Changing Our Retirement Asset Allocation

I am making a number of significant moves this week in our 401(k) asset allocation. It started yesterday with selling all of our mutual fund holdings after a temporary market rally, except for the Vanguard Inflation Protected Securities Fund (VIPSX).  I will briefly explain the reasons for what I am doing.

First, I am very concerned about another significant and extended market decline. We cannot tolerate that. In fact, I expected the market to drop today and it happened. Therefore, I want to move most of our mutual fund holdings into ETF’s so that I can use stop loss orders. (You cannot place a trading day “stop loss” order on a mutual fund.)  That part is done.

Second, I have decided to transition from the “10 Speed” variety of couch potato portfolio to the “Four Square” couch potato allocation. This will reduce our 401(k) holdings from ten to four, making it easier for me to manage risk inside our self-managed brokerage account. It will also substantially reduce the percentage of equity holdings in the portfolio and therefore our market risk going forward.

Finally, our 401(k) account holdings were due for a re-balancing anyway so it made sense to accomplish all of this at the same time.

After the dust settles, I expect that our asset allocation in our 401(k) account will look like this: 25% in VIPSX, 25% in Vanguard’s Total (U.S.) Stock Market ETF (VTI), 25% in Vanguard’s All-World (except U.S.) Stock Market ETF (VEU), and 25% in BWX (an international treasury bond index ETF). We already own the VIPSX and BWX.

I also have some cash accumulated in our 401(k) account that I am using to buy TIPS for the guaranteed income portion of our retirement plan.

At first I was hesitant to eliminate certain assets, such as our REIT index fund. But we own plenty of residential real estate now (with more to come) so lowering our ETF exposure in that category doesn’t bother me.

Are you making any changes to your retirement investments?


Comments

  1. Jan says

    Although I agree with getting out of mutual funds (something I did just before the great recession started). I finally figured out when they were falling, I had no recourse!!!!
    I am not as pessimistic about a double dip. I think we are in for a roller coaster ride of a market. I am not interested in REITS because I believe that real estate has not seen a bottom yet- commercial or residential. As property taxes go up (as mine did again TODAY) people will be less likely to choose to buy.
    Currently, we are quarter in the market- all with stock picks all over the sectors. We bought at the bottom (7000-gosh I love my FORD). Another quarter is in conservative bonds or cash. I am thinking I- Bonds are the way to go for future. I don’t anticipate needing the stock money for many years and will continue to rid myself of losers and try again. I am totally into DRIPS.
    Our last half is in our house. That was not a good investment- since we bought at the top and I doubt it will ever be there again. We love it here and if the world goes to chaos tomorrow- we have plenty of land and animals to keep our family for many years. Call is our LDS background:>)
    If we should sell, I anticipate we will gain enough to help the portfolio to our deaths.
    My husband brings in a modest pension- so while he is with me on the earth- life is good.

  2. Another Reader says

    Maybe you have already done this, but would you share the allocations in your IRA’s and in your taxable accounts? It would be helpful to understand which assets you keep in tax deferred accounts, which in tax-free (Roth) accounts, and which are in the taxable accounts plus your reasoning behind the allocation.

    In addition, the safer government-backed investments seem difficult to purchase in IRA accounts. I buy I-bonds and TIP’s in a taxable account through Treasury Direct and have no difficulty laddering CD’s in taxable accounts. Finding competitive yields on CD’s in IRA accounts is more difficult, and I can’t figure out how to buy individual I-bonds and TIP’s.

  3. Jim Peluso says

    I realize that protecting assets especially in retirement is important. There are always clouds on the horizon. Restructuring your portfolio because you have too much exposure to commercial real estate makes sense or because you want to simplify your portfolio. Doing it because of “fear” of the future probably means that the portfolio was too risky for you. We are all terrible at predicting the future and are too motivated by either fear or greed. I have found it best to be somewhat conservative and then stay the course.

    Having 4+ years worth of expenses in CD’s seems to provide enough to keep me calm. To be truthful in late 2008 I pulled all my 401k out and put it in a Treasury money mkt fund and then dollar cost averaged back into stock/bond funds. So I am not immune from fear.

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