The One-Fund Portfolio as a default suggestion

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Stubbie
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Re: The One-Fund Portfolio as a default suggestion

Post by Stubbie »

burritoLover wrote: Sun Oct 24, 2021 9:28 am one-fund portfolios in taxable can be troublesome - some can spit off some huge capital gains - like some Vanguard TDFs at over a $1/share recently. That's a killer tax drag for a large portfolio.
I use VTMFX, Tax-Managed Balanced Fund Admiral Shares in my taxable account for this reason. Great option if wanting to use one fund in taxable.
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burritoLover
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Re: The One-Fund Portfolio as a default suggestion

Post by burritoLover »

Stubbie wrote: Sun Oct 24, 2021 9:32 am
burritoLover wrote: Sun Oct 24, 2021 9:28 am one-fund portfolios in taxable can be troublesome - some can spit off some huge capital gains - like some Vanguard TDFs at over a $1/share recently. That's a killer tax drag for a large portfolio.
I use VTMFX, Tax-Managed Balanced Fund Admiral Shares in my taxable account for this reason. Great option if wanting to use one fund in taxable.
Yeah, but that's tilting you towards growth stocks. Unless you can balance it the other way in your tax advantaged account - but typically, in a 401k, value options suck.
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drumboy256
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Re: The One-Fund Portfolio as a default suggestion

Post by drumboy256 »

I'm using AOA in my taxable and so far have no complaints based on what I've read on the forums here + researched. :beer
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GaryA505
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Re: The One-Fund Portfolio as a default suggestion

Post by GaryA505 »

I'm considering using AOR in taxable and wondering if there is a significant tax benefit of using AOR over VSMGX. Anyone?
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sycamore
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

GaryA505 wrote: Tue Oct 26, 2021 2:28 pm I'm considering using AOR in taxable and wondering if there is a significant tax benefit of using AOR over VSMGX. Anyone?
AOR has distributed only dividends, except a one-time large-ish cap gains in 2017. https://www.ishares.com/us/products/239 ... cation-etf

VSMGX seems to distribute both dividends & cap gains yearly. It appears some of the cap gains were short-term but relatively small (a few cents per share). https://institutional.vanguard.com/inve ... /fund/0914

Hard to tell if one is overall more tax-efficient than the other though. You'd have to know what percent of dividends are qualified, etc.

Since Jan 2009, VSMGX outperformed AOR by 0.40% / year with slightly higher std dev.. I think that outweighed any tax-efficiency difference.
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Re: The One-Fund Portfolio as a default suggestion

Post by GaryA505 »

sycamore wrote: Tue Oct 26, 2021 3:45 pm
GaryA505 wrote: Tue Oct 26, 2021 2:28 pm I'm considering using AOR in taxable and wondering if there is a significant tax benefit of using AOR over VSMGX. Anyone?
AOR has distributed only dividends, except a one-time large-ish cap gains in 2017. https://www.ishares.com/us/products/239 ... cation-etf

VSMGX seems to distribute both dividends & cap gains yearly. It appears some of the cap gains were short-term but relatively small (a few cents per share). https://institutional.vanguard.com/inve ... /fund/0914

Hard to tell if one is overall more tax-efficient than the other though. You'd have to know what percent of dividends are qualified, etc.

Since Jan 2009, VSMGX outperformed AOR by 0.40% / year with slightly higher std dev.. I think that outweighed any tax-efficiency difference.
Thanks. I also have to wonder if qualified cap gains distributions matter much when you're in the withdrawal phase and just take the cash.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
sycamore
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

GaryA505 wrote: Tue Oct 26, 2021 3:58 pm
sycamore wrote: Tue Oct 26, 2021 3:45 pm
GaryA505 wrote: Tue Oct 26, 2021 2:28 pm I'm considering using AOR in taxable and wondering if there is a significant tax benefit of using AOR over VSMGX. Anyone?
AOR has distributed only dividends, except a one-time large-ish cap gains in 2017. https://www.ishares.com/us/products/239 ... cation-etf

VSMGX seems to distribute both dividends & cap gains yearly. It appears some of the cap gains were short-term but relatively small (a few cents per share). https://institutional.vanguard.com/inve ... /fund/0914

Hard to tell if one is overall more tax-efficient than the other though. You'd have to know what percent of dividends are qualified, etc.

Since Jan 2009, VSMGX outperformed AOR by 0.40% / year with slightly higher std dev.. I think that outweighed any tax-efficiency difference.
Thanks. I also have to wonder if qualified cap gains distributions matter much when you're in the withdrawal phase and just take the cash.
All comes down to taxable income and what bracket you end up in. It seems there are plenty of BHers in the withdrawal phase who pay 15 or 20% on dividends & cap gains. Good problem to have, though :)
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Re: The One-Fund Portfolio as a default suggestion

Post by GaryA505 »

As someone who is slowly coming around to this "one fund" way of thinking (thanks in part to longinvest), I'd like to keep this thread going.

I'd like to propose a list of candidates for IRA/ROTH accounts and taxable. For simplicity I will stick to a fixed 60/40 to 65/35 asset allocation (NO target date funds!), and for taxable I will stick the same allocation constraint but also limit it to indexed funds. Adding some other constraints or criteria will complicate it real fast so please don't go there!

To me, when evaluating a fund to be used as a one-fund solution, the most important characteristics are the type of fund (indexed/managed) and the percentage of ex-US equity allocation, so I'll list only those 2 characteristics.

So what do you think? Are there any I missed?

---IRA/ROTH---
VSMGX - index, ~40% ex-US equity
VBIAX - index, ~0 ex-US equity
VGSTX - managed, ~33% ex-US equity
VWENX/VWELX - managed, ~11% ex-US equity
VGWAX/VGWLX - managed, ~42% ex-US equity
FBALX - managed, ~7% ex-US equity
FSANX - managed, ~30% ex-US equity

---TAXABLE---
VSMGX - index, ~40% ex-US equity
VBIAX - index, ~0 ex-US equity

For those who are ticker-challenged, here are the fund names:
VSMGX Vanguard LifeStrategy Moderate Growth
VBIAX Vanguard Balanced Index
VGSTX Vanguard STAR (yes, it is all caps)
VWENX/VWELX Vanguard Wellington
VGWAX/VGWLX Vanguard Global Wellington
FBALX Fidelity Balanced
FSANX Fidelity Asset Manager 60%
Last edited by GaryA505 on Wed Oct 27, 2021 11:42 am, edited 1 time in total.
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tj
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Re: The One-Fund Portfolio as a default suggestion

Post by tj »

GaryA505 wrote: Wed Oct 27, 2021 11:37 am As someone who is slowly coming around to this "one fund" way of thinking (thanks in part to longinvest), I'd like to keep this thread going.

I'd like to propose a list of candidates for IRA/ROTH accounts and taxable. For simplicity I will stick to a fixed 60/40 to 65/35 asset allocation (NO target date funds!), and for taxable I will stick the same allocation constraint but also limit it to indexed funds. Adding some other constraints or criteria will complicate it real fast so please don't go there!

To me, when evaluating a fund to be used as a one-fund solution, the most important characteristics are the type of fund (indexed/managed) and the percentage of ex-US equity allocation, so I'll list only those 2 characteristics.

So what do you think? Are there any I missed?

---IRA/ROTH---
VSMGX - index, ~40% ex-US equity
VBIAX - index, ~0 ex-US equity
VGSTX - managed, ~33% ex-US equity
VWENX/VWELX - managed, ~11% ex-US equity
VGWAX/VGWLX - managed, ~42% ex-US equity
FBALX - managed, ~7% ex-US equity
FSANX - managed, ~30% ex-US equity

---TAXABLE---
VSMGX - index, ~40% ex-US equity
VBIAX - index, ~0 ex-US equity

For those who are ticker-challenged, here are the fund names:
VSMGX Vanguard LifeStrategy Moderate Growth
VBIAX Vanguard Balanced Index
VGSTX Vanguard STAR (yes, it is all caps)
VWENX/VWELX Vanguard Wellesley
VGWAX/VGWLX Vanguard Global Wellesley
FBALX Fidelity Balanced
FSANX Fidelity Asset Manager 60%
Your ticker is for Wellington not Wellesley. I'm guessing the same for the Global varieties.
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Re: The One-Fund Portfolio as a default suggestion

Post by GaryA505 »

tj wrote: Wed Oct 27, 2021 11:39 am
GaryA505 wrote: Wed Oct 27, 2021 11:37 am As someone who is slowly coming around to this "one fund" way of thinking (thanks in part to longinvest), I'd like to keep this thread going.

I'd like to propose a list of candidates for IRA/ROTH accounts and taxable. For simplicity I will stick to a fixed 60/40 to 65/35 asset allocation (NO target date funds!), and for taxable I will stick the same allocation constraint but also limit it to indexed funds. Adding some other constraints or criteria will complicate it real fast so please don't go there!

To me, when evaluating a fund to be used as a one-fund solution, the most important characteristics are the type of fund (indexed/managed) and the percentage of ex-US equity allocation, so I'll list only those 2 characteristics.

So what do you think? Are there any I missed?

---IRA/ROTH---
VSMGX - index, ~40% ex-US equity
VBIAX - index, ~0 ex-US equity
VGSTX - managed, ~33% ex-US equity
VWENX/VWELX - managed, ~11% ex-US equity
VGWAX/VGWLX - managed, ~42% ex-US equity
FBALX - managed, ~7% ex-US equity
FSANX - managed, ~30% ex-US equity

---TAXABLE---
VSMGX - index, ~40% ex-US equity
VBIAX - index, ~0 ex-US equity

For those who are ticker-challenged, here are the fund names:
VSMGX Vanguard LifeStrategy Moderate Growth
VBIAX Vanguard Balanced Index
VGSTX Vanguard STAR (yes, it is all caps)
VWENX/VWELX Vanguard Wellesley
VGWAX/VGWLX Vanguard Global Wellesley
FBALX Fidelity Balanced
FSANX Fidelity Asset Manager 60%
Your ticker is for Wellington not Wellesley. I'm guessing the same for the Global varieties.
Good catch, fixed.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
sycamore
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

GaryA505 wrote: Wed Oct 27, 2021 11:37 am So what do you think? Are there any I missed?
1. AOR, as discussed upthread :)

2. Vanguard STAR Fund (VGSTX) is an interesting actively managed fund. Between 60-70% stocks, holds a variety of other Vanguard funds. I feel like it's a throwback to the pre-ETF/pre-Internet days of yore but it has held its own. You could do worse :) https://investor.vanguard.com/mutual-fu ... olio/vgstx

3. Dodge & Cox Balanced DODBX https://www.dodgeandcox.com/balancedfund.asp. Also actively managed. Its stock allocation is allowed to range between 25% and 75% so maybe you wouldn't want it in your list. Long-term it's been a fine performer. I think John Bogle was said to approve of Dodge & Cox as they were/are shareholder-focused (low ERs, no flashy funds, keep turnover low, no load, no 12b1 fees, etc.)
tj
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Re: The One-Fund Portfolio as a default suggestion

Post by tj »

sycamore wrote: Wed Oct 27, 2021 12:06 pm
GaryA505 wrote: Wed Oct 27, 2021 11:37 am So what do you think? Are there any I missed?
1. AOR, as discussed upthread :)

2. Vanguard STAR Fund (VGSTX) is an interesting actively managed fund. Between 60-70% stocks, holds a variety of other Vanguard funds. I feel like it's a throwback to the pre-ETF/pre-Internet days of yore but it has held its own. You could do worse :) https://investor.vanguard.com/mutual-fu ... olio/vgstx

3. Dodge & Cox Balanced DODBX https://www.dodgeandcox.com/balancedfund.asp. Also actively managed. Its stock allocation is allowed to range between 25% and 75% so maybe you wouldn't want it in your list. Long-term it's been a fine performer. I think John Bogle was said to approve of Dodge & Cox as they were/are shareholder-focused (low ERs, no flashy funds, keep turnover low, no load, no 12b1 fees, etc.)
MAPOX also.

https://www.mairsandpower.com/funds/balanced-fund
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msi
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Re: The One-Fund Portfolio as a default suggestion

Post by msi »

GaryA505 wrote: Wed Oct 27, 2021 11:37 am As someone who is slowly coming around to this "one fund" way of thinking (thanks in part to longinvest), I'd like to keep this thread going.

I'd like to propose a list of candidates for IRA/ROTH accounts and taxable. For simplicity I will stick to a fixed 60/40 to 65/35 asset allocation (NO target date funds!), and for taxable I will stick the same allocation constraint but also limit it to indexed funds. Adding some other constraints or criteria will complicate it real fast so please don't go there!

To me, when evaluating a fund to be used as a one-fund solution, the most important characteristics are the type of fund (indexed/managed) and the percentage of ex-US equity allocation, so I'll list only those 2 characteristics.

So what do you think? Are there any I missed?

---IRA/ROTH---
VSMGX - index, ~40% ex-US equity
VBIAX - index, ~0 ex-US equity
VGSTX - managed, ~33% ex-US equity
VWENX/VWELX - managed, ~11% ex-US equity
VGWAX/VGWLX - managed, ~42% ex-US equity
FBALX - managed, ~7% ex-US equity
FSANX - managed, ~30% ex-US equity

---TAXABLE---
VSMGX - index, ~40% ex-US equity
VBIAX - index, ~0 ex-US equity

For those who are ticker-challenged, here are the fund names:
VSMGX Vanguard LifeStrategy Moderate Growth
VBIAX Vanguard Balanced Index
VGSTX Vanguard STAR (yes, it is all caps)
VWENX/VWELX Vanguard Wellington
VGWAX/VGWLX Vanguard Global Wellington
FBALX Fidelity Balanced
FSANX Fidelity Asset Manager 60%
FPURX (Fidelity Puritan Fund) is another one, ~60/40 active.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

This thread is about low-cost all-in-one globally-diversified balanced index funds with a fixed or gliding allocation to stocks and bonds. We're of course talking about funds and ETFs for U.S. investors. For a fixed 60/40 asset allocation, the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) and iShares Core Growth Allocation ETF (AOR) have been already mentioned in this thread. I'll gladly add references to other qualifying funds or ETFs (or fund/ETF series) to the first post if they exist.

Fans of active funds and ETFs are free to start their own threads about them.
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GaryA505
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Re: The One-Fund Portfolio as a default suggestion

Post by GaryA505 »

longinvest wrote: Wed Oct 27, 2021 12:32 pm This thread is about low-cost all-in-one globally-diversified balanced index funds with a fixed or gliding allocation to stocks and bonds. We're of course talking about funds and ETFs for U.S. investors. For a fixed 60/40 asset allocation, the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) and iShares Core Growth Allocation ETF (AOR) have been already mentioned in this thread. I'll gladly add references to other qualifying funds or ETFs (or fund/ETF series) to the first post if they exist.

Fans of active funds and ETFs are free to start their own threads about them.
OK you got it! So as not to derail this thread any further, I have started another thread on one-fund portfolios using fixed allocation (60/40 - 65-35) index OR managed funds:
viewtopic.php?f=10&t=361041
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

GaryA505 wrote: Wed Oct 27, 2021 1:11 pm So as not to derail this thread any further, I have started another thread on one-fund portfolios using fixed allocation (60/40 - 65-35) index OR managed funds:
viewtopic.php?f=10&t=361041
Thanks GaryA505.
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azanon
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Re: The One-Fund Portfolio as a default suggestion

Post by azanon »

burritoLover wrote: Sun Oct 24, 2021 9:44 am
Stubbie wrote: Sun Oct 24, 2021 9:32 am
burritoLover wrote: Sun Oct 24, 2021 9:28 am one-fund portfolios in taxable can be troublesome - some can spit off some huge capital gains - like some Vanguard TDFs at over a $1/share recently. That's a killer tax drag for a large portfolio.
I use VTMFX, Tax-Managed Balanced Fund Admiral Shares in my taxable account for this reason. Great option if wanting to use one fund in taxable.
Yeah, but that's tilting you towards growth stocks. Unless you can balance it the other way in your tax advantaged account - but typically, in a 401k, value options suck.
Which, if Stubbie has been doing since 2009 (tilting growth), he's been thanking his lucky stars. I haven't forgotten though - I do still remember way back when that was a bad thing.
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Re: The One-Fund Portfolio as a default suggestion

Post by GaryA505 »

I'll just throw one more thought out there. For someone who is strongly averse to the ex-US equity allocation in VSMGX, they could hold 50/50 of VBIAX/VSMGX, and they could mirror that in all account types. It would give you about half the ex-US equity allocation, which would be approximately the 20% often spoke of on this forum. YES, I know it's two funds so is not a one-fund portfolio, but it IS very simple (who here can't divide by 2?) and you would probably not have to balance it, hardly ever.

Just a thought ...
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

GaryA505 wrote: Wed Oct 27, 2021 6:21 pm I'll just throw one more thought out there. For someone who is strongly averse to the ex-US equity allocation in VSMGX, they could hold 50/50 of VBIAX/VSMGX, and they could mirror that in all account types. It would give you about half the ex-US equity allocation, which would be approximately the 20% often spoke of on this forum. YES, I know it's two funds so is not a one-fund portfolio, but it IS very simple (who here can't divide by 2?) and you would probably not have to balance it, hardly ever.

Just a thought ...
GaryA505, there would probably be a small drift between the two funds, but the main problem would be the loss of simplicity. Between my wife and I, we have 7 portfolio accounts with a single holding in each account; a total of 7 identical holdings over 7 accounts. That's it. When we add money to one account, we just buy units of our all-in-one ETF with the money. There's no decision involved. There's no worry about allocation drift. There's no worry about having to split a big contribution into two distinct transactions to even out the two holdings of a Two-Fund Portfolio. There's no temptation to reduce the number of portfolio holdings by spreading the two funds across accounts and, in the process, start caring about whether to tax-adjust the asset allocation or not, and if yes, what adjustment to make... Etc.

A One-Fund Portfolio is significantly simpler.
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drumboy256
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Re: The One-Fund Portfolio as a default suggestion

Post by drumboy256 »

Chiming in again to keep this top of the pile....
Tracking my retirement funds is so simple now--- in fact, I can't imagine NOT having a one-fund TDF / one-fund ETF going forward.
Thanks again Longinvest! :sharebeer
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invest2bfree
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Re: The One-Fund Portfolio as a default suggestion

Post by invest2bfree »

Bringing this thread back up.

My issue has been taxes and behavioral since my taxable is twice that of my 401k.

AOR would be great option for me.

Just buy and forget it.

No taxes during rebalancing.

I just saw the expense ratio has dropped to .15.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

invest2bfree wrote: Thu Dec 02, 2021 11:21 pm AOR would be great option for me.

Just buy and forget it.

No taxes during rebalancing.
👍
invest2bfree wrote: Thu Dec 02, 2021 11:21 pm I just saw the expense ratio has dropped to .15.
That's great news!
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Ramjet
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Re: The One-Fund Portfolio as a default suggestion

Post by Ramjet »

I wish some of these global balanced funds owned more TIPS for the bond allocation
Or even if there was one option that was all TIPS would be interesting
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Ramjet wrote: Fri Dec 03, 2021 8:09 am I wish some of these global balanced funds owned more TIPS for the bond allocation
Or even if there was one option that was all TIPS would be interesting
Ramjet, the TIPS market is a tiny part of the (free-float) capitalization of global bond markets. Adding them (at market weight or close to it) wouldn't make a noticeable difference on returns.

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Last edited by longinvest on Fri Dec 03, 2021 8:48 am, edited 1 time in total.
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dbr
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Re: The One-Fund Portfolio as a default suggestion

Post by dbr »

Ramjet wrote: Fri Dec 03, 2021 8:09 am I wish some of these global balanced funds owned more TIPS for the bond allocation
Or even if there was one option that was all TIPS would be interesting
Yes, if you want TIPS in any particular proportion you wouldn't do it by looking at a one fund solution. That might be one small example why one fund as a default suggestion is not realistic.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

dbr wrote: Fri Dec 03, 2021 8:38 am Yes, if you want TIPS in any particular proportion you wouldn't do it by looking at a one fund solution. That might be one small example why one fund as a default suggestion is not realistic.
(I added the emphasis).

Dbr, I disagree about the emphasized statement. I suggest to read my reply, above yours, including the quote by Jack Bogle I included.
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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Forum member invest2bfree reported about a new lower fee for AOR (all-in-one globally-diversified 60/40 stocks/bonds index ETF). I see that there's actually a thread about lower fees for the entire all-in-one index ETF series:
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tj
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Re: The One-Fund Portfolio as a default suggestion

Post by tj »

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longinvest
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

The "Target date funds ... so much for "set and forget" [and WSJ article]" thread reports about a mistake Vanguard made in 2021 with undesirable consequences for Target Date Fund investors in taxable accounts. Here's the opinion I expressed in reaction to claims against holding these funds in taxable accounts:
longinvest wrote: Fri Jan 21, 2022 6:20 pm I'm surprised to see Vanguard's mistake used as a reason to argue against using target date funds in taxable accounts. The tax consequences wouldn't have been different if Vanguard had made the same mistake with a single-asset index fund.

What I'm saying is that the tax cost is due to Vanguard's mistake; the cost isn't due to the all-in-one nature of the affected funds.

We've seen other mistakes in the past. In 2002, Vanguard's Total Bond Market Index Fund (then VBMFX fund, now VBTLX fund and BND ETF) failed to track its index by a significant -2% error. It was a due to a management mistake (sampling strategy). Vanguard has since then improved its sampling strategy to (hopefully) avoid such big tracking errors in the future.

Claiming that target date funds should be avoided in taxable accounts because Vanguard made a mistake in 2021 is similar to claiming that one shouldn't invest into bond index funds because of potential tracking errors; that one should, instead, build one's own bond index portfolio using individual securities bought in proportion of market weights. (Just imagine buying and tracking over 10,000 individual bonds! It would be more than a full-time job.)

Let's be clear. The only way to avoid the tax consequences of manager mistakes in a taxable account is to avoid owning any mutual fund or ETF in it, regardless of whether the fund or ETF is indexed or actively managed. This would be impractical and, more importantly, it's based on the flawed idea that individual investors would make fewer mistakes than Vanguard's fund managers. The managers of other fund providers make mistakes, too. Such is life: mistakes happen.

What happened in 2021 is unfortunate. In all likelyhood, all-in-one target date ETFs (instead of target date mutual funds) would have lessened (or possibly avoided) the undesirable tax consequence of Vanguard's mistake. Maybe U.S. investors could pressure Vanguard to start offering ETF versions of its all-in-one Target Date Funds and LifeStrategy Funds? Vanguard already provides such LifeStrategy ETFs in the UK and Asset Allocation ETFs in Canada.

This mistake doesn't change my opinion. I think that low-cost globally-diversified all-in-one index funds and ETFs significantly simplify investing. They help sidestep a long series of behavioral pitfalls and are good enough to be held in taxable accounts once tax-advantaged accounts are full. Here's thread about it: The One-Fund Portfolio as a default suggestion.
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Re: The One-Fund Portfolio as a default suggestion

Post by 000 »

You're wrong:
  • Regular Vanguard index funds have an ETF share class, TDFs do not.
  • Admiral shares of regular Vanguard index funds can be converted to Institutional shares, TDFs cannot.
  • Creating huge cap gain distributions on total market funds would be a much bigger PR disaster than on TDFs because most TDFs are not held in taxable accounts.
  • Individual securities don't fully avoid the distribution problem as you erroneously suggest because corporate actions can result in taxable distributions to individual holders.
When I and many others warned about TDFs in taxable it's because we knew what we were talking about.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Mistakes happen. They don't have to be tax related. Vanguard's Total Bond Market Index Fund tracking error, in 2002, wasn't a tax related problem. It affected investors in the fund within tax-advantaged and taxable accounts. It was a single-asset mutual fund. Had the ETF share class existed in 2002, it wouldn't have helped.

Many individual investors make costlier mistakes managing a collection of single-asset mutual funds or ETFs due a long list of behavioral pitfalls.

Behavioral mistakes abound. As an example, some of the most vocal opponents to all-in-one funds in taxable accounts fail to understand that spreading assets across different types of account affects the effective riskiness of the portfolio and, thus, leads them to mistakenly attribute the increase in expected after-tax return to the asset location strategy instead of attributing it to the increase in after-tax portfolio risk. The "Mathematical Risk" section of our wiki's page on Tax-adjusted asset allocation briefly mentions this. Unfortunately, the Tax-efficient fund placement wiki page ignores considerations related to after-tax portfolio risk and, as a consequence, proposes a complex asset location strategy which, according to its own "Criticisms of this tax placement strategy
" section, can end up being be the opposite of what the investor should have done*: "It is possible under some combinations of lifetime investment results and lifetime individual tax situations to be better off doing the opposite of the strategy recommended here". Earlier in this thread I've provided a proof that a mirrored asset allocation is mathematically guaranteed not to be the worst asset location strategy. I have yet to see a mathematical proof that a different strategy is guaranteed to always beat this simple asset location strategy. So, there we are: behavioral mistakes (like ignoring the after-tax impact on risk of an asset location strategy) even affect some Bogleheads wiki authors.

* It's only after the fact that one can know which asset location strategy was best.

I think that a One-Fund Portfolio is good enough. Using a single identical low-cost globally-diversified all-in-one index fund or ETF in all portfolio accounts significantly simplifies investing, especially for a less financially-knowledgeable surviving spouse or caretaker. It can also help avoiding behavioral mistakes.

My wife really likes the simplicity of her portfolio accounts since we've moved all of our money into a single idendical all-in-one ETF in all our accounts. She now finds investing easy to do. As a bonus, our One-Fund Portfolio has finally succeeded at stopping me from tinkering with our portfolio.
Last edited by longinvest on Sat Jan 22, 2022 9:14 am, edited 3 times in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Here's a recent series of three videos about Asset Location targeted at Canadian investors by Justin Bender of PWL Capital in Toronto. He explains how spreading assets across accounts changes the effective after-tax riskiness of the portfolio and how, when adjusted for expected taxes (difficult to do, due to uncertainty about future tax rates), most of the increase in expected returns disappears.

To help U.S. investors make sense of some acronyms used in the videos:
  • An RRSP account is equivalent to a traditional IRA account. It's a tax-sheltered account where money is contributed before tax, and where withdrawals are taxed.
  • A TFSA account is equivalent to a Roth IRA account. It's a tax-sheltered account where money is contributed after tax, and where withdrawals aren't subject to tax.
Here are the links to the three videos: The "Ludicrous Strategy" is similar to the asset location strategy suggested in our wiki's page on Tax-efficient fund placement in a Canadian context.

The "Plaid Strategy" is similar to the asset location strategy suggested in our wiki's page on Tax-adjusted asset allocation in a Canadian context.

The conclusion of the video series is that using an identical asset allocation in all accounts (including taxable) is good enough.
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Re: The One-Fund Portfolio as a default suggestion

Post by 000 »

Now you are conflating two different things.

One can have a mirrored asset allocation without using a balanced fund in taxable.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

000 wrote: Sat Jan 22, 2022 3:21 pm One can have a mirrored asset allocation without using a balanced fund in taxable.
000, an all-in-one ETF, like an iShares core allocation ETF, can use the continuous creation and redemption of shares by authorized participants to tax-efficiently gradually rebalance towards its target allocation. In all likelihood, an all-in-one ETF will be more tax efficient in a taxable account for a do-it-yourself investor than directly holding and rebalancing its underlying ETFs, thanks to the tax-efficiency of the ETF structure.

Since inception in 2008, the iShares Core Growth Allocation ETF (AOR), 60/40 stocks/bonds allocation, has only distributed capital gains once in 2017 due to significant internal changes (see this post).

In contrast, an individual investor holding the underlying ETFs would have had to sell stock ETFs to rebalance the portfolio, generating capital gains in most years. ETFs are quite tax-efficient in taxable accounts, including all-in-one ETFs.
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Re: The One-Fund Portfolio as a default suggestion

Post by steve r »

Delete
Last edited by steve r on Mon Jan 24, 2022 7:01 pm, edited 1 time in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

steve r wrote: Mon Jan 24, 2022 6:54 pm How would you compare AOR (w/ expense ratio of 0.15) to poor choice tax deferred retirement account with expense ratios north of 0.30?) My guess is that it will depend on (assumed) tax rates when one retires versus (assumed) long term cap gains rate more that the savings in expense ratio.
Steve R, tax-advantaged accounts offer the awesome fiscal gift of tax-free growth for decades. That's difficult to beat.
Last edited by longinvest on Mon Jan 24, 2022 7:18 pm, edited 2 times in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by sycamore »

steve r wrote: Mon Jan 24, 2022 6:54 pm
longinvest wrote: Mon Jan 24, 2022 6:18 pm ....

an all-in-one ETF, like an iShares core allocation ETF, can use the continuous creation and redemption of shares by authorized participants to tax-efficiently gradually rebalance towards its target allocation. In all likelihood, an all-in-one ETF will be more tax efficient in a taxable account for a do-it-yourself investor than directly holding and rebalancing its underlying ETFs, thanks to the tax-efficiency of the ETF structure.
...
Interesting. How would you compare AOR (w/ expense ratio of 0.15) to poor choice tax deferred retirement account with expense ratios north of 0.30?(index funds) My guess is that it will depend on (assumed) tax rates when one retires versus (assumed) long term cap gains rate more that the savings in expense ratio.
My understanding is that the iShares Core Allocation ETFs use global market-cap weighting for their stock portion. But bonds have a fixed split between US and international. Such sub-asset allocation decisions would/could have larger impact on performance than the ER difference.
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Re: The One-Fund Portfolio as a default suggestion

Post by steve r »

longinvest wrote: Mon Jan 24, 2022 7:01 pm
steve r wrote: Mon Jan 24, 2022 6:54 pm How would you compare AOR (w/ expense ratio of 0.15) to poor choice tax deferred retirement account with expense ratios north of 0.30?) My guess is that it will depend on (assumed) tax rates when one retires versus (assumed) long term cap gains rate more that the savings in expense ratio.
Tax-advantaged accounts offer the awesome fiscal gift of tax-free growth for decades. That's difficult to beat.
Thanks.
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Re: The One-Fund Portfolio as a default suggestion

Post by Da5id »

I'm mostly in agreement that One-Fund is a good default suggestion. As a quibble though, I'm not very sold on a TDF in taxable. After a discussion in another thread, it seems to me quite plausible that a TDF (as opposed to a balanced or LifeStrategy fund) has an additional issue being held in a taxable account. That is that there seems to be net redemptions of a TDF after the target date passes. e.g. looking at Vanguard TDF 2015 the AUM has fallen year after year since 2017. People stop contributing (due to retirement say) and start redeeming shares to live on or to take RMDs if the TDF is held in a tax sheltered account. That will cause the accumulated undistributed capital gains to be distributed, perhaps in increasing amounts.

This may not be a problem. If you would have needed to sell some of your TDF that is in taxable to live on, they are just doing it for you. And you may pay 0 taxes on capital gains, in which case it also may not cause you grief. On the other hand, the forced income could be badly timed, pushing you off tax cliffs and such.

If I'm right about this being a general feature of TDFs, worth thinking about. I could be wrong of course, but to me TDFs shrinking at some point after the target date seems intuitively pretty obvious and fits the data of the one fund I looked at.

[edit] Elsewhere someone noted that the TDF 2015 is merging into the Target Retirement income fund in 2022, which I was not aware of. That may stop the trend, though there were significant outflows, CG distributions, and AUM decrease between 2015 and 2022. I'm not sure that this is guaranteed for all TDFs of all providers, though it makes sense for it to happen.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Da5id wrote: Thu Jan 27, 2022 9:28 am I'm mostly in agreement that One-Fund is a good default suggestion. As a quibble though, I'm not very sold on a TDF in taxable. After a discussion in another thread, it seems to me quite plausible that a TDF (as opposed to a balanced or LifeStrategy fund) has an additional issue being held in a taxable account. That is that there seems to be net redemptions of a TDF after the target date passes. e.g. looking at Vanguard TDF 2015 the AUM has fallen year after year since 2017. People stop contributing (due to retirement say) and start redeeming shares to live on or to take RMDs if the TDF is held in a tax sheltered account. That will cause the accumulated undistributed capital gains to be distributed, perhaps in increasing amounts.

This may not be a problem. If you would have needed to sell some of your TDF that is in taxable to live on, they are just doing it for you. And you may pay 0 taxes on capital gains, in which case it also may not cause you grief. On the other hand, the forced income could be badly timed, pushing you off tax cliffs and such.

If I'm right about this being a general feature of TDFs, worth thinking about. I could be wrong of course, but to me TDFs shrinking at some point after the target date seems intuitively pretty obvious and fits the data of the one fund I looked at.

[edit] Elsewhere someone noted that the TDF 2015 is merging into the Target Retirement income fund in 2022, which I was not aware of. That may stop the trend, though there were significant outflows, CG distributions, and AUM decrease between 2015 and 2022. I'm not sure that this is guaranteed for all TDFs of all providers, though it makes sense for it to happen.
Da5id, I'll make an approximate calculation to see what would have happened, in a taxable account, to an investor holding the underlying five funds as separate ETFs in 2020 while implementing the target-date glide path.

I'll estimate the Target Retirement 2020 Fund asset allocation using the text and Figure 2 (page 5) of Vanguard's approach to target-date funds. Vanguard keeps a 60/40 domestic/international stock ratio and a 70/30 domestic/international stock ratio. The stock allocation glides from 50% at age 65 to 30% at age 72 and short-term TIPS glide from 0% at age 60 to 17% at age 72.

For brevity, I'll use the VTI, VXUS, BND, BNDX, and VTIP tickers for, respectively, domestic stocks, international stocks, domestic bonds, international bonds, and short-term TIPS.

Asset Allocation:
December 31, 2019: 30.0 / 20.0 / 30.0 / 12.9 / 7.1 (VTI / VXUS / BND / BNDX / VTIP)
December 31, 2020: 28.3 / 18.9 / 31.0 / 13.3 / 8.5 (VTI / VXUS / BND / BNDX / VTIP)

Returns in 2020:
  • VTI had a 18.88% capital return and a 2.07% income return.
  • VXUS had a 8.64% capital return and a 2.68% income return.
  • BND had a 5.33% capital return and a 2.38% income return.
  • BNDX had a 3.59% capital return and a 1.01% income return.
  • VTIP had a 3.72% capital return and a 1.25% income return.
Assuming that the portfolio had started at the initial allocation and had only been rebalanced at the end of 2020 to the new target allocation, the investor would have received an income (or dividend, if you prefer) of:
  • ((30.0% X 2.07) + (20.0% X 2.68%) + (30.0% X 2.38%) + (12.9% X 1.01%) + (7.1% X 1.25%)) = 2.1%
Capital return would have been 9.7% for a total return of 11.8%. Note that Vanguard Target Retirement 2020 Fund (VTWNX) had a 10.3% capital return and a 1.7% income return for a total return of 12.0% in 2020.

During the year (before rebalancing), the asset allocation would have drifted to: 32.5 / 19.8 / 28.8 / 12.2 / 6.7 (VTI / VXUS / BND / BNDX / VTIP). Unsuprisingly, the two stock holdings ended the year above their new targets. Here were the required sell transactions to rebalance the portfolio:
  • VTI: (32.5% - 28.3%) = 4.2% of portfolio
  • VXUS: (20.0% - 18.9%) = 0.9% of portfolio
  • Total: 5.2% of portfolio
Had the investor been holding VTI and VXUS for decades, capital gains would have represented a significant portion of this 5.2%.

Note that 2020 was a bumpy year (with pandemic-caused volatility in March), opening the door to rebalancing opportunities during the year, possibly realizing additional capital gains in the process, especially for a Target Retirement fund which continuously rebalances its holdings.

In other words, the chosen glide path is a primary cause for realizing capital gains, especially in good stock years like 2020. Target Retirement fund outflows have probably caused some additional capital gains, but the investor holding and rebalancing five separate ETFs according to the glide path couldn't have avoided realizing capital gains.


I wouldn't invest in a taxable account unless I was out of tax-advantaged contribution space. Taxable investing exposes investors to tax consequences due to various portfolio events, some of which are out of the investor's control. Any major change can have tax consequences. Stock holdings (individual stocks, funds, or ETFs) tend to accumulate significant amounts of unrealized appreciation, triggering noticeable capital gains when they're sold.

I personally prefer fixed lifelong asset allocations, but this isn't an appropriate thread to debate the merits of fixed versus gliding allocations. I've explicitly provided, in the first post of this thread, choices for holding an all-in-one index fund or ETF based on the investor's preference between these two lifelong strategies. As far as I know, there doesn't exist gliding allocation ETFs, only target-date funds. In contrast, there exists a series of low-cost fixed-allocation globally-diversified all-in-one index ETFs, BlackRocks' iShares Core Allocation ETF series.

Despite Vanguard's 2021 mistake, I continue to think Target Retirement funds are good enough for an investor who prefers a gliding asset allocation, even in a taxable account once all tax-advantaged accounts are full. It's easy for an individual investor holding five separate ETFs to make costlier mistakes due to a long list of behavioral pitfalls.
Last edited by longinvest on Thu Jan 27, 2022 7:43 pm, edited 1 time in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by Da5id »

longinvest wrote: Thu Jan 27, 2022 7:01 pm
Da5id wrote: Thu Jan 27, 2022 9:28 am I'm mostly in agreement that One-Fund is a good default suggestion. As a quibble though, I'm not very sold on a TDF in taxable. After a discussion in another thread, it seems to me quite plausible that a TDF (as opposed to a balanced or LifeStrategy fund) has an additional issue being held in a taxable account. That is that there seems to be net redemptions of a TDF after the target date passes. e.g. looking at Vanguard TDF 2015 the AUM has fallen year after year since 2017. People stop contributing (due to retirement say) and start redeeming shares to live on or to take RMDs if the TDF is held in a tax sheltered account. That will cause the accumulated undistributed capital gains to be distributed, perhaps in increasing amounts.

This may not be a problem. If you would have needed to sell some of your TDF that is in taxable to live on, they are just doing it for you. And you may pay 0 taxes on capital gains, in which case it also may not cause you grief. On the other hand, the forced income could be badly timed, pushing you off tax cliffs and such.

If I'm right about this being a general feature of TDFs, worth thinking about. I could be wrong of course, but to me TDFs shrinking at some point after the target date seems intuitively pretty obvious and fits the data of the one fund I looked at.

[edit] Elsewhere someone noted that the TDF 2015 is merging into the Target Retirement income fund in 2022, which I was not aware of. That may stop the trend, though there were significant outflows, CG distributions, and AUM decrease between 2015 and 2022. I'm not sure that this is guaranteed for all TDFs of all providers, though it makes sense for it to happen.
Da5id, I'll make an approximate calculation to see what would have happened, in a taxable account, to an investor holding the underlying five funds as separate ETFs in 2020 while implementing the target-date glide path.

...

It's easy for an individual investor holding five separate ETFs in a taxable account to make costlier mistakes than an all-in-one fund manager due to a long list of behavioral pitfalls.
Thanks for the long response.

I agree with your last point about behavioral issues, but I think you missed mine. I think TDFs are a good idea for many people, though I have a fixed allocation (which includes TIPs) that is different that a TDF and prefer to do tax efficient fund placement.

My issue wasn't with the glide path per se though. And it wasn't that I believed that separate funds all in taxable would do a better job of avoiding gains than a TDF in taxable. It was with other users redemptions triggering capital gains taxes. Not in the big bad way that Vanguard did last year. In particular, I wondered if that was possibly a systematic problem after the target date passed.

I took a look at the Vanguard Target Date 2015 fund. Below is a shot from its 2021 annual report. My concern for that particular fund is that the net assets are falling year after year, presumably representing redemptions as the TDF 2015 NAV slightly increased during this period and PV shows a CAGR of 7.71% over that stretch. If there were net redemptions over that timeframe, that in addition to the glidepath could also also explain why capital gains distributions trended upwards (other than 2020) over this period.

Again, don't know if this is a general problem for funds of this type, I just looked at one fund. Seems like it could have been an issue for those investors. I'd assume that the decline in AUM stops or slow when the fund in the end merges into the Target Income Retirement Fund (2015 fund merges in in 2022), whose assets were fairly stable over the 5 year period in the report. Which is to me another issue, as that fund has 17% TIPs.

Image
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Da5id wrote: Thu Jan 27, 2022 7:43 pm My issue wasn't with the glide path per se though. And it wasn't that I believed that separate funds all in taxable would do a better job of avoiding gains than a TDF in taxable. It was with other users redemptions triggering capital gains taxes. Not in the big bad way that Vanguard did last year. In particular, I wondered if that was possibly a systematic problem after the target date passed.
Da5id, I made the detailed calculation to show that the 5% long-term capital gain distribution Vanguard's Target Retirement 2020 Fund (VTWNX) wasn't outrageous. VTWNX had a lower dividend ratio than the 5 separate ETFs, with a similar total return, indicating that some of the dividend was "transformed" into capital gains thanks to the mutual fund's efficiency of rebalancing with the cash flows of other investors* (that's the contrary of what happened in 2021).

* ETFs are significantly better at this.

Note that someone who chooses to invest into Target Retirement 2020 Fund shouldn't complain that other investors are starting to sell their holdings in 2020. I'll avoid starting another discussion about the (unknowable before death) best order to deplete accounts during retirement, but tax-advantaged space is precious. (Let me just say that a simple good-enough approach is to withdraw from accounts proportionally, except for taking bridge withdrawals to a future pensions from a similarly-taxed account).

If it isn't the investor's intention to spend most the portfolio before death, I'd question the choice of a gliding asset allocation for the entire portfolio.
Last edited by longinvest on Thu Jan 27, 2022 8:32 pm, edited 2 times in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by 000 »

I wonder how TDFs would fare during a sustained secular continually declining bear market. Repeated buying the dip by the fund coupled with panic redemptions of low basis shares might both deplete the NAV while leaving stay the course investors with a tax bill from the selling of others.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

000 wrote: Thu Jan 27, 2022 8:07 pm I wonder how TDFs would fare during a sustained secular continually declining bear market. Repeated buying the dip by the fund coupled with panic redemptions of low basis shares might both deplete the NAV while leaving stay the course investors with a tax bill from the selling of others.
000, the stay-the-course investor following a rebalancing plan would probably do slightly worse than the target-date fund. The target-date fund would efficiently (partly) rebalance with the cash flows of other investors, which can't be done by the individual investor.

But, the more important thing is that the individual investor could be quite tempted (due to behavioral pitfalls) to not rebalance the portfolio to avoid triggering taxes and, as a result, significantly underperform the target-date fund in a volatile but stagnant market. (In a stock-declining market, not rebalancing would obviously be more rewarding). Mental accounting would lead the investor to mostly focus on taxes saved, instead of missed gains (accounting for higher taxes).
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Re: The One-Fund Portfolio as a default suggestion

Post by 000 »

I'm not sure you read what I wrote. The TDF would buy all the way down whereas an individual fund user might buy nearer to the bottom. Taxes might also not be a concern because the individual investor might have lots at a loss, even in a case where the fund has gains on its book.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

000 wrote: Thu Jan 27, 2022 8:18 pm I'm not sure you read what I wrote. The TDF would buy all the way down whereas an individual fund user might buy nearer to the bottom. Taxes might also not be a concern because the individual investor might have lots at a loss, even in a case where the fund has gains on its book.
000, successful market timing is always better. But, it's difficult to correctly time the bottom. Most investors fail at it. As I've shown, in 2020, the Target Retirement 2020 Fund did better with continuous rebalancing in a stellar stock year, despite that the 5-ETF investor let the two stock ETFs grow without rebalancing (before the end of year).
Last edited by longinvest on Thu Jan 27, 2022 8:26 pm, edited 1 time in total.
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Re: The One-Fund Portfolio as a default suggestion

Post by 000 »

I suppose this is another case of a risk not being fully appreciated until one actually gets burned by it.
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Re: The One-Fund Portfolio as a default suggestion

Post by Da5id »

longinvest wrote: Thu Jan 27, 2022 8:02 pm Note that someone who chooses to invest into Target Retirement 2020 Fund shouldn't complain that other investors are starting to sell their holdings in 2020.
I agree. My choice would be to not invest in it in taxable personally, hence no complaining warranted.
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Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Three investors each have $100,000 split between a $50,000 traditional IRA and a $50,000 Roth IRA. They share the same 50/50 stocks/bonds allocation and, like most investors, they don't tax-adjust their allocation. In other words, they all initially hold $50,000 in stocks and $50,000 in bonds.

They differ in their asset location strategy:
  • Investor A prioritizes the placement of stocks into the Roth IRA first.
  • Investor B prioritizes the placement of stocks into the traditional IRA first.
  • Investor C maintains a 50/50 stocks/bonds allocation in each account.
The three investors intend to deplete their accounts over a fixed 30 year period, taking withdrawals at the beginning of the year. Traditional IRA withdrawals are taxed 20%. The portfolio is rebalanced when taking the annual withdrawal.

A simple approach, often used to analyze outcomes, is to use a constant real growth rate for stocks and for bonds. Let's pick simple numbers: 5% for stocks and 2% for bonds. In other words, in real terms, the portfolio annually grows by a constant ((5% X 50%) + (2% X 50%)) = 3.5% rate.

NOTE: I'll post calculation tables in a separate post to keep this post readable.

If everything goes according to plan, the three investors withdraw an identical total of $157,598 from their accounts over 30 years, before tax, because the asset location strategy has no impact on portfolio growth in tax-sheltered accounts.

Investor A withdraws a total of $64,276 from the traditional IRA, pays a total of -$12,855 in taxes, and withdraws a total of $93,322 from the Roth IRA. Total net income: ($64,276 + -$12,855 + $93,322) = $144,743.

Investor B withdraws a total of $93,322 from the traditional IRA, pays a total of -$18,664 in taxes, and withdraws a total of $64,276 from the Roth IRA. Total net income: ($93,322 + -$18,664 + $64,276) = $138,934.

Investor C withdraws a total of $78,799 from the traditional IRA, pays a total of -$15,760 in taxes, and withdraws a total of $78,799 from the Roth IRA. Total net income: ($78,799 + -$15,760 + $78,799) = $141,838.

The difference in total net income of the three investors is only due the amount of taxes paid.

It's surprising how small the impact of choosing the worst asset location strategy is when everything goes according to plan. While investor B pays a total of (($18,664 / $12,855) - 1) = 45% more in taxes than investor A (which might look impressive), the impact on net income is only (($138,934 / $144,743) - 1) = -4% less.

The impact of investor C choosing a mirror allocation in all accounts on net income is only (($141,838 / $144,743) - 1) = -2% less than the best asset location strategy, when everything goes according to plan.

Obviously, when everything goes according to plan, investor A wins because, by prioritizing the placement of the slower growing asset into the traditional IRA, less money is withdrawn from it resulting into a smaller total tax bill.

First lesson: It's best focus on the big numbers that matter, like total net income available to spend after taxes, instead of focusing on ratios between small numbers with little impact on the retiree's wellness, like ratios of between tax amounts.

Unfortunately, everything doesn't always go according to plan in life. A simple and very effective approach to estimate the impact of unfavorable outcomes is to first apply an immediate -50% loss to the stock allocation of the portfolio, then to conduct the same simple analysis with constant growth rates.

If stocks lose -50% of their value just before taking the first withdrawal, the three investors withdraw an identical total of $118,199 from their accounts over 30 years, before tax, because the asset location strategy has no impact on portfolio growth in tax-sheltered accounts. That's (($118,199 / $157,598) - 1) = -25% less than when everything goes according to plan, corresponding to the impact of losing (-50% X 50% of portfolio) = -25% of portfolio.

Investor A withdraws a total of $69,281 from the traditional IRA, pays a total of -$13,856 in taxes, and withdraws a total of $48,917 from the Roth IRA. Total net income: ($69,281 + -$13,856 + $48,917) = $104,342. That's (($104,342 / $144,743) - 1) = -28% less than when everything goes according to plan.

Investor B withdraws a total of $48,917 from the traditional IRA, pays a total of -$9,783 in taxes, and withdraws a total of $69,281 from the Roth IRA. Total net income: ($48,917 + -$9,783 + $69,281) = $108,415. That's (($108,415 / $138,934) - 1) = -22% less than when everything goes according to plan.

Investor C withdraws a total of $59,099 from the traditional IRA, pays a total of -$11,820 in taxes, and withdraws a total of $59,099 from the Roth IRA. Total net income: ($59,099 + -$11,820 + $59,099) = $106,379. That's (($106,379 / $141,838) - 1) = -25% less than when everything goes according to plan.

The difference in total net income of the three investors is only due the amount of taxes paid.

Investor A is now the loser, trailing investor B (winner) and investor C (average). The overall impact of choosing an asset location strategy remains small. Investor A gets (($104,342 / $108,415) - 1) = -4% less than the winner, and investor C gets (($106,379 / $108,415) - 1) = -2% less than the winner.

The after-tax impact of stocks losing -50% of their value varies according to asset location strategy. As a result of stocks losing -50% of their value, investor A loses -28% in total net income because the loss happens in the Roth IRA. In contrast, investor B only loses -22% in total net income because the loss happens in the Traditional IRA. For investor C, the after-tax loss impact is identical to the before-tax loss impact.

What we see is a typical risk/reward outcome. It's as if, after tax, investor A is taking more risk than a 50/50 stocks/bonds allocation by prioritizing the placement of stocks in the Roth IRA, winning when things go well and losing when they don't. It's also as if, after tax, investor B is taking less risk than a 50/50 stocks/bonds allocation by prioritizing the placement of stocks in the Traditional IRA, losing when things go well and winning when they don't.

Investor C, in contrast, seems to be taking, after tax, the same amount of risk as a 50/50 stocks/bond allocation. In other words, investor C's asset location strategy doesn't seem to change the amount of risk taken before and after taxes.

Another way to view this is to consider that an outcome similar to investor A can probably be achieved, in the above scenario, by increasing the stock allocation to (-2 X -28%) = 56% of the portfolio and adopting an identical asset allocation in both the traditional IRA account and the Roth IRA account. Similarly, investor B could probably achieve a similar outcome by reducing the stock allocation to 44% and adopting a mirrored allocation.

Second lesson: It's a mistake to only consider good scenarios and ignore risk, when evaluating the after-tax impact of asset location strategies. A complex strategy delivering better outcomes when things go well and worse outcomes when they don't, when compared to a simpler strategy, unnecessarily complicates the life of its investor. A slightly-higher stock allocation with the simpler strategy is likely to deliver similar outcomes.


Summary: An identical asset allocation in all portfolio accounts (a mirrored asset allocation) doesn't affect the effective riskiness of the portfolio, even after taxes. In contrast, so called "tax-efficient" asset location strategies often promise better "expected" outcomes without disclosing that they do so by increasing the effective after-tax risk of the portfolio. In other words, a mirrored asset allocation is not only good enough, it also delivers more consistent outcomes.
Last edited by longinvest on Sun Jan 30, 2022 9:22 am, edited 5 times in total.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
Topic Author
longinvest
Posts: 5672
Joined: Sat Aug 11, 2012 8:44 am

Re: The One-Fund Portfolio as a default suggestion

Post by longinvest »

Here are the calculations tables for the previous post.

The "Balance" columns show account balances at the start of year before withdrawal. The "Stock" and "Bond" columns show stock and bond holdings just after withdrawal and rebalancing, still at the start of year. All numbers are in constant dollars. Stocks have a fixed 5% real growth rate and bonds have a fixed 2% growth rate. A custom VPW withdrawal schedule with an internal 3.5% growth trend is used.

NORMAL SCENARIOS

Investor A (prioritizes stocks in Roth IRA):

Code: Select all

                                    Balance                Withdrawal                Stocks                  Bonds    
                   VPW         Trad        Roth        Trad        Roth        Trad        Roth        Trad        Roth    
           1        5.3%     $50,000     $50,000      $2,627      $2,627          $0     $47,373     $47,373          $0
           2        5.4%     $48,321     $49,742      $2,589      $2,665          $0     $46,405     $45,732        $673
           3        5.5%     $46,647     $49,411      $2,551      $2,702          $0     $45,402     $44,096      $1,306
           4        5.6%     $44,978     $49,005      $2,514      $2,739          $0     $44,365     $42,464      $1,901
           5        5.7%     $43,313     $48,522      $2,478      $2,776          $0     $43,291     $40,835      $2,456
           6        5.9%     $41,652     $47,960      $2,442      $2,812          $0     $42,179     $39,210      $2,969
           7        6.0%     $39,995     $47,317      $2,406      $2,847          $0     $41,029     $37,588      $3,441
           8        6.2%     $38,340     $46,590      $2,371      $2,882          $0     $39,838     $35,968      $3,870
           9        6.4%     $36,688     $45,778      $2,337      $2,916          $0     $38,606     $34,351      $4,255
          10        6.6%     $35,038     $44,877      $2,303      $2,950          $0     $37,331     $32,734      $4,596
          11        6.8%     $33,389     $43,886      $2,270      $2,983          $0     $36,011     $31,119      $4,891
          12        7.0%     $31,742     $42,801      $2,237      $3,016          $0     $34,644     $29,505      $5,140
          13        7.3%     $30,095     $41,619      $2,205      $3,049          $0     $33,230     $27,890      $5,340
          14        7.6%     $28,448     $40,339      $2,173      $3,081          $0     $31,767     $26,276      $5,491
          15        8.0%     $26,801     $38,956      $2,141      $3,112          $0     $30,252     $24,660      $5,592
          16        8.4%     $25,153     $37,469      $2,110      $3,143          $0     $28,684     $23,043      $5,641
          17        8.8%     $23,504     $35,872      $2,079      $3,174          $0     $27,062     $21,424      $5,637
          18        9.4%     $21,853     $34,164      $2,049      $3,204          $0     $25,382     $19,804      $5,578
          19       10.0%     $20,200     $32,341      $2,020      $3,234          $0     $23,644     $18,180      $5,464
          20       10.7%     $18,544     $30,399      $1,990      $3,263          $0     $21,845     $16,553      $5,291
          21       11.6%     $16,884     $28,334      $1,962      $3,292          $0     $19,983     $14,923      $5,060
          22       12.7%     $15,221     $26,143      $1,933      $3,320          $0     $18,055     $13,288      $4,767
          23       14.1%     $13,554     $23,821      $1,905      $3,348          $0     $16,061     $11,649      $4,412
          24       15.8%     $11,882     $21,364      $1,877      $3,376          $0     $13,996     $10,004      $3,992
          25       18.1%     $10,204     $18,768      $1,850      $3,403          $0     $11,859      $8,354      $3,505
          26       21.4%      $8,521     $16,028      $1,823      $3,430          $0      $9,648      $6,698      $2,950
          27       26.3%      $6,832     $13,139      $1,797      $3,456          $0      $7,359      $5,035      $2,324
          28       34.5%      $5,135     $10,098      $1,771      $3,482          $0      $4,990      $3,364      $1,625
          29       50.9%      $3,432      $6,897      $1,745      $3,508          $0      $2,538      $1,686        $852
          30      100.0%      $1,720      $3,533      $1,720      $3,533          $0          $0          $0          $0
                                              Total: $64,276  +  $93,322  = $157,598                        
                                                    -$12,855                        
                                                     $51,421  +  $93,322  = $144,743                        
Investor B (prioritizes stocks in traditional IRA):

Code: Select all

                                    Balance                Withdrawal                Stocks                  Bonds    
                   VPW         Trad        Roth        Trad        Roth        Trad        Roth        Trad        Roth    
           1        5.3%     $50,000     $50,000      $2,627      $2,627     $47,373          $0          $0     $47,373
           2        5.4%     $49,742     $48,321      $2,665      $2,589     $46,405          $0        $673     $45,732
           3        5.5%     $49,411     $46,647      $2,702      $2,551     $45,402          $0      $1,306     $44,096
           4        5.6%     $49,005     $44,978      $2,739      $2,514     $44,365          $0      $1,901     $42,464
           5        5.7%     $48,522     $43,313      $2,776      $2,478     $43,291          $0      $2,456     $40,835
           6        5.9%     $47,960     $41,652      $2,812      $2,442     $42,179          $0      $2,969     $39,210
           7        6.0%     $47,317     $39,995      $2,847      $2,406     $41,029          $0      $3,441     $37,588
           8        6.2%     $46,590     $38,340      $2,882      $2,371     $39,838          $0      $3,870     $35,968
           9        6.4%     $45,778     $36,688      $2,916      $2,337     $38,606          $0      $4,255     $34,351
          10        6.6%     $44,877     $35,038      $2,950      $2,303     $37,331          $0      $4,596     $32,734
          11        6.8%     $43,886     $33,389      $2,983      $2,270     $36,011          $0      $4,891     $31,119
          12        7.0%     $42,801     $31,742      $3,016      $2,237     $34,644          $0      $5,140     $29,505
          13        7.3%     $41,619     $30,095      $3,049      $2,205     $33,230          $0      $5,340     $27,890
          14        7.6%     $40,339     $28,448      $3,081      $2,173     $31,767          $0      $5,491     $26,276
          15        8.0%     $38,956     $26,801      $3,112      $2,141     $30,252          $0      $5,592     $24,660
          16        8.4%     $37,469     $25,153      $3,143      $2,110     $28,684          $0      $5,641     $23,043
          17        8.8%     $35,872     $23,504      $3,174      $2,079     $27,062          $0      $5,637     $21,424
          18        9.4%     $34,164     $21,853      $3,204      $2,049     $25,382          $0      $5,578     $19,804
          19       10.0%     $32,341     $20,200      $3,234      $2,020     $23,644          $0      $5,464     $18,180
          20       10.7%     $30,399     $18,544      $3,263      $1,990     $21,845          $0      $5,291     $16,553
          21       11.6%     $28,334     $16,884      $3,292      $1,962     $19,983          $0      $5,060     $14,923
          22       12.7%     $26,143     $15,221      $3,320      $1,933     $18,055          $0      $4,767     $13,288
          23       14.1%     $23,821     $13,554      $3,348      $1,905     $16,061          $0      $4,412     $11,649
          24       15.8%     $21,364     $11,882      $3,376      $1,877     $13,996          $0      $3,992     $10,004
          25       18.1%     $18,768     $10,204      $3,403      $1,850     $11,859          $0      $3,505      $8,354
          26       21.4%     $16,028      $8,521      $3,430      $1,823      $9,648          $0      $2,950      $6,698
          27       26.3%     $13,139      $6,832      $3,456      $1,797      $7,359          $0      $2,324      $5,035
          28       34.5%     $10,098      $5,135      $3,482      $1,771      $4,990          $0      $1,625      $3,364
          29       50.9%      $6,897      $3,432      $3,508      $1,745      $2,538          $0        $852      $1,686
          30      100.0%      $3,533      $1,720      $3,533      $1,720          $0          $0          $0          $0
                                              Total: $93,322  +  $64,276  = $157,598                        
                                                    -$18,664                        
                                                     $74,658  +  $64,276  = $138,934                        
Investor C (uses identical allocations in traditional IRA and Roth IRA):

Code: Select all

                                    Balance                Withdrawal                Stocks                  Bonds    
                   VPW         Trad        Roth        Trad        Roth        Trad        Roth        Trad        Roth    
           1        5.3%     $50,000     $50,000      $2,627      $2,627     $23,687     $23,687     $23,687     $23,687
           2        5.4%     $49,031     $49,031      $2,627      $2,627     $23,202     $23,202     $23,202     $23,202
           3        5.5%     $48,029     $48,029      $2,627      $2,627     $22,701     $22,701     $22,701     $22,701
           4        5.6%     $46,991     $46,991      $2,627      $2,627     $22,182     $22,182     $22,182     $22,182
           5        5.7%     $45,918     $45,918      $2,627      $2,627     $21,645     $21,645     $21,645     $21,645
           6        5.9%     $44,806     $44,806      $2,627      $2,627     $21,090     $21,090     $21,090     $21,090
           7        6.0%     $43,656     $43,656      $2,627      $2,627     $20,515     $20,515     $20,515     $20,515
           8        6.2%     $42,465     $42,465      $2,627      $2,627     $19,919     $19,919     $19,919     $19,919
           9        6.4%     $41,233     $41,233      $2,627      $2,627     $19,303     $19,303     $19,303     $19,303
          10        6.6%     $39,957     $39,957      $2,627      $2,627     $18,665     $18,665     $18,665     $18,665
          11        6.8%     $38,637     $38,637      $2,627      $2,627     $18,005     $18,005     $18,005     $18,005
          12        7.0%     $37,271     $37,271      $2,627      $2,627     $17,322     $17,322     $17,322     $17,322
          13        7.3%     $35,857     $35,857      $2,627      $2,627     $16,615     $16,615     $16,615     $16,615
          14        7.6%     $34,393     $34,393      $2,627      $2,627     $15,883     $15,883     $15,883     $15,883
          15        8.0%     $32,879     $32,879      $2,627      $2,627     $15,126     $15,126     $15,126     $15,126
          16        8.4%     $31,311     $31,311      $2,627      $2,627     $14,342     $14,342     $14,342     $14,342
          17        8.8%     $29,688     $29,688      $2,627      $2,627     $13,531     $13,531     $13,531     $13,531
          18        9.4%     $28,009     $28,009      $2,627      $2,627     $12,691     $12,691     $12,691     $12,691
          19       10.0%     $26,270     $26,270      $2,627      $2,627     $11,822     $11,822     $11,822     $11,822
          20       10.7%     $24,471     $24,471      $2,627      $2,627     $10,922     $10,922     $10,922     $10,922
          21       11.6%     $22,609     $22,609      $2,627      $2,627      $9,991      $9,991      $9,991      $9,991
          22       12.7%     $20,682     $20,682      $2,627      $2,627      $9,028      $9,028      $9,028      $9,028
          23       14.1%     $18,687     $18,687      $2,627      $2,627      $8,030      $8,030      $8,030      $8,030
          24       15.8%     $16,623     $16,623      $2,627      $2,627      $6,998      $6,998      $6,998      $6,998
          25       18.1%     $14,486     $14,486      $2,627      $2,627      $5,930      $5,930      $5,930      $5,930
          26       21.4%     $12,274     $12,274      $2,627      $2,627      $4,824      $4,824      $4,824      $4,824
          27       26.3%      $9,986      $9,986      $2,627      $2,627      $3,679      $3,679      $3,679      $3,679
          28       34.5%      $7,616      $7,616      $2,627      $2,627      $2,495      $2,495      $2,495      $2,495
          29       50.9%      $5,164      $5,164      $2,627      $2,627      $1,269      $1,269      $1,269      $1,269
          30      100.0%      $2,627      $2,627      $2,627      $2,627          $0          $0          $0          $0
                                              Total: $78,799  +  $78,799  = $157,598                        
                                                    -$15,760
                                                     $63,039  +  $78,799  = $141,838                        


AFTER-LOSS SCENARIOS

Initially the portfolio contains $50,000 in stocks and $50,000 in bonds, but stocks lose -50% just before the first withdrawal.

Investor A (prioritizes stocks in Roth IRA):

Code: Select all

                                    Balance                Withdrawal                Stocks                  Bonds    
                   VPW         Trad        Roth        Trad        Roth        Trad        Roth        Trad        Roth    
           1        5.3%     $50,000     $25,000      $2,627      $1,313     $11,843     $23,687     $35,530          $0
           2        5.4%     $48,676     $24,871      $2,608      $1,332     $11,265     $23,539     $34,804          $0
           3        5.5%     $47,328     $24,716      $2,588      $1,352     $10,688     $23,364     $34,052          $0
           4        5.6%     $45,955     $24,532      $2,569      $1,371     $10,113     $23,161     $33,274          $0
           5        5.7%     $44,557     $24,319      $2,549      $1,391      $9,540     $22,928     $32,468          $0
           6        5.9%     $43,135     $24,074      $2,529      $1,411      $8,972     $22,663     $31,635          $0
           7        6.0%     $41,688     $23,796      $2,508      $1,432      $8,408     $22,364     $30,772          $0
           8        6.2%     $40,215     $23,483      $2,487      $1,452      $7,849     $22,030     $29,879          $0
           9        6.4%     $38,718     $23,132      $2,466      $1,474      $7,297     $21,658     $28,955          $0
          10        6.6%     $37,195     $22,741      $2,445      $1,495      $6,752     $21,246     $27,998          $0
          11        6.8%     $35,648     $22,308      $2,423      $1,517      $6,216     $20,792     $27,008          $0
          12        7.0%     $34,075     $21,831      $2,401      $1,539      $5,691     $20,293     $25,983          $0
          13        7.3%     $32,478     $21,307      $2,379      $1,561      $5,176     $19,747     $24,923          $0
          14        7.6%     $30,856     $20,734      $2,356      $1,583      $4,675     $19,151     $23,825          $0
          15        8.0%     $29,210     $20,108      $2,334      $1,606      $4,187     $18,502     $22,689          $0
          16        8.4%     $27,540     $19,427      $2,310      $1,630      $3,716     $17,797     $21,513          $0
          17        8.8%     $25,845     $18,687      $2,287      $1,653      $3,263     $17,034     $20,296          $0
          18        9.4%     $24,128     $17,885      $2,263      $1,677      $2,829     $16,208     $19,037          $0
          19       10.0%     $22,387     $17,018      $2,238      $1,702      $2,416     $15,317     $17,733          $0
          20       10.7%     $20,624     $16,083      $2,214      $1,726      $2,027     $14,356     $16,384          $0
          21       11.6%     $18,840     $15,074      $2,189      $1,751      $1,664     $13,323     $14,987          $0
          22       12.7%     $17,034     $13,989      $2,163      $1,777      $1,329     $12,212     $13,542          $0
          23       14.1%     $15,208     $12,823      $2,138      $1,802      $1,025     $11,021     $12,046          $0
          24       15.8%     $13,362     $11,572      $2,111      $1,829        $754      $9,743     $10,497          $0
          25       18.1%     $11,499     $10,230      $2,085      $1,855        $519      $8,375      $8,895          $0
          26       21.4%      $9,618      $8,794      $2,058      $1,882        $324      $6,912      $7,236          $0
          27       26.3%      $7,720      $7,258      $2,031      $1,909        $170      $5,349      $5,519          $0
          28       34.5%      $5,808      $5,616      $2,003      $1,937         $63      $3,679      $3,742          $0
          29       50.9%      $3,883      $3,863      $1,975      $1,965          $5      $1,898      $1,903          $0
          30      100.0%      $1,947      $1,993      $1,947      $1,993          $0          $0          $0          $0
                                              Total: $69,281  +  $48,917  = $118,199                        
                                                    -$13,856                        
                                                     $55,425  +  $48,917  = $104,342                        
Investor B (prioritizes stocks in traditional IRA):

Code: Select all

                                    Balance                Withdrawal                Stocks                  Bonds    
                   VPW         Trad        Roth        Trad        Roth        Trad        Roth        Trad        Roth    
           1        5.3%     $25,000     $50,000      $1,313      $2,627     $23,687     $11,843          $0     $35,530
           2        5.4%     $24,871     $48,676      $1,332      $2,608     $23,539     $11,265          $0     $34,804
           3        5.5%     $24,716     $47,328      $1,352      $2,588     $23,364     $10,688          $0     $34,052
           4        5.6%     $24,532     $45,955      $1,371      $2,569     $23,161     $10,113          $0     $33,274
           5        5.7%     $24,319     $44,557      $1,391      $2,549     $22,928      $9,540          $0     $32,468
           6        5.9%     $24,074     $43,135      $1,411      $2,529     $22,663      $8,972          $0     $31,635
           7        6.0%     $23,796     $41,688      $1,432      $2,508     $22,364      $8,408          $0     $30,772
           8        6.2%     $23,483     $40,215      $1,452      $2,487     $22,030      $7,849          $0     $29,879
           9        6.4%     $23,132     $38,718      $1,474      $2,466     $21,658      $7,297          $0     $28,955
          10        6.6%     $22,741     $37,195      $1,495      $2,445     $21,246      $6,752          $0     $27,998
          11        6.8%     $22,308     $35,648      $1,517      $2,423     $20,792      $6,216          $0     $27,008
          12        7.0%     $21,831     $34,075      $1,539      $2,401     $20,293      $5,691          $0     $25,983
          13        7.3%     $21,307     $32,478      $1,561      $2,379     $19,747      $5,176          $0     $24,923
          14        7.6%     $20,734     $30,856      $1,583      $2,356     $19,151      $4,675          $0     $23,825
          15        8.0%     $20,108     $29,210      $1,606      $2,334     $18,502      $4,187          $0     $22,689
          16        8.4%     $19,427     $27,540      $1,630      $2,310     $17,797      $3,716          $0     $21,513
          17        8.8%     $18,687     $25,845      $1,653      $2,287     $17,034      $3,263          $0     $20,296
          18        9.4%     $17,885     $24,128      $1,677      $2,263     $16,208      $2,829          $0     $19,037
          19       10.0%     $17,018     $22,387      $1,702      $2,238     $15,317      $2,416          $0     $17,733
          20       10.7%     $16,083     $20,624      $1,726      $2,214     $14,356      $2,027          $0     $16,384
          21       11.6%     $15,074     $18,840      $1,751      $2,189     $13,323      $1,664          $0     $14,987
          22       12.7%     $13,989     $17,034      $1,777      $2,163     $12,212      $1,329          $0     $13,542
          23       14.1%     $12,823     $15,208      $1,802      $2,138     $11,021      $1,025          $0     $12,046
          24       15.8%     $11,572     $13,362      $1,829      $2,111      $9,743        $754          $0     $10,497
          25       18.1%     $10,230     $11,499      $1,855      $2,085      $8,375        $519          $0      $8,895
          26       21.4%      $8,794      $9,618      $1,882      $2,058      $6,912        $324          $0      $7,236
          27       26.3%      $7,258      $7,720      $1,909      $2,031      $5,349        $170          $0      $5,519
          28       34.5%      $5,616      $5,808      $1,937      $2,003      $3,679         $63          $0      $3,742
          29       50.9%      $3,863      $3,883      $1,965      $1,975      $1,898          $5          $0      $1,903
          30      100.0%      $1,993      $1,947      $1,993      $1,947          $0          $0          $0          $0
                                              Total: $48,917  +  $69,281  = $118,199                        
                                                     -$9,783                        
                                                     $39,134  +  $69,281  = $108,415                        
Investor C (uses identical allocations in traditional IRA and Roth IRA):

Code: Select all

                                    Balance                Withdrawal                Stocks                  Bonds    
                   VPW         Trad        Roth        Trad        Roth        Trad        Roth        Trad        Roth    
           1        5.3%     $37,500     $37,500      $1,970      $1,970     $17,765     $17,765     $17,765     $17,765
           2        5.4%     $36,774     $36,774      $1,970      $1,970     $17,402     $17,402     $17,402     $17,402
           3        5.5%     $36,022     $36,022      $1,970      $1,970     $17,026     $17,026     $17,026     $17,026
           4        5.6%     $35,244     $35,244      $1,970      $1,970     $16,637     $16,637     $16,637     $16,637
           5        5.7%     $34,438     $34,438      $1,970      $1,970     $16,234     $16,234     $16,234     $16,234
           6        5.9%     $33,605     $33,605      $1,970      $1,970     $15,817     $15,817     $15,817     $15,817
           7        6.0%     $32,742     $32,742      $1,970      $1,970     $15,386     $15,386     $15,386     $15,386
           8        6.2%     $31,849     $31,849      $1,970      $1,970     $14,939     $14,939     $14,939     $14,939
           9        6.4%     $30,925     $30,925      $1,970      $1,970     $14,477     $14,477     $14,477     $14,477
          10        6.6%     $29,968     $29,968      $1,970      $1,970     $13,999     $13,999     $13,999     $13,999
          11        6.8%     $28,978     $28,978      $1,970      $1,970     $13,504     $13,504     $13,504     $13,504
          12        7.0%     $27,953     $27,953      $1,970      $1,970     $12,992     $12,992     $12,992     $12,992
          13        7.3%     $26,893     $26,893      $1,970      $1,970     $12,461     $12,461     $12,461     $12,461
          14        7.6%     $25,795     $25,795      $1,970      $1,970     $11,913     $11,913     $11,913     $11,913
          15        8.0%     $24,659     $24,659      $1,970      $1,970     $11,345     $11,345     $11,345     $11,345
          16        8.4%     $23,483     $23,483      $1,970      $1,970     $10,757     $10,757     $10,757     $10,757
          17        8.8%     $22,266     $22,266      $1,970      $1,970     $10,148     $10,148     $10,148     $10,148
          18        9.4%     $21,007     $21,007      $1,970      $1,970      $9,518      $9,518      $9,518      $9,518
          19       10.0%     $19,703     $19,703      $1,970      $1,970      $8,866      $8,866      $8,866      $8,866
          20       10.7%     $18,353     $18,353      $1,970      $1,970      $8,192      $8,192      $8,192      $8,192
          21       11.6%     $16,957     $16,957      $1,970      $1,970      $7,493      $7,493      $7,493      $7,493
          22       12.7%     $15,512     $15,512      $1,970      $1,970      $6,771      $6,771      $6,771      $6,771
          23       14.1%     $14,015     $14,015      $1,970      $1,970      $6,023      $6,023      $6,023      $6,023
          24       15.8%     $12,467     $12,467      $1,970      $1,970      $5,249      $5,249      $5,249      $5,249
          25       18.1%     $10,865     $10,865      $1,970      $1,970      $4,447      $4,447      $4,447      $4,447
          26       21.4%      $9,206      $9,206      $1,970      $1,970      $3,618      $3,618      $3,618      $3,618
          27       26.3%      $7,489      $7,489      $1,970      $1,970      $2,760      $2,760      $2,760      $2,760
          28       34.5%      $5,712      $5,712      $1,970      $1,970      $1,871      $1,871      $1,871      $1,871
          29       50.9%      $3,873      $3,873      $1,970      $1,970        $952        $952        $952        $952
          30      100.0%      $1,970      $1,970      $1,970      $1,970          $0          $0          $0          $0
                                              Total: $59,099  +  $59,099  = $118,199                        
                                                    -$11,820                        
                                                     $47,279  +  $59,099  = $106,379                        
Last edited by longinvest on Sun Mar 13, 2022 12:50 pm, edited 1 time in total.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)
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