Which Accounts to Put Lump Sum In & Allocation ?

[gamboolman]

Getting ready to retire end of this year.

We'll be taking the Lump Sum

We have the following as shown below. We know we don't need the Wellington but we like it.


Total USA Bond Admiral VBTLX
Total International Stock Market Admiral VTIAX
Total USA Stock Market Admiral VTSAX
Wellington Admiral VWENX

We are aiming towards a AA of ~50/42/8, stocks, bonds, cash.

In the stocks about 10% are International but that can come down if need be.

We have ~2 to 3 years worth of living expenses in cash.

How should we allocated the Lump Sum?

Thank you for the help and advice.

gamboolman

Total USA Bond Market VBTLX Total International Stock Market VTIAX Total USA Stock Market VTSAX Wellington VWENX

 

[joeea]

We'll be taking the Lump Sum

We are aiming towards a AA of ~50/42/8, stocks, bonds, cash.

How should we allocated the Lump Sum?

Put the lump sum into whichever account(s) takes you closer to your desired asset allocation.

 

[gamboolman]

Thank you

 

[VanWinkle]

Put the lump sum into whichever account(s) takes you closer to your desired asset allocation.

+1 Asset Allocation is the most important part of how you invest the lump sum. Invest to bring your assets in line with your allocation. Also try to remember tax efficiency by placing bonds in tax deferred if possible.

 

[RunningBum]

That was pretty easy! And obvious.

 

[pb4uski]

Are the funds that you currently have all tax-deferred? If so, or if a high percentage of them are tax deferred, I would likely go with 50/50 of Wellesley and Wellington which would end up about 50 stock/50 bond and declare victory. If not, what are your percentages between taxable (savings and brokerage accounts), tax-deferred (tIRAs, 401k, 403b, et al) and tax-free (Roth IRAs and HSAs)

If you have taxable funds, you want to consider tax-efficient placement in addition to asset allocation... generally putting international equities in taxable accounts to take advantage of the foreign tax credit for foreign taxes paid (it goes to waste for international equities held in tax-deferred or tax-free accounts) and domestic equities where dividends and LTCG qualify for favorable tax rates (0% if your taxable income is low enough, otherwise generally 15%).

See https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

 

[gamboolman]

Thank you pb4uski

You answered the question I meant to write - but did not. Not sure how I wrote my question and got that whopped up. Not even been into the Dirty Bird yet !

I am at a loss on understanding Taxable vs Tax deferred as applied to our funds?

But will be reading the Link you provided.

Thanks to all for the replies and for your patience with a novice.

gamboolman....

 

[RunningBum]

I am at a loss on understanding Taxable vs Tax deferred as applied to our funds?

The basic idea is to put fund that generate regular income in pre-tax (IRA/401K), and funds that generate capital gains and qualified dividends in taxable, as best you can. Obviously don't put tax-free income in pre-tax or Roth. The link posted explains it well.

 

[pb4uski]

....I am at a loss on understanding Taxable vs Tax deferred as applied to our funds?...

Taxable, tax-deferred etc refer to the type of account. For example, a regular brokerage account that is not an IRA or HSA would typically be a taxable account... or IOW, a taxable account is one where interest or dividends are reported on your annual tax return and you receive a 1099-INT or 1099-DIV. Traditional IRAs, 401ks, 403bs, etc are tax-deferred... you deferred pre-tax income into these accounts and/or received a tax deduction for contributions and withdrawals will be taxed as ordinary income like earnings. Tax-free accounts are relatively new and would include Roth IRAs, Roth 401ks, HSAs and the like... contributions are typically after-tax money (except HSAs) and withdrawals are tax-free.

Within any of these types of accounts one can own stocks or fixed income investments.... IOW any of the tickers that you listed in the OP could be held in a taxable brokerage account, a tax-deferred account or a tax-free account....in fact, I own VTSAX in all three.

I hope this helps.