Peer review of a proposed asset allocation change

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sgr000
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Peer review of a proposed asset allocation change

Post by sgr000 »

I'm considering adusting my asset allocation a bit away from stocks and a bit away from the US.

The primary reason for wanting to make this change is one we can't discuss here. But I have in mind Jack Bogle's admonition: "If you decide to sin, then sin only a little." (Approximate quote. Variously attributed to Bogle, and to Asness/Ilmanen/Maloney; 30min of searching didn't get a clear source.) So I propose to change my allocation a little, in order to get some peace of mind while avoiding anything stupid.

I'd like some opinions on the proposed change below (though not on my reasons for it).

I've simplified my actual portfolio a bit here, to remove distractions like how I merge taxable, tax-deferred, and tax-free accounts and concentrate on the overall allocation. All transactions will occur in tax-adavantaged accounts, anyway. All the funds are Vangaurd index funds. We are a retired couple; Social Security starts this next April, after my 70th birthday.

(Also: since it always comes up, note that the "international bond" allocation below is Vanguard's international bond index fund (VTABX), which has a currency hedge back to the dollar and thus little to no currency risk.)

Current allocation:
  • 60/40 stock/bond
  • 60/40 US/foreign stock
  • 10% of equity in REITs
  • 60/40 market stock/small-value stock (after REITs)
  • 75/25 US Treasury/foreign bonds

Code: Select all

Short Treasury Idx  10.0%
Interm Treasury Idx 10.0%
Short TIPS Idx      10.0%
Intl Bond Idx       10.0%

US REIT Idx          3.6%
Intl REIT Idx        2.4%

World Stock Idx     32.4%
US Small Value Idx  13.0%
Intl Small Idx       8.6%
Proposed allocation:
  • 50/50 stock/bond
  • 50/50 US/foreign stock
  • 10% of equity in REITs
  • 60/40 market stock/small-value stock (after REITs)
  • 67/33 US Treasury/foreign bonds
World Stock Idx is currently 65% US, 35% international. So we have to add a bit of international to that to bring it up to 50%/50%:

Code: Select all

Short Treasury Idx  11.1%
Interm Treasury Idx 11.1%
Short TIPS Idx      11.1%
Intl Bond Idx       16.7%

US REIT Idx          2.5%
Intl REIT Idx        2.5%

World Stock Idx     20.7%
Intl Stock Idx       6.3%
US Small Value Idx  10.8%
Intl Small Idx       7.2%
I'm trying to make the minimal asset allocation change that seems right.

Comments?

[Corrected to make the REIT slice be 50/50 US/Intl.]
Last edited by sgr000 on Mon Feb 03, 2025 5:44 pm, edited 1 time in total.
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Beensabu
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Re: Peer review of a proposed asset allocation change

Post by Beensabu »

I don't see an issue with shifting your asset allocation to become slightly more conservative and globally diversified as you turn 70.

Nobody will accuse you of performance chasing, anyway.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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sgr000
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Re: Peer review of a proposed asset allocation change

Post by sgr000 »

Beensabu wrote: Mon Feb 03, 2025 1:27 pmI don't see an issue with shifting your asset allocation to become slightly more conservative and globally diversified as you turn 70.

Nobody will accuse you of performance chasing, anyway.
I suppose turning 70 is another reason, though my main reason is some short-term pessimism about US investments.

Hence the same assets, diversified over nations, capitalizations, and valuations. But the current portfolio is slightly tilted toward the US, and the proposed one is slightly tilted away from the US.
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Beensabu
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Re: Peer review of a proposed asset allocation change

Post by Beensabu »

sgr000 wrote: Tue Feb 04, 2025 8:04 am I suppose turning 70 is another reason, though my main reason is some short-term pessimism about US investments.
Well, don't admit that after I gave you an out! :wink:

I'm pessimistic about all sorts of stuff, but I'm not changing my allocations. I'm not even switching out of my weird half-active portfolio to my passive four-index-fund benchmark like a reasonable person would have by this point, because my (mental) IPS says I can't reallocate until 2031.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
bonesly
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Re: Peer review of a proposed asset allocation change

Post by bonesly »

sgr000 wrote: Mon Feb 03, 2025 12:50 pm I'm trying to make the minimal asset allocation change that seems right.
I agree with @yBeensabu that nobody's going to accuse you of performance chasing. If you can stick with this plan going forward (maybe only reassess in 5-10 years from now), then that means it's giving you a good Sleep Well At Night (SWAN) factor and that's what matters most (since nobody can accurately the future market results, but you can choose an AA that lets you weather the storm if one should materialize).
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
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dogagility
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Re: Peer review of a proposed asset allocation change

Post by dogagility »

sgr000 wrote: Mon Feb 03, 2025 12:50 pm I'm considering adusting my asset allocation a bit away from stocks and a bit away from the US.

The primary reason for wanting to make this change is one we can't discuss here.
Market timing is a poor decision.

This time cannot be known to be different.

Suggest you stop indulging in "the news".
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Beensabu
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Re: Peer review of a proposed asset allocation change

Post by Beensabu »

dogagility wrote: Tue Feb 04, 2025 3:59 pm Suggest you stop indulging in "the news".
The news is important.

You can pay attention to the news without changing your asset allocation.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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corn18
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Re: Peer review of a proposed asset allocation change

Post by corn18 »

sgr000 wrote: Mon Feb 03, 2025 12:50 pm I'm considering adusting my asset allocation a bit away from stocks and a bit away from the US.

The primary reason for wanting to make this change is one we can't discuss here. But I have in mind Jack Bogle's admonition: "If you decide to sin, then sin only a little." (Approximate quote. Variously attributed to Bogle, and to Asness/Ilmanen/Maloney; 30min of searching didn't get a clear source.) So I propose to change my allocation a little, in order to get some peace of mind while avoiding anything stupid.

I'd like some opinions on the proposed change below (though not on my reasons for it).

I've simplified my actual portfolio a bit here, to remove distractions like how I merge taxable, tax-deferred, and tax-free accounts and concentrate on the overall allocation. All transactions will occur in tax-adavantaged accounts, anyway. All the funds are Vangaurd index funds. We are a retired couple; Social Security starts this next April, after my 70th birthday.

(Also: since it always comes up, note that the "international bond" allocation below is Vanguard's international bond index fund (VTABX), which has a currency hedge back to the dollar and thus little to no currency risk.)

Current allocation:
  • 60/40 stock/bond
  • 60/40 US/foreign stock
  • 10% of equity in REITs
  • 60/40 market stock/small-value stock (after REITs)
  • 75/25 US Treasury/foreign bonds

Code: Select all

Short Treasury Idx  10.0%
Interm Treasury Idx 10.0%
Short TIPS Idx      10.0%
Intl Bond Idx       10.0%

US REIT Idx          3.6%
Intl REIT Idx        2.4%

World Stock Idx     32.4%
US Small Value Idx  13.0%
Intl Small Idx       8.6%
Proposed allocation:
  • 50/50 stock/bond
  • 50/50 US/foreign stock
  • 10% of equity in REITs
  • 60/40 market stock/small-value stock (after REITs)
  • 67/33 US Treasury/foreign bonds
World Stock Idx is currently 65% US, 35% international. So we have to add a bit of international to that to bring it up to 50%/50%:

Code: Select all

Short Treasury Idx  11.1%
Interm Treasury Idx 11.1%
Short TIPS Idx      11.1%
Intl Bond Idx       16.7%

US REIT Idx          2.5%
Intl REIT Idx        2.5%

World Stock Idx     20.7%
Intl Stock Idx       6.3%
US Small Value Idx  10.8%
Intl Small Idx       7.2%
I'm trying to make the minimal asset allocation change that seems right.

Comments?

[Corrected to make the REIT slice be 50/50 US/Intl.]
My models say it's six one way, half dozen the other. Not a big difference, historically, between your two examples.

BTW, if you make the change, make sure you update your IPS to reflect the changes and maybe add a statement on why you would change again. I hate changing my IPS, so it has been at 60/40 for 10 years because I haven't come up with a good reason to change it.
Consistently sets low goals and fails to achieve them.
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dogagility
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Re: Peer review of a proposed asset allocation change

Post by dogagility »

Beensabu wrote: Tue Feb 04, 2025 5:21 pm
dogagility wrote: Tue Feb 04, 2025 3:59 pm Suggest you stop indulging in "the news".
The news is important.
Local news is important but not anything else, in my opinion.
tpawplanner.com - Cheers to Ben Mathew and his brother! | Daaaaa Jankees Lose! - David Ortiz
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