Sold company, need help to invest proceeds

[LOL!]

Oakmark Balanced is a good fund, but it would not be tax efficient in the OP's case.

[Brat]

I don't disagree but I expect the OP will do his own assessment of how that impacts his situation. It is really hard to preserve capital without having some interest and dividends in a portfolio.

Maybe his wisest move would be to move to a state that doesn't have an income tax so he won't need to concern himself with that quite so much.

[audreyh1]

I'm 95% in taxable accounts and I don't worry about the tax efficiency of the mutual funds I own. Of course, I also live in a state that has no state income tax.....

Audrey

[Brat]

Eh, me too.

[westcoast1]

There's no state income tax on the shares or future gains from that money. I wasn't sure if that would make a big difference or not - sounds like it may.

[Brat]

Quote:

Originally Posted by westcoast1 There's no state income tax on the shares or future gains from that money. I wasn't sure if that would make a big difference or not - sounds like it may.

When you invest your gains are taxable (interest income, dividends, short term or long term capital gains), capital losses are deductable.

[cardude]

Quote:

I'm 95% in taxable accounts and I don't worry about the tax efficiency of the mutual funds I own. Of course, I also live in a state that has no state income tax..... Audrey

Really? Then why am I agonizing over tax free vs. taxable bond funds for my almost all taxable AA? I understood that it was a big deal to maximize the tax efficiency of your AA.

[LOL!]

Make no mistake: It is a big deal to maximize tax efficiency. I've reduced my taxes by tens of thousands of dollars without reducing my investment returns. That means I have more money to spend without taking on any extra risk in my portfolio. I also live in a state without any state income tax.

You should think about this and try to implement a tax efficient investment strategy, but I would not use the word "agonizing".

This might smack of "more tax efficient than thou", but could also be turned around, "I make so much money I don't care about tax efficiency" or "I don't make any money so I don't care about tax efficiency."

[audreyh1]

Quote:

Originally Posted by cardude Really? Then why am I agonizing over tax free vs. taxable bond funds for my almost all taxable AA? I understood that it was a big deal to maximize the tax efficiency of your AA.

I've looked at tax-free bonds, almost never did they pay enough to out-do taxable bonds after taxes. Your case may be different. You have to look at your situation.

The problem with trying to make your AA more tax efficient when you have most of your net worth in taxable accounts is that it tends to drive you to riskier assets that are cap-gain only oriented ("growth" stocks). These types of assets tend to be more volatile than bonds and dividend paying stocks or balanced funds. As long as your portfolio is generating close to or less in income/dividends than you need for withdrawal, it may be close to a wash.

Tax efficiency is probably most important during the accumulation phase. After you retire, tax efficiency may not be as important as lowering the volatility of the portfolio is.

It also depends on your tax bracket. Unless you are in a pretty high tax bracket due to receiving a salary (something that is not true in retirement unless you receive a large pension), the tax differences may not be that much.

Audrey

[baldeagle]

Westcoast1,

Congratulations! You already have at age 27 what most of us spend our working lives to have when we retire -- a nice nest egg to live off of. And for many of us at retirement age, a high priority is to PRESERVE what we have for the rest of our lives.

That is my advice to you. Chose a plan that is strongly oriented toward preservation of your windfall wealth.

[audreyh1]

I take back what I said about not worrying about tax efficiency for the OP. Since his goal is to let the proceeds grow until he is in his 40s (13+ years) and he will be earning a salary in the meantime, tax efficiency is very important for him and he can ignore short-term volatility.

Sorry, I was caught up in the scenarios for a retiree.

Audrey

[DblDoc]

Quote:

Hi guys, thanks for the advice so far. I spent a lot of time reading the Bogleheads forum. It seems like - since I will be investing > $100k - ETFs may be the way to go.

For your situation ETF's will be more efficient than the equivalent mutual fund.

Quote:

So some kind of diversified ETF portfolio, with a bit larger % in equities since I'm younger and don't need the money for awhile.

While you are younger and will need some equities for portfolio longevity you must balance that against your need to take risk. You will have a substantial nest egg by age 30 and do not need to put it at significant risk.

Quote:

I read somewhere that if someone had held an index fund for the past 10 years, they would essentially be back at the originally invested amount with no gains. Does this apply to ETFs too? If so, how could this be true? Does rebalancing help prevent this stagnation from happening?

An oft quoted "fact". It ignores that a reasonable plan contains more than just the SP500 and that investors are investing periodically, reinvesting dividends and rebalancing. Additionally 10 years is a short time frame for your investing life time.

Quote:

I'm not sure how taxes should impact my plans. My AGI (excluding LTCG from shares) is about $200k - $220k per year between my main job and a little side work I do. I am going to start maxing out my 401k. I am responsible for all taxes on my bonuses. So there may be some smart tax planning I can do.

Absolutely max out your 401k. Put tax inefficient investments such as bonds, REIT's and value stock funds/ETF's in there. Consider setting up a SEP IRA or other plan for your side work to further protect your assets from taxes and to increase space for tax inefficient holdings.

DD

[Spanky]

Quote:

Originally Posted by Brat Eh, me too.

Brat,
Just curious - how does Washington support its spending without state income tax? It must be taxing heavily on other taxes: gas, sales, property, etc. I guess if I do not buy a lots of things and live in a "cheap" house, Washington is a good place for me. Is that a fair assumption?

[DblDoc]

Quote:

Originally Posted by Spanky Brat, Just curious - how does Washington support its spending without state income tax? It must be taxing heavily on other taxes: gas, sales, property, etc. I guess if I do not buy a lots of things and live in a "cheap" house, Washington is a good place for me. Is that a fair assumption?

Sales/Use tax and property taxes. So yes if you are not a big consumer and aren't house "rich" your tax burden is low. As for living here YMMV. I grew up in the PNW so gray, drizzly days don't bother me (much). I work with a lot of Travelling RN's and the weather is by far the main reason they do not renew there contract and stay in WA after one winter (sometimes a summer) here.

DD

[Spanky]

DblDoc,

Thanks for the info. The cloudy, drizzly climate should not bother me. It's better than long, long sub-zero days in the winter and hot and humid days in the summer of Minnesota. The state-income, sales, and property taxes top the chart. I am not sure what we are paying for. The state college tuition is one of the highest in the country. It's possible that Minnesota is one of best states for economic assistance and medical care for the elders. Anyway, Minnesota, IMHO, is not a good state for retirement in terms of weather or taxes.

Spanky

[Brat]

Quote:

Originally Posted by Spanky Brat, Just curious - how does Washington support its spending without state income tax? It must be taxing heavily on other taxes: gas, sales, property, etc. I guess if I do not buy a lots of things and live in a "cheap" house, Washington is a good place for me. Is that a fair assumption?

Frankly I don't find that property taxes are all that high and yes, it is relatively inexpensive if you aren't buying a lot of stuff. The state is struggling as it tries to find ways to raise revenue while gadfly's circulate petitions to prevent them from doing so, even for activities the citizens want. Sometimes this attitude prevents government from investing in critical infrastructure IMHO. Nothing comes from nothing.

[haha]

Quote:

Originally Posted by Brat The state is struggling as it tries to find ways to raise revenue while gadfly's circulate petitions to prevent them from doing so, even for activities the citizens want. Sometimes this attitude prevents government from investing in critical infrastructure IMHO. Nothing comes from nothing.

Which suits me just fine. Whatever setrvices the state "provides"I would get way less benefit from than from whatever they would extort from me with an income tax to pay for it. Close State Parks? Fine, they are either too far away or full of criminals. Etc., etc..

If/when WA gets income tax, Hello Reno.

IMO, if Boeing does a further pullout from Puget Sound our goose will be cooked.

Ha

[drcha]

You don't need a financial advisor. Just read Roger Gibson's book on asset allocation, then read a couple of books on ETFs, and open an account online, using Gibson's suggestions.

I have watched too many friends go to advisors. They pick one, follow their recommendations, then find a few years later the their stuff is underperforming. So they go find another advisor, who has totally different ideas. The new advisor sells all their stuff and buys new stuff, all for large fees and commissions. I'm not saying they are crooks, just that you would be financially better off without one. Why pay their fees just to learn something you can read in a book? It's the spendthrifts who need the lessons advisors teach, and you don't sound like one of those to me.

[Brat]

Quote:

Originally Posted by Spanky DblDoc, Thanks for the info. The cloudy, drizzly climate should not bother me. It's better than long, long sub-zero days in the winter and hot and humid days in the summer of Minnesota. The state-income, sales, and property taxes top the chart. I am not sure what we are paying for. The state college tuition is one of the highest in the country. It's possible that Minnesota is one of best states for economic assistance and medical care for the elders. Anyway, Minnesota, IMHO, is not a good state for retirement in terms of weather or taxes. Spanky

Just move to WA and join all the other descendants of Norway-MN-WA immigrants. THE social hall in Poulsbo is the Son's of Norway.

[LOL!]

Quote:

Originally Posted by drcha .... They pick one, follow their recommendations, then find a few years later the their stuff is underperforming. So they go find another advisor, who has totally different ideas. The new advisor sells all their stuff and buys new stuff, all for large fees and commissions.

This is a great system. The clients of salesrep A get pissed and move their assets to salesrep B. The clients of salesrep B get pissed and move their assets to salesrep A.