Having trouble implementing Boglehead principles

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MrSluggo581
Posts: 2
Joined: Mon Sep 21, 2020 8:59 am

Having trouble implementing Boglehead principles

Post by MrSluggo581 »

Hello fellow BHs:
Would like community help in making over the messy portfolio of a very good friend of mine...oh alright me. Unsure how to handle a large % in long-held stocks and MFs in taxable accounts that have appreciated greatly. Few remaining opportunities to TLH. Also would like help with diversifying heavy allocation of NY munis given my 24% bracket, which is likely to stay the same or go down. Any other ideas welcome.

Emergency funds: 2 years expenses
Debt: none except for $325K mortgage 3/1 ARM 2.75%
Monthly expenses: approx $19K
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 10.2% State/Local
State of Residence: New York
Age: me 62, spouse 58
Desired Asset allocation: 60% stocks / 40% bonds
Portfolio size: mid 7 figures

Current retirement assets:

Symbol Description (Expense Ratio) % of portfolio

Taxable

MSFT Microsoft 13.3%
Hedge Fund (2.00) 6.6%
JNJ Johnson & Johnson 6.3%
VNYTX Vanguard New York Long-Term Tax-Exempt (0.17) 5.7%
VFIAX VANGUARD 500 INDEX ADMIRAL (0.14) 4.7%
PRNYX T. Rowe Price New York Tax-Free Bond Fund (0.52) 3.9%
EL ESTEE LAUDER 3.7%
SCZ iShares MSCI EAFE Small Cap ETF (0.40) 3.5%
VB VANGUARD SMALL-CAP INDEX FUND (0.05) 3.3%
SPY SPDR S&P500 ETF (0.10) 2.7%
NYF ISHARES NEW YORK MUNI BOND ETF (0.25) 1.8%
VBR Vanguard Small-Cap Value ETF (0.07) 1.6%
FACDX FIDELITY ADVISOR HEALTH CARE CL A (1.02) 1.3%
IBM INTERNATIONAL BUS MACH 1.2%
FXAIX FIDELITY 500 INDEX FUND (0.02) 0.9%
misc assorted MFs, ETFs and individual stocks 5.2%

My tIRA

VBILX VANGUARD INTERM-TERM BOND INDEX ADM (0.07) 5.3%
PRGFX T. ROWE PRICE GROWTH STOCK (0.65) 4.7%
BIV VANGUARD INTERMEDIATE-TERM BOND INDEX FUND (0.05) 3.5%
JPM JPMORGAN CHASE 1.9%
BND VANGUARD TOTAL BOND MARKET INDEX FUND (0.04) 1.3%
MCK MCKESSON 1.0%
misc assorted MFs, ETFs and individual stocks 1.6%

Spouse tIRA

IWP ISHARES TR RUS MD CP GR ETF (.24) 4.5%
FXAIX FIDELITY 500 INDEX FUND (0.02) 3.4%
BIV VANGUARD BD INDEX INTERMED (0.05) 2.3%
VEU VANGUARD INTL EQUITY INDEX ALLWRLD EX US (0.08) 2.1%
BND VANGUARD BD INDEX TOTAL BND MRKT (0.04) 1.3%
misc assorted MFs, ETFs and individual stocks 1.4%

Questions:
1. How to simplify
2. What to do with highly appreciated stock (esp. MSFT, JNJ) and hedge fund in taxable accounts - Few opp’tys to TLH
3. How to diversify fixed income holdings in taxable accounts: too much in NY tax exempt muni bond funds?
4. Where to place investments in the most tax-efficient accounts
Thank you in advance!
BigMoneyNoWhammies
Posts: 300
Joined: Tue Jul 11, 2017 11:58 am

Re: Having trouble implementing Boglehead principles

Post by BigMoneyNoWhammies »

1) You mentioned retirement assets, but it wasn't 100% clear to me whether you and your spouse were both retired, both still working, or somewhere in between. This is relevant because if one/both of you are still working, having the ability to make new retirement contributions may impact the best manner in which to simplify your portfolio compared to only being able to work with the selling or reallocating of existing assets.

2) Did you have a desired asset allocation for your simplified portfolio? Based on the various funds/stocks you hold it wasn't clear to me upon first reading if you were following any specific strategy or rationale for your portfolio. Knowing the end goal will help others advise you on how best to handle unwinding your portfolio into a more simplified set of holdings.

3) Most BH's would be uncomfortable with a significant % of their portfolio being in a handful of individual stocks, which I suspect is partly driving your desire for simplification. The subject of unloading large individual stock holdings has come up on this forum in the past, and you may wish to search the forum for those threads, but in general the options offered in those threads were to donate the shares to charity to limit tax liability, sell them off in one lump sale, or spread out selling the shares over several years. The best option is highly individual depending on your specific situation, especially if selling above a certain amount in one year will bump you up a tax bracket.

If your portfolio is large enough that it is very likely you won't need to utilize the individual stocks to fund your retirement, there's also always the option to leave them for your heirs to inherit so that they get a step up in the cost basis of the shares, letting them avoid the tax implications of large unrealized capital gains that you're worried about now. High Net Worth individuals often place highly appreciated stocks in a trust for their heirs, which also helps them reduce their own tax burden. I'd certainly consult an estate attorney before moving forward on this course of action.

3) The BH site has a breakdown on where it is generally best to hold which type of assets in terms of tax efficiency that may be helpful for you to review, which can be found here: https://www.bogleheads.org/wiki/Tax-eff ... _placement

4) Regardless of the answers to my first two points, if I was in your shoes the first thing I would do is turn off any automatic dividend reinvestment plans I had enrolled in. For a portfolio of your size this is tens of thousands of dollars, possibly more, in annual dividend income that you can avoid having to reallocate while you decide how best to proceed in making changes to your portfolio.
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FelixTheCat
Posts: 2035
Joined: Sat Sep 24, 2011 12:39 am

Re: Having trouble implementing Boglehead principles

Post by FelixTheCat »

I see in a previous post regarding tax efficient placement of assets. Bonds in tax deferred accounts and equities in taxable accounts is the simple response.

Tax deferred accounts can be consolidated to a bond fund of your choice. Total Bond Market Index is used by a lot of Bogleheads.

The greatly appreciated equities in your taxable accounts generate dividends. Take the dividends and invest them in your S&P 500 index until you get more TLH opportunities. A lot of Bogleheads use Total Stock Market Index fund for their equity choice.

For the munis, have you considered something like a nationwide muni fund? Vanguard Intermediate Term Tax Exempt is a decent choice. There's a short-term tax exempt fund too.
Felix is a wonderful, wonderful cat.
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Duckie
Posts: 9776
Joined: Thu Mar 08, 2007 1:55 pm

Re: Having trouble implementing Boglehead principles

Post by Duckie »

MrSluggo581 wrote:Age: me 62, spouse 58
Desired Asset allocation: 60% stocks / 40% bonds
I'd be planning to increase the 40% bonds to at least 45% soon.
How to simplify
In taxable:
  • Turn OFF all automatic dividend/distributions reinvestment. Send it all to your settlement fund. Don't add to your current assets for now.
  • Figure your cost basis for every asset. Then figure the current gain/loss if sold now. Sell everything with a loss (even the good ones you might buy back later) while keeping an eye out for wash sales. Then sell enough with a gain to get to zero, preferably assets with high expense ratios. Then reevaluate.
What to do with highly appreciated stock (esp. MSFT, JNJ) and hedge fund in taxable accounts - Few opp’tys to TLH
If you donate to charity consider opening a Donor Advised Fund and donating some of the highly appreciated assets to it.

You're not trying to tax-loss harvest. You're trying to divest yourself of a mess of stocks/funds/ETFs.
How to diversify fixed income holdings in taxable accounts: too much in NY tax exempt muni bond funds?
You're going to need some bonds in taxable so decide how much of the 11.4% NY tax-exempt you want to keep and figure out the cost to sell the rest. Later when you do add more tax-exempt bonds to taxable add a national muni bond like MUB or VTEB.
Where to place investments in the most tax-efficient accounts
You have almost 35% of your portfolio in your TIRAs. Put all your taxable bonds there, VBTLX or BND. With a 40% bond AA and over 11% in taxable you could put 28-30% bonds in the TIRAs. Fill the remaining space with VTIAX or VXUS for now. You'll eventually need all the TIRA space for bonds.
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