Overinvested in equities? Please help me with your sage advice

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Topic Author
FlyMeToTheMoon57
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Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

Hi - I apologize for the length of this but I need some guidance. Due to a divorce, I'm not as secure as I was hoping to be at this age (58) and I know I'm over-invested in equities for my age. Please share with me your advice on what to do next. Thanks in advance.

Goal – be able to have a comfortable retirement
Concerned about the following:
1. I don’t own a home anymore
2. I don’t have enough saved for retirement
3. I’m too heavily invested in equities but with the market so far down, it seems like a bad idea to reallocate now but not sure?

Questions:
1. Should I keep investing in the Roth side of my 401k? (There is also a pre-tax side.)
2. I recently changed so that new contributions will go into a 2035 target date fund and some into just cash. Is this a bad idea? Should I be contributing to something else instead?
3. Should I be reallocating and if so, how?
4. What should I do with my cash, considering that maybe I will want to buy a place to live within the next couple of years?
5. *Should* I even be thinking about buying a place to live?
6. Do I have any hope of having a retirement where I can yield $100k each year?

Age: 58.
Salary: $150k base – bonus variable (this year $30k so far)
3% corporate match. Maxing out 401k, currently in Roth
Not sure of job security – it’s the business world
I do not own my own home and my rent is $3050/month
Will have max social security - which right now appears to be $4.1k/month at age 70.
Some have asked what my target allocation is. I wish I knew - but I do know that 87% in equities is too much, so I will say 70/30. However, I do have a decent amount of cash sitting around (see below) in a taxable account which I guess could be considered "fixed income" if I don't use it to buy a place to live.
No debt

Retirement funds:
Fidelity Rollover IRA - $550k (down from $700k at beginning of year) – in an “Aggressive growth” portfolio (82% dom stock, 4% foreign stock, 7% bonds, 7% short term) with FCTNX, FCONX, FGILX, FGILX, FHLC, IVOO, SPHIX, VDIGX, VIG, VOO, VTI, XLK, XLP. Vast majority is in VTI, VOO, VIG – rest split among others
Old Fidelity 401k - $50k (haven’t got around to rolling it over because fees are lower on the 401k side) – 50-50 split of two funds (65% dom stock, 22% foreign stock, 11% bonds)
Current 401k - not at Fidelity - $78k (down 22% from year ago) – AF Target Retirement 2045 (40%), iShares S&P 500 Index (18%), Captial appreciation (11%), MFS Growth (10%), Edgewood Growth (7%), AF Target 2035 (5%) - Future contributions going into the 2035 fund and some cash.

Non-retirement funds:
Cash: $190k (mostly in HYSA, a little in quick-maturity treasury bonds)
Stocks: $40k (mostly VTI, VOO)

Thank you!
Last edited by FlyMeToTheMoon57 on Mon Oct 03, 2022 10:03 am, edited 4 times in total.
epoche
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Re: Overinvested in equities? Please help me with your sage advice

Post by epoche »

FlyMeToTheMoon57 wrote: Sun Oct 02, 2022 12:11 pm
Age: 58.
Salary: $150k base – bonus variable (this year $30k so far)
3% corporate match. Maxing out 401k, currently in Roth
Making a quick response just on the above.
Why are you choosing Roth 401k?
As a now-single filer and including your bonus, you are in the 32% tax bracket. Using traditional 401k instead of Roth will save you 32% federal (plus state tax) on income above $170,051 and 24% on income below that level.
That's meaningful savings.
You can always convert to Roth after retirement if it makes sense to do so.

As to reallocation between equity/bonds, the usual advice is to do it as soon as you realize your goals have changed.
AmericanRay
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Re: Overinvested in equities? Please help me with your sage advice

Post by AmericanRay »

I'd say that buying a place to live should be at the top of your list - even a condo should be considered. Of course, where you live may be a huge issue since prices have gone way up. As for your current investments - ride it out.
Topic Author
FlyMeToTheMoon57
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

epoche wrote: Sun Oct 02, 2022 1:11 pm

Making a quick response just on the above.
Why are you choosing Roth 401k?
As a now-single filer and including your bonus, you are in the 32% tax bracket. Using traditional 401k instead of Roth will save you 32% federal (plus state tax) on income above $170,051 and 24% on income below that level.
That's meaningful savings.
You can always convert to Roth after retirement if it makes sense to do so.

As to reallocation between equity/bonds, the usual advice is to do it as soon as you realize your goals have changed.
Thanks. When I chose the Roth, I didn't think I was going to hit the 32% bracket, but I'm doing well on my bonuses this year. I did do some pre-tax contributions last quarter to try and bring myself out of the bracket. But also - in a down market, I thought maybe it would be nice to have a lot of growth (if that happens) all be tax free. Then again, everything I've put in this year is pretty much gone so....
Last edited by FlyMeToTheMoon57 on Sun Oct 02, 2022 2:08 pm, edited 1 time in total.
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retiredjg
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Re: Overinvested in equities? Please help me with your sage advice

Post by retiredjg »

Welcome to the forum. :happy

You will get more and better answers if you post your information in the format we use to help people with these types of questions. See the link at the bottom of this message for how to do that. It is some work but you will learn a lot about your situation by doing it.

Things that are sort of obvious....
1. Should I keep investing in the Roth side of my 401k? (There is also a pre-tax side.)
Probably not since you are in a higher tax bracket. But there could be other factors we don't know yet.

2. I recently changed so that new contributions will go into a 2035 target date fund and some into just cash. Is this a bad idea? Should I be contributing to something else instead?
3. Should I be rebalancing anything?
Can't really tell based on the information presented. We don't know what asset allocation you want and we don't know what you have. So it is not possible to say if you need to rebalance or not.

A lot of people confuse "rebalance" (get back to target) with "re-allocation" (intentionally change your allocations or overhaul the portfolio). I suspect you are actually asking about re-allocation, not rebalancing?


What should I do with my cash, considering that maybe I will want to buy a place to live within the next couple of years? 5. *Should* I even be thinking about buying a place to live?
This is difficult to say. You are behind in retirement savings for your goal. And you appear to live in a high cost of living location - high rent. We probably need more information on that.

6. Do I have any hope of having a retirement where I can yield $100k each year?
That would require something like $2.5 million and you are nowhere near that currently. How much can you save? How long will you work?
Topic Author
FlyMeToTheMoon57
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

retiredjg wrote: Sun Oct 02, 2022 1:56 pm Welcome to the forum. :happy

You will get more and better answers if you post your information in the format we use to help people with these types of questions. See the link at the bottom of this message for how to do that. It is some work but you will learn a lot about your situation by doing it.

Thanks! Will try to work on that - I have soooo many funds in my rollover that it's ridiculous.

Yes - I meant reallocating - sorry!

Also - I wish I knew what allocation would be best, but I do know that I'm too heavy in equities. The question is - is this a bad time to reallocate given that I've taken the hit on those equities and if I transfer some of them to bonds, I'll never be able to recover what I lost. On the other hand, if I make future contributions more conservative, I'm not losing any opportunities, except for the opportunity to invest in equities during a down market.

It all makes my head spin.

I'd like to retire sooner rather than later but If someone told me that with X plan and X allocation, and if I worked until I was 67 then I could achieve my goal, I would try my hardest to stay employed until then.
sailaway
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Re: Overinvested in equities? Please help me with your sage advice

Post by sailaway »

How much is your SS? If you have been earning above the limit every year, that will provide for a significant portion of your desired spending. As for setting up a plan, the longer you wait to collect the more you get. And if you work while waiting to collect, you are pulling less from your portfolio.

Are you planning to retire where you currently live? If not, buying might not be a great option.

You keep saying you are too heavily invested in equities, but that implies you have someplace you want to be. But you say you don't. You need to decide what allocation you want before you make any moves.

Does your 401k have a stable value fund available?
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retiredjg
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Re: Overinvested in equities? Please help me with your sage advice

Post by retiredjg »

FlyMeToTheMoon57 wrote: Sun Oct 02, 2022 2:04 pm Thanks! Will try to work on that - I have soooo many funds in my rollover that it's ridiculous.
Agree that is way too many funds. And probably nobody wants to look them all up. We'll know more when you tell us what they all are and add the expense ratios. :happy

Also - I wish I knew what allocation would be best, but I do know that I'm too heavy in equities.
The one that would be "best" is on the aggressive end (need to take risk) of what you can be comfortable with (willingness to take risk). So far, we don't know what you have and we don't know much about you other than you feel like you currently have too much in equities. That will be a place to start. Folks here can help you figure this out.

The question is - is this a bad time to reallocate given that I've taken the hit on those equities and if I transfer some of them to bonds, I'll never be able to recover what I lost. On the other hand, if I make future contributions more conservative, I'm not losing any opportunities, except for the opportunity to invest in equities during a down market.
This is a difficult question to answer. If you are "nervous", you should switch immediately so that you don't do something stupid as the market goes up and down. If you just know it is time to start adding more bonds, you can do it slower. Or you can go somewhere in between. Again, once we see what you actually have and get an idea of where you are going, that will be easier to know.

Remember that bonds are down too. So selling equities to buy bonds is not quite the loss that it seems because you get to buy bonds a lower prices than they have been.

It all makes my head spin.
Yeah.

I'd like to retire sooner rather than later but If someone told me that with X plan and X allocation, and if I worked until I was 67 then I could achieve my goal, I would try my hardest to stay employed until then.
Nobody can tell you that because nobody knows what the market will do. So don't expect too much in the area of predictions. What can be said is that your ____ is likely to grow to ____ if the market returns ____. It's just that the market returns are unknown until they happen.



Suggest you might want to start some reading here. https://www.bogleheads.org/wiki/Getting_started Maybe pick up a Boglehead book or a JL Collins book if you can. Settle back, learn some things, and then start making decisions and implementing a portfolio to fit those decisions.
Topic Author
FlyMeToTheMoon57
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

sailaway wrote: Sun Oct 02, 2022 2:38 pm How much is your SS? If you have been earning above the limit every year, that will provide for a significant portion of your desired spending. As for setting up a plan, the longer you wait to collect the more you get. And if you work while waiting to collect, you are pulling less from your portfolio.

Are you planning to retire where you currently live? If not, buying might not be a great option.

You keep saying you are too heavily invested in equities, but that implies you have someplace you want to be. But you say you don't. You need to decide what allocation you want before you make any moves.

Does your 401k have a stable value fund available?
I will have the max SS, which right now says around $4.1k/month if I wait until 70.

I think I might retire near where I live (northeast) since my kids all live in the northeast. Did you mean that I shouldn't buy if I'm going to retire elsewhere eventually?

Yes, I do have a stable value fund in the 401k - basically it's a money market fund. Right now I have just changed to have 40% of future contributions this year going into that (and 60% going into a 2035 target fund) but I wasn't sure if doing that at the bottom of the market was good or bad. Also, I'm going to max out in about two weeks anyway so not much will change right now with this new future allocation.

Yes - you are right - I don't know where I should be re: an allocation. If I did, I probably wouldn't have to ask all of these questions because I'd just know where I want to be and rebalance if necessary. I *think* that 70-30 is probably where I should be, but part of my question is around whether it's a bad thing to rebalance to get to that allocation now, when I'd have to sell equities to do so.

(Thank you!)
makingmistakes
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Re: Overinvested in equities? Please help me with your sage advice

Post by makingmistakes »

AmericanRay wrote: Sun Oct 02, 2022 1:29 pm I'd say that buying a place to live should be at the top of your list - even a condo should be considered. Of course, where you live may be a huge issue since prices have gone way up. As for your current investments - ride it out.
This is not a consensus opinion. Really need to weigh a lot of factors (which smarter folks than I can outline) to decide if buying or renting makes the most sense for your situation and future plans.
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BL
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Re: Overinvested in equities? Please help me with your sage advice

Post by BL »

Why are you buying equities (target date fund) if you think you have too much in equities?
Buying all fixed income seems like the best idea. (Ok, I understand you are near max contributing.) Yes, traditional instead of Roth in your tax bracket.

I would look at cost reduction in every area.

Is your IRA managed and with multiple funds? You could save some money by managing it yourself and exchanging some of the expensive or non-index funds with the simpler low-cost index funds you yourself suggested. This could happen whether or not you decide to lower equities.

If you are planning to move when you retire, perhaps wait until then to consider buying a house. You may have options now/soon to decide whether lower cost housing is possible now so you can save more for retirement (size, location, type of housing).

Perhaps list all your costs (for your eyes only if you prefer) and see what makes you happy and what is just spending for no good reason. At your level of income there may be a lot of spending just by habit.

If you can move IRA to a 401k, you might be able to do a backdoor Roth (see Wiki).
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FlyMeToTheMoon57
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

BL wrote: Mon Oct 03, 2022 2:46 am Why are you buying equities (target date fund) if you think you have too much in equities?
Buying all fixed income seems like the best idea. (Ok, I understand you are near max contributing.) Yes, traditional instead of Roth in your tax bracket.

I would look at cost reduction in every area.

Is your IRA managed and with multiple funds? You could save some money by managing it yourself and exchanging some of the expensive or non-index funds with the simpler low-cost index funds you yourself suggested. This could happen whether or not you decide to lower equities.

If you are planning to move when you retire, perhaps wait until then to consider buying a house. You may have options now/soon to decide whether lower cost housing is possible now so you can save more for retirement (size, location, type of housing).

Perhaps list all your costs (for your eyes only if you prefer) and see what makes you happy and what is just spending for no good reason. At your level of income there may be a lot of spending just by habit.

If you can move IRA to a 401k, you might be able to do a backdoor Roth (see Wiki).

Thank you. I have always managed my accounts myself and over the years have moved a lot to ETFs (VTI and VOO) but got into trouble buying too many different types of ETFs that are all equity-based. I chose a balanced managed fund as well because I’m not a bond expert. Same thing for why I started using a target date fund in my 401k…I figured someone else would know better than me - but I’m hoping the folks here can guide me better.

If I wait to consider buying a house, then that means I have a good chunk of cash sitting around. Do I invest it? Leave it? Consider it the “fixed income” portion of my portfolio?

Can’t do a backdoor because of the pro rata rule and the amount I have in my IRA rollover. I can, though, start contributing to traditional next year instead of Roth for sure.

I save all the money over my base, so each year I am putting some money away, but on the base - after you subtract the Roth contribution of $27k, health insurance of $1k/month, groceries and gas, car repairs on my 2007 car, and taxes of course, I don’t have anything left over. Each paycheck is $2800 (less than a month’s rent - although my rent is reasonable for this area) so I am living off $72k per year.
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Wiggums
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Re: Overinvested in equities? Please help me with your sage advice

Post by Wiggums »

We agree that you have too many funds. The ones that are less than 5 % are too small to move the needle. We hold the three fund portfolio, a municipal bond fund and T-bills across all our accounts. That’s it.

Edited to include link to three fund portfolio
https://www.bogleheads.org/wiki/Three-fund_portfolio

What is your asset allocation? We are 65/35 and buying stock with extra cash.

I don’t know when, but once rate hikes stop and companies get lower growth expectations, the market will start to improve slowly. There is a lot of cash on the sidelines for whatever reason. I’ll buy into the S&P at 12 times next years earning.
Last edited by Wiggums on Mon Oct 03, 2022 8:01 am, edited 1 time in total.
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FlyMeToTheMoon57
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

Wiggums wrote: Mon Oct 03, 2022 7:12 am We agree that you have too many funds. The ones that are less than 5 % are too small to move the needle. We hold the three fund portfolio, a municipal bond fund and T-bills across all our accounts. That’s it.

What is your asset allocation? We are 65/35 and buying stock with extra cash.

I don’t know when, but once rate hikes stop and companies get lower growth expectations, the market will start to improve slowly. There is a lot of cash on the sidelines for whatever reason. I’ll buy into the S&P at 12 times next years earning.
Can you tell me what the "three fund portfolio" is? I know about a total stock market and a bond, but what is the 3rd? Also, I'm not sure what it means to buy in at 12 times next year's earnings - how does one determine that?

I think my comfortable allocation might be 70/30 but I'm really not sure how to determine. Thank you!
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Wiggums
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Re: Overinvested in equities? Please help me with your sage advice

Post by Wiggums »

FlyMeToTheMoon57 wrote: Mon Oct 03, 2022 7:38 am
Wiggums wrote: Mon Oct 03, 2022 7:12 am We agree that you have too many funds. The ones that are less than 5 % are too small to move the needle. We hold the three fund portfolio, a municipal bond fund and T-bills across all our accounts. That’s it.

What is your asset allocation? We are 65/35 and buying stock with extra cash.

I don’t know when, but once rate hikes stop and companies get lower growth expectations, the market will start to improve slowly. There is a lot of cash on the sidelines for whatever reason. I’ll buy into the S&P at 12 times next years earning.
Can you tell me what the "three fund portfolio" is? I know about a total stock market and a bond, but what is the 3rd? Also, I'm not sure what it means to buy in at 12 times next year's earnings - how does one determine that?

I think my comfortable allocation might be 70/30 but I'm really not sure how to determine. Thank you!
https://www.bogleheads.org/wiki/Three-fund_portfolio

70/30 is a good allocation. Especially since intermediate bonds will take time to recover.
"I started with nothing and I still have most of it left."
AmericanRay
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Re: Overinvested in equities? Please help me with your sage advice

Post by AmericanRay »

makingmistakes wrote: Sun Oct 02, 2022 5:48 pm
AmericanRay wrote: Sun Oct 02, 2022 1:29 pm I'd say that buying a place to live should be at the top of your list - even a condo should be considered. Of course, where you live may be a huge issue since prices have gone way up. As for your current investments - ride it out.
This is not a consensus opinion. Really need to weigh a lot of factors (which smarter folks than I can outline) to decide if buying or renting makes the most sense for your situation and future plans.
True, but $3K a month can easily turn into $5K in ten years. That's $60K of the $100K he's looking to live on in retirement. Buy and the pay-off is the only option.

By the way, noting that my opinion is not the censensus opinion seems more than passingly strange. I certainly didn't say it was or would be, so why are you chiming in with your opinion? FO!
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FlyMeToTheMoon57
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

AmericanRay wrote: Mon Oct 03, 2022 9:07 am
makingmistakes wrote: Sun Oct 02, 2022 5:48 pm
AmericanRay wrote: Sun Oct 02, 2022 1:29 pm I'd say that buying a place to live should be at the top of your list - even a condo should be considered. Of course, where you live may be a huge issue since prices have gone way up. As for your current investments - ride it out.
This is not a consensus opinion. Really need to weigh a lot of factors (which smarter folks than I can outline) to decide if buying or renting makes the most sense for your situation and future plans.
True, but $3K a month can easily turn into $5K in ten years. That's $60K of the $100K he's looking to live on in retirement. Buy and the pay-off is the only option.

By the way, noting that my opinion is not the censensus opinion seems more than passingly strange. I certainly didn't say it was or would be, so why are you chiming in with your opinion? FO!
Just want to clarify that "he" is a "she." :)

Yes - true about rents continuing to increase although fortunately my landlord has not raised my rent in two years. I guess taxes and HOA fees (if I go the condo route) would do that too but it would be nice to be putting my monthly payment into something that builds at least a little equity - just not sure how long it will take for the housing market to stabilize and what I do with that cash while I'm waiting.

Thank you for all of the opinions and advice I am receiving - it is very much appreciated.
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FlyMeToTheMoon57
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

Wiggums wrote: Mon Oct 03, 2022 8:00 am
https://www.bogleheads.org/wiki/Three-fund_portfolio

70/30 is a good allocation. Especially since intermediate bonds will take time to recover.
Thank you! So then - my other question is....is it a bad time to reallocate while the market is down so much, since I'll clearly be exchanging some equities for bonds?

The other option is to continue to make future 401k contributions more and more conservative without using a target date fund (I have to find a reasonable bond fund in there) but I'm just about maxed this year anyway.
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FlyMeToTheMoon57
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(Revised with expense ratios which are high!) How can I make the three fund portfolio from the below 401k choices?

Post by FlyMeToTheMoon57 »

[Thread merged into here --admin LadyGeek]

Below are the funds available in my 401k. It's a very clunky system so I apologize that there are no fund letters, only fund descriptions. AF stands for American Funds.

I don't see a total stock market fund in there, only an S&P fund. In addition, there are some pre-set portfolios (Growth, Growth and Income, Balanced) that are basically made up of tons of other funds and I've avoided them.

Let's say I want to do a 70/30 allocation. How can I achieve that with the below?

Thank you!

-----------------------

STOCK
Am. Funds Wash. Mutual
Investors Fund (R4) 0.61% $6.10
Redemption fee: 0% Purchase fee: 0%

Columbia Small Cap Index Fund
(A) 0.45% $4.50
Redemption fee: 0% Purchase fee: 0%

Delaware Emerging Markets Fund
(A) 1.59% $15.90
Redemption fee: 0% Purchase fee: 0%

Edgewood Growth Fund (Ret)
1.44% $14.40


Franklin Small Cap Value Fund
(A) 1.00% $10.00
Redemption fee: 0% Purchase fee: 0%

Invesco Small Cap Value Fund
(A) 1.12% $11.20
Redemption fee: 0% Purchase fee: 0%

iShares S&P 500 Index Fund
(InvA) 0.35% $3.50
Redemption fee: 0% Purchase fee: 0%

J Hancock International Growth
Fund (A) 1.29% $12.90
Redemption fee: 0% Purchase fee: 0%

JPMorgan Mid Cap Growth Fund
(A) 1.26% $12.60
Redemption fee: 0% Purchase fee: 0%

JPMorgan US Equity Fund (A)
0.98% $9.80
Redemption fee: 0% Purchase fee: 0%

MFS Global Growth Fund (A)
1.32% $13.20
Redemption fee: 0% Purchase fee: 0%

MFS Growth Fund (R3)
0.85% $8.50
Redemption fee: 0% Purchase fee: 0%


Victory Sycamore Established
Value Fund (A) 0.90% $9.00
Redemption fee: 0% Purchase fee: 0%

BOND
American Funds US Govt.
Securities Fund (A) 0.62% $6.20
Redemption fee: 0% Purchase fee: 0%

Metropolitan West Tot. Return
Bond Fund (M) 0.65% $6.50
Redemption fee: 0% Purchase fee: 0%

PGIM Global Total Return Fund

(A) 0.91% $9.10
Redemption fee: 0% Purchase fee: 0%

PGIM High Yield Fund (A)
0.75% $7.50
Redemption fee: 0% Purchase fee: 0%

BLENDED
Am. Funds 2010 Target Date
Retire. Fund (R4) 0.63% $6.30
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2015 Target Date
Retire. Fund (R4) 0.64% $6.40
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2020 Target Date

Retire. Fund (R4) 0.65% $6.50
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2025 Target Date
Retire. Fund (R4) 0.66% $6.60
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2030 Target Date
Retire. Fund (R4) 0.68% $6.80
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2035 Target Date
Retire. Fund (R4) 0.70% $7.00
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2040 Target Date
Retire. Fund (R4) 0.71% $7.10
Redemption fee: 0% Purchase fee: 0%


Am. Funds 2045 Target Date
Retire. Fund (R4) 0.72% $7.20
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2050 Target Date
Retire. Fund (R4) 0.72% $7.20
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2055 Target Date
Retire. Fund (R4) 0.73% $7.30
Redemption fee: 0% Purchase fee: 0%

Am. Funds 2060 Target Date
Retire. Fund (R4) 0.73% $7.30

Redemption fee: 0% Purchase fee: 0%

BlackRock Sustainable Balanced
Inv Fund (A) 0.78% $7.80
Redemption fee: 0% Purchase fee: 0%

CASH/STABLE VALUE
Federated Capital Preservation
Fund (ISP) 0.70% $7.00
Redemption fee: 0% Purchase fee: 0%
Last edited by FlyMeToTheMoon57 on Mon Oct 03, 2022 11:21 am, edited 2 times in total.
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retiredjg
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Re: Overinvested in equities? Please help me with your sage advice

Post by retiredjg »

We don't really know how far off target you are, so that question can't really be answered very well. We also don't know if you are "worried" or just ready to "mosy on".
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Re: How can I make the three fund portfolio from the below 401k choices?

Post by retired@50 »

FlyMeToTheMoon57 wrote: Mon Oct 03, 2022 9:54 am Below are the funds available in my 401k. It's a very clunky system so I apologize that there are no fund letters, only fund descriptions. AF stands for American Funds.

I don't see a total stock market fund in there, only an S&P fund. In addition, there are some pre-set portfolios (Growth, Growth and Income, Balanced) that are basically made up of tons of other funds and I've avoided them.

Let's say I want to do a 70/30 allocation. How can I achieve that with the below?

Metropolitan West Total Return <- This one for bonds. 30%
ISHARES S&P 500 INDEX <- This one for stocks. 70%
It would be helpful to include the expense ratios for the funds in the list.

Lacking that information, I'd start with the two funds shown.

Regards,
Last edited by retired@50 on Mon Oct 03, 2022 1:20 pm, edited 1 time in total.
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Re: How can I make the three fund portfolio from the below 401k choices?

Post by Doc7 »

ISHARES S&P 500 INDEX Is almost certainly your lowest cost US equities option.

What is the expense ratio and allocation on the target retirement funds?

Please provide expense ratios on all funds. It will be readily apparent which ones merit research as to their contents - a bond index fund will have an ER below 0.15% whereas an actively managed but possibly acceptable bond fund may have an ER of 0.2 to 0.3%.
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Re: Overinvested in equities? Please help me with your sage advice

Post by SuzBanyan »

I don’t think you as that from your target retirement goal. You currently have about $900,000 in liquid assets. That will generate about $36,000/year over a 30 year retirement. With about $50,000 in social security at age 70, you are only about $14,000 short. If you are saving more than $27,000/ year, in 5 years that adds up to $135,000 more, which generates another $5400/year over a 30 year retirement.

So the issue is then getting you from when you want to retire until you start social security. Obviously, the closer your retirement is to age 70, the more you will be able to save and the less you will need to use your portfolio to get you to age 70. You should also look at the expense side; it maybe that if you are living on $72,000/year (not including taxes or health insurance), you could live comfortably in retirement on less than $100,000.

As to buying a place to live versus being a permanent renter, you really need to go through a rent v. buy calculator based on where you live now or could live in retirement when commuting to work is no longer a factor. By tying up your liquid assets in a home, you will have fewer liquid assets to support you in retirement. But reducing the rising rent risk and having the emotional satisfaction of ownership may be a trade off you are willing to make, even if it means working longer.

As others have already posted, you need to simplify your portfolio. You can read about the three fund portfolio here: https://www.bogleheads.org/wiki/Three-fund_portfolio. It has the advantage of being relatively simple to set up and maintain.
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Re: How can I make the three fund portfolio from the below 401k choices?

Post by retiredjg »

1. You don't need to hold all 3 funds in the 401k. That's why I suggested above that you post your entire portfolio situation.

2. S&P 500 is a good substitute for total stock index.

3. The best funds in your portfolio cannot be determined without knowing the expense ratio of each one of the funds. Please edit with the expense ratios that are specific to your plan.
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Re: How can I make the three fund portfolio from the below 401k choices?

Post by ruralavalon »

In my opinion if this 401k is your only account then probably the best you can do is a combination of:
ISHARES S&P 500 INDEX; and
Metropolitan West Total Return.

A target date fund might be a good choice for an all-in-one fund for a one-fund portfolio, depending on the expense ratio. The American Funds R4 share class probably won't have a very low expense ratio.

I agree with retiredjg, Doc7 and retired @50 that you should include the expense ratio for each fund, and post the information for any other accounts and investments using the Asking Portfolio Questions format.
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Re: (Revised with expense ratios) How can I make the three fund portfolio from the below 401k choices?

Post by FlyMeToTheMoon57 »

Thank you. I've revised above.

Expense ratios are very high for some of these - esp the bonds funds!
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

SuzBanyan wrote: Mon Oct 03, 2022 10:02 am I don’t think you as that from your target retirement goal. You currently have about $900,000 in liquid assets. That will generate about $36,000/year over a 30 year retirement. With about $50,000 in social security at age 70, you are only about $14,000 short. If you are saving more than $27,000/ year, in 5 years that adds up to $135,000 more, which generates another $5400/year over a 30 year retirement.

So the issue is then getting you from when you want to retire until you start social security. Obviously, the closer your retirement is to age 70, the more you will be able to save and the less you will need to use your portfolio to get you to age 70. You should also look at the expense side; it maybe that if you are living on $72,000/year (not including taxes or health insurance), you could live comfortably in retirement on less than $100,000.
Thank you. I was assuming that the $100k would be around $72k after taxes.

Of course, almost all of the $27k that will go in this year (plus the employer contribution) is gone right now - I have to hope it really will be $135k someday!
SuzBanyan wrote: Mon Oct 03, 2022 10:02 am As to buying a place to live versus being a permanent renter, you really need to go through a rent v. buy calculator based on where you live now or could live in retirement when commuting to work is no longer a factor. By tying up your liquid assets in a home, you will have fewer liquid assets to support you in retirement. But reducing the rising rent risk and having the emotional satisfaction of ownership may be a trade off you are willing to make, even if it means working longer.
Also thank you! I work remotely but I've done so many rent vs. buy calculators and basically they tell me that if I'm going to stay five years, better to buy...but it's all based on payment timelines. While I'm waiting to buy, I'm wondering if the money could work harder for me in any way, but probably not so much if I need to be able to pull the trigger at any time....

SuzBanyan wrote: Mon Oct 03, 2022 10:02 am As others have already posted, you need to simplify your portfolio. You can read about the three fund portfolio here: https://www.bogleheads.org/wiki/Three-fund_portfolio. It has the advantage of being relatively simple to set up and maintain.
Thank you - I really appreciate all of this advice. I've made a separate post with the expense ratios and funds in my non-Fidelity 401k and know how I would do this in my rollover IRA already - wondering, though, how to execute this (e.g., best to slowly contribute to more conservative funds, or do the reallocation now while the market is down, thus trading stocks for bonds in some cases).
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Re: (Revised with expense ratios) How can I make the three fund portfolio from the below 401k choices?

Post by retired@50 »

FlyMeToTheMoon57 wrote: Mon Oct 03, 2022 11:06 am Thank you. I've revised above.
With the expense ratios provided, I stand by my earlier recommendation.

This plan doesn't have a worthwhile international stock index choice, so I'd try to cover that base elsewhere, like maybe in a Roth IRA.

Your plan isn't awful, but it's not a bargain either. The expense ratios are on the high end of what the forum tends to see from workplace plans.

Consider this wiki page on suggesting improvements in your plan: https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

Regards,
Last edited by retired@50 on Mon Oct 03, 2022 1:20 pm, edited 1 time in total.
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Re: (Revised with expense ratios) How can I make the three fund portfolio from the below 401k choices?

Post by FlyMeToTheMoon57 »

retired@50 wrote: Mon Oct 03, 2022 11:18 am

With the expense ratios provided, I stand by my earlier recommendation.

This plan doesn't have a worthwhile international stock index choice, so I'd try to cover that base elsewhere, like maybe in a Roth IRA.

Your plan isn't awful, but it's not a bargain either. The expense ratios are on the high end of what the forum tends to see from workplace plans.

Consider this wiki page on suggesting improvements in your plan: https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

Regards,
Thank you for your suggestions. I work for a small company and have already mentioned to the partners that the expense ratios are high - but they aren't that interested.

I make too much for a Roth IRA.

I should mention that I'm 58 years old - but I assume your recommendation stands with whatever appropriate allocation I choose. The Edgewood growth fund is down 40% vs. year ago which is crazy, and I do have money in it...I think I was hoping it would jump up like crazy when it's time but maybe better to cut my losses now.
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Re: (Revised with expense ratios) How can I make the three fund portfolio from the below 401k choices?

Post by retired@50 »

FlyMeToTheMoon57 wrote: Mon Oct 03, 2022 11:23 am I make too much for a Roth IRA.
I suggest this wiki page with some caution...

But... You might be a candidate for the backdoor Roth IRA strategy.

Please read, digest, and ponder ALL the information in the page before proceeding. Gotta love the loopholes in the IRS code.

Regards,
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Re: (Revised with expense ratios which are high!) How can I make the three fund portfolio from the below 401k choices?

Post by Jack FFR1846 »

100% S&P 500.

I have Fidelity for my 401k and do exactly this because most of the funds are either garbage or expensive. My IRA has the bonds I need, so I do 100% S&P 500. I would recommend you do so too.
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Re: (Revised with expense ratios which are high!) How can I make the three fund portfolio from the below 401k choices?

Post by lakpr »

Can you clarify or find out what the letters in the parentheses of the fund names mean? For example, the A in "American Funds US Govt. Securities Fund (A) 0.62%" ?

Does it mean class-A shares = where you pay an upfront load?

I was going to recommend this particular bond fund as the better option than the Metropolitan West Total Return Bond fund, but the "A" in the name gave me pause. Hence this question.

Did you recently switch jobs, and if so did you have a 401(k) in the previous job(s)? Did you have a better bond fund in the old 401(k)? If so, I would suggest what @JackFFR is saying; choose just the S&P 500 Index fund from this plan, but use the bond fund in your previous plan for your fixed income allocation.

I do something similar, even though in my case the difference is not this drastic. I switched jobs in 2015; in my new (now current) job, the best bond fund option is that same Metropolitan West Total Return Bond fund that you have, except with an expense ratio of 0.38%. In my previous job's 401(k) plan I had access to VBTIX, the Institutional version of Vanguard Total Bond Index fund, at an expense ratio of 0.04%. Why pay ten times the fee? I invest in only the S&P 500 Index fund in my current plan (was 0.02%, now they made it a Collective Investment Trust and I pay 0.01%), but for my bond funds, I invest in the previous 401(k) plan switching from equities to bonds there. Rebalance once every six months.
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Re: (Revised with expense ratios which are high!) How can I make the three fund portfolio from the below 401k choices?

Post by retiredjg »

The 500 index is probably the only fund I would use in this plan if I could find another home for bonds.

See if you can find some information on this:

Victory Sycamore Established
Value Fund (A) 0.90% $9.00

If this is a stable value fund, the expense ratio is not particularly relevant. What is relevant is how much it is paying. That can change from year to year. See if you can find out what it is paying this year.
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Re: Overinvested in equities? Please help me with your sage advice

Post by LadyGeek »

FlyMeToTheMoon57 - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Overinvested in equities? Please help me with your sage advice

Post by retiredjg »

But please...if you decide to post all your information in one place (and I hope you do) start a new thread. Putting that information in the middle of a long thread makes it much more difficult to work with.

This thread is already long and information is all over the place. If you want people to understand your situation, all the information needs to be in one place for easy reference.
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

LadyGeek wrote: Mon Oct 03, 2022 11:56 am FlyMeToTheMoon57 - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)
I think it was a bit of a different question on how to achieve my allocation with the funds I have available in my 401k. If I tried to copy all of that info into my initial post, I doubt anyone would take the time to wade through all of it!!
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Re: (Revised with expense ratios) How can I make the three fund portfolio from the below 401k choices?

Post by FlyMeToTheMoon57 »

retired@50 wrote: Mon Oct 03, 2022 11:26 am
FlyMeToTheMoon57 wrote: Mon Oct 03, 2022 11:23 am I make too much for a Roth IRA.
I suggest this wiki page with some caution...

But... You might be a candidate for the backdoor Roth IRA strategy.

Please read, digest, and ponder ALL the information in the page before proceeding. Gotta love the loopholes in the IRS code.

Regards,
Thanks - I have too much in my rollover to consider this now, given the pro rata rules, unfortunately!
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Re: (Revised with expense ratios) How can I make the three fund portfolio from the below 401k choices?

Post by lakpr »

FlyMeToTheMoon57 wrote: Mon Oct 03, 2022 1:11 pm Thanks - I have too much in my rollover to consider this now, given the pro rata rules, unfortunately!
Due to thread-merge, I noticed that you have $550k in a Fidelity Rollover IRA. This simplifies the choices for your 401(k) vastly ... *JUST* the iShares S&P 500 Index fund in your 401(k), and move from equities to bonds within the Fidelity IRA (choose FXNAX -- Fidelity US Bond Index Fund) for your bond allocation.

I wouldn't dream of suggesting to rollover the $550k into your current 401(k) plan to make room for backdoor Roth. So backdoor Roth is not in your near future ...
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Re: (Revised with expense ratios) How can I make the three fund portfolio from the below 401k choices?

Post by retired@50 »

lakpr wrote: Mon Oct 03, 2022 1:17 pm
FlyMeToTheMoon57 wrote: Mon Oct 03, 2022 1:11 pm Thanks - I have too much in my rollover to consider this now, given the pro rata rules, unfortunately!
Due to thread-merge, I noticed that you have $550k in a Fidelity Rollover IRA. This simplifies the choices for your 401(k) vastly ... *JUST* the iShares S&P 500 Index fund in your 401(k), and move from equities to bonds within the Fidelity IRA (choose FXNAX -- Fidelity US Bond Index Fund) for your bond allocation.

I wouldn't dream of suggesting to rollover the $550k into your current 401(k) plan to make room for backdoor Roth. So backdoor Roth is not in your near future ...
I agree with lakpr. Now that we know you have a decent bond index fund choice elsewhere, there is no need to pay 60 basis points for an actively managed bond fund in your new 401k plan.

Regards,
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Re: Overinvested in equities? Please help me with your sage advice

Post by lakpr »

Based on the thread-merge, I see that your portfolio has the following:

Fidelity Rollover IRA: $550k
Old 401(k): $50k
Current 401(k): $78k

Cash in taxable: $190k (I am assuming this will be available for investments, if you decide to continue to rent)
Stocks in taxable: $40k
==========================
Total portfolio = $908k

Desired portfolio allocation = 70:30, based on the wish mentioned in the first post. Which means $272k in bonds and $636k in stocks. I'd recommend to split the stocks portion as 75:25 between domestic and international, but you are free to come up with your own percentages. That would mean $159k in international stocks and $477k in domestic stocks.

I'd revamp the portfolio this way:

Current 401(k): $78k into iShares S&P 500 Index Fund
Old 401(k): $50k into a broad-based US Stock index fund or S&P 500 Index fund
Fidelity Rollover IRA:
$309k in FSKAX (Fidelity Total US Stock Index Fund)
$159k in FTIHX (Fidelity Total International Stock Index Fund)
$82k in FXNAX (Fidelity US Bond Index Fund)
Stocks in taxable: $40k in US stocks already (based on the comment that this is mostly in VTI and VOO)
"Bonds" in taxable: $190k in cash, until you decide whether you are going to be renting or buying.
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Re: Overinvested in equities? Please help me with your sage advice

Post by ruralavalon »

In my opinion in your current employer's 401k plan use ISHARES S&P 500 INDEX ER 0.35%.

The rest is still extremely confusing. Please post your entire financial information in a single post using the Asking Portfolio Questions format. It's important to have all of your information in one place.

Please include lists of the funds offered in each 401k, including fund names, tickers and expense ratios. (I can't tell if rolling the old 401k account into the new 401k plan might be a good idea.) Also, how likely do you think it is that you will want to buy a home?

You can simply amend the original post in this combined thread, using the edit button (the pencil icon near the upper right hand corner of your post).
Last edited by ruralavalon on Mon Oct 03, 2022 2:21 pm, edited 1 time in total.
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Re: Overinvested in equities? Please help me with your sage advice

Post by Dottie57 »

Is it possible to slim down all of your expenses and move that $ to investments.
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

lakpr wrote: Mon Oct 03, 2022 1:39 pm Based on the thread-merge, I see that your portfolio has the following:

Fidelity Rollover IRA: $550k
Old 401(k): $50k
Current 401(k): $78k

Cash in taxable: $190k (I am assuming this will be available for investments, if you decide to continue to rent)
Stocks in taxable: $40k
==========================
Total portfolio = $908k

Desired portfolio allocation = 70:30, based on the wish mentioned in the first post. Which means $272k in bonds and $636k in stocks. I'd recommend to split the stocks portion as 75:25 between domestic and international, but you are free to come up with your own percentages. That would mean $159k in international stocks and $477k in domestic stocks.

I'd revamp the portfolio this way:

Current 401(k): $78k into iShares S&P 500 Index Fund
Old 401(k): $50k into a broad-based US Stock index fund or S&P 500 Index fund
Fidelity Rollover IRA:
$309k in FSKAX (Fidelity Total US Stock Index Fund)
$159k in FTIHX (Fidelity Total International Stock Index Fund)
$82k in FXNAX (Fidelity US Bond Index Fund)
Stocks in taxable: $40k in US stocks already (based on the comment that this is mostly in VTI and VOO)
"Bonds" in taxable: $190k in cash, until you decide whether you are going to be renting or buying.
Thank you for wading through everything to make this recommendation! Are there ETFs that are similar to the index mutual funds you suggest above? Any reason why you like the mutual funds better?

Yes, the $190k is available for investments if I decide to continue to rent - and I suppose I should consider investing that in something if I do. It's been hard to decide whether to continue to rent - but certainly I won't make any changes until the housing market stabilizes more.
Last edited by FlyMeToTheMoon57 on Mon Oct 03, 2022 2:24 pm, edited 1 time in total.
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Re: Overinvested in equities? Please help me with your sage advice

Post by Dottie57 »

Is it possible to slim down all of your expenses and move that $ to investments.

What age will you retire? If SS Indeed 4.1 k per month, then that is 49k per anum. You need to pull 51k from investments
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Re: Overinvested in equities? Please help me with your sage advice

Post by HMSVictory »

More important than your portfolio is stabilizing your living situation. $3,050 a month in rent hurts.

I would use your $190k towards a down payment (minus a solid emergency fund). Can you find a nice condo for $300-400k where you live?

I would put the new property on a 10 year (or less) note and pay it off sooner with you income and bonuses while investing 15% of my income in retirement. Its fine to rent for a short period of time (I did it between houses) but long term you want to own (free and clear) your own property. I'm sorry you have gone through a divorce but you have to pick yourself up and dust yourself off and keep moving forward. Good luck!
Stay the course!
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Re: Overinvested in equities? Please help me with your sage advice

Post by retiredjg »

Flyme, you are paying a great deal of rent. With the cash downpayment, can you buy a house/condo and have a payment of less than $3000 a month?
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Re: Overinvested in equities? Please help me with your sage advice

Post by lakpr »

FlyMeToTheMoon57 wrote: Mon Oct 03, 2022 2:18 pm Thank you for wading through everything to make this recommendation! Are there ETFs that are similar to the index mutual funds you suggest above? Any reason why you like the mutual funds better?
No particular reason; just thought since the IRA is already at Fidelity let me use Fidelity funds.

Thinking more about it, though, it might make sense to stick with the mutual funds I recommended in case you want to tax-loss harvest your taxable account losses, which requires that same/substantially identical securities should not be bought in your other accounts. Given that the 401(k) account is going to be an S&P 500 index fund, plus the taxable stocks are Vanguard ETFs, keeping the Fidelity Rollover IRA into mutual funds would mean you wouldn't need to think about this IRA account. No one can argue that Vanguard ETFs are "substantially identical" to Fidelity mutual funds.
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Re: Overinvested in equities? Please help me with your sage advice

Post by retiredjg »

lakpr wrote: Mon Oct 03, 2022 3:11 pm No one can argue that Vanguard ETFs are "substantially identical" to Fidelity mutual funds.
In general, I think that is correct. However, there might be a few exceptions....the 500 index being the most likely suspect. There might be a few others, but probably not many.
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Re: Overinvested in equities? Please help me with your sage advice

Post by FlyMeToTheMoon57 »

retiredjg wrote: Mon Oct 03, 2022 3:07 pm Flyme, you are paying a great deal of rent. With the cash downpayment, can you buy a house/condo and have a payment of less than $3000 a month?
I live in the NYC area so costs are high. When mortgages were 3%, I could have potentially bought something that fit my space needs and had a payment (including tax and HOA) close to that (although my utilities are also very low right now) but only with a 20-year - and at that time people were fighting over houses and I was just finishing up my divorce anyway. Now....well, it will be more of a challenge but I look frequently.
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Re: Overinvested in equities? Please help me with your sage advice

Post by retiredjg »

I think it may become easier to find a place, but with interest rates going up, you will pay more interest on it in the long run. But with crazy bidding wars on the decline, maybe you can find something at a more reasonable cost. It might just be a wash in the long run.

If you are looking, the potential downpayment should not be invested in anything more aggressive than a short term bond. And most of it should probably be in something that will not lose value at all - CDs, money market, high yield savings, with short term bond being only part.

I would not consider this money part of my bond allocation. If you find a place, it will disappear in a few short months and then you would have to completely overhaul the portfolio to get back to 70/30.

For now, I would hold this money aside, put the rest of your money into a portfolio at 70/30 (which is aggressive for your age) and call it good. If it becomes clear after a number of months that the home is not going to happen, invest it then.
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