100% VTSAX need advice

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KlangFool
Posts: 5439
Joined: Sat Oct 11, 2008 12:35 pm

Re: 100% VTSAX need advice

Postby KlangFool » Fri May 19, 2017 10:03 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.
Thanks!


topspin70,

<<Since I'm planning to work for the next 10 years >>

Der mentsh trakht un Got lakht.
Man plans and God laughs.
- Yiddish proverbs

Why would everything turn out as planned? Why do you think that if you want to work longer, you could? Aka, nothing unexpected could happen?

KlangFool

topspin70
Posts: 10
Joined: Fri May 12, 2017 2:15 pm

Re: 100% VTSAX need advice

Postby topspin70 » Sat May 20, 2017 5:24 am

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.

Do the right thing!


What is an aggressive Bond allocation? 75/25?
Thanks!

dbr
Posts: 21706
Joined: Sun Mar 04, 2007 9:50 am

Re: 100% VTSAX need advice

Postby dbr » Sat May 20, 2017 8:46 am

topspin70 wrote:
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.

Do the right thing!


What is an aggressive Bond allocation? 75/25?
Thanks!


If you mean 75 bonds 25 stocks then that would be "aggressive in bonds." Usually the convention with those numbers is stocks first, then bonds. The possible range is 0/100 to 100/0, assuming no investments are leveraged, no short sales, etc.

But the term "aggressive in bonds" isn't usually how people use the language. Aggressive or conservative applies to the portfolio as a whole. That means a large allocation to risky investments is aggressive and a large allocation to low risk investments is conservative.

Personally I think it is a bad idea to use words with loaded connotations to describe investments because it introduces emotional thinking and behavioral errors where a calm and clear approach gets a much better outcome.

So, yes, in general one dilutes the volatility of stocks by adding bonds and the cost is lower overall range of possible returns while gaining more certainty regarding outcome.

topspin70
Posts: 10
Joined: Fri May 12, 2017 2:15 pm

Re: 100% VTSAX need advice

Postby topspin70 » Sun May 21, 2017 9:00 pm

If you mean 75 bonds 25 stocks then that would be "aggressive in bonds." Usually the convention with those numbers is stocks first, then bonds. The possible range is 0/100 to 100/0, assuming no investments are leveraged, no short sales, etc.


I meant 75% Stocks and 25% Bonds.

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HomerJ
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Joined: Fri Jun 06, 2008 12:50 pm

Re: 100% VTSAX need advice

Postby HomerJ » Mon May 22, 2017 10:30 am

topspin70 wrote:
If you mean 75 bonds 25 stocks then that would be "aggressive in bonds." Usually the convention with those numbers is stocks first, then bonds. The possible range is 0/100 to 100/0, assuming no investments are leveraged, no short sales, etc.


I meant 75% Stocks and 25% Bonds.


Read the rest of dbr's post.

The more stocks you have the more "aggressive" your portfolio. Saying "aggressive in bonds" doesn't really make much sense. More bonds makes your portfolio more and more conservative.

Determining whether a portfolio is "aggressive" also depends on years to retirement. If you are 30 years from retirement, being 80/20 stocks/bonds may not be considered aggressive. If you are 5 years from retirement, 80/20 is very aggressive (and dangerous - stocks can drop and stay down for multiple years - if you are close to retirement, you may not have enough time to wait for a recovery). Of course, there are other factors too.. If you are five years from retirement, and you have a pension that will cover most of your expenses, then you can afford to be more "aggressive".

I am almost the same age as you (48), but I'm hoping to retire at 55 (in seven years)... I am 50/50 stocks/bonds, which I feel is fairly conservative.

75/25 may be a good compromise for you. I wouldn't call it a conservative portfolio ten years out from retirement, but it's not particularly aggressive either.

lostdog
Posts: 384
Joined: Thu Feb 04, 2016 2:15 pm

Re: 100% VTSAX need advice

Postby lostdog » Mon May 22, 2017 11:35 am

I like jcollin's book. If you like the simplicity of his advice but want to me more diversified in equities go with Vanguard Total World Index and Vanguard Total Bond Index. In my opinion 10 to 20 Percent in bonds would be prudent.
90% Vanguard Total World Index | 10% Vanguard Total Bond Index | | "Our life is frittered away by detail. Simplify, simplify." -Thoreau

KlangFool
Posts: 5439
Joined: Sat Oct 11, 2008 12:35 pm

Re: 100% VTSAX need advice

Postby KlangFool » Mon May 22, 2017 12:30 pm

OP,

At 960K and 10 years from retirement,

1) What is your number? Aka, 25 times annual expense? 25 times retirement expense?

2) How much is your annual savings?

https://personal.vanguard.com/us/insigh ... llocations

3) Can you get there with the 75/25 AA? As per the average return of the above URL?

4) Are you taking too much risk?

5) Are you taking an insufficient risk?

6) If the stock market drops 50%, how many years of annual saving does that represent? Do you have enough time to recover?

There are plenty of questions to consider.

KlangFool
Last edited by KlangFool on Mon May 22, 2017 1:56 pm, edited 1 time in total.

retireearly
Posts: 14
Joined: Tue Mar 14, 2017 1:51 pm

Re: 100% VTSAX need advice

Postby retireearly » Mon May 22, 2017 1:09 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!



There are a lot of good posts here, a lot of good insight.

I am also pretty aggressive when it comes to investing and even I would worry about your strategy of being all in on the US stock market now and nothing else, esp 10 years from retirement.

The wife and I are 44 and portfolio of $1.3M. I'd like to work another 11-13 years, the wife another 15-17. Just a few months ago, I was all equities but knew it was time to move some to fixed income, esp. after the nice run the last 8 years. I moved to 83.5% stock, 16.5 Van Total Bond and I'm certainly light on bonds compared to the collective average of this board. I am also 50/50 Us/int and also tilt small value us and EM (my EM are 16% of my ENTIRE portfolio). Many would think my INT is too high but it what the global stock market is and Int valuations are much better. You should really consider something earmarked to INT, probably 15% at a minimum! Also, I would recommend getting some value in the portfolio.

They way I have come to look at fixed income (my Van total bond) is that I have chopped 220K off of stock portfolio and now look at it like this:

-I have a portfolio of growth (Stocks) of 1.080M. Just a few years ago, I would have been real happy to have 1M in my total portfolio.
-I have "guaranteed" 220K by holding bonds - I'm not going to get much with them but if/when the market drops, I can buy on dips. I haven't figured out when I will do that yet (maybe 5% drops?). If the market does not drop, well, then that is even better for me overall.

You need to think about what happens if the market drops 10-20% and then stays flat for 5-10 years. Can you retire in 10 years on 760K-850k?


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