Index Funds

[bingybear]

There are single funds that you may find acceptable. Wellesley and Wellington are not index funds but they have long records of consistency. Wellesley is 1:2 equities:bonds, and Wellington is 2:1. The more equities, the more it will drop when 'the market' drops, but the more it will grow over time. Expect drops of value as long as 5 to 7 years, but the dividends keep coming.

While both funds are excellent funds, they really are not well diversified like the VTI. These may not be good for a traditional diversified portfolio.

When I read up on diversification years ago I caught one tit bit. Adding a diversifier like a Goldman Sachs Commodity Index (GSCI) to a equity/bond diversified can reduce risk. The example they used was 2% GSCI. GSCI had a high standard deviation, but reduced the standard deviation of the overall portfolio. There are modifications like this that can be used to enhance the diversification unless you believe this is covered in VXUS.

 

[VanWinkle]

I see the term Cash used for investments. What exactly is Cash?

I assume it is liquid savings, no risk, no return.
Savings, checking account?

Shop around, I am getting 2% on my cash in a checking account up to 30,000.

 

[VanWinkle]

I agree with all of the previous replies. I will just add that boring is good. Pick your allocation comfort level, buy well diversified funds with low fees. Ignore most of the market swings. Rebalance as needed occasionally to maintain allocation. Save the 1% financial advisor fee and put that 1% back in your pocket.

1% may not sound like much, but with a 4% withdrawal rate, that is 25% of your income going to your financial adviser.

Now that makes the cheese a little more binding!!!

 

[VanWinkle]

This is pretty much what I have, too, with one tweak in that I have 30% Wellesley. With a fairly conservative 45:55 asset allocation, I think I can get through another severe market crash without freaking out and selling low. At least, I hope so. It's never easy.

I have some of that Wellesley also, it is a hard habit to break. The rest is indexed in total market and bonds.

 

[DEC-1982]

If OP wants a 60/40 allocation with index funds, Vanguard Balanced Index Fund fits the bill. Its prospectus shows 60% stock, 40% bond allocation, all US, mirroring the two indexes. Now that I think about it, this may be right for me also, replacing two of my funds, Total Stock Market and Total Bond Market with one.

 

[Sunset]

I see the term Cash used for investments. What exactly is Cash?

I assume it is liquid savings, no risk, no return.
Savings, checking account?

I use CD's for cash, earning 1.75% for the bulk of it, and 1.2% for the rest immediate cash.
It's low, but no zero percent, and won't go down when the market crashes.

 

[220volt]

Since everything is globally connected, global diversification cannot save you anymore. Once it starts going down, everything will go down. Same as the last time.
The best you can do is to fine-tune your portfolio between stocks and bonds to the risk you are willing to take.
Here's the best table I know with backtesting of 40+ years.
https://paulmerriman.com/wp-content/uploads/2017/03/FTYAA-Tables-2017-Update-with-Mgmt-Fee.pdf

 

[Murf2]

If OP wants a 60/40 allocation with index funds, Vanguard Balanced Index Fund fits the bill. Its prospectus shows 60% stock, 40% bond allocation, all US, mirroring the two indexes. Now that I think about it, this may be right for me also, replacing two of my funds, Total Stock Market and Total Bond Market with one.

Not to highjack the OP's thread but I have a question about using balanced funds.

Wouldn't they be less effective when you enter the withdrawal phase? I mean, wouldn't you have to sell your "winners" along with your "losers"?

The idea of a simple single fund appeals to me but I wonder how you handle spending in a downturn.

Thanks
Murf

 

[REWahoo]

The idea of a simple single fund appeals to me but I wonder how you handle spending in a downturn.

I don't have a single fund, but the majority of my portfolio is in two balanced funds plus cash. I have enough in cash to fund withdrawals for several years to (hopefully) avoid withdrawing from the balanced funds until they recover.

 

[Murf2]

I don't have a single fund, but the majority of my portfolio is in two balanced funds plus cash. I have enough in cash to fund withdrawals for several years to (hopefully) avoid withdrawing from the balanced funds until they recover.

Thanks REWahoo. How many years do you keep in cash? Should I be concerned about a large cash position effecting overall returns?

My portfolio is probably smaller than most. Do you think in that case, a 3 fund portfolio would perform better due to less cash drag?

Thanks again,
Murf

 

[REWahoo]

How many years do you keep in cash?

5 to 7 years.

Should I be concerned about a large cash position effecting overall returns?

That's always an issue, how much so is dependent on a number of factors, not the least of which is what % of your portfolio this "large" cash position represents. In my case it is ~10%.

My portfolio is probably smaller than most. Do you think in that case, a 3 fund portfolio would perform better due to less cash drag?

Once again, it depends on a number of factors, primarily how well the three funds perform and how much you'd be forced to withdraw from those funds in a down market.

 

[gayl]

Off Topic:

Start by reading this page: https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit


Really, that's the place to start. Educate yourself.

Thank you for the link. I'm sharing it with all GKs as HS education seems to be based on which teachers you get. 1st one's teacher supplemented textbook with WSJ, not so for 2nd one. He's finishing economics semester knowing micro-macro econ but missing how to evaluate stocks / loans / job benefits

 

[mickeyd]

Is there a way I can minimize the downside if the market takes a dive?

What do you mean by this? What dive are you referring to?