Author Topic: Time to rebalance some of my VTSAX?  (Read 1107 times)

Easye418

  • Pencil Stache
  • ****
  • Posts: 505
Time to rebalance some of my VTSAX?
« on: December 30, 2020, 11:56:50 AM »
All,

Objective: cheap, no work index funds.  I don't mind having a little speculative/gamble type investment in my portfolio.

Age: 31

Portfolio: 90% VTSAX/ 10% VTIAX

Avg return: 11.9% over like 8 years. 

I was considering moving into something like 70% VTSAX/ 20% VTIAX/ 10% QQQ.  I figured gain more exposure internationally and take a piece of my pie to speculate with it.  However, VTSAX is normally very highly rated, very cheap, and has performed with the market.  Is it crazy?  Should I just stick it out with what I have?  Consider moving into a portion of bonds?

Appreciate any insight.

nemmm

  • 5 O'Clock Shadow
  • *
  • Posts: 24
  • Location: Nebraska
Re: Time to rebalance some of my VTSAX?
« Reply #1 on: December 31, 2020, 11:30:58 AM »
Re balancing periodically is a good idea. Some people hold 100% VTSAX only (J. L. Collins’ Simple Path recommendation), with the theory that most large US companies are international which provides some diversification. Others add VTIAX and others to gain more diversification, or any other combination to try to "tilt" towards a certain geographic region, industry, or company size, or add bonds.

I caution about "tilting" because it can lead to timing and emotional trading which rarely works out well. Set an asset allocation and periodic re-balance as needed is about as simple as one can get.

My opinion for most people who want a totally hands off approach is to either buy the vanguard target date index fund for the year they plan on retiring, or to approximate its holdings within your existing accounts. The latter is not quite as simple, but does allow for tax-efficient placement, for example holding bonds in a retirement account (IRA or 401K) and more tax-friendly (VTSAX) in taxable brokerage accounts. Here are the holdings of the 2055 target date fund as of now: https://personal.vanguard.com/us/funds/snapshot?TTVETF=VETFTEST&FundId=1487&FundIntExt=INT#tab=2

Speaking of taxes- this is pretty important to consider in your situation. If you plan on selling VTSAX from a taxable account to re-balance, you will pay taxes when selling. If you are selling shares held less than a year, you will pay even more taxes. If you are in a taxable account, you might be better off either stopping automatic dividend re-investment and instead using them to purchase VTIAX or just directing all new investment to VTIAX until you reach your target.

VTSAX certainly holds everything in QQQ. Buying QQQ would be reducing your diversification, not increasing it. If it is your goal to increase concentration of nasdaq 100 companies, go for it, otherwise just stick with VTSAX.
You can compare holdings here:
https://ycharts.com/companies/QQQ/holdings
https://ycharts.com/companies/VTI/holdings
« Last Edit: December 31, 2020, 11:32:42 AM by nemmm »

Easye418

  • Pencil Stache
  • ****
  • Posts: 505
Re: Time to rebalance some of my VTSAX?
« Reply #2 on: December 31, 2020, 02:51:52 PM »
Re balancing periodically is a good idea. Some people hold 100% VTSAX only (J. L. Collins’ Simple Path recommendation), with the theory that most large US companies are international which provides some diversification. Others add VTIAX and others to gain more diversification, or any other combination to try to "tilt" towards a certain geographic region, industry, or company size, or add bonds.

I caution about "tilting" because it can lead to timing and emotional trading which rarely works out well. Set an asset allocation and periodic re-balance as needed is about as simple as one can get.

My opinion for most people who want a totally hands off approach is to either buy the vanguard target date index fund for the year they plan on retiring, or to approximate its holdings within your existing accounts. The latter is not quite as simple, but does allow for tax-efficient placement, for example holding bonds in a retirement account (IRA or 401K) and more tax-friendly (VTSAX) in taxable brokerage accounts. Here are the holdings of the 2055 target date fund as of now: https://personal.vanguard.com/us/funds/snapshot?TTVETF=VETFTEST&FundId=1487&FundIntExt=INT#tab=2

Speaking of taxes- this is pretty important to consider in your situation. If you plan on selling VTSAX from a taxable account to re-balance, you will pay taxes when selling. If you are selling shares held less than a year, you will pay even more taxes. If you are in a taxable account, you might be better off either stopping automatic dividend re-investment and instead using them to purchase VTIAX or just directing all new investment to VTIAX until you reach your target.

VTSAX certainly holds everything in QQQ. Buying QQQ would be reducing your diversification, not increasing it. If it is your goal to increase concentration of nasdaq 100 companies, go for it, otherwise just stick with VTSAX.
You can compare holdings here:
https://ycharts.com/companies/QQQ/holdings
https://ycharts.com/companies/VTI/holdings

Thank you for the reply.  This is not in a taxable account.  Gave me a lot to think about here.  Appreciate it!

maizefolk

  • Walrus Stache
  • *******
  • Posts: 7400
Re: Time to rebalance some of my VTSAX?
« Reply #3 on: December 31, 2020, 03:02:51 PM »
I'll just add a note to be cautious about chasing previous year results. I'm not saying that you are doing this, but I was reading the year end numbers the other day and saw the Nasdaq (QQQ) was up 45+% this year while VTI is up only 20% and the S&P 500 only 16%. My first instinctive reaction was "Shoot! Why didn't I invest in a Nasdaq index instead of a mix of VTI and other broader indices." If you haven't looked at the 2020 returns for various indices, disregard the above. But if you have, it's worth thinking about whether part of your motivation for rebalancing right now is that eye popping return for 2020.

That said, I think both your current and proposed portfolios are reasonable ones, particularly in a retirement account where you don't have to worry about realizing capital gains.