2016 Investment Planning

I’ve been doing some planning for 2016 and decided I should take a gander at my investment plan. Apparently I’d already made a spreadsheet for 2016 months ago and so it took me all of about 10 seconds to estimate things – I just had to update the current balances.

I’m working with a target asset allocation of 30% fixed income (age in bonds + 2 percentage points for having > $200,000 in investments) and then the stocks split 50/50 to US and international.

Category Current Value To Add EOY 2016
Total $209k $52.5k $261.5k
Fixed income $60.8k $17.6k $78.4k
US stocks $77.7k $13.8k $91.5k
International stocks $70.5k $21.1k $91.5k

US and international stocks are somewhat out of whack, so I’ll add more to the international stocks in 2016 than to the US ones.

I started out with adding all of my fixed income ($17.6k) with my pre-tax 401(k) contributions (including employer match) and then will put the remaining 401(k) money to US stocks. I’m still undecided on this, but I may make it international stocks instead. I like the Vanguard international fund better than the Fidelity one, but it might be more worthwhile to get things less out of whack. I still have a few weeks to think on this and it’s not a super big deal either way. I’ll update this so it all happens automatically on January 1st.

As far as timing goes, my pre-tax 401(k) contributions will be spread out over the first 5 pay periods of the year, finishing up in mid-March. I will make the full Roth IRA contribution once I have $5,500 in earned income, so sometime in February or March, and the after-tax 401(k) money will be invested in Vanguard in July once I’ve maxed out my contributions there.

I plan to use my 2016 Roth IRA contributions to open up the Vanguard Total International Stock Market Index Fund there. I’ll then finish up my international stocks allocation with my after-tax 401(k) money in the summer and the last dribble of it to US stocks.

Easy peasy after many years of doing this!



20 thoughts on “2016 Investment Planning

  1. This sounds like a super logical and very easy to follow plan. I’ve gone to 100% equity myself, but I’m keeping a bit more of a buffer in cash, which I suppose could be considered an ’emergency fund’.

    I am not seeing much opportunity in bonds these days. This screams of market timing, but after I sold my rental real estate this summer, my taxable holdings were at least five or six years of annual expenses, and in retirement accounts I have another four or five years of expenses, and I’m contributing more regularly to all of these accounts, so I just don’t see the point of investing in lower potential assets as I don’t need this $$ for at least a couple decades. I might have to re-evaluate this plan in the future as admittedly I haven’t experienced a crash, but I’m certainly not going to lower the equity allocation during a crash, it would be after the hopeful recovery. ;)

    • That’s fair. I’ve debated whether I should increase my stock allocation. I eventually decided to stop decreasing it after I hit 30% fixed income with my previous algorithm. I’ll stay at 30% until I decide this doesn’t work for me anymore. The main point is to have a plan and stick to it, which is what I’m doing. My split right now is about 1.2 years cash/taxable investments, 3.6 years retirement, and 6.2 years condo equity. My goal right now is to get the cash/taxable investments figure up to 2 years and then I’ll go back to paying down the mortgage. I save more than one year’s expenses into retirement accounts each year now, which is kind of cool.

      5-6+ years of annual expenses in taxable is pretty awesome – congrats! :)

  2. That’s a good point on your above comment about consistency with regards to the bond allocation. Even if I agree that bond allocation is probably too high (though truth to tell I do not think the negative impact from that would be particularly high anyway), I think there is probably pretty high value in just picking a plan up front and sticking with it (unless their are very significant problems with it or 100% certainty changes).

    • I’m a huge fan of making a plan and sticking to it! That really lowers the barrier to entry. The evidence shows in how easy it was to make my 2016 investment plan.

  3. We’ve only got 20% in international, or at least that’s our goal. 20% in bonds, but we should probably increase that. (We actually probably have more than 20% in bonds given that some of our portfolio is in target date funds, but it’s probably not enough to move the needle.) We do have quite a bit in cash at the moment and we do have a mostly paid off mortgage, so there’s some additional diversification there.

    It has been a long time since I’ve rebalanced our entire portfolio. I used to do that manually with our annual IRA allocations, but now we’re not doing the IRA and our 403b and 457s are invested automatically, so we would have to actually rebalance instead of just adding more money to under-performing sectors. Plus the IRA limits are much smaller compared to our total portfolio than they used to be, even if we could still use them.

    I was annoyed today to notice I hadn’t increased my 457 allocation to 18K this year– it’s stuck at $17,496 and I’ve already gotten my final paycheck for the year. (I did increase the 403b allocation though!) Meh. There’s so many ways we haven’t been optimizing money lately.

    • That’s annoying to just miss the maximum :/

      I rebalance with my 401(k) by updating the % allocations each year for the new contributions. I’m not a huge fan of selling things to rebalance. In fact, I’m pretty sure my IPS says not to do that. My boyfriend mostly does his rebalancing with his lumpy taxable contributions.

  4. I’m saying you should keep doing what you’re doing. I don’t think that selling to re-balance makes sense, maybe unless you were in serious bubble territory for a certain asset. My comment was more directed at ndchic.

    • Ah okay sounds good! Thanks for clarifying :) I mostly don’t want to rebalance other than with contributions because then I’d feel like I needed to watch my investments more and I don’t want to go down that rabbit hole.

        • My 401(k) doesn’t have that feature. And it is only part of my portfolio, so that doesn’t seem good. I’m happy with my satisficing on rebalancing.

  5. Always enjoy your blog, I always have thought that you do a great job of pure no frills investing/financial planning for high saving individuals. I am thinking seriously about creating a 2016 investment plan based on your inspiration.

    I have two questions, and I know you are a Boogle head, and I know you believe in the weighting of bonds/international/small cap growth/S&P etc. /age

    But from a philosophy perspective. Since about half of the earnings (give or take) of the S&P 500 are from foreign investments, shouldnt you consider the weight of where earnings are coming from as part of your foreign investment mix? And are the long term returns for foreign funds really worth the investment? It seems to me as though most international funds have a long long history of under performance when compared to the S&P500. 10yr, VINIX vs WVIGIX, you give up about 2% return a year over the last 10 years, 9% or so over the last 5 years. Its not clear to me that international funds really provide an UN-correlated or inversely correlated return to the S&P500.

    Secondly, and a similar type of question, the bond trade has been successful for a large part of the last 20 years or so as interest rates have dropped to essentially 0. We are now likely looking at increasing rates, or at least more likely than not to see increasing rates over the next few years. In that kind of rate environment, why have a large portion of your portfolio in bonds? Or any for that matter, why have any exposure to bonds? Wouldnt money market funds be a better place than bonds if the goal is capital preservation?

  6. You should be looking back further than 5 or 10 years. Go back to when the EAFE index was created and look at the correlations each year, international has provided diversification by periods of outperformance, not only just in the profits of the underlying equity, but also because of the exposure to different currencies. I don’t think you should consider the weight of where the earnings are coming from. A lot of the foreign companies have earnings from US. Why not invest in Nestle just because it’s domiciled in Switzerland?

    People have been predicting rising interest rates for over 10 years. It does not hurt to have some fixed income exposure. Money market fund would be the last thing that I would invest in, especially when you can easily get 1%+ in various FDIC insured savings accounts. The expectation, obviously, is that bonds will do better than the savings account over the long term, even with the eventual rising rates factored in.

  7. I’d like to see a dataset or the results of an international mutual fund that goes back beyond the time I cited. I looked briefly and didnt see anything for Vanguard beyond the late 90’s or so. The EAFE dataset I found went back to 2005 give or take. And when put up against the S&P looked to be highly correlated, the index outperformed somewhat during the financial crisis, and has been crushed since then. The total return was like half that of the S&P since ’05.

    My point about earnings, is that historically (when Random Walk was written), you wanted to be in international companies in order to have the upside of the growth in developing countries. And few if any US companies had exposure to international economies.

    Over the last 20-25 years, that has completely changed. US multi nationals now often have a majority of their income coming from outside of the US.

    Income eventually drives the price of a stock. If the idea is to balance a portfolio to maintain a balance of assets, then I think it draws to a logical conclusion to consider the international exposure of the S&P. Take Apple, 70% (approx) of Apples revenues come from outside of the US. If the goal is international exposure, doesnt it make sense to consider at least partially the international exposure already included in the S&P?

    As far as bond go, perhaps there have been predictions for raising rates. However the fed has begun to raise rates, something that hasnt happened for nearly 10 years. AND more importantly, even if you assume rates dont raise, they cant go down. Or at least not much since the 10year is a little over 2%.

    As far as money market, imo it is a good place for a percent of assets that can be invested in a bear market. I would rather have the capital preservation of a money market investment than having anything invested in a bond fund. At least at these levels.

    Its a little different if you actually have individual bonds in say a ladder, because you have the advantage of capital preservation that is not available in a bond fund.

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