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Asset Allocation
Old 05-27-2004, 05:35 PM   #1
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Asset Allocation

Made a big change to my investment mix this week.

I am 34 years old (turn 35 this summer). I have been 100% in stocks up to now. I have made the following changes to my asset allocation:

401K

38% - S&P 500 Index Fund
13% - Midcap Index Fund
7% - Small Cap Index Fund
7% - International Index Fund (MSCI EAFE)
35% - Guaranteed Fund through Employer (pays 5.3%)

Roth IRA's (Vanguard)

65% - Total Stock Market Index Fund
35% - Short Term Corporate Bond Fund

I have taken these steps to reduce the volatility in my portfolio. I plan on increasing my exposure to bonds by 1% each year (age 40 = 40% in bonds). I would appreciate any thoughts on this asset allocation.

I started investing for FIRE at age 23. I will need an overall return in the 8-9% range to retire early. Thanks..
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Re: Asset Allocation
Old 05-27-2004, 06:22 PM   #2
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Re: Asset Allocation

Hi Trace,

One thing - it's usually a good idea to determine an allocation for the entire portfolio, and then divide it up from there. I can't tell what your allocation is unless I know how much $ you have in the 401(k) and the Roth.
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Re: Asset Allocation
Old 05-27-2004, 06:24 PM   #3
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Re: Asset Allocation

Trace,

Many will quibble with this or that, but you will do
just fine with your allocation. Personally I would
like to see you increase your Total International to
10% -15% of your total portfolio (401k + ROTH) and
add 10% REIT. These could come out of your 500
Index and/or TSM. It does not matter which
retirement account you use. If you have a spouse,
you should consider ALL of your financial assets as
ONE portfolio when making your allocation. Be
sure to rebalance each year. This will force you to
"buy low and sell high". Max out your IRA contributions
and live below your means. You will reach ER in good
shape before you know it.

Good Luck,

Charlie

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Re: Asset Allocation
Old 05-27-2004, 06:34 PM   #4
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Re: Asset Allocation

I have thought a lot about adding additional International exposure and also the REIT fund.

Which Vanguard International Fund would you choose? It seems to me that the International Markets tanked at the same time the US markets did. I question whether the conventional wisdom on this front is changing.

I keep studying the REIT funds (the returns have been stellar). I am concerned about a potential fall coming in this asset class.

Thanks for the response.

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Re: Asset Allocation
Old 05-27-2004, 07:09 PM   #5
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Re: Asset Allocation

Trace,

Vanguard's REIT fund peaked on April 1 and then
took a dive of about 18%. It seems to be recovering
now. REITs could fall some more but I think the
worst is over for now. I was value averaging into
the fund but invested my full allocation after the
big drop. You are young and have a long time to
recover if you plunged now. Plunging does better
60-70% of the time vs. DCA or Value Averaging.

Vanguard has a fund called Total International that
invests in 3 other funds... European Index, Pacific
Index and Emerging Market Index. It is a simple
way to get exposure to large cap growth and value
stocks outside the US. Some would argue that it
is better to invest directly in the 3 funds to control
the allocation between them ....... but I think it does
not matter that much.

Cheers,

Charlie
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