Should I tilt? Trying to understand more advanced investing concepts

[Beric01]

So I've read the Bogleheads Guide to Investing, and am invested in Vanguard's total stock market, bond market, and international market funds (also looking at getting into the international bond fund). I've split my assets across my 401(k), Roth IRA, and taxable account.

I think I have a good grasp of the basics of index investing now now, and am interested in learning some more advanced strategies/techniques. The big one I always hear about is "tilting". I read the wiki, and while it covers the bare concept, it doesn't go into a lot of detail. Would anyone care to recommend a book on the concept, and whether it's worth looking into? Are there any other more advanced investing concepts I should investigate?

[TomTX]

How much are you investing?

Personally, I don't even think it's worth diversifying past a single low-cost stock index fund (such as VTSAX) until you have at least $50k invested.

There are just too many pitfalls. You need first get really comfortable and understand asset allocation. Be aware that a lot of the "conventional wisdom" is too heavy on bonds for a FIRE scenario. Heavy on bonds is fine for a 10, 15, maybe 20 year retirement timeframe. Longer timeframes need more of the growth from stocks.

Once you are comfortable (REALLY comfortable) with an asset allocation, don't put less than $10k in any one fund. Decide on when you will rebalance (January 1 and July 1? January 15 and July 15?) - and STICK TO THE PLAN. Way too many individual investors screw themselves over trying to time the market.

I have considerably more than $50k invested, and it's almost all stocks - mostly in VTSAX. One $5k* I-bond that doubles as our emergency fund. One individual stock left from a long time ago, which I plan to sell the rest of in the next year. It's around 10% of invested assets.

Should I just sell the individual stock now? Yes.

Am I having emotional hurdles to do so? Yes.

So, I know wherefrom I speak with the temptations of market timing ;)

*Well, plus appreciation. It's somewhere over $6k now.

[milesdividendmd]

My favorite asset allocation books that all do a great job of covering tilting are....

http://www.amazon.com/gp/aw/d/0312339879?pc_redir=1409143632&robot_redir=1

And

http://www.amazon.com/gp/aw/d/0071362363/ref=mp_s_a_1_1?qid=1410027627&sr=8-1&pi=SY200_QL40

They are both fantastic, but I would probably start with the first one.

Rick ferri's "all about asset allocation" is also decent but not as well written in my opinion.

And when you're ready for something really wacky, Larry swedroes black swan is quite interesting.

[Beric01]

How much are you investing?

Personally, I don't even think it's worth diversifying past a single low-cost stock index fund (such as VTSAX) until you have at least $50k invested.

There are just too many pitfalls. You need first get really comfortable and understand asset allocation. Be aware that a lot of the "conventional wisdom" is too heavy on bonds for a FIRE scenario. Heavy on bonds is fine for a 10, 15, maybe 20 year retirement timeframe. Longer timeframes need more of the growth from stocks.

Once you are comfortable (REALLY comfortable) with an asset allocation, don't put less than $10k in any one fund. Decide on when you will rebalance (January 1 and July 1? January 15 and July 15?) - and STICK TO THE PLAN. Way too many individual investors screw themselves over trying to time the market.

I have considerably more than $50k invested, and it's almost all stocks - mostly in VTSAX. One $5k* I-bond that doubles as our emergency fund. One individual stock left from a long time ago, which I plan to sell the rest of in the next year. It's around 10% of invested assets.

Should I just sell the individual stock now? Yes.

Am I having emotional hurdles to do so? Yes.

So, I know wherefrom I speak with the temptations of market timing ;)

*Well, plus appreciation. It's somewhere over $6k now.

Thanks for your comments!

I have almost 60K invested right now. My current asset allocation target is the following (couple percent off target in each fund thanks to 401(k)):

• 56% - Total Total Dom Stock Index (VTSAX Admiral shares right now, thanks to Vanguard)
• 24% - Total Intl Stock Index (VGTSX in my 401(k) - my 401(k) doesn't have admiral shares)
• 16% = Total Dom Bond Index (VBTIX - yes, my 401(k) has institutional shares - yay!)
• 4% - Total Intl Bond Index (actually don't have any in this right now - I decided to prioritize Admiral shares over International bonds in my Roth IRA - should have some starting the first of the year

This basically mirrors VASGX (Vanguard LifeStrategy Growth Fund), but allows me to use my 401(k), which only has Total International and Total Dom bond index. My 401(k) has an S&P 500 index fund only - no Total Stock market, so I put all of my Total Stock Market in my Roth IRA and taxable accounts - I'm just not interested in the S&P 500 index alone right now - maybe with tilting that would become useful?

Would you say this is too conservative? I plan to FIRE in a little less than 10 years and likely will stop working - I may find some part-time job but it would not be for earning more money.

Anyway, I should hit 100K in less than a year, and thus would be ready to consider a wider variety of funds.

My favorite asset allocation books that all do a great job of covering tilting are....

http://www.amazon.com/gp/aw/d/0312339879?pc_redir=1409143632&robot_redir=1

And

http://www.amazon.com/gp/aw/d/0071362363/ref=mp_s_a_1_1?qid=1410027627&sr=8-1&pi=SY200_QL40

They are both fantastic, but I would probably start with the first one.

Rick ferri's "all about asset allocation" is also decent but not as well written in my opinion.

And when you're ready for something really wacky, Larry swedroes black swan is quite interesting.

Thanks a lot! I'll look into these.

[Dodge]

How much are you investing?

Personally, I don't even think it's worth diversifying past a single low-cost stock index fund (such as VTSAX) until you have at least $50k invested.

There are just too many pitfalls. You need first get really comfortable and understand asset allocation. Be aware that a lot of the "conventional wisdom" is too heavy on bonds for a FIRE scenario. Heavy on bonds is fine for a 10, 15, maybe 20 year retirement timeframe. Longer timeframes need more of the growth from stocks.

Once you are comfortable (REALLY comfortable) with an asset allocation, don't put less than $10k in any one fund. Decide on when you will rebalance (January 1 and July 1? January 15 and July 15?) - and STICK TO THE PLAN. Way too many individual investors screw themselves over trying to time the market.

I have considerably more than $50k invested, and it's almost all stocks - mostly in VTSAX. One $5k* I-bond that doubles as our emergency fund. One individual stock left from a long time ago, which I plan to sell the rest of in the next year. It's around 10% of invested assets.

Should I just sell the individual stock now? Yes.

Am I having emotional hurdles to do so? Yes.

So, I know wherefrom I speak with the temptations of market timing ;)

*Well, plus appreciation. It's somewhere over $6k now.

Thanks for your comments!

I have almost 60K invested right now. My current asset allocation target is the following (couple percent off target in each fund thanks to 401(k)):

• 56% - Total Total Dom Stock Index (VTSAX Admiral shares right now, thanks to Vanguard)
• 24% - Total Intl Stock Index (VGTSX in my 401(k) - my 401(k) doesn't have admiral shares)
• 16% = Total Dom Bond Index (VBTIX - yes, my 401(k) has institutional shares - yay!)
• 4% - Total Intl Bond Index (actually don't have any in this right now - I decided to prioritize Admiral shares over International bonds in my Roth IRA - should have some starting the first of the year

This basically mirrors VASGX (Vanguard LifeStrategy Growth Fund), but allows me to use my 401(k), which only has Total International and Total Dom bond index. My 401(k) has an S&P 500 index fund only - no Total Stock market, so I put all of my Total Stock Market in my Roth IRA and taxable accounts - I'm just not interested in the S&P 500 index alone right now - maybe with tilting that would become useful?

Would you say this is too conservative? I plan to FIRE in a little less than 10 years and likely will stop working - I may find some part-time job but it would not be for earning more money.

Anyway, I should hit 100K in less than a year, and thus would be ready to consider a wider variety of funds.

My favorite asset allocation books that all do a great job of covering tilting are....

http://www.amazon.com/gp/aw/d/0312339879?pc_redir=1409143632&robot_redir=1

And

http://www.amazon.com/gp/aw/d/0071362363/ref=mp_s_a_1_1?qid=1410027627&sr=8-1&pi=SY200_QL40

They are both fantastic, but I would probably start with the first one.

Rick ferri's "all about asset allocation" is also decent but not as well written in my opinion.

And when you're ready for something really wacky, Larry swedroes black swan is quite interesting.

Thanks a lot! I'll look into these.

I wouldn't consider 80/20 stocks/bonds to be conservative in any situation personally.

[Sdsailing]

What tilt do you want? What is the strategy behind it?  If you cannot answer these questions the you are not ready to tilt.

I also suggest dropping international bonds.  Despite vanguards addition of them, many of the gurus, including Bogle himself, argue against these.

[Beric01]

I wouldn't consider 80/20 stocks/bonds to be conservative in any situation personally.

Thanks! Do you think it is too aggressive coming up on FIRE in less than 10 years?

What tilt do you want? What is the strategy behind it?  If you cannot answer these questions the you are not ready to tilt.

I also suggest dropping international bonds.  Despite vanguards addition of them, many of the gurus, including Bogle himself, argue against these.

That's kind of the point of this thread: I want to learn about tilting - I'm clearly not ready to do so yet. I did appreciate the book recommendation earlier.

Thanks for the tidbit on international bonds. As mentioned, I haven't actually bought any international bonds yet (was planning to come next year, when I can put more into my ROTH IRA), so there's still time to not do so. What would you say is the argument against international bonds?

[Sdsailing]

The arguments against international bonds are complex.  For both of your questions your best bet is to become active on the bogleheads board.  Here is one of many threads:
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=139939

[TomTX]

I wouldn't consider 80/20 stocks/bonds to be conservative in any situation personally.

Thanks! Do you think it is too aggressive coming up on FIRE in less than 10 years?

Do you intend to no longer need your stash in 30 years because of other income or because you expect to be dead?

Yes, stocks are more volatile than bonds historically. But over a 30+ year timeframe at the same withdrawal rate, you are more likely to run out of money with a 50/50 stock/bond split than an 80/20 stock/bond split.

Go run the simulations, at Vanguard and cfiresim. Play around with it. On either one, I keep getting that a 50/50 portfolio is more likely to fail than an 80/20 portfolio. 30 years, 50 years. 4% withdrawal rate.

Over a short timeframe being heavy in bonds is more conservative. Over a longer timeframe being heavy in stocks is more conservative ... as long as you define "conservative" as "less likely to run out of money"

[Beric01]

I wouldn't consider 80/20 stocks/bonds to be conservative in any situation personally.

Thanks! Do you think it is too aggressive coming up on FIRE in less than 10 years?

Do you intend to no longer need your stash in 30 years because of other income or because you expect to be dead?

Yes, stocks are more volatile than bonds historically. But over a 30+ year timeframe at the same withdrawal rate, you are more likely to run out of money with a 50/50 stock/bond split than an 80/20 stock/bond split.

Go run the simulations, at Vanguard and cfiresim. Play around with it. On either one, I keep getting that a 50/50 portfolio is more likely to fail than an 80/20 portfolio. 30 years, 50 years. 4% withdrawal rate.

Over a short timeframe being heavy in bonds is more conservative. Over a longer timeframe being heavy in stocks is more conservative ... as long as you define "conservative" as "less likely to run out of money"

Thanks! I played a little with cFIREsim - My success rate increases by 2% going from 80% to 90% equities. (from 93.5% to 95.5%). Going to 95% gives me about 96.5% success rate. I really have to wonder If I'm being too conservative with my 80/20 portfolio.

[kyleaaa]

I wouldn't consider 80/20 stocks/bonds to be conservative in any situation personally.

Thanks! Do you think it is too aggressive coming up on FIRE in less than 10 years?

Do you intend to no longer need your stash in 30 years because of other income or because you expect to be dead?

Yes, stocks are more volatile than bonds historically. But over a 30+ year timeframe at the same withdrawal rate, you are more likely to run out of money with a 50/50 stock/bond split than an 80/20 stock/bond split.

Go run the simulations, at Vanguard and cfiresim. Play around with it. On either one, I keep getting that a 50/50 portfolio is more likely to fail than an 80/20 portfolio. 30 years, 50 years. 4% withdrawal rate.

Over a short timeframe being heavy in bonds is more conservative. Over a longer timeframe being heavy in stocks is more conservative ... as long as you define "conservative" as "less likely to run out of money"

Thanks! I played a little with cFIREsim - My success rate increases by 2% going from 80% to 90% equities. (from 93.5% to 95.5%). Going to 95% gives me about 96.5% success rate. I really have to wonder If I'm being too conservative with my 80/20 portfolio.

You definitely are NOT being too conservative with 80/20. An increase in success rate in the 3% range is meaningless noise. Those success rates are backward looking, after all. Garbage in, garbage out.