A couple of years ago I got super into BH and FIRE as a concept and did a ton of reading and came up with an AA that looked roughly like this:
- 50% US stocks, 20% of which was small cap
- 25% international stocks
- 10% REITs
- 10-15% US bonds
- rest cash
I am also feeling real uncertainty about whether/what state the world will be in at the age at which I can withdraw from 401ks/IRAs/etc, which is 37 years from now. It makes me wonder if the super long term view, where high volatility has historically worked itself out, is really a view I hold and want to plan for.
As a result, I started the process of dropping my stock/bond split, but before I go further, I'm looking for advice.
Emergency funds: 25k in I-bonds. I do count this as part of my AA since my portfolio balance is fairly high. This is easily 8-9 months expenses.
Tax Filing Status: Single
Tax Rate: 32 federal, 9.3 state. I have been as high as 37/11.3, I think 35 is probably the max I'm likely to see in the next few years given my career choices. Regardless, I think I also need to assume the 3.8% medicare surtax.
State of Residence: CA
Desired Asset allocation: This is one of the things I want help with.
Portfolio size: $1.1MM
1.4% cash earning 3%/year
2.3% I bonds
21.7% FTSE All-World ex-US VFWAX (.11) (TLH-ed out of VTIAX, sitting on short term gains currently)
26.4% Vanguard Total Stock Market Index Admiral Shares VTSAX (.04)
6.6% Vanguard Small-Cap Index Fund Admiral Shares VSMAX (.05)
15.6% Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) (.09)
5.6% Vanguard Total International Bond Index Fund Admiral Shares (VTABX) (.11)
2% Vanguard Total Bond Market Index Fund Admiral Shares (.05)
401k #2 (previous employer)
7.2% Real Estate Index Fund VGSLX (.12)
6.5% Vanguard Total Bond Market Index Fund Admiral Shares(.05)
Roth IRA at Vanguard
1.7% Vanguard Total Bond Market Index Fund Admiral Shares(0.05)
(This was previously VTSAX, but switched it just for now to help rebalance w/o cap gains. I know I should convert this back to VTSAX down the line)
HSA at Fidelity (previous employer)
2.2% S&P 500 Index FXAIX (.015)
That amounts to about:
- 34% US stocks
- 22% international stocks
- 9% REITs
- 29% US bonds
- 6% international bonds
New annual Contributions
Funds available in 401(k)
Most of the core Vanguard funds
Funds available in 401(k) #2
Vanguard institutional target retirement funds
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
S&P 500 VFIAX
Vanguard Real Estate Index Fund Admiral Shares (VGSLX)
non-vanguard, higher ER
Sitting on about $180k cap gains, and I have another $30k in realized losses to play with for rebalancing if needed.
Other observations: personal capital is pretty and great, but it's made me want to "converge" to their suggestions. And has made me check and fiddle more than I should. I think that's just my nature anyway. Probably has cost me a few thousand bucks, although unclear if I made that back with TLH.
Before I go further, I'm looking for advice and suggestions.
1. What do you think is a good AA for me? I would do 60/40, but when I think about the magnitude of drops, 40/60 seems more my speed. But then I would lose my growth "engine". I'd like to be able to LeanFIRE if I wanted, or at the very least be able to take a big pay cut to do something different than my current job. All that to say (plus my preamble where I realized I'm less risk tolerant than I would have thought a few years ago), I think my horizon is some mix of retirement + lifestyle flexibility in 5-10 years (change jobs or have/take care of kids).
2. Should I stop sweating about tax efficient asset allocation? Given the ratio of tax-advantage :: taxable space, it seems like a fools errand. Even at 85/15 I was starting to run out of space, let alone something closer to 60/40.
3. As a corollary, should I get out of VWIUX (Intermediate Municipal tax exempt)? An additional advantage of it is it keeps my taxable / tax advantaged funds different, which allows me to rebalance/TLH without too much brain power.
4. Should I stop thinking about TLH, and dump my funds into VSCGX (lifestrategy conservative)/VSMGX(lifestrategy moderate) and call it a day? I do like the fact that currently I can a) TLH and b) change my AA as my goals change without necessarily realizing gains, but maybe it causes me to fiddle too much.
5. Things I should get out of/into, because complexity:
- REITS? https://jlcollinsnh.com/stock-series/ has made a case against it. I was planning on drawing it down to be 10% of my stock allocation no matter what, but is it just adding complexity that's not worth it?
- Gold (ETFs) for wealth preservation? Portfolio charts and backtesting make that look like a great idea, but that's backtesting....
- Small cap tilt
7. As an entirely unrelated note, how would I suggest a change to the template to remove "his" and "hers" to be replaced with "yours" and "theirs"? I'm not offended by it, but it could make the forum more inclusive.