Portfolio review with concentrated position

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Topic Author
arrived@61
Posts: 7
Joined: Sun Sep 26, 2021 9:02 pm

Portfolio review with concentrated position

Post by arrived@61 »

This is my first post. I have been wanting to do this for some time. I hope the detail in the portfolio section is aligned to the requested format and detail.

In second year of retirement. I am trying to clean things up and move to a simpler investment portfolio. I have put this off too long. I have worked with a Fidelity advisor which I saw as more of a sales meeting once a year. I was not happy with the suggestions of buying annuities or moving to a SMA relationship. I will give him credit for pointing me to a DAF which helped me with taxes.

I have been focused on divesting of a concentrated position in GPN with low basis. This year I am currently in the 0 CG range. The proceeds currently are in SPAXX and FNSOX. I intended to get an investment plan for these proceeds but we were looking to move. Given the housing market, we wanted to hold on to enough for a cash purchases if the opportunity surfaced. Also contributed a multi-year giving amount of GPN 2 years ago to DAF.
My 401k recently became a concern when reading about future tax implications and the RMD picture. I have been thinking about possible Roth conversions or rather begin 401k distributions to lengthen the time span before RMD hits. Possibly drawing down taxable and non-taxable proportionately.

I had some deferred earned income last year and used that to fund 2 IRAs at Vanguard. This was to reduce tax liability. I have room in my investment income this year to convert the IRAs to Roth. These accounts were opened at Vanguard to get exposure to the platform. I had considered moving everything to Vanguard earlier this year. I really like the fund selection but not so much the platform.

My plan was to divest of GPN to cover living expense and defer SS to FRA (3 yrs. out) or 70. Currently utilizing cash at Ally for living expense (2 years remaining). The cash at Ally was set aside during my final working years to have the flexibility to retire early without SS. This money was held in a savings account and several CDs (all except one have matured).

Emergency Funds: Yes (MM not included in asset list)
Debt: 0
Tax Filing Status: MFJ
Tax Rate: 2021: Fed. 12%, State 5.75%
2020: Fed. 24%/16% Marginal/Avg., State 5.6%
2019: Fed. 35%/22% Marginal/Avg., State 5.7%
State of Residence: Georgia
Age: His: 63 Her: 65
Desired Asset Allocation: 30-40 Stocks 70-60 Bonds (I am risk averse, happy with an average return)
Total Portfolio: 3.0M
Budget: 3% spending ratio to assets
Actual: 2020: -15%, 2021: YTD -10% *lower spending attributed to reduced travel
Current Retirement Assets
Taxable:
Ally (Cash accumulated to fund early, 62, retirement. Currently monthly draw down to cover living expenses)
5.99% Savings account
0.86% CD

Fidelity
13.79% Fidelity Government Money Market (SPAXX), (0.42%)
6.69% Fidelity Short Term Bond Index (FNSOX), (.03%)
16.29% Global Payments (GPN)

Ameriprise (inherited, bought CMCSA and SO several years back, otherwise no change to original)
0.16% Cash
0.57% Invesco Trust Invt Grade Muns (VGM), (1.83%)
0.79% Columbia Dividend Oppty CL A (INUTX), (1.05%)
0.27% Columbia Select Mid Cap Value CL A (CMUAX), (1.13%)
0.09% Applied Materials (AMAT)
0.11% Comcast Corp CL A (CMCSA)
0.03% Corning Inc (GLW)
0.00% Lumen Technologies Inc LA (LUMN)
0.53% Southern Company (SO)
0.00% T-Mobile US Inc (TMUS)

His 401K:
Fidelity 51.80% Vanguard Target Retirement Income Trust Plus (.06%)

His Traditional IRA:
Vanguard 0.24% Vanguard Target Retirement Income (VTINX), (.12%)

Her Traditional IRA:
Vanguard 0.24% Vanguard Target Retirement Income (VTINX), (.12%)

Donor Advised Fund
Fidelity 1.54% Fidelity Advisor Asset Manager 20% - Class Z (.49%)

Questions:
1) Continue to divest concentrated stock position in GPN or begin converting 401k to Roth or take some distributions?
2) Thoughts regarding Fidelity funds to better allocate Fidelity taxable investments.
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Portfolio review with concentrated position

Post by 000 »

1) Yes, divesting GPN would be my #1 focus. Personally I would be willing to pay some taxes (though not up to the higher brackets) to reduce this position as soon as reasonable, targeting a reduction to no more than 5% of the portfolio. You might also consider buying puts on GPN. You would need to evaluate the cost of the puts and potential tax implications of holding a put on a stock you own (e.g. if still in short term gains resetting the short term clock, possibly causing wash sales if selling a lot for a loss, etc.).

2) I would probably use ETFs in the Fidelity taxable due to no cap gains distributions and portability. Fidelity has their own ETFs in addition to big providers such as Vanguard.
billfromct
Posts: 2046
Joined: Tue Dec 03, 2013 8:05 am

Re: Portfolio review with concentrated position

Post by billfromct »

According to the Vanguard frequency asked questions section, “ETFs distribute capital gains (usually in December each year) & dividends (monthly or quarterly depending on the ETF). Even though capital gains for index ETFs are rare…”

I don’t own any ETFs but I thought it helpful for people to understand that, according to the Vanguard FAQ information, ETF cap gains & dividend distributions are possible.

bill
Topic Author
arrived@61
Posts: 7
Joined: Sun Sep 26, 2021 9:02 pm

Re: Portfolio review with concentrated position

Post by arrived@61 »

000 wrote: Sat Oct 16, 2021 1:19 am 1) Yes, divesting GPN would be my #1 focus. Personally I would be willing to pay some taxes (though not up to the higher brackets) to reduce this position as soon as reasonable, targeting a reduction to no more than 5% of the portfolio. You might also consider buying puts on GPN. You would need to evaluate the cost of the puts and potential tax implications of holding a put on a stock you own (e.g. if still in short term gains resetting the short term clock, possibly causing wash sales if selling a lot for a loss, etc.).

2) I would probably use ETFs in the Fidelity taxable due to no cap gains distributions and portability. Fidelity has their own ETFs in addition to big providers such as Vanguard.
Thank you for some confirmation regarding my original plans. My basis in the GPN is between 15% and 20% of current market price. So it does result in a hefty gain. I have been slowly divesting. The DAF has helped and I may continue to use it to fund my annual budget for charitable. This whole RMD and higher tax commentary associated with the economy is what threw me off the rails.
Topic Author
arrived@61
Posts: 7
Joined: Sun Sep 26, 2021 9:02 pm

Re: Portfolio review with concentrated position

Post by arrived@61 »

billfromct wrote: Sat Oct 16, 2021 5:39 am According to the Vanguard frequency asked questions section, “ETFs distribute capital gains (usually in December each year) & dividends (monthly or quarterly depending on the ETF). Even though capital gains for index ETFs are rare…”

I don’t own any ETFs but I thought it helpful for people to understand that, according to the Vanguard FAQ information, ETF cap gains & dividend distributions are possible.

bill
Thank you for the input. I consider myself a novice when it comes to investing. From my understanding, ETFs are more tax efficient. To what extent and how it might compare to other approaches, I am ignorant. I tend to be drawn to the diversified "one fund" solution. I look at the Fidelity FFNOX, but the allocation is not aligned with my risk tolerance.
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retired@50
Posts: 12709
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Portfolio review with concentrated position

Post by retired@50 »

arrived@61 wrote: Sat Oct 16, 2021 10:48 am
Thank you for the input. I consider myself a novice when it comes to investing. From my understanding, ETFs are more tax efficient. To what extent and how it might compare to other approaches, I am ignorant. I tend to be drawn to the diversified "one fund" solution. I look at the Fidelity FFNOX, but the allocation is not aligned with my risk tolerance.
One fund solutions are convenient, but without too much work you can build a 3-fund portfolio that suits your own risk tolerance. Just adjust the stock/bond ratio to taste.

See link: https://www.bogleheads.org/wiki/Three-fund_portfolio

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Portfolio review with concentrated position

Post by 000 »

Cap gains distributions are indeed possible from ETFs usually during the first few years of operation or in the case of unusual ETFs.

Vanilla ETFs like VTI, VXUS, ITOT, IXUS, etc. are very unlikely to ever distribute cap gains.
Topic Author
arrived@61
Posts: 7
Joined: Sun Sep 26, 2021 9:02 pm

Re: Portfolio review with concentrated position

Post by arrived@61 »

retired@50 wrote: Sat Oct 16, 2021 10:51 am
arrived@61 wrote: Sat Oct 16, 2021 10:48 am
Thank you for the input. I consider myself a novice when it comes to investing. From my understanding, ETFs are more tax efficient. To what extent and how it might compare to other approaches, I am ignorant. I tend to be drawn to the diversified "one fund" solution. I look at the Fidelity FFNOX, but the allocation is not aligned with my risk tolerance.
One fund solutions are convenient, but without too much work you can build a 3-fund portfolio that suits your own risk tolerance. Just adjust the stock/bond ratio to taste.

See link: https://www.bogleheads.org/wiki/Three-fund_portfolio

Regards,
Agreed. It is more of my "lazy portfolio" view or rather "laziest portfolio" using one fund.
babystep
Posts: 763
Joined: Tue Apr 09, 2019 9:44 am

Re: Portfolio review with concentrated position

Post by babystep »

About 480k of GPN. Cap gain rate is zero. I would say sell all the way to zero capital gains tax rate. If you keep doing that for 4-5 years and then GPN position is gone and you would not have paid any tax on the gains.

For the rest of the funds in taxable, since you prefer single fund then I would say keep 1-2 years of expenses in the CD and with the rest just buy VTINX.

After GPN is gone then start withdrawing from 401k, sell some in taxable and convert to Roth.
Topic Author
arrived@61
Posts: 7
Joined: Sun Sep 26, 2021 9:02 pm

Re: Portfolio review with concentrated position

Post by arrived@61 »

babystep wrote: Sat Oct 16, 2021 9:06 pm About 480k of GPN. Cap gain rate is zero. I would say sell all the way to zero capital gains tax rate. If you keep doing that for 4-5 years and then GPN position is gone and you would not have paid any tax on the gains.

For the rest of the funds in taxable, since you prefer single fund then I would say keep 1-2 years of expenses in the CD and with the rest just buy VTINX.

After GPN is gone then start withdrawing from 401k, sell some in taxable and convert to Roth.
Thank you for mapping an approach. While this has been my plan, with the exception of using VTINX (it's the friction of paying the $75 fee at Fidelity although minimal with frequency I would be investing). More specifically, I my plan was to divest annually up to the 0% capital gains rate. Using some of the proceeds to replenish cash (Ally account). I just could not determine whether that is the better route vs using the next few years to convert 401k to Roth IRA while in a low bracket (using cash in taxable to replenish Ally). What I am hearing from the feedback received is to continue to take the profits from GPN and reducing risk (priority). Then use VTINX (or comparable?) to allocate non-invested taxable plus future GPN residual after meeting expense needs.

While I would like to stay within 0 CG rates, I wanted to also stay below IRMAA thresholds.
Again very helpful for me to solidify my approach going into 2022.
babystep
Posts: 763
Joined: Tue Apr 09, 2019 9:44 am

Re: Portfolio review with concentrated position

Post by babystep »

arrived@61 wrote: Sun Oct 17, 2021 6:53 pm
babystep wrote: Sat Oct 16, 2021 9:06 pm About 480k of GPN. Cap gain rate is zero. I would say sell all the way to zero capital gains tax rate. If you keep doing that for 4-5 years and then GPN position is gone and you would not have paid any tax on the gains.

For the rest of the funds in taxable, since you prefer single fund then I would say keep 1-2 years of expenses in the CD and with the rest just buy VTINX.

After GPN is gone then start withdrawing from 401k, sell some in taxable and convert to Roth.
Thank you for mapping an approach. While this has been my plan, with the exception of using VTINX (it's the friction of paying the $75 fee at Fidelity although minimal with frequency I would be investing). More specifically, I my plan was to divest annually up to the 0% capital gains rate. Using some of the proceeds to replenish cash (Ally account). I just could not determine whether that is the better route vs using the next few years to convert 401k to Roth IRA while in a low bracket (using cash in taxable to replenish Ally). What I am hearing from the feedback received is to continue to take the profits from GPN and reducing risk (priority). Then use VTINX (or comparable?) to allocate non-invested taxable plus future GPN residual after meeting expense needs.

While I would like to stay within 0 CG rates, I wanted to also stay below IRMAA thresholds.
Again very helpful for me to solidify my approach going into 2022.

Equivalent are fidelity freedom funds but expense rations are very high. e.g. Fidelity Freedom® 2025 Fund expense ratio is 0.63%. I wouldn't do that.

I don't know if there is any better single fund option for retires at Fidelity. Maybe someone else knows?

The common approach is to build 3 fund portfolio as retired@50 mentioned above.
But it does requires a little re-balancing work as time progresses.
With Fidelity, for example, you could construct a three-fund portfolio using:

Fidelity ZERO Total Market Index Fund (FZROX)[note 3] or Fidelity Total Market Index Fund (FSKAX)
Fidelity ZERO International Index Fund (FZILX)[note 3][note 4] or Fidelity Total International Index Fund (FTIHX)
Fidelity U. S. Bond Index Fund (FXNAX)
Topic Author
arrived@61
Posts: 7
Joined: Sun Sep 26, 2021 9:02 pm

Re: Portfolio review with concentrated position

Post by arrived@61 »

babystep wrote: Mon Oct 18, 2021 9:23 pm
arrived@61 wrote: Sun Oct 17, 2021 6:53 pm
babystep wrote: Sat Oct 16, 2021 9:06 pm About 480k of GPN. Cap gain rate is zero. I would say sell all the way to zero capital gains tax rate. If you keep doing that for 4-5 years and then GPN position is gone and you would not have paid any tax on the gains.

For the rest of the funds in taxable, since you prefer single fund then I would say keep 1-2 years of expenses in the CD and with the rest just buy VTINX.

After GPN is gone then start withdrawing from 401k, sell some in taxable and convert to Roth.
Thank you for mapping an approach. While this has been my plan, with the exception of using VTINX (it's the friction of paying the $75 fee at Fidelity although minimal with frequency I would be investing). More specifically, I my plan was to divest annually up to the 0% capital gains rate. Using some of the proceeds to replenish cash (Ally account). I just could not determine whether that is the better route vs using the next few years to convert 401k to Roth IRA while in a low bracket (using cash in taxable to replenish Ally). What I am hearing from the feedback received is to continue to take the profits from GPN and reducing risk (priority). Then use VTINX (or comparable?) to allocate non-invested taxable plus future GPN residual after meeting expense needs.

While I would like to stay within 0 CG rates, I wanted to also stay below IRMAA thresholds.
Again very helpful for me to solidify my approach going into 2022.

Equivalent are fidelity freedom funds but expense rations are very high. e.g. Fidelity Freedom® 2025 Fund expense ratio is 0.63%. I wouldn't do that.

I don't know if there is any better single fund option for retires at Fidelity. Maybe someone else knows?

The common approach is to build 3 fund portfolio as retired@50 mentioned above.
But it does requires a little re-balancing work as time progresses.
With Fidelity, for example, you could construct a three-fund portfolio using:

Fidelity ZERO Total Market Index Fund (FZROX)[note 3] or Fidelity Total Market Index Fund (FSKAX)
Fidelity ZERO International Index Fund (FZILX)[note 3][note 4] or Fidelity Total International Index Fund (FTIHX)
Fidelity U. S. Bond Index Fund (FXNAX)
I have considered the Fidelity "index" version the Fidelity Freedom Funds with ER of 0.12%.
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