How Simple is Your Asset Allocation?

[Gas_Doc]

I'm an admitted "slice and dicer" when it comes to asset allocation and I'm trying to reign in my habit. I got to reading the Three Fund Portfolio thread over on the Bogelheads forum which seemed quite compelling. I'd be interested to hear others' thoughts on its simplicity and whether you feel you will potentially lose out on some return (or increase volatility) without further asset allocation.

 

Note: my current asset allocation is as follows

- Total US: 30%

- US Large Value: 10%

- US Small Value: 10%

- Total US Bond: 15%

- Total International: 27.5%

- REIT: 7.5%

 

I'd also be interested if anyone has strong feelings on the Jack Bogle's thoughts on adding corporate bond funds to more accurately capture the total US Bond market.

[PhysicianOnFIRE]

Mine (detailed here) is currently:

60% US Stock (52% large cap, 23% mid cap, 25% small cap)

20% International ( 49% developed market, 51% emerging)

10% REIT (index fund)

10% Bond / Cash (Total bond fund & emergency fund)

 

I like the tidiness of a three fund portfolio -- wrote about that, too -- but I have some tilt to small / mid caps and emerging markets. No opinion on the bond question, although when I am out of my employer's 401(k) and directing my own IRA, I may move some of the Total Bond money into intermediate corporate. Will read up on it more when the time comes.

 

Cheers!

-PoF

[StuRedman]

I have constructed the core 4 portfolio. Nice and simple.

A US total market index fund

An international total market index fund

A US REIT index fund

A US total bond market fund

[Craigy]

I happen to currently be in only three funds, small cap and mid cap value along with some S&P500.  I am young and don't need to cash out anytime soon so I've gone 100% equity.

The business school 101 was that you only need to be invested in about 10 disparate stocks to achieve significant diversification, so you hit that by investing in funds to begin with.

I am by no means a financial expert, but it is inherently clear that if you put money into every conceivable market, you will take every market's loss or subpar performance along with the others are gaining, and it will inhibit your long-term growth.  I'll probably have to watch some very big up and down swings over the next few decades but the goal for me is long-term performance and not short-term stability.

[DarrVao777]

Gas_Doc wrote:

I’m an admitted “slice and dicer” when it comes to asset allocation and I’m trying to reign in my habit. I got to reading the Three Fund Portfolio thread over on the Bogelheads forum which seemed quite compelling. I’d be interested to hear others’ thoughts on its simplicity and whether you feel you will potentially lose out on some return (or increase volatility) without further asset allocation.

 

Note: my current asset allocation is as follows

– Total US: 30%

– US Large Value: 10%

– US Small Value: 10%

– Total US Bond: 15%

– Total International: 27.5%

– REIT: 7.5%

 

I’d also be interested if anyone has strong feelings on the Jack Bogle’s thoughts on adding corporate bond funds to more accurately capture the total US Bond market.

Click to expand...

I do use the 3 fund portfolio (see below), I like the simplicity.

I realize the missing asset classes and high % of bonds (I'm in my 30s) may not make sense and will probably result in my losing out on some return. But this is a portfolio that I feel comfortable with, I think I can stick to it, and I've yet to experience my first bear market. I am actually rather proud of my self for sticking to this asset allocation for as long as I have since I tend to be a tinkerer in other aspects of my life. (My wife still rolls her eyes thinking about how many credit cards we've gone through in the last 24 months to find the "perfect" combo)

On the plus side, I make a lot, I save a lot (~50% gross, ~75% after tax), I spend fairly little, and for now, I enjoy my work a lot (I work in perhaps the most lifestyle friendly field in medicine AND I don't work full time to boot). I'm hoping to make up for the decreased return by saving more and saving longer despite not having concrete plans on how to spend such a big retirement nest egg.

I've looked into corporate bonds but decided the added complexity wasn't worth the small increase in returns. Particularly for someone with a majority of holdings in taxable.

 

Company Roth 401k = 3 fund portfolio using principal’s funds

Personal and spousal Roth Ira = 3 fund portfolio at vanguard

Child’s 529 = aggressive growth portfolio (2/3 total stock, 1/3 International Stock) at vanguard

Taxable account (~70% of retirement funds) = 3 fund portfolio with intermediate term munis instead of total bond fund at vanguard

Taxable account (aggressive subdivision, ~25% of retirement funds) = 100% total stock at vanguard

Hsa = 100% domestic stock fund (in the process of transferring assets from one HSA bank to another thanks to wife's job change)

Wife’s traditional 401k = target date fund (in the process of transferring assets thanks to wife's job change)

[DMFA]

VFIAX, FXSIX, TSP C Fund (S&P 500 index): 50%

TSP S Fund (Small-mid cap): 20%

TSP I Fund (Int'l, EAFE): 20%

BND (Barclay's Aggregate Bond): 10%

That's chosen that way (i.e. no "total stock") because I don't have those options in TSP and my wife's 403b.  VTSAX is 70% large, 20% mid, 10% small, so I did my best to mirror it, 49/21 instead of 50/20.  Next week with IRA contributions I'll probably add REIT, who knows...

[SwanSong]

I'm 100% Vanguard Target Fund 2045, which is:

54% Total Stock

35% Total International

7.1% Total Bond

3.0% Total International Bond.
I'll probably end up buying more bond funds or stock funds in my Roths in the future, though for now, I have access to institutional shares for the Target Funds, and the others aren't nearly as attractive in my 401k options.

[Sneezy]

Mine is too complex but I have multiple accounts in various locations and a current 401/403 with limited options (but some good ones)

Overall I follow the Swenson portfolio of

10% EM

15% Developed International

30% US Stock

15% Real estate (mostly via TIAA CREF)

15% TIPS

15% US Treasury

Mostly in Vanguard index funds or the equivalent except for Real Estate

[hightower]

I'm currently trying to pick a long term asset allocation and I'm considering the following:

30 % Total Domestic Stock

10 % Total International Stock

10 % Large Cap

10 % Small Cap

10 % Mid Cap

10 % REIT

20 % Bonds

 

I already own the VTI (total stock mkt), VXUS (total int stock mkt), BND (total bond mkt), and the large and small cap funds (because they are the only cheap funds available in my wifes 401k), but I haven't bought into the other stuff yet because I'm still undecided.  I definitely plan on doing the 10% REIT.  I kind of like John Bogle's philosophy on international stock (not necessary, but 10-20% won't hurt).  Its the Large, Small, and Mid Cap stuff I'm not sure of.  I could buy a mid-cap fund through my wifes 401K, but it has a .62% expense ratio.  Or I could just stick to the large and small and put more money in VTI?  Just not sure yet. I'm waiting for a couple of investment books to come in the mail actually so I can read up and make a decision soon.  I have about $20K sitting in MMF waiting to be invested.  I'm tempted to say "wait until the next market correction" but that's timing the market, so I know I shouldn't do that.

[Winkleweizen]

40 percent total us,  30 percent total international.  20 percent bonds and 10 percent emerging markets

[retinadoc]

40% total US equity fund (VTSAX)

40% total INTL equities (VTIAX)

20% intermediate US bonds (VBILX)

 

few notes:

- modest 1st yr attending portfolio

- i have read that its more complicated than "bonds in tax-deferred, stocks in taxable", but its honestly more than i want to think about it. i preferentially put US equities in taxable, US bonds in tax-deferred, and intl equities wherever they will fit. once i exhaust space in the tax-deferred account for bonds, then will buy some tax-exempt bonds in the taxable account.

- i think i can stick with this, but im admitedly a tinkerer and will have to tie myself down during the next (my first) bear market. i read as much as i can to educate myself so i behave badly when the world is seemingly ending.

[docnews]

I'm only in a Vanguard Target fund. This is the best for recovering tinkerers since you have no reason to rebalance or shift since it is all automatic. WCIs slice and dice had a similar cost which is currently 0.16%.

[jhwkr542]

Even trying to make a 3 fund portfolio would be difficult for me and my wife as we have very different investment choices in our 401k's. I have only a few low cost Vanguard funds in mine and her retirement accounts are through TIAA.  I've tried setting up a 3 fund portfolio + TIAA real estate in each account individually, but it does get complicated in the end, especially with her 3 separate accounts which yield different rates in the TIAA traditional account.

[DMFA]

hightower wrote:

I’m currently trying to pick a long term asset allocation and I’m considering the following:

30 % Total Domestic Stock

10 % Total International Stock

10 % Large Cap

10 % Small Cap

10 % Mid Cap

10 % REIT

20 % Bonds

 

I already own the VTI (total stock mkt), VXUS (total int stock mkt), BND (total bond mkt), and the large and small cap funds (because they are the only cheap funds available in my wifes 401k), but I haven’t bought into the other stuff yet because I’m still undecided.  I definitely plan on doing the 10% REIT.  I kind of like John Bogle’s philosophy on international stock (not necessary, but 10-20% won’t hurt).  Its the Large, Small, and Mid Cap stuff I’m not sure of.  I could buy a mid-cap fund through my wifes 401K, but it has a .62% expense ratio.  Or I could just stick to the large and small and put more money in VTI?  Just not sure yet. I’m waiting for a couple of investment books to come in the mail actually so I can read up and make a decision soon.  I have about $20K sitting in MMF waiting to be invested.  I’m tempted to say “wait until the next market correction” but that’s timing the market, so I know I shouldn’t do that.

Click to expand...

Make sure you account for the large/mid/small weightings of the total stock fund.  The average total stock fund (VTI, VTSAX, e.g.) is 70% giant/large, 20% mid, 10% small/micro.  That would give you 51% giant/large, 16% mid, 13% small.  Not saying that's good or bad etc, and it's prob just fine, but ensure that's the weighting you want.

[Bott1637]

I think everyone on this forum has already won the retirement game based upon our salary and income potential.  I think only a big mistake would change that.  Thus I don't care much about trying to squeeze a few tenths of a percent of return out of my portfolio.  When I started four years ago I did because why not try to make as much as possible.  But as life gets busier the value of simplicity goes up so I get closer to three fund + REIT with time and I won't lose any sleep over any potential unrealized gains.  As Jim preaches its not about the percent of this or that but if you can stick with it.  If you can you'll win the game no matter what road you take.