100% VTSAX need advice [Vanguard Total Stock Market]

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topspin70
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100% VTSAX need advice [Vanguard Total Stock Market]

Post by topspin70 » Tue May 16, 2017 6:13 pm

I'm 47 years old and planning to move all my investments (approximately 950,000 US dollars) to VTSAX. I have tried Dividend Growth investing and I think I can sleep better by doing index fund. DGI is consuming a lot of my time.

JLCollins in his book recommended a mix of VTSAX an VBLTX. Since I'm planning to work for the next 10 years I don't see the need to have Bond allocation.
I would like to know the advantages and disadvantages of this approach.
Thanks!

MotoTrojan
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Re: 100% VTSAX need advice

Post by MotoTrojan » Tue May 16, 2017 6:29 pm

topspin70 wrote:I'm 47 years old and planning to move all my investments (approximately 950,000 US dollars) to VTSAX. I have tried Dividend Growth investing and I think I can sleep better by doing index fund. DGI is consuming a lot of my time.

JLCollins in his book recommended a mix of VTSAX an VBLTX. Since I'm planning to work for the next 10 years I don't see the need to have Bond allocation.
I would like to know the advantages and disadvantages of this approach.
Thanks!


US Markets are highly overvalued so going 100% seems aggressive, especially at 47 years old. 10 years means nothing; if the market goes down 50%, you have lost almost $500,000. Are you contributing $50K/yr after tax? That is what it would take to just break even, not including inflation.

Bonds makes sense, somewhere around 25-40%. Also I would suggest a 20-40% allocation (of equity) in International; VTIAX is my preference, given that its index has better coverage and includes small-caps and emerging market (at market weight).

You may want to do some more research on bond funds, I believe Total Bond Market is the most common if you want to hold a single fund. Long-term bonds have a lot of risk, especially in a low interest rate situation. Total Bond will give you more diversification.

What I have described is commonly called the 3-fund portfolio are here.

123
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Re: 100% VTSAX need advice

Post by 123 » Tue May 16, 2017 6:40 pm

If unexpected life events cause you to become permanently "retired" in a 50 percent market decline would your assets be sufficient?
The closest helping hand is at the end of your own arm.

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oldzey
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Re: 100% VTSAX need advice

Post by oldzey » Tue May 16, 2017 6:46 pm

I'm 49 years old and my asset allocation (AA) is 60% equities (VTSAX and TIEIX) and 40% fixed income (TIAA Traditional).

After much experimentation, my 60:40 AA is the "sweet spot" - it helps me to sleep well at night and tinker less with my portfolio.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

EdLaFave
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Re: 100% VTSAX need advice

Post by EdLaFave » Tue May 16, 2017 7:26 pm

From my point of view, this is more of an internal question than something anybody can help you with.

You obviously know stocks can lose half their value and take years maybe more than a decade to recover. You know we're on a 10 year bull market. You know your lifestyle, fallback plans, etc...so can you financially and emotionally afford to lose half a million? Is there a spouse to rely on in that case? Are you comfortable postponing retirement? How likely are you to become disabled? Serious introspection is necessary.

...statistically speaking, I'm not sure you can find many 10 year windows where a 100% stock portfolio was a bad move. Doesn't mean it is the smart thing to do though, doesn't mean it is the dumb thing to do either.

dbr
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Re: 100% VTSAX need advice

Post by dbr » Tue May 16, 2017 7:39 pm

It is not a a question of advantages and disadvantages. It is a question of personal preference and judgement regarding how your investment choices suit your objectives. The best discussion I know of about this is Larry Swedroe's concepts of need, ability, and willingness to take risk. I don't doubt an up to date discussion of this can probably be found in one or another of his recent books, though I don't keep up with everything he has published.

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Re: 100% VTSAX need advice

Post by joe8d » Tue May 16, 2017 8:18 pm

I like the idea.
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TheTimeLord
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Re: 100% VTSAX need advice

Post by TheTimeLord » Tue May 16, 2017 8:23 pm

MotoTrojan wrote:US Markets are highly overvalued so


You state this like it is a fact not merely your opinion.
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jhfenton
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Re: 100% VTSAX need advice

Post by jhfenton » Tue May 16, 2017 8:31 pm

My wife and I are 47, have a portfolio just slightly smaller than yours, and plan to work 10-15 more years. We are 85.6% equities, 14.4% fixed income, 50/50 US/Intl on the equities side, heavily tilted to small value in the U.S., and heavily tilted to small and emerging markets on the international side.

So all in all, we're fairly aggressive now, and we were 100% equities until 2015 (age 45). But I would never in a million years be comfortable with 100% VTSAX. That's way too much concentration in U.S. large cap stocks for my taste. (We barely own any U.S. large cap stocks.)

saltz1979
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Re: 100% VTSAX need advice

Post by saltz1979 » Tue May 16, 2017 8:35 pm

This is a good read and should have discussion http://www.physicianonfire.com/bonds1/

MotoTrojan
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Re: 100% VTSAX need advice

Post by MotoTrojan » Tue May 16, 2017 8:49 pm

TheTimeLord wrote:
MotoTrojan wrote:US Markets are highly overvalued so


You state this like it is a fact not merely your opinion.


Apologies, lets try again. In my opinion, indexes are most easily evaluated based on the ratio between price and earnings, as that is what is being paid for with buy-and-hold. Based on past year earnings, and Cape-Shiller PE10, P/E ratios are at historic highs, only ever seen before some of the largest (and most recent) economic crashes. PE10 predicts a 4% pre-inflation return for the next 10 years. Having said that, some respected people (like Buffett) feel this is simply an artifact of artificially low interest rates. Comparatively, developed ex-us countries are closer to the median Cape-Shiller PE10, with Emerging Markets considerably below the median.

Having said that, I like to be more optimistic, and thus hold 55% Total US Stock Market, and 20% US Small-cap Value. Nobody knows what will happen tomorrow. But I still think holding only US equities at this time is a poor decision.

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Re: 100% VTSAX need advice

Post by bloom2708 » Tue May 16, 2017 8:59 pm

jhfenton wrote:...But I would never in a million years be comfortable with 100% VTSAX. That's way too much concentration in U.S. large cap stocks for my taste. (We barely own any U.S. large cap stocks.)


This would not be standard Bogleheads advice either. Barely owning any large cap US does not seem logical to me.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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TheTimeLord
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Re: 100% VTSAX need advice

Post by TheTimeLord » Tue May 16, 2017 9:05 pm

bloom2708 wrote:
jhfenton wrote:...But I would never in a million years be comfortable with 100% VTSAX. That's way too much concentration in U.S. large cap stocks for my taste. (We barely own any U.S. large cap stocks.)


This would not be standard Bogleheads advice either. Barely owning any large cap US does not seem logical to me.


Or to Bogle or Buffet.
Run, You Clever Boy!

EdLaFave
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Re: 100% VTSAX need advice

Post by EdLaFave » Tue May 16, 2017 9:17 pm

MotoTrojan wrote:I like to be more optimistic, and thus hold 55% Total US Stock Market, and 20% US Small-cap Value...I still think holding only US equities at this time is a poor decision.


I think most would agree that holding only US equities is bad regardless of what the market may be doing...although I get the sense the OP is more concerned with stocks vs bonds rather than us stocks vs international stocks.

The talk about price/earnings ratios is an argument against holding US equities, not an argument for diversification.

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TheTimeLord
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Re: 100% VTSAX need advice

Post by TheTimeLord » Tue May 16, 2017 9:32 pm

EdLaFave wrote:
MotoTrojan wrote:I like to be more optimistic, and thus hold 55% Total US Stock Market, and 20% US Small-cap Value...I still think holding only US equities at this time is a poor decision.


I think most would agree that holding only US equities is bad regardless of what the market may be doing...although I get the sense the OP is more concerned with stocks vs bonds rather than us stocks vs international stocks.

The talk about price/earnings ratios is an argument against holding US equities, not an argument for diversification.

http://www.morningstar.com/cover/videoc ... ?id=718644

Christine Benz: How about foreign equities? Given starting valuations, especially in emerging markets, do you see that they might have some return premium versus U.S. equities?

Jack Bogle: Well, that's what the marketplace is telling us. Foreign equities and, particularly, emerging markets are deemed to be cheap. They're selling at lower P/Es--that's clear. The dividend yield isn't a lot higher, but it's probably a little bit higher. But I just think the outlook is so uncertain, given this upheaval in the world economy. If they are importers, they've got a problem; if they are exporters, they've got a problem. Look at poor Australian with China not buying all those natural resources from them anymore--or buying them in tiny amounts.

So, I don't do international. And emerging markets is a little separate part of so-called "international." We're wonderful in America--we call non-U.S. funds international. Where's the U.S.? (Laughs.) They are really non-U.S. funds--non-U.S. portfolios. I probably talked about this a year ago. I say, "What are you buying?" There is such a thing as oversimplifying--this coming, of course, from the great simplifier. People say, "Buy the EAFE Index or the FTSE International Index." So, [I tell people to drill down into that index]. What are you buying? Look behind the curtain. Your largest investment is Britain. Your second-largest investment is Japan. Your third-largest investment is France.

What, Christine, I ask you, is the possibility that those three nations are going to outpace the U.S. in terms of investment return in the next 10 years? I just don't think it's possible. And those countries may be the better ones. Each one has its own set of troubles. We've got plenty of troubles over here in the U.S. But at least we know that we have the most innovative economy, the most productive economy, the most technologically advanced economy, the most diverse economy in the world. And we also have shareholder protections that can be taken for granted. Outside of the U.S., you can be very disappointed. I think it was in Malaysia a few years ago--you couldn't get your money out. Korea is a bit fragile in that regard. Heaven knows what China would do under those circumstances. But if you don't have the basic institutional structure for the markets and the basic protection of shareholder rights that we've had institutionalized over 250 years here, you want to be very careful before you depart that.
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topspin70
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Re: 100% VTSAX need advice

Post by topspin70 » Tue May 16, 2017 10:32 pm

I'm ok for the VTSAX to go down 50%. I can just keep working.
Is my total return will be affected if I make it 75% VTSAX and 25% VBLTX?

I also have disability insurance at my current work.

Thank you All for the recommendations!!!

EdLaFave
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Re: 100% VTSAX need advice

Post by EdLaFave » Tue May 16, 2017 10:44 pm

topspin70 wrote:my total return will be affected if I make it 75% VTSAX and 25% VBLTX?


Adding bonds will decrease expected returns but buy you stability. If you search these forms you'll find discussions about how adding a small amount of bonds (can't remember how much, 10% maybe) will actually increase your risk adjusted returns.

Of course nobody knows what split will give optimal results. It is a very personal decision based on your financial and emotional ability to take risk and handle the reality of loss.

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Re: 100% VTSAX need advice

Post by radiowave » Tue May 16, 2017 10:49 pm

75/25 at your age seems reasonably if not slightly aggressive . If you look at the 10 yr graphs at Vanguard for VTSAX (https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT) took about 3 years to get back to where it was before the 2009 crash. So about 50% decrease in unrealized gains for 3 or so years. If that means you'll work an additional 3 years past your anticipated retirement date to see your assets recover, then go for it. A lot depends on what your retirement looks like. If you can meet most of your basic expenses with social security, dividends/interest, and a pension, then you can ride out the storm if it hits right before or when you retire.

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TD2626
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Re: 100% VTSAX need advice

Post by TD2626 » Tue May 16, 2017 11:11 pm

You may want to consider having at least some in international (VTIAX). Look at the history of Japan's stock market - it's been down for decades. Having 20% of stocks be international is often claimed to be a good starting point - though 30-40% may be better. Indeed, some people aim for the market weight of around 45% International, 55% US. Having some international is what matters, not the exact number. Don't change, though: find an allocation and stay the course.

Also, having at least some in bonds is recommended for the vast majority of people. Even 5-10% in bonds helps - though you likely should be higher than that. Consider an allocation of 20-30% of the portfolio in bonds.

Miriam2
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Re: 100% VTSAX need advice

Post by Miriam2 » Tue May 16, 2017 11:17 pm

topspin70 wrote:I'm ok for the VTSAX to go down 50%. I can just keep working.

IF your job is still there. IF you still have the job. IF you have any job. IF you are still physically and mentally able to still work.

topspin70 wrote:I also have disability insurance at my current work.

IF - when you become disabled - you still have your current work.

This is a real photo from 2008:

Image

posted by nisiprius in this thread "What was the 2008 crash like in real time? - a good thread to read for some thoughtful first-hand accounts of a recession before saddling yourself with a 100% equity asset allocation.

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Re: 100% VTSAX need advice

Post by aj76er » Tue May 16, 2017 11:45 pm

It seems that a popular AA on this forum is:
%bonds = Age-10
%international = 30% (of equities)

Also, it is much debated, but historically for a US investor, holding international equities has not made much difference to a portfolio. No telling if the future will be the same.

If you want an equity heavy portfolio, search for the buffet portfolio. You could implement as:

90% VTSAX
10% CASH

It's a wild ride, but super simple. If you can stick with it, you'll likely do well
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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JoMoney
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Re: 100% VTSAX need advice

Post by JoMoney » Wed May 17, 2017 12:24 am

It sounds good to me... personally I have a few percent in cash and short-term bonds, and use the S&P500 fund ... but close enough.
It's super simple and, I think Warren Buffett is right when he says it's a policy that's likely to stick, and is near certain to do well (as long as the person has the right frame of mind about the market and won't sell out when things drop).

I kind of wonder about your conviction with it though if you're already questioning it. You'll find yourself in a minority on this board (at least with the active posters) if you don't have a sizable portion in bonds and international. Most feel the further diversification with international offers some mitigation to the risks that concern them, I have a different view on the risks. Having some cash/bonds would definitely help if there was down turn in the near future... But you'll have to make up your own mind. I would caution you against the idea of trying to find the perfect portfolio or chasing what you think will have the highest returns, but instead focus on the risks and find a balance that you'll be able to live with, and won't be shaken into changing your allocations again because you read some news item or a posters on the internet.
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Re: 100% VTSAX need advice

Post by Tamalak » Wed May 17, 2017 7:51 am

No international at all? I'd be a bit uncomfortable with my investments in such a high total CAPE.

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jhfenton
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Re: 100% VTSAX need advice

Post by jhfenton » Wed May 17, 2017 7:56 am

bloom2708 wrote:
jhfenton wrote:...But I would never in a million years be comfortable with 100% VTSAX. That's way too much concentration in U.S. large cap stocks for my taste. (We barely own any U.S. large cap stocks.)


This would not be standard Bogleheads advice either. Barely owning any large cap US does not seem logical to me.

It's not Bogle advice. It is closer to Swedroe advice. And it wouldn't be my advice to anyone else. But neither would I advise anyone to own 100% U.S. large cap.

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Re: 100% VTSAX need advice

Post by bloom2708 » Wed May 17, 2017 8:19 am

jhfenton wrote:
bloom2708 wrote:
jhfenton wrote:...But I would never in a million years be comfortable with 100% VTSAX. That's way too much concentration in U.S. large cap stocks for my taste. (We barely own any U.S. large cap stocks.)


This would not be standard Bogleheads advice either. Barely owning any large cap US does not seem logical to me.

It's not Bogle advice. It is closer to Swedroe advice. And it wouldn't be my advice to anyone else. But neither would I advise anyone to own 100% U.S. large cap.


But Total US Stock Index (VTSAX) is not 100% large caps. It currently has 3,575 stocks. If 500 or 600 are "Large", the rest must be small or mid.

From the Vanguard website:

Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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jhfenton
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Re: 100% VTSAX need advice

Post by jhfenton » Wed May 17, 2017 8:26 am

bloom2708 wrote:
jhfenton wrote:
bloom2708 wrote:
jhfenton wrote:...But I would never in a million years be comfortable with 100% VTSAX. That's way too much concentration in U.S. large cap stocks for my taste. (We barely own any U.S. large cap stocks.)


This would not be standard Bogleheads advice either. Barely owning any large cap US does not seem logical to me.

It's not Bogle advice. It is closer to Swedroe advice. And it wouldn't be my advice to anyone else. But neither would I advise anyone to own 100% U.S. large cap.


But Total US Stock Index (VTSAX) is not 100% large caps. It currently has 3,575 stocks. If 500 or 600 are "Large", the rest must be small or mid.

From the Vanguard website:

Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.

All true. But from a practical standpoint, the returns look just like a large cap fund, with a slight drift higher or lower based on the lightly-weighted small and mid-cap components. That small and mid-cap exposure didn't make much of a difference in 2001 when large cap tanked.

I still wouldn't be able to sleep well if I own just VTSAX and nothing else. No small cap value. No international. No emerging markets. No fixed income. I find that scary. :shock:

:sharebeer

dbr
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Re: 100% VTSAX need advice

Post by dbr » Wed May 17, 2017 8:31 am

jhfenton wrote:I still wouldn't be able to sleep well if I own just VTSAX and nothing else. No small cap value. No international. No emerging markets. No fixed income. I find that scary. :shock:

:sharebeer


In that case you have to examine the likely behavior of a portfolio that does hold more concentration in SCV, addition of international asset class, and more concentration in emerging markets. Those topics have all been discussed extensively. I think it would be hard to show that the one equity portfolio would be significantly less scary than the other.

bloom2708
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Re: 100% VTSAX need advice

Post by bloom2708 » Wed May 17, 2017 8:37 am

jhfenton wrote:All true. But from a practical standpoint, the returns look just like a large cap fund, with a slight drift higher or lower based on the lightly-weighted small and mid-cap components. That small and mid-cap exposure didn't make much of a difference in 2001 when large cap tanked.

I still wouldn't be able to sleep well if I own just VTSAX and nothing else. No small cap value. No international. No emerging markets. No fixed income. I find that scary. :shock:
:sharebeer


Now you are saying that the Total US Stock Index does not have ANY small cap value stocks?

Or are you saying that it doesn't have EXTRA small cap value? One mans scary is another mans scarier. I am not recommending 100% VTSAX. But holding a concentrated portfolio of small cap value, emerging markets and little large cap would be "scarier" to me. But then, some days I don't know much. :confused
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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Re: 100% VTSAX need advice

Post by Lafder » Wed May 17, 2017 8:41 am

The majority of my stock holdings are in a US Stock Market Index.

Bonds buffer drops much more than they drag down gains. There are years where bonds beat stocks.

A 100% stock portfolio that drops 50%, must go up 100% to get back to where it started. Mix in some % bonds and the drop in total portfolio with a 50% stock market drop is less, so less % to get back to where it started.

The other part you may be missing is that in a stock market drop, having bonds gives you space to rebalance from and sell bonds to buy stock at greatly reduced prices.

If 100% stock beat some % of bonds, more people would do it. The unknowable question is what % of bonds is the sweet spot to maximize returns and minimize losses overall with the unknown future of the markets.

I believe in a minimum of 20% bonds myself. But yes you will find others wanting 100% stocks, as well as others wanting much less.

The recent stock history (several years) may bias you into thinking you are more comfortable with a higher % stocks than you are. What did you do with your investments in 2008?

The question of International stocks is also up for debate and there are solid recs for 0-50% of your stock holdings to be International stocks.

I find this thread to be very informative and helped me get perspective viewtopic.php?f=10&t=88005

It helps convince me a three fund portfolio makes the most sense to me. You may read it and still disagree :)

best wishes,
Lafder

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Re: 100% VTSAX need advice

Post by MoonOrb » Wed May 17, 2017 8:42 am

I've made a similar comment a few times before here, but I can't help but think that there's a strong correlation between thinking 100% equities is a solid idea and recent history of strong equity performance. I feel as if you would peruse the forum between late 2008 and, say, 2010, you wouldn't see many people posting similar questions.

Maybe you'll be among the minority of people who have enough willingness and ability to take risk that it makes sense to load up on domestic equities to the exclusion of everything else, and maybe you'll be among the minority of people who can time things well enough so you can choose a decent time to diversify into some bonds and international equities--maybe it will happily coincide with the date you plan to stop working, even!

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Re: 100% VTSAX need advice

Post by jhfenton » Wed May 17, 2017 8:46 am

dbr wrote:
jhfenton wrote:I still wouldn't be able to sleep well if I own just VTSAX and nothing else. No small cap value. No international. No emerging markets. No fixed income. I find that scary. :shock:

:sharebeer


In that case you have to examine the likely behavior of a portfolio that does hold more concentration in SCV, addition of international asset class, and more concentration in emerging markets. Those topics have all been discussed extensively. I think it would be hard to show that the one equity portfolio would be significantly less scary than the other.

A factor-and-globally-diversified portfolio is less scary to me, which is what matters to me. And you are right that these topics have all been discussed extensively. I was just trying to provide some context to my opinion that 100% VTSAX wasn't the best idea for the OP, a fellow 47-year-old, and that my opinion wasn't a product of a conservative investor. I wasn't trying to reopen those debates or seek portfolio advice for myself. I've been heavily tilted since I started investing in the mid-to-late 90's.

bloom2708 wrote:
jhfenton wrote:All true. But from a practical standpoint, the returns look just like a large cap fund, with a slight drift higher or lower based on the lightly-weighted small and mid-cap components. That small and mid-cap exposure didn't make much of a difference in 2001 when large cap tanked.

I still wouldn't be able to sleep well if I own just VTSAX and nothing else. No small cap value. No international. No emerging markets. No fixed income. I find that scary. :shock:
:sharebeer


Now you are saying that the Total US Stock Index does not have ANY small cap value stocks?

Or are you saying that it doesn't have EXTRA small cap value? One mans scary is another mans scarier. I am not recommending 100% VTSAX. But holding a concentrated portfolio of small cap value, emerging markets and little large cap would be "scarier" to me. But then, some days I don't know much. :confused

There is no net factor small cap factor or value factor in the total market portfolio, by definition. There are, of course, individual stocks that would be classified as small and value.

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Re: 100% VTSAX need advice

Post by oldzey » Wed May 17, 2017 5:15 pm

topspin70 wrote:I'm 47 years old and planning to move all my investments (approximately 950,000 US dollars) to VTSAX. I have tried Dividend Growth investing and I think I can sleep better by doing index fund. DGI is consuming a lot of my time.

JLCollins in his book recommended a mix of VTSAX an VBLTX. Since I'm planning to work for the next 10 years I don't see the need to have Bond allocation.
I would like to know the advantages and disadvantages of this approach.
Thanks!


VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares) decreased by 1.86% today. That would have been a one-day decline of $17,670, if 100% of your investments were in VTSAX.

The bond fund mentioned in JL Collins' book, The Simple Path to Wealth, is VBTLX (Vanguard Total Bond Market Index Fund Admiral Shares), which increased by 0.56% today. :D
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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JoMoney
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Re: 100% VTSAX need advice

Post by JoMoney » Wed May 17, 2017 7:08 pm

jhfenton wrote:...
There is no net factor small cap factor or value factor in the total market portfolio, by definition. There are, of course, individual stocks that would be classified as small and value.

Which if you are a believer in those "risk factors" means you're not taking an inordinate amount of additional risk in the Total Market portfolio. People that tout factors as 'diversification' seem to miss the point that explicit in their strategy, based on the theory, is that they're assuming additional risk that they don't have to take, that risk can be diversified away... and the point of diversification is to reduce the overall risk of a portfolio. If someone believes in that theory and wants to move further out on the spectrum of the modeled risk/return, that's their choice, but it seems ridiculous to advise that everyone should somehow be taking on riskier portfolios.

John Bogle wrote: ... I've been excoriated for my views, but I'm comforted by this reported exchange between Dr. Fama and a participant at a recent investment conference:
"What do you say to otherwise intelligent people like Jack Bogle who examine this same data and conclude that there is no size or value premium?"
His response: "How far are they from the slide? If I get far enough away, I don't see it either . . . Whether you decide to tilt towards value depends on whether you are willing to bear the associated risk . . . The market portfolio is always efficient . . . For most people, the market portfolio is the most sensible decision."
Amen! ...
https://www.vanguard.com/bogle_site/sp20020626.html
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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grabiner
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Re: 100% VTSAX need advice

Post by grabiner » Wed May 17, 2017 10:06 pm

topspin70 wrote:I'm 47 years old and planning to move all my investments (approximately 950,000 US dollars) to VTSAX. I have tried Dividend Growth investing and I think I can sleep better by doing index fund. DGI is consuming a lot of my time.[

JLCollins in his book recommended a mix of VTSAX an VBLTX. Since I'm planning to work for the next 10 years I don't see the need to have Bond allocation.


What were your investments in 2007?

If they were at least 80% stock, and you stuck with that allocation in the 2007-2009 crash, then you know how you will react to a bear market, and 100% stock is OK ten years from retirement. (However, I would recommend adding Total International Index for better diversification.) My own first bear market was 2000-2002, when I had 80% stock, and I have had portfolios with as much risk as 100% stock ever since 2004. I don't actually hold 100% stock, but I overweight riskier stocks, so I lost the same 60% as the total market did in 2007-2009 with a 90%-stock portfolio.

If you weren't in the stock market in the last bear market, you don't really know your risk tolerance, and it would be better to have some bonds.
David Grabiner

topspin70
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Re: 100% VTSAX need advice

Post by topspin70 » Wed May 17, 2017 11:07 pm

What were your investments in 2007?

If they were at least 80% stock, and you stuck with that allocation in the 2007-2009 crash, then you know how you will react to a bear market, and 100% stock is OK ten years from retirement. (However, I would recommend adding Total International Index for better diversification.) My own first bear market was 2000-2002, when I had 80% stock, and I have had portfolios with as much risk as 100% stock ever since 2004. I don't actually hold 100% stock, but I overweight riskier stocks, so I lost the same 60% as the total market did in 2007-2009 with a 90%-stock portfolio.


At that time all my investments were at 403B and 457 with 90% stock allocation. I don't know anything about investment at that time. It just so happen that I've been maxing out my 457 and 403B. After changing job I was able to rollover my retirement funds to Vanguard.

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Re: 100% VTSAX need advice

Post by topspin70 » Wed May 17, 2017 11:10 pm

As one of the feedback, I receive from this post that Bogle is not recommending an International stock, what is another reason to buy it?
Here is the link to the interview.
http://www.morningstar.com/cover/videoc ... ?id=718644

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Re: 100% VTSAX need advice

Post by EdLaFave » Wed May 17, 2017 11:21 pm

I disagree with Bogle (words that often come before a foolish statement) because I believe that diversification is a great thing. Simple as that, investing 101. When I listen to Bogle speak on the matter I do sense an emotional/patriotic tone in his voice that isn't entirely cold and calculated, that makes me uncomfortable.

Still I can sympathize with people who argue for all US because it is cheaper and lots of US companies are global. I just think it is an unnecessary risk. Countries/empires have a way of falling over time and I have no way of knowing if the US will do the same in my investing lifetime.

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Re: 100% VTSAX need advice

Post by MotoTrojan » Thu May 18, 2017 8:06 am

topspin70 wrote:As one of the feedback, I receive from this post that Bogle is not recommending an International stock, what is another reason to buy it?
Here is the link to the interview.
http://www.morningstar.com/cover/videoc ... ?id=718644


His company recently increased allocation of International stocks (still under market weight though) in all Target Retirement funds. Take that as you will. Note: I went with something closer to previous allocations, at 25% of equity.

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Re: 100% VTSAX need advice

Post by knpstr » Thu May 18, 2017 9:37 am

The advantage of the stated approach is that your portfolio management is a "no-brainer". Auto invest, auto reinvest.... profit. It's hands off.

The disadvantage is that it is so passive you may feel like you need to do something different in attempt to "make it better".
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: 100% VTSAX need advice

Post by dbr » Thu May 18, 2017 9:43 am

topspin70 wrote:As one of the feedback, I receive from this post that Bogle is not recommending an International stock, what is another reason to buy it?
Here is the link to the interview.
http://www.morningstar.com/cover/videoc ... ?id=718644


You buy it in order to further diversify your portfolio. Bogle thinks this diversification is unnecessary and that US stocks will outperform or equal the rest of the world, at least relative to the risk, making the investment on the whole not productive. Mr. Buffett essentially agrees with this. Lots of people don't really agree with these assessments, including Vanguard themselves. There is a white paper from Vanguard somewhere. Maybe someone has a reference to it.

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Re: 100% VTSAX need advice

Post by cjcerny » Thu May 18, 2017 10:04 am

It's all about volatility, really. 100% VTSAX will leave you with a portfolio that could cause you a lot of stress, especially if you are retired and are no longer receiving a paycheck. The upside to a 100% VTSAX portfolio is that you will likely do better than any portfolio containing bonds over the remainder of your life.

Plenty of people will ask you if you are okay with "losing" a big part of your portfolio when you are 100% VTSAX. That's really a mindset, more than it is a fact. The markets do always recover, even though it can take them years to do so. However, you could indeed lose a big part of your portfolio if you panic and sell when stocks are tanking, thinking that they will tank further.

My take on all of this is that 100% VTSAX is indeed the ideal portfolio, but that the road is too bumpy for almost everyone, and that at least a small % in bonds is a great way to smooth out those bumps.

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Re: 100% VTSAX need advice

Post by jhfenton » Thu May 18, 2017 10:29 am

JoMoney wrote:
jhfenton wrote:...
There is no net factor small cap factor or value factor in the total market portfolio, by definition. There are, of course, individual stocks that would be classified as small and value.

Which if you are a believer in those "risk factors" means you're not taking an inordinate amount of additional risk in the Total Market portfolio. People that tout factors as 'diversification' seem to miss the point that explicit in their strategy, based on the theory, is that they're assuming additional risk that they don't have to take, that risk can be diversified away... and the point of diversification is to reduce the overall risk of a portfolio. If someone believes in that theory and wants to move further out on the spectrum of the modeled risk/return, that's their choice, but it seems ridiculous to advise that everyone should somehow be taking on riskier portfolios.

John Bogle wrote: ... I've been excoriated for my views, but I'm comforted by this reported exchange between Dr. Fama and a participant at a recent investment conference:
"What do you say to otherwise intelligent people like Jack Bogle who examine this same data and conclude that there is no size or value premium?"
His response: "How far are they from the slide? If I get far enough away, I don't see it either . . . Whether you decide to tilt towards value depends on whether you are willing to bear the associated risk . . . The market portfolio is always efficient . . . For most people, the market portfolio is the most sensible decision."
Amen! ...
https://www.vanguard.com/bogle_site/sp20020626.html

1. I don't advise "everyone" to tilt. In fact, if someone asks me for investment advice, I suggest target portfolios or something close to the three-fund portfolio. If tilting is right for you, you should know why.
2. If you want, we can have another circular argument about the definition of diversification. :sharebeer If I drill down into my portfolio, there are at least 10,000 different stocks, and my largest single stock holding is Tencent Holdings Ltd at 0.45% of my portfolio. There are only four stocks at 0.25% or greater. I don't see the undiversified or concentration risk. (Total Stock has a lot more company-specific risk with Apple at a 2.85% weighting, Google at 2.17%, and Microsoft at 2.00%. Add in Facebook and Amazon and you have close to 10% in 5 tech stocks--if you count Amazon as a tech stock.)

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Re: 100% VTSAX need advice

Post by wolf359 » Thu May 18, 2017 10:45 am

When you say 100% VTSAX, there are two elements to that.

100% stock? All VTSAX?

If you're a Dividend Growth investor, were you following the traditional path and buying those individual stocks in taxable accounts? If so, you may want to rethink before you change strategies. There's a tax cost to selling your shares and rebuying VTSAX. It may make more sense to simply stay put in your existing holdings and buy VTSAX for the new investments. If there's a market crash, you could also do a tax loss harvest and then buy into VTSAX.

The day you retire, you don't want to be 100% stock. In fact, you don't want to be 100% stock the day before you retire, either? What if the market crashes the day before you retire? Ideally, you'll want to be in your retirement bond allocation about 5 years before your planned retirement date (because your plans may not line up with what actually happens in life.)

That said, if you're 100% in stock now, you should start gradually increasing your bond allocation by 1/5 of your target bond allocation, so that in 5 years it's where you want it to be. All you do is when you rebalance annually, increase your bond allocation.

All VTSAX is simple and behaviorally very easy to implement. I personally want more diversification, but VTSAX is a very good, very low cost, and solid choice. There's nothing wrong with holding just VTSAX for your stocks.

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Re: 100% VTSAX need advice

Post by MotoTrojan » Thu May 18, 2017 10:52 am

cjcerny wrote:The markets do always recover, even though it can take them years to do so. However, you could indeed lose a big part of your portfolio if you panic and sell when stocks are tanking, thinking that they will tank further.
.


Japan. Also with dividends out of the picture (I understand that isn't the full story), the S&P 500 just recently matched its inflation-adjusted peak from the dot-com crash. This guy wants to retire in 10 years, and I assume wants to remain heavy equities up to and through that. You're almost guaranteed to be forced to sell low (in a bear market) if you are using this as your primary retirement income source.

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Re: 100% VTSAX need advice

Post by Miriam2 » Thu May 18, 2017 11:52 am

dbr wrote:
topspin70 wrote:As one of the feedback, I receive from this post that Bogle is not recommending an International stock, what is another reason to buy it?

You buy it in order to further diversify your portfolio. Bogle thinks this diversification is unnecessary and that US stocks will outperform or equal the rest of the world, at least relative to the risk, making the investment on the whole not productive. Mr. Buffett essentially agrees with this. Lots of people don't really agree with these assessments, including Vanguard themselves. There is a white paper from Vanguard somewhere. Maybe someone has a reference to it.

Is this the white paper from Vanguard you were thinking about?

"Global equities: Balancing home bias and diversification."

The white paper is discussed in this thread "How Much International Stock? A Suggestion."

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Re: 100% VTSAX need advice

Post by sschoe2 » Thu May 18, 2017 12:25 pm

I like 60% VTSAX; 20% VTMSX (tax managed small cap) and 20% VTIAX (total international). I also like have a static $50k in short term investment grade (may move to muni's depending on the circumstances) and $10k cash for immediate needs.

I am aged 36. I have a 401k in Target 2045 so I have about 28% total VTIAX since the target date funds are 36% VTIAX.

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Re: 100% VTSAX need advice

Post by HomerJ » Thu May 18, 2017 12:41 pm

topspin70 wrote:Since I'm planning to work for the next 10 years I don't see the need to have Bond allocation.


Markets have been flat or down for more than 10 years in the past.

Even if you do go 100% stocks today, when do you plan to add bonds? When you are 5 years from retirement? 3 years?

Also, you can "plan to work" all you want. Sometimes, it's not in your control. You may plan to work 10 more years, but only actually work at your current salary for 5 more years. Are you accounting for that risk?

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Re: 100% VTSAX need advice

Post by dbr » Thu May 18, 2017 2:04 pm

Miriam2 wrote:
dbr wrote:
topspin70 wrote:As one of the feedback, I receive from this post that Bogle is not recommending an International stock, what is another reason to buy it?

You buy it in order to further diversify your portfolio. Bogle thinks this diversification is unnecessary and that US stocks will outperform or equal the rest of the world, at least relative to the risk, making the investment on the whole not productive. Mr. Buffett essentially agrees with this. Lots of people don't really agree with these assessments, including Vanguard themselves. There is a white paper from Vanguard somewhere. Maybe someone has a reference to it.

Is this the white paper from Vanguard you were thinking about?

"Global equities: Balancing home bias and diversification."

The white paper is discussed in this thread "How Much International Stock? A Suggestion."


Yes, thank you. I think reading that paper and the previous threads mentioned would go a long way toward answering this often asked question.

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Re: 100% VTSAX need advice

Post by oldzey » Thu May 18, 2017 5:46 pm

topspin70 wrote:As one of the feedback, I receive from this post that Bogle is not recommending an International stock, what is another reason to buy it?
Here is the link to the interview.
http://www.morningstar.com/cover/videoc ... ?id=718644


I'm with Jack (I have 0% international investments in my portfolio, like him).

However, Mr. Bogle says that if you want to add international investments, then limit them to 20% or less of your portfolio.

Here are some additional videos of Mr. Bogle conveying his opinions on international investments:

https://www.youtube.com/watch?v=hvgptl5-Kcc

https://www.youtube.com/watch?v=vMj4sHjF_kA#t=02m45s

http://www.morningstar.com/cover/videoc ... ?id=355647
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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Re: 100% VTSAX need advice

Post by BolderBoy » Fri May 19, 2017 9:33 am

topspin70 wrote:I'm 47 years old and planning to move all my investments (approximately 950,000 US dollars) to VTSAX. I have tried Dividend Growth investing and I think I can sleep better by doing index fund. DGI is consuming a lot of my time.

JLCollins in his book recommended a mix of VTSAX an VBLTX. Since I'm planning to work for the next 10 years I don't see the need to have Bond allocation.
I would like to know the advantages and disadvantages of this approach.

1) if you are having trouble sleeping with DGI you are going to be crushed by a 100% equity portfolio and watching it drop by 50% when the next 2008 scenario happens. Even index stock funds can drop precipitously.

2) the purpose of bonds in a portfolio is to mitigate the effects I've described in #1 above. A reasonable bond allocation doesn't cost you that much in total portfolio returns over the long term and sure smooths out the downside risk.

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