Asset Allocation Question

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frankie1800
Posts: 17
Joined: Sat Oct 28, 2017 7:53 am

Asset Allocation Question

Post by frankie1800 » Wed May 16, 2018 5:04 am

Hello,

When I bought into the idea that I should have some international allocation in my portfolio, I decided to target my asset allocation at 60% Total US, 20% total international and 20% bonds.

Therefore, using a $100,000 portfolio, mine was $60,000 total US, $20,000 total international, and $20,000 bonds.

Looking through the Vanguard site this week, I am wondering if my allocation conflicts with what Vanguard suggests. If I heard them right, they recommend 40% international exposure in equites and 30% international exposure in bonds. Therefore, if I followed this advise, would my $100,000 portfolio look more like....


80% or $80,000 in equities ($48,000 in total US, $32,000 in total international)
20% or $20,000 in bonds ($14,000 in US bonds and $6,000 in international bonds)

retiredjg
Posts: 33212
Joined: Thu Jan 10, 2008 12:56 pm

Re: Asset Allocation Question

Post by retiredjg » Wed May 16, 2018 6:48 am

Last I heard, Vanguard's recommendation was a range of 20% to 40% of stocks in international stocks, up to the actual market weight which can be higher. Your current allocation, 25% of stocks, is in that range.

They have chosen the 40% of stocks and 30% of bonds as their international allocations for their target funds, LifeStrategy Funds, and as their model for Personal Advisory Services. That's a pretty strong recommendation as well. Vanguard obviously feels that is a good place to be.

None of us know what will turn out to be "best", but I would not worry about it much. Find a place where you are comfortable and keep in mind that the stock to bond ratio is the real driver of the portfolio. If you have the stock to bond ratio that is right for you, these other numbers are less important and most anything will do.

StrangePenguin
Posts: 26
Joined: Tue Mar 27, 2018 11:35 am

Re: Asset Allocation Question

Post by StrangePenguin » Wed May 16, 2018 6:54 am

Your original allocation sounds fine to me.

Personally I have decided against including International Bonds in my portfolio.
Taking a look at the Target Retirement 2045 fund composition, it is:
US Total Stock 54%
Total Intl 36%
Total Bond 7%
Total Intl Bond 3%
https://personal.vanguard.com/us/funds/ ... true#tab=2
So Vanguard seems to implement a very small allocation to International Bonds. This isn't so different than the 6% you cite above. It isn't going to make a huge difference whether you go with 0% or 3% or 6%.

frankie1800
Posts: 17
Joined: Sat Oct 28, 2017 7:53 am

Re: Asset Allocation Question

Post by frankie1800 » Thu May 17, 2018 7:06 am

retiredjg wrote:
Wed May 16, 2018 6:48 am
Last I heard, Vanguard's recommendation was a range of 20% to 40% of stocks in international stocks, up to the actual market weight which can be higher. Your current allocation, 25% of stocks, is in that range.

They have chosen the 40% of stocks and 30% of bonds as their international allocations for their target funds, LifeStrategy Funds, and as their model for Personal Advisory Services. That's a pretty strong recommendation as well. Vanguard obviously feels that is a good place to be.

None of us know what will turn out to be "best", but I would not worry about it much. Find a place where you are comfortable and keep in mind that the stock to bond ratio is the real driver of the portfolio. If you have the stock to bond ratio that is right for you, these other numbers are less important and most anything will do.
thank you for the advice! Up until I started reading Jack Bogle and the WikiPage and Bogleheads, I followed Warren Buffett's advice and put most all of my retirement savings in an S&P 500 fund. I had zero international allocation. Now I have subscribed to allowing an international component in my equities. Over the last five years or so I have contributed to my 401K and Roth in full while simultaneously saving in my personal taxable brokerage account. The only thing is, I contributed very little to my brokerage account (one stock, one s&p fund and an actively managed fund) while stockpiling cash (in hindsight, I would have contributed more to equities). So with that being said, most of my 20% bond allocation is sitting in my taxable account as a bond holding, us treasury i bonds and mostly cash. I realize my bond holdings should be in my tax advantaged account but I am very hesitant to take that cash and buy equity funds while transferring my tax advantaged equity funds to bonds. I have struggled with this simply because I am afraid of experiencing a market crash with my liquid funds. I have time to recoup from a market crash in my retirement savings. I may or may not have time to recover from a crash in my taxable account, depending on employment status.

So currently, I have a 60/20/20 (us, intl, bond) split across all my monies (excluding my emergency fund) but I have a 30/20/50 split in my taxable account. Are there any suggestions what my taxable account asset allocation should be or is the standard advice just to keep your asset allocation the same across all monies?

ivk5
Posts: 329
Joined: Thu Sep 22, 2016 9:05 am

Re: Asset Allocation Question

Post by ivk5 » Thu May 17, 2018 7:32 am

Be aware that usual metric is % of equities in int'l, so at 60/20/20 you are at 25% of equities in int'l (20 out of 80).

Assuming you are in US, one can make a case for anything from 0% (US equities only) to 50% (approximates global market cap weighting). VG funds are currently at 40%. I'm at 30%. Small differences are unlikely to move the needle on this.
frankie1800 wrote:
Thu May 17, 2018 7:06 am
I realize my bond holdings should be in my tax advantaged account but I am very hesitant to take that cash and buy equity funds while transferring my tax advantaged equity funds to bonds. I have struggled with this simply because I am afraid of experiencing a market crash with my liquid funds. I have time to recoup from a market crash in my retirement savings. I may or may not have time to recover from a crash in my taxable account, depending on employment status.
Do you have an appropriately sized Emergency Fund separate from the cash you are referencing as part of your investable assets? Are you aware of all the various penalty-free ways you can drawdown tax advantaged accounts if direct withdrawals would be subject to penalty? (SEPP, Roth conversion ladder, etc)
frankie1800 wrote:
Thu May 17, 2018 7:06 am
Are there any suggestions what my taxable account asset allocation should be or is the standard advice just to keep your asset allocation the same across all monies?
Wiki: Tax-efficient fund placement

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Asset Allocation Question

Post by dbr » Thu May 17, 2018 8:08 am

frankie1800 wrote:
Wed May 16, 2018 5:04 am
Hello,

When I bought into the idea that I should have some international allocation in my portfolio, I decided to target my asset allocation at 60% Total US, 20% total international and 20% bonds.

Therefore, using a $100,000 portfolio, mine was $60,000 total US, $20,000 total international, and $20,000 bonds.

Looking through the Vanguard site this week, I am wondering if my allocation conflicts with what Vanguard suggests. If I heard them right, they recommend 40% international exposure in equites and 30% international exposure in bonds. Therefore, if I followed this advise, would my $100,000 portfolio look more like....


80% or $80,000 in equities ($48,000 in total US, $32,000 in total international)
20% or $20,000 in bonds ($14,000 in US bonds and $6,000 in international bonds)
Yes, it would look like that. However, being in "conflict" with what Vanguard suggests is language that is too strong. There is no known "right" answer to how any particular portfolio is distributed across international assets. Bogle has argued that US investors should not invest in international at all. So much for Bogle and Vanguard. They do have a white paper on the issue somewhere that may or may not explain their rationale.

retiredjg
Posts: 33212
Joined: Thu Jan 10, 2008 12:56 pm

Re: Asset Allocation Question

Post by retiredjg » Thu May 17, 2018 8:23 am

frankie1800 wrote:
Thu May 17, 2018 7:06 am
Are there any suggestions what my taxable account asset allocation should be or is the standard advice just to keep your asset allocation the same across all monies?
My suggestion is to have one asset allocation that includes all the money, with most or all of the bonds in a 401k or IRA. But it does not sound like that suits you.

If you want to have some fixed income assets in taxable, use either CDs or bonds but don't put more than half the bonds in that account. Whether you use regular bonds or tax-exempt bonds depends on your tax bracket. Higher brackets should use tax-exempt bonds.

If you want more specific advice, you need to present your entire picture - see the link at the bottom of this message for how to do that.

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