AA - Whatcha think - and how do I get there from here?

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Hashkaah
Posts: 8
Joined: Mon Nov 03, 2008 6:05 am

AA - Whatcha think - and how do I get there from here?

Postby Hashkaah » Mon Mar 20, 2017 3:37 pm

Currently, married 30-something with children. I'm a fan of David Swensen's book and made a modified version of his portfolio I'd like to hear your thoughts on - and how to get there from how I'm invested now.

Swensen said 30% in domestic equity, 15% in foreign developed equity, 5% in emerging equity, 20% in real estate, 15% in treasuries, and 15% in TIPS. I wanted to change it slightly for two reasons: (1) to lower the bond percentage to 20%, and (2) to carve out a small amount for me to put into other investments (sector ETFs, etc.).

Here's my draft (all in Roth IRAs):
Total Stock Market Index (VTI) - 31%
Developed Markets (VEA) - 17%
Emerging Markets (VWO) - 6%
REIT (VNQ) - 20%
TIPS (VIPSX) - 7%
Other bond component? (VLBTX? VWESX?) - 7%
Savings bonds & pension already paid into - 6%
Sector ETFs, etc - 6%

Also, up until now what will be 63% of my funds has been invested in the S&P 500 (VFIAX). I'm putting in a bunch of uninvested cash. But, to meet my new, lifelong asset allocation, should I sell off all of it to get into Total Stock Market (VTI) and the rest? Live with S&P 500 (VFIAX) instead of Total Stock Market (VTI), and just keep putting new cash in when I can to balance things out (which will take a few good years)?

Thanks!
Last edited by Hashkaah on Tue Mar 21, 2017 10:02 am, edited 3 times in total.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: AA - Whatcha think - and how do I get there from here?

Postby retiredjg » Mon Mar 20, 2017 4:24 pm

Posts written in ticker-speak may not get responses from people who don't want to look them up. The easier you make it to help you, the more help you will usually get. :happy

Hashkaah
Posts: 8
Joined: Mon Nov 03, 2008 6:05 am

Re: AA - Whatcha think - and how do I get there from here?

Postby Hashkaah » Mon Mar 20, 2017 4:27 pm

retiredjg wrote:Posts written in ticker-speak may not get responses from people who don't want to look them up. The easier you make it to help you, the more help you will usually get. :happy


Thanks. Updated.

retiredjg
Posts: 29220
Joined: Thu Jan 10, 2008 12:56 pm

Re: AA - Whatcha think - and how do I get there from here?

Postby retiredjg » Tue Mar 21, 2017 9:33 am

Thanks for the fund names.

A lot of questions come up. First, why is all your retirement money in Roth IRA? If you have a plan at work, your portfolio should start with the work plan and you should use the Roth IRAs to fill in the holes.

One of the reasons Swenson uses 60/40 could be that the stock portion of the portfolio is pretty risky. I'm not sure that dialing back to 20% bonds is a good choice. But it is not crazy stupid.

I think even Swenson has reduced REIT to 15%, but could be remembering it wrong. However, 20% in REIT seems like too much to me.

I doubt you need the sector ETFs.

If you prefer total stock to 500 index, or vice versa, either is fine so just pick what you like. Since this is Roth IRA you can sell and buy with no tax hit.

Hashkaah
Posts: 8
Joined: Mon Nov 03, 2008 6:05 am

Re: AA - Whatcha think - and how do I get there from here?

Postby Hashkaah » Tue Mar 21, 2017 9:42 am

retiredjg wrote:First, why is all your retirement money in Roth IRA? If you have a plan at work, your portfolio should start with the work plan and you should use the Roth IRAs to fill in the holes.

No work plan.

One of the reasons Swenson uses 60/40 could be that the stock portion of the portfolio is pretty risky. I'm not sure that dialing back to 20% bonds is a good choice. But it is not crazy stupid.

Is it more risky than other stock portions?

I doubt you need the sector ETFs.

Not a need. The 6% was just for me to play with a bit in areas that I think might benefit from extra emphasis.

If you prefer total stock to 500 index, or vice versa, either is fine so just pick what you like. Since this is Roth IRA you can sell and buy with no tax hit.

Any reason I should prefer one over the other?

Thanks for the responses, retiredjg! I'd be happy to hear any other opinions, too!

bloom2708
Posts: 2119
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: AA - Whatcha think - and how do I get there from here?

Postby bloom2708 » Tue Mar 21, 2017 9:44 am

Your portfolio feels gimmickee to me.

How about this. Start with (3 fund) Total US Stocks, Total International Stocks and Total US Bond.

Now (other than a book that is written to sell as many copies as possible), write down statements/reasons to deviate from this plan.

Examples:

Why pick S&P 500 over Total US Stock index? All 500 are in the Total US plus ~3,000 other stocks in mid and small cap
Why pick Developed + Emerging over Total International Stock index?
Why 20% REIT? 0-10% is a more common number for REIT
Why ETFs over Mutual Funds in a buy/hold investment plan?
Why sector funds? You are buying more of things (you already own) in the Total US stock index.
Etc.

If you can write down reasons that you know (that others do not know) to justify each replacement or substitution, then proceed. If not, revert back to the more simple/more diversified 3 fund plan.

The nice thing is, you can get all kinds of feedback and still do whatever you plan to do. America!

Good luck.
Last edited by bloom2708 on Tue Mar 21, 2017 10:10 am, edited 1 time in total.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead | | Want to buy something? Watch this first: https://vimeo.com/41152287

retiredjg
Posts: 29220
Joined: Thu Jan 10, 2008 12:56 pm

Re: AA - Whatcha think - and how do I get there from here?

Postby retiredjg » Tue Mar 21, 2017 9:59 am

Hashkaah wrote:
retiredjg wrote:First, why is all your retirement money in Roth IRA? If you have a plan at work, your portfolio should start with the work plan and you should use the Roth IRAs to fill in the holes.

No work plan.

Are you saving in a taxable account then? Saving only $5k a year is not enough for many people. And if you are in a higher tax bracket, you should probably use deductible contributions to tIRA rather than Roth IRA. This assumes you are single. If you are married the whole picture changes.


One of the reasons Swenson uses 60/40 could be that the stock portion of the portfolio is pretty risky. I'm not sure that dialing back to 20% bonds is a good choice. But it is not crazy stupid.

Is it more risky than other stock portions?

Yes, to a certain extent. REIT is riskier than the total stock market. I haven't read Swenson lately, but the 40% stocks may be to dampen the volatility of the extra REIT.


If you prefer total stock to 500 index, or vice versa, either is fine so just pick what you like. Since this is Roth IRA you can sell and buy with no tax hit.

Any reason I should prefer one over the other?

If you want to hold the whole market, you want total stock.

Hashkaah
Posts: 8
Joined: Mon Nov 03, 2008 6:05 am

Re: AA - Whatcha think - and how do I get there from here?

Postby Hashkaah » Tue Mar 21, 2017 10:02 am

Thanks for the reply, bloom2708.
bloom2708 wrote:Your portfolio feels gimmickee to me.

You say that like it's a bad thing :)

Why ETFs over Mutual Funds in a buy/hold investment plan?

I don't have to meet minimums. Fees are as low as Admiral shares, even in funds where I might have less than $10K.

Is there a reason to prefer mutual funds over ETFs?

The nice thing is, you can get all kinds of feedback and still do whatever you plan to do. America!

Good luck.

Exactly. Thanks!

Jack FFR1846
Posts: 4975
Joined: Tue Dec 31, 2013 7:05 am

Re: AA - Whatcha think - and how do I get there from here?

Postby Jack FFR1846 » Tue Mar 21, 2017 10:23 am

I would agree with bloom2708.

I always come back to the Bogle quote, why search for the needle in the haystack when you can buy the entire haystack.

What are REITs? They're stock. Equity. US Equity. Likely included in the S&P 500 and surely included in Total Stock. Buying REITs specifically is saying "I don't need more of this entire haystack, I'll just buy a few pieces of straw here".

Please explain more about this 6% to play around with. I see this as "I don't really need this 6% so I'll just throw it in the street". Personally, my play money goes into my normal allocation. When I want to play, I'll go looking for sign up bonuses (Fidelity, TDAmeritrade, Schwab, etc). This way, I get to "do something" which is against Bogle "don't do something, just stand there", but I'm still just standing there because the investment including the bonus still follows my buy and hold in my AA. There is a TON of playing around you can do like this for very little play money and you don't end up losing it on picking out straws.

After all those words, I will say that if you're living below your means, saving and using low cost funds, you're 99% there already. :)
Bogle: Smart Beta is stupid


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