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 Post subject: Re: Retirement
PostPosted: Fri Sep 14, 2012 7:50 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
namesbond wrote:
I took a thousand from each of the three funds and began my VXUS international fund. Thanks for the help. I'm going to keep maxing out my Roth and see where it goes. I personally don't want to get into bond funds at this point because I want to remain more aggressive since I'm still young.


Did you read that Vanguard article I linked to above? You just put in 15% of your portfolio into an international ETF. The article says 20% is a reasonable starting point to gain diversification benefits. I'm not sure you fully understand the point of diversification through asset allocation and rebalancing. Ultimately, it is your money, but where 99% of people fall flat on their face is not understanding the importance of a diverse portfolio and how AA works.

VinTek wrote:
namesbond wrote:
I'm currently 25 almost 26 and have a Roth IRA of $21,000. In S&P 500 Index Fund 60%, Small Cap Growth 20%, and Large Cap Growth 20%. I also have a 401K totalling $2,000 exclusively in S&P 500. My question is are my fund allocations appropriate?

Just curious: why the emphasis on growth funds? They've historically not performed as well as value funds over the long term.


I would be interested in seeing this history. I know we can all go back in history and pick our dates to prove our point. But since we can do that, it should only make the point that we have no idea which one will perform better than the other into the future. And further highlights my point of diversification and rebalancing. Here are my Cherry picked dates, the last 5 years VVIAX (value) vs VIGAX (growth).

http://quote.morningstar.com/fund/chart.aspx?t=VVIAX®ion=USA&culture=en-US&statePara=%7Bsecurities%3A%5B%7Bn%3A%22Vanguard%20Value%20Index%20Adm%22%2Cids%3A%22FOUSA00LA4%7C0P00002YIX%7CCU%24%24%24%24%24USD%7C1%7C1%7CFO%7C2000-11-12%7C%7C%7Cfalse%7CUSA%7C19%22%7D%2C%7Bn%3A%22Large%20Value%22%2Cids%3A%22%24FOCA%24LV%24%24%7C%24FOCA%24LV%24%24%7CCU%24%24%24%24%24USD%7C1%7C1%7CCA%7C%7C%7C%7Ctrue%7CUSA%7C0%22%7D%2C%7Bn%3A%22S%26P%20500%20TR%22%2Cids%3A%22XIUSA04G92%7C0P00001MK8%7CCU%24%24%24%24%24USD%7C1%7C1%7CXI%7C%7C%7C%7Ctrue%7CUSA%7C0%22%7D%2C%7Bn%3A%22Vanguard%20Growth%20Index%20Adm%22%2Cids%3A%22FOUSA00L97%7C0P00002YI1%7CCU%24%24%24%24%24USD%7C1%7C1%7CFO%7C2000-11-13%7C%7C%7Cfalse%7CUSA%7C19%22%7D%5D%2CchartType%3A%22GrowthChart%22%2Crange%3A%222007-9-14%7C2012-9-13%22%2Cperiod%3A8%2Cregion%3A%22USA%22%2Ctc%3A%22USD%22%2CisD%3A%220%22%2CisR%3A%220%22%2CrM%3A3%2Cscale%3A%221%22%2CbMenu%3A%22%22%2Csma%3A%220%2C0%2C0%22%7D

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 Post subject: Re: Retirement
PostPosted: Fri Sep 14, 2012 10:55 am 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1951
Bichon Frise wrote:
VinTek wrote:
Just curious: why the emphasis on growth funds? They've historically not performed as well as value funds over the long term.


I would be interested in seeing this history. I know we can all go back in history and pick our dates to prove our point. But since we can do that, it should only make the point that we have no idea which one will perform better than the other into the future. And further highlights my point of diversification and rebalancing. Here are my Cherry picked dates, the last 5 years VVIAX (value) vs VIGAX (growth).


Well, you can start http://www.gummy-stuff.org/returns.htm. It's a chart of historical returns from 1928 to 2000. It not only shows the overall historical performance for the period but also breaks it out by year, so you can see that there are indeed periods where growth does outperform value. But it's the long term that matters, isn't it?

I think there's a version that goes to 2008. I'll try to find it if you're interested in seeing it. The conclusions are pretty much the same though.

Edit: corrected quote tag.


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 Post subject: Re: Retirement
PostPosted: Fri Sep 14, 2012 12:33 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5395
Boys, boys,...

Since it was the good folks here that turned me on to Bernstein's books, I'll point out that he explains this.

Value stocks perform better because they are a little riskier. The extra return over the long haul is the risk premium. I think growth and value have done about the same after adjusting for risk.


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 Post subject: Re: Retirement
PostPosted: Fri Sep 14, 2012 1:44 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
yes. and my point above is, so what if value has edged out growth based on history? I think Vin is trying to say Value funds have a place in one's portfolio. And he probably is correct if one is to venture out and grab a growth specific fund. But, what is his suggestion? A value tilt? how much of a tilt? That is what isn't understood.

And of course, if one doesn't rebalance, it certainly brings more volatility to the table.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Retirement
PostPosted: Fri Sep 14, 2012 2:29 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1951
Bichon Frise wrote:
yes. and my point above is, so what if value has edged out growth based on history? I think Vin is trying to say Value funds have a place in one's portfolio. And he probably is correct if one is to venture out and grab a growth specific fund. But, what is his suggestion? A value tilt? how much of a tilt? That is what isn't understood.

And of course, if one doesn't rebalance, it certainly brings more volatility to the table.

You are correct in that I was trying to say that value funds have a place in one's portfolio. In fact, I was leading up to advising that the OP exchange his S&P500, Large Cap Growth and Small Cap Growth funds for the Total Stock Market Index Fund. Not only would he have gotten greater diversification, but with $21K in the hopper, he'd qualify for Admiral Shares, which would lower his expenses.

As for my own portfolio, it's primarily comprised of Total Market (both domestic and international) funds, with a tilt toward small cap and value via index funds in those areas. How much of a tilt is really something that can only be determined by an individual's risk tolerance. It's hard (if not impossible) to get past that risk/reward relationship. I'm fortunate enough to have the resources to be able to afford more risk than most, so my portfolio is what it is. I would expect that each person here would have a portfolio that reflects their own risk tolerance, not mine.

As for determining the tilt based on your risk tolerance, a good place to start is the http://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_model. I believe that DH would have a particular interest in this, as it a mathematical model and DH has an affinity for mathematics. It is the basis for some of what Bill Bernstein writes about.


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 Post subject: Re: Retirement
PostPosted: Fri Sep 14, 2012 3:32 pm 
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VinTek wrote:
As for determining the tilt based on your risk tolerance, a good place to start is the http://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_model. I believe that DH would have a particular interest in this, as it a mathematical model and DH has an affinity for mathematics. It is the basis for some of what Bill Bernstein writes about.


Now you've got me excited!


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 Post subject: Re: Retirement
PostPosted: Wed Jan 09, 2013 8:14 am 

Joined: Mon Sep 10, 2012 2:44 pm
Posts: 18
Is it smart for me to just put all my Roth and 401k funds into a Target 2045 fund? It has a low expense ratio.


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 Post subject: Re: Retirement
PostPosted: Wed Jan 09, 2013 8:57 am 

Joined: Tue Jun 30, 2009 9:44 pm
Posts: 308
Location: Atlanta, Georgia
That's what I do, though a different target year.


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 Post subject: Re: Retirement
PostPosted: Wed Jan 09, 2013 10:28 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
Me three.
.........................................


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 Post subject: Re: Retirement
PostPosted: Wed Jan 09, 2013 10:32 am 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1951
namesbond wrote:
Is it smart for me to just put all my Roth and 401k funds into a Target 2045 fund? It has a low expense ratio.

I think it's fine but does fall short of optimal, since one size does not fit all. If you're willing to give up control in exchange for not having to worry about it, this will be okay. Just make sure you understand what you're giving up in exchange for what you're getting.


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 Post subject: Re: Retirement
PostPosted: Wed Jan 09, 2013 10:37 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
VinTek wrote:
namesbond wrote:
Is it smart for me to just put all my Roth and 401k funds into a Target 2045 fund? It has a low expense ratio.

I think it's fine but does fall short of optimal, since one size does not fit all. If you're willing to give up control in exchange for not having to worry about it, this will be okay. Just make sure you understand what you're giving up in exchange for what you're getting.


It's not perfect but it follows the Pareto Principle. 80% of the benefit for 20% of the work.

Actually it's probably 95/5, unless you insist on doing a bunch of research to understand what you're supposedly giving up.


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