Struggling with Fear of Loss

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
KBREAMK
Posts: 114
Joined: Thu Mar 14, 2019 6:25 pm

Struggling with Fear of Loss

Post by KBREAMK »

Two threads were merged...my most recent question is later in the thread. But the earlier posts add some context.

------

I have ~$1.4 million in retirement funds that are managed by VAS at a 70/30 AA.

There is a strong probability that I will be coming into a ~$3 million (after taxes and debts are paid) windfall later this month. The debt is my mortgage that I want to pay off.

I plan to invest ~$1.5 million of the windfall in a taxable, self managed, Vanguard account at a 60/40 AA for a (hopefully) slightly less bumpy ride. I am leaning towards simply using VBINX or constructing my own 3-fund portfolio.

The other $1.5 million will be placed into a combination of a 5 year CD ladder (leaning towards brokerage Vanguard CDs) and a Money Market account. I want to de-risk half of the windfall which is why I am being more conservative and not placing it into the market.

My question is related to the $1.5m that I place into a taxable account. Is it wise, tax wise, to place both stocks and bonds in this taxable account...or should I rebalance my retirement account (again currently managed with the help of VAS) to be more bond heavy and then placing more of the stocks into the taxable account? If so, I may need to meet in the middle and state that my overall preferred AA is 65/35 and simply aim to hit this AA between my retirement account and my taxable account.

And, yes, I am considering moving away from VAS altogether but, at least for now, I feel better with them in my corner. My advisor has really helped me over the last few years. He is also aware that I plan to open another Vanguard account that I self manage and he has been gracious and helpful.

Finally, I will continue working post-windfall and my salary more than covers my expenses.

Many thanks to you all for any advice you have. This forum has been a real blessing to me.
Last edited by KBREAMK on Wed Sep 21, 2022 12:15 pm, edited 2 times in total.
minesweep
Posts: 1670
Joined: Fri Mar 02, 2007 8:17 pm
Location: 27,000 light years from the Galactic Center of the Milky Way Galaxy (the suburbs)

Re: Taxable Account Question

Post by minesweep »

Time is your friend; impulse is your enemy - John Bogle | Learn every day, but especially from the experiences of others, it's cheaper! - John Bogle
User avatar
Tulip
Posts: 30
Joined: Mon Apr 01, 2013 1:11 pm

Re: Taxable Account Question

Post by Tulip »

Fill up your tax sheltered accounts with bonds.

Use index funds in your taxable accounts.

You can manage this yourself… no need to pay VAS.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Taxable Account Question

Post by dbr »

The steps are:

Determine Objectives
Decide asset allocation for the total of all assets
Find most tax efficient asset location
Make investment selections

A note, for example, is that CD income is not tax efficient and might better be placed in a tax deferred account. Those CDs are part of your portfolio, your asset allocation (they are fixed income*), and they produce taxable income.

*Bonds in the context of portfolio discussion means any kind of fixed income from currency in your wallet to long term corporates and junk bonds. The dimensions of risk for fixed income are credit and term risk and also inflation and reinvestment risk.
Statistical
Posts: 571
Joined: Tue Jul 06, 2021 1:08 pm

Re: Taxable Account Question

Post by Statistical »

Asset allocation should be across all accounts. Tax inefficient assets (bonds, cds, and reits) should be in tax sheltered accounts. You can easily sell assets in tax sheltered accounts without producing taxable events to free up space. Having a traditional IRA that is 100% bonds and cds is perfectly fine if it fits your overall asset allocation. Likewise having 100% passive equity index funds in your taxable account is fine and very efficient if it fits into your desired overall AA.

You will minimize taxes by having no reits, cds, or bonds in your taxable account. Now depending on your desired AA and the size of various accounts that may not be possible but you can still reduce taxes by having as little tax inefficient assets in those accounts as possible.

Figure out what you want overall first not per account. If is 70% equities and 30% bonds or is it 50% equities, 40% bonds, and 10% cash. Then make a list of your various accounts and their size. Then come up with a plan on what you need to buy and sell where to get your AA distributed in a tax efficient manner.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Note none of this is particularly hard and it is unlikely an advisor will do a better job.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Taxable Account Question

Post by grabiner »

It doesn't make sense to have an advisor manage only half your portfolio, since the right way to manage that half depends on the other half as well. If you want to use an advisor, let the advisor manage both halves.

If you do manage things yourself, you should still view everything as one portfolio. You don't need to de-risk the windfall as such; you can reduce the risk in any part of your portfolio. You need to decide whether stocks or bonds in the taxable account are more tax-efficient, and then hold as much as possible of that asset class.

Usually, given current yields, stocks are more tax-efficient. But if you are in a high tax bracket in a high-tax state, the tax cost of in-state munis (that is, the difference between muni and taxable bond yields of comparable risk) may be higher than the tax cost of stocks (dividends and capital gains).
Wiki David Grabiner
Topic Author
KBREAMK
Posts: 114
Joined: Thu Mar 14, 2019 6:25 pm

Struggling with Fear of Loss

Post by KBREAMK »

[Thread merged into here --admin LadyGeek]

I am 49 years old and my wife is 47. For the last 10 or so years I have been a calm, buy and hold, stay the course investor with a 70/30, 3-fund-ish, portfolio. This philosophy was amplified once learning about index funds, reading Bogle, finding this website, etc. But, recently, I have been struggling in a big way. Here's why.

I have been very fortunate with respect to my company. I sold my majority stake and have come into a large windfall. In total, I now have approximately $4 million available to invest (some of it is already invested).

I am continuing to work in the business earning the same salary as before so living expenses are covered for as long as I want to continue to work (assuming no other changes by the new majority owner). My mortgage is gone and we're allowing ourselves one "gift" which is a swimming pool for my family (I have several young kids) to enjoy. Other than that, we don't plan on changing anything. No new cars, etc. In fact, my wife and I decided to not even tell our children or family about the deal going through.

All that said, I am really struggling with what to do with the windfall. I have never worried myself trying to predict what the future holds as it relates to the market, the world, etc. But now, with the windfall, I suddenly find myself scared to death. I have never experienced anything like this and I am borderline ashamed of the way I feel since I have told SO MANY people over the years...just invest with low cost index funds and stay the course. I feel like a real hypocrite.

I am seeking the BH community's advice for how to work through this situation. What questions should I be asking myself? How can I overcome this fear of loss? I have read the BH windfall wiki which was helpful...but the fear remains!
Last edited by KBREAMK on Wed Sep 21, 2022 9:34 am, edited 1 time in total.
User avatar
Billy C
Posts: 348
Joined: Sat Apr 02, 2022 4:05 pm

Re: Struggling with Fear of Loss

Post by Billy C »

Congratulations on your windfall! You are in a great position.

I think you already know the right thing to do: stay the course. Keep investing in low-cost index funds and follow the advice John Bogle gave in his books.
“When there are multiple solutions to a problem, choose the simplest one.” ― John C. Bogle
student
Posts: 10764
Joined: Fri Apr 03, 2015 6:58 am

Re: Struggling with Fear of Loss

Post by student »

Since you have 4 millions to invest and have a paid off house, you must have at least 5 million NW. You are in the top 3% in your age group. https://dqydj.com/net-worth-by-age-calc ... ed-states/ Find an asset allocation that you are comfortable with and continue your success.
Last edited by student on Wed Sep 21, 2022 9:29 am, edited 1 time in total.
User avatar
retired@50
Posts: 12835
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Struggling with Fear of Loss

Post by retired@50 »

Maybe try taking the Vanguard Investor Questionnaire (perhaps again) and see where your answers guide you with regard to asset allocation.

Link: https://retirementplans.vanguard.com/VG ... Step=start

It could be that you'd be happier, or rest easier, at 50/50 instead of 70/30?

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
invest4
Posts: 1905
Joined: Wed Apr 24, 2019 2:19 am

Re: Struggling with Fear of Loss

Post by invest4 »

You have “enough” and have “won the game”. What you may wish to do is reconsider your asset allocation in regard to stocks vs fixed income. You are 70/30 now…how about 50/50 or whatever you can be comfortable with.
homebuyer6426
Posts: 1833
Joined: Tue Feb 07, 2017 8:08 am

Re: Struggling with Fear of Loss

Post by homebuyer6426 »

Visit some lower income areas and ride the bus a few times. Talk to some of the people, or just listen to their conversations. They will talk about family members with drug addiction problems, or going to prison, or being on probation. They will talk about struggling to pay the bills, not having a job or having a job that makes them very unhappy.

It is easy to lose perspective when you are isolated from the way most of the world lives.

At 4 million, you will be okay investing in any asset class (read: class, not a single stock), as long as your spending is not extreme, so long as you do not sell. If you feel that you will panic sell, invest in a more stable asset class.

Realize that if you lose some large percentage of your portfolio that you will still have far more than most people ever will.
43% Total Stock Market | 53% Consumer Staples | 4% Short Term Reserves
User avatar
Wiggums
Posts: 7051
Joined: Thu Jan 31, 2019 7:02 am

Re: Struggling with Fear of Loss

Post by Wiggums »

When I retired, I experienced a little anxiety about doing the right thing with respect to our entire savings. Eventually I realized that we have 32 years of investing behind us and another 30-40 years ahead. Therefore, our money should continue to be invested. The only change we made was to reduce our stock to 65% over a 4 year period. Our extra cash is invested each week.

We had another big decision when moving a 401k with proprietary funds in it. We were forced to cash out and the check was mailed to our broker. We picked a day and jumped back into the market. You cannot worry about short term losses. They are not material to the big picture.

Basically, you got a lump sum payment for all your hard work. This is no different than a retiree choosing a lump sum payment instead of a pension annuity. The lump sum would get invested to your AA. Your feelings are perfectly normal. Starting off with a conservative AA may reduce some of your nervousness.
Last edited by Wiggums on Wed Sep 21, 2022 9:46 am, edited 3 times in total.
"I started with nothing and I still have most of it left."
User avatar
vineviz
Posts: 14921
Joined: Tue May 15, 2018 1:55 pm
Location: Baltimore, MD

Re: Struggling with Fear of Loss

Post by vineviz »

KBREAMK wrote: Wed Sep 21, 2022 9:20 am All that said, I am really struggling with what to do with the windfall. I have never worried myself trying to predict what the future holds as it relates to the market, the world, etc. But now, with the windfall, I suddenly find myself scared to death. I have never experienced anything like this and I am borderline ashamed of the way I feel since I have told SO MANY people over the years...just invest with low cost index funds and stay the course. I feel like a real hypocrite.
Don't be ashamed. Your feelings are entirely normal.

Despite the fact that we sometimes strive to be emotionless about money, that's an ideal state that virtually no one ever actually achieves.

Your fear of loss is certainly heightened by the fact that, it appears to me, you now have more (money) to lose than you had before. Again, it's normal.

KBREAMK wrote: Wed Sep 21, 2022 9:20 am I am 49 years old and my wife is 47. For the last 10 or so years I have been a calm, buy and hold, stay the course investor with a 70/30, 3-fund-ish, portfolio. This philosophy was amplified once learning about index funds, reading Bogle, finding this website, etc. But, recently, I have been struggling in a big way. Here's why.

I have been very fortunate with respect to my company. I sold my majority stake and have come into a large windfall. In total, I now have approximately $4 million available to invest (some of it is already invested).
The first thing your post tells me is that your change in situation might call for a change in asset allocation.

For reference, taking $2million of that windfall and building a 30-year bond ladder would produced a guaranteed annual income of around $75,000 to $100,000 a year depending on the type of bonds you chose. If you had something like that in place, would you feel more comfortable putting the other $2million into your existing 3-fund portfolio?

Or $1million would purchase a lifetime income annuity that pays over $100k/ year starting at age 60 for the rest of your life and/or your spouse's life. Would knowing your family had that income coming make the 70/30 allocation for the other $3 million easier to stomach?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
User avatar
ruralavalon
Posts: 26353
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Struggling with Fear of Loss

Post by ruralavalon »

Billy C wrote: Wed Sep 21, 2022 9:24 am Congratulations on your windfall! You are in a great position.

I think you already know the right thing to do: stay the course. Keep investing in low-cost index funds and follow the advice John Bogle gave in his books.
invest4 wrote: Wed Sep 21, 2022 9:31 am You have “enough” and have “won the game”. What you may wish to do is reconsider your asset allocation in regard to stocks vs fixed income. You are 70/30 now…how about 50/50 or whatever you can be comfortable with.
+1, you are doing great, adjust your asset allocation to be more conservstive, and keep doing what you have been doing.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Leesbro63
Posts: 10642
Joined: Mon Nov 08, 2010 3:36 pm

Re: Struggling with Fear of Loss

Post by Leesbro63 »

I’ve struggled with the risk/reward issue too. I’m the end, 60/40 to about 50/50 is about the best you can do. More equity has you awake at night, but any less than 50/50 won’t give you the horsepower for the longer run. Years like 2022 are difficult. But I don’t see any way to avoid them. All TIPS sounds good in theory, but in reality, with larger stashes, you’re just trading equity risk for taxflation risk. All TIPS can work at lower wealth levels but not well for higher.

50/50 is the closest thing to “protect wealth for the rest of my life” that I’ve found. But again, as seen in 2022, it’s far from perfect.
User avatar
LadyGeek
Site Admin
Posts: 95703
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Taxable Account Question

Post by LadyGeek »

KBREAMK - 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.)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Topic Author
KBREAMK
Posts: 114
Joined: Thu Mar 14, 2019 6:25 pm

Re: Taxable Account Question

Post by KBREAMK »

LadyGeek wrote: Wed Sep 21, 2022 10:26 am KBREAMK - 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.)
Thank you!
carminered2019
Posts: 1939
Joined: Fri Jun 21, 2019 7:06 pm

Re: Struggling with Fear of Loss

Post by carminered2019 »

I like 15x(CD, treasury, I-Bond, money market) in safe assets and the rest in equities with no rebalancing.
the_wiki
Posts: 2883
Joined: Thu Jul 28, 2022 11:14 am

Re: Struggling with Fear of Loss

Post by the_wiki »

KBREAMK wrote: Fri Jul 01, 2022 11:00 am

And, yes, I am considering moving away from VAS altogether but, at least for now, I feel better with them in my corner. My advisor has really helped me over the last few years. He is also aware that I plan to open another Vanguard account that I self manage and he has been gracious and helpful.
The whole point of investing is so you can build wealth and sleep better at night. If you are getting that with a relatively small fee to Vanguard, then well worth it. If you are "struggling with fear" for this new money, then there is no shame in using the advisor service for that as well. It sounds like they do help you.

I know a lot of people on this forum will tell you that you should manage it yourself. But a LOT of investing is mental and emotional. This forum always wants to boil decisions down to the last dollar of fees, while assuming perfect decision making and zero emotion. That is not often reality.

Vanguard advisory services is pretty cheap relative to the alternatives, and they won't put you in dumb and complicated active fund portfolios in order to maximize their kickbacks. So as far as advisors go, it's a very cheap and responsible option.
User avatar
galawdawg
Posts: 5231
Joined: Thu Dec 14, 2017 11:59 am
Location: Georgia

Re: Struggling with Fear of Loss

Post by galawdawg »

the_wiki wrote: Wed Sep 21, 2022 12:50 pm Vanguard advisory services is pretty cheap relative to the alternatives, and they won't put you in dumb and complicated active fund portfolios in order to maximize their kickbacks.
If you mean to imply that VPAS does not put investors in actively-managed funds, that is no longer correct. While VPAS started out putting investors in low-cost index funds, they are increasingly putting investors in more costly actively-managed funds. In fact, within the past year or so they have created a number of their own, proprietary, actively managed funds just for VPAS investors. And like Fidelity zero funds, they cannot be held outside of Vanguard which presents significantly issues for those with taxable accounts containing those positions who wish to move to another brokerage.

What isn't clear is whether those proprietary actively-managed funds in a taxable account can still be held at Vanguard for a client no longer interested in VPAS or whether those clients essentially become "locked" into VPAS unless they are prepared to divest of all of those holdings.


To the OP...a few months ago, you wrote this about the proceeds from the sale of your business:
KBREAMK wrote: Fri Jul 01, 2022 11:00 am I plan to invest ~$1.5 million of the windfall in a taxable, self managed, Vanguard account at a 60/40 AA for a (hopefully) slightly less bumpy ride. I am leaning towards simply using VBINX or constructing my own 3-fund portfolio.

The other $1.5 million will be placed into a combination of a 5 year CD ladder (leaning towards brokerage Vanguard CDs) and a Money Market account. I want to de-risk half of the windfall which is why I am being more conservative and not placing it into the market.
I like that plan. I say implement it with one caveat. Take a look at treasuries as well. You may find the rates on treasuries equal to or better than CD rates of the same maturity and treasuries are exempt from state and local taxes. Any major brokerage sells treasuries on the secondary market, including Vanguard.
Post Reply