Brokerage Account - Rebalancing

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
sundartrajan
Posts: 3
Joined: Sun Jun 04, 2023 11:22 am

Brokerage Account - Rebalancing

Post by sundartrajan »

Recently retired (or at least paused working for now) and trying to rebalance my portfolio to 70/30 from an 80/20 portfolio (eventually to 60/40 but trying to crawl before running)

I already have 25% in bonds (VBTLX and STIP) in my IRA account. I am trying to add 5% BNDs to my taxable brokerage account by selling my Value and Growth index funds. I do not need money this year but may need to take money out of my brokerage account next year for my yearly expense.

I am wondering if I should buy BND ETF or VMFXX (Money market fund). Or just leave the brokerage taxable account as is to have a better growth and instead, rebalance my IRA account seeling stock funds and buying bonds?

Any thoughts? Much appreciated.

Thanks
mhalley
Posts: 10424
Joined: Tue Nov 20, 2007 5:02 am

Re: Brokerage Account - Rebalancing

Post by mhalley »

Not enough information to give an informed answer. A general rule is that bonds belong in retirement accounts. Otoh, if you are going to be spending from the taxable account having some bonds/cash is prudent.
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: Brokerage Account - Rebalancing

Post by livesoft »

mhalley wrote: Sun Jun 04, 2023 4:12 pm Not enough information to give an informed answer. A general rule is that bonds belong in retirement accounts. Otoh, if you are going to be spending from the taxable account having some bonds/cash is prudent.
And on your third hand, there is this technique: https://www.bogleheads.org/wiki/Placing ... ed_account which means you probably don't need some bonds/cash in the taxable account because one can use the bonds/cash in a tax-deferred account for that purpose by using "one weird trick." :)
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
sundartrajan
Posts: 3
Joined: Sun Jun 04, 2023 11:22 am

Re: Brokerage Account - Rebalancing

Post by sundartrajan »

Third hand 😀 is a good trick in principal. Though looks complicated. I need to think through it.

My concern is market going down and not able to take the cash when in need from the non IRA brokerage account
Juice3
Posts: 531
Joined: Sun Nov 05, 2017 6:40 am
Location: Auburn, CA

Re: Brokerage Account - Rebalancing

Post by Juice3 »

livesoft wrote: Sun Jun 04, 2023 4:16 pm
mhalley wrote: Sun Jun 04, 2023 4:12 pm Not enough information to give an informed answer. A general rule is that bonds belong in retirement accounts. Otoh, if you are going to be spending from the taxable account having some bonds/cash is prudent.
And on your third hand, there is this technique: https://www.bogleheads.org/wiki/Placing ... ed_account which means you probably don't need some bonds/cash in the taxable account because one can use the bonds/cash in a tax-deferred account for that purpose by using "one weird trick." :)
That article excludes EF from AA when EF is one third of total .... hmmm not confusing at all.

It also glosses over the fact you just sold stocks in a taxable account generating tax liability. Then it goes no to note this an advantage. Because of course incurring a tax liability at a time when you need to dip into your EF, is obviously an advantage.
steadyosmosis
Posts: 918
Joined: Mon Dec 26, 2022 11:45 am

Re: Brokerage Account - Rebalancing

Post by steadyosmosis »

Juice3 wrote: Tue Jun 06, 2023 5:43 am
livesoft wrote: Sun Jun 04, 2023 4:16 pm
mhalley wrote: Sun Jun 04, 2023 4:12 pm Not enough information to give an informed answer. A general rule is that bonds belong in retirement accounts. Otoh, if you are going to be spending from the taxable account having some bonds/cash is prudent.
And on your third hand, there is this technique: https://www.bogleheads.org/wiki/Placing ... ed_account which means you probably don't need some bonds/cash in the taxable account because one can use the bonds/cash in a tax-deferred account for that purpose by using "one weird trick." :)
That article excludes EF from AA when EF is one third of total .... hmmm not confusing at all.

It also glosses over the fact you just sold stocks in a taxable account generating tax liability. Then it goes no to note this an advantage. Because of course incurring a tax liability at a time when you need to dip into your EF, is obviously an advantage.
'Third hand' method (mentioned by Livesoft) works great in practice, as well as in principal.
Been using it for years, and I don't have an emergency fund (early-retired, not yet age 59.5).
Saves me money on taxes too.
One of the many things I learned from bogleheads.org.
Age < 59.5. Early-retired. AA ~55/45. Taxable account and Roth IRA and HSA ... all 100% equities. 100% fixed income in tax-deferred. I spend from taxable and re-balance in tax-deferred.
go2run
Posts: 159
Joined: Wed Mar 08, 2017 12:34 pm

Re: Brokerage Account - Rebalancing

Post by go2run »

sundartrajan wrote: Sun Jun 04, 2023 11:32 am I already have 25% in bonds (VBTLX and STIP) in my IRA account. I am trying to add 5% BNDs to my taxable brokerage account by selling my Value and Growth index funds. I do not need money this year but may need to take money out of my brokerage account next year for my yearly expense.

I am wondering if I should buy BND ETF or VMFXX (Money market fund). Or just leave the brokerage taxable account as is to have a better growth and instead, rebalance my IRA account seeling stock funds and buying bonds?
Two questions:

1. What tax liability will you face if you reallocate in your taxable account?
2. Why focus on a particular allocation in an individual account vs the portfolio as a whole? Some of this may have to do with age and access to retirement accounts (IRA, 401k, etc.) but we don't know this in your case.
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: Brokerage Account - Rebalancing

Post by livesoft »

Juice3 wrote: Tue Jun 06, 2023 5:43 amIt also glosses over the fact you just sold stocks in a taxable account generating tax liability. Then it goes no to note this an advantage. Because of course incurring a tax liability at a time when you need to dip into your EF, is obviously an advantage.
I guess the article doesn't mention all the tax-loss harvesting that one previously did along with Specific Identification so that one sells the shares with the smallest gains or largest losses and incurs no tax liability. Also it is not as if the interest paid by a money market fund or CD used for one's EF has no tax liability.

But I do get that people have anxieties and fears that mess them up when thinking about money.
Last edited by livesoft on Tue Jun 06, 2023 8:15 am, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
sundartrajan
Posts: 3
Joined: Sun Jun 04, 2023 11:22 am

Re: Brokerage Account - Rebalancing

Post by sundartrajan »

I am 65 and I am fairly in a good tax bracket for this year and next. Not much income. I plan to do some ROTH conversions next year.

Some of my brokerage funds have a loss and so reallocation will not trigger any capital gain, so I can reallocate.

I generally look at the whole portfolio for allocation. Now all my Bonds are in my IRA account.

My concern is when I need to take money out, I believe I will be drawing from my brokerage account first then an IRA account. So I want to have some liquidity in my brokerage account and not worry about the market going down and not being able to take money out.

I do not have any cash for next year.

I can manage this year from my savings.

Thanks
Post Reply