3-Fund Approach Asset Allocation help

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HonBee
Posts: 62
Joined: Sat Sep 22, 2012 6:27 am

3-Fund Approach Asset Allocation help

Post by HonBee »

Hi all,

First off, Happy New Year!

A few months ago I discovered this group just at the time I was looking to rethink my financial life. I've read Boggleheads guide to investing,
and have appreciated the advice and suggestions I've received for my previous questions. I would say investing is not my area of expertise, but
trying to get on the right track by reducing my fees to brokers and other expenses..... and save more.

I'm getting ready to transfer my current retirement account to Vanguard and will be setting things up using the 3 fund account approach.

I'm 58. Would like to retire, or at least take on less work, in the next 10 years (I have my own business as a freelance
designer for 16 years). The only debt is my mortgage with a balance of 162,000 at 2.625% which I would look to have paid
in ten years..... and a HELOC with a balance of $48,000 (son's college tuition). My "emergency fund" is probably less than it should be with about
1 month of expenses.

The one thing I'm really not all that comfortable with is the asset allocation part. If any of you would like to comment or make suggestions,
I'm all ears. For the asset allocation here's what I have in mind:

Total assets currently being transferred is $160,000.

$67,000 to Total Stock index fund
$29,000 to Total International Stock index fund
$64,000 to Total Bond Fund

This works out to be 60% stocks and 40% bonds with 70% of stocks being domestic and 30% going to international.

Thank you for any insights, suggestions or any comments letting me know I'm on the right track or not. Thanks.
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DR
Posts: 177
Joined: Mon Dec 24, 2007 7:46 am

Re: 3-Fund Approach Asset Allocation help

Post by DR »

It's always kind of fun this time of year getting one's financial house in order! Good job.

It's difficult to say the right allocation for somebody else. The 60/40 split is intense on stocks if you follow the conventional Bogle guide to hold bond percentage equal to your age (58% bonds). (See various books written by Jack Bogle). But that's just a guide. I personally look at a bigger picture--how much of my living standard is contingent on my investments relative to other sources of income such as Social Security, Pension, etc.. The more your living standard is contingent on these investments, the more conservative you should be in my opinion. In other words, the "rich" can afford to take less risk; the poor (those who have a small investment pool relative to other sources), can afford to take more risk--up to a point.

So, since you are asking for opinions, I guess that 60/40 seems a bit too much weighted toward stocks.

Happy New Year.
aquifer
Posts: 334
Joined: Sat Oct 20, 2012 9:01 am

Re: 3-Fund Approach Asset Allocation help

Post by aquifer »

I am also a new Boglehead and I don't have much investing experience but FWIW I can tell you what I'm doing. I am using the allocation in Vanguard's Target Retirement 2035 as my guide. I figure Vanguard's guess is as good as anyone's as to what my allocation should be for my age and I have a high risk tolerance. In your case where you're looking to retire in 10 years, the allocation represented in the 2025 fund might be right for you. That fund shows 50/21/29 percent allocation to US stocks/international/bonds. You could allocate the three funds you mention along those lines. By using the funds individually you would qualify for admiral shares which meets your goal of lower cost. Each year you could check the allocation of the 2025 fund and rebalance according to its glide path. Or you could just invest directly in the 2025 fund and not worry about rebalancing. The tradeoff is a slightly higher expense ratio.
lks
Posts: 215
Joined: Fri May 16, 2008 8:42 am
Location: SoCal

Re: 3-Fund Approach Asset Allocation help

Post by lks »

What you have described, can be acheived in just one fund, the LifeStrategy Moderate Growth fund. Although I think most Bogleeads would say the LifeStrategy Conservative Growth fund would be more appropriate. There are many opinions, that the inclusion of the Tips fund is advisable. Combining LifeStrategy Moderate Growth with the Tips fund, in a ratio that gives you your desired stock percentage, would give you 4 fund exposure in only two funds.
KyleAAA
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Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: 3-Fund Approach Asset Allocation help

Post by KyleAAA »

Your allocation is perfectly reasonable. I probably wouldn't use the Lifestrategy fund in your case because your costs would go up. With $160,000 in assets, the amount you save every year will have as much to do with your ending balance as your asset allocation.
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Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: 3-Fund Approach Asset Allocation help

Post by Taylor Larimore »

HonBee:
The one thing I'm really not all that comfortable with is the asset allocation part. If any of you would like to comment or make suggestions,
Vanguard has this three-fund asset allocation tool which should be helpful:

https://personal.vanguard.com/us/funds/ ... mmendation

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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