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Should I rebalance to REITs in my Roth account?

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  • #16




    I am not sure if switching an index fund in US stock to international stock really matters. Don’t most international markets basically follow the US market?
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    There is a high correlation (but not 100%) correlation between U.S. stock and international stocks. U.S. stocks lagged behind international stocks in 2017 after several years of overperformance.

    I discuss the considerations of choosing your international allocation in this article.

    (TL;DR - there are good arguments for 0% international (Bogle and Buffett do this) to 50% international (market-weight). I personally am 2/3 domestic, 1/3 international.)

    -WSP

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    • #17




      The simplicity of the 3 fund portfolio does appeal to me. I’d like to get some bonds given that I just got a bunch of stock and I am worried about drop. Which one should I convert to Bond – 401Ks or Roth?
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      Stop being worried about a drop. Its going to happen and theres pretty much nothing you can do about it. Make sure to tell yourself that frequently and often. I'd also familiarize yourself with stats on the normal market, like 10% drop every year, 30% every few, etc....thats normal, expect it and learn to love it.

      Further, you just got out, you should look any drop that doesnt translate to the greater economy of course, as a blessing. Praying for it. Otherwise forward returns will be muted for longer.

      For the AA discussion, there is a lot to unpack there. Most people are better off picking something static and just sticking it out. Lots of reasons why people are looking at international right now, but I would not play around with that kind of thing until you have several years and have fooled yourself into thinking you understand more than you might. Paper trade your views in some side brokerage account and see how they pan out over time.

      I myself am switching far more heavily to international (70/30), about 50/50 developed/emerging, and minimizing US exposure. Could be a huge mistake. Actually made a correlation matrix with my holdings/desired this am. Here is a great site for that, free. https://www.etfscreen.com/correlation.php Portfolio Visualizer has one as well. Correlations will be 1 when it matters the most unfortunately.

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      • #18
        I've thought about it, and I realized I don't really want to switch anything to bonds. If my index fund accounts drop, I don't really care, as they will eventually go back up (at least that is my understanding) and I have about 30+ more years until I plan to take that money out.

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        • #19
          I'd be careful -- it's easy to say you don't care when the market has gone straight up for 8 years, harder to stay 100% stocks when people say that we're about to go into another Great Depression.

          Just my perspective from someone who worked on Wall Street during the financial crisis. I think everyone should have a little bit of bonds until they invest through a major bear market.

          -WSP

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          • #20
            I am just not sure what having "a little bit of bonds" would do for me psychologically, except want to put the stock money into bonds as well when I see that it is more stable (so a negative effect)

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            • #21




              I’d be careful — it’s easy to say you don’t care when the market has gone straight up for 8 years, harder to stay 100% stocks when people say that we’re about to go into another Great Depression.

              Just my perspective from someone who worked on Wall Street during the financial crisis. I think everyone should have a little bit of bonds until they invest through a major bear market.

              -WSP
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              A slightly different take:

              a. Absolutely agree with WSP here: Until you go through the fire of a downturn and understand your reaction/outlook at that time.  You'll hopefully learn alot when it occurs and hopefully made better investment/AA decisions as a result.

              b. Disagree with WSP here on bonds, due to your age.   Advice is applicable if you can remain disciplined in a down market (don't sell/convert to cash) and continue to invest/save at a high rate relative to income into your desired AA.  That being said, getting equities that don't match/ correlate to existing US exposure is useful, such as international equities.

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              • #22
                We should all also remember that just because bonds have been in a bear market rate wise for the last nearly 40 years, and are generally negatively correlated, there is no guarantee this relationship will maintain during the next recession/bear market. Theres a decent chance both lose value as has happened in similar periods in the past, thankfully short lived.

                If there was a magic bullet we'd all be in it, but each portion, even the fixed assets have risk. If rates rise 1%, longer durations take a beating, short durations less so. Have to find your zone and just take it.

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                • #23
                  Which one should I convert to Bond – 401Ks or Roth?

                  Makes no matter because they are both tax-protected accounts.  I agree with above that (low-yielding) bonds belong in taxable...........and make them munis.

                  If bonds ever yield 4+%-----5+%---- or more, then the tax-efficiency placement comes into play, and you will prefer them in tax-protected accounts. Meanwhile, I believe you should choose separate AAs appropriate for your goals for each account.  Most likely they are the same, both goals for retirement.

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