Portfolio Review & Reallocation Advice – Moving Away from Advisor bought funds

[transitionarytimes]

Emergency Funds:
Covered – I have two years of cash reserves beyond my investment accounts, because I anticipate being laid off and have not been immediately investing all extra income.

Debt:
$1M in two mortgages, will be down to $500k after selling second home.

Tax Filing Status:
Married Filing Jointly

Tax Rate:
- Federal: 37%, 20% LTCG
- State: 4.5% (State withheld for privacy)

Age:
40s, not planning to work full-time after layoff or early retirement

Desired Asset Allocation:
- Stocks: ~50% (but would like more opinions)
- Bonds: ~50% (but would like more opinions)
- Desired International Allocation: I'm not sure

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Total Portfolio Size:
~$3.5M

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Current Retirement Assets (All Accounts)
(Note: All percentages are based on the total portfolio, not within each account.)

Taxable Brokerage Account (~85.5% of total portfolio, $2.99M)

Cash (for investing, not emergency funds)
18.6% - $650,176.07 (Newly available cash reserves)

Stock ETFs – 42.6% of total portfolio
- SPDR Portfolio S&P 500 Growth ETF (SPYG) – 6.6% (0.04%)
- SPDR Portfolio S&P 500 Value ETF (SPYV) – 1.5% (0.04%)
- Avantis U.S. Equity ETF (AVUS) – 0.6% (0.15%)
- SPDR SSGA U.S. Large Cap Low Volatility ETF (LGLV) – 7.1% (0.12%)
- Vanguard Total International Stock Index ETF (VXUS) – 2.6% (0.07%)
- iShares Core MSCI International Developed Markets ETF (IDEV) – 4.0% (0.05%)
- SPDR Developed World ex-US ETF (SPDW) – 0.3% (0.04%)
- SPDR Portfolio S&P 600 Small Cap ETF (SPSM) – 3.6% (0.03%)
- SPDR S&P 400 Mid Cap Growth ETF (MDYG) – 1.2% (0.15%)
- SPDR S&P 400 Mid Cap Value ETF (MDYV) – 1.1% (0.15%)
- First Trust Technology AlphaDEX ETF (FXL) – 6.7% (0.61%)
- iShares U.S. Technology ETF (IYW) – 0.4% (0.40%)
- iShares MSCI USA Quality Factor ETF (QUAL) – 1.0% (0.15%)
- WisdomTree U.S. Quality Dividend Growth ETF (DGRW) – 1.7% (0.28%)

Individual Stocks – 5.0% of total portfolio
- Amazon (AMZN) – 2.4%
- Nintendo (NTDOY) – 2.5%
- Disney (DIS) – 0.1%

Bond Mutual Funds – 33.1% of total portfolio
- Vanguard Ltd Term Tax Exempt Admiral (VMLUX) – 3.3% (0.09%)
- Vanguard Intermediate-Term Tax Exempt Admiral (VWIUX) – 3.7% (0.09%)
- AB Tax Aware Fixed Income Opps Advisor (ATTYX) – 5.8% (0.61% – High Expense Ratio, Want to Exit?)
- Eaton Vance National Muni Income (EIHMX) – 8.8% (0.56% – High Expense Ratio, Want to Exit?)
- Eaton Vance Strategic Income (ESIIX) – 4.0% (0.75% – High Expense Ratio, Want to Exit?)
- Nuveen Ltd Term Municipal Bond (FLTRX) – 4.5% (0.42%)

Bond ETFs – 0.9% of total portfolio
- Vanguard Total Bond Market ETF (BND) – 0.03%

Individual Municipal Bonds – 5.5% of total portfolio
- Inherited various municipal bonds, mostly AA or AA- rated, across different maturities, all in 1.75%-2.5% range, tax-free.

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401(k) – 11.4% of total portfolio ($350-400K)
(Actively contributing, company match included)

Stock Index Funds – 7.4% (0.02%-0.05% range)
Bond Index Funds – 4.0% (0.02%-0.07% range)

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Traditional IRA – 1.0% of total portfolio ($35,893.52)
- Fidelity Advisor Stock Selector Small Cap (FCDIX) – 5.8% (0.90%)
- Janus Henderson Overseas Cl I (JIGFX) – 4.2% (0.81%)
- JPMorgan Growth Advantage Cl I (JGASX) – 15.2% (0.93%)
- JPMorgan Hedged Equity Cl I (JHEQX) – 7.1% (0.85%)
- Various ETFs (see statement for details) – 67.7%

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Roth IRA – 1.2% of total portfolio ($41,661.74)
- Janus Henderson Overseas Cl I (JIGFX) – 3.2% (0.81%)
- Various Sector ETFs (XLY, XLI, XLP, XLF, XLV, etc.) – 88.3%

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New Annual Contributions
- 401(k): $30,000 (including employer match)
- Roth IRA: Can't contribute
- Traditional IRA: Don't see a reason to contribute in my situation
- Taxable Brokerage: TBD (based on reallocation decisions)

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Questions & Considerations

1. Simplification Strategy – What’s the Best Approach, if necessary?
- Should I consolidate into something like a three-fund portfolio? I'd like to minimize LT capital gains? It feels daunting with all of these individual holdings!

2. Should I Invest some of the $600K Cash?
- DCA or lump sum?

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Thank you, Bogleheads!
Looking forward to your insights on portfolio simplification, tax efficiency, and long-term asset allocation!

[typical.investor]

1. Simplification Strategy – What’s the Best Approach, if necessary?
- Should I consolidate into something like a three-fund portfolio? I'd like to minimize LT capital gains? It feels daunting with all of these individual holdings!

No, I wouldn't pay capital gain taxes now in order to do that. Yes, in tax deferred you can and probably should.

Obviously, have you turned off dividend reinvestment? That amount can be put towards a three fund portfolio.

Have you looked into TLHing (tax loss harvesting)? That would help you get out of positions.

I would want to get out of DGRW in taxable (I mean eventually at least). If you are unemployed and needing to spend the dividends, then maybe not just now. In any case, how much is taxable throwing off in dividends each year? With two years of spending in cash and the dividends, you really might have spending covered for longer than you think. FXL and IYW are the others I'd look to exit first. You can kind of group the other ones into US or INTL and just count those as part of your allocation.

For a long retirement, 50% bonds seems too high for me. Stagflation worried me know so if adding any bonds, personally I would choose TIPS. To do that, I would have to look at cash flows. Individual TIPs would be my preference but you don't have much space in retirement accounts. Any TIPS possibility in the 401(k). TIPS in taxable are ok but you have to cash flow the phantom taxes.

In any case, I think you have to look at your cash flows. Will you really need munis if you do go full time again?

[bonesly]

1. Simplification Strategy – What’s the Best Approach, if necessary?
- Should I consolidate into something like a three-fund portfolio? I'd like to minimize LT capital gains? It feels daunting with all of these individual holdings!

Your portfolio is very complex (35 holdings!) and the percentages you provided don't quite add up to 100% (some were 100% per account some were % of the total portfolio across all accounts), so the dollar figures are likely wrong, but hopefully this gives you an idea about issues that are present you may wish to address and ideas on simplifying while minimizing the tax-cost to do so.

Transition the Trad & Roth IRAs to self-managed (if they're not already) and you can clean those up right away. The dizzying array of holdings in Taxable can only be cleaned up if you are willing to pay a Tax Cost to Switch Funds (or have an entire position that is at a loss). As @typical.investor suggested, determine which funds you're keeping (I've suggested those in bold) and for all other funds in Taxable you'd ultimately like to get rid of, immediately turn off auto-reinvest of distributions so they don't get any bigger. Make sure the cost basis method is set to Specific Identification (and not Average Cost).

The Current layout has some high-cost funds (in both Taxable and the two IRAs, highlighted in yellow with ER in red) and there are nominal bonds in Taxable, which at your tax backet is not Tax-Efficient Fund Placement (highlighted in purple). The cash is also not tax-efficient, but you're planning to deploy that. I didn't notice any potential issues with Wash Sales, so that's good. There are sector bets and individual stocks that are not part of the Boglehead Philosophy of low-cost broadly diversified index funds (highlighted in blue). The AA is about 46/35/19 with about 13% of stocks in int'l.

The Proposed layout moves the Trad 401k and Trad IRA all into bonds, per tax-efficient placement (ideally Taxable & Roth at 100% stocks while Trad Tax-Deferred holds all bonds and balance of stocks). The Roth is moved into an S&P-500 (all stocks, so tax-efficient). The Cash in Taxable was deployed in a split among Vanguard Total Stock Market (VTI), SPDR Developed World ex-US (SPDW), and Vanguard Int-Term Tax-Exempt (VWIUX) which is the core triplet for your 3-Fund Portfolio (since Taxable is your largest account). All the "other" clutter is sorted by balance from high to low. The AA matches your desired AA of 50/50 with about 20% of stocks in int'l. For int'l stock exposure we typically recommend 20% (home bias) to 40% (world-cap weighting of US vs ex-US) or 0% (since <20% is clutter and isn't enough to diversify).

There are several approaches to clean-up:
a) Don't sell any of the clutter funds unless you can realize a loss (prioritize minimizing capital gains)
b) Sell clutter such that gains are offset by losses (no savings on tax-bill but no increase either and clutter is reduced a tiny bit each year)
c) Sell up to a "tax-pain threshold" each year, say if you're willing to tolerate $1K or $5K of cap gains per year to eventually clean up the mess.
d) Bite the bullet and sell all the clutter to re-deploy immediately to the three bolded core funds (NOT recommended)

I would likely sell Eaton Vance Strategic Income and Vanguard Total Bond Market as those are nominal bonds funds that should hopefully not have large capital gains (at least in comparison to a long-held stock fund), and they are not at all appropriate in a Taxable account at your tax bracket (37% Fed + 4.5% State). I would also likely sell of the Disney stock as it's a very small position (clutter) so the tax-hit (if any) is likely smaller still.

From there it's either work on the biggest balances with high ERs which will damage your long-term returns the most (i.e., EIHMX, FXL, ATTYX, and FLTRX), or work from the smallest balances bottom-up as those are the ones that will generate the least tax-pain to clean up (i.e., DIS, IYW, AVUS, QUAL, etc.). For positions with a balance over $100K that are low-cost funds, I might just accept the clutter of those forever (i.e., maybe just keep LGLV, SPYG, IDEV, and SPSM and deal with the added complexity).



I usually post a generic template but your portfolio is so complicated, I uploaded it in case that's of any help to you with asset allocation assessment and rebalance planning. You should correct the dollar amounts from your actual account statements. Make a copy in your local GoogleSheets space to edit (or download to your local machine if you have Excel).
Asset Allocation Sheet
AA Current and Proposed_transitionary

2. Should I Invest some of the $600K Cash?
- DCA or lump sum?

Lump-sum beats out DCA 67% of the time, so that's the logical preference. If you're emotionally concerned about the 33% of the time that DCA wins out, then split the difference... invest $300K immediately and DCA the other $300K over 6-12 months (pick a time-frame and stick to it).

[transitionarytimes]

Thank you so much for the detailed response. I have a lot to consider, but can easily do a few things (like turning off auto re-invest) right now that move me slowly in the right direction. More to learn for me on account types, so thank you for the wiki. I'd read a couple of them before, but my head spins after a little while so I probably forgot but understand it now.