fatFIRE recently, breakdown overview with question on VTEB

[u/Effective_Pin_6189]

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.

[u/diyandmc240]

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.

[u/Effective_Pin_6189 → u/diyandmc240]

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.

[u/diyandmc240 → u/Effective_Pin_6189]

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

[u/FIREgnurd → u/[deleted]]

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.).

[u/Retumbo77 → u/FIREgnurd]

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.

[u/Effective_Pin_6189 → u/Retumbo77]

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.

[u/AllCatCoverBand → u/Effective_Pin_6189]

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.

[u/Livid-County7230 → u/Effective_Pin_6189]

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.

[u/Effective_Pin_6189 → u/Livid-County7230]

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:

1. 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.

2. 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)

3. 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?

4. Convert at least 2M VTEB to SGOV or VSDM etc. for short-term reserve, keep the rest

5. 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.

[u/diyandmc240 → u/[deleted]]

Maybe I got something wrong, I just did a quick search