LifeStrategy "Ladder"

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gvsucavie03
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LifeStrategy "Ladder"

Post by gvsucavie03 »

I just used this on another tread, but for those interested in using LifeStrategy funds as a total portfolio but wish to do so incrementally, here is the ladder.

It works well for those that wish to hold more bonds early on versus Target Retirement (90/10) and also for those that wish to "stop" along the way at a different AA than with one of the LS funds or Target Retirement Income.

If you are "Age in Bonds" or any variation (-5, -10, -15, -20), the same principle applies. For every year, you move down 5% in your allocation to the next LS fund. For example, one wishing to move down from a total portfolio of 80/20 to 75/25 would move down 5% each year from LS Growth to LS Moderate Growth (95/5, 90/10, 85/15, 80/20, then 75/25 on the 5th year).

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Desired  LifeStrategy Funds to use			
80/20	LS Growth			
75/25	75/25 LS Growth/LS Moderate Growth			
70/30	50/50 LS Growth/LS Moderate Growth			
65/35	25/75 LS Growth/LS Moderate Growth			
60/40	LS Moderate Growth			
55/45	75/25 LS Moderate Growth/LS Conservative Growth			
50/50	50/50 LS Moderate Growth/LS Conservative Growth			
45/55	25/75 LS Moderate Groth/LS Conservative Growth			
40/60	LS Conservative Groth			
35/65	75/25 LS Conservative Growth/LS Income			
30/70	50/50 LS Conservative Growth/LS Income			
25/75	25/75 LS Conservative Growth/LS Income			
20/80	LS Income			
John Z
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Re: LifeStrategy "Ladder"

Post by John Z »

Thank you for this. Am considering LS for when we are older and don't want to slice and dice our 7 funds.
Louis Winthorpe III
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Re: LifeStrategy "Ladder"

Post by Louis Winthorpe III »

I like this suggestion.
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gvsucavie03
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Re: LifeStrategy "Ladder"

Post by gvsucavie03 »

I think a really cool thing about this is that, assuming you are contributing to the exact percentages allocated each month, you are virtually guaranteed to remain at that allocation for as long as you wish (unless Vanguard changes things...). Target retirement is constantly moving once it begins to shift to a more conservative portfoilo and some of us don't want it to do that (especially down to 30/70).

Only drawbacks I could see happening - no intermediate corporate bonds, TIPS, REITS, SCV or other "tilts" that are common on this forum.
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hoppy08520
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Re: LifeStrategy "Ladder"

Post by hoppy08520 »

Good thread. I added a link to this thread in the LifeStrategy wiki page.
sambb
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Re: LifeStrategy "Ladder"

Post by sambb »

I like the concept, but it is much easier to do it with just two funds - LS growth and LS income - and you can get the proper mix over time.
I do this in my tax deferred portfolio. Don't need the rest of the intermediaries. For the truly interesting - you could mix LS growth and Target retirement income for a different way to allocate. I haven't done that, but think about it - interesting...
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gvsucavie03
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Re: LifeStrategy "Ladder"

Post by gvsucavie03 »

I do agree that LS Growth and LS Income would be WAY easier. LS and TR mixed would be quite interesting.... TR does include some inflation-protection not seen in LS, so that would be an "easy" way to have that without being too conservative.
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Jay69
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Re: LifeStrategy "Ladder"

Post by Jay69 »

This is one of those things that I think Vanguard could improve on, provide a static AA at 10% steps.
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Topic Author
gvsucavie03
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Re: LifeStrategy "Ladder"

Post by gvsucavie03 »

LS Ladder using only LS Growth and LS Income:

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Target	LS Growth	LS Income
80/20	100	0
75/25	91.6	8.4
70/30	83.3	16.7
65/35	75	25
60/40	66.6	33.4
55/45	58.3	41.7
50/50	50	50
45/55	41.6	58.4
40/60	33.3	66.7
35/65	25	75
30/70	16.6	83.4
25/75	8.3	91.7
20/80	0	100
As you can see, doing a gradual shift each year would be a little less simple mathematically, but you'd only ever have to use two funds (8.33% change for every 5% change in target allocation is about 1.67% shift from one fund to another each year in this model).

I'll work on something that includes LS Growth plus TR Income, as I think sambb had a good point.
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ObliviousInvestor
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Re: LifeStrategy "Ladder"

Post by ObliviousInvestor »

gvsucavie03 wrote:I think a really cool thing about this is that, assuming you are contributing to the exact percentages allocated each month, you are virtually guaranteed to remain at that allocation for as long as you wish (unless Vanguard changes things...).
You would still have to rebalance.

Imagine that you split your portfolio 50/50 between Part A and Part B, with Part A being 80% stock, 20% bond, and Part B being 60% stock, 40% bond. At the moment, you have a 70/30 allocation.

But Part A and Part B will have nonidentical performance. So while Part A will continue to be 80/20 and Part B will continue to be 60/40, there will no longer be a 50/50 split between them in your portfolio.
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Topic Author
gvsucavie03
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Re: LifeStrategy "Ladder"

Post by gvsucavie03 »

ObliviousInvestor wrote: You would still have to rebalance.
Correct. However, if an investor were to gradually allocate fewer stocks each year like in the model, that would take care of this issue. I agree that a 50/50 allocation using LS funds is not "locked in forever." Thank you for clarifying. Obviously the LS Growth will outperform LS Income when large caps are hot, so that'll knock off your desired AA.

This is still a very simple, highly-diversified 2-fund portfolio that requires some maintenance. I don't know if I'd ever be comfortable in just one fund.
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gvsucavie03
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Re: LifeStrategy "Ladder"

Post by gvsucavie03 »

LS Growth and TR Income "Ladder" -

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AA	LS Growth	TR Income
80/20	100	0
75/25	90	10
70/30	80	20
65/35	70	30
60/40	60	40
55/45	50	50
50/50	40	60
45/55	30	70
40/60	20	80
35/65	10	90
30/70	0	100
This is very easy to manage annually if you are an "Age in Bonds" person (-5,-10,-15,-20 works too). If you move down a percentage point per year in stock allocation, you'd need to rebalance the 2 funds by 2%. For example, a shift from 80/20 to 75/25 over 5 years would be 98/2, 96/4, 94/6, 92/8, 90/10. You'd need a minimum balance of $50,000 to make this work ($1,000 minimum for TR Income).
sambb
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Re: LifeStrategy "Ladder"

Post by sambb »

The advantage of the LS growth/ TR income is that you get some tips. I like this mix and i think it is a very nice way to go in a tax deferred account. I am going to switch my acct this week maybe.
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gvsucavie03
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Re: LifeStrategy "Ladder"

Post by gvsucavie03 »

sambb wrote:The advantage of the LS growth/ TR income is that you get some tips. I like this mix and i think it is a very nice way to go in a tax deferred account. I am going to switch my acct this week maybe.
One would end up with 16.8% TIPS at a max... obviously one would have more as one nears the 30/70 allocation. At 50/50,TIPS would be 8.4% of the hypothetical portfolio. One could hold more TIPS by using a LS mix + TIPS instead. To achieve a 50/50 allocation with 50% of bond holdings as TIPS, one would use roughly 67/33 in the "LS Ladder" plus 25% TIPS. One would gain Admiral shares of the TIPS fund faster than using the "LS Ladder" than having TR Income fund in the mix.
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LadyGeek
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Re: LifeStrategy "Ladder"

Post by LadyGeek »

New member lovetohike is asking about this strategy, which I've moved into a new thread: LifeStrategy "Ladder" [Portfolio help]
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jfave33
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Re: LifeStrategy "Ladder"

Post by jfave33 »

Seems complicated to use a simple set of funds in a complicated way. Just choose the 3 funds and do it yourself. Or add bonds to one LS fund.
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