Asset Allocation Recommendations

1. 1. Warren Buffet - 2015 Chairman\'s Letter

• • 2017 letter, pg 11:**

Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.

By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a long-term investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would have decreased the purchasing-power of the government bond that Protégé and I sold.

I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.

It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.

• • 2013 letter, pg 20:**

90% in S&P 500 index fund (VFIAX) 10% in short-term US Treasury bond fund (VSBSX)

1. 1. Schwab Funds

Using Vanguard Recommended Allocation: Total Bond Market II Index Fund, Total International Bond Index Fund, Short-Term Inflation-Protected Securities Index Fund

Schwab Bond Funds:

 Total bond market index mutual fund: SWAGX (.04%)
 No international bond funds from Schwab, 3rd parties all have high fees (1% or higher)
 TIPS Index mutual fund: SWRSX (.05%)

Schwab stock funds:

 S&P 500 Fund: SWPPX (.03%)
 Small-Cap Index Fund: SWSSX (.05%)
 International Index Fund: SWISX (.06%)

Age 54-58

 35.8 Bonds 25.1, 10.7, 0
 64.2 Stocks

Age 59-63

 44.4 Bonds: 28.6, 12.2, 3.6
 55.6 Stocks

Age 64-68

 56.3 Bonds: 31.9, 13.6, 10.8
 43.7 Stocks

Vanguard Recommendation

 Recommendation:  Total Bond Market II Index Fund, Total International Bond Index Fund, Short-Term Inflation-Protected Securities Index Fund
 Bond Funds:
   Total Bond Market II Index Fund: VBTLX (.05%)
   Total International Bond Index Fund: VTABX (.12%)
   Short-Term Inflation-Protected Securities Index Fund: VTAPX (.07%)
 Stock Funds:
   500 Index Fund: VFIAX (04%)
   Small Cap Growth: VSGAX (.07%)
   Total International: VTIAX (.11%) (Foreign Large Blend, developed and emerging)
 Age 54-58
   35.8 Bonds 25.1, 10.7, 0
   64.2 Stocks
 Age 59-63
   44.4 Bonds: 28.6, 12.2, 3.6
   55.6 Stocks
 Age 64-68
   56.3 Bonds: 31.9, 13.6, 10.8
   43.7 Stocks

Financial Samurai Recommendation

 Bond Funds: Total Bond Market II Index Fund, Total International Bond Index Fund, Short-Term Inflation-Protected Securities Index Fund
 Age 50-65
   30% Bonds 20, 10, 0
   70% Stocks
 Age 65-75
   40% Bonds: 26, 11, 3
   60% Stocks
 Age 75+
   50% Bonds 26, 17, 7
   50% Stocks

Fidelity Retirement Funds Asset Allocation

 Bond Funds: Inflation Protected Bond Fund, Total Bond Market Fund, High Yield & Emerging Market Bond Fund
 Age 55-59
   42% Bonds 15.3%, 22.7%, 3.6%
   58% Stocks
   $2m: 306K, 454K, 72K - reallocation to Bond funds in IBM 401K account
 Age 60-64
   54% Bonds 22.3%, 27.4%, 4.2%
   46% Stock
 Age 65-69
   66% Bonds 39.8%, 31.9%, 5.6%
   34% Stocks
 Age 70+
   75% Bonds  - 35%, 35%, 5%
   25% Stocks