Author Topic: Just changed my AA...nervous  (Read 4094 times)

dmbfan4life20

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Just changed my AA...nervous
« on: December 18, 2015, 08:40:20 AM »
Been reading a lot about Vanguard and low cost index investing on here and another forum (bogleheads).

I have a 457 plan through work that had me in 14 different funds with pretty high ER's that was set up for me a long time ago, before I learned the ways of thinking on this site and others. Today I took the plunge and on my own, I re-balanced my portfolio to a more simple 3 fund approach. New AA is as follows:

50% Vanguard 500 Index Admiral Shares
25% American Funds EuroPacific Growth
20% Vanguard Total Bond Market Index Admiral
5% Stable Value Account

These are the best funds offered through my plan and the highest ER is 0.31% for the International portion.

So does this seem ok?? Seems to match my 70/30 desired AA.

matchewed

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Re: Just changed my AA...nervous
« Reply #1 on: December 18, 2015, 08:43:35 AM »
Write an investment policy statement.

If you're fine with it and accept the risks and anticipated conservative returns then it's fine.

Civex

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Re: Just changed my AA...nervous
« Reply #2 on: December 18, 2015, 08:45:15 AM »
I'm pretty new to Bogleheads investing, too and overall your AA looks fine. I am wondering why you are doing 5% in a stable value fund? In my 401k, that is basically the equivalent of a savings account. If you are looking to hold 5% of your portfolio value in cash, I would keep that in a high interest savings account and use the 401k space for investments with more growth potential or a higher cost.

Edit: Also, the foreign markets ER is quite high; depending on the overall value of your portfolio and the amount you are investing per year, another option would be to hold that(foreign investment slice of assets) in a taxable account through Vanguard. This would allow you access to a lower ER and you could potentially utilize the foreign income tax credit.

« Last Edit: December 18, 2015, 08:48:17 AM by Civex »

KCM5

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Re: Just changed my AA...nervous
« Reply #3 on: December 18, 2015, 09:34:39 AM »
My stable value fund currently pays 4%, so much better than a high interest savings account. What does yours pay, OP?

Second the recommendation to consider holding international directly with Vanguard. We hold ours with Vanguard in a IRA, and then have a small amount of international in the 457 with a higher ER (mine is actually .61% - I think the .31% sounds pretty good) to meet the desired AA.

You may want to look into small cap/mid cap indexes or a domestic total market index as you're missing those in the 500 fund.

neil

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Re: Just changed my AA...nervous
« Reply #4 on: December 18, 2015, 09:58:08 AM »
If you understand why you changed your AA, you shouldn't be nervous.  But you also can't be disappointed if you don't outperform your old benchmark, especially in the short term. 

I was pretty much 100% US equities because I initially came from the TMF world where they more or less ignored everything else.  I didn't feel encouraged through my initial research to do anything different.  Reading studies on portfolio allocation, I felt having zero bond and zero international exposure both have downsides.  I spent the last year or so better understanding what it would mean for me, and only then decided to make gradual adjustments between Feb-May to meet my new targets.

Any chart will show you what international has done since, and as a result I am down an extra 2% or so from my "old" benchmark.

The hard part of all this is doing the best thing for you isn't necessarily going to provide positive results in the short term.  Different asset classes can have vastly different performance year to year.  There's nothing wrong with a change in investment policy, but there should be a good reason for it, and you won't get discouraged if your timing is off.

dmbfan4life20

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Re: Just changed my AA...nervous
« Reply #5 on: December 18, 2015, 12:04:14 PM »
My stable value fund currently pays 4%, so much better than a high interest savings account. What does yours pay, OP?

Second the recommendation to consider holding international directly with Vanguard. We hold ours with Vanguard in a IRA, and then have a small amount of international in the 457 with a higher ER (mine is actually .61% - I think the .31% sounds pretty good) to meet the desired AA.

You may want to look into small cap/mid cap indexes or a domestic total market index as you're missing those in the 500 fund.

SVF is about 2% right now. I thought it might be best to hold a small percentage of that instead of all bonds.

I like the idea of small cap/mid cap indexes but the ER's in my plan are at 0.77 and 1.00 respectively so I did not choose them. I have a taxable account at Fidelity that is actively managed that the wife and I are taking over from the Adviser and going to either switch to Spartan or transfer to Fidelity. I will then use that account to mix up my stock allocation between Small/Mid and Total. I will re-adjust the International if need be but IMO, 0.31 is not bad and the returns have a decent history. 

As for my old benchmark, my rate of return has been less than 2% for the last 3 years with my old AA (14 funds with high ER's). I am thinking this will be a better return in the long run since previous AA was almost 45% bonds. I am comfortable taking the risks with this account as I am young and the wife and I have other funds.

One thing I didn't mention is that I am in the process of finding a new job. If I get said job, I can no longer contribute to this plan and will either leave it and let it grow or roll it into an IRA (Vanguard-with better fund options) that I cannot touch until I am 59 1/2. I like having the option of withdrawing this money if needed and if in 6 months I am no longer at my current job, just seeing what happens to my money over the course of 10-20 years if fine with me.

I think it was just a strange feeling taking the plunge to doing this on my own and I wanted to see what others thought and felt when they did their portfolios by themselves for the first time.

Dances With Fire

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Re: Just changed my AA...nervous
« Reply #6 on: December 18, 2015, 12:26:01 PM »
Been reading a lot about Vanguard and low cost index investing on here and another forum (bogleheads).

I have a 457 plan through work that had me in 14 different funds with pretty high ER's that was set up for me a long time ago, before I learned the ways of thinking on this site and others. Today I took the plunge and on my own, I re-balanced my portfolio to a more simple 3 fund approach. New AA is as follows:

50% Vanguard 500 Index Admiral Shares
25% American Funds EuroPacific Growth
20% Vanguard Total Bond Market Index Admiral
5% Stable Value Account

These are the best funds offered through my plan and the highest ER is 0.31% for the International portion.

So does this seem ok?? Seems to match my 70/30 desired AA.

This looks fine to me, don't sweat the small stuff. You have the Big picture right for your desired AA. The SVF at 5% will have little to no effect either way. Later you can always move that to Total Bond if you want.

Full Disclosure: Personal AA is at 60/40 @ 50ish...and beyond.

Kaspian

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Re: Just changed my AA...nervous
« Reply #7 on: December 22, 2015, 01:02:05 PM »
Been reading a lot about Vanguard and low cost index investing on here and another forum (bogleheads).

I have a 457 plan through work that had me in 14 different funds with pretty high ER's that was set up for me a long time ago, before I learned the ways of thinking on this site and others. Today I took the plunge and on my own, I re-balanced my portfolio to a more simple 3 fund approach. New AA is as follows:

50% Vanguard 500 Index Admiral Shares
25% American Funds EuroPacific Growth
20% Vanguard Total Bond Market Index Admiral
5% Stable Value Account

These are the best funds offered through my plan and the highest ER is 0.31% for the International portion.

So does this seem ok?? Seems to match my 70/30 desired AA.

Thumbs up!  But seriously?!  They had you in "14 different funds"?  When I see stuff like that I like to ask an advisor, "I see you have a fund encompassing Mexican and Guatemalan sugar cane here.  Where do you see that market going?" :D

Seriously--they don't know why most of the funds even exist or why they've included them in the portfolio. 

Eric

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Re: Just changed my AA...nervous
« Reply #8 on: December 22, 2015, 01:44:03 PM »
Thumbs up!  But seriously?!  They had you in "14 different funds"?  When I see stuff like that I like to ask an advisor, "I see you have a fund encompassing Mexican and Guatemalan sugar cane here.  Where do you see that market going?" :D

Seriously--they don't know why most of the funds even exist or why they've included them in the portfolio.

I'm predicting a sweet return.

Bah-dum-chaa!

MustacheAndaHalf

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Re: Just changed my AA...nervous
« Reply #9 on: December 24, 2015, 09:57:52 PM »
One thing I didn't mention is that I am in the process of finding a new job. If I get said job, I can no longer contribute to this plan and will either leave it and let it grow or roll it into an IRA (Vanguard-with better fund options) that I cannot touch until I am 59 1/2.
Isn't there an option to roll government 457 plans into a Traditional IRA?
https://www.cdcfcu.com/Articles/Dollars-and-Sense/Deferred-Compensation-Governmental-457-Plan-Rollo.aspx
Something to consider if you want to shift that money to Vanguard, and pick differently.

Does your 457 plan have Vanguard Total International?  I'm surprised they have Vanguard 500 and Vanguard Total Bond without covering any international options.  Vanguard Total International has a 0.14% expense ratio (admiral shares) while your current choice is much higher.  Given an expense ratio of 0.83% you have now, I'd use another account to invest internationally.

Playing with Fire UK

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Re: Just changed my AA...nervous
« Reply #10 on: December 28, 2015, 02:19:38 AM »
I used to be nervous after making a change in case the fund I was in before suddenly jumped up and the one I'd moved to crashed, this feeling will go away, don't sweat it.