Tilting VTSAX or KISS and what about Bonds now?

[Stillwater007]

My current AA in my Roth is aggressive with 100% VTSAX as I am playing catchup after a decade on the sidelines.

I keep hearing a lot about small cap/ value and wonder if I should add a % of it? I know VTSAX has small and mid, but I believe it's really small. Is this necessary to add and is there anything else like a REIT (Real Estate) that would be good to add?

Finally, because I will be receiving a Pension in 10 years that will cover 90% expenses, is it a good idea to add a little Bond index like VBTLX? Not sure due to all the news about Bonds getting hammered right now. I do have around 35k in a tIRA Wellesley and Wellington that does have bonds that may be all I need?

I already do have around 3-4 years in cash to protect my investments in down years. Or is that too much?

Thank you.

[reneeh63]

Quote:

Originally Posted by Stillwater007 My current AA in my Roth is aggressive with 100% VTSAX as I am playing catchup after a decade on the sidelines. I keep hearing a lot about small cap/ value and wonder if I should add a % of it? I know VTSAX has small and mid, but I believe it's really small. Is this necessary to add and is there anything else like a REIT (Real Estate) that would be good to add? Finally, because I will be receiving a Pension in 10 years that will cover 90% expenses, is it a good idea to add a little Bond index like VBTLX? Not sure due to all the news about Bonds getting hammered right now. I do have around 35k in a tIRA Wellesley and Wellington that does have bonds that may be all I need? I already do have around 3-4 years in cash to protect my investments in down years. Or is that too much? Thank you.

I have many of the same thoughts - and for small cap, value or growth? ...I also have a REIT fund but it was doing better a few years ago but I buy and hold...and hold!

[flintnational]

Quote:

Originally Posted by Stillwater007 My current AA in my Roth is aggressive with 100% VTSAX as I am playing catchup after a decade on the sidelines...

What kept you on the sidelines for the last decade?

[OldShooter]

Quote:

Originally Posted by Stillwater007 ... I keep hearing a lot about small cap/ value and wonder if I should add a % of it? I know VTSAX has small and mid, but I believe it's really small. Is this necessary to add and is there anything else like a REIT (Real Estate) that would be good to add? ...

Yes. KISS.

Re small and mid in VTSAX, they represent about 20% (with the S&P representing 80%) so you're there to a noticeable degree. REITs are about 3-4% of VTSAX, so you're already there, too, to a noticeable degree.

The reason that small and value get talked about is that they are components of the Fama/French 3 factor model and sometimes advocated for portfolio tilts. (DFA is the king of tilts and Fama is on their board. https://us.dimensional.com/) Fama believes that the advantages of small and value will persist (37 minutes well spent: :https://www.top1000funds.com/2015/12...the-moon-fama/ ) He has the Nobel, of course, but I don't see how the increasing popularity of his idea can do anything but increase prices on the smalls and values, thus reducing or eliminating their historic advantage. So, your question will have a clearer answer in five or ten years. Right now IMO it's a crap shoot.

The question you're not asking is maybe the most important one: International. Sectors are cyclical with reversion to the mean driving the cycles. Lots of reasons I think International will do well in the future. Reversion to the mean is one. Another is the world's hatred of the US$ as the reserve currency and of our ability to use our banking system to punish anyone we don't like. A secular trend that reduces the dollar by 20% will increase the value of assets denominated in other currencies by 25%. Also FOMO might be a factor; staying in the US eliminates holding some of the strongest companies and participation in some of the strongest economies in the world. There is also potential for reducing portfolio volatility: Vanguard "Global equity investing:The benefits of diversification and sizing your allocation" https://www.vanguard.com/pdf/ISGGEB.pdf

During the past year, DW and I have finally achieved KISS nirvana. 100% of our equity position on one fund: VTWAX.

[SnowballCamper]

Small Cap was hot about a decade ago too. I think it's more about when the overall stock market starts to be overvalued, that interest in the small caps increases, and thus their prices. I would suspect similar behavior for emerging markets.

With such a strong pension, one train of thought is that the pension is like holding bonds, and so having actual bonds (or bond funds) in your brokerage account results in holding more "bonds" than you intend according to your specified AA. This calculator talks about this: https://www.aacalc.com

I keep it simple with a target date fund in my Roth IRA, and a four fund portfolio in my TSP (C,S,I & G) with regular rebalancing.

[target2019]

Quote:

Originally Posted by Stillwater007 My current AA in my Roth is aggressive with 100% VTSAX as I am playing catchup after a decade on the sidelines. I keep hearing a lot about small cap/ value and wonder if I should add a % of it? I know VTSAX has small and mid, but I believe it's really small. Is this necessary to add and is there anything else like a REIT (Real Estate) that would be good to add? Finally, because I will be receiving a Pension in 10 years that will cover 90% expenses, is it a good idea to add a little Bond index like VBTLX? Not sure due to all the news about Bonds getting hammered right now. I do have around 35k in a tIRA Wellesley and Wellington that does have bonds that may be all I need? I already do have around 3-4 years in cash to protect my investments in down years. Or is that too much? Thank you.

Some use a tilt to Small/Midcap, and some to REIT. Both of those "bets" paid off in my case, say from 2007 to the present. It may or may not be effective for others.

You're talking about a short 10-year period leading up to your pension. No need to carry excess cash for 3-4 years, in my opinion. At the very least put it into CDs or Hi-yield interest.

If you want more bonds then go with just Wellesley in the tIRA.

[mrfeh]

Quote:

Originally Posted by Stillwater007 My current AA in my Roth is aggressive with 100% VTSAX as I am playing catchup after a decade on the sidelines. I keep hearing a lot about small cap/ value and wonder if I should add a % of it? I know VTSAX has small and mid, but I believe it's really small. Is this necessary to add and is there anything else like a REIT (Real Estate) that would be good to add? Finally, because I will be receiving a Pension in 10 years that will cover 90% expenses, is it a good idea to add a little Bond index like VBTLX? Not sure due to all the news about Bonds getting hammered right now. I do have around 35k in a tIRA Wellesley and Wellington that does have bonds that may be all I need? I already do have around 3-4 years in cash to protect my investments in down years. Or is that too much? Thank you.

I may be wrong, but your post makes me think you are chasing return, which is potentially dangerous.

Choose an AA appropriate for you and stick with it:

https://www.bogleheads.org/wiki/Bogl...g_start-up_kit

There really is no "catching up". If you don't have enough saved, you'll have to save more and/or work longer. Don't chase the hottest fund/sector - you will likely regret it.

[racy]

There are any number of portfolio combinations one can have, and be successful with. Do you like to manage a portfolio of several investments or would you rather just set it and forget it?
Here's a list of about 50 lazy portfolios that have anywhere between 1 and 12 investments and have risk ratings between low and very high.
https://tinyurl.com/yfpgtg5a

[VanWinkle]

I would keep it simple with VTSAX for equities and Short/intermediate term total bond funds for ballast. With 10 years to go, I would add 5% in bonds each year until I reached my desired allocation 60/40 or 50/50 for retirement. You may want to be more aggressive or more conservative depending on your need and ability to take risk. I keep 1-2 years in cash(high interest savings) and then short term bonds for the next 2 years. Your Mileage May Vary!!

Adding tilts is usually done for fear of missing out on returns that have happened or may never happen. Nothing wrong with tilts, just know you may be wrong and add little return for much more complexity.

Good luck to you,

VW

[RunningBum]

Quote:

Originally Posted by mrfeh I may be wrong, but your post make me think you are chasing return, which is potentially dangerous. Choose an AA appropriate for you and stick with it: https://www.bogleheads.org/wiki/Bogl...g_start-up_kit There really is no "catching up". If you don't have enough saved, you'll have to save more and/or work longer. Don't chase the hottest fund/sector - you will likely regret it.

+1.

Also, set your AA across all accounts, not just your Roth. Then place your assets in a tax efficient way. https://www.bogleheads.org/wiki/Tax-...fund_placement

[Stillwater007]

Quote:

Originally Posted by VanWinkle I would keep it simple with VTSAX for equities and Short/intermediate term total bond funds for ballast. With 10 years to go, I would add 5% in bonds each year until I reached my desired allocation 60/40 or 50/50 for retirement. You may want to be more aggressive or more conservative depending on your need and ability to take risk. I keep 1-2 years in cash(high interest savings) and then short term bonds for the next 2 years. Your Mileage May Vary!! Adding tilts is usually done for fear of missing out on returns that have happened or may never happen. Nothing wrong with tilts, just know you may be wrong and add little return for much more complexity. Good luck to you, VW

I do like this approach and AA.

Do you know if Vanguard has one Fund that covers both the Short/intermediate term?

I have to admit that I've been reluctant to add Bonds due to the current state of the Bond Market. But I know I also need to think about the mid and long term investment.

And yes, my tilting is fear of missing out and chasing. I need to stick with KISSING this!

[OldShooter]

Quote:

Originally Posted by Stillwater007 ... I have to admit that I've been reluctant to add Bonds due to the current state of the Bond Market. But I know I also need to think about the mid and long term investment.

Quote:

Originally Posted by target2019 ... You're talking about a short 10-year period leading up to your pension. No need to carry excess cash for 3-4 years, in my opinion. ...

I agree with @target2019. You can start to go slowly into bonds in a few years so you are SORR resistant before you start withdrawing from your IRA.

Quote:

Originally Posted by Stillwater007 And yes, my tilting is fear of missing out and chasing. I need to stick with KISSING this!

Yes.

Warren Buffet: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."

William Bernstein: “You are not as good looking, as charming, or as good a driver as you think you are. The same goes for your investing abilities. In an environment filled with incredibly smart, hard-working, and well-informed participants the smartest trading strategy is not to trade at all.”

Once you make your decisions and any trades, I suggest that you resolve to look seriously at your portfolio no more than once a year.

[Stillwater007]

Quote:

Originally Posted by OldShooter I agree with @target2019. You can start to go slowly into bonds in a few years so you are SORR resistant before you start withdrawing from your IRA. Yes. Warren Buffet: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style." William Bernstein: “You are not as good looking, as charming, or as good a driver as you think you are. The same goes for your investing abilities. In an environment filled with incredibly smart, hard-working, and well-informed participants the smartest trading strategy is not to trade at all.” Once you make your decisions and any trades, I suggest that you resolve to look seriously at your portfolio no more than once a year.

Hi OldShooter,

I appreciate you and the others' time and wisdom for someone like me. I've recently found Investing fascinating, but now I think I am info overload with all of other online/ Youtube recommendations of "invest here and invest there!!". I fell into the Rabbit hole so to speak.

I like the idea of not rushing into Bonds but starting slowly.

But holy-smokes, there are so many different bond options with Vanguard. Treasury? Corporate? Etc.
Any recommendations regarding the short and intermediate?
I see a lot of suggestions to go with VBTLX or is that too long to mature?

[OldShooter]

Quote:

Originally Posted by Stillwater007 ... I think I am info overload with all of other online/ Youtube recommendations of "invest here and invest there!!". I fell into the Rabbit hole so to speak. ...

I teach an Adult-Ed investing class and we talk about what I consider to be the two myths of investing:

1: There are people with investment skills that enable them to consistently beat the stock market’s average performance.

2: It is possible to identify such people in advance and it is possible for retail investors to hire them.

At least a half-century of research proves these myths to be false, but the income of most of the investment industry depends on people not understanding this. Sowing FUD is the industry's preferred tactic, so it's no surprise your overload alarm is ringing. Just forget about YouTube, talking heads, investment newsletters etc. and do what you're doing: buy everything and hold it long term. Investment icon John Bogle recommended this; don't look for the needle, just buy the haystack.

Quote:

Originally Posted by Stillwater007 ... But holy-smokes, there are so many different bond options with Vanguard. Treasury? Corporate? Etc. Any recommendations regarding the short and intermediate? I see a lot of suggestions to go with VBTLX or is that too long to mature?

I am not a bond guy except to the extent we hold TIPS. Unusually for us, we do have low/mid six figures parked right now because we will soon be building a small lake home. FWIW that money is in VUBFX. IMO the risk of loss in longer bond funds is more than I care to take. If you're lucky @pb4uski will be along to discuss possible options for you. You might also do a search for his posts and see if any are helpful.