Medium Term Investing Strategy (7-15 yrs)

[heybro]

Is a 100% Stock ETF a sound idea for a Medium Term Investment in a Taxable Account?  I may take out a little-bit-of-money, a-lot-of-money, or no-money-at-all in the next 7 to 15 years.  So, I am very flexible.

[MustacheAndaHalf]

To make sure I understand you, if a stock market correction hits, you are willing to take out no money at all.  If stocks are doing well, you may take out some or a lot of money.  Is that correct?  You don't plan to withdraw money when stocks are doing badly?

In that case, especially if you can be flexible about 7 to 15 years, then it makes sense.  For most people, there's a home country bias, and a mix of 20% international with 80% U.S. is about right.  That might be hard to find in a single ETF.

[terran]

I agree, it comes down to whether you mean you're flexible or you mean you're uncertain. If you mean you're flexible (you'll make a decision about how much to spend at the point of decision, and you'd be fine spending little or nothing if the situation warrants), then I'd be comfortable with 100% stock until you commit to spending the money. However, if your uncertain (you don't know how much you'll need to spend, but you really really want or need to spend it no matter what), then I'd be less comfortable with that.

A couple of good examples might be: flexible (retirement in 7 years, but you can put it off and keep working if the markets have tanked and the money isn't there, so you need to wait) and uncertain (college in 7 years and you want the kid to go the best school they can get in to, so you don't now how much it will cost, but you'll spend whatever it is).

I'm currently mostly stock with retirement planned within your timeframe. We'll add more bonds as it gets closer, but with a pretty rapid glidepath to 60% stock "immediately" when we commit to an exact date (either decide we're not willing to work longer than that, or do something irreversible like give notice). I'm comfortable with that.

[Radagast]

I think the "aggressive" option in Vanguard's 529 college saving plan is a great template. https://investor.vanguard.com/529-plan/age-based-options Looks pretty simple too: start at 100% stocks (60%US 40%International), then increase bond allocation by 10% per year, but don't go past 90%. A nine year glide path. If you need money sooner, anything past 60%b/40%s is still a pretty stable allocation. And if you need it later, you can pause the glide at any point. Worst case if you pause at the end 90/10 is still notably higher returning than 100% bonds.

[Goldielocks]

Another way to look at the "flexible" comment -- e.g., no money out, a little, or substantial...

What will you use the money for?  If it is for travel or to upgrade a car (a want), would you be ok with foregoing that if the market is down?

This strategy means setting a minimum goal and average goal for your funds for each year until 15 years total.   You don't withdraw below the minimum, and try to keep the average amount in there at the end of that year.

If you set it right, there will be a 10% chance of "failure" below minimums, and a 50% chance of excess money building up over the average so a 50% chance of it throwing off luxurious amounts (to you).

[heybro]

increase bond allocation by 10% per year, but don't go past 90%. A nine year glide path.

Since it's a taxable account, any advice on how to do this?  Invest in the lower performer first and if it's not enough to line up with the new asset allocation, then sell the higher performer to buy the lower performer?  Do it yearly?

[heybro]

To make sure I understand you, if a stock market correction hits, you are willing to take out no money at all.  If stocks are doing well, you may take out some or a lot of money.  Is that correct?  You don't plan to withdraw money when stocks are doing badly?

Yes exactly!  In other words, if I don't end up using any of the money, I want it to have grown.  If things go south, I have no problem waiting it out.

[heybro]

This strategy means setting a minimum goal and average goal for your funds for each year until 15 years total.   You don't withdraw below the minimum, and try to keep the average amount in there at the end of that year.

Wow, I like this idea a lot.  Very cool.
Do you put this strategy in 100% stocks?

[Goldielocks]

Depends.

I always look at how much money someone is getting from a pension or guaranteed cashflow.   You want to have a bare minimum of living covered so you don't need to withdraw from equities if you choose to be very very frugal for a year or two.   That means pensions + annuites + draw from fixed income investments covers property taxes, utilities, food, bare transportation for two years.

Otherwise, yes,  regardless of the asset allocations, you can set up your bare minimum threshold and your average target on any mix.

[MustacheAndaHalf]

Thinking about several alternatives, I think for you I'd recommend 100% in ITOT , VTI or SCHB.  All are U.S. total stock market ETFs with expense ratios of 0.03%.

You give up international diversification, but in taxable maybe the tax forms for international dividends are more annoying than worthwhile.  Also, for international you'd need a second ETF, and you asked about buying an ETF.

An interesting alternative could be a Vanguard Target 2035 mutual fund.  It's a mutual fund, not an ETF, as I couldn't find target date ETFs (well, just some charging over 0.70%).  Also, it has a bond component that generates income, and means paying tax on that income each year.  It would be good to avoid putting bonds in taxable... but with a target date fund, you get everything all in one place.  The diversification would be even better: 2/5ths of the equity portion is international.

The thing I don't like, is that 5 years from now, you will still be 100% equities.  You'll only have a couple years until you might withdraw money.  With a target date fund, you ease into it more gradually.  At the target date, the fund reaches 50% bonds / 50% stocks.  But it starts at 75% stocks... so you reduce risk as you approach the target date (in this case, 15 years from now).  I also only mention Vanguard because when you look for "fidelity 2035" or "schwab 2035" their expense ratios are far higher.  I think Fidelity also has a lower cost option, that isn't their first result, so you could track that down.

So go with 100% ITOT  / SCHB / VTI , but ideally you'd reduce your equity allocation over time, even though you have a wide range of years for possibly withdrawing money.