Rebalancing our Retirement Portfolio

It’s been just a few days, and I can already scratch rebalancing our retirement portfolio off my list of things to do in the New Year. I spent some time the other day looking through our holdings and figuring out what we needed to do. It was pretty simple to start with, as 80% of our contributions have been going into Vanguard’s Total Stock Market Index Fund (VTSMX), with the remaining 20% going into their Total Bond Index Fund (VBMFX), although this had drifted to a ratio of 82:18, stocks:bonds. I’m actually okay with that mix, but we were clearly in need of some international exposure. Spurred on by a recent post on MyMoneyBlog, I checked out Vanguard’s Target Retirement Funds. As it turns out, these fit the bill perfectly.

The Target Retirement Funds contain a combination of Vanguard Index funds that are tailored to a variety of different timeframes. Given my age, I was primarily interested in the Target Retirement 2035 (VTTHX) and Target Retirement 2045 (VTIVX) funds. While the Target 2035 fund is pretty much spot on in terms of projected retirement dates, I found it a bit too conservative for my taste:

60.6% Total Stock Market Index Fund
24.2% Total Bond Market Index Fund
10.3% European Stock Index Fund
4.9% Pacific Stock Index Fund

In other words, it’s about 75% stocks and 25% bonds. The Target 2045, on the other hand, was a bit too aggressive, with just 12% in bonds:

70.3% Total Stock Market Index Fund
12.1% Total Bond Market Index Fund
11.9% European Stock Index Fund
5.7% Pacific Stock Index Fund

The solution? Simple. A 50:50 mix of the two funds puts us back about where we were in terms of the overall stock/bond mix, but with both European and Pacific equity exposure:

65.45% Total Stock Market Index Fund
18.15% Total Bond Market Index Fund
11.1% European Stock Index Fund
5.3% Pacific Stock Index Fund

With just a few clicks of the mouse, I reallocated our Roth IRAs and then moved on to my 403(b) account. Unfortunately, even though my 403(b) is administered through Vanguard, my employer hasn’t made the Target Retirement funds available. But the good news is that the four underlying funds are available. So I cooked up a quick mix that mimics the 2035/2045 combination:

66% Total Stock Market Index Fund
18% Total Bond Market Index Fund
11% European Stock Index Fund
5% Pacific Stock Index Fund

And just a few clicks later, I was done.