Author Topic: Asset allocation and bond fund for 63 y.o  (Read 3442 times)


  • Stubble
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Asset allocation and bond fund for 63 y.o
« on: January 14, 2015, 01:56:03 PM »
This is just for 1 of my parents and just 1 account but all money for parent will go to 1 Vanguard account, looking for idea on asset allocation and which bond fund or bonds to buy.

63 y.o retired looking to rebalance portfolio after decades of having never invested in bonds. After giving them advice but not really picking anything for them, this is what it is now after a month.

14% in VFIAX  ER 0.05
29% in VBLTX (long term bond index) ER 0.20
14% in VLGSX (long term gov't bond index admiral) ER 0.12
14.6% in VWESX (long-term investment grade) ER 0.22
29% in Vanguard money market ER 0.16, still deciding where to go.

So total right now is 86% bonds, 14% stock, obviously very conservative.

I advised them to look long term though they are retired at 63 and 61 so not sure how much long-term is left. They are pretty healthy thankfully. When I said long-term I think they interpreted it long-term bond index/gov't bond index/investment grade shares, not long-term view. They're doing well with it surprisingly compared to others but it's not diversified right?

I was thinking of combining all bond funds into VBTLX and be done with it. My concern was the long-term bond/corporate bond holdings which reading boglehead actually recommends only short or intermediate term. Is this a good idea?

I was also thinking of buying them I-bonds from TreasuryDirect to just protect the money from inflation. I'm not sure how to invest in TIPS but is TIPS already in the bond funds they would hold?

Note: They are NOT PLANNING to withdraw from this account as they already have decent pension and still haven't touched social security. It's more just a nest egg to keep intact for emergencies.

Since they already have VFIAX I thought about adding VEXAX but it's ER is a bit higher, maybe just do only VTSAX instead?

For international I was thinking VGTSX, not sure about international bonds though. Probably add a dividend and REITs fund too?

And are bonds still the way to go? There was a debate on Boglehead wiki on whether bonds are worth it anymore with soon to rise interest rates. But are bonds safer in the sense that they are less volatile and suffer less "heavy" damage than stocks?

The money is coming from their 401K. Is there any point to keeping a 401K if you're not working or can contribute to it anymore? Can you contribute money from other outside sources to a 401K or do you have to have a job? I was thinking of opening a Roth IRA for them but I don't think they can, there is some restriction (not income related).



  • Bristles
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Re: Asset allocation and bond fund for 63 y.o
« Reply #1 on: January 16, 2015, 11:15:23 AM »
Congratulations on convincing your folks to adjust their accounts.

Unfortunately, it seems as though you may have reduced their long term gains. Most people count pensions and social security as bonds/stable assets. It would be helpful to understand your parents total assets, where they plan on pulling money from for ordinary expenses, and what their goals are for their retirement. Does the pension have survivor benefits? Do they both have a pension? Do they both have a 401k?

Based on what you said, if they were my parents I would have advised to keep this pool of money a little more tilted towards stocks. Really, I would have recommended the boglehead 3 fund strategy. In my estimation, they are a bit too conservative now. What happens if they both live to 95? What happens if they are both in assisted living starting at 85? Assisted living centers often start at $2-3k a month and go up from there. Why not let that 401k money compound for 20+ years in a heavier allocation of stock so they can be prepared for late life expenses.


  • Pencil Stache
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Re: Asset allocation and bond fund for 63 y.o
« Reply #2 on: January 16, 2015, 12:00:56 PM »
Agree with DrFunk.  First glance, your parent's AA is way too bond heavy.  I understand wanting to be conservative to smooth out the ride, but with that much in bonds they are likely to lose purchasing power over the long term.  And if they have other means of meeting expenses then this really needs to be thought of as money they can take a little bit more risk with, since basic needs are covered.  I'm not saying crazy huge risk, but enough that the portfolio is keeping up with inflation.  Which to me, is something more like 50/50 or even 60/40 if they are confident they won't need to tap this account. 


  • Stubble
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Re: Asset allocation and bond fund for 63 y.o
« Reply #3 on: January 16, 2015, 03:19:22 PM »
This account is just a nest egg, they're not touching this so I guess they can take more risk with it. They do have pension and SS but I made a thread about that on the Ask A Mustachian (risks of relying on pension) forum and still debating there.

They went pretty conservative, which is why they asked me to look it over and I was thinking more the same line. The bonds don't seem diversified and what I read on Boglehead wiki is that long-term bonds have more risk but same return as intermediate. Though YTD for 2015, long term is doing pretty well for some weird reason. Not sure why certain duration of bonds do better than others?

I already changed their VBLTX to VBTLX (total bond fund) with lower ER and more diversification. I will also turn VFIAX into VTI and add maybe a little international stocks.

What is the opinion on international bond? Worth it to make it a 4 fund portfolio?

The pension doesn't have survivor benefits so I was thinking I should do more conservative just in case. Or should I do aggressive until passing away and then go to conservative for dad (widow, no pension). Mom is older but much healthier IMO. And just one has a pension. Both had a 401K that is being rolled over to Vanguard. I guess with pension they can be a bit more stock heavy. I was also thinking of adding REITs and vanguard dividend funds for some income but a small percentage, together no more than 20%.