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Setting Up Accounts for Retirement

#1
I am starting to set up my portfolio for retirement and I would like to do it right the first time around if I can. What mutual funds with tickers would you recommend for my taxable accounts that are tax-efficient yet are solid successful funds that have a strong history of growth and what mutual funds with tickers would you recommend for my IRA and 401K accounts that have strong histories of success for growth? Would appreciate allocation considerations as well. Do you have a percentage of the portfolio that you would recommend for each fund? Thank you!
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#2
I see you have zero replies to date.


IMO this is partly because you are asking a very huge question. One that is really asking others to set up a complete portfolio for you, with fund symbols, etc, for going into retirement...both taxable spaces and tax deferred.


Yet you provide no background or your individual situation. There is simply no one-size fits all portfolio. For starters, such a portfolio depends on the type or style of investor you are. Like, are you buy and hold only...active manager of portfolio...use only index funds...and so on. One way to determine this is for you to perhaps post, broadly, what your portfolio makeup is CURRENTLY. Most investors do not make huge portfolio changes on their retirement date. They make adjustments a few years in advance...sliding into retirement.


But for starters, I will give you some info that may help in making up/structuring your portfolio:


TAX EFFICIENT PLACEMENT OF INVESTMENTS (IRA OR TAXABLE ACCT):

It depends on how active an investor you are, in placing assets into tax deferred spaces such as IRAs. Here are the two scenarios:


The conventional guidance (accreditation T. Larimore) is to put more fixed income into IRAs, avoiding the definite tax on interest and dividends if kept in taxable. Read more about Traditional IRA vs Roth IRA.
Here is a handy guide for placing such assets into IRAs:



Four Step Rule for Tax Efficient Fund Placement:



1. Put your most tax-inefficient funds in 401ks, 403bs, Traditional IRAs and similar retirement accounts. When full..
2. Put your next most tax-inefficient funds in your Roth(s). When your Roth(s) are full-
3. Put what's left into your taxable account.
4. Try to use only tax-efficient funds in taxable accounts.

Here is a list of securities in approximate order of their tax-efficiency. (Least tax efficient at the top.):


Hi-Yield Bonds
Taxable Bonds
TIPS
REIT Stocks
Stock trading accounts
Balanced Funds
Small-Value stocks
Small-Cap stocks
Large Value stocks
International stocks
Large Growth Stocks
Most stock index funds
Tax-Managed Funds
EE and I-Bonds
Tax-Exempt Bonds
---------------------------------------------------


The second scenario...if you will be an investor who actively manages their portfolio, selling mutual funds from time to time, either for market conditions, selling laggards, any form of timing, entering and leaving international spaces, etc, then you should keep some of these assets in IRA (tax deferred) spaces.


For instance, let's say you invest in Emerging Market Fund and it doubles in 3 years; doubles again in three more years...getting very bubble like. You decide to take some off the table...perhaps even exiting altogether. In an IRA this is a nontaxable sale; in taxable spaces you have a capital gain. So you are not reluctant to sell if in an IRA.


NOTE THIS TAX ADVANTAGE CAN BE REPEATED OVER AND OVER AGAIN WITH THE SAME MONEY. A bond fund only uses the advantage essentially only once.


So I recommend those funds you envision may be sold for any reason, be kept in IRAs.

Also, remember, your stock equity funds held over several decades are expected to grow much more than fixed income bond funds.

It was a fundamental reason I was able to retire a little early. Having the fund capital gains be tax free, as well as any exchange cap gains, was a huge advantage when the IRA assets became very large.

Now, in the past couple years, cap gains taxes have been zero for moderate to lower income folks. This has been extended, but difficult to plan on this being the case, long term.

A final point. The use of ETFs can also be a big benefit. ETFs have this special structure and tax status such that they pay out very little in capital gains each year. Long story. Open ended funds must distribute such annually. With ETFs you essentially only pay the cap gains when you actually sell them. Thus, holding a small cap stock ETF in taxable, has advantages. The cap gains annually are small, and the dividend on small caps is usually small. Thus taxes are mitigated. One can make good use of ETFs this way in taxable spaces, with core holdings that are not sold, if ever.
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