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Fenderstratguy t1_j6p7cnt wrote

Where did you get those "recommended" asset allocations? It depends on your age, and your goals - are you accumulating and saving for retirement? Or are you entering retirement and trying to protect your money from sequence of returns risk? That portfolio looks like an old man/retiree portfolio.

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[deleted] OP t1_j6p8vc4 wrote

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Fenderstratguy t1_j6ph9jg wrote

Me too (although older) - are you able to contribute to the employee and employer sides of your 401K (you can do that as a partner in private practice)? That is $65,000 plus a year. You can do a backdoor Roth for another $6500. I got really serious about retirement saving and planning 2 years ago. Lots of books I listened to on the way to work and back. Within 3 months I was very comfortable with making my own plans. These were the most important to me:

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Fenderstratguy t1_j6p5uo9 wrote

Because you do not know what sector might do better or worse. For example investing in an index fund for US stocks may miss the natural rotation to international stocks which may outperform in the future. Or a pharmaceutical index fund may be hot for years but then do really bad. The Callan Periodic Table shows the really well. https://www.bogleheads.org/wiki/Callan_periodic_table_of_investment_returns

Now if you are talking in investing only in VT or VTI for total US or total world stocks that may cover most of your bases - but there have been years when bonds outperformed stocks too. Diversification helps prevent you from performance chasing where you keep rotating out of a sector always hoping to catch the next rising star.

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Werewolfdad t1_j6p50z3 wrote

I mean, you can with VTWAX.

Otherwise you miss segments of the market depending on what you skip.

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[deleted] OP t1_j6p5ib9 wrote

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Werewolfdad t1_j6p5w2m wrote

> Why doesn’t everyone just do that then?

I dunno.

We tell them to all the time but people think they’re smart and can outperform the market or they want to bet it all on large cap growth or are insistent that small cap value will our perform. Or they want to buy the cool new stock that totally won’t be a dud.

> Is that the only reason to add other allocations?

Bonds reduce volatility without significantly impacting returns. I have a link from /r/investing I can share when I get to a computer.

Everything else is already present in a total world index

“VT and chill” is a pretty common saying on /r/bogleheads

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sonnyfab t1_j6p57m8 wrote

Because most index funds are only "sort of" diversified. Target Date funds are a single fund that you can buy for very high diversification, but they have somewhat higher expenses than index funds and are not customizable.

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guava4life t1_j6p7uq1 wrote

A lot of ppl do that actually. Vtsax gang

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metal0130 t1_j6p7rxk wrote

super generic example: why stocks and bonds, and not just stocks?

Often when the stocks are tanking hard, bonds are holding steady or even increasing in value. If the market crashes 50% and your 100K is all stocks, you're now at 50k.

But if you're (for simplicity sake) 50/50 stocks and bonds. when stocks crash 50%, maybe bonds remain flat and you're only down to 75k instead of 50k.

The tradeoff is that bonds don't appreciate in value as fast as stocks can... there's always a trade off. More risk of loss = more reward when things are going well. But more risk when you're older can wipe out a few hundred thousand, RIGHT as you are considering retiring. So diversification helps mitigate these risks. It's just that younger people have more time to recover from these downturns than older folks.

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wc_cfb_fan t1_j6p7tch wrote

VOLATILITY!!!!

If you are ok with it then just dump all your money into 1 fund to rule them all. Then 40 years later laugh all the way to the bank if you end up leaving the market in a positive market

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84740296169 t1_j6p4zqq wrote

The only asset allocation that matters is between stocks and bonds.

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[deleted] OP t1_j6p5azp wrote

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[deleted] OP t1_j6p5qk4 wrote

No diversification only serves to lower risk- if done correctly. To increase risk, concentrate your position. This could increase or decrease return greatly over time from a diversified portfolio. Diversified portfolios spread out your assets and make long term investing outcomes much more narrow.

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[deleted] OP t1_j6p5t6i wrote

If you have less than $250k buy a couple index funds and move on with your day. Keep buying every month. It’s that simple.

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nolesrule t1_j6p7e81 wrote

Diversification decreases risk for a given return. Concentration increases risk. Don't confuse holding a collection of funds with diversification. Adding international to US increases diversification because your investment is spread among more stocks. Adding US small cap to a US total market index is concentrating in small cap because total US already includes small cap.

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Fenderstratguy t1_j6p6srp wrote

It is the opposite - do DECREASE risk. The person who can do the most damage to your investments is YOU. If diversifying into a solid mixture of stocks/bonds/REITS etc helps to decrease volatility - it will prevent you from throwing in the towel and selling your stocks if the market takes a 30-40-50% dive. A proper asset allocation will allow you to sleep well at night no matter what the market is doing.

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Coronator t1_j6pfy73 wrote

One low cost index fund is diversified - and yes there isn’t much financial reason to do anything otherwise.

I have 20-25% also in an international index, but it’s more for psychological reasons than anything. If international outperforms for a period of time, I at least feel like I’m “in the game”.

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