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At This Size, Your Retirement Portfolio Is Too Big For Mutual Funds



You’ve learned why it’s important to avoid investment products once you enter your retirement. If you’re lucky, you can, and maybe you should, begin transitioning your investments to individual securities well before you earn that gold watch.

“Typically, the further one gets away from owning individual investments, the higher the costs become,” says Stephen Taddie, Partner at HoyleCohen, LLC in Phoenix. “It is a function of paying for the multiple layers of responsibilities overseen by people, firms, managers, etc., as each layer creates an additional layer of fees.”

Your retirement date represents one factor that determines when you should shed your mutual funds to build a private portfolio. You also need to monitor the total value of your portfolio. It may tell you to speed up your transition, or it may tell you to wait longer before making the switch.

What’s the smallest asset size that allows you to invest in individual securities?

Previous generations had to contend with trading costs when they bought and sold stocks. This influenced their trading strategy. They wanted to avoid odd lots—anything less than 100 shares. It meant they needed a larger asset size before they could begin trading.

Today, commission-free trading is the norm. In addition, many brokers allow you to buy fractional shares. You can literally start with just $100 dollars. Still, for that amount of money, it makes more sense to buy investment products rather than invest in stocks.


“There are many advantages to investing in mutual funds or ETFs, including simplified diversification, lower minimum investment requirements, professional fund management, improved tax efficiency, and low expense ratios,” says David Rosenstrock, Director and Founder of Wharton Wealth Planning in New York City. “The smaller the portfolio size and the size of individual positions within the portfolio, the less advantageous it may be to invest in individual securities.”

Still, it’s possible to build a customized portfolio regardless of the size of your assets.

“I do not think there is a smallest size,” says Taylor Kovar, CEO at The Money Couple in Lufkin, Texas. “I have many clients with a low net worth that have held amazing individual securities for many years. This is the Warren Buffet method of investing! Buy great companies for life. I am a proponent of individual stocks and bonds for anyone that is active in the market. This means they understand the difference between stocks and ETFs and overall enjoy the markets.”

If you’re less aggressive, financial advisors offer some guidelines on practical size constraints. While they have their own methods, they tend to come up with very similar minimum sizes.

“I back into this based on account minimums for separately managed accounts,” says Eric Presogna, Owner and CEO at One-Up Financial in Erie, Pennsylvania. “For instance, Schwab offers a managed individual-stock portfolio of large-caps with an account minimum of $100,000. If a globally diversified equity portfolio consists of 40% large-caps, that means the smallest account I’d consider implementing individual stock strategies in, a 60/40 portfolio, for example, would be $420,000. If the client is taking distributions from the portfolio, the minimum account size for individual security use will likely be much higher.”

“It is generally recommended that a portfolio have a minimum of $100,000 to $500,000 in order to be comfortably invested in individual securities,” says Dennis Shirshikov, Strategist at Awning in New York City. “At this size, a portfolio may have sufficient diversification and liquidity to allow for the selection of individual stocks and bonds. For larger portfolios, it may be more advantageous to transition from investment products to individual securities as it can provide more control over the portfolio’s asset allocation and potentially offer greater tax efficiency.”

While this represents one end of the spectrum, there is another end.

At what size are your portfolio assets too big for mutual funds?

At some point, it is in your best interest to move from investment products to individual securities. Just like the minimum size mentioned above, the maximum size where you probably should move out of mutual funds is not set in stone. There are many personal factors that can determine this.

“It’s difficult to provide a specific dollar amount for when a retiree’s portfolio should move from investment products to individual securities, as this will depend on the retiree’s specific financial situation, goals, and risk tolerance,” says Mina Tadrus, CEO of Tadrus Capital LLC in Tampa. “However, as a general rule, if a retiree’s portfolio is large enough and they have the financial knowledge and expertise to manage their own investments, it may be more efficient and cost-effective to invest directly in individual securities rather than paying the fees associated with mutual funds and other investment products.”

For experienced financial professionals, it’s clear that there will come a time when you should create a customized portfolio of individual securities.

“A portfolio should no longer be invested in products and instead invest directly in stocks and bonds when it reaches a size that allows retirees to diversify their portfolios and invest in a variety of securities,” says Garett Polanco, CIO at Independent Equity in Fort Worth, Texas. “This size will vary, but it is generally recommended that a retiree have a portfolio size of at least $500,000 before considering moving away from investment products and investing directly in stocks and bonds.”

The $500,000 size has long been considered the minimum size when hiring a private portfolio manager, although it’s possible to receive personalized management for smaller account sizes. Still, the exact size for you will depend on your particular circumstances.

“Of course, expected cash flow creates some wiggle room around these figures, as contributions increase the ease of management where large continual withdrawals increase the complications of management,” says Taddie. “In practice, I think $500k is about the right level to consider for a growth portfolio using individual stocks, and $1 million is about the right level to consider when including individual bonds in the portfolio. Not many folks like to talk about bonds because they throw a wrench into things. Bonds typically trade in increments of $1,000, and while there is no visible commission associated with bond trades, a spread (difference) between the buying price and the selling price at any given moment of the day exists. The smaller the number of bonds being traded at one time, the larger the spread, and the spread is the equivalent to a commission. It is just not visible to the untrained eye.”

If you want a rule of thumb to help you determine when you should switch from investment products to individual securities, you must first identify those factors that have meaning to you.

“Overall, the size at which a retiree’s portfolio should move from investment products to individual securities will depend on their financial goals, risk tolerance, and knowledge of the financial markets,” says Polanco. “It is generally recommended to have a portfolio size of at least $100,000 before considering investing in individual securities, and at least $500,000 before moving away from investment products and investing directly in stocks and bonds.”


Bonds See 2023 Recession, Stocks Aren’t So Sure



The yield curve is one of the most robust recession predictors and has signaled a recession may be coming since mid 2022. In contrast, U.S. stocks as measured by the S&P 500 are up materially from the lows of last October and only just below year-to-date highs, seemingly rejecting recession fears. Yet, fixed income markets see the Fed potentially cutting rates by the summer, perhaps reacting to a U.S. recession.

The Evidence From The Bond Markets

The recessionary evidence, at least from fixed income markets, is mounting. The 10 yield Treasury yield has been below the 2 year yield consistently since last July. That is is called an inverted yield curve and has signaled a recession fairly reliably when compared to other leading indicators.

Building on that, fixed income markets see almost a nine in ten chance that the Federal Reserve cuts rates by September of this year. That’s something the Fed has repeatedly said they won’t do on their current forecasts. Yet, a recession could cause it to happen.

The Stock Market

In contrast, the stock market shows some optimism. The S&P 500 is up 7% year-to-date as the market has shrugged off fears of contagion from recent banking issues. In particular, tech stocks have rallied.

In contrast, more defensive sectors such as healthcare, utilities and consumer goods have lagged in 2023. This suggests that the stock market is taking more of a ‘risk on’ position and is perhaps less worried about the economy.


That said the stock market is a leading indicator of the business cycle, it may be that stocks see a recession, but are now looking past it to growth ahead and are factoring in the lower discount rates that a recession might bring as interest rates decline. Also, the U.S. stock market is relatively global, so the fate of the U.S. economy is a key factor in driving profits, but not the only one.

What’s Next?

Monitoring unemployment data will be key. Though the yield curve is a good long-term forecaster of recessions it is less precise in signaling when a recession starts. Unemployment rates can offer more accurate recession timing. Unemployment edged up in February, suggesting a recession may be near, but we’ve also seen monthly noise unemployment. Two similar monthly unemployment spikes during 2022 both proved false alarms.

However, if we see a sustained move up in unemployment from the low levels of 2022 that may be a relatively clear sign that a recession is here. Economist Claudia Sahm estimates that a sustained 0.5% increase in unemployment rate from 12-month lows is sufficient to trigger a recession. Unemployment rose 0.2% from January to February 2023, so maybe we’re on the way there. Of course, the jobs market performed better than expected in 2022 and it could do so again. Still, fixed income markets do suggest a 2023 recession is coming. Stock markets don’t necessarily share that view.

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Which States Have The Highest And Lowest Life Expectancies?



There’s a wide variance of life expectancies among the 50 states in the U.S., according to a recent report prepared by Assurance, an insurance technology platform that helps consumers with decisions related to insurance and financial well-being.

Figure 1 below shows the 10 states with the highest life expectancy, starting with Hawaii, the state with the highest life expectancy.

Figure 2 below shows the 10 states with the lowest life expectancy, starting with Mississippi, the state with the lowest life expectancy.

Assurance scoured life expectancy data prepared in January 2023 by the U.S. Centers for Disease Control and Prevention (CDC). With this data, Assurance created several easy-to-understand graphics that offer information about life expectancies.

Life expectancies are a basic measure of well-being

As measured by the CDC, life expectancies are a basic measurement of well-being in a broad population and not a prediction of how long an individual might live. The CDC measures the expected lifespan for a person born in the year of measurement. This measurement is calculated based on the assumption that the individual will live and die according to the rates of death that are prevalent in the measurement year for each age. There’s no assumed improvement or backsliding in the assumed mortality rates in future years for each age in the life expectancy calculation.


By contrast, an estimated lifespan for an individual would consider their current age, their gender, and some basic lifestyle information. It might also attempt to project future improvements or backsliding in mortality rates based on key factors.

Significant influences on life expectancy calculations

Leading causes of death in the U.S. are heart disease, cancer, and accidents in that order. These immediate causes are significantly influenced by factors in the population such as poverty rates, educational attainment, rates of obesity and smoking, access to healthcare, prevalence of violent crime, and the support people receive from federal, state, and local governments. All these factors can vary widely among different states, which can be a key reason why life expectancies vary by state.

When you think about it, all these factors also have the potential to influence a person’s quality of life. The measured life expectancy rate rolls up all these factors into one objective measurement of well-being that’s based on population data.

In addition to the factors listed above, mortality rates increased and life expectancies decreased in the past few years due to the Covid-19 pandemic. A recent article titled “Live Free And Die” summarized recent research results that show that life expectancies in most countries around the world rebounded after the Covid-19 pandemic but that they continued to decline in the United States. Many of the reasons cited in the article for the continued decline in U.S. life expectancies are the same or similar to the factors listed above.

NPR‘Live free and die?’ The sad state of U.S. life expectancy

Why should retirees care about the life expectancies reported here if these measures don’t predict your own lifespan? Life expectancy calculations indicate the general well-being of the entire population in your area. While the living conditions in your area can influence your own lifespan and quality of life, retirees should focus on their remaining life expectancy given their age. They should also consider how the factors listed above that influence life expectancies in the population might apply to them.

You can obtain customized estimates of your remaining life expectancy at the Actuaries Longevity Illustrator. Part of your planning for retirement is understanding how long you an an individual might live, instead of relying on generalized information about larger populations you see in the media.

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IRS Dirty Dozen Campaign Warns Taxpayers To Avoid Offer In Compromise ‘Mills’



Owing taxes can be stressful. Unfortunately, the actions of some companies can make it worse. As part of its “Dirty Dozen” campaign, the IRS has renewed a warning about so-called Offer in Compromise “mills” that often mislead taxpayers into believing they can settle a tax debt for pennies on the dollar—while the companies collective excessive fees.

Dirty Dozen

The “Dirty Dozen” is an annual list of common scams taxpayers may encounter. Many of these schemes peak during tax filing season as people prepare their returns or hire someone to help with their taxes. The schemes put taxpayers and tax professionals at risk of losing money, personal information, data, and more.

(You can read about other schemes on the list this year—including aggressive ERC grabs here, phishing/smishing scams here and charitable ploys here.)

Tax Debt Resolution Schemes

“Too often, we see some unscrupulous promoters mislead taxpayers into thinking they can magically get rid of a tax debt,” said IRS Commissioner Danny Werfel.

“This is a legitimate IRS program, but there are specific requirements for people to qualify. People desperate for help can make a costly mistake if they clearly don’t qualify for the program. Before using an aggressive promoter, we encourage people to review readily available IRS resources to help resolve a tax debt on their own without facing hefty fees.”


Offers In Compromise

Legitimate is a key word. Offers in Compromise are an important program to help people who can’t pay to settle their federal tax debts. But, as the IRS notes, these “mills” can aggressively promote Offers in Compromise—OIC—in misleading ways to people who don’t meet the qualifications, frequently costing taxpayers thousands of dollars.

An OIC allows you to resolve your tax obligations for less than the total amount you owe. You generally submit an OIC because you don’t believe you owe the tax, you can’t pay the tax, or
 exceptional circumstances exist.

Because of the nature of the OIC—and the dollars involved—the process can be time-consuming. It can also be confusing for taxpayers who may not have a complete grasp on their finances.

First, you must complete a detailed application, Form 656, Offer in Compromise. You must also submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, Collection Information Statement for Businesses, with supporting documentation (generally, bank and brokerage statements and proof of expenses).

You’ll also need to submit a non-refundable fee of $205 and payment made in good faith. The payment is typically 20% of the offer amount for a lump sum cash offer or the first month’s payment for those made over time. Generally, initial payments will not be returned but will be applied to your tax debt if your offer is not accepted. Payments and fees may be waived if the OIC is submitted based solely on the premise that you do not owe the tax or if your total monthly income falls at or below income levels based on the Department of Health and Human Services (DHSS) poverty guidelines.

The IRS will examine your application and decide whether to accept it based on many things, including the total amount due and the time remaining to collect under the statute of limitations. The IRS will also review your income—including future earnings and accounts receivables—and your reasonable expenses, as determined by their formula. The IRS will also consider the amount of equity you have in assets that you own—this would include real property, personal property (like automobiles), and bank accounts.


Before your offer can be considered, you must be compliant. That means you must have filed all your tax returns and paid off any liabilities not subject to the OIC. After you submit your offer, you must continue to timely file your tax returns, and pay all required tax, including estimated tax payments. If you don’t, the IRS will return your offer.

Additionally, you cannot currently be in an open bankruptcy proceeding, and you must resolve any open audit or outstanding innocent spouse claim issues before you submit an offer.


You can probably tell—it’s a lot to consider. You may want representation. A tax professional can help marshal you through the process and offer practical guidance, while communicating what fees could look like.

By contrast, according to the IRS, an OIC “mill” will usually make outlandish claims, frequently in radio and TV ads, about how they can settle a person’s tax debt for cheap. Also telling: the fees tend to be significant in exchange for very little work.

Those mills also knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing taxpayers money and time. You can check your eligibility for free using the IRS’s Offer in Compromise Pre-Qualifier tool.

“Pennies On A Dollar”

What about those promises that taxpayers can routinely settle for pennies on a dollar? Not true. Generally, the IRS will not accept an offer if they believe you can pay your tax debt in full through an installment agreement or equity in assets, including your home. That’s why the IRS tends to reject a majority of OICs that are submitted. The acceptance rate is less than 1 in 3, according to the 2021 Data Book.

The IRS will generally approve an OIC when the amount offered represents the best opportunity for the IRS to collect the debt. It’s true that there’s a formula that the IRS uses to figure out how much they think they can collect from you. But there is some wiggle room to account for special circumstances, including a loss of income or a medical condition. It’s worth noting those are the exceptions, not the rule.


While submitting an OIC may keep the IRS from calling you, it doesn’t stop all collections activities—don’t believe companies that suggest that submitting an OIC will make your tax debt disappear. Penalties and interest will continue to accrue on your outstanding tax liability. Additionally, the IRS may keep your tax refund, including interest, through the date the IRS accepts your OIC.

You may also be liened. In most cases, the IRS will file a Notice of Federal Tax Lien to protect their interests, and the lien will generally stay in place until your tax obligation is satisfied.

Be Skeptical

An OIC is a serious effort to resolve tax debt and shouldn’t be taken lightly. Be skeptical—if it sounds too good to be true, it likely is. If you’re considering an OIC, hire a competent tax professional who understands the rules and is willing to level with you about your chances of being successful—including other options. Don’t fall into a trap that can make your situation worse.

MORE FROM FORBESIRS Urges Those Hoping To Help To Beware Of Scammers Using Fake Charities

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