Trying to get aggressive asset allocations "right", need help

[Stillwater007]

I have about 9-10 years before officially retiring.
Have about 2-3 years of emergency fund and will get a pension that will cover about 90% of expenses, maybe more. I plan to have enough cash to get me through 3+ years of a Bear Market so I won't have to tap into my Investments.
Have around 42k invested after slacking over the last 10 years

35k of the 42k is way too conservative (Wellesley & Wellington) and looking to be more aggressive as I now realize my target allocations can be more aggressive. I would like to try to Maximize my 10 year Target leaning to high risk and a small amount of protection.

After a lot of research, decided to KISS the future investments and go with a 3 Fund (or possibly 4 Fund).

I am thinking:
65% VTSAX
15% VTIAX
10% VBTLX
10% VSMAX

I know they say International should be 20% or greater but why does it seem counter-intuitive to growing/building my Portfolio?
I thought of adding VSMAX as VTSAX has little to no small-cap. Or could I be overdoing it?

I was tempted to go no Bonds, but I feel it would be a good idea to start adding it now.

Was also tempted to go with a Dividend Fund like VDIGX, but would that be overkill and getting away from KISS?

Does this seem like a good Portfolio or is my Allocations off?

 

[Whisper66]

Your ideas are just as good as anyones. But to offer someone else's ideas....
(1) I see no reason to have VDIGX if you already have VTSAX. Lot of overlap between the two and VDIGX doesn't offer increased performance as best I can tell using www.portfoliovisualizer.com
(2) I'm personally staying away from intermediate term bonds (VBTLX) for awhile. Interest rates are dropping and driving down NAV of bond funds. VBTLX has lost 3.7% YTD. I'm holding fixed assets in cash or money market funds to avoid losses until interest rates steady out. (Yes, that's timing the market which many choose not to do)
(3) I'm one of those staying out of the international funds. They don't have as much return over time as US stocks as best I can tell. Rather just stick with VTSAX.
(4) For aggressiveness, I like the addition of VSMAX. I personally have about 50% of what I have in VTSAX so a bit more aggressive that you are.
For yet another perspective, see ... https://paulmerriman.com/vanguard-2021/

 

[OldShooter]

Remember:

You will only know "right" in ten or fifteen years and then only if you also calculate the total return on the portfolios you didn’t buy.

Past performance does not predict future results.

Once you have a total stock market fund, adding sector funds reduces diversification and increases risk.

 

[Stillwater007]

Your ideas are just as good as anyones. But to offer someone else's ideas....
(1) I see no reason to have VDIGX if you already have VTSAX. Lot of overlap between the two and VDIGX doesn't offer increased performance as best I can tell using www.portfoliovisualizer.com
(2) I'm personally staying away from intermediate term bonds (VBTLX) for awhile. Interest rates are dropping and driving down NAV of bond funds. VBTLX has lost 3.7% YTD. I'm holding fixed assets in cash or money market funds to avoid losses until interest rates steady out. (Yes, that's timing the market which many choose not to do)
(3) I'm one of those staying out of the international funds. They don't have as much return over time as US stocks as best I can tell. Rather just stick with VTSAX.
(4) For aggressiveness, I like the addition of VSMAX. I personally have about 50% of what I have in VTSAX so a bit more aggressive that you are.
For yet another perspective, see ... https://paulmerriman.com/vanguard-2021/

It's definitely hard to avoid timing the market. I know Bonds are not the greatest right now and probably in the near term. Long term? Probably fine. But I have no Crystal Ball.

And I see you're in Houston! I'm on the west side (Katy).

Thanks for your advice.

 

[Stillwater007]

Remember:

You will only know "right" in ten or fifteen years and then only if you also calculate the total return on the portfolios you didn’t buy.

Past performance does not predict future results.

Once you have a total stock market fund, adding sector funds reduces diversification and increases risk.

Hello OldShooter! So adding sectors to VTSAX reduces diversification and increase risk? I thought I was diversifying more by upping the small cap. I think i still have a ways to go learning about Investing.
Thank you for your advice as well.

 

[TheWizard]

That $42k seems like a rather modest sum 10 years before cutting loose.
Are you also planning to up your contribution level soon?

 

[OldShooter]

Hello OldShooter! So adding sectors to VTSAX reduces diversification and increase risk? I thought I was diversifying more by upping the small cap. I think i still have a ways to go learning about Investing.
Thank you for your advice as well.

Here's a way to think about it: Suppose you have one share of a stock in your basic total market fund, then you add one more share by buying a sector fund. Now you are twice as sensitive to the moves of that particular stock. In a way that is your objective with the sector fund; you want to benefit more when that sector moves up. But then you are also more vulnerable when the sector moves down. Since you have no way to predict sector performance other than "gut" you are adding volatillty without knowing whether it will benefit you or not. The "quilt chart" illustrates: https://www.callan.com/periodic-table/


If you want to be bewildered at a more detailed level, investigate the Fama/French three factor model, which suggests that being slightly overweight (aka less diversified) in small caps and value stocks might be beneficial. This is called a "tilt." The extension of this idea is called "factor based" investing and all the hucksters are hot on it.

The ultimate in diversification is to own everything. Conventionally this is done via a market capitalization weighting, but there are those who argue for equal weights. AFIK the latter has never been shown to be consistently superior and trying to administrate it exactly would seem to be a nightmare. In theory you could have to trade every stock every day in order to keep each one's $ share in your portfolio equal.