Author Topic: Current AA vs. PersonalCapital Target AA and FIRE  (Read 1763 times)

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Current AA vs. PersonalCapital Target AA and FIRE
« on: April 15, 2014, 03:56:02 PM »
I respect the collective knowledge of this community and am hoping everyone can help me understand if I'm missing something in my AA.

My FIRE timeline is as follows.
  • Married (H36/W34)
  • 6 years of accumulation until FIRE @ $50k/yr (conservative: mortgage + 2 children + expenses)
  • + ~15 years of FIRE w/kids
  • + ~10 years of FIRE before 60yo
  • + ~30 years of tRetirement

My current allocation is designed to be as follows.

Class% TotalTax Status
Cash3%Mixed
Bond10%Tax Deferred
Stock80%Mixed
REIT7%Tax Deferred

My actuals from PersonalCapital are as follows.

Class% Total
Cash0.47%
Intl Bonds1.03%
U.S. Bonds7.69%
Intl Stocks1.33%
U.S. Stocks79.62%
Alternatives9.83%

U.S. & Intl Stocks are in VTSAX, VTSMX, FUSVX, and CEQX#
U.S. & Intl Bonds are in VBTLX
Alternatives are majority REIT in VGSLX (9.78%), minority "other" from VTSAX, VTSMX, FUSVX, and CEQX#

PersonalCapital is making a big deal out of Intl Stocks and Bonds re: diversification.  Most of the reading that addresses this on the ER boards seems to suggest that a Total Market Stock/Bond fund has enough Intl exposure built in.  I'm comfortable with that, however, PersonalCapital seems to suggest a more substantial 70/30 split between U.S. & Intl Stocks (of my 80% Stock AA).

I'm not a "tin-foil hat wearing prepper" when it comes to things like holding all of my money at a single institution (Vanguard), or largely in U.S. Stock.  I'm prepared to be wrong on both accounts, but believe that if/when that becomes an issue, we'll have bigger things to worry about than returns on portfolios. (Which is why I'm diversifying through Mustachian skills acquisition like gardening, carpentry, and mechanical/electronic repair).

That said, am I truly only giving up a hedge on volatility not being heavier into Intl Stock, or is there something else I'm missing.

Also, given my FIRE timeline, does my AA design seem reasonable for accumulation?  I'm willing to trade off being aggressive now and leveraging side hustles now and when FIRE. What am I missing?

Any suggestions on things to keep in mind when transitioning through different stages of FIRE?  How should I be considering protecting essential capital in FIRE vs. getting too conservative?

Sorry this is a bit all over the place.  Thanks for your input!

foobar

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Re: Current AA vs. PersonalCapital Target AA and FIRE
« Reply #1 on: April 16, 2014, 07:36:56 AM »
Over the past 50 years or so, international stocks have returned about the same as US stocks so yeah the only difference is a change in volatility. How the next 50 years turns out is a total crap shoot. You shouldn't underestimate the reduction in volatility. During the death of equities period (call it 1973-1981), US stocks returned 7%( doesn't sound bad until you factor in inflation and you get a -1% return) while those international stocks returned 9.5%. That extra 2.5%/yr during a time of poor performance would have helped a lot.


International has underperformed for the past decade or so which is why a lot of people are giving up on it.  The whole buy underperforming asset classes and suffer when they underperform for years is really hard to do. Personally I am at 80/20 stocks but I also have no desire to retire as running my own company is a lot more fun than doing odd side hustles. YMMV

Your AA is at the upper edges of aggressiveness with ~85% stocks (you can debate if REITs are stocks or not). Think about what something like 2000-2002 would do to your plans and decide if you need to be a bit more conservative.


I respect the collective knowledge of this community and am hoping everyone can help me understand if I'm missing something in my AA.

My FIRE timeline is as follows.
  • Married (H36/W34)
  • 6 years of accumulation until FIRE @ $50k/yr (conservative: mortgage + 2 children + expenses)
  • + ~15 years of FIRE w/kids
  • + ~10 years of FIRE before 60yo
  • + ~30 years of tRetirement

My current allocation is designed to be as follows.

Class% TotalTax Status
Cash3%Mixed
Bond10%Tax Deferred
Stock80%Mixed
REIT7%Tax Deferred

My actuals from PersonalCapital are as follows.

Class% Total
Cash0.47%
Intl Bonds1.03%
U.S. Bonds7.69%
Intl Stocks1.33%
U.S. Stocks79.62%
Alternatives9.83%

U.S. & Intl Stocks are in VTSAX, VTSMX, FUSVX, and CEQX#
U.S. & Intl Bonds are in VBTLX
Alternatives are majority REIT in VGSLX (9.78%), minority "other" from VTSAX, VTSMX, FUSVX, and CEQX#

PersonalCapital is making a big deal out of Intl Stocks and Bonds re: diversification.  Most of the reading that addresses this on the ER boards seems to suggest that a Total Market Stock/Bond fund has enough Intl exposure built in.  I'm comfortable with that, however, PersonalCapital seems to suggest a more substantial 70/30 split between U.S. & Intl Stocks (of my 80% Stock AA).

I'm not a "tin-foil hat wearing prepper" when it comes to things like holding all of my money at a single institution (Vanguard), or largely in U.S. Stock.  I'm prepared to be wrong on both accounts, but believe that if/when that becomes an issue, we'll have bigger things to worry about than returns on portfolios. (Which is why I'm diversifying through Mustachian skills acquisition like gardening, carpentry, and mechanical/electronic repair).

That said, am I truly only giving up a hedge on volatility not being heavier into Intl Stock, or is there something else I'm missing.

Also, given my FIRE timeline, does my AA design seem reasonable for accumulation?  I'm willing to trade off being aggressive now and leveraging side hustles now and when FIRE. What am I missing?

Any suggestions on things to keep in mind when transitioning through different stages of FIRE?  How should I be considering protecting essential capital in FIRE vs. getting too conservative?

Sorry this is a bit all over the place.  Thanks for your input!

soccerluvof4

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Re: Current AA vs. PersonalCapital Target AA and FIRE
« Reply #2 on: April 16, 2014, 08:18:06 AM »
I had this very same discussion last week with Vanguard. Granted I am older than you but they actually spoke out and said it was wise to have some money for Bond diversification in VTABX.  Though a small percentage of your overall bond portfolio. Majority of mine is as well in the VBTLX. But I did take there advice because the percentage was small.