AA: am I being wise or missing something?

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Jade A.B.
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AA: am I being wise or missing something?

Post by Jade A.B. » Sat Feb 24, 2018 10:56 am

My portfolio is rolling over and on its way from my 457b to Vanguard as we speak, since I've recently retired. I HAD selected a 60/40 to asset allocation based on our ages, 62 and 63, and common recommendations, but am thinking of increasing it a little. I do realize this is a question I should have figured out by now!

Do you feel the following things in our situation make any difference?
COLA'd municipal government pensions provide all basic needs. (No social security.)
A 2.5% withdrawal rate takes care of extra things like cars, big repairs, big trips. (And could be postponed in a major correction or taken from cash.)
And not too risk adverse after learning the error of my ways in 1987. Haven't run since.

OUR NUMBERS:
(I asked another, different question earlier this week, so these are a repeat with some additions. Skip if you are those folks who helped with the great input. Thank you.)

2.6M portfolio split 1M in after tax $ (his), and the 1.5M tax deferred in question on its way to Vanguard (mine).
***We are a couple both interested in investments but with different schools of thought. He loves his Vanguard sectors and is adamant about keeping his as-is, but I want indexing, so we each select our own.

Emergency funds: yes
Debt: none
Tax filing status: married
Tax filing rate; 15% federal, 7% state
State of residence: California
Age: Him, 62. Me, 63. Both retired.
Medical covered but no LTC.
Desired asset allocation: 60/40 +/- or YOUR INPUT
Desired international allocation: 20%.

HIS AFTER TAX
16% Vanguard GNMA VFIJX
.25% Vanguard Total Bond VBMFX
.25 TIPS
4% Vanguard Energy VGELX
5% Vanguard Health VHCIX
2% Vanguard Consumer
Discretionary. VCR
3% Vanguard REIT VNQ
2% Vanguard Consumer
Staples VDC
2% Vanguard Utilities VPU

TAX-DEFERRED
His Roth
3% Vanguard Health VHCIX
My 1.4M pretax in the ether in transfer to Vanguard.
100K staying in Stable Income at the 457b at 2%.

So . . . Is it reasonable in light of our pension, etc., to raise our AA a little?

I'm currently looking [open to input] at
Life Strategy Moderate Growth VSMGX .13
or, after more research here,
Balanced Stock Index VBIAX .07 with
Total International Stock Index. VTIAX .11


Thanks for your consideration,

Jade

dbr
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Re: AA: am I being wise or missing something?

Post by dbr » Sat Feb 24, 2018 11:00 am

In your situation your asset allocation does not matter very much. The main expected effect would be more stock means higher and higher expected wealth when you pass on. That may or may not be of interest to you.

It is hard to fault a 40/60 to 60/40 choice for someone in retirement with a conservative withdrawal rate. It is really a question of assessing objectives and reviewing need, ability, and willingness to take risk. I put no useful credence in age in bonds.

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Sandtrap
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Re: AA: am I being wise or missing something?

Post by Sandtrap » Sat Feb 24, 2018 11:05 am

In your financial position anything between 60/40 and 40/60 . . would do fine according to general input.
Certainly, someone in your excellent financial position could afford to take on more risk. . but why?
The "elephant in the room" question is:
How would you feel if the market took a big dip and your equities dropped 50% or greater in value?
Only you can ascertain that.

That said, why consider a "fund of funds" with a higher expense ratio where VBIAX would do just as well, or even lower ER's in straight funds such as Total Stock, Total Bond, Total International.?
aloha
j :D

Lafder
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Re: AA: am I being wise or missing something?

Post by Lafder » Sat Feb 24, 2018 11:25 am

I was going to say a range of 40-60% stock and others beat me to it. I would not go more aggressive than that.

If you really can not decide, split the difference and go 50/50 :)

Life strategy Moderate is an all on one 60/40 fund made up of
Total Stock Index
Total INternational stock index
Total US bond index
Total International bond index

It is really an apples to oranges comparison to the Balanced stock index which is a 60% stock/40% bond index of US stock and US bonds. This is appropriate if you are wanting almost no International stock. Note Buffett and Bogle say 100% US stock is fine. But Vanguard recs 30-50% of holdings be International.

Both of the above funds (Life Strategy and Balances) are decent all in one funds and both 60/40, and easy to compare directly to each other. The question to decide would be, do you want International or not?

Total International stock index is 100% stocks. If you hold it with the Balanced index, it would possibly greatly raise your % stocks depending on how much you hold. And mean you might need to do some rebalancing from time to time.

You have not listed other all in one funds such as target date retirement funds that are the same funds as the Life Strategy funds, but increase bond with years which you may not want.

The all in one funds are simpler than holding several funds you need to rebalance. If you are thinking of balanced plus International. why not go for an actual 3 fund portfolio of holding US stock index, US bond index, and International stock index so buying or selling bonds does not require selling stocks at the same time, or vice versa. If you have multi holdings you might as well hold all 3 for more adjustibility.

lafder

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WoodSpinner
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Re: AA: am I being wise or missing something?

Post by WoodSpinner » Sat Feb 24, 2018 11:31 am

OP,

How secure is your Municipal pension? As I understand it, many of these types of pensions are under funded and are not backed any any guarantees.

Part of the risk calculus you need to consider.

Question โ€” why are you considering a shift to a larger stock position? What changed?

WoodSpinner 8-)

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Sat Feb 24, 2018 11:54 am

Wow, you learned folks are relieving my mind. And saying I could even go to 40/60? That might be like relaxing my fist after years of clenching.
dbr wrote: โ†‘
Sat Feb 24, 2018 11:00 am
In your situation your asset allocation does not matter very much. The main expected effect would be more stock means higher and higher expected wealth when you pass on. That may or may not be of interest to you.

It is hard to fault a 40/60 to 60/40 choice for someone in retirement with a conservative withdrawal rate. It is really a question of assessing objectives and reviewing need, ability, and willingness to take risk. I put no useful credence in age in bonds.
Good point. No, no need to leave much.
Last edited by Jade A.B. on Sat Feb 24, 2018 1:04 pm, edited 2 times in total.

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ruralavalon
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Re: AA: am I being wise or missing something?

Post by ruralavalon » Sat Feb 24, 2018 12:07 pm

In my opinion an asset allocation of 60/40 is very reasonable for your situation with a COLA'd pension covering basic expenses, and a low withdrawal rate. Even in those circumstances I don't believe that I would go to 70/30.

You obviously have the ability to take on extra risk, but no need to do so. But it really is a very personal decision which you must make based on your own willingness to take extra risk.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Sat Feb 24, 2018 12:19 pm

WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am
OP,
How secure is your Municipal pension? As I understand it, many of these types of pensions are under funded and are not backed any any guarantees.

Part of the risk calculus you need to consider.
I believe it to be about 75% safe. It is conservatively invested and weathered 2008/09 well. Of even greater concern perhaps is the winds of changing legislation
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am

Question โ€” why are you considering a shift to a larger stock position? What changed?
Also a good point. Just talking with my husband last night. He's pretty fearless

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Sat Feb 24, 2018 12:28 pm

Sandtrap wrote: โ†‘
Sat Feb 24, 2018 11:05 am
In your financial position anything between 60/40 and 40/60 . . would do fine according to general input.
Certainly, someone in your excellent financial position could afford to take on more risk. . but why?
The "elephant in the room" question is:
How would you feel if the market took a big dip and your equities dropped 50% or greater in value?
Only you can ascertain that.
Ah, that elephant. May be a good reason to switch to 40/60 as suggested.
Sandtrap wrote: โ†‘
Sat Feb 24, 2018 11:05 am
That said, why consider a "fund of funds" with a higher expense ratio where VBIAX would do just as well, or even lower ER's in straight funds such as Total Stock, Total Bond, Total International.?
aloha
j :D
A true Boglehead! I know you're right. I'm afraid I've been embarrassingly lax in past rebalancing and just did it with new contributions. So . . . a fund of funds seems like a better fit.

Thanks

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Sandtrap
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Re: AA: am I being wise or missing something?

Post by Sandtrap » Sat Feb 24, 2018 12:34 pm

Jade A.B. wrote: โ†‘
Sat Feb 24, 2018 12:28 pm
Sandtrap wrote: โ†‘
Sat Feb 24, 2018 11:05 am
In your financial position anything between 60/40 and 40/60 . . would do fine according to general input.
Certainly, someone in your excellent financial position could afford to take on more risk. . but why?
The "elephant in the room" question is:
How would you feel if the market took a big dip and your equities dropped 50% or greater in value?
Only you can ascertain that.

That said, why consider a "fund of funds" with a higher expense ratio where VBIAX would do just as well, or even lower ER's in straight funds such as Total Stock, Total Bond, Total International.?
aloha
j :D
A true Boglehead! I know you're right. I'm afraid I've been embarrassingly lax in past rebalancing and just did it with new contributions. So . . . a fund of funds seems like a better fit.

Thanks
You can do VBIAX admiral shares, Balanced Index Fund and Total International for lower ER, or a Bogle "3 fund", or Any "fund of funds" Life Strategy or Target Retirement, etc, for a set and forget and not sweat the higher expense ratio. It depends on how much you want to be "hands on" or "set and forget". In your position, there's no huge advantage or disadvantage to any of the 3 approaches. With the "fund of funds", or only Balanced Index, the allocation will hold true when you invest new funds, and so forth.
I have wrestled with all 3 of these approaches for some time. Still think about it. Again, in your position, it does not have to be perfect at all.
aloha,
j :D

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sergeant
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Re: AA: am I being wise or missing something?

Post by sergeant » Sat Feb 24, 2018 12:46 pm

Jade A.B. wrote: โ†‘
Sat Feb 24, 2018 12:19 pm
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am
OP,
How secure is your Municipal pension? As I understand it, many of these types of pensions are under funded and are not backed any any guarantees.

Part of the risk calculus you need to consider.
I believe it to be about 75% safe. It is conservatively invested and weathered 2008/09 well. Of even greater concern perhaps is the winds of changing legislation
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am

Question โ€” why are you considering a shift to a larger stock position? What changed?
Also a good point. Just talking with my husband last night. He's pretty fearless
Where did you come up with the 75% safe number? What does that even mean? Hopefully you at least looked at the plans funding level and municipality's on-going budget. There are about a dozen other things to check to get a real sense of how secure your pension really is.

I'm not saying your pension isn't secure, I just think some throw numbers out without doing research.
Lincoln 3 EOW!

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Sat Feb 24, 2018 12:47 pm

Thank you, Sandtrap. Glad to hear I'm not the only one who wrestles . . . And that it might not make a difference that causes great damage.

Thank you all for thinking about this and responding. My choices when I was at work were pretty limited, and now Vanguard had so many options!

dbr
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Re: AA: am I being wise or missing something?

Post by dbr » Sat Feb 24, 2018 12:48 pm

sergeant wrote: โ†‘
Sat Feb 24, 2018 12:46 pm
Jade A.B. wrote: โ†‘
Sat Feb 24, 2018 12:19 pm
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am
OP,
How secure is your Municipal pension? As I understand it, many of these types of pensions are under funded and are not backed any any guarantees.

Part of the risk calculus you need to consider.
I believe it to be about 75% safe. It is conservatively invested and weathered 2008/09 well. Of even greater concern perhaps is the winds of changing legislation
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am

Question โ€” why are you considering a shift to a larger stock position? What changed?
Also a good point. Just talking with my husband last night. He's pretty fearless
Where did you come up with the 75% safe number? What does that even mean? Hopefully you at least looked at the plans funding level and municipality's on-going budget. There are about a dozen other things to check to get a real sense of how secure your pension really is.

I'm not saying your pension isn't secure, I just think some throw numbers out without doing research.
Secure is also not all or none, but what survives if there is a problem.

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Sat Feb 24, 2018 12:52 pm

sergeant wrote: โ†‘
Sat Feb 24, 2018 12:46 pm
Jade A.B. wrote: โ†‘
Sat Feb 24, 2018 12:19 pm
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am
OP,
How secure is your Municipal pension? As I understand it, many of these types of pensions are under funded and are not backed any any guarantees.

Part of the risk calculus you need to consider.
I believe it to be about 75% safe. It is conservatively invested and weathered 2008/09 well. Of even greater concern perhaps is the winds of changing legislation
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am

Question โ€” why are you considering a shift to a larger stock position? What changed?
Also a good point. Just talking with my husband last night. He's pretty fearless
Where did you come up with the 75% safe number? What does that even mean? Hopefully you at least looked at the plans funding level and municipality's on-going budget. There are about a dozen other things to check to get a real sense of how secure your pension really is.

I'm not saying your pension isn't secure, I just think some throw numbers out without doing research.
You're right that a number was not well thought out. I've gone to the pension board meetings, and looked at the funding levels but not the county's ongoing budget -- good point -- and quoting the lowest number they'll admit to, but those elected folks are possibly, well, a little prejudiced. ๐Ÿ˜€
Last edited by Jade A.B. on Sat Feb 24, 2018 1:00 pm, edited 1 time in total.

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sergeant
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Re: AA: am I being wise or missing something?

Post by sergeant » Sat Feb 24, 2018 12:59 pm

dbr wrote: โ†‘
Sat Feb 24, 2018 12:48 pm
sergeant wrote: โ†‘
Sat Feb 24, 2018 12:46 pm
Jade A.B. wrote: โ†‘
Sat Feb 24, 2018 12:19 pm
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am
OP,
How secure is your Municipal pension? As I understand it, many of these types of pensions are under funded and are not backed any any guarantees.

Part of the risk calculus you need to consider.
I believe it to be about 75% safe. It is conservatively invested and weathered 2008/09 well. Of even greater concern perhaps is the winds of changing legislation
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am

Question โ€” why are you considering a shift to a larger stock position? What changed?
Also a good point. Just talking with my husband last night. He's pretty fearless
Where did you come up with the 75% safe number? What does that even mean? Hopefully you at least looked at the plans funding level and municipality's on-going budget. There are about a dozen other things to check to get a real sense of how secure your pension really is.

I'm not saying your pension isn't secure, I just think some throw numbers out without doing research.
Secure is also not all or none, but what survives if there is a problem.
Correct!

In my case when researching my plan, which is part of CalPERS, I explored many possible scenarios with the help of actuaries within PERS and from outside experts. I understand best case and worst case possibilities. I have no way of attaching a safety percentage to my knowledge of my plan but have planned for the worst case scenario which would be a 2/3ds cut to my pension.
Lincoln 3 EOW!

delamer
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Re: AA: am I being wise or missing something?

Post by delamer » Sat Feb 24, 2018 1:07 pm

Our position is similar, with somewhat less assets but an even lower withdrawal rate than yours.

We are invested about 75% stocks/15% bonds/10% cash.

Our nest egg will go to the kids when we die, so in part we invest for their life spans (now in their twenties). We also expect to do more and more gifting as they become more established.

The other scenario we are preparing for is large long-term care expenses that might eat away at the nest egg (many relatives on both sides of the family developed severe dementia).

Just another perspective.

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Sat Feb 24, 2018 1:14 pm

Ha! So Sergeant and Delamer agree with my husband to raise the AA a bit after all. I may have to listen to him one of these days.

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siamond
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Re: AA: am I being wise or missing something?

Post by siamond » Sat Feb 24, 2018 1:15 pm

OP, please oh please, think of risk as something beyond short-term volatility... You have a long happy retirement ahead of you, you still need to plan for the long run (including long-term care). I see absolutely no reason to depart from your existing 60/40 allocation. Seems like a great compromise between you and your partner, something you experienced for a while, just... stay the course. Enjoy the journey and have fun!

The Vanguard LifeStrategy Moderate Growth fund does seem like a perfect match for you.

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Sat Feb 24, 2018 1:33 pm

siamond wrote: โ†‘
Sat Feb 24, 2018 1:15 pm
Enjoy the journey and have fun!
Thanks so much. ๐Ÿ˜Ž

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sergeant
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Re: AA: am I being wise or missing something?

Post by sergeant » Sat Feb 24, 2018 2:08 pm

Jade A.B. wrote: โ†‘
Sat Feb 24, 2018 1:14 pm
Ha! So Sergeant and Delamer agree with my husband to raise the AA a bit after all. I may have to listen to him one of these days.
No! Your current AA would actually be my choice. I'm 50/50 with FI in stable value. I figure a long term major market correction would be the main catalyst to a lowering of my pension benefit. I prefer to have my safety in a high FI percentage that would cover 20 years of expenses.
Lincoln 3 EOW!

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WoodSpinner
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Re: AA: am I being wise or missing something?

Post by WoodSpinner » Tue Feb 27, 2018 11:36 am

Jade A.B. wrote: โ†‘
Sat Feb 24, 2018 12:19 pm
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am
OP,
How secure is your Municipal pension? As I understand it, many of these types of pensions are under funded and are not backed any any guarantees.

Part of the risk calculus you need to consider.
I believe it to be about 75% safe. It is conservatively invested and weathered 2008/09 well. Of even greater concern perhaps is the winds of changing legislation
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am

Question โ€” why are you considering a shift to a larger stock position? What changed?
Also a good point. Just talking with my husband last night. He's pretty fearless
Jade,

I think you need to investigate the pension area further. Focus on their funding ratio and what they are using as expected returns.

I am also on a municipal pension (CALPERS) but assume their is some risk of default or reduction which is accounted for in my other investments.

My thinking is to not increase your risk in other areas assuming a municipal pension is rock solid โ€”unless you are sure it is.

Good luck

WoodSpinner

3funder
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Re: AA: am I being wise or missing something?

Post by 3funder » Tue Feb 27, 2018 4:16 pm

You're fine; go with 50/50 and call it a day. By the way, I would hold some international equity to mitigate country risk. Perhaps 1/3 of stocks.

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Thu Mar 01, 2018 3:04 am

WoodSpinner wrote: โ†‘
Tue Feb 27, 2018 11:36 am
Jade A.B. wrote: โ†‘
Sat Feb 24, 2018 12:19 pm
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am
OP,
How secure is your Municipal pension? As I understand it, many of these types of pensions are under funded and are not backed any any guarantees.

Part of the risk calculus you need to consider.
I believe it to be about 75% safe. It is conservatively invested and weathered 2008/09 well. Of even greater concern perhaps is the winds of changing legislation
WoodSpinner wrote: โ†‘
Sat Feb 24, 2018 11:31 am

Question โ€” why are you considering a shift to a larger stock position? What changed?
Also a good point. Just talking with my husband last night. He's pretty fearless
Jade,

I think you need to investigate the pension area further. Focus on their funding ratio and what they are using as expected returns.

I am also on a municipal pension (CALPERS) but assume their is some risk of default or reduction which is accounted for in my other investments.

My thinking is to not increase your risk in other areas assuming a municipal pension is rock solid โ€”unless you are sure it is.

Good luck

WoodSpinner
Woodspinner, thank you for your post. Nice to hear from someone in a similar position who's thought it through.

I definitely do not want to sound, or be, cock-sure. Maybe I have been trying to overcompensate for the pensions not being under our own control. If I plan our future without them, we could make it, but we'd be tight. There is play in our numbers, but safer sounds good.
Last edited by Jade A.B. on Thu Mar 01, 2018 3:22 am, edited 1 time in total.

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Thu Mar 01, 2018 3:21 am

3funder wrote: โ†‘
Tue Feb 27, 2018 4:16 pm
You're fine; go with 50/50 and call it a day. By the way, I would hold some international equity to mitigate country risk. Perhaps 1/3 of stocks.
3funder, if I do go with a fund of funds (not your style, I bet :D ) would you suggest my going into the Lifestrategy Moderate Growth (60/40 which includes international) plus some extra in cash or Total Bond to get to the 50/50 point? The Balanced Index at 50/50 has no international. . Maybe I will have to end up rebalancing 3 funds after all, but I know my procrastination in the face of good returns.

3funder
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Re: AA: am I being wise or missing something?

Post by 3funder » Thu Mar 01, 2018 4:01 pm

Jade A.B. wrote: โ†‘
Thu Mar 01, 2018 3:21 am
3funder wrote: โ†‘
Tue Feb 27, 2018 4:16 pm
You're fine; go with 50/50 and call it a day. By the way, I would hold some international equity to mitigate country risk. Perhaps 1/3 of stocks.
3funder, if I do go with a fund of funds (not your style, I bet :D ) would you suggest my going into the Lifestrategy Moderate Growth (60/40 which includes international) plus some extra in cash or Total Bond to get to the 50/50 point? The Balanced Index at 50/50 has no international. . Maybe I will have to end up rebalancing 3 funds after all, but I know my procrastination in the face of good returns.
A fund of funds is fine, especially when it is comprised of index funds. Truth be told, either of the funds you mentioned would be fine. I just like having some international as well. I'd probably go with Lifestrategy Moderate Growth with some cash. I used to invest in Vanguard Target Date funds until recently, and while managing the three-fund portfolio isn't exactly time-consuming, I sometimes get nostalgic for the conceptual beauty and practical simplicity of an all-in-one fund.

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siamond
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Re: AA: am I being wise or missing something?

Post by siamond » Thu Mar 01, 2018 7:35 pm

Jade A.B. wrote: โ†‘
Thu Mar 01, 2018 3:21 am
3funder wrote: โ†‘
Tue Feb 27, 2018 4:16 pm
You're fine; go with 50/50 and call it a day. By the way, I would hold some international equity to mitigate country risk. Perhaps 1/3 of stocks.
3funder, if I do go with a fund of funds (not your style, I bet :D ) would you suggest my going into the Lifestrategy Moderate Growth (60/40 which includes international) plus some extra in cash or Total Bond to get to the 50/50 point? The Balanced Index at 50/50 has no international. . Maybe I will have to end up rebalancing 3 funds after all, but I know my procrastination in the face of good returns.
Jade, if a fund of funds is attractive to you (simplicity, no rebalancing, let Vanguard manage the domestic vs int'l balance, etc), then be consistent and go all the way with 100% Lifestrategy Moderate Growth (and some cash). 60/40 is perfectly fine for a retiree. The more 'cute' you try to be, notably when it doesn't align well with your basic instincts, the more room for behavioral mistakes you create.

Jade A.B.
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Re: AA: am I being wise or missing something?

Post by Jade A.B. » Thu Mar 01, 2018 9:47 pm

3funder and siamond, thanks for responding. I'm talking to Vanguard tomorrow and planning to follow your, and so many others', "KISS" principle. It's reassuring to know others whose posts and advice I've valued agree wth my instincts about both investing (and my personal nature ๐Ÿ˜ถ).

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