Does Timing Matter? 3 Fund Portfolio

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MattBarkowski
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Does Timing Matter? 3 Fund Portfolio

Post by MattBarkowski » Fri Oct 12, 2018 11:14 am

Age 31

I was in the process of restructuring my portfolio that I rolled over from my previous employer. My plan was to put 30% in total bond fund, 55% in Total Market Index Fund and 15% in Total International Index. However, the stock market has exploded the last few days so I am hesitant to make a move.
I currently have everything in Fidelity's FZROX which is their new no fee index fund. I am not currently contributing to this as I have an active account with Vanguard with my current employer that I am socking away about 15% of income.

My question is, does it matter? Should I be worried about timing when I restructure?

Thoughts?

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dwickenh
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Re: Does Timing Matter? 3 Fund Portfolio

Post by dwickenh » Fri Oct 12, 2018 11:35 am

As it seems you are 100% in FZROX (total stock market) and you prefer to be in a three fund with 70% in stocks and 30% in bonds, why would you wait?

The funds you are choosing have all been affected by the 2 day downturn, so no real difference.

Good luck on your 3 fund portfolio!!

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Fri Oct 12, 2018 11:55 am

MattBarkowski wrote:
Fri Oct 12, 2018 11:14 am
Age 31

I was in the process of restructuring my portfolio that I rolled over from my previous employer. My plan was to put 30% in total bond fund, 55% in Total Market Index Fund and 15% in Total International Index. However, the stock market has exploded the last few days so I am hesitant to make a move.
I currently have everything in Fidelity's FZROX which is their new no fee index fund. I am not currently contributing to this as I have an active account with Vanguard with my current employer that I am socking away about 15% of income.

My question is, does it matter? Should I be worried about timing when I restructure?
I have two thoughts.

One is that 30% in bonds is a LOT of bonds for someone who is 30 years old. Are you sure that's the right asset allocation for you?

The second is that you should NOT worry about timing when you restructure. Devise an appropriate long-term asset allocation, move immediately to it, and stick with it no matter whether the markets are up or down.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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bertilak
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Re: Does Timing Matter? 3 Fund Portfolio

Post by bertilak » Fri Oct 12, 2018 12:29 pm

Timing DOES matter.

The gotcha: you don't know what the right timing is (was) until you are past the time! So it matters but is not actionable.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

chevca
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Re: Does Timing Matter? 3 Fund Portfolio

Post by chevca » Fri Oct 12, 2018 1:06 pm

MattBarkowski wrote:
Fri Oct 12, 2018 11:14 am
Age 31

My question is, does it matter? Should I be worried about timing when I restructure?

Thoughts?
Yes, timing matters... but, only as far as doing this ASAP. :happy

You're 31... the market hasn't "exploded", it's just moving around. Thirty years or so from now, it won't matter what day you restructured.

MattBarkowski
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Re: Does Timing Matter? 3 Fund Portfolio

Post by MattBarkowski » Fri Oct 12, 2018 1:11 pm

True - "exploded" was probably too strong of a term.

Also - in response to the 30% bond allocation. It does seem like a lot, but I was just following what is recommended in Taylor Larimore's "The Bogleheads' Guide to the Three-Fund Portfolio" which says the bond allocation % should be around your age. Are you thinking that's too much given my age of 31?

chevca
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Re: Does Timing Matter? 3 Fund Portfolio

Post by chevca » Fri Oct 12, 2018 1:14 pm

That's something you have to decide on yourself. Some will say 30% in bonds is too much at your age. Others will say it's just right. It's really something everyone has to decide on for themselves though. Most folks have different comfort levels that way.

fulltilt
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Re: Does Timing Matter? 3 Fund Portfolio

Post by fulltilt » Fri Oct 12, 2018 3:39 pm

MattBarkowski wrote:
Fri Oct 12, 2018 1:11 pm
True - "exploded" was probably too strong of a term.

Also - in response to the 30% bond allocation. It does seem like a lot, but I was just following what is recommended in Taylor Larimore's "The Bogleheads' Guide to the Three-Fund Portfolio" which says the bond allocation % should be around your age. Are you thinking that's too much given my age of 31?
Check out the glide path graphic on this. Many bogleheads tend to be a bit more conservative with age in bonds. On the other hand, i see a lot of newer users forsaking bonds altogether.

https://www.bogleheads.org/wiki/Glide_p ... lide_paths

Tony-S
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Re: Does Timing Matter? 3 Fund Portfolio

Post by Tony-S » Fri Oct 12, 2018 5:09 pm

MattBarkowski wrote:
Fri Oct 12, 2018 1:11 pm
Also - in response to the 30% bond allocation. It does seem like a lot, but I was just following what is recommended in Taylor Larimore's "The Bogleheads' Guide to the Three-Fund Portfolio" which says the bond allocation % should be around your age. Are you thinking that's too much given my age of 31?
I subscribe to the glide-path model fulltilt mentioned. I should be about 65% stocks/35% bonds, but currently am at about 72%/28%. I'm comfy with it because I hope to have at least 10 years and perhaps 15 in my job. Which I love. And will keep simply for the health care insurance. :happy

When I was your age, I was 100% stock funds and didn't switch to bond funds until I was about 50. YMMV.

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Fri Oct 12, 2018 5:21 pm

MattBarkowski wrote:
Fri Oct 12, 2018 1:11 pm
True - "exploded" was probably too strong of a term.

Also - in response to the 30% bond allocation. It does seem like a lot, but I was just following what is recommended in Taylor Larimore's "The Bogleheads' Guide to the Three-Fund Portfolio" which says the bond allocation % should be around your age. Are you thinking that's too much given my age of 31?
I think the age in bonds rule is recklessly conservative for the typical investor.

An average 30 year old should have between 0% and 10% in bonds according to most allocation experts.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Olemiss540
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Re: Does Timing Matter? 3 Fund Portfolio

Post by Olemiss540 » Fri Oct 12, 2018 5:21 pm

vineviz wrote:
Fri Oct 12, 2018 11:55 am
MattBarkowski wrote:
Fri Oct 12, 2018 11:14 am
Age 31

I was in the process of restructuring my portfolio that I rolled over from my previous employer. My plan was to put 30% in total bond fund, 55% in Total Market Index Fund and 15% in Total International Index. However, the stock market has exploded the last few days so I am hesitant to make a move.
I currently have everything in Fidelity's FZROX which is their new no fee index fund. I am not currently contributing to this as I have an active account with Vanguard with my current employer that I am socking away about 15% of income.

My question is, does it matter? Should I be worried about timing when I restructure?
I have two thoughts.

One is that 30% in bonds is a LOT of bonds for someone who is 30 years old. Are you sure that's the right asset allocation for you?

The second is that you should NOT worry about timing when you restructure. Devise an appropriate long-term asset allocation, move immediately to it, and stick with it no matter whether the markets are up or down.
Isn't this a very personal decision? Strange that a 70/30 allocation would elicit a LOT of a reaction considering 80/20 to 70/30 seems to be WIDELY recommended around here for a 30 year old.

I am 34 with a 90/10 AA, but have zero emotional reaction for someone my age with 30% bonds. Maybe the recent market runup has people thinking they are immune to the emotional reaction a 50% drop in equities can provide to your psyche.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Olemiss540
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Re: Does Timing Matter? 3 Fund Portfolio

Post by Olemiss540 » Fri Oct 12, 2018 5:23 pm

vineviz wrote:
Fri Oct 12, 2018 5:21 pm
MattBarkowski wrote:
Fri Oct 12, 2018 1:11 pm
True - "exploded" was probably too strong of a term.

Also - in response to the 30% bond allocation. It does seem like a lot, but I was just following what is recommended in Taylor Larimore's "The Bogleheads' Guide to the Three-Fund Portfolio" which says the bond allocation % should be around your age. Are you thinking that's too much given my age of 31?
I think the age in bonds rule is recklessly conservative for the typical investor.

An average 30 year old should have between 0% and 10% in bonds according to most allocation experts.
Reckless. Lol.

Maybe the OP doesnt need to take the risk associated with a higher equity allocation due to their savings rate or planned working lifespan. Strange reaction to a fairly conservative AA.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Taylor Larimore
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Re: Does Timing Matter? 3 Fund Portfolio

Post by Taylor Larimore » Fri Oct 12, 2018 6:26 pm

MattBarkowski wrote:
Fri Oct 12, 2018 1:11 pm
True - "exploded" was probably too strong of a term.

Also - in response to the 30% bond allocation. It does seem like a lot, but I was just following what is recommended in Taylor Larimore's "The Bogleheads' Guide to the Three-Fund Portfolio" which says the bond allocation % should be around your age. Are you thinking that's too much given my age of 31?
Matt:

I doubt that I ever said "the bond allocation % should be around your age" because age is just one of the factors to consider when deciding our stock/bond allocation. Our time-frame, risk-tolerance and personal financial situation are other factors which should be considered.

In my book, "The Bogleheads' Guide to The Three-Fund Portfolio" I wrote that "Your age in bonds is a good starting point" but there is much more to it as I discuss in the "Getting Started" chapter. I also provide a link to this (free) Vanguard Asset-Allocation Tool:

https://personal.vanguard.com/us/FundsI ... unds/tools

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Fri Oct 12, 2018 6:41 pm

Olemiss540 wrote:
Fri Oct 12, 2018 5:23 pm
Maybe the OP doesnt need to take the risk associated with a higher equity allocation due to their savings rate or planned working lifespan. Strange reaction to a fairly conservative AA.
I don't know, the OP asked for thoughts and those were mine.

For a dedicated retirement portfolio, at such a young age, there is not much risk associated with being 90% or more in equities. The volatility is dampened by the high ratio of contributions to account balances. That's just how the math works out.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

KlangFool
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Re: Does Timing Matter? 3 Fund Portfolio

Post by KlangFool » Fri Oct 12, 2018 6:48 pm

vineviz wrote:
Fri Oct 12, 2018 6:41 pm
Olemiss540 wrote:
Fri Oct 12, 2018 5:23 pm
Maybe the OP doesnt need to take the risk associated with a higher equity allocation due to their savings rate or planned working lifespan. Strange reaction to a fairly conservative AA.
I don't know, the OP asked for thoughts and those were mine.

For a dedicated retirement portfolio, at such a young age, there is not much risk associated with being 90% or more in equities. The volatility is dampened by the high ratio of contributions to account balances. That's just how the math works out.
vineviz,

<<The volatility is dampened by the high ratio of contributions to account balances.>>

This is assuming that

A) OP is not "House Poor".

B) OP will not be unemployed for a significant amount of time during a recession.

<<That's just how the math works out.>>

The math only works out for folks that are not unemployed for any significant amount of time during a recession plus market downturn. Unfortunately, those events tend to happen at the same time for some people.

KlangFool

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Fri Oct 12, 2018 9:09 pm

KlangFool wrote:
Fri Oct 12, 2018 6:48 pm
vineviz wrote:
Fri Oct 12, 2018 6:41 pm
Olemiss540 wrote:
Fri Oct 12, 2018 5:23 pm
Maybe the OP doesnt need to take the risk associated with a higher equity allocation due to their savings rate or planned working lifespan. Strange reaction to a fairly conservative AA.
I don't know, the OP asked for thoughts and those were mine.

For a dedicated retirement portfolio, at such a young age, there is not much risk associated with being 90% or more in equities. The volatility is dampened by the high ratio of contributions to account balances. That's just how the math works out.
vineviz,

<<The volatility is dampened by the high ratio of contributions to account balances.>>

This is assuming that

A) OP is not "House Poor".

B) OP will not be unemployed for a significant amount of time during a recession.

<<That's just how the math works out.>>

The math only works out for folks that are not unemployed for any significant amount of time during a recession plus market downturn. Unfortunately, those events tend to happen at the same time for some people.

KlangFool
So a fully employed 30 year old should be 30% bonds in their retirement portfolio just in case there is a recession some day in the future? No way.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

MIretired
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Re: Does Timing Matter? 3 Fund Portfolio

Post by MIretired » Fri Oct 12, 2018 9:31 pm

Losing your income while holding a mortgage is when you learn the value of an emergency fund. That, or 0% rate credit card advances. I wouldn't touch the 401k unless I was unable to work, and as a last resort.

KlangFool
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Re: Does Timing Matter? 3 Fund Portfolio

Post by KlangFool » Fri Oct 12, 2018 9:55 pm

vineviz wrote:
Fri Oct 12, 2018 9:09 pm
KlangFool wrote:
Fri Oct 12, 2018 6:48 pm
vineviz wrote:
Fri Oct 12, 2018 6:41 pm
Olemiss540 wrote:
Fri Oct 12, 2018 5:23 pm
Maybe the OP doesnt need to take the risk associated with a higher equity allocation due to their savings rate or planned working lifespan. Strange reaction to a fairly conservative AA.
I don't know, the OP asked for thoughts and those were mine.

For a dedicated retirement portfolio, at such a young age, there is not much risk associated with being 90% or more in equities. The volatility is dampened by the high ratio of contributions to account balances. That's just how the math works out.
vineviz,

<<The volatility is dampened by the high ratio of contributions to account balances.>>

This is assuming that

A) OP is not "House Poor".

B) OP will not be unemployed for a significant amount of time during a recession.

<<That's just how the math works out.>>

The math only works out for folks that are not unemployed for any significant amount of time during a recession plus market downturn. Unfortunately, those events tend to happen at the same time for some people.

KlangFool
So a fully employed 30 year old should be 30% bonds in their retirement portfolio just in case there is a recession some day in the future? No way.
vineviz,

https://en.wikipedia.org/wiki/List_of_r ... ted_States

Since 1836, there is at least one US recession every 10 years. So, this is a normal regular occurrence. We just do not know when it will happen.

By the way, the last recession was 2008/2009.

When recession happened and a person is unemployed longer than their emergency fund, they will need their bond to feed them.

KlangFool

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Sat Oct 13, 2018 6:07 am

KlangFool wrote:
Fri Oct 12, 2018 9:55 pm
When recession happened and a person is unemployed longer than their emergency fund, they will need their bond to feed them.
I understand why the idea of a recession might be traumatic for you but, as a relatively normal occurrence, fear of a recession isn’t an excuse for defective retirement portfolio construction.

There is a reason that people should have personal savings, including robust emergency funds, and the chance of unemployment is one of them. Those savings should be in cash, not stocks.

Retirement planning is a different thing.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

indexonlyplease
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Re: Does Timing Matter? 3 Fund Portfolio

Post by indexonlyplease » Sat Oct 13, 2018 6:35 am

I like having all my money with one employer. So, yes I would move the money if you plan on staying there. I believe this is best for keeping track of your money and not have multiple accounts. Not including outside accounts form employer. But I still only have one Vanguard.

My wife changed jobs so this week I am moving her 401k to the new employer. Which does have better funds and fees.

Make sure you know what AA you want then set it up.

I have had 2 employers in 30 yrs so it was easy for me.

I think the the 3 fund is great but if available I believe the Target Dated Fund is best. It will set the % in bonds for your age. Now you have only one fund to put money into with nothing else to do. Boring but works. This is also what my son is doing.

KlangFool
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Re: Does Timing Matter? 3 Fund Portfolio

Post by KlangFool » Sat Oct 13, 2018 6:48 am

vineviz wrote:
Sat Oct 13, 2018 6:07 am
KlangFool wrote:
Fri Oct 12, 2018 9:55 pm
When recession happened and a person is unemployed longer than their emergency fund, they will need their bond to feed them.
I understand why the idea of a recession might be traumatic for you but, as a relatively normal occurrence, fear of a recession isn’t an excuse for defective retirement portfolio construction.

There is a reason that people should have personal savings, including robust emergency funds, and the chance of unemployment is one of them. Those savings should be in cash, not stocks.

Retirement planning is a different thing.
It is not retirement planning. A person cannot be sure that he will not be using the money before retirement age. It is likely that a person may be unemployed for a longer period of time during the recession. And, it is unknowable how long that a person will be unemployed across multiple recessions that he may face.

You have to survive in order to succeed. Counting on being lucky is not a good planning strategy.

KlangFool
Last edited by KlangFool on Sat Oct 13, 2018 7:22 am, edited 1 time in total.

3funder
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Re: Does Timing Matter? 3 Fund Portfolio

Post by 3funder » Sat Oct 13, 2018 7:18 am

MattBarkowski wrote:
Fri Oct 12, 2018 11:14 am
Age 31

I was in the process of restructuring my portfolio that I rolled over from my previous employer. My plan was to put 30% in total bond fund, 55% in Total Market Index Fund and 15% in Total International Index. However, the stock market has exploded the last few days so I am hesitant to make a move.
I currently have everything in Fidelity's FZROX which is their new no fee index fund. I am not currently contributing to this as I have an active account with Vanguard with my current employer that I am socking away about 15% of income.

My question is, does it matter? Should I be worried about timing when I restructure?

Thoughts?
The risk is not that the stock market has had a poor week; rather, it is that the stock market is quite expensive right now. My two cents: decrease your US stock exposure by 15% and increase your international stock exposure by 15%. Keep this US/international allocation for the long term. Also, don't worry about timing the market--its a fool's errand.

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Sat Oct 13, 2018 8:21 am

KlangFool wrote:
Sat Oct 13, 2018 6:48 am
Counting on being lucky is not a good planning strategy.
Assuming the worst case as the base case is an even worse planning strategy.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

KlangFool
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Re: Does Timing Matter? 3 Fund Portfolio

Post by KlangFool » Sat Oct 13, 2018 9:27 am

vineviz wrote:
Sat Oct 13, 2018 8:21 am
KlangFool wrote:
Sat Oct 13, 2018 6:48 am
Counting on being lucky is not a good planning strategy.
Assuming the worst case as the base case is an even worse planning strategy.
vineviz,

https://personal.vanguard.com/us/insigh ... ns?lang=en
The average return for 100/0 is 10.3%. The average return for 70/30 is 9.3%
The worst year for 100/0 is -43.1%. The worst year for 70/30 is -30.7%.

What we are talking about here? 100/0 versus 70/30?
A) 100/0
If you hit a bad sequence of unemployment, you may not survive. In return, you get 1% more return per year if you do not get unlucky over 10+ years.

B) 70/30
You are more likely to survive even if you hit a bad sequence of unemployment.

<<Assuming the worst case as the base case is an even worse planning strategy.>>
Really? I want to make sure that I survive first before I think about return. You can only succeed if you survive.

KlangFool

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Sat Oct 13, 2018 9:45 am

KlangFool wrote:
Sat Oct 13, 2018 9:27 am
<<Assuming the worst case as the base case is an even worse planning strategy.>>
Really? I want to make sure that I survive first before I think about return. You can only succeed if you survive.
There is more to success than merely surviving.

In other words, survival is a necessary but not sufficient criteria for "success".

As I said before, I can understand why the fear of a future recession and/or unemployment might be traumatic for you. But your fears aren't a legitimate basis for best practice recommendations.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

KlangFool
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Re: Does Timing Matter? 3 Fund Portfolio

Post by KlangFool » Sat Oct 13, 2018 10:04 am

vineviz wrote:
Sat Oct 13, 2018 9:45 am
KlangFool wrote:
Sat Oct 13, 2018 9:27 am
<<Assuming the worst case as the base case is an even worse planning strategy.>>
Really? I want to make sure that I survive first before I think about return. You can only succeed if you survive.
There is more to success than merely surviving.

In other words, survival is a necessary but not sufficient criteria for "success".

As I said before, I can understand why the fear of a future recession and/or unemployment might be traumatic for you. But your fears aren't a legitimate basis for best practice recommendations.
vineviz,

I dispute your statement about 100/0 is a best practice recommendation. I seriously doubt that you will find many folks in this forum supporting this recommendation.

100/0 has a lousy risk-adjusted return. It is never a good recommendation for anyone at any age.

KlangFool

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Sat Oct 13, 2018 10:28 am

KlangFool wrote:
Sat Oct 13, 2018 10:04 am
I dispute your statement about 100/0 is a best practice recommendation.
I know you do.

Nonetheless, most investment allocation experts would, in fact, suggest a 30 year old with a moderate risk tolerance and "normal" amounts of human capital should have their retirement portfolio invested 100% in equities.
KlangFool wrote:
Sat Oct 13, 2018 10:04 am
I seriously doubt that you will find many folks in this forum supporting this recommendation.
Any online forum, including this one, can at time take on the qualities of an echo chamber.

I greatly value this forum and the contributions of its many members (you included, btw) but the consensus view on some topics can at times be irresponsibly conservative due the confirmation bias and self-selection bias that manifest in the participants the forum tends to attract.

In theory, the ideal equity allocation for a typical 30 year old saving for retirement would be something close to 150% equities. There are some real world constraints (including regulatory requirements and behavioral risks) that put such a recommendation at the aggressive end of the recommendation spectrum.

At the other extreme end of the spectrum is the recklessly conservative "age in bonds" rule of thumb, a "rule" that lacks any empirical basis as far as I can tell apart from coincidentally corresponding to the mean-variance optimal portfolio for the most profitable clients of financial advisors.

Resultantly, "best practice" tends to be a middle-of-the-road 90/10 or 100/00 allocation at 30 years old.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Does Timing Matter? 3 Fund Portfolio

Post by aspirit » Sat Oct 13, 2018 10:37 am

Hi Matt:
I also understood most 3 fund portfolio strategy suggestions to suggest that bond asset allocations percentages should closely mirror ones age,......and risk appetite.

Along with Taylor's further description and explanation of his understanding of it and the many other replies you've received this article out today might assist you in your continued understanding the myriad of considerations in most individuals AA decisions.
https://awealthofcommonsense.com/2018/1 ... orrection/

You seem to have already realized the markets past two day down slide is not the 1000 point crash and burn most market media outlets report it as.~
Or not, ... however its seems you have another 30/40 yrs till your withdrawal considerations materialize. Thats certainly a governing factor also.

Good luck!
Time & tides wait for no one. A man has to know his limitations.

Island John
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Re: Does Timing Matter? 3 Fund Portfolio

Post by Island John » Sat Oct 13, 2018 10:51 am

If you are worried about timing, you could take a dollar cost averaging approach to the transition. Regarding your target asset allocation, it sounds fine to me. At the age of 31, you have plenty of time to tweak your allocation as you gain knowledge and experience and have a better sense of your goals and risk tolerance. Having an emergency fund in place will also reduce your anxiety if the market has negative moves.
Last edited by Island John on Sat Oct 13, 2018 10:58 am, edited 2 times in total.

KlangFool
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Re: Does Timing Matter? 3 Fund Portfolio

Post by KlangFool » Sat Oct 13, 2018 10:53 am

vineviz wrote:
Sat Oct 13, 2018 10:28 am
KlangFool wrote:
Sat Oct 13, 2018 10:04 am
I dispute your statement about 100/0 is a best practice recommendation.
I know you do.

Nonetheless, most investment allocation experts would, in fact, suggest a 30 year old with a moderate risk tolerance and "normal" amounts of human capital should have their retirement portfolio invested 100% in equities.
vineviz,

Show me the investment experts that say this. Not anyone that I would listen to say this.

<< in fact, suggest a 30 year old with a moderate risk tolerance and "normal" amounts of human capital >>

1) We do not know our risk tolerance until we faced our first recession while we are employed. Even then, we may not know. Somebody that is 31 years old now is probably still in college during 2008/2009 recession. So, that immediately blow away this assumption.

2) "normal" amount of human capital?

This is a personal finance forum. We do not care about average. The only relevant information is our own personal human capital. At 30+ years old, we do not know how many years of earning that we may have left. So, "normal" is meaningless.

<< I greatly value this forum and the contributions of its many members (you included, btw) but the consensus view on some topics can at times be irresponsibly conservative due the confirmation bias and self-selection bias that manifest in the participants the forum tends to attract.>>

Or, we had survived many recessions that we do not take many things for granted. Those that did not survive would not be posting on this forum.

KlangFool

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Sat Oct 13, 2018 11:43 am

KlangFool wrote:
Sat Oct 13, 2018 10:53 am
Show me the investment experts that say this. Not anyone that I would listen to say this.
Ahh, a true Scotsman.

Nobody who disagrees with you can be an expert, therefore all the experts agree with you.

Nice.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

ThePrince
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Re: Does Timing Matter? 3 Fund Portfolio

Post by ThePrince » Sat Oct 13, 2018 12:13 pm

vineviz wrote:
Fri Oct 12, 2018 5:21 pm
MattBarkowski wrote:
Fri Oct 12, 2018 1:11 pm
True - "exploded" was probably too strong of a term.

Also - in response to the 30% bond allocation. It does seem like a lot, but I was just following what is recommended in Taylor Larimore's "The Bogleheads' Guide to the Three-Fund Portfolio" which says the bond allocation % should be around your age. Are you thinking that's too much given my age of 31?
I think the age in bonds rule is recklessly conservative for the typical investor.

An average 30 year old should have between 0% and 10% in bonds according to most allocation experts.
+1

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BolderBoy
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Re: Does Timing Matter? 3 Fund Portfolio

Post by BolderBoy » Sat Oct 13, 2018 12:46 pm

vineviz wrote:
Sat Oct 13, 2018 10:28 am
KlangFool wrote:
Sat Oct 13, 2018 10:04 am
I dispute your statement about 100/0 is a best practice recommendation.
I know you do.

Nonetheless, most investment allocation experts would, in fact, suggest a 30 year old with a moderate risk tolerance and "normal" amounts of human capital should have their retirement portfolio invested 100% in equities.
vineviz - are you familiar with "The Efficient Frontier"?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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vineviz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by vineviz » Sat Oct 13, 2018 1:01 pm

BolderBoy wrote:
Sat Oct 13, 2018 12:46 pm
vineviz wrote:
Sat Oct 13, 2018 10:28 am
KlangFool wrote:
Sat Oct 13, 2018 10:04 am
I dispute your statement about 100/0 is a best practice recommendation.
I know you do.

Nonetheless, most investment allocation experts would, in fact, suggest a 30 year old with a moderate risk tolerance and "normal" amounts of human capital should have their retirement portfolio invested 100% in equities.
vineviz - are you familiar with "The Efficient Frontier"?
Intimately.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

viz
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Re: Does Timing Matter? 3 Fund Portfolio

Post by viz » Sat Oct 13, 2018 1:12 pm

MattBarkowski wrote:
Fri Oct 12, 2018 11:14 am
Age 31

I was in the process of restructuring my portfolio that I rolled over from my previous employer. My plan was to put 30% in total bond fund, 55% in Total Market Index Fund and 15% in Total International Index. However, the stock market has exploded the last few days so I am hesitant to make a move.
I currently have everything in Fidelity's FZROX which is their new no fee index fund. I am not currently contributing to this as I have an active account with Vanguard with my current employer that I am socking away about 15% of income.

My question is, does it matter? Should I be worried about timing when I restructure?

Thoughts?
To answer your specific question, if your investment horizon is 30-35 years then no, you shouldn't worry about the current downturn
As for AA,. I am 40 and have 80% is stocks, 10 in bonds and 10 in alternative (real estate and commodities). But this is my personal preference based on my current financial situation and risk tolerance. I have 6 months of EF and my portfolio is 3+ times my annual spend. We are a 2 income household which can live comfortably with one salary if needed and one of just started earning a decent salary 2-3 years ago. AA you need to decide for yourself based on the valuable inputs you are already getting here.

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Taylor Larimore
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Re: Does Timing Matter? 3 Fund Portfolio

Post by Taylor Larimore » Sat Oct 13, 2018 1:24 pm

ThePrince wrote:
Sat Oct 13, 2018 12:13 pm
vineviz wrote:
Fri Oct 12, 2018 5:21 pm
MattBarkowski wrote:
Fri Oct 12, 2018 1:11 pm
True - "exploded" was probably too strong of a term.

Also - in response to the 30% bond allocation. It does seem like a lot, but I was just following what is recommended in Taylor Larimore's "The Bogleheads' Guide to the Three-Fund Portfolio" which says the bond allocation % should be around your age. Are you thinking that's too much given my age of 31?
I think the age in bonds rule is recklessly conservative for the typical investor.

An average 30 year old should have between 0% and 10% in bonds according to most allocation experts.
Bogleheads:

As I explained in a previous Reply:
"Age is just one of the factors to consider when deciding our stock/bond allocation. Our time-frame, risk-tolerance and personal financial situation are other factors which should be considered."
Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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patrick013
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Re: Does Timing Matter? 3 Fund Portfolio

Post by patrick013 » Sat Oct 13, 2018 1:26 pm

Someday the old soup line may reappear and you will be glad
to have a noticeable bond allocation. By soup line I mean
a recession, depression, or a very lengthy market downturn.

Benjamin Graham suggests 25% bonds, at least, for this purpose.
Those who do not don't include the possibility in their universe
of data the reality of a depression, when many stock portfolios
will devalue for a long time.

So for those aggressive investors so be it.

Everybody would like most of the gains and none of the risks so
when somebody rebalances high stocks gains into bonds or MM at
least those gains are captured with only low bond risks in the
future. Growth isn't infinite like some people would like it
to seem. If your bonds are 30% and the market PE is 30 I may
rebalance to 50% bonds, taxes permitting, and let the stock AA
increase back to 70% from there before another rebalance. My
own little rebalance method and timing.

Assuming this is the only investment account and assets there are,
bonds should certainly be a part due to most non-gambling authors.
Emergency funds usually are a year maybe 2 years of expenses
at the most. Capturing some gains to bonds for safety is another
function of bonds. 100% stock AA has to be the investor's decision.
age in bonds, buy-and-hold, 10 year business cycle

dothechex
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Re: Does Timing Matter? 3 Fund Portfolio

Post by dothechex » Mon Oct 15, 2018 11:54 am

MattBarkowski wrote:
Fri Oct 12, 2018 11:14 am
Age 31

I was in the process of restructuring my portfolio that I rolled over from my previous employer. My plan was to put 30% in total bond fund, 55% in Total Market Index Fund and 15% in Total International Index. However, the stock market has exploded the last few days so I am hesitant to make a move.
I currently have everything in Fidelity's FZROX which is their new no fee index fund. I am not currently contributing to this as I have an active account with Vanguard with my current employer that I am socking away about 15% of income.

My question is, does it matter? Should I be worried about timing when I restructure?

Thoughts?
Echoing the others for not worrying about timing when you restructure. A quick way to see why -- go to Google and search 'VTSMX' (Vanguard Total Market Stock Fund). Up to the 'YTD' tracking shows a noticeable dip in the market. Now click on '5 years' and it's far less noticeable. Click on 'Max' and now it's nearly indistinguishable from the many little 'blips' you see over the years. The point is that if your time horizon is pretty long (i.e. many years until retirement), then the whole 'timing' issue won't make much of a difference. I wouldn't worry about it.

I also think it's useful to see different points of view regarding your AA. Though it may not help answer your question directly, the basis behind different suggestions ultimately boils down to risk tolerance. If I were you, I'd just keep reading more about this concept until you get a better feel about where you stand on the spectrum. There are lots of unknown variables about your personal situation (income/salary, job security, nest egg, etc.), so only you can truly answer this question.

FWIW, I'm your age and my AA is at 80%/20%. Almost splitting the difference between 0-10% and 30% in bonds :sharebeer

harvestbook
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Re: Does Timing Matter? 3 Fund Portfolio

Post by harvestbook » Mon Oct 15, 2018 1:08 pm

KlangFool wrote:
Sat Oct 13, 2018 9:27 am
vineviz wrote:
Sat Oct 13, 2018 8:21 am
KlangFool wrote:
Sat Oct 13, 2018 6:48 am
Counting on being lucky is not a good planning strategy.
Assuming the worst case as the base case is an even worse planning strategy.
vineviz,

https://personal.vanguard.com/us/insigh ... ns?lang=en
The average return for 100/0 is 10.3%. The average return for 70/30 is 9.3%
The worst year for 100/0 is -43.1%. The worst year for 70/30 is -30.7%.


KlangFool
I was curious and ran the extra 1 percent through an interest-rate calculator. Over 30 years, an extra 1 percent on $10,000 gives you an extra $54,000, or more than a third more money. Good work if you can hold on. It's a gamble if the loss of $54,000 is worth the extra security of a few months of emergency bond spending. So it's a gamble either way, even "playing it safe."
I'm not smart enough to know, and I can't afford to guess.

KlangFool
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Re: Does Timing Matter? 3 Fund Portfolio

Post by KlangFool » Mon Oct 15, 2018 1:21 pm

harvestbook wrote:
Mon Oct 15, 2018 1:08 pm
KlangFool wrote:
Sat Oct 13, 2018 9:27 am
vineviz wrote:
Sat Oct 13, 2018 8:21 am
KlangFool wrote:
Sat Oct 13, 2018 6:48 am
Counting on being lucky is not a good planning strategy.
Assuming the worst case as the base case is an even worse planning strategy.
vineviz,

https://personal.vanguard.com/us/insigh ... ns?lang=en
The average return for 100/0 is 10.3%. The average return for 70/30 is 9.3%
The worst year for 100/0 is -43.1%. The worst year for 70/30 is -30.7%.


KlangFool
I was curious and ran the extra 1 percent through an interest-rate calculator. Over 30 years, an extra 1 percent on $10,000 gives you an extra $54,000, or more than a third more money. Good work if you can hold on. It's a gamble if the loss of $54,000 is worth the extra security of a few months of emergency bond spending. So it's a gamble either way, even "playing it safe."
harvestbook,

In a recession with unemployment, that few months could mean

A) You get to keep your house or lose it.

B) Wait for a better job offer or settle for lower pay. Please note that once you accepted a lowered pay job, it might take a few years to recover to your previous pay level.

No gamble is worth total financial ruin.

Historically, there is at least one US recession every 10 years. For 30 years, a person needs to survive at least 3 recessions without serious unemployment. I know that I am not that lucky.

KlangFool

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