The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Derrian on December 20, 2014, 09:40:41 AM
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I'm in the process of starting a 403(b) at Vanguard and need some advice on asset allocation. My goal is to achieve FI in 14 years and I am starting with making the maximum contribution to my 403(b) and IRA this year. Currently, my IRA is with Betterment with a 90% stock allocation. I'm planning on rolling it over to vanguard in the next few months.
My plan for my 403(b) allocation is:
- 75% Total Bond Market Index (VBMFX)
- 20% Total International Stock Market Index (VGTSX)
- 5% Total Stock Market Index (VTSMX)
Any thoughts on a stronger allocation?
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Why are you going from 90% stock to 25% stock? Thats a huge swing. If you are 14 years out I get being 80%+ on the stocks, but a 75% bond portfolio is very conservative. I use a 80% bond/20% stock fund as my emergency fund. Its that conservative!
I like the Vanguard Total index funds, and fund selection is important. However your ratio of stocks to bonds has a bigger impact on your returns than just about anything else. So making sure that is geared towards your long term goals should be priority #1, then worry about which funds to pick.
Why not?
56% Total Stock
24% Total International Stock
20% Total Bond.
80% stocks(70/30 domestic/international), 20% bonds. A small drop from your current 90% stock, but it still makes sense for someone 14 years from retirement.
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So much for proof reading. My allocation plan is 95% stock and 5% bonds. It should say
- 75% Total Stock Market Index (VTSMX)
- 20% Total International Stock Market Index (VGTSX)
- 5% Total Bond Market Index (VBMFX)
Whoopsies.
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Much better! I love it!
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Define what you mean by stronger.
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That's a good question. By stronger, I suppose by stronger I mean better allocated for growth?
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So this is only at the most generic level of stocks/bonds split. It is decidedly without nuance to which types of stocks or bonds.
Pretty graph.
(https://static.vgcontent.info/ret/hnw/web/frsh_images/Balance_Figure2.png)
More reading -
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-risk
So look at this and decide what stronger means to you. It's (it being strength) an unfamiliar concept when we're discussing risk and potential return (truly the only concepts you should be concerned about with an AA).