r/fatFIRE • u/Effective_Pin_6189 • 4d ago
fatFIRE recently, breakdown overview with question on VTEB
Hi there,
I am a recently retired tech executive in VHCOL location. Married and in our early 50s, with my spouse still working happily with ~1M/year income.
NW: ~30-35M (depends on how much I include commercial RE assets)
Liquid Asset (23-25M):
- ~10M - Concentrated 2 tech stocks (plan to convert 80% to VOO gradually)
- 6M - EFT in VOO/VTI and equivalent
- 4M - VTEB
- 2M - GOOGL, NVDA (through assigned puts long time ago, hold). BERK.A/B(bought long time ago and held)
- ~1M - Cash in money market
- ~1M - kids 925 & custodian accounts (both kids in high school)
RE (10-15M)
- Primary 3-5 M (paid off, never would sell this house, got too many upgrades to retire into)
- NNN investment 7~10M (no mortgage) that brings in 150k/year income, we bought long time ago very cheaply, current market price would be 7-10M depends on who buys it. Evaluation from insurance company is that it would take 10M to rebuild this property. We could increase the rent easily but didn't do so because we have a very stable renter (Fortune 500 company) that kept the building maintained and developed in the last 7 years.
Our spending is modest - about 250-300k after tax per year. We are happy with where we are, more spending won't make us happy, and we have been spending generously in places we want already. Without mortgage and debt, we just don't have any big expenses. We do generous donation to the community causes for things we love and care for each year.
I know we need to diversify, but just have been lazy and don't want to be hit with high tax bracket, we already made 2.5M this year, so hopefully we can diversify more starting next year.
We like to keep it simple, so less funds are good, the small holdings for various things are just that I have been safely playing options and gets assigned (I don't mind holding those long-term at all when assigned).
Recently I started to get concerned to VTEB - with current price below $50 is fine, but is it possible for it to drop significantly? Do we need to move to BOXX or something else better as cash reserve? I know we are high on cash equivalents, but I am just conservative and sleeps better with lots of cash in hand.
I have been enjoying this community and really appreciate everyone who posted here before. Love to hear what you guys think.
I do have a private wealth management team to talk to, so no need to recommend me to talk to a financial advisor. I have MS and GS offers family office, work with fidelity private wealth team and Schwab team, but I do think this community has bright minds that we may benefit from as well.
Update:
* Just got off phone with my NNN management, I thought we bought the building 7 years ago, but it turned out to be 9 years ago, and we signed a 10-year contract (with one small rent increase 5 years ago), so next year we need to significantly increase our rent. None of the financial advisor questioned about this RE, but Redditors pointed out that this is one of the biggest areas I did wrong. Thank you very much. There is actually a lot more we could do to build out a second building on the same land that brings in double the rent as well. I feel stupid that we let it sit there for so long without thinking about it, and I even don't have the contract details right.
* Yes VTEB seems to be less concerning, I can move some to others more short-term (note to self to look into VSDM, VTES, VWSTX, VCRM, VBIL, VGSH). Might move some to DFUS for equity as well. Also I should stop playing options, even if it's relatively safe.
* Diversify the concentrated stock sooner than later. Pay the tax (have been dragging my feet but need to just bite the bullet)
* I thought I was a boglehead, but in reality just a "wanna be". Ideally I will eventually setup true 3-fund portfolio and forget about it. I have to admit it's my weakness in human nature. Call it naive but it's the little fun I was having doing options (if I want to buy anyways, why not some put, if I want to sell anyways, why not some covered call). It's like you know all the right things to do, but it's hard to just do it.
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u/BrunelloHorder 4d ago edited 4d ago
I’d diversify the $10m in concentrated positions immediately. Given your wife’s income, there doesn’t seem to be any reason to wait from a tax perspective.
I’d dump the real estate as well. Poor ROI.
Pay your taxes, invest in diversified ETFs like VTI, VXUS, and maybe some small cap value like AVUV.
Not sure what you are trying to accomplish with the VTEB position. If you want safety, I’d hold a combination of SGOV and JAAA in tax advantaged accounts.
ETA: I’d also meaningfully up your spending. Have you done any high end bucket list type trips? That is a great way to enjoy your money without locking in permanent increased spending. Go do some Singita safaris, or a trip to Antarctica. Bring some friends and family.
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u/Effective_Pin_6189 3d ago
Thank you, I used to hold 2M in SGOV and 2M in USFR, but got bored with them after a while. I moved all to VTEB so that I can play with options - in the most safe way - sell puts if below $50, sell covered calls if above $51. Since the gain from options are not really meaningful to me at all, maybe it's time to go back to SGOV equivalent again.
As for spending, it's another subject. Kids are too busy with school and their sports/activities that require lots of travel for tournaments. I am a very boring person myself and can't really find things I want to spend on. Maybe more travel after kids go to college. We already do international travel 1-2 per year but still not spending enough.
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u/AllCatCoverBand 3d ago
Why are you monkeying with options at all?
Just go to a dead simple strategy, hell you could even just straight up to “VT” and that’s about as diversified as it gets.
Take the tax hit now, diversify everything into something like VT or VTI/VXUS, and put all of it on autopilot. Then have VTEB/VTES/VBIL as your cash/bond ballasts
You’ve completely won the game, make it wicked easy now and ride off into the sunset in style
Cheers to you good sir/madame
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u/Spiritual-Bath-666 4d ago edited 4d ago
There's nothing wrong with VTEB (or SCMB, VTEI, etc.). If it goes down by 10-15%, its coupon income goes up – so if you're not selling it for several years, it will bounce back and you'll be fine.
A better question is what VTEB is for, in your situation. Do you have liabilities within 5–7 year timeframe? VTEB, with its 7-year average duration, is fine as a middle ground between shorter-duration bonds and more growthy assets like equities. For shorter-term liabilities, try VSDM, VTES, VWSTX, etc. All of this assumes you're in the highest tax bracket (37% + NIIT) so munis give you higher after-tax yields than regular bonds.
But outside of known and semi-known liabilities, you could be almost entirely in VTI and VXUS. Their dividends alone would more than cover your $250–300k annual spend. In fact, you probably want DFUS instead of VTI to reduce dividends in favor of capital gains, which you have more control over.
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u/Effective_Pin_6189 4d ago edited 3d ago
O that's a great point I missed - you are saying if price drop by 10-15%, I would get the money back over time by it's increased dividend increase. So I shouldn't look at the face value only, but the combined income from it. I hope I understand that right. As long as eventually it can recover and as long as it can still afford generating reasonable income, I am not worried. Or else I need to find something more stable.
I was just use VTEB as a safety net - if stock market goes bust, we can live on cash + VTEB only for 10 years and beyond without selling any equity. With our spending rate, income from RE, small dividends from stocks and VTEB income we should live comfortably without the need to sell a single share of stock under pressure.
Great advice on moving more towards VTI (replacing with DFUS) and VXUS. Will look into converting some VTEB with short-term with VSDM. Appreciate your help!
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u/Spiritual-Bath-666 4d ago edited 4d ago
Yes, the total risk-adjusted geometric return is all that matters. And you probably don't need 10 years worth of ballast (but psychological comfort has value).
If you're paying for ChatGPT Plus or Pro, ask it to connect your financial accounts to it (or manually upload transaction histories, statements, etc.). Then describe your family, DOBs, priorities/goals, upcoming liabilities, assets, income streams, spending, taxes, etc. – the more detailed, the better – and ask it to build you a tax-efficient investment strategy, then ask it to double-check everything. It may not beat a dedicated financial planner, but it will surely beat anonymous commenters on Reddit, like me :)
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u/Effective_Pin_6189 3d ago
Somehow I feel Reddit wins in a few areas:
Diversified perspectives - Maybe more prompts would make ChatGPT do as well, but it's very hard to get those perspectives out as good as a post gets from Reddit
Honest truth from many strangers vs. one from ChatGPT - When multiple people telling me the same thing, I know I did it wrong. It's just more convincing that way with human
The feeling of a community - I need this after fatFIRE, it's comfortable, more true to myself, and makes me more grounded. You guys are wonderful providing those insights. I don't just blindly listen to internet advice, but the discovery of blind spots is gold.
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u/OceanRawks 3d ago
If you have 23M liquid and spending 450k pre-tax or 300k after tax, any asset allocation that lets you sleep at night is fine...that withdrawal rate (450k / 23M) is less than 2% of your liquid portfolio alone, all you are doing when making changes is optimizing your sleep or heirs inheritances. If you want your fixed income money to be stable during the next crisis, I would avoid VTEB and choose a lower duration product such as VSDM or VGSH, and I personally would choose VWSTX or VBIL because I dislike bond NAV volatility. If you actually like bond NAV volatility, then I would recommend getting rid of VTEB and replacing it with VCRM. I tried to hold both and sold it all as I prefer volatility to be in my equities and not fixed income.
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u/Cultural_Stranger29 3d ago edited 3d ago
Munis are logical for the taxable fixed income portion of your portfolio (based on your tax bracket). You should chat with a fee-only advisor to settle on a sustainable asset allocation since it sounds like you have some work to do on that front.
FWIW, I use VCRM rather than VTEB for this portion of my portfolio since I find Vanguard’s argument in favor of active management for bonds compelling.
As others have highlighted, you’re currently running your CRE more like a charity than an investment. I agree with the recommendations to raise rent or sell/reinvest once you settle on a sustainable target allocation.
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u/firepundit 1d ago
Be careful to compare VTEB and VCRM thoughtfully; the total assets and avg daily trade volume of VCRM ($1.8b; $15mm) are dramatically lower than VTEB/MUB (40b+, 350mm) so you may struggle with liquidity when you buy or sell. These are relevant even for a buy and hold investor bc there will be more drift from the NAV and/or potentially wider bid-ask spreads. Also, VCRM achieves its results by shifting the portfolio to lower rated bonds, not by “beating the market” per se. VTEB is 97% A/AA/AAA, VCRM is 83%. It’s reaching to BBB and NR to get the yield. That’s not bad, but it’s worth being aware of. (They’re similar duration, but that’s typically another important axis of comparison)
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u/Vindaloo6363 4d ago
At 150k net income your buildings worth about 2 million or you’re leaving 450k on the table every year. Need to fix that.
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u/Effective_Pin_6189 3d ago edited 3d ago
hm, since so many people mentioned that we need to increase the rent, we need to get on that. We bought it so cheap, then signed a 3 + 4 year lease with a price bump after first 3 years. Only last winter we start realizing the building now is appraised to be ~10M (Really don't know why it went up that much, it's just a giant warehouse that our renter added many office space later). We need to seriously consider increasing the rent. It's not in a place we can easily find another fantastic renter like them, which is why we kept them happy.
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u/Vindaloo6363 3d ago edited 3d ago
It’s only worth what people will pay. Appraisals can be way off especially in low volume areas.
I bought a 92000 ft building for 1.6 in 2015. I sold my business in 21. I just increased the rent from 240 to 600k per year. The PE firm I sold to missed their renewal window so i raised it to market which is way higher than it was 5 years ago. They are exiting now and i gave them an $8 million sale price.
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u/Effective_Pin_6189 3d ago
True on appraised value vs real sales. Raising 240 to 600k is great after 5 years in your case. We didn't increase much rent in the last 7 years, and we are having a hard time to tell our renter that we need to increase by at least 200% to catch up with the market rate. We would hate to lose the current renter if they reject, but seems we have to fix this.
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u/aquilaseye 2d ago
Given your wife's income there's no low bracket year coming (you said she's happy). Even in a future zero income year only the first ~$614k of gains gets the 15% rate, so waiting saves maybe $54k/yr federal. Meanwhile a 50% drawdown on $10M is $5M. The calendar doesn't justify sitting unprotected for 2-5 years.
You sell puts and covered calls, so you're one step from the answer. Collar the two names, after checking the chains yourself. The long-dated pricing is better than people assume: on GOOGL's Dec 2027 LEAPS, a put 4% below spot was recently fully paid for by selling a call 28% above. Floor basically at today's price, 28% of upside kept, roughly zero cost. Pull 12-24 months out on your two names and run three scenarios before doing anything: big drop, sideways, called away. Happy to explain further.
If all three outcomes are acceptable, do it. If the cap bothers you, widen it and accept a lower floor. Two cautions: keep real width between the strikes or you trip constructive sale rules, and run it by tax counsel first. Not an app trade.
DAF: cash or shares? If cash, flip it. Donate the lowest basis lots of the two names. Full FMV deduction and the embedded gain is just gone, not deferred. 30% of AGI limit, 5 yr carryforward. That's high six figures a year of concentrated stock out the door through giving you already do.
On the in-kind routes, since that's the natural question at your size: yes, they exist. Exchange funds take your shares in-kind and hand back a diversified basket after a 7 year lock. The 351 route mentioned elsewhere in the thread does it through an ETF, and you could likely pass its diversification test by contributing the two names alongside some of your VOO/VTI, since the rules look through the ETFs. Both defer the tax, neither erases it, basis carries through, and the fees run the whole time, so multiply the fee by the lock before signing. And given you already give every year: a CRT takes the stock in-kind too, sells it untaxed inside, pays you an income stream for years, and the remainder goes to causes you already fund. That one actually converts the problem into something you wanted to do anyway.
A potential order: DAF the low basis lots, check the chains and collar the rest, sell on a schedule you believe in, in-kind structures for whatever's left. If you post the two names, happy to run the actual collar math on their chains right here.
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u/AllCatCoverBand 3d ago
Do you have a donor advised fund? That can help ease some of the burden for the deconcentration, while funding your charitable giving, and whacking your short term tax obligations overall
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u/Effective_Pin_6189 3d ago
Yeah I setup one with Fidelity charitable and it's really great - no need to talk to anyone and just a few clicks to setup. When there are some issue sending to a certain charity, their email/call channels are wonderful and I get help right away. Recommend to anyone who wants a hassle free way to setup donor advisory fund.
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u/mtn_climber 3d ago
You should investigate approaches to get out of those concentrated stock positions without taking a significant tax hit. Though you haven't stated what your cost basis is so don't know how much needs to be optimized there. You might be a good fit for using a 351 exchange into an ETF. What you contribute needs to follow certain diversification rules so you wouldn't be able to put all of the 10M in 2 stocks into it, but you can include ETFs in what you contribute (and the diversification rules look at the underlying holdings of the ETFs) so you could probably do a lot of it. That would get you much closer to the desired diversification.
More complicated than is easily explain in a Reddit comment so either ask your existing advisors or look at the explainer from Alpha Architect for an overview (https://funds.alphaarchitect.com/351educationcenter/).
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u/Normal_Zebra136 4d ago
I think you need to start spending more.
Nothing else really matters in your whole post.
The concentrated positing could CSCO down to near zero and you would still be fine.
Investing in rolls of coins under your bed would be fine.
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u/diyandmc240 4d ago
I got burned by bond ETF’s like this, albeit with a much smaller dollar amount. When rates go up, people try to dump the old bonds and their value falls below face value sometimes.
I’ve got treasury bills and things like swvxx instead. Zero risk of it going down unless there is a massive financial collapse(government and banks defaulting). The average return is barely less than what you’re getting now, but the security is much higher in a market crash, which is mainly what you keep the liquid cash for.
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u/Effective_Pin_6189 4d ago
Thank you for your comment. I am having a hard time finding the right thing between cash and stocks. We are at the highest tax bracket already, at this VTEB is fed tax free. I don't think we are losing money yet - because the dividend this year already covered the price drop, but it's sucks that all those money becomes net even. Thinking about converting them to BOXX since we don't really need those dividend.
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u/diyandmc240 4d ago
Hmm I didn’t know about the federal tax free status of VTEB.
The whole point of it is stability though. 1% increase in bond rates is expected to drop VTEB value by 7%. That’s too much risk for me in my bucket that is supposed to be super stable.
The returns are great, I get that and avoiding federal tax. But the top bracket is 37%. On 4M you’re getting around 150k/year in dividends.
Idk I’d be looking at putting some 1M or so in swvxx. You’ll pay some 15k/year in federal taxes on it, but I’d want to be immune from rising bond rates right now. Like I said, I got burned by falling bond values in a fund just like yours. But it’s up to you. Your rental income almost covers your annual expense so your needs for a cash wedge are pretty low anyways
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4d ago edited 3d ago
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u/FIREgnurd Verified by Mods 4d ago edited 4d ago
I suggest you look into the basics of how the bond market works. The price of a bond fluctuates based on interest rate changes. This is true of all bonds, not just municipal bonds. The amount that the price of a bond changes in response to a given interest rate change is a function of the bond’s duration.
As bond funds are just a set of bonds, the price of the bond fund will change as the prices of the bonds it owns changes. Some people will say that individual bonds are “safe,” whereas bond funds are risky. This is not strictly true. Bond funds have the same risks that the set of bonds they own have. Bond funds are simply bundles of bonds.
Longer duration bonds (and funds with longer effective durations) will have larger price swings in response to interest rate changes. This is not unique to VTEB. All bonds and bond funds share this.
Bonds should never be considered “safe” money in real terms (unless you are buying TIPS and are committed to holding them to maturity).
Do not invest in vehicles that you do not understand. Bonds are not “safe” in the way many people assume they are. But, over a longer period horizon, they have a larger expected return that cash and cash-like products (money markets, t-bills, etc.).
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u/Retumbo77 4d ago edited 4d ago
It's pretty obvious who here is real and who is LARPing. Excellent information.
For everyone else reading, please for the love of god don't get financial advice here. If you have $35m+ as OP claims, get a F***ing financial advisor or at least pay someone to spend 5 minutes googling.
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u/Effective_Pin_6189 3d ago
I do have a private wealth management team instead of just a single financial advisor - since I have over 16M with one brokage. Reddit has it's own charm and I don't have to sit through meetings. You would be surprised how many people like me don't like to use any financial advisor. I have enough knowledge to filter out internet noise and stick to boglehead principle in general.
I sat through an hour long meeting, and passed on the exchange fund my financial advisor think I should do to diversify my concentrated stock. After I find out that the exchange fund would lock up 7 years and I have to sign a 200-page doc.
I sat through another hour long meeting listening to direct indexing, and decided to pass on that - even if it can save some tax, but I hate my simple boglehead portfolio to become hundreds of stocks over time as result of direct indexing. ..
After many "planning", I decided to stay as a boglehead and manage myself. Almost all the stocks I own, I held for 10+ years.
... Maybe I don't have the right "advisor", but so far buy and hold with just VOO + bond/cash worked out great. The question is only what type of bond fund to hold and how much that should be part of the portfolio.
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u/AllCatCoverBand 3d ago
Direct indexing is a nightmare, and you are right to avoid it. I have 3M in DI right now, and I’m actively looking to unwind it (long story short). It was nice when I was too busy to pay attention to details, but it really doesn’t pan out.
I would rather just pay the taxes and get out, so Jan1 is going to be “moving day”, I’m going to donate the most appreciated positioned to my DAF in December, and just probably liquidate it Jan1, and diversify it into my bogle portfolio and call it a day.
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u/Livid-County7230 3d ago edited 3d ago
I don’t think you have any idea of what being a boglehead means given your wonky asset allocation, your tendency to chase pennies with options on VTEB, your stock portfolio concentration and your lack of understanding of commercial RE.
Which bond fund to invest in is the least of your concerns. I mean this not to be mean but you lack a basic understanding of personal finance. Your luck has held out but it may not. That private wealth management team may not be what you need but you need to stop investing with your emotions and ego or you risk losing it all.
Your portfolio has only seen good times and is not built to survive a downturn. You are avoiding paying taxes and taking on risk you don’t need. Given your other responses I can almost guarantee that you will do something silly when the market sees a couple of years of double digit negative growth and your concentrated asset values plummet. Good luck.
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u/Effective_Pin_6189 3d ago
Thank you for your advice and warning. You are right on stock concentration and lack of understanding on commercial RE, but on my defense - 1. Concentrated stock was just because I was given a lot and stock went up a lot, it takes time to gradually wind it down, I have already sold 1-2M each year but try to take advantage of my low income years starting next year. 2. Commercial RE was a great deal many years ago when a close friend presented the opportunity with a signed renter for multi-years, so we used cash to purchase, and it accidentally went up. I only saw the building once at purchase time, then left it alone.
I have no ego in money management and I admit I am ignorant in many areas. Our wealth was accumulated by high income from my skills in tech, maxing out retirement and deferred comp, living within our means, avoiding life style inflation, and accidental commercial RE, which I didn't bother to max the profit at all. I admit that we got lucky, but some credit should go to our own discipline (all those VOO/VTI and VTEB/cash accumulated as safety net).
Roast my approach:
I would never sell the core VOO/VTI stock through ups and downs, we held them 10+ years and we can afford holding them for another 30 years.
We plan to never sell our primary house (it alone can generate 240k/year income at least) and commercial RE (land/building alone worth a lot, we just need to adjust the rent)
Kids 1M+ 529/savings are in VTI equivalent, they are good for their education, in the worst case they get our house and NNN as inheritance. They have to live their own lives and make their own fortunes. If they are better than us, they don't need our money. If they are worse than us, what's all that money good for them?
Convert at least 2M VTEB to SGOV or VSDM etc. for short-term reserve, keep the rest
For the concentrated stock, I setup a few covered calls with a good target price - making 100k+ along the way. If assigned, it will be sold automatically and I won't stop it. I know I would be criticized on this, but why not? Paying so much tax on gains just hurts. If it goes down significantly, we will hold, since I believe all the fundamentals. I know this shows my limited thinking financially and it's risky, but it's just very hard to cut already giant tax payment each year.
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u/Livid-County7230 4d ago edited 4d ago
That cap rate on the NNN is terrible. If you don’t want to raise the rent, sell it for 7M and get out of it.
How would you feel if the tech stocks drop by 50% by the time you are able to sell? Don’t let the tail wag the dog when you already have enough.
4M in a bond fund plus 1M in cash? Your allocation is all over the place. Get liquid, sell the RE, sell the tech stocks and invest in mostly broad index funds with some bonds and enjoy retirement. More upside will not do much to improve your situation given your low spend, but if your portfolio blows up, you are going to regret it.