Does my portfolio make zero sense (in its current state)?

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throwaypf
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Does my portfolio make zero sense (in its current state)?

Post by throwaypf » Thu Sep 17, 2015 7:34 pm

edit: thanks, all!
Last edited by throwaypf on Tue Sep 06, 2016 12:43 pm, edited 1 time in total.

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saltycaper
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Re: Does my portfolio make zero sense (in its current state)?

Post by saltycaper » Thu Sep 17, 2015 8:17 pm

Welcome.

Selecting a Vanguard Target Retirement fund for your IRA makes sense.

The biggest difference between the target date funds is the percentage of the portfolio devoted to stocks and the percentage devoted to bonds. The stock/bond allocation is one of the most impactful investment decisions you will make (in addition to savings rate and picking a fund with low expenses).

While selecting a fund based on your projected retirement date is a good start, you should see if the stock/bond allocation is actually what you want it to be. This would also help you decide if you want to add any other funds or not.

A good place to start thinking about asset allocation is the Bogleheads Wiki: http://www.bogleheads.org/wiki/Asset_allocation

Currently, the 2050 fund is made up of about 55% percent Total US Stock Market. This fund is dominated by the companies in the S&P 500, so I do not think it would make sense to add VFINX to your holdings.
Quod vitae sectabor iter?

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elgob.bogle
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Re: Does my portfolio make zero sense (in its current state)?

Post by elgob.bogle » Thu Sep 17, 2015 8:19 pm

Welcome to the forum. What you are doing makes perfect sense. When you are young and just starting out with investments, 100% or nearly 100% equities is usually recommended. Over time, the % of equities should go down and the % of fixed income should go up. Good luck.

elgob

yosef
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Re: Does my portfolio make zero sense (in its current state)?

Post by yosef » Thu Sep 17, 2015 8:42 pm

Agreed perfect sense. The whole point of the TR funds is to be a one stop shop. Once you start throwing other funds in the mix it's harder to keep track of exactly what your AA is.

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saltycaper
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Re: Does my portfolio make zero sense (in its current state)?

Post by saltycaper » Thu Sep 17, 2015 8:59 pm

While target date funds are designed to be all-in-one funds, I think it's good for new investors to consider their own asset allocation and risk tolerance so that in 5-10 years, when their portfolios are larger, and perhaps there is a market correction or even a bear market, they aren't shocked when they login to their account. Picking a different target date than one's actual expected retirement may make sense. Or one could supplement with an additional fund or two. The latter option may be preferable if tax-advantaged space is not enough to accommodate the entire portfolio.

For now, you made a very sensible selection, OP.
Quod vitae sectabor iter?

throwaypf
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Re: Does my portfolio make zero sense (in its current state)?

Post by throwaypf » Thu Sep 17, 2015 9:26 pm

Thank you for all the replies so far!

In theory I don't have a problem with a 90/10 allocation at this stage of my life, but I would also be fine with something a bit more conservative (like 80/20). Since both my Roth IRA and Rollover IRA are Target Date 2050 (90/10), what would you say the pros and cons are of switching one of them to Target Date 2035, which is officially 82/18? I know the funds inside these portfolios are the same, but obviously the results would change because the allocations are different.

Just trying to learn how slightly different choices of this nature could potentially make an impact (whether good, bad, or insignificant). I appreciate all the feedback and info -- thanks!

chessmannextmove
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Re: Does my portfolio make zero sense (in its current state)?

Post by chessmannextmove » Thu Sep 17, 2015 9:36 pm

throwaypf wrote:Hi Everyone,

Just had a quick question, but I'll give you some background info. I just turned 27 and recently started a new job in the $55-60K range. For the past two years my salary was $40-45K per year, and I was contributing 5% to my 401k to get the employer match. However, the 401k was with Voya and the choices and expense ratios were not good, so I wanted to move the funds to a Rollover IRA.

Switching gears for a moment -- in 2013 I opened a Vanguard Roth IRA, 100% allocated to VFIFX Vanguard Target Retirement 2050. Since I like Vanguard and already had the Roth account there, I opened the Rollover IRA account and decided to make it 100% VFIFX Vanguard Target Retirement 2050 as well.

So, for the past few months I've had a Roth IRA (approx. $12K) and a Rollover IRA (approx. $7K) that are both 100% allocated to the same fund. Does this make zero sense, especially thinking long term? Should I consider mixing it up a bit with more specific funds like VFINX?

I guess my main question is: given my specifics, what changes would you recommend making now/later? Thank you for the advice!

EDIT: Also -- I'm married, no school loans/debts, emergency fund is already taken care of.
No additional funds are necessary. TD2050 is a great portfolio.

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David Jay
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Re: Does my portfolio make zero sense (in its current state)?

Post by David Jay » Thu Sep 17, 2015 9:40 pm

My 29 YO daughter is in TR2050. A few notes:

1. Higher stock AA will result in higher yields over the long haul.
2. Higher bond AA will result in lower volatility (price movements).

My take: If you can ride the waves, stay with 2050. You will experience perhaps 5-6 big (30% level) pullbacks in the stock market over your working career. You have to be ready to "stay the course" during those times. If not, back down to TR2040 or TR2035, but realize that the long-term gain will almost certainly be lower.

Remember that TR funds change the allocation over time by design. 2035 is 82% stocks now but that stock percentage will decrease over time.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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saltycaper
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Re: Does my portfolio make zero sense (in its current state)?

Post by saltycaper » Thu Sep 17, 2015 9:40 pm

I would not use two all-in-one funds, as that does get complicated.

I would stick with 2050 and add an intermediate term bond fund. Vanguard Intermediate-Term Bond Index and Vanguard Total Bond Market Index are common here. I use neither, but that doesn't matter.

Or, while you think about it more, you can get from 90/10 to 80/20 by holding some cash in a high-yield saving account or CD and treating it as part of your fixed income/bond holdings. This site is useful for finding good rates: https://www.depositaccounts.com/

Another option: Vanguard LifeStrategy Growth Fund (VASGX). This fund is 80/20 and should stay there. You would change to a different fund when you want to change your allocation. (There are other LifeStrategy funds with different allocations.)
Quod vitae sectabor iter?

throwaypf
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Re: Does my portfolio make zero sense (in its current state)?

Post by throwaypf » Fri Sep 18, 2015 11:53 am

edit: thanks, all!
Last edited by throwaypf on Tue Sep 06, 2016 12:43 pm, edited 1 time in total.

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saltycaper
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Re: Does my portfolio make zero sense (in its current state)?

Post by saltycaper » Fri Sep 18, 2015 12:58 pm

I recommend considering the portion of your inheritance that you wish to invest long-term (> 10 years) as part of your retirement portfolio, even though it's not in a tax-advantaged account. By separating the two, you may be deceiving yourself about how much risk you are willing to take. If you are okay with 90/10 in your retirement account, but only because you have this large pile of cash outside the account, then I don't think you really are okay with 90/10.

You can look at your emergency fund as a separate fund. You can look at a portion of the inheritance that maybe you want to save for a down payment on a house or other large purchase in the near future (to me, < 10 years) as a separate fund. But the rest you should look at alongside the money in your IRAs when considering your asset allocation. In other words, your portfolio isn't the just the money in your IRAs. It's all of the money you wish to invest long-term, some of which is in an IRA, and some of which is not. The money you wish to invest outside of your IRAs would go in a brokerage account. (You can open a brokerage account at Vanguard.)

If you follow that suggestion, you now have a significant portion of your portfolio outside of tax-advantaged, IRA space. To keep things tax-efficient, you may want to use a 3-fund portfolio instead of an all-in-one fund. Something like Vanguard Total Stock Market Index Fund, Vanguard Total International Stock Index Fund, and either Vanguard Total Bond Market Index Fund or Vanguard Intermediate-Term Bond Index Fund.

Now, how to divide these funds among your IRA and brokerage accounts? Check out these two Wiki articles for pertinent information:

http://www.bogleheads.org/wiki/Principl ... _placement

(The whole page is worth reading, but the section, "Tax efficiency of balanced funds" is why you many not want a balance, target date, or lifestrategy fund in a taxable account.)

Also:

http://www.bogleheads.org/wiki/Asset_al ... e_accounts

You should research this a bit and post back on the forum with any questions. Don't worry about making too many inquiries.

As for what to do with the money you don't invest long-term, FDIC-insured high-yield savings accounts and CDs currently offer the most compelling rates in my opinion. I would definitely move the money earning .10% to a different savings account or to CD(s). Consider laddered CDs - search forum/Wiki for strategies. A short-term bond fund is sometimes used, but since yields are not much better than savings/CDs, it's hard to recommend them. Investment-grade intermediate-term bond funds have higher rates and may be appropriate for money needed in 5-10 years, but you are taking more of a risk because of fluctuations due to interest rates.
Quod vitae sectabor iter?

pkcrafter
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Re: Does my portfolio make zero sense (in its current state)?

Post by pkcrafter » Fri Sep 18, 2015 3:03 pm

throwaypf, your inherited money is the elephant in the room. You have to include it and build a long term portfolio using that money. But first, you said something about risk tolerance that is in conflict with what you have in your other accounts, so it may be that you are more risk averse than you think. At any rate, do not compartmentalize parts of your overall portfolio. Use the links provided by saltycaper and see if you can come up with an overall asset allocation. If not, more posting and more reading.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

throwaypf
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Re: Does my portfolio make zero sense (in its current state)?

Post by throwaypf » Sun Sep 20, 2015 10:14 pm

Thank you, saltycaper and pkcrafter!

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