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Requesting some help with investing questions
Old 03-08-2014, 05:31 PM   #1
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Requesting some help with investing questions

I was hoping I could get some input from the more knowledgeable folks on this board regarding my investment portfolio? I have a mid-six figure portfolio that I have recently consolidated at Vanguard. I am now trying to figure out the wisest/most efficient ways to invest these funds using either mutual funds or index funds. Of this portfolio, about 18% is in taxable accounts and the remaining 82% is in tax deferred accounts (IRAs, 401Ks, etc). I want to pare down all my many different funds into just a 3 or 4 fund Bogelheadish type lazy portfolio. I know that you should put the most tax efficient funds in the taxable accounts (such as Total Stock Market, Total S&P, Total International Stock Market, etc) and the least tax efficient in the tax deferred accounts (such as high yield bonds and active stock funds). But after that, I become a little lost.

Some additional information would be: I am retired from my career job and receiving a pension (state). We are both in our 60ís. No debt. I also do contracting work (1099 MISC) mostly from home but it does involve occasional travel. My pension is sufficient to meet our basic needs. My health insurance is covered by the state retirement system; my husband is currently covered under a high deductible plan. Once he is eligible for Medicare (3 years), he will move back under the state plan with me where they will supply subsidy for a Medicare supplement. We currently have no health issues and take no medications, but I realize that can change in the blink of an eye.

The 1099 work pays for all the extras in life (which right now this means a very expensive bathroom remodel), gifts to our two kids (both grown and on their own) and continuing to fund the IRAs and Individual 401K each year. The 1099 work has averaged about $75,000 for the 3 years I have been doing it. At this point, neither one of us is drawing Social Security (my husband is eligible, I am only just 60 years old, so not for another couple of years for me). At this point, we donít need the SS, so I thought we could just wait and let it build up. My pension will reduce in 2 years (once I turn 62) and thought that, if needed, my husband could file for his at that time (I have always been the higher earner) and I would wait until I could file for Ĺ spousal at 66 and then take my full amount at 70. (At least, that is the plan)

So my point with all this additional information is to let you know we donít need dividends/income from the investments at this point in our life to live on. Given that my portfolio is very heavily weighted to tax deferred accounts, what would be your recommendations regarding how to split everything up? I am looking for a 70/30 stock/bond mix with 15% - 20% of the 70 to be in international stocks. Do I just put all the taxable money in Total Stock Market/Total International Stock Market/S&P 500 and then do the same funds in my tax deferred accounts until I hit the 70% mark and then the 30% bonds in the tax deferred, or is there something better I should do in the tax deferred accounts?

Any suggestions will be appreciated.
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Old 03-08-2014, 05:40 PM   #2
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I don't have any specific answers for you but I am sure you will get some great advice here and as well you may want to post your request over at the Bogleheads' forum where you would no get some very helpful and high powered advice. Good luck. Cheers.
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Old 03-08-2014, 05:42 PM   #3
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I don't have any specific answers for you but I am sure you will get some great advice here and as well you may want to post your request over at the Bogleheads' forum where you would no get some very helpful and high powered advice. Good luck. Cheers.
To tell you the truth, I am totally intimidated by the folks on Bogelheads' forum. That's why I posted here - I knew you all would be kinder and gentler
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Old 03-08-2014, 05:49 PM   #4
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Yes I totally understand that sentiment. It can be quite an intimidating place but there are many gentle souls who will happily give you some very well thought out, world class guidance. Maybe see what advice you get here before asking over there. I'm sure that the folks here will have many good insights and many of them probably frequent both forums - and are less scary over here.
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Old 03-08-2014, 05:53 PM   #5
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Based on your first post, I would say you already know more than 99% of the population about investing. You say after that you become a little lost, but I'm not sure there is much left "after that".

My suggestion would be to take the funds you have identified and propose an allocation based on the guidelines you mentioned and then post what you are thinking about doing, and ask for feedback. I think you are looking at the right funds and you fully understand how to decide which ones to go into taxable vs tax deferred. You may already have some funds invested in other mutual funds that might incur capital gains if you sell. If so, you will have to decide if moving the money into index funds justifies the taxes. If all of your mutual funds are currently tax deferred, it makes the decision very simple.
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Requesting some help with investing questions
Old 03-08-2014, 05:57 PM   #6
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Requesting some help with investing questions

It doesn't really matter what you put n the tax deferred accounts: everything coming from there will be taxed as income only when you take it out of the account.

If have 70% stock and 30% bond, put all of the bond funds into the tax deferred account! as they produce income on a monthly basis. Split the stock funds between the tax deferred and taxable accounts. That's the basic theory. The only thing you don't want is a fund that produces income or large dividend payments in the taxable account.

Hope that helps.

Also, vanguard will be happy to advise when you open the account.
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Old 03-08-2014, 06:01 PM   #7
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I think your last paragraph pretty much nails the strategy but here is one thing to think about
- start with the international fund in the taxable accounts. They pay foreign taxes that can be offset against your income or taxes.
- then follow your strategy.

You may want to look into ROTH IRA conversions to the top of your tax bracket so that you don't fall foul of RMDs later on. There are many threads on that subject on this forum.
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Old 03-08-2014, 06:17 PM   #8
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Good point WIW: that's how ours is set up...
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Old 03-08-2014, 06:21 PM   #9
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Originally Posted by MissMolly View Post
... portfolio that I have recently consolidated at Vanguard. I am now trying to figure out the wisest/most efficient ways to invest these funds using either mutual funds or index funds. ... Any suggestions will be appreciated.
Hi Molly,
You might find these Lazy Portfolios interesting: Invest Simple with Lazy Portfolios - MarketWatch.com
They are all constructed from Vanguard funds, and, as you can see, they consist anywhere from 3 funds up to 11 funds. Look at the long term performance: not much difference among them. Generally, if one moves beyond a basic 3 fund portfolio (domestic stock, international stock, total bond), then you'll see the addition of small cap stocks, REITs, & emerging market stocks. Good luck!
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Old 03-08-2014, 06:36 PM   #10
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Originally Posted by walkinwood View Post
I think your last paragraph pretty much nails the strategy but here is one thing to think about
- start with the international fund in the taxable accounts. They pay foreign taxes that can be offset against your income or taxes.
- then follow your strategy.

You may want to look into ROTH IRA conversions to the top of your tax bracket so that you don't fall foul of RMDs later on. There are many threads on that subject on this forum.
Thanks to all for your thoughts so far. Regarding ROTH IRA conversions, I thought as long as I am funding my Individual 401K and IRAs (for both DH and me) that I couldn't do a ROTH conversion. Am I wrong? And yes, the RMDs later on do have me a bit concerned. I never, EVER thought I would be concerned about something like this. I always thought I would be concerned about having enough money.
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Old 03-08-2014, 06:41 PM   #11
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Originally Posted by Ready View Post
Based on your first post, I would say you already know more than 99% of the population about investing. You say after that you become a little lost, but I'm not sure there is much left "after that".

My suggestion would be to take the funds you have identified and propose an allocation based on the guidelines you mentioned and then post what you are thinking about doing, and ask for feedback. I think you are looking at the right funds and you fully understand how to decide which ones to go into taxable vs tax deferred. You may already have some funds invested in other mutual funds that might incur capital gains if you sell. If so, you will have to decide if moving the money into index funds justifies the taxes. If all of your mutual funds are currently tax deferred, it makes the decision very simple.
OK. I will do that after I come up with a plan. Since I have already moved the money to Vanguard over the last month or so from various other places, I've already incurred whatever cap gains that I will incur. A lot of this money is now sitting in cash, but since it is mostly in the tax deferred accounts, I don't think that will hurt me (at least I hope I'm right about that) Thanks!
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Old 03-08-2014, 06:42 PM   #12
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Originally Posted by MissMolly View Post
Thanks to all for your thoughts so far. Regarding ROTH IRA conversions, I thought as long as I am funding my Individual 401K and IRAs (for both DH and me) that I couldn't do a ROTH conversion. Am I wrong? And yes, the RMDs later on do have me a bit concerned. I never, EVER thought I would be concerned about something like this. I always thought I would be concerned about having enough money.
Look at threads on "backdoor roth conversions". Yes, RMDs are a good problem to have.
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Old 03-08-2014, 06:50 PM   #13
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It doesn't really matter what you put n the tax deferred accounts: everything coming from there will be taxed as income only when you take it out of the account.

If have 70% stock and 30% bond, put all of the bond funds into the tax deferred account! as they produce income on a monthly basis. Split the stock funds between the tax deferred and taxable accounts. That's the basic theory. The only thing you don't want is a fund that produces income or large dividend payments in the taxable account.

Hope that helps.

Also, vanguard will be happy to advise when you open the account.
OK, this helps. I do plan to talk to Vanguard. Since I consolidated everything with them, it puts me up to the level of getting free advice from one of their CFPs. But, I don't want to go into that conversation sounding like a total noob. I have been on this forum now for several years, so I knew I would get kind and considerate responses and some ideas to think about before I make that call.
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Old 03-09-2014, 06:19 PM   #14
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From a total portfolio standpoint it doesn't matter that much how you split it into the different accounts. Something like all foreign equity in the taxable account and the rest split among the other accounts would be fine. You don't need to have everything in each account. You're really splitting hairs at this point.

You might also start with the 401k(s) if you're not rolling them into IRA's. Do you have suitable investment choices there? If they have maybe just an S&P 500 index that looks good, then fill up on it in the 401k and fill out the rest of the portfolio with your more flexible accounts.
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Old 03-09-2014, 08:52 PM   #15
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From a total portfolio standpoint it doesn't matter that much how you split it into the different accounts. Something like all foreign equity in the taxable account and the rest split among the other accounts would be fine. You don't need to have everything in each account. You're really splitting hairs at this point.

You might also start with the 401k(s) if you're not rolling them into IRA's. Do you have suitable investment choices there? If they have maybe just an S&P 500 index that looks good, then fill up on it in the 401k and fill out the rest of the portfolio with your more flexible accounts.
Animorph - thanks. A concrete suggestion like this is exactly what I was hoping for - to put all foreign equity in taxable. That gives me a place to start. And yes, I have very good options available to me in my IRA's since I have moved them to Vanguard
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