Reduce risk tolerance - Vanguard Target Funds

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tampaite
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Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 11:43 am

Down just hit 24K and my tolerance for risk has reduced. Call it market timing but I'd like to reduce my risk(am in my 40s now)

I have my entire 401K in Vanguard 2050 fund(89.97% Stocks/9.98% Bonds).

Here is my thinking - poke any holes in it :D

Existing $ in 401k - If I want to take on lower risk and say, want to invest in Vanguard 2030 fund(71.26% Stocks/28.71% Bonds). I believe its as simple as exchanging one fund for another i,e. 2050(sell) for 2030(buy). Correct?
New contribution $ into 401k - continue with 2050 fund.

Any downside to this thinking?

chevca
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 11:46 am

In a 401k, yes, it's as simple as just exchanging one fund for the other.

Has your risk tolerance changed for good, or just for now? Why would you still contribute to the 2050 fund? You would just be slowly going more risky again as it drifted away from the 2030 AA. Why do that?

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CABob
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by CABob » Thu Nov 30, 2017 11:57 am

tampaite wrote:
Thu Nov 30, 2017 11:43 am
Here is my thinking - poke any holes in it :D

Existing $ in 401k - If I want to take on lower risk and say, want to invest in Vanguard 2030 fund(71.26% Stocks/28.71% Bonds). I believe its as simple as exchanging one fund for another i,e. 2050(sell) for 2030(buy). Correct?
New contribution $ into 401k - continue with 2050 fund.

Any downside to this thinking?
That works. Another way would be to add a bond fund to your account and transfer a portion of assets to it.
Personally, although it is not a real problem, I would probably not want two different TR funds in the account.
I'm also wondering why you would continue contributing to the 2050 fund rather than the 2030 fund?
Do you consider this a permanent change to your allocations or is it only temporary market timing? :twisted:
Bob

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goingup
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by goingup » Thu Nov 30, 2017 12:07 pm

How's about swapping your balance and future contributions to TR2040 and call it good? Why have 2 TR funds when one can suffice.

tampaite
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 1:23 pm

chevca wrote:
Thu Nov 30, 2017 11:46 am
Has your risk tolerance changed for good, or just for now? Why would you still contribute to the 2050 fund?
CABob wrote:
Thu Nov 30, 2017 11:57 am
I'm also wondering why you would continue contributing to the 2050 fund rather than the 2030 fund?
Do you consider this a permanent change to your allocations or is it only temporary market timing? :twisted:
goingup wrote:
Thu Nov 30, 2017 12:07 pm
How's about swapping your balance and future contributions to TR2040 and call it good? Why have 2 TR funds when one can suffice.
Thanks all for responses.

I was essentially looking at this as two different buckets of money(call it 1A(existing $ amount) that I've been contributing for the past 1-2 decades and 1B(new $ contribution amount) that I intend to contribute for next 1-2 decades).

1A will match current risk tolerance but i don't want to give up on potential for higher returns so 1B will account for it. 1B will be starting from $0

To distingush between 1A and 1B contributions hence, 2030 and 2050 fund investment.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 1:28 pm

Simple question.... if you will be contributing for 1 or 2 more decades, what do you care about where the market is now?

chevca
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 1:31 pm

Also, do you realize how conflicting it is to say/think your risk tolerance is lower, but you still want higher expected returns?

tampaite
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 1:42 pm

chevca wrote:
Thu Nov 30, 2017 1:31 pm
Also, do you realize how conflicting it is to say/think your risk tolerance is lower, but you still want higher expected returns?
It's not. I think am being clearer(i hope so) that separating the money into two buckets, i get to enjoy both sides.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 1:43 pm

chevca wrote:
Thu Nov 30, 2017 1:28 pm
Simple question.... if you will be contributing for 1 or 2 more decades, what do you care about where the market is now?
This is only for *new* contributions.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by Tyler Aspect » Thu Nov 30, 2017 1:52 pm

tampaite wrote:
Thu Nov 30, 2017 11:43 am
Down just hit 24K and my tolerance for risk has reduced. Call it market timing but I'd like to reduce my risk(am in my 40s now)

I have my entire 401K in Vanguard 2050 fund(89.97% Stocks/9.98% Bonds).

Here is my thinking - poke any holes in it :D

Existing $ in 401k - If I want to take on lower risk and say, want to invest in Vanguard 2030 fund(71.26% Stocks/28.71% Bonds). I believe its as simple as exchanging one fund for another i,e. 2050(sell) for 2030(buy). Correct?
New contribution $ into 401k - continue with 2050 fund.

Any downside to this thinking?
The allocations within the Target Retirement Funds shift every five years. You can make a temporary fix as you described, but if your 401k has a low cost bond index fund and a low cost S&P 500 index fund, then it may be better to get off the Target Retirement Funds entirely.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

chevca
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 1:54 pm

tampaite wrote:
Thu Nov 30, 2017 1:42 pm
chevca wrote:
Thu Nov 30, 2017 1:31 pm
Also, do you realize how conflicting it is to say/think your risk tolerance is lower, but you still want higher expected returns?
It's not. I think am being clearer(i hope so) that separating the money into two buckets, i get to enjoy both sides.
But, it is. You either have the risk tolerance to go for higher returns, or you don't.

chevca
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 1:56 pm

tampaite wrote:
Thu Nov 30, 2017 1:43 pm
chevca wrote:
Thu Nov 30, 2017 1:28 pm
Simple question.... if you will be contributing for 1 or 2 more decades, what do you care about where the market is now?
This is only for *new* contributions.
So, you want to buy at these new highs that you're so afraid of??

I would assume you think the market will be even higher one or two decades from now. Again, what do you care about where the market is now?

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by GLState » Thu Nov 30, 2017 2:01 pm

The level of the Dow shouldn't have any bearing on your risk tolerance.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by pkcrafter » Thu Nov 30, 2017 2:04 pm

Tampaite, you really have to ask yourself why you choose TR2050 in the first place. I guess your aim was to maximize growth, but now you realize you don't want the down side. Trying to dodge market drops isn't going to work.

It appears your risk tolerance isn't as high as you thought, so the thing to do is lower your equity allocation and leave it there. It has to be set to a level where you can ride the potential volatility.

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.

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CABob
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by CABob » Thu Nov 30, 2017 2:06 pm

tampaite wrote:
Thu Nov 30, 2017 1:23 pm
I was essentially looking at this as two different buckets of money(call it 1A(existing $ amount) that I've been contributing for the past 1-2 decades and 1B(new $ contribution amount) that I intend to contribute for next 1-2 decades). The bucket approach is useful to many but it is really just mental accounting. Once money goes into a tax deferred account it tends to lose any distinguishing characteristics.

1A will match current risk tolerance but i don't want to give up on potential for higher returns so 1B will account for it. 1B will be starting from $0
But you will end up with an overall risk tolerance that would be the same as a single fund with an asset allocation between 1A and 1B.

To distinguish between 1A and 1B contributions hence, 2030 and 2050 fund investment. Once the money is into the account it really loses distinction except in your own mind. If that distinction in important to you go for it. In another 5 or 10 years you may want to visit your risk and asset allocation again. Will you then add another fund, transfer between funds, or something else? I suspect that you will find less of a reason to have two buckets.
YMMV
Bob

tampaite
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 2:23 pm

chevca wrote:
Thu Nov 30, 2017 1:56 pm
So, you want to buy at these new highs that you're so afraid of??

I would assume you think the market will be even higher one or two decades from now. Again, what do you care about where the market is now?
I don't know if market will go higher/lower but the risk is lower for me since only new contributions would go-in at these new highs. Am I making sense?
GLState wrote:
Thu Nov 30, 2017 2:01 pm
The level of the Dow shouldn't have any bearing on your risk tolerance.
For me it does, given my age and the $ amount accumulated in my 401k and being in 2050 fund. Heck, if Dow were to double in next year or two, I might sell-all and get out of the market!
pkcrafter wrote:
Thu Nov 30, 2017 2:04 pm
Tampaite, you really have to ask yourself why you choose TR2050 in the first place. I guess your aim was to maximize growth, but now you realize you don't want the down side. Trying to dodge market drops isn't going to work.
Am trying to make it work by putting (only) new contributing into the market.
CABob wrote:
Thu Nov 30, 2017 2:06 pm
tampaite wrote:
Thu Nov 30, 2017 1:23 pm
I was essentially looking at this as two different buckets of money(call it 1A(existing $ amount) that I've been contributing for the past 1-2 decades and 1B(new $ contribution amount) that I intend to contribute for next 1-2 decades). The bucket approach is useful to many but it is really just mental accounting. Once money goes into a tax deferred account it tends to lose any distinguishing characteristics.

Maybe the case but I know mentally that 2030 would be existing money and 2050 will be new money for as long as I don't change anything else. Right?

1A will match current risk tolerance but i don't want to give up on potential for higher returns so 1B will account for it. 1B will be starting from $0
But you will end up with an overall risk tolerance that would be the same as a single fund with an asset allocation between 1A and 1B.

True but it will be skewed more towards 1A(due to $ amount) vs 1B(no $ amount) at the beginning and will tend to skew even lower over the next decade since 1A will adjust to a lower stock/higher bond ratio and so will 1B

To distinguish between 1A and 1B contributions hence, 2030 and 2050 fund investment. Once the money is into the account it really loses distinction except in your own mind. If that distinction in important to you go for it. In another 5 or 10 years you may want to visit your risk and asset allocation again. Will you then add another fund, transfer between funds, or something else? I suspect that you will find less of a reason to have two buckets.

Perhaps, this is a Q to re-visit in next 5 or 10 years
YMMV

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 2:41 pm

tampaite wrote:
Thu Nov 30, 2017 2:23 pm
I don't know if market will go higher/lower but the risk is lower for me since only new contributions would go-in at these new highs. Am I making sense?

Am trying to make it work by putting (only) new contributing into the market.
No, not really making sense. Everything you move to the 2030 fund is still in the market, just at a 70/30 and your new contributions would be at 90/10 (roughly on the numbers). The crash you're scared of is still going to hit your 2030 fund. It's not 'safe' there.

By leaving a good chunk at 70/30 and new contributions going to 90/10, you're slowly moving the AA away and higher than the 70/30. So, how does that help your new found risk tolerance?

Simply pick a target fund with the AA you're comfortable with and use that.

GLState
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by GLState » Thu Nov 30, 2017 2:45 pm

tampaite wrote:
Thu Nov 30, 2017 2:23 pm
GLState wrote:
Thu Nov 30, 2017 2:01 pm
The level of the Dow shouldn't have any bearing on your risk tolerance.
For me it does, given my age and the $ amount accumulated in my 401k and being in 2050 fund. Heck, if Dow were to double in next year or two, I might sell-all and get out of the market!

If the Dow doubled and you got out of the market, it would be because your need to take risk changed...not your risk tolerance. Risk tolerance is the ability to withstand large swings in the market. That doesn't change because the Dow hits 24,000. Your post seems like you've been following the financial news and you think a crash is imminent. I have to agree with the others...it doesn't seem you should have ever had a 90/10 portfolio. In a crash like 2008, losing 50% of 75% stock allocation is not going to seem much different than losing 50% of a 90% stock allocation...it will be a lot of money either way.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by MotoTrojan » Thu Nov 30, 2017 2:48 pm

Mental accounting. I agree to pick one AA (2040 perhaps) and stick with it.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 2:50 pm

chevca wrote:
Thu Nov 30, 2017 2:41 pm
No, not really making sense. Everything you move to the 2030 fund is still in the market, just at a 70/30 and your new contributions would be at 90/10 (roughly on the numbers). The crash you're scared of is still going to hit your 2030 fund. It's not 'safe' there.

By leaving a good chunk at 70/30 and new contributions going to 90/10, you're slowly moving the AA away and higher than the 70/30. So, how does that help your new found risk tolerance?

Simply pick a target fund with the AA you're comfortable with and use that.
Let's try again.

You have 5k today in 2050 fund(90/10)
You are moving 5K into 2030 fund(70/30) and yes, we are still in the market BUT at my risk tolerance level.
You contribute $10 into 2050 fund every paycheck going forward and it will take 1 decade for new contribution to reach 5K

so once I make this adjustment, my stock/bond ratio will only go lower every year going forward

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 2:51 pm

GLState wrote:
Thu Nov 30, 2017 2:45 pm
In a crash like 2008, losing 50% of 75% stock allocation is not going to seem much different than losing 50% of a 90% stock allocation...it will be a lot of money either way.
You got it. Losing 50% of 75% is better than 50% of 90%!

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 2:57 pm

GLState wrote:
Thu Nov 30, 2017 2:45 pm

If the Dow doubled and you got out of the market, it would be because your need to take risk changed...not your risk tolerance. Risk tolerance is the ability to withstand large swings in the market. That doesn't change because the Dow hits 24,000. Your post seems like you've been following the financial news and you think a crash is imminent. I have to agree with the others...it doesn't seem you should have ever had a 90/10 portfolio. In a crash like 2008, losing 50% of 75% stock allocation is not going to seem much different than losing 50% of a 90% stock allocation...it will be a lot of money either way.
If crash was imminent, I'd go 10/90. On the other hand, my risk tolerance is lower as the swing gets larger.

You are right, am following financial news

Image

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 2:57 pm

tampaite wrote:
Thu Nov 30, 2017 2:50 pm
chevca wrote:
Thu Nov 30, 2017 2:41 pm
No, not really making sense. Everything you move to the 2030 fund is still in the market, just at a 70/30 and your new contributions would be at 90/10 (roughly on the numbers). The crash you're scared of is still going to hit your 2030 fund. It's not 'safe' there.

By leaving a good chunk at 70/30 and new contributions going to 90/10, you're slowly moving the AA away and higher than the 70/30. So, how does that help your new found risk tolerance?

Simply pick a target fund with the AA you're comfortable with and use that.
Let's try again.

You have 5k today in 2050 fund(90/10)
You are moving 5K into 2030 fund(70/30) and yes, we are still in the market BUT at my risk tolerance level.
You contribute $10 into 2050 fund every paycheck going forward and it will take 1 decade for new contribution to reach 5K

so once I make this adjustment, my stock/bond ratio will only go lower every year going forward
That is true since the target funds gradually lower AA to more conservative. But, not at YOUR risk tolerance level, since you claim that is now 70/30. It will always be above your risk tolerance level.

Why not put the bulk of it in a 2025 fund or so, and the new stuff in TSM then?

You're simply making this more complicated than it needs to be and for likely very little difference in the end. Pick one target fund, stick with it, and let it adjust AA as the years go by. That's the beauty of them, so you don't have to do any of this other stuff.

chevca
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 3:00 pm

tampaite wrote:
Thu Nov 30, 2017 2:57 pm
GLState wrote:
Thu Nov 30, 2017 2:45 pm

If the Dow doubled and you got out of the market, it would be because your need to take risk changed...not your risk tolerance. Risk tolerance is the ability to withstand large swings in the market. That doesn't change because the Dow hits 24,000. Your post seems like you've been following the financial news and you think a crash is imminent. I have to agree with the others...it doesn't seem you should have ever had a 90/10 portfolio. In a crash like 2008, losing 50% of 75% stock allocation is not going to seem much different than losing 50% of a 90% stock allocation...it will be a lot of money either way.
If crash was imminent, I'd go 10/90. On the other hand, my risk tolerance is lower as the swing gets larger.

You are right, am following financial news

Image
Oh gotcha... so, you would try to time the market and your risk tolerance changes based on the noise...

Why didn't you go 10/90 when the new President won and the noise claimed a crash was imminent then?

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 3:02 pm

chevca wrote:
Thu Nov 30, 2017 3:00 pm

Oh gotcha... so, you would try to time the market and your risk tolerance changes based on the noise...

Why didn't you go 10/90 when the new President won and the noise claimed a crash was imminent then?
I guess you didn't read my comment above. the swing is much larger now. Nothing to do with the President, was just showing the timeline of the swing.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by rkhusky » Thu Nov 30, 2017 3:08 pm

Tyler Aspect wrote:
Thu Nov 30, 2017 1:52 pm
The allocations within the Target Retirement Funds shift every five years.
Actually, the allocations change every month or so.

chevca
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 3:08 pm

So, you weren't watching the financial news when the election was taking place? Many or most of them called for a an imminent crash. Why didn't you change things then?

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 3:10 pm

chevca wrote:
Thu Nov 30, 2017 3:08 pm
So, you weren't watching the financial news when the election was taking place? Many or most of them called for a an imminent crash. Why didn't you change things then?
Please refer to my comment above that I made in reference to your Q.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 3:13 pm

I saw your comment.

My point is, the swing was large even then, there was call for an imminent crash, and you didn't make any changes. Why? Did you somehow know it would grow larger?

A crash in the market is imminent... we just don't know when. Pick an AA you can live with through thick and thin.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 3:16 pm

chevca wrote:
Thu Nov 30, 2017 3:13 pm
My point is, the swing was large even then, there was call for an imminent crash, and you didn't make any changes. Why? Did you somehow know it would grow larger?
Can you show me 5000 Dow Swing in a 10 month-period in the past 5 years like the chart I showed?
Last edited by tampaite on Thu Nov 30, 2017 3:18 pm, edited 2 times in total.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by rkhusky » Thu Nov 30, 2017 3:17 pm

OP: Just go with TR 2040. Remember that the TR funds are made up of 4 different funds (US and Int'l stocks and bonds). By selling 2050 and buying 2040 you will be selling stocks and buying bonds, making your portfolio safer and locking in your gains.

Since your are not retiring, you should also put new money into TR 2040 since you are uncomfortable with a 90/10 portfolio. Your approach might be reasonable if you were retiring in the next year or so and wanted to de-risk your portfolio just before retirement to avoid sequence of return risk, but then wanted to increase equities as you got further into retirement. Some investing gurus have proposed this approach. However, it would not make sense to do that with TR funds, you would need to use individual funds or at least Vanguard's Life Strategy funds with their fixed allocations.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 3:18 pm

rkhusky wrote:
Thu Nov 30, 2017 3:17 pm
OP: Just go with TR 2040. Remember that the TR funds are made up of 4 different funds (US and Int'l stocks and bonds). By selling 2050 and buying 2040 you will be selling stocks and buying bonds, making your portfolio safer and locking in your gains.

Since your are not retiring, you should also put new money into TR 2040 since you are uncomfortable with a 90/10 portfolio. Your approach might be reasonable if you were retiring in the next year or so and wanted to de-risk your portfolio just before retirement to avoid sequence of return risk, but then wanted to increase equities as you got further into retirement. Some investing gurus have proposed this approach. However, it would not make sense to do that with TR funds, you would need to use individual funds or at least Vanguard's Life Strategy funds with their fixed allocations.
Thanks

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 3:23 pm

tampaite wrote:
Thu Nov 30, 2017 3:16 pm
chevca wrote:
Thu Nov 30, 2017 3:13 pm
My point is, the swing was large even then, there was call for an imminent crash, and you didn't make any changes. Why? Did you somehow know it would grow larger?
Can you show me 5000 Dow Swing in a 10 month-period in the past 5 years like the chart I showed?
Don't need to. You didn't know it would happen that way. The swing was already on a 6 year run up and there was call for an imminent crash. Why didn't you make a change?

Why are you avoiding the questions?

Why simply say thanks to someone when they said basically the same thing the rest of us have? :confused

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 3:27 pm

chevca wrote:
Thu Nov 30, 2017 3:23 pm

Don't need to. You didn't know it would happen that way. The swing was already on a 6 year run up and there was call for an imminent crash. Why didn't you make a change?
The swing has become larger NOW for my tolerance. How much clearer can I get?

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 3:32 pm

http://www.macrotrends.net/1358/dow-jon ... t-10-years

What's so much scarier about "NOW"?

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Thu Nov 30, 2017 3:47 pm

chevca wrote:
Thu Nov 30, 2017 3:32 pm
http://www.macrotrends.net/1358/dow-jon ... t-10-years

What's so much scarier about "NOW"?
5000 jump in DOW in 10 months.

chevca
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by chevca » Thu Nov 30, 2017 3:59 pm

Okay, the number 5000 scares you...

Look at it percentage wise. How much did it go up in percent, and has that happened any other time since 2010 or 2009? It's a fairly straight upward trend there in the 10 year chart. Why are you so scared now, and were not before?

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Fri Dec 01, 2017 10:32 am

Update: Placed an order to exchange 100% of shares which were in 2050 fund with 2030 fund.

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Re: Reduce risk tolerance - Vanguard Target Funds

Post by kathyauburn » Fri Dec 01, 2017 12:03 pm

tampaite wrote:
Thu Nov 30, 2017 11:43 am
Down just hit 24K and my tolerance for risk has reduced. Call it market timing but I'd like to reduce my risk(am in my 40s now)

I have my entire 401K in Vanguard 2050 fund(89.97% Stocks/9.98% Bonds).

Here is my thinking - poke any holes in it :D

Existing $ in 401k - If I want to take on lower risk and say, want to invest in Vanguard 2030 fund(71.26% Stocks/28.71% Bonds). I believe its as simple as exchanging one fund for another i,e. 2050(sell) for 2030(buy). Correct?
New contribution $ into 401k - continue with 2050 fund.

Any downside to this thinking?
I like target date funds and dollar cost averaging into them via paycheck (401(k)). I also like to have a few years' worth of cash in case of unemployment. Luck helps, too.

kathyauburn
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by kathyauburn » Fri Dec 01, 2017 12:04 pm

tampaite wrote:
Fri Dec 01, 2017 10:32 am
Update: Placed an order to exchange 100% of shares which were in 2050 fund with 2030 fund.
Good move. Now just keep dollar-cost averaging into it with paychecks, keep your skills current, and hope for the best. Don't forget cash.

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nedsaid
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by nedsaid » Sat Dec 02, 2017 11:27 am

tampaite wrote:
Thu Nov 30, 2017 11:43 am
Down just hit 24K and my tolerance for risk has reduced. Call it market timing but I'd like to reduce my risk(am in my 40s now)

I have my entire 401K in Vanguard 2050 fund(89.97% Stocks/9.98% Bonds).

Here is my thinking - poke any holes in it :D

Existing $ in 401k - If I want to take on lower risk and say, want to invest in Vanguard 2030 fund(71.26% Stocks/28.71% Bonds). I believe its as simple as exchanging one fund for another i,e. 2050(sell) for 2030(buy). Correct?
New contribution $ into 401k - continue with 2050 fund.

Any downside to this thinking?
One of the criticisms of Target Date Funds is that they have too high of stock allocations in part because the investment results are published and they want to have good performance records in comparison with competitors. If you are in your 40's, 90% stocks is probably too high. At age 40, I went from 94% stocks to 80% stocks and worked my way down to 70%. At age 58, I have 67% stocks.

What I would do is go to the Vanguard 2030 fund and put your new monies in there too. 70% is a good allocation to stocks for someone your age, though a bit conservative.

Another criticism of Target Date Funds is that they have not stayed the course. The fund managers have fiddled with asset allocation and glide paths, after the stock market has done well for a while, the tendency is for such funds to get more aggressive.

There is no magic number that tells you that markets have gotten too expensive. I am seeing Price to Earnings ratios for future estimated earnings getting to 20 and 21 for US Stocks, where they had been more like 18 and 19. What has happened is that economic growth has picked up, we are now seeing 3% real GDP growth as opposed to what had been the "new normal" of 2%. A stronger economy should produce higher earnings, if this is true, then higher market valuations are justified.

I will say, valuations are making me a bit nervous, I am continuing my program of mild rebalancing from stocks to bonds, a process I have been in since July 2013. No changes to my strategy yet.
A fool and his money are good for business.

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goingup
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by goingup » Sat Dec 02, 2017 11:31 am

tampaite wrote:
Fri Dec 01, 2017 10:32 am
Update: Placed an order to exchange 100% of shares which were in 2050 fund with 2030 fund.
What did you decide about future contributions?

tampaite
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by tampaite » Mon Dec 04, 2017 8:12 am

goingup wrote:
Sat Dec 02, 2017 11:31 am

What did you decide about future contributions?
No change. They still continue to flow into original fund(2050)

3funder
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Re: Reduce risk tolerance - Vanguard Target Funds

Post by 3funder » Mon Dec 04, 2017 9:21 am

When do you generally plan on retiring? Invest in the corresponding target date fund. Wouldn't the 2040 fund be more appropriate anyway?

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