Sold Stock - Taxable Investment Suggestions?

[ItsTime]

Hi All,

As I am exiting the corporate world this week, I transacted on my remaining stock options that netted $900K after taxes.

That said, I would be highly interested in anyone's thoughts on where to invest these funds. I am open to risk and not heavily focused on AA at the moment but essentially at 90% Stocks / 10% Bonds/Cash. We also have no debt.

Current Portfolio Summary (before receiving the $900K)

TAXABLE - $2.3M (one year of expenses in a money market)
IRA - $1.85M

Please let me know if I can provide more information to assist with ideas.

Here is my current thinking for the $900K

-Purchase two I Bonds for $20K by 12/31 (DW and myself)
-Purchase $775K of VTI (Vanguard Total Stock Market ETF)
-Purchase $105K of VXUS (Vanguard Total Internation ETF)

Thanks in advance for any thoughts and feedback!

 

[pb4uski]

If you have any international equity funds in your IRA you want to swap them out and get international equity funds in your taxable account because the foreign tax credit for foreign taxes paid goes to waste if held in an IRA.

So for example if you have $200k of VXUS in your IRA then sell it and buy $200k of VTI in your IRA and then in your taxable account buy $575k of VTI and $305k of VXUS

 

[Time2]

If you have any international equity funds in your IRA you want to swap them out and get international equity funds in your taxable account because the foreign tax credit for foreign taxes paid goes to waste if held in an IRA.

I'm not sure that advice is good for everyone. VWILX paid a large LTCG this year and I'm glad it was in a tax deferred account, I didn't want that income.

 

[mrfeh]

Hi All,

As I am exiting the corporate world this week, I transacted on my remaining stock options that netted $900K after taxes.

That said, I would be highly interested in anyone's thoughts on where to invest these funds. I am open to risk and not heavily focused on AA at the moment but essentially at 90% Stocks / 10% Bonds/Cash. We also have no debt.

Current Portfolio Summary (before receiving the $900K)

TAXABLE - $2.3M (one year of expenses in a money market)
IRA - $1.85M

Please let me know if I can provide more information to assist with ideas.

Here is my current thinking for the $900K

-Purchase two I Bonds for $20K by 12/31 (DW and myself)
-Purchase $775K of VTI (Vanguard Total Stock Market ETF)
-Purchase $105K of VXUS (Vanguard Total Internation ETF)

Thanks in advance for any thoughts and feedback!

Without knowing more details, that seems fine. Those are certainly excellent funds.

That being said, what to do with new money should be part of your IPS. I suggest you write one.

 

[OldShooter]

@ItsTime, what you are doing here is what Richard Thaler calls "Mental Accounting." (https://www.investopedia.com/terms/m/mentalaccounting.asp) Mental accounting is very beneficial in some cases, like budgeting, but in this case it may lead you where you shouldn't go. That $900K is no different than your $2.3M and, other than the tax aspects, no different than your IRA dollars. All the same, all investable and all spendable. As @mrfeh implies, you need to look at your whole portfolio and your investment policy statement, then make decisions that fit the big picture.

Re I bonds, viewed stand-alone they are wonderful things. Probably the best fixed-income options going. But $20K of I bonds repesents only a few tenths of one percent of your portfolio and their contribution as an inflation hedge is essentially zero. Personally, I would not screw with TreasuryDirect, transferring money, keeping track of another account, etc. for such a tiny piece. YMMV, however, but again I'm suggesting that you look at them as part of a whole not as a stand-alone thing.

VTI/VXUS are fine choices but without seeing the whole it's hard to say much more. The ratio you propose, just over 10% international is much less than DW and I have chosen; we hold VTWAX, which is the whole world and are about 45% international right now on a market cap basis. Here is a pretty good video: Dr. Kenneth French on home country bias: https://famafrench.dimensional.com/videos/home-bias.aspx And here are two Vanguard papers: Vanguard "Global equity investing:The benefits of diversification and sizing your allocation" https://www.vanguard.com/pdf/ISGGEB.pdf and Vanguard on International: https://investor.vanguard.com/investing/investment/international-investing

 

[euro]

I know you are saying that you are not worried about AA at this point, but since you are, apparently, now retired, I believe 90% equities is extremely aggressive. I don't know what your annual expenses are, but the size of your portfolio (what you told us) suggests that you may get into some trouble with a serious market correction.
This may be the ideal opportunity to tweak your AA. I think it is probably more important to get that right first, rather than worry too much about which mutual fund to pick or even what domestic to foreign equities ratio.

 

[Rickt]

I'm not sure that advice is good for everyone. VWILX paid a large LTCG this year and I'm glad it was in a tax deferred account, I didn't want that income.

+1.

I have VWILX (International growth) and VTRIX (International Value) in taxable account. Both these funds had large Cap gain distributions in December , 2020.
I now have a big tax bill.

 

[Closet_Gamer]

I know you are saying that you are not worried about AA at this point, but since you are, apparently, now retired, I believe 90% equities is extremely aggressive. I don't know what your annual expenses are, but the size of your portfolio (what you told us) suggests that you may get into some trouble with a serious market correction.
This may be the ideal opportunity to tweak your AA. I think it is probably more important to get that right first, rather than worry too much about which mutual fund to pick or even what domestic to foreign equities ratio.

I think this is very sound advice along with OldShooter’s point about viewing it as one large nest egg since it has common purpose.

 

[ItsTime]

Thank you all for the insights and feedback. I should really formalize an Investment Policy Statement given this new stage in my life. My focus for the past 25 years during my full time career has been on the accumulation phase hence the heavy exposure to equities. Time to assess my AA and reevaluate my risk tolerance.

I also appreciate the suggestions on certain funds and the links for further research/reading. You never stop learning!

 

[Montecfo]

Only thing I would add is you probably want a bit more cash than a year"s worth particularly given the low bond exposure.

 

[GrayHare]

I'd set cash aside for a few years worth of expenses, then put some of the remainder in real estate amd some in international equities.

 

[pb4uski]

+1.



I have VWILX (International growth) and VTRIX (International Value) in taxable account. Both these funds had large Cap gain distributions in December , 2020.

I now have a big tax bill.

That is a terrible burden. I'm here to help. Send me a check for the capital gain distributions that you received and I'll send you a check for the taxes.