For someone in their 30s, does the following allocations make sense? The goal is to have a fair amount of diversity and to more or less “set it and forget it”
55% VG INST 500 IDX 35% VG INTL STOCK IDX 10% VG TOT BD MKT IDX
I’m wondering if maybe there should be less in International and more in one of the other two, etc
You get better long term growth out of stocks. Bonds offer less volatility which is what you want when you are depending on that money.
Until I’m seriously asking myself: “Do I want to retire yet?” I wouldn’t put anything in bonds at all. Once I reach that point I’d shift ~5-10% per year into bonds, until I have enough to cover at least 5 years of my retirement. Once retired I’d pull out of whatever’s grown the most that year, to live on. In years where stocks outperform bonds, keep shifting more into bonds to maintain that 5 year runway. Even grow it further to 10 years. Then I’d just maintain that 10 years of bond runway. It’s highly unlikely I’ll ever need more than that.
the old school rule of thumb was you put your age in % into bonds. it really depends on your risk tolerance and how from your goals you are. dont take unnecessary risks.
That’s extremely conservative.
The longer you’re in, the more “risk” transforms into volatility.
Any day or year may be up or down, but as years become decades, that up and down becomes background noise to the general march upward.
Agreed. IMO, there’s no reason have much of anything in bonds until you’re close to retirement. 10% is fine if you want some bonds to even out returns a bit, but the only reasons I can think of to have any significant amount in bonds are:
- you have super low risk tolerance - as in, you’re likely to panic sell if stocks drop a bunch; it’s better to have worse returns than to panic sell at the worst possible time
- you need to live off the money - bonds are stable, and if the market tanks, you’re guaranteed to always at least have your bond portion available for use
The only bonds I have are part of my emergency fund (half in t-bills, half in money market fund), and I don’t intend to buy any more than that until I’m about 10 years from retirement. And even then, I’m considering a bond tent, meaning I’d buy bonds just before retiring (5-10 years) and then draw them down to zero over a longer term (10-20 years) and then be 100% stocks. The idea here is that my stocks will grow enough over that bond tent period that I won’t need to worry about sequence of returns risk anymore since the stocks will more than make up for it. But even loading up to 40% or whatever in the 10 years prior to retirement is pretty reasonable (switch contributions to all bonds), if you want that security of a larger bond position.
how much international stock to have vs domestic stock is almost a religious war at this point. Pick whichever you like (I like 0% international personally), and then stick with it. The most important variable will really just be the Equities vs Bond ratio; and even that is nibbling around the edges unless you’re making 1000basis point changes (shifting from 10% to 20% in your case). And stick with that too unless YOU have a reason to change it, not because you think the market has a reason for you to change it, such as becoming more risk averse due to age, life circumstance, etc.
ETA: FWIW at 30yo, even 10% bonds might be unnecessary. But that depend on you and your risk tolerance and when you expect to need that money.
I couldn’t agree more. The money I’ve put into international stock and bonds have been wasted compared to domestic stock every time I’ve tried. This is purely anecdotal however
There’s also the argument that markets are cyclical, so if one segment has under-performed for a while, it is more likely to overperform going forward, and the inverse argument is valid too. The US has been on an absolute tear for 15 years or so, so it’s high time for the US market to correct downward and international markets to correct upward. That said, it could happen in 5 years, 15 years, or 50 years.
So yeah, it’s up to you. I try to maintain a market weight portfolio with a tilt toward US and small value, because I have my doubts that the international out-performance will happen soon, but I don’t want to miss out either. My portfolio is currently 70/30 US/international, with a 10% tilt toward small value, and I’m considering doubling the tilt.
Bogleheads has explained its rationale for its three-fund portfolio strategy. If I were you, I’d be trying to investigate/explain why my three-fund strategy is better than Bogleheads’.
I actually changed mine to 3 fund after discovering the boggleheads post you mentioned a while back. Perhaps I didn’t follow the advice correctly
At first glance the only difference is that you’re excluding US small stocks. But I’m neither an expert nor doing anything more than a first impression.
Ah, good catch! It looks like I have this as an option which may help supplement my S&P 500 choice (Vanguard Extended Market Index Fund).
Thank you for the expert advice :)
