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Originally Posted by cardude
It's more of a "I can't make a mistake now" thing. When I was working (owned a small business) the money was always flowing in (good timing, not much skill) and so my mistakes could be covered up. Now the lack of money flowing in has me pretty much locked up mentally.
If brk fell by 50% and angels fell to zero I would be at 3.38%, with wife working and all rentals holding.
I don't know, but I'm finding out that Berkshire (and my business) were kind of my one trick ponies and I'm feeling a little like the tide has gone out and I don't have any clothes on. Know what I mean? I just don't know what I'm doing out of my little Berkshire circle.
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It's both a logical/financial and an emotional decision, but if your SWR is still below 4% when your portfolio goes to hell then you're probably going to be OK. You seem to have quite a bit of faith in Berkshire & Wellesley and rentals, but I'm not sure how you'll develop the same faith in other asset classes. So if your SWR will be OK and you're comfortable with these then why go looking for more excitement?
Quote:
Originally Posted by cardude
What? My plan was to come up with a group of bond funds/ stock index funds to put my non Berkshire stuff in, and when I sold some Berkshire off (at the right price) I could replenish cash or fund those funds. Those would be my only choices so I don't get distracted away from my circle. I'm easily distracted it seems.
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I didn't read your Bogleheads post, but if you're not comfortable with their recommendations on Vanguard funds then you're gonna have a heck of a time finding something to be comfortable with. It just seems like the easiest path is to stick to assets that you're already familiar with and let things settle out for a while. It could be as simple as setting the angel investments aside and splitting the remaining assets 1/3 each among Berkshire, Wellesley, and cash. The point is finding something you're both emotionally & financially comfortable with as well as keeping it low-maintenance.
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Originally Posted by cardude
I've been told it's not wise to hold that in a non tax advantaged account. I have very little (4.5%) tax advantage accounts, so that's a challenge, right?
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There's a lot of bond income that would be taxed at your marginal income rate instead of your cap-gains rate. It'd probably put you into the 15-25% bracket. Can you put a number on it? How painful would that be? What about holding Wellesley as much as possible in your tax-deferred accounts and Berkshire as much as possible in taxable accounts?
I'll defer to the expert opinions of the board's experienced Vanguard investors, but if Wellesley seems pretty tax-efficient by comparison to the rest of the fund choices out there. I think low expenses and low turnover are far more important than tax efficiency.
Quote:
Originally Posted by cardude
I'm still unsure how much cash to keep. I have 16.5 in taxable cash that will fund me for 7.5 years or 6.5 years if wife quits working. I think that's too much to leave sitting around earning nothing, and if I had a good AA including bond funds I would like to do something with that. And yes, I'm funding some of the spending from the liquidation of the value account, but I still need to come up with a plan for all that cash. I don't really feel like I can buy MORE Berkshire at this point at 48%, so I need an alternate place for the cash.
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The technical term for the angst you're experiencing is "chasing yield".
You're already putting Berkshire to work and you're balancing volatility with Wellesley. They're going to earn a fairly steady return, Wellesley has lots of bond exposure, and their selection is probably going to have a much greater influence than having the cash chasing another basis point or two in an aggressive bond fund or a dividend fund.
I think your cash level lets you sleep at night. It may also preserve marital harmony and enable your spouse to stop working. Which is worse-- agonizing over the "lost income" of a few basis points, or agonizing over volatility? How do you want to feel during the next bear market? Would you rather have only a couple years' cash on hand and know that the rest of it will do fine as soon as the bear market recovers, or would you rather be comforted with the thought that this bear market really sucks but you have plenty of cash to ride it out?
There's not necessarily a right answer here, only your preferences and your comfort level. If you're not comfortable with volatility then I suspect you're gonna be very uncomfortable with a low cash balance.
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Originally Posted by cardude
Yeah, most are too small to jack with IMO. A distraction. None of them have any gains to speak of at this point. In fact, nothing I have has gains other than Berkshire, and I have lots of losses from the "value" fund to use up. I don't have to "use up" all those losses this year do I? Can't remember how that works. I need a tax loss harvest strategy also.
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Cap losses can be used to offset cap gains plus as much as $3000 of other income. After that the remaining cap losses can be rolled over indefinitely.
But if you're selling large chunks of Berkshire then you'll probably use up the cap losses fairly quickly. That's about as complicated as a tax-loss-harvest strategy needs to be. The point is not avoiding or even minimizing taxes-- that can't hurt you as much as your current volatility is hurting you. The point is to get to an AA you can live with, and then consider whether you need to mess with balancing cap gains & cap losses while you're rebalancing your AA. Again I think you'll gain far more in returns from a good AA and rebalancing scheme than you'll lose in taxes. You'll sleep better at night too.
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Originally Posted by cardude
No bond or stock funds or international and all that other stuff? I'm such a fund moron............
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Wellesley has you covered on the bond & stock sides, although I think it's mainly domestic. If you want international then go find some (like ETF EFV) but it's pretty highly correlated with domestic stocks. The only advantage is getting your returns away from the U.S. dollar, and yet during high volatility the international stocks seemed to drop just as fast as the U.S. ones.
If international assets seem like a tedious research project and you're not comfortable with them then blow it off and go with what makes you comfortable. Again investor psychology shows that an AA plan you'll stick with is better than the world's most sophisticated AA that makes you uncomfortable.
There are many asset allocations, and most of them work. "Paralysis by analysis" will only delay the solution.
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Originally Posted by cardude
Oooo, now that's interesting. What are the premiums? How do I do that? Have you done it? I'm not uncomfortable selling the shares, but just don't like the price yet so this might work. What if I write the call then change my mind and want (or need) to sell before it hits that price? Have I locked up the shares in other words?
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You're selling a contract that gives other investors the right to buy your Berkshire shares, in lots of 100, during a time period of at most three months. After the contract expires then you start over with a new contract. If the investors exercise their rights to buy Berkshire shares that you don't have (for example, you sold them last week) then you have a couple trading days to get more Berkshire shares and deliver them according to your contract. So technically you're not locked up, but most brokerages would prefer that your calls stay covered by owning the shares.
We haven't done this because 100 "B" shares (the minimum contract amount) is more than we're ready to deal in. We're also not interested in selling unless the share price takes off, at which point I'd heartlessly pull the trigger to rebalance. So no need for us to find a way to pry the shares loose from our hands, and no need to chase the options income. But it's a method that helps reluctant investors preserve gains and rebalance while being paid for their trouble.
If you're not already familiar with options trading then this is best handled through someone who is familiar with it-- like a financial advisor.
Gotta use that spell checker........
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