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With a backdoor Roth conversion, what matters is that you don't have a traditional IRA balance at the time of the conversion, correct? I completed a rollover of my Fidelity traditional IRA into my current job's 401k a couple of weeks ago. Just want to confirm that it isn't a problem that I had a traditional IRA balance earlier in the same tax year before I make a backdoor contribution to my Roth.
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Oct 13, 2023 16:13
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caluki posted:With a backdoor Roth conversion, what matters is that you don't have a traditional IRA balance at the time of the conversion, correct? I actually ended up paying like five bucks in taxes when I was in this situation a couple of years ago. I didn’t bother to track down the exact reason because it was five bucks.
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Oct 13, 2023 16:17
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edit: double post
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Oct 13, 2023 16:43
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CubicalSucrose posted:Here's a thing - https://github.com/jlevy/og-equity-compensation
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Oct 13, 2023 16:43
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Apologies if this conversation has already taken place (multiple times): I'm booting up a Roth IRA this year for the first time, I just opened an account with Fidelity. I'm interested in doing a 3-bucket portfolio and follow some basic Boglehead rules, but they all start with "figure out your bond allocation" and the general wisdom for this part appears to cover the spectrum between "10% works fine (google tells me this was a Warren Buffet thing)" to "have (your age)% or more in bonds". So for me, this means my bond allocation is advised to be somewhere between 10-40%, and I don't know how to narrow this down for myself. A lot of "it's based on your risk tolerance" discussion out there, but it's not super helpful if I don't have a great grasp of how much more risk there is in a 90/10 vs 60/40 portfolio or something in-between. Is there a more general consensus on this I can make my decision on? Or does it not actually matter a whole lot and I'm overthinking it? I was thinking of basically splitting the difference and going with a 75/25 portfolio with the majority split Boglehead lazy portfolio-style between Total US/Total International mutual funds, but the initial bond allocation is stumping me. For reference: I'm 40, planning to retire no earlier than 62 when my mortgage is paid off, and my existing retirement portfolio is split between ~10 years in a state pension plan and a 401k I started over the last 2 years switching to the private sector, which I am contributing roughly the max to. So the Roth IRA is supplemental to these other, larger components of my portfolio.
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Oct 13, 2023 17:03
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Serious_Cyclone posted:Apologies if this conversation has already taken place (multiple times): I'm booting up a Roth IRA this year for the first time, I just opened an account with Fidelity. I'm interested in doing a 3-bucket portfolio and follow some basic Boglehead rules, but they all start with "figure out your bond allocation" and the general wisdom for this part appears to cover the spectrum between "10% works fine (google tells me this was a Warren Buffet thing)" to "have (your age)% or more in bonds". The more you pay attention to financial media, the higher a bond % you might want. The main thing "risk tolerance" questions are trying to get at is: "Will you be able to stick with your asset allocation even when 'the market is going wild' (crashing, as it does from time to time, and will almost certainly do a few times over the next 22 years)." It's very difficult to actually know how one would actually behave without actually going through a crash or three and seeing (i.e.) your 6 figure number go to a mid-high 5 figure number. The more you'd want to react/change/pull out in such a scenario, the higher a % of bonds you might want. If instead you think "stocks are on sale, wish I could buy more!" then you'd probably be good with 0-low% in bonds. With 22 years, a lower % of bonds will (probably) result in the overall highest $ amount in your portfolio at the end of that time period. But the number in your account is going to fluctuate more widely. Age in bonds is an awkward rule of thumb, perhaps better might be to mimic how target retirement date funds shift their allocation over time. When you get 10ish years out from retiring, then it probably makes some amount of sense to take a good hard look at where you're at and consider larger asset allocation changes depending on whether you've "already won the game" or "still a fair bit behind where you need to be."
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Oct 13, 2023 17:15
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Serious_Cyclone posted:Apologies if this conversation has already taken place (multiple times): I'm booting up a Roth IRA this year for the first time, I just opened an account with Fidelity. I'm interested in doing a 3-bucket portfolio and follow some basic Boglehead rules, but they all start with "figure out your bond allocation" and the general wisdom for this part appears to cover the spectrum between "10% works fine (google tells me this was a Warren Buffet thing)" to "have (your age)% or more in bonds". Honestly, if you are going with a stock/bond/cash bucket strategy, I would suggest something like this. Under that approach, the balances of stock/bond/cash would be 63/27/10, which roughly corresponds to, in a rebalancing approach, 75/25 stock/bond ratio, which based on historical data, looking at only fixed ratios, has the optimal failsafe withdrawal percentage (as in, if you choose a fixed percentage of your starting nest egg that you will withdraw each year, the highest percentage you can withdraw without running out). In your case, however, since you already have 10 years in a state pension plan, and you won't have to wait long for full social security benefits, you already have a decent cushion. I would calculate when you think you will decide to start collecting social security (and what you can expect to get from it in 2023 dollars), and seeing how much you get from that pension plan, and then consider how big of a cushion that is and what risk level you want. All else being equal though, I would probably just go with 100/0 for now at least, and consider something more conservative closer to requirement (ie: around 10 years before or less). But if you want a fixed stock to bond ratio to keep forever and never change, I would go 75/25 and note confidently that even if you retired in 1929 you could withdraw 3% of your 1929 amount each year and never run out even if you are immortal (so stick to your allocation!)
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Oct 13, 2023 17:52
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CubicalSucrose posted:The main thing "risk tolerance" questions are trying to get at is: "Will you be able to stick with your asset allocation even when 'the market is going wild' (crashing, as it does from time to time, and will almost certainly do a few times over the next 22 years)." It's very difficult to actually know how one would actually behave without actually going through a crash or three and seeing (i.e.) your 6 figure number go to a mid-high 5 figure number. The more you'd want to react/change/pull out in such a scenario, the higher a % of bonds you might want. If instead you think "stocks are on sale, wish I could buy more!" then you'd probably be good with 0-low% in bonds. I would sincerely like to think that I'm in the latter group, I certainly wouldn't want to lock in losses when the market is down and I get the meaning behind "rollercoasters go up and down, the only people who get injured are the ones who try to jump off". But, as you say, it's impossible to really know. I might start at 20% bond allocation to give myself room for being wrong about myself. quote:When you get 10ish years out from retiring, then it probably makes some amount of sense to take a good hard look at where you're at and consider larger asset allocation changes depending on whether you've "already won the game" or "still a fair bit behind where you need to be." Also good to know, thanks!
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Oct 13, 2023 17:52
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That 10% in bonds, though, is intended to mean 10% of your entire retirement portfolio. Not 10% of just the small chunk you have in an IRA, vs. your other retirement money. Your situation is more complex because some of your retirement money is in a pension. If you want to be anal about it, read up on your pension benefit and how it's associated with the performance of the pension itself, and then delve into how your pension manager is actually investing that money too. But don't do that unless you're really interested. More important is to understand the function of the bonds. When we talk about bonds being "lower risk" in this particular case we are generally referring to volatility. The market value of most investments fluctuate over time, but it's easy to see that the severity of those swings is higher for stocks than it is for bonds. So, if you buy bonds with no particular knowledge of when you might need cash, then your risk that bonds will be down by a lot on the random date when you need money is lower, than that risk would be for stocks. But with retirement investing ideally we have a better idea of when we might need that money as cash - your planned date of retirement is the earliest you would hopefully want to start withdrawing, and at that point hopefully you'll only be converting some small percentage of the total to cash annually. We want that portion to be in very non-volatile investments just prior to converting to cash, to reduce that risk I mentioned that the investments are way down the day (or month or year) you need the money. As you approach retirement age, then, the typical advice - which varies by personal situation - is to convert a larger percentage of your portfolio to less risky (less volatile) investments in preparation. In fact a person one year before retirement should be converting some of their bonds to cash-equivalent super low-risk investments such as CDs. They might have their first year's planned withdrawals in CDs, the following 2-5 years planned withdraws in bonds, and the rest in equities. Each year they'd perform some conversion, moving some bonds to cash and some stocks to bonds. All of this is to manage the volatility risk. But volatility risk is less important when you are decades away from retirement, assuming you have the will to leave your investments alone even if they're way down, and assuming that you are investing in a diversified way... mutual funds, not individual stocks, for example. That leads to the diversification issue. We invest broadly in many different things in order to reduce concentration risk, a different category of risk from volatility. It's the "all your eggs in one basket" problem. We can project based on the past that the whole stock market, while it goes down sometimes dramatically, generally winds up going up more than it goes down, and over the course of at least 2+ decades it's always gone up at least a bit. But we cannot say that for any individual stock. Many stocks go to zero and then are gone forever. This is also, to a lesser extent, true of individual bonds. Corporate bonds issued by smaller companies are considered a lot more risky than big government bonds, for example. But, unlike stocks, there are reasons we give in this thread for why someone might buy individual US treasury bonds (or TIPS or I-bonds etc.) instead of a broad bond index fund. Not to get too into the weeds, but the risk of the US government defaulting on its bonds (e.g. the bonds losing all of their value forever) appears to be much lower than the risk of virtually any other bond or equity investment. Anyway, the reason why diversification is awesome is that it's a method of reducing concentration risk, and also via rebalancing a mechanism of locking in gains. Normally we see a direct inverse relationship between risk and reward - the market offers higher potential gains in return for higher-risk investments. This is called the risk premium. But if you buy several different investments, and to the extent those investments are non-correlated, you can expect them to "average out" more - e.g., when one is down, another may be down less, or not at all, or even up. If you have a specific target asset allocation between those investments, you can rebalance them periodically, locking in gains for the investments that are up and buying bargains for the investments that are down. Additionally, going back to the idea of the investor who might need to sell at any random point to get cash, if you have 2 investments that are not highly correlated, and suddenly you need to convert some to cash, you can convert the one that is doing the best right now. The more different investments you have, the more likely you are to be able to avoid locking in a loss. But the extent to which this is true depends on how correlated the different investments are. Broadly, stocks in the same industry are very strongly correlated - when one oil company's stock is down, usually all of the oil companies' stocks are down, and vise-versa, because their stocks tend to move based on factors that affect the whole industry. More generally, all stocks tend to move in the same direction - when the whole stock market is up 5% in a week, most of the stocks traded on that market have moved up. Bonds are usually at least somewhat correlated with stocks (moving in the same direction). Sometimes they are anti-correlated: Stocks moving down while bonds move up, or vise-versa. https://russellinvestments.com/us/blog/is-the-stock-bond-correlation-positive-or-negative This thread has debated the utility of bonds at times, in particular when they seem to be strongly correlated with stocks - why buy bonds that move the same direction as stocks, but give much worse returns, if you're not concerned about volatility? This is the question I wanted to get to, for you. 10% bonds may not be necessary or advantageous at all, if they provide little opportunity to rebalance, you don't care about volatility because you're going to leave the money alone for 20 years, and in particular because you won't actually need to convert any of this investment to cash when you retire because you can draw on your pension, using this only as supplementary income during times when the investments are up. On the other hand, sometimes - as the article I linked says - quote:In a 2003 paper in the Journal of Fixed Income, Antti Ilmanen looked back as far as 1926 and found that, although the stock-bond correlation was positive the majority of the time, there were three significant spells of negative correlation: 1929-1932, 1956-1965 and from 1998-2003. Ilmanen conjectures that behind these results, “the causality from bond prices to stock prices is positive (say, falling bond yields tend to also reduce equity discount rates), while the causality from stock to bond prices is negative (say, equity weakness can prompt monetary policy easing and a bond market rally.)” 2 The correlation can be influenced by confounding variables, specifically the observation that good news for the economy can be good news for bonds, but sometimes good news is bad news. The taper tantrum of 2013 is a good example of the latter. But then check out this conclusion, which may be quite relevant to you: quote:The bottom line So.... bonds in your IRA are advantageous during times of negative correlation, assuming you regularly rebalance. And, when stocks and bonds are negatively correlated, pension plans face increased risk of shortfalls and defaults. And, negative correlation seems to occur most when inflation and growth are low... right now, inflation and growth are high, so we should expect bonds and stocks to mostly be moving in the same direction, reducing the attractiveness of bonds in an IRA portfolio but also hopefully reducing the risk to your pension. This may not be the case in 10-20 years. In the end, nobody can give you specific advice about how much bonds to hold because as you can see just from this post, this poo poo is pretty complicated once you get under the covers. But... in my opinion, 10% bonds is a pretty low risk thing to do. You're not putting a huge drag on your performance, you're giving yourself a little wiggle room for rebalancing, it's no big deal. I would not tell you to hold more bonds, but I will tell you that I don't have a pension and I do hold more bonds than that, at age 48. My target allocation used to be over 20%, I reduce it a couple years ago, but I'm still riding close to 20% bonds today. I think I'm still just under 20 years from retirement, but I intend to be closer to 30 or 40 percent bonds by the time I'm 5 years from retirement. When I'm 2 years or less from retirement I'm going to start shifting a substantial chunk of that bond money to cash, with some flexibility depending on what the market's up to at the time. When I'm less than a year from retirement I want to be at least 5% in cash no matter what. I intend to be at least 60% in stocks throughout retirement.
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Oct 13, 2023 18:45
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As an addendum, sorry for the giant post and also I am not an expert in bonds, so if I got anything wrong in the above giant wall of text, please someone tell me. Also, this thread sometimes talks about avoiding the interest rate risk of a bond fund by buying individual bonds and holding them to maturity. E.g. you aren't exposed to the risk of the market value of your bonds falling as rates rise, if you just hold to maturity. That's true, but that also reduces the ease at which you can rebalance your asset allocation, doesn't it? What do you folks do, if your target is 10% bonds, you buy a bunch of treasuries to hit that allocation, and then stocks rise such that now you aren't holding 10% bonds any more? Buy more bonds, right? OK, but when the opposite happens... do you ignore the market value of your bonds and just pretend they're still 10%, or just adjust over a longer term as your bonds reach maturity and convert back to cash? I suppose you can have the plan to hold to maturity if rates rise, but sell on the market (to buy stocks) if rates fall (assuming stocks are also down)?
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Oct 13, 2023 18:50
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All this talk of portfolio balancing has me wondering, how much if at all am I losing out by just going with a Vanguard target date fund for my retirement accounts, rather than manually allocating and balancing like you all are discussing?
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Oct 13, 2023 19:00
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Muir posted:All this talk of portfolio balancing has me wondering, how much if at all am I losing out by just going with a Vanguard target date fund for my retirement accounts, rather than manually allocating and balancing like you all are discussing? "Very little." You're probably going to come out ahead of a lot of folks who fiddle too much.
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Oct 13, 2023 19:07
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Not a lot. This is esoterica, and your target date fund has an allocation in bonds. But also I assume you don't also have a pension, so your target date fund is close to representing your total asset allocation, right? It gets more complicated for folks who have multiple accounts, and even more for folks with special needs, like, high projected medical costs, trying to retire early, living/working internationally, etc.
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Oct 13, 2023 19:07
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Muir posted:All this talk of portfolio balancing has me wondering, how much if at all am I losing out by just going with a Vanguard target date fund for my retirement accounts, rather than manually allocating and balancing like you all are discussing? like ten bps a year given the difference in expense ratios Leperflesh posted:As an addendum, sorry for the giant post and also I am not an expert in bonds, so if I got anything wrong in the above giant wall of text, please someone tell me. I am a bond-to-maturity guy and the way I deal with this is that I don't really care that much about my asset allocation down to the penny, and I don't actively rebalance other than on the buy side. edit: to elaborate a bit more - I also value bonds at par, not market, and try to layer bond durations. If I was super over-weight in bonds and had some bonds mature, rather than re-buying bonds I would buy stocks.
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Oct 13, 2023 19:10
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Muir posted:All this talk of portfolio balancing has me wondering, how much if at all am I losing out by just going with a Vanguard target date fund for my retirement accounts, rather than manually allocating and balancing like you all are discussing? The detailed allocation discussions happening here are much closer to hobbyists talking about their hobby than a necessary component of retirement savings. A Vanguard TDF is fine.
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Oct 13, 2023 19:13
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Awesome, thanks for the reassurance.
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Oct 13, 2023 19:24
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caluki posted:With a backdoor Roth conversion, what matters is that you don't have a traditional IRA balance at the time of the conversion, correct? end of year Trad IRA Balance = zero (line 6) nondeductible Roth IRA contributions = $6500 (line 1) Roth IRA conversions = $6500 (line 8) and thus tax zero. Or maybe a dollar or two of tax if the account accumulates some interest between the contribution and conversion. The most important thing for ease is to make sure your Trad IRA is empty at the end of the year.
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Oct 13, 2023 19:35
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Leperflesh posted:So.... bonds in your IRA are advantageous during times of negative correlation, assuming you regularly rebalance. And, when stocks and bonds are negatively correlated, pension plans face increased risk of shortfalls and defaults. And, negative correlation seems to occur most when inflation and growth are low... right now, inflation and growth are high, so we should expect bonds and stocks to mostly be moving in the same direction, reducing the attractiveness of bonds in an IRA portfolio but also hopefully reducing the risk to your pension. This may not be the case in 10-20 years. This is a dynamic I wasn't aware of, I appreciate your raising it. Part of my risk profile is associated with a significant portion of my retirement portfolio being sourced from a pension, which can be mitigated with some non-zero amount of bonds in my Roth IRA. I'm sort-of settling on an 80/20 to start and then plan to reassess in a year or two.
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Oct 13, 2023 20:01
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Carrying bonds is not that much of a hedge against your state deciding to cut your pension benefits. In fact,I don't really think there's a particularly good way to hedge against pension risk (that isn't fairly exotic/probably requires a lot more leverage/scale than you've got) and so I'd be inclined not to try.
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Oct 13, 2023 20:21
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KYOON GRIFFEY JR posted:Carrying bonds is not that much of a hedge against your state deciding to cut your pension benefits. In fact,I don't really think there's a particularly good way to hedge against pension risk (that isn't fairly exotic/probably requires a lot more leverage/scale than you've got) and so I'd be inclined not to try. Alright, does an 80/20 split sound like a not-stupid strategy on its own merits?
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Oct 13, 2023 21:07
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Sure! It's definitely within a range of reasonable. I carry a little bit less than that and try to keep mine around 10% but I am very risk tolerant and probably at least 25 years from retirement.
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Oct 13, 2023 21:09
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KYOON GRIFFEY JR posted:Sure! It's definitely within a range of reasonable. I carry a little bit less than that and try to keep mine around 10% but I am very risk tolerant and probably at least 25 years from retirement. Alright, I appreciate the sanity check. All of lazy portfolio Bogledom seems to stem from this part.
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Oct 13, 2023 21:15
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I would say that while the comment about risk to pension plans from correlation of stocks and bonds being low is probably correct, in my experience this is not the largest risk to pension plans. By far the larger risk is mismanagement. Most pensions are guaranteed by the government via the Pension Benefit Guaranty Corp (PBGC), but what exactly is guaranteed is usually far less than your plan benefit as described in your retirement documents. In the late 90s early 00s, my stepdad got involved in reviewing his union's pension plan and discovered it was being badly mismanaged. He organized meetings at the union hall, did talks to educate the members on what was wrong and why, and together they pressured the union management to dump their plan manager and hire a better one. We can't know for sure but it's likely that this action preserved the benefit for several thousand union members who would otherwise have lost at least part of their planned benefit. Many of those members had no other retirement savings. Some of the best pension plans, like CALPERs, are huge and very well managed, but the PBGC was set up because there was a long-term systemic problem of hundreds of pension plans going bust and leaving their beneficiaries destitute in retirement. While pensions have given way to 401ks as the standard employer-sponsored retirement option, there's still a lot of them out there and the knowledge gap between beneficiaries and plan custodians is huge and still leads to all kinds of bad poo poo. tl;dr, if you're a beneficiary of a smaller pension, especially one managed by a corporation, it's a good idea to get educated and get organized with your fellow beneficiaries and insist that the plan be managed well. For example, it's not sufficient for a plan to have assets "projected" to meet liabilities if those projections assume that the market never goes down, health care costs never rise, 20% of employees die before retirement age, etc. Nor is it acceptable for a pension custodian to accumulate large amounts of high-fee investments. Leperflesh fucked around with this message at 21:24 on Oct 13, 2023 |
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Oct 13, 2023 21:21
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Leperflesh posted:I would say that while the comment about risk to pension plans from correlation of stocks and bonds being low is probably correct, in my experience this is not the largest risk to pension plans. By far the larger risk is mismanagement. Inside this pension there are two wolves: one that has defined itself as a gold-standard for pension management for decades and is used as the yard stick by which other state pension plans are measured, and the other that is a rabid state legislature that would enjoy burning the state pension system to the ground just to hear the lamentation of its members. The uncertainty in this situation over the next 20+ years is a small part of the reason why I was comfortable migrating out of public service and into a private sector job with more personal control over my retirement investments.
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Oct 13, 2023 21:26
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May I ask which state? PBGC protects private-sector pensions, not state pensions. Usually states themselves guarantee their own pensions, but as you said, that's subject to the whims of legislatures.
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Oct 13, 2023 21:29
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I don't know that the particular state makes much difference, as you said the long-term viability of even a well managed state pension plan is up to the legislature. I can imagine significant weakening of the existing plan at some point in the future, I doubt it holds on forever.
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Oct 13, 2023 21:58
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Well, because some states like CA have a "gold standard" pension that is not really at any serious risk by the legislature. So I was wondering which red state had a "gold standard" pension plan. But no worries, as you said it's not that important.
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Oct 13, 2023 22:01
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Risk toleranceCubicalSucrose posted:The more you pay attention to financial media, the higher a bond % you might want. How someone will react to roller coaster ride is a thing. Isn't it also: If I take more risk I might get to eat caviar during retirement, but I also might have to eat cat food. If I take less risk I will definitely be eating beans. Or something like that? Also allocations depend on timing and use. (Thanks for sharing more about how your planning is structured by the way) Retirement and house buying are the main ones, but there's other uses too. If a fund is for personal frivolity (vacation home, buy a boat and sail around the world) or philanthropy, it's probably easier to stomach more risk.
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Oct 13, 2023 22:07
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More on Roth Talk: If I'm planning on 80% of my portfolio to be split between a total market index fund and a total international index fund, is there any useful guidance on how to decide those allocations? The bogle-world has example portfolios that range from a 1:1 ratio to a 4:1 ratio favoring the total market index fund. In TYOOL 2023 is there a tremendous difference in how these funds are reflective of the world vs US economy, considering how global the US economy tends to be?
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Oct 16, 2023 19:58
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Most people will allocate somewhere between 10% and 50% of their total portfolio to international. It really depends on your personal outlook on US stocks vs non US stocks. There have been meaningfully long timeframes where international has out performed and the two aren't always highly correlated. However they seem to be getting more and more correlated as time goes on, especially in regards to major events like Covid19 and the bear market of 2022. I don't think there is one right answer here.
Antillie fucked around with this message at 20:32 on Oct 16, 2023 |
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Oct 16, 2023 20:24
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Vanguard target date funds typically weight 60/40 domestic/international, and if my numbers are right that's approximately the market cap weighting of VTI and VXUS. Most of the biggest companies are pretty global, but there is an industry split. US indexes are much more weighted towards newer massive tech companies (30% tech versus 12% for VXUS), which have grown a bunch in the past few decades.
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Oct 16, 2023 20:27
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Serious_Cyclone posted:More on Roth Talk: If I'm planning on 80% of my portfolio to be split between a total market index fund and a total international index fund, is there any useful guidance on how to decide those allocations? The bogle-world has example portfolios that range from a 1:1 ratio to a 4:1 ratio favoring the total market index fund. In TYOOL 2023 is there a tremendous difference in how these funds are reflective of the world vs US economy, considering how global the US economy tends to be? From a while back. CubicalSucrose posted:There are reasonable arguments for anywhere from 0% to about 50% international (as a portion of your equity allocation) for a US investor. Still seems about right to me.
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Oct 16, 2023 20:27
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That post is really good but misses an incredibly important factor, rebalancing. It makes the point that when US markets are down, international markets are down even more, but when us markets recovered, the international markets recovered faster e.g. returned to the norm. That's good if, while everything is down but your international allocation is down more, you sold domestic to buy international to rebalance. If you did that at or near the bottom, the international component then got you extra gains during the recovery. Like the whole point of diversification isn't just to smooth out volatility, and I keep seeing this just ignored over and over again in investment articles about asset allocation. You're supposed to rebalance!
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Oct 16, 2023 20:39
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John Bogle himself was of the opinion that international indexes were unnecessary as "US stocks" are generally massive multinational corporations so you're already getting plenty of foreign exposure from a US total market index. I have about 20% in non-US personally. Another potential mark against foreign indexes is that the US government has gotten more sanction happy against foreign rivals in recent years. That adds extra risk. One final weird quirk on international stocks: it's hard to know exactly where to put them (tax advantaged or not). Foreign stocks are more likely than domestic stocks to pay dividends which would normally favor putting them in tax advantaged accounts to minimize dividend tax drag. However many foreign stocks will charge foreign taxes on dividends, taxes which you can claim back on your own taxes via the foreign tax credit, but only if you held the stock in a taxable account.
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Oct 16, 2023 20:39
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CubicalSucrose posted:From a while back. That article seems pretty convincing, particularly the issue of US vs international equities being highly correlated during downturns but not during periods of growth. So maybe a 5:1 ratio favoring US equities is warranted.
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Oct 16, 2023 20:41
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Oh yeah also like international indexes are dominated by several companies that are themselves international, e.g, big brands sold in the US that you recognize, like toyota and nestle and shell and samsung, and some brands you maybe don't recognize but are very exposed to US sales, like taiwan semiconductor and the chip manufactring equipment company ASML Holding. This is a big part of why international indexes are so highly correlated with US indexes. Top ten holdings for VGTSX:  Over 9% of the index is just these ten companies. If 20% of your portfolio is VGTSX then 2% of your portfolio is Nestle.
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Oct 16, 2023 20:47
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Subvisual Haze posted:One final weird quirk on international stocks: it's hard to know exactly where to put them (tax advantaged or not). Foreign stocks are more likely than domestic stocks to pay dividends which would normally favor putting them in tax advantaged accounts to minimize dividend tax drag. However many foreign stocks will charge foreign taxes on dividends, taxes which you can claim back on your own taxes via the foreign tax credit, but only if you held the stock in a taxable account. Yeah, I have my international allocation in taxable for this reason, but it has definitely been the case (at least in recent years) that the amount of dividends compared to a total market index has outweighed the foreign tax credit benefit.
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Oct 16, 2023 20:58
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I'll add that there is an over 3000 post thread arguing about optimal international bond allocation percentages on Bogleheads.org, with the OP summarizing the arguments for each percentage. I personally do 20%, but its not a particularly educated decision on my part.
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Oct 16, 2023 21:02
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I appreciate the recap on this conversation, I assumed this has all been discussed before. I am looking at my equities being split in a 80/20 between US and international, with a 80/20 split between equities and bonds overall. The final numbers are Total Market Index Fund (FSKAX) 64%, Total International Index Fund (FTIHX) 16%, and US Bond Index Fund (FXNAX) 20%.
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Oct 16, 2023 21:26
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| # ? May 17, 2024 00:52 |
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e: nm
Chad Sexington fucked around with this message at 14:10 on Oct 17, 2023 |
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Oct 16, 2023 21:49
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