Need help about asset allocation

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Financequest
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Joined: Mon Sep 10, 2018 9:00 pm

Need help about asset allocation

Post by Financequest » Thu Sep 13, 2018 7:07 pm

I have started working on my asset allocation recently. While I was reading the relevant books and going through this forum, I put most of my savings in Vanguard 500 admiral index fund. I want to diversify to include total international and US REIT index funds. I also want to have small value US tilt to the total US stock market ( which I planning to use instead of vanguard 500 from now onwards).

My question is: Does it make sense to use my ongoing savings mainly to buy international since they are still down from the year high? My investment horizon is long. Is that a speculative move or just taking advantage of low price and relative underperformance of the international funds in last decade, given the fact that over 20-30 years they perform in the same range as US index funds.

Same thing with REIT and small-cap value since they have also not performed well recently.

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Alexa9
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Re: Need help about asset allocation

Post by Alexa9 » Thu Sep 13, 2018 7:11 pm

I would set your allocation and rebalance annually. Don't invest more in international just because it's down this year other than rebalancing to your set allocation. Write it down as your investment policy and stick to it. The Target Retirement Date Funds are a good guideline for glide path as you get older.

Financequest
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Re: Need help about asset allocation

Post by Financequest » Thu Sep 13, 2018 8:13 pm

Alexa9 wrote:
Thu Sep 13, 2018 7:11 pm
I would set your allocation and rebalance annually. Don't invest more in international just because it's down this year other than rebalancing to your set allocation. Write it down as your investment policy and stick to it. The Target Retirement Date Funds are a good guideline for glide path as you get older.
I agree with you overall, but I am just starting to do to asset allocation first time.

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Alexa9
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Re: Need help about asset allocation

Post by Alexa9 » Thu Sep 13, 2018 8:20 pm

Financequest wrote:
Thu Sep 13, 2018 7:07 pm
Does it make sense to use my ongoing savings mainly to buy international since they are still down from the year high? My investment horizon is long. Is that a speculative move or just taking advantage of low price and relative underperformance of the international funds in last decade, given the fact that over 20-30 years they perform in the same range as US index funds.

Same thing with REIT and small-cap value since they have also not performed well recently.
No, this is market timing and speculation to invest more in the recent losers. These could possibly continue to underperform. You do move money towards them anyways though when you rebalance annually.

What is your age and allocation so far? Like I said the Target Retirement Date Funds are a good guideline. Pick the one close to when you'll be 65.
https://investor.vanguard.com/mutual-fu ... file/VFFVX

Financequest
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Joined: Mon Sep 10, 2018 9:00 pm

Re: Need help about asset allocation

Post by Financequest » Fri Sep 14, 2018 10:06 am

Alexa9 wrote:
Thu Sep 13, 2018 8:20 pm
Financequest wrote:
Thu Sep 13, 2018 7:07 pm
Does it make sense to use my ongoing savings mainly to buy international since they are still down from the year high? My investment horizon is long. Is that a speculative move or just taking advantage of low price and relative underperformance of the international funds in last decade, given the fact that over 20-30 years they perform in the same range as US index funds.

Same thing with REIT and small-cap value since they have also not performed well recently.
No, this is market timing and speculation to invest more in the recent losers. These could possibly continue to underperform. You do move money towards them anyways though when you rebalance annually.

What is your age and allocation so far? Like I said the Target Retirement Date Funds are a good guideline. Pick the one close to when you'll be 65.
https://investor.vanguard.com/mutual-fu ... file/VFFVX
I agree with you that this is kind of speculation. My allocation is 80/20 with stock and bonds. Among stocks, I am targeting 10% REIT. Among rest, the ratio of 70/30 US vs International stocks. I have started doing it only for a few months, so I am learning and trying to optimize. My age is 40, so I know that it is a little aggressive. But I started earning late, so trying to be aggressive in the accumulation phase.

aaja
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Re: Need help about asset allocation

Post by aaja » Fri Sep 14, 2018 10:14 am

Financequest wrote:
Thu Sep 13, 2018 8:13 pm
Alexa9 wrote:
Thu Sep 13, 2018 7:11 pm
I would set your allocation and rebalance annually. Don't invest more in international just because it's down this year other than rebalancing to your set allocation. Write it down as your investment policy and stick to it. The Target Retirement Date Funds are a good guideline for glide path as you get older.
I agree with you overall, but I am just starting to do to asset allocation first time.
If this is your first time buying international to get to your desired allocation, my opinion is that this is a good time as any to buy it since it is not at an all time high. In the long term it should not matter but I was in a similar situation with my international allocation recently when I set my portfolio AA and bought a large chunk of it few weeks ago.

Financequest
Posts: 33
Joined: Mon Sep 10, 2018 9:00 pm

Re: Need help about asset allocation

Post by Financequest » Fri Sep 14, 2018 11:46 am

aaja wrote:
Fri Sep 14, 2018 10:14 am
Financequest wrote:
Thu Sep 13, 2018 8:13 pm
Alexa9 wrote:
Thu Sep 13, 2018 7:11 pm
I would set your allocation and rebalance annually. Don't invest more in international just because it's down this year other than rebalancing to your set allocation. Write it down as your investment policy and stick to it. The Target Retirement Date Funds are a good guideline for glide path as you get older.
I agree with you overall, but I am just starting to do to asset allocation first time.
If this is your first time buying international to get to your desired allocation, my opinion is that this is a good time as any to buy it since it is not at an all time high. In the long term it should not matter but I was in a similar situation with my international allocation recently when I set my portfolio AA and bought a large chunk of it few weeks ago.
Yes, I'm in the initial stageg of asset allocation. So I was thinking of buying slightly more of internationals due to them not being all-time high.

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Peter Foley
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Re: Need help about asset allocation

Post by Peter Foley » Fri Sep 14, 2018 4:40 pm

After one has decided on an asset allocation strategy rebalancing to maintain that strategy should become part of the equation. One way to rebalance is to redirect future contributions to an asset class that has become under weighted. I understand your post to describe just that. You want x% in international and you don't have it. Future contributions could be directed to purchasing international until you get to your desired AA percentage.

This is not market timing.

Financequest
Posts: 33
Joined: Mon Sep 10, 2018 9:00 pm

Re: Need help about asset allocation

Post by Financequest » Sat Sep 15, 2018 6:35 pm

Peter Foley wrote:
Fri Sep 14, 2018 4:40 pm
After one has decided on an asset allocation strategy rebalancing to maintain that strategy should become part of the equation. One way to rebalance is to redirect future contributions to an asset class that has become under weighted. I understand your post to describe just that. You want x% in international and you don't have it. Future contributions could be directed to purchasing international until you get to your desired AA percentage.

This is not market timing.
Thank you, Peter Foley. I am trying to do exactly that. But since I have just started, sometimes I might be missing the obvious.

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