I feel my AA is a little high

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bobpark252
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Joined: Wed Aug 02, 2017 2:29 pm

I feel my AA is a little high

Post by bobpark252 » Sat Feb 15, 2020 5:59 am

I’m 51 I’m close to 75/25 I have stayed the coarse it has worked well. I’m feeling a little heavy if it took a 40% drop. I can trade to some bond funds. Does this make sense?
Go to 60/40
I would be coming out of mainly total stock market.
What would you recommend for bond with some returns?

VBILX
VUSTX
VFITX
VLTCX

lakpr
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Re: I feel my AA is a little high

Post by lakpr » Sat Feb 15, 2020 6:10 am

Assuming this is in your 401k type account, I would recommend VBILX (Vanguard Intermediate term Bond Index) or VFITX (Vanguard Intermediate Term Treasuries Index).

VUSTX ( Vanguard long term treasuries index) and VLTCX (Vanguard Long Term Corporate Bond Index) can be more sensitive to interest rate hikes. Personally I wouldn't feel comfortable with such increased risk. Among these two I would be even more cautious about the corporate bond fund; they dropped like crazy during the 2008 crisis. I am buying bonds for safety, and if I don't get that safety, why am I buying them exactly? I would go with long term treasuries if I decided the increase in yield is worth interest rate risk.

Yes a 60:40 rebalancing may make sense for you.

Juice3
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Re: I feel my AA is a little high

Post by Juice3 » Sat Feb 15, 2020 6:14 am

When you start your post with "I feel" there is not really a right and wrong answer. You feel how you feel.

Within the Bond sector there are corp or government with varying levels of risk. And duration with more or less sensitivity to interest rates.

Make the choices that without significant pitfalls that also make you feel good (or feel best if good is not possible).

UpperNwGuy
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Re: I feel my AA is a little high

Post by UpperNwGuy » Sat Feb 15, 2020 6:20 am

lakpr wrote:
Sat Feb 15, 2020 6:10 am
Assuming this is in your 401k type account, I would recommend VBILX (Vanguard Intermediate term Bond Index) or VFITX (Vanguard Intermediate Term Treasuries Index).

VUSTX ( Vanguard long term treasuries index) and VLTCX (Vanguard Long Term Corporate Bond Index) can be more sensitive to interest rate hikes. Personally I wouldn't feel comfortable with such increased risk. Among these two I would be even more cautious about the corporate bond fund; they dropped like crazy during the 2008 crisis. I am buying bonds for safety, and if I don't get that safety, why am I buying them exactly? I would go with long term treasuries if I decided the increase in yield is worth interest rate risk.

Yes a 60:40 rebalancing may make sense for you.
Note that VFITX is not an index fund. VSIGX is Vanguard's intermediate Treasury index fund. Similarly, VUSTX is not an index fund. VLGSX is Vanguard's long term Treasury index fund.

lakpr
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Re: I feel my AA is a little high

Post by lakpr » Sat Feb 15, 2020 6:25 am

UpperNwGuy wrote:
Sat Feb 15, 2020 6:20 am
Note that VFITX is not an index fund. VSIGX is Vanguard's intermediate Treasury index fund. Similarly, VUSTX is not an index fund. VLGSX is Vanguard's long term Treasury index fund.
Thank you for correcting me. I had been under the impression that VFITX and VUSTX were index funds. I have some of my money in VFITX in fact, while under the impression it is an index fund.

I am not going to change my investment (VSIGX is not available in my plan, at least I don't think it is, too lazy to open up the plan site and check at this hour), but indeed good to know. Thanks again

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Watty
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Re: I feel my AA is a little high

Post by Watty » Sat Feb 15, 2020 6:41 am

You will get better suggestions if you post your information using this suggested format as a guideline, but you don't need to follow it exactly.

viewtopic.php?f=1&t=6212

It would also be good to edit your post to at the mutual fund names instead of just their ticker symbols since most people to not have them memorized. You can use the icon with a pencil on it to do that.

In picking an asset allocation to use I like to look at target date funds to see what they use as a starting point. Assuming that you plan on retiring in about 2035 the Vanguard 2035 is about 75% stocks and 25% bonds which is the same as you are using now.

https://investor.vanguard.com/mutual-fu ... olio/vtthx

You can also look at several other mutual fund companies target date funds to see what they use since different companies use different asset allocations for the same date fund.

If your personal risk tolerance is lower and you need to be less aggressive to be comfortable then that is OK and "it is what it is" so you need to plan accordingly and reduce your stock exposure some. The cost to that is that you might need to plan on saving more and/or working longer but that is a necessary tradeoff for some people.

One thing you do not want to do is to change your asset allocation now because you are concerned and then change it again every year or two depending on how you feel. When people do that they typically do bad market timing since most people have similar concerns so the concerns are already priced into the market.

If you use the target date fund as a guideline then going from 75% stocks to 60% stocks is a pretty big change so you might want to consider if being 15% lower in stocks is where you want to be to the long term. There is no one right answer but 10% lower would be less extreme.

theorist
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Re: I feel my AA is a little high

Post by theorist » Sat Feb 15, 2020 7:25 am

OP,

If you feel your AA is too aggressive given changes in your situation since you decided upon it, then modifying it makes sense. Perhaps you have accumulated a large fraction of your goal assets for instance, and see less need to take risk. Or perhaps recent experience has shown you have reduced willingness to take risk — you have to be able to sleep, after all.

The latter seems surprising unless correlated in your case with the former, since at 51 you’ve survived the significant travails of 2008-09 and numerous smaller market events (as well as maybe the tech bubble, depending on when you started investing!). But if you’re sure it is a long term change in your perspective on risk, respect it and adjust your AA.

From my perspective and that of much expert advice, 60/40 is a reasonable middle of the road allocation (age-10 in bonds) at your age, and 75/25 is aggressive. But 10 years of pretty friendly markets have shifted norms, and you might not feel that way. And of course those are crude rules; details of your situation and psychology can matter a lot.

FWIW, I’m about your age and at 70/30. I feel it is too aggressive half the time, and too conservative half the time. To me that means it is about right (for me).

Good luck!

rkhusky
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Re: I feel my AA is a little high

Post by rkhusky » Sat Feb 15, 2020 7:36 am

bobpark252 wrote:
Sat Feb 15, 2020 5:59 am
I’m 51 I’m close to 75/25 I have stayed the coarse it has worked well. I’m feeling a little heavy if it took a 40% drop. I can trade to some bond funds. Does this make sense?
Go to 60/40
I would be coming out of mainly total stock market.
What would you recommend for bond with some returns?
Do you have a Total Bond fund? It has a mix of Treasuries and Corporate bonds and a mix of short, int, and long bonds, and is the usual bond fund for a three-fund portfolio. If not, either of the Intermediate funds listed would be fine.

VBILX would be closest to Total Bond. The differences are that VBILX has only intermediate bonds, less government bonds (but more Treasuries), no mortgage bonds, and more bonds with lower credit ratings. The SEC yield is 1.94%. (Total Bond has an SEC yield of 2.12%)

VFITX would be the safer choice, being all government bonds and mostly Treasuries (83%). The SEC yield is about 1.47%. You can see that yield is inversely related to safety.

Vanguard's non-index funds are still low-cost. They are Investor class, but you need to have $50K to reach Admiral class and fees that are comparable to the index funds.

The conservative age-in-bonds allocation would have you at 50/50. 60/40 would have you at age-10, which is well within the range of reasonable choices. More aggressive investors might be age-20.

To me, it would feel better to go more conservative at a market high, like it is now. Rather than seeing the market drop 10% and then decide the portfolio was too aggressive.
Last edited by rkhusky on Sat Feb 15, 2020 7:50 am, edited 2 times in total.

dcabler
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Re: I feel my AA is a little high

Post by dcabler » Sat Feb 15, 2020 7:48 am

bobpark252 wrote:
Sat Feb 15, 2020 5:59 am
I’m 51 I’m close to 75/25 I have stayed the coarse it has worked well. I’m feeling a little heavy if it took a 40% drop. I can trade to some bond funds. Does this make sense?
Go to 60/40
I would be coming out of mainly total stock market.
What would you recommend for bond with some returns?

VBILX
VUSTX
VFITX
VLTCX
To echo what others have said, I probably wouldn't go with the long term bond funds due to interest rate sensitivity. I personally do intermediate bonds. Most of the crowd here likes total bond funds, but I tend to prefer intermediate treasuries myself when they are available - FUAMX at Fidelity. Yes, VFITX isn't an index fund but based on its past performance, management doesn't appear to be heavy handed. Either a total bond or intermediate treasury fund would be a reasonable choice.

Topic Author
bobpark252
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Joined: Wed Aug 02, 2017 2:29 pm

Re: I feel my AA is a little high

Post by bobpark252 » Sat Feb 15, 2020 8:39 am

All the accounts are in a simple Ira

I have 80% total bond market and 20% intermediate term bond
As my bonds

If I lower stocks I think all I need is total bond market

I’m staying the course with everything, I’m using about 7% to play with stocks and other investments. Everything else is index funds it’s working as planned.

J295
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Re: I feel my AA is a little high

Post by J295 » Sat Feb 15, 2020 10:04 am

Adopt a well-thought-out investment policy statement tailored specifically to your situation… Then follow it.

Acting on “feelings,” which are typically greed or fear of some form, is not recommended.

cashboy
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Location: USA

Re: I feel my AA is a little high

Post by cashboy » Sat Feb 15, 2020 1:05 pm

if you have not seen this already, this might help with a general view of returns (and down and up years).

https://personal.vanguard.com/us/insigh ... llocations



if you do not have an IPS, this might help provide an overview, and you might consider making one (as suggested above)

https://www.bogleheads.org/wiki/Investm ... _statement

an IPS can help (especially during troubled times) change your approach away from 'what am i feeling' to 'what i will be 'doing'. an IPS helped me focus.

good luck to you!
:sharebeer
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)

dbr
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Re: I feel my AA is a little high

Post by dbr » Sat Feb 15, 2020 1:45 pm

If stocks fall 50% a 75/25 AA will lose 38% of its value. A 60/40 AA will lose 30% of its value. I don't think there is much difference between the two.

To cut your loss in half you would have to change from 75/25 to more like 40/60, if that is a criterion to use.

If you want to see the outcome in end-point wealth for different asset distributions you could run a couple of examples in Firecalc. What you will see there is the distribution of possible outcomes. There are other tools that do the same thing. For example we could compare starting with $200,000 and $10,000 invested per year for 15 years and get the result that the accumulated wealth for 75/25 could range from $147,318 to $790,427 and the possible range for 60/40 will be $150,624 to a high of $743,683. The range represents the results that would have been obtained for stocks and bonds in the United States starting in initial years of 1871 to 2004. The point is that compared to the uncertainly in what result you will get the difference between those allocations is negligible. If a person would prefer they can attack this problem via a Monte-Carlo simulation rather than using historical returns. By the way, the worst years were starting in 1882 1927 1880 1883 1928 1881 1926 1929 1876 1874 and the best years were for an investor starting in 1971 1979 1914 1976 1978 1973 1974 1975 1977 1972

lkar
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Re: I feel my AA is a little high

Post by lkar » Sat Feb 15, 2020 5:43 pm

bobpark252 wrote:
Sat Feb 15, 2020 5:59 am
I’m 51 I’m close to 75/25 I have stayed the coarse it has worked well. I’m feeling a little heavy if it took a 40% drop. I can trade to some bond funds. Does this make sense?
Go to 60/40
I would be coming out of mainly total stock market.
What would you recommend for bond with some returns?

VBILX
VUSTX
VFITX
VLTCX
I’m a year older than you, hoping to retire around 63.5. I selected a 2035 target date when they first came to my plan even though I am right around 2032, instead of a 2030 target date. Now, I want to be just a little more conservative so I switched to 65/35 by purchasing a little AGG to get me to 65/35. New contributions are going into 2030. In the end I don’t know that it matters all that much but 65/35 feels right to me after being a touch aggressive by picking a target date fund a bit farther into the future than my actual desired date.
Last edited by lkar on Sat Feb 15, 2020 6:06 pm, edited 1 time in total.

retiredjg
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Re: I feel my AA is a little high

Post by retiredjg » Sat Feb 15, 2020 5:56 pm

Sounds to me like your risk tolerance has dropped as you have aged. That is normal and to be expected. The obvious solution is to sell stocks and buy bonds.

As to which bond fund (I don't know all the tickers), I don't think it matters a whole lot if you stick with medium to high quality intermediate term funds...vanilla bonds...with low costs.

People have preferences as to whether they want mortgage back securities or treasuries or this or that, but any good quality bond fund should do the job it is intended to do. 40% bonds is certainly a reasonable number just based on your age.

mtwhmemn
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Re: I feel my AA is a little high

Post by mtwhmemn » Sat Feb 15, 2020 6:02 pm

I went from where you are to 50/50 because retirement is coming much faster than I anticipated. That said, why not put 3 years or so of living expenses in cash and then stay where you are?

Elysium
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Re: I feel my AA is a little high

Post by Elysium » Sat Feb 15, 2020 6:04 pm

dbr wrote:
Sat Feb 15, 2020 1:45 pm
If stocks fall 50% a 75/25 AA will lose 38% of its value. A 60/40 AA will lose 30% of its value. I don't think there is much difference between the two.
There is a difference, the amount of gains needed for recovery. Long term averages will depend on how large the drawdowns were and how long it took to recover. Portfolio with 38% loss would take longer road if recovery is slower, in fact even with faster recovery it is desirable to lose 30% and gain back 30% than lose 38% and gain back 38%. Both are still be under water but the 60/40 would have better long term average returns when all considered.

See here , 75/25 with 36% drawdown and 60/40 with 29% drawdown, and the 60/40 ends up with preserving more capital. Change it to include more number of years on either side and 60/40 looks better until you go out about 8-10 years recovery.

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ScooterBob
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Re: I feel my AA is a little high

Post by ScooterBob » Sat Feb 15, 2020 7:09 pm

I'm slightly older than you. I retired at 54 and was around 65/35 at that point. I'm now down to 46.9/53.1. I'm in the process of working that down to 40/60. No reason to take unnecessary chances at this point. I am also investing with a realistic life expectancy time frame in mind. I don't invest with the idea of living until I'm 90 like I so often read about. I might end up going even more conservative as I think things through. Remember, no one is going to come to your aid from this or any other message board if the market takes a deep, long term dive. You'll be out there on your own. Make the decisions YOU are comfortable with and go with it. Tons and tons of useful info here but it all comes down to your personal situation.

Bob

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willthrill81
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Re: I feel my AA is a little high

Post by willthrill81 » Sat Feb 15, 2020 7:38 pm

If you feel that it is too stock heavy, then it probably is.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Fallible
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Re: I feel my AA is a little high

Post by Fallible » Sat Feb 15, 2020 7:40 pm

bobpark252 wrote:
Sat Feb 15, 2020 8:39 am
All the accounts are in a simple Ira

I have 80% total bond market and 20% intermediate term bond
As my bonds

If I lower stocks I think all I need is total bond market

I’m staying the course with everything, I’m using about 7% to play with stocks and other investments. Everything else is index funds it’s working as planned.
It appears you are considering lowering stock risk to be more in line with your personal risk tolerance, but then you say you are using "about 7% to play with stocks and other investments." If you're playing with individual stocks, you would be raising risk, rather than lowering it. How would you explain this?
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

MoneyMarathon
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Re: I feel my AA is a little high

Post by MoneyMarathon » Sun Feb 16, 2020 4:00 am

bobpark252 wrote:
Sat Feb 15, 2020 5:59 am
What would you recommend for bond with some returns?
Here's a picture of the historical returns and risk characteristics for some different bond choices.

Image

Portfolio 1 is Corporate Bonds, Portfolio 2 is Long Term Corporate Bonds, and Portfolio 3 is Total Bond.

You could implement them with VICSX, VLTCX, and VBTLX, respectively.

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