Is This Reasoning Correct?

[slowtraveler]

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[Seppia]

I believe a geographically diversified, high equity allocation portfolio has, in the long run, a very good probability of bringing satisfying returns.
This has been the case in the past and, with a 30+ years horizon I do not see why it should not happen again.
Only case would be some catastrophic event that affects the whole planet, but in that case I think our investments' performance will be the last of our problems.

I also think that for people who do not have a huge amount of savings yet, save a lot of money and are still working, the minutiae of today's portfolio allocation are not that important (assuming massive mistakes are avoided).

This said, I believe your portfolio is unnecessarily complex.
I don't think you would perform noticeably different if you just held 80% total world, 10% total bond and 10% gold. Edit: plus the 3 years cash obviously*.


*i think that's too many, assuming you have a very high savings rate and your expenses are not insanely low

[BRUTE]

assuming a 4% SWR, 3 years of cash would be about 12% (3/25) of the total target portfolio?

[slowtraveler]

I agree that investment performance is the last of our problems in any real catastrophe- the necessities of food, water, relationships all win out over the shared fiction of finance in that situation.

[slowtraveler]

@ Brute

That's accurate. Is this crazy? If prices drop, I'm more than happy to invest that and leave me with a year of cash, considering I don't have much need for cash right now. It is nice to fund my HSA and Roth all at once though.

[BRUTE]

might make sense if Felipe thinks he can time the market relatively accurately.

[classical_Liberal]

bla

[slowtraveler]

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[Seppia]

I disagree with seppa about combining to an all world type investment (sorry Seppa). During accumulation and using indexing I enjoy contributing to a lagging asset class, it provides the feeling of value. A large part of index investing is psychological and psychologically speaking it is difficult to contribute equally to both under and overvalued assets (technically, using cap weight you will be OVER contributing to the inflated asset class). This has the same benefit in drawdown, but in reverse. In the end though, the best passive AA is one you can stick with.

No issues, we are here to discuss

What I meant though is that by substituting many assets in the OP's allocation with the simple all world ETF I don't think there would be a massive change in performance.
Did not mean to say that is the best allocation in my opinion.

Personally, being based in Europe, I own precisely zero USA indexes, only a few US stocks I had bought in the past. My holdings now are 50/50 individual stocks and indexes

The individual stocks are mostly Europe with some USA
The indexes are 80% Europe and 20% emerging

But this is what works for me.

When I read "what about this portfolio?" topics I keep in mind the following basic scale (always assuming one is capable of buying and holding):

1- almost any investment is better than not investing.
2- almost any low cost index fund allocation will work better than high cost funds.
3- an all world stock index will usually work better than not so well researched shifting strategies
4- assuming an intermediate experience in active investing (10 years) coupled with dedication and research, it is possible to shift allocations in a way that increase the probability of outperforming of a world index in a mid term timeframe (10-15 years)

I always try to remind myself that the majority of people do not even invest, so regardless of some possible optimization, the OP's allocation will perform better than 90%+ of the rest of the population's.
I consider this "good enough".
Especially because if I / we recommend an alternative that is a tiny bit better BUT makes the OP not as comfortable as his/hers, there is a massive risk of him/her not staying the course, which in turn would have potentially very negative consequences.

Pick something you are comfortable with, that you can stick to, that isn't completely stupid, save a ton, and you will end up rich with almost 100% probability in the long run.
Let's not overthink this

[tylerrr]

one could say VTSAX already gives you exposure to Emerging because of the global nature of large corporations. I would simplify the portfolio more.

[Kriegsspiel]

I've never really understood that reasoning... You still have no exposure to companies based in other countries. I don't see why you would limit yourself. If it's just a matter of having less funds, you could use VT.

[slowtraveler]

Thank you for the help here so far. The performance on portfolio charts is not much different but there is a smaller and shorter drawdown for the portfolio here so I think the increased stability relative to the simplified 40 US, 20 International, 20 Emerging, 20 Bonds is worth it. 40 US, 40 International, 20 Bonds has a whole percent lower CAGR than half international, half emerging.