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  • #1

    advice on asset allocation (new investor)

    Hello, I am new to investment. Would love any comments/feedback regarding the below asset allocation.

    I'm 36. Would like to be aggressive. Do not plan to touch these investments until retirement. 30-year investment horizon. Do you think the following asset allocation is reasonable and appropriate?

    OPTION 1:
    Total Stock Market Index Fund 50%
    Mid Cap Index fund 10%
    Small Cap Index fund 10%
    Total international index fund 15%
    Emerging Markets 5%
    REITs index fund 10%

    Option 2:
    Institutional Index Fund 35%
    Mid Cap Index fund 10%
    Small Cap Index fund 10%
    Total international index fund 25%
    Emerging Markets 10%
    REITs index fund 10%

    All Vanguard funds. When I enter 40, I will rebalance to 10-20% bonds, and increase bond ratio over the years.

    Does it make more sense to invest in separate index funds for different cap sizes and style, or simply use the Total US Stock with additional tilt? Did I "tilt" correctly? Are there too much overlapping funds?

    I'm think of putting small/mid caps in Roth.
    Institutional or total US stock and REITs in IRA/401
    leftover International and emerging in brokerage account.

    I currently have around 400K that I would like to rebalance correctly to an appropriate asset allocation for the long-term.

    Thanks so much.
    Tags: None
  • #2
    I would just do VTI & VXUS and keep it simple but what you described seems fine
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    • #3
      Tilting is a personal decision.

      Your options above are reasonable. Option 1 is better.

      Could improve further by getting rid of the mid-cap fund and small-cap fund, and allocating that 20% to small-cap value fund.

      I actually like the allocation that results.

      If you want to be aggressive and have a 30-year horizon, forget about the bonds at 40yo.

      Consider going to 10% at 50yo, and glide to 20-25% by 60-65yo.
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      • #4
        I recommend you just buy the US total stock market index (70%), total international fund index (20%) and REIT 10%. Try for admiral shares. TSM already provides access to small and mid cap. Buying those funds too just overweights those sectors. Do you have a reason to want to do that? If not, just buy the market. Same for total international v. Emerging markets.
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        • #5
          Originally posted by Larry Ragman View Post
          I recommend you just buy the US total stock market index (70%), total international fund index (20%) and REIT 10%. Try for admiral shares. TSM already provides access to small and mid cap. Buying those funds too just overweights those sectors. Do you have a reason to want to do that? If not, just buy the market. Same for total international v. Emerging markets.


          Thanks for the feedback from everyone.

          I am under the impression that tilting will increase compensated risk in hopes of potentially having a higher return given a 30-year horizon. Is that a valid line of thinking? or does it simply complicates my investment portfolio?

          Comment

          • #6
            Originally posted by Olufsen View Post



            Thanks for the feedback from everyone.

            I am under the impression that tilting will increase compensated risk in hopes of potentially having a higher return given a 30-year horizon. Is that a valid line of thinking? or does it simply complicates my investment portfolio?
            Maybe, maybe not. Any tilt could lead to overperformance or underperformance.
            • Likes 2

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            • #7
              Eliminate mid cap. Keep small cap if desiring a tilt. If there is a time to have start putting bonds in a portfolio, now is it (mean reversion- total bond market would be fine for simplicity).

              Comment

              • #8
                Originally posted by Brains428 View Post
                Eliminate mid cap. Keep small cap if desiring a tilt. If there is a time to have start putting bonds in a portfolio, now is it (mean reversion- total bond market would be fine for simplicity).
                Bonds aren’t for return.

                Comment

                • #9
                  Originally posted by Brains428 View Post
                  Eliminate mid cap. Keep small cap if desiring a tilt. If there is a time to have start putting bonds in a portfolio, now is it (mean reversion- total bond market would be fine for simplicity).
                  1) Mid caps have actually been the sweet spot in terms of r/r - there's a famous thread on Bogleheads called 'Mel's Unloved Midcaps' that does a deep dive into this - but ofc past performance not indicative of blah blah...

                  2) I don't believe in a small cap tilt really - similar to small cap value, I think it's a relic of the past, when the indices were weighted differently, and there was less transparency & more in-efficiency in the market

                  3) Bonds are mainly for safety of principal first & foremost - stick with Treasuries - & yield second. I don't trust mREITs, corporates, and certainly not high yields. Biden & Yellen will not rug you.

                  To OP: I would suggest you simplify to VTI for equities. Your portfolio is not large enough to warrant a tilt anyways. If adding bonds, start with short-term Treasuries (VGSH for ex).
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                  • #10
                    -That's an interesting midcap thread. They didn't really outperform until the late 90s. Seems like the appeal is the low overall vol. I'll be interested to see how that all shakes out in the next 20 years
                    -As above- small cap underperformed the past 20-25 years relative. Who knows what the next 20 will bring
                    -If you're not investing in bonds for yield, then I'm guessing one is sitting in cash? There is a yield. Everything is pretty beat down right now, so I guess every asset class minus commodities and utilities could mean revert to the upside. And that also includes long duration bonds
                    -The short end of the yield curve looks to have the largest risk for loss at this point.


                    But... something I definitely agree with Xray about- it might be the best to just pick VTI and nothing else. Some of the quoted gains and losses of various asset classes are dependent on the window of time you're looking at. Given that most people here are investors and not traders, it's probably better to KISS and check back in 30 years.

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                    • #11
                      Originally posted by Brains428 View Post
                      -As above- small cap underperformed the past 20-25 years relative.
                      This is actually not true.

                      Small-cap index has (essentially) identical performance to US total market over the past 20 years, and cumulative 120% out-performance over the past 25 years.

                      Comment

                      • #12
                        Originally posted by bovie View Post

                        This is actually not true.

                        Small-cap index has (essentially) identical performance to US total market over the past 20 years, and cumulative 120% out-performance over the past 25 years.
                        Interesting- I guess my bias was from previous shorter term underperformance. But over time, you are correct. It's even posted in the WCI blog post
                        https://www.whitecoatinvestor.com/sm...alue-strategy/

                        Thanks for the clarification.
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