Sanity Check: Roth IRA Asset Allocation w/ Schwab

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pinecamp
Posts: 3
Joined: Tue Sep 12, 2017 4:33 pm

Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by pinecamp » Tue Sep 12, 2017 5:44 pm

Hello everyone,

I'm new to Bogleheads, so thanks for having me! :)

I'm looking for feedback, constructive criticism, and suggestions regarding the planned re-allocation of my Roth IRA. I recently moved this account to Schwab from Wells Fargo Advisors after receiving very poor advice (and returns), and I'd like to do better for the future. First some background info, and then questions towards the bottom...

Emergency Fund: Yes.
Debt: $22.6k Direct Loans @ ~4.25%
Tax Rate: 15%, will be 25% next year
Age: Mid 20's

Current Roth IRA:
15k Cash (after selling terrible mutual fund from WF)
5k FDSTX (plan to sell when re-allocating)

I additionally have a small but significant-for-me portfolio of cryptocurrency, which I have held over the past few years.

The Plan(?) for Roth IRA
Stocks (90%)
- 65% SCHB: US Broad Market, 0.03% ER
- 10% SCHA: U.S. Small-Cap, 0.05% ER
- 15% SCHF: International Equity, 0.06% ER
- 5% SCHE: Emerging Markets Equity, 0.13% ER
- 5% SCHC: International Small-Cap Equity ETF, 0.12% ER

Bonds (10%)
- 75% SCHZ: U.S. Aggregate Bond, 0.04% ER
- 25% International bond ETF? (Looking for advice here)

I have a high tolerance to risk in the form of short-term variance (see crypto), but this is my retirement account, so I want to make sure my choices make sense over the long term. My thinking with the setup above is to tilt small and foreign, in the hopes of catching greater long-term growth in those areas. Here are my questions for the bogleheads! :)
  1. Does my execution of this idea make sense, or am I leaning too far into the riskier categories?
  • Would you recommend different allocations, or different funds that better suit moderately aggressive long-term growth?
  • What funds should I consider for international bond exposure?
Thank you so much for reading--I'd love to hear any input you might have! I'm pretty new to all this, and looking to learn more.
Last edited by pinecamp on Tue Sep 12, 2017 8:52 pm, edited 1 time in total.

JBTX
Posts: 1522
Joined: Wed Jul 26, 2017 12:46 pm

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by JBTX » Tue Sep 12, 2017 6:37 pm

pinecamp wrote:
Tue Sep 12, 2017 5:44 pm
Hello everyone,

I'm new to Bogleheads, so thanks for having me! :)

I'm looking for feedback, constructive criticism, and suggestions regarding the planned re-allocation of my Roth IRA. I recently moved this account to Schwab from Wells Fargo Advisors after receiving very poor advice (and returns), and I'd like to do better for the future. First some background info, and then questions towards the bottom...

Emergency Fund: Yes.
Debt: $22.6k Direct Loans @ ~4.25%
Tax Rate: 15%, will be 25% next year
Age: Mid 20's

Current Roth IRA:
15k Cash (after selling terrible mutual fund from WF)
5k FDSTX (plan to sell when re-allocating)

I additionally have a small but significant-for-me portfolio of cryptocurrency, which I have held over the past few years.

The Plan(?) for Roth IRA
Stocks (90%)
- 65% SCHB
- 10% SCHA
- 15% SCHF
- 5% SCHE
- 5% SCHC

Bonds (10%)
- 75% SCHZ
- 25% International bond ETF? (Looking for advice here)

I have a high tolerance to risk in the form of short-term variance (see crypto), but this is my retirement account, so I want to make sure my choices make sense over the long term. My thinking with the setup above is to tilt small and foreign, in the hopes of catching greater long-term growth in those areas. Here are my questions for the bogleheads! :)
  1. Does my execution of this idea make sense, or am I leaning too far into the riskier categories?
  • Would you recommend different allocations, or different funds that better suit moderately aggressive long-term growth?
  • What funds should I consider for international bond exposure?
Thank you so much for reading--I'd love to hear any input you might have! I'm pretty new to all this, and looking to learn more.
From my perspective, your choices and allocations make sense. I can understand wanting a little bit of small cap tilt and a little bit of emerging markets, especially at a young age. I don't know much about the Schwab ETF's but I am going to assume they are low fee ETF's.

While the allocations make sense, I don't know how much we are talking about here. For instance, if you $25K or less (my arbitrary number) that could be a viewed as a lot of holding for a small amount. I am sure some here will advocated a simpler approach, like a 3 fund approach

billfromct
Posts: 510
Joined: Tue Dec 03, 2013 9:05 am

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by billfromct » Tue Sep 12, 2017 6:50 pm

You're not going to get much feedback unless you list the fund names & expense ratios.

Not many people have memorized the thousands of mutual fund symbols yet.

I'm still working on the 10-15 Vanguard mutual funds symbols in my Roth IRA, Rollover IRA & taxable accounts.

bill

pinecamp
Posts: 3
Joined: Tue Sep 12, 2017 4:33 pm

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by pinecamp » Tue Sep 12, 2017 8:54 pm

Thanks so much for saying so--I've fixed the OP!
billfromct wrote:
Tue Sep 12, 2017 6:50 pm
You're not going to get much feedback unless you list the fund names & expense ratios.

Not many people have memorized the thousands of mutual fund symbols yet.

I'm still working on the 10-15 Vanguard mutual funds symbols in my Roth IRA, Rollover IRA & taxable accounts.

bill

mhalley
Posts: 5140
Joined: Tue Nov 20, 2007 6:02 am

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by mhalley » Tue Sep 12, 2017 9:37 pm

Bogleheads have yet to embrace intl bonds, so many would say zero in that category. Vanguard likes them a lot, but who is right remains to be seen.

investor997
Posts: 154
Joined: Tue Feb 07, 2017 3:23 pm

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by investor997 » Tue Sep 12, 2017 11:12 pm

If you wanted to make it easy on yourself you could probably just go "all-in" with one of Schwab's newer Target Index Funds. They're comprised of most all the Schwab ETFs you list. Since you're in your mid-20s, you could start with either the 2055 fund (SWYJX) or the 2060 fund (SWYNX). ER is 0.08%. This early on, the glide path looks to be about 90/10. I bet it would accomplish most of what you want with far fewer mouse clicks, plus since it's a mutual fund, you could set up automatic transfers - if you wanted.

More data here: https://www.schwabfunds.com/public/file/P-9430864

rts58
Posts: 7
Joined: Sat Jul 16, 2016 10:35 am

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by rts58 » Tue Sep 12, 2017 11:36 pm

My choices at Schwab are not too different from yours (allocation is, I'm retired). I went with ITOT instead of SCHB, and have not gone into international small cap.

For international bonds I looked at:​
Vanguard Emerging Mkts Govt Bd ETF - VWOB
PowerShares Emerging Markets Sov Dbt ETF - PCY
iShares JP Morgan USD Em Mkts Bd ETF - EMB

I ended up going with PCY because it had a slightly higher YTM (4.95%) a B+ rating and is on Schwab select list so you get free trading.

If I were in my 20's ... Sorry lost my train of thought, oh yeah, I would lean towards picking a target index fund mentioned by investor997.

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in_reality
Posts: 4286
Joined: Fri Jul 12, 2013 6:13 am

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by in_reality » Wed Sep 13, 2017 4:15 am

pinecamp wrote:
Tue Sep 12, 2017 5:44 pm

I'm new to Bogleheads, so thanks for having me! :)
The rule here is we have to be nice to newbies or else.
pinecamp wrote:
Tue Sep 12, 2017 5:44 pm
I additionally have a small but significant-for-me portfolio of cryptocurrency, which I have held over the past few years.
No comments on that. See above. :wink:
pinecamp wrote:
Tue Sep 12, 2017 5:44 pm
The Plan(?) for Roth IRA
Stocks (90%)
- 65% SCHB: US Broad Market, 0.03% ER
- 10% SCHA: U.S. Small-Cap, 0.05% ER
- 15% SCHF: International Equity, 0.06% ER
- 5% SCHE: Emerging Markets Equity, 0.13% ER
- 5% SCHC: International Small-Cap Equity ETF, 0.12% ER

Bonds (10%)
- 75% SCHZ: U.S. Aggregate Bond, 0.04% ER
- 25% International bond ETF? (Looking for advice here)
Nice plan.
pinecamp wrote:
Tue Sep 12, 2017 5:44 pm
I have a high tolerance to risk in the form of short-term variance (see crypto), but this is my retirement account, so I want to make sure my choices make sense over the long term. My thinking with the setup above is to tilt small and foreign, in the hopes of catching greater long-term growth in those areas.
Long term? My concern if I were in my 20's would be how my hair looked but ok seriously...

You aren't tilted to foreign. You are tilted US which is at high valuations and has lower "expected" returns than international.

That said, US equites have positive "expected" real returns so don't hesitate to buy them. International stocks have higher "expected" returns because the market prices them that way for whatever reasons.

I don't view your equities as being too risky. Some will argue high valuation make US equities riskier. Other quote Bogle as saying international "NO!".

A 90% stock 10% bond portfolio going by global market cap now would be:

SCHB 47.9%
SCHF 29.9%
SCHC 4.3%
SCHE 8.0%
SCHZ 10.00%

I put a calculator for Schwab ETFs here. https://docs.google.com/spreadsheets/d/ ... sp=sharing . anyone can edit the page, so log in to a google account and make your own copy if you want to use it. Sometimes Morninstar updates there pages and it stops working temporarily or they change their format and I have to notice and change the page though.

Another option is to go down the rabbit hole of factor investing and use value funds such as FNDC, FNDE, FNDA instead of SCHC, SCHE, and SCHA. But that really is a rabbit hole and if you are lucky maybe it will make a difference after a decade or so of underperformance. No guarantees. None.

There are strong differences here about how much international to hold and whether to go straight market cap or to tilt (even if only to small). Just pick a reasonable low cost index fund allocation and save money.

*** What you want to do is focus on your career, make money and invest as much as you can. That will have a bigger and more certain impact than trying to predict what the best allocation will turn out to be. ***

The target index funds are a great option too.

About bonds:

Local currency emerging market bonds have done well and many believe will continue to do so. Hedged International bonds seems similar to US ones except that inflation and rate hikes will be at a different timing from US ones, so you can have less volatility than being US bond only. No advice here really.

Anyway, I am thinking about moving $65k US holdings to emerging markets, and get close to global market capitilization for the US with an overweight on emerging markets. I couldn't imagine putting money in bitcoin though. Who is right? No idea.

Note: "expected" doesn't mean that things are guaranteed to turn out that way. It could very well not be the case.

aristotelian
Posts: 3037
Joined: Wed Jan 11, 2017 8:05 pm

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by aristotelian » Wed Sep 13, 2017 7:27 am

I know Boglehead have had issues with SWAGX in the past so there are some concerns about SCHZ. Consider SCHR to replace the international bonds and/or some portion of SCHZ.

TheHouse7
Posts: 204
Joined: Fri Jan 13, 2017 2:40 am

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by TheHouse7 » Wed Sep 13, 2017 8:52 pm

rts58 wrote:
Tue Sep 12, 2017 11:36 pm
If I were in my 20's ... Sorry lost my train of thought, oh yeah, I would lean towards picking a target index fund mentioned by investor997.
+1
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

pinecamp
Posts: 3
Joined: Tue Sep 12, 2017 4:33 pm

Re: Sanity Check: Roth IRA Asset Allocation w/ Schwab

Post by pinecamp » Fri Sep 15, 2017 12:21 pm

investor997 wrote:
Tue Sep 12, 2017 11:12 pm
If you wanted to make it easy on yourself you could probably just go "all-in" with one of Schwab's newer Target Index Funds. They're comprised of most all the Schwab ETFs you list. Since you're in your mid-20s, you could start with either the 2055 fund (SWYJX) or the 2060 fund (SWYNX). ER is 0.08%. This early on, the glide path looks to be about 90/10. I bet it would accomplish most of what you want with far fewer mouse clicks, plus since it's a mutual fund, you could set up automatic transfers - if you wanted.

More data here: https://www.schwabfunds.com/public/file/P-9430864
rts58 wrote:
Tue Sep 12, 2017 11:36 pm
If I were in my 20's ... Sorry lost my train of thought, oh yeah, I would lean towards picking a target index fund mentioned by investor997.
in_reality wrote:
Wed Sep 13, 2017 4:15 am
*** What you want to do is focus on your career, make money and invest as much as you can. That will have a bigger and more certain impact than trying to predict what the best allocation will turn out to be. ***

The target index funds are a great option too.
Thanks for the insight, everybody. After looking more closely at the target date funds, I realized they're allocated with a similar approach to my own--and probably with better reasons. I'll start off keeping things simple with SWYJX. Thank you all very much! :)

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