rollover allocation

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rossv
Posts: 34
Joined: Mon Dec 16, 2024 9:29 pm

rollover allocation

Post by rossv »

I'm rolling over an IRA to Fidelity and need ideas on how to allocate the $521K. I'm retired, 60 years old, and considering a 60/40 stock-to-bond allocation.

For stocks (60% allocation):

Would VOO be a better choice than VTI, or should I use both?
I'm thinking 60% VTI and/or VOO, 20% VXUS, and 20% SCHD.
For bonds (40% allocation):

40% BND, 30% SGOV, and 30% VTIP.
Does this approach make sense, or am I overcomplicating it? Would a simpler allocation be better?
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id0ntkn0wjack
Posts: 484
Joined: Wed Nov 30, 2022 3:12 pm

Re: rollover allocation

Post by id0ntkn0wjack »

If I were Taylor Larrimore, I would point you to the three-fund portfolio:

https://www.bogleheads.org/wiki/Three-fund_portfolio

If I were Mike Piper, I would note that there’s no perfect portfolio, but there are a unlimited number of pretty good approaches.

But I am just me and would say your choices seem reasonable and would likely allow you to SWAN.

You might find it worthwhile to put together an IPS, if for no other reason than it is a good thought exercise for you to examine your motives

https://www.bogleheads.org/wiki/Investm ... _statement
steadyosmosis
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Joined: Mon Dec 26, 2022 11:45 am

Re: rollover allocation

Post by steadyosmosis »

VTI, VXUS, and BND will work.
Credibility ... some posters have it.
bonesly
Posts: 2524
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Location: WA

Re: rollover allocation

Post by bonesly »

id0ntkn0wjack wrote: Sat Feb 01, 2025 10:24 pm You might find it worthwhile to put together an IPS, if for no other reason than it is a good thought exercise for you to examine your motives
An IPS can also serve as a reference for your partner if you should pass first!
rossv wrote: Sat Feb 01, 2025 10:13 pm Would a simpler allocation be better?
I tend to agree with the simpler is better concept: 60% stocks and 40% BND. 48% VTI+ 12% VXUS = 60% stocks with 20% of stocks in int'l (60% x 20% = 12%).

“When there are multiple solutions to a problem, choose the simplest one.” -- John C. Bogle
"Simplicity is the master key to financial success." -- John C. Bogle
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
sport
Posts: 12421
Joined: Tue Feb 27, 2007 2:26 pm
Location: Cleveland, OH

Re: rollover allocation

Post by sport »

rossv wrote: Sat Feb 01, 2025 10:13 pm I'm rolling over an IRA to Fidelity and need ideas on how to allocate the $521K. I'm retired, 60 years old, and considering a 60/40 stock-to-bond allocation.

For stocks (60% allocation):

Would VOO be a better choice than VTI, or should I use both?
I'm thinking 60% VTI and/or VOO, 20% VXUS, and 20% SCHD.
For bonds (40% allocation):

40% BND, 30% SGOV, and 30% VTIP.
Does this approach make sense, or am I overcomplicating it? Would a simpler allocation be better?
You do not show any other investments. How would you react if that 60% stock suffered a 50% drop in value? That would result in a loss of about $156,000.
WeakOldGuy
Posts: 1156
Joined: Mon Jan 01, 2024 10:42 pm

Re: rollover allocation

Post by WeakOldGuy »

For a 60/40 split your ideas may be just fine.
I would look at this rollover in light of your entire portfolio. Your total portfolio can be 60/40 yet this IRA account doesn't need to be. Do you have a Roth or a 401k, an HSA? Do you have a taxable brokerage account?

Do you have any other accounts? If you do what is your total portfolio allocation?
What are you looking to achieve with the short term TIPS VTIP? I hold a similar ETF but what do you want it to do for you?
What is the reason for the SCHD position instead of all VTI? Again, not a criticism but can you articulate for yourself why you want to make that decision?

I ask the above questions because I keep having to remind myself that if I am going to deviate from a simple 3 fund index portfolio, I need have good reasons. The reasons need to be rational, in line with my investment policy statement, and understandable to a simpleton such as myself.
On investing; I have lots of questions, many opinions, and little knowledge. A dangerous combination. Be warned.
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goingup
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Joined: Tue Jan 26, 2010 12:02 pm

Re: rollover allocation

Post by goingup »

We rolled over a 401k in 2019 into Wellington Admiral Fund, which is close to 60/40 with less than 10% international.

I like not having to balance it. The bonds are being professionally managed. When it’s time for required distributions many years from now, they can be done easily.

Having just one fund for tax deferred keeps things simple.
MrDollarBill
Posts: 1
Joined: Sun Feb 02, 2025 2:29 pm

Re: rollover allocation

Post by MrDollarBill »

sport wrote: Sun Feb 02, 2025 1:41 pm
rossv wrote: Sat Feb 01, 2025 10:13 pm I'm rolling over an IRA to Fidelity and need ideas on how to allocate the $521K. I'm retired, 60 years old, and considering a 60/40 stock-to-bond allocation.

For stocks (60% allocation):

Would VOO be a better choice than VTI, or should I use both?
I'm thinking 60% VTI and/or VOO, 20% VXUS, and 20% SCHD.
For bonds (40% allocation):

40% BND, 30% SGOV, and 30% VTIP.
Does this approach make sense, or am I overcomplicating it? Would a simpler allocation be better?
You do not show any other investments. How would you react if that 60% stock suffered a 50% drop in value? That would result in a loss of about $156,000.
Does VTI / VOO ever fall that much historically ? I think it drops that much, I think we have bigger problems to worry about besides stocks
sport
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Location: Cleveland, OH

Re: rollover allocation

Post by sport »

MrDollarBill wrote: Sun Feb 02, 2025 2:50 pm
sport wrote: Sun Feb 02, 2025 1:41 pm You do not show any other investments. How would you react if that 60% stock suffered a 50% drop in value? That would result in a loss of about $156,000.
Does VTI / VOO ever fall that much historically ? I think it drops that much, I think we have bigger problems to worry about besides stocks
In 2007-2009, the S&P 500 dropped approximately 50% https://en.wikipedia.org/wiki/United_St ... %80%932009
enad
Posts: 1849
Joined: Fri Aug 12, 2022 2:50 pm

Re: rollover allocation

Post by enad »

sport wrote: Sun Feb 02, 2025 1:41 pm How would you react if that 60% stock suffered a 50% drop in value? That would result in a loss of about $156,000.
If one allocated their portfolio into a stock/bond/cash position, one could use cash and possibly bonds which may have appreciated in value as people flee stocks. When the market recovers they can restore their balances. So having a cash position could help
bonesly
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Location: WA

Re: rollover allocation

Post by bonesly »

enad wrote: Mon Feb 03, 2025 1:33 am
sport wrote: Sun Feb 02, 2025 1:41 pm How would you react if that 60% stock suffered a 50% drop in value? That would result in a loss of about $156,000.
If one allocated their portfolio into a stock/bond/cash position, one could use cash and possibly bonds which may have appreciated in value as people flee stocks. When the market recovers they can restore their balances. So having a cash position could help
I won't disagree, but holding cash rather than holding bonds means you think you can predict when you should have a big cash pile (you think a crash is coming) or you always have a big cash pile (you subscribe to the bucket strategy).

The first case requires a working crystal ball so that's invalid (although people do sometimes gamble on what they think is going to happen). The second case is more contentious because a lot of "respected" financial personalities (and perhaps even some qualified CFPs and/or those with graduate degrees in finance) advocate that one should never hold bond funds, only a ladder of individual bonds, and they espouse 1 to N years of expenses in cash to not have to draw from stocks "when they're down."

The Trinity Study did not use a bucket strategy and Vanguard's white paper on bonds vs ladders has an enlightening passage about the the Principal at Maturity Myth. Subsequently, I think it's fine to use an individual ladder or a cash bucket for the psychological comfort of an improved Sleep Well At Night (SWAN) factor, but it's no better than using a bond fund for a period exceeding 10 years and the bigger the cash bucket the bigger the cash-drag.

The reason to hold bonds or cash is because those two asset classes are uncorrelated with each other, the the magic of the result being better than the sum of the parts (improvement to risk-adjusted return). Ideally, you'd add a hypothetical asset class that has the same average return as stocks of 11.5% but is negatively correlated... then you'd have a risk-free return of 11.5% like a CD with a rate that is magically that high (does NOT exist). However adding an uncorrelated asset is pretty good so bond -OR- cash. Bonds have an expected return around 5.2% while for cash it's only 3.4% (NYU data set from 1928-2017). Bonds and cash are correlated so adding both does not further improve the risk-adjusted return, it just lowers your expected total return.

Since bonds have a higher expected return, that's the asset class you should add, not cash. I do think it's fine to have 1-2 years of cash on hand for expenses, but that's just to minimize transactions (one big pull from the portfolio to the MMF/Cash Management Account once a year, typically in Jan) and that cash is no longer counted in the investment portfolio (it's in a near-term spending pile). I prefer to pull monthly rather than one big shot but personal preference.

Holding more cash than 1-2 years doesn't make sense to me. It lowers your expected return and it doesn't further improve risk-adjusted return of the investment portfolio. Still, humans are a funny lot with their greed/fear schemes; bucket strategies and individual ladders feel like trying to balance minimal fear while maximizing greed, when if you looked closely you'd see there's no panacea to be found with those strategies (which is why it confounds me that people like Suze Orman so passionately dissuade investors from bond funds).

Like I opened with, I won't disagree because there is a human psychology to investing and everyone's risk-tolerance is their own, so each investor has to do what gives them the SWAN factor... if that's cash buckets and individual ladders, I'm all for it if that's your plan you'll stick to it!
Don't do what Bogleheads tell you. Listen to what we say, consider other sources, and make your own decisions, since you have to live with the risks & rewards (not us or anyone else).
johnegonpdx
Posts: 332
Joined: Thu Apr 09, 2020 3:07 pm

Re: rollover allocation

Post by johnegonpdx »

Consider using Fidelity's ZERO index funds if you plan on parking at Fidelity indefinitely.
enad
Posts: 1849
Joined: Fri Aug 12, 2022 2:50 pm

Re: rollover allocation

Post by enad »

bonesly wrote: Mon Feb 03, 2025 12:36 pm
enad wrote: Mon Feb 03, 2025 1:33 am
If one allocated their portfolio into a stock/bond/cash position, one could use cash and possibly bonds which may have appreciated in value as people flee stocks. When the market recovers they can restore their balances. So having a cash position could help
I won't disagree, but holding cash rather than holding bonds means you think you can predict when you should have a big cash pile (you think a crash is coming) or you always have a big cash pile (you subscribe to the bucket strategy).

Holding more cash than 1-2 years doesn't make sense to me. It lowers your expected return and it doesn't further improve risk-adjusted return of the investment portfolio.

Like I opened with, I won't disagree because there is a human psychology to investing and everyone's risk-tolerance is their own, so each investor has to do what gives them the SWAN factor... if that's cash buckets and individual ladders, I'm all for it if that's your plan you'll stick to it!
You misread or misinterpreted what I wrote. I wrote about an allocation that includes stocks, bonds, AND cash, and I did not say how much cash is appropriate. What I hold in my stock/bond/cash bucket works for me, but may not work for others and that's fine. I don't lose any sleep over what others hold or how long they decide to stick with something. Everyone's situation is different and there is no one universal approach. Holding cash in addition to bonds has worked for me in the last 10 recessions/market crashes and I see no reason why it will not continue to work.

I present the option to hold cash to the OP as something to consider. It's a valid option and they can choose to ignore it or act on it. It's all up to them
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