Retirement Portfolio Proposal

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BigPrince
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Retirement Portfolio Proposal

Post by BigPrince »

This is something I am working on with my father. Below is a rough draft of what we are considering transitioning his portfolio in retirement too.

Emergency funds: 75,000 Cash (edit from 100,000 Cash, my mom has assets that can also be tapped if needed)
Debt: None (Owns home)
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal (edit from 25%), 0% State (No tax on retirement income)
State of Residence: PA
Age: 58
Desired Asset allocation: 57% stocks / 43% bonds (edit from 61% stocks / 39% Bonds) (edit from 67% stocks / 33% bonds)
Desired International allocation: 20% of stocks
Size of Portfolio: 975,000 (edit from 950,000)

Assets in retirement:

His 401k (being rolled over into Rollover IRA) (All Vanguard Funds)

(edit the wellington is valued at 198k, so roughly 130,000 in stocks and 68,000 in Bonds)

Bonds would be made up of Total Bond Market and the Bond portion of Wellington.
at 43% desired allocation that would be 419,250.

Stock would be made up of the stock portion of Wellington and Total Stock Market and Total International Stock Market. (I don't have the exact numbers pinned down)
at a 57% desired allocation which would be 555,750.

80% would be held between Wellington and Total Stock Market which would be 475,800.
20% would be held in Total International Stock Market which would be 118,950.



Contributions

No New annual Contributions

We plan to draw approx 36,000 a year. He additionally receives a pension.

We plan to rebalance when our desired allocation fluctuates plus or minus 3%.

Thank you for your time.
Last edited by BigPrince on Thu Jul 24, 2014 10:49 pm, edited 4 times in total.
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Re: Retirement Portfolio Proposal

Post by abuss368 »

Hi BigPrince,

Here are my thoughts. Your Dad is at a crossroads between early retirement and thus the need for continued growth but also protecting what he has accumulated thus far. Most Bogleheads recommend "age in bonds" as Jack Bogle has so often taught us, or perhaps "age less 10" in bonds. At you present age of 58 years old with 33% in bonds, that may be a little more risk than is necessary. At some point it is more important to protect what we have than to risk it in an attempt to get more!

My opinion on balanced funds is either go 100% with them or do not use them. When a balanced fund is mixed with individual funds, it can make asset allocation more difficult. I would simply consider using the Three Fund Portfolio of Total Stock Index, Total International Index, and Total Bond Index. Another possibility would be a Target Retirement or Life Strategy fund which holds the Three Funds (plus International Bonds). That may work best considering everything will be in a Traditional IRA.

think about it and stop back with additional questions or concerns that you may have.

Best.
Last edited by abuss368 on Wed Jul 23, 2014 11:56 am, edited 1 time in total.
John C. Bogle: “Simplicity is the master key to financial success."
Topic Author
BigPrince
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Re: Retirement Portfolio Proposal

Post by BigPrince »

abuss368 wrote: Hi BigPrince,

Here are my thoughts. Your Dad is at a crossroads between early retirement and thus the need for continued growth but also protecting what he has accumulated thus far. Most Bogleheads recommend "age in bonds" as Jack Bogle has so often taught us, or perhaps "age less 10" in bonds. At you present age of 58 years old with 33% in bonds, that may be a little more risk than is necessary. At some point it is more important to protect what we have than to risk it in an attempt to get more!

My opinion on balanced funds is either go 100% with them or do not use them. When a balanced fund is mixed with individual funds, it can make asset allocation more difficult. I would simply consider using the Three Fund Portfolio of Total Stock Index, Total International Index, and Total Bond Index. Another possibility would be a Target Retirement or Life Strategy fund which holds the Three Funds (plus International Bonds). That may work best considering everything will be in a Traditional IRA.

think about it and stop back with additional questions or concerns that you may have.

Best.
Thank you for your time.

We think that we would like to strike a balance between index funds and active funds and try to capture the best of both worlds. My dad has been investing in Wellington for over 28 years and he has been satisfied with the results. My dad is also uncomfortable with the future of Bonds and would like to use some active funds with bonds in them because of that in an attempt to diversify bond holdings. While this might make things a bit harder to manage, we are willing to put the work in.

My father and I both think that 50/50 is too conservative of an approach. Our goal in determining our asset allocation was to have his initial nest egg grow 1.5 times its current size over a 28 year period. Now I think that 28 years may be a too short of a horizon to be planning for. My dad feels okay with number, he can't imagine being retired for longer then he worked for. In our planning we have not considered social security nor my mother's assets (roughly 30k). On top for that he has the emergency fund. As he gets older we feel that his expenses will diminish. We used FireCalc to run a bunch of numbers and found that in the 60-70% range of Stocks the downside risk was not significantly different but the upside varied a bit, hence our 67/33 plus or minus 3%.

My father does not want a target fund because he thinks it is not necessary to hold international bonds and by taking a more active approach we can get the admiral shares of the index funds and save on fees.

I'd like to add that when the market tanked in 08 or 09 my dad still slept fine at night and kept up his max contribution into the markets. He has tolerated risk before and claims to be comfortable taking more risk then the recommended 50/50.

I am curious on peoples thoughts about holding 100,000 in cash.
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Re: Retirement Portfolio Proposal

Post by Sbashore »

My thoughts were the same as your first answer. I went into retirement at age 57.5 with a 70% stock allocation and took quite a hit in 2008. I stayed the course and recovered, but it was disconcerting to say the least. Now at age 66 I'm sitting at 54% stock, 46% fixed. I arrived there on a glide path ending at age 65. I see myself able to do this because I have a good income stream from multiple pensions and SS. So I'd give that stock allocation some thought. As for the cash, 100k seems a little much to me. I only keep about one years expenses in cash. I manage my fixed income for duration (currently 2.2 years) and let the chips fall as they may. So far it's worked fine for me.

edit to add a thought. You stated that you wanted to take on more risk in order to grow your father's portfolio. I think it might be prudent for you to give some thought about how he'll feel when he loses around 33% in the next equity decline of 50% or so. It can happen and it will at some point in the future. When determining an equity allocation I find it helpful to "expect" to lose a portion of your portfolio, because that's how volatility risk works. The portfolio might grow, or it might shrink. Either outcome going forward is equally likely in the relative short term (10 years or more).
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Re: Retirement Portfolio Proposal

Post by abuss368 »

Hi BigPrince,

Here are some additional thoughts and points to consider:

1) An investor has to be prepared for equities to decrease 30%, 40%, 50%, or even more. No one knows when, if ever, they will recover (i.e. Japan for the last 20 years).

2) When we are working and still making contributions to our retirement portfolio, hence cash flows in and not out, one may be able to get through a financial crisis with a little more peace of mind. Shares are being bought at a much lower basis. When one is retired with no additional contributions, but rather distributions (i.e. selling in a down market), it is a whole different ballgame.

3) I have been reading and hearing about this so called bond "crisis" for over 5 years. Where is it? I personally do not consider a 2% temporary decline in my Total Bond Index a "crisis". Please consider reading one of Rick Ferri's recent article's on the bond "crisis" and the whole Short Term versus Intermediate Term debate. Please see http://www.rickferri.com for the article.

4) In terms of the new Total International Bond Index being added to the Target and Life Strategy funds, I do not care for it either. However, the allocation is so low to be it is not as significant. The fund is also hedged back to US dollars. The addition of the fund did not stop me from recommending it. I have a family member in a Target fund and they are very thankful for the simplicity and the results.

5) $100,000 is a high cash balance that is subject to a loss of purchasing power due to possible inflation. Can some of this be transferred to a short term or limited term tax exempt bond fund, CD, etc? Perhaps investing a portion? This is an individual decision and really it is about peace of mind and the "sleep test" as Warren Buffett has so often noted.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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BigPrince
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Re: Retirement Portfolio Proposal

Post by BigPrince »

Sbashore wrote: edit to add a thought. You stated that you wanted to take on more risk in order to grow your father's portfolio. I think it might be prudent for you to give some thought about how he'll feel when he loses around 33% in the next equity decline of 50% or so. It can happen and it will at some point in the future. When determining an equity allocation I find it helpful to "expect" to lose a portion of your portfolio, because that's how volatility risk works. The portfolio might grow, or it might shrink. Either outcome going forward is equally likely in the relative short term (10 years or more).
His asset allocation has never been below 80% stocks for the 28 years he has been investing. He did not want to go past 70%. He was having a hard time wrapping his head around the difference SAVING FOR RETIREMENT and BEING IN RETIREMENT.

I told him that John Bogle uses a 50/50 (I read it somewhere) and I brought up the point about Target 2015 and other target funds are roughly 51/49.

What we agree is 50/50 is too conservative because one of HIS objectives is to grow his nest egg. When coming up with something between 51-69, we used FireCalc to help give us some perspective. We understand that past results do not indicate further performance, we didn't know about how else to gain some perspective. What would you tell someone that feels 50/50 is too conservative because they desire the opportunity to grow their nest egg?

Now if someone were to go past 50/50, where is the next line in the sand for a Boglehead or does a Boglehead not fathom such a possibility?

abuss368 wrote:Hi BigPrince,

Here are some additional thoughts and points to consider:

1) An investor has to be prepared for equities to decrease 30%, 40%, 50%, or even more. No one knows when, if ever, they will recover (i.e. Japan for the last 20 years).

2) When we are working and still making contributions to our retirement portfolio, hence cash flows in and not out, one may be able to get through a financial crisis with a little more peace of mind. Shares are being bought at a much lower basis. When one is retired with no additional contributions, but rather distributions (i.e. selling in a down market), it is a whole different ballgame.
I did highlight this difference to my father. He is confident he can "stay the course" and I believe him.


abuss368 wrote: 3) I have been reading and hearing about this so called bond "crisis" for over 5 years. Where is it? I personally do not consider a 2% temporary decline in my Total Bond Index a "crisis". Please consider reading one of Rick Ferri's recent article's on the bond "crisis" and the whole Short Term versus Intermediate Term debate. Please see http://www.rickferri.com for the article.

4) In terms of the new Total International Bond Index being added to the Target and Life Strategy funds, I do not care for it either. However, the allocation is so low to be it is not as significant. The fund is also hedged back to US dollars. The addition of the fund did not stop me from recommending it. I have a family member in a Target fund and they are very thankful for the simplicity and the results.

5) $100,000 is a high cash balance that is subject to a loss of purchasing power due to possible inflation. Can some of this be transferred to a short term or limited term tax exempt bond fund, CD, etc? Perhaps investing a portion? This is an individual decision and really it is about peace of mind and the "sleep test" as Warren Buffett has so often noted.

Best.
Thanks. We will probably do something like 50 in short term and 50 in MM. I think its definitely a "sleep test" issue for him.
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Re: Retirement Portfolio Proposal

Post by abuss368 »

BigPrince wrote: Now if someone were to go past 50/50, where is the next line in the sand for a Boglehead or does a Boglehead not fathom such a possibility?
Hi BigPrince,

To provide some type of perspective, the Vanguard Target Retirement Fund "settles" at a 30% stock and 70% bond allocation where it then remains static into the future.

Personally, when I plan for retirement, I can not see ever moving to greater than 70% bonds either. An investor needs equities for growth and inflation protection. However, every investor may have a difference tolerance for risks, goals, and time frame.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Retirement Portfolio Proposal

Post by Sbashore »

Something else just struck me. If he has to apply a "sleep test" to determine how much cash/fixed income (of whatever type) to carry, that seems to be a red flag that goes to real risk tolerance. Is he really thinking about losing money? I guess that's up to him. Personally I manage things by looking at my risk, and how much I want to take in terms of how much I will lose in the next downturn. I don't even think about how much I want to grow my portfolio, or what return I want. Equating equity risk to grow a portfolio in a hurry, or to expect it will continue per your experience, without regard to where you are in your investing lifetime can be dangerous.
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Re: Retirement Portfolio Proposal

Post by BigPrince »

Sbashore wrote:Something else just struck me. If he has to apply a "sleep test" to determine how much cash/fixed income (of whatever type) to carry, that seems to be a red flag that goes to real risk tolerance. Is he really thinking about losing money? I guess that's up to him. Personally I manage things by looking at my risk, and how much I want to take in terms of how much I will lose in the next downturn. I don't even think about how much I want to grow my portfolio, or what return I want. Equating equity risk to grow a portfolio in a hurry, or to expect it will continue per your experience, without regard to where you are in your investing lifetime can be dangerous.
I might be able to sway him a bit better with a "glide path."

I haven't come across too much regarding "how to glide." I think I understand that its a way for a portfolio to change allocation slowly over time to decrease (or I guess increase too if you wanted) your risk. Can you elaborate on how you applied a glide path to your portfolio?
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Re: Retirement Portfolio Proposal

Post by Sbashore »

BigPrince wrote:
Sbashore wrote:Something else just struck me. If he has to apply a "sleep test" to determine how much cash/fixed income (of whatever type) to carry, that seems to be a red flag that goes to real risk tolerance. Is he really thinking about losing money? I guess that's up to him. Personally I manage things by looking at my risk, and how much I want to take in terms of how much I will lose in the next downturn. I don't even think about how much I want to grow my portfolio, or what return I want. Equating equity risk to grow a portfolio in a hurry, or to expect it will continue per your experience, without regard to where you are in your investing lifetime can be dangerous.
I might be able to sway him a bit better with a "glide path."

I haven't come across too much regarding "how to glide." I think I understand that its a way for a portfolio to change allocation slowly over time to decrease (or I guess increase too if you wanted) your risk. Can you elaborate on how you applied a glide path to your portfolio?
It's pretty much they way you surmised. I had a target allocation I wanted to get to by age 65. As rebalancing opportunities presented themselves I would change my target a percent or two at a time to move towards my targets. I use a spreadsheet so I can play with percentages,etc. and see how they affect my overall portfolio. For instance when the stock market went up and I saw an imbalance in a given asset class and I needed to sell, I'd sell a little more than that and adjust the target percentage down for the equity asset class and up for the fixed income class. Best of luck to you and your Dad. It sounds like you two can discuss things so that's great.
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Re: Retirement Portfolio Proposal

Post by zzcooper123 »

Maybe read; "Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns With Less Volatility" by Larry Swedroe for ideas about asset allocation.
Read Wade Pfau's comments on rising equity glide path in Retirement.
Consider any part time work to allow deductions for HSAs, Health Insurance, short term capital losses against earned income.
Retirement considerations at age 58 go way beyond simple asset allocation.
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Re: Retirement Portfolio Proposal

Post by Peter Foley »

If your parents are retired and have a defined pension, there is little need for an emergency fund of that size. I view an emergency fund as primarily protection against unemployment or a loss of income. This is not an issue for your parents.

Are you sure they are in the 25% bracket? That is about $95,000 in total income or $74,000 in taxable income.

My personal opinion: anything between 60/40 and 40/60 is mainstream for couples nearing retirement or retired. You are not proposing anything substantially different than that, but it would be slightly out of my comfort range.

You don't mention anything about the ratio of taxable to non taxable savings. That can be an important consideration. Where they hold the different funds has an impact on the tax efficiency of their draw down. I get the impression that the assets you describe are all in "his 401k". Please clarify.
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Re: Retirement Portfolio Proposal

Post by BigPrince »

Peter Foley wrote:If your parents are retired and have a defined pension, there is little need for an emergency fund of that size. I view an emergency fund as primarily protection against unemployment or a loss of income. This is not an issue for your parents.

Are you sure they are in the 25% bracket? That is about $95,000 in total income or $74,000 in taxable income.

My personal opinion: anything between 60/40 and 40/60 is mainstream for couples nearing retirement or retired. You are not proposing anything substantially different than that, but it would be slightly out of my comfort range.

You don't mention anything about the ratio of taxable to non taxable savings. That can be an important consideration. Where they hold the different funds has an impact on the tax efficiency of their draw down. I get the impression that the assets you describe are all in "his 401k". Please clarify.
Your right, 15%....I accidentally looked at single brackets, not married and filing jointly.

Between his pension and savings he has more then enough to live comfortably for the next 18 months.

When he turns 59.5 is when he plans to begin drawing down. The majority of his assets are being rolled over from his employer (FEDEX, already held at Vanguard) 401k plan into a Rollover IRA.

We are going to increase the bond allocation and also shrink the emergency fund a little. Once we give it more thought, I will be sure to update the post. Thanks.
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Re: Retirement Portfolio Proposal

Post by BogleBoogie »

I am rather new to the Boglehead world, but was lucky to at least partially live it by investing in low cost index funds early in my 401k contributions. Having said that, I have NO expertise to offer on this thread. Rather, I wanted to say how GREAT it is to read this dialogue which involves complex questions and answers and the willingness for a person to openly invite advice and others to graciously give it. Awesome site and people here. Cheers! :sharebeer
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Re: Retirement Portfolio Proposal

Post by BigPrince »

BogleBoogie wrote:I am rather new to the Boglehead world, but was lucky to at least partially live it by investing in low cost index funds early in my 401k contributions. Having said that, I have NO expertise to offer on this thread. Rather, I wanted to say how GREAT it is to read this dialogue which involves complex questions and answers and the willingness for a person to openly invite advice and others to graciously give it. Awesome site and people here. Cheers! :sharebeer
I concur :) It also gives me some extra ammo to share with my father some other perspectives of people who are only a few years ahead of him and did experience a significant drop not terribly long ago and that we should be shooting for something much closer to 50/50.

We are very lucky that FedEx uses Vanguard for their 401k and that my father, who is an immigrant and whose command of English is that of a middle schooler, had the good fortune to think ahead and make some smart decisions and then share that knowledge with me. I have learned so much over the years and most recently helping him plan this transition into retirement over the past few months.
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Re: Retirement Portfolio Proposal

Post by BigJohn »

BigPrince,

I'm in a similar situation, turn 58 in August and planning to retire around YE or early in 2015. FWIW, my plan is a 60/40 allocation to stock/bonds with 25% of stocks in international. Majority of assets in simple 3-fund portfolio. Exception to this are older VG funds with large LTCG and some very low cost basis company stock. Still thinking about exceptions to fixed income portion (see comments below). No current plans to use any international bond fund. A few stray thought on what I've read in this thread

1) I was in your father's mindset about 5 - 7 years ago with 90% or more in stock and saw no reason to change. Started reading and getting educated on how to manage $$ in retirement. Decided it was critical to make changes and glided to 60/40 by changing contributions. Current plan would be to glide to 50/50 over the next 10 - 15 years by managing withdrawals and then stay there. Really important that your father understand that accumulation stage has very different risks than retirement stage so a change in strategy is called for. Not sure if you or your father are interested but "Ages of Investors" by William Bernstein is a really good summary of life cycle investing. It's relatively short at about 50 pages so not overwhelming.

2) Lots of people very happy with Wellington but.... one of my goals is to simplify my portfolio as much as practical. This is not because I cannot manage the complexity now but driven by two other worries. If I got hit by a bus, I need to leave something simple as wife/kids are not as interested/knowledgeable as I am. In addition, we all lose mental capability with time and just because I can mange today does not mean I'll be able to do as well in 15 - 20 years. Comments about re-balancing complications are very well founded and not sure I see "best of both worlds" between active/passive as an advantage to make up for complexity. Obviously a personal choice so no wrong answer.

3) I don't want to use target funds but for a different reason. I want ability to decide whether to sell stocks or bonds as part of rebalancing (ie sell the one that's high). Can't do this with a combined fund. However, if I wanted to use one for some reasons, the small allocation to international bonds wouldn't stop me. This is also why I won't be using Wellington.

4) I'm planning on maintaining ~ 6 months of expenses in cash and ~1.5 years in ST Gov bonds (likely VFIRX). I will consider these $$ as part of my overall fixed income allocation. Agree with comments that too much in cash can be a drag on portfolio return so give some thought to whether a slightly different approach might be better.

5) No great answer on bonds right now with lots of well respected experts in different places. Other than details in #4, I'm still struggling with what to do here. My current lead case is to keep VG LTD and IT Muni fund in taxable and use a combination of Total Bond and ST or IT Corp Bond Index in tIRA. You can to a forum search for threads on this topic to get a better feel for range of options others use.

Hope this helps. Glad to answer any follow-up questions.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
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Re: Retirement Portfolio Proposal

Post by BigPrince »

BigJohn wrote:BigPrince,

1) I was in your father's mindset about 5 - 7 years ago with 90% or more in stock and saw no reason to change. Started reading and getting educated on how to manage $$ in retirement. Decided it was critical to make changes and glided to 60/40 by changing contributions. Current plan would be to glide to 50/50 over the next 10 - 15 years by managing withdrawals and then stay there. Really important that your father understand that accumulation stage has very different risks than retirement stage so a change in strategy is called for. Not sure if you or your father are interested but "Ages of Investors" by William Bernstein is a really good summary of life cycle investing. It's relatively short at about 50 pages so not overwhelming.

3) I don't want to use target funds but for a different reason. I want ability to decide whether to sell stocks or bonds as part of rebalancing (ie sell the one that's high). Can't do this with a combined fund. However, if I wanted to use one for some reasons, the small allocation to international bonds wouldn't stop me. This is also why I won't be using Wellington.

Hope this helps. Glad to answer any follow-up questions.
I didn't realize he had a book on that topic, thanks for sharing, I like that Author's work.

Excellent point.


I have updated the numbers. The proposed Asset Allocation is now 61 Stocks / 39 Bonds and lowering the emergency cash after factoring in my mom's assets. Rebalance when it fluctuates plus or minus 3%.

My father still wants to be aggressive. I told him the overriding principle should to preserve what you have and not risk for more. I also told him if he wants to keep being aggressive then he should keep working. We ran more FireCalc scenarios and took a slightly more conservative approach based on what has been discussed throughout this thread.

My next question would be approaches to rebalancing. We did it based on running the numbers with different asset allocations (with FireCalc) then picking a range that my father found appealing and picking near the middle of that range. From what I think I understand from how other people do it, they select a specific AA and then a few (or once) designated times a year they check and rebalanced back.
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Re: Retirement Portfolio Proposal

Post by abuss368 »

BigPrince wrote: We are going to increase the bond allocation and also shrink the emergency fund a little. Once we give it more thought, I will be sure to update the post. Thanks.
I think this is a good idea. Increase the bond allocation and decrease the cash balance and then step back and provide a new update.
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Re: Retirement Portfolio Proposal

Post by abuss368 »

BigJohn wrote:BigPrince,

I'm in a similar situation, turn 58 in August and planning to retire around YE or early in 2015. FWIW, my plan is a 60/40 allocation to stock/bonds with 25% of stocks in international. Majority of assets in simple 3-fund portfolio. Exception to this are older VG funds with large LTCG and some very low cost basis company stock. Still thinking about exceptions to fixed income portion (see comments below). No current plans to use any international bond fund. A few stray thought on what I've read in this thread

1) I was in your father's mindset about 5 - 7 years ago with 90% or more in stock and saw no reason to change. Started reading and getting educated on how to manage $$ in retirement. Decided it was critical to make changes and glided to 60/40 by changing contributions. Current plan would be to glide to 50/50 over the next 10 - 15 years by managing withdrawals and then stay there. Really important that your father understand that accumulation stage has very different risks than retirement stage so a change in strategy is called for. Not sure if you or your father are interested but "Ages of Investors" by William Bernstein is a really good summary of life cycle investing. It's relatively short at about 50 pages so not overwhelming.

2) Lots of people very happy with Wellington but.... one of my goals is to simplify my portfolio as much as practical. This is not because I cannot manage the complexity now but driven by two other worries. If I got hit by a bus, I need to leave something simple as wife/kids are not as interested/knowledgeable as I am. In addition, we all lose mental capability with time and just because I can mange today does not mean I'll be able to do as well in 15 - 20 years. Comments about re-balancing complications are very well founded and not sure I see "best of both worlds" between active/passive as an advantage to make up for complexity. Obviously a personal choice so no wrong answer.

3) I don't want to use target funds but for a different reason. I want ability to decide whether to sell stocks or bonds as part of rebalancing (ie sell the one that's high). Can't do this with a combined fund. However, if I wanted to use one for some reasons, the small allocation to international bonds wouldn't stop me. This is also why I won't be using Wellington.

4) I'm planning on maintaining ~ 6 months of expenses in cash and ~1.5 years in ST Gov bonds (likely VFIRX). I will consider these $$ as part of my overall fixed income allocation. Agree with comments that too much in cash can be a drag on portfolio return so give some thought to whether a slightly different approach might be better.

5) No great answer on bonds right now with lots of well respected experts in different places. Other than details in #4, I'm still struggling with what to do here. My current lead case is to keep VG LTD and IT Muni fund in taxable and use a combination of Total Bond and ST or IT Corp Bond Index in tIRA. You can to a forum search for threads on this topic to get a better feel for range of options others use.

Hope this helps. Glad to answer any follow-up questions.
I think BigJohn provided a very good post that you should be able to relate too (i.e. same age, questions and concerns, etc.).

I found it interesting that BigJohn and others have no interest in the new Total International Bond Index fund. I further found it interesting that there is no recommendation of TIPS/Inflation bonds. I am guessing, and may be incorrect here, that the lack of any meaningful dividend income (if any at all - see Short Term TIPS Index Fund), was a primary concern? Retirees need income to live, pay the bills, and enjoy life. TIPS are not providing that income. Jack Bogle often says Total Bond Index is all that is "needed".

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Sbashore
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Re: Retirement Portfolio Proposal

Post by Sbashore »

The way I rebalance is I have bands for each asset class and a band for my overall equity/fixed allocation. If any asset class gets to be 20% or more away from it's target, that's a rebalance signal. If my overall equity/fixed allocation gets to be 5% away from my target, that's a rebalance signal. I use a spreadsheet to highlight these situations and also calculate how much to buy or sell. I apply one other rule, which is to only do a rebalancing action once a year. So for my sub-asset classes once I rebalance I'm done for a year. That's not usually a factor since things don't usually move that much that I might have to rebalance more often. 2008 was an exception. I apply the once a year rule to avoid buying continually into a downturn or selling in an up market.
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BigJohn
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Re: Retirement Portfolio Proposal

Post by BigJohn »

abuss368 wrote:I think BigJohn provided a very good post that you should be able to relate too (i.e. same age, questions and concerns, etc.).

I found it interesting that BigJohn and others have no interest in the new Total International Bond Index fund. I further found it interesting that there is no recommendation of TIPS/Inflation bonds. I am guessing, and may be incorrect here, that the lack of any meaningful dividend income (if any at all - see Short Term TIPS Index Fund), was a primary concern? Retirees need income to live, pay the bills, and enjoy life. TIPS are not providing that income. Jack Bogle often says Total Bond Index is all that is "needed".
Abuss, thanks for the compliment on my post.

On Total International Bond, I've read the VG paper and many threads on this site. I just don't see compelling data that shows it providing a significant diversification benefit, especially when combined with yield a bit lower and higher risk.

My reason for not considering TIPS is not related to lack of income production. I'll have tIRA space sitting unused except for Roth conversions until RMD time. Bond income in taxable from VG national muni funds. I fundamentally like the idea of some inflation protection. If I went this way, I'd probably do an annual 10 year TIPS ladder geared to funding my RMDs. I just don't see TIPS as a good value right now (negative to zero real return). When I turn 60 and am 10 years from RMD, I'll reevaluate based on TIPS yields at that time. My initial opinion was reinforce by recently rereading Bill Berstein's "Investing for Adults" series where he makes similar comments along the lines of "maybe someday but not now".

BigPrince, you're on the right track with rebalancing. I check mine every year between Christmas and New Years when I'm getting ready to make YE tax management decisions.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
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BigPrince
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Re: Retirement Portfolio Proposal

Post by BigPrince »

I want to thank everyone for their input. 2nd Update now.

So as people suggested the initial proposal was too aggressive. Too much emphasis was on reaching a target nest egg at the cost of unnecessary risk and volatility. I was able to convince my father that the emphasis is needed on preserving not growing.

We still both felt 50/50 was too conservative. Vanguard is 51/49. 51% became our "floor". Meaning we never want to below 51% stocks.

Because I liked the 3% re-balance range plus or minus due to how the FireCalc numbers were looking and their not being much criticism of the 3%, we got to 54% plus or minus 3.

My dad then decided that 54/46 was still too conservative, so we made 54% our new "floor" and applied the same thinking.

57/43 was born plus or minus 3%. He likes this because it also keeps in the realm of possibility of my dad hitting his nest egg goal.

I will be getting the Black Swan book as well but there you have it folks. Thanks for your help and any continued thoughts.

Edit:
Using FireCalc as a guide, we can more realistically use age 93 instead of 88 now :) Not only did we come up with a better asset allocation but now he can live longer to enjoy it lol
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BigPrince
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Re: Retirement Portfolio Proposal

Post by BigPrince »

I wanted to provide another important update. Since I was able to pin down our Asset Allocation and then work out all the numbers of my dads PORTFOLIO, I had enough information to check the Asset Allocation of my dads TOTAL Assets, not just his portfolio. What I mean is that I put the BONDS + Cash from the emergency fund together just to gain some further perspective.

Total Asset Allocation of ALL assets:

Stocks = 52.93%
Bonds + Cash = 47.07%

Or in Vanguard lingo:

Stocks = 52.93 %
Bonds = 39.93%
Short Term Reserves = 7.14%

Thanks again for everyone's help. Cheers!

One thing still left to consider is shrinking the emergency fund even more, I am thinking down to around 5% or 50,000.


Update for those who may be interested 6/26/14- Small Tweak...changed Emergency fund to 72,000 to equal two years of desired withdrawals. 75,000 was kind of arbitrary so we wanted to come up with something a bit more thought out.

Stocks = 53.09 %
Bonds = 40.05%
Short Term Reserves = 6.86%
Last edited by BigPrince on Sat Jul 26, 2014 6:04 pm, edited 1 time in total.
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Re: Retirement Portfolio Proposal

Post by abuss368 »

BigPrince wrote:I wanted to provide another important update. Since I was able to pin down our Asset Allocation and then work out all the numbers of my dads PORTFOLIO, I had enough information to check the Asset Allocation of my dads TOTAL Assets, not just his portfolio. What I mean is that I put the BONDS + Cash from the emergency fund together just to gain some further perspective.

Total Asset Allocation of ALL assets:

Stocks = 52.93%
Bonds + Cash = 47.07%

Or in Vanguard lingo:

Stocks = 52.93 %
Bonds = 39.93%
Short Term Reserves = 7.14%

Thanks again for everyone's help. Cheers!

One thing still left to consider is shrinking the emergency fund even more, I am thinking down to around 5% or 50,000.
That is much better and your father is well on his way. Remember the only portfolio that is right is the one that works for you!

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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