Making Things More Conservative

With our FIRE goal date at the 3 year mark I got to thinking that now might be the time to reevaluate our portfolio’s allocations and start to make some changes.  I am not talking big overhaul changes, but little tweaks to our allocations.  I should also state that I am making these changes because our FIRE goal is approaching and not at all due to some of the volatility we have been seeing in the market recently.

One of the first accounts we are going to be tapping once we hit FI, other than our cash, is our joint NQ brokerage account.  Our total investment portfolio is somewhere around 80% equities/20% bond holdings but the JT brokerage is more aggressive with a 93% equities/7% bonds mix.  And moreover 35% of this one account is just in Apple.  That is way more aggressive than this account should be if we are going to start tapping it in 3 years.

Why do we have so much in Apple you might ask?  We bought $5,000 worth many years ago and it has grown…a lot, which also means we have a ton of gains in this one holding.  If we were to sell at this point we would be subject to a large capital gains tax.  I really want to wait until we hit FI when we will be a lower tax bracket and therefore won’t have to pay any capital gains taxes before we sell any shares.  So what is the solution to make this more conservative without selling?  Well for now it is simple: to stop reinvesting dividends.  Last week I logged into our Fidelity account and stopped the dividend reinvestment for Apple as well as two of our other equity holdings; VTI and EFAV.  I don’t need the income stream from these right now so what I am going to do is let the dividends accumulate and along with some additional savings periodical make purchases into a tax-exempt bond holding.  This is a super slow way of making this account more conservative without actually selling anything.  Hopefully in 3 years time this account will be at least closer to a 80%/20% mix, depending on how much additional money we are able to add to the account.

The only other change I made last week was making my 401(k) more conservative.  It is currently in an aggressive allocation fund which is close to 100% equities.  We will not be using these assets anytime soon but I thought it might be wise to make things more conservative anyways so I added a bond holding with a 15% allocation.  It can sometimes to be hard to make your investments more conservative when the market has been doing so well for so many years but sometimes you have to make a decision on your time-frame.  Our goal is in sight and knowing that the market will someday have a correction, likely in the next few years, means that now is the time for us to start to make some changes.

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