Adding a fourth leg - good idea
Adding a fourth leg - good idea
I'm working on an asset allocation as much as a learning tool for myself as an actuality. The holder of the below allocation is not eligible for a tax-advantaged account. Portfolio value $100K. Could anyone please help with the following.
A three fund portfolio allocated as follows:
40% Intermediate Tax Exempt (VIPSX)
25% Total Stock Market (VTSAX)
15% Total Intl Market (VTIAX)
If I wanted to use the remaining 20% to balance the above allocation what kind of fund would you suggest for additional diversity? Is adding a fourth fund something beneficial at this level of funding ($100K).
My thinking in the above AA is that because the owner is not eligible for a tax-advantaged fund that using a three or four fund portfolio would be better than just a single Target Retirement or LifeStrategy fund from a tax standpoint. Do you agree?
A three fund portfolio allocated as follows:
40% Intermediate Tax Exempt (VIPSX)
25% Total Stock Market (VTSAX)
15% Total Intl Market (VTIAX)
If I wanted to use the remaining 20% to balance the above allocation what kind of fund would you suggest for additional diversity? Is adding a fourth fund something beneficial at this level of funding ($100K).
My thinking in the above AA is that because the owner is not eligible for a tax-advantaged fund that using a three or four fund portfolio would be better than just a single Target Retirement or LifeStrategy fund from a tax standpoint. Do you agree?
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Re: Adding a fourth leg - good idea
Small Value. But rather than 20% SV, I'd go either 30% TSM, 15% SV, 15% Int'l or 30% TSM, 10% SV, 20% Int'l.
Re: Adding a fourth leg - good idea
If you want a fourth fund, what Alex said.
Re: Adding a fourth leg - good idea
REITs seem to be a pretty popular "fourth leg," too. For instance, see the Core Four portfolios on this page on the wiki.
Re: Adding a fourth leg - good idea
By over-weighting SV and/or REIT, you are probably making the stock portion more volatile. You may want to compensate by increasing the bond portion to 50-60%.
Re: Adding a fourth leg - good idea
I don't think a "4th leg" sounds particularly appropriate in this situation. The only thing you can really add in a taxable account is small cap value and a 20% slice of that probably takes the portfolio too far from "neutral" for a person who apparently knows nothing about investing. Better to use just the basics.Splais wrote:If I wanted to use the remaining 20% to balance the above allocation what kind of fund would you suggest for additional diversity? Is adding a fourth fund something beneficial at this level of funding ($100K).
As for adding "diversity", small cap value is already included in the total stock market, so there is no added diversity.
Most things that you would add to the basic 3 don't belong in a taxable account for most people. For example, REIT should probably not be in the taxable account of people in accumulation, but it could be fine in a portfolio from which withdrawals are being made.
Only to the extent that a tax-exempt bond fund can be used.My thinking in the above AA is that because the owner is not eligible for a tax-advantaged fund that using a three or four fund portfolio would be better than just a single Target Retirement or LifeStrategy fund from a tax standpoint. Do you agree?
With this little information, you are not going to get very reliable answers. What is appropriate for a 80 year old might not be appropriate for an 20 year old. And tax bracket matters as well.
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Re: Adding a fourth leg - good idea
VIPSX is Vanguard's TIPs fund, not the Intermediate Tax Exempt, which is VWITX.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
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Re: Adding a fourth leg - good idea
To balance the proposed 50/50 allocation (cause that's where it's at right now) implies that you want 10% more equity and 10% more bond. From the OP, I don't see that the incremental 20% is supposed to be all equities. And right now the equity look is roughly 60/40 domestic int'l. Since in taxable, I would avoid REIT's since they are not as tax efficient as other choices.
Hence, I would go
50% Intermediate Tax Exempt
22.5% TSM
7.5% SCV - domestic
15% TISM
5% Int'l small cap value (if there is a relatively tax-efficient one)
Still a 50/50 equity bond split and 60/40 domestic/int'l. Some small-value exposure, but not crazy loadings.
However, this does not consider if the person in question has other holdings (either in taxable and tax-deferred). If they do, this $100K can not be done in isolation.
RM
Hence, I would go
50% Intermediate Tax Exempt
22.5% TSM
7.5% SCV - domestic
15% TISM
5% Int'l small cap value (if there is a relatively tax-efficient one)
Still a 50/50 equity bond split and 60/40 domestic/int'l. Some small-value exposure, but not crazy loadings.
However, this does not consider if the person in question has other holdings (either in taxable and tax-deferred). If they do, this $100K can not be done in isolation.
RM
I figure the odds be fifty-fifty I just might have something to say. FZ
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Re: Adding a fourth leg - good idea
You really need to define the metric you're going to use for "better" before deciding to add something to improve the mix. Once you do, the choice should become a lot more obvious.
Re: Adding a fourth leg - good idea
Most important is to increase the $100K.Splais wrote:I'm working on an asset allocation as much as a learning tool for myself as an actuality. The holder of the below allocation is not eligible for a tax-advantaged account. Portfolio value $100K. Could anyone please help with the following.
- If you achieved 5% nominal return compounded annually, you have $163K (excluding taxes) in 10 years.
- If you save $10K annually, just from savings, you add $100K before any return.
Code: Select all
100,000
105,000
110,250
115,763
121,551
127,628
134,010
140,710
147,746
155,133
162,889
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