Allocations for Mid-life accumulator

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Allocations for Mid-life accumulator

Postby louis c » Sun Apr 10, 2011 2:53 pm

Emergency funds = 3-6 months of expenses covered

Debt: Mortgage with 3.875% interest and loan balance is only 1/3 of home value. No other debt.
Tax Filing Status: Married filing jointly, with 1 Dependent Child
Tax Rate: 28% Federal, No State tax
Age: 52

Planned Asset allocation: (stocks/bonds)
Stocks – 53%
Bonds – 45.5%
Other (Gold) – 1.5%

Sub-allocations (as a percentage of the whole portfolio):

US Stocks (70% of Stocks)
Total US Core (TSP) 18.8% ER: 0.025%
Small Value (VBR) 9.6% ER: 0.14%
Micro Cap (BRSIX) 4.8% ER: 0.71%
Domestic REIT (SCHH) 3.7% ER: 0.13%

Foreign Stocks (30% of Stocks)
EAFE (Intl Developed) (TSP) 6.0% ER: 0.025%
Intl Small Cap Value (DLS) 3.8% ER: 0.58%
Emerging Markets (VEIEX) 3.7% ER: 0.35%
Foreign REIT (VNQI) 2.4% ER: 0.35%

Fixed Income
Total US Bonds (TSP) 24.4% ER: 0.025%
High Yield (VWEHX) 8.1% ER: 0.28%
Cash Equiv (Ultrashort) 8.1% ER: 0%
Foreign Developed Bonds (PICB) 2.5% ER: 0.5%
Foreign Emerging Bonds (FNMIX) 2.0% ER: 0.89%

Other
Gold 1.5%

Overall expense ratio: 0.23%

Current portfolio : mid-to-upper six figures
TSP = Federal Thrift Savings Program; its expense ratio is only 0.025%; The total stock market index is mimicked in the TSP by applying a ratio of 75% C fund and 25% S fund.
Assets are aligned to place tax-inefficient assets in tax deferred accounts. All tax-deferred accounts receive maximum contributions.

I used Mr. Ferri's allocation percentages for "Mid-Life Accumulators" as a guide, and am interested in any feedback on these sub-allocation percentages I am planning to use. I did not include TIPS since we have several generous pensions indexed to inflation in addition to this portfolio.

Thank you
Last edited by louis c on Sun Apr 10, 2011 6:52 pm, edited 6 times in total.
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Postby livesoft » Sun Apr 10, 2011 3:22 pm

Your [proposed] portfolio looks as good as anything I've seen around here.

Emerging markets have a weight of about 20% to 25% of the foreign markets, so it looks like your portfolio may underweight EM.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Postby Manbaerpig » Sun Apr 10, 2011 3:25 pm

very nice, could you post specific ticker symbols possibly (for my benefit anyways, possibly others too?)
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Postby retiredjg » Sun Apr 10, 2011 3:47 pm

louis c, welcome to the forum! Looks fine to me. Agree that emerging markets stock is a bit under-represented.

With things like micro-cap, foreign REIT, and foreign emerging bonds (?), I guess the portfolio is not as low cost as it could be, but I suspect they are worth it to you. Never saw anyone list "foreign emerging bonds" before. :wink:
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Postby louis c » Sun Apr 10, 2011 4:12 pm

Thanks so much to everyone for the feedback. I will adjust EM from 19% to 23% of foreign stocks and downward adjust Foreign REITs from 19% to 15%.

I have added the ticker for those planned. Will post the expense ratios, and update EM.
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Postby livesoft » Sun Apr 10, 2011 4:24 pm

louis c wrote:Thanks so much to everyone for the feedback. I will adjust EM from 19% to 23% of foreign stocks and downward adjust Foreign REITs from 19% to 15%.

Remember that VEIEX is large-cap EM. If you want some small-cap EM you will need something like EWX or DGS (I own both) or you will need to use a small-cap foreign fund that has EM such as VSS (I own it). DLS does not have any EM as far as I know.

Good completion for the TSP international fund would be VSS plus VWO/VEIEX.

I'm trying to figure out how 3% of 30% was 19%.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Postby louis c » Sun Apr 10, 2011 4:57 pm

livesoft wrote:
louis c wrote:Thanks so much to everyone for the feedback. I will adjust EM from 19% to 23% of foreign stocks and downward adjust Foreign REITs from 19% to 15%.

Remember that VEIEX is large-cap EM. If you want some small-cap EM you will need something like EWX or DGS (I own both) or you will need to use a small-cap foreign fund that has EM such as VSS (I own it). DLS does not have any EM as far as I know.

Good completion for the TSP international fund would be VSS plus VWO/VEIEX.

I'm trying to figure out how 3% of 30% was 19%.


Thanks for the advice on breaking out international further.

On a somewhat related note, Rick Ferri recommends adjusting the EAFE index to make it more equal weighted between Europe and Asia. EAFE is not equally weighted between Europe and Asia, and since the TSP mimics the EAFE, I should add Asia separately to adjust accordingly. Also, Canada is excluded from EAFE. Any suggestions on that?

Regarding the percentages (3% of 30% was 19%), if stated as percentages within the 30% allocation to foreign stocks, the weightings (after adjusting for more EM coverage) would be:

Foreign Developed 38%
Small Cap Value 24%
Emerging 23%
Foreign REIT 15%

This totals 100% of the international stock allocation. Emerging was 19% and Foreign REIT was 19% before adjusting for more EM.

The percentages on my OP reflect each sub-allocation as a percentage of the whole portfolio.
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Postby livesoft » Sun Apr 10, 2011 5:09 pm

You may avoid some of the international issues by not using your TSP for your foreign stuff at all. Simply buy Vanguard Total International Index in another account. It would be perfect for a taxable account.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Postby retiredjg » Sun Apr 10, 2011 5:29 pm

Very nicely done louis c! The expense ratios of your odd-ball funds were not nearly as high as I expected.

And the really good news is that your TSP is cheaper than you thought. It is not .25% but .025% (or whatever - I don't know what it is this year, but it is 1/10th of what you think).

Not sure the date when Ferri suggested what you said, but international fund offerings have changed a great deal in the past few years. I believe Ferri is currently happy with the new and improved Vanguard Total International Index fund VGTSX - developed and emerging, large, mid, and small cap. And it is VERY cheap. And it would simplify your holdings greatly. So, like livesoft, I think you should consider abandoning the I-fund and using only VG Total International which can be held in taxable space or tax-advantaged.
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Postby louis c » Sun Apr 10, 2011 6:45 pm

Thanks for the correction on TSP - that is correct the ER is only 0.025%!

I have updated the overall ER to be 0.23%. The funds that cost more have a small allocation in the portfolio so have little impact on the overall expenses.
While VGTSX would be a great adjustment, I have to hold the I Fund in my TSP. If I sold that fund in the TSP it would cause the other categories to far exceed their allocation bands.
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Postby staythecourse » Sun Apr 10, 2011 7:09 pm

I would dump all the subasset classes less than 5%. A subasset/ asset class less then 5-10% in a portfolio is not going to make a difference in reducing volatility or increase returns through diversification.

You may be trying to diversify to satisfy a behavioral component (not wanting to miss out on what may do well), but such small allocations will not make a difference. If anything it makes more of a headache when it comes to rebalancing.

If you want microcap or EM bonds then go for it with 5% otherwise just leave it out.

Also, unless your cash equivalent has a duration of less then 1yr. it is not a cash equivalent, but just a bond. "ultra short" bonds are just a marketing technique to confuse consumers.

Good luck.
...we all think we're above average investors just like we all think we're above average dressers... -Jack Bogle
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Postby retiredjg » Sun Apr 10, 2011 8:09 pm

I would agree that anything less than 5% of portfolio is probably not worth the trouble. However, it seems you want them so I guess they are worth it to you. When/if you get tired of it, there are simpler ways to approach investing. :wink:

Is your ultrashort cash equivalent the G-Fund?
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