Vanguard Balanced Index Fund In Retirement?

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rattlenap
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Vanguard Balanced Index Fund In Retirement?

Post by rattlenap »

I know John Bogle has often recommended the Vanguard Balanced Index Fund as your sole fund. Yet what if you're in retirement? Is the 60/40 a sound AA? I did a back test via Portfolio Visualizer starting from 2000 and on with a $1 million and a 4% withdraw rate. With both crashes during that decade and the 4% withdraw rate, you'd still have about $700k in 2017. Any thoughts?
Artisan
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Re: Vanguard Balanced Index Fund In Retirement?

Post by Artisan »

Nothing wrong withe this fund in retirement if you are comfortable with a 60/40 AA.

If you have both taxable and non taxable accounts the bond portion might be better off in the tax deferred portion with slightly lower expense ratios.

Taxable VTSAX 60%
Tax deferred VBTLX 40%

Other then that, a good set it and forget it fund.
Lou354
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Re: Vanguard Balanced Index Fund In Retirement?

Post by Lou354 »

Everyone's situation is different of course, but a lot of people go into retirement with a 60/40 AA. In your backtest, what would your balance have been in 2001 and in 2009? If you had been retired then would you have stayed the course at 60/40 or would you have gotten scared and shifted to a more conservative allocation?

I like the idea of an all-in-one fund for when I get older and for my spouse after I die. If you don't want international stocks, Vg Balanced is a fine choice. I want some int'l stocks, so I'll be using a different fund.
aristotelian
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Re: Vanguard Balanced Index Fund In Retirement?

Post by aristotelian »

Artisan wrote:Nothing wrong withe this fund in retirement if you are comfortable with a 60/40 AA.

If you have both taxable and non taxable accounts the bond portion might be better off in the tax deferred portion with slightly lower expense ratios.

Taxable VTSAX 60%
Tax deferred VBTLX 40%

Other then that, a good set it and forget it fund.
Or you could do a combination of Tax-Managed Balanced (VTMFX) in Taxable and plain ol' Balanced (VBIAX) in Tax-deferred/Roth.

As far as the allocation, I think it depends on how much cushion you have. If you are close to your "number" but you need every penny for income, you would be taking a big risk at 60/40. If you are well past your number and you can afford a correction, then 60/40 is no problem. If you have enough, you could be safe with 100/0.
zuma
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Re: Vanguard Balanced Index Fund In Retirement?

Post by zuma »

OP, I see that you asked a nearly identical question about the Balanced Fund a few weeks ago. :)

Is the Vanguard Balanced Index Fund all you need?

What else can we say? I agree that 60/40 could be a reasonable AA in retirement. It depends. Do you have the need/ability/willingness to risk 60% in stocks at this point in your life?
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1210sda
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Re: Vanguard Balanced Index Fund In Retirement?

Post by 1210sda »

aristotelian wrote: Or you could do a combination of Tax-Managed Balanced (VTMFX) in Taxable and plain ol' Balanced (VBIAX) in Tax-deferred/Roth.
This is a very good suggestion. Depending on the balance between Taxable and Tax-advantaged accounts, your AA would never be higher than 60/40, nor lower than 50/50.

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Re: Vanguard Balanced Index Fund In Retirement?

Post by Sandtrap »

Tilt Balanced Index with Total Bond to your preferred allocation?
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cfs
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Re: Vanguard Balanced Index Fund In Retirement?

Post by cfs »

Back from my LUng Distance Workout and ready to contribute my Dos Reales. I posted a reply to your previous question about the Vanguard Balanced Index Fund. Based on your posts you like this fund, and you want this fund. It is your money, your responsibility, your decision. Good luck and thanks for reading ~cfs~
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JoMoney
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Re: Vanguard Balanced Index Fund In Retirement?

Post by JoMoney »

rattlenap wrote:I know John Bogle has often recommended the Vanguard Balanced Index Fund as your sole fund. Yet what if you're in retirement? Is the 60/40 a sound AA? I did a back test via Portfolio Visualizer starting from 2000 and on with a $1 million and a 4% withdraw rate. With both crashes during that decade and the 4% withdraw rate, you'd still have about $700k in 2017. Any thoughts?
Somehow I got a different result in PV:
$1,000,000 in VBINX; Withdraw $40,000 inflation adjusted every year from Jan-2000 to Feb-2017:
PV Link

The first withdrawal at the end of 2000 would have been $-41,354.75
and the most recent withdrawal in 2016 would have been $-57,381.38 (nominal)
Portfolio Balance in Feb-2017 = $942,896

... but even if it was a $700k balance, you would have already had 17 years of withdrawals from one of the worst starting dates in recent history, and a pretty good chance that 30 years of withdrawals is still within range of the 4% SWR
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Kevin M
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Re: Vanguard Balanced Index Fund In Retirement?

Post by Kevin M »

rattlenap wrote:I know John Bogle has often recommended the Vanguard Balanced Index Fund as your sole fund. Yet what if you're in retirement? Is the 60/40 a sound AA? I did a back test via Portfolio Visualizer starting from 2000 and on with a $1 million and a 4% withdraw rate. With both crashes during that decade and the 4% withdraw rate, you'd still have about $700k in 2017. Any thoughts?
A 60/40 portfolio of US stocks and US bonds may be a "sound AA" for you, but not for me. Based on my ability, need and willingness to take risk, a 30/70 portfolio is a "sound AA" for me, and I don't use just US stocks and US bonds.
JoMoney wrote:Somehow I got a different result in PV:
$1,000,000 in VBINX; Withdraw $40,000 inflation adjusted every year from Jan-2000 to Feb-2017:
PV Link
Thanks for this link. For comparison, I added a portfolio of 30% total US stocks (VTSMX) and 70% intermediate-term investment grade bonds (VFICX), which is the bond fund I'd use in a tax-advantaged account if I used all bond funds for my fixed income (Admiral shares for these funds were not available in 2000, so I had to use investor shares). The 30/70 portfolio had an ending balance of 1,283,776, compared to 942,896 for 100% VBINX.

So, if we're going to use a backtest like this to decide, then my 30/70 portfolio is better than your 60/40 portfolio.

For kicks I tried the 30/70 with the intermediate-term Treasury fund (VFITX) instead of the investment-grade fund, and the results were comparable but not quite as good as with the investment-grade fund. Ending balance = 1,274,007 (although SD was lower and Sharpe was higher).

Backtest Portfolio Asset Allocation.

The thing is, I don't want to depend on backtests using a fairly limited sample size of historical data to decide on my AA in retirement (the probability based approach). Instead, I go with the safety first approach, and keep enough in relatively safe fixed-income assets to cover my expected residual living expenses in retirement, and I don't keep more in risky assets (like stocks) than I can justify based on my ability, willingness and need to take risk. VBINX does not meet these criteria for me.

Kevin
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CWRadio
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Re: Vanguard Balanced Index Fund In Retirement?

Post by CWRadio »

Kevin why did you choose VFITX Vanguard Intermediate-Term Treasury Fund and not the index? Thanks Paul
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Re: Vanguard Balanced Index Fund In Retirement?

Post by ruralavalon »

rattlenap wrote:I know John Bogle has often recommended the Vanguard Balanced Index Fund as your sole fund. Yet what if you're in retirement? Is the 60/40 a sound AA? I did a back test via Portfolio Visualizer starting from 2000 and on with a $1 million and a 4% withdraw rate. With both crashes during that decade and the 4% withdraw rate, you'd still have about $700k in 2017. Any thoughts?
I still think that is a good single fund portfolio for someone in retirement. In fact I am thinking of switching to that.
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highercall
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Re: Vanguard Balanced Index Fund In Retirement?

Post by highercall »

Try back testing vwelx (wellington) and vwinx (wellesley), they both outperformed balanced fund with less fluctuation.
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rattlenap
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Re: Vanguard Balanced Index Fund In Retirement?

Post by rattlenap »

highercall wrote:Try back testing vwelx (wellington) and vwinx (wellesley), they both outperformed balanced fund with less fluctuation.
Of course they did. Yet they are actively managed though. The balanced fund represents the broad U.S. stock and bond markets, is also an index fund and you know what you're going to get. So one would be better put taking the risk with this fund and getting market level returns than those actively managed ones.
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Kevin M
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Re: Vanguard Balanced Index Fund In Retirement?

Post by Kevin M »

CWRadio wrote:Kevin why did you choose VFITX Vanguard Intermediate-Term Treasury Fund and not the index? Thanks Paul
It's the Vanguard fund I see mentioned most often by Bogleheads who don't want to take any credit risk in their bond fund. Also, I'm not sure what you mean by "the index", but the only intermediate-term Vanguard index fund with essentially no credit risk is the Vanguard Intermediate-Term Government Bond Index Fund Admiral Shares (VSIGX), or the ETF share class of this fund, and inception for this fund was 8/4/2010 (11/19/2009 for the ETF), so no history back to 2000 as there is for VFITX and the other funds being discussed. This is the same reason I used investor shares instead of Admiral shares.

The main point is that sometimes any form of risk shows up, and sometimes taking the risk is rewarded. Over the particular 17-year period examined, equity risk showed up twice big time, and was not sufficiently rewarded the rest of the time to compensate in the given scenario compared to bonds. Bonds did much better than stocks for the 4% withdrawal scenario over this 17-year period--bonds alone did better than the 30/70 portfolios.

The secondary point is that credit risk was rewarded over this period, but due to the negative correlation of Treasuries to stocks in late 2008 (primarily, I think), combining Treasuries with stocks in a 30/70 portfolio trailed combining investment-grade bonds with stocks by less than just Treasuries trailed just investment-grade bonds. Here are terminal values to illustrate:

1,396,598 VFICX (only)
1,283,776 VTSMX/VFICX (30/70)
1,275,906 VFITX (only)
1,274,007 VTSMX/VFITX (30/70)
942,896 VBINX (only)
564,086 VTSMX (only)

As a side note, unlike for the 2007-2009 drop in stocks, when credit risk showed up along with equity risk, for the 2000-2003 drop in stocks, investment-grade bonds had nice positive returns, helping to offset the losses in stocks, although Treasuries did do slightly better during this period.

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Re: Vanguard Balanced Index Fund In Retirement?

Post by radiowave »

You really can't go wrong w VG Total Stock VTSAX and Total Bond VBTLX. You'll save approx 2 basis points and have more flexibility in adjusting asset allocation and placement of funds. But if you really want to fire and forget, go for it.
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Re: Vanguard Balanced Index Fund In Retirement?

Post by lostdog »

I come out and admit that alot of times I get hit with analysis paralysis when I come here. Especially the domestic and international argument and asset allocation. How do I know which is better and I actually thought I did but I was constantly talking myself into it.

We decided to go with Life Strategy Growth and be done with it. We will trust Vanguard's expertise and we'll move on. Our goal is SIMPLICITY moving forward. I am done with domestic vs international argument.

When we're close to retirement we'll review our goals and at the right time move to LS Moderate Growth or LS Conservative Growth.

Do you find yourself with analysis paralysis and need alot of opinions about your plan to stay the course?

Simplicity...
Brokerage: VTI+VXUS || Retirement: VTWAX || Short-Term: Cash+BSV || 33x Expenses
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DG99999
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Re: Vanguard Balanced Index Fund In Retirement?

Post by DG99999 »

JoMoney wrote:
rattlenap wrote:I know John Bogle has often recommended the Vanguard Balanced Index Fund as your sole fund. Yet what if you're in retirement? Is the 60/40 a sound AA? I did a back test via Portfolio Visualizer starting from 2000 and on with a $1 million and a 4% withdraw rate. With both crashes during that decade and the 4% withdraw rate, you'd still have about $700k in 2017. Any thoughts?
Somehow I got a different result in PV:
$1,000,000 in VBINX; Withdraw $40,000 inflation adjusted every year from Jan-2000 to Feb-2017:
PV Link

The first withdrawal at the end of 2000 would have been $-41,354.75
and the most recent withdrawal in 2016 would have been $-57,381.38 (nominal)
Portfolio Balance in Feb-2017 = $942,896

... but even if it was a $700k balance, you would have already had 17 years of withdrawals from one of the worst starting dates in recent history, and a pretty good chance that 30 years of withdrawals is still within range of the 4% SWR
One example would be simply taking the end value of $943k along with an initial withdrawal of ~$59k then just re-run the same simulation period commencing in 2000 "again". The portfolio fails after just over 17 (additional) yearly withdrawals - so you are achieving about 35 years of income while hypothetically experiencing the "Aughts Decade" twice. (and even using a $700k starting value for the second simulation you get nearly 29 years of income before the portfolio is exhausted).
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.
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Re: Vanguard Balanced Index Fund In Retirement?

Post by Christine_NM »

Based on this thread I was running PV and, as always, the time period matters a lot.

VBINX looks like a loser when you start in 2000. I moved the start year to 2004, my retirement year, and suddenly everything looked different. Beware back testing.
18% cash 44% stock 38% bond. Retired, w/d rate 2.5%
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stemikger
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Re: Vanguard Balanced Index Fund In Retirement?

Post by stemikger »

rattlenap wrote:I know John Bogle has often recommended the Vanguard Balanced Index Fund as your sole fund. Yet what if you're in retirement? Is the 60/40 a sound AA? I did a back test via Portfolio Visualizer starting from 2000 and on with a $1 million and a 4% withdraw rate. With both crashes during that decade and the 4% withdraw rate, you'd still have about $700k in 2017. Any thoughts?
I plan to do the same thing mainly for my wife. She has no interest in investing and I told her to just keep it all in this fund and take 3% out of it every year. On a bad year, I will only take out 2% but I'm conservative so I don't think I will ever take out 4%.

Jack has often said, just hold this one fund. Investing doesn't get much better and it works. If it's good enough for his Grandchildren, it's good enough for me.

If it was just me, I'd own the two separate funds.
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rattlenap
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Re: Vanguard Balanced Index Fund In Retirement?

Post by rattlenap »

Christine_NM wrote:Based on this thread I was running PV and, as always, the time period matters a lot.

VBINX looks like a loser when you start in 2000. I moved the start year to 2004, my retirement year, and suddenly everything looked different. Beware back testing.
The reason I started right in 2000 is that was during the .com crash. Couple this with the 2008 crash and I wanted to see if withdrawing from this fund during one of the worst decades in market history, if one would still come out on top and have enough money in the long run. And of course they would.
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