Am I too conservative holding 70/30 at 40 [given my history]? (2024)

My investing history:

2010 | $2k | AA: 30/70 (Started investing when I found this site)
2011| $8k | AA: 75/25 (Was 100/0 in my 401k split between large/mid/small cap)
2012 (divorce and restructure finances to be more traditional 3-fund allocation, paid alimony for 3 years)
2014 | $29k | AA: 80/20 - 30% international (somewhere between 2011 and 2012 I changed to 80/20)
2016 | $70K | AA 60/40 - 30% international (I seemed to ignore my target AA of 80/20 and increased fixed income, rebalanced to 70/30)
2018 | $150k | AA 70/30 - 30% international (maintained high saving rate [30% gross])
2020 Laid off 2x during pandemic, starting my own business, stopped contributing to retirement except for IRA contributions each year
2021 (Lived of my 1-year emergency fund while building out my startup idea)
2022 (Got a part-time job instead of drawing on investments, reduced my standard of living)
2023 | $350k | AA still 70/30 - 30% international (also started a full time job and resumed maxing my 401k, side-business no longer primary focus and financial stability is)

Emergency funds: 4 Months

Debt: 0% APR Credit Card: $6k (due 10 months with money in VMFXX earning interest to cover)

Tax Filing Status: Single
Tax Rate: 12% Federal (likely to be 22% in 2024), 3.23% State

Age: 40

See Also

Comparison - Lazy Portfolio ETF

Employer 1 ESPP:
00.4% Employer 1 Stock (10% discount, 10% of pay, typically sell within a week after nearest earnings call)

401k with Fidelity (Employer 2)
00.3% Vanguard Total International Index Admiral (VTIAX) (0.11)
00.1% Vanguard Total Stock Market Index Admiral (VTSAX) (0.04)
Company match: 2% immediate vesting

Treasury Direct
02.7% iBonds @ 1.3%

HSA at Avidia Health
00.8% Cash @ 0.03 APY (minimum balance w/o fees to access investments)
03.5% Vanguard 500 Index Admiral (VFIAX) (0.04)
01.3% DFA International Small Company Institutional (DFISX) (0.39)
*(note - also available): Vanguard Total International Stock Index Institutional (0.08)

Robinhood, Webull, MooMoo:
* 0.2% (play money to track other businesses in the space my side-business is in, some of these have gone to zero and many went on the market as a SPAC, learned a lot about the risk of single stocks this way, played with crypto, inverse leverage, and other risky stuff I wouldn't want to throw significant money at, but wanted to learn and see first hand just what uncompensated, idiosyncratic risk looks like)

Planned 2024 Contributions
* $22,500 Employer 1 401k (4% match)
* $100-250 Employer 2 401k (2% match) (I work infrequently at this job, 0-6 hrs a month)
* $7000 Roth IRA

Questions:
1. Should I switch to 80/20 or, as Vanguard's glide path suggests for my age, 85/15?

Rationale: Vanguards AA questionnaire suggests 80/20. I started investing soon after the Lost Decade and the idea that bonds beat stocks for that time period reinforced my heavier than suggested for my age allocation to bonds. I remember the news reporting of the DJIA dropping around 8% in a single day in 2008!. In 2020, I felt safe enough when there were 10% and 13% drops within days of each other. However, I recognize that I'd have more today had I not be so conservative, and like everyone else, I'm not happy about the recent decline in bonds. If I change my AA I'd prefer to do so slowly via new money contributions, because I'd prefer to allow time for bonds to recover. However, both bonds recovering and new money contributions to stocks will take some time given I have 350k of assets. In fact, it would take about 3~6 years of new contributions at 100% stocks. So if my plan is to maximize expected return by taking on diversified risk, maybe it's best to reallocate now than do so slowly.

2. If I keep my AA fixed at 70/30, would it make sense to start buying more individual TIPS to ensure 2+% real going forward, instead of adding anything new to the bond funds? I primarily bought an individual TIPS recently so that I can understand how these work. I like the idea of knowing that bonds will beat inflation, and buying them at a discount attenuates the deflation risk with TIPS.

3. Should I keep what I have, but focus on increasing my stock allocation to say 80/20 and should stocks enter a bear market and bonds recover, reset my AA in a single step at that time?

Rational: Bonds are more attractive now than they were when I started saving due to nominal interest rates being around 5% (2% real), so they won't be as much a drag on stock returns going forward, and if it happens to turn out that we're not in a recovery, but instead the start of a multi-year bear market that will continue longer and deeper, having 30% in bonds gives me the potential option to stay with 30% bonds and rebalance or switch to 80/20 or 85/15 should interest rates go down as a way to control a recession and thus those bond funds would have recovered their losses, and I'd be adjusting my risk tolerance at a time when it would be more advantageous to do so. I realize this might be considered market timing by some, and also I think that this just seems to be realizing that a favorable situation might come, and if so taking on a little more risk at a time when that risk is lower might be a rational choice to make, given that I may not need to be 30% in stocks in my 40s.

4. Should I increase international stocks to match the target date funds? I think there is a diversification benefit. I only have 30% because it's more reflective of the advice Vanguard gave a while back when it said to hold 20-40%. Also... are target date funds market cap percentage, or fixed? I believe it's 40% international at the moment.

Last edited by understandingJH on Tue Nov 28, 2023 4:13 pm, edited 5 times in total.