Author Topic: Is my portfolio too aggressive?  (Read 1897 times)

lexde

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Is my portfolio too aggressive?
« on: January 17, 2020, 10:38:09 AM »
I am nearly 30 years old, and nowhere close to retirement (10+ years). In looking at my current investment accounts, I'm wondering if I am too aggressive and/or not diversified enough. I am almost completely invested in total stock market index funds. I have a long horizon, and am not particularly worried about dips in the market or another recession, so does it matter? Are the funds themselves diversified enough?

My taxable account is 95% SWTSX (Schwab Total Stock Market Index) and 5% SWISX (Schwab International Index).

My Roth IRA is 100% SWTSX, and my HSA is 100% FSKAX (Fidelity Total Market Index).

I have almost no bonds or other security types. My international holdings are minimal.

These funds appear to mostly be spread out anyway, and should trend with the market overall. I am going to be getting into real estate/multifamily in the next year or so, and have a steady six-figure income with no debt and relatively low expenses ($2500-2600 all in each month).

Iím maxing our 401k, Roth IRA, and HSA this year. Should I be buying other funds to balance out what I have? Or just stay the current course?

MustacheAndaHalf

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Re: Is my portfolio too aggressive?
« Reply #1 on: January 17, 2020, 11:22:00 AM »
People tend to have a "home country bias", like your allocation of 95% or so to U.S. stocks.

But take a look at this list of companies:
AMETEK
Samsung
Toyoka
Weyerhaeuser

The middle ones probably look familiar: thy're in the top 10 llist of largest international companies.  The first and last companies are in the middle of the S&P 500.  You own more of unknown U.S. companies, and less of international companies you see around you.  So I'd reconsider your 5% international allocation.

Vanguard put out a research paper on the level of international allocation, and listed 20% international as having the most benefit for the least risk.  Most often, 20% international helps smooth out the performance of an 80% U.S. equity allocation, according to their paper.  So that would be my recommendation: shift 1/5th of your equities to a low-cost, total international index fund.
Vanguard's paper:
https://www.vanguard.com/pdf/ISGGEB.pdf
« Last Edit: January 17, 2020, 11:23:35 AM by MustacheAndaHalf »

MoneyGoatee

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Re: Is my portfolio too aggressive?
« Reply #2 on: January 17, 2020, 11:22:21 AM »
The rule of thumb is your age should be the percentage you have in bonds.  Age 30 = 30% bonds (i.e. 70% stocks).  But that's only a rule of thumb, which I don't follow myself.  I'm age 50, with only 40% bonds.  It's nice to have "some" bonds.  Some municipal bonds could be beneficial.  I have Vanguard VNYTX New York municipal with no fed tax, no state/local tax, and ~5% return; it's simply printing money for me.

MustacheAndaHalf

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Re: Is my portfolio too aggressive?
« Reply #3 on: January 17, 2020, 11:26:35 AM »
The rule of thumb is your age should be the percentage you have in bonds.  Age 30 = 30% bonds
That rule predates modern computers.  Now with computer modeling, it's easier to do much better.  Vanguard, Schwab and Fidelity all model past data, and come up with portfolios least likely to get them sued.  Things like "target date 2030" or "retirement 2050" are target date funds.  You can look at the appropriate year, and look at the allocation percentage to bonds, and use that in your own portfolio.

BECABECA

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Re: Is my portfolio too aggressive?
« Reply #4 on: January 17, 2020, 12:21:08 PM »
People tend to have a "home country bias", like your allocation of 95% or so to U.S. stocks.

But take a look at this list of companies:
AMETEK
Samsung
Toyoka
Weyerhaeuser

The middle ones probably look familiar: thy're in the top 10 llist of largest international companies.  The first and last companies are in the middle of the S&P 500.  You own more of unknown U.S. companies, and less of international companies you see around you.  So I'd reconsider your 5% international allocation.

Vanguard put out a research paper on the level of international allocation, and listed 20% international as having the most benefit for the least risk.  Most often, 20% international helps smooth out the performance of an 80% U.S. equity allocation, according to their paper.  So that would be my recommendation: shift 1/5th of your equities to a low-cost, total international index fund.
Vanguard's paper:
https://www.vanguard.com/pdf/ISGGEB.pdf

Do you mean Toyota? Arenít they traded on NYSE, and so in total US stock market?

That white paper seems to just be focused on volatility and doesnít analyze the difference in returns. In fact, it specifically says volatility is not the only measure that one should consider when deciding on asset allocation. If youíre just trying to reduce volatility, bonds do that, but given the OPís age and not needing the money for 10+ yrs, reducing volatility is a lot less important than maximizing gains.

You can compare the performance of total US stock market to total World market. I compared VTSAX against VTWSX and over the last 10 years, with 10k invested youíd end up at about 32k if in VTSAX vs 21k if in VTWSX. So while the volatility is reduced with total world market, youíre sacrificing gains.

I donít think OP should change asset allocation yet, or perhaps just start adding in 1% bonds each year. I recommend running Cfiresim with your specific options and seeing which one turns out better.
« Last Edit: January 17, 2020, 12:36:40 PM by BECABECA »

EliteZags

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Re: Is my portfolio too aggressive?
« Reply #5 on: January 17, 2020, 12:38:33 PM »
I am nearly 30 years old, and nowhere close to retirement (10+ years). In looking at my current investment accounts, I'm wondering if I am too aggressive and/or not diversified enough. I am almost completely invested in total stock market index funds. I have a long horizon, and am not particularly worried about dips in the market or another recession, so does it matter? Are the funds themselves diversified enough?

My taxable account is 95% SWTSX (Schwab Total Stock Market Index) and 5% SWISX (Schwab International Index).

My Roth IRA is 100% SWTSX, and my HSA is 100% FSKAX (Fidelity Total Market Index).

I have almost no bonds or other security types. My international holdings are minimal.

These funds appear to mostly be spread out anyway, and should trend with the market overall. I am going to be getting into real estate/multifamily in the next year or so, and have a steady six-figure income with no debt and relatively low expenses ($2500-2600 all in each month).

Iím maxing our 401k, Roth IRA, and HSA this year. Should I be buying other funds to balance out what I have? Or just stay the current course?


I'm in a similar life situation but trying to shift more towards how your allocations are, had too much of my retirement accounts in target date funds due to having just defaulted into them without looking at their numbers until recently noticing how they're 35-40% international. So I've been slowly shifting portions of them to total market funds.
I'd feel comfortable if all my investments accts already resembled yours, only hesitant to jump everything over at once.

Villanelle

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Re: Is my portfolio too aggressive?
« Reply #6 on: January 17, 2020, 03:06:42 PM »
If you plan to retire in roughly 10-12 years, I'd start putting money in bonds, assuming those listed are you only retirement assets (no pensions, etc.).  I don't think I'd actually make trades, but I'd put future allocations toward some bonds, increasing a bit each year. 

Exactly how much depends on what it would make your actual allocation look like, which we can't know without knowing how much $ you currently have invested and how much you are adding.

MoneyTree

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Re: Is my portfolio too aggressive?
« Reply #7 on: January 18, 2020, 09:13:04 PM »
Since you are estimating 10+ years til FIRE and are in a very good position to ride out the dips in the market, I wouldn't worry too much about being too aggressive right now. If there is any time to be aggressive it is when you have time on your side.

As you get closer to FIRE where market movements could seriously jeopardize your planned retirement date, then it makes more sense to consider investments with a lower risk profile.

Mighty-Dollar

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Re: Is my portfolio too aggressive?
« Reply #8 on: January 18, 2020, 09:26:42 PM »
Actually I've heard that you subtract your age from 120. That number tells you how much to put in stocks (versus bonds).
The bottom line is that you have to study historical returns to decide on your own.
https://www.youtube.com/watch?v=opNohVglLX0 Best allocation ratio from 2000 - 2017
https://www.youtube.com/watch?v=ZOXu2cu7ZUw Best allocation ratio during great depression
What's your appetite for risk? How would you feel if stocks dropped 20% to 50%? If that would upset you then maybe you ought to put more in bonds.

bacchi

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Re: Is my portfolio too aggressive?
« Reply #9 on: January 19, 2020, 10:53:33 AM »
Since you are estimating 10+ years til FIRE and are in a very good position to ride out the dips in the market, I wouldn't worry too much about being too aggressive right now. If there is any time to be aggressive it is when you have time on your side.

As you get closer to FIRE where market movements could seriously jeopardize your planned retirement date, then it makes more sense to consider investments with a lower risk profile.

Exactly.

As mentioned, the OP is 10+ years away. If the market drop in 2 years, so what? Keep investing -- buy low -- and wait it out, as planned. If the market drops in 5 years? Same.

When you get closer, you can decide what to do re:bonds.


Edit: Go to www.portfoliovisualizer.com and compare a 100%, 90/10, and 75/25 portfolio. The highest CAGR is from 100%.
« Last Edit: January 19, 2020, 11:00:07 AM by bacchi »

CorpRaider

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Re: Is my portfolio too aggressive?
« Reply #10 on: January 19, 2020, 11:38:16 AM »
In my opinion, none of us really knows how much risk we can take until we've lost a lot of money (on paper) in a short period of time.

For the poster above, Toyota is not in U.S. market indexes (as far as I know), neither are many other global companies who happen to be domiciled elsewhere, like SAP, Unilever, Tencent, Alibaba, or Nestle. I think some international diversification is likely to improve expected returns in the future over the long term, but I could be persuaded of behavioral benefits to just plowing into one index fund and not looking at it. 

One option might be to use Series I bonds for a bond allocation, especially if you are maxing all other tax advantaged space, could even double as emergency fund after seasoning for a year.
« Last Edit: January 19, 2020, 11:41:38 AM by CorpRaider »

Villanelle

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Re: Is my portfolio too aggressive?
« Reply #11 on: January 19, 2020, 02:47:06 PM »
In my opinion, none of us really knows how much risk we can take until we've lost a lot of money (on paper) in a short period of time.

For the poster above, Toyota is not in U.S. market indexes (as far as I know), neither are many other global companies who happen to be domiciled elsewhere, like SAP, Unilever, Tencent, Alibaba, or Nestle. I think some international diversification is likely to improve expected returns in the future over the long term, but I could be persuaded of behavioral benefits to just plowing into one index fund and not looking at it. 

One option might be to use Series I bonds for a bond allocation, especially if you are maxing all other tax advantaged space, could even double as emergency fund after seasoning for a year.

NYSE ticker TM, according to a quick Google search.   

Monerexia

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Re: Is my portfolio too aggressive?
« Reply #12 on: January 19, 2020, 03:28:07 PM »
100% stocks and fine with 50% drop. In fact I just pretend I have half of what I have then I'm fine. Gets rid of any chance of optimistic accounting. That said, will prob move slowly to 70/30 allocation over next decade.

bacchi

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Re: Is my portfolio too aggressive?
« Reply #13 on: January 19, 2020, 03:45:37 PM »
In my opinion, none of us really knows how much risk we can take until we've lost a lot of money (on paper) in a short period of time.

For the poster above, Toyota is not in U.S. market indexes (as far as I know), neither are many other global companies who happen to be domiciled elsewhere, like SAP, Unilever, Tencent, Alibaba, or Nestle. I think some international diversification is likely to improve expected returns in the future over the long term, but I could be persuaded of behavioral benefits to just plowing into one index fund and not looking at it. 

One option might be to use Series I bonds for a bond allocation, especially if you are maxing all other tax advantaged space, could even double as emergency fund after seasoning for a year.

NYSE ticker TM, according to a quick Google search.   

The OP has Schwab Total Stock Market Index.

https://www.schwabfunds.com/public/csim/nn/holdings.html?symbol=SWTSX

No Toyota or Nissan or Nestle or Shell or SAP.

The international fund, SWISX, does have the above companies. China is not represented in SWISX, which means no Alibaba or Tencent.

Villanelle

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Re: Is my portfolio too aggressive?
« Reply #14 on: January 19, 2020, 04:10:09 PM »
In my opinion, none of us really knows how much risk we can take until we've lost a lot of money (on paper) in a short period of time.

For the poster above, Toyota is not in U.S. market indexes (as far as I know), neither are many other global companies who happen to be domiciled elsewhere, like SAP, Unilever, Tencent, Alibaba, or Nestle. I think some international diversification is likely to improve expected returns in the future over the long term, but I could be persuaded of behavioral benefits to just plowing into one index fund and not looking at it. 

One option might be to use Series I bonds for a bond allocation, especially if you are maxing all other tax advantaged space, could even double as emergency fund after seasoning for a year.

NYSE ticker TM, according to a quick Google search.   

The OP has Schwab Total Stock Market Index.

https://www.schwabfunds.com/public/csim/nn/holdings.html?symbol=SWTSX

No Toyota or Nissan or Nestle or Shell or SAP.

The international fund, SWISX, does have the above companies. China is not represented in SWISX, which means no Alibaba or Tencent.

I missed the word "indexes"!

GreenMoney

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Re: Is my portfolio too aggressive?
« Reply #15 on: January 19, 2020, 04:18:01 PM »
It's nice to have "some" bonds.  Some municipal bonds could be beneficial.  I have Vanguard VNYTX New York municipal with no fed tax, no state/local tax, and ~5% return; it's simply printing money for me.

I am new to (new to paying attention to, more accurately) investing and trying to learn as much as possible. Could you help me understand the ~5% return on VNYTX? I own NYC and State actual bonds paying ~5% with a .04% fee, and like your bond fund they are triple tax fee. In looking at VNYTX I see at the close on Friday has a year to date return of 8 3/4% with a yield of 2.93% and expense ratio of .17%. Is your 5% made up of what the equivalent would be if you had to pay taxes? Or is there some averaging of the yield with YTD to give you what it has produced this year? TIA

wienerdog

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Re: Is my portfolio too aggressive?
« Reply #16 on: January 19, 2020, 05:32:57 PM »
Since OP is in her twenties she might be interested in this to help the returns a little.  The ratios will be catered to someone that will be working for 30+ years if they are in their late twenties but you can adapt to your situation.  That topic is addressed in the second link under "How do I apply Two Funds for Life if I want to retire early?"

https://paulmerriman.com/2-funds-for-life/

https://paulmerriman.com/two-funds-for-life-pre-post-retirement/

Dicey

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Re: Is my portfolio too aggressive?
« Reply #17 on: January 19, 2020, 05:42:13 PM »
I don't love those "Rules of Thumb", especially for mustachians.  If you know you have the cojones to stay in the market through a major dump, you're going to be fine, especially if you're indexing. I completely support the idea of more in equities. I think you're very wise to be asking the question.

CoffeeR

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Re: Is my portfolio too aggressive?
« Reply #18 on: January 19, 2020, 07:04:36 PM »
Having 20% bonds will smooth your returns and volatility. Disclosure, I ignored bonds for 20+ years until recently. I wish I had not.

I believe you should have a home country bias, but some international equities provide good diversification though international would have lowered your returns over the last decade. That is, international was a net loss (return wise) from 2010 to 2019 but a net positive from 2000 to 2009 (yes, somewhat arbitrarily starting and ending points). I would aim for about 20% international equities.

I also believe in keeping it simple.

My recommendation is put your money is a Schwab Target 2035 Date Index fund:

https://www.schwabfunds.com/public/csim/home/products/mutual_funds/portfolio.html?symbol=SWYFX

(or similar) and forget about it (except by adding more when you can). If the you want less bonds, look at 2040, more bonds look at 2030. Edited post to add: do not choose target dates based on retirement dates, but on the desired asset allocation.
« Last Edit: January 20, 2020, 07:13:44 AM by CoffeeR »

MustacheAndaHalf

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Re: Is my portfolio too aggressive?
« Reply #19 on: January 20, 2020, 07:03:59 AM »
Do you mean Toyota? Arenít they traded on NYSE, and so in total US stock market?
Toyota is a Japanese company.  It's not part of US equity funds.  You can find it listed in Vanguard Total International ETF (VXUS).  Go ahead and look in the US S&P 500 and US Total Stock Market funds, but it won't be there.

That white paper seems to just be focused on volatility and doesnít analyze the difference in returns. In fact, it specifically says volatility is not the only measure that one should consider when deciding on asset allocation. If youíre just trying to reduce volatility, bonds do that, but given the OPís age and not needing the money for 10+ yrs, reducing volatility is a lot less important than maximizing gains.
Most academic studies use volatility as a measure of risk, which is why the Vanguard white paper I quoted used that definition.  Disagreeing with commonly accepted definitions puts the burden on you to show they're wrong.

You can compare the performance of total US stock market to total World market. I compared VTSAX against VTWSX and over the last 10 years, with 10k invested youíd end up at about 32k if in VTSAX vs 21k if in VTWSX. So while the volatility is reduced with total world market, youíre sacrificing gains.
The last 10 years does not predict the next 10 years.  "That's why the SEC requires funds to tell investors that a fund's past performance does not necessarily predict future results."
https://www.sec.gov/answers/mperf.htm

And if you look in Portfolio Visualizer:
2010 to 2019, US beat international
2000 to 2009, US lost to international
1990 to 1999, US beat international
1980 to 1989, US lost to international

Retire-Canada

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Re: Is my portfolio too aggressive?
« Reply #20 on: January 20, 2020, 07:32:22 AM »
I think being 100% stocks at this point is fine if:

1. You know you have the stomach to ride out a 30-40%+ crash
2. You diversify into international stocks not just US stocks [Personally I don't buy the US Total Market is international enough argument]
3. You have at least a loose plan for how you'll adjust your AA as you get close to FIRE

If you can't say yes to these 3 items than IMO you should reconsider your aggressive AA.

FWIW - I will FIRE in mid-2020 and went from 100% stocks [55%US/30% International/15%Canada] to 80% stocks & 20% bonds/cash in early 2019 once I could see the finish line. My plan for a big crash when I was close to FIRE, but still 100% stocks and a big crash happened was to keep working through the crash. I was okay with that risk. As I got to ~1 year out from FIRE I decided setting aside ~5 years spending was a good idea and I bought my bonds/cash. Once I started giving notice to my clients working through a crash may not be possible or at least not as easy hence the change in AA.
« Last Edit: January 20, 2020, 07:34:31 AM by Retire-Canada »

Buffaloski Boris

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Re: Is my portfolio too aggressive?
« Reply #21 on: January 20, 2020, 09:11:24 AM »
If it were me, I would be changing my asset allocation across and within asset classes. A whole lot of this portfolio is in ďTotal Stock MarketĒ funds. On the surface that sounds great. Diversification! Yahoo!

But is it really? If these are like most cap weighted index funds, a surprisingly large portion of those holdings are concentrated in the top 50 or 100 stocks. So what I would own then is the top 50 or 100 stocks, and an insignificant amount of the other 3000 or so. Thatís not flying for me so long as there are better alternatives available. And there are. There are equal weight funds. There are also hedges and individual stocks.

This portfolio is also heavily weighted to US equities. If you take the position that the US stock market always goes up, that nosebleed valuations arenít a problem over the long run, then I guess thatís fine. I donít take that point of view. If you go to the starcapital.de website, you can look at relative market valuations across numerous world markets. A couple of things jump out at me. First, by numerous measures the US market is very pricey. Second, other markets are less pricey.

Finally, stock heavy is fine for very long investment horizons and high risk tolerance. I think itís a good idea to diversify into other classes of assets. Maybe the best investment isnít even a security or real estate. Pete had an article some years back about an investment with a great ROI; insulating your House.

So, if it were me Iíd be making changes.

TheAnonOne

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Re: Is my portfolio too aggressive?
« Reply #22 on: January 20, 2020, 10:41:02 AM »
The short answer to stocks vs. other is that 100% stock is OK if you can stomach the risk. That being said, you can read probably from now until you FIRE about what those risks actually are.

Personally, I started putting 100-200 dollars a week into VTIAX (Vanguard total international) a few years back plus a few lump sums. It is approaching 90/10 US to Int.

I think 80/20 US/INT is my target but there is no "Right" answer either. The USA could outperform for a LONG time, possibly beyond your FIRE date.


Side note 1: I hold NO bonds. I've never been sold on them for accumulation. Even for my FIRE days, I plan on holding 3-5 years of spending worth. Not some percentage. They would be basically just a safety net against sequence risk.



Side note 2: I think the "VTI is also international" is only somewhat true but not entirely false. That is my justification for holding 90/10 or 80/20 and not simply 50/50 or a total world fund.