Help! I think I screwed up...

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Hamburglar123
Posts: 4
Joined: Mon Jan 11, 2016 10:31 am

Help! I think I screwed up...

Post by Hamburglar123 »

Please help, I'm not sure what to do here, and I think I screwed up badly...

I am 28 years old. I received a windfall at 20. It is now worth about 1.5mil...it was worth about 1.7mil before this recent crash.

I am supposed to be following a 28% bond, 72% equities portfolio. However....when it came time to re-allocate this year, I just couldn't do it. Now I am kicking myself. I am currently at about 11% bonds, 89% equities.

Portfolio allocation:

Taxable Acct
VTCLX Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares 72.3%
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares 6.3%
VTIAX Vanguard Total International Stock Index Fund Admiral Shares 5.2%
VTSAX Vanguard Total Stock Market Index Fund Admiral Shares 11.1%

Roth IRA
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares 5.1%

At the same time, I have another trust that is not included in this allocation. I have no control over this trust (it's run by Wells Fargo). That trust terminates this summer with my next birthday. When it terminates, I will immediately be cashing out and moving everything to Vanguard. It was worth about 1.1m but is now worth about 900k due to the crash.

TRUST
Real Assets 2.9%
Cash 3.5%
Equities 80.3%
Alternative Investments 8.3%
Fixed income 5%

My question...should I rebalance my Vanguard portfolio right now in order to get myself to 28% bonds? Or is that considered selling low? Instead, should I wait until June when I was planning to terminate the Wells Fargo trust anyway, and then use those funds to purchase bonds and rebalance my portfolio?

Thanks for your help!!
theorist
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Re: Help! I think I screwed up...

Post by theorist »

The standard response is: you should have an IPS with rebalancing bands, and you should rebalance to your allocation when you hit the bands.

For your 72/28 allocation with pretty standard 5% bands, you’d allocate back at 77% equities. You’re above that. My advice would be — if you want to, allocate back to 72/28 now, and then ** just follow the IPS **.

I note that since equities are getting cheaper now, though, you might do better to keep the shares and wait for them to reappreciate, and to get to your allocation by adding new money to raise your amount in bonds till you’re at 72/28 instead.

History shows that just holding to your IPS and continuing to invest will pay off. It could always be different this time, but no good reason to think so. The market will take time to recover, but it is a very reasonable article of faith that it will recover and then continue to grow. It may go lower first. In the words of Douglas Adams, “Don’t Panic.”

Good luck!
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Watty
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Re: Help! I think I screwed up...

Post by Watty »

Hamburglar123 wrote: Wed Mar 11, 2020 11:24 pm I am 28 years old. I received a windfall at 20. It is now worth about 1.5mil...it was worth about 1.7mil before this recent crash.

I am supposed to be following a 28% bond, 72% equities portfolio. However....when it came time to re-allocate this year, I just couldn't do it.
Yes you should rebalance now.

One thing to keep in mind is that you may be down from the market high but part of the reason that your balance was so high then was that you were overweight in stocks.

If you had been consistently at your target asset allocation you would not have gotten so much growth in 2019.

If you go back and recalculate the numbers since the last time you rebalanced you may not be all that far off from where you would have been if you had been rebalancing all along.

Some people will rebalance when their asset allocation is 5% away from their target so you may want to do that in the future.
BlueMoonXD
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Joined: Sat Sep 14, 2019 11:50 pm

Re: Help! I think I screwed up...

Post by BlueMoonXD »

You're 28 years old with one and a half million dollars in savings, with another 900k coming. You're going to be in amazing shape either way.

Personally, I don't think it's worth agonizing over your current mis-allocation and locking in losses now to correct for prior misjudgements. At this point I would just treat it as though your allocation were indeed 90/10 (reasonable enough at that age) and stay the course. If the market continues to dip your AA will shift closer to your target anyways. Then when you terminate the trust you can correct at that time without ever having realized any losses.

That said, the main takeaway is to choose an allocation and stick with it. If biting the bullet now and taking some losses helps ensure that then it may be the best course of action. If a further dip in the market may cause you to second guess and panic sell -- then rebalance immediately.
Pseybert
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Re: Help! I think I screwed up...

Post by Pseybert »

I hate my life.
MotoTrojan
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Re: Help! I think I screwed up...

Post by MotoTrojan »

Pseybert wrote: Thu Mar 12, 2020 6:16 am I hate my life.
I’m with you there.

OP, I would go 100% equity if I were you and then stop looking. But really, stay put and stop worrying.
billfromct
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Re: Help! I think I screwed up...

Post by billfromct »

When do you need to use this money? Time may allow you to ride out this bear market.

Do you have any money in a money market fund for emergencies? The Total Bond Market Index can be used for emergencies, but a money market fund for some amount would be a lot more convenient.

If I was 28 years old with 30-40 years before retirement, I would be 100% stocks in my Roth IRA, at least for the next 5-10 years. You could always move into some bonds as you get closer to retirement. I have recommended to my kids, late 20s/early 30s, to be 100% stocks in their Roth IRA since they will have a good amount in tax deductible retirement funds. They can adjust as they get closer to retirement.

Also if the trust fund throws off a lot of capital gains when you terminate in June, you may not be eligible to contribute to a regular Roth IRA. The ability to fund a regular Roth IRA starts to phase out when your modified adjusted gross income hits $124k for a single person in 2020.

Of course a "back door" Roth IRA may be appropriate if you don't have a tax deductible IRA. You did not mention if you have a tax deductible IRA in your original post.

bill
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abuss368
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Re: Help! I think I screwed up...

Post by abuss368 »

BlueMoonXD wrote: Wed Mar 11, 2020 11:49 pm You're 28 years old with one and a half million dollars in savings, with another 900k coming. You're going to be in amazing shape either way.
^ This. Agreed.
John C. Bogle: “Simplicity is the master key to financial success."
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abuss368
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Re: Help! I think I screwed up...

Post by abuss368 »

Hamburglar123 wrote: Wed Mar 11, 2020 11:24 pm Please help, I'm not sure what to do here, and I think I screwed up badly...

I am 28 years old. I received a windfall at 20. It is now worth about 1.5mil...it was worth about 1.7mil before this recent crash.

I am supposed to be following a 28% bond, 72% equities portfolio. However....when it came time to re-allocate this year, I just couldn't do it. Now I am kicking myself. I am currently at about 11% bonds, 89% equities.

Portfolio allocation:

Taxable Acct
VTCLX Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares 72.3%
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares 6.3%
VTIAX Vanguard Total International Stock Index Fund Admiral Shares 5.2%
VTSAX Vanguard Total Stock Market Index Fund Admiral Shares 11.1%

Roth IRA
VBTLX Vanguard Total Bond Market Index Fund Admiral Shares 5.1%

At the same time, I have another trust that is not included in this allocation. I have no control over this trust (it's run by Wells Fargo). That trust terminates this summer with my next birthday. When it terminates, I will immediately be cashing out and moving everything to Vanguard. It was worth about 1.1m but is now worth about 900k due to the crash.

TRUST
Real Assets 2.9%
Cash 3.5%
Equities 80.3%
Alternative Investments 8.3%
Fixed income 5%

My question...should I rebalance my Vanguard portfolio right now in order to get myself to 28% bonds? Or is that considered selling low? Instead, should I wait until June when I was planning to terminate the Wells Fargo trust anyway, and then use those funds to purchase bonds and rebalance my portfolio?

Thanks for your help!!
Welcome to the forum. I would roll everything to Vanguard this summer as you mentioned and combine accounts. This will provide a better picture.

I would also consider if Total Bond is "ok" in a taxable account. Depending on your individual tax situation it may be, or perhaps Intermediate Term Tax Exempt is better.

I would also remove the Tax Managed Capital Appreciation and combine with Total Stock and Total International as these two are low tax cost funds.
John C. Bogle: “Simplicity is the master key to financial success."
dknightd
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Re: Help! I think I screwed up...

Post by dknightd »

At this point I'd let it ride, and rebalance with the new funds. Then keep to your plan in the future.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds from the market, invest the funds. Retired 9/19. Mortgage payed off 5/21.
3funder
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Re: Help! I think I screwed up...

Post by 3funder »

Watty wrote: Wed Mar 11, 2020 11:46 pm
Hamburglar123 wrote: Wed Mar 11, 2020 11:24 pm I am 28 years old. I received a windfall at 20. It is now worth about 1.5mil...it was worth about 1.7mil before this recent crash.

I am supposed to be following a 28% bond, 72% equities portfolio. However....when it came time to re-allocate this year, I just couldn't do it.
Yes you should rebalance now.

One thing to keep in mind is that you may be down from the market high but part of the reason that your balance was so high then was that you were overweight in stocks.

If you had been consistently at your target asset allocation you would not have gotten so much growth in 2019.

If you go back and recalculate the numbers since the last time you rebalanced you may not be all that far off from where you would have been if you had been rebalancing all along.


Some people will rebalance when their asset allocation is 5% away from their target so you may want to do that in the future.
+1. You're OK--just rebalance to the target allocation. Also, please see the underlined and bolded statements.
Global stocks, US bonds, and time.
fru-gal
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Location: New England

Re: Help! I think I screwed up...

Post by fru-gal »

Pseybert wrote: Thu Mar 12, 2020 6:16 am I hate my life.
Do you have your health? A family? Cats? A job? Then your life is good.

OP, if I were sitting on 2 million, I would put half of it in very safe stuff, like CDs are still at 2-3% in my area, so you'd stay even with inflation. I leave discussion of the other stuff to others, except to say I have a three Vanguard fund portfolio with that type of money and I don't regret it.
Topic Author
Hamburglar123
Posts: 4
Joined: Mon Jan 11, 2016 10:31 am

Re: Help! I think I screwed up...

Post by Hamburglar123 »

BlueMoonXD wrote: Wed Mar 11, 2020 11:49 pm You're 28 years old with one and a half million dollars in savings, with another 900k coming. You're going to be in amazing shape either way.

Personally, I don't think it's worth agonizing over your current mis-allocation and locking in losses now to correct for prior misjudgements. At this point I would just treat it as though your allocation were indeed 90/10 (reasonable enough at that age) and stay the course. If the market continues to dip your AA will shift closer to your target anyways. Then when you terminate the trust you can correct at that time without ever having realized any losses.

That said, the main takeaway is to choose an allocation and stick with it. If biting the bullet now and taking some losses helps ensure that then it may be the best course of action. If a further dip in the market may cause you to second guess and panic sell -- then rebalance immediately.
Thank you, I think I will follow this plan, and I will correct when I terminate the trust. I know plenty of people my age with allocations similar to this (though with significantly less NW), and I've always been more conservative than them. That is, until I got swept away by my first extended bull market, and kept dragging my feet on re-allocating.... But I think I just need to re-read The Bogleheads' Guide to Investing and stay the course, at least until I terminate the other trust in June and can reset my balance to 72/28.

Thanks!
MakingBacon
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Joined: Tue Oct 02, 2018 1:15 am

Re: Help! I think I screwed up...

Post by MakingBacon »

fru-gal wrote: Thu Mar 12, 2020 7:49 am
Pseybert wrote: Thu Mar 12, 2020 6:16 am I hate my life.
Do you have your health? A family? Cats? A job? Then your life is good.

OP, if I were sitting on 2 million, I would put half of it in very safe stuff, like CDs are still at 2-3% in my area, so you'd stay even with inflation. I leave discussion of the other stuff to others, except to say I have a three Vanguard fund portfolio with that type of money and I don't regret it.
What institutions are offering CDs at 2-3%? I haven't seen rates that high for a CD in years.
Topic Author
Hamburglar123
Posts: 4
Joined: Mon Jan 11, 2016 10:31 am

Re: Help! I think I screwed up...

Post by Hamburglar123 »

Thank you for your responses. This has been extremely helpful, and I have decided to rebalance in June when I get the influx of cash from dissolving the trust.

Another point I didn't mention, but should have: last Fall, my husband and I decided to quit our jobs and travel for a few months. This was our "last hurrah" before we settle down and have kids. Our travels just came to an abrupt end, and we are currently both unemployed with no income except for $3,000 monthly in rental property income (from a paid-off house). That income is up in the air as well, as this is a student rental and who knows if the school will continue teaching classes on campus. If the tenants do vacate, this house is where we will be riding out the storm.

I have about $35k cash for emergencies, and that will cover us until the trust dissolves in June. We are now beginning to apply for jobs and will try to become employed ASAP, but obviously this is the worst possible time to be looking. Many companies are on hiring freezes until future notice.

Suffice to say, I feel so stupid for not seeing this coming and taking a more conservative investment approach. Who knows how long this will last, and in the meantime our hands are tied and we will just be focusing on continuing to apply for jobs and furthering our skills/certifications for our careers.

Thanks for all of your help.
fru-gal
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Location: New England

Re: Help! I think I screwed up...

Post by fru-gal »

MakingBacon wrote: Thu Mar 12, 2020 11:37 am
fru-gal wrote: Thu Mar 12, 2020 7:49 am
Pseybert wrote: Thu Mar 12, 2020 6:16 am I hate my life.
Do you have your health? A family? Cats? A job? Then your life is good.

OP, if I were sitting on 2 million, I would put half of it in very safe stuff, like CDs are still at 2-3% in my area, so you'd stay even with inflation. I leave discussion of the other stuff to others, except to say I have a three Vanguard fund portfolio with that type of money and I don't regret it.
What institutions are offering CDs at 2-3%? I haven't seen rates that high for a CD in years.
Look at depositacccounts.com for the Rhode Island area. In your area wherever it is, look at credit unions, not banks.
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