Portfolio Advice? ($200K)

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

Portfolio Advice? ($200K)

Post by karamazov5 » Mon Dec 02, 2019 12:47 pm

Can anyone weigh in on this asset allocation strategy?

Background
- Comp: 180,
- 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).
- Allocated between taxable and non-taxable accounts.

Portfolio ($200K)
- 37.5% US stock market (VTI)
- 37.5% US tech index fund (VGT)
- 22% international stock market (VTIAX)
- 3%% bonds (BND)

Details
- Overweighting in tech despite job-risk because I'm bullish on long-term prospects (more so than the general market believes) and want to stomach the additional volatility for a greater long-term (20+ year) gain.

magicrat
Posts: 784
Joined: Sat Nov 29, 2014 7:04 pm

Re: Portfolio Advice? ($200K)

Post by magicrat » Mon Dec 02, 2019 12:49 pm

karamazov5 wrote:
Mon Dec 02, 2019 12:47 pm

- knowledgable enough to avoid basic mistakes

- Overweighting in tech despite job-risk because I'm bullish on long-term prospects (more so than the general market believes)
These points seem to be in conflict

snailderby
Posts: 478
Joined: Thu Jul 26, 2018 11:30 am

Re: Portfolio Advice? ($200K)

Post by snailderby » Mon Dec 02, 2019 2:47 pm

Welcome to the forum!

1. Three out of those four funds look fine. But I would agree with these posts by lakpr and ruralavalon in your other thread:
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. 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.
ruralavalon wrote:
Mon Dec 02, 2019 2:24 pm
In my opinion it is unwise to heavily invest in the sector you are employed in. You risk both your employment income and your investment nest egg if something goes awry in IT. Confidence in your job security does not reduce that risk. I suggest skipping the investment in Vanguard Information Technology ETF (VGT).
Even if you weren't working in the tech industry, I'm not sure that I would recommend VGT. VGT has 56% of its holdings in just 10 companies. VTI already holds those companies at market weight. And for what little it's worth, since its inception, XLK (SPDR's tech sector fund) has underperformed the total stock market with much higher volatility.

2. I don't think 3% in BND will move the needle that much one way or another. For convenience, you might consider simplifying to two funds: VTI and VXUS (or their mutual fund equivalents, VTSAX and VTIAX).

retired@50
Posts: 680
Joined: Tue Oct 01, 2019 2:36 pm

Re: Portfolio Advice? ($200K)

Post by retired@50 » Mon Dec 02, 2019 3:56 pm

magicrat wrote:
Mon Dec 02, 2019 12:49 pm
karamazov5 wrote:
Mon Dec 02, 2019 12:47 pm

- knowledgable enough to avoid basic mistakes

- Overweighting in tech despite job-risk because I'm bullish on long-term prospects (more so than the general market believes)
These points seem to be in conflict
+1
Over weighting one sector or portion of a market is a basic mistake. Especially true when it is the industry you work in.

Regards,

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ruralavalon
Posts: 16733
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Portfolio Advice? ($200K)

Post by ruralavalon » Mon Dec 02, 2019 4:05 pm

karamazov5 wrote:
Mon Dec 02, 2019 12:47 pm
Can anyone weigh in on this asset allocation strategy?

Background
- Comp: 180,
- 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).
- Allocated between taxable and non-taxable accounts.

Portfolio ($200K)
- 37.5% US stock market (VTI)
- 37.5% US tech index fund (VGT)
- 22% international stock market (VTIAX)
- 3%% bonds (BND)

Details
- Overweighting in tech despite job-risk because I'm bullish on long-term prospects (more so than the general market believes) and want to stomach the additional volatility for a greater long-term (20+ year) gain.
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.

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).

Being bullish about the tech sector does not reduce that risk. Employees of Compaq, Kodak, Polaroid, Enron, Washington Mutual, Health South, etc. who invested in their company's stock were bullish about their employers. (Please 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

User avatar
1789
Posts: 330
Joined: Fri Aug 16, 2019 3:31 pm
Location: OR

Re: Portfolio Advice? ($200K)

Post by 1789 » Mon Dec 02, 2019 4:14 pm

Why VGT? It has 30% of its holding in just 2 companies. It is very likely that those two companies may not survive 30 years. Look at history of sp500 and see which ones are there today and how are they doing.

I would make myself a favor and stay away from this fund. Merging it to VTSAX/VTI would be my choice.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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