50% of Net Worth in TDF?

[itsjustme]

I recently calculated my asset allocation across the my entire portfolio (including cash accounts, but excluding the house) and came to realize that I have ~52% of my entire net worth in the Vanguard 2035 Target Date Fund. What do you all think of this? Is it too simple?

Some other relevant facts:

• Married couple, both mid-40s
• Hoping to retire no more than 10 years from now
• Overall asset allocation is 54% Equities / 24% Bonds / 22% Cash (half of the cash is for cars and house projects in the next ~2-3 years, I'm not sure what to do with the other half)
• I think everything is reasonably tax efficient (except maybe the cash):
  • Retirement accounts (401k, IRAs, and 529) are entirely TDFs.
  • Taxable Brokerage account is entirely Vanguard Total Stock fund (VTSAX).
  • Cash is half high-interest savings and half Vanguard Treasury Money Market.

Here is a more detailed breakdown of the asset allocation for 401k, Roth IRAs, 529, HSA, Taxable Brokerage, and Money Market Fund (the cash that is spoken for in the next 2-3 years is in high-interest savings and not included in the percentages below):

• 42% - Vanguard Total Stock Market Index
• 16% - Vanguard Total International Stock Index
• 17% - Vanguard Total Bond Market
• 7% - Vanguard Total International Bond
• 6% - Other (529 TDF includes a few additional funds)
• 12% - Vanguard Treasury Money Market
• = 100%

What do you think? Is this reasonable for a mid-40s couple ~10 years from retirement? After several years of keeping things extremely simple and reading a lot about DIY investmnets, should I keep everything in TDFs or branch out into a slightly more complicated allocation (for presumably some beneficial reason)?

I appreciate the input.

[Cletus Davenport]

Nothing necessarily wrong with that, so long as it suits your needs. I wouldn’t own a TDF in a taxable account because it gives you less options for rebalancing or for tax loss harvesting. But in a 401K, Roth, HSA, totally cool.

A lot of people here really embrace the three fund portfolio. And some others actually pursue a one fund approach. I.e. there are some users and posters who like to,put 100% of everything in a single fund. I might consider that when I get really old.

So nope, or problem at all having 52% in a single TDF. I bet for a lot of regular working folks, 100% of their portfolio is in a TDF in their 401k plan. And nothing wrong with that either.

You want exposure to equities and fixed income. You can do,it with several funds, or with just one, such as a TDF.

[Harmanic]

Simple, elegant, and appropriate.

[quantAndHold]

For a long time when I was working, I had 100% of my tax advantaged accounts in the TDF fund that was invested the most closely to how I wanted to be invested. Highly recommend. It keeps things simple.

In taxable accounts, TDFs can cause tax situations you don’t want. Better to keep more control in your taxable accounts.

[BackToSchoolDad]

Seems like a lot of cash given your age and retirement date being 10 years out. I'd limit that to however much emergency fund you're comfortable with and the specific amount needed for the sinking fund, some of that cash could be invested (conservatively), especially if the date of those purchases are flexible.

Aside from that, it looks way better than portfolios many people post here. Our portfolio is all TDF and VT, simple is good.

[Doctor Rhythm]

Net worth isn't a very useful measurement. I'd look at your investable wealth. For that, you could do a lot worse than investing 100% in a TDF. Main drawback as others have said is loss of tax efficiency when a TDF is held in a taxable account.

[SnowBog]

Nothing wrong with it!

In fact, there's a great case to be made for a "one fund" as a default recommendation. You can read it here: viewtopic.php?t=287967

[arcticpineapplecorp.]

Is it too simple?

you say that like it's a bad thing.

[hudson]

Nothing wrong with it!

I agree.
What would I consider doing if I was in your shoes?
I would try to squeeze a few basis points out by going with...
A total stock fund or ETF with an expense ratio (ER) of .03% compared to the TDF's ER or .08%.
An intermediate treasury fund or ETF with the lowest possible ER. Treasuries or NCUA/FDIC CDs are the safest choice. All other choices with maybe an exception give me heartburn.
I'd start adding TIPS. Inflation is the biggest threat to your holdings.
International? I'm the wrong person to ask. I never warmed up to anything international.

[sycamore]

Your TDFs may tilt your portfolio toward too much risk, too little risk, or about right amount of risk. But it's hard to say based on age and asset size alone.

We know about your assets but how about Social Security benefits and/or pension? What about expected spending needs? Knowing income streams and expenses lets you estimate the residual living expenses you'll have to pay for out of portfolio assets. This in turn let's you get a better idea of how much stock risk you can take.

[itsjustme]

I would try to squeeze a few basis points out by going with...
A total stock fund or ETF with an expense ratio (ER) of .03% compared to the TDF's ER or .08%.

Good thought on ERs, but it's looking like the effort might not be worth it. Here are my expense ratios for each account:

• 401k - 0.045%
• Roth IRAs - 0.08%
• Taxable - 0.04%
• 529s - 0.10%

The only opportunity I would have to lower anything meaningful is in the IRAs (529s don't have any better funds with a lower ER). I could get the IRAs down to 0.06% if I was to recreate the TDF with the underlying funds and rebalance occasionally. This would save me ~$150/yr in fees, but I'm not sure that's worth the effort.

[itsjustme]

I'd start adding TIPS. Inflation is the biggest threat to your holdings.

How would you suggest I incorporate TIPS? Build a ladder from 10 to 30 years from now? TIPS fund? Should this replace the cash portion of my portfolio?

[itsjustme]

Your TDFs may tilt your portfolio toward too much risk, too little risk, or about right amount of risk. But it's hard to say based on age and asset size alone.

We know about your assets but how about Social Security benefits and/or pension? What about expected spending needs? Knowing income streams and expenses lets you estimate the residual living expenses you'll have to pay for out of portfolio assets. This in turn let's you get a better idea of how much stock risk you can take.

I have a non-COLA pension coming my way. Maximum benefits start at age 62, decreasing each year until the earliest eligible age of 55. I planned to wait until 62. I will use a combination of Taxable, 401k, and IRAs between retirement (~10 years from now) until 62 for all expenses. The pension should then cover about half of expenses starting at age 62, with SS starting at age 70 to pick up some of the inflation drag of the pension.

Given all of this, I think I can probably take a little more stock risk than average, right? I have been putting an increasing amount into the Taxable account each year, which is 100% stocks, so I'm hoping that balances the increasingly conservative 2035 TDF over time. I'm open to any input on this though.

[hudson]

I'd start adding TIPS. Inflation is the biggest threat to your holdings.

How would you suggest I incorporate TIPS? Build a ladder from 10 to 30 years from now? TIPS fund? Should this replace the cash portion of my portfolio?

That would be another discussion totally that could be answered best by KevinM, TipsWatcher, kaesler, and 10 or more other Bogleheads.
Dcabler is a good reference for using funds and ETFs.
After much study, I used tipsladder.com to make a non-rolling TIPS ladder from around age 77 to 96.
I'll also load up on the 10 year TIPS that is coming up for re-auction maybe today.

Bottom line: Great question! I'm not qualified to answer that. I can do it for myself, but I would likely get it wrong for you.

Here's a long discussion started by KevinM: viewtopic.php?t=378350

[sycamore]

Your TDFs may tilt your portfolio toward too much risk, too little risk, or about right amount of risk. But it's hard to say based on age and asset size alone.

We know about your assets but how about Social Security benefits and/or pension? What about expected spending needs? Knowing income streams and expenses lets you estimate the residual living expenses you'll have to pay for out of portfolio assets. This in turn let's you get a better idea of how much stock risk you can take.

I have a non-COLA pension coming my way. Maximum benefits start at age 62, decreasing each year until the earliest eligible age of 55. I planned to wait until 62. I will use a combination of Taxable, 401k, and IRAs between retirement (~10 years from now) until 62 for all expenses. The pension should then cover about half of expenses starting at age 62, with SS starting at age 70 to pick up some of the inflation drag of the pension.

Given all of this, I think I can probably take a little more stock risk than average, right? I have been putting an increasing amount into the Taxable account each year, which is 100% stocks, so I'm hoping that balances the increasingly conservative 2035 TDF over time. I'm open to any input on this though.

I think it's reasonable to take more stock risk given your pension & SS benefits.

A few random thoughts...

- you've got the assets located in a tax-efficient way , and having assets in taxable, tax-deferred, and tax-free accounts will give you flexibility in managing how much income you incur each year. You'll have a few years where it's advantageous to convert trad IRA to Roth.

- Back to your OP question, I think using a TDF is entirely reasonable. Some folks are put off by having to calculate and update their portfolio AA each year to reflect the TDF's latest AA. Or by giving up the choice of US/International and stocks/bonds to the TDF manager. But those are minor trade-off for the benefits of the TDF.

- I'd review the portfolio with your spouse (if you haven't already). It's not uncommon for one spouse to be very interested in personal finance, and the other wanting nothing to do with it. A TDF is helpful in that situation.

- You may find a fixed-allocation fund like Vanguard's LifeStrategy more useful at some point, where you don't need the declining glide path of the TDF. However, the Vanguard Target Retirement Income fund has a reasonable allocation to TIPS that the LifeStrategy funds do not.

[mchampse]

You don’t own TDF, you own close to 30,000 different securities between the 4 funds that it in turn holds. You are plenty diversified.

[itsjustme]

Thanks for all the input. Frankly, I was expecting someone to say something like "when you reach a certain level (e.g., age, net worth, income, savings rate, etc), it makes sense to do xyz" since there are many Bogleheads with more complicated portfolios for seemingly justifiable reasons. So far, the consensus is that simplicity rules overall all other decisions, and I've already achieved it I guess. I'm not complaining, just trying to figure out what I'm going to do with all my free time. LOL

[SnowBog]

Thanks for all the input. Frankly, I was expecting someone to say something like "when you reach a certain level (e.g., age, net worth, income, savings rate, etc), it makes sense to do xyz" since there are many Bogleheads with more complicated portfolios for seemingly justifiable reasons.

That's the beautiful thing about BH principals and approaches... They work for the person just starting out with only a few $$ to save, and they work for the person with 2 commas (or more) in their accounts.

As for "justifying more complicated portfolios" - remember, much of that justification is often for themselves, and little of it likely maters in the end...

[Scott S]

If I were smart, I'd just put everything into a TDF, or maybe an all-in-one fund with a fixed AA instead of a glideslope. Then I wouldn't be able to tinker with anything.

But I'm not.