Portfolio review - shifting from 70/30 to 50/50

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Portfolio review - shifting from 70/30 to 50/50

Post by orangesherbet »

First a big thank you to BH, I have learned a lot here in the past few years and when I look back, I am amazed at how much I have learned. You all are doing a really big service to others, thank you.

Of course, the more I learn, the more I realize how much more there is to know. And since "I don't know what I don't know" - I am hopeful that you will be generous with your advice once again. I don't know if I'm even asking the right questions, so please, all comments are very appreciated.

Situation/why I'm here now: We have had substantial money in the market only in the last few years--we had not gone through a downturn. When COVID-19 hit the market, we were really scared watching the numbers go down and down and down. It got to the point where I stopped looking because I just couldn't look anymore. But I'm going to stop here and pat myself on the back, because even if I was just putting my head in the sand, at least we didn't sell in a panic. In April we got it together mentally and took the opportunity to tax loss harvest.

Through this experience we came to the realization that 70/30 asset allocation was too volatile for us. We are thinking maybe 50/50 is more our speed. We can rebalance to 50/50 without triggering much capital gains (can do the bulk of it in retirement accounts). The small bit of gain ($4k) is well within the amount we tax loss harvested so there won't be tax owed. Is this an ok way to get to 50/50? I see other people kind of working their way over slowly, but we would prefer to just be there because we are so nervous about the current environment. Also, is 50/50 a good place to be, given where we are with age, kids, etc.? Would you go even lower risk, like 40 stocks/60 bonds?

So with that - here is what the portfolio would look like after rebalancing. Does this generally look right? Anything you would recommend doing differently? Also, specific question about his 401k - right now he has a "brokerage link" which just holds a Fidelity bond index fund. It has a bit lower ER than the bond fund through the 401k proper, but it's annoying to track how it's doing because of how they do their statements. Would you get rid of it and just put everything into the 401k bond fund?

About us
- mid and late 40s
- three kids aged 9-13
- fairly new to investing, have only had money in the market (outside of small amounts in 401k) for a few years
- the money came from the sale of our home, which we had been paying off aggressively AND had appreciated quite a bit
- started solo 401k for me (wife) last year, which made backdoor Roth possible - thanks to advice received here
- if we can, would love to semi-retire in our early 60s, after last kid is done with college
- for college expenses: planning mix of 529s and just cashflowing it when we get there - have excluded these from the numbers below

Emergency funds: 6 months
Debt: None
Tax Filing Status: MFJ
Tax Rate: 24% Federal, 9.3% State
State of Residence: California
Age: mid and late 40s
Desired Asset allocation: 50% stocks / 50% bonds
Desired International allocation: 30%
Total portfolio value: $2 million

Current retirement assets

10% cash
33% Vanguard Large Cap VLCAX 0.05%
15% Vanguard FTSE All-World ex-US VFWAX 0.11%
1.3% Vanguard Intermediate Term Tax Exempt VWITX 0.17%
2.5% Half play money for DH (stocks) and half benchmark to see how he's doing FSKAX 0.015%

Her Solo 401k at Fidelity
17% Fidelity US Bond Index Fund 0.025%

Her Roth IRA at Vanguard
0.4% Vanguard Total International Stock VTIAX 0.11%
0.3% Vanguard Total Stock Market VTSAX 0.05%

His 401k at Fidelity
9.2% TFII Bond Index Fund 0.039%
5.7% Fidelity US Bond Index Fund FXNAX 0.025%

His Rollover IRA at Fidelity working on rolling this into his 401k so we can do backdoor Roth for him
5.6% Fidelity US Bond Index Fund FXNAX 0.025%

New annual contributions
$19,500 his 401k (+3% company match ~$3500)
$19,500+ her solo 401k (I put in more as "profit sharing" if I can)
$6,000 his backdoor Roth (in process of rolling his IRA into his 401k so we can do this)
$6,000 her backdoor Roth
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Re: Portfolio review - shifting from 70/30 to 50/50

Post by sycamore »

orangesherbet wrote: Sat Jul 18, 2020 4:51 pm ...
Also, is 50/50 a good place to be, given where we are with age, kids, etc.? Would you go even lower risk, like 40 stocks/60 bonds?
Focusing on just the above question...

To decide on whether 50/50 or any particular AA is good or not, I find it helpful to consider need, ability, and willingness to take risk in stocks.

A portfolio worth $2 million and no debt is sufficient to last quite awhile, though that really depends on your annual expenses. Also do you have a goal for retirement in terms of age and desired portfolio value? That would help answer how much you "need" to take risk with stocks.

Regarding ability, are your job(s) secure? That is, if the stock part of your portfolio took a hit, would you continue to have good job income to keep going. If not, that means you don't have "ability" to take the risk in stocks so you'd want a lower stock allocation.

As for willingness, you have recognized it's not as high as you thought.

There's no way to objectively add up scores for need, ability, and willingness to tell what your AA should be, but just going through the exercise of thinking about all that is helpful to getting a handle on things. Get comfortable with an AA that you'll stick with even when the next downturn comes.

All in all, 50/50 is very reasonable. Your AA will naturally fluctuate as the stock market fluctuates, so it's not like 45/55 or 55/45 are really all that better or worse than 50/50.
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Re: Portfolio review - shifting from 70/30 to 50/50

Post by BL »

Have you looked at I-Bonds at TreasuryDirect.gov for tax-deferred interest and inflation-based? You should be retired by the time they mature (you can cash in anytime after 1 year) and can each invest up to 10k/yr.
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Re: Portfolio review - shifting from 70/30 to 50/50

Post by KlangFool »


1) What is your annual expense?

2) Is 50/50 safe enough for you? The answer to this question is dependent on (1).

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Re: Portfolio review - shifting from 70/30 to 50/50

Post by tennisplyr »

Retired 9 years and I've been at roughly 50/50 for years. I'm not getting rich nor am I going broke, importantly I sleep well at night. As they say, if you've won the game...
Those who move forward with a happy spirit will find that things always work out.
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Re: Portfolio review - shifting from 70/30 to 50/50

Post by orangesherbet »

Our goal for retirement is around $3m if we were to retire today. That's based on expenses of $130k per year. I am confused about how to account for inflation - wouldn't that make our target number keep going up every year?

I used an online calculator and it says we will hit $3m in 10 years given starting number and annual contributions, even with a modest 3% annual growth. This sounds stupid but I had not thought to run the actual numbers before, it seemed so far away and hypothetical and we decided to just focus on making and saving as much as we could. So this is interesting new information/perspective to me, we don't need to have very high returns to get where we want to go.

Re: treasurydirect.gov and i-bonds - thanks for the suggestion, I don't know why but I am generally confused around bonds. I've got my head wrapped around bond funds available through Vanguard, Fidelity etc as they are similar to stock funds - but I think I need to spend more time learning about buying bonds directly from the US Treasury, what the advantages are etc.

Thanks for the helpful perspectives - it sounds like 50/50 is a good place to be for us!
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Re: Portfolio review - shifting from 70/30 to 50/50

Post by galeno »

Wife and I are retired with a 50/50 port. It works fine.
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Re: Portfolio review - shifting from 70/30 to 50/50

Post by JaneyLH »

Husband retired 10 years ago with $50K pension. I worked part-time until 5 years ago, earning enough that we didn't have to tap into our portfolio, so have been drawing just the last 5 years using the Boglehead Variable Withdrawal Method. We stayed at 70/30 until November 2019, when I began to think that we should lower our investment risk a bit. We moved to 50/50 and it was a blessing when the Coronavirus plunge in the market hit. We are at about $3.9M, both before and after. We're hardly spending any money now that we can't travel internationally and we don't go to bars or restaurants, so feeling pretty good financially. Even 70/30 would have felt like a wild ride.

However, you are a lot younger. If you feel you have enough, though, I can understand why you would not want to take unnecessary risk.
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