The best I can think of is:
As long as you hold the same asset allocation in each type of account (taxable vs. IRA vs. inherited IRA vs. Roth, etc.), then you could use Asset Allocation Mode 1 and that allows you to set different asset allocations at different times (up to 5 time periods).
You will get garbage answers to key questions like Roth Conversion studies if you set different accounts to different allocations though as the program will simply favor the account with the highest average returns (so highest stock allocation).
@slaufer Can I assume that your target date funds are in your employers 401K offerings? I ask because target date funds have been raked over the coals 😡 recently by financial "professionals", bloggers, etc. Not a type of fund I would get into if I could avoid it.
https://www.forbes.com/advisor/retirement/target-date-fund-pros-and-cons/
https://www.investopedia.com/articles/retirement/07/life_cycle.asp
@ricke Yes, this was my thought, unless there is a better way. Wondered if there was a glidepath option that I might have missed.
@pizzaman Understand. Yes, in my employer 401K, so often we have to play the cards we are dealt. I understand the limitations and issues and the differences among Target provider glide paths. Thx
Target date funds, especially simple, ultra-low fee ones like Vanguard's, aren't all that bad through most of the accumulation phase. You want to sell and decompose as you approach retirement though, so you can pick from which type of asset to use for any withdrawals, bucket adjusting, etc. Target date funds in the enjoyment/decumulate/retirement phase expose you to sequence risk.
I like to have a look at Vanguard's as a sanity check sometimes, to see what allocation they're currently at for a specific target date, and what funds. Interesting to see when they shift from TIPS to non-TIPS, short-term to intermediate, etc.
@hines202 Agree. The issue is as I decompose them (and I am), what is the best way to represent the annual percentage splits for assets/bonds that remain? I can do the 5 year hypothetical glide path as noted above, but would prefer if there was a glidepath option that did it automatically as I arrive at my target date.
Good point made by @hines202 about bond makeup in target date funds over time. I recently dumped my TIPS fund and invested in short term CDs and T-bills. Managing my own portfolio with the help of PRC gives me that flexibility. Typical glide paths for target date funds involves increasing bonds % vs stocks as time goes on. Work done by Kitces suggests that a rising glide path in stocks may be the better option in some cases: https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/
I don't think there is a glide path option in PRC.
@ricke You may be right about fear mongering (I am just as susceptible to click bait as anyone). I would be careful with TIPS funds as compared to individual TIPS. I had Fidelity Inflation-Protected Bond fund FIPDX the last few years and it did terrible 😩. I got rid of it and bought short term CDs and T-Bills. TIPS may do better going foreword but I don't think so. Inflation is going down and interest rates are stabilizing and will likely go down later this year. (Yes I made a prediction, shame on me 😝). Here is a blurb from Fidelity:
Risks of TIPS
Besides offering protection from inflation, TIPS also pose very little risk of default because they are backed by the full faith and credit of the US government. However, they do not protect bondholders from all types of risk. Indeed, if inflation gives way to deflation and the consumer price index turns negative, principal and interest rate payments on TIPS will adjust downward and investors may wish they held conventional bonds instead. It's also possible to lock in a loss in real terms if you buy a TIPS with a negative real yield and hold it to maturity. This could happen even if inflation picks up enough that the bond's nominal yield turns positive because the total return on a TIPS can never exceed the rate of inflation.
TIPS are also subject to interest rate risk, just like conventional Treasurys. That means when interest rates rise, the market value of these bonds is likely to fall. In fact, TIPS may be more sensitive to changes in interest rates than conventional Treasurys of the same maturity. Rate risk may be managed by holding individual TIPS bonds to maturity, as in a bond ladder. If you hold TIPS until they mature, you will receive either the adjusted principal or the original principal, whichever amount is greater.
TIPS and taxes
Another important difference between a TIPS and a conventional Treasury is that any increase in the value of the TIPS principal is subject to federal tax in the year that it occurs—even though you won't receive any income from the increase. Semi-annual interest payments on TIPS are subject to federal income tax, just like payments on conventional Treasury securities.
On the other hand, when the TIPS matures or is sold, you will only pay federal tax on the final year's increase in principal while receiving the full increase in principal since the date of initial purchase. Like all Treasury securities, TIPS are exempt from state and local income taxes. Investors should consult with their own tax advisors with regard to their specific situation prior to making any investment decisions with tax consequences.
Watching the breakeven rates
One way investors can determine whether TIPS or conventional Treasurys may make more sense for their portfolios is to look at what is called the breakeven inflation rate. This is the rate of inflation at which a TIPS and a conventional Treasury of the same maturity would both deliver the same inflation-adjusted return until they mature. For example, if a 5-year TIPS yielded −0.62% while a conventional 5-year Treasury bond paid 2.69% as of April 6, 2022, the breakeven for the 5-year bonds would be 3.31%. If actual inflation exceeds the breakeven rate in the future, the adjustment to the TIPS will eventually provide a higher real return than the conventional bond. However, if inflation comes in lower than the breakeven rate, the conventional bond will provide a better return.
All bonds did poorly in 2022 because interest rates went up due to inflation. That created the weird issue that TIPS did little better than nominal bonds during a big inflationary spike, which was precisely the reason we were supposed to own TIPS. Fact is, when you make a contract for a low return and then returns you can get in the market spike, you take a bath on the contract.
Other than some cash that I've cut back on the last few months, my only fixed income is BND (Vanguard Total Bond Market, duration about 6.6 years). I got hit like everyone else, but I didn't sell as I decided I couldn't time the bond market any better than I could time the stock market (which is to say, not at all). Sure enough, BND bottomed in mid October and is up 8.5% since then, so I'm glad I didn't sell.
[Edit: I'm not a fan of Kitces bond tent. The math has some shortcomings, for instance, the loss of return while building up to the large amount of bonds at the start of retirement is not considered. You either do it in one switch, so you concentrate your SORR to that moment, or you build it up over time, and lose stock returns during the build up. It's been a while since I looked at it, but as I recall, he also compared gliding from 50/50 to 75/25 vs. a static 60/40 portfolio, but that's an unfair comparison - it should have been a static 62.5/37.5 portfolio to be the average of the glide path. The more you look at the schemes like bond tents and buckets, the more you realize that they can hurt you as often as they can help you, there's just no way to know ahead of time what's going to be the best, so I opt for the simple, constant allocation.]
When going with bond funds, it's important to view them differently than equity funds. You're in the bond funds for the fixed income - the dividends (interest payments), not the growth of the share value. For example, having foresight to recognize the situation in 2020-2021 (ultra-low interest rates, everyone caged in their homes for a prolonged time, governments throwing money at people), it wasn't a risky bet to foresee a coming environment that was a perfect storm for high inflation (people suddenly uncaged with huge bounties of money to spend) and buy into a short-term (because interest had nowhere to go but up) TIPS (because...inflation) fund.
Then, reap those great payments over time! If at some point (aka, now...) inflation seems to be abating and interest rates close to peak, perhaps take your TIPS chips off the table and sell the shares for an intermediate term bond fund of choice (aggregate, treasuries). If you happen to sell the shares for a slight loss, so what. That wasn't the goal. You got those great payments over that time. Probably not much of a loss anyway, as bond fund fluctuations are much less volatile than equities. Plus, if it's in the brokerage, you get the loss harvesting and tax benefit there.
That said, some folks just refuse to do the timing and just enjoy their retirement by just sitting in intermediate term bond funds or even in TIPS, just for the peace of mind and protection. They'd rather be at the beach than sitting home trying to optimize every penny, if they don't have to.
@slaufer If you're close to retirement (i.e. within a year or three) there's not much glidepath left. I'd just use the periods to represent that. Use phases of life, just like with the phased expenses. You might be at 60/40 during your earlier go-go period of retirement, slide to 50/50 during your slow-go years, and when you get to the 80s and no-go you may not want to bother with equities at all anymore (unless leaving them behind) and take that piece to do a SPIA, QLAC, or just live off the nice locked-in interest (esp in these days) of long-term treasury bonds.
Glidepath tweaks should be minor and infrequent, once a year while rebalancing, so I don't think there's enough benefit to building this into PRC any more than already available.
@hines202 I assume we're talking about the periods (5) available under FINANCIAL ASSETS> ASSETS AND ALLOCATIONS, correct? If so, I do what Bill describes here - I use each of the five periods (we are just starting retirement now - yay!) to show changes to our overall asset mix. Presently I have it set up in 5 years increments which pretty much takes us through retirement and my end of life (after that asset mix remains static for spouse to her EOL).
@hines202 Yes, that is my plan (as noted above) to use the 5 year breakouts. Before I spent the time and energy (as there are multiple glidepath items), to build it out I wanted to make sure I was not missing prior work/methodology that had been done to model target date funds.
@slaufer Steve - your periods don;t have to be in 5 year increments like mine. I based it on how many years for my life expectancy and it worked out to about 5 periods x 4 years = 20 years (misspoke when I said 5 above). You can obviously modify it to suit your ages/expected lifespan.
Interesting quote from Charlie Munger at their meeting today:
Sometimes portfolio diversification is ‘deworsification,’ Munger says
Diversification has become a standard investing rule to help reduce risk and create a more resilient portfolio, but there is such a thing as overdoing it that investing educators don’t give enough attention to, Munger said.
“One of the inane things that’s taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks,” he said. “That is an insane idea. It’s not that easy to have a vast plethora of good opportunities that are easily identified. And if you’ve only got three, I’d rather be in my best ideas instead of my worst.”
