In February 2009, I consulted a financial planner, and he developed an allocation plan for my 401(k) as follows:

8% Vanguard Value Index
17% Vanguard REIT Index
14% Vanguard Small Cap Value Index
16% Vanguard Short-Term Treasury
25% Vanguard Total International Stock Market Index
20% Vanguard Total Stock Market Index

I then adjusted it some time later to allocation only 10% to the Short-Term Treasury.

The allocation has performed nicely, but I think I'd like to eliminate the Short-Term Treasury altogether. The money in this account will not be used for another 35 years, so there doesn't seem to be any point in having any of it in the S/T Treasury and seeing no growth.

Does this seem like a good idea or is there any consideration I am not taking into account as to why I should not make this adjustment?

I agree with you.

It is desirable to have some short-term money but you don't need to use the limited amount you can put into your 401k for that. If you want short-term treasuries--and at current yields who would?--you can buy them from Treasury Direct at no cost.

I'd increase the equity portion to redistribute the funds.My current bias would be toward the International portion if you are comfortable with that.

Best wishes, Chris

I'd disagree with eliminating bonds, but would agree to keep it at 10%. I'd also put it into the total bond fund of Vanguard. In a rising interest rate environment for which many of us are guessing, that fund, over time, will increase (there is a good illustration of this on the Vanguard site). You can buy individual bonds but that's a bit more complicated and at your age I don't think that's necessary.

The Callan chart shows that your feeling about bonds has been accurate lately. But it also shows that there are times when it's been great to have that bond "tail" to your portfolio (2008). Even at your age I think you should keep some allocation.
http://www.callan.com/research/download/?file=periodic/free/...

I'd also congratulate your adviser. Agree or not, (s)he put you in low cost funds at a reasonable allocation. It would NOT appear that this person is trying to rip you off.

Hockeypop

The allocation has performed nicely, but I think I'd like to eliminate the Short-Term Treasury altogether. The money in this account will not be used for another 35 years, so there doesn't seem to be any point in having any of it in the S/T Treasury and seeing no growth.

During our prime growth/working years, I kept everything in equities, other than some emergency funds in MM. I wanted to max our gain and growth over those years, and I think it worked well for us. Now, my problem is figuring out how to get comfortable with our new allocation now that we're retired, which is mostly fixed assets.

Few thoughts:

One, you could pare down your holdings to 3 or 4 funds. I'd combine the Value Index, Small Cap Value, and Total Stock Market together. If you looked at the holdings, I'd bet that there was a fair amount of overlap to make the differences insignificant. Could potentially save on fees/charges.

Two, what is the purpose of holding bonds/treasury? If its to decrease the volatility of your portfolio, I'd keep some. I doubt its for fixed income purposes since you don't need the money for a long time.

Finally, new allocation:

30% Total Market
30% Total International
30% REIT
10% Treasury or Total Bond

JLC

>> The allocation has performed nicely, but I think I'd like to eliminate the Short-Term Treasury altogether. The money in this account will not be used for another 35 years, so there doesn't seem to be any point in having any of it in the S/T Treasury and seeing no growth.

Does this seem like a good idea or is there any consideration I am not taking into account as to why I should not make this adjustment? <<

If you are comfortable living through another 2008-09 scenario without short term bonds or cash, then I think it's an acceptable idea given your time horizon. But you need to be honest with yourself and know you can sleep at night if the market drops 40-50% again as it did then -- and not panic and sell it all near the lows. I know people who bailed out in early 2009, taking almost all the decline but missing the snapback rally. Ouch. Don't be that guy!

#29

The other members have given some good advice on whether or not to keep the bond fund. Personally I'm 100% equities like you are suggesting because my time horizon is out around 28-33 years. One important risk you should note is that there are extended periods of time where stocks fail to generate returns and having a bond component in the portfolio can keep you moving forward even in a long term bear market. A good example of this is the 2000-2009 decade where the S&P was essentailly flat. A bond portion would have ensured some small forward progress in this time. This also happened in the 30's, 70's and I believe at least one time period somewhere in the 55-64 range... it's been a while since I've read that data so my dates may be a little off but these periods do occur on a quasi-regular basis. Over a 20+ horizon stocks have always won out but it's good to keep in mind that being diversified over differnt asset classes can give you both more stable returns and a degree of flexability in differnt market conditions. Pick an asset allocation that fits your style and go with it. If that's pretty much all stocks there's nothing wrong with that.

One thing to consider though... You might actually have more REIT's in your portfolio than you realize. Vanguard Value index and ESPECIALLY Vanguard Small Cap Value index are REIT stock heavy. You easily have more than 20% of your portfolio in REIT's even if the fund name doesn't mention it. Here's a link to some data that breaks down the REIT component of various Vanguard funds. The link is a little dated but the great thing about index funds (especially Vanguard) is that they do not drastically change their fund allocations significantly or quickly so the data should be close enough for a rule of thumb guage. Perhaps somebody has a more current breakdown.

http://www.bogleheads.org/wiki/Percentages_of_REITs_Present_...

REIT's are a good if volitile investment so if you want a large exposure to them that's great... I just want to make sure that the allocation you shoose is actually the allocation you get.

I would keep the bonds but still underweight long term bonds.


The reason for this is that when you rebalance regularly between several asset classes you end up automatically "selling high and buying low" so in theory having a percentage of you assets allocation in bonds like it is now will have the same return as a 100% stock portfolio but with less volatility (often called risk).

If you google "efficient frontier" or "modern portfolio theory" you will find lots about this, some of it very technical.

You might check out these books at your local library if you want to learn more;

http://www.amazon.com/All-About-Asset-Allocation-Second/dp/0...

http://www.amazon.com/Intelligent-Asset-Allocator-Portfolio-...

Greg

During our prime growth/working years, I kept everything in equities, other than some emergency funds in MM. I wanted to max our gain and growth over those years, and I think it worked well for us. Now, my problem is figuring out how to get comfortable with our new allocation now that we're retired, which is mostly fixed assets.

We're retired, and about 70% stocks vs. 30% bonds & cash (and another 20% in investment property - I know, it's more than 100%. Sue me.)

I wouldn't be comfortable mostly in "fixed assets" since they devalue over time.

Perhaps you should consider "RIPS":
http://boards.fool.com/great-article-rips-29155404.aspx?sort...

Okay, so I've read all the responses. (Very appreciated!)
Just looking for an opinion on this new allocation I've made by eliminating the bond fund. Does it look reasonable?

10% Vanguard Value Index
26% Vanguard REIT Index
16% Vanguard Small Cap Value Index
26% Vanguard Total International Stock Market Index
22% Vanguard Total Stock Market Index

I've owned Vanguard REIT Index for many years but I would not make it such a large part of the portfolio. Too much concentration in a narrow, often volatile, area. At most I would put 10% in REITs.