Two funds for life

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Mario2222
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Joined: Mon Dec 24, 2018 12:16 am

Two funds for life

Post by Mario2222 »

I'm thinking to change my Roth IRA investment from vanguard target date fund 2045 to a simple 2 funds. Vanguard total stock market & total bonds VTSAX & VBTLX. I don't like the high percentage of the international in a TDF. I own international stocks in my taxable account. What do you think?
Chuck107
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Re: Two funds for life

Post by Chuck107 »

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Last edited by Chuck107 on Mon Oct 05, 2020 8:02 am, edited 1 time in total.
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dbr
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Re: Two funds for life

Post by dbr »

I think it is perfectly reasonable and less complicated to hold individual funds covering US and International stocks and a diversified bond fund.

The asset allocation is calculated for the whole portfolio and not account by account.

The most tax efficient location for investments is often to hold bonds in tax deferred accounts and stocks in taxable account. Whether you want international or US stocks in your taxable account involves some subtleties someone may comment on.

A Roth account is best devoted to holding the highest returning assets so a case where one has a Roth and taxable but no 401k might be a little tricky. This is also complicated by the fact that bond yields are so low right now that there is zero tax cost to holding them in taxable. I wonder if right now in your case the stocks should go in the Roth and bonds in taxable. It matters, of course, what your tax rates are.
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David Jay
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Location: Michigan

Re: Two funds for life

Post by David Jay »

Mario2222 wrote: Tue Aug 25, 2020 8:52 am I'm thinking to change my Roth IRA investment from vanguard target date fund 2045 to a simple 2 funds. Vanguard total stock market & total bonds VTSAX & VBTLX. I don't like the high percentage of the international in a TDF. I own international stocks in my taxable account. What do you think?
This is typically called the “two fund” portfolio here at BH. It is really all you need.
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Kenkat
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Re: Two funds for life

Post by Kenkat »

I would figure out what you want your international equity allocation to be and adjust your holdings accordingly. Do your taxable international equity holdings get you to your target? Or no?

What I would try to avoid doing is moving out of international stocks just because of their recent and longer underperformance as compared to US equities. There are certainly logical arguments around this, discussed at length here on the forum, but I suspect sometimes there is the risk of justifying what might be an emotional decision with a logical argument. So proceed with caution, that’s all.
Beehave
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Re: Two funds for life

Post by Beehave »

If you like the self-balancing-across-diverse-holdings aspect of your 2045 fund, but not the percentage of foreign stocks (too high for you), you could consider proportioning between the Vanguard Balanced Index fund ("VBI") and the Vanguard Total World Index fund ("TWI").

VBI is 60-40 total US index / total US bond.

VWI is 60-40 total US index / total international index.

So for example a 60-40 VBI-to-VWI allocation in your Roth would be 60% US total stock + 24% US bond + 16% Total international stock.

The expense ratios are very low, and this will "self-balance" to some extent with good diversification. It has lower % of foreign stock and no foreign bonds. So maybe it is an alternative worth considering.

Best wishes.
rkhusky
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Re: Two funds for life

Post by rkhusky »

You could hold TDF in tax advantaged and US in taxable, if you wanted to reduce international.
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