Hastibe wrote:First, considering the international allocation follows the same format as the domestic allocation (20% market-weight, 25% tilt), why is it that you only feel that the domestic allocation should be less tilted? Is it because you see the international tilts as being more worthwhile for diversification purposes?
Thank you for pointing this out. I do
believe your international is too much icing and not enough cake. I just saw the numbers wrong when I first looked at it.
I don't have any problem with what you are doing, but yes, I do believe you are carrying it too far. It's fine if you want your donkey to carry some bags, but don't let the baggage be so much that you can't even see the donkey underneath!
Also, about my stock to bond ratio being highly aggressive--I believe it is generally recommended to have your age in bonds or your age in bonds -10 or -20 (thus, giving my recommended range of bonds as between 5% and 25% of my portfolio), so I thought my stock to bond ratio for my age is considered within recommended ranges (and not overly aggressive)--let me know if you disagree with this.
These three "rules of thumb" are often suggested around here as a place to start your decision of how risky you want to be. But investing great Ben Graham believed and suggested that a portfolio should never have less than 25% stocks or less than 25% bonds. Before I knew this, I had already decided that I thought a portfolio needs at least 20% bonds because (from the charts I had seen) you get less gain for risk (bang for the buck) as you move from 20% bonds to 10% bonds to 0% bonds. So I just stuck with "my number" of 20% bonds even though 25% bonds might be a better answer for many.
Diversification and possible long-term investment benefits. Also, the markets seem so correlated with each other already, do you really think a U.S. mid cap or small cap index tilt would diverge (either way) humongously from the total U.S. market? Of course, the reason that I'm tilting is because I think those tilts may outperform the total U.S. market, but I understand they may underperform; I haven't thought there was much of a risk that they would do horribly compared to the total U.S. market, though. Maybe this is really naive--definitely let me know what you think.
All of the funds you are using to overweight carry more risk than the market as a whole. They are more volatile. The ups may be greater and I'd say the troughs will definitely be greater.
Consider what it takes to be a successful investor. Aside from refraining from doing stupid stuff, the most important thing is how much you save. The next is what your stock to bond ratio is. The next is probably how much you put into international. Also included in there are things like low expenses, asset location to keep your taxes as low as you can, and probably a few other things.
Also to be considered are the possible premiums you might get by overweighting to value stocks, small cap stocks, and emerging market stocks. This is not magic. It comes as the result of higher risk.
You two are going to be making a lot of money. You have no need to take a great deal of risk, so why do it? The possible benefit is not going to make your retirement any nicer, is it? But the possible consequences are ugly. Does that make good sense to you? It seems to me that your retirement will be good because you save enough, not because you run the most aggressive portfolio on the planet and happen to get lucky enough to get out at the right time.
I'm curious about how you figured that there's a great deal of overlap between the U.S. REIT (VNQ) and the mid cap (VO) and between the U.S. REIT and the small cap value (VBR). Real estate holdings are only 7% for VO and 16% for VBR--is that enough to consider it a great deal of overlap, or were you looking at something else?
I was not really meaning stock for stock. If you look at the 9 style box for Vanguard's REIT fund, you'll see that a great deal of it falls into the mid cap and small cap range. If you use mid cap and small cap value you don't necessarily need more REIT. Or if you use REIT you don't necessarily need as much more SCV and mid cap. And remember that Total Stock Market already contains REIT so your REIT stocks will be a total from total stock market, mid cap, small cap value and the REIT fund. That seems like a lot to me. I'm not saying don't do it, I'm suggesting you consider doing it a little less. (I overweight both SCV and REIT myself, in case you are wondering.)
...let alone without one of us fully understanding what it could mean!
I notice you didn't say anything about her having previous experience with a crash. In the case of a stock market crash, "fully understanding" is something that happens in your gut and you just don't "get it" until you experience it. If she has not yet had this experience, I would not assume that she will react the same way you did....even if she thinks she will.
Maybe you should put my comments in front of your wife at the dinner table and see what happens.
You and she might find that some of my comments resonate with her, even if she was not aware of it before. Then again, I could be completely out in the weeds, but you asked for feedback and that is what I have given you.