drag on taxable accounts during your highest income years, and you may find that it's actually better to pay the tax today and shelter those assets from ongoing capital gains.

[James.534]

Consider using a Robo with TLH enabled for taxable accounts you're actively contributing to. I get slapped around with 35+% LTCG, and this helps a lot with offsetting the tax drag on qualified dividends.

I am wondering how does this help, most of my taxable funds have been purchased years ago, so even with market dips the cost basis is still quite low , which would trigger a LTCG if sold?

Add in the tax drag on taxable accounts during your highest income years, and you may find that it's actually better to pay the tax today and shelter those assets from ongoing capital gains.

Is there a certain margin rate you would consider this beneficial. My current marginal rate is 37%. I suspect in retirement my marginal rate would be 32%, and 35% if a spouse passes. Would a 3-5% differential be that beneficial years down the road. I guess this also assumes rates don't change. I think the bigger advantage may be for legacy reasons.

[HMSVictory]

I think it is nearly impossible for us to give sage advice without a few key pieces of information.

• What is the portfolio value?

• What are your annual expenses or desired spend?

• When do you want to stop working and having an income?

Otherwise we are shooting in the dark.

$2M portfolio has a very different set of conditions and concerns than a $22M portfolio.

As a general answer to your asset location question - you can check out the wiki we have here on the forum. It will walk you through the though process behind having your fixed income allocation in your pre-tax accounts (401ks, IRAs) and your equity allocation in your Roth and then taxable accounts. I take this one step further and keep my international allocation in my Roth accounts as it throws off twice the income of US total stock.

[help911]

I think it is nearly impossible for us to give sage advice without a few key pieces of information.

• What is the portfolio value?

• What are your annual expenses or desired spend?

• When do you want to stop working and having an income?

Otherwise we are shooting in the dark.

$2M portfolio has a very different set of conditions and concerns than a $22M portfolio.

As a general answer to your asset location question - you can check out the wiki we have here on the forum. It will walk you through the though process behind having your fixed income allocation in your pre-tax accounts (401ks, IRAs) and your equity allocation in your Roth and then taxable accounts. I take this one step further and keep my international allocation in my Roth accounts as it throws off twice the income of US total stock.

@HMSVictory appreciate the candidate feedback. I'm looking to get as much valuable feedback from the process as possible so I added the information you requested to the original post. Please let me know your thoughts.

[James.534]

3m - Cash,T-bills,bonds
17m - stock

provides 20 years of safe returns

[HomeStretch]

Portfolio:
… Taxable Account - 80% of total portfolio
47% 59% - Total Stock Market Index Fund
6% 8% - Total International Stock Market Index Fund
26% 33% - Federal Money Market Fund + CDs

401k - 12% of total portfolio
10% 80% - Total Stock Market Index Fund
2% 14% - Total International Stock Market Index Fund
1% 6% - Total Bond Market Index Fund

401k Spouse - 8% of total portfolio
6% 81% - Total Stock Market Index Fund
1% 15% - Total International Stock Market Index Fund
1% 4% - Total Bond Market Index Fund …
———-
100% Total Portfolio

A better way to look at your portfolio is to look at each holding as a % of the total portfolio rather than the account total.

Your $20 million portfolio is simple and low cost. You have 28% in fixed income. It is more tax efficient to hold this in tax deferred (401k) which will also help slow the growth/reduce future RMDs.

It may be small $ overall, but consider doing annual backdoor Roths for you/spouse as the Roth accounts will grow tax free. Do you have access to mega backdoor Roths in your/spouse’s 401k plans?

With a $20 million portfolio, you are going to pay a lot of taxes. Consider:
1) retiring sooner rather than later
2) charitable contributions. You can gift appreciated stocks to a donor-advised fund.
3) instead of a static 80/20 allocation, consider holding x years in fixed income and put the rest to equity
4) you don’t need a separate emergency fund. If it’s simpler, just move those $ into your portfolio
5) make sure your estate plans are up to date. Consider trusts for your heirs rather than providing for them outright to protect their inheritance from creditors, divorce, etc.
6) consider whether you spending enough now.
7) edit - gifting with a warm hand now

A simple portfolio scales up to a 8-digit portfolio. You are at the wealth level where alternative investments (real estate, private equity, etc) may be pitched to you. They can be fine. But simple will also continue to work well for you.

[IOException]

Consider using a Robo with TLH enabled for taxable accounts you're actively contributing to. I get slapped around with 35+% LTCG, and this helps a lot with offsetting the tax drag on qualified dividends.

I am wondering how does this help, most of my taxable funds have been purchased years ago, so even with market dips the cost basis is still quite low , which would trigger a LTCG if sold?

Add in the tax drag on taxable accounts during your highest income years, and you may find that it's actually better to pay the tax today and shelter those assets from ongoing capital gains.

Is there a certain margin rate you would consider this beneficial. My current marginal rate is 37%. I suspect in retirement my marginal rate would be 32%, and 35% if a spouse passes. Would a 3-5% differential be that beneficial years down the road. I guess this also assumes rates don't change. I think the bigger advantage may be for legacy reasons.

I only use the robos for new funds. Once the basis grows to the point I can't TLH, I move the funds to a different account via an in-kind transfer to save on the fees. I don't use DRIP and instead have my taxable accounts deposit dividends into my checking where they automatically end up right back into a robo. This saves me the annoyance of having to think about my passive investments, which is valuable to me.

For the Roth vs traditional, there are calculators you can use, but the basic rule is that it's the number of years until withdrawal that has the outsized impact. The Personal Finance Toolbox on the wiki has a good one and there's also a Zoho sheet out there from TFB (tho I disagree with almost everything he says). An investment with a 9% return and a 3% dividend yield has an effective return of just 8% in a taxable for someone with a 35% dividend tax rate, assuming 100% of those dividends are qualified. That compounding rate being 12.5% lower is what makes all the difference. When I run the numbers for myself, even at a 45+% marginal rate versus a projected 28% if I retire in a no tax state, it's a wash. I'd rather lock it in now and retire wherever the heck I want to without thinking about it.

[HMSVictory]

Questions:
1. Should the 401K accounts be transitioned strictly toward money market and/or bond investments, moving the current US and International Total Stock investments to our taxable account? I don't believe we're very tax efficient with 33% of our taxable account being invested in Vanguard Federal Money Market Fund (VMFXX) and bank CDs, especially since we still have available space in our tax deferred accounts (401K). Although equities with higher returns would effectively expand our tax-advantaged space, so would that make more sense knowing we’ll likely always be in a high tax bracket?

Yes as long as you are extremely confident you will not be using the funds to purchase a property. Then I would shield the income from the money market funds and bond funds in your 401k pre tax accounts.

Questions:
2. If we make the transition in our 401K, should it be into bonds or money market? Neither the Fidelity (FXNAX) or Vanguard (VBTLX) Total Bond funds have done very well over the past 10 years. Money market has a much better return today and I believe it even has a better overall average 10 year return. Both 401K accounts have a money market available as an investment option. What is the opinion on the best long term investment in a 401K account being at the age of late 40s?

I would use BND and be done with it. You may want some TIPS exposure which is not included in BND but I don't feel its necessary.

Questions:
3. Once we run out of room with bonds / money market in our 401Ks, what would be the best option to hold long term "fixed income" in our taxable account to make sure we continue to meet our diversification target goals?

In your tax bracket if you run out of space in the tax deferred accounts I would like to municipal bond funds for your fixed income exposure.

Questions:
4. Is there anything else we should be doing differently or any necessary changes as our net worth continues to increase? We pay a LOT of taxes annually, so any tax efficiency ideas would be appreciated as well.

Congrats you have a tremendous net worth. What is your estate plan?

At your age its not crazy to think your assets could grow to $100M or more in your lifetime. You have the opportunity to do a lot of good with this money. I am a fan of what Warren Buffet has said to leave your children enough money to do anything they want but not enough to do nothing - if you have children I would think through how much you want to leave to them and begin giving them money NOW instead of waiting for a windfall when you die. I would get very serious about charitable giving if you are so inclined.

Your asset allocation can be anything within the realm of 20/80 to 100% stocks - your spending rate is so low it won't matter.

[chicagoan23]

I'm looking to get as much valuable feedback from the process as possible so I added the information you requested to the original post. Please let me know your thoughts.

This is why full details are so important. It creates a whole different set of questions and makes one look at things much differently.

With a $20 million portfolio in your late 40s and a withdrawal rate of less than 1%, things like doing a backdoor Roth or trying to be tax-efficient with your 401(k) balance are effectively meaningless. Focusing on those items would be like focusing on a rounding error. Far more important is your asset protection plan and your ability to structure things now to avoid a big estate tax hit later. That should be 100% of your focus.

As for your questions, at your level of wealth and your desired allocation to fixed income, you probably are best served with a broad fixed income strategy. 30-year Treasuries are close to the highest rates they've seen in roughly 20 years, but are they a good investment? Too hard to guess with $6 or $7 million at stake (read the Berkshire report in my signature for Warren Buffett's thoughts on this). I think you're fine with a healthy split among money market and total bond funds.

Also, if you are still working and earning a high income, you might want to look into municipal bonds to keep your marginal tax hit lower, if you are throwing off enough income from your taxable fixed income for this to be relevant. Once you retire then it doesn't make as much difference.

In short, your asset allocation seems fine, and you are already in low cost, diversified investments. This is good! It's also the low-hanging fruit. You should hire a well-regarded estate planning lawyer (plan to pay $50,000 or more) and get all of your assets structured in the best possible way, for asset protection planning and estate tax minimizing purposes, and do it right now. Proper planning now could potentially save you tens of millions later, making a few bps on your fixed income totally irrelevant.

[gips]

with all due respect to my fellow forum members, all who have given solid advice, I have to ask what in the world are you thinking about? You have a $20mm portfolio, instead of asking well-meaning people on an internet forum, go out and get professional advice from a fee-only planner, an estate attorney, and a tax professional that deal with the high net worth wealth segment. Make sure you hire people who sell advice, not products.

you can search the forum for fee-only planners, rick ferri is a respected forum member and often gets mentioned as one of the best. I worked on wall st and consulted for wealth and asset managers, and as such, thought I could manage investments on my own but eventually got some help from an inexpensive, fee-only planner, Mark Zoril of planvision, who is helping me with the complexity of planning DAFs, RMDS, iirma premiums and roth conversions. Separately I used a respected estate planning lawyer and had tax help from the big 4 firm who advised the company I co-founded.

Alternatively, I have a friend with a $25mm portfolio an ee and an mba from two top schools, he could easily manage his money but uses vanguard's pas service. He feels it's an appropriate trade of time for money, you may want to give them a call, talk about their services and find out what they charge for a $20mm portfolio.

best,

[help911]

I really appreciate the candidate feedback from everyone. Our portfolio has grown rapidly over the recent years with some business success. Our approach has been to maintain a simple investment strategy that wouldn’t require outside assistance. Basically set it and forget it mentality. Maybe not the best approach as our investment portfolio has grown to 8 digits but that has been the thought process since the beginning. Also our work-life has consumed us over the years, so our attention on fine tuning our investments has not been a priority. Our kids are still in school, so we haven’t put much thought into long term wealth transfer strategy. We did setup a revocable trust years ago but it needs to be updated and is on our to do list in 2025. As our net worth has grown we’ve become more recently concerned with the amount of taxes we’re paying annually and how to successfully transfer wealth to our children. I truly appreciate the Warren Buffet comment “leave your children enough money to do anything they want but not enough to do nothing”, but this is easier said than done, or at least for me personally. We’ll run with the advice to further explore a fee-only planner, an estate attorney, and a tax professional that deal with the high net worth wealth segment to ensure we have our ducks in a row for the future. Again I appreciate the advice from everyone.

[mike_in_ny]

I like the nice simple portfolio. Only thing I'd suggest is moving all your International to
your 401k to eliminate some of the tax drag -- you can keep the same allocation by
moving US stock funds into taxable. (International generally has a higher dividend yield
and lower qualified dividend percent.)

I would also suggest backdoor Roth, but saw your answer above.

[Thesaints]

4. Is there anything else we should be doing differently or any necessary changes as our net worth continues to increase?

Annual expenses way too low immediately jumps to the eye. You can’t take them with you.

[CraigTester]

I really appreciate the candidate feedback from everyone. Our portfolio has grown rapidly over the recent years with some business success. Our approach has been to maintain a simple investment strategy that wouldn’t require outside assistance. Basically set it and forget it mentality. Maybe not the best approach as our investment portfolio has grown to 8 digits but that has been the thought process since the beginning. Also our work-life has consumed us over the years, so our attention on fine tuning our investments has not been a priority. Our kids are still in school, so we haven’t put much thought into long term wealth transfer strategy. We did setup a revocable trust years ago but it needs to be updated and is on our to do list in 2025. As our net worth has grown we’ve become more recently concerned with the amount of taxes we’re paying annually and how to successfully transfer wealth to our children. I truly appreciate the Warren Buffet comment “leave your children enough money to do anything they want but not enough to do nothing”, but this is easier said than done, or at least for me personally. We’ll run with the advice to further explore a fee-only planner, an estate attorney, and a tax professional that deal with the high net worth wealth segment to ensure we have our ducks in a row for the future. Again I appreciate the advice from everyone.

I see no reason for special treatment of a $20M portfolio versus $2m, $50M, etc.

FWIW, we are 30-20-25-25 (VTI-VEA-TIPS-ST)... It scales nicely.

The only area where size of portfolio really starts to impact you is in the amount of tax you get to pay.

And on this topic there are trade-offs that can change over time based on prevailing interest rates, tax rates, rebalancing powder protection, etc.... So just keep some of everything in your limited tax-advantaged space using the same common sense that allowed you to accumulate $20M... (and remember to vote)

As for estate planning, just make sure your POD's are all updated at your brokerages, banks, credit unions..... And have a simple Will explaining where you would like things like your house to go if you and your wife pass simultaneously.

Oh, and make sure your wife knows (or has some way of learning) how to keep things going if you pass before her.

And that's about it.... Besides debating with yourself about whether you should increase your spending (simply because you "can")....On this front, think 3% as a rough budget but don't worry too much about it unless hedonistic adaptation begins to take hold.

Good luck,

Some guy on the Internet.

[Thesaints]

I see no reason for special treatment of a $20M portfolio versus $2m, $50M, etc.

Should Warren Buffet set up an emergency fund, just like Joe Schmoe has to do with his 1M portfolio ?

[CraigTester]

I see no reason for special treatment of a $20M portfolio versus $2m, $50M, etc.

Should Warren Buffet set up an emergency fund, just like Joe Schmoe has to do with his 1M portfolio ?

Yes. And he famously always keeps an "ample" amount of liquid t-bills so he never has to rely on the kindness of strangers.

I thinks its something like $325B at the moment

[Thesaints]

Yes. And he famously always keeps an "ample" amount of liquid t-bills so he never has to rely on the kindness of strangers.

Oh, yeah. In case he suddenly has to buy a mid-sized city…

[cableguy]

An example:

In Taxable Account
$10M in VTI...pay yourself the dividends...$150,000 a year in income
$6M Tax Free Muni Bond Fund or Ladder...$270,000 a year in income
$2M CD ladder....$90,000 a year in income

In Retirement Account
$2M CD ladder

I'm sure many will say its too conservative...but I am pretty conservative. Most of your income is at "tax advantaged" status. If you need more money sell some VTI, or don't roll a CD and keep the cash. Simple portfolio.

[Mrbogleheads]

whether high net worth or low net worth it's all the same. 100% Stocks, 70/30, 50/50. Whatever you like

[Leesbro63]

Hello Bogleheads! Looking for a general portfolio review and feedback to some specific questions below:

Portfolio Total: ~$20M
Annual expenses: ~$150k

Can you clarify something please? How are you considering taxes? If your entire $20M is tax sheltered, then, OK, maybe you're "only" spending $150,000/year. But if much or all of it is in a taxable account, you probably have a big tax bill in additional to the $150,000 spending. My guess is that your actual spend is $150K for consumption about maybe another $100,000/year in taxes. Which is still just over a 1% total spend rate, which is very commendable. Anyway, please let us know the tax situation here for further opinions on this good situation.

[help911]

Correct - the $150k is only our annual living expenses and doesn't account for taxes. I don't know off hand how much we pay in taxes but it's likely more than our annual living expenses.

[breakfastinbed]

General thoughts:

-National municipal bond funds, AAA/AA in credit quality, are practically speaking as safe as treasuries - i.e. they can theoretically default but have an actual default rate of 0%. I'd strongly recommend looking into muni funds, including analyzing objective measures of risk - people on this website will tell you muni funds have risks and then recommend total bond fund, objectively a substantially more risky investment.

-Could work to convert some of your fixed income holdings in taxable to I-bonds. Small change, but it's a start.

-You should not be holding total international in taxable. Either hold in tax-sheltered or try to find a less broad fund that is more tax-efficient.

-For tax planning, this is one of the circumstances where a fee-based (not AUM-based) financial planner makes a lot of sense. There are professionals out there whose entire job it is to help families like yours lower their tax bill.

[Leesbro63]

Correct - the $150k is only our annual living expenses and doesn't account for taxes. I don't know off hand how much we pay in taxes but it's likely more than our annual living expenses.

Thanks for the clarification. This is not uncommon for high net worth people who "only" spend like the middle class. Taxes, especially if your net worth is a portfolio of publicly traded index funds, might be your biggest expense. As you state, perhaps even bigger than total consumption spending. I get it that you feel like you are only spending $150,000. But truth be told you need to add taxes to get an honest picture of what you're really spending. As a practical matter, if you are only consuming $150,000, you're fine regardless of taxes unless there's something unusual with your portfolio. I do suggest you laser focus on how much you pay in taxes. It's something you should be aware of. Because it's (probably) your biggest expense.

[Thesaints]

Taxes are calculated on returns, not on assets.
As such, they are simply the difference between gross and net return; not an expense.

[Leesbro63]

Taxes are calculated on returns, not on assets.
As such, they are simply the difference between gross and net return; not an expense.

In common Boglehead discussions regarding "Safe Withdrawal Rates", taxes count as an expense. There are many years where a typical taxable portfolio of stock and bond index funds/ETFs will go down, but still throw off taxable dividends and interest that require tax to be paid. Both your gross and net returns are negative, yet there's still taxable income.

[Thesaints]

In common Boglehead discussions regarding "Safe Withdrawal Rates", taxes count as an expense.

Only because they assume withdrawals from a tax-deferred account, perhaps without realizing it.

There are many years where a typical taxable portfolio of stock and bond index funds/ETFs will go down, but still throw off taxable dividends and interest that require tax to be paid. Both your gross and net returns are negative, yet there's still taxable income.

In that case, taxes are the difference between gross and net dividend payout. Again, not an expense, unless one also classifies a drop in portfolio value as such.

[tsohg]

Congratulations on your amazing success!

You didn't ask, but if I was in your shoes with that portfolio and a spending rate of only 150k a year, I'd ask myself if I was underspending. Specifically, if I was deferring spending for experiences or other meaningful things that I wouldn't have the opportunity to take advantage of later in life. My NW is several multiples lower than yours, but I've been thinking more along these lines as my children are aging into adolescence.

[Leesbro63]

In common Boglehead discussions regarding "Safe Withdrawal Rates", taxes count as an expense.

Only because they assume withdrawals from a tax-deferred account, perhaps without realizing it.

There are many years where a typical taxable portfolio of stock and bond index funds/ETFs will go down, but still throw off taxable dividends and interest that require tax to be paid. Both your gross and net returns are negative, yet there's still taxable income.

In that case, taxes are the difference between gross and net dividend payout. Again, not an expense, unless one also classifies a drop in portfolio value as such.

I believe both of these statements do not agree with the way Bogleheads generally account for taxes. Taxes are expenses, regardless of whether they are generated from tax-deferred withdrawals or on taxable income from taxable accounts. And returns are returns, even if some of those returns require taxes to be paid on them. Maybe someone else can chime in to confirm my understanding. Or not!

[bltn]

Only because they assume withdrawals from a tax-deferred account, perhaps without realizing it.


In that case, taxes are the difference between gross and net dividend payout. Again, not an expense, unless one also classifies a drop in portfolio value as such.

I believe both of these statements do not agree with the way Bogleheads generally account for taxes. Taxes are expenses, regardless of whether they are generated from tax-deferred withdrawals or on taxable income from taxable accounts. And returns are returns, even if some of those returns require taxes to be paid on them. Maybe someone else can chime in to confirm my understanding. Or not!

I also believe income taxes should be considered part of ones annual expenses. This total is the amount to be taken from ones investment portfolio yearly or the amount that needs to be satisfied by ones swr.

[Riprap]

Only thing I'd suggest is moving all your International to
your 401k to eliminate some of the tax drag -- you can keep the same allocation by
moving US stock funds into taxable. (International generally has a higher dividend yield
and lower qualified dividend percent.)

There was a time when standard advice was to place international index funds in taxable accounts to reap the foreign tax credit. When did that advice change?

[mike_in_ny]

Only thing I'd suggest is moving all your International to
your 401k to eliminate some of the tax drag -- you can keep the same allocation by
moving US stock funds into taxable. (International generally has a higher dividend yield
and lower qualified dividend percent.)

There was a time when standard advice was to place international index funds in taxable accounts to reap the foreign tax credit. When did that advice change?

Yes - there was, and maybe for some people at lower brackets (I'm at 32 or 35% in NY) it might make
sense. In fact I was executing on that strategy and then read something and did the math for myself,
and am trying to undue it without paying much in cap gains. I'd welcome if others see it differently.

The two funds that I carry in taxable are VTI and VEA (developed market etf).
VEA has about a 3.3% yield, of which 73% were qualified in 2023.
VTI has a yield of 1.3%, of which 95% were qualified.

For VEA less than 10% of the dividend was withheld for foreign taxes...so when I crunched it
and figured out my tax drag, I was better off with VTI in taxable.

As I said, would be interested in if other people have come to the same conclusion.

[Thesaints]

I believe both of these statements do not agree with the way Bogleheads generally account for taxes. Taxes are expenses, regardless of whether they are generated from tax-deferred withdrawals or on taxable income from taxable accounts. And returns are returns, even if some of those returns require taxes to be paid on them. Maybe someone else can chime in to confirm my understanding. Or not!

I also believe income taxes should be considered part of ones annual expenses. This total is the amount to be taken from ones investment portfolio yearly or the amount that needs to be satisfied by ones swr.

Sure. After all there is GAAP and there is bad accounting too…

[gips]

I really appreciate the candidate feedback from everyone. Our portfolio has grown rapidly over the recent years with some business success. Our approach has been to maintain a simple investment strategy that wouldn’t require outside assistance. Basically set it and forget it mentality. Maybe not the best approach as our investment portfolio has grown to 8 digits but that has been the thought process since the beginning. Also our work-life has consumed us over the years, so our attention on fine tuning our investments has not been a priority. Our kids are still in school, so we haven’t put much thought into long term wealth transfer strategy. We did setup a revocable trust years ago but it needs to be updated and is on our to do list in 2025. As our net worth has grown we’ve become more recently concerned with the amount of taxes we’re paying annually and how to successfully transfer wealth to our children. I truly appreciate the Warren Buffet comment “leave your children enough money to do anything they want but not enough to do nothing”, but this is easier said than done, or at least for me personally. We’ll run with the advice to further explore a fee-only planner, an estate attorney, and a tax professional that deal with the high net worth wealth segment to ensure we have our ducks in a row for the future. Again I appreciate the advice from everyone.

I see no reason for special treatment of a $20M portfolio versus $2m, $50M, etc.

FWIW, we are 30-20-25-25 (VTI-VEA-TIPS-ST)... It scales nicely.

The only area where size of portfolio really starts to impact you is in the amount of tax you get to pay.

And on this topic there are trade-offs that can change over time based on prevailing interest rates, tax rates, rebalancing powder protection, etc.... So just keep some of everything in your limited tax-advantaged space using the same common sense that allowed you to accumulate $20M... (and remember to vote)

As for estate planning, just make sure your POD's are all updated at your brokerages, banks, credit unions..... And have a simple Will explaining where you would like things like your house to go if you and your wife pass simultaneously.

Oh, and make sure your wife knows (or has some way of learning) how to keep things going if you pass before her.

And that's about it.... Besides debating with yourself about whether you should increase your spending (simply because you "can")....On this front, think 3% as a rough budget but don't worry too much about it unless hedonistic adaptation begins to take hold.

Good luck,

Some guy on the Internet.

>>As for estate planning, just make sure your POD's are all updated at your brokerages, banks, credit unions..... And have a simple Will explaining where you would like things like your house to go if you and your wife pass simultaneously.

I find the confidence with which you provide this misinformation kind of stunning:
https://www.investopedia.com/articles/r ... te-tax.asp

we have an estate plan which creates trusts that help defer and in some cases, reduce inheritance tax.

[telecaster]

Hi op. First off congrats on your situation!

We are also in the top tax brackets and have a similar yearly contribution. Beyond emergency fund and stashing cash we plan to spend soon (this is all in fidelity money market), the rest of our stable assets in taxable are in a muni bond fund aligned to the state we live in. The dividends and growth are totally tax free. 40'ish% of the dividends from our money market go to Uncle Sam and our state gov.

+1 on the muni bond funds while you are in a high bracket.

Good luck!

[CraigTester]

I see no reason for special treatment of a $20M portfolio versus $2m, $50M, etc.

FWIW, we are 30-20-25-25 (VTI-VEA-TIPS-ST)... It scales nicely.

The only area where size of portfolio really starts to impact you is in the amount of tax you get to pay.

And on this topic there are trade-offs that can change over time based on prevailing interest rates, tax rates, rebalancing powder protection, etc.... So just keep some of everything in your limited tax-advantaged space using the same common sense that allowed you to accumulate $20M... (and remember to vote)

As for estate planning, just make sure your POD's are all updated at your brokerages, banks, credit unions..... And have a simple Will explaining where you would like things like your house to go if you and your wife pass simultaneously.

Oh, and make sure your wife knows (or has some way of learning) how to keep things going if you pass before her.

And that's about it.... Besides debating with yourself about whether you should increase your spending (simply because you "can")....On this front, think 3% as a rough budget but don't worry too much about it unless hedonistic adaptation begins to take hold.

Good luck,

Some guy on the Internet.

>>As for estate planning, just make sure your POD's are all updated at your brokerages, banks, credit unions..... And have a simple Will explaining where you would like things like your house to go if you and your wife pass simultaneously.

I find the confidence with which you provide this misinformation kind of stunning:
https://www.investopedia.com/articles/r ... te-tax.asp

By your phrasing, (and use of the word, stunning) it sounds like you're trying to sell something by making the simple, sound mysterious.

And while there may be a special case out there, ( >$27.98M NW in 2025, special objectives, trying-to-out-guess-next-tax-change, etc) my above description is all most people need to do....

Same is true for the other topics.

Note that the OP has already proven capable of generating a $20M portfolio through a business...., I have a sneaking suspicion he can figure out any specific tweaks with just a little help from people on a forum like this who don't try to scare him into hiring everything out...

But if he chooses to do that from a time management perspective, that's fine, but this is not complicated stuff compared to what he's already done.

How do I know... ?

Been there, done that.

Are you in a business that generates fees in this arena?

[Leesbro63]

>>As for estate planning, just make sure your POD's are all updated at your brokerages, banks, credit unions..... And have a simple Will explaining where you would like things like your house to go if you and your wife pass simultaneously.

I find the confidence with which you provide this misinformation kind of stunning:
https://www.investopedia.com/articles/r ... te-tax.asp

By your phrasing, (and use of the word, stunning) it sounds like you're trying to sell something by making the simple, sound mysterious.

And while there may be a special case out there, ( >$27.98M NW in 2025, special objectives, trying-to-out-guess-next-tax-change, etc) my above description is all most people need to do....

Same is true for the other topics.

Note that the OP has already proven capable of generating a $20M portfolio through a business...., I have a sneaking suspicion he can figure out any specific tweaks with just a little help from people on a forum like this who don't try to scare him into hiring everything out...

But if he chooses to do that from a time management perspective, that's fine, but this is not complicated stuff compared to what he's already done.

How do I know... ?

Been there, done that.

Are you in a business that generates fees in this arena?

+1, Excellent post, CraigTester. Even at higher networths, things can be kept relatively simple, especially if the portfolio is of publicly traded securities. And when using legal, financial planning and tax professionals, it’s way better to be prepared and to understand everything. Your point about the original poster’s good track record of business decision making was spot on.

[derringer]

Just want to add on here that you can absolutely manage portfolios this size or larger by advice on these forums. Many of us have done so over many years. Many of us got there, in fact, in part by doing so. I would piggyback the advice above by emphasizing a few points though, some of which were touched on above:

1. Can your spouse manage it if you pass before her/him? This is one I grapple with mightily and is pushing me towards at least having an annual meeting with a fee-only professional. Might pull the trigger on that this year. I am not sure such an important professional selection should be left to a spouse without the years of knowledge garnered on this forum and elsewhere.

2. Tax planning, especially in early retirement is massive and it changes seemingly every year or two. Its also going to be one of your largest expenses at your wealth level. You have a solid understanding of cost conscious, simple and effective portfolio construction, but how that relates to tax law, your allocations to different taxable accounts than folks of lower wealth, and your retirement withdrawal, NIIT, ACA, RMDs etc. will be dictated by the decisions you make in late earning years and early on in retirement years. I recommend a tax professional.

[Leesbro63]

Tax planning, especially in early retirement is massive and it changes seemingly every year or two. Its also going to be one of your largest expenses at your wealth level. You have a solid understanding of cost conscious, simple and effective portfolio construction, but how that relates to tax law, your allocations to different taxable accounts than folks of lower wealth, and your retirement withdrawal, NIIT, ACA, RMDs etc. will be dictated by the decisions you make in late earning years and early on in retirement years. I recommend a tax professional.

One simple way to do this is to own a Vanguard Total Market fund or ETF, perhaps an International fund or ETF, and muni bond fund or funds. It's about as tax efficient as it gets. And if you can live on about 2% of your portfolio value, the dividends (at the lower capital gains tax rate) and muni bond income (tax free) can fund your spending without having to sell assets.

[derringer]

Yes, but I’m more referring to ‘how much should i roth convert in my 50s when i just retired to keep MAGI low and reduce RMDs in my 80s or to cut taxes to my children when they inherit, etc. There are quite a few tax strategies that come in for larger estates and can be the difference in giving more in the end to descendent or charities.

[gips]

>>As for estate planning, just make sure your POD's are all updated at your brokerages, banks, credit unions..... And have a simple Will explaining where you would like things like your house to go if you and your wife pass simultaneously.

I find the confidence with which you provide this misinformation kind of stunning:
https://www.investopedia.com/articles/r ... te-tax.asp

By your phrasing, (and use of the word, stunning) it sounds like you're trying to sell something by making the simple, sound mysterious.

And while there may be a special case out there, ( >$27.98M NW in 2025, special objectives, trying-to-out-guess-next-tax-change, etc) my above description is all most people need to do....

Same is true for the other topics.

Note that the OP has already proven capable of generating a $20M portfolio through a business...., I have a sneaking suspicion he can figure out any specific tweaks with just a little help from people on a forum like this who don't try to scare him into hiring everything out...

But if he chooses to do that from a time management perspective, that's fine, but this is not complicated stuff compared to what he's already done.

How do I know... ?

Been there, done that.

Are you in a business that generates fees in this arena?

I applaud you for adopting the debating style of our time, I post a link with factual evidence about estate planning and you rebut by questioning my motives.

well done!

[CraigTester]

By your phrasing, (and use of the word, stunning) it sounds like you're trying to sell something by making the simple, sound mysterious.

And while there may be a special case out there, ( >$27.98M NW in 2025, special objectives, trying-to-out-guess-next-tax-change, etc) my above description is all most people need to do....

Same is true for the other topics.

Note that the OP has already proven capable of generating a $20M portfolio through a business...., I have a sneaking suspicion he can figure out any specific tweaks with just a little help from people on a forum like this who don't try to scare him into hiring everything out...

But if he chooses to do that from a time management perspective, that's fine, but this is not complicated stuff compared to what he's already done.

How do I know... ?

Been there, done that.

Are you in a business that generates fees in this arena?

I applaud you for adopting the debating style of our time, I post a link with factual evidence about estate planning and you rebut by questioning my motives.

well done!

A fundamental belief of BHs is keeping simple things simple.

A fundamental belief of fee based service providers is to make simple things appear complicated

The OP began with specific questions similar to those asked and answered on this forum every day.

Some responders chose to just answer his questions.

Whereas you advised he go pay someone for the information.

Do you pay for these types of services yourself? Why?

with all due respect to my fellow forum members, all who have given solid advice, I have to ask what in the world are you thinking about? You have a $20mm portfolio, instead of asking well-meaning people on an internet forum, go out and get professional advice from a fee-only planner, an estate attorney, and a tax professional that deal with the high net worth wealth segment. Make sure you hire people who sell advice, not products.