Taxable fund mix

[jfoxcpacfp]

CardinalsFan wrote:

Sure, goals are nothing profound. Taxable – increase savings rate, get rich slowly. I want to be able to have the option to cut back/retire early.

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Do you plan to spend the money invested in the next 5 years or so?

STL fan here, too, as far back as I can remember.

[CardinalsFan]

Investing for long haul, no plans to touch money until retirement.

 

Go Cards!

[jfoxcpacfp]

CardinalsFan wrote:

Investing for long haul, no plans to touch money until retirement.

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What purpose does the allocation of almost 20% to cash and bonds serve at age 34?

[CardinalsFan]

Good question.

Part of it is my (our) position in the 2nd longest bull market since WW2 (http://fortune.com/2017/03/09/stock-market-bull-market-longest/)

Not a market-timer by any means, but I don't think I'm a doomsayer thinking we're closer to the end of this run than to the beginning. Erring on the side of caution at the expense of the ~10-15% that could be in equities.

More emotional decision than logical? Sure. I suppose I can always rebalance  

[ajm184]

CardinalsFan wrote:

Thanks!

a. – yes, separate from emergency fund

b. – Please help me out here if i’m wrong, but there doesn’t seem to be much difference between ETF and Admiral shares, other than that admiral has a minimum $ requirement that ETF’s don’t. Also, through Vanguard’s brokerage, there’s no commission on sales/trading (which I will be doing monthly). I thought about parking $ into VTSAX until I meet the minimum requirements for all three funds, but figured ETF would be cleaner. Again, please inform me if I’m wrong!

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Was curious about your use of ETF's due to the tradability component of ETF vs. a mutual fund.

@ Hatton- Never thought of a tattoo of a ticker symbol.  INTC was one of my holdings and got about double out of it in three or four years.

[Zaphod]

CardinalsFan wrote:

Good question.

Part of it is my (our) position in the 2nd longest bull market since WW2 (http://fortune.com/2017/03/09/stock-market-bull-market-longest/)

Not a market-timer by any means, but I don’t think I’m a doomsayer thinking we’re closer to the end of this run than to the beginning. Erring on the side of caution at the expense of the ~10-15% that could be in equities.

More emotional decision than logical? Sure. I suppose I can always rebalance  

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This is the exact definition of market timing, dont kid yourself. People have thought the same for years and nothing. Do you have a catalyst or reasoning behind your claims that makes sense, like say economic indicators (which are all showing possible double digit percentage earnings gains, growth, etc..)?

If you dont, and especially since you're so young, you probably should simply invest it. Either equities or if you feel too dangerous than some kind of bond allocation. Length of time is a terrible metric for bull run endings. This has been a shallow recovery, meaning it could go on much longer. Could have already topped out as well, wont know for a long time.

What we do know is if the future is anything like the past than in 30 years you will be wishing you could buy hand over fist at these prices, same as a couple years ago everyone complaining about price.

Short term we do seem to have stalled and are in the poor seasonal time of year, but I'd be careful about micromanaging your portfolio. The recipe is simple, shove large amounts in and give it a couple decades.

[CardinalsFan]

As I said, my bond % allocation is probably more emotional than logical. I don't see how being a bit more conservative in my fund mix makes me a market timer. The money is getting put in the market, the outlay is just more in bonds than it would be if I were following a Vanguard Target Retirement 2045 fund (90/10). The market is good, until it isn't.

 

I think were are on the same page, for what it's worth. Let me know when you find a good metric for bull run endings!

 

Thanks to all that replied! Great discussion.

[DoubleMDs]

Good discussion. Go Cards for sure!!

[jfoxcpacfp]

CardinalsFan wrote:

Part of it is my (our) position in the 2nd longest bull market since WW2 (http://fortune.com/2017/03/09/stock-market-bull-market-longest/)

Not a market-timer by any means, but I don’t think I’m a doomsayer thinking we’re closer to the end of this run than to the beginning. Erring on the side of caution at the expense of the ~10-15% that could be in equities.

More emotional decision than logical? Sure. I suppose I can always rebalance

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My point is that, if you are invested only for the long term and intend to do absolutely nothing when the market corrects (except, perhaps, to invest more), what part do bonds play in your portfolio other than dampening your long-term returns?

[jz]

Good to use ETFs over mutual funds as they are more tax efficient.  You pay the cap gains at the time of sale, rather than annually. Your second big decision is how broad  of margins to trigger a rebalance.   I use a very broad 40% overage/underage before rebalancing.

[CardinalsFan]

Great point, didn't consider that. Will bump that bond % down a bit. Thanks!

[beagler]

It's easy to argue for a 100% equity allocation during a long bull. We should pick the % equity allocation based on what we think we can handle during a bear market without selling (risk tolerance).

Logically we all know what to do during a bear - don't sell, keep buying. What we will actually do is unknown.

Emotions can be strong during a bear. Visceral loss aversion instincts yell: sell, move to something safe (cash), stop the hemorrhage. If one has some % bond allocation the yell is muted a bit. If one is leveraged, the yell becomes a scream.

Statistically only a smallish minority can ignore the instinct to move to cash. An even smaller minority can actually plow more money into a dropping market. Board members here are probably better, but I doubt we are immune. As some on this board have mentioned a 10-15 year bear ala Japan is possible if improbable.

Doctors with 15+ year time horizon have little to fear as you have long-term high earnings potential (bond-like income). If one has not been through a bear, consider a smallish % bond allocation for the first party.

On this board, some FI docs nearing retirement have adopted a growing % bond allocation. They have more than enough and would like to reduce immediate sequence of return risk. The trade off vs higher % equity allocation is likely decreased yearly spend and higher longevity risk.

These two extremes of career milestones yield different concerns and actions. So give the "older folks" some leeway on their cash/bonds holdings. Who knows, maybe Crixus is a retired neurosurgeon sitting on $25M mountain of cash and gold?

 

[Live Free MD]

jfoxcpacfp wrote:

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My point is that, if you are invested only for the long term and intend to do absolutely nothing when the market corrects (except, perhaps, to invest more), what part do bonds play in your portfolio other than dampening your long-term returns?

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Johanna, just curious: I know you're not a huge fan of bonds, but for someone within 2-4 years of retirement, what % of bonds do you recommend?

[jfoxcpacfp]

Live Free MD wrote:

Johanna, just curious: I know you’re not a huge fan of bonds, but for someone within 2-4 years of retirement, what % of bonds do you recommend?

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Our portfolios through retirement remain the same, except for one adjustment - we keep enough cash on hand to fund any necessary and/or required minimum distributions during bear markets. So, for example, if you need $10k/mo during retirement and $5k of that is covered by SS, we would keep at least $120k in MMAs or other liquid, interest-bearing vehicles.

Retirement is not a wall at which point your investment growth should suddenly slow down. Since you no longer plan to work to fund living expenses, growth during retirement is at least as important as before retirement. Inflation will march on, you cannot predict the date of your death(s), and future goals will change. Most people on this forum (at least those who participate) plan to be out of work for well over 30 years.

My point is that, as long as you have a plan in place, and have provided for the goals in that plan, there is no need to move to bonds leading up to and through retirement. If you don't have a plan (i.e. - if your portfolio is your plan), then bonds are the default protection mechanism because you don't know how much you'll need from your portfolio or when. This leaves you vulnerable to the crippling risk of permanent loss during corrections and bear markets.

My 80 year old mother's investment portfolio is structured the same as mine (at age 60) and the same as my children's, in their 30s. Why would it be any different?

[q-school]

jfoxcpacfp wrote:

Live Free MD wrote:

Johanna, just curious: I know you’re not a huge fan of bonds, but for someone within 2-4 years of retirement, what % of bonds do you recommend? 

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Our portfolios through retirement remain the same, except for one adjustment – we keep enough cash on hand to fund any necessary and/or required minimum distributions during bear markets. So, for example, if you need $10k/mo during retirement and $5k of that is covered by SS, we would keep at least $120k in MMAs or other liquid, interest-bearing vehicles.

Retirement is not a wall at which point your investment growth should suddenly slow down. Since you no longer plan to work to fund living expenses, growth during retirement is at least as important as before retirement. Inflation will march on, you cannot predict the date of your death(s), and future goals will change. Most people on this forum (at least those who participate) plan to be out of work for well over 30 years.

My point is that, as long as you have a plan in place, and have provided for the goals in that plan, there is no need to move to bonds leading up to and through retirement. If you don’t have a plan (i.e. – if your portfolio is your plan), then bonds are the default protection mechanism because you don’t know how much you’ll need from your portfolio or when. This leaves you vulnerable to the crippling risk of permanent loss during corrections and bear markets.

My 80 year old mother’s investment portfolio is structured the same as mine (at age 60) and the same as my children’s, in their 30s. Why would it be any different?

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I have always been perplexed personally by the plan to go to bonds more heavily in retirement.    especially if a physician who has been fortunate enough to save and who is likely to leave a large amount to children.  I see so many of my former senior partners retire and they get their RMD checks and then they just take the money that they don't plan on spending anyways and reflexively put it into bonds.  ???

thanks for sharing.