High Net Worth - Is Your Asset Allocation Acceptable?

[pb4uski]

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?

No, we are not talking about the same thing.

The accounts that you describe as "accounts I will have to pay tax to withdraw" are tax-deferred accounts. Accounts that you "could use without paying additional tax" are taxable because the income from those accounts are taxable when receivd or credited.

Taxable acounts are accounts that you have to pay tax on the income or realized gains generated by investments in those accounts. That would include most bank accounts, investment accounts and brokerage accounts other than 401k, 403b, traditional IRAs, Roth IRA's HSAs, etc.

Tax-deferred are accounts that you don't currently have to pay taxes on the income or realized gains generated in those accounts, but will eventually have to when you withdraw from those accounts. These would include 401k, 403b, traditional IRAs, etc.

Tax-free are accounts that you'll never have to pay tax on the income or realized gains on investments in those accounts, like Roth IRAs or HSAs.

 

[523HRR]

Pensions cover our spending+taxes, so we are comfortable with 95+% equities. We have only one heir, so are effectively investing like a 26-year-old with a long time horizon.

 

[rkser]

We are 80%/20% at 68 & 63 yrs old,

funny thing is as we add years our portfolio has grown from 60/40 to 80/20

Probably because of Roth conversions & keeping VTI in Roths

We are investing for kids & have the major portion of investments in Taxable & Roths.

Yes, we pay mucho taxes but that is part of the game.

 

[Time2]

I buy and hold low cost index funds. I've been doing this for more than 30 years. My advice came from Bob Brinker and is similar to John Bogle's method. Obviously, this approach has done very well but it is still theory (good theory) and subject to change. I jokingly tell my wife the reason we are here is because of Bob Brinker but that's also because I'm a fanboy of his.

I also say that it is Bob Brinker that put us at 35 times out spending, it has been higher, but large gifting to our kids and the market down a bit. I give a lot of credit to my wife for her frugal ways and training me. I started listening to Bob in the late 80s, he introduced me to Vanguard and no-load mutual funds and index funds. I altered my work schedule so I could go to the shop and work from 3pm to 6pm every Sat and Sun just so I could be alone with Bob and listen to his advice. I need to send that letter to him that I have in my documents file, he deserves the praise. However, when people thanked him, he always said, you are the one that did it, not me.

 

[TheWizard]

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.

Basically correct.
Should also add that if you hold stocks or index funds in your so-called taxable account, then you are taxed on those dividends every year, and eventually on capital gains when you make a withdrawal...

 

[Time2]

This is a good point. Depending on where you live, $2MM or $3MM isn't living large unless you have an additional income point beyond SS. Nice to have of course versus the alternative, but still.

Around here, $40k a year easily qualifies you for affordable housing!

Yes $2M to $3M is an odd position, you have more money then 95% to 97% of US households. If your neighbors knew they would say you are Soo... rich, yet to keep your nest egg you have to keep the same standard of living they have. The big positive is, you don't need to work for money.

 

[Time2]

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

Somewhere there is a program that looks at overlap of companies between different funds, it would be interesting to see the overlap in this many funds.

 

[Route246]

I also say that it is Bob Brinker that put us at 35 times out spending, it has been higher, but large gifting to our kids and the market down a bit. I give a lot of credit to my wife for her frugal ways and training me. I started listening to Bob in the late 80s, he introduced me to Vanguard and no-load mutual funds and index funds. I altered my work schedule so I could go to the shop and work from 3pm to 6pm every Sat and Sun just so I could be alone with Bob and listen to his advice. I need to send that letter to him that I have in my documents file, he deserves the praise. However, when people thanked him, he always said, you are the one that did it, not me.

I subscribed to his newsletter when it was a lot of money to me. I continued to subscribe all the way to the end when he terminated it a few years ago. My wife asked me if we still need to subscribe many times after we had critical mass and I told her I will pay that stipend to him for as long as he will take it. We owe our financial independence to him. I guess I am a cult follower in this respect. $180/year or whatever it was is a bargain for the ROI he provided.

I've read some one Bogleheads and I feel like it is an extension to Bob's methods and anyone who follows the general mantra on Bogleheads is going to be successful. They are functionally equivalent.

 

[Time2]

I was also a newsletter subscriber for many years. I still get a monthly email from the newsletter his son is writing, wanting me to subscribe.

 

[Diogenes]

A few points - as there would be too many individual posts, to be quoted directly, for each specific point:

* Even at $50M or $100M net worth, a person wouldn't own a private jet, unless our hero were a dedicated aviation enthusiast. Otherwise the airplane would consume too much of the person's wealth.

* We ought to remember, that $1M isn't what it used to be. $30M might be the threshold of some vaunted impressive characterization of wealth, but... is it? There are several thousand billionaires running around today. Exclusivity isn't what it formerly was.

* The main seductive benefit of a large fortune, is to turn it into an even larger fortune. The wealthiest folks today, made their initial tens of millions in some start-up, or other spectacular investment. They didn't subsequently put their windfall into the S&P 500. They reinvested into something speculative, something in which most of us, ought never to dabble. But they did. And they won. Many others didn't.

* For the humdrum wealthy down the street, there isn't much difference between 7-figures, and 8. Maybe a "private" phone number at Vanguard.

* For the frugal brigade, it may happen, that taxes on dividends come to exceed all other expenses, combined.

 

[Route246]

A few points - as there would be too many individual posts, to be quoted directly, for each specific point:

* Even at $50M or $100M net worth, a person wouldn't own a private jet, unless our hero were a dedicated aviation enthusiast. Otherwise the airplane would consume too much of the person's wealth.

* We ought to remember, that $1M isn't what it used to be. $30M might be the threshold of some vaunted impressive characterization of wealth, but... is it? There are several thousand billionaires running around today. Exclusivity isn't what it formerly was.

* The main seductive benefit of a large fortune, is to turn it into an even larger fortune. The wealthiest folks today, made their initial tens of millions in some start-up, or other spectacular investment. They didn't subsequently put their windfall into the S&P 500. They reinvested into something speculative, something in which most of us, ought never to dabble. But they did. And they won. Many others didn't.

* For the humdrum wealthy down the street, there isn't much difference between 7-figures, and 8. Maybe a "private" phone number at Vanguard.

* For the frugal brigade, it may happen, that taxes on dividends come to exceed all other expenses, combined.

I would like to add that the speed of ingestion is also relevant in many cases. Someone like me who got to 8 figures in my 60s through grinding and following Bob Brinker while never "making a score" in spite of living in Silicon Valley, the realization came but in some sense it doesn't feel real the way it might for a lottery winner or someone who inherited it. I feel we earned every penny of what we have where smarts and discipline had much more to do with it vs luck and being in the right place at the right time.

The only risk I feel we took was remaining faithful to the method, never selling into a correction or bear market and always buying into a potential bull market when the parameters dictated a buying opportunity and when sentiment was low and cyclical support was present.

The power of compounding is immense. Those selling opportunities I had 40 years ago have come home to roost today through compounding.

 

[marko]

Somewhere there is a program that looks at overlap of companies between different funds, it would be interesting to see the overlap in this many funds.

M* does that. Enter your funds into 'Portfolio Manager', go to "Xray" and "Stock Intersection".

 

[Time2]

M* does that. Enter your funds into 'Portfolio Manager', go to "Xray" and "Stock Intersection".

That's too encrypted for me to know where I'm supposed to find this.

 

[TheWizard]

That's too encrypted for me to know where I'm supposed to find this.

Additionally, you may have to be a paying M* member to use this feature, I'm not totally sure...

 

[marko]

That's too encrypted for me to know where I'm supposed to find this.

Morningstar.

 

[Time2]

Morningstar.

You mean Morningasterisk! Thanks

 

[marko]

You mean Morningasterisk! Thanks

The asterisk signifies a star. Common notation/acronym for Morningstar on this site.