Please critique my investment allocation plan

[TimRCM]

Hey folks,

I’ve debated a target date fund many times, but dislike the lack of control it gives me over allocations and also find the glide paths to be a bit too conservative. I’m sole breadwinner for our family and doubt my profile will ever be so large that I can afford to go less aggressive than 60/40, and all of them seem to do so eventually.

With that being said, I still hope to keep things simple with a two-fund portfolio of VT & BND. At the moment I am age 33 and 100% VT, and intend to begin adding BND as follows (copied and pasted straight from my written personal investment plan):

50 - 10%
55 - 20%
60 - 30%
65 - 40%, hold 60/40 for life

Rebalance / reallocate once a year around the first business day of May OR when maxing Roth IRA in beginning of each year.

Is this reasonable? Am I missing or overthinking anything? I know my risk tolerance won’t be great as I age (being sole breadwinner is stressful), but I likewise believe that being aggressive is the best shot my wife and I have at a comfortable retirement.

With that being said, I also kind of dislike this over a target date fund because it’ll be very hands on with rebalancing / reallocating when I’m older. I can’t promise I’ll want to deal with all of that by then.

** I am 100% VT except for a new job’s 401k, which is 100% in a low cost S&P fund because they lack a good international fund. It’s about 1% of my portfolio right now though since I just started here this summer — I’ll re-evaluate as it grows. Their available TDFs are inexpensive (11 basis points), but fairly conservative and REIT-heavy.

[typical.investor]

It seems very reasonable to me.

The best plan is the one that works for you.

[Wanderingwheelz]

It’s not unreasonable, but if equites have a terrible run from age 50 to 55, for example, how likely are you to sell VT low to buy BND?

[DIYtrixie]

Hey folks,

I’ve debated a target date fund many times, but dislike the lack of control it gives me over allocations and also find the glide paths to be a bit too conservative. I’m sole breadwinner for our family and doubt my profile will ever be so large that I can afford to go less aggressive than 60/40, and all of them seem to do so eventually.

With that being said, I still hope to keep things simple with a two-fund portfolio of VT & BND. At the moment I am age 33 and 100% VT, and intend to begin adding BND as follows (copied and pasted straight from my written personal investment plan):

50 - 10%
55 - 20%
60 - 30%
65 - 40%, hold 60/40 for life

Rebalance / reallocate once a year around the first business day of May OR when maxing Roth IRA in beginning of each year.

Is this reasonable? Am I missing or overthinking anything? I know my risk tolerance won’t be great as I age (being sole breadwinner is stressful), but I likewise believe that being aggressive is the best shot my wife and I have at a comfortable retirement.

With that being said, I also kind of dislike this over a target date fund because it’ll be very hands on with rebalancing / reallocating when I’m older. I can’t promise I’ll want to deal with all of that by then.

** I am 100% VT except for a new job’s 401k, which is 100% in a low cost S&P fund because they lack a good international fund. It’s about 1% of my portfolio right now though since I just started here this summer — I’ll re-evaluate as it grows. Their available TDFs are inexpensive (11 basis points), but fairly conservative and REIT-heavy.

100% VT at 33 is within reason, assuming this money will only be needed for retirement and you won’t panic and sell in a prolonged downturn.

Regarding your proposed glide path:

How secure is your job? What age do you plan to retire? How large will your portfolio likely be (as a multiple of expense; e.g., 25X) at that point?

If you think a TDF is too conservative for you but might be a good fit otherwise, you can always keep a slice of your portfolio as VT — say, your Roth accounts — and use the TDF in tax deferred.

[invest2bfree]

Hey folks,

I’ve debated a target date fund many times, but dislike the lack of control it gives me over allocations and also find the glide paths to be a bit too conservative. I’m sole breadwinner for our family and doubt my profile will ever be so large that I can afford to go less aggressive than 60/40, and all of them seem to do so eventually.

With that being said, I still hope to keep things simple with a two-fund portfolio of VT & BND. At the moment I am age 33 and 100% VT, and intend to begin adding BND as follows (copied and pasted straight from my written personal investment plan):

50 - 10%
55 - 20%
60 - 30%
65 - 40%, hold 60/40 for life

Rebalance / reallocate once a year around the first business day of May OR when maxing Roth IRA in beginning of each year.

Is this reasonable? Am I missing or overthinking anything? I know my risk tolerance won’t be great as I age (being sole breadwinner is stressful), but I likewise believe that being aggressive is the best shot my wife and I have at a comfortable retirement.

With that being said, I also kind of dislike this over a target date fund because it’ll be very hands on with rebalancing / reallocating when I’m older. I can’t promise I’ll want to deal with all of that by then.

** I am 100% VT except for a new job’s 401k, which is 100% in a low cost S&P fund because they lack a good international fund. It’s about 1% of my portfolio right now though since I just started here this summer — I’ll re-evaluate as it grows. Their available TDFs are inexpensive (11 basis points), but fairly conservative and REIT-heavy.

Too aggressive for me, age-20 in bonds is reasonable. I don’t mind holding 60/40 for ever once you hit 60 years of age.

Imagine at 50 you hit another 2008 and it takes 20 years to get back to even?

[typical.investor]

Hey folks,

I’ve debated a target date fund many times, but dislike the lack of control it gives me over allocations and also find the glide paths to be a bit too conservative. I’m sole breadwinner for our family and doubt my profile will ever be so large that I can afford to go less aggressive than 60/40, and all of them seem to do so eventually.

With that being said, I still hope to keep things simple with a two-fund portfolio of VT & BND. At the moment I am age 33 and 100% VT, and intend to begin adding BND as follows (copied and pasted straight from my written personal investment plan):

50 - 10%
55 - 20%
60 - 30%
65 - 40%, hold 60/40 for life

Rebalance / reallocate once a year around the first business day of May OR when maxing Roth IRA in beginning of each year.

Is this reasonable? Am I missing or overthinking anything? I know my risk tolerance won’t be great as I age (being sole breadwinner is stressful), but I likewise believe that being aggressive is the best shot my wife and I have at a comfortable retirement.

With that being said, I also kind of dislike this over a target date fund because it’ll be very hands on with rebalancing / reallocating when I’m older. I can’t promise I’ll want to deal with all of that by then.

** I am 100% VT except for a new job’s 401k, which is 100% in a low cost S&P fund because they lack a good international fund. It’s about 1% of my portfolio right now though since I just started here this summer — I’ll re-evaluate as it grows. Their available TDFs are inexpensive (11 basis points), but fairly conservative and REIT-heavy.

Too aggressive for me, age-20 in bonds is reasonable. I don’t mind holding 60/40 for ever once you hit 60 years of age.

THB, a 10% switch in 5 years is a little quicker than I'd be comfortable with too. But in hindsight, I could have done better by staying more aggressive when young.[/quote]

Imagine at 50 you hit another 2008 and it takes 20 years to get back to even?

I hear you. I don't have an easy way to test age-20, but the Simba backtest sheet showed me that for 1978 to the bottom of 2008, 100% equites outperforms 80%-20%. It also outperforms 90%-10%, 70%-30% and any other allocation. So I think it holds true for age-20 too.

I chose 1978 to assume you started investing at 20 years old and you were 50 in 2008.

So sure stocks lose more in downturns, but you may be starting from a larger value due to their growth before that.

I mean ok you are 100% stock, the market tanks and you lose your job just as you hit 50. Well, it's better to have more in your account when that happens so not having bonds until then would have been the best strategy.

There is no telling what the future brings though. I don't think the OP's plan is unreasonable. 2008 at age 50 would be a shock even if being 100% in stocks left you more money than being 80-20 your whole life. Just seeing the percent drop would be frightening and who would go back to look an see now where would I have been at 80-20? Risk aversion!

Note: Using long term treasuries instead of total bond changed the story a bit where you'd have more in 2008 ($250k vs $240k per $10k invested in 1978) for an 80% 20% portfolio.

Simba is here ... viewtopic.php?p=7299334#p7299334

[TimRCM]

Thanks for the thoughtful responses thus far, folks!

Risk is the root issue I’m asking about here, I suppose. I have no idea how much job security I have in the new role just yet, but I am pretty good at what I do and want to think I wouldn’t be unemployed for long. Famous last words, right? I currently am at more risk than usual though — I left a very secure director-level role after a decade to do a bit of a career change, and expect 1-2 more quick hops to get to where I want to be.

Sequence of returns risk scares me too, though. 2008 hitting in my 50s would indeed screw me at 100/0 or 80/20 or anything aggressive, really. I’m not sure how I can mitigate that without either a crystal ball or significantly gutting my returns over the duration of my career, though.

For the fun of it, I looked up Schwab’s target date 2040 fund to estimate where they’d have me around age 50. It’s only at 17% bonds and a couple other random ~1% income funds, aka roughly 80/20. At least it’d be automatically allocated, but it would suffer and fall just as much as my portfolio above.

[invest4]

If you can handle the volatility, it’s completely fine. I was 100% stocks until my late 40s which included all the fun of the Great Financial Crisis and since. In any case, whatever you plan almost 20 years from now may change.

What is important is now is to live beneath your means, save and increase it over time and invest simply for the long term.

Best wishes

[TimRCM]

If you can handle the volatility, it’s completely fine. I was 100% stocks until my late 40s which included all the fun of the Great Financial Crisis and since. In any case, whatever you plan almost 20 years from now may change.

What is important is now is to live beneath your means, save and increase it over time and invest simply for the long term.

Best wishes

Totally agreed & thank you for the sanity check. I am maxing my Roth IRA & family-cap HSA (albeit some of the HSA dollars end up spent, but at least half are invested), as well as 6% for 6% match in my 401k. I intend to add a spousal Roth IRA in the near future, and then begin upping my 401k contribution. Hopefully I can start maxing the 401k by 40 if the new career is kind to me. I may end up losing my existing match if I do not stay here for a full five years, though, which feels likely.

I still feel like it will never be enough, hence the aggressive allocation plan, but I know I'm probably out-saving many my age..

As a side note regarding simplicity, I was very excited to learn about VT a few years back. I was investing in domestic & international separately, but kept screwing with my allocations constantly. Now I pay like 2-3 extra basis points to let the market decide that part for me. I never really want more than 2-3 funds in my portfolio if I can avoid it.

[invest4]

If you can handle the volatility, it’s completely fine. I was 100% stocks until my late 40s which included all the fun of the Great Financial Crisis and since. In any case, whatever you plan almost 20 years from now may change.

What is important is now is to live beneath your means, save and increase it over time and invest simply for the long term.

Best wishes

Totally agreed & thank you for the sanity check. I am maxing my Roth IRA & family-cap HSA (albeit some of the HSA dollars end up spent, but at least half are invested), as well as 6% for 6% match in my 401k. I intend to add a spousal Roth IRA in the near future, and then begin upping my 401k contribution. Hopefully I can start maxing the 401k by 40 if the new career is kind to me. I may end up losing my existing match if I do not stay here for a full five years, though, which feels likely.

I still feel like it will never be enough, hence the aggressive allocation plan, but I know I'm probably out-saving many my age..

As a side note regarding simplicity, I was very excited to learn about VT a few years back. I was investing in domestic & international separately, but kept screwing with my allocations constantly. Now I pay like 2-3 extra basis points to let the market decide that part for me. I never really want more than 2-3 funds in my portfolio if I can avoid it.

I am the sole income earner for my family and very much recall how it took many years to max out each tax advantaged opportunity...401k, HSA, Roth, etc. You are doing well...just keep hacking away. Eventually, those contributions will add up and you will start to see significant gains (and losses) as the market goes through its ups and downs.

You are already far ahead of where I was at your age (did not discover Bogleheads until just a few years ago and had made all sorts of mistakes).

A couple of additional comments:

1. Bonds: start learning now...well before you will actually invest in them. They are more complex than stocks and there is much to learn.

2. HSA: Fully understand the need to spend some of the HSA in a given year. Hopefully, as your income increases, you will eventually manage to keep the full contributions and grow. I think of the HSA as my medical 401k for the future and also as a potential source for long term care (I have not bought into any other plan for LTC...and not sure if I will given the costs). Of course, there are many ways to get where you want to go and various trade-offs (can keep HSA in full, but then not enough for something else for example). Just consider how it fits into your longer term plan.

Best wishes to you and family...you will do fine.

[invest2bfree]

THB, a 10% switch in 5 years is a little quicker than I'd be comfortable with too. But in hindsight, I could have done better by staying more aggressive when young.

Imagine at 50 you hit another 2008 and it takes 20 years to get back to even?

I hear you. I don't have an easy way to test age-20, but the Simba backtest sheet showed me that for 1978 to the bottom of 2008, 100% equites outperforms 80%-20%. It also outperforms 90%-10%, 70%-30% and any other allocation. So I think it holds true for age-20 too.

I chose 1978 to assume you started investing at 20 years old and you were 50 in 2008.

So sure stocks lose more in downturns, but you may be starting from a larger value due to their growth before that.

I mean ok you are 100% stock, the market tanks and you lose your job just as you hit 50. Well, it's better to have more in your account when that happens so not having bonds until then would have been the best strategy.

There is no telling what the future brings though. I don't think the OP's plan is unreasonable. 2008 at age 50 would be a shock even if being 100% in stocks left you more money than being 80-20 your whole life. Just seeing the percent drop would be frightening and who would go back to look an see now where would I have been at 80-20? Risk aversion!

Note: Using long term treasuries instead of total bond changed the story a bit where you'd have more in 2008 ($250k vs $240k per $10k invested in 1978) for an 80% 20% portfolio.

Simba is here ... viewtopic.php?p=7299334#p7299334

Nassim Taleb has this theory called alternative histories, the history you see is only one path. But there are many alternatives that we did not take.


Your simba test proves nothing, it just means you survived one path.

In 1989 the Japanese investor could have done the same analysis and thought he is fine. And we know the rest of the story.

[TimRCM]

Just thought I’d update here in case anyone stumbles upon this thread in the future…

After months of debating and spending way too much time thinking about it and researching, I decided to stop tinkering and moved all tax advantaged accounts to low cost target date index funds. I’ll pick a fixed allocation or life strategy fund when I retire if I still desire to do so. Schwab’s glide path is close enough to what I planned on anyway. Good enough.

Boring and simple wins the game for me.

[bertilak]

Just thought I’d update here in case anyone stumbles upon this thread in the future…

After months of debating and spending way too much time thinking about it and researching, I decided to stop tinkering and moved all tax advantaged accounts to low cost target date index funds. I’ll pick a fixed allocation or life strategy fund when I retire if I still desire to do so. Schwab’s glide path is close enough to what I planned on anyway. Good enough.

Boring and simple wins the game for me.

I think Vanguard's TDFs effectively become fixed allocation life strategy funds when their time is up, saving you the trouble of re-allocating (selling then buying). Schwab TDFs are probably the same. After all, what else would they do?

[TimRCM]

Yeah, Schwab’s stop around 30/70 at age 85 (or 20 years after the target date, anyway). That’s totally reasonable — I just feel like I’ll end up wanting to stick to 60/40. But I’m done trying to speak to what I’ll want at an older age (if I’m even so lucky as to get there) because I don’t have a crystal ball, so we’ll see.