blessyouall wrote:Dear Bogleheads
AA newbie here -- please help me!
We have been saving up for the last few 3-5 years and are now at a juncture where ignoring potential returns from assets is unwise.
Some background -- up until May this year we were almost 90% in cash. However, over the last few months as I started to learn about AA, I realized what we have been forgoing.
I also learnt that allocating as per the Swenson portfolio is a great first start (and I agree).
The difficulty I now have is the following - how do you convert a portfolio that is 90% or more in cash to five or six key funds when you’re reading (depending on where you look) that stocks, bonds, REITs all are ‘over-valued’ or peaking or over crowded.
So my fear is that I rebalance over night and then things tank all of a sudden and I lose capital.
Two key questions --
1) Should I DCA for the next two or so years and reduce my risk?
2) Specifically about bonds, I actually ended up buying VUSUX (long term treasury) at 8% of portfolio and VIPSX (Inflation protected) at another 8% of portfolio in one shot last month (Sept 2012). Should I have DCAd that instead if we know a bond decline is coming as interest rates are at historic lows?
Please help me. We are in our late 30s, have some risk tolerance but I would like to avoid an over 20% dip in my overall portfolio if I can. Having lived through 2008 and taken out money at the wrong time, I have become very cautious. Portfolio being discussed is over 6 figures and under 7 figures.
Thanks so much!!
Hello and welcome to the forum!
First, do not feel compelled to make any rash moves. Take some time to read some of the fine books on the recommended reading list. http://www.bogleheads.org/wiki
- Have you seen the wiki (link to the left)?
May I recommend The Bogleheads Guide to Investing?
A quick read, very understandable and written by the founders of this forum. You can even "rent" a copy from your local library.
Can you list your current portfolio in the format as shown in the wiki?
You can either do it by percentage or actual dollar value - your choice, the total should add up to 100%.
Indicate if the monies are in taxable and/or tax-deferred vehicles (401k, IRA, etc.)
Including your federal and state/local tax rates will be extremely helpful as well.
DCA'ing may or may not reduce the risk of principal loss, it will assure you that you are buying more when prices are low and less when prices are high, thus averaging your total cost. My crystal ball is cloudy, but if you look to the Japanese experience, rates there have been super low for over a decade with no end in sight to when rates may actually rise. My advice is to ignore the noise of the market, develop an Investment Policy Statement, run it by us as a sounding board, then begin implement it. Since you are late 30's, you likely will have an investing time frame of more than 40 years - that means you will likely be purchasing more fixed income over time, you shouldn't worry if the price of the bond fund declines 10% today, you will not be making withdrawals until 20 or 25 years into the future.
I am in a similar age bracket, I actually hope prices decline so I can pick up more shares at even cheaper prices in the hopes of realizing significant overall portfolio growth by age of retirement. Read up on bonds - as prices decline, yields rise - if you hold the fund for the length of the average portfolio duration you will earn back any short-term capital decline in the form of higher interest payments. The key in any investment plan is to in the words of John Bogle - Stay the course!