? about asset allocations for retirement planning

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Posts: 9
Joined: Sun Mar 24, 2013 12:26 pm

? about asset allocations for retirement planning

Post by RinTinTin » Sun Mar 24, 2013 12:58 pm

My husband and I are due for a rebalancing of our portfolio and would like to get some ideas before we pull the trigger. Info first, questions below. Thank you!
Emergency Funds: ~ 5 months expenses for the two of us now; not sure what our expenses will be when Baby #1 comes in August

Mortgage, primary residence: $260,000 @ 3.5%, 2nd year of 7-year ARM (planning on moving prior to adjustment)
Mortgage, rental property: $190,000 @ 3.5% IO ARM, adjusts to P&I in 3 years (planning on selling if possible before this adjustment); tenants currently pay approx. twice the mortgage (one of the benefits of the ARM adjusting down)
Student Loans: total $37,500 @ 4.5%

Tax Filing Status: Married Filing Jointly, first child due this year
Tax Rate: 25% Federal, 7.75% State; anticipate marginal federal tax rate to go up to 33% next year
State of Residence: NC
Age: 33

Desired Asset allocation: 99% stocks / 1% bonds
Desired International allocation: 33% of stocks

Desired Asset Allocation: goal to rebalance annually

15% Large Value
15% Large Growth
10% Mid Value
8% Mid Growth
10% Small Value
8% Small Growth

18% Developed
15% Emerging

1% Total Bond Index [this 1% bonds comes from his 401k options, the best of which has some allocation in the VTBIX (Total Bond Index)]

Current Retirement Portfolio (by the end of 2013, maxing out 401(k)s and IRAs):
~$350,000, currently all in tax-advantaged accounts, all in Vanguard index funds closely approximating desired asset allocation

Current retirement assets


Roth 401k/IRA: ~25% total (50% of hers, 10% of his)
Traditional 401k/IRA: ~75% total (50% of hers, 90% of his)


New annual Contributions
$17,500 his Roth 401k (+$900 employer matching contributions)
$17,500 her 401k (+$1500 employer matching contributions)
$5,500 his IRA/Roth IRA
$5,500 her IRA/Roth IRA
$0 taxable

Available funds

Funds available in his 401(k)
Best option, and where the money is now: Target 2045, holdings 63% VITSX (TSM index), 27% VTSIX (total international index), 10% VTBIX (total bond index); (can’t find info on true expense ratio, but lists an ‘investment management fee’ of 0.083%)
Next best option: Equity fund, large cap, 97.5% stock and 2.5% cash – can’t find much info about it or even ticker symbol -- 41% of holding is ten stocks including Exxon, Johnson & Johnson, Disney, Sigma-Aldrich, Chevron, Proctor & Gamble, IBM, Walmart, etc. (supposedly 0% as ‘fees’ paid by employer, but can’t find info on expense ratio, and overall returns have not been close to total stock market index)

Funds available in her 401(k)
Best option, and where the money is now: Vanguard Total Stock Market Index Signal (VTSSX) (0.06%)

1. STOCKS/BONDS: Is 99%/1% reasonable at this time? [The 1% bonds is due to his chosen 401k option.] We are 33 with another 25-30 years before retirement. I would rather be more aggressive earlier on to realize the historically higher gains of stocks. However, if we rebalanced regularly, would incorporating more bonds actually make more sense to take advantage of up/down markets? If so, is the total bond index a good way to start?
2. STOCK ASSET ALLOCATION: What suggestions would you have? My proposed allocation to me feels somewhat arbitrary. For some reason, I have in my head that value and small caps tilt is good (I think this comes from the influence of my fairly conservative father, who reads a lot, but whose advice may be outdated or unduly influenced). How do we determine what % international we should do? Should we go developed vs emerging, or Europe vs Pacific, or something else?
3. VALUE/GROWTH vs BLEND: If we don’t have enough money to qualify for the Admiral funds for the value and growth slices of each asset class, should we go with the Admiral Blend funds to take advantage of the lower expense ratios? Or is the possible advantage of better performance in one slice enough to balance out the increased expenses? We would likely rebalance annually (unless you all had different suggestions). Does a blend fund generally mean 50/50 value/growth?
4. ROTH VS TRADITIONAL: I still don’t understand all the rules regarding mandatory distributions and taxation in retirement. Again, it is a ways off for us and I’m not convinced rules won’t change. Likewise, converting a traditional to a Roth IRA down the road may be possible, but I’m not sure if it will make sense as we will be in a higher tax bracket for all of our career than we are now. I have heard that we want to have a variety of monies in Roth vs non-Roth accounts when we retire for flexibility purposes, though I’m not sure what the breakdown should end up being. Note our current distribution in the info above. Does is make sense for us to contribute to a Roth now while we aren’t phased out and while our marginal bracket is lower than it will be for the rest of our career?
5. NOTA BENE: At some point, we will likely need to add taxed accounts to our retirement savings, but at this point in time we just want to max out what we can with the tax-advantaged accounts. We also have not yet looked into HSAs, college savings plans, etc. We’re just trying to get a handle on where we are now before we research the next step. Hopefully I’ll be back sometime down the line to ask all those related questions.

Last edited by RinTinTin on Sun Mar 24, 2013 2:09 pm, edited 2 times in total.

Posts: 86
Joined: Sun Aug 15, 2010 9:08 pm

Re: ? about asset allocations for retirement planning

Post by phish_indexer » Sun Mar 24, 2013 1:16 pm

I'll focus on your first question. 99%/1% bonds does not make sense. If you're that comfortable with risk, then go 100% stocks, bump up the E-fund with that additional 1%, and forget about it. However, I don't think 100% (or 99%) stocks is sensible for many people. Was this your asset allocation in 2008/09? If so, how did you respond to the losses?

Posts: 9
Joined: Sun Mar 24, 2013 12:26 pm

Re: ? about asset allocations for retirement planning

Post by RinTinTin » Sun Mar 24, 2013 2:03 pm

The 1% bonds is due to the 10% bonds in his 401k Target Retirement plan.

I'm not sure why 100% stocks does not make sense. We won't need this money for 30 years. In 2008/2009, I didn't do anything because I figured it was retirement money and I would ride out the market -- and to be honest, I was busy with school, had no income, and wasn't paying attention to these things anyway.

Now that I'm learning more about regular rebalancing, I'm wondering if bonds is part of that mix just balance out the up/down markets. From what I understand, stocks return higher than bonds in the long run, so why not do all stocks now?

Posts: 34373
Joined: Thu Jan 10, 2008 12:56 pm

Re: ? about asset allocations for retirement planning

Post by retiredjg » Sun Mar 24, 2013 3:36 pm

Welcome to the forum!

This link will help you understand the function of bonds in a portfolio. http://www.bogleheads.org/forum/viewtopic.php?p=538014 I'd suggest that you have at least 20% of your portfolio in bonds.

I don't see the purpose of having both value and growth. You might as well just have blend. If you want to tilt to small cap and/or to value, just hold blend plus a little extra small and/or value.

In the 25% tax bracket, some people favor Roth 401k, but most seem to favor traditional. In the 33% bracket, use traditional.

If you want more specific suggestions, it would be helpful if you break down the accounts separately and include the other information requested in the link at the bottom of this message.

Posts: 11669
Joined: Fri Sep 18, 2009 1:10 am

Re: ? about asset allocations for retirement planning

Post by letsgobobby » Sun Mar 24, 2013 5:22 pm

99% stocks does not make sense. Compared to that issue, none of your other questions are all that relevant.

Posts: 9
Joined: Sun Mar 24, 2013 12:26 pm

Re: ? about asset allocations for retirement planning

Post by RinTinTin » Sun Mar 24, 2013 5:31 pm

Thanks for your help so far!

I don't have specific questions about funds at this time -- just trying to get a handle on asset allocation. Thanks for the link to the info about bonds - I was looking at it from a risk-perspective (which I'm not averse to) rather than a diversification perspective. I will have to do some more research to see where the stock/bond splits comfortably for me. My husband a little more risk-averse, which will of course also influence our portfolio. Of course, he's been earning a lot more money for a lot longer than I have, so he's worried about losing what he has, whereas I'm focused on earning what I haven't!

Posts: 9
Joined: Sun Mar 24, 2013 12:26 pm

Re: ? about asset allocations for retirement planning

Post by RinTinTin » Sun Mar 24, 2013 5:34 pm

Ok, say I decide on a 85/15 or 70/30 portfolio - whatever sits well with you all. (Haven't decided exact numbers yet, just putting that aside so we can discuss the rest.)

What about the relative allocation of the equities as listed above? Thanks.

Posts: 34373
Joined: Thu Jan 10, 2008 12:56 pm

Re: ? about asset allocations for retirement planning

Post by retiredjg » Sun Mar 24, 2013 7:18 pm

The usual suggestion would be to hold a market weighted portfolio - something that looks like the total stock market (US and foreign) and some broadly diversified bonds. Another common idea is to tilt toward something, usually small caps and or value stocks, but that is usually "by request" rather than a blind suggestion to someone we know little about and who might not be ready for that kind of portfolio.

Once you have an idea of what you want to hold, we usually find the best fund(s) in the work plan (401k, 403b, etc.) and go from there through the other accounts/funds available. That is because the work plan is often the most restricted account.

Your relative allocation doesn't make much sense to me, so I wouldn't recommend it. :happy

Long story short, we can't do much without the entire package of information requested for asking portfolio questions. Some general thoughts and ideas could be discussed, but they might not apply to you, so that might be of very limited value.

User avatar
Posts: 1208
Joined: Wed May 13, 2009 6:54 am

Re: ? about asset allocations for retirement planning

Post by sometimesinvestor » Sun Mar 24, 2013 8:02 pm

Congratulations on your baby and good luck. Its not clear how good your helth insurance is especially for things associated with birth , etc. If your insurance is great you may not need more in the emergency fund for awhile but if its only good your emergency fund could be increased. You might consider i bonds for a portion of the fund to give youa better return. If you feel your emergency fund is fine you may wish to consider paying off the student loan sooner rather than later. It seems the best way to get a safe 4.5% return.
Last edited by sometimesinvestor on Tue Mar 26, 2013 9:25 pm, edited 1 time in total.

Posts: 9
Joined: Sun Mar 24, 2013 12:26 pm

Re: ? about asset allocations for retirement planning

Post by RinTinTin » Sun Mar 24, 2013 8:16 pm

Thanks! Our health insurance is pretty good, and free! Will only have the plan for another year or so, though, when I finish this job and move on to the next. Will definitely need to have more in savings for a new-to-us car eventually, moving expenses, etc - but I think we can save that while still maxing out 401k/IRAs, as long as we can find reasonable child care. If only the grandparents lived close by! If the budget is tight, however, we're willing to cut back on the 401ks for a little bit.

I'm paying some of the loans off now, but not focusing on them as much. I managed to get the 6.8% ones out of the way last year, and that was a relief.

Thanks again to all of you for the insight. There is so much to learn... more than I had realized!

Post Reply