Join Early Retirement Today
Reply
 
Thread Tools Display Modes
A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 09:18 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,448
A simple 3-fund portfolio for soon to be retiree?

A relative needs a simple portfolio for his mid-six-figures of assets. He's 60, plans to retire in the next 5 years, and will have a nice COLA'ed gov't pension that will provide the base of his income. He lives pretty frugally so not too worried about that. Is this a reasonable proposal:

50% Vanguard total bond index
30% Vanguard total stock index
20% Vanguard total international index

He has no tax-advanted accounts, I know it would be better to hold the bonds in a tax-deferred account but at least his tax bracket will drop substantially in retirement. Is this portfolio decent? Is there a fourth fund I should consider adding? He doesn't want a 10-fund slice and dice approach. He also doesn't want to get into "exotic" things like foreign bonds (BEGBX) or commodities futures (DJP).

I got him to read The Four Pillars (a victory) but it is still sinking in...he sometimes still talks about chasing the hot sector for the year and trying to time the market. Hence I am trying to keep it simple and stable. Appreciate any comments.
soupcxan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 09:25 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,671
Re: A simple 3-fund portfolio for soon to be retiree?

A nice 3-fund mix that you mention.

Quote:
He has no tax-advanted accounts
Why not open a Roth now and fill it up with TBM? At least part of his stash would then be tax-advantaged? He could put away up to $5k annually.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 09:39 AM   #3
Full time employment: Posting here.
CCdaCE's Avatar
 
Join Date: Apr 2006
Posts: 897
Re: A simple 3-fund portfolio for soon to be retiree?

If the Roth is not available, how about Vanguard Tax-Managed Balanced Fund and Vanguard Tax-Managed International Fund?

TM Balanced

TM International

-CC
__________________
"There's those thinkin' more or less, less is more, but if less is more, how you keepin' score?
It means for every point you make, your level drops. Kinda like you're startin' from the top..." "Society" - Eddie Vedder
CCdaCE is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 09:41 AM   #4
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 149
Re: A simple 3-fund portfolio for soon to be retiree?

A good book I read about a year ago by Ben Stein talked about a "couch potato portfolio", and how hard it was to beat. It amounted to 50% in a total stock fund and 50% in a total bond fund.

He amended it to "the thinking man's couch potato portfolio" and it amounted to 4 funds. Two stock funds and two bond funds, 50-50, with some international exposure. It appears your suggestion is somewhere in between.

It's a good book, it also speaks on different methods to withdraw the funds to enhance performance. Don't let him chase hot funds, surefire disaster, I learned myself in my youth.
__________________
"Watch your topknot"
Empty Pockets is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 09:42 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Posts: 1,490
Re: A simple 3-fund portfolio for soon to be retiree?

i'd suggest something a bit lighter on bonds and international, perhaps 40% bond and international at 25% of equities.
d is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 10:00 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: A simple 3-fund portfolio for soon to be retiree?

Looks reasonable to me. I'd offer one modification, though: put half the bonds into a TIPS fund or I-Bonds.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 10:02 AM   #7
Recycles dryer sheets
 
Join Date: Jul 2005
Posts: 423
Re: A simple 3-fund portfolio for soon to be retiree?

What about something even more simple, a 1-fund portfolio (as far as he is concerned)

Vanguard Target Retirement 2010 or 2005?

To him it is effectively a single fund to manage, and vanguard does the exercise of rebalancing for you. That way as he ages, all he has to think about is enjoying his retirement... (especially good if he doesn't enjoy the utility of investing)

http://www.vanguard.com/VGApp/hnw/co...verviewJSP.jsp


Olav23 is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 10:23 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,448
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
Originally Posted by brewer12345
Looks reasonable to me. I'd offer one modification, though: put half the bonds into a TIPS fund or I-Bonds.
One of the things I don't get about TIPS is that regular bonds already have expected inflation baked into the price. So in order for TIPS to come out ahead of regular bonds, inflation has to be greater than expected over a period of time. But isn't this just speculation that you are better at predicting inflation than the market itself? Also, since his pension is COLA'ed, I wonder if he needs TIPS at all?

Thanks for the other replies. I've looked at VG's target retirement funds, but they all seem light on international exposure. Same problem with their STAR fund, and it is a little light on bonds - seems to defeat the purpose of a balanced fund if you have to add more index funds to get to your desired AA.

I have another relative who is more conservative and wary of international stocks, so she went with a 50/50 mix of Wellesley and STAR. Sound reasonable?
soupcxan is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 10:28 AM   #9
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
Originally Posted by Olav23
What about something even more simple, a 1-fund portfolio (as far as he is concerned)

Vanguard Target Retirement 2010 or 2005?
I like the Target Fund idea for your relative. Maybe add a little total international on the stock side. Sounds like he needs a low maintenance situation and that is the best: maybe a tweek every two years on his part to keep the international in range.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 10:36 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
Originally Posted by soupcxan
One of the things I don't get about TIPS is that regular bonds already have expected inflation baked into the price. So in order for TIPS to come out ahead of regular bonds, inflation has to be greater than expected over a period of time. But isn't this just speculation that you are better at predicting inflation than the market itself? Also, since his pension is COLA'ed, I wonder if he needs TIPS at all?
Quite the contrary. Nominal bonds are a bet that the bond market is correctly estimating future inflation (or that you think that the bond market is overestimating inflation). TIPS are an admission that you have no idea what future inflation rates will be but wish to protect your inflation-adjusted pu rchasing power (plus a real rate of interest).
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 11:11 AM   #11
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 142
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
Originally Posted by brewer12345
Nominal bonds are a bet that the bond market is correctly estimating future inflation (or that you think that the bond market is overestimating inflation). TIPS are an admission that you have no idea what future inflation rates will be but wish to protect your inflation-adjusted purchasing power (plus a real rate of interest).
This is true enough and I'm not trying to be a contrarian (I own both TIPS and nominal), but I want to make sure I understand how TIPS really behave as an asset class compared to nominal bonds.

When you buy TIPS, I assume there's a built in premium for eliminating the inflation uncertainty compared to nominal bonds? Further, that premium probably varies over time, based on how the market is pricing that uncertainty.

So I guess with either investment (TIPS or nominal), you have to make a guess about how good the market's inflation estimate is, and a guess about how much insurance against unexpected inflation is worth to you compared to the price of that insurance.

So to Brewer (the expert on this stuff), what are you thoughts on the cost of this inflation insurance? Does the cost vary much or has it been holding steady?

Thanks,

Jim
magellan_nh is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 11:18 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,671
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
Ben Stein talked about a "couch potato portfolio"
Financial writer Scott Burns came up with that couch potato indea a number of years ago and has since expanded it to include his "Six Ways to Sunday" mix.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 11:19 AM   #13
Confused about dryer sheets
 
Join Date: Jan 2007
Posts: 3
Re: A simple 3-fund portfolio for soon to be retiree?

Couple of questions about the Vanguard accounts:

1. How difficult is it to roll over ~$1.5 MM in 401K?

2. How is a monthly income generated so approach a seamless income to be deposited in spending account?
crowbird is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 11:21 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: A simple 3-fund portfolio for soon to be retiree?

I'd say that there is insufficient data to come to any kind of real conclusion, since TIPS have not been around long enough. But there are already studies by academics looking at the implied inflation expectations the market has, based on yields on nominal and inflation-adjusted bonds.

I come at this from a different perspective. For a retiree, 2+% TIPS yields are attractive because the return is acceptable and there is no safer asset on the planet. For me, I know that my return hurdle is roughly 4.5% plus inflation, so TIPS at ~2.25% aren't worth it. But if they get up there, I will be buying. In the meantime, I buy stuff like ISM because it is close to my 4.5% hurdle.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 11:29 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,671
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
1. How difficult is it to roll over ~$1.5 MM in 401K?

2. How is a monthly income generated so approach a seamless income to be deposited in spending account?
#1 They rollover thousands of these accounts each day at Vanguard. I have RO 2 401(k) and several IRA's with ease. Size does not matter (at least not in this instance ).

#2. I do not understand the Q. Would you mind rewording it for me?
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 11:36 AM   #16
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,856
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
Originally Posted by crowbird
Couple of questions about the Vanguard accounts:
1. How difficult is it to roll over ~$1.5 MM in 401K?
2. How is a monthly income generated so approach a seamless income to be deposited in spending account?
I suspect that if you tell Vanguard that you're rolling over $1.5M, they'll roll over too and do all sorts of other dog tricks to keep your business.

I don't know if they'll set up a spending account for IRAs, but you can certainly have the dividends placed in a money-market account within the IRA. Then when you're taking your RMD you can withdraw it from the MM account and transfer it somewhere else.
__________________
*

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
Nords is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 11:50 AM   #17
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 142
Re: A simple 3-fund portfolio for soon to be retiree?


I rolled over my 401k to a Vanguard IRA a couple of years ago. It was a bit of a pain, but everything worked out fine in the end. The strange thing was that the 401k (from my employer) was also run by Vanguard.

The snag was that my employer kept telling Vanguard that the roll-over wasn't allowed because I was still an employee, even though I had left 6 months earlier. Vanguard's service was great and they actually made it their problem to get things worked out. They called me a handful of times with updates (like when employer responded that I was still employed).

Jim

magellan_nh is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 01:11 PM   #18
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
Originally Posted by crowbird
Couple of questions about the Vanguard accounts:

1. How difficult is it to roll over ~$1.5 MM in 401K?

2. How is a monthly income generated so approach a seamless income to be deposited in spending account?
1. Just as easy as rolling over $100. Call vanguard, fill out their form and they take it from there. Occasionally your 401k administrator may require an additional form as well.

2. The income stream question is more complex. Read here and elsewhere about "Safe Withdrawal Rates" and look at Firecalc (link at bottom of page). Short answer, about 4% of total assets is what you can conservatively take out each year, adjusted for inflaction.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-08-2007, 01:51 PM   #19
Recycles dryer sheets
 
Join Date: Apr 2006
Posts: 147
Re: A simple 3-fund portfolio for soon to be retiree?

Quote:
Originally Posted by soupcxan
I have another relative who is more conservative and wary of international stocks, so she went with a 50/50 mix of Wellesley and STAR. Sound reasonable?
That is my KISS portfolio for retirement. Objections to it have been it is light on international and lacks any small cap. But long term (over 10 years) return on this combo has been over 10% with very low volatility, so who cares if there is no small or international. I do not see why I should need anymore then that to sustain retirement, but who really knows what the future will bring?
Hydroman is offline   Reply With Quote
Re: A simple 3-fund portfolio for soon to be retiree?
Old 01-14-2007, 04:11 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,448
Re: A simple 3-fund portfolio for soon to be retiree?

Thanks for everyone's input. He settled on:

30% total US equity index
30% total international equity index
30% total bond index
10% inflation-indexed bonds (VIPSX)

I suggested a slighly higher bond allocation based on his age, but you can only do so much...this is still light years ahead of his previous investment attempts (buying pharmaceutical penny stocks that were waiting for FDA approval!).
soupcxan is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Thinking of a high MER fund accountingsucks FIRE and Money 4 02-26-2007 08:25 PM
Pimco Total Return Fund chinaco FIRE and Money 2 02-26-2007 01:38 AM
Withdrawals From Target Retirement Type Fund yakers FIRE and Money 14 02-17-2007 07:01 PM
Young retiree seeks your investment advice JohnBlake FIRE and Money 8 05-01-2004 03:18 AM
Building a short-term bond portfolio for 20+ years Nords FIRE and Money 3 02-12-2004 07:54 PM

» Quick Links

 
All times are GMT -6. The time now is 08:39 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.