Are you changing or tinkering with your strategy in 2016?

[VFK57]

Our last year AA was 30% in equities, 30% rental, 40% bonds/cash. This year I increased equities from 30% to 35% at bonds/cash expanse and by the end of the year all newly purchased stocks are in the red.

 

[Lsbcal]

...

I will probably go back to 100% equities in the Roths but am thinking about going 50/50 SCV/bond fund for growth and some stability for the bulk of it. I don't see a need to buy a bond fund until interest rates get higher, though. Still learning.
...

Over several years I've had our IRA and Roth money in identical AA's. We don't have much in taxable except for cash and Ibonds.

I just don't think I can justify why my Roth should be at one AA, and the IRA at another. Would be interested in hearing other thoughts on this.

 

[bingybear]

It seems the managers of Vanguard Life Strategy Funds (a global fund of index funds) agree since they recently increased international equities and added international bonds, while reducing US exposure. I hope they are right since the Growth fund is a core holding for us. I don't like to tinker but, heck, they are.

Wait.. does this mean Vanguard is timing the market?

I am making some changes to AA and playing with a small amount of $ on a test strategy to so slow shifts in AA

 

[Markola]

It's not timing, it's "enhancing diversification" (wink, wink, nudge, nudge)... https://personal.vanguard.com/us/insights/article/fund-announcement-02262015



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[Chuckanut]

In order to simplify things I am selling off 4 funds and buying 2 to replace them. The AA remains the same.
So, my answer is no. No Real changes.


The worst decisions are made when angry or impatient.

 

[big-papa]

Pre-fire here. Yeah, I tinker a bit.
In my current company's 401K, the choices just suck and I can't really build the portfolio I want. So I do the best I can and realize that right now because I've only been with the company 1.5 years, it's growing significantly more due to deposits than to growth (or lack thereof this year)

I have a deferred compensation account from a former company which is about to pay me my 4th check (out of 10 total) this January. The choices also suck. Here I tell myself that because the amount of money isn't much and because I take the check and deposit it into my taxable account where I can do what I want, it'll all be OK.

In my regular taxable accounts and my rollover IRA's I'm preparing to tweak the first week of January.

 

[Mulligan]

Over several years I've had our IRA and Roth money in identical AA's. We don't have much in taxable except for cash and Ibonds.

I just don't think I can justify why my Roth should be at one AA, and the IRA at another. Would be interested in hearing other thoughts on this.

My asset allocation is simple... All of my baby bonds, trust preferreds, and Reit preferred stocks are in my Roth and HSA. My qualified preferreds are in regular taxable account. That is about all I own.


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[big-papa]

Over several years I've had our IRA and Roth money in identical AA's. We don't have much in taxable except for cash and Ibonds.

I just don't think I can justify why my Roth should be at one AA, and the IRA at another. Would be interested in hearing other thoughts on this.

Not quite the question you're asking, but my taxable accounts and my deferred accounts have different AA's. Taxable is 55/45 and deferred accounts are 70/30 since I don't plan to touch them for a while. Might ratchet the deferred accounts down over the years...

 

[hnzw_rui]

Originally, I had a risk-based all-in-one fund. Then in 2015, I went 3-fund (ETFs actually), then Coffehouse, then FundAdvice Ultimate Buy and Hold. After I got tired of slicing and dicing and having to set up limit orders every month, I went back to all-in-one funds. My retirement portfolio now consists solely of Vanguard Target Retirement 2040 VFORX.

Now, I don't need to worry about placing orders or rebalancing or anything. All I need to do now is increase my contributions every year. No muss, no fuss and no more tinkering for me.

 

[Ed_The_Gypsy]

Over several years I've had our IRA and Roth money in identical AA's. We don't have much in taxable except for cash and Ibonds.

I just don't think I can justify why my Roth should be at one AA, and the IRA at another. Would be interested in hearing other thoughts on this.

Interesting point. I could have gone that way. My thinking was that the short-term needs should be in cash and I did not want to risk value decline in that time. In any case, I found that with Vanguard, converting trad IRA to Roth should be done with cash. Sell an equity in the trad IRA, convert the cash from trad IRA to Roth, buy equities (the same equities) in the Roth with the cash. Trying to convert stocks as-is was a headache. It took much too long, especially at the end of the year. Vanguard gets very busy then and I learned to keep it simple.

In addition, to withdraw cash for a distribution, selling an equity would take about three days for settlement, then another three days for the cash to get to my bank. Since those are business days, that means slightly over a week before I see the cash. For all these reasons, I had a bunch of cash. I am taking distributions as needed every month.

The long range stuff is in equities both in the trad IRA and the Roth(s) at the moment. I was moving O&G stocks into the Roths, then oil tanked--perhaps for a long time. I recharacterized this week, but I am still stinging from the loss of value. Going back to diversified funds with my tail between my legs. By the way, the taxes I had withheld for the conversion will come back as tax refund when I file. They do not go back into the trad IRA.

Like I said, still learning.

Oh yes, no taxable assets, everything is in tIRA or Roth. Still trying to hold to 50/50 US/intl.

 

[Ed_The_Gypsy]

Originally, I had a risk-based all-in-one fund. Then in 2015, I went 3-fund (ETFs actually), then Coffehouse, then FundAdvice Ultimate Buy and Hold. After I got tired of slicing and dicing and having to set up limit orders every month, I went back to all-in-one funds. My retirement portfolio now consists solely of Vanguard Target Retirement 2040 VFORX.

Now, I don't need to worry about placing orders or rebalancing or anything. All I need to do now is increase my contributions every year. No muss, no fuss and no more tinkering for me.

I am continuing to simplify as well. Coffeehouse and Ultimate Buy and Hold were too complicated for me, but I did like the 50/50 US/non-US equities (but looking at reducing non-US fraction).

 

[Lsbcal]

Ed I know it must hurt to loose a lot. It will hurt even more should your previous O&G go up without you on board. I sure don't have any words of wisdom on that one. Experts disagree on the trends.

I think we all have to spend some time trying to deeply imagine how we will feel under various scenarios. Some of the ladies around this forum seem to have figured out where their efficient frontiers are. Many of us guys are dealing with dreams that can lead us too close to the edge.

I think your Roth conversion strategy is a good one. We converted a lot some years back. Now we are spending from the IRA and Roth. It is currently tax nirvana but in 2 years it is RMD + SS tax time. So I get to join the taxpayers again as a full fledged member.

I'm far from a buy-hold type but any strategy that is not buy-hold has to pass some research and back testing. Else I think the more standard Boglehead ways are best. That testosterone poisened investing may get me yet.

 

[Al in Ohio]

17% bonds and cash and only 4 years from RE. I think your a risk taker. What if the market tanks in 2016 like it did in 2008. For the next several years you will be thinking " well I guess I gotta wait til I'm 57 or 58 now. Crap. IMO you should be buying bonds, not thinking about selling them.


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[audreyh1]

4 years from FIRE - probably not too early to start gradually transitioning to the AA you plan to use during retirement.

Although I admit I didn't do that until after I reached my magic number for FIRE.

 

[Ed_The_Gypsy]

...
I think your Roth conversion strategy is a good one. We converted a lot some years back. Now we are spending from the IRA and Roth. It is currently tax nirvana but in 2 years it is RMD + SS tax time. So I get to join the taxpayers again as a full fledged member.

Lsbcal, I ran Taxcaster for projections and found that I should convert almost everything into Roth before I take SS (I will get max SS) no matter what the tax rate today. If I let MRDs happen, the Tax Torpedo will hit the survivor (that will happen some day) with about a 40% (if memory serves--and it doesn't matter exactly what it is, the difference is HUGE) marginal tax rate with no escape.

With our existing assets, if I convert almost all of the tIRA to Roth, when I start to take SS at 70, we will never pay income tax ever again and may not even have to file which would simplify life for one or two old codgers in dementia. If one of us dies at 70 (our worst case) and the survivor lasts into their 90's (very possible), this strategy could save the survivor several hundreds of thousand dollars in taxes and the pot will be bigger throughout. (This last is important as I am concerned with the potentially crushing cost of long term care.)

You may want to look at converting as much as you can even beyond the classic 15% rate while you still have the chance before MRDs are forced on you. You may want to take current living expenses only from the trad IRA and leave the Roth alone.

 

[Lsbcal]

...

You may want to look at converting as much as you can even beyond the classic 15% rate while you still have the chance before MRDs are forced on you. You may want to take current living expenses only from the trad IRA and leave the Roth alone.

I've run some TurboTax what-ifs. For us it turns out that my IRA is big enough that I cannot get it all into Roth's without pushing the conversion marginal tax up too much. So there will always be some IRA money subject to RMD's for us and that SS will get taxed at higher rates --- no way around this. So I felt like what the hell, might as well get a couple of years of very low tax rates before the hammer falls.

I think the IRA RMD's plus SS will put us into a moderate tax bracket and Roth's will allow us to manage that marginal tax rate should we need additional spending money.

Should we enter a bull market nirvana and the IRA grows beyond expectations giving higher RMD's, I'll just have to pay more taxes. Could be worse.

 

[devans0]

I'm expecting a drop in 2016.
Defensively, I moved some to Healthcare, some to Consumer staples, and will be moving some to Japan fund after Jan 2, for tax reasons. I am waiting on commodities to see new lows before I commit.

I felt good about long term on Japan and Healthcare. I hope for commodities to be out of cycle to the rest of my picks. I bailed on Total World. There were too many underperforming that brought the average down.

 

[ESRwannabe]

My plans for 2016 are to keep re-investing my dividends into AMLP to lower my average cost per share. My excess w-2 income will be saved in cash, goal is to hit one year's living expenses in cash by the year's end.

ESR will probably not happen until 2021 when I will be 45 and have 20 years vested into a pension. By then my investment income should cover more than 100% of yearly living expenses (currently at 82%) and I should have between one to six year's living expenses in cash (probably three).

ESR plan is to find a part-time IT job working remotely from home or find some kind of part-time fun minimum wage job. Maybe work at a movie theater or a gamestop or something like that.

 

[Mulligan]

I'm expecting a drop in 2016.
Defensively, I moved some to Healthcare, some to Consumer staples, and will be moving some to Japan fund after Jan 2, for tax reasons. I am waiting on commodities to see new lows before I commit.

I felt good about long term on Japan and Healthcare. I hope for commodities to be out of cycle to the rest of my picks. I bailed on Total World. There were too many underperforming that brought the average down.

Im thinking like you. I am not a wild investor, but I am toying with a small bet on DBC, a commodities index just because it has gotten so low. I personally think the market isn't going anywhere, The Fed will give up on rate hikes after they start flattening out the yield curve. I am staying 80% funded in preferred stocks again.
The talking heads were all belaboring the fact "nothing worked" this year. They obviously know nothing about investment grade preferred stocks because they ran like stallions this year.


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[Ed_The_Gypsy]

I've run some TurboTax what-ifs. For us it turns out that my IRA is big enough that I cannot get it all into Roth's without pushing the conversion marginal tax up too much. So there will always be some IRA money subject to RMD's for us and that SS will get taxed at higher rates --- no way around this. So I felt like what the hell, might as well get a couple of years of very low tax rates before the hammer falls.

I think the IRA RMD's plus SS will put us into a moderate tax bracket and Roth's will allow us to manage that marginal tax rate should we need additional spending money.

Should we enter a bull market nirvana and the IRA grows beyond expectations giving higher RMD's, I'll just have to pay more taxes. Could be worse.

Your current marginal rate is more than 40%?

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[hnzw_rui]

I am continuing to simplify as well. Coffeehouse and Ultimate Buy and Hold were too complicated for me, but I did like the 50/50 US/non-US equities (but looking at reducing non-US fraction).

Lol, 2 or 3 fund still wasn't simple enough for me. I have the tendency to tinker when I rebalance and even a written IPS couldn't prevent the tinkering. Only way to prevent that is if I could be as hands-off as possible ergo balanced fund.

 

[Lsbcal]

Your current marginal rate is more than 40%?
...

What I think I did is look at the marginal rate we'd be in at RMD time. If I have to pay marginal rates now that are higher then RMD marginal rates, I stop converting. Make sense?

 

[Ed_The_Gypsy]

What I think I did is look at the marginal rate we'd be in at RMD time. If I have to pay marginal rates now that are higher then RMD marginal rates, I stop converting. Make sense?

Yes, if you are basing this on the two of you living.

I am looking at a worst case where one spouse dies. (Worst-worst: one of us dies very soon and the survivor lives into the 90's. Family histories show this is possible.) The survivor is left with less SS and one less deduction. SS+MRDs puts the survivor up into a very high marginal rate with no way out--the Tax Torpedo. The only way I can think of to dodge this after the fact is to suspend taking SS for a couple of years while taking large amounts out of trad IRA. I have not run the numbers on that scenario but it doesn't seem as good an idea as moving everything before MRDs start. We would have to run the tIRA down to about $90k in order for the MRDs at that point plus SS to stay nontaxable. The marginal rate jumps directly from zero to ~40% if the IRA distributions forced by the MRDs get over the limit.

We do not have much so I had to investigate this situation in detail while we still have options, so we are paying the taxes now so we never have to again (unless Congress bites us--can't plan for that).

Cheers,

Ed

 

[Lsbcal]

...We would have to run the tIRA down to about $90k in order for the MRDs at that point plus SS to stay nontaxable. The marginal rate jumps directly from zero to ~40% if the IRA distributions forced by the MRDs get over the limit.
...

We have more then the standard deductions. Maybe that is the difference because our marginal taxes (state + fed) do not show such a jump. I do a table yearly that shows IRA distributions in 10k increments.

The marginal rate climbs to about 30%. Then they come down before going back up. Even at $100k IRA distribution the marginal rate shows 31%. Hope I'm not doing something wrong but the only thing I'm varying in making out the table is the IRA distribution figure.

Another thing to look at is the absolute dollar amount of taxes. The marginal rate could be high but the dollar figure may not be so bad. Just a thought.

 

[Ed_The_Gypsy]

The absolute dollar difference for our worst case with standard deductions is between $100,000 and $200,000 over the survivor's lifetime.

I am sure you are right. Your deductions make the difference. We have not exceeded the standard deductions for years.

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