Asset Allocations

[stevedoug]

30yrs old,
401k, HSA maxed,
no debt except mortgage @ 2.125% (Variable) (low risk of quick increase)

Next step towards FI is some taxable investments.
 Based on what I've read here, from MMM, and from jlcollinsnh stock series I have an asset allocation like this planned:

  70% Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
  15% Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
  15% Vanguard REIT Index Fund Investor Shares (VGSIX)

Thoughts? Too aggressive?
(I don't quite have enough for the admiral shares yet)

[Integrate]

Not sure where you were planning on putting all the various funds, but from a tax optimization point of view you ideally want all your bonds and any REIT in tax advantaged accounts.

Dividends from these two are taxed at your ordinary income rate instead of at the qualified dividend rate from (most) stocks.

Otherwise AA is mainly how much risk you want to take on. Lower stock and more bond will historically have a lower standard deviation, but also a lower return. At 30 I'd say you have time to recover from any drop in stock prices.

[brewer12345]

What are your goals?  How soon will you need the money?  If your portfolio dropped by 40% in a year how would you feel/react?  Already got a sizable emergency fund?

I run my tax deferred and taxable accounts differently.  Tax deferred is higher equity, higher risk since I will not touch the money for a number of years.  Taxable is more conservative and includes a healthy slug of CDs, I bonds, and the like.  I will be using the taxable funds much sooner and can't afford as much risk there.  YMMV.

[juggleandhope]

i'm similarly trying to figure things out.  what's the upside versus downside for investing in bonds now with the interest rates only easily able to go up?  should 30% of the portfolio still be in bonds when they can go down more likely than up?

[alanwbaker]

i'm similarly trying to figure things out.  what's the upside versus downside for investing in bonds now with the interest rates only easily able to go up?  should 30% of the portfolio still be in bonds when they can go down more likely than up?

1) Stocks and bonds are the yin and yang of investing.  Stocks are your opportunity for earnings and appreciation; bonds are your shock absorber.  A big hit to stocks (e.g. 2008) would be a 50% drop; a big hit to bonds (e.g. 2013) would be a 5% drop.  So you should not make investment decisions based on the movements of the bond market, especially possible future movements.

2) Don't try to time the market--it's a loser's game.  Decide on an asset allocation that matches your risk tolerance and stay with it regardless of market volatility.  If you aren't ready to 'leap' from where you are to that desired asset allocation, move to it over a period of months.

[captainron]

I believe VTSMX only holds US equities.

It is true that big US corporations have significant international exposure but still you might consider more international in your equity allocation.  Look into VTIAX.

[stevedoug]

I believe VTSMX only holds US equities.

It is true that big US corporations have significant international exposure but still you might consider more international in your equity allocation.  Look into VTIAX.

Thanks for the tip!

[hoppy08520]

I believe VTSMX only holds US equities.

It is true that big US corporations have significant international exposure but still you might consider more international in your equity allocation.  Look into VTIAX.

I second this advice.

I like jlcollinsnh's stock series and his general perspective, but I disagree with his advice on a 100%-US stock portfolio. He's out of the mainstream on this. Pick up any contemporary books by other advocates of passive investing strategy and I don't think you're going to find anyone advising you to leave international stocks out of your asset allocation.