Again about Asset Allocation ?

[suchda]

Dear All


I’ve been with Vanguard over 15 years and saving as much as I can from the beginning of my career. I’m the only working person in our family and filing jointly with my wife. I’ve an asset over 2.5 mln at Vanguard and all my funds are Vanguard ETF funds.

Here is my current asset allocation 75/25 and my total assets are 54% in tax-exempt and 46% in taxable accounts.

In my stocks, 60% US ( Large Cap 73%, Mid cap 18% and small Cap 9%) and 40% Int’l ( Europe 40%, Pacific 29%, Canada 7% and Emerging Market 24%).

Bonds 40% - 100% taxable bonds.

4 accounts are in my Tax-exempt
( Retirement , 54%):

Traditional Roth IRA ( 3%) - Vanguard Total Int’l Stock Index ETF

Rollover IRA ( 38%)- Vanguard Total Bond Market ETF(28%), Vanguard Total Int’l Bond Index ETF( 12%), Vanguard Total Stock Market ETF ( 18% ), Vanguard Total Int’l Stock Index Fund ETF ( 42%)

SEP-IRA ( 10%) - Vanguard Total Bond Market ETF(52%), Vanguard Total Int’l Bond Index ETF( 25%), Vanguard Total Stock Market ETF ( 16% ), Vanguard Total Int’l Stock Index Fund ETF ( 7%).

Roth IRA ( 4%) - Vanguard Total Bond MarketETF(16%),Vanguard Total Stock Market ETF ( 9% ), Vanguard Extended Market ETF ( 41% ), Vanguard Total Int’l Stock Index Fund ETF ( 34%).

Taxable Brokerage account (46%):
Vanguard Mega Cap value ETF(4%), Vanguard FTSE All World Ex US ETF(12%), Vanguard Total Stock Market ETF ( 61%), Vanguard Growth ETF ( 5%), Federal Money Market account (18%).

As I’m 55 and planning to retire in 7-10 years, I prefer to change my asset allocation into 65/35 or 60/40. As I mentioned earlier, I’m the only working in my family, have a guaranteed job with the government with annual income in the six figure and we file jointly.

Recently I sold a rental house which gave me a cash of ~235K which is lying in Vanguard Federal MM fund. Need suggestion regarding this extra cash too.

I really like your inputs in making my changes regarding my asset allocation or any suggestions with my funds choices.

Thanks for reading my post.

 

[USGrant1962]

You might want to read up on the bond tent concept where you reduce your equity allocation in the period immediately before and after retirement to potentially mitigate sequence of returns risk.

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

Regarding your cash, I have quite a bit in Vanguard's Ultra-short Term Bond Fund (VUSFX) as a parking place right now. It is not exactly a money market replacement because the share price does fluctuate a little - but it yields almost 1% today.

Lastly, just to make your life simpler you might want to consolidate some of the smaller positions. As folks say around here, a 5% or less position in your portfolio "doesn't move the needle" on performance. Some folks say 10% or less.

Also, to be clear, your rollover IRA and SEP-IRA are not "tax exempt", they are tax deferred. Roths are tax exempt.

 

[OldShooter]

... suggestions with my funds choices. ...

I would say: Too many. Complexity with no benefit.

On the equity side, IMO you should have one total US market and one total International market in proportions to suit your taste. Or one world fund like VTWAX that holds all the world's stocks on a cap weighted basis. That works out to about 55% US and 45% ROW.

I am not a bond fund guy but one will be along soon to suggest a strategy. @pb4uski is particularly good on the short term stuff.

Similar to @USGrant1962's suggestion.

Edit: To be clear, you will end up holding these funds in several of your accounts since you can't mix different flavors of money, but you'll still have only a minimum number of funds to track.

 

[sengsational]

The bottom line for me is that it is less important the exact percentages for your target asset allocation and more important that you stick to whatever you decide.

I can't compete with Kitces on the sequence of return problem, so I simplify it and validate that with my current asset allocation, I can weather a market that's in the dumps for 7 years. IOW, I don't have to sell low as long as the bear doesn't last a very long time. That's different than someone who sets their equity allocation lower because they couldn't sleep if they saw a big paper loss. I think that as long as I'm not forced to "sell low" (to finance my living), I could live with a sizable percentage loss on equities. So all of that goes to your disposition. Thinking back on when you went through a scary bear market is instructive. I'd be pedal to the metal if I had a solid income stream because I could always keep working. A really scary bear after retirement is something I haven't experienced, but I think I'd be ok, since I have the 7 year buffer. You have to do that soul searching for yourself and see where you come out.

As to fund choices, I like the diversity. Large cap US has been successful lately, and lots of people are there because of the large cap weighting bias. Breaking out like you've done seems like a good move to me. I'm not sure how much extra complexity it adds to your life, probably not much.

 

[thepalmersinking]

Personally, I think anything International is stale advice. That said, with all of your funds, what is your plan on withdrawing from them. Are you going to take equal percentages of each within each account regardless of their performance the previous or current year?

 

[Golden sunsets]

I could be misinterpreting your terminology, but it appears to me that you are using the term tax exempt in place of pre-tax, which are most assuredly taxable at some point. Uncle Sam will get his share of those assets. Am I missing something?

 

[pb4uski]

I could be misinterpreting your terminology, but it appears to me that you are using the term tax exempt in place of pre-tax, which are most assuredly taxable at some point. Uncle Sam will get his share of those assets. Am I missing something?

Good point... OP, the categories are taxable, tax-deferred and tax-free.

Roths and HSAs are in tax-free. Traditional IRAs, 401k etc are tax-deferred... as would be your SEP-IRA.

There is no thing as a traditional Roth IRA... I suspect that you mean Traditional IRA since you list a Roth IRA separately later.

An inherited IRA could be traditional or Roth... more commonly they are traditional IRAs.

 

[walkinwood]

+1 for simplifying your portfolio earlier than later. This is especially true in taxable accounts where you may end up with a sizeable cap gains tax bill if you decide to simplify down the line. I speak from experience.

 

[suchda]

Thank you All. In fact, I wanted to get some information about my >200K which is now at Vanguard Federal MM. Sorry for the mistake regarding taxable/tax-deferred/tax-exempt. Just, give me your opinion about the any funds where I can put that money.

 

[target2019]

Thank you All. In fact, I wanted to get some information about my >200K which is now at Vanguard Federal MM. Sorry for the mistake regarding taxable/tax-deferred/tax-exempt. Just, give me your opinion about the any funds where I can put that money.

What are your plans for this >200K? When do you expect to use it?

 

[suchda]

I don't this money at least for the next 5 years.

 

[sengsational]

It would seem to me like the answer is always the same whether your asset allocation drifts because the different asset classes valuations change or something is sold and your cash allocation is higher than target: rebalance back to targets. If your AA was correct before the sale of the rental, then you'd probably buy a hard asset class, like mining or REIT.


I'm certainly in the camp of not letting the tax tail wag the dog, as doing the tax thing perfectly (given unknown future rules, impossible, but say you get lucky) as compared to doing the tax thing in a mediocre way is not that big (they are going to get their cut). Rebalance back to targets. Sure, you can put more tax efficient stuff in the after tax bucket, that only makes sense. So if that causes transactions in tax deferred and/or tax free, so be it.


I made and shared a spreadsheet a long while back:

https://www.early-retirement.org/fo...de-easier-with-funds-78648-2.html#post1632708

 

[mrfeh]

I don't this money at least for the next 5 years.

https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement