Painful Asset Allocation - Set Me Straight

[target2019]

ShadesOn Portfolio

Sheet1 % of total,Current Funds, etc.,Grand Total,Suggested Action $1,200,000.00 Employer 401K - 7.2% of portfolio,7.2%,$86,400.00 FXNAX Fidelity Freedom Index 2050 Premier - 4%,Use a Target Retirment Fund FSSNX Fidelity Large Cap Value Index - 14.7%,Sell and add to Target Retirement Fund FSMDX ...

docs.google.com

You need a plan that lists the actions to take. I'm not an adviser, but would begin fleshing out a master spreadsheet to help with the trades.

Some decisions are very simple and easy to carry out. For example, in your 401(k) you can rebalance 100% to a Target Fund or something simple in your fund selection. Then direct 100% future contributions to the Target Fund.

Other decisions require more thought. For example, in your brokerage you can evaluate the positions and probably eliminate capital gains. But more thinking and understanding is required, for sure.

So, take one account at a time, look at all of the suggestions in the thread, and list the steps to take.

I don't mean to suggest my spreadsheet is a complete solution, but you should start trying to understand fund categories and how asset allocation can be set and followed. Since you have 15 years to go (anticipated), there is time.

What investing book(s) have you read?

 

[ShadesOn]

Error on your first post - FXNAX is the Fidelity US Bond Index Fund. FRLPX is the Fidelity Freedom Fund 2050.

In my opinion, I would sell FXNAX. After you get a handle on your stock/fixed allocation, you may want to swap some of your Target Date funds to a Total Stock Index fund and/or SP500 Index fund.

Thanks for catching that! I tried to change it to eliminate further confusion, but can't seem to edit the post. Based on the feedback I think I will sell the target date (in brokerage acct) and move to total stock.

 

[Al18]

Not a good idea, unless it’s a small holding because you need to pay long term capital gains tax on all sales from a brokerage account.

There is no tax due on funds you move in an IRA, Roth IRA, 401K or Roth 401K.

 

[OldShooter]

Not a good idea, unless it’s a small holding because you need to pay long term capital gains tax on all sales from a brokerage account.

The target date fund holding is about 1.2% of the total portfolio, so how much tax will be due? Starbucks money.

OP actually has four tiny positions in his taxable account. IMO all should be liquidated and the tiny tax consequences ignored. As I said above I am not in favor of a 5% lower limit on the size of a single position; I think the limit should be much bigger, but in interest of weeding the garden ditching these tiny positions seems to me to be a no-brainer.

 

[OldShooter]

... I think I will sell the target date (in brokerage acct) and move to total stock.

OP, let me try to make a subtle point: As you weed the garden, selling the things you want to sell on the way to simplification, just think of the proceeds as money. Fungible money. The source of the money becomes irrelevant as soon as the trade settles. So when you get done selling, you will simply have a pot of money to be invested, together with what you still hold, according to your chosen, now-simple, strategy. Thinking in terms of what positions you sold to create the pot is irrelevant to your strategy.

And ... take it slow. There is no rush here and plenty of time for thinking. If you rush into some purchases that turn out to be mistakes you will remember it forever. If you patiently plan like a chess game and get the right result you will quickly forget the few weeks (or months!) it took you to plan the winning game.

 

[Route246]

Agree with most of what has been said, however, what is your risk tolerance? In general, if it is high then you lean towards equities and if it is low you lean towards fixed income. I'm 67 and will retire next year and have FI but my risk tolerance is very high because our FI many times exceeds our needs. We can lose 75% and still be FI, albeit we wouldn't be very happy about that. If your risk tolerance is low then stick to treasuries until the rate drops too much, then you need to seek alternatives, again, based on your risk tolerance. Most recently, we have been selling off our minor holdings and concentrating on SPY and VFIAX (500 index ETF/funds). Corrections can be painful but the risk tolerance is there.

Instead of 500 funds the whole world funds are also a good place to land.

 

[ShadesOn]

OP, let me try to make a subtle point: As you weed the garden, selling the things you want to sell on the way to simplification, just think of the proceeds as money. Fungible money. The source of the money becomes irrelevant as soon as the trade settles. So when you get done selling, you will simply have a pot of money to be invested, together with what you still hold, according to your chosen, now-simple, strategy. Thinking in terms of what positions you sold to create the pot is irrelevant to your strategy.

And ... take it slow. There is no rush here and plenty of time for thinking. If you rush into some purchases that turn out to be mistakes you will remember it forever. If you patiently plan like a chess game and get the right result you will quickly forget the few weeks (or months!) it took you to plan the winning game.

Great advice that I will absolutely follow.

 

[ShadesOn]

ShadesOn Portfolio

Sheet1 % of total,Current Funds, etc.,Grand Total,Suggested Action $1,200,000.00 Employer 401K - 7.2% of portfolio,7.2%,$86,400.00 FXNAX Fidelity Freedom Index 2050 Premier - 4%,Use a Target Retirment Fund FSSNX Fidelity Large Cap Value Index - 14.7%,Sell and add to Target Retirement Fund FSMDX ...

docs.google.com

You need a plan that lists the actions to take. I'm not an adviser, but would begin fleshing out a master spreadsheet to help with the trades.

Some decisions are very simple and easy to carry out. For example, in your 401(k) you can rebalance 100% to a Target Fund or something simple in your fund selection. Then direct 100% future contributions to the Target Fund.

Other decisions require more thought. For example, in your brokerage you can evaluate the positions and probably eliminate capital gains. But more thinking and understanding is required, for sure.

So, take one account at a time, look at all of the suggestions in the thread, and list the steps to take.

I don't mean to suggest my spreadsheet is a complete solution, but you should start trying to understand fund categories and how asset allocation can be set and followed. Since you have 15 years to go (anticipated), there is time.

What investing book(s) have you read?

I'm at a loss of words, thank you for taking the time to put that together. I'm somewhat of a visual learner and that helps bring clarity to how I can start to transition my portfolio.

As for investing books, not very many. Lots of Millionaire Next Door genre. I will say that I have spent countless hours listening to personal finance podcasts such as The Money Guy Show and have learned quite a bit from them.

Do you have some suggestions?

 

[target2019]

I'm at a loss of words, thank you for taking the time to put that together. I'm somewhat of a visual learner and that helps bring clarity to how I can start to transition my portfolio.

As for investing books, not very many. Lots of Millionaire Next Door genre. I will say that I have spent countless hours listening to personal finance podcasts such as The Money Guy Show and have learned quite a bit from them.

Do you have some suggestions?

I understand the visual learner characteristic. There is the present on the left, and future on the right. You have to figure out the middle. You can describe that in many, many words, but you don't have to.

One of the earliest books I started with was the 2007 eidition of:

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books, Big Profits) Hardcover – Illustrated, October 16, 2017

There may be something simpler, but I can't think of a better book right now.

Bernstein is another favorite. This isn't a book, but a well-written paper to get started. https://www.etf.com/docs/IfYouCan.pdf

 

[targatom2019]

here is my suggestion for a basic 3 fund portfolio:

Roth: Total US market or S&P 500

401K or T-IRA: total us bond or US treasury

Brokerage: Total US market( or S&P500), total International


I would not add bonds until age 50, keep it simple and very tax efficient.

 

[dknighd]

#1 You are doing great! You have a lot of money.
#2 I think target date funds are great for a beginner, and maybe great for a retiree, but not so great for somebody in the middle. You are in the middle. Target date funds tend to add more expense, and almost never tax efficient. But they are convenient.
#3 you have a lot of money (82% of 43% if I read it correctly) in MM. That might be too much.

I'd ditch the target date funds, maybe reconsider them when you are old and lazy.

 

[ShadesOn]

#1 You are doing great! You have a lot of money.
#2 I think target date funds are great for a beginner, and maybe great for a retiree, but not so great for somebody in the middle. You are in the middle. Target date funds tend to add more expense, and almost never tax efficient. But they are convenient.
#3 you have a lot of money (82% of 43% if I read it correctly) in MM. That might be too much.

I'd ditch the target date funds, maybe reconsider them when you are old and lazy.

Thanks for the suggestions. Already lazy and feeling old kdnighd! I'm sold on the idea of eliminating the target date funds and will start this process soon. I know our cash position is not healthy in regards to future growth potential, and I'm ready to change that. It's painful to reflect on the missed opportunity over the last 4-5 years.

 

[target2019]

The #1 attraction for a Target fund is simplicity. Not much for the investor to do.

But there is a cost for that convenience to consider.

The feature I dislike is the allocation across U.S., Int'l, U.S. Bond and Int'l Bond. Vanguard Mutual Fund Profile | Vanguard

I don't think OP has a set asset allocation yet.