Vanguard advice--I'm confused

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Missedtheboat
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Vanguard advice--I'm confused

Post by Missedtheboat » Sun Feb 11, 2018 10:49 pm

Vanguard offers to help with asset allocation and fund selection. I asked for help with my retirement fund and also have an additional $400,000 in cash I'd like to invest.

My question is 1)it seems a little complicated and 2) I think I'm uncomfortable with the bond allocation. I guess I feel like every bond fund I've owned does nothing (is that the point?) Please help me understand why it would be wise to change from savings/cds to bonds? Personally I'd rather put the money into real estate but California property is in the stratosphere and the tax advantage (deducting property taxes etc) is pretty much gone with the new tax bill.

Me Age 65 years working part-time approximately $85,000 per year
Spouse age 70 - working part-time approximately $100,000/per year
Both plan to continue for the foreseeable future but at our age who knows?
Asset allocation 50/50 stocks/bonds
Emergency funds--lots

Debt = $0

Tax filing Married filing jointly 35% plus

State: California

My husband has a good pension plus social security which more than covers all living expenses so I'm not looking at this as something I'm counting on to live.

The following is what the Vanguard advisor recommended:


Tax Deferred:

(the Primecap Admiral I requested to keep)

VPMAX Primecap $66,000
Vanguard Institutional Total Bond Market Index Trust $250,000
Vanguard Total Bond market Index Fund Institutional plus shares $106,000
Vanguard Total International Bond index fund admiral shares VTABX $30,000

Taxable :

Vanguard total international stock index admiral $3500
Vanguard total stock market index fund admiral VTSAX $15,000
Vanguard limited term tax exempt fund admiral VMLUX $22,000
Vanguard intermediate term tax exempt fund admiral $30,000
Vanguard emerging markets stock index fund admiral VEMAX $1,000
VANGUARD total stock market index admiral $70,000
Vanguard long term tax exempt fund admiral $22,000
Vanguard Developed markets index fund admiral shares $154,000
Vanguard Value index fund admiral shares VVIAX $68,000
Vanguard Extended market index fund Admiral VEXAX $58,000
Vanguard emerging markets stock index fund admiral shares $26,000

Does this look like a good idea? Especially committing all this money to bonds when interest rates are going to rise? Could this be made easier? If so any suggestions? Open to any help as I don't know much about investing.
Thanks for taking a look as I'm pretty much clueless.

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Tyler Aspect
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Re: Vanguard advice--I'm confused

Post by Tyler Aspect » Sun Feb 11, 2018 11:46 pm

Welcome to Bogleheads.
Missedtheboat wrote:
Sun Feb 11, 2018 10:49 pm
Vanguard offers to help with asset allocation and fund selection. I asked for help with my retirement fund and also have an additional $400,000 in cash I'd like to invest.

My question is 1)it seems a little complicated and
Yes it does. Unfortunately it is par for the course. At least the expense ratio is low.

2) I think I'm uncomfortable with the bond allocation. I guess I feel like every bond fund I've owned does nothing (is that the point?)
Bonds' purpose is to provide stability. In the sense their return is stable (does nothing) they have served their role.

Please help me understand why it would be wise to change from savings/cds to bonds?
I take it the CDs and savings are in the taxable account? Generally it is good to locate bond investments in tax deferred account because none of their dividends are qualified dividends.

Personally I'd rather put the money into real estate but California property is in the stratosphere and the tax advantage (deducting property taxes etc) is pretty much gone with the new tax bill. (precisely)

Me Age 65 years working part-time approximately $85,000 per year
Spouse age 70 - working part-time approximately $100,000/per year
Both plan to continue for the foreseeable future but at our age who knows?

Emergency funds--lots

Debt = $0

Tax filing Married filing jointly 35% plus

State: California

My husband has a good pension plus social security which more than covers all living expenses so I'm not looking at this as something I'm counting on to live.

The following is what the Vanguard advisor recommended:


Tax Deferred:

(the Primecap Admiral I requested to keep)

VPMAX Primecap $66,000
Vanguard Institutional Total Bond Market Index Trust $250,000
Vanguard Total Bond market Index Fund Institutional plus shares $106,000
Vanguard Total International Bond index fund admiral shares VTABX $30,000

Taxable :

Vanguard total international stock index admiral $3500
Vanguard total stock market index fund admiral VTSAX $15,000
Vanguard limited term tax exempt fund admiral VMLUX $22,000
Vanguard intermediate term tax exempt fund admiral $30,000
Vanguard emerging markets stock index fund admiral VEMAX $1,000
VANGUARD total stock market index admiral $70,000
Vanguard long term tax exempt fund admiral $22,000
Vanguard Developed markets index fund admiral shares $154,000
Vanguard Value index fund admiral shares VVIAX $68,000
Vanguard Extended market index fund Admiral VEXAX $58,000
Vanguard emerging markets stock index fund admiral shares $26,000

Does this look like a good idea? Especially committing all this money to bonds when interest rates are going to rise?
Yield increase is good for a bond market index fund if you hold the bond fund for more than 6 years after each instance of yield increase.

Could this be made easier? If so any suggestions? Open to any help as I don't know much about investing.
(A sample Three Fund portfolio)
Tax deferred:
$452k total bond market index admiral

Taxable:
$120k total international stock market index admiral
$349k total stock market index admiral

Thanks for taking a look as I'm pretty much clueless.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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BL
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Re: Vanguard advice--I'm confused

Post by BL » Mon Feb 12, 2018 12:07 am

I am guessing you lumped Roth IRA and taxable into one jumbled combo. Could you separate them if that is the case?

Missedtheboat
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Re: Vanguard advice--I'm confused

Post by Missedtheboat » Mon Feb 12, 2018 12:28 am

Roth Ira lumped with tax deferred but it's small only like $30,000.

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Pajamas
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Re: Vanguard advice--I'm confused

Post by Pajamas » Mon Feb 12, 2018 12:36 am

I'm not surprised that you're confused. Seems like way too many funds and that it could be simplified immensely. I'm surprised Vanguard is recommending such a complex portfolio.

What is the point of putting $1,000 or even $3,500 into a fund within a portfolio of that size?

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steve roy
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Re: Vanguard advice--I'm confused

Post by steve roy » Mon Feb 12, 2018 12:54 am

Some of the problem here is there's redundancy. Too many bond funds, these could be simplified. Too many overlapping stock funds; there's exposure to Developed and Emerging markets in Total International, so why the overkill?

It's not that the lineup they have you in is bad, but it doesn't need to be this complicated. And probably shouldn't be.

Missedtheboat
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Re: Vanguard advice--I'm confused

Post by Missedtheboat » Mon Feb 12, 2018 1:21 am

Thanks for the input. So I should not be freaked out buying over $400,000 in bond funds right now?

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BL
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Re: Vanguard advice--I'm confused

Post by BL » Mon Feb 12, 2018 1:28 am

If you were willing to part with your favorite fund, you could get most of your bonds in tax-deferred accounts, and less in municipal bonds.

It is very confusing to not see funds broken into the various accounts. A Roth IRA is never taxed, so it is definitely not "taxable".

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Tyler Aspect
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Re: Vanguard advice--I'm confused

Post by Tyler Aspect » Mon Feb 12, 2018 1:40 am

You can look at Vanguard Total Bond Market's historical performance. It has never lost more than 3% of its value in any one year. However, past result does not indicate future performance...

https://www.portfoliovisualizer.com/bac ... ion1_1=100
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

Missedtheboat
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Re: Vanguard advice--I'm confused

Post by Missedtheboat » Mon Feb 12, 2018 1:41 am

Maybe I wasn't too clear.

About $30,000 is in a Roth IRA.

About $420,000 is in a 401K and three other retirement accounts . I am in a union and when I went from one union to another my 401K could no longer be be contributed to, they substituted 3 other retirement accounts.

gsmith
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Re: Vanguard advice--I'm confused

Post by gsmith » Mon Feb 12, 2018 2:03 am

Missedtheboat wrote:
Mon Feb 12, 2018 1:21 am
Thanks for the input. So I should not be freaked out buying over $400,000 in bond funds right now?
You may or may not freak out... here are some differences that you should know ahead of time

A bond has different types of risks, some of which are comparable to a CD
- Interest Rate Risk/Inflation.
-- A 1% $1000 CD will pay $10 every year until it matures, and you will have to pay a penalty to access your money before maturity
-- A 1% $1000 bond will pay $10 every year until it matures but can be sold for a discount/premium to the market based on interest rates. (Changes in rates are priced daily, where it would be invisible to a CD owner)
-- The longer the avg maturity of a bond fund, the more sensitive it is to these daily fluctuations. Your CD has the same risks when you lock in for long periods of time, but it's priced differently

- Repayment Risk
- A CD is a Bond-like instrument, only it's guaranteed by the Feds with FDIC (AAA if you consider our gov rated such). The low rate is due to the insurance premium the bank has to pay the government.
- A Bond is a loan to a government, municipality, or business, and can be guaranteed by a private insurance agency, or be guaranteed by gov.
- The bond fund prospectus will have a table showing what Moodys/S+P believes is "investment grade" and "speculative" (junk bonds)
- As a bondholder, you will have priority over shareholders during a bankruptcy, but you are getting a higher yield for taking on (slightly more risk)

Ultimately, you will see very small daily fluctuations in the price of your bond fund (Or even brokered CDs) as they are marked to market.
If these changes/risks cause you to lose sleep at night, you can stay in CDs for a minor impact on your portfolio over time.

As an example. the Institutional Total Bond Market Index Trust invests in Institutional Select shares of the Vanguard Total Bond Market Index Fund.
The Admiral class of that fund are down –1.95% Year-to-Date as of 02/09/2018

https://institutional.vanguard.com/VGAp ... undId=1984
https://personal.vanguard.com/us/funds/ ... true#tab=1

You should read the prospectus carefully, and decide whether you can stomach the volatility in exchange for over a 4% return since 2001.

livesoft
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Re: Vanguard advice--I'm confused

Post by livesoft » Mon Feb 12, 2018 9:26 am

I only see that the OP did not display the separate accounts that all the funds are going to be. So the advice looks like crap, but I believe there is no way the advisor suggested what was displayed.

After all, how can it be that two separate holdings of Vanguard Total Stock Market Index Admiral are in the same account? Those holdings must be in different accounts. I will also guess that there may also be some legacy funds in taxable.

Anyways, I would not dump on the Vanguard advisor yet. Instead, I would respectfully ask Missedtheboat to repost in the normally requested format with percentages (first in each line before fund names) and not dollar amounts and each individual account as shown in
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Re: Vanguard advice--I'm confused

Post by neilpilot » Mon Feb 12, 2018 9:39 am

Missedtheboat wrote:
Mon Feb 12, 2018 1:21 am
Thanks for the input. So I should not be freaked out buying over $400,000 in bond funds right now?
I presume that if you target a 50:50 equity:bond allocation, that equates to $400k in bonds? Or are you asking if a portion of your bond allocation should actually be in cash?

omgbirdman
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Re: Vanguard advice--I'm confused

Post by omgbirdman » Mon Feb 12, 2018 9:58 am

If you purchase real estate and rent it, you get the full property tax deduction. The property tax cap applies to personal items only, not income-generating items.

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Taylor Larimore
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Taking unnecessary risk

Post by Taylor Larimore » Mon Feb 12, 2018 10:10 am

Missedtheboat wrote:
Mon Feb 12, 2018 1:21 am
Thanks for the input. So I should not be freaked out buying over $400,000 in bond funds right now?
Missedtheboat:

The most important thing for retirees to know:

When you have enough to retire, don't risk in stocks (or anything else) what you cannot afford to lose.


I'll guess that the reason for the many funds in your taxable account is that they contain large capital-gains which will trigger taxes if you sell them now. This is why it is very important to buy only tax-efficient funds (like total market index funds) that can be held "forever' in taxable accounts.

Best wishes.
Taylor
Last edited by Taylor Larimore on Mon Feb 12, 2018 10:25 am, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle

dbr
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Re: Vanguard advice--I'm confused

Post by dbr » Mon Feb 12, 2018 10:11 am

50/50 is likely a very reasonable asset allocation. To freak out over $400K in bonds when half your assets are in stocks makes no sense.

The complexity in the taxable account(s) seems inexplicable. Did the advisor explain why the allocations are what they are. I wouldn't accept a recommendation that does not also come with an explantion.

dbr
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Re: Taking unnecessary risk

Post by dbr » Mon Feb 12, 2018 10:13 am

Taylor Larimore wrote:
Mon Feb 12, 2018 10:10 am
Missedtheboat wrote:
Mon Feb 12, 2018 1:21 am
Thanks for the input. So I should not be freaked out buying over $400,000 in bond funds right now?
Missedtheboat:

The most important thing for retirees to know:

When you have enough to retire, don't risk in stocks (or anything else) what you cannot afford to lose.


Best wishes.
Taylor
Which for these investors, based on the OP, is the whole portfolio, apparently. I guess if one is going to freak over bonds, 100% stocks is an answer. But, actually the question was why bonds and not CDs, to which the answer is 1) that is fine, and 2) it doesn't matter much.

dbr
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Re: Taking unnecessary risk

Post by dbr » Mon Feb 12, 2018 10:16 am

Taylor Larimore wrote:
Mon Feb 12, 2018 10:10 am
Missedtheboat wrote:
Mon Feb 12, 2018 1:21 am
Thanks for the input. So I should not be freaked out buying over $400,000 in bond funds right now?
Missedtheboat:

The most important thing for retirees to know:

When you have enough to retire, don't risk in stocks (or anything else) what you cannot afford to lose.


Best wishes.
Taylor
Which for these investors, based on the OP, is the whole portfolio, apparently. I guess if one is going to freak over bonds, 100% stocks is an answer. But, actually the question was why bonds and not CDs, to which the answer is 1) that is fine, and 2) it doesn't matter much. It may be the advisor considers CDs in a tax deferred account to be inconvenient or that he wants a little more return in the long run, maybe.

Missedtheboat
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Re: Vanguard advice--I'm confused

Post by Missedtheboat » Mon Feb 12, 2018 10:18 pm

I appreciate all the responses. You all are most generous!

I only see that the OP did not display the separate accounts that all the funds are going to be. So the advice looks like crap, but I believe there is no way the advisor suggested what was displayed.

After all, how can it be that two separate holdings of Vanguard Total Stock Market Index Admiral are in the same account? Those holdings must be in different accounts. I will also guess that there may also be some legacy funds in taxable.

Anyways, I would not dump on the Vanguard advisor yet. Instead, I would respectfully ask Missedtheboat to repost in the normally requested format with percentages (first in each line before fund names) and not dollar amounts and each individual account as shown in


The reason I didn't post the percentages is that the Vanguard advisor could not give them to me. I asked specifically what percentage of the portfolio should each fund be so that I would be able to re-balance. He said he'd been asked that before but couldn't give it. I was shocked considering how powerful their web site is.

So I'll try to post the Taxable accounts:

Vaguard Calif Intermediate term tax exempt admiral current: $54,000 recommend : $0
Vanguard Total International stock index fund Admiral current: $0 recommend: $3461
Vanguard Total stock market Index admiral current: $14,000 recommend: $14,000
Vanguard Total International stock Index Fund investor current $3400 recommend $0
Vanguard limited term tax exempt fund admiral current $0 recommend $22929
Vanguard intermediate term tax exempt admiral current $0 recommend $30,573
Vanguard emerging markets stock index fund admiral current $0 recommend $1,121
Vanguard Total stock market index fund admiral current $0 recommend $69,500
Vanguard long term tax exempt fund admiral current $0 recommend $22,929
Vanguard Developed markets index fund admiral current $0 recommend $154,988
Vanguard Value Index fund admiral current $0 recommend $68,035
Vanguard extended market index fund admiral current $0 recommend $58,316
Vanguard Emerging markets stock index admiral current $0 recommend $26,229

CFM300
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Re: Vanguard advice--I'm confused

Post by CFM300 » Mon Feb 12, 2018 11:41 pm

Missedtheboat wrote:
Mon Feb 12, 2018 10:18 pm
So I'll try to post the Taxable accounts:
As others have mentioned, the list of proposed holdings doesn't make sense unless these are multiple accounts. There are several redundancies. Here is what you listed under Taxable in your first post, reorganized by asset class:

Code: Select all

Total (US) Stock Market		$70,000 
Total (US) Stock Market		$15,000 
Value Index Stocks		$68,000 
Extended Market Index 		$58,000 
	
Total International Stock	$3,500 
Developed Markets Stocks	$154,000 
Emerging Markets Stock		$1,000 
Emerging Markets Stock		$26,000 
	
Limited-term Tax-exempt bonds	$22,000 
Intermediate-term Tax-exempt	$30,000 
Long-term Tax-exempt bonds	$22,000 
What explains the redundancies? Why is the Vanguard adviser recommending two separate holdings of Total Stock Market and Emerging Markets?

As to the proposed allocations, I'd use just three funds:

Total Stock Market
Total International Stock
California Intermediate-Term Tax-Exempt bonds.

Good luck.

Missedtheboat
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Re: Vanguard advice--I'm confused

Post by Missedtheboat » Tue Feb 13, 2018 12:29 am

No, this is really just one taxable account.

Thanks to all who replied. You've all made me realize now this is WAY too complicated and I will stick with just 3 or 4 funds. If I can't understand it now how in the world would I ever re-balance it? I couldn't.

The Vanguard Intermediate term tax exempt fund VCADX is an example of the luck I've had with bond funds. I've owned it for 3 years and I've got a loss of $436. So I think I'll just stick with a stable value or CD for the 'bond' portion.

Again, thanks for all the help. KISS theory prevails--you are all very generous with your input. :happy

CFM300
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Re: Vanguard advice--I'm confused

Post by CFM300 » Tue Feb 13, 2018 12:43 am

Missedtheboat wrote:
Tue Feb 13, 2018 12:29 am
The Vanguard Intermediate term tax exempt fund VCADX is an example of the luck I've had with bond funds. I've owned it for 3 years and I've got a loss of $436. So I think I'll just stick with a stable value or CD for the 'bond' portion.
Does your "loss" take into consideration the dividends you've received over the years?

Realize that in a taxable account, your dividends are going to be eaten up by taxes. You said you're in the 33% federal bracket, which means (I think) you're also in the 9.3% California bracket. So you'll be losing more than 40% of your dividends to taxes.

Run the numbers, but I think you'll do better with the California-specific bond fund that's exempt from both federal and state taxes.

Missedtheboat
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Re: Vanguard advice--I'm confused

Post by Missedtheboat » Tue Feb 13, 2018 1:24 am

No, you are so right! I finally figured out how to see that. We get killed on taxes so VCADX is a keeper! It pays a nice dividend and it's tax exempt.

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saltycaper
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Re: Taking unnecessary risk

Post by saltycaper » Tue Feb 13, 2018 3:19 pm

Taylor Larimore wrote:
Mon Feb 12, 2018 10:10 am
Missedtheboat:

The most important thing for retirees to know:

When you have enough to retire, don't risk in stocks (or anything else) what you cannot afford to lose.

This implies you expect stocks to lose all value. It also implies if you have just enough to retire, you should not invest in stocks at all. I strongly disagree with both ideas. While it is possible stocks will lose all value, I would not base an investment strategy on a high likelihood of it happening. It also contradicts your suggestion that people assume stocks will lose 50% of their value. The second statement is very questionable advice because an all-bond portfolio, presumably nominal bonds based on your past recommendations, is highly susceptible to inflation risk. So overall I would say that is definitely not the most important thing for a retiree to know. It's not even something to "know" and is in fact a very bad idea IMO.
Quod vitae sectabor iter?

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Re: Vanguard advice--I'm confused

Post by afan » Tue Feb 13, 2018 3:51 pm

Owning the three national tax exempt bond funds makes no sense. Limited term + intermediate term + long term = intermediate term.

If you want intermediate term, then buy it.
If for some reason you want a shorter maturity than intermediate term, then there MIGHT be logic to a mix of intermediate and limited term.

If for some reason you wanted a longer maturity than intermediate term, then there MIGHT be a logic to a mix of intermediate and long term.

But since limited + long = intermediate, owning all three makes no sense.

One can make a very good argument for holding
ONE domestic stock fund- total stock market
ONE international stock fund- total international

For bonds you would need muni's in your taxable account and intermediate term is fine.
Inside your tax favored accounts total bond market is fine.

You should get their opinion about why you would hold bonds in both your taxable and tax favored accounts.
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Re: Vanguard advice--I'm confused

Post by Finridge » Tue Feb 13, 2018 11:00 pm

afan wrote:
Tue Feb 13, 2018 3:51 pm

But since limited + long = intermediate, owning all three makes no sense.
This might be the case if intermediate bonds performed equal to the average of the limited and long. But the bond curve keeps changing shape, depending on condition. So a portfolio consisting of 50% limited and 50% of long is not going to perform like a portfolio that is 33% each of limited, long and intermediate.

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Re: Vanguard advice--I'm confused

Post by dbr » Wed Feb 14, 2018 9:18 am

Finridge wrote:
Tue Feb 13, 2018 11:00 pm
afan wrote:
Tue Feb 13, 2018 3:51 pm

But since limited + long = intermediate, owning all three makes no sense.
This might be the case if intermediate bonds performed equal to the average of the limited and long. But the bond curve keeps changing shape, depending on condition. So a portfolio consisting of 50% limited and 50% of long is not going to perform like a portfolio that is 33% each of limited, long and intermediate.
Not the same as is not the same as either better or worse. It is really taking things down to nits to try to choose between s/i/l and just i.

Finridge
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Re: Vanguard advice--I'm confused

Post by Finridge » Wed Feb 14, 2018 4:53 pm

dbr wrote:
Wed Feb 14, 2018 9:18 am
Finridge wrote:
Tue Feb 13, 2018 11:00 pm
afan wrote:
Tue Feb 13, 2018 3:51 pm

But since limited + long = intermediate, owning all three makes no sense.
This might be the case if intermediate bonds performed equal to the average of the limited and long. But the bond curve keeps changing shape, depending on condition. So a portfolio consisting of 50% limited and 50% of long is not going to perform like a portfolio that is 33% each of limited, long and intermediate.
Not the same as is not the same as either better or worse. It is really taking things down to nits to try to choose between s/i/l and just i.
That's certainly one point of view. However having the three funds is more diversified, and diversification has been called the only free lunch. I think it is clearly better. Not hugely better, but better enough that it matters, enough to where the "inconvenience" of having a third fund is outweighed by the benefits.

Yesterday, because I was curious as to what the actual effect would be, I was running some comparisons at portfoliovisualizer.com. Having all three funds at 33% each outperformed the two at 50% each. Which is more or less what I expected.

retiredjg
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Re: Vanguard advice--I'm confused

Post by retiredjg » Wed Feb 14, 2018 5:04 pm

Missedtheboat wrote:
Mon Feb 12, 2018 1:21 am
Thanks for the input. So I should not be freaked out buying over $400,000 in bond funds right now?
No. Bonds are not intended to be the primary grower of your portfolio. Bonds provide stability in the times that are bad for stocks. And there are decades when bonds actually outperform stocks. Bonds are a good thing.

I agree the lineup seems unwieldy, but if they are in several different accounts and if there would be tax costs to "fixing" some of the extra funds (if there actually are any), then the lineup makes more sense.

If you absolutely cannot tolerate the bonds, you can use CDs instead.

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sergeant
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Re: Vanguard advice--I'm confused

Post by sergeant » Wed Feb 14, 2018 6:05 pm

Suggested portfolio is a mess but congratulations on exceptional part-time income.
Lincoln 3 EOW!

Missedtheboat
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Re: Vanguard advice--I'm confused

Post by Missedtheboat » Wed Feb 14, 2018 11:45 pm

Suggested portfolio is a mess but congratulations on exceptional part-time income.

Ha Ha, thanks. We've both worked pretty hard to end up with "easy" part time work, it's going to be difficult to completely retire!

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