WALLACE G from MO posted over 4 years ago:

As a retired long-term holder of Star Fund, this is very Timely. I am considering reallocation of Star into multiple stand-alone funds. While I might keep some ( or a) bonds, (my choice to make is short-term vs intermediate-term) eliminating long-term bonds (12,5%), and Jenny Mae's (12.5%). This 25% reallocation would be split between dividend growth, and utilities. I have other holdings which would produce an overall allocation of 50% equity- bonds. Any yeas or nays appreciated.

James C from WI posted over 4 years ago:

What Vanguard funds are in the 7 Vanguard Fund Portfolio custom portfolios with two different portfolio models: a 40% equity/60% fixed-income portfolio and a 65% equity/35% fixed-income portfolio?

Lance Y from NV posted over 4 years ago:

@Wallace G. I think it depends on your time horizon, your current portfolio size relative to your withdrawals and whether you plan to leave significant assets at your end of plan. Assuming your time horizon is <20 years and your annual withdrawals are <5% of your portfolio, your plan to eliminate long-term bonds and JM's (replacing with dividing growth and utilities) is likely to result in leaving more assets at end of plan while not significantly increasing the risk you will outlive your assets. A "U" shape allocation ratio of stocks vs. bonds (with retirement at the bottom of the U) drives better total returns for retirees in most time periods while helping to manage sequence of return risk just prior to and just after retirement. You might want to consider if your 50-50 split is right for your phase of retirement.

John L from IL posted over 4 years ago:

You did your readers a disservice by not showing what the seven funds in the custom Vanguard portfolios were. Hope you add an addendum to this article for online readers.

Craig I from UT posted over 4 years ago:

The key point of this article is that allocating a retirement portfolio across multiple funds is a wiser approach that focusing on a single fund--even though it may be an excellent fund (such as Vanguard STAR). A wide variety of funds will give us more options as money is withdrawn from the overall portfolio each year. The seven Vanguard funds I used in this analysis is less important than the fact that multiple funds were used. There are many good "multi-fund" combinations. That said, the seven funds I used in this analysis were VMFXX, VWINX, VGSTX, VHT, VGT, VB, and VINEX. The important consideration when assembling a portfolio with a variety of funds is that they are sufficiently different from each other in order to create genuine diversification, rather than a collection of funds that each generally seeks to track the S&P 500 or some other index. That will simply create the illusion of diversification.

STEVEN H from CA posted over 4 years ago:

Mr Israelsen identifies the important and useful advantage of the investor being able to choose which individual fund(s) are used for each distribution when the investor has created their own portfolio of individual funds. There are other advantages that were not mentioned in the article. Two of them, I believe, are worth mentioning and, I also believe, can be quickly explained and easily understood. The first additional advantage is that, by using individual funds instead of a single Fund of Funds (like a target date fund or other asset allocation fund of funds), the investor avoids the additional management expense that a Fund of Funds always charges. This Fund of Funds' management expense is in addition to the management expenses charged by each of the individual funds held within the Fund of Funds and it further reduces the money growth achieved by the investor. The second additional advantage (and often even more beneficial) is that the investor can choose the individual funds in which they invest. Almost invariably, in my experience, the brokerage (or other) that creates/markets a Fund of Funds will always use their own company's individual funds inside the Fund of Funds, even when (as is common) there can be other better, but similar, funds available - better in many of the individual fund's characteristics that AAII and others encourage investors consider when making fund comparisons and choices. The managers of a Fund of Funds do take care of the monitoring and rebalancing among the individual funds over time for the investor. However, I believe many investors would find doing this themselves easy enough to learn and accomplish. When an investor can do this monitoring and occasional rebalancing, the additional advantages achieved for an investor that creates their own portfolio of individual funds are very much worth the time and effort. I wish the article had mentioned these two additional advantages. Steven

DENNIS W from MN posted over 4 years ago:

Good article, @ 71 still holding ~ 75% equity when Roth is included, ~ 65% W/O Roth, 4 Vgd Funds, VTIAX, VTSAX, VBTLX, VTABX, set the mix with upper and lower rails. So far so good. VTSAX 39-45.5%, VTIAX 26-19.5%, VBTLX 24.4-27.8%, VTABX 7.0-10.4%. Don't do anything unless the numbers break the rails. Ironically, this last qtr, everything performed about the same down!

JIM L from MI posted over 4 years ago:

Agree entirely with main points: most retirees need some equities, and advantage of having individual funds instead of one. Could you say why you chose the 2005 start date? Also, when did you design your two 7 Vanguard Fund portfolios? in 2004 in a public posting? or after the fact for this article?

Craig I from UT posted over 4 years ago:

Two of the funds in the model had their first full-year of performance in 2005 (VGT, VHT) hence the 2005 start date. This particular model (7 Vanguard Funds for Life) was designed in Dec 2021. Some of the funds in this model I have utilized in other 7Twelve models since as early as 2018. The first 7Twelve models were introduced publicly in 2008.

ROBERT A from NC posted over 4 years ago:

The striking thing to me is that the ending balance of each portfolio seemed to be proportional to the percentage of equities in the portfolio. I used the author's scenario in a spreadsheet analysis of what would have happened to an investor who put his $1 million into the S&P500 (or a tracking index fund) and withdrew 5% with annual COL increases of 3%. Using the growth rate plus dividends, the portfolio at the end of 2021 would have been worth almost $2 million. As the author says, "there is no precise rule or guideline about the “correct” equity allocation in a retirement portfolio," but from where I'm sitting (and always have sat), 100% in equities is the place to be. Of course, I use a much more flexible rule for harvesting assets from my portfolio and would never exceed 4% of the previous year's ending value. I cannot imagine "drawing down" my assets through retirement. To me, that would be a nightmare. All my life I have scrimped, saved, and invested for growth. I see no reason to do anything different in retirement.

ROBERT A from NC posted over 4 years ago:

One other thing I'd like to point out about the difference between a 100% equity portfolio and those containing bonds. Bond interest gets taxed as ordinary income from the first dollar over your deductions. In 2022, a single person can harvest $54,625 in qualified dividends and long-term capital gains (assuming they use the standard deduction) without paying a penny in federal income tax. A married couple can harvest twice as much tax free. Above that tax-free level, qualified dividends are taxed at the favorable long-term capital gains rates. That is an important consideration in allocating one's assets.

JAMES J from TN posted over 4 years ago:

The problem now is that interest rates are rising and will most probably rise in the next few years, and am already losing money with my Vanguard bonds. I think some other options should be considered.

CHRISTOPHER V from VA posted over 4 years ago:

Although I agree that individual funds rather than funds of funds permit more flexibility in choosing withdrawals and rebalancing, I am unconvinced of the 7 fund portfolio. Dr. Israelsen had the opportunity to choose which funds in would have performed better. Clearly, he would not have chosen underperforming funds or weightings. This information is rife with hindsight bias.

LARRY R from WA posted over 4 years ago:

James J: you are exactly right. The most insightful sentence in this article is "Moving to a largely bond-based portfolio during retirement would be unwise in light of the likely upward movement of interest rates over the next period of time." As a few other responses have pointed out, in whole or in part, it is necessary to have control over one's asset selection, especially bonds, so you can be responsive to market conditions rather than be trapped by some model or algorithm, when it is so apparent that interest rate risk to principle will swamp any other considerations, such as nominal interest income. For some time now it has been unwise to have cash in a money market mutual fund, as online bank MMAs or savings accounts had been paying 50bp and are now up to 90. Unless your money is trapped in a 401K or ROTH, in which case a ladder of shorter term treasuries would would be a profitable alternative.

GARY K from TX posted over 4 years ago:

As much as I have admired the author's work, I am extremely disappointed that he did not include simpler Vanguard fund options as comps, which would illustrate that "a rising tide lifts all boats", and would be far simpler to manage during retirement. So, I'll provide these with their 17-year annualized returns: VBAIX -- 50/50 Balanced Index fund -- 8.43% VWELX -- 65/35 Wellington fund sub-advised by Wellington -- 9.04% VWIAX -- 35/65 Wellesley Income fund sub-advised by Wellington -- 7.21% VTMFX -- 50/50 Tax-Managed Balanced fund -- 7.59%** ** -- Although the return from VTMFX is lower than other 50/50 options, it was significantly more tax-efficient in a taxable account because the fixed income is invested in Munis, and it does not generally distribute capital gains. Although in theory I can appreciate the idea of having multiple buckets to choose from, if a significant portion of the assets are in a taxable account, then the rebalancing trades are probably going to be less tax-efficient than portfolios where the rebalancing is done within the fund. Additionally, in the 7-fund model, there is significant potential for capital gains distributions which will not be an issue in VTMFX. My source for the 17-years of fund return data is www.buyupside.com, using these four URLs: https://www.buyupside.com/alphavantagelive/stockreturncalccomputeavmonthav.php?symbol=vbiax&start_month=01&start_year=2005&end_month=12&end_year=2021&submit=Calculate+Returns https://www.buyupside.com/alphavantagelive/stockreturncalccomputeavmonthav.php?symbol=vwelx&start_month=01&start_year=2005&end_month=12&end_year=2021&submit=Calculate+Returns https://www.buyupside.com/alphavantagelive/stockreturncalccomputeavmonthav.php?symbol=vwiax&start_month=01&start_year=2005&end_month=12&end_year=2021&submit=Calculate+Returns https://www.buyupside.com/alphavantagelive/stockreturncalccomputeavmonthav.php?symbol=vtmfx&start_month=01&start_year=2005&end_month=12&end_year=2021&submit=Calculate+Returns

LOUIS I from OH posted over 4 years ago:

Without knowing which seven funds Mr. Israelsen is referencing prevents me from comparing his allocations to the Star Fund. I would prefer ETFs in taxable accounts. However, I do agree that a fair share of equity holdings is needed in retirement and separate funds simplifies the rebalancing process.

Gordon A from FL posted over 4 years ago:

A well written and timely article by Mr. Israelsen, with one major exception...the punchline. Please consider amending this article to identify funds which are contained in the 7 Vanguard Fund Portfolio. Minus that information, the article falls short of the mark.

JIM T from CA posted over 4 years ago:

Some of these mixes seem like a lot of work. For example, the 7-fund 65/35 split when I ran a similar split compared to a two-fund ( VOO and BND) and pulling out 5% for the entire duration, it still outperformed the 7-fund by $35,042 and at a constant 3% by over $450,000. I used portfolio visualizer for the comparison and with the free version did not see how to readjust the % change once it was in motion. But it does appear the advice of Buffett and Bogle still hold true. Would love to see what I missed and where I am wrong however.

CRAIG B from WI posted over 4 years ago:

Understanding John Bogle and Warren Buffett in tandem will help simplify things if the main tenant of this article is understood and followed: equity exposure will determine overall portfolio yields. We can make that complicated (individual equities and bonds), easier (an array of low-cost funds/ETF's or easier: do what Buffett said he'd advise his wife to do should he have suddenly passed away, namely, invest 90% in a S&P 500 Index and 10% in Intermediate U.S. Treasuries fund and be done with it. Jim T's experiences noted just above hold true and honestly, I just read it. Makes me feel even more confident about "simpler is better", or at least "just as good". Of course a man worth $50 billion can be a little more cavalier than the average investor, especially the retired investor without the source of much new income to dollar-cost-average into the markets. I take what the market gives and resist the temptation to hunt for the outliers to the upside (AKA: Trading) and so far I am happy and happier still not paying an advisor using canned portfolios and charging me 1% (or more) of assets managed. Like Ockham's Razor on problem-solving, usually the simplest options explains and performs the best. Q1/2022 amply demonstrates that but I think many of us like the challenge of investing and while not a true hobby, like it enough to put in the hours of reading & research & head rubbing to assemble a portfolio reasonably expected to stay with the market and more importantly, beat inflation but a couple hundred basis points. Trade or invest? Simple or complicated? Thankfully, we still have those choices and I pray it remains so for my son and grandchildren.

Robert G from MI posted over 4 years ago:

Very frustrating- I read the article several times and still don't see the 7Twelve portfolio of funds. Very disappointed in an incomplete article. This article could have been shortened to a summary and bullet points. I feel like this is a sales pitch to get me to subscribe(pay) to Dr. Israelsen service.

CHARLES S from VA posted over 4 years ago:

What is the percentage of each of the seven funds you used in the Vanguard Fund Portfolio with a 65% equity/35% fixed-income mix (VMFXX, VWINX, VGSTX, VHT, VGT, VB, and VINEX)? How often and at what threshold did rebalancing occur?

GIANNI C from IL posted over 4 years ago:

thank you for this article. It has been very informative.