Asset Allocation, How to Choose

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colorado50
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Joined: Mon Mar 09, 2020 8:50 pm

Asset Allocation, How to Choose

Post by colorado50 »

So I've read and heard different opinions on Asset allocation. The main question is do I need a more complex model such as the Swensen model or a super simplified such as the one suggested in "Simple path to Wealth" or "Boggle heads". Seems the main question is according to age and risk tolerance how much Stocks vs Bonds and then diversifying between those investments.
Please let me know your thoughts.
thanks!

Swensens model- Seems to diversify significantly
Asset Class
30% Total Stock Market Stock
15% International Stock Market Stock
5% Emerging Markets Stock
15% TIPS Intermediate Bond
15% U.S. Treasuries Intermediate Bond
20% REITs Real Estate

From "Simple Path to Wealth- says that total stock market is already going to account for different world and emerging markets with reality of globalization. (obviously this ratio could be adjusted for age and risk tolerance.
85%- Total Stock Market
15%- Total Bond Market

[Capitalization formatted by admin LadyGeek]
Robot Monster
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Re: ASSET ALLOCATION, HOW TO CHOOSE

Post by Robot Monster »

colorado50 wrote: Mon Oct 05, 2020 1:42 pm The main question is do I need a more complex model such as the Swensen model...
You absolutely do not need a complex model, and could very well be served by keeping it simpler using the Three-Fund Portfolio, instead. Here is a nice article about it:
Three-Fund Portfolio

Other portfolio ideas here.
dru808
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Re: ASSET ALLOCATION, HOW TO CHOOSE

Post by dru808 »

If you like the international in the first model, I’d say use the second bogle model and swap total stock for total world vt.
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Blue456
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Re: ASSET ALLOCATION, HOW TO CHOOSE

Post by Blue456 »

colorado50 wrote: Mon Oct 05, 2020 1:42 pm So I've read and heard different opinions on Asset allocation. The main question is do I need a more complex model such as the Swensen model or a super simplified such as the one suggested in "Simple path to Wealth" or "Boggle heads". Seems the main question is according to age and risk tolerance how much Stocks vs Bonds and then diversifying between those investments.
Please let me know your thoughts.
thanks!

Swensens model- SEEMS TO DIVERSIFY SIGNIFICANTLY
Asset Class
30% Total Stock Market Stock
15% International Stock Market Stock
5% Emerging Markets Stock
15% TIPS Intermediate Bond
15% U.S. Treasuries Intermediate Bond
20% REITs Real Estate

FROM "SIMPLE PATH TO WEALTH- SAYS THAT TOTAL STOCK MARKET IS ALREADY GOING TO ACCOUNT FOR DIFFERENT WORLD AND EMERGING MARKETS WITH REALITY OF GLOBALIZATION. (OBVIOUSLY THIS RATIO COULD BE ADJUSTED FOR AGE AND RISK TOLERANCE.
85%- TOTAL STOCK MARKET
15%- TOTAL BOND MARKET
You can keep Swensen portfolio by doing the following:
- 30% treasuries
- 50% VT
- 20% REIT
Or you can simplify this even more:
- 80% Life Strategy Moderate Growth
- 20% REIT
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Investors Mind Money
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Re: Asset Allocation, How to Choose

Post by Investors Mind Money »

There could be so many variations. The most critical part of investing is to find one based on your risk tolerance and consistently stay with it. The white coat investor has written an excellent post on 150 portfolios here https://www.whitecoatinvestor.com/150-p ... han-yours/


As far as how much bond in portfolio? We decide that by answering this question: if market drops 50 percent how much are we prepare to lose before start panicking? For us it is 30% so our stock / bond allocation is 60 / 40. In theory, bond may go down as well depending on type of investment. This just gives us overall allocation to build and maintain our portfolio.
Topic Author
colorado50
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Re: ASSET ALLOCATION, HOW TO CHOOSE

Post by colorado50 »

Robot Monster wrote: Mon Oct 05, 2020 1:51 pm
colorado50 wrote: Mon Oct 05, 2020 1:42 pm The main question is do I need a more complex model such as the Swensen model...
You absolutely do not need a complex model, and could very well be served by keeping it simpler using the Three-Fund Portfolio, instead. Here is a nice article about it:
Three-Fund Portfolio

Other portfolio ideas here.
Thanks, helpful references. So now based on these expense rations between Schwab, Fidelity, and Vanguard why does anyone choos vanguard being the most expensive of the three. why not fidelity being the cheapest. What am I not understanding?
Topic Author
colorado50
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Re: Asset Allocation, How to Choose

Post by colorado50 »

Also if I go with a target date fund like VTTHX the difference in expense ratio at .14% verses roughly .04% putting it together and rebalancing myself.
seems significant? worth it?
The fund is made up of
Total
Vanguard Total Stock Market Index Fund Investor Shares 45.70%
Vanguard Total International Stock Index Fund Investor Shares 30.00%
Vanguard Total Bond Market II Index Fund Investor Shares† 17.00%
Vanguard Total International Bond Index Fund Investor Shares 7.30%
100.00%

Seems pretty simple to save the .1% for management and just rebalance myself? what am I missing?
Last edited by colorado50 on Mon Oct 05, 2020 5:30 pm, edited 1 time in total.
Robot Monster
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Re: ASSET ALLOCATION, HOW TO CHOOSE

Post by Robot Monster »

colorado50 wrote: Mon Oct 05, 2020 5:01 pm
Robot Monster wrote: Mon Oct 05, 2020 1:51 pm
colorado50 wrote: Mon Oct 05, 2020 1:42 pm The main question is do I need a more complex model such as the Swensen model...
You absolutely do not need a complex model, and could very well be served by keeping it simpler using the Three-Fund Portfolio, instead. Here is a nice article about it:
Three-Fund Portfolio

Other portfolio ideas here.
Thanks, helpful references. So now based on these expense ratios between Schwab, Fidelity, and Vanguard why does anyone choose vanguard being the most expensive of the three. why not fidelity being the cheapest. What am I not understanding?
I know that Vanguard has a patented system to avoid taxes for their mutual funds, which I assume makes it more tax efficient than the mutual fund offerings from Fidelity and Schwab, but that consideration does not apply to their etfs, of course. Perhaps it would make sense just to go with the cheapest etf, if you go that route. Doing a quick search I find old discussions about this topic that may help you make a decision on this:
viewtopic.php?t=214369
viewtopic.php?f=1&t=258745
viewtopic.php?t=240670
viewtopic.php?t=247932
viewtopic.php?t=303183
Robot Monster
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Re: Asset Allocation, How to Choose

Post by Robot Monster »

colorado50 wrote: Mon Oct 05, 2020 5:09 pm Also if I go with a target date fund like VTHRX the difference in expense ratio at .14% verses roughly .04% putting it together and rebalancing myself.
seems significant? worth it?
I did a search about this issue, and found an interesting response about it. "Everyday, on this forum, we see investors struggling with behavioral biases to properly rebalance their portfolios." An all-in-one fund protects you from that, and that is no small thing.
Topic Author
colorado50
Posts: 13
Joined: Mon Mar 09, 2020 8:50 pm

Re: ASSET ALLOCATION, HOW TO CHOOSE

Post by colorado50 »

Robot Monster wrote: Mon Oct 05, 2020 5:27 pm
colorado50 wrote: Mon Oct 05, 2020 5:01 pm
Robot Monster wrote: Mon Oct 05, 2020 1:51 pm
colorado50 wrote: Mon Oct 05, 2020 1:42 pm The main question is do I need a more complex model such as the Swensen model...
You absolutely do not need a complex model, and could very well be served by keeping it simpler using the Three-Fund Portfolio, instead. Here is a nice article about it:
Three-Fund Portfolio

Other portfolio ideas here.
Thanks, helpful references. So now based on these expense ratios between Schwab, Fidelity, and Vanguard why does anyone choose vanguard being the most expensive of the three. why not fidelity being the cheapest. What am I not understanding?
I know that Vanguard has a patented system to avoid taxes for their mutual funds, which I assume makes it more tax efficient than the mutual fund offerings from Fidelity and Schwab, but that consideration does not apply to their etfs, of course. Perhaps it would make sense just to go with the cheapest etf, if you go that route. Doing a quick search I find old discussions about this topic that may help you make a decision on this:
viewtopic.php?t=214369
viewtopic.php?f=1&t=258745
viewtopic.php?t=240670
viewtopic.php?t=247932
viewtopic.php?t=303183
Whew, surprised to see so much negativity towards Vanguard on some of these threads. Still sounds like I might be overcomplicating. Lots of positive comments about Schwab, and maybe any of the three are fine.
Ferdinand2014
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Re: Asset Allocation, How to Choose

Post by Ferdinand2014 »

colorado50 wrote: Mon Oct 05, 2020 1:42 pm So I've read and heard different opinions on Asset allocation. The main question is do I need a more complex model such as the Swensen model or a super simplified such as the one suggested in "Simple path to Wealth" or "Boggle heads". Seems the main question is according to age and risk tolerance how much Stocks vs Bonds and then diversifying between those investments.
Please let me know your thoughts.
thanks!

Swensens model- Seems to diversify significantly
Asset Class
30% Total Stock Market Stock
15% International Stock Market Stock
5% Emerging Markets Stock
15% TIPS Intermediate Bond
15% U.S. Treasuries Intermediate Bond
20% REITs Real Estate

From "Simple Path to Wealth- says that total stock market is already going to account for different world and emerging markets with reality of globalization. (obviously this ratio could be adjusted for age and risk tolerance.
85%- Total Stock Market
15%- Total Bond Market

[Capitalization formatted by admin LadyGeek]
What has worked the best for me is less funds and a simple plan. What helped me, was to look at the fixed income portion of the portfolio not as a reducer of volatility (losing 24% with 70/30 in 2008 vs 28% with 80/20 would not have made me less likely to panic for example), but rather a $X amount of expenses in safe assets. Once I decided how much I needed in safe assets, the allocation of equities to fixed income solved itself. In my case, I am mid career and self employed. I decided 3 years of expenses was about right. Everything else now goes into equities. If I could go back to my 20-30's, I would probably say an emergency fund of maybe 3 months of expenses was plenty with everything else in equities. When I am within 5 years of retirement I will expand my fixed income to around 5 years of expenses. So the effect is, unless I have an emergency, I do not need to rebalance or set an allocation percent. I do not really care if my fixed income is 5% or 50% of my allocation as long as it meets my $X I have decided on. Lastly, the equity portion needs to be split between U.S. and ex U.S. The easy solution is to own VT/VTWAX (Vanguard total world) or if you don't like international VTI/VTSAX (Vanguard total stock index) or equivalent. In my case, I own FXAIX (Fidelity 500 index) and cash in the form of t-bills. Simplicity, high savings rate, staying the course and automatic investing is going to put you in good shape. Or even simpler, just go with a target date fund and some cash for emergencies.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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1789
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Re: Asset Allocation, How to Choose

Post by 1789 »

colorado50 wrote: Mon Oct 05, 2020 1:42 pm So I've read and heard different opinions on Asset allocation. The main question is do I need a more complex model such as the Swensen model or a super simplified such as the one suggested in "Simple path to Wealth" or "Boggle heads". Seems the main question is according to age and risk tolerance how much Stocks vs Bonds and then diversifying between those investments.
Please let me know your thoughts.
thanks!

Swensens model- Seems to diversify significantly
Asset Class
30% Total Stock Market Stock
15% International Stock Market Stock
5% Emerging Markets Stock
15% TIPS Intermediate Bond
15% U.S. Treasuries Intermediate Bond
20% REITs Real Estate

From "Simple Path to Wealth- says that total stock market is already going to account for different world and emerging markets with reality of globalization. (obviously this ratio could be adjusted for age and risk tolerance.
85%- Total Stock Market
15%- Total Bond Market

[Capitalization formatted by admin LadyGeek]
The less funds the better, imo. Therefore i prefer one fund to two fund and two funds to three and three to four. We only hold one fund US TSM/SP500 and some CASH that let us sleep well at night.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
hyperon
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Re: Asset Allocation, How to Choose

Post by hyperon »

You sound like a good candidate for the three-fund portfolio (as previously mentioned by Robot Monster above): https://www.bogleheads.org/wiki/Three-fund_portfolio.

Vanguard is owned by the shareholders.

Though I don't have much experience with Vanguard, I have heard consistent feedback on this site that the customer service can be sub-par. I've had a positive experience with Schwab, including customer service.
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Garco
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Re: Asset Allocation, How to Choose

Post by Garco »

In my opinion, no completely general model allocation makes sense unless several factors are taken into account.

1) Age of the investor.

2) Family/marital status. (Is this an independent individual?)

3) Number of children, and their ages. Are there financial plans for college expenses?

4) Employment status (current and prospective).

5) Does the employer contribute to a 401k? What percentage?

6) What is the size of the current savings/investment account?
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