For those who haven't memorized the ticker symbols:
VTSMX-20%--Vanguard Total Stock Market Index Fund
VIVAX-10%--Vanguard Value Index Fund
VISVX-10%--Vanguard Small-Cap Value Index Fund
VGSIX-10%--Vanguard REIT Index Fund
VBMFX-10%--Vanguard Total Bond Index Fund
VGTSX-20%--Vanguard Total International Stock Index Fund
VTRIX-10%--Vanguard International Value Fund
VSS-10%--Vanguard FTSE All-World ex-US Small-Cap ETF
1) I don't understand why VSS, the ETF, rather than VFSVX, the Vanguard FTSE All-World ex-US Small-Cap mutual fund. Nothing wrong with it but since all your other components are mutual funds, why not this one, too?
2) I trust you are aware that the Vanguard International Value Fund is not an index fund
. Vanguard's description
says "This fund invests in non-U.S. companies from developed and emerging markets around the world that its advisors view as temporarily undervalued by the markets." Here, "value" does not mean "precision tool for capturing the Fama-French value factor," it means "value according to the 'value investing' philosophy of stock-picking." Morningstar classifies the fund as "large blend" rather than "large value" and presents this style map:
Compare it to their style map for Vanguard's (domestic) large-cap value index fund:
I don't think Vanguard has any index funds that are really intended for adding a value tilt to an international allocation
3) I don't know if it's really any better than a simple three-fund portfolio. But I don't think there's any great harm
in it and I don't think you've added any risk to speak of. The real risk comes from having 90% stocks, regardless of what flavor they are. And don't kid yourself that you've reduced that risk much
by "diversification." That's a small effect. I like grabiner's suggestion that you consider cutting back to 80% stocks.
If it makes you feel uneasy not to be tilting when "everyone" says you should be, then tilt. I'm not kidding about that. I don't like to stray too
far away from the mainstream conventional wisdom, myself.
The big issue is that you will only get the long-term returns
of your multi-asset, rebalanced portfolio if you actually stick to it for the long term
. Me, I happened to be holding a tiny
amount of VGSIX in 2008, like 1.5% of my portfolio, and, bad as the stock plunge was, VGSIX's plunge was much, much worse. I quit rebalancing into it. (That is, I screwed up
). Couldn't stomach the thought of throwing good money after bad. When things are going well you say "sure I'll rebalance if it drops, it's only a few percent we're talking about." When it really happens
, you say "Am I going to toss a thousand dollars into the toilet today? Yet another
thousand dollars?" A thousand dollars may not be a crippling loss to your retirement savings, but, gee, it's a thousand dollars
. And you haven't told your wife about it, and you know darn well she's been eyeing a Terry bicycle that just happens to cost about a thousand dollars. Sorry, hon, forget the bicycle, we need that thousand dollars to replace the thousand dollars that VGSIX just lost. Again.
The point is, yes, it's a perfectly reasonable portfolio if you lock it in, decide that's your
allocation, and stay the course. If you try it for a year-and-a-half, and something in it tanks and you say, "well, that's 'not working,' let's swap it out for something new that everyone's talking about about,"--that is, if you can't resist the urge to keep changing it--then it will not have been such a good portfolio.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.