Vanguard Financial Plan

[Katsmeow]

DH recently retired and received a low 7 figure lump sum retirement which we rolled over in an IRA to Vanguard. We also have about $250k in Fidelity 401(k)s. Given the greater legal protections for 401(k)s we are inclined to keep those funds at Fidelity.

Anyway, we haven't talked to Vanguard about the plan yet but essentially they recommend a 50/50 stock bond allocation (which I'm fine with -- DH is 62 and I'm 56).

Within the Vanguard funds they basically put all of the bond part in the Vanguard Total Bond Market Index Fund Admiral Shares.

Of the stocks they put 80% of the stock portion in the Total Stock Market Index Fund Admiral Shares and 20% in the Total International Stock Index Fund.

I did tell them that we need to use about $200k of the money at Vanguard over the next couple of years in connection with building a house and some other expenses (paying taxes on money we withdrew to buy land, kids in college for example) but they did not recommend leaving anything in cash.

Any thoughts? Basically this is a very simple 3 fund plan (leaving aside the money at Fidelity -- they have asked us for the other options we have available at Fidelity which I've given but not seen anything since then).

Doing this results in, for example, over $500k in the Total Bond market index fund.

Any thoughts on whether we should break this down into more funds?

Also, given the need to use a couple of hundred thousand within the next few months and next year or so, should we leave some in the money market?

[friar1610]

Quote:

Originally Posted by Katsmeow Anyway, we haven't talked to Vanguard about the plan yet but essentially they recommend a 50/50 stock bond allocation (which I'm fine with -- DH is 62 and I'm 56). Within the Vanguard funds they basically put all of the bond part in the Vanguard Total Bond Market Index Fund Admiral Shares. Of the stocks they put 80% of the stock portion in the Total Stock Market Index Fund Admiral Shares and 20% in the Total International Stock Index Fund... I did tell them that we need to use about $200k of the money at Vanguard over the next couple of years in connection with building a house and some other expenses (paying taxes on money we withdrew to buy land, kids in college for example) but they did not recommend leaving anything in cash. Any thoughts? Basically this is a very simple 3 fund plan (leaving aside the money at Fidelity -- they have asked us for the other options we have available at Fidelity which I've given but not seen anything since then). Doing this results in, for example, over $500k in the Total Bond market index fund. Any thoughts on whether we should break this down into more funds? Also, given the need to use a couple of hundred thousand within the next few months and next year or so, should we leave some in the money market?

Personally, I like fewer funds but there are lots of folks who recommend the "slice and dice" approach and can show past results with a slightly better return (given a roughly equivalent overall AA.)

I can't believe that Vanguard (or any other reputable advisor) would recommend putting any money at risk that you know you're going to need in the next couple of years. Bond funds indeed have risk (and probably more now than ever given the likelihood of interest rate increases at some point in the future).

If you decide you like Vanguard's AA recommendations, I would simply take however much money you think you're going to need in the next few years off the table, put it in short-term CDs or a MM account and follow their AA recommendations for the remaining amount.

[travelover]

Quote:

Originally Posted by friar1610 Personally, I like fewer funds but there are lots of folks who recommend the "slice and dice" approach and can show past results with a slightly better return (given a roughly equivalent overall AA.) I can't believe that Vanguard (or any other reputable advisor) would recommend putting any money at risk that you know you're going to need in the next couple of years. Bond funds indeed have risk (and probably more now than ever given the likelihood of interest rate increases at some point in the future). If you decide you like Vanguard's AA recommendations, I would simply take however much money you think you're going to need in the next few years off the table, put it in short-term CDs or a MM account and follow their AA recommendations for the remaining amount.

+1. You don't want the money that you will need soon to be invested, even in bonds. The portfolio recommendations are pretty safe and generic - almost exactly what is recommended daily over on Bogleheads.

[LOL!]

The plan is perfect and simple.

I wouldn't worry about the bond fund versus cash. It just won't matter.

[teejayevans]

Quote:

Originally Posted by Katsmeow Any thoughts? Basically this is a very simple 3 fund plan (leaving aside the money at Fidelity -- they have asked us for the other options we have available at Fidelity which I've given but not seen anything since then).

I could teach a dog to be VG financial planner, nice funds, terrible financial planners, ditto for fido.
TJ

[MasterBlaster]

This is similar to some of the Scott Burns "Lazy" portfolios. They have actually done well. And the fees are really low. I like the autopilot approach.

The Kirk Report : Scott Burns' Lazy Portfolios

My only concern is that this market, both in stocks and bonds, is kind of crazy. Who knows what the future brings.

[Bikerdude]

I would put the 200K in a MM. I agree with LOL that it most likely will not make much difference, but I would sleep better. The "KISS" method of asset allocation they recommend is fine IMO.

[bizlady]

I have those exact funds- at VG recommendation. We also have money outside of VG yet. I too was concerned about the "no cash" recommendation. We opted for 10% in MM funds and cash savings for use the next few years since we will retire at 55.

[chinaco]

I am working this exercise myself. Currently our portfolio is setup for slice and dice.

I am planning to FIRE next year.


My current allocation is roughly 55/42/3 range due to the stock market.


Because I cannot predict market direction, timing of interest rate moves, etc... I am sticking with my plan and staying broadly diversified.

I intend to maintain most of my bond allocation. I will be moving some of it to short-term fixed (high quality) paper to prepare for FIRE next year. I am working out the exact amount now. At a minimum, it will be several years of planned income.

[LOL!]

Suppose you had $500K at the beginning of the year and invested in the total bond market fund. Then next month your total bond market fund dropped by 5% in value. Would you be ahead of somebody who put $300K in the bond fund and $200K in a money market fund?

[jayc]

Keep the cash you are going to need out of the market.

If the fund is VTSAX, it has a 3 year negative return and a pitiful yield.
Why would you want to lose principle on your hard earned money?

[walkinwood]

For myself, I would hold the $ needed over the next year in a cash.

I don't worry about having a lot of money in any one fund. I have most of my bond allocation in the VG's Short Term Investment Grade Bond fund and sleep fine at night.

[Nords]

Quote:

Originally Posted by Katsmeow I did tell them that we need to use about $200k of the money at Vanguard over the next couple of years in connection with building a house and some other expenses (paying taxes on money we withdrew to buy land, kids in college for example) but they did not recommend leaving anything in cash. Also, given the need to use a couple of hundred thousand within the next few months and next year or so, should we leave some in the money market?

Quote:

Originally Posted by teejayevans I could teach a dog to be VG financial planner, nice funds, terrible financial planners, ditto for fido.

Woof.

I mean, if you need it within a few years then it should be in cash...

[Alan]

I would definitely keep the $200k in cash.

The allocation and the funds sound pretty good to me for the rest.

[DblDoc]

Quote:

Originally Posted by teejayevans I could teach a dog to be VG financial planner, nice funds, terrible financial planners, ditto for fido. TJ

Don't confuse simplicity and low cost with a "bad" financial plan. Having said that though from what I have seen over at Bogleheads they are incapable of developing anything particularly sophisticated if you have complex needs.

Agree with above to hold needed cash separate in CD"s/MM the rest as advised. While the risk is low you would likely be kicking yourself when the money is needed and there is less than you started with...

DD

[bolt]

Quote:

Originally Posted by Alan I would definitely keep the $200k in cash. The allocation and the funds sound pretty good to me for the rest.

Me too. FWIW ....I to would keep your 3yrs needs in CDs or Cash despite the returns on each.

[teejayevans]

Quote:

Originally Posted by DblDoc Don't confuse simplicity and low cost with a "bad" financial plan. Having said that though from what I have seen over at Bogleheads they are incapable of developing anything particularly sophisticated if you have complex needs.

Do they ask when do you need this money, what is your risk tolerance, do you want income, or what tax bracket are you in?
Nope, don't need to, the answer is always the same.

Bark once if my stocks should be 80/20, bark twice....
TJ

[LOL!]

Quote:

Originally Posted by teejayevans Do they ask when do you need this money, what is your risk tolerance, do you want income, or what tax bracket are you in?

Yep, they do. All the time.

[Katsmeow]

Quote:

Originally Posted by teejayevans Do they ask when do you need this money, what is your risk tolerance, do you want income, or what tax bracket are you in? Nope, don't need to, the answer is always the same. Bark once if my stocks should be 80/20, bark twice.... TJ

The question about when we need the money hasn't been asked yet. It was in the form we filled out for the financial plan. To be fair we haven't had our phone conference yet.

Also based upon some feedback we gave them they are currently revising the plan (to give some suggestions about available funds in our Fidelity 401ks).

They certainly did ask about risk tolerance. They had several questions that got at this. They asked if we wanted to tell them the allocation we wanted or if we wanted them to suggest one. I knew the allocation I was leaning to - 50 stock/50 bonds - and that was what they suggested as well after I did the questions. Of course I do still want to keep part of it separate in the money market for now.

Oh, they did ask about our tax bracket also.

[Katsmeow]

We had our phone conference with Vanguard on the plan they did. The conversation started out OK but degenerated over, strangely enough, Wellesley income fund.

When we started out I pointed out that their plan was overstating our assets since they had one of our 401(k)s counted twice. She said she would modify that.

I also pointed out that I said in the comments when we submitted our info that we had some money that we need to use in the fairly short term so want to put that in the money market. She agreed (I had the feeling she had overlooked this in my comments).

Then I told her that I wanted to put about 10% of the portfolio into Wellesley Admiral Shares. I have to say that you would have thought I said I wanted to put it into a fund with a 4% front end load and 2% expenses! She was adamant about not recommending Wellesley and she wouldn't put it in. She muttered about it being higher expense. It is. The additional expenses work out to about .10% annually for a similar allocation. I've decided that I'm OK with that.

After telling us 3 times that she didn't recommend and us saying that we understand that, we wanted to get the new plan from her that would assume that we were keeping our Fidelity 401(k)s and assumed we were putting 10% into Wellesley. Well, she wouldn't do that. All of which is no big deal since I can manually figure out how much to get of everything to keep our desired asset allocation. Still, it was a little annoying particularly since she was acting as if Wellesley was some horrible thing.