Author Topic: New Direction  (Read 924 times)

Richie

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New Direction
« on: August 10, 2019, 08:49:03 AM »
Hello everyone,

I really didn't think my priorities in life would reorder in the way that they have, but I have suddenly become more risk averse than previously.

Previously, I was faithfully investing in VASGX.  I was happy with it and felt I could stomach the higher risk for higher returns.  What I didn't know at the time is that my life would take a dramatic shift.  I am changing careers AND moving in no less than five years (maybe a little more).  My reasons for this are very specific and I'd prefer not to get into them in too much detail.  That being said, FIRE is still a priority and both the move and the career change would compliment a transition sooner rather than later.  Time is still on my side, as I am relatively young.

My hang-up is that I may need access to some of my funds in five years to make this happen.  Indeed, FIRE may even happen within five years.  The point is, there are a number of unknowns about how much of my savings I will need to access in five years.  I'm thinking of moving to VSMGX (Moderate).  I'm not going to lie - the current valuation of the market has me nervous, as much as I've drilled into my head that timing the market is futile.  Is a more conservative investment strategy a wise idea for someone at a crossroads like me?

JGS1980

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Re: New Direction
« Reply #1 on: August 10, 2019, 09:03:26 AM »
Whatever allows you to sleep at night, my friend.

If 80:20 Equity/Bonds ratio of VASGX is too risky, then 60:40 of VSMGX Moderate Growth may be your best bet.

Note that, according to the Vanguard website, since inception of both of these Mutual Funds, the difference in average annual returns for both is only 0.45%, which I find interesting.

If you need "access to some of my funds" in the next five years, than you either need to save up a separate "transition fund" and put in a high yield savings account, OR, take some money off the table right now and also put that in a savings account or Vanguard money market.

You will lose a bit in long term returns if you place some investment money in transition reserves, but that's okay, as you have said that this transition will allow you to retire sooner.

Congratulations!

JGS

Andy R

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Re: New Direction
« Reply #2 on: August 10, 2019, 09:35:24 AM »
It sounds pretty clear that your risk tolerance is lower than your funds level of risk.
I would say that changing to something less aggressive makes sense but make sure it is a permanent change and if the media all of a sudden starts saying how great the economic outlook is that you don't change your mind and go more aggressive again.

Also, if you may need the money, it would be an idea to keep the 80/20 fund and adjust your allocation using a separate bond fund. So if you wanted to change to 60/40, you would change to
75% in 80/20
25% in a bond fund
That way if you hit a rough patch, you don't have to sell stocks when they're down.

Financial.Velociraptor

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Re: New Direction
« Reply #3 on: August 10, 2019, 05:50:12 PM »
My advice to friends and family has always been "if you have trouble sleeping, your bond allocation is too low."  I've been retired since 5OCT2012 and keep a 60/40 equity/bond ratio.  I am very unlikely to end up unretired.  I am significantly less likely to retire stupid rich but I've asked around and it turns out you can't take any of it with you....

FIRE 20/20

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Re: New Direction
« Reply #4 on: August 11, 2019, 04:09:09 PM »
I would focus first on how much of your money you'll actually need in 5 years and what you'll need it for.  If it's something like 10% of your 'stache, then I'd either start buying CDs with some of your extra money or allocate some of your current VASGX.  Either way, I'd stay fully or mostly invested in equities with as much as possible.  If on the other hand it's a significant amount that you'll need (like 80% to fund a passive business or something that will fund FIRE) then I would take a different approach, depending on whether you just need to maintain it at all costs or if you'll be relying on growth to get you where you'll need to be.  Without going into too many details, can you give us some idea of how much you'll need in 5 years?  Like half of the current 'stache, which you hope will be about 25% of your 'stache in 5 years?  Something like that might be helpful to know. 

With that said, there's nothing at all wrong with a 60/40 allocation.  As long as you know what you're setting yourself up for - lower growth potential and lower volatility - then that seems like a reasonable approach.

One last thing - if you're young and might be ready to FIRE in 5 years, I would guess that you have a high savings rate.  If that's the case, your savings rate will carry a lot of the load.  Just keep being frugal and find an allocation that works for you and you'll be fine with whatever you do.  Frugality and time are a winning combination even if the world throws you for a loop.  In this vein it might be helpful to game out a few scenarios - what happens if you stay 100% VASGX, keep saving as you have been, and the market crashes 50% at the worst time?  Same scenario - but 60/40?  What if the market drops 25% but recovers relatively quickly?  You can probably come up with a dozen scenarios to play around with to see which ones work and what costs they come with. 

MustacheAndaHalf

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Re: New Direction
« Reply #5 on: August 12, 2019, 01:20:39 AM »
I am changing careers AND moving in no less than five years (maybe a little more).
Besides moving expenses, what are you saving for?  This sounds like something you can save up separately from your retirement assets, and then keep your retirement on track.  Why not keep these two expenses (moving, retirement) separate - with separate accounts?

Otherwise you'll hurt the returns of your retirement account in order to meet the demands of the move you plan to make.

The allocation for VAGSX seems appropriate for people retiring in 15-20 years.
Vanguard has both the life strategy fund you mention, but also target date funds:
Vanguard Target 2035 holds 24% bonds
Vanguard LifeStrategy (VAGSX) holds 20% bonds
Vanguard Target 2040 holds 16% bonds


BicycleB

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Re: New Direction
« Reply #6 on: August 13, 2019, 09:22:57 AM »
Do you have to pay capital gains tax in the event of selling the VASGX? If so, I wouldn't sell, I'd just allocate new investments to less volatile instruments for a while.

If you're going to FIRE in five years, also start developing your withdrawal sequence now. Figure out exactly what amount of money you think you will draw year by year in FIRE, even if that's somewhat of a guess, and then determine exactly how you think you will draw that money. You can adjust investments now to make it nearly certain they will support your plans.

PS. I own some VASGX. Bear in mind that your future income depends only on prices year by year for just the bit of your resources that you draw down in each particular year. The prices right now or during any intervening crash are irrelevant. But any tax you incur by a sale produces a guaranteed cost.

A Fella from Stella

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Re: New Direction
« Reply #7 on: August 13, 2019, 10:18:19 AM »
My advice to friends and family has always been "if you have trouble sleeping, your bond allocation is too low."  I've been retired since 5OCT2012 and keep a 60/40 equity/bond ratio.  I am very unlikely to end up unretired.  I am significantly less likely to retire stupid rich but I've asked around and it turns out you can't take any of it with you....

I like this.