If you had 100k to invest for 25 years...

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StophJS
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If you had 100k to invest for 25 years...

Post by StophJS »

If you had 100,000 sitting in a taxable Vanguard brokerage account that you wanted to grow over 25 years, and that would likely never be needed in the interim, what kind of portfolio would you build? Tax-sheltered space is all being utilized.
Last edited by StophJS on Tue Dec 11, 2012 10:09 pm, edited 2 times in total.
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Toons
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Re: If you had 100k to invest for 25 years...

Post by Toons »

Knowing what I know now after decades of investing,I would be satisfied with owning
Vanguard Balanced Index Fund (Admiral Shares) .The fund holds over 3,000 stocks and 4,000 bonds.That would "complete" my portfolio :happy

https://personal.vanguard.com/us/funds/ ... IntExt=INT
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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jidina80
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Re: If you had 100k to invest for 25 years...

Post by jidina80 »

I'd place two-thirds of it in Vanguard's Total Stock Market Fund and one-third in Total International Stock Market Fund. If the money will be held in an IRA, I'd just stuff it all in Target Retirement 2045 and be done with it.
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tc101
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Re: If you had 100k to invest for 25 years...

Post by tc101 »

Vanguard Target Retirement 2040 is the simple answer if you want to park it in one place and not think about it for 25 years.
The lazy portfolios in the wiki if you want to play with it a little more.
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StophJS
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Re: If you had 100k to invest for 25 years...

Post by StophJS »

I like the idea of simplicity with just a few MFs or ETFs, but I'd certainly like to try to maximize my gains possibly by weighting toward small caps/value, etc.
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tc101
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Re: If you had 100k to invest for 25 years...

Post by tc101 »

I'd certainly like to try to maximize my gains possibly by weighting toward small caps/value, etc.
Then do something like

80% Target Retirement fund
10% Small cap value fund
10% International small cap etf

rebalance once a year
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StophJS
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Re: If you had 100k to invest for 25 years...

Post by StophJS »

Thanks for the suggestions so far. This is probably pretty basic stuff but is there really any reason to opt for mutual funds when comparable ETFs is available? I know this amount of cash opens up the option of admiral shares, but as far as I can tell the expense ratio at least is still about the same as comparable ETFs. Still, I see that there are potentially more options in the MFs.
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Re: If you had 100k to invest for 25 years...

Post by CaliJim »

StophJS wrote:Thanks for the suggestions so far. This is probably pretty basic stuff but is there really any reason to opt for mutual funds when comparable ETFs is available? I know this amount of cash opens up the option of admiral shares, but as far as I can tell the expense ratio at least is still about the same as comparable ETFs. Still, I see that there are potentially more options in the MFs.
There is some good stuff in the wiki about this topic.
http://www.bogleheads.org/wiki/ETFs_versus_mutual_funds
http://www.bogleheads.org/wiki/Investin ... or_ETFs.3F
http://www.bogleheads.org/wiki/Vanguard_ETF_Info

and also over at Vanguard's site:
https://personal.vanguard.com/us/insigh ... r-04302012
http://www.bogleheads.org/wiki/Investin ... or_ETFs.3F
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StophJS
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Re: If you had 100k to invest for 25 years...

Post by StophJS »

CaliJim wrote:
StophJS wrote:Thanks for the suggestions so far. This is probably pretty basic stuff but is there really any reason to opt for mutual funds when comparable ETFs is available? I know this amount of cash opens up the option of admiral shares, but as far as I can tell the expense ratio at least is still about the same as comparable ETFs. Still, I see that there are potentially more options in the MFs.
There is some good stuff in the wiki about this topic.
http://www.bogleheads.org/wiki/ETFs_versus_mutual_funds
http://www.bogleheads.org/wiki/Investin ... or_ETFs.3F
http://www.bogleheads.org/wiki/Vanguard_ETF_Info

and also over at Vanguard's site:
https://personal.vanguard.com/us/insigh ... r-04302012
http://www.bogleheads.org/wiki/Investin ... or_ETFs.3F
Thanks for the links.

As of now I'm leaning toward a simple portfolio somewhat akin to the 3 fund, but weighted toward small cap. Still unsure as far as whether not to add an REIT component..
letsgobobby
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Re: If you had 100k to invest for 25 years...

Post by letsgobobby »

REITs not tax efficient in taxable.
FillorKill
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Re: If you had 100k to invest for 25 years...

Post by FillorKill »

60% VTMFX - Tax managed balanced admiral fund
20% VWO - Emerging/large
20% VSS - Small/mid international blend [includes emerging]

Rebalance with wide bands.
NYBoglehead
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Re: If you had 100k to invest for 25 years...

Post by NYBoglehead »

letsgobobby wrote:REITs not tax efficient in taxable.
True for now, but if dividends go back to being taxed as ordinary income in 2013 won't this be moot?
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Re: If you had 100k to invest for 25 years...

Post by TT »

delete
Last edited by TT on Sun Feb 04, 2024 6:28 am, edited 1 time in total.
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Re: If you had 100k to invest for 25 years...

Post by Johm221122 »

If it's for retirement, think of it as one portfolio(retirement accounts and taxable)
Use tax advantaged for bonds
http://www.bogleheads.org/wiki/Principl ... _Placement
Put stock indexes (total market and total international)in taxable
Here is vanguard tool for AA
https://personal.vanguard.com/us/funds/ ... reset=true
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STC
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Re: If you had 100k to invest for 25 years...

Post by STC »

If you want to maximize tax losses and believe in small value premium I would do 1/3 each in:

VBR
VSS
VWO

And their tax loss twins (or close approximation)
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Re: If you had 100k to invest for 25 years...

Post by statsguy »

As Johm... says if this is money is for retirement, then you should add it to all the other money for retirement. Having taxable and non-taxable accounts makes retirement planning more difficult but more rewarding too. Basically you put your more tax efficient assets in the brokerage (taxable account) and your less tax efficient assets in your tax-advantaged (ROTH, Traditional IRA, 401k, etc) accounts. We have individual stocks, ETFs, mutual funds, and tax-managed mutual funds in our taxable account (basically the whole run of things). Don't forget to tax-loss harvest at the end of the year... no investment can be bought for 25 years without looking at it at least once a year.

Stats
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Re: If you had 100k to invest for 25 years...

Post by FillorKill »

STC wrote:If you want to maximize tax losses and believe in small value premium I would do 1/3 each in:

VBR
VSS
VWO

And their tax loss twins (or close approximation)
Yikes! That’s one high-octane cocktail you’re serving STC! :shock:

Does it come with a roll of Tums and a brochure on ‘how to avoid tracking error regret?’ :P
letsgobobby
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Re: If you had 100k to invest for 25 years...

Post by letsgobobby »

NYBoglehead wrote:
letsgobobby wrote:REITs not tax efficient in taxable.
True for now, but if dividends go back to being taxed as ordinary income in 2013 won't this be moot?
Why? REITS are intrinsically tax inefficient becuase nearly all their income must be distributed. Not so other corporations, which can reinvest, buy back shares, engage in corporate buyouts, hoard cash, or just plain waste money, all of which are more tax efficient.
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Re: If you had 100k to invest for 25 years...

Post by thebogledude »

Wellington if you don't mind the er and its bond holdings for a taxable account.
if you like to reblance, I would hold Total US stock/international/emerging market with a strategy for TLH in taxable
and Intermediate/short-term bonds/REITS in tax advantaged (all balanced to appropriate AA)
Last edited by thebogledude on Wed Dec 12, 2012 2:10 pm, edited 1 time in total.
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Taylor Larimore
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A 25-year portfolio ?

Post by Taylor Larimore »

StophJS wrote:If you had 100,000 sitting in a taxable Vanguard brokerage account that you wanted to grow over 25 years, and that would likely never be needed in the interim, what kind of portfolio would you build? Tax-sheltered space is all being utilized.
Stoph:
I would invest in the Three Fund Portfolio using a tax-exempt bond fund instead of Total Bond Market Index Fund. This link explains why:

The Three Fund Portfolio

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
letsgobobby
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Re: If you had 100k to invest for 25 years...

Post by letsgobobby »

25 years is around the retirement timeframe for many workers starting to get serious about retirement in their 30s. How do you invest your own retirement portfolio? Maybe that would be a good guide for the $100k.
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Re: If you had 100k to invest for 25 years...

Post by CaliJim »

StophJS wrote:If you had 100,000 sitting in a taxable Vanguard brokerage account ....Tax-sheltered space is all being utilized.
Look at the portfolio as a whole.

One of the most important things in investing is your top level Stock to Bond ratio

The asset allocation for the 100k taxable should be developed in conjunction with the asset allocation of the money you have in tax sheltered.

How old are you?
What top level asset allocation are you thinking about?
Why?

Keep your overall top level asset allocation on the conservative side until you have read A LOT about investing, have weathered a few recessions, and have developed a solid rational and informed investing plan.

Two differrent rules of thumb for top level asset allocation to consider
1) no more than 100-age in stocks ("age in bonds")
ie: if 30 years old, then 70% or less in stocks, rest in bonds

2) twice max tolerable loss in stocks, but no more than 50% of net worth, the rest in bonds (adrian's rule - "2 * max tolerable loss < 50%")
ie: if you could only stand losing only $40k of a $200k portfolio in a bad market before capitulating, then put no more than $80k in stock (or 40% of total portfolio in stock, 60% in bonds)

Then, only when you are confident in your decision making, consider shifting to a more aggressive asset allocation. (And after consideration - you may choose not to!)

Asset Allocation: http://www.bogleheads.org/wiki/Asset_Allocation

Counter arguement to above - Asset Allocation Flight Paths: http://www.bogleheads.org/forum/viewtop ... 0&t=104934

Reading List: http://www.bogleheads.org/wiki/Books:_R ... t-up_Books
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Re: If you had 100k to invest for 25 years...

Post by Jerilynn »

StophJS wrote:If you had 100,000 sitting in a taxable Vanguard brokerage account that you wanted to grow over 25 years, and that would likely never be needed in the interim, what kind of portfolio would you build? Tax-sheltered space is all being utilized.
Depends on ones risk tolerance. It's is entirely possible that you could lose money over a 25 yr period.

If you are asking specifically what I would do. I would stick the 100k into investments that would keep my AA percentages the same.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: If you had 100k to invest for 25 years...

Post by Bud »

25% Large Value Index
25% Total International
25% REIT
25% Intermediate Bond Index

Reinvest all dividends, rebalance every two years
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Re: If you had 100k to invest for 25 years...

Post by CaliJim »

Bud wrote:25% Large Value Index
25% Total International
25% REIT
25% Intermediate Bond Index

Reinvest all dividends, rebalance every two years
YIKES
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Re: If you had 100k to invest for 25 years...

Post by Jebediah »

20% VBR
10% VWO
70% cash/short term bond

rebalance annually. then...

When PE10 = 16
40% VBR
20% VWO

When PE10 = 12
60% VBR
30% VWO
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Re: If you had 100k to invest for 25 years...

Post by CaliJim »

Come On. Really.
Does anyone here have enough information relative to the OP to recommend a specific asset allocation? I think not.
OP needs education.
Not "DO THIS". "DO THAT".
He needs to make his own informed choices that he can STICK WITH over time.
Not - do 10% this, 20% that.
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Re: If you had 100k to invest for 25 years...

Post by STC »

[rude comment deleted by admin alex}
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Re: If you had 100k to invest for 25 years...

Post by Jebediah »

Why ridiculous? This is the Larry Swedroe 30/70 portfolio.

Seizing the opportunity to buy stocks when/if they reach low valuations is a Rick Ferri idea (and also plainly obvious).

Granted, might want to dial down the SV/EM tilt if end up increasing the stock allocation.
Last edited by Jebediah on Wed Dec 12, 2012 9:08 pm, edited 1 time in total.
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StophJS
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Re: If you had 100k to invest for 25 years...

Post by StophJS »

Thanks everyone for all the further suggestions.

In regards to what the nature of this investment really is in terms of goals, etc., it's kind of a strange case. Essentially, my father is well off enough that he's allocated 100k to be invested with the horizon and risk tolerance of my siblings and I in mind. I'm the only member of my family who is sort of an ongoing student of investing/finance, so the task of managing the investments has been delegated to me. My father did not want to simply gift the money, so he is retaining it in a separate account and obviously shouldering any tax burdens. The account will likely pass to my siblings and I before the 25 year mark, but (God willing) not too long before it. Of course to really do this right it would be necessary to take into consideration not only my own asset allocation plans in my other accounts, but also those of my siblings. Since that side of it is sort of up in the air, I'm just trying to come up with a strategy and AA that fits these unique circumstances as well as possible and minimizes the additional tax burden for my father.

I realize that there are so many variables at play here that would affect specific recommendations so I appreciate everyone still being willing to throw some ideas out there to ponder over.
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Re: If you had 100k to invest for 25 years...

Post by STC »

Jebediah wrote:Why ridiculous? This is the Larry Swedroe 30/70 portfolio.

Seizing the opportunity to buy stocks when/if they reach low valuations is a Rick Ferri idea (and also plainly obvious).

Granted, might want to dial down the SV/EM tilt if end up increasing the stock allocation.
It's ridiculous in the way believing in the Easter bunny is ridiculous. There is 0 scientific evidence to suggest such an approach does anything positive, and I guarantee you neither Larry nor Rick would advise going from 30% equities to 90% equities based on P/E ratios, or any other valuation based metric. Complete nonsense.
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Re: If you had 100k to invest for 25 years...

Post by CaliJim »

See. The plot thickens!!!!!!! :happy Every situation is different. This should be interesting. ..... :twisted:

So... $100k that you dad thinks.... today... that he won't need in his lifetime. Hmm. What if he's wrong? What's your dad's financial situation like?

IMHO... the best answer is that your dad should invest this $ in accordance with whatever asset allocation optimizes his personal outcome.... even if he's got it earmarked for you AT THIS POINT IN TIME.

Let's say your Dad's 60 or 65 or 70. $100k could be consumed 'in a heart beat' by some emergency or unexpected situation. A heart attack. Leukemia. Dementia.

Think of this as still your dad's money that he may need, and invest accordingly.
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StophJS
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Re: If you had 100k to invest for 25 years...

Post by StophJS »

CaliJim wrote:See. The plot thickens!!!!!!! :happy Every situation is different. This should be interesting. ..... :twisted:

So... $100k that you dad thinks.... today... that he won't need in his lifetime. Hmm. What if he's wrong? What's your dad's financial situation like?

IMHO... the best answer is that your dad should invest this $ in accordance with whatever asset allocation optimizes his personal outcome.... even if he's got it earmarked for you AT THIS POINT IN TIME.

Let's say your Dad's 60 or 65 or 70. $100k could be consumed 'in a heart beat' by some emergency or unexpected situation. A heart attack. Leukemia. Dementia.

Think of this as still your dad's money that he may need, and invest accordingly.
All very true. My father is 62 and quite well off financially. I don't know his exact net worth, but I certainly will regard this money as belonging to him as long as he is alive. I trust him when he says that I can invest this money aggressively, but of course life is full of surprises. For tax purposes and risk management maybe a balanced portfolio with a good portion of tax-exempt bonds is just the prudent thing to do at this point.
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Re: If you had 100k to invest for 25 years...

Post by Jebediah »

STC wrote: There is 0 scientific evidence to suggest such an approach does anything positive, and I guarantee you neither Larry nor Rick would advise going from 30% equities to 90% equities based on P/E ratios, or any other valuation based metric. Complete nonsense.
STC, sorry that is false. There are papers in the financial lit that demonstrate the benefit of PE10 following, e.g.

http://mpra.ub.uni-muenchen.de/29448/1/ ... _29448.pdf

Vanguard has demonstrated that PE10 is the best stock forecasting metric available.

In general, it is pretty obvious that buying after prices drop is a good idea.
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Re: If you had 100k to invest for 25 years...

Post by Jerilynn »

StophJS wrote:Thanks everyone for all the further suggestions.

In regards to what the nature of this investment really is in terms of goals, etc., it's kind of a strange case. Essentially, my father is well off enough that he's allocated 100k to be invested with the horizon and risk tolerance of my siblings and I in mind. I'm the only member of my family who is sort of an ongoing student of investing/finance, so the task of managing the investments has been delegated to me. My father did not want to simply gift the money, so he is retaining it in a separate account and obviously shouldering any tax burdens. The account will likely pass to my siblings and I before the 25 year mark, but (God willing) not too long before it. Of course to really do this right it would be necessary to take into consideration not only my own asset allocation plans in my other accounts, but also those of my siblings. Since that side of it is sort of up in the air, I'm just trying to come up with a strategy and AA that fits these unique circumstances as well as possible and minimizes the additional tax burden for my father.

I realize that there are so many variables at play here that would affect specific recommendations so I appreciate everyone still being willing to throw some ideas out there to ponder over.
makes sense. One question, if the portfolio takes a huge hit, will someone want to sell it?
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: If you had 100k to invest for 25 years...

Post by Jerilynn »

Jebediah wrote:
Vanguard has demonstrated that PE10 is the best stock forecasting metric available.
To quote my cousin Vinny, I would LOVE to see dis.
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: If you had 100k to invest for 25 years...

Post by Jebediah »

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Re: If you had 100k to invest for 25 years...

Post by StophJS »

Jerilynn wrote: makes sense. One question, if the portfolio takes a huge hit, will someone want to sell it?
They will defer to me on those decisions I think. Unless its absolutely necessary to sell when the market is down to cover expenses of some sort, my father and siblings will be willing to wait it out.
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Re: If you had 100k to invest for 25 years...

Post by RyeWhiskey »

StophJS wrote:
Jerilynn wrote: makes sense. One question, if the portfolio takes a huge hit, will someone want to sell it?
They will defer to me on those decisions I think. Unless its absolutely necessary to sell when the market is down to cover expenses of some sort, my father and siblings will be willing to wait it out.
In my humble opinion, since there are other individuals involved (and emotionally/physically invested) in this money, the simplest solution would be the best. Given that you have mentioned that these funds are in a taxable account, I think the simplest solution would be:
35% Total US Stock Market Index Admiral Shares
35% Total International Stock Market Index Admiral Shares
30% Municipal Bond Indexes split between your home state and a national fund. Probably both at intermediate-term durations.

Keep it simple. If you wanted to split the international portion 50/50 between the total index and the emerging markets index I would be ok with this decision but this is not necessary at all. Nor is tilting to small caps within the domestic portion. Both these decisions (adding EM and SC) involve taking on extra risk which isn't necessary but could lead to extra return. In the end, I think everyone at hand will be happier with a simple allocation which they can easily understand.

You are very fortunate to have this decision at hand. Good luck to you.

:sharebeer
This post was brought to you by Vanguard Total World Stock Index (VTWSX/VT).
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Re: If you had 100k to invest for 25 years...

Post by Jerilynn »

StophJS wrote:
Jerilynn wrote: makes sense. One question, if the portfolio takes a huge hit, will someone want to sell it?
They will defer to me on those decisions I think. Unless its absolutely necessary to sell when the market is down to cover expenses of some sort, my father and siblings will be willing to wait it out.
In that case, my advice is to pick one of these.

http://www.bogleheads.org/wiki/Lazy_Por ... portfolios
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: If you had 100k to invest for 25 years...

Post by STC »

Jebediah wrote:
STC wrote: There is 0 scientific evidence to suggest such an approach does anything positive, and I guarantee you neither Larry nor Rick would advise going from 30% equities to 90% equities based on P/E ratios, or any other valuation based metric. Complete nonsense.
STC, sorry that is false. There are papers in the financial lit that demonstrate the benefit of PE10 following, e.g.

http://mpra.ub.uni-muenchen.de/29448/1/ ... _29448.pdf

Vanguard has demonstrated that PE10 is the best stock forecasting metric available.

In general, it is pretty obvious that buying after prices drop is a good idea.
So, you actually believe that swinging from 30 to 90% equities has academic backing and support from the top pro's here? Either you fail at reading comprehension, or just like making stuff up. There is not a single pro here who would consider your plan anything but market timing. And Vanguard would NEVER recommend it. But if you need to lie to yourself to justify your plan to underperform the market, go for it.

I'll add that while there is academic support suggesting that investing during periods of low p/e has better expected returns, there is NONE to support the idea of market timing based on that. P/e expansion in only 1 of 3 dimensions of total return for equities. The others being earnings growth and dividend yield. It is likely that with your "model" the could be decades of returns averaging double digits while you sit of the sideline waiting for p/e to come in. But if you have convinced yourself that this actually has the backing of real research or any of the leaders on this forum, I invite you to start your own thread, explain your plan, and wait for the fireworks
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Re: If you had 100k to invest for 25 years...

Post by Jebediah »

STC wrote: So, you actually believe that swinging from 30 to 90% equities has academic backing and support from the top pro's here? Either you fail at reading comprehension, or just like making stuff up. There is not a single pro here who would consider your plan anything but market timing. And Vanguard would NEVER recommend it. But if you need to lie to yourself to justify your plan to underperform the market, go for it.
Geez man, take it easy. Just read the paper. The author is, yes, a "top pro" ( :confused ) who contributes here. The idea is theoretically sound (outperforms in backtests), but I grant you most don't want to mess with it because it seems complicated. Do you think it's crazy for someone to call the end of 2008 "the opportunity of a lifetime to buy stocks"? This is what Rick Ferri said here around that time (paraphrasing). PE following is basically the same idea.
STC wrote: I'll add that while there is academic support suggesting that investing during periods of low p/e has better expected returns, there is NONE to support the idea of market timing based on that. P/e expansion in only 1 of 3 dimensions of total return for equities. The others being earnings growth and dividend yield. It is likely that with your "model" the could be decades of returns averaging double digits while you sit of the sideline waiting for p/e to come in. But if you have convinced yourself that this actually has the backing of real research or any of the leaders on this forum, I invite you to start your own thread, explain your plan, and wait for the fireworks
Now read the Vanguard paper. Anyway, it's an automatic plan so I wouldn't call it "market timing". It's just amplified rebalancing. You're right, Vanguard has not yet recommended it. No need to get upset :happy
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