Asset Allocation Adjustment

[ferco]

Need suggestions on a "proper" balanced asset allocation of my Vanguard portfolio. The goal is to achieve net returns of 7% over the next 10 years. The current allocation is as follows:
(All are Vanguard)
500 Index
Mid Cap Index
Small Cap Index
Total Stock Market Index
Intermediate Bond Index
REIT Index
Total International Index
High Yield Corporate Index
Wellington Fund
Target 2005
Target 2015
Target 2045

They're divided evenly w/ regards to percentage and evenly between SEP IRA and Taxable Accts.
Trying to go from 125k to 310k over the 10 years in these accounts and plan to continue adding funds each month over the same period of time.......any suggestions/thoughts.

 

[yakers]

Well, there is nothing wrong with your selection but I sure wouldn't do something so complicated. I would get rid ot the S&P500 (I like this fund and have it in my retirement account) since you have a TSM choice. I would get only one of the TR funds (I am using a TR as part of my retirement). Then, I would maybe take out the Wellington since you are otherwise all indexed unless you want a managed fund. I have my Roth in the Vanguard Asset Alolocation (VAAPX) so I don't have a problem with managed VS indexed but you might want to go all indexed and with the variety of asset classes in the rest of your portfolio you might not need it.
Now as to the "7% solution", there is a good chance you will hit it but no promises. Some very smart folks like Buffett think 6 to 8% is all THEY will be getting. But whether it is 5% or 10% if you look back and got market returns with minimal risk you shouldn't feel too bad, most folks will actually get less with more risk.

 

[Dawg52]

Seems like a lot of funds to me. Why not just go with the Target 2015 fund? It gives you plenty of diversity and should do the job. 

 

[LOL!]

I think you have to realize that you can read books about asset allocation and you can run programs about asset allocation and you can re-balance your asset allocation from time to time. In the end, +- 5% this or that is not going to make alot of difference. Also for any allocation that you pick, someone else will pick a better one. That is, you will never be able to pick the best one except in hindsight.

30% VTSMX in your taxable account (yes, I know this has small and mid-cap equities)
10% small-cap in taxable account
10% mid-cap in taxable account

20% Intermediate bond in tax-deferred account
5% REIT in tax-deferred account
20% Total international in taxable account

5% Cash any where you want.

You did not mention your age nor your preference for equities vs fixed income.

 

[Sheryl]

30% VTSMX in your taxable account (yes, I know this has small and mid-cap equities)
10% small-cap in taxable account
10% mid-cap in taxable account

20% Intermediate bond in tax-deferred account
5%   REIT in tax-deferred account
20% Total international in taxable account

5%   Cash any where you want.

For those of us still back in Asset Allocation 101, would you mind giving a quick explanation of why you suggested this particular distribution of taxable &. tax deferred?


Thanks!

 

[justin]

The portfolio seems light on bonds/fixed income. The high-yield plus parts of the target retirement funds are fixed income. Depending on your risk tolerance, you may need more fixed income to reduce volatility.

 

[wildcat]

Ferco -

Seems too complex to me.  Too many funds.  LOL is right hindsight will be 20/20 but I am writing a prescription for you anyway.

Non-tax
I think you need a Lifestrategy Fund or Target Fund and only one.  Pick your retirement date/lifestrategy objective and that is your one fund.  Let Vanguard balance it out for you.  Throw some REITs in there if the index is not included as part of the allocation in the Lifestrategy or Target.  REITs are dividend heavy and taxes laws are not as friendly so stash in non-tax.  Should leave you with little worry and less homework. 

Tax
Blend stock index funds.

No comment on specific %'s

Don't know if there is a 100% guarantee for the 7% but solid allocation improves your chances.   

 

[LOL!]

For those of us still back in Asset Allocation 101, would you mind giving a quick explanation of why you suggested this particular distribution of taxable &. tax deferred?

1. Use stock index funds in taxable accounts because they are relatively tax-efficient in that they do not distribute a lot of dividends nor capital gains.
2. Put funds that generate dividends (bond funds) and capital gains (international funds, other managed funds) into tax-deferred accounts so that you don't have to pay tax on your distributions.

See Bernstein's The Four Pillars of Investing or www.radicalguides.com

 

[Sheryl]

Thanks LOL! Appreciate the concise answer.

Four Pillars is sitting on my "to read" pile, I guess I better get at it!