26 yr old looking for asset alloc. to buy and hold forever

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kmeier82
Posts: 2
Joined: Mon Aug 17, 2015 9:21 am

26 yr old looking for asset alloc. to buy and hold forever

Post by kmeier82 » Fri Oct 19, 2018 8:36 pm

Emergency funds: Don’t have one

Debt: Student loan - $13,386.39 @ 2.89%

Tax Filing Status: Single with no dependents
Tax Rate: 12.77% Federal income tax, FICA 7.65%, 4.70% State income tax
State of Residence: MA
Age: 26

Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 25 - 40% of stocks

Current retirement assets - $82,804.72

Taxable
Nothing as of yet

401k at Fidelity – my contributions are Roth - $34,199.27 - 41.3% of Total
28.34% Vanguard Total US Institutional (VSMPX) (0.02%) – Contribution 60%
7.034% Vanguard Explorer Admiral (VEXRX) (0.32%) – Contribution 20%
5.922% Vanguard Total Int’l Institutional (VTSNX) (0.09%) – Contribution 20%

Company match – they contribute 5% of total compensation along with a variable profit sharing payment, these are pretax

Roth IRA at Vanguard – $43,497.95 - 52.53% of Total
33.917% Vanguard Target Retire 2060 (VTTSX) (0.15%) – Contribution 75%
18.613% Vanguard Small Cap Index Admiral (VSMAX) (0.05%) – Contribution 25%

HSA at Optum Bank – $5,107.50 - 6.17% of Total
4.66% Schwab Target 2060 Index (SWYNX) (0.08%) – Contribution 75%
1.51% Vanguard Small Cap Index Admiral (VSMAX) (0.05%) – Contribution 25%

Total Allocations
Trgt 2060 Funds
33.917% Vanguard Target Retire 2060 (VTTSX) (0.15%)
4.66% Schwab Target 2060 Index (SWYNX) (0.08%)

Total US
28.34% Vanguard Total US Institutional (VSMPX) (0.02%)

Total Int'l
5.922% Vanguard Total Int’l Institutional (VTSNX) (0.09%)

US Small Caps
20.123% Vanguard Small Cap Index Admiral (VSMAX) (0.05%)
7.034% Vanguard Explorer Admiral (VEXRX) (0.32%)

Contributions per annum
~$14,000 in 401k
$5,500 in IRA/Roth IRA
$3,150 in HSA

Key Points/Questions

1. I have spent years reading Bogle, Ferri, Warren, Dalio, this site, among the others we all know; I’ve watched hours and hours of Morningstar content; watched lectures from Schiller and Fama on portfolio theory; basically everything I’m sure you guys have done as well.

I’m looking for an asset allocation I can set now and hold forever. My risk tolerance is quite high as I will have rental income (will own real estate soon that will be rented out) and social security which can be lived off of. So looking to make these accounts the best long term (so high in equities) buy and hold allocation I can put together. Holding period would be 70+ years (until I’m dead basically).

2. I am definitely over-exposed to US small caps. Below is something I’ve drawn up which might make things a little more balanced. Definitely think there IS a value and small cap premium so wouldn’t be shy about tilting in that direction.

3. Any general advice would be GREATLY appreciated. You guys are great, I trust your judgement – let me hear it. Thank you.

Hypothetical Buy and Hold Forever Allocation:

401(k)
TOTAL US - 60% (0.02)
TOTAL INTL - 25% (0.09)
EXPLORER - 15% (0.32)

ROTH IRA
TOTAL US - 45% (0.04)
US SM CAP VALUE ETF - 15% (0.07)
TOTAL INTL - 25% (0.11)
FTSE INTL SM CAP ETF - 10% (0.13)
EMRG MRKT ETF - 5% (0.14)

HSA
TARGET 2060 - 80% (0.08)
SM CAP - 20% (0.05)

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oldcomputerguy
Posts: 3430
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: 26 yr old looking for asset alloc. to buy and hold forever

Post by oldcomputerguy » Fri Oct 19, 2018 8:55 pm

I’m looking for an asset allocation I can set now and hold forever.
I wouldn’t consider being 100% stocks forever, unless you’re already independently wealthy and will stay that way for the rest of your life. I think a more reasonsble “forever” allocation would be 60/40 stocks/bonds.

That being said, there is nothing wrong with being 100% stocks this early in your investing life. Later on, you’ll probably want to dial back the risk as you near retirement.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

BigMoneyNoWhammies
Posts: 132
Joined: Tue Jul 11, 2017 11:58 am

Re: 26 yr old looking for asset alloc. to buy and hold forever

Post by BigMoneyNoWhammies » Fri Oct 19, 2018 9:56 pm

Agree with computerguy that you likely won't have a reason to be 100% stock for the entirety of your investing horizon, but that it's perfectly reasonable to be 100% stocks right now if your risk tolerance can stomach it. I'm a few years older than you and am 100% stock right now as well but I don't believe that will be the case 30-35 years from now at retirement age. There's an argument to be made that if you're quite wealthy with net assets far above your needs that you could be 100% stock without any fear (for example, $5 million+ in assets when you only need to withdraw $50k per year to meet expenses, aka a 1% withdrawal rate), but at that point you've already won the game and it's probably better to dial the volatility and risk way down and go far more conservative.

All things considered you're doing well and are far ahead of most people your age in terms of saving for retirement. There are quite a few people that small cap/value tilt on this forum or some combination thereof, nothing necessarily wrong with that either if that's what you're going for, but your simplified portfolio looks sound to me. Keep in mind that the total US fund will have small cap in it as well so that needs to be accounted for when doing your AA.

I'd start putting away a % of each paycheck towards an emergency fund until it reaches 3-6 months of expenses depending on what you're comfortable with. Better safe than sorry.

You mentioned nothing in taxable yet. No big deal there. I wouldn't bother with taxable until you have additional funds to invest after maxing your 401k and IRA space

As for Social Security, I personally invest under the assumption that it either won't be there or will be drastically reduced in value from what a recent retiree is currently getting when I finally take it in 30+ years. The way I look at it, it'll just be a cherry on top if it ends up being there in its current form as I approach retirement, and if not I'm prepared.

All in all the revised portfolio you posted looks solid for your age, income level, and situation.

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