Need opinions on getting out of cash

[Shafer239]

I got a unexpected load of cash and now my overall portfolio (3.5M) is now 70% cash and 30% US Large Growth. I would like to be at 60% stock, 30% bonds, 10% cash. The idea of investing such a large sum all at one time seems risky. Does anyone have any suggestions on a plan to systematicly enter these positions and over what time period seems reasonable? I was thinking of using a diversified selection of ETF's for the stock portion and a Bond mutual fund. Thanks

 

[smalltown]

I personally think now is a great time to hold a LOT more in cash than 10%.

 

[LOL!]

C'mon, anybody can come up with a plan. Here's just one option:

First, invest into the 30% bonds now all at once. Use short term bond funds. I prefer VFSUX and VFIIX in tax-advantaged accounts but just about any bond fund from Vanguard is gonna be OK. However, since this is a taxaxble account, you pretty much gotta go with a tax-exempt bond fund. Pick one from Vanguard. If you have ANY equities in tax-advanted accounts, you should probably exchange them for bond funds to try to keep fixed income assets in tax advantaged accounts.

Second, for the equity portion in a taxable account, you want to be very tax efficient. That means use VEU and VTI. Buy half now and dollar-cost average the rest over the next 10-12 months by buying each month. If the market drops 5%, put in an extra month's worth of DCA. You don't need a "diversified selection of ETF's", you just need a couple of ETFs that cover the whole world market.

Or simply go with a low-cost DFA advisor. Pay your $3000 and get one of those DFA core vector funds.

 

[LOL!]

OK, I read your intro post where you outlined some of your investments. You must be getting killed on taxes because you have your investments in the wrong locations for tax efficiency. You wrote that you have blue-chip stocks in IRA and bonds in taxable. That is totally bass-ackwards. Put your bonds in the IRA and put equities in the taxable.

You should not have any bond dividend income on your Form 1040 Schedule B because it should be sheltered in your IRA. Your $990K of IRA money should be ALL bonds which is almost your total 30% allocation to bonds.

Your taxable accounts should have tax efficient equity funds. That is, funds that have almost no turnover and no distributions. That will be things like total stock market VTI and total international stock market VEU. All unrealized capital gains are tax-free and long-term cap gains are taxed at the very favorable long term cap gains tax rate of 15% nowadays. If you die all the investments get a stepped up cost basis and the gains are tax-free to your heirs.

You gotta do some reading: See www.bogleheads.org for lots more info.

I think I just saved you about $50,000 a year in taxes.

 

[Shafer239]

OK, I read your intro post where you outlined some of your investments. You must be getting killed on taxes because you have your investments in the wrong locations for tax efficiency. You wrote that you have blue-chip stocks in IRA and bonds in taxable. That is totally bass-ackwards. Put your bonds in the IRA and put equities in the taxable.

You should not have any bond dividend income on your Form 1040 Schedule B because it should be sheltered in your IRA. Your $990K of IRA money should be ALL bonds which is almost your total 30% allocation to bonds.

Your taxable accounts should have tax efficient equity funds. That is, funds that have almost no turnover and no distributions. That will be things like total stock market VTI and total international stock market VEU. All unrealized capital gains are tax-free and long-term cap gains are taxed at the very favorable long term cap gains tax rate of 15% nowadays. If you die all the investments get a stepped up cost basis and the gains are tax-free to your heirs.

You gotta do some reading: See www.bogleheads.org for lots more info.

I think I just saved you about $50,000 a year in taxes.

LOL, Thanks! Sorry but i can't give you the credit on the tax saving idea. This is old news! I have already started implementing that "bass-ackwards" reversal after my first post, hence the additional cash that i want to get invested.
Thanks for the response and reiteration though.

 

[ziggy29]

I personally think now is a great time to hold a LOT more in cash than 10%.

The fact that so many people are so sure of this suggests that it's a lot less likely to be true. No guarantees of course, but usually the best time to get invested is when everyone thinks we're doomed. High levels of extreme bearishness is more often than not a bullish contrarian indicator.

Personally I'd probably dollar cost average maybe 10% of it at a time every month or two until the desired allocation is met.

 

[jIMOh]

I got a unexpected load of cash and now my overall portfolio (3.5M) is now 70% cash and 30% US Large Growth. I would like to be at 60% stock, 30% bonds, 10% cash. The idea of investing such a large sum all at one time seems risky. Does anyone have any suggestions on a plan to systematicly enter these positions and over what time period seems reasonable? I was thinking of using a diversified selection of ETF's for the stock portion and a Bond mutual fund. Thanks

I think this is as good an entry point as you will see for stocks.

I would suggest coming up with a more detailed allocation:

small cap stocks?
foreign stocks?
government bonds?
corporate bonds?
foreign bonds?
REITs?

then start creating positions once you know the detailed allocation. I would look to implement over 6-18 months.

 

[Shafer239]

I think this is as good an entry point as you will see for stocks.

I would suggest coming up with a more detailed allocation:

small cap stocks?
foreign stocks?
government bonds?
corporate bonds?
foreign bonds?
REITs?

then start creating positions once you know the detailed allocation. I would look to implement over 6-18 months.

I took your advice and here's what i got just by using an ETF screener. 10% per month over the next 18 months will get me there.

STOCKS60%Possible ETF's% Asset ClassTicker% of Total23%US Large GrowthIVW, IVV, VUG13.80%28%US Large ValueIVE, VTV16.80%15%US Small GrowthIJR, IWM, JKK9.00%20%International DevEFA, EFV, EFG12.00%5%Int. Emerging MarketsEEM, VWO3.00%4%REITSFTY, RWR2.40%5%Commodoties?3.00%100%60.00%BONDS/CASH40%15%CashMM10.00%50%Municipal Bonds?20.00%35%Corp Bonds?10.00%100%40.00%

 

[LOL!]

10% per month over 18 months? That's funny! What are gonna do after month 10?

There are some sample ETF portfolios at www.fundadvice.com

A list of representative asset classes and some funds/ETFs that fulfill them can be found at DFA vs. Vanguard Click on the "here" links in the Analysis column for the ETFs.

On another thread you mentioned grief/pain in selling your stocks in your IRA(s). Consider this: suppose you took some shares of GE out of your right pocket and put them in your left pocket. Would that be painful? Suppose you sold shares of GE in your IRA and bought them immediately in your taxable account? Why would that be painful? Of course, if you bought VTI, then you would get GE in it.

Anyways, come up first with your asset allocation, then it will be easy to find the ETFs to fill up that AA. You might wish to glance through the AA tutorial thread: http://www.early-retirement.org/forums/f28/asset-allocation-tutorial-31324-2.html#post578722 because it has lots of articles linked.

 

[DblDoc]

Plenty of good advice. I would just add that many feel anything less then a 5% allocation to an asset class is creating extra work without significant benefit in terms of diversification.

DD