aa plan - please let me know your thoughts

[tulak]

First off, I want to thank everyone that has responded to my previous aa requests. It's been extremely helpful. Now that I've let it set over the last couple of weeks, I think I finally have %'s and assets that I'm comfortable with.

For starters, my equity/bond allocation is 90/10.

For bonds, I'll split evenly between Vanguard Total Bonds (VBMFX) and Vanguard TIPS (VIPSX).

For equities, I'm 60/40 domestic/international.

Domestic:
15% - S&P500 Index
15% - Large Cap Value
10% - Small Cap
10% - Small Cap Value
10% - REITS

International:
8% - Europe (VGK)
8% - Pacific (VPL)
8% - EM (VWO)
8% - Large Cap Value (EFV)
8% - Small Cap (iShares ETF once it's out)

Keep in mind that the 100% total for equities is a 100% of 90%. I found it easier in my planning to keep the equity percentage separate from the bond.

Thanks for any feedback!

 

[LOL!]

Which funds are in tax-deferred (401k, tIRA), tax-free (Roth) and taxable accounts?

 

[tulak]

Which funds are in tax-deferred (401k, tIRA), tax-free (Roth) and taxable accounts?

Bonds and domestic are in a 401k/403b. The REITS are in a Roth. At some point, we'll also have REITS in the 403b. The international is going to be in taxable accounts. At some point, the S&P500 will end up in the taxable, but that's probably about 5 years away.

 

[LOL!]

I have no complaints about the aa and you have chosen the right accounts for the asset classes.

I would (and do) have a higher percentage of international small cap. I also would have chosen VEU (all-world, ex-US) instead of your split into 3 etf's because I think it would be more tax-efficient in the long run and not have to be rebalanced which would potentially realize cap gains.

I would not own total bonds, but select a good intermediate term fund or split with short term (along with your TIPS fund).

But if you made no changes, I couldn't really argue. Good luck!

 

[tulak]

For the next few years I'll value average to rebalance, but you brought up a good point regarding rebalancing and how I'll handle it when I'm not value averaging (didn't think of that).

I've been split on international and only recently added small cap into the mix. Another thought I had was to break it down:

10% - Large Value
10% - Small Cap
10% - EAFE (probably VEA)
10% - EM (VWO)

But it seemed like this would be a little too volatile (20% international between small cap and EM).

I looked at VEU, but I like the idea of having EM/Europe/Pacific separate, especially if I value averaging. I just need to figure out if it's worth it when I won't be able to value average...

Can you let me know your thinking on not owning total bonds?

 

[LOL!]

My thoughts on total bonds are just my interpretation of posts at Guide to the Vanguard Diehards Forums , articles at FundAdvice.com - Home and reading The Four Pillars of Investing by William Bernstein. Apparently, the total return of longer bonds is not worth the extra risk, so shorter maturities are in order. Also I think I read that total bonds include some mortgage-backed securities which one may wish to avoid.

Anyways, I'm no expert and may have misinterpreted what I read, so you'd better go check it out for yourself and make your own decisions.

 

[tulak]

Thanks for the feedback.

I've read similiar about total bonds, but I've also read some positives about vanguards total bond fund. I haven't been as focused on the bonds aspect, so I can't give any good reason why I went with total bonds, other than the fact it seemed easy. It looks like I need to read up on it some more...

 

[2B]

kiki,

I hope you are in your 20's with a 90/10 equity/bond allocation. That's pretty aggressive.