Investing with Moving Targets: Simple Case Study

If I knew exactly how much money I was going to put where for the year, making an investing plan and sticking to it would be pretty simple.

Let’s say that my accounts looked like this at the end of 2011:

Roth IRA

  • $10,000 Vanguard Total International Stock Market Index Fund


  • $1,000 Company stock
  • $5,000 Vanguard Retirement Savings Trust
  • $6,000 Vanguard 500 Index Fund
  • $10,000 Vanguard Total Stock Market Index Fund

Total value: $32,000

Then my asset allocation looks like this:

  • International stocks: $10,000 + $10,000 = $17,000 / $32,000 = 63%
  • Cash: $5,000 / $32,000 = 16%
  • Large-cap/market US stocks: $1,000 + $6,000 = $7,000 / $32,000 = 22%

That puts the split of Cash/US/International at 16/63/22, which I think is a bit overweighted to international. My target was 13/43/44.

If I knew that I would only add money to my 401(k) and max it out, with say a total employer match for the year of $2,400, I would know that I am adding $19,400 to my portfolio and be able to plan accordingly. (Employer match goes to company stock in full each month.)

  • Months 1-8: 100% Vanguard 500 Index Fund
  • Month 9: 25% Vanguard 500 Index Fund / 74% Vanguard Retirement Savings Trust / 1% Vanguard Total International Stock Market Index Fund
  • Month 10: 36% Vanguard 500 Index Fund / 15% Vanguard Retirement Savings Trust / 49% Vanguard Total International Stock Market Index Fund
  • Month 11: 50% Vanguard 500 Index Fund / 12% Vanguard Retirement Savings Trust / 38% Vanguard Total International Stock Market Index Fund
  • Month 12: 36% Vanguard 500 Index Fund / 14% Vanguard Retirement Savings Trust / 49% Vanguard Total International Stock Market Index Fund

And voila, after 12 months of that, my accounts would look like this:

Roth IRA

  • $10,000 Vanguard Total International Stock Market Index Fund


  • $3,400 Company stock
  • $6,600 Vanguard Retirement Savings Trust
  • $19,100 Vanguard 500 Index Fund
  • $11,900 Vanguard Total International Stock Market Index Fund

6 thoughts on “Investing with Moving Targets: Simple Case Study

  1. Good, never overweight your employer, even if there’s bonuses to do so. When I worked for a bank, they’d have given me 1 share for every 3 that I bought. A year after I left, their share dumped over 50% and — knowing a good deal when I see one — I bought their stock. I’m glad it wasn’t the dominant holding in my retirement portfolio. Diversify across assets within classes, classes (e.g. stocks, bonds, real estate), geography (e.g. different indices), and time (dollar cost averaging). As much as I love America, I’d heavily weight internationally (Europe, Japan, Canuckistan for dividends, and BRIC for growth).

    • There are so many bonuses to do so. This year, I’m projecting that almost a quarter of my overall gross income for the year will be in employer stock. Next year, it’ll be somewhere between 30-40%. I have that set to sell all shares immediately though and then I do what I would do with it if it had come in cash since there is no way I would buy that much in my employer’s stock.

      In my 401(k), the matching is put into employer stock, but I move it out during every trading window. Since the matching money is technically in a different account within the 401(k), I’m trying to keep it all in one fund and the one I’ve been using is the S&P 500 Index fund since my employer is in there.

      Love America? Hah. I’m going for 50/50 International/US despite the currency risk in that approach since then I’m more diversified in the companies. I don’t want to overweight any specific country though other than where I live due to currency risk, though even that carries currency risk since I could retire abroad. Buying Vanguard’s Total International Stock Index fund is way cheaper than buying shares in an index fund for any specific country, so I’m sticking with this route.

      • Given America’s sovereign debt issues, lack of natural resources, and general growthy in international equities, I’d really say most of the US currency risk is downside — weighting heavily internationally, particularly for growth but even for dividends is the smartest long run play; I’d weight heavier than 50% in the long run. Vanguard’s funds are so cheap (as a Canuck I’m jealous) but there are other ways to access international equities. That fund has 40% Europe, 8.5% Canada, and 13.5% Japan. Meanwhile, BRIC indices only compose 10.5% of the stock’s investments — I think you’ve got your int’l dividends covered, but it’s not exactly a growth play. I’m not saying get out there and pick international stocks; consider looking at very low MER ETFs to increase your exposure to longterm int’l growth.

        • Overweighting international is the main reason why I don’t use the target date funds (which would otherwise be awesome) – they only have about a 20% international weighting.

          I think I’m going to stick with this for now – I’m trying to keep the number of funds super low and the majority of my contributions ($17,000) go to my 401(k), in which the only real international option is the total index one. In a few years, I’ll have a larger taxable account and then I’ll have more room to add other things if I so choose.

  2. I am always so impressed with your level or organization. While I also try to ‘rebalance’ with contributions, rather than buying and selling, I am not nearly as organized about the whole process.

    Regarding target date funds. I also am not always happy with their weightings of certain asset classes. However, they are so easy that in a few of our accounts (namely 529 plans) I’ll use them but not on a 100% basis. I’ll put, say 80% in a target date fund, and then 20% in whatever asset class is lacking.

    I’ve also noted that some ‘total stock market’ funds are heavily weighted to the US, and aren’t quite as ‘total’ as I would like!

    • Thanks! Just wait until you see tomorrow’s post :) I’m trying to wrap my head around what rebalancing with new contributions means versus rebalancing with existing ones and some of these posts are definitely helping me think through that.

      Total Stock Market funds are actually US only :) You have to go for Total World Stock Market funds if you want full coverage or a Total International Stock fund for non-US coverage in market weights. I didn’t quite grasp that one at first either!

      From the Vanguard website, here are the summaries on these three:

      1) Vanguard Total Stock Market Index Fund: “Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. The fund’s key attributes are its low costs, broad diversification, and the potential for tax efficiency. Investors looking for a low-cost way to gain broad exposure to the U.S. stock market who are willing to accept the volatility that comes with stock market investing may wish to consider this fund as either a core equity holding or your only domestic stock fund.”

      2) Vanguard Total World Stock Index Fund: “Total World Stock Index Fund provides shareholders low-cost exposure to stock markets around the globe, including the United States, developed foreign markets, and emerging markets. In addition to stock market risk, the fund is also subject to currency risk and country risk. Long-term investors seeking global equity exposure who are comfortable with the volatility inherent in stock market investing may wish to consider this fund.” (But this has a pretty high expense ratio at 0.40%!)

      3) Vanguard Total International Stock Index Fund: “This fund offers investors a low cost way to gain equity exposure to both developed and emerging international economies. The fund tracks stock markets all over the globe, with the exception of the United States. Because it invests in non-U.S. stocks, including those in developed and emerging markets, the fund can be more volatile than a domestic fund. Long-term investors who want to add a diversified international equity position to their portfolio might want to consider this fund as an option.”

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