20 years with same asset allocation -- thinking of changing

[Mark2614]

I'm 40 and have had the same asset allocation since age 18-20. I simply copy the lifecycle 2050 fund -- with domestic, international, and bonds.

After staying the course for 20+ years, I'm having regrets about holding all these bonds for so long.
I'm also having regrets about international (like many others).

I am considering the following changes:

• Reduce my bonds to 0% until age 50.
• Reduce international from 35% to 25%. (Although, I could regret this if international finally make their comeback)

However, I'm nervous about making these changes in a 7 figure portfolio after holding the same allocation for decades. Your thoughts?

[Normchad]

I'm 40 and have had the same asset allocation since age 18-20. I simply copy the lifecycle 2050 fund -- with domestic, international, and bonds.

After staying the course for 20+ years, I'm having regrets about holding all these bonds for so long.
I'm also having regrets about international (like many others).

I am considering the following changes:

• Reduce my bonds to 0% until age 50.
• Reduce international from 35% to 25%. (Although, I could regret this if international finally make their comeback)

However, I'm nervous about making these changes in a 7 figure portfolio after holding the same allocation for decades. Your thoughts?

I don’t have any specific recommendations for you. I do think it makes sense though that your asset allocation should change over time.

As time passes, your accounts grow, your human capital erodes, and your life circumstances change. You may be having kids, or kids may be leaving the nest. You may get divorced or remarried. There may be inheritances on the horizon. And your job may be one that ebbs and flows with the greater economy, or it might be one that is largely immune from the economic cycle.

All of these things should be inputs to your asset allocation decisions. So yeah, definitely look at it, and be open to changing it if that makes sense for you, in your circumstances, at this time.

The portfolio you already have, is one that is frequently recommended by smart people that I respect. So although you may have misgivings about it, it certainly wasn’t a terrible mistake to have it. It’s common, I think, to look at these things and compare to “what else I could have done” and have a bit of buyers remorse.

If you’ve had it since 2004,I applaud you. And if I was in your shoes in 2004, I may well have picked the same AA. We just bit through Y2K and the dot.com.bust, etc. so picking a broadly divested, 3 fund portfolio is eminently sensible. Even if in hindsight it didn’t produce the absolutely highest total returns.

[westpac]

I think you are on the right track, maybe heavier on us and lighter on int''l.
I'm at 73% stocks 13 percent of that in int'l. i'm 68 y/o.

[Mark2614]

I do think it makes sense though that your asset allocation should change over time.

I do change my allocation in the sense that the LifeCycle fund itself is changing. My funds mirror the Lifecycle fund so I re-balance to match the Lifecycle 2050 fund quaterly.

Now I'm considering to dump bonds completely until age 50 -- and to reduce international. I'm just nervous about reducing international now when domestic feels overvalued and international could be undervalued.

[rkhusky]

Stay the course. You haven't given any reason for changing course. Hindsight is 20/20. You know that as soon as you make a change, the market will make you regret it. Do you need more money, such that you would increase risk to 100% stocks? TR 2050 is still only 10% bonds - doesn't seem like going 100% stock would do much.

[Mark2614]

Stay the course. You haven't given any reason for changing course. Hindsight is 20/20. You know that as soon as you make a change, the market will make you regret it. Do you need more money, such that you would increase risk to 100% stocks? TR 2050 is still only 10% bonds - doesn't seem like going 100% stock would do much.

Thanks for your input. My bonds portion is almost $250K -- although only 10%. I feel slight regret that this portion of my portfolio is earning nearly no return for the next 10-20 years. I own two homes and have an emergency fund so the bonds are not my emergency fund. They are part of my 401K.

[rkhusky]

Stay the course. You haven't given any reason for changing course. Hindsight is 20/20. You know that as soon as you make a change, the market will make you regret it. Do you need more money, such that you would increase risk to 100% stocks? TR 2050 is still only 10% bonds - doesn't seem like going 100% stock would do much.

Thanks for your input. My bonds portion is almost $250K -- although only 10%. I feel slight regret that this portion of my portfolio is earning nearly no return for the next 10-20 years. I own two homes and have an emergency fund so the bonds are not my emergency fund. They are part of my 401K.

You should probably just hold a TR fund directly, then you won't see the individual pieces and be tempted to fiddle. FOMO causes a lot of problems.

[Mark2614]

Thanks for your input. My bonds portion is almost $250K -- although only 10%. I feel slight regret that this portion of my portfolio is earning nearly no return for the next 10-20 years. I own two homes and have an emergency fund so the bonds are not my emergency fund. They are part of my 401K.

You should probably just hold a TR fund directly, then you won't see the individual pieces and be tempted to fiddle.

I don't do that because I have taxable and non-taxable. I hold equities in taxable and the bonds portion only in 401K.

[stimulacra]

Seems like you might be locking in your losses if you start dramatically shifting to US equities now.

I’m actually doing the opposite; increasing my allocation to international and rebalancing back into bonds. I feel like US equities had an exuberant run the last couple of years although it’s nice to see small caps finally get a long overdue bump…

[rkhusky]

You should probably just hold a TR fund directly, then you won't see the individual pieces and be tempted to fiddle.

I don't do that because I have taxable and non-taxable. I hold equities in taxable and the bonds portion only in 401K.

Maybe too late now, but you could hold US stocks in taxable, US and Int'l stocks in a Roth IRA, and an earlier TR fund in the 401K. May or may not be as complex as what you have now, but would serve to hide the bonds. You could adjust US/Int'l ratio that way too, but perhaps you can with your current setup. I'm at 30% Int'l, but anything between 20-40% seems reasonable, even up to market weight, which might be a bit higher.

[SnowBog]

Food for thought...

With a large portfolio (7 figure would be large), some will argue you have no need for an emergency fund. Others will argue you can afford an emergency fund.

In a similar vein, with a large portfolio (and presumably a large income) some will avoid you can afford to take more risk. Others will point out that you probably have less need for risk.

My two cents - stay the course.

For context, we are nearly 50, arguably have enough we could retire, but the "plan" is to work a few more years. In other words, we'll have "enough". Our AA is 70/30. Since we'll have "enough", being more aggressive just to end up with a bigger pile of money helps us how? By contrast, we have "far more to lose" than we need to gain, and far fewer years to do so. We sleep well at night.

If it wasn't clear, it's all a matter of perception. Two people will look at the same situation - and think a different approach makes sense for them.
Unless something has changed in your life to change your perception, seems like you are reacting to the markets. Which isn't recommended...

[Rocinante Rider]

If you have a stable profession/income, good disability and life insurance, and feel confident that you have the psychological and behavioral fortitude to stay the course during a protracted 50+% decline in equities (and even view such an occurrence as a great opportunity to add to your equity holdings), then avoiding bonds until less than ten years from retirement makes sense. I mildly regret not knowing enough to do that when I was younger, not merely because stocks have been the better investment but because I believe that it would have been the more thoughtful approach to avoid fixed income under the conditions I mentioned. On the other hand, I do not regret holding about 20% of my equities in total international (and 35% would have been reasonable too). I would have done better with 100% US, but I believe that holding international for diversification at least made more sense than holding bonds when ten, twenty, thirty, or more years away from retirement.

Whether you continue to hold 10% bonds and whether you decrease international from 35% to 25% of your equities probably won't make a meaningful difference either way. So try not to be too nervous. Being diversified means always having something to feel sorry about. For what it's worth, we're retired and in our mid-70s with 75% equities, 20% of which are still international. For our circumstances, I consider our AA to be pretty conservative. There is no one size fits all.

[steadyosmosis]

Much like you, 20+ years ago I could not foresee what would transpire for the next 20+ years.
As I now look forward, I still cannot foresee what will transpire in the next 20+ years.
So, I am making no changes to my asset allocation based on hindsight.

[smartinvestor2020]

I see recency bias affecting your decisions. Bonds and international stocks have done poorly the last 10 years. That doesn’t mean the next 10 years will be just as bad. I would argue that us stocks and especially large growth stocks will underperform the market the next 10 years even if AI is revolutionary.

[breakfastinbed]

You are asking two separate questions and I will give my thoughts separately:

On changing international allocation - please don't sell you international to buy US, and consider that switching contributions from international to US (in particular US large cap) is essentially betting against the vast majority of financial "experts"/institutions for whatever that's worth. No one can predict the future, sure, but fundamental investing theory tells us to sell high and buy low, not the other way around.

On bonds - well, you picked this allocation previously. Have things changed in your life sufficiently for you to change it? If you're on the fence: I am assuming you can make changes in your 401K without tax consequences, so you could always make a small change (like going from 100% bonds to 50% bonds/50% TDF, or to equities) and always reverse it.

I wouldn't take capital gains to make a big change.

Personally I am 100% equities and for the near future specifically will be letting my international allocation drift over its percentage (40%) while I look for other places to invest my money other than VTI.

[id0ntkn0wjack]

Jonathan Clements recently shared interesting thoughts on international at Humble Dollar.

Providing as a data point for your consideration:

https://humbledollar.com/2024/11/stuck-at-home/

[Raspberry-503]

... I feel slight regret that this portion of my portfolio is earning nearly no return for the next 10-20 years.

Your crystal ball is better than mine.

There are times bonds beat equities
There are times International beat US
There are times Small Cap Value beat large cap growth
etc...

[PowderDay9]

Jack Bogle's Words of Wisdom: "Stay the Course. No matter what happens, stick to your program. I've said "Stay the course" a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you."

[WL2034]

Thanks for your input. My bonds portion is almost $250K -- although only 10%. I feel slight regret that this portion of my portfolio is earning nearly no return for the next 10-20 years. I own two homes and have an emergency fund so the bonds are not my emergency fund. They are part of my 401K.

Also early 40s and just increased my bond allocation in 401k because equities have been so good my AA was 86/14 from -80/20. Also increased international equity allocation. I hated doing it because it feels like this US equity bull run will never end, so why decrease my equities? But I also hated selling my bonds to buy more equities in March 2020 because I was afraid the market was going to plunge even deeper. Despite my feelings, I bought equities then and I’m buying bonds now. Thus far, I feel like my investing career has been mostly convincing myself to do things that I don’t want to do.

One note is that I prefer to hold target date funds in 401k because I have good target funds with 0.05% ER and it makes things simple in the 401k. I have significant portion of retirement in taxable also, so I choose more conservative target date funds to achieve my overall AA. Currently using 2030 and 2025 TDFs with 40-50% bond allocations in 401ks to achieve overall 80/20. Just a consideration depending on the quality of other options and the ERs of different funds in tax deferred accounts.

[Parkinglotracer]

Well you won’t be buying into equities at market lows that is for sure. How is 65% US, 20% intl, 15% bonds? Making the change over time might protect you from feeling the pain of a US market correction. Of course no one knows.

At 63 I am 50-15-35.

[tdgb]

In my opinion, in a "Bogle mindset", portfolio changes should only be the result of personal situation changes and not changes in market beliefs (intl. vs US equity, for example).
In your case it doesn't seem like you experienced any personal changes recently or that you believe your portfolio isn't aligned with your objectives/lifestyle anymore, but rather that you think you'd get better returns with xyz allocation. I'm not arguing whether that'd be the case or not, but that would definitely run contrary to a "Bogle mindset".

[Target2019]

I'm 40 and have had the same asset allocation since age 18-20. I simply copy the lifecycle 2050 fund -- with domestic, international, and bonds.

After staying the course for 20+ years, I'm having regrets about holding all these bonds for so long.
I'm also having regrets about international (like many others).

I am considering the following changes:

• Reduce my bonds to 0% until age 50.
• Reduce international from 35% to 25%. (Although, I could regret this if international finally make their comeback)

However, I'm nervous about making these changes in a 7 figure portfolio after holding the same allocation for decades. Your thoughts?

Yes, I think you need to address something with the allocation-to-2050 style, even if it to just revisit what will happen very shortly. Vanguard's design parameters are here: https://institutional.vanguard.com/inve ... -path.html

So you've been in the relatively stable period of allocation, but that actually changes when you turn 40 (check this against your 2050 fund).

I can't tell you what to do, but with what I know now I'd be content with following 90% equity (slice as you desire) and 10% U.S. Bond fund. Then when you hit 50, put serious thought into a retirement schedule, and begin a glide path that meets your target. There are several decision to be made, and you can study up over the next 10 years.

All my opinion, and YMMV.

[dogagility]

This question depends upon... how much growth you need to fund your retirement and... how much volatility your psychology can withstand without panic selling.

You haven't provided the information on the first question, and we don't know you.

In my situation, I was 100% equities until a few years prior to retirement. It worked extremely well.

Forum member abc132 has provided information that a high stock allocation during accumulation and increased fixed income allocation a few years prior to retirement can lower "risk". Here, 'risk" is defined as not having sufficient money to fund retirement. I agree with abc132.

[steadyosmosis]

Forum member abc123 has provided information that a high stock allocation during accumulation and increased fixed income allocation a few years prior to retirement can lower "risk". Here, 'risk" is defined as not having sufficient money to fund retirement. I agree with abc123.

Maybe 'abc132'?

[dogagility]

Forum member abc123 has provided information that a high stock allocation during accumulation and increased fixed income allocation a few years prior to retirement can lower "risk". Here, 'risk" is defined as not having sufficient money to fund retirement. I agree with abc123.

Maybe 'abc132'?

Right!

[Outer Marker]

Stay the course. You haven't given any reason for changing course. Hindsight is 20/20. You know that as soon as you make a change, the market will make you regret it. Do you need more money, such that you would increase risk to 100% stocks? TR 2050 is still only 10% bonds - doesn't seem like going 100% stock would do much.

Thanks for your input. My bonds portion is almost $250K -- although only 10%. I feel slight regret that this portion of my portfolio is earning nearly no return for the next 10-20 years. I own two homes and have an emergency fund so the bonds are not my emergency fund. They are part of my 401K.

90/10 is plenty aggressive -- and since you have enjoyed that much financial success you have no need to take on more risk. Most of us have never expereinced a true bear market, just a few short-lived blips. They can and do happen. Personally, I've found 70/30 to be the sweet spot for my "forever" allocation. I opportunistically rebalanced up to 90/10 in 2008/09 and in in March 2020 durning major draw downs, retuning to 70/30 as the market reattained its prior highs. Having some safe fixed income was very profitable in being able to buy cheap equities on sale. (I'd recommend holding them in safer treasuries, vs. BND that tends to be the default recommendation. BND can desert you just when you need it most).

At your level of wealth, I doubt you need a dedicated "emergency fund." I keep a few months expenses in checking to cover unexpected and lumpy expenses. Everything else is invested per my AA. An EF is just a mental accounting exercise that results in under-allocation to equities. I have plenty of ways to access cash if I need it.

[Lawyered_]

I am confused by your "regret" over holding 90/10. 90/10 has outperformed 100% equities.

https://testfol.io/?s=jEx809ojt00

[Rocinante Rider]

I am confused by your "regret" over holding 90/10. 90/10 has outperformed 100% equities.

https://testfol.io/?s=jEx809ojt00

I am confused by your example. Isn't the 10% in your example international equities, not US bond market? Otherwise you'd be saying that domestic bonds have outperformed the US stock market over the past 55 years.

[Lawyered_]

I am confused by your "regret" over holding 90/10. 90/10 has outperformed 100% equities.

https://testfol.io/?s=jEx809ojt00

I am confused by your example. Isn't the 10% in your example international equities, not US bond market? Otherwise you'd be saying that domestic bonds have outperformed the US stock market over the past 55 years.

No, the 10% is ZROZ which is an ETF of the longest duration treasuries. They certainly didn’t perform VTI, but because of the non-correlation with stocks you get a rebalance bonus, which results in out performance versus 100% equities.

[Call_Me_Op]

Sounds to me that you are suffering from recency bias. There is a reason that Jack Bogle insisted that we "stay the coarse."

[HCopter]

You should rewrite your IPS, with a chapter on the history of what you did 18-40 to get you here. From this updated IPS is where you arrive at either a new or same asset allocation, among other things.

We were like you; we put all in to the Vanguard 2035 (I am 16 years older than you) and just worked and raised our family. At a crossroads in 2014 because we didn't know if they girls would go to private college and graduate school, which would be a $75,000/yr/daughter x 6 years (undergrad and grad school), rounded up to $1 million extra!

When DH died in 2022, I came to Bogleheads and did the IPS but now I have exhibits and attachments to it. I remember in the last 2 days of his life I was still thinking it was too bad we didn't fund his traditional IRA - I had just found Bogleheads while he was in hospice and I still had not really run the numbers to understand my RMD tax bomb problem! The main part of my portfolio is very Boglehead, but everyone is going to have outlier areas for all sorts of reasons.

Your IPS may not make sense to anyone else but you. That's why it's an Individual and not Collective Boglehead portfolio statement.

I commend you on your progress from 20-40.
Seems you need a statement taking you from 40-100, with intermediate step at 50.

[sep]

If another perspective helps, I am 59 years old, just over 2 1/2 years from retirement and I'm 100% US stocks. No bonds yet, no international. I'm good with that asset allocation based on my total financial situation.

[fourier]

Thanks for your input. My bonds portion is almost $250K -- although only 10%. I feel slight regret that this portion of my portfolio is earning nearly no return for the next 10-20 years. I own two homes and have an emergency fund so the bonds are not my emergency fund. They are part of my 401K.

I have a similar allocation. It drops ~$650 into my account every month like clockwork. How is that nearly no return? That's half my rent.

[Thesaints]

After staying the course for 20+ years, I'm having regrets about holding all these bonds for so long.
I'm also having regrets about international (like many others).

You didn't really "stay the course" for 20+ years; you kept a constant AA, which is not necessarily the same thing.

Have your personal circumstances changed during these 20 years ? If so, perhaps you should have already changed your allocation.
Instead, considerations such as "this investment class did not perform as well as another", or "Wish I would have taken on more risk !" (this one always comes after pronounced market upswings, of course) are not good reasons for changing your AA now.

[Outer Marker]

How big is the Emergency Fund relative to the $230k fixed income allocation? I always find it amusing when folks with a $500k portfolio say the are “100% equities” but have a $100K EF. That is, in fact, 80/20.