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VTI plus VG health care
Old 07-06-2016, 06:24 PM   #1
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VTI plus VG health care

So I recently talked with a FA and he evaluated my AA. He thought that having a total stock market index plus 10% healthcare would be overweight on healthcare since VTI already has a 16% allocation. I'm looking for opinions. I just sold my primary home and have a lump sum to invest so I was going to add the healthcare fund. Small cap and healthcare would be in taxable accounts. I am in the lowest tax bracket.

My future portfolio (all vanguard funds)

40% Total Market
15% US Small Cap
25% Total International
10% REIT
10% Healthcare
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Old 07-06-2016, 06:46 PM   #2
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Originally Posted by retirementguy1 View Post
So I recently talked with a FA and he evaluated my AA. He thought that having a total stock market index plus 10% healthcare would be overweight on healthcare since VTI already has a 16% allocation. I'm looking for opinions. I just sold my primary home and have a lump sum to invest so I was going to add the healthcare fund. Small cap and healthcare would be in taxable accounts. I am in the lowest tax bracket.

My future portfolio (all vanguard funds)

40% Total Market
15% US Small Cap
25% Total International
10% REIT
10% Healthcare
100% equities? Don't care what your age is I would add a bond fund.
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Old 07-06-2016, 07:01 PM   #3
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Yes, adding a bond fund is in the future. Right now I just want to evaluate the risk of adding the health care fund. P/E ratios are over 30x and the fund is down 7% this year. This would be a long term holding for me.
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Old 07-06-2016, 07:09 PM   #4
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You would be overweighted in healthcare stocks if you bought the healthcare fund in addition to the total us market index fund, but maybe that is what you want.

The Vanguard healthcare fund is pretty tax-inefficient, so you would have to want to be paying more taxes if you have it in a taxable account.

Since you are overweighting small-caps for the US funds, maybe you would want to also overweight small-caps for the international fund. VSS is one way to do that overweight.

The total market funds are tax efficient enough to hold in a taxable account. The REIT fund and the healthcare are not tax efficient enough, so they should be held in a tax-advantaged account.
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Old 07-06-2016, 07:19 PM   #5
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You would be overweighted in healthcare stocks if you bought the healthcare fund in addition to the total us market index fund, but maybe that is what you want.

The Vanguard healthcare fund is pretty tax-inefficient, so you would have to want to be paying more taxes if you have it in a taxable account.

Since you are overweighting small-caps for the US funds, maybe you would want to also overweight small-caps for the international fund. VSS is one way to do that overweight.

The total market funds are tax efficient enough to hold in a taxable account. The REIT fund and the healthcare are not tax efficient enough, so they should be held in a tax-advantaged account.
what he/she said!
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Old 07-06-2016, 07:33 PM   #6
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I retired yesterday, and I am 100% equities. I also have 3x+ my expenses in rental income. I am bulking up on DVY now, with the anticipation of boosting my dividend income. It's ~$2K a month now, I want to double that.

In ~5 years, when I start to sell my rentals (or have them managed), all that money will go to bonds.

If you have enough outside income to live good without your portfolio, you can have more equities. You need a pension, SS, rental income, etc. to get you through tough times.
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Old 07-07-2016, 09:23 AM   #7
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If you have enough outside income to live good without your portfolio, you can have more equities. You need a pension, SS, rental income, etc. to get you through tough times.
Congratulations on your retirement Senator!

Certainly you are correct that if you have other outside/guaranteed sources of income your equity % can afford to be higher. However the OP mentions none of those types of outside income/assets so some % in an asset that tends to counter perform equities might not be a bad idea.

As to the OP's original question if he/she would be overweight in the Healthcare sector if they added the Healthcare ETF to the recommendations suggested by Vanguard my answer is still that they would be overweight Healthcare.
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Old 07-07-2016, 10:37 AM   #8
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So I recently talked with a FA and he evaluated my AA. He thought that having a total stock market index plus 10% healthcare would be overweight on healthcare since VTI already has a 16% allocation. I'm looking for opinions.
Since you are asking for opinions ...

Why shouldn't one be a little overweight on healthcare (HC)?

When I ran Fidelity's Retirement Income Portfolio for planning, I saw their estimate of regular inflation at 2.5% and HC inflation at 7% (Fido HC inflation estimate is now 5.5%). So it made sense to me (but not necessarily to other folks) to be overweight on HC in my asset allocation.

I don't know if REIT sort of equates to bonds, but I agree with the other posters that 100% stocks is not good in retirement.

DISCLAIMER: I own the VG healthcare fund.
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Old 07-07-2016, 11:07 AM   #9
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Why shouldn't one be a little overweight on healthcare (HC)?

When I ran Fidelity's Retirement Income Portfolio for planning, I saw their estimate of regular inflation at 2.5% and HC inflation at 7% (Fido HC inflation estimate is now 5.5%). So it made sense to me (but not necessarily to other folks) to be overweight on HC in my asset allocation.
How do you translate HC inflation into HC profits?
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Old 07-07-2016, 11:36 AM   #10
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You can also run your AA through morningstar's instant x-ray and see where everything falls. Can often be an eye-opener. I own healthlcare funds in both my Vanguard and Fido accounts.
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Old 07-07-2016, 12:08 PM   #11
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Thanks to everyone who has chimed in. I am not FIRE'd yet so I don't have an issue with a 100% equity position. As I get closer to retirement I will add a 25-40% bond allocation. I agree that is is not a fund you want to have in a taxable account.
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Old 07-07-2016, 02:08 PM   #12
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I should mention this is US health care inflation.

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How do you translate HC inflation into HC profits?
A good question. There are no healthcare bonds. Stocks are risky short-term.

However, over the last 30 years, both Fidelity and Vanguard healthcare funds have trounced S&P 500 returns by about 6% a year. Past performance is no guarantee of future returns. Putting a small portion of my portfolio into a proven HC stock fund seems well worth the risk, IMO. Only time will tell.
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