Vanguard recommended Retirement allocation too simple?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
slipp1229
Posts: 44
Joined: Wed Jun 19, 2013 9:52 am
Location: Metro Detroit

Vanguard recommended Retirement allocation too simple?

Post by slipp1229 » Fri Jun 30, 2017 12:24 pm

Having just retired ... I recently completed the transfer/consolidation of all my accounts (401K, Brokerage, IRA's , Cash etc) into Vanguard.
Because the transfer put me at the Flagship level, I was assigned a VG Personal Advisor to help me set up an investment strategy based on my goals and risk tolerance (Moderate). I will need minimal withdrawls (($24K/year) from my retirement savings until I am eligible for Soc. Sec. in 7 years. My VG advisor recommends the following allocation for all of my funds:

50% Equities: 50/50 split between 1) VG Total Stock Mkt Index Fund (VTSAX) 2) VG Total International Stock Index (VTIAX)
50% Bonds: 50/50 split between 1) VG Total Bond Mkt Index Fund (VBTLX) 2) VG Total International Bond Index (VTABX)

That's it :? ... Rebalance as needed to maintain the 50/50 Equities/Bonds balance and go enjoy retirement :shock:
This seems a little simplistic to me ... but then again, maybe I am off here? Is this a typical/common retirement allocation other retired
Bogleheads have in place :?:

Thanks for any feedback
Slipp, MI

KyleAAA
Posts: 6572
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Vanguard recommended Retirement allocation too simple?

Post by KyleAAA » Fri Jun 30, 2017 12:30 pm

That looks like a fine allocation. You own nearly ever stock in the world and a good chunk of the investable bond market. Some would argue against holding so much in international stocks and bonds (I wouldn't be one of them), but it's perfectly reasonable if 50% stocks and 50% bonds fits your need and willingness to take risk. What do you think you'd gain from adding complexity?

livesoft
Posts: 61498
Joined: Thu Mar 01, 2007 8:00 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by livesoft » Fri Jun 30, 2017 12:31 pm

Looks great to me.

Now for folks who think it is too simple, sometimes Vanguard breaks the Total Market fund into their constituents, but only for display. Here is a thread on that which sowed quite a lot of confusion because people read the thread wrong and thought it was way too complex:
Last edited by livesoft on Fri Jun 30, 2017 12:32 pm, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.

zuma
Posts: 349
Joined: Thu Dec 29, 2016 12:15 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by zuma » Fri Jun 30, 2017 12:32 pm

Simplicity is a good thing. :)

That looks like a reasonable portfolio to me.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard recommended Retirement allocation too simple?

Post by dbr » Fri Jun 30, 2017 12:35 pm

I think that is very Boglehead and probably one that a lot of people use, details only regarding the % selected.

There is no magic formula out there for "superior" results.

You can find all sorts of non-conclusive discussion about allocation to international, especially bonds. The only thing I find disturbing about your recommendation is the fetishest numerology of bifurcating a division by two at two levels. This does have a fractal property of proliferating the design and also replicating the design in the marginals. You would think they could give you a better rationale than that for the allocations.

I am going to assume that your objectives for the money, whether for withdrawal or for growing wealth at death are so unimposing that asset allocation is actually pretty nearly irrelevant. In that case numerology of twoness is probably a perfectly good plan. You also pull the carpet out from under sophisticated schemes to optimize efficient frontiers, play with factor investing, add gold for refuge against national economic and political crisis, and so on.

indexonlyplease
Posts: 1082
Joined: Thu Apr 30, 2015 12:30 pm
Location: Pembroke Pines, FL

Re: Vanguard recommended Retirement allocation too simple?

Post by indexonlyplease » Fri Jun 30, 2017 12:36 pm

I think it look really good.

You will like it if 2008 hit again and you can still get your $24,000 a yr.

User avatar
oldcomputerguy
Posts: 3052
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Vanguard recommended Retirement allocation too simple?

Post by oldcomputerguy » Fri Jun 30, 2017 12:37 pm

As to whether or not it's "too simple", don't let that throw you. Simplicity is good. Active portfolio managers typically will put their clients into portfolios with ten, fifteen, twenty, or even more separate mutual funds, which makes investing seem way too hard for the client to manage without their help. That's how the manager earns his boat payments. Complexity on that level is not productive, except for the manager's bottom line.

I'm going to guess that you'll get various opinions offered on the exact percentages allocated to each fund. But the four-fund portfolio you have is a good one. The four funds you're in comprise all the investable stocks and bonds in the world. You can't get much more diversified than that. (If you would like some reassurance, search the board here for "three-fund" if you want to see discussion of even simpler portfolios.)
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

bikechuck
Posts: 296
Joined: Sun Aug 16, 2015 9:22 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by bikechuck » Fri Jun 30, 2017 12:38 pm

I do not think that it is too simple and I would simplify it further by putting my 50% allocation to bonds entirely in VG Total Bond Mkt Index Fund (VBTLX). For me the purpose of holding bonds is safety and I do not want to expose that portion of my portfolio to currency risk from exchange rate fluctuations. I am OK with currency risk in my equity holdings where I am seeking growth.

Da5id
Posts: 2035
Joined: Fri Feb 26, 2016 8:20 am

Re: Vanguard recommended Retirement allocation too simple?

Post by Da5id » Fri Jun 30, 2017 12:40 pm

I'd go less international bonds (or none). But hey, I'm a stranger on the internet. You asked Vanguard for advice, and I think what you got is extremely reasonable. Simple is awesome. The opposite of "simple" isn't "better".

User avatar
BarleywineAndBob
Posts: 13
Joined: Thu Jun 08, 2017 3:49 pm
Location: Desolation Row

Re: Vanguard recommended Retirement allocation too simple?

Post by BarleywineAndBob » Fri Jun 30, 2017 12:43 pm

That's the good kind of simple.
Businessmen, they drink my [barley]wine.

alex_686
Posts: 3617
Joined: Mon Feb 09, 2015 2:39 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by alex_686 » Fri Jun 30, 2017 12:47 pm

It is a good sold simple generic plan.

I would opt for a slightly more complex plan, better optimized to my goals. But then again, I love math, reading academic articles on investing, and posting on Bogleheads. So there is that. There is a cost to complexity. Are you willing to pay for that extra complexity?

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard recommended Retirement allocation too simple?

Post by dbr » Fri Jun 30, 2017 12:49 pm

PS My assets are invested entirely in TSM, TISM, a couple of intermediate term US bond funds, a TIPS fund, and the odd cash floating around at various brokerages because you can't not have cash here and there. There are a couple of bond funds because of the way money is held across different accounts.

As I said, you can talk forever about international, especially the bond part. Also, Vanguard does not seem to believe in TIPS very much, and, frankly, I wouldn't worry about it.

I am not sure it is possible to be too simple though I am pretty convinced some international equities make sense, which adds a fund unless you buy into the Total World Fund.

User avatar
KlingKlang
Posts: 670
Joined: Wed Oct 16, 2013 3:26 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by KlingKlang » Fri Jun 30, 2017 12:50 pm

That is too heavy in international stocks and especially bonds for my tastes, but there is nothing wrong with a four fund portfolio. If you are really feeling deprived as far as number of funds pick another couple of asset classes (TIPS, REITs, etc.), start with the recommended portfolio for a year, and if your selections outperform the total funds you can always add them in then.

BlackStrat
Posts: 262
Joined: Wed Apr 29, 2015 9:20 am

Re: Vanguard recommended Retirement allocation too simple?

Post by BlackStrat » Fri Jun 30, 2017 12:53 pm

This is EXACTLY the AA I put my mother into in 2000 and it survived (and thrived) through both the internet and 2008 bubbles.

If I did it different now, it would probably be no international bonds...but I'm not sure it would make much of a difference.

Stay the course!

aristotelian
Posts: 4245
Joined: Wed Jan 11, 2017 8:05 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by aristotelian » Fri Jun 30, 2017 12:56 pm

There is no such thing as too simple. If you have won the game, why complicate things unnecessarily?

bloom2708
Posts: 4285
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Vanguard recommended Retirement allocation too simple?

Post by bloom2708 » Fri Jun 30, 2017 12:57 pm

The 50/50 + 50/50 is exactly in the middle. I need to come up with a name for this split..."Down The Middle Portfolio".

I'm a little surprised they recommended 50% splits. Even the Portfolio Watch says 30% to 50% International. The advisor must err on the side of 50%.

The nice thing about these splits is you will be happy when US outperforms and International outperforms because you are right down the middle.

Nobody knows which will do better or worse. Do you have taxable investments? Do they use the 2 bond funds? I would think not in taxable. If 25% tax bracket or higher, tax-exempt bonds would be used in the taxable account.
Last edited by bloom2708 on Fri Jun 30, 2017 1:00 pm, edited 1 time in total.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Da5id
Posts: 2035
Joined: Fri Feb 26, 2016 8:20 am

Re: Vanguard recommended Retirement allocation too simple?

Post by Da5id » Fri Jun 30, 2017 12:57 pm

It occurs to me the only way it MIGHT be too simple is if you have significant taxable holdings and have other goals. e.g. if your health care depends on low taxable income, or you want to have space for Roth conversions, etc. Might be a role for Munis etc. Or might not.

retiredjg
Posts: 32963
Joined: Thu Jan 10, 2008 12:56 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by retiredjg » Fri Jun 30, 2017 1:01 pm

I don't have a problem with the simplicity. That's a plus in my book. And I don't have a problem with the 50% stock/50% bonds. However, I probably would not want that much in international stocks and I definitely do not want that much in international bonds.

It seems that Vanguard is allowing more flexibility in what their advisors suggest. There used to be a formula that it seemed like everyone followed. We've seen some deviations from that lately. This is one of them.

I don't think it is a bad portfolio suggestion, it just does not suit my preferences. The question is whether it fits yours? If you want 50% stock (half international) and 50% bonds (half international)....what is wrong with the simplicity? What else do you want?

User avatar
celia
Posts: 7913
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Vanguard recommended Retirement allocation too simple?

Post by celia » Fri Jun 30, 2017 1:05 pm

Although that's a nice simple Asset Allocation, if you don't need to withdraw anything after you start Social Security, you may want to change your Asset Allocation at that time to be more heavy in the stocks, say 60/40 or 70/30. You also should consider doing Roth conversions between now and then if your tax bracket will suddenly jump at age 70.5, because you will be taking both SS and RMDs. Many people are surprised at how much their taxes jump at that time, but by planning ahead NOW, you can mimimize the future RMDs by doing Roth conversions.

The other major point is even if your Asset Allocation is 25/25/25/25, that does NOT mean you should do that in every account. That is your overall Asset Allocation. After you know your Asset Allocation, consider Asset Location, which is the placement of each asset in order to minimize the tax hits. Basically, you will probably want bonds in the tax-deferred accounts, assets that are expected to grow the most (stocks) in the Roth, and international in taxable, so you can take advantage of the Foreign Tax Credits on your income taxes. For more details, see:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Since Asset Location is secondary to Asset Allocation, consider starting a new thread after you have decided on an Asset Allocation that meets your needs and level of risk you are comfortable with. As we say, you need to be able to sleep well at night, not thinking about this all the time. The new thread should tell what percent of your assets are in each account, what the holdings are in each account that you don't want to sell (since it may have tax consequences), what your tax bracket is in early retirement [retired for the whole year, which may not be until 2018], and tax bracket after you have started SS and RMDs.
Last edited by celia on Fri Jun 30, 2017 1:24 pm, edited 1 time in total.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

John Laurens
Posts: 350
Joined: Mon Nov 14, 2016 7:31 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by John Laurens » Fri Jun 30, 2017 1:05 pm

It's too complicated. VT (Total World) 50% and BND (Total US Bond) 50%. :D

Regards,
John

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard recommended Retirement allocation too simple?

Post by dbr » Fri Jun 30, 2017 1:07 pm

bloom2708 wrote:The 50/50 + 50/50 is exactly in the middle. I need to come up with a name for this split..."Down The Middle Portfolio".

It is called "The fractal virtue of twoness." I make a joke about it because it is so common that authors, advisors, and other gurus so often come up with this stuff you have to wonder if there are actually any real ideas in their heads. There is another principle that can be cited here called "The axiom of indifferent choice." That simply means that given two choices with no means to decide between them, one takes half of each. Another form of the numerology is called "1/n" meaning given n alternatives one divides equally into 1/n th for each. An alternative sometimes offered is the "magic of primeness." This means that, for example, 53/47 is superior as being prime numbers those values cannot be violated by further divisions or angst over such questions as should it really be 55/45 (the prevalence of 5's) or maybe 40/60 (non-equality of tens).

I'm a little surprised they recommended 50% splits. Even the Portfolio Watch says 30% to 50% International. The advisor must err on the side of 50%.

There probably really is a discussion about this one. Opinions about international equities come done firmly with the recommendation that the number be between 0% and 50%. It is unusual that someone just flat out goes to 50%. That is true especially for the bond part. A danger here is that the investor may not understand in advance how much divergence there may be across these four investments, which will result in alarm and changing the course. If anything the recommedation is actually too complicated.

The nice thing about these splits is you will be happy when US outperforms and International outperforms because you are right down the middle.

Right. A corollary of accepting the axiom of indifferent choice is the theorem of minimal unhappiness.

Nobody knows which will do better or worse.

Grt2bOutdoors
Posts: 18637
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Vanguard recommended Retirement allocation too simple?

Post by Grt2bOutdoors » Fri Jun 30, 2017 1:10 pm

Reminds me of this line - invest your money passively and your time actively.
Simplistic does not mean "non-effective". Two funds own over 5,000 different securities. How much more complicated do you need it to be?
You know the saying "if it ain't broke, don't fix it". Tinkerers have a habit of taking a perfectly good working object and ruining it. Don't let that be you. :)
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
parsi1
Posts: 261
Joined: Tue May 29, 2012 8:03 am

Re: Vanguard recommended Retirement allocation too simple?

Post by parsi1 » Fri Jun 30, 2017 1:31 pm

If you get a chance go to the Vanguard’s web site and look at the composition of target retirement funds and lifestrategy funds. Most, almost all, are composed of the 4 funds that the financial adviser suggested to you.
So, they practice what they preach.
If you have an extra 15 minutes take a look at this video from the expert of investing himself.

https://www.youtube.com/watch?v=k6ra5POdsYg

book lover
Posts: 134
Joined: Thu Aug 23, 2012 4:01 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by book lover » Fri Jun 30, 2017 1:34 pm

" Simplicity is the ultimate sophistication" Leonardo Da Vinci.

delamer
Posts: 5154
Joined: Tue Feb 08, 2011 6:13 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by delamer » Fri Jun 30, 2017 1:47 pm

It sounds very Boglehead to me. What is it that you think you are missing, if you think it is too simple?

radiowave
Posts: 1714
Joined: Thu Apr 30, 2015 5:01 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by radiowave » Fri Jun 30, 2017 1:50 pm

bloom2708 wrote:The 50/50 + 50/50 is exactly in the middle. I need to come up with a name for this split..."Down The Middle Portfolio".

. . . .
Or maybe 4 leaf clover portfolio? :happy

Personally, I wouldn't have international bonds and less TISM . . . but that's just me.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

Jack FFR1846
Posts: 7237
Joined: Tue Dec 31, 2013 7:05 am

Re: Vanguard recommended Retirement allocation too simple?

Post by Jack FFR1846 » Fri Jun 30, 2017 1:54 pm

The Vanguard suggestion is darned close to what I've crafted for myself. I do less international and contain it to developed international, but that's my thing. I don't see it as too simple at all. Looks just right. I'm a few years from retirement and do have 50/50 stock/bond.
Bogle: Smart Beta is stupid

bloom2708
Posts: 4285
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Vanguard recommended Retirement allocation too simple?

Post by bloom2708 » Fri Jun 30, 2017 2:09 pm

radiowave wrote:
bloom2708 wrote:The 50/50 + 50/50 is exactly in the middle. I need to come up with a name for this split..."Down The Middle Portfolio".

. . . .
Or maybe 4 leaf clover portfolio? :happy

Personally, I wouldn't have international bonds and less TISM . . . but that's just me.
I have 20% International and no International Bonds. BUT, I could be wrong. I won't know until after and then at that point I won't know if that trend will continue. Doh. :oops:
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

User avatar
bertilak
Posts: 5952
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Vanguard recommended Retirement allocation too simple?

Post by bertilak » Fri Jun 30, 2017 3:49 pm

Jack FFR1846 wrote:The Vanguard suggestion is darned close to what I've crafted for myself. I do less international and contain it to developed international, but that's my thing. I don't see it as too simple at all. Looks just right. I'm a few years from retirement and do have 50/50 stock/bond.
I did the same with international -- developed only. If I want some foreign exposure and can get it without dragging in emerging market risk I'll take that. I know the extra risk is expected to give me a bit of extra return, but I'd rather tune my risk by setting my overall stock/bond AA.

I passed completely on International bonds. The Vanguard international bond fund is hedged against equity risk. Hedging reduces diversification, partially defeating the point of using international bonds in the first place. Bonds are inherently low risk and that's why you have them. It all seems a bit baroque (overly elaborate) to me. Why go to that trouble if you can simply stick to US bonds.

All that said I can see the logic in the portfolio recommended to the OP, I simply have a different preference and truly suspect it doesn't make much difference either way but like to add my own personal touch to the mix.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

SimplicityNow
Posts: 455
Joined: Fri Aug 05, 2016 10:31 am

Re: Vanguard recommended Retirement allocation too simple?

Post by SimplicityNow » Fri Jun 30, 2017 4:40 pm

Simplicity works.

User avatar
friar1610
Posts: 1194
Joined: Sat Nov 29, 2008 9:52 pm
Location: MA South Shore

Re: Vanguard recommended Retirement allocation too simple?

Post by friar1610 » Fri Jun 30, 2017 9:11 pm

slipp1229 wrote:Having just retired ... I recently completed the transfer/consolidation of all my accounts (401K, Brokerage, IRA's , Cash etc) into Vanguard.
Because the transfer put me at the Flagship level, I was assigned a VG Personal Advisor to help me set up an investment strategy based on my goals and risk tolerance (Moderate). I will need minimal withdrawls (($24K/year) from my retirement savings until I am eligible for Soc. Sec. in 7 years. My VG advisor recommends the following allocation for all of my funds:

50% Equities: 50/50 split between 1) VG Total Stock Mkt Index Fund (VTSAX) 2) VG Total International Stock Index (VTIAX)
50% Bonds: 50/50 split between 1) VG Total Bond Mkt Index Fund (VBTLX) 2) VG Total International Bond Index (VTABX)

.....


Slipp, MI
I have my telephone appointment with VG in about a week and I've been assuming the recommendation would be something close to 50-50 equity/fixed in my case. I'm a bit surprised by the high international recommendations; I'd personally be more comfortable with a 25-30% equity allocation and as others have said, I'm not convinced on international bonds at all.

You don't mention how old you are. Not sure if the 7 years to SS eligibility is to early, regular or age 70 so it's hard to tell. Do you mind sharing that information? The only reason I ask is because I'm wondering if at age 72 (self)/70 (wife) they may recommend a smaller allocation to equities for me.

Thanks.

EDITED TO ADD: I'll report back after next Monday (the 10th). Maybe that will be one more small data point in the discussion about whether or not all VG refs are the same.
Last edited by friar1610 on Sun Jul 02, 2017 7:44 pm, edited 1 time in total.
Friar1610

User avatar
TD2626
Posts: 610
Joined: Thu Mar 16, 2017 3:40 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by TD2626 » Fri Jun 30, 2017 11:52 pm

Staying the course is the hard part. One must not sell low and buy high, as far too many do. Although many would say the allocation to international is high for them, especially in bonds, it is the case that finding something reasonable and sticking to it is more important than, say, figuring out the perfect domestic vs international split.

Dandy
Posts: 5189
Joined: Sun Apr 25, 2010 7:42 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by Dandy » Sat Jul 01, 2017 7:59 am

I am not convinced global weighting of equities and fixed income is necessary especially for US investors in or near retirement. There is a certain logic to it but that isn't enough for me. If you go with Vanguard advisors you will likely get their current philosophy which has increased international allocations rather dramatically, rather recently.

As you may know Mr. Bogle is not enthusiastic about international equities (don't know his opinion re: international fixed income). He makes a reasonable case that many US firms get a large percentage of their income from foreign sales. I feel that international equities and fixed income are a bit more risky than their US counterparts and therefore I underweight them being well into retirement (8% international equities, almost 0% international fixed income).

For those in the accumulation phase I would think they can afford a bit more international investing say 20% of equities rather than 50% I still would not buy international fixed income to any degree - don't see the need if the goal of fixed income is stability to take risk on the equity side.

lostdog
Posts: 993
Joined: Thu Feb 04, 2016 2:15 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by lostdog » Sat Jul 01, 2017 8:23 am

Very nice and simple portfolio. You'll see comments about too much international. Ignore the noise in this thread regarding arguments about international and stay the course with your new simple portfolio. Congratulations on retirement.
Vanguard Total World Equity and Bond Index - The rational portfolio | | https://m.youtube.com/watch?v=LwTHLtuToSY

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard recommended Retirement allocation too simple?

Post by dbr » Sat Jul 01, 2017 8:26 am

lostdog wrote:Very nice and simple portfolio. You'll see comments about to much international. Ignore the noise in this thread regarding arguments about international and stay the course with your new simple portfolio. Congratulations on retirement.
Agreed. The answer to the OP is that the allocation is not too simple.

pkcrafter
Posts: 12830
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Vanguard recommended Retirement allocation too simple?

Post by pkcrafter » Sat Jul 01, 2017 12:23 pm

Slipp, 3 years ago you were 15/85 and you wrote this:
Thanks!. I will carefully review each of your situations and decide which works best for me. My only reservation now is "timing". I feel waiting until the next equities correction takes place might be wise before jumping in with 50% ... but when will that be? Being a follower of demographic trends ala Harry Dent, I cannot help believe a mini crash will happen in the not so distant future. ??
I pulled this up as a reminder to all that trying to figure out what and when the market will do something is pretty much a harmful idea. Did you finally increase your asset allocation at some point?

As for your current situation, a 50/50 suggestion is OK, IF you are OK with it. It sounds like your withdrawal rate will be less than 4%, so you could probably get along with 40/60. I am in agreement with those who think 50% international is too high. The usual recommendation is 20-40%.

As for the 3/4 fund recommendation, it's all you need. The 4 fund is a minor variation on the classic 3 fund due to the addition of international bonds, which some investors don't want. Others think the foreign bonds are a good addition. Have you seen Taylor Larimore's post on the three fund portfolio?

viewtopic.php?f=10&t=88005

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

rgs92
Posts: 1996
Joined: Mon Mar 02, 2009 8:00 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by rgs92 » Sat Jul 01, 2017 12:25 pm

Simplicity is the core philosophy of Bogle-ism.

User avatar
House Blend
Posts: 4428
Joined: Fri May 04, 2007 1:02 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by House Blend » Sat Jul 01, 2017 12:56 pm

dbr wrote:
lostdog wrote:Very nice and simple portfolio. You'll see comments about to much international. Ignore the noise in this thread regarding arguments about international and stay the course with your new simple portfolio. Congratulations on retirement.
Agreed. The answer to the OP is that the allocation is not too simple.
Yes, it's not too simple. No, that doesn't mean the noise is invalid.

Indeed, it is possible to pay full attention to all the noise about international in this thread without damaging the message.

For example,

10% Intl Bonds
20% Intl Stocks
30% US Stocks
40% US Bonds

is another 50:50 portfolio, just as simple, and can be just as appropriate a recommendation as the one VG gave. And it is better, if this alteration makes it easier for the client to stick with it.

Explorer
Posts: 135
Joined: Thu Oct 13, 2016 7:54 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by Explorer » Sat Jul 01, 2017 10:41 pm

Take a look at https://personal.vanguard.com/us/insigh ... llocations and decide which allocation suits you.

It is your money and YOU need to be happy with the allocation and NOT some strangers on the Internet.

Happy July 4th !

RadAudit
Posts: 2916
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Vanguard recommended Retirement allocation too simple?

Post by RadAudit » Sun Jul 02, 2017 7:45 am

bloom2708 wrote:BUT, I could be wrong. I won't know until after and then at that point I won't know if that trend will continue. Doh.
+1

And, trying to guess what'll work in the future will drive you nuts if you let it. The future is unknown. Find an asset allocation you are comfortable with and stay the course.

Simplicity works.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

Mr.BB
Posts: 475
Joined: Sun May 08, 2016 10:10 am

Re: Vanguard recommended Retirement allocation too simple?

Post by Mr.BB » Sun Jul 02, 2017 7:54 am

Your allocation is like a watch. You see the band, the watch frame, the watch face and the clasp. That's all you need to see for a watch to do what it is suppose to do for you. But, if you open the watch face (you will see many moving parts, that is the holding of your various funds), very complex but you don't need to see all of that stuff to make the watch work for you.

With many other investment companies they try to sell you on all these extra features that are already inside your watch, but they stick them on the outside to make you think the watch is doing more; even though it is not. And it cost more!
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

MnD
Posts: 3515
Joined: Mon Jan 14, 2008 12:41 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by MnD » Sun Jul 02, 2017 8:37 am

I part ways with pure market cap indexing when it comes to fixed income.
For example Japan has very high level of government debt (expressed as debt to GDP).
However 5-year yield is -0.08% and 10 year is +0.07% for a variety of reasons, including political and cultural ones.
Given this, does anyone investing for income think that the biggest position in a bond fund should be in Japanese Treasury bonds?

The situation for US total bond is not so severe but I have the same criticism.
The positive reasons that resulted in the biggest positions in total stock market being Apple and Google do not hold up for total bond type funds.
"Biggest debtor" status is not a good reason to own bigger positions in specific bond issuers, especially when no consideration is given to yield in that decision.

All one can expect to gain from bond funds is the yield.
A retiree with 25% of their portfolio in a 8-year duration fixed income fund with an SEC yield of 0.70%?
A 50% of portfolio blended fixed income position of 7 years (TBM+TIBM) at 1.54%?
Ouch and ouch.

truenorth418
Posts: 381
Joined: Wed Dec 19, 2012 7:38 am

Re: Vanguard recommended Retirement allocation too simple?

Post by truenorth418 » Sun Jul 02, 2017 1:55 pm

The proposed asset allocation seems like Vanguard boilerplate. I received the exact same allocation advice from a Vanguard advisor a few years ago. For me I was surprised on two counts:

- I was retired and age 50, with a decent pension awaiting me a few years down the road. I would have expected a more aggressive stock allocation under those circumstances, even a 60/40 stock/bond split.

- therefore the advice seemed generic. Not to say that it wasn't good advice or a reasonable portfolio idea, but if that's going to be the advice for most every client, maybe they should just say that up front when you ask for them it. I mean, do they really need to pay "advisors" to deliver the exact same portfolio to most everyone? Maybe they could save a little more money and just send a link to a webpage with this allocation and leave it at that?

User avatar
nedsaid
Posts: 9718
Joined: Fri Nov 23, 2012 12:33 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by nedsaid » Sun Jul 02, 2017 2:36 pm

I think this is a perfectly fine portfolio. Here is a question to ask your advisor: Why are both my stocks and bonds 50% in US and 50% in International? You could point out that the Vanguard Target Date Retirement and LifeStrategy funds have 40% of stocks and 30% of bonds in International. Pretty much, why is your advisor putting you into more International investments than what Vanguard recommends?

It isn't that I think your advisor has made a bad choice, the reason for asking the question is to find out the reasoning behind his recommendation. For example, he might think that International investments are cheaper than US investments. Or he might be trying to get you into a portfolio that more closely resembles the world securities market.

What I am saying is that you want to know not only WHAT the advisor recommends but also the WHY behind his recommendations. If you know why, you will feel more comfortable with what the advisor has recommended and you will be more likely to stick with the plan when bad markets hit.

I would also ask the advisor to run Monte Carlo simulations which give you a portfolio success rate (a successful portfolio is not exhausted in retirement) , a good idea of how much your portfolio value might fluctuate, and a range of how much the portfolio might grow over a time period of many years. This gives you an idea of how much risk you are taking with this portfolio.
A fool and his money are good for business.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard recommended Retirement allocation too simple?

Post by dbr » Sun Jul 02, 2017 2:46 pm

nedsaid wrote:I think this is a perfectly fine portfolio. Here is a question to ask your advisor: Why are both my stocks and bonds 50% in US and 50% in International? You could point out that the Vanguard Target Date Retirement and LifeStrategy funds have 40% of stocks and 30% of bonds in International. Pretty much, why is your advisor putting you into more International investments than what Vanguard recommends?

It isn't that I think your advisor has made a bad choice, the reason for asking the question is to find out the reasoning behind his recommendation. For example, he might think that International investments are cheaper than US investments. Or he might be trying to get you into a portfolio that more closely resembles the world securities market.

What I am saying is that you want to know not only WHAT the advisor recommends but also the WHY behind his recommendations. If you know why, you will feel more comfortable with what the advisor has recommended and you will be more likely to stick with the plan when bad markets hit.

I would also ask the advisor to run Monte Carlo simulations which give you a portfolio success rate (a successful portfolio is not exhausted in retirement) , a good idea of how much your portfolio value might fluctuate, and a range of how much the portfolio might grow over a time period of many years. This gives you an idea of how much risk you are taking with this portfolio.
I agree with nedsaid that this situation would benefit from explanation. That is why I went on with the sarcasm about the 50/50s.

User avatar
nedsaid
Posts: 9718
Joined: Fri Nov 23, 2012 12:33 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by nedsaid » Sun Jul 02, 2017 2:52 pm

dbr wrote:
nedsaid wrote:I think this is a perfectly fine portfolio. Here is a question to ask your advisor: Why are both my stocks and bonds 50% in US and 50% in International? You could point out that the Vanguard Target Date Retirement and LifeStrategy funds have 40% of stocks and 30% of bonds in International. Pretty much, why is your advisor putting you into more International investments than what Vanguard recommends?

It isn't that I think your advisor has made a bad choice, the reason for asking the question is to find out the reasoning behind his recommendation. For example, he might think that International investments are cheaper than US investments. Or he might be trying to get you into a portfolio that more closely resembles the world securities market.

What I am saying is that you want to know not only WHAT the advisor recommends but also the WHY behind his recommendations. If you know why, you will feel more comfortable with what the advisor has recommended and you will be more likely to stick with the plan when bad markets hit.

I would also ask the advisor to run Monte Carlo simulations which give you a portfolio success rate (a successful portfolio is not exhausted in retirement) , a good idea of how much your portfolio value might fluctuate, and a range of how much the portfolio might grow over a time period of many years. This gives you an idea of how much risk you are taking with this portfolio.
I agree with nedsaid that this situation would benefit from explanation. That is why I went on with the sarcasm about the 50/50s.
Hate to say it, but maybe 50/50 is a nice round number. There is a beautiful symmetry of 25/25/25/25. Sort of like a classic sculpture, simple but beautiful. I just loved the nickname suggested by another poster: the four leaf clover portfolio. Hey, someone needs to trademark that!
A fool and his money are good for business.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard recommended Retirement allocation too simple?

Post by dbr » Sun Jul 02, 2017 2:59 pm

nedsaid wrote:
Hate to say it, but maybe 50/50 is a nice round number. There is a beautiful symmetry of 25/25/25/25. Sort of like a classic sculpture, simple but beautiful. I just loved the nickname suggested by another poster: the four leaf clover portfolio. Hey, someone needs to trademark that!
Right, that is what I was going on about in my post. It is not just beautiful but appeals to mysticism and to some sophisticated mathematical notions. I do really like the cloverleaf. But all of that is a pretty pathetic set of motives for a professional investment advisor to bring to the table without at least being explicit: "It doesn't make any difference. You could throw darts at a board and do as well as I have done. But, you have to admit it sure looks nice. Besides that it is easy to remember what you have; they are all the same. And, no one can ask you why you have more of this than that." I see a lot of winners in there.

User avatar
nedsaid
Posts: 9718
Joined: Fri Nov 23, 2012 12:33 pm

Re: Vanguard recommended Retirement allocation too simple?

Post by nedsaid » Sun Jul 02, 2017 3:12 pm

dbr wrote:
nedsaid wrote:
Hate to say it, but maybe 50/50 is a nice round number. There is a beautiful symmetry of 25/25/25/25. Sort of like a classic sculpture, simple but beautiful. I just loved the nickname suggested by another poster: the four leaf clover portfolio. Hey, someone needs to trademark that!
Right, that is what I was going on about in my post. It is not just beautiful but appeals to mysticism and to some sophisticated mathematical notions. I do really like the cloverleaf. But all of that is a pretty pathetic set of motives for a professional investment advisor to bring to the table without at least being explicit: "It doesn't make any difference. You could throw darts at a board and do as well as I have done. But, you have to admit it sure looks nice. Besides that it is easy to remember what you have; they are all the same. And, no one can ask you why you have more of this than that." I see a lot of winners in there.
I still think this is a good portfolio and would be perfectly fine for the original poster. Just would want a good explanation why the 25/25/25/25 mix. I am also having a bit of fun teasing about the round numbers. The thing is, we don't know the future and it is impossible to "optimize" a portfolio. Is there something out there better than what the Vanguard advisor recommended? Hard to say. What I would say is that the recommendation is plenty good enough. Years from now, the original poster would be pleased with the investment results of such a portfolio.
A fool and his money are good for business.

User avatar
nisiprius
Advisory Board
Posts: 36036
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Vanguard recommended Retirement allocation too simple?

Post by nisiprius » Sun Jul 02, 2017 3:51 pm

It's not too simple. It may or may not be exactly what you decide you want, but do not be scared off by the simplicity. Just the opposite: you should start with something this simple or simpler and dig in your heels and be sure you have a good reason, a reason you understand, for every additional complication you add.

I remember feeling exactly the same way when, having owned the Fidelity Freedom 2015 fund in my 401(k), I first noticed the composition of the Vanguard Target Retirement 2015 fund. I thought Vanguard was doing some kind of cheap-and-cheesy, rough-and-ready shortcut. The exact composition of both funds has varied a bit, but the present-day compositions will absolutely give you the idea. I just assumed that Fidelity's fund managers must really be experts and their must be a good reason for each and every little 1.47%-of-portfolio and 0.74%-of-portfolio holding:

Fidelity's 27-fund approach

Fidelity Series Equity-Income Fund 5.53%
Fidelity Series Growth Company Fund 4.92%
Fidelity Series Growth & Income Fund 3.93%
Fidelity Series Stock Selector Large Cap Value Fund 3.92%
Fidelity Series Intrinsic Opportunities Fund 3.73%
Fidelity Series Opportunistic Insights Fund 2.71%
Fidelity Series Blue Chip Growth Fund 2.49%
Fidelity Series All-Sector Equity Fund 2.35%
Fidelity Series Small Cap Opportunities Fund 2.02%
Fidelity Series 1000 Value Index Fund 1.47%
Fidelity Series 100 Index Fund 1.23%
Fidelity Series Small Cap Discovery Fund 0.69%
Fidelity Series Real Estate Equity Fund 0.46%

Fidelity Series Commodity Strategy Fund 1.54%

Fidelity Series International Growth Fund 5.94%
Fidelity Series International Value Fund 5.75%
Fidelity Series International Small Cap Fund 1.36%
Fidelity Series Emerging Markets Fund 7.43%

Fidelity Series Investment Grade Bond Fund 26.28%
Fidelity Series Long-Term Treasury Bond Index Fund 0.02%
Fidelity Series Inflation-Protected Bond Index Fund 1.84%
Fidelity Series High Income Fund 1.50%
Fidelity Series Floating Rate High Income Fund 0.24%
Fidelity Series Emerging Markets Debt Fund 0.74%

Fidelity Series Real Estate Income Fund 0.48%
Fidelity Series Government Money Market Fund 8.52%
Fidelity Series Short-Term Credit Fund 2.85%

Vanguard's 5-fund approach

Vanguard Total Bond Market II Index Fund Investor Shares 31.7%
Vanguard Total Stock Market Index Fund Investor Shares 26.6%
Vanguard Total International Stock Index Fund Investor Shares 17.7%
Vanguard Total International Bond Index Fund Investor Shares 13.6%
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares 10.4%

Part performance blah blah, but I think this shows there's nothing terribly wrong with Vanguard's seemingly simplistic approach. (Not that there's anything all that awful about Fidelity's). Notice that not only did Vanguard's fund have a higher return, but they were just about equal in the size of the decline in 2008-2009, so this higher return came with about the same amount of risk.

Blue, Fidelity's 27-fund approach, Fidelity Freedom 2015, FFVFX
Orange, Vanguard's 5-fund approach, Vanguard Target Retirement 2015, VTFVX

Source

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

asset_chaos
Posts: 1310
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: Vanguard recommended Retirement allocation too simple?

Post by asset_chaos » Sun Jul 02, 2017 7:23 pm

I agree with everyone else that the simplicity is a good thing. The allocation is probably slightly atypical in that there's more foreign than a typical retiree has. On the other hand, maybe retirees should have a portfolio more like the suggested one. What that portfolio is is very close to matching the total global stock and bond markets, i.e. close to making no bets or tilts away from the market portfolio. I suspect that if you can stay the course with that portfolio, that it will meet your investing needs.
Regards, | | Guy

Post Reply