Buffett 90/10 Portfolio vs Target Retirement

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
BlackHat
Posts: 34
Joined: Tue Feb 14, 2017 1:47 pm

Buffett 90/10 Portfolio vs Target Retirement

Post by BlackHat » Mon Nov 13, 2017 4:39 pm

Hello Bogleheads,

So currently I have 90% of my assets in the S&P 500 and 10% in cash. For some reason this is making me nervous. Something about not having international diversification makes me uneasy. At the same time though Warren Buffett and Jack Bogle are great and accomplished people who recommend a US only portfolio. I feel as though being an American, the patriotic thing to do would be to invest and believe in the US economy. The place that raised me and provided me with the opportunity to invest. Warren and Jack are my idols and figures I look up to. I am a one fund kind of guy so my choice is S&P 500 or Target Retirement.

Can I have some help deciding?

Thank you, BlackHat
“Life is really simple, but we insist on making it complicated.” -- Confucius

retiredjg
Posts: 30602
Joined: Thu Jan 10, 2008 12:56 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by retiredjg » Mon Nov 13, 2017 4:42 pm

Depends on what kind of account you are putting the money in. If it is in 401k or IRA or Roth IRA, I'd use the target fund for more diversification. If in taxable and you are or every will be in a tax bracket higher than 15% (bracket, not marginal rate), I'd use the 500 Index.

RadAudit
Posts: 2636
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by RadAudit » Mon Nov 13, 2017 4:49 pm

I don't considerate it to be unpatriotic to the USA or disrespectful to Mr. Bogle to have a diversified portfolio. Go with a target retirement fund.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

MotoTrojan
Posts: 798
Joined: Wed Feb 01, 2017 8:39 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by MotoTrojan » Mon Nov 13, 2017 4:51 pm

Why limit yourself to one fund? As your portfolio gets bigger, and/or you want to shift towards more "cash", you will start to take some serious drag (losses really) by just holding the cash portion in your money-market.

A 3-fund portfolio, or Target Retirement/Lifestrategy type fund (especially in tax-advantaged, as mentioned above) is not difficult and will payoff.

If you want to hold one fund though, I'd go Total US over the S&P 500.

Or perhaps, Total World (VT ETF at Vanguard)?

heyyou
Posts: 2741
Joined: Tue Feb 20, 2007 4:58 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by heyyou » Mon Nov 13, 2017 8:11 pm

Buffett is donating his BRK stock to the Gates Foundation when he dies. His wife is getting his cash which is $100+ million and he has advised her trustees to invest it 90/10 in the 500 index and cash/bonds. Just the dividends from the $100 million will support her. Unless you have millions invested, the 90/10 allocation is very risky.

When Bogle (born 1929) and Buffet (born 1930) came of age, foreign investing was very risky due to lack of oversight, low bookkeeping standards, costs, etc. Now, those problem areas have been improved and we have the Japanese example of the risk of solely investing in only your own country's economy. For Bogle to diversify, his cap gains tax on shares owned for 40-50 years would be very expensive. Unless you are in your late 80s, consider some international stock exposure.

Yes, many US based companies have large foreign revenues, but their stock prices track with domestic only competitors so their stocks behave like domestic stocks.

dbr
Posts: 23722
Joined: Sun Mar 04, 2007 9:50 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by dbr » Mon Nov 13, 2017 8:56 pm

Invest some of your money in international so you can stop worrying. Do it because I told you to and I am a guy on the internet.

If patriotism and admiration for Buffett and Bogle holds you back then so be it and also stop worrying.

If you want to get into nitty gritty the thing I would worry about is having so much risk in stocks at 90%.

aerenthal
Posts: 2
Joined: Wed Nov 08, 2017 8:51 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by aerenthal » Mon Nov 13, 2017 10:54 pm

Without a massive Bogle/Buffet-like net worth that for all intents and purposes guarantees you'll be fine in almost any scenario, sticking to a portfolio with only 500 US companies is way too risky and, at least as I understand it, definitely not the Boglehead way. You're betting your future on a single market, ignoring 50%+ of the world's economy, and giving up any sort of diversification benefits by way of non-correlated assets. That doesn't sound like a passive portfolio you'd expect a Boglehead to recommend. You're also taking on more risk than necessary, with no commensurate increase in expected return.

If you don't want to deal with multiple funds, understand your risk profile and pick an appropriate Target Retirement or a LifeStrategy-like fund. You'll feel much better.

venkman
Posts: 297
Joined: Tue Mar 14, 2017 10:33 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by venkman » Mon Nov 13, 2017 11:14 pm

BlackHat wrote:
Mon Nov 13, 2017 4:39 pm
So currently I have 90% of my assets in the S&P 500 and 10% in cash. For some reason this is making me nervous. Something about not having international diversification makes me uneasy. At the same time though Warren Buffett and Jack Bogle are great and accomplished people who recommend a US only portfolio. I feel as though being an American, the patriotic thing to do would be to invest and believe in the US economy. The place that raised me and provided me with the opportunity to invest. Warren and Jack are my idols and figures I look up to. I am a one fund kind of guy so my choice is S&P 500 or Target Retirement.
Apple, which makes up about 3% of the S&P 500, currently has about $250 billion stashed overseas that it refuses to bring back into the US, because it doesn't want to pay taxes on that money. Note that I am NOT making any moral and/or business judgments about that decision. I'm just saying that American companies in general care about making money first; being patriotic is lower down on their list of priorities. It's perfectly okay for you to do the same when it comes to your investments.

User avatar
eye.surgeon
Posts: 67
Joined: Wed Apr 05, 2017 1:19 pm
Location: California

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by eye.surgeon » Tue Nov 14, 2017 1:04 am

Keep in mind you have plenty of international exposure holding 90% in S&P 500 since much of the profits of those companies you own is international.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

Stormbringer
Posts: 345
Joined: Sun Jun 14, 2015 7:07 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by Stormbringer » Tue Nov 14, 2017 1:19 am

eye.surgeon wrote:
Tue Nov 14, 2017 1:04 am
Keep in mind you have plenty of international exposure holding 90% in S&P 500 since much of the profits of those companies you own is international.
Similarly, owning foreign multinationals (Toyota, Samsung, Sony, etc.) provides some exposure to the United States.
"Compound interest is the most powerful force in the universe." - Albert Einstein

User avatar
stemikger
Posts: 4560
Joined: Thu Apr 08, 2010 5:02 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by stemikger » Tue Nov 14, 2017 1:20 am

eye.surgeon wrote:
Tue Nov 14, 2017 1:04 am
Keep in mind you have plenty of international exposure holding 90% in S&P 500 since much of the profits of those companies you own is international.
Posted by Blackhat
Something about not having international diversification makes me uneasy
Although I'm in total agreement with eye.surgeon and I myself do not hold international directly, I think you answered your own question. If you are uneasy about not holding it, hold some. Mr. Bogle has always added if you must add it add no more than 20%. I feel the opposite about international. Adding it makes me uneasy, so I don't hold it and I haven't held it for 23 years now. I feel holding the S&P 500 Index or the Total Market Index gives you plenty of international exposure. Having said that, most bogleheads disagree with Mr. Bogle when it comes to this issue. In the long term, I don't think it will matter much.

I suggest you read Common Sense on Mutual Funds. Mr. Bogle dedicates a very well thought-out chapter about why it is not necessary. It is the best case I have read for not adding it.

If you decide to add it, the Target Retirement Fund is a fine choice.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

Ari
Posts: 446
Joined: Sat May 23, 2015 6:59 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by Ari » Tue Nov 14, 2017 1:31 am

Total World seems like a good fund to hold for the OP. It adheres to Boglehead principles better than Bogle and Buffet do, and it's still massively overweighted in the US (USA is less than a quarter of the world economy, but is 50% of publicly traded companies).

US-only funds and non-US funds diverge a lot. Just now, the US is very highly valued whereas most of the rest of the world isn't. That makes it obvious that any argument as to how the S&P500 earns its revenues overseas is irrelevant. The indices can and do diverge a lot.
All in, all the time.

User avatar
JoMoney
Posts: 4400
Joined: Tue Jul 23, 2013 5:31 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by JoMoney » Tue Nov 14, 2017 1:31 am

I don't think anyone else can tell you what amount of exposure to what risks is right for you. You'll need to carefully consider it and come up with something you can sleep with.

I'm quite comfortable with having the bulk of my investments in S&P500 index funds. I wouldn't lose sleep over the small-caps etc.. in the Total Market fund, it's really not that much different... Personally, I might toss and turn holding anything more than a trivial amount of foreign stocks though. Nothing to do with "Patriotism" as someone above alluded to (I actually think a lot of these multi-national companies do a lot of very un-patriotic things)... It's more a matter of subject to whose rule of law, ownership, accountability, capital controls, and potential sovereign issues that I just don't think are necessary for a U.S. person to get into when building a reasonably diversified portfolio.
As already mentioned, there's enough "international" exposure already in the multi-national companies you'll find in a broad-market U.S. index fund... but look at it and come to you're own conclusions.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
oldcomputerguy
Posts: 1991
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by oldcomputerguy » Tue Nov 14, 2017 7:07 am

BlackHat wrote:
Mon Nov 13, 2017 4:39 pm
So currently I have 90% of my assets in the S&P 500 and 10% in cash.
Wow. That's way more risk than I ever was comfortable carrying. Are you prepared to see about 40-45% (or maybe more) of your total holdings vanish in the next bear market?
Something about not having international diversification makes me uneasy. At the same time though Warren Buffett and Jack Bogle are great and accomplished people who recommend a US only portfolio.
Mr. Bogle discusses aspects of international investing in his book "Bogle on Mutual Funds". He concludes that international investing, while possibly providing additional diversification, also suffers from currency risk, and that an investor's international holdings should be limited to no more than 20% of one's equity holdings. I don't believe he ever comes out and says that one should not invest internationally. He is "skeptical" (to quote him) about international investing, though, so if you want to follow his advice and don't want to invest internationally, then don't.
I feel as though being an American, the patriotic thing to do would be to invest and believe in the US economy. The place that raised me and provided me with the opportunity to invest.
That is purely an emotional argument, and so is to my way of thinking suspect. Investing based on emotions rather than logic and common sense is dangerous. But if you feel that strongly about it, and more importantly can stay the course, I'd say stay with domestic. BUT, if that is how you feel, you should convince yourself that you are right, so you won't be making picky little changes to your portfolio depending on your mood at the moment. That's a sure path to destroying any gains you get from your investments.
Anybody know why there's a 20-pound frozen turkey up in the light grid?

User avatar
digarei
Posts: 666
Joined: Sat Jul 05, 2014 1:41 am
Location: Sacramento
Contact:

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by digarei » Tue Nov 14, 2017 7:43 am

oldcomputerguy wrote:That is purely an emotional argument, and so is to my way of thinking suspect. Investing based on emotions rather than logic and common sense is dangerous. But if you feel that strongly about it, and more importantly can stay the course, I'd say stay with domestic. BUT, if that is how you feel, you should convince yourself that you are right, so you won't be making picky little changes to your portfolio depending on your mood at the moment. That's a sure path to destroying any gains you get from your investments.
I generally agree with oldcomputerguy but I don’t think that this is an either/or proposition.

My asset allocation was 95/5 or 90/10 for more than a decade but my need to take this level of risk was great (I was a late starter with an interest in dramatic gains) and was somewhat immune to a market decline or crash (because of a sufficient income floor). A year before retirement, I moved to 80/20...

Of course, there are any number of variables that would make 90/10 a perfect allocation for you, or a foolish one: Your age, years from retirement, ability to withstand an extended bear market, job security, other income, etc. But you’re wise, I think, to listen to your gut after working through other factors and doing a few calculations. The more you learn, the smarter your decisions will be. And with these decisions, a greater comfort level.

  • The best decisions

    are informed gut reactions:

    The heart informs the mind.



* source: digarei
Connect with Bogleheads in Northern California! Click the link under my user info/avatar.

hulburt1
Posts: 245
Joined: Tue Jul 15, 2014 9:17 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by hulburt1 » Tue Nov 14, 2017 7:58 am

We are 95% and 5% cash..I'm up 32% this year. We are retired and live on 70000 a years. We made $400000 this year. Its what you spend. If I lost everything I would still be able to live on my small pension and SS at 70. Never made more then $80000 a years. but have 2.3m. I will move more into cash as I get older. I'm in SP, Total stock, Heath care and prim cape. I did buy 4000 shares of face book at $50. I still do not know why, gut feeling.
I'm 64

Dandy
Posts: 4772
Joined: Sun Apr 25, 2010 7:42 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by Dandy » Tue Nov 14, 2017 8:43 am

First of all I hope your 90/10 allocation has nothing to do with Bogle or Buffet. Buffet set up this allocation for his spouse who should never need financial concerns even if the equity portion dropped 70%. You pick the overall allocation based on your assets, expenses and risk tolerance.

Second - Most people feel at least some modest allocation to international equities is a good idea. Make your decision based on how you think any balance of domestic vs international exposure fits your risk tolerance not due to pride/loyalty/patriotism/gratitude or other "feelings". The only exception that I feel might be warranted is a fund that invests in socially responsible companies.

I underweight international now that I am almost 70. I would have a higher allocation if I were in the accumulation stage. Over the longer term it would seem that the US might not be guaranteed to be the largest and most dynamic economy so more diversity might be called for.

I'm not a fan of the TD funds for me there are too many changes and too much international exposure. I like the Balanced Index fund and other funds to get the allocation I prefer.

dbr
Posts: 23722
Joined: Sun Mar 04, 2007 9:50 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by dbr » Tue Nov 14, 2017 9:43 am

hulburt1 wrote:
Tue Nov 14, 2017 7:58 am
We are 95% and 5% cash..I'm up 32% this year. We are retired and live on 70000 a years. We made $400000 this year. Its what you spend. If I lost everything I would still be able to live on my small pension and SS at 70. Never made more then $80000 a years. but have 2.3m. I will move more into cash as I get older. I'm in SP, Total stock, Heath care and prim cape. I did buy 4000 shares of face book at $50. I still do not know why, gut feeling.
I'm 64
The essence of this comment is that if you were down 32% this year and had lost $400000 it would still all be the same.

User avatar
friar1610
Posts: 1014
Joined: Sat Nov 29, 2008 9:52 pm
Location: MA South Shore

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by friar1610 » Tue Nov 14, 2017 9:57 am

I'm comfortable neither with 100% US equities nor with the 40% international in the TR and LS funds. So I keep international at 20%-25% of my equity which, in turn, is 40% of portfolio. Old retired guy in conservative stage of life but I think I would keep the same int allocation if I were still accumulating.

As for patriotism, I pay my taxes and salute the flag.
Friar1610

GLState
Posts: 82
Joined: Wed Feb 15, 2017 10:38 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by GLState » Tue Nov 14, 2017 9:58 am

John Bogle also says "Forget the needle, buy the haystack". I see the US as only a part of a larger haystack (the world market). We wouldn't think of only buying stocks from the city or state where we were born or raised. Why buy only stocks from the country in which we were born and raised? Google, IBM, Apple, and Vanguard do business outside the US. Why should we limit ourselves?

dbr
Posts: 23722
Joined: Sun Mar 04, 2007 9:50 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by dbr » Tue Nov 14, 2017 10:11 am

GLState wrote:
Tue Nov 14, 2017 9:58 am
John Bogle also says "Forget the needle, buy the haystack". I see the US as only a part of a larger haystack (the world market). We wouldn't think of only buying stocks from the city or state where we were born or raised. Why buy only stocks from the country in which we were born and raised? Google, IBM, Apple, and Vanguard do business outside the US. Why should we limit ourselves?
Yes, Bogle says buy the haystack as long as it is not one on the next farm over. He doesn't like buying outside the US. Investors should not try to follow every nuance that can be extracted from something Mr. Bogle has said or might have said.

hulburt1
Posts: 245
Joined: Tue Jul 15, 2014 9:17 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by hulburt1 » Tue Nov 14, 2017 11:19 am

dbr wrote:
Tue Nov 14, 2017 9:43 am
hulburt1 wrote:
Tue Nov 14, 2017 7:58 am
We are 95% and 5% cash..I'm up 32% this year. We are retired and live on 70000 a years. We made $400000 this year. Its what you spend. If I lost everything I would still be able to live on my small pension and SS at 70. Never made more then $80000 a years. but have 2.3m. I will move more into cash as I get older. I'm in SP, Total stock, Heath care and prim cape. I did buy 4000 shares of face book at $50. I still do not know why, gut feeling.
I'm 64
The essence of this comment is that if you were down 32% this year and had lost $400000 it would still all be the same.

I would still have close to 2m but only need 1m to be happy. SS is my back up plan. Plus I live with in my means, but happy and travel and have a lot of fun. NOOOOOOO dedt.

mrgeeze
Posts: 61
Joined: Wed Nov 04, 2015 11:09 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by mrgeeze » Tue Nov 14, 2017 11:34 am

dbr wrote:
Mon Nov 13, 2017 8:56 pm
Invest some of your money in international so you can stop worrying. Do it because I told you to and I am a guy on the internet.

If patriotism and admiration for Buffett and Bogle holds you back then so be it and also stop worrying.

If you want to get into nitty gritty the thing I would worry about is having so much risk in stocks at 90%.
I heard it from some guy on the internet.... wait ,that was dbr!
He's gotta be right!

Love the conviction, and the sense of humor. This is a great forum.

my $.02 is to buy the target retirement.

90% in stocks is risky.
I had the same problem 5 years ago with 100% equities. I started the migration to targets around then.
Now each time I sell a stock, I buy target funds with the $$$.
I'm down to about 50% stocks.
Plus I'm dollar cost averaging.... kinda sorta...

BlackHat
Posts: 34
Joined: Tue Feb 14, 2017 1:47 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by BlackHat » Tue Nov 14, 2017 6:10 pm

Thank you everybody for the responses. I really appreciate it. :happy
“Life is really simple, but we insist on making it complicated.” -- Confucius

pascalwager
Posts: 906
Joined: Mon Oct 31, 2011 8:36 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by pascalwager » Tue Nov 14, 2017 8:54 pm

Buffett also said that the 90/10 applies for a minimum 20-year time horizon, and was always my AA until recently (75, retired).

User avatar
Peter Foley
Posts: 4073
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by Peter Foley » Tue Nov 14, 2017 9:28 pm

eye.surgeon wrote:
Keep in mind you have plenty of international exposure holding 90% in S&P 500 since much of the profits of those companies you own is international.
While I hold some international, about 7% of total portfolio and 12% of equity portfolio, I have always rationalized that because I only have access to the S&P 500 in a couple retirement accounts I have sufficient international exposure.

BlackHat
Posts: 34
Joined: Tue Feb 14, 2017 1:47 pm

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by BlackHat » Wed Nov 15, 2017 10:51 am

This is my current portfolio if this helps any with advice. Thank you to everyone. Would S&P in taxable and Target Retirements in everything else except the HSA be a viable option? Or should I trade the S&P out for Total Stock Market Admiral?

Emergency Fund : Over Six Months
Debt : None
Tax Filing Status : Single
Tax Rate : 15% Federal , 1.75% State
State of Residence : NJ
Age : 24

Current Retirement Assets

Taxable
Vanguard 500 Index Admiral Shares (VFIAX) (.04%) -- $38,576.72

His 401k
100% Vanguard S&P Institutional (.02%) -- $4,545.57

His Roth IRA
100% Vanguard 500 Index Admiral Shares (VFIAX) (.04%) -- $26,670.14

I also have a tiny HSA invested in S&P 500.
“Life is really simple, but we insist on making it complicated.” -- Confucius

User avatar
digarei
Posts: 666
Joined: Sat Jul 05, 2014 1:41 am
Location: Sacramento
Contact:

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by digarei » Thu Nov 16, 2017 7:14 am

BlackHat wrote:
Wed Nov 15, 2017 10:51 am
This is my current portfolio if this helps any with advice. Thank you to everyone. Would S&P in taxable and Target Retirements in everything else except the HSA be a viable option? Or should I trade the S&P out for Total Stock Market Admiral?
If you’re going to make a change in taxable, now is the best time... while you’re still in the 15% bracket and capital gains are insignificant.

My belief is that broad market funds are better because they are more diversified. Total Stock Market is broader and more diversified than one that follows an S&P 500 benchmark. It should prove nearly as efficient and you’ll pick up the small cap end of the market.

You can then elect to make changes in your tax sheltered accounts if desired. No tax consequences there. These accounts can contain any type of asset available to you, including a target retirement fund or a target risk fund (Vanguard calls them “Life Strategy”). Since you are concerned with not having international, I suggest exchanging the holdings in one or both of your sheltered accounts to the Vanguard LifeStrategy Growth Fund (VASGX) or a Target Retirement Fund of your choice.

https://personal.vanguard.com/us/funds/ ... 0122#tab=2
Connect with Bogleheads in Northern California! Click the link under my user info/avatar.

User avatar
stemikger
Posts: 4560
Joined: Thu Apr 08, 2010 5:02 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by stemikger » Thu Nov 16, 2017 7:50 am

heyyou wrote:
Mon Nov 13, 2017 8:11 pm
Buffett is donating his BRK stock to the Gates Foundation when he dies. His wife is getting his cash which is $100+ million and he has advised her trustees to invest it 90/10 in the 500 index and cash/bonds.
Where did you read she is getting 100+million. I don't believe that has ever been stated to the public.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

User avatar
stemikger
Posts: 4560
Joined: Thu Apr 08, 2010 5:02 am

Re: Buffett 90/10 Portfolio vs Target Retirement

Post by stemikger » Thu Nov 16, 2017 8:01 am

GLState wrote:
Tue Nov 14, 2017 9:58 am
John Bogle also says "Forget the needle, buy the haystack". I see the US as only a part of a larger haystack (the world market). We wouldn't think of only buying stocks from the city or state where we were born or raised. Why buy only stocks from the country in which we were born and raised? Google, IBM, Apple, and Vanguard do business outside the US. Why should we limit ourselves?
Well, we do get instant international diversification through the S&P and/or the Total U.S. Market Index. I don't see a reason to add more than that.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

Post Reply