Portfolio question?

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awg75
Posts: 29
Joined: Fri Jan 31, 2020 1:10 pm

Portfolio question?

Post by awg75 »

I'm 28 years old, just passed $100k in my Roth IRA. Account composition is 80% VTI and 20% VXUS. I'm considering lowering VTI to 50-60% of the portfolio and adding 20-30% VUG with 20% VXUS. Thoughts?

I also plan on investing significantly more in my taxable brokerage in the next year or so after exhausting 401k, IRA, HSA, etc. Should my taxable brokerage have roughly the same composition as my IRA at my age? I know many are opposed to it, but I'm contemplating adding to my taxable brokerage 10-20% actively managed funds (high quality, Fidelity funds with fees under 0.5%) to further diversify. Do any Bogleheads do this and if so, any guidance? My reasons aren't necessarily to beat the market, but rather diversify from passive funds. Thanks!
steadyosmosis
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Joined: Mon Dec 26, 2022 11:45 am

Re: Portfolio question?

Post by steadyosmosis »

(reply removed)
Age<59.5. Early-retired. AA ~55/45. Taxable account, Roth IRA, HSA...all are 100% equities. 100% of fixed income is in tIRA. I spend from taxable account and rebalance in tIRA.
Morik
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Joined: Tue Nov 25, 2014 11:26 am

Re: Portfolio question?

Post by Morik »

Adding more funds may 'diversify' your holdings, but not all diversification is good. Generally on the forum when people talk about diversification, they mean the 'good' kind.

As an example, someone holding just VT (Vanguard's Total World Stock Index ETF) might think to diversify their holdings by taking 50% of it and putting it in Apple (just picking a random stock as an example). Even though this will perform differently than VT alone, that isn't necessarily beneficial. In this example they have increased idiosyncratic risk by putting so much of their money in a single stock. They are also making a large tilt towards the technology sector & the US.

What kinds of things increase the 'good' kind of diversification? You need to identify categories of risk and see if you can mitigate it by holding a variety of things across that category. For instance, there is a risk that a certain market sector may underperform for some time. So you probably don't want to put all your money in just one sector like technology or financial services or industrials. Instead you want to hold many different sectors to lower the risk of portfolio underperformance as a result of a market sector underperforming.

Similarly putting all your money into a single country's stock is risking underperformance if something happens that causes that particular country to underperform. This is why many globally diversify--something bad that affects one particular country more than other countries is a risk that can be mitigated by holding stocks from many different countries.

Same thing with individual stocks--you wouldn't just want one stock from each sector & country. There is a risk that something can happen to that one particular company that doesn't affect other companies in the same sector & country the same way. So you can diversify this risk by holding a bunch of different companies.

Going back to what you are asking about--what diversifiable risk have you identified you are exposed to, and how does adding certain active funds to your portfolio diversify this risk?
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Cocoa Beach Bum
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Re: Portfolio question?

Post by Cocoa Beach Bum »

awg75 wrote: Mon Apr 01, 2024 8:11 pm...
I'm contemplating adding to my taxable brokerage 10-20% actively managed funds (high quality, Fidelity funds with fees under 0.5%) to further diversify. Do any Bogleheads do this and if so, any guidance? My reasons aren't necessarily to beat the market, but rather diversify from passive funds. Thanks!
I would keep your taxable account holdings "clean" (low-cost index funds) and relegate experimentation to your tax-advantaged accounts, where there's no tax consequences when you inevitably change your mind.
“How did you go bankrupt?" "Two ways. Gradually, then suddenly.”
bonesly
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Re: Portfolio question?

Post by bonesly »

awg75 wrote: Mon Apr 01, 2024 8:11 pm I'm 28 years old, just passed $100k in my Roth IRA. Account composition is 80% VTI and 20% VXUS. I'm considering lowering VTI to 50-60% of the portfolio and adding 20-30% VUG with 20% VXUS. Thoughts?
This is a tilt from the market cap weighting (VTI) towards US Growth Stocks (VUG). I'm not fond of tilts, but if you have a sound fundamental reason for thinking this is a good idea and you won't be tinkering with it due to under-performance, then sure it's fine. Stocks are typically split into growth and value, where growth often pays lower dividends and is typically over-valued (high price/earnings ratio so expensive), while value often pays higher dividends and is under-valued (low price/earnings ratio so cheap).

The 3-Factor Capital Asset Pricing Model showed that there was an advantage for value and small; growth wasn't a factor that increased risk-adjusted returns, so it feels like you might be chasing past performance that may not repeat in the future.
awg75 wrote: Mon Apr 01, 2024 8:11 pm Should my taxable brokerage have roughly the same composition as my IRA at my age?
If your current composition does not include any bonds (seems not), then mirroring is fine. As soon as you reach an age where you think you want bonds, those should probably not be held in a taxable account (or a Roth); they should be in tax-deferred like a Trad 401k/IRA. See Tax-Efficient Fund Placement.
Helodriver
Posts: 81
Joined: Tue Feb 10, 2015 6:26 pm

Re: Portfolio question?

Post by Helodriver »

Congrats! 28 and 100K in a Roth thats great. 80% VTI and 20% VXUS is a 100% stock allocation obviously and at 28 im perfectly fine with that.
Keep it simple and keep the fees low. Seems great to me.
Maybe in a decade or so (wow I like how that sounds!) start to add a bond fund.

Nah on VUG. Keep it simple.

Adding significantly to your taxable brokerage would be great. Especially after exhausting your tax deferred space. after 401K, IRA. and HSA.
Im not completely sure what you mean by same composition? But if you mean the same 80% VTI 20% VXUS no im not opposed to it. But if you do start to add bonds do so first in your tax deferred space,
I personally would not add actively managed funds. Your doing great without anyone else taking a bite out of your earnings. If you want to go crazy on diversification maybe look at VT doing so you will be buying most of the major stocks on the planet. Without anyone charging you .5% to do it.
Very few active managers beat the market on any given year. Once you add in their fees even less do. The only reason to buy actively managed funds is to"beat the market". Since they dont consistently why bother? So buy the haystack instead and forget the noise.

Good luck.
mbouck
Posts: 112
Joined: Wed Jan 24, 2024 2:08 pm

Re: Portfolio question?

Post by mbouck »

awg75 wrote: Mon Apr 01, 2024 8:11 pm I'm 28 years old, just passed $100k in my Roth IRA. Account composition is 80% VTI and 20% VXUS. I'm considering lowering VTI to 50-60% of the portfolio and adding 20-30% VUG with 20% VXUS. Thoughts?

I also plan on investing significantly more in my taxable brokerage in the next year or so after exhausting 401k, IRA, HSA, etc. Should my taxable brokerage have roughly the same composition as my IRA at my age? I know many are opposed to it, but I'm contemplating adding to my taxable brokerage 10-20% actively managed funds (high quality, Fidelity funds with fees under 0.5%) to further diversify. Do any Bogleheads do this and if so, any guidance? My reasons aren't necessarily to beat the market, but rather diversify from passive funds. Thanks!
Adding VUG will overweight you on large-cap growth at the expense of making your overall portfolio more volatile and underweighting it on the value side. If you want to do something like that a much better mix would be:

70% VTI
15% SCHG
15% SCHD

This mix gives you a bit more "gas" than 100% VTI but is less volatile (actually less volatile than VTI itself).
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