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Reviewing Allocation Funds in a Retirement Portfolio

edited October 2017 in Fund Discussions
One strategy that I have attempted to include as part of my portfolio review and yearly reallocation is to use "allocation funds" as the destination for other funds that need paring back. I consider these allocation funds as having attributes that served my goals well when I started investing and I now see them as serving a different goal in retirement.

I began my investing (call this my 30's) by first owning well diversified allocation funds such as VGSTX, OAKBX, VWINX, VWELX, DODBX, PRPFX, PRWCX, and others. These funds provided me with a way to funnel small contributions into one or a few of these funds based mainly on their availability to my workplace retirement plan. It exposed "my meager, but dear savings" into what I consider a long term well managed (hopefully), well diversified investment. These funds often had a history of good risk / reward, solid management, were reasonably priced (low ER ratio) and made "staying the course" pretty certain.

As my savings increased and my knowledge base grew (call it my 40-50's) I began realizing that I could create my own personal portfolio allocation using not only these funds, but a combination of "non-equity" funds (Bonds, RE, Commodities) and equity funds that had an "alpha/growth" strategy (sector, size, class, valuation, manager, etc.). These "fund combos" provided me with the biggest momentary losses and the largest momentary gains, but in the end have kept me up at night more often than the allocation funds I also still owned.

I began to discipline myself to trust my fund choices to "stay the course" and use these momentary ups and downs in the market to reallocate between the "non-equity" portion and the "equity" portion of these investments, but as I reach my 60's, 70's and beyond I see myself developing a third approach.

I see some of my low risk / low return "non-equity" funds along with some very conservation allocation funds as serving a roll in holding a portion of my portfolio for short term needs. (1-3 year, call these PONDX, PTIAX, CBUZX) for distributions of income, RMD, emergencies and retirement "fun".

I see the higher risk / higher reward "non-equity" funds along with the higher risk / higher reward "equity" funds as serving a roll in maintaining long term growth. (10 years and longer), and I'll place my stallions here (POAGX, VGHCX, FSRPX, etc). Note to self: "I have too many of these..."

I see my conservative, moderate & aggressive allocation funds as having a larger and key place in my retirement portfolio as the core of my holdings will occupy this space. These are investments have a (3-9 year) holding period that provide good portfolio diversification as well as "growth and income" to reallocate and "feed" ongoing (1-3 years) needs.

The Conservative Allocation fund (3-5 year) needs in VWINX, GLRBX or CBUZX.
The Moderate Allocation fund (5-7 year) needs in JABAX or OAKBX.
The Aggressive Allocation fund (7-9 year) in PRWCX or BTBFX).

Each of these allocation funds will periodically "feed" the 1-3 year funds over time.
Each of the long term funds (10 years or more) "feed" the allocation funds.
Hopefully there will be enough "feed" to go around.

If you have any thought on this approach or suggestions for potential candidates for:
1-3 year funds -
3-5 year funds -
5-7 year funds -
7-9 year funds -
10 and longer funds -

I'd appreciate it.


  • edited October 2017
    Hi @bee,

    In enjoyed reading your plan to position your portfolio. One of the things that I did not pick up on in my reading of your plan was how much you plan (percent wise) to have allocated to each area? Perhaps, you plan for even distribution at 20% each? Not sure what your 10 year cash draw needs are? And, do you plan to exhaust each area as their period comes to pass?

    I'm thinking ... Your 1 to 3 year funds could consist of short term bond funds. Your 3 to 5 year area could consist of conserative allocation funds or multi sector bond funds or perhaps a mix of both. Your 5 to 7 year area could consist of moderate allocation funds along with some world allocation funds. Your 7 to 9 year area could consist of aggressive allocation funds. And, your 10+ year area could consist of all equity funds consisting of a mix of both domestic and world equity funds.

    For me ... I have four areas of investments within my master portfolio. It consist of a cash area, an income area, a growth and income area and a growth area. I have percent ranges set for each area and strive to keep each area somewhere close to their neutral positions unless I have choosen to overweight/underweight an area.

    When, I need cash I pull from the demand cash sleeve within the cash area while all of the other sleeves (for the most part) are set to feed the demand cash sleeve thus keeping it with an ample supply of cash to meet distributions.

    Just wondering what your thinking is when it comes to drawdown since you are apparently in the distribution mode of investing much like myself? Percent wise what do you target for an annual distribution?


  • @ bee: At one time didn't you throw out the idea to use target date funds to accomplish this in a retirement portfolio ? Ret. income, 2020, 2025, 2030.
    @ Old Skeet; You bring up a point of interest. How much to put in each pot so to speak?

  • @bee "10 and longer funds" You should own a tech and healthcare fund.
  • beebee
    edited October 2017
    @Old_Skeet...lots to ponder...longer response coming.

    @Ted, yes. They have been and should be good investments for growth going forward.

    @Derf, yes. I looked at these retirement funds as glide path funds for the 5 year increment / spending needs in retirement.

    I never pull the trigger on this idea, but it would go something like this:
    Yr/Date----Age---Hold Retirement/Income Fund
    2020 ------60----2020 Fund
    2025-------65----2025 Fund
    2030-------70----2030 Fund
    2035-------75----2035 Fund

  • Anything >5y I would (and do) put in DSENX and leave alone.
  • edited October 2017
    Bee...several funds you listed are common to what I have as well. I don't have it broken down into the annualized categories that you've described, but I think the result may be similar.

    I have a group which can go by many names...1-3 year funds, bucket 1, etc...the objective of the group to hold spending money for the next 3 to 4 years regardless of what the market does. A secondary objective is to contribute 2-3% account growth to offset possible cash drag. In an ideal world, these dollars are not touched because the second and third groups are supplying needed funds used for income. The initial group consists of:

    Taxable Account: VWITX and VWAHX

    The next group consists of a bunch of items which throw off income. This has changed in my recent retirement, as these now generate the dollars I use for annual spending, where before it was reinvested. It consists of:

    Taxable: FKINX and then a half dozen dividend paying stocks
    IRA: VWINX, PONDX, WATFX, PTIAX, SAMBX and then 4 individual REITs

    Funds for both taxable and IRA, I have a slew of funds whose goal is to provide appropriate growth that I can periodically, when the funds hit a specific dollar threshold, take a slice off the top to send to my checking account. It holds a variety of usual suspects, all equity funds.

    Falling outside these classifications, in both IRA and taxable, I do hold a few individual equities that are "flyers"...things which are generally inadvisable but could send me and siblings on a cruise to French Polynesia. I think the process is equally important as what you actually hold, how do you determine when the subsidiary groups cough up their contribution to the group (1-3 year, Bucket 1) used to hold your spending dollars?

  • Interesting @bee. I think as I age I have similar risk reward confidence in my allocation funds and I've tried to build around that allocation core with a mix of equity and bond funds. And with those funds the trade off between risk-reward is always a major factor in what I own.

    I have less funds then you but I think I have a similar comfort level when thinking about balanced-allocation funds. I have 13 funds in my self-managed portfolio, a combination of equity, bond and balanced funds. I don't think specific region or sector funds are needed, but that's just me. My largest % weighting to the portfolio is balanced funds, PRWCX for large cap and ICMBX for small. One is aggressive, one is very conservative. I know ICMBX is going to payoff only if held through the economic cycle, so you have to accept the under-performance during the bull. I'm happy with the combination. And I know it's not, but I think of DSENX as a 'pseudo' allocation fund. So just those 3 funds make up the bulk of the portfolio at about 40% of the total.

    I plan to stop working full time in 2018 at the ripe old age of 64. When I do I may do the bucket system approach. I would do something much simpler than your 5 buckets approach though. I'm also considering an immediate annuity to minimize what I need in the conservative bucket. This would allow me to be (slightly) more aggressive with the growth bucket. When I plug the fixed annuity option into my spreadsheet, it initially looks like a pretty attractive option.

    I love to hear how you and others approach risk-reward and the income options when retired. Thanks for starting the discussion.

  • @PRESSmUp, Thanks for mentioning the need to differentiate taxable and tax sheltered funds.

    As far as "coughing up" goes... my sense is it often will have at least two triggers.
    1. The 1-3 year bucket balance is low and in need of replenishing or,
    2. The other (buckets) have reached a predetermine goal (dollar or percentage gain).

    As @MikeM mentioned, none of this is done in a vacuum.

    Income from pensions, social security, annuities and other income streams (part time work in retirement) paint a large part of the retirement mosaic while these other investments (buckets) fill in the rest.

    Thanks all for your fund suggestions so far. Always nice to see what funds others incorporate into their portfolio.
  • @bee, a possible 3rd and 4th option for replenishing the 1-3 bucket is 1) any year where your growth bucket(s) have returned "x"% over inflation or 2) any time stock valuations (PE's) are "x" above predetermined averages (similar to the old_skeet method). Waiting for the 1-3 bucket to be low could make it so you pull money out of equities at the worst time.
  • I use allocation funds in a different manner. For each of my accounts, IRA's and investment, I match an allocation fund to serve two purposes, the first is matching the funds I wish to add the account, equities or not equities, for instance. Then it serves as my bench mark for performance as well as volatility. The second is that I recognize that while I have an unmatched interest in the growth of my accounts, I may not always be the smartest guy in the room when it comes to investing, so the allocation fund can save me some regrets.
  • Very interesting thread and thanks to all who contributed. 3 years ago I nixed my advisor who gave me high fees and low returns. Started using VCSH for a "cash" bucket, GTLOX for moderate and GTLLX for growth.
    I sold a house 1.5 years ago and all the proceeds still sit in my Vanguard sweep account waiting for a dip (but that's an issue for another thread!) Those proceeds are now my (much too large) cash position, VWELX and VMVFX my conservative positions; POSKX moderate; POGRX, PRGTX and VWIGX growth positions.
    I am 50, hoping to avoid completely screwing up, having enough to retire, and learning enough for the confidence to never hire another high-priced advisor.
  • since you have so much time ahead, the time to invest all that cash is now, and just ride out dip

    don't try and predict and time, in other words
  • "since you have so much time ahead, the time to invest all that cash is now, and just ride out dip"

    Yes, absolutely. At fifty, you will have lots of ups and downs ahead. Stay the course!
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