SpudfinParticipantStatus: Other ProfessionalPosts: 3Joined: 03/30/2019
Congrats on your success and upcoming retirement. I can see the appeal of low cost, simple investing but few questions to consider…
- I’m curious how or why you chose the 60/40 portfolio?
- Why are you okay with your risk profile being generally the same regardless of your stage of life?
- Why do you not care about international exposure? If you can increase your risk-adjusted returns with a more diversified portfolio, why wouldn’t you do so? The US is only about ¼ of world GDP.. plus that fund is not very diversified in terms of market cap – almost all is in large cap. There are ETFs that are low cost and having more than one investment doesn’t really make things any more complex.
- Have you given any thought to tax planning? How are these withdrawals going to affect your taxes? Wouldn’t you like to see if there is an easier and more tax efficient way to generate income?
I am all for low cost, easy investing… but sometimes being thorough and efficient results in a much superior outcome.Click to expand…
All great questions that have been asked and answered by my wife and I over the years
- 60/40 split. I sleep well at night with it. I started with 90/10 and through the 1987 crash, Dot bomb, and 2008 crash slowly ratcheted down. Finished at 60/40 by 2010 and have not really changed since. Just kept buying and did not sell anything. The historic returns at that level of risk will be plenty for us to spend and I am not in the least distressed with the level of risk.
- International? I have invested in several funds that tracked the International markets including emerging markets. Mostly just too expensive and no real benefit over US large caps at least in my hands over time. Bogle has suggested no more than 20% and would accept 0%. I like our chances as a country and economy. I am sure there are a few companies in VBIAX that make money overseas. Throwing 10-20 percent at International would not really affect my returns that much when you factor expenses in my view.
- Tax planning. To give you more data. Using the 4% withdrawl rule on this money and utilizing a big chunk that has Roth designation to reduce tax rates I will have plenty to keep me happy in the tax deferred accounts. My wife will have a public employee pension and we will both have Social Security at full contributions over our full time working lives. Add in some cash and conservative money in after tax I think we will be more than fine. Most importantly there will be no debt and we never really quit living like we were poor college students for the most part. Been a good life really.
- As for your suggestion for “superior” results via diversification. I suppose that would benefit my heirs but would not really change my life that much. Value judgement I suppose.
Thanks for your interest and feedback.
SpudfinApril 8, 2019 at 6:21 pm MST #205068mckee_cfaParticipantStatus: Financial AdvisorPosts: 6Joined: 03/20/2019
Thank you for your thoughtful response. I suppose a lot of these questions/answers come down to value judgement or personal preference. Most people I speak with want to maximize what their heirs inherit but it is not my place to suggest otherwise. But I did want to share some thoughts on the international aspect..
Liking our chances as a country and economy is common – actually so much so that there is a term for it – “home country bias.” The efficient market hypothesis, which is the backbone of low cost index based investing, says all of risks are priced in anyway. However, each country has different risk exposures and regardless of what Bogle said, academic research supports the benefits of international diversification. When you say it isn’t worth it do you think that the difference is small or do you not care about increasing your risk-adjusted return? In terms of extra expense, there is none. There are international ETFs with lower expense ratios than VBIAX. And while strengthening international markets may benefit domestic countries that sell into them, there are other dynamics that create different risk/return characteristics in equity returns.
I just wanted to pass along my 2 cents as I obviously am interested and enjoy discussing these things!
Thank you for your time and thoughtful response. Again, congrats on a successful career and your financial success as well. I wish you an enjoyable retirement!
Matthew McKee, MBA, CFA
(615) 788-0572April 15, 2019 at 1:54 pm MST #206617