Push me to pull the trigger on a more conservative asset allocation?

[TopHatFox]

In theory, I'd like to diversify from 100% US Total Stock Index to:

40% total US Stocks
40% total bonds
20% total international

I just can't get myself to actually do it because I've grown comfortable just putting the money into VTSAX, and I'm still lulled by perceived higher returns even if the ride is more volatile. I'll be at 50K by this May, so the question is more relevant now than when I first started. This leaves me open to a black swan where the US stock market collapses and doesn't go back up. I would diversify just by putting new money over a year to bonds and international. So....push push?

-------------------

A few reasons why this is a good idea for me:

1. I plan to live off my portfolio in 5-10 years
2. Compounding doesn't compare to savings in the accumulation phase
3. Much more consistent portfolio and net worth value
4. Greater resilience to global volatility

[Chad]

I can't. All of my money is in stocks (US and international), with a little in cash. I don't mind the volatility and bonds don't look great over the next couple years.

If the US stock market crashes and doesn't come back up there will be problems an allocation won't fix.

[Seppia]

I would definitely not buy any bonds right now, but for an American investor it's a great time to add some international diversification, the dollar being high and USA valuations being much higher than the rest of the world.

[workathome]

Have you looked at Portfolio Charts? You need an allocation you have some degree of faith in, and wont bail on even in a large drawdown. Ultimately it's about your own psychology and ability to stick to a plan.

If you're sticking to passive allocation strategies, most of them don't vary too much in yearly CAGR over long time horizons, so it's about sticking to one that gives you the highest comfort level. Permanent Portfolio has been a good choice historically if you're concerned about drawdowns, while sticking to mostly equities good if you can ride through losing half your portfolio's value.

[TopHatFox]

Have you looked at Portfolio Charts?

Yeah, that's where I found the "Three-Fund Portfolio" above.

[steveo73]

Have you looked at Portfolio Charts?

Yeah, that's where I found the "Three-Fund Portfolio" above.

My take is really take your time changing your asset allocation. Stocks have the highest chance of long term success because they have the highest chance of the most returns.

I personally use a 3 fund portfolio but you need to be comfortable with what you have.

How long till you retire ? If it's a short time period I'd try and become a little more conservative but if not a high stock allocation might be really good.

[TopHatFox]

@steveo73, about 5-10 years, though I'm projecting I'll be bare bones FI (150K @ 4%) in around two years of working full time.

[cmonkey]

You could try adding Lending Club as well. Very low volatility. If done right, the returns are good and you are diversifying into a completely different level of the economy. You can use it as a cash or micro junk bond allocation.

[IlliniDave]

Only you can make that decision. It's too highly dependent on your emotional temperament. You probably know enough of the logical/fact-based arguments. You need to make a decision you can live with, and live with it when times get rough.

[workathome]

Food for thought (why you may want to go international):

http://mebfaber.com/2016/10/18/value-in ... nt-matter/

[BRUTE]

40% bonds 1 year into the plan?

[Dragline]

I think you need an emotional cue, because that's what actually drives most decisions. Think about how you felt the last time the stock market took a dip, like last year? Now multiply that bad feeling times 5 or 6.

I agree the easiest way to diversify here is to simply make new allocations to the other components.

[TopHatFox]

Honestly, I didn't really mind the volatility last year very much at all, probably because my living expenses are so low. I just bought more.

I'm more concerned that a severe drop might be more problematic than otherwise if I only hold one asset class alone. As a result, I've decided to just add 20% (following the 3-Fund Portfolio) of Vanguard's Total International Fund to my now 80% VTSAX. Maybe I'll add some bonds "later", and progressively through the 5-10 year accumulation. At least now the whole business world would have to collapse rather than one country (there is globalization, though)!

[FBeyer]

As a lazy indexer I'm very much inclined to a Global-is-better-for-my-sleep kind of approach.
Yeah markets are linked but if the correlation is not perfect there should be a very small diversification benefit to it. Whether the expenses on additional funds are so high that they cancel out the diversification benefit, I don't know.

If you ONLY trust the US to make money, then by all means invest only in the US. You could possible be aware of some macroeconomic trend that I'm not. That kind of knowledge should potentially make you money. I'm 100% diversifying to protect myself against my own ignorance and so far I'm trusting the compound actions of the rest of the world to carry me forward while I get smarter.

I haven't found a way to cover South America, India and China with an expense ratio of less than 2% but I really really want to build a portfolio that tries to dip its toes into every little thing around the world but it seems to me that US investors are spoiled for choice when it comes to constructions like that.

We have very different tax laws governing foreign investments and local investments, so there is an added layer of tax complication to figure out whether it's worth investing in US ETFs (or their EU equivalents) for instance.

The general idea goes like: If the world as a whole is making money, so am I. Naturally that only serves as a back stop while I learn actual investing and while I find some rentals.

[Lucky C]

If you want to be scared out of US stocks just read a few of John Hussman's Weekly Market Comments.
http://www.hussmanfunds.com/weeklyMarketComment.html

We don’t expect the current situation to end well for investors who insist on taking larger investment exposures than they’re actually willing to hold, with discipline, through a period of severe market losses. From present valuation extremes, a 40-55% market loss would represent a fairly run-of-the-mill resolution to the current market cycle; a decline that would take valuations only to the high-end of the range they’ve visited or breached over the completion of every market cycle in history. By the completion of the current cycle, I expect over $10 trillion of what investors count as paper “wealth” in U.S. equities to disappear without a trace.