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Old 11-06-2009, 10:48 PM   #21
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I'm gonna carry a 50/50 split:

The 50% stock will come from:
29% us total stock market vanguard index
2% us large value vanguard index
2% us small value vanguard index
2% REIT vanguard index
15% vanguard total international stock market index

The 50% bond will come from:
50% total bond vanguard index

I did the math, this is cooking about a 14% ytd return.

It's easy, I won't drive myself crazy watching it, and I can rebalance cheaply twice a year. The funds are virtually free of expenses.
It's user friendly. Will hopefully grab the averages, and pick up a little spike in the long run with the "value" and "reit" tiny poppers.

What do you guys think? I've spent all week on this crap, and I've got about a month to kick this in.

12/18/09 is D-Day, and I'm so ready for this all to work. Your advice is greatly appreciated more than words could express.
You probably won't go far wrong.

You are young and so you have a long time horizon. Given that, if I were in your boots I'd probably want to have more equities (maybe 55% or 60% instead of 50%).

I would also add a 10% position in "cash" (money market funds, CDs, etc). This is your "cushion" and will give you 3+ years of living expenses at your planned withdrawal rate. If stocks and bonds both go down, you can use this money and avoid selling when your share prices are lower. (This would be "bucket one" in Ray Lucia's "three bucket" approach).

You have a long time horizon and no "institutional" safeguard against inflation (COLA'd pension, SS in the near-term, etc). Equities often keep up with inflation, but not always. You might give this some consideration. Here's a recent thread where we talked about inflation "insurance."

Of the points above, I think adding "cash" is the most important.

As I'm sure you appreciate, you are taking some risk by jumping off the career track and into lower-paying work. Your plan includes a stated willingness to go back to work. I'd recommend you keep enough term life insurance to get the kids through college and to fill in for that income if you get hit by a bus.
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Old 11-06-2009, 11:16 PM   #22
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Another thought: If you are temperamentally suited to it, a small piece of income property (a duplex or a single family home) that you could manage and maintain yourself might not be a bad addition to your holdings. Why?
- Houses are cheap right now. It might be many years before they go back up, but the bargains are there today (and will be for awhile).
- Loan rates are at historic lows. Also, if inflation does take off, you'll be paying off that loan with ever-more-worthless dollars.
- Diversified source of monthly income: The income from rent would remain steady if stocks dive.
- Inflation hedge: If inflation takes off, you may be able to raise rents (depending on other factors).

I consider buying income real estate to be buying a job. If you are going to screen tenants yourself, do the maintenance yourself, collect the rents yourself, etc, then you'll be earning this monthly rental check. Still, you've said you still want to be employed, and this is one way to do it.
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Old 11-07-2009, 04:12 AM   #23
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2% positions (REIT, SC, LV) will not bring much to the party.
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Old 11-07-2009, 09:06 AM   #24
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Quote:
Originally Posted by Spartacus View Post
I'm gonna carry a 50/50 split:

The 50% stock will come from:
29% us total stock market vanguard index
2% us large value vanguard index
2% us small value vanguard index
2% REIT vanguard index
15% vanguard total international stock market index

The 50% bond will come from:
50% total bond vanguard index

I did the math, this is cooking about a 14% ytd return.

It's easy, I won't drive myself crazy watching it, and I can rebalance cheaply twice a year. The funds are virtually free of expenses.
It's user friendly. Will hopefully grab the averages, and pick up a little spike in the long run with the "value" and "reit" tiny poppers.

What do you guys think? I've spent all week on this crap, and I've got about a month to kick this in.


12/18/09 is D-Day, and I'm so ready for this all to work. Your advice is greatly appreciated more than words could express.
  • Looks like Bernstein among others, US & Intl Eq plus Bonds as core holdings with a Small & Value Tilt plus REIT.
  • I didn't catch your age, but 50% equities is pretty conservative, but may be just what you're comfortable with - and that's what's most important.
  • And finally, IMO (and many others) holding a 2% position in any fund is almost pointless, they won't have any significant impact on your returns. Almost looks like you've read about the small, value, REIT tilt - but you're not sold on the idea. Best of luck, you're certainly on the same track as most of us here and your choices are solid.
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Old 11-07-2009, 05:07 PM   #25
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Originally Posted by samclem View Post
I consider buying income real estate to be buying a job. If you are going to screen tenants yourself, do the maintenance yourself, collect the rents yourself, etc, then you'll be earning this monthly rental check. Still, you've said you still want to be employed, and this is one way to do it.
Depending on where you live you may be able to outsource this "job". We're going to be renting our place out while we travel for the next several years. We've found a property management company that will manage the place in our absence for $55 per month. Money well spent, in my view.
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I had read Solin's book
Old 11-07-2009, 05:09 PM   #26
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I had read Solin's book

The Smartest Investment Book You'll Ever Read.
It had those ideas.
Yeah, I do like the value, REIT tilt, but little tentative

I'm 40, want to withdrawal $18,000/year, with small jobs.
Gonna work this with about $500,000.
House paid for, cars new and paid for.
Just sort of scared about losing it, like the idea of controlling that standard deviation but keeping the returns up there as rationally as possible.

Went to a site Solin is connected to...
saw this,
Portfolio 60 | Index Funds Advisors Inc.
It's a great looking 60/40 split, like the 3 fund portfolio percentages, just mixed with more small cap, small value...

I think this one is the one for me after MANY MANY hours at this computer. It's tiresome because there's literally a lot at stake here.
Thanks for your advice along the way.

Sam, I'm following your advice and going 60/40.

Thanks guys, again, you are the greatest.
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Old 11-07-2009, 06:33 PM   #27
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Yes, i used to think that just those funds would get the job done as well.. Only 1 problem.. Getting the Right % Allocations correctly on a Yr-Yr basis..
You do a 33% in each and B&H and what do you have for the past 10 yrs?

Good Old VWELX and VWINX has been far better.
and going 1 level hirher into Some AMF's like OAKBX and TGLMX or HABDX has been even better with alot less volatility..
And remember, Int'l only came onto the radar of Investors just recently after the last Bear Mrkt ( 00-02') prior to that it was still considered as a Minor Part of one's Portfolio.. and Now after 10 yrs, VGTSX isn't any better than the Core Indexes..
Actually worse than VIMSX and NAESX.
and VWELX and VWINX has some Int'l in it as well..

and Global & EMD Bonds have beaten it Hands down as well.. sort of a Compromise btwn an Int'l Equitiy and a Bond as far as I'm conserned..

Of course , Why hasn't Vanguard ever mentioned them? Could it be, because They Don't Sell them?

as for what % Mix to have?
If these 2 are correct? a 50/50 Max while in ouyr Accum. Phase of life and a 30/70 for Rirement has been the Biggest Secret for Decades..

FundAdvice.com - The perfect portfolio

Jonathan Burton's Life Savings: How to invest well and sleep better, in good m & why a 50/50 portfolio is your Best Bet to keep you from Loosing your Sleep .. ( less than a 1% apy Difference btwn a 80/20 and a 50/50 port for the past 20+Ys & the same or better for the past 10 yrs )

Of course, this means you may have to Save More and have less to spend for Vacations and Toys, that Many don't want to give up..and Both OUr Gv't and Wall Street don't want you to know this information either, since we are a Spending Society and If we save more, our Economy will slow down for awhile and Since Wall Street Makes most of it's $ from Selling Stocks and Equities, they will make less as well..

and oh, BTW> a Ave 60/40 Index port only lost about -21% in 08' but it only ended up with about a 3.3% apy for the past 10 yrs now..But, it did beat inflation at least..

Of course, the past performance shouldn't be considered for Est. Future..

;-)
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Old 11-08-2009, 02:49 AM   #28
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I essentially use the Vanguard total stock market / total bond / total intl. index approach as well - 55% stocks 45% bonds. I am thinking about moving some of my bond exposure to Vanguards Tips fund. Any recommendations 50/50 (split in the bond portion) is what I am thinking, too much / too little?

Thanks.
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Old 11-08-2009, 09:15 AM   #29
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Quote:
Originally Posted by Mickslick View Post
I essentially use the Vanguard total stock market / total bond / total intl. index approach as well - 55% stocks 45% bonds. I am thinking about moving some of my bond exposure to Vanguards Tips fund. Any recommendations 50/50 (split in the bond portion) is what I am thinking, too much / too little?

Thanks.
...or just right. I wouldn't overthink your bond split too much as long as what you have is high quality, ie treasuries and avoid long term. Personally mine are split 3 ways between short term, intermediate term and TIPS.

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Old 11-08-2009, 07:27 PM   #30
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Ok, you've made me look at the Vanguard site, instead of trusting my memory. Turns out some things have changed since the last time I looked.

Quote:
Originally Posted by FIREdreamer View Post
LOL! and bamsphd,

any particular reason why you prefer VFWIX over VGTSX? I have been looking at both and except for VFWIX's exposure to Canada, I don't see much difference between the two. And now that VGTSX has moved away from the fund of funds model, one can claim the foreign tax credit with both funds. What am I missing?
I had forgotten that VGTSX was no longer a fund of funds. I like VFWIX's exposure to Canada, and that it holds 2148 different stocks, instead of 1760 stocks in VGTSX. However, I do NOT like the 0.40% expense ratio on VGTSX shares compared to the 0.34% expense ratio on VFWIX. I also do not like that neither of these funds seem to currently offer admiral shares.

Quote:
Originally Posted by Spanky View Post
How about using one fund as core: Vanguard Total World Stock ETF - VT?
I actually quite like VTWSX. I wish they had admiral shares available.

While I think a small investor can use a service like Share Builder to create a low cost ETF based portfolio, I personally find open-ended funds easier to deal with when buying and selling small dollar amounts. I also like avoiding the spread when I make transactions, though I will admit the ability to place limit orders would be nice.

If the expense ratios were all equivalent, I would probably go with VTWSX, possibly supplemented with VFSVX (FTSE All World xUS Small-Cap Index), as my equity fund recommendation. Unfortunately, the expense ratios are not equivalent, and not all the funds offer admiral shares. So which index funds to use depends heavily on whether you want to use ETFs or open-ended, and whether you expect to use admiral shares soon. If you want open-ended and can swing the admiral share minimums, it is currently hard to beat: VTSAX (Total US) at 0.09% for the US portion, and in place of VGTSX a combination of VEUSX (Europe) at 0.18%, VPADX (Pacific) at 0.18%, and VEMAX (Emerging) at 0.27%.
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OK, TWEAKED, AND RE-TWEAKED!! Any thoughts?
Old 11-11-2009, 07:51 AM   #31
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OK, TWEAKED, AND RE-TWEAKED!! Any thoughts?

42% UNITED STATES
18% INTERNATIONAL
40% FIXED INCOME
STOCKS 60%
FIXED INCOME 40%


US LARGE INDEXES
12% USS&P 500 Index VFINX
12% US Large Value Index VIVAX


US SMALL INDEXES

6% US Small Cap Index NAESX

6% US Small Cap Value Indx VISVX


REAL ESTATE INDEX
6% REIT VGSIX


INTERNATIONAL
6% Total International Index VGTSX
6% FTSE All World ex/us
Small Cap Index VFSVX

EMERGING MARKETS
6% Emerging Markets VEIEX

40% FIXED INCOME
Total Bond Market Index VBMFX

REBALANCE TWICE/YEAR

$500,000, age 40, $21,000 annual expenses, house/new cars paid for, 2 kids, married, buying own healthcare(for now), college for kids covered separately.

Is this perpetually survivable you think for 40 years without social security, assuming 3% inflation?
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Old 11-11-2009, 08:38 AM   #32
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Originally Posted by Spartacus View Post
What do you guys think of:
VTSMX, Vanguard Total Stock Market index (Wilshire 5000)
VGTSX, Vanguard International Index
VBMFX, Vanguard Total Bond Market

Going for market averages and such.
Why wouldn't this be all ya ever need? Just change allocations.
After all, 95% of actively managed funds do not beat market indexes in the long run.
As you probably know this is one of the Scott Burns "lazy" portfolios. This approach can also be generally referred to as "couch-potato" portfolios although the couch potato portfolio specifically is the 2-fund mix of Wilshire 5000 (total stock) and the total bond funds.

This particular mix posted by the OP is referred to as the Margarita portfolio.

The Kirk Report : Scott Burns' Lazy Portfolios

http://assetbuilder.com/couch_potato..._cookbook.aspx

Index funds are good. Both for the low fees and to avoid "flavor-of-the-month" allocation drift that many funds seem to go through. You could probably do a lot worse than this.
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Old 11-11-2009, 04:12 PM   #33
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42% UNITED STATES ...
You have given up a lot of simplicity, and a bit of tax efficiency, by slicing and dicing that finely. Personally, I wish my own portfolio was simpler, not more complex.
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Old 11-11-2009, 05:02 PM   #34
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Based on what you've told us of your situation, I like the new asset mix. Complexity is in the eye of the beholder, I don't think what you've got here is too elaborate for someone with your assets. If you had $50K, I'd say this was probably too complex.

If you've got both after-tax accounts and tax-advantaged accounts, you'll need to figure out which MFs to put into which category.

Twice per year rebalancing: Should work fine. It's probably "more right" to do the rebalancing when your allocation gets sufficiently out of whack (i.e. set a range for each asset class, and take money out/put money in whenever one gets too high/low), but I didn't do that. If keeping constant watch over these assets (to see if they get outside the ranges you've set) is going to encourage you to buy this or that "hot item", then you'd probably be better off to just use a calendar as a reminder to rebalance. I just do mine once or twice per year (around tax time, when I'm fiddling with other $$ stuff).

Quote:
Originally Posted by Spartacus View Post
$500,000, age 40, $21,000 annual expenses, house/new cars paid for, 2 kids, married, buying own healthcare(for now), college for kids covered separately.

Is this perpetually survivable you think for 40 years without social security, assuming 3% inflation?
Type your stuff into FIRECalc and see what you get. You'l need to decide what your withdrawal scheme is going to be. The big question here: If you can live with highly variable withdrawals each year (e.g. taking 4% out of the end-of-year balance for each year) rather than a more predicatable amount (e.g. 4% of starting balance with an annual adjustment for inflation). If you can live with the highly variable annual method you can be sure you'll never entirely run out of money (though the purchasing power of that money might go down gradually). Bob Clyatt's book covers this very well and offers a "minimum 95% of last year's method" that FIRECalchas set up as a default and which has historically produced good results.

Good luck
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Thanks Sam, Just got Bob Clyatt's book...
Old 11-11-2009, 09:10 PM   #35
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Thanks Sam, Just got Bob Clyatt's book...

I'm going with the 4% wd of the current year's portfolio, also will be using the 95% rule. Variable income is ok, I figure I can work to make up most likely any smaller amount.
Getting excited, the big day is closer. Spoke to the VG people. They seem really helpful.

Thanks again Sam and to you other guys for staying tuned in and so helpful on my posts.
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