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What to do with messy asset allocation as I take control of my own portfolio.

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  • What to do with messy asset allocation as I take control of my own portfolio.


    I am new to investing and to WCI and have recently decided to take over control of my assets from old financial advisors. I have been doing a lot of research on the site on asset allocation and designing a portfolio but I feel like a I am inheriting a convoluted mess and I'm not sure how to clean things up. I currently have:

    1) A taxable account
    2) Roth IRAs for myself and my wife
    3) 401k from my employer
    4) 401k from my wife's former employer
    5) HSA
    6) 529s for our 3 kids

    Altogether these assets are invested in over a dozen different funds, many actively managed with higher costs. I would love to have a much more streamlined portfolio that will be easier to manage and balance and have lower costs but I am confused about how to do this. If I start selling the funds that are currently in the accounts and buying what I want to have, I feel like I will get hammered with taxes (at least in the taxable account). Is it best to just build the simplified portfolio I want alongside the messiness to avoid this? Am I missing something? Thanks in advance for any input!

  • #2
    welcome to the forum. If you post what you have and what type of account it is in then you will start to get a few ideas.


    • #3
      I view the 529’s as their own goals and timelines.
      If you have your total AA placed as you chose optimally placement in the tax deferred 401k’s, Roths, and taxable you are all set with your targets.
      The taxable is the question. You can sell any losses, but you will need to understand the taxes short term and long term of any gains. At a minimum, you could offset any gains against losses. Up to you if you choose to pay the tax or continue with legacy holdings.


      • #4
        I did a combination of TLH to offset gains, donating undesired legacy holdings to charity, biting the bullet and selling a portion at a gain and paying the tax, and keeping legacy holdings. It really depends on how far from desired the taxable holdings are, and how big the tax hit would be. I agree with others - if you post your holdings it can help. I also found it helpful to plug current portfolio across all accounts into personal capital (or aggregator of choice) and compare that to a new Investor policy statement allocation. I created a second account with desired allocation and toggled back and forth to get a sense.


        • #5
          Your only tax exposure is in the taxable account. VERY GENERAL ADVICE: I would determine your preferred asset allocation (my preference 5-6 funds max) liquidate 100% of all accts except taxable and invest in your target portfolio. Most custodians make this a fairly painless process.

          For your taxable, I would generally give the exact same advice as above, if you were a client. But tax planning can make this much more tricky for a doctor, who may have 6-figure capital gains. So much we don’t know, such as whether a DAF is in your future, if you own a lot of virtual currency and other speculative holdings (please, just no), whether you’re a “trader” (please, just no), if you just bought in and will have significant transaction costs (s/n be an issue, proportion-wise), etc.

          Impo, timing doesn’t matter, even though I don’t believe you asked. Yes, market is down, sell lower, buy lower. What does matter is being able to stay for the long term in an appropriately allocated and diversified equity fund portfolio, rebalanced periodically, considering planned liquidations according to future goals, as determined by your financial plan.


          Welcome to the forum!
          My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
          Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


          • #6
            If you try to keep your current portfolio alongside your new simple portfolio, it just makes it even more complicated. With the markets being low, it should minimize the tax impacts of rebalancing to your new simple portfolio with your acceptable asset allocation. Sure the markets can go down further to minimize taxes more but no one knows nothing.

            Taxes are just a part of the game and you'll have to pay the taxes sooner or later. It might matter a little if it's STCG vs LTCG, but in general don't let the tax tail wag the dog. In the long run, the fees and probable underperformance will be more than any taxes you pay now. The only reason I'd not do this is if you're close to retirement or in retirement and getting ready to draw from your assets. Then I'd just sell the unwanted funds for your needs first.


            • #7
              Thank you for all of the helpful input! I am early career, just 4 years out of training. The taxable account has about 90k total in it, primarily in ABALX (expense ratio of 0.56), AIVSX (similar ER) and SMCWX (ER 1.02). Based on the above I think I will be thankful I have figured this out relatively early on, bite the bullet and move the money to less expensive/passively managed index funds for the long haul to cut costs and simplify rebalancing in the future.


              • #8
                It sounds like you're asking more about how to logistically make fund changes given tax implications rather than asking about the "how to" of building a portfolio and AA, but since you said you're new to investing and WCI, I'd recommend this article if you haven't read it already:
                It's a nice step by step and summary when building a portfolio. Useful to refer to if you're new to DIY portfolio management (which should actually be very little "management" if you go for long-term investment, low cost indexed mutual funds, occasional rebalancing, etc.)

                As for the taxes that you may incur to iron out your portfolio and invest in lower cost funds, my two cents is that it's better to do sooner with a smaller portfolio than later.

                Welcome to the forum


                • #9
                  Look on the bright side: when you sell the old funds for a gain, you will pay less taxes than you would have last week (b/c of market meltdown in progress).

                  But seriously, ya, just bite the bullet, sell the high ER funds, pay the taxes. Ur still young, so portfolio is relatively small, compared to future balance.

                  VTI & Chill going forward.


                  • #10
                    3 fund portfolio is the way to go. US Total Stock and Bond. Intl Stock-its that simple


                    • #11
                      WCICON24 EarlyBird
                      Originally posted by MadUroDad
                      Based on the above I think I will be thankful I have figured this out relatively early on, bite the bullet and move the money to less expensive/passively managed index funds for the long haul to cut costs and simplify rebalancing in the future.
                      You're very fortunate in your timing, as the markets are down and may be falling further in the future. You may not even end up with any gains to pay taxes on!

                      Sell the funds in your taxable account (if you like, you can spread the sale out over 2-3 years to cushion any tax blow) and reinvest in good, solid indexed mutual funds or ETFs, and be glad you got on the right path early, before you'd have a 5-6 figure capital gains tax bill.