Vanguard Portfolio Advice - $200K

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Topic Author
karamazov5
Posts: 3
Joined: Sun Dec 01, 2019 2:41 pm

Vanguard Portfolio Advice - $200K

Post by karamazov5 » Sun Dec 01, 2019 2:47 pm

Can anyone weigh in on the is portfolio / asset allocation strategy?

Background
- Total comp: 180k,
- 40 years to retirement, in 20's.
- risk-seeking,
- buy-and-hold strategy,
- knowledgable enough to avoid basic mistakes (e.g. selling in a down-market, picking stocks vs. index funds).

Portfolio ($200K)
- 45% in US Technology equities - (VGT)
- 40% in US Stock Market - (VTI, VTSAX)
- 7% in US Real Estate - (VNQ)
- 5% in International Stocks - (VTIAX)
- 2% in Crypto - (BTC, ETH)
- 1% in bonds - (BND)

Other remarks
- Not quite persuaded to invest more in international equities, as it seems US large-cap stocks have exposure here?
- I work in tech and am very bullish on tech outperforming analyst expectations in the long-term (20 years and beyond).
- I'd like to diversify more around large/mid/small-cap.

dru808
Posts: 184
Joined: Sat Oct 15, 2011 2:42 pm

Re: Vanguard Portfolio Advice - $200K

Post by dru808 » Sun Dec 01, 2019 3:18 pm

Why the 1% in bonds, what’s the point?

lakpr
Posts: 3093
Joined: Fri Mar 18, 2011 9:59 am

Re: Vanguard Portfolio Advice - $200K

Post by lakpr » Sun Dec 01, 2019 3:34 pm

Is this all in taxable account?

That you are working in the tech industry is all the more reason to stay away from technology stocks. You are putting your livelihood, as well as your retirements, at risk here. If technology stocks turn south, you are hit with a double whammy. There is too much concentration risk as it is in the total stock market with the tech stocks dominating it, you don't need to compound it further by over weighting your own portfolio to it.

If this is not in a taxable account, or if the long term capital gains are acceptable, I would suggest you sell the current 45% stake in technology stocks, and put them in Mid-cap and small-cap stocks mostly to diversify away from large-cap stocks that are mostly Tech. Or you can simply dump everything into the total stock market fund or ETF,

Gideon
Posts: 25
Joined: Sat Aug 10, 2019 8:03 pm

Re: Vanguard Portfolio Advice - $200K

Post by Gideon » Sun Dec 01, 2019 3:37 pm

Your rationale for not investing more in international because it's covered (in part) by U.S. large-caps would also apply to U.S. real estate.

Gideon
Posts: 25
Joined: Sat Aug 10, 2019 8:03 pm

Re: Vanguard Portfolio Advice - $200K

Post by Gideon » Sun Dec 01, 2019 3:45 pm

lakpr wrote:
Sun Dec 01, 2019 3:34 pm
That you are working in the tech industry is all the more reason to stay away from technology stocks. You are putting your livelihood, as well as your retirements, at risk here. If technology stocks turn south, you are hit with a double whammy.
He is doubling down, so to speak, but his experience in the tech industry is also arguably what provides him with the expertise to make (and stick with) this sector bet. It is, however, a bet.

Topic Author
karamazov5
Posts: 3
Joined: Sun Dec 01, 2019 2:41 pm

Re: Vanguard Portfolio Advice - $200K

Post by karamazov5 » Sun Dec 01, 2019 7:31 pm

Thanks for the initial reactions.

After getting feedback and reading more, I'm considering deallocating around a fifth of the portfolio from technology and moving it to international stocks, which looks like it would help the risk-adjusted return.

To answer questions:
1) This is a taxable-account.
2) 1% bonds as a reminder to allocate more as I age.
3) Point-taken on real estate overlap with US equities.
4) Understood on job-risk overlapping with tech-sector risk — fortunately, I'm confident in my job security.

User avatar
ruralavalon
Posts: 16732
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Vanguard Portfolio Advice - $200K

Post by ruralavalon » Mon Dec 02, 2019 2:24 pm

karamazov5 wrote:
Sun Dec 01, 2019 2:47 pm
Can anyone weigh in on the is portfolio / asset allocation strategy?

Background
- Total comp: 180k,
- 40 years to retirement, in 20's.
- risk-seeking,
- buy-and-hold strategy,
- knowledgable enough to avoid basic mistakes (e.g. selling in a down-market, picking stocks vs. index funds).

Portfolio ($200K)
- 45% in US Technology equities - (VGT)
- 40% in US Stock Market - (VTI, VTSAX)
- 7% in US Real Estate - (VNQ)
- 5% in International Stocks - (VTIAX)
- 2% in Crypto - (BTC, ETH)
- 1% in bonds - (BND)

Other remarks
- Not quite persuaded to invest more in international equities, as it seems US large-cap stocks have exposure here?
- I work in tech and am very bullish on tech outperforming analyst expectations in the long-term (20 years and beyond).
- I'd like to diversify more around large/mid/small-cap.
karamazov5 wrote:
Sun Dec 01, 2019 7:31 pm
Thanks for the initial reactions.

After getting feedback and reading more, I'm considering deallocating around a fifth of the portfolio from technology and moving it to international stocks, which looks like it would help the risk-adjusted return.

To answer questions:
1) This is a taxable-account.
2) 1% bonds as a reminder to allocate more as I age.
3) Point-taken on real estate overlap with US equities.
4) Understood on job-risk overlapping with tech-sector risk — fortunately, I'm confident in my job security.
When young and just starting the most important investing decision you can make is to establish a high rate of contributions.

It's very important to make use of available tax-advantaged accounts.

These two things are both more important than the funds you elect to use.

. . . . .

Some additional information will be helpful.

About how much (in dollars) do you believe you may be able to contribute annually to investing (total, all accounts)?

Is there a plan offered at work such as a 401k, 403b, 457b, SIMPLE IRA, TSP? If so is there an employer match? If so what funds are offered. Please give fund names, tickers and expense ratios.

What is your bracket, both federal and state?

What is your tax filing status?

Are you eligible to contribute to a Roth IRA?

Are you eligible to deduct contributions to a traditional IRA?

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

. . . . .

In your 20s I suggest about 20% in bonds or other fixed income investments (like CDs, savings accounts, money market fund). This is expected to substantially reduce portfolio volatility (risk), with only a relatively modest decrease in portfolio return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation"; and
3) Morningstar (8/10/2019), "The Best Diversifiers for Your Equity Portfolio".

You might reexamine your assumptions about relative performance of different asset classes. Don't be too certain that stocks will significantly outperform bonds. Morningstar (01/10/2019), "Experts Forecast Long-Term Stock and Bond Returns: 2019 Edition ". The author says that the forecasts "suggest that bonds will give U.S. equities a run for their money over the next decade."

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

Vanguard Total Stock Market ETF (VTI) is diversified over "large/mid/small-cap."

I recommend against use of crypto currency as an investment.

In my opinion a 7% allocation to Vanguard Real Estate ETF (VNQ) is within the range of what is reasonable. Wiki article, "Lazy Portfolios". Wiki article, Real Estate Investment Trusts, "Role in a Portfolio". REIT funds have low correlations with the total stock market so can give a diversification benefit, and also can provide some inflation protection.

In my opinion it is unwise to heavily invest in the sector in which you are employed. Whole industries can turn sour (e.g. airlines). You risk both your employment income and your investment nest egg if something goes awry in IT. No one, including you, has any idea what will be happening in IT 20, 30, 40 or 50 years from now. I suggest skipping the investment in Vanguard Information Technology ETF (VGT).

Confidence in your job security does not reduce that risk. Employees of Compaq, Kodak, Polaroid, Enron, Washington Mutual, Health South, etc. who invested in their company's stock were all confident in their job security. (P!ease take note of the wide variety of sectors: tech, energy, banking, health care.)

. . . . .

I suggest that you read one or two books on investing. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below. A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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