VBIAX or other balanced fund in Roth IRA?

[yakers]

For 20+ years DW & I have had our Roths in VG 60/40 balanced fund (VBIAX) have been very happy keeping our hands off and having it work for us. Although there are retirement systems that suggest various withdrawals from Roths, TIRAs and taxable accounts these Roth IRAs are our planned inheritance for our two sons, we told them ‘these are the last things we will spend if we have to’ and we expect from our taxable accounts and house that we will not have to spend them. TIRAs have been QCDs so far.
But looking to the future bonds don’t look very promising, while I suspect that they will serve as ‘ballast’ in the balanced fund I hesitate to hold an asset with no return. I do like the idea of one fund, preferably a balanced fund, indexed or managed matters less. DWs TIRA is in VG Wellesley (VWIAX) and although heavy on bonds the management has done a good job so far and we are not inclined to change out that fund.
Would I be better off with Wellington (VWENX) going forward than VBIAX?Any other good single fund that 'should' work better than VBIAX?

 

[OldShooter]

... indexed or managed matters less. ...

I think it can matter quite a bit, at least in the general case. With an indexed fund you know how the equity portion of the fund is invested and, to a high degree of accuracy, what its performance is. With a managed equity piece you really have no idea. The only thing you can look at is the overall performance of the fund. When the red Kool-Aid and the green Kool-Aid are mixed you really can't see the impact of either one separately.

Here is a horror story of a blended managed fund going out of control: https://www.reuters.com/article/us-...ers-on-risky-path-to-retirement-idUSKBN1GH1SI

Now Wellington and VG in general have been pretty well behaved, but still I would avoid Wellington on general principles and stick with a VBIAX-type index-based blend fund. Alternatively, use two funds so you can watch the red Kool-Aid and the green Kool-Aid separately.

 

[lordjust]

For 20+ years DW & I have had our Roths in VG 60/40 balanced fund (VBIAX) have been very happy keeping our hands off and having it work for us. Although there are retirement systems that suggest various withdrawals from Roths, TIRAs and taxable accounts these Roth IRAs are our planned inheritance for our two sons, we told them ‘these are the last things we will spend if we have to’ and we expect from our taxable accounts and house that we will not have to spend them. TIRAs have been QCDs so far.
But looking to the future bonds don’t look very promising, while I suspect that they will serve as ‘ballast’ in the balanced fund I hesitate to hold an asset with no return. I do like the idea of one fund, preferably a balanced fund, indexed or managed matters less. DWs TIRA is in VG Wellesley (VWIAX) and although heavy on bonds the management has done a good job so far and we are not inclined to change out that fund.
Would I be better off with Wellington (VWENX) going forward than VBIAX?Any other good single fund that 'should' work better than VBIAX?

I am also very interested in the responses to this question. I am heavily invested (recently) in VBIAX but have been looking at at VWIAX as well. I only settled on VBIAX as I couldnt buy VWIAX in schwab at the time. I AM hesitant to move from the fund.

 

[Niuatoputapu]

I hold VBIAX, VWENX, and VWIAX (Balance index, Wellington, and Wellesley) so I too am interested to see the responses.

 

[LOL!]

If one wants a US-only index fund balanced portfolio, then VBIAX is where it is at. Other funds will often have international funds or actively-managed assets.

As for whether bonds are going to be OK, I think they are going to be OK. If they start dropping, then that will also mean that the stock part will be tanking at the same time.

But I do have to ask, if you cannot predict the future, why do you think anyone else might be able to? LOL!

 

[sergio]

I think it can matter quite a bit, at least in the general case. With an indexed fund you know how the equity portion of the fund is invested and, to a high degree of accuracy, what its performance is. With a managed equity piece you really have no idea. The only thing you can look at is the overall performance of the fund. When the red Kool-Aid and the green Kool-Aid are mixed you really can't see the impact of either one separately.

Here is a horror story of a blended managed fund going out of control: https://www.reuters.com/article/us-...ers-on-risky-path-to-retirement-idUSKBN1GH1SI

Now Wellington and VG in general have been pretty well behaved, but still I would avoid Wellington on general principles and stick with a VBIAX-type index-based blend fund. Alternatively, use two funds so you can watch the red Kool-Aid and the green Kool-Aid separately.

Just took a look at Fidelity's 2045 TD fund. Ugh - gross:

0.75% ER
50/50 US/Int'l allocation
Largest fund (13% of the entire portfolio) is emerging markets
Constantly changing risk profile and investment strategy

I used some blended managed funds but make sure to check up on them at least once a quarter.

 

[lordjust]

I hold VBIAX, VWENX, and VWIAX (Balance index, Wellington, and Wellesley) so I too am interested to see the responses.

There a reason you split up among all 3 ? I like it but am curious as to your reasoning. What would you change if anything?

 

[OldShooter]

If one wants a US-only index fund balanced portfolio, then VBIAX is where it is at. Other funds will often have international funds or actively-managed assets. ... !

I think it would be a minority who do not want some international exposure in a fund selected to be their main asset. I also think most advisors and academics would not recommend a 100% home country bias. YMMV, however.

Links I have posted before: Vanguard " Global equity investing:The benefits of diversification and sizing your allocation" https://www.vanguard.com/pdf/ISGGEB.pdf and Dr. Kenneth French on International: https://famafrench.dimensional.com/videos/home-bias.aspx

 

[Niuatoputapu]

There a reason you split up among all 3 ? I like it but am curious as to your reasoning. What would you change if anything?

One is Traditional IRA, one is in a Rollover from 403(b) IRA, and one is in a Roth. I have been happy with the distribution and the performances, but like some I wonder if my bond exposure should now be less.

 

[LOL!]

I think it would be a minority who do not want some international exposure in a fund selected to be their main asset. I also think most advisors and academics would not recommend a 100% home country bias. YMMV, however.

Links I have posted before: Vanguard " Global equity investing:The benefits of diversification and sizing your allocation" https://www.vanguard.com/pdf/ISGGEB.pdf and Dr. Kenneth French on International: https://famafrench.dimensional.com/videos/home-bias.aspx

I have a significant fraction of my equity assets in international funds, but I am in the minority.

One of the constant discussions at bogleheads.org is whether a US investor needs any international equities at all in their portfolio because most of the major US companies have a significant international presence AND because Jack Bogle himself basically dissed international investing. (Yes, I know most of the major international stocks also have a US presence, too.).

International stock market index funds have been lagging the performance of US index funds for a couple of decades now which is not helping their proponents at all.

In other words, your "minority" is not as minor as you might believe.

 

[OldShooter]

I have a significant fraction of my equity assets in international funds, but I am in the minority.

From the tone of your comment I would have guessed you did not. IMO I think you are wise. Regarding "minority" it's hard to say, but I'm pretty sure than among professional managers there are very few without international exposure. Around here my impression is that around 30% international is more popular than zero. Hard to know for sure, though.

One of the constant discussions at bogleheads.org is whether a US investor needs any international equities at all in their portfolio because most of the major US companies have a significant international presence AND because Jack Bogle himself basically dissed international investing. (Yes, I know most of the major international stocks also have a US presence, too.)...

Yes, Buffett is unconcerned about holding internationals too but no one, not even those investment gods is right all the time. Fama and French go the other way. Re US large caps having an international presence that presence is limited; not all markets and not all products. To avoid internationals means you don't hold huge names like Volkswagon, Nestlé, BP, Anheuser-Busch InBev, BMW, and the international players in cement, mining, and steel. IOW almost half of the world's market cap. Bogle and Buffett grew up as investors in a different world than the "flat" world we have now. (ref Thomas Friedman)

International stock market index funds have been lagging the performance of US index funds for a couple of decades now which is not helping their proponents at all.

I don't know about "proponents" but I have seen enough quilt charts to know that sector bets are hazardous. To limit oneself to US indices is essentially to bet (80%) on US large caps. To stock pick with a small portfolio is to be nondiversified and IMO unwise. So, again IMO, that is worse than just betting on the US market.

 

[LOL!]

From the tone of your comment I would have guessed you did not.

No tone intended, but the OP mentioned only funds with mostly (if not only) US equities and specifically VBIAX.

 

[youbet]

To limit oneself to US indices is essentially to bet (80%) on US large caps.

Actually, that isn't true unless you limit yourself to the USA TSM index. I think that's what you meant and perhaps just misspoke. There are many well recognized USA equity indexes that focus on specific subsets of the USA TSM an investor is free to choose from and thus would not be betting on the 80% US large caps.

It's a choice.

 

[OldShooter]

Actually, that isn't true unless you limit yourself to the USA TSM index.

That's why I included the word "indices" there, but that really wasn't specific enough. Agreed, if you want to try picking sector winners and losers then you can subset the total market any way you like. Not wise, IMO, but possible.

 

[youbet]

International stock market index funds have been lagging the performance of US index funds for a couple of decades now which is not helping their proponents at all.

Yeah, I've been under-weighted (vs most common recommendations) in international equity these past few years and that's been a good thing. But now, I'm really noodling hard on what to do going forward.

 

[youbet]

Agreed, if you want to try picking sector winners and losers then you can subset the total market any way you like. Not wise, IMO, but possible.

I've had good luck doing so over the decades depending on the circumstances.
For example, in a grandchild's 529b (which had almost two decades to grow before liquidation would be necessary), I chose a small lean (vs the TSM) towards mid-cap growth which turned out well. If the funds were going to be needed in a shorter time frame, I wouldn't have done that.

Picking subsets of the US market in some proportion other than as they are represented in the US TSM doesn't have to be an extreme. And there are some useful clues, like how much time the funds can be left in the market, that provide some general guidance.

Sometimes your tone sounds as though you think even the slightest variation from an exact US TSM is "Vegas Night" down at the Parrish....... Actually, there is a lot of room between following the TSM exactly and going to large variations form the TSM.

 

[OldShooter]

... Sometimes your tone sounds as though you think even the slightest variation from an exact US TSM is "Vegas Night" down at the Parrish....... Actually, there is a lot of room between following the TSM exactly and going to large variations form the TSM.

Probably a fair criticism. The Fama/Franch top-level recommendation is "you have to hold the market portfolio," but even there they sometimes recommend a value tilt and a small cap tilt. This comes from their three-factor model. Hence, the current excitement towards "factor" funds and, really, the whole DFA philosophy.

I stick with the "market portfolio" (aka VTWAX) because although historically value and small cap have excelled, now that everyone knows this it seems like any advantage will be gone in the future. Fama says no, but I haven't heard his reasons for predicting an exception to normal market action.

Though I do not overweight international, I do think that reversion to the mean and a likely devaluation of the dollar in the next decade augur well for the internationals. So I am optimistic.