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Should I rebalance to REITs in my Roth account?

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  • jz
    replied
    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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  • Zaphod
    replied
    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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  • ajm184
    replied




    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
    Click to expand...


    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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  • Phoenixdown99
    replied
    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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  • WallStreetPhysician
    replied
    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

    Leave a comment:


  • Phoenixdown99
    replied
    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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  • Zaphod
    replied




    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?
    Click to expand...


    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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  • WallStreetPhysician
    replied




    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?
    Click to expand...


    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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  • WallStreetPhysician
    replied




    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?
    Click to expand...


    Debatable - the general consensus is 401(k) because of the tax-inefficiency of bonds relative to stocks, but others (most notably WCI in this post) argue that bonds should go in taxable, because you want the highest-performing asset classes (i.e. stocks) to be in tax-advantaged accounts.

    I personally put bonds in tax-advantaged accounts.

    -WSP

    Leave a comment:


  • WallStreetPhysician
    replied




    It always strikes me how easy it is for “veterans” to give the advice of “stick with your AA”

    As most of us are painfully aware, few are savvy enough to do this well (create an initial asset allocation or IPS) early in their career when they start investing.  This always begs the follow-up question “should I stick with my crappy investment plan or change it now that I think I am more informed?”  There is no good answer to this one.  Changing almost always introduces behavioral influences including recently bias that lower returns.

    Once one becomes a little more educated, the urge once again pops up to tinker with one’s AA.  The justifications are endless.  Again, usually a bad idea.

    But by this logic, one could never change their AA.  So when I do, I always feel better about making changes by adding asset classes that are down, the longer the better, preferably 3 years+.  For example, now just might be the time to up your international exposure, value exposure, or REIT exposure, if you are fully convinced in the merits of doing so and ready to pour more money in if they continue to underperform.

    Then again, this is why simple static portfolios usually win the day in the long run.

     
    Click to expand...


    Excellent points. The major asset allocation point that needs to be modulated over time due to personal preference is the stock/bond allocation. Some can handle a 90/10 (or more) stock/bond allocation, while others may want a 50/50 stock/bond allocation. You can't really know until you lose sleep with your AA during a bear market.

    The domestic/international mix, small cap/value tilting, and REITs have no "right" answer and are prone to the biases you mention.

    -WSP

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  • Phoenixdown99
    replied
    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?

    Leave a comment:


  • TheGipper
    replied
    It always strikes me how easy it is for "veterans" to give the advice of "stick with your AA"

    As most of us are painfully aware, few are savvy enough to do this well (create an initial asset allocation or IPS) early in their career when they start investing.  This always begs the follow-up question "should I stick with my crappy investment plan or change it now that I think I am more informed?"  There is no good answer to this one.  Changing almost always introduces behavioral influences including recently bias that lower returns.

    Once one becomes a little more educated, the urge once again pops up to tinker with one's AA.  The justifications are endless.  Again, usually a bad idea.

    But by this logic, one could never change their AA.  So when I do, I always feel better about making changes by adding asset classes that are down, the longer the better, preferably 3 years+.  For example, now just might be the time to up your international exposure, value exposure, or REIT exposure, if you are fully convinced in the merits of doing so and ready to pour more money in if they continue to underperform.

    Then again, this is why simple static portfolios usually win the day in the long run.

     

    Leave a comment:


  • notadoc
    replied

    150 portfolios better than yours:


    https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/


    Portfolio 26: The Three Fund Portfolio


    1/3 Vanguard Total Stock Market Fund
    1/3 Vanguard Total International Stock Market Fund
    1/3 Vanguard Total Bond Market Fund

    A favorite among the Bogleheads, the Three Fund portfolio gives you Total World plus Total Bond for 0.04% less per year!  Despite its popularity, you can see there is really nothing particularly special about this portfolio compared to the other 25 above it.  It is broadly diversified and low-cost, although is heavily weighted in large cap stocks, just like the overall US market.

    Even though for me 1/3 international is a little much.  I'm at 20%.

    Leave a comment:


  • Ryan
    replied




    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?
    Click to expand...


    The cop-out answer is all these assets are tied together. The post I was referring to suggests that international markets are undervalued. I don't know enough about foreign stocks to comment more. But the bigger point I was trying to make is to stick to the time-tested, dead-simple, Bogleheads-approved, stocks/bonds "bucket"-allocation unless you're willing to learn a lot about other, more "exotic" asset classes and what they get you for the risk involved.

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  • Ryan
    replied




    There is only 200K paid off on the condo, but I see your point
    Click to expand...


    The $200k is your equity-- that's mostly irrelevant unless you'd ever seriously consider defaulting on the mortgage. Your asset allocation includes a $550k condo. Your liabilities include a $350k mortgage. As you pay off your mortgage, you reduce your liabilities, but your real estate exposure stays about the same (it does increase, yes, but only because liabilities as a whole have decreased).

    Leave a comment:

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