Advice on asset allocation

[ChickenStash]

I am in the process of rolling over a 401k to my tIRA and figured it's a good time to seek opinions on whether or not I should just keep going with my current fund layout or if there might be a better way to distribute. For reference, I'm hoping to be 10-15 years out from FIRE at my current savings rate (ever the optimist).

Where I'm at today:
VTSAX: 84%
VGSTX: 8%
VBTLX: 8%

According to Vanguard, that results in a 90/10 stock/bond allocation with nearly all in US (directly). About 90% is in IRAs (mostly tIRA from previous 401k rollovers) with the rest in a standard brokerage account. Looking at Vanguard's tools, they are saying I should be closer to 30% international stocks and move to an 80/20 stock/bond split. I'm guessing much of that is related to being 10-15 years out.

The current setup seems to be working fine but then the market is primarily climbing now so I'm not sure how this would look if things started to swing down. I've tried to keep things simple. There seems to be A LOT if varying opinions out there and it's hard to get through them. I've also been considering the Vanguard advisor service but not fond of the 0.3% cost - seems to be going backwards from the idea of low-cost fund investing.

Any ideas or advice on better strategies or good questions that might help narrow things down?

Thanks!

[maizefolk]

I'd argue you could do without the VGSTX and reallocate that money to VTSAX and VBTLX in whichever ratio you are ultimately comfortable with.

Don't spend the extra money on a vanguard advisor.

Make sure that all of your VBTLX is in the IRA.

If you are worried about being under diversified if the US market has a downturn, you could put some money into VFWAX (total non-US stock market index). If you do that, be sure to hold VFWAX outside of your IRA.

[MustacheAndaHalf]

Have you looked at performance of U.S. vs international by decade?  They tend to trade off who wins.  Some decades the U.S. wins, some decades international wins.  That's why some international allocation is recommended by just about every adviser.  The counter-argument, made by Warren Buffet, is that U.S. businesses already have international exposure, and that creates diversification.

VTSAX and VBTLX are very standard index funds, for U.S. equities and U.S. bonds.
What is your reasoning behind adding VGSTX to that mix?
Meaning how do you expect it to benefit your portfolio, or peace of mind?

[Andy R]

Have you looked at performance of U.S. vs international by decade?  They tend to trade off who wins.  Some decades the U.S. wins, some decades international wins.  That's why some international allocation is recommended by just about every adviser. 

Chart from Factor Investor

[Buffaloski Boris]

As usual, I'm going to take the other side of the argument.

VGSTX is fine as a "portfolio of portfolios" that is reasonably well diversified. Not saying it's the best and I'm not endorsing it, but for what it does it isn't all that bad.

I'm not a fan of this idea that investors should stick huge percentages of their net worth in US equity cap weighted index funds "because it always goes up over time." I am a big fan of diversification across asset classes (including cash) and across markets and across companies because in the end, I'm not aware of anyone who has a working crystal ball.   

[DaveSch]

Your 90/10 AA is aggressive. Bonds really suck right now, but so does a 30% quick downturn in stock values. Your AA might depend more on how you behave when things aren't so wonderful. How did you do at the end of 2018?

I don't think you'll need that extra 0.3% cost either.

I would recommend you improve your tax diversification. You have 90% in your tax deferred accounts. Are you able to contribute to a Roth? A taxable account is nice. Pay the tax up front on what goes in, and pay a low capital gains rate on the appreciation.

As someone on the cusp of 70yo, having a large taxable account to draw from in the 13 years since I retired has been a blessing. By selecting where I get my living expenses, I can "modulate" my taxable income for a great tax outcome.

[Buffaloski Boris]

Your 90/10 AA is aggressive. Bonds really suck right now, but so does a 30% quick downturn in stock values.

Everybody has a plan until they get punched in the mouth. A lot of folks are looking at that silly chart that shows that the market always goes up and are saying “I can handle it if the market takes a dump.”

You never know how you’ll really react until you lose 30 or 40% of your wealth. Poof.  I expect plenty of puckering In FI circles when it happens.

As someone on the cusp of 70yo, having a large taxable account to draw from in the 13 years since I retired has been a blessing. By selecting where I get my living expenses, I can "modulate" my taxable income for a great tax outcome.

Awesome. Glad to see we have a few more seasoned folks on the forum. How are you dealing with RMDs this year, or have you planned around it?

[ChickenStash]

Thanks for the comments, folks! Lots to think about.

Regarding why I have VGSTX, that one is a hold-over from when I first opened my RothIRA. I didn't have enough to meet the minimum for VTSAX so I chose that one instead since I could meet the min and it seemed to be fairly broad. In hindsight, I guess I could have went for the ETF version of VTSAX but this is just how it worked out. From that point, I had all the auto deposit settings configured and never touched it other than to make changes to the amounts when the IRS upped the contribution limits. I'm not opposed to moving that over to VTSAX and have considered it but just haven't out of laziness.

For more info, the traditional IRA is just for 401k rollovers that happen during job changes. Employer 401ks have been my primary saving location so the tIRA holds the most and includes most of the VTSAX and all the VBLTX. The RothIRA is only a few years old and is funded to the max. My income has recently gone past the limit for any deduction on the traditional so I figured this is the next best thing. I'm between jobs (a month off between gigs, woo!) so there's no 401k until next year but I'll be maxing that one with whatever I can find that resembles an SP500 low cost fund. I don't have the fund list offered by the new job, yet, so that's up in the air. After maxing the 401k and RothIRA, the regular brokerage account (all VTSAX) gets whatever money I have left.

So, the 401k gets funded the most, followed by the taxable brokerage account, followed by the RothIRA (just because the limits are so low). The traditional IRA just sits there doing its thing and only sees funding when I change jobs which I hope not to do for a while.

For the 90/10 AA, it is aggressive from what I've read so if wisdom says it would be better to get that closer to 80/20 then I'm on board. Would keeping with VTSAX and VBLTX still fit the bill or should that be spread around in some other fashion? I'm quite new to all this so any suggestions are appreciated including just sending me off to read something. I'm still a ways out from FIRE, have a (hopefully) stable career, and no family to support so I can probably tolerate some risk but I don't want to be reckless. I'm not sure where that line really is, though. Late 2018 didn't bother me much but it was over pretty quick. My main coping mechanism was to just stop checking my account balances. :) In 2008ish, I was only a few years in the working world so I had very little invested and didn't see a shocking loss. Given that, I'm not out to win some kind of investment race, I only want to finish and retire while I am young enough to enjoy it.

Thanks!

[DaveSch]

Awesome. Glad to see we have a few more seasoned folks on the forum. How are you dealing with RMDs this year, or have you planned around it?

Thanks. Being this old is an anomaly in my family. My first RMD is being transacted on Jan 6, 2020. This amount is quite manageable as I never had a 401(k) option at work and I went exclusively Roth as soon as it came in to being (1998). I'm now very happy about this. I have maximum flexibility. My AGI is all within the 12% bracket, so no cap gains tax. This year I was able to boost my income by doing a Roth conversion.

[Buffaloski Boris]

Awesome. Glad to see we have a few more seasoned folks on the forum. How are you dealing with RMDs this year, or have you planned around it?

Thanks. Being this old is an anomaly in my family. My first RMD is being transacted on Jan 6, 2020. This amount is quite manageable as I never had a 401(k) option at work and I went exclusively Roth as soon as it came in to being (1998). I'm now very happy about this. I have maximum flexibility. My AGI is all within the 12% bracket, so no cap gains tax. This year I was able to boost my income by doing a Roth conversion.

Glad you’re still with us then. 😁 I think you’re the first person I’ve run across on these forums who is past his/her late 60’s.

Unfortunately I expect that the RMD monster will be paying us a visit, but I still have a window of opportunity to try to reduce the impact ahead of time.

[DaveSch]

Asset allocation is at the top of consideration in my portfolio. I monitor this with my Morningstar premium service. Each quarter, I take a screenshot of the portfolio overview. I also write down my top 25 holdings, and my activity in the quarter.

In my case, my maximum exposure to equities was 62%. I don't mind the crappy returns of bonds and CD's, as it gives me good ballast.I've always been a big saver and a low spender. The OP has to determine what is good for him or her.

Also, the OP mentioned asset location. My IRA is the place for bonds/cash. My Roth has mainly balanced funds. This is because my IRA is about 20% of my portfolio, and I want more bonds/cash than that. My taxable is mmostly stock mutual funds/etfs. I want my IRA to grow the slowest because it receives the crappiest tax treatment.

I could write about this forever, but I'll shut up for a while.