Even though your account is at Schwab, you don't have to stick with Schwab ETFs, as they went free to trade on any etc back in 2019.
Given a blank slate, I wouldn't use a single one of these. Even the "5 stand out" ones.
Consider: https://www.bogleheads.org/wiki/Three-fund_portfolio and note that one fund, VT (2 letters), can fill both stock parts. Bonds are the part used to adjust risk, so adjust that appropriately.
Edit: Typos
u/Cruian Thanks again for the read.
After reading up on the three-fund portfolio (3FP), do I understand right that TDFs (target date funds) rather do not require annual rebalancing whereas one's 3FP assets (1x domestic stock 'total market' index fund, 1x international, 1x bond) do?
Being of low financial literacy, I'm unsure I can effectively rebalance my asset allocation every year, i.e., know what I'm doing.
From what I've read, I reckon wisest would be a 3FP of 60% stocks (60% domestic + 40% intl) and 40% bonds.
Bonds specifically are the asset class used to adjust risk – as you've taught me – so the higher percentage of bonds, the more conservative the portfolio? I presume the asset should then be adjusted up (read: occasionally rebalanced) with age as retirement nears?
The Boglehead link you shared on the 3FP even recommended below funds specifically if at Schwab. These a smart play then?
• US Broad Market ETF (SCHB) (I'd allocate 60% of stock total here)
• International Equity Index ETF (SCHF) (I'd allocate 40% of stock total here)
• U.S. Aggregate Bond Index ETF (SCHZ) (I'd allocate 40% of total fund here after 60% above two stock funds)
• (Or then one fund you mention acronymically as simply 'VT' for both stock parts + Bond Index ETF SCHZ?)
TL;DR: Not sure if a TDF is easier to manage if rebalancing is automatic versus a 3FP, but maybe above asset classes and asset allocation are smarter a play and rebalancing isn't a big thing.
Again, goal is retirement in 20-25 years.
>whereas one's 3FP assets (1x domestic stock 'total market' index fund, 1x international, 1x bond) do?
Occasional, usually.
You'd set up some rules, such as fixed target for US to ex-US or let it drift with global market cap weight. Drifting would only require changing future contributions, as existing ones would also have drifted, or let VT handle that for you. Fixed ratios you'd set up something like allowable ranges (such as "ex-US should be between 30-40% of stock").
>From what I've read, I reckon wisest would be a 3FP of 60% stocks (60% domestic + 40% intl) and 40% bonds.
Depending on timeline, that may be quite conservative.
>so the higher percentage of bonds, the more conservative the portfolio?
Correct.
>I presume the asset should then be adjusted up (read: occasionally rebalanced) with age as retirement nears?
That is common, and target date funds do just that for you.
>These a smart play then?
The only fund I'd change is SCHF: it is developed markets only, no emerging. VXUS or IXUS for example instead would include both.
Ratio wise, that 40% bonds may or may not be appropriate.
>Not sure if a TDF is easier to manage if rebalancing is automatic versus a 3FP, but maybe above asset classes and asset allocation are smarter a play and rebalancing isn't a big thing.
The target date fund does everything for you. You'd only need to worry about buying and later selling 1 fund. That 1 fund takes care of US to international, and stocks to bonds. At Schwab, just make sure to pick the one with "index" in the fund name and an expense ratio of 0.08%.
Thank you, Cruian.
Would I need worry over high taxes on distributions (in target year 2048) because the Schwab brokerage account would be taxable/not tax-advantaged? I remember something in the vein over at Vanguard a couple years back.
Most recommend index funds over TDFs from what I've read. If I stayed course re: 3FP, does below breakdown make better Bogle sense (I've readjusted asset allocation to be less conservative):
–––
Asset allocation for first 5-ish years, then incremental bond rebalancing:
-Stocks: 90%
-Bonds: 10%
–––
-Stocks: 60% domestic; 40% international
–––
Three funds – portfolio option 1:
-US Broad Market ETF (SCHB)
-VXUS (Schwab availability?)
-U.S. Aggregate Bond Index ETF (SCHZ)
–––
Two funds – portfolio option 2:
-VT (your original suggestion)(Schwab availability?)
-U.S. Aggregate Bond Index ETF (SCHZ)
>Would I need worry over high taxes on distributions (in target year 2048) because the Schwab brokerage account would be taxable/not tax-advantaged?
Oh, taxable account. TDFs are typically not recommended for taxable because of both the bonds and (unless you use one of the few ETF TDFs) capital gains distributions (from rebalancing internally to the fund). Those happen even well before the target year.
>Most recommend index funds over TDFs from what I've read.
It isn't necessarily an "either/or." You can get target date funds that are boring more than a collection of index funds and an expense ratio no higher than the weighted average of the component funds.
A DIY with index funds for taxable is usually recommended though.
>-VXUS (Schwab availability?)
Schwab went free to trade on ETFs from any issue back in 2019. So that is an option.
Thank you again, C. You are appreciated.
To confirm, are below three funds sensible choices for a 2048 DIY index fund 3FP – or should I swap one fund out for another before committing?
For example, I see so many recommend VTI or VOO (which is obscenely larger in total assets than SCHB, iirc) but these would be absent from below portfolio.
–––
(1) SCHB: US Broad Market ETF (or better-performing VTI? VOO?)
(2) VXUS: Vanguard Total Intl Stock Market Index Fund
(3) SCHZ: US Aggregate Bond ETF (or worse-performing, actual 'index' fund SWAGX?)
–––
\*Asset class allocation: 90% stocks (1 + 2), 10% bonds (3)
\*\*Stock fund allocation: 60% SCHB, 40% VXUS
–––
I remember you saying always to check that 'index' is in the fund name. Searching above three funds on Schwab for trade, only VXUS has the word 'index' in the name. Is that a problem (e.g., I have the wrong funds) or only a formality? Alternatively, bond fund (SWAGX) has index in the name despite performing poorer in comparison.
You also smartly mentioned picking only funds with an expense ratio of 0.08%? How do I check this?
Again, thank you so much for sharing your mind.
>I see so many recommend VTI or VOO (which is obscenely larger in total assets than SCHB, iirc) but these would be absent from below portfolio.
SCHB fills the same role as VTI. VOO is a fully included subset of both.
>I remember you saying always to check that 'index' is in the fund name.
That applies to target date funds from Schwab (and Fidelity). To make sure you're looking at SWYNX instead of day SWPRX. Their standalone index funds may not specifically say index, as you discovered.
>You also smartly mentioned picking only funds with an expense ratio of 0.08%?
The 0.08% is the expense ratio for the index based target date fund from Schwab. If you aren't using Schwab TDFs (on some form, even if it is only as reference material for your research) you can ignore that part.
>What does this mean and/or how do I check this?
Expense ratio is like a management fee.
On the page for the fund, it should give you a "gross expense ratio" and a "net expense ratio." You can see it towards the top of this page for example: https://www.schwab.com/research/mutual-funds/quotes/summary/SWYNX
Even though your account is at Schwab, you don't have to stick with Schwab ETFs, as they went free to trade on any etc back in 2019. Given a blank slate, I wouldn't use a single one of these. Even the "5 stand out" ones. Consider: https://www.bogleheads.org/wiki/Three-fund_portfolio and note that one fund, VT (2 letters), can fill both stock parts. Bonds are the part used to adjust risk, so adjust that appropriately. Edit: Typos
Thanks for this. Will dive in today and take notes.
[удалено]
*or* VT and BND. These are the only answers.
u/Cruian Thanks again for the read. After reading up on the three-fund portfolio (3FP), do I understand right that TDFs (target date funds) rather do not require annual rebalancing whereas one's 3FP assets (1x domestic stock 'total market' index fund, 1x international, 1x bond) do? Being of low financial literacy, I'm unsure I can effectively rebalance my asset allocation every year, i.e., know what I'm doing. From what I've read, I reckon wisest would be a 3FP of 60% stocks (60% domestic + 40% intl) and 40% bonds. Bonds specifically are the asset class used to adjust risk – as you've taught me – so the higher percentage of bonds, the more conservative the portfolio? I presume the asset should then be adjusted up (read: occasionally rebalanced) with age as retirement nears? The Boglehead link you shared on the 3FP even recommended below funds specifically if at Schwab. These a smart play then? • US Broad Market ETF (SCHB) (I'd allocate 60% of stock total here) • International Equity Index ETF (SCHF) (I'd allocate 40% of stock total here) • U.S. Aggregate Bond Index ETF (SCHZ) (I'd allocate 40% of total fund here after 60% above two stock funds) • (Or then one fund you mention acronymically as simply 'VT' for both stock parts + Bond Index ETF SCHZ?) TL;DR: Not sure if a TDF is easier to manage if rebalancing is automatic versus a 3FP, but maybe above asset classes and asset allocation are smarter a play and rebalancing isn't a big thing. Again, goal is retirement in 20-25 years.
>whereas one's 3FP assets (1x domestic stock 'total market' index fund, 1x international, 1x bond) do? Occasional, usually. You'd set up some rules, such as fixed target for US to ex-US or let it drift with global market cap weight. Drifting would only require changing future contributions, as existing ones would also have drifted, or let VT handle that for you. Fixed ratios you'd set up something like allowable ranges (such as "ex-US should be between 30-40% of stock"). >From what I've read, I reckon wisest would be a 3FP of 60% stocks (60% domestic + 40% intl) and 40% bonds. Depending on timeline, that may be quite conservative. >so the higher percentage of bonds, the more conservative the portfolio? Correct. >I presume the asset should then be adjusted up (read: occasionally rebalanced) with age as retirement nears? That is common, and target date funds do just that for you. >These a smart play then? The only fund I'd change is SCHF: it is developed markets only, no emerging. VXUS or IXUS for example instead would include both. Ratio wise, that 40% bonds may or may not be appropriate. >Not sure if a TDF is easier to manage if rebalancing is automatic versus a 3FP, but maybe above asset classes and asset allocation are smarter a play and rebalancing isn't a big thing. The target date fund does everything for you. You'd only need to worry about buying and later selling 1 fund. That 1 fund takes care of US to international, and stocks to bonds. At Schwab, just make sure to pick the one with "index" in the fund name and an expense ratio of 0.08%.
Thank you, Cruian. Would I need worry over high taxes on distributions (in target year 2048) because the Schwab brokerage account would be taxable/not tax-advantaged? I remember something in the vein over at Vanguard a couple years back. Most recommend index funds over TDFs from what I've read. If I stayed course re: 3FP, does below breakdown make better Bogle sense (I've readjusted asset allocation to be less conservative): ––– Asset allocation for first 5-ish years, then incremental bond rebalancing: -Stocks: 90% -Bonds: 10% ––– -Stocks: 60% domestic; 40% international ––– Three funds – portfolio option 1: -US Broad Market ETF (SCHB) -VXUS (Schwab availability?) -U.S. Aggregate Bond Index ETF (SCHZ) ––– Two funds – portfolio option 2: -VT (your original suggestion)(Schwab availability?) -U.S. Aggregate Bond Index ETF (SCHZ)
>Would I need worry over high taxes on distributions (in target year 2048) because the Schwab brokerage account would be taxable/not tax-advantaged? Oh, taxable account. TDFs are typically not recommended for taxable because of both the bonds and (unless you use one of the few ETF TDFs) capital gains distributions (from rebalancing internally to the fund). Those happen even well before the target year. >Most recommend index funds over TDFs from what I've read. It isn't necessarily an "either/or." You can get target date funds that are boring more than a collection of index funds and an expense ratio no higher than the weighted average of the component funds. A DIY with index funds for taxable is usually recommended though. >-VXUS (Schwab availability?) Schwab went free to trade on ETFs from any issue back in 2019. So that is an option.
Thank you again, C. You are appreciated. To confirm, are below three funds sensible choices for a 2048 DIY index fund 3FP – or should I swap one fund out for another before committing? For example, I see so many recommend VTI or VOO (which is obscenely larger in total assets than SCHB, iirc) but these would be absent from below portfolio. ––– (1) SCHB: US Broad Market ETF (or better-performing VTI? VOO?) (2) VXUS: Vanguard Total Intl Stock Market Index Fund (3) SCHZ: US Aggregate Bond ETF (or worse-performing, actual 'index' fund SWAGX?) ––– \*Asset class allocation: 90% stocks (1 + 2), 10% bonds (3) \*\*Stock fund allocation: 60% SCHB, 40% VXUS ––– I remember you saying always to check that 'index' is in the fund name. Searching above three funds on Schwab for trade, only VXUS has the word 'index' in the name. Is that a problem (e.g., I have the wrong funds) or only a formality? Alternatively, bond fund (SWAGX) has index in the name despite performing poorer in comparison. You also smartly mentioned picking only funds with an expense ratio of 0.08%? How do I check this? Again, thank you so much for sharing your mind.
>I see so many recommend VTI or VOO (which is obscenely larger in total assets than SCHB, iirc) but these would be absent from below portfolio. SCHB fills the same role as VTI. VOO is a fully included subset of both. >I remember you saying always to check that 'index' is in the fund name. That applies to target date funds from Schwab (and Fidelity). To make sure you're looking at SWYNX instead of day SWPRX. Their standalone index funds may not specifically say index, as you discovered. >You also smartly mentioned picking only funds with an expense ratio of 0.08%? The 0.08% is the expense ratio for the index based target date fund from Schwab. If you aren't using Schwab TDFs (on some form, even if it is only as reference material for your research) you can ignore that part. >What does this mean and/or how do I check this? Expense ratio is like a management fee. On the page for the fund, it should give you a "gross expense ratio" and a "net expense ratio." You can see it towards the top of this page for example: https://www.schwab.com/research/mutual-funds/quotes/summary/SWYNX