401k rollover - "final" portfolio building

[DividendGarden]

In the next couple of months, I'll be rolling over my 401k's (both Roth and pre-tax) into my IRA's (one Roth and one pre-tax).  In the meantime, I've "locked in" my gains by shifting the entire 401k portfolio to short-term, fixed income.  I made that move about a week ago and sleep well at night.

Ultimately, my plan is to live off of my IRA's (100% in DGI stocks except for BRK.b and GOOGL shares, neither of which pay a dividend yet).  My personal approach is to have a mini-index fund, where I've got ~100 different companies and the risk is spread out.  In the spirit of "know thyself", that's my personality - I'm not one to have a concentrated portfolio.  However, the 100 companies are the highest quality, long-term DGI companies that we all know and love.  If 1 or 2 of them cut their dividend each year, so be it.  Overall, the dividend growth of the 98 will compensate for the 2 that fail.

Basically, wanted to bounce this entire thing off of the group before I move ahead.  Since it's such a major life decision, I wanted to use wisdom and seek the input from you, my trusted friends.  Am I playing it too safe?  

For reference, here's my "master list".  I will probably rank them by quality and put a bit extra into the higher-quality ones (JNJ, V, DIS, XOM).  

AAPL
ABBV
AFL
AMNF
AMP
AMZN
AXP
AZO
BABA
BAC
BDX
BEN
BF-B
BKSC
BMY
BP
BRK-B
CHD
CHH
CL
CLX
CMG
COP
COST
CSCO
CVS
CVX
DE
DEO
DFS
DIS
DJCO
DSFCU
DVA
FB
FNHC
GD
GE
GILD
GIS
GNTX
GOOGL
GSB
GSK
HD
HON
HRL
HSY
HTBK
IBM
INTC
ITW
JNJ
JPM
K
KDP
KHC
KINS
KMB
KMI
KO
KR
LB
LMT
MA
MCD
MCO
MDLZ
MKC
MKL
MMM
MO
MRK
MSFT
MTB
MUFG
NFLX
NKE
NOC
NSRGY
O
ORCL
OTTR
OXY
PAYX
PEP
PFE
PG
PKBK
PM
PSX
QCOM
RBGLY
RDS-B
RSG
SBSI
SBUX
SCHW
SFTBY
SJM
SO
SOUHY
SPOT
T
TCEHY
TIF
TMUS
TROW
UNM
USB
UTX
V
VZ
WFC
WMT
WTR
XOM
YORW

[fenders53]

Wish we had more threads like this. I am in a similar place in life. Just rolled over my "life's work" from 401K to Roths just last SEP. l hope this doesn't come off as overly critical because I do mean to help, but this is important so I'll be honest. Imagine me smiling as I type this, trying to stimulate conversation....

-I see nothing but a mutual fund here. Why do you think you can match the pros, or more specifically a dividend oriented mutual fund or ETF?

-I'm all FOR diversification, but do you really think you have 100 good ideas today, or over the course of the next few years? Properly researched stocks? Do you even have 100 average ideas right now? Even Warren Buffet admits he doesn't. This looks like a poke and hope strategy. Cut that list in half and move in slowly and it sounds like a MUCH better to me. Still too many stocks but I am trying to compromise LOL

P.S. I highly approve of your idea of being in safe stuff for the moment. This market is more than iffy even a month from now. I did exactly that and waded in slowly. Thank God for that as the market got smoked about the time I had 25% of my money re-invested after rolling it over. A few months later I am back up by blind luck if I am honest with myself. A LOT of people here can't say they are up 10% for 2018 which I am. Don't stay 100% cashy too long though. Sitting on your hands is rarely a great plan for long.

[Otter]

This is somewhat analogous to the strategy I am using in my taxable accounts, and intend to continue using when I rollover my current 401k to an IRA someday. You are likely to match the performance of the market as a whole, without incurring the fees/expenses associated with funds.

That said, you might give some consideration to a valuation-based approach to your purchases, staging them over time. Whatever is not deployed into equities of fair or better value can be parked in short-term fixed income to provide a safe income stream while you wait for value to develop. Set a target P/E, Chowder Number (this incorporates both current yield and growth prospects), Credit Rating, DGI history (years of historical consecutive raises), and Dividend Payout Ratio threshold for your purchases (your baseline for fair value). Buy DGI stocks on your list when they are at or better than your value target. Continue to collect income from the remaining bulk of your nest-egg parked in short-term fixed income, and deploy as additional stocks on your list hit your value targets. This will keep you from purchasing stocks that are probably hugely overvalued and paying a historically low yield. Buy more income at a better price later. There may be a handful on your target list of 100 that never reach your value target. No big deal, considering the total number of holdings you are contemplating.

Also, consider further reducing your risk profile by having a long-term target for portfolio income allocation across all eleven GICS sectors. They don't need to be equal-weighted. It is probably safer to allocate more of your total portfolio income to stocks in sectors like Healthcare, Consumer Staples, Telcos, and Utilities, than Materials and Industrials.

Also, if you intend to keep all of these securities in a traditional IRA without having a Roth Ladder scheme, consider having an overall portfolio yield target that (hopefully) meets and exceeds your RMD requirements once that kicks in. Don't want to have to start selling off parts of the goose if the market happens to be in a slump when your RMDs kick in.

[fenders53]

Very sound advice from Otter IMO. A method that forces you to buy at fair value or less is good, and accept the fact some will likely never become attractive short of a very severe market. It's OK to invest in a few dozen quality stocks and move assets to others over time as they enter the buy range. At this stage of my life commissions are $2 and mutual fund expenses on most of my Vanguard offerings are .04% annually so it is practically a rounding error vs individual stocks unless your stock trades are absolutely free.

[DividendGarden]

(02-12-2019, 11:12 AM)fenders53 Wrote: Wish we had more threads like this.  I am in a similar place in life.  Just rolled over my "life's work" from 401K to Roths just last SEP.  l hope this doesn't come off as overly critical because I do mean to help, but this is important so I'll be honest.  Imagine me smiling as I type this, trying to stimulate conversation....

-I see nothing but a mutual fund here.  Why do you think you can match the pros, or more specifically a dividend oriented mutual fund or ETF?

-I'm all FOR diversification, but do you really think you have 100 good ideas today, or over the course of the next few years?  Properly researched stocks?  Do you even have 100 average ideas right now?  Even Warren Buffet admits he doesn't.  This looks like a poke and hope strategy.  Cut that list in half and move in slowly and it sounds like a MUCH better to me.  Still too many stocks but I am trying to compromise LOL

P.S. I highly approve of your idea of being in safe stuff for the moment.  This market is more than iffy even a month from now.  I did exactly that and waded in slowly.  Thank God for that as the market got smoked about the time I had 25% of my money re-invested after rolling it over.  A few months later I am back up by blind luck if I am honest with myself.  A LOT of people here can't say they are up 10% for 2018 which I am.  Don't stay 100% cashy too long though.  Sitting on your hands is rarely a great plan for long.

Thanks, mate!  Good stuff to chew on.  I moved to 100% safe just to prevent the risk of a 2008 event right before I moved the account.  FYI, I dabbled in options and bought a ton of S&P calls the day the market started tanking back then - dang it.  Needless to say, I learned to respect the leverage quite a bit!  That was painful!

As for the mutual fund comment, I think that's actually what I was driving towards.  Maybe I'm misguided, but I wanted to have a ton of diversification to spread risk out.  I don't want to actually own a fund, as they siphon off fees in perpetuity.  And they're held to the institutional imperative.  I just wanted to own quality companies that I think will be around for the next fifty years.  So, to elaborate a bit more, the tech stocks (INTC, AAPL) and crazier stocks (TenCent, SoftBank) are the ones where I would just own a very small stake as a lottery ticket - certainly wouldn't put too much into those.

Thanks again for the feedback, you gave me lots to think about!

[DividendGarden]

(02-12-2019, 12:02 PM)Otter Wrote: That said, you might give some consideration to a valuation-based approach to your purchases, staging them over time. Whatever is not deployed into equities of fair or better value can be parked in short-term fixed income to provide a safe income stream while you wait for value to develop. Set a target P/E, Chowder Number (this incorporates both current yield and growth prospects), Credit Rating, DGI history (years of historical consecutive raises), and Dividend Payout Ratio threshold for your purchases (your baseline for fair value). Buy DGI stocks on your list when they are at or better than your value target. 

Great idea, and probably how I'd tactically do this.  I'd probably spread the purchases out over a few months and use valuation to guide the buying.

[DividendGarden]

(02-12-2019, 12:24 PM)fenders53 Wrote: Very sound advice from Otter IMO.  A method that forces you to buy at fair value or less is good, and accept the fact some will likely never become attractive short of a very severe market.  It's OK to invest in a few dozen quality stocks and move assets to others over time as they enter the buy range.  At this stage of my life commissions are $2 and mutual fund expenses on most of my Vanguard offerings are .04% annually so it is practically a rounding error vs individual stocks unless your stock trades are absolutely free.

Thanks, mate.  And same on the commissions, they're really a non-issue and I've got no problem paying a ton of them over the next few months as I execute this.  Over the next thirty years, there would be zero commissions!

[Otter]

(02-12-2019, 12:46 PM)DividendGarden Wrote:

(02-12-2019, 12:24 PM)fenders53 Wrote: Very sound advice from Otter IMO.  A method that forces you to buy at fair value or less is good, and accept the fact some will likely never become attractive short of a very severe market.  It's OK to invest in a few dozen quality stocks and move assets to others over time as they enter the buy range.  At this stage of my life commissions are $2 and mutual fund expenses on most of my Vanguard offerings are .04% annually so it is practically a rounding error vs individual stocks unless your stock trades are absolutely free.

Thanks, mate.  And same on the commissions, they're really a non-issue and I've got no problem paying a ton of them over the next few months as I execute this.  Over the next thirty years, there would be zero commissions!

Depending upon how you handle the rollover, you can probably get a set number of free trades for X number of days/months after the rollover.

Also, if you are fortunate enough to have more than the SIPC insured limit of $500K, consider splitting amongst various brokerages. The supplemental insurance that they carry in excess of the $500K SIPC limits typically is not enough to cover all of their clients for 100 cents on the dollar if the brokerage has a total meltdown.

[fenders53]

(02-12-2019, 12:44 PM)DividendGarden Wrote:

(02-12-2019, 12:02 PM)Otter Wrote: That said, you might give some consideration to a valuation-based approach to your purchases, staging them over time. Whatever is not deployed into equities of fair or better value can be parked in short-term fixed income to provide a safe income stream while you wait for value to develop. Set a target P/E, Chowder Number (this incorporates both current yield and growth prospects), Credit Rating, DGI history (years of historical consecutive raises), and Dividend Payout Ratio threshold for your purchases (your baseline for fair value). Buy DGI stocks on your list when they are at or better than your value target. 

Great idea, and probably how I'd tactically do this.  I'd probably spread the purchases out over a few months and use valuation to guide the buying.

That works out if the market happens to crash for you during these few months.  If that doesn't happen it likely takes years for sectors to rotate in and out of favor.  As long as you don't force yourself to go all in while the market is seemingly running away from you.  We have to prepare ourselves for multiple scenarios.  The same plan just isn't going to be sound if the market moves 10%+ in the wrong direction because that normally many stocks moved much more than that.  

This thread isn't about me, but I found myself under pressure to get reinvested fairly quickly because sitting on cash went against the entire reason I had a large portfolio in the first place.  I was determined to get about 25% invested quickly, and then another 50% when it made sense.  Decided I needed a crash fund of about 15% and I would be willing to go a little tood deep in equities if the bad day comes.  About the time I had only 10-15% in, the market starting running.  I forced about 10% more in.  For the next three months  (OCT-DEC) the general direction was significantly down.  I got to 50% and I was significantly down, and it was not a good feeling of course.  I caught the bottom with a lot of my investments as well all were buying.  It worked out, but it sure could have ended differently.  This was the first time I was ever throwing 100 share trades down, multiple times per week.  Big money to me.  It's pretty easy to get scared out of your plan is my point.  I consider myself seasoned, but the emotions are always there.  I made a few bonehead buys during this time.                        

As far as the sectors that make you a little nervous, a portion of your funds in a zero commission ultra low fee ETF make sense IMO.  AT least until a real bargain presents itself in a blue chip tech.   AAPL dropped over $40 on me quick.  I sure didn't see that one coming.  Thankfully I had some ETF in the mix or I could have owned NVDIA, AMD and MU too.  

I know you guys want to be all in individual stocks.  I understand some, but not all of the reasons.  As Otter mentioned there are many accounts that give you a LOT of free trades for a year or two with a significant new account.  I chose to pay $2 per trade, because the fund and ETF fees are ultra low, and I expect that to continue because that is what Vanguard is famous for.  Fidelity was in the running for sure.

[ChadR]

I like this plan as this is what I'm basically doing though over a much longer period. Currently, I'm at about 70 stocks and will probably end up at over 100 different stocks. I buy what's a good to great value when I have excess cash. Is this basically a mutual fund like Fenders says, yes, but I'm OK with my own mutual fund that doesn't contain any non dividend payers.

The only suggestion I would make is to spread your purchases over a few years. That way you're not buying something at a high price today.

[fenders53]

(02-15-2019, 10:07 AM)ChadR Wrote: The only suggestion I would make is to spread your purchases over a few years.  That way you're not buying something at a high price today.

Absolutely agree with Chad.  Patience is the only thing that makes this massive rollover project work.  I made some mistakes for sure but I also endured the biggest up and down market months in quite some time.  This situation is just crying out to sell cash covered puts.  Grab some instant income up front that far exceeds dividend payments, wait for the market to force you into some positions that you selected, at prices lower than today.  I've made thousands of dollars while trying to build my final core port.  The collateral collects 2%+ interest during those months you fail at getting back into stocks.  It doesn't get much more conservative for this situation.  If you don't like that idea, then I would buy a lot of 25% positions in your very favorite longterm stocks soon, knowing that you are very likely going to be sitting on some losses and averaging down to fix it over time.  Finish up the positions with extreme patience because it will take a long time short of a true economic recession.

[DividendGarden]

(02-15-2019, 11:36 AM)fenders53 Wrote:

(02-15-2019, 10:07 AM)ChadR Wrote: The only suggestion I would make is to spread your purchases over a few years.  That way you're not buying something at a high price today.

Absolutely agree with Chad.  Patience is the only thing that makes this massive rollover project work.  

That seems to be a recurring theme in this thread, so thank you.