Asset Allocation in Taxable

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corn18
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Asset Allocation in Taxable

Post by corn18 » Fri Jul 13, 2018 8:45 am

I met with an advisor the other week and he was quite knowledgable. I didn't hire him due to the 1% AUM fee, but he mentioned something that got me thinking. My taxable account is 90/10, my Roths are 97/3 and my 401k is 29/71 for an overall AA of 60/40. The advisor sad he understood why I was heavy on equities in taxable and Roth, but felt I should consider carrying more fixed income in my taxable account in case of a market downturn. That kindof makes sense to me, but I can't decide whether to do it or not.

Appreciate your thoughts and inputs.

Corn

Chaconne
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Re: Asset Allocation in Taxable

Post by Chaconne » Fri Jul 13, 2018 9:04 am

I'll let more knowledgeable folks answer that, but I think we'll need to know more about your age, when you plan to retire and how far along you are in meeting your retirement goal.
-Bob

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corn18
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Re: Asset Allocation in Taxable

Post by corn18 » Fri Jul 13, 2018 9:14 am

Portfolio details below. Plan to retire in 3 years @ 55. On track with some extra.

Emergency funds: 6 months expenses
Debt: mortgage, 3.75%, 30 year, no PMI (VA loan), $413k balance, $515k value
Tax Filing Status: Married Filing Jointly
Tax Rate: 37% Federal, 5.33% State, 1% local
State of Residence: Ohio
Age: 52
Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 25% of stocks

low 7 figure current retirement portfolio
$43,757 / year military pension (receiving this now), inflation indexed, 55% survivor benefit
Low cost health care for life (Tricare for life)

Current retirement assets

Taxable (USAA brokerage account)<br/>
27.5% FIDELITY TOTAL MARKET INDEX PREMIUM CLASS (FSTVX) 0.01%
5.0% FIDELITY INTERNATL INDEX PREMIUM CLASS (FSIVX) 0.06%
3.1% FIDELITY TAX-FREE BOND (FTABX) 0.25%<br/>

His 401k
1.5% SPTN 500 IDX ADV IS (FXAIX) 0.025% <br/>
1.7% SPTN MID CAP IDX INS (FSTPX) 0.14% <br/>
1.6% SPTN SM CAP IDX INS (FSSSX) 0.17% <br/>
9.6% SPTN GLB XUS IDX INS (FSGSX) 0.23% <br/>
35.2% DODGE & COX INCOME (DODIX) 0.44% <br/>

Company match? 5%

His Roth IRA at USAA<br/>
10.3% FIDELITY TOTAL MARKET INDEX PREMIUM CLASS (FSTVX) 0.01% <br/>

His TSP
0.39% G Fund 0.038%<br/>

Her Roth IRA at USAA<br/>
3.4% FIDELITY TOTAL MARKET INDEX PREMIUM CLASS (FSTVX) 0.01% <br/>

Contributions

New annual Contributions
$24,500 his 401k before tax + 5% match (~$18,000)<br/>
$17,000 his 401k after tax (mega backdoor Roth)<br/>
$6,500 his IRA/Roth IRA (backdoor Roth)<br/>
$5,500 her IRA/Roth IRA (backdoor Roth)<br/>
$75,000 taxable (this can go as high as $200k / year depending on bonuses)

$128,000 annual contribution (plus $18,000 match)<br/>

Available funds <br/>

Funds available in his 401(k)<br/>
AF GRTH FUND AMER R6 (RGAGX) 0.33% <br/>
DODGE & COX STOCK (DODGX) 0.52% <br/>
FID MAGELLAN K (FMGKX) 0.6% <br/>
SPTN 500 IDX ADV IS (FXAIX) 0.025% <br/>
SPTN MID CAP IDX INS (FSTPX) 0.14% <br/>
SPTN SM CAP IDX INS (FSSSX) 0.17% <br/>
TRP SM CAP STOCK (OTCFX) 0.91% <br/>
FID DIVERSIFD INTL K (FDIKX) 0.78% <br/>
SPTN GLB XUS IDX INS (FSGSX) 0.23% <br/>
FID BALANCED K (FBAKX) 0.46% <br/>
FID FREEDOM K 2005 (FFKVX) 0.49% <br/>
FID FREEDOM K 2010 (FFKCX) 0.52% <br/>
FID FREEDOM K 2015 (FKVFX) 0.55% <br/>
FID FREEDOM K 2020 (FFKDX) 0.57% <br/>
FID FREEDOM K 2025 (FKTWX) 0.6% <br/>
FID FREEDOM K 2030 (FFKEX) 0.63% <br/>
FID FREEDOM K 2035 (FKTHX) 0.64% <br/>
FID FREEDOM K 2040 (FFKFX) 0.64% <br/>
FID FREEDOM K 2045 (FFKGX) 0.64% <br/>
FID FREEDOM K 2050 (FFKHX) 0.64% <br/>
FID FREEDOM K 2055 (FDENX) 0.64% <br/>
FID FREEDOM K 2060 (FDKNX) 0.64% <br/>
FID FREEDOM K INCOME (FFKAX) 0.43% <br/>
FID Managed Income Portfolio II Class 3 0.34% <br/>
BLKRK HIGH YLD BD K (BRHYX) 0.55% <br/>
DODGE & COX INCOME (DODIX) 0.44% <br/>
FID GNMA (FGMNX) 0.45% <br/>
VANG INFL PROT INST (VIPIX) 0.07%<br/>
<br/>

magicrat
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Re: Asset Allocation in Taxable

Post by magicrat » Fri Jul 13, 2018 9:26 am

OP - I have a very similar AA by account type and am also 90/10 in taxable. You can certainly hold more there if you want, but the market downturn argument doesn't really make sense. You can always reallocate to stocks in your 401k if needed.

Fishing50
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Re: Asset Allocation in Taxable

Post by Fishing50 » Sat Jul 14, 2018 1:25 am

magicrat wrote:
Fri Jul 13, 2018 9:26 am
OP - I have a very similar AA by account type and am also 90/10 in taxable. You can certainly hold more there if you want, but the market downturn argument doesn't really make sense. You can always reallocate to stocks in your 401k if needed.
+1

if you need to sell from taxable during a downturn, you can reallocate that amount of bonds to equities in your 401k. The tax efficiency is more valuable in taxable. Heck, if you sell taxable during a downtown you might get some tax loss harvesting too!
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

Grt2bOutdoors
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Re: Asset Allocation in Taxable

Post by Grt2bOutdoors » Sat Jul 14, 2018 1:40 am

Fishing50 wrote:
Sat Jul 14, 2018 1:25 am
magicrat wrote:
Fri Jul 13, 2018 9:26 am
OP - I have a very similar AA by account type and am also 90/10 in taxable. You can certainly hold more there if you want, but the market downturn argument doesn't really make sense. You can always reallocate to stocks in your 401k if needed.
+1

if you need to sell from taxable during a downturn, you can reallocate that amount of bonds to equities in your 401k. The tax efficiency is more valuable in taxable. Heck, if you sell taxable during a downtown you might get some tax loss harvesting too!
You are retiring in 3 years. You have most of your retirement moneys in tax deferred vehicles. Is taxable account large enough to support withdrawal needs? You already have COLA’d pension, the difference between that and what you require in annual spending is what you want to protect. Are you planning on tapping tax deferred accounts at age 55 or waiting until age 59.5? Tax loss harvesting can certainly be a tool in a taxable account but if value of taxable gets cut in half (temporarily), will a drastic decline hobble your spending if temporary becomes longer than you expect? Japan comes to mind when I think of longer than one expects.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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corn18
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Re: Asset Allocation in Taxable

Post by corn18 » Sat Jul 14, 2018 6:57 am

I plan to retire from my current employer and they have the rule of 55 so I will have access to all of my savings penalty free except Roth earnings which are small.

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blaugranamd
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Re: Asset Allocation in Taxable

Post by blaugranamd » Sat Jul 14, 2018 7:15 am

So if you retire at >55 your are correct you'll have access to just about all your financial accounts penalty free. With $45k pension and something I assume around a million in savings based on your post, you should be able to sustain $80-100k in expenses. If you have no need for accessing any money before retirement during a market downturn, then that advisor is full of it. Once you're retired you can pull from any account. As others have said, you can rebalance after selling taxable assets before retirement. So I see nothing to worry about unless you have anticipated short term savings needs over next three years. Even that might be moot.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

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corn18
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Re: Asset Allocation in Taxable

Post by corn18 » Sat Jul 14, 2018 7:25 am

blaugranamd wrote:
Sat Jul 14, 2018 7:15 am
So if you retire at >55 your are correct you'll have access to just about all your financial accounts penalty free. With $45k pension and something I assume around a million in savings based on your post, you should be able to sustain $80-100k in expenses. If you have no need for accessing any money before retirement during a market downturn, then that advisor is full of it. Once you're retired you can pull from any account. As others have said, you can rebalance after selling taxable assets before retirement. So I see nothing to worry about unless you have anticipated short term savings needs over next three years. Even that might be moot.
Thank you. That confirms my original thoughts and what is in my IPS. Rudder amidships, steady as she goes.

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