Do you manage your asset allocation like a Target Fund?

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rgs92
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Do you manage your asset allocation like a Target Fund?

Post by rgs92 » Mon Aug 14, 2017 11:42 am

Do you adjust your asset allocation as you age like a target fund does? Why or why not?
(This assumes that you don't use target funds for the bulk of your retirement portfolio.)
Thank you.

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willthrill81
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Re: Do you manage your asset allocation like a Target Fund?

Post by willthrill81 » Mon Aug 14, 2017 11:46 am

I'd say that most Bogleheads use some type of glidepath, meaning they reduce their exposure to stocks and increase their exposure to bonds as they age until they hit retirement. At the point of retirement, there are many plausible options used by lots of people. You can maintain a stable AA at that point, you can continue to move from equities into bonds, or you can actually begin moving from bonds back into equities. I'd say that most seem to maintain a stable AA at that point.

Most of us don't use the same glidepath as target date funds, though. For instance, I'll be 100% equities until I'm 10 years from my anticipated retirement. And unlike all target date funds I've seen, my allocation to stocks will probably never drop below 60%. Relatively few Bogleheads have only 30% in stocks in retirement, which is what many target date funds do.
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retiredjg
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Re: Do you manage your asset allocation like a Target Fund?

Post by retiredjg » Mon Aug 14, 2017 11:48 am

I do/did up to a point....once I started paying attention to my AA. Prior to that, I could not have told you what it was. Once I started migrating toward more bonds, I stopped at about 50/50.

Why did I migrate toward more bonds ? To reduce risk as I entered retirement. And I've migrated a little more since then.
Last edited by retiredjg on Mon Aug 14, 2017 12:10 pm, edited 2 times in total.

rgs92
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Re: Do you manage your asset allocation like a Target Fund?

Post by rgs92 » Mon Aug 14, 2017 11:55 am

Yep, it looks like target funds (mindlessly?) drop your stock allocation to very low levels as you get older, like down to 20% eventually (I think).
I have not heard anyone here recommending that.

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powermega
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Re: Do you manage your asset allocation like a Target Fund?

Post by powermega » Mon Aug 14, 2017 11:56 am

This is exactly what we do. Every January we rebalance our entire portfolio to match that of the 2035 TDF, along with a couple of tilts (REITs, SCV). Along the way our 401k contributions buy the TDF itself. The TDF funds themselves make up about 50% of our entire portfolio, and the components of the TDF make up another 35%. This is our way of taking our emotions and egos out of the decision making and using a strategy that we know is reasonable and rational.
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bligh
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Re: Do you manage your asset allocation like a Target Fund?

Post by bligh » Mon Aug 14, 2017 11:59 am

Yup. I started with a holding of 20% in bonds at age 35 and have increased by 1% every year since then. Keeps me disciplined to stay the course so I don't find myself thinking 'maybe I should just be 60/40 and forget the whole thing' in the middle of a bear market.

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Re: Do you manage your asset allocation like a Target Fund?

Post by bigred77 » Mon Aug 14, 2017 12:04 pm

I hold a lower percentage of equities than most TD funds applicable to my age and estimated retirement date.
I will hold a higher percentage of equities in retirement than TD funds usually do (or at least I plan to).

I prefer to just change my AA 1 or 2 times over my lifetime. Right now I'm 75/25 in my early 30s. I plan to hold that AA constant until I get near retirement and then change it just once to 60/40. I think once I get within a decade or so of retiring I'll start thinking of pulling the trigger. I'd prefer to do it (obviously) after a positive sequence of returns. I'd prefer to derisk too early rather than too late. Once I hit 50, the next time the S&P500 hits another all time high I'll make the switch (hows that for unsophisticated market timing :D ).

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iceport
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Re: Do you manage your asset allocation like a Target Fund?

Post by iceport » Mon Aug 14, 2017 12:05 pm

rgs92 wrote:
Mon Aug 14, 2017 11:42 am
Do you adjust your asset allocation as you age like a target fund does? Why or why not?
(This assumes that you don't use target funds for the bulk of your retirement portfolio.)
Thank you.
Nope! See here, explained in more detail here.

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Last edited by iceport on Mon Aug 14, 2017 12:18 pm, edited 1 time in total.
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livesoft
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Re: Do you manage your asset allocation like a Target Fund?

Post by livesoft » Mon Aug 14, 2017 12:09 pm

No. I want an asset allocation that is heavily tilted to small-caps and to value equities with US:foreign about 50:50. Target funds don't go for that kind of asset allocation except maybe DGSIX is closer than some. However, DGSIX trails behind what I can do by myself.
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remomnyc
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Re: Do you manage your asset allocation like a Target Fund?

Post by remomnyc » Mon Aug 14, 2017 12:11 pm

A target fund gets more conservative over time. I went from 80/20 during accumulation to 60/40 overall (55/45 for retirement funds) at early retirement (scheduled for next year) and will be spending fixed income, resulting in a glide path toward a higher equity allocation as I age.

jlcnuke
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Re: Do you manage your asset allocation like a Target Fund?

Post by jlcnuke » Mon Aug 14, 2017 12:31 pm

I plan to remain close to 100% equities on my investment portfolio until probably the year I retire. I do have a pension that will cover almost 100% of my "necessities" in retirement however, so that makes me comfortable maintaining a higher risk portfolio than I would without it.

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Re: Do you manage your asset allocation like a Target Fund?

Post by grabiner » Tue Aug 15, 2017 11:00 pm

I don't match a target-date fund in my allocation, but I am getting more conservative over time in the same way that target-date funds do I am currently 94% net stock (counting my mortgage as a negative bond), decreasing this by 2% per year as retirement approaches. The change in my invested portfolio is closer to 1% per year, as the mortgage balance decreases as a percentage of my portfolio, because the mortgage gets paid down and the portfolio value goes up.
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prudent
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Re: Do you manage your asset allocation like a Target Fund?

Post by prudent » Wed Aug 16, 2017 11:59 am

Topic moved to Investing - Help with Personal Investments.

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jhfenton
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Re: Do you manage your asset allocation like a Target Fund?

Post by jhfenton » Wed Aug 16, 2017 12:10 pm

livesoft wrote:
Mon Aug 14, 2017 12:09 pm
No. I want an asset allocation that is heavily tilted to small-caps and to value equities with US:foreign about 50:50. Target funds don't go for that kind of asset allocation except maybe DGSIX is closer than some. However, DGSIX trails behind what I can do by myself.
+1 for us.

Also, I never want to be as conservative as Vanguard's target funds are in retirement (30/70). I doubt that we will ever be more conservative than 60/40 (we'll probably be somewhere in the 50/50 to 66/34 range), and I believe the funds should stop at 40/60.

Also, we use a present value/target value glide path, as opposed to a time-based glide path. (I have klangfool to thank for that idea.)

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Re: Do you manage your asset allocation like a Target Fund?

Post by Grt2bOutdoors » Wed Aug 16, 2017 12:33 pm

No - currently at 70/30, intending to step down to 60/40, likely to go to 50/50 as we get closer to retirement (keep it simple for spouse).
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whodidntante
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Re: Do you manage your asset allocation like a Target Fund?

Post by whodidntante » Wed Aug 16, 2017 12:48 pm

Your risk tolerance defines your willingness to take risk.
Your portfolio size defines your need to take risk.
Your timeframe defines your ability to take risk.

Target date glide paths assume the timeframe dominates. It doesn't, at least not always.

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nedsaid
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Re: Do you manage your asset allocation like a Target Fund?

Post by nedsaid » Wed Aug 16, 2017 2:37 pm

rgs92 wrote:
Mon Aug 14, 2017 11:42 am
Do you adjust your asset allocation as you age like a target fund does? Why or why not?
(This assumes that you don't use target funds for the bulk of your retirement portfolio.)
Thank you.
I am starting to. Vanguard, Fidelity, T. Rowe Price have their stock allocation at 65%-66% for their Target Date Retirement 2025 funds. Right now, I am at 67%. Time to start de-risking again!
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Texanbybirth
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Re: Do you manage your asset allocation like a Target Fund?

Post by Texanbybirth » Wed Aug 16, 2017 2:41 pm

Yep, exactly like the Vanguard TD2050 fund because that's all we own. :D

Dude2
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Re: Do you manage your asset allocation like a Target Fund?

Post by Dude2 » Wed Aug 16, 2017 3:51 pm

No, I do not do age in bonds nor glide slope.

I've held at 50/50 since the 2008 crash and plan to keep it there. In retirement (in around 17 years) I will hold more cash. Maybe that's cheating, but I don't consider the cash part of the AA. It's a larger emergency fund.

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Dale_G
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Re: Do you manage your asset allocation like a Target Fund?

Post by Dale_G » Wed Aug 16, 2017 4:31 pm

No downward glide path here. Five years ago I modified my IPS to allow our equity allocation to rise - with only partial re-balancing along the way. A bit more than a year ago, I further modified the IPS to cap bonds at a maximum dollar amount - an amount that is far beyond what I ever expect to use. Beyond the cap, all excess funds go to equities.

I am presently 71% equities. I intend to remove the bond cap and begin rebalancing again when equities reach 80% of the portfolio. Assuming bonds do nothing, this will occur if and when equities return an additional 62%. At 80 YO, I guess I am an optimist. :)

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ruralavalon
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Re: Do you manage your asset allocation like a Target Fund?

Post by ruralavalon » Wed Aug 16, 2017 5:16 pm

No, I never have.

Currently retired. We have had a 50/50 asset allocation since 2008 before my retirement of 2011, still have that asset allocation, and have no plans to change.
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Re: Do you manage your asset allocation like a Target Fund?

Post by guyesmith » Fri May 18, 2018 8:06 am

whodidntante wrote:
Wed Aug 16, 2017 12:48 pm
Your risk tolerance defines your willingness to take risk.
Your portfolio size defines your need to take risk.
Your timeframe defines your ability to take risk.

Target date glide paths assume the timeframe dominates. It doesn't, at least not always.
Helpful! That's been my thought with target funds - why would I pool my investment dollars based on timeframe without regard risk tolerance. It is too generalized, which it should be for the larger pool of investors.

soccerrules
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Re: Do you manage your asset allocation like a Target Fund?

Post by soccerrules » Fri May 18, 2018 9:54 am

I think the answer is "it depends". Like the questions of how much money will I need, it depends on YOUR circumstances.

Your AA will depend on a host of factors as well.
Have you won the game?
Do you have a pension, guaranteed income stream to meet some or all of expenses ?
Need more return, late in the game accumulation ?
Investing for future inheritance
Probably have enough and are "coasting" to finish line
age 30 age 80, or in between?
Your thoughts on RISK

The posters that have posted, it would be interested to have them provide a timeline for accumulation and why they made the adjustments along a 20-40 year timeline. I am assuming the majority of people used a glide path of sorts from age 25 to 65, some flatter or steeper than others, again based on their circumstances.
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1CEBITN
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Re: Do you manage your asset allocation like a Target Fund?

Post by 1CEBITN » Fri May 18, 2018 11:53 am

I've been trying to figure out the same question and I'm still on the fence. I currently maintain around a 70/30 equities/fixed ratio in my overall portfolio but have some extra cash to invest now. I'm maxing my 401k, can't put any money in Roth or traditional IRA, and am pretty close to maxed on my HSA so I have to go taxable. I am leaning towards a TDF that is in 2055 vs my (hopeful) retirement in 2035-2040 somewhere to avoid what others are saying is too quick a transition into fixed and I want to be a little more aggressive with this money now. The 2055 TDF (VFFVX) is 90/10 equities/fixed now and, assuming I can retire when I hope to, it will be 70/30 at that point. 15 years into my planned retirement It'll be at 50/50 and who knows if I'll even live that long. You can pick whatever TDF you want based on using the fact Vanguard shoots for 50/50 at retirement and tip towards fixed after that. Use that info to do the math based on what the allocations are now to see about where they will be at what time and you can likely find a TDF that will work if you really want that.

The other benefit to TDFs is you don't have to pay any gains to sell out of one index fund and move that money to another for rebalancing purposes, the TDF does that for you and it isn't a taxable transaction since it's a fund of funds. To avoid any capital gains annually when you rebalance you could also add more cash into one fund or the other which would work to. I like the TDF's set it and forget it functionality, just have to pick one with the mix you want and the glidepath you want. They do have a higher ER (.15%) compared to admiral shares of individual index funds but that may be a wash if you pay gains to rebalance the individual index funds every year. The downside is, when you need to sell you have to sell all of it, you can't pick just to sell from the fixed part of the TDF or the equities part.

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