100% VTSAX need advice [Vanguard Total Stock Market]

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KlangFool
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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
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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
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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
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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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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
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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.
"Our life is frittered away by detail. Simplify, simplify." -Thoreau

KlangFool
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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
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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?

topspin70
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Re: 100% VTSAX need advice

Postby topspin70 » Wed May 24, 2017 12:12 pm

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?


I'm thinking after working for another 10 years that my total net worth will be over 2 to 2.5 million.

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HomerJ
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Re: 100% VTSAX need advice

Postby HomerJ » Wed May 24, 2017 8:48 pm

topspin70 wrote:
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?


I'm thinking after working for another 10 years that my total net worth will be over 2 to 2.5 million.


Is that because you are saving $100,000 a year or because you expect to see 10% returns for the next 10 years?

topspin70
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Re: 100% VTSAX need advice

Postby topspin70 » Wed May 24, 2017 11:21 pm

[quote][Is that because you are saving $100,000 a year or because you expect to see 10% returns for the next 10 years?/quote]

I'm saving around 100,000 a year and assuming 6% annual return.

KlangFool
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Re: 100% VTSAX need advice

Postby KlangFool » Thu May 25, 2017 7:45 am

topspin70 wrote:
[Is that because you are saving $100,000 a year or because you expect to see 10% returns for the next 10 years?/quote]

I'm saving around 100,000 a year and assuming 6% annual return.


topspin70,

In summary, you are being greedy and taking unnecessary risk. You could reach your goal easily with a 60/40 portfolio. Why are you doing this?

The risk and reward are asymmetrical.

1) If you win, it won't matter. You could get there with 60/40 and reach 2.5 million. An additional million would not matter to you.

2) If you lose, aka you did not work 10 years and the market drop 50%, you will be in deep trouble. Having less than 1 million will impact you.

Why are you doing this? Taking a risk that is not rewarding to you?

KlangFool

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HomerJ
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Re: 100% VTSAX need advice

Postby HomerJ » Thu May 25, 2017 9:22 am

topspin70 wrote:I'm saving around 100,000 a year and assuming 6% annual return.


Since you currently have about $1 million, you are adding a substantial number to your portfolio every year.

Because of this, you'll have no problems if the market crashes soon. ASSUMING you keep your job. Note that market crashes and recessions and job losses are not independent events.

But if you want to assume you won't lose your job for the next 10 years, then 100% stocks in your situation right now is fine.

I would suggest you slowly add bonds though. You definitely don't want to be 100% stocks two days before you retire. Or even 2 years before you retire. Unless, again, you're okay with assuming there's no way you'd lose your job, and could just keep working an extra 2-3 years until the market bounces back.

That's a pretty big assumption, but it's your choice.

I would slowly move to a 60/40 or a 50/50 portfolio over the next 5 years, but that's just me. You're in great shape with that savings rate. You don't have to depend on the market giving you great returns to succeed. But you do have to depend on the market not crashing right before you retire if you put ALL your savings into it.

With some in bonds or CDs, you will be able to ride out a market crash near or in retirement. With 100% stocks, you'll probably have to keep working. And again, that is not always 100% your choice. Especially 10 years from now, when you are older, and who know what else will have changed?

Good luck to you!

dbr
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Re: 100% VTSAX need advice

Postby dbr » Thu May 25, 2017 9:29 am

Instead of assuming a single number for return you should contemplate the output of models that allow return to vary. You can see an example of that in FireCalc, for one. Keep in mind that a 6% average annual return might appear from year to year with a standard deviation of annual return of perhaps 15%, meaning 90% of the time return can range as far as -24% to +36%. For 100% stocks the standard deviation of annual returns might be nearer 20% and the distribution surely has wider tails than a normal distribution, meaning the extremes can be huge.

remomnyc
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Re: 100% VTSAX need advice

Postby remomnyc » Thu May 25, 2017 10:10 am

I don't know how secure your job is, but 100% VTSAX is unnecessary risk. As others have mentioned, market downturns and job losses often go hand-in-hand. How about 80% VSTAX and 20% VTIAX to start and add 5% VBTLX each year? You can stop buying VBTLX when it's 30% of your portfolio or you may want to go all the way up to 50% to cushion your sequence of returns risk when you retire. You can rebalance with new money and bonds.

GulfCoast
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Re: 100% VTSAX need advice

Postby GulfCoast » Thu May 25, 2017 3:17 pm

I agree with your 100% VTSAX allocation in your retirement accounts. I'm actually invested in that in my 401k, IRA and taxable account.

Okay, but let's get one thing straight - no one is really invested 100% in any one thing. For instance, part of my net worth is in my residence (granted, it is pretty illiquid) and my cash buffer, which includes my checking account is easily 8-9 months of living expenses.

No one, at least hopefully no one, is going to start withdrawing from their retirement accounts on day 1 of their retirement - especially if Day 1 is the beginning or middle of a bear market. If one has an adequate cash buffer (2 to 5 years) than they won't need to start withdrawing from their VTSAX retirement account in a down market. But then, by having that cash buffer, they are not 100% stocks, but some percentage thereof.


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