Author Topic: Rebalancing? General Confusion Regarding Asset Allocation  (Read 305 times)

FIRE-Man

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Rebalancing? General Confusion Regarding Asset Allocation
« on: July 09, 2018, 07:31:44 PM »
Fellow Mustachians,

I could really use some help with how to rebalance, along with some advice on if/how to diversify. Currently I feel very exposed as the majority of our holdings are equities (AA below), and I'm starting to wonder if the steam in the stock market is finally letting up. I know we can't time the market, and I'm not interested in doing so, but I would like to once and for all have a "set it and forget it" way to invest. Here is the current AA and strategy....

160k TSP in L2040 - Maxing each year
175K TSP in 100% C - Maxing each year

Roth IRA - 50k in VTSAX - Maxing each year
Separate Roth IRA - 25K VTSAX 12K VBTLX (Total 37K) - Maxing each year

Brokerage Account - 28K VTSAX - 9600/year

40K Emergency Fund

My question is how do I rebalance, and should I? Should I simply sell VTSAX and buy more VBTLX to an 80/20 ratio? Will I lose money doing so ? Does Vanguard have a good "one and done" fund with similar broad US equity AND bond exposure, and insanely low expense ratio ? Is there another fund with international exposure and all the aforementioned ? SO MANY QUESTIONS!

I thought I had all this down pretty good, but basically we've just been good at saving, and not actually tracking progress. Any help here would be greatly appreciated.

Frankies Girl

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Re: Rebalancing? General Confusion Regarding Asset Allocation
« Reply #1 on: July 09, 2018, 08:40:44 PM »
You're listing your funds you're invested in, but that's not saying how much of what type of fund you planned to hold, and your reasoning for why and what your goals are, etc.

So: you need to figure out how much of what type of funds you want to hold, based off of your goals/risk assessment, etc... and to figure this, may also help to figure out your investment policy statement to help guide you.

Reading material:
https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Investment_policy_statement
https://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

If you are wanting a super simple 80/20 stock/bond holding in index funds, then you're just needing to sort out which is closest to the lowest cost available in your accounts (if unable to use VTSAX and VBTLX across the board). And yes, trying to figure out when the market may or may not be running out of steam is a fool's game. Just figure out a nice and simple index fund portfolio, figure out your goals and triggers and get it all properly laid out in an IPS and refer back to it in times of worry; that's your blueprint for the future no matter what the markets do, follow your own path marked down and you'll likely end up where you planned to be.

And if you're using Vanguard's index funds (VTSAX and VBTLX for the most part), then you are already diversified quite nicely. Index funds are by their very nature "buying the entire market" so they contain thousands of companies currently trading. They are the definition of being diversified.

So as far as figuring an AA and rebalancing...

For an example, I have my asset allocation set to be:

75% stock
10% REIT (real estate fund)
10% bonds
5% cash (high interest savings acct)

I have in my IPS that I don't rebalance until it's out of range more than 5% in any direction and I'll check it at most every 6 months. So a few times a year, I'll run the numbers and not bother if it's only 2-4% or so. I use Squawkfox's free excel rebalance sheet (4 square US couch potato).

If it is out of range, then I sell the high flyer and buy the low/sale priced of the funds I chose to hold to get them back into acceptable range; and I make sure to do so in the account(s) that are going to be the most tax efficient (like I'll only have my bonds in a tax sheltered account). Very simple.
I frequently have no idea what I'm talking about. Like now.

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terran

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Re: Rebalancing? General Confusion Regarding Asset Allocation
« Reply #2 on: July 09, 2018, 08:41:10 PM »
If you want set and forget it you could look at a target date fund. I'm guess thats what L2040 is in your TSP. Here's the vanguard 2040 fund: https://investor.vanguard.com/mutual-funds/profile/VFORX. Looks like it's about 85/15 stocks/bonds right now. Vanguard target date funds hold international as 40% of their stock allocation. They also hold international bonds in addition to domestic.

MDM

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Re: Rebalancing? General Confusion Regarding Asset Allocation
« Reply #3 on: July 09, 2018, 08:41:26 PM »
Does Vanguard have a good "one and done" fund with similar broad US equity AND bond exposure, and insanely low expense ratio ?
Vanguard LifeStrategy Funds or Vanguard Target Retirement Funds, depending on whether you want your asset allocation constant or following a preset "glide path", would work.

You can rebalance within tax-advantaged accounts without tax consequences.

Meeting your target AA within "several" percent is quite good enough.  The definition of "several" in this case is vague, but 5% is a reasonable guess for a lower bound.

jacoavluha

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Re: Rebalancing? General Confusion Regarding Asset Allocation
« Reply #4 on: July 09, 2018, 09:28:34 PM »
Gotta know your desired US and Intl stock and bond allocation to be able to help much.

The Lifestrategy and target funds at Vanguard are good but not quite as cheap as their constituent parts and not tax efficient if held in taxable brokerage.

If youre goal is about 80/20 with some Intl and lots of simplicity you could do L2050 in TSP, Lifestrategy growth in Vanguard tax protected accounts, then Id consider your brokerage and emergency funds combined and do something like 50:50 VT:VTEB ETFs