The One-Fund Portfolio as a default suggestion

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

Post by longinvest » Sun Apr 26, 2020 12:54 pm

yogesh wrote:
Sun Apr 26, 2020 12:48 pm
Depends how you read it; it's single allocation fund. Due to high tax bracket I can't keep taxable bonds in taxable.
This assumes that taxable bonds and tax-exempt bonds have the same before-tax risks and returns. This assumption doesn't hold in real life. There's a lot of uncertainty about the "best" asset allocation and the "best" asset location strategy. In fact, the best strategies can only be known after the fact, once the retiree is dead. The Vanguard Tax-Managed Balanced Fund would also concentrates the taxable portfolio into US-only assets.

I've provided many arguments, in this thread, supporting the idea that using a single identical globally-diversified all-in-one index fund (LifeStrategy fund, Core Allocation ETF, or Target Retirement fund) in all accounts is good enough. This is what this thread is about.
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yogesh
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Re: The One-Fund Portfolio as a default suggestion

Post by yogesh » Sun Apr 26, 2020 1:13 pm

longinvest wrote:
Sun Apr 26, 2020 12:54 pm
yogesh wrote:
Sun Apr 26, 2020 12:48 pm
Depends how you read it; it's single allocation fund. Due to high tax bracket I can't keep taxable bonds in taxable.
This assumes that taxable bonds have the same before-taxes risks and returns as tax-exempt bonds. This assumption doesn't hold in real life. There's a lot of uncertainty about the "best" asset allocation and the "best" asset location strategy. In fact, the best strategies can only be known after the fact, once the retiree is dead. The Vanguard Tax-Managed Balanced Fund would also concentrates the taxable portfolio into US-only assets.

I've provided many arguments, in this thread, supporting the idea that using a single identical globally-diversified all-in-one index fund (LifeStrategy fund, Core Allocation ETF, or Target Retirement fund) in all accounts is good enough. This is what this thread is about.
So you suggest someone at 37% tax rate to hold LifeStrategy/TargetRetirement in taxable?
Agree with you in lower tax brackets this "good enough" simplification of single allocation fund throughout.
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

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

Post by longinvest » Sun Apr 26, 2020 1:44 pm

yogesh wrote:
Sun Apr 26, 2020 1:13 pm
So you suggest someone at 37% tax rate to hold LifeStrategy/TargetRetirement in taxable?
Or an iShares Core Allocation ETF. It would be neat if LifeStrategy and Target Retirement funds were offered as ETFs too.

It's forum member Cut-Throat (famous for his Delay Social Security to age 70 and Spend more money at 62 post) who introduced me to the concept of a One-Fund Portfolio which he adopted many years ago, putting all of his money into Vanguard's Target Retirement Income Fund (VTINX 30/70 stock/bond), including in his sizeable taxable account. He's been enjoying retirement with that fund, without having to worry about his portfolio. The fund provides broad diversification and requires no rebalancing.

You could search recent forum threads about tax-exempt bonds. Apparently, they had their own risks which differed from those of Vanguard's Total Bond Market and Total International Bond Market funds during the recent downturn.
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jocdoc
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Re: The One-Fund Portfolio as a default suggestion

Post by jocdoc » Sun Apr 26, 2020 5:27 pm

Longinvest:
Would you consider a roboadvisor such as betterment or vanguard digital advisor with a mirrored allocation of stock and bonds be a better choice than say a life strategy fund in that they are using "more tax aware strategies." M1 will rebalance with new contributions. Vanguard has a digital robo service using the same funds as the life strategy fund and a total expense ratio of 0.2% including the cost ER expense of the underlying etfs.

I understand the roboadvisors are not a one fund: but the goal of: mirrored allocation across all accounts and set and forget philosophy are there.
JC

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

Post by longinvest » Sun Apr 26, 2020 6:57 pm

jocdoc wrote:
Sun Apr 26, 2020 5:27 pm
Longinvest:
Would you consider a roboadvisor such as betterment or vanguard digital advisor with a mirrored allocation of stock and bonds be a better choice than say a life strategy fund in that they are using "more tax aware strategies." M1 will rebalance with new contributions. Vanguard has a digital robo service using the same funds as the life strategy fund and a total expense ratio of 0.2% including the cost ER expense of the underlying etfs.

I understand the roboadvisors are not a one fund: but the goal of: mirrored allocation across all accounts and set and forget philosophy are there.
JC
An all-in-one fund or ETF rebalances with the cash flows of other investors. This is very tax and cost efficient.

A good way to think about it is to consider the difference between Vanguard's total stock market fund (VTWAX) and managing a personal 3,535 stock portfolio trying to extract greater tax and cost efficiency than VTWAX. In the case of VSMGX, there's only 4 distinct components, instead of 3,535, but the idea remains the same. These funds are professionally managed by experts who know how to (among other things) use derivatives over short periods of time, when necessary to avoid market impact when buying or selling securities, and use many other advanced techniques to keep costs low and closely track their index.

All-in-one funds and (especially) ETFs, are also usually portable to other brokers. I'd worry about being locked with a specific roboadviser who might increase its fees in the future. That's actually one thing that keeps giving Vanguard's funds a big advantage, when planning to hold a fund for life.
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CDub
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Re: The One-Fund Portfolio as a default suggestion

Post by CDub » Sun Apr 26, 2020 7:06 pm

jocdoc wrote:
Sun Apr 26, 2020 5:27 pm
Longinvest:
Would you consider a roboadvisor such as betterment or vanguard digital advisor with a mirrored allocation of stock and bonds be a better choice than say a life strategy fund in that they are using "more tax aware strategies." M1 will rebalance with new contributions. Vanguard has a digital robo service using the same funds as the life strategy fund and a total expense ratio of 0.2% including the cost ER expense of the underlying etfs.

I understand the roboadvisors are not a one fund: but the goal of: mirrored allocation across all accounts and set and forget philosophy are there.
JC
I hadn’t heard of Vanguards digital robo service. Just checked it out. Really interesting since they say they intend for the fees to be 0.15% net of even the underlying fund expenses.

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

Post by linter » Tue May 19, 2020 9:22 pm

Hi, Longinvest:

Is there any reason, other than a constitutional bias in favor of index funds, that VWINX wouldn't work in the VPW world? I'm 65 and struggling to find a way to structure my assets for retirement. I myself have a (perhaps misguided) bias against index funds, hence my question about VWINX.

I'm 65 and very risk adverse. VSMGX is too aggressive for my weak knees. And most of the other less dicey funds, like VTINX, AOK, VSCGX and VASIX, just seem to always get outperformed and outclassed by VWINX.

Thoughts?

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

Post by longinvest » Wed May 20, 2020 6:50 am

linter wrote:
Tue May 19, 2020 9:22 pm
I'm 65 and struggling to find a way to structure my assets for retirement.
Linter,

I see that you have already created a thread in the Personal Investments forum to get help with your personal portfolio. I have replied to your VPW question in this post of your personal portfolio thread and I invited other members to help you select the most appropriate portfolio for you based on your own personal circumstances and beliefs.

This thread is of a general nature. It's about using a good-enough portfolio composed of a single identical globally-diversified all-in-one index fund (LifeStrategy fund, Core Allocation ETF, or Target Retirement fund) in all accounts.

This thread isn't about concentrated funds that outperformed in the past. The Vanguard Wellesley Income Fund Investor Shares (VWINX) doesn't qualify for this thread; it's an active fund which allocates about one-third to stocks and two-thirds to bonds. As of April 30, 2020, it only holds 65 US stocks and 1,169 US bonds. There are many other threads to discuss it.

As I wrote, this thread is about good-enough portfolios. The Vanguard LifeStrategy Conservative Growth Fund (VSCGX) is a low-cost 40/60 stock/bond index fund which holds 10,981 global stocks and 15,573 global bonds as of April 30, 2020. Such a broadly-diversified fund will deliver average returns every single year. As a result, it will never be the worst-performing 40/60 stock/bond fund. It's an excellent fund to reliably get good-enough returns.
Last edited by longinvest on Wed May 20, 2020 7:37 am, edited 5 times in total.
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KEotSK66
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Re: The One-Fund Portfolio as a default suggestion

Post by KEotSK66 » Wed May 20, 2020 7:05 am

linter wrote:
Tue May 19, 2020 9:22 pm
Hi, Longinvest:

Is there any reason, other than a constitutional bias in favor of index funds, that VWINX wouldn't work in the VPW world? I'm 65 and struggling to find a way to structure my assets for retirement. I myself have a (perhaps misguided) bias against index funds, hence my question about VWINX.

I'm 65 and very risk adverse. VSMGX is too aggressive for my weak knees. And most of the other less dicey funds, like VTINX, AOK, VSCGX and VASIX, just seem to always get outperformed and outclassed by VWINX.

Thoughts?
hi linter,

there's a thread on vwinx over on the personal investments forum
"i just got fluctuated out of $1,500", jerry

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

Post by linter » Wed May 20, 2020 7:45 am

(okay, thanks, all. didn't mean to dilute this thread. please delete my original post, if you can, and this one as well.)

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

Post by longinvest » Wed May 20, 2020 8:04 am

linter wrote:
Wed May 20, 2020 7:45 am
(okay, thanks, all. didn't mean to dilute this thread. please delete my original post, if you can, and this one as well.)
You're welcome. There's no need to remove your post. On the contrary, my reply might help direct other members to your personal portfolio thread to help you.
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Ysiegel
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Re: The One-Fund Portfolio as a default suggestion

Post by Ysiegel » Sat Jun 06, 2020 9:04 am

Good morning,

I just retired and would like to convert my $922,000 Traditional IRA to the Roth IRA over some long period of time.

I am planing to convert about $30,000 a year and use cash to pay for it.

I do not anticipate using this money for my retirement and planing to leave it to my two children.

That is why I think converting to ROTH makes sense.

Since I am not an investor and have difficulty finding financial advisor I was thinking to start with Target Retirement fund, thinking maybe 2045.

My children's ages are 33 and 40.

Any suggestions on both financial advisor and allocation greatly appreciated.

Thanks

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

Post by longinvest » Sat Jun 06, 2020 9:15 am

Ysiegel wrote:
Sat Jun 06, 2020 9:04 am
Good morning,
[...]
Any suggestions on both financial advisor and allocation greatly appreciated.
Ysiegel, this thread is of a general nature and is located in the Investing - Theory, News & General forum. It's an inappropriate place for helping with personal investments questions.

I suggest to submit your questions in the thread you've already created in the Personal Investments forum. It's important to follow the guidelines outlined in this post to help forum members help you.
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Amadis_of_Gaul
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Re: The One-Fund Portfolio as a default suggestion

Post by Amadis_of_Gaul » Sat Jun 06, 2020 1:13 pm

I switched to a one-fund portfolio in early February, right before the coronavirus turbulence began. The decision gave me great peace of mind through a great deal of volatility. I was not tempted to tinker or rebalance; instead, I waited as my investments did what they were going to do. The experience has left me with even more agnosticism about the future direction of the markets and a great deal of faith in one-fund portfolios. They protect my life savings from my worst enemy--me.

Thanks, longinvest!

Triple digit golfer
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Re: The One-Fund Portfolio as a default suggestion

Post by Triple digit golfer » Sun Jul 05, 2020 5:03 pm

I would consider switching to a one fund portfolio in all accounts, but I have taxable gains in my taxable account. No really good way to do it that doesn't involve selling and wiping out all of my March losses that I locked in plus $30k in additional gains.

I'm assuming there's no way I can get this done besides taking the large gains.

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

Post by longinvest » Mon Jul 06, 2020 7:20 am

Triple digit golfer wrote:
Sun Jul 05, 2020 5:03 pm
I would consider switching to a one fund portfolio in all accounts, but I have taxable gains in my taxable account. No really good way to do it that doesn't involve selling and wiping out all of my March losses that I locked in plus $30k in additional gains.

I'm assuming there's no way I can get this done besides taking the large gains.
Here's what I would probably do. I would estimate the amount of tax I'd owe on a realized $30K capital gain and calculate its ratio to my overall portfolio balance. Let's say, for example, that I'd owe 1% of my portfolio in taxes, I could more-or-less reduce this to a more palatable annual 0.1% cost by spreading the switch over a 10 year period. In the first year, 1/10 of taxable investments would be switched to the selected all-in-one fund. In the second year, 1/9 of the remaining would be switched. In the third year 1/8 would be switched, and so on.

Or, I might just wait long enough for the capital gain to be considered long-term, switch the entire taxable account in one shot, pay the taxes, and be done with it.
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Triple digit golfer
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Re: The One-Fund Portfolio as a default suggestion

Post by Triple digit golfer » Mon Jul 06, 2020 2:58 pm

longinvest wrote:
Mon Jul 06, 2020 7:20 am
Triple digit golfer wrote:
Sun Jul 05, 2020 5:03 pm
I would consider switching to a one fund portfolio in all accounts, but I have taxable gains in my taxable account. No really good way to do it that doesn't involve selling and wiping out all of my March losses that I locked in plus $30k in additional gains.

I'm assuming there's no way I can get this done besides taking the large gains.
Here's what I would probably do. I would estimate the amount of tax I'd owe on a realized $30K capital gain and calculate its ratio to my overall portfolio balance. Let's say, for example, that I'd owe 1% of my portfolio in taxes, I could more-or-less reduce this to a more palatable annual 0.1% cost by spreading the switch over a 10 year period. In the first year, 1/10 of taxable investments would be switched to the selected all-in-one fund. In the second year, 1/9 of the remaining would be switched. In the third year 1/8 would be switched, and so on.

Or, I might just wait long enough for the capital gain to be considered long-term, switch the entire taxable account in one shot, pay the taxes, and be done with it.
Good thoughts, thank you. My gain is currently around $50k, which is 6.3% of our current portfolio. Ouch.

It would be partially offset by our $24k loss, but still, even $26k is 3.3% of our portfolio.

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

Post by longinvest » Mon Jul 06, 2020 3:03 pm

Triple digit golfer wrote:
Mon Jul 06, 2020 2:58 pm
longinvest wrote:
Mon Jul 06, 2020 7:20 am
Triple digit golfer wrote:
Sun Jul 05, 2020 5:03 pm
I would consider switching to a one fund portfolio in all accounts, but I have taxable gains in my taxable account. No really good way to do it that doesn't involve selling and wiping out all of my March losses that I locked in plus $30k in additional gains.

I'm assuming there's no way I can get this done besides taking the large gains.
Here's what I would probably do. I would estimate the amount of tax I'd owe on a realized $30K capital gain and calculate its ratio to my overall portfolio balance. Let's say, for example, that I'd owe 1% of my portfolio in taxes, I could more-or-less reduce this to a more palatable annual 0.1% cost by spreading the switch over a 10 year period. In the first year, 1/10 of taxable investments would be switched to the selected all-in-one fund. In the second year, 1/9 of the remaining would be switched. In the third year 1/8 would be switched, and so on.

Or, I might just wait long enough for the capital gain to be considered long-term, switch the entire taxable account in one shot, pay the taxes, and be done with it.
Good thoughts, thank you. My gain is currently around $50k, which is 6.3% of our current portfolio. Ouch.

It would be partially offset by our $24k loss, but still, even $26k is 3.3% of our portfolio.
The useful number is the amount of tax due on the gain, not the amount of the gain. If the tax rate is 15% and the gain is $26K, this results into a $3,900 tax bill, or 0.5% of the portfolio.
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Triple digit golfer
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Re: The One-Fund Portfolio as a default suggestion

Post by Triple digit golfer » Mon Jul 06, 2020 3:09 pm

longinvest wrote:
Mon Jul 06, 2020 3:03 pm
Triple digit golfer wrote:
Mon Jul 06, 2020 2:58 pm
longinvest wrote:
Mon Jul 06, 2020 7:20 am
Triple digit golfer wrote:
Sun Jul 05, 2020 5:03 pm
I would consider switching to a one fund portfolio in all accounts, but I have taxable gains in my taxable account. No really good way to do it that doesn't involve selling and wiping out all of my March losses that I locked in plus $30k in additional gains.

I'm assuming there's no way I can get this done besides taking the large gains.
Here's what I would probably do. I would estimate the amount of tax I'd owe on a realized $30K capital gain and calculate its ratio to my overall portfolio balance. Let's say, for example, that I'd owe 1% of my portfolio in taxes, I could more-or-less reduce this to a more palatable annual 0.1% cost by spreading the switch over a 10 year period. In the first year, 1/10 of taxable investments would be switched to the selected all-in-one fund. In the second year, 1/9 of the remaining would be switched. In the third year 1/8 would be switched, and so on.

Or, I might just wait long enough for the capital gain to be considered long-term, switch the entire taxable account in one shot, pay the taxes, and be done with it.
Good thoughts, thank you. My gain is currently around $50k, which is 6.3% of our current portfolio. Ouch.

It would be partially offset by our $24k loss, but still, even $26k is 3.3% of our portfolio.
The useful number is the amount of tax due on the gain, not the amount of the gain. If the tax rate is 15% and the gain is $26K, this results into a $3,900 tax bill, or 0.5% of the portfolio.
Ah, duh. Doing too many things at once here while I work.

Well, the total gain would be $26k and it would all be short-term, so 22% plus 4.95% state = 26.95% = $7k.

However, I am giving up $24k in losses against ordinary income in future years, so that adds around $6.5k to it. Essentially it would cost me $13.5k, which is 26.95% of $50k.

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

Post by longinvest » Mon Jul 06, 2020 3:11 pm

Triple digit golfer wrote:
Mon Jul 06, 2020 3:09 pm
Well, the total gain would be $26k and it would all be short-term, so 22% plus 4.95% state = 26.95% = $7k.
$7K would be a little less than 1% of the portfolio. It can be transformed into a long-term gain by simply waiting a few months and possibly save on taxes (or not)* as a result.
* If gains increase during the waiting period, there's a possibility to end up owing even more taxes. “It's tough to make predictions, especially about the future.” ― Yogi Berra
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bck63
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Re: The One-Fund Portfolio as a default suggestion

Post by bck63 » Mon Jul 06, 2020 6:00 pm

longinvest wrote:
Sun Apr 26, 2020 6:57 pm
An all-in-one fund or ETF rebalances with the cash flows of other investors. This is very tax and cost efficient.
I am becoming increasingly convinced that a one-fund portfolio is useful, at least for part of my portfolio. I may go all the way. I recently placed most of my cash in the Vanguard LifeStrategy Income Fund (VASIX). I just didn't see the need to have the cash sitting around, and VASIX will maintain a 20/80 allocation.

I may end up just calling it a day and putting everything in a LifeStrategy fund.

Thanks for what you do.

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