Asset Allocation recommendations?

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Topic Author
PGHunt24
Posts: 75
Joined: Wed Apr 24, 2024 10:51 am

Asset Allocation recommendations?

Post by PGHunt24 »

I am a 73 year old depending on a low pension and Social Security for 1/2 of my living needs (50K) and my portfolio for the other half of my living needs (another 50K). Based on my portfolio below, is there a better way to allocate my money? Thanks

Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000

Grand total: 1,200,000
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retired@50
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Location: Living in the U.S.A.

Re: Asset Allocation recommendations?

Post by retired@50 »

PGHunt24 wrote: Wed May 15, 2024 9:34 am I am a 73 year old depending on a low pension and Social Security for 1/2 of my living needs (50K) and my portfolio for the other half of my living needs (another 50K). Based on my portfolio below, is there a better way to allocate my money? Thanks

Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000

Grand total: 1,200,000
There are certainly other ways to allocate your money, but "better" can only be known in hindsight.

You've got $1.2 million divided among stocks/bonds/cash in a 44% / 35% / 21% mix.

I think staying somewhere around 40-50% in stocks, and the rest in bonds and cash is a solid (and defensible) choice.

When the CD expires in December of 2024, depending on your needs, you can invest some of it, or hold it in a money market fund for current spending needs.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
GaryA505
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Location: New Mexico

Re: Asset Allocation recommendations?

Post by GaryA505 »

I'm about your age and have a similar AA and expenses.
44% equities is certainly a reasonable allocation and you won't now if there's a "better" one until the future. Nobody does.
At $50k/year, your withdrawal rate is about 4%, also very reasonable for a 73-year-old.

If you want to take more risk because you want to leave an inheritance, you could go higher.
On the other hand, if a higher equity allocation will cause you to lose sleep the next time the stock crashes (and it will) then I'd stay with your conservative allocation. Sleep is critical to maintaining good health.

In my case, my wife is much younger than me so I plan to let my equity allocation drift upwards to about 60%-65% by the time I leave the planet. Any higher than that would probably make me anxious when the market tanks (and it will).
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
Topic Author
PGHunt24
Posts: 75
Joined: Wed Apr 24, 2024 10:51 am

Re: Asset Allocation recommendations?

Post by PGHunt24 »

retired@50 wrote: Wed May 15, 2024 9:44 am
PGHunt24 wrote: Wed May 15, 2024 9:34 am I am a 73 year old depending on a low pension and Social Security for 1/2 of my living needs (50K) and my portfolio for the other half of my living needs (another 50K). Based on my portfolio below, is there a better way to allocate my money? Thanks

Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000

Grand total: 1,200,000
There are certainly other ways to allocate your money, but "better" can only be known in hindsight.

You've got $1.2 million divided among stocks/bonds/cash in a 44% / 35% / 21% mix.

I think staying somewhere around 40-50% in stocks, and the rest in bonds and cash is a solid (and defensible) choice.

When the CD expires in December of 2024, depending on your needs, you can invest some of it, or hold it in a money market fund for current spending needs.

Regards,
Thank you for your input.
Topic Author
PGHunt24
Posts: 75
Joined: Wed Apr 24, 2024 10:51 am

Re: Asset Allocation recommendations?

Post by PGHunt24 »

GaryA505 wrote: Wed May 15, 2024 10:51 am I'm about your age and have a similar AA and expenses.
44% equities is certainly a reasonable allocation and you won't now if there's a "better" one until the future. Nobody does.
At $50k/year, your withdrawal rate is about 4%, also very reasonable for a 73-year-old.

If you want to take more risk because you want to leave an inheritance, you could go higher.
On the other hand, if a higher equity allocation will cause you to lose sleep the next time the stock crashes (and it will) then I'd stay with your conservative allocation. Sleep is critical to maintaining good health.

In my case, my wife is much younger than me so I plan to let my equity allocation drift upwards to about 60%-65% by the time I leave the planet. Any higher than that would probably make me anxious when the market tanks (and it will).
Good to get input from someone of similar age and circumstances. Thanks.
bonesly
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Location: WA

Re: Asset Allocation recommendations?

Post by bonesly »

PGHunt24 wrote: Wed May 15, 2024 9:34 am Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000
Is any/all of this portfolio in a tax-deferred account (e.g., Trad 401k or Rollover Trad IRA) of a tax-free account (e.g., Roth IRA)? If not, there's not a lot to consider to improve Tax-Efficient Fund Placement, since it seems that there's only a Taxable account to work with.

The only thing that sticks out to me is you're holding both BND and VBTLX, but they're the same thing; I'd pick one or the other, but not both. Perhaps Vanguard Personal Advisor Services (PAS) added BND to an existing position in VBTLX (and they also would've added BNDX)? If VBTLX has a tax-loss that you can harvest, I'd probably sell that and repurchase BND 31 days later.

As Retired@50 said, the first step should be to determine an asset allocation (AA) based on your personal Risk Tolerance. The Vanguard Investor Questionnaire can give you an initial AA recommendation, which you should then tailor so you can sleep well at night (not too much stocks that you'll lose sleep, but enough to keep pace with inflation over the next 20+ years). You'll also want to determine a desired international exposure as a percentage of stocks (i.e., if you hold 60% stocks and want 20% int'l exposure, then that's 48% US and 12% Int'l. Not sure what your current split is with VTI and VEU, but VEU is what's providing your int'l exposure (mixed in with US).
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ruralavalon
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Location: Illinois

Re: Asset Allocation recommendations?

Post by ruralavalon »

PGHunt24 wrote: Wed May 15, 2024 9:34 am I am a 73 year old depending on a low pension and Social Security for 1/2 of my living needs (50K) and my portfolio for the other half of my living needs (another 50K). Based on my portfolio below, is there a better way to allocate my money? Thanks

Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000

Grand total: 1,200,000
In my opinion your current overall asset allocation (44% stocks/56% fixed income) is within the range of what is reasonable.

I do not use a cash allocation at all, so do not hold any money market funds. But that's just a personal preference.

Age 78, retired, no pension or annuity, my spending needs/wants are more than covered by Social Security benefits and Required Minimum Distributions (RMDs). My asset allocation is 60/40.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
PGHunt24
Posts: 75
Joined: Wed Apr 24, 2024 10:51 am

Re: Asset Allocation recommendations?

Post by PGHunt24 »

ruralavalon wrote: Wed May 15, 2024 3:28 pm
PGHunt24 wrote: Wed May 15, 2024 9:34 am I am a 73 year old depending on a low pension and Social Security for 1/2 of my living needs (50K) and my portfolio for the other half of my living needs (another 50K). Based on my portfolio below, is there a better way to allocate my money? Thanks

Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000

Grand total: 1,200,000
In my opinion your current overall asset allocation (44% stocks/56% fixed income) is within the range of what is reasonable.

I do not use a cash allocation at all, so do not hold any money market funds. But that's just a personal preference.

Age 78, retired, no pension or annuity, my spending needs/wants are more than covered by Social Security benefits and Required Minimum Distributions (RMDs). My asset allocation is 60/40.
Thanks for your comments.
Topic Author
PGHunt24
Posts: 75
Joined: Wed Apr 24, 2024 10:51 am

Re: Asset Allocation recommendations?

Post by PGHunt24 »

bonesly wrote: Wed May 15, 2024 2:30 pm
PGHunt24 wrote: Wed May 15, 2024 9:34 am Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000
Is any/all of this portfolio in a tax-deferred account (e.g., Trad 401k or Rollover Trad IRA) of a tax-free account (e.g., Roth IRA)? If not, there's not a lot to consider to improve Tax-Efficient Fund Placement, since it seems that there's only a Taxable account to work with.

The only thing that sticks out to me is you're holding both BND and VBTLX, but they're the same thing; I'd pick one or the other, but not both. Perhaps Vanguard Personal Advisor Services (PAS) added BND to an existing position in VBTLX (and they also would've added BNDX)? If VBTLX has a tax-loss that you can harvest, I'd probably sell that and repurchase BND 31 days later.

As Retired@50 said, the first step should be to determine an asset allocation (AA) based on your personal Risk Tolerance. The Vanguard Investor Questionnaire can give you an initial AA recommendation, which you should then tailor so you can sleep well at night (not too much stocks that you'll lose sleep, but enough to keep pace with inflation over the next 20+ years). You'll also want to determine a desired international exposure as a percentage of stocks (i.e., if you hold 60% stocks and want 20% int'l exposure, then that's 48% US and 12% Int'l. Not sure what your current split is with VTI and VEU, but VEU is what's providing your int'l exposure (mixed in with US).
In the mix I noted above, following is 401K/qualified funds:
BND: 122,000
BNDX: 113,000
VFIDX: 83,000
VFSUX: 26,300

My VBTLX is in a Family Limited Partnership account. I'll check as to why that is not BND.

Thanks for your input and comments.
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ruralavalon
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Location: Illinois

Re: Asset Allocation recommendations?

Post by ruralavalon »

PGHunt24 wrote: Wed May 15, 2024 5:11 pmMy VBTLX is in a Family Limited Partnership account. I'll check as to why that is not BND.
They are identical, just two different share classes of one mutual fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
PGHunt24
Posts: 75
Joined: Wed Apr 24, 2024 10:51 am

Re: Asset Allocation recommendations?

Post by PGHunt24 »

ruralavalon wrote: Thu May 16, 2024 9:30 am
PGHunt24 wrote: Wed May 15, 2024 5:11 pmMy VBTLX is in a Family Limited Partnership account. I'll check as to why that is not BND.
They are identical, just two different share classes of one mutual fund.
:thumbsup
GaryA505
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Location: New Mexico

Re: Asset Allocation recommendations?

Post by GaryA505 »

ruralavalon wrote: Thu May 16, 2024 9:30 am
PGHunt24 wrote: Wed May 15, 2024 5:11 pmMy VBTLX is in a Family Limited Partnership account. I'll check as to why that is not BND.
They are identical, just two different share classes of one mutual fund.
In other words it doesn't matter, unless you would like to use automated recurring withdrawals at Vanguard or Fidelity.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
dbr
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Re: Asset Allocation recommendations?

Post by dbr »

PGHunt24 wrote: Thu May 16, 2024 9:59 am
ruralavalon wrote: Thu May 16, 2024 9:30 am
PGHunt24 wrote: Wed May 15, 2024 5:11 pmMy VBTLX is in a Family Limited Partnership account. I'll check as to why that is not BND.
They are identical, just two different share classes of one mutual fund.
:thumbsup
But it might be interesting to see what it takes to get someone to actually answer that question.
bonesly
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Location: WA

Re: Asset Allocation recommendations?

Post by bonesly »

PGHunt24 wrote: Wed May 15, 2024 9:34 am Based on my portfolio below, is there a better way to allocate my money? Thanks

Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

(Blue is in 401k)
Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000 (28,700 in taxable and 26,300 in 401k)
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000

Grand total: 1,200,000
Your overall AA is about 44.3% stocks, 35.2% bonds, and 20.6% cash. Holding that much cash in taxable isn't particularly tax-efficient, but it seems like your tax-deferred space (the 401k) is already filled with bonds, no so other space to hold them. The only change I might suggest is that as the CDs mature (and maybe the $28,700 in VFSUX Taxable as well), move that into I-Bonds (through TreasuryDirect) and elect to defer the taxes on periodic interest. If you're in a low tax bracket (24% or less), the change to tax-deferred I-Bonds may not be worthwhile to you.

Otherwise I don't see a need to change your AA (drawing $50K/yr on a $1.2M portfolio with +3%/yr increases for inflation has a near-zero chance of running out of money before age 95), and you're limited on moves to better execute Tax-Efficient Fund Placement due to the 401k already being 100% bonds (no room for more).
Topic Author
PGHunt24
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Re: Asset Allocation recommendations?

Post by PGHunt24 »

bonesly wrote: Thu May 16, 2024 1:46 pm
PGHunt24 wrote: Wed May 15, 2024 9:34 am Based on my portfolio below, is there a better way to allocate my money? Thanks

Stocks US: Total Maket VTI 407,000
Stocks Intn'l: All World VEU 124,000
Total all Stocks: 531,000

(Blue is in 401k)
Bonds US: Intermediate term VFIDX 83,000
Short term VFSUX 55,000 (28,700 in taxable and 26,300 in 401k)
Total Bond Fund BND 122,000
Total Bond Fund VBTLX 49,000
Bonds Intn'l: Total Bond Fund BNDX 113,000
Total all Bonds: 422,000

CD expires 12/24, 4.9%, 100,000

MM VUSXX 150,000

Grand total: 1,200,000
Your overall AA is about 44.3% stocks, 35.2% bonds, and 20.6% cash. Holding that much cash in taxable isn't particularly tax-efficient, but it seems like your tax-deferred space (the 401k) is already filled with bonds, no so other space to hold them. The only change I might suggest is that as the CDs mature (and maybe the $28,700 in VFSUX Taxable as well), move that into I-Bonds (through TreasuryDirect) and elect to defer the taxes on periodic interest. If you're in a low tax bracket (24% or less), the change to tax-deferred I-Bonds may not be worthwhile to you.

Otherwise I don't see a need to change your AA (drawing $50K/yr on a $1.2M portfolio with +3%/yr increases for inflation has a near-zero chance of running out of money before age 95), and you're limited on moves to better execute Tax-Efficient Fund Placement due to the 401k already being 100% bonds (no room for more).
Thank you so much for your comments. Do you have a program that calculates the chance of running out of money that you referenced?
bonesly
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Location: WA

Re: Asset Allocation recommendations?

Post by bonesly »

PGHunt24 wrote: Thu May 16, 2024 8:32 pm Do you have a program that calculates the chance of running out of money that you referenced?
Asset Allocation Sheet
AA Current and Proposed

For annual rebalancing (or a major change in AA at a life-event).

Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo
Withdrawal Monte Carlo

You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).

When I run the Accumulation Monte Carlo with a -$50K/yr contribution, it shows a 5th percentile legacy balance of +$547K (95% chance of a higher balance at age 95). I can sort just Column T with the 1,000 trial results for annual withdrawal from smallest to largest and see that it transitions from negative to positive at row 12, so 12/1000 = 1.2% chance of running out early (98.8% chance of not running out early). Running a new set of 1,000 random draws should produce an estimate in the same ballpark but the exact numbers will vary from one trial set to the next.
Image

When I run the Withdrawal Monte Carlo, it shows a Likelihood of Success of 98.0±0.4%. Again, a new set of 1,000 random draws will be close to 98, but probably shifts around by a small amount. For comparison, the Trinity Study's 4% rule over 30 years is around 90% success; your success rate is higher because you're only looking at 23 years vs 30 years (despite an initial withdrawal slightly over 4%).
Image

It's nice to see how the calculations are done if you're proficient with Excel, but there are other models I like that don't require Excel.
Portfolio Visualizer's Monte Carlo (with distribution modeling rather than the historical returns array),
FiCalc (easy interface, but only historical data array),
TPAW (historical data, but adjusted to avoid limitations of a random index into the historical array),
and many others here seem to like FireCalc (also historical data, but lots more inputs to tailor to your situation).

I don't care for a random index into the historical array of returns, compared to distribution modeling, as noted in this thread HERE.
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