Thoughts on AA before I make a change?

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Topic Author
AaronScott
Posts: 76
Joined: Mon May 23, 2016 5:02 pm

Thoughts on AA before I make a change?

Post by AaronScott »

Emergency Funds: 6 Months
Debt: ~16.5k in student loans @ 6.55% (in the process of refinancing to 4.25%), ~14.5k in car loans @1.9%
Tax Filing Status: Single
Tax Rate: 25% federal, 6.45% state (both marginal)
State: NY
Age: 26
Desired Asset Allocation: 85% Stocks, 15% Bonds*
Desired International: 20% of Stocks (open to going up a little)*
(*My question pertains to the details of my allocation)

Current Retirement Assets - all in 403(b):
30% VFINX - Vanguard 500 Index Inv
20% VTRIX - Vanguard International Value Inv
20% NAESX - Vanguard Small Cap Index Inv
15% VEIEX - Vanguard Emerging Mkts Stock Idx Inv
15% VIMSX - Vanguard Mid Cap Index Inv
Total Expense Ratio: 0.26%

Size of current portfolio: Less than 10k
Contributions: 10%/month (no employer match)
Available funds: Assuming I'm entirely in Vanguard (preferred for simplicity), all mutual funds with a 1k and 3k minimum investment are available
Pension: New York State Teachers Retirement System, Tier 6

Questions:
The above asset allocation was created for me by a CFP. I like him, but I know that unless I come up with my own AA I'll struggle to stick with it in bad times. So I've been revisiting AA and I think I have a rough sketch of something I like (realized I did not like one above!), but I could use some advice before I move forward.

My thought process:
Bonds = Age - 10, rounded to nearest 5 (I could revisit every 5 years)
International: 20% of stocks, but if people advise more I'm OK going up
REITs: 10% of stocks, just for diversification (could go up or down based on advice)

That leaves me with:
15% VBMFX - Total Bond Market
17% VGTSX - Total International Stock
8.5% VGSIX - REITs
59.5% ???????????????

What to do with the other 59.5%? I'm a little torn. The most simple plan would be to throw it all in VTSMX - Total Stock Market (or S&P?). Or I could slice and dice with LCB, LCV, SCB, SCV. Or perhaps a good "middle ground" is to do something like put 8.5% each in SCB and SCV, and the remaining 42.5% in TSM. I got this idea from Bogle's "Telltale Chart" speech, and I wonder if this could be a good way to split the difference in the slice and dice / tilting debate:
And even if you don't accept my challenge to S&D, I urge you, before you plunge into a 4x25 portfolio, to put more than 25% in the total market—say 55%. Then put just 15% in the three slices that you dice, thereby taking much of the risk out of your decision. Think then, about a 1 x 55% + 3 x 15% portfolio. If it is true, as Dr. Fama (and most other academics, to say nothing of many, many practitioners) says, that "for most people, the market portfolio is the most sensible decision," you might as well make the most of it.
Also, on a side note - wondering if maybe I should split the Total Foreign Stock 50/50 between Developing and Emerging Markets.

Anyway, thoughts? All input is valued! I'm so grateful to have discovered this community while I am young. I am quite confident saying the entire trajectory of my financial life will forever be in debt to the world of Bogleheads!
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: Thoughts on AA before I make a change?

Post by livesoft »

I split US roughly 50:50 between Total Stock Market and Small Cap Value.

I split foreign roughly 50:50 between Total Int'l Stock Market and Small Cap Foreign.

See also: viewtopic.php?t=38374

And one can start with just Total Stock Market, then later add Total Int'l Stock Market, and even laer add the others.
Last edited by livesoft on Wed Jul 05, 2017 9:31 pm, edited 1 time in total.
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tombonneau
Posts: 94
Joined: Tue May 23, 2017 4:24 pm

Re: Thoughts on AA before I make a change?

Post by tombonneau »

I would put all $10k into TSM. As you accumulate more, you could diversify international (or whichever class you prefer). I wouldn't worry about bonds yet at that level.

Honestly, you are already taking care of the hard part which is getting started. Wish I had done the same at your age!
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Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: Thoughts on AA before I make a change?

Post by Taylor Larimore »

AaronScott:

In my opinion, you are a good candidate for The Three-Fund Portfolio with its many advantages.

Please read my "Simplicity" link below.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
AaronScott
Posts: 76
Joined: Mon May 23, 2016 5:02 pm

Re: Thoughts on AA before I make a change?

Post by AaronScott »

Taylor Larimore wrote:AaronScott:

In my opinion, you are a good candidate for The Three-Fund Portfolio with its many advantages.

Please read my "Simplicity" link below.

Best wishes.
Taylor
Thank you, Taylor! After some contemplation, I have decided to do just this. I came to the realization that the biggest risk I may face over my life is behavioral risk. All the books and articles talk about this in terms of market timing, reacting to bubble bursts, etc., but I know my biggest risk will forever be my eternal desire to tinker, customize, personalize, and search endlessly for perfection. I think your "Simplicity" link shocked me into this realization. The goal is not to make as much money as I can; the goal is to make enough money to meet my needs.

Thank you again!
EdLaFave
Posts: 434
Joined: Fri Dec 26, 2014 1:31 am

Re: Thoughts on AA before I make a change?

Post by EdLaFave »

AaronScott wrote:The goal is not to make as much money as I can; the goal is to make enough money to meet my needs.
If you listen to people like Bogle they'll tell you that they're not convinced all of this slicing and dicing will yield extra returns going forward. We know it has in the past, but survivorship bias means those are the only techniques we'll hear about. As Boogle likes to say, "past isn't prologue".

...long story short, I'm not willing to concede that a 3 fund portfolio will under-perform.
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