Rebalancing to 50/50

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ruralavalon
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Re: Rebalancing to 50/50

Post by ruralavalon »

Kayaking wrote: Sun Sep 20, 2020 8:00 pm
ruralavalon wrote: Sat Sep 19, 2020 12:21 pm Welcome to the forum :) .

What is your percentage annual withdrawal rate?
You need to pick an asset allocation that you can stick with no matter what the stock market does in the future. Asset allocation is a very personal decision which must be based on your own personal ability, willingness and need to take risk.
For what its worth we are both age 75, we have no pension or annuity, our annual withdrawal rate is about 3%, our asset allocation is currently 50/50 and has been since 2008. Our only bond fund is Vanguard Intermediate-term Bond Index Fund (VBILX). We do not have a cash allocation.
Once you have decided on an asset allocation you think you can stick with through thick and thin, and the funds you want to use, just go ahead and make the switch all at once. I see no benefit to making the change in stages.
I personally do not use or suggest international bonds, short-term bonds, or a cash allocation. In my opinion four bond funds is needlessly complex.
Thank you. I am so glad (and relieved) I posted my question here.
I withdraw 3.5 - 4% annually, although this year I will end up withdrawing only 3.2% because I didn't want to hire anyone to work inside my house during the pandemic. I had some re-pointing done and a fence installed, but those were inexpensive projects.
After reading your suggestions and seeing similar comments from other people on this forum, I have decided to eliminate some of the funds I have.
Would you tell me your thinking on your choice of the Intermediate Term Bond Fund?
The article by Rick Ferri was very interesting and supports many of the comments by others here. I was very surprised he suggested a 30/70 allocation when one stopped being in the accumulation phase. That was a startling idea.
I picked Vanguard Intermediate-term Bond Index Fund (VBILX) because it is 1/2 government bonds, and 1/2 corporate bonds, with no Mortgage Backed Securities (MBS).

Since your it has more corporate bonds, and fewer Treasury bonds, than a total bond market index fund it has a little better returns with a little higher risk. Mr.Bogle was recommending a higher allocation to corporate bonds, and used this fund. Larry Swedroe was recommending against MBS.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Kayaking
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Re: Rebalancing to 50/50

Post by Kayaking »

Kayaking wrote: Fri Sep 18, 2020 1:26 pm I am a 70 year old widowed female with a low 7 figure portfolio. I withdraw 3.5 - 4% from it annually.

In the downturn of 2008 - 09 my Vanguard portfolio lost nearly 40%. As the months passed, and the situation didn't improve, I could not bear to open any of my statements from Vanguard. I never moved any money during that period, but I spent many anxious months certain my daughter and I would soon be homeless.

When I became terrified of another stock market precipitous drop last February, I transferred a large part of my portfolio to bonds. I know there are few Bogleheads who would agree my decision was at all sane or wise, but I needed to be able to sleep. It was such a glorious relief for me to be free of the heart-stopping stock market ups and downs these past months. In spite of the market's steady summer climb, I have never felt my decision to leave the stock market this year was a mistake.

I have not always been so stock-market phobic. While my husband and I were saving, I always stayed exclusively in stocks and chose the most aggressive funds. I never moved money out of stock funds until after he died.

Now that I am 70 I have a shorter time horizon. After reading the early chapters of McClung's book and the Boglehead column, I do not think it is wise in the long term for me to continue to have a portfolio that is heavily weighted in bonds. Therefore, now I would like to move money from bonds to stock funds so my portfolio is back to a 50/50 AA.

Should I use dollar cost averaging to do that, maybe moving 1% from every fund on a weekly basis?
Or should I just move the funds all at once?
Should I keep the number of funds Vanguard suggested?

The last financial plan I received from Vanguard (2017) suggested these Admiral funds which I held til February, 2020:

Total Stock Market 29%
International Stock 20%
Total 49%

US Short Term Bond 7%
Intermediate Term Bond 11%
Total Bond 18%
International Bond 15%
Total 51%

This is my current portfolio of Vanguard Funds:

Total Stock Market 13%
International Stock 9%
total 22%

Short Term Bond 15%
Intermediate Term Bond 1%
Total Bond 42%
International Bond 11%
Federal Money Market Fund 8%
total 77%

Maybe my questions are silly, but I thought a kind person on this forum might be able to offer me some wisdom.
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Kayaking
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Re: Rebalancing to 50/50

Post by Kayaking »

ruralavalon wrote: Mon Sep 21, 2020 9:14 am
Kayaking wrote: Sun Sep 20, 2020 8:00 pm
ruralavalon wrote: Sat Sep 19, 2020 12:21 pm Welcome to the forum :) .


Would you tell me your thinking on your choice of the Intermediate Term Bond Fund?
I picked Vanguard Intermediate-term Bond Index Fund (VBILX) because it is 1/2 government bonds, and 1/2 corporate bonds, with no Mortgage Backed Securities (MBS).

Since your it has more corporate bonds, and fewer Treasury bonds, than a total bond market index fund it has a little better returns with a little higher risk. Mr.Bogle was recommending a higher allocation to corporate bonds, and used this fund. Larry Swedroe was recommending against MBS.
Thank you for explaining why you chose the Intermediate-term Bond Index Fund.
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Kayaking
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Re: Rebalancing to 50/50

Post by Kayaking »

BarbBrooklyn wrote: Sun Sep 20, 2020 8:50 pm
My friend thinks that having a "money guy", for her, is the right approach.

I am fortunate enough to have access to ancertified CFP through my former municipal job and for $25.00 flat fee can have a financial checkup each year to make sure Im on track. Is not allowed to pitch me anything.

Do you ever use calculators like FIRECALC to model your withdrawals, especially for large projects? Those also let me sleep well at night!
I think being able to employ the wisdom of a good financial advisor is something we could all use at some point, and, as you pointed out, they can serve as helpful reminders (or brakes!) for staying the course.

I think your access to fiduciary services for only $25 is a terrific benefit. Congratulations on having that resource. I was disappointed when Vanguard stopped their Advisor service. I appreciated being able to use it when it was available.

I use Firecalc regularly! It is a helpful tool.
bog007
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Re: Rebalancing to 50/50

Post by bog007 »

have a looksee at vtinx
Don’t let anyone else ruin your portfolio. It’s your portfolio. Ruin it yourself!!!
Outer Marker
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Re: Rebalancing to 50/50

Post by Outer Marker »

Kayaking wrote: Sat Sep 19, 2020 7:43 pm The Wellesley Admiral is an interesting idea. It would simplify everything for me. I never considered a single fund of both stocks and bonds. The expense ratio is 0.16% because it is not an index fund. It could be a good idea for me, though. Thank you for suggesting it.
We don't know what types of accounts your funds are held in, or what your withdrawal strategy is for tax purposes. If there are not adverse tax consequences, an all-in-one fund solution could be ideal for you. I prefer Target Retirement Income which is index-fund based, vs. Wellesley, which is actively managed, though admittedly it has done very well. See, https://investor.vanguard.com/mutual-fu ... olio/vtinx

Interesting, relative to the initial discussion question, 30/70, based on this fund, is the default asset allocation Vanguard recommends for people in your situation. I had my mother in it for years. Not seeing the "vibration" of the equities moving up and down kept her calm when the statements came in during periods of market volitility. It was a pretty smooth ride.
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Julieta7
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Re: Rebalancing to 50/50

Post by Julieta7 »

Thinking about OP Kayaking's original post which I saved and have read a few times for my own portfolio plans. Wonder how she did on the plan to rebalance to 50/50 allocation and if other Boglehead retirees have been on the same rebalancing journey given the rise in equities. I am now retired and in the same age and position as Kayaking with my investment plan and want to move from 70/30 to 50/50. Starting the selling process from US Total Market Index to Bond Index funds and having maxed out the Traditional IRA the Roth and Taxable accounts are available. I'd like to move the proceeds into index bond funds to keep it simple, my accounts are at Fidelity and I am thinking AGG or SHY. If you have any suggestions I am all ears.
The best tools available to us are shovels not scalpels | Keep it simple! | 60/40 portfolio. Total US Stock Index/Total US Bond Index. SPIA in late 70s
Dude2
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Re: Rebalancing to 50/50

Post by Dude2 »

Julieta7 wrote: Tue Oct 19, 2021 10:36 am Thinking about OP Kayaking's original post which I saved and have read a few times for my own portfolio plans. Wonder how she did on the plan to rebalance to 50/50 allocation and if other Boglehead retirees have been on the same rebalancing journey given the rise in equities. I am now retired and in the same age and position as Kayaking with my investment plan and want to move from 70/30 to 50/50. Starting the selling process from US Total Market Index to Bond Index funds and having maxed out the Traditional IRA the Roth and Taxable accounts are available. I'd like to move the proceeds into index bond funds to keep it simple, my accounts are at Fidelity and I am thinking AGG or SHY. If you have any suggestions I am all ears.
Hi. Not sure of your specific concern here. There are arguments for every different position under the sun, and much of these choices are personal. Given that you want to decrease your stock percentage, I think most here would support AGG as a fine choice. This is essential a Total Bond Market Index fund with very low cost. Are there alternative strategies? Of course. Can we nit pick it to death? Yes, we can. However it is essentially the Boglehead default position. The basic idea is to ride the wave of the total market. Let the market decide on the relative proportions of everything. Consider the portfolio as a whole and understand what you expect from bonds. They are lower risk, lower reward, and they dampen volatility.

SHY, 1-3 year Treasury Bond ETF, is also a perfectly decent choice, especially in terms of a bucket of money earmarked for a shorter duration. Theoretically it will zig when stocks will zag, so enough of it might help you to weather a storm in the stock market.

Other fine choices might be I Bonds, direct CDs at credit unions that offer better rates, stable value funds, possibly those MYGAs people talk about (although I have no experience/insight into it). The fixed income side of the house is boring, and typically one choice is nearly as good as another.
Then ’tis like the breath of an unfee’d lawyer.
JDave
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Re: Rebalancing to 50/50

Post by JDave »

1. whatever asset allocation that lets you sleep at night is the best thing for you.
2. if you're healthy at 70, you may well live another 30 years.
- you might want to put some (not all) of your funds in an annuity. That would give you a guaranteed income stream that would not be affected by stock market fluctuations, and would continue as long as you live.
namajones
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Re: Rebalancing to 50/50

Post by namajones »

Remember: Don't invest in the stock market what you can't afford to lose.

Look at the amount you have that is NOT in stocks. Is that enough for you to live out your days in a reasonable fashion? If so, fine. If not, lower your exposure to stocks so that the amount NOT in stocks can get you through the rest of your life.

Then you can stop worrying about the ups and downs of the market.

P.S. Make sure that the amount you DO have in stocks is diversified. Single-country exposure (US) is not diversified. The PE ratio of a world allocation like VTWAX is much lower than that of the US market alone.
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Wiggums
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Re: Rebalancing to 50/50

Post by Wiggums »

My mother is 92 years old and she has VWIAX - Wellesley Admiral (35% stock/65% bonds). It’s a simple portfolio.

You seem comfortable with your portfolio composition and the amount of bonds, so why change anything? My recommendation would be to increase the equity to 30% as the minimum and stick with the current portfolio.

You are doing great and you are careful with your withdrawal rate. Congratulations.
"I started with nothing and I still have most of it left."
seajay
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Re: Rebalancing to 50/50

Post by seajay »

Kayaking wrote: Fri Sep 18, 2020 7:00 pm
bloom2708 wrote: Fri Sep 18, 2020 4:18 pm My parents are 35% stocks. Mid 70s.

Between 20% and 50% could all be appropriate, but I think you would be fine to move from 22 to 35 for a period of time and see how it goes.

A jump to 50-50 might be too much in this current environment with so many unknowns.

In fact, staying at 22% stocks might be just fine as well.
Thank you! I am so surprised that you suggest moving to only 35 instead of 50, and that even 22% might be OK. I was thinking I would have to buckle up and climb on to the roller coaster to climb into the 50% range, a climb I was dreading a bit. I find it is very calming that you think I don't have to do that.
Either 20/80 stock/bonds or 50/50 would likely be fine.

The risks are more towards higher stock having possible regrets after/during a big dip versus 10, 20/whatever years down the line in having held 20/80 having regrets of missed gains that might have otherwise been achieved with a stock heavier allocation.

Stock heavy, or even all-stock is better suited to those who are less inclined to look at their statements, just draw a relatively safe income such as 4% SWR or less with no regard to ongoing portfolio value, as though they'd spent the money on a annuity for a regular income stream. Those that look and concern themselves with ongoing portfolio value are more inclined to capitulate - at the worst possible time and potentially totally mess up their retirement.

When in doubt between two choices 50/50 can be a good choice, neither fully right/wrong.

Given your seeming character/nature, 20/80 sounds fine assuming you wont look back in 10+ years with regrets of 'missed gains' (i.e. potentially having left a larger inheritance or had the capacity to buy/spend more).

Yet another option might be to initial 20/80 stock/bond and spend bonds first, no rebalancing, that will tend to see the stock/bond proportions become more stock heavier over time. Click the Allocation Drift tab in this link for a example (I believe however that link has income drawn in the ongoing proportions of stocks and bonds rather than being 'spend bonds first').
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Julieta7
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Re: Rebalancing to 50/50

Post by Julieta7 »

JDave wrote: Wed Oct 20, 2021 5:16 am 1. whatever asset allocation that lets you sleep at night is the best thing for you.
2. if you're healthy at 70, you may well live another 30 years.
- you might want to put some (not all) of your funds in an annuity. That would give you a guaranteed income stream that would not be affected by stock market fluctuations, and would continue as long as you live.
I was planning on a SPIA yes to that! Thank you for reminding me.
The best tools available to us are shovels not scalpels | Keep it simple! | 60/40 portfolio. Total US Stock Index/Total US Bond Index. SPIA in late 70s
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Julieta7
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Re: Rebalancing to 50/50

Post by Julieta7 »

Wiggums wrote: Wed Oct 20, 2021 5:38 am My mother is 92 years old and she has VWIAX - Wellesley Admiral (35% stock/65% bonds). It’s a simple portfolio.

You seem comfortable with your portfolio composition and the amount of bonds, so why change anything? My recommendation would be to increase the equity to 30% as the minimum and stick with the current portfolio.

You are doing great and you are careful with your withdrawal rate. Congratulations.
Thanks Wiggums, the Bogleheads have been a solid forum for wise counsel through the years, and I am very grateful for the support. A simple portfolio is my goal, and my thought is to maintain the Total Market Index Fund and Total US Bond Index Fund at Fidelity with a SPIA as a portion of the fixed income. It might be too early for the SPIA however it seems a relatively "safe" choice for longevity insurance.
The best tools available to us are shovels not scalpels | Keep it simple! | 60/40 portfolio. Total US Stock Index/Total US Bond Index. SPIA in late 70s
lws
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Re: Rebalancing to 50/50

Post by lws »

After reading the responses here:
Consider your goals.
Consider your investment horizon.
Consider your risk tolerance.
Make a comfortable allocation.
Enjoy a worry-free life.
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Julieta7
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Re: Rebalancing to 50/50

Post by Julieta7 »

lws wrote: Wed Oct 20, 2021 12:00 pm After reading the responses here:
Consider your goals.
Consider your investment horizon.
Consider your risk tolerance.
Make a comfortable allocation.
Enjoy a worry-free life.
Good summary, and although rebalancing is difficult after a great run-up in the market and expectations of even better days ahead, the risk is not comfortable any more and the "game" is won. Deep breath and Rebalance.
The best tools available to us are shovels not scalpels | Keep it simple! | 60/40 portfolio. Total US Stock Index/Total US Bond Index. SPIA in late 70s
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Julieta7
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Re: Rebalancing to 50/50 Update

Post by Julieta7 »

Rebalanced from 70/30 to 60/40

I did not realize how difficult the emotional side of decreasing stock allocation is when the market is on the upswing, but the rational side must prevail. For those of you experiencing exuberance while the market is up the warning is out - keep your investment goals in front of you.

Follow the advice of trusted Bogleheads and stay the course!
The best tools available to us are shovels not scalpels | Keep it simple! | 60/40 portfolio. Total US Stock Index/Total US Bond Index. SPIA in late 70s
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WoodSpinner
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Re: Rebalancing to 50/50 Update

Post by WoodSpinner »

Julieta7 wrote: Wed Oct 27, 2021 9:05 am Rebalanced from 70/30 to 60/40

I did not realize how difficult the emotional side of decreasing stock allocation is when the market is on the upswing, but the rational side must prevail. For those of you experiencing exuberance while the market is up the warning is out - keep your investment goals in front of you.

Follow the advice of trusted Bogleheads and stay the course!
Have you had to rebalance the other way? Selling bonds to buy stocks?

Personally, I find that even more emotionally challenging….

But I do it !

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