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  • #16
    Here is a direct response to my initial message that was unable to post directly to the forum and was sent to me directly. Many thanks...

    JK, I tried to post a reply to you, but the forum is still a bit buggy, and will not allow me to. Here's my post, and if you think it is worthwhile, you can paste it into the thread so others can see. -M JK, coming from the perspective of someone 10 years into practice, I think you're (overall) on the right track.  To answer your questions and offer a couple of tweaks: An 80/20 allocation is reasonable, but you could consider being more aggressive based on your goals.  My goal (full disclosure) is an early retirement.  As I am in my early 40's now, have longevity in my family tree, and plan to retire within the next 5-8 years, my portfolio needs to last a good 40-45 years.  Therefore, the more I weight towards bonds, the less likely it is my portfolio will last (stocks have greater growth potential, as you know, while the returns on bonds could be eaten up by inflation, leading to portfolio failure).  So, if you think you can stomach greater volatility in your portfolio, you could consider a 90/10 split at this point (or higher), recognizing that you will go through several bear markets during your working life, which will give you the chance to buy more stock at a bargain.  Hopefully, as a PGY-2 resident (in derm, a great lifestyle specialty), you are not yet contemplating retirement, so your time horizon should be pretty long. While I do not currently have much in REITs, I think your proposed weighting is reasonable, as long as it stays in a tax advantaged account, as REITs are not tax-efficient.  For greater diversification, I think REITs are fine, even though JL Collins (www.jlcollinsnh.com) makes a pretty good argument for why he has "stepped away" from them (see Stock Series on his blog). Before you commit too much time, energy, and money to constructing a small/value tilted portfolio, make sure to read more of the arguments against it.  In this arena, I admit that I am not enough of an expert to guide you (WCI knows this space very well, of course, and I believe he tilts).  With my limited understanding, I find myself swayed by both sides of the argument, leading me to not try too hard to tilt my portfolio.  That said, when the asset allocation tool on Personal Capital tells me I am underweighted in value, I do try to rebalance by adding more to my Vanguard Value Index Fund (not really a tilt, of course). I think your bond fund choice is reasonable, as long as it is in a tax advantaged account.  While WCI has pointed out that bonds should often go in taxable (rightly), if you have the space in tax advantaged, you can use it.  Since I save very aggressively, my tax advantaged space is maxed pretty quickly, so I put a lot into taxable accounts every month.  For the portion of my investments that go into bonds, I use Vanguard's Intermediate-Term Tax-Exempt Bond Fund. I think your proposed asset allocation is pretty good.  But consider these points: - If you decide to not tilt, just use the Total Stock Market Fund for your US allocation. - Your proposal of using Total International makes a separate allocation to Emerging Markets a duplication of effort, as VGTSX includes emerging markets as well.  If you want to slice and dice this category, you can use Vanguard Developed Markets (VDVIX/VTMGX) and Vanguard Emerging Markets Index (VEIEX/VEMAX).  I do the latter, but don't try to replicate my portfolio.  It is the result of lots of ugly trial and error over many years, and could be much cleaner.  But it gets the job done. Hope this helps.

     

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    • #17
      JK, I tried to post a reply to you, but the forum is still a bit buggy, and will not allow me to. Here's my post, and if you think it is worthwhile, you can paste it into the thread so others can see. -M JK, coming from the perspective of someone 10 years into practice, I think you're (overall) on the right track.  To answer your questions and offer a couple of tweaks: An 80/20 allocation is reasonable, but you could consider being more aggressive based on your goals.  My goal (full disclosure) is an early retirement.  As I am in my early 40's now, have longevity in my family tree, and plan to retire within the next 5-8 years, my portfolio needs to last a good 40-45 years.  Therefore, the more I weight towards bonds, the less likely it is my portfolio will last (stocks have greater growth potential, as you know, while the returns on bonds could be eaten up by inflation, leading to portfolio failure).  So, if you think you can stomach greater volatility in your portfolio, you could consider a 90/10 split at this point (or higher), recognizing that you will go through several bear markets during your working life, which will give you the chance to buy more stock at a bargain.  Hopefully, as a PGY-2 resident (in derm, a great lifestyle specialty), you are not yet contemplating retirement, so your time horizon should be pretty long. While I do not currently have much in REITs, I think your proposed weighting is reasonable, as long as it stays in a tax advantaged account, as REITs are not tax-efficient.  For greater diversification, I think REITs are fine, even though JL Collins (www.jlcollinsnh.com) makes a pretty good argument for why he has "stepped away" from them (see Stock Series on his blog). Before you commit too much time, energy, and money to constructing a small/value tilted portfolio, make sure to read more of the arguments against it.  In this arena, I admit that I am not enough of an expert to guide you (WCI knows this space very well, of course, and I believe he tilts).  With my limited understanding, I find myself swayed by both sides of the argument, leading me to not try too hard to tilt my portfolio.  That said, when the asset allocation tool on Personal Capital tells me I am underweighted in value, I do try to rebalance by adding more to my Vanguard Value Index Fund (not really a tilt, of course). I think your bond fund choice is reasonable, as long as it is in a tax advantaged account.  While WCI has pointed out that bonds should often go in taxable (rightly), if you have the space in tax advantaged, you can use it.  Since I save very aggressively, my tax advantaged space is maxed pretty quickly, so I put a lot into taxable accounts every month.  For the portion of my investments that go into bonds, I use Vanguard's Intermediate-Term Tax-Exempt Bond Fund. I think your proposed asset allocation is pretty good.  But consider these points: - If you decide to not tilt, just use the Total Stock Market Fund for your US allocation. - Your proposal of using Total International makes a separate allocation to Emerging Markets a duplication of effort, as VGTSX includes emerging markets as well.  If you want to slice and dice this category, you can use Vanguard Developed Markets (VDVIX/VTMGX) and Vanguard Emerging Markets Index (VEIEX/VEMAX).  I do the latter, but don't try to replicate my portfolio.  It is the result of lots of ugly trial and error over many years, and could be much cleaner.  But it gets the job done. Hope this helps.

      Comment


      • #18
        Definitely depends on your risk tolerance? I'm 37 and 95% equities and 5% bonds. I plan to change  that ratio as time goes by and these are mostly in tax deferred accounts that I don't plan to touch for 30+ years. People always say you really don't know your risk tolerance until you go through a crash... Most young investors on this blog including myself are probably praying for that to happen...

        Maximize all tax advantages accounts roth and tax deferred and plus some with taxable accounts. My savings rate is 20-30%. Regarding allocation... Yours looks reasonable.

        Me...

        Index -25%

        large cap -25%

        mid cap -15%

        small cap - 10%

        reit -5%

        international -15%

        vanguard bond in taxable -5%

        i don't think there's a wrong answer except perhaps being all or most bonds at this age. More important to continue to save, keep cost low, don't bail out during market downturns perhaps buy more during those firesales... Create and Follow your investment policy statement.

        Comment


        • #19




          Have read several of WCI posts about asset allocation, especially “150 portfolios better than yours” which was my favorite. Curious what everyone else utilizes for their allocation.

          Me: PGY-2 derm, 28yo. Hoping to get an allocation that I’ll be happy with in the long run, will require minimal rebalancing (1-2yr max), take advantage of Fama/French small/value benefits. Currently all money is in tax advantage accounts. Have a decent amount of the money in Fidelity’s Spartan funds but will be transferring the money to Vanguard shortly.

          Considering the following (all index funds)

          -Stocks: 80% (~2/3 domestic, 1/3 international)

          35% Total Market Index Fund (VTSMX, VTSAX) –> or 500 index fund if retirement plan doesn’t have a total market option

          10% Small cap value (VISVX, VSIAX)

          10% REIT (VGSIX, VGSLX)

          20% Total International (VGTSX, VTIAX)

          5% Emerging Markets (VEIEX, VEMAX)

          -Bonds: 20%

          20% Total Market Index Fund (VBMFX)

           

          Questions:

          -Not aggressive enough at 80/20 or just right? Should it be closer to 85/15, 90/10 or is this just marginal differences at this point? Bernstein & Ferri seem to advocate not being more aggressive than 80/20 but with a longer time horizon, just wasn’t sure.

          -Too heavy on the REIT? Remove altogether?

          -Read enough about Fama/french that I’d like to take advantage of small/value asset classes. Not sure the best way to do it, so lumping them together into “small-cap value” seemed like a nice compromise than dicing it up further into a “small-cap”, “large cap value”, and “small-cap value” funds. Seemed like a little too much work at this point and not sure what the extra yield would be. That said, is small-cap value allocation too small at only 10% or should you up to 20%?

          -Does the bond portion make sense in total market bond or would you recommend a different class?

           

          Finally, curious what everyone else does with their asset allocation, especially in the early years (residency, new attending). Thanks.

           

           
          Click to expand...


          Definitely depends on your risk tolerance? I'm 37 and 95% equities and 5% bonds. I plan to increase that ratio as time goes by and these are mostly in tax deferred accounts that I don't plan to touch for 30+ years. People always say you really don't know your risk tolerance until you go through a crash... Most young investors on this blog including myself are probably praying for that to happen...

          Maximize all tax advantages accounts roth and tax deferred and plus some with taxable accounts. My savings rate is 20-30%. Regarding allocation... Yours looks reasonable.

          Me...

          Index -25%

          large cap -25%

          mid cap -15%

          small cap - 10%

          reit -5%

          international -15%

          vanguard bond in taxable -5%

          i don't think there's a wrong answer except perhaps being all or most bonds at this age. More important to continue to save, keep cost low, don't bail out during market downturns perhaps buy more during those firesales... Create and Follow your investment policy statement.

          Comment


          • #20
            Its a good allocation. You know your risk tolerance.

            Im 37 and as far as retirement accounts Im 100% equities. I do have some municipal bond funds in my taxable/emergency fund. It will be a much bumpier ride but given my age and where bonds are it seems appropriate. The goal should be to have a large enough nest egg to where you dont have to worry so much about the allocation split and even a large draw down affecting your life. Thats the plan anyway. You could always shift later on as you age even years where you only invest in bonds to catch up. No one size fits all for sure.

            Comment


            • #21
              I hope that taxable bond fund is municipal? Otherwise bonds are taxed as ordinary income and belong in your deferred accounts.

              Comment


              • #22
                Lots of repeat posts here... Tough day on the forum.  :roll:

                Pretty aggressive asset allocation and recommendations here... Benjamin Graham stated never to have more than 75% in stocks.

                Comment


                • #23
                  You cant take those kind of asset allocation rules seriously unless you are taking their whole philosophy to heart as well. Grahams reasoning was purely based on ability to maneuver in and out of whatever in a quick enough fashion to capture the most gain. AKA, a very active strategy that is completely different than what most should be doing in their retirement accounts. This is probably the biggest issue with any sound bite or quote but is especially dangerous in investing, these quotes or ideas out of context from their strategy may not have any application whatsoever. Unless you're exactly following such and such plan, I would take all these ideas and see how they fit your plan first.

                  He also didnt have the access to all this information lightning fast as we do today, that was basically his edge and now its gone. People like to say its never different, when the truth is its actually always different, but slow. Just look at oil and energy, its not behaving as its supposed to. Oil has gone down so production should have dived and lots of bankruptcies should have occurred and stocks should be dirt dirt cheap, except they arent. Production is stubbornly humming along and supply rising, and majors prices already have a return to higher prices baked in. Why? Because now everyone knows the best time to invest in oil is when its awful, and companies know if they survive they will have a smaller field to contend with, and they also have different financing that is more flexible than in times past and dont crumple as soon. This finally seems to be coming to a head and the faster it drops the sooner it will be over, but its this wealth of information effect that drives these things, and the "buy the dip" etc...and all us knuckleheads crossing our fingers for a crash so we can build our wealth.

                  Interesting times.

                  Comment


                  • #24
                    Here's what I use.  33 years old.  I'm tilted a bit more than you and overall probably have a bit more risk/volatility with this allocation, but overall fairly similar.  I used to have 5% in long-term treasuries but got out after their huge run-up a few years ago and what I see as unfavorable outlook for the next 5-10 years.

                     
























































































                    Domestic Stock 50%
                    Total stock market 20%
                    Mid-caps 5%
                    Small cap 10%
                    Value 10%
                    Individual stocks 5%
                    International stock 25%
                    Developed markets 15%
                    Small cap 5%
                    Emerging markets 5%
                    REITs 15%
                    Domestic REITs 10%
                    International REITs 5%
                    Fixed income 10%
                    High yield bonds 5%
                    Long term treasury 0%
                    Total bond market 5%

                    Comment


                    • #25
                      Side note:  hooray for being able to copy/paste directly from Excel!

                      Comment


                      • #26
                        JK (OP), I see no problem with your assett allocation.  I have 10% REIT also for diversification.  I also like simple, whole numbers.  None of that 2.7% emerging markets, 1.3% gold nonsense.  Keep it simple.

                        My breakdown:

                        60% US Stocks

                        20% International Stocks (split equally between developed markets and emerging markets)

                        10% REIT

                        10% Bonds and cash (mostly bonds)

                        I have several "buckets" with taxable, tax deferred and Roth accounts.  US stocks are in all buckets.  Developed markets in taxable, bonds in tax deferred, REIT and emerging markets in Roth.

                         

                         

                        Comment


                        • #27




                          Hey JK,

                          There’s nothing ‘wrong’ with your portfolio. However, you mention wanting to stick with it for the long run and have easy rebalancing. I’ll tell you what I do and why I do it. I am 50% VTSAX (total US stock market) and 50% VTIAX (total Intl stock market). So, I’m very diversified across size, style, currency, geography, etc. Also, as far as rebalancing and additional contributions – it doesn’t get any easier. I’m 100% stock because I don’t need this money for decades (I’m 32) and I know my level of intestinal fortitude to deal with a 50+% decline. Adding a total bond market fund or intermediate treasury fund at an allocation percentage that mathematically makes you at ease based on potential portfolio loses (based on past worst case scenarios) is recommended here. I keep the same allocation across all pre- and post-tax accounts to keep it simple. I’ll start making 100% of new contributions toward a bond fund in my taxable account as I near financial independence (couple years out). All this said, simplicity and automation are your keys here. Keep it so simple that you won’t be tempted to change your asset allocation tilts, etc. over the years – that usually equates to unknowingly selling low and buying high.
                          Click to expand...


                          I agree with above that simplicity and automation are key. I go with Vanguard Target Retirement Fund (2050) and I'm the same age as you. This type of fund balances and glides to conservative holdings automatically. Don't like how those funds glide/allocate and want to save a few basis points by doing a little work yourself? Fine, but that is not the simplest automated option. I note many people say that they plan on increasing bonds at some point BUT DO NOT HAVE THIS IN A WRITTEN PLAN. Most Bogleheads set a written plan for rebalancing but many do not set up a glide plan which leads to a subjective timing of the market. If your 401k allows, consider joining me in the simplest automated option: a Vanguard Target Retirement Fund.

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