High Net Worth - Is Your Asset Allocation Acceptable?

[RetiredHappy]

Hmm so your ultra smart and valuable FA charging "discounted" rate of 0.8% told you to buy 10s and 10s of different ETFs?

We didn't buy anything. They were all managed by the backend team. They did make good money for us so we have absolutely no complaints.

We prefer how we are doing now, mainly that we can just do whatever we want without asking the FA to move money out for us etc.

 

[TheWizard]

We didn't buy anything. They were all managed by the backend team. They did make good money for us so we have absolutely no complaints.

We prefer how we are doing now, mainly that we can just do whatever we want without asking the FA to move money out for us etc.

You made an excellent change of control...

 

[TickTock]

During the accumulation years our AA was 80/20 equities/fixed income. As we neared retirement we started shifting 5% per year to our current 60/40. I retired earlier this year so there's still some earned income and tax withholding to sort out - I think our WR will be ~2%. We're too young to take SS at this point, unless something changes significantly we plan to wait until age 70.

We're happy with current AA. Seems a bit more conservative that most posted on this thread, although I know some forum members are heavy on FI and light on equities.

 

[Koolau]

As a single person twelve years into retirement, I have something over $150k of annuity + SS annual income which exceeds my expenses by a fair amount most years.
Adding RMDs on top of that makes the excess even more.
That excess gets invested into stock index funds month by month.

My AA is around 95% stock funds starting around two years ago; it was more conservative prior to that.

If I live long enough, my Investible Assets will get up around $5M maybe even $10M.
That's fine; it's just a game at this point...

I think that's a good point. At some level, it seems more like "Monopoly" money when you're well past paycheck-to-paycheck but still somewhere south of UHNW.

Not a bad place to be IMHO though YMMV.

 

[Koolau]

Almost everyone has more than just the nestegg. Many have 1 or 2 SS benefits that could be 25-50k or more. I too was surprised that it only takes 1mil to be HNWI. What I find more puzzling is the range of 1 to 5mil. One of these is not like the other.

I don't recall the figures, but IIRC we had a poll several years back on who lives primarily from their investments. I recall being surprised that there was a significant minority living only on their "stash" - no SS or pension. Anyone recall this beside me?

 

[Koolau]

...And if you take the couch potato type simplest investing approach it’s quite easy and hard for “professionals” to beat...

Agreed!

What I sometimes think I need a FA for are the slightly more subtle issues: How to minimize taxes. How to minimize "gotchas" like IRMAA and income-specific tax increases/surcharges. How to meet my changing spending goals without triggering unintended consequences. How to structure things for when there is only one of our team remaining (both DW and me right now.). Other guidance on things like gifting and other inheritance issues. Maybe even stuff I haven't thought of or know about. YMMV

 

[SecondCor521]

Agreed!

What I sometimes think I need a FA for are the slightly more subtle issues: How to minimize taxes. How to minimize "gotchas" like IRMAA and income-specific tax increases/surcharges. How to meet my changing spending goals without triggering unintended consequences. How to structure things for when there is only one of our team remaining (both DW and me right now.). Other guidance on things like gifting and other inheritance issues. Maybe even stuff I haven't thought of or know about. YMMV

Generally speaking, FAs are somewhere between mediocre and awful on tax planning. And the last few things you mention are probably more appropriate for an estate planning attorney. IMHO, YMMV, etc.

 

[MarieIG]

I don't recall the figures, but IIRC we had a poll several years back on who lives primarily from their investments. I recall being surprised that there was a significant minority living only on their "stash" - no SS or pension. Anyone recall this beside me?

Poll: SIRE vs FIRE at ER.org

It's been a long time, so another poll to see how this audience breaks down. IIRC the last poll showed mostly SIREs outnumbered mostly FIREs. For the purposes of this poll: SIRE income sources - Soc Security (or other country equiv), pensions, annuities, inheritance FIRE income sources -...

www.early-retirement.org

I'm not sure if that is this one which you are referencing?

 

[Koolau]

Generally speaking, FAs are somewhere between mediocre and awful on tax planning. And the last few things you mention are probably more appropriate for an estate planning attorney. IMHO, YMMV, etc.

Thanks for the direction. I'll be checking out various resources in hopes of receiving the help I need. Aloha

 

[Koolau]

Poll: SIRE vs FIRE at ER.org

It's been a long time, so another poll to see how this audience breaks down. IIRC the last poll showed mostly SIREs outnumbered mostly FIREs. For the purposes of this poll: SIRE income sources - Soc Security (or other country equiv), pensions, annuities, inheritance FIRE income sources -...

www.early-retirement.org

I'm not sure if that is this one which you are referencing?

I don't think this is what I'm thinking of, but it does give at least some clues regarding dependence on one's stash rather than SS, Pension, etc (in addition to the stash.)

Thanks for the research.

 

[ESRwannabe]

Instead of focusing on net worth it might be better to instead focus on withdrawal rates. That way the numbers are "normalized" for everyone when talking about the appropriate asset allocation.

Logically the reason to reduce your allocation to stocks is to lower your risk. The most significant risk to retires probably being "sequence of returns" risk.

Lower equities should reduce your volatility, which should reduce your sequence of returns risk. Which can be further improved depending on what you divert that allocation of assets into (long term treasury bonds, managed futures, commodities, etc.).

Anyway, going back to withdrawal rates. I'd say that if you can get that down to 1% or less of assets, then there is no reason to reduce your stock allocation, unless the volatility simply makes you uncomfortable. So, I would say that when it comes to the UHNWI that they actually may have less or no need to reduce equities, depending on their withdrawal rate.

 

[RetMD21]

Agreed!

What I sometimes think I need a FA for are the slightly more subtle issues: How to minimize taxes. How to minimize "gotchas" like IRMAA and income-specific tax increases/surcharges. How to meet my changing spending goals without triggering unintended consequences. How to structure things for when there is only one of our team remaining (both DW and me right now.). Other guidance on things like gifting and other inheritance issues. Maybe even stuff I haven't thought of or know about. YMMV

Rick Ferri CFA who does the Bogleheads podcast does a "portfolio review" for $995 and gives tips to clients. He has no interest in managing assets and for some the one time fee would be much less than ongoing AUM.

 

[JoeWras]

Generally speaking, FAs are somewhere between mediocre and awful on tax planning. And the last few things you mention are probably more appropriate for an estate planning attorney. IMHO, YMMV, etc.

Agree.

My friend was an FA for a while and although they had decent knowledge of things like asset allocation, not panicking in downturns, etc., they were clueless on taxes and estate planning, unless it involved insurance.

They knew a lot about products that produced nice commission.

I love this friend, but they scare me to death. They recently went back to work and I asked about SS tax torpedo and IRMAA and the reply was "what now?" A few weeks later they quit the job they went back to because they discovered that "it isn't worth it when my SS gets taxed so high." I just internally shook my head.

CFPs are a different. FA means nothing.

 

[Mark2024]

we are 60% taxable, 10% Roth, and 30% non-taxable. I am in the camp that once you won the game, keep what we have is more important than seeking higher gains.

So we are 50% cash and 5% bonds and 45% stocks. Of course, the cash are in CD and high yield money market earning >5%.

 

[Al18]

What is non-taxable?

 

[pb4uski]

^^^ Tax-free, like HSAs, Roth IRAs, etc.

 

[Al18]

Referring to Mark2024, who says 10% Roth and 30% non-taxable. Seems like an unusually high %. He has no tax-deferred.

 

[TheWizard]

Referring to Mark2024, who says 10% Roth and 30% non-taxable. Seems like an unusually high %. He has no tax-deferred.

I suspect he has misspoken on his categorizations...

 

[Mark2024]

Well, Taxable and Roth accounts have mostly stocks. The non-taxable are CD, annuity, high yield money market, and basic checking & savings.

The taxable are from my 401Ks. In earlier years, we could only afford to save in 401K. Later on in my career, we probably save more after tax $ than in 401K. Stock options were also at later part of career. That is why we have a good balance of taxable vs non taxable.

 

[RetiredHappy]

Well, Taxable and Roth accounts have mostly stocks. The non-taxable are CD, annuity, high yield money market, and basic checking & savings.

The taxable are from my 401Ks. In earlier years, we could only afford to save in 401K. Later on in my career, we probably save more after tax $ than in 401K. Stock options were also at later part of career. That is why we have a good balance of taxable vs non taxable.

When we say taxable, we are referring to post-tax brokerage account. Your definition of taxable is actually tax-deferred.

 

[TheWizard]

When we say taxable, we are referring post-tax brokerage account. Your definition of taxable is actually tax-deferred.

Correct...

 

[Mark2024]

When we say taxable, we are referring to post-tax brokerage account. Your definition of taxable is actually tax-deferred.

My taxable are accounts I will have to pay tax to withdraw. Non taxable are those I could use without paying additional tax. Are we talking about the same thing?

 

[RetiredHappy]

My taxable are accounts I will have to pay tax to withdraw. Non taxable are those I could use without paying additional tax. Are we talking about the same thing?

You got the terminology all wrong. See my post above.

 

[GrayHare]

Non-taxable generally means no tax even on the gains and interest.

 

[Al18]

You definitely pay taxes on CD, annuity, high yield money market, and savings every year, whether you make a withdrawal or not.

Most don’t pay taxes on checking because checking usually doesn’t pay interest.

Roth accounts are truly tax free.

IRA and 401K are tax deferred - you don’t pay taxes until you make a withdrawal.