Author Topic: Judge our Asset Allocation (lazy ETF portfolio of VOO and VXF)  (Read 2397 times)

extremedefense

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So what my wife and I agreed on for the 401k:
50% VIIIX - expense ratio: 0.02%
https://personal.vanguard.com/us/funds/snapshot?FundId=0854&FundIntExt=INT
(Seeks to track the performance of the Standard & Poor’s 500 Index, which measures the investment return of large-capitalization stocks)
50% VEMPX - expense ratio: 0.07%
(Vanguard Extended Market Index Fund seeks to track the performance of a benchmark index that measures the investment return of small- and mid-capitalization stocks.)
https://institutional.vanguard.com/VGApp/iip/site/institutional/investments/productoverview?fundId=1860

Our IRA / CMA (after tax investment account):
50% VOO - expense ratio: 0.05%
(ETF that tracks the S&P 500)
50% VXF - expense ratio: 0.09%
(ETF that tracks the extended market)

Our thought is that the S&P 500 tracks the 500 biggest companies, and the extended market tracks everything but the top 500 (so it's nothing but small and mid cap companies).

Then we can get 50% big companies, 50% small and medium companies, as opposed to just buying VTI which is basically 90% large cap and 10% small / medium cap.

We get 30 free ETF trades per month in our IRA and CMA, so only the 401k gets the mutual funds.

Since I am 22 and wife is 21, we're young enough to gamble on the small and medium companies doing better than the big companies. So what are your thoughts, are we okay in our thinking? What would you change?

Shade00

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Re: Judge our Asset Allocation (lazy ETF portfolio of VOO and VXF)
« Reply #1 on: March 15, 2017, 09:36:34 PM »
Two things. One is that you are 100% US stocks, which given your age may be acceptable risk to you. Two is that going 50/50 on those two funds is heavily tilting toward mid/small cap stocks, which is extra risk, especially given that small/mid cap are no more than 20-25% of the market. Going 82-18 of S&P 500/Extended Market roughly approximates the total market fund. Unless you have a compelling reason to favor mid/small cap stocks, I don't know why you would push higher than that. Just two cents from a random guy on the internet, though.

extremedefense

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Re: Judge our Asset Allocation (lazy ETF portfolio of VOO and VXF)
« Reply #2 on: March 15, 2017, 11:01:01 PM »
However, if you keep investing through that on a regular basis you should come out fine.

Can either of you contribute to a Roth IRA?

I'm not worried about it going down, in fact I'm excited / hoping it will drop 30-40% so we can buy more. We're planning on splitting 50% into savings / down payment / buy extra stocks if the market drops and 50% investing with our extra monies.

Why the Roth IRA? Our income is in the 15% bracket right now, but once my wife starts working, wouldn't traditional make sense if we plan on paying less taxes when we retire?

Going 50/50 on those two funds is heavily tilting toward mid/small cap stocks, which is extra risk... Unless you have a compelling reason to favor mid/small cap stocks, I don't know why you would push higher than that. Just two cents from a random guy on the internet, though.

We're okay with the 100% stock risk because gocurrycracker and jlcollinsnh wrote posts about how 100% stocks comes out ahead over bonds as long as you're okay with your portfolio going down. There are other small / mid cap indexes we're considering: VBR / VOE. Any thoughts on growth / value index funds over the plain large / medium / small cap funds?

extremedefense

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Re: Judge our Asset Allocation (lazy ETF portfolio of VOO and VXF)
« Reply #3 on: March 16, 2017, 08:57:23 AM »
Wow, you're too kind! I think you're spot on with the emotional aspect, and I'll keep that in mind and come back and read your post in down markets to remind me to distance emotions from logic.

On the Roth situation, I didn't know about all those benefits, and when we file taxes next year I'll consider funding a Roth if the numbers aren't too bad. There is also the possibility that ordinary income taxes are lower in the future.

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MustacheAndaHalf

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Re: Judge our Asset Allocation (lazy ETF portfolio of VOO and VXF)
« Reply #4 on: March 16, 2017, 10:01:46 AM »
Historically 15% is a very low tax bracket.  I'd second the recommendation for a Roth IRA, especially when you're in such a low tax bracket.  Keep in mind social security could raise your tax bracket in retirement, and any Traditional IRAs will have mandatory withdrawal amounts.  You might have more income than you need, without any way to prevent it.  And tax rates could go up between now and retirement - easily over 15%.

Any reason you have 0% international?  There's developed and emerging markets, both of which may move differently than the U.S. market.  Most people are happy with 20-40% international, maybe starting at 20% and raising it if you like later.  Vanguard also has a "small cap international" fund if you want to continue your small-cap tilt into international.

extremedefense

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Re: Judge our Asset Allocation (lazy ETF portfolio of VOO and VXF)
« Reply #5 on: March 16, 2017, 12:29:12 PM »
I read that most of the S&P 500 companies operate internationally so even though i don't specifically have international, it is still covered by the big US companies.

That and I know that past results don't predict future results, but historically the international funds have done worse than domestic.

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AZryan

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Re: Judge our Asset Allocation (lazy ETF portfolio of VOO and VXF)
« Reply #6 on: March 16, 2017, 04:23:55 PM »
Two things. One is that you are 100% US stocks, which given your age may be acceptable risk to you. Two is that going 50/50 on those two funds is heavily tilting toward mid/small cap stocks, which is extra risk, especially given that small/mid cap are no more than 20-25% of the market. Going 82-18 of S&P 500/Extended Market roughly approximates the total market fund. Unless you have a compelling reason to favor mid/small cap stocks, I don't know why you would push higher than that.

It's really 'volatility' in question more than 'risk'. I say, if you can handle it, be 100% in stocks. As for Mid/SmallCaps, I HIGHLY favor tilting into these. In fact, my main fund is VIMAX (MidCap Index). Slightly more volatile than Total Market, and historically much better returns. A Goldilocks of billion dollar companies and brands we all know.
While I'm all-US, a good chunk of Int. is not unwise, IMO. Especially at current valuations in Europe, it's a nice time to start in on it. And that's not market timing. It's just recognizing that Europe's gone 'on sale' in recent years.