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kat92128

Allocation Review And Debt Crisis

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You guys said recently that you were "lonely" on this board, so here's something for you to chew on. It will definitely help me and possibly others. Some of this was covered in the other debt crisis topic, but this is more specific:

 

With your guidance, all of my 403b money is now out of the hands of high-fee insurance companies and invested through TIAA-Cref/Pension 2 and privately through Vanguard. I would like your review of my asset allocations. For reference, I am 58, single, and I expect to be in education another 7 years. My investments are my major assets; I do not own a house. My only child is married and gone. Having entered education late, I expect to retire with a maximum of 20 years in STRS, and I will have a very small Social Security check in addition.

 

Here's what I have:

 

Directly with Vanguard:

403b - Vanguard Target Retirement 2015 59% stocks - 41% bonds (26% of total investments)

Small Traditional IRA - Vanguard STAR fund

Small Roth IRA - Vanguard Life Strategy Growth fund

 

Through Pension2/TIAA-Cref

403b - Moderate 2020 - (50% equity - 50% fixed) (61% of total investment)(This was my big recent rollover from an insurance company)(61% of all my investments)

 

I'm currently making monthly contributions to Agressive 2020 (70% equity - 30% fixed). I only have 2 months of contributions there right now.

 

Comments? suggestions? Should I make some changes now or wait until the "crisis" has passed. Thanks in advance. Kat

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You guys said recently that you were "lonely" on this board, so here's something for you to chew on. It will definitely help me and possibly others. Some of this was covered in the other debt crisis topic, but this is more specific:

 

With your guidance, all of my 403b money is now out of the hands of high-fee insurance companies and invested through TIAA-Cref/Pension 2 and privately through Vanguard. I would like your review of my asset allocations. For reference, I am 58, single, and I expect to be in education another 7 years. My investments are my major assets; I do not own a house. My only child is married and gone. Having entered education late, I expect to retire with a maximum of 20 years in STRS, and I will have a very small Social Security check in addition.

 

Here's what I have:

 

Directly with Vanguard:

403b - Vanguard Target Retirement 2015 59% stocks - 41% bonds (26% of total investments)

Small Traditional IRA - Vanguard STAR fund

Small Roth IRA - Vanguard Life Strategy Growth fund

 

Through Pension2/TIAA-Cref

403b - Moderate 2020 - (50% equity - 50% fixed) (61% of total investment)(This was my big recent rollover from an insurance company)(61% of all my investments)

 

I'm currently making monthly contributions to Agressive 2020 (70% equity - 30% fixed). I only have 2 months of contributions there right now.

 

Comments? suggestions? Should I make some changes now or wait until the "crisis" has passed. Thanks in advance. Kat

 

 

Hi Kat,

 

Hard to determine what percentage of your portfolio is equities (stocks) and what percentage is bonds. Please clarify. According to Bogle you should have appx 58% or more in bonds at your age.

On your stock side, do you have an international asset class? If so how much of your stock side is international?

On your bond side, do you have TIPS (inflation protection bonds)and other types of bonds, GNMAs, Treasuries?

 

Your last question about "make changes now or wait until the crisis has passed?" For me, that might mean that you are taking too much risk. Now is the worst time to make changes in anticipation of a "crisis" or make changes because of a rip roaring bull market. Would you dump your bonds and get into stocks in anticipation of stocks going up? Of course not. Thats called timing the market and that never works. Nobody knows the future.

 

You must have a plan in place that you can live with through thick and thin, controling costs (looks like you have a good low cost plan), diversified, and to rebalance when needed. Can you live with this plan the way it is?

 

If not, why?

 

Back to your first question, what is your overall stock to bond split? This may help answer your questions and your concern about risks.

 

Steve

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Directly with Vanguard:

403b - Vanguard Target Retirement 2015 59% stocks - 41% bonds (26% of total investments)

Small Traditional IRA - Vanguard STAR fund

Small Roth IRA - Vanguard Life Strategy Growth fund

 

Through Pension2/TIAA-Cref

403b - Moderate 2020 - (50% equity - 50% fixed) (61% of total investment)(This was my big recent rollover from an insurance company)(61% of all my investments)

 

 

Kat,

 

First-The politicians are playing a chess match. I really don't think anything will happen about the debt crisis in the near future but it must be addressed. The markets are at the mercy of investor emotions. Even if there is a drop it won't be a permanent drop. Remember the last two bubble bursts? People who sold based on emotion never got their money back because they moved stock money to bonds or money markets at the worst possible time. Don't do anything.

 

Your portfolio looks pretty good. Your Target fund is mostly index funds. Star fund is made up of Vanguard managed funds. I like the Star fund so I would keep it. But I would transfer your Vanguard Life strategy Growth fund to Vanguard Inflation Protected Securities and build this new fund up with more contributions. Its a good diversifier and is a compliment to your regular bond funds. Your V target fund has some inflation securities in it but its on the low side.

 

Your TIAA CREF Fund is a good addition too. . Here is some info on it:http://money.usnews.com/funds/tiaa-cref-lifecycle-2020-retirement-fund/tcltx. I will let Steve and others comment on your TIAA Cref fund since its not my area of knowledge.

 

 

Just keep in mind to have your age in bond funds. Inflation Protected Securities is considered a bond category. I own it and it is a decent , fairly safe investment.

 

I think you have done a great job of keeping things simple. I wish I had. I owned 27 funds at one time. I am down to about 14 or so. I only invest with Vanguard now. Every financial advisor I knew through the years when I was stupid kept adding funds to my portfolio with no regard to assett allocation. I have some funds in taxable accounts which I can't sell now because of tax consequences.

 

Stay away from aggressive investment. They fly high but fall hard. A balanced low risk portfolio will yield better results.

 

Best Wishes

 

Tony

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Guys, I really appreciate all of the feedback, but I think I need a basics manual at this point. I'm going to pull the asset allocation of my two major funds off the web and try to figure out exactly what they are comprised of.

 

Steve, I have no idea what TIPS or GNMAs are. I gather from Tony that TIPS are inflation protected securities, which are in the bond category. I think that treasuries are treasury bonds. I thought that bonds would simply be identified as "bonds", but I guess they can be called a variety of things.

 

That is precisely why I chose target funds with both Vanguard and TIAA-Cref - for the simplicity. I chose the STAR fund for my personal IRA because Tony raved about it previously and it was balanced.

 

I like Tony's idea about getting out of the Vanguard Life Strategy Growth fund. I never liked that fund for some reason.

 

More later :)

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Kat, it sure looks to me (a teacher with a very similar profile to yours, not any kind of financial pro) as though you have a very reasonable and well diversified group of long-term investments. The key is to think of them as long term, and to not worry about political brinksmanship or media chatter about impending doom (or touting the chance of a lifetime, for that matter). I'd advise that you don't change anything now, while you're feeling anxious about impending catastrophe. As Steve says, the worst time to sell is when you are fearful. We'll either have a big fall in the markets in the next couple of weeks or we won't, but the odds are overwhelming that whatever happens this month or this year will have little effect on your investments ten, twenty, or thirty years from now, when you'll presumably be making withdrawals.

 

What you may want to do, longer term, is to consider whether the possibility of your investments' value dropping significantly--20% or more--during market gyrations is too emotionally wrenching for you to bear. No matter the logic, if you can't sleep at night (or worse, if you sell things in a panic), it means you've taken on too much risk.

 

You have one very low-risk option in your Pension2 account that you might consider adding to if you want to dial down the volatility of your portfolio. It's called the "TIAA traditional" and the return is listed as "guaranteed." It seems to be an annuity product--guaranteed by TIAA, who have historically been a very solid company--but the way the Pension2 plan is set up, you can invest in it pretty much the same as if it were a money market account, and transfer money out freely, so it does not have the drawbacks of annuities like the one you were in before (no salespeople or commissions are involved, either). I believe that account currently pays 3.25% interest (the amount changes in relation to interest rates generally). That would provide a stable, predictable rate of return for whatever percentage of your assets you want to exempt from the volatility (but higher expected returns) of stocks and bonds. (I just looked, and almost a third of your "Moderate 2020" allocation is in "TIAA traditional" already, but you could add even more if you want to become more conservative.)

 

But again, I'd wait until the skies seem clearer before changing anything.

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Whyme: Part of my Pension2 target retirement account is the TIAA Traditional, and yes, it is currently paying something like 3.2% guaranteed. I like that portion of the portfolio.

 

One thing I just did was have TIAA Cref rebalance my total 403b portfolio to the moderate side, with no future contributions going to the the Aggressive 2020. Now by stock/bond balance is approximately 50/50, and I am comfortable with that.

 

Something of note: Even though the CALSTRS Pension2 book gives the target retirement choices (moderate 2020, retired 2020, aggressive 2040 etc. etc.) when you call them for help they don't "see" it that way on the screen. But the guy I worked with (Pension2 has its own TIAA people) was quite knowledgable. It should be totally rebalanced by Friday. While I was there, I went over the assets in the account to make sure I understand each of them, so I got an education as well.

 

What's interesting and confusing is that in the Pension2 book, which gives us our choices, Pimco All Assett Fund Institutional is listed on the Equity side. The TIAA guy said it was actually a bond.

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kat,

 

don't worry about gnma's. they are already a component in your total bond fund in your target fund 2015. You only have 2% tips however which in my opinion could be greatly increased.

 

As Whyme stated you have a good mix don't change much and I want to make sure we don't start giving you so much advice that you feel compelled to do something just to do it.

 

 

You let us know what you decide to do. At your age you need to tilt toward conservative investments.

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Tony,

My TIAA Cref 403b (which holds about 65% of all my investments) has 17.5% Vanguard Inflation Protected Securities and 32.5% TIAA Traditional (guaranteed 3.2%). The rest is equities. Is that enough TIPS? I can still move the small Roth (really, it's miniscule) into TIPS.

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Kat, I'm glad to hear your change was a moderate as that. Now, if you're more disciplined than I am, you'd do well to follow John Bogle's advice: don't peek!

 

That PIMCO fund has some equities and maybe even some commodities in the mix, though it is mostly bonds. But the fact that it's a mixture (hence "all asset") is probably what landed it in the equities column.

 

PS: If you've got the PIMCO fund, I think it is heavy on TIPS, as well.

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kat

 

. The vanguard tips fund has outperform all your other funds by a good margin I am not telling you that to chase performance, just to let you know its a good choice to add considering itsconsidered low risk investment. My feeling is you should have an equal balance of regular bond funds and tips. 50/50

.

 

https://personal.vanguard.com/us/FundsSnaps######?FundId=0119&FundIntExt=INT

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Wow! This has definitely been an educational day for me! Thanks for all of your insights and info. I have more research to do. My primary goal was to get everything in the low-cost range. Now that that is done, tweaking is the priority. Tony, I love your comments about TIPS...so thanks for the tip. I would never think a bond fund would outperform equities. (It is a bond...right...still too much information for one day.)

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Tony, would you think this would be a suitable investment for my dad (he's 80 and retired.) He's an old "ladder CD" guy, but as they come due he is trying to find a better return on his money. I finally got him to put an expendable $10,000 in a moderate Vanguard fund, and he's been pleased so far with his introduction to the mutual fund. Would you think the TIPS is more secure for retired folk? Those CDs keep coming due...

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Kat, while I stand by my claim that you don't really need to change anything, if you are going to change I would urge you to head in the direction of simplicity: put the trad ira and the Roth into the same Target Date fund as your other vanguard, keep going with the Pension2 fund, and you're done: they will self-adjust, the asset allocation was done by professionals, and the simplicity makes it easy to keep track of.

 

If you want to take on the question of what percentage of bonds to include in your portfolio, I recommend your work through this article on Paul Merriman's website: http://www.merriman.com/bestofmerriman/finetuning/

 

But really, you're in good shape now! You quickly reach the point of diminishing returns when tweaking portfolios, since nobody knows the future.

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