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I'm helping my dad out with rolling over his 401k into an IRA account. He's going to open an account with Vanguard. For those of you in the same age range what do you think is a good asset allocation? Was thinking of splitting his stocks (60% of portfolio) in an S&P 500 and International Index, and remaining 40& in bonds. He's planning to retire in about 10 years.
I'm helping my dad out with rolling over his 401k into an IRA account. He's going to open an account with Vanguard. For those of you in the same age range what do you think is a good asset allocation? Was thinking of splitting his stocks (60% of portfolio) in an S&P 500 and International Index, and remaining 40& in bonds. He's planning to retire in about 10 years.
I think that is a very reasonable investment plan. What is "best" is going to vary from person to person.
I'm helping my dad out with rolling over his 401k into an IRA account. He's going to open an account with Vanguard. For those of you in the same age range what do you think is a good asset allocation? Was thinking of splitting his stocks (60% of portfolio) in an S&P 500 and International Index, and remaining 40& in bonds. He's planning to retire in about 10 years.
Actually for the 60/40 combo, you can do it all in one fund with Vanguard Balanced Index. The only difference is the stock portion of the fund covers the whole stock universe from small caps to the large caps, but it is still heavily weighted toward the large caps. The small cap stocks add a little bit of return as well as a little bit of extra volatility, but this is still a relatively low volatility fund for the "moderate allocation" category.
Personally, I like Vanguard Wellington better, but it is a slightly more aggressive fund. It typically holds 65% in stocks & 35% in bonds and cash. It is slightly more volatile, but long term returns (10 years or longer) are about 1% higher or even better (for the 15 and 20 year returns). It is slightly more volatile but I think the better returns are worth the fairly modest increase in volatility.
Overall, I think a 60/40 or 65/35 stock/bond allocation is good for a 56 year old (depending on your personal comfort level). Someone age 56 may still live another 30 years, so you still need to be fairly heavy on the stock portion of the portfolio. I don't want to be too one-size-fits-all, but I actually think a 60/40 or 65/35 allocation is one you can hold almost your whole lifetime. It keeps the volatility at reasonable levels without taking too much away from returns.
I think mysticaltyger has a good post.
One other thing to consider when setting risk is what other sources of income will he have in retirement?
Social Security is a low risk income source with cost of living adjustments. So if SS alone covers the bare essentials, the other income sources (401k, IRA, etc) can be in riskier assets (more stocks) since the total income risk is lower due to the SS income. Now if SS doesn't cover the essentials, the other income needs to be less risky.
If someone has a pension and social security, the IRA can be in riskier assets (more stocks)
And the time frame (10 years or 40 years) should be considered when setting risk.
You can be lazy and use a target retirement fund and just go with that.
But if you want to take a slightly more hands on role and be a bit more tax efficient, you can get mostly bonds with this new IRA and keep most of the stock in his other investment accounts (if he has some post tax investment accounts).
As for the 60/40 split, it's reasonable. Personally I am much younger but I'm also very risk averse so I'm actually more like 50/50 (not sure why but I have this feeling is impending stock market doom so I have moved around 20% from stock funds to bond funds in the last 4 months). Yeah, I know I'm not supposed to try to time the market but I can't help myself.
If one is not retired, in their 50s, and holding 35/5 Bonds/cash in their portfolio what would be the purpose of the cash? Is it to be available to allocate to take advantage of opportunities? The holder would not be drawing the cash at that time.
cash can be a nice ballast . a mix of equities and cash can have the volatility of the equities tempered by adjusting cash levels. this would be a pucker factor decision not a strategic one.
if bond rates rise the damage done on the bond portion of a typical mix that includes them may weight down the equity side to much so equities and cash can make alot more sense if that happens.
the time to make adjustments into what you want to use for a retirement portfolio is well before , especially when markets are breaking new highs.
the time not to make changes is when you are right up to that point and markets are down.
i made my changes many years before. where you think markets are headed is not important if it is a life style change..
i did mine well before i was ready to pull the plug working . at this point with a 45/45/10 mix even a repeat of 2008 will not change our plan much. but if i was still 80-100% equities and we had a repeat i would certainly have to re-examine the income side .
blanchett in a recent study found the flaw in a rising glide path through retirement is starting out with such low bond yields now that have no where to go much except up and that may may do more harm then good ..
the falling bond funds at the same time equities are at high valuations may add to much downward weight to the mix.
where we are in the cycles have a big determination of the asset classes you want to use pre retirement , especially if you are starting to put those building blocks in place years ahead as you should and not at the last minute.
one of my favorite late in life portfolio's is the one below from bob clyatt , the RIP PORTFOLIO AS HE CALLS IT . , but i would be prepared at some point to swap out some of the bond funds for more appropriate income funds.
20% VFINX S&P500
8% VTMSX Tax Managed Small
6% VGTSX Total International Equity
10% VINEX Internat'l Explorer (small)
6% VEIEX Emerging Markets
30% VBIIX Intermediate Bond Index
11% BEGBX International Bond
5% VGSIX REIT Index
4% Money Market Fund
Last edited by mathjak107; 03-14-2015 at 04:07 AM..
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