Bogleheads.org

Hasn't Larry quoted Einsteins quote that "everything should be made as simple as possible, but not simpler"? I think this quote is especially pertinent to this forum. We all agree on the conceptually simple but sometimes behaviorally difficult basics of stay the course, passive investing, ...

Crake, Yes you are on the same page of the play book as me for the most part. Small and value do have higher expected returns and there correlations provide excellent diversification benefit. The above posts indicate that this new profitability premium is negatively correlated to value. So that make...

And I agree with Roy :happy . Although human behavior is amazingly consistent over generations, I have a lot more faith in risk stories than behavioral ones. Although I do think a behavioral component can only help the value story. Of course the longer the period demonstrating a source of return, ev...

Crake, Under your case #1, I believe there is a huge difference between taking on more risk by adding more of the same risk versus adding some of a different risk. There is benefit to diversifying across risk factors. For example, for tilters the benefit of small and value is not just increased expe...

So in the old VG versus DFA debate, does this new factor affect any individual investors thoughts? On the one hand it appears DFA will incorporate this new factor into its screens. On the other hand, this factor appears negatively correlated with value and might make some people more adamant TSMers....

A few questions: Will a value fund that incorporates profitability and / or momentum be able to stay as "valuey"? If a single fund incorporates value, profitability, momentum doesn't it risk becoming a fancy version of a plain vanilla whole market index fund that is more expensive? If earn...

Calm Man, You are correct. There is a potential benefit if you are in a lower tax bracket in the future. Even if you are not though, there is still an advantage to TLH. You have delayed paying the tax and have the benefit of that money staying invested for you instead of paying the tax. This is why ...

Calm Man, When deciding on an advisor, I looked at the AUM fees and the increased ERs of DFA funds. I then tried to quantify the potential benefits of going the advisor route. I feel TLH can yield 0.5-0.7% annually and my AUM fee is about the same. So TLH was a factor that sort of put me over the ad...

I went through the same thought process as Grabiner but came to a different result. I agree; the increased costs are certain and the increased expected returns are only potential and the result of a risk premium. For me tilting isn't just a function of returns, it is also a function of increased por...

I agree, I would love to see an update to Bernstein's Intelligent Asset Allocator. I think 4 Pillars came out after IAA and 4 Pillars subsequently came out with an updated portion. My guess is that WB got a much better response on 4Pillars than IAA and feels the audience is too small for an update t...

I just saw that Gibson has a new 2013 5th edition of his book Asset Allocation: Balancing Financial Risk for sale now. This is an outstanding book on the benefits of multi asset class investing. It doesn't really go much into soecific asset classes, but teaches the reader how to evaluate the potenti...

Question for bsteiner, I agree the 3K offset against current income is not such a big deal. But how bout accumulating carry over losses through accumulation phase, then during decumulation in retirement offsetting all those gains from buying and holding for many years against the losses. More money ...

I don't think you are missing anything at all. TLH I believe is very important and should be done throughout the year. Of course it shouldn't be done so frequently when the losses are too small that the trading costs outweigh the TLH benefits. I don't know how to determine when a loss is large enoug...

All the above efficient frontier graphs are relevant. But for the purposes of this discussion I think what matters is how increasing the number of asset classes in the equity portion of the portfolio gets one closer to the northwest corner for any given stock/bond split. Please refer to the link to ...

Tfb, True that good diversifiers are hard to find. But please see my post above regarding the correlations between market, value, small. Diversifying across risk factors on the equity side is about as potent as it gets. Btw, I believe that international small value is an even more potent diversifier...

I feel several posters are missing the big point. Volatility of individual asset classes is certainly good, especially in a CAPM world where risk is measured by standard deviation. But what matters to the investor is dampening portfolio volatility by combining risky assets to improve portfolio effic...

I don't know the answer, but I would not be surprised if an 80/20 portfolio tilted to small and value has a higher forward looking expected return than a 100% growthy TSM portfolio. I am certain the 80/20 tilted portfolio will be more efficient. Actual past returns of the two portfolios will certain...

UAL, Yes, one must accept volatility for increased returns. But one wants to increase the efficiency of a portfolio by maximizing its return per unit of volatility. By adding volatile weakly or non correlated asset classes to a portfolio, the overall portfolio volatility can be dampened, its efficie...

All that matters is what happens at the portfolio level. Volatility of an individual asset class within the portfolio can be either good or bad, depending on how it mixes with the other portfolio components. Portfolio effect of an individual asset class depends on its returns, volatility, correlatio...

The above benefits of multi asset class investing are also why I believe that true diversification includes diversifying across the risk factors of size and value because of their weak correlation to the market and to each other. Compared to a TSM type portfolio with a higher equity allocation, a ti...

Not lots of funds, but lots of less than perfectly correlated asset classes. The return of a portfolio depends on the returns of its individual components, their individual volatilities, and their correlations. Most all of Gibson's book comes down to one or two charts. He also shows the benefit of m...

Agree with above. First saw it best in first edition of ferri's All About AA. Key is bringing compounded annualized return as close as possible to average annual return. That's why multi asset class investing is a winner. Also well demonstrated in Gibson's Asset Allocation.

Dave

No you wouldn't pay all taxes up front. You would use previous capital losses to offset gains as early as possible and delay the tax hit until later when you have no more losses to offset gains.

Dave

So many people consider TLH to be like an interest free loan from the government. It is true that if you TLH your cost basis becomes lower. But when you enter decumulation phase, the gains in the first shares one sells will be offset by accumulated losses. So the investor will pay no taxes. He doesn...

Assumer,
Your reasoning looks sound. Let me do a little reading and get back to you
Dave

I believe with TLH, you can offset 3000 current income every year on your taxes. But this is not the huge benefit as I see it. If one does TLH throughout the accumulation years he will accumulate losses to offset gains when he sells during the decumulation retirement years. I think this is a potenti...

Steve net, I think your thought process is pretty sound. Of course we can differ on the inputs: increased return of DFA portfolio, AUM fees, difference in ER. But I think your numbers are in the right ballpark. There are other variables to consider that are even harder to quantify: improved portfoli...

I've been pretty aggressive @ 80/20 tilted to small and value. I just took some bonds to pay dad's mortgage off. That will take me to about 90/10. Probably will take me about a year and a half to return to my target AA unless the market rebalances for me

Dave

With regard to investor behavior, I think it is critical to initially set up an AA that the individual rock solid believes in so that he doesn't deviate in the bad times. A good question to ask oneself is "after this portfolio has tanked, will I want to make any changes?" . If the answer i...

I think a Person's answer is so individualized depending on net worth relative to the debt, the AA stock/bond split, and accumulation/decumulation stage. For me, I'm pretty aggressive, so I would rather take from bonds to erase interest bearing debt. Then return to my AA as fast as possible.

Dave

Afan, I think the study you obliquely refer to is relevant. I think that study showed that the only fund company where investors did better than the funds they were invested in was DFA. And that can be attributed to dollar weighted returns and good investor behavior. On a population basis the invest...

Stevenet and Lois C, It was my comment about taxes at the bottom of my last post. I'll elaborate. I'm am among the most ardent believers in market efficiency and passive investing. I also believe in diversifying across risk factors while I believe there is no free lunch. I have the mental capacity, ...

I agree with Lady Geek that one does not need to know a lot. I think Warren Buffet in reference to simple indexing said something to the effect that "when naive investors realize they are naive, they quickly behave very intelligently". But I really feel knowledge is necessary somewhat to p...

Bourg,
I agree. When I mention to people retiring on about 3-4% of accumulated assets annually they look at me like I'm crazy! But "what % of your savings do you want to withdraw to live off per year" can start an enlightening conversation

Dave

I think it is a pretty significant jump from The Bogleheads Guide to The Right Financial Plan. I might recommend first reading Bernstein's Four Pillars of Investing or Swedroe's Wise Investing Made Simple before moving to Swedroe's Right Financial Plan. All the books by Ferri, Bernstein, Swedroe are...

I've actually been thinking about this for a while now. The current thread on the FINRA investor quiz got me thinking I should post on this. When I start talking investing to non Bogleheads, I frequently think to myself that one way to get them to realize the importance of Boglehead concepts would b...

Scary sign that FINRA considers this a reasonable test. Imagine the test Bogleheads would generate. It would consist of meaningful, important, and relevant questions. Just a few examples: What's a fair ER? What % S&P 500 is large cap? When stocks go down, which way does expected return go? How m...

The DFA v. VG / advisor v. No advisor issue can be more complex than just comparing ERs and AUM fees. And I think this is especially true for taxable investors. Because DFA small and value funds are more small and more valuey than their VG counterparts, an investor needs less of these relatively mor...

Does DFA incorporate quality at all into their core funds? I know they are tilted to value and I believe they account for momentum with patient buying and selling.

Dave

I believe specific lot identification is the best. This way an individual can choose which shares to use for different purposes. For example TLH or minimizing a cap gain would probably use HIFO. But other specific lots might be desirable when you only want to experience long term gains and not short...

How does DFA screen for value: P/B only or multiple screens? Do they incorporate quality into their core funds? Is core fund approach the best way to incorporate quality into a value approach? At some point doesn't incorporating quality and momentum turn a value fund into a blend fund? Thanks. Dave

FWIW, I think it is very worthwhile for even the youngest most aggressive investor to hold a small amount of bonds. It will help the investor develop the discipline to rebalance and stick to a plan when crises hit and correlations go to 1. Over the long run I think building these financial muscles w...

Don't know where you can read a study, but I do remember Rick Ferri once writing something to the effect "anything more aggressive than 80/20 just isn't efficient". Hopefully he'll join in with more.

Dave

Try looking at Mark Hebner's book Index Funds. He's a big believer in tilting and diversification. He shows data for a variety of portfolios ranging from all equities down to conservative retirement portfolios. I think the returns and SDs are all listed there. Also Larry Swedroe has a chart in one o...

All the above thoughts are about what I thought. We live in a state with no state income tax, so tax deductibility is not an issue. We've been using the West Virginia plan because of the DFA access. We've been using all equity since the kids are so young. Just gotta get her to see the light to conti...

I'm talking specifically about apples to apples comparison such as investing the money in the same investments either inside a 529 or outside in a personal taxable account. Thanks

Dave

Wife and I having conflict over whether to invest in 529. We have two children ages 4 and 6. I want to invest as much as possible as early as possible and let it grow. Wife says "none of the smart people I know invest in those things". I'm pretty sure there is no good reason for us to not ...

Above EDN mentioned money managers versus wealth managers and their associated costs. He stated that one difference between the two is in tax management of the portfolio. I believe the difference in cost between the two levels of service can easily be covered by compulsive specific lot basis TLH by ...

For me a huge benefit of paying off the mortgage was psychological. With mortgage paid off, I felt more financially strong to withstand the ups and downs of an aggressive asset allocation. To me it didn't really make sense to be paying higher interest on a mortgage than the bond portion of my portfo...

Keith,
We agree. There is no difference between what I said and what you said best I can tell. For purchasing, doesn't matter whether taxable or tax deferred