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De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 7:45 am
by HappyJack
Avid follower of the forum. Age 66, retirement next December 2020. Have enough. Want to de-risk some. 50/50 allocation all indexed. Should I replace International, Emerging, REIT with Total stock.
S&P 18%
MC/SC 7%
REIT 10%
Intl Developed 10%
Emerging 5%
Total Bond 25%
Interm Treasuries 25%

Someone posted; “when experts disagree on a topic it’s generally because there isn’t a single correct answer.”

You have Benjamin Graham and Burton Malkiel FOR and John Bogle and Warren Buffett AGAINST an international allocation. We have the two fund port vs the three fund port. I have also read so many great posts on this forum and both sides make sense.

Importantly: I am not sure if my allocation is enough to move the needle and therefor opt for simplicity?

I know, I know, here we go again... thanks.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 7:54 am
by Ferdinand2014
Simplicity in case of cognitive decline, medical illness or a spouse/significant other who is placed in a position to have to manage the finances. I personally would just go with a total U.S. stock market for your equities and the rest in a total bond or intermediate treasuries for 2 funds total at your 50/50 allocation. Alternatively, consider one life strategy or target date fund.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:11 pm
by Quaestner
You asked a yes/no question, but I don't want to give a yes/no answer. Sorry! I do think that having a fifth of your stocks in RIETS is too much. I think the RIETs (or much of them) could go into Total Stock. (And as I answer this, I'm assuming you're in tax sheltered accounts and not worrying about triggering capital gains taxes.) It might also be reasonable to simplify all the other US equities by moving them into Total Stock as well. I question whether selling the inexpensive stuff (the international - especially emerging markets) and betting on the US is really going to "de risk" you. What if you kept your 30% international equity exposure and just had it in Total International (which has emerging markets exposure)? Getting out of your international equities seems like market timing, not de-risking. Simplify your portfolio and enjoy your last year of work and upcoming retirement. That's what I think - FWIW.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:22 pm
by whodidntante
I recommend that you buy a low cost target date or target risk fund, at least in tax advantaged accounts. This will minimize tinkering and leave you with a professionally managed portfolio that is probably better than yours. I think the professional manager is less likely to be swayed by recency bias and is less likely to be swayed by appeal to authority, which is rampant on bogleheads almost by definition.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:26 pm
by 1789
If you are talking about tax advantaged accounts, you can easily implement 2 fund portfolio by US total stocks and US total bonds. Your portfolio look crowded to me. Implementing 2 fund and overall simplification will be helpful for your heirs later on.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:32 pm
by jhfenton
I think you would be increasing risk by dropping international and emerging, especially after the last decade of superior returns in the US and the strengthening of the dollar. Whether that's your intent or not, that's performance chasing.

But, I do think simplifying makes sense.

You could certainly drop the REIT fund.

You could go with Total World for a one-fund equity allocation (currently about 55% US/45% ex-US).

You could go with Total Stock and Total International, for a two-fund equity allocation that you could control.

If you really wanted to simplify, you could drop one of your bond funds and consolidate to the other. They are both solid choices.

You could even go with LifeStrategy Moderate Growth at 60/40 and keep some of the treasury fund on the side to get back to 50/50.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:32 pm
by lostdog
whodidntante wrote: Sat Dec 28, 2019 12:22 pm I recommend that you buy a low cost target date or target risk fund, at least in tax advantaged accounts. This will minimize tinkering and leave you with a professionally managed portfolio that is probably better than yours. I think the professional manager is less likely to be swayed by recency bias and is less likely to be swayed by appeal to authority, which is rampant on bogleheads almost by definition.
+1

Go with a Target date find or life strategy and be done with it. And yes the idolatry on this board gets out of hand.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:32 pm
by 02nz
Your title says "de-risk," but are you just trying to simplify? Not the same thing. Dropping international is arguably increasing risk as you're then less diversified.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:33 pm
by MotoTrojan
Ferdinand2014 wrote: Sat Dec 28, 2019 7:54 am Simplicity in case of cognitive decline, medical illness or a spouse/significant other who is placed in a position to have to manage the finances. I personally would just go with a total U.S. stock market for your equities and the rest in a total bond or intermediate treasuries for 2 funds total at your 50/50 allocation. Alternatively, consider one life strategy or target date fund.
Could do the same 2-fund with a total world fund, or even a LifeStrategy 1-fund. I don’t think this is a valid reason to avoid international equity.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:39 pm
by ruralavalon
HappyJack wrote: Sat Dec 28, 2019 7:45 am Avid follower of the forum. Age 66, retirement next December 2020. Have enough. Want to de-risk some. 50/50 allocation all indexed. Should I replace International, Emerging, REIT with Total stock.
S&P 18%
MC/SC 7%
REIT 10%
Intl Developed 10%
Emerging 5%
Total Bond 25%
Interm Treasuries 25%

Someone posted; “when experts disagree on a topic it’s generally because there isn’t a single correct answer.”

You have Benjamin Graham and Burton Malkiel FOR and John Bogle and Warren Buffett AGAINST an international allocation. We have the two fund port vs the three fund port. I have also read so many great posts on this forum and both sides make sense.

Importantly: I am not sure if my allocation is enough to move the needle and therefor opt for simplicity?

I know, I know, here we go again... thanks.
At age 66 and retiring in one year, replacing international, emerging, REIT with total stock market seems reasonable in my opinion. I see the value of simplification, but don't see this as de-risking.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:40 pm
by sport
I have a "lower risk" allocation of 35/65 in retirement. To help control risk and for simplification, I do not have any emerging markets nor REITs. I realize my expected return is lower because of this, but I am willing to live with that. However, I do believe that having some International for diversification is a good idea. I am conservative with that too, and keep that around 20% of stocks.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 12:54 pm
by Leif
Sounds like you are suffering from recency bias. If International and EM were a leader the last few years would your post have the same title?

I don't like target date funds since they have an asset location problem for tax purposes. I have tax efficient stock MF in taxable, tax inefficient stock (REITs, etc.) in my Roth, and bonds in my tIRA. I prefer multiple asset types for asset diverisfication and more choice in deciding where to pull needed cash in retirement.

50/50 is a fine AA. Having retired recently that is what I'm using. I would reduce your allocations proportionally to your desired AA. If you want to reduce EM more I can understand since it is more volatile.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 1:08 pm
by puc_ytpme
viewtopic.php?f=10&t=285269

Worthwhile read on de-risking & diversification posted by Vineviz this past summer

All the best

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 1:17 pm
by nisiprius
Give reasonably traditional portfolios, the big, powerful, reliable lever for controlling risk is the basic stock percentage allocation.

If you feel that derisking is appropriate--I personally feel that derisking with age absolutely is appropriate for me--just consider cutting down how much you are holding in stocks.

Tinkering with what you hold within your stock allocation makes much less difference. Tinkering with what you are holding in your bonds-and-cash allocation makes much less difference. Varying the "cake recipe" within stocks not only hasn't made much difference, but furthermore there is always plenty of scope for argument on whether any particular move is actually improving the portfolio or not.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 1:33 pm
by HappyJack
Thanks for the insights and guidance. Nisiprius - your response puts a lot in context. And context is critical because there are so many permutations and all are personal and applicable. I recognized going in that there is not a consensus. But your framework is really helpful.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 3:16 pm
by lazyday
Some good replies here.

To simplify, I might consider either of these two portfolios:

Code: Select all

Target Retirement

Code: Select all

Total World Stock
TIPS
Treasuries
HappyJack wrote: Sat Dec 28, 2019 7:45 amSomeone posted; “when experts disagree on a topic it’s generally because there isn’t a single correct answer.”

You have Benjamin Graham and Burton Malkiel FOR and John Bogle and Warren Buffett AGAINST an international allocation.
This makes it sound equal. But there are many well regarded experts who suggest including international equities, and only two in recent decades who suggested 100% US. It’s easy and cheap these days to invest globally, and the added diversification lowers your overall risk.

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 3:48 pm
by Culbretd
HappyJack wrote: Sat Dec 28, 2019 7:45 am Avid follower of the forum. Age 66, retirement next December 2020. Have enough. Want to de-risk some. 50/50 allocation all indexed. Should I replace International, Emerging, REIT with Total stock.
S&P 18%
MC/SC 7%
REIT 10%
Intl Developed 10%
Emerging 5%
Total Bond 25%
Interm Treasuries 25%

Someone posted; “when experts disagree on a topic it’s generally because there isn’t a single correct answer.”

You have Benjamin Graham and Burton Malkiel FOR and John Bogle and Warren Buffett AGAINST an international allocation. We have the two fund port vs the three fund port. I have also read so many great posts on this forum and both sides make sense.

Importantly: I am not sure if my allocation is enough to move the needle and therefor opt for simplicity?

I know, I know, here we go again... thanks.
Warren Buffet is not against all international. Berkshire Hathaway* actually owns a lot of international stocks. He buys them so why shouldn't you??

Re: De-Risking. Drop International and Emerging?

Posted: Sat Dec 28, 2019 5:57 pm
by babystep
HappyJack wrote: Sat Dec 28, 2019 7:45 am Avid follower of the forum. Age 66, retirement next December 2020. Have enough. Want to de-risk some. 50/50 allocation all indexed. Should I replace International, Emerging, REIT with Total stock.
S&P 18%
MC/SC 7%
REIT 10%
Intl Developed 10%
Emerging 5%
Total Bond 25%
Interm Treasuries 25%

Someone posted; “when experts disagree on a topic it’s generally because there isn’t a single correct answer.”

You have Benjamin Graham and Burton Malkiel FOR and John Bogle and Warren Buffett AGAINST an international allocation. We have the two fund port vs the three fund port. I have also read so many great posts on this forum and both sides make sense.

Importantly: I am not sure if my allocation is enough to move the needle and therefor opt for simplicity?

I know, I know, here we go again... thanks.
If you look at the target date funds from big ones like Fidelity, Vanguard etc. they all have international allocation.

2020 target date and 20% international.
https://investor.vanguard.com/mutual-fu ... file/VTWNX

2020 target date and 23% international.
https://fundresearch.fidelity.com/mutua ... /31617R605

One can check for any target date and they do have international allocation. Why are they not replacing intentional with total US ? What do they know ?