Asset Allocation Rebalancing Question

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maggsmaggs
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Joined: Wed Jun 28, 2017 5:13 pm

Asset Allocation Rebalancing Question

Post by maggsmaggs » Fri Dec 15, 2017 9:47 am

My wife and I are in our late 20s and are incredibly weighted toward equities (95-97%). The only bond funds we have are in vanguard target date funds, which, based on our age, are minimal and are only part of our investment portfolio. I feel uncomfortable with such a high level of equities and want a 90/10 split in the near future.

Two questions:

(1) Is that asset allocation reasonable for us based on our age?

(2) What is the best way to achieve that allocation: (i) sell current assets in IRAs and make the change? or (ii) change the allocation when I make a lump sum 2018 IRA contribution and buy enough bond funds to get the desired allocation?

Thanks!

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Sandtrap
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Location: HawaiišŸ˜€ Northern AZ.šŸ˜³ Retired.

Re: Asset Allocation Rebalancing Question

Post by Sandtrap » Fri Dec 15, 2017 10:10 am

Welcome :D
(1) Is that asset allocation reasonable for us based on our age?
This provides enough guidance for you to make choices based on a good foundational understanding.
Asset Allocation (what is right for you?)
https://www.bogleheads.org/wiki/Asset_allocation

Although "age in bonds" has been touted as a starting "rule of thumb", it is not a hard and fast rule. Much depends on your risk tolerance. (sleep factor).

Outstanding write up on the 64/40 allocation by Bernstein. A treasure.
http://web.archive.org/web/20061214061 ... in6040.pdf
(2) What is the best way to achieve that allocation: (i) sell current assets in IRAs and make the change? or (ii) change the allocation when I make a lump sum 2018 IRA contribution and buy enough bond funds to get the desired allocation?
You might want to list your funds to get more comprehensive suggestions on how to proceed.
You can edit your original post like this:

Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

Without more details on your funds and placement of such it is tough to make specific suggestions beyond:
Consider changing to a Target Date Fund that is more to your target allocation.
Or if you choose to make it "static"/fixed then change to a Life Strategy Fund.
In lieu of either of those, a 3 fund portfolio.

j :D


Here's toolbox with convenient links for you to work with:
HelpFul LinKs

Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212
Bogle Philosophy
https://www.bogleheads.org/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Bogleh ... rt-up_kit
Define General Investment Goals and Objectives (what is your plan?)
https://www.bogleheads.org/wiki/Invest ... statement
Outline of Investing
https://www.bogleheads.org/wiki/Outline_of_investing
Outline of Financial Planning (with links)
https://www.bogleheads.org/wiki/Outlin ... _planning
Funding Priority (what do I do first?)
https://www.bogleheads.org/wiki/Priori ... vestments
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement
Asset allocation in multiple accounts
https://www.bogleheads.org/wiki/Asset ... accounts
Risk Tolerance (what is your "sleep factor"?)
https://www.bogleheads.org/wiki/Risk_tolerance
Asset Allocation (what is right for you?)
https://www.bogleheads.org/wiki/Asset_allocation

Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
Forum Library of Investing Advice with links
https://www.bogleheads.org/wiki/Main_Page

Outstanding write up on the 64/40 allocation by Bernstein. A treasure.
http://web.archive.org/web/20061214061 ... in6040.pdf

Free Reading: "If You Can" by Bernstein
https://www.google.com/url?sa=t&rct=j& ... -SB3S580I5

ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Last edited by Sandtrap on Fri Dec 15, 2017 10:16 am, edited 4 times in total.

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

Re: Asset Allocation Rebalancing Question

Post by livesoft » Fri Dec 15, 2017 10:13 am

What you want is reasonable. The best way to make the change is to simply switch to a different target fund which has a the weighting to bonds that you want. That is, don't go by the year in the fund name; instead go by the internal asset allocation that the fund has. You can make the change today. It is really that easy.
Wiki This signature message sponsored by sscritic: Learn to fish.

alex_686
Posts: 3855
Joined: Mon Feb 09, 2015 2:39 pm

Re: Asset Allocation Rebalancing Question

Post by alex_686 » Fri Dec 15, 2017 10:24 am

I think it is aggressive but is defensible. What is your ability (objective) and willingness (subjective) to take risks? What types of risk do you need to take to meet your goals.

On rebalancing, which one is easier for you to do? Chose that one. Doing it now is a bit more optimal but at this point I doubt going one way or the other is going to make a major difference.

In a world with only equities and bonds, Social Security, pensions, etc. get thrown into the bond bucket. Exactly how these low risk human capital assets get allocated is an ongoing debate but thinking this through might give you a bit more prescriptive on your AA.

maggsmaggs
Posts: 18
Joined: Wed Jun 28, 2017 5:13 pm

Re: Asset Allocation Rebalancing Question

Post by maggsmaggs » Fri Dec 15, 2017 12:21 pm

Appreciate the insight and links!

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